TheStreet.com's Jim Cramer says we'll finally get real pricing of the hard-to-mark paper. After months of saying, "Why don't they bring in some pros, do a Resolution Trust and get on with things?" I can't believe that it is actually happening. With the anointing of BlackRock (NYSE: BLK) (Cramer's Take) -- nice short squeeze in that one, buddy -- to parse out or invest in the worst toxicity that is Bear's (NYSE: BSC) (Cramer's Take) portfolio, the Fed/Treasury -- and I reiterate that the Treasury is driving this -- is signaling the beginning of the end of the "hard to mark/hard to trade" component of this nasty bear market in fixed income.
Even as recently as two weeks ago I could not believe this stuff couldn't trade and remained 20 bid and 80 asked, meaning that the gulf between buyers and sellers was just too ridiculous.
Now, with BlackRock, empowered by the government, to dump stuff or parse it out, we are going to get real prices because "something has to happen." Some trades have to occur. All that had happened before this was that Bear inventoried all this bad stuff, having unwound it from funds of its own or taken junk from clients, and we had no idea how to value it.
This moment may also be when we find out how bad things really are. I have to believe that even with the high defaults we have, some of the paper that wasn't fraudulent, which is saying something, has some worth if you have the staying power to own it and aren't worried about where you are marked.
That's BlackRock's position now that it has been anointed.
Remember the sequence. Hedge funds borrow money to buy bonds, the riskier the better because no one defaults on homes and homes don't lose their value, and then they subtract the cost of borrowing from the coupons they get from the bonds and they book a consistent profit.
Until house price DEPRECIATION sets in. My belief is that now that BlackRock is in we will begin to get that kind of markings that make sense -- a California-weighted bond, for example, may be worth 30 cents on the dollar, Florida-weighted paper 20 cents. If California and Florida are both in the piece of paper, maybe you just put it away and see what happens. Whatever, anything is better than the limbo that we've been in where no one who buys the bonds wants to mark them down because then they immediately have to put up more capital, particularly because the best way -- the most honest way, that is -- is to mark paper on the bid side.
So, with BlackRock sorting things out, we will be able to price and move a lot of stuff that hasn't been priced. I think we will discover that things aren't as bad as we thought for some pieces of paper, while others are indeed worthless.
It is not knowing that's been killing the back end of the process. The front end, the house price depreciation end, is going to take care of itself when the last resets occur and the fire sales of existing properties occur now for those who cannot afford to keep them.
Oh, and if I hear, "This is highly unusual," or, "There's a moral hazard here," from one more person, I will simply banish them to universities to write papers on the topics. Deals like the JPMorgan (NYSE: JPM) (Cramer's Take) and BSC and BLK deal are the nature of how we get out of this, and we could not do it without Treasury's help -- the government HAD been relying on the market, and the market simply ceased to work anymore.
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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)
3-25-2008 @ 10:45AM
Danny W said...
This guy is the biggest CROOK on tv and a LIAR. On Monday he said the American public nows NOTHING. NOTHING and thats how he gets away with his lying and cheating CROOK,CROOK,CROOK. Just like his ex college room mate.
3-25-2008 @ 11:41AM
POP said...
JPM-DO YOU THINK IT WILL GO MUCH HIGHER OR SHOULD I SELL OR HOLD AND WAIT.
3-27-2008 @ 1:25PM
Jason said...
Pop;
JPM is going to come in a little more, to about 40 - 42, but at those prices it's a definate buy. If we hear some good restructuring news out of BSC they will both go to the moon. JPM is being priced at 50 with a 9 month price target at 60!!! If your have enough to buy when it comes in a little then don't sell; if not sell but keep a close-close eye. You'll be kicking yourself if you don't bbuy it back!