DJ: WEEKEND JOURNAL --- Wall Street's Master of Mischief ---- By Roger
(Wall St. Journal Full Text 05/10 02:01:30)
Lowenstein
TRADING WITH THE ENEMY
By Nicholas W. Maier
(HarperBusiness, 192 pages, $22.95)
CONFESSIONS OF A STREET ADDICT
By James J. Cramer
(Simon & Schuster, 339 pages, $26)
HERE WE HAVE two portraits of James Cramer, a Wall Street trader and
consummate insider known to the investing public for his loud and enjoyable
commentaries on CNBC.
Nicholas Maier, a protege at the hedge fund that Mr. Cramer used to run,
depicts him as a profane madman who could so little suffer losing that the
slightest inconvenience caused him to hurl telephones, computer keyboards,
monitors and other projectiles at his employees.
"Trading With the Enemy," Mr. Maier's fast-moving account of his time in the
Cramer office, shows his boss screaming (and swearing) even at his
psychiatrist, not to mention the author, who is ultimately reduced to a diet
of tranquilizers. The book captures the feeling of Wall Street as seen
through the eyes of a neophyte and also levels a sharp critique: that Mr.
Cramer's phenomenal record benefited from unfair access to inside dope.
"Being a Wall Street insider," Mr. Maier writes, "means getting the news
before it's news." (Apparently it also means being ratted on by one's
staff.)
In one cute trick, Mr. Cramer would canvass securities analysts to see
whether they were contemplating ratings changes. When he learned of one, his
"strategy was to put in his order to buy a stock . . . and then dial Maria"
-- Maria being the widely watched Ms. Bartiromo of CNBC. "As soon as she
announced the news on television, the stock would often jump."
Though a creepy tactic, this was not using inside information in a legal
sense. Mr. Maier cites one possible instance of the latter but was forced,
post-publication, to withdraw the offending passage, which contains
"erroneous information" according to an embarrassing erratum notice from the
publisher. Both this and Mr. Maier's scarlet subtitle ("Seduction and
Betrayal on Jim Cramer's Wall Street") suggest that the author would have
liked to toss a phone or two at Mr. Cramer and ended up writing a memoir
instead.
In any case, his argument that Mr. Cramer manipulates a network of gossip is
amply demonstrated in Mr. Cramer's own memoir, "Confessions of a Street
Addict." Mr. Cramer not only traded on advance news, he admits; he adroitly
massaged it. "We became merchants of the buzz," he writes of his hedge fund,
"getting long stocks and then schmoozing with analysts about what we saw . .
. . We would work to get upgrades or downgrades because we knew, cynically,
that Wall Street was simply a promotion machine."
Mr. Cramer says that he was acting as "a conduit" for buzz, but it sounds as
if he was also manufacturing it, in his words, to "pick up some quick
profits." This suggests the frustration with Mr. Cramer, an often charming
and self-deprecating character who seems to have spent his career perfecting
a narrow and ultimately impoverished art.
This is not to say that Mr. Cramer's Wall Street life has itself been
narrow. In the past 15 years there is little that he has missed. The Crash
of '87? He bailed out in time. The Cendant scandal? He was hosed. The
dot-com mania? He was a player. Personal celebrity and a passing brush of
scandal? He's been there, done that. He even participated in a failed plot
to take over Dow Jones, The Wall Street Journal's publisher.
Reared in Philadelphia, Mr. Cramer was a childhood stock junkie with a taste
for action. As a news reporter, his first career, he was briefly homeless,
which stoked his desire for money. He made it to Harvard Law School, but
while other students were buried in case books Mr. Cramer was chatting up an
antitrust professor, wondering if the government would let Gulf and Chevron
merge. (Mr. Cramer was buying options.) He also left stock tips on his
answering machine. Martin Peretz, owner of the New Republic magazine, got
one and staked Mr. Cramer to his first $500,000. Eventually Mr. Cramer's
fund grew to $325 million.
The story Mr. Cramer tells is often witty, as when he recounts throwing up
on the increasingly estranged Mr. Peretz. And the author spares neither
himself nor his many antagonists. But when he launches TheStreet.com, a
puzzling disconnect becomes apparent.
As a hedge-fund manager, Mr. Cramer bought Internet stocks that he knew were
worthless simply because they were hot. But as a dot-com principal he wanted
to nurture his business and had an instinct for distinguishing what was real
from mere hype. Indeed, he is repelled by Wall Street sharks whose interest
in TheStreet.com extends only to its initial public offering. By contrast,
Mr. Cramer recognizes that the road show to market the IPO is an elaborate
bit of theater to dazzle traders like himself and now regrets the
distraction it causes to management.
When the absurdly priced stock triples on the first day, a horrified Mr.
Cramer tells his dad to sell. Two months later, when Goldman Sachs, the
underwriter, hosts a dinner party to toast its supposed "partnership" with
TheStreet.com, the start-up's stock has already plunged, and Goldman is
losing interest. "Excellent Cabernet," he muses, was "the only thing that
Goldman ever really gave us."
So Mr. Cramer, who has been running money by the stopwatch, is disenchanted
by Wall Street's lack of loyalty! The irony heightens toward the book's
climax, when Mr. Cramer's fund suffers its first bad year after 10 good
ones. None of the market "patterns" that Mr. Cramer relies on are working.
To make matters worse, Long-Term Capital Management, the genius hedge fund,
implodes, roiling markets and Mr. Cramer's financial stocks. Suddenly his
investors want their money back. As he struggles to save the fund, he
wistfully observes that his money-losing dot-com is being deluged with
capital while his long-profitable hedge fund is suffering a run on the bank.
And true, his hedge-fund investors are fickle. But they are only imitating
the master. Had Mr. Cramer held onto his stocks (say, for an entire day),
analyst upgrades wouldn't matter, but since he trades by the minute, each
little shift in sentiment assumes monstrous importance. In fact, only
sentiment is important. The "heat" of a stock is all that matters to him; by
the time the substance emerges, he is gone.
Although "Confessions of a Street Addict" is filled with business wisdom, it
never occurs to Mr. Cramer to apply it to his own trades. Instead of using
his common sense to anticipate earnings and the like, he studies the tape
like a monk poring over ancient scrolls for a key to the future.
But the tape never stops, which is why he awakens in a sweat at 3:15 a.m.
and why he was talking about the Fed virtually while Mr. Cramer's wife --
his "goddess" and savior -- is giving birth to their second child. Little
surprise, in this surprisingly affecting memoir, that after he quits
professional money management to become a soccer dad he also becomes a
better investor.
---
Mr. Lowenstein, the author of "When Genius Failed: The Rise and Fall of
Long-Term Capital Management," is writing a book on the dot-com bubble.
05/10/2002 02:00 |
