This was a letter I sent out to several politicians and financial news media organizations:

March 25, 1998

Dear Sir:

I wrote you a year ago telling you that Alan Greenspan's 1/4 point hike in interest rates was a dumb move. At the time Greenspan's justification for the hike was do to his personal fears that the U.S. economy was growing at a rate that would cause U.S. workers to ask for a good raise and that in turn would spark inflation.

A year later the U.S. economy has not been affected by wage price inflation or any other kind of inflation, in fact, Greenspan himself would later say that the U.S. should be more concerned about deflation than inflation. Greenspan's 1/4 point hike was dumb and the stock market's sell off due to the hike was totally unnecessary.

It is clear that Greenspan due to his title and his ability to control interest rates has power over the stock markets, it is equally clear that Greenspan is wrong more than he is right (remember in 1996 when Greenspan made his irrational exuberance statement about the stock market, well it's up over 2,000 points or in a dollar amount over $2 trillion, yes trillion dollars since he made the remark).

My point is that no one knows where the markets are headed and the institutions (in this letter "Wall Street" is the same as institutions and institutions refer to mutual funds, banks, insurance companies, pension funds, brokerage houses and etc.) need to think for themselves and not become a bunch of sheep that overreact to everything and anything. Greenspan and any other so called stock market gurus need to be taken with a grain of salt. The institutions need to do their own independent analysis like they claim to do, vice what their actions show, which is buying when everyone is buying and selling when everyone is selling.

This brings me to why I'm writing you today. About four months ago everyone on Wall Street: CNBC, CNN's Money Line and Your Money, PBS's Wall Street Week and Nightly Business Report, Business Week magazine, the Wall Street Journal, most fund managers, brokers, and analysts, most mutual fund companies and brokerage houses, they were all saying that Asia's problems meant bad news for the U.S. stock markets.

Oh they didn't? Then explain why last October/November the Dow plunged to 7,300 and NASDAQ crumbled to 1,500? Who else other than these people and institutions have the power to do it? Please don't try and blame it on the small investor.

And just like Greenspan who has been wrong numerous times, Wall Street was wrong about Asia and how it would affect U.S. stock markets. All major market indexes are now higher than before the so called Asian crisis even though there are still lots of problems in Asia.

The vast majority of savings and wealth in this country is controlled by a very small number of people (for example, Fidelity has millions of customers/investors and they manage over $600 billion, but what specific stocks and bonds are bought is decided by a few thousand people at Fidelity). Those few people instead of being fundamental investors who analyze individual companies and markets are turning into sheep, buying when everyone is buying and selling when everyone is selling, not thinking independently on their own, but just going with the crowd.

Just last year alone there were two very large downturns in the market, the one after Greenspan's rate hike in March and the one that occurred because of Wall Street's overreacting to Asia's economic situation in October. In each case U.S. markets recovered to even higher levels and in a very short period of time. Also, in each case Wall Street made tons of money off commissions which is great for them, but what does this volatility and the "sheep mentality" of Wall Street mean to the rest of us?

It means:

1) Right now Social Security is in trouble, half the people I know that are over 65 have to work to live. This is right now, during Social Security solvent times, during an economic boom, when three workers are supporting one on Social Security. Can you imagine what the future for Social Security is going to be when three workers will be supporting two (twice as many as now) on Social Security? The government is thinking about giving Wall Street even more money (to privatize Social Security to some degree). Wall Street has already become reckless with the money we have given them for retirement, why would you want to even give them more?

Can you imagine what is going to happen if the stock market does not keep going up? Americans that are depending on their retirement savings to be there for them could lose 20% or 30% or more of their savings in one day. Why do you think that the mutual fund companies, brokers, and virtually everyone on Wall Street warn that past performance is no guarantee of future returns, these warnings are just as real as the ones on cigarette packages even though the media and politicians don't want to talk about them as much.

2) The volatility is making Wall Street nervous? Every time there is a downturn Wall Street runs to what they perceive to be the safest stocks which are the larger caps. I am not saying that Wall Street doesn't buy some small caps, what I am saying is that NASDAQ has over 5,500 stocks and is valued at about $1.8 trillion and 25% of that $1.8 trillion is in only five stocks: Microsoft, Intel, Cisco, Dell and Worldcom/MCI. Just in the last three days Microsoft is up over 8 points, that added over $20 billion to Microsoft's market cap or enough to outright buy 80 small cap companies and that's just in three days. Wall Street needs to invest in all good companies not just the largest ones. Sprinkling a few pennies around doesn't help America's greatest companies, the small ones.

And on the flip side Wall Street loves to gamble with their investor's money. About 2 1/2 years ago Wall Street made Netscape a billion dollar company on the day of its IPO (initial public offering) and in a few months made it a six billion dollar company (and produced a billionaire or two in the process). There is no way that a company, as young as Netscape was at the time, deserved that high of a valuation, but this is becoming the norm on Wall Street; to buy more if the momentum is there, to hell with fundamentals, if the stock does tank we'll blame it on the small investors.

3) Individual companies are becoming more and more controlled by Wall Street. Wall Street drives a stock up hundreds of percent on unsupported euphoria, the company misses earnings by a few cents, and Wall Street wipes out half the market cap in one day. The volatility doesn't hurt the CEO or high ranking officials at all, but 10% of the employees are laid off to show Wall Street that the company is taking care of business.

With more and more individuals becoming shareholders this type of behavior is proliferating. That is, Wall Street and earnings are much more important than individuals, just as long as you're not the one that gets laid off.

What kind of job market are we setting up for the children? Oh, one where the fittest survive, those with the most drive, the most ambitious. What about the workers that don't fit that criteria, what about the ones that feel family is more important? What about the ones that have just average intelligence? With earnings becoming so important, Wall Street forces companies to look elsewhere for cheap labor which only leaves highly skilled jobs left in America. Even if the governments invested in education which they obviously don't do, there would still be lots of Americans that are just "average," what are they going to do to make a decent living?

4) Wall Street has much more control over overseas markets than you think. Here in America we trade and barter with the strongest currency in the world. We never have to worry about waking up in the morning to find out that the money in our pockets can only buy 1/3 of what it could the night before. When currencies fall by large amounts like in Asia, Wall Street blames it all on the local economies and governments, this is part of it, however, Wall Street clearly plays a role too. Numerous Wall Street firms were buying and recommending Hong Kong stocks back in the Summer of 97 even though valuations were high. When Wall Street finally woke up and decided to fundamentally analyze the markets in Hong Kong and Asia in general, they discovered that prices were extremely high and sold. Just like the momentum drove prices to the stratosphere, the momentum drove stocks below their true valuations.

The main reason why I'm writing you is I believe that if Wall Street is left unchecked they will continue to promote volatility and momentum investing (what you want is for Wall Street to invest based on fundamentals and to not turn it into nothing more than gambling). Also, because of their market power they will continue to have a strong impact on individual companies and local and foreign economies and currencies. I'm not suggesting that governments or anyone else needs to takeover the control, what I am suggesting is that someone needs to monitor Wall Street and hold Wall Street accountable.

The only people that are really watching what Wall Street does is the financial news media and they have a vested interest in keeping Wall Street happy. How else could you explain the Asian ordeal? For example, CNBC was talking up the dangers in Asia and how it was going to affect stock markets here in America for several months. They and the vast majority of their "on the air" gurus harped about this every day, every hour. A few weeks ago as the market set new records, CNBC just kind of forgot about Asia (relatively speaking). Did they take responsibility for the inaccurate and sensationalized reporting? No. Did anybody challenge them about it? No.

As far as the exchanges, the NASD, and the SEC, all they care about is that no laws are being broken and most of the time they can't even understand their own rules and laws let alone enforce them. Unless there are blatant laws or rules being broken these agencies aren't going to do much to help.

Please, at the very least start asking questions. Here are some great questions to start with: "Why were all you Wall Street firms crying wolf about Asia?" "Why did you overreact?" "Why haven't you accepted responsibility for you inaccuracies and bad analysis?" and "Why did you and the financial news sensationalize the Asian crisis?

The reason why Americans don't seem to care about President Clinton's personal life is because economically everything is going great. We will see how America feels when the next recession occurs and if things keep going the way they are on Wall Street, it's going to be a good one.

Sincerely,

ADDENDUM (June 12, 1998)

Today Japan offically announce that it was in recession. Let's assume that Wall Street's reaction to Asia's problems last October and this May are justified. Can you imagine what Wall Street's "sheep mentality" is going to do to U.S. stock markets and world markets when the U.S. goes into recession? If Japan/Asia can cause this much turmoil there's no telling what's going to happen when the U.S. goes into a recession period.

These were a few of the stories that I wrote earlier and sent with my plea.

October 31, 1997

The correction of October 1997 was caused by four factors:

1. The financial news media acting more and more like the National Enquirer, that is, sensationalizing everything and trying to create news.

2. The "sheep mentality" of the institutional investors.

3. The NASDAQ market makers.

4. The overvaluation of some stocks, and I stress some, as many stocks are undervalued.

The number one reason for the correction of October 1997 was the financial news media. Stories of the crash of 1987 were ubiquitous in September and October. All the financial news media were asking, "Is there going to be another crash like 1987?"

It didn't matter what business magazine you read or what evening business report you listened to, or what channel you watched, CNBC or PBS. Investors were bombarded with stories about all the reasons for a repeat of the 1987 crash in October 1997. With most of the institutional investors being inexperienced they were ready to jump on any bandwagon (like Hong Kong), which brings me to my second reason for the correction.

Just look at the indexes on a daily basis for the past several months. What do you see? What you see is 95% of the industries and indexes will be either up at once, or 95% of them will be down at once. This happens because the institutions that control most of the money in this country are basically sheep, they buy when everyone is buying and sell when everyone is selling.

The mutual fund companies and brokers want you to believe that investing is based on fundamentals, research, and hard work. That's what you pay them for right? Maybe that's the way it used to be and should be, but that's not the way it is anymore. Investing is becoming more and more simply a momentum play. Momentum has been the driving force behind the rise in the S&P 500 index for the past two years which inturn is the reason for the very high growth in index funds. Many small investors are seeing the light: why pay a mutual fund company money in the form of higher expenses when you can get better returns and pay less expenses by simply buying an index fund.

More evidence supporting index funds can be found by checking your returns for your individual mutual funds in October. Compare what your individual funds did compared to the S&P for the same period. You will find that the vast majority of mutual funds did worse than the S&P. Again, why pay more in expenses for a mutual fund that can't even, at least, keep up with the S&P. You may as well buy an index fund that equals the returns of the S&P and charges less for expenses. If mutual fund companies don't want to earn their money buy turning in performances better than the S&P, I say dump them.

The third reason for the correction was the NASDAQ market makers. Almost all large brokerage houses are market makers, even Schwab owns a large market maker operation. Market makers make their money off of volume, the higher volume the more profit. Market makers have a vested interest in driving prices up fast and down fast and that's exactly what they did this past week (the spread and volume determines the market maker's profit, number of shares traded times spread equals profit to the market maker).

For example, Asyst Technology was a $47 stock a few weeks ago and since then reported better than expected earnings. However, with the correction and the help of the NASDAQ market makers, this stock hit $20 a share last Tuesday morning. As you all know there are many, many more examples just like Asyst.

Once I saw a stock fall 7% on only 300 shares of volume. I wrote the NASD who wrote me back. The NASD looked for stories to support the drop of 7%, but found nothing significant. What I learned was that the NASD allows market makers to raise prices or lower prices as they see fit. I saw no rules that controlled this price movement. What that means is that on NASDAQ, the market makers decide how much a stock should fall or rise and that the amount of volume comes in second. I feel that volume alone should decide the price change. If the Hong Kong market is falling by 10% and no one is selling XYZ stock, why should the bid and ask prices for XYZ be lowered? However, if you are a market maker you can easily see why you would want the price to be lowered. By lowering the price you create volume, first down volume, and then up volume, this results in a profit to you. If the price of the stock had not change because no one was selling, the market maker would make no profit.

My forth and last reason for the correction is the only fundamental reason. Investors are totally misled by the financial news media regarding my fourth reason which is the overvaluation of some stocks. The financial news media and even the Federal Reserve Chairman like to talk about how the stock market is overvalued, when they should be talking about how certain stocks are overvalued. The fact is at any given time there are numerous stocks that are over or undervalued, and yes, maybe certain stocks were getting too high in valuation in the past few weeks and a correction was needed in those stocks. But, just because Hong Kong was due for a correction, and corrected, was in no way a reason to sell off virtually every listed stock in the U.S.

Even Greenspan himself stated February 6, 1997, "Who owns the stock, how much is moved around, obviously does affect the price in the short run, but in the long run, the price is determined by how good a company it is." That is, fundamentals should determine a stock's value and not a bunch of "sheep" on Wall Street.

ADDENDUM (March 20, 1998)

Guess What? About four months ago everyone on Wall Street: CNBC, CNN's Money Line and It's Your Money, PBS's Wall Street Week and Nightly Business Report, Business Week magazine, The Wall Street Journal, IBD, most fund managers and brokers and anlysts, most mutual fund companies and brokerage houses, they were all saying that Asia's problems meant bad news for the U.S. stock markets.

Oh they didn't? Then explain why the DOW plunged to 7300, and NASDAQ crumbled to 1500? Who else other than these people and institutions have the power to do it. Please don't try to blame it on the small investors. Wall Street you know it. It was you.

And were you right? Well it has been about four months since you all were jacking your jaws about how stocks in the U.S. were going to be in big trouble and guess what? The DOW is up over 1,600 points or $1.6 trillion and the NASDAQ is higher now by 300 points. In fact, all the major market indexes in the U.S. are higher now than before the so call Asian crisis. Guess you were all wrong...as usual.

But, when you really think about it, even though you were all wrong about where the U.S. markets were going, you still got what you wanted: Volatility, stocks falling to record lows only to recover to record new highs in a short time. You all made tons of money off commissions. I guess that's why you can buy those $6 million dollar homes in Connecticut and when the realator asks you, "Who are you going to finance the house with?" You reply, "I'm going to pay cash!"

I bet you guys are already planning the next "crash" and I also bet you those inexperienced fund managers who are mostly sheep will follow you just like they did before.

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