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What to make of the market?

August 10th, 2008 · 1 Comment

Stock markets are future looking beasts, but the future is pritty murkey.. A rule of thumb is that it looks half a year ahead or so. We’ve written numerous times that the key is the American housing market. Jim Cramer, the well known former hedge fund manager and tv personality called a bottom in the market just after the lows of July 15. Does he think the the worst of the housing is over? No. Huh?!

Yea, that’s a tough one to explain. In fact, here is what Cramer had to say about it, plus a few other noteworthy remarks:

  • I do believe that housing will not bottom until the end of 2009, and that most houses will still have to fall 20% to where buyers are if the patterns of the bottom in Stockton and Bradenton are followed.
  • Is that negative for you? How about this? I think Citigroup needs to sell 500 million shares at $10, eliminate the dividend and then issue $10 billion in preferred on top of that. And that’s just to stay in business. BUT IT WILL.
  • I am simply saying that despite all of those negatives, I do not believe we will take out the July lows, because we should have by now — we haven’t. Instead, we have seen commodities collapse, inflation dwindle, the Fed have the ability to cut if it wants to now, a Merrill Lynch (MER – Cramer’s Take – Stockpickr) rebalancing of its books so it will make it, a stabilization of the endless run on Lehman so it can breathe, and a plan to be able to get out of auction rate hell.
  • Again, I hate the market. I hate that it can be up 300 one day and down 200 the next. I despise it, don’t trust it, think it is phony on up days and would like most days to be 100% short because I hate it so much.

We think it’s pretty interesting what he’s arguing. We agree with his all on the housing situation (we reported on it before, for instance here), but we’re not entirely convinced with his market call, to say the least.

If housing goes down another 20%, this will seriously affect the financial sector in other markets than just the sub-prime. In fact that is already happening. Regular mortgages are already faltering too, and there are much more of them than there are sub-primes. Credit card delinquencies are also up.

Other dangers also loom, from rising unemployment to weakening foreign economies (Japan and Europe are on the verge, or already in a recession). Rising unemployment might feed back to the housing market as well.

From now until the end of 2009 when housing will start to recover (according to Cramer) is a very long time. It’s already very difficult to see what’s going to happen next week or next day, let alone the coming one and a half year.

And what does Cramer think the Citybank news he predicts will do to financial markets if it happens? Or what will happen to the dollar when the Fed start lowering rates again?

No, we’re afraid we’re not out of the woods yet. And for the next quarter, things don’t look so bright either:

  • The CFO Optimism Index compiled by Financial Executives International and Baruch College of the City University of New York showed the latest quarterly reading on the economic outlook was 48.92, “plummeting even further” from the 54.29 recorded in the previous quarter, which was an all-time low for the survey.
  • The survey was conducted in the week of July 7, with 219 CFOs from public and private companies interviewed electronically.
  • Forty-eight percent of CFOs identified U.S. economic growth as their biggest worry in the second half of 2008. Thirty-five percent said the high cost of oil was one of their top concerns, followed by consumer spending (29 percent) and inflation (25 percent).

Well at least the oil prices are a little bit less of a worry (although, they’re still well above $100, a level which was considered excessive as little ago as half a year..)

It’s very difficult to pick stocks at these depressed levels, because almost everything looks like a value play and you can argue, “when the economy recovers…”

But we keep looking.

Tags: The Markets

1 response so far ↓

  • 1 Oil and China, stocks and the dollar.. // Aug 11, 2008 at 7:34 pm

    […] looks like Jim Cramer was onto something when he called a bottom in the market a week ago, at least for now. But these kind of things can […]