Images from BusinessWeek-- http://images.businessweek.com/...
"The stock market today isn’t so much about stocks as it is about stock movements. Hedge-fund traders don’t just invest in securities; they move markets, fundamentally altering stock valuations through the sheer size of their positions. When the price of Apple Inc. drops fifteen points not long after it announces a strong earnings report, it’s usually because of a hedge fund cashing out, the smart money exiting the building. As for the average investor buying stocks based on news reports and SEC filings—on the actual value of an underlying business? He’s the sucker at the table, the easy mark."
"The Sucker Wears a Wire" New York Magazine
http://nymag.com/...
More below the fold
After highlighting the disparity between the cut throat "It’s illegal but you do it anyway, because the SEC doesn’t understand it" Cramer, and the civic minded "I’m trying to help people understand the shenanigans" Cramer that appears on CNBC, John Stewart commented:
"I want the Jim Cramer on CNBC to protect me from the Jim Cramer on that tape."
So, who is the real Jim Cramer; The stock picking monkey, the brilliant analyst, or the evil baron of Wall Street?
I researched the man to find an answer.
The more a read about Jim Cramer as a young man the more I like the guy, or at least who he was. There have already been several diaries about "Jim the scumbag hedge fund manager" and "Jim the CNBC corporate shill". So this diary will focus on the two Jim Cramers that I believe are the core of his inner struggle; the Journalist and the Compulsive Gambler.
JIM THE JOURNALIST:
..he worked his way up to editor-in-chief of The Harvard Crimson, where he was a rabble rouser with an Afro who led rallies against apartheid and Richard Nixon on the side. An attack in the Crimson on alleged elitism in the history department led, he says, to the administration's withholding his diploma at graduation. "My parents were crying," he says. "It was horrible." (He did finally manage to wrest the diploma from Harvard that summer.)
He went on to work for "The Tallahassee Democrat":
Then-executive editor, Richard Oppel, says "Jimmie was like a driving ram. He was great at getting the story." While that tenacity made Cramer a successful reporter in both Florida and California, his finances were in a shambles after his house was burglarized and checking account emptied. He ended up homeless, and for nine months slept with a .22-caliber pistol and a camping hatchet in his beat-up Ford Fairmont -- a lurid chapter of his life he describes in his memoir, Confessions of a Street Addict.
"Why did Cramer even go on The Daily Show?" many people have wondered aloud. I believe his history in journalism is at the heart of his reasoning. It’s the reason he refers to Jon Stewart as "my biggest hero". Jim Cramer has by some accounts made over 100 Million dollars during his hedge fund years, owns a 15% of "thestreet.com", and has made millions more on CNBC. He certainly does not need to put himself in the crosshairs to defend CNBC. He could walk away at any time, but he went on the show knowing that that infamous 2006 tape had just come out.
JIM THE ADICT:
"In another study, the brain activity of people about to make another trade was identical to the brain activity of drug addicts about to take another hit. Day trading appears similar to chemical addiction, where the high of successful trades makes it difficult to let go."
HowStuffWorks
http://money.howstuffworks.com/...
There’s no doubt Jim enjoyed the celebrity amongst his friends when he provided them with a good stock tip in those early years. The frenetic pace of the trading desk, the minute to minute feedback on his trade decisions, would turn Cramer into a full blown stock addict.
"He takes a breather to talk about the impact of his obsessiveness on his family. After a catastrophic 1998 that nearly sank Cramer Berkowitz, the fund netted clients 47% in 1999 and 28% in 2000. "I was killing the market when everyone else was doing badly, and yet I was more miserable than ever," he says. His elder daughter didn't want to be around him, resenting him for being constantly leashed to his investors by phone. "All I did was say, 'Be quiet. Please leave Daddy alone. Daddy has to trade."'
In 2000, Cramer's wife, Karen, gave him an ultimatum: Slow down, or else."
BusinessWeek
http://www.businessweek.com/...
In many ways the excesses of Wall Street have been ignored the same way we’ve ignored our politician’s incompetence. Everyone was making money, so what if the insiders skimmed 10-15% out of the system. I the same way mineral and drilling rights to our collective natural resources have been doled out for political donations at pennies on the dollar, the market manipulators have squeezed billions out of our companies and our retirement accounts.
Cramer knew there is zero redeeming social value to gambling on, or flat out manipulating, the market, but who was it really hurting? The economy was booming. Wall Street was a land of excess that could provide Jim Cramer with an endless fix of "Traders High"
JIM’S MOMENT OF CLARITY:
"Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned."
"The End" Portfolio.com
http://www.portfolio.com/...
Jim Cramer had his "come to Jesus moment" around this time. The guy who started out writing for "The Harvard Crimson" realized that Wall Street greed, HIS GREED, had killed the golden goose. The last vestige of the market that celebrated the innovations of American companies was gone. In truth that market had died a slow death over about thirty years. The victim of a thousand tiny cuts inflicted by CEOs, traders, & hedge fund managers all with their eyes on the fast money.. the quick buck.
10/31/2007 was just the day of reckoning.
So is Jim Cramer really is trying to get back to the Jim Cramer of the 80’s; The guy who loved researching stocks and sharing the info with his friends ; The guy interested in business models, not fake news stories and market manipulation; The guy who’s passion was investing not trading?
It’s tough to tell, but I’m willing to give him the benefit of the doubt if he starts putting actions to words.
I would not make him SEC chairman, as he had asked for, but I would not kick him off the Democratic team.
What he should do is start advocating for a real reform of securities market.
"The Peoples Market" Bill of 2009:
Restore Glass Stegal provisions separating investment and commercial banking.
Lower the delineation line between short and long term capital gains for securities, from one year to six months.
Raise tax rate on short term gains from "standard income up to 35%" to a flat 50% percent regardless of profit. http://taxes.about.com/...
This measure will put an end to the day trading industry that does nothing but add volatility to the market. Real investors will again have confidence in stock valuations.
If he appeared before congress and pushed for legislative changes I think he'd make a strong ally.
Further Reading:
Google books has random pages samples from every chapter of the book here:
http://books.google.com/...
http://www.wnyc.org/...
Businessweek.com ran a cover story on him back in 2005:
http://www.businessweek.com/...
http://ecommerce.hostip.info/...