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Video: Cramer defends stock warning

By
TODAY contributor
updated 10/7/2008 9:53:53 AM ET 2008-10-07T13:53:53

Beset by critics who said his bearish advice to investors has added fuel to Wall Street’s fire sale, “Mad Money” host Jim Cramer defended his comments Tuesday and rejected suggestions that his pronouncement has contributed to the worldwide plunge in stock prices.

“Short term, this is a perilous market,” Cramer told TODAY co-host Meredith Vieira Tuesday, returning to the show the day after he warned investors to take whatever money they need for the next five years out of the market now. “I’m not so arrogant to think I affected this market. Believe me. The European markets were down 7 to 9 percent [yesterday].”

A lot of people disagreed with the CNBC maven. In an e-mail to TODAY, Bob S. wrote, “He did something today that was almost like yelling ‘Fire!’ in a crowded building.”

Chicken Little?
“My new name for him in Chicken Little,” Cheryl W. wrote in another e-mail. “That was a sure way to foster sell-offs during a difficult time.”

Vieira read the e-mails and asked Cramer, “Did you contribute to the problem?”

“What happens if there is a fire in the building?” the famously emotional investment adviser rejoined. “What happens if there is one raging? Should I tell everyone to sit tight? Should I disagree with what I’m doing myself? Should I just tell people, ‘You know what? Things are fine,’ because I don’t want to take any heat? ‘Sit pat,’ because, you know, that’s a knee-jerk call for me to make and everyone will like me? Is that what it’s about?”

As recently as July, Cramer said on his CNBC show “Mad Money” that the market had bottomed out. But events of the past several weeks — including the collapse of several banks and investment houses, the insurance giant AIG, and the giant mortgage lenders Freddie Mac and Fannie Mae — have thrown stock markets into global turmoil. The $700-billion bailout of mortgage lenders passed by Congress and signed into law by President Bush over the weekend has not been enough to calm things.

On Monday, after a weekend of thought, Cramer told TODAY’s Ann Curry that it was time to remove from stocks any money you cannot afford to put at further risk.

“Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe you should risk those assets in the stock market,” he said. But, he added, his advice to those who can afford to do so remains to ride out the recession.

‘I’m an optimist’
On Tuesday Vieira asked Cramer if he had any regrets about giving that advice 24 hours earlier.

“No,” he replied. “I’m an innate optimist, and anyone who’s watched me over 28 years of talking and trading in the market knows that I believe fundamentally that the stock market’s a good place. But if you’re going to buy a house or put your kid through college, or need a car or health — maybe for senior citizen retirement — why should you risk over the next five years being in this stock market?

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“Longer term?" he added rhetorically. “IRA? Still contribute. [That’s] not an issue.”

Nonetheless, Cramer’s taking a lot of hits on the Internet and from TODAY viewer e-mail.

“Our financial system is based largely on trust in the system, and imagine what would happen if everyone listening to your show did what he advised,” read an e-mail from viewer Richard F. “We would obviously have a total collapse.”

But Cramer would have none of it. “Do you think I’m causing a collapse?,” he asked Vieira. “I worked at Goldman Sachs. They almost went out of business. My insurance was with AIG. It did get nationalized. Lehman Brothers is a place I traded with for years. It’s disappeared, as has Bear Stearns. I’ve sold a lot of Freddie Mac and Fannie Mae bonds. They don’t exist anymore.

“I could sit back and say, ‘None of this really matters. Everything’s fine,’ ” Cramer added. “Or I can say, ‘Take some off, ride it out, put it in a savings account that’s insured for $250,000.’ To me, that’s [better] safe than sorry. Only in a jittery time would someone who says ‘be safe than sorry’ be pilloried.

“I like the stock market. I still recommend defensive stocks. I do one every night on my show. But I think I’m irresponsible if I tell you everything’s fine.”

Image: Specialist Gregg Reilly works at his post on the New York Stock Exchange floor
Richard Drew  /  AP file
A specialist on the New York Stock Exchange floor reacts to yesterday’s tumult. The Dow ended the day under 10,000 for the first time in four years.

Sound advice?
Michael Farr, the president and chief investment officer of Farr, Miller, & Washington, told Vieira that Cramer’s advice is sound during any market conditions.

“I’ve watched Jim for years, and I have enormous respect for him. And what I heard yesterday was a very sincere and thoughtful response after a weekend of thinking,” Farr said. “It shows you, I think, how serious our financial crisis really is. Our system is precarious.”

But, he added, long-term investors have no choice but to stay in and ride out the crisis.

“The S&P is now down over 30 percent in the past 12 months,” Farr said. “If the rule is to buy low and sell high, it certainly isn’t high. It could certainly go lower … but you ride it out, and you take a look at your shopping list and say, as Warren Buffet is doing right now, ‘I think there’s probably opportunity here for those with the perspective and the details and the willingness to do the work and find good value.’ ”

Farr harked back to 2000, when the Dow fell from 11,100 to 7,800. “We’ve been through these drops before,” he said. But he also acknowledged that the analogy may not be perfect.

“This one does feel different,” Farr said of the current crisis. “I certainly agree with Jim, but I could be wrong, certainly about when it’s going to turn, when it’s going to go up. And because we don’t know, the key is to be there for the entire time. Long-term, we’ll make money here.”

He said that Cramer may have been misinterpreted. “But, long-term, I wouldn’t be bailing out of this market now. It’s too late to bail.”

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