Hot Air Lesson

TSC readers weigh in with their insights.
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A History Lesson in Economic Policy

James Padinha

: Regarding your column

Hot Air: Core CPI Cooldown Won't Keep the Feds From Their Hike, I think you and the

Fed

are wrong about inflation. If my memory of the late 1940s and 1950s isn't faulty, I see little difference between then and now.

Unemployment was low, demand and production high, savings accounts paid 1% and 2%, productivity was high and inflation was around 1%. (Republicans complained about

President Truman's

creeping inflation.)

During

President Eisenhower's

administration, we had three recessions because of lousy economic policies. When

John F. Kennedy

came in, he brought a new wave of economic policy and the 1960s boomed. Not until the Vietnam War, when production was needed and demand was high, did prices rise. That was topped off by the oil crisis and

Richard Nixon's

faulty economic policies, which brought about hyperinflation.

-- Peter Megremis

(received 9/15)

Fundamentals Rule All

James J. Cramer

: In response to your column

Bring Back the Master Trader, don't forget the "master trader" was

Treasury

secretary when the dollar fell to 80 yen. No trader is bigger than the market when fundamentals are out of whack, including your buddy

Mr. Rubin

.

-- Peter Lamore

(received 9/15)

Why Bother With the 5000?

Dagen McDowell

: In response to your column

Is This the Wrong Time for an S&P 500 Index Fund?, regarding the purchase of a fund that tracks the

Wilshire 5000

, I would think the

S&P 500

would be a better bet. You're getting some 85% to 90% of the Wilshire 5000 in the S&P 500 and yet paying significantly fewer capital-gains taxes and transaction costs from dealing with so many small companies. Why bother with the 5000?

-- Sean Peisert

(received 9/15)

Too Hot to Handle

James J. Cramer:

About

Where Is Everybody? my two cents says that the chips have topped and oil has everyone scared. Drillers and service companies advanced too far too fast. The Red Hots are too hot to touch, and the rest of the market is overpriced or folks are losing money and don't want to sell or put up new money. Add

Alan Greenspan

and his henchmen, and who wants to jump in front of that freight train?

--

Bill Landgraf

(received 9/14)

James Cramer:

Just a suspicion that we've all been trained like Pavlov's dog to

buy and sell within low volume ranges, and that we all know when the shorts have capitulated the top or the longs have capitulated the bottom. So we sit back and trade the same 500- or 1,000-share block.

I am no genius, and it has been way too easy (makes me nervous) to make real money the past three months by simply buying below 75 and selling above 85. I am not even trying hard to load up at either end. I watch the bulk of my stuff just idle along within other ranges while I concentrate on the stock I know like a 24- speed Trek bicycle. I've gotten so lazy I don't even trade the stock: just sell the calls or sell the puts, and cover lazily without waiting for any magic moment.

Multiply my laziness by 10,000 retail guys like me out there, and you have low volume, a skittish, predictable market, old tech trending up and the Internet waiting for its next bull cycle in November and then the big pop come January.

It's just a thought, but what's wrong with everyone playing a waiting game?

--

John C. Batchelor

(received 9/13)

Like Clockwork

Cory Johnson:

About your article

Like Clockwork, Red Hat, Net2Phone and Others Jump 25 Days After Their IPOs, it's encouraging to see someone tell the truth about reports issued by investment banking analysts. I don't know why investors put up with such subjective reports -- unless, of course, it is because they want to. I suppose everyone wants to ride a stock up, regardless of whether the stock's price has any relation to a company's true business prospects. But eventually, such stocks fall, causing the unknowing investor to lose money.

--

Eric Wells

(received 9/13)

Cory Johnson:

I think that analysts only

move stocks in the short term -- eventually markets sort themselves out, for the most part. But the moves are so sharp and so clearly the product of self-interested shilling, that they needed exactly the deflating you gave them.

What's really weird to me is that these stocks jump at all, though, given the fact that we all know that 25 days after the companies go out the underwriters are going to come out with buy ratings. In theory, that should be priced into the stock by the time the reports come out. I'd like to see a study of all IPOs and how they've moved around just in advance and just after the underwriters' reports.

--

Jim Surowiecki

(received 9/13)

Getting What You Pay For

James Cramer:

About

Get Ready for Volume, I have been with

Schwab

(SCH)

for over 11 years now. I make over 1,000 trades per year and have a very healthy portfolio. For me using Schwab is like driving a luxury car. Some may prefer a standard economy car, but I don't believe that Schwab wants the daytraders who want $4.95 commission trades and dart in and out for sixteenths and can't manage their margin accounts.

I know Schwab is profitable, and it is investing huge amounts into its technology, which is what I want to pay for. They fit me like a glove. Some may prefer to go out on the interstate in their little

Yugos

, and a few prefer the ultimate in luxury that the high-end brokerages provide. Schwab does the job for me. If for some reason the streets are shut down (market crash, etc.) I have the comfort zone of knowing that Schwab is standing by with roadside service. I believe it is going for the long term and as you stated, it is on the correct path to continue remarkable growth while maintaining a service level that will fit my needs.

--

Phillip Crone

(received 9/13)

Reading the Signals

James Padinha:

About your column

Unfinished Business: Rising Crude-Goods Prices and the Margin for Error I have a problem with your assumptions -- mainly the one that says that businesses have a choice between lower margins or higher prices.

Show me a nonmonopoly company that would not currently or at any other time -- past, present or future -- choose higher prices if it could and that our economy is dominated by monopolistic companies not subject to competition. I say that as long as there is competition, higher prices are not inflation. Instead they are economic signals that show the best places to allocate scarce resources. If the Fed wishes to try to subvert or minimize some of those vital signals, they risk messing up one of the best-running economies in history -- if not the only properly functioning one in history.

--

Don Bisbee

(received 9/10)

Looking at the List

Anne Kates Smith:

About your

A List of Lists for Investors to Study -- and to Sometimes Avoid, I agree with most of the list, but I think

Leutholds

is way off on

Medtronic

(MDT) - Get Report

or its thinking is too short term, long term being one to three years. I think that if Medtronic can get 30% of the stent market, I think it will do very well.

Wall Street likes lists, and they have a herd instinct that hurts most investors.

--

Tom Weill

(received 9/10)

Question Answered

Dagen McDowell:

About your column

Dear Dagen: Pointed Questions Often Stump Fund Company Phone Reps, I love most of your writing, but take exception to criticism of mutual fund phone reps' responses to your questions.

As a trader at a major firm and former customer service rep, I can tell you that the recent explosion of investment interest and trading volume, coupled with an extremely tight job market, makes it quite challenging to fill 25K jobs with articulate investment professionals. Those who are talented and articulate quickly move up in the world and leave the least common denominators in their places. Once we see the economy slow, I think you'll find more phone reps who actually take an interest in the firm they work for, and have the time to answer your inquiries.

--

Sean Breslin

(received 9/9)

Microsoft's Mission

Jim Seymour:

About your column

Part 2: Whither AOL? , I think you have

AOL

(AOL)

right but

Microsoft

(MSFT) - Get Report

wrong. The Microsoft frustration is nettlesome, yes, but not enough to distract

Bill Gates

& Co. from its urgent mission to carve out the biggest slice of the business-to-business market.

The stock market may yet anticipate what is ahead for AOL and respond with ardor to the many positive announcements, despite some bottom line detours.

--

Kenneth Metviner

(received 9/9)

A View From the Classroom

James Cramer:

In response to your column

Listen and Learn, from my perspective in the classroom, I see

Tommy Hilfiger

(TOM)

on the way out. Maybe one or two good quarters left.

Gap/Old Navy

(GPS) - Get Report

is holding,

Abercrombie & Fitch

(ANF) - Get Report

is starting to broaden out... that is, the less cool are wearing it -- the same thing happened to

Nike

(NKE) - Get Report

.

FUBU

is registering high on the "cool scale" but it isn't publicly traded.

--

Sharon Dale

(received 9/9)

A Crook Is a Crook

Ian McDonald:

About your article

NASD Proposes Curbs On Broker Sales Contests and Other Commission Boosters, it is interesting how the government wants to get into the pockets of brokers these days. It is true that there are practices in some firms that induce brokers to look at their own pocket books before the client's.

Corruption is not an industry problem, but a people problem. Whether one is a broker, accountant, attorney, plumber, etc., there are always the immoral and unscrupulous. Accountants will sell mutual funds and annuities to clients disregarding the suitability. Attorneys will sway clients to remove the accounts from one brokerage to another because their friend works at a particular firm in order to realize some compensation between the two parties.

It makes no difference in what business one is engaged -- a crook is a crook is a crook. I believe that there are a certain number of problems in our industry, but no more than in any other.

--

Kerry Harrison

(received 9/9)

Mean Time

James Padinha:

In response to your article

Reverting to the Mean, I agree with everything in that article. One thing does, however, amuse me: On the one hand, you appear to have considerable insight into the economy and yet you appear unable to reconcile those insights with the preposterous ideologies of other economists.

The solution to this quandary is quite simple: An enormous industry, which includes my job and the jobs of countless others, depends on bond yields staying low and going lower forever. This happens while corporate profits continue to rise beyond bound. That's the only way we sustain the equity market and will squeeze another 12 years out of this cycle. That's the only way we will retire rich and be able to buy our sprawling beachfront compounds.

--

James K. Cunningham

(received 9/9)

James Padinha:

In

Reverting to the Mean, he didn't really say Wharton vs. Cal Chico, did he?!

--

Paul Stevenson

(received 9/9)

Auto Watching

James Cramer:

In response to

Watch Those Auto Stocks , I came across a theory that could explain the auto sector decline: Carmakers sit on top of the most complex, just-in-time supply chain systems in the world. To avoid any potential for Y2K disruptions, the manufacturers have begun stockpiling extra bits and pieces to give them a "cushion" should there be any supplier trouble. This stockpiling is going to put pressure on numbers this fall, a fact that has been seeping into analyst reports and starting to weigh down on the stocks.

--

Jeffrey Eigel

(received 9/8)

James Cramer:

I don't think the downturn in the

auto stocks signifies higher rates this year. I think it's more a case of accelerating discounts signaling a cyclical peak in the market. They've had several great years and are due for a breather. I just think optimal market conditions are over. Unless inflation shows up in the CPI and PPI, I think the

Fed

will be content to show vigilance in speech and let the bond market do its work.

--

Daniel Calarco

(received 9/8)

Walk the Walk; Talk the Talk

James J. Cramer:

Just couldn't help commenting on your

Just For Feet

column,

Stepping into the Combat Zone. My fiftysomething husband and I went in there to buy sneakers for our vacation. His hair blew back from the sound blast as we stepped into the store and I deflected a basketball as we proceeded to the area of screaming children. I asked the young man who waited on us if he liked the music, and he said yes but it was just too loud! As we left shaking, I was heard to comment that

Peter Lynch

and I would NEVER invest in that store. You are right on with those comments!

--

Jeanine Ober

(received 9/7)

James J. Cramer:

Just purchased my first pair of sneakers through the Just For Feet Net site. I had never heard of the company before seeing its ad in the

New York Daily News

(best sports section in the country, and yes, I still buy the actual paper because I like to read during lunch and I eat on the road). Anyway, although the Net site didn't have any sports apparel, which the store carries, I was able to save $55 on a pair of

New Balance

sneaks that I never would have bought otherwise. Now I will check with Feet.com before making any further sneaker purchases. I'm not saying this is a reason to own the stock, but it's gained a new customer in me. Food for thought.

--

Carl Bauer Jr.

(received 9/7)

Sacrificing the Security of Working for a Living

Gregg Wirth:

Now that you have written this column,

Easy Money: When Labor Goes Out of Fashion, take the time to read it. Solid column until the pop ending. Your article: 1. Real wages have been dead meat for a long time. Wage earners are making less and going into debt and bankruptcy more quickly. Real wages have only increased the last couple of years and the Fed is horrified. 2. Security: Were you talking about a real patient and pancreas? The ill wage earner was probably hoarding money to open a brokerage account. How the hell could this person afford insurance anyway? 3. Millwrights and retail clerks don't have the cash to open brokerage accounts -- most don't have insurance let alone the security of

Humana

(HUM) - Get Report

. 4. The lottery is the wage earner's pipe dream. 5. Wage earners have no financial/health security. The record shows that they and only they are aware of this.

--

S. Kirkeby

(received 9/4)

Performance Pricing

Ben Holmes:

In response to

Enough of the One Hand Clapping Sound, Already!, looking at IPO performance one day postoffering is not always the best measure of transaction strength. It is possible, for example, that the underwriter may have underpriced an offering to ensure a strong pop at pricing. I suspect this is particularly true in choppy market conditions.

A more reasonable measure is to look at the after-market performance over one day, one week, 30-day and 60-day periods postoffering. Strong deals should hold up throughout that time period and, in fact, even appreciate. So I'm not sure your assessment is a truly valid way of measuring underwriter performance.

--

Susan Baker

(received 9/6)

Beyond the Music

Kaya Laterman:

About your

The Coming Week in Asia: The Japanese Stock Market Sings a New Tune , I don't "get" the rock-and-roll terminology used in your article referring to stock information. I have absolutely no idea of the names used or their relation to stock movement. Is it a code for those under 35? Sorry, I'm past that. Keep in mind, our generation is the one with the money!

--

Dr. Dale Tompkins

(received 9/6)

Kaya Laterman:

Your article on the

Japanese stock market has one too many references to songs I've never heard!

I get the point. I'm 22 years old, with about four years of active investing experience. But I'm hoping this industry doesn't push me to these extremes. Let me know now, because I might take up baseball cards or

Beanie Babies

.

--

Duchuy Huynh

(received 9/5)