Pimp Your Finances

Move over Jon Stewart. Jim Cramer has a new feud, and this guy has some serious economic credentials.

His latest enemy is Nouriel Roubini, a NYU economics professor often known as “Dr. Doom” for his bullish take on the economy.

I laugh at your puny rally and feeble notions of recovery

Roubini first caught my attention back in July, 2008, when he said that the recession was only half over, and would continue for another 12-to-18 months. He also added that although we’re in:

…the worst crisis since the great depression…

we’re not heading into financial Armageddon, or even a Japanese-style prolonged period of stagnation.

Earlier this year, he was back in the headlines, when he admitted that things were worse than he thought. Instead of 12-18 months (which would’ve been between July 09 and Jan 10), he revised his estimate to 24-36 months (I’m assuming that this is from the original prediction, but can’t tell for certain).

The Cramer feud began on March 25th, when Roubini spoke to Bloomberg Magazine and said:

The stock market is a bit ahead of the real macroeconomic and financial news…. We’ll have some major banks going belly up that will need to be taken over.

Also on March 25th, Roubini wrote an editorial in the New York Daily News in favor of Secretary of Treasury Timothy Geithner’s toxic asset plan.

While largely in favor of the plan, he ended by pointing out that the government may have to take drastic actions if it still doesn’t work:

What happens if removing toxic assets from a bank’s balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, “Why keep insolvent banks afloat?” And having asked that, we will have to search for ways to manage the ensuing systemic risk.

By the next day, Cramer was already on the attack. He opened his blog on The Street.com with the following insult:

Noriel Roubini, the New York University professor intoxicated with his prescience and vision, comes out with the astounding view that “some” U.S. banks will be nationalized. Forget that we have had one of the largest rallies in history since the oracle of Greenwich Village spoke last.

What I think matters is that I don’t know anyone who would disagree with him. It is obvious that more banks will be nationalized. What has mattered since the beginning of this crisis is that we have a few banks that are not going to be nationalized.

It seems as if Cramerthought that the strength of the big banks would be enough to turn the financial sector around.

I know Roubini and Nobel laureate Paul Krugman are both on the nationalization jihad, and they are compelling figures to believe in. However, if JPMorgan Chase, Wells Fargo, Bank of America, US Bancorp, PNC Financial, and Capital One keep rising they will be able to raise equity making it easier for them to take losses and will make them more profitable as investments.

Cramer then turns his attention to Roubini’s pessimistic views market and the recent rally:

But what Roubini and Krugman might be missing is the ability to build, through earnings and higher stock prices and forbearance, a perfect combination of lower loan charge-offs, more equity, and therefore increased solvency.

Or, in other words, those who think that things are not better off since the March bottom strike me as people who are as unrealistically bullish during the 2008 top. You have to adjust if the facts adjust and perhaps Roubini’s doing that by saying that “some” banks will be nationalized. If he isn’t, I think he will be wrong.

As far as I know Roubini did not respond to Cramer’s blog. But that didn’t stop Cramer from continuing on the warpath. On March 31st, he appeared in a video on The Street titled “Roubini is Wrong“, where he was interviewed on the topic of bank nationalization.

 When you look at Roubini, what he’s making a mistake on is Geithner. GeithnerI think is going behind the scenes as Treasury Secretary and saying “Listen, we’re done with that. We’re done with that.” It started with Bernankesaying on 60 Minutes “we’re done with that”, it’s now extended to Geithner saying “we’re done with that”. If the people who would be in charge of nationalizing are saying point blank they’re not going to nationalize, then Roubini’s logic has a fatal flaw in it.

Now he’s been a bear, and one of the things I like to judge people on is their calls [David's note - HA!], and what happened subsequently. When the market was at 6300, he came out very boldly and said we’re going down another 1000 points. Now I came out with a piece that said “you got to start buying here”, because if we only go down another 1000 points, you better get in….

I think that he has to be judged on this nationalization call, and I think that he’s going to look foolish because of the Treasury’s attitude towards nationalization.

Again, it’s worth noting that Roubini only said that some banks may need to be nationalized.

Yesterday, Roubini finally replied to Cramer, and he definitely took off the gloves:

Cramer is a buffoon. He was one of those who called six times in a row for this bear market rally to be a bull market rally, and he just got it wrong.

And after all this mess and Jon Stewart, he should just shut up because he has no shame….

He’s not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull, and he got it wrong.

He keeps insulting me personally and saying a bunch of lies. He doesn’t even know I was supporting it, so he lies.

The article also points out that Roubini has a history of accuracy. In 2006, he predicted that the worse recession in four decades was on it’s way.

With regards to the recent rally, Roubini thinks it’s just a bear market response to government intervention, and not the sign of a turnaround. He thinks we’ll test previous lows because of poor economic news, disappointing earnings, and also because banks will fail after the stress tests come out.

So what’s Cramer’s response? As far as I know, none yet. But if the Stewart feud taught us anything, it is that Cramer is not one to back down when challenged.

It’ll be interesting to see where this goes. Cramersaidhe wanted someone he could debate economics with, not just a comedian. It looks like he got his wish.