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A Rude Awakening

SAN FRANCISCO -- I wasn't so much disturbed by the faces in the back of the crowd; the jaw-dropped, eyes-bugging-out, no-this-can't-be-happening faces. No, the disturbing faces were the know-it-all fund managers standing in front, ponied up to eight computers BancAmerica Robertson Stephens set up for attendees at its New Millennium Conference here.

The managers manning the computers were knowingly rubbernecking at the crashing market. "See?" said one, pointing to the Web page on


. "You think that's something -- check out the Spooze." And with a click on the browser's "reload" button, the picture got uglier. Before lunch was even digested, the


closed down 299.43, the

Nasdaq Comp

down a stultifying 65.46, the

S&P 500

(known as Spooze for its ticker symbol "SPX") down 40.32. Clutching the computer mouse like a life raft, the know-it-alls each assumed an imprudent facade of control.

As if.

As the market continued to spin out of control, more than one said, straight-faced: "I was in cash." Sure, and I was long


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at 13. (employees of

can't own stocks, of course, but if I could, I also would have been long



at 16).

But in the back of the crowd, the wiser hands admitted that this selloff was serious, damaging and looking like it could go on. "This has room to run," said Nick Moore, who manages some $1 billion in tech stocks for

Jurika & Voyles

. "My wife and I have our 401(k) pretty much in cash, but I'm glad my fund has a lot of shorts right now, because this could really be hurting."

Robbie Stephens said some 1,400 fund managers had registered for the show, but the crowd thinned considerably as the market slide accelerated. "I think a lot of guys went back to the office to watch the pain up close and personal," said Steven Karan, who runs money for the

Investment Group of Santa Barbara

. "But there's more to come. This is like the


, where the back of the ship sinks first -- that was the small-caps -- but the front of the ship actually pitches up before sinking. But I'm almost in cash, so this doesn't affect me as much."

It should have been a quiet day. After two days of sleepy presentations by largely sleepy companies, fund managers were looking forward to hearing some stories from undiscovered companies Tuesday afternoon. Instead, an unusually hot summer day in San Francisco saw portfolios melting. This is not what fund managers expect out of the summer. It's supposed to be beach time, tee time; if money comes off the table, it comes in crumbs -- not choking piles of steaming, indigestible mutton.

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Traders could barely stomach this one. Laurence Dunn, of the

John Galt Fund

, was working for

Michael Milken

the last time the market looked this tumultuous. Open-shirted like only a California fund manager can be, he stood in the back of the crowd talking about some of the names he'd buy in almost any other circumstance. "Hey, things like

Superior Telecom



Alpine Group

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-- these guys are bulletproof," said Dunn. "But I wouldn't double-down on


right here -- today is not the day."

Dunn thinks the selling will go on. "By every conceivable measure, the market was looking overvalued," he said. "You can't keep paying 28 times earnings for companies growing at less than 3% a year. Something has to give: Hey, a P/E ratio is a P and an E. If the earnings aren't up, the price isn't going to stay up either."

Tomorrow, Dunn said he'll be back in his Los Angeles office, watching his


machine like these yahoos who were watching Yahoo!. "As soon as I see it turn, I'm going to go long," he said. "I've got some time to cover my shorts, but I'll look at all the bellwethers, the



, the


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, the



and go long. I make more money going long on down days: I've got plenty of time to cover before it all comes back."

Indeed, while no one claimed to see this dip as an opportunity. They didn't show signs of real panic. As the conference ended with a whimper, out-of-town fund managers headed for the airport to be at their trading turrets Wednesday. No one seemed to head for the ledge, but even the coolest heads, like Jerry Apodaca of

Apodaca Investment Group

, were shocked by the ferocity of the selloff. "Whew," he said, struggling for the right words to express this market. "This thing ... hey, I haven't made a trade in two weeks, because it's just too choppy out there. If you try to play this game, you get whipsawed around. I put my longs and shorts on two weeks ago. And now -- I'm just holding on."