Another reason to dislike the market

This lack of liquidity has led to a whole new set of rules.

By Jim Cramer Aug 3, 2012 9:58AM

These 10% moves are a little ridiculous these days. I have to tell you that the 10% move Thursday in Bristol-Myers (BMY) was about as ridiculous as I have ever seen.

 

Yes, the big call on a big anti-Hep C drug might be off the table and investors have a fascination for anything that can beat Hep C. Bristol paid a couple of billion for a company that's working on one, so I get the disappointment.

 

Plus, I have no doubt there will be more selling Friday because these 10% affairs have almost always brought out more sellers the next day. But at the same time, the yield is safe and the company's got a lot of irons in the fire as we said in the e-mails we sent out before we bought the stock for Action Alerts PLUS.

 

But the bigger question is how you can get these kinds of drops with relentless selling. I think the answer is that there are no brokerages at all willing to take the other side of a trade. No broker will principal a trade, meaning buy stock from a seller and try to find buyers.

 

It isn't worth it. It doesn't matter if it builds good faith with a customer because that customer's going to chisel you anyway. So all that happens if you are a broker who helps a client out with a sale is that you get trounced with no positive payback.

 

The result is that there is zero liquidity on even the biggest-cap names and the sellers want out and don't know how to do it other than to keep selling until a stock stops going down. I know that sounds stupid, but the sellers fear only other sellers and don't fear a bounce, so a stock can go down and down and down before it exhausts itself as BMY will do, or as Celgene (CELG) did when it disappointed with something even more important than Hep C was to BMY when it disappointed with Revlimid.

 

This lack of liquidity has led to a whole new set of rules. It truly does pay, if you are a hedge fund, to bet against a stock once it begins its descent for at least 24 hours. That way you are betting the flow of stupid money that's unloading. You just have to remember to cover when the selling exhausts itself and the stock starts going up again.

 

How bad is it now?

 

A few years ago I was amazed at how a big-cap stock like BP (BP) could keep falling on the same Macondo news.

 

Now, such moves are commonplace.

 

I am not, by the way, talking about moves like that of Knight Capital (KCG). That's a liquidity crunch. I am simply talking about the moves of big-cap stocks with slight misses or slight disappointments.

 

It is a new and, frankly, awful world that makes me lament for the good old days when brokers played an active role in the markets instead of not helping at all or even, at times, betting against the clients because they were just considered counterparties.

 

Just another reason to despise an already hated stock market even as it is up almost 10% for the year.

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long BMY.

 

 

 

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27Comments
Aug 3, 2012 11:32AM
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just think     if unemployment goes to 10%   the market will hit   15,000.       A-holes
Aug 3, 2012 3:19PM
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lowest volume in decades, no liquidity, High Frequency Trading and a corrupt system with full blessing from "regulators" and main stream media (yes, you Cramer) to fleece the taxpayers all equals what we're seeing.  If you are one of the last who wonder why retail investores are no longer in the "market", well let this be your wake up call.
Aug 3, 2012 12:39PM
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The sound you hear is tax payer money being sucked out for wall street....
Aug 3, 2012 11:37AM
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Time to get out of Stocks and into CASH!  Until we have Fiscal reasonability here in the US.  Stop spending money we don’t have Mr. President!

Aug 3, 2012 3:39PM
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You can call it spam or scam, its a crock.
Aug 3, 2012 3:35PM
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What I'd like to see are regulations requiring any journalist or anyone who comments on the markets to have a link next to their name which provides a non-nonsense summary of previous recommendations and current performance of them, so that we can, at a glance, objectively form an opinion of the said commentator.

I can't forget the piece once written placing Zuckerburg over Buffet.  Let's see, since then, you can now buy Facebook for almost half price since the IPO.  45% off retail MSRP.

I wonder if Berkshire Hathaway is offering such bargains.

Aug 3, 2012 2:56PM
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yes it does seem like a lot of SCAM today...........BEWARE THE SHYSTER
Aug 3, 2012 4:00PM
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yes what job s , i have not seen a help wanted sign in three years , i seen plenty of going out of business signs thu !!!!!  the market is up today , everyone getting out , monday the crash again   maybe 500 pionts  because people getting wise to the game  or  they are jumping ship like rats  an or they know there are no loop holes  to make money  . people have to work  an make intems here in the u.s.  NO MORE JUNGLEING THE BOOKS PEOPLE AN BUSINESS OWNERS  .
Aug 3, 2012 4:14PM
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It's nice to see that Jim has figured it out..It has become a contest of wills to be the first one into the lifeboat.  Years ago, 1975 to be exact, the congress in its infinite wisdom struck down the fixed commission schedules for brokers because of pressure from the institutions and allowed the 'funds' to negotiate down to pennies a share.  Today even that seems profitable to some.  Unfortunately the net effect was to force the brokerage industry to change from a customer service entity to an adversarial one.  Everybody wants to execute trades at the lowest possible cost in order to hype their performance.  But...where is the incentive for brokers to be the dumping ground?  Better that they act in their own interest and work against the customers..Sad, but true.
Aug 3, 2012 12:06PM
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Cramer wants the old rules back where he can pump and dump with impunity.
Aug 3, 2012 3:10PM
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Pete, Pete, Pete,

 

Being rich and having a lot of money in the market are relative.  I have learned that no matter what one has there is always someone with more.  Most truley wealthy people I know never ever display or brag about it, in fact usually the opposite. (Particularly when one is on a board where one is completely hidden from actual observance by the audience).

 

Why the name calling?  Why the hatred?

Aug 3, 2012 11:24AM
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Cramer who? Isn't that the guy from Senfield?

He got a new gig giving financial advice?

Aug 3, 2012 10:36AM
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Sounds like Jimmy Boy's got some BMY to unload?
Aug 3, 2012 11:26AM
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He has "no doubt" that BMY will continue to decline today.  Oops...  Good analysis.  Always take the contrarian side of Jimbo and you will become rich
Aug 3, 2012 6:00PM
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''I can't forget the piece once written placing Zuckerburg over Buffet. Let's see, since then, you can now buy Facebook for almost half price since the IPO. 45% off retail MSRP.

I wonder if Berkshire Hathaway is offering such bargains.''

No, but it is up 6% from the day FB went public. While that might not be a fortune, it's better then a 45% loss any day of the week!

Aug 3, 2012 6:21PM
Aug 3, 2012 6:10PM
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This article is just a way for Cramer to blame something, anything, other than himself for another bad pick. Sure the BMY was recently at a 52 week high, not to mention five year. What a perfect time to pump and dump Cramer. If you were worth two cents you would have been telling people to buy three yrs ago not now. When you swing for the fences you usually end up striking out!

Aug 3, 2012 6:56PM
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 Flash Crash & Oops my fat finger did it again plus we're going to fix the Euro -  are some good reasons to take a few ADHD pills...     
Aug 3, 2012 4:53PM
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Bristol-Myers needs to develop a cure for butthurt.  Money in the bank.
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