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James J. Cramer Chats on AOL

The trader gives the skinny on the Net IPO glut, probable Fed moves and the importance of disciplined investing.
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James Cramer chatted on AOL Tuesday, June 22 at 5 p.m. EDT. As with all chats, this transcript is unedited.

PF Trader:

Welcome everyone to another Jim Cramer live on AOL chat! Let's talk stocks!

PF Trader:

Welcome Jim.

TSCNYjjc:

Hello everyone -- wild day, hit me with your hardest questions!

Question:

If CPQ does spin off Alta Vista, how will that affect their stock holders, will they spin it off to current stock holders? There is rumor that CMGI is trying to buy it, how will that affect stockholders?

PF Trader:

Right into the .com stuff!

TSCNYjjc:

I thought the CMGI rumor was completely bogus. That rumor started with

Dan Dorfman

, who was famous for bogus rumors at

CNBC

and now seems to be up to his old tricks. I blasted out of some Compaq as soon as I saw that one. Jeesh!

TSCNYjjc:

How does he get away with this stuff? I don't know what Compaq's plans are for Alta Vista these days. I don't know if they do either! I have 150 Compaq puts on though.

Question:

How much risk exposure does AOL have due to it's broadband dearth?

TSCNYjjc:

I don't think much as it is doing everything it can be involved and I would emphasize that broadband is not that important to AOL's core strategy.

Question:

Buy/sell/hold CNET?

TSCNYjjc:

You know there was this terrific article about CNET in

Fortune

about a month ago which talked about how it is a very for-real business. I made a note that if the stock were to get hammered I should get in.

TSCNYjjc:

But it didn't fall enough and I haven't had a chance to pick any up. I like these guys though and I urge you to read the article in

Fortune.com

.

Question:

In your opinion, why is it that over 90% of all financial experts cannot outperform an unmanaged index (SP 500)? Those that do manage to do so randomly and not in any consistent way?

TSCNYjjc:

That's a great question. First, let me say that I am happy to have done so for the 10-year period that just ended, but that it is not easy.

TSCNYjjc:

It is important to note that the expense ratio of the index funds is almost nil and the S&P has been incredibly strong. But I don't deny the bias in favor of the

SPX

and I will tell you that it is really a question of size.

TSCNYjjc:

I have beaten the Index because I don't run billions. Once you run a huge amount of money you cannot beat the averages consistently. You just can't and the managers know it. The marketing guys force you to take the money in and these managers cant handle it.

Question:

Are you still bullish on the Internet stocks?

TSCNYjjc:

Yes, but not as much as I was, for one reason; there is no scarcity value. There are too many stocks and too many more coming. I don't think there is enough money out there to absorb all the equity that is coming our way. People will have to sell Net stocks to buy them which leads to a huge amount of churning and underperformance.

PF Trader:

Jim, with the somewhat normal summer tech "drought", fears of higher rates, and Y2K looming -- what do you see for the market for the balance of the year?

TSCNYjjc:

I foresee a choppy rest of the year. You have a Fed tightening and if the Fed isn't happy with the economy, another and another. That's not what the market wants but it might get it.

TSCNYjjc:

I worry that tech has moved up so far in advance of the summer that there won't be any room for disappointment which is why I have a lot of cash.

PF Trader:

Do you see a single Fed move as Greenspan seemed to indicate or will it take more?

TSCNYjjc:

I think the numbers from the economy have to slow in order to get only one. I cant predict if that will happen yet especially if the stock market stays strong.

TSCNYjjc:

If the market stays strong the consumer will spend too much and the Fed will have to do several tightenings. I don't want that but if the market stays buoyant we should expect it.

Question:

Hi Jim. Interested in your thoughts on Tyco and the Banks. Specifically, Chase and Citigroup.

TSCNYjjc:

I am long Tyco and think that the estimates are still too low and that those guys are doing a great job. I sold my Chase and my Citi because of the back-up in rates but I will revisit them at lower levels.

Question:

What's your outlook for ATHM and CSCO for the next 12 months?

TSCNYjjc:

I am long Cisco and I think their business is smoking. It is my largest NDX position. I have no Athome having sold it after the FCC said it would intervene in the Portland case. I left some on the table there.

Question:

What is your short-term opinion on AOL? I know you are long, but do you also trade it?

TSCNYjjc:

I sold my AOL at $116. Ouch!

TSCNYjjc:

I have been trading AOL and bought it below $100 and I will do so again if it gets there. But this is more a reflection on my overall worry about the market.

TSCNYjjc:

As I have said over and over, until the Fed is done tightening I am viewing everything as a trade. Markets either do nothing or go down during these tightenings, so I don't like the odds.

Question:

What is the best source of information on the market?

TSCNYjjc:

TheStreet.com!

I am a homer.

PF Trader:

Indeed!

Question:

How many quarters do the unprofitable internet stocks have before there is a serious correction - down 75% - for the real high flyers?

PF Trader:

Great question here!

TSCNYjjc:

That's a great question, just great because it is what we talk about all of the time. We think that by 2001 people will begin to get very tired of red ink. Very, very tired.

Question:

Jim, you've been around for quite awhile, do you really believe that the Internet stocks (eg. AOL, AMZN.,YHOO,etc) will rebound this summer, or will we NOT see a summer rally?

TSCNYjjc:

I think we may have just had a pre-summer rally as these stocks just has some big moves.

TSCNYjjc:

But I emphasize there will be no real rally until the IPO spigot is turned off. You can't have so many deals and expect anything to go up.

Question:

Jim, what about WMB? The Co. is spinning off it's .com division soon. Recently, BKS and DLJ have spun off divisions and the parent has gotten whacked. Do you see the possiblity of that happening here? If long, would you buy/sell/or hold?

TSCNYjjc:

I am inclined to buy WMB on weakness, but I am not a big fan of the brick-and-mortar companies that try to stuff us with their nasty .coms.

TSCNYjjc:

I have been quite vocal in my columns about how the brick-and-mortar guys are really just trying to stop the Amazons from happening by sopping up the cheap capital. It is a cynical view but it has been making me money.

Question:

How do see high-speed Internet shaking out? Who will be the big winners? What do think about @home and the ruling in Oregon?

TSCNYjjc:

I think that it will be a push between DSL and cable modem. I don't think it will turn out to be a big deal. I think the Portland decision was not in keeping with what other courts would hold.

PF Trader:

Speaking of rulings, what do you make of the Govt's continued desire to tax the net?

TSCNYjjc:

This is a very big worry for me. I think that the public arbitrages the net and uses it because it beats the tax. I think that is part of the reason why mail order has worked so well too.

TSCNYjjc:

I think the authorities should forget about it and let it all happen as it is the greatest inflation fighter on earth and inflation is the real enemy of the economy, any economy.

PF Trader:

Amen!

Question:

Would you bet on AMD making a long-range dent into INTEL?

TSCNYjjc:

Oh please! Don't get me started. AMD has hurt more managers than just about any stock I have seen in my lifetime save Cendant and companies that have gone bankrupt and the steel industry.

TheStreet Recommends

Question:

You seem to have every ability a trader would want. For those of us just starting out, what skills would you have us learn that would make us profitable?

TSCNYjjc:

There is a sign on my desk, it says "Discipline is more important than conviction." My wife, who traded professionally for years wrote that sign in 1987.

TSCNYjjc:

I will never take it down. It is the bedrock of trading. You must be disciplined to take your losses before they run and to not be greedy and give back big gains.

Question:

Do you think today's bashing of tech is a breather after a good couple of sessions?

TSCNYjjc:

Yes, exactly. I wrote this very tongue-in-cheek piece for

Thestreet.com

about an hour ago that had an imaginary manager saying he sold a lot of NDX stocks because he was about to go to Martha's Vineyard.

TSCNYjjc:

I didn't think there was anything to this selloff besides profit-taking and I used it to buy some of my faves.

PF Trader:

What do you think of the Lycos deal to integrate with 28 million Lotus Notes desktops?

TSCNYjjc:

Blah blah blah, wake me when you have something that I should be excited about!

PF Trader:

zzzzzzzzzzzzzzzzzz.

Question:

With the big gap up in Oracle recently is it realistic to think there is more to come of the same this year?

TSCNYjjc:

I think there is. I remain long Oracle. This quarter was so solid I don't believe the strength will dissipate that fast. Seems like a good thing to own for the rest of the year.

PF Trader:

Ouch - this one hurt me - sat on the sideline and watched this thing pop 10 pts.

Question:

Why is everyone dumping on Intel? Should I bail out?

TSCNYjjc:

I have a small amount of puts on Intel so I can buy it lower without fear, but I can't be encouraging as every time I want to get in it another analyst cuts numbers.

Question:

Jim - 5 stocks you like for the next 12 months?

TSCNYjjc:

I like LU, WCOM, CSCO, MOT, and MSFT.

Question:

Bonds are putting pressure on equities, are we getting ready for a short summer 99? Still, most of the "dows" have a very hefty p/e. Can you see a downside of 10%?

TSCNYjjc:

No, I don't think so. I don't see a major correction. I have a hefty cash position because I am unexcited about the market and when I am not excited I tend to park in cash. If I hated the market I would have a large number of shorts. I don't have any shorts to speak of at all. I just like the sidelines.

TSCNYjjc:

I am being paid nicely to be on the sidelines, and it sounds like from the way the Fed has been talking that I will continue to be paid nicely.

TSCNYjjc:

Hold it, just a second, I can't believe this; the S&P just announced that Network Appliance is replacing Ascend. GIVE ME A BREAK. That shows me how out of it these guys have gotten. And it is a $3 billion company in versus a $22 billion company out. Wrong wrong!!

TSCNYjjc:

And Best Buy replacing Airtouch. I just sold my Best Buy!

TSCNYjjc:

Darn it all!

Question:

Your thoughts on MSPG S&L term?

TSCNYjjc:

That's a good ISP, but I don't really want to be in ISPs when some companies are starting to talk about giving away Net access.

PF Trader:

What about the next 2 or so quarters at MSFT? With Win 2000 now Win 2001. They're looking to Office 2000 as the profit driver -- will it be enough to hold up the numbers?

TSCNYjjc:

I am not concerned. I think it will be enough. Gee, you have to be impressed with MSFT's business as I think it is on fire.

Question:

Why do you think that BNBN has lost so much value?

TSCNYjjc:

First, it is important to point out that many, many Web issues have been hit. That said, I don't think the marketplace likes brick-and-mortar companies spinning off websites. I think the market likes pure web plays

PF Trader:

But I guess the S&P doesn't!?

Question:

Would you buy financials at this time -- banks or brokerages?

TSCNYjjc:

Again, these are groups that tend to underperform around a Fed rate hike. So I wouldn't want to be in either frankly.

Question:

Jim, would you buy BRCM and GBLX?

TSCNYjjc:

I like BRCM much more than GBLX. BRCM is firing on all cylinders.

Question:

What sectors are you recommending? Any specific stocks within those sectors?

TSCNYjjc:

I don't really recommend anything as I am not a broker. However I like semiconductors and I like telcotech, companies like Lucent and Cisco.

Question:

Jim, can you recommend a good book on trading options?

TSCNYjjc:

Absolutely not. I have read them all and I think they are all terrible. Just terrible.

Question:

What is your short-term and 12-month look on Compaq, what do they need to show fund managers they can turn around?

TSCNYjjc:

I have puts on Compaq. Frankly I think this stock is still overvalued. I bought common against my puts when CPQ preannounced a bad quarter last week, but the then I sold my common stock when Dorfman "Dorfmanned" the darn thing.

Question:

Jim, I know you love CSCO as I do, but please explain how you justify that P.E. and how the stock can continue higher?

TSCNYjjc:

Okay, in 1991 Cisco has a p-e that was huge, as it did in 92 and it did in 93 as it did in 94 and on and on. Now take a look at what multiple Cisco was selling at for the out years and it turns out that Cisco was cheap!

Question:

What do you think of Abbott Labs purchasing Alza?

TSCNYjjc:

I thought it showed that Abbott labs is out of gas and needed to do something drastic.

Question:

What is your opinion on Wal-mart, long term?

TSCNYjjc:

I think this is a great company. I do believe however that you can't be big in retail at the time of a Fed rate boost.

Question:

What do you think of PFE? Will they rebound to a 3-for-one split?

TSCNYjjc:

I think PFE has little risk in it at this point as it has really been crushed.

Question:

Any reaction to

Michael Dell's

comments about Dell's future today from the PCExpo? Dell: Buy/Sell/Hold? Thanks.

TSCNYjjc:

I think Dell is doing well. I would rather own companies that are directly related to communications and I don't think that Dell will run away without me. Remember, though, I want to wait until after the Fed tightening to pick stocks up. I don't mind being on hold a bit here.

PF Trader:

Well I just bought a new Dell 550mhz workstation - smokin' fast great machine. 2 days mouse to door!

PF Trader:

Jim, thank you for taking time to chat with us today! We always enjoy your view of the market.

TSCNYjjc:

This was great fun. I always want to be more rah, rah about the market than I was in this chat, but I have to see what this Fed will do. I think one boost is enough but I am worried they have to do more. After the boost I will do some buying. But why do it ahead?

PF Trader:

Well we will chat with you next month and I hope the Fed has done it's thing.

TSCNYjjc:

Terrific and thanks!

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