When Housing Bottoms, That's the Bottom

Editor's note: Jim Cramer will present his 2009 stock outlook for the first time at TheStreet.com Investment Conference on Saturday, Oct. 25. Limited seating. Act now.

Fix housing, for heaven's sake. Fix it. Use Wells Fargo (WFC - commentary - Cramer's Take) and Wachovia (WB - commentary - Cramer's Take) and Bank of America (BAC - commentary - Cramer's Take) and Citigroup (C - commentary - Cramer's Take) to fix housing.

That's what has to happen. All of the negatives that you see on your screen on the down days are about housing. We need no homes behind built. The foreclosures are running as high as household formation. Thomson Reuters reports today that home prices fell another 0.6% in August and are down 5.9% for the past 12 months. The people who own homes are no longer speculators. It has been 18 months since the last speculators bought.

The ones who are left want to stay. Many do not have equity in their homes and should walk away. But there are only 7 million of them during this period. That's all. That's how many homes were bought with variable mortgages that pretty much assure there was no money down.

We stop these foreclosures, we get a real reversal in stocks.

Let me explain how everything is connected.

The system is still cluttered with every kind of mortgage derivative. Because they are hard to value -- remember TARP -- and because we know they are still going down in value because of house price depreciation, brokers and banks -- they are all the same now, really -- can't lend as much as they would like. As it is, we know that Goldman Sachs (GS - commentary - Cramer's Take) and Morgan Stanley (MS - commentary - Cramer's Take) can't because they are now bank holding companies. We know that Lehman, Bear and Merrill (MER - commentary - Cramer's Take) lent huge amounts against this kind of collateral. They aren't even around to lend. AIG (AIG - commentary - Cramer's Take) is the same, all on the basis of housing.

So, now, if housing keeps going down, these firms have to continue to pull their credit lines to every hedge fund. The hedge funds have to sell their common stock positions in good companies that are doing as well as the commodities they are speculating in. They have to sell National-Oilwell Varco (NOV - commentary - Cramer's Take) and oil, no matter what. They have to sell Deere (DE - commentary - Cramer's Take) and Foster Wheeler (FWLT - commentary - Cramer's Take), no matter what. Sure, the near-term earnings for these companies are horrible. But worse is the velocity of the selling and the fact that if you get in front of the selling, your performance gets worse and you have even more redemptions.

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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