Wrong! Tactics and Strategies
Time for Telcos to Ring the Bell
By James J. Cramer
11/8/00 1:33 PM ET
URL: thestreet.com
The Fed created two bubbles when it moved to navigate the banking system through shoals of Long-Term Capital Management's near-demise in 1998. Amazingly, two years later, both bubbles are going pfffft at the same time.
We all know that November of 1998 was the beginning of the dot-com hot air balloon as a raft of companies floated on the easy money that the Fed unleashed. Now, one by one, they drop. A handful will make it. Most won't.
But that was also the beginning of the easy junk credit for all of the telco networks. Tons got money and began the massive buildouts that have done so much to help the fiber, networking and high-speed broadband plays.
Will only a handful of those telcos make it? I don't think so. I think these are better businesses than the dot-coms and some of them have really excellent management and are funded much better than the dot-coms. They took all the money they could, they didn't do that sliver of IPO financing with the hopes that the equity markets would still be alive for more substantial secondary offerings.
That wasn't their game. They did billions in financing, not millions. And the demand for broadband is a heck of a lot stronger than the demand for MotherNature.com (MTHR:Nasdaq)and Pets.com (IPET:Nasdaq)and Furniture.com. These companies were responding to customer demand for broadband, not to stock market demand for hot issues.
It is important to put this positive spin on it because I find that when everyone knows of a problem, as I think everyone now knows of the telco financing problems, it tends to be late in the game.
I think that these companies will surprise us and more will survive than we think. ICG Communications (ICGX:Nasdaq), one of the failures, had to have been one of the worst-run companies I have ever seen. Having ridden it down from the $30s to the $20s I can safely say that management was just plain stupid. The industry wasn't stupid, though. The folks who run Global and Level 3 (LVLT:Nasdaq) and Qwest (Q:NYSE)are real smart and they are survivors. ICGX wasn't.
So, I put my bull cap on here, when everyone thinks that we have a second dot-com explosion in telco, and go the other way. I am looking to buy, not sell these companies now.
It is too late to sell them. That was something to do months ago when no one knew about the problems. Not now. Now we have to see what stocks we can pick up on the cheap that have been carried down with the ICGX and GST Global (GBT:Nasdaq)maelstrom.
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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Level 3. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to send comments on his column to James J. Cramer .
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