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Turns out Legg Mason [LM
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] owned 12% of Freddie Mac [FRE
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]. In fact, LM was the failed mortgaged giant’s largest shareholder. Cramer wondered why such the “legendary” Bill Miller couldn’t see the collapse coming, the inevitable intervention by the government and what that would do to the common stock.
Miller made some other big mistakes, too, namely owning positions in Bear Stearns, Countrywide, Thornburg Mortgage [TMA
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] and Washington Mutual [WM
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]. The last two are trading at 41 cents and $2.83, respectively.
Then there are his positions in Yahoo! [YHOO
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] (Miller was against the merger, by the way), Qwest [Q
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], Eastman Kodak [EK
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], AIG [AIG
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] and Sprint-Nextel [S
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], which are down 50%, 59%, 44%, 77% and 59%, respectively.
If Ben Bernanke knew nothing, Cramer said, but “compared to Bill Miller, Bernanke’s a veritable Einstein.”
Legg Mason also was overexposed to those structured investment vehicles, the same mortgage-related securities that had even the highest-ranked financiers confused. The company said it still has $3.5 billion in SIVs, and $3.1 billion in cash, so it doesn’t need to raise anymore cash. But Cramer was pretty sure he’d heard that one before, and very recently.
Now, after all this, customers are taking their money and investing it elsewhere. Legg reported $18 billion in negative cash flow last quarter. Not good for a company that makes its money by taking a cut of the total assets it manages. Legg’s $923 billion is down 3% from the previous quarter and 7% from the previous year. And Cramer’s thinking it only gets worse once everyone finds out Legg owned so much Freddie Mac.
Just so you don’t think the overall market conditions are the problem here, let’s compare T. Rowe Price [TROW
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] versus Legg Mason during this same time period. As far back as Feb. 2, 2007, Cramer told viewers to switch out of Legg for TROW. Since then TROW’s up 21% and Legg is down 60%. Remember that $18 billion in cash outflow at Legg last quarter? TROW saw an inflow of 2%.
So again, Cramer recommended that, if you want to own an asset manager, you switch into TROW.
“When good money managers go bad,” Cramer said of Legg Mason’s Bill Miller, “don’t hope the glory days will come back. Just get out of dodge.”
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