If I were a hedge fund, or more importantly, a bond fund, I would be calling Thornburg Mortgage (TMA - commentary - Cramer's Take) and I would be saying, I want to buy your whole portfolio at 80 cents on the dollar, or some amount that would include a percentage of loss protection that would give me a great return. This morning's downgrade of TMA by Jefferies gives me even more ammo about the idea of a big "clearing" trade where someone takes out all of the stuff that is not defaulting -- very few of TMA mortgages are defaulting -- and gets the situation cleaned up.
If possible I would try to get mortgages that are away from Florida and California, but I would take them too, at a price. Still, if someone like a Pimco were to buy, say $50 billion in AAA and Alt-A paper as part of a fund and even sell calls against one of these derivative indices that seems so forced down by hedge funds, I bet you would get a super return. Pimco could play the role of the Fed that I outlined yesterday, where the Fed could issue 2-year paper and buy these kinds of mortgages. There are other funds big enough to do this, too. Blackstone (BX - commentary - Cramer's Take) could do it. Trust Company of the West could do it. Calpers could do it. Someone that doesn't fear marked-to-market is a natural for this. I think this trade should and could happen, and we would see a major change in this market because the valuations have just gotten out of control to the downside vs. the defaults. All of this gloom has been exacerbated by the insurers, but their defaulting is being built into the market, and it looks like they are not going to default!
You see, there is a very big disconnect in housing paper and housing itself. I just don't believe that a lot of it is as bad as it is being marked and the marked-to-market judgments aren't working well.
Jim Cramer Blog The Charts Are Amazingly Bad 3/5/2008 6:56 AM EST Investors should be negative, but they should also allow for upside since we some time along in the pullback.
Jim Cramer Blog Assessing the Intraday Bounce 3/4/2008 6:12 PM EST When we get lots of bears and a real oversold market, good things can happen for very slim reasons.
Jim Cramer Blog Why I Continue to Stock Pick 3/4/2008 3:50 PM EST The bet by everyone seems to be that nothing good can happen here. But this gives me pause.
At the time of publication, Cramer had no positions in stocks mentioned.
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