`Cramer effect' boosts CNBC

Mover: Jim Cramer's high-voltage remarks about Wall Street have his fans shouting `Boo-yah!'

September 06, 2005|By Matea Gold | Matea Gold,LOS ANGELES TIMES

Lights pulsate as cameras sweep the CNBC set, lightning crackling on a flat-panel screen while booms of thunder punctuate a loud electronic guitar riff. Then a middle-aged man in rolled-up shirt-sleeves flings his chair across the room, gesticulating wildly as he shouts: "Are you reaaddyyy SKIDADDYYY?!?"

This is not your father's finance show.

It's Mad Money With Jim Cramer, the former hedge fund manager's high-octane hourlong take on the world of stocks. For CNBC, it's a far cry from sedate business fare like Louis Rukeyser's Wall $treet Week, which used to define the genre. Since its debut in March, the program has transformed the 6 p.m. time slot from one of the business channel's lowest-rated into one of its highest, with an average of 182,000 viewers - a jump of 80 percent from a year ago, according to Nielsen Media Research.

Cramer is not the first CNBC anchor to gain a following based on style as much as substance; Maria Bartiromo, for example, became a favorite of Wall Street traders in the late 1990s, when she was known as "the Money Honey." But Cramer is the rare commentator whose influence moves the market itself.

Along the way, he's given a needed lift to CNBC, a business channel that has been profitable - small as its niche is, its well-heeled viewers are desirable to advertisers - but that nonetheless has struggled to keep people watching after the market closes.

Cramer's formula seems tailor-made as an evening fix for market junkies in a post-recession, entertainment-hungry culture. During the show's "lightning round," he offers instant, five-second assessments of companies tossed out by viewers who call in. (He says he's conversant in 2,000 actively traded stocks.) In other segments, he goes on at length about such varied topics as defense contracting, liquor sales and Brazilian banks.

His fans track his advice with cultlike devotion, jumping to place orders for stocks as soon as he mentions them. Professional day traders have taken notice as well.

The result is a Wall Street phenomenon now known as the "Cramer effect": The day after a stock gets a mention on Mad Money, its price shoots up, at least temporarily, and its trading volume soars.

"It's amazing," said Damon Southward, manager of trader content on Briefing.com, an investor news service that began reporting Cramer's picks to subscribers a few months ago. "You see stocks that literally trade several times their average volume in reaction to Cramer."

One reason for his influence is that he has filled a void left by the recent stock analyst scandal, in which professional analysts were caught pushing stocks in which their companies had a stake. Since then, large brokerage firms have shied away from weighing in on smaller stocks - one of Cramer's specialties.

That worries some critics, who question Cramer's track record. They note that stocks get an artificial bump after he touts them, a spike that short-sellers then use to their advantage.

Steve LeCompte, managing partner of CXO Advisory Group, a market analysis Web site for private investors, analyzed more than 100 stocks highlighted on Mad Money and concluded that Cramer's picks do not translate into substantial returns. In fact, LeCompte believes the show's viewers could end up losing money by overtrading and incurring excessive fees.

"My advice would be to buy a good index fund and watch him for entertainment," LeCompte said.

In a recent interview on his set at CNBC's New Jersey studios, Cramer defended his record and disputed the notion that his lighthearted approach comes at the expense of serious-minded analysis.

`Extremely responsible'

"If I can't be entertaining, no one will watch," said Cramer, who seemed animated and intense but not nearly as tightly wound as his on-air persona. "The kind of sector analysis that I do is not only extremely responsible but probably much better than your broker or analyst does, and that would have cost you a fortune."

But Cramer does acknowledge that his apparent influence on the market could eventually undercut the effectiveness of his advice.

"I want to help people make money," he said. "If an effect [on a stock] is contrary to making people money, that could be a problem."

Now 50, Cramer tried his hand as a newspaper reporter and pursued a law degree before making his name on Wall Street. He helped found TheStreet.com and managed a hedge fund for wealthy families that produced a 24 percent average return after fees for 15 years.

Achieving that rate came at a price. Cramer never sat down at work - he didn't even have a chair - and was known for throwing keyboards and water bottles in frustration.

"I drove everybody crazy," he said.

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