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31 Oct, 2018 11:15

This market similar to worst crashes ever seen – stock guru Jim Cramer

This market similar to worst crashes ever seen – stock guru Jim Cramer

The stock market’s recent turbulence can be compared to four brutal crashes of the past, according to former hedge fund manager Jim Cramer.

He warns that the Federal Reserve could cause a smaller version of the 2008 financial crisis if it doesn’t change its interest rate agenda.

“As much as it pains me to say this, the current situation combines ... some of the worst characteristics of those four past breakdowns,” Cramer told investors, following the stock market slide into correction territory that he described as a “slow-motion train wreck.”

Cramer, who’s currently the host of CNBC’s Mad Money, recalled the four worst stock market declines during his career when he dumped his entire equity portfolio.

The first crash happened in October 1987 and was a one-day mechanical nosedive known as Black Monday.

“It was portfolio insurance back then; now it is algorithms and ETFs,” Cramer said, adding: “They’re like machine guns mowing down any buyers, like we saw today.”

Then there was 1998, when the market expert unloaded his stocks ahead of what he predicted would be “a total collapse” as major hedge funds ran for the exits.

However, then-Federal Reserve Chairman Alan Greenspan’s announcement of interest rate cuts propped up stocks. Cramer said dumping his stocks then was the worst professional mistake he’s ever made, adding that he hopes the Fed does the same today.

The March 2000 crash was brutal for investors, but had a “negligible” effect on the economy, he said.

“The dotcom bomb in 2000… went off because of reckless underwriting. The economy was robust, but the bankers flooded the market with too many low-quality internet IPOs and secondary offerings, then the whole thing collapsed under its own weight.”

Finally, there was the financial crisis of 2008, when Cramer’s sources in the business world were signaling that the economy could be on the brink of decline, but the Fed didn’t listen, with its famed “They know nothing” rant.

“Right now, the stock market is signaling that the economy’s in for pretty rapid deterioration, just like 2008… We have a Fed that’s lamentably unaware of the danger… the Fed is making the same mistakes as in 2007. They’re totally misjudging how weak some major parts of the economy are.”

Cramer explained that to avoid much deeper losses, the Fed either has to change course on rates or President Trump has to end his tariffs.

“If Fed chief Jerome Powell actually starts listening to the stock market and wakes up to the damage that [Trump’s] tariffs can do to the economy, then maybe he’ll shift gears, just like [Alan Greenspan] did in ‘98,” he said.

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