TheStreet.com's Jim Cramer says if we get fed support for a housing bottom, we can really turn things around.If I were at Wells Fargo (NYSE: WFC) (Cramer's Take), today would be a day where I issued several billion in preferred stock or I issued a multibillion equity offering. Why? Because the deed is done; the shorts panicked and covered and took the stock up where it could now be worth doing a deal.
If things are so great at WFC, why do they have to do a deal? Simple: They have a big increase in nonperformers, and when you have a big increase in nonperformers ,you raise capital. Period.
Yesterday's relief rally was not about housing prices bottoming -- I think that will happen next year, not this year -- it was about getting the shorts. The shorts had had their way all over everything. Suddenly you get this surprise smackdown by Chris Cox of the so-called naked shorts -- it's really not at all about that if these stocks aren't hard to borrow -- and you get a dividend boost, something that shorts don't like to pay.
I think today's "upside surprise" from JP Morgan (NYSE: JPM) (Cramer's Take) will generate more short-covering. So will Bank of America (NYSE: BAC) (Cramer's Take) when it declares its dividend.
Which it will.
Both quarters are good enough to attract more capital. If I were in a shaky California bank like Downey (NYSE: DSL) (Cramer's Take), I would pull my money out and put it in Wells. I might do the same with a shaky bank in the East, and choose JPMorgan. I am glad I keep my money there, for heaven's sake.
But none of this cures what was a problem for both banks: house price depreciation. Without something that makes it so there are fewer foreclosures and without a mortgage trust to take the bad mortgages off people's hands, all the good banks can do in this environment is beat the shorts up enough to have their stocks rally so they can raise money for the next wave of nonperforming loans to hit their books. They will have to raise capital until those bad loans crest, and they can't crest as long as house prices keeps coming down.
So enjoy the squeeze, but remember it is only not a squeeze when we get a relief bill from Washington and a way to crest nonperformers and neither JPM nor WFC has produced it.
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RELATED LINKS:
Merrill to Sell Bloomberg Stake: Report
Don't Bank on More Dividend Boosts
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.
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Reader Comments (Page 1 of 1)
7-17-2008 @ 10:37AM
Kristian said...
I'm not sure we need another reckless "boom" where people are speculating for the gold at the end of the rainbow. I think people need to use a little more restraint.
7-17-2008 @ 11:00AM
ajgorm said...
This was said a year ago. Of course housing is the problem the light just went on ? Now we have a bigger problem wake Up ! We will ride the rest of the sub prime mess to the end of 09 now into 2010 thanks alot fed...
7-17-2008 @ 11:15AM
Sheldon L said...
The increased deposits the stronger banks are receiving from the weaker ones will increase liquidity in those institutions. It also will give them more money to lend and help with reserves and income. As they increase loan activity the ratio of good to bad loans improves helping their balance sheets.
I am looking for all of the majors to report very large increases in deposits in the next quarter.
7-17-2008 @ 11:56AM
nickerson said...
What a hair brain idea Crammer has come up with. It does'nt take a talking head from the NBC to tell you that housing is the key. This guy reminds me of a snake oil salemen.
7-17-2008 @ 12:00PM
nickerson said...
What a hair brain idea that is. I don't think it takes a rocket man to know the housing market is what drives the engine. The main problem that we have is all these talking heads leading the folks down the primerose lane. These folks on NBC telling people invest in this or that. As we know from past history most of these people talk the mark up and down, depends on the way they want to buy or sell themselves.
7-17-2008 @ 3:38PM
Bob said...
Houseing will get worse. We haven't seen the worst yet. That will happen after the next earning round around Nov or dec. That will be the bottem as everyone will have cycled the looses.
Three waves in the morages and there will be three down in the banking. Bottem for housing will be spring or mid summer next year then firming up on prices and 2 years from know we will start to see incresses in the prices.
7-17-2008 @ 10:58PM
Bobby D said...
It's "hare"brain, you illiterate.
7-18-2008 @ 12:00PM
gumbo koontz said...
We have subprime loans because we stopped redlining areas for loans. Loan agents just started looking away and forget about finding faults about loan appliciants so to make everybody happy. Is it true that subprime borrowers spend too much at Starbucks ?
7-18-2008 @ 12:03PM
gumbo koontz said...
Most of subprime borrowers are still doing ok, so I guess it is worth the trouble . People needs to be given opporunities not only to succeed but to learn from mistakes as well. Soon enough, we wont need to worry about subprime anything, as people would share their experiences with future generations. A good investment doesnt always make money but can make valuable intangible benefits for all..