If you bet against Europe, you missed a big one

Bearish investors positioned for complete failure of the EU summit blew it.

By Jim Cramer Oct 27, 2011 9:09AM

Image: Businessman reading newspaper © A. Chederros/ONOKY/Getty Imagesthe streetLet's use this higher opening off the Europe deal as a microcosm, an incident that explains much of what happens in the stock market Thursday.


First, a proposition. Let's say I was bearish going into the EU drama session last night, meaning that my book was net short, classically meaning that I would make money if the market went down and would expect to lose if it went higher.


If I wanted to be honest with myself -- and believe it or not, that's not always easy for a hedge fund manager -- I needed to see a total collapse of the talks. That was the home run. That's where I would have distinguished myself among my peers. That's what I would have told my staff I was betting on.


The "collapse" did not come about. So, intellectually, I was wrong.


Unfortunately, saying you are wrong out loud is considered a colossal sin. I know this. Believe me, if I never admitted I was wrong, I would be chastised and pilloried much less than I am. But if someone admits he is wrong, the critics say, "Even he admits he is wrong," and then they blanket everything with that self-assessment.


In reality, though, of course, it was a wrong bet. Consider it in sports: You bet run, they passed, they got a touchdown.


Related Articles

So what do you do if you can't say you are wrong -- and what do you tell your staff? Two different things. Publicly, you do what I saw some manager on Bloomberg do Thursday morning. He spewed the negative litany:

  1. Not enough money. We were looking for 2 trillion euro and got 1 trillion.
  2. The devil is in the details, and we don't have the details.
  3. Fifty percent haircut means 120% of GDP for Greek bonds, which is still wildly unrealistic.
  4. It is just a plan for a plan, and that means nothing.

Here's the rough part of that analysis. It could conceivably be right. It might actually be the case. But at Thursday's open at least, you are going to have a gigantic loss while the long-only funds are going to have a gigantic gain, so it is truly intellectual sour grapes.


However, you have to stick to your story or look like a total buffoon.


Nevertheless, let's just distinguish for the moment between good investing and bad investing. A good investor should have placed a bet that some deal would go through, and he's in a place now to reach the conclusion that it isn't enough, and he can start selling into the rally.


In fact, a great investor would be someone who didn't believe for a minute that a deal could be reached of any real gravity but bet that the market would love any deal with a trillion-euro fund, and that was well within the probabilities. That fund manager would have been 200% long going into last night's close. He would then take off half that long position at the opening and then, throughout the day, work his way toward a more market-neutral position if the market kept climbing.


Ideally, it would be terrific to be about 50% long at the end of the day if the market ends up 2% to 3% higher.


That's how it would be if you got it right.


Frankly -- and let's be really brutal about it -- if you weren't hugely long going into Thursday, you missed a big one -- and I would rather hear from someone else.


jim cramer

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.

Oct 27, 2011 9:48AM

jimmy you should have been ranting a raving yesterday letting your, so called cramericans in on a little move . you forecast like the fat man with bad breath that always late to work , Hell jimmy my chid can read the news . you overrate you self , 2 days ago I bought ( byd, mpel, hov,bzh,xlf , kmgb) I might sell them at the close go jimmy go hausta nunca ,


Oct 27, 2011 12:25PM
Mr. Cramer seems to consistently strike a pose as Oracle of the Obvious.
Oct 27, 2011 2:10PM


what did the market do this morning? i am too uneducated to figure it out

please help me with your rigor and knowledge so that i too will know that

the market rallied today


WAKE UP  has you pegged for the ape that you are

Oct 27, 2011 9:50AM
Jim Cramer deals with a ton of contempt, and from what I have seen, much is unfair; however, I admit that it drives me crazy to see him preach about selling into rallies. Maybe I am off base, but it seems the vast majority of articles that I read from Jim have a recommendation to sell regardless if the market is up or down.

This week, Netflix's horrible drop from $110 to $76 didn't create a buying opportunity in his eyes and the stock had more room to drop. It's up $3.40 a share since.

Today, he would absolutely sell into this rally. Of course he would. He stated Tuesday that the recent rally was a bit overdone and that he would definitely take some off the top. I would argue that the summer decline was grossly exaggerated and stemmed from fears that were overblown. While corporations, as a whole, were beating expectations in the 2nd quarter, markets were plunging.

Oct 27, 2011 10:48AM

Well Jimmy Boy you did again, you manage to be the most entertaining act out there and I mean OUT THERE!!!!!!!

Oct 27, 2011 1:44PM
   My position hasn't changed at all. I'm still betting against the Euro and the EU.   The market will inflate upward as the EU does their own version of QE.  That was expected; however the problems with Europe's debt crisis remain.   This is all just to get people to dump their money back in the market.  The whole thing will collapse  in 2012 when they realize this EU deal didn't solve anything.   Buy gold and silver and forget about the dollar and the Euro.
Oct 27, 2011 9:56AM
Market rocking and cnbc has a whinning paul ryan worried about his image.sell cnbc,do nothing congress and kiernan,sorkin,cabrerra. Buy American and support our Troopsl
Oct 27, 2011 10:12PM

@leftcoastJennie  ,  cmc was a buy on the 3rd of the month and a sale 0n the 24th, easy money

if your foolish  blowhard self, keeps following jimmy, you wont like him much longer , your in the wrong business , give your chump change to a pro , just trying to help a fool from being stupid

Nov 1, 2011 10:32AM
Oops. Looks like those that bet against Europe are the winners. KA CHING!
Oct 28, 2011 8:01AM
Hey Jimbo - the overall negative response to your very honest summary of the facts reveals how people just hate being told they got it wrong and proceed to shoot the messenger. Poisonally, learning some years ago to be willing to admit I got a trade wrong meant I became able to pick up the phone and cut losses, instead of the old ego getting in the way, screaming I know I'm right, those other fools are Garadene Swine who will eventually run over the cliff.  Unfortunately, my pig-headedness then meant I got tossed over the cliff by margin calls so maximising losses, before I learned to park the ego at the door.  I got it wrong this time too.  Thought the cheese-eaters would flunk the challenge, but later reckoned that old Sarko was getting so upset during the meetings that it must mean Frau Dumpling was determined to put the boots to Credit Agricul, therefore the chances were unlikely that we'd see another August meltdown.  Decision made to pass and save the powder for another day.  Intuition says the non-existent details of Frau M's plan will weaken the markets over time and today's big jump in Italian bond yields supports that.  Given the enormous amount of time the EU has taken to put together a probably insufficient package, I'm betting that Italy will keep the market flat to down for the next six months.  Lots of volatility for the Holidays - just like Uncle Fred overdosed on the Brandy and Egg Nog.
Oct 28, 2011 4:07AM
The man has an uncanny ability to predict the past.
Oct 27, 2011 8:53PM
Jim,  I can't believe these blowhards.  I purchased some PPG 3 weeks ago, I got some CMC, a bunch of GLW a week ago and some Ford too.  All on your advice.  On Tuesday I got PO'd and bailed on 50% of PABGX in my 401k after watching the S&P drop 25 points.  I still retained a 50% position though.  But I'm closed out until Tuesday the 1st from any more fund rebalancing.  I think this will give me a chance to sit back and watch the market.  I just want to thank you for all of the great advice you've provided over the last 3 to 4 weeks.  You've been right on and so here's a big BOOYAH from a happy camper.
Oct 27, 2011 12:35PM
If you think this is over Cramer your mistaken,...the bailout is just printing more money no matter how you put it; Still NO Jobs in sight, nothing has changed..we still are on the edge...nobody has money to spend on Christmas..and if people use credit to buy crap for Christmas come in the New Year those people will not be paying; they will be crying or just go bankrupt!..the Federal Reserve just banked up the dump truck to Europe..and the slaves (Americans) are on the hook for this bailout and with no money coming in good luck with this bail out Jimmy you freakin crook!
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.