Jim Cramer: The breadth of the danger is staggering

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Posted Jul 15th 2008 8:56AM by Jim Cramer

You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved.

First, obviously, are Fannie Mae and Freddie Mac. We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win.

We all know that Citigroup, Wachovia, Washington Mutual and National City are in trouble. Bank of America says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?

No revelation that Lehman or Merrill's in the soup, although I do marvel that at no price do they seem interesting to anyone -- value guys, takeover guys, or acquirers in general. But how about Comerica, Regions Financial, Sovereign, Huntington Bancshares, Suntrust, Fifth Third, First Horizon, Marshall & Ilsley, Zions, Key, Colonial and BB&T? Their charts are indicating there is much more devastation ahead. Every one of them is small enough to fail, and no one would give a darn. If the FDIC follows the trail blazed by IndyMac it would be great because IndyMac Federal isn't foreclosing anymore. Get rid of the foreclosures, get rid of some of the overhang. But is that the plan, or do they have no place to put the foreclosed loans?

We know that the Gang of Four -- MBIA, MGIC, PMI and Ambac -- has been obliterated, a long-running saga of puffing by management and disastrous numbers. These companies are important, even if everyone seems to think that they have gone down without much repercussion other than the 40th story about how private mortgage insurers are now raising rates. Golly gee, who is paying them anything? They don't have enough money to pay the bank back for heaven's sake!

For example, they are very important to AIG, which seems to have found no bottom. None at all. Remember that funny dividend boost at AIG? What was that about?

There are tons of other financial insurers no one's paying attention to that seem to go down pretty constantly. An outfit like XL seems like it is a wasting asset. Or how about Genworth, which is selling well below book value?

Then there is everything auto, not just Ford and GM (although do you really need anything else to go wrong there?) -- outfits like Visteon or Autonation or Carmax aren't going to get through this one unscathed.

Or how about the homebuilders? Does anyone think that Hovnanian, Lennar, Pulte and Horton will all make it? I don't. How about that nifty Lennar upgrade by UBS? Sold to you, UBS, along with all of the toxic mortgages you STILL OWN!

I am not even going to include the airlines, they are all hopeless in my opinion, except for maybe Southwest. They are charities.

Other areas have problems -- retail has some busted stocks, and so do restaurants. Chico's? Charming Shoppes? How about Macy's -- where's that headed? Sears? OUCH!

You can see some techs folding, but only a handful. Maybe because only AMD is on the fiscal ropes do people see "relative strength" in tech, whatever that means.

The problem is that the dire stocks, the ones I have listed, are so numerous and so concentrated with so little hope for rescue that it is hard to imagine anything but more downside for these stocks and therefore more downside for the rest of the market, simply because they are so glaring, are owned by so many mutual funds and have so many roles to play in the real economy.

We know that things have gotten out of control because the IndyMac collapse -- widely predicted -- used a huge amount of the surplus the FDIC has, suddenly making the safety net seem like a flimsy piece of Brawny.

The bottom line here -- there is too much going wrong right now, too much to put us anywhere near sound footing. I suspect that every rally will be met with selling until we see a multitude of collapses like IndyMac.

I am not going to search for positives in any of these groups yet, and if they rally off the decision by the Treasury to make more explicit the Fannie and Freddie guarantees, I would scale out of them once again on any short squeeze like the one we had at yesterday's opening.

Someone asked me yesterday, "When do we bottom?" I said it wouldn't be until all the banks that have to fail do so and GM files bankruptcy along with Ford. I said it matter-of-factly, because I meant it and because it is obvious.

http://www.bloggingstocks.com/2008/07/15/c...r-is-staggerin/

[almaty 19]

wow, nothing positive..just chaos ahead

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wow, nothing positive..just chaos ahead

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"I think the system is basically sound, truly," Bush told reporters in the White House press briefing room.

...

Bush said: "We're going through a tough time in our economy."

http://www.foxnews.com/story/0,2933,382541,00.html

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"The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities," Bernanke told the Senate Banking Committee early Tuesday.

The nation's top central banker warned "many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain."

...

"The financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities," he warned.

The combination of rising commodity prices and tighter credit "has sapped household purchasing power even as they have boosted inflation," Bernanke said.

...

Bernanke, in response to a question from Sen. Richard Shelby, R-Ala., said he felt that IndyMac "was particularly weighed down with low-quality mortgages. In that respect its failure, barring acquisition by another firm that didn't occur, was inevitable."

But he added that the banking system is well capitalized. "My concerns have turned less on the solvency of the institutions and more on their ability to provide credit necessary to keep the economy growing."

Bernanke said he believed that home building was likely to finally end its slide later this year or early next year, but that the decline in housing prices could continue longer than that, although he said he couldn't predict when, or at what level, they will find a bottom.

http://money.cnn.com/2008/07/15/news/econo...nking/index.htm

[Peikko 1,575]

It's possible though. I think he has a point regarding the banks as I don't think it's possible yet to determine just how bad the subprime mess is. I heard a program on NPR that was really interesting regarding the decisions that were made at the time and the role of speculators which was really quite scary in terms of people making decisions on lending knowing full well that the borrows hadn't a hope in hell of repaying them.