Mad Money: Game Plan: Time for a Rate Cut? - Game Plan

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Sep.05

6:20 PM ET

Friday, 5 Sep 2008

Game Plan: Time for a Rate Cut?

Posted By:Tom Brennan

Topics:Interest Rates | Federal Reserve | Stock Market | Stock Picks

Sectors:Financial Services

Despite all evidence to the contrary, much of Wall Street is expecting the Federal Reserve to raise interest rates.

But why? We found out this morning that unemployment is over 6%. Fannie Mae [FNM Loading... () ] and Freddie Mac [FRE Loading... () ] are in desperate need of the Treasury’s help. Earnings have been horrible for every sector other than those you can smoke, drink and eat. Wouldn’t a situation like this call for a rate cut instead?

That’s what Cramer’s thinking, and he’s expecting the take of rate hike to shift to rate cut starting next week. Remember: Alan Greenspan took interest rates to 1% in an environment that wasn’t half as bad as this.

Just look at all the factors the Fed was using as a gauge for an increase. They’ve all reversed direction. High gas prices have come down. Strong employment has become weak employment. Commodity prices have come down big. The dollar’s strong. In fact, the dollar’s so strong we need to keep its climb in check in order to stay competitive. A rate cut could do that.

What about retail and housing? Are those industries in good enough shape that they could withstand increased interest rates right now?

“We are in the grips – not of inflation – but the most major deflation in this country’s history except the Great Depression,” Cramer said, “and the Fed needs to step up and answer the call.”

So the Game Plan is for Homegamers to buy the financials Cramer’s been recommending – the Fortress Four banks Bank of America [BAC Loading... () ], JPMorgan Chase [JPM Loading... () ], Wells Fargo [WFC Loading... () ] and US Bancorp [USB Loading... () ], as well as BB&T [BBT Loading... () ] – because he thinks people are going to start catching on. They’ll be asking for a rate cut like it was their idea. They’ll be saying Fannie and Freddie need money. A Resolution Mortgage Trust should be set up like the FDIC is doing on the sly. And on and on.