Friday, March 13, 2009

In defense of Cramer

Cramer is now the "new" Wall Street villain?

Do you want to know who the villains are? How about these fifteen names.

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

AIG's counterparties! They bought credit default swaps from AIG, because they knew the products they were pushing and holding were toxic. Anyone else that read the SEC filings, would of thought that AIG didn't have any exposure.

And if AIG didn't have any exposure, how was it that everybody else and their mother were buying insurance from them?

Because they packaged and sold the goods.

At least Cramer saw the meltdown coming.

And Cramer, on the Today show, said you should sell stocks, if you needed money for the next five years. Here was his explanation.

And Cramer, on his site has been promoting the return of the uptick rule, and the regulation of credit default swaps. Look at this commentary today regarding the uptick rule:

If you believe, as I do, that there is a major reconsideration under way of the rules that have come to favor short-sellers and quant traders, you have to be enjoying the incredible repartee of Eric Oberg and now Bill Furber on our site. These two gentlemen have taken the debate about "why we got rid of the rule" and "what does it mean" and have put it in the context of cold, hard facts and history that make you recognize that the rule wasn't irrelevant, and that the changes were less well-thought-out than many thought -- particularly those who believe that there is no reason whatsoever to get back to this.

Why does this matter so much? Because the issue is intertwined with the mark-to-market debate -- these two "rules" have destroyed more value than the whole subprime/Alt-A /bad CDO mortgages have combined.

The common stocks of banks have become the arbiters of the situation in the absence of the government taking control of the situation -- not the banks themselves. If they are the arbiters, the prosecutors -- runaway, rogue prosecutors -- are the abolition of the uptick rule and the concomitant approval of the ETFs that were meant for rapid trading in either direction, regardless of the destruction of capital and the amazing penalty that you get when you try to embrace equities and the capital-formation process

Here's part of that commentary. It's a paid link, but maybe they'll let it be for free!

Any market wants -- maybe even needs -- speculators to provide liquidity, so let's not go into the competing interest debate. However, the capital markets serve broader purposes than speculation; they are about capital formation so that we can build commerce, create products and services, employ people, pay taxes and enhance our society through the economy. The last decade or so, we seem to have lost sight of that broader purpose -- people speculating on homes, hedge fund proliferation, the prop trading desk more influential than the customer trading desk, people spending time figuring out if they "could" rather than if they "should." The markets should be about investing in our collective and individual futures, and allocating capital to businesses that can contribute to that future...

If bear raids become commonplace, why on earth would anyone want to be a public company? Of course, if we move to a strictly private ownership model, that may concentrate wealth in fewer hands, and the average American will not be able to participate in the growth of our economy. Of course, there may be less capital available to finance businesses, hindering our growth.

Because I think if we are going to reinstate the uptick rule, we need to understand why it is there in the first place. The intent was to create a circuit breaker so that fear did not overwhelm the markets into a negative downward spiral. So it was handled by a simple rule, where the buyer -- not the short-seller -- was the aggressor, therefore preventing a manipulation of emotions. But the rule was developed long before options, long before ECNs, long before decimalization, long before computer program trading, long before levered short-sided ETFs. The rule was done away with because it became too hard to enforce -- all sorts of exemptions completely emasculated (Cramer's term, but quite fitting) the rule. So rather than try to enforce something that wasn't working, they just gave up.

And Cramer, also to his credit, got bullish this week.

It's just ironic, that now Cramer is being vilified, when he in fact, is trying to protect the investor!

But maybe, Cramer is being taken to task, because he's the only one that will still go on the Talk shows!

Heck, wasn't even Warrren Buffett on the CNBC hotseat Monday? How did the stock market do this week?

Anyway, all of these problems go away, with a rising stock market.

The public is ticked off and rightly so, because they are now finding out that Wall Street was rigged in favor of the bears.

Now it's being rigged in favor of the bulls, but everyone is to angry and looking for villains instead of looking for bargains on Wall Street!

But stocks aren't just Suze Orman cheap, they are blue collar cheap. Let me explain. Suze on her show the other day, advised a call-in who was worried about losing their job, to have 8 months of money tucked away just in case she might lose her job. Huh? A blue-collar stash is the twenty hidden in their wallet for beer. Who has eight months worth of money socked away for their rainy day in this paycheck by paycheck world? So what kind of advice is that?

It used to be that you would need a worthwhile stash in order to make some money in the market. Now things are so cheap, (and with the proliferation of options) and the opportunities in this market are so compelling, that even beer money can get returns, provided you make the right bets.

That's the opportunity this market provides.

Instead, everyone is looking for villians.

I'm just looking for the "Free Money!"


Anonymous said...

Jim Cramer makes so many loud outlandish & emotional calls during each show that inevitably a large portion were bound to backfire. No doubt Stewart threw some cheap-shots at him, but Stewart was essentially right in that sound investing in no why involves throwing cowbells through your legs (& there are plenty of other ways to make an investment show engaging, even for viewers w/ADHD, while still accurate & valuable).

The economy isn't in trouble b/c of investors, & investor confidence - along w/the role of shows Mad Money - acts more as a dependent (eg, reactionary) variable rather than an independent (eg, manipulable) one. Which is to say that people like Cramer aren't villans who masterminded the meltdown, but they're a far cry from the the sober voices of reasons that are needed going to help us out of this mess.

Palmoni said...

You're right.

The sober voices of reason are missing!

I suppose I'm used to people saying things that they don't mean, because that's sort of how Wall Street works.

I just don't think Cramer did that deliberately.