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In the early 1990s, when commodity prices were going through the roof,

Fed Chairman Greenspan

raised short-term interest rates to brake the economy. He didn't want a recession, he just wanted the suppliers of the economy's building blocks, the paper, plastic and lumber companies, to have a chance to catch up to demand. He wanted to reduce so-called bottlenecking that was causing hoarding and raw material inflation.

By making it expensive for companies to finance inventory -- the guts of the business cycle -- he cooled the economy just enough to let producers catch their breath. The stunning result was a nice, stable economy, with lower long-term rates and little inflation -- a soft-landing, to use the street's parlance.

Yesterday, Greenspan said he would do it again. But this time it is not the real economy that he wants to de-bottleneck. He wants to reduce the shortage of equity that is causing stocks to rise faster than they should.

Imagine, as I do every day at my trading turret, that sellers are out hawking their wares -- the merchandise -- and it gets bid up frantically by buyers who are afraid that still higher prices are right around the corner. This tension currently grips my business. It's really no different from the home builder who aggressively takes and hoards lumber, not because he has a lot of homes to build, but because he's afraid the lumber will go up in price tomorrow if he doesn't buy it today.

Active money managers and index managers are hoarding stocks because they are afraid the averages will beat them, not because they think that stocks represent good values.

How do we break this stock bottleneck? One way is to make it so that those who are hoarding stocks, taking more than their fair share down by borrowing to finance inventories, get squeezed by having to pay higher interest on their stockpiles.

Another way is to have the companies which are represented by the stockpiles exceed earnings estimates, thereby justifying the prices paid. Greenspan even hinted in his testimony that this Panglossian scenario could happen. But he said that such a development would represent a "new era" that he didn't want to bank on.

A third way is to talk the market down, to remind people that he will do to stock prices what he did to polyethylene and uncoated free sheet in the previous inflation spike.

That alone causes people to sell. It gives underwriters a chance to create the new merchandise that the market actually needs to eliminate a possible Japanization of equity prices. It eliminates the bottleneck all by itself without ever hurting the so-called real economy.

That's what Greenspan did yesterday. He reminded us that what he said 10% ago on the Dow Jones Averages ("irrational exuberance") is more true now than before. He starkly linked rising stock prices to a too-rosy wealth effect that will lead to an overheating of the economy all by itself.

Put it another way: Greenspan didn't rule out my

Dow 9000

target, but he sure tried to change the timetable. I think he capped us for now, until we see more earnings reports that justify higher prices, more equity to cure the bottlenecks, and, yes, a couple more scary sell-offs to make us feel less confident that the price of an unsold share is money in the bank.


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Pan: Classic disinformation by


two days ago near the close of the market. The company issues a statement saying things were going good guns. This bit of contrary news immediately got the stock to spike up to $47.50. The next day the


breaks a doozy of a story about problems at McDonald's. Seems like McDonald's "softened" the market by getting some buyers in the day before the tough Journal piece, buyers who then had no choice but to average down and cushion the blow of a devastating story on the stock price. (I was short McDonalds and covered into yesterday's morass).

Or maybe these were two totally separate events, and McDonald's had no idea a hatchet job was in the works. Hhmmmm. You make the call. (Disclosure: my wife still has the criss-crosses on her arm from where an errant hot fries basket sideswiped her arm during her days behind the counter at Mickey D's.)


True Trader's Anecdote: I "had" the


deal and did nothing. Two days ago I get a call from a West coast broker: "3COM and USRX just pulled out of the Robbie Stevens conference," short hand for both companies' presentations had been canceled out of a long-standing speaking engagement. Wizened, cynical trader that I am, I responded with : "Oh, the old pulled-out-of-the-conference-in-merger-talks ploy. You can't get me to buy either of those stocks even if you pay me."

Oh, callow youth: ten years ago I would have bit and I'd be at the movies while you were reading this. But too many cancellations and subsequent buying by me, has led to earnings disappointments, pre-announcements and ultimately more red ink than black. Oh well, looks like I gotta get a little less cynical about these things.

Volatility relief coming: These Dow average stock splits,

Exxon, IBM, Philip Morris

will soon lend to dampened volatility as a point move in any of these generals won't rock the Dow as it does currently.

James Cramer is manager of a hedge fund and co-chairman of

The Street.

While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to