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Sometimes You Can't Know the Whole Story

Cramer looks back to the news from late August for a lesson in how the market turns on the unknowable.
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Could it be? Buried under that pile of snow shovels, what's that, a


that didn't make it into the recyclable pile? Aug. 28, 1998, yeah, pull it out, let's look at it. Wouldn't you know it, it's the paper from the day after the down-357-points day, the one that has all the gory details of the 4.19% decline, when the


plummeted to 8165.

Very few things are as brutal as a review of a paper from five months ago. After all, think of all of the megatonnage of hindsight that gets employed when perusing a yellowed copy of something with a day's worth of shelf life.

Still, my sift through of the


from that end of August is a stinging indictment of the journalistic profession's ability to cover our markets when they are in turmoil. You could tell that the editors were desperate to find out why the market declined as badly as it did. Here's what they came up with: "Global markets tumbled on speculation that


may resign, along with an indefinite suspension of ruble trading and fear Russia may partially return to Soviet-style economics." It then went on to pinpoint that a commodities slump and a decline in corporate profits may have also triggered the downturn. It also suggested that a decline in bond yields could be causing some of the problems.


We all know now what was happening during those final days of August:

Long Term Capital

was unwinding. It was obliterating markets left and right with its flailing attempts to stay in the game. But if you check the index under Long Term Capital, you won't find any mention of it. In fact, the only hedge funds that were mentioned as getting hurt were


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and some hitherto anonymous

San Antonio Bond Fund


We know now that the story that should have been written was: "A Russian default has triggered a massive decline in assets for Long Term Capital, a Greenwich, Conn., hedge fund, which may lead to a collapse of a dozen banks and brokers that have extended loans to the firm."

But that story simply couldn't be gotten. There are dozens and dozens of people interviewed in this paper and not one either knew or told the truth about what was causing the Russian ripple effect. Many of the people interviewed in the paper were in a position to know and did not tell or had no idea what they were talking about when they ventured reasons for the weakness.

I mention all of this to make one point: The key reason why stocks and bonds go up and down is because people are buying and selling them. Sometimes they sell because they have to; sometimes they buy because they have to. Many of the stocks that went down that are chronicled in this issue were going down because of margin calls created by asset declines at Long Term Capital, not because of the reasons given in the paper. Many of the bonds were rallying because Long Term Capital was short them and had to cover those shorts in a futile attempt to recover their losses.

At a certain level the profession of journalism strikes out, and at the margin call level it always strikes out. Journalists' sources would lose their jobs and get fired for telling the truth about what happened on Aug. 27. The paper could NEVER get that story right unless people on the Street were willing to violate rules that are never supposed to be violated: revealing the problems that a client, fighting for its life, might be causing the rest of the market.

Yet, I would have traded everything in that paper for what was really going on, because without it, you could not make knowing decisions about buying and selling stocks.

Fortunately, most of the time we don't have a single secretive client roiling the markets and creating worldwide mayhem. But that's not the case for individual stocks. So many times the reason why a stock goes down has more to do with the clients who own the stock and are selling than with the fundamentals themselves. Yet, I get a zillion questions about what may be "wrong" with

National Gift

because it hasn't moved up for several days, or what's happening to drive National Gift up, when the answer is that some client has decided to dump or take a mega position in the name badly.

If you only know the fundamentals of the companies, often you don't know enough to understand short-term moves. In the long term, of course, things could be quite different. But next time when you are puzzled over what one of your stocks is doing, remember that yellowed Aug. 28


: You may not find out why it's moving the way it is until much, much later, when it is too late to matter. And just as I would have liked to have been a buyer on Aug. 28, given what I now know, I have to accept that not everything about a stock's move is knowable or gettable given the secrecy of the profession itself.

Unless you want to change the rules about secrecy, we will always have to be puzzled over a certain aspect of a stock's valuation.

Unfortunately, in this market, it is the most important aspect, particularly with the hoarding going on in the Net stocks. So we fly blindly higher, not knowing who is sponsoring these stocks up here, and not knowing when they will reach levels that these sponsors themselves can no longer stand.

James J. Cramer is manager of a hedge fund and co-chairman of Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. 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 invites you to comment on his column by sending a letter to