[Jim Lindgren, August 3, 2007 at 2:48pm] Trackbacks
CNBC's Jim Cramer Goes Ballistic: "WE HAVE ARMAGEDDON!"

On CNBC at 2:46pm ET, Jim Cramer is screaming about the Fed right now: "WE HAVE ARMAGEDDON!"

UPDATE (2:56pm): While I was writing a very long post suggesting in a quiet and indirect way that I can't understand why the Fed is not providing credit to the market, Jim Cramer on CNBC's "Stop Trading" segment started screaming with a passion that I've never seen even from him. He screamed over and over that the Fed has "NO IDEA" what's going on, and added that its behavior is "SHAMEFUL."

Cramer said that the Fed should "open the window" and cut rates "TODAY"!

Just because the Fed didn't engineer this credit crunch, as Fed Chairs Volcker and Greenspan did in 1987, doeesn't mean that the Fed shouldn't provide the liquidity needed to ease the pressure on defaulting homeowners and on financial institutions that are getting killed from the drying up of corporate credit.

BTW, when Cramer started his tirade against the Fed the Dow was down about 100 points, which was less than 1%.

Related Posts (on one page):

  1. Federal Reserve Intervenes a Third Time Today.--
  2. Hedge Funds Are Beginning to Disclose Recent Losses.--
  3. Hedge Funds in Trouble.—
  4. What Credit Crunch?--
  5. S&P 500 has Second Worst Day Since Early 2003.--
  6. CNBC's Jim Cramer Goes Ballistic: "WE HAVE ARMAGEDDON!"
  7. Credit Crunch Continues.
Sean O'Hara (mail) (www):
Cramer has lost it. A few days ago he was telling people who've gotten in over their heads with mortgages to just default on the loans.
8.3.2007 4:19pm
Paul B:
Prof Lindgren,

Could you please explain what you mean by "the Fed is not providing credit to the market"?

Credit is there. The fact that Cramer's friends at the investment banks got carried away and made commitments for leveraged buyouts at historically low spreads over risk free investments (Treasuries) and now find that buyers are no longer willing to take them out at the interest rates they committed themselves to should not drive Fed policy.

Cramer's position in all this is akin to the theory that the way to prevent hangovers is never to sober up.
8.3.2007 4:27pm
uh clem (mail):
Jim Cramer Goes Ballistic

This is news? The guy's a raving lunatic.
8.3.2007 4:27pm
Anderson (mail) (www):
Cramer's position in all this is akin to the theory that the way to prevent hangovers is never to sober up.

And the problem with that position is ...?
8.3.2007 4:29pm
Joseph E. Davis (mail):
You mean, someone is interfering with each American's god given right to free money and unlimited credit? Who will SAVE us!
8.3.2007 4:55pm
James Lindgren (mail):
Good comments, all.

BTW, I try to stay over 90% in equities at all times, which is where I am now.

In my very small IRA account where I do active trading, I'm up 7% this week, and I'm buying into the close today, but that doesn't mean that I'm not worried about a 1987 style crash next week.

Jim Lindgren
8.3.2007 4:56pm
neurodoc:
And the problem with that position is ...?
Some people do manage to drink prodigiously on a daily basis, seemingly none the worse for it (e.g., Churchill). They are rare, however. For most, chronic alcoholism takes a devastating toll in terms of health, as well as the other dimensions of their lives. If they have been drinking heavily for a long time, then stop abruptly, they may experience delirium tremens, or DTs, a life-threatening condition. The medical answer is not to encourage them to go on drinking so as to avoid the possibility of DTs, while doing themselves other sorts of damage, but to manage the withdrawal from alcohol with suitable measures, including pharmacologic ones. And, of course, efforts should be made to keep them from returning to alcohol afterwards.

Is any of this relevant, metaphorically that is, to the situation with our financial markets? I am unsure, but the comparison may be worth considering. (Maybe what we are seeing is more akin to binge drinking, then the chronic way of going about it.)
8.3.2007 4:59pm
ChrisIowa (mail):
Someone as excitable as described should have nothing to do with any market.
8.3.2007 5:46pm
Steve H (mail):
So, basically, the Dow has dropped to levels unseen since, um, May?
8.3.2007 6:19pm
CJColucci:
I've been waiting for a big drop -- bigger than this -- for buying opportunities.
8.3.2007 6:31pm
Paul Zrimsek (mail):
In order for Cramer to go ballistic today, he must have gone temporarily non-ballistic at some point earlier in the week. Why am I always the last to hear about these things?
8.3.2007 6:37pm
MichaelB (mail):
Inflation (an increase in the money supply) is the reason we're in this mess, its most certainly, not the solution.
8.3.2007 7:12pm
xxxx:
This is not about the stock market, Cramer is not talking about equities. It is about the credit markets where things are very bad. Spreads have increased in the past week at an unprecedented speed. CDS spreads are skyrocketing. Deals are being placed on hold left and right and Hedge Funds and Lenders are blowing up daily.
8.3.2007 7:32pm
Forbes (mail):
A credit crunch is suggested (by Cramer) as a result of a lack of liquidity, and that therefore the Fed should answer by cutting interest rates in order to boost liquidity. This is a false reading.

The cause of narrow spreads for high yield over Treasuries, and other excessive speculation in real estate and related securities, including the extension of credit to vast numbers of sub-prime borrowers, is a result of too much liquidity, for too long following the tech bubble peak in 2000, and subsequent market implosion.

By keeping the Fed Funds rate at 1%, from mid-'03 to mid-'04, long after the market bottom in '02, and long after the economy started growing robustly, with low inflation, the real cost of borrowing (by financial intermediaries) was zero. With a zero marginal cost of funds, lending institutions created new ways to find new customers--no down payments, no closing costs, teaser rates to reset at a later date, interest only mortgages, a pulse and a paycheck, et. al.

[metaphor alert] Now having stopped spiking the punch bowl, by raising rates to 5.25%, Cramer wants the Fed to provide a little "hair of the dog" (in the form of lower rates), in order to soften the hangover from the credit extension frenzy.

If good judgment doesn't stop foolish lending practices, then high rates will. Cutting rates simply removes discipline from the market that a regulator is supposed to supply--especially when there appear to be no other adults present at the party.
8.3.2007 8:07pm
A. Zarkov (mail):
The Fed can inject liquidity into our financial system by lowering the discount rate, which it controls directly. It can also target, but not directly control the federal funds rate. But to help out people with mortgages that they can’t afford, the Fed has to bring down long-term interest rates, which can be difficult to do. It can try to do this by changing the money supply through its open market operations (buying and selling government securities). It doesn’t always work. While federal funds rate has been increasing since 2004 from a low of 1% to the current rate of 5.25%, long-term interests rates have hardly budged. In July 2004 the yield on the 10-year Treasury was 4.5% compared to 4.79% today. In fact we have an inverted yield curve, an indication of an looming recession. Does Cramer really think the Fed can bail out those fools who need to refinance their mortgages to keep from going under? In my opinion is guy is basically a crackpot that anyone with good sense should completely ignore. Of course there is always his entertainment value.
8.3.2007 8:41pm
Hoosier:
Cramer does have a mental disorder. Does anyone know what it is? (I remember him talking about it on the tube, but I was at the barber, and couldn't hear well.) I know that there was some connection made by the producers of the show between this disability and his penchant for flying off the handle at odd times.

After learning this, I lightened up on him. But I don't see why he is paid to do what he does. (I have arachnophobia. I doubt I'd be able to keep a job as an exterminator. But perhaps Orkin has higher standards than CNBC.)
8.4.2007 1:30am
Chico's Bail Bonds (mail):
!!!!!!!!!!!!!!!!!!!!! N E W S F L A S H !!!!!!!!!!!!!!!!!!!!!!

TV Personality does his schtick on TV.

! ! ! ! ! ! ! ! ! ! D E V E L O P I N G ! ! ! ! ! ! ! ! ! ! !
8.4.2007 4:29am
J. F. Thomas (mail):
Just because the Fed didn't engineer this credit crunch

Not so fast Bucko! The root cause of this credit crunch is the collapse of the ridiculous housing market of the last six years. And while the Fed (i.e., Greenspan) didn't directly engineer that debacle--specifically designed to create fictitious wealth by suckering people into buying houses they could not afford with the assurances that prices would climb at ahistoric rates forever--it certainly aided and abetted the pyramid scheme. Now that the pyramid is collapsing, the Fed bears some of the blame for letting the scheme propagate.
8.4.2007 9:37am
Aleks:
Re: Now having stopped spiking the punch bowl, by raising rates to 5.25%, Cramer wants the Fed to provide a little "hair of the dog" (in the form of lower rates), in order to soften the hangover from the credit extension frenzy.
If good judgment doesn't stop foolish lending practices, then high rates will.

If the Fed lowered the rate back to 1% I would agree. However a SMALL rate cut (say down to 5%) would signal to markets that the Fed is attentive and will act to prevent a recession. Let's remember here that real people are on the line and stand to get hurt (job loss, bankruptcy, etc.), people who in many cases have done nothing wrong. This isn't just some morality play among the elite
8.4.2007 10:57am
Fred Johnson (mail):
Jim Cramer's tirade was aimed at helping his buddies at the brokerages and banks on Wall Street. His anger was amusing and pathetic. He doesn't have a clue what armageddon really is. He's going to be embarassed when Bernanke doesn't lower interest rates this week. I use to be a faithful viewer of Mad Money. I will stay away from it from now on. This guy is the epitomy of a "flip flopper" on stocks. He's a trader, not an investor. If you listen to his stock chatter and buy his reco's you will only be sorry.
8.5.2007 11:46pm
jdd6y:
Why do people think the fed can prevent a recession? It might be forestalled and dragged out but it cannot be avoided after 5 years of zero or below zero real interest rates.
8.6.2007 2:09am
James Lindgren (mail):
Fred,

Cramer was screaming, not because he expects the Fed lower rates on Tuesday, but because he doesn't expect them to do so.

Jim Lindgren
8.6.2007 3:54am
Ignatius (www):
I think the most important thing about this incident is to ridicule Jim Cramer. It makes me feel smarter to talk about how I stopped watching him long before this, while others who are less perceptive than I have continued to be duped by him. Obviously the other commenters have chosen this similarly wise path.
8.7.2007 12:32pm