Only Hope for Mortgage Insurers: Short Squeeze

If you are trapped in AMBAC Financial (ABK - commentary - Cramer's Take), MBIA (MBI - commentary - Cramer's Take), PMI (PMI - commentary - Cramer's Take) or MGIC (MGIC - commentary - Cramer's Take), you have to hope for a short squeeze in the next 72 hours.

You need 50 basis points of Fed cuts, you need panicked shorts and you need some sense that the Countrywide rose-colored glasses stay on for a bit.

That's really a tall order, but I see no value in any of these stocks. That doesn't mean they are expensive; it means that I believe they are worthless.

I don't care that ABK is down 47%, that MBI is down 19% -- bargain! -- PMI down 55% and MTG down 66% year over year.

These companies are going to take it on the chin when the brokers and insurance companies write down their portfolios as they will have to (as per the New York Times' Gretchen Morgensen's excellent coverage this weekend on the brokers).

These companies are so on the hook for business and so unable to raise capital that I believe those who believe they have value have to be very confused about what's really going on.

I am widely chided for my "hysterical" Armageddon tape with Erin Burnett on CNBC, but so far I have been born out pretty consistently.

These companies will be next to prove my point. They have largely relied on ratings agencies to determine the insurance they offer the holders of these mortgages, including the unbelievably extended Fannie Mae (FNM - commentary - Cramer's Take). They seem to have not a clue about what happens to AAA mortgages when you layer on home equity, which I believe is the case for 50% of the mortgages that have been taken in the last two years.

I have said over and over again that we are looking at half a trillion in losses from the period 2005 to 2007. Who really knows how much exposure there is here.

Ooops, I do: Too much to stay solvent.

We have had some recognition of the problems with suspended buybacks and cut dividends. But these companies need capital infusions.

Only a sucker would supply capital to these guys. They don't even have a servicing arm, like CFC does, that make them worth something.

Despite their absolutely cool, calm and collected attitudes at these firms, there has to be panic in the halls. They are as underreserved as the S&Ls in 1990, with not life raft anywhere in site.

You are going to get a golden opportunity to sell them this week.

Ready the masts!

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At the time of publication, Cramer had no positions in stocks mentioned.

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