October 1998 was probably Cramer`s worst moment in the market and it was all done in public.
Don't Be a Skeptic About This Rate Cut
By James J. Cramer
1/3/01 2:38 PM ET
URL: thestreet.com
It's October of 1998. You know the truth about the Long Term Capital crunch. You know they are going under. You know how levered the financial system is. You know that it is too late. The Fed has waited too long. It is all bad now. The crisis is too deep. So you sell.
You are a moron.
That's what I did in October of 1998. I knew too much. I knew that Chase (CMB:NYSE) and Goldman (GS:NYSE) and Citi (C:NYSE) had bad exposure. I knew that Bankers Trust and UBS (UBS:NYSE) would be hurt hard. I was deeply worried about Japan. I kept thinking the whole shooting match was coming unglued. One Fed cut can mean nothing.
Sure enough, after the cut, we heard the skeptics. I felt great about the skeptics. They confirmed my belief that things were too bad to fix. The Fed had dropped the ball! Silly guys! It was the worst mistake that I have ever made in my investing career. The worst ever. The Fed injected so much liquidity in the system that the new bull was reborn and stocks that shouldn't even have been stocks started going nuts to the upside (e.g. TheGlobe.com).
Why does it matter so much? Because it changes the psychology. It makes it so you want to buy and own things. The economy just acts better when rates are going lower, because rate cuts act as grease for stuck wheels. That makes the companies do better. And what makes the stocks do better? Every hedge fund manager in the country who is short is now scared. The Fed is no longer on the side of the shorts. The Fed is on the side of the longs!
What does it mean for you? Let's take three stocks: Goldman Sachs, which is up 11 points as I write, General Electric (GE:NYSE) which is up 3, and Broadcom (BRCM:Nasdaq) which is up 14. I would buy more General Electric right here, right now. It is a principal beneficiary of lower rates, as GE is like a giant economy. It is a greased wheel that just got slicker, and it is a must to own. Goldman is trickier; I don't like to buy anything up 11, but I would buy more if it came back at all. This is a fantastic stock to have at the beginning of the Fed ease. And Broadcom? I would trim it back. I am sure that Broadcom, the company, is doing OK, but I think that Broadcom, the stock, will not go up as much as the rest of the market.
Catch James J. Cramer on CNBC Wednesday night as he participates in a special roundtable on today's
Fed ease! Tune in at 7:30 p.m. |
