Wall Street Meat: My Narrow Escape from the Stock Market Grinder

270 Pages·2004·0.67 MB·English

by  Andy Kessler

My Narrow Escape
from the Stock Market Grinder
ANDY KESSLER
For Nancy and the Boys
Contents
Foreword by Michael Lewis v
Introduction 1
CHAPTER 1 Right 51% of the Time 5
CHAPTER 2 Piranhas 19
CHAPTER 3 You’re in the Entertainment Business 41
CHAPTER 4 Bull Run 50
CHAPTER 5 Time to Get Serious 70
CHAPTER 6 Wheeling and Dealing at Morgan 88
CHAPTER 7 Up, then Tanked 114
CHAPTER 8 Kicking Off the ’90s 121
CHAPTER 9 Something about Mary 132
CHAPTER 10 Netscape IPO 165
CHAPTER 11 Quacking Ducks 172
CHAPTER 12 Price Targets as a Marketing Tool 181
CHAPTER 13 Synthetic Goldman Sachs 195
CHAPTER 14 The Ax Syndrome 209
CHAPTER 15 Spitzer Fixer 219
Afterword 233
Index 247
About the Author
Credits
Cover
Copyright
About the Publisher
Foreword by Michael Lewis
J
ack Grubman, Frank Quattrone, Mary Meeker, and Henry
Blodget, were Wall Street’s best-known promoters of the Internet-
telecom boom. A few years ago, they were spoken of in a single
breath, and in flattering tones, but those times now feel as
ancient as Mesopotamia.
For more than a year, New York Attorney General Eliot
Spitzer has made as good a political living off the three men as
has ever been made on Wall Street. All three are meeting grisly
ends.
Spitzer rooted out and publicized a few of Blodget’s old
emails, in a way that anyone who followed Blodget’s career
knew badly distorted the man’s motives and character. Now
Blodget is the subject of a NASD probe that may lead to a life-
time ban from the securities industry and a multimillion-dollar
fine.
Grubman, the Caliban of Wall Street, has been fined $15 mil-
lion and banished not merely from the securities industry but
Foreword
from New York City’s private kindergartens, too. And while
Quattrone was charged in March 2003 with obstructing a probe
of Credit Suisse First Boston, he faces the threat of penalties
even worse than Grubman’s.
Meeker is the exception. She has not been fined, banned, or
even asked by her employer, Morgan Stanley, to take a paid
vacation. Spitzer seems to have abandoned whatever interest
he had in ruining her career, or in singling out Morgan Stanley
for its role in the boom.
And Morgan Stanley’s executives have clearly decided to
stick by their most famous analyst. In early April, at the Mor-
gan Stanley annual meeting, shareholder advocate Evelyn Y.
Davis, a character made to order for some Hollywood screen-
writer, used Meeker as a club to beat Morgan Stanley Chief
Executive Officer Phil Purcell.
Davis pointed out that “a lot of people lost money because
of her. She should be fired.” But while Purcell wilted beneath
other blows from the 73-year-old Davis, he stood right up to
her on the subject of Meeker. “We have a very different view of
the contribution Mary made,” he replied. “She was a pioneer
on the Internet. We value her research.”
It’s a curious situation, and it becomes a great deal more
curious when you read this deliciously naughty book, Wall
Street Meat.
Andy Kessler is a fellow I’ve known for some time, but I had
no idea he was writing a book. One dark day the thing just
showed up on my desk, and I breathed a heavy sigh—another
goddamn friend had gone and written another goddamn book,
and I was going to have to at least pretend to read the goddamn
thing.
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Foreword
To slake my conscience, I picked it up and read a few pages.
My heart sank. It wasn’t bad enough to put down and lie about
having read it. I read a few more pages . . . and a few more. I
finished it in a gulp, perfectly astonished.
Kessler, a former Wall Street technology analyst, worked
with Grubman at Paine Webber Group Inc. and Meeker and
Quattrone at Morgan Stanley. He finally quit in the 1990s to
make a fortune putting money where his mouth was, actually
investing in technology companies. He was right there, on the
inside. He knew exactly how the Wall Street machine worked.
Having made his fortune, he now seems to feel free to say
what he wants about his former firms and old colleagues. What
he has to say will not particularly please them, but that is nei-
ther here nor there. It will interest the rest of us.
Wall Street Meat shows what the essential problem of Wall
Street research was—as most people now know—that it ceased
to serve investors and began to serve investment bankers.
Investors no longer paid the investment banks well enough
so that they could afford to produce honest research, and so
the investment banks figured out how to use their research to
help the corporations that paid them far better. And the invest-
ment bank that forged this dubious new model was . . . Morgan
Stanley.
When Kessler quit Paine Webber to join Morgan Stanley,
he only moved about a hundred yards down the street. But in
that little distance, he traveled from an old and dying Wall
Street to a new and thriving one.
At Morgan Stanley, Kessler learned that he would be paid
not by the brokers but by the bankers—and that the banker
who would make the most difference to him was Quattrone.
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Foreword
Quattrone soon would leave Morgan Stanley, first for
Deutsche Bank and then for Credit Suisse First Boston, but
not before he found and created an analyst who, in Kessler’s
view, was a) desperate to be one of the boys, b) free of useful
investment ideas, and c) willing to define her job as the pleas-
ing of corporations that issued securities rather than investors
who bought them. That analyst was Meeker.
To Kessler, it seems clear that Meeker was particularly sus-
ceptible to her investment bankers because she had nothing
interesting to say to her investors.
There are a lot of theories to explain why Spitzer let Meeker
be. One is that it doesn’t pay for a politician to beat up women
in public. Another is that Morgan Stanley’s tech people some-
how erased most of their old emails, and so Spitzer was unable
to humiliate the firm with its own watercooler chat. (CSFB,
which was far less central than Morgan Stanley to the Internet
boom, wound up coughing up 10 times more email to Spitzer’s
office.) Or perhaps Spitzer found nothing to suggest that in
promoting the likes of Women.com Networks Inc. and Home-
Grocer.com, Meeker ever had anything other than investors’
interests at heart.
Regardless of which theory you believe, Kessler makes one
thing clear: Morgan Stanley, and Meeker, knew no other way
of doing business.
In his view, Morgan Stanley, having no tradition of pleasing
investors, and no ability to do so, designed its investment bank
without the investor in mind. Meeker and her bosses didn’t
know enough to have a guilty conscience when they sold out
investors to please corporations. In a game like this, that’s a
huge advantage.
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