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Bubble Trouble

Nobody said those gravity-defying dot-com stocks would stay up forever -- at least, nobody will admit to it after the past two weeks. It's a cruel new world out there. Take it from James Cramer, an e-millionaire who's crashed and learned.

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No one wanted to call it a crash. People talked correction, they mouthed pullback, they spoke of sharp decline, a nosedive even, but not a crash.

To which I say, what highway were they on? If you sat at my turret, stared at my computers, and heard the voices on my phones, you would know that crash might have been too sweet a word for the carnage wrought by the massive pileups of sellers packed onto that tiny nasdaq off-ramp. In the crash of 1987, we experienced a brief swoon, a rapid 508-point decline that worked its way back to even and beyond in a little more than a year's time. In 1987, the nasdaq got hit, but it was nothing like the pulverization in April 2000. Nah -- unlike the crash of '87, this one's aftereffects will be with us for some time. This wreck will block the most important access ramp to all of the new companies that just came public -- the ramp to getting more capital once the initial-public-offering money runs out.

Oh, sure, no sooner had the Intels and the Ciscos declined 20 or 25 percent than they began to work their way back from the pricey abyss to the extremely overvalued Valhalla. Some would say that, during the fall, the high-quality Nazzdogs, the ones with the fancy pedigrees and the good earnings, simply got hit with a wet bucket of ice-cold selling, or maybe just a dollop, or, in the case of Sun Micro and Oracle, a small splash of the stuff. These stocks bottomed two Fridays ago, in the teeth of the sell-off, when every mutual-fund manager was scared to death of redemptions and was busy whacking out the best names to have cash to meet them. As it turned out, of course, no mass redemptions came, and these same managers scrambled right back in once the mail brought more money in over the weekend. Leave it to the professionals to panic while the non-leveraged do-it-yourselfers plow 401(k) money in and pick off the pros' cast-offs at great prices during Friday's lows.

For much of the down market, we felt that the action was actually constructive. Sure, we didn't feel all that constructive buying into the morass. All week we had avoided committing our excess capital, making us heroes in the eyes of our investors. Friday, however, was just so ugly, so hideous, that tension among us roared back to that Terrible Tuesday level, where I demanded that maidens be thrown into the volcano to please the gods of trading. There was Todd-o Harrison, our head trader, once again exhorting us to buy them when you can, not when you have to; but once again Jeff Berkowitz and I, stunned at the declines, began to worry about what Monday would bring.

So what's it like living among the carnage of the 52-week-low list? At first, I found it quite lonely and depressing. Now, finally, we've been joined by everybody else.

Yet that type of long-term thinking can get you in huge trouble, because if everybody worries about a Black Monday on Friday -- and is afraid to start buying again -- you can bet that Friday will be blacker than Monday. (And it was.)

We had no choice but to buy. Though the costs of such foresight were still monumental: Between 3:30 and 4 on Friday, we probably plunked down $40 million in cash and saw it shrink to $34 million. That's how fast the market was falling. We left the office feeling as stupid as wood.

Last Monday and Tuesday did bring peace and profits back to the market. There was a terrific snap-back rally in the big blue-chip tech stocks -- so-called old tech, the Applied Materials, the Apples, the Alteras. These came back like beautifully shaped trees that had been pruned of excess branches. And even some of the more established newer tech companies -- like PMC-Sierra, Novellus and KLA Tencor -- showed some spring off of the bottom, saplings made tough by the challenge. But these big-percentage moves off shaky bottoms can't mask the raw carnage that the stocks of the most recent-vintage companies just experienced.

You know which stocks I am talking about, the ones that didn't exist until the final one twenty-fifth of the previous century. The ones that came public with those dazzling pops. The ones that had hitherto been impervious to missing earnings estimates, because they didn't have any. And the ones that didn't seem to blanch when interest rates went up, because they didn't need to borrow. Most important, these new stocks weren't subjected to the capitalist laws of gravity; they had at last broken away from the Earth's pull.

Look at these declines from peak to trough: Ventro, from $243 to $21, down 91 percent; E.piphany, from $325 to $43, down 87 percent; webMethods, from $336 to $45, down 87 percent; Liberate, from $149 to $21, down 86 percent; Kana, from $176 to $26, and Digital Island, from $157 to $24, both down 85 percent. And you call that a correction? Do we have to wait for stocks to go below zero to merit the crash rubric? What else does a crash look like?

Sure, we were told, "don't worry about it." These soothing words came not from our parents but from the sages at the brokerage houses who have the most to lose if these stocks don't come back. Their words had an undertaker's calm. "It will bounce back," they whispered. "And while you are waiting for their reincarnation to appear, would you consider taking down some shares of National Gift Wrap and Dot-com Corp., the latest business-to-business infrastructure play on the explosive seasonal-gift-wrap market?" These brokers "re-itted their buys" every day -- Wall Street slang for reiterating that what was on their recommended lists was simply cheaper and better than ever.


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