22 years ago we were in a similar situation

The fiscal cliff is more like Kuwait than recent economic crises.

By Jim Cramer Nov 16, 2012 10:10AM

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Kyu Oh Photodisc Getty ImagesWhich analogy works best for trading this fiscal cliff resolution, the debt ceiling debate last year, with the hideous declines that ended the moment a deal was at hand, or the European debt talks where we figured that each midweek European Central Bank meeting would bring better news and finally one did?


I think neither. As the president and the Speaker and their retinue start the talks Friday on resolving the crisis, I turn to 1990, specifically to 22 years ago right now, when then President Bush was asking Secretary of State James Baker to hold talks with Iraq about getting Saddam Hussein to pull his troops out of Kuwait.


Believe it or not, at the time we actually thought this could happen. We actually thought that you could sit down with Tariq Aziz, the Iraqi foreign minister, and hammer out some sort of deal.


We always figured it would have to be done in secret, and for some ridiculous reason we thought it would have to be done over the weekend. The shorts had been making a killing ever since Saddam had invaded Kuwait earlier that summer, with the Dow dropping to 2,350 from 2,900 as the stalemate went on. But they always feared the Aziz-Bush talks and didn't want to see that juicy 19% decline from the top be obliterated.


I was one of the shorts. I would dutifully bring in my shorts on Friday so I could sleep well over the weekend, knowing that I wouldn't have to wake up on Monday morning to a headline that says "Saddam Agrees to Pull Back, U.S. Will Rebuild Kuwait." At a certain level you had to believe he would do something rational like that. I mean, did he really think he could beat us in a war?


Fast forward 22 years. Today I believe we will see similar fears by people who are now in my shoes. You can hear their thoughts, same as mine back in 1990. "What happens if they do something rational? What happens if they find common ground? What happens if they start caring about all of the people who will be forced out of work immediately or who will have to pay much more in taxes?"

Those concerns could cause people to cover their shorts, betting that the consequences of going over the cliff are unthinkable, as unthinkable as what Saddam would face if he had to go to war with the United States.


Of course, it turns out that there never was a deal back then and we had to go to war and we won and that was it. The market was bottoming right then, 22 years ago, because the decline had compensated for the war already, but we didn't know that at the time. We just knew that whenever there was a resolution the market would be higher so why take any chances.


I think that we will be similarly hopeful that the two sides reach some deal and some shorts who have done so well during this 8% decline will feel like they don't want to lose that terrific gain.


But what if both sides were like Saddam, both believing in the principles of their own conviction to the point that everyone gets hurt?


That's what I worry about now.


Of course, it is possible that we are already where we were 22 years ago right now, bottoming as we await a violent resolution to the matter.


But what seems more likely to be the case is that we are at one of those Friday junctures before we hit bottom, perhaps the one at Dow 2,748 or Dow 2,616, or Dow 2,483, all covering levels that led to a false sense of hope along the way to the bottom at 2,360.


We actually don't know yet which level we are at vs, where we will be when this ends -- violently or peacefully -- but 1990 teaches us that you have to respect the hope that springs eternal, or at least on Fridays.


Jim Cramer's face


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.





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Nov 16, 2012 10:42AM
So you would rather not have a job at all, than to take a pay cut?  Y'all are stupid!  I've taken pay cuts and pay deferrals before, and I got to keep my job.  And last year when others were still out of work, I got a raise (yes, more than I was making back when).  I haven't missed a payment on my mortgage, ever.
Nov 16, 2012 12:02PM
If we won in 1990 why did we go back 12 years later?
Nov 16, 2012 11:42AM
".....and we had to go to war and we won ..."

I don't think I recall cramer sitting in a tank charging the iraqis ....... I think it more likely he would be donning a blonde wig and a dress and slowly sneaking to the back of the lines ......

Nov 16, 2012 12:39PM

 The fiscal cliff has already happened to my neighbor. He works as a machinist for a small potatoes defense contractor and got laid off because the company has no FIRM commitments for contracts in January
Nov 16, 2012 1:04PM

 Did anybody attack BUSH RIGHT after 9/11 saying why was the damned BOZO asleep the wheel DESPITE the NUMEROUS warnings?  Well they SHOULD have given the example of McCain and Graham. What a couple of ****ing hypocrites
Nov 16, 2012 12:42PM
Japan has had a stagnant economy for 20 years and yet they muddle along with a 4.2% unemployment rate. And they need fixing because??
Nov 16, 2012 11:10AM
Let's make a national holiday commemorating the death knell of Hostess (America), (because they will be taking their patents and copyrights to a more profitable locale), and the reckoning of the union that "called their bluff" ...........LOL!
Nov 16, 2012 12:34PM

If austerity will be a DISASTER  for us, why is it not so with  Europe? Obviously they are DOOMED because they already went over their cliff with no plans for economic growth whatsoever
Nov 16, 2012 12:31PM

MY strategy would be to just go over the damned cliff,and THEN  come up with TWO separate  NEW tax cut bills, one for the Upper Class and one for Everybody Else. Then vote and let  the chips fall where they may for 2014. ANYONE who blocked the Middle Class from getting a tax cut would be toast
Nov 16, 2012 1:15PM
"Outrageous" Graham and McCain are a QUINTESSENTIAL example of what is wrong in a gridlocked Washington and why we hate Congress so damned much. Just one damned day of playing politics after another
Nov 16, 2012 1:22PM
 There would not have been a PEEP out of McCain and Graham if the GOP had been in charge when Benghazi happened and we all damned well know it. NOTHING but politics going down here.Not just outrageous, but PATHETIC as well
Nov 16, 2012 1:33PM
Nov 16, 2012 11:37AM
What this fiscal cliff dilemma reminds me of is the statement by Osama Bin Laden shortly given after the first 9/11 attacks (which he said were largely symbolic): "The way to bring down the United States is to destroy its economy."  The entitlements have been going on for decades and cannot be blamed on any one president or congress. But it is rather clear that if bringing down this country's economy was Osama's plan, he had willing associates with Bush the Second and Cheney the Snake getting us into the Iraq war and not finishing off the Afghanistan war when they had a chance to do so. And Osama has to be smiling from his watery grave as he watches this congress put their agenda and pride against the best interest of this country. People like to say, "It's the economy, stupid!" It is more than that...It is the UNCERTAINTY and wrangling partisans that have us reeling.
Nov 16, 2012 1:07PM
it may not be a full on cliff per sey, because we're sliding down a big hill now with the stock market slowly crashing and the 'big money" getting repositioned "just in case" of certain outcomes thru the potential new tax structure. 
Nov 16, 2012 12:35PM

"But what if both sides were like Saddam, both believing in the principles of their own conviction to the point that everyone gets hurt?"


Each side would proclaim victory. 

Nov 16, 2012 10:23AM
It's fine....Obama will be able to support these new lay off workers....and so do we the tax-payers!!!! This is only the begging.....
Nov 16, 2012 10:59AM
It is very difficult ,to not try to find a common ground ...by working  peacefuly . Any milutary action , will destroy lives and make widows and orphans  , wich will will loudly and constantly be blamed on us as the aggressors . You must remember , that the Arab militants , will flood their installations  and mosque bomb factories with innocent people ..by force , as hostages , whereby we will again be blamed  for desecration and willful murder of these innocents . Tbhe radicals , in the Arabic camp have systematically sought and Killed any peace maker in the /Arabic world.  the people dying , are not the war mongers !!!  KGK
Nov 16, 2012 3:18PM


Shift those 401k assets into the stable value fund for the next three months.



Nov 16, 2012 5:34PM
U teabagger types will never understand that President Obama inherited a deep ole pile of doo doo from Howdy Doody and his masters Cheney and the Saudi/Likkud coalition .....what he has managed to achieve in 4 years is almost beyond belief ....if spuds mckenzie and so appalin had won .....we would probably have 35% unemployment and be at war with Iran, Russia, Sweden, Switzerland and the State of Georgia (after appalin made a mistake and bombed Atlanta instead of Tbiliisi) ....

No wonder cheney's daughter doesn't like Dick.
Nov 16, 2012 1:31PM
"What this fiscal cliff dilemma reminds me of is the statement by Osama Bin Laden shortly given after the first 9/11 attacks (which he said were largely symbolic): "The way to bring down the United States is to destroy its economy."

He did indeed say that! Interesting who those who profited the most post-9/11 are the ones trying to commit us to anarchy now. Anybody besides me think we should be investigating a lot more than Patraeus to see who has betrayed us? Pretty sure bin Laden's prediction was best translated as: just be patient... the GOP can't keep this scam going forever.
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