"No kidding." That's what I think every time I read an article that says business is slowing in the United States. That's what stocks have been predicting for months. It's why we have been in a bear market. It is why the Federal Reserve has had to cut multiple times. It is why everything seems to be going wrong.
And it is why you have to start thinking of the end of the bear market and the beginning of a bull market. First, understand that the last bastion of strength -- oil/gas/agriculture/infrastructure -- was taken to the woodshed in a remarkable move, one that went basically bull to heavy bear in about two heartbeat's time. We knew that had to happen eventually, although the swiftness and viciousness of the swing shocked people.
Second, the rally in Fannie Mae
(FNM)
and Freddie Mac
(FRE)
signals the end of the talk about the "demise" of those two companies. The demise, to me, was always political. Remember that the losses from this mortgage situation would have to produce losses to these two companies. This is supposed to happen in troubled times, which is why they are quasi-governmental, and not independent, companies.
The real crisis of the last two months was the implicit denial of the implicit guarantee, a significantly irresponsible decision by a significantly irresponsible Treasury that raised mortgage rates even as the Fed was cutting short-term rates.
Those days are now over, and we should be most grateful because this slowdown has always been rooted in housing. Perhaps the most important thing that happened last week was that mortgage rates at last went back below 6%. In truth we all know they belong at 4% and change, and that would start the housing cycle once and for all. When you get FHA guarantees and lower rates and fewer homes built, and a peak in resets, you get a bottom. People will always want to own homes because the tax implications are just too positive and quickly over-run the losses that you might take in houses if you buy them at a reasonable prices, which we have right now. (Take it from me, a renter, who now, at last has seen the economics cross over in my well-to-do town.)
All of this is to say that when everyone acknowledges that we are in a tough recession, stocks reflect those prices and they reflect an endless recession just as they reflected an endless expansion not that long ago.
It is true that bear markets last a few months more than this, but anyone who saw a multimonth move happen in three days to the commodity markets has to think that we could be in for a slightly shorter bear market (even as it seems inconceivable that the bear market could ever end when the numbers just turned bad).
Make no mistake about it, so much of this recession is created by the sheer incompetence of this White House and its minions: everyone from a Fed chief who failed to understand the yield curve or the fragility of the banking system, to a Treasury Secretary who drank the "fundamentals are sound" Kool Aid, to a president that cared more about destroying Fannie Mae and Freddie Mac because of their long-standing ties to the Democratic Party and their violation of the laissez-faire market doctrine that this administration has pursued. When you layer in Presidentially mandated food inflation -- do you think this president has ever gone to the grocery store? -- you know that our own incompetence created much of this recession.
But with the Bear Stearns
(BSC)
collapse and the need to scrap the laissez-faire policies, which were so one-trick (cut taxes), you have to leave open the possibility that things can get better out there. And that's what I think the rally this week was about.
I am not for a minute making a case that we are going to advance from here. I am making the case that the notion of a floor -- something unfathomable before the Bear Stearns collapse -- may at last be in place.
At the time of publication, Cramer had no positions in stocks mentioned.
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