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Cramer on BloggingStocks: Beware the financial dirty dozen

Jim Cramer — 2008-07-03T09:00:00+00:00

Filed under: Ford Motor (F), General Motors (GM), Market matters, Citigroup Inc. (C), Bank of America (BAC), CIT Group (CIT), Merrill Lynch (MER), Federal Natl Mtge (FNM), Amer Intl Group (AIG), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Sell, Cramer on BloggingStocks, MBIA Inc (MBI)

From TheStreet.com Network

TheStreet.com's Jim Cramer says he has no confidence in these hated names, and neither should you.

The financials are flying -- there are finally bids for most of them underneath. Many, including Lehman (NYSE: LEH) (Cramer's Take), are running. What a great time to put the negative cards on the table and put the negatives in perspective. That's right, let's look at the financial Achilles' heels. What could go wrong? In other words, here's the companion piece to Doug Kass' positive conversion. Here's what I am worried about even as Doug thinks everyone's too worried and the bottom is being put in.

To get started, let's look at what's not causing the endless declines in the stocks -- don't worry, we will get to the financial dirty dozen when I finish this preamble.

First, it ain't earnings. Earnings aren't going to be that great. But that's why the S&P is at 14 times. It can go to 12 or 11, or most likely stays at 13-14, but the E goes down (earnings).

Second, it ain't oil. The stocks sensitive to the increase in oil have room to go down, but the price of oil is being factored in slowly but surely.

Third, it isn't inflation or recession. Those two are being baked in each day.

No, it's balance sheets and the plight of the common equity. There are simply too many companies in trouble all at once to let us leave this morass behind us.

Specifically, there are 12 companies that are on my watch list as potential disasters that could wreck the market further. These are companies I have NO CONFIDENCE IN WHATSOEVER, and they must be on everyone's screen. They are what could imperil this market.

So, drum roll, please ...

1. Citigroup (NYSE: C) (Cramer's Take): Here's a company that is in so much trouble that I can't even begin to figure out how to fix it. There was a moment that it could have been unwound, but now your best hope is that it goes to $5 or $6 and we realize it could fail and we let the Saudis bail it out. Don't laugh -- that's the 1990 scenario. Pathetic that history repeats itself, but this is the worst-run major bank in the world. You get what you pay for. A dividend cut is next.

2. General Motors (NYSE: GM) (Cramer's Take): Merrill says what I thought was obvious when I said it the other day -- this one makes too much sense as a bankruptcy. Wrong cars, wrong balance sheet, one of the worst mortgage writers. Sold to you. Dividend cut needed. (Ford (NYSE: F) (Cramer's Take) doesn't have the miserable mortgage business so I am not including it in the dirty dozen).

3. Lehman Brothers: I, too, once blamed the speculators. But I now feel that the CFO firing put an end to that. This company has very little earnings power, and it has very great exposure to mortgages worldwide. It has minimal disclosure. We need a takeunder to remove it from the critical list.

4. Merrill Lynch (NYSE: MER) (Cramer's Take): Without a sale of BlackRock (NYSE: BLK) (Cramer's Take) or Bloomberg, more equity is needed. Nobody wants to put up equity for this one. We still have no disclosure on the last-in-no-out mortgages they wrote. Black box. I don't want to buy a black box. Dividend cut? Good question.

5. Wachovia (NYSE: WB) (Cramer's Take): Rudderless, knee-deep in unreserved California mortgages, still writing the lowest-quality mortgages as recently as Monday! Totally unacceptable. Rumored to be bought -- yeah. At under 10. Urgent dividend cut.

6. Bank of America (NYSE: BAC) (Cramer's Take). They bought a company that could be shut down by indictments -- it has billions and billions of going-bad mortgages. Who the heck would want that? If BAC hadn't bought it, does anyone think it would still be alive? They swallowed the Love Canal when they drank from this well. Dividend cut needed, now.

7. Washington Mutual (NYSE: WM) (Cramer's Take): People are talking about a bottom; I am talking about a company that has the worst collection of mortgages out there, the least verified, the worst quality, with a private-equity firm that will take your equity and crush it. Five-dollar lottery ticket. Nothing more.

8. Fannie Mae (NYSE: FNM) (Cramer's Take): Someone has to take the hit for this market. Some government entity has to bail out homeowners. It will be this one, and see No. 9. Dividend cut needed pronto.

9. Freddie Mac (NYSE: FRE) (Cramer's Take): see No. 8.

10. AIG (NYSE: AIG) (Cramer's Take): Frightening lack of transparency despite their endless attempts to say they are transparent. I think they are on the hook to the monolines and vice versa. Big London book. They need to eliminate that just-raised dividend. Pathetic lack of knowledge of their own book.

11. Cerberus: They are so confident it is scary. They can get away with it -- they are private. But it would be really frightening to read that they are running out of money.

12. The Gang of Four -- PMI (NYSE: PMI) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take) and Ambac (NYSE: ABK) (Cramer's Take): We all know what's happening here -- their insurance might be busted. So many outfits are still valuing their portfolios presuming some insurance protection that when the inevitable happens, we will get a severe hit to everyone's book.

As I mentioned earlier, we are getting some templates -- CIT (NYSE: CIT) (Cramer's Take) -- and some sense of urgency from the government, but not enough yet to make a difference. We need housing depreciation to stop, then the list would go from being Do Not Resuscitate to simply being grave.

But this is your list. Follow it; it is what's ailing this market.

Everything else is just an earnings sideshow.

Random musings: I did a list of the dirty dozen subprime mortgage names last year. Suffice it to say that the damage was unfathomable. The Fed did know nothing. Fortunately, the Fed still has ammo to bring the funds rate down to 0.5. Unfortunately, they switched directions on us.

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

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BusinessWeek: Be wary of stocks under $10

Eliza Popescu — 2008-07-02T15:45:00+00:00

Filed under: Forecasts, Consumer experience, Competitive strategy, Apple Inc (AAPL), Ford Motor (F), Motorola (MOT), Research in Motion (RIMM), Washington Mutual (WM), Economic data, JetBlue Airways (JBLU)

The weak market conditions have caused many stock prices to fall under $10. Not only smaller -- and perhaps lesser known -- stocks trade under $10 these days, but also some big and famous names such as Ford Motor Co. (NYSE: F), Motorola Inc. (NYSE: MOT), Sprint Nextel Corp. (NYSE: S), Washington Mutual Inc. (NYSE: WM) and Del Monte Foods (NYSE: DLM), as well as many airline companies like Northwest Airlines (NYSE: NWA) and JetBlue (NASDAQ: JBLU).

While those names could sound tempting for investors who may think they are cheap, BusinessWeek's Karyn McCormack reminds us that not everything that is cheap is a good bargain, and there are some risks that need to be taken into account.

One common problem for most of these stocks is that they trade under $10 for a reason. That reason is usually hardly any earnings growth, if any at all. And with a weak economy, these companies would have an even harder time to stimulate growth. Add to the mix the fact that institutional investors don't like to touch stocks under $10 and the potential for recovery is not good.

In addition, for companies like Ford and Motorola, the problems compound as they find it difficult to address changing customer demands and needs. After they each focused on one business model such as Ford's focus on sport-utility vehicles and trucks and Motorola's focus on the RAZR wireless handset, they both have lost considerable market share to competitors as they have both failed to respond to changing demands.

But there are still some hopes for these stocks. If we take a look in the past, even Apple Inc. (NASDAQ: AAPL) was under $10 in the summer of 2003 and is currently trading over $170, while Research in Motion Ltd. (NASDAQ: RIMM) dropped under $10 between 2001 to 2003, and now trades for $118.

As a last piece of advice, the article reminds us that there is always a reason for single-digit stocks to be priced at such a low level and it is not something that should pass unobserved for investors. With so much turmoil in the market, it may not be the wisest move to add smaller, riskier stocks.

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

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Option Update; Wachovia and Washington Mutual calls more active than puts: shares near 16-year lows

Paul Foster — 2008-06-30T14:51:00+00:00

Filed under: Wachovia Corp (WB), Washington Mutual (WM), Options

Wachovia (NYSE:WB) is recently down 87c to $15.35. WB call option volume of 56,113 contracts compares to put volume of 37,393 contracts. WB July option implied volatility of 100 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.

Washington Mutual (NYSE:WM) is recently up 20c to $5.00. WM entered into a definite agreement to raise $7 billion through direct sale of securities to TPG Capital and other investors on April 8. WM call option volume of 41,183 contracts compares to put volume of 14,010 contracts. WM July and August option implied volatility of 133 is above its 26-week average of 76 according to Track Data, suggesting larger movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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Cramer on BloggingStocks: The path ahead is down

Jim Cramer — 2008-06-27T09:19:00+00:00

Filed under: Ford Motor (F), General Motors (GM), Market matters, Citigroup Inc. (C), Anheuser-Busch Cos (BUD), Bank of America (BAC), Merrill Lynch (MER), Countrywide Financial (CFC), Wrigley, (Wm) Jr (WWY), Wachovia Corp (WB), Washington Mutual (WM), Cramer on BloggingStocks

From TheStreet.com Network

TheStreet.com's Jim Cramer says with few exceptions, the landscape is littered with corpses.

Sell everything. Nothing's working. Revisit when the prices are adjusted for a big recession, soaring inflation and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: short it.

Are you going to argue with any of that? Do you have a case against it? What's the counter? Takeovers? We've had a couple: Anheuser-Busch (NYSE: BUD) (Cramer's Take), Wrigley (NYSE: WWY) (Cramer's Take). Good if you owned them.

Lower rates? Can the Fed help? We assume the Fed is done. The odds favor higher rates. Bank turnarounds? How, with short-rates going up? With housing prices going down?

Can oil go down? Only with a worldwide crash, and with a worldwide crash, why would we come back at 10,000?

Can the consumer get more liquid? How? Unemployment's going higher. Wages won't go up in that environment.

That's the environment. It's pretty bulletproof when it comes to its logic.

In fact, there's really only one thing that could be wrong with it. EVERYONE AND HIS BROTHER BELIEVES IN IT. It is the most consensus of consensus views.

Sometimes the consensus is dead right: Housing's been going down and everyone knows it's going down, and it keeps going down.

I have said the same thing about Citigroup (NYSE: C) (Cramer's Take) and Wachovia (NYSE: WB) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take) and Bank of America (NYSE: BAC) (Cramer's Take) -- cut the dividend already! -- and GM (NYSE: GM) (Cramer's Take) -- cut the dividend again already! -- and Ford (NYSE: F) (Cramer's Take). That's been right. That's worked.

So you can't just say the consensus is wrong.

The negativity coming into today's session is as thick as I can recall nearing most short-term bottoms. The issue is there is not enough fear out there. Despite the consensus, which obviously creates a need for lower prices before it is worth buying, there isn't a big spike in the VIX, there isn't a gap down, or a crescendo of selling. There isn't even any volume. So while the bearishness is real thick, the selling isn't. (Bloomberg had an excellent piece on this yesterday, noting how much lower the VIX was than at other bottoms.)

I think we lack a climax because we haven't had a climax, some session where people can say, "I don't care how much lower GM goes, I know it is a buy." Same with Citigroup.

That's because unlike most other times in the stock market, the stocks of big companies that are cascading all need capital, and the companies themselves aren't selling anything off except common.

Merrill Lynch (NYSE: MER) (Cramer's Take) should have sold Bloomberg. It is not a core asset. It should have sold its BlackRock (NYSE: BLK) (Cramer's Take) stake. It can make it without it. But no ... nothing.

Citigroup has a lot of core assets, but I now believe that the management of that place is so screwed up it's not redeemable anymore. They just need a 20% Saudi investor. Bank of America will now have to start the process of being the nation's largest mortgage lender in a nation that doesn't have much buying to do. Maybe that will change next year, but by then I suspect the federal government or these state governments will have wiped out Countrywide (NYSE: CFC) (Cramer's Take), which surely would been out of business if BAC had stepped away. The mistakes here have been catastrophic. So what if Wachovia or Washington Mutual have great deposit bases? We know in the end that the FDIC will have to act to protect them and then we will find out what Sheila Bair is made of. I figure she's like everyone else that has surfaced in finance with the feds (except Bob Steel) -- an empty suit.

In the meantime, I cannot disagree with the statement at the top of this piece, except for where it comes to commodity companies that sell into China -- they are the bull market. Anyone who thinks they have to go down too is not in keeping with the way the market works: there's always something that works, it is just the volume of it may be so small that it doesn't matter. That's where we are right now.

All my indicators say that it is extremely dangerous to short here: oscillators, attitudes, polls. They haven't worked either -- or yet. I think the palpable gloom simply does one thing -- it'll be a stair-step down rather than a cascade, where you can make a little money when you are on the stair but then give it back on the next step, until we get to some level that better reflects a GM bankruptcy or a Citigroup collapse, one or the other, or both.

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

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Cramer on BloggingStocks: Do the hawks know the stakes of this game?

Jim Cramer — 2008-06-25T09:13:00+00:00

Filed under: Market matters, Citigroup Inc. (C), Bank of America (BAC), Wachovia Corp (WB), Washington Mutual (WM), Federal Reserve, Cramer on BloggingStocks

From TheStreet.com Network

TheStreet.com's Jim Cramer says a do-nothing Fed signs the death certificate of the banks.

Time for the inflation hawks to recognize the stakes. Throughout the discussion as articulated in the papers and on TV, you hear of only two things with regard to the Fed, that the fundamentals are sound enough to stop cutting and that inflation worries command a shift to higher rates.

In the interest of understanding what has been happening in this market -- an unrelenting decline in all but the oil and fertilizer stocks since the Fed floated this stance -- you have to get your arms around the idea that this is it, an obituary, for all of the banks that need housing prices to increase and bad loans to decrease. Because despite the sound and quite cerebral approach the hawks are taking, unless we get a giant FHA bill out of Congress, you can pretty much be assured that most of the big banks in this country will be so radically under-reserved when they report that we might as well just give up on them.

How about that bill? It seems suddenly likely and it is important, I am not denying it. If we could get the FHA to have $300 billion in lending capacity and we agree that the FHA is basically going to have to take a beating, than you can make a case that we are only about a year away from a turn -- that was the tenor of the CSFB housing upgrade story yesterday, although it didn't rely on the FHA much at all in its prognostications.

(Amazingly, the FHA has taken a lead role, as the CSFB piece explains well, in bailing out the captive homebuilder loan operations by issuing exactly the kind of no-money-down junk that got us in trouble in the first place. It is pretty astoundingly stupid.)

But the FHA is no substitute for the reliquification that is needed to save Bank of America (NYSE: BAC) (Cramer's Take), WaMu (NYSE: WM) (Cramer's Take), Wachovia (NYSE: WB) (Cramer's Take) and Citigroup (NYSE: C) (Cramer's Take). If you were on their boards, you would be at the Fed, saying, "If you just give us 0.5% on the rates, we can invest that money at, say, 1.5% on the curve and rebuild our equity."

And that's the real cost of today's discussion. When the Fed says it is done, that closes the remaining door for banks to raise money. Now all they will have is the hope that there is still enough stupid value and sovereign money in the pipe to do more equity rounds.

Given the inflation is mostly oil- and ethanol-based, I always want to ask these inflation hawks what they think the impact will be on oil if we raise rates here, given that we are not the swing user of oil? I know what a cessation of rate cuts will mean to the banking system, do the hawks know what it will mean to oil-based inflation?

I know that WaMu and BAC and C and Wachovia have a far greater likelihood to go under if the Fed stops cutting, do they know what it will mean to corn-based inflation?

I keep waiting to hear what the hawks have in store for us if the Fed switches, because I have a real good idea what the bears will do with the banking stocks with this new stance.

When I talked yesterday with Erin Burnett -- who still thinks I am too gloomy about the banks -- I realized that it just might be too late and we have to contemplate a world where the big banks simply take on the role of Manufacturers Hanover and Chemical and Security Pacific and Valley National and Rainier and First Republic and M Corp. and all of the other banks that had to be subsumed.

If that's the case, we are most surely not done going down. We will get an oversold bounce as the hawks rejoice, and then we'll get an economy that, with the help of our worldwide partners who are also raising rates, ratchets down the market a quick 10%, not the 5% that I am looking for.

I know, no solace.

But it is what the hawks want. And today it looks like they are going to get their way.

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

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Cramer on BloggingStocks: JP Morgan made a huge mistake

Jim Cramer — 2008-06-20T08:57:00+00:00

Filed under: Industry, Market matters, JPMorgan Chase (JPM), Bank of America (BAC), Merrill Lynch (MER), Countrywide Financial (CFC), Goldman Sachs Group (GS), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Sell, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.

How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.

We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.

The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!

The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.

Worse still, judging by the Goldman Sachs call (NYSE: GS) (Cramer's Take), JPMorgan didn't pick up much from the point of view of clearing and prime brokerage. I am really worried JPM got nothing from this deal.

JPM is adamant that it got a lot out of the deal, which would imply that I am totally wrong. I can't buy that. Sorry. Not after what we have seen from the other companies that have similar vintages.

Second, it's a really bad sign for the next shotgun acquirers. Without insurance from the government for all of these bad portfolios, it simply isn't worth it to call the government and say "I want Nat City (NYSE: NCC) (Cramer's Take)," or "I want Washington Mutual (NYSE: WM) (Cramer's Take)."

It also makes me think that Countrywide Financial's (NYSE: CFC) (Cramer's Take) balance sheet will really impair Bank of America (NYSE: BAC) (Cramer's Take). And I simply don't have any idea how Wachovia (NYSE: WB) (Cramer's Take) can make it in its current form.

Everyone is way too bullish on these companies. They should all be sold. Period.

Random musings: It is time to reassess the negative view of gold. The Fed isn't tightening, which is what caused gold to go down. That was a canard. The reversal in these banks is no doubt freaking the Fed out. The idea of raising rates takes away the one reason why you would want to invest in banks: the yield curve allowing the banks to refinance. That logic is sheer lunacy.

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RELATED LINKS:
Bolling: After Lehman Call, Bet on GS, JPM
Cramer: Bear Arrest Could Scare Hedge Funds Straight
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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. At the time of publication, Cramer was long Goldman Sachs.

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As Washington Mutual cuts more jobs, banking falls apart again

Douglas McIntyre — 2008-06-20T08:45:00+00:00

Filed under: Analyst reports, Forecasts, Industry, Short stories, Citigroup Inc. (C), Bank of America (BAC), Morgan Stanley (MS), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH)

Washington Mutual (NYSE: WM) is having such trouble that it will lay-off another 1,200 people.

According to Reuters, "In an e-mail, Washington Mutual said it was cutting jobs that support its home lending unit, centralizing some support functions, and focusing on 'mission-critical activities.'" The announcement was part of a cascade of tough news for financial companies.

Not only have Lehman (NYSE: LEH) and Morgan Stanley (NYSE: MS) posted poor results, but Citigroup (NYSE:C) said its expected more write-offs through the end of the year. The head of hedge fund Paulson & Co. expects total losses at banks to hit $1.3 trillion, with two-thirds of it yet to come.

Short interest in most large financial companies moved up sharply in the period ending June 15. Shares short in Wachovia (NYSE: WB) moved up 26.2 million to 177.4 million. Short interest in Bank of America (NYSE: BAC) jumped 18.2 million to 82.7 million.

Most of this means that bank, brokerage and insurance shares could be much lower at the end of 2008. Many already trade at 52-week lows, but if losses mount, they will have to raise more money, and that means dilution.

Citigroup trades for under $20 in premarket action. As a bellwether for the industry, who would be surprised to see it at $10?

Douglas A. McIntyre is an editor at 247wallst.com.

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Before the bell: Oil, financials woes send futures lower

Melly Alazraki — 2008-06-20T07:44:00+00:00

Filed under: Before the bell, Deals, Yahoo! (YHOO), Market matters, Washington Mutual (WM), UAL Corp (UAUA), Oil

Stock futures were lower early Friday as investors seemed concerned about oil prices ahead of a weekend summit in Jeddah, Saudi Arabia. Meanwhile, financials kept the headlines this morning with Washington Mutual and airlines announcing jobs and cost cuts the main story there. It appears that the last day of this week might see some losses before heading into next week and the Federal Reserve meeting.

On Thrusday, stocks managed to finish the session higher after wobbly trading as oil prices dropped and Citigroup announced further writedowns. The Dow industrials ended 34 points, or 0.28%, higher, the S&P 500 added 5 points, or 0.38%, and the Nasdaq composite climbed 32 points, or 1.33%.

As there are no economic reports due today, investors will eye oil prices after crude-oil futures declined $5 a barrel Thursday following news that China is raising retail fuel prices starting Friday. As countries reduce subsidies for gas, many believe it could slow demand. This morning, oil prices traded a little higher at mid $132 per barrel.

Washington Mutual (NYSE: WM) said late Thursday that it's cutting 1,200 more jobs, mostly in areas that have been hit hard by the mortgage crisis as the savings and loan institution incurs further losses tied to subprime home mortgages. WaMu stock is down over 1% in premarket trading.

Continental (NYSE: CAL) and UAL Corp.'s (NASDAQ: UAUA) United Airlines announced Thursday a marketing alliance Thursday that may help raise revenue to offset rising fuel costs. Both stocks are down over 8% and over 2% respectively in premaket trading.

Yahoo! Inc. (NASDAQ: YHOO) may also be in the spotlight after the Wall Street Journal reported it is planning a major reorganization of its business and could announce it as early as next week.

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Goldman is golden

Todd Harrison — 2008-06-19T17:23:00+00:00

Filed under: Earnings reports, Good news, Bad news, International Business Machines (IBM), Goldman Sachs Group (GS), Wachovia Corp (WB), Washington Mutual (WM)

Minyanville's Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

Earlier in the week, I noted that Goldman Sachs (NYSE: GS) was well positioned to capitalize on what's happening in the financial services space. And nowhere is that becoming more clear than in the advice it's offering and capital raises it's conducting for troubled institutions like Fifth Third Bankcorp (NASDAQ: FITB), Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM).

Like looking to IBM (NYSE: IBM) for your office computer needs in the old days, Goldman is now the obvious choice if you're a bank CEO under siege.

But this may be a short-term benefit for Goldman, as the excessive concentration of business in one firm ultimately puts that firm's whole franchise at risk. If the Goldman brand is to maintain value with investors, it must become increasingly selective as to who it sponsors. But being choosy puts clients at risk.

Position in GS options

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California bankin' with Wachovia

Todd Harrison — 2008-06-17T15:42:00+00:00

Filed under: Countrywide Financial (CFC), Wachovia Corp (WB), Washington Mutual (WM), Housing

Minyanville's wise professor, Mark Bloudek, dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

I've been doing precious little in this market, but one stock I've been tracking closely is Wachovia Corp. (NYSE: WB). Why would I pay more mind to Wachovia than to other banks? Because it bought Golden West Financial in May of 2006 for $25 billion. And where did Golden West have most of its exposure? That's right, California.

Last night I was looking through the median home price data in the Multiple Listing Service (MLS) in various California cities and noticed some shocking price drops. The median home price offers in San Francisco dropped $10,000 in one week. Ditto for Orange County. In Los Angeles, the figure was a startling $13,000. I went back to check when the market topped in these areas and found that every one of them peaked in -- drum roll, please -- May of 2006.

When the mortgage crisis first started, the theme I used to locate short opportunities was California exposure. Two companies that came to mind in the early days were Washington Mutual (NYSE: WM) and Countrywide (NYSE: CFC).

In terms of identifying a trading opportunity, the question with Wachovia is, how much has been priced in since declining precipitously from early May? And can Wachovia remain a standalone bank in the face of rapidly declining asset (read: home) prices in California after its acquisition of Golden West? Finally, is Wachovia the weakest of the big banks?

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Cramer on BloggingStocks: When banks won't buy banks

Jim Cramer — 2008-06-13T09:40:00+00:00

Filed under: Deals, Market matters, JPMorgan Chase (JPM), Bank of America (BAC), Countrywide Financial (CFC), Washington Mutual (WM), Cramer on BloggingStocks

TheStreet.com's Jim Cramer says that rather than merging, these banks will have to raise money through dilutive offerings.

The big difference between 1990s bank implosion and this one is that nobody at other banks sees any value in owning the ones that are faltering.

Key (NYSE: KEY) (Cramer's Take) is the latest example. Key's everywhere, it is grandfathered to be in every state. You would think there was some bank out there that would want it. Nope. No one. So they have to do this down round that destroys the common. Nobody wants Sovereign (NYSE: SOV) (Cramer's Take) either. Or Nat City (NYSE: NCC) (Cramer's Take). Or Washington Mutual (NYSE: WM) (Cramer's Take). The latter's really interesting now that Hudson City (NYSE: HCBK) (Cramer's Take) has passed it in market size because it says that all of those branches and all of that deposit base just doesn't mean anything. Or worse, the losses are so bad that unless the Fed takes the losses and puts them on its balance sheet, there can be no consolidation.

Yet consolidation is the only way to go. Now, we are much more laissez-faire then we were in 1990. The administration then felt engaged to move quickly to set up mergers instead of the charade of down rounds. I call them charades because none of them yet has produced a return for anyone who has put the money up.

Bank of America's (NYSE: BAC) (Cramer's Take) Countrywide (NYSE: CFC) (Cramer's Take) charade is the biggest of all. I make it 50-50 that CFC brings down BAC. I am not kidding. That's how badly that deal was thought out and how much bad product there is on CFC's books.

Bear wasn't a bank. Its failure was about counter party risk, basically whether Bear could take down JPMorgan (NYSE: JPM) (Cramer's Take), which was on the hook for the other side for a bunch of Bear trades, plus the Bear portfolio, which I am told was the worst of the worst.

Banks, on the other hand, do have worthwhile deposit bases. You can see that if the Resolution Trust for mortgages had been set up, the mergers would have occurred already with the surviving bank coming out strong and the defaults on the Fed's balance sheets.

Without it we are Japan, keeping everyone afloat.

I expect many more Key banks. The only way out of this jam right now is to hope that the value funds don't have their money taken away through horrid performance.

Then we will be okay. But it will be elongated and stubborn and not nearly done as we still don't know what properties were insured by insurance that is running out, and we don't know HELOC dispersal and losses by geography and vintage.

Too many wide open questions. Just think about who is the next Key and you won't make a mistake next time.

Random musings: Doug's dead right about Lehman's prospects as he has been all along.

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RELATED LINKS:
The Five Dumbest Things on Wall Street This Week: June 13
Key Takes a Charge, Raises Capital
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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. At the time of publication, Cramer had no positions in the stocks mentioned.

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Cramer on BloggingStocks: An awful moment might offer some buys

Jim Cramer — 2008-06-12T09:33:00+00:00

Filed under: Deals, Market matters, Anheuser-Busch Cos (BUD), Federal Natl Mtge (FNM), Countrywide Financial (CFC), Amer Intl Group (AIG), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Buy, Stocks to Sell, Cramer on BloggingStocks, Potash Corp. of Saskatchewan (POT)

TheStreet.com's Jim Cramer says the market's a mess, but the S&P oscillator and buyout offers could give an opportunity for trades.

Here we are again. Another unfathomable moment to buy stocks.

You have the financials just falling apart at the seams.

Oil and the grains are out of control.

The Fed chairman and the Treasury secretary have declared the worst is over even as we await the demise of a half-dozen banks, and we question the solvency of Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). The only stocks working are Mosaic (NYSE: MOS) (Cramer's Take), Agrium (NYSE: AGU) (Cramer's Take), Potash (NYSE: POT) (Cramer's Take) and a handful of natural gas companies.

It's crazy out there.

And yet my best indicator, the Standard & Poor's oscillator, which you can order from their Web site, is saying you cannot be short here and should be doing some buying. The oscillator, when it has been at minus 5, has called a bottom almost every time in the last decade, plus or minus a day or two, and a percent or even two, and I have long since learned not to see through it.

Look, let's be honest. It is almost impossible to be bullish here. There's nothing good happening at all. But I can make a valuation case for much of this market because of that. Of course, it is anecdotal, but consider today's news story about Anheuser-Busch (NYSE: BUD) (Cramer's Take). Sure, the $46.4 billion bid is a 35% premium to the 30-day average, as the Journal points out, but InBev is buying this worldwide company for a song relative to five years ago because of the weak dollar.

There are so many BUDs out there that you have to ask whether we couldn't see more of them. We have had a couple. I expected a torrent and I haven't gotten it. But the point is larger: stocks are cheap, and in euro or yen or zloty or whatever terms, they are dirt-cheap.

No, I am not foolish enough to "like" this market. I am saying I respect my oversold indicators. And I am going to put my spare cash that I have in Action Alerts PLUS -- and I have been raising cash -- to work today and tomorrow because of that oscillator.

Random musings: Obama adviser story says it all about both FNM and Countrywide (NYSE: CFC) (Cramer's Take), two total ne'er-do-wells. ... If Lehman (NYSE: LEH) (Cramer's Take) catches a bid today, the market will rock. That's become the key stock. ... Washington Mutual (NYSE: WM) (Cramer's Take) and AIG (NYSE: AIG) (Cramer's Take) boards will be sued, I predict, if they keep these menaces at the helm. ... The CSX (NYSE: CSX) (Cramer's Take) ruling bugs me. If they violated the law, why not just stop them? But Judge Kaplan's real smart, so he must know what he is doing.

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RELATED LINKS:
Anheuser-Busch Shares Frothy on Bid News
How Oil and Water Futures Affect Ag Stocks
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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. At the time of publication, Cramer had no positions in the stocks mentioned.

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Option Update: Washington Mutual volatility elevated at 124

Paul Foster — 2008-06-10T16:00:00+00:00

Filed under: Morgan Stanley (MS), Washington Mutual (WM), Options

Washington Mutual (NYSE: WM) is recently up 76 cents to $7.01. WM entered into a definite agreement to raise $7 billion through direct sale of securities to TPG Capital and other investors on April 8. WM June 7 straddle is priced at $1.34, WM July 7 straddle is priced at $2.40. WM July option implied volatility of 124 is above its 26-week average of 71 according to Track Data, suggesting larger movement.

Morgan Stanley (NYSE: MS) is recently up 35 cents to $39.77. MS is scheduled to report Q2 EPS on June 18. MS June option implied volatility is at 67; July is at 51; above its 26-week average of 45 according to Track Data, suggesting larger price risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Cramer on BloggingStocks: The Fed and Treasury fiddle as markets burn

Jim Cramer — 2008-06-10T08:53:00+00:00

Filed under: Market matters, JPMorgan Chase (JPM), Washington Mutual (WM), Lehman Br Holdings (LEH), Federal Reserve, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says constant vacillations and inconsistent messages have conspired to extend this crisis.

There was a reason to go ballistic. The financial system was falling apart because of bad loans that have since been magnified by huge leverage and dubious dividends.

And here we are, more than a year into the crisis, and the Federal Reserve and Treasury still refuse to admit the obvious, despite hideous data every day -- yesterday Lehman (NYSE: LEH) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), today UBS (NYSE: UBS) (Cramer's Take) -- that something has to give. We are either going to be worried about a housing recession or worried about inflation. We cannot be worried about both. Because of this half-in/half-out viewpoint, we have continually failed to address either problem.

Last year was the year to cut and cut big to get refinancings done and allow banks to build capital by playing the yield curve, a la 1990. They blew that. They were worried about inflation. This year you either have to take a severe recession and just crush American business so it uses less energy and crush the American homeowner so he can't pay and then merge all of the banks, or you say we are going to solve the recession/housing conundrum first and address the inflation we can address: ethanol-based food inflation. You cannot do both! You have to take them sequentially.

The reason we are in this jam is because Treasury is back on the all-is-well kick and the Federal Reserve chairman has never to date addressed the cause and effect or endless losses of the banking system.

It's so bad that the new wrinkle is that JPMorgan's (NYSE: JPM) (Cramer's Take) in big trouble from Bear and the losses will be very, very grave. That's why that stock's been crushed of late.

I can barely read the papers without thinking how indecisive and unwilling anyone in government is willing to admit we have to do one or the other. Or that we can stamp out food-based inflation, ex-drought, and just hope for the best when it comes to turning housing depreciation around.

It is all surreal. And all bad.

Fortunately because of their indecision, we have had a bull market in the energy and energy-related goodies that have to go higher with the commodity. If Bernanke wants to raise interest rates to kill that and to create mass unemployment, that's his prerogative. It seems like he vacillates daily.

He and Treasury either don't get it, or don't want to get it. You need to destroy -- and I mean destroy, and make people so poor they can't afford energy and the marginal guy defaults -- to knock out inflation. Or you get the housing market to stabilize with lower rates and then you go after inflation with an eye toward destroying the ethanol lobby.

You can't have your anti-inflation cake and good employment growth and solid home prices and eat it too. Now is that so hard?

For these guys, who must have seen the same data I have, given how clued in they claim to be, it shouldn't be.

But it has been. And it is making for a nonsensical policy that seeks to create inflation and kill it at the same time. What will happen with this combination is inflation and recession, the worst alternative.

Yet it is the one they are choosing. Shame on them for not having the guts to recognize or to admit that you have to cure one before the other.

RELATED LINKS:

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

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Answers I Really Wanna Know...

Todd Harrison — 2008-06-09T16:01:00+00:00

Filed under: Washington Mutual (WM), Lehman Br Holdings (LEH), Bear Stearns Cos (BSC)

Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.

If Lehman (LEH) isn't the second coming of Bear Stearns, won't "sell the rumor, buy the news" come into play?

Why can't I shake the sense that a serious downside dislocation is lurking in the wings this summer?

Given the massive two-sided directional potential, have you defined your risk (both ways) in kind?

After all, doesn't setting stops remove emotion?

Another day, another dime (10%) for WaMu (WM) the killer whale?

What does it say that the New York Stock Exchange internals are still flat to the share?
The kid' from Oakland - what did you expect?

How could it possibly take me this long to see Charlie Wilson's War?

R.P.

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Option Update; Washington Mutual option prices Elevated; shares near 16-year low

Paul Foster — 2008-06-09T15:17:00+00:00

Filed under: Washington Mutual (WM), Options

Washington Mutual (NYSE-WM) is recently down 82c to $6.71 after UBS forecast several years of higher than expected losses at the bank. WM call option volume of 52,152 contracts compares to put volume of 59,413 contracts. WM June 7 straddle is priced at $1.36, WM July 7 straddle is priced at $2.35 according to Track Data, suggesting larger movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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Cramer on BloggingStocks: Questions swirl around Lehman's capital raise

Jim Cramer — 2008-06-09T09:00:00+00:00

Filed under: Market matters, JPMorgan Chase (JPM), Bank of America (BAC), Merrill Lynch (MER), Countrywide Financial (CFC), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Buy, Stocks to Sell, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says that with this bank going back to the well, there are too many questions to risk buying in this space.

Why doesn't Lehman (NYSE: LEH) (Cramer's Take) raise $15 billion? Or $20 billion. How about $30 billion?

Would it then not have to come back to the market? Maybe for $40 billion we could lose what has become a cancer on the market.

The question we all must ask this morning is how bad are the portfolios that these firms are stuck with, and how bad is every attempt to undo them? Where did they come from? Who put them into these bonds? Which clients dumped them on Lehman? Who allowed this? Have they been fired? Why did the firm exude any confidence? Why did it hold on to this stuff for so long? How undercapitalized was it really?

All of these things spring to mind because the previous capital raise, the preferred raise, clearly meant nothing. No more than the raises that Merrill (NYSE: MER) (Cramer's Take) has done and will no doubt have to do more of.

It's the denials that get me. Or the "soft denials," the ones that tell us, "Look, things are fine." Because that's all quicksand.

Here's the rub with this era. Everyone who has been in trouble stays in trouble. Bank of America (NYSE: BAC) (Cramer's Take), with its ludicrous buy of Countrywide (NYSE: CFC) (Cramer's Take), that could actually sink this great bank; Wachovia (NYSE: WB) (Cramer's Take); National City (NYSE: NCC) (Cramer's Take); Washington Mutual (NYSE: WM) (Cramer's Take). They are all still in need of capital. Because if you are a regulated business, you can't hedge this stuff properly and you need to raise capital, and no one wants these bonds -- whatever the heck's in there -- so more money needs to be raised.

We have lacked any transparency about what's in these portfolios. We don't know what JPMorgan (NYSE: JPM) (Cramer's Take) bought from Bear. We don't know what Lehman owns. 2006 California HELOC? Brokered loans from Novastar? Fremont General no-doc paper? How bad can it be? We don't have a clue.

We do know that there are $480 billion in losses written off and we are still nowhere, including Lehman.

So, these "fund raisings" mean nothing to me.

Here's the new rule of thumb I am using: If an institution needs capital, sell it. Let the dumb institutional and mutual fund chumps do the buying. I can't find a single one of these infusion situations that doesn't need more infusions. Why be a banking piñata?

Beats the heck out of me.

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Pre-market movers: LEH, MER, NOK, WM

Douglas McIntyre — 2008-06-09T07:54:00+00:00

Filed under: Before the bell, Nokia Corp. (NOK), Merrill Lynch (MER), Lennar Corp'A' (LEN), Washington Mutual (WM)

Lehman (NYSE: LEH) is off 8% on bad earnings.

Merril Lynch (NYSE: MER) is off almost 3% on concerns it may post large losses.

Washington Mutual (NYSE: WM) is up about 3% on what seems to be a dead-cat bounce from last week's lows.

Nokia (NYSE: NOK) is up over 2% probably on news that WiMax patent holders are creating a pool to accelerate adoption.

Stocks may trade differently in the pre-market than they do in the regular session.

Douglas A. McIntyre is an editor at 247wallst.com.

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TPG - rounding up $7 billion for financial services fund

Tom Taulli — 2008-05-30T10:15:00+00:00

Filed under: Private equity, Merrill Lynch (MER), Washington Mutual (WM)

Back in the 1980s, David Bonderman was the chief dealmaker for Robert Bass, a Texan billionaire. He helped to structure the $550 million buyout of American Savings and Loan Association of California, which was caught in the S&L morass. It was a complex deal, requiring lots of negotiations with federal regulators. But it ultimately turned out to be a great investment. In fact, the bank became a vehicle to finance other deals.

Well, Bonderman is coming back to the future. Now, as the chief of TPG, he's one of the top players in private equity. And he wants to do some finance deals. To this end, he's raising $7 billion for a financial service fund. The investments will range from minority stakes to control situations.

Actually, Bonderman has already been busy with bank deals. For example, he recently assembled the $7 billion equity infusion for Washington Mutual (NYSE: WM). He also approached Merrill Lynch (NYSE: MER) to do an investment, which, so far, hasn't gone anywhere.

Yet, there are many financial institutions that need cash. Moreover, having TPG as a partner is usually a good thing.

As should be no surprise, it looks like TPG is getting traction on the capital raise, with commitments from the New Jersey State Investment Council and even the government of Singapore.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

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