Sunday, March 15, 2009

"Cramer is a killer! Cramer is a mess..."

I watched the Jim Cramer on the Daily Show, the entire unedited version. Stewart slaughtered him, specifically where he showed the clips of Cramer in 2006 talking about how to operate a hedge fund and circumvent the regulators. I had never seen that before, and I only wonder how many thousands of hours of footage the Daily Show staff had to watch to find those comments. I often watch Stewart's Show, and often find myself unimpressed with his shtick, which is similar to Michael Moore in its editing style. Although I frequently disagree with his ideology, I do like to monitor what the kooks are saying at turning points in history. I think what needs to be pointed out here is that the comments Cramer was attacked for on Stewart’s show were made a year ago. If Jonny was so righteously upset at Cramer recommending Bear Sterns a week before its collapse, why wait a year to comment on it? It is no coincidence that Stewart attacked Cramer almost immediately after Jim Cramer’s harsh criticisms of the Obama Budget and Stimulus.

I watched Mad Money a lot from 2005 - 2006. Back when I was tracking the stock market for my experiment of completely randomized portfolios Vs mutual funds (where my random portfolios won); I made a portfolio of Cramer picks and tracked them through the market. His picks beat the market and he earned my respect; despite the flamboyant nature of his show where he admits to over the top behavior to attract an audience not otherwise interested in the stock market. Part way through 2006, channel 36 which was CNBC was dropped by my cable provider in favour of BBC News. I had not been following Cramer in the build up to this meltdown, and he only recently came back onto my radar when he attacked the Obama budget and was himself then attacked by Stewart and Colbert. Stevie Wonder never let him finish a sentence. Stewart let him speak, but beat the piss out of him with video clips and rebuttals. It reminded me of that scene from Slapshot…

“Dave is a killer!”

“Dave is a mess!”

In defense of financial analysts being wrong, for the same reason that I am not pursuing a career as a financial analyst despite my knowledge of the markets, after Enron I came to the realization that I could not morally recommend stocks to people based on potentially imperfect information. It is illegal for CEO's and companies to hide debt and present lies about their financial viability. Anyone who does belongs in jail. Efficient markets depend on reliable public information, and falsifying that is a crime. It is obvious that CNBC relies heavily on quarterly reports and CEO interviews, and that method of collecting information is potentially flawed. That does not imply that every company and every CEO lies and falsifies information. I would contend that the majority of corporations are honest, and that many of the analyst analysis of public information are reasonably reliable. Just because one self-righteous comedian has a team of people to search over thousands of hours of video to isolate those few instances where the analysts made mistakes does not mean that on a whole they are detrimental to society.

I do recall an episode of Mad Money once upon a time where Cramer disclosed that he is not allowed to buy and sell stocks himself, since doing so could influence the market and increase his own personal wealth. In that same episode, he disclosed that he is allowed to own real estate. So aside from his salary from Mad Money and books sales, he makes money from owning real estate. It is the same reason why he consistently advocated dropping the interest rate to zero, as the interest rate is the cost of borrowing money and hastened the bubble created by Greenspan continuously lowering the Fed rates. So why would Cramer try to prop up Bear Stearns when he might have known that they held too much equity in toxic mortgages? Because popping that bubble would lead to a collapse of the housing market and thus Cramer losing money on the investments he is allowed to own. That illustrates the moral hazard in Cramer refusing to expose Bear Stearns and Lehman Brothers, the same reason he is not allowed to buy and sell stocks when his advice could drive the market.

CNBC did not create the bubble in the real estate and credit markets. Perhaps Stewart is justified in saying that the job of CNBC should have been to pop the real estate bubble when Bear Sterns collapsed due to toxic equity, but that only means that the stock markets would have collapsed in April instead of September. Perhaps Stewart was trying to suggest that CNBC should have tried to prevent the bubble from forming in the first place? Had Jim Cramer been saying back in 2005 that banks should stop loaning money to poor people, somehow I would suspect Stewart to disapprove of that line of thinking as a Liberal Democrat. I don’t blame the citizens who took out mortgages and credit lines that they could not afford; I blame the banks for issuing them. I blame Fannie Mae and Freddie Mac, the bastard children of FDR and Clinton, who were responsible for billions of dollars in absurd loans. This drove up the price of real estate to inflated levels, NOT Jim Cramer saying there is nothing wrong with Bear Sterns.

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. “

-Laurence J. Peter

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