Dow Jones to decline 2,000 points

Hard Ball with chris matthews

We‘ve got expert here, Jim Cramer, who‘s host of CNBC‘s “MAD MONEY” weeknights at 6:00 and 11:00 Eastern time. His new book is called “Jim Cramer‘s Stay Mad for Life.” Cramer, you‘re a genius. I ask you to be a genius. I‘m setting you up. I want to know, is anyone out there, of all the candidates, Rs or Ds, saying something that actually would help the economy either take a softer landing or get through this with a little more positive nature?

JIM CRAMER, HOST, “MAD MONEY”: No. There are some who understand that interest rates are too high, but they‘re not forceful about it because Ben Bernanke gets a level of respect that, frankly, I find despairing. I mean, I cannot believe that this man, who has done—and look, I‘m respectful of the Fed chairman, always have been, Volcker, Greenspan. But Ben Bernanke is not doing a good job. No one ever criticizes him. The Hill testimony this week was horrible. I know that‘s not candidates (ph). But I‘ve got to tell you, the stimulus package…

MATTHEWS: Well, why don‘t you explain that because…

CRAMER: … that doesn‘t do anything.

MATTHEWS: I know. We all studied in school that monetary policy, increasing the supply of money (INAUDIBLE) lower interest rates, gives the economy more juice. It‘s going to be more helpful in the very short run. Whereas all these fiscal tools, these tax rate changes, these spending level changes, take forever to have an impact, and they rarely, to me, have never made much difference except in the very long run.

CRAMER: Amen! Amen! What—you know, thank you for just saying it like that! We all know that! Everybody who has run half a billion dollars in his life knows that! It is embarrassing! I mean, the president, all these people, pandering about giving money, so what, so we can go buy a suit at Men‘s Warehouse so we can help the quarter at Nike? I mean, this is ridiculous, $150 million, I mean, maybe it‘ll say, I‘ll go buy a dress for somebody. I mean, it‘s crazy!

MATTHEWS: Well, why do they—well, just so everybody understands

why you‘re so excited and why I obviously agree with you, is that they

believe somehow that if everybody buys a new pair of sneakers for the kids

where the kid does need a new pair of sneakers, I‘m all for that. But does anybody believe that‘s going to cause an economic bonanza that‘s going to reverse the business cycle?

CRAMER: No! No. But there is an element—there is something that I would urge all the candidates to think about, and our treasury secretary…

MATTHEWS: Right.

CRAMER: … which is that there are a group of insurance companies that insure all these bad mortgages.

And, Chris, they‘re—I think they‘re all about to go belly up.

MATTHEWS: Yes.

CRAMER: And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down and the insurance given to new resolution trust. This is going to happen in maybe two, three weeks, Chris.

It‘s going to be on the front of every paper. And no one in Washington is even willing to admit it.

MATTHEWS: So, what are—who are you including in these mortgage companies that are going to go belly up? Give me a description.

CRAMER: This is MBIA and Ambac on big—these are the ones.

Remember, Merrill wrote down a lot of stuff the other day, and Citigroup?

MATTHEWS: Yes.

CRAMER: All these companies are relying on insurance to save them.

The insurers don‘t have enough money.

There‘s also personal mortgage insurance. PMI is a company there that does it, MGIC. Chris, I am telling you these companies do not have the capital to make good. And, when they do fall—I believe it is when—if the government doesn‘t have a plan in action, you will not be able to open the stock market when they collapse.

MATTHEWS: You‘re talking about a 2,000-point drop in the Dow…

CRAMER: Absolutely.

MATTHEWS: … if the government acts.

CRAMER: No, if the government doesn‘t see this problem. No one is even talking about it.

No…

MATTHEWS: OK.

CRAMER: I mean, other than the New York State‘s superintendent of insurance, because he‘s worried about…

MATTHEWS: OK.

CRAMER: … muni bondholders, I have not heard a single politician mention the fact that these major insurers, who have insured $450 billion of mortgages, are all about to go under.

MATTHEWS: OK.

Let‘s talk politics. Don Straszheim, who used to be chief economist -

you probably know him—at Merrill for all those years…

CRAMER: Smart guy. Smart guy, knew about China.

MATTHEWS: … he used to have a thing called the pocketbook index—

I used to follow it all the time—which was absolute predict for presidential elections. And it took away the jobs of pundits and pollsters.

All you needed to know was whether real per capital personal income went up or down the year before the election to predict the election.

CRAMER: Right. Absolutely.

MATTHEWS: So, here we are, in the middle of an election year. Do you believe that the personal income per capita is going to go down this year? Do you believe we‘re going to see a decline in economic well-being of most people? Therefore; does that mean the Democrats will win, no matter if they run Hillary, Barack, Edwards, or anybody?

CRAMER: I disagree with the qualifier of most people.

I‘m trying to find, other than maybe a couple hedge fund managers, anyone who is going to have an up year and be worth more this time next year. I don‘t know a soul, whether it be because of the housing market, the incredible decline already in the stock market, the job stagnation, the incredible layoffs I foresee.

I mean, look, how about a—how about just a run-the-table grand sweep for the Democrats? It is that bad out there.

MATTHEWS: And it does meet the standard of an economy that turns the politics of the country upside down?

CRAMER: Oh, totally.

I mean, I don‘t think anyone—you know, Hank Paulson is a smart guy.

But I—I think something must have happened when you get to become

treasury secretary with President Bush, where I guess, you know, it‘s like

it‘s like Jack Nicholson in “One Flew Over the Cuckoo‘s Nest.”

MATTHEWS: Yes.

CRAMER: I mean, I can‘t believe this stuff is happening.

How come they cannot address this mortgage issue, which is just going to—and I‘m not talking about the forgiveness plan. I‘m talking about the insurers. And they understand it. I don‘t think the president is sophisticated enough, but the treasury secretary certainly is.

The Fed chairman may not be sophisticated enough.

MATTHEWS: What…

CRAMER: And he‘s running the Fed as a Princeton debating society. I didn‘t to go Princeton. I do like that whole kind of black and orange color scheme they have got.

MATTHEWS: I like these ads that come on and say, if you have got a balloon mortgage that‘s—you now have to pay up on, because it was low rates—now the rates are spiking—just switch over to this other company.

(LAUGHTER)

MATTHEWS: Please don‘t name the name of it. Because then everything is going to be all right. You are going to have a low-interest, fixed mortgage.

I mean, where do these—is there such a thing, or does it just stretch out your loan?

CRAMER: No. No. Seven million people bought the teaser rates that Alan Greenspan and Bernanke told us would be really good financial engineering, seven million people.

MATTHEWS: Yes.

CRAMER: These are all resetting at a rapid—between 2005 and 2007 -

rapid resetting. These are people who walking away from their homes or hunkering down. And they‘re—these are dog-food eaters and squatters, my friend.

And you know, look…

MATTHEWS: OK.

CRAMER: … I have been a bull for—how many years have you known me as a bull?

MATTHEWS: Are you a bear?

CRAMER: Yes.

MATTHEWS: OK.

CRAMER: And we‘re in bear market.

(CROSSTALK)

MATTHEWS: When is the recession begin and when does two quarters, successive quarters of economic downturn commence, sir?

CRAMER: It started in December.

MATTHEWS: I speak as a former grad student in economics. What…

CRAMER: It started in December. That‘s when the recession started.

MATTHEWS: So, we‘re heading towards a bad six months?

CRAMER: I have never—this is the worst Christmas—this is really

it‘s a bad time. And I try to give hope to people.

MATTHEWS: Is there a floor on the market? Please tell me this, for my own good. Is there a floor on the Dow?

CRAMER: Yes.

MATTHEWS: At some point, is there a ratchet effect on this elevator, where it stops falling below certain floors?

CRAMER: Yes, because interest rates are so low.

And that‘s another thing. How come they don‘t—the president and Federal Reserve chairman don‘t—interest rates are so low because it‘s seemingly a very serious recession. So, there‘s a lot of Dow stocks that yield more than treasuries do. The 10-year treasury yields 3.6.

MATTHEWS: OK.

CRAMER: So, you can buy—any of the stocks in the Dow that yield more than 4 percent are going to give you lot of safety. And that‘s a lot of them. So, you could have a floor because of that.

MATTHEWS: You know what my strategy is? Capital preservation.

Thank you very much, Jim Cramer of CNBC.

CRAMER: You‘re smart. You‘re smart.

MATTHEWS: Thank you.