I want to be in when this sucker bottoms. I have to be in.
Wrong! Rear Echelon Revelations: Cramer Banks on a Bottom in Japan
By James J. Cramer
6/29/98 7:45 AM ET
Why does Japan keep attracting me even as it persists in doing things slowly, methodically and, yes, stupidly?
For the same reason that I bought Citicorp (CCI:NYSE) in the teens, watched it go to 9, and then to 90. I want to be in when this sucker bottoms. I have to be in. It will be one of the great trades of a lifetime, as that Citicorp trade was.
I already tried this trade once and was immediately bloodied. I went in, I thought with my eyes open, buying some Mitsubishi-Bank of Tokyo, and I got hit by the proverbial Asahi Beer truck. I figured that the Japanese had to react, they couldn't let their whole country slip away.
But then again, I was forgetting the lesson of 1990-1991, our great bank bottom. I was forgetting that as much pain as there has been in Japanese stocks in general and bank stocks in particular, there must be much more ahead. For one simple reason: Of all the classes of assets associated with banks -- the depositors, the lenders, the borrowers, the preferred holders, the debt holders and the equity holders -- it is the last that must be sacrificed if the crisis is to end.
I put the cart before the horse with my Mitsubishi Bank buy. I forgot that it was only after massive bank failures had come for a couple of years that Citicorp teetered on the abyss. It was only after the vaunted Bank of New England and every bank in Texas save Cullen Frost had gone belly-up that you could have a clean bottom in Citi. And even then, it didn't come overnight. A crown prince of Saudi Arabia's buy of the equity was the only real sign that the equity holders would survive the onslaught.
Even the first 10 points of Citicorp on the upside were greeted with tremendous skepticism. As is typical, at the bottom everybody hated Citi along with Chase (CMB:NYSE) and Manny Hanny and Chemical. The analysts, all of whom were defending these all the way down, couldn't think of a single reason to buy them. The bulls had almost all thrown in their stock for tax loss purposes, and everyone derided the first 50% as specious and fanciful.
Of course, these banks were completely insolvent at the bottom, so it stood to reason that nobody believed. In fact, looking back, there was no reason at all for a bottom to be put in. I describe it today as more of a subjective "the center will hold" kind of logic than an intrinsic worth exercise. These banks should have gone belly-up. They had far too many insolvent loans.
But at a certain point a consensus gets formed by democratic peoples that it is not in the nation's interest to let the banking system disappear. We reached it; the Japanese are reaching it. When they do, you want to buy the most solvent banks among the sea of insolvency, and hold them and your nose until you make big profits.
It will happen. This time is no different. |
