Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- the endless oil lies,
- Lehman, and
- the new rules of the hedge fund game.
for information on
, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
See Through the Oil Lies
Originally published on Monday, June 16, at 8:59 a.m.
No wonder there is so much disinformation about the oil markets, which are now, universally, supposed to go down. We have the trifecta of lies on display today in an article from
The Wall Street Journal
titled "Saudis May Pump More Oil, Discount It to Refineries."
I am going to quote the whole chimerical paragraph so there are no illusions about what I think is the world-class dissembling of the Saudis that has been picked up and magnified by the media endlessly:
One thing that nearly all sides agree on: the market isn't hankering for additional oil. Saudi officials have insisted loudly for months, most recently on Friday, that more oil wasn't the answer. Instead they have blamed soaring prices on the falling dollar, U.S. interest-rate policy and the increasing involvement of big investment funds in the commodities markets.
OK, let's take these lies one at a time. "One thing that nearly all sides agree on -no hankering?" Here we go with another
Saturday Night Live
line. In fact, the one thing all
agree on is we need more oil to offset and bring down the spot price and the futures price. If there were more oil that could easily be brought to market, the speculators -- including the institutions, because they are not users -- would be smashed. This market is too big to be cornered. The reason it is so high is that if there were any excess supply, you can bet the Chinese and the Indians would take it.
The falling dollar? The dollar has actually stabilized and risen simultaneously with the biggest spike we have ever seen in oil. Also, the dollar has minimal correlation with oil. I have not seen a study that shows more than a 6% relation to the boost.
How about U.S. interest-rate policies? We are probably the country that has most ratcheted-back energy use year over year. And for those who think that the interest-rate policy of this country is sole reason the dollar is weak, all I can say is, "You have to be kidding me." Have you seen the budget deficit? Who the heck wants to keep buying our debt? Our land, yes, but our debt? That's a sucker's game to buy. We have a terrible currency because we print it at will and have no fiscal discipline. Does anyone really think that a move from 2%-3% would save the dollar? The history of countries that print money as we do is a history of taking rates ever higher to try to attract money and it has almost always failed. You need to be a growth country -- we are certainly not -- and you need to cure a nation's inflation, and the easiest way to do that is to cut spending and raise taxes so there is a scarcity of bond issuance. You raise rates and you kill whatever anemic growth we have.
No matter, despite their total lack of forthrightness in
they say as a country, including this oil thesis, the Saudis always have credibility. In fact, they are the only talker in this game that the press takes seriously. The press particularly despises the executives in the oil industry and thinks they lie like rugs, even though they tell the truth about the lack of new oil coming to the market. The politicians are no help either. In this country, we endlessly hear that it would take "10 years" to bring on ANWR. Of course, we have been hearing that for the past 20 years.
So, don't believe the lies -- believe the truth. The Saudis are all about and have always been about keeping prices down to stop the alternative-energy juggernaut they have always feared -- they love their hegemony over the world. They are, in many ways, the most powerful country on earth, free to export political venom and oil. They have tons of the former, but they are running out of the latter, just like everyone else.
And the lies must no longer be believed in. They are killing the reality: We need more oil drilled, and we need it now. Plus we have to accept carbon use, particularly coal, until the alternatives -- not the additional Saudi oil fields -- come on stream.
: there is an absolutely terrific series on the housing crisis being run in
The Washington Post
that shows that "everybody knew" about the mortgage crisis except the regulators. That is
, and I am glad someone bothered to point it out. They even mention the Implode-a-Meter site, which is what I used to see how bad things were the whole time. ... Thain gets $83 million -- for what? Moonves gets $67 million -- for what?
Lehman Got It Wrong, Plain and Simple
Originally published on Tuesday, June 17, at 10:49 a.m.
We have to conclude two things today:
knows what it is doing, and
didn't, and they may still not. You can go through all of the "really good stuff" on the Lehman call, how they have right-sized and sold bad assets and raised capital and blah blah blah. But the simple truth is
they got the direction completely wrong and Goldman got it completely right
. It is direction. These firms lean some way. They have some inventory management. Lehman couldn't manage it. Goldman could. Goldman's just better.
It gets worse. You have to read the interaction between Mike Mayo, the Deutsche analyst, and Ian Lowitt, the CFO.
I will annotate.
Mayo asks about Alt-A paper still owned, "First of the $10 billon, last quarter, $15 billion of the U.S. Alt-A and prime in the residential mortgage category -- how much of that is prime?"
Lowitt: "I think the majority of that is Alt-A, Mike."
That's barely responsive. We are talking about $10 billion of some of the worst kind of paper in an economic slowdown. I know, it is not subprime, but Alt-A has been a big problem with the biggest Alt-A player,
, and I don't think Lehman was a better lender than IndyMac.
Now, Mayo: "OK, and of the AAA-rated securities, how much is super-senior vs. mezzanine. That's the category that went from $6 billion to $4 billion."
Lowitt: "Have to get back on you what that breakout is." Are you kidding? Even
, the most stupid of these companies, knew that number. The non-super-senior in many cases is proving to be defaulting at astonishing rates.
Mayo, pressing: "Can you give any rough sense there?" (He knows this is a "bodies buried" issue). "Because I think these securities are trading in the market. It makes a difference."
Lowitt: "No, what I can share with you is that those AAAs are -- they're marked in sort of the mid-70s if that helps you." That's no help at all. If we don't know where they are from and vintages, it is pretty much a guessing game as to their pricing.
Mayo: "OK. And the AAA-rated subprime securities, what vintage are those? Are those 2007 or before 2007?"
Lowitt: "I think they are predominantly 2007, because our origination machine -- our origination model was essentially to originate and then sell out, and it's really the 2007 vintage that we ended up holding on balance sheet."
That's all you need to know. Much of the 2007 vintage is just bogus, can't be hedged. Worthless. This was the musical-chair mortgage game. People used mortgages in that period to buy a home then take a home equity loan at 120% loan to value, and then scrammed in an amazing number of cases. If this is California, Arizona, Nevada or Florida paper, I think it is going to default at 50%.
Lowitt knows nothing. Mayo knows this.
Lowitt hasn't done the work on this. At least another outfit that was a really crummy lender,
, knows those numbers. So does
So, what do we have here? Unhedgeable paper of dubious origin possibly from the worst areas in the worst vintage.
In other words, Lehman totally and completely screwed up, and this is just part of the portfolio.
Now, Lehman has raised a lot of cash. It has done the right thing. As Doug Kass says, there could be a 20% buyer of LEH out there.
But this was a disgraceful performance, and it ain't over.
What a terrible and irresponsible lender. What a lack of knowledge on the part of the firm. What awful disclosure.
This is a dice roll. I'll take Goldman any day.
Sell Lehman on any good news that
. Their lack of knowledge and disclosure is a travesty. They don't know what they are doing.
What the heck happened to Lehman?
At the time of publication, Cramer was long Goldman Sachs.
The Hedge Fund Game Has New Rules
Originally published on Thursday, June 19, at 1:38 p.m.
Hedge fund managers should be panicked about this FBI arrest of Ralph Cioffi, the
fund manager who did what is a common practice in the business -- he told customers things are good when they aren't.
If Cioffi can be arrested for being optimistic externally while being pessimistic internally, then I want to invest in those private prison companies, because we are going to need more space for all of the hedge fund managers who put on a good face outwardly while, internally, they are panicked.
Put simply, the whole of Bear, from the top down, didn't believe that things could get so bad in the mortgage market. If they did, why the heck would they put more money into these funds, their own money? How can they justify that?
In a behind-the-scenes talk I had with a major manager from Bear, it was clear that all of their models were based on employment stats and as long as employment remained steady, they didn't really fear a wholesale collapse.
I believe these managers were worried about being down when they said to people they should stick around and not to worry about the performance.
That's par for the course in the hedge fund game: NEVER ADMIT THAT THINGS ARE BAD.
I am shocked that there is a case here, given the prevalence in the industry of this kind of thing.
Believe me, I was always concerned that I would underplay performance worries, so what I did was tell investors that they should get the performance from my independent accountants, not me, because I never even wanted to put myself in a position to talk performance, lest I be too bullish when things weren't going well. It is an imperative that hedge funds not make representations of health when things are not healthy, as Bear did.
But it was never criminal until now.
If this case goes forward, be prepared for many hedge funds to change their ways and stop telling you how good things are.
Or be prepared for lots of prosecutions. The norm is now prosecutable, and the hedge funds of the world had better beware.
Of course, the reaction will be to destroy email, get rid of the evidence; it is vitally important to the life of the business when things are bad to
taint the performance, because people will flee.
But that would create a second level of liability that comes from fired employees of hedge funds, as they will exact revenge by sending the emails to the government.
New game; new rules; if everyone plays by them, no one will get hurt.
: I reiterate that regional banks -- from
-- are simply not ownable. These are the savings and loans of this era.
At the time of publication, Cramer had no positions in the stocks mentioned.
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
TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.