Jim Cramer Answers Your Questions

Jim CramerJim Cramer (Courtesy of TheStreet.com)

Last week, we solicited your questions for Mad Money host and man-about-Wall Street Jim Cramer. Here are his responses:

Q: Do you feel Ben Bernanke listened to some of the points you made in your CNBC rant last Friday?

A: I’d say that just the opposite is true, based on the FOMC statement from the August 7 meeting.

Q: What is your view on the moral hazard issues that could accompany the fed bailout you’ve requested?

A: In my opinion, it’s potentially a far larger moral hazard for millions of individuals to soon become so far underwater on their investments that they’re better off walking away from their homes. An economy with low consumer confidence will not be a successful one.

Q: You were under a lot of stress while working at your hedge fund, and I remember you saying you were going to work yourself to death if you’d kept it up. It seems to me that you still work very hard. Have you ever been tempted to go to a beach and retire for the rest of your life? Or is retirement not in your vocabulary?

A: I’ve always felt that one of my competitive advantages in the market has been my willingness to put in more time than anyone else. I’m following in the footsteps of my father, who’s been running his own business for many decades and still goes into the office every day. In some ways, I feel that these days I’ve been compromising, because I force myself to take the vacation my TV schedule allows me.

Q: I’m a young adult (22) who just graduated from college. What advice do you have for young adults like me who appreciate the importance of investing young and want to learn to invest responsibly, but have little money to invest?

A: I started out myself by scraping together what little extra money I could find at the end of the week. But as my nephew, Cliff Mason, said in a controversial set of articles in TheStreet.com, many youngsters fresh out of school must first gauge whether those few extra hard-earned dollars will make you happier in the near term, [be it from] buying that new Xbox game or spending a night out on the town. If you feel you’ve made peace with that aspect of twenty-something life, I believe that young people should start putting away as much as they can afford, either in index funds or an employer-sponsored retirement plan. Until you get up to $5,000 or $10,000 in a non-retirement account, I believe that folks of any age are generally better off staying away from investing in individual stocks.

Q: I’ve always failed miserably at stock investing (ironic, considering I used to be a stockbroker). I’ve read your Mad Money website and caught glimpses of your show. Are your stock picks typically long term holds (for a year or so, let’s say) or do you normally only recommend holding them for a short time, depending on the fundamentals?

A: Unless I say otherwise, my outlook for these stocks is anywhere from several weeks to several months. As I always say, individuals should not run out and buy these stocks the next morning, as the after-hours traders tend to skew the price significantly once I’ve recommended action.

Q: Why does Wall Street get so excited about retail sales numbers? Most of the goods being sold in the U.S. are made in China, or some other far-away, low-wage, no-benefits country, and sold at Wal-Mart or another low-wage, no-benefits store. The only people in the U.S. (who make a living wage) that seem to benefit are dock workers and truck drivers who transport the goods to the stores. So what’s the big deal? Why does anyone care?

A: While the financial press makes a bigger deal about the monthly sales at each and every individual retailer, our economic growth is still very much based on the consumer.

Q: Yesterday, tech stars such as Microsoft and Yahoo seem to be in a tailspin for investors. Yet, these companies continue to develop many compelling products. Would you agree with the argument that, at some point, these productive companies are going to once again ingratiate themselves with Wall Street?

A: In some ways, yes; though Yahoo’s troubles may be too numerous to fix with the current management team.

Q: Where do you put your money to preserve it, if not make a little profit? Sell/buy equities, go to cash, or avoid/accumulate fixed income? I appreciate what you do — it’s not easy being a lightning rod on something that is not black and white.

A: You are too kind, thanks. Stock-wise, anyone feeling shell-shocked should focus on consumer staples stocks, especially ones that have recently boosted their dividends. If you want to get more defensive than that, whether it’s treasuries, municipal bonds or moving to cash, I just never want to see folks pull their money out and deposit it under their mattresses — in the First National Bank of Sealy.

Q: Which is the bigger threat for American businesses: health care costs, or pension costs? What solution does the business community favor, and do you think it’s a good idea?

A: Who gets a defined benefit pension plan anymore? I’d replace that one with rising commodity costs – both food and natural resources.

Q: For the last 5 years, I have played fantasy football. In some ways it’s a lot like picking stocks: you look for value and hope for growth, drop dogs when they’re weighing down your portfolio, and gather research on a regular basis. A lot of this research comes from “experts” who don’t necessarily perform better than I do over the course of the season. My question has two parts: 1) What is the role of “expert” advice in identifying winners and losers in markets? 2) On average, would the advice of a panel of market participants, but not experts, be any better?

A: I’m a big fantasy football follower myself. Go Eagles! And one obvious difference that market experts have is the amount and quality of information we have access to, that the individual investor doesn’t. I’m not talking about insider information here, but one of the reasons why the “Smart Money” has earned that moniker is because these folks can actually move markets.

Q: I’m still in my twenties, but cognizant enough to know that Social Security is a waste of my time and money. What do you believe are the most effective ways that a twenty-something can ensure that retirement funds will be available when we enter our sixties, while we wait for the failure of the Social Security tax?

A: Start putting away as much disposable income as you can afford to, and maintain a diversified investment portfolio. Also, I believe that young folks should not be afraid to take more risks. If they pay off, you could be set for some time. And even if they fizzle out, if you’re willing to learn from your mistakes, you still have a few decades before retirement to make up for the losses.

Q: I’d be interested in knowing more about your charitable trust. What charitable interests does it benefit, and is there an application for its largesse?

A: In the past two years, I’ve donated my trading profits (over $200,000) to the Imus Ranch, the Intrepid Fallen Heroes Fund, and the Boys and Girls Club of Greater Baton Rouge. We do not solicit outside requests, and the final distribution decision is made by an independent trustee.


frankenduf

he missed the moral hazard of bailing out the lenders- by guaranteeing their irresponsible profits, you are incentivizing even more dangerous speculative lending which will make the crash more damaging

Matthew Heintz

If the fed is willing to help LTCM, they should help out the poor old investment bankers.

roystgnr

As a twenty-something who's been saving in stocks and renting rather than "buying" an overpriced house, I'm going to feel like a first rate sucker if those people who did buy homes they couldn't afford get rescued from the consequences of their mistakes at taxpayer expense. You don't want people to lose their homes? Cry me a river. Those homes aren't going to go empty; they're going to be filled with people like me as soon as prices start dropping to reasonable levels. And those ex-home-"owners" aren't going to go homeless, they're just going to end up living in apartments like mine for a while. Tough break, but I can assure everyone it's not the end of the world, and it certainly doesn't require a multibillion dollar bailout to fix a problem whose "victims" walked into it voluntarily.

Steve

I agree #3. Let's not rescue the wrong people. The people who are priced out of the market because they refused to gamble with borrowed money are the ones who we should be helping... by allowing home prices to drop to reasonable levels.

B. Riley

I see that Cramer skirted the question I asked about the difference between bailing out the big financial/lenging institutions, versus the people who are going to lose their homes.

As I said before, I don't like EITHER plan. But taxpayers are going to end up bailing out one or the other. Cramer wants the big institutions looked after b/c of this assumed gentleman's agreement between them and the Fed. Hillary wants homeowners to be taken care of b/c she needs the votes.

You are a product of your choices. Cramer seems to understand this when it comes to manufacturing or other business failing, but not when it comes to big money companies failing. The rules don't apply.

I say let them all face their own consequences, as opposed to TAXing responsbile citizens to make it all "go away" for one group, while the other group has to take it in the shorts.

Rita: Lovely Meter Maid

What's his (Cramer's) advice for people of (extremely) modest salary who are inclined to save very little, (don't judge unless you've walked a mile in their over-priced shoes) spend beyond their means (easy to do and a nice diversion of sorts, la-dee-la-dee-dum) and perhaps, quite unlikely (at this point) to live fast (although spending fast is always an option) die young (missed the boat several years ago) and make a good looking corpse (the beauty of dead people is a bit overrated, notwithstanding)?

Uncle Jeffy

Cramer's screaming at the Fed accomplishes nothing, which is equal to what his screaming is worth in the first place. It's a good thing Ben Bernanke's job requirements don't include "Keeping Jim Cramer (or Larry Kudlow or whoever's leading today's cheers) happy." Coddling investment bankers is the last thing this economy needs.

dave

Cramer doesn't seem to understand what moral hazard means.

#3, that was well-said.

Notice he never touched any of the questions related to whether or not it's even possible to beat the market by anything other than luck. Nor did he answer any of the questions regarding whether or not he may be hurting people by encouraging short-term, speculative investing instead of just telling people to put their money in index funds.

Unconvinced

Cramer's a pump monkey for investment banks. When will bears be interviewed on this blog? Is Steven Dubner unwilling to consider the many reasons why US citizens have a very legitimate reason to lack confidence in the current leaders of private finance?

Bill Fleckenstein, Prof. Roubini, Barry Ritholz - even Michael Panzner are some of the many knowledgeable, insightful people who will provide a more realistic and sensible outlook of what's ahead.

Please expand your coverage of the current market situation.

joebosco

Was a great fan of Cramer - no longer. not after this crybaby performance. A typical rich spoilt brat who wants mommy (Fed) to clean up his mess.
A limp wristed jerk.

Let a few wall street folks lose some money. In the long run we will be all better off.
Btw I have all my savings in the stock market.

Nate

Hey, he didn't answer my question about helping me get a job. Oh, well.
I have to agree with #3. I'm looking to move to the North NJ area and there is no way in hell I'm buying right now. You have to be the biggest sucker to be buying right now (except for the markets like Kansas that haven't shot up like crazy) and last I checked the role of government is not to bail out the irrational.
We better not forget, if you subsidize something you get more of it. Irrationality is the last thing we need to be subsidizing right now.

Tommy Jefferson

> "Hillary wants homeowners to be taken care of b/c she needs the votes."

Wrong. Look at the from whom her campaign money flows. She is owned by banking interests. The lenders who made loans to subprime "homeowners" are who she's taking care of.

Drwg

#3 I agree. It is unfortunate that people have to lose their homes, but they shouldn't be in debt they have no way to pay off.

I think there is a lot of stigma to not owning a home and the people who did not fall into that class trap should be rewarded and not taxed.

While losing confidence in the economy is bad, putting more money in government debt that the US has no way to pay off is equally bad. You can't just print more money, it'll be paid off (w/ interest) just like the rest of our government debt.

MSM ignores the economy

Here's the link to a paper written by Harvard econ profs and Nobel laureates that explains the depth of the housing issue:

http://tinyurl.com/ypno2b

Don't expect this blog to detail the horrific excesses that caused this crisis - the Times would rather you "had faith" in investment banks instead of understanding precisely what they have done with your money.

Jeff Brown

For those who are waiting for the housing market to fall to where the prices are 'reasonable' - stop drinking whatever Kool-Aid you're drinking. You have a better chance on betting on the next Super Bowl winner using a dart board.

Reality sucks, but geez, get a grip.

Bruce Hayden

Let me suggest that the other real victims of the housing market problems are the owners of the low grade segments of the market. In particular, I remember an article last spring in the Economist about how some pension plans, notably CalPERS, had overpromised, esp. for civil servants, when revenues were up, and now found themselves behind the ball and were trying to catch up by investing in the higher risk tranches.

The beneficiaries of such government employee pension plans are a big source of support for any Democratic candidate for president, and, thus, would not be surprised to see any of them scrambling to bail out at least those economic losers in the low grade mortgage market crash.

EB

To all of those who agree with number 3. I am a mortgage broker, I started my business one year ago just when this whole crisis began. It is a shame that you all feel the way that you do. While some families were careless in buying too much house, many were not. If you don't already know the cause of this foreclosure influx, it is that the rate of their previously fixed rate is now increasing. Most, if not all, of these families were directed to take a rate that was slightly lower than the 30 year fixed rate and then refinance in 2-3 years. At the time the lending guidelines were lax and it was easy to fund loans, not so now. All of the people who had a plan to refinance are now stuck. Their payments swing up 2-3% and then 1% every six months after, until it reaches a cap in the double digits.

These people had no way to forecast this fallout, they just remember the ease of which they qualified with their loan the first time around. I deal with these people every day. Some we are able to help out, but as the guidelines tighted, that number becomes less. It is extremely sad to see these people, these families, suffer the consequences of careless investors and lenders.

So, yes, some did buy beyond their means, but try to remember that these are real people you are talking about. Friends, neighbors, loved ones, take a look at the public record sometime. I promise you will be suprised to see just how many in your neighborhoods are affected by this problem.

Would it guarantee these greedy lenders and investors their profits if there was a bailout? Yes, but it would also guarantee these hard working families a home.

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Steve

To #17: Yes, I do realize that the people who are being foreclosed on because they can't afford to make their payments are "real people".

But they were buying in a housing market gone crazy, building in assumptions of 15-25% price growth, and not (apparently) taking into account the considerable downside of their gamble. Some of these people were sold on the illusion by brokers and real estate agents, some of them went in hoping to extract profit from the system.

But, also, it seems that you and many others focus only on the plight of those who made bad decisions and are losing their homes. But people who have been renting for the past few years--closed out of the market because they understood the risk--are also "real people". What about concern for them? Bailing out today's homeowners hurts the responsible people by propping up the price of homes, essentially penalizing them for doing the right thing.

We're forced to choose a group to favor: those people who gambled their finances on a home they couldn't afford, and those who took responsible account of their means. I'll choose the latter.

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Patrick

I find this talk of some people having an unfair debt burden hard to swallow. The vast majority of these people are nowhere near indentured servants. If I was able to get gigantic loan a few years ago and build a Bill Gates-esque mansion, it would be incredibly silly for me to be complaining now that I had an unfair debt. I would clearly have been living far beyond my means, and I should consider myself lucky to have experienced it for as long as I did.

Meanwhile, the vast majority of people in this country are living in a house comparable to their income. If there is a massive bailout, what does that say to these people? That next time instead of being responsible adults and having some clue about what your mortgage says you should just live as lavishly as you can?

Unsympathetic

To EB and all mortgage brokers reading this blog:

Why, exactly, were you directing people to take adjustable rates on loans in the hundreds of thousands of dollars? At no point is that ever a good idea. You, sir, are wrong - those families did in fact have a way to forecast this change of events.. by understanding and accepting that nothing is ever guaranteed in this life, and that it's their responsibility to minimize their risk exposure. Prudent financial planning never includes assumptions of positive economic conditions!

The families you're talking about never owned their homes - the bank (or, more accurately, the hedge fund) did. An accurate statement would be.. they're renting from the bank. Even after being foreclosed on, they won't go onto the street - they'll now simply rent from someone other than the bank.

It's not a shame for me to demand conservative fiscal planning. The mantra of "everyone should own their own home" is, however, one of the most horrible scams perpetrated upon the American public in many years. EB, you should be ashamed of yourself for pushing families to take loans that they cannot afford. Their current income should be able to cover the WORST months of the loan, not the introductory low teaser rate!

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