Smarter Money: Waiting Out a Hard Market - TheStreet

The other day I spoke to someone in the Midwest who thought that I wasn't doing enough to point out what a rip-off the market has become. He suggested that I consider how often, lately, that someone would buy 10 calls on a hot stock and then the stock would just stand still or decline to the strike -- and once the expiration ended, it would vault back up to where the calls could have made a ton of money. Why didn't I talk about how "fixed" the market has become, he asked, because everyone that he knows who has lost money agrees that it has to be.

I explained to him that I understood the way he felt and said I recognized that people could believe the market is fixed, it has been that frustrating. It seems reasonable to bet that if everyone keeps losing money, someone is making it, maybe someone who is better connected or more in command or in control of the tape.

However, it just isn't true. I have friends in every nook and cranny of this business and this year, with the exception of a very, very small group of people, typically value buyers who have caught a couple of kahuna moves in financials, or momentum players who timed the April rally perfectly, everyone I know is struggling. Players who sell calls, the very calls that this gentleman alluded to, are losing big money, too. In fact, if you look at the

lack of trading profits at

Goldman Sachs

, that's in part because its traders haven't been able to grin out any profits either, and typically Goldman is a seller of calls, not a buyer (although there are times when they buy calls because they are so cheap, but that hasn't worked this year either).

When the market is as hard as it seems right now -- and remember, I am not saying it is a bear market, because it is up too much off the March lows to make that case -- you are going to get people to think that it is fixed. That's a lot better than thinking that you might be, for lack of a better word, stupid. Does an occasional buyer of 10 calls, someone buying a risky instrument like that, really expect that he should be making money with some regularity? Maybe you thought that way in the last few years, but most calls go out worthless.

Theoretically, if it were fixed, someone would be winning, but almost no one is.

So then, the logical question has to be, why play at all? For many of you, the answer might be, heck, maybe I shouldn't. Lots of you who email me when a stock is down a quick 5% or 10% shouldn't be playing. That's within the realm of acceptable risk in this tape. (Please stop emailing me on individual stocks,

I will not answer. I will not answer because I do not advise individually one-on-one. Never. You are wasting your time.

)

Some of you should let others do the job, either a really good broker, a mutual fund or a hedge fund manager. I have done my best in my Smarter Money pieces to delineate what I think a good mutual fund manager should be doing. I also have criticized the bad ones. I have given you ample names of who to go to, and I don't want to repeat them over and over when

all my Smarter Money pieces are in the archives.

The reason you play is that you want, of course, to make money. I believe that we are now in a churning period that is establishing the winners

and

the losers for the next leg up, a leg that will be driven by money forced off the sidelines and the inevitable

easy

comparisons that will come about in the first half of next year. Should the good news have kicked in already? I thought it would start doing so. My colleague, Larry Kudlow,

thinks it has with the decline in energy, inflation and the increase in leading indicators. Plausible. My sparring partner from Wednesday's "Business Center,"

Gerald Klauer's

Jack Geraughty, thinks it is happening in tech because inventories are so lean. Diane Swonk, another

sparring partner, thinks it is happening in autos because sales have stopped going down. I think it is happening in the financials because they are reporting better-than-expected earnings. There are tons of signs of something positive going on.

Many of the easy money players have been blown to oblivion. The mutual fund gunners are now struggling to keep their assets. (On the next upside explosion, scheduled for the end of the quarter, I think you should pull out some money from these folk.). And valuations, while not cheap, can be considered reasonable if

indeed

this is the trough in earnings.

Most important, people who expected that this market would reward speculative activity, like buying 10 lots of calls, now think the market is fixed. When you hear enough of that talk at the time when the

Fed

might be on the verge of taking short rates to 10-year lows, I can't run for the hills. I can't be spooked out by

EMC

or

Fluor

or

Halliburton

. I have to be long. I just have to. It's when I have made the most money in my career. It is when I have felt the risk reward was the best.

But I am not rooting for the market to go higher. If it doesn't and inflation comes roaring back, the economy slows further, the dollar shoots higher, the euro collapses, the earnings all get shot to heck and the budget deficit comes roaring back, I will rethink my position. Can I at least wait for those things to happen, though? I have waited through a crisis that was supposed to wipe out California. I have waited through $38-a-barrel oil. I have waited through $2-a-gallon gas. I have waited through a

Senate

going back to the "evil Socialist"

Democrats

(LOL).

I think I can wait a little longer.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long EMC, Fluor and Halliburton. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to

jjcletters@thestreet.com.