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Original link: http://www.forbes.com/home/management/2005/08/18/cramer-cnbc-madmoney-cz_pl_0819cramer.html

Funny Money
Peter Lattman, 08.19.05, 6:00 AM ET

Aug. 2 was a lackluster day in the trading of high-flying tech stock Syneron Medical. It barely budged, dropping a mere 9 cents to $40.85. After-hours action also looked blasé until 5:33 P.M. EST, when "freedompartner" posted this on Yahoo!: "Cramer said buy ELOS before earnings: Just finished taping the show. He loves ELOS." The message referred to market pundit James Cramer and his wildly successful CNBC show, Mad Money.

Syneron (nasdaq: ELOS - news - people ) began moving higher and trading picked up. That night on Mad Money, which CNBC tapes from 4:30 P.M. to 5:30 P.M. EST and broadcasts from 6:00 P.M. to 7:00 P.M. EST, Cramer indeed touted Syneron's laser products' ability to smooth away cellulite. "I am sticking the proverbial neck out" and telling you to buy ELOS now before earnings, he exclaimed. The stock spiked to $45.46 in after-hours trading on volume of 300,000 shares.

What happened? Apparently someone called Mad Money during taping for the Q&A segment, heard the tout while on hold and disseminated the information on the Web before the show aired, against CNBC's admonition.

A taped recording warns callers that they will hear the show and must agree to not disclose or trade on information discussed prior to that information being mentioned during the during the 6 P.M. airing. "This is extremely important," counsels the recording, "and if you cannot abide by this rule, please hang up now."

Transgressors can, of course, ignore the instructions, remain on the line and spread Cramer's picks. Should that happen, says a CNBC spokesperson, that person "would be banned from participating in all future programs, and the network will consider appropriate legal action based on the specific facts involved."

As it happens, viewers who bought ELOS got burned two days later. Syneron's earnings disappointed, and the stock fell back to its earlier level. On Thursday, it was trading at $36.83.

For two decades, Cramer, 50, has told America what to buy and sell in print (SmartMoney, Time, New York), on the Web (TheStreet.com), on a radio show and now on TV. He also ran a hedge fund, Cramer Berkowitz, that claimed a 24% annual return, after fees, over 15 years. He burned out and retired in 2001.

Since its March debut, Mad Money has become CNBC's second-highest-rated program, in what was previously its lowest-rated time slot (except for the 5 A.M. show), drawing nearly 200,000 viewers five nights per week. The show amounts to Cramer being Cramer--as raw and uncensored as ever. He feverishly bounces around the studio, rants at the camera and bangs on buttons blaring the sound effects of cash registers and bowling pins, growling bears and raging bulls.

He's also spawned a burgeoning subculture of trading types looking to make a quick buck off of his calls. With a flat market and dormant volatility, brokers and traders are desperate for anything that moves stocks, and in Mad Money they've found their Messiah.

Aside from Yahoo!'s (nasdaq: YHOO - news - people ) boards, which are replete with Cramer references, there are at least three independent Web sites devoted to Mad Money. (Cramer's TheStreet.com also devotes substantial coverage to the show.) It's not just chat-roomers paying attention. Brokerages such as Cantor Fitzgerald include Cramer's picks in their research notes, which are distributed to mutual fund and hedge fund clients.

"At first, we didn't cover Mad Money's picks, but our customers kept talking about the show's impact," says Damon Southward of Briefing.com, a news service used by investors that now includes the show's content in its product. "We need to stay on top of volatility, and if there's one thing Cramer creates, it's volatility."

Southward says that while he's seen other commentators affect markets, such as Dan Dorfman, Business Week's Gene Marcial and TV host Louis Rukeyeser--Cramer's show has a more widespread impact.

"Cramer weighs in on dozens of stocks every show," explains Southward. "Increasing the show's effect is a robust after-hours trading market--viewers buy and sell stocks while watching the show."

Earlier in his career, Cramer raised eyebrows as one of the first money managers to write about stocks. In 1995, the SEC investigated whether he broke any laws writing columns about his holdings. Cramer was exonerated, but disclosures and disclaimers were added to his stories. They have followed Cramer ever since, but none as long-winded as Mad Money's. In the show's opening minute, a 263-word disclaimer scrolls down the screen (in a tiny font). Callers are subjected to an even lengthier two-minute disclosure recording.

Despite the cautious measures, it appears CNBC is still grappling with the mysterious ways in which Mad Money moves stocks. On Aug. 8 around noon, CNBC announced on its Web site that Charles Goodson, chief executive of PetroQuest Energy (nasdaq: PQUE - news - people ), was going to be Cramer's guest that evening. PetroQuest promptly surged 7% on four times its average volume. Chief executive appearances are typically positive, and Cramer is bullish on oil stocks.

As it turned out, Mad Money had booked Goodson for the following Monday. Informed by Forbes of the error, the network removed Goodson's name from the Web site and canceled his appearance. It also decided to discontinue posting Mad Money guests on its Web site prior to the show's broadcast.

"CNBC will continue to take steps to ensure that the integrity of the program remains intact," says a CNBC spokesperson.

While it might be able to protect the show's integrity, CNBC can't control whether the show achieves its stated goal--making people money.

Last Monday after a weeklong Hawaiian vacation, a bronzed Cramer returned to CNBC's studios as unhinged as ever. He immediately trumpeted his pick of the week--Dick's Sporting Goods (nyse: DKS - news - people ), the athletic-gear and apparel chain.

"This is the best story you've never heard of," he enthused, urging viewers to buy Dick's ahead of its earnings announcement the next morning.

Although Cramer warned his disciples only to buy with a limit order to prevent the stock's spiking, Dick's popped 7% to $41.93, trading 300,000 shares during Mad Money. By comparison, Cisco Systems (nasdaq: CSCO - news - people ), which traded 60 million shares in Monday's regular session, traded only 12,000 shares between 6 P.M. and 7 P.M.

Tuesday morning, Dick's sliced its 2005 earnings forecast, and the stock tanked, closing down 20% at $32.90.

Enraged, Mad Money viewers flooded Dick's Yahoo! message board with anti-Cramer tirades, many of them--there were over 1,800 posts that day--unsuitable for reprinting on a family Web site.

That evening, Cramer--with an "Eating Crow" graphic prominently displayed behind him--issued a mea culpa, repeating five times "I was wrong." But don't dwell on your mistakes, he exhorted: "Bottom line: You have to move on and get back into the game!"

Many Wall Street watchers don't think it's a game.

"Cramer's moving the markets like the star Internet analysts did during the tech bubble," says Jacob Zamansky, an attorney representing individual investors. "He's got a big following of people who think they're acting responsibly by following Cramer's advice--but in reality he's dangerous to their health."
 

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