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Why is this happening? It isn't happening because investment companies are devoted to public service. The account population is growing because money management is a highly profitable business. Everyone wants a piece of it. The best investment that any of us could have made in the last 20 years would not have been any of the mutual funds offered by any of the mutual fund companies or the subaccounts of any of the variable annuities offered by the insurance industry. It would have been in the stocks of the management companies. * Eaton Vance has provided a return of 42.2% compounded annually over the last 10 years. Its best fund, Worldwide Health A shares, has provided a return of 20.82%. * T. Rowe Price has provided a return of 23.14% over the same period. Its best fund, Small Cap Value, has provided a return of 13.87%. * Franklin Resources has provided a return of 19.94%. Its best fund, Balanced Sheet Investment A shares, has provided a return of 14.39%. I could go on, but I think you get the idea. Whether we are talking about investment accounts with punitively high expenses or accounts that have below-average expenses, investment management pays extraordinary incomes to investment professionals while maintaining extraordinary rates of profit growth for the management company. The only problem: Every dollar that sustains those incomes and profits is a dollar that reduces our investment returns. This would not be a problem if investment management expenses bought superior returns. But it was demonstrated more than 25 years ago that active investment management seldom beats passive investment management. It's time for a change. It's time for investors to ask, as a book title once suggested, "Where are the customers' yachts?" It's time to stop paying for someone else's Mercedes and to secure our own futures. To explore the impact of costs, I built a lifetime accumulation model and tested how expenses affect what a worker has at retirement. The model assumes a 30-year-old worker with a starting salary of $40,000, an inflation rate of 3%, annual raises of 4%, and a 401(k) plan in which the employee saves 6% of salary with a typical 50 percent employer match. The model grows the income and savings until the worker retires at age 67. In a 100-percent equity investment program with an 11% annual return, our saver would put aside $309,000 and see it grow to $2.6 million. That's a lifetime gain of $2.3 million if no money was lost to management fees. If the same investment is executed through a plan that has fees of 0.75% a year, the growth drops to $1.9 million. About $420,000 is lost to the impact of fees. That's 22% of all growth. With a 2% expense burden the accumulation plummets to $1.7 million. Net growth is only $1.3 million. You've lost nearly $1 million of growth or 72% of the money you might have had. According to the Employee Benefit Research Institute, 401(k) plan participants have been investing with a 70/30 equity/fixed-income mix. Without costs, their expected return would be 9.29% a year. An annual fee of 0.75% takes nearly 24% of all possible growth. A 2% annual fee takes 75% of all growth - and costs the employee more than $600,000. Most participants in the nation's 401(k) and 403(b) plans will experience such losses unless management costs are reduced. How much reduction is possible? Here's a hint. Using index units from Barclay's Global Investors, Exxon Mobil Corp. delivers investment options to its employees that cost as little as 0.01 percent to manage. Yes, you read that right. One-one hundredth of one percent.
This advice seems to fly in the face of a cardinal investing rule, which says you should tailor your strategy to your time horizon. If you have many years until you will need your money, go ahead and buy stocks. But if you are within five years of spending the cash, favor conservative investments. The problem is, with your emergency reserve, there isn't a known time horizon. What to do? My goal: Develop a strategy that won't only provide liquidity if needed, but should also generate long-run wealth. Another suggestion: If you already have a decent amount of home equity, or as soon as you reach that point, set up a home-equity line of credit, which you can then tap in an emergency. Make sure you do this before a crisis hits. Once you are unemployed, you may find the bank isn't so accommodating.
Employees are not saving enough. A worker who earns a constant real salary from age 20 to 65 and saves 10% of it requires a 4% real investment return to sustain a 20-year retirement at the same inflation-adjusted salary level. But most younger workers have relatively low incomes and no savings at all; starting later, at age 30 or 40, raises the required real investment return to 6% to 8%. The typical 401(k) plan is an absurdly expensive vehicle with fees approaching 3%, according to benefits consultant Brooks Hamilton. Add commissions and other costs from frenetic trading at the funds. The typical fund company services participants in the same way that Baby Face Nelson serviced banks. Poor allocation decisions further degrade performance. At one major company surveyed by Bart Waring of Barclay's Global, almost half the participants owned only one or two funds, incurring unnecessary risk. Worse, many companies encourage purchase of company stock in their retirement plans, exposing employees to the double jeopardy of losing both paycheck and nest egg if the company fails. Even scarier are the results in the 401(k) plans of the most prestigious financial services corporations: For 1995-1998, the annualized returns of the 401(k) plans at Morningstar, Prudential, and Hewitt Associates were 13.5%, 10.5%, and 11.8%, respectively, versus a 21.2% return for the global 70/30 mix of global stocks and bonds. If employees at the nation's most sophisticated financial companies can't get it right, what chance do folks on the assembly line at Ford have? [But - the median account balance fell only 0.1% last year - so there is some hope for the average Joe/Jane.] Given low equity returns, high expenses, and poor planning, it is likely that most 401(k) investors will obtain near-zero real returns in the coming decades. Further, a substantial minority will have disastrous results. Only a lucky few will save enough and obtain the 4% to 8% real returns necessary for a comfortable retirement. The defined-contribution system is broken; we just haven't realized it yet. (William Bernstein is a principal at Efficient Frontier Advisors, author of The Intelligent Asset Allocator and producer of The Efficient Frontier Website.) Good News in 401(k) Stats James Glassman, Washington Post 11-25 An extensive study of the contents of 11.8 million 401(k) plans, released last week, found that three-quarters of plan balances were invested directly or indirectly in equity securities - mainly through stock mutual funds. Researchers for the nonprofit Employee Benefit Research Institute and the ICI, found that for the average 401(k), the proportion of total assets invested in stocks rose by one-sixth between 1996 and 2000. At the same time, the proportion invested in GICs [Guaranteed Investment Contracts] dropped by two-thirds, in conventional bonds by one-quarter, and in money-market funds by one-fifth. This is very good news because throughout the 1980s and much of the 1990s, most people had far too much money in bonds and cash and not enough in stocks. The study also found that investors in their twenties and thirties had one-third more of their assets in stocks than investors in their fifties and sixties. From The Employee Benefit Research Institute Report www.ebri.org/publications, November 2001 About the Sample At year-end 2000, about 42 million American workers held 401(k) plan accounts with a total of $1.8 trillion in assets [which comes to an average of $42,857 per person - vs the sample average of $41,919. ICI estimates 401(k) assets at $1.712 trillion, which would average $40,761.]. The 2000 EBRI/ICI database accounts for 11% of all 401(k) plans, 28% of all 401(k) participants, and about 33% of 401(k) plan assets. [ . . or, in plain English - the sample size is large enough that its findings should be pretty accurate.] Sixty-one percent of participants are in their 30s and 40s, while 12% of the participants are in their 20s and 6% are in their 60s. [which leaves 21%, supposedly in their 50s] Salary information available for a subset of participants indicates that the median annual salary among that group is $29,500. [from the Economic Statistics Briefing Room - U.S. average hourly earnings (for non-supervisory workers) is $14.47. This implies $30,097.60 /yr would be the current average salary.] The median age of the participants in the 2000 EBRI/ICI database is 42. Asset Allocation Among 401(k) participants in the 2000 EBRI/ICI database, 75% of plan balances are invested directly or indirectly in equity securities (51% in equity funds, 19% in company stock, and 8% in balanced funds). About 30% of participants direct more than 80% of their account balances to equity funds, while about 28% hold no equity funds. The percentage of participants holding no equity funds tends to fall as salary increases. For example, about 30% of participants earning between $20,000 and $40,000 a year hold no equity funds, (59% of participants with no equity funds have investments in either company stock or balanced funds) compared with 15% of participants earning in excess of $100,000 a year. (percentage of account balances)
Examination of the age composition of account balances finds that 56% of participants with account balances of less than $10,000 are in their 20s and 30s, while less than one-fifth are in their 50s or 60s. The average account balance of participants in their 60s with two or fewer years of tenure is $16,132, compared with $177,289 for participants in their 60s with more than 30 years of tenure. The average account balance of participants in their 40s with two or fewer years of tenure is $12,145, compared with $89,874 for participants in their 40s with more than 20 years of tenure. The average account balance of participants who held accounts in both 1999 and 2000 declined only 0.1% in 2000. The change in a participant's account balance is comprised of contributions, investment returns, withdrawals, borrowing, and loan repayments. Present in Both 1999 and 2000, by Age Group
Source: EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. More numbers ICI June 2001 The U.S. retirement market is comprised of IRAs (23% or $2.65 trillion), defined contribution (23% or $2.64 trillion) and defined benefit plans (18% or $2.11 trillion), state and local government retirement funds (20% or $2.33 trillion), federal government defined benefit plans (6% or $.71 trillion) and fixed and variable annuities (9% or $1.08 trillion). U.S. retirement assets stood at $11.5 trillion at year-end 2000. The IRA numbers include Traditional IRAs, SEPs and SAR-SEPs, Roths, SIMPLE IRAs and Educational IRAs. [From 'IRA Ownership in 2001' by ICI Sept 2001: Nearly one-third of U.S. households - an estimated 34.1 million - held traditional IRAs. A total of 11% of U.S. households - an estimated 11.9 million - owned Roth IRAs, and 8% - an estimated 8.1 million - held SIMPLE IRAs, SEP-IRAs, or SAR-SEP IRAs.] Defined contribution numbers include 401(k) plans, 403(b) plans, 457 plans and "other DC " plans. Retirement assets invested in mutual funds through IRAs and defined contribution plans declined 2% in 2000 to $2.4 trillion ($1.232 trillion in IRAs and $1.176 trillion in employer-sponsored defined contribution pension plans), reflecting weakness in U.S. and foreign equity markets. The negative market performance offset an estimated $115 billion net inflow of new cash to mutual funds held in retirement accounts. Mutual funds' share of the $11.5 trillion of assets held in U.S. retirement plans remained at 21% in 2000. The share of mutual fund assets held through retirement accounts stayed near one-third for the seventh consecutive year. IRA asset growth during the 1990s reflects positive investment performance as well as net new cash, much of which was rollovers from defined contribution plans. IRS data show that rollovers have increased significantly during the 1990s, from an estimated $61 billion in 1989 to an estimated $160 billion in 1998. Mutual fund assets in IRAs declined 1% in 2000 to $1.2 trillion. The share of the $2.7 trillion IRA market invested in mutual funds fell slightly from 47% in 1999 to 46% in 2000. And more ICI's '2001 Profile of Mutual Fund Shareholders', Fall 2001 Shareholders who own mutual funds solely through defined contribution plans have a median age of 42 years. The median household income of these shareholders is $60,000, and household financial assets are $62,500. These shareholders have median mutual fund holdings of $25,000, or 40% of household financial assets. They own a median of three mutual funds. Eighty-five percent own equity funds; 32%, bond funds; 34%, hybrid funds; and 38%, money market funds. Shareholders who own funds both inside and outside defined contribution retirement plans have a median age of 45 years. Median household income for these fund owners is $82,000, and household financial assets are $200,000. Median fund assets of these shareholders is $119,700, or 60% of household financial assets. Ninety-six percent own equity funds; 47%, bond funds; 48%, hybrid funds; and 57%, money market funds. Mutual Fund Asset Holders From ICI 2001 An estimated 87.9 million individuals in 50.6 million U.S. households own the majority of the mutual fund industry's $6.965 trillion in assets. As of year-end 2000, they held $5.5 trillion, or a little under 80%, of mutual fund assets. Fiduciaries - banks and individuals serving as trustees, guardians, or administrators - own a little more than 10% - and other institutional investors (also 10%) held the remaining $1.4 trillion. More on 'restricitons' Schultz & Francis, WSJ 11-27 Retirement-savings plans are exempt from Erisa diversification rules which make it illegal for a company's pension plan to invest more than 10% of its assets in the company's own securities. Currently, roughly one-third to one-half of retirement-plan assets at large companies are invested in company stock. That suits employers, which would just as soon contribute stock as draw down precious cash, and in the past, they have lobbied successfully to defeat efforts to impose diversification rules on 401(k)s. Based on filings with the SEC, hundreds of companies use their own stock in lieu of cash as their matching contributions to employees' retirement-savings accounts. And the majority of those restrict the ability of employees to sell the shares and move the proceeds into mutual funds and other alternatives offered through their 401(k)s. Benefits consultants Hewitt Associates found in a recent study that nearly half of 215 firms offering company stock in their 401(k) plans only contribute their own shares to employee accounts, and that 85% of those companies restrict sales of the stock. Gillette doesn't let employees switch out of its stock contributions to their 401(k)s until age 50, according to government filings. At Coca-Cola, it's age 53. Procter & Gamble, Qwest and troubled Enron - now facing lawsuits over employees' 401(k) losses - are among the many others that impose similar restrictions. [Bloomberg 11-28: Enron stock amounted to 62% of assets in their $2.14 billion 401(k) at the end of 2000.] 'Restricitons' Part 2 Liz Weston, LA Times 11-30 About 2,000 U.S. companies, covering 6 million of the nation's 40 million 401(k) participants, offer their own stock as an investment option in their employees' plans, said David Wray, president of the Profit Sharing/401(k) Council of America, a nonprofit trade group. Some of those corporations essentially force 401(k) participants to invest in company shares by issuing them as matching contributions. EBRI and ICI found that less than 1% of plans restrict their employees from selling company matching shares, but those plans cover about 2.8 million participants and include 11% of all 401(k) plan assets. Recent surveys show 19% of the nation's 401(k) assets are invested in company stock, a percentage that rises to 30% when smaller 401(k) plans that don't offer company stock are factored out. And at some big companies, the percentage of company stock in retirement plans is far higher. Some Losing 401(k) Match Funds Josh Friedman, LA Times 11-11 Some companies are cutting back on one of American workers' prized benefits: matching contributions to their 401(k) retirement savings plans. DaimlerChrysler's U.S. unit, the Wyndham International hotel chain and Bethlehem Steel are among a smattering of financially stressed companies across a range of industries that have suspended their matches to conserve cash in recent months as the U.S. economic downturn has deepened. "What people are being reminded of is that 401(k) plans are really profit-sharing plans," said David Wray, president of the Profit Sharing/401(k) Council of America, an association of 401(k) plan sponsors. "Company contributions [to 401(k) plans] depend on profitable results." About 98% of 401(k) plans offer a company match of some kind, although the amounts vary, according to Hewitt Associates, a benefits consulting firm. For instance, some employers match 25 cents on the dollar for the first 4% of pay contributed - or up to 1% of salary. Others match dollar-for-dollar up to 8% of salary. Still others provide an annual match linked to company results. Company 401(k) matching contributions were sliding even before this year because of the faltering economy, according to the Profit Sharing/401(k) Council. In 2000, the average 401(k) plan matched 2.5% of participants' pay, down from 3.3% in both of the previous two years and the lowest level in at least a decade. Another Match Disappears Minneapolis Star Tribune, 12-4 Ford this week is expected to warn investors of deeper-than-expected Q-4 losses. The automaker plans to forecast a loss of about 35 cents a share or an estimated $630 million. Among the cost-cutting plans the automaker was expected to announce later today: Eliminating matching contributions on 401(k) plans for its 45,000 U.S. salaried employees for an indefinite period. The company now adds 60 cents in Ford stock for every dollar employees contribute to 401(k) funds, up to 10% of their annual salary. Boomer Retirement Jim Barlow, Houston Chronicle 11-29 Allstate Insurance recently surveyed boomers [those between ages 33 and 55, 76 million strong, 29% of the U.S. population] about their retirement financial needs and what they are doing to achieve them. Allstate, of course, is interested in selling products to the boomers. It's going to be a tough sale. Here's what the survey discovered. * Sixty-nine percent of boomers say they know how much money they will need in retirement, and 78% believe they are prepared. They're wrong. * On average, they say they would need $30,000 per year for basic living expenses in retirement. To have $30,000 a year, boomers would need to have $1 million in savings, with a return of 8% a year and an inflation rate of 4%. But the surveyed boomers have saved an average of approximately $120,000. That's just 12% of what they'll need for a 20-year retirement, factoring in inflation. * That $30,000 is probably too low. It doesn't take into account the ravages of inflation. Of those surveyed, 46% thought living expenses would increase less than 20% over the next 20 years. The reality is, based on history, we can expect the cost of living to double in 20 years. * Nearly three out of five say they will still be in debt when the time comes to retire. Fifteen percent say they will be providing for elderly parents or in-laws. And 29% say they will be supporting children or grandchildren over 18. * One in five boomers surveyed say they expect to be paying college tuition for one of more of their children during retirement. * One in three of the baby boomers say they expect Social Security to provide the bulk of their retirement income. According to the Federal Consumer Information Center, Social Security only replaces about 40% of the average person's earnings.
Richard Rippe, chief economist at Prudential Securities, estimates that falling energy prices amount to a tax cut of more than $300 per household. These lower energy costs are bad news for domestic energy producers. But they have an especially positive impact on low- and middle-income households, because those households spend a large proportion of their monthly budgets on heating and gasoline. Michael Niemira, an economist in the New York unit of Bank of Tokyo-Mitsubishi, found another way to size up purchasing power. He looked at household incomes, factored in falling inflation, added in the impact of large tax cuts, and then started subtracting out everyday expenses, ranging from mortgage payments to food costs to telephone and garbage-collection payments. What remains, he says, is "discretionary income," which is the money left over to shop with or save. In September, it was up 32% from a year ago, Mr. Niemira says. Last year, discretionary income was falling. The Lipstick Indicator Emily Nelson, WSJ 11-26 Lipstick sales are red hot. So why is no one smiling? The reason is that women traditionally turn to lipstick when they cut back on life's other luxuries. They see lipstick as a reasonable indulgence and pick-me-up when they feel they can't afford a whole new outfit. Lipstick sales at mass retailers tracked by Information Resources Inc., the market-research firm, rose 11% from August through October compared with a year ago. Other cosmetic items don't tend to benefit from the lipstick effect. Lipstick sales might be even higher, if not for brands that promise to stay on longer, reducing the need to buy another stick.
"People who are in stocks have the problem that they remember the high watermark and they will be damned if they'll sell before their portfolio gets back to its peak value," says Meir Statman, a finance professor at Santa Clara University in California. Prof. Statman's advice: "Get out gradually. Let's say you have 70% in stocks and you want to get down to 50%. Sell gradually over two years. That will reduce the pain of regret." Others might have bailed out of the market when the Dow was well above 10000, and possibly even above 11000. Now, they have the chance to load up on shares at much cheaper prices. Yet these investors also face a nail-biting decision. For starters, there is the chance that share prices could slump once again. So what should those on the sidelines do? Take it slowly, just like the folks who are looking to bail out. If you have $10,000 to invest, move $1,000 into stocks every month for the next 10 months. With that strategy, you won't buy at the market bottom. But at least you will get the money invested. Don't hesitate now Reuters via Chicago Tribune, 11-25 It's time to buy stocks - at least if you believe in the power of history. An investor buying by Nov. 1, then selling on April 30, is almost guaranteed to make money without even blinking, the soothsayers say. The Stock Trader's Almanac notes that the Dow Jones industrial average has gained a total of 9,471.26 points in the last 50 years in the months of November through April. Gains made during the other six months - May through October - totaled just 850.94 points over the same 50-year span. Since 1971, the Nasdaq composite index has gained an average 3.4% for the months of November through April, while the S&P 500 index has climbed 3.3%, according to BigTrends.com. That compares with an average gain of 0.3% in the Nasdaq for the May-through-October period, and a rise of 0.5% for the S&P 500 during those six months. There have also been some spectacular deviations from the supposed rule. The most recent was the six months ended April 30, 2001, when the Nasdaq slumped 37.2% and the S&P 500 fell 12.6%.
Car sales would not be booming today, or even above water, without zero-interest loans, which the Fed makes possible. Without its rate cuts, the car companies could not borrow cheaply enough to bear the losses from zero-interest lending for as long as they have. Banks and other financial institutions pay to borrow money from each other for the short term. These borrowings are then lent to companies and individuals. With the federal funds rate now at 2%, down from 6.5% on Jan. 1, the nation's lenders have plenty of incentive to borrow short term at 2% and to lend long term at 4.5% or higher. The dollar has been rising against other currencies, making American products more expensive overseas and thus less competitive. But the rise would have been even greater without the sharp decline in interest rates. The GDP contracted in Q3 at an annual rate of 0.4%. Once all the data is collected, the rate of decline will probably turn out to be 1 to 2%, according to Peter Hooper, chief domestic economist at Deutsche Bank North America. "That 1 to 2% would have been 3 to 4%" without the cuts, he said.
For the last 15 years, the average annual return of the S&P 500 has been 13%, for 10 years, 12.75%, and for the last five years, 10%. Those numbers fuel large expectations. But the reality is that the average investor gets less than half those gains. The average person's portfolio has reaped a return of just 5.3% from 1984 through 2000, according to a Dalbar Research study. How's that? Most people don't have 100% of their assets in the S&P 500 index - or any other index, for that matter - and just let it sit. Hence, what investors really get is much less than even the much publicized and tracked index returns.
Indeed, most experts seem to agree that there has never been a time like the present when following the simple strategies - buy-and-hold, dollar-cost averaging - were so crucial to long-term success. That seems to argue against tax-loss selling. By pursuing the tax benefit but potentially shortening your holding period, you become statistically more likely to injure your own long-term investment performance.
To gather evidence on the recklessness of mutual-fund marketing, I spent two days at the local library, combing through the fund advertisements in a large-circulation personal-finance magazine. My journey began in January 1999. That month's issue included an eclectic mix of ads for blue-chip stock funds, money-market funds and tax-free bond funds, plus pleas for IRA business. In fact, the first hint of trouble didn't come until May 1999, when Fidelity Investments pitched six of its technology-sector funds, including one that boasted a 12-month return of 90.41%. What about bond and money-market funds? By the summer, the fund companies had given up on those. In the magazine's July 1999 issue, I couldn't find a single ad devoted solely to bond and money-market funds. These funds, of course, were poised for healthy returns in the years ahead. In the October issue, Kinetics Internet Fund touted its 225.2% return for the past 12 months, and Invesco Endeavor Fund screamed about its 66.1% climb, also since late 1998. But if those ads seemed brash, they were quickly surpassed. In January 2000, Strong Enterprise Fund touted its 147.8% gain under a feisty two-word headline: "Any Questions?" To be fair, these advertisements often mentioned - in the smallest of print - that past performance was no guarantee of future results. But when fund companies shout about such hefty gains in such huge type, aren't they implying that these results are likely to be repeated? Isn't that the not-so-subtle suggestion? According to Morningstar, in the 19 months ended October 2001, Invesco Endeavor Fund fell 68.7%, Kinetics Internet Fund 62.9% and Strong Enterprise Fund 55.8%. By November 2001, fund advertisers were back to talking about IRA rollovers and pushing college-savings strategies. "Make your cash work harder," suggested Strong Investments, which was now touting one of its bond funds. Meanwhile, Berger wasn't even bothering to mention specific funds. Instead, it was promoting the virtue of regular investing through its low-minimum investment plan. The advertisement's slogan: "No one can predict the future." Isn't that the truth? More Numbers Charles Jaffe, Boston Globe 11-11 The market downturn has lingered for so long that it's now entertaining fund investors with stupid math tricks. These number oddities occur naturally in funds; they aren't bookkeeping anomalies. But they are worth understanding, because the mathematical vortex of a down-and-volatile market sometimes confuses investors and leads them into bad decisions. Fidelity Select Electronics saw its annualized three-year gain shrink from 36.17% when measured in September to 19.75% today. Hancock Technology saw a three-year gain of 10.2% melt to less than 1%. And Munder NetNet's three-year returns moved from a positive 3.94% in September to a negative 6.6% by November. Those are random examples; there are literally hundreds of funds with returns that seem to be vanishing. Now on to the shrinking asset-growing cost trick. About half of all stock funds use a sliding scale to calculate expense ratios, with ''breakpoints'' where costs go down as assets rise. For example, a fund might carry management fees of 1.25% on up to $100 million in assets, but 1% on assets between $100 million and $500 million. Above that level, the management fee might drop to 0.75%. The result of this scale is that a $1 billion fund might end up with an effective expense ratio - what you actually pay if you're an investor - somewhere in the neighborhood of 1%. But when funds shrink due to losses and redemptions, those breakpoints are crossed in the wrong direction. If that $1 billion fund shrinks back down to $500 million, the effective expense ratio will rise to about 1.2 percent, meaning you pay more at a time when the fund is doing less. That actually makes a mild case for leading the charge out the door, rather than sticking around and paying more. Any breakpoints were disclosed in the prospectus and helped you out when the fund was flush - so don't take offense and bail out immediately. Instead, watch performance and factor expenses in there. Only if costs rise and returns fall relative to a fund's peers will the numbers add up to a possible change in your portfolio.
To take a real-life example (and also to keep it simple), let's say you want $36,000 worth of the cost of an '02 model GM light truck financed by GMAC. You can take a three-year loan at 0%, which means you pay $1,000 a month. Or, if you choose the more conventional five-year loan, you'll get charged at a rate of 4.9%, but your monthly payments will come to only $677.72. Munro's Law says you'll take that $677.72 every time. GM was offering five-year loans at zero only on the 2001 models that the dealer was especially anxious to move. On the 2002 models, the zeros were available only on three-year loans. And as those of us impressed by Munro's Law might expect, a good three-quarters of all loans were issued at a positive rate of interest, at least based on an informal survey of dealerships by Sanford Bernstein auto analyst Scott Hill. As Hill notes, most of the remaining one-quarter must have gone to those who bought the 2001 models at 0% over five years. With rising unemployment, and with the standard measures of consumer confidence on the wane, did Americans really decide to buy cars now rather than later simply because the financing looked advantageous? Munro's Law can hardly explain it. Chalk it up to our indomitable spirit.
With the exception of Kasriel and a handful of others, no one considers why the price of oil is falling and what the implications of it are. (An economist friend of mine says it's the pons asinorum - literally `bridge of asses' - of economics. The OED defines pons asinorum as `the difficulty which beginners or dull-witted persons find in 'getting over' or mastering it.') The price of a commodity can fall because of increased supply or reduced demand. Is OPEC pumping more oil? Hardly. `The price of oil is falling because of a shift back in demand,' Kasriel says. `Why is it good if this one price falls for that reason? Why isn't it good if all prices go down?' A history lesson is in order. Back in 1986, when OPEC was engaged in another price war, crude oil prices plunged in the first quarter of the year, giving rise to the same nonsense about a tax cut for the American consumer. Specifically, crude oil prices fell from about $32 in November 1985 to $10 in April 1986, a 69% decline. Real gross domestic product rose 3.7% in the first quarter. With oil plummeting and the Fed aggressively easing monetary policy - the Fed lowered the discount rate by 200 basis points between March and August - there were great expectations of a boom in the April to June quarter. Alas, Q2 real GDP growth was less than half that of Q1: 1.7%. The post mortems on the results claimed that lower oil prices wreaked havoc with the oil patch, those areas of the country, such as Texas, that rely on oil production and revenue as a source of income. The hit to GDP came from falling investment: specifically investment in petroleum and natural gas structures, which fell 23.3% in Q1 and 85.4% in Q2. (It makes the 19.5% decline in investment in information technology in Q3-01 look like child's play.) Despite the oil `tax cut' and Fed ease, the economy did not fare that well. Anyone who thinks falling oil prices are unequivocal good news for an economy should do a refresher course on 1986. Stability is better Warren, Trottman and Barrionuevo, WSJ 11-19 While major oil producers are threatening a price war that could send prices down further, energy companies and energy users say they would benefit more from stability than the recent pattern of short-term price declines followed by price spikes. "Volatility leads to lower capital investment because you can't plan," says Adam Sieminski, an oil strategist at Deutsche Banc Alex. Brown. And it distorts consumers' views. "When prices go up consumers are hopping mad, and when they go down they are not particularly grateful," he said. Energy producers and analysts say volatile energy prices the past few years have deterred many companies from investing in longer-term prospects that will ultimately yield more oil and natural gas. The ups-and-downs of North American natural-gas prices pushed producers during the past two years to spend on relatively low-risk "sure shots" and pass up prospects that could take 10 to 15 years to develop. "You just can't plan a drilling budget with this kind of volatility," says Raymond Plank, chairman and CEO of Apache Corp., a Houston exploration and production company. "It's bad for both producers and consumers." Apache says it has cut next year's North American drilling budget by 70% to only $300 million. Big producers such as Russia said they can sustain their production even if prices fall. But North American producers will be hurt because their costs are much higher. All those moves could mean a shortfall of oil and gas when demand picks up again, leading to a new round of volatility.
The loss of sales for much of the week including September 11, as well as the timidity of consumers in the weeks following the terrorist attacks, generated a drop in sales of 2.8% for manufacturers, wholesalers, and retailers. Though inventories did fall modestly for the month, the decline was clearly not in line with the largest one-month sales plunge since 1987. Thus, the inventory-to-sales ratio for total businesses increased from 1.42 to 1.45. Even more significantly, the manufacturing ratio jumped to 1.43 from 1.38, marking the highest inventory-to-sales ratio for the industry since early 1996.
At 173 problems per 100 vehicles (PP100), the average 1997 Lexus model has fewer than one-half the number of problems reported for the average 1997 model-year vehicle, which has 382 PP100. Infiniti ranks second with 219 PP100, followed by Jaguar (250 PP100), Lincoln (253 PP100) and Acura (255 PP100). Honda and Toyota tie at 278 PP100 to rank highest among non-luxury nameplates. The Ford brand averaged 361 problems per 100 vehicles, just behind Saturn at 351 problems per 100, and ahead of Saab, Nissan and the industry average of 382 problems per 100. Among the names below that average: Chevrolet, Chrysler, Dodge, Eagle, GMC Truck, Geo, Hyundai, Isuzu, Jeep, Kia, Land Rover, Mazda, Mitsubishi, Plymouth, Pontiac, Suzuki, Volkswagen and Volvo.
The idea that stocks could fall back to their recent lows may seem surprising to some investors. After all, the market has been rallying in recent weeks due to expectations that the economy -- and corporate profits -- will rebound next year. That, along with low interest rates and recent progress in the war on terrorism, has helped spur renewed optimism in the market. But a lot of those bullish expectations are now built into stock prices. More importantly - and the reason stocks are likely to retest lows before the next bull market is born - is that the current rally has been anemic by several measures. Since World War II, bull markets that follow recessions have been fueled by a broad swath of stocks moving higher together, and are usually led by one dominant group, market research shows. In addition, the market rarely hits a low and then rebounds straightaway. It almost always spends time retesting those lows, establishing a firm base from which to begin a true advance. Sometimes the market establishes false bottoms - sinking, then rallying, only to sink again, often below where it started. That's where we could be headed now. During the market's recent run-up, there has been a noticeable absence of leadership, known technically as market breadth. This measures how widely dispersed the rally is across a variety of sectors. The post-attack recovery "has been unimpressive" in terms of breadth, says Mr. Hayes. One day, energy is leading the market, the next day technology, then financials. That may seem broad, but the problem is that those same industries slump a day or two later. Moreover, relatively few stocks have been hitting new highs since the terrorist attacks. That compares with late August, when the market was drifting lower, when nearly double the number of stocks were hitting highs. Then there's what is known as advancing volume, which measures how much of the day's trading was in rising stocks. It peaked in late September at 5.5 times declining stock volume - well below the nine-to-one ratio that typically heralds a bull market, Mr. Hayes says. All of this indicates that while investors are generally feeling better about the prospects for stocks in such a low-inflation, low-interest- rate environment, uncertainty about the economy, war and their jobs still lingers. The good news, Mr. Hayes says, is that even if the market falls back to its lows or even further, the current economic environment "is conducive to a successful retest." That means that stocks could then stage a broad rally, signaling the return of the bull market, though likely not as untamed as the previous one. But don't be surprised if the stocks that lead the market out of the recession aren't the big-company growth stocks that dominated the market in the 1990s. In a study of all the recessions in the post-war era, the stocks that have fared the best as a weak economy strengthens have been small-company stocks, or "small caps," says Sam Burns, equity research analyst at Ned Davis Research. During those periods, Mr. Burns says, the average small stock was up 44% during the year following a recession. The average big-company stock, or "big cap," was up 26%. Big caps might not even do that well this time around. No Bull Josh Friedman, LA Times 11-21 "This doesn't feel like a bull market. What this feels like is a recovery from an oversold position," said Dong Zhang, manager of the Phoenix-Oakhurst Growth & Income fund. "I wouldn't want to confuse a very tradable rally with a new bull market," said Bill Ryder, chief quantitative strategist at First Union Securities. Regardless of what the trend watchers say, strategists such as Dennis Ferro, chief investment officer at Evergreen Funds in Charlotte, N.C., note that economic data and corporate earnings reports have yet to signal fundamental improvement in the U.S. economy. "To know you're in a bull market, you need to see earnings validation," Ferro said. "What we have is an impressive bounce off overly depressed levels." "What matters is not whether some index is up 20%. What's important is that when the Fed is cutting interest rates, when investors are discouraged and the economy is weak, that's usually a good time to be buying stocks for the long term," said Alan Skrainka, chief market strategist at brokerage Edward Jones. A cheer-leader's nightmare LA Times 11-21 In notes to clients Tuesday, Goldman, Sachs's Abby Joseph Cohen and UBS Warburg's Ed Kerschner said the recent rally is likely to continue. The gains are justified because the economy will rebound by the second half of next year and boost corporate profits, they said. "Our year-end 2002 price targets suggest additional double-digit gains," Cohen said. She left unchanged her prediction that the S&P 500 would be fairly valued if it reached a range of 1,300 to 1,425 by the end of next year, a gain of at least 14% from Tuesday's close of 1,142.66. Kerschner raised his forecast for earnings growth of S&P 500 companies, citing the success of the war in Afghanistan, which should help consumer confidence. "We slashed our S&P 500 [profit] estimates following the terrorist attacks, but earnings are looking 'less bad' than expected," Kerschner wrote in the report. He maintained his S&P forecast at 1,570 for next year, a jump of 37% from current levels. It used to be that comments such as these from two of Wall Street's most bullish strategists would spark a rally. Not Tuesday. The S&P 500 fell 0.7% Tuesday.
Knowing that the interest-free loans will not last forever, people have suddenly become willing to spend money that they would not otherwise. This is economic stimulus. Many of the proposals in Washington, by contrast, do almost nothing to alter people's calculations about whether they should spend money in the short term. And immediate spending is the key to preventing the economy from lapsing into a vicious cycle of layoffs, weak consumer spending and yet more layoffs. The zero-interest loans do offer a wonderful model for how the government could lift the economy. They are surely more effective than refunding taxes to businesses or reducing payroll taxes, as many members of Congress are now urging. Imagine instead that consumers had a temporary incentive to increase their spending on all products, including everyday ones like clothing or toys that would not require a substantial increase in debt levels. Senators Patty Murray, a Washington Democrat, and Olympia Snowe, a Maine Republican, have offered just such a plan, proposing that the federal government reimburse states that suspend their sales taxes for 10 days during the holiday shopping season. The bill is unlikely to pass because of the many logistical difficulties that it presents.
(1) "Asset allocation" is no longer just a quaint theory. Investors now have a better appreciation for just how much they can lose in stocks - and how bonds and short-term cash savings can offset market losses and preserve capital. Investors who take asset allocation to heart will be laying a much more solid foundation for their money in the long run. (2) The wisdom of saving money on a regular basis has been relearned. Many Americans were letting the stock market do their saving for them when share prices were rising 20% or more each year. (3) A healthy skepticism has replaced mindless euphoria about stocks and those who tout them. Investors have come to see that having blind faith in those who present themselves as "experts" is a highly dangerous strategy, if it can be called a strategy at all. (4) Free-market forces are weeding out the weak players and the phonies. Hundreds of dot-coms have failed, but who really misses them? Is it any harder to find what you want on the Internet? Also to be weeded out, though over a longer time period, will be mutual fund managers whose performance running other peoples' money has been a nightmare for those investors. (5) OPEC has lost its ability to prop up crude oil prices, which have sunk to two-year lows amid the weak global economy. That's lousy for OPEC, but it's great for every energy consumer. (6) The market's woes have altered many investors' priorities for the better. The wild bull market of the late 1990s demanded peoples' attention, and got it. Now, most people have been humbled by the market. In the process, some have realized that they don't want their mood determined by their portfolio's day-to-date price changes.
'This does change things,' says David Jones, chief economist at Aubrey Lanston. 'Yes, we're in a recession, but it's going to be milder and shorter than I thought.' Credit Suisse First Boston economists agree: 'Incentive driven or not, the fact that consumers came back to the stores and dealer showrooms at all in October in the wake of the worst terrorist attacks in history, anthrax outbreaks and war in Afghanistan is a constructive sign and supports our call for a short, shallow recession.' "The U.S. consumer is showing more resilience than widely expected," says UBS Warburg economist Jim O'Sullivan. "The economy is brushing off the effects of Sept. 11 fairly quickly." To get a truer picture of consumer spending, Economy.com associate economist Andy Kish likes to look at non-auto sales on a year-over-year, rather than a month-to-month, basis. And here the picture gets murkier: Retail sales excluding autos expanded by just 1.6% from a year ago in October, the slowest growth in at least eight years. 'In this more accurate glimpse of the retail industry, it is clear that rising joblessness and continued concerns about future terrorist attacks and a stagnant economy are taking their toll on the American consumer,' Kish writes. There's still the risk that consumers will retreat under their covers in November and December, as the pace of unemployment rises (as is likely) and the threat of additional terrorist activity persists. 'You continue to get this dichotomy between retail sales and payrolls," says says Lehman Brothers senior economist Ethan Harris. "Some of it's due to the refinancing boom and some of it's due to the stock marketıbut it's still a little puzzling.'
In a quarterly survey of 57 large U.S.-owned banks, 51% said they are tightening their criteria for approving commercial and industrial loans to large and middle-size borrowers. (28 had "tightened somewhat", one toughened "considerably" and 28 said policies had not changed) That is up from 40% during the last survey in August, the Federal Reserve said. The same survey found that among 22 foreign banks with lending operations in the U.S., 63% had tightened their standards during November, up from 50% in August (14 "tightened somewhat", one "tightened considerably"). To keep money flowing, the Federal Reserve has lowered interest rates 10 times this year, including a reduction last week in the federal-funds rate to 2% from 2.5%. That move lowers the cost to banks of raising the money they lend to borrowers. But the survey found that much of that savings isn't being passed on to borrowers. Of the banks surveyed, 64% said that the difference between what they pay for funding and what they charge borrowers for loans, known as the "spread," is widening, up from 50% who reported a widening spread in August. Among foreign-based banks, 64% said their spread was widening, up from 60% in August. Wider spreads reflect a fear among bankers that the risks of lending are increasing, and thus they demand to be paid more to cover those risks. Yet the survey also found that as the economy slows, the demand for loans is on the decline, because borrowers require less funding for investment. About 70% of domestic banks reported weaker demand for loans from large and medium-size commercial and industrial enterprises, up considerably from about 50% in the August survey. The Fed's survey also found that one in five banks reported tighter standards for credit card and other types of consumer loans during the last three months. Standards for approving residential mortgages, however, didn't change during the period. The Fed said 25% of banks surveyed reported weaker demand for consumer loans, but mortgage demand was steady. Non-Bank Credit & the Fed David Ingram, Economy.com 11-6 The U.S. monetary transmission mechanism is more complicated than those of other countries. In the U.S., firms rely less on bank loans, the price of which is more closely tied to Fed actions, than do firms in, Japan or the euro zone. Rather, liquidity for U.S. firms is often sourced in the commercial paper, bond, and to a lesser extent, private and public equity markets. The price and availability of liquidity in these markets is more detached from Fed actions, and responds in a less systematic manner to Fed policy moves. An increase in risk aversion on the part of participants in these markets can make credit unavailable, or prohibitively expensive, regardless of Fed actions. This would particularly be the case during the early stages of a contraction, during which bankruptcies begin to accumulate. During times like these, financial market participants possess poor information regarding variables such as near-term cash positions, orders and receivables. As such, potential lenders/investors will find it difficult to accurately price risk, and become less willing to participate in markets for liquidity. Growth in commercial and industrial loans, which reflect bank lending to small firms, has progressively weakened over the course of the year, and has now contracted for three consecutive months. Banks & Loans Kathleen Day, Washington Post 11-18 Gilbert Danielson, CFO of Aaron Rents, learned just how dramatically the banking business has changed in recent years when Bank One canceled furniture-rental firm's $30 million line of revolving credit. A Bank One executive told Danielson that the bank was focusing on lucrative customers and that Aaron didn't generate sufficient profit. "The mantra was 'We don't make enough money lending you money. We have to get fee-based income, therefore we're leaving.'" said Danielson. Charging interest on loans was once the primary way banks made money, and they pushed aggressively to expand lending to corporate customers they thought could make the payments. But there have been significant changes in the marketplace and in federal law in recent years, and some major banks now appear to treat loans almost as an afterthought. They seem more interested in selling lucrative non-banking services, such as helping companies issue stock to the public. In June, Bank of America turned down Wal-Mart's request that the bank take the lead in putting together a $2.25 billion credit line. Why? Because the retail giant had given its more lucrative business - helping Wal-Mart issue bonds - to securities companies. Last year, for example, Wal-Mart paid bankers more than $650,000 for its line of credit, but the company paid more than $1 million to the securities firms that helped it issue $500 million in bonds. A portion of the money that banks lend comes from deposits that are federally insured, meaning the government covers as much as $100,000 for each depositor. If banks are tempted to use loans as an inducement to win more-lucrative business, they may not be quite as diligent in evaluating the risk of their loans, which could lead to defaults and, in a worst-case scenario, bank failures. Banks & Deflation Donald Ratajczak, Atlanta Journal-Constitution 11-18 Price declines are especially difficult for financial institutions. They have issued loans supported by the market value of assets. If those values fall, the support for those loans erodes. Defaults rise [falling prices usually mean eroding profit margins], and in the worst case, banks lose the capacity to make loans. Just the Facts New SEC Mandated Disclosures Starting Friday, major market centers will have to release information to investors on a slew of trading issues. Investors will learn where and how efficiently stock orders are filled and whether the broker-dealers involved have financial relationships with the firms to which they send orders. The disclosures are part of a SEC mandate to make stock trading more transparent. The new rules are 11ac1-5 and 11ac1-6. Previously, some of this information, such as where stocks were routed, wasn't consistently available. Other information, like the financial ties between companies, often was embedded deep in regulatory filings. (WSJ 11-30) A Torrent of Debt Companies have issued 31.5% more debt in the last 11 weeks than they did in the period a year earlier. All told, 573 corporations have issued $181 billion of debt since Sept. 11, compared with 692 companies that raised $138 billion in the period last year, according to Thomson Financial/First Call. [Jennifer Ablan, Barrons 11-16: High-grade bond offerings are expected to reach a record $600 billion this year while convertible securities are likely to turn in a record-shattering $100 billion, surpassing the tech and telecom boom years in 1999 and 2000. Corporate bond issuance should support a revival of business capital spending. ]Bank lending is at a 30-year low, according to the Conference Board, and buyers are hard to find for commercial paper, the short-term, cheap debt that corporate purebreds rely on. Standard & Poor's says the amount of commercial paper issued by nonfinancial companies has shrunk roughly 30% this year. (Stepanie Strom, NY Times 11-27) Stability and Prices "Stability and predictability play a large role in financial asset pricing, and since we have less of both for the foreseeable future, prices should be down. I believe we are starting the 'Twisting in the Wind' segment of the bear market. While the bulk of the point declines is likely over, much more time will need to pass before the equity market regains its footing. I am looking for a grinding slow downward movement in stock prices. When CNBC is no longer on the TV in every library and bar in the country, it will be time to get aggressive again." (Jay Weinstein, Oak Forest Investment Management Letter via Wash Post 11-25) Futures 101 Futures markets open at 4:45 p.m. EST and trade all night until 9:15 a.m. the following morning - 15 minutes before the stock market opens in New York. The S&P 500 future is the most heavily traded contract, and tracks the advances and declines of the S&P 500-stock index. A one-point move in the futures contract is worth $500. For example, if a futures trader buys a March 1 S&P 500 contract at 401 and the contract's price edges up to 403.30, the trader has a profit of 2.30 points, or $1,150. The S&P futures price signals the value at which investors believe the S&P 500 cash index should trade once stock markets open. While futures prices are often a good indicator of how strongly or weakly the market will begin the day, they frequently have little value in telling whether the initial trend will hold. (Erin Arvedlund, Barrons 11-25) A Bullish Sales Projection Despite an extra selling day between Thanksgiving and Christmas, retailers are not optimistic this year. Same-store inventories are only about 2% higher for many stores (although some of the home electronics and home remodeling stores have at least 5% more to sell than a year ago). The 670,000 seasonal workers that normally pack the stores to help customers will be more than 200,000 fewer this year. In short, there will not be enough goods and help to meet Christmas sales if they are surprisingly strong. Economists cannot deal well with psychology. But spending capacity, reduced debt, reduced taxes and lower finance charges all work toward stronger sales. I believe that retailer concessions will be needed, but most of the stores will sell those moderate inventory gains. When all the packages are unwrapped, I am expecting retail sales to be nearly 4% higher than a year ago. (Donald Ratajczak, Atlanta Journal-Constitution 11-25) Sell Recommendations Becoming Less Rare This year, 15% of analysts at sell-side firms, so-called because they pitch stock ideas to investors, have issued at least one sell recommendation, and 10% have issued at least two, according to StarMine Corp., which measures performance of Wall Street analysts. This is up sharply from 2000, when just one in 10 analysts had one sell recommendation, and a slim 3% had at least two. The absolute number of sell recommendations also is up, albeit also off a very low base. They now constitute 1.6% of all ratings, up from 0.9% a year ago, according to Thomson Financial/First Call. That is the highest it has been in the four years that First Call has tracked such recommendations, and well above the less-than-1% historical average. (Cassell Bryan-Low, WSJ 11-23) Talking Turkey A new federal survey found that 13% of turkeys are contaminated with the salmonella bacteria responsible for 1.3 million illnesses and about 500 deaths a year in the United States. More than 90% of American dinner tables will be graced with turkey this Thanksgiving, and government, industry and interest groups are urging consumers to follow proper cooking instructions to kill pathogens. Food-safety experts say heat kills pathogens, and recommend that turkeys should be cooked to an internal temperature of 180 degrees Fahrenheit in the thigh and 165 degrees Fahrenheit in the dressing. (Nando 3-21) Employment Outlook Survey U.S. companies' Q1 hiring intentions are approaching a weakness not seen since the recessionary early months of 1991, according to Manpower's Employment Outlook Survey. The latest survey, which polled nearly 16,000 public and private employers in 482 U.S. markets, found that only 14% of durable-goods makers plan to add staff in the first quarter, while 21% indicated plans to slim down. In nondurable goods, 15% of employers plan to add jobs, the same percentage that said they would cut. Those trends were even more marked in the Northeast and West. Overall, 16% of the companies surveyed said they expect to add workers in the first quarter, while the same percentage said they will reduce their work forces. Ahead of the current quarter, 24% had projected increases and 11% planned reductions. Before last year's first quarter, 27% of the employers said they would add staff and only 10% foresaw cutbacks. (WSJ 11-19) Avoid Late Fees Some credit card companies charge high fees for paying credit card bills by phone, and they require you to give out an awful lot of information over the phone. If the company requires advance registration, it will send you a form, which you fill out with your checking account number and other information, before returning it by mail. Some issuers have decided the people who are most likely to pay by phone are procrastinators trying to avoid a late fee. So they charge $3 to $5 for the "service," figuring people would rather pay that than a $29 late fee. Many credit card issuers allow you to pay your bill on their Web sites. Other Web sites allow you to pay a variety of bills, including your credit cards. Yahoo's BillPay has free bill paying with a number of major credit card issuers. Before you use any bill-pay service, be sure to read its privacy policy. (Liz Pulliam Weston, LA Times 11-18) Diversification Warren Buffett is fond of quoting Mae West: "Too much of a good thing can be wonderful." In the market, such a motto would lead you to avoid diversification and instead concentrate your portfolio in stocks you really, really like. Peter Lynch calls spreading yourself too thin "diworseification." Smart, witty and brilliant at picking stocks, Buffett and Lynch may not need diversification, but the rest of us do. Mark Twain's Pudd'n'head Wilson said: "Put all your eggs in the one basket - and watch that basket!" Such a philosophy emphatically does not work in stock investing - as Twain himself learned when he sank nearly all his fortune into the Paige Linotype, a machine that flopped. (James Glassman, Wash Post 11-18) The Future Net Scientists at the MIT's World Wide Web Consortium (W3C) say the future Internet will be much more interactive, enabled by a framework for computers to understand the data they display. Software agents would help computers find and understand what their human users are looking for by scouring and interpreting the Web. A new coding protocol, Resource Description Framework (RDF), would tag data to make it intelligible by computers. Such tagging involves inference rules and common definitions, something the area of artificial intelligence has been working on for some time. (NewsFactor Network, 11-13) Quick Facts, Stats & Opinions The average mutual fund investor forfeits 2.5% [they should have said 'percentage points'] of his return to taxes, according to the S.E.C. (NY Times 11-25) The Privacy Foundation at the University of Denver estimates that more than a third of the U.S. workforce with access to the Internet has e-mail messages and Web surfing regularly monitored by their employers. (Anick Jesdanun, AP via Chicago Trib 11-25) Digital cameras are capturing a growing share of the consumer market, said Michelle Slaughter, a market research analyst at the InfoTrends Research Group. And the number of digital-camera households, now at 12%, is certain to grow. Megapixel.net offers dozens of comprehensive camera reviews and picture-taking tips. Three other site for camera info: (1)www.dpreview.com; (2) www.consumereview.com; and (3) www.camerareview.com. (David Gonzalez, NY Times 11-25) About one in five of the 1,010 adults questioned nationwide over the summer by Harris Interactive, said they had not filled at least one prescription in the last year because of the cost. 14% said they had taken a prescription drug in smaller doses than prescribed and 16% said they had taken a medication less often than prescribed. The lower their household income, the more likely that people would cut corners. 40% of those in both the below-$15,000 and $15,000-to-$25,000 income categories did not fill a prescription because of the cost. 12% living in households with incomes of more than $75,000 also did not fill a prescription. (Vivian Marino, NY Times 11-25) The holiday shopping season started off with a "ho-ho-ho" for many retailers as same-store sales rose 2.4% over the same day last year, according to TeleCheck. TeleCheck's forecasts a 2% same-store sales gain for the entire 32-day shopping season. The TeleCheck Retail Index is based on a year-over-year, same-store comparison of the dollar volume of checks written by consumers at more than 27,000 of TeleCheck's 272,000 subscribing locations. (Houston Chronicle 11-24) The short-term noise of the marketplace can be muffled by the passage of time. Among the nine broadly diversified categories of stock funds tracked by Morningstar, the five-year annualized returns all fall within the range of 7.5% (mid-capitalization growth funds) to 11.6% (mid-cap value funds). For this real-life period, which included both heady spells of optimism and a long, ugly bear market, the most important question was not so much what type of fund you invested in. It was merely whether you were invested or not. (Chet Currier, Bloomberg 11-23) The latest Investor's Intelligence, a market letter that tracks investor sentiment, shows an increase in bullish sentiment to 46.9% of money managers from 44.4% last week, and a drop in bearish sentiment to 28.6% of professionals from the previous 30.3%. (Tom Walker, AJC 11-24) The current issue of The Journal of Financial Planning presents a study suggesting that the average investor's holding period for mutual funds dropped to 2.9 years in 2000 from 5.5 years in 1996. (Todd Mason, Ft Worth Star-Telegram 11-22) Occupancy rates last week for all hotel categories were down 7% from the same period a year ago, according to Smith Travel Research, which tracks the hotel industry. (LA Times 11-22) "I've spent my whole career looking under every rock for the next wave of inflation, and I've run out of rocks," says Stephen Roach, an economist with Morgan Stanley. "We're going to get a lot closer to deflation than people think." (WSJ 11-21) Ford's health-care expenses in North America for current employees and retirees have risen an average 9% a year in the past decade, to about $704 a vehicle, estimates Goldman Sachs analyst Gary Lapidus. (WSJ 11-21) Thanksgiving has come around once again, and while the family is especially conscious of all we have to be thankful for this year, one would have to be blind not to notice how less jubilant the celebration is compared to recent years. Much of the family chose to simply stay home. It seems that they've lost their enthusiasm for traveling. If the family can't be enticed to make the trip for the feast this year, we should certainly not count on seeing many packages from them under our tree come Christmas. I hesitate to say that my cousins are cheap, but they're definitely more apt to err on the side of caution this year. (Craig Thomas, Dismal.com 11-21 ) Over the past 75 years, market risk, as measured in standard deviation, has been about 20 percent. In other words, in two-thirds of the years the annual return of the S&P has fallen into a band ranging from 20 points lower to 20 points higher than its average return of 11 percent; that is, between a loss of 9 percent and a gain of 31 percent. That's still volatile, but if you invest in stocks you have to live with it. (James Glassman, Wash Post 11-18) The January effect [the tendency of small-capitalization stocks to outperform large caps during January] was more than five times larger than its average size since the late 1970's, when it was first noticed. Because small caps are also among the biggest casualties this year, there is good reason to expect the January effect to be strong in 2002 as well. (Mark Hulbert, NY Times 11-18) Dow Theory Forecasts, a circumspect newsletter, points out in its new issue that more than 40 percent of U.S. stocks trade at half their all-time high prices or less. (Washington Post 11-18) Nearly half of annual American sales of Champagne are made in the weeks from Thanksgiving to New Year's Day - a sharp contrast with France, where 60% of Champagne is consumed. (NY Times 11-18) So every fund manager is always cautiously optimistic. Even at the height of the bull market, this hackneyed phrase described most fund managers. Why? Well if they told you they expected to lose a fortune, you wouldn't invest with them. And if they told you they expected to make a fortune, their lawyers - fearing the potential suits if the fund can't deliver - would tell them to be more cautious. (Charles Jaffe, Boston Globe 11-18) "Most people don't consider eating out a luxury, so even with the slowdown in the economy, you haven't seen a big decline in casual dining," said Dennis I. Forst, a restaurant industry analyst at McDonald Investments. According to the National Restaurant Association, 46% of the money Americans spend on food is for meals outside of their homes. On average, the casual-dining companies, which offer table service and full bars, have posted earnings growth of 15% annually. Yet most trade at 15 to 18 times earnings, roughly half the multiple for the S&P's 500-stock index. (NY Times 11-18) Analysts are predicting that natural gas will be about one-third cheaper this winter than last, good news for the 55% of Americans who heat with natural gas. (NY Times 11-16) Operating capacity sank to 74.8% in October, the lowest level since June 1983, as companies throttled back production in the face of sagging sales. (NY Times 11-16) Deloitte & Touche's Web site (www.us.deloitte.com) features a free 2001 tax-planning guide. (Tom Herman, WSJ 11-14) For the last few months, the $1.3 trillion health care industry has been one of the only parts of the $10 trillion American economy that has remained healthy, and many economists now say that the sprawling health care industry may be the only driver of growth in the near term. With health care as a growth leader, the next expansion may not be as robust as the boom of the late 1990's. Spending on health care does not ripple through an economy as forcefully as new purchases of technology, housing or factories. It also does relatively little to make an economy more efficient. (NY Times 11-11) Quick Tips There are lots of extra features that you can add to your Microsoft Internet Explorer 5x installation. All you need to do is visit the Microsoft Web Accessories site and download the files. To read about these accessories go to www.microsoft.com/windows/ie/previous/webaccess/default.asp. With The NY Times Explorer bar, you can enjoy the day's top stories, news updates every 10 minutes, market information, and access to stock quotes. 27e Bloomberg Explorer bar provides customers with easy access to stock quotes and business news drawn from the Bloomberg Professional Service. (Emazing 11-15) Tips to help make your search queries return more accurate results. Use multiple keywords to limit the results. Put the words or phrases in quotations. In many search engines you can exclude words by using a minus symbol (-) in front of the word. With Alta Vista, InfoSeek and other search engines, you can put a plus symbol (+) in front of a keyword to ensure that it shows up in the results. An asterisk (*) after the keyword will search for multiple forms of the word in some search engines. (Prodigy 10-Second Tips 11-12) Are you using Windows XP yet? If so, you'd probably like to use the newest set of PowerToys (NOTE: I had not heard of PowerToys, and will let you know what they are in better detail if they are available for Windows98) from Microsoft. PowerToys of course includes Tweak UI, a utility that you never want to do without once you've used it. This new version of PowerToys also includes an Alt - Tab replacement that displays previews of the pages from which you want to select. This is a really helpful feature when you have more than one session of an application such as Microsoft Internet Explorer open. Just go to http://www.microsoft.com to get your free PowerToys! (Emazing 11-15) Home Page Previous Factoid Top Sites |
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