10 Stupid Assumptions about the Market

[lebal]

From Jim Cramer's Mad Money TV Program, Wednesday February 18.

In addition to the volatile market, bad advice and hasty assumptions are confusing the average investor. Cramer dedicated Wednesday's Mad Money program to debunking widespread myths:

1-Stocks are cheap: This might be true concerning market-cap, but certainly not when looking at price-to-earnings ratio. Earnings reports have been consistently terrible and companies are shrinking, losing their value.

2-Throw money at the automakers: It is unlikely that large amounts of money will save the automakers because they employ too many people. There can only be change at these companies if they reform the unions.

3-The banks should be lending rather than hoarding money: If the banks were to lend, they would lose money and deflation is threatening the value of collateral. So why lend?

4-There is no solution to the mortgage crisis: Cramer has suggestion; cut principal. It may incur the same loss as a foreclosure, but Cramer thinks the banks could be guaranteed regulatory principal and profits from the sold home.

5-Nationalize the banks: While Sweden did this successfully, Sweden is a small country with relatively uncomplicated problems. No one in the government is qualified to run a Citigroup or a Bank of America, said Cramer. He thinks the government should issue the banks a net worth certificate in exchange for a promissory note of repayment and work out their own problems.

6-All mortgage insurers are able to pay those insured. Cramer thinks this is a pipe dream and the only people who believe this are the insurers themselves and the rating agencies. These stocks are a sell.

7-Warren Buffett is doing okay: Actually, Buffett's investments are suffering more than average and he is selling good holdings to back up the poor ones. Although he pays lip service to the "Buy America" thesis, Buffett is selling good American companies.

8-Inflation is the problem: Actually deflations is what is killing the market.

9-The Securities and Exchange Commission is inherently bad: Cramer thinks the only problem with the SEC was its former leader, Chris Cox who allowed the repeal of the uptick rule, naked short selling and didn't notice while Bernie Madoff was robbing people blind.

10-People are doing their best to solve the crisis: Ironically, it is Ben Bernanke who is the only one with his eyes open now. Cramer thinks he should be listened to. Obama and his stimulus package have been a huge disappointment. "Obama may be the biggest myth of all," said Cramer.