| Factoids from Business & Investment News
|
|
Business Links Business News Columnists Economic Rpts Investment News Investment Sites Salary Surveys Searches Stock Exchanges Stock Quotes Tax News-Info
More Factoids
|
Investors polled in the survey rated Vanguard Group's performance as third best among 54 large fund groups. But FRC ranked Vanguard's actual investment returns as 37th best out of the 54. Fidelity Investments garnered the second-best rating, while FRC judged the Boston giant's direct fund group as 35th best performer. Janus had the best-performing mutual funds in 1999, according to both the investor poll and FRC's analysis. 'Firms that have the resources to promote strong performance via broadcast advertising have the best potential for creating favorable perceptions' and increasing the chance for new investor dollars, the study says. The top-10 fund companies in investors' eyes drew $123 billion in net new sales last year, compared with less than $3 billion for the companies rated at the bottom. In other findings, the FRC survey shows that mutual-fund investors were less loyal than other financial-services companies' customers. Partially because switching funds is easy, only about one-third of mutual-fund companies' customers were considered "secure" in the fund company. That compares with the 65% of insurance customers who are considered secure, 58% of bank customers and 45% of credit-card customers.
Now comes the notion that the old interest-rate medicine, delivered in a slow, intravenous drip, is not sedating the patient. Everyone seems to have adopted this view after five 25-basis-point rate increases in the federal funds rate in nine months. Not only is the Fed ineffective in slowing the U.S. economy but its gradualist approach may actually be fueling the boom. Another loopy idea making the rounds is that the gradual, well-anticipated rate increases are giving the economy a chance to acclimate. Better to use surprise or the shock effect to achieve the desired results. `It seems to me that if the rate increase is expected, it will operate sooner,' says Bob Laurent, professor of economics at the Illinois Institute of Technology. `If it's unexpected, it will delay the response.' Then there's the popular notion that the Treasury is working at cross purposes to the Fed by paying down debt, thereby lowering market interest rates, especially those in the 30-year sector. `If the government decides to spend more, everyone would agree that it's expansionary,' explains Laurent. `Now the government is going to be borrowing and spending less, interest rates fall, and that's supposed to be stimulative?' While the Fed has been tightening, it isn't tight. While this sounds like a play on words, it is well grounded in the inflation-adjusted, real-interest-rate metric that should be used to judge the efficacy of monetary policy. While the nominal federal-funds rate has gone up 1.25 percentage points since July 1999, the real funds rate has remained essentially unchanged over that period. That's because the inflation rate has accelerated from 2% to 3.2% over that interval. The rise in headline inflation has completely offset the increases in the nominal overnight lending rate. In the aftermath of the March 21 rate hike, the real federal-funds rate, as calculated on the basis of a 12-month trailing CPI, now stands at around 2.8% -- no different than it was when the Fed began the current tightening campaign last July. At 2.8%, the inflation-adjusted federal-funds rate remains well below the pre-crisis reading of 3.3% that prevailed in mid-1997, just before the global currency crisis began. Moreover, the real funds rate is still shy of the 3% "neutrality" benchmark -- a level widely presumed to impart neither accommodation nor restriction on the economy or financial markets. In short, easy money prevails. The real [interest] rate is a function of the demand for credit. As long as businesses believe that their investment will produce a profit, as long as consumers have confidence that the good times will continue, they will continue to borrow. Interest rates aren't high enough yet to snuff out the momentum in this oh-so-strong economy, whether it works through real economic activity first or through the stock market and consumer spending. Data from Bridgewater Associates shows that the market has rallied after each of the past five rate increases. But the joy is quickly replaced by anxiety in subsequent weeks. The mood swing occurs when data show that the economy has failed to slow despite the Fed's rate increases. Result: Investors must acknowledge that there may be more interest-rate increases than they had previously expected, and stocks swoon. 'We think we'll see strong economic reports, and it'll be clear that the Fed isn't done,' says Dan Bernstein, Bridgewater's research director. He expects to see fed funds climb to 7% or higher over the next six to 12 months. And that, he warns, should be negative for both bonds and equities. The Fed will keep tightening until the economy starts to show signs of slowing, predicts James Bianco, president of Bianco Research. And so far, despite five tightenings, 'none of the Fed's goals have been accomplished. The Fed has got to get really aggressive,' he says. Higher stock prices boost the market's overall liquidity at a time when Greenspan's crew is trying to reduce liquidity in the system. Goldman Sachs attempts to measure the market's liquidity with its Goldman Sachs Financial Conditions Index (GSFCI). The index includes interest-rate measures, which affect purchases of houses and consumer durables; stock-market levels, which have an impact on the wealth effect; and the dollar, which tends to reflect trade activities. Currently, the index indicates that financial conditions actually are easier than they were last June when the central bank started nudging up rates. In effect, the rises in the fed-funds rate have been more than offset by the rallies in the stock and bond markets. Based on the index, Goldman Sachs anticipates real GDP growth of 4.9% in 2000. That's well above the 3.5%-3.75% the Fed expects this year. As a result, Goldman thinks the Fed will raise rates a total of 1.25 percentage points before it's done. On Tuesday, Greenspan raised interest rates by a quarter-percentage-point. The 'teensie weensie rate hike' caused the markets to go wild. As they should. No self-respecting bull market is going to pay the slightest heed to being tickled with a feather, let alone the biggest, strongest, roaringest bull market in all of history. It's going to take an awful swat to make this one take even modest notice.
Don't blame Israeli entrepreneurs. Local businessmen have developed such technologies as programs for long-distance Internet phone calls, groundbreaking chat-room applications, and robotic home appliances. But most companies are financed abroad. One problem is a high capital-gains tax. In connection with IPO's they are 35%, and it can go as high as 50%. That has chased many of Israel's premier companies to the U.S. Between 1993 and 1998, Israelis companies have raised nearly $4 billion listing their shares on US stock markets. A venture-capital market exists here, but it's relatively small, investing just $1 billion last year. Even if more companies were to list locally, the average Israeli wouldn't reap the benefits. Much of Israel's long-term savings is bottled up in funds managed by commercial banks and invested in low-risk government debt. Regulations limit the diversity of these portfolios, and the banks' dominance of the industry discourages new players. Meanwhile, the venture-capital funds that foster Israeli high-tech companies are financed in part by US pension funds. That means that American investors are profiting. A small number of families control over half the capital on the Tel Aviv Stock Exchange. Their clout has forced the government to delay its plan to sell state assets, lest they fall into the clutches of these groups, which essentially control the economy. Privatization in the 1990s was supposed to do for Israel what it did for the U.S. in the 1970s and 1980s -- release new capital onto the stock market, enhance competition and promote efficiency. That's not exactly how things turned out. In the US, Internet commerce has helped keep prices low. In Israel, the cartels still rule. A handful of companies control auto imports, for example, and sell cars at fixed prices. Technology can do a lot of things, but to create a well-oiled economy, human appetites must be whetted with the best products and satisfied with the cheapest prices.
This tsunami of cash could determine whether the Japanese stock market -- up 37% last year after an abysmal performance overall in the 1990s -- will continue to rise this year. Robert Pozen, chief executive of Fidelity, compares the importance of the rollover to changes in pension rules in the US that flooded cash into IRA's in the 1980s and kick-started the world's largest mutual-fund industry. If just a quarter of the funds being freed up flow into mutual funds, the industry in Japan would more than double in size. Japanese investors are among the world's most conservative. More than half of their savings are held in bank accounts, even though interest rates barely exceed zero. That's better than a negative return, which is what investors in Japanese stocks have had over the past decade. Indeed, the Nikkei index remains at about half of where it was in 1990, even after the surge in the Nikkei index last year.
Some regulators fear that investors are also borrowing from sources other than their brokers to buy stocks, including credit cards or second mortgages. "I'm worried not just about the margin but about people borrowing on other assets like homes and the double-dip effect that would have in the event of a market decline," said Arthur Levitt, chairman of the Securities and Exchange Commission. "If we have a market decline then that would play out not just in terms of lower security values but also in lower real estate values." Getting interest rates high enough to stop margin debt will be a problem. Why should investors be deterred from borrowing money at 6% or even 10%, [asks Wall Street economist Albert Wojnilower] when they believe that stocks bought with the borrowed money will go up 20 percent by year-end? Getting interest rates high enough to stop that fervor would bust the economy.
Fed rate increases are supposed to act like brakes. If they work any more, it is hard to tell. Instead, the increases are viewed as proof that Greenspan is working his magic again, engineering a gentle slowing for the economy and keeping inflation at bay and the world safe for investors. 'In a strange way, his very success becomes detrimental to his continued success,' says fan John Manley, a stock strategist at Salomon Smith Barney. Says veteran economist Henry Kaufman: 'It is difficult for him to be a folk hero. You cannot be a friend to your child. You have to be a parent, and there is a difference.' Resigning would require no political support, just courage and self-denial. It would remind investors of the risk of change. Manley scoffs at the idea, 'To deny the country the best man for the job would not be something he should do.' Kaufman chuckles, 'I think he truly likes what he is doing.' When Greenspan was renominated in January, he said he savored his success and the chance to put his economic theory to work. He said he likes the job the more he does it, like eating peanuts. Will the taste turn bitter?
Factors including stock-market and bond-market volatility, credit concerns and mutual funds' cash intakes have had a bigger impact than the Fed on bond issuance lately. And if those factors were to fade, debt issuance could strengthen, throwing new fuel on an economy the Fed believes is overheated. This suggests that more rate increases may be needed in the months ahead, which may eventually, of course, raise mortgage rates, corporate interest rates and the whole lot. It just hasn't been happening lately. Only in junk bonds are rising rates are possibly having an impact. Some companies with single-B ratings that two years ago could have issued junk bonds at 9% are now facing 13% plus a need to contribute equity warrants. But market watchers said junk-bond rates are higher mostly for reasons other than the Fed. Investors have demanded far higher yields since Russia's August 1998 financial meltdown triggered a U.S. credit crunch. Junk bonds have also been hurt by weak demand due to mutual-fund selling, and by a surge in bond defaults. Money has flowed out of junk-bond funds for 16 of the past 20 weeks, with a whopping $2.45 billion flowing out of these funds so far this year, according to AMG Data Services. Movement by Treasury yields seems to be offering an increasingly less reliable indication of changes in private-sector borrowing costs. For 2000-to-date, a recent 19 basis points decline by the 10-year Treasury yield to 6.24% and the 13 point dip by the 30-year FNMA yield to 7% contrasted with the 9 basis points rise by the long-term, investment-grade industrial company bond yield to 7.87%. For 2000-to-date, Moody's long-term, Baa-rated industrial company bond yield has increased by 29 basis points to 8.41%. For March-to-date, the Baa industrial yield has averaged 8.37%, topping all of its previous monthly averages going back to the 8.52% of April 1995. Today, business activity has yet to slow by enough to fundamentally justify the latest slide by Treasury yields. To the degree Treasury yields have dropped in anticipation of significantly slower domestic expenditures, Treasury yields might ultimately move sharply higher if the inevitable deceleration of US spending is not severe enough to end the more intensive utilization of productive resources. The slew of upbeat corporate earnings forecasts from respected industry analysts questions whether or not the US economy will slow to the degree that is now implied by both sharply lower Treasury yields and by an inverted Treasury yield curve. The latest unexpected slide by Treasury yields should prompt a significant upturn by corporate bond issuance over the next several weeks. Too deep of a decline by private-sector borrowing costs could stoke expenditures by enough to finally give rise to faster pace of price level growth. As the credit market's inflation fears subside, the greater is the danger that price acceleration might materialize. [So we have nothing to fear, but lack of fear itself?] The market's indifference to Greenspan's unusually clear rate warnings of late suggests investors are confident the U.S. central bank will contain any inflationary outbreak. At the same time, stocks are becoming more volatile, making bonds look better. After weeding though recent data on mutual-fund flows, Nancy Lazar of ISI Group wonders if lower bond yields are in the offing. Bond funds experienced more than $19 billion of capital outflows in January, while roughly $40 billion zoomed into stock funds. That caused an unprecedented near-$60 billion disparity between flows into equities and out of bonds. Historically, flows are only this lop-sided when yields are peaking.
For proof, check out the history of the Fidelity Select Technology Portfolio. Launched in 1981, it soaring 162% in the 12 months ended June 1983, according to Morningstar. But over the rest of the 1980s, the fund gained just 0.6% a year, while the S&P 500 climbed 19.7% annually. Those who toughed it out until the 1990s fared better. Over the past decade, the fund returned a blistering 35.1% a year, while the S&P 500 gained an annual average of 18.2%. But most folks, of course, didn't tough it out.
Market watchers are crinkling their foreheads as they regard the massive, months-long flows of cash into money-market funds, those puddles along the riverbanks that can't quickly generate any power. To shift metaphors, with so much money massing on the sidelines, it's almost as if the players have taken themselves out of the game because the present style of play is considered too treacherous. About $7 billion a week has been rushing into money-market funds this year, causing money-fund assets to expand by some $100 billion, says Strategic Insight. That places money-market inflows nearly on par with stock-fund inflows. The historical pattern in which 80%-90% of fund inflows are brought in by stock funds. To bullishly oriented rooters, this trend amounts to the rapid accumulation of latent buying power, the coiling of a spring which, when decompressed by investors' rediscovered animal spirits, will send fresh billions toward shares. Tom Galvin, the resolutely upbeat market strategist at Donaldson Lufkin & Jenrette, notes that from April, when the Dow sat right at their current level, through February, $165 billion made its way into equity mutual funds. Yet $235 billion worth of new stock was visited on the market in the form of initial and secondary offerings. So, simply to absorb new supply, funds (which, of course, are not the only buyers of stocks) would've had to liquidate some holdings to pay for it all. One other veiw: In order for someone to buy stocks someone's got to sell them. By and large, when the seller receives the proceeds from the sale, the cash finds its way to money funds, at least for a time. The rise in money-fund assets can partly be attributed by the long-term expansion of the investor community, because most every new securities account ends up having 10% or so in cash. Throughout the 1990s, as the stock market became the American pastime, money-market assets grew an average of 14% a year. Investors pulled a net $1.39 billion out of money-market funds in the week ended Tuesday, according to the newsletter IBC's Money Fund Report. Large institutional investors accounted for the outflow, pulling a net $7.64 billion out of taxable money funds. Individual investors added a net $4.6 billion into the same group of funds.
Price competition [now] limits the ability to pass along higher fuel costs. The best evidence is found among the truckers who snarled traffic in Washington last week to protest rising prices. Their problem isn't that fuel prices are high; it is mostly that they can't pass their higher costs to customers. Mr. Hooker's paper suggests that the Fed's tight monetary policy is the main difference between the pre- and post-1980 inflationary effects of higher oil prices. That policy "is significantly less accommodative of oil-price shocks, and so they no longer trigger expectations of higher inflation." In other words, the Fed bungled when it fought the potentially recessionary impact of higher oil prices in the 1970s and not the inflationary effects. An easier monetary policy in the face of high oil prices contributed to inflation that, in turn, led to a recession in 1973 and 1974. Other economists add that in the 1970s, oil-price increases also felt permanent. In the 1980s, IBM forecasted $80 a barrel oil in 10 years. That prediction gave workers more bargaining power when they asked for raises. The bosses, in turn, knew inflation would improve revenue so they could afford to pay higher wages. Now, few people think $30-a-barrel oil is here to stay. Prakken estimates it takes one to two years for changes in oil prices to filter into the core index. If that's so, the economy could still be benefiting from last year's low prices. In fact, the average oil price since January 1998 is just under $18 a barrel, about the same as it has been for 10 years. The notion that high oil prices won't spark inflation could prompt OPEC to keep production relatively low. The cartel fails to see any measurable impact from the high prices. If industrialized nations can still grow without inflation amid high oil prices, then is the oil price really too high? In real terms, adjusted for inflation, $30 a barrel is still lower than 1980 prices. The poorer, developing nations could rescue the rich ones. OPEC is most worried these days about how oil prices will affect developing economies that are the most reliant on petroleum. OPEC understands that these countries are driving otherwise anemic growth in world oil demand and the cartel won't benefit if these nations plunge into recession and look for other energy sources. A year ago, Venezuela was approaching default, Mexico's economy was growing slower than its population, and even Saudi Arabia was discussing whether its currency had to be devalued. Ecuador, a small oil producer, actually did default on some international bonds. In short, while we were wallowing in the lowest inflation-adjusted gasoline prices on record, oil producers were facing economic hardships. Oil producers are not the only culprits. In the US, we are now driving fewer miles per gallon of gas than in the previous year. This is the first time that has occurred since the first oil shock appeared in 1973. The 57-cent increase in gasoline prices means more than $60 billion in purchasing power is being used to buy the same gasoline that cost $60 billion less a year ago. This lost purchasing power almost certainly will slow the economy sharply by the end of this year. Crude conspiracy!! That's what's behind the spectacular rise in oil prices. Who stands to benefit most from the great spurt in oil prices in a little over a year from $10 a barrel to $31-$32. The answer: OPEC, Alan Greenspan and George W. Bush. Who stands to lose from the astonishing surge in the petro price? Why, airlines, truckers, kindred energy gobblers, anyone with a home to heat, a car to drive and Al Gore. For Greenspan, any alternative to boosting rates to a formidable level in an election year is preferable. George W. is an old oil hand with good buddies in the cartel. In any case, the gang's movers and sheikers owe his dad for saving their skins (and their billions) back in '91. Mr. Bush anticipates, rightly, that Americans are going to be screaming mad at forking over $2 a gallon every time they fill up the old jalopy. He shrewdly calculates that they're apt to aim their ire at Clinton and his Veep. Oil prices have soared to near-stratospheric levels so far this year, but the performance of many natural-resources mutual funds that buy oil stocks are far from reaching such starry heights. Technology stocks have snared -- and kept -- the lion's share of investor attention and wallets. Through Friday, the average natural-resources fund was up 3.56%, according to Morningstar. According to AMG Data Services, investors have been shoveling money into tech funds and shunning natural-resources funds for more than a year. So far in 2000, investors have pumped cash into tech funds at the rate of $1.5 billion to nearly $3 billion a week. Meanwhile, natural-resources funds have had a few weeks of positive inflows this year, but investors otherwise have yanked $1 million to $60 million weekly.
Gore would have received a bigger tax saving (12.2%) in 1998 under Bush's proposed tax-cut plan than the 2.8% saving from his own plan, the nonpartisan Tax Foundation estimates. And Bush would have saved more (1.2%) under Gore's tax-cut plan than the 0.9% under his own. (WSJ 3-31) Rainmaker? Greenspan, watching a downpour as he waits for a car to pick him up, remarks, "The central bank produced too much liquidity." (WSJ 3-31) Steven Witt, managing director at Firsthand Funds, said selling at the end of March can largely be pinned on US stock-fund managers who don't want volatile tech stocks showing up in their disclosures of first-quarter holdings. 'They don't want to look like closet tech funds.' (Note: The Nasdaq is now down more than 11% since March 10)(WSJ 3-31) New-issue volume of $74.13 billion in the U.S. so far in the quarter -- which includes both initial public offerings and follow-on offerings by already public companies -- easily tops the previous record of $62.3 billion in the fourth quarter of last year, according to Thomson Financial Securities Data. That's even though the volume of IPOs alone didn't match the fourth quarter's total. (WSJ 3-30) In the week ended March 22, growth-stock mutual funds attracted $7 billion in new money, compared with an average of $4 billion a month for all mutual funds last year, according to Ned Riley, chief market strategist at State Street Global Advisors. Stocks that have performed well are attracting much of the new money flowing into the stock market, in turn boosting their performance further, which in turn attracts more of the money flowing into the stock market, which in turn ... . (AJC 3-29) Fun with numbers: the difference between 'median' and 'mean'. According to one of Safeco's life-expectancy tables, the average male life expectancy is 80.1 years. But the 'average' is dragged down by folks who die young because of accidents and disease. The mean life expectancy is 83 years. Half of men will die by this age and half after. Similarly, among women, the mean is 84.3 years, but the median is 87. Based on US Census data, the mean household income was $51,855 in 1998, but the median was $38,885. Meanwhile, according to the January 2000 Fed Bulletin, the mean family net worth was $282,500 in 1998, while the median was $71,600. According to a study which will appear in the April issue of the Journal of Finance, households turned over 75% of their stock portfolios each year, as measured by the mean. But the median turnover was just 32%. (WSJ 3-28) Construction sites have always been dangerous places, but they're getting more so, as the tight labor market increases the number of inexperienced workers on the job. More than 1,200 construction workers were killed at work last year, up 25% since 1992. (WSJ 3-28) A study by Cornell University's School of Industrial and Labor Relations finds unionized hourly employees work an average of 6.63 hours of overtime on top of their regular 40-hour week. But while many employees worked only a few extra hours per week, just over one-fifth of the workers work at least 11 and sometimes more than 20 hours of OT. The hidden costs of big overtime (more than 50 hrs/week) included a much greater incidence of "severe" work-family conflicts, significantly higher levels of stress, alcohol use, and absenteeism, the study found. (WSJ 3-28) Online recruiting accounted for one out of every eight new hires last year, according to kforce.com's recent poll of 300 U.S. companies. (WSJ 3-28) A Merrill Lynch survey of 251 global mutual-fund managers two weeks ago found that most have a greater-than-market weighting of technology, media and telecom stocks, most think they are overvalued, and most are looking for a company-specific event as the signal to sell. But Merrill strategist Trevor Greetham warns that the stocks 'did not rise on a company-by-company basis. They rose en masse. We think macroeconomic factors will drive the reversal when it comes.' (Greg Ip, WSJ 3-27) A soon-to-be published study by the Conference Board indicates that ownership of the largest 1,000 U.S. companies has tilted to individuals from institutions such as pension funds and endowments for the first time in more than 10 years. (WSJ 3-27) Say you plan to sell a stock you purchased 10 years ago, and you know the date it was purchased, but not the price. And now you need that info to calculate your capital gains tax. Finding historical stock prices is relatively easy. There are at least two companies that will do it for you for a fee: Prudential-American Securities Inc. in Pasadena, Calif. (www.securities-pricing.com), and R.M. Smythe & Co. in New York City (www.rm-smythe.com). If the amount of money at stake is trivial, you could say your cost was zero and pay a capital-gains tax on the entire gain. Taxpayers "can apply a reasonable estimate of value, assuming they have some evidence," says David A. Lifson of Hays & Co. (WSJ 3-26) Last week 3Com announced that it was getting out of the modem business. Why? Worldwide modem sales nearly doubled in 1999, to 120 million units. But prices were falling at the same time, so fast that higher unit sales did not necessarily translate into higher revenue or even profitability. A big part of that price pressure comes from new computers' learning to do a modem's work without needing modem chip sets. 'Host-based' or software-only modems have existed for years, but until recently the burden they put on a computer's microprocessor degraded performance too much for most users. Today's much faster processors have speed to spare. Note: A new industrywide technical standard called V.92, due later this year, will make possible new features like call-waiting, higher upload speeds and faster connection setup. (Lawrence Fisher, NYT 3-26) The Russian Trading System Cash index is now up 39% for the year. The Russian economy grew 3% last year -- a pace that is expected to continue, if not accelerate, this year. The turnaround was spurred by a tripling of oil prices, which also bolstered government revenue, and the ruble's devaluation, which made domestic companies more competitive. Boris Fedorov, the former Russian finance minister and one-time head of the state tax service, said 'once oil prices go down and devaluation effects go away, things will be tough for Putin. More stability will not carry the market,' he added, referring to investors' hope that Putin's strong hand will prove enough to keep stocks rising. (NYT 3-26) Focusing on one of the biggest problems for active traders -- completing Schedule D, the federal tax form for capital gains and losses -- Gainskeeper.com helps track holdings and their associated tax implications. Investors enter their holdings on a secure site that is updated daily. It keeps track of stock splits and other corporate actions, a niche service with which other sites have struggled. (NYT 3-26) Validea.com tracks the records of professional stock pickers and pundits, assigning ratings based on performance. John Reese, the founder, said he created the site after poring over various business magazines, Web sites and television programs in search of stock tips. Investors can track analysts by name or by publication. The site already has 50,000 recommendations in its database. (NYT 3-26) Consider the following note issued by Merrill Lynch last week on the biotech sector, which has, in the course of three months, moved from a market cap of $14 billion to a market cap of about $50 billion to a market cap of about $25 billion. "The trigger for the rally [in biotechs] remains a mystery to us. The trigger for the recent sell-off over the last 10 trading days is equally mysterious. The next movement in the stocks is not predictable." (Fred Barbash, Wash Post 3-26) I know. It sounds awful. But let me assure you: Real men buy bonds, too. (Fred Barbash, Wash Post 3-26)
If you fear volatility, the lowest-volatility stocks over the past five years were: The Jackman Rule. Pat Jackman is Mr. CPI at the Bureau of Labor Statistics. While part of his job is to help reporters and analysts sort through the statistical noise -- a bad seasonal adjustment factor here, a quirky survey pattern there -- Pat loves to give hints about the upcoming report and interpret it afterward. If any component acts up in any given month, Pat will explain why it's a one-off event (he begins with the QED -- there is no inflation -- and works backwards). The Fed is not going to get aggressive in its tightening agenda until it has seen two bad CPI reports that Chatty Pat can't explain away. With the second of two reports due on May 16, the day of the next Fed meeting, policy-makers won't be able to satisfy the Jackson Rule in time for an inter-meeting move. (Caroline Baum, Bloomberg 3-24) A new anti-Bush button pops up: "Read my lips. No new Texans." (WSJ 3-24) Nine of the past 12 recessions have started in the first two years of the presidential term, a shocking coincidence that some believe points to active manipulation of the economy by the government to time the economic and political cycles. (Rex Nutting, CBS MarketWatch 3-23) About 20% of annual home sales involve new homes. (WSJ 3-23) It is important to gauge the way that companies react to financial news. I pay close attention to the reaction of stocks and markets to news. Currently, stocks are being massacred on bad news, while hardly reacting at all to positive announcements. This is curiously counter to the action of the markets a few months ago, when stocks soared on good or even neutral news, while hardly reacting to bad news. Seems the proverbial tide may be turning. (Cedd Moses, CBS MarketWatch 3-22) On Tuesday, the Nasdaq 100 tracking stock (QQQ) made something of market history. The stock was the third most actively traded security in the country, with some 33 million shares changing hands. It's believed that marks the first time a stock that's tied to nothing more than the performance of a particular market index has achieved such a lofty feat. Trading in the Q's swelled because of a 2-for-1 stock split the day before. But the very fact that an index tracking stock needed to split to be more affordable (it was trading in the 200s) is an indication of how strong investor demand has become. The Q's, currently trading around $111 following the split, are up 117% in value since the security's inception. (SmartMoney 3-22) Starting next year, you'll have an even bigger incentive to buy and hold. Stocks and funds purchased after Dec. 31, 2000, and held more than five years will be taxed at an 18% capital gains rate [instead of the current 20%], 8% [instead of the current 10%] if you're in the 15% tax bracket. (Sandra Block, USA Today 3-21) `There is no such thing as demand,' says an economist who requested anonymity. `It has no meaning. There is only a demand schedule: an equation, or a table, relating price to the quantity demanded.' Excess demand, as the chairman calls it, can push prices up. But demand can't exceed supply because we can only buy what we produce (an arguement that ignores the US trade deficit?). `The amount of goods produced will find demand at some price,' he says. `That's the price at which the market clears.' If Mr. Greenspan was on tenuous ground railing against the shrinking pool of available workers, and if he was on thin ice talking about productivity creating inflationary imbalances, then he is truly drifting out to sea on an ice floe with the concept of excess demand. (Caroline Baum, Bloomberg 3-21) Scientists at Lucent's Bell Labs have set a new record for transmitting data over fiber-optic cable by moving 3.28 terabits per second of data over 300 kilometers of Lucent's TrueWave optical fiber. At this rate, Lucent's fiber in one second could transmit three times the volume of daily Internet traffic for the whole world. Within years, fiber-optic cable could move tens of thousands of terabits per second of data. This tremendous bandwidth growth will be fueled by the speed of lasers used to encode data and the number of wavelengths a single fiber can carry at once, says AT&T Labs President David Nagel. Researchers are now developing terabit lasers, and the number of pulses a single laser produces is doubling every 18 months. In addition, the number of wavelengths a single fiber can carry at one time is doubling every year. Eighty-wavelength systems are already available, and scientists are working on 1,000-wavelength systems. The Bell Labs' record accounts for less than half a percent of the potential capacity of current optical networks, according to Kerry Vahala, professor of applied physics at the California Institute of Technology. (Wired News, 3-21) Excluding food, energy and tobacco, the year-on-year rise in the consumer price index is running 2.0%, up from 1.6% in August. But the BLS would have us believe that inflation in housing has actually slowed over the past year, even though all real-world evidence tells us it could only have accelerated. According to BLS estimates, residential rents were up 3.4% on a year-on-year basis as of February '99; by February of this year, the rate of increase slowed to 3.2%. And for owner-occupied homes, the BLS tracks a construct called 'owner's equivalent rent.' The OER has slowed to 2.5% on a year-over-year basis in February, compared with 3.1% the same month a year ago. If you assume instead that residential rents and owner's equivalent rent have accelerated over the past year, then the 2.0% increase in our core CPI approaches 2.5%. How high is our core CPI likely to go? Benderly Economics foresees it topping 3% by the end of this year. And if all goes according to plan, then it should converge with the headline CPI. (Gene Epstein, Barrons 3-20) The average small-capitalization stock mutual fund is up 11.95% year-to-date through Wednesday, according to Morningstar. Small-company "growth" funds are up nearly twice as much, an eye-popping 21.27%. Is is too late to jump on the bandwagon? In a study of annual small-cap stock returns from 1926 to 1999, Ibbotson Associates concluded that once small-cap stocks start to surge, they likely repeat their outperformance for an extended length of time. Echoes Keith Mullins, managing director of small-cap research at Salomon Smith Barney: "Periods of small-cap outperformance historically extend as long as periods of underperformance." He notes that the last period of small-cap underperformance lasted from 1996 until November of last year. So, he expects the current rally to last three to four years. (WSJ 3-18) How many tech sectors are there? In the eyes of Janus Capital, there are at least 10, including semiconductors, telecom equipment, cellular telecommunications, and lasers systems and components [the full 10 are listed on its web site for its Global Technology Fund]. (WSJ 3-16) Analyst David Trossman of First Union Capital Markets said he still expects certain e-commerce companies to eventually succeed, despite the troubles of some. Because there is so much competition, many companies cannot choose to grow their businesses more slowly. When they do, someone else will quickly move in to outspend them. 'In a lot of these categories, you're only as good as the least rational competitor.' (WSJ 3-14) FireDrop is mounting an ambitious effort to change the way people communicate online. The company has developed a technology called Zaplets that combines attributes of e-mail and the Web. A user sends one Zaplet to several recipients, who can view them with most current e-mail programs. But while most electronic collaboration requires a string of e-mails, each Zaplet is automatically updated with recipients' responses. A brokerage firm might mail out a client's stock portfolio each morning, but graphs would reflect later trading when the customer opened the message in the afternoon. A newspaper could send out one set of headlines in the morning and revise them completely by dinner, though only one Zaplet arrived at the user's mailbox. (WSJ 3-13) OnePage.com Inc. (www.onepage.com) is announcing a technology to allow people to pull pieces of content from other Web sites and place them in individualized pages. A user, for example, might open up a browser each day to a page that includes headlines from a local newspaper's site, the latest quotes of favorite stocks, the local weather and a homework schedule from an elementary school. (WSJ 3-13) Thanks to a radical tax plan that will allow corporations to sell off investments without paying capital gains taxes, German banks and insurers are now salivating at the prospect of divesting industrial holdings accumulated decades ago and now worth more than $100 billion. (Example: Deutsche Bank is the biggest shareholder in DaimlerChrysler, with 12% of the shares.) Those sales will essentially unravel Germany's corporate safety net. And they will come precisely as conglomerates across Europe are engaged in a frenzy of mergers, acquisitions and spinoffs aimed at bolstering shareholder value. A result is that old loyalties are dissolving. It all sounds like the US 15 years ago, and most experts are convinced that the changes are healthy. German companies are becoming more competitive, more flexible and more innovative. And the fear of takeovers and job cuts is relentless. (NYT 3-12) The first charge card is said to have appeared in February 1950. After dining at Major's Cabin Grill in Manhattan, Frank McNamara was embarrassed to discover that he had left his wallet in another suit. His wife paid the bill, but the experience left him thinking about a better solution. This led to the creation of 'Dinner's Club'. The first card was offered to 200 people, mostly Mr. McNamara's friends and acquaintances. Fourteen Manhattan restaurants agreed to accept it. A year later, the company estimated that 42,000 Americans were carrying the card and that more than 330 businesses were accepting it. Today 157 million Americans, more than three-quarters of the adult population, have credit cards. (NYT 3-12)
|