The Financials, the Automakers, and the Call That Cramer and All of CNBC Got Wrong 22 comments
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On July 15th, 2008, Jim Cramer of CNBC’s Mad Money called a bottom in financials, saying that the July lows would not be tested again. Now let’s get it straight, I love Cramer. I think he’s a great guy and he’s doing a TV show for a great cause. But in this instance, he got completely and unbelievably wrong.
Let’s recap what has happened since then:
- A few weeks ago, Fannie Mae (FNM) and Freddie Mac (FRE) got one of the largest bailouts in history. The respective stocks are now worth $.46 and $.28 per share respectively.
- Ford (F), GM (GM), and Chrysler are seeking a bailout of $50 billion.
- Lehman Brothers (LEH) files for Chapter 11 bankruptcy. The most recent trade on that stock was $.14 a share.
- Bank of America (BAC) acquires Merrill Lynch (MER) for 50 billion.
- Washington Mutual (WM) is looking to begin the auction process. No surprise there. The stock has fallen over 33% from the July lows.
- AIG (AIG) gets a two year $80 billion loan of extra liquidity to stay afloat. In all honesty, it will probably go under anyway. AIG traded at $19.73 to mark the July lows. Today, it trades at $2.23 (yes, $2.23)
A few weeks ago, we were witness to one of the biggest economic bailouts in United States history, a bailout that at the end of the day, could total $200 billion. I’ll spare you with the details, but the fact remains that it is more thank likely that we, the taxpayers of this country, will be the ones bailing out these two institutions. What a terrible precedent to set. What’s to stop any of this from happening in the same manner that it happened this time around? Hey, if you have the backing of the Federal Government, why not right?
Ford, General Motors, and Chrysler seem to share this view, as they are seeking a $50 billion loan to build more fuel-efficient cars. You can almost be certain that request will be granted based on this most recent decision. I’ve written two articles covering the U.S. automakers and their repeat failures over at Seeking Alpha (Why Auto Stocks Are an Easy Short, and GM and Ford: Still Easy Shorts), both of which were met with considerable opposition. The point of both of those articles came down to the following: “U.S. auto companies were not prepared to meet the ever changing needs of a dynamic new world economy,” and it is more than fair to say that the stock prices have reflected that. Poor build quality, combined with poor management at the top, as well as the high oil prices left them doomed for failure years ago.
Ford and GM do not deserve any funding from the taxpayers of this country, as it was their own poor decisions that left them in their current situation. I applaud Toyota (TM) and Honda (HMC) for being ahead of the curve.
But back to the financials, and there’s Lehman Brothers, which just recently announced its bankruptcy. I think that one speaks for itself.
Bank of America made one of the largest acquisitions in history in its buying of Merrill Lynch last Monday. Ultimately, this will prove to be a game changer, but again, it will take many years before such a buyout can add to the bottom line.
And then there are the more immediate future bank failures, which will most likely come in the forms of Washington Mutual and AIG. AIG just today received an $80 billion loan from the Federal Reserve to stay alive. I sure am glad to know that my tax dollars are being spent so wisely!
The fact of the matter is that this credit crisis is FAR from over. Every day I hear the latest analyst calling the bottom in financials or housing, and the truth of the matter is that nothing has manifested itself whatsoever in the financial markets to make me believe otherwise. Anyone that is buying these stocks as a long-term investment had better be prepared to ride that investment out for a good twenty years, because that’s how long it will take for these institutions to regain their footing in the worldwide markets. And once these companies actually do start turning the corner, the fact remains that the easy money days are gone simply because the leverage that they have been using for the past five years will be non-existent.
In closing, I leave you with the charts showing the sheer bloodbath that the financials have undergone this past year. They say that a picture is worth a thousand words, and in this case, I find this to be an understatement. Take a look:
Conclusion: Cramer called this one terribly wrong and it sure isn’t the first time (just look at where NYX went). The fact remains, however, that this market remains a sellers market until we have some credible evidence stating otherwise.
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This article has 22 comments:
For some time now, he's been negative on financials except for his 'fortress four' - WFC, JPM, USB, and BAC. Run a chart of those four from 15 Jul to now. None of them have gone below the mid-July lows.
Whatever you may think of Cramer, he's been right on this one so far.
Let's take Apple for instance. He was saying buy all the way up to 200. Then he was saying don't get greedy and sell. He reiterated his position all the way to it's bottoms when he started saying buy. When it got back to 180 he was saying sell again.
Did I listen to anything he said? No. Do I wish I would have? Yes. Give the man some credit. He is right a lot more than people give him credit for. What do you want? Him to be a coward like everyone else and mince words?
The people that criticize him sicken me, not because they aren't right, but because the alternative is vanilla. The markets move based upon peoples' REAL opinions. That's the value in that show.
we need more long term direction from the management of these companies instead of looking at short term profits. they have already a healthy product line (outside the usa).
they are a good bet and the taxpayers ought to take some ownership in any loan to make sure the money serves the country and not the stockholders.
Also, the reason that US car manufacturers make large vehicles is because Americans like large vehicles and until the price of gas went thru' the roof they were buying them. I don't read anywhere about the Japanese manufacturers getting caught with a lot of unsold large trucks. Apparently that isn't news.............
Who do you think you are that you should sit on your butt and make trades and perhaps become wealthy, while you would deny that to our AMERICAN workers, who worker hard for their pay, who support our economy?
I'm fortunate to have a white-collar job and to be able to dabble in some investments. But I will never forget my roots and will never diss American workers, either union or non-union, and will never ask them to accept Asian salaries or working conditions, or commit hari kiri for their companies.
On Sep 19 01:16 AM Bingie wrote:
> Most union members were brain-washed by the out-of-control unions.
> They keep squeezing the employers year after year and the members
> let it happen. Now the employer is near death, what had they achieved
> ? Nothing except their jobs are gone. Greedy is the word. Japanese
> workers are extremely loyal to their company they work for, just
> like a big family. They would not kill the hen just for one egg.
> Tradition and loyalty are very important. That's what we need here
> in the USA.
And stop calling it a bailout; it's a loan. You're just scared that your ridiculous shorts will lose money. Ford and GM have already bottomed out in the 4's and 9's respectively. They'd pretty much have to tank to go any lower. With or without a loan, that's not going to happen. It's time for you to go to an autoshow so you can stop living in the 80's where you had to drive your mom's old LTD . . .
The US 3 invested heavily in trucks because they still had a superior product that consumers wanted and they intended to keep it that way. They learned their lesson in the '80s when they lost their lead in mid size sedans with bad product. If this strategy is the result of bad management, why did Toyota build 2 large truck/SUV plants in the US in the last couple of years?
What Andy is too lazy to understand is that the US 3 produce a full line of products, including high mileage small cars, (many like the Malibu are very competitive with Toyota and Honda) but their highest margin vehicles are the trucks and SUVs. The only reason Toyota and especially Honda were not hurt as badly with the switch from cars to trucks is becauase they were minor players in the truck market so they had very little to lose.
Go sell your Liar Loans Andy. I heard on the Street that people who can't pay won't default if you charge them a higher interest rate.