Cramer - We avoided the Great Depression II

[shotgunner]

I caught the last 20 minutes or so of Mad Money with Jim Cramer last evening. I was surprised by his comments that this weeks actions by the Federal government avoided the US from slipping into the Great Depression II. He also advised investors to reduce current equity positions by 20% as we go into the fall. Thoughts?

 

[Tadpole]

Thoughts?

Cramer is an [-]idiot[/-] cartoon but he does manage to be absolutely right when he uses the unknown as a baseline for truth. Could have or not. That's quite unrelated to my take on Cramer - that he is basically an [-]idiot[/-] cartoon with a big mouth backed by a horn and other sound effects.

 

[chinaco]

I think there likely to be a protractive melt down of markets and it would have affected the economy... how deep and how long, no one knows.

Plus it would have begun driving otherwise healthy companies out of business and impeded new and existing businesses from raising capital and getting loans.

IMO - They did the right thing.

Cramer is a little eccentric... and he could be exaggerating a little... but by and large he is correct. It would be devastating.

I believe we would have seen our portfolios melt and take many years to recover.

My plan of action. I have not had much luck trying to time exits and entries... don't do it any more. I am sticking with my plan. Highly diversified portfolio. High grade bonds (govt and private industry mainly mid-term) and index equity funds LC,MC,SC, Foreign. approximately a 60/40 mix.

 

[W2R]

I caught the last 20 minutes or so of Mad Money with Jim Cramer last evening. I was surprised by his comments that this weeks actions by the Federal government avoided the US from slipping into the Great Depression II. He also advised investors to reduce current equity positions by 20% as we go into the fall. Thoughts?

I should preface this by mentioning that I think Cramer is a total doofus and only watch his show occasionally for entertainment, NOT for financial advice, personally. I didn't hear this particular show, but it is pretty hard to imagine his reasoning, if any, for dispensing such ludicrous advice.

I think reducing one's current equity positions right now would be pretty foolish, unless one is really, really sure that the market is about to take a significant plunge and stay there. I tend to think that is very unlikely "as we go into fall" (the next couple of weeks or month?). We are on the verge of seeing the biggest governmental intervention in the market since the Great Depression. Cramer's suggestion seems consistent with his past history of constantly poor judgment.

On the other hand, tasked with predicting the unpredictable almost any of us could be right once in a while.

I'll keep my equities, and like Chinaco, I'll stick with my plan, thanks.

 

[Midpack]

IMO - They did the right thing.

I believe we would have seen our portfolios melt and take many years to recover.

Cramer aside, I also agree that the Fed was right to act, the Hoover admin didn't act and we all know how that turned out. And while I don't like the additional debt we may have taken on, I don't see how the downside to Fed intervention could be worse than doing nothing --- IOW, it could turn out better because they acted, but hard to see how it could turn out worse. We can't change what's happened, what's more important now is regulation/oversight to prevent a recurrence IMO...

As for reducing equity exposure, I don't pay any attention to Cramer anyway. I'm staying the course period.

 

[Dawg52]

I was surprised by his comments that this weeks actions by the Federal government avoided the US from slipping into the Great Depression II.

I don't have the financial expertise to know if we avoided another depression, but I wish these guys wouldn't make such comparisons. No doubt, a very serious situation otherwise the gov't wouldn't have done what they did. But for journalist(or whatever he is) to make comparisons to the great depression, it just compounds the fear already in the markets.

 

[Eagle43]

Cramer is covering his Rear End, so he can say I told you so if the market keeps melting down. Further when all this blows over, he'll be yelling to buy, buy, buy. I just listened to the Vanguard CEO Bill McNabb, who told me to do nothing. His advice is much wiser than Brother Cramer. I made an allocation decision and I'm sticking to it.

IIRC, one of the causes of the great depression was fear. Now, day after day we get bombarded by fearmongers which creates fear. Ignore them. The adults (Bernanke et al.) will act to keep the financial system solvent. Taxpayers will be dunned, but hey it beats collapse. Also, I think a lot of these bailouts will be paid off with interest. In the end the government will make money. The fun part is going to be the finger pointing. "It's your fault" will become a bumper sticker on the campaign trail.

BTW, the Financial Times reports that other markets "Roar In Approval."

FT.com / In depth - Global markets roar in approval

 

[hankster]

I read a good "Stay the course" article this morning.

Sit tight; it's no time to fidget - MSN Money

It sounded like the voice of reason to me.

 

[Retire Soon]

IMHO, Kramer is absolutely correct on this one. Here is a link to a related article:

Shock Forced Paulson's Hand - WSJ.com

Edit: I agree that the U.S. was close to the Great Depression II, but not in Kramer's recommendation to reduce one' asset allocation to stocks by 20% this fall.

 

[W2R]

IMHO, Kramer is absolutely correct on this one. Here is a link to a related article:

Shock Forced Paulson's Hand - WSJ.com

Edit: I agree that the U.S. was close to the Great Depression II, but not in Kramer's recommendation to reduce one' asset allocation to stocks by 20% this fall.

Fascinating WSJ article!! Thanks for pointing it out.

I wonder what Greenspan would have done under these circumstances, had he not retired. I am still a little nervous about Bernancke (after all those years of Greenspan), though Bernancke seems to know what he is doing.

 

[RonBoyd]

It sounded like the voice of reason to me.

As does this Scott Burns article.

 

[Dawg52]

As does this Scott Burns article.

Looks like the discount brokers are benefiting from the mess.

No one will listen to Wall Street. They have burned down their own houses. Who will take anything from the surviving firms seriously? People are moving their money away from the major brokerage firms. Merrill, according to reports, had $5 billion in client assets leave in the second quarter. About $11 billion left Smith Barney. And $17.6 billion left Wachovia.
Where did the money go? Fidelity Institutional holds money managed by thousands of independent advisers. It picked up $16.7 billion in the same quarter. Schwab Institutional added $14.5 billion. One nice side effect: investors will be exposed to less financial garbage in the future.

 

[dex]

Cramer's 'Mad Money' Recap: Sept. 19 - TheStreet.com

 

[Rustic23]

Great Depression II? I have no doubt that things could get worse, but my question is what effect does all the entitlement programs have one a 'Depression'. Many on SS live on that and either a small pension or savings. Welfare payments would go up as more and more would file. It didn't exist during the great depression. Farms in the heartland turned into dust bowls and could not sustain families. It appears this would not happen as this is a financial problem not weather. Lots of consumer debt, but how much of that would be differed, forgiven, or bought up by the Feds?

I am not an economist, but I have seen the news media, especially TV fan the panic. However, it is a different world now than in the 1930's. So if any of the econ majors out there want to chime in, How would the current state, local and federal programs effect a true depression?

 

[Gone4Good]

Hard to know if this would have resulted in a Great Depression, but the entire financial market was starting to come unglued in multiple ways (the relatively modest ~500 point stock declines didn't even begin to capture what was happening, in my view). Short-term liquidity is the air corporations breath and that liquidity was rapidly evaporating. If nothing were done, its very easy to see a situation where the entire short-term financing market could have shut down. Without short-term financing even otherwise healthy corporations would have to shut down, unable to make payroll or pay for supplies and inventory.

Can't say for sure it would have lead to another Great Depression, but it could have been very, very, very bad and we're lucky to have avoided the worst of it (so far).

 

[harley]

Personally, I don't see where any of the Fed's actions are going to make a huge difference in the long run. They may have averted a rapid major plunge in the markets (ie. Depression II), but the basic financial factors (debt, lack of saving, inflation normalizing, housing values decreasing, etc) that exist today still point to the market having to adjust downward. Perceptually, I guess a period of low/no growth is preferrable to a rapid downswing. At least from a gov't POV. But if we enter an extended period of inflation and unemployment like we had in the late 70s - early 80s just as the boomers are wanting to retire I suspect there will be plenty of unrest and gloom. Of course, I usually get these things wrong. I just don't see how things can work out well when the majority don't seem to take care of business for themselves.

 

[Gone4Good]

Personally, I don't see where any of the Fed's actions are going to make a huge difference in the long run.

The quote "We're all dead in the long-run" was intended for just such circumstances.

 

[harley]

Well, I meant a shorter long run.

 

[free4now]

Show me the evidence.

This feels just like the leadup to the Iraq war. The executive branch unilaterally decides to drag us in, without ever providing solid evidence. And lo and behold in the end we find out there was no evidence.

Flash forward to this week, and we have plenty of statements about how horrible the situation is, but I haven't read any concrete details of just what we are dealing with in size or scope. This time there is no need for secrecy; the cognoscenti must share the evidence with the public.

 

[ziggy29]

Financial media throwing the d-word around. Anyone for a self-fulfilling prophecy?

 

[dex]

Financial media throwing the d-word around. Anyone for a self-fulfilling prophecy?

Is it a sign of a bottom?

 

[al_bundy]

I caught the last 20 minutes or so of Mad Money with Jim Cramer last evening. I was surprised by his comments that this weeks actions by the Federal government avoided the US from slipping into the Great Depression II. He also advised investors to reduce current equity positions by 20% as we go into the fall. Thoughts?

very simple

AIG insures a lot of mortgages. AIG BK would mean the ratings agencies would have to downgrade the ratings. mortgages are now worth less and banks would have to mark to market and reduce the values of their assets. this would mean they would have to raise capital to meet reserve requirements which they probably wouldn't be able to do and they would fail. meanwhile their stock prices are crashing which causes the ratings agencies to further downgrade their debt and make the banks raise more capital.

 

[ziggy29]

AIG insures a lot of mortgages. AIG BK would mean the ratings agencies would have to downgrade the ratings. mortgages are now worth less and banks would have to mark to market and reduce the values of their assets. this would mean they would have to raise capital to meet reserve requirements which they probably wouldn't be able to do and they would fail. meanwhile their stock prices are crashing which causes the ratings agencies to further downgrade their debt and make the banks raise more capital.

This requirement of "marking to market" for even fully performing assets results in a domino effect that can blow up into a full-blown death spiral.

 

[al_bundy]

or we can let companies be like Enron and make up values for the assets on their balance sheet

personally i kind of prefer the Enron way. wall street will figure out that something is wrong long before it's news and the stock price will tank alerting anyone that pays attention that something is wrong.

 

[ziggy29]

or we can let companies be like Enron and make up values for the assets on their balance sheet.

I'd like to think it's not a complete either-or situation.

"Enron" has become to financial discussions what Hitler is to political ones.