Bear Trap

Any bet against the market this year has produced phenomenal returns because pretty much everything that could go wrong has gone wrong. Almost every sector has suffered some form of annihilation, of course. Airlines, automobiles, banks, brokers, semiconductors, software, cell phones, telecommunications, insurance, even the lowly utilities – you name it, it’s gone down. Everyone from American Electric Power to Xerox is struggling, and some wonder aloud whether Ford and JPMorgan Chase can survive.

But humor me for a second. What would happen if, for once, something worked out for the better instead of for the worse? Imagine if the bulls were to catch a few breaks, and the reckless bears, who have shorted stocks with abandon, were to face a rout? (No doubt last week’s four-day bull run was a sweet one, but it was far more based on psychology – things got too negative – than about economic improvement. It was all form, no substance, as tasty as it was.) Although I fully expect that good news will remain elusive, I’ve put together a wish list of ten things that would, for once, have the Kodiaks taking a sharp stick in the neck, Edge-like, rather than the bulls getting gored. So, here’s the bears’ nightmare scenario, something for them to lose sleep over:

1. What happens if we wake up one day and Saddam Hussein is killed? Remember that scene in The Godfather II where Michael Corleone says that if history has taught us anything, it’s that you can kill anyone? Why is Saddam so immune from this? Ask yourself, how much stock would you want to own if you heard that Saddam’s been taken out? Conversely, what object would a bear grab to hang himself with if he were short the S&P 500 and that bullish headline came over the tape?

2. What if we kill Saddam and take over the oil fields, in a 50-50 split with the Russians, and begin to pump them like crazy to rebuild Iraq? Would we be shocked that oil would crash through $20? How much FedEx or United Parcel or Southwest or jetBlue would you like to own if that happened? Would you like to catch the AMR double? The UAL triple? Heck, I’d even rent US Airways stock for a day or two if that scenario played out.

3. What if the president, after the war, decides to move against double taxation, as he expressed interest in doing after the Waco economic summit? What if he eliminated the corporate tax and the tax on dividends for individuals? Would you rather own Verizon yielding 6 percent and General Motors yielding 7 percent, tax-free? Or would you rather own taxable bonds yielding half that with massive principal risk?

4. What happens if the Republicans win both the House and the Senate and they immediately pass a bill giving asbestos-liability relief to American industry? How much Halliburton would you want to own? How much Honeywell? How much Georgia-Pacific would you buy? There are dozens of companies staring at bankruptcy protection because of these liabilities. And they would vanish with legislation creating a trust that would pay victims directly. More money for the victims, none for the lawyers, and capitalism gets saved from these toxic awards.

5. What would happen if Alan Greenspan retired and Bob “Pro-growth” McTeer were named Fed chairman? Greenspan, a terrific chairman for so long, seems, well, just plain too tired to deal with all that’s going wrong now. What would happen if Paul O’Neill stepped down and Dick Grasso were made Treasury secretary? Tell me you wouldn’t want to be in high-quality stocks for that moment. A move that sent Grasso to Washington for Treasury – and O’Neill back to Alcoa, preferably in Reynolds Wrap – would be worth a thousand points to the beleaguered bulls, maybe even more. At this point, U2’s Bono, O’Neill’s travel companion in Africa, would be better at Hamilton’s old job than O’Neill. So would the other O’Neill, the ex-Yankee outfielder, for that matter.

6. What would happen to the telecommunications industry if the Justice Department indicted WorldCom, the company, for criminal fraud and it lost all its government business and it had to close? How much AT&T, Verizon, BellSouth, or SBC Communications would you like to own?

7. What would happen if New York State attorney general Eliot Spitzer, Justice’s Michael Chertoff, and the SEC’s Harvey Pitt got into a room and agreed that there would be no criminal prosecution of any of the major brokerage houses, and instead they drew up a list of those in the biz who need to be banned for life because they aided and abetted fraud? We could put all of this liability behind us, and the capital markets might start functioning again. We’d save about 200,000 jobs in New York with such a pact.

8. How much tech would you want to own if President Bush decided to call IBM, Sun, EMC, Cisco, and a bunch of other 52-week-low denizens and say, “Here is a blank check; make it so we have a national-state-and-local computer system so the security people at Logan can log in to see if a terrorist might be boarding a plane”? We have nothing like that now, and we need it – yesterday.

9. What happens if the mutual funds were to decide to keep some cash on hand, rather than just running their funds flat-out, so that, for once, they could handle their clients’ redemptions without wrecking the market with their endless selling? We never sustain any rally because the mutual funds are always selling into forced situations, not rising markets. They have no rainy-day money, and it just keeps raining.

10. And finally, what happens if my CNBC television partner, Larry Kudlow, a former Reagan economic adviser, leaves Kudlow & Cramer and becomes George Bush’s Bernard Baruch? I have my differences with Larry nightly, but I have no doubt that stocks would bottom if the president tapped Kudlow for ideas to revive the soggy economy. No one in the administration now has anywhere near Kudlow’s intellectual firepower or connections to get things done on both sides of the aisle.

No kidding, ten long shots. But wasn’t it a long shot that Ford could be in trouble with $23 billion in the bank, as the company had last year? Wasn’t it a long shot that JPMorgan Chase could have stumbled as it did? Wasn’t it a long shot that Enron was just a total house of cards, or that Adelphia and WorldCom were criminal enterprises? The odds of all of those sure things imploding seemed downright impossible eighteen months ago, but of course they all happened, and in record time.

Hope shouldn’t have any place in the stock equation. It works great at the ballpark and at a house of worship. Still, one has to believe that something good could break the bulls’ way. Conversely, we know that if none of these ten works, we are at a minimum headed back to Dow 7,200, and if we remain breakless, would anyone be surprised to see us back to Dow 5,000, its stamping grounds from a decade ago?

So, here’s to wishing, and be prepared if fairy tales don’t come true.

James J. Cramer is co-founder of TheStreet. com. At the time of publication, he owned stock in Verizon. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions that he takes may change at any time.

Bear Trap