“A lot of times when I was positioned short, meaning I needed [the market] down, I would create a level of activity beforehand that could drive the futures. It doesn’t take much money. Or if I were long and I wanted to make things a little bit rosy, I would go in and take a bunch of stocks, make sure that they’re higher, maybe commit $5M in capital to do it and I could affect it… No one else would ever admit that, but I don’t care…You aren’t allowed to foment, but you can do it anyway because the SEC doesn’t understand it. You can call a bozo reporter and tell him that a competitor is going to come out with a great product, and that can keep the stock down as well…”
On June 4, rumors started spreading about a possible merger between Wynn and MGM. Wynn’s stock jumped from $102 to $109 that day, or 7%. Guess what? We’re back down to $102 again. MGM also jumped on the reported rumors. But now the stock is down below pre rumor level. I guess the rumor mill died down.
The really interesting thing about this particular rumor, however, is that the only source for it is Jim Cramer, who simply blurted out that there were “rumors” on his Mad Money show on CNBC that day. Then, Cramer’s site TheStreet published a piece highlighting the fact that Cramer had said there were rumors about a possible merger between Wynn and MGM, on the same day. TheStreet even highlighted the Wynn move as its “Move of the Day” with a little 57-second video ditty about it.
Even more interestingly, Wynn Resorts showed up on the Wall Street Journal’s selling on strength list for June 4th, the day of the reported rumor, with a net negative outflow of $2.6M. Selling on strength means that while the stock was up, down tick volume was $2.6M heavier than uptick volume. Meaning, $2.6M more of shares were sold on a downtick than were bought on an uptick. $2.6M is not a very big number, but it shows that one or at most a few moderate-sized players with a few million dollars of Wynn stock to sell, did so by taking advantage of a heavy up day caused by rumors of a mega merger, and dumped shares below market, causing downticks.
Now, I have no moral problem with “fomenting” as Cramer likes to say, through rumors, as long as there is no outright fraud involved. Outright fraud would be something like announcing “Steve Wynn told me personally that he’s looking to merge with MGM” when Steve Wynn said no such thing. But saying “there are rumors” is more of a subjective statement. Anyone can start a rumor. Rumors don’t have to be true in order to exist qua rumors. That’s why saying that “there are rumors” is not fraud. Once you say it, there it is. The rumor exists. It’s now true that there are rumors, so there is no fraud in saying that there indeed, are rumors.
Fomenting is not just part of the stock market, but all markets through advertising any product at all. There is nothing wrong with it morally. You just have to know how to spot it. Advertise a cleaning product as the best ever and you make people want to buy it. Advertise a stock as about to rise very soon because of whatever reason and you make people want to buy it. But being a savvy consumer who knows what the real best cleaners are is more difficult. It is nevertheless the same principle as being a savvy investor who knows what the best stocks are and which are just hyped and rumored.
I don’t know the specific situation here, and I don’t know if Cramer is sharing what he knows, or at least thinks he knows. Maybe he is being honest. Maybe he really does know some inside information about a merger. But free advice is free. And evidence suggests, based on lack of any confirmatory reports, and Cramer’s own past statements about his own strategies, particularly about “moving a stock up, and then fading it,” (see 0:55 in the opening video link) that not all is what it seems:
There’s nothing about a Wynn MGM merger inherently that makes any sense. There is no evidence, besides Jim Cramer’s own statements and those sources citing those very statements, that anything at all is in the works.
The wider Chinese stock market has been very volatile in the last few weeks, and Bill Gross, the Bond King, has come out saying that China is his next short. If we are to compare Cramer to Groscs, Gross got ejected from Pimco after he began being bearish on bonds while heading the largest bond fund in the world. Talk about “fomenting” against your own interests. Gross was just being honest rather than fomenting, and he got fired for it. Technically he resigned before he was fired, but whatever. Now, unchained, he’s almost morbidly bearish on bonds.
Point being, if I had to take someone at his word, I’ll pick Gross, and he’s about to short China.
Wynn’s movement after Cramer’s reported rumor, first up 7% and then down 6.5% two days later, seems to have perfectly mimicked his “moving a stock up, and then fading it” strategy.
Don’t trust the rumors.