Part 2 CRAMER "DO WE CARE?" CRAMER
In the final 30 minutes of trading, the bottom fell out. The Dow was down 60, down 81, down 93. Tech stocks were bloodied. Dell, AOL, Yahoo, Qwest, Sun Microsystems, Intel were all down. Cramer was still worried about Intel. "I gotta sell another 10 Tel," he shouted. At the closing bell, the Dow was down 102.
"It's chaos out there," he said.
It was a rough period for Jim Cramer. The following week, the New York Times, which had just invested $15 million in TheStreet.com, nevertheless ran a tough piece on his lousy trading record during 1998. The story nagged at Cramer. So he'd made a few mistakes in an otherwise lucrative career. He was human. When the fund had a couple of good weeks, Cramer couldn't resist boasting about it. "This keeps up," he wrote, "and the New York Times might have to write a story about me that says I am not a bum!"
Feeling battered by criticism, Cramer was more determined than ever to show up his de- tractors, and he viewed TheStreet.com as a prime opportunity to do so. People had snickered when he started the yellow-tinted Web site, with its heavy emphasis on columnists and market analysis, and it began hemorrhaging money. But now, after three years of struggling to keep the operation afloat, Cramer felt that he was on the verge of vindication. He was ready to take the thing public and cash in on the Internet gold rush.
When TheStreet.com's initial public offering hit the market on May 11, 1999, it was a smashing success. The office at 100 Wall St. had been incredibly tense until CNBC announced the opening numbers. Goldman Sachs had originally planned to price the stock around $11 a share, but the premarket buzz boosted the opening price to $19. From there it quickly soared to $71 a share, leaving Cramer, who owned 14 percent of the company, sitting on a stake worth $220 million-all this for a 100-person news service that he had begged corporate buyers to take off his hands for two years. A colleague dumped a big box of confetti on him, and he paid a congratulatory visit to TheStreet.com offices.
Cramer was touched when his father, Ken, bearing a big bag of Philadelphia soft pretzels, came up to New York with his sister, Nan. "Mom would be very proud," Ken Cramer said.
After a celebratory dinner with his family that night, Cramer said he had to go to bed early so he could make his usual 5 a.m. arrival at the office. Nan thought he was crazy not to take a few days off, not to stop and smell the flowers of financial success. "At a certain point you're supposed to relax," she said. But he was hard-wired to work like a maniac.
"You're nuts," his wife told him. TheStreet.com had put a great strain on their marriage. He felt he didn't see enough of his two girls; in fact, he had been on his cell phone in the delivery room, talking to his office about the latest market crisis, when his younger daughter was born. Now, amid the celebrating, Karen made clear she wanted part of her husband back.
His father had sold gift wrap six days a week for a living, but Cramer had millions of dollars in the bank. What was his excuse for working as hard as his father? The problem, Cramer felt, was that he had a responsibility to his investors to work crazy hours. He had something to prove after his poor performance in 1998. To tell his investors that he had missed an important trade because he was trying to be a better father wasn't an adequate answer. Fifteen years ago he simply would have worked every night. But he was now 44. On Friday nights, when the limousine drove him home to New Jersey after a long week, he would be asleep in the back seat before they crossed the river. He was getting too old for all this. Something, he felt, had to give.
By the fall of 1999, Jim Cramer was worried sick about losing his baby. He was obsessed with TheStreet.com, which he had labored so hard to bring into the world, and now, just six months after the euphoria surrounding its stock-market birth, the company was secretly being offered for sale.
No one outside a small circle of insiders knew what was happening. Cramer continued to write for the Web site, fulminate on his new Fox News Channel show, hawk the product in hard-sell television ads. But TheStreet.com was on the block, and he was heartbroken.
Cramer was at war with the company's CEO, Kevin English. It was, in many ways, a classic struggle between a company founder and the professional manager brought in to run the firm. To Cramer, TheStreet.com, with its growing band of 94,000 subscribers, was a vibrant community bubbling with the potential to become a brand-name franchise. But the stock had been steadily sinking, and English, after evaluating the business model and the mounting losses, had concluded that the stockholders might best be served if he found a buyer.
Cramer had recently patched up his long feud with Marty Peretz. He admitted that he had been wrong to demand the extra stock in TheStreet.com, that he shouldn't have sent a couple of nasty e-mails behind Marty's back, that he had sacrificed their friendship for the sake of business. "I've been out of control," he told Peretz before the two men collapsed into each other's arms. Now they formed an alliance against their handpicked chief executive. Back in June, English had sent the board of directors an e-mail saying that Cramer and Peretz were becoming intolerable. Cramer felt the die had been cast: him or me.
Over the summer, English had quietly explored selling TheStreet.com to an online rival, CBS MarketWatch.com. The deal didn't materialize, but weeks later English told the directors by e-mail that he was now negotiating to sell the site to E*Trade, the online brokerage firm. There were also talks with other online business sites.
Cramer pleaded for a reprieve. Give us a year to improve the financial picture, he told English. But the CEO was apparently convinced that TheStreet.com's paid-subscription model didn't offer much hope for a turnaround. When the third quarter results came in, net losses had doubled to $7.8 million, and the red ink had now produced a cumulative loss of more than $35 million.
Things came to a head at a scheduled board meeting on October 18. Cramer had to leave early for a scheduled chat on Yahoo, and he departed with a blast.
"You guys do whatever you want with the company," Cramer barked. "You want to sell it? Fine!"
The board went into executive session and voted to dump Kevin English. When TheStreet.com made the ouster public on November 5, the stock got hammered. After the Web site moved the story at 2:42 p.m., the stock dropped more than 11 percent, to 16 7/16, below even the original offering price on the day of the IPO.
It looked like a total fiasco, Cramer knew. Investors must have smelled something fishy when the CEO is ousted after a year. The coverage, naturally, was negative. Business Week dubbed the company "TheDive.com."
The irony was inescapable. Jim Cramer made his living trading and writing about stocks, and the surge in Net stocks was carrying his hedge fund toward a smashing annual gain of 63 percent. But he was learning from the inside how hard it was to launch a dot-com company whose market wealth far exceeded its meager resources, and how frustrating it was to watch the stock price plunge after the Internet wave had carried it so high. Cramer felt awful because his father, his friends, even his personal trainer had bought the stock and were taking a bath. His personal bubble had burst.
Cramer was convinced that the stock would rebound, and he bought 60,000 shares for his hedge fund, shelling out more than half a million dollars. Then he took his family to London for a week, trying to get unplugged, refusing even to bring his laptop.
It didn't work. When he returned to New York, Cramer was in one of his obsessive periods where he couldn't think about anything else. Even when he was coaching his daughter's soccer team, he was brooding about how to save TheStreet.com.
The problems didn't vanish with English's departure. Cramer was starting to feel like a pariah at the company he had co-founded, which was finally dropping the subscription fees that he had long championed. He believed there was a faction on the staff that felt he had no business writing about stocks while he was trading them. Cramer wanted more than anything to be taken seriously, to be respected, and he felt that was the case everywhere but at his own news service.
One Sunday, Cramer told Karen that he didn't like the Web site's message boards.
"I hate TheStreet.com!" she screamed. "Just don't talk about it any more!" Karen felt that her husband was a perfectionist who was never satisfied. She had asked him a dozen times to keep Street.com talk out of the house. They had plenty of money. Who the hell cared about this Web site that he didn't even control? "This is my legacy," Cramer explained.
"Your legacy is not TheStreet.com," she said. "Your legacy is your children. Stop it!"
Cramer couldn't help it. He was totally stressed out. He felt so closely linked with the goddam thing. He had helped create a great product, but his vision was being corrupted and he felt that he was barred from doing anything about it. People didn't understand that he was just one of seven company directors and had agreed from the outset that he would have no editorial control over the product. But he was the public face of TheStreet.com, and now, in the ultimate indignity, the stock was in the toilet. As Cramer knew as well as anyone, there was no room for sentimentality in the shark- infested waters of Wall Street.
The big one arrived on Friday, April 14, 2000, a full-blown, white-knuckle, breathtaking market collapse. It struck with devastating force, causing carnage in the Dow, the Nasdaq and the S & P. Triggered by rising consumer prices that exacerbated Wall Street's ever-present fear of inflation, the financial quake had an almost apocalyptic feel, as if it were a cosmic punishment for all the wild-eyed investors who had been swept away by the euphoria of 1999.
Nearly everyone had been mesmerized by the longest-running bull market in history, as companies with cool-sounding dot-com names and shaky business plans doubled, tripled or quadrupled in value overnight. In 1999 the Dow had broken through 10,000, then 11,000, and the Nasdaq had soared a spectacular 86 percent, the greatest one-year return of any stock market in American history. Bullish commentators argued that the glittering New Economy had repealed the old rules, that earnings didn't matter, that Internet companies could lose a bundle and still be a great bet for the future. The dwindling number of bears warned that this Internet insanity could not last, that one day there would be an awful reckoning. And now, with stunning swiftness, they seemed to be right.
By 10 a.m., Jim Cramer was worried about a crash. The Nasdaq, after all, had dropped every day that week, by 258, 132, 286 and 93 points, and the week's final day of trading could be the worst of all. At 12:30, Cramer was threatening to shoot the next person who asked where the market's bottom was. That was the problem. No one had a clue. Cramer started selling stocks. Everyone was selling. It was a tsunami of selling.
At 1:10, the Nasdaq was down 152 points, the Dow more than 300. Suddenly, the plunge began in earnest. Jeff Berkowitz argued that they should pick up some stocks at bargain prices, and so by 2:30 he and Cramer were buying Intel, Procter & Gamble, Merck, American Home Products and Mellon Bank. Prices kept sinking. They bought more Intel; it dropped again. They bought still more Intel, and again the price headed south. They had lost $6 million so fast that they could hardly believe it. This was the worst that Cramer had ever seen the market. Where was the goddam bottom? It was like being in a murky pit where no one could quite feel the edges.
His head was ringing. The atmosphere out there was one of fear, gripping fear. Cramer's own investors started calling, the first time that some of them had phoned since the October 1998 plunge that nearly wiped him out. They wanted to be reassured that he would be on top of the situation. The problem was, Cramer was scheduled to leave Monday on a long-planned Mexican vacation with his family.
At 3:30 the phone rang. It was Karen. She had already canceled his tickets. Cramer said he might still be able to make the trip.
"Jim, we're the largest shareholders in the company," Karen said. "It would be moronic for you to go." She was obviously right. If he bailed out at a moment like this, maybe it was time to retire. As stock prices rebounded slightly, Cramer found himself mediating a debate between Berkowitz and their head trader over whether to buy stocks in the hope that the market would rebound on Monday. They decided to commit $40 million. It was one pressure-packed roll of the dice.
At the closing bell, the Dow had fallen a stunning 618 points, the worst point drop in its history. But the tech wreck was even worse. The Nasdaq had plummeted a record 355 points, completing a 25 percent drop for the week and a 35 percent decline from its high just a month earlier. One-third of its value had simply vanished into the ether.
The individual casualties were just as hard to grasp. In one day, Cisco had lost nearly $7 billion in value, Intel and Microsoft $5 billion. In just four weeks, TheStreet.com stock had plummeted from 14 to 51/2, a collapse of more than 90 percent from its opening-day high.
For Cramer and his fellow financial gurus, the manic pace of Wall Street life was like driving in a demolition derby, forced to compete at faster and faster speeds. Everything was a blur: the upgrades and downgrades trumpeted on cable, the Internet bulletins flashing across the screen, the chatter on the message boards, the analysts making ever bolder projections, the stocks ricocheting in ever wilder swings. Suddenly, racing around the track at 200 mph was no longer good enough; the drivers had to hit 500 just to keep up. A few months later, the once-unimaginable 500 seemed like a leisurely cruise, for everyone was now circling the track at 1,000 mph. To slow down was to fall behind, to lose traction, to crack up.
On the Monday after the crash, Cramer reaped $14 million on the stocks the firm had bought before the bell as the Nasdaq rebounded by a record 218 points. But the crash had changed everything, and Cramer was still struggling to cope with the wreckage. On the "Today" show, Matt Lauer asked whether the plunge in TheStreet.com stock meant that investors were telling him "the bubble has burst."
"Yes," Cramer said. "And I can tell you that it's a sobering and humbling experience. I went from being top of the game to being pretty humiliated."
What about the rest of the dot-com world? Lauer asked.
"It's over," Cramer declared. "The gold rush is over."
Was he right? Was the get-rich-quick mentality a thing of the past? Would there be another crash, a bigger crash, next week or next month? Who knew? This was, after all, the stock market, a strange and seductive land where, in the end, nobody knows anything.
By the summer it had become a long, hot grind. The days of easy money were over; the hedge fund had to settle for squeezing small profits one frustrating trade at a time. Cramer believed the long stretch of irrational exuberance had boosted TheStreet.com because so many average folks thought they could be brilliant day traders, thought they could be Jim Cramer. Now millions of investors felt burned by the market, were turning away from individual stocks and had little use for the Web site's offerings. Cramer, of course, had no such luxury. He had to keep on trading, keep on writing, keep on pummeling his critics. It was the only way he knew how to live.
© 2000 The Washington Post Company |
