Cramer's clairvoyant "Rant" 11 years ago

[audreyh1]

Just ran across this from CNBC yesterday. Cramer - love him or hate him. I remember catching Cramer's rant back on August 3 in 2007, and boy was he right on the money. This would have been right before the resignation of the Bear Stearns CEO. The Federal Reserve was not paying attention to the unfolding financial crisis - they did not get it at the time. When they finally realized how bad it really was - well, there was a whole lot of pain.

Since then, a few other have tried to emulate Cramer's "rant" by getting all worked up over various things, but this was really a one and only time for Cramer - going beyond his usual emotionality. And I'm glad he did it. He shocked and offended a lot of people at the time, and many tried to blow it off as an overreaction during the coming months, but I believe he was completely vindicated as the financial system seriously unraveled in 2008.

The transcript is missing a lot of context however. Without knowing the big headlines at the time it's hard to get a feel for the context.

From CNBC:
11 years later: Cramer's 'They know nothing!' rant — Here's the complete transcript

Jim Cramer sounded off on the Federal Reserve for not anticipating the coming financial crisis 10 years ago today.

Read more: https://www.cnbc.com/2018/08/03/11-years-later-jim-cramers-they-know-nothing-rant.html

 

[CaptTom]

I don't follow him, so I can't say anything specific.

But, generally, if you rant about one thing every day or every week, given enough time, at least one of those rants is going to eventually sound prophetic.

 

[audreyh1]

I don't follow him, so I can't say anything specific.

But, generally, if you rant about one thing every day or every week, given enough time, at least one of those rants is going to eventually sound prophetic.

Well he didn't. He only ranted about this that one time.

 

[Another Reader]

Since he knew a lot of the "insiders," he could probably see the cracks in the system. He was likely one of the few people that sounded the warning. The trouble is, that he ranted about a lot of things, so it would have been difficult to distinguish the important rants from the rant of the day.

Many years ago, after the tech crash, he talked about making a field bet on all the beaten down tech stocks for a week or two. What he said made sense. I had some cash laying around, but not enough to make a large bet on the entire field. I did buy Oracle, and made decent money on it. The other stocks recovered as well. So while Cramer is a blowhard, he is not stupid.

 

[audreyh1]

Since he knew a lot of the "insiders," he could probably see the cracks in the system. He was likely one of the few people that sounded the warning. The trouble is, that he ranted about a lot of things, so it would have been difficult to distinguish the important rants from the rant of the day.

Many years ago, after the tech crash, he talked about making a field bet on all the beaten down tech stocks for a week or two. What he said made sense. I had some cash laying around, but not enough to make a large bet on the entire field. I did buy Oracle, and made decent money on it. The other stocks recovered as well. So while Cramer is a blowhard, he is not stupid.

From the transcripts it sounded like he was being contacted by a lot of people in the bond business. He was a stocks guy, not a fixed income person.

I guess I caught him enough to recognize that this was quite different. Especially - who says about the Fed that "They know nothing!!!"?

 

[Another Reader]

I watched him fairly often when he first started at CNBC. He said that about a lot of important people. The longer he was on, the more he said that.

ETA I watched Squawk Box a lot in the late 90's. I think he started as a commentator there before getting his own show.

 

[Qs Laptop]

From the transcripts it sounded like he was being contacted by a lot of people in the bond business. He was a stocks guy, not a fixed income person.

I guess I caught him enough to recognize that this was quite different. Especially - who says about the Fed that "They know nothing!!!"?

Thanks for posting this. I recently ran across this article from 11 years ago. Other articles like this were all over the internet back then. To say the alarm was sounded is an understatement.

High-Risk Mortgages Become Toxic Mess

Martin is among the hundreds of thousands of borrowers saddled with "option" adjustable rate mortgages, risky loans that dangled bargain-basement introductory payments and also let borrowers defer a portion of interest payments until later years.

Millions of other borrowers are wrestling with another type of adjustable rate mortgage, or ARM, called "interest-only." These loans allowed borrowers to pay just enough each month to cover the interest owed on the loan, leaving the balance of the outstanding debt unchanged.

While most of the mortgage market worries so far have focused on the huge losses flowing from the subprime home loans made to people with bad credit, the option and interest-only ARMs held by more creditworthy borrowers loom as another calamity in the making.

If the worst fears about these loans materialize, the economic damage would likely extend well beyond the United States because much of the debt has been packaged into securities sold to pension funds, banks and other investors around the world who were hungry for high yields.

"Those loans are begging to blow up. This is a true financial crisis," said Christopher Thornberg, a principal with Beacon Economics, a consulting firm that has followed real estate market's ups and downs.

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/10/AR2007081001768_pf.html

 

[Montecfo]

The bond guys always know. Yes, this was both an epic and sad call by Cramer. My recollection is his rant was considered with amusement in the Fed meeting. It is a legendary thing.

 

[audreyh1]

The bond guys always know. Yes, this was both an epic and sad call by Cramer. My recollection is his rant was considered with amusement in the Fed meeting. It is a legendary thing.

Yes - he was ridiculed for maybe a year.

 

[Conundrum]

Wow, he went off. His book is older now but I really enjoyed it “confessions of a Street addict”

 

[bw5972]

Here it I for those who’ve never seen it.

https://youtu.be/rOVXh4xM-Ww

 

[6miths]

That is very good thanks for posting. He looks and sounds a bit like I imagine the boy in the 'boy who cried wolf' story. I wasn't a regular viewer but some him not infrequently. It would have been interesting to know how it would have gone if the Fed had acted then. I suspect that the die was cast and it would have been too late to avert much of the pain but who knows.

 

[bobandsherry]

Case of saying enough things and eventually something sticks? I just know a lot of what he's said over the years has been a lot of vapor.

 

[dtbach]

Case of saying enough things and eventually something sticks? I just know a lot of what he's said over the years has been a lot of vapor.

+1


If you tried to put money on every call he made, you would run out of cash on the fees buying and selling.

 

[Red Badger]

I got the inside track from someone who worked at one of the Really Two Big Banks in Charlotte. This was 2007/8 (of course, right as the SHTF).

He mentioned that they were aware of the upcoming armageddon. Millions of customers were paying their credit cards on time, while letting the mortgage lapse - for months on end. For almost all of current eternity, it was the other way; people killed to pay the mortgage. Credit cards were a distant second ( or 3rd, 4th, etc).

We were both veterans, and his words were prophetic. "This is gonna be a bunker buster on the whole economy."

 

[NW-Bound]

... I remember catching Cramer's rant back on August 3 in 2007, and boy was he right on the money...

I never watch much TV, not just CNBC, so did not catch that. But about that time, I read an article by Jon Markman, a columnist on the Web site investor.msn.com, back in Sep 2007. Too bad I did not fully believe it, or know what to do with the info.

The Credit Crisis Could Be Just Beginning
By Jon Markman
Sep 21, 2007

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"Still too optimistic.

Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy...

See how I have such good memory?

The site investor.msn.com is owned by Microsoft, but I was not able to locate an archival copy of the article there.

Instead, a search of the Web shows a copy here: https://www.thestreet.com/story/10380613/1/the-credit-crisis-could-be-just-beginning.html.

 

[kevdude]

I worked in the debt markets (commercial mortgages) at the time, and to say they were in turmoil at the time was an understatement. We could not get loan quotes on anything that was to be sold to Wall Street firms, and quotes that we had been getting were being pulled, even when the interest rates were already locked. This had already been going on for about a month by the time he went on his rant. Anyone who knew what was happening in the debt markets knew that he was not blowing smoke.

 

[Turboslacker]

I recall watching that epic episode real-time. It was riviting times following the financial markets and economics every day. Scary but exciting at the same time.

I had heard/felt enough and lucky to move to 100% cash one month prior. This move set the foundation to enable my current early (on time) retirement finances. Grateful!

 

[mamadogmamacat]

Never cared for Cramer's style, but his books, at least the older ones for sure as I have not read his last one or two, were very good. I learned a lot from them. So, yes he is not stupid, and my sense of the man is that he does not have an agenda just someone who enjoys talking/writing about the market and at least trying to make some sense of it all.. I have also heard from others, as i do not watch much TV and never CNBC except for a few times when on business trips while i was working. that his individual stock advice is not so great. thestreet.com is good as a reference for stock financial data.

 

[Pellice]

So what is the excuse for deregulation of banks now? Financial interests have completely attacked any notions of bank regulation, IN SPITE OF the lessons of 2008? And why did he only attack the Fed rather than the irresponsible actions of the banking industry? The Calculated Risk website (calculatedriskblog.com) was prescient and persuasive in getting me out of the market earlier, though I was late getting back in.

 

[audreyh1]

I worked in the debt markets (commercial mortgages) at the time, and to say they were in turmoil at the time was an understatement. We could not get loan quotes on anything that was to be sold to Wall Street firms, and quotes that we had been getting were being pulled, even when the interest rates were already locked. This had already been going on for about a month by the time he went on his rant. Anyone who knew what was happening in the debt markets knew that he was not blowing smoke.

That’s very interesting.

It seems like at the top levels there was a great deal of denial. I remember commentators constantly dismissing the seriousness of the situation on CNBC. I suppose the main problem is that many folks had not made a connection to those highly rated tranches of debt that had been sold, and that the ratings agencies were thoroughly compromised. There was a “shadow” banking system of mortgage-backed securities and it had been infected with sub-prime debt, but packaged and sold as high-quality debt by spreading the lowest quality stuff across many other higher quality mortgages.
how this was going to impact the packages of debt that had been sold.

 

[audreyh1]

So what is the excuse for deregulation of banks now? Financial interests have completely attacked any notions of bank regulation, IN SPITE OF the lessons of 2008? And why did he only attack the Fed rather than the irresponsible actions of the banking industry? The Calculated Risk website (calculatedriskblog.com) was prescient and persuasive in getting me out of the market earlier, though I was late getting back in.

Because the Fed’s job is to oversee the banking industry and they were oblivious?

 

[FIREd]

I was watching CNBC regularly back then and I remember his rant vividly (it was 11 years ago already). This kind of panicky rant was so unusual for him. It made me realize that something truly scary was going on in the financial system.

 

[donheff]

I recall watching that epic episode real-time. It was riviting times following the financial markets and economics every day. Scary but exciting at the same time.

I had heard/felt enough and lucky to move to 100% cash one month prior. This move set the foundation to enable my current early (on time) retirement finances. Grateful!

The Calculated Risk website (calculatedriskblog.com) was prescient and persuasive in getting me out of the market earlier, though I was late getting back in.

I have a friend who's FA took him to cash just before the fall because he lost his job. He was reemployed just on time to get back in low and save his retirement. Others got out and never got back in. I was lucky enough to be able to stay put so I rode the roller coaster all the way down and all the way back up. The experience has caused me to be a little better prepared to weather a similar crash more fully into the withdrawal phase. I like Cramer but wouldn't act on a new version of his rant if it happened today. I will just keep my hands inside of the car.

 

[kcowan]

+1
If you tried to put money on every call he made, you would run out of cash on the fees buying and selling.

I remember one pundit did a study of Cramer's picks. They took the stock price 3 days after the recommendation and then tracked its performance one year later. 47% were winners as in up.

(Their rationale is that every call generated a short term blip which they could remove after 3 days.)