August 20th, 2007

N.Y. Magazine runs Jumpin’ Jim Cramer re Doom & Gloom

Posted in Money, These United States by ed

A little more than two weeks ago, Friday August 3, markets maveniac Jim Cramer went bananas on CNBC, shouting that the suits at the Federal Reserve Bank were shameful Know Nothings and demanding that they lower interest rates before the world blew up.

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In particular, he repeatedly said to “open the Discount Window” by cutting the discount rate, which was then 6.25%. His comely host purred that such a move would brew panic and “cause Armageddon.”

“No,” Q-Ball replied,” we have Armageddon, it wouldn’t cause Armageddon, we have Armageddon, in fixed-income markets we have Armageddon.”

Days before, at its regularly scheduled meeting, the Fed under its new chief Ben Bernanke had barely acknowledged the credit crisis that had been rocking Wall Street and the mortgage business since June, and instead repeated its weathered bernanke.jpg apprehension that inflation remained the greatest threat to the domestic economy.

Almost everybody on Grub Street (except us) got down on Jimbo for behaving so badly on the national tube.

But a week later, the central banks of Asia, Europe and North America — led by the European Central Bank — started pouring hundreds of billions of dollars worth of credit into the system (via short-term loans to money center banks) to keep at least some of the bond markets and basic banking in operation.

And then a week after that (ie, last Friday, August 17) the Fed surprised a lot of people by, voila — lowering the Discount Rate to 5.75%. (The Discount Window is where big banks can borrow short-term directly from the Fed, if they’d like, usually at a higher rate than they can borrow from each other. The latter being the Fed Funds rate.)

More importantly, the Fed issued language with the rate cut that indicated it had changed its mind, expressing concern that the credit fiasco might crush the economy.

So the Fed worry “bias” seems to have shifted a bit from inflation to contraction & deflation. And everybody is now expecting a cut in the more important Fed Funds rate target (currently 5.25%) at the Fed’s September 18 meeting if not sooner.

So then. It might seem that events had justified Jersey Jim’s rant.

Nevertheless, Barron’s this past weekend devoted its cover story to the Mad Money man. booyahbarrons.gifShorting Cramer” points out (as had we) that when Jeremiah Jim blows his horn on his infotainment stock show Mad Money more often than not the trade don’t work out.

But perhaps he who howls last howls best.

For now we have New York Magazine publishing a Cramer feature that paints the Doom & Gloom Scenario with brio and crystal clarity.

For example, Mr Cramer writes:

QUOTE

You’re losing money right now. This very minute. You’re losing money if you own an apartment. You’re losing money if you own a country home. You’re losing money if you own a stock or bond mutual fund. You’re losing money if you have a pension plan. You’re probably losing money here or there, you’re probably losing money everywhere (except maybe from your savings account and wallet). But this is no Dr. Seuss story. It’s more of a John Steinbeck tale, and we are the victims, a new generation of Tom Joads, and it’s the damn bankermen who broke us.

This spring, as many homeowners stopped paying, the mortgage bonds—for the first time—starting losing value. Hundreds of billions in bonds that were thought to be worth more or less the price they were sold at, it turns out, are worthless.

That’s triggered a chain reaction: Brokers like JPMorgan, Goldman Sachs, and Merrill Lynch that lent money to the firms that bought the bogus loans—most famously, Bear Stearns—basically foreclosed on those firms to get their cash back. But the firms, which are always running full tilt, didn’t have the money to pay up.

Bear, at the direction of the now-fired former co-president Warren Spector, let one fund just go down the drain. But Spector thought the other was still worth a great deal, so he put up $1.3 billion to pay back what the fund owed to the lenders and take direct control of the mortgage bonds.   warrensad1.jpeg  Spector, maybe one of the best minds in the bond business, genuinely believed that these mortgage-backed bonds still had substantial value.

If someone as savvy as Spector thought these bonds were still good when they were actually worthless, that tells you that thousands of other managers are simply dreaming if they think their portfolios are worth anything near what they claim they’re worth.

In other words, we’re looking at the start, not the end, of the lending meltdown.

END QUOTE

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  1. Conversation » Worldwide crash underway / Price Controls the answer says:

    [...] Jumpin’ Jersey Jim Cramer noted a month or so ago that when everybody is insolvent, nobody’s insolvent. Because the music has stopped and the game has ended. That’s where we’ll be. Maybe before things wrap up in Davos at week’s end. [...]

    January 22nd, 2008 at 1:48 pm

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