THE INVISIBLE HAND

From Harper's, June 2007

From a December 22 dialogue between James J.
Cramer and Aaron Task on "Wall Street Confidential,"
a video feature of TheStreet.com, a financial
news site founded by Cramer, a former hedge-fund
manager and the host of CNBC' s Mad Money. Research
in Motion, a Canadian company that markets
BlackBerry wireless communication devices, experienced
growth of more than 60 percent in its stock price
over the past year.

AARON TASK: Again today we have a misdirection
from the futures. Is this just because of
the holiday season?
JAMES J. CRAMER: When I was short at my
hedge fund-meaning I needed the market
down-I would create a level of activity beforehand
that could drive the futures. It
doesn't take much money. Or if I were long,
and I would want to make things a little bit
rosy, I would go in and take a bunch of
stocks and make sure they were higher,
maybe commit five million in capital to do
it, and I could affect the market. That's a
strategy very worth doing. I would encourage
anyone who is in the hedge-fund business to
do it, because it's legal, and it's a very quick
way to make money, and very satisfying. It's
a fun game, and it's a lucrative game. By the
way, no one else in the world would ever admit
that, but I don't care.
TASK: That's right, and you can say it here.
CRAMER: I can. I'm not going to say it on TV.
TASK: Well, on a related note, there are so
many more hedge funds today than when
you were managing your hedge fund. Does
that make it tougher?
CRAMER: You've really got to control the market.
You can't let it lift. When you get a Research
in Motion, it's really important to use
a lot of your firepower to knock that down,
because it's the fulcrum of the market today.
You can't create, yourself, an impression that
a stock's down. But you do it anyway, because
the SEC doesn't understand it. So, I
mean, that's the only sense that I would say
it's illegal. But a hedge fund that's not up a
lot really has to do a lot now to save itself. So
this is different than what I was talking about
at the beginning. This is just blatantly illegal.
But when your company may be in doubt because
you're down, I think it's really important
to foment an impression that the Research
in Motion isn't any good, because
Research in Motion is the key today. So you
would hit this guy and that guy, and when
you would see a guy who's bidding, you would
wipe out that guy very quickly. It would be
fabulous, because it would beleaguer all the
moron longs who are also keying on Research
in Motion. When your company is in survival
mode, it's really important to get the
people talking as if there's something wrong
with RIM. Then you would call the Journal
and you would get the bozo reporter on Research
in Motion. And you would feed him a
rumor that Palm's got a killer it's going to
give away. These are. all the things you must
do on a day like today, and if you're not doing
it, maybe you shouldn't be in the game.
TASK: Okay, another stock that a lot of people are
focused on right now seems to be Apple-
CRAMER: Yeah, with Apple it's very important to
spread the rumor that both Verizon and AT&T
have decided they don't like the phone. That's
a very easy one to do because-you also want
to spread the rumor that it's not going to be
ready for Macworld-and this is very easy, because
the people that write about Apple want
that story, and you can claim that it's credible
because Apple doesn't-
TASK: Right, they're not going to comment.
CRAMER: You just create an image that there's
going to be news next week that's going to
frighten everybody. This is what's really going
on under the market that you don't see.
TASK: And that nobody else talks about except you.
CRAMER: Right, but what's important when
you're in hedge-fund mode is to not do anything
remotely truthful, because the truth is
so against your view that it's important to
create a new truth, to develop a fiction.
TASK: SO you're talking about the mechanics of
the market-
CRAMER: Well, the mechanics are much more
important than the fundamentals.
TASK: Well, okay, but in terms of the fundamentals-
CRAMER: Who cares about the fundamentals?
Look at what people can do. The great thing
about the market is that it has nothing to do
with the actual stocks. Now look, maybe two
weeks from now buyers will come to their senses
and realize everything they heard was a liebut
then again Fannie Mae lied about their
earnings for six billion dollars, so you know-
TASK: Right, and Bristol-Myers lied.
CRAMER: It's just fiction and fiction and fiction.
I think it's important that people recognize
that the way the market really works is to
have that nexus: hit the brokerage houses
with a series of orders that can push it down,
then leak it to the press, and then get it on
CNBC-that's also very important. Then
you have sort of a vicious cycle down. It's a
pretty good game, and it can pay for a percent
or two.