Stocks ended sharply higher Monday as optimism grew that European leaders would come up with a new planto resolve the region’s debt crisis and following a strong Black Friday sales numbers. But despite that “spectacular” market action, “Mad Money” host Jim Cramerurged homegamers to curb their enthusiasm. The reason is one he’s been preaching about for months—Europe.
“I'm calling this DEFCON three, two stages away from a financial collapse so huge it’s hard to get your mind around,” he said.
Simply put, the troubled countries in Europe have borrowed too much and can’t pay their bills. That leaves the banks stuck with the credit risk, in the form of bonds the countries owe, and the countries can’t afford to pay them back. Right now, these countries are hoping either the rich countries pool their resources to buy these bonds or that they’ll support the banks. Another possible option is a bridge loan from entities like the IMF.
What happens if the troubled countries can't pay? They're so huge that they could pull down most of the European banks, Cramer said.
And if you think it doesn’t affect the U.S. you’re wrong, Cramer said. Not only is Europe a huge market for U.S. goods, but struggling European banks owe billions of dollars to big American banks. But because the banks do not have to disclose what they insured or lent, we have no idea which banks may have lent enough money to “sink” them.
The bottom line—it's credit that's ailing the world, he said. Without it, no one can pay their bills. That's why he thinks it's time to sell companies that need credit, was well as high-flyers with little or no dividends.
“Credit is so important that anyone who can’t get it will be overwhelmed,” he said. “Which is why you need to start selling into this rally, until we get some assurances that some huge entity like the European Central Bank is willing to print money to save the situation, at least until next Christmas, when we can only hope that things get better than this one.”
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