Facebook is this year's flash crash
A one-man band tries to stem a secular and a cyclical decline of individual stock owners.
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.
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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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.
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.
The day before the IPO cramer said it was going to $70 a share.
What is it now?
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.
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.
Yo Cramer, what happened to your Facebook account? I can't find it anymore!
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
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.
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.
Cramer is one the best analyst after the fact. He recommedns it one day and advises to sell the next.
What a GURU?
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
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