Why I'm Negative Now

Editor's note: Jim Cramer will present his 2009 stock outlook for the first time at TheStreet.com Investment Conference on Saturday, Oct. 25. Click for details.

As I write, it appears that the finance ministers of the industrialized countries have not been able to come up with a plan for what to do about the equity and fixed income markets. Our own response now smacks of total panic. There is the recognition that the U.S. Treasury's original rescue plan is not going to solve things fast enough and that a more direct investment in banks is needed.

But without some sort of deal that would force these banks to loan the invested capital, there is little hope that this new plan will matter.

In fact, the best hope is a cordoning-off approach where the government agrees to invest huge amounts in the big well-capitalized banks -- Bank of America(BAC Quote - Cramer on BAC - Stock Picks), Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks) and JPMorgan Chase(JPM Quote - Cramer on JPM - Stock Picks) -- and the big stretched banks -- Citigroup(C Quote - Cramer on C - Stock Picks) (really important because it's in danger of being obliterated), Goldman Sachs(GS Quote - Cramer on GS - Stock Picks) and Morgan Stanley(MS Quote - Cramer on MS - Stock Picks), the latter two because of a need to keep them alive next week.

This strategy, which I presume will not be adopted, but which makes the most sense, would allow for shotgun weddings for all the weak banks to eliminate the bleeding. Without this kind of action I am reverting to a downside target of 6,700 for Monday and then 4,700 for Tuesday in keeping with the hopeful '87 playbook.

Why am I so negative? Because the forced selling is just beginning, the only people being margined out now are the most stretched, and in the ensuing weeks we will discover that most annuities cannot meet obligations as the piecemeal nature of the insurance reports will inspire even less confidence than the government.

That means we are not in a "fear itself" moment, because the losses haven't begun to take their toll.

The newspapers are filled with stories saying there are buying opportunities and stocks selling at incredibly discounted prices. They are incredibly discounted only if unemployment does not skyrocket. My take is this: Without a comprehensive worldwide plan you should still be thinking about buying only small amounts into desperate selling tomorrow, and then Tuesday commit more into what could be a concluding gap down.

To be more aggressive about buying is impossible given the inability to take off the table a 1929-1932 scenario with an almost a total wipeout of capital. Don't forget that we had an 80% decline in the Nasdaq 100 in 2000-2003 without a recession. Why is that less likely? Because there are too many dividend-yielding names that will cushion the blow and eliminate that kind of decline unless we get the severe depression scenario that comes with unemployment and major bank closings.

This is a work in progress. Stay tuned for more; an analysis beyond Tuesday seems reckless at this point.

At the time of publication, Cramer was long JPM, GS and MS.