Cramer on Bear Stearns, March 11: Stick Around

From March 11, 2008:

Dear Jim: Should I be worried about Bear Stearns (BSC)?

Bear Stearns Co B30.0 -27.00 -47.37% NYSE

Quote | Chart | News | Profile

[BSC 30.0 -27.00 (-47.37%)]

Cramer says: No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.

Source

Comments

[Jinja]

I think this guy Cramer has been over hyped! I just with not too many people follow him to ruins!

[User 164545]

I dont know what he means by sticking around if it is going to be bought for 2$

[Chuck]

Can we have a "Do Over" for the Presidential Vote of 2000 ?

Please ?!?!

[Moneyloser]

Yeah, thanks Jim! I'm glad I listened to you on NYX too!

[nutty buddy]

Ha hahaha haha haha ha ha haha hahaha ... phew ... I'm tearing up ... and there's a wet spot near my crotch ... hahaha haha haha hahaha ...

[PelicanPete]

Hey Cramer, Thanks for your advice!

[miltyboy]

nobody can be wright all time. 10 percent is fair enough?

[VirtualOptics]

Jim forgot about the Wall Street switcherooney. He thought JP Morgan would pay what BS was worth! Not when they got the CEO on the floor and a foot on his neck....The play now would be JP Morgan for landing such a great deal.

[NormanLepoff, M.D.]

This is very interesting considering what happened to BSC today. I have lost faith in Cramer long ago. This bad call is just another on the list. Usually his calls do not go down this fast. They tend to fall more slowly and when someone asks them about he says" Sorry, I made a mistake." He makes too many "mistakes" and I feel sorry for anyone who listens to him!!

[InvestmentScientist]

Nice Eric :-)

[Jack T]

Another good call, thats why I fired Cramer 10 days ago over FWLT and NYX

[KirkLindstrom]

Video of Cramer on Bear Stearns Call

momentumstockinvestor....

[Ben2384]

This is the full question..

Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? --Peter

(get money out, like out of the account)

[Ben2384]

He was asking about an account there. This was the full question...

Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? --Peter

[gsh1976]

Even if the guy was asking about the money in his account at BSC, Cramer was still touting BSC as a takeover target when BSC was $70 and said the takeover would occur at a $40 PREMIUM!!!

I don't know how Jim does it. He makes one bad pick after another yet the naive investors keep coming back. You don't think CNBC protects him? Are his calls screened? Nah, CNBC is looking out for the best interests of the individual investors out there. What a farce.

[Augustus]

Cramer definetly needs treatment from a psych.
I believe that if he was on the inside - he never would be let out to be on the street again.

[pgens]

Cramer was talking about moving money out of _accounts held_ at BSC, not about common stock. The post is extremely misleading. Cramer didn't call everything right with BSC, but to knock him for believing their financial reporting, when Sarbanes-Oxley is supposed to enforce truth in financial disclosures, is unfair. All you can fault Cramer with in this case is believing reported financial statements.

[PureTruthiness]

Ben2384 says above:
This is the full question..

Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? --Peter
======================...

Ben -- Could you enlighten us as to the source of this text including the name of the person who sent the alleged email that Cramer read on the show. I have watched the show segment a number of times, and I do not believe that Cramer ever mentions the name "Peter" or any other name as the sender of the email. Are you someone with inside information in this regard?

pgens says:
"Cramer was talking about moving money out of _accounts held_ at BSC, not about common stock. The post is extremely misleading. Cramer didn't call everything right with BSC, but to knock him for believing their financial reporting, when Sarbanes-Oxley is supposed to enforce truth in financial disclosures, is unfair. All you can fault Cramer with in this case is believing reported financial statements."
===================
The email could be interpreted as referring to an account or as referring to an investment in stock, or an investment in the bonds, except for one big fact -- Bear Stearns has no retail brokerage operation and does not open and no longer carries any accounts for the public. Bear Stearns acts as a broker for large institutions only. The alleged email says, ". . should I get MY money out of there."

It is impossible for any individual to have been referring to an account he held at Bear Stearns. Assuming the email is legitimate and not a set up question of the show, there are only two conclusions that can be drawn:
1. If Cramer knew that Bear does not carry individual accounts then Cramer's claim that he interpreted the email to mean the writer had an account at Bear is false, and when Cramer made that statement on Friday he was attempting to misrepresent his statements to his naive viewers.
or
2. Cramer's research and knowledge of Bear Stearns was so horrifyingly poor that he did not know that Bear had no retail operation before he made his multiple recommendation of the stock to his viewers.

From Cramer's later statements it has become apparent that he knew that Bear has no retail accounts. Note that the next week Cramer said repeatedly that the Fed bailed out the "hedge funds" and again that the Fed saved the "hedgies." Cramer did not claim the following week that the Fed bailed out the mom and pop accounts of individual investors. Indeed Cramer complained the past week that the Fed hurt the shareholders while saving the big insitutions (the only account holders at Bear.)

Now let's look at what Cramer claimed in his own defense to the skewering he received at the hands of John Stewart on the Daily Show. Cramer aid: "I wouldn't mind except that the skewering was wrong. I've made a lot of mistakes but this wasn't one of them. I was absolutely correct when I made my statements last Tuesday about Bear."

Cramer then played what he said was the tape from Tuesday. In the Playback, Cramer reads the email, and then screams "NO NO NO." Carefully edited from Cramer's version of the Tuesday show was the remainder of hs remarks. Cramer's entire answer to the email was as follows, "NO NO NO. Bear is fine. Bear is not in trouble. They are more likely to be taken over. Don't take your money out of Bear. That's just silly."

After playing the edited tape, Cramer said, "I was talking about an account at Bear, not Bear stock. Why would I tell someone to keep their money in Bear stock when I recommended on Friday that Bear be sold? In fact, people have told me this was the most prescient call I have ever made. I told account holders to keep their money at Bear because I knew the Fed would bail them out and their money would be safe, while telling the shareholders to sell because Bear was in trouble."

Interesting, but unfortunately for Cramer, a complete misrepresentation. IF Cramer had recommended on the following Friday that Bear stock be sold, it would have no relevance to his statements the prior Tuesday. On Friday, Bear stock was 32 points lower, and Bear had stated they were illiquid and would need to declare bankruptcy. That would be a good reason to tell people to sell on Friday even though you recommended a hold on Tuesday.

But Cramer did not recommend that his viewers sell Bear that prior Friday or any other time before the skewering by John Stewart.

I watched the Friday show before the Bear takeunder. Cramer nothing about Bear whatever.

At Cramer's website, theStreet.com, if you pulled up the BSC page it indicated that Cramer recommended the stock on Tuesday March 11. After Cramer's defense on Friday March 17, the page was changed by removing the indicator for a March 11, buy call.

The following Monday, with Bear having accepted a $2 buy-out offer, and some of Cramer's followers having experienced devastating losses, Cramer was too busy celebrating his three-year show anniversary to mention Bear or apologized. Not even then did he recommend that Bear be sold. An audience filled with hand-picked Cramer worshippers failed to say a word either.

Can we fault Cramer for relying on Bear financials from the prior December given Sarbanes-Oxley? Of course we should fault Cramer. It was not impossible for an experienced stock analyst to know that BSC was walking on very thin ice.

In early January Charlie Gasparino at CNBC reported that Bear might be indicted and that no investment firm had ever survived a criminal indictment. That matter still has not been resolved. Even though his own network broke the story, Cramer was completely unaware of it when he made Bear a screaming buy in mid-January. It was not until two weeks later, when Gasparino approached Cramer personally and warned him that Bear was toxic, that Cramer became aware of the danger but chose to ignore it. Specifically, Cramer said on Mad Money, "My friend, buddy, pal Charlie Gasparino told me that Bear might be indicted and that no firm has ever survived a criminal indictment. I do not believe Bear will be indicted." (Cramer had absolutely no basis for this opinion, and apparently pulled it straight from the nether regions of his hind quadrant.)

Back last December, one of the most respected and experienced financial industry analysts on the Street, Dick Bove of Punk Ziegle Research, called Bear "the worst company in which to invest one's money at the present time." Given the problems with companies like Ambac and MBIA, that was quite a statement. Bove cited the financial risks inherent in Bear's 20-1 leveraged balance sheet and the danger to the valuation of Bear's assets. Cramer could have analyzed Bear exactly the same way.

Unfortunately, the American Educational System is one of the worst in the Western World. Most Americans have received no grounding in finance or economics. They also have not been taught to think critically. As a result they are ripe to be fooled by the Cramers of the world.

Sarbanes-Oxley is no help. Bear's management was most likely completely honest when they issued their financials for 2007. When it comes to investment banking, you need to look beyond the last numbers rendition. The average amateur investor does not have the tools to do this, and probably should not be investing in the industry without professional help. If Warren Buffet can say about an investment, as he so often does, "It may great, but I'm not smart enough to figure it out," then you should not be ashamed to say the same thing.

Here's why the statements of management and the last financials don't matter in the case of Bear. As Cramer or any professional anlayst could have easily realized, and with any reasonable degree of due diligence should have realized, Bear Stearns was leveraged 20-1. The management of Bear truthfully presented that fact in their last set of financials. Bear's entire business had been the underwriting of mortgage-backed securities. As a result, Bear more exposed percentage-wise to such instruments than most. The mortgage market is currently precarious at best. The 20-1 leverage means any move down in the price of the $52B of such securities that wereheld by Bear would be magnified 20 times. Any good financial analayst should have been able to see that Bear was an accident waiting to happen.

Bear's financials were a month old the day they were released, in a business in which the fundamentals can change in a heartbeat. The Fed gave Bear $30B on Friday morning. The financial situation was deteriorating so fast that the entire $30 billion was gone by Saturday morning and Bear was right back to being bankrupt. Under such circumstances, an analyst expressing opinions based on month old financials should properly be dismissed as a charlatan.

Book Value in the financial banking industry is very different in meaning from the book value of your local furniture store. Cramer claims to be able to understand this and to be able to advise the poorly educated home gamers who don't. Cramer fell down on the job.

Cramer can be fairly blamed for failing to do sufficient due diligence and research to see the obvious before screaming "back up the truck" to people who had no business in a stock with that much risk, particularly with absolutely no warning about the risk. The average Joe has no ability to do the homework required with a stock like Bear, and Cramer failed to do the homework for him.

Cramer can be blamed even more for the hubris which caused him to ignore the dangers of Bear even after being personally warned about them.

Cramer often seems to be emotionally unsuited to his role as an adviser. In this case, he put his ego ahead of the financial well-being of his followers, and refused to admit that he had been wrong two weeks earlier. Instead, he prayed that someone would buy Humpty and take him off the wall at a premium before Humpty made a misstep in his jig and tumbled.

Most of all, Cramer can be fairly blamed for his failure to take responsibility for his poor job, and for misrepresenting the facts to his audience. Not only did he not apologize, but he had nerve to tell all the folks who lost fortunes from following his advice that his call on Bear was one of the most "prescient calls" any adviser has ever made.

Cramer falseclaimed that his call was "prescient" because he told the email writer to keep money in an account at Bear while telling the shareholders to sell the stock. Cramer alleged that he knew the Fed would bail the depositors out, but that the shareholders were in danger.

It was impossible for Cramer to "know" on Tuesday that the Fed would bail out the depositors. The Fed had never before taken such action for an investment bank in the past -- not even when a much larger firm than Bear -- Drexel Burnham Lambert -- went under. The Fed had no obligation to take such action. In fact, when the smoke cleared, the Fed did not bail out the depositors. The depositors and the shareholders were saved by JP Morgan agreeing to lend their own credit to Bear Stearns in advance of the buy out.

There is nothing in Cramer's statements on Tuesday that sounds anything like "depositors are safe because the Fed will bail them out, but shareholders should sell." If Cramer truly believed he were talking about deposits wouldn't he have first mentioned SIPC, and differentiated account holders from shareholders?

Despite Cramer's claims in his defense, the video indicates Cramer said nothing about SIPC, he never uttered the word "Fed," he never mentioned the term "bail out," and he never uttered the phrase "shareholders should sell." Instead Cramer said "Bear is fine. Bear is not in trouble." That statement was the exact opposite of what Cramer claimed he said and knew, and Cramer edited it out of the partial tape of his statement that he used in his defense. In order to even offer his ridiculous defense, Cramer would first need to be convinced of the abject stupidity of his listeners. And why he shouldn't he be so convinced. He tells them that Ben Bernanke makes policy based on what Cramer says, and he tells them the FCC acts based on Cramer histrionics, and tens of thousands in his audience accept it hook line and sinker. Such is the state of critical thought in the United States.

In the end, it doesn't matter whether the email was from a bear depositor or a Bear shareholder. It is no smarter to keep your money in an account at a failing bank than it is to keep your money invested in the stock of that bank.

Think about what Cramer is actually saying in his own defense. He is saying that on Tuesday he was not telling shareholders to stay in Bear, and that he knew on Tuesday that Bear was in danger. He is further saying that he believed depositors should keep their money in accounts at Bear because the Fed would take historic action that had never been discussed or hinted at by the Fed. Let's see if Cramer's claimed recommendation makes any sense.

If the depositors follow Cramer's advice, they are betting every dime of their free credit balances over $100,000 that the Fed will take action that it has never taken before. If Cramer is correct and the depositors win the bet, what do they get? They avoid having to call Bear to request their stocks be transferred immediately to their own names, and they would avoid the $15 fee to have their credit balances wired to their bank. The downside if the Fed decides that they don't care what a guy who throws eggs at a wall thinks, and that they are not about to make an historic exception for Bear Stearns? The depositors lose every penny in their accounts at Bear except for the first $100,000 which will be paid to them by SIPC after a wait of about one year and with no interest. Now, would make that bet? Heads you win and save $15 and a phone call, or tails you lose the $1M of excess capital in your account at Bear?

Incredibly, Cramer's defense is that he gave advice to depositors that was even more stupid than if he had merely advised shareholders not to sell Bear. At least sharereholders had some prospect, no matter how small, of a gain if they remained in Bear. The depositors would gain nothing keeping their money at Bear.

PT Barnum was right. "There's a sucker born every minute, and most of them "Stick with Cramer."