There’s nothing like a government-mandated sell-off, Cramer said Thursday. President Obama this morning demanded more regulation for banks, and stocks came down accordingly, with the Dow plummeting 213 points and the S&P 500 losing nearly 2%.
“We would have been up huge on earnings today,” Cramer said, “if it weren’t for the president’s decision to downsize the banking system right on TV at the worst possible time for the economy.”
Mad Money is about investing not politics, but Cramer had to admit that the climate in Washington doesn’t bode well for bank stocks. Obama wants to end proprietary trading, which is when banks trade along side their customers, shut down internal hedge funds and force some of the bigger institutions – think Wells Fargo and Bank of America – to break up. Though almost none of these things caused the credit crisis we just barely survived, Cramer said. It was bad mortgages and insurance from Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers, GMAC, Washington Mutual and AIG.
Cramer thinks Rep. Barney Frank (D-Mass.) will stop Obama’s more punitive plans, namely the call to immediately push through these changes. The chairman of the House Financial Services Committee told CNBC on Thursday that he favored a three- to five-year time period instead, so as to not further disturb the troubled economy and to prevent a fire sale of these institutions’ assets. As a result, Cramer thinks the president’s bill will die in Congress.
Regardless, though, it’s too soon to trade that possibility. Which is why Cramer steered investors to a different kind of bank during today’s Mad Money. He said he likes General Mills , Procter & Gamble , Bristol-Myers Squibb , Pepsico , Coca-Cola , Colgate-Palmolive and Johnson & Johnson , all of which “generate tons of cash and are mostly immune to Washington.” Typically these names would be up on an otherwise down day, so their drop in share price offers a good entry point.
Viewers who still feel compelled to buy a bank should look for one with no hedge-fund or private-equity business, Cramer said. Consider First Niagara Financial Group , FirstMerit or NewAlliance Bancshares .
There are also the longer-term themes that Cramer has been recommending: homeland security, energy shortages, foreign stocks and the mobile Internet. The only problem is that an Obama-induced slowdown will hurt these groups by stunting growth and killing what little momentum the economy had.
“That’s what happens – a slowdown – when you crush investor confidence,” Cramer said, pointing to a similar incident when Obama lashed out against the banks last year.
The bottom line, though, is that investors should get defensive as long as the White House is focused on banks. That means buying the aforementioned food and drug cash-rich “banks” instead.
“We hope the stock market’s message isn’t lost on this White House,” Cramer said. “But let’s not take any chances.”
Cramer's charitable trust owns Bank of America, Bristol-Myers Squibb, Pepsico and Procter & Gamble.
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