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Edited on Wed Jun-27-07 03:38 AM by REP
Harper's, June 2007
THE INVISIBLE HAND From a December 22 dialogue between James J. Cramer and Aaron Task on "Wall Street Confidential," a video feature of TheStreet.com, a financial news site founded by Cramer, a former hedge-fund manager and the host of CNBC' s Mad Money. Research in Motion, a Canadian company that markets BlackBerry wireless communication devices, experienced growth of more than 60 percent in its stock price over the past year.
AARON TASK: Again today we have a misdirection from the futures. Is this just because of the holiday season? JAMES J. CRAMER: When I was short at my hedge fund-meaning I needed the market down-I would create a level of activity beforehand that could drive the futures. It doesn't take much money. Or if I were long, and I would want to make things a little bit rosy, I would go in and take a bunch of stocks and make sure they were higher, maybe commit five million in capital to do it, and I could affect the market. That's a strategy very worth doing. I would encourage anyone who is in the hedge-fund business to do it, because it's legal, and it's a very quick way to make money, and very satisfying. It's a fun game, and it's a lucrative game. By the way, no one else in the world would ever admit that, but I don't care. TASK: That's right, and you can say it here. CRAMER: I can. I'm not going to say it on TV. TASK: Well, on a related note, there are so many more hedge funds today than when you were managing your hedge fund. Does that make it tougher? CRAMER: You've really got to control the market. You can't let it lift. When you get a Research in Motion, it's really important to use a lot of your firepower to knock that down, because it's the fulcrum of the market today. You can't create, yourself, an impression that a stock's down. But you do it anyway, because the SEC doesn't understand it. So, I mean, that's the only sense that I would say it's illegal. But a hedge fund that's not up a lot really has to do a lot now to save itself. So this is different than what I was talking about at the beginning. This is just blatantly illegal. But when your company may be in doubt because you're down, I think it's really important to foment an impression that the Research in Motion isn't any good, because Research in Motion is the key today. So you would hit this guy and that guy, and when you would see a guy who's bidding, you would wipe out that guy very quickly. It would be fabulous, because it would beleaguer all the moron longs who are also keying on Research in Motion. When your company is in survival mode, it's really important to get the people talking as if there's something wrong with RIM. Then you would call the Journal and you would get the bozo reporter on Research in Motion. And you would feed him a rumor that Palm's got a killer it's going to give away. These are. all the things you must do on a day like today, and if you're not doing it, maybe you shouldn't be in the game. TASK: Okay, another stock that a lot of people are focused on right now seems to be Apple- CRAMER: Yeah, with Apple it's very important to spread the rumor that both Verizon and AT&T have decided they don't like the phone. That's a very easy one to do because-you also want to spread the rumor that it's not going to be ready for Macworld-and this is very easy, because the people that write about Apple want that story, and you can claim that it's credible because Apple doesn't- TASK: Right, they're not going to comment. CRAMER: You just create an image that there's going to be news next week that's going to frighten everybody. This is what's really going on under the market that you don't see. TASK: And that nobody else talks about except you. CRAMER: Right, but what's important when you're in hedge-fund mode is to not do anything remotely truthful, because the truth is so against your view that it's important to create a new truth, to develop a fiction. TASK: SO you're talking about the mechanics of the market- CRAMER: Well, the mechanics are much more important than the fundamentals. TASK: Well, okay, but in terms of the fundamentals- CRAMER: Who cares about the fundamentals? Look at what people can do. The great thing about the market is that it has nothing to do with the actual stocks. Now look, maybe two weeks from now buyers will come to their senses and realize everything they heard was a liebut then again Fannie Mae lied about their earnings for six billion dollars, so you know- TASK: Right, and Bristol-Myers lied. CRAMER: It's just fiction and fiction and fiction. I think it's important that people recognize that the way the market really works is to have that nexus: hit the brokerage houses with a series of orders that can push it down, then leak it to the press, and then get it on CNBC-that's also very important. Then you have sort of a vicious cycle down. It's a pretty good game, and it can pay for a percent or two.
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