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I think the whole thing was mistaken. I feel even more strongly about that after interviewing Eric Dinallo, the hard-charging New York State insurance regulator, on
last night's "Mad Money." Let's review what is happening here. Eric Dinallo invited Berkshire in because he's in charge of making sure that everyone who is insured by the Gang of Four in New York state has a good chance of being paid off in a default. He is concerned that some of these companies, specifically MBIA, may not be reserved properly to pay off municipal bonds that the rank and file has. He does not want the toxic holders and creators of the CDOs, which are also insured by MBIA, to be bailed out at the expense of the little guys who own municipal bonds. Remember, the issuers of the structured product offloaded the risk on these companies, especially MBIA. Dinallo is adamant, as he said last night, that he does not want profits dividended from the bond insurer up to the holding company -- the stock that trades -- if it means that the insureds could get stiffed. As MBI is still offering a dividend, albeit a smaller one, that seems directly inconsistent with what Dinallo wants. I have no explanation for that. Dinallo would not go into the specifics of the current investigation into MBIA's ridiculous lack of disclosure, but it is known that 's his focus. How can it not be? MBIA told us earlier last year that it hadn't any exposure to the most toxic, levered, CDOs, and then at the end of December it revealed it had huge exposure to this difficult to insure paper. I asked how he could trust a management that did that, and he wouldn't say. I also asked him if he had seen the 10-q for MBI, which offers virtually no disclosure about what it is insuring: vintages of loans, where they are located, what's the nature of the derivatives. Nothing! He seemed perturbed, but nothing more. Which brings me back to the Burnett interview with Jain. Warren Buffett would never, ever buy something if he couldn't get the full exposure and disclosure. None of the Gang of Four gives you the kind of disclosure you could use. Second, Dinallo would not have invited Berkshire in if it didn't want to protect muni bond holders from a possible default by MBI. (The PMI/MGIC portion of the Gang of Four, insure individual mortgages, Ambac and MBI focus on the muni bond and structured product insurance businesses). So why in heck would Buffett want to buy a business with that kind of exposure? Here's what I know. Buffett is interested in partnering with these companies in order to offer them expensive reinsurance on their own product. He does want to take some of the better people from these companies. And not everyone is bordering on insolvent. There are companies in this business, conservative companies, that might be worth buying that Jain may have been referring to. But I do not believe it is any of the Gang of Four. So, if you bought or covered the Gang of Four because of that interview I think you were dead wrong. Watch Dinallo and Jain's actual actions. Berkshire's underwriting nationwide is to compete against MBI and Ambac, not to buy them. Why in heck, if you are competing directly with them and you can take the cream of their business, do you also want the sour milk that comes with them? It makes no sense at all. It's the opposite. Without more disclosure from the Gang of Four, these stocks remain totally univestible. Forget about them. Random musings: Little brief in New York Post talks about how Microsoft ( MSFT) may make public a bid for Yahoo! ( YHOO). It makes sense but I am tired of speculating on a company with crummy fundies. At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.
You Want Some Picks? You Got 'EmOriginally published on Jan. 7 at 1:57 p.m. EST You want something in the financials to take a shot at? You want to buy something down and out that there might be some hope in? (And I am not talking about NYSE Euronext ( NYX), although I think that this is the biggest bet to make right here.) Okay, here it goes: Merrill Lynch ( MER). What's the story? Near 52-week low. Has already raised some capital. Has lots of assets to sell off. And, most important, it is now run by John Thain, who is a really smart, tough guy and a total break with all of the cultures that I have EVER seen at Merrill Lynch. Thain understands what went wrong. He is a visionary about where things are going. He is the ideal man for the job. You have a 2.77% yield that I think is safe. Thain's going to kitchen-sink the losses and lay off tons of people. What's the risk here? I think there could be 5 points down and many, many multiyear points upward. Thain is money. He has always been money. There. That's my pick. Would I buy it myself? NO. But I am answering the demands of readers that I come up with something away from NYX. Now you have my financial. All right, now I will go a step further. You want a down-and-out industrial? I will tell you that GM ( GM) -- which is really moving quickly offshore for sales -- may be the one you want to buy. It has been crushed, cut in half. But it is a much better company than it was last time it got here. It just canceled a big credit line: it didn't need it. The offloading of the majority share of GMAC, which is truly a toxic portfolio, on Cerberus, was a stroke of genius. No one is thinking of buying this stock. No one. (The better piece of paper might be the GPM ( GPM), which is a GM preferred stock that pays you to wait for the turn.) Now you have my industrial. Would I buy this one? If I had a two- to three-year time horizon and like risk? You bet. All right, now tech. Hewlett-Packard ( HPQ) sells at 13 times earnings. This is a company that has consistently made its earnings estimates and has been a very big overseas player that does not deserve to sell at the same P/E as its growth rate. I would like to buy this stock, but I mentioned it on TV, so, as I told AAPlus people, I am frozen. Frankly, it has some immunity at this level. It is still up a lot from its low, but it is only up 8% year over year. That's pretty pathetic given how well it has done as a business. So, Merrill Lynch, GM and HPQ. Down-and-outers worth looking at and worth buying. Random musings: I still like VF ( VFC) here given its preannouncement, but that cohort of Jones ( JNY), Ralph Lauren ( RL) and Liz ( LIZ) is frighteningly awful. Many retailers are trading as if we are going to have failures ... CVS ( CVS) got sold down to $36.50 by desperadoes. Now it is a point from where it was when it was clocked. Patience can be a virtue. At the time of publication, Cramer was long CVS Caremark, Hewlett-Packard and NYSE Euronext.
Stay Away From the Gang of FourOriginally published on Jan. 10 at 9:56 a.m. EST Yesterday's rally began when Erin Burnett, my friend at CNBC, interviewed Ajit Jain, president of Berkshire's ( BRK.A) reinsurance unit, and he said that he is in talks to buy some of the players in the group. That ignited the Gang of Four ( Ambac ( ABK), MBIA ( MBI), MGIC ( MTG) and PMI ( PMI)) and the pin action off that turn spurred a huge short-covering rally first in the financials and then ultimately in the rest of the market.
Cramer: Forget These Four Bond Insurers