view transcript

Jim Cramer: The behavior towards the financials is stupid. Why? Because Goldman Sachs does not need a yield curve to make a lot of money. Goldman Sachs is now a recurring revenue stream. Citigroup is a worldwide company, does not need yield curve. It has tremendous fees and processing and has a gigantic buyback. JP Morgan's is the finest bank in the world. And I will take my chances with a 3% yield. But there are algorithms which just say, okay look, well when the yield curve flattens or get inverted, you must sell backs. I mean, it is literally, it's like, let me try to analogize. When you're playing fantasy football and you know that you're going up against a team, your players are all going up against really great teams. Well, you gotta sell your players and pick up new players. I mean, it is like that.

Jeff Marks: When you're facing like the Bears defense, you don't want to play, you don't want to star that running back.

Jim Cramer: You don't. And if you do.. people in your league would say, what are you doing? Do you not know anything? And maybe you think you do know something. Remember also Chernobyl, right? My guy says, Jim, I have the best source in the White House. This Soviets can't contain it. I think well that turned out to be wrong. I think that the people who are selling the financials will be wrong.

Investors who sell bank stocks because the U.S. Treasury yield curve has inverted "will be wrong," Jim Cramer says.

"The behavior towards the financials is stupid," Cramer said during an exclusive video-conference call with members of his Action Alerts PLUS club for investors.

Many major banks' stocks fell around 4% during Wednesday's 800-point Dow selloff after the spread between the two- and 10-year U.S. Treasury yields briefly inverted. An inverted yield curve -- where interest rates on long-term bonds drop below those of shorter-term bonds -- has historically meant the U.S. economy is heading into a recession. It's also often meant tough times ahead for banks, which traditionally turn profits by borrowing money short term at low rates and lending it out longer term at higher rates.

Cramer said that's created a knee-jerk selloff for bank stocks whenever the yield curve inverts or comes close to it. "There are algorithms which just say: "OK, look -- when the yield flattens or gets inverted, you must sell banks.'"

But the expert said that big banks like Goldman Sachs (GS - Get Report) , Citigroup (C - Get Report)  and JPMorgan Chase  (JPM - Get Report) no longer rely solely on the spread between long- and short-term rates to turn profits.

"Goldman Sachs does not need a yield curve to make a lot of money -- Goldman Sachs is now a recurring revenue stream," he said. "Citigroup is a worldwide company -- it does not need a yield curve [either]. It has tremendous fees and processing and has a gigantic buyback. JPMorgan is the finest bank in the world, and I will take my chances with [its] 3% yield."

Watch All of Jim's Video-Conference Call

Cramer's video-conference call was only available to members of Cramer's Action Alerts PLUS club for investors, but you can sign up for a free 14-day trial membership and listen to a full replay.

Club membership includes exclusive access to Cramer's private video-conference calls each month, and also includes lots of other benefits, including:

  • A complete rundown of all of stocks that Cramer holds his charitable trust;
  • E-mail alerts that give you a chance to buy or sell any stock before he makes a trade for the trust;
  • Custom research throughout each trading day from Cramer and his team of stock-market analysts. You'll get to see some of the same research that Cramer sees every market day as he and his team make investment decisions.

Click here to join Action Alerts PLUS today!