Milking the Mortgage Mess
As mortgage-backed securities continue to lose value, overexposed banks are anxious to get the bad paper off their balance sheets. In their haste, though, the good as well as the bad is being sold off at fire-sale prices as a way to raise capital. It's a tough situation for the banks in trouble, but perfect for one investment fund that just came public.
Chimera Investment was set up specifically to invest in these residential securities. According to Cramer, the fund "was designed to feast off of good paper that can be bought for cents on the dollar because the banks have no choice -- they have to unload this stuff."
Managed by a subsidiary of Annaly Capital Management, Chimera has a $460 million warchest the fund has yet to use. It's just waiting for a bottom, though, Cramer said. But Wall Street's waiting, too -- for Chimera to make its move. As a result, the stock hasn't budged since the Nov. 16 IPO, which Cramer sees as a great opportunity for investors.
But why's he so confident? Mike Farrell. The Annaly CEO is the "king of mortgages," Cramer said, adding that "he got subprime exactly right." Cramer's wager is that Chimera is Farrell's baby, and he'll put to work the same "nose for good loans" that helped his company sidestep the subprime mess.
At just under $16, "the stock's one of the best deals out there," Cramer said. Still, it's a small company, so he emphasized using limit orders, buying incrementally and waiting five days before making a move.
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