Now that the danger of AIG’s failure is off the table, we don’t have to worry about the mortgage insurance policies the company held. Nor do we have to worry about the bad European and Chinese loans that AIG insured. If AIG collapsed, that could have set off a chain reaction of credit downgrades on banks the world over, and probably started a Lehman Brothers-like run on more than just a few. Such a failure, Cramer said, could have pushed the Dow down another 1,000 points Wednesday.
Another positive development is that the Securities and Exchange Commission finally decided to do its job, Cramer said, and enforce its rules against naked short selling. Lack of enforcement is to blame for stocks like Lehman, AIG and other financials taking such a brutal hit. A hit so bad that the companies couldn’t lift themselves up via a stock offering to raise capital or a Merrill Lynch-Bank of America-type deal to save themselves. Now these battered companies have a chance to find their footing.
Cramer urged Chairman Christopher Cox to go one step further and reinstate the uptick rule, which requires a stock to tick up in price before its sold short. The rule came into being after the stock market crash of 1929 and was only done away with under Cox’s stewardship at the SEC. That was a strange move, especially considering these rules were created to prevent the very situation we find ourselves in now.
Just to be clear, Cramer doesn’t think the market’s done going down just yet. He said the banks need a massive infusion of cash from foreign investors like the Prince Al-Waleed bailout of Citigroup in 1990. But the Mad Money host does think there are opportunities here.
There are some strong companies that have been heavily shorted that could see a return in strength now that the SEC is closely watching the bears. Ethan Allen, Sears Holdings, Panera Bread, and Bankrate all could work in the near future, Cramer said, as these shorts start to cover their positions. So watch for a potential rally in these names as that happens.
There are also the good, old-fashioned American names that are reporting strong earnings. Look at General Mills, which was up today after a good quarterly report. The decline in commodities prices is helping this company’s margins and all three of its business segments are seeing solid growth.
So don’t let the market volatility keep you from taking advantage of these opportunities.
"If history is our guide, we will go still lower," Cramer said, "but it's still not an excuse for panicking, not with AIG rescued and the SEC starting to do its job."
Jim's charitable trust owns General Mills.
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