Reasons to be optimistic about America

When you look past Europe's debt woes, you'll see stronger US consumers, an improving housing market and banks with capital.

By Jim Cramer May 25, 2010 9:20AM

Is everything terrible? Is everything going bad? Or are there some self-adjustments that will make the US better down the road, despite the worries from Europe.


To the last, I say, dramatically, yes. Let's go back to what caused all of our downturn to begin with: a sapped consumer, declining values in housing, a rise in unemployment and a sense that our banks were not safe. We pulled in our horns, and the banks -- worried themselves -- stopped lending.


Now let's look at where we are.


First, the consumer. When retailers and restaurants try to figure out what drives traffic -- a prelude to spending -- they come back to unemployment and to something we don't think much about: the price of gasoline. Wal-Mart (WMT) made that exact point in talking about how sales have slowed because of a 40% spike in gasoline year over year. But we just had a gigantic decline in oil that should produce a 20% decline at the pump. That will matter.

And while employment hasn't gone up, the confidence the remaining people have at their job and amid the redoing of so many mortgages -- in the millions now -- will get the consumer more purchasing power.

Things are just so much better than a year ago that you can see a very strong consumer going forward. This gasoline drop should be front and center. Post continues after video:

 We got some data on housing today that make me think that the worries about the end of the tax credit that would lead to vastly lower housing sales are just plain untrue.

We had a very big number in existing house sales, a 7.6% increase to 5.77 million units, 22% above last year. So many people are fretting about an increase in housing inventory, up 11.5%, but wait a second -- single-family home prices rose in 18 out of 20 metro stat areas, so if inventory is such a big issue, prices should be going down, not up. I think there is healthy demand, which is bringing out supply, as you would expect to be the case.


More important is the incredible effect Europe is having on our own mortgage rates, something that is well in excess of the "bargain" that the tax credit gave first-time homebuyers. As the Wall Street Journal pointed out, a 1% reduction on mortgage rates, what has just occurred because of Greece woes, is equal to a 10% reduction in home price.

So let's do the math. We learned that the median existing home price this month is $173,000. The tax credit goes away but the decline in housing price as dictated by mortgage rates is double the tax credit and, more important, it isn't one-time only but continual.

Things are just so much better in housing now, despite the loss of the credit, that it is a very big positive for the economy.

Now the banks. Last year banks were teetering, and TARP kept many of them afloat. One year later, many banks have done not just one but two refinancings. Most are brimming with capital. At the same time, many of the higher-yielding CDs they owed money on are rolling over into much lower CDs. The nonperformers, according to stats put out by Goldman Sachs (GS), have peaked for most major banks and are often going down in once case, Citigroup (C), going down 26% -- no wonder it is my favorite.


Sure, the European banks are large, and they are arguably all in trouble because of interlocking interests and the holding of sovereign debt. But our bank balance sheets are the best I have seen in years, and the bank seizures by the Federal Deposit Insurance Corp., while high, are still nowhere near where they were in the savings and loan crisis.


Our banks' actual exposure to European credit problems is far lower than people realize. If we were not worried about hobbling of our banks with the Munich relief act that Sen. Blanche Lincoln is sponsoring -- the elimination of derivatives trading from our banks, turning our large institutions into second-class bankers compared to the biggest winner, Deutsche Bank (DB), which would take huge share from our majors because of Lincoln -- we would be buying our banks hand over fist in the face of the European woes.


We hear about credit being tough, but when I look at what it takes to get a mortgage -- something well stated in this weekend's New York Times real estate section -- you now need documentation about salary and net worth and you need the kind of down payment we used to have to come up with before the housing boom. How can that be bad?


Loans to big companies aren't a problem at all because the corporate balance sheets are the best they have been in 50 years. Fifty years! Small businesses remain the problem. The prospective small-business owners, I think, are spooked by Washington. If we could get clarity and less of a blitz of legislation that causes uncertainty, you would see lending spike for these players, as every bank I know has added lenders to be ready for the onslaught of opportunity, especially with how little they can make just holding cash.


So while gloom is palpable, perhaps the most I have seen since the bottom in March of last year, the drivers of our woes -- a weak banking system, a worried consumer who pulled in her horns, and a dropping housing price -- have all been cured. Oh, and don't forget wealth worries are deeply rooted in stocks, where IRAs, 401(k)s and 529 college plans are the chief repositories, and one look at the averages tells you that we are almost 50% better off still. That matters.

All of this matters.


We have much to be gloomy about. But it sure isn't in this country. And I believe the strengths I have articulated blunt the worries enough to make it so that the risk of a substantial decline simply isn't great. A 5% decline? Always in the cards. More than that? I just don't see it.


At the time of publication, Cramer was long Goldman Sachs.

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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