His latest enemy is Nouriel Roubini, a NYU economics professor often known as “Dr. Doom” for his bullish take on the economy.

I laugh at your puny rally and feeble notions of recovery

Roubini first caught my attention back in July, 2008, when he said that the recession was only half over, and would continue for another 12-to-18 months. He also added that although we’re in:

…the worst crisis since the great depression…

we’re not heading into financial Armageddon, or even a Japanese-style prolonged period of stagnation.

Earlier this year, he was back in the headlines, when he admitted that things were worse than he thought. Instead of 12-18 months (which would’ve been between July 09 and Jan 10), he revised his estimate to 24-36 months (I’m assuming that this is from the original prediction, but can’t tell for certain).

The Cramer feud began on March 25th, when Roubini spoke to Bloomberg Magazine and said:

The stock market is a bit ahead of the real macroeconomic and financial news…. We’ll have some major banks going belly up that will need to be taken over.

Also on March 25th, Roubini wrote an editorial in the New York Daily News in favor of Secretary of Treasury Timothy Geithner’s toxic asset plan.

While largely in favor of the plan, he ended by pointing out that the government may have to take drastic actions if it still doesn’t work:

What happens if removing toxic assets from a bank’s balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, “Why keep insolvent banks afloat?” And having asked that, we will have to search for ways to manage the ensuing systemic risk.

By the next day, Cramer was already on the attack. He opened his blog on The Street.com with the following insult:

Noriel Roubini, the New York University professor intoxicated with his prescience and vision, comes out with the astounding view that “some” U.S. banks will be nationalized. Forget that we have had one of the largest rallies in history since the oracle of Greenwich Village spoke last.

What I think matters is that I don’t know anyone who would disagree with him. It is obvious that more banks will be nationalized. What has mattered since the beginning of this crisis is that we have a few banks that are not going to be nationalized.

It seems as if Cramerthought that the strength of the big banks would be enough to turn the financial sector around.

I know Roubini and Nobel laureate Paul Krugman are both on the nationalization jihad, and they are compelling figures to believe in. However, if JPMorgan Chase, Wells Fargo, Bank of America, US Bancorp, PNC Financial, and Capital One keep rising they will be able to raise equity making it easier for them to take losses and will make them more profitable as investments.

Cramer then turns his attention to Roubini’s pessimistic views market and the recent rally:

But what Roubini and Krugman might be missing is the ability to build, through earnings and higher stock prices and forbearance, a perfect combination of lower loan charge-offs, more equity, and therefore increased solvency.

Or, in other words, those who think that things are not better off since the March bottom strike me as people who are as unrealistically bullish during the 2008 top. You have to adjust if the facts adjust and perhaps Roubini’s doing that by saying that “some” banks will be nationalized. If he isn’t, I think he will be wrong.

As far as I know Roubini did not respond to Cramer’s blog. But that didn’t stop Cramer from continuing on the warpath. On March 31st, he appeared in a video on The Street titled “Roubini is Wrong“, where he was interviewed on the topic of bank nationalization.

 When you look at Roubini, what he’s making a mistake on is Geithner. GeithnerI think is going behind the scenes as Treasury Secretary and saying “Listen, we’re done with that. We’re done with that.” It started with Bernankesaying on 60 Minutes “we’re done with that”, it’s now extended to Geithner saying “we’re done with that”. If the people who would be in charge of nationalizing are saying point blank they’re not going to nationalize, then Roubini’s logic has a fatal flaw in it.

Now he’s been a bear, and one of the things I like to judge people on is their calls [David's note - HA!], and what happened subsequently. When the market was at 6300, he came out very boldly and said we’re going down another 1000 points. Now I came out with a piece that said “you got to start buying here”, because if we only go down another 1000 points, you better get in….

I think that he has to be judged on this nationalization call, and I think that he’s going to look foolish because of the Treasury’s attitude towards nationalization.

Again, it’s worth noting that Roubini only said that some banks may need to be nationalized.

Yesterday, Roubini finally replied to Cramer, and he definitely took off the gloves:

Cramer is a buffoon. He was one of those who called six times in a row for this bear market rally to be a bull market rally, and he just got it wrong.

And after all this mess and Jon Stewart, he should just shut up because he has no shame….

He’s not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull, and he got it wrong.

He keeps insulting me personally and saying a bunch of lies. He doesn’t even know I was supporting it, so he lies.

The article also points out that Roubini has a history of accuracy. In 2006, he predicted that the worse recession in four decades was on it’s way.

With regards to the recent rally, Roubini thinks it’s just a bear market response to government intervention, and not the sign of a turnaround. He thinks we’ll test previous lows because of poor economic news, disappointing earnings, and also because banks will fail after the stress tests come out.

So what’s Cramer’s response? As far as I know, none yet. But if the Stewart feud taught us anything, it is that Cramer is not one to back down when challenged.

It’ll be interesting to see where this goes. Cramersaidhe wanted someone he could debate economics with, not just a comedian. It looks like he got his wish.

Businessweek recently broke away from their traditional audience, and featured an article of Advice for Young Investors. The name is slightly misleading, as it includes all financial facets – from insurance to home ownership – as investments.

The advice is mediocre at best, but it’s an interesting read, because it offers insight into the young financial mind (or at least what the media is telling us to think).

As I like to do with these types of articles, here is their list, along with my commentary.

1. Cash is king

Although cash offers the lowest returns, it’s a good foundation for any financial plan.

Without a cash reserve, your plans are at risk to be derailed by emergencies or a loss of income. Most young people just make up the difference with credit cards, but others could be forced to sell assets at the worst possible times.

Having cash may not help you get ahead, but it will make sure you don’t go backwards.

How much of a reserve do you need? That’s a question of eternal debate, but the most common answers suggest anywhere from 3-9 months.

2. Got insurance?

It’s probably not the insurance you’re thinking about. Most young people don’t need life insurance, but everyone needs disability. You don’t want a lifetime of potential income to disappear because of an accident.

I signed up for as much disability insurance as possible from work, paying extra for additional coverage.

3. To own or not to own, that is the question

The biggest decision that most young people make is whether to rent or buy their home. The common perception is that owning is an investment, but real estate generally doesn’t perform as well as stocks, and it’s a lot more expensive. There is maintenance, taxes, emergency repairs, etc… that are exclusive to owning a house. Not to mention there is a significant time commitment.

In the end, it really comes down to your personal preference. Just make sure that you do the math, and consider all costs in your decision.

Also, don’t buy more house than you need, thinking it will increase as an investment… you’re much better off being modest and saving/investing the extra money you would’ve put into the house.

4. What job security?

The author points out that no ones job is safe right now, which I agree with. However, I disagree with one of his takeaways.

He says that your job security should be taken into considering when choosing a risk level for your investments. I disagree.

Investments are done over the long term. If you need your money to supplement your regular income, then you’re not really investing, and you’re gambling with cash that you don’t have.

Your risk tolerance should be determined by how long you’ll be investing… not how secure your current job is.

5. What’s your risk tolerance?

Another failure for the author. He underestimates the impact of long term investing.

If you’re saving for the long term, you probably have some time to ride out market turbulence… That’s how it’s supposed to work in the abstract, anyway. In reality, the ups and downs of the market can leave you anxious and cause you to bail out of investments too early.

While that statement is technically true, to me it doesn’t do enough to explain that short term ups and downs are normal, and you should just ride them out. It also doesn’t do anything to remind young investors that being overly cautious is a bigger threat than being too aggressive.

6. Stocks are risky

Another swing and a miss! Three in a row.

The author is right…stocks are risky, and you shouldn’t have any money in the market if you’ll need it in the next five years.

But the article again continues to be overly cautious, suggesting that:

For young people in their twenties, 50% or more of a 401K or other retirement plan could go into equities. (my emphasis).

Choosing 50% as a benchmark is misleading, because it suggests that it’s an upper limit. This could deceive people into choosing a 50% stock mix and thinking that they’re being aggressive enough. In reality, investors of any age – and almost certainly young investors – will probably want a portfolio that is more than 50% stocks.

Some people are even suggesting that young investors should put 100% of their portfolio in stocks (a strategy which I follow).

By choosing an overly cautious approach, you’re selling yourself short and missing out on decades of earning power.

7. Get started – now now now!

We’re back on solid ground with this one. Whatever your plan – start now. The best time to plant an oak tree is 20 years ago. The second best time is now.

8. Balance your priorities

Managing your finances is a lot like a juggling act. You’ve got to balance the short-term and long-term, paying down debt vs. investing for retirement, etc…. It’s important to make sure you’re meeting all your goals, and not selling yourself short by focusing on only one thing at a time.

As an example, I’m building an emergency fund as I’m paying down debt. I’ll be opening a Roth IRA soon. Starting on all three will be better for me financially than just focusing on one.

9. Be flexible

It sounds like decent advice at first, but this is another area where the author just doesn’t get it.

The financial crisis and stock market collapse have changed the rules for investors… For now, he’s allocating a maximum of only 50% of portfolios to stocks… This may not be the best time to set up a financial plan that you stick with for life.

Financial plans are not dependent upon the ebb and flow of the market. If anything, it’s more important to stick to your plan in tough times.

Being cautious after the market has crashed won’t help you get your money back. If anything, it will only hurt your recovery when it finally turns around.

10. Can you save and invest too much?

It’s rare that young people set aside too much money, so I don’t think we have to worry about this. If saving too much is a problem for you, then I’m jealous.

Most people should be saving more cash and investing more in their retirement, but there are times when it makes sense to put your money elsewhere. Investing money in yourself – through training or education – could greatly increase your earning ability over your lifetime.

My thoughts

The advice in this article says more about the media than it does finance.

I feel like the mainstream media just doesn’t get it when it comes to young adults and money. It seems like they’re trying to use the economy to frighten us, when in reality, it’s an opportunity. We have 30-40 years until retirement.

They should be giving on advice on how to take advantage of the market… not telling us to bury our heads in the sand because the economy is scary.

Time Magazine recently got it right it right though, and that’s because they asked the Nielsen Company (famous for TV ratings) what people are buying in stores like Wal-Mart and Target. Rather than interpreting the data, they let the numbers speak for themselves.

Here’s a summary of their findings:

Increasing categories:

• Seasonal general merchandise – up 32% (includes thawing salt, body warmers, gift packages, and candy)
• Canning, freezing, and food prep supplies – up 11.5%
• Family planning – up 10.2%
• Fresh meat – up 7.3%
• Vegetables and grains – up 5.5%
• Pasta – up 4.4%
• Cheese – up 1.1%
• Wine and liquor – up, but no numbers given
• Baking supplies/mixes – up, but no numbers given

It seems like people are just cooking at home more in general, and are also downgrading their gift purchases. The “seasonal general merchandise” category includes things like holiday gift sets, so it seems like people may be skipping out on the flowers and jewelery for something a little more economical.

Decreasing categories

• Film and cameras – down 31.5%
• Sports and novelty cards – down 26.5%
• Magazines – down 17.1%
• Canned seafood – down 13.3%
• Jams, jellies, and spreads (including peanut butter) – down 12.1%
• Bottled water – down 11%
• Cookies and ice cream cones – down 9.7%
• Home accessories (includes kitchen gadgets, lawn and garden items, buckets, bins, and bath accessories) – down, but no numbers given
• Air fresheners and deodorizers – down, but no numbers given
• Insect repellent – down, but no numbers given
• Flu and cold remedies – down, but no numbers given

It’s pretty easy to cut non-necessities in a pinch.

It’s worth noting that the jams, jellies, and spreads category is skewed because of the various salmonella scares that have occurred recently. Otherwise I’m sure this one would be up.

I was surprised that canned seafood is down so much. Canned tuna is one of the cheapest (and healthiest) meal bases you can buy. I thought this one would’ve been on the increase, especially because fresh meat sales are up.

What it says about income

The authors also had some interesting takeaways. First, they said that the trend applies to all income levels.

People think they have to hunker down, no matter what their socioeconomic status.

I find that surprising, but encouraging. Hopefully people of all incomes are realizing the importance of having a solid financial base, including spending more responsibly. Not necessarily spending less, but more responsibly.

What it says about long term habits

Another conclusion they reached (that I disagree with), is that:

What’s more, experts say… lagging products shouldn’t expect a rebound anytime soon. The back-to-basics movement is here to stay.

I don’t agree with this. I think that people will change their habits as long as they feel the pressure, but once things are back to normal and they’re not worried about their job, they’ll return to their old ways.

If there’s any change, it might be that consumers build a bigger emergency fund, but nothing else will be different. People have a short memory, and history tends to repeat itself.

If we learn from our mistakes, why wasn’t there a sustained push for energy independence after the oil shortages of the 70s? Why did the dot com bubble of the 2000’s lead right into a real estate bubble?

I think it’s great that people are acting more responsible now, but I don’t think it means that the changes are permanent by any means. For a more detailed discussion about why I feel that way, check out my post on Consumers Cut Back, but Have they Changed Their Ways?

Instead of back-and-forth cheap shots, we got too see a live debate between Jon Stewart and Jim Cramer.

To help you prepare for their showdown, I put together a summary of their fight so far.

Round 1 – The Daily Show takes on CNBC

On Wednesday, March 4th, Jon Stewart launched a scathing attack on CNBC. Blistering though it was, it was fairly level-headed, mostly using clips from CNBC itself (although some of these were taken out of context).

(view clip here)

The commentary was especially harsh on Cramer. Among other things, Stewart singled out his advice on Bear Stearns, Bank of America, his advice to accept and buy things that are overvalued.

Round 2 – Cramer responds in an online article

On Monday, March 9th, Carmer responded in a post on Mainstreet.com.

He defended himself on four points:

• His video clip was taken out of context
• His advice was actually right, because it referred to the safety of deposits, not the value of Bear Stearns
• He never recommended to buy Bearn Stearns
• He told viewer that Bear Stearns stock was worthless in a timely fashion

While I agree that the clip was taken out of context, I can’t say that I agree with the rest of his points. For more details, check out my post on Cramer’s response. It contains the full text of his rebuttal, as well as a critical analysis of his arguments.

Round 3 – Stewart responds to Cramer’s rebuttal

The staff at the Daily Show was on top of things, and Monday night, they did another segment – this time specifically on Cramer’s rebuttal

(view clip here)

After lambasting some of the shows and commentators on CNBC, Stewart addressed Cramer’s points from earlier in the day.

The bottom line is that even though Stewart acknowledged the Bear Stearns clip was taken out of context, he stood by everything he had said Monday night.

To prove his point, he showed clips of Cramer recommending to buy Bear Stearns on March 6th, 2008, and again on January 24th, 2008.

To make sure he was perfectly clear, he ended the segment the same way he ended the first one:

F*ck You!!! 

Round 4  – Cramer starts the rounds on the NBC networks

On Tuesday, Cramer started trumping up his defensive campaign. In the morning, he appeared on the Today show.

(view clip here)

When the host brought up the Daily Show, Cramer appeared uncomfortable and even agitated.

Rather than replying to Stewart’s criticism directly, he chose to belittle his critic:

Oh, a comedian! A comedian is attacking me. WOW! He runs a variety show!

After that, he tried to change the topic, and pointed out how he told everybody to sell stocks on October 6th, 2008, or as he likes to call it, “35% ago”. He tried to further deflect criticism by saying that the whole market is down, and he could find clips that would make Warren Buffet look like a fool.

He did not say anything else about Stewart’s criticism, except in his closing remark:

When Stewart makes that call [telling everyone to sell] I’m all over him, but he won’t do that – because he’s a comedian.

Round 5 – The NBC tour continues

Cramer also appeared on Morning Joe (with host Joe Scarborough) on MSNBC.

Oddly enough, Cramer didn’t do much talking.

(view clip here)

He was introduced as a man under attack by the White House – and also by Jon Stewart. Which is puzzling. Earlier in the day, Stewart was “just a comedian.” But now, he’s worth of an equal mention with the President?

Scarborough did all the talking, and started by trying to say that Stewart was attacking Cramer because there wasn’t a Bush in the White House to pick on.

Cramer responded by trying to turn away from the rhetoric, and instead offering a plea:

If Jon Stewart wants to debate the merits of tier-1 captial vs. common equity, I’ll do it. But the guys a comedian, and he’s decided to focus on some calls I made during a bull market.

It’s entirely possible he could run tape from Warren Buffet saying GE’s a good buy at $22, and the stock’s at $7. But no one’s going to make fun of Buffet because he’s a rich, big powerful guy.

I have a few problems with this.

While I appreciate Cramer’s statement that he wanted to get away from rhetoric, I can’t help but notice he was laughing while he said it. And if Cramer is going to continue to dismiss Stewart’s opinion as a comedian, he should stop appearing on national TV to respond to his criticism.

Also, call me crazy – but sound investment advice applies during bull or bear markets, right? If not, it’s just a strategy to time the market.

After that, Joe Scarborough took center stage, and basically used the entire segment to bash Stewart, the Daily Show, and late night comedy in general.

Cramer did admit to making mistakes, but again banged his chest and pointed to October 6th when he said that you should take you money out if you need it in the next six months.

Scarborough continued to talk about the angry leftist media, and implied that they responded to Sanetlli’s “Chicago Tea Party” rant with a conspiracy.

And suddenly everything went viral, so it was only a matter of time before they started digging through transcripts, and they came up with these attacks…

Maybe Jon Stewart can tell now us what the markets are going to do over the next five to ten years? Maybe he can tell us what’s going to happen next in Iraq?

Which again, is interesting that they want a  simple comedian to predict the complexities of the stock market and international combat.

There’s really not much to see from the rest of the appearance…Cramer really didn’t talk much, and Scarborough used it to bash the nature of comedy and late night talk shows, rather than responding to any of the points that Stewart has made.

Round 6 – Stewart responds to the NBC tour

Tuesday night on the Daily Show, Stewart took off all the gloves.

(view clip here)

To be honest, last night’s segment didn’t add anything intellectual to the ongoing debate. But it was hilarious. Probably one of the funniest intros on the Daily Show that I’ve seen in a long time.

Stewart knocked Cramer for making the media rounds on the NBC networks, and then reminded viewers that Stewart also works for a powerful media conglomerate. Comedy Central’s owners also own companies like Nickelodeon, MTV, VH1, etc….

To make fun of Cramer, Stewart appeared in a segment with Dora the Explorer talking about the ongoing feud, and then did something similar with the cast of MTV’s The Hills.

Again, funny, but it added little to the debate.

Round 7 – Stewart promotes the Cramer interview

The Daily Show took on Cramer again last night.

(view the clip here)

This time it was just to promote the upcoming debate and interview. Again, little substance, but plenty of comedy. This time, most of it was directed at the media’s coverage of the feud, rather than anything having to do with Cramer.

What to do during the debate…I propose a drinking game

Keeping in line with the presidential debates, I’d like to propose a Cramer vs. Stewart drinking game. After all, he is just a comedian.

I think that if you hear any of the following phrases, you should take a good long drink:

• Tier 1
• Chicago Tea Party
• October 6th, 2008
• 35% down
• Just a comedian
• Just an analyst
• Bear Stearns
• In Cramer we trust
• Warren Buffet
• Ideological
• Leftist
• F*ck you!
• Daily Show
• Comedy Central
• CNBC
• (any reference to a show on CNBC that doesn’t exist)
• Bear market
• Bull market
• (any sound effect that is played)
• (any happy visuals put up behind Cramer)
• (any time Cramer hits his hand on a desk or table)
• (any time Stewart hits his hand on his desk, presumably to mock Cramer)

I hope you enjoy the debate… regardless of which side you’re on, it’ll be fun to watch.

PS – I have more than just Stewart and Cramer posts. Look for my regular material to return soon!

Last week on the Daily Show, Jon Stewart delivered a blistering commentary on Jim Cramer and Co. at CNBC. On Monday, Cramer responded in his blog at Mainstreet.com. Here was the portion directed at Stewart:

The pundits won’t engage in the merits of, say, favoring Tier 1 capital for the banks vs. common equity, or forbearing on the banks to work the situation out over time because the banks can be profitable if we have some patience. They just attack me.

Take Frank Rich and Jon Stewart. Both seize on the urban legend that I recommended Bear Stearns the week before it collapsed, even though I was saying that I thought it could be worthless as soon as the following week.

I did tell an emailer that his deposit in his account at Bear Stearns was safe, but through a clever sound bite, Stewart, and subsequently Rich — neither of whom have bothered to listen to the context of the pulled quote — pass off the notion of account safety as an out-and-out buy recommendation.

The absurdity astounds me. If you called Mad Money and asked me about Citigroup, I would tell you that the common stock might be worthless, but I would never tell you to pull your money out of the bank because I was worried about its solvency.

Your money is safe in Citi as I said it was in Bear. The fact that I was right rankles me even more. I never said the same thing about Lehman, where your accounts weren’t safe.

I expect a skewering from the comedian Stewart. I was shocked, however, that the rigorous Rich wouldn’t investigate further and relied on the show’struncation of the truth.

His rebuttal comes down to four key points:

1. His quote on leaving your money in Bear Stearns on March 11th, 2008 was intentionally taken out of context
2. He was right, because he was referring to the safety of deposits in the bank, not the value of the stock
3. He never recommended Bear Stearns as an outright buy
4. As early as the following week, he said that Bear Stearns might be worthless

In the interest of fairness, I’m going to take a look at all the claims, and provide links to all my sources. That way, you can be the judge.

1. The Bear Stearns Quote was taken out of context

Verdict: true.

The complete exchange from the March 11th show actually went like this:

Dear Jim:
Should I be worried about Bear Stearns in terms of liquidity, and get my money out of there?

Cramer says:
No no no! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from bear.

2. Cramer was right, because he was referring to the safety of deposits in the bank, not the value of the stock

Verdict: unclear, but I’ll give him the benefit of the doubt on this

While the original caller confirmed in a later episode that he was asking about the safety of his deposits (source: wikipedia), it’s still unclear what Cramer was referring to in his response.

He clarified his remarks on March 17th on CNBC’s Street Signs, saying:

Keeping money at Bear – I guess I could have caused a run on the bank and said take your money out of Bear. I guess people could say hold it, he’s saying buy the common stock. I mean, what the heck. I cannot cause a run.

It turned out the Federal Reserve guaranteed the money. I’m not going to tell people to pull money out of these places. The Federal Reserve is guaranteeing the money.

After reading his clarification, it seems like there are a few things noticeably absent in his original statement.

Nowhere did he mention anything about the FDIC or the Federal Reserve, or even use the word “deposits”, which would’ve made his intentions clear. And the blanket statement “Bear Stearns is not in trouble” is broad enough that it could seen as referring to stocks also.

3. Cramer never recommended Bear Stearns as an outright buy

Verdict: false.

It appears as if Cramer did not recommend to buy Bear Stearns on the March 11th show, although many many of the sites that track his show interpreted it that way (such as the unofficial Cramers-Mad-Money.com or the equally unofficial Seeking Alpha: Kramer’s Picks).

However, if you go back to Cramer’s March 6th show, he had the following to say during his “Buy / Sell” segment:

I believe in the Bear Stearns franchise. Bear Stearns at $69 bucks? I’m not giving up on the thing.

That sounds like a recommendation to buy, or certainly not to sell, to me.

In the Lightning Round segment of the same show, he added:

Bear’s a great financial brand, but aside of Hudson City Bancorp, [I] can’t get behind any banks in the market

If Cramer’s advice on was not a recommendation to buy, it was walking a fine line (and he definitely never suggested selling). He had established a pattern of defending and praising Bear Stearns in the two weeks prior to their collapse.

4. As early as the following week, he said that Bear Stearns might be worthless

Verdict: true, but ultimately pointless.

Cramer may have actually said it that same week, on Friday, March 14th, at least according to another statement he made on the March 17th episode of Street Signs:

I said the common stock was worthless on Friday, as soon as this thing was at 36 because we saw a look at the bonds. If you kept your money in Bear you made out. You got the liquidity.

Even if he did say that Friday, it would have done little for investors. By that point, the stock had been plummeting for three days.

Here’s the history of Bear Stearns from that week (according to Bloomberg.com, the wikipedia history of Bear Stearns, and a page about the Bear Stearn class action lawsuit):

• On Tuesday, March 11th,  Bear Stearns closed at $62.97.
• On Wednesday, March 12, Bear Stearns closed at $61.58. CEO Alan Schwartz realized the company wouldn’t have enough cash to operate through the end of the week, and called government officials, regulators, and JP Morgan’s CEO.
• On Thursday, March 13th, the stock closed at $57. After a series of late night discussions, the Fed announced they were providing cash, but only through JP Morgan, because Bear Stearn didn’t have direct access to the Fed.
• On Friday, March 14th, the emergency loan deal was announced, and the bottom fell out. The stock closed at $30.
• On Sunday, March 16th, JP Morgan made an offer to buy Bear Stearns for $2 per share.
• On Monday, March 18th, Bear Stearns opened trading at $3 a share.

So even if Cramer did call the stock worthless at $36, that still would’ve been after a drop of 43.8% over just three days.

Couple that with the fact that the only way Bear Stearns could get emergency funding was through another bank, and it shouldn’t have been a surprise to anyone that the company was in dire straights by that point.

Summary

Cramer was at least partially correct in his rebuttal, but he failed to deliver a knock out punch in vindicating himself.

All he said was basically “you can’t prove that I said to buy Bear Stearns,” but for me, that’s not very satisfying. He couldn’t prove it wasn’t what he meant, and the best follow up he had was to call it worthless shortly before the Federal Reserve and the Treasury Department forced Bear Stearns to sell itself. Not exactly timely advice.

Also, despite replying in a six page blog entry, Cramer only found time to reply to one of Stewart’s five criticisms. I read Cramer’sresponse with an open mind, but in my opinion, it left a lot of questions unanswered.

His original intent was to interview Rick Santelli, the analyst who called for a “Chicago Tea Party”. For those not familiar with Santelli, he became a poster boy for anger on Wall Street when he rallied against Obama’s mortgage plan, live from the floor of the Chicago Mercantile Exchange:

How about this, President and new administration – why don’t you put up a website to have people vote on the internet, as a referendum to see if we really want to subsidize the losers’ mortgages? This is America!

How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom, and can’t pay their bills, raise your hands.  President Obama, are you listening?

Santelli was supposed to appear on the show last Friday, but cancelled at the last minute. I was disappointed, and apparently so was Jon Stewart. Here is his response to Santelli’s rant:

Yeah man! Wall Street is mad as hell! And they’re not going to take it anymore. Unless by “it”, you mean $2 trillion in their own bailout money. That, they’ll take…

But see, Rick Santelli is angry that these loser homeowners are going to get bailed out. He believes in personal responsibility. He believes in not rewarding the losers for missing all the warning signs.

I mean, for God’s sake, the guy works at CNBC! They’re the best of the best!

So to all you dumb*ss homeowners out there who let your optimism and bad judgement blind you into accepting money that was offered to you from banks, educate yourselves!

After Santelli bailed, The Daily Show decided to do an investigative piece on CNBC’s investment advice. The findings were less than flattering.

They ran through some of CNBC’s least-greatest hits, and then showed what happened afterwards. Here are the highlights:

March 11th, 2008 – Jim Cramer

• Prediction: “Bear Stearns is fine – do not take your money out! If there’s one take away, it’s that Bear Stearns is not in trouble.”
• Actual: Bear Stearns went under six days later.

June 5th, 2008 – Power Lunch

• Prediction: “[Lehman Brothers is no Bear Stearns]. You can’t compare Bear management and Lehman management. Lehman management is incredibly engaged and responsive.”
• Actual: Lehman Brothers went under three months later.

April 17th, 2008 – Squawk on the Street

• Prediction: “Will Merrill need to raise capital? No. That continues to be the refrain from management, from Mr. Thain. They raised $12.8 billion in capital, $4.2 of that was excess capital. No need to raise capital says Merrill Lynch.”
• Actual: Five months later, Merrill Lynch ran out of capital. It is now owned by Bank of America.

October 4th, 2007 – Jim Cramer

• Prediction: “Bank of America is now the cheapest and the best. And I have to admit, that as much as I like Wachovia, I think Bank of America is going to 60 in a heartbeat.”
• Action: As of [Wednesday], Bank of America trades under $4

December 5th, 2007 – Home Front

• Prediction: “What [AIG] is saying now is that their sub-prime losses or exposure, whatever’s going to happen to them. Is very manageable. Does it mean that they’re not going bankupt? Obviously they’re not, they’re the biggest insurance company in the world.
• Actual: Federal bailout money for AIG – $85 billion in September, $37.8 billion more in October, $30 billion more on Monday.

October 31st, 2007 – Jim Cramer

• Prediction: “You should be buying things, and accept that they’re overvalued, and accept that they’re going to keep going higher. I know that sounds irresponsible, but that’s how you make the money.”

February 1st, 2008 – Jim Cramer

• Prediction: “That’s why the market just won’t quit, no matter how poorly the actual companies are doing.”

April 16th, 2008 – Kudlow and Company

• Prediction: “The worst of this sub-prime business is over.”

June 13th, 2008 – Jim Cramer

• Prediction: “Very simply, I believe that it’s time to buy, buy, buy!”

November 4th, 2008 – Fast Money

• Prediction: “The fundamentals are coming back into play. I think people are starting to get their confidence back.”

It was fun watching someone take CNBC’s talking heads down a notch. They’re great at sound bytes, but not so much when it comes to advice. I’m glad someone finally called them out on it.

I’m not an expert, but I think Jon Stewart best summed up their knowledge and expertise when he said:

If I’d only followed CNBC’s advice, I’d have a million dollars today – provided that I started with one hundred million.

We’re turning into a nation of whimpering slaves to fear – fear of war, fear of poverty, fear of random terrorism, fear of getting down-sized or fired because of the plunging economy, fear of getting evicted for bad debts…

- Hunter S. Thompson, 2003

One thing that’s always bugged me about the media is how they pretend to be impartial observers, when the reality of it is that there is no way to observe something without interfering.

It’s physically impossible, even on a sub-atomic level. With the stock market, the stories that the media covers – and how they cover them - affects how investors behave.

The media loves to cover a sob story or train wreck, and they’ve been doing it to perfection with the economy. Fear gives them higher ratings than practical advice, so they resort to scare tactics.

Take a recent headline I saw on CNN on Friday, February 20th.

WALL STREET ON THE SKIDS

It was even accompanied by a live report from the floor of the NYSE. With a headline so shocking, you’d expect that the market was bottoming out.  But you’d be wrong.

The market was only down 129 points, which would have represented a decline of 1.73% from the previous day’s close. But why did CNN have the shocking headline? Is a drop of 1.73% unusual?

Not at all.

Over the past year, the average daily change in the market has been 1.71%.

In fact, 37.2% of the previous year’s trading days had a swing that was greater than what CNN was reporting on with doom and gloom. 13% actually had a change that was more than double what CNN was covering live.

(source: data from Yahoo Finance and my love of spreadsheets)

The take away? Don’t believe the hype. Make your decisions because you’ve done the math and thought about the consequences. Not because you’re reacting to a talking point, or some angry screaming haircut on TV told you to “SELL SELL SELL”.

I’m going to end this with another Hunter S. Thompson quote, because one is never enough. The man was a genius, and believed in never quitting – especially when “the establishment” gets you down. Here’s a quote from one of my favorite books, “Fear and Loathing in Las Vegas”, that shows his view on persistence in the face of fear.

“I hate to say this,” said my attorney…”but this place is getting to me. I think I’m getting the Fear.”

“Nonsense,” I said. “We came out here to find the American Dream, and now that we’re right in the main vortex you want to quit.” I grabbed his bicep and squeezed. “You must realize,” I said, “that we’ve found the main nerve.”

“I know,” he said. “That’s what gives me the Fear…”

“It won’t stop,” I said. “It’s not ever going to stop.”