Tuesday, March 20, 2007

The Cramer Effect

A few words spoken by a few people can drastically effect the course of the US financial markets. Two of them hold official posts - Alan Greenspan, the former fed chairman, and Ben Bernanke, the current chairman. Sometimes even chosen silence at their ends can result in a market volatility. Fortunately, their pronouncements happen quarterly or over a cocktail at a big-wig meeting.

There's also this former hedge fund manager, Jim Cramer, who influences the markets on almost a daily basis. He is the host of the popular show - 'Mad Money' (Note: I also own a copy of his book Real Money), where viewers call him up for his advice on stocks. The next day at the start of trading, the stocks which he advised to sell are pummeled and the ones to buy appreciate in value faster than you can say 'Boo-Yah'. I have been left holding the bag of pummeled stocks on several occasions and sometimes very pleasantly surprised by the increased value of my stocks.

Thanks to the Cramer effect, I never buy any stock that he advices to buy anymore because they shoot so far up in value, wiping out any profits that I can potentially make on them. Stock fundamentals be damned.

It seems Cramer has let the cat out of the bag on his tactics and stirred a hornets nest in his latest interview where he says "A lot of times when I was short at my hedge fund...meaning I needed (a stock) down, I would create a level of activity beforehand that could drive the futures," Cramer said. "It's a fun game and it's a lucrative game."

Cramer has retired from the Hedge market business and claims to run a fund for charity. His benevolence, though, can not justify the blood he has spilled of many an investor.

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