| Factoids from Business & Investment News
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That overlap helps explain how those stocks climbed so far so fast. Given that so many investors use the S&P 500 and the Russell indexes as the benchmarks for judging their fund managers' performance, the managers must own the stocks that are propelling those indexes. Cote observes that money managers, therefore, are stumbling over themselves to own the same 36 stocks. Such universal interest has a fun result on the upside. But if the shares keep drifting down, the managers are likely to be stumbling over themselves to sell.
The 10 were Reliance Group Holdings, Limited Inc., Ensco International, Seacor Smit, Texas Industries, J. Ray McDermott SA, Unitrin, Armco, Tidewater and USX-US Steel Group. While it proves nothing by itself, the robot's victory suggests three things. Value still counts. Low price/earnings ratios are still a good measure of value. And money managers shouldn't be afraid to buy deeply depressed stocks. That last lesson seems especially important. Value managers often buy stocks that are somewhat cheap, but avoid the very cheapest ones because the companies' problems seem so daunting. Yet these are frequently the stocks with the greatest profit potential. David Dreman, chairman of Dreman Value Management, has done years of work on the efficacy of low-P/E investing. He and his colleagues performed a study covering 500 large stocks over a 28-year period from 1970 through 1997. The most unpopular stocks (those ranked in the bottom fifth by P/E) had an average annual return of 15.2%. The most popular (highest P/E) stocks had a 9.6% return. Other studies have reached similar conclusions. And yet, faced with a barrage of unfavorable analytical opinion and negative headlines, it's hard for a manager to grit his or her teeth and buy the least popular issues. Would you like to know what stocks my robot picks for the year 2000? The lowest P/E stock is Warnaco Group Inc., the New York City based maker of Warner bras, Calvin Klein jeans, Speedo swimming suits and other clothing. It sells for only 3.7 times the past four quarters' earnings. (All P/E ratios quoted here are as of Dec. 31, when the robot made its picks.) Second cheapest is IBP, the nation's largest beef packer. Others include McDermott International - oil (5.4), USEC - uranium (5.5), First American Financial - title insurance (5.5), HealthSouth - outpatient surgery and rehabilitation centers (5.6), Lennar Corp - a Miami based home-builder (5.7), American National Can (6.3), Alaska Airgroup (6.5) and Precision Castparts - makes castings used in jet aircraft engines (6.5). You may have noticed that not a single stock in the 2000 Robot Portfolio is a repeat from the 1999 Robot Portfolio. That in itself tells you something. Stock-market fortunes change. The downtrodden often rise, which is precisely why low P/E investing frequently works. WSJ 1-10-00
Sector Funds
World
Julie O'Rourke, a growth-stock manager at Amcore Investors Management Group in Rockford, recommends pharmaceutical giant Merck (Nine out of 10 analysts have a negative call on the drug group and we want to be there before investors turn back to the group), capital goods leader United Technologies (They've been increasing profit margins every quarter) and laser and ink-jet printer maker Lexmark International (There are a lot of people printing off the Internet). A.G. Edwards: Lucent, PSINet, Time Warner, Wal-Mart, Capital One Financial. Stuart Freeman expects the Dow to reach 13,000 by December, a 13% gain. S&P's 500 up 17% at 1720. Nasdaq - which closed at a record 4069.31 Friday -- will be around 3200 by midyear and end the year as low as 3500 for a 14% loss. Credit Suisse First Boston: Cisco Systems, Zale, Home Depot. Christine Callies forecasts that the trading range begun in 1999 will continue. She expects the S&P 500 will end 2000 basically flat with Friday's close. Donaldson Lufkin & Jenrette: Infinity Broadcasting, Sprint PCS, Circuit City, Corning, Wells Fargo, Microsoft, Liberty Media, Capital One Financial. Thomas Galvin forecasts the Dow at 13,000 by year's end (up 13%) with a 1680 S&P (up 14%). Edward Jones: MCI WorldCom, Bristol-Myers Squibb, Wells Fargo, Disney, CVS. First Albany: Sun Microsystems, Texas Instruments, Tyco International, Gillette, Cisco Systems. Dow will rise to 12,000 (up 4%), the S&P 500 to 1540 (up 5%) and the Nasdaq composite to close out the year at 4300 -- representing a 6% gain. Goldman Sachs: Financial services, mainline technology and telecommunications, select cyclicals, and small- and mid-cap companies. (from LA Times 1-5: a partial list of their 89 picks - Anadarko Petroleum, utility Edison International, Ford, IBM, Philip Morris, Polo Ralph Lauren, Starbucks, online grocer Webvan Group and Parametric Technology) Abby Joseph Cohen predicts the S&P 500 rising 4% to 1525 and the Dow up 7% to 12,300. J.P. Morgan: Motorola, Cisco Systems, Honeywell, Deere, Genentech, Colgate-Palmolive, New York Times Co., Disney, Royal Dutch Petroleum, Enron. Lehman Bros: America Online, Cisco Systems, EMC, General Electric, Intel, Lucent, MCI WorldCom, Microsoft, Sun Microsystems, Vodafone. S&P 500 will reach 1600 this year (up 9%) as operating earnings rise 14%, and that the Dow will reach 12,750 (up 11%). PaineWebber: Technology, consumer (retail, leisure) stocks. Dow up 9% from Friday's close, to 12,500, and says the S&P 500 also will be up 9% at 1600 based on 10% growth in earnings. Salomon Smith Barney: Amgen, IBM, International Speedway, Deere, Honeywell. Dow could finish the year at 12,000 (up 4%) and the S&P at 1500 (up 2%). "I think the odds are pretty good that we'll have a tough year in the stock market in the year ahead," says John Bogle, founder of Vanguard Group. In fact, Mr. Bogle reckons money-market funds will outperform other fund categories for the next 12 months. Nonetheless, he thinks long-term investors should stick with stocks, which he sees outpacing money funds during the next 10 years, though not by much. Mr. Bogle expects annual stock returns of just 5 1/2% during the next decade, as the market's price-earnings multiple contracts to 20 from 28 times trailing earnings. Gary Brinson, chairman of Chicago's Brinson Partners, also likes real-estate investment trusts. Brinson also likes inflation-indexed Treasury bonds, which currently offer a yield above inflation of more than four percentage points. WSJ 1-3-00
Morningstar.com 1-3-00
WSJ 1-3-00
Bill Deener, Knight/Ridder 1-3-00 Where can an investor go to learn about small-cap equities? Here are a few interesting places worth visiting: www.smallcapcenter.com - Small-cap news, company watch and indices. www.financialweb.com/editorial/smallcap - Contains information on new small-cap issues, quotes and research. www.troweprice.com/mutual/insights/invsmstock.html - Primer on how to recognize small-cap stocks and develops an investment strategy. www.small-capanalyst.com/smallcap - Features a monthly small-cap pick, quotes, charts and more. www.fool.com/School/13Steps/stepeleven.htm - Provides details on benefits and downside of small-cap stocks, and on how to assess stock value.
Aristocracies and caste systems were the order of the day. Genuinely representative democracy existed in only a handful of countries, and even in those, all women and many men, including nearly all blacks in the United States, were barred from voting. For all our worries today about economic inequality, wealth in the era before World War I was really concentrated. "In the half-century before 1914, most capital flows traced back to a few thousand wealthy European families," David Hale, chief global economist for Zurich Financial Services in Chicago, recently wrote. "Today they are driven by fund managers allocating the savings of hundreds of millions of people in pension funds and mutual funds." What brought about this revolutionary change, in which workers themselves came to own much of the means of production? The spread of democratic practices, public education and one product above all others - the automobile, built on a moving assembly line. At the turn of the century, the horseless carriage was widely derided: contemporary observers said it was simply a plaything for the rich, a machine to impress the ladies. But in 1908, Henry Ford introduced the Model T. And in paying his workers what was then the princely wage of $5 a day to make a car selling for $850, he helped create a consumer mass market at the same time he was offering something to satisfy it. The combination released a torrent. It changed the world. Tom Walker, Atlanta Journal-Constitution 1-1-00
Few dispute the clear benefits that foreign capital has brought to Hungary. Foreign-run companies here are more productive, create more jobs, and export and invest more than local companies. Yet the same ties that bind Hungary's economy to corporate investment also make the economy vulnerable to corporate influence. And that influence is stirring anti-foreign sentiment. A decade after the collapse of communism, some are beginning to take a more sober view of the downside of foreign investment: the economic distortions and welfare-sapping effects that Western-style business can create. There has been little spillover from the efficient foreign companies to the less-efficient local operations. Some worry that their homeland is evolving into a two-tiered economy composed of wealthy foreign-controlled companies that pay handsome wages and smaller local firms that are just scraping by. And because most workers are employed by local companies, overall wages in Hungary have been flat, suggesting that the wealth from multinational corporations has been slow to trickle down. Already, there is a wide divide between the country's two halves. While western Hungary is bristling with Western factories and warehouses, eastern Hungary is stagnating. With a few exceptions, the eastern regions suffer from poor infrastructure and ailing smokestack factories. In other words, what's making Hungarians uncomfortable is the realization that Western-style business growth can also lead to economic inequality. Europeans find such trends - and the potential social tensions that can result - troubling.
Only a year ago, many investors couldn't get their money out of Japanese stocks fast enough. The Nikkei was near 12-year lows. Global markets were shuddering. On Oct. 1, shares of Industrial Bank of Japan hit an intraday low of 435 yen -- down 93% from where they began the decade. In March, with the first injections of public money into IBJ and more than a dozen other troubled institutions, bank shares began a steady climb, giving the Nikkei average its biggest boost in years. The state bailout had forced all of Japan's banks to reassess their strategies, and many were finding them lacking as they saw technology-investment bills soar and foreign rivals bulk up. In August, IBJ, Fuji Bank Ltd. and Dai-Ichi Kangyo Bank merged into Mizuho Financial Group. Within four years, IBJ plans to sell off about one-quarter of its three trillion yen worth of shares of companies in which it has been a trusted stakeholder for decades. The news sent bank shares higher into September as investors anticipated a wave of mergers that followed. It also helped trigger a sell-off of companies that depend on the traditional bank-led economy for their survival-general contractors, old-line manufacturers, property firms. DoCoMo shares also took off around then as the company's new Internet-linked cell-phone service proved to be a hit and came to typify an emerging Japanese economy based on services and information. Tuesday, DoCoMo shares closed at a record of 3.89 million yen, boosting the company's market capitalization past that of Cisco to become the world's third-largest company. In 2001, DoCoMo will be the first company in the world to launch high-speed "third-generation" mobile-phone services, a move that's expected to unleash even greater demand for handsets and wireless Internet access. Beginning in March, investors -- particularly foreign investors -- charged into Japanese stocks. Through Dec. 17, foreigners had purchased a net nine trillion yen ($88 billion) in shares, ensuring this year will be the biggest ever for foreign buying. By year's end, foreigners owned more of corporate Japan than banks, which had long been at the center of Japan's economic structure. While technology and Internet stocks soar, old-line companies are tumbling. As of last Friday, 48% of the 1,318 companies listed on the prestigious first section of the Tokyo Stock Exchange were down from the start of the year, despite the 57% gain in the Topix index, which tracks all the shares on the first section. The Japanese rally depends in large part on whether the world's investors keep their faith in the American "new economy," the model for Japan's version. If so, they are likely to continue betting on the Japanese who are again chasing the U.S. rabbit. ...the need for yen to buy all those stocks helped push the currency up against the dollar by 10%. But a stronger yen crimps the earnings of Japan's exporting giants like Sony, Honda and Hitachi, whose stocks are favorites of foreign investors. And so those investors' enthusiasm for Japanese assets actually imperils the very recovery in which they are so eagerly investing. Contradictions like this mark many aspects of what is shaping up as Japan's economic renaissance after nearly a decade of decline.
Mexico isn't the only Latin American country on a roll: Brazil's Bovespa index has jumped 147% this year. The Brazilian real, which closed at 1.81 to the dollar Wednesday, has gained 10% in value since October. Another sign of increased investor confidence in Latin America is that investors are receiving a much smaller interest rate premium for investing in long-term bonds, compared with rates available on U.S. bonds with similar maturities. Despite the huge 1999 gains, Mexico's stocks are still 23% below their February 1994 high in dollar terms, while Brazilian stocks lag the July 1997 high by 35%. The Mexican economy should grow at 4.5% or better in 2000, amid relatively low inflation of under 11%, down from 18.6% in 1998, Merrill Lynch equity strategist Eduardo Cabrera said. Other favorable signs are the lowest unemployment in more than a decade and booming exports. Consumers are finally participating in Mexico's recovery, largely because wage growth is exceeding inflation for the first time since the devaluation. Despite this recent improvment, consumption in many categories, including automobile sales, is still below that of pre-devaluation 1994. Mexico's trade deficit next year is forecasted be 4% of economic output, down from 7% in 1994. Maturing foreign debt in 2000 will total less than $2 billion, compared with a lopsided $33 billion in 1994, when dollar-denominated debt helped sink the economy. The government has $30 billion in foreign reserves with which to defend its currency, compared with only $6 billion when the run on the peso began in 1994. Moreover, Mexico allows its peso to float freely on the global exchange, unlike in 1994 when it was pegged to an exchange rate defended by the central bank. Mexican banks were inundated by defaults after the December 1994 peso devaluation pushed up interest rates to 100 percent. Facing the possible collapse of the financial system, the government took on a mountain of bad debts, and now faces a bill that rating agency Standard & Poor's estimates at 21.3% of gross domestic product. And analysts say the country's apparently healthy 1999 macroeconomic statistics -- GDP growth at nearly 4.0%, inflation of 12.32% and a fiscal deficit of just 1.25% of GDP -- may mask a darker reality. `So all seems quiet on the Mexican front, right? Not really. Throughout the course of the Bolsa's climb, Mexico's true fiscal deficit appears to have been ignored,' wrote Morgan Stanley Dean Witter economist Ian Laming in a report. Laming said that accounting for the bank bailout cost would triple the fiscal deficit to between 4.0-4.3% of GDP. Standard & Poor's estimates that the cost of the massive rescue operation would take Mexico's true gross public sector debt to 49.8% of GDP from 27% of GDP -- on a par with countries like Argentina and Brazil whose fiscal accounts are of great concern to the financial community. `Mexico's debt is manageable,' Laming said. `But we all know perception dominates reality when markets turn south.' 2000 is set to be the year when the government finally acknowledges the rescue costs and begins to pay the bills. It has brought in new rules on capital to force weak banks to strengthen their balance sheets, is slowly removing 100 percent guarantees on deposits and plans to sell off some of the most fragile of the nation's financial institutions.
The advent of a seamless market of 290 million people who share the same currency has changed everyone's perspective. With the advent of the common currency linking 11 nations, two big obstacles disappeared overnight: exchange-rate risk and limited access to capital markets. Companies that could raise money only for bids in their domestic markets or couldn't pay for foreign targets in shares because they were denominated in a foreign currency now can tap into a much bigger pool of money that has fueled a booming corporate bond market. William Pesek, Barrons 1-17-00 In 1998, before the euro's launch, 48% of all bonds sold in international markets were denominated in dollars. Last year the euro was used in 45% of all international bonds sold in 1999, topping the dollar's share of 42%. The trend is seen continuing. Much of the money raised through bond issues has been used to fund a dramatic increase in merger and acquisition activity. Europe's total announced mergers exceeded $1.213 trillion, a whopping 105% gain from 1998, according to Thomson Financial Securities Data. Europe saw about 36% of global M&A volume last year, up from about 23% in 1998. And observers expect the European merger market to remain hot in 2000. By jumpstarting the corporate bond markets, the euro is clearing the way for asset sales, acquisitions and a general refocusing that once seemed unthinkable in Europe. Previously, countries at a competitive disadvantage -- owing to, say higher inflation -- would see their currencies depreciate to compensate. Lacking that easy way out, the more difficult structural changes are being tackled. Bankers think 2000 will be a banner year for stock offerings. According to Capital Data, Western European share offerings grew by 32% in 1999, with the last quarter of the year weighing in as the busiest ever. In the year ahead, companies may step up efforts to spin off business units, while a slew of Internet operations are expected to go public. Governments, meanwhile, are accelerating plans to privatize corporate holdings. And the need to fund M&A deals also will boost share offerings. The euro also has encouraged changes in portfolio investment on the Continent. It used to be that European insurance companies had to keep 80% of assets in investments in the same currency as their premium income. But over the last year, insurers have been able to invest anywhere in the euro zone.
Picking your first stocks is an intimidating process. One way to confront that fear is to build and track a virtual portfolio --- an imaginary set of investments. Select five or 10 stocks you like and "buy" 100 shares of each one. The Virtual Stock Exchange (www.virtualstockexchange.com) is my favorite for virtual portfolio building. It allows you to "invest" in just about any stocks you like and to follow their prices for however long you want. The service is free. About 130,000 people now use the site, including classes from Harvard, Stanford and Cornell universities. If your imaginary investments do well, any irrational fears will become easier to understand and dismiss. On the other hand, your best choices may turn out to be terrible ones. That's part of your education, too. If you discover that you are a hopelessly bad stock picker, or too impulsive, or just not interested in doing the work, then you must consider turning the work over to somebody else and buy mutual funds. (Hank Ezell, AJC 1-9) From Kevin Landis, a portfolio manager for Firsthand Funds, which invests exclusively in technology: If we had fundamental bad news about the technology industry in general or any of these companies in particular, then you could argue that there is a lot more room to fall. But there is not a lot of fundamental news that is driving the sell-off. It is psychology. Some investors have been trying to pick the point where they are going to take their profits. And a number were holding on for dear life. Now that they think they have seen the near-term peak, they want to get out. As usual, they all want to do it at once. ....What would worry me in terms of a big compression in price-earnings multiples is if there were a lot of other really compelling investment alternatives for people. Absent that, I don't worry too much. (Kenneth Gilpin, NYT 1-9) After several years of arguing over what technical approach to take, broadcasters and broadcast-equipment manufacturers have coalesced around a format called In Band On Channel, or IBOC for digital radio. The FCC is expected to set a specific IBOC standard in the second half of this year. Radio stations will be able to install digital equipment to their existing transmitters for a relatively modest cost and will send out the digital signal on an unused part of their existing frequency.Digital radios, which would also receive standard AM and FM, would cost 10-20% more than today's radios.Listeners will immediately notice the CD-quality sound, with no interference or static, that digital broadcasting will provide. The digital format will also make it much easier to transmit data, anything from song titles to traffic reports, that could be displayed on small screens built into digital radios or sent as audio files for later listening. (Seattle Times 1-9) Peter Eliades, editor of Stockmarket Cycles, a financial newsletter and money management firm in Santa Rosa, Calif., said that in seven of the 10 years since 1900 that have ended in zeros, stocks reached peaks in the first few trading days of the year and then went into a downward spiral. The facts: 1900 -- The market topped out on Jan. 2, and the level proved to be the highest of the next 10 months. 1910 -- Topped out on Jan. 3 and the high was not beaten for five years and seven months. 1920 - Stocks peaked Jan. 3 and the high went unchallenged for five years. 1940 -- Jan. 3 was the highest close of the next five years. 1960 -- Jan. 4 struck the highest finish for 16 months. 1970 -- Jan. 5 was the highest of the next 11 months. 1990 -- Jan. 2 set the peak for the next four months. (Reuters via NYT, 1-8) The rise in the stock market is the most encouraging sign in years for Japan. The Ministry of Finance should be jumping up and down for joy at the sight of foreign investors buying Japanese stocks. A re-inflation of asset prices in Japan has to help the banks. The banking system is the epicenter of the economic malaise that started with the collapse of the bubble economy ten years ago. Banks own tons of commons stocks and also have loans on their books that were backed with shares as collateral. Re-floating the banks means that bank lending might begin to grow again. While the banks are the key to the recovery, the stock market might be the catalyst. The stronger yen is just a byproduct. Get used to it! (David DeRosa, Bloomberg 1-7) Northern European and American men with high blood pressure are three times more likely to die of a heart attack than men with the same blood pressure from Japan or the Mediterranean coast of Europe, a study found. Although genetics may explain some of the difference, diet also plays an important part. The Mediterranean diet at base line contained less meat and fewer dairy products, but more olive oil, fish, fruits, vegetables and alcohol. Researchers from the Netherlands analyzed data on 12,031 middle-age men in six geographic areas and found that in every region, the risk of death from coronary heart disease increased as blood pressure rose. (Nando 1-6 from New England Journal of Medicine) Asian auto makers gained almost one point of market share and now hold 25.8% of the U.S. auto market. European brands now control about 5.7% share of the market. Overall, U.S. auto makers account for 68.5% of cars and trucks sold in the U.S., down from 70.2% in 1998. GM's total sales were up 9% to 5.02 million cars and trucks. Ford's total sales were up 6.1% to 4.163 million units. (WSJ 1-6) Kids' drugs and vaccines are a growing research area, according to the Pharmaceutical Research and Manufacturers of America, Washington. It found in a 1999 survey that there were 207 drugs and vaccines in development for children, up 11% from 1998 and up 42% from 1997. Drugs to treat cancer led the list at 47. (WSJ 1-6) It's impossible to time the market. Investors in US stocks who were out of the market for the best 1.2% of all trading days from 1963 through 1993 missed 95% of the market's gains, according to a study commissioned by Towneley Capital Management. (WSJ 1-6) More predictions: (1) Another good year for active managers. Given how narrow segments of the market drove much of the gains in 1999, it's a reasonable assumption that active managers may again gain ground against broad-based indexes. (2) "Exchange-traded funds," or index shares, become the "next big thing." (3) Investors rediscover international funds. (4) We'll see some upstart fund firms offer an ultra-low-cost fund that charges a fee for services such as paper copies of statements or calls to its phone center. (5) More investors disillusioned with funds due to poor tax efficiency and the ease and allure of buying individual stocks. If investors can't be euphoric after the last 12 months, they certainly won't be satisfied if 2000 turns out to be a more "normal" year. (Charles Jaffe, Boston Globe 1-5) Assets of money market funds have increased by more than $220 billion, or about 16%, in the past year, according to the Investment Company Institute. Over the same span, net cash flow into bond and hybrid (stock-and-bond) funds has been just a shade above zero. To judge by market indexes that rose 20% or more in 1999, stocks aren't bothered at all by rising interest rates. That's deceptive, though -- aside from the red-hot computer and telecommunications stocks, the stock market has already shown several ill effects. On an average day in 1999, 137 more stocks declined than rose on the New York Stock Exchange. (Chet Currier, Bloomberg 1-5) If you can prove to the IRS that you owe more than you can ever pay, it might agree to a deal. The reasoning is that it's better for the government to collect something than to play hardball and get nothing. The IRS accepted a record 30,542 compromise offers in the year ended Sept. 30, up 22% from the prior year. It accepted 62% of offers, up from 50%. And it accepted $311 million to settle $2.4 billion in tax debts, an average of about 13 cents on the dollar. (WSJ 1-5) The luxury tax on new, high-priced cars drops again. This year, the tax is 5% on amounts above $38,000. Last year, it was 6% on amounts above $36,000. (WSJ 1-5) For the first time in recent history (and probably the first time since the Depression) a quarter of the value of the S&P's index of 500 stocks comes from companies that do not pay dividends. Two decades ago, only 2% of the value of the index came from such companies. While 402 of the 500 stocks in the index did pay dividends last year, only one of the top 15 performers, and 14 of the top 50, did so. Of the 14 that paid dividends, only one (Morgan Stanley Dean Witter) is paying out at least 1% of its share value. As recently as 1997, 90% of the value of the index came from companies that paid dividends. But that fell to 85.2% in 1998 and to 74.8% last year. The dividend yield on the S.& P. 500 last year came to just 1.14%, down from 1.32% in 1998 and 1.6% in 1997. (NYT 1-4) With the industry booming, the number of heavy trucks on the road has increased 25% to 1.5 million in the past five years, making it hard for many companies to find enough drivers. Average annual pay for drivers increased about 24% during the past five years to $36,000, says the American Trucking Association. (WSJ 1-4) A record 171 stock mutual funds, most of them loaded with highly volatile technology and Internet stocks, surged 100% or more in 1999, doubling their investors' money in a single calendar year. To put that in perspective, through 1998 only 23 mutual funds had ever accomplished that feat. Doubling in value is spectacular enough, but 20 of the 171 top-performing funds more than tripled in value last year, something no fund had ever accomplished in a single calendar year. Three funds gained 300% or more. Whereas the average equity fund holds 138 stocks, those funds that doubled their investors' money or more in 1999 held 68 stocks, on average. (Paul Lim, LA Times 1-4) In families where both spouses work full time, wives earned more than their husbands in 22.7% of the households, according to the Census Bureau's latest figures. From 15.9% in 1981, the percentage of homes where the wife is the bigger breadwinner rose steadily through the 1980s, but it has stalled since hitting 22.4% in 1992. (WSJ 1-4) A survey by staffing company OfficeTeam finds that about 19% of U.S. office workers eat lunch at their desks every day. (WSJ 1-4) It didn't take long - less than one hour, in fact -- for the experts to be proved wrong. `On average, analysts surveyed think rates will peak at 6.52% by June 30 as inflation shows signs of acceleration, albeit modest ones,' this week's Barron's reports. The 30-year bond breached the 6.52% barrier in the early moments of trading overnight, rising as high as 6.6% in New York trading. (Caroline Baum, Bloomberg 1-3) Cash positions as a percentage of bond mutual fund portfolios were actually lower at the end of December (4.6%) than they were a month earlier (5.2%). That belies all the talk of available cash needing to be put to work in the new year. Cash positions are slightly below the 12-month average of 4.74%, according to Stone & McCarthy. (Caroline Baum, Bloomberg 1-3) Telecommunications companies said their biggest midnight problem was a large volume of New Year's calls. But they took it in stride. AT&T officials bragged about facing 1.2 million calls in the first five minutes after midnight Friday but failing to complete only one of them. Microsoft was braced for panicked inquiries from worried PC owners; it got just 80 in a 24-hour period, less than 1% of the normal number. It was similarly quiet at the global computer monitoring center set up by Electronic Data Systems. In their search for a silver lining to massive Y2K spending, many managers say they now have leaner, better-designed computer systems, as they used the Y2K effort to undertake some much-postponed data-processing housekeeping. DaimlerChrysler was able to throw out 15,000 of its 70,000 computer programs. (WSJ 1-3) Every student of new technology I've heard or read believes the market for "business-to-business" (B2B) applications of the Internet will easily dwarf the market for retailing, which will be perceived as the valuable laboratory for the much greater enterprise. Think about online shopping. You don't ever have to do it. To buy a book, you can still go to a shop. Businesses, however, will have no choice but to deploy Internet-predicated methods. Dozens of firms are available for investing. Among them: PurchasePro's (PPRO), Ariba (ARBA), FreeMarkets Inc. (FMKT), Commerce One (CMRC), Elcom International (ECLO), Concur Technologies (CNQR), UBID (UBID) and VerticalNet (VERT). (Fred Barbash, Washington Post 1-2) While Internet companies in the booming business-to-business sector are hot, all kinds of companies that cater to retail consumers are cold. The median Internet stock in the consumer-services Internet sector is down more than 2% since Nov. 3 despite the Nasdaq's 1,069-point advance, according to Prudential Securities. One reason business-to-business Internet stocks, and those that focus on Internet infrastructure, have climbed is because fewer of these companies have gone public compared with Internet companies that cater to retail consumers. "Business-to-business has traditionally been a less efficient area, so there's greater potential profit there," says Michael Yagemann, an investment banker at Michael Yagemann & Co. LLC. The second reason: In 1999, 85 Internet companies -- mostly consumer in orientation -- sold follow-on offerings, generating $18.9 billion in stock for the market to absorb, according to CommScan. Also in 1999, 24 consumer-oriented Internet companies sold $8.6 billion of bonds and preferred shares that can convert into stock, up from three deals valued at $451 million in 1998. The pace of both add-on sales, and convertible issuance, is expected to jump this year. (WSJ 1-3) As rising interest rates deterred them from refinancing existing debt, local governments and agencies sold 23% fewer bonds in 1999, and some analysts expected the total to drop again this year. As of last Tuesday, muni sales for 1999 totaled $217 billion, down from $280 billion in 1998, according to Thomson Financial/Securities Data. The 1998 total was second only to the record $292 million of 1993, Thomson said. And just $36 billion of refunding bonds -- those floated to repay existing debt -- were sold in 1999. That is 55 percent less than the 1998 level, traders and managers said. Sales of new debt for 1999, not including refundings, reached $151 billion, little changed from the $155 billion for 1998. (NYT 1-2) According to Lipper, net new investments in index funds that track the S&P 500 fell considerably for November, to $600 million from $3.25 billion in October. Lipper said that was the slowest pace of cash inflows into index funds since the summer of 1998, when the stock market was in a correction. But the most recent slowdown occurred during a month when equity markets were rising sharply. Part of the money is probably going into individual growth and technology stocks, or into funds that specialize in those kinds of stocks, said Edward Rosenbaum, research director at Lipper. Indeed, science and technology funds saw net flows of $8 billion in November, nearly two-thirds of the net flows into equity funds. For 1999, large-cap growth and multicap growth funds returned 35.8% and 48.3%, respectively, through Dec. 23, far ahead of the 19.4% gain of the average S&P index fund. Mid-cap growth and small-cap growth funds did likewise, returning 67.6% and 55.6%, respectively. Science and technology funds returned 128%. (NYT 1-2) For the year through Thursday, Mexico's Bolsa index was up 80.1%, Argentina's Merval was up 28% and Brazil's Bovespa was up 151.9%. As the new year begins, Latin American corporate profits remain spotty, but a group of new Wall Street reports succinctly showcase Latin America as a place where investor opportunities look promising. A recent Merrill Lynch report had an ebullient subtitle: "We've had the Pain; Now for the Gains . . . The Stage Is Set for a Big Year in 2000." A Goldman, Sachs report urged investors to take a close look at both stocks and bonds, predicting that total returns "will likely exceed those in both mature markets and possibly non-Japan Asia." Goldman, Sachs predicts the change in the region's GDP will swing from a decline of 0.1% in 1999 to 4% growth in 2000. The firm also predicts that $38 billion in new portfolio investment will flow into Latin American stocks in 2000, up from $24 billion last year -- this in markets with a total capitalization of barely $400 billion. (NYT 1-2) Stephen Slifer, chief U.S. economist at Lehman Brothers, says the American economy could still be going strong not just a year from now but five years from now. The reason - the surge in productivity. Since the expansion began in 1991, US GDP has increased about 37% after adjusting for inflation. GDP for the private sector alone has risen even more, about 41%. Part of the growth is due to an increase population and work force, but even on a per capita basis inflation-adjusted GDP is now 29%. GDP increased of less than 27% in real per capita GDP in the 1980s and 36.4% increase during the 1960s. (John Berry, Washington Post 1-2) For all this concern about lack of breadth, we should realize that it is not as bad now as it was 25 years ago. Back then, AT&T and GM represented 15% of the S&P 500 Index. Today, Microsoft and GE represent 7.5% of the S&P. Put another way, back then the market cap of AT&T and G.M. was equal to the 388 smallest stocks in the S&P. Today, Microsoft and G.E. are equal to the smallest 180 stocks in the S. & P. (Kenneth Gilpin quoting Laszlo Birinyi, NYT 1-2) ... and what were Birinyi's stock picks for 2000? AOL, CMGI, Nokia, Texas Instruments, Merrill Lynch, Morgan Stanley Dean Witter, Dow Chemical, Alcoa, and Caterpillar. Approximately 63% of all NYSE stocks declined an average of 29% in 99. While the S&P 500 was up some 19%, the index would have barely budged if not for its technology stocks. Some analysts saw the Q4 surge of the Nasdaq and Russell 2000 indexes as evidence that trading may finally be expanding to the midsize and smaller laggards - a trend strategists say would strengthen the market overall. 'We think technology will outperform through 2000 as a whole, but non-tech stocks with solid fundamentals have appeal for near- and long-term appreciation,' said Standard & Poor's analyst Arnold Kaufman. At least one electronic device in my house benefited positively from the new year: right after the main event I unplugged my VCR and plugged it back in. For once, it's date read 12:00 1/1/00 and it was correct. (Rec.humor.funny Lee Daniel Crocker) Dun & Bradstreet said Wednesday that 43% of the executives who responded to its survey said they are likely to increase prices in the quarter. That's up from 33% who said they expected to raise prices in the 1999 fourth quarter. A corresponding index of expectations for price increases rose to a five-year high. The survey of 3,000 executives in retailing, wholesaling, manufacturing and services was taken Nov. 17 to Dec. 6. It also found that companies are more confident about profits and sales. (Blomberg 12-30) By 2003, 13% of the online world will use a free service, predicts Jupiter Communications. However, some users will continue to pay for Internet access because they do not want to give up their privacy or constantly watch ads on the screen. Some analysts believe the free Internet access trend will merely pressure companies such as AOL and Microsoft to lower prices; however, there are rumors that a few top ISPs are considering offering free access. (C\Net 12-29) A layman might look at the gain in the index and conclude that the average stock in the Nasdaq Stock Market was up 81%. That would be far from the truth. There are 4,773 stocks in the Nasdaq Composite Index and the Bloomberg stock-screening database has information for 4,575 of them. How many were up 81% or more this year? As of Friday, the answer was 903 stocks, or 20% of the total. In other words, 80 percent of the individual stocks in the index were up less than the index itself. But wait, it gets worse. No fewer than 2,061 Nasdaq stocks (out of the 4,575) were down for the year. Not down relative to something else -- just plain down. That was 45% of all Nasdaq stocks we have information on. The median gain for all Nasdaq stocks was about 7.5 percent. (John Dorfman, Bloomberg 12-28) Just 1% of 400 companies in the tech sector account for 40% of its $900 billion value in the stock market. The implication is that Internet companies have unique economics argues Michael Mauboussin, the chief investment strategist at Credit Suisse First Boston. Consumers who are overwhelmed with choice gravitate to a few well-known sites. As some sites get bigger, they attract more users, and the more users they attract, the richer and more useful they become, attracting more users. This produces a "winner-take-all" outcome: a handful of Web sites with almost all the business, and the rest with next to nothing. Indeed, CSFB's research was spurred in part by work at the Xerox Palo Alto Research Center that found a "power law" relationship between Web-site usage and ranking. It found the top 0.1% of sites got 32% of usage, the top 1% got 56%, the top 10% got 82%. The value of the companies themselves follows the same pattern. (WSJ 12-27) 10 Resolutions for the New Year - 1. Appreciate what you have before buying more. 2. Set goals--both short- and long-term. Would you drive an older or less expensive car to get more time with your kids? Would you trade a big house for less stress? 3. Cut back--just a little. 4. Automate your savings. 5. Pay more against your debts. 6. Get started on taxes. 7. Review your investment portfolio. Do you have losers that can be sold to offset your other taxable gains? Are you still as sold on your winning stocks as you were before their prices ran into the stratosphere? 8. Shop your insurance. 9. Review beneficiary designations. If you have had a birth, death, marriage or divorce in the last year, it may be time to take a look at who gets your life insurance, pension plan or bank accounts in the event of your death. 10. Invest in yourself. Technology continues to change the working world at light speed. If you stand still, you'll be left behind. (Kathy Kristof, LA Times 12-26)
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