Stop Trading!: Paulson's Bonds Don't Offer Much Cover
Treasury Secretary Henry Paulson may be excited about his new covered bonds initiative, but Cramer isn’t.
According to this Reuters story, covered bonds are issued against pools of assets, such as home loans. Unlike mortgage securitization, which passes all the risk to investors, covered bonds stay on a financial institutions books. The goal, Paulson said, is to restore faith in the American mortgage finance system. Bank of America, Wells Fargo and JPMorgan Chase are all expected to take part in the program.
But aren’t there more immediate problems to solve first? That was Cramer’s contention.
“While I really appreciate the notion of the covered bonds,” Cramer said, “I'd like to make sure that the notion of our banks not having runs on them is solved first.”
“We have to solve the current problems before we worry about this next solution,” he continued. “And I think it's great as a great sideshow, even as a terrific distraction from our real problems, which is to worry about the next IndyMac.”
“In 2012, this is going to be the answer,” Cramer said of covered bonds. He disagrees that they’re the solution we need now.
Switching to stocks, Costco last week warned that this quarter’s profits would be lower due to higher energy costs. If Costco’s bad, Cramer said, then Target’s worse.
“I would get out of Target,” he said.
Lastly, Verizon Communications and AT&T are “so hated it’s scary.” Both companies reported good quarters as far as Cramer is concerned, but the analysts saw problems. Some have grown sour on Verizon’s FiOS service, while others think the expensive Apple iPhone could hurt AT&T.
“Whatever line was bad,” Cramer said of the analysts, “they decided to drill down on.”
With both stocks at these levels, that leaves room for a big mutual fund to move in and start buying until Verizon’s at $40 and AT&T’s at $36, Cramer said. Then both names should get upgraded. He’s not willing to back away from these stocks, especially when they offer 5% dividend yields.
“The analysts are lemmings in these situations,” Cramer said. “The CEOs are bankable.”
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com