Ignore the Noise! Market has bottomed on Friday 8/3/2007

As many of you are aware, the "Cramer Meltdown" on Friday 8/3/2007 was a good indication that we are near the bottom of this market correction which has gone on a hair above 4 weeks now. Technically, Dow followed through on strong volume on Monday, following a crescendo sell off on Friday in sympathy with continuing credit crunch (or perceived) and cowardly Bear Stearns blame on the credit markets being "worse in 22 years". I expected more from Bear Stearns than that type of a response, and in someways, I agree with Cramer that it was irresponsible of Bear to come out and proclaim that. Yet, that action was typical of the response you would expect to see on market bottoms. This current correction has been marred by the sudden and final realization by the Wall Street that perhaps the sub prime mortgage loan market is not self contained and that it may have ramifications to the other aspects of credit. Duh! But let me explain why it isn't as malignant as it may seem.

First, the market and Mr. Cramer himself believe that the stock market is severely reliant on "cheap" money for the continued bullish run. Nothing can be further from the truth. While the current rally may have been fueld in some parts by the unprescedented private equity firm buyouts, that constitutes less than 5% of all available liquidity and the involved companies in the private equity buy out binge are ill performing companies who became "cheap" enough to be bought out. When you consider high fliers like Chipotle (CMG), Apple (AAPL), Amazon (AMZN), Under Armour (UA), etc... these companies would never be taken private. So the issue about the freeze in private equity buy out really has no significant relevance other than fueling excitement and increasing propensity of the investors to throw more money into the market in concert. That's all.

Second, Cramer believes that there is financial "Armageddon" in the bond and credit issues right now. That type of short sighted view and hence pontification of such views on the national TV is purely irresponsible and quite possibly had the opposite effect than what he desired on Friday. I believe that there is much difficulty in the credit markets but again, it really is isolated to the subprime issues. People will still get the mortgages they need in the form of the traditional 5/1 ARMS, 30 year fixed, 15 year fixed loans, to those people who are worthy of getting such loans. Isn't loans supposed to be made to credit worthy individuals anyways? Additionally, what did "easy money" do for the housing industry other than a slap in the face rude awakening of people who took on more than they care to chew, housing investors who got too greedy, and creation of a bubble in the housing industry. I believe that those with good credit and with financial ability will continue to buy and the excess inventory of homes will be worked off, albeit painfully for some. As Cramer himself said, if you are making a good income and never dabbled in the risky loans for housing, you won't know what all the "noise" is about. Which brings me to the question of, why is Cramer so freaked out? I think last year, on his MAD MONEY show, he proclaimed that he was actively involved in real estate investment with his partners. Could it be that he is over leveraged in his private life with these same hybrid risky option ARM loans and may be at risk of losing a good portion of it? Makes me wonder. Will the "tightening" credit market impact retailers and consumers? Possibly. But I still believe that the current consumers are driven by the baby boomers who have enough cash that is disposable and will continue to fuel the retail segment and luxury items.

Third, the mainstream media, including Forbes among others, are joining the hype of the credit crunch. Economist also is questioning the end of the "go go days of easy credit". All of these things happen near the bottom. Also, did anyone realize that all things must come to an end? That we were due for a pull back and that every correction has a "dire" theme to it? I have never been through a correction that was benign and without much pain. This too shall pass and the last I remember it, Wall Street has a very short term memory. Remember Long Term Capital? How about the Asian Contagion? What about the housing bust of the early 90's? The list goes on and on. In conclusion, during the Long Term Capital crisis, they also proclaimed then that the liquidity crisis will crash the market. And, Cramer got his readers and investors out just when the market was ready to rebound. This time is no different.

MARKET MELTDOWN

More to follow. Things like this happen near the bottom of the market correction.