|
The new threats to the economy are looming just as the main weak spot, manufacturing, is finally showing tentative signs of a bottom. The uptick in activity appears driven in part by the success of individual companies in rapidly liquidating inventories. Wholesale stocks of goods such as drugs, electrical equipment and paper decreased 0.7% in July, the largest amount in almost five years. At some point, production has to pick up if only because orders can no longer be filled from depleted inventories. But for the trend to be sustained, customer demand must also recover. And on that front, signs of improvement remain spotty. The big question is which trend will prevail. Will businesses finish liquidating their inventories and resume investing in time to stem further layoffs and threats to consumer spending? Or will consumers stop spending first, snuffing out business incentives to invest? Consumers and businesses are eyeing each other warily. The softening labor market "raises the risk that this dichotomy between corporate-sector stress and sustained household demand is going to close with households having to retrench," warns J.P. Morgan Senior Economist James Glassman. Ford Motor Co. spokesman George Pipas says his company's already-reduced fall production schedule assumes a 5% unemployment rate. A big increase from current levels could force the auto maker to reconsider its production plans. Glassman now projects zero growth in Q3, compared with his earlier expectation that GDP would crawl ahead at a 1% annualized pace, a slight improvement from 0.2% in Q2. Peter Hooper, chief U.S. economist at Deutsche Bank, now thinks GDP could fall 0.5% in Q3, down from his previous estimate of 1% growth. "This puts us very close to a recession given the prospects that Q2 could easily be revised down into negative territory," Mr. Hooper warns. "Every time the unemployment rate has risen by more than one point in the past, the economy has gone into recession." Consumer spending, meanwhile, has held up, with consumption growing at a 2.7% annual rate through the first six months, and housing construction rising a vigorous 7%. One reason: Even before the Fed started cutting interest rates in January in response to the factory collapse, bond yields had tumbled in anticipation of the Fed's action, driving down mortgage rates. Another crucial support to consumers was a job market that stayed remarkably strong through most of this year. Just as the unemployment rate stayed relatively low and consumer spending high when business investment was plunging, joblessness could soar and consumer spending fall while businesses are recovering. Part of the reason is that many companies, after years of struggling with tight labor markets, were slow to lay workers off, even with sales falling. Now things are different. Now, many companies see layoffs as key to their recovery, as they attempt to cut costs. Related: Liesman & Karmin, WSJ 9-10 It has been a generation since the world's major economies sank in unison, long enough that some had come to believe that the confluence of technological advances, improved economic forecasting and modern monetary policy had foreclosed the possibility forever. But last week's surge in U.S. unemployment combined with more dismal economic news out of Japan - if that were possible - hurtles the world a step closer toward a dreaded "synchronous" recession. Such downturns are dreaded because they can be longer and deeper than average. The last time the world's three largest economies - Germany, Japan and the U.S. - tanked together was in 1973, according to the Economic Cycle Research Institute in New York. In the U.S., the recession lasted 16 months. Germans endured it for a month shy of two years. Coincidentally or not, the last time U.S. stock markets fell for two straight years was in 1973 and 1974. So, in a world where every major market is linked somehow to another, who leads the way back up when everyone is falling? To be sure, the conditions of this recession are different enough to hold out hope of a quicker recovery. The U.S. budget is in surplus, compared with a deficit ahead of the 1973 recession. The government has been able to deliver a rare countercyclical tax cut, albeit modest and back-end loaded. Significantly, inflation isn't a concern. If a return to economic growth requires that the big multinationals get their houses in order first, the wait can be long. After the recession of the early 1990s, the S&P 500's actual earnings levels didn't regain their prerecession high, hit in the first quarter of 1989, for five years. And that, moreover, was possible only because the world economy in the early 1990s managed to narrowly avert a synchronous recession. When the U.S. contracted a decade ago, Japan and Germany were still growing. By the time they slowed, the U.S. was launched on the powerful expansion that has just now ended.
Stock values will not fall every day. However, unless some surprise positive news on earnings surfaces, September will probably live up to its reputation as the poorest-performing month of the year for stock investing. What should private investors do in this dreary investment environment? There are two investment cliches that are relevant at this time. First, "Emotions are the enemy of sound investing." Second, "Do not try to catch a falling knife." A great deal of wisdom is wrapped around that first saying. Indeed, this is why financial planners try to develop rules to take out the emotions in investing. Psychologically, people get worn down by continuous negative news. They increasingly want to be involved when news is good. Because of this psychology, investors want to get on the bandwagon more and more intensely as the parade continues to march along. By the time most investors overcome their normal restraints, the parade is near an end. Thus, they buy high. Normally, investors are also resistant to selling after the first negative news. They hope for a rebound so they can get all their money out. As stocks continue to descend, investors become increasingly worried until many sell near the bottom. Indeed, technicians see complete capitulation (irrational selling) as a sign of a trading bottom. Many investors got into technology mutual funds near the peak in prices and are now bailing out, when prices appear to be below the earnings capacity of technology companies relative to the prices of other companies. Capitulation now appears to be almost complete in the technology arena, suggesting that a bottom is near. However, the second cliche now should be used. Perhaps real value has been uncovered in some of those stocks, but the knife continues to fall. How many investors bought stocks because they had "become cheap" from negative news for the sector? (In hindsight . .) we should have waited until a price bottom had been established. This appeared to have occurred in April. It is now clear that the knife had only stalled and had further to fall. That is why I am looking at some of these companies whose prices have fallen below their relative earnings capacity but appear to be falling further. Six months ago, I would have grabbed them. However, if the markets begin to rally in October, as I expect, then I might once again seize some of these falling knives. Hopefully, I will not suffer the same bloodied outcome that ultimately happened from my April grasping.
There are just two caveats. First, you may have to pay a "surrender" fee to get out of your current annuity. Surrender fees are back-end charges that can range from about 1% to 7% of your account value. The second caveat is that too many people transfer from one bad annuity to another. Before deciding whether to dump your current annuity - and which one to transfer to--you should consider the following factors: M&E (mortality and expenses). All annuities charge a percentage of the investor's account value to pay for an insurance component that provides a death benefit. With a variable-rate deferred annuity, the death benefit usually guarantees that the investor's heirs would receive at least as much as the investor contributed to the account should the investor die in the midst of a market downturn. However, mortality expenses vary widely. With variable annuities, you'll be paying investment management fees on top of mortality and administration expenses. The lower the fees, the better your return. Annuities consist of two parts - an insurance component and an investment component. Generally, the investments offered within an annuity are mutual funds and guaranteed investment contracts. Some annuities offer dozens of investment choices; others offer only a few. It's fine to have only a few investment choices, if they're good ones. But if you want to switch periodically from one type of investment to another, make sure the investment choices you want are available and that the past returns of the funds offered through the annuity are up to industry standards.
Investors and businesspeople understand that the downturn will be followed by a new and more sustainable phase of development in communications and computing technology. The cycle will turn in 2002, and by 2003 a new high-tech advance will be in full swing, experts predict. The buildup of fiber-optic connections to offices and homes will characterize this next phase. The next phase will be driven by new services and applications of the Internet that users will be willing to purchase. Cable companies, which already have high-speed lines into homes that can be converted to two-way fiber-optic links, will be in a good position to benefit. Information storage also will be a growth field as the number of business Web sites increases. International Data projects that the number of companies with Web sites will rise from roughly 15 million worldwide today to more than 25 million in the next four years. Most of those companies will have their Web sites stored on other companies' servers. But with technology companies struggling to survive, what will bring on the Internet's next phase? The answer is the glut of fiber-optic infrastructure caused by the '90s overinvestment. The glut makes bandwidth cheap, and that will encourage new users, such as audio and video entertainment developers, to think up ways to use the newly affordable resource. Audio and video presentations, especially movies and other full-motion videos, use up great gobs of fiber-optic capacity. Today's glut could be absorbed within a year. At this time it's worth recalling the railroads, which went through repeated cycles of overbuilding in the 19th century. Rail companies went bust, fortunes were made and lost - and a base was laid for a continent's development. It may be too early to rush out and invest in the next phase of technology. But it's not too early to start watching for fresh trends and opportunities on the Internet. Related: Walter Price, a managing director of Dresdner RCM and co-manager of the firm's Global Technology Fund, Barrons 9-10 I didn't anticipate was how fast earnings would come down for a lot of technology companies. I think people were anticipating a normal recession and it has been anything but. It has been a capital-spending-led recession. Many of these companies have gone from earning very high returns to earning hardly any money at all. So, if there is one thing to take away: Don't underestimate the leverage of the technology group in a capital-spending-led recession. But if the consumer hangs in there and continues to be stable but frugal, companies that are serving the consumer say, okay, we've got a plan for our business. They substitute technology for labor and inventory, and we go back to buying technology products. The returns are there. The return on investment is there for the projects. When companies come out of their bunker mode and start to think about how they run their businesses on a longer-term basis, you will see tech purchases go back up. Barrons asks: When that happens, what kinds of things will they be buying? He responds: When we talk to corporate decision makers, their top five projects tend to be software-oriented projects, which will pull hardware along. So it's inventory control, supply-chain management, customer-relationship management, and security of their networks that they are concerned about.
So it is now with this bear market's scapegoat: Wall Street analysts. Amid Congressional hearings, Wall Street is scrambling to impose new rules to curb abuses. Some firms now say that they will not allow analysts to own stocks they are recommending. Rather than bar analysts from investing in stocks they follow, investment banks might do the reverse. They could require analysts to follow their own advice, buying a couple of weeks after they recommend a stock, and selling only after their clients are advised to get out. But that would not attack the real problem: money. With commissions on share trading continually falling, it is not investors who provide the cash for Wall Street bonuses. The money comes from investment banking fees, and the companies that direct those fees want praise, not criticism. Investors who want good research will have to pay for it. Until a mechanism is devised to pay Wall Street for quality advice, no new rule is likely to produce it.
To a remarkable degree, the answers can be traced to the different legal traditions that emerged in England and France in the 12th century and spread through their colonies. Western commercial law comes from two traditions: the common law, with roots in England, and the civil law, rooted in ancient Rome and refined later by continental Europeans. Common-law countries, including the U.S. and other former British colonies, rely on independent judges and juries and legal principles supplemented by precedent-setting case law. In civil-law countries, which include much of Latin America, judges often are lifelong civil servants who administer legal codes packed with specific rules. Rule-laden civil-law countries aren't well-adapted to cope with change; the case-law approach makes common-law countries inherently more flexible. The issue has attracted a band of economists, led by Harvard's Andrei Shleifer. They sought to identify conditions essential for functioning markets and private property. Examining 49 countries from Argentina to Zimbabwe, the economists discerned a distinct pattern in both rich and poor countries: Civil-law countries exhibit heavier regulation, weaker property-right protection, more-corrupt and less-efficient governments and less political freedom than do common-law countries. The lesson of history is sharp: Markets and the prosperity they can provide do not exist independent of the law and the institutions of government but are intertwined with them. Well-functioning financial markets, in particular, rest on clear and enforced protections for investors.
And if you aren't sold on this sector yet, consider this: A good real-estate fund could add some diversification to your portfolio, since real estate tends not to move in correlation with the stock or bond market. When compared to the S&P 500 index, the average real-estate fund sports a three-year R-squared coefficient of less than nine. In other words, the fund is scarcely affected by the large-cap index's movements. A 2001 study by research house Ibbotson Associates shows that, thanks to better management that has made the real-estate industry less cyclical, the correlation of REIT returns and large-cap stock returns has declined 61% over the past three decades; the correlation has fallen 65% with small-cap stocks. Even the correlation between REITs and long-term bonds has dropped by 41%. Related: Retails REITS - Dean Starkman, WSJ 9-5 Retail landlords are still reporting income growth, though at a slowed rate. Vacancies nudged up just a fraction. And mall and strip-center rents, which are tightly keyed to consumer sales, appeared to hold steady. Retail real-estate investment trusts generated a total return of 7.6% in Q2, better than the 6.2% of the National Association of Real Estate Investment Trusts index of equity REITs. Green Street Advisors, a real-estate research firm, projects that mall companies this year should produce 7.9% growth in adjusted funds from operations from a year ago. Strip-center companies should see growth of 5.7%. The firm forecasts REITs overall to post growth of 5.4%. For 2002, Green Street projects mall REITs will post annual earnings growth of 8.6%. The relatively stable performance of the retail REIT sector comes despite a scary spate of bankruptcies among mostly lower-end retailers that are to blame for the small erosion in mall occupancy rates. By contrast, asking rents for office space have dropped by double-digit amounts in some markets as demand for space dried up and sublease space flooded the market. The retail sector had a strong 19% average return basis for the year through July 31, according to the National Association of Real Estate Investment Trusts, compared with 1.9% for office and industrial REITs and 9.2% for REITs as a whole. Related: Shirley Lazo, Barrons 8-27 S&P observes that, despite generally rising share prices, REIT yields remain attractive, compared with those on other income-oriented investments. "The typical equity REIT has recently yielded 7%, while the S&P utility index returned about 3% and 10-year Treasury notes yield roughly 5%." There's a legislative fillip, too -- the REIT Modernization Act, which became law in December 1999 and took effect this year. "Broadly speaking, the RMA allows REITs to conduct business with greater efficiency," like providing services to tenants. That should give REITs "a new stream of income and enable them to garner customer loyalty," says S&P. "In addition, the new law reduced to 90% from 95% the minimum amount of taxable income that a REIT must distribute to shareholders. This reduction will enable REITs to retain more of their after-tax earnings to pay down debt and acquire new properties, among other things." Related: Ray Smith, WSJ 8-29 A primer on FFO and the 'FFO Controversy' Real-estate industry executives say net income can give a deceptive picture of performance for a real-estate firm. That is because, under generally accepted accounting principles, a real-estate firm must depreciate the value of its properties each quarter, taking a hit to its earnings. By contrast, the actual value of the properties usually rises from year to year in most markets. In 1991, the National Association of Real Estate Investment Trusts created a supplemental standard called funds from operations. It allowed REITs to add back real-estate depreciation. In addition, REITs, which derive their main earnings from rents on the buildings they own, were able to ignore gains on sales of properties. FFO became the standard performance measure as the REIT industry ballooned to a current total equity market capitalization of $148.4 billion from $8.7 billion at the end of 1990. Why the controversy? Over time, REITs became more aggressive in what they excluded from or included in FFO. Some began excluding technology-investment losses or foreign-currency losses; others included gains from sales of property that had been depreciated. The REIT industry's debate over FFO came to a head earlier this summer when the Merrill Lynch, Morgan Stanley and Salomon Smith Barney analysts got together and decided to start sending estimates for per-share net income to Thomson Financial/First Call, which tracks analysts' earnings estimates. Until then, the three firms, along with nearly every other Wall Street analyst, had been providing estimates based on FFO. How much difference can FFO make in a company's results? Consider the second-quarter results of Equity Office Properties Trust, the nation's largest office owner. For the latest second quarter, Chicago-based Equity Office reported FFO of 78 cents a share, but it reported earnings per share of just 40 cents. The difference: Equity Office added back in depreciation and amortization of 38 cents a share when it calculated FFO. Related: Ray Smith, WSJ 8-29 Equity offerings have slowed in most industries due to the weakened stock market. But not in the REIT world. REITs, excluding those specializing in mortgages, conducted 15 secondary offerings of common stock so far this year as of last Wednesday, raising about $1 billion, compared with seven a year earlier, which raised $389 million, according to the National Association of Real Estate Investment Trusts. There haven't been any initial public offerings of REITs since 1999. Analysts at Green Street Advisors have long maintained that a REIT's ability to issue shares should depend on where the company's stock is trading relative to the underlying value of its assets. As of last Wednesday, REITs on average were trading at a 5% premium to net-asset value, according to Green Street. A year earlier, REITs on average were trading at a 9% discount.
The Conference Board's monthly Leading Indicators Index is constructed as a weighted average of ten key economic data series at the U.S. level (Treasury yield curve, M2, hours worked in manufacturing, manufacturers' new orders for consumer goods, S&P 500, initial unemployment insurance claims, NAPM vendor performance, housing permits, consumer expectations, and manufacturers' new orders for nondefense capital goods). ECRI's Weekly Leading Index (WLI) is a composite index constructed of seven national weekly economic series (M2, JOC-ECRI industrial materials price index, initial unemployment insurance claims, mortgage applications, S&P 500, 10-yr Treasury bond yield, and bond quality spread). The limited availability of weekly data constrains the number of variables in the composite index, but this has not hurt the WLI's predictive power. The weekly frequency of the WLI makes it a very timely gauge of the economy's direction. Economy.com's Probability of Recession differs in that it is a composite index built primarily from regional level data, and is represented by a probability, not an index level. The index is calculated for each state and metro area, using a combination of local, regional, and national level economic data series (housing permits, hours worked in manufacturing, initial unemployment claims, help-wanted index, consumer confidence, S&P 500, Treasury yield curve, and the trade-weighted value of the dollar). This Probability of Recession, bounded between 0 and 1, indicates the probability of the U.S. sliding into a recession. The Conference Board's Leading Indicators Index and ECRI's WLI both turned down in the third quarter of 2000, just as Economy.com's Probability of Recession increased sharply, indicating rising recessionary risk. The manufacturing and business investment components of these indexes all began to deteriorate at once, forecasting our current economic malaise. Economy.com's Probability of Recession has rebounded, falling to 0.48 (48% probability of recession) from its peak of 0.63 (63% probability of recession) in April. The Conference Board's Leading Index has increased now for four straight months, suggesting that a recovery by the end of the year. ECRI's Weekly Leading Index has improved substantially from the beginning of the year, but weekly volatility suggests that the recovery will not be quick and uninterrupted.
Longer-run results, however, weren't exceptional. After those eight pairs of losing years, stocks went on to deliver an average of 8.5 percentage points a year above inflation over the next five years. That is not much higher than the historical average, which is seven percentage points a year. "It's not a no-brainer that you'll get great returns after two losing years," warns Jeremy Siegel, a finance professor at the UP's Wharton School. He adds that, this time around, decent returns may be hard to come by, given the market's lofty valuation. Usually, after two losing years, you would expect pe multiples to fall below the historical average of 15. But today, based on operating earnings, stocks are still trading at a P/E of 24. "As a consequence, there may not be as good a return over the next five years as the historical data indicate," Mr. Siegel says. Look back through history and you will see plenty of pain. Over the past 200 years, stocks on average have lost money every fourth year. Figure in inflation, and you find the market was under water every third year. This doesn't mean you shouldn't own stocks. They are still likely to outpace bonds and other more-conservative investments. But stock investors may want to keep their expectations in check, banking on neither a quick rebound nor dazzling longer-run results.
On May 6, the stock market was in the sixth week of a powerful rally that had already sent the Dow Jones industrial average climbing 17% and the Nasdaq composite more than 30%. Because investor psychology at that time was quite cheerful, contrarians were convinced that the bear market was not over. Contrarian analysis comes to the same conclusion today. Evidence that this has yet to occur comes from newsletter editors relative optimism. It also seen in the choices that investors are making between the two most common hedging strategies involving options: writing call options against stocks already owned and buying put options on those stocks. The first, which involves selling the right to buy shares of a stock at a set price, is the preferred strategy when call premiums are high. The second, which involves buying the right to sell shares at a set price, is favored when those premiums are low. Call premiums are at historically low levels, so investors should be using the put-buying strategy more heavily. Instead, they prefer call-writing, according to data collected by Bernie Schaeffer, editor of the Option Advisor service. He reasons that call- writing in the current environment is rational behavior only on the assumption that the bear market is almost over. It is possible that investors are right. But if so, this would be one of few times in history that a major bear market bottom was recognized as such almost immediately by a large number of advisers and investors. Related: Josh Friedman, LA Times 8-28 Individual investors' expectations of stock market returns during the next 12 months have fallen back into the single-digit range, according to UBS PaineWebber Inc.'s latest monthly survey of investor optimism. The firm's August poll showed that investors on average expected a return of 9.4% from stocks over the next year. It was only the second time in the survey's relatively short history that the expected rate of return was below 10%. The lowest figure was 8.7%, recorded in April. Year-ahead return expectations varied sharply by age, the survey showed. Among investors over 40, the average expected return sank to 8.8% from 10.1% in July. But younger investors became more bullish: Among those under 40, the average expected return rose to 11.4% from 10.6% in July.
Have those factors disappeared, or are they waning? The long-term-bearish case against stocks today is based on that premise. Pessimists say that interest rates aren't likely to fall much further, that inflation is likely to turn up this decade, that global capitalism is reaching its limits (and is facing a backlash in many quarters), and that worker productivity can't increase in the next decade as it did in the last. Add it up, and corporate profit growth overall is destined to be slower in this decade, the bears argue. Stocks, they say, still are too highly valued for the profit growth that's on the horizon. The bullish case rejects all or most of those suppositions, and points to demographics as the ace in the hole: The U.S. population is getting older, and people will have to save more--and stocks still are the best savings vehicle in the very long run, the bulls note. But as the aging Japanese population has demonstrated during that nation's secular bear market (which began in 1990), people who become bored with stocks, or afraid of them, can find other things to do with their savings.
Investors coming around to this view will be less inclined to trust forecasts and be unable to place a fair value on its stock. In the dark on valuations, many investors will shun the shares. This is precisely the payback that companies deserve for embellishing their earnings. Separating reality from fantasy in corporate earnings is harder than ever. Consider the gulf between estimates of second- quarter earnings from First Call and S&P's. While First Call said operating earnings among companies in the S.& P. 500 had fallen by 17% from the same period last year, S. & P. reckoned that the decline at those companies was 33% in the quarter. While the average annual earnings growth reported by companies in the S.& P. 500 came in at around 9% from 1995 to 2000, the Commerce Department's Bureau of Economic Analysis says corporate after- tax profits grew only 5% annually. A report from Sanford C. Bernstein supports the government's figures. The report says the 9% average annual earnings growth at S.& P. companies in the late 1990's was really only 5% if one cancels out favorable accounting for stock options and earnings boosts that companies took from stock gains in pension plans. Had companies deducted the cost of options from revenue, annual S.& P. profit growth from 1995 to 2000 would drop to 6% from 9%, the report said. Subtract fat gains from shares held in pensions, and earnings growth falls by another percentage point. Advances in technology were thought to have wrought a profitability miracle in the late 1990's. Now it seems the miracle was a result of a roaring stock market and accommodating capital markets. Experienced investors know not to confuse brilliance with a bull market. The new era version of that rule: Don't confuse profits with a bull market, either.
Internet funds have been vaporizing - or reshaping themselves into broader technology sector funds - at a clip almost as fast as they were opened during the boom year of 1999, a period when it seemed like every new fund was aiming for nothing-but-Net. Good riddance to all. But the demise of these funds holds a good lesson for ordinary investors: New ideas aren't necessarily good ones. While new mutual funds tend to perform well at first, the ones that do the best long-term tend to be those grounded in pretty basic principles. Spot the right kind of value or growth, invest there. The ones that fail are the ones that delve into some new ''concept.'' In fact, the fund industry has had no shortage of bad ideas over the years. The trouble is that no one but those who got burned actually remembers what happened, and a new class of suckers is born every minute. Keep that in mind when the market starts to recover. The ''new new thing'' will be out there, and it will sound great, like a sure-fire way to recover from your troubles during the downturn. In the end, it will be the ''old things'' that lay the foundation for a long, happy financial life. Just the Facts Smaller surplus hurts bonds The dwindling U.S. budget surplus has taken a toll on the 30-year Treasury bond. Bonds' 4.7% total return this year is less than one- fourth last year's 21.2%. By comparison, two-year notes have returned 5.5% this year and 10-year notes 5.8%. The buybacks sparked a rally last year that drove bond yields below those of two-year notes. It was the first time since 1990, when the U.S. economy was on the verge of recession, that bonds yielded less than notes, creating a `inverted' yield curve. Today, 30-year bonds yield 1.78 percentage points more than 2- year notes. (Bloomberg 9-6) Pice targets Bear markets aren't all bad if they teach investors something about what works and what doesn't. In this particular slump, we may break foolish habits like having analysts pick `price targets' for stocks. Estimates of future corporate earnings, however problematic they may be, at least concern themselves with the fundamentals of the company being analyzed. A stock-price target, on the other hand, is an attempt to quantify the unquantifiable, namely how the mood of the markets may change in the future. (Chet Currier, Bloomberg 9-4) The Last 2 year slide The S&P 500, which slid 10.1% in 2000, is down 14.1% so far this year. The market's last back-to-back down years saw the S&P plunge 17.4% in 1973 and 29.7% in 1974, amid the first oil crisis, a sharp recession, the Watergate scandal and the unwinding of the blue-chip stock mania of the early 1970s. (Tom Petruno, LA Times 9-2) CD Alternatives Yields on one-year CDs, which were near 6% six months ago, now are around 4%. For those who live on investment income, a big drop in yield can have a lifestyle-altering impact. However, there are higher-yielding alternatives. Ginnie Mae mutual funds are mortgage-backed securities. Expect a return around 6%. Real estate investment trusts are stocks that function more like a mutual fund. REITs pool investor dollars and use the money to buy apartment complexes, medical buildings and other rental real estate. Currently, returns are about 7.5% on average, according to NAREIT. (Kathy Kristoff, LA Times 9-2) No Recession The consumer is still doing plenty of heavy lifting, which should give lie to the myth that the consumption boom was mainly driven by the stock market. Through the current quarter, consumption should rise at an annual rate of 3%. So the reason the economy will likely avoid recession is this: The last time we saw the anomaly of a recession coupled with rising consumption was in the downturn of 1970. And in that case, the economy got hit by the equally anomalous one-two punch of a rising Fed-funds rate and a contracting public sector. Quite the reverse is occurring now. As Casey Stengel said, you could look it up. (Gene Epstein, Barrons 8-27) Net Dependence One in 10 college students claims to have a dependence on the Internet, according to a survey report authored by Richard DioGuardi of St. John's. 15% of the 134 freshmen and sophomores polled exhibit classic manifestations of addiction; these include social isolation, encroachment on daily life, an urgent need for the Internet, and withdrawal symptoms. In addition, these students would probably use the Internet as a social outlet and consider it essential to their well-being. (Reuters, 8-27) MMS Experts are saying that new multimedia mobile messages (MMS) could supplant e-mail in some markets just as instant messaging has replaced e-mail in some contexts. Using MMS, people can send pictures, small animations, and text messages. With the future deployment of 3G mobile services, users will also be able to send video clips and other media available for download. (Reuters, 8-22) Quick Stats The percentage of self-directed investors dropped to 18% in Q4-2000, down from 25% a year earlier, according to Charles Schwab. In contrast, the number of investors who consulted a professional for a second opinion on investment decisions, grew to 48% by the end of 2000 from 40% a year earlier. (WSJ 9-6) According to the Mortgage Bankers Association of America, 4.63% of all mortgage holders were delinquent on their loans in Q2, up from 4.37% in Q1. That is the highest level since 1992, but well below the highest recorded level of 6.07% in 1985. The percentage of loans in the foreclosure process slightly rose to 0.91%, compared with 0.90% a quarter earlier. (WSJ 9-5) This year, the labor force between the ages of 16 and 24 rose by 2.9 million to 24.8 million between April and July, says the Bureau of Labor Statistics. But on a percentage basis, the summer job doesn't seem to hold its old appeal. The group's labor-force participation rate in July was about 71%, the lowest July rate since 1972. (WSJ 9-4) The BLS reports workers get 9.3 paid holidays apart from vacation. Those with 20 or more years on the job average paid vacation at a little over 20 days. Workers with 1 yr get 9.6 vacation days, up from 8.7 in 1980. Those with 5 yrs get 13.8 days, versus 1980's 12.4. And employees with 10 ys receive 16.9 days, up from 15.7 in 1980. (Gene Epstein, Barrons 9-3) There's about $2 trillion on the market's sideline sitting in money-market funds, up from $400 billion last year. (WSJ 9-2) September frequently treats investors poorly. In the past 50 years, the Dow industrials have emerged lower 31 times.(WSJ 9-1) A survey of 1,616 laid-off managers and executives found that they got new jobs at various levels between January and June: At a higher level: 46% At the same level: 39% At a lower level: 15% Source: Manchester. (WSJ 8-28) U.S. companies' Q4 hiring intentions are half as robust as they were a year earlier, according to Manpower's quarterly Employment Outlook Survey. In the depth of the last recession, in 1990 and 1991, hiring intentions were lower still, indicating we still have a ways to go if history repeats itself. The Milwaukee staffing company, which has conducted the surveys for 25 years, polled nearly 16,000 U.S. companies of all sizes. (WSJ 8-27) How could two children be born from the same mother on the same day but they not be twins? When they are two of triplets or quadruplets, or other multiple births. (Lewis Wolpert, www.independent.co.uk 8-23) Quick Tips If you've been using Microsoft Internet Explorer and you decide to migrate to Navigator 6, you won't lose all your IE Favorites. Netscape will import them as Bookmarks. To distribute your IE Favorites in the Bookmarks folder, click Manage Bookmarks and drag the saved sites to their new folders. IE will also import Netscape Bookmarks as IE Favorites. (Emazin Tip of the Day 9-10) A good way to safeguard your computer is by using screen saver passwords when leaving your computer for an extended period of time (15 minutes or longer). To do this, go to your control panel (Start, Settings, Control Panel), click on Display and select the Screen Saver tab. Under this tab, check the box that says Password Protected and then click Apply. Now your computer will prompt you to enter your password each time your computer has been in screen saver mode. (Prodigy 10-Second Tips 9-10) Home Page Previous Factoid Top Sites |