Readers Talk Back

TheStreet.com publishes selected emails received by the publication and its staff members. To send an email intended for publication in this section, write to [e-mail] and include your full name and city. Letters may be edited for length, style, clarity and accuracy.

Weak Defense of Technical Analysis

Re: Do Your Homework on Technical Analysis

Dear Gary Smith:

Earlier today, in a defense of technical analysis (TA), you referenced a paper by Lo. In fact, page 1770 of this paper's discussion summarizes it as follows:

The evidence provided here, however, does not support the hypothesis that technical analysis can be used as the basis for profitable trading strategies. Therefore, I do not think that the results of this paper will move academic critics any closer to technical analysis.

So, I would hardly say that the paper makes a convincing case and I think it was rather misleading of you to implicitly present it as such.

Concerning your comment about courses in TA being taught at academic Institutions, as someone who works in academia, let me give you my opinion:

This surge in courses on TA was a reflection of the bubble years, and of certain academics and institutions trying to cash in on this gravy train. During the same period, there were many academic programs started up in mathematical finance (often by mathematical experts with little or no expertise in finance or economics). Today, anecdotal evidence would suggest that many graduates of these programs are unemployed (and the situation is probably worsening, considering that Wall Street keeps making cuts in personnel).

Regards,

David P.M. Scollnik, Ph.D. , A.S.A., Calgary, Alberta (Canada) (Received Feb. 25, 2003)

A State of Deregulation

Re: Verizon Hints at Further Spending Cuts

Editors:

" Speaking to investors at the Merrill Lynch Global Communications Conference, Verizon CEO Ivan Seidenberg said he was both "confused and angry" about the Federal Communications Commission's decision Thursday to hand wholesale pricing jurisdiction to the states."

If they are ordered to continue subsidizing local competition, the regional Bells will continue to reduce costs by further cutting capital expenditures. The FCC has now lobbed the deregulation ball to the states. So, for starters, Mr. Seidenberg and Verizon can go to New Jersey and ask for deregulation relief in the home state of Lucent.

Why not?

Sincerely,

Jerome Capp, Cortlandt Manor, N.Y. (Received Feb. 25, 2003)

Re: Legal Reform Tempts Wall Street

A Plea for Legal Reforms

Editors:

I read with great interest the story about tort reform. The part that struck me hardest was the statement made by Michael Saks, professor of law at Arizona State University, about the awards acting as deterrents of improper behavior. As a professor, I wonder if Mr. Saks has real-life experience.

My own experiences, and those that I have witnessed, have helped me to formulate a low opinion of lawyers. I've seen time and time again, where lawyers effectively "extort" money from defendants, using the threat of "keeping them in court for years" unless they pay up.

Some would say "that is what the disciplinary review board is for." I doubt these people have ever dealt with the disciplinary review board. By their definition, "improper behavior" is physically accosting someone or receiving a settlement check and not forwarding it to the recipient party. This board believes anything an attorney does is "proper" because, well, they are attorneys.

I have heard that there are more students in law school at this time than there are practicing attorneys. God help us all if this is the case! With the ability to legally extort money from people and the huge settlements being awarded, it's no wonder so many people want to be attorneys.

Not all attorneys are bad. But the bad ones are the ones we all hear about -- and I mean, we all hear about them -- even the disciplinary boards. Yet, they are untouchable. They have immunity when acting as the prosecuting attorney and they make that bad situation even worse by distorting the "zealous advocacy" doctrine: "I can destroy someone I don't like and hide behind my self-regulating body that will allow me to get away with it."

I don't believe that tort reform alone will solve the malpractice issues that are making the headlines, but I do believe that it is a big part of the problem. Insurers, physicians, and health care facilities are part of the problem, also. But to think the best thing that could ever happen to you is to have your doctor make a mistake is frightening.

A lapse in judgment is something everyone is guilty of from time to time. What happens when an attorney makes a bad decision? I'll tell you -- the immunity kicks in and they walk. They don't get driven out of business by another self-righteous attorney.

We need legal reform and we need it NOW!

Alistair Kelly, CFP, Sharon, Pa. (Received Feb. 20, 2003)

Re: Does Code Sharing Mean Caring for Air Travelers?

Missed Positive Impact of Agreement

Dear Editors:

Mr. Gillin fails to make several critical points regarding the positive effects of the code-share agreement between Delta, Continental and Northwest, and the impact on the consumer/corporate traveler.

The frequent flyer will benefit in many ways, including the opportunity for their companies -- that have negotiated corporate discounts with carriers -- to enjoy additional cost savings, as a result of the ratified code-share agreement. Unfortunately, the DOT has made several cumbersome stipulations to the code-share agreement that unfairly impacts Delta, Continental and Northwest. Nevertheless, corporations will benefit from more travel flexibility and choices (schedules/frequency). Keep in mind, low-cost carriers will ultimately determine fares in most markets.

Speaking of fares, when making comparisons between ticket prices today vs. 1980, you failed to explain to your readers the impact of Federal taxes on ticket prices. Taxes made up more than 22% of the price of a typical airline ticket in 2003. Due to soft demand, carriers can't afford to pass increased taxes to customers, let alone the additional cost of security (Terrorism insurance, new secure cockpit doors, etc.).

Taxes on fares in 1980 surely did not reach the proportions seen in today's ticket prices. Taxes on air travel today rival sin taxes levied against distilled beverages and cigarettes.

Is it reasonable for consumers and air carriers both to be burdened with such exorbitant taxes? It would appear the federal government is against the consumer and the airlines.

Something to think about.

Sincerely,

Bobby Carroll, Wendell, NC (Received Feb. 20, 2003)

Re: Don't Aim for the 10-Bagger

Learn to Sell

Dear Editors:

Dagen McDowell says "Don't go for 10-baggers." I say, do. In that piece, here are some things she forgot to mention:

Instead of hitting a 10-bagger, you bounce off the wall for doubles and triples. The rule is to learn to sell. It is more important than learning to buy. A lot of those dead dot-coms gave great returns, if one developed a rule (or rules) for selling. Most commentators avoid that, waiting for news, or preaching buy and hold.

By the way, eBay is still a great investment and wonderful to trade, especially since it is regarded as "overvalued" (LOL).

I look for stocks that commentators say are "overvalued" or "overbought." Bargains get to be bigger bargains (i.e., they go down more) and overvalued stocks tend to get more overvalued (i.e., they go up).

As the man once said, "The trend is your friend."

Martin Greenberg, Kalamazoo, Mich. (Received Feb. 18, 2003)

Re: Video Hasn't Been Kind to Telcos

Unfair Competition

Dear Editors:

Good morning.

Regarding SBC and Hughes, both companies come from a tradition of 100-year monopolies, where one competes in their world by illegally going to D.C. to get the government to zap the competition.

Customer service has been the last of their concerns to these folks who think they are the government. They appear to feel one can use the "if we can't beat'em, we'll cheat'em" approach to life.

Alas, there are others on the planet -- e.g., Nokia -- that innovate. Should the folks in D.C. decide to enforce the law, we could see some innovation again back in the USA!

As Mel Brooks put it, "It's good to be the king. ..." (That is, until the axe falls.)

Robert W. Carter, Austin, Texas (Received Feb. 10, 2003)

Re: It's Time for Another Change in the Tax Code

Anachronistic Loss-Limit Based on Hope, not Reality

Dear Editors:

Jim Cramer hit a sore spot with a lot of people I know who are sitting on huge losses over the past three years. I know middle managers where I work who are nearing retirement, and sitting on $100,000 in losses. They aren't moving because, as they put it, once they take the loss, "there's no way I'll get it back in my lifetime!"

Here, hope beats reality, with the $3,000 yearly loss limit. Cramer's right on with this anachronistic cap.

Robert Quinn, Manassas, Va. (Received Feb. 4, 2003)

Re: DaimlerChrysler's Jeep Tricks

Tribute Was on Target

Editors:

Five Dumbest is one of the reasons I look forward to Fridays, but you blew it on the Jeep cartoon. Jeep is saying that they are mourning the loss of a friend. The only other symbol for mourning I can think of might be flowers, which would certainly look silly. A gun would make no sense in this context. Would you have preferred recaptioning another of Bill's cartoons? Then someone else would have missed the point of Jeep mourning the loss of this great man.

Alan Majors (Received Jan. 31, 2003)

Re: DaimlerChrysler's Jeep Tricks

Cartoon a Fitting Tribute

Editors:

Sorry, but you are way off base on your Mauldin objections.

In publishing circles, it is a tribute to use testimonial adaptations to an artist's known life work to pay tribute at their passing. Anyone familiar with Mauldin will know the "rest of the story" and see the tissue as a "flower on the casket." When Charles Schulz passed, someone ran a cartoon of Snoopy standing in front of a pumpkin patch with tears running down his cheek. Nobody thought it was a takeoff on Schulz's work, but a tribute to him in passing.

The Mauldin example is the same. Memorials come in many packages.

Thomas C. Smith, Atlanta, Ga. (Received 1/31/03)

Re: DaimlerChrysler's Jeep Tricks

Cartoon Alteration

Editors:

George, I'm with you -- they shouldn't have changed it.

Here's why the original cartoon was really funny. Note that on the side and the bumper of the Jeep, there is the word "Cavalry." Then notice the shooter's rank. The guy is at least a sergeant major (or better).

What Bill Mauldin was telling us was that this guy was in the Army when they actually had horses, and it was hurting him to have to "put down" his faithful jeep.

Mauldin appealed to people on so many levels, and one of his keys was to see things the way the were, not like so many today that are busy putting some sort of spin on events.

Hell, Bill never would have shown a grunt in the field with a box of tissues, much less a crying sergeant major.

Don Leighton, Charlotte, NC (Received 1/31/03)

Re: XM, Sirius Sending a Stronger Signal

The Sweet Sound of Satellite Radio

Editors:

The quotes regarding the value of XM and Sirius satellite radio are obviously the product of minimal knowledge of these products or the state of radio in general. XM, because of its earlier roll out, quality programming, growing subscriber base, intimate relationship with General Motors, combined with a state of radio that can only be described as the dark ages, is in a powerful growth position. Its debt seems large, until it is valued against the cost of owning a major market FM station.

The ability of satellite radio to provide a huge amount of programming also allows a more creative and satisfying choice. Satellite radio is in its infancy and is destined to change the entire radio landscape. Broadcast coverage of the continental United States has broken the monopoly of large broadcast media corporation that, since deregulation, have narrowed the choice and to my ears reduced the quality of radio broadcasting.

Here in Chicago, the dissatisfaction with radio is large and intense. The documented drop in radio listeners is a direct result of the contempt current radio is held in. Satellite radio changes all that. The radio industry made a huge mistake in its planned use of digital broadcasting. Instead of offering more choice, they prefer to "improve signal quality" and features.

The biggest change from digital radio will result in AM sound-quality being on a more equal footing with FM. The years it will take for digital radio to show up in automobiles and home receivers are years in which XM and perhaps Sirius (though their survival is in doubt) will build a substantial subscriber base and serious market momentum.

In summary satellite radio is one of the few investments with huge growth potential.

Dave Freeman, Chicago Ill. (Received 1/28/03)

Re: Save Safe: Dividend Plan Alters Retirement Planning

Building Assumptions Into Retirement Plans

Editors:

Dagen McDowell's column discusses the possible advantages of having part of one's retirement portfolio in a regular account rather than all in IRAs or 401(k)s, if dividends are no longer taxed as proposed by the president. There are two other advantages that are in effect already.

First, everybody assumes that it's better to pay taxes after retirement when the rates will be lower. For me, and I suspect for many readers, my tax rate will be just as high in retirement as it is now. This assumes the rate structure stays the same.

In spite of the current enthusiasm for rate cuts, I expect U.S. income-tax rates to go up in the future. Take a look at demographics (i.e., the number of baby boomers who will be on Social Security), the growing U.S. deficit and tax rates in Europe.

Second, everybody assumes that they're going to make money in their IRA. As we've seen over the last three years, you can also lose money. In a regular account, Uncle Sam lets you write-off some of the capital losses. In a tax-advantaged account, the losses are all yours.

Clyde Sweet, Mahomet, Ill. (Received 1/27/03)

Re: XM, Sirius Sending a Stronger Signal

Blind to Sirius' Glaring Pattern of Failures

Dear Mr. Mannes:

In your piece on XM and Sirius, you sort of left out the most important, distinguishing differences between these two companies:

XMSR has never failed to do what it said it would. Projections have been as near perfect as I've seen in my 20 years as a CPA; the financing was delivered according to schedule (and with unexpectedly low dilution to common shareholders); and the product is selling like hotcakes.

SIRI has failed to meet any subscription projection. It failed to rollout its product on schedule; it has failed to come up with exclusive OEM arrangements; and it has failed to deliver on its financing.

That's sort of a glaring oversight, wouldn't you say?

David Ray, Hot Springs, Ark. (Received 1/27/03)

Re: Does Sharing Mean Caring for Air Travelers?

Weighing Airline Vs. Consumer Needs

Dear Editors:

Considering the state of the airline industry and the proposed code share between Delta Air Lines, Northwest and Continental, maybe one should look at the needs of the airlines more than the consumer. With two majors in bankruptcy and more to surely follow this year, the cost to consumers is going to go up. It's just a matter of how we would like to pay.

It will be in the form of tax-funded bailouts or higher air fares. Wake up and understand that we can't pay the exact same price for a New York to Miami ticket as we did 20 years ago and still have a viable aviation industry.

Bill Caravello, Coral Springs, Fla. (Received 1/26/03)

Re: Who Wants to Dump AOL More: Time Warner or AOL Users?

Losing AOL Won't Save Time

Dear Editors:

I'd like to see a reasoned discussion of arguments for AOL Time Warner remaining as one organization. If the market is so eager to split them up, they must think that Time Warner can do better on its own, or that the inherent value of Time Warner will suddenly materialize (and, presumably, be higher than currently reflected in the price of AOL stock).

As an AOL stockholder, I guess I just "don't get it." If the value of the Time Warner portion of the organization is going to materialize after the split-up, what is to prevent it from materializing now?

Maybe, just maybe, the market is looking at the warts and blemishes and not the whole organization. I thought there would be some symbiotic effects from the original merger. Did they not occur?

Harry Battin, Berkeley, CA (Received 1/14/03)

Fight Immoral Double-Tax of Profits

Dear Editors:

I am really amused at the negative comments on the impact of not taxing dividends. Mr. Thom wonders if George W. learned any economics from his MBA degree, and says eliminating this tax will not have any effect on jobs. (Haven't we learned not to underestimate President Bush by now?)

Mr. Thom, how do you know? What happens to the extra money that can now be spent by the stockholders? Does it just evaporate and have no impact on the economy? But the main reason to eliminate dividend taxes is that it is immoral to tax profits twice.

We should welcome any reduction of federal taxes and fight the states that will try to tax the difference. Heck, let's go back to the 28% marginal rate. Let's eliminate this Social Security fraud and have real retirement reform with real individual lock boxes.

Oops, I'm getting off the subject.

Best regards,

Brian A. Chamberlain, Coppell, Tx. (Received 1/13/03)

Dividend Impact Is at the Margin

Dear Editors:

Apparently few get it. Most everyone seems only to be able to analyze in current time.

What the Bush dividend plan really does is permanently change investor, corporate BOD and corporate management behavior toward stock valuation over time as the scope and magnitude of the change sinks in. It will impact every person who is a recipient of a private pension, state government or local government pension, who has a 401k, 403b, and/or IRA, and/or who just own equities personally. It will encourage stock ownership (and risk taking) by all economic and tax classes relative to bond ownership, beginning first with those who can and will individually own equities.

Remember, the impact is at the margin. As individuals move to dividend paying stocks, this will be felt by non-dividend paying corporations as their stock prices will lag relative to dividend paying corporations.

In time, many more corporations will be forced to pay dividends or see their stock price lag behind. It will not happen overnight, but it will happen.

Additionally, for a corporation to pay cash dividends, this means that the corporation must have real earnings. Eliminating the tax on corporate dividends will have profound effects on investing patterns and portfolios. The incentive to take risk will be dramatically improved.

It is such a significantly good change that it should be done even if the top rate is retained at 38%.

Regards,

Thomas Mann, Professor of Finance, Lynchburg College, Lynchburg, Va. (Received 1/10/03)

Re: Defending Bush's Dividend Plan

The Real Beneficiaries Aren't Really Needy

Dear Editors:

It's true, as Cramer says, that "the investor class is larger than critics realize, and more in need of help."

The problem with his analysis is that most of the investments of individuals within that class are tied up in 401(k)s and IRAs, where there is already no tax on dividends. And this is more likely true of investors at the lowest income levels among investors. In other words, those most in need among that class won't benefit from this proposal. Only the wealthiest, who maintain large balances outside of pension funds, will truly benefit.

So, while I personally favor abolishing all forms of double taxation, the effect of the zero tax on dividends policy will be neither to stimulate the economy nor to create jobs. Bush's claim that this will increase "capital flow" and thus produce new jobs indicates that despite his MBA, he knows little about economics beyond sloganeering.

New jobs are not created by increased trading of already issued stock. While there may be a shift toward ownership of dividend-paying stocks, this will amount merely to a redivision of the same-sized pie.

Only when company managers see the consumer increasingly willing to buy their products will they put new capital to work. This means putting forth policies that in the long run will enlarge the middle class. I believe this policy is really a sop for those who donate to political campaigns.

Regards,

Peter Thom, New York, NY (Received Jan. 07, 2003)

Re: Honeywell Sees Big Charge on Asbestos Settlement

Asbestos Settlements are Hurting the Economy

Dear Editor:

Maybe the next time the U.S. government issues a monthly economic report, it should include the damage being inflicted on the national economy as a result of astronomical asbestos lawsuit settlements.

I wonder how much of Honeywell's $1.9 billion will be going to real victims of asbestos and not to those who demonstrate no signs of asbestos-related illnesses. A real problem exists in determining medical eligibility, which is why too many plaintiffs who are not sick receive large awards.

When companies pay these large awards, it is usually the "little guy" who pays the tab. This includes workers who lose their jobs because of a reduction in their company's "bottom line, as well as those who see their 401(k) plans dwindle as a result of reduced company stock values.

Honeywell is not the first and won't be the last company to pay mammoth awards. Halliburton just settled for $4 billion!

Already, 60 large companies have filed bankruptcy, with many, many others still in litigation. As long as there are billions to be made from asbestos lawsuits, there will always be more lawsuits.

It is time for Congress to step in, as the U.S. Supreme Court has twice ordered them to do, and resolve this problem before even more damage is inflicted on our economy.

Sincerely,

George Landrith, President, Frontiers of Freedom, Fairfax, Va., (Received 12/19/02)

Re: The Five Dumbest Things on Wall Street This Week

It's Professional, Not Personal

George,

I was surprised to read in your article today about NWH(NWIR Quote) ("Letter Rip") that in the letter I wrote attached to a 13D filing last week, "There's little in the letter about the business operations of the medical business."

At the outset, I want to make it clear that I am 100% open to receiving criticism, for not to be would be 100% hypocritical, given our investment style. However, the following section about NWH's ENS division (all of NWH's operations, essentially) is far in excess of the average discussion of an issuer's business operations in an SEC schedule filing (i.e., I am not a sell-side research analyst obligated to share our fundamental, quantitative research with the general public; in fact, it would be reckless of me to do so, given that our partners pay for our analysis):

"With HIPAA gaining momentum and set to crash on the shores of U.S. health care customers in the next few months, the full value of NWH's ENS division should be apparent to any potential buyer. ENS' customers, both current and prospective, must become compliant through software and IT solutions like those offered by ENS or face major repercussions. These HIPAA-compliant solutions must limit access to protected data and provide audit trails about those who access files for privacy and security rules. More relevant to NWH's Electronic Network Systems (ENS) division, any health care company must ensure HIPAA-compliance with any provider or intermediary payer directly (EDI) connected to their systems for eligibility inquiry, claim status inquiry remittance and advice distribution. ENS's PASS (pre-adjudication software system), which assists payers improve the ratio of electronic claims that can be auto-adjudicated, is simply in the right place at the right time. It has been incumbent upon you, ever since you began the rumored auction process for ENS many months ago, to find the buyer willing to offer NWH the highest price and thus capitalize on the demand spike created by HIPAA's looming deadline. To date, you appear to have failed to accomplish this task, despite rumored interest (Yahoo! Finance, enter symbol "NWIR") from the likes of Proxymed, Inc.(PILL Quote) and others."

I also do not understand how I am "an investor of the scorched-earth variety." Scorched-earth policy refers to "devastating all land and buildings in the course of advancing or retreating troops so as to leave nothing salvageable to the enemy." In over 90% of the situations in which we have filed a 13D, the target companies have taken subsequent action which created (vs. devastated) enormous value for all its shareholders (USA Detergents, Command Systems, Edgewater Technology, Corporate Renaissance, Preview Systems, etc.) Certainly, there have been no complaints from our investors (up 50%, 41% and 30% net in last three calendar years) or those outside shareholders of our 13D targets.

Lastly, your friend Mr. Kardon's comments that "The letter is a little bit of a puzzle because it's a personal attack" seems to lack foundation. The vast majority of the letter dealt with Mr. Cassidy's behavior in his professional role as CEO of NWH or in other professional capacities (lead investor in Whitney Financial, executive of TVN, executive of Allen & Co.). The only personal comments came from his divorce filings, which merely supported our assessment of his professional character (abusive, profane, etc.).

Given all the damage done to public shareholders by inept or corrupt CEOs in the past few years, it is I who find your report to be "a little bit of a puzzle." Is there any reason (besides some kind of personal relationship about which I have no knowledge) why you would print such a slanted article? Can you help me understand why there was no mention of the extensive discussion of ENS' prospects above, or the details behind Mr. Cassidy's defendant status in the Pine Top scandal? I don't expect to be given Robin Hood status for our 13Ds, but don't expect to be made out as "a bad guy" for exposing the professional inadequacies of CEOs of publicly traded companies.

Sincerely,
Robert L. Chapman Jr.
Managing Member, Chapman Capital (received 12/20/02)

Re: Chip-Equipment Investors Won't Get It All Back in 2003

Optimistic Outlook for Semis

Editors,

Regarding your chip equipment piece, I would have to count myself among the somewhat optimistic (more so over the long term -- three to five years) for the following reasons:

A few big chip-manufactures (those who buy semiconductor manufacturing equipment) like Intel (INTC:Nasdaq) are upgrading to finer line widths, bigger wafers and eventually copper. These upgrades will allow them to produce more chips per run, faster speeds and more energy-efficient chips at lower costs, pushing the competitive performance and price envelope. The other players will be forced out, unless they can raise capital to make the investments in new technology. Over a short period (say two to three years) my guess is that we will see a few going out of business or being swallowed up by competitors. Then as gross margins expand (two to three years), capital inflow will rise in this industry and competition will come back.

What does this mean for semi-equipment makers?

These guys will be selling their top-line stuff, but to fewer outfits for a while and purchasers will be buying from fewer makers. The leading edge folks (like Applied Materials [AMAT:Nasdaq]) will do well, although not stupendously, for the next few years. The others will struggle and we will see consolidation. When margins widen in a few years for chips, the semi-equipment makers will see their share of profits increase as well.

Where are we in the semi-sector cycle?

Based on what I see going on in businesses, we are gradually moving through the early phase of a PC upgrade cycle. Older PCs are showing their age as they do not have USB capability, enough juice to upgrade to Windows XP or video cards with sufficient memory to efficiently utilize broadband.

New product launches like the tablet PC, more powerful cell phones, PDAs, DVD recorders, home networks, digital cameras and expansion of broad band availability will also help. But margins are low for these products and even when unit orders increase, revenue and profit growth may lag for some time.

We will need to see some consolidation before we see big profit increases in this sector. One possibility for an earlier recovery is that the new chip-making technology will be so efficient (margin wise) that the few manufacturers that can afford to move into this area early will be able to undercut the competition on price/value and still reap a profit increase while they wait for their competitors to anti-up or fold.

Sincerely,

Bruce Ollodart, Wallingford, CT (Received 12/16/2002)

Re: Exchange-Traded Exchange: Merc IPO Due Thursday

The Definition of a Bubble

Mr. Goldstein,

Your story on the Chicago Mercantile Exchange's IPO seems to have been an attempt to scare investors away from one of the few good stocks currently out there. Your description of its growth as a "Nasdaq-like bubble" is missing the whole definition of a bubble -- a mistake made by countless investors and obviously by yourself.

The definition of a bubble is not enormous growth in earnings and revenues, it is an expansion of the valuation of what investors are willing to pay for those earnings. The Nasdaq bubble was not because companies were growing too fast! It was because investors were paying more and more for each dollar of earnings (if any) that the companies had.

It's great to finally see a company in today's stock market that has good earnings and revenue growth as well as a good pipeline for future potential (via increased volume on electronic trading and single-stock futures). It would be nice to see someone in the equities industry finally get it right.

Sincerely,

Mark Abraham, Austin, Texas (Received 12/06/2002)

Re: Siebel's Case Shows a Hole in Black-Scholes

Wise to Goldman's Scheme

Ms. Abramson,

Thanks for the story on Siebel. But, if I may, I'd like to point out that Mr. Goldman is once again being "ingenuous" and ignoring the truth in his whining about stock-option expenses. The point, of course, is that he should have been expensing his $650 million in options two and a half years ago, when they WERE worth that amount, not adding a footnote now.

I'm sure doing so would have knocked his stock down even more quickly, and he could have marked to market the options and reversed the expense each year, allowing him to post fantastic earnings for three out of four of those years.

Or, he could have NOT ISSUED a ridiculously huge amount of options, which has the potential to dilute the stock like a stock-watering scheme. This is what he's starting to do now -- i.e., not issuing as many options -- now that people have caught on to his scheme.

Cheers,

Blair Falconer, Toronto, Ontario, Canada (Received 11/20/02)

Playing by the Rules

Dear Ms. Abramson,

May I make a comment on your article about Siebel?

As you said, under the current accounting rules, companies are allowed to expense options at the price determined by the model at the time the options were granted.

This ruling is very important -- it is really the crux of the matter.

In the late 1990s bull market -- the stock market increased and so did the obligations of the companies who have issued the options. However, for many years, they under-reported the cost of the options. Yahoo! is a good case in point, since their stock has reached levels of more than $200.

When the stock is $200, the company loves to expense it as if the stock is still at $102. So companies loved this rule when their stock prices keep increasing and making new all-time highs.

Now that stock prices are lower, the rule comes back to "byte them".

Please feel free to contact me at any time when you have any derivatives related questions.

Izzy Nelken, Mundelein, Ill. (Received 11-20-02)

Re: EarthLink Sinks as Investors Go Narrowband

Comparison Has Wires Crossed

Editor,

The short-seller comparison of cell-phones and pagers vs. dial-up and cable/DSL is not a good one.

An Internet connection -- dial-up or other -- is the same service, regardless; just the speed is a bit slower. A cell phone and pager have different services. Furthermore, the cell phone's main competition isn't the pager, but rather the pay phone and long distance, which is far more costly.

So you see, it can be argued that the cell phone is popular because it's basically lower cost than the alternative. So, there it is, dial-up for homes and high-speed for businesses because of the lower cost. There are a lot more homes than businesses.

I bought United Online (UNTD:Nasdaq) some time ago, because I believed that new Internet users (and there are a lot still out there) would go to dial-up first because it's so much cheaper.

Jay Rubino, Norfolk, Va. (Received 11-19-02)

Re: Siebel's Case Shows a Hole in Black-Scholes

The Real Issue Is ...

Editors,

The recent article, "Siebel's Case Shows a Hole in Black-Scholes" brought up valid concerns regarding the expensing of options; however, it clearly pins the blame on the wrong culprit.

The issue with expensing options in Siebel's case is not that the BS model was wrong. The issue is simply that option values always change with the passage of time or a change in the price of the stock. In this case, the drop in the stock price combined with having less time left until expiration (of the options) serve to lower the value of the option.

Option pricing models give a value for that moment in time only; at any other moment, they must be reevaluated!

The issue here is with accounting rules that require companies to expense options whose value will always fluctuate with the passage of time and changes in the market price of the underlying asset.

Perhaps a title like "Siebel's Case Shows the Flaws in Expensing Options" would have been more informative.

Mark Kaplan, Annandale, N.J. (Received 11-19-02)

Re: Stocks You Can Snag With the Insiders

Won't Snag That Advice

Editors,

The article "Stocks You Can Snag With the Insiders" by Managing Editor Jon D. Markman provided incredibly terrible advice to readers about "snagging" stocks insiders have purchased recently.

All of the recommended equities have uncommonly poor fundamentals, most of the companies are massively in debt and several are a breath away from bankruptcy. Many of the insiders that purchased their own companies' stock were covering losses they incurred by buying at higher prices earlier. Other insiders in those companies have everything to gain in presenting a facade to the world that the businesses they lead are sound.

Case in point was the stock Mr. Markman most highly recommended, Amkor Technology (AMKR:Nasdaq). He cited a recent inside purchase of AMKR as a clear sign of the "value" of AMKR, while the insider, a Mr. John Neff, just broke even on his earlier losses by a massive purchase of his stock on a "dead cat bounce."

If the insider dumps all that stock now, he will avoid that loss and a great deal of embarrassment among other insiders of the company that knew better than to get into that situation. Not a single stock Mr. Markman recommended could be remotely perceived as a value, and his list is comprised primarily of fiber optic companies, techs, telecos and businesses such as Lucent (LU:NYSE), Corning (GLW:NYSE) and ADC Telecommunication (ADCT:Nasdaq) in deeply troubled industries.

It is obvious why (as stated in the article) Mr. Markman has not chosen to invest a single dollar in any of the equities he attempts to foist on the public. It is not clear, by any means, why Mr. Markman has a position in which he can regularly publish such financial pap.

Don Blankenship, Dayton, Ohio (Received 11-18-02)

Re: In Denial Over Deflation?

Politicians Are Ostrich-Like When it Comes to Deflation

Editors,

The deflation process is well underway and -- if history is any guide -- policymakers will react too slowly and inadequately.

Those of us who were around in the 1970s remember a time when inflation was not part of the everyday language of the citizenry. Today, everybody knows what it is. It took several years before inflation became entrenched in the hearts and minds of consumers. It was only taken seriously after it became a serious problem.

I think policymakers will slow the process of deflation, but not extinguish it. Tax breaks will help. Then, just as they think it is no longer a problem, it will return worse than ever.

Did you ever get sick and the doctor give you an antibiotic and tell you to make sure you keep taking the medicine even after you feel better? If you don't, you run the risk of a relapse. Same thing here. Politicians will not take the problem of deflation seriously until it is firmly embedded in the national psyche.

Yes, a few tax breaks and some monetary stimuli will help, but for how long? We never seem to understand that the forces operating on us are bigger than the Fed and the government.

Everybody wants a repeat of the good old bull of the 1990s in this business. I would very much like to see my dear departed father again, too. Neither is going to happen, but their spirit lives on, haunting us for as long as we live.

Michael Shamosh, Irvington, N.Y. (Received 11-14-02)

Re: The Five Dumbest Things on Wall Street This Week

UAL Employees Say ESOP Shares Sale is 'Irresponsible'

Dear Mr. Two Cents,

I thought I would write a note on your article concerning the UAL pilots "throwing a temper tantrum."

The reason that the UAL employees, not just the pilots by any means, are upset by the sale of our ESOP shares is not about our retirement being diversified. This was set up as a separate retirement account, a sort of supplemental retirement, if you will.

Although we all took a major hit on our 401(k)s throughout most of the ESOP (deal) by not being able to invest, since we could not contribute while the UAL shares were high, we do have a company-sponsored retirement plan.

This ESOP, although widely unpopular among many employees, was about having some say in how the company was governed. It was also a way to bail UAL out of hard times and save jobs. Most of us didn't believe that we would get any kind of substantial retirement benefits out of the stock. To hold the stock until it can't fall any lower, and then sell, doesn't sound like a responsible way of managing a retirement account.

The reason people are upset by the sale is two fold: First, the stock is nearly worthless. Selling at $2.00 per share, while we paid approximately $46.00 a share, is too little too late. Most of the employees are down to just a $2200 form the $60,000 or so we invested.

This is not going to make a difference in my retirement at this point. You can't get much stock for $2200, yet none of this "diversification of funds" was thought of when the stock was $80 a share. That is when it would have made a difference had the stock portfolio been diversified.

I will risk the paltry $2200 I have left in the future of my company, since it is too late to supplement my retirement with ESOP stock.

The other reason for not selling the stock is we will lose any kind of control we might have thought we had in the company's direction. This may very well be the real reason for the sales. UAL may have found a way to get the three ESOP Directors off the Board without filing bankruptcy, and that may just be the whole point.

This ESOP experiment from a Wall Street perspective has been miserable at best, but it isn't over yet. There are many thousands of UAL employees who are still trying to make a difference, and who can possibly help to save this once wonderful company.

The sale is "irresponsible" in the eyes of many employees, simply because at this point, keeping the stock has more benefits than selling it.

There is simply not enough at stake when the stock is this low to justify selling it. When you risk your money on Junk Bonds, you just have to ride it out, or simply lose it all! The employees all helplessly watched while this stock plummeted. Selling low and buying high is not what I would call "responsible."

Richard Turk, Benicia, Calif. (Received 11-11-02)

Re: Opportunity Glitters in the Rubble

Welcome Judgment Day for RBOCs

Jim Cramer et al,

I would like to balance your perspective a bit regarding the "Baby Bells." You have been championing their cause lately, arguing that companies that have recently gone through bankruptcy might have an unfair competitive advantage in the marketplace.

Beside the WorldComs and Global Crossings, this would include the CLECs, such as McLeod, and the DSLs such as Covad. Many of these companies have failed, gone through the system, are purging their balance sheets via reorganization in one form or another, and are coming out the other side as lean machines.

Our bankruptcy laws serve a valuable economic function, as an important safety net that protects society. It would be dangerous for us to tinker with, or rather, tamper with, these time-tested processes after the fact.

In a recent Barrons, Prudential's Yardeni called these companies "zombies." I think that this is an apt description. Is it possible, Mr. Cramer, that the RBOCs had the unfair competitive advantage from the outset, through their protected monopoly status, and that these companies used or even misused that advantage to try to put the "upstarts" out of business?

Could it then be possible that the RBOCs created their own "Night of the Living Dead," in that having killed off the upstarts, these upstarts have now come back to life as zombies, drained of their souls (their former equity holders), and are now impossible to kill?

Is it possible that the RBOCs' strategy has now backfired on them, and that they deserve the result?

Ultimately, the true culprit is the Congress for tampering with the free market. The government created the (RBOC) monopolies that initially became anticompetitive, and then subsequently, so competitively advantaged that they distorted the market place in the other direction, killing off the newly created competition.

I strongly disagree with your assessment that the RBOCs "did it right," and are now being punished for it. Maybe they should have abided more by the spirit of the Telecom Act of 1996, and cooperated. It might have been the better course in the long run.

The law of unintended consequences can be harsh; the market giveth and the market taketh away in unexpected ways. The RBOCs should have been careful what they wished for. Now, perhaps, they deserve to pay the price.

Yours truly,

Elliot M. Simon, Harpers Ferry, W. Va., (received 11/04/02)