Sunday, October 12, 2008

Cramer's extreme case of panic

This strategy, which I presume will not be adopted, but which makes the most sense, would allow for shotgun weddings for all the weak banks to eliminate the bleeding. Without this kind of action I am reverting to a downside target of 6,700 for Monday and then 4,700 for Tuesday in keeping with the hopeful '87 playbook.

Why am I so negative? Because the forced selling is just beginning, the only people being margined out now are the most stretched, and in the ensuing weeks we will discover that most annuities cannot meet obligations as the piecemeal nature of the insurance reports will inspire even less confidence than the government.

That means we are not in a "fear itself" moment, because the losses haven't begun to take their toll.

The newspapers are filled with stories saying there are buying opportunities and stocks selling at incredibly discounted prices. They are incredibly discounted only if unemployment does not skyrocket. My take is this: Without a comprehensive worldwide plan you should still be thinking about buying only small amounts into desperate selling tomorrow, and then Tuesday commit more into what could be a concluding gap down.

To be more aggressive about buying is impossible given the inability to take off the table a 1929-1932 scenario with an almost a total wipeout of capital. Don't forget that we had an 80% decline in the Nasdaq 100 in 2000-2003 without a recession. Why is that less likely? Because there are too many dividend-yielding names that will cushion the blow and eliminate that kind of decline unless we get the severe depression scenario that comes with unemployment and major bank closings.

That viewpoint was his earlier Sunday before the coordinated banking intervention in Europe. He then changed his viewpoint because this intervention took down systemic risk.

But I would suggest that that post marked the extreme of anxiety and pessimism.

And that usually happens at turning points.

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