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Ordinarily, companies aren't allowed to deduct dividends they pay, but they may if the stock is held by an ESOP or a certain type of hybrid 401(k), called a KSOP. KSOPs are created when a company marries its 401(k) to its ESOP; this makes the company stock in the 401(k) eligible for the dividend deduction, too. An analysis of Internal Revenue Service filings reveals KSOPs have become widespread. By 1998, the latest year for which comprehensive data are available, more than 900 large companies had grafted their 401(k)s onto their ESOPs, creating KSOPs. And more companies are likely to follow suit, even though the concentration of company stock in 401(k)s has become controversial. A little-noticed tax-law change in May 2000 made it easier for companies to capture the dividend deduction. To enhance the value of the ESOP dividend deduction, companies often create special preferred shares, paying higher dividends, for the ESOPs and 401(k)s. P&G has shares used exclusively for its retirement plan that pay annual dividends of as much as $2.06 a share, compared to a dividend of $1.40 a year on common shares. The plan's $10.8 billion in P&G stock, accounting for 12.6% of the company's shares outstanding, would garner $346 million in dividends - or a tax deduction of some $127 million, using the company's tax rate of 36.7%. The genesis of these other tax breaks came largely in the late 1980s, when many publicly traded companies set up ESOPs at least in part because they enabled them to borrow money cheaply. ESOPs are the only kind of retirement plan allowed to take on debt, and a company can deduct not just interest payments on ESOP loans, but principal payments as well. By funneling a loan through these leveraged ESOPs, companies could take a deduction on the full amount and reduce the cost of financing by some 40%. Leveraged ESOPs provide companies with a large source of cash for capital expenditures and leave the plan with a large amount of the company's own shares in giant unallocated pools. Finally, studies have shown that when employers contribute stock, employees are more likely to put their own contributions into the employer's shares. Further reducing the cost for employers: Employer contributions to retirement plans, whether in cash or company stock, are exempt from the 7.65% FICA taxes (though employees are not exempt from the tax on the salary they defer).
[from Caroline Baum, Bloomberg 1-30: Businesses reduced inventories by $120.6 billion, the biggest decline on record. The second biggest decline was $61.9 billion in Q3. GDP excluding inventories, or real final sales, rose 2.5% while final domestic demand, which includes imports and excludes exports, rose a solid 3.2%.] "The more inventories you've worked off, the better off you are looking ahead," Cheney said. "The shelves have to be restocked, and even a modest increase in orders will push the economy into positive territory moving ahead. If things get back to even close to normal, we could see a big pop in first-quarter GDP growth." While consumer and government spending rose strongly in the fourth quarter, business spending on exports, new plants, housing construction, and equipment and software all declined. The drop in such business investment was the second-biggest drag on Q4 growth, after inventories. The total number of hours worked by production and non-supervisory employees on private payrolls fell about 4% during the quarter. But according to the GDP report, production by nonfarm businesses declined only 0.4% - which meant that productivity, the amount of goods and services produced for each hour worked, rose at an annual rate of 3% or more for the quarter. "That's an amazing outcome for a weak quarter in which post-9-11 security-related disruptions were obvious," said Peter Hooper, chief economist for Deutsche Banc Alex. Brown. The personal consumption price index rose at only a 0.8 percent annual rate because of the large drop in motor vehicle prices, caused in part by no-interest financing offered by automakers, and because of falling energy prices. The broader GDP price index fell 0.3 percent, the first decline in nearly half a century. More GDP Stats Donald Ratajczak, Atlanta Journal-Constitution 2-3 The surprising 19% jump in state and local investment spending at annual rates during the fourth quarter cannot be sustained. Indeed, without this abnormal growth in state and local activity, GDP would not have increased. More GDP Stats WSJ 1-31 In Q4, consumer spending rose a surprisingly strong 5.4% - one of the reasons the economy was able to grow at a 0.2% rate and defy expectations of another negative quarter. For all of 2001, income and spending each rose by 4.9%. In another report, the Labor Department said the employment-cost index rose 0.9% in Q4, in line with economists' expectations. The Labor Department said the acceleration reflected mostly an increase in benefit costs, which rose 1.2% in Q4. Wages and salaries grew more slowly, rising 0.8%. More GDP Stats www.bea.doc.gov (Bureau of Economic Analysis) 1-31 Real personal consumption expenditures increased 5.4% in Q4, compared with an increase of 1.0% in the third. Durable goods purchases increased 38.4% [Baum: driven by a whopping 79.6% increase in autos], compared with an increase of 0.9%. Motor vehicles purchases accounted for most of the Q4 increase. Nondurable goods increased 0.9% in Q4, compared with an increase of 0.6% in the third. Services expenditures increased 1.6%, compared with an increase of 1.2%. PCE (Personal consumption expenditures)
In the 1930s, federal regulators began to require that banks pay attention to the ratings on bonds in their portfolios. Bonds with below-investment-grade ratings were to be avoided to protect deposits. Until the early 1970s, the rating agencies made their money by selling publications, essentially charging investors for their analysis of corporate creditworthiness. But, according to White, the spread of low-cost photocopying made it too easy for the agencies' work to be shared by non-payers. In addition, the default by the Penn Central made bond issuers more eager to reassure investors. They were willing to pay the rating agencies to accomplish that goal. But that left unaddressed the question of how to make sure an unscrupulous rating agency didn't offer triple-A bond status to whomever would line their pockets. That question remained open until 1975, when the SEC decided to begin using ratings to judge the quality of bonds bought and sold by brokers. So the SEC created an official appellation: Nationally Recognized Statistical Rating Organization, or NRSRO, to signify that a firm had demonstrated reliability in its judgments. Moody's, S&P and Fitch were immediately named NRSROs. But the SEC does not regulate the three big rating firms or perform regular checks on their performance. The ensuing quarter-century also saw the creation of regulations requiring that large institutional investors, such as mutual and pension funds, keep only a very small portion of their assets in below-investment-grade debt. That meant that if companies, cities, the federal government or foreign governments wanted to tap the vast U.S. capital markets, they needed strong ratings from an NRSRO. NRSRO's and Enron In general, companies tend to give credit-rating agencies access to documents not available to the general public in order to justify the highest possible credit rating. But there is no requirement that they divulge everything. "By virtue of who they are, they are in a position to get more information than anyone else," said the head of bond trading at a major international financial firm who requested anonymity. "But did they really know the right questions to ask? The Enron situation does not paint them in a very favorable light." A credit downgrade in itself can make a company's bad situation worse. A downgrade can trigger requirements that the company make accelerated payments to creditors - as in Enron's case - depleting it of cash. [The 'ratings trigger' required Enron to pay back $690 million to a limited partnership as well as $3.9 billion to two off-balance-sheet trusts. Enron did not have the money and quickly wound up in bankruptcy court.] Or a downgrade can force big pension and mutual funds to sell bonds because they are mandated to hold only highly rated securities - as happened in the case of New York City's default. The final post-Enron question many are asking of credit rating agencies concerns the potential for conflicts of interest. In addition to charging the companies for ratings, the agencies charge companies fees for advice on how possible corporate moves might affect their credit ratings. Critics say that structure could make rating agencies reluctant to downgrade companies. Bond Ratings & Capital Budgets Greg Ip, WSJ 1-31 Rating agencies such as Moody's wield new influence over corporate financial planning after the collapse of Enron Corp. heightened concern over creditworthiness. Investors and companies are now much more worried about undisclosed liabilities and aggressive accounting. That is forcing companies to prove they are shoring up their balance sheets, either by raising capital, selling assets, or slashing capital budgets. Despite signs the recession is ending, credit ratings continue to plummet. Standard & Poor's issued six downgrades for every upgrade in January, down only slightly from the record level of the fourth quarter and above the full year 2001's record ratio of 5.5 to 1. But industry watchers also sense a greater willingness to cut ratings after Enron's collapse, which rating agencies were criticized for being slow to recognize. Business investment has been falling for a year, hammered by slumping profits, excess capacity and the unwinding of a tech-spending bubble. Many economists think a turnaround is in the offing, but (Morgan Stanley corporate-bond strategist) Steve Zamsky's tally finds investment-grade companies' capital budgets have been cut 8% from last year, and those of junk-rated companies 20%. Bond Ratings Agency Update Bloomberg via LA Times 2-7 Moody's and Standard & Poor's, embarrassed by their failure to anticipate the collapse of Enron Corp., are demanding companies disclose credit and trading agreements. The rating companies are focusing on clauses - in bank credit lines, derivative contracts and third-party trading agreements - typically linked to credit ratings, earnings or share prices. Companies agree to put up collateral, pay back debt or forfeit access to credit lines if any of these triggers fall below an agreed level. The rating companies have begun to emphasize faster disclosure. Moody's, for instance, required only 38 days on average to cut ratings in the fourth quarter, down from an average of 90 days.
Things have changed in the past few years. The auto industry realized it was pricing its product out of the hands of its key consumers and began offering more attractive rebates and low-cost financing arrangements. In the case of housing, the stock market's advance during much of the 1990s combined with demographics to jump-start demand. And while this initially pushed prices up even faster, housing soon came to be viewed as a good investment, thus generating even more demand - especially after the stock market began to fall two years ago.
What's intriguing is that it took several years after the 1987 crash - perhaps the most rewarding opportunity for dip buying in a generation - to get people using the phrase. Clearly, it takes time for investors to become conditioned in their approach to the markets. The question right now, after a traumatic couple of years for most stock-fund investors, is whether the new catchphrase will be "doubt all rallies." The early evidence suggests that the tendency to buy the dips and chase the rebounds has been undone by the bruising bear market. Lipper last week estimated that in December, the net inflow into stock funds was almost negligible, below $2 billion, well below the $10 billion of a year earlier. It was an underwhelming end to a dud of a year for equity-fund sales. What made December's meager total noteworthy was the fact that it occurred amid one of the most dramatic recovery rallies in years, one that sent the broad market up more than 20% from the September lows. Don Cassidy, senior analyst at Lipper, says one really has to look back to the post-crash period of 14 years ago to find another instance of big market moves that failed to lure heavy stock-fund investments. The upshot: funds may not begin hauling in lots of cash very soon, depriving the market of some of the buying power many bulls count on to keep stocks rising. For all of 2001, Lipper estimates that $325 billion flowed into low-yielding money-market instruments - nearly ten times the 2001 stock-fund inflow. That money-market number is also almost exactly the dollar amount that entered stock funds in 2000. It's a neat bit of symmetry that speaks volumes about the mass dissipation of animal spirits.
Instead of the usual commission of 6 cents a share that professional investors pay when they trade big blocks of stock, clients who got in on hot IPOs expressed their gratitude by paying 10 times, 20 times or even 50 times the usual commission on other trades, which were done purely as payback for IPO profits. CSFB last week agreed to pay $100 million in penalties to settle parallel complaints brought by the Securities and Exchange Commission and NASD Regulation, the oversight offspring of the National Association of Securities Dealers. The well-known investment firm is the first big catch in the two agencies' ongoing effort to expose what was really going on when some IPOs magically multiplied in value on the first day of trading. One favored customer of CSFB made a killing after buying 10,000 shares of OTG and 5,000 shares of Selectica on the day they went public - March 10, 2000. If they got top prices, they would have made $370,000 on OTG and $550,000 on Selectica - in one day. The profits were such a sure bet that CSFB collected its paybacks from this particular customer on the same day as the twin IPOs. The customer paid at least three times the standard commission on some trades and 10 times the going rate on other transactions that were done solely to generate money for CSFB. This customer also bought a 80,000-share block of AT&T - a transaction that takes about as long as typing this paragraph, generating $48,000 in commissions for CSFB in less than a minute. In most cases, the favored customers did not even want the stock they bought to put commission money in CSFB's pocket. They turned right around and sold the shares, usually using another brokerage firm in an effort to cover up what was obviously a nonsensical trade. The trades used by this particular customer to repay part of the profits on the OTG and Selectica IPOs are among a dozen examples spelled out in the SEC complaint against CSFB. NASD Regulation investigators had to comb through a lot of trading records to find the transactions, identifying more than 300 customer accounts that were used in kickback IPO profits.
Indeed, one of the reasons why Kmart chose bankruptcy was because merchandisers were becoming worried that Kmart would go bankrupt. The manufacturers may have been making only a few cents on every dollar of goods shipped and could not afford to be exposed to a potential loss of 50 or more percent in a bankruptcy settlement. Some furniture manufacturers actually were forced to close their doors because so much of their capital was tied up in bankruptcy proceedings from furniture store bankruptcies that they did not have enough capital left to operate their own businesses. This cascading weakness caused by bankruptcies is one of the reasons why economists worry about rising defaults. The other losers are the holders of real estate. Bankruptcy allows defaulted companies to walk away from leases or negotiate better terms from landlords because of that threat. In extreme cases, property values could be sufficiently depressed by these abrogated leases to undermine the financing capacity of real estate lenders. This is not a concern for the overall economy at this time. One might wonder how bankruptcy can get the merchandise back on the shelves that was not being delivered when bankruptcy was threatened. Once the courts supervise the restructuring of bankrupt companies, funds are set aside to pay vendors for their wares. Thus, Kmart is a better customer under court protection than it was before filing. Kmart Leases LA Times 1-23 On Tuesday, Kmart said that by declaring bankruptcy, it no longer will be obligated to pay leases that have not expired on 350 stores that previously were closed or are being subleased to others. Kmart estimates that will save it about $250 million a year. If Kmart shutters hundreds of stores as many analysts expect, the nation's retail market could be flooded with vacant properties that will not be easily absorbed. Analysts said that probably will drive down retail rents in some areas and leave behind a trail of blight. Kmart & Kimco Dean Starkman, WSJ 1-23 Kimco Realty, the nation's largest shopping-center company, lowered its earnings targets for the year following the Chapter 11 filing of its largest tenant, Kmart. Kimco said its funds from operations would be $3.02 to $3.10 a share this year, down from a projected $3.22 to $3.29. Analysts had expected $3.23, according to a Thomson Financial/First Call survey. Kimco shares, which hit a 52-week high Dec. 5 at $34.07, have drifted down as bad news mounted about Kmart. Kimco shares were at $30.94, down 21 cents, at 4 p.m. in NYSE composite trading. Kmart, which operates 2,100 stores, rents 75 from Kimco and a Kimco-led joint venture, accounting for about 7.8 million square feet of about 70 million square feet that Kimco owns. Kmart pays about $55 million in annual rent to Kimco and the joint venture, representing about 12% of Kimco's total rent receipts. Kimco received about $10 a foot for the stores that are closed or are expected to close. Michael Mueller, an analyst with CIBC World Markets, estimates that the market for the stores has fallen to about $5 to $7 a foot. Kmart Leases Part 2 Jesus Sanchez, LA Times 1-29 The turnover among tenants in shopping centers in Southern California and across the nation has grown over the years in the turmoil of intense competition and financial pressures, chain store mergers and an expanding supply of new retail space, according to retail and real estate industry observers. "In this world of firms being more scrutinized [by Wall Street investors], retailers are more proactive about closing stores than they were 20 years ago," said Steve Sakwa, a real estate industry analyst for Merrill Lynch. Turnover has become high enough to support a mini-industry focused on helping retailers dispose of their unwanted stores. Excess Space Disposition Inc. for example, has seen its listings of surplus store space grow 25% in recent years to about 20 million square feet in 1,500 locations nationwide. Even the healthiest of chains are not hesitant about closing poorly performing or outdated stores. For example, ever-expanding discount retailer Wal-Mart Stores has about 400 stores for sale or lease. Wal-Mart has about 3,500 stores. Owners of shopping centers in densely populated sections of Southern California have a better chance at recycling empty space than owners of property in outlying areas, say real estate brokers. With relatively few large building sites left in urbanized areas, retailers eager to expand often act quickly to take advantage of precious real estate left behind by failed rivals. Target, for example, purchased nine former Montgomery Ward stores in Southern California last year after the retailer folded. "These things have a second life and a third and a fourth life," said real estate consultant Larry Kosmont of retail property. "You don't see them getting knocked down." As a result, most of the stores that might be vacated by Kmart, which has about 90 locations in Southern California, are expected to be acquired by another retailer, according to real estate and retail specialists.
But from December 1989 to July 1999, the two-to-one signal flashed nine times. Five times, the market declined during the next 13 weeks. But in three of those five, the market was higher 26 weeks and 52 weeks later. It declined only once over 26 weeks and only once over 52 weeks. That seems to indicate that the sentiment measure is best as a short-term market barometer.
Over the final four months of those recessions and the first four months of the subsequent economic recovery, small stocks soared an average 54%, while larger companies gained 36%. "When things go well in the market, riskier investments tend to do better," Mr. Riepe explains. While small stocks have posted eye-popping gains in recent months, this spurt of outperformance isn't new. Gerald Perritt, editor of the Mutual Fund Letter,notes that small stocks also fared well during the recent bear market. "The momentum seems to be with them," he says. "It wouldn't surprise me to see the small-cap indices return 40% or 50% this year. We haven't seen a lot of money flow into the sector and we haven't seen a lot of acquisitions [among smaller companies]. Those are two catalysts that haven't kicked in yet." Small Cap Pros & Cons E.S. Browning, WSJ 1-29 As the broad S&P 500 index of large stocks was falling more than 15% over the past two years, the S&P's indexes of small stocks and of medium-size stocks were rising more than 15% each. Similarly, when stocks rebounded following the terrorist attacks, small stocks rose 28% and middle-size stocks rose 26%, eclipsing the 19% gain put in by large stocks. But this year, the run has reversed itself, at least for now. The Russell 2000 small-stock index has been among the year's weaker performers, down 1.9%, compared with a drop of 1.3% for the S&P 500. Some analysts have begun to warn that small stocks, which trailed large stocks for most of the 1990s, may be returning to days when they do no better than big stocks. One reason is that small stocks simply aren't as cheap compared with large stocks as they once were. In April 1999, notes market strategist Brian Belski (of U.S. Bancorp Piper Jaffray), the median stock in the Russell 2000 traded at 10.6 times its cash flow, 25% below the value of the median stock in the S&P 500, which was 14.1 times its cash flow. Today, most of that differential has disappeared. The median Russell stock trades at 10.5 times cash flow, while the median S&P 500 stock trades at 11.6 times cash flow, a difference of less than 10%, Mr. Belski says. Another worry: Small stocks historically have done their best when investors are hoping for a return to a strong economy. In a choppy economy, with companies fighting for market share, some small companies could lose out to bigger rivals with deeper pockets. Analysts also worry that smaller stocks, like many other stocks, may have gotten ahead of themselves last year, anticipating an economic snapback that may take some time to materialize. Still, small-stock valuations are lower than those of large stocks. Over the long run, the analysts note, small stocks typically have slightly higher ratios of price to earnings or price to cash flow, and they still haven't gotten back to that level. Jeffrey Kleintop, chief investment strategist at PNC Advisors has calculated that small stocks sharply outgain large ones in the year after a recession ends. Following the past five recessions, he figures, small stocks have outgained big stocks by an average of 19.4 percentage points in the first year after the recession's end.
According to traditional economic theory, such people shouldn't exist. People aren't supposed to careen through life systematically making bad bets, leaving money on the table, assigning different values to the same products and paying too much for things they don't really want. Reality turns out to be quite different from theory. As economic actors, people are as likely to be governed by their emotions as by reason, by prejudices as by careful cost-benefit analysis. Examples People assign higher value to things they already have. Ziv Carmon, a French marketing professor, and Daniel Ariely at the Sloan School of Management at the MIT, divided a group of nearly 100 Duke University students into two groups. One group was asked to state the highest price they would pay for a ticket to the NCAA Final Four basketball tournament, a highly prized item on that campus. The other group was told to imagine they had such a ticket and was asked for the lowest price at which they would be willing to sell it. The median selling price was $1,500; the median buying price was $150. This tenfold difference, according to Carmon and Ariely, results from the different ways in which buyers and sellers think about a transaction. Buyers tend to think about what else they could do with the same amount of money, while sellers focus on the pleasure or enjoyment they would forgo. Companies have relied on the "compromise effect" to manipulate their product lines to increase sales of their most profitable items. When Oriental-rug salesmen and charitable fundraisers start out by mentioning a ridiculously high price or suggested donation, it's not because they think they'll get it but rather to establish the highest possible reference point in the minds of buyers and donors. They know they will get more than they would otherwise by starting high and coming down. The same goes for the "full" fares posted by airlines, the suggested retail prices listed in department-store ads and theposted room rates for hotels. Professor Itamar Simonson of Stanford notes that retailer Williams-Sonoma was able to increase sales of its $275 bread machine a decade ago by adding a second, slightly larger model to its catalogue at a price of just over $400. And Thomas Nagle, a pricing consultant, reports that Xerox boosted sales of its high-volume copier to large corporations only after it brought out a higher-priced model with a few extra bells and whistles that purchasing managers could feel good about rejecting. "The general view is that the top of the line is only for people with more money than brains," Nagle said. What's something worth? It all depends on how you calculate it. Public television stations have discovered they can get significantly higher pledges from viewers by breaking the total amount down to so many cents a day; 41 cents a day doesn't sound as bad as $150 a year. On the other hand, the folks at Smokers Anonymous like to remind their pack-a-day clients that they can take a short Caribbean vacation for the $1,500 a year they spend on cigarettes. For consumers, it turns out that their view of what something is worth can be influenced by the currency in which it is paid. One reason casinos use chips rather than money is that people tend to be looser with something that has the appearance of play money. Similarly, people seem to spend more on things overseas because it just seems less painful to part with those funny bills and coins than "real" American cash. And then there are credit cards. MIT's Prelec recently ran an experiment in which a group of men were asked to submit bids on a ticket to a big sporting event. Half of the group was told they could pay only in cash, the other half told they could pay only by credit card. The cash bids were half as high as the bids made with plastic. Marketers have now come up with all sorts of schemes to separate the buying and paying and take advantage of this all-too-human instinct to avoid guilt about spending. Although people probably wind up spending more money on their vacations by going to all-inclusive resorts, paying in advance offers the emotional advantage of not feeling guilty every time you have the urge to play tennis or get another planter's punch from the pool bar. All-you-can-eat restaurants and high-volume calling plans work on the same premise. Experience shows that people get very confused when thinking about "sunk costs" - the money they have already spent for a project or purchase or investment. Rationally, they should forget about sunk costs and focus only on what the costs and benefits are going forward. Emotionally, they can't. Psychologists Amos Tversky and Daniel Kahneman of Princeton explored a situation in an experiment involving a theater ticket back in 1984. They told one group of subjects to imagine that they have arrived at the theater only to discover that they have lost their ticket. Would you pay another $10 to buy another ticket? they asked. A second group were asked to imagine that they are going to the play but haven't bought a ticket in advance. Then, when they arrive at the theater, they realize they have lost a $10 bill. Would they still buy a ticket? In both cases, the subjects were presented with essentially the same simple question: Would you want to spend $10 to see the play? That's largely the way the cash-losing group thought of it, with 88% opting to buy the ticket. But the ticket losers, focusing on sunk costs, tended to frame the question in a different way: Am I willing to spend $20 to see a $10 play? Only 46% said yes. This focus on sunk costs and the aversion to losses play out every day in financial markets. Numerous studies have shown that investors systematically make bad decisions because of their reluctance to sell stocks or bonds on which they have a loss. And Thaler has done extensive work showing that the reason stocks have outperformed bonds over long periods of time is that investors have exaggerated perceptions of the relative riskiness of stocks. As a result, investors generally put too much money in bonds and too little into stocks, driving their relative prices in opposite directions. Absent that bias, Thaler argues, the returns on stocks and bonds would have probably converged - just as economic theory predicted. Okay, so we're a bit crazy when it comes to money. But once we are confronted with these facts, surely we'll learn our lesson and become more rational in our economic behavior, right? Alas, the early evidence is that we won't. In several of the experiments cited here, subjects were later presented with the results and the analysis and asked to go through the exercise again. In most cases the results were nearly identical. "The thing that is striking is how little people learn," said Kahneman, the Princeton psychologist.
Concentration of power The nation's top six refiners now control 59% of that business in the U.S., up from 41% in 1990, according to government and industry figures. When all of the mergers are completed, a similar group of six companies will own or franchise 55% of the nation's 175,000 gasoline stations, compared with 30% in 1991, according to National Petroleum News, a trade publication. On other occasions, some dominant companies are simply exploiting greater market power at the expense of smaller independent gas-station operators that traditionally have sold discount unbranded fuel and kept prices in check. There is a force that potentially could cut against the consolidation trend and spur new price competition in some places: large retailers making inroads into gasoline sales, including Costco and Wal-Mart. Costco has opened 45 stations in California. Because they are well capitalized and tend to deal in huge volumes, they command more power in the marketplace than smaller chains. Technology and cost-cutting strategies New software in use at most major energy companies allows employees to keep closer watch over how much oil or gas is sitting in tank farms, vast pipelines and neighborhood gas stations. By squeezing inventories to the minimum, the companies reduce storage costs and improve cash flow. Exxon Mobil says it is "on target" to reduce by nearly 30 million barrels, or about 15%, the crude oil and refined products it keeps on hand. BP, which acquired Atlantic Richfield and Amoco in the late 1990s, says it has shaved its inventories by 7% since 1997. Since 1990, U.S. gasoline inventories have dropped by 10%, to 202 million barrels, or 24 days of supply, even as gasoline use has grown by 16%, according to the Department of Energy. Oil executives agree that improved efficiency and tighter supplies can lead to price spikes, but these same developments ultimately reduce their costs and help keep prices down. Disruptions Last summer, a fire badly damaged a Citgo refinery near Chicago, cutting the gas supply to Illinois by 16%. That helped push prices in the Midwest above the national average for seven weeks, while retailers had to use gasoline shipped from as far away as Europe. Roadblocks to Cheap Gas Dina ElBoghdady, Washington Post 2-1 As Wal-Mart has slowly rolled out gas pumps in its parking lots across the country, it has brushed up against a formidable lobby of independent gas-station operators who accuse the retailer of slashing prices to drive them out of business. "Once the competition is gone, then Wal-Mart will have their foot on the throat of any town or city that they want, and they will exact any price they can," said Dan Gilligan, president of the Petroleum Marketers Association of America. Not allowing Wal-Mart to offer low-price gas "is anti-competitive and anti-consumer," said Chris Buchanan, Wal-Mart's regional manager of state government relations. So far, Wal-Mart's argument has fallen on deaf ears in Virginia. Earlier this month, the state Senate passed legislation that would prohibit retailers from selling gasoline for less than what they paid for it. With certain discount plans, Wal-Mart is selling gas below cost, said Bob McAdam, Wal-Mart's vice president for state and local government relations. Under the current arrangement, Wal-Mart shoppers who buy a shopping card get a 3-cent discount at the company's pumps. Those who pay the annual Sam's Club membership fee get a 5-cent cut. About 21 states have banned below-cost gasoline or imposed markups at the pumps. Last year, Maryland enacted a below-cost law. John Umbeck, an economics professor at Purdue University, said the birth of A&P grocery stores gave rise to the kind of legislative action now facing the cut-rate gasoline sellers. Then, mom-and-pop stores argued that the supermarket would lower prices and run them out of business. They were right. A&P lowered prices and the small grocers failed, Umbeck said. But along came other large grocery chains, and today food prices are lower than they've ever been. Umbeck expects the same phenomenon to occur among gas retailers.
The Rate Reduction Credit was created so that people who had sufficient taxable income in 2001 but didn't get a check still could benefit from the new, lower 10% tax rate. The rate applies to the first $6,000 of a single taxpayer's income, $10,000 for a head of household and $12,000 for a married couple. The credit is found on line 47 of the 1040 form, line 30 of the 1040A form and line 7 of the 1040EZ form.
Don't forget productivity as a means of boosting earnings. Once sales pick up, business uses its existing workers and facilities more intensively, so efficiencies rise. This gives a lift to both profits and margins. On the cost side, you name the cost of doing business and it has been falling. For instance, the cost of labor, businesses' biggest cost, has been plunging like a lead balloon, thanks to the massive layoffs since last March. Inventories are down as well. Indeed, the reductions in stockpiles by Corporate America last year may well have been the greatest in history. Needless to say, fewer unsold goods on hand reduce another major cost of doing business - the cost of financing. This, of course, is in addition to the decline in the cost of borrowing for those firms whose loans are tied to the banks' prime lending rate. Let us not forget the cost of energy. The drop in gasoline prices alone saved U.S. consumers and business about $50 billion last year. Oil for heating and industrial uses is lower, too.
The most obvious additional risk is that investors now have a new notion of how large is large enough to be considered immune from bankruptcy. Enron's bankruptcy filing is almost as large as the two next biggest failures combined. There's more risk because the size of a company that is "too big to fail" has suddenly become larger, says Peter Bernstein, an economic consultant to institutional investors. Enron's collapse is unique in the way it has so publicly and comprehensively highlighted risk for investors in every part of the market's supposed safeguards. "The Enron debacle has relevance beyond just Enron," says Byron Wien, senior investment strategist at Morgan Stanley. "It has made investors more apprehensive about investing and part of the malaise the market has experienced in the last several weeks is a reflection of that." Internal company memos show that the board and the office of Chairman Kenneth Lay approved the off-the-books partnerships that ultimately led to Enron's fall. Twice the company waived its code of ethics to allow Enron's former chief financial officer to head several of these partnerships. So add some risk for the integrity of executives and directors. Revelations that Arthur Andersen was aware of the partnership structures, acted as both external and internal auditor and shredded documents have made even the most skeptical investors rethink what little faith they placed in accountants. There's even a joke among traders that the next great investment play will be shorting a basket of stocks audited by Andersen. So add some risk for the integrity of the accountants. A look back at the reports from stock analysts before the company's downfall makes clear that the stock analysts, supposedly highly qualified in corporate finance, didn't understand much of the way Enron earned its money and kept debt off its balance sheet. Worse, even after Enron's problems came to light, several analysts continued to recommend the stock. So add some risk for the financial acumen of stock analysts. It has also become apparent that the Financial Accounting Standards Board, which sets the accounting rules, has been working for 20 years to create a simple standard for disclosing these off-the-books transactions. But because of pressure from corporate interests and accountants, it hasn't succeeded. And it's now known that the Securities and Exchange Commission gave Enron waivers from two regulations that would have prompted detailed financial disclosures. So add some risk for the regulators. That doesn't leave much for investors to rely upon. And if investors can't trust the directors, executives, accountants or analysts to come up with good numbers, then everyone will pay a price - or rather, a lesser price for stocks. Many Accounting Practices Add to Confusion Steve Liesman, WSJ 1-23 The number of accounting restatements - in which companies have had to change, usually lower, their previously reported sales or earnings - averaged 49 annually between 1990 and 1997, according to Financial Executives International. The number ballooned to 91 in 1998 and to 156 in 2000, as companies found they had wrongly accounted for revenue, inventory valuations, bad-debt allowances and income taxes. In many cases, the restatements sent the stocks plummeting, with losses to investors measured in the tens of billions of dollars in recent years. The accounting system initially was designed to measure the profit and loss of a manufacturing company. Figuring out the cost of producing a hammer or an automobile, and the revenue from selling them, was relatively easy. But determining the same figures for a service, or for a product like computer software, can involve a lot more variables open to interpretation. Moreover, growing competition, globalization, deregulation and financial engineering all have made the nature of what companies do more complicated. As a result of competition, companies have evolved ever-more-complex ways to limit risk. A venture into foreign markets creates a need for a company to use derivatives, financial instruments that hedge investments or serve as credit guarantees. Many companies have turned to off-the-books partnerships to insulate themselves from risks and share costs of expansion. Pressure to develop new technologies, drugs and other products drives companies into ventures with rivals that limit exposure. Accounting standards that deal with recording the value of derivatives run several hundred pages. Philip Livingston, president of Financial Executives International, a professional group, called the new rules for derivatives "a monstrosity of accounting standards that nobody understands," including accountants and chief financial officers. Another area that allows companies freedom to determine what results they report is in the accounting for intangible assets, such as the value placed on goodwill, or the amount paid for an asset above its book value. At best, the values placed on these items as recorded on company balance sheets are educated guesses. But they represent an increasing part of total assets. Looking at 5,300 publicly traded companies, Multex.com, a research concern, found that their intangible assets have grown to about 9% of total assets, from about 4% five years ago. Finally, add to the equation the increasing importance of a rising stock price, and investors face an unprecedented incentive on the part of companies to obfuscate. No longer is a higher stock price simply desirable, it is often essential, because stocks have become a vital way for companies to run their businesses. The growing use of stock options as a way of compensating employees means managers need higher stock prices to retain talent. The use of stock to make acquisitions and to guarantee the debt of off-the-books partnerships means, as with Enron, that the entire partnership edifice can come crashing down with the fall of the underlying stock that props up the system. And the growing use of the stock market as a place for companies to raise capital means a high stock price can be the difference between failure and success. Hence, companies have an incentive to use aggressive - but, under the rules, acceptable - accounting to boost their reported earnings and prop up their stock price. In the worst-case scenario, that means some companies put out misleading financial accounts. Let the Auditors Tell Us What They Know Floyd Norris, NY Times 2-1 Auditors are supposed to discuss with a company's directors the decisions the company made and let them know whether the company was quite aggressive or very cautious in its accounting. But that is where that information stops. Nobody tells the public. The only thing investors hear directly from the auditor is the boilerplate letter in every annual report. "One of the things that bothers me is that there is so little flexibility in what you can say about your work after you have done an audit," said James Copeland, the chief executive of Deloitte & Touche. He suggests auditors find a way to share at least some of the information they already provide to the audit committee. Are these profits highly dependent on the aggressive use of a particular accounting rule? Would changing assumptions about something produce radically different results? As it is, with auditors giving the same grade to every company that barely meets accounting standards, we have a sort of Gresham's Law in operation, in which bad GAAP (generally accepted accounting principles) drives out good. If investors assume every company is pushing the accounting envelope, then those that use more conservative accounting derive no benefit from acting responsibly. Who You Gonna Trust? Tom Petruno, LA Times 1-21 Though often reviled for the end product of their work, short-sellers may be the last bastion of hard-nosed research left on Wall Street. One of the few voices raised against Enron a year ago was that of James Chanos, a well-known research-intensive short-seller who heads Kynikos Associates. Chanos publicly questioned other analysts' assumptions about Enron's true profitability and made the argument that the company was merely a disguised "hedge fund" - a high-risk trading operation that didn't deserve the huge valuation investors had given it. The line heard most often on Wall Street today, as big investors and analysts try to explain why they didn't see Enron's collapse coming, is "We were totally snookered--the company deceived the government, its auditors, and us." Baloney, says James Grant, editor of Grant's Interest Rate Observer newsletter. "I do not buy for one minute" the idea that anyone paying close attention to Enron's finances wouldn't have seen the same warning flags that Chanos did, Grant argues. "And if it [Enron] was so opaque, why did people own it?" Led by a handful of professional skeptics, more investors did short Enron stock as 2001 wore on. But those bets rose relatively slowly, and even by September - after CEO Skilling had resigned and the share price was crumbling - a modest 13.8 million Enron shares (less than 2% of the total outstanding) had been shorted, according to NYSE data. What Mystery? Robert Hunter, SmartMoney 1-18 According to LJM2 partnership documents from 2000, the cast of characters involved in Enron's off-balance-sheet activities is much bigger than previously thought. Limited partners included Chase Capital, G.E. Capital, J.P. Morgan Capital, Merrill Lynch, Dresdner Bank, AON, Credit Suisse First Boston, Morgan Stanley and First Union Investors, an all-star list of Wall Street insiders. Given the porous walls separating equity research from investment-banking operations, the suggestion that analysts at these firms knew nothing about the LJM partnerships before they blew up simply isn't credible. Enron's off-balance-sheet activities weren't the mystery they've been portrayed to be. Wall Street can keep a secret far better than anyone could have imagined. How many other secrets is it keeping? The Simple Truth Tom Petruno, LA Times 1-27 Of all the lessons that the Enron saga ultimately may teach professional and individual investors, the simplest may be about simplicity itself: In the wake of the many investment disasters of the last two years, easy-to-understand businesses - from doughnuts to auto-parts retailing to Winnebagos - suddenly have enormous appeal. Moodys and S&P Respond Jennifer Ablan, Barrons 1-28 Moody's Investors Service and Standard & Poor's have come under harsh criticism following their slowness in re-rating Enron's debt. In response, the agencies are considering new guidelines that would allow them to more quickly make changes-possibly a few notches at one time. Moody's said last week that it might do away with its "outlooks"- essentially warnings about a possible ratings change - and cut short its three-month "review" periods, which typically precede ratings changes. As for S&P, it plans to provide more information "on the potential of the decline of ratings in CreditWatch Negative situations, including commentary on what level the company may fall to should certain events occur. This will help identify so-called credit-cliff situations, where the creditworthiness and rating could decline precipitously under certain, lower-probability, but adverse scenarios." Enron Hurting P/Es Erin Arvedlund, Barrons 1-28 Why are price-earnings multiples contracting? Blame Enron. "People don't trust balance sheets anymore, so investors are asking, 'Why pay an outrageous premium for earnings?' " says Kyle Rosen, founder of Rosen Capital Management, a hedge fund in Santa Monica, California. If a Big Five accounting firm signed off on questionable numbers so that Enron would hit the Street's numbers, maybe the bean counters were doing the same favor for other companies. "In many ways, Enron is worse than Long-Term Capital Management," Rosen adds. "At least in that case Wall Street could point to a rogue hedge fund. Enron calls into question investors' confidence in how stock multiples are calculated." Enron Not Hurting P/Es Chet Currier, Bloomberg 1-29 Many expert commentators tell us that faith in the system of corporate disclosure and oversight has been shaken by the collapse of Enron. Yet in the last three months, while Enron shares have plunged 97%, the S&P 500 Index has gained 5.9%. That's not the way we usually expect a spreading shock effect to look. Simple Warning Sign Donald Ratajczak, Atlanta Journal-Constitution 1-27 Wall Street analysts signed off on the information provided by the company filings and by the company itself without asking questions about how so few employees could create so much value. (Some lists reported it as the fifth-largest company, but its payroll was not even in the top 1,000 companies.) Hidden Insider Sales Simon and Kelly, WSJ 1-31 Executives at some of the nation's largest companies are disposing of stock by selling it back to their company rather than on the open market, enabling them to delay publicly disclosing their sales by as much as a year. SEC rules allow insiders to disclose sales back to the company just once a year, with the deadline for filing not coming until 45 days after the company's fiscal year ends. Last year, more than 450 transactions qualifying for the longer disclosure rule were reported to the SEC, according to Thomson Financial/Lancer Analytics. By contrast, corporate officers and directors who sell company stock in the open market must disclose those sales by the 10th day of the month after the sale. "Until Enron, there was really no public interest in getting real-time information about those transactions," says Peter Romeo, a securities lawyer in Washington, D.C. and former chief counsel of the SEC's Division of Corporation Finance.
That is about to change, and fast. Thanks to the "Web-enabling" of ATMs - retrofitting them with Internet-based technologies - the corner machine soon might offer a wider array of services and much more personalization. In trials involving about 4,000 of the world's 800,000 ATMs, consumers already are gaining access to Web-enabled services such as news updates and coupon printing. Full-motion video plays in the background. The machines can scan a deposited check and display the image on the screen, then print a copy on your receipt. Many also offer text-to-speech synthesis for the visually impaired. Coming soon will be additional services such as ticket purchasing, personalized stock quotes, sports scores, maps, directions, bill payment and the ability to call up an image of a canceled check from your account. You might even be able to order chocolates and flowers. "The idea is to take what's best of the PC-like experience" and put it into "what historically has been a very dumb device," said Bob Chlebowski, executive vice president for distribution strategies at Wells Fargo Bank. "The biggest thing we're testing is how to use it as a targeted messaging vehicle," Chlebowski said. He said Wells Fargo had early success enlisting users for its online banking service through advertising on the new machines. The bank also is selling ads to other marketers such as Macy's and Conde Nast's Lucky magazine. Even nonbanking companies such as 7-Eleven are experimenting with Web-enabled ATMs. 7-Eleven already does 100 million traditional ATM transactions a year in its 5,300 stores (of an estimated 11 billion total annual transactions nationwide).
Morningstar has calculated that funds from the least-favored categories outperform the average equity fund over the ensuing three years some 70% of the time. The unloved categories outearn the most popular ones more than 90% of the time over a three-year period. That would mean, if the pattern holds, that the uncelebrated communications, Latin and Asian segments of the market will do better than last year's most favored groups - mid-cap value, small-cap value and small-cap blend. Dividend/Total Return Reversion Chet Currier, Bloomberg 1-11 Over long periods of time, it appears that dividends' share of total return (price appreciation being the other element) regresses to a mean of about 50%. According to my quick calculations from Bloomberg charts, dividends accounted for 45% of the S&P 500 return in the 1950s; 51% in the '60s; 77% in the '70s; 42% in the '80s, and 25% in the '90s. The simple average for those five decades works out to 48%. Sure enough, in the five years after Sept. 30, 1996, the total-return breakdown was 82% appreciation, 18% dividends. But in the three years after Sept. 30, 1998, surprise! Dividends' share jumped to 62%. Is the dividend/total return ratio reverting to its mean?
The most common issue is ''conforming language,'' where a firm wants all of its prospectuses to be based on identical and current rules. A fund started years ago has a prospectus up-to-date with the time it was started; a sister fund opened two years later might operate under slightly different rules, meaning that one fund could engage in a form of investing - like derivatives - that the second fund was barred from. That's why firms issuing proxies tack on measures that put all of their funds on equal footing, in line with the industry's current ''best practices,'' even if they don't plan to change how their funds work. Proxy paralysis - where investors don't vote - is common for all fund firms. If you are faced with a hard-to-understand proxy vote, do the following: First, call the fund for an explanation; vote based on how comfortable you are with explanations of how the funds could change. If the fund isn't helpful, don't automatically vote against the proposals. The fund company almost surely wins if it achieves quorum; ''no'' votes help it cross that threshhold. Not voting at all often hurts a fund firm more than a ''no'' vote (though it may also force the firm to try again and to bill shareholders for the cost). Finally, watch the fund's future portfolio disclosures. If commodities, derivatives, and more show up in the semi-annual report of your plain-vanilla growth fund, you'll know the fund has changed flavors even if they told you things would taste the same after the proxy vote. Just the Facts HD VCR Four movie companies are to announce today that they plan to release films on high-definition videocassette to be used with a player from JVC. The JVC player is priced at $1,999. When shown on HDTV sets, digital tape is said to offer picture quality that exceeds DVD, which offers quality superior to regular VHS but does not approach high definition. The JVC player and digital cassette will also be able to record programs broadcast in high-definition format. At present most DVD players cannot record. The JVC machine is backward-compatible (it will play standard videocassettes). DVD is expected to develop its own high-definition capability and be able to record. "When that happens I don't see how the videocassette is going to have any advantage over DVD," said Scott Hettrick, editor of Video Business magazine. (Peter Nichols, NY Times 1-30) Higher Rate Expectations The financial markets are already are bracing for rate hikes later this year. In the Eurodollar futures pits, expectations about future short-term rates increased sharply. The June contract, which had been predicting a three-month rate then of 2.075% on January 11, when Greenspan delivered a downbeat assessment of the economy, shifted by Friday to predicting a 2.40% rate at midyear. The benchmark three-month rate currently is 1.875%. The anticipated rise in Eurodollar rates would be consistent with a federal-funds target of 2%- 2.25%, up from 1.75% currently. The September Eurodollar contract implies a 2.93% rate, up sharply from 1.97% two weeks ago. (Jennifer Ablan, Barrons 1-28) 401(k) Returns Over the last 10 years, nearly 1,000 of the 2,416 domestic companies with 10-year records have provided returns of 6% or less. About 1,600 companies provided returns lower than the 14.07% return of the S&P 500 index. This means millions of workers have essentially missed the greatest bull market in history, simply because their employer contributed company stock in their 401(k) plans - instead of cash that could be more broadly invested. Still worse, they were adding a level of risk that is wildly higher than the risk of a broad portfolio. It comes down to this: The typical 401(k) plan participant was handed a lottery ticket. Risk was increased. Return was reduced. That's exactly the opposite of what we're supposed to be doing when we invest. (Scott Burns Dallas Morning News 1-27) Capital Spending The consensus view is that growth in GDP will run an anemic 2.5% through the current year because a strong recovery is capital spending may not come until 2003. There have been nine recoveries since the end of World War II. In eight of the nine, business investment in plants and equipment rose either in the same quarter, or just one quarter after, the rest of GDP. In six of the nine cases, the first year of recovery saw business investment grow faster than overall GDP. In a seventh case (1958-59), capital spending in the first year came close to matching the overall growth rate of 9.5%, rising by 8.6%. But even more typical was the first year of recovery following the recession of 1981-82, when real plant and equipment spending jumped 11%, compared with 7.5% for overall GDP. In a eighth case (1990-91), spending on equipment and software did pace GDP growth. The real drag came from the decline in spending on structures, due mainly to the overbuilding of commercial real estate. (Gene Epstein, Barrons 1-21) The 'New' New Thing Apple thinks people will find its computers sexier if they can also make home movies on them. Microsoft figures the world's amateur photographers will be eager to fool around with the photo-album tools in the new Windows XP operating system. Sony's newest computers are aimed at music fans, giving them more options to mix and remix their tunes, which they can then store on compact disc, hard disk, MiniDisc or plug-in Memory Stick. What these devices have in common is that they are the next best hope of the sluggish computer industry. In fact, it may be the next best hope in consumer electronics as well. (Wash Post 1-20) A New Word for 'Loser' The Nasdaq Stock Market, the once-hip home of Amazon.com, Yahoo and countless other fallen Web stars, has deteriorated in the eyes of many writers into a synonym for "loser." In recent months, Nasdaq has sprouted up dozens of times in newspapers across the country, describing everything from bad sports teams to troubled TV ratings. Last month, a San Jose Mercury News editorial about Gary Condit, the scandal-plagued California congressman, declared: "Nasdaq is higher than his poll numbers." Looking for a word to convey the plight of hapless Denver Broncos quarterback Brian Griese, Adam Schefter, a sportswriter for the Denver Post, wrote that "his quarterback rating has Nasdaqed." (Kate Kelly, WSJ 1-17) LEI and 'Feedback' Michael Boldin, an economist at the Wharton and former director of business-cycle research at the Conference Board when the LEI was revamped in 1996, says expectation indicators (the yield curve, stock prices and consumer) have a leg up on the real-side indicators (building permits, jobless claims and new orders) because of the feedback loop. `It's a two-way phenomenon. The expectations numbers tell you what people are thinking. Other people, who may have different expectations, see the reaction and change their behavior accordingly.' (Caroline Baum, Bloomberg 1-18) Inflation Update It's a widely ignored fact that all the improvement in inflation this year has been due to energy. A 43.6% annualized plunge in energy prices in Q4-01 produced a quarterly annualized decline in the consumer price index for the first time in almost 16 years. The 13% drop in energy prices for all of last year more than halved the rate of increase in the CPI to 1.6% from 3.4% in 2000. The CPI excluding energy accelerated from a 2.6% increase in 2000 to a 2.8% rise in 2001. Services ex-energy rose 4% in 2001, the fastest year-over-year increase in eight years. Housing costs continue to forge ahead, with shelter, accounting for 30% of the CPI, rising 4.2% last year. Medical care costs shot up 4.7% last year. (Caroline Baum, Bloomberg 1-16) Quick Facts, Stats & Opinions The funds last year took in the smallest amount of net new cash since 1990, and inflows for January appear to be weak. The sharp falloff in fund investing raises questions about the stock market's prospects for this year. Though mutual funds control only about one-fifth of total stock assets, the record cash inflows the funds enjoyed in the late 1990s helped propel the bull market. Despite the deep bear market, more stocks rose than fell on the NYSE and Nasdaq in calendar 2001. Yet 83% of stock mutual funds lost money, according to data firm Weiss Ratings Inc. (Josh Friedman, LA Times 1-31) A study by Kirt Butler of Michigan State and Domingo Joaquin of Illinois State shows that the correlation between foreign stock markets and the U.S. is even closer when Wall Street is in decline. So American investors get the least diversification protection when they want it the most. One alternative to diversifying abroad is to buy American bonds. The correlation of the bond market with the stock market is very low, making it much more likely that while stocks are going down, bonds will rally. (Jonathan Fuerbringer, NT Times 1-30) There is no tax-law provision allowing for tax credits or refunds for "slavery reparations." Even so, the IRS received nearly 80,000 returns last year claiming more than $2.7 billion in false reparation refunds. (WSJ 1-30) Anywhere from 70% to 80% of U.S. households can already sign up for high-speed cable-modem Internet access if they want it. In one estimate cited by the FCC, at the end of last year cable-modem service was expected to be available to more than 81 million homes. But fewer than 10% of those homes were expected to have subscribed. For phone-company DSL, with an estimated 51.5 million U.S. homes able to get the service at the end of 2001 - and less than 10% signed up. (Tom Weber, WSJ 1-28) The Dow Jones industrial average perhaps should be renamed the Dow Jones retirement average. It has less and less to do with industrial America and more and more to do with how our pension funds are doing. (Steve Dunphy, Seattle Times 1-27) Companies will use this year to take massive write-offs that will cut earnings by 15% to 20%, says Goldman Sachs Chief Investment Strategist Abby Joseph Cohen. As a result, Cohen is cutting her operating earnings estimate for S&P 500 companies by $10, to $42. Still, despite slashing her operating earnings outlook, she isn't changing her year-end price target of 1300 to 1425 for the S&P 500 Index, which closed Wednesday at 1128. She isn't backing off estimates of 7% to 8% long-term earnings growth. (WSJ 1-25) The NYSE will launch a new market-data service [called OpenBook] Thursday that will allow investors to peek at the exchange's book of limit orders. OpenBook will only provide access to data on limit orders, which are executed at no worse than a set price. In the fourth quarter, limit orders made up about 80% of the NYSE's orders, Mr. Britz said. The NYSE receives about 2.5 million limit orders a day. (WSJ 1-23) Price-to-earnings ratios have climbed sharply. At the start of 2001, the P/E ratio of the S&P 500 index stood at 24. By the midpoint of last year, that same P/E reading had risen to 26, even though profits, by then, had already begun to fall. Last week, the P/E ratio of the S&P 500 clocked in at 40. That's not only a huge increase in a span of six months, but it's also a very high figure historically. (Robert O'Brien, WSJ 1-22) This year's lowered tax brackets seem nearly minuscule: The average household will benefit by only $15 every two weeks. Yet that paltry sum will be multiplied more than 90 million times. And - partly because the amounts individually are so small - that money will not likely be saved, only spent, says Maury Harris, chief U.S. economist at UBS Warburg. And that is what the economy needs. Moreover, about $12 billion will be mailed as annual tax refunds in the next few months. That money, too, is likely to be spent and will act as a stimulus. (Michael Kanell, AJC 1-20) The myth known as the Super Bowl Predictor (the market goes up if an old NFL team wins, or down if an old AFL team takes the title) is now 0-4 since 1998. (Dolores Kong, Boston Globe 1-20) Due to higher mortgage rates, the refinancing boom that kept consumers spending like mad is over. Less consumer spending isn't good for corporate profits. Which means 2002, like the year before it, could be a very tough year for investors. (Daniel Denning, Strategic Investment via Wash Post 1-20) It is important to remember that many of the companies that drove the Nasdaq higher during the several short-term rallies . . . continue to have very poor earnings over the next two to three quarters. Additionally, valuations remain high on many companies, especially in the technology sector. This is why we are exercising a lot of caution when it comes to big high-tech companies. We anticipate some correction or pause, given the substantial moves up that we have seen over the past few months. (Jim Collins, OTC Insight via Wash Post 1-20) Circuit City VP Rick Souder: "About 99% of households have televisions, yet one in four houses buy televisions every year." (Wash Post 1-20) The top 1%, ranked by adjusted gross income, paid 36.2% of total federal personal income taxes for 1999, according to new IRS data - up from 34.8% the prior year. These numbers don't include Social Security and Medicare taxes. To qualify for this group, you had to report adjusted gross income of $293,415 or more for 1999. This group received about 19.5% of adjusted gross income for 1999. The top 5% paid 55.5% of total personal income taxes and received about 34% of income. The top 10% paid 66.5% of the taxes, and the top half paid 96%, the IRS report says. (WSJ 1-16) About 4.3 million eligible households didn't claim the earned-income credit for 1999, or about 25% of the 17.2 million eligible households. Moreover, the estimated participation rates varied widely based on the number of children per household. The participation rate for households with three or more children was only about 63%, well below the more-than-93% rate for those with one or two children. (WSJ 1-16) Quick Tips Netscape 6 is based on the version of Mozilla that existed somewhere around the end of the year 2000. Netscape 6 has features that Mozilla doesn't but Mozilla is still under development. So, if you'd like to see what's coming next in Netscape, you can download some of the nightly (it's under constant development) versions of Mozilla at www.mozilla.org - look under "Nightly Builds". (Emazing 1-19) If you want to know the actual speed of your Internet connection, visit The Internet Connection Speedometer or box54.org/SpeedTest.htm sites that calculate the speed for you. Never base too much on a single measurement. Your speed will vary somewhat from test to test, and will certainly vary from one site to another. (Emazing 1-17) Home Page Previous Factoid Top Sites
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