Wednesday, February 18, 2009
(Cont'd from above)...

Jim (cont'd):   


If you want my take on what is really going on… rather than what some bonehead say is happening… tonight I am going to list the 10 biggest myths and misperceptions in this market… so you know why you are confused… so you can avoid making mistakes based on incorrect information… or perhaps disinformation.

Myth 1...
Stocks are cheap… sure on a market capitalization basis they are…. but certainly not on a price to multiple earnings basis… because the earnings are off the charts bad… companies are shrinking, their stocks are shrinking, because their earnings are shrinking… and that is right…. that does not make their stocks cheap… I was doing some work on Whirlpool…. doodling on Whirlpool before I got here… $2B company… I mean come on shouldn’t that be a $10B… but not if the earnings are going down so precipitously…. I could add Newel Rubbermaid, I could make a list of household names that fit that.

Myth 2...
The automakers only need x billions of dollars to get out of their jam… please… with all due respect to everybody that talk about it… that is ridiculous… unless the autos break the union…. then I think the companies will scale back to nothing and become unimportant…. the idea that they can get their cost down is a big joke… we all know that… but we all play along… it is kind of like the Soviet Union… we have to play along because the auto companies employ so many people that the autos basically have to become overpaid wards of the state… and I say this as a former union member… and someone who doesn’t care for management at GM either… and who helped orchestrate a wild-cat strike at one point in my career… these are extraordinary times and extraordinary measures must be taken… and that includes finding a cost structure that is reasonable that eludes the union and management.

Myth 3...
The banks should be lending but they aren’t, they are hoarding money… of course the banks aren’t lending… every time they lend money they lose money… every time… why should they make loans when the collateral goes down every day because of deflation… what is the point of doing that… especially when they know the regulators will hose them if they get in trouble lending.

Myth 4...
There is nothing we can do about the mortgage problem…. wrong again… we have to cut principal… and cut it big… when we do that we can make everything work… of course, if you cut principal the banks will end up losing as much as they would in foreclosure… but we can issue them a certificate… a certificate that will allow them to keep up regulatory capital… and also allow any gains from the sale of the home to go to that bank… they adjust the principal, the house goes up in value, they get the money if it is sold… I firmly believe this is the only plan that will work.

Myth 5.…
Nationalizing the banks worked in Sweden so it will work here… this is a meatball theory… I hear this one every day from guys like that Neurio Ribinie… I don’t remember him running a big bank… anybody remember him running a big bank… he is a member of the professoriate… it has now become common currency… look this is a ridiculous concept… Sweden is about the size of Georgia for heavens sake… and its problems had to do with commercial and residential loans… if only our problems were that simple… what we need to do is show forbearance with the banks… let them work out their own issues… we advance them the money in the form of a net worth certificate… tell them to pay us back when they have sold some merchandise or earnings… and let them solve their problems… give them smaller salaries and equity that can only be cashed in when they fix things and give the money back… if they don’t like it… go take another job for heavens sake… there is no handcuffs here… and if they fail to pass the stress test after we try my forbearance plan… then we seize them… I think that will work… that is how we dealt with the Savings & Loan crisis… why are we looking to Sweden… we have got a perfectly good model on our own recent history, the S&L crisis… and can someone please tell me who the heck runs a nationalized bank…. I mean come on, who do we have in government that understands the complexity of a Citigroup or a Bank of America… ask yourself… do you like the way they run the Amtrack… how about the post office…. banks need to work this stuff out by themselves.

Myth 6...
The mortgage insurers whether they be MUNI, or CDO, or personal, are viable… and ready to pay off all the insureds… no one believes this other than the mortgage insurers and their accolades… namely the agencies that are supposed to be rating them… I think everyone is pretending… I am a seller of these stocks still… even down here.

Myth 7.…
Warren Buffett has no problems at all, he is doing great…. I am sorry I am troubled… I am troubled with that… I mean the man has a giant put sale on the market… and holdings that seem to go down more than the average… I know he is doing this big fix thing, come thing… but you know, he owns a lot of stocks… he is what I call double long… meaning he has more exposure to the market than anybody I know… because when you sell puts, you are basically guaranteeing no down side to the buyers… he is writing insurance against the market in the worst market decline in history other than the depression… if this were Hartford, or Prudential, or Allstate, we would all be scared to death of Buffett and Berkshire Hathaway… as my friend Doug Cass and I detail every day on TheStreet.com, where I am chairman… Buffett is selling, not buying America, selling America… selling JNJ… selling Proctor & Gamble… even though he told us in the op-ad page of The New York Times not that long ago that he was buying America… is Buffett selling the good to fund the bad… it sure feels like it… with all due respect, Buffett is not doing what he told us he is doing even if he is thinking long term… how many people followed him into the valley of the shadow of losses… I am quite cognizant that he is doing some great fixed income investing… but I look at the stocks everyday, the American Express, the US Bancorp… doing a little trimming in that… I don’t know.

Myth 8...
Inflation is the problem… excuse me, we are in the grip of the most radical world wide deflationary spiral that this earth has seen… and that would include the 1930’s… we have to solve it because it can not solve itself… as the fed chairman Ben Bernanke said very eloquently today.

Myth 9...
The problem with the SEC is the institution itself… noooo… it is the fish stink from its former head Christopher Cox…. a radical, lazy affair joker who made it very clear that it was a mistake to spend time going after the big fish… if I were any good and I worked for the SEC under him, I would have quit immediately… the blame for Stanford and Madoff is all on Cox… I say, I have a solution for him too… alright, I say put this man in a car with Chris Brown… and as they say on Bravo… watch what happens.

Myth 10...
Everyone is doing everything they can to help the situation get better… this is a myth… this is a total lie… the European Central Bank worried about the ghost of Vymar, has been a huge enemy of the process… the Obama administration came in without a plan… waaaa… and the only person with a plan is the guy who didn’t seem to have one back in 2007, 2008... but now recognizes the gravity of the situation… the come back player of the year, Ben Bernanke… if people would take their cue from him, then our rendezvous with depression destiny could be avoided.

Here is the bottom line…

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The Bottom Line!:     How about a little truth… if we don’t find a way to stimulate job growth, then I think we will see every bank go under in no time… I mean every bank is pretty much insolvent… there Reubeini take that… 10% unemployment is the magic number where most banks will find themselves under water… stopping that is paramount… and stopping the slide in housing is integral to saving the banks… why this isn’t clear, why Obama thinks that the stimulus plan… a totally bogus exercise when it comes to jobs… or the billions which is just a thimble full that he is announcing for housing… literally I believe 1/100th of the problem is beyond this guy… is beyond me… Obama is not bold at all… despite what you hear… perhaps he is the biggest myth of all.

I don’t think Obama is acting bold enough to fix the danger we are facing...    Don’t listen to the markets myths… I am hear to help you sort fact from fiction… I am hear to give you the truth.

[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    I saw part of President Obama’s mortgage bailout plan today, but I didn’t hear anything about mortgage rates. It would seem to me that one of the best solutions would be just to reduce mortgage rates to 4% or 4 ½% , that would help people refinance houses.     - Mike

Jim:    Mike, you have got horse sense… here is what I would do… the government should be issuing a 4%, 40 year mortgage right now to everybody that wants one… to be able to refinance too, so there is no moral hazard… you take that mortgage which should be cut… which amounts to cutting the principal… you give the … you reappraise every house… heaven knows that we need to put a lot of people to work… and you give people a reduced principal who are under water… and then you give the banks that makes the deal, including the CDO servicers, a certificate that allows them to collect any profits if the place is sold higher than where the mortgage is… and no second lien mortgages… and no home equity… you have got the right plan… why don’t they do it… the government has to get in the mortgage business… forget all this eloquent stuff… give us 4%, 40 years and we are ready to roll.

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[verbatim recap]

[end of segment]

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