There’s no place for bullishness until this mortgage/private-equity mess gets stabilized, Cramer said. But when will investors know that happened?
To help them find an answer, Cramer created an index of his own, the Mad Money Mortgages Madness index. This basket of 12 stocks measures every crisis point in the system. So when these companies finally even out, the market should be in the clear.
Here’s a breakdown of the index:
MGIC Investment insures mortgages. Unfortunately for the company, the loans they insure are the piggyback home equity loans that people are walking away from in droves, Cramer said, leaving MTG holding the bag. MTG needs a Fed rate cut – Ben Bernanke, where are you?! – to stay afloat.
MBIA is another mortgage insurer that has said that reports of its death are premature. Still, Cramer recommends investors check the obituary pages daily.
Cramer called Countrywide Financial the best mortgage company. But these days that doesn’t mean much. CEO Angelo Mozillo keeps saying the company is fine, but Cramer is wondering how long that can last before investors get upset.
Bear Stearns is the hedge fund nightmare, dealing in mortgage backs and prime brokerage. Cramer said this company is in the epicenter of the tsunami.
Goldman Sachs owns the private-equity and hedge-fund worlds, Cramer said, but that’s like owning the Titanic post-iceberg. He still owns it for his charitable trust, but it deserves its place in this index, he said.
Centex has taken some hits, written down its land holdings and seems to be head of the game, Cramer said. But KB Homes has some work to do – and some awful markets to sell into.
Beazer Homes USA. Put simply: bad balance sheet, bad home regions and a federal investigation. Where Beazer stops going down, nobody knows, Cramer said.
It wouldn’t be a complete index without Blackstone, the biggest private-equity firm out there. Stephen Schwarzman knew what he was doing when he took his company public at the tail end of the PE boom.
Thornburg Mortgage was the lender to the stars, the bluest of the blue chips when it comes to mortgages, Cramer said. He can’t decide if the inside buying is foolishness or executives doubling down.
Washington Mutual could be the weakest link in the game, Cramer said. It has a huge dividend, but that’s because the stock is so low. WM is the largest home lender, and Cramer said they’re horribly under-reserved.
Lastly, Citigroup is the most aggressive player in both private equity and mortgages, and Cramer remains skeptical on the company and CEO Chuck Prince.
That’s the index. These stocks have a long way to go, Cramer admits, but at least he created a metric that works.
Jim’s charitable trust owns Goldman Sachs.
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