Imput from Cramer. An online newsletter I subscribe to.
Playing Red Rover with the Net
By James J. Cramer
2/4/99 7:28 AM ET
So now it's JB Oxford's (JBOH:Nasdaq) turn to shine. And National
Discount Brokerage (NDB:NYSE) and who knows what other brokerage
today. What a colossal joke this Net stuff has all become! These stocks are
trading for many times their float at the drop of a hat, as one day trader
after another piles in. The excuse yesterday? E*Trade (EGRP:Nasdaq)
was down, so other firms will see a surge in orders. Heck, that's good
enough for these guys. Guess they gotta raise the margin on broker stocks
now to cool those down for heaven's sake.
The foolishness of it all is so out of control that we ought to just set up a
whole bunch of dummy companies -- just stocks, no corporations behind
them -- and let the day traders romp through those. Make it kind of like a
giant game of Red Rover or something -- you know, like "Red Rover, Red
Rover, all of you pseudo-Net brokerage stocks come over!" -- and which
ever trader gets to the other side first gets a prize!
At least that way we wouldn't be kidding ourselves that it's serious, instead
of just some bizarro pile-on race to buy and sell before others wise up.
The basic irrelevance of the fundamentals hasn't been so manifested
since those lunatic days in Japan in 1987 and '88. Those of you who
traded during that period might recall getting calls from your Japanese
brokers saying, "Hey, there is some study out that says fish oil prevents
heart attacks, so we are taking up the fishery stocks tonight." And you
would buy 30,000 Nippon Seafood or something or other, and make 5
points just like that, as the brokers found someone else to hold the bag for
you the next day. We all know how that ended.
Of course, no one will put a stop to this U.S. craziness until someone is
completely annihilated, and right now, not only has no one been
annihilated, but the Red Rover players are making great money. Unlike
other schemes, where the pain of the longs was manifest almost
immediately, here only the shorts seem to get hurt, and nobody gives a
darn about those un-American losers.
"Red Rover, Red Rover, let all the Internet insurance and thrift stocks
come over! Catch you when you were ready?"
Chairman Greenspan likened this kind of buying to lottery tickets. There's
some truth to that analogy. You could be in the lucky winner if you pick
right. But somehow I think the game is much less random and more
opportunistic than the chairman suggests.
Take yesterday: I am listening to CNBC and suddenly I hear Ron Baron's
name mentioned as an upcoming guest. "Red Rover, Red Rover, let
Sotheby's (BID:NYSE) come over," I think to myself, as Baron long ago
identified the art merchant as the next big online play. But everybody
else has the same idea, and I have to pay up 2 points for Sotheby's the
moment that Baron is announced. Amazingly, again, in this "nobody
loses, nobody gets hurt" mode, I could still have made 2 points if I had
just been undisciplined enough to pay up 2 to play, as the less swift Red
Rover contestants and those hobbled by 28k modems actually waited
until Baron spoke to put their trades through and bought the darn thing
up 4! Red Rover's got its losers, but not enough to can the game.
OK, Cramer, what's your point? Very simple: When I buy Intel
(INTC:Nasdaq), I don't have to think, Hmm, maybe Red Rover's going to
call for all Internet DVD sites, so I better sell my Intel to rush into those. I
only have to worry about the fundamentals. That's a safer, more lasting
game. But, hey, who am I to try to put an end a good game of Red Rover
while it lasts? Anyway, when the kids lose interest in my neighborhood,
we switch to Running Bases! Lots more fun, but many more losers.
Random musings: I thought the 60 Minutes piece on Amazon.com's
(AMZN:Nasdaq) Bezos was actually well done last night. I am so used to
hack work about stocks from the networks that this bit of "stock" journalism
seemed like an oasis. I always cringe when the network boys venture into
stocks. It's like, Oh no, here they go, bungling into P/Es and pretending to
know what the Dow Jones Industrial Average is again. Periodically they
stray into sports, and everybody can fake intelligence about field goals,
whether in basketball or football. But it is always troubling when they start
talking about equities. Bob Simon did some homework. What a pleasure.
Speaking of Bezos, I threw a lot of people off with my convertible
discussion yesterday. Put simply, when you issue a piece of paper that
pays interest and is convertible into equity at some higher level, that is a
license to have people short your stock and buy the convertible to lock in
a rate of return -- the yield -- while profiting mightily if the stock goes
down. Anybody who played the Boston Chicken converts knows this. With
those, you got to participate on the downside with the stock if you shorted
it, and you got paid by the company while you waited for the common to
collapse.
Speaking of collapsing, does anybody know what the heck is happening
at Philip Morris (MO:NYSE), which I am long and maybe wrong in?
What happened to supporting your brands? Anheuser-Busch
(BUD:NYSE), where I am long and right in, has taken Morris' Miller unit to
the cleaners, and Miller still isn't spending to stop the decline.
Remember when Miller Lite owned the category. Bud Light has crushed
it. Makes me think the two guys in the ad would take the toilet paper over
Miller Lite! This Miller dive is one of the great brand declines of the '90s.
I can figure out Pabst and Hamm's and Schlitz and Stroh's and Peels
and Schmidts and Ballantine -- heck, they didn't have any big money
behind them. But Miller? Go figure.
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com. At the time of publication, his fund was long Philip Morris,
Anheuser-Busch, Intel and Amazon.com, though positions 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 comment on his column by sending a
letter to TheStreet.com.
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