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NEW YORK (
) --We struggle to figure out why the Germans are being so intransigent. Why they are being so recalcitrant about helping the rest of Europe?
I come down to two reasons. First, they know there isn't enough money around so why have Germany, the strong swimmer, be pulled down by all of those weak swimmers that are going to drown anyway. Or second, they have a plan and the plan is to play chicken, to get all of these new conservative governments to make the necessary cuts, see some success and then go all in to help the successful ones.
The problem is I can't be sure which is right.
Cramer: Is Germany looking through a fatalist prism or game of chicken prism? Impossible to know, so sell into any market strength.
In option one you need to raise as much as cash as possible because if the Germans let the market decide, the walk away/fatalist option, there's big trouble ahead. In fact, it is inconceivable to me that you won't have to nationalize a huge number of banks that would otherwise fail and have to guarantee the depositors while wiping out the bank creditors and equity holders. That's the $10 trillion minimum wipeout that guarantees only those with CDs and savings account and is the ruination of the private capital that's propped up the banks.
Option two, the game of chicken, says "OK, we now have these conservative governments in place, let them show us they mean business and then we will back them up with whatever is necessary."
Option two and we have a recession in Europe, like the one that is obviously beginning now, but it doesn't go to extremes and it can be contained over time with a several trillion dollar backstop as we THOUGHT was going to be the case when we got to the 19% declines for our market not that long ago.
I think we won't know which option will be chosen until we see some sort of bank failure or failed bond auction of a country that's even worse than what we got last week with Spain.
The reason all of this matters is because in one prism, the chicken prism, what we are hearing is just rhetoric, get-tough rhetoric that we can deal with.
But in the other prism, the fatalist prism, it's not rhetoric, it is policy, and we are going to hear about many more Thomas Cooks, the huge tour operator (maybe you used to use their traveler's checks?), whose stock fell 77% this morning.
Both options are bad. At least the latter does not require wholesale selling, just some cash raise into today's market, to be ready for either option, although the former means don't even think about redeployment until we flirt with the September lows.
Sell into any strength under both. Buy the dip under number two, don't trust the dip under option one.