Tuesday, May 4, 2010

Cramer Last Night



(c) 2010 F. Bruce Abel

Read Jim's italicized words from last night. Then the following:

But Jim, what you recommend is impossible! It also assumes a lot of things that are not true: that you have kept a lot of money in reserve for days like Friday when the market tanked. Who has the discipline to have done this? Who has the overall money to have done this, i.e. invest in your ideas and still have a potload to throw at the market just when it is scariest. You've already put almost everything at risk!

Now Jim from last night:
Listen, I would not have this show if stocks were not risky… you would not need me.. you could read from the Encyclopedia Britannica about what stocks to buy… but stocks are risky, it is true… they also have real upside when they are hammered down… as we saw between the bottom Friday and the bell today… you have got to be willing to live with some trepidation and you need some fortitude to buy stocks into weakness… to paraphrase and elaborate on super stock guru JZ, an empire state of mind… an important tone for this industry … if you could never sleep at night about your investments… slip yourself an Ambien… or get into CD‘s, where there is no real upside and no downside either.

Why do I bring all of this up? I bring it up because once again I am being blitzed, attacked by negative emails… cat tails, cat calls… accusing me of all things… of reckless by allegedly leading home gamers like you astray… for recommending that you buy into some chaos… see on last Thursday’s show… which I did not think Thursday’s show was controversial when I did it… I suggested that you step in at the ugliest moment in the banking group… and despite the cacophony from Washington, of all sorts of negative proposals for financial regulatory reform… that I predicted would be in the newspapers the next day… you should buy these stocks… well because it is always darkest before dawn… believe me I know… even though I do need a nightlight at moments like this… maybe a Sponge Bob or perhaps a Barney, maybe my old Scooby Doo.

I am getting the same negative reaction now for recommending the banks… as I did last October, when I suggested that the worst might be over for healthcare… and a good company like WellPoint, with a great balance sheet and the best management in the HMO industry was a strong buy at $47.50 when everyone felt that it was going to be turned into a non-profit Blue Cross Blue Shield… I told you to plunge into the negativity and bet that the Washington chaos was already baked into the stocks… the cat calls, mostly from highly paid professionals within hedge funds, but also from regular Twitters and Facebookers… is it called Facebookers? I will have to ask my 18 year old… anyway, they began immediately… the jest, I was hurting you… I was hurting you with my thoughtlessness and dangerous un-thought out call at the bottom… but you know what? That point with WellPoint, it turned out to be the bottom in health… the bottom… by the time I said enough was enough, WellPoint had gone up to $65... over 17 points made by stepping in at the ugliest moment of the debate.

I am now thinking that perhaps the hedge funds who decried the call were just short sellers trying to get me to change my view… I will not take counsel of these short sellers fears when I think that I am right… and now when it comes to the banks, I am detecting a WellPoint moment… where the posturing has gotten out of control… and the anger at the banks is unfathomably deep… the criticism of my buy the banks call has become so ugly that it reminds me exactly of WellPoint… not to mention the derision I suffered when I recommended Huntington Banc Shares… when it was supposed to be at death’s door at $4, and then $3... where you then caught more than a double… why did I do something so allegedly reckless as to stand here on Thursday and tell you to buy the bank group into Friday’s horrible market? Because I think that a core consensus is being reached in Washington, behind the scenes… not on the front page of the paper… that simply is not that awful for the banks… despite all the nasty headlines and sniping by Senators trying to make a name by beating up on these financials.

More important, after a weekend in Washington, I got an ear full of chatter that makes me feel even more strongly that I was right on Thursday… and that the legislation will be benign for the industry… I believe that the mostly likely bill to pass is the one that Senator Dodd initially submitted… a piece of legislation that is endorsed by Sheila Bear from the FDIC.. someone widely regarded as a goody two shoes who is tough on banking… as well as the level headed Tim Geithner, the Treasury Secretary… a bill that the Republicans, who do matter, can live with… see unlike healthcare, the Administration has gone pretty bi-partisan on this one… for whatever reason… and the President, as we saw on healthcare, ultimately does get his way.

This bill is not going to cut the numbers for the banks.. now here is a new one… I think that it could end up boosting them…. my issue with the banks, like with WellPoint, is that you did not know that clarity was upon you in the midst of the sausage being made in Washington… so you had to anticipate clarity… it is a simple proposition… if you wait until all of the banks analysts say that it is all clear to buy JP Morgan, Bank of America, Morgan Stanley, or Goldman Sachs… which is being downgraded by everybody… thanks a lot… you will have to come in at the equivalent of $60 for WellPoint instead of $47... and you will make $3.… not $17... $16.. I am sorry, I want to make the $16 a $17... I do not want to make the $3… does this mean that JP Morgan can still trade down to $40 as the heat grows and grows and throws you off of the scent? Sure…. but does that mean that you sell JPM? Just the opposite… you keep buying it on weakness… it will be a gift.. it will be a real gift.. that is how strongly I feel about JP Morgan.. which is why MCTAAP owns a ton of it… maybe my biggest position at the end of the day.

The essence of good investing is anticipating when the worst is not going to happen… my career is littered with these kinds of moments… tobacco cases that were supposed to wipe out Altria, the old Phillip Morris, where you had to load the boat up… AMD legal triumphs over Intel that were supposed to cripple the chip giant… credit card legislation that was supposed to destroy Capital One… drug legislation that was meant to annihilate Merck and Pfizer… and cholesterol bungling that was supposed to lay away Schering Plough… remember Bausch & Lomb that came out with a solution that allegedly caused blindness in a bunch of people… it took it down to levels where you got leverage buy outs.

Schering Plough, Bausch & Lomb, Phizer and Merck from 1993... think about these things… think about these moments Altria, what was then $18 going to $40... we have been here again and again… over and over.. we have seen the pattern of worst case blows from courts and from Congress that just had horrible headlines on the front page of The New York Times… that turned out to be buying opportunities.. in each case, the propiners called the ode to buying a reckless story… sometimes I just plain tire of it… but you have to summon your strength and accept the fact, particularly in my case, that it is exactly what I would have done at my hedge fund… that I retired at, at the end of 2000, where I was able to rack up annual gains of 24% after all fees for my clients for 14 years… using the same logic here, of teaching the same logic here, that I used there.

So panic today on the proposals that would cap deposits.. even though the Government 15 months ago created the hemis that boosted those deposit shares… fear every part of the vocal rule… even though Lloyd Blankfein of Goldman, said that he could live with it on a weekend interview… despite the fact that his bank would be the most hurt… get angry at anyone who suggests that this is a WellPoint moment… do what you want… I made a judgment based on my past history… the banks will not be broken up… our banks will not be put in a disadvantage relative to Deutsche Bank, or UBS, or Credit Suisse as the papers indicate… and is what Senator Dodd is most against… see it is not just going to happen… that judgment, could it be off a little, by a point or two? And it certainly requires fortitude… because it seems to against the odds… but you cannot go against your judgment just because the moment seems too risky… it is the judgment that got me here.

If good investing were not risky, then everyone would outperform every index… and everyone would be rich… whoever bought a stock when it was going up and everything looked perfect.

Here is the bottom line…

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If you want to do better than the averages… you have got to take some chances… right now I think that the banks are in the same position, visa via Washington, that WellPoint was back in November when it was trading in the $40’s… this is the time to buy the banks… not to sell them… when the negativity is in the stocks, but they do not reflect the coming clarity from Congress… and the relief that I am expecting over the next month… do not be mislead… taking a chance on the banks is not reckless… the most reckless form of investing, in my world, is to say I am going to wait until it is at last all clear… because you are never going to outperform risk free securities if you wait that long… that is total irresponsibility masquerading as prudence… do not fool yourself… you are not willing investing if you are getting 1.5%… which is the current risk free rate on CD’s… you are gambling that you never need more money than you already have… I say do not gamble that way… unless you do not need to make money… you have got to take some risks… and invest when everyone is most fearful… that is when you get the biggest gain.

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