| Factoids from Business & Investment News
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"I'm too busy to look for something better." Inertia is one of the biggest enemies of fund investors. If you dislike change and hate owning up to your own mistakes, a bad fund can stay in your portfolio for years. "It's really not so bad." The story lies in the numbers, so whenever you evaluate a fund, compare performance to its peers. If it has consistently lagged behind the competition, it's sending you a signal that you might be happier with your money in those other, better funds. "I'm waiting to get back to break-even" or "I'm waiting to earn back the load I paid." Again, comparing investing to love, it's a bad idea to take the fairy tale approach and assume that, someday, your prince will come. Not every fund rebounds and not every investment story has a happy ending. Even if you recoup your losses, you might be better off getting out now and putting your money on a faster horse that speeds your recovery. "It has to get better." No, it doesn't. A lousy fund can stink forever. "My financial planner tells me to hold on." You want a financial adviser to give you the emotional discipline to stay put whenever the market makes you jittery. But that doesn't mean abdicating decisions entirely. If a broker-sold fund hasn't produced results, ask why. If you get neither answers nor alternatives, it may be time to change both the fund and the adviser. "Everything looks fine in the fund's reports." Of course it does. Mediocre managers know how to put a shine on the sewage. If the fund's statements about prospects and performance have never appeared in your account statements, call off the romance.
Few understood why, in light of a seemingly accommodative monetary policy, the broad monetary aggregates (M2 and M3) were growing at their slowest pace in three decades -- or why economic activity was so anemic. Bank regulators, including the Federal Reserve, were hoodwinked by the existence of deposit insurance into assuming that the closing of insolvent depository institutions or their acquisition by solvent ones wasn't contractionary. Just because the individual depositor is kept whole by deposit insurance does not mean the banking system is kept whole. `When a solvent bank assumes the liabilities (deposits) of an insolvent bank, the government has to give the institution reserves,' says Bob Laurent, a professor at the Stuart School of Business at Illinois Institute of Technology. `Because the government raised the money by borrowing from the non-bank public, there is no increase in deposits to offset the reduction in deposits when the government borrows.' When the government borrows to buy F-18 bombers, for example, Boeing gets a deposit. Not so when a solvent bank acquires an insolvent one. `The banks just get reserves,' Laurent explains. `The effect is the same as if they were selling assets.' Perhaps that explains why Japan's money supply growth has slowed following the huge capital injection last spring. If the Fed didn't understand the contractionary nature of what it was doing, the Bank of Japan never will. Japanese officials are warning that the economy contracted for a second consecutive quarter in the fourth quarter. Two back-to-back quarterly declines in GDP is generally considered to signal a recession. Despite growing evidence that Japan is technically slipping back into recession, economists say the economy remains on track for a very slow, bumpy turnaround. 'The problem is that the world's most unreliable statistics, Japanese [GDP] figures, have become the focus of attention,' said Jesper Koll, chief economist with Merrill Lynch Japan. 'We're still looking at a corporate-led recovery. The year-end bonuses that form an important part of the average Japanese pay were down 9.4% on average. Q4 also saw a drop-off in government-funded construction projects and other fiscal spending designed to prop up the economy. The regular 1999 government budget was spent early in the year to accelerate its impact, and a supplementary budget passed in November had not yet kicked in. But industrial production and machinery orders are picking up, and corporate sentiment is starting to improve. 'Department store sales in January went up, people are starting to take more trips, and car sales are growing,' said Susumu Takahashi, chief economist with the Japan Research Institute. As mounting job losses and bankruptcies continued to damp consumer sentiment, Japanese household spending fell 1.2% year on year in 1999, according to the Management and Co-ordination Agency. The December data revealed household spending fell 4% year on year. The decline, which follows a 2.9% fall in November, was driven by a sharp drop in winter bonuses. Japanese banks have written off more than $472 billion in bad loans over the past eight years, according to figures from regulators here. That is a huge amount, more than previously thought. It is about 10% of Japan's gross domestic product. It is slightly larger than South Korea's economy and slightly smaller than Canada's.
About the time profits began to suffer from the global financial crisis, the US' nonfarm payrolls had been expanding by 273,000 new jobs per month, on average, during the 12-months ended August 1998. Thereafter, the average monthly addition to nonfarm payrolls would subside to the 224,000 of the 12-months ended September 1999. A subsequent rebound in profitability following from the recovery by world GDP growth to 1999's 3.1% gain helps to explain why the average monthly increase of nonfarm payrolls has since increased to the 311,000 of the four-months ended January 2000. If as expected, the world economy grows more rapidly in 2000, a consequent upturn by business net income should spur hiring activity. Increasing the demand for labor amid an already tight labor market will probably accelerate wages and salaries. A diffusion index which estimates the breadth of hiring activity by subtracting the percentage of industries cutting staff from the percentage adding workers has been rising anew. After most recently cresting at the 63.7 of 1997's final quarter, the employment diffusion index would then descend to its 54.1-point bottom of the quarter-ended October 1999. Reinforcing the notion of a potentially inflationary rejuvenation of hiring activity has been the employment diffusion index's subsequent rise to its 57.2-point mean of the quarter-ended January 2000.
Net flows into stock funds in Germany, France, Italy, the United Kingdom, Spain and Switzerland rose 4.3% to $14.6 billion in December from $14.0 billion in November, according to monthly data released by Europe's mutual-fund associations. The rush into stock funds in December marks an all-time high. The previous record for monthly inflows was $14.5 billion in March 1998. And fund executives say this year is already booming. International and specialty funds continue to capture the greatest inflows, with technology by far the hottest sector. Investors are shying away from several areas, including European and international bond funds -- and U.S. stock funds. Don't be fooled by seemingly steep European unemployment rates. Although the EU-15's November 1999 unemployment rate of 9% was the lowest since 1991, it remains well above the US' "tight" jobless rate of 4.1% -- the lowest such rate in nearly 30 years. Generous jobless benefits make it more difficult for many of Europe's unemployed to assume a new position. Not being officially employed can have its advantages. As a result, Europe may show symptoms of labor market tightness at a higher rate of unemployment than in the US. For all 15 member countries of the European Union, December 1999's 8.8% unemployment rate was under November's 9%, as well as the 9.6% of December 1998. December's jobless rate was beneath all previous annual averages going back to 1991's 8.7%.
Some big, mature companies have enjoyed windfall stock gains in their employee pension plans, enabling them to book pension income instead of expense. Without that pension benefit, profits of S&P 500-stock index companies would have been 3% lower in 1998, Bear Stearns estimates. The stock market has actually helped in several ways keep a lid on price and wage increases, a contribution that might disappear in a bear market. For example, many companies have substituted stock options for wage increases. A team of Fed economists figure employment costs, which grew 3.1% from 1994 to 1998, would have grown 3.4% if options were included. A falling stock market could also weaken the dollar, whose strength against the euro is highly correlated with stocks. A rising Dow lifts the dollar both because foreigners are buying US stocks and because it suggests the US business sector is a good place to invest. Conversely, whenever the Dow slumps you get a big drop in the dollar. So if stocks go into a protracted decline, so might the dollar-removing one of the factors that has kept imports inexpensive and limited the ability of US companies to raise prices. Even the budget surplus, which has helped hold down bond yields as last week's Treasury buyback announcement demonstrated, could be eroded by a bear market. Since 1994, when the bull market's most powerful phase began, the Congressional Budget Office estimates the federal government's capital-gains-tax take almost tripled to an estimated $100 billion last year. That increase is equal to half the $124 billion fiscal 1999 surplus. Taking these factors together, it is possible to imagine a falling stock market weakening the economy and cutting profits, but at the same time putting upward pressure on inflation and interest rates -- further undermining stocks.
`Companies can't sell stock fast enough, and insiders can't sell stock fast enough,' Biderman said. `Who do you think knows more about the future of their companies, corporate insiders or the guy who's buying stock on margin?'
Taylor intended his rule to tell central banks around the world what they should do. But it caught on for another reason: It explained what they actually do. Why parse all those convoluted Greenspan sentences? Plug a couple of numbers into Mr. Taylor's equation, and out comes a chart of interest rates that tracks closely what the Fed has done since the mid-1980s. It worked for the Bundesbank, too -- something of a surprise, since the German central bank insisted its guide was the money supply. Today, in textbooks and practical central banking, the Taylor rule has replaced the rule offered by Nobel laureate Milton Friedman: Set a target for growth in the money supply and maintain it. Mr. Taylor's rule has a couple of virtues: It focuses on short-term interest rates, as the Fed and ECB do in practice. And unlike calls for central banks to announce and aim at inflation-rate targets, the Taylor rule reflects a view held by politicians, the public and some economists: Central banks ought to resist recessions as well as inflation.
Fully one-third of exit poll respondents thought Bush might not be well informed enough to be president and 73% of them said they voted for McCain (1% for Bush and 26% for 'others'). Of the 63% that said Bush was 'knowledgable enough to be president', 48% voted for Bush, 33% for McCain and 19% for 'others'.
Anticipating the Federal Reserve would continue to raise interest rates to slow the economy, the 30 primary dealers that trade with the Fed had by Jan. 5 sold $67 billion of borrowed bonds, a bet prices would fall and they would be able to buy them back cheaper. The recent surge in bond prices set off a rash of speculation that banks or hedge funds unable to buy back bonds they had sold were suffering losses and would need to be rescued. That prompted more buying. Mortgage-backed securities were expected to do well this year as the Fed raised rates because higher rates would translate into few bonds sold and slower prepayments, said Jim Shallcross, a portfolio manager at Independence Fixed-income Associates. `Generally people think that during stable and higher interest rates mortgages will outperform' Treasuries, said Phil Barach, of TCW Group. The U.S. Treasury owes $5.776 trillion to investors large and small, worldwide. Yet Uncle Sam's announcement last week that it will seek to buy back a mere 0.5% of the securities that comprise that debt helped trigger pandemonium in financial markets. Could we really pay off the national debt? The $5.776-trillion debt figure is in fact misleading. Almost 44% of that is in non-marketable debt, mostly held by Social Security funds. The total amount of Treasury securities in investors' hands at year-end 1999 was $3.28 trillion, down from $3.36 trillion a year earlier.
The Fed's statement warned of "inflationary imbalances" and hinted strongly that at least one more rate increase was coming. If so, one might ask, why not do it now and get it over with? 'If they did everything at once, the markets would rally,' said Bruce Steinberg, the chief economist of Merrill Lynch. 'By doing this Chinese water torture effect, the Fed keeps the markets off guard. It wants the markets to help slow down the economy.' The government plans to reduce publicly held debt by $17 billion in the current quarter and $152 billion in the following quarter, the largest debt reduction in U.S. history. In the 1999 fourth quarter, an average of about $175 billion worth of Treasury securities changed hands each day, compared with $240 billion in the first quarter of 1998, according to Stone & McCarthy Research Associates. Because the Treasury market has shrunk, investors are increasingly buying up corporate debt, keeping the rates that corporations must pay lower than they would otherwise be, and helping corporate profits. A flush Treasury plans to reduce the nation's publicly held debt by $328 billion over the next two years (with $130 billion this year)-- a figure that includes buying back at least $30 billion in bonds on the open market this year.
Take away the 169,000 and job growth last month was only 218,000, Ms. Herman said. That is still too much for Wall Street economists. The economy can average a maximum of only 150,000 new jobs a month and still avoid an unacceptable rise in the inflation rate, said Chris Varvares, a partner at Macroeconomic Advisers. The Census Bureau added 11,000 people as it geared up for the census. After months of cutting back, manufacturers have begun to add people, including 13,000 last month. With oil prices rising, the petroleum industry is also adding people. Retailers added 43,000 people, which is unusual so soon after Christmas, although consumer spending continues to be robust. The monthly job reports, including the one in January, suggest that millions of Americans are finding it easier to make ends meet. The percentage of the work force holding two or more jobs, for example, fell to 5.7% last month from 6% in January of last year -- suggesting that more and more people now earn enough at one job to get by or get enough extra hours from their employer to avoid taking a second job, or both. Earnings jumped 0.4% in January, and if this proves to be the average for a full year, then wage inflation will be a worry, rising by close to 5.0%. But from January of last year, earnings were up by only 3.5%, versus 4.0% in the comparable 12-month period from January 1998. So in other words, far from accelerating, wage growth appears to have decelerated, despite the short-term trend -- and despite the fact that over the recent year, the labor market got much tighter. Temple University economist William Dunkelberg regularly polls a representative sampling of the 650,000 members of the National Federation of Independent Business. Dunkelberg reports that "Wage gains are widespread, but not large. The percentage of firms reporting higher worker compensation has been about 30% all year, barely higher than the year before. The percentage of firms reporting that labor costs are a problem has been running 7%, no higher than the last few years. So there's no evidence at all that wage gains are accelerating, in frequency or in size." Don't mistake the markets' calm reaction to the January employment report as any signal the threat of economic overheating has passed. (Economists point out that the labor force actually grew sharply in January -- yet unemployment still fell. Labor force growth almost certainly will slow in February, analysts say, and that should push the jobless rate below 4%.) Instead, consider it a sign that all the bad news already is built into the market. Keep in mind that market interest rates ratcheted continually higher over the past 15 months in reaction to and anticipation of economic reports just like this one. Bonds are confused right now. At some point fundamentals will again assert control. And those fundamentals argue that fair value for interest rates is somewhere between current levels and the peaks of a couple weeks back. Productivity rose at a 5% annual rate in Q4-99, the strongest showing since the last three months of 1992, the Labor Department said today. For all 1999, productivity rose 2.9%, the largest spurt of growth since a 4.1% gain in 1992. Productivity rose 2.8% in 1998 and 2.7% in 1996. In 1999, growth in unit labor costs rose 1.8% compared with 2.4% in 1998. For Q4-99, unit labor costs fell at a 1% annual rate, after declining 0.3% in Q3-99. Manufacturing productivity rose 10.7%. The year/year pace for manufacturing productivity is now running at 6.9%, up more than a full point from Q3. Manufacturing compensation rose 4.9%, but that was outpaced by increase in productivity and drove manufacturing unit labor costs down by 5.8%, driving the year/year pace down to -1.7% from -1.0% For all of 1999, manufacturing productivity climbed 6.4%, the largest increase since a 6.9% rise in 1971. In the fourth quarter, growth hit an annual rate of 10.7%, the highest in nearly 18 years. After hitting 4.1% in 1992 as the nation emerged from recession, productivity growth fell to 0.1% the following year and was still only 1% in 1995. By 1998, however, the measure climbed to 2.8%. From the late 1940s until the early 1970s, the nation saw annual productivity increases around 3%. From 1973 to 1995 the number tumbled, falling to below 1% by 1995. 'These are spectacular numbers ... and confirm that the labor market is not at the moment the source of anything that could be plausibly described as inflationary pressure,' says Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Fannie Mae and Freddie Mac have never defaulted on their interest payments and are considered to be almost as safe as Treasury's. But these bonds are more volatile than Treasurys. (QUESTION: What % of asset backed bonds (like Fannie Mae and Freddie Mac) are from ARM's and thus should be less volatile?) During the bond market's sell-off during the summer of 1998, prices on all types of agency bonds fell sharply, even as Treasury's surged. It is also tougher to buy agency securities -- you need a broker and typically a minimum of $10,000. Don't forget corporate bonds. But unless you are an expert in analyzing company credit, it is often tough to figure out which bonds to buy. Accurate prices are hard to come by for most corporate bonds, and unethical bond brokers can charge a high mark-up, or markdown. A major drawback of corporate bonds is that the issuer often has the right to call the bond, which means the bond can be redeemed before maturity. Some people may be tempted to buy bank CD's and money-market funds, because their principal isn't at risk. But interest on bank CDs is fully taxable at state and local levels, unlike Treasurys. Money-market funds offer more liquidity than CD's. Some taxable money-fund yields are as high as 5.5%; there also are tax-free money funds with lower yields. It's hard to believe the mortgage debt and mortgage-related derivatives markets would have grown to be as big as they are today had there not been a standard, easily traded, default-free bond, in this case the 10-year Treasury instrument, for dealers to use as a hedging tool. Dealers are able to make markets and store bond inventory across the bond market because they can use Treasuries as hedging tools. No hedge, no dealer. No dealer, no market. If the 10-year bond and other key Treasury issues were to disappear, trading in many sectors of the bond market might well dry up. The 10-year Treasury and its cousins are like pipelines bringing liquidity to many other parts of the market that would otherwise be parched.
Yet the same capital markets that have fed the boom may also be planting the seeds of the next bust. The new economy has injected unprecedented leverage and complexity into the system -- elements that could transform a minor economic dip into a calamity. No one knows which forces in this new financial world -- the stabilizing or the destabilizing -- will dominate. This grand experiment, conducted during a long period of tranquility, has yet to be fully stress-tested. Three examples of this growth: (1)The "notional," or face, value of all derivatives contracts outstanding at the middle of last year was $92 trillion, according to Swaps Monitor, an industry newsletter. That was nearly quadruple the $24.6 trillion outstanding at the end of 1992. Derivatives are used to hedge against risks, such as a currency move that would hurt an exporter. (2) Investments by venture-capital funds reached $28.6 billion in the first nine months of 1999, compared with $5.8 billion for all of 1995, according to Boston research firm Venture Economics. Clubby bankers, who are more likely to support large, established companies than struggling start-ups, have less control over capital. Venture capitalists, eager to find the next Netscape, have more. (3)The total value of mortgage and other asset-backed securities outstanding in the U.S. stood at $2.96 trillion, according to the Bond Market Association trade group. That's up from $374.5 billion in 1985. Asset-backed securities allow lenders to sell their IOU's, spreading the risk of a loan default. When a real-estate bust forced U.S. banks to curtail lending in 1990, 'the then recently developed mortgage-backed securities market kept residential mortgage credit flowing, which in prior years would have contracted sharply,' Greenspan noted in a recent speech. The expansion of capital markets by such methods means that the US now has more of what Greenspan calls "spare tires" in its financial system, with money available from many different types of lenders and investors. That lowers the odds that any one pothole (a banking crisis, for example) will bring the economy to a screeching halt. Bank analyst Hal Schroeder of Schroeder & Co. comments, 'There can be no sustained economic expansion without a healthy banking system.' And he believes that U.S. banks are in better shape than ever. For one thing, says Schroeder, until the 1990s, most banks were run as one amorphous mass, with no detailed knowledge of how they made money. The use of computer technology changed all that, providing them with the tools for tracking their revenues by line of business, product and customer. The dramatic reduction in the banking system's excess capacity, from 14,000-plus institutions in 1980 to about 8,500 today, has helped the industry's health. Despite its longer duration of the current expansion (the 'Sixties' second-place run of 106 months, the 'Eighties expansion logged 92 months), it has yet to log as much growth in gross domestic product as its two main predecessors. One reason for this poorer showing is that it got an exceedingly slow start coming out of the gate. And when it comes to the way the GDP has been distributed, the expansion gets rather low marks. Real median household income didn't rise above the 1989 peak until 1998. This was a poorer showing than in the prior expansions. Mark Zandi, Dismal Scientist 2-2 Fiscal policymakers have mistakenly received little or no credit for the economy's current performance. By moving from a record $300-plus billion deficit in fiscal year 1992 to a record $100-plus billion surplus in fiscal year 1999, a significant amount of capital has been freed up to fund the capital investment boom of recent years. It is this investment that has brought new technologies to commercial use and thus lifted the nation's productivity growth. Policymakers have also done an admirable job of getting the government out of the way of the private economy, as a growing list of industries have been deregulated over the past quarter century. In the 1970s, government deregulated the energy and transportation industries. In the 1980s and again last year, it was the financial services industry. In the 1990s, it has been the telecommunications and the electric utility industries. In some regards, the health care industry has also been deregulated in the 1990s by the government's efforts to induce Medicare and Medicaid recipients into managed care. Deregulation has unleashed competitive forces into previously sheltered industries, thus constraining inflation and prompting increased innovation and investment. Mark Zandi, Dismal Scientist 2-3 Globalization, through greater trade, investment and foreign immigration is supporting the economy's good fortune by heightening the competitive pressures on businesses and labor. U.S. companies that compete in a global marketplace are unable to raise prices and are in some cases forced to cut prices to remain competitive. The more global US economy is also less cyclical. U.S. recessions during the past quarter century would have been substantially more severe if international trade were not as important to the economy. A deteriorating trade balance has also reined in the economy during expansions, forestalling wage and price pressures and thus subsequent downturns. The trade balance generally moves counter-cyclically. The counter cyclical changes in the trade balance are also supported by pro-cyclical changes in the value of the dollar. The dollar generally appreciates when the U.S. economy is strong and interest rates are rising and depreciates when the economy is weak and rates are moving lower.
Still, not all behavioral quirks hurt market efficiency. Many investors are excessively self-confident. This shows up in investors' ill-advised tendency to trade too much and to bet heavily on a limited number of stocks. But it also manifests itself in the huge effort made to find undervalued stocks, says Mark Rubinstein, a finance professor at the UC Berkeley. 'I concede that investors are overconfident,' Mr. Rubinstein says. 'But what this means is that active managers spend too much on research. It makes the markets too efficient. It's like a gold mine where most of the gold has already been taken out. Occasionally, you'll find some, which will egg you on. But it's just not cost-effective to keep mining.' 'Everybody agrees that there are some irrational investors out there,' says Richard Thaler, an economics professor at the University of Chicago. He is a 'behavioralist'. And he is now managing money for Undiscovered Managers. 'The controversial question is whether they set prices. The behavioralist line is that they do some of the time. The efficient-market line is that prices are set by rational traders.' 'The academic dispute doesn't translate into very big differences in advice for individual investors,' he says. 'The efficient-market guy says it's impossible for the individual investor to make money. The behavioralist will look at the data and say most individual investors don't make money. So they would both give the same advice, which is to buy and hold.' The bottom line? The behavioralists may offer some slim hope to the market's stock jockeys. But in the end, it still makes a ton of sense to settle for average market results, by purchasing index funds.
The small-stock market remains narrow, whether on the front of price gains or earnings increases. Mr. DeSanctis notes that by far the biggest profit growth has come from technology stocks. Profits there are up 78.4%, as company results on average have topped estimates by 12.7%. Contrast that with ailing consumer cyclicals (tied to the economy), whose profits are actually down 5.8%, or utilities, down 2.7%. Moreover, the smallest of the small stocks aren't seeing earnings growth that is as strong as that of some of their larger peers. Companies with market values of under $250 million are seeing aggregate earnings that are 35.5% below last year's levels, while profits at companies with market values above $1 billion are up 35.7%. While the Russell 2000 made a grand finishing dash last year -- and a 20%-gain is nothing to sneeze at -- more stocks in the index went down in '99 than went up. Specifically, 52% of issues declined, according to Prudential Securities quant analyst Eddie Cheung. More than one in four stocks in the Russell 2000 fell 20%-plus. And so far this month through Thursday, Cheung reports that 56% of Russell 2000 stocks lost ground. When Prudential's Steven DeSanctis, director of research, broke down the stocks in the Russell 2000 into five groups based on P/E, what he discovered was that the lowest P/E stocks went down the most last year and the highest P/E stocks rose the most. More precisely, the fifth of Russell stocks with the lowest P/E -- a median P/E of 7.5 -- lost almost 11%. The quintile of stocks with the highest multiple -- a median P/E in excess of 51 -- rose 68%. The no-P/E stocks in the Russell appreciated by more than 85% last year. In the past 12 months, the Russell 2000 is up 19%, nearly triple the S&P 500's 7.5%. In 1999, the so-called growth stocks in the Russell 2000 rose 43.1%, while the 'value' stocks -- the truly small, beaten-down issues in sectors such as financial services, energy and retail -- fell 1.5%, according to Frank Russell Co., which publishes the index. The divergence has continued in 2000. The divergence in 1999 was much less pronounced in the large-cap Russell 1000, where growth stocks rose 33.2% as value stocks rose 7.3%.
Also, after rising from 5.6% in the 1970s to 11.2% in the 1980s, the annual growth of liquid household financial assets slowed to a still brisk 9.0% in the 1990s. Note the gap between the yearly growth rates of liquid financial assets and household debt widened from -5.6% in the 1970s to +0.9% in the 1980s and further to +2.0% in the 1990s, which mitigates the threat to consumer spending from the latest household borrowing spree. Personal income dipped from 143% of outstanding household credit market debt at the end of 1989 to 124% at the end of 1999's third quarter. However, a rise in liquid financial assets to 255% from 219% of household debt over the same span evidences the dramatic expansion of household borrowing capacity created by rising stock prices and a flurry of mortgage refinancings. The stock market would have to decline an estimated 21% to trim the ratio of liquid assets to outstanding household debt back to its 224% average of the last 20 years.
A Federal Reserve survey found that banks are tightening their business-lending practices as delinquency rates on commercial loans continue to rise. Nearly 60% of domestic banks and 90% of foreign ones report a rise in their delinquency rates, the survey found. The quarterly Fed survey of senior loan officers at banks across the country found that 11% of domestic banks, and 29% of foreign institutions with American branches, tightened their lending standards on business loans in the past three months. While the survey found that the number of delinquent loan payments rose last quarter, analysts said the figures remain quite low by historical standards. (WSJ 2-9) If you write a check for $250 or more, you are supposed to receive a written acknowledgement from the charity. While most charities know about that rule, some neglect to say the amount of the gift, or whether the donor received any goods or services in return. Charities are sending thank-you notes, but sometimes they're not including the 'magic words'. If your letter doesn't include those magic words and you get audited, you run the risk the IRS will deny your deduction. (WSJ 2-9) Despite a loss of sales momentum, the price growth of new homes has accelerated. In the final quarter of 1999, not only was the median sales price of a newly sold home up by 7% year-over-year, but the average sales price was up by an even steeper 12.4%. If consumers have been able to shoulder higher prices for housing and for energy products, can a broader array of price advances be far behind?(John Lonski, Moody's 2-8) In a recent survey of 600,000 small employers, the National Federation of Independent Business finds widespread discontent: 31% say it's hard to fill job openings, and 21% complain about labor quality. (WSJ 2-8) In a pre-Valentine's Day survey of 617 personnel professionals by the Society for Human Resource Management, 87% say their companies permit workplace romances, though many disapprove. (WSJ 2-8) Byron Wien, chief domestic strategist at Morgan Stanley Dean Witter, says it's ironic that the Fed's efforts to rein in the economy is falling hardest on some of the stock market's most depressed sectors, including industrial, transportation and financial stocks. The technology sector has been unaffected by the Fed's actions, and indeed may be benefiting as investors seek stocks whose growth prospects appear immune from rate increases. The result is that the valuation gulf between old-economy stocks and new-economy stocks has grown even wider. (Andrew Bary, Barrons 2-7) Scrutinize the fund's sales charges, fees and expenses. If an investor puts $10,000 in a mutual fund with a return of 10% before expenses, and the fund's fees were 1.5%, there would be a tidy sum after 20 years - $49,725. But if the fund's fees were only 0.5%, there would be 18% more - $60,858. (Michelle Singletary, Washington Post 2-6) Pensions & Investments, a trade magazine, did some financial analysis and discovered that at least 4 of the 100 largest companies in the country, ranked by revenue, had pension funds whose assets on Sept. 30 exceeded their total market capitalizations on that date. No. 1 on the list was General Motors, the world's largest industrial corporation, whose assets in its defined benefit plans, at $69.5 billion, were far above its market capitalization of $40 billion. Other companies on the list were Lockheed Martin, with defined benefit assets worth $23.8 billion and a market cap of $13.2 billion, and UAL, at $8.3 billion and $3.5 billion. And USX had defined benefit assets of $10.9 billion, more than four times its market cap of $2.2 billion. (NYT 2-6) An argument for diversification: Five years ago we hadn't a clue that tech stocks would explode. Today, we haven't a clue about what will soar over the next five years. Whatever stocks win, you're probably not buying them now. But the diversified mutual funds are. (Jane Bryant Quinn, Washington Post 2-6) When George W. Bush claimed that John McCain's economics looked like Bill Clinton's, he did not realize that much of the electorate agreed. Clinton economics (at least what the electorate believes to be the president's program that achieved such remarkable results) delivered by a man with character could prove to be a winning combination. (Donald Ratajczak, Director of the Economic Forecasting Center at Georgia State University - Atlanta Journal-Constitution 2-6) In the first 11 months of last year, according to Financial Research Corp. in Boston, funds that carried Morningstar's five- and four-star ratings attracted $182 billion in net new cash inflows. Over the same stretch, FRC says, a net $119 billion poured out of funds with one-, two- and three-star ratings. (Chet Currier, Bloomberg via the LA Times 2-6) Long-term (30 year) Treasuries declined to 6.26% on Friday. Two-year Treasury notes ended the week at 6.61%. Financial institutions borrow at short-term rates and lend long. They have no incentive to make loans in such an environment. (Gretchen Morgenson, NYT 2-6) In the fourth quarter, about 65% of the companies have reported earnings above the I/B/E/S consensus. Year-on-year, earnings appear set to come in 22% above the fourth quarter of 1998, greater than the 18% increase originally forecast. (NYT 2-5) There has been a common theme in several US bond rallies that followed interest rate increases by the Federal Reserve in the past six years. They died a quick death. (Brian Rooney, Bloomberg 2-5) The Capitol Steps comedy group has a Hillary Clinton character learning the lingo of New York and singing, "I'm Just a Girl Who Can't Say Yo." ... Cybersatirist Bob Hirschfeld says, "John McCain's strategy of circumventing establishment Republicans to win is known as 'beating around the Bush.' " (WSJ 2-4) Two out of three people sleep on their sides, and they're about equally divided as to WHICH side. Of the remainder, slightly more sleep on their stomachs than sleep on their backs. (Dennis Julian Newsletter, FBC Palestine, Tx 2-4) The September Fed funds contract closed yesterday at 6.575 percent -- much higher than the rate of 5.75 percent that the Fed set yesterday. That level suggests at least three more tightenings. (NYT 2-3) The estates of 1.85% of U.S. taxpayers who died in 1997, or 42,901 individuals, had to pay estate taxes, according to Internal Revenue Service data. (Bloomberg 2-3) Spectrem Group, a San Francisco-based consulting firm, estimates that 6.7 million households had a net worth exceeding $1 million in 1998, up from 5.3 million households the year before. (Bloomberg 2-3) 'Word of mouse' is less effective in handling complaints than words of service staffers, says a study by Tarp, an Arlington, Va., research firm, for the International Customer Service Association, Chicago. It says one-third of customers who tried to resolve a problem by e-mail or other e-venues had to resort to telephoning at least once. By contrast, it says 80% to 90% of phoned-in complaints are satisfied in a single call. (WSJ 2-3) Wall Street firms have now begrudgingly accepted the practice of flipping (selling the IPO shares for a fast profit) from fund managers. Why the shift? With many Internet and technology IPOs tripling or quadrupling on the first day of trading, underwriters are less worried about flippers sending a young stock back down toward its offer price. It was that risk that triggered the initial backlash against flipping in the 1980s. The result: Underwriters say they now can afford to take less of a punitive stance, and have more of a reciprocal relationship with clients who might sell quickly rather than hold on to a stock. This remains in stark contrast to what many small investors who play the IPO game still face. If small investors flip shares they receive, their brokerage firms are likely to punish them by denying them allocations of future hot deals. The upshot: Many active small IPO investors have multiple accounts or work through a myriad of firms to disguise their selling. (WSJ 2-2) As the Fed has continued to tighten credit, the Dow today is 25 points below its close of 11,066 on July 1, the day after the central bank's first rate increase. (Tom Petruno, LA Times 2-2) Under existing law, taxpayers making gifts of appreciated stocks, art, real estate and other assets to charity can't deduct an amount greater than 30% of their adjusted gross income, or AGI. For gifts to many private foundations, the limit is 20%. Clinton proposes raising the 30% AGI limit on gifts of appreciated property to 50%, and proposes boosting the 20% limit to 30%. (WSJ 2-2) In December, investors pumped $24.26 billion into stock funds, up from $19.02 billion in November, while yanking a net $15.45 billion from bond funds, on top of $13.46 billion redeemed in November, according to ICI. Investors also pulled $4.47 billion from balanced funds in December, compared with outflows of $2.56 billion in November, noted the ICI. (WSJ 2-1) Chairman of Turner Investment Partners, Robert Turner, says the share of the S&P's 500 Composite Index accounted for by `value' manufacturing and commodity companies shrank from half at the start of the 1990s to just over a quarter in 1999. (Chet Currier, Bloomberg 2-1) The percentage of executive candidates misrepresenting their educational credentials was 16.7% in 1999, says Jude M. Werra & Associates. That's higher than the 14.6% fibbing average over the previous three years, says the Milwaukee-area executive-search firm. Werra bases its "Liars Index" on the whoppers it uncovers while checking out resume claims. (WSJ 2-1) Only 9.4% of the private-sector work force belongs to a union, says the Bureau of Labor Statistics, compared with 37.3% of those on the government payroll. (WSJ 2-1) Aggressive growth mutual funds, which account for about 13% of assets invested in equity funds, attracted a whopping $11.6 billion of fresh cash in the last two months of '99. To put that in perspective, that's more than half of all new cash that flowed into equity funds in November and December. (Rhonda Brammer, Barrons 1-31) Over the last 20 years, the 6.4% annual increase in nonfinancial business compensation expense topped the concurrent 5.3% yearly rise in total business sales by 1.1 percentage points, on average. However, in the seven years in which business sales growth exceeded that of nonfinancial compensation, the 11.3% average yearly rise in pre-tax profits was well above the 6.2% average for the full 20-year period. On the 13 occasions in which the growth of compensation instead exceeded that of business sales, pre-tax profits expanded by a sub-par 2.0% per year.(John Lonski, Moody's 1-31) The fourth quarter's 3.2% yearly increase in the ECI topped the 3.1% annual gain of the third quarter. However, the ECI's 3.1% yearly increase in 1999 still fell below 1998's 3.4% rise and did no worse than match its average of the last five years. Similarly, the fourth quarter's 3.5% yearly climb in the ECI's wage and salary component was not sufficiently above the 3.4% year-to-year advance for all of 1999 to suggest labor costs have begun to severely pinch earnings and credit worth. Wage and salary costs were about at the midpoint of the 3.3% average yearly increase of the last five years and 1998's 3.8% gain. (John Lonski, Moody's 1-31)
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