Jim Cramer is Not an Economist

Asking Jim Cramer to play an economist on TV is journalistic malpractice. (Picture from the Sportolysis blog.)

But there he was tonight, with Chris Matthews, pretending to not only understand the economy, but foreign policy and the Chinese economic-political system as well.

What Cramer was selling is the same thing he’s been pushing for a decade, happy talk.

This is not a slam on Cramer. He made his bones as a Wall Street trader. He was good at it. He understood stock trends, he knew how to play momentum. While everyone and his dog was making a killing during the dot-boom, Cramer did, too.

But he’s not a businessman. TheStreet.Com was crap for investors.  He didn’t see the dot-bust coming, either. He’s not an economist — he has no training in it. He’s not a foreign policy analyst, either. Yet there was Matthews tonight, pretending he is all these things.

The "interview" is a perfect illustration of the weaknesses inherent in our TV age, the medium on which today’s political thesis is based. Stardom and familiarity trump expertise, and thus happy spin trumps all. The idiot is Matthews, those who point a camera at him, and those who believe him.

What Cramer has done, in this decade, is become a salesman. He sells the idea of stock investing the way Mel Kiper Jr. (above) sells the NFL draft, the way Joan Rivers sells the glamor of the Oscars’ red carpet, the way Rachael Ray sells cooking. (That’s Rachael, to the left, from her syndicator Kingworld.)

Kiper can’t run a football team, Rivers can’t run a career, and Ray is not a restaurateur. They are TV personalities. So is Cramer.

Here’s Cramer’s trick. He touts companies that are sound but a little down, and in the short run they go up, because his viewers buy them. It’s a self-reinforcing cycle, and few bother checking to see whether those same stocks outperform the market in the long term. (They don’t — he always claims to have sold them before they fall.) This is no more dishonest than Dr. Phil’s playing a psychiatrist on TV. I’m just not going to be Phil’s  10 o’clock appointment. Making Cramer your investment advisor makes you a fool.

Some days, however, Cramer’s trick doesn’t work. Today was one such day. He touted 10 stocks on his February 26 show — all fell on February 27. McDonald’s was down  $1.34, TransOcean lost $2.92, Halliburton lost $1.10, Global SantaFe lost $2.27, Moody’s lost 49 cents, McGraw-Hill lost $1.56, Greif lost $9.54, China Mobile lost $5.12, Time Warner lost 89 cents, and Sociedad Quimica y Minera (a Chilean mining outfit) lost $10.45. Per share.

Events got in the way.

What Cramer told Matthews is that the Chinese will fix this, because they’re Communists, and they control the economy. This is absolutely, completely 100% false.

What’s the real story?

1. 
   Much of this was computer error. The U.S. market seemed to be down a little over 1% at around 3 PM when the NYSE computers sent through a ton of sell orders at once, pushing the Dow (which magnifies everything) down over 200 points at once. This panicked other computers, sell programs that sent the Dow down another 100.
2. Absent the panic going back around the world today — from China and Japan across Europe and back to the U.S. — stocks should rise at tomorrow’s open. (That doesn’t mean they’ll stay up.)
    
3. Panic is possible. China does not control its investors in the way Cramer thinks. In fact, the Chinese market is more like the pre-1929 U.S. market than like a modern, regulated stock market. (That’s why China Mobile, one of today’s big Cramer losers, is listed in the U.S.) The Chinese market lost 9% of its value yesterday, and could lose again tomorrow, thanks to the NYSE computer error. (This would be the equivalent of the Dow falling 1350 points in one day.)
4. China’s leverage is to raise the value of its currency. American policymakers want this. But the effect of a quick rise would be to force interest rate rises here, pushing the housing market down further, and pushing the U.S into recession.
5. Cramer is expecting China to show a long-term view the U.S. hasn’t shown and that he hasn’t encouraged. Any miscalculation could result in unrest, inflation, or a recession. China’s economic leaders are good, but they’re not supermen. 

The most important point is that this doesn’t really matter. The Dow’s gains of the last several years mask major structural weakness in the U.S. economy. The expansion of poverty, the weakening of the middle class, the government-financed housing bubble, and the general looting of America by corporate CEOs (like those at Halliburton) are hollowing us out. The market’s gains are all the result of corporate profits taking an unsustainable portion of the economy.

Unwinding all this, along with the gigantic government debts created by the War in Iraq, will require enormous inflation that will leave most of us with savings worth a fraction of present value. Not such a big deal since most of us don’t have savings, so put it another way.

You’re broke. And we as a country are broke.

Largely because, I think, people who should know better treat people like Jim Cramer as experts on things they know nothing about. Because they’re on TV.