Selling a stock for most people is a simple as typing a keystroke and getting an instant report. But when you are selling a stock that other people want to sell, well, that's a different story.
Take these retailers that I was harping on
Wednesday. Let's say you own
National Gift Wrap
, a nationwide retailer of gift wrap. You see all of the retailers are for sale. You have 500,000 shares of National Gift, a stock that trades about that much every day. It's a tough one to move. You know you have to get out of it. You fear if you don't sell it first, someone else will.
You have seen the selling in
and you figure it is just a matter of time before they get to National Gift.
Or maybe, you know that a large mutual fund has decided to underweight the retailers and you want to get out ahead of it before it destroys all of the charts, leaving a series of head and shoulders patterns in its wake. You know a big profit is about to turn into a big loss.
What can you do? Can you just go to
Website and punch in a sell order for 500,000 National Gift? I don't think so.
You have to connect with a broker. You have to open up to a trader at a major firm and ask him to commit capital to merchandise your National Gift position.
I have written about this subject before and I don't mean to repeat myself, so I won't. All of the other times I have written about getting out of an illiquid National Gift position I have stressed the give-and-take that goes on. The stock is selling at 40. Maybe you have to accept a 39 bid, as Bag'em and Gun'em buys the darn thing and then sells it through its system. Job's done; you are gone.
That's not what is happening now. What I am seeing now in retail is that there are so many sellers that the following is happening.
Shyster & Co
, the client who is long National Gift, goes into to Broker A and says, "Hey, I have a big piece of National Gift for sale, can you help me?" The salesperson at Broker A is then whispering "Oh, jeez, we are already lugging a piece of National Gift from some seller yesterday, you would do best to 'go away'." Forget the ethics of that call, it is what happens.
So then Shyster goes to Broker B, and sure enough B is also working on a piece of National Gift right now! Holy cow, this stock is definitely headed lower, Shyster says to himself. "It is for sale everywhere." Let's say Broker A did the print of National Gift at 39. Now the stock has collapsed to 38, as Broker A was not able to place the block successfully. In fact, he still has 200,000 shares in inventory that's killing him.
Now Broker B has 500,000 shares to go, and he is trying to place the stuff and all he hears from all accounts around the street is that everybody is already long a lot of National Gift, there are no takers.
In other words, Broker A is "lugging" them or "wearing" National Gift and Broker B is about to get stuck with National Gift, too. So what does Shyster do with his 500,000 National Gift? If he is someone who normally lives under a rock, he goes to Broker C and says, "I have 500,000 shares of National Gift to go, the last sale is 38, I will sell all 500,000 to you at 37, but I need an answer now, on the line, and remember that I am a huge commission generator."
In other words, he short-circuits the whole process and buries a third guy! He doesn't tell Broker C what he knows.
Broker C has no idea what he is stepping into. But he does the trade. He feels obliged. The client is a big commission generator. He can't piss the client off. Broker C is long National Gift, too. Now you have Brokers A, B and C long National Gift and they are all getting killed! They are choking on National.
So what do they do?
They all frantically boot it out and the stock goes down two or three or four points to a level that people want to own it. You see the stock show up on the biggest decliner list or you hear about it on
. National Gift becomes damaged goods.
That's what is happening right now with the retailers. Every desk is long them and they are all being marked down to levels where real buyers step up to the plate.
We aren't there yet. Right now everybody is still lugging. But we are close. And when they do, National Gift rallies. But not until after all of the desks capitulate and the stock goes from weak hands to strong hands at lower, better prices. Until this process plays out, no bottom can be formed. And it is playing out in retail at every firm on Wall Street right now.
Let's see what happens today.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Wal-Mart, although positions can change at any time. 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 at