Sucker Rally

January 24, 2008

Category: Business

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I watched Mad Money with Jim Cramer yesterday and was shocked to see how bullish he appears to be, all of a sudden. In the morning he released a video online saying the Fed is stupid, behind the curve and should be investigated. He also dropped a bomb on America’s largest bank, saying that if Citigroup had to mark-to-market their entire inventory they would probably declare bankruptcy.

Then without any new information, all of a sudden the market hit a bottom at it’s time to start buying every stock that has been punished recently, including amazingly, Citigroup. He declared a short term end to the commodity rally and a recovery for the retail stocks before this year’s strong Christmas season. He even talked to the CEO of Bancorp to brag about all the mortgages they’re issuing despite the fictional liquidity crunch.

What planet is he on?

Commodity prices are increasing not just due to speculation, but because of legitimate supply and demand issues and most importantly inflation. How exactly will cutting interest rates by an expected 125 basis points by the end of the month possibly result in a drop in commodity prices? Obviously minor bumps on the road to profit are expected, but these investments are going to continue moving up for the foreseeable future.

I can’t understand how retail numbers are possibly going to improve when consumer credit is tight and the average American is tapped out. The personal savings rate is negative and re-financing a house requires equity, which is disappearing faster than Hovnanian’s market cap. This is not just a sub-prime issue, many wealthier people can’t get loans and credit card limits are going next.

I think the end result of this potential minor rally is going to be a resurgence of confidence in foreign markets long enough to prove that some countries will in fact decouple from the inevitable American economic recession. For that reason alone I hope this propaganda manages to save the market for the next few months. Use it to dump any American equity you still have left.

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