Emerald

Cramer's Lightning Round - The Most Dangerous Stock for 2009 (12/23/08)

The consumer is 70% of the economy and is currently overleveraged and scared. Banking is an essential eleement to economic activity but housing is the foundation of the consumer. Banks won't lend to consumers who now have lower credit ratings and can't afford a new house. Existing home owners are upsaide down on their mortgages in many cases. The banks are also hording capital because of the next level of impendng write-offs from credit cards, highly leveraged corporate loans and commercial real estate. Banks are not fully reserved and will be back to the Fed in a few months. Yes, borrowing money from the Fed is very cheap, but that's to keep the banks solvent, not to make them a lot of money. I agree a bank stock may be a good investment if you are ok with the risk and have at least a five year time horizon. 2009 is stiill a year of deleveraging and will be a poor one for most banks. Citi also has a huge, non transparent off balance sheet pool of loans.


On Dec 25 05:57 PM Aryamehr wrote:

> that you should follow everything they say but rather mull over all
> the logical facts using your education and experience in your ruminations.
> Cramer is no different than most analysts that make comments on TV,
> and the internet, they are all nothing other than sources of information
> that can be useful to those of us who understand this, however they
> are not prophets.
>
> I listen to Cramer and most other pundits and people but I only listen
> for kernels that could lead me to compelling investments. They name
> a stock, I research the stock using fundamental analysis, I look
> at all the metrics understanding most are trailing twelve months,
> then I look into the short, intermediate and long term horizon with
> macroeconomic parameters and pick my stocks. I also consider Black
> Swan events that could happen.
>
> One of my major picks is Citigroup. Reasons - their metrics are compelling
> and their fundamentals based on the Treasury’s coordinated decision
> with the Federal Reserve to essentially back all their debt and keep
> short term rates at 0-0.25% for a long period (up to 3 years). Under
> these circumstances all the big banks are going to make a killing.
> Just ponder this, the banks can now borrow money for a relatively
> long period of time at almost zero percent interest and lend it to
> their customers and pocket all the profits without paying the Federal
> Reserve. Ex. Citi borrows $10 Billion and lends it to its customers,
> ex. businesses, credit card holders, mortgage applicants etc. without
> having to pay any interest to the Federal Reserve for a long time,
> or until the economy starts manifesting an expansion. By this time
> the housing market will have bottomed.
>
> Anyone that expected the economy to make an about face in the span
> of a week or a quarter is probably a moron. Macroeconomic events
> take time. The latency period between cause and effect is usually
> 18 months, so for TARP to manifest its positive effects it will mean
> that we will probably not see its full effects until the early part
> of 2010. What one needs to understand is the effects of TARP and
> its future progeny. The results will unequivocally be an expansion
> in economic activity however they will have inflationary side effects.
> This is usually the policy applied in most developing nations however
> the monetary policy of these nations is contained within their own
> borders. Our monetary actions affect the entire globe since our currency
> is the preferred currency used for international trade and hoarding
> national reserves.
>
> The bubble in real estate was evident in 2004 and I liquidated everything
> then, however I was always fearful of one word that would gnaw away
> at my reserves; Inflation. My fears are coming to their fruition
> and the only place left to park your money appears to be the securities
> market. Mark my words, inflation is a latent tax that in the modern
> era compels one to be vigilant or else you will have little savings
> for your retirement. Mr. Buffet spoke my thoughts recently by stating,
> "Cash is Trash," it truly is Trash. If you take into consideration
> the Real Inflation rate, that is eliminating Hedonics from the governments
> formula, it is more than obvious that inflation has averaged at least
> 7% annually for the latter decade. Just use the rule of 72 and you
> will agree. If you agree with this then after paying taxes on the
> interest in your CDs or Money Market accounts you will probably net
> 2%. With inflation at 7% this would mean you are losing 5% on your
> money every year that you have it sitting in the bank. Owing to this
> using the rule of 72 that would mean within 15 years your money would
> be worthless. So can you tell me if there is a better investment
> other the stocks? I don't think so. If you don't like Citi then consider
> any of the remaining majors, such as, Bank of America? JP Morgan
> Chase? or Wells Fargo? Believe me the economy won't turn around until
> the banks turn around. Real Estate is secondary to the banking sector
> and that is why TARP essentially addressed the financial sector.
> I chose Citigroup because of its international exposure. Remember
> most of the future growth is going to be in the developing nations
> not in the West and this is where Citigroup’s strengths are apparent.
>
>
> Last but not least we need to understand that we are the only nation
> in the world that has the privilege of being able to print a currency
> accepted anywhere in the world. I will leave you to ponder the consequences
> of abusing this power and the global ramifications if this is not
> done prudently.