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Pricing Is a Sham

Jim Cramer

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If you are a fan of the stock market, as I am, you can't help but feel that you are watching a broken sport, one in which people lose interest by the day and one where you can't blame them for doing so.

Today's one of those days that just has me so steamed I can barely contain myself. The horror for today actually started last night when we got rumors of big deals about to occur for Dun & Bradstreet DNB and LabCorp LH . Oh my, how convenient. Two stocks that had been down on their luck of late and suddenly we hear about gigantic bids, which are then backed up by research analysts giving credence to both.

To me this one smells of the old BGL game, which is to bag them, gun them and liquidate them. In other words, get long some dog stocks, tout them as takeovers, get the whispers going and then, at the point when they are up huge, let them go before we get denials as we got from LabCorp almost immediately as trading started. One would think that if there were going to be a leveraged buyout of Labcorp, as speculated, it wouldn't be hostile. People lost fortunes if they bought at the high of the rumor mongering.

The whole thing stinks to me and I hope we get an investigation of what happened here. But I think we got this type of rumor mongering precisely because the perpetrators are confident that they will get away with it and the SEC won't do a thing.

Then we have the most distressing action of all, some sort of software glitch at a major firm, Knight Capital Group that basically created a huge number of phony prices for stocks at the opening. I know it seems like an honest mistake and I know that mistakes can happen. But the whole process seems corrupt to so many. It isn't corrupt, per se, but is it corrupted by the mechanical process of entering orders, which seems more and more fragile, compromised and broken after confidence-jarring incidents like the Flash Crash and the Facebook FB debacle.

Put simply, the market doesn't work enough to make it trustworthy and the SEC never seems to stand up and say "we have to do something about pricing integrity or we are going to lose the remaining everyday investors, who are the backbone of capitalism." The SEC seems to have total faith in the technology behind the stock market but the technology breaks too much to give it that much credit, if any credit at all.

I say it is time for the SEC to convene a panel of people who care about the everyday investor and analyze what's really driving them away. I think you will find that a lot of it is the inherent untrustworthiness of what used to be sacrosanct: pricing. Whether it is the speed of the Flash Crash or the manipulation of the ETFs to impact pricing or the corruption of opening trades, something has to be done in Washington to stem the madness, madness that the industry itself refuses to regulate.

It's funny. Football season's about to begin. I think about the NFL commissioner rigorously enforces and polices the integrity of the game itself and pricing, meaning the process of scoring, in a way that puts the SEC to shame. Heck, the SEC, meaning the Southeastern Conference of the NCAA, is more tightly regulated.

Let's face it, pricing's become a sham. The process is becoming disgrace. The asset class is broken. I can't blame a soul for abandoning stocks as it's only getting worse, not better, and there's no sign that Washington cares about the breakdown of the greatest capitalist entity mankind's ever invented.