The Fortune Tellers: Inside Wall Street's Game of Money, Media and Manipulation

It was the worst day of Jim Cramer's life.

For fourteen long years, the flamboyant Wall Street trader had worked insane hours, getting to the office by 5:00 each morning, shouting orders, playing each hiccup in the market to make money for himself and his small coterie of investors. He had become fabulously wealthy, grabbed a bit of fame as a magazine writer and television commentator, even launched a thriving Internet news service. He had also gotten into a couple of ethical scrapes, juggling his roles as both media hotshot and market guru, but there was no question he was at the top of his hard-fought game.

And now, on the morning of October 8, 1998, Cramer was watching it all unravel. The once-soaring stock market had been in a stomach-churning decline since July, slicing nearly 2,000 points off the Dow and making fools of those who had so confidently placed their bets on the exhilarating ride up. Suddenly, inexplicably, one investor after another had been calling Cramer and demanding his cash. Before long, half the one hundred investors in the hedge fund, Cramer, Berkowitz & Company, were bailing out. There was talk that Cramer was losing his focus, that he was spread too thin with his various media ventures. Cramer's confidence was badly shaken. No one, not a single investor, had ever bolted on him before. What had he done wrong? True, he was having a bad year; the fund had earned just 2 percent since January, compared to a 30 percent rise in the Standard & Poor's 500 index. But these mass defections were his worst nightmare. All of the fund's money was invested in the ailing market, yet Cramer was required to wire the cash to his disgruntled clients by 1:00 p.m. He had six hours to come up with more than $50 million.

Most of the time, Cramer was cool in a crisis. Sitting at the trading desk in his eighth-floor office at 100 Wall Street, surrounded by four computers and a Bloomberg terminal flashing the fate of stocks in green and red, he would bark directions to his staff, scan the papers, listen to CNBC on the television set behind him, write his online columns, and scroll through his e-mail, sometimes all at once. He would pick up the black phone with the open line to Max Levine, his broker, and buy "five AOL" or sell "ten Sun Micro" as easily as a couple of lottery tickets, when he was actually betting hundreds of thousands of dollars on companies with amazingly volatile stocks.

But today was different. Cramer had triggered the crisis himself, by trying to help out Eliot Spitzer, an old pal and law school classmate. Spitzer was the Democratic candidate for New York state attorney general, and he badly needed money to finance his campaign. Spitzer's cash was tied up in the hedge fund, and Cramer agreed to let him withdraw it. Under federal rules, however, hedge funds had to treat all investors equally, and so Cramer had to announce a day on which all his clients would be eligible to pull their cash. The due date fell on October 8, which happened to come during a near-panic on Wall Street. The Dow had dropped from more than 9,300 to less than 7,500 in just 10 weeks. Cramer had persuaded a few of the defectors to stand by him, but most were determined to pull the plug. He had $20 million in cash on hand, but he needed to sell enough stocks to pay out $70 million‹and he had to sell them in a frenzied environment in which prices were dropping like a rock.

In the worst blow of all, one of those abandoning ship was Martin Peretz, the owner of The New Republic magazine and one of Cramer's closest friends. Cramer thought of himself as having been like a son to Peretz. They had been tight since his days at Harvard Law School in the early 1980s, when he took one of Peretz's classes. Even then Cramer had a feel for the market; Peretz had found himself making money from the weekly stock tips that Cramer would leave for callers on his answering machine. Peretz was so impressed that he had given the headstrong young man $500,000 to invest, and Cramer had tripled his money. The friendship blossomed -- Peretz was the best man at Cramer's wedding -- and in 1996 they had teamed up in launching TheStreet.com, a financial news Website that was attracting a loyal following. For Peretz's fiftieth birthday, Cramer had raised $50,000 for the Jerusalem Foundation, a favorite cause for the fiercely pro-Israel publisher.

But their relationship had grown increasingly strained. Cramer was tired of the mentor-student paradigm; he was forty-three now, and he wanted Peretz to regard him as an equal. And he felt that Peretz had reneged on his word by putting up less than the full share he had promised for financing TheStreet.com, an accusation that Peretz strongly disputed. Cramer felt he was busting his butt on the new company and that Peretz was doing little or nothing. Yet he needed Peretz because the Securities and Exchange Commission had insisted that, as a trader, Cramer had to be aligned with a legitimate publisher in a Web operation covering the very market in which Cramer was so heavily invested. Frustrated, Cramer told Peretz that their fifty-fifty split in TheStreet.com had to change, and demanded a million more shares in the company. Peretz balked, viewing this as a rather piggish move by his one-time pupil, but reluctantly went along.

At a Street.com Christmas party in 1997, Cramer gave a teary-eyed speech, praising the staff for having gotten the fledgling company off the ground. He invoked Henry Luce, the legendary founder of Time magazine. When it was Peretz's turn to speak, he said: "One thing's for sure. Like Luce, Cramer's a bastard." Cramer was stunned and walked out of the party. His wife, Karen, told him never to speak to Peretz again.

Now, at Cramer's most vulnerable moment, Peretz was striking back. A couple of other investors told Cramer that Peretz had urged them to pull out of the hedge fund, saying that he knew Cramer better than anyone, that Cramer didn't care about the business anymore and was spending all his time on TheStreet.com. Peretz would later say he had told only one person to leave the fund, but Cramer was convinced that his longtime friend was responsible for this terrifying run on his bank. It was, in Cramer's eyes, the ultimate betrayal. He had not cried since his mother's funeral, but at night he had found himself bawling over this massive vote of no confidence.

It was, for the moment, a matter of survival. If Cramer could not come up with the money in time and the market crashed, he would be personally liable for the losses suffered by his disaffected investors. The biggest potential defector was financier Max Palevsky, whom Cramer believed had bought Peretz's argument that he had lost his focus. That was nearly impossible for Cramer to refute, since Peretz was presumed to know him so well. Palevsky's stake in the fund was so large that if he bailed, Cramer would have to close his doors. It was as simple as that. After furious negotations, Cramer worked out a settlement that persuaded Palevsky to stay.

For the first time in four years, Cramer called his wife Karen, a former trader with whom he had cofounded the hedge fund, and asked her to leave their home in Summit, New Jersey, and come to work. Get a sitter for the kids, he said, find a way to get down here. When Karen Cramer showed up, her husband's shirt was soaked through with sweat. The computer screens were all flashing red. Declining stocks outnumbered the winners nine to one. Was this a good buying opportunity -- or another 1987 crash? Cramer had little time for such speculation; he had to sell if he was to raise the cash he needed. By lunchtime the Dow was down another 264 points. On CNBC's Power Lunch program, host Bill Griffeth was talking about how all the bulls had turned bearish. Cramer thought the stock market would definitely crash. Karen said their only hope for saving the firm was for Alan Greenspan to somehow rescue the sinking market. But Greenspan had been saying that business was doing just fine and had made no move to halt the market's fall.

Ralph Acampora, the superstar analyst at Prudential Securities, was fanning the flames, telling his sales force that the Dow, which he had thought could drop to 7,000, could now go as low as 6,735. This forecast was crucial because Acampora was one of Wall Street's greatest bulls; if he was losing confidence, then the downturn had to be for real. Abby Joseph Cohen, the fiercely bullish analyst at Goldman Sachs, stayed upbeat about the invincibility of the American economy, but even she made a downward adjustment in her 1999 projections for the S & P 500. Trading desks everywhere echoed the message: "Cohen's getting off."

From his cluttered desk, Cramer was taking his cues from Ron Insana, a veteran anchor at CNBC whom Cramer had been watching since his Harvard days. Insana had incredible contacts and always seemed to have a sixth sense about what was happening. But despite his relaxed on-air persona, Insana, too, was nervous. Days earlier, he had called his father-in-law and told him to take his money out of the bank. He was considering putting some of his own savings into gold. No one was sure how low this market could go.

Early that morning, Insana had reason to call one of his best sources, Lyle Gramley, a former Federal Reserve governor who was still plugged into monetary policy. Someone told Insana that Gramley had heard the Fed was planning some kind of conference call, a highly unusual event between scheduled meetings. The call would be to discuss a possible easing of interest rates. The Fed had already cut rates at the end of September with no response from the market, so a second rate cut would be a major surprise. Gramley hedged a bit when Insana reached him, saying only that such a call was possible. But Insana believed this was probably spin, for his source was insisting that Gramley had it solid. The Fed had to do something, Insana thought. Too many people believed that the wheels were coming off the market.

Cramer was selling stocks all morning -- many of his best stocks, the ones he hated to lose -- to come up with the cash he desperately needed. Karen manned the desk while he frantically tried to talk the last few defectors out of leaving him. But even as he liquidated much of his fund and wired the money he owed, he agonized over whether to seize the opportunity to buy other stocks at bargain prices. He would have to do so on margin, with borrowed money, and if the market kept sinking he could be wiped out, as so many of his friends had been during the '87 debacle. Weeks earlier, the massive hedge fund Long Term Capital Management had collapsed. Who knew where the bottom was? Cramer was scared. Traders were never supposed to admit that, but this was a truly frightening moment.

At 1:15, Ron Insana came on the air with some breaking news. Cramer, watching the set on the file cabinet behind him, thought the mere sight of Insana would cause further losses, since he had been delivering consistently bearish news in recent days. But wait! Insana was talking about his conversation with Lyle Gramley. "Shut up," Cramer shouted, hitting the volume button. Insana reported that Gramley believed that the Fed members were arranging a conference call. The Dow moved up 30, 40, 45 points as Insana delivered the news. Now the day's loss was less than 200. Cramer had just filed a bearish column for TheStreet.com. "What if Insana is right?" Karen asked him. "You will never live this piece down."

Still, Cramer remained reluctant to buy. That, he soon realized, was a colossal mistake. Insana had been right about the conference call, and the Fed would lower interest rates days later. Cramer felt he should have moved the minute he had an inkling of possible Fed action. Prices were moving up; the long slide was over. The Dow began what would be a steady climb back over 9,000. It was remarkable, Cramer thought, the first time a market bottom had been created by a TV reporter's scoop.

The carnage was over. Cramer had saved the company, but he had lost millions of dollars in the process. He had lost Marty Peretz, who had humiliated him and brought him low. This was an ugly way to make a living, Cramer thought, an utterly soulless business. It had made him rich, but at a breathtaking price.

From his first days as a rookie trader, James J. Cramer had craved respect. He had grown up in the Philadelphia suburb of Wyndmoor, the son of a man who sold gift wrap for a living, and had attended public schools there. He had sold ice cream and sodas at Veterans Stadium during Phillies baseball games. When Cramer got to Harvard in 1973, thanks to a scholarship and financial aid, he was conscious of his modest background among the bluebloods of Cambridge, and determined to make it through sheer hard work.

Cramer was immediately drawn to journalism and began churning out dozens of stories for the Harvard Crimson. He even added a middle initial, though he had no middle name, because an editor at the Crimson, Nicholas Lemann, thought it sounded more distinguished. When he ran for president of the Crimson in 1975, Cramer felt very much like an outsider. He was challenging a student from a more elite background, Eric Breindel, a Manhattan private-school graduate, and was convinced there was a stop-Cramer movement aligned against him. But he won the job by one vote and set about trying to make the paper profitable. Faced for the first time with questions about payrolls and revenues, Cramer launched a weekend magazine and used the advertising proceeds to stem the paper's losses.

When it came to his own finances, though, Cramer was something of a loser. After college, he found himself back in Wyndmoor watching Phillies games. He called his college pal Michael Kinsley, who was then editing The New Republic. Cramer was introduced to Marty Peretz and became a contributor to the magazine. He soon realized, though, that he couldn't support himself on $150 an article.

Cramer worked briefly for Congressional Quarterly, living with his aunt in Washington, and then took a reporting job at the Tallahassee Democrat for $155 a week. He was toiling away at the usual mix of local stories when serial killer Ted Bundy struck at a sorority house down the block from where Cramer lived. Cramer's manic work on that story brought him an offer from a bigger paper, the Los Angeles Herald-Examiner.

But the move west did nothing to change Cramer's irresponsible ways with money, and he ran up plenty of debts. At one point he had just one thousand dollars to his name, went to Las Vegas, and gambled away half of it. He was living in a bad neighborhood, and when his apartment was burglarized he lost everything, including his checks. Cramer spent months sleeping on a friend's floor, or in his car with a gun beside him. He came down with mononucleosis and a jaundiced liver. He had hit bottom.

Desperate for a break, Cramer got a call from Steven Brill, who was launching a magazine called The American Lawyer and had been given Cramer's name by a mutual friend. Cramer moved to the floor of his sister's Greenwich Village apartment, and Brill doubled his salary to a princely $25,000 a year. Back on his feet, Cramer began investing in the stock market. While in California he had made some forays to National Semiconductor and other firms in what would later be called Silicon Valley, and he put some cash into these fast-growing companies.

Brill was such a tenacious boss that when Cramer decided in 1980 to go to Harvard Law School, Brill called the dean and told him that Cramer would have to defer his acceptance for a year because he was involved in some important investigations for The American Lawyer.

Back at Harvard, Cramer started watching Ron Insana on the Financial News Network, studying the intricacies of the market. In 1982, as a first-year law student, Cramer crashed a Goldman Sachs cocktail party and tried to talk himself into a summer job. "I can sell anything," he told a Goldman executive. After receiving a rejection letter from the firm, he refused to give up -- there must be some mistake, he insisted -- and kept calling. Finally, two years later, he got into the summer program. His dad, Ken Cramer, thought he needed his head examined. Nobody was making money in the stock market in the early 1980s.

After law school, when he finally wormed his way into a permanent job at Goldman Sachs, Cramer continued to dabble in journalism. Robert Rubin, the high-ranking Goldman executive and future Treasury secretary, vetted his pieces. In 1985, Marty Peretz asked Cramer to write a New Republic review of a book by Peretz's pal Ivan Boesky, the most celebrated trader of the high-flying eighties. Rubin didn't trust Boesky and wouldn't let anyone at Goldman Sachs trade with him. He worked over Cramer's review, insisting that he make clear that Boesky's methods were murky. Peretz told Cramer that he wasn't happy with the review, which mildly criticized Boesky, because he considered Boesky a genius. Two years later, Boesky pleaded guilty to filing false documents and was sentenced to three years in prison.

As a newly minted stock salesman, Cramer would "cold call" investors he'd read about in the paper. Having convinced himself from his visits to Foot Locker that Reebok was the next hot sneaker, he called investor Michael Steinhardt unannounced, and told him that he was wrong to be shorting Reebok stock. Steinhardt granted him a fifteen-minute audience, then told Cramer he didn't know what he was talking about. Reebok's stock soon soared in value.

In 1987, when he was ready to leave Goldman to start his own hedge fund, Cramer called Steinhardt again. "You're the guy who could have saved me millions of dollars," Steinhardt said. He agreed to give Cramer some money to invest and some office space while he got started.

Cramer found himself sitting next to Karen Backfisch, a former secretary who was being given a chance to work as a Steinhardt trader. They soon began dating, and after Karen left for another firm and Cramer got his own office space, she proposed that they work together. But there was a catch: She had to own half the new company. Karen was making more money than Cramer at the time and agreed to put up her own capital. It was Karen who insisted that they sell many of their stocks a week before the stock market crashed in 1987. A year later they were married.

Karen tutored her new husband in the psychology of Wall Street. On Fridays, when the market would often mount a short-lived rally, she would urge Cramer to take a walk -- down to the South Street Seaport or to the Staten Island Ferry to buy a hot pretzel -- rather than snatch up stocks he was sure to regret. Cramer began calling her the Trading Goddess. They became millionaires, bought a house in Summit, were written up in Fortune. "Are These the New Warren Buffetts?" the headline asked. The Cramers were hailed as "the quintessential Eighties couple," having earned a 23 percent return on their $19-million fund. They had just celebrated their first wedding anniversary.

Cramer once again gravitated toward journalism for a simple reason: cash flow. He belatedly realized that hedge fund managers were paid only once a year. He wrote for Manhattan Inc., for Peretz's New Republic, for Brill's Manhattan Lawyer.

As he juggled his duties, Cramer's addiction to the high-pressure life brought him increasingly into conflict with his wife. The couple's first daughter was born in 1991; when the second one was born three years later, Cramer got a call on his cell phone in the delivery room. The Fed had just raised interest rates, and the firm had lost $1 million within minutes. Cramer said he was busy. Ten minutes later, the cell phone rang again. The hedge fund had now dropped another couple of million. Cramer turned off his phone -- and agonized over the decision when the firm's losses mounted throughout the day. It was not the last time that he would feel torn between his family and his high-stakes work.

Karen soon resented her husband for forcing her to come to Manhattan each day to help run the fund. The Trading Goddess finally decided to stay home with the kids, but she remained a major influence on her husband. She demanded that he cut his trading in half to avoid dumb investments, and made him bring home his trading sheets to prove it.

As the bull market took off in the mid-1990s, Cramer reaped the rewards. The hedge fund now required a minimum investment of $2.5 million, and Cramer took 20 percent of the profits. There were years when he personally pocketed as much as $10 million.

But Cramer craved recognition as much as money, which is why he poured so much emotional energy into his magazine work. Cramer's double identity was at once the source of his journalistic strength and his greatest weakness. His writing had a you-are-there quality because he was in the financial trenches, risking real money, making mistakes, and learning painful lessons. But since his most fascinating subject was himself, that also meant his writing could have an impact on the stocks he was buying and selling. Cramer tried to protect himself by always disclosing his holdings, but it was a shaky tightrope act at best.

In 1995, he was writing a financial advice column for SmartMoney magazine, which he had helped Hearst and The Wall Street Journal create. In one column, Cramer praised four small, rather obscure companies, and their stock took off like a rocket. Trading in one firm, UFP Technologies, went from 800 shares in the previous four days to 703,828 shares in the following five days. And the stock price doubled, from $2 to $4 a share. All told, three of the stocks -- UFP, Rexon, and Canonie Environmental Services -- surged by as much as 66 percent in a couple of weeks on the strength of Cramer's upbeat words.

But Cramer had more than words at stake; he owned stock in each of the companies. The firms were sufficiently tiny that Cramer's hedge fund owned 6 to 9 percent of each one. In fact, he had picked up more than 200,000 additional shares in the weeks before the column appeared. Within days, the value of Cramer's holdings had increased by more than $2.5 million.

This embarrassing sequence of events turned into the worst crisis of Cramer's career when it was reported by The Washington Post. Cramer passionately insisted that he had done nothing wrong. This was what he was supposed to do, he explained -- recommend stocks that he believed in. He had been buying these stocks for two years. He had not sold them after the SmartMoney column appeared and had made no attempt to cash in. He had disclosed his holdings at the end of the column -- a disclaimer that unfortunately had been dropped by the magazine. He was so upset by the story that when he came home and found that his wife had thrown him a surprise fortieth birthday party, he threw up on the guests. The SEC launched a lengthy investigation and began contacting the investors in Cramer's hedge fund.

"Maybe I should call Gore," Marty Peretz told Cramer. Peretz had been close to the vice president for three decades.

"Are you fucking kidding me?" Cramer said. He didn't want to do anything that carried even a whiff of trying to influence the investigation.

Cramer had to produce boxes and boxes of records and shelled out $400,000 in legal bills. He was finally cleared, but the damage had been done. SmartMoney announced that it was tightening its ethics rules. No investor would be allowed to write about small, thinly traded companies whose stock was worth less than $500 million, or about any stock in which the investor owned more than 1 percent of the company. Traders would also be barred from selling any stock they wrote about for a specified period of time. Cramer was not faulted for his behavior, but he had clearly become a lightning rod for criticism by financial writers, who were not players in the market. Cramer left SmartMoney soon afterward.

For all his bravado, Cramer could be hypersensitive to criticism. He called up some of his detractors after the SmartMoney fiasco and yelled at them. When he felt himself under assault, his rapid-fire cadence turned faster, his high-pitched voice a little squeakier. Cramer had no ability to hide his constant swirl of emotions. Once, after Lisa Napoli of The New York Times wrote a mixed profile about his activities and potential conflicts, Cramer declared: "I wish I had been a vicious spinmeister and just beaten the shit out of her and gotten her exactly where I wanted her...Give me a fucking break. Come on, I'm not this huge manipulator of stocks."

By 1996, Cramer was fixated on the idea of starting a financial Website, one in which he would have a major ownership stake. He wanted to launch the venture with SmartMoney, and he showed the blueprint to Paul Steiger, the Journal's managing editor, over lunch at the Hudson River Club. But the idea didn't fly.

Cramer envisioned an opinion-filled Internet site that would have the inside-dope equivalent of ten Heard on the Street columns each day, and message boards where subscribers could chat. It would be a cheap wire service for what Cramer saw as the coming era of the individual investor.

While on vacation in Cape Cod, he and Marty Peretz decided to plunge ahead on their own with the venture, which they christened TheStreet.com. Each kicked in $1.5 million of his own money. Cramer's attorney suggested that he show the plan to the SEC, which insisted that the operation have complete editorial independence from Cramer to guard against any attempt to influence his stock holdings. Now all they needed were some journalists.

During a weekend at Cramer's country house in Bucks County, Pennsylvania, they tried to get Michael Lewis, the former Salomon Brothers trainee who had written the best-selling book Liar's Poker, to become their star columnist. Cramer was miffed when Lewis turned down a deal that would have given him a 5 percent stake in the new venture. But Lewis, convinced that the thing would bleed red ink until it went bust, believed that 5 percent of nothing was nothing.

Dave Kansas, a Wall Street Journal reporter, signed on as editor, but the Website struggled from the start and was soon in danger of folding. Cramer and Peretz had to arrange a $10-million cash infusion from a group of venture capitalists. Yet Cramer couldn't really run the thing. He was so concerned that critics would view the Web operation as a conflict of interest that he had set up the reporters and editors in another lower Manhattan building and made sure that he had no control, other than the pieces he submitted, over the contents. He couldn't talk to the staff, couldn't so much as e-mail a reporter, saying "Nice piece." And Kansas allowed his writers to criticize Cramer.

"This is ludicrous," Karen said. "You gave these guys a blank check to savage you?"

With just 37,000 subscribers paying $99 a year, TheStreet.com lost a staggering $16 million in 1998. Finally, Cramer and his wife visited the office to check on the finances. They discovered the place had a $50,000 walnut desk in the reception area.

"You've got to shut it down," Karen said. "These people are killing us."

Jim Cramer knew he was tiptoeing through a minefield by trading stocks and constantly commenting on the market. In fact, he was becoming the most controversial financial journalist in the country. Ever since the SmartMoney debacle, critics had been questioning whether his writing was tainted by his trading in a $300-million hedge fund. At times, though, his journalistic efforts boomeranged on his business. And he had so many entanglements it was downright difficult to keep them all straight.

In early June of 1998, Cramer was troubled by the events surrounding a Heard on the Street column in The Wall Street Journal. The subject of the column, America Online, was of more than passing interest to Cramer, because his fund owned millions of dollars in AOL stock. What's more, TheStreet.com had a distribution deal with AOL. What Cramer found strange was that the Journal column had been negative, raising questions about AOL's accounting methods, and yet the stock shot up after the piece appeared, beginning a steady rise that would carry it from $77 to more than $100 a share. Cramer the journalist decided to investigate what had happened to the stock of Cramer the investor. And he had a strong hunch where to start digging.

In the days before the piece appeared, plenty of brokers seemed to know what Journal reporter Linda Sandler was working on. They knew the details of the alleged accounting difficulties, which AOL maintained had been approved by top auditors. Hedge funds began shorting AOL stock, betting millions of dollars that it would go down when the column was published. But Cramer and his partner, Jeff Berkowitz, reached the opposite conclusion.

"We've got to buy this stock the moment the article appears," Berkowitz said. "The heck with that," Cramer said. They had to buy the stock right now. "We already know what the article is going to say, and the Journal has nothing," he said.

Cramer was so sure he was right that he wrote a piece for TheStreet.com explaining what was about to happen. But Dave Kansas killed it, saying that Cramer appeared to be touting one of his largest holdings. Kansas was the first to conclude that Cramer had a conflict of interest.

The morning that the Heard on the Street column appeared, Maria Bartiromo, CNBC's stock market reporter, said on the air that America Online stock appeared to be headed south. Instead, the stock soon began its spectacular climb.

Cramer was determined to tell the world about this Journal column, because he felt that the reporter must have tipped her hand during interviews that the piece would be negative. Having been rejected by his own Website, he turned to his old friend Steve Brill, who had started a media magazine called Brill's Content. He liked Cramer's idea for a piece about the Journal incident.

But Cramer not only owned a huge batch of AOL stock, he had repeatedly butted heads with The Wall Street Journal and its owner, Dow Jones & Company. Some of the conflicts were trivial; the Journal had rejected Cramer for a reporting job back in 1977. And some were not.

After Cramer got himself in hot water over the 1995 SmartMoney column on the small stocks he owned, he began fighting with Dow Jones, part owner of the magazine, over who was responsible. Cramer contended that Dow Jones had put him in jeopardy by dropping the disclosure line from his article -- the sort of disclosure he had been guaranteed under a contract signed by a top Dow Jones executive. But Richard Tofel, Dow Jones's communications director, believed that both sides had forgotten about the disclaimer for months. And the magazine's initial failure to locate its copy of the contract forced Cramer to scramble while the feds unleashed their investigators. In the end, Dow Jones agreed to reimburse Cramer for most of his legal fees, although Tofel believed that Cramer was still upset that the company hadn't paid all the bills.

Then came the battle over TheStreet.com. In 1997, Steve Swartz, the editor of SmartMoney, told Cramer that the magazine would be willing to buy Cramer's money-losing Web operation, perhaps for $10 million; he considered Cramer a huge talent and wanted to work with him again. Hearst, the other partner in SmartMoney, wasn't the least bit interested in Swartz's proposal. Cramer, however, believed it was Dow Jones that had vetoed the idea of working with him.

That same year, Cramer bought more than a million shares of Dow Jones stock, attended a stockholders' meeting, and demanded that the company dump a money-losing financial data service called Telerate. Richard Tofel told Cramer that that would never happen, so Cramer sold his stock (for a $4 million profit) five months later -- before Dow Jones finally did sell the data service.

When Tofel learned that Cramer was working on the article about the Heard on the Street column, he fired off a letter to Steve Brill, detailing what he saw as Cramer's web of conflicts:

He is in business in direct competition with us (TheStreet.com), and has attempted, unsuccessfully, to sell us this faltering business or to get us to invest in it;
He has had a commercial dispute with us, in which he has asserted that we failed to pay on his behalf a substantial amount of money he believed was due;
He has sought employment from us, also unsuccessfully;
He has twice bought and sold a substantial number of shares in our company, and has played the role of "dissident" shareholder, calling for the ouster of management.

Cramer couldn't stand Tofel, and he believed the feeling was mutual. They had eyed each other warily ever since college, when Cramer was president of the Harvard Crimson and Tofel had worked on the less prestigious newspaper, the Harvard Independent. Cramer felt that Tofel was a petty man who was always looking to hurt him.

Tofel, for his part, believed that Cramer was relentlessly hostile toward Dow Jones, having gone so far as to call for the dismissal of CEO Peter Kann, two other top executives, and Tofel himself. Cramer made no secret of his antipathy toward the company, and that was fine, Tofel felt, but Brill shouldn't be hiring him as a journalist to write about Dow Jones. There came a point where you were so wrapped up emotionally that it was impossible to remain objective.

Cramer defended himself in his own missive to Brill. "My, Dick has a wild imagination...he obviously has some ax to grind," Cramer wrote. But there was an undeniable complication: Steve Swartz was now trying a second time to buy into TheStreet.com. This time, Cramer asked him to get Dow Jones's blessing in advance. "Don't embarrass me," he said. Swartz maintained that this would not be a problem, and the negotiations with Hearst were proceeding in secret. Brill quickly learned of the talks from Dow Jones, and took a hard line with Cramer.

"We have to disclose this," Brill said.

Cramer had painted himself into a corner. If he disclosed the negotiations in the Brill's Content article, Hearst would be furious that he was breaching the secrecy of their discussions. If he withdrew the piece, he would be humiliated, since plenty of people knew that it was in the works. "It will be a scandal," he told Brill. Cramer decided that he had no choice but to finish the piece and make the disclosure.

Swartz and the Hearst officials were furious at what they saw as a betrayal. A Hearst executive quickly called Cramer's investment bankers and killed the deal for TheStreet.com. The decision had cost Cramer $20 million. Worse, TheStreet.com's investors were livid that Cramer's big mouth had sunk what could have been a major cash infusion for the struggling company. They had had enough of their loose cannon. Under pressure, Cramer resigned as cochairman of TheStreet.com, taking a backseat role as just another investor. The irresistible urge to take on the Journal had cost him big time.

It is 5:45 A.M., the sky over Wall Street is jet black, and Jim Cramer is at his desk, fuming about Hewlett-Packard.

On this Wednesday morning, February 17, 1999, he has just talked to Laura Canigliaro, the ace Hewlett analyst at Goldman Sachs, and now feels sandbagged by the Hewlett folks. Days earlier, Cramer had met with the computer company's executives at a Goldman Sachs technology conference, and they had assured him that they were having a great quarter. Right. A story in that morning's Wall Street Journal says that Hewlett's quarterly earnings have beaten the Street's expectations, but that its revenues are up a measly 1 percent. That's the real story, Cramer believes. They can't fool him. This is no minor matter for Cramer, for he owns millions of dollars in Hewlett stock, 2 percent of his entire fund. He had dumped $350,000 of the stock last week, but he still had to take major losses. He felt sick to his stomach.

Cramer has other reasons for indigestion as well. Dell Computer stock had dropped sharply in after-hours trading before an earnings report that was expected to be disappointing, and he is sitting on plenty of Dell. Cramer loved the Internet -- he felt it captured his true voice, the real-time, manic force of his personality -- but thought the gyrating market in Net stocks was utterly insane. He owned his share of tech stocks -- Intel, America Online, Yahoo!, Microsoft, Sun Microsystems -- but stayed away from those high-flying issues by companies that barely existed. What a colossal joke it all had become. Maybe someone should just set up a bunch of dummy companies -- just cool-sounding stocks with dot-com names, no corporations behind them -- and let the day traders romp through them.

Just look at eBay, which the same morning edition of the Journal says is considering selling a stake in the firm to America Online. Cramer calculated that eBay was trading at $86 million per employee. Eighty-six million! The place has a lousy 130 workers and is valued by Wall Street at $11 billion. It was nuts. All these yo-yos out there are watching CNBC and placing their buy orders as soon as the next guest is announced to talk about his company's Net strategy. It's a factor, no question about it, and Cramer himself has gotten sucked into the game.

A few days earlier, he was watching as CNBC promoted Ron Baron as an upcoming guest. Baron, a fund manager, was talking up the online prospects for the venerable auction house Sotheby's. In his Street.com column, Cramer wondered why Baron was buying up a major chunk of Sotheby's stock. Baron then called and asked Cramer why he was picking on him. Cramer said that he believed fund managers should disclose their ownership in the stocks they were touting. Cramer toyed with buying some Sotheby's shares when Baron came on the air, but everyone else had the same idea. The price had already jumped 2 points.

This, Cramer feels, is another example of how CNBC had changed the world. The great unwashed now get the same real-time information as he does. What was once an elite corps of professional traders is now a huge mob, all trying to squeeze through a narrow door. Cramer regards CNBC as part of the lifeblood of the market, so important that he moved out of his old offices, at 55 Beaver Street, because the building didn't get cable. The previous Friday afternoon, when cable service went down in lower Manhattan, he called Ron Insana during a commercial and demanded that he do something about it.

But the endless chatter on CNBC could also drive Cramer up the wall. All these gloom-and-doomers peddling their negative view of the universe: Corporate earnings are flat, inflation is a renewed danger -- and here inflation has been at stunningly low levels for years. What was wrong with these people? They were the usual bear suspects, doing the brokers' bidding, trying to scare people into buying cyclical stocks like steel and chemicals that others are trying to unload. Cramer has been selling his cyclicals, just to spite these hype artists.

Despite his goatee and balding visage, framed by twin peaks of unruly hair, Jim Cramer is a man of childlike intensity. Immensely likable in the way he pours out his heart, Cramer wants to do thirty-five things at once. He wants to manage millions of dollars, be on TV, dominate the Internet, and write for newspapers and magazines -- not just The New Republic and Brill's Content but Time and GQ. He even dashed off a piece for The Washington Post not long ago on Social Security reform. He appears not just on CNBC but on Good Morning America and Charlie Rose. He has taped an ABC pilot for his own television show, Jim Cramer's Real Money, which featured an awkward segment in which he advised a group of Knoxville nurses, by satellite, on their investments. He even made ads for Rockport shoes. "A Zelig for the information age," a reporter once called him.

Cramer wants to watch the market like a hawk, jump in and out of trades, feel the adrenaline rush when he shorts a stock that is deflating or grabs a bargain-priced number on the rise and dumps out of it six hours later. He wants to tell everyone what he thinks at every possible hour. He files seven or eight columns a day for TheStreet.com, musing on the market's every burp. He is bursting with the brilliance of his ideas, the kid who couldn't keep quiet in class. If there were no TV and no Internet, he would go door to door. He is remarkably self-absorbed, one step away from setting up a Webcam in his bedroom so he could fulminate for his fans at all hours. He is, in short, the perfect embodiment of the dizzying culture of Wall Street, determined to be faster and smarter than everyone else, louder than everyone else, more famous than everyone else.

Sometimes Cramer would muse about leaving Wall Street. The burnout factor is intense; there are no fifty-five-year-old hedge-fund managers. He promised Karen that he wouldn't do it for that many more years. But something keeps driving him to try to outsmart the market, hour by hour, minute by minute.

While Cramer is off with a broker for breakfast, his jeans-clad partner, Jeff Berkowitz, is making his morning checks. His computer is programmed to bring up CBS MarketWatch.com, Barron's, Computer Reseller News, CNET, The Washington Post, the San Jose Mercury News, Investor's Business Daily. There is so much media and research to wade through, and the stakes are so high. Berkowitz is thirty-one and feels like fifty. He is glad that Cramer is involved in so many media ventures because it drains some of his manic energy that otherwise might be devoted to buying lousy stocks.

Cramer returns just before the 9:30 bell, and the room turns manic. On TV, Mark Haines, the host of the morning show Squawk Box, says Dell is already down 11Ž4. "Merrill Lynch raising numbers on Hewlett!" one of his staffers shouts. Cramer sips a Diet Dr Pepper and scans his computer screens.

"EBay up 14, huh?"

"I want to buy 10 AOL," meaning 10,000 shares.

"What do we do on Lucent?"

"These are head fakes," Berkowitz says.

"Ah, fuck, Intel's not coming in. Is Intel a head fake?"

"I dunno, so we do nothing," Berkowitz says.

On the set behind him, Mark Haines is expressing relief that the Dow is down just 40. "This is not as bad as we expected," Haines says.

"It's early, Mark, it's early," Cramer mutters.

Now Cramer is standing, barking orders to his staff. "I want to sell Intel! Sell 5 Intel! Sell 5 more Micro!"

He studies the computer screen. "Fucking Intel is so powerful. How could Intel be going up?" He decides it is a temporary blip. "Sell 5 more Intel! Sell another 1,000 Yahoo!"

The Journal has a relatively positive front-page piece on AT&T, whose bid to buy the cable giant TCI will be approved by regulators today. Cramer reasons that this will give the phone giant a bump. "Buy 35 more ATT! Bring me another 15 AOL. Buy 10 Soft," he shouts, using his nickname for Microsoft. "Sell 15 more Qwest. Sell another 5 Intel." A moment later: "I gotta buy more AOL! Yahoo's up!" The two stocks often moved in tandem. "Buy 25 WorldCom!"

Surprised that tech stocks aren't taking more of a beating with Dell's slide, Cramer starts banging out a Street.com column at 10:15: "We are sitting here amazed....I doubted Mark Haines when he pronounced all is well at 9:45. But I should have been buying rather than snickering." Cramer looks over the column he filed at 7:32 that morning, saying that tech stocks were "not so hot."

"I look really stupid," he says. "I wrote that piece, I'm already wrong! Jesus Christ, it's so hard."

Soon the Dow is out of the red and up 5 points. The second-guessing begins. "Everything I sold was wrong, everything I bought was right," Cramer says.

He totals up his score sheet. The firm has lost $240,000 on Hewlett-Packard, $40,000 on Intel, $180,000 on Qwest Communications. It's picked up $15,000 on Lucent Technologies and Time Warner. All told, Cramer has lost close to $400,000, and the take-out sushi hasn't even arrived for lunch.

Now he's stewing over Qwest Communications. In a conference call last week, the CEO, Joe Nacchio, assured analysts that the company was doing well. But Cramer ran an SEC check through his Bloomberg terminal and discovered that Nacchio has filed to sell a couple hundred thousand shares of his own stock. By the time this hits the papers, Berkowitz said, people will say he's bailing and will freak out. So Cramer sold 30,000 shares of Qwest at 53 1Ž2. Now the stock is at 55. Maybe they jumped too quick.

Cramer is on the phone again, this time trying to sell his weekend place in Bucks County. By the time he hangs up, the Dow is up 61. On CNBC, Burton Malkiel of Princeton University is talking about a Business Week cover story on the merits of index funds, which passively mimic the market. "The evidence is simply overwhelming that index funds have beaten active managers year after year," Malkiel says.

"Who's this joker talking?" Cramer says. "I listen to him, I'd be living in my car."

At 2:25, the rally has faded, and the Dow is only up 16. Tech stocks are sinking. "AOL's getting wrecked, Jeff!" Cramer says.

He and Berkowitz debate whether to buy up plenty of IBM, which is expected to make a positive presentation at an upcoming meeting. "I will not risk hundreds of thousands of dollars on a good meeting," Cramer says. "I don't want the gun to my head on this. Do 30,000."

In the final 30 minutes of trading, the bottom falls out. The Dow is down 60, down 81, down 93. On CNBC, Ron Insana talks about "one savvy hedge-fund manager I know" who "sees a seesaw market with a bias to the downside." Cramer figures it is Stanley Druckenmiller, chief investment strategist for the financier George Soros. From the floor of the stock exchange, Art Cashin of PaineWebber tells Insana that the market may be going as low as 8,700.

Tech stocks have been bloodied. Dell, AOL, Yahoo!, Qwest, Sun Microsystems, Intel are all down. Cramer is still worried about Intel. "I gotta sell another 10 Tel," he shouts. At the closing bell, the Dow is down 102.

"It's chaos out there," Cramer says.

Copyright © 2000 by Howard Kurtz