Jim Cramer's Wall Street Confidential: Rate Cut vs. Armageddon

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Includes: AMBC, BAC, CFC, MBI, PMIR, WFC, WMIH
by: Miriam Metzinger

Recap of Jim Cramer’s comments on Wall Street Confidential, Tuesday October 20 Click on a stock ticker for more analysis:

Countrywide (CFC), Ambac (ABK), PMI (PMI), MBIA (NYSE:MBI), Washington Mutual (NYSE:WM), Bank of America (NYSE:BAC), Wachovia (NASDAQ:WB)

To those who dread a Fed rate cut due to inflation worries, Cramer says oil and grain prices will not be alleviated by a rise in interest rates. "The thing that would knock the market down huge is obviously they don't cut," said Cramer; " … all year people have been focused much more on inflation. It's deflation that I'm worried about."

While raising interest rates may strengthen the dollar's value, Cramer insists this is not so simple; "the dollar is highly correlated to economic growth, not to the price of money."

"I've seen whole economies raise interest rates to be able to defend their currency and fail repeatedly," he said. "Where people want to be is in a country that is controlling its own fate, tends not to have as big a trade deficit as we have and is growing, and our country is not growing, therefore you don't want the currency."

While he does not think CFC, ABK, PMI, MBI and WM can be rescued by the Fed, and those too took mortgages between 2005 and 2007 may be "wiped out" a rate cut may still save those who took mortgages in 2007.

If rates are not cut, "Armageddon is back on the agenda," added Cramer. While Countrywide is currently engaged in a battle for its survival, BAC and WB will report "quarter of quarter of losses," which will cause people to view the crisis "very differently."

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