A Fool for Amazon

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Amazon's (AMZN:Nasdaq - news - boards) shocking decline last week called into question the whole notion of Net investing.

Despite the decline of dozens of also-rans and me-toos in the dot-com world, there was always something about Amazon that placed it above the fray. I know for a long time we were afraid to short the darn thing. We always knew that some analyst somewhere would come out and slap a super-de-dooper strong buy on it and we would be buried with all of the other shorts in the name. In short, Amazon was a cult.

That era ended last week in a blaze of cyanide-laced Kool-Aid reports from Lehman Brothers. Beginning last week, I thought you could short Amazon with impunity. The thing was just rolling over, beached, whale-like. Everybody who had been crushed by this thing on the short side came out to the beach to give it a swift kick to the head. Including us. (We covered, but I would love to see this sucker rally again to put more out.)

Let's face it, Amazon was and is still an overly worshipped stock. I cruised through The Motley Fool this weekend to see what that site was saying about this icon, and, sure enough, there was genuine disbelief, as in the "Wall Street is such a bunch of stupid fools" variety. Wow, that's a played out rap, guys. TMF, you have been at the game long enough that, like it or not, you are now us. You even sound like the Street with your research reports and your dual recommended lists -- including one that is down a lot, the 20% drop in the rule-breaker thing, caused in part by an Amazon weighting. Ouch! Nasty.

The Motley Fool's defenses of Amazon seem painful, almost reminiscent of pre-$400-price-target Henry Blodget. You know what I mean -- before Blodget blossomed into a really good rigorous analyst who tells the truth more than almost anyone else in the group. At that time, TMF said things like, "Nothing's changed! Lighten up. Have some fun with your losses. They aren}t losses till they are taken! A fool and his money!"

To me, last week, Amazon just became another retailer overburdened with debt at the time of a slowdown. Over the weekend, I was emailing a living, breathing venture capitalist, and he was saying that there was a price at which Amazon had to be bought.

I shot back that, with that capital structure, there really isn't a price, because there will be massive dilution from the converts and a possible restructuring ahead. At this point, any more convertible debt would be swallowed up by vultures who would short the common stock to oblivion, pick up the yield from the bonds and laugh all the way to Amazon's Chapter 11 status. ("First dibs on that cool piece of real estate in Seattle," said the convertible arb!)

The VC spoke of the great brand that Amazon has built. I talked about selling bonds in the Macy's LBO back in the '80s. Every piece of paper I sold wilted under a slowdown and then got crushed in bankruptcy. And Macy's had a fabulous brand name. No brand-name retailer with a lot of debt can handle a real slowdown without tremendous pain. Amazon will be no different.

To me, the comeuppance of Amazon is good news. Cults belong in the hills of Ukiah and the jungles of Guyana. When they come to Wall Street they always leave behind a stream of bodies that I'd rather not trip over on the way to the office.

Let's get back to buying stocks where the companies don't mock the notion of profit and the business, not the stock, gets managed by the top brass. Let's cool it with the "nothing's-changed" rap. Something's changed. You can no longer lose money forever and expect fools to foot the bill.

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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at [e-mail].