(MONEY Magazine) – Xybernaut Corp. isn't the sort of stock we generally recommend to MONEY readers. The company, which has been peddling a prototype of a "portable" computer that you can attach to your belt, lost nearly $10 million last year on about $800,000 in revenues. In early May, Xybernaut's shares blipped up from $2.30 to $3 on news of a deal with a Sony subsidiary. Then, on May 14, it was announced that Xybernaut CEO Edward Newman would appear the next morning on CNBC's morning market show Squawk Box--and that's when things got wild. By day's end, Xybernaut was at $8.50. And by the time Newman sat down on the show's set, the stock had hit $12.50. The Squawk Box effect was in full force.

What is the Squawk Box effect? It's what happens in the market when amateur traders who hang out on the Internet find out a small stock will be featured on the program--and start bidding it up. "The CEO is on Squawk tomorrow! Yes! Go, Joe Kernen! Thanks so much, you make me so much money!!" one enthusiast posted on Silicon Investor's Xybernaut message board the day the Newman interview was announced. A company's business prospects aren't important to traders like these. What matters is, will the stock be mentioned on CNBC between 8 a.m. and 10 a.m.?

Call it a sign of a market gone haywire. But of the flood of TV investment shows, only Squawk Box, with an audience of 190,000 households, has followers fanatic enough to move a market. It's not difficult to understand why. Whether anchor Mark Haines is cutting down a CEO, or the pillow-lipped Maria Bartiromo (known on trading floors as the Money Honey) is reporting live from the floor of the New York Stock Exchange, or reporters Joe Kernen and David Faber are ridiculing analysts for trying to explain away bad calls, Squawk Box is redefining TV financial news. No reverential Louis Rukeyser postmortems here. Squawk Box is as fast, dramatic, sexy and fluid as the market itself.

Watch long enough and you'll be hooked. Tennis star Andre Agassi and leveraged buy-out king Thomas Lee are. So are individual investors like the 51-year-old Cleveland housewife who created the "Hunks of CNBC" chat room on Silicon Investor. Every morning she rises at 6 to get her family ready for the day, but at 8 o'clock Redhead--her online alias--is in front of the tube. "I like the spontaneity," she says. "It's informative and entertaining. It makes me smile."

Sure, there are other television sources for individual investors--an additional 12 hours a day of financial coverage on CNBC and dozens more on upstarts CNNfn and Bloomberg Television. But Squawk Box is unique: It's democratizing investing, turning the stock market into entertainment while giving its viewers a behind-the-curtains glimpse of how Wall Street really works. The show may focus too much on short-term market noise (it's a daily program, after all), but it also reminds its viewers that in an age of sky-high valuations, skepticism makes sense.

Take the way the program treated Sunbeam CEO Al Dunlap last October. No wallflower when it comes to self-promotion, Dunlap was riding high when he appeared on Squawk Box. The company's stock had just hit $48, up 400% in Dunlap's 12-month reign.

But Chainsaw Al, as Dunlap is known, was about to run into a buzz saw. "I found a few things that might get your heart beating a little faster," anchor Haines tells Dunlap as the cameras roll. "Sales are up and everything, but so are net receivables and inventories. What's going on?" Receivables are up because the company had a huge September, Dunlap responds, and inventories are up in anticipation of a great fourth quarter.

Haines tries again: "Accounts payable are up too. What, are you stiffing your suppliers?"

Dunlap guffaws, "[I'd] never do such a thing!"

Another interviewer might politely move on. Not Haines. He presses ahead: "S&P research says, 'Cautious investors should steer clear [of Sunbeam] given the risk inherent in failing to meet rather lofty expectations.' How do you respond?"

Dunlap snaps, "It's total bullshit." And, this being Squawk Box, there's no bleep; the viewers hear it all.

Since that day, Sunbeam's stock has fallen by more than 50% to $22. The company had been booking sales for grills that were neither paid for nor shipped to customers, just as Haines' probing suggested. By the first quarter, Sunbeam was not only failing to meet analyst expectations, it was losing money. Squawk Box had been asking the right questions while most of the financial press was giving Dunlap glowing reviews.

KERNEN: "Remember a couple of weeks ago Tyco International bought AT&T's submarine division? You know, the one that doesn't build submarines. Well, Tyco's just won a big contract to lay cable across the Pacific, and they're using this unit to do it."

HAINES: "Doesn't it seem that anything AT&T gets rid of turns to gold?"

FABER: "I remember Robert Allen [ex-CEO of AT&T] used to tool around in submarines to avoid his shareholders."

Dreyfus director of equity research Richard Hoey was on to something when he called Squawk Box a "bull market frat-house party." The irreverent tone begins with the program's name, which was inspired by the intercoms that investment houses use to make morning announcements to their analysts, brokers and traders. But the show, created three years ago by Haines, producer Matt Quayle and CNBC producer Pat Sheridan, rises well above the frat-house level, thanks to the skill, the varied perspectives and the attitude of its on-air cast.

The lead interrogator is anchor Haines, 52. He's had plenty of training: After 20 years in local TV news, he enrolled at the University of Pennsylvania law school. When he decided he'd hate "having to spend all my time with lawyers," he joined CNBC in 1989. Like his fans, he's obsessed with the market. He gets up every morning at 4:30 to pore over brokerage reports, Web searches, Hoover's company profiles and news stories on the day's guests. He keeps tabs on analyst rating changes, so he can call attention to anyone who flip-flops.

His fraternity brothers bring their own strengths to the set. Joe Kernen, 42, has a graduate degree in molecular biology from the Massachusetts Institute of Technology and spent nine years as a stockbroker. He understands stocks--especially biotech companies, the kind of speculative plays that make Squawk Box junkies salivate. And since his first on-air disasters (he says he did "everything but freeze in front of the camera"), he's become so comfortable that he ad-libs his market reports as he checks out the three computers on his desk. David Faber, 34, the crew's career business journalist, also flies without a net. He works the phones on the set, interviewing sources. Faber wrote for Institutional Investor's newsletter division before joining CNBC in 1993.

The biggest name among the supporting cast is Maria Bartiromo, 30, who broke into the business working for CNN's Lou Dobbs; she also hosts her own show, Business Center.

The on-camera team may get all the chat-room attention, but the people who actually set the Squawk Box effect in motion are the program's producers, Quayle, 28, and Penelope Scott Kernen, 32 (who met husband Joe on the set). They're the ones who convince CEOs and experts to appear on the show, often on one day's notice, and who schedule the appearances of the show's 20-odd "guest hosts," investment gurus such as Mario Gabelli and Jimmy Rodgers, who share the anchor desk with Haines. (Kernen and Faber sit off to the side.)

At first, Kernen says, he and Haines didn't get along, "but now there is a sort of camaraderie and a love for business news and humor."

Humor with a snarl. Consider the on-air events of May 14. Haines asks Seth Tobias, a partner with hedge fund Circle T Partners, how he feels about investing in Asia. When Tobias responds, "Cautiously optimistic," Haines lets him have it: "Thank you for that utterly useless comment."

Later that morning, after Hewlett-Packard reports that second-quarter profits will come in below expectations, Kernen and Faber yuck it up at the expense of an unnamed analyst with Buckingham Research who two days earlier had upgraded Hewlett-Packard to a "strong buy." But that abuse is nothing compared with the vitriol reserved for the analysts at Lehman Bros. and Goldman Sachs, who, now that the bad news is out, are frantically lowering their ratings before the market opens. "Red flag," Faber announces facetiously. "Lehman and Goldman are downgrading Hewlett."

But then Faber gets serious, explaining to his viewers that by making the rating adjustment now, the analysts will be on record as having made the call at yesterday's closing price, even though it's too late for individuals to sell and avoid the inevitable drop in price. Insights like this are what make Squawk Box worth watching.

FABER: "They're telling analysts- and only analysts-so they can go out and call their favorite clients about the deal's dilution, before you hear the news."

That's how, on May 12, Squawk Box spills the inside story on an analysts-only conference call: The SBC-Ameritech merger will dilute earnings for two years, a fact missing from the official press release. The stocks start sagging.

Squawk Box's pitch to individual investors--watch us and you'll get the access the pros have--isn't just hype. In fact, the information on the program is so good the professionals tune in too. "They're the best interviewers in television," says money manager James O'Shaughnessy. "Because they do their homework, you learn a lot."

Hedge fund manager James Cramer, a frequent Squawk Box guest host and a columnist for Time (Money's sister publication), calls the show "a tremendous starting point" for research. "When management seems to answer the questions well," he says, "it makes me say, 'Time to pull a file on the company.'" But, he warns, "anybody who'd buy or short a stock because it's on Squawk--that's the height of stupidity."

If so, the height of stupidity has a name: the Squawk Box effect. Sam Nizam, a sales manager for a high-tech firm in Santa Monica, Calif. and a self-described "stockaholic," dismisses Cramer's caution. "When the show announces the next day's guest, and it fits the profile--small-cap tech stocks work best--I will buy the stock," Nizam says, "and look to flip it the next day, usually during the interview."

The Squawk Box crew knows that there are other guys like Nizam out there. "It's disturbing, and I sure wish it wouldn't happen," says Haines. "But there is nothing I can do about it."

This spring, Squawk Box cut back on publicizing CEO interviews for small firms. But the show can't muzzle companies, and it certainly can't prevent Internet gossip from spreading. Still, when an obscure stock starts jumping around and Haines or Kernen reports the run-up in the same breath as a tidbit about Citicorp, are they giving the news or feeding the hype?

On the other hand, the Squawk Box effect wouldn't exist if the show didn't have credibility. And just because a CEO from a small-cap company appears on the show doesn't mean that things will go well. Witness the misadventures of Xybernaut, the company that makes those computers that fit on your belt.

As the market opens May 15, Nizam, sitting in California, is frantically trying to buy 300 shares at $10, but Xybernaut is going up too fast. Then CEO Newman comes on and starts running through his product's specs. Haines interrupts: "If this is so good, then why have your sales gone down?"

Nizam senses trouble. Now he gets on the phone and tries borrowing Xybernaut shares so that he can short them, but he can't find any stock.

Back on the set, Faber and Kernen jump in and start asking pointed questions about the company's planned secondary-stock offering and whether insiders are going to benefit.

Newman says no, but he looks unsettled and even refuses to answer a question. The Squawk Box effect comes into play again--but this time the stock drops nearly 50% to $7 by day's end.

Nizam is disappointed but unfazed. "I didn't make a dime," he says. "But there was definitely money to be made, and I'll catch the next one."