“Don’t panic” was Cramer’s message during this week’s edition of Sell Block.
He made that mistake in 1998. In a column he wrote for TheStreet.com, where he is the largest shareholder, a director and the man in charge, he told the investing world to “get out” of the market.
Long Term Capital Management’s collapse was reverberating throughout the market, and Cramer’s hedge fund was facing the same redemptions many funds are struggling with today. So he liquidated his fund and two minutes later news came out that the Federal Reserve had called an emergency meeting. Cramer had to buy everything back at a 2% premium.
“And that’s why you don’t panic and sell everything,” Cramer said. “I’m here to tell you that panicking out of the market now is not a good move.”
So investors should be waiting for the Fed to blink. Cramer doesn’t know when it will happen. Recent comments from St. Louis Federal Reserve President Bill Poole might have people thinking a rate hike will come before a rate cut, he said. But the Fed has pulled a complete 180 before, and Cramer expects to see it again.
“There will be no action, to save this market, from the Fed until a major bank or broker fails,” he said, “or a big deal like a Texas Utilities or an Alltel or a Harmon breaks down” just the way Long Term Capital Management had to fail before the Fed moved in 1998.
So the market still hasn’t hit a bottom, Cramer said, and he’s not sure when that will happen. That’s why he won’t tell investors to sell everything. But he’s still firm that banks, brokers and homebuilders cannot be owned. Neither can retail now either, he said.
So what else is a sell? VMWare at 60 times earnings is, Cramer said. So are H&R Block and Capital One. The same goes for Six Flags, which is vulnerable to bad weather. And Friedman Billings has been telling investors to sell other real estate investment trusts and companies levered to mortgages, but Cramer said, “They ought to tell themselves to sell themselves.”
“I don’t know when the market will bottom,” Cramer said, “but I know it will. If you sell into your own panic, you will lose and the opportunistic buyers will win.”
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