It only took 24 hours for Wall Street to wake up and smell the downside when it comes to the possible creation of a "First National Bad Bank" to buy poisonous assets from troubled financials.
On Wednesday these stocks ramped like crazy off the news that the Obama administration might create a bad bank similar to the Resolution Trust Corp., which was used to resolve the savings-and-loan crisis in the late 1980s. But, as Jim, who was most definitely around for the S&L crisis, pointed out that night, the RTC wasn't actually good for the common stocks of the banks that needed its help.
On Wednesday night's show we cautioned that most of the companies rallying off this news would ultimately give up their gains and even be hurt if they accepted help from the "bad bank." The gist of the warning was that, while the market was reacting to the positive big- picture news that we might have a fix for the financial crisis, any future details about the plan from the Obama administration would likely be a whole lot more negative, at least from the perspective of investors in bank stocks. There's no way this administration would make the bad-bank solution into a giveaway for shareholders; it's much more likely to look like a take-away.
That was our prognostication on Wednesday. We just didn't realize Obama would validate it the very next day by criticizing Wall Street bonuses as "shameful." The sell-off on Thursday more than wiped out the gains from Wednesday's bad bank-fueled rally.
Wednesday gave us huge gains in bank stocks like Bank of America, Citigroup, State Street, CIT Group, and the only two Jim recommended as beneficiaries of the bad bank plan, JPMorgan Chase and Wells Fargo. The insurance companies like Hartford Financial, Prudential and MetLife also soared. On Thursday those same stocks experienced enormous declines, although most of them are still higher than they were before the bad-bank news broke, so you can still scale out of these stocks, as we suggested, at better prices.
We've been through something like this before with the RTC, so the market is cycling faster from euphoria to skepticism. That, or Thursday was just a really crappy day.
Cramer's charitable trust owns JPMorgan Chase and Wells Fargo.
Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.
Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.
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