The systemic risk upon which market bears had based their doomsday predictions has been eliminated, Cramer said Wednesday. The potential for catastrophic bank failures is gone now, thanks to stress-test results we got today.
By now you’ve probably heard the news: The Treasury Department said that many U.S. banks are in a much better position than Wall Street had thought. JPMorgan Chase , Goldman Sachs , American Express and others need no new capital with which to survive this credit crisis. Only Bank of America , Citigroup and Wells Fargo were singled out as needing more cash. But even these stocks went higher today investors heaved a huge sigh of relief.
Here’s your proof that this rally is real, Cramer told viewers. The market’s big move since March isn’t some temporary pop in a bear market. It’s sign of a legitimate turn in stocks. We might not be at the very bottom just yet, but things have changed. The facts are in. All of the arguments for still more downside have been countered, the last and most popular being put to rest today.
Thank Treasury Secretary Geithner. He seems to be following Cramer’s forbearance plan, a la the savings-and-loan crisis of 1989-’91. What worked then? Letting the private sector work out its own problems. Foregoing all talk of nationalization. That after all was the grizzly threat the bears used to scare the market. Well, now it’s more koala than Kodiak.
Look at what Geithner did: He gave poor grades to Bank of America and Wells Fargo to legitimize his stress test, saying the companies needed to raise $34 billion and $15 billion, respectively. But these figures can be met with virtually no difficulty, as BofA just needs to sell some assets and convert its TARP money in common stock while key investor Warren Buffett just has to cut a check to help Wells. This Washingtonian chest pounding provided wiggle room for Geithner to say that more troubled institutions like American Express, MetLife and Morgan Stanley were in the clear. The remaining banks can be scooped up by their stronger peers.
This solved the banking problem, Cramer said. It removed the systemic risk and put us back in a position where we can again trust company earnings. Forget the “Armageddon factor.” That’s not a concern anymore. Add in oil’s close at a six-month high and a tech-led rally at the end of the day, and it’s obvious why the market soared – 100 points in the Dow and an even bigger percentage jump in the S&P 500.
Cramer’s charitable trust owns Goldman Sachs, JPMorgan Chase and Wells Fargo.
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