The specter of financial regulation is looking a lot less scary now, Cramer said Thursday.
The Mad Money host had feared the worst. He thought Washington would answer the public’s call to come down hard on the banks, especially in a time when Goldman Sachsis being called to testify before Congress. But the legislation working its way through the Senate right now seems constructive, not punitive, and its passing could mark a needed turn in the sector.
Investors have been weary of going near the financials until the regulation debate had been settled. But thanks to the handy work of Christopher Dodd, Democrat of Connecticut, Washington seems to have struck a good balance between oversight and the free markets.
Yes, derivatives will be regulated. Yes, they will be traded on open exchanges. Yes, the feds will more closely scrutinize the capital positions of banks. And, yes, a consumer protection agency will be set up for mortgages. But at the same time US banks won’t be prevented from offering the full suite of lending options, including interest-rate swaps and hedges, that allows them to compete with their peers overseas.
Let’s face it: If it’s too expensive to deal with JPMorgan Chase , or the company can’t handle all of its clients’ needs, then those clients will take their business across the street. And Deutsche Bank is literally right across the street from JPM in New York. There’s also Credit Suisse or Toronto Dominion – or any other international firm, for that matter – none of which would be constrained by anti-business American laws.
But Dodd “is not going to let our banks be crushed by their banks,” Cramer said.
And now that we know what’s in this new law, we know how it will affect these institutions. It lends investors much-needed clarity, and analysts the chance to revise their earnings estimates. That means the stocks can go much higher.
“I think that when we see the final bill, the Dodd way,” Cramer said, “we will say, ‘Hmm, we can live with that. These stocks are just too darned cheap.’ And at last the big banks, which have really done nothing during this unbelievable able rally, will start to ramp.”
That includes JPM, Bank of America and Citigroup, Cramer said. Maybe even Goldman Sachs. This good news isn’t yet priced into these stocks, and he thinks they’re buys as soon as everyone else catches on.
Aside of Chris Dodd, there’s another friend of the markets in Washington: Ben Bernanke. Cramer tipped his hat to the Fed chair for keeping rates low for as long as they need to be, namely when unemployment declines and housing rebounds.
In fact, Benranke’s low-rate policy will help to fuel that rebound in the second half of the year, Cramer said, and a full-on housing shortage in 2011. He pointed to the action in the related stocks as proof.
“They are screaming that we will be running short of houses,” Cramer said, “one year from today.”
Cramer’s charitable trust owns Bank of America, Goldman Sachs and JPMorgan Chase.
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