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Supply is the Enemy of the Rally

Let the market work its magic, even if it is red magic.

Underwriting cycles cure themselves. Remember, companies do these deals to raise money. They will raise money in the stock market until it does not let them. Right now we have not even had one really big bust of a .com deal yet.

It will take a half-dozen outright collapses before those "in the queue" so to speak, meaning they are travelling all over the country right now, cancel their deals. In fact, as daunting as the action appears right now, I don't think that anyone who recently announced that he or she is trying to raise money seems all that jittered by what they see so far. They are still singing in the breeze.

What will be most interesting to see is whether the announcement of new deals takes a hiatus. Nothing smells worse than a deal that gets announced that then just kind of hangs out there, in the pending file.

The action you see on your screen today could cut back on those who fear that the window to the public markets might be open when they file, but closed by the time they are ready to be offered.

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That's the real battle that is occurring right now. The lag between the decision to file and the actual deal launch can be as much as six months. The issuers are roughly in the analogous position I found myself in when I wrote for monthly magazines. You have to approach what the market will look like in November. That's not easy.

There is also a bit of a prisoner's dilemma here. If you are a solid issuer, you might think that you will be immune to the market's vicissitudes. You also might believe that come November, the market will be anxious for more .coms because it could be another .com Christmas.

Or you might just believe that you will run out of money by then so you will have no choice. And you might just decide that everyone else will cancel so the timing might be right, a la


last fall.

If you are not involved you can only conclude that this shake-out is healthy. Supply is the enemy of the rally. It is what causes the market to act terribly. It needs to be cut back if the rest of the market can regroup and rally.

So, let the market work its magic, even if it is red magic right now. It will turn to green again once the excess is shed.

James J. Cramer is manager of a hedge fund and co-founder of 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