Jim Cramer
Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- which sectors work and which don't in the new market order;
- who to believe about the mortgage mess; and
- how to take the measure of this market.
Credit Crisis or No, Know Your Sectors
Originally published on July 30 at 12:25 p.m. EDT Some of the stocks that are going down simply shouldn't be if we are truly in a credit crisis. Others should be. The drug stocks are great safe havens here, especially those that had picture-perfect quarters like Schering-Plough(SGP Quote - Cramer on SGP - Stock Picks) and Merck(MRK Quote - Cramer on MRK - Stock Picks). The financials, however, all take their cue from the weakest financial. So if Lehman(LEH Quote - Cramer on LEH - Stock Picks) is down a dollar, all the others get sold. That kind of selling is hard to reverse. The decline in the pharma stocks is buyable. The decline in the financials just isn't. It is unfortunate, but we can't be buying the stocks of companies that make loans. And if we already own them? Wait for the bounce and trim so you will be in a position to buy some when they get hit again. I'm still saying that we're oversold enough to hold here. If we hold, we get a bounce from end-of-the-month buying. Some stocks, by the way, are just plain nuts. The insurers should be going up but they are all parts of the ETFs that can knock down the financials. The oil drillers are so right, fundamentally, that they are mouth-watering. The ones that are right? The aerospace and defense and the ag stocks: full bull-market mode. At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.Take Countrywide Over IndyMac
Originally published on July 31 at 1:21 p.m. EDT Who are you going to believe, IndyMac's(IMB Quote - Cramer on IMB - Stock Picks) Michael Perry or Countrywide's(CFC Quote - Cramer on CFC - Stock Picks) Angelo Mozilo? Or can you believe them both? This morning, Perry reported that the default rate on his high-quality big loans is much, much lower than the industry's. But last week Mozilo said that increasingly, it doesn't matter how good the loan is, it could go down. Lots of people are telling me that Countrywide was too negative. To me, it was just telling the truth as it sees it, and I applaud that honesty. It's why I said that Countrywide, after dropping down to $28.25, had reached my downward price target. Now along comes Perry, and he talks about how his default rate is really low, one-sixth the industry rate. He also talked about the surge in defaults, which, to me, takes away from the story and makes me more concerned than he sounds. In fact, Perry gave the same outlook at Mozilo on the timeframe -- 2008 is challenging. Mozilo says it will not be until 2009 that we see a turn. Perry's not that much different. So where is the crux of the argument? It has to do with the kinds of loans that Perry's making, which are the Alt-A kind; not as good as prime, but better than subprime. I no longer trust these loans and I believe that many, perhaps as much as half, will go unpaid. By the way, I believe that all of the 2006 loans that are subprime will go unpaid. All! Because it makes too much sense in a declining housing environment to walk away from your home. (I did a video that said the same earlier today.) If Angelo and I are right, IndyMac, despite the numbers and the statement, is a goner. So why is it up? Because more than half the float is short. I believe that it is even more than that since American Home's(AHM Quote - Cramer on AHM - Stock Picks) bomb, but we don't know yet. Anything short of a total catastrophe was going to drive this sucker higher. Here is what I would do: I would sell IndyMac right now. Or I would go long Countrywide against it. I would then go buy 500 January 30 puts for 8-9, stagger them over the course of the day. That's only way to short something that is so heavily shorted. You get a look at another quarter this way, and you may need to do so. Otherwise, you could get really skunked. Do I not believe what Michael Perry is saying? OK, here's the truth: I don't believe what anyone is saying in this group except Mozilo, because he was extremely honest and abject about how bad things are. Everyone else is just a Pollyanna. Random musings: This ag bull market is something. I can't believe Bunge(BG Quote - Cramer on BG - Stock Picks), Mosaic(MOS Quote - Cramer on MOS - Stock Picks), Deere(DE Quote - Cramer on DE - Stock Picks). This move is amazing, and it is not over. ... I am frantically trying to get my arms around the BE Aerospace(BEAV Quote - Cramer on BEAV - Stock Picks) quarter. Need help, though. At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.Use 1990-1991 as Your Market Yardstick
Originally published on Aug. 1 at 9:59 a.m. EDT No, the consumer isn't dropping off a cliff. We see more spending than we should have. The Coach(COH Quote - Cramer on COH - Stock Picks) quarter shows that. The Nordstrom(JWN Quote - Cramer on JWN - Stock Picks) upgrade the other day makes that clear. People are spending more at Whole Foods(WFMI Quote - Cramer on WFMI - Stock Picks) than I thought possible; that place is expensive. And no, this is not just the rich spending. People are spending across the aboard. Masco(MAS Quote - Cramer on MAS - Stock Picks) and Fortune Brands(FO Quote - Cramer on FO - Stock Picks) put up some decent numbers on the Home Depot(HD Quote - Cramer on HD - Stock Picks) side of things. Auto sales are pretty good. The numbers from Garmin(GRMN Quote - Cramer on GRMN - Stock Picks), which makes a true useless luxury product, are extraordinary, as are the other expensive products you don't need, such as Under Armour(UA Quote - Cramer on UA - Stock Picks) and new deal lululemon(LULU Quote - Cramer on LULU - Stock Picks), whose stuff is really expensive. Commercial spending, construction spending, remains very, very strong. The value of commercial properties keeps going higher. That's because those respond to employment and income growth, and those are still strong. If anything, that's the problem. Employment and income growth aren't weak enough for the Fed to think that the crisis in mortgages -- and it is a crisis -- will hurt the economy. We need bad news to save us! And if you don't have to sell your home and you have a job and you didn't get levered up, you have no idea what the heck this crisis is about. But many people did get leveraged. In the last two years we had about 12 million homes bought, and most of those were bought using mortgages that aren't holding up, particularly because of the home-equity loans piggybacked on them. Can those 12 million home loans and the piggyback HELOCs on top of them topple everything, topple the whole market, every bit of it? Like Mike Farrell at Annaly(NLY Quote - Cramer on NLY - Stock Picks) says -- the only man, by the way, who predicted this whole move, although he predicted it too early -- the answer is that we are not in a 1990-1991 situation where most banks went under and the money center bankers were technically insolvent. But we are worse off than any of the crises since then if the Fed doesn't react, which it did in 1990, although again, it was too late to save so many banks. Now, you have to understand that in the 1990-1991 situation, we went down in the averages about 12%, with the Dow down 10%. Within those averages there were rallies in staples, drugs and anything totally economically insensitive. Nothing else could rally, though. These were not needles in haystacks, but they felt like it at the time. If you think we are not as bad off as in 1990-1991, you can buy in the ag, defense, aerospace, machinery, oil and gas and infrastructure markets. If you think that we are in a 1990-1991 scenario, you can't even do that. What's odd is that this is more of a crisis of stocks and bonds themselves -- the actual paper instruments -- not the corporations behind them, except mortgage companies and homebuilders. I don't think any of the major brokers is "in trouble." Not one. I just think their earnings estimates are way too high, so the stocks are still expensive. I think that the mortgage industry, with the exception of Countrywide(CFC Quote - Cramer on CFC - Stock Picks) and the banks that kept the mortgages on the books -- selling the bad and keeping the good -- is insolvent. The homebuilders with lots of cash on the books, and there are some including Centex(CTX Quote - Cramer on CTX - Stock Picks), should be fine. KB Home(KBH Quote - Cramer on KBH - Stock Picks) and Hovnanian(HOV Quote - Cramer on HOV - Stock Picks) are not fine. Toll(TOL Quote - Cramer on TOL - Stock Picks), Lennar(LEN Quote - Cramer on LEN - Stock Picks), Horton(DHI Quote - Cramer on DHI - Stock Picks) and Pulte(PHM Quote - Cramer on PHM - Stock Picks) could be fine. I can't be more definite than that. I believe that a major national bank that lives by mortgages and savings will, not could, go under. Someone's the Bank of New England of this generation, one that disappeared overnight. But away from that, the corporations under the paper are fine. That was not the case in 1990-1991. Of course, at that time the construction loans and the foreign loans were being wiped out. Here, the mortgage loans from 2005-2006 and the packaged instruments behind them are at stake, plus the corporate paper from the private equity queue. The first group, the mortgages, has extreme credit risk. Again, I am saying that most of the mortgages that were bundled from 2005 and 2006 are worthless. No one else is saying that. But I also don't believe there is huge credit risk to the deals that the private equity companies are trying to sell that now reside at the brokers. So mortgages are real bad, but they reside on the buy side. Hedge funds and foreign banks own a lot of this crummy paper and many hedge funds will follow Sowood and go belly-up. The funds of funds that place money with these bond-oriented funds are furiously pulling money out, so these pieces of paper are going much lower, and more will go under in a vicious circle downward. Corporate debt is not as bad because it doesn't have credit risk like mortgages, but it's still hung. All in all, these two problems are not as bad as what we had in 1990-1991, which is why it is definitely worth it to be long some bull-market stocks against being short the Financial Spyder(XLF Quote - Cramer on XLF - Stock Picks), bank index (BKX) and housing index (HGX), which can still go lower, not appreciably lower but lower. Again, better than 1990-1991. Use that era as your benchmark. Use the 10%-12% drop as a yardstick. Pick in the bull markets. Recognize that in 1990 there was no bottom, even in the high-yielding banks -- their dividends all correctly became suspect -- and be prepared for the worst, knowing that the worst is not as bad as what we saw in 1990. Understand, though, that mortgage loans will be almost impossible to get because the banks will all overcompensate. The Fed must see this. The Fed must cut 100 basis points this year to make it so it is not worth walking away from your house, as it is right now if you bought in 2005 or 2006. Those who were about to get loans from American Home(AHM Quote - Cramer on AHM - Stock Picks) must be thrilled! They can back out of the home deal! And the downward cycle drags on. Random musings: NVR(NVR Quote - Cramer on NVR - Stock Picks) announces a buyback? Oh come on, husband your darned capital. Homebuilders spent a fortune buying back stock last year and it was a huge mistake.Please note that due to factors including low market capitalization and/or insufficient public float, we consider American Home Mortgage to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices. At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.
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