Anti-social Media with Judd Bagley Exposing User-Generated Discontent

Jim Cramer on Market Manipulation: In his own words

Antisocialmedia.net was the first to publicize the now-famous video clips of Jim Cramer admitting to engaging in market manipulation while a hedge fund manager. The following is a transcript of that admission.
To download the original video clips, check out AntiSocialMULTImedia.

Aaron Task:                Welcome to Wall Street Confidential.  I’m Aaron Task, joined again by Jim Cramer.  Jim, welcome.

 

Jim Cramer:                Good to see ya.

 

Aaron Task:                Thanks for being here.  Some new economic data out today, but I want to talk about something else first.  Again today, we have the misdirection from the future, the future’s _____ up market, and as of right now, it’s actually down again.  Is this just because it’s the holiday period that we’re seeing this?

 

Jim Cramer:                A lot of times, when I was short at my hedge fund and I was positioned short, meaning I needed it 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 that they’re higher, maybe commit $5 million in capital to do it, and I could affect it.

What you’re seeing now is maybe – it probably is a bigger market now – maybe you need $10 million capital and knock the stuff down.  But it’s a fun game and it’s a lucrative game.  You can move it up and then fade it.  That often creates a very negative feel.  So let’s say you take a longer-term view intraday and you say, “Listen, I’m gonna boost the futures, and then when the real sellers comes in, when the real market comes in they’re gonna knock it down and it’s gonna create a negative view.”

That’s a strategy very worth doing when you’re evaluating on a day-to-day basis.  I would encourage anyone who’s in a hedge fund to do it, because it’s legal.

 

Aaron Task:                Right.

 

Jim Cramer:                It’s a very quick way to make money, and very satisfying.

 

Aaron Task:                Okay.

 

Jim Cramer:                By the way, no one else in the world would ever admit that, but I don’t care.

 

Aaron Task:                That’s right.  And you can say that here –

 

Jim Cramer:                And I’m not gonna say it on TV.

 

Aaron Task:                On that note, there’s so many more hedge funds today then when you were managing you’re hedge fund.  Does that exacerbate the moves or does it make it tougher –?

 

Jim Cramer:                Well, the hedge funds are positioned long/short, not just long with mutual funds.  So it’s really vital these next six days, ‘cause of your payday.  You’ve really gotta 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 ‘cause it’s the fulcrum of the market today.

So let’s say I were short.  What I would do is I would hit a lot of guys with RIMM.  Now you can’t foment.  That’s a violation of –

 

Aaron Task:                Ferment?

 

Jim Cramer:                Yeah.  You can’t foment –

 

Aaron Task:                Foment.

 

Jim Cramer:                You can’t create yourself an impression that a stock’s down.  But you do it anyway ‘cause the SEC doesn’t understand it.  That’s the only sense that I would say this is illegal.  But a hedge fund that’s not up a lot really has to do a lot now to save itself.  This is different from what I was talking about at the beginning where I would be buying the Qs and stuff.

This is just actually blatantly illegal.  But when you have six days and your company may be in doubt because you’re down, I think it’s really important to foment if I were one of these guys.  Foment an impression that Research in Motion isn’t any good, because Research in Motion is the key.

So you would hit this guy and that guy when you would see an offering.  When you see a guy who’s bidding, you’d wipe out that guy very quickly.  What I used to do was call – if I wanted to go higher, I would take and bid, take and bid, take and bid.

If I wanted it to go lower, I would hit and offer, hit and offer, hit and offer.  I could get a stock like RIMM for maybe – that might cost me $15-$20 million annually to knock RIMM down.  But it would be fabulous because it would beleaguer all the moron longs who were also keying on Research in Motion.

We’re seeing that.  Again, when your company’s in a survival mode it’s really important to defeat Research in Motion.  You get the Pisanis of the world and the people talking about it as if there’s something wrong with RIMM.  Then you would call the Journal and you get the bozo reporter on Research in Motion, and you would feed that Palm’s got a killer it’s gonna 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.

 

Aaron Task:                Okay.  Another stock that a lot of people are focused on right now seems to be Apple.

 

Jim Cramer:                Yeah.  Apple’s very important to spread the rumor that both Verizon and ATT have decided they don’t like the phone.  It’s a very easy one to do because it’s also you want to spread the rumor that’s it not gonna be ready for MAC World.  This is very easy ‘cause the people who write about Apple want that story, and you can claim that it’s credible because you spoke to someone at Apple, ‘cause Apple doesn’t –

 

Aaron Task:                They’re not gonna comment.  They’re not gonna –

 

Jim Cramer:                So it’s really an ideal short.  Again, if I were a short Apple, I would be working very hard today to get that.  The way you would do that is you pick up the phone and you call six trading desks and say, “Listen, I just got off the phone with my contact at Verizon and he has already said, ‘Listen, we’re a Lucky G house.  We’re a Samsung house.  We’re a Motorola house.  There’s no room for Apple.  They want too much.  We’re not gonna let them in.  We’re not gonna let them do what they did to music.’”  I think that’s a very effective way to keep a stock down.

By the way, ‘cause the stock at 84/85 - a little bit a capital you go buy some January 80 puts that makes it look like there’s gonna be something going on.  So maybe give Morgan an order to buy 1,000 Jan 80 puts, and then you go position limit with …maybe you use a hack firm that doesn’t know what the heck its doing – maybe you go to UBS for puts.

You just kinda create an image that there’s gonna be news next week, and that’s gonna frighten everybody –

 

Aaron Task:                You get –

 

Jim Cramer:                They all go out and say, “March put buyer: UBS.”  Then they call Pisani again.  You have to use those guys and say, “Listen, I see a big buyer puts and I’m told that it’s SAC.”  You would do that, too.  These are all what’s really going on under the market that you don’t see.

 

Aaron Task:                Right.  Nobody else talks about it.

 

Jim Cramer:                But what’s important when you’re in that hedge fund mode is to not do a thing remotely truthful, because the truth is so against your view that it’s important to create a new truth to develop a fiction.  The fiction is developed by almost anybody who’s down 2 percent, up 6 percent a year.  You can’t take any chances.  You can’t have the market up any more than it is if you’re up six, because starting Jan 2 you’ll have all your money come out.

What would you do if you were in that situation and you feel like you’re desperate?  You would do these actions.

 

Aaron Task:                So you’re talking about the mechanics of the market.

 

Jim Cramer:                Mechanics are much more important than the fundamentals.

 

Aaron Task:                Okay.  But in terms of the fundamentals, even writing about how you –

 

Jim Cramer:                Who cares about the fundamentals?  Research in Motion just blew out the quarter.

 

Aaron Task:                Right.

 

Jim Cramer:                But look what people can do.  I mean that’s a fabulous thing.  The great thing about the market is it has nothing to do with the actual stocks.  Now, look, over maybe two weeks from now the buyers will come to their senses and realize that everything that they heard was a lie.

But then again, Fanny May lied about their earnings for $6 billion.

 

Aaron Task:                Right.  It’s just a liar’s lie.

 

Jim Cramer:                It’s just fiction and fiction and fiction.  I think it’s important for people to recognize that the way that the market really works is to have that nexus of hit the brokerage houses with a series of orders that can push it down and we get to the press and then get it on CNBC.  That’s also very important.

Then ya have kind of a vicious cycle down.  It’s a pretty good game and it can be played – it can pay for a percent or two.

 

Aaron Task:                Right.  And then do you get long before MAC World and the expectation that –?

 

[Crosstalk]

 

Aaron Task:                Right.  And then you go back –

 

Jim Cramer:                – use the other side.

 

Aaron Task:                Interesting.

 

Jim Cramer:                There’s a case where I would say the January 80 puts can be justified, because after I’ve knocked the stock down to 80, I can buy a lot of common, and then play it right in to MAC World where they’ll probably introduce the phone and Verizon’s gonna take it.

 

Aaron Task:                Okay.  Maybe the fundamentals don’t matter, but let’s talk about –

 

Jim Cramer:                Well, whatever.  What Wall Street Confidential is, is not giving you the party line.  Oh, here’s the party line, by the way.  “I spoke to Apple on the phone.  I hear the phones are good and Verizon might take it.  As a matter of fact, the Research in Motion sellers, I don’t think they know what they’re talking about.”

 

Aaron Task:                But you’ve been writing about the cell phone market you think – you don’t want to be involved –

 

Jim Cramer:                The problem with the cell phone market, frankly, is that these guys are all killing each other.  Someone has to take a dive.  Motorola and Nokia have to get in the room and just fix price.  They’ve been reluctant to do that because of the various justice departments and because they –

 

Aaron Task:                And it’s illegal right in there.

 

Jim Cramer:                Well, that hasn’t stopped a lot of other companies.

 

Aaron Task:                This is true.

 

Jim Cramer:                This seems to be a case where they seem to be directly worried about the authorities.  It’s almost as if they have a lawyer that matters on like say the Bristol Myers lawyers.  What eventually happens is the shareholders demand that you get phony lawyers and you sit in a room, and they’ll have to sue.

 

Aaron Task:                Real quick.  The Fed, the numbers out today weaker than expected.

 

Jim Cramer:                Oh, so what.  The Fed has obviously got a cut.  Again, you call the various guys who cover the bonds and you say – that ignore the bond action.  What’s really happened is the Fed is very frightened about - then you gin up the number that they’re really frightened about.

The Fed is actually desperate to try to figure how quickly they have to cut without looking like dopes that they raised –

 

Aaron Task:                Right, because they’ve been talking about they’re worried about inflation and all this -

 

Jim Cramer:                You don’t want to raise in May and then cut in January.  You look like Mexico, for Heaven sake.  This is like a distinguished group of people that went to really good schools.

 

Aaron Task:                Right.  These are smart guys.

 

Jim Cramer:                Yeah.  They don’t want to look like dopes.

 

Aaron Task:                But when we were talking earlier in the week, you said you think it would be some sort of prices, possibly Ford being a trigger.

 

Jim Cramer:                Well, Ford went and did all that and they pledged all this investment banking to all these guys.  Now they’re very reluctant to say negative things, it makes it much tougher for the Ford story to play out.

The amount of business that Ford has to do – Ford may be the big client of 2007.  So if I were in the corporate finance room, I would say, “Listen – to the research guy – I would say, “Listen, I spoke with Mullally.  I actually have the inside.  The plan works.”  So then, you’re the research guy and you say, “Oh, man.  What do I do?  It’s bonus time.  I’m not gonna be a total idiot.  Spitzer’s going to Albany.  Let’s get back in the game.”

I think that’s important.

 

Aaron Task:                Is it possible?  ‘Cause a year ago at this time, a lot of people were saying GM’s about to go bankrupt, and of course, this stock’s up 50-some odd percent –

 

[Crosstalk]

 

Aaron Task:                – that stock –

 

Jim Cramer:                There, GM – no, but the difference between Ford and GM is that GM’s balance sheet was never really – it turns out it wasn’t that bad.  Ford’s balance sheet’s pathetic, and you know that because they’re willing to screw over the common for the bonds.  If it weren’t Ford, if this were Qualcomm, we would be saying Qualcomm is desperate.  But no, it’s Ford.

 

Aaron Task:                But it’s Ford.  It’s an American icon.

 

[Crosstalk]

 

Jim Cramer:                – Ford.  I owned a Ford once.

 

Aaron Task:                And this is our country.

 

Jim Cramer:                Yeah, right.

 

Aaron Task:                This has been Jim Cramer –

 

Jim Cramer:                Again, what I’m trying to go for in the Wall Street Confidential, and I’m not saying you’re _____; I have to talk about what it’s like at my hedge fund, okay, and what other hedge funds do.  Because the difference is, is that if this is an intra-day show and you need to know what I know is going on.

 

Aaron Task:                Right.

 

Jim Cramer:                Now, we step back.  Research in Motion’s a real blowout quarter.  It was a really good quarter and I was quite surprised how strong the margins were.  It looks like the other guys have really dropped out.  It’s a terrific story.  Should it be up six?  Yeah, I think so.  But look where we are.  It’s Friday.  You got five more days to make your quarter.  Can you really risk having them up this much?  I don’t think you can.