- when to look overseas,
- squeezing the shorts, and
- the importance of being well-capitalized.
Time to Start Looking Outside the U.S.
Posted at 11:12 a.m. EDT, July 13, 2009 As I analyzed my daughter's Uniform Gifts to Minors numbers this weekend, I had a sickening feeling of "Why bother to put more money in right now?" The headlines are all so bad. Frankly, every headline is bad. I have not read a single positive piece about the economy in this country in the last month. It is as if nothing good is happening anywhere in the economy. Defaults on the increase, unemployment on the increase, taxes on the increase, orders on the decrease. Why bother?
The Big Squeeze
Posted at 4:32 p.m. EDT, July 15, 2009 Energy and materials? Caterpillar ( CAT)? What the heck? How can these be rallying so hard? Perhaps because they were such great shorts last week. We have seen this pattern a gazillion times. The market gets rocked for four weeks and suddenly the bears come out of the woodwork and begin to short everything that's not nailed down. They use triple-leveraged products. They buy a huge number of puts. They operate on anything and everything. We saw huge put-buying in the Oil Service HOLDRs ( OIH) and the banks. Remember that many of them had broken down to the levels where their secondaries had been put on or below them, with BB&T ( BBT) and Wells Fargo ( WFC) hanging by a thread and PNC ( PNC) really breaking down. Not only that, we had Capital One ( COF) getting crushed. We got an interview with Ken Chenault from American Express ( AMX) where he said simply things aren't getting any better. He would not even endorse the "less bad" thesis. And the presumption going into earnings was that they would be disastrous -- everything from the big guys like Intel ( INTC) to little guys like Bemis ( BMS) and W.W. Grainger ( WWG) to cite two stocks that were better than expected. The Caterpillar and Google ( GOOG) situations were looming large going into yesterday's session. These companies were delivered what looked to be knockout blows by analysts off of weak earnings prospects. The stocks are rocketing today. Can you imagine how many people might have bought near-term puts on these? We also had a situation yesterday where Goldman Sachs ( GS) had to report a huge quarter to beat expectations built up by Meredith Whitney's upgrade. They did it, and initially it didn't matter. Now people are recognizing that $30 per share in earnings could be doable next year because of sharetake. Even I, the biggest bull on the Street, didn't expect this rip-roaring trade today. We've got a real squeeze going here, a gigantic one. In other words, it isn't just buying -- it's short-covering. One last thought: The number of bears shot up huge week over week. That's major. And it helped to get this market roaring today, as these days when bears take action, don't sit on the sidelines. At the time of publication, Cramer was long Goldman Sachs and Wells Fargo.
The Capitalized and the Dead
Posted at 1:37 p.m. EDT, July 16, 2009 JPMorgan Chase ( JPM) CEO Jamie Dimon's admonition about regional banks' coming problems with commercial real estate, highlighted on his excellent conference call this morning, is a reminder that you have to own the best capitalized regionals or you could run afoul his dictum. These include First Niagara ( FNFG), People's United Financial ( PBCT), NewAlliance ( NAL) and Glacier ( GBCI). Increasingly I believe the FDIC will call on these banks to acquire others with bad commercial real estate precisely because they are brimming with capital. The objections to entities buying collapsing banks has to do with weak capitalization structure, particularly when it comes to private equity. Where is commercial real estate clustered? Often it is in small savings and loans that don't matter. Sometimes it is in banks like Corus ( CORS), which is a huge condo developer in Florida. Corus is a helpful analogy here. Even though it is pathetic and is offering the second-highest-yielding CD because it needs to fund its awful operations with hot money. (By the way, if you are desperate for yield, Sheila Bair's allowing Corus to pay these high rates so why not take advantage of them?). There are bidders, shrewd bidders, who are willing to buy the assets of the bank. According to The Wall Street Journal, Starwood Hotels & Resorts ( HOT) is interested and that's a real savvy buyer. The trick is to recognize the walking dead from the robust because the robust will win, especially now that we see the government is willing to let a TARP taker, CIT ( CIT), go belly-up. That could mean that Zions ( ZION), Regions Financial ( RF) or even Suntrust ( STI) could be in the crosshairs of commercial real estate. That's why you stick with the small regionals that have paid back TARP or had no need for it. That way you can sleep at night. At the time of publication, Cramer was long JPMorgan. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Corus 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.