EU fatalists put Dow 8,000 back in play

The Germans appear resigned to an eurozone collapse, and they'd rather let the market dictate the destruction than risk hyperinflation.

By Jim Cramer Nov 18, 2011 10:54AM

the streetThere was always an assumption that the Europeans would do what is necessary to preserve the banks, the union and the countries that are a part of it.


The assumption seems to be unraveling before our eyes.


The unraveling makes more sense than the containment, even though the consequences are unfathomable. That's because, in fits and starts, we are seeing a simple outline of the German point of view: The European Central Bank has no ability to control the finances of any country and it has no ability to tax people to finance the printing presses, so what is the point of trying to save the system?


The fatalists seem to be taking over. What's the fatalist game plan? Let the markets take care of themselves and let's see what happens.


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The Germans are the fatalists here. They now think the printing presses lead to Weimar-style hyperinflation no matter what, and given the lack of fiscal austerity in the countries' finances that they would be papering over, you can see their point. The fatalists would rather have destruction of capital by deflation than by inflation.


The fatalists think this because they now know that destruction is occurring either way. To them we have moved past the point of no return. To the fatalists you can get out of a no-growth, no-discipline environment in two ways: printing presses or collapse of the institutional framework of sovereign debt and those who hold it -- talk about a Morton's fork. They are going for the latter. They would rather have a collapse of the system at the hands of the market than a collapse of the system under hyperinflation.


So here's where we are. If the fatalists win, we have to go back to Dow ($INDU) 8,000, where I feared we would go when the fatalists looked like they might win at the end of September.

If the fatalists lose, we can hold it together and muddle through here, although their currency will go down to parity and their problems will be worked out over time in a way that transfers wealth to the poorer nations in return for risk to the wealthy, which the fatalists have decided is too unpalatable.


Thus in one fell swoop of a Spanish bond auction, the fatalists are making it known that they would rather choose the unknown of the market than the known of hyperinflation. The idea that they could bring down the Western world of finance -- even if it is just for six months as everyone adjusts over here and whole nations get crushed there -- is appealing to them. Because the fatalists know it is going to happen anyway, so they would rather just get going with it.


I think the fatalists regard both paths as potentially suicidal, but in the "let the market decide" option, they have a better chance of coming back faster from the apocalypse than by letting the central bank print money it doesn't have. They recognize the problem is too big and too out of control to do anything else.


Looks like Angela "Lucy" Merkel has taken the ball away for good and told Charlie Brown to go home. It didn't have to be this way. The Europeans had their chance. To the fatalists, they blew it.


And now we all have to suffer, with the U.S. coming out of it down the road, and maybe the Germans, while the rest are left to fend for themselves. Triple-AAA preservation for the French?


Triple-BBB destruction is more like it.


The fatalists have put Dow 8,000 back on the agenda.


Let's hope, if they win, it holds.


jim cramerJim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.

Nov 18, 2011 12:37PM
DEFLATION works for people who have limited their debt, lived within their means, and saved their money.

INFLATION works for people (and governments) who have accumulated massive debt, lived well beyond their means, and have not saved their money.
Nov 18, 2011 12:52PM
Looks like Jim read the comments from yesterday's ridiculous post in which he said "things don['t look to good in Europe. Might be in for a rough ride." Duhhh, Now he comes along with this scenario, and everyone's saying, "Finally!" The reason America companies are making money is because they've been operating on borrowed time (and European borrowed money). When Europe goes, so do our exports (what little we have), our banks will suffer even more damage, the feds will have to bail out the weak banks (to guarantee savings accounts), our deficit will rise, our accounts payable to China will climb -- if China will even loan us any more. 8,000 on the Dow looks reasonable but it would not surprise me if it went lower. Social upheaval will be intense. I think the Republicans (I am one) will regret their drive to prevent tax hikes on the wealthy. They should have bargained for cuts in spending with higher taxes (making the tax hikes temporary). The writing in the wall looks dismal. The local churches now have an opportunity to shift their attention from internal stability to meeting the needs of people in unemployment lines. Let's hope, and pray, that they don't miss this opportunity to be serving Christ instead of self-serving.
Nov 18, 2011 1:11PM
I don't know where the dow will end up.  If it goes to 8000, so be it.  The problem can't be fix in Europe until spending is brought under control.  It is next to impossible to take away all of the entitlements that are currently in place, without incredible social upheaval.  Countries like, Greece, Spain and Italy are "has beens".  They have been on a spending spree with cheap money, courtesy of the EU.  Now when they need to cut back, because their tax base can't support the spending.  Because they have been on a gravy train for so long, they will fight any austerity program tooth and nail.  (sound familiar???).  I am hopeful this country will see the effects of rampant spending, out of control social programs and stop the nonsense.  This is a classic example of why socialism doesn't work.
Nov 18, 2011 1:17PM

Our economy in the US is getting better, however, as it gets better inflation will become a major problem. Interest rates will have to go up to control that inflation. So maybe the so called Fatalist have the right idea. Let the market handle the problem and start over again.

Nov 18, 2011 3:20PM

Folks if the market pulls back, everyone who owns a 401K will be hit except for those who  already have plenty of cash.  The middle class who are depending on their 401K for their retirement will suffer the most.  Don't listen to the fools who want Social Security privatized, they just want your cash to line their own pockets and give you a nothing in return.  Wall Street loves to take your free money. Their definition of share the wealth is " Give me your money and I'll give you the finger later and call you lazy, criminals etc... when you protest like OWS.  As I am American I am extremely proud of our folks exercising their GOD Given Right and Constitutional Right of "Free Speech." I served in the Military for 23 yrs so you can exercise that right.  I also agree that the wealthy should be taxed more over the next few years to help our great nation recover because whatever they pay in taxes over the next few years will be return 10 times during the same period.  Billionaires will still be Billionaires', Millionaires will still be Millionaires. Folks lets work together to do the right thing. 

Nov 18, 2011 3:17PM
Isn't this what free enterprise is all about? The business sector should not depend on bailouts and/or subsidies. I you can't make it, you shouldn't be in the game. Perform or go home. I don't get a paycheck for failing at my job.
Nov 18, 2011 1:11PM

Good for the Germans. They fought those a-holes that tried to own them once before and they are not about to hand over their country to the bankers now. Thank God for them!

Nov 18, 2011 2:34PM
Hot The Germans are resigned to not being duped into paying for the ill ways of the French, Greeks, Italians, Spaniards and others.  Same crap that's going on in the US with taxpayers being tired of paying for everybody else's hobbies and pursuits.  There shouldn't be any deductions or subsidies for anything.  Government benefits from Medicare and Social Security should be guaranteed to contributors based on total paid before any handouts to under achievers. Socialism works well until you run out of other peoples money. All Jim's worried about is that growth will have to contract to the real level of spending without printing monopoly money.
Nov 18, 2011 12:22PM
Old Jimmy seems to finally be getting it.  Wouldnt the collapse of a decadent corrupt system be good.  We can clear out the dead weight and start anew, much like natural ecosystems have done for millinea?  Old tired organisms die to be replaced by young energetic ones.  This is good, it is how we evolve.  The only ones that will truely be crushed are those who are currently running the show, the same self centered corrupt banksters and politicians who put us in this muck.
Nov 18, 2011 3:38PM
Thank God the Germans have some sanity left.  Everyone knows you can't print money you don't have except Ben Bernanke of the US Fed.  What a mess he has made.  At least the Germans know the problem is so out of control nothing they do will prevent the inevitable collapse of the Euro.  I wonder when the Deutsch Mark will return?
Nov 18, 2011 1:30PM

Excellent post PastorK1, I think too, there will be a time in the near future where the church will have an opportunity to shine in a dark world. The Germans know all to well the end result of a runaway printing press. The Germans also realize that most of the countries with these debt problems are not going to change on their own. The markets will need to force the change that needs to take place. Lets hope that our leaders wake up soon because we are on the  same dreaded course. We cannot continue to spend tomorrows dollars like a drunken sailor. We may already be at the point of no return. 15 trillion in debt and growing.

Nov 18, 2011 12:19PM
It is always easier to be the "doom and gloom" guy.  In this way if things turn out better, you can always say it turned out better than I thought.  However, if you are optimistic, and things go bad, this will  look like you have no credibility in determining events properly. Why haven't the regulators look i nto the fact that the market sets the prices?  Brokers make money are trades no matter which way the price goes.  In addition, brokers can and will cause a stock to go down so they can buy it at a low price and conversely will make  a stock go so they can sell it at a higher price.  Look at the volume of trading to see how this is working.  Last thing, stocks can be computer traded by the millions in a matter of seconds which is also a windfall for the market brokers. 
Nov 18, 2011 12:48PM
Hey, Jim!  Maybe mismanaged, dysfunctional, and maladapted financial systems should collapse.  
Nov 18, 2011 4:01PM
One question, Jim: Are you shorting the markets?
Nov 18, 2011 5:38PM

The Germans are realists.

Our current governemnt gurus apply a bandage to a decapitated economy and are hoping it holds.

Nov 18, 2011 2:10PM
I guess good old Jim has already forgotten that this mess started right here in the USA with the mortgage mess. Sometimes the unknown is the better path.
Nov 18, 2011 3:43PM
Why would Europe not fail? You want eight - twelve countries to agree on borrowing money and we here in the states can't get two parties even remotely close to any borrowing/ spending agreement. Wake up Jim you haven't seen any of the corrections coming.
You have to remember that the Germans got no help when they were in financial trouble after WWI and the rest of Europe were asking them for money to repay the war debt. Long story short the Germans kicked the Wall Street bankers out of their country got their economy rolling again and when the rest of Europe and their colonies refused to trade with Germany , Germany had to attack other countries on it's way to Russia to get raw materials. Hence WWII

There is no way the hard working Germans are going to cover the bill for French and Italian and Spain writing hot checks to pay for luxury goods while the Germans do without and are working.

If the ECB prints monies to cover the bills then Germany is leaving the EU and then the EU will truely collapse. 

Printing money does not solve anything it makes matters worse. 

Germany tried printing money before WWII and it did not work so they let their economy collapse and rebuilt it in just two years.
Nov 18, 2011 2:48PM

Wait a minute.....all the conservatives said we should not have bailed out the US banks/investment companies and could have just let the them collapse.  So why would it be any different if we let the european banks collapse.


So much for logical thinking...... 

Nov 18, 2011 1:03PM
No wonder Germans worry about hyper-inflation as what happened during the Weimar yrs in the 20s was a nightmare...there were want ads in Berlin and other cities:  "Wanted:  Bookkeepers, auditors.  Must be good working with zeros."  Is the African country of Zimbabwe still struggling with virtually worthless money? 
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