|
There's a misunderstanding and mismarketing of cash-management funds and other money-market type products. Further, even among true money-market mutual funds, there are some significant variations in risk. Money-fund alternatives such as "stable value" funds, ultrashort bond funds or commingled portfolios sometimes known as cash-management or enhanced-cash funds, all offer unique features, which can mean less protection. A rule of thumb: An investor can look at a fund's 12-month yield and fees. If both are high, the fund likely is taking on extra risk to get the better return. Money-market mutual funds are required to keep at least 95% of their assets in the highest quality debt obligations. Furthermore, these funds are allowed to invest no more than 1% of their assets in debt from any single issuer with a less-than-top credit rating, according to Rule 2a-7 of the 1940 Investment Company Act. These are low risk, but returns are low and may not keep up with inflation. Money-fund yields have dropped sharply in tandem with other short-term interest rates this year, to an average compound seven-day yield on taxable funds of 1.73%, according to iMoneyNet. As a result, some funds have been aggressively marketing themselves as "money-market-plus" vehicles that try to deliver added yield. Most of these, however, are more like short-term bond funds, which may invest in debt with a duration of one to three years. Such longer-duration investments introduce more risk, especially if interest rates rise. Ultra-short bond funds are mutual funds that invest at least 65% of their assets in investment-grade debt and carry a dollar-weighted average maturity of between 91 and 365 days. Downside Risk: Funds may dabble in lower-grade debt or take interest-rate risks. Stable value funds are fixed-income portfolios that invest in instruments, including insurance-company-guaranteed investment contracts, that aim to deliver attractive yields without principal fluctuation. But their price stability depends on the credit quality of the financial institution putting together the stable value portfolio. The BP money-market portfolio was investing all of its assets in Brinson Trust Co. U.S. Cash Management Fund. The two Enron loans in Brinson's portfolio were one grade below the highest quality, meaning the most a money-market mutual fund could have invested in them is 1% of assets. The Brinson fund, which is offered in the 401(k) plans of several other companies, had 2% of its assets in Enron paper. Money-market update Bridget O'Brian, WSJ 11-30 Yields on money-market mutual funds are at their lowest levels ever. AND - high fees on many money funds reduce their yields to the point that investors in those funds are getting next to nothing on their cash. "We've never seen a money fund with a yield of less than 1%, up until this year," says Peter Crane, vice president and managing editor of iMoneyNet. As of Wednesday, there were 105 retail money funds offering yields of 0.99% or less. The average money-market fund has annual expenses equal to 0.47% of assets. Fee waivers are common in the money-fund business, with 56.1% of funds waiving at least a portion of their expenses as of September, says iMoneyNet. Among very large funds, Vanguard Prime Money Market Fund is yielding 2.36%, with expenses of 0.33%, says iMoneyNet. Similarly, Merrill Lynch CMA Money Fund pays out 2.45%, and has 0.55% in expenses. And the Fidelity Cash Reserves is yielding 2.26% with charges of 0.40%.
Increases in medical-care prices are largely a reflection of industry consolidation and demographics (an aging population). Rents, the largest component of shelter costs, `are responding with a usual lag to vigorous house-price appreciation in recent years,' says Henry Willmore, senior U.S. economist at Barclays Capital Group. In a study last year, Willmore found that over the last 25 years, the average increase in the housing price index (an index of repeat sales from the database of the Office of Federal Housing Enterprise Oversight, one of Fannie Mae and Freddie Mac's regulators) has matched the increase in shelter costs: 5.7% versus 5.6%, respectively. `I don't think it's coincidental,' Willmore says. `And the HPI leads the move in shelter prices by a year.' Given that the HPI started to post annualized quarterly increases of 9 and 10 percent in 2000 and was still rising at 7% in the third quarter, `the rent components (of the CPI) are apt to put additional pressure on shelter costs,' Willmore says. `We could see shelter costs hit 5%.' Already the two rental components - owners' equivalent rent and residential rents - are rising at 4.5% on a three-month annualized basis.
The case brings up a 1993 Supreme Court decision, Mertens v. Hewitt Associates, that says beneficiaries can't seek money damages. Mertens gives employers and fund managers room for error, says Henry Saveth, a New York attorney for consulting firm William Mercer. "But to the plaintiffs' bar, it seems monumentally unfair," he says, adding that attorneys "have poked at it, hoping to break through." Mutual Fund Groups vs the S&P 500 Index Scott Burns, Dallas Morning News 12-11-2001 [The table below takes the average return of a fund family and subtracts that from the average return of the S&P 500 index to get a return difference. A positive return reflects that the fund family beat the S&P index over that time period.] Only three fund families provided an average return higher than the S&P 500 index. Of the remaining funds, only four fund families provided an average return that recouped a portion of their expenses. Bottom line: You can have fun playing mutual fund roulette, sometimes winning big in the first year. But if you stay in the Casino picking funds for a long time, the house collects fees - and you lose return.
SOURCE: Morningstar Principia Pro, October 31 data
That's not exclusively our view. It's also the view of Fred Hickey, probably the best informed and undoubtedly the savviest observer of the tech scene we've run across. Fred puts out the estimable monthly commentary entitled the High Tech Strategist. He thinks the current upsurge in techs is built strictly on hype and hope. What's lacking, Fred observes, is any solid basis for optimism. The supposed signs of a pickup in personal computers and chips are strictly a case of wish fulfillment. A modest inventory build-up on the part of producers, vendors and component makers in advance of the intro of Microsoft's Windows XP, a build-up also encouraged by concerns about the effects of September 11 on deliveries as well as replacement demand for equipment lost in the Attacks, has been foolishly mistaken, he says, for the start of a rebound. He points to the miserable demand for PCs at the retail level (see Best Buy and Radio Shack), limp business on the distributor end and weak demand in Asia (Japanese computer sales are down 20%), as indicative of the true state of the computer market. And he expects things to get worse in the months ahead. The big hope for a revival of PC demand - Microsoft's Windows XP - has the makings of a fair-sized bust. In its first week on the market, sales trailed Windows 98's initial week's sales. Second-week sales of XP plunged 38% from the first week's level, followed by a 50% drop in the third week. It may be a little early, Fred opines, to get aggressively negative on the techs. But it's sure not too early to be skeptical as all get-out.
A study conducted by Chicago-based Aon Consulting, a human resources consulting firm, and Georgia State University, found average spending for consumption declines very little in retirement. The two big falloffs in expenses are from taxes and saving. Most other costs remain very much as they were during employment. For a one-earner family of a retired wage earner aged 65 and a spouse aged 62 and a pre-retirement income of $50,000, overall spending declines only $603 a year in retirement. Social Security benefits for low-income people generally are not subject to federal income taxes. As a result, middle-income retirees would generally see their taxes drop drastically as payroll taxes click off and a big chunk of their remaining income becomes exempt from income tax. It is this decline - along with the assumption that retirees stop saving - that accounts for most of the falloff in outlays in retirement. The study uses data from the BLS' consumer expenditure survey, which has data on some 5,000 working singles and families and more than 3,000 retirees. The study was first done in 1988 and has been repeated over the years; the current version is the fifth. Among the study's findings: * Post-retirement spending is rising, so the replacement ratio at most income levels is rising. In the previous study, in 1997, a couple with pre-retirement income of $60,000 could maintain their standard of living on 67% of that amount - the two-thirds in the planners' rule of thumb. The new study puts the level at 75%. * Saving by active workers as a percentage of income is declining. In the 1997 study, a $60,000-a-year couple aged 50 to 64 and earning $60,000 was saving an average of 5.1% of income. Now it is 4.2%. And a $50,000-a-year couple's saving has dropped to 3.7% from 5.1%. Only a $90,000-a-year couple continued to save at the same 5% rate. And that was for the 50-to-64 age group. Saving among younger high-income people also is sliding. * Low-income and high-income workers need more retirement income relative to pre-retirement income than do those in the middle. In both cases this is because of taxes. Lower-income workers pay lower taxes, so when they stop having to pay them, their expenses don't fall all that much. A one-earner couple with pre-retirement income of $20,000 a year would need 83% of that income to maintain their standard of living in retirement. Likewise, a couple with pre-retirement income of $150,000 would need 85% of that amount to maintain their standard of living. * Singles at higher incomes face much higher taxes in retirement than couples. The thresholds for taxation of Social Security benefits are lower, and, of course, the income tax brackets rise more rapidly than for a couple.
* Automatic enrollment for all employees. * Automatic start-up with a significant employee contribution. It should capture the full company match. Typically, this would be a 6% contribution with a 50% match. This is an effective savings rate of 9% of pay. * A default investment choice to a managed diversified plan. Encourage the use of index investments and portfolios composed of index investments. * Require that companies bear all plan costs or that they be capped at no more than 1% a year. This would force down fees. * Replace hardship withdrawals with hardship loans. The long-term impact of hardship withdrawals is devastating. Not mentioned in the study, but also necessary, is the elimination of company stock as the employers' matching contribution. Limited employer contributions of company stock is reasonable for companies that offer both a defined benefit pension plan and a 401(k) plan, but it is inappropriate for companies whose only retirement vehicle is a 401(k) plan.
Still there are already hints of trouble to come. In two government loan programs for lower-income borrowers, one run by the FHA, the other by VA, the delinquency rates in the third quarter were 11.36% and 8.11%, respectively. The delinquency rates were also high in a category of mortgages known as subprime, high-interest loans made to borrowers with poor credit histories. In the early 1990s subprime lending barely existed in the mortgage market. Last year subprime lenders made $160 billion worth of home loans, a blend of new mortgages and refinancing. The loans, which are heavily concentrated in minority neighborhoods, typically carry double-digit interest rates to compensate for the higher risk. As of September, 7.1% of subprime mortgages were at least three months in arrears, up from 5.5% at the beginning of the year, according to LoanPerformance, a San Francisco research firm. Subprime 'Abuse' John Hechinger, WSJ 12-7 With interest rates near historic lows, millions of Americans are refinancing their home mortgages to reduce their monthly payments. But federal officials and advocates of low-income housing are worried about those on the bottom rung of homeownership who are doing just the opposite: trading in sweet mortgage deals (from government programs and private affordable-housing programs run by the likes of Habitat for Humanity) for higher-cost debt. After hearings last year on home-lending practices, the Federal Reserve Board proposed a rule designed to discourage refinancing of no-interest or low-interest loans in nearly all circumstances, for the first five years of a mortgage. Consumer activists say the ban should be longer than five years. Some of these lenders and brokers say consumers benefit by consolidating their debts. They also argue that the refinancings can lower total monthly payments for consumers with very large credit-card bills because the interest rates on the new mortgages are lower than on credit-card debt - which can top 20% a year. At Neighborhood Housing Services of Chicago, program-development director Rochelle Nawrocki says 20 of its 219 zero-interest loans made since 1994 have been refinanced. In North Carolina, the Coalition for Responsible Lending, a group of credit unions, community activists and churches, determined that 10% of Habitat loans made from 1987 to 1993 through major North Carolina chapters had been refinanced into high-rate loans by 1999. This summer, the Senate Banking Committee held hearings on what it calls "predatory lending," including the refinancing of loans made to low-income borrowers at low rates. At the hearings, the Coalition for Responsible Lending reported 23 different companies involved in Habitat refinancings. Subprime 'Abuse' Part 2 Dawn Kopecki, WSJ 11-14 Minority home buyers are increasingly trading in their low-cost mortgages for high-interest, subprime financing even when their credit is good enough to qualify for a grade-A loan, according to a study released Wednesday by the Association of Community Organizations for Reform Now or ACORN. The number of subprime purchase loans to African American home buyers increased sevenfold from 1995 to 2000, while the number of grade-A loans to minorities dropped 2.5% during the same period. "Too often these higher rate loans are also loaded with abusive features - high fees, large and extended prepayment penalties, financed single premium credit insurance - which cost borrowers even more money and can lock them into the higher rates," states the report titled "Separate and Unequal, Predatory Lending in America." The affordable housing group analyzed 2000 mortgage data compiled from more than 7,800 institutions by the Federal Financial Institutions Examination Council. The study finds that minorities and low-income borrowers with conventional mortgages refinanced those low-interest loans with costly subprime lenders at a disproportionately higher rate than affluent or white homeowners. ACORN's research found that about half of the African Americans who refinanced their mortgage in 2000, did so through a subprime lender. The same was true for about 26% of Latino homeowners and 18% of white borrowers who also refinanced that year. An August 2001 report by mortgage financier Fannie Mae estimated that as many as half of all borrowers in subprime loans could have qualified for a lower cost mortgage. More than two-thirds of all subprime loans written in 2000 were used to either tap home equity or refinance an existing mortgage. The Coalition for Responsible Lending in North Carolina estimates that predatory loans cost U.S. consumers about $9.1 billion a year in lost equity and overcharged interest payments. FRB to the Rescue John Hechinger, WSJ 12-13 The Federal Reserve Board approved measures designed to curb abusive mortgage lending to poorer Americans. But regulators rejected a proposal to restrict one practice that consumer groups had widely attacked: the refinancing into high-rate mortgages of low-interest home loans granted to low-income borrowers by government and nonprofit agencies. Among practices the central bank prohibited in most cases is the refinancing of these high-cost loans within the first year of the mortgage. The Fed also lowered the threshold of fees and interest rates that would trigger disclosure under the Home Ownership and Equity Protection Act of 1994, or Hopa. Such upfront disclosures often deter loans from being made. The lower threshold also effectively curbs lenders from levying prepayment penalties that often lock borrowers into high-interest loans. More on HOPA Kathy Kristof, LA Times 12-13 HOPA's protections are focused on providing clear disclosures of loan costs, terms and fees. The law also prohibits certain practices, including extending credit to borrowers who do not have the ability to repay. (Some consumer advocates maintain that the worst predatory lenders make loans with the intention of foreclosing.) The Fed's action Wednesday would strengthen this prohibition by requiring lenders to verify and document the borrower's income. If the lender does not maintain this documentation, regulators can assume that the loan violates the law.
With their backs against the wall and the economy in recession, companies are trying to produce profits the only way they can - by cutting costs. And labor is far and away the biggest input cost for business. By now everyone has read or heard that the unemployment rate is a lagging indicator, which means it tags along after the business cycle. History suggests that the unemployment rate posts large increases near the trough of business cycles, according to Northern Trust director of economic research Paul Kasriel. `It's a catharsis,' Kasriel says, referring to the capitulation by employers, which is typical in the final month or months of a recession. (The recently unemployed may not see it that way.) The unemployment rate rose 0.4 percentage point in November 1982, 0.5 percentage point in March 1975, 0.4 percentage point in November 1970, 0.3 percentage point in February 1961 and 0.7 percentage point in April 1958 -- all of them trough months of their respective recessions. For some, that was confirmation that the economy is really going nowhere fast. But Steven Wieting, an economist at Salomon Smith Barney, says `the severity of the production collapse this year is more likely to promote an earlier rather than later recovery in 2002.' Wieting estimates that inventories `fell in excess of $100 billion in Q4, an unsustainable decline in light of relatively solid demand.' More on Employment John Berry, Washington Post 12-14 There were signs that some of those without jobs were finding new employers. The total number of benefit recipients rose to almost 4 million by the middle of last month before falling to 3.62 million late last month and rising modestly to 3.66 million in the week ended Dec. 1. Meanwhile, the so-called insured unemployment rate - the share of workers covered by unemployment insurance who have lost their jobs - fell to 2.8% from a recent high of 3.1%. And More on Employment Rebecca Thomas, Smart Money 12-13 Some of the drop in claims last week may be the result of seasonal-adjustment quirks, rather than true economic conditions, according to UBS Warburg economist Jim O'Sullivan. In making its calculations, the Commerce Department adjusts for layoffs that typically occur when the winter approaches. But because temperatures have been unusually warm in recent weeks, these adjustments may have artificially skewed the claims figures downward. "If claims were to continue going down, this would be a very positive sign going into the first quarter," says O'Sullivan. "But for now, I'm inclined to say that the claims number reflects volatility, in part because of weather effects, more than actual improvement."
The 1.8-point increase in the unemployment rate since October 2000 is already worse than the 1.4-point increase registered during the 1990-91 recession, but significantly smaller than the four-point jump experienced during the 1975 and 1982 contractions. Factory employment dropped for the 16th consecutive month, falling by another 163,000 and bringing the total decline since July 2000 to 1.4 million. Service industries Ù which include temporary workers, retailers, government workers, travel-related businesses and the like Ù cut jobs for a third straight month, letting go 164,000 workers in November on top of the 327,000 dismissed in the previous month. Somewhat reassuring was the six-minute increase in the length of the average workweek, to 34.1 hours. In the typical business cycle, the number of hours worked increases before employment grows, since businesses are initially reluctant to resume hiring as demand accelerates. Average hourly earnings rose by 0.3%, or two cents, after inching up by just 0.1% in October. At an annual rate of 3.9%, wage growth hasn't significantly deteriorated from the 4.3% annual rate recorded in the same quarter a year ago. While rising wages aren't good for corporate profits, they help prop up consumer spending. The news dashed hopes that the economic recovery was at hand. "We have no reason to believe the economy's stabilizing," says Pierre Ellis, managing director and senior international economist at Decision Economics, a consultancy. "Things are still falling apart." Bruce Steinberg of Merrill Lynch, one of Wall Street's most bullish economists at one time, echoed that sentiment. "Those who mistakenly believed that the recession was nearly over just got a rude wake-up call." GDP is on track to contract by 1.5% to 2% in the current fourth quarter, according to Wachovia Securities economist Jay Bryson. And although the pace of layoffs is likely to slow in coming months, Merrill's Steinberg says, "hundreds of thousands of more jobs probably need to go" to restore corporate profitability. A majority of economists say the jobless rate, which typically rises even after the economy has stabilized, is probably headed toward 6.5% by mid-2002.
This summer, Florida announced that drug companies participating in its lucrative Medicaid program would need to provide special rebates. Maine restricted Medicaid access to expensive drugs while separately threatening companies with price controls if they didn't offer discounts to residents who don't have drug coverage. And Friday morning, Michigan plans to release a list of mostly lower-priced drugs that will receive preferential treatment from state health programs, in the most aggressive move yet to force concessions from drug makers. The changing climate began as the economy sputtered early in the Bush administration, drying up states' tax revenues. This forced them to confront the escalating cost of pharmaceutical drugs under Medicaid, a federal- and state-funded health plan for the poor and disabled. States collectively are forecast to spend around $25 billion buying Medicaid drugs during the current fiscal year. Last year their purchases represented about 12% of total industry sales. In July, Florida became the first state since federal Medicaid laws were overhauled in 1990 to extract additional price concessions from drug makers. Instead of taking as a starting point the prices offered to companies' most-favored customers, the Michigan experiment seeks to drive all prices down to a low common denominator. A similar movement in Europe, known as "reference pricing," has savaged drug-company profits there. The selected drugs will be guaranteed a handsome slice of the state expenditures in both Medicaid and a state-funded program for the elderly. Doctors can prescribe drugs that aren't on the list but only after justifying their decision in a call to a phone bank of pharmacy technicians - a requirement expected to discourage use of those drugs. Thus, all companies wanting to sell drugs under these programs risk losing market share unless they agree to slash prices to also win a spot on the preferred list. Drug makers complain that the program is flawed because bureaucrats lump old and new drugs together, declaring all medicines in a given category to be equivalent. This thwarts industry efforts to differentiate their newest wares -- and, they say, gives them little incentive to spend money on research and development. Florida expects to save at least $100 million this fiscal year. At the same time, sales to Medicaid of several drugs not on Florida's preferred list have plummeted: The share of AstraZeneca's heartburn drug Prilosec in Florida's Medicaid market dropped to 4% from 38% in the first three months since the preferred list went into effect, while Prevacid, from TAP Pharmaceutical, saw its share rise to 65% from 43% over the same period. Drug companies worry that out of sheer habit doctors will be more likely to prescribe Medicaid-preferred drugs to their non-Medicaid patients, as well. At Miller Drug of Bangor, Maine, which fills more than 1,000 prescriptions per day, pharmacists say they're seeing just such a trend. Faced with Medicaid and other state-funded drug costs that doubled to $1.1 billion over the past two years, state health officials needed to find $42 million to plug a hole in their new budget and find some way to control escalating pharmaceutical costs long term. Rx Loophole Tara Parker-Pope, WSJ 12-7 A Texas court battle has highlighted a surprising loophole in federal law that allows some prescription drugs to be marketed without ever having been approved by the FDA. The unapproved prescription drugs include hormone-replacement therapies, prenatal vitamins, and many cough and cold medicines. Most of the drugs are widely accepted by the medical community, but a few have been accused of harming patients. All new prescription drugs must be approved by the FDA, but some use ingredients that have been on the market for years - some predating laws of safety and effectiveness enacted 40 years ago. Drug makers operate under the assumption products made from these ingredients are approved. The result is a loophole that allows companies to copy old drugs and market them without undergoing any of the tests or studies normally expected of a prescription drug. In the Texas case, one of the unchecked drugs was alleged to have caused a burning pain on some patients. The case involved a dispute between Healthpoint, the maker of Accuzyme, a prescription wound-care product, and Ethex, which introduced a similar drug called Ethezyme. Both drugs are copies of an old drug that contains the enzyme papain-urea, and neither firm has sought FDA approval. This past fall, a jury for the U.S. District Court in San Antonio decided Ethezyme had been falsely advertised and promoted as a generic substitute to Accuzyme and awarded $16 million in damages to Healthpoint. The trial highlighted how little is required of drug makers operating inside the FDA loophole. Patients can go to www.fda.gov and click on "drugs" to find out whether a prescription brand or generic drug is listed in the FDA Orange Book. If the drug or active ingredient is not listed in the book, it hasn't been approved. Consumers may be surprised how many common drugs aren't found in the book. Rx Abuse Tara Parker-Pope, WSJ 11-30 Pediatricians have long struggled to lessen parents' dependence on antibiotics to treat common childhood illnesses. Most ear infections and sore throats are viral anyway and shouldn't be treated with antibiotics. Nonetheless, about 40% of the time a child visits the doctor, they leave with a prescription for antibiotics. A 1996 Journal of Family Practice study found that 60% of children with common colds are treated with antibiotics. And once antibiotics are prescribed, doctors estimate that as often as 50% of the time, the entire course isn't finished, resulting in a stockpile in the house for parents to turn to later. While antibiotic misuse leads to the broader problem of creating antibiotic-resistant bacteria, it also can lead to recurring bouts of illness in children who don't finish their medicine. Also of great concern is the fact that giving stockpiled antibiotics can make it extraordinarily difficult to diagnose an illness. One study in Taiwan found that doctors were twice as likely to misdiagnose patients who had already begun taking antibiotics before a visit. Against that backdrop, as many as six million people now have reportedly stockpiled Cipro and doxycycline as a result of anthrax fears. If parents follow their typical pattern and turn to whatever antibiotics they have at home to treat a child's ear infection or cough, they are now risking even more serious health problems. Doxycycline, like other tetracycline-based drugs, isn't generally recommended for children under eight years old. According to the FDA, the drug can cause swelling of the brain and a bulging of the soft spot on the head of an infant. Tetracycline can also cause permanent tooth discoloration in children. Cipro, like other fluoroquinolone drugs, generally isn't recommended for anyone under the age of 18 because of possible damage to growing bones. In studies of beagle puppies, fluoroquinolones have been linked to severe joint and bone damage.
The amount of expense, or profit, that companies report from their pension systems are not based on the actual profits earned by investments in the pension fund. Instead, companies report profits as if the pension investments earned what was assumed when the year began. Many companies assume they will make 9% or more on pension investments, with some forecasting more than 11%. Whether pension plans will earn those returns over the long term is debatable. A survey by Bear Stearns shows that in 2000 the median company in the S&P 500 index assumed that its pension assets would earn 9.2%, with some much higher. In fact, the average return was 5%. That means corporate profits were overstated in 2000. If companies are assuming similar returns now, as Patricia McConnell, the Bear Stearns accounting guru, says is likely, there are more overstatements this year.
What prompts these thoughts is recent discussion of a practice known as `revenue sharing,' in which a fund company pays a broker or other intermediary for inclusion on the broker's short list of funds to push. `It's like a supermarket,' says Arthur Levitt, former chairman of the SEC. `Mutual fund companies have to pay to get shelf space.' Nothing illegal about this. Trouble is, the best interests of the clientele can get lost in this competitive scramble. Investors have to wonder whether the funds on any broker's recommended list made it there on the strength of their money-management prowess, or simply bought their way in. For a while in the 1970s and '80s it looked as though investors, gaining in awareness and confidence, were migrating to no-load funds. Then in the '90s the trend reversed, as people apparently concluded it was better to get professional advice. While you can delegate authority over choices of what should be done with your money, you can't delegate the responsibility. Once you bring in a hired hand to watch over your finances, you must watch the hired hand. These days, that means asking how your broker's `select list' of funds was chosen. Don't exclude `no-load' funds in this skeptical scrutiny. They pay listing fees to discount brokerage firms. While loads tend to be smaller now, other ways of charging for distribution have sprung up to fill the gap. Example: 12b-1 fees, which many fund companies (including numerous `no-load' firms) collect from existing shareholders to pay for the marketing costs of attracting new ones. While you're at it, look at your employer's 401(k) retirement savings plan too. Ask how the funds it offers were picked from among the thousands available. As a general rule, keep an eye out for conflicts of interest on every piece of advice you receive.
As a conservation measure, said Pietro Nivola, an economist at the Brookings Institution, CAFE standards did not work well because the requirements were "aimed at the vehicles, not at the consumer." "They're basically aimed at redesigning vehicles, specifically new vehicles," he added. Regulating new-vehicle mileage has little effect on gasoline consumption for two reasons. First, any increase in fuel-efficiency requirements takes a long time to make a difference on the road. Higher standards affect only new cars, which make up about 7% of registered vehicles. The second, and more serious, problem with the regulations is that better gas mileage encourages people to drive more. You can go farther for the same amount of money. Or you may be able to buy a larger car and get the same mileage. Either way, total consumption does not change much. In the 1980's, when CAFE standards were fully in force, the number of vehicle miles traveled by Americans "climbed as steeply as ever, at almost four times the rate of population growth." And when fuel prices dropped after 1981, drivers traded in their small cars for larger models. When oil is short, prices rise and Americans cut back on their driving. The response is immediate, not delayed by a four-year car design cycle. Instead of regulatory mandates, economists generally prefer a gasoline tax. In a response to Mr. Kennedy, for instance, N. Gregory Mankiw, a professor of economics at Harvard, suggested a gasoline tax coupled with income tax cuts. Dr. Nivola suggests offsetting a gas tax with payroll tax reductions. A tax would allow consumers to make their own decisions about whether to respond to higher prices by buying more efficient vehicles, driving less or economizing elsewhere. "I don't know of any other major industrial country that resorts to command-and- control regulations, rather than the price incentive, to conserve oil," Dr. Nivola said. [NOTE: It is a rare day that I post an article in favor of tax increases.] More on CAFE Joseph White, WSJ 12-10 According to a recent report by the American Petroleum Institute (available at www.api.org), average pump prices for gasoline in the U.S. are now 56% lower than the record high, set in 1981, of $2.64 a gallon, adjusted for inflation. Indeed, inflation-adjusted gasoline prices are near the record low point for any time during the past 82 years. Given that, it's a tribute to the frugality and community consciousness of Americans that anyone at all is buying a small car, or even pays lip service to the idea that a V-8 powered, 345-horsepower Cadillac Escalade is in bad taste because of its gluttonous appetite for gas. Sales of all SUVs and sport wagons were up 15.2% in November despite the recession. GM and Ford can't afford to forego any of this demand, especially now. We are shocked, shocked to discover that GM and Ford are certifying all kinds of vehicles as "flex-fuel" models that can burn either gasoline or ethanol - or even propane - and taking fuel-economy credits for doing so even when everyone knows almost no one will use anything but gas. This is a surprise? All that said, it is high time the auto makers took a different approach to the calls for better fuel economy than just saying no. Ford has famously declared that it intends to improve the fuel economy of its SUV fleet by 25% by 2005. Look for GM next year to start rolling out V-8 truck engines that drink less gas because they can automatically shut off cylinders when the truck is just cruising. Detroit's track record is clear: Absent high gas prices and a strong regulatory push, American car makers don't make serious efforts to improve fuel economy. It's not because they're bad people - it's because they are convinced American consumers won't pay for the investments and the technology required. Even today, as they hype their prototype fuel-cell vehicles, auto-industry executives say in the next breath that fuel cells cost so much they aren't likely to make economic sense until sometime in the next decade. Gas Gluttons Selling like Hotcakes Norihiko Shirouzu, WSJ 12-11 Detroit car makers plan to come out next year with a new generation of large SUVs that feature more-luxurious interiors, a better ride, fresh exterior styling and bigger engines. As gas prices have hit their lowest inflation-adjusted levels in decades, customers have been snapping up today's oversized SUVs, including the Chevrolet Tahoe and Suburban, Cadillac Escalade, Lincoln Navigator and Ford Expedition. Ford has improved fuel economy by about 1.5 mpg for the 5.4-liter V8 engine that will be used in the redesigned Expedition and Navigator. The current 5.4-liter engines get 12 to 13 mpg on city roads and 16 to 18 mpg on freeways. Ford says as many as 70% of Expedition buyers choose the optional 5.4-liter V8 engine, even though they sacrifice fuel economy and have to dish out an extra $700 for it.
It was the third time in a year that each forecaster had lowered estimates for ad spending as economies in important markets like Britain, France and Germany deteriorated almost immediately after marketers started cutting ad budgets in the United States. Their estimates are in line with others made recently as the advertising industry searches for signs of a recovery after a miserable year. Ad spending is usually watched carefully as an indicator of the strength - or weakness - of the economy. Mr. Coen, senior vice president and forecasting director at Universal McCann, said worldwide ad spending this year will fall 1.7% from 2000, to $456.1 billion from a record $463.9 billion, bringing the first global decline in advertising "since the World War II days." In the US, Cohen estimates ad spending in 2001 of $233.7 billion, down 4.1% from $243.7 billion in 2000. This would be the first decline since 1961 and the largest decline since 1938. Overseas, he expects ad spending of $222.4 billion, up only 1% from $220.2 billion in 2000. For 2002, Mr. Coen is predicting a worldwide total of $466.1 billion, up 2.2% from 2001. That breaks out as follows: United States ad spending of $239.3 billion, up 2.4% from 2001, and overseas ad spending of $226.8 billion, up 2% from 2001. Two factors that will stimulate ad spending in this country in 2002, Mr. Coen said, are the Winter Olympics in Salt Lake City and the competitive Congressional races next fall. As a percentage of GDP, Coen said, ad spending, which reached a record 2.45% last year, will fall to 2.28% in 2001 and 2.27% in 2002. Mr. Perriss said that "better times" would arrive "from the back end of 2002 going into 2003." After a decline in worldwide ad spending this year of 3.4% from 2000, he added, there will be a slight increase in 2002, of 0.8%. Mr. Perriss's forecast differs from Mr. Coen's in that Mr. Perriss estimates there will be two consecutive years of declining ad spending in the United States, with decreases of 6% this year and 1.5% next year. Mr. Perriss then forecasts increases of 1.6% in 2003 and 4.3% in 2004; Mr. Coen made no predictions beyond 2002. Jack Myers, chief economist at Myers in New York, which publishes media and research newsletters, now estimates American ad spending this year will fall 6.8% from 2000, rather than 6.6%, and fall 5.7% in 2002, rather than 6%. For 2003, he predicts an increase of 1.2 %, and for 2004, he predicts an increase of 3.5%. More on Ad Spending Matthew Rose, WSJ 12-4 The terror attacks have made what was already a severe advertising downturn even worse. Everyone dependent on advertising has been hit, but for magazines, the turnabout is stunning. Their numbers surged during the fat years, unlike newspapers and television stations. In the late 1990s, roughly 1,000 magazines a year were launched by optimistic publishers buoyed by ad growth that looked as if it would never end. But since summer, the ax has been falling on newer publications and even on some as established as Cond‚ Nast Publications Inc.'s Mademoiselle. Higher costs for distribution and winning subscribers have made things worse. The industry is in turmoil, with magazine executives calling today's climate the worst since World War II. The Price of Success Frank Ahrens, Washington Post 12-4 Since the Sept. 11 terror attacks, Internet news sites have been hot commodities. Viewership for many of these sites doubled; some sites' tallies rocketed into the tens of millions. Which doesn't necessarily turn out to be a good thing, as a surprise round of layoffs yesterday at MSNBC.com illustrated. They were caused not only by a plummeting advertising market, but also - paradoxically - by MSNBC.com's success in attracting viewers. In August, about 10 million Internet users clicked on MSNBC.com. In September, that number rose to more than 23 million, the site's best-ever month. This ought to be good news, but each additional viewer needs additional bandwidth, and bandwidth costs money. Typically, companies pay a network flat rate for a set amount of bandwidth each month. If the site gets a surge in viewership, bandwidth soars over the set rate, and additional fees are incurred. Further, MSNBC.com and other news sites responded to the Sept. 11 attacks by posting great volumes of content on their sites. Content is stored on computer servers, and that costs money. Much of the content was multimedia - streaming video and audio of the attacks - which costs more to display than simple text. Finally, there were incidental costs: Companies hired to count visits to an Internet site charge more as viewership rises. One MSNBC.com source said the cost of streaming video alone pinched the Web site for an additional $1 million not accounted for in pre-Sept. 11 budgets. Net Ad Spending Falls LA Times 12-5 The Internet Advertising Bureau said Q3 revenue totaled $1.79 billion, down from $1.97 billion a year earlier and $1.87 billion in the Q2. Year-to-date online advertising spending stands at $5.55 billion, down 8.4% from the first three quarters of 2000. Online Spending Rises Investor's Business Daily (via EduPage), 11-29 Online sales grew 8.3% year over year last quarter, at a time when overall retail sales dropped 2.6%, according to Commerce Department figures. This gives evidence that the e-commerce sector is more resistant to downward economic pressure than other retail sectors. Nielsen//NetRatings and Harris Interactive have published another report that shows significantly greater growth than the Commerce Department because they included online travel sales, auctions, and event ticket sales, which are not considered retail by the government. That study showed Q3 e-commerce sales 60% higher than the same period last year, up to $16.3 billion from $10.3 billion.
But what saves the day for the U.S. is the availability of high-quality numbers on inventories. So what actually got produced can be "backed out" from spending and inventory figures. In the third quarter, the inventory reduction "took out" 0.8% from GDP growth. In plainer English: An increasing proportion of sales has been coming from goods off the shelf instead from current production, and GDP has been hammered as a result. More on Inventories Caroline Baum, Bloomberg 12-4 The swing in inventories from Q4-00 to Q1-01 - an absolute $70 billion - was one of the largest in history. It nicked 2.6 percentage points from first-quarter real GDP growth. Inventories were pared in the Q2 and Q3 as well, and are expected to fall by some $100 billion in the current quarter. `The level of inventory building is more than $100 billion below where it would be in normal times,' says Jim Glassman, senior economist at J.P. Morgan Chase. `Even in an atmosphere of modest demand, businesses need to grow inventories at a $25 to $40 billion pace.' [NY Times 11-30: "People are waiting for a sharp inventory rebound next year and this ($60.1 billion Q3 drop) supports the case for this happening sooner rather than later" said Kary Keahey, senior economist at Deutsche Banc.]
Credit cards still account for most big-ticket purchases, and their use remains far greater for transactions outside of stores. A recent study by the Federal Reserve found that credit cards account for about 15 billion transactions a year - representing about $1.23 trillion - compared with 8.3 billion for debit cards, representing $348 billion. Whenever a shopper makes a purchase with a Visa- or MasterCard-branded debit card, the retailer pays a transaction fee ranging from 15 cents to 50 cents, and the bank receives a cut of that. Moreover, the more shoppers use debit cards, the less they write checks, which are costly for banks to process. For consumers, debit cards offer a way to conveniently make purchases without running up debt. But there's also a big negative for consumers: A debit card offers less of a shield against fraud than a standard credit card. In the case of a lost or stolen credit card, the legitimate holder can simply refuse to pay for transactions fraudulently charged against it. But in the case of a debit card, the cost of fraudulent purchases comes straight from the holder's checking account, which can cause checks to bounce and wreak havoc on the holder's financial life. Banks offering a Visa debit card say it offers similar fraud protection. But that reimbursement can take days, even weeks, and in the meantime the consumer can be deprived of vital funds. A second negative: a daily purchase limit, often of about $500.
Today, with stocks so richly valued, it is hard to imagine that we will see p/e multiples expand further. Indeed, it seems more likely that P/Es will contract. Meanwhile, rather than collecting 4.3% from dividends, we are looking at yields of 1.4%. That leaves us banking on earnings growth, which historically has run at just 1.7 percentage points a year faster than the 3.1% inflation rate. If earnings kept growing at that clip while dividends added 1.4 percentage points a year, that means investors would earn just 3.1% a year more than inflation - far lower than the 7% a year historical average. Thus, if inflation clocked in at 2%, stock investors would earn only 5.1% a year. The good news is, there is a decent chance that earnings will grow faster than they have historically. Increasingly, management is hanging on to earnings, rather than paying them out as dividends, and those reinvested profits should translate into faster earnings growth. But it is highly unlikely that profits will grow fast enough to get annual stock returns into double digits. Moreover, there is a risk that we could see P/Es contract, so that returns are far lower than they have been historically. The bottom line: I wouldn't bet on stock-market returns much above 8% a year for the next decade.
'Nature is so varied and so complex that we have a hard time drawing valid generalizations from what we observe,' writes Peter L. Bernstein in his 1996 book 'Against the Gods: the Remarkable Story of Risk.' 'We use short-cuts that lead us to erroneous perceptions, or we interpret small samples as representative of what larger samples would show.' Such error is what allows us to swerve our SUVs blithely in and out of 75-mile-an-hour traffic on the Interstate, while quaking at the thought of sitting on a commercial airline. We think this way even though the odds of a fatal mishap may be as much as 30 times greater on the highway than on the plane. If people had a good grasp of comparative risk, you'd never read a story like the recent Crain's New York Business report that 'illegal drug use is on the rise in New York City in one of the more unexpected kinds of fallout from the attack on the World Trade Center.' Over time drug and alcohol abuse is a far likelier bet to undo you than terrorism. As this kind of 'make the world go away' response demonstrates, emotion routinely overrides reason when we must calculate risks. We've seen emotion rule quite often in financial markets lately. Though that may sound disheartening, the simple observation could be the beginning of wisdom. The recognition that pieces of important information about future risk are always missing - that what we know from the past doesn't cover all future possibilities - is in itself valuable knowledge. Says Bernstein: ''Past data from real life constitute a sequence of events rather than a set of independent observations, which is what the laws of probability demand.'' Just the Facts America Says ... Bush's job approval remains high at 85%, and 80% have positive views of him personally in a poll for The WSJ and NBC. Even 72% of Democrats approve of his performance; 61% have a positive view of him. Congress scores higher, too: 57% approve of the job it is doing. Veep Cheney's 63% positive score is up from 48% in June. Defense Chief Rumsfeld gets a 56% positive score. AG Ashcroft is viewed positively by 57%, negatively by just 13%. Laura Bush's positive rating hits 76%, beating mother-in-law Barbara's high as first lady by 11 points. In earlier polls, respondents' replies to whether they voted for Bush or Gore matched the election's near-tie; now they claim Bush by 42% to 30%. (WSJ 12-14) Sales Update Retail sales fell 3.7% in November, reversing more than half the extraordinary 6.4% gain in October. A decline had been expected because auto sales couldn't continue at their record pace. Nevertheless, non-auto sales also fell 0.5% last month, though most of that drop was due to a 6.3% decline in spending at gasoline stations because of sharply falling prices at the pump. The weakness in retail sales "was broad-based," said economist Gerald Cohen at Merrill Lynch, "with auto sales plunging 11.9%, miscellaneous retail sales falling 2.3% and catalogue sales down 1.1% in November. Excluding autos and gasoline, retail sales eked out a 0.1% gain." [NY Times 12-13: Sales at gasoline stations were down 6.3%, at hardware stores off 0.2%, but sales at furniture dealers showed a 2.6% increase.] Also: Producer prices for finished goods declined 0.6% last month following a very large 1.6% drop in October. Both declines were primarily the result of energy prices moving down - by 7.7% in October and another 3.8% last month. (John Berry, Washington Post 12-14) A 2nd Derivative Turn-around Of the 6,000 companies that First Call surveys, 1,025 had made preannouncements of some sort as of Tuesday, and of those, 462, or 45%, were negative, indicating that profits or revenues would fall below the expectations of Wall Street analysts. By contrast, at this point in Q1-01, negative preannouncements were running at 68% of the total, in Q2 they were at 65% and in Q3 61%, First Call analyst Steve Rigo said. "I see that as a definite positive," Rigo said. To be sure, there is as yet no turnaround in the earnings recession. Q4 profits for S&P 500 firms were expected to be 19% below those for tQ4-00, Rigo said. Still, First Call considers its preannouncement tallies to be an indicator of trends in actual earnings. (LA Times 12-12) Simultaneous Success and Failure Through the first week of December, the Bloomberg average of more than 4,500 bond funds sports a gain of 5% since New Year's. That stacks up handsomely next to a 13% loss on average among more than 8,800 stock funds. Yet bond funds as a group have attracted only a trickle of new money from investors. According to the latest asset tallies by the ICI, bond funds' share of every dollar invested in funds of all types increased by only 2 cents, from 12 cents to 14 cents, from yearend 2000 through October 2001. As recently as 1993, bond funds had a 37% share of the fund market. (Chet Currier, Bloomberg 12-11) A Christmas Tradition? December can be a bloody month in any year. In each year since 1995, when the BLS began tracking layoffs involving 50 or more workers, December layoffs rose after an autumn drop. In some years, December showed the most layoffs of any month. "Because reductions in force are fairly commonplace today, corporations are not as sensitive in timing them to holidays as they have been in the past" says Rich Pinola, chief executive of consulting firm Right Management Consultants of Philadelphia. (WSJ 12-11) S&P Forecasts A year ago, Jeffrey Applegate of Lehman Brothers expected the S&P 500 to hit 1675 this year, making him one of the Street's stronger bulls. He is projecting 1350 for 2002.(S&P closed at 1158.31 on Friday.) Edward Kerschner, the top strategist at UBS Warburg, forecast 1715 for this year. He sees 1570 for next year. Thomas Galvin, of Credit Suisse First Boston, forecasted an S&P 500 of 1680 for 2000. The index instead fell to 1320.28. He forecasted 1600 for the current year. Now he is forecasting 1375 for 2002. Douglas Cliggott of J.P. Morgan, sees the S&P 500 finishing down next year, marking a three-year string of declines, something that hasn't happened since 1939-1941. Steve Galbraith of Morgan Stanley, who began issuing forecasts at the start of this year, wound up with arguably the closest forecast, a range of 1225-to-1375. But even he laments that he overestimated the strength of earnings. Thomas McManus of Banc of America Securities forecasts a nearly flat market. (WSJ 12-10) A Reason to Buy - Part 2 Investment newsletter writer Jim Stack was a bear on the stock market. But if bear markets are inevitable, so is their demise. And though he concedes that there are plenty of reasons to be nervous about stocks, the magnitude of Wall Street's decline between March 2000 and September suggests that enough is enough already. The drop in the S&P 500 from its peak of 1,527 in March 2000 to its closing low of 965 on Sept. 21 was 36.8%. That was larger than the 32.6% average bear-market loss of the last 70 years. The 18-month duration of this bear market was a bit longer than the 17-month average duration of declines in the last 70 years. (Tom Petruno, LA Times 12-9) A Reason to Sell - Part 2 "You can now buy a big-screen TV for no money down, no payment until January 2003, and 0% financing on those payments," says Richard Bernstein, chief U.S. investment strategist for brokerage giant Merrill Lynch. "Guess what? They're selling TVs like crazy. Of course they are! If you underprice credit risk, things look great. However, what the analysts aren't paying attention to is the accounts-receivable buildup for these companies. The companies' sales and earnings will look great, but the risk profile of the companies is changing significantly" because they have extended more credit in an economy that is already highly leveraged. (Tom Petruno, LA Times 12-9) Discretionary Income Update Consumer-spending power is showing surprising resilience. After-tax incomes, which have shown signs of slipping recently, are still up by more than 2% from a year ago, after adjustment for inflation. Meanwhile, tax cuts pumped more than $40 billion into the economy this summer. And natural-gas prices are down more than 60% from earlier this year, reducing home heating costs and electricity bills. If energy prices stay at these levels for the next 12 months, the average American household would save more than $700 over the course of 2002, says Salomon Smith Barney economist Steven Wieting. As a result of these various factors, the "discretionary income" of the average household increased by about 7.4% in October from a year earlier, says Michael Niemira, a senior economist at Bank of Tokyo-Mitsubishi. (Hilsenrath and Zimmerman, WSJ 12-7) Currency Update The first law of currency depreciation says two good things will happen: a country's exports go up and its imports go down. Therefore, a weaker currency is a way to "steal" some economic growth from your trading partners. Today, given the synchronous slowdown in the world economy, stealing growth is an idea that appears to be catching on. Therein lies a danger. If too many countries try to play the weak-currency game, a beggar-thy-neighbor round of competitive depreciations or devaluations could result. Top Japanese officials recently said they wouldn't mind seeing the yen weaken against the dollar. In South Korea officials voiced fears last week about losing ground in chemicals, steel and electronics to Japanese companies helped by a cheaper yen. Throughout Europe, too, where the once-macho defense of a strong euro has given way to complacency. (Bernard Wysocki, WSJ 12-3) A Reason to Buy Now Between 1980 and last spring, the Stock Traders Almanac says, 76% of the time the Dow Jones industrial average produced a better return in the Nov. 1-April 30 period - meaning either a higher net gain or a smaller loss - than in the preceding six-month period. The pattern also holds going back to at least 1950. The classic explanation has been that investors by year's end begin to look with optimism toward the new year, a state of mind that continues past Jan. 1 and into the spring. If things have been going poorly, many investors by year's end tend to think the situation can only get better in the new year. (Tom Petruno, LA Times 12-2) A Reason to Sell Now The Stock Traders Almanac notes that over the last 40 years, the stock market has almost always made a major bottom in midterm election years--that is, the second year after presidential elections. That was true in 1962, 1966, 1970, 1974, 1978, 1982, 1990, 1994 and 1998, all of which saw important market lows that gave way to powerful rallies. The almanac publishers believe the market bottoms in midterm years because investors begin to bet that the sitting president will get serious about boosting the economy to ensure his reelection two years out. For the midterm "rule" to hold true in 2002, however, the current market rally will have to crumble to new lows next year--not a pleasant thought for investors who want to believe that the worst is over. (Tom Petruno, LA Times 12-2) A Reason to be Agnostic Many of the advisory newsletters that I monitor have contended in recent weeks that equities must rise in 2002, a view based on the claim that the United States stock market has never declined for three years in a row. The argument is based on both bad history and sloppy statistical reasoning. I analyzed the stock market's yearly gyrations back to 1872. Over those 129 years, there were eight occasions in which the stock market, as measured by the S&P Composite Index or the S&P 500, declined for two years in a row. In the calendar years immediately after those eight occasions, the stock market rose in six of them - or 75% of the time. This is a statistically indistinguishable from the percentage of years in which the stock market rises in general. Over the last 129 years, stocks have climbed in 95 of them, or 74% of the time. The inescapable conclusion is that the stock market's yearly gyrations are independent of one another. (Mark Hulbert, NY Times 12-2) Nonqualified vs Incentive Options Employee stock options come in two flavors: ''nonqualified'' and ''incentive.'' Both let workers buy company stock at a price fixed at the time the option is granted. If the stock goes up, the worker buys the shares and reaps a profit. If the stock drops, the options go become worthless. An example: if a company issued options with a grant price of $6 per share, and an employee exercised the option when the stock traded at $30, the profit amounted to $24 per share. With nonqualified options, that profit was immediately taxed as ordinary income. With incentive stock options, however, the employee could hold the stock long enough for the profit to be considered a long-term capital gain and to be taxed at a lower rate. But exercising stock options often throws employees into the realm of the alternative minimum tax. Under AMT rules, that $24-per-share profit gets taxed even if the employee holds the stock - and even if the stock craters while the worker still holds the shares. [There are examples of people owing more in tax than the stock is worth at selling time.] (Charles Jaffe, Boston Globe 12-2) Access Denied The UCLA Internet Report 2001, largely funded by the National Science Foundation, shows that internet users watch 4.5 hours a week less television than do non-Internet users. The UCLA survey was based on telephone interviews with 2,006 randomly selected households nationwide. The study found that parents are punishing their children by telling them "no more Internet." The percentage of parents who said they denied their children access to the Internet rose this year to 37.2% from 30.6% last year. The older form of parental punishment - no more television - decreased to 47.5% from 48.7%. (Alec Klein, Washington Post 11-29) Quick Facts, Stats & Opinions "This is a sick market where flows are based on positions. Since some of the few profits on Wall Street this year have come in the bond market, people are just trying to preserve what they can. That makes for poor liquidity and a propensity to sell on virtually any news" said William Hornbarger, debt strategist at A.G. Edwards. Yielding 5.18%, the 10-year Treasury note is breaking through the top of its recent yield range, while the two-year Treasury note is trading at a very wide 140 basis points over the Federal funds target rate. (John Parry, Smart Money 12-15) The percentage of financial newsletter editors considering themselves bearish, or pessimistic, jumped to 28.3% last week from 23.7% the week before, when it hit its lowest level since July. Bearishness reached a three-year high of 42.7% shortly after the Sept. 11 terrorist attacks. The percentage of editors considering themselves bullish, or optimistic, also dropped last week, to 43.4% from 45.4% the previous week. Bullishness touched a four-year low of 33.7% after the attacks. (Bloomberg News via LA Times 12-13) The anthrax-related disruption to mail service underscores how much Americans still rely on mail. But it also will accelerate the use of electronic alternatives that are arresting growth of the Postal Service's most-profitable product, first-class mail. Volume grew 48% in the 1980s, but only 19% in the 1990s and not at all last year. Even though it adds 1.6 million more addresses each year, the Postal Service expects to be delivering fewer pieces of mail each year by the end of this decade. (David Wessel, WSJ 12-13) You don't have to be schooled in Fed-watching to figure out the end [of rate cuts] is near. The Fed is printing enough money to re-float the Titanic. The broad monetary aggregates M2 and M3 grew 11 percent and 14 percent in November from a year ago, respectively. These are the fastest growth rates since 1983 (M2) and 1973 (M3). If that doesn't make central bankers nervous, maybe they should be in another line of work. (Caroline Baum, Bloomberg 12-11) Those job-losers not on temporary layoff accounted for 42% of the unemployed in November, compared with 29% a year earlier, says the BLS. [But how many of LAST years temporary layoffs' are STILL layed off?](WSJ 12-11) A mountain of money is building in American households. Nearly $4.29 trillion is sitting in consumer money-market funds and various U.S. savings deposits. These liquid assets, in many cases earning just 2%, have grown at a tremendous rate recently and are up 21%, or by $700 billion, just since the beginning of 2000. (Bernard Wysocki, WSJ 12-10) "As we look stock by stock and industry by industry, the market is discounting a lot of good news. We're not near the level of euphoria [of the early 2000 bull market], but you have to expect we'll hit a rough patch here at some point," says John Zielinski, a manager of a large-cap growth fund, Northern Growth Equity. (Michael Santoli, Barrons 12-10) "The current rebound in stock prices appears to be consistent with history. Since 1949, there have been nine bear markets (excluding this one). Two months after bottoming, the S&P 500 recovered an average 33 percent of the bear market loss. This time, the S&P 500 has recovered 31% of its loss [suffered] from March 2000 to September 2001. If this market's recovery continues to mirror history, we can look forward to seeing recovery of 62% after six months and 94% after 12." (Investment Policy Committee Notes, Standard & Poor's, via the Wash. Post 12-9) At RS Investments' Web site (www.rsim.com), a piece titled ''Large Tax Loss Carry Forward Benefits Available in Some RS Funds for Current and Future Investors'' highlights the huge realized capital losses at some RS funds. That includes $18.58 per share of losses now embedded into RS Contrarian and $17.04 in RS Diversified Growth. The huge losses will indeed offset future gains and make the funds more tax-efficient. But ''We've got losses. Buy now!'' should never be a marketing strategy. (Charles Jaffe, Boston Globe 12-9) ABC and CBS agreed to share the cost of $80,000 for a videotape made by an Afghan cameraman that showed CIA officer Johnny Michael Spann as he tried to interrogate the young American Taliban fighter, John Walker, in a prison in Mazar-i-Sharif. (NY Times 12-8) In a November survey of 850 consumers, 80% admitted they were "always looking for a sale," up from 66% in November 1999, according to New York market research firm WSL Strategic Retail. (WSJ 12-7) `There is no particular problem in cutting rates next week, but there is no particular benefit either,' says Tim Bond, global strategist at Barclays Capital Group in London. `If the market believes that a cyclical recovery is imminent or underway, more stimulus from the Fed will result in expectations of a stronger- than-otherwise economy in the third and fourth quarters of next year, given the lag with which monetary policy operates, and of higher rates at that point.' In other words, the Fed's desire to rein in the rise in long rates may be hurt, not helped, by further reductions in short rates. (Caroline Baum, Bloomberg 12-7) In January, shipments in the mobile-home industry were down 41.3% from a year earlier. By September, they were off only 12.6% from a year earlier as more buyers qualified for low-interest loans and repossessions declined. (WSJ 12-6) The Gap reported net income plummeted 96% for the first nine months of fiscal 2001. Gap Chief Executive Millard "Mickey" Drexler, revered until recently in the retail world for masterminding Gap's success, has had many explanations over the past 19 months for the long, sharp decline. At various times he has blamed the chain's problems on bringing in new merchandise too quickly, and also on bringing it in too slowly; on staying with outdated styles too long and also on filling the stores with too many trendy looks. (WSJ 12-6) In November a total of 92 companies raised their dividend payments, down from 109 in the same month a year ago, Standard & Poor's Corp. said. The number of companies cutting or omitting dividends jumped to 24 from 7 in November 2000. (Tom Petruno, LA Times 12-5) Taxpayers can use the IRS Web site to check that a charitable organization is qualified to receive deductible contributions by searching Publication 78 at www.irs.gov/bus_info/eo/ eosearch.html. Publication 78 is also available in many public libraries. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. (WSJ 12-5) Women are working later into pregnancy and returning sooner to the office after giving birth than they did years ago, a Census Bureau report suggests. Between 1991 and 1995, 67% of women who gave birth to their first child worked during their pregnancy, up from 44% between 1961 and 1965. The percentage of mothers working full time rose from 40% in the early 1960s to 54% in the early 1990s, and the percentage of those who worked part time increased to 12% from 5%. In the early 1990s, 52% of women who gave birth returned to work after six months, up from 14% in the early 1960s. (LA Times 12-5) About 74% of roughly 240 human-resource professionals surveyed by the Society for Human Resource Management, Alexandria, Va., say they offered severance to laid-off employees. About 62% say performance was a consideration in determining layoffs. (WSJ 12-4) While 81% of about 680 workers surveyed by the American Academy of Facial Plastic and Reconstructive Surgery say they would tell co-workers they have had a nose job, only 71% would tell friends. (WSJ 12-4) "The world over, a credit implosion is unfolding, in slow motion. Sabena Group, Swiss Air, two Japanese companies on Wednesday, Bethlehem Steel, Polaroid and now Enron have all folded or are folding in just the last 90 days. This matters" writes Larry Jeddeloh, chief investment officer of the TIS Group, which produces the Market Intelligence Report. (Jennifer Ablan, Barrons 12-3) About 58% of 129 former customers surveyed by turnaround-advice firm Getzler & Co., New York, say Christmas bonuses will be smaller this year. (WSJ 12-4) Stock market capitalization stands today at 130% of GDP. This compares to 81% in 1929 (before the big crash), 183% in March 2000, and 78% in January 1973. (Charles Allmon, Growth Stock Outlook, via Wash Post 12-2) Quick Tips The louvre.edu has over 3,000 works of art and 350 exhibit halls online. (NY Times, 12-6 ) The Goner virus is launched when the user opens an attachment. Once launched, the virus replicates itself, sending e-mails with the same attachment to people in the victim's address book, and seeks to destroy certain files on the infected computer. Goner often arrives from somebody the target knows, with the subject line "Hi." The e-mail's text reads: "How are you? When I saw this screen saver, I immediately thought about you I am in a harry, I promise you will love it!" One of the nastier aspects of the virus is its attempt to disable anti-virus and firewall software. McAfee's VirusScan and Symantec's Norton AntiVirus are among the applications the virus attempts to delete. (Rob Kaiser, Chicago Tribune 12-5) If you like to use Stationery in your Outlook Express, an excellent selection is at CloudEight Stationery. [I did not know that stationery could also contain music, until I checked out this site. Did not know staionery is so system dependent, until I sent emails to folks with Mac's, or used non-Outlook Express readers. What you send is not always what they get.] (Emazing 12-4) You can speed up navigation in Microsoft Internet Explorer 5x or 6 by disabling page transitions. To make this change, run IE and choose Tools|Internet Options. When the Internet Options dialog box opens, click the Advanced tab. Deselect the check box labeled Enable Page Transitions and click OK to close the dialog box and continue. This will help speed up some pages. Don't expect miracles, though -- not all pages will benefit from this change. (Emazing 12-2) Web sites dedicated to debunking or explaining urban legends has surged as people try to make sense of the WTC attack, the war in Afghanistan and the recent anthrax scare. One site, Snopes.com (www.snopes.com), says traffic rose "tenfold" since Sept. 11, while Web-measurement firm Nielsen/NetRatings reports traffic to About.com's Guide to Urban Myths (urbanlegends.about.com) more than tripled in September from year earlier, to 562,000 unique visitors. Other urban legend sites: UrbanLegends.com (www.urbanlegends.com) and The Straight Dope (www.straightdope.com). (WSJ 11-29) Home Page Previous Factoid Top Sites |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||