Thursday, December 11, 2008
(Cont'd from above)...

Jim (cont'd):    The now widespread belief that the entire stock market -- the way it trades, the way stocks are bought and sold -- is corrupt... the way prices move is corrupt... the way that everything seems out of whack with the fundamentals... the notion that stocks are commodities, and not really equities, that represent pieces of real underlying companies.

Think of it... night after night, I bring on executives that I trust -- yes, the Cramer Good Housekeeping seal of approval... I will get bagged at times -- but guys I trust, to ask them about what's happening with their stock versus the fundamentals of their companies. I mean, make about Foster Wheeler (FWLT*)... people are saying that Foster Wheeler, with the stock down huge... the CEO comes on and says, listen, the sellers are nuts... the stock is nuts... And then Foster Wheeler moves up 24% since the CEO, Ray Milkovich, was on... I mean, that was last week... and the stock goes up 24%. What was that about?...

How about Shaw Group Inc. (SGR), up 44% since we talked to the CEO on November 14...

We've seen it over and over again... stocks are going down or up for reasons that are wholly different than what's going on with the underlying companies...

And I'll tell you what's really going on...

In this market, it's important... more important... to know who is selling, what he's selling, and whether the hedge fund owner is going under who owns the stock, than how the fundamentals of the company really are...

That is crazy!...

And don't tell you why... having traded what's known as institutionally... it's nuts, because it means the big boys get a serious advantage over you home gamers... See, their brokers know when a hedge fund is done selling... I'm going to give you a demonstration... they know when the hedge fund is done selling, because they handle the orders, and they tell their hotshot big commission clients -- not you -- when the liquidation is done...

(Then shows Jim pretending to be a broker on the phone with a client)...
"Hey listen (client)... we been selling 2 million shares of Foster Wheeler every single day, and were down to the end... so I got 100,000 Foster Wheeler (shares) left... I'm going to print it at $16... 50,000 to you... Thanks for your business..."

And then the stock goes up $10... and it is outrageous... but it is perfectly legal. It didn't happen that often when I was in the business... It happens like 50 times a day now...

That is a more important call than anything about how Foster Wheeler is doing...

I talked to dozens of ordinary investors every day... and last night, I was at the 92nd St. YMCA in New York City, taking questions from a group of investors who were eager, but also confused and miserable and fed up... fed up! That's the zeitgeist in this market... Retail investors just don't trust stocks anymore... they don't trust the way they trade... How can you when you see these big swings that are based on nothing?... Moves that are totally divorced from the earnings, or anything that even resembles the fundamentals...

You have to understand, if you don't feel this way already that, when regular investors see the big fatcat money man pushing stocks around, they assume that the pros know something they don't, and it is often the case!... they see this insane action, driven by high octane ETF's... What a joke! They let you put down a dollar, and caused two or three dollars of movement up or down...

How can they possibly trust the market... how can they trust it to work fairly for the little guy... for them?

How could anyone who read the piece in today's Wall Street Journal about the massive late day moves that take place after 3 PM every day... "The Streets New Wishing Hour: It's 3 PM As Stock Traders Jockey"... hello, today... something we've highlighted endlessly on the shell... and not think that the market is being completely and utterly being manipulated?...

It is...

You maybe can't rig the whole thing, but there are people getting away with outrageous things every day...

So, what most retail people want to do is that they just want to give up and go home... they see this market for what it's become... a broken casino, where stocks move in three, four, or five-point increments over nothing... maybe an ETF up or down... maybe a hedge fund liquidation... and the largest companies in the world can trade up or down 10% on whiffs, on rumors, on whatever the hedge funds want it to do...

Now, I've been around a long time... I can adjust to this volatility... I've been trading for 30 years... I've seen everything and I can get used to it...

But most people see these moves and they become deeply suspicious of a market where the shorts can annihilate whatever they choose, and stocks can soar for no other reason other than the big money guys have decided to pile on, because the last weak-hand hedge fund has finally folded, and the big piece trades, and they all get in except for you...

The market needs to earn our trust again...

After a long period where the regulators did everything in their power to democratize the market under President Clinton... years and years of leveling the playing field between the hedge funds and you... we have now entered a new era, thanks to this SEC, where the field is now tilted against you, and toward the hedge funds and the short sellers... they've got the upper hand on you... That is what has destroyed the average retail investor's trust in stocks... And only a reversal of almost everything that the SEC, under Chris Cox did when it came to the stock market, can bring trust back.

We got a start enforcing the laws again... the ones that we put on the books after the great crash... you got it return the market back to the way that it was when I was a hedge fund manager... under the previous non-radical regime...

We need to get rid of these turbocharged ETF's... bring back the uptick rule that prevented the shorts from mowing down stocks, with rapid machine gun fire selling... I've got data that I'm going to reveal next week that shows you exactly how uncontrolled the shorts are on major bank stocks... and enforce the laws against bear raids, where hedge funds get together... maybe it's just groupthink, but they talk... and they take your stocks and trash them for fun and profit...

We've got to stop that before your trust is going to be earned again...

The opportunities are there... we go over them every night... but there's no confidence in the actual mechanism of the stock market. So how the heck are you supposed to navigate your way through this broken market?...

Well you can't let the wild action get to you... we are here every night to try to make some sanity out of it, even when we see that it could be rigged...

Don't lose heart because of these insane swings that have nothing to do with the fundamentals... The fundamentals do will out in the end... there are stocks out there that will get you through this period... the ones with good, safe dividends, smart CEOs, good fundamentals that I talk about on this show all the time...

Here's the bottom line...

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The Bottom Line!:     You do have every reason to distrust everything that this market throws at you... It's real... and I'm not going to lie to you, and say that the playing field is even anymore. You can still try to make money in this market, if you ignore the action, and focus on the stocks of good companies with great dividends... Wild swings you can't count on, but a stock that puts money in your pocket... you can trust. Everything else... well, I've got to tell you... I am as fed up as you are with these shenanigans... I urge President-elect Obama's new SEC chairman to do something about the manipulation as soon as he gets in there... He should call me. I am happy to fill him in on the game and how people are rigging it. And they can be stopped, believe me... We can stop them together, and we can fix this broken market.

[verbatim recap]

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