Financial advisors across the nation have been trying to clean up the mess that Jim Cramer made. We had clients crying because of the panic he created. Our phones have been ringing off the hook. His market call on the Today Show this week for investors who need funds from their accounts within five years to completely liquidate out of the stock market is the most irrational market commentary I have ever heard. At a time when a seasoned market veteran should be preaching the benefits of diversification and patience to overcome the tough times, this guy sounded more like a rookie -- telling everyone to sell out after the S&P 500 had already dropped 30% for the year. Did he ever consider that adherence to such a strategy would collapse the entire investment system as we know it. This call might have been legitimate six months ago, but now?
His irresponsibility has no right being on television. He is doing a disservice to the very people he pretends to help -- the novice investor. From his platform, he has the opportunity to instill confidence in a system that is better off now than it was a year ago. Just ask Warren Buffett. We now have the $700 billion package to prop up the mortgage security market -- just like Cramer said we needed. We have interest rates down to 1.5% -- just like Cramer said we needed. On top of that we have the Fed stepping in to buy billions in commercial paper. These structural changes provide a rebuilt foundation upon which our financials can actually reap the benefits of capitalism. Capitalism doesn't work without a market. Now we have a market. And Cramer decides to bail! Over the ensuing months he must be held accountable for this one.
We've been here before with Jim Cramer. On Thanksgiving Day of 2006, my Dad and I made it a point to enjoy a nice bowl of applesauce in honor of Jim Cramer. Why applesauce? Because in July of 2006 with Apple (AAPL) stock trading at its low near $50, Cramer told his viewers that they had to pull all their money out of Apple. "It's turning into applesauce and I can't have you in it." From that very day, the stock went on to double in price over the next four months while we were invested in option LEAPS that appreciated 20 times themselves over that span. Once Cramer was out, we knew it was time to get in. Believe me, applesauce never tasted so good as it did during that Thanksgiving dinner.
It has been a rough month for NBC. First they had to deal with the Keith Olberman/Chris Mathews debacle during the Republican National Convention and now they will be forced to deal with Jim Cramer. There hasn't been anyone more negatively outspoken against Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson, repeatedly calling these men unsophisticated, phony, foolish, and clueless.
He deserves a taste of his own medicine. It's one thing to recommend selling a stock but it's another thing to appear on a non investment show -- The Today Show -- and recommend to novice investors that they should run for cover and liquidate all their capital out of the stock market. Very irresponsible. Financial suicide. Cramer should be suspended.
Disclosure: None
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This article has 1 comment.
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E.M.Smith
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4 Comments
Oct 27 04:50 PMHis major fault is just that he's a trader trying to think like an investor for the small 'home gamer'. Because of this he recommends stocks with sound fundamentals per the financial reports and in longer term up trends (or downtrends with deep valuation). This leaves him prone to three major faults:
1) The "fundamentals&quo... can lie. WB can have great numbers and yet be loaded up with illiquid paper that leads to a crash or a regulator forces a shotgun wedding.
2) Momentum "vacuum crashes". POT was recommended for many points of upside, then no one was left to buy. He called an exit a bit too long after the rollover due to being fixated on the "fundamentals&quo... in #1 and trying to be a longer term investor rather than a trader.
3) Deep valuation can get much deeper (the dreaded value trap). TMA was such a value trap. Can't really blame him, since Thornburg had a very sound set of "fundamentals&quo... and solid dividend coverage - until the market for mortgages froze as all hell broke loose.
Have you never stepped in a value trap? Had fundamentals not match market momentum? Bought into an established trend just in time to have it roll over? These are classic faults we all have experienced.
My take on it is that while Cramer would like to day trade his way around these things, and use options to protect positions, his "show" is based on the notion of longer term investing for the average person. This prevents him from doing (or recommending) what he would actually do.
Once you get this in mind, his show is useful. Watch it for ideas on how to evaluate a stock, for ideas on what might be moving or a merger target or see a chart in a nice up trend. Take his stock picks as beauty pageant winners, then do your own charts and "homework".
When the RSI is high and prices are going parabolic, hey, maybe it's a blow off top and not good to enter right now. When the deep value play has a DMI with red over blue and a MACD below zero headed steep down, maybe it isn't time to jump in just yet. And when the financial fundamentals are great but the stock and the SMA 50 day are weaving together (dead money) or price is below SMA consistently then the market has not recognized it yet and you ought to put it on a watch list but not buy it just yet...
In other words, don't sheepishly buy what he likes but learn from what he says and learn to use charts to spot when he's falling into one of his 3 pattern errors. BTW, he also puts too much store in what the Chief Mumble Officer of a company says when it matches the reports. He lets the Cxx reinforce the #1 error type. Oh well, it lets me see the Cxx on TV and get to form an opinion of them.
His non-pattern error was to be incredulous at how perfectly good companies could be blown up by a broken set of rules and SEC laxity. I can't blame him for that, either, since many folks were caught off guard with the failure of: FNM FRE AIG LEH BSC ... et.al.
As many other folks have pointed out, if we were not bound to "Mark to Market" with SEC doing nothing to stop naked short sales, no uptick rule, and CDS's written by anyone based on smoke and rating agencies giving AAA for a pulse; these companies would not have blown up. I think most of us actually thought that S&P, Moodys, Fitch et.al. had a clue. The number of professional investors killed by this cascade failure is very very large.
How many of us know the ditty "The market can remain irrational longer than you can remain solvent." as a warning against value traps? The accountants and regulators are now learning that in the context of killing the financial companies with "mark to market" when the market is broken. They are just learning it with your money.
Yes, I watch his show. No, I don't blindly buy what he likes. Yes, I think he (mostly) has clue. No, I don't think he is perfect... who is?