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Cramer on BloggingStocks: The selling's not done

Posted Oct 7th 2008 8:35AM by Jim Cramer
Filed under: International markets, Ford Motor (F), General Motors (GM), Toyota Motor Corp. (TM), Market matters, Chicago Merc Exch Hld'A' (CME), Federal Natl Mtge (FNM), Federal Reserve, Cramer on BloggingStocks, Financial Crisis

TheStreet.com's Jim Cramer says the end-of-day bounce was just shorts afraid of a worldwide rate cut.

The shorts must have just gone on "ease watch." You can tell what that is. Some devastating news will come out, say, about once-proud Royal Bank of Scotland (NYSE: RBS) (Cramer's Take), some ratings downgrade, and boom, Britain is hit for a full percentage point decline. Then, as if by magic, it rallies almost back to unchanged as the shorts don't want to be hung before worldwide rate cuts.

I always thought this behavior was curious because I don't know of a short-seller who thinks that intervention even matters, or says it doesn't matter, for that matter!

In fact, though I think it can matter not so much to our country, it does matter to those countries in Europe that really would be doing well if money weren't so tight. Our markets lost a ready source of cash and business when Europe went away, particularly upon the disappearance of China from the world's economies.

Now, of all of the new measures I like hearing, the commercial paper intervention is intriguing as the government substitutes itself for buyers for this important funding. But again, I come back to the notion that we can't really be two sides of everything, can we?


Can we really have the Fed define all markets? Look, I get the real estate market because the risk there is that the Fed owns the house and sits on it or owns the CDO until it works its way out of being a CDO.

But we can't restore confidence in commercial paper until we restore confidence that solvency and seizing are off the table. I thought it unconscionable that the FDIC didn't come out Monday and say, "We are not going to seize Sovereign (NYSE: SOV) (Cramer's Take) or Nat City (NYSE: NCC) (Cramer's Take) or anyone else for that matter, because we are going to let TARP take care of it."

Until we get seizures off the table, everything is going to be Lehman Brothers or Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) preferred and Washington Mutual debt. That's the way it is; there was too much in the system and it is still not worked through.

Same with the hedge fund redemptions. There is no magic amount there that finishes and the world goes on. Should the Fed take the other side of dying hedge funds?

What are the real endgames here? We cut rates, restore some confidence, provide some short-term funding until long-term funding can take its place wherever that is feasible and we begin to rebuild.

Or we crater the whole thing and start over.

What's the latter look like? OK, take Iceland. The Iceland banks, which all seem insolvent, own a huge amount of real estate. You seize, have the banks go belly-up, the real estate is auctioned off at dramatically lower prices and you start all over again.

Big annihilations, but then the system is built on less debt.

Tell me that isn't what you are thinking could happen at, say, a Ford (NYSE: F) (Cramer's Take) or a GM (NYSE: GM) (Cramer's Take), now that it looks like Toyota (NYSE: TM) (Cramer's Take) is in trouble and Volkswagen is the world's largest automaker by market cap.

So, those are the two solutions. In the interim, it is all short and cover and squeeze and sell until this miserable period finds a level where the selling exhausts itself and I do not believe it found that level Monday. All it did was find the level where the hedge funds had raised enough cash for that day's margin calls and the short-sellers feared leaving a tremendous trading profit on the table.

Random musings: Congrats to Dan Dicker for advancing the CDS plan that caused CME (NYSE: CME) (Cramer's Take) to rally. I think it's great because the CME has enough political clout -- unlike the NYSE -- to get something done. Doug's got a bead on the hedge fund hedge game that I think is playing out. ... There is still vast confusion on a point that I have made endlessly here -- things are too dicey to let short-term money run on this market. We know that stocks can come back, but I am now using a 2000-2002 model, Nazz-style, to come to grips with the tape where solvency of many companies was on the line.

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RELATED LINKS:
Fed Mulls Plan to Buy Commercial Paper
Asia Stocks End Mixed On Australia Rate Cut
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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.

Tags: cme, f, featured, fnm, fre, gm, jim cramer, JimCramer, ncc, sov, tm

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