Chance of market havoc just went up

In the past 72 hours, Europe got worse and debt-ceiling talks in the US deteriorated.

By Jim Cramer Jul 18, 2011 8:04AM
jim cramer

the streetStunned at how bad it looks Monday. Stunned that nothing good ever seems to happen in Europe at all. Nothing.


The stress tests just seem like total shams. I would have thought that, given the tremendous sovereign bond holdings these banks have, it would have been prudent just to issue statements that said, "If the banks we know have X level of debt don't raise capital, we will seize them and nationalize them." Something with real teeth.

 

Without that, we are facing the absurdity of this slow death that grinds and grinds. We have a 1980s-style Latin American debt crisis here. The sophisticated people around the globe know this, so there is no exit until the capital is raised and the bullet is bitten on the bogus sovereign bonds.

 

I was hoping for Geithner-like stress tests, ones that found every major bank issuing a ton of equity, something that makes our banks solvent -- although that does not make them investible.

In our country? As the debt talks stall, the chance of a lot more havoc grows higher. I had thought we could contain the losses to 3%-5% as we build up to a deal, and I was keeping odds of a deal at about 85%-15%, which meant it wasn't worth selling the market.

 

Now it's looking like more of a 5%-7% lead-up, as the contentious nature of things just makes it seem less likely that a deal will be reached. Less likely means 75%-25% in favor of a deal.


The problem is that the deals being discussed don't seem all that credible. Where was that $4 trillion-dollar deal? That had new highs written all over it.


So you get a situation in which we have a 5%-7% drop that won't be rescued by a big deal, because the deal is perceived as nothing significant, which means you don't make back the 5%-7%.


That's where we are now -- in a moment when the risk seems to outweigh the potential reward a couple of weeks from now, which is why it is natural to say that there's some pain here.

I am still in the camp that says most can't be nimble enough to get out and then get in again. The only thing that has changed is the need to get back in. That's what's on the table, and without some positive movement in spirit on a deal, the risk of missing out becomes less worrisome.


In other words, things changed in the past 72 hours. Europe got worse. And the talks seem to have really gone south.

 

New, negative info. Have to react accordingly.

 

Jim Cramer is a co-founder and the chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

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9Comments
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Cramer things have been very very bad for a long time now. 

Where have you been???  Mars or Venus????
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When the first European stress test came out last year, most of the banks passed it with flying colors. 

Then they decided that they need a second more stringent stress test.  Most passed. 

Now they decide they need another more stringent test, which hopefully the banks will now fail so the Gov't can take them over.

The Gov't in England required Lloyds and RBS to sell all their profitable assets mainly in overseas markets where the most growth is.   They said it was to ensure free competition for other European banks.

 

In America the Gov't bailed out the banks.   The banks left the money in the Federal Reserve where it is gaining a small amount of interest.  Weren't they suppose to loan it out for the American Homeowner at reduced rates to create a better housing market?  

 

The American people are being took again with the latest in the Debt ceiling debate.  For some reason, the Gov't wants more debt.  I would think we would want to cut spending by 20%, balance the budget and cut the red tape our companies have to go through to create jobs. 

There is something rotten in the state of Denmark.  Goes for the rest of Europe and America too.

Maybe we should have the Canadians run our Gov't for us.   They cut taxes, cut welfare, cut unemployment benefits, cut the national spending, cut the red tape for the use of natural resources, their banks require a 20% down payment on a home and now only have a 5% unemployment rate and one of the best economies in the world.   Seems we are not taking advantage of the good and bad around the world to better ourselves.

Jul 18, 2011 12:53PM
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Too bad the "job creators" - u know the ones creating lots of jobs in China and Mexico aren't willing to pay hardly a dime of taxes - just like all the articles right here on msn have shown they just put the burden on the middle class with a phat 30-40% chunk out of your take home pay.  Discussing.  Every signer of the pledge should be hanged.
Jul 18, 2011 1:55PM
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The for the rich, by the rich crowd shot themselves in the butt, it just takes longer to bleed to death from that kind of wound. The stupid part is they are still so greedy they refuse to have the wound closed and take their medicine. The worst part is that every working American and citizen of world is being forced to drown in their stupidity.

Jul 18, 2011 11:53AM
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I don't understand the criticisms.  Cramer is a trader, so he has a short term outlook which changes as rapidly as the circumstances.  He's also an optimist and almost always bullish. So, if he's expressing caution, I think it's a very good time to be cautious.

 

I agree that the real economy has been in horrible shape for quite a long time, and I expect it to become worse before it becomes better.  However, the asset markets have not yet reflected the real economy, and who knows if, when, or to what degree they will.  The players who actually move the markets, swimming in cheap money created by the central banks, have been discounting all the news that they don't care to hear.  I keep telling myself that it can't continue, and I am proven wrong again, and again, and again ...    

Jul 18, 2011 12:29PM
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Smile Jim your right.  the US Government should've seized AIG,  BAC, C and GM and liquidated them.  We'd all be a lot better off.  Instead we all own shares in failing companies and countries.
Jul 18, 2011 4:15PM
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Tongue outCramer is 100% bull and 5% ah eh hummm!Nerd
Jul 18, 2011 6:30PM
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Cramer likes to speak in intellectual sound bites that I guess impress him as .... well... intellectual.  It comes across as blah blah blah meaning nothing to a working stiff trying to invest.

 

We've separated church and state....!!!??? have you listened to a republican tea party evangelist these days????  Its turned me away from being republican after 30 years.

Jul 18, 2011 6:00PM
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We separated church and state. Lets separate social and commercial. We have a fund for social security and medicaid with taxes for each. Lets create a commercaid tax for business. No corporate income tax, just a commercial security tax and they (business) can decide how to spend it. They can provide their own self directed subsidies and bail outs. The economy is a result of aggregate business actions. Let business pay to solve their own problems rather than the american tax payer. All things supporting a business interest are paid for by business and all things social are paid for by the people. Something as simple as education is a business interest or need, let them support what they need to succeed. They have reduced their contribution to our ability to pay our bills as a nation so much that we spend more money supporting them than we get from them.
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