Friday, April 03, 2009
The Boo-Yah! is Still Intact
Well that didn’t take long.
Was it really just three weeks ago that Mad Money host and former-hedge-fund-manager Jim Cramer promised Jon Stewart he would become the kind of financial commentator that would help protect small investors from the kind of stock manipulation that guys like, uh, Jim Cramer, bragged about doing on a tape that Stewart played for, um, Jim Cramer?
Indeed, it was (see “Boo-Yah! Will Never Be The Same”).
After being hoist with his own petard—thanks to Stewart’s relentless use of video clips featuring Cramer himself lecturing on how to manipulate the market—Cramer gave up and promised to be a force for good, rather than for the kind of manic-depressive, boo-yah trading techniques that made “Mad Money” one of CNBC’s most popular shows.
“I’ll try it. I’ll try it,” Cramer finally blurted out, his head nodding vigorously, like a teenager promising to ease up on the beer-and-shots stuff that you know—and that he knows you know—he’s going to do anyway, as soon as you give him the keys to the car.
Well that was then, and this is now.
We caught a glimpse of “Cramerica” last night, just long enough to watch the host officially declare the end of the Bear Market, and the running of a new bull. What a thousand points on the Dow will do to a reformed stock junky!
Far from offering sober tips on how to invest for the long haul, Cramer was promising to find for his viewers a stock that hadn’t yet participated in the New Bull Market. He was, he said, looking for a “piece of merchandise” that had not yet been snapped up in the recent rally.
Now, that phrase—“piece of merchandise”—pops up frequently in “Confessions of a Street Addict,” Cramer’s excellent book on what it’s like to work at a hedge fund that nearly goes under…and comes back to fight another day.
To traders, stocks are “pieces of merchandise,” the same as anything else you can find at a store. In fact, Cramer said exactly that last night.
He even held up various pieces of damaged clothing to make his point that when shopping for discounted “merchandise,” an investor must distinguish between the cheap-but-worth-buying stuff and the truly damaged goods.
And that’s the problem.
To traders like Cramer—and he is a trader, not an investor—stocks are “pieces of merchandise,” just like shirts, shoes, refrigerators and cars.
But shirts, shoes, refrigerators and cars don’t have the potential to grow in value over months, years and decades, let alone to pay dividends. They don’t have the ability to create wealth, fund college educations or even make somebody a bit of mad money to blow on a new shirt, new shoes, a new refrigerator or a new car.
Pieces of merchandise depreciate the minute you buy them.
Traders don’t get that. Nor do they care. They’re traders. That’s their job. And that’s how they make money: by being dispassionate about whatever it is they’re buying and selling, whether it's a stock or a car or a pair of shoes.
There’s nothing wrong with trading: just don’t confuse it with investing.
When Cramer screams at somebody on a “Lightning Round” to “Sell-Sell-Sell” a “piece of merchandise” that “acts bad,” you’d better understand that he’s thinking like a trader, not an investor. And chances are he’ll be screaming “Buy-Buy-Buy” once that same “piece of merchandise” starts to “acts good.”
So that’s why it is that 20 days and 1,000 Dow points since his whipped-puppy-dog appearance on Jon Stewart, Cramer is back screaming “Buy-Buy-Buy” on whatever piece of merchandise looks good to him at that moment.
Now, what piece of merchandise did Cramer pitch last night? What did he find in the bargain bin that constitutes an overlooked, ready-to-rally idea? Was it a cheap consumer stock that will benefit from a recovering housing sector? A low-priced transportation stock that should do well once businesses start restocking their inventories?
No. It was Celgene.
Celgene happens to be a well-run biotech company that recently guided earnings a bit lower, causing the stock to fall out of bed. It also sells at 30-times trailing EBITDA, in a market in which hundreds of stocks sell for 3-and-4-and-5-times trailing EBITDA.
Bargain bin? Hardly.
So why did Cramer recommend it?
Because, he said, the Celgene story is, quote-unquote, “Still intact.”
And “Still intact” is, for those who never worked on Wall Street, the oldest, lamest, saw in the stock salesman’s book.
Go ahead, try it out on any trader, any money manager, any analyst you can find. They’ll tell you that phrase, “Still intact,” causes the radar of every professional investor to start emitting violent waves of radiation intended to destroy the offending speaker.
They’ll tell you “Still intact” is the last defense of the worst ideas, and that what it really means is this: whoever had the idea in the first place has run out of facts to support the story.
Indeed, they’ll probably tell you that when you get a call from the broker who sold you a stock that has fallen out of bed like Celgene did, and the broker tells you "Our thesis is still intact,” you run—don’t walk—to your computer and “Sell-Sell-Sell.”
It is the death-knell of all stock ideas, a defense reserved for names like Lucent and Nortel and Citigroup and Fannie Mae that will, as FDR said, go down in infamy. For every stock that is off 90% from its high and headed to Chapter 11, somebody, somewhere, is saying “our thesis is still intact.”
Indeed, if you read your history books, we think you’ll find that while Hitler was driving down the Champs Élysées getting the Heil Hitler from his goose-stepping troops, disgraced former Prime Minister Neville Chamberlain, who had thought Hitler a decent, misunderstood chap and thus gave up Czechoslovakia at Munich, was at home telling his cats “Our thesis is still intact.”
In fact, we’d bet that the Cramer who ran the hedge fund would have thrown whatever salesman came into his office insisting that an idea was “Still intact” out the plate-glass window of his offices—or at least would have slammed his phone into the guy’s head like Joe Pesche does to that cowboy in “Casino.”
Yet the Cramer who three weeks ago promised to protect all those investors Jon Stewart suddenly cares about is now pushing a “piece of merchandise” whose main business—biotechnology—is anything but “intact,” what with Congress and the new administration aiming to make healthcare as unprofitable as possible for the companies that make the stuff.
Somebody, somewhere, did a great job pushing a “piece of merchandise” on Cramer.
Looks like the Boo-Yah! is still intact.
I Am Not Making This Up
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Posted by Jeff Matthews at 8:58 AM