Cramer: "Prepare to Get Beaten Down Again"
Enviado: 13/12/2007 15:56"Prepare to Get Beaten Down Again"
By Jim Cramer
RealMoney.com Columnist
12/13/2007 9:44 AM EST
New one: Fed suck-ups! Suddenly we are hearing about "Fed watchers" who are happy with the plan. They are joyous that the Fed's trying to get three-month rates down, as if somehow that was and is the problem. They are grateful that an auction will occur that could get rid of bad loans, some $20 billion in bad loans. This is the "on second thought, the sellers of the banks were dead wrong."
Wow, Fed brown-nosing. Now that's something that's heartwarming. These suck-ups are people who are very concerned about a couple of trees in the forest: the fed funds rate and the short-term Treasury prices. They think the Fed has "licked" that three-month interest rate problem. They think this matters because it will keep the resets down on adjustable rate mortgages that are tied to these rates. Makes some sense, if the resets that are killing us are linked to that rate. Some are, but most of the ones that are causing foreclosures are not.
The suck-ups are looking at an auction process that will allow banks to rid themselves of bad loans and thinking, "That's it, now we are getting our arms around this problem."
A piece of the puzzle, people are saying. A nice bit of tinkering.
Wrong!
OK, to go over again what the Fed needs and needed to do:
Make people feel like there is an opportunity to buy homes coming. The current plan somewhat addresses teaser rates that are resetting and somewhat addresses teaser rates that can be given now. It somewhat addresses foreclosure rates. But why not solve the problem once and for all by taking fed fund rates to 3% instead of tinkering with LIBOR to keep it near fed funds?
Make banks pay less to depositors so it will be worth it to make those loans.
Allow the owners of needed capital feel like they will be rewarded if they invest in what would otherwise be failing banks.
Come up with an auction plan that could do more than address a couple of days' worth of bad loans from Countrywide (CFC - commentary - Cramer's Take - Rating) or Washington Mutual (WM - commentary - Cramer's Take - Rating). Does the Fed realize the problem is $500 billion, not $50 billion?
The homebuyer, the home seller, they are not looking at LIBOR or short-term teasers that are 5%. The big banks are worried about the loans going bad because it isn't worth paying the loans. They are not worried about day-to-day funding. They are worried about running out of money because of "other real estate owned"! They are worried about being closed down, just like they were right to be so from construction lending in 1990!
In other words, the reaction in the market for Citigroup (C - commentary - Cramer's Take - Rating) and Bank of America (BAC - commentary - Cramer's Take - Rating) and Wachovia (WB - commentary - Cramer's Take - Rating) and Capital One (COF - commentary - Cramer's Take - Rating) is very smart, because this plan has nothing to do with curing the net interest margin problem so the banks can rebuild their capital. It has nothing to do with getting overall rates low enough that domestic growth will get spurred and we can grow our way out of the problem.
There must be an incentive for new capital to come in and invest, and that incentive is the hope of making money somewhere down the road as the banks, over time, rebuild capital. These people can't get a beatdown the moment they pay the money. Yet that's what is happening.
It's great to try to get three-month interest rates down to try to tinker with teasers.
But it's too late for that little tinkering. It is time for bold plans, not attenuated ones.
So, the three month rate's looking brighter. LIBOR, the price of teasers, can stabilize or go lower.
Those trees look better.
The forest looks real bad. And it's getting much worse. Fast.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)
By Jim Cramer
RealMoney.com Columnist
12/13/2007 9:44 AM EST
New one: Fed suck-ups! Suddenly we are hearing about "Fed watchers" who are happy with the plan. They are joyous that the Fed's trying to get three-month rates down, as if somehow that was and is the problem. They are grateful that an auction will occur that could get rid of bad loans, some $20 billion in bad loans. This is the "on second thought, the sellers of the banks were dead wrong."
Wow, Fed brown-nosing. Now that's something that's heartwarming. These suck-ups are people who are very concerned about a couple of trees in the forest: the fed funds rate and the short-term Treasury prices. They think the Fed has "licked" that three-month interest rate problem. They think this matters because it will keep the resets down on adjustable rate mortgages that are tied to these rates. Makes some sense, if the resets that are killing us are linked to that rate. Some are, but most of the ones that are causing foreclosures are not.
The suck-ups are looking at an auction process that will allow banks to rid themselves of bad loans and thinking, "That's it, now we are getting our arms around this problem."
A piece of the puzzle, people are saying. A nice bit of tinkering.
Wrong!
OK, to go over again what the Fed needs and needed to do:
Make people feel like there is an opportunity to buy homes coming. The current plan somewhat addresses teaser rates that are resetting and somewhat addresses teaser rates that can be given now. It somewhat addresses foreclosure rates. But why not solve the problem once and for all by taking fed fund rates to 3% instead of tinkering with LIBOR to keep it near fed funds?
Make banks pay less to depositors so it will be worth it to make those loans.
Allow the owners of needed capital feel like they will be rewarded if they invest in what would otherwise be failing banks.
Come up with an auction plan that could do more than address a couple of days' worth of bad loans from Countrywide (CFC - commentary - Cramer's Take - Rating) or Washington Mutual (WM - commentary - Cramer's Take - Rating). Does the Fed realize the problem is $500 billion, not $50 billion?
The homebuyer, the home seller, they are not looking at LIBOR or short-term teasers that are 5%. The big banks are worried about the loans going bad because it isn't worth paying the loans. They are not worried about day-to-day funding. They are worried about running out of money because of "other real estate owned"! They are worried about being closed down, just like they were right to be so from construction lending in 1990!
In other words, the reaction in the market for Citigroup (C - commentary - Cramer's Take - Rating) and Bank of America (BAC - commentary - Cramer's Take - Rating) and Wachovia (WB - commentary - Cramer's Take - Rating) and Capital One (COF - commentary - Cramer's Take - Rating) is very smart, because this plan has nothing to do with curing the net interest margin problem so the banks can rebuild their capital. It has nothing to do with getting overall rates low enough that domestic growth will get spurred and we can grow our way out of the problem.
There must be an incentive for new capital to come in and invest, and that incentive is the hope of making money somewhere down the road as the banks, over time, rebuild capital. These people can't get a beatdown the moment they pay the money. Yet that's what is happening.
It's great to try to get three-month interest rates down to try to tinker with teasers.
But it's too late for that little tinkering. It is time for bold plans, not attenuated ones.
So, the three month rate's looking brighter. LIBOR, the price of teasers, can stabilize or go lower.
Those trees look better.
The forest looks real bad. And it's getting much worse. Fast.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)