AIG: The Cramer Conspiracy Theory

by: Felix Salmon September 16, 2008 | about stocks: AIG / TSCM    
Felix Salmon

Felix Salmon

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You knew that someone was going to come out and say it. But did you know it was going to be Cramer?

Shorts were able to take AIG down from the $20s to $4 in a week's time.
To be sure, there were plenty of problems with AIG -- including, presumably, the insurance they may have offered on the solvency of Lehman and on their debt that they would be expected to pay off.
What matters, though, is how easily hedge funds were able to take this company down through endless selling.

Ah yes, the hedge funds, the naked shorts -- why is it that every single time a company's stock collapses, shadowy short-sellers get blamed?

It's worth pointing out, too, the sheer sophistication of Cramer's fundamental analysis:

Let's take AIG. Here's a company that has lots of liabilities but also lots of assets.

This is a man who writes this kind of thing with a straight face:

I'm committed to helping investors make money in the market. That's why I'm offering $50 off on a subscription to my exclusive investing service, Action Alerts PLUS.

Of course, there's always the small print:

If you decide to subscribe you will pay only $349.95 -- a savings of $50 off the annual subscription price of $399.95. When you renew your annual subscription, it will renew at the then-current annual subscriber price.

A mere $350 for your first year? I can confidently state that buying $350 of lottery tickets would be a vastly better investment. You don't know where the market is going, and neither does Jim Cramer. So stop trying to foresee the future, and start doing something you're good at instead. After all, I don't recall Cramer ever recommending an AIG short on the grounds that it was a sitting duck for hedge funds. I guess that only became obvious in hindsight.

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This article has 35 comments:

  •  
    Sep 16 05:16 PM
    Haha... This is a good slam on those who practice guru worship. Cramer's performance has always lagged the market. Yet, the excitable line up.

    Try explaining to your kids that they won't have the chance to go to college because you fell in love with a TV investment personality!
    Reply | Link to Comment
  •  
    Sep 16 05:18 PM
    Shorts and calls should be eliminated. That is not investing! That is gambling!
    Reply | Link to Comment
  •  
    Sep 16 05:21 PM
    My dear Felix....your ignorance is showing once again. Cramer doesn't deal with shorts and never advises his viewers to short anything.

    His Action Alerts Plus has been a money-maker for me. I guess it all depends on whether you listen to Cramer, do your homework, and buy stocks that suit your needs. Too much for you to comprehend? Then stop writing about things you know nothing about. If you don't like Cramerica, move.
    Reply | Link to Comment
  •  
    Sep 16 05:36 PM
    Cramer is entertaining. He apparently makes decisions instantaneously on TV. Unless he knows everything about everything all the time, his advice should always be considered dubious at best.

    For some reason, people like to have other people think for them. Perhaps I should start my own newsletter as well.

    Clark Jenkins
    FishGoneBad.com
    Reply | Link to Comment
  •  
    Sep 16 05:37 PM
    I can't badmouth Cramer, he made a lot of money for me. To be exact, I made a lot of money doing the opposite of what he recommended. When he told investors to buy CKR because Paris Hilton's ad for Carl's Jr. was a sure-fire winner, I sold it short and made money. When he pounded the table in 2005 about SHLD being the best investment around, I dumped it, and when he sold his shares in NLY for $13, I bought them and sold a year later for a 35% gain (including dividends).

    Perhaps that $350 (reduced from $400!) a year newsletter is worth the money, although you'd still need to carefully sort out the truly horrible ideas from the merely silly ones.
    Reply | Link to Comment
  •  
    Sep 16 05:37 PM
    I like Cramer's enthusiasm, and I like is overall philosophy on investing. As for recommendations I never listen
    Reply | Link to Comment
  •  
    Sep 16 05:38 PM
    Felix - The reason the shadowy shorts always get blamed when a stock gets slammed is because they are usually the ones spreading the worst and most unfounded rumors. If you don't believe it then pull up a list of Bill Ackmans comments this year versus the stock performance of the companies he has shorted. The SEC used to investigate this kind of meddling. However, you just go ahead and attack Cramer since it is the bandwagon thing to do. BTW, I have received several emails offering a special price of $99 for a years subscription to Action Alerts Plus. Maybe you should do some "homework" the next time you blow off meaninglessly...
    Reply | Link to Comment
  •  
    Sep 16 05:44 PM
    WHERE CAN WE FIND HIS PERFORMANCE NUMBERS ON HIS ACTUAL PORTFOLIO?
    Reply | Link to Comment
  •  
    Sep 16 06:01 PM
    I think Cramer is a great guy because he is what America is:

    Dumb beyond belief and a big mouth.

    The only thing we miss is: He is not obese... (That is a true anti American thing, may be he is a secret supporter of al Qaida because that explains his investment advices.)
    Reply | Link to Comment
  •  
    Sep 16 06:15 PM
    He Knows NOTHING!! He knows NOTHING.........he has a big ego and rides on the coatails of movement of stocks, either up or down. I would't take his advice ever again, he got me to sell stocks that went up and up!!!!
    Reply | Link to Comment
  •  
    Sep 16 06:22 PM
    Cramer is at best an entertaining clown. He once touted himself to be at least as good an investor as Warren Buffet. He also compared his status in the financial world with that of Michael Jordan in basketball and Tiger Wood in golf. He is, however, peerless in talking from both sides of his mouth.
    More troubling is his underhanded agenda. He uses his soapbox to talk up GoldmanSachs and his Wall Street cronies to the detriment of those who take him seriously. He needs to be investigated for ethics violation: he sure acts like he is being paid by the Wall Street insiders.
    Reply | Link to Comment
  •  
    Sep 16 06:49 PM
    Cramer has said some things that were telling, at least from his standpoint. What he says about what Fed is doing or not doing, the lack of oversight by the SEC, and he has out and out stated that the markets are rigged. This video can be seen on the TheStreet.com just before the bailout of Fannie and Freddie. I don't think Cramer is a dummy and his opinions on the economy are a launching point for most new investors who usually begin here. But woe to those who do not continue to read other analysts and conduct the due diligence before trading.
    Reply | Link to Comment
  •  
    Sep 16 07:17 PM
    Felix Your logic seems to be:
    (1) Cramer said the shorts were responsible for driving down the price of AIG's stock.
    (2) Cramer is never right
    (3) Therefore, shorts are not responsible for the rapid decline of AIG's stock.

    Sorry, but this reasoning would not get you a passing grade in a freshman philosophy class.

    If the rapid decline in AIG's price was not caused by hedge funds (along with maybe the LEH, GS, MS, & MER trading desks) getting together and shorting the stock, what is your explanation?

    Do you seriously believe that huge numbers of retail investors either studied AIG's financial statements (the fundamental guys) or read its charts ( the technical guys) and simultaneously reached the same decision to short it?

    If you believe that, you're too naive to be working on the street.

    Reply | Link to Comment
  •  
    Sep 16 07:51 PM
    Your article get me a little upset because I am a subscriber of Action Alerts Plus and I believe he is a very honest man. For $ 349 a year I can earned back in just one trade. His service has really helped me. I don't understand why you are attacking him. Did you ever read and study what he said?
    Reply | Link to Comment
  •  
    Sep 16 07:58 PM
    I believe hedge funds DID bring down BSC down, by spreading rumors, and pulling their funds from it, AND then profiting by shorting it. Sort of taking a life insurance policy on your postman and then stabbing him in the back to collect it. It is NOT the shorting that is bad, it is the underhand tactics. However, how do you stop the backroom antics and setup? When the Bush Admin, SEC, FED/Greenspan couldn't 'understand' the scale of derivatives, who is going to figure out these smart Wall street sharks?
    Reply | Link to Comment
  •  
    Sep 16 08:09 PM
    You can cut it, dice it, role it over, do all the procastination you want , but all it adds up to is .........................
    Reply | Link to Comment
  •  
    Sep 16 08:19 PM
    How about programmed trading? Now THERE'S a doomsday device.
    Reply | Link to Comment
  •  
    Sep 16 09:20 PM
    Awesome summary of Cramer----the fact that he is so successful with his show demonstrates just how ignorant the average viewer is.
    Reply | Link to Comment
  •  
    Sep 16 09:27 PM
    bob...dead on my man...couldn't have said it better myself....
    Reply | Link to Comment
  •  
    Sep 16 10:32 PM
    Cramer wants ppl to watch/wait/research.
    You on the other hand think in only one direction;
    pumping or dumping, Cramer pick me buy,
    Cramer's picks = DD, gamble on Cramer's picks
    b/c you too much ADHD to use him only as an indicator.
    Reply | Link to Comment
  •  
    Sep 16 11:18 PM
    Well if it is the shorts, it is a plague the the financial establishment brought on themselves. They have resisted the idea of regulating hedgefunds for years. We have no idea what these opaque vehicles are doing.
    Reply | Link to Comment
  •  
    Sep 16 11:42 PM
    Christopher Cox of the SEC allowed naked
    shorting, plain and simple as are the results of the past week.
    Reply | Link to Comment
  •  
    Sep 17 08:14 AM
    Shorts spread lies ......... hmmmm ......... similar to the republican party and king george iii bush, mccain, palin ........ but hopefully, they all get caught before more harm can be done!
    Reply | Link to Comment
  •  
    Sep 17 10:07 AM
    If short sellers are spreading baseless rumors to talk down stocks that have no fundamental problems, we long investors should be grateful for them. If stocks never go down, they're never on sale. Half the money is made buying low and unless you're playing leverage games, no one forces anyone to sell low.

    Besides, do you really think sophisticated investors are gullible enough to fall for the equivalent of penny-stock pump-and-dump schemes? I assure you, their faxes runeth over with such schemes and they ignore them. That's one reason they're millionaires/billionai...
    Reply | Link to Comment
  •  
    Sep 17 12:52 PM
    Outside of the financials, Cramer has wonderful track record. Don't spread hate because you are not on TV yourself, Felix. Plus he has educated a lot of people who listen and evaluate for themselves whether or not to invest.

    I must say that his weak spot in his investing prowess is technical finance. Whenever there are issues dealing with this on a specific security, he tends to be way too optimistic.

    That said, Cramer still is well above 50% on his recommendations, can you say that Felix?
    Reply | Link to Comment
  •  
    Sep 17 06:25 PM
    I'm not here to defend Cramer, but you appear to just be a hater. First, I don't believe the guy who claims to have made money by doing opposite of his recs. I have seen a lot of services priced at $1,200 to $5,000 who have no better record. I like his show, but that doesn't mean I buy every stock he highlights on his show. You do no better job of attacking his position on AIG than he did of selling it.

    I have no problem with people bashing the so-called gurus, but you should at least bring something to the table

    YTD his AAPlus Portfolio is down about 20 percent vs the S&P500 which is down about 16 percent. Considering the restrictions on his trading and the fact that he does not short, use options or leverage in the portfolio, that is respectable, given the market.

    I don't believe in the conspiracy theories per say, but I agree with him on the lack of enforcement by SEC on the failure of short-sellers to do a locate first.

    Just my 2 cents. No, I have not drank the Kool Aid, but bring something to the table...
    Reply | Link to Comment
  •  
    Sep 17 06:27 PM
    Sorry typo S&P500 is down about 18 percent YTD not 16 percent
    Reply | Link to Comment
  •  
    Sep 18 03:50 AM
    Felix, your irgnorance is telling. Naked shorting IS a huge problem as even the SEC reluctantly admits. Just look at JOSB . 107% of the float is shorted! 107%!!! even for you it should be evident that this is impossible if rules were enforced. But they are not and hence these illegal practices can continue. That Cramer now rants about it, is absurd however, because many of his hedgefund friends have profited enormously exactly by relentless shorting and by taking advantage of the SEC's ignorance and inactivity.
    Reply | Link to Comment
  •  
    Sep 18 06:34 AM
    quote "I like Cramer's enthusiasm, and I like is overall philosophy on investing. As for recommendations I never listen "

    I did an paid for it but I started listening on the philosophy and methodolgy. Cramer does pound the fundementals espicially after a company reports a good quarter (remember FCX last summer?)

    But FCX is a well run firm and if one was smart and factored in the fear and trends they can pick up a bargan. With the exception of FCX Cramer says wait 5 days before trading to do your homework on his picks. That is good advice and possibly extend that period.

    Never go out and buy what he recommends the next day unless you are day trading and hoping for a pop.
    Reply | Link to Comment
  •  
    Sep 18 08:03 AM
    Cramer and Greenspan both like to rewrite history . Both are more intent on writing books and talking smack . The big fish will continue to ea the small fish. JNJ MO PM KFT Berkshire etc will continue to roll on.From 1957-2003 18 ofthe top 20 S&P companies were pharma or consumer goods companies when reinvested dividends are taken into consideration.
    Reply | Link to Comment
  •  
    Sep 18 09:13 AM
    Cramer's Action Alerts are pretty useless for trading advice. You can't trade when he trades because it's too late by the time he tells you what he did or even what he is going to do and because of disclosure rules he tells you way too late. So you will lose money even in the rare cases he makes money.

    Remember, and he always says, it's a CHARITABLE TRUST. He just threw $3 million in a pot. He probably already took a deduction on it when he set it up so it's just a giveaway for him.

    The newsletter is somewhat useful for newbies with an online trading account to begin understanding some of the basic trading psychology and strategies - but very basic.

    Cramer on his show is at his best when he is calling Wall St. on the carpet. He knows the tricks and probably invented some of them and deserves credit for giving a tongue lashing to the idiots who abuse the market and fail to regulate it and themselves. He says what a lot of investors are thinking and wish they could say to the SEC, the Fed and the hedge funds.

    Hey if you think you can do better, go for it! There is plenty of room for more Cramers on tv.



    Reply | Link to Comment
  •  
    Sep 18 02:58 PM
    Doug Kass stated today that the most vocal TV pundit, etc (presumably Cramer), can only recommend BUY because his sponsors will not let him short or recommend shorting! Also, Kass states the brokerage houses were shorting each other, too! And the number of naked shorts was not enough to cause this....read his explanation....and he had no trouble borrowing stock to short ; he's the only one that's been right on this all along.
    Reply | Link to Comment
  •  
    Sep 18 05:06 PM
    Cramer knows how the street works and is a reliable source of information about manipulation. His show is entertainment, as he himself admits, and anybody who invests pased on Jim's rapid fire commentary deserves what he gets. Jim would tell him "Buy and homework."

    Mario Cuomo is going to check for manipulative short-selling - I believe he will find plenty.
    Reply | Link to Comment
  •  
    Sep 18 05:39 PM
    Hmmm. A buck a day for expert stock advice? Bargain. Regarding the shorting, Cramer is right - when the SEC temporarily halted naked shorting in financials, things got better immediately. Funny thing...the SEC announces comprehensive rules last night regarding naked shorting applicable to all stocks...and today we get a big rally. Coincidence? I don't think so. Yes, there are fundamental underlying problems in finance - but they have been vastly compounded by raging shorts who have made some assets worth 1/10th their real value, by selling what they don't have to sell. That's not good for anyone.
    Reply | Link to Comment