Jim Cramer's Best Blogs - TheStreet

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:

  • the worst-case scenario,
  • our myriad dangers, and
  • the great stock sale.

Click here

for information on

RealMoney

, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

The Worst Case

Originally published on Monday, July 14, at 9:55 a.m.

One-day squeeze in

Fannie Mae

( FRE) and

Freddie Mac

( FRE) or two-?

That's how I feel about it, because these two companies are in the fight of their lives to raise more capital, despite what you hear that they need no more capital and are well capitalized.

Why?

Because of the quarters. Because of the years. Because of the earnings.

There is an element of unwitting trading in these two stocks. The shorts want to break them so they can't raise money because their stocks are too low. The Treasury is willing to buy the stocks if they go lower. So you have a put on the stocks, but you also have a call that is sold against them -- the additional equity needed. Any additional issuance kills the squeeze.

Why cover? Because the companies

do not go bust

on these quarters. In fact, there will be analysts who will see the light in the tunnel because FNM and FRE have instituted a lot of fees and have little competition and will make a lot of money when the Bernanke vintages finish, meaning that when we see the mortgages fully defaulted that were taken during Bernanke's tenure, the pressure and pain will be off. Can they limp to that moment? That's not clear.

Think of it like this. Let's say we don't have any info on how many mortgages are going to default. We know there were maybe 8 million homes that changed hands since Bernanke took over. Let's say half of them involve defaults -- some of them double defaults because of home-equity lines. The average house? Let's call it $300,000, which is high, plus $20,000 per home-equity line to help pay for the first mortgage. In fact, all of these numbers are high.

Now, 4 million homes times $320,000 equals $1.28 trillion. Now back out the recoverables -- how much the banks can get -- of perhaps 50%. Again these are hysterically negative numbers, and you have $600 billion in losses, of which $400 billion have already been taken. How much is Fannie/Freddie? Given that the average home is $300,000 -- the answer is

all of it that isn't currently accounted for

, $200 billion.

Given the fact that we can't include the recoverables ahead, you simply subtract $400 billion in charges from $1.28 trillion and you get $880 billion.

That's probably the worst-case scenario.

Neither company comes even close to having the reserves for those losses.

So, when you do that math, you get something astronomical that FNM and FRE might be on the hook for in the next two years even though after that the money will start flowing back.

The essence of what could be happening is this: The companies are worth investing in if the regulators show forbearance against the next two years of losses. Why two years? Because then you will have two years more of seasoning and we will know definitively the default rates that we lack now.

But that doesn't eliminate the put and call. You get the put if the losses are horrible, but the put only applies to the loans that FNM/FRE packages, not to the common. You get the sold call because every chance these companies get they have to issue equity to meet additional losses. Remember, they are only well capitalized against today's losses, not

future

losses.

Once again, I preface that 4 million defaulted mortgages is probably ridiculously high. But everything has been ridiculous so far in terms of the losses.

I am going with my figures. The Bernanke mortgage exposure can be that big.

And that toxic.

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

The Breadth of the Danger Is Staggering

Originally published on Tuesday, July 15, at 7:09 a.m.

You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved.

First, obviously, are

Fannie Mae

( FRE) and

Freddie Mac

( FRE). We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win.

We all know that

Citigroup

(C) - Get Report

,

Wachovia

(WB) - Get Report

,

Washington Mutual

(WM) - Get Report

and

National City

( NCC) are in trouble.

Bank of America

(BAC) - Get Report

says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?

No revelation that

Lehman

( LEH) or

Merrill's

( MER) in the soup, although I do marvel that at no price do they seem interesting to anyone -- value guys, takeover guys, or acquirers in general. But how about

Comerica

(CMA) - Get Report

,

Regions Financial

(RF) - Get Report

,

Sovereign

( SOV),

Huntington Bancshares

(HBAN) - Get Report

,

Suntrust

(STI) - Get Report

,

Fifth Third

(FITB) - Get Report

,

First Horizon

(FHN) - Get Report

,

Marshall & Ilsley

( MI),

Zions

(ZION) - Get Report

,

Key

(KEY) - Get Report

,

Colonial

( CNB) and

BB&T

(BBT) - Get Report

? Their charts are indicating there is much more devastation ahead. Every one of them is small enough to fail, and no one would give a darn. If the FDIC follows the trail blazed by

IndyMac

( IMB) it would be great because IndyMac Federal isn't foreclosing anymore. Get rid of the foreclosures, get rid of some of the overhang. But is that the plan, or do they have

no place to put the foreclosed loans

?

We know that the Gang of Four --

MBIA

(MBI) - Get Report

,

MGIC

(MTG) - Get Report

,

PMI

( PMI) and

Ambac

( ABK) -- has been obliterated, a long-running saga of puffing by management and disastrous numbers. These companies are important, even if everyone seems to think that they have gone down without much repercussion other than the 40th story about how private mortgage insurers are now raising rates. Golly gee, who is paying them anything? They don't have enough money to pay the bank back for heaven's sake!

For example, they are very important to

AIG

(AIG) - Get Report

, which seems to have found no bottom. None at all. Remember that funny dividend boost at AIG? What was that about?

There are tons of other financial insurers no one's paying attention to that seem to go down pretty constantly. An outfit like

XL

(XL)

seems like it is a wasting asset. Or how about

Genworth

(GNW) - Get Report

, which is selling well below book value?

Then there is everything auto, not just

Ford

(F) - Get Report

and

GM

(GM) - Get Report

(although do you really need anything else to go wrong there?) -- outfits like

Visteon

(VC) - Get Report

or

Autonation

(AN) - Get Report

or

Carmax

( KRX) aren't going to get through this one unscathed.

Or how about the homebuilders? Does anyone think that

Hovnanian

(HOV) - Get Report

,

Lennar

(LEN) - Get Report

,

Pulte

(PHM) - Get Report

and

Horton

(DHI) - Get Report

will all make it? I don't. How about that nifty Lennar upgrade by UBS? Sold to you,

UBS

(UBS) - Get Report

, along with all of the toxic mortgages you STILL OWN!

I am not even going to include the airlines, they are all hopeless in my opinion, except for maybe

Southwest

(LUV) - Get Report

. They are charities.

Other areas have problems -- retail has some busted stocks, and so do restaurants.

Chicos

(CHS) - Get Report

?

Charming Shoppes

(CHRS) - Get Report

? How about

Macy's

(M) - Get Report

-- where's that headed?

Sears

(SHLD)

? OUCH!

You can see some techs folding, but only a handful. Maybe because only

AMD

(AMD) - Get Report

is on the fiscal ropes do people see "

relative strength

" in tech, whatever that means.

The problem is that the dire stocks, the ones I have listed, are so numerous and so concentrated with so little hope for rescue that it is hard to imagine anything but more downside for these stocks and therefore more downside for the rest of the market, simply because they are so glaring, are owned by so many mutual funds and have so many roles to play in the real economy.

We know that things have gotten out of control because the IndyMac collapse -- widely predicted -- used a huge amount of the surplus the FDIC has, suddenly making the safety net seem like a flimsy piece of Brawny.

The bottom line here -- there is too much going wrong right now, too much to put us anywhere near sound footing. I suspect that every rally will be met with selling until we see a multitude of collapses like IndyMac.

I am not going to search for positives in any of these groups yet, and if they rally off the decision by the Treasury to make more explicit the Fannie and Freddie guarantees, I would scale out of them once again on any short squeeze like the one we had at yesterday's opening.

Someone asked me yesterday, "When do we bottom?" I said it wouldn't be until all the banks that have to fail do so and GM files bankruptcy along with Ford. I said it matter-of-factly, because I meant it and because it is obvious.

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

Multiples Are Too Low, Plain and Simple

Originally published on Thursday, July 17, at 9:16 a.m.

The earnings strike back! Or is the glass finally half full? When I look at what

JPMorgan

(JPM) - Get Report

reported and considering what I thought it would report about four months ago, I am amazed at how much I love it now when I would have hated it then.

Those expectations had been lowered so much that even a gloomy statement like the one Jamie Dimon put out -- it is not getting better out there -- isn't bad.

But last night's

VF Corp.

(VFC) - Get Report

and

CSX

(CSX) - Get Report

and today's

United Technologies

tell me that we have gotten far too negative about the world too quickly. I am not saying that things aren't slowing. All of those companies see some areas that are slowing.

I am saying that the world's not ending, and therefore earnings multiples should not go to 10 or 11. Yesterday, going in to VF's quarter, the company was selling at 11 times earnings. Same with United Tech. You have to really do badly to deserve that multiple. Admittedly, CSX's multiple on next year's earnings was 17 going into the quarter, and that's high, but the growth there is 17% and moving up, so it is not unusual. Same with

Danaher

(DHR) - Get Report

for growth, too.

Think about the multiples here. They are what matters at this crunch moment. Don't get too caught up in the gloom that you think that everything deserves a single multiple. It is like what I wrote yesterday morning about how there is cash everywhere but in the banks, and they can't be valued as poorly as they are. I would say the same thing by the way with

Conoco

(COP) - Get Report

and

Exxon

(XOM) - Get Report

. It is inconceivable to me that COP deserves a 6 multiple on next year's earnings as it is getting now, same with

Chevron

(CVX) - Get Report

. Exxon at 8 times earnings? Come on. You have to have oil going to $100 in three months to make that happen, and I just don't see that. I can see $120. I can even see $110 if inventories really balloon

and

Iran says it will be more like North Korea and less like the Taliban.

But those are big assumptions.

The multiples are simply too low for too much of the market. That's the view you need to adopt into the selloffs for all but the banks and brokers. They, after yesterday, might be too expensive!

Random musings

:

Ameritrade

(AMTD) - Get Report

joins

Schwab

(SCHW) - Get Report

with great numbers. No one is talking about this, but it is hard to reconcile in a huge bear market. ... We don't need more housing starts, we need fewer. At this plus-million level, we are going to push out the recovery even further.

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

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.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.