Stop Trading!: Making Money Off Merrill's Moves
Moves made by Merrill Lynch were the talk of the day on Wall Street Tuesday. Cramer used his regular Stop Trading! appearance to emphasize to key interview that took place earlier during “Street Signs.”
New York State Insurance Department Superintendent Eric Dinallo explained the importance behind the deal he helped broker between Merrill and Security Capital Assurance, a bond insurer like MBIA and Ambac. SCA will pay Merrill $500 million to commute guarantees the bank had bought. The deal helps other banks and insurers value their previous agreements, Dinallo said, a major problem that has been preventing stability in the sector. He confirmed there are 13 other agreements already in place but wouldn’t specifically say between whom.
"If they all react like Merrill Lynch,” Cramer said, “we're going to go up."
Then there was Sam Advisors CEO and President William Smith. He applauded Lone Star Capital for buying $30.6 billion worth of Merrill collateralized debt obligations for just $6.7 billion, or 22 cents on the dollar. If housing stabilizes, he predicted, those CDOs could actually go up in value.
“I can't emphasize enough that Lone Star got the better of Merrill," Cramer said.
If those CDOs do go up in value, he recommended buying Wachovia on the strength of its management, namely CEO Bob Steele. WB is trading $1 below where Steele recently bought shares of his company, Cramer said, and the financials have shown they have the potential to rebound.
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