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Yesterday some brief commentary by Jim Cramer regarding the subprime lending situation was brought to my attention. Shockingly, Cramer displays some lucidity I didn't realize he was capable of -- but he then ruins it by translating it, as usual, into a call for a stock market rally. Like Kudlow, this guy's mind is stuck in a bubble-ignorant paradigm dating back to about 1995, somehow in unperturbed by the massive 2000 market crash that happened in between.
Cramer notes:
That's the lucidity. But Cramer's broader point is that this is all just an elaborate setup for a Fed rate cut and market rally:
Oh puh-lease. The Dow rallied last year; but the dollar fell 10%.
Cramer thinks the Fed will cut rates dramatically in response to the mortgage lending implosion, and that that will provide a stock market boost. Me and Cramer actually agree on the likely extent of this implosion -- gargantuan; economy-wide.
But he's forgetting about the dollar. A dramatic rate-cut would tank the dollar, which could set off a horrible chain reaction at a time when we are more dependent on the rest of the world's dollar-recycling than ever. I think there's strong evidence already that the Fed is thinking very much about defending the dollar -- this is why they continue to harp on inflation even when the CPI plummetts.
If the Fed is indeed dumb enough to cut rates dramatically, (1) the situation is likely so bad domestically that the market won't be able to rally (major recession), and (2) the collapse of the dollar will undermine any investments in the United States.
Another relevant fact is that historically, after a rate pause, the
market tends to tank if there's a rate cut, and rise if rate increases resume. Why? Because if the Fed has to cut rates after it takes stock, something is very wrong with the economy. If it has to raise rates, the economy is strong. And while the stock market may move opposite to interest rates in the short term, in the long term, it is positively correlated only with a strong economy.
So here's a better bet for investors: go for a market rally outside the US where the currency won't be in peril, or pick up some precious metals. We're in for some real system shock. In such situations, the answer is not to plow more money into that system; but to find a safe haven.
Don't get "Cramered" like so many people did in 2000.
Originally posted on autoDogmatic.
Cramer notes:
Am I Mr. Brightside? No, I believe that subprime's awful, even worse than the bears think. When I look at the cancellations that KB or Toll has, I know that the same rate applies to those who took these loans down. That's maybe 30%-40%, not the 7%-10% default that their models presume when employment is this low.
The Fed is always reluctant to move because it needs the crisis as a cover so it doesn't look like it's soft on inflation. ...
If anything, they're saying there might be a fire. I say it's raging, which is why I believe the crisis is about to give us that May cut that I am counting on to take the Dow up 17% this year.
If anything, they're saying there might be a fire. I say it's raging, which is why I believe the crisis is about to give us that May cut that I am counting on to take the Dow up 17% this year.
Cramer thinks the Fed will cut rates dramatically in response to the mortgage lending implosion, and that that will provide a stock market boost. Me and Cramer actually agree on the likely extent of this implosion -- gargantuan; economy-wide.
But he's forgetting about the dollar. A dramatic rate-cut would tank the dollar, which could set off a horrible chain reaction at a time when we are more dependent on the rest of the world's dollar-recycling than ever. I think there's strong evidence already that the Fed is thinking very much about defending the dollar -- this is why they continue to harp on inflation even when the CPI plummetts.
If the Fed is indeed dumb enough to cut rates dramatically, (1) the situation is likely so bad domestically that the market won't be able to rally (major recession), and (2) the collapse of the dollar will undermine any investments in the United States.
Another relevant fact is that historically, after a rate pause, the
market tends to tank if there's a rate cut, and rise if rate increases resume. Why? Because if the Fed has to cut rates after it takes stock, something is very wrong with the economy. If it has to raise rates, the economy is strong. And while the stock market may move opposite to interest rates in the short term, in the long term, it is positively correlated only with a strong economy.
So here's a better bet for investors: go for a market rally outside the US where the currency won't be in peril, or pick up some precious metals. We're in for some real system shock. In such situations, the answer is not to plow more money into that system; but to find a safe haven.
Don't get "Cramered" like so many people did in 2000.
Originally posted on autoDogmatic.
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