The 5 Dumbest Things on Wall Street: Sept. 3

5. Tech Sector Catches Case of Innovator's Block

What we have here is a failure to innovate.

It seems the tech sector's leading companies feel that blazing the trail of innovation -- the very thing that got them to the top of the game in the first place -- just ain't the way to go anymore. No, let's forget all that. It's just so much trouble! And so much work!

Instead, apparently they've decided it's time to kick back and let all that money they've built up do the working for them.

Recent takeover activity from the likes of HP ( HPQ), Intel ( INTC), IBM ( IBM) and many others reveals an inexcusable lack of innovation that's working itself through the sector with the alacrity of the swine flu virus.

With so much money to toss around, it's embarrassing that these companiesare unable to fund their own research & development. Waiting for another company to create something worth buying is among the most expensive and inefficient ways to grow a business.

Just look at the price tags: Intel is spending $7.7 billion for McAfee ( MFE) and $1.4 billion for Infineon's ( IFX) wireless-chip business. HP is now offering $2.06 billion for 3Par ( PAR) (double the original deal with Dell ( DELL), which wisely dropped out of the auction), and Cisco ( CSCO) is reportedly looking to grab Skype before an IPO that is expected to value eBay's ( EBAY) Internet calling unit at $5 billion.

There also are plenty of smaller deals in the making, such as IBM's $480 million purchase of marketing software company Unica ( UNCA) and VMWare's ( VMW) $100 million takeover of Integrien, which makes systems monitoring software.

These companies are sending a pretty clear message that they can't -- or won't, or perhaps don't remember how to -- do it on their own. Investors might consider sending their own message, accordingly.

4. Retailers Rewarded for Overachieving at Underachieving

Retail stocks were applauded by the market on Thursday for reportingbetter-than-expected August same-store sales. With expectations set so low, wethink a golf clap might have been more in order.

Or perhaps a get-well card.

Witness the power of proper expectation management: Overall total same-store sales rose 3.2%, according to the International Council of Shopping Centers, besting its original prediction of a 3% gain. In other words, retailers barely beat the anything-but-aggressive forecast set by its own trade group and, in the process, duped the Street into believing lackluster results were actually worthy of praise. In some cases, a lot of praise.

After the news, the S&P Retail Index climbed 2% in morning trading. Anyonewant to take a guess as to how the Street would have reacted had the expectationbeen for a 4% gain and retailers reported 3.2%?

Gap ( GPS), for example, saw shares rise more than 2% to reach a high of $17.77 in intraday trading on Thursday, ultimately closing up 1.3% at $17.43. This, for reporting flat same-store sales versus estimates of a 0.2% decline. American Eagle Outfitters ( AEO), closed out the day up 5.5% at $13.76 based on results that simply met expectations.

The only explanation for this massive outburst of enthusiasm for American Eagle is that confidence in the company was so low that investors are happy it was even able to match expectations, says Needham analyst Christine Chen. (Look, the Eagle can still fly! Or, well, at least hop around a little!) Still, given that August is the easiest month for American Eagle in the third quarter, this hardly bodes well for the remainder of the year.

Even retailers that missed expectations -- like Saks ( SKS), Target ( TGT) and Aeropostale ( ARO) -- were able to ride the wave of Thursday's retail rally.

Indeed, there's little doubt that this was really a relief rally. To call it anything more is naïve. August represents the easiest month of the third quarter, and same-store sales comparisons only start to get more difficult in September and even worse headed into the holiday season. All August really proved is that low expectations can produce significant upside.

As for whether or not a consumer recovery is actually in motion, that's better left to another month.

3. CEOs Recoil From the Ratio

An overlooked rule tucked into the Dodd-Frank financial reform act is likely to have CEOs across the land looking for a refund from their lobbyist.

According to the Financial Times, a rule in the legislation requires companies to share the ratio between their CEO's pay package and the pay of the average employee. Mr. Hurd, it appears that you got out of HP just in time.

According to the FT, executives of S&P 500 companies raked in amedian compensation of $7.5 million last year compared with the average privatesector employee salary of $40,000.

"We're not debating the concept of disclosure -- we think it's a good thing,"Larry Burton, executive director of the Business Roundtable, whichrepresents chief executives of the biggest U.S. companies, told the FT."But you can do more harm than good if you take a well-intended piece of policyand implement it badly. That's the risk here."

That's funny -- we thought the risk was to the CEO's of America facing the prospect of angry mobs massed outside of their corporate hedquarters, wielding pitchforks, barrels of boiling oil and PowerPoint presentations on the economic inequalities of corporate salary structures.

2. Salmonella Scramble: Egg Industry Criticizes Your Cooking

More than half a billion eggs have been recalled recently due to fears of salmonellacontamination, but the problem apparently isn't a factory farming system tailor-made forspreading disease. Oh, no. According to the egg industry, every egg they send out could be doused in salmonella and there'd be no problem ... if you would just cook your eggs properly.

You only have yourself to blame, Rocky.

Indeed, a spokesperson for the United Egg Producers, a group that represents the nation's egg farmers, told USA Today that all of the consumers who have so far reported being sick from the recalled eggs ate them without following the directions clearly printed on the shell.

"It may sound harsh, and I don't mean it to sound that way. But all theresponsibility cannot be placed on the farmer," Krista Eberle, director of theUnited Egg Producers' Food Safety Programs, told USA Today. "Somewhere along the line, consumers have to be responsible for what they put in their bodies."

So true! It's just like how cigarettes give you cancer only if you smoke too many. Indeed, the egg industry isn't the first to employ this kind of brilliant corporate logic in order to deflect responsibility. As the NRA might put it: Guns don't kill people ... people who like their eggs sunny-side-up and slightly runny kill people.

Or perhaps the United Egg Producers should have recruited Apple CEO Steve Jobs to suggest that the problem is that consumers were holding the eggs the wrong way.

1. Mediacom: Not Good Enough For Itself

Mediacom Communications' ( MCCC) board of directors is playing hardball with its own CEO, seemingly to the detriment of its shareholders.

Rocco Commisso, CEO and founder of Mediacom, offered $245 million, or $6 per share, to purchase the remaining stock he doesn't already own and take the company private. Commisso already owns about $40% of the company's common stock, representing 87% of the shareholder voting power. But apparently starting the company, running it and being the only bidder willing to take on an operation with $3.3 billion in debt on the books just ain't enough these days.

Shares of the company plunged on Tuesday after Commisso announced that he had withdrawn his proposal to take the company private. That is, withdrawn after his offer was rejected.

A special board committee shot down his offer to purchase the remainingshares of the cable television company and take the company private. Mediacom's board was apparently hoping for $9 a share, according to reports from the Wall Street Journal; Commisso wouldn't go above $7.55.

Investors apparently don't share the board's optimism about the company'svalue. Shares of Mediacom plunged 15% to close at $5.80 on Tuesday, wiping outapproximately $71 million in value, after Commisso released a press releaseconcerning his rejected proposal. The average daily volume of trading in the stock is typically around 424,000 shares, but on Tuesday its volume was up to 2.6 million shares as investor after investor moved out. Shares rebounded slightly in subsequent days, but remain near the $6 level.

"I am very disappointed with the highly unusual process and ground rulesestablished by the special committee and its financial and legal advisors toevaluate my proposal," said Commisso, who founded the company in 1995. "I firmly believe that the special committee's decision is not in the best interests ofMediacom's shareholders."

Commisso has completely withdrawn his offer and made it clear that he is not interested in selling his shares.

In light of all this dumbness, we now ask you:Which is this week's dumbest of the dumb stories? Take the poll below to see what TheStreet has to say.

5 Dumbest Things on Wall Street

1. Which is this week's dumbest of the dumb Wall Street stories?

-- Tech Sector Catches Case of Innovator's Block
-- Retailers Rewarded for Overachieving at Underachieving
-- CEOs Recoil From the Ratio
-- Salmonella Scramble: Egg Industry Criticizes Your Cooking
-- Mediacom: Not Good Enough For Itself

This article was written by a staff member of TheStreet.

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