Back on April 13, when Abmac hit over $2/share as the HFT swarm of locusts decided to make the insolvent mortgage insurer its plaything, we highlighted Cramer's call that even though the company is bankrupt, investors should "chase it" there. To wit, the CNBC pumper said: "The purists out there have spurned these points. I could care less about purity. I could care less that someone might be able to say Cramer likes worthlessness. But the !@#$% animal spirits have it going, and a worthless stock can be worth something if it moves up that much and starts offering equity or bonds against it." We are not going to say that Cramer likes worthlessness. For that to be the case, Cramer should be able to voice a reasonable argument for or against over/under-valuation. He has proven time and again that he is completely unable to do that. Instead, all Cramer does is recommend stocks that go up or down, and throws his viewers into the lemming vice, while constantly hiding behind his disclaimer. Unfortunately for those who listened to Cramer, as he predicted that his situation is "real. [It is] happening. [It has] happened. And this is one of them that I feel is destined to happen again" are now facing yet another complete loss, as the stock opens trading at pennies in anticipation of Chapter 11, and as Cramer esposued momentum trading is proven once again to be lead to nothing but financial ruin.
Chart below shows how ABK has performed from the date of Cramer's recommendation.
And here is the original Cramer note from April 13:
Give Me Some of That 'Worthless' Ambac
04/13/2010 11:49 AM
I hate Ambac Financial (ABK - commentary - Trade Now). I believe the current stub of equity is worthless. The claims are too big and the cash too small. But so what.
That's painful to write. Especially, when you consider the Columnist Conversation tune of Tim Collins, and the excellent work by Andrew Wessel at JP Morgan backing up that analysis.
But it doesn't matter. You could argue that none
of these insurers are technically solvent: Radian (RDN - commentary -
Trade Now), PMI (PMI - commentary - Trade Now), MGIC Investment (MTG -
commentary - Trade Now), MBIA (MBI - commentary - Trade Now). It hasn't
meant a thing.
MGIC has rallied 400% during its extended period of "worthlessness." I want some of that worthlessness. Radian's up 600% during its "worthless" period. I would have liked a piece of that worthlessness. How about grabbing a hunk of the 800% rally in the "worthless" PMI? Wouldn't that have been delicious?
Do you hold your nose and buy ABK because of those rallies? I believe, oddly, yes. Now, there is simply no percentage in admitting you would ever recommend a worthless security. But this is a game of performance, not a game of valuation. There are plenty of genuinely worthless stocks that have gone up huge. There are tons of cases where gigantically worthless stocks -- almost every dotcom circa 1999-2000 -- gave you great returns.
The purists out there have spurned these points. I could care less about purity. I could care less that someone might be able to say Cramer likes worthlessness. But the !@#$% animal spirits have it going, and a worthless stock can be worth something if it moves up that much and starts offering equity or bonds against it.
Again, I hate these situations. But they are real. They are happening. They have happened. And this is one of them that I feel is destined to happen again.