Monday, July 17, 2006

Marginalizing Cramer

My blog has gotten a lot of hits directed from google searches of “Cramer sucks” – not because I have offered much on the subject, but I think because I actually put it in quotes on my blog.

Here is most of what I said,

Cramer’s fortunes will ebb and flow with this mild bull market. He is not recommending any shorts (at least that I know of) and will be pilloried should the market enter a prolonged bear period. One has to remember that he is a SALESMAN, pure and simple. Guys like him are a dime a dozen on Wall Street. They can give you a compelling bull case for whatever stock they feel like. Some of these guys, like Cramer, are so persuasive that you feel like running out instantly and buying whatever they tell you. A great stock recommendation can sound almost like an earth-shattering discovery – to which only you are privy. So you run out and buy it and as you are holding it you start doing some more research. Most times you will find out that that bull argument has been around for years. The stock could languish in the dumps and you may have to wait for another set of docile buyers to push the stock in order for you to get your money back.

Like any dissembling salesman, Cramer often talks out of both sides of his mouth. Sure he has been bullish on Google mostly, but also said to lighten up at $250. And I also remember a show where he said to lighten up on the oil stocks as well.

The $10,000 question is,

Is Cramer making or losing money for his audience?

Devil’s AdvocateWouldn’t you have to analyze every recommendation that’s come out of his mouth to accurately answer that question?

I have pondered that and come to the conclusion of “No”. Think about how many stock recommendations he has made. Say minimally two per day for a couple years now. He’s had to have pounded the “Buy! Buy! Buy!” button for at least two hundred stocks over the last couple of years. There’s no way that any investors are spreading .5% of their cash evenly on his 200 picks. More likely they are picking and choosing and throwing much larger percentages of their wad at a small subset of his recommendations. A guy with a million bucks to throw around simply doesn’t buy a mere 88 shares of Apple – he’ll probably spend at least ten times as much ($58,000) on 1,000 shares.

So a basket analysis of Cramer’s picks while theoretically fair, would be irrelevant due to practical realities.

Since his viewers are only realistically going to heed some of his advice, their returns will obviously vary widely – depending of course on not only which stocks they commit to, but also when they get in (and out).

Now I know a guy who turned Cramer’s show on last year, heard him tout Google, went and dumped 20k into some call options and has parlayed it into over $600,000 in profits. It is the guy’s first option trade ever to boot – talk about pure luck.

(Of course, anyone that has $20,000 to dump on out-of-the-money calls is by most standards, very financially comfortable.)

But look at a stock like HOKU. The stock was $6 when Cramer pumped it last September, and instantly went to $14 per share. Today it’s a three dollar stock, 50% lower than even before Cramer led his sheepish audience to slaughter. If you were unlucky enough to have bought it above $12, you lost over 75% of your investment.

Capstone Turbine is another disastrous recommendation. If my memory serves me right, Cramer, while pounding the table, said, don’t pay more than $5 per share. Well today CPST is changing hands at a mere $2.01 per share.

Again, it is not thoroughly fair to pick and choose amongst Cramer’s recommendations and generalize there from. But these aforementioned debacles illustrate how risky heeding his advice may have been for many people.

When my wife was a stock broker, her rule of thumb was to never give or discuss individual stock picks with her clients because,

“...if the stock went up, it was due to the client’s own insight, but if it went down, then it would be deemed my (her) fault...”

(Also, lest anyone forget, brokers make all of their money from selling mutuals NOT stock trade commissions and it's been this way for years. Of course financial charltans like Greg Mankiw think otherwise. Read my two comments in that thread.)

The same applies to Cramer. His acolytes that bought Google, Apple, or oil stocks were probably inclined to buy them anyway – he just provided the nudge. And when he touts some boring old industrial company, no matter how persuasive his sell, most people will pass on that un-sexy recommendation.

Plenty of sore losers are already blaming him rather than themselves.

Cramer's schtick is nothing new. Remember Dan Dorfman?

The inherent problem with Cramer is that he does a show five days a week. There simply aren't enough good trade/investment ideas to fill up that much time. In fact, as I near my twelfth year of trading, I find myself trading more and more infrequently. Throughout each year, there are say 20-40 layup trades, that I absolutely know will pan out. If I can focus my energy on identifying and acting upon those, experience has taught me that I'll make just as much if not more money with a considerable reduction in earnings volatility.

Of course it's not just Cramer who's spreading his product too thin. Big Media essentially defines itself by "talking a lot, but saying nothing". Some days or weeks there simply isn't anything worth reporting. In those cases, media consumers would be better off reading nothing rather than fluff gossip, histrionic nonsense, and the entire gamut of manufactured, watered down "news".

Devil's Advocate - Is this your excuse for not posting much lately?

No, it's not. I have just been too busy with the market (commodities and futures trade almost around the clock) and with my two small children. If I had the time (and the money to not work), I would sit at my computer, do research, and blog 18 hours a day. I enjoy it that much.

But my point is, that's it's very hard to offer up original content on a daily basis - even for stalwart intellectuals like myself. This is why the most frequently updated blogs devolve into political and headline du jour diaries. I mean, how many blogs do we need that every day quote a typically disgusting story from the New York Times and offer their particular spin on it?

Don't get me wrong, debunking the Times is good sport and very much a public service, but so many adept and Captious people are doing it, the rest of us needn't bother. Check out this most recent NYT fisking I came upon, click here.

Here is another flip-flop or should I more accurately say, shameless self-contradiction from the Times. They wrote an editorial right after 9/11 with a hawkish tone towards tracking the finances of terrorists. A tone that stands in contradistinction to more recent editorial decisions.

Lemma - The customer is always right....even when a complete Moron.

Whole Foods Bans Sale of Live Lobsters

In some stores, they experimented with "lobster condos," filling tanks with stacks of large pipes the critters can crawl inside. And they moved the tanks behind seafood counters and away from children's tapping fingers.

Ultimately, Whole Foods management decided to immediately stop selling live lobsters and soft-shell crabs, saying they could not ensure the creatures are treated with respect and compassion.

"We place as much emphasis on the importance of humane treatment and quality of life for all animals as we do on the expectations for quality and flavor," John Mackey, Whole Foods' co-founder and chief executive, said in a statement.

Just about everyone who shops at Whole Foods is an Automatic Moron. Check out my prior post.

Yeah I am sure that those organic chickens are humanely sedated before being PLUCKED AND MURDERED.

Do you ignorant dissembling socialists like this jacket? Well, you can buy one yourself from North Face.

There's nothing like espousing patriotism toward failed murderous regimes.

Sort of reminds me of J-Crew.

Now this is funny, if not a tad on the vulgar side.

Suit: NBA Player Watching Porn, Drunk Before Crash

(CBS) MINNEAPOLIS On March 30, Minnesota Timberwolves center Eddie Griffin was drunk and masturbating when he crashed his luxury SUV into a parked Suburban outside a store in Minneapolis, according to a lawsuit filed Thursday by the man whose Suburban was hit in the crash.

Several of the 911 callers that night said Griffin was drunk. One witness said Griffin told him he was watching pornography in a DVD player mounted on the dashboard of his Cadillac Escalade SUV when he struck a Chevy Suburban parked on University Avenue Southeast.

Obviously it's only funny because no one was seriously hurt.

What's also humorous is how the wire service manifests its anti-SUV bias. Note how a "luxury SUV" crashed into simply a "Chevy Suburban". Since when did a Suburban stop being stigmatized as an "SUV"?

The top caption reads,

"how modern life, biology and genetics inflence our relationship with food"

This graphic is from serial econo-illiterate offender PBS. Notice they don't consider "economics".

"Obesity" is an issue very similar to gasoline prices in that most people (95%?) have passionately ignorant opinions on the whole subject. I have said it before but it needs to be said again and again.

Whatever the actual level of the obesity epidemic, it is almost entirely caused by CHEAP FOOD.

From Daniel Akst and a prior post.

First of all, unbeknownst to most people, food is extremely cheap today. Americans spend only 6% of their personal income on food. That is down from about 16% in 1950. Food prices have been in constant decline for over 100 years.

Daniel Akst writes:

“In America today, food is cheaper than it has ever been. The Federal Reserve Bank of Dallas reports that in 1919 the average American had to work 158 minutes to buy a three-pound chicken; nowadays, 15 minutes get you the bird. Americans spend less than six percent of their after- tax income on groceries, a figure so low they can afford to spend another four percent eating out. It's likely that in no other country is food as cheap as it is in the United States . The U.S. Department of Agriculture, using 1996 data, reports that the Japanese spend 16 percent of disposable income on food, and the Germans 17 percent. But even those figures pale in comparison with Third World countries. People in India , for example, still spend nearly half their disposable income on food.“

Fast-food is a product of cheap food and cheap food is a product of capitalism. In other words, you can't have capitalism without cheap food, they are born of the same market forces. Read Daniel Akst's entire article. It is long but very informative.

But as I said above, you'll almost never hear COST interjected into any theories on obesity, be they from media articles or from your friends and family. Everyone blames television, Coca-Cola, McDonalds, Doritos in school vending machines, sedentary lifestyles, etc. The other day a family member of mine blamed "big portions at restaurants". I almost went ballistic on her. How can someone sell "big portions" if food isn't cheap!!!!!! It would be like walking around on planet Mercury and thinking you're hot because you have a sweater on.

Anyway, old and new canards abound explaining the causes of obesity and at some point all you can do is laugh at them. My favorite from this list is air conditioning.

-- Industrial chemicals called endocrine disruptors that disturb metabolism, encouraging the formation of fat.

-- Giving up smoking: people who give up cigarettes very often gain weight.

-- Air conditioning, which establishes a comfortable temperature zone. In temperatures above this zone, people eat less. The rise in number of air-conditioned homes in the United States virtually mirrors the increase in the US obesity rate.

-- Fat people marry other fat people. These individuals may be genetically vulnerable to obesity, a trait that could handed on to their children.

Notice the sign at Geno's Steaks. It reads "This is America, when ordering, SPEAK ENGLISH". (Click to enlarge)

Now this story has gotten much play throughout the blogosphere but still deserves further dissemination. Two funny highlights,

1) Geno's may face legal action for his allegedly offensive sign. I absolutely love his defense that the sign, written in English, can't possibly be offensive to anyone not fluent in the language.

2) Note that the owner, Joey Vento, is the grandson of non-English speaking Italian immigrants. Shouldn't that give him the impunity of a sympathetic victim? Heck if Cindy Sheehan can't be criticized because her son died in Iraq, if black rappers can drop the n-word left and right, shouldn't a descendant of non-English speaking immigrants be free to criticize today's English-challenged Americans? This is a great addendum to Ann Coulter's oft discussed "9/11 harpies" thesis. Read this thread, more particularly the comment I posted in it.

A few years ago I suggested that some people hate President Bush so much they'd blame the weather on him if they could. In the wake of Hurricane Katrina, et al, how prescient does my suggestion look now? In fact, even former President Clinton is blaming the weather on his successor.

Clinton Links GOP Policies to More Storms

While on the subject, here is another review of Al Gore's "Inconvenient Truth",

People are skeptical about global warming because it builds up to the same chorus as every other lefty hymn: more taxes, more hypocritical scolding (the film is the brainchild of Larry David's wife, Laurie, part of the community of people who drive a Prius to the private plane) and especially more America-bashing.

Gore says that America, alone, is the problem. Taking us to China, he ignores the filth spewed into the air by its coal-fired cities. He does not meet with bronchitic citizens who wear surgical masks outdoors and pause to hawk up brown gunk every few minutes. Instead, he tells us America is lagging behind. "China," he says, "is on the cutting edge" of environmentalism. Nonsense.

Personally, I don't care what "scientists" all think but if you are one of these people who's accepted that all scientists believe in global warming mythologies, then click here. The major point is that climatologists are a very tiny fraction of "all scientists" - and even they are split on the issue. A molecular biologist's opinion on global warming is no more educated than the average Joe's. The Wall Street Journal weighs in on the consensus as well (and here too).

Can the Europeans be any dumber?

Air fares 'to double' as Europe votes for green tax

Let's see, you are Europe, you already can't compete economically with America AND you have juggernaut Asian economies to worry about, but nonetheless you decide to smack an enormous "global warming" tax on your businesses and consumers.

Prediction (not just based on the above) - In the next two years, the Euro currency takes a nosedive.

Hopefully I will be short.

Speaking of institutionalized European retardation...

This World Cup mania is out of control.

Now don't get me wrong. I love soccer and I love sports. Though basketball and golf are my favorites, I grew up in a soccer family. Everyone coached, played, and even refereed futbol. But there's something seriously wrong when a game makes grown adults' actions indistinguishable from those of my 20 month old son.

Obviously I am talking about the crazy fans, but also the whackjob players. Despite incredibly harsh penalties (i.e. game suspensions) from FIFA, you still have tons of players unable to control their on-field actions. Those that blame the refs for the spate of cards this year simply don't understand the game. The refs weren't committing slide tackles from behind, kicking players in the groin, or head butting opponents on a world wide stage - no less in extremely important games, that only occur every four years.

Seemingly all of the coaches were fired after the Cup. In fact the Ecuadorian coach went home ignomious in defeat and has had to hide from death threats. For more Copa Mundial inanity, check out this blog post titled World Cup Death Watch.