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Who Blew the Dot-Com Bubble? (washingtonpost.com)
By Howard Kurtz
Washington Post Staff Writer
Monday, March 12, 2001; Page C01
Henry Blodget, Wall Street's loudest cheerleader for Internet stocks,
made
it to the front page of the New York Times last week. And thereby hangs
a
tale about the media and the bubble.
The Merrill Lynch analyst rode a tidal wave of publicity as the Net
stocks
he was touting soared toward the stratosphere. Now that his top
recommendations have plunged 79 percent -- including eToys and
Pets.com,
both of which have shut down -- the Times says Blodget and others like
him
go "a long way toward explaining why the market for technology stocks
has
since crashed."
Fair enough, but hardly the whole story. For it was the mainstream
media
-- which now take such delight in scolding those involved in the
dot-com
mania -- that helped push the idea that anyone could get rich by
playing
the market.
"The media invented Blodget," says Christopher Byron, a columnist for
Bloomberg News and MSNBC. "In a bull market everyone loves to cheer,
and
Henry Blodget was everyone's first phone call. . . . Where were they
when
companies were trading for 150 times revenues? They were repeating the
words of these guys. It's disgusting."
From the day he burst into the headlines in December 1998, Blodget has
been mentioned 95 times in the Wall Street Journal, 66 times in the New
York Times, 53 times in The Washington Post (which ran a 3,800-word
profile of him last year) and 27 times in Business Week. Just since the
beginning of last year, he has been mentioned (or interviewed) on
television 816 times, a Nexis database search finds.
And it wasn't just "King Henry," as the Journal called him. The media,
led
by the likes of CNBC, also made stars of Prudential's Ralph Acampora,
Goldman Sachs's Abby Joseph Cohen (declared a hot commodity by Vanity
Fair) and Morgan Stanley Dean Witter's Mary Meeker, an Internet bull
lionized by the New Yorker, who was paid $15 million in 1999. The
big-name
analysts got people to tune in, and many became celebrities in the
financial world.
"I feel like I was screaming for 5 1/2 years that analysis as practiced
on
Wall Street is a complete sham, and no one listened," says David Faber,
CNBC's stocks reporter. "Suddenly the Nasdaq is down from 5,000 to
2,000,
and everyone jumps on it. You can't deny that the media giving all
these
people an outlet boosts their reputations and helps them to be
perceived
with some stature."
Fortune writer Joseph Nocera says such Web operations as Motley Fool,
CBS
MarketWatch.com and TheStreet.com "were fully invested in the idea that
the Internet was the future and all us fuddy-duddies in the Old Media
didn't get it. They were the early champions of Blodget, in turning him
into a cult figure. The dead-tree media was much more cautious about
this."
To be fair, some analysts, like Acampora and Cohen, were right for most
of
the bull market and don't position themselves as stock-pickers. And
Blodget, 35, isn't the only analyst getting hammered by the press. The
Journal last week whacked Meeker, who pushed six stocks (all of whose
public offerings were underwritten by Morgan Stanley) that have fallen
by
67 to 96 percent. "I had a bad year," she says.
But what about the press? It's not just publications like Fortune,
Money
and SmartMoney that are always trumpeting the "10 Hottest Stocks for
the
New Millennium." Newsweek ran a 1999 cover story on the market titled
"Everyone's Getting Rich but Me." Time bestowed man-of-the-year honors
on
Amazon's Jeff Bezos. Critics and naysayers had their say, but the
overall
message was clear: This rocket was leaving the platform.
The Blodget legend, as market mavens know, began in 1998 when the
obscure
analyst predicted that Amazon stock, then selling at $243, would hit
$400
within a year. Blodget's call got so much media attention that the
online
bookseller shot past the $400 mark in less than three weeks, and
Blodget
landed at Merrill Lynch. Amazon, now selling for $12.25 (even adjusted
for
splits, it's $73), has sunk well below the level of his projection.
Not everyone joined the Blodget cult. "I wrote a story at the time that
said he's out of his mind," Byron says. "I looked like the village
crank."
In a 1999 Money article, Nocera questioned the depth of Blodget's
research
on Net stocks, saying that "his analysis is itself part of the bubble."
But the media were in irrational exuberance mode.
Even Nocera eventually "capitulated" to the idea of the dot-com boom,
he
says. "People who tried to be cautious, they were made to look a little
silly."
What many journalists failed to note is that Merrill Lynch was often
doing
financial underwriting for the companies its star was promoting,
including, according to the Times, Internet Capital Group, Pets.com and
Buy.com. Business journalists often gloss over such financial ties.
Blodget is unapologetic about having pushed Net stocks so aggressively
before finally downgrading some of them after the market tanked. "From
1995 to 2000, the real risk was missing the rise," he told the Times.
But news organizations are finding it easier to point fingers than
examine
their own role in the late '90s market madness.
"The mainstream media never really paid attention until the big story
became the fall of the market and the game became looking for demons,"
Faber says. "The media, of course, would never blame themselves."
Media Morsels
© 2001 The Washington Post Company
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