Most of the time, the current crop of investors expects the market to go down. It has no illusions. Stocks are an inherently risky and the most dangerous of asset classes. Savers feel stuck with equities and those who espouse their positives often look like self-serving quacks. It wasn’t always like that. Back when bulls were everywhere From the time the great bull market began in 1982 until the financial collapse of 2007, we pretty much assumed stocks would always go higher. It was the only game in town. The greatest story ever told. The democratization of finance. The belief in the inevitability of stocks’ upward trajectory was rivaled only by the love for it. During the bull market’s heyday, traders on the floor at the New York Stock Exchange made up hats for every 1,000-point milestone for the Dow and tossed them gaily into the air at the crack of the closing bell. Of course, these traders — the masters of the pulsating, vibrating NYSE and not the Potemkin village some say it has become — couldn’t have known that we were going to cross each milestone. They just knew to be ready for it because they didn’t want to squander an easy cause for celebration. Metaphorically speaking, we were going higher. Along the way, we hit puddles and drove through coarse roads littered with potholes — a too-aggressive Federal Reserve, a financial scandal or two (or three or four) that always involved storied banks. But these setbacks were a mild price to pay for an account that could keep pace with college costs. Or for a 401k, some legislative afterthought, that actually became the bedrock way to save, edging out the IRA because of how much more money you could shelter. Even the dotcom collapse of 2000 didn’t deter the bull, it just postponed the stampede. The Street had gotten greedy with a new technology: the internet. It wasn’t the first time, and ChatGPT is already showing us it won’t be the last time. We knew our markets to be strong and we recognized the U.S. was unrivaled around the globe when it came to any gauge of safety and sanctity. Bulls frolicked. Bears weren’t endangered, so much as mighty hard to find. They were mostly hanging around the trash searching for a Spam can or a tossed jar of Jif Peanut Butter. Then it all came unglued. We often forget what the Great Recession of 2007 to 2009 was all about. That’s because it happened so quickly and was so darned confusing, even to its creators. But the rolling crashes of the late 2000s were based not on the finances of companies, but on the bedrock housing business. Here’s one example of the lack of perspicacity at the beginning of the era. The morning before I lost my mind and went out and said the Fed knew nothing, I had scheduled a call with a bunch of executives at a now-defunct firm that was actually pretty much on the up and up. We were talking about why the markets were acting so strangely with wild swings based on nothing self-evident. You have to understand that when I take these calls with financial types, they treat me as someone who figured out how to climb off the turnip truck rather than being unceremoniously dumped. I almost always expect to hear something that’s not abstruse being labeled as such. The principal reason for the call is to tutor me in a way that will make them look better, certainly not moi. Comes with the territory. These wizened souls, roughly my peers had I stayed with Goldman Sachs (GS), had just gone over the mortgage vintages of 2005 and 2006. They noticed that for the first time we were beginning to get a drop in the value of homes while, at the same time, a dramatic increase in repossessions. I bought a farm in Bucks County, Penn., about twenty years before this encounter and I had traced its lineage. William Penn had granted it to a family back in the 1600s and it was duly owned by just a few different tillers until the Great Depression, when no fewer than five banks took control of it with the deed ultimately landing with Comerica (CMA) in Detroit. The geniuses on the call said that since we were looking at two down years for home prices, it was the opportunity of a lifetime to bundle these mortgages, strap on some insurance and some derivatives and offer a higher yield to hedge funds and institutions than they would ever get from any other kind of fixed income. For some reason of clarity, I actually ventured a different thesis: This was how it all started in the Great Depression and I mused about my obsession with mortgages from the ’30s. It got a good laugh. I was terrorized. What happened if it was the beginning of gigantic vintage destruction, I asked, picking up on the vernacular like any fan of California cabernets. Nothing, they assured me. But I pressed and one of the executives, real high up, said it would never happen because home prices either stabilize or go higher. When I reminded him of the ’30s, he started talking safeguards and I knew we could be in big trouble. So I got off the phone and immediately speed dialed the CEO of the largest mortgage company of that time and asked what was going on. He was distracted. I mentioned that I had just heard about spoiled vintages from another firm and he said that 2004, 2005, and 2006 were actually coming apart. The panic in his normally promotional voice scared the living daylight out of me. There was an “every man for himself” tone in instead of his usual convivial tone. I made another call to someone who served on the board of a what was known as a subprime lender and he said he’d seen it, too. The loan book was 4% in default — a number I didn’t realize at the time would become certain death for any institution in two years’ time. Next thing I know, it’s time to head to the newsroom to be interviewed by my great friend Erin Burnett for our Stop Trading segment that I had created because I wanted to crash her show all of the time. I remember her wearing this weird giraffe outfit and that’s about all until she started asking me about some stock or another and I exploded with rage. The whole thing had become so obvious to me in just a couple of calls and I knew from reading the Fed minutes that then Fed Chair Ben Bernanke and company hadn’t a clue. They knew nothing. And I wasn’t so much Diogenes as a scared, angry guy with a vision of doom. The Great Recession’s leftovers The rest, as they say, was pretty much history except for the part where I morphed into someone who represented the very charlatans that I tried to expose. Everyone turned out to be in on it and the chief villains — Bear, Lehman, Freddie and Fannie and Washington Mutual — fell fast. Lots of other little dominoes followed in their wake. They left behind two things: the consolidation of Wall Street into a few firms, with only JPMorgan (JPM) truly intact in any commanding way; and a level of distrust of anyone that is truly bullish. Bulls were ostracized and tended to disappear from the firmament. They were replaced with billionaire hedge fund managers and critical thinkers who shared a mission: get you out of the market, and give it to those who know better. The game, which had always been one of fees, became something that was considered beyond the ken of individuals. I hated it. I was imbued with the spirit of those who had become millionaires right in front of me, hence the tale of an ex-marine friend of Pop who became rich beyond Croesus by investing in a good company, Merck (MRK), and letting it run. I didn’t want to betray the clients I had at Goldman Sachs, but suffice it to say the stock market existed to Get Rich Carefully. That became — and continues to be — my mantra. But my voice was and is in the minority. And it has become seditious to the stewards of individuals who couldn’t possibly know anything because stocks are too hard. My reaction was to stick to my philosophy and create a club of investors and show them how they could become better themselves at their own portfolio management. It is regarded with everything from quaintness to suspicion by the industry, has for decades now. I became some sort of rebel with the decent cause of trying to help people do it themselves, exactly what they were doing before the spoiled vintages and the Great Recession. Two things have happened since: an obsession with the Federal Reserve and the discrediting of individual stocks. If you bundle stocks in an exchange-traded fund (ETF), they somehow become safe and certainly become lucrative to the purveyors. The cynical nature of the exercise disgusts me but it fits with the bundling of anything and everything on Wall Street. Great pool operators replaced the moms and the pops who were always tenuously marginalized as “retail” investors. These operators ran so much money that only the S & P, fixed income, international markets and cash mattered. We are still steeped in an era that never forgot what happened in the Great Recession, both in terms of spooked individuals and dogmatic money men and women who find it just as easy to go long on stocks as short on them. These folks don’t believe in the inevitability of the next 1,000-point milestone. Quite the opposite: They believe a much lower S & P based on aggregate earnings forecasts and a bungling Fed, fueled by governmental largesse and the stupidity of the savers. Which brings us to Silicon Valley Bank, Signature Bank and Silvergate, the three seized institutions that cracked all at once in a spectacular flameout. The latter two had stumbled on the righteousness of crypto, but the former was pure 2007-2009, right down to the zeroing out of the stock and the bonds. The speed which with they fell really scared the market. The 2019 and 2020 vintages had spoiled from overabundance and the yield curve — not the credit issues — did them in. The wise ones of this era were able to dredge up the Lehman ghost as quickly as the government seized the banks and a new game of deposits to insurance became the rage. Most banks passed muster. But a couple — First Republic (FRC) and, bizarrely, Schwab (SCHW) — remain on the critical list. We don’t pretend to know what will happen to those two. Pronounce them safe and they’re not, and expect a hit to your career. Better just to say who knows, which only makes things worse. At least the policy makers know history. As long as the politicians don’t cry “bailout” in a crowded theatre, we will probably be okay. Banks and the bull market The ironic thing about the whole ordeal is that in a Fed-obsessed era, the spooky held-to-maturity mantra has managed to stay the Fed’s hand. How do you keep all of your eggs in one basket if the guarantee stays at what is now an absurdly low $250,000? Every law firm, every accounting firm, every dentist’s 401k exceeds that limit and a shuffling of the community bank’s deposits is scaring the heck out of the Fed, which has better numbers than we do. But the crisis is uniquely pinned on the donkey of finance, same as 2007 to 2009. Except this time it’s being contained because the institutions we now by shares in are either too well-endowed by success, or too prudent from the nearness of the Great Recession. The result? A runaway bull market in all but banks — which are actually fueling the rally with their own ineptitude. We’ve been off to the races for several incredible weeks now, something that really hasn’t happened since the rich Cassandras grabbed the mic. It’s befuddling for everyone used to counting parts that might go into Apple (AAPL) cellphones or looking at travel receipts. They can’t believe that those long on money and short on time are actually taking advantage of their government-stimulated savings and going places. In this environment, we at the Club — armed with a crude tool, the S & P 500 Short Range Oscillator , and shrewd judgment against all who have learned the lesson of the Great Recession all too well — went long the despised Big Tech names as well as the tarnished cyclicals. They worked. Now I am concerned that they worked too well. The discourse has once again become all about the Fed and the coming recession as now endlessly predicted by none other than the yield curve. Strangely, there is no recognition of how well stocks have done despite the all-knowing curve which — because of our obsession with trying to make money, not fees — plays only a bit role. How long can you cling to something that’s not telling you anything but that a recession is a necessity? How deeply can you believe in the false god of the 10-year Treasury? For us, the internal debate is a simple one: Is this new bull so powerful that it can override a suddenly gleeful plus 6% on the Oscillator (meaning the market is overbought)? Or do we have to pare back our longs, going after all or just the most marginal of positions to be ready for the next almost mandated scare? My judgment is to trim, more out of reflex than anything else. So look for us to stop buying and to start selling. I fear the gleeful phoniness of the quarter-end markups when managers put money to work. That coupled with the unlucky nature of having the banks report first in a coming earnings season that will be business as usual, replete with the beat and raise that comes with the spurious estimates meant to be trounced. We are coming in too hot for the likes of an industry that once again is scared of its shadow and can’t afford to be upbeat in the wake of Silicon Valley Bank, which happened to have the twin ills of no initial public offerings and no commonsense when it came to deposit flight. In other words, it’s going to be rocky. My closing take, though, is that we have at last shaken off the ghosts of the Great Recession. Instead, we are revisiting the potholes of ’87, ’89, ’91, ’94, ’97 and ’98, when short rates were much higher and long rates higher still. The only difference is that the 10-year is out of whack with the 30-year back then, but it really doesn’t matter if inflation gets under control. That will occur if for no reason other than you can only spend your darned head off for so long before you are out of money and credit. In other words, excluding 2007 to 2009, it will be the same this time. It will mock all who forgot it or were too young to get it. Or those who, Soviet style, actually believe in the coming peasantization of everyone except those with yachts. To me, the Scylla of the Fed and the Charybdis of the debt ceiling will keep the fear going and you do need a wall with claymore mines and razor ribbon if we are going to climb too new heights. Fortunately, the likes of the big-time traders and the holy strategists will be ready to pour molten metal on those of us who doubt the ramparts. No, don’t break out the hats. There aren’t enough people on the NYSE floor to spread the cost anyway. But accept we are in a bull market and recognize that those who don’t know it yet never will. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Most of the time, the current crop of investors expects the market to go down. It has no illusions. Stocks are an inherently risky and the most dangerous of asset classes. Savers feel stuck with equities and those who espouse their positives often look like self-serving quacks.
It wasn’t always like that.
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