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The Cramer Video: I call BS

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March 30, 2007 – Comments (7)

I know everyone's got the panties in a bundle over the so-called "bombshell" video in which Cramer purports to explain how to manipulate big stocks like RIMM, but unlike most of the indignant, including some of my colleagues, I don't buy it.

Do fund managers try and do stuff like this? I'm sure they do. Every day. They email me once in a while with "leads" about companies that are about to do great things, or companies that are faking it.

Is this successful? I highly doubt it.

Think about it for a second, folks. If Cramer can move something as big as RIMM "a percent or two" as he claims, by planting a story with the "bozo" at the WSJ, why can't these funds do that, say, once a week? Shouldn't they be making returns in the 50% range, if this is that easy?

This is Cramer looking to pad his own ego, shock the grannies, cement his reputation among the fans who want to consider themselves Street insiders. It describes a practice that is neither surprising, nor shocking: people with a pecuniary interest in a security trying to drum up press to push it the way they want. It happens all the time, both up and down. That's why I don't publish unverified blather from thoes who claim to know something. But stocks (especially volatile, overpriced stuff like RIMM) moves a percent or two for no reason at all.

And it's why I tell people, constantly, to look at the numbers, do the math, and invest when things are cheaper than they deserve to be.

Cramer's a circus clown. Why do we only take him seriously when his "confession" confirms our own insecurities about the market? And ask yourself this. If Cramer's techniques were used to drive one of your stocks UP, would you be so quick to complain?

Sj

PS, if you actually believe what Cramer's saying here, there is only ONE logical course of action for you to take, and that's not to invest in stocks. If the game is rigged, you shouldn't be playing. 

7 Comments – Post Your Own

#1) On March 30, 2007 at 8:58 AM, CycleFreak7 (23.13) wrote:

I don't believe the game is rigged.  However, I do believe that big stocks like RIMM and AAPL can be manipulated in the short term by funds (or a combination of funds acting in concert) with enough capital to make it happen.

How do you explain AAPL's moves in Dec '06 through Jan '07?  AAPL was the big story of the year as it gained more than 80% from mid-July to Dec '06.  Then, it moves from $91 at the beginning of Dec to $80 by Dec 28.  Why?  What about the so-called "window dressing" that usually occurs by funds at the end of the year?  Should AAPL have at least been able to stay relatively stable by buying activity rather than dropping some 10+%.

Then, less than 2 weeks later - once the sell pressure was relieved and the iPhone hype took hold - AAPL hit $97.

So, in just 2 weeks, someone (or some group) made a hefty +20% profit.  It wasn't me.

The drop in December is completely without merit.  The sell pressure was created in anticipation of the AAPL conference and the unveiling of the iPhone knowing full well the hype would drive the stock price to over-bought highs.

Does any of that matter to investors holding AAPL for 3, 5 or 10 years? No, it doesn't.  That doesn't make short-term stock manipulation non-existent.

Yes, I would complain if short-term manipulation drove the stock up.  Because it will, inevitably come back down.  However, these short-term manipulations are always geared toward downward movement.  They make money as it goes lower, make money as it goes back up and then make money again as it falls from the highs.

These guys are all about the short-term and you know it.  They do what it takes, ethical or not.  And, sometimes, legal or not.

 

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#2) On March 30, 2007 at 9:56 AM, gembree (99.93) wrote:

Yeah, I don't buy that the game being "rigged" should keep the small investor out - that's only true if she's driven by fear and can't emotionally deal with a large price drop without selling a great stock. 

My favorite stock has been on REG SHO all month long, and that makes me giddy, because whether it's just a lot of people trying to short it or Sith Lord Darth Cramer, it means a low price for me to buy more at and a lot of short interest sitting as fuel when earnings hit.  If people manipulate stocks, it just makes Mr. Market nuttier, and that's good for you and me.

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#3) On March 30, 2007 at 10:49 AM, TMFBent (99.83) wrote:

Good thoughts. By "rigged" I mean so completely manipulated at will that there's no way for investors to do OK if some evil fund manager wants it that way.

What people want to believe about this Cramer video is that, even if your stock shows great earnings, the bad guys can keep it down forever via their Sith Lord prowess. I don't believe that for a second, and if anyone does, I still submit the only logical thing to do would be to invest elsewhere where you don't believe the game is rigged. 

I'm with you on the rest. Sure those with leverage will try and move a stock. If they can push it short term, who cares? You only lose if you try and play their game. Stick with your own (mine is to be the small mammal among the lumbering dinosaurs, scooping up the nuts they don't notice) and you can weather the swings. 

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#4) On March 30, 2007 at 11:52 AM, TMFBent (99.83) wrote:

I didn't see this originally.

But I have to call BS on it, too.

"However, these short-term manipulations are always geared toward downward movement."

Please share with us the evidence of this. I find it to be an exceedingly counterintuitive opinion. First of all, it's much easier to convince people to buy than sell, for the simple reason that the Joe Sixpacks out there are overwhelmingly long. Furthermore, the risk/reward ratio of shorting, plus the structural market policies which game the system against shorting, make it a much more difficult place to make money. (Why do you suppose that most "hedge" funds are actually predominantly long?)

Second, it contradicts the reality of the cesspool that is penny stock manipulation. When have you EVER received an email asking you to NOT BUY!!! xxxx.ob, much less go short?

As for Apple's December drop being "without merit," why do you say that? Can you provide me with a reasoned valuation on Apple that proves it beyond a doubt to be worth the $90-plus? And even if you could, why do you suppose that the street would share that view?

Bottom line. Stocks move. Most of the time for no reason at all. To believe otherwise is dangerous to your sanity and your financial health. 

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#5) On March 30, 2007 at 2:46 PM, CycleFreak7 (23.13) wrote:

Agreed.  But I'm not talking penny stocks here.

Stocks with long run-ups like AAPL and RIMM are, indeed, over-bought.  Perhaps it doesn't really take much to cause a short-term downward spike since "Joe Sixpack" is likely sitting on a 50% gain and will sell to preserve those gains or get nailed by a trailing stop-loss.

When I said "without merit" what I meant was that no news item or company event seemed to trigger the drop.  Why sell during the last few weeks of December?  The tax bite (short-term especially) can be put off for over a year simply by waiting a few weeks to sell.

It was not rational.  However, I've given up on trying to find some rationality behind such movements.  It doesn't exist.  My sanity will remain in tact now that I've realized that.

It's like playing poker: Don't play your cards, play the players.

 

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#6) On March 30, 2007 at 7:43 PM, TMFKopp (98.93) wrote:

I don't know if it's an issue of "rigged" versus just a hyper focus on the short term, but the kind of thing that Cramer was talking about is exactly what I see as creating opportunity. As long as there's money out there even thinking about trying to manipulate a stock in one direction or another for a short term gain, there are going to be stocks that have prices out of whack with value.

The day that everyone starts taking a longview and investing in stocks the way they'd buy a business is the day I permanently hang up the cleats and join Bogle and the Gotrocks family in index funds. 

-Kopp 

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#7) On March 30, 2007 at 8:29 PM, TMFKopp (98.93) wrote:

I don't know if it's an issue of "rigged" versus just a hyper focus on the short term, but the kind of thing that Cramer was talking about is exactly what I see as creating opportunity. As long as there's money out there even thinking about trying to manipulate a stock in one direction or another for a short term gain, there are going to be stocks that have prices out of whack with value.

The day that everyone starts taking a longview and investing in stocks the way they'd buy a business is the day I permanently hang up the cleats and join Bogle and the Gotrocks family in index funds. 

-Kopp 

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