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Biz Links REIT Update April More Factoids April Part 1 March Part 2 March Part 1 February Part 2 February Part 1 January Part 2 January Part 1 Q1-02 Index Q4-01 Index Q3-01 Index Q2-01 Index Q1-01 Index Q4-00 Index Q3-00 Index |
But product did get boosted, since more of what was sold in the first quarter came out of production instead of inventories. According to the BEA figures, it was $83.1 billion more, or the difference between the inventory liquidation in the fourth quarter ($119.3 billion) and the first ($36.2 billion). But recent data indicate that more than $36.2 billion was taken out of inventories in the first quarter, which means less was accounted for by production. Hence the likelihood that the next two revisions will bring a cut in first-quarter GDP growth. So expect inventory swings to continue to make outsized contributions to overall growth through this year and into the next. Meanwhile, consumption grew 3.5% in the first quarter, down from 6.1% in the fourth. But the bulge in fourth-quarter spending was mainly due to the record level of auto purchases, which the first quarter didn't repeat. Excluding autos, consumer spending growth ran 6.2% in the first quarter, and in the second quarter cars should make a comeback. Capital spending fell by 5.7%, and here cars were also one of the likely culprits. Autos produced for leasing, for rental fleets and for direct selling to business are part of capital investment, and spending on transportation fell 24.4%. Excluding transportation, equipment and software spending rose 5.3%. GDP Comments Joel Naroff, Chief Economist, Commerce Bank 4-29 We still haven't begun to even add to inventories so simply restocking of shelves should continue to help manufacturing for at least two more quarters. Households are spending money and there is no reason to believe they will not continue doing so. The investment collapse has been largely contained and we could start seeing gains in spending on equipment and software as soon as this quarter. Housing is still solid and government spending, at least at the federal level, will not taper off. Even the widening trade deficit is a positive sign as improving demand for goods is driving it. GDP Comments Merrill Lynch Chief Economist Bruce Steinberg 4-26 We expect GDP growth to average more than 4% for each quarter during the remainder of the year. That would result in GDP growth of nearly 5% during 2002 on a fourth-quarter to fourth-quarter basis. Inventory liquidation should soon give way to accumulation. That process can add as much as one percentage point to GDP growth in each of the remaining quarters of 2002. Government spending jumped at a 7.9% rate in the first quarter. Federal spending will be rising faster than that throughout the rest of the year. Even after expected cuts in state and local spending, government spending will directly add at least half a percentage point to 2002 growth. In addition, roughly $70 billion of tax cuts should stimulate consumer and capital spending. GDP Comments Christian Weller, The Economic Policy Institute 4-26 Future growth in consumer spending may be weaker because additional tax cuts are unlikely this year. Strong consumer spending in the late 1990s was supported through rapid expansions of consumer borrowing. At the end of last year, households paid 14.3% of their disposable income to service their loans, representing the highest level of consumer debt in more than 15 years. However, in the first quarter of 2002, consumers increased savings and reduced debts, as personal savings rates reached their highest level in two years. Finally, wages and salaries, which are the largest component of personal income, rose at the meager annualized rate of 0.08% in the first quarter. In the long run, consumers will be unable to sustain rapid spending growth unless wages begin to recover. Significant growth in job creation is needed to increase wages, and such job growth will require sustained GDP growth in excess of 3.0% per year. The U.S. trade deficit reduced GDP by 1.2% last quarter, as rapid growth in imports more than offset growth in exports during the quarter. The trade deficit has grown rapidly because of the high value of the U.S. dollar, which has increased 34% since July 1995. The deficit will continue to expand in 2002 unless the dollar is allowed to fall in value.
Companies that pay dividends regularly and in steadily rising amounts probably are producing high-quality earnings to match. They're the ones investors increasingly are seeking to buy. Trennert and Moltz found that companies in the top fifth of dividend payers have seen their shares rise by 5.5% in 2002, while those in the bottom fifth have seen theirs fall by 5.2%.
It's hard to see how this extraordinary bestowal of capital in a narrow and illiquid pocket of the market isn't distorting stock prices there, goosing them higher by force of eager new money alone. Plenty of analysts persist in justifying the interest in this area by harping on two constantly repeated points: Small stocks are still cheaper than big ones, and littler shares tend to best larger ones as recessions give way to expansions. The relative-value argument is true so far as it goes, but some observers are throwing cold water on the idea that small and large stocks should attain parity in valuation. Hugh Whelan of Aeltus Investment Management, reports that return on equity rates among the big guys in the S&P 500 - even in this profit recession - are double those of the S&P Small Cap 600 index. That's reason for a large-cap premium to exist. As for the idea that small stocks must lead the way out of a recession: Who's to say their outperformance over the last two years hasn't already accounted for this widely known pattern? Importantly, small-value managers themselves are crying, "No mas," en masse, by closing their funds to new investors. If these managers feel they are close to getting more money than they can efficiently and intelligently deploy, might it not be time for investors to ease up on this trendy area?
As you will see, large-company stocks - which are so beloved after their dazzling gains in the 1990s - didn't fare quite so well in the prior two decades. They ranked second behind foreign stocks in the 1980s and they lagged behind both small and foreign stocks in the 1970s. Similarly, small stocks ranked first in the 1970s, second in the 1990s and third in the 1980s. Meanwhile, foreign stocks were first in the 1980s, second in the 1970s and third in the 1990s. In other words, none of the sectors consistently ranked as the top performer and all had periods of dreadful performance. Moreover, if you look at results for the 30 years through December 2001, there isn't a huge difference between the average annual returns for large, small and foreign stocks. As the data make clear, there aren't many sure things in investing. But that doesn't mean you can't make good money over time. If you simply build a well-diversified portfolio and hang on for the long haul, history suggests you will be handsomely rewarded.
Cumulative performance for bear markets, all other returns are annualized; Source: Ibbotson Associates, T. Rowe Price Associates
The science is clear. The medical establishment is alarmed. The issue is: what to do? In northern California, Kaiser Permanente, the big HMO, has reduced antibiotic use by 30% during the past two years by showing doctors how their prescription patterns differ from peers and using posters to educate patients. Another option is discouraging unnecessary drug use by charging consumers more for the most-overused antibiotics or for newer, heavily promoted drugs that ought to be held in reserve. The bugs also get an edge when doctors all tend to use the same drugs. Despite the famously decentralized U.S. health-care system, the five most commonly used antibiotics account for 80% of all antibiotic prescriptions. To save money, insurers, hospitals and HMOs often limit the menu of drugs available, reasonably seeking to use the most cost-effective medicine. But using different drugs for the same ailment in different people or at different times, much as farmers rotate crops, may be prudent. Another solution would be to pull ahead of the microbes. A new pneumococcus vaccine will help. But we also need new potent families of antibiotics. We haven't found one in decades, and big pharmaceuticals firms are devoting R&D money to more-lucrative drugs that treat chronic conditions such as cancer or impotence. Devising the right remedies and selling them won't be easy. It never is when near-term interests, whether those of patients or of drug companies, diverge from the long-term interests of humankind.
An update, furnished by the Bogle Financial Markets Research Center, indicates that in addition to trailing the market in heady times, the average investor also managed to fall (a smidgen) harder on the way down. From the end of 2000 through the start of this month, the average fund investor's account has fallen at a 9.9% annual clip, a touch worse than the index's 9.5% annual fall. This means $10,000 invested by the "average" stock-fund investor in 1984 is now worth a little more than $21,000, according to the data. That same money tracking the S&P 500 would be worth $114,000 today. Recent experience starkly highlights how performance chasing can equate to buying at a peak. In 1999, for instance, the average technology fund rang up a 135% gain. The next year tech funds, which are supposed to be 10% or less of a diversified portfolio, took in more than 30 cents of every dollar sunk into U.S. stock funds. Unfortunately, that money showed up just in time for the bubble in tech company's profits and stock prices to burst.
As long as this excess capacity exists, only the lowest cost provider survives. There is a huge difference between surviving and flourishing. This problem hasn't been lost on Chairman Greenspan. In every appearance before Congress this year, Alan Greenspan has used the same language to address this issue. "A striking feature of the current cyclical episode relative to many earlier ones has been the virtual absence of pricing power across much of American business, as increasing globalization and deregulation have enhanced competition." This lack of pricing has been great for consumers and for keeping inflation low, but it has made it impossible for companies to pass on rising costs. This is the primary reason why profits have been so weak even as the economy has continued to grow. In last year's fourth quarter, GDP was up 1.7%, but after-tax profits fell $50.4 billion.
At the same time, the costs deter the consolidation that would normally result from such a severe profit squeeze. That's because any would-be acquirer will inherit the acquiree's retiree obligations. Now some companies are starting to reshape themselves to either unload the cost burden or survive in spite of it. What Bethlehem Steel Has Done Bethlehem Steel is moving to link up with better-financed steelmakers that would operate its plants, leaving Bethlehem just a holding company. It would still have its obligations to retirees, but since it's in Chapter 11, they would have to compete for its assets in bankruptcy court - against creditors that are ahead of them in line. Bethlehem is close to a deal with Brazilian steelmaker Companhia Sider£rgica Nacional, or CSN, which wants into the U.S. market. CSN would operate Bethlehem's modern Sparrows Point plant in Maryland, paying fees to Bethlehem for the right. Bethlehem is working on similar deals with other parties to run its other steel plants. If the deals all go through, Bethlehem will basically become a holding company - but in bankruptcy, however. Bethlehem intends to use the cash from relinquishing day-to-day plant operation to pay its creditors. If the CSN deal goes through, Bethlehem retains its retiree obligations. But it can't meet them. It is about $2 billion short of what it needs. The cash from a deal with CSN wouldn't be enough to cover retiree costs. What LTV Has Done LTV has gone out of business and sold its assets. The buyer (W.L. Ross) will reopen the operation, recreating LTV under a new name. But the buyer won't have to pay the legacy costs because it didn't buy a company but simply its carcass. If it had sold its plants while they were still open, any buyer would have had to keep paying the benefits of 85,000 retirees and dependents --an estimated half-billion-dollar obligation. There were no takers. So its plants and other assets were auctioned off. Ross said it would restart the plants just before summer. Since Ross didn't acquire an ongoing business but merely assets, it doesn't have an obligation to pay the health-care and life-insurance coverage that LTV's labor contracts had promised retirees. Not paying them will lower the cost of each ton of steel produced by $20 to $40, which could make the difference between profits and losses. History The seeds of Steels problems were sown a half-century ago. The industry agreed in 1949 to labor contracts that tempered the wage boosts the union wanted by providing it with retiree benefits, such as hospital coverage and life insurance. The steelmakers saved cash by agreeing to the benefits, and the union won its members some old-age security. To cover the costs, American steelmakers raised prices, which they could get away with because of their global dominance at the time. But rising U.S. labor costs changed the competitive landscape. In 1955, a ton of U.S.-made steel contained $2.72 of labor cost, compared with 43 cents in Japan. By the mid-1970s, it was $9.08 of labor in a ton of American steel and just $4.19 in Japan. The cost issue spurred both imports and the rise of new production in low-cost developing nations. Unable to match foreigners' costs, American steelmakers began closing plants and dismissing thousands of workers. The more they closed, the more the ratio of active workers to retirees became skewed. At U.S. Steel, for every active worker, there now are six retirees and retirees' dependents. At Bethlehem, there are 10 retirees and their dependents for every active worker. Steel Profits and Outlook Robert Matthews, WSJ 4-18 Only one of the nation's major steelmakers (Nucor) is expected to post a profit for the first quarter, but prospects for a quick industrywide turnaround are firming as prices jump, supply drops and new tariff quotas limiting foreign steel take effect Friday. Steel buyers are paying about 40% more for hot-rolled steel than they were at the end of last year. Cold-rolled has increased about 30% in four months. Michelle Applebaum, steel analyst for Salomon Smith Barney, in her first-quarter steel industry report, said the improvements are due to the shutdown of LTV. While under Chapter 11, LTV sold steel on the domestic market at super-low prices to generate cash, forcing other steelmakers to sell low just to keep their market share. The first-quarter results for all steelmakers would likely have been worse if not for President Bush, who in March said he would implement tariffs on foreign steel to help the domestic industry begin a recovery. Selected quotes from The Cato Institue Policy Forum 2-20-01 Dan Ikenson, Cato Institute's Center for Trade Policy Studies The industry employs less than 200,000 workers in a 135-million-worker economy. The industry's collective market capitalization is smaller than many individual American companies in other industries. And it accounts for only $30 billion of value added in a $10 trillion economy. David Phelps, American Institute for International Steel The domestic industry can only meet 75% of steel demand in the United States. There's not one foreign steel producer of any consequence left in the entire world that has not been sued for illegally dumping in the United States. It is interesting to note that at current price levels, the vast majority of steel exported by the domestic industry is below total costs. In other words, U.S. steel producers are dumping. Somehow it's difficult to argue that the problems are all the fault of imports. Consider two companies, LTV and U.S. Steel. They have the same union, the same iron ore, the same coal, the same limestone, essentially the same products for similar customer lists. There is much longer list than even that. And LTV came out of bankruptcy in the early 1990's essentially debt free. Yet, one had a good year for profits in 2000, at least on an operating basis, even with a poor fourth quarter; and the other one is in Chapter 11, again. Thomas Danjczek, President, Steel Manufacturers Assoc. Last year our industry domestically made about 109 million short tons. And last year we imported about 35-37 million tons. Charles Bradford, President of Bradford Research in New York - Steel Analyst There really are three steel industries. The mini-mills, melt scrap. They melt scrap. More than half their cost at times is the cost of scrap. The beauty of scrap is that the price goes down in an economic downturn. So their costs are variable. In a downturn the cost of scrap falls. Therefore, mini-mill costs go down. The integrated steel companies, by contrast, have very, very high fixed costs. If they lose any volume, their cost per ton soars. In a downturn when prices fall, their costs go up. With mini-mills, when their prices fall, their costs fall. There may be a bit of a margin squeeze, but they don't get destroyed. Then the third segment of the industry are the specialty steel companies. These are the better growth companies. It really should be called the nickel or chrome industry, because the nickel and chrome determines the value of the product. But there are three separate industries that are called steel. Bethlehem Steel and LTV have over 30% employment cost as a percent of sales. Nucor is 10%. There is a huge difference. POSCO in South Korea has maybe 20% more people than LTV does but three times the output. That is within the same product category or the same integrated steel process. That tells you the whole story Steel Imports Brink Lindsey, Cato's Center for Trade Policy Studies 10-23-00 U.S. mills are themselves major steel importers: In 1999, more than 7 million metric tons of semifinished steel was imported for use by domestic steel producers to process into finished products. It seems that the only real difference between 'fair' and 'unfair' imports is the effect on Big Steel's bottom line. Steel Imports Part 2 Greg Rushford, editor of the Rushford Report Bethlehem Steel - one of the most frequent users of anti-dumping laws -- refused to participate last year in an anti-dumping case targeting China and Japan. Turned out that the Ohio Valley steelmaker had been importing more than a million tons of coke annually -- from China and Japan. Bethlehem figured that it had enough problems without paying more for its imported raw materials. U.S. mills love imports. Slabs of semifinished steel that domestic mills use to make their own downstream products are the most important import. While the industry generally only talks about this in whispers, the truth is seen in official filings before government agencies. AK Steel Corp is on public record declaring that imports of slabs are "critical" to its viability. So is Istil (USA) Milton, Inc., which has said that without access to imported steel billets it would be "unable to compete" in the U.S. market. Lone Star Steel and Jindal USA also are entirely dependent on slab imports. Wheeling Pittsburgh and Gulf States Steel, have argued that their continued access to foreign slabs is essential. Existing U.S. mini-mills would love to see their competitors, the integrated mills, pay more for their slabs. But the mini-mills would be unhappy if President Bush were to hike up tariffs on the pig iron that they import. Steel Tariffs Paul Magnusson, Business Week 3-18-02 The tariffs will demand the attention of countries balking at serious capacity-reduction. In fact, talks among 40 steel-producing nations at the Paris-based Organization for Economic Cooperation & Development are scheduled to resume on Mar. 13. The OECD began considering last year a U.S. proposal to shut down 200 million tons of excess capacity worldwide - a hefty portion of the total global capacity of 1 billion tons. Governments offered last December to close mills accounting for an estimated 97 million tons in annual steelmaking capacity over 10 years. But the offers were deceptive. They represented furnaces already cold because of nonexistent demand, OECD figures show. The European Union, which has been screaming the loudest about Bush's tariffs, came up with only an 8% cut in its enormous capacity at the Paris talks. Japan, with a theoretical capacity of 145 million tons, offered no real shutdowns. The President's in-your-face tariffs could break this logjam. The tariffs should cut European steel exports to the U.S. by about 4 million tons. What Europeans fear most, though, is an expected 16 million ton increase in imported steel that was originally headed to America. So they, too, are threatening to raise barriers. So far, the excess steel in the world market has produced the lowest wholesale prices in 20 years. In the U.S., that has meant 30 bankruptcies and the shutdown of 20% to 30% of capacity.
Shareholders lost $119.8 billion in the 10 largest bankruptcies after audit opinions that had raised no concerns. When auditors conclude that a company might fail in the next year, they must issue a "going concern" opinion, according to industry standards. Investors have focused much of their ire on Arthur Andersen, which has been indicted for its destruction of records before the Enron Corp. bankruptcy. Yet Andersen raised concerns in audits before bankruptcies more often than any of its competitors among the five largest accounting firms. Auditors raise concerns far less often with large companies than with small ones. The 50 largest companies that filed for bankruptcy protection received an auditor's caution letter 24% of the time. By comparison, auditors gave caution letters to 70% of the 50 smallest companies.
Examples: In 1999, when the EU banned the use of a class of chemicals used to soften plastics - because of fears they could harm children who sucked on soft-plastic toys - international toy makers fell in line. Because of the EU, Microsoft Corp. has modified contracts with software makers and Internet-service providers to give consumers a wider choice of technologies. It wasn't until EU regulators torpedoed GE's bid to acquire Honeywell - a deal the U.S. had already approved - that GE began to lavish the kind of attention on Brussels that it had devoted to Washington. For many of GE's businesses, ranging from light bulbs to plastics, "almost 99%" of new regulations will come from the EU over time, says Jeffrey Immelt, GE's chief executive. A preliminary agreement between the European Commission and auto makers in Europe, the U.S. and Japan would require car hoods and bumpers to be redesigned so they would cause fewer injuries in accidents with pedestrians. The bumper rule could force GM to retool its Corvette factory in Bowling Green, because the cost of designing and using special parts for the European market would be hard to justify. One Benefit Some EU rules have made European companies more competitive in global markets. In 1991, the EU mandated a single mobile-phone standard called GSM, so that new digital phones sold in the EU would work anywhere within the bloc. The U.S. didn't pick a nationwide standard, and thus fell behind in the global race to sell mobile phones and transmission equipment.
The results are heartbreaking. Between 1984 and 2000 (the most recent figures), stock-fund investors achieved average returns, including dividends, of just 5.3% a year. But investors who simply bought and held the stocks of the S&P 500 index, a proxy for the market as a whole, achieved average returns of 16.3% a year. In other words, over the 17-year period, the typical investor's initial $10,000 grew to $24,000 while $10,000 invested in the S&P grew to $140,000. Why the gigantic difference? Bad market timing, pure and simple. The problem was not that investors picked the wrong mutual funds but that they jumped in and out of the market -- and weren't around when the biggest gains were made. The average frenetic investor would have done better by simply stashing money in Treasury bills, which returned 5.8% annually during the period. Timer Digest, a newsletter edited by Jim Schmidt, follows the actual buy-and-sell recommendations of newsletters that provide their readers with market-timing advice. For the 10 years that ended Dec. 31, 2000, only one newsletter out of the 112 that Schmidt follows managed to beat the S&P 500 benchmark.
Whether you invest in a bond mutual fund or hold a ladder of individual bonds, the reinvestment of investment income poses the same problem - your true return will depend on interest rates prevailing each time you have some interest to reinvest. The difference is that the mutual fund provides a vehicle for automatic reinvestment, on a timely basis, of very small amounts of money. For that reason, a low-cost fund is the ideal vehicle for accumulation. As an example, the cost of the Vanguard Short (or Intermediate) Term Treasury Bond Fund with annual expenses of a 0.27% per year on a $50,000 investment would be $135 a year. You can calculate the cost difference by considering that the fund investment immediately reinvests all income at the prevailing return of the fund while investment income placed in a money market fund would yield much less. With the $50,000 Treasury ladder, the interest income will be held in a lower yielding money market account until enough is accumulated to buy an additional Treasury security. How much interest you "lose" while waiting in the money market fund and the cost of investing in new Treasury obligations determines the exact break-even point for accumulators. Assuming a 2 percentage-point difference on $2,000 a year (the annual income of a $50,000 portfolio earning 4%) would be $40 a year - plus the expense of at least one purchase per year, about $50. That's a total expense of about $90 a year. That's $45 less than the cost of the mutual fund. To me, the convenience of automatic reinvestment is worth more than the $45 difference - so I'd stay with the mutual fund for accumulation until the portfolio is larger. Things change when your portfolio is in distribution. The reinvestment problem disappears because you are taking the interest and spending it. I have been examining that question for 10 years. The finding, updated regularly, is that a simple five-year Treasury note will provide you with more money to spend and less investment risk than an index of major government securities funds. This tells me that most fixed-income funds aren't worth their management expenses [for those taking distributions]. Bonds vs Bond Funds Part 2 Charles Fellers, Barrons 4-8 Institutions such as mutual funds can buy bonds at better prices than individuals in just about every type of bond market. "When a municipal bond comes out priced at 96, individuals might buy it for 99 7/8 and think they're getting a great deal," says Zane Brown, partner and director of fixed-income investments at Lord Abbett. "We might get that same bond for an eighth or a quarter" point over the dealer's purchase price, which would be 96. (A bond price reflects the percentage of its redemption value; "par" for bonds is 100.) Institutional managers such as Brown are offered such low spreads because of the large amounts they purchase. Critics of bond funds often object to management fees, but fund managers say their spreads more than makes up for them. By always buying the same maturity, ladder investors ignore opportunities that may hide in other maturities. Also, the ladder assumes that the best strategy is buying the next rung on the reinvestment date, and that the best day to sell a bond is the day it matures. But investors who hold to maturity never take advantage of a premium that may emerge as bonds trade above par in a fluctuating market. As the bond market fluctuates, bonds trade well below or above par. Not only that, but an owner of individual bonds with call provisions risks seeing those securities heading home to papa if the issuer sees an opportunity to refinance at lower rates, forcing the ladder investor to reinvest at lower yields. Yet avoiding callable bonds shuts out a significant portion of the market. A bond-fund manager has the flexibility to sidestep the dilemma.
The industry's latest flare of distress is coming from Bristol-Myers, which has spent $16.5 billion on R&D since 1990, without producing a single new star of its own. To ensure that its double-digit sales-growth continues, Pfizer would need to launch at least two or three billion-dollar drugs every year. But Pfizer, despite annual research spending that this year will likely amount to $5.3 billion, hasn't introduced a big seller of its own since Viagra, in April 1998. Last year, the drug industry spent $30 billion on research, more than three times what it spent in 1991, according to the Pharmaceutical Research and Manufacturers of America. But the industry launched just 24 new drugs last year -- half the number it did in 1996. According to a 2001 study by Tufts University, it now costs about $802 million to discover and develop a new drug, two and a half times what it did in 1987, in inflation-adjusted terms.
Birth of the Generic Problem Brand-name drug makers have come under increasing pressure from generics since 1984, when Congress passed the Hatch-Waxman Act, creating the modern generic-drug industry. Within a year of the bill's passage, nine of the industry's 10 best-selling drugs had new generic rivals. Suddenly, pharmaceutical giants found themselves facing precipitous sales declines after their drugs lost patent protection, rather than a long, slow tapering off. The Hatch-Waxman law put the drug industry on an innovation treadmill. If its labs didn't produce new products, the companies would eventually collapse, as generics snatched away their sales. Price Increases Made up for Lost Revenue At first, the industry adjusted to this new reality with one of its most well-worn tools: price increases. Since there were few large medicine buyers back then, the industry could raise prices almost at will. If a patent expired on one of a company's drug, it could jack up prices on its others. "All through the 1980s, a lot of the industry's growth came from price increases," says Raymond Gilmartin, chairman and chief executive of Merck. The rise of managed health care in the early 1990s changed all that. In 1990, most drugs were bought with consumers' out of pocket money. Now, most drugs are bought by huge purchasers like managed-care health plans. If drug companies don't offer discounts, they lose sales to a competitor's pills; hefty price increases have become less common. Through the 1980s and 1990s, when a branded drug lost its patent, sales of branded competitors often improved. When Tagamet lost its patent in 1993, for example, sales of other branded heartburn pills soared, even though they cost many times the price of generic Tagamet. The reason: doctors get most of their information about drugs from drug-company salespeople and used to prescribe the pills that are pitched to them. By contrast, generic companies, which operate on razor-thin margins, can't afford to send legions of salespeople to doctors' offices. HMOs Push for Generics Now, doctors largely prescribe drugs approved by patients' insurers to avoid patient complaints and harassing calls from managed-care pharmacists. As a result, the balance has shifted to generics. In 1986, less than a quarter of prescriptions were filled by generic pills. Last year, it was nearly half. When Lilly's antidepressant Prozac lost its patent in August 2001, generics stole 80% of the drug's new prescription sales within two months, according to Atlanta-based market researcher NDC Health. Prozac's main competitors are Pfizer's Zoloft, GlaxoSmithKline's Paxil and Forest Laboratories' Celexa. Each drug works in a similar way. After Prozac lost its patent protection last year, the growth of new prescriptions for each of its branded competitors fell by at least half, according to NDC Health. Kaiser Permanente, the big California health-maintenance organization, says that its 11,345 doctors now prescribe generic Prozac to about two-thirds of patients who need an antidepressant for the first time, twice the proportion who took branded Prozac a year ago. Channel Stuffing Amy Tsao, Business Week 4-22 Bristol-Myers admitted that it persuaded distributors to buy 56 weeks' worth of its existing drugs in 2001 - leaving an inventory bulge that will ultimately lower this year's sales. Bristol-Myers share price is off 37% since the beginning of the year. Earnings-per-share estimates now average $1.43, down 41% from 2001. Even Bristol-Myers is warning that efforts to reduce wholesale inventory could result in an additional 35-cent to 40-cent hit on its earnings-per-share targets before it's all over. Bristol-Myers aside, analysts say Schering-Plough has the most worrisome inventory levels of any U.S. drug giant. Schering-Plough says it's working down inventory over the year, but the hit on 2002 profits could be as much as $250 million, say analysts. Some analysts believe that Merck may have similar issues to deal with. "Merck's inventories are getting pushed around by wholesalers, rather than the other way around. [Distributors] could be speculating that the company is about to raise prices," says Richard Evans, an analyst at stock research firm Sanford C. Bernstein. In a recent conference call, Merck said it's aware that some customers are buying additional inventory in anticipation of future needs. "This is wholesaler purchasing behavior. We do not have sales incentives in place," a spokesman says. Merck estimates that its normal inventory at wholesalers is one month or less. That's about the average for the industry at large, says C.J. Sylvester of UBS Warburg. Related article: Stuffing the Channel - Tracy Byrnes, WSJ A Channel Stuffing 'Exercise' Bristol-Myers Squibb Sales and Income (in millions) Source: Yahoo
BMS Inventory and Receivables (in millions - recent quarters) Source: Morningstar
BMS Inventory and Receivables (in millions - recent quarters) Source: Bristol-Myers
Conclusion: The first part of the channel stuffing exercise failed to show channel stuffing. In fact, 'Receivables to Sales' and 'Inventory to Sales' were both less in '01 than in '97 or '98. The recievables are posted as 'Receivables, net of allowances', so dramatically higher allowances would hide an increase in receivables. Only in hindsight do we know that 2001's sales were artificially high - which inflated the 'sales per day' figure on which our calculations are based.
** $26 billion of Merck's $47 billion in sales for 2001 came from Medico (a billings service provider, not a manufacturer), which would make comparisons to BMS's and Pfizer's receivables and inventory less relevant - and may account for the low Rec/DS and Inv/DS numbers. But by comparing 'Receivables to daily sales' for others in the pharmaceutical industry, there is at least a strong hint that BMS's 'receivables' are too high. Generic Competition Ronald White, LA Times 4-19 "Previously, you could assume that 50% of revenues would be lost to generic competition after a drug went off patent. Now, we are seeing 90% losses," said Trevor Polischuk, a pharmaceutical industry analyst for Lehman Bros. Polischuk said that 10 to 15 years ago a blockbuster drug might have brought in $750 million over its life, but that revenue streams have become so great for drugs such as Claritin (about $3 billion) and Prilosec (about $6 billion) that the financial effect is that much greater when patents expire. More on Drug Pipeline Andrew Pollack, NY Times 4-19 Looking at just the number of drugs getting to market can be misleading because the companies are producing better-selling drugs. C. Anthony Butler, an analyst at Lehman Brothers, said the industry's pipeline in 1995 contained 450 drugs, of which he projected that only 15 would have peak annual sales exceeding $800 million. In 2001, he said, the pipeline had about the same number of drugs but 92 of them were potential $800 million products. Over the last 25 years, a parade of technologies has promised to transform drug development: genetic engineering, rational drug design, combinatorial chemistry, improved screening - and now, genomics. Yet the time spent to develop a drug, not counting the months consumed by government review, has lengthened to more than 11 years from about 9 years in the 1980's, according to the Tufts Center for the Study of Drug Development. The industry's failure rate, a big part of its costs, has not declined. Only one in about 5,000 early drug candidates and only one in five drugs that enter clinical trials ever make it to market, experts say. The remainder drop out because they do not work or are toxic. FTC and Generics Harris and Adams, WSJ 4-24 The Federal Trade Commission took its strongest action yet against one of the drug industry's favorite tactics for hindering generic competitors, which could spell trouble for Bristol-Myers Squibb, GlaxoSmithKline and other large drug makers. The FTC announced a consent agreement with Biovail over its attempts to use ancillary patent filings to delay generic competition to its heart drug, Tiazac. Tuesday, the FTC declared many of Biovail's tactics illegal. That description resembles tactics used by several other drug companies, including efforts by Bristol-Myers to protect its anxiety drug BuSpar. The commission is also investigating GlaxoSmithKline's tactics to protect Paxil. Related stats and facts: J H Powell, Boston Herald 12-1-01: Americans fill 3 billion perscriptions a year at a cost of about $ 117 billion. Senrs.com 3-8-02: Total prescriptions rose 6.6%, to 3.3 billion, last year - the equivalent of almost one prescription a month for every American, Sheldon Silverberg, an expert on pharmaceutical companies at NDCHealth, said. Related articles: Update - James Flanigan, LA Times, Pharmaceutical Sales
Unlike a normal mortgage in which the homeowner makes monthly payments, a reverse mortgage lets the lender pay the homeowner each month. The lender recoups the principal and interest when the home is sold years later. Borrowers must be 62 years old to even qualify. The amount of money available from a lender varies based on the value of the home and age of the borrower. Overall, roughly 150 lenders offer reverse mortgages, ranging from small, local companies to large banks such as Wells Fargo. Roughly 60,000 reverse mortgages have been made since the mortgages were introduced in 1989, an estimated 15,000 last year. In a 1996 report, Fannie Mae, the government-sponsored mortgage-finance company, estimates that 16 million households will seek reverse mortgages annually by 2010. The industry claims that older Americans will routinely use these loans to pay for everything from health care to vacations.
The numbers reflect the ranks of women who move from full-time to part-time work in their careers to care for children, taking their professional experience with them into more flexible jobs, analysts said. Men with part-time jobs tend to be students or young adults with less experience and earning power. A quarter of working women work part time, compared with 10% of working men, the study said. And though more than half of male part-time workers are 16 to 24 years old, a third of female part-time workers are that young, according to the report. There are 29.8 million part-time workers in the U.S., most citing noneconomic reasons such as child-care and family obligations for not working full time, the Labor Department said.
`There is a demand dynamic that develops from the slower liquidation of inventories or the outright building of them,' Kasriel says. `Production picks up. The workweek is longer. People aren't working for nothing. They get a paycheck, they spend, and it shows up as... final demand. Companies spend more. That shows up as... final demand.' Business inventories were still being liquidated in Q1, albeit at a slower rate than in the fourth. `The big boost to production and jobs from inventory rebuilding has yet to come,' says Joe Carson, an economist with Alliance Capital Management.
Last year's epic $1.2 trillion of mortgage refinancings not only saved Americans an estimated $15 billion or so in annual debt service, but also allowed folks to take out an additional $80 billion from their homes over and above the old mortgages they paid off. In addition, the untapped equity makes Americans feel wealthier and therefore willing to incur more debt and spend more than they might otherwise do because of what economists call the wealth effect. In fact, a recent academic study by economists Karl Case, John Quigley and Robert Shiller of consumer-spending behavior in the U.S. and 13 other developed nations indicates that the wealth effect from housing is twice as great on consumer spending as comparable changes in stock-market wealth. In the U.S., for example, the academics found that a 10% gain in housing prices would provoke an average 0.62% increase in consumption, while a similar jump in stock-market wealth only elicited about a 0.3% to 0.2% increase in spending. The aforementioned $2 trillion rise in real-estate wealth between the first quarter of 2000 and the fourth quarter of 2001, to $12 trillion, was seemingly more than enough to counter the headwind of a $3.9 trillion decline in household stock-market investments, to $8.8 trillion, over the same period. David Berson, chief economist of the mortgage-giant Fannie Mae, thinks stronger than expected population growth bolstered by strong immigration, combined with subdued inflation and affordable mortgage rates will continue to push housing prices up by 5% to 6.5% a year. But for housing prices to continue rising, either incomes are going to have to move up at an unrealistic rate, or interest rates are going to have to fall sharply. Because ultimately, home prices can only rise as fast as people's ability to pay for them. Ingo Winzer, editor of Local Market Monitor, tracks the changing relationships nationally and locally of per capita income to housing prices. And he thinks home prices are headed for a fall. Ian Morris, chief U.S. economist of HSBC Securities, contends that if the economy makes a strong recovery in the second half of the year, then rising mortgage rates would be sufficient to "pop the housing market" by deterring new buyers and increasing the debt-service burdens of existing homeowners. Morris maintains that falling housing prices could administer the coup de grƒce to fragile consumer confidence, in effect creating a negative wealth effect and blighting any incipient recovery. Alternatively, says Morris, any prolonging of the current recession would likely push unemployment rates high enough to crimp income growth and cause home prices to fall. About the only way out of a housing-price trap would be to have a sluggish recovery in which interest rates would continue to slide and employment stabilize. Morris has constructed a chart that traces the ratio of real-estate wealth to disposable personal income over the past 50 years. And these days, he notes, the ratio of residential real estate to disposable personal income is 1.62, the highest level ever. Morris's ratio is based on the Fed's estimate of $12 trillion value for individually-owned residential real estate and $7.4 trillion in annual disposable personal income. And today's ratio recently ticked up above its previous high of 1.59, achieved in 1989, at the height of the 'Eighties property bubble.
A few statistics highlight the huge buildup of mortgage debt. Twenty years ago, annual consumer-debt payments - basically mortgages, credit cards and auto loans - stood at around 60% of disposable personal income. [Over 35% of all American homeowners have no mortgage debt at all. As a result, it's estimated that homeowners with mortgages are, on average, in hock to the tune of around 65% of the value of their homes.] That ratio has since risen steadily to slightly above 100% of personal income in the fourth quarter of last year, according to the latest Fed data. At $5.6 trillion, mortgage-debt accounts for the lion's share of total household debt of $7.7 trillion. As a consequence of this mortgage-debt buildup, homeowners' equity, or market value in homes in excess of debt, has sunk to just under 55% of total residential real-estate worth from over 70% in the mid-'Eighties. At the end of World War II, homeowners' equity stood at 85%. According to the latest available census data, of the 38.6 million homeowners with one or more mortgages, two million, or more than 5%, had no equity or negative equity while another 2.6 million, or the next 7% of mortgage holders, had less than 10% equity. LA Housing Stats Diane Wedner, LA Times 4-5 California Assn. of Realtors that the percentage of households in California able to afford a median-price home fell 5 percentage points to 31%, meaning that less than a third of the state's residents have enough income to buy such a home. In Los Angeles County, the median price for a home in February rose 18.8% over last year to $267,000, according the CAR figures, resulting in a 5-percentage-point drop in affordability to 33%. In Orange County, where the median home price rose 12.3% last month to $370,000, affordability dropped 1 percentage point to 30%. [WSJ 4-24: Nationally, the median price for a new home was $176,700 in March.] Though nowhere near the historic lows that marked the housing boom of 1989-1991--affordability in California was 21% in 1989 - the current slide is expected to force a drop in housing stock as anxious buyers race to buy homes before prices go still higher. Lagging new-home construction and spiraling prices have created a 26-point affordability difference between California and the rest of the nation, where affordability has held steady at 57% over the last several months. A year ago, a home buyer in Los Angeles County would have had to earn at least $59,046 a year to afford a median-price home of $224,700, according to CAR data. Today, that buyer would have to earn $68,252 for the same home, which now sells for $267,000. More California Housing Stats Daryl Strickland, LA Times 4-26 The median price of a single-family home surged to $305,940, up nearly 19% from a year earlier, the California Assn. of Realtors said Thursday. Absent a marked increase in production statewide, a separate study sponsored by the Fannie Mae Foundation said people of all income levels will find fewer options to purchase homes. Preliminary figures show that 148,300 units were built last year. The state estimates 220,000 or more new homes are needed annually to keep pace with growth. More Housing Stats Joy Shaw, Dow Jones Newswires 4-16 The Mortgage Bankers Association's mortgage-purchase index rose 5.5% to 391.2 for the week ended March 29 from 370.8 the previous week, according to the trade group's weekly mortgage-application survey released April 3. This reading is the highest since the association began its survey in January 1990. Robert Young, a mortgage analyst at Salomon Smith Barney, said the purchase index is about 20% higher than its level a year ago. It suggests that "early 2002 strong housing-market indicators were no fluke, and housing turnover may reach record levels this year," Mr. Young said in a commentary. Home-price appreciation in the U.S. is expected to continue at a rate of 3% in 2002, compared to a 7.1% rate in 2001, according to mortgage agency Freddie Mac. Meanwhile, the MBA refinancing index, both seasonally adjusted and unadjusted, fell 12.3% to 1272 in the week ended March 29. That's less than half of its level a year ago. Just the Facts Energy Update Market watchers now say that despite the ongoing Middle East turmoil, energy prices seem to have stalled - and declined - to right around the level they would have had to sustain in order to produce a significant ripple throughout the stock market. The upshot: energy-sensitive sectors like transportation, retailing and utilities have a little less gloom hanging over them, in an otherwise shaky market. "As long as oil prices aren't going higher, the fears of oil as a tax on the economy are sort of moving toward the back burner," said James Glassman, chief U.S. economist for J.P. Morgan. (WSJ 4-29) Emerging Markets vs Nasdaq Emerging markets are an alternative asset that is competing with technology stocks for risk capital. In terms of risk and return, emerging markets and the Nasdaq are similar marketplaces. And emerging-market valuations are the most attractive out there. Emerging markets are still trading at only 11 times earnings, versus about 90 times for the Nasdaq composite index. (David Bowers, chief global investment strategist at Merrill Lynch, in Kenneth Gilpin article, NY Times 4-28) It Pays to Chat? An academic study to be published this fall in The Journal of Investing indicates that chat rooms can contain valuable morsels for investors. The study, by James Felton, associate professor of finance at Central Michigan University, and Jongchai Kim, an assistant professor there, examined messages posted on the Yahoo board devoted to Enron starting in 1997. They found that anonymous postings on the message board presented a compelling history of the company, described a disturbing corporate culture there and repeatedly warned investors to get out while the getting was good. (Gretchen Morgenson, NY Times 4-28) ECI Update The employment-cost index rose 0.8%, slowing from a 1% rate in the previous three months, the Labor Department said Thursday. The increase in workers' wages and benefits rose at the slowest pace in three years. The cost index was up 3.9% from Q1-01, the lowest rate since the economy slipped into recession last March. The Labor Department attributed most of the first-quarter advance to a 1% increase in benefit costs - the smallest gain since Q3-00, and down from a 1.2% increase in the fourth quarter. (WSJ 4-25) Dollar Update "Near-term sentiment concerning the U.S. currency has clearly changed for the worse," says Shahab Jalinoos, a foreign-exchange strategist at UBS Warburg in London. Pressuring the dollar, he says, are concerns about the deficit on the U.S. current account (a broad measure of trade in goods and services), mixed signals on the health of the U.S. economy, worries about whether the Bush administration will maintain a strong-dollar policy, and "investor perceptions about increased global risks." Fed Chairman Greenspan's testimony to Congress last week, in which he indicated that the Fed would probably raise interest rates more slowly than the market had expected, has also had an impact on the dollar. U.S. economic bulls interpreted it as evidence that the Fed might become "soft" on inflation at a time when other central banks have begun to raise rates, while growth skeptics read his comments as signaling a weaker-than-anticipated recovery. Either scenario could weigh against the dollar, by deterring foreigners from buying U.S. assets. (Michael Sesit, WSJ 4-22) Taxable Equivalent Yield To calculate your taxable equivalent yield [of a tax-free investment], divide the municipal bond's tax-free yield by the inverse of your combined state and federal tax rate. For example, if you pay 38.6% in federal tax and 5% in state tax, your combined rate would be 43.6%. The inverse of 43.6% would be 56.4% (1 minus 0.436), or 0.564. Thus, on a municipal bond with a tax-free yield of 5%, your taxable equivalent yield would be 8.87%, or 5 divided by 0.564. That's considerably better than the current taxable yield on the benchmark 10-year Treasury note, which is about 5.20%. (Kathy Kristof, LA Times 4-21) Fannie Mae and Freddie Mac For the last quarter-century, the mortgage market has grown 40% faster than nominal gross domestic product. In 2001, mortgage debt grew by $580 billion, or 10.3%. The housing and mortgage market are on the verge of a multiyear period of rapid growth. Around the country, there is no inventory: currently only about three to four months in most of the big markets, compared to about seven or eight months historically. About half of all mortgages have Fannie Mae's and Freddie Mac's name on them, about $3 trillion. Because of the way they are regulated, they have half the capital requirements of banks and thrifts for loans on their balance sheets. Operating in the same market, that means Fannie and Freddie can earn twice the rate of return of banks and thrifts. After dividends, their capital grows very rapidly, at about 18% per year. And since they don't make loans, but buy them, they can grow as fast as their capital will permit. (Kenneth Gilpin, NY Times 4-21) Real Estate Commissions How much do Americans pay their real estate agents when they buy or sell a house? According to previously unpublished data compiled by the industry newsletter, Real Trends, the average commission rate collected on home sale transactions conducted by the country's 500 largest brokerage firms during fiscal 2001 was 5.48%. In some parts of the country, the average was significantly lower. For example, in the mid-Atlantic states of Maryland, Delaware, New Jersey, Pennsylvania and Virginia, the average was just 4.94%. In California, Oregon, Washington, Hawaii and Alaska, the average was 5.04%. In New England, it was 5.88%. Everywhere else, it was close to the 5.48% national norm. (Kenneth Harney, Washington Post 4-20) UGMAs vs 529s UGMA accounts (which are regulated under the Uniform Gifts to Minors Act) are taxable custodial accounts set up by parents, guardians or even friends of the family as a means of setting aside money for children. Any assets deposited in a UTMA account are irrevocable gifts to the child, and the person who sets up the account administers the funds until the minor becomes an adult (between 18 and 25, depending on state of residence). These accounts offer tax breaks on a portion of the account's income and, after the child reaches age 14, that tax rate is reduced further. On the other hand, 529 plans are entirely tax free at the federal level when the money is used for college expenses. In many plans, the contributions are tax-free at the state level as well. Another key difference from UGMAs: The person who opens the account maintains control of how the funds are invested and distributed, not the child. (Terri Cullen, WSJ 4-18) Fidelity is Light on Tech Those betting on a sharp turnaround for tech stocks should bear in mind that most fund managers at the nation's largest mutual-fund shop aren't doing so. The $77.8 billion Fidelity Magellan fund, the firm's largest portfolio run by Robert Stansky, had 13% of its money in tech stocks, compared to 16% for its benchmark, the S&P 500. Charles Mangum, manager of the $16.6 billion Fidelity Dividend Growth fund, had just 12% of his fund in tech stocks on March 31. Mangum's fund has beaten most of his peers and his benchmark, the S&P 500, over the past five years. Joel Tillinghast, manager of the $15.7 billion Fidelity Low-Priced Stock fund, had just 13% of his fund's money in tech stocks, compared to 18% for its benchmark, the Russell 2000. Tillinghast's fund also beats the S&P 500 and 85% of its small-cap value peers over the past five years. Not all of Fidelity's managers have passed on tech. Robert Bertelson, manager of the struggling $6.4 billion Fidelity Aggressive Growth fund, had 37% of his fund in tech stocks, compared to 31% for his benchmark, the Russell Mid-Cap Growth Index. (Ian McDonald, WSJ 4-17) Value Managers Eye Growth Stocks While big, battered growth stocks might seem uncharacteristic for a value fund, several value fund managers are adding them to their value portfolios. At the start of last year, 28% of the nation's 345 large-cap value funds owned shares of McDonald's. More than 40% of the large-cap value category owned shares at the end of last month. More than half owned shares of Merck, up from 42% at the start of last year. From the start of 2000 through the end of last month, the percentage of large-cap value funds owning shares of Microsoft rose from 12% to 31%, according to Morningstar. The percentage of big-cap value funds owning PC maker Dell, jumped from 7% to 21% over the same stretch and one-third own shares of chip titan Intel. (Ian McDonald, WSJ 4-16) Social Security / Medicare Stats Federal revenues from all sources this year will be about 19% of a nearly $10 trillion gross domestic product. The nation spends about 8% of GDP on benefits to the elderly in the form of Social Security payments, Medicare coverage of health care for the elderly and disabled, and Medicaid coverage of health care for the poor. About 3% of GDP goes for defense and that leaves 8% of GDP for spending on all other programs. Actuaries for Social Security and the Center for Medicare and Medicaid Services reported these programs are likely to consume 14% of GDP in 2030 and 16% in 2040. (Thomas Donlan, Barrons) Quick Facts, Stats & Opinions According to Financial Research Corp, funds with four- and five-star ratings from Morningstar gathered $119 billion in assets last year, while funds with lower ratings shrank by $79 billion in net redemptions. (Charles Jaffe, Boston Globe 4-28) A state-by-state report released by the Commerce Department showed that Americans' incomes for all of 2001 were considerably smaller than the government had previously estimated. Yesterday's report showed that incomes grew 3.7% in 2001, while the most recent GDP report, released in March, said incomes rose 4.9%. The difference of 1.2 percentage points works out to $90 billion. (AP via Boston Globe 4-24) About 16.7 million of the 105.5 million U.S. homes with televisions now get digital cable television, up from zero in 1997, according to Kagan World Media, which tracks the cable TV industry. An additional 17.6 million homes get digital TV channels through satellite broadcasters like DirecTV, Kagan says. (Sally Beatty, WSJ 4-24) It appears that more money was sent into stock funds in March, on a net basis, than in any single month since the bull market ended two years ago. Lipper estimates that stock funds garnered about $30 billion in net new money in the month. Strategic Insight figures similarly that the take by stock and balanced funds combined was in the vicinity of $37 billion. (Michael Santoli, Barrons 4-22) It's strange to see [tech] companies executing well in an improving environment and getting their stocks torn apart. This is what the capital markets pay us for, though - to hang tough when others panic, and buy stocks when they are down. Don't sell anything at these prices. (Michael Murphy, California Technology Stock Letter via Wash Post 4-21) Based on . . . earnings, tech stocks are twice as rich as the rest of the market. That makes no sense, especially since the last two years have proven that tech is highly cyclical. Except for very special situations, continue to avoid tech, especially biotech and information tech. (Stephen Leeb, Personal Finance via Wash Post 4-21) Of the 189 companies in the S&P 500 that reported earnings by midday Thursday, 61% beat even the most optimistic forecasts, while 13% missed and the remaining 26% were in line, says Thomson Financial. That is a higher percentage of meets-and-beats than normal. The average surprise is 3% above, better than the plus-2% that prevailed during the 1990s. But of the 108 companies for which there are revenue consensus estimates, 52, or 48%, were above expectations, and 56 companies, 52%, were below expectations. (Jesse Eisinger, WSJ 4-19) The beige-box desktop PC seems headed toward extinction. Dell has moved from beige to black for all of its desktops. H-P had shifted to shades of gray by 1997 and has since settled on silver and dark gray. IBM introduced its first black desktop in 1996 and completed its move to black in 2000. Last month Compaq converted to black-and-silver designs. Next week, Gateway plans to introduce a series of desktop models with a non-beige color scheme. (Steve Lohr, NY Times 4-18) In Q1, taxable-bond funds took in cash equal to 4% of their total assets, versus 2% for equity funds, according to AMG Data Services. (Michael Santoli, Barrons 4-15) Quick Tips To open a new window from a link in Microsoft Internet Explorer, you hold down the Shift key while you click the link. [. . .which is faster than RIGHT clicking the link - which is what I currently do] (EMAZING 4-30) You can create your own custom shortcuts to Internet sites using Notepad. Just run Notepad and enter the following as shown here. URL=http://www.yoursite.com Choose File|Save As and then click the arrow at the right side of the "Save as Type" list box and select All Files. Name your file Yoursite.url and select a folder for it. Click Save to save the file. Note that you can name a file whatever you wish, but you must use the URL extension. (EMAZING 4-29) To increase your font size just follow these easy steps: (1) Click on the View tab in the toolbar at the top of your browser window (Internet Explorer or Netscape). (2) Select Text Size if you have Internet Explorer or Increase Font if you have Netscape. (3) In Internet Explorer, you can then click on medium, large or extra large to increase your font size. If you're using Netscape, and the Increase Font button did not increase your font enough, repeat steps 1 and 2 until the type displays like you want it. (This Week @ Prodigy, 4-27) You may like to see your Explorer browser links underlined - and then again, you may not. If you'd like to turn off the underlining, choose Tools|Internet Options. When the dialog box opens, click the Advanced tab. Scroll down to Underline Links. You have three choices here - you can always underline links, you can underline links only when the mouse pointer passes over them (Hover), or you can turn off underlining completely. (EMAZING 4-29) A Warning About Modems Years ago, while working late in a darkened computer lab at the University of Seattle, graduate student Joe Loughry became fascinated with the lights blinking on the face of his modem. They seemed to be relaying information, and he wondered how much information they were transmitting. Quite a lot, it turns out. Using a process called optical emanations detection, Loughry, and his thesis adviser, David Umphress, tested 39 different communications devices, like modems and the routers that shuttle data across networks. They wanted to see if they could re-create some or all of the data passed through them just by detecting variations in their light-emitting diodes, or LEDs. Ultimately, 14 of the common devices they tested blinked their secrets in a kind of high-speed Morse code, and the two researchers, with light detectors, could capture data up to 100 feet away. The information intercepted included passwords, Web addresses and text files. Because most home computers now have internal modems without visible lights, consumers will be largely unaffected by the discovery. But those with complex home or office networks, and businesses like Internet service providers, may have to rethink the locations of their computer hardware. "We discovered that anywhere you have a modem and it's close to a window, somebody can see potentially what you're transferring," Umphress said. One of the best ways to prevent information leakage, Umphress said, is simply to cover the LEDs with duct tape. (John Biggs, NY Times 4-15) Now that HTML e-mail has become increasingly common, cookies are showing up in HTML e-mail messages, many of which are sent by spammers, who have little or no obligation to disclose how they use consumer data they collect. Whereas cookies on Web sites generally collect data "anonymously," e-mail cookies have the potential to connect individuals' surfing habits with particular e-mail addresses. (CNET, 4-4) Home Page Previous Factoid Top Sites
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