Facebook is this year's flash crash

A one-man band tries to stem a secular and a cyclical decline of individual stock owners.

By Jim Cramer Jun 12, 2012 9:59AM

You could feel the pain Monday, the pain of no players whatsoever except in some of the higher yielders. We have reached some new level of post-Facebook (FB) indifference at which stocks have become a laughingstock for most Americans.

 

You know, I feel that stocks are terrific wealth creators. You find high-quality stocks, as defined by consistency, growth and good management. You reinvest their well-above-Treasury-rate dividends, and you stay in touch to be sure you don't have a Kodak or a Washington Mutual on your hands. And then you let the money be made.

 

You throw in a growth stock or a junior growth stock, add some gold and stay diversified, and you will be able to ride out pretty much anything, including 2008-09, which I think will stay the benchmark of bad times for years to come.

 

But days like Monday remind you that just owning stocks is a sordid and, at times, ridiculous affair if you bother to look at them. That the stocks of great American companies can just roll over in a couple of minutes with no bids underneath, overwhelmed by ETFs and high-frequency selling, makes owning bonds more palatable than owning stocks, because bonds can't be worth much less the moment you buy them.

 

Now, of course, I am not speaking of Bristol-Myers (BMY) or AT&T (T). But I am talking about most of the industrials.

 

They can swing on a couple-of-a-billion-dollars' buy or sell program as if they are suddenly worth much less than they were hours ago. Same with oil stocks, which seem to trade wildly as if they are small caps. In fact, the whole place trades like a small cap as nonreal buyers or sellers who don't care what they are trading just using them as proxies for commodities with bad charts.

 

In this environment we need long-term individuals actually bidding for stocks more than ever. But fewer than ever are involved.

 

Which brings me to Facebook, which is this year's version of the flash crash. We had something here, something exciting, something with growth that attracted so many of the people who have stayed away from the markets.

 

It was such a terrific opportunity for everyone to win, from the venture capitalists who got in early to the funds that somehow were able to get around the law and were buying it like a stock before it went public.

 

Now the sordid tale of mispricing by Morgan Stanley -- the company denies it -- and horrible execution by the Nasdaq ($COMPX) -- it don't admit to it -- has come and gone and with it a whole new lower level of confidence in the actual process of buying and selling stocks has been reached.

 

Not only are stocks viewed as some assets that can drop 10-15-25-30% in minutes as they did in the flash crash, but they now don't even tell you what you own and won't let you sell into a down tape to get out, even as so many apparently are. Notice it was the batched retail orders that fared the worst in this business.

 

That, coupled with the hard-to-swallow comments from Morgan Stanley CEO James Gorman that basically told retail investors that they can't handle or understand stocks and Nasdaq CEO Bob Greifeld's getting on a plane because he is so confident that the chaos that is individual investors panicking as the exits are locked and a fire rages have beaten it into the heads of small investors that stocks just aren't even an asset class. They are just a plaything for rich people who have banded together on the playground to have a stock pickup game.

 

Sometimes I wish there were two different markets: a virtual market for the hedge funds to play with each other, knocking up and down virtual securities with impunity using ETFs, derivatives and whatever else they can get their hands on to move and manipulate stocks, and the actual stocks of companies themselves in a real exchange that can be used for individuals.

 

That would clear up so much of what is going on. You want to own individual stocks, you go to the real exchange where you buy pieces of individual chunks of companies.

 

You want to play with rich sophisticated investors who want to trade risk, as they insist on calling it, you trade on the virtual exchange.

 

Yes, we are that far gone. The fact that the regulators don't see it through this prism is the real joke here. They believe in financial innovation and engineering as gospel. They think you can slice and dice anything and borrow against it and it will have no impact on the underlying companies or mortgages or commodities.

 

They are fools.

 

I am to the point where I feel I am a one-man band trying to stem a secular and a cyclical decline of individual stock owners.

 

I know I am right empirically about the stocks I am talking about buying. They are the most immune from the virtual traders.

 

But I also know that there are going to be occasions like Facebook that are going to bring in new people and introduce them to this concept of owning stocks for dividends and capital appreciation once they are in the door and see what it is like to buy and sell stocks.

 

What I didn't count on was that we were simply leading people to a slaughterhouse, a slaughterhouse where the executioners don't think they even executed anyone -- and, yes, think they actually executed fairly well.

 

It was the cows' fault. They went in to the slaughterhouse. What the heck did they expect?

 

 

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 has no positions in the stocks mentioned.

 

 

 

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44Comments
Jun 12, 2012 1:33PM
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I am going to take what might be an unpopular stance here. First, I advocate that small investors, like myself, are smart to research any stock before buying. I do not depend on the Industry Newsletters to guide me and my money.

 

As for Cramer, say what you will about him. At least he is making noise about the BS that was FB and not being an 'apologist' as so many other writers are concerning the sorry state of this issue.

 

With so much to worry about in the economy and the financial markets, the FB IPO had the potential to restore a small measure of trust in Wall Street as a vehicle for 'Main Streeters'. Instead, it remained business as usual.

 

And no, I did not jump on the FB IPO and I do not follow Cramer.

Jun 12, 2012 10:25AM
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Agreed. The recent debacle of the Facebook IPO stands as an open admission of how broken and faulty our markets are at setting fair and efficient stock prices. The intermediaries now suing the NASDAQ seem to be arguing that they lost money because, if the NASDAQ hadn’t malfunctioned the price of the stock would now be higher (or at least it would have remained above $38 long enough for them to liquidate their inventory at a profit). That’s like saying that a bad performance of a play means the script is lousy, or that a flat tire on a car implies it is poorly designed. These companies are effectively arguing that the price of Facebook stock could be anywhere now between its low of around $26 to some hopeful high around $60+ depending solely on how well computer controlled HFT was able to manipulate market prices in the first few hours of the IPO launch. If that’s true, it hardly describes a fair market that properly values companies or allocates capital efficiently. And the fact that these firms seem to think their practices and beliefs represent an acceptable standard of excellence that small investors should buy into is one scary thing indeed.

Jun 12, 2012 1:23PM
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Dude, you are part of the crowd that guides the cows (us) to the slaughterhouse.  The whole market has become a ridiculous crapshoot... I can't seem to stay on the right side of this market despite quite a few years of experience... everything you said above is pretty much correct, so are you going to restructure your show to suit?  I've pulled out like many others.  It is just manipulated to hell and back again... personally I believe that part of the moves are essentially collusion between computers and big traders, intentionally screwing the individual investors.  In short-term trading, its like gambling and a game that is nearly impossible to win.  The solution would seem to be swing trading, but that's such a crapshoot, too.  Long-term, there's just too much systemic risk unless you can buy after a major, major crash... which might be coming, so that's why few individual investors are in the market.
Jun 12, 2012 1:23PM
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The day before the IPO cramer said it was going to $70 a share.

 

What is it now?

 

Idoit.

Jun 12, 2012 11:36AM
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Facebook is what happens when people rush to get in on the next big thing.  Fools rush in where angels fear to tread.  Do your own research and own your stocks because you understand and believe in the business model.  Do not chase hot tips or hot stocks.
Jun 12, 2012 2:22PM
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How the hell is it the cows' fault when it was the banks and FB hiding lowered estimates from the small invester?  Sure, they made their billions but they left everyone else holding the bag.  Hell, Zuckerberg may even have unloaded a bunch of stock before the new of lowered estimates came out........

 

This wasn't the cows' fault.

Jun 12, 2012 12:04PM
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pretty sure cramer was the one who said ..."everybody should get some of this" (fb)
Jun 12, 2012 12:23PM
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I don't know about slaughterhouses, but I'd definitely say it was a political statement. The three underwriter banks have screwed us too long now. It was predicated on the premise that society types would buy-in big time, then the banks arranged to get theirs off the top. I don't think it was ever intended to fly on it's own and solvent.
Jun 12, 2012 2:49PM
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Cramer,  you  sound  like  you've  been  converted,  but  at  the  height  of  the  recession  you  said  of  B of  a---  buy!  buy!  buy!

 

When  the  recession  was  just  getting  reved  up   you  declared  the  recession  over.

 

Your  credibility  is  shot  with  me.

Jun 12, 2012 12:55PM
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Yo Cramer, what happened to your Facebook account? I can't find it anymore!

 

Jun 12, 2012 2:44PM
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If so many of you "hate: Cramer why are you all posting here everyday???
Jun 12, 2012 12:34PM
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lets not forget that at the high of the year he said BUY BUY BUY and called it the HOLY GRAIL....

also with oil at 105....near its high of 110 this rigorous cramer said oil would go to 150 and

gas 5 dollars ........he said the way to play it was SLB at 80...now 63

 

ETFS must have wrecked these RIGOROUS  calls by the REVEREND JIM BOB HUBRIS CRAMER of the church of whatever is up today

 

Jun 12, 2012 1:31PM
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I think the banks did great with the fb ipo.  They sucked all the money from the investor and gave it to the selling stock holders. This is what they always do.  And we still buy ipo's????  Look at cisco, great company with almost 5 billion shares, it was 16 10 years ago and it is 16 today.
Jun 12, 2012 1:49PM
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What a joke. Jim recommends companies trading at 85 times earnings. It’s a joke that financial institutions have convinced American people to buy these companies.

 

They are gambling hoping there is a bigger fool.

 

Cramer recommends companies like salesforce.com that can't make a penny they have no concept of stock holder value.

 

Just pump looking for a bigger fool.

 

People have to start investing in real companies that create real value for stockholders.

 

If the hula-hoop was invented today it would have an IPO of 100 billion. Everyone uses it! Everyone loves it.

 

Jun 12, 2012 2:13PM
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Cramer, Cramer, Cramer... you are pathetic. Stop your show and your articles, you could not call a stock if your life depended on it.
Jun 12, 2012 1:31PM
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SELL-SELL-SELL

Anything that this guy tells you to BUY, BUY, BUY

What a joke- Anybody can make a call after the fact.

GO AWAY CRAMER

Nobody believes you anymore.

Jun 12, 2012 1:57PM
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Cramer is one the best analyst after the fact.  He recommedns it one day and advises to sell the next.

 

What a GURU? 

Jun 12, 2012 3:17PM
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I'm just a silly duffus that watches cnbc for a lot of my info,figuring there must be some truth ,hopefully just a little. But, I'm really starting to wonder. I ,listening to all the hype ,rushed to my computer when a few days after the Ipo,FB fell to 32.00. Being the cautious and poor type investor, I only got a few shares.-, thankfully.  I kept watching cnbc and was shocked how they still crowed about the prospects of FB  when it just kept going down. My gosh, I was still being played for the duffus. I guess I am and I realize that the market must be reguarded with skepticism, But for crying out loud is there ANY truth to what I'm being told, even by the media that shouldn't have a financial interest in sucking funds from me?  Is there ANY hope for FB as a company? Does anyone know? If they aren't sure then I wish they would just shutup and tell me about hog futures!  
Jun 12, 2012 2:15PM
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when its up he makes fake faces and tells you his reasons to buy

when ifs down he tells you you should have waited for the pullback to buy

when its flat he tells you how good he is and how bad buffet is

 

and no matter what the market does he sells his picks to fools

 

 

Jun 12, 2012 2:18PM
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what's worse? a child molester or getting rich selling crap to fools?  cramer  the lowest life form
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