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Right now almost every bank that is not dead is loaded to the gills with impossible-to-mark and -price mortgages. Again, if I were short I would like to keep it that way. As long as there is no possible marking, the current system is going to rely on the last price, and right now the last price for a lot of this stuff is a lot closer to zero than par. Given that's the case, we can only guesstimate and we will guesstimate something that is probably below where these mortgages will be if we can play them out and work them out. Again, if I am short, I want marked-to-market because that will wipe out most banks. If I wanted most banks to go under, I would stick with marked-to-market for certain. What can replace marked-to-market? We could get an organization that could buy mortgages, sit on them and hold them and work them out, but no bank can afford to do that. With no such organization, I would like to be short the market and the banks because the banks would all go under eventually -- there are that many mortgages out there that could be valued at close to zero if house price depreciation continues unabated -- and the market would go down because there would be a lack of credit and no expansion and gigantic layoffs. But with the organization that could purchase mortgages at a reasonable price and work them out instead of foreclosing (which is what the banks have to do to get them off their books, thus creating further price depreciation), there is a chance for gradual house price stabilization that would reveal many of these mortgages as worth something, not nothing, which is pretty much to what marked-to-market is giving us. With the organization, there is a fighting chance to take the systemic risk off the table.
Given that the two worst lenders, Washington Mutual and Wachovia ( WB), are out of here -- worst because they sold billions of dollars in no-money-down option ARMs, which are now going to start foreclosing at record rates -- we could be on the verge of something positive: stronger banks that own these that can sit on them until something is created to sell them to. If nothing is created, then I want to short these banks, because the stuff can't be valued and therefore will be valued incredibly low, perhaps even lower than the incredibly low prices that Citigroup ( C) and JPMorgan ( JPM) valued them at. However, with that organization, these banks could strengthen. So could Wells Fargo ( WFC) and U.S. Bancorp ( USB) and Bank of America ( BAC), which also have the same problem for their loans. We don't want to go back to the black holes, of course, especially because they have almost all been filled. ( Fannie ( FNM) and Freddie ( FRE) seized. WM, seized. Ford ( F) and GM ( GM) bailed out yesterday. AIG ( AIG) seized. Lehman shut. Citigroup saved for now by the FDIC's approval and therefore is too big to fail. You have to admit, that was an amazing list of ne'er-do-wells.) So, that's what the plan is about and it is why it is important if you are long or you are short. Now let's back up and out. This plan has nothing to do with the price of steel, so you can short all of those that you want. While the infrastructure stocks have become ridiculously cheap, they are owned by hedge funds and there is a worldwide slowdown, so one can pretty much shoot them to death on the short side. The bill won't help sagging mineral or oil prices, so those are good shorts, especially because they, like the steel stocks, are owned by hedge funds who sold a lot last week but will have to sell again when the performance figures come out, the money is pulled, the collateral can't be delivered to the brokers and the credit lines are pulled.
In fact, anything industrial can be shorted at will if you want to, and then knocked down if you want to. The companies are pretty much helpless and the earnings will be awful. Same with tech, the difference being that the analysts are endlessly willing to recommend them. That leaves the depression stocks, foods and drugs, and they can be shorted on strength. So, it is a great short-selling litany no matter what. However, the bill does address the fundamental problems of house price depression and credit creation and so therefore, again, unless you are short, that's a good thing. I mention all of this because when I write positively about the bill I am mistakenly seen as someone who thinks the bill is a cure-all. I think the bill just forestalls the Great Depression Two, which is a terrific shorting opportunity. Without even more tools, lower rates -- which may not help much but which don't help if you are short -- better FDIC protection and a change in the fortunes of our trading-partner nations, which seem to have vanished, I will recommend shorting on strength until prices get so absurd that shorting becomes tough, and I believe we are almost there for some stocks. So, now you have my perspective. I hope by reversing things and explaining what you want if you are short, it helps to understand the context of my as-usual misinterpreted words. And are there better plans than the bill? Of course. If you are short, you want them back on the table so the bill is delayed. So, twist away at the words, but the bottom line is if you are short and you want to stay short, the passage of the bill might be a short-term bummer for you because it goes toward eliminating the systemic risk that has made this market the short-sellers' paradise even with the SEC's silly short ban, which might come off tomorrow. It could, because Chris Cox is a great friend of the shorts and has done their bidding until the moment where he switched because Goldman ( GS) and Morgan Stanley ( MS) were going to go out of business and John McCain called for his firing -- he is nothing if not a political hack willing to bend when the big boys come a-calling. At the time of publication, Cramer was long Goldman Sachs, Morgan Stanley and JPMorgan.