NEW YORK (
fills his blog on
every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- how individual investors can shield themselves from high-frequency trading; and
- why global politics -- not corporate earnings -- is controlling the markets.
for information on
, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Repelling High-Frequency Fire
Posted at 3:01 p.m. EDT on Friday, Aug. 5.
You can't stop the high-frequency traders, those who flit in and out stocks millions of times a day. You can't end the madness of machines playing with machines, driving stocks down or up with maddening velocity.
You can't stop them because the government has blessed them and, as Doug Kass
, the government doesn't care that the playing field has, once again, become unleveled because of them.
A little more than a decade ago a different
Securities and Exchange Commission
, worried that the individual investor felt disadvantaged, jammed through Regulation FD, which got rid of selective disclosure, a code term for "the big guys got a call about how business was, but you, retail investor, never get that kind of fancy information."
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The result? All information is disseminated at the same time. You know as much as the other guy. If you know more, and it came from someone in the company, the government will nail you. That's what the Raj Rajaratnum trial was really all about. His hedge fund, defeated by Reg FD, tried to find multiple ways around it. Guilty as charged.
But now we have another group of investors that have a speed edge and weapons that are like machine guns in World War I and individual investors are foot soldiers, mowed down by a new technology they can't understand.
The individual investor is fodder in the face of these fields of fire. So she's choosing not to go over the top. She's not following in the Path of Glory -- it's too bloody. Who can blame her?
So what can we do? Not much about the machine funds. They have been legalized and just like you couldn't take away the machine guns, the government will not outlaw the high-frequency traders or eliminate their recently blessed double- and triple-powered ETFs, even as they do nothing to help create investment capital -- the real purpose of an exchange -- or allow for solid longer-term investment. They aren't investment instruments. They are lethal trading grenades, and individuals can't afford to catch them.
So what do we do? We find tanks that can withstand the machine guns. What's a tank? A company that pays a bountiful dividend with more than a 3.5% yield which is so much better than what you can make with cash or bonds. And I think much safer.
, up almost two bucks today, is a tank because it yields more than 4%.
Procter & Gamble
, which reported an OK number and then gave subpar guidance, is a tank.
It rallied today from that 3.5% level.
are tanks. When the machine guns shoot, you can hear them bounce off your machine.
Tanks aren't immune. Artillery can take them apart. That's why we don't ever want to be so complacent as to think that stocks are impervious. But unless the company's balance sheet is stretched, the tank will hold up during the shelling and if it gets dinged you just buy more.
You can't beat the darned high-frequency traders. But you can join their mechanization if you go into battle with good dividends. Everything else, as we saw these last 10 days, is a trade that can be eviscerated by the machine's insanely interstitial fields of fire.
At the time of publication, Cramer had no positions in stocks mentioned
We're Devolving -- Rapidly
Posted at 4:30 p.m. EDT on Friday, Aug. 5.
Sometimes the whole shebang is too crazed. Today was too crazed and for a simple reason: We are gripped by
. Nothing that matters comes from companies any more. Nothing. They are just stooges, pawns in a big game played across international borders.
The only inside information these days comes from Berlusconi or Trichet or Geithner or S&P and Moody's.
We traded today on incessant political rumors. The Chinese are buying. Ben's on the phone. The Germans are agreeing to backstop bonds. The French want a short ban. The Japanese are rebuilding.
It was so macro that even the previously all-important macro number, our employment number, was overshadowed by events elsewhere.
It made me wonder whether Spanish employment or Italian jobs are the more important numbers. What days do they come out? Hmm, better find out.
And of course, everything is magnified by the machines.
Sure, there's some corporate impact.
finally got its point, delayed by yesterday's nastiness.
Procter & Gamble
didn't blow up today, so it went higher. In fact, all of the recession-oriented stocks had a run because recession is the operative term these days.
Oh, and one other micro-game worth mentioning: The air was thick with hedge funds ganging up on Fairholme Capital's Bruce Berkowitz, the big
Bank of America
holder. Hedge funds are pressing down those two stocks, which don't have many defenses anyway, in order to bust his firm. Who knows, everyone has to make their quarter somehow, I guess.
Ugly way to make money if you ask me.
So, breaking hedge funds, crushing countries, gaming ratings agencies -- that's what we've devolved to. I long for the days of the better-than-expected/worse-than-expected quarter. May they not yet be extinct.
At the time of publication, Cramer was long BAC.