Cramer’s worst-case scenario: Homebuilders, mortgage brokers, banks, brokerages, retailers, restaurants and any company that needs loans to do business all get hammered. Some businesses could even go under.
But it doesn’t have to be that way, he said.
If the Federal Reserve cut rates by one full percentage point, homebuilders would survive, financing would make a comeback, mortgages would be made, teaser rates reintroduced. Defaulting homeowners could refinance their loans, and the housing glut would go away.
According to Cramer, Countrywide Financial would climb from just under $30 to $45, while MDC Holdings , DR Horton , Pulte , Centex and Lennar would jump 50%. The banks – Goldman Sachs , Bear Stearns , JPMorgan Chase and Citigroup – all get bailed out.
A full point rate cut would be so beneficial Cramer said the Dow would close the year above his own 2007 estimate of 14,548. It could hit 15,000.
Bottom Line: Things may look pretty bad for sectors like homebuilding and brokerages and retailers, but the Fed could save the day. Or foreign buyers could enter the picture and take these stocks higher. We’re not there yet, though, Cramer said.
Jim's charitable trust owns Citigroup and Goldman Sachs.
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