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Kass: Defending Cramer

I am not a suck-up to Jim Cramer. Indeed, in the past, Jim and I have disagreed (sometimes violently) on a number of subjects regarding the markets and individual stocks. This was particularly true when I initially wrote a column back in 1998 (The Contrarian) for TheStreet.com and when myself, Herbela Greenberg, Jim Seymour, Todd Harrison and others wrote on the original site in 2000-01. A year ago I even compared Jim to Joe Granville. We have frequently debated each other on Real Moolah/ Street Insight and more often that not we have taken opposing positions (usually he is bullish and I am bearish) on the old "Kudlow & Cramer" CNBC show and on "Mad Money." But after our disagreements -- when each of us cogitated over the others' argument -- we learned from each other. (I know this is sappy, but it is true). And on many occasions, we have altered our respective positions as a result of the polemic. Our relationship has flourished and is now symbiotic and mutually beneficial.

In the final analysis, based on his extraordinary and documented investment successes, Jim's views are important and, to me, will always require scrutiny. I would much rather consider and dissect Jim Cramer's argument based on his "real-time investment successes" than consider the views of almost any other investment strategist, author or fourth estate (media), most of whom have been only in the press box but never on the playing field, and none of whom have achieved such an extraordinary track record as Jim or have amassed his wealth.

Before I respond specifically to Henry Blodget's article, I want to state that I intend to take the high road in this column. I will not even mention Henry Blodget's past (preferring to deal with his allegations against Cramer instead). But first I would like to make some general observations about disseminating one's views in the public arena and layout the reality of Jim Cramer's decision to take the road he has taken.

  • Being in the public eye has its rewards and its liabilities. While the financial rewards in the media are considerable, they pale in comparison to the renumeration of running a successful hedge fund. That said, a media presence and acclaim provide celebrity and other satisfaction (it is said that power is a great aphrodisiac)! In the case of Jim Cramer, he is sacrificing the likely prospects for the generation of enormous income in favor of trying to educate investors. Moreover, it is generally known that Cramer gives all his portfolio profits to charity. (In doing so -- and I hate to write this, but it is true -- to a large degree his current endeavors can be viewed as noble as his financial sacrifices are not trivial).
  • Being in the public eye vividly reveals one's mistakes and blemishes, especially in the fickle and the ever-changing and unpredictable equity markets ... and, hopefully, recognition of a thoughtful and analytical investment process. (In baseball, a great hitter achieves a .300 batting average; a great investor probably needs to hit .550-.600. An investment legend -- like Buffet, Soros, Druckenmiller or Lampert -- hits for an even higher average. And, importantly, they are not evaluated daily/weekly or even on a yearly basis). Jim Cramer does not hide from his investment picks. He quantifies the investment performance of his Action Alert portfolio and his recommendations on "Mad Money" in a unique and precise manner on RealMoneyfor all to see. His results are impressive -- consistently so.
  • (As I wrote previously) being in the public eye also exposes one to jealousy ad hominem attacks -- like the one, in my view, delivered by Henry Blodget recently. As the subject of a cover story in BusinessWeek, as the author of three books and in his ubiquitous presence on CNBC, Jim is an easily identifiable target for his critics.
  • I will try (though I may have to bite my tongue at times!) to take the high road and I will not refer to Henry Blodget's infamous misdeeds, preferring to concentrate on the specific attacks leveled at Jim Cramer.

    According to Blodget's own pen, he writes a column "about bad investment advice." As such, Blodget felt compelled to write about Cramer and "to comment on what just might qualify as the worst financial counsel ever offered." The author refers to an interview on TheStreet.com's "Wall Street Confidential" between Aaron Task and Jim Cramer three months ago in which Blodget says "can be read as recommending that hedge funds boost returns by orchestrating stock prices and spreading false information." Quoting Cramer as saying that "this is the way the market really works" and those who don't do these things "shouldn't be in the game"..."it raises questions not only about Cramer's activities as a hedge fund manager, but about his judgment. It also, I think, threatens Cramer's career."

    Blodget specifically argues that "Cramer endorsed the idea of creating a level of activity before the market opened that could drive the futures down. Similarly, if I were long, and I wanted to make things a little bit rosy, I would go in and buy a bunch of stocks and make sure that they were higher ... I would encourage anyone in the hedge fund game to do it. Because it's legal. And it is a very quick way to make money." Blodget goes on to describe how Cramer would hit offers (if he wanted a stock to go down) and take bids (if he wanted a stock to go up) in Research in Motion (RIMM), and quotes Cramer "that it might cost me $15 to $20 million to knock it RIMM down to beleaguer the longs." Then Blodget reiterates Cramer's comments made in TheStreet.com interview in which he states that by hitting RIMM down will "get the Pisanis ( CNBC) of the world" to say something lousy about RIMM, reinforcing its price decline. In other words a "vicious cycle" develops in a stock and "we now know where some of it (his hedge fund record) came from."

    Blodget concludes that Cramer is (1) "giving terrible advice" because "his practices might be illegal;" (2) could be interpreted as "orchestrating a price decline;" (3) "is undermining everything he says" on "Mad Money" because he is suggesting that small investors take his advice; and (4) he is "putting his employers (The Street.com, General Electric and CNBC) in a bind."

    Blodget ends his Slate column with the following observation, "Jim Cramer has committed professional suicide."

    I disagree with nearly every point made by Blodget in the Slate piece, and some of the allegations show limited knowledge of investing. But before I do, let me frame the context under which Jim operates under in "Mad Money," Real Money, in his publications ... and in his interview with Aaron Task that is attacked by Henry Blodget.

    I view Jim as a good, colorful teacher (of investment advice). Jim is the polar opposite of Ben Stein's role as the colorless and boring economics teacher in Ferris Bueller's Day Off ("Bueller?...Bueller?....") In contrast to Stein's character, a good teacher (in order to get the attention of his students) -- like Jim Cramer -- tells a good, entertaining and memorable story. By communicating an interesting and animated story, often using hyperbole (and even exaggeration), his students (including the television audiences, book readers and TheStreet.com subscribers) more readily get the message of his lecture (or investment advice). Cramer's interview with Aaron Task was filled with exaggeration as his storytelling was clearly designed, in part (as Jim is always wont to do), to provoke Task and make the piece more memorable. It is in this context that the "Wall Street Confidential" interview should be viewed and judged.

    1. Orchestration and manipulation of share prices? Blodget seems to think Jim Cramer, who was the general partner of a $400 million - $500 million hedge fund could create enough activity to drive futures lower or higher (depending on his core position) in premarket trading. Blodget fails to recognize that the markets are far too deep for Cramer's hedge fund to materially affect futures trading. It's just plain dumb to think otherwise. His illustration in trading of Research in Motion is equally ludicrous. To think that Jim would spend $20 million, or about 4%-5% of his hedge fund's assets to create the impression that RIMM has problems is equally stupid. And Jim Cramer ain't stupid.

    2. Spreading false information? I am almost certain that Jim Cramer has never spread false information to reporters, analysts or anyone else for that matter. Information is routinely shared by money managers and the press. Blodget seems to have little respect for the media who are more informed that he realizes. Jim's reference to spread fictional stories the "Pisanis of the world" is simply hyperbole and exaggeration, made to create a captivating story. Nothing more, nothing less. Bob Pisani is no fool. He is not an automaton who parrots what a hedge fund guy says, even when that someone is Jim Cramer.

    3. Putting CNBC, TheStreet.com and General Electric in a Legal Bind? His constituents -- CNBC, TSCM and GE -- have remained silent because they too recognize the hypberole of Jim's storytelling and messages.

    In conclusion, Henry Blodget is far off base on most of his accusations and he loses sight of the context of how Cramer differentiates his message from the generally uninformative universe of market gurus. His Slate column is nothing more than an ad hominem attack on a very visible, often excitable, entertaining and value-added Cramer. Indeed the game works differently than Henry Blodget seems to believe. Jim Cramer's capacity and reservoir of investment knowledge (manifested in his Lightning Rounds on Mad Money) are almost unparalleled and unchallenged. He is providing a value proposition for many investors. And being able to call on his investment knowledge base while on his feet -- and on the fly (like in "Mad Money's" Lightning Round) -- is a particularly unique quality which gets the message across crisply, succinctly and entertainingly. His body of knowledge and history in the hedge fund business makes him especially qualified to educate investors as host of "Mad Money," as an author of three books on investment techniques, as a contributor to RealMoney and TheStreet.com and as an advisor of an Action Alert portfolio (which likely mimics what he would be doing if he still operated a hedge fund). His informed, animated, hyperbolic and humorous style segregates him from any other commentator extant. And in the course of his peripatetic and exaggerated style of delivery, Jim extols sound advice that is not only memorable but whose principles and tenets should not be forgotten ... they should be memorized.

    There is a constant thread in Henry Blodget's "Cramer vs. Cramer." It is a tempest in a teapot probably provoked for the purpose of disgracing Jim Cramer. It is also a blatant attempt to receive publicity and to sell newspapers. From my perch, Henry Blodget continues to be an expert on bad advice, just as Jim Cramer is an expert on good advice.

    In 1838 The United States Democratic Review published the following about the Supreme Court: "This collegiate tempest in a teapot might serve for the lads of the University to moot; but, surely, was unworthy the solemn adjudication attempted for it."

    To thine ownself be true, Henry.

    At time of publication, Kass and/or his funds had no positions in stocks mentioned, although holdings can change at any time.

    Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."

    Kass appreciates your feedback; click here to send him an email.

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