Mad Money

Why’s This Market So Confusing?

You just can’t believe what the pundits say. Not these days. The television’s full of clueless “experts,” Cramer said, and that’s why this market’s so hard to figure out. You’re getting bad information. When you act on it, you get burned.

That’s why Cramer highlighted the 10 biggest market misconceptions Wednesday night. He wanted to give investors a fighting chance against these talking heads. The recession’s hard enough to navigate. You don’t need bad advice to boot.

Stocks are cheap. Maybe on a market-cap basis, but surely not in terms of P/E ratios. Earnings have been terrible, and companies have been shrinking accordingly. But that doesn’t make their stocks cheap.

Automakers only need x billions of dollars to get out of their jam. Actually, these companies won’t ever be able to get their costs down, Cramer said, especially because they employ so many people. Unless the unions are broken, he thinks the autos are in even bigger trouble than they are now.

The banks should be lending, but they’re not – they’re hoarding money. Of course they are. Every time they lend they lose money. And deflation’s hurting collateral so much that it doesn’t make sense to lend. So why bother?

The mortgage problem is insolvable. Cramer has an idea: Cut principal. That does mean the banks lose about as much as they would in a foreclosure, but Cramer suggested they be issued a certificate that allows them to keep up regulatory capital, and any profits from a resold home.

We should nationalize banks just like Sweden did. Keep in mind that Sweden’s about the size of Georgia, and that country’s problems weren’t nearly as complicated. It’s also highly doubtful the U.S. government has anyone knowledgeable enough to handle the complexity of a Citigroup or Bank of America .

Cramer would rather the banks work their problems out themselves. Just advance them money in the form of a net worth certificate, in return for a promise to pay it back, and then let them go to work. Offer smaller salaries and equity that can only be sold after the company’s turned around and it has returned the government money. If a bank fails after trying this plan, only then would it be seized. This is what saved us from the savings-and-loan crisis, and Cramer thinks it will work again.

Mortgage insurers, whether municipal, collateralized debt obligation or personal, are viable and ready to pay the insureds. They only people that believe this are the mortgage insurers themselves and their rating agencies, and they could be lying, Cramer said. Sell these stocks.

Warren Buffett has no problems and is doing well. Buffett’s holdings seem to go down much more than the averages, he’s writing insurance against a market decline during one of the worst declines in market history, and he’s selling his good investments to fund the bad. He told us in a New York Times op-ed that we should buy America, but he’s been selling America, Cramer said, dumping shares of Johnson & Johnson and Procter & Gamble. So much for “buy and hold.”

Inflation is the problem. In fact, deflation is what’s killing us. The whole world, actually. Worse than the 1930s. Even Federal Reserve Chairman Ben Bernanke said Wednesday that this problem must be solved.

The SEC’s problem is the institution itself. Cramer blames former chairman Christopher Cox. Bernie Madoff, short-selling bear raids, the Stanford Financial story that just broke – they all happened on Cox’s watch. So it wasn’t the institution, it was the leadership.

Everyone is doing everything possible to improve the situation. Cramer called this a total lie, saying the European Central Bank has been a huge enemy of the process. The Obama administration was sworn in without a plan, too. The only person fully alert these days is Ben Bernanke, who was asleep at the wheel in 2007 and 2008. If only people would follow his lead now.

The bottom line? We need job creation. If unemployment gets to 10%, Cramer thinks many banks would be insolvent. The same thing will happen if we don’t solve the housing crisis, too. Sadly, the stimulus package that so divided Democrats and Republicans doesn’t speak to any of these issues. $50 billion for housing? Try 100 times that. And where are the jobs? President Obama isn’t bold, Cramer said, despite what you hear.

“Perhaps he’s the biggest myth of all,” he said.

Questions for Cramer?

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