JAMES CRAMER: A TRADER WHO SEES ONLY GOOD TIMES AHEAD

If any one trader epitomizes the vitality of the technology-driven bull market, it would have to be James J. Cramer. While Goldman Sachs guru Abby Joseph Cohen and Prudential Securities' technical analyst Ralph Acampora have received much-deserved acclaim for predicting the rise of the Dow to nosebleed levels, nobody has been a louder cheerleader than 43-year-old Jim Cramer. Whether in his GQ magazine columns or in his daily dispatches at TheStreet.com or in his Tarantino-esque ramblings on CNBC's Squawk Box, Cramer has been the court jester of this bull market -- pontificating, cracking jokes and, above all, making money.

While Cramer has made a name for himself as a columnist on market matters, his primary occupation -- defined as the one in which he makes most of his money -- is managing several hundred million dollars worth of hedge fund money at Cramer, Berkowitz and Co. His specialty is day trading, which means that he buys and sells millions of shares of individual stocks on a daily basis. He is believed to be one of the biggest generators of commissions of any individual fund manager on Wall Street.

If there is one guiding ethic that Cramer trades by, it's the divine rule of momentum. He'll buy the stocks of good growth companies, no matter what the price, as long as the long-term valuation of the company makes sense to him. He sees no end in sight to the long-term economic boom the U.S. is now enjoying. As he puts it in one of his columns: "Every time we (money managers) get negative, remember that the companies themselves don't see it that way. They see value. They are not focused on the Fed raising interest rates a quarter point."

Cramer points out that a confluence of events, from the emergence of the Internet to Moore's Law (which predicts the steady decline in the price of computing power) to the collapse of communism have all led the economy to green pastures. And he argues that it will be hard to keep investors from bidding up the companies that are benefitting the most from the new economic order. Cramer writes off the market's recent fluctuations as merely a sideways move before stocks start to rise again.

His worst fear, though, is Alan Greenspan. In numerous columns he has begged, pleaded, and threatened the Federal Reserve Open Market Committee, which sets the Fed Funds rate, in an effort to persuade it to keep interest rates low. He scoffs at the concept of using an increase in rates as a tool to keep the market from overheating. He also doesn't agree that inflation is on the horizon, pointing to how cheap technology has become in the last 12 months.

In one column he writes about his discussions with technology executives in the computer industry: "All are cutting prices, even though demand has been staying strong for capital equipment. All worry about their competition undercutting them in price. All lower prices systematically, whether demand calls for it or not. That's why we can have high GDP and low inflation. That's why the Fed's vigilance seems so misplaced."

Someone on Wall Street who dares to question Alan Greenspan? It would be heresy for anyone else besides perhaps Peter Lynch or Warren Buffet. But Cramer, although his trading philosophy differs drastically from the philosophy of those two buy-and-hold demigods, does share one important trait with them: Strong performance numbers. Although hedge fund returns are not public information, Cramer's are the stuff of whispered reverence. He will only say that he has beaten the S&P 500 every year since the founding of his hedge fund in 1987.

How has he done it? Partly by being in the right sector at the right time. During his early years as a trader at Goldman Sachs, he became a firm believer in the PC revolution and in technology stocks in general. Since then, he has held large long-term positions in companies that have defined the current market era, from Microsoft to Merck, from Cisco to Cendant.

He is also blessed with a near photographic memory that helps him keep track of statistics on hundreds of companies that would overload a spreadsheet program. Ask him what he thinks of any given large or mid-cap technology stock and he'll recite its last four quarters' earnings growth rates, its price to cash flow ratio and, if you catch him on a slow day, he'll even hum the company song. Cramer also has a well-constructed opinion on each stock, one which his fund's traders are probably acting on as he answers you.

One of his perennial favorites is Pfizer (PFE), which he holds up as a gauge of the market with a "Gibraltar-like balance sheet" and solid growth numbers. Nevertheless, he admits to being stymied about how to correctly value the revenue impact of Viagra and is now sitting on the sidelines for that stock. On the negative side, he won't touch tobacco stocks. Not for moral reasons, mind you, but because, as a graduate of Harvard Law, he is wary of the potential downside of tobacco industry litigation.

Cramer is as tireless a columnist as he is a money manager. He writes daily for TheStreet.com in addition to his regular column for GQ, and he does occasional pieces for Time magazine. In addition, he makes frequent appearances in the pages of the New Republic. He has a large, Hunter S. Thompson-like following of investing junkies and market mavens who read his Street.com columns religiously.

According to Cramer, The Street.com, which he co-owns with New Republic owner Martin Peretz, has 15,000 regular readers, each of whom pays at least $70 a year in order to read his column and other stock and fund coverage by a staff of more than a dozen reporters. He claims that his Internet site is meeting its milestones. And it has attracted investments from venture capitalists and even from corporations, such as The Walt Disney Co. Most of that money is being spent on marketing, Cramer says.

If there's anything that casts a shadow over his market boosterism, it's a dark episode from his journalistic past. In 1996, he wrote a Smart Money magazine column about his investments in a handful of tiny micro-cap stocks. Critics charged that he was artificially inflating the price of those stocks in order to sell them at a higher price to the enthusiastic readers of his column. In his defense, Cramer pointed out that he didn't sell the stocks.

The entire affair shouldn't have mattered anyway, he argues now, since a disclaimer was supposed to appear before each of his columns warning that he often takes positions in stocks that he writes about. But the disclaimer was missing from that particular column. Smart Money editor Steve Swartz blames an editing error, but the resulting furor, including an S.E.C. investigation (later closed after finding no evidence of wrongdoing), led to a parting of the ways between Cramer and Smart Money. He has since started writing there again.

Like the bull market, Cramer won't quit. In the wake of the Smart Money fiasco, he has been reborn as a widely read financial pundit. His underlying message: This market has plenty of octane left. For one thing, baby boomers are pouring more and more money into their investments, while technology advancements continue to improve corporate productivity and thus profitability. He scoffs at cynics who fear high price-to-earnings multiples and is willing to buy any good company with strong earnings growth, no matter how high its stock price, as long as the underlying economic picture remains stable.

Even if Alan Greenspan raises interest rates this summer, Cramer thinks that the fundamentals of the economy are so strong that the bull market will party on. And Cramer will probably be one of the last to get off this bull. In fact, he'll probably have to be thrown.

By Sam Jaffe
Markets Writer
Business Week Online