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Sell Block: Goldman Loses Market's Confidence

While Cramer has faith in Goldman Sachs, the market does not. The short sellers have hit the company hard, and now this former tower of a company is swaying in the wind.

It doesn’t matter that Goldman has no exposure to the home equity or car loans that have soured the balance sheets of Washington Mutual and Wachovia . It doesn’t matter that this investment bank weathered the housing and credit crises better than all its competitors, though admittedly Goldman is overleveraged and that is what’s causing some of its problems right now. The problem here is confidence. And the market has none in Goldman Sachs.

Instead of investment banks, it appears Wall Street wants food banks. These are the food and beverage companies – like General Mills, Heinz and Coca-Cola – that have strong, consistent earnings and can borrow money based on that performance. At the same time they’re paying the loan back, they’re paying out a dividend.

Now Cramer’s not saying that commercial banks are out of favor. Deposit-based institutions like US Bancorp, Wells Fargo, Bank of America, JPMorgan Chase and most recently Wachovia and BB&T seem to be healthy. So much so, Cramer said, that one of them might consider buying Goldman.

The investment banks in particular were damaged because of all the government intervention of the recent weeks. Why invest in Goldman if there’s a chance Treasury Secretary Hank Paulson’s going to wipe out your stock should a rescue be necessary? Wall Street just doesn’t trust the investment banks as a place to put their money for this very reason.

So follow their lead and focus on what Cramer’s calling the “new banks.” Go with the companies that performing as the investment banks should. Even Tootsie Roll – yes, Tootsie Roll – is worth consideration right now. This has been a heavily shorted stock, but a renewed focus on the practice by the SEC means those shorts will have to cover in the next couple of days. That should send the stock higher.



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