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."
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