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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76Comments
Nov 16, 2012 12:31PM
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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 12:27PM
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Once again Righties, YOU LOST. so stop arguing why Obama should nor be reelected. Since he WAS it makes you appear stupid. Your only strategy is continued intransigence gridlock with butt  buddies Graham and McCain leading the charge, so over the fiscal cliff we go
Nov 16, 2012 12:02PM
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If we won in 1990 why did we go back 12 years later?
Nov 16, 2012 11:47AM
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well W.W. III is now here the Israelis are about ready to blow the middle east up.

 

Israel invades Gaza

Gaza and Lebanon launch massize rocket attack on Israel resulting in massive civilian deaths in Israeli cities

Israel responds by massive air strikes in Gaza and Lebanon which spill over into Syria (on purpose?)

Syria responds by launching chemical attacks on Israel massive civilian deaths in the millions

Israel responds by nuking Damacus

Egypt , Iraq, Turkey, Iran, Saudia Arabia,Syria respond with more missile attacks on Israel wiping most of the population there

Israel responds by launching submarine nukes at middle east nations

Russia responds by launching nukes at US and Europe

US repsonds by launching nukes at Russia and China

 

result 2.5 billion people die before Christmas and another 2.5 billion die of disease and stravation by Feburary 2013.

 

Meantime stock market plunges to 100 DOW 10 NASDAQ 1 S&P500

Nov 16, 2012 11:47AM
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"So you would rather not have a job at all, than to take a pay cut?"

Not quite that simple though is it ....also this is the message that the old mining companies used to use ....our way ...or no way....

If there were never any unions in America there would not be a middle class.
Nov 16, 2012 11:43AM
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You think unions are job killers, wait till Obama care kicks in!
Nov 16, 2012 11:42AM
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".....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 11:37AM
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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 11:14AM
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But, 22 years ago we had a GOOD leader in G Bush 1.   Today we have an incompetent Liar-in-Chief, Divider-in-Chief and Socialist.
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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 11:09AM
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Tell em how petro dollar will fail Saddam wanted to trade oil in gold so did Gadaffi and thats waht Iran wants to do and what happens we invade or internal turmoil ends up in overthrow.
Nov 16, 2012 10:59AM
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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 10:42AM
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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 10:23AM
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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.....
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