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8.07.2007
This Is What I Was Talking About
I "twittered" this morning that I had James Cramer of "Mad Money" yelling at me. This is the full clip, a portion of which was played on The Today Show this morning.
And on a related matter, can someone tell me what he is talking about? The best I can tell is that he wants the Federal Reserve to cut the discount rate today but, other than that, I'm completely lost. And tell me what that "Bear Sterns" graph has to do with it. (And if you can explain it without using the word "idiot", it would make my day go better.)
Indictments I understand. This stuff I don't.
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11 comments:
That guy is a f***ing spaz. I think he's goinig to have a heart attack. I don't think it helped that the woman on the show was dressed like a giraffe. I think that whipped him into a frenzy.
Okay, the subprime mortgage problems have brought huge losses to Wall Street firms who loaned the money to mortgage firms through bonds. Bear Stearns is the first to show the huge losses. They fired the CEO and the stock has dropped so fast the automatic rules were trigged to stop trading. Screamer guy believes that almost all the other Wall Street firms will have the same problems.
Because the firms had so many losses in the mortgage market, they have severely "tightened" the rules for making loans. So much so, that Screamer guy believes no one but "prime" companies will get any loans (see bond market + chrysler financing)and it will trickle down to consumers, who won't be able get financed for homes or cars. He believes that if the Fed "loosens" the credit crunch by lowering the interest rates charged to banks (Fed rate) this will encourage the firms to at least loan out to consumers with good credit. He's wrong, though. We are just going into the bottom of the natural cycle ... good times don't last forever - unless you have mineral rights in the Barnett Shale
You may have heard or read somewhere that there is a crisis, or perceived crisis, in the high-risk mortgage market. Basically, people that probably shouldn't have gotten a mortgage, did, and now a high percentage of them are defaulting on their loans. The defaults are affecting the mortgage companies, of course, who use fixed income instruments(Bonds) to fund the mortgages. Bonds in turn, are interest rate sensitive. What Cramer is saying is the Fed should lower the discount rate(one of several key rates in the financial world)which in turn will help lower fixed income interests rates(Bonds) which in turn will take the pressure off of the mortgage companies and the big brokerage houses that trade in Bonds(Bear Stearns being just 1 of the major players). The Bear Stearns chart reflects a big dive in the price a few months back when this high-risk mortgage issue came to light. Their stock price stabilized, but then has showed a steady decline. Investors are punishing Bear Stearns stock value because of their huge investments in fixed income instruments(Bonds) which are at risk right now because of the defaults on the high-risk mortgages. Cramer is saying the Fed has their collective heads up their aces and has no clue what they are doing, as opposed to all of Cramer's friends in the private sector, who have a vast knowledge of experience and wisdom, and know exactly what needs to be done. Lastly, Cramer is saying he gets calls while he is driving home from very important people in the private sector who's collective aces are hanging out because they loaned too much money to people that they probably shouldn't have and want the Fed to help them out by lowering one of the key rates.
No, I'm not an investment banker, but I did stay at a Holiday Inn Express last night.
Big picture is this: Think of a teeter-totter. On one side, people who contribute to our national economy by being able to support themselves, their families, and pay in taxes. On the other side, people who are the opposite, depending on the "government" (i.e. the people on the other side of the teeter-totter). More and more people are piling on that side, and comparatively fewer people are on the contributing side. In the end, the whole country goes to pot. Little symptoms, like the fact that 10 million people borrowed money to buy houses they could not afford and never should have bought if they had exercised a degree of personal responsibility, are just pieces of the big, huge problem that will in the end result in the collapse of our way of life. Folks, you can't have 10 people on a desert island and 9 of them barking at 1 to supply all that they need.
Look at BSC now ~ in the midst of a $10/share trading range. Now up over a$1.00/share as of this posting. Friggin' armageddon. Moron.
11:46 - I understand your explanation - thanks by the way - but what I do not understand is that you say he is wrong. You say it like that's a fact. Is it a fact? Or is it just your opinion? (which is obviously a well-informed one) I'm not being combative here; that is a sincere question.
That's what I don't get when I am trying to understand the state of the economy. Seemingly well-informed people often state conflicting things as if they are facts.
If anyone wants to explain further, I'll certainly keep trying to get it.
Let's see--high risk loans are--HIGH RISK!! Maybe it would be sound business strategy to NOT loan to a "high risk" company or individual, even though you are insatiably greedy to make more money! Of course, this reasoning is probably WAAAAAY to complicated to those "high finance" idiots in their ivory towers. And we wonder why our country is having so much trouble!
I blame the problem they are talking about on Capitalism. Capitalism - it's a double-edged sword. Some/many greedy mofos are getting what they deserved.
Heck, even Johnny Lanier is a real estate agent these days - I knew him in elementary school, and I always thought he would be a farmer....he was just too sweet......it seems like EVERYONE is a REAL ESTATE AGENT these days.
I'm just glad I DO HAVE MINERAL RIGHTS IN THE BARNETT SHALE, (whatever that means (and I know even that won't last forever)), although I am pining for some quality ground water from my wells these days. I think I'll invest in some bottle spring water companies.
Anonymous 2:23 - it is opinion (not just mine, though) that he is wrong. It is easy for everyone to see that easy-to-get mortgages led to artificial real estate profits. It is also easy to see that there were people buying real estate that was priced too high with money that was too easy to get with no money down. Doh! Anytime a pendulum swings to far in one direction it overcorrects towards the other direction.
The fed can lower rates, but the banks will still be licking their wounds and they WILL tighten credit. And the bond market will require higher returns. I think the majority of economist/analysts would agree with this.
The question is: how bad will it be? will it just be Wall Street (serves them right, IMO, for being so stupid) or will it hurt the economy beyond the consumers that have already lost their homes. We are due for a downturn, and even the appearance of bad news could trigger the start. We have already built up a number of things that should have stalled the markets - oil, housing decline, etc.
OK - I'm chiming in a little late on this topic.
Barry, your dad should be able to explain this one to you.
Now you know how we feel when we have to read contracts.
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