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TheStreet.com's Jim Cramer says he's not buying here, because prices are going even lower. Here it is, the dawning of the selloff that will finally put us at levels where ... we will sell off again.
For two years the credit markets have been submerged under central bank happy talk and a sense that the worries were about inflation. You can see why in the outlines of the institutions that are failing now.
The problem is the Europeans got stuck fighting the inflationary war that ended in July. Rates are ridiculously high in Europe vs. the crunching of debt that is happening and will continue to happen.
In our country, the "Fundamentals are Sound" group at Treasury, and the "Whip Inflation Now" group at the Federal Reserve couldn't switch fast enough either.
But boy, are they great at public relations. There has been remarkable awe at how well Treasury, the Fed and the FDIC are handling the crisis.
It seems very misplaced. Some of it is pure economic ignorance. Fed Chairman Ben Bernanke studied the Depression, or so they say, and knew more about how to stop it than anyone. Actually, he knew less than anyone, and he and his merry band of governors and presidents presided over the deflationary destruction of Western finance with a bias toward -- are you ready? --inflation. Yes, that's still their bias. We were able to jump-start the economy in 2003 with rates as low as 1%. But our rates are twice that now even though we are in a deflationary spiral, not an inflationary one. We should be printing money left and right here but Bernanke is Hoover and we all know it now.
There's another sainted figure, who I guess must call the media all the time to burnish his image. That's Tim Geithner, the Federal Reserve Bank of New York president, who is supposed to be the eyes and ears of the Fed. We learn from The New York Times Monday that Geithner was the genius behind the "not too big to fail" decision to keep Lehman out of the Federal Reserve system. That was brilliant. We had rescued Bear, but not twice-its-size Lehman, perhaps because the watchdog/press hound Geithner didn't understand the complexity of Lehman's book, or because it was time to mete out punishment to the worst banker on earth, Dick Fuld.
And I thought the guy had a handle on it. I was fooled, but unlike Geithner, I would have had to call Fuld a liar, and you can't do that without subpoena power and a bunch of sources who would betray him. I knew only the people who surrounded him, and they told me everything was fantastic, just a little slow.
Of course, we know the truth now. The Fed has been put out to pasture, a victim of being theoretical, not practical, an organization that simply didn't take seriously those of us who warned them in person and on TV. What did they think, we made it up for ratings? Is that what they thought? You think I, a reputed bull, want to go on TV and scream that they knew nothing? I would rather recommend Colgate (NYSE: CL) (Cramer's Take), but given the crisis it sure seemed worth waking them up.
Even as late as the summer, the Fed thought for sure the price of iron and copper meant more than the implosion of housing-based finance.
Now along comes Sheila Bair and Hank Paulson, who alternately want us to believe that everything is sound (with public pronouncements that the worry is misplaced) and that there is a list of obscure banks that might have to be taken over.
Then Paulson comes to the Capitol and says the truth, that the Western world of finance is going to break, and Bair seizes Washington Mutual and tries to seize Wachovia (NYSE: WB) (Cramer's Take), no doubt to save Citigroup (NYSE: C) (Cramer's Take), which could have risen, done an equity offering and joined Bank of America (NYSE: BAC) (Cramer's Take), JPMorgan (NYSE: JPM) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) as the new titans of finance.
Of course, either the FDIC doesn't know the tax law changed to make it so if Wells bought WB it wouldn't have to pay taxes on ordinary income for years, or was oblivious to the imminent passage of TARP.
This, plus the disintegration of Lehman, which then left Morgan Stanley (NYSE: MS) (Cramer's Take) and Goldman Sachs (NYSE: GS) (Cramer's Take) in the hands of the shorts, was too much for everyone, and now no one lends to banks and it makes no sense to them, and no one wants commercial paper because it makes no sense to them.
Which is where we are this morning, in a worldwide crash that will leave us with gigantic institutions that we have never heard of, with balance sheets that are ridiculously large that must fall, and a hedge fund community that has lost control of its asset base.
And in this moment we are supposed to be buyers?
I say let it fall without me. I say keep selling industrials unless they yield more than 4%.
I say it is no longer in the hands of the central banks. It is in the hands of rational people making rational decisions to get out before more institutions fail, more hedge funds liquidate, and still lower prices are upon us.
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RELATED LINKS:
Cramer: Preventing Great Depression II
Coming Week: Focus on Fundamentals
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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 was long JPMorgan Chase, Morgan Stanley and Goldman Sachs.
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Reader Comments (Page 1 of 1)
10-06-2008 @ 10:10AM
Sheldon L said...
This post is fanning the flames like no other.
10-06-2008 @ 10:18AM
ASF said...
Is this the same Jim Cramer who kept saying everything was fine, and "it's the bottom" for the last two years? Many other market watchers predicted this crash, but not Mr. "Buy, Buy, Buy!"
10-06-2008 @ 10:26AM
beachpauls said...
My neighbors and I watched the houses around us inflate to three times the value we paid for ours in a five year period for no logical reason. A young MBA graduate, not even a quarter century old, bought the one bedroom house behind us for an astronomical price of $120 thousand and we thought she was insane, She sold it fourteen months later for $220 thousand. You couldn't even make that much money, that fast, selling marijuana. Explain, Mr. Cramer, after what happened in Japan, how we thought allowing a variation of the same thing to happen here wouldn't achieve the same results as it did in Japan. I was taught a business should be valued at nine to twelve times earnings not thirty five times earnings. It was grand theft that happened this decade,on such a huge scale, there is no insurance policy left big enough to cover it. Deflation? It's more like an over blown balloon popping. Stop acting so startled! A blind man could have seen it coming.
10-06-2008 @ 10:44AM
Ed Doan said...
Buying now is still smart even if the market drops lower. Several stocks are cheaper than they've been in well over a year, and the dividend percentage should stay well over your 4% number even at the current price. The market will eventually recover and those stocks will become growth stocks and a nice dividend return on your investment. Trying to buy at the very bottom won't change those numbers much.
As far as the feds are concerned, we just never seem to learn. Even the depression of 1857 was signaled by a bank failure in Ohio. If the President and Congress only performed one task well, it would be to watch the banking industry like a hawk.
I also think the way we look at inflation is flawed. The inflation in the cost of food is out of control, which can be directly traced to corn subsidies for corn for ethanol use. The nonsense pricing of diesel runs a close second.
10-06-2008 @ 12:53PM
Sandi said...
Here is some breaking news for you!Last year,
Probation in Money-Laundering Case
A former executive at the Bank of New York
and her husband admitted conspiring to use
the bank to launder more than $7 billion
from Russia.
July 27, 2006
Today,
MOSCOW, Oct 6 (Reuters) - The Russian
government did not attend a hearing of its
$22.5 billion lawsuit against the Bank of
New York Mellon Corp (BK.N: Quote,
Profile, Research, Stock Buzz) on Monday,
but a lawyer for the government said it
remained determined to press its case.
Since last May, Russia has been seeking
compensation from the bank after its
former vice president, Lucy Edwards,
helped illegally transfer $7 billion out
of Russia in the late 1990s through Bank
of New York accounts.
Friday,
ING Seeks to Raise Bank of Beijing Stake
ING wants to raise its stake in Bank of
Beijing and is considering applying for a
retail banking license in China.
Sun, 05 Oct 2008 21:06:00 EDT
Today,
Asian Stocks Take a Beating
Asian markets plunged as investors focused
on deepening financial turmoil in Europe.
The Nikkei fell 4.7%, Hong Kong ended
nearly 5% lower and Indonesia sank 10%.
Mon, 06 Oct 2008 11:27:00 EDT
Caution, Inexperience Limit Asia's Clout
The financial crisis in the U.S. has given
Western financial firms a bigger role in
global finance, but Asian institutions'
caution could limit their newfound clout.
Sun, 05 Oct 2008 22:56:00 EDT
What do you think? Are we being sold a bill of goods by our **** leaders???
10-06-2008 @ 12:51PM
Sandi said...
Oops. I forgot this very important piece of the today information on China.
China Plans Trading Trial Programs
China's securities regulator plans a trial program of short selling and margin lending as Beijing revamps rules despite the global financial crisis.
Mon, 06 Oct 2008 07:35:00 EDT
10-06-2008 @ 2:19PM
bill said...
if we changed the market to market before will baliled out wallstreet .and try that first it would have opened up capitol. 2 if oil stabilize at 70 75 a barrel people will start to buy because people in the east are looking at 6to 9 thousand to heat there house and 500 to600 to drive their car if oil stayed at 140 a barrel.consumer are not spending because the oil prices were out of hand key market to market oil prices stabilized and1 percent interest rate cut. that measly stimulation check they gave us filled my tank for a few weeks need different approach
10-06-2008 @ 5:04PM
roger said...
It amazes me that the root of the real estate meltdown is not even being discussed. The problem lies much closer to home in the local government sector. Property taxes and insurance now cost much more than the interest portion of a mortgage for many if not most mortgage holders. Property taxes are at unprecedented rates, because local government employees have been fattening up salaries, benefits and pensions for years. Our public employees have the strongest unions in the country and have run off with all the loot. I have been a real estate investor for years, but you could not give me real estate in many parts of the country. If you buy a house for investment purposes, the market value of rent will not equal the cost of taxes and insurance. This means investors are not coming in to the market to buy and establish a bottom. Local governments continue to appraise property values above market so that they can operate without cutting their budgets to the extent they must. This in turn led lenders to believe properties were worth the appraised values of the county tax collectors offices, which they were not, and certainly now, are not.
any tax breaks the federal government can give will not work because local governments tax their citizens more than the federal government and are not giving their citizens any breaks. The fed needs to do something to make local governments more responsible. our non government employee citizens are suffering while our government employees get fat on $100,000 pensions padded with overtime in their last years of employment when their retirement salaries are set. Wait until the 33 trillion dollars of committed overtime pay and benefits our public employees have claimed for themselves hits the books and the magnitude of that hits the financial markets.
10-06-2008 @ 6:35PM
Jim said...
I actually purchased Cramer's Action Alert Plus and followed him trade for trade for two years up until 60 days ago.
You will never go wrong doing the opposite of what Cramers says.
Proofs in the pudding!!
10-06-2008 @ 8:35PM
Skeptical Ben said...
I feel a little better now that the always wrong Cramer says it's all over. I remember how much he loved Goldman Sachs at 200, and gleefully told us how many LBOs they'd do. Leverage has finished off Wall Street as we knew it, but Boeing, Apple, McDonalds, Target, GE, J&J are all going to be fine.
10-25-2008 @ 4:30PM
DUMBinvestor said...
Jim Cramer is a real MAD MAN- not money!!
He shoould not be tolerated any longer for making a buck out of bullying.
The credibility of CNBC should be tainted for good for hiring this mad money who knows nothing but tactful bullying!!
He should be held accountable just for enormity of the humbug he makes!!
Look at the Bear Stern story he concocted !
He is a proven LIAR!!! A dog crap is moer worth than Jim Cramer!!
10-25-2008 @ 4:39PM
DumbInvestot said...
Jim Cramer is a real MAD MAN- not money!!
He shoould not be tolerated any longer for making a buck out of bullying.
The credibility of CNBC should be tainted for good for hiring this mad money who knows nothing but tactful bullying!!
He should be brought to books just for the enormity of the humbug he makes!!
Look at the Bear Stern story he concocted !
He is a proven LIAR!!! A dog crap is more worth than Jim Cramer!!