RealMoney Silver - Watch Japan for a Template of the Unfolding Gloom

Watch Japan for a Template of the Unfolding Gloom
By Jim Cramer
RealMoney.com Columnist
1/4/2008 7:11 AM EST

We gotta focus on Japan for one moment. I know the focus last night was on Iowa (unless you are a Jayhawk or a Celebrity Apprentice fan, as I have become!) and next week will be on New Hampshire, but this truly stunning decline in Tokyo should not be trifled with.

After years of thinking that country is going to reignite growth, it's all but certain that a recession is here for them. That's the main reason Toyota (TM) , despite endless articles about how it is taking over the world, isn't moving as a stock.

In the end, Toyota is like a GE (GE) -- part of the index -- and it is hard for it to break out of the index's pull. Both Toyota and Honda (HMC) are only about a dollar off their lows and they are kicking U.S. butt and have great balance sheets.

Doesn't matter. They may make cars everywhere -- but they are made in Japan when it comes to stocks.

More important, the Japanese banks and brokers are once again headed lower. And Japanese tech stocks are just awful.

I am focused on Japan for a couple of reasons. First, it is a big market and when we think of worldwide economies that matter, we were beginning to hear that Japan was making a comeback. That's no longer true.

Second, I am focused on it because Citigroup (C) -- in the height of Chuck "Uncle Billy" Prince's heyday -- bought Nikko Cordial for more than $13 billion just a few months ago.

Vikram Pandit needs to sell Citigroup's Legg Mason (LM) stock immediately -- see last night's Mad Money recap about why you should sell LM beyond that. He needs to sell the hedge funds that were accumulated at the top of the market (including his own if that is possible, which I doubt. But then again I never thought anyone was stupid enough to buy his hedge fund to begin with knowing that hedge funds are just the people at the top, but maybe there's still another sucker out there).

He needs to sell all that little flotsam and jetsam in financial tech that Prince bought. And, most important, he needs to recoup as much of the $14 billion in cash that Prince used fecklessly to buy Nikko Cordial -- a broker of all things that is precisely levered to this decline! I think Nikko Cordial is worth about $5 billon less than the $14 billion in cash Citigroup ended up paying. They were bidding against themselves, which was pathetic in itself, so they inflated the price before the big selloff! This will be the worst buy of many worst buys in 2007.

When everyone was laughing at me for saying that Prince had to go because he was only picked by then Attorney General Spitzer to clean up Sandy Weill's mess, Prince was putting things off balance sheet, like Enron, buying hedge funds at the absolute top and throwing away money on Nikko Cordial.

Didn't anyone see this stuff happening? Now that Japan is falling apart, Citi may turn out to be the biggest victim.

Keep an eye on this market. It's another case for Fed relief here. And it is needed, badly.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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