Game Plan: What to do with Fannie and Freddie
Before Cramer crafted his Game Plan for trading earnings in the upcoming week, he took some time on Friday’s show for a Game Plan to address the disaster that has become of Fannie Mae and Freddie Mac .
If the Bush Administration had any sense, it would guarantee all of the debt of both mortgage houses and take 20% of the companies in warrants. If it took this step, mortgages would become the new treasurys and investors would scramble to buy mortgages and sell treasurys for a huge win that would stop the depreciation of housing prices cold.
If the Feds were to adopt this plan, Cramer thinks the mortgage market would immediately rally as some much-needed liquidity would flood the system. Banks would rally and all the credit default spreads would implode. The beauty of the plan is that the government doesn’t have to spend a penny to do it, but it would fix what should have been fixed last year – WITHOUT A BAILOUT.
As for next week, Cramer admitted he’s a lot less sanguine about the upcoming earnings than he was before our value-unfriendly Treasury Secretary Hank Paulsen cut Fannie and Freddie off at the knees. Nevertheless, here’s how he would play it:
Genentech reports Monday. Cramer would buy half a position before the report and half after. DNA is still a story about Avastin, its blockbuster cancer drug, but it’s a long-term catalyst. As he’s been saying, healthcare is in right now and Genentech should rally.
Tuesday brings Eaton – a new-tech play on fuel-efficiency that Cramer’s still bullish on – as well as Johnson and Johnson , another play on healthcare being back in fashion. If the market is weak Monday, he’d be a buyer of some JNJ. Intel reports Tuesday as well, but there’s no reason to buy any tech right now, Cramer said, and that includes IBM and Microsoft , which both report Thursday.
VF Corp. reports Tuesday also, and it’s the only apparel company Cramer would buy.
Watch YUM! Brands on Wednesday, where it will likely take a hit on e-coli and salmonella worries, but the stock still a buy on the Olympics due to the huge popularity of KFC in China.
Coke, one of the few food and beverage stocks at a 52-week low, reports Thursday and Cramer is tempted to buy some ahead of the earnings. JPMorgan reports, too, and even though Cramer hates financials, this one has been so beaten down by negativity that it looks tempting to pick up ahead of the quarter. Cramer would also watch United Technologies when it reports Thursday, just because it is such a bellwether for so much of the economy. If the company is downbeat, that swill signal it’s time to bolt from a lot of other areas.
Finally, Merrill Lynch comes out Thursday and people are going to want to hear something good. But let’s be serious, Merrill is a financial, and Cramer won’t expect anything upbeat unless it unloads its stakes in Bloomberg or Blackrock.
There are trades to be made in the week ahead, but Cramer wants to get out from this dark cloud of Fannie and Freddie first. Let’s hope this administration knows what it’s doing.
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