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The Cramer Crash

October 12th, 2008 · No Comments

Jim Cramer, is creating some waves, and not everybody is greeting his comments with unadulated admiration, to put it mildly (see article below). However, in his defence, we must say that if you call a lot of things all the time, you’re bound to get one wrong sooner rather than later. And the jury is still out whether he called this one wrong..

Jim Cramer, former hedge fund manager and now tv investment guru, created a bit of a stir last Monday when he told people to get out of the stock market if they needed that money in the next five years. That call, by itself, created what is already known as Cramer’s crash on that Monday.

Some pro’s are furious with him, even calling for his suspension from tv:

Cramer Should Be Suspended
Jason Schwarz

  • 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 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 portends 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.

That Apple call from years back is a little bit of a cheap shot. What so surprises us is how Jim Cramer has opinions on so many stocks, this isn’t possible for one man, unless he has a whole team of people helping him with that, and even then it’s very difficult.

There is also no investor advisor (dead or alive) who got everything right, especially if you make that many calls as Cramer does. Impossible. You can be right some of the times on some stocks, but certainly not all the time on all of them. Show us anyone who has.

And for that call he made about the market, the jury is really still out on that one. There is no guarantee whatsoever that we won’t go substantially lower still.

And for his call on Paulson and Bernanke, regular readers of this site will recognize that we’re mostly on Cramer’s side here. We’re distinctly unimpressed with the efforts of US authorities to save the financial system ourselves.

In fact, as we wrote here, we’re particularly mystified as to why Paulson is so reluctant to accept that recapitalizing financial institutions is way more efficient compared to just buying dud, mortgage related assets off them. It just gives way more bang for the buck.

Another matter is whether it is the duty of an investment advisor to soothe the markets in difficult times. This one is a bit harder to answer unequivocally, especially in the case of Cramer, because he has such a large audience.

We can sort of symphatize with Cramer if he really thought that there was some kind of melt-down pending to warn people about it, especially since until a couple of weeks ago, he argued that we wouldn’t go below July’s lows.

On the other hand, he should have been aware of the audience he has, and the influence that has on the markets, so one can say that such a drastic wording was a bit overdone. But he did say that he had thought about it a lot, so it wasn’t a loose remark..

It just shows, that old Graucho Marx saying, it’s difficult to make predictions, especially if they are about the future. It still holds..

Tags: The Markets