cramer says buy the financials. the fed's gonna save them
Get Ready for the Crisis the Fed Faces
By James J. Cramer
RealMoney.com Columnist
4/28/2005 3:09 PM EDT
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Market Analysis
# If the Fed stays hawkish, it will put Ford and GM out of business, and it doesn't want that.
# We could be in for a mixed 1998-2001 scenario, where the Fed has to save companies even though it wants to go nuts.
# Back then, you needed financials and bulletproof food and drug stocks, and they should be right now.
Look, it's all about credit and liquidity, not inflation and rising home prices. That's what the Federal Reserve has to target. If I were the Fed right now, I would be checking to see how Visteon (VC:NYSE - commentary - research) and Delphi (DPH:NYSE - commentary - research) are doing in the credit markets, not the equity markets. I would be checking commercial paper availability for these companies.
I would be doing that because they are a precursor to the much larger issue, the looming crises in Ford (F:NYSE - commentary - research) and General Motors (GM:NYSE - commentary - research).
You see, it doesn't matter how high or low you take the short rates. At a certain point, nobody's going to lend to Ford and General Motors. The commercial paper that these companies need is going to vanish. And with it will go the equity, the jobs and the bonds that stand behind the companies. That's not something that Alan Greenspan wants to be remembered by.
It is true that we have some inflation in the system, no doubt about it. It is true that our current accounts deficit is too high. It is true that we have speculators in the home business.
But there is a gathering sense in the credit markets right now that if the Fed stays hawkish here, GM and Ford will go under. Yes, go under. That can happen. Right now, the only real hole in the system seems to be with a couple of Puerto Rican banks. We can handle that.
We can't handle, however, the wipe-out of GM and Ford. Not now. These are not United Airlines and U.S. Air. We are not far enough along in the U.S. economy transition to be able to withstand the collapse of both companies. And believe me, despite the monster increase in short positions at GM -- something that is very costly, given the dividend that the shorts have to pay -- we are nowhere near hedged out as a system.
That's why I continue to believe that we could be in for a mixed 1998-2001 scenario, where the Fed wants to go nuts (2001) but will have to blink to save GM and Ford as it had to save Merrill Lynch, Bankers Trust and Smith Barney, or whoever else was on the hook to Long Term Capital.
Lack of credit, not a surfeit of inflation, which tends to be a lagging indicator anyway, is all that the Fed should be focused on here. It shouldn't be listening to George David talking about how robust United Technologies (UTX:NYSE - commentary - research) is and it shouldn't be watching home sales from Pulte (PHM:NYSE - commentary - research). Those are distractions.
In 1998, you had to own the financials at the brink -- where I think we almost are -- and in 2001, you had to own bulletproof food and drug stocks. There are far fewer of those in 2005 than there were in 2001, but there are enough to go around. Altria (MO:NYSE - commentary - research) and Citigroup (C:NYSE - commentary - research), J.P. Morgan (JPM:NYSE - commentary - research) and General Mills (GIS:NYSE - commentary - research), PNC (PNC:NYSE - commentary - research) and Procter & Gamble (PG:NYSE - commentary - research). Got it?
Get 'em. |
