Wrong! Rear Echelon Revelations: Cramer Responds on WavePhore
By James J. Cramer
12/7/98 9:31 AM ET
(stolen from Yahoo, stolen from thestreet.com)
When a stock doubles overnight, the first thing I do is presume there could be a short squeeze going on.
I think that because in my lifetime, I have not seen that many stocks double in a day or two, except
when they have been squeezed up.
Last week, before I went on CNBC, I was given a set of documents about a company called
WavePhore (WAVO:Nasdaq). I read through them and did not see anything that would have led me to
believe that this stock should have gone from 5 to 15 in the last month.
So, I asked my trader to find out if WavePhore could be "borrowed," and whether 25,000 shares were
available. Before you short a stock, you must see if it can be borrowed because you are selling that
borrowed stock. (If you owned it, you would have a long, not a short sale.) My trader called me back a
moment later to tell me that WavePhore could not be shorted because it could not be borrowed. In
other words, Goldman Sachs would not allow me to short the stock, because after I sold it, Goldman
would not be able to send out any shares from its vault to complete the trade.
Why the big explanation about my recent Squawk Box appearance? It seems that my public discussion
of how to short a stock has elicited all kinds of angry reactions from WavePhore and its shareholders. I
have become the target of death threats on Yahoo! bulletin boards. The company, in issuing a press
release about my CNBC appearance, has referred my comments to the Securities and Exchange
Commission and Nasdaq and reporters have called wondering what happened. Moreover, as I said on
CNBC, I did not have and do not have a position -- long or short -- in WavePhore.
As a columnist, I have backed the Internet revolution like nobody else. I believed in stocks like Yahoo!
(YHOO:Nasdaq) last year, well before it was fashionable. But I have also tried to point out the games
that the big boys sometimes play. In this case, I was doing my best to give an example of how a short
squeeze can occur. To me that seemed like a valuable piece of information that the marketplace should
know about before it leapt in to buy a stock that had just moved from 5 to 15.
As many Internet-related stocks have had similar bolts, and I fear that the people who watch CNBC
will get gaffed when the squeezes on these stocks subside, I wanted to be sure people know why I
think, in part, these stocks are ramping in this fashion. I never intended to short WavePhore -- I couldn't
anyway, it would never be allowed. My sole point was to illustrate to those who do not know the
mechanics of the business of stock trading that this stock was "tight," which often leads to a spike until
enough stock can be created or sold. (On Dec. 2, the day that I spoke, C. Roland Hayden, a director,
filed to sell 50,000, by the way.)
Since then, David Deeds, the president and CEO of WavePhore, has called for an investigation of these
events by the SEC and Nasdaq because the stock fell significantly after the interview.
As I neither shorted WavePhore's stock nor spoke to anyone in the investment community about my
questions for WavePhore, such an investigation seems warrantless. In fact, I don't care where
WavePhore trades. I do want to try to explain why I believe that some of these bizarre moves on
Internet-related companies can't be justified just on fundamentals. |
