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Wrong! Tactics and Strategies: Big Al's Got a Message for Buzz and
Batch
By James J. Cramer
11/24/00 9:09 AM ET
Strangest thing happened the other day.
A man came to the office door. I happened to be opening some other
peoples' mail at the desk when he poked in. I almost dropped the
letter opener on my foot.
"Alan Greenspan?" I said, shocked that he would be on the 24th floor
of my nondescript office building. He ignored me.
"Is this the office of Buzz Gould and Batch Hammer?" he asked, and
for a moment I thought, "Maybe it isn't him, maybe it's not Andrea
Mitchell's husband. He's speaking way too plainly, with not even a
hint of obfuscation."
"No sir," I said, trying to figure out whether I was being
sycophantic or just plain emphatic. "I don't believe those gentlemen
are working the day after Thanksgiving."
He looked puzzled for a second, stroked his chin and said, in that
avuncular way he addresses some of the more stupid congressmen at one
of those darned Humphrey Hawkins interruptions -- you know that
patronizing tone --"Perhaps you are familiar enough with them and
their peculiar performance methodology?"
I assured the great man I knew all about their incredible scheme to
prop up their stocks in order to get more money to continue to propel
their stocks higher, a sort of perpetual-motion performance machine
that has nothing to do with the actions of companies themselves --
neither their net worth nor their prospects. I said it all in
incredibly compound and complex Latinate phrasing, to show the Fed
chief that I, too, could speak in ways that required difficult
parsing and impossible textual analysis.
He smiled. He felt at home.
"Mind if I come in and sit at your trading desk for a moment, as I
have a message for your friends Mr. Gould and Mr. Hammer?" I assured
him that they were no friends of mine in style or methodology. In
perhaps a subtle attempt at humor, he asked me if they made fun of my
balding pate. I chose to ignore the riposte.
The distinguished Fed chairman then pulled up at the desk of Matt "M-
2" Jacobs, 35 centimeters from mine, and proceeded to impart a
sobering message to Messieurs Gould and Hammer via their nemesis down
the hall. I tried to get as much of it down as I could, so I could
share it with you, too.
"Are you familiar with the concept of the risk premium, Mr. Cramer?"
I assured Greenspan I understood it completely and certainly.
"It seems to this Federal Reserve chieftain that the firm of Gould
and Hammer has violated and corrupted the notion of risk," he said.
He intoned Gould and Hammer as I imagine he would have said "Scrooge
and Marley" in a different era.
"By aiding their common stock positions in an unseemly way, by
keeping up the Redbacks and the Redhats far beyond where they would
naturally trade, by keeping the proverbial balls in the air far
longer than they should be, they have created an atmosphere, if you
will, where individual investors, the bedrock of this great nation's
financial welfare, believe that they no longer face the uncertain
fortunes, the so-called cyclical downdrafts, that have formerly
plagued the market periodically, reminding the citizens of this
country that the stock market is an inherently risky, one would say,
quite risky, field of endeavor that should be considered dangerous to
all but a handful of participants, and only those who truly and
completely understand the hazards of the rights to ownership of
complex businesses during a difficult, if not extraordinarily
challenging time, or times, depending upon your time frame or sense
of era."
"Wow," I found myself saying, well out of the Latinate vernacular of
the distinguished chief. "You mean people feel there's no risk to
owning equities when they give the money to Gould & Hammer?"
He looked at me as if I were one of the few who could really divine
Fed-speak and said, "Precisely and absolutely." At that very moment I
could have broken into Gilbert & Sullivan song, had I only hung
around with the right people at Harvard instead of the thugs at Eliot
House.
"I would like you to impart this particular message to these two
alchemists," he said with a detectable sneer. "You can tell these two
charlatans that I will keep short-term rates up higher than would
naturally be expected at this late point in the business cycle
because I don't want the great people of this nation to be seduced
and abandoned by the kinds of tricks these fellows are playing. I
want them to know that I will break the animal spirits of this market
and send their Epiphanies and Kanas and Applied Micro Circuits and
Junipers and SDLIs and JDSUs to single numerals if I have to, to keep
this nation out of the grips of the Japanese-like recession spiral
that would be our natural path if we were to allow the Goulds and the
Hammers to remain unchecked in their nefarious schemes."
I thought for a second, trying to behave the way one of those
Franklin translators would perform, and I blurted out "You mean,
you'll keep killing the Nazzdogs as long as those clowns down the
hall keep trying to manipulate their tech stocks higher in the face
of declining earnings?"
His eyes widened. A grin appeared where only a stolid, jutted jaw had
resided, and he nodded slowly. A gesture that spoke more than 2,454
of his words. I had figured it out. But there was something I had to
ask, something that bothered me and that seemed almost like a
sledgehammer doing the job of a little claw hammer in bringing down
the four-letter morsels that Gould and Hammer love so much.
"Mr Chairman," I said, trying to look as trenchant as I could, "I
traffic in the equities of the real economy, the International Papers
and the Dow Chemicals, the Procter & Gambles and the Black & Deckers,
and for those denizens of the financial and economic firmament (the
man's phrasing is infectious), the Mascos and the Georgia Pacifics,
these high short rates are proving to be the bane of their existence.
Is it fair, is it right, sir, that the workers at General Motors, let
alone the capital that backs them, suffer so severely because of the
too-high, chimerical price-to-earnings multiples of the
business-to-business infrastructure and telecommunication-
semiconductor stocks that Gould and Hammer operate on to keep their
performance up? Somehow it doesn't seem right to me that nine-tenths
of the real economy suffers because of the machinations of a couple
of stock jockeys down the hall."
The grin turned downcast in midsentence. He nodded his head several
times in agreement, and then spoke the words I was so afraid to hear
for those of us who toil in the sobering portions of the S&P and
Nasdaq 100.
"The potential destruction of the earnings cycle through supremely
higher short-term rates is the moral hazard, the so-called price we
have to pay, to rid ourselves of those who think that owning stocks
is a risk-free opportunity." He then pulled close enough to me that
it was clear he didn't want the others in the office to hear. "You
seem to be a student of my work," he noted. "Perhaps you recall
that 'irrational exuberance' comment I let slip a few years ago?" I
nodded quickly. I didn't want to interrupt the man. "I spoke those
words because at the time I didn't understand how this mutual fund
scheme worked. I didn't know that most of these money managers knew
nothing about the business cycle and didn't care to know anything. I
didn't understand the methodology by which these managers maintained
their performance, to wit, that they simply never sold any equities
and just used additional funds to propel their Corning Glasses and
Veritases and Verisigns and Vitesses," and he paused there as you
could tell the man was digging that alliteration, "to levels that
were positively Nippon-like in their ludicrous over-valuatory
extendedness, thereby precipitating an overconfident, some would say,
filled with hubris, investor to the point where risk, or at least the
notion of risk, ceased to, if you will, exist."
Hmmm. Only now, reading over those words, do I think I have a clue as
to what he was saying. At the time I merely nodded, and said "Righty-
o, Professor" as if I were momentarily transported to Gilligan's
Island. He looked at me, puzzled, and seemed to sense that perhaps
it was time to move on.
"But, but, Mr. Greenspan, would you be willing to risk a recession
just to teach the boys down the hall a lesson in risk?" With that, he
jumped up, still spry, still fly, for a 70-year-old, and said "You
just be sure to tell them that there are issues here that they can no
longer trifle with, and that we will no longer tolerate their
attempts to create a risk-free atmosphere where one should not
exist."
Next thing I knew, the little man, beat-up briefcase in hand, had his
taupe raincoat on and was out the door. "Pleasure to meet you," I
said, sticking out my hand through the doorway. But he was already in
the elevator and simply waved, wearily, and looked down solemnly as
the golden doors closed.
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com.
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