Watch what happens in Europe on Friday, “Mad Money” host Jim Cramer said, because it might not be pretty.
“I’ve tried to get you out of the banks while keeping you in the higher-yielding stocks that pay you to wait, because I’ve been worried that Europe would do the wrong thing, which is exactly what happened today,” he said.
The Dow lost 198 points, the S&P lost 2.1 percent, and the NASDAQ declined 1.99 percent.
Of course, Cramer said, there’s some good news about Europe — except it’s on this side of the pond, with Federal Reserve Chairman Ben Bernanke having extending swap lines to help shore up European banks.
“Bernanke recognized how much of a mistake it was to let Lehman Brothers go, that colossal failure that almost brought down the western financial world,” Cramer said. “He wasn’t going to let a Lehman happen in Europe, even if it meant Bernanke had to stick his neck out to avoid it.”
But it seems like the good news might have run out.
European Central Bank President Mario Draghi on Thursday announced a rate cut.
“But we needed so much more than that,” Cramer said.
“This is the statement they should have made: ‘We have decided to backstop the bonds of every country that is able to cut back its budget by a meaningful amount. We will help banks de-lever their balance sheets, ensuring that they stay in business through the de-levering process. We will cut rates to an incredibly low 0.25 percent to help grow the economy in the interim. And we will not let a Lehman Brothers-style bank failure happen. Instead, as a last resort, we will nationalize ne’er-do-well banks who fail to de-lever and preserve all depositors at the same time.’ Well, guess what. We didn’t hear a single phrase of that statement, which is why we got hammered today.”
On Friday, German Chancellor Angela Merkel and French President Nicholas Sarkozy are expected to announce the results of joint meetings to hammer out a way out of the financial mess.
Cramer said he doubted much would come of it.
“At this pace I will have to take us to DEFCON 2 tomorrow unless we get something dramatic, because you can’t solve the European banking problems separately from the sovereign debt problem,” he said.
In this difficult environment, where should investors be focused?
“The stocks with bountiful dividends and big yields, which is why I’ve repeatedly told you to take profits in higher flying stocks, sell banks whether you have a profit or a loss, and roll that money into the high yielders that are doing well,” he said.
Cramer touched on a couple other stocks that looked like opportunities.
Costco : Higher food prices and an increase in the cost of membership hit the stock, which closed down $1.71. “Tomorrow, after someone downgrades it or poo-poohs it based on this rearview mirror analysis, you will get your chance to buy,” Cramer said.
Enterprise Products Partners : “No Europe in this domestic pipeline play, either.”
McDonald’s : “Amazingly, the company called out France and Germany as two of its strongest markets.”
Cramer said Europe’s leadership was creating “an impossible situation” out of a fear of inflation, calling it misguided.
“They should fear deflation, they should fear recession, they should fear depression even,” he said. “But the leaders of Europe just don’t get what needs to happen if they’re going to work their way out of this jam without causing the collapse of their fragile banking system.”
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