Good Bonds Are Being Sold at Silly Prices

The competition between bonds and stocks is getting a little crazy. Many of the stocks that seem cheap are backed up by bonds that are ridiculously cheap if you believe the common is whole. Tons of them. Preferreds the same.

If you really think GM (GM - commentary - Cramer's Take) is going to get bailed out or made "whole," go buy the 30-cents-on-the-dollar paper. Maybe it will turn out to be worthless. I saw an upgrade of Darden (DRI - commentary - Cramer's Take) today -- why not buy Darden bonds, the 7.125s of 2016? I see 'em at $80. A better deal.

Or how about the mortgage-backed market? You can find some terrific buys in these with the basic guarantee of the government for 15% to 20%. I don't know if the stock market can possibly beat that return for that level of risk. Munis, too. Rich people should be looking intently at government-obligated bonds that give high returns.

Throughout the world we are seeing gigantic selling, not of just the stock and bonds that companies own, but the stocks and bonds that were bought with a huge amount of leverage. Sellers have about 10 times the bonds we thought possible. They have borrowed gigantically for stock portfolios. They must raise cash to meet the redemptions. They are selling the most liquid, best stuff in order to hold on to losers and strategies that are producing gigantic unrealized losses that they hope will come back.

Meanwhile, the TARP change away from buying the CDOs is a vicious switch that no bank expected, let alone the decision not to buy the whole loan portfolios of Wachovia (WB - commentary - Cramer's Take) and WaMu.

There is one bizarre hope left for this market, and that's the template orchestrated by the desperate people at Treasury, the Fed and AIG (AIG - commentary - Cramer's Take), which is to make good on the insurance of the CDOs that AIG moronically issued, and then buying the CDOs to close the loop.

The issue of course is that the CDOs are worth little if anything because housing is not being cured. So the beating will be phenomenal and therefore will violate TARP's rules, because they aren't supposed to deliberately lose money. As much as we are told that these could represent great buys, I don't know how that can be, because so many of the mortgages from 2005-2007 aren't going to pay off, and you are not able to cherry-pick the AAA tranche, as I understand it. That makes them impenetrable and they must be held to maturity, which is really the only thing they have going for them -- they do mature!

I continue to believe that unless housing is solved, all of this is nonsense, but if the government is going to begin to guarantee the CDOs through making good on the swaps through AIG, it is hard to imagine that you can't do the same thing for MBIA (MBI - commentary - Cramer's Take) and Ambac (ABK - commentary - Cramer's Take) -- the system is already so corrupted, so what's the problem?

At the time of publication, Cramer was long Wachovia.

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