Hedge Funds Gone Wild

Hedge funds have more control over stock prices than market and business fundamentals, Cramer said yesterday during Wednesday’s show, but now it looks like at least two companies are fighting back.

Yesterday Cramer explained how massive hedge fund selling has been forcing down commodity-related stocks. It’s true that the fall of commodities themselves is partly to blame, but the rate of decline for the sector’s stocks has far outpaced that of oil, natural gas and other resources. So what’s going on? Investors in poorly performing hedge funds are demanding their money back, so the funds are dumping millions of shares into the open market to generate cash.

The trend has been enough to drive both investors in and CEOs of these commodity-related companies crazy. But today Joy Global and CSX pulled a Howard Beale, declaring they’re mad as hell and they’re not going to take it anymore.

Mining-equipment maker Joy Global, a strong company with big business in China, has been hurt by the hedge funds as much as any company. After taking a serious hit for missing earnings Sept. 3 by 7 cents (even though it saw a 139% jump in orders), JOYG dropped to $53 from $61 in one day. And that’s after coming down from its 52-week high of $90 a share.

But now the company plans to buy back a full two-fifths of its capitalization. Two billion dollars worth of this $5 billion company will be repurchased. CEO Michael Sutherlin, who appeared recently on Mad Money, has had enough and he’s putting a floor under his stock. Granted, the fact that JOYG is only up 12% today shows you that this market is still out of control, but this is still a big move.

Then there’s CSX. Homegamers have seen CEO Michael Ward on Mad Money plenty of times of the past few months. He’s been fighting an internal battle for control of the company with two hedge funds, but luckily for shareholders he’s managed to keep his job. The hedge funds had said that Ward wasn’t doing a good enough job unlocking value, but just today CSX preannounced better-than-expected earnings for the next quarter. As a result, the stock rose 11% Thursday.

There’s no doubt that out-of-control hedge funds are still driving this market, but at least some firms are starting to push back.

“It may not mean much for the stocks yet,” Cramer said, “but it will when the rabid money managers finally finish selling.”

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