By Anthony M. Freed
One good thing about ‘bottom’ is you can keep calling it all the way down and still be right. Eventually. Now, I do not intend to begin my online writing career wasting my time and yours talking about that certain Wall Street toady named Jim Cramer (I was going to save that for later, after I got real lazy and had loosened my morals a bit). So for now all I want to say is the guy is really dangerous, if you listen to him. If you only tune in like I do, just to have a reason to yell at the TV when it isn’t on tuned to Faux Biz, then you have nothing to worry about (I can’t even watch CNN since the 2004 elections and Katrina when Anderson Cooper started ‘feeling‘ the news at me).
It’s not that he’s a bad guy, he’s not. It doesn’t have anything to do with his abilities, he is obviously better prepared to comment on these subjects than I am. It has to do with the fact that he is addressing the wrong audience on CNBC and elsewhere. All us regular folks have to think about long term growth and security if we want to hedge inflation and not all be competing for the same greeter jobs at Sprawl Mart.
What Cramer preaches is ‘day trader’ advice to people who should not be as worried about short term performance of the market, but should really be reading up on long term trends to better position themselves for growth. And furthermore, Cramer constantly violates – in fascinating fits of spastic ecstasy – the most fundamental rule of investing – Don’t let your emotions run your portfolio! And he should take a frickin’ Tai Chi class or something for crying out loud, because my empathy is giving me hypertension from just watching him.
Hey, don’t get me wrong. There are some tremendous opportunities in this market. I mean come on, anyone can see Citigroup (17.81 -0.73 -3.94%) is a hell of a deal under $20 no matter what the market looks like. The question is how long do you want to hang on to the stock before you see it go above $20? A year? Three years? Who really can say?
I do know one thing, it is not going to be before they figure out a few things like: What do we do with the rest of the off-the-books assets that have evaporated like a puddle on a playground in August? How can we make money by lending money under tougher underwriting guidelines if we all have to save money to cover the money we already lent under really goofy guidelines for years? And one of my personal favorites – Does anyone really understand who it is exactly that physically holds the notes to all these mortgages? You know, the ones they mean when they talk about Mortgage Backed Securities? Is that really something we want to leave up Judge Johnny Local in some rural county? How many years would it take to work this all out that way?
The point is , when all the bad news is finally out, I am all-in, and I will ride it to a Dow of 16,000 and beyond. But until whenever that may be I am going to be really conservative, and so should you. The real bottom is going to be a facter not just of of time, but also of the integrity of those mysterious men in black (tweed), the gatekeepers of the real numbers, the people who don’t want to be the ones who have to make the unpopular decisions. But that is what will ground us and stabilize the markets. What did they used to call it? Leadership?
So as far as Cramer goes, watch the show and have a good ol’ gnashing of the teeth kind of time. He cares more about ratings than how you invest anyway. Just don’t follow him off the cliff. When he says stuff like ‘Gee, all that bad news and the market keeps chugging along. Must be the bottom,‘ please just ignore him. An analogy I like to use when discussing this guy is to picture a very large building completely engulfed in flames, and it’s been burning for hours. Burning and burning. Burning for so long that you have to wonder what could possibly be holding it up. And just before the inevitable and spectacular collapse, there is Jim Cramer holding the door open and motioning for you to leap into the inferno.
Uh, you first Jim.
Jim Cramer *** VERSES *** Everyone else!
–www.cnbc.com/id/26141698: Cramer calling dibs on bottom – You only have to watch the first five minutes or so to get the idea, he is a definitely a bottom.
Here is just a small splattering of the available information out there and accessible through these fine resources, and the evidence is clear: Bottom is a long ways off. It is in no particular order. Many thanks to the authors and contributors of this material.
“”The worst first half year performance for the Dow was in 1932, one of the worst years of the Depression, when the Dow fell -45.01% from December 31, 1931 – June 30, 1932. 2008 is currently tracking as the 10th worst first half year performance for the Dow with a decline of -14.46% YTD as of Friday’s close (7/27).” –CNBC
Last MTD QTD YTD
Dow 11350.01 -10.19% -7.44% -14.44%
NASDAQ 2292.98 -9.10% 0.61% -13.55%
S&P 500 1280.00 -8.60% -3.23% -12.83%
Russell 2000 689.70 -7.83% 0.25% -9.96% –CNBC
“Banks have dialed up the lending requirements in the face of the nearly half-trillion dollars lost in the mortgage mess to-date. The Federal Reserve reported that banks and lending institutions have tightened credit standards across all loan-types as losses mount and liquidity remains a key issue. ..Wow, this keeps getting more and more interesting by the minute. The latest in the mortgage market meltdown is the news that Citigroup and now UBS will buy back a combined $32 billion worth of auction rate securities that were sold fraudulently. This is just another blow for cash-strapped mega-banks than to buyers of mortgage-backed bonds. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage-backed bonds. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get. “t have gone to great lengths to raise and maintain capital in this credit crunch.“–Blown Mortgage
“The Alt-Auniverse is much larger in unit count and dollar volume than subprime so even though we are just at the beginning of the ‘Alt-AImplosion’, they have already filled in the subprime default void. Scarier yet, roughly 65% of all Alt-Adefaults are POA’s. The ‘POA Implosion’ is upon us. Option Arm Reset Schedule” –Mr. Mortgage
“West Virginia has become the latest state to sue Countrywide, following similar suits filed by Attorney Generals in Florida, Illinois, California, and Connecticut…Foreclosures in a neighborhood affect the value of all homes in that neighborhood,” said Attorney General McGraw. “Therefore, while the consumers facing foreclosureare directly affected by Countrywide’s practices, all homeowners are indirectly affected.” It’s unclear what Mr. Mozilo is being targeted for, though Reuters noted that the suit is demanding Countrywide rescind all questionable mortgages, grant restitution to affected borrowers, and pay an unknown fine. With regard to nontraditional offerings, a whopping 85 percent of respondents reported tighter guidelines, up from 75 percent in the April survey, while 6 out of 7 respondents said subprime guidelines got tougher. About 30 percent of U.S. respondents said they experienced weaker demand for residential home loans over the past three months, similar to the previous survey, while 45 percent saw weaker demand for nontraditional loans, up from 30 percent in the prior survey.”–The Truth About Mortgage
“Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the default risk onto Fannie Mae (taxpayers) or-Patrick.net
“According to the Case-Shiller Index, home price declines have been slowing for the past few months. There are those who think this could be a sign of home prices approaching a “bottom”. ..I received an interesting email from a real estate agent and have permission to share the following:
‘Well, fellow housing bubble bloggers and real estate news site editors, you may not have caught the significance and long-term implications of something buried in California’s Senate Bill 1137 that just passed.The point of all this is that this new law creates an underlying legal “cause of action” for homeowners against banks and mortgage servicers who do not offer significantly larger discounts on mortgage principal, because that’s what it would take to still allow banks and mortgage servicers to retain a higher net present value on the sale of foreclosed property.'”
“What we are about to see is a race to the bottom by the world’s major currencies as each tries to devalue against others in a beggar-thy-neighbor policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump…When that happens – if it is not already happening – it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.”–Ambrose Evans-Pritchard
“The International Monetary Fund in an April report estimated banks’ losses at $510 billion, about half its forecast of $1 trillion for all companies. Predictions have crept up since then, with New York University economist Nouriel Roubini predicting losses to reach $2 trillion.”- Bloomburg.com
“One thing that has surprised me about this housing market is that while there is decent data (given that real estate is local) on house price trends, there has been surprisingly little discussion, at least in the MSM and major blogs, of loss severities on foreclosures. Admittedly, banks probably don’t want to ‘fess up to how bad things are, but this is such an important element of the equation that I am surprised that it gets far less attention than it deserves (hint: anyone with knowledge is encouraged to speak up). With Alt-A and Option ARM resets occurring at high levels in 2010 and 2011, this crisis is far from over. And Housing Wire points out that a far higher proportion of Alt-As were retained on bank balance sheets than subprime, so banks are unlikely to “clear the backlog” anytime soon.”
“Wachovia (WB) has messed up badly in Alt-A,in taking advantage of older customers, in cutting corners on loans, in having to restate losses, in Pick-A-Pay mortgages, and possibly in a drug-money laundering scheme. Yesterday, New York Attorney General Cuomo said he is expanding his investigation into the collapse of the auction-rate securities market to include JPMorgan (JPM), Morgan Stanley (MS) and Wachovia Corp (WB)…and also from Mish: Bloomberg is reporting Banks’ Subprime Losses Top $500 Billion on Writedowns. Bloomberg (and others) keep referring to this as if it was a ‘subprime’ problem. The reality is this was an unsustainable worldwide credit boom of epic proportion.” The big bank’s Write Downs and Loss table is here.”
© Anthony M. Freed
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