Okay, okay, let's say you were clairvoyant. Let's say you could read corporate press releases well in advance of their issuance. You knew 24 hours ahead that
would blow up. You were certain that
was going to disappoint the Street with lower earnings and terrible expectations.
What would you do?
If you answered go short, you would be Wrong! You would also be working at a hedge fund, where your wrong answer would be transferred into sizable bets -- and losses -- in puts and shorts.
Oh sure, Intel did go down, but nowhere near where the bears thought it would go. And Bay had fallen in anticipation of a bad number, so maybe it should have declined only a little more. But to go up? Oh come on, give me a break.
All of us who trade stocks for a living are walking around flummoxed. One of our core beliefs is that when companies blow up they go down. This isn't gravity, it is history. We are all programmed in this hedge fund world to bet against companies when we learn of negative stuff in the pipeline. Pronto.
But not any more.
. Two nights ago I had been doing some work on this story. I knew that the numbers couldn't be too good. I knew that the company could not be that optimistic. I knew that the stock didn't belong this high. So when I called my partner, Jeff Berkowitz, from the car on the way home, he asked, "What should we do?"
"Buy the March 50 calls," was my suggestion. Of course, I didn't do this because I was being facetious. But looking at the situation right now, knowing that I was clairvoyant about the release, it is scary to think that my joke was the right answer.
What do you do in situations like this? First, you have to understand why they were occurring. As I said to
this morning, with 8,000 hedge funds out there, you can fairly bet that if you have a negative call, so do others. You can assume that someone else also hates the story that you hate. You must know that that hedge fund is pouring on the puts or pressing the bet.
My conclusion is that you do nothing. It is too glib to go buy the Gucci calls, and I am not about to bet money against my own reasoning.
But I figure you must stay away from these battlegrounds altogether. Something that defies reasoning cannot be turned into an investment.
* * * * *
Before someone emails me and says, why didn't you know that
Faber was going to mention you and tell us on the site beforehand, please realize I do have a life outside of the site, a small one, but it is mine and I like it!!
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to