Stocks rallied sharply Wednesday, with financials leading the S&P higher, after global central banks announced a plan to ease the strain on the world’s financial system. But that’s still not a reason to buy the banks, “Mad Money” host Jim Cramer said.
“The reasons to stay away are so powerful that it’s not even worth considering the reasons why the banks might be worth buying,” he said.
While some, like noted bank analyst Dick Bove, have been saying banks are a bargain, Cramer said right now the fundamentals just don’t matter. The powerful reason to stay away is a big picture, macro-economic one: Europe.
Take Citigroup , for example. It was upgraded by Credit Suisse to ‘outperform’ from ‘neutral’ at the beginning of the month and two weeks ago Oppenheimer reiterated its ‘outperform’ rating on the stock. In both reports there were vast details of the business but scant attention was paid to Europe. On the flip side, Morgan Stanley recently downgraded Citigroup from ‘overweight’ to ‘neutral.’ That report, as well, was rooted in the fundamentals.
But whether Citigroup’s business is doing well or not takes a back seat to the fact that banks are punished when something bad happens in Europe.
Cramer thinks the only way to own a bank in this environment is if has a business model that is focused on deposits and if it didn’t play in credit default swaps—something like Toronto Dominion .
The bottom line—“Whatever good things might be happening at Citigroup or any other big American bank will always be outweighed by the bad from Europe until this crisis is finally resolved … and we’re nowhere near a resolution,” Cramer said. “Until then, shopping for bank stocks is a total exercise in futility.”
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