The clock is ticking toward a housing-led recession, Cramer said on Thursday’s Mad Money, if the Federal Reserve doesn’t continue to cut interest rates. He dedicated the bulk of the show to laying out a “bulletproof vest portfolio” to deal with that possibility.
Today’s environment reminded Cramer a lot of 1990, when credit problems related to commercial construction hurt the markets. The difference is that now it’s residential construction, or housing, that’s in the hot seat. And the solution to both is pretty much the same: The Fed has to get involved in a big way.
The way Bernanke sounded in front of Congress Thursday, investors might think no cuts are forthcoming. But the threat of a recession is real Cramer said, so the market needs an easing. But the hard part for a lot of people to believe is that even if those cuts come, loan defaults are going to continue – far beyond the Street’s worst expectations, Cramer said. So it’s still imperative that Homegamers are prepared.
The strategy is to take what worked in 1990 and adapt that to current conditions. What’s the same? Investors want stocks with high growth, indestructible companies like Coca-Cola and Altria (the supermarket and drugstore stocks), stocks with great balance sheets that don’t need cash, and stocks with good, safe dividends.
But a lot has changed since 1990. There are plenty of U.S. companies with international exposure, so they’re not as hostage to the domestic economy as they once were. And there are still “discrete bull markets,” Cramer said, that have been and should remain strong, recession or not: agriculture, mining and minerals, aerospace and defense, infrastructure, tech and healthcare cost containment.
The untouchables remain the same, though: housing, finance, consumer spending and any company that needs to borrow to make money. If Homegamers haven’t done so yet, Cramer recommended getting out of these areas. The Fed may keep cutting, he said, but it won’t be enough for them.
Check out the stocks Cramer picked for his bulletproof vest portfolio. Remember, though, that a bulletproof vest is 100% protection. But the goal is to get as much of the body, or in this case money, protected as possible.
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