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Put that way, the fees involved seem relatively modest. But they aren't. Suppose your portfolio's pre-cost return is 8% a year. If you rack up 2% in annual investment expenses, you are losing a quarter of your potential gain to costs. Those percentages can seem even more onerous when you consider the dollars involved. Spending 2% in annual investment expenses? If you are retired with a $500,000 nest egg, that 2% is costing you $10,000 a year. "Many people in retirement are paying more for money management than they are for prescription drugs, housing costs, food and other necessities of life," notes Jim Gately, a managing director with Vanguard. "People should convert the expense percentages that they're paying into dollar terms, so they can better evaluate what they're paying compared with other costs in their lives." The fund's annual expenses don't include either the brokerage commissions paid by the fund or the money lost to the bid-ask spread. Take a fund with 100% portfolio turnover, implying it holds its stocks for an average of one year. Gerald Perritt, editor of the Mutual Fund Letter, figures trading costs might slice 0.6 percentage point off the fund's annual gain if it specializes in large-company stocks and maybe one point if it focuses on midsize and smaller companies. To make matters worse, the fund's rapid trading will likely lead to hefty annual capital-gains distributions. Result: Your after-tax return could be far less than the fund's published performance. Diversification & Fees Many investors have taken to building well-diversified portfolios using specialized funds, each of which focuses on a single niche, such as large-company value stocks or midsize growth companies. But this multi-manager approach is unnecessarily costly, argues Harold Evensky, a financial planner. Suppose one of your small-company funds owns a fast-growing stock. As the company balloons in size, your small-capitalization manager will likely unload the stock. But at the same time, one of your large-cap funds may be purchasing the stock, which now meets the fund's size criteria. After all this trading, you still own the stock. But because of the way you structured your portfolio, you have paid for the shares to be both sold and bought, and you will probably have a big capital-gains distribution from your small-cap fund, thanks to the gain that the fund realized. What's the alternative? Rather than purchasing specialized funds, you could buy a single core portfolio holding, such as an index fund that tracks the Wilshire 5000 or the Russell 3000. This core fund will give you broad stock-market exposure, but at a lower cost and without a lot of unnecessary trading. Better still, says Mr. Evensky, skip conventional index mutual funds and buy exchange-traded index funds like iShares Russell 3000 Index Fund or Vanguard's Total Stock Market VIPERs. These ETFs should be even more tax-efficient. 12b-1 Fees Aaron Lucchetti, WSJ 5-28 SEC Chairman Harvey Pitt warned that the regulatory agency is examining whether rules governing certain operating fees - which most investors may not even realize their funds are paying - have become outdated and may need to be overhauled. The charges, called 12b-1 fees after the section in SEC rules approving them in 1980, can range as high as 1% of a fund's assets a year. When introduced, the charges were meant to allow fund companies to recover their marketing and distribution costs for a time, especially when funds are small and need to attract assets to become more efficient. The SEC contemplated that the fees would be a temporary measure used only by those funds that had certain "problems or circumstances that make the plan necessary." But Mr. Pitt, addressing a fund-industry trade group Friday, said that a large and still-growing number of funds had permanently built in 12b-1 fees to cover expenses continuing indefinitely, such as paying commissions to brokers and other advisers that sell the funds. From a relative handful of funds adopting the charges in the mid-1980s, some 70% of funds today have 12b-1 fees in place, according to data from Morningstar. Fund Company Comparisons Ian McDonald, WSJ 5-29 To see how some of the biggest fund shops fared over the past five years, we pulled together a list of the ten firms with the most assets under management, excluding those whose average U.S. stock fund was smaller than $1 billion (thus PIMCO's exclusion). To compare how the different giants' funds held up, we tallied what percentage of each one's U.S. stock funds ranked even or ahead of its average peer over the past one and five years through April 30, using data from Morningstar. The results show the merits of spreading your bets and keeping costs low. The five firms that fared best in our modest screen had more than 300 stocks in their average U.S. stock fund and averaged a 0.76% annual expense ratio, compared to 160 stocks and expense ratio of 1.21% for the five firms behind them. "If you look at these results you see that the [fund] shops that have diversified, low-cost funds did pretty well over the past few years," says Scott Cooley, a senior fund analyst with Morningstar. "They've managed to be competitive in both up and down markets; manias and tough times." Three firms that were among the four best over the past five years were American Funds, T. Rowe Price and the Vanguard Funds. In sum, they manage nearly $970 billion in retail stock and bond fund assets, according to Financial Research Corp. The trio's domestic stock funds are less concentrated than their average peer, with more than 400 holdings in each fund on average compared to 147 for the typical U.S. stock fund, according to Morningstar. Their fees are lower too. The average U.S. stock fund carries a 1.39% annual expense ratio according to Morningstar, compared to 0.31% for the average Vanguard fund, 0.7% for the average American fund and 0.86% for the average T. Rowe Price fund. The bottom line is that a simple screen like this one highlights how a given firm's style will dictate its returns and risks over time, and that we ignore a style's risks and a firm's fees at our peril.
In the three years through April, Vanguard Small-Cap Index Fund trailed more than 80% of funds in Morningstar's small-blend category. The Vanguard fund's 8.1% average annual return in that period was far behind the 14.7% small-blend average. But not all small-cap index funds have been such woeful performers. Galaxy II Small Company Index Fund gained an average 14.3% in the same three-year period, and the predominately indexed Vanguard Tax-Managed Small-Cap Fund gained an average 15.3%. Those returns placed both those funds in the top half of small-blend portfolios. Why the divergent results? For small-cap indexers, the devil has been in the details of which benchmarks the various funds seek to track. The biggest difference is that for more than two years, the Russell 2000 index, which is tracked by Vanguard Small Cap and several other funds, has lagged far behind a competing benchmark, Standard & Poor's S&P SmallCap 600, used by other funds, including the Galaxy small-company fund and the Vanguard tax-managed small-cap fund. From the end of October 1994 through April, the S&P 600 has gained an average 14.9% a year, compared with an average 11.3% for the Russell 2000, Prudential calculates. A total of about $24 billion in mutual funds and other accounts is indexed to the Russell 2000, and about $12 billion to the S&P 600. Vanguard indexing chief Gus Sauter says the Russell benchmark has been suffering from a "tech hangover," a headache-inducing load of young and often unprofitable technology stocks left over from the late-1990s dot-com bubble. There are more of those weaker-performing tech issues in the Russell 2000, dragging down its returns, compared with the S&P small-cap index. Last year, small-cap strategist James Furey (then of J.P. Morgan, now at Lehman Brothers) emphatically declared the S&P measure to be "the best small-cap benchmark" and the one likely to outperform over time, because there are fewer unprofitable companies in the S&P 600, among other reasons. There are significant differences in the methodology and composition of the two leading small-cap benchmarks. The Russell 2000, first calculated in 1986, tracks the performance of the 2,000 U.S. stocks that rank after the largest 1,000 in market capitalization, or the total value of shares outstanding. It is member stocks are added or removed on a regular [yearly?] basis. The 600 stocks in the S&P small-cap benchmark are selected by the same committee that selects the stocks in the widely followed Standard & Poor's 500-stock index of large stocks. S&P's process is more subjective, and stocks aren't added or removed on any set schedule. Further, the committee's guidelines for new additions call for companies to have been profitable in four recent quarters - a test that kept out most of the hot Internet names of the late 1990s. In 1999, the absence of money-losing but seemingly sure-fire Internet stocks hurt the performance of the S&P SmallCap 600, leading it to post a 12.4% gain versus the 21.3% advance of the Russell 2000, notes Sandy Rattray of Goldman Sachs. But S&P SmallCap 600's emphasis on profit-making companies explained most of its longer-term performance advantage over the Russell 2000. Because of their different methodologies, the two indexes can differ significantly from time to time in their industry exposure. At the end of April, Russell's small-cap index was 22.7% invested in financial-services stocks, while the S&P 600 was 13.5% in financials. S&P says it generally follows the industry breakdown of the total stock market in picking stocks for the small-cap index. Also, the S&P benchmark tends to have a higher median market capitalization than the Russell 2000. Recently, the figures were $440 million for the Russell 2000, $586 million for the S&P SmallCap 600 - and a significantly higher $998 million for the average small-blend fund tracked by Morningstar. Small-Cap Indexing Richard Ennis & Michael Sebastian, Institutional Investor Spring 2002 Many say the market for small-cap and mid-cap stocks offers greater opportunity for active management to add value than does the large-cap market [becuase] the market for small- and medium-caps is less efficient than the large-cap market, so security mispricing is more prevalent there. [But] a survey of the literature turns up no compelling evidence that managers add value. Three performance evaluation errors contribute to a small-cap alpha myth. The first is ignoring management fees. The second is using an inappropriate benchmark. The third is ignoring survivorship effects and other biases that inflate the average return of portfolios in commercial databases. We constructed a sample of 128 products from the Mobius Group M-Search database that represent themselves as active small-cap. As is the case with most such databases, the vast majority of the products in the sample (90%) report only gross-of-fee returns. The median portfolio in this sample outperformed the Russell 2000 index, before fees, by 4.04 percentage points per year over the ten years ending June 30, 2001. Fees We calculated fees for each product in the sample according to the managersÌ reported fee schedules and adjust the returns accordingly. The median net-of-fee alpha is 3.09 percentage points, still a very respectable figure. Inappropriate Benchmark Knowledgeable analysts would not compare all large-cap products with the S&P 500. [And] the returns of small-cap portfolios are more heterogeneous than those of large-cap portfolios. [Thus it was neccesary to] develop effective style mixs (ESMs) for the products in the small-cap sample. The average ESM R-squared is 0.84 versus 0.71 for the Russell 2000, indicating that ESMs are the better bench-mark. Relative to its ESM, the median portfolio in the sample posts an alpha of 1.20%. Which is to say, accounting for fees and using better-calibrated benchmarks reduces the median margin of value added by more than half - from 4.04 to 1.20 percentage points. Survivorship Effect The 1992 median return of small-cap value funds was originally reported as 17.9%. As funds were deleted [those that went out of business] after the fact, the median return [for 1992] rose to 18.9% by 1997. Likewise, the median small-cap growth fund originally reported a return of 10.4% for 1992. This figure rose to 12.6% by 1997, as funds were dropped. This is an illustration involving a single year. Several studies have addressed the inflation of database returns caused by survivorship bias, generally arriving at a figure between 0.5 and 1.5 percentage points per year (See Fung and Hsieh [1997, 2000], and Carhart et al.[2000], for example). [There is also] inflation of database returns arising from the addition of performance histories after the fact. Studies (Fung-Hsieh and Carhart) suggest return inflation of 2 percentage points a year or more in databases subject to sur-vivorship and back-filling biases. Conclusion One investment policy implication of these results is that passive management of small-cap stocks makes as much sense as it does for large-cap stocks. Another is that you can use a single index fund that matches your over-all benchmark for the asset class, e.g., the Wilshire 5000 or Russell 3000 stock index, for all your passive management needs.
There has been huge, huge insider selling," said Phil Roth, the veteran technical analyst at Miller Tabak. He noted that over the last eight weeks, there had been 4.2 insider sales for every insider purchase reported. There are usually more open-market sellers than buyers, since insiders get a lot of their stock by exercising options, but this ratio is higher than it ever was in the 1990's bull market. Just what is causing the selling is worthy of speculation. On the benign side is the suggestion that a lot of insiders have learned from Enron's 401(k) debacle how unwise it is to concentrate one's wealth in any stock. Robert Barbera, the chief economist of Hoenig & Company, offers a more cynical Enron lesson, this one based on the rapid rise in the number of accounting investigations being started by the Securities and Exchange Commission. "If you believe people cooked the books, then right now the cooks should be selling," he said.
Yet even in such an environment, in which managers have begun to earn their keep, they aren't being allowed to enjoy their front-runner status in peace. This is because of talk in the investment community that the S&P 500-stock index has become a weak opponent, even a patsy, based on its composition. This view holds that the late-'Nineties growth-stock bull market rendered the S&P a tech-bloated Gulliver, staggered by the Nasdaq implosion and beholden to the out-of-favor megacap companies of the market. So larded is the S&P with the former tech-linked Nifty Fifty favorites of yesteryear that the benchmark is all but oinking to the beat of the benighted Nasdaq. This being the case, fund managers simply have learned the painful lessons of what hasn't worked and positioned their portfolios to the smaller end of the equity universe, while running light on tech shares. For these reasons, in recent weeks when the Nasdaq has spurted higher on several different days, the best performer among the industry's largest funds has been the Vanguard 500. The very attributes that made the index so tough to beat a few years ago are making it a pushover today. More fundamentally, though, the S&P 500 has been targeted as a poor measure of the stock market's behavior and thus a subpar vehicle for passive investing. Most notably, Institutional Investor magazine's latest issue contains an article asking if the index is nearing the end of its dominance. The piece contains remarks by portfolio-theory prophets and efficient-market proselytizers Bill Sharpe and Harry Markowitz stating that it's a poor benchmark. That's a bit like Bill Gates and Steve Jobs saying in PC Week that desktop computers are useless. Even pension-plan overseers are leaving behind the popular S&P for more inclusive, broader gauges, such as the Wilshire 5000 and Russell 3000. For believers in indexed investing, there's no great tragedy in the tarnishing of the S&P 500, given that there are thriving alternatives out there. Barclays Global Advisers runs exchange-traded shares that match the Russell 3000 and all its various sub-indexes. And the Vanguard Total Stock Market Index - the choice of the purist indexers for years - follows the Wilshire 5000, which for all practical purposes is the entire U.S. market. And wouldn't you know that this fund sits in the top 24% of large blend funds for the past year, thanks to its exposure to smaller shares. Its performance during the past decade is in the top 39% of the category - not yet as good as its cousin Vanguard 500. From the Institutional Investor Article Rich Blake, Institutional Investor 5-14 "Use of the S&P to measure equity portfolios has been steadily decreasing among large plan sponsors," says Paul Schaeffer, director of investment management research for CRA RogersCasey. "Now the trend has started to accelerate. People are realizing that with the S&P 500 you are getting more of a large-cap growth measure than the total market." S&P's selection criteria ("leading companies in leading industries") have skewed the index so far toward large-cap growth stocks that to many it's really more of a "style" index. Another frequent criticism: that S&P, which is estimated to collect some $80 million per year in licensing fees from its indexes, adjusts the S&P 500 as much to keep the aging index vital as for any theoretical reasons. Keeping on top of market trends, the confidential committee that determines which stocks make up the S&P roster shucked rust-encrusted conventional manufacturers and pursued giddy tech stocks with a vengeance to lend the index a New Economy gloss. Indeed, to a number of critics, a fundamental defect of the S&P 500 is that it doesn't purport to be an intellectually rigorous, objective correlative of the market. First and foremost the index is a commercial product, so it invariably caters to some degree to popular demand, which in the late 1990s was avid for anything labeled tech. Academic critics of the index note that S&P 500 stocks represent only 78% of the U.S. stock market's total capitalization. Thus, trailing the S&P 500 doesn't necessarily mean lagging the "market" at all - and vice versa. While the S&P 500 declined 11.9% last year, fully two thirds of the stocks in the index did better than that - and 43% were actually in positive territory. Of stocks overall, as reflected by the Wilshire 5000 (which actually contains 5,912 stocks), 50% rose last year. The S&P 500 can be equally misleading when times are good. In 1999 the index rose 21%, but 49% of S&P 500 stocks actually declined. In a working paper released in December, the National Bureau of Economic Research makes the case that increased demand for S&P 500 stocks has artificially pushed up their prices and thus "may have had the perverse effect of undermining the efficiency of the stock market." The study used the familiar Q score created by the late Nobel Prize winning economist James Tobin (basically, the Q score measures the market value of a company's assets divided by their replacement value) to assess how much of a halo effect the S&P actually bestows. In 1978, the NBER found, the average Q ratio for S&P companies was 0.8, while that of similar companies outside the index was 0.7. A modest effect. In 1997, however, with the stock market booming, the gap was far wider: Q scores for S&P companies averaged 2.3, whereas those for comparable non-S&P firms averaged 1.7. When stocks rise or fall based on whether or not they're included in the index, the natural pricing process becomes corrupted, maintains University of Alberta finance professor Randall Morck, a co-author of the NBER study. "Put simply," he contends, "the S&P is screwing up the pricing of the market. The market is probably not as efficient as proponents believe; otherwise you wouldn't see this kind of premium for companies in the S&P when the fundamentals don't seem to justify it." Market pricing is working just dandy, counters Princeton University economics professor Burton Malkiel, author of the 1973 classic, A Random Walk Down Wall Street. Using data from 1993 and 1998, he studied a random sample of approximately half of the companies in the S&P 500 and discovered that earnings multiples for S&P 500 stocks were actually a point lower than those of a comparable universe of non-S&P 500 stocks. "The flow of funds into the S&P 500 has no identifiable effect on the excess return of the S&P 500 over actively managed funds," concluded Malkiel in a January 2001 article in the Journal of Portfolio Management. "This suggests that the success of indexing has not been a self-fulfilling prophecy." It's hard to dispute that the S&P 500 today suffers from a dangerous level of concentration: At the start of this year, the top 25 stocks, or just 5% by number, accounted for fully 41% of the index by capitalization - and thus greatly influence the S&P 500's performance. [the top 25 stocks represent 35% of the Russell 3000's total capitalization and 33% of the Wilshire 5000's] The proportion today is close to its June 2000 peak of 44% and compares with the 34% average that prevailed throughout most of the 1980s and '90s. As the index grows more concentrated, it becomes less diversified and hence inherently riskier. "We have seen this play out again and again: The big caps outperform, the S&P gets concentrated, those stocks get way ahead of themselves, and eventually it breaks," laments Dick Charlton, founder of New England Pension Consultants. "The problem is cap weighting - and the time is long overdue to consider equal-weighted indexes." Last year, Charlton notes, an equal-weighted version of the S&P 500 fell only 3%, compared with the cap-weighted version's nearly 12% decline. Since 1958, in fact, the equal-weighted S&P 500 outperformed its cap-weighted counterpart 60% of the time, reports Leuthold/Weeden Research. On the other hand, equal-weighted indexes lagged dramatically in the late 1990s. 'Blowups are costing more. Owning the 20 worst-performing stocks in the S&P has historically cost investors around 110 basis points, but more recently, the cost has been close to 300 basis points' warns Steve Galbraith, chief investment strategist for Morgan Stanley. Just five outsize stocks - Cisco, EMC., Merck, Nortel and Oracle - were responsible for almost one third of the S&P 500's 9.1% loss in 2000, calculates Thomas Doerflinger, senior investment strategist at UBS Warburg. The S&P's rival benchmark purveyors, Wilshire and Russell, are attracting an ever-greater share of the $1.25 trillion market for U.S. equity index funds. They say that roughly $250 billion in index funds is now pegged to their various indexes, up from essentially nothing five years ago. Wilshire and Russell indexes are still dwarfed by the S&P, which boasts $1 trillion in indexed funds. Two products modeled after the S&P 500 have drawn $32 billion in ETF assets. ETFs linked to the Nasdaq 100 claim $22 billion, while ETFs linked to the Russell 3000 and Wilshire 5000 have a combined $3 billion. Many market strategists and economists, including Wharton's Siegel, suspect that in the normal cycle of things, small caps will go on to outperform large caps for the next few years, as they did convincingly from November 1990 to February 1994. "An investor might do better tilting to the Wilshire 4500 [the Wilshire 5000 minus the S&P 500]," Siegel advises.
In 1950, only 33.9% of women 16 and over were in the job market compared with 86.4% of all men. In every decade since, the participation rate for men has declined while the participation rate for women has risen. By 1998, the participation rate of women had nearly doubled, reaching 59.8%. The rate for men had declined to 74.9%. Working women now number nearly 60 million, only 10 million fewer than the number of working men. Here are a few of the economic trends that can be traced to the rising participation of women in the job market: (1) The employment of women has enriched Social Security revenues without enlarging Social Security payments. Why? Because non-working spouses receive half the benefits of their working spouses without paying employment taxes. Working women, meanwhile, pay full employment taxes for a nominal increase in benefits. (2) The rise of the two-earner household also worked to gorge federal income tax collections. The additional income from a second earner was added to existing income. As a consequence, the additional income was taxed at the highest marginal rate the family could have paid. (3) The increased supply of labor took pressure off wages and limited wage increases. Although women have, rightfully, argued that they were paid less than men in comparable positions, they may have served the same function in the second half of the 20th century as boatloads of immigrants served in the second half of the 19th century - their competition kept a lid on wages for all workers. What does a reversal mean? Pressure on federal spending at all levels, a tighter-than-expected labor market as the first of the Baby Boomers start to retire, and increasing competition between wages and corporate profits.
In the same vein, Merrill rival Credit Suisse First Boston in January settled SEC civil charges that it rigged initial public stock offerings in the late 1990s. CSFB agreed to pay a total of $100 million to end the case. In part, the desire to penalize companies for abusive practices, without risking destruction of the businesses, is rooted in regulators' desire to avoid further harm to the firms' shareholders - who often pay for managements' missteps in the form of lost stock value. Merrill's shares, for example, have fallen 20% since Spitzer announced his case on April 8. That's a drop of $9.2 billion in shareholder wealth. Another argument against substantial regulatory penalties or guilt admissions in these cases is that the marketplace may deal out the most significant justice: If Merrill's customers don't believe it to be a trustworthy firm, they can be expected to take their business elsewhere. But virtually every major Wall Street brokerage is under investigation by state and federal authorities for the same stock-tout abuses that Merrill is alleged to have committed. Yanking an account from a broker often isn't easy. The logistical issues of moving an account can prove daunting. What's more, many investors' view of the brokerage industry probably is the same as their view of the federal government: "I hate Congress, but I love my congressman." Indeed, some Merrill investors may have good reason to feel better, rather than worse, about their broker in the wake of the analyst scandal - if their broker ignored the firm's official research hype about technology stocks. It may yet prove to be that the marketplace, rather than securities regulators, will exact the greatest punishment and force the most significant change in the brokerage business. Individual investors now will be more skeptical than ever about Wall Street stock touts. Likewise brokers and other financial advisors, if they hope to retain any credibility with the clients who pay their salaries. [But] if a brokerage can't provide objective advice, what, exactly, does it have to offer?
It's not as if the people who were surveyed haven't been warned. Mathew Greenwald & Associates conducted the poll for John Hancock in January. By then, 90% of the investors said they knew about Enron Corp. So if they knew about Enron, they surely knew about the Enron employees whose retirement accounts were wiped out because they had overloaded on their company stock. The stock collapsed last year amid a series of damaging financial disclosures. "There seems to be this halo effect people have about their own company stock," said survey author Wayne Gates, general director of market research and development for John Hancock. "People think what happened to the Enron employees won't happen to them." What part of "don't put all your eggs in one basket" isn't clear? Putting all or most of your money into one stock is gambling, not investing. 401(k) Survey Martin Wolk, MSNBC 5-20 An analysis of results from the survey of randomly selected investors with 401(k)s and other defined-contribution plans found that on average, including Social Security, they could expect to retire with only 50 to 60 percent of their pre-retirement income. Experts suggest that most people should aim to achieve at least 75%. Half of all Americans spend less than six hours a year managing their funds, or about 20 minutes a month. 401(k) Survey Part 2 PRNewswire-FirstCall, 5-20
Survey Findings
Related: Investor Expectations, Majority Expect Rise, Lower Expectations
The average of 716 international equity funds tracked by Bloomberg shows a meager annual gain of 1.3% over the past five years, compared with 7.1% for more than 7,400 domestic stock funds. In the past 10 years, a Morningstar measure of international stock funds gained 6.6%, not even close to keeping up with U.S. diversified funds' 11.5% gain. Two Reasons for Hope Sustained declines in key foreign currencies' value against the dollar have been a prime problem for international funds. They may now strengthen, enhancing rather than detracting from the returns foreign stocks provide to dollar investors. Secondly, after a decade of bear markets in Tokyo, Japan's stock market now plays a much-reduced role in world stock indexes. [. . . and a third reason - lower P/Es.] Foreign Investing Ian McDonald, WSJ 5-22 Over the past five calendar years foreign funds have only gotten 4% of stock funds' inflows, on average, compared to 11% in the five years before then, according to data from Boston fund consultancy Financial Research Corp. In this year's first quarter, foreign funds only accounted for 6% of stock funds' inflows, after finishing last year in net redemptions for the first time in more than 15 years. "Foreign funds have been roughed up as badly, if not worse, than US funds, so people say why bother?" says Peter Di Teresa, a senior fund analyst at Morningstar. But if we look beyond the excesses of the past decade, we find that such flops aren't the norm. Over the past 30 calendar years, foreign stocks have topped U.S. stocks 14 times, using the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index and the S&P 500, respectively, as yardsticks. And even though foreign stocks have only topped domestic equities three times in the past ten years, the lower-volatility part of the foreign stock argument has held up too.
Flagging Markets in U.S. Drive Investors Overseas Erin Schulte, WSJ 5-18 A recent Merrill Lynch survey of almost 300 fund managers (who collectively manage about $727 billion in investments) showed that a majority would underweight U.S. equities in their portfolios. And only 22% say the U.S. has the most favorable corporate-profit outlook globally -- a drop of nearly half since three months earlier. "'Anything but America' seems to be the theme song of institutional investors right now" says David Bowers, chief global investment strategist at Merrill Lynch. The fabled Land of Opportunity, the survey suggests, lies elsewhere: in emerging markets, places like Korea and Russia, where prices are cheap and potential - as well as risk - is high. The majority of fund managers polled by Merrill still say they'll overweight the region in the next 12 months, and 39% of those surveyed said emerging markets had the most attractive corporate-profits outlook compared with the U.S., Europe, and Japan. The benchmark index for emerging markets, the Morgan Stanley Capital International Emerging Markets Free index, has climbed more than 12% this year in dollar terms, while the S&P 500, a broad measure of U.S. equities performance, has dropped about 3.6%. The Nasdaq is down about 11% this year. Not since the late '80s have emerging markets outperformed the U.S. steadily, but some analysts say the tide may be turning that way again, partly because of valuation. Valuations of these once-unloved stocks look pretty alluring today: emerging markets now stand about 27% below their peak in 1994. "At the beginning of this year, this asset class was trading at 10 times earnings. Now, it's trading about 12 times earnings," says Sam Wilderman, a manager of the GMO Emerging Markets III Fund. "Compared to the rest of the world, that's a phenomenally low valuation, over a 50% discount to U.S. equities." At their peak, emerging-markets stocks were trading at about 25 times earnings. The price-to-earnings ratio of the S&P 500 stands at about 21, according to First Call/Thomson Financial. Historically, U.S. stocks trade in a range of about 15-17, First Call said. Related article: Home Bias - Mark Hulbert, NY Times
For example, Merrill found the French health-care firm Aventis's share price has fallen 77% of the time after the dollar has dropped. Specifically, a 10% depreciation in the dollar suggests Aventis stock could drop 9%, Hartnett says. About 20% of European corporate revenue excluding the United Kingdom comes from North America, and it's 24% when you throw in the U.K. More on the Dollar John Berry, Washington Post 6-1 Economist Kermit L. Schoenholtz of Salomon Smith Barney said it is hardly surprising that the dollar is coming down because the huge rush by foreigners to invest money in the United States has slowed. "It is not surprising that as the capital flow into the United States becomes less aggressive, the the dollar retreats. But so far it is fairly benign. There is no inflation threat, and this is an adjustment toward a long-run equilibrium" for the dollar and transactions between the United States and the rest of the world. If it continues, it could be a problem for foreign economies which have been dependent on exports to stage their recoveries, but it is not a threat to the U.S. recovery," Schoenholtz said. Edwin Truman, an economist at the Institute for International Economics and a former senior official at the Fed and the Treasury, regards the dollar's recent weakness as more of a risk to the rest of the world's economies than to that of the United States. "I do not think the rest of the world is ready for an adjustment in the U.S. current account," he said. Many nations in both Europe and Asia have been dependent on increased exports to the United States to keep their economies growing. If the dollar falls significantly and makes imports most costly in this country, it could hit those foreign economies hard, Truman said. More on the Dollar Jacob Schlesinger WSJ 5-31 Lawrence Lindsey, head of the White House National Economic Council, said in an interview that the dollar is only off a bit from a lofty level. "From its bottom in 1995, on a trade-weighted basis, the real dollar exchange rate was up 33%" to its peak earlier this year, he said. The recent decline puts the dollar off 3% from that peak. "You know, off 3% is like a wiggle on a 33% trendline," he said. Mr. Lindsey refused to discuss under what conditions the administration would consider the dollar weak, and what might trigger intervention in foreign-exchange markets to prop it up. It is impossible to predict the "correct" value of a currency, but many analysts estimate that the dollar is overvalued and say it is destined to fall sharply sometime. Recent trends, those dollar bears have argued, are a sign of that turning point. "We are now expecting the U.S. dollar to exhibit both structural and cyclical weaknesses," economists at UBS Warburg wrote in a recent report predicting the euro to rise to $1.05 and the dollar to fall to 115 yen by next year. Euro Rates Vito Racanelli, Barrons 5-27 Parsing the most recent official statements of bank officials and its monthly bulletins, it's clear "there's a whispering campaign by the bank" aimed at preparing financial markets for a 0.25 percentage-point summer hike in its repo rate to 3.5%, possibly at its June 6 meeting, contends David Brown, a Bear Stearns economist. Oil prices are off their highs, but Euro wage increases and service-industry prices are a worry. Inflation hasn't been below 2% for two years, so the central bank has consistently missed the target for some time now, Brown points out. Impact of Dollar's Fall Jennifer Ablan, Barrons 5-13 Last year some economists and business executives said a rise in the value of the American currency would complicate the prospects for a rebound. This year the fear is that foreign investors, who are enormously leveraged to U.S. demand, would decide to pass on or dump U.S. securities, causing the greenback to tumble and pushing interest rates higher -- thus creating a "double-dip" recession. Michael Cosgrove of Econoclast, a Dallas-based advisory service, says the potential for investors migrating toward fixed-income markets in Japan and Europe is "limited ... neither is very attractive to investors." He adds that the U.S. would need to see a violent move lower in the dollar's value - which many do not expect - to alter capital flows and damage bond yields as well as the economic recovery. A softer dollar would boost the manufacturing sector, one of the weakest sectors of the economy. A 10%-15% decline in the dollar's value would enhance the "competitive position" and profits for U.S. exporters, Cosgrove adds. He also says that each 10% decline in the dollar's value adds approximately 0.2% to the U.S. consumer price index, "so a moderate dollar decline only has a small inflation impact." Joseph Quinlan, senior global economist at Morgan Stanley, asserts that a weaker dollar will accelerate the pace of global restructuring outside the U.S. "A stronger euro would reconfigure the cost structure of many European industries and force companies to ratchet down their labor costs by paring jobs or boosting investment on information technology, or both," Quinlan says. "A stronger yen would have a similar effect in Japan. Dollar & Foriegn Investors Justin Lahart, WSJ 5-8 According to the Commerce Department, earnings fell by 12.5% economy-wide in 2001 and, as any stock market investor could tell you, they don't appear to have perked up yet this year. As far as overseas investors are concerned, it doesn't matter that the economy is growing again. "Foreigners don't invest in our GDP," says Trilogy Advisors chief investment officer Bill Sterling. "They invest in our profits." The foreign appetite for U.S. assets has abated, says Morgan Stanley international economist Joseph Quinlan. Foreign portfolio inflows into the U.S. in the first two months of this year totaled $26.7 billion, barely a quarter of what they were the first two months of 2001. "There's no doubt that foreigners are paring back U.S. purchases," Mr. Quinlan says. The Dollar, U.S. Stocks & Foriegn Investors Zuckerman & Karmin WSJ 5-20 Foreign investors, whose purchases in 2000 almost equaled those of U.S. equity mutual funds and who were steady buyers even last year, have pulled their horns in. They aren't quite net sellers yet, but their net buying has almost dried up. 'Foreign demand for U.S. assets is coming under strain,' says Paul Meggyesi, a senior foreign-exchange analyst at Deutsche Bank. 'With little sign of improvement in the U.S. asset market this is a problem which we believe will continue for some time to come.' There is always an equal number of buyers and sellers in the market, of course, so less foreign buying simply means domestic investors are buying relatively more. But "domestic investors are more unwilling to take up the slack of foreigners lately," as many U.S. investors sour on the market, so prices are bound to fall, according to James Bianco, president of Bianco Research LLC. In 2000, net foreign purchases of U.S. stocks added up to a record of about $175 billion, nearly as much as the $210 billion coming from all U.S. mutual funds, according to figures compiled by Kenneth Safian, who runs Safian Investment Research, a division of Burnham Securities. Even last year these investors were big buyers of U.S. stocks, purchasing $116 billion. But foreigners bought less than $11 billion of U.S. stocks during the first two months of 2002, according to the most recent figures. That is down sharply from the $33 billion during the first two months of 2001. [Jim Jubak, MSN Money 5-23: In 2000, foreigners bought a record net $175 billion in U.S. stocks. Last year, that total fell to $120 billion. And this year, net overseas purchases are running at an annualized rate of less than $70 billion.] Joseph Quinlan, senior global economist at Morgan Stanley, argues that foreign investors are unlikely to turn net sellers of U.S. stocks. The reason? Neither Europe nor Japan looks ready to take over as the global market leader. Sure, emerging markets are ahead 12.5% this year and some say they offer much better values than U.S. shares. But they are too small and volatile to attract more than a fraction of global investor money. Another reason U.S. stocks are suffering: European companies are sharply reducing their acquisitions of U.S. companies. Mr. Quinlan notes that a series of European acquisitions of U.S. companies in the late 1990s helped lift American share prices - and the dollar. But through the first four months of this year, the U.S. accounted for just 14% of global acquisitions, compared with 30% last year. Foreign Capital is Especially Important Schlesinger & Karmin WSJ 6-3 Although the dollar has seen ups and downs before, the significance for markets could be far greater this time because the U.S. has become dependent to an unprecedented degree on foreign capital. Any sign that overseas investors are losing appetite for U.S. investments has bigger implications than in the past. Foreigners sent money to the U.S. assuming they could get better returns than anywhere else. U.S. companies used that money to buy new high-tech equipment that helped fuel the productivity boom that raised the economy's growth rate, corporate profits, and stock prices - making the U.S. an even more attractive place to invest. From July 1995 through February, the dollar rose nearly 50% in value, measured against a basket of currencies of U.S. trading partners that is monitored by the Federal Reserve Board. Foreign capital is especially important to the U.S. economy because Americans save so little, and that's the only other way an economy finances investment. Although the U.S. government increased its savings as it began running budget surpluses in the late 1990s, American households, which haven't been thrifty in a generation, saved less. The household savings rate - the fraction of aftertax wages that isn't spent - fell from 8.7% in 1992 to 1.6% in 2001. Foreign investors made up the gap. Today, foreigners hold 40% of U.S. Treasury marketable debt, 24% of the U.S. corporate bonds and 13% of U.S. equities, according to estimates by money manager Bridgewater Associates. [Alan Abelson, Barrons 6-3: Morgan Stanley's Stephen Roach reckons that such investors own maybe $1.5 trillion or more of our equities, around $600 billion of Treasuries and $1.3 trillion billion of our other debt.] The U.S. economy still has tremendous underlying strengths, but capital flows and currency values reflect the relative appeal of markets, not absolute rankings. Even if the U.S. remains No. 1, a narrowing of the gap with other economies will divert money and depress the dollar. UBS Warburg economists talk of an "equalization of investment opportunities, the result of the investment overhang in the U.S. and important economic changes in Europe, and, in particular, in Asia." They note that a wide range of economies - Australia, New Zealand, Canada, South Korea, Thailand, Malaysia, Indonesia, the Philippines - all appear to be pulling out of recession faster than the U.S. Arguements for a Lower Dollar Jeff Madrick, NY Times 5-16 It is also time to recognize the serious imbalances the strong dollar has created. The United States owes trillions of dollars of debt it took on to finance current account deficits. As important, the high dollar has done longer-term damage to some industries by discouraging investment in globally competitive goods. Jerry Jasinowski, head of the National Association of Manufacturers, testified before Congress recently that the high dollar cost manufacturers $140 billion and 500,000 jobs the last 18 months. Thomas Palley, assistant director of policy at the A.F.L.-C.I.O., points out that more than 90 percent of lost jobs in the current recession were manufacturing jobs, though such jobs account for only 14 percent of total employment. But although vested interests may be clouding the debate, the arguments for a lower dollar are persuasive. The first is that a high dollar is going to restrain the expansion. America's rapid growth began in the mid-1990's, let us remember, when the dollar was 40 percent lower. Moreover, the last time the dollar was as high as it is now, in the early 1980's, manufacturing profits were at a low point. Profit rates did not begin to rise until the late 1980's, a couple of years after the Reagan administration arranged the Plaza Accord to bring the dollar down sharply - by some 50 percent, as it turned out. When the dollar took off in the mid-1990's, manufacturing profit rates declined again. Capital investment remained high only because of the inflow of capital from abroad and high stock prices. But now, Mr. Jasinowki's member companies report that their exports are on average 25 percent more expensive than rival products from other nations. Investment is way down. A second argument in favor of a lower dollar is that its level is unsustainable. As J. Fred Bergsten of the Institute of International Economics points out, the nation must import $4 billion in capital a day to compensate for its current account deficit and capital outflows. A third argument, too often ignored, is that over an extended period, a high dollar misallocates capital resources. Some export industries are neglected, while those that import low-price supplies, often services, attract more investment than is optimal. The 1990's boom disguised this impact, but it is harder to reduce a trade deficit when companies do not develop new export products because those products will be chronically overpriced in the world market. A lower dollar might even help the Europeans. While it would make their exports less competitive, it would enable the European Central Bank to reduce Europe's high interest rates because inflation would be less a threat. Mideast Investors Flee From Dollar John Hardy WSJ 5-23 Middle Eastern investors have been redirecting their extensive currency portfolios out of the dollar. The move been underpinned by a trio of factors, including opposition to U.S. policies toward the Israeli-Palestinian conflict, fears of increased U.S. official scrutiny of Mideast-owned bank accounts and the recent weakness in dollar-based asset markets. "Any future terrorist attack on the U.S. that involved either or both of [Hamas and Hezbollah] would unleash a far broader response from the U.S., including efforts to go after anyone who supports them financially and in this hypothetical instance, a far wider network than the backers of bin Laden," noted David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn., in a report released Tuesday. "For Middle Eastern accounts who fear the freezing of their U.S. assets by the U.S. Treasury, getting their money out of the U.S. ahead of a possible broader terrorist attack and a broader U.S. response seems plausible," Mr. Gilmore wrote. Dollar's Yield Caroline Baum, Bloomberg 5-29 `You can earn 100 basis points more on a German two-year note and 160 basis points more on a UK two-year note than you can in a two-year U.S. Treasury note,' says Joe Carson, an economist at Alliance Capital Management. Dollar vs Real/Peso LA Times 5-14 Though the dollar has fallen against many key currencies, it is gaining value in Latin America. The dollar buys nearly 7% more Brazilian reals and 4% more Mexican pesos than at year's end. Predictions Michael Sesit, WSJ 5-14 Last week, three major international banks - BNP Paribas, UBS Warburg and ABN Amro - cut their forecasts for the dollar. For instance, strategists at BNP Paribas see the euro trading at 98 cents at year's end, compared with its previous forecast of 86 cents. Ian Stannard, a BNP Paribas strategist, cites "a big sentiment change against the dollar." "The era of the strong dollar is over. The U.S. dollar has entered what will be a prolonged downtrend, one which the U.S. authorities will not fight," says David Roche, president of Independent Strategy, a consulting firm in London. "U.S. financial assets are no longer as attractive as those of Europe or Japan and will seem even less so if the U.S. goes it alone in attacking Iraq." Even so, few analysts predict a dollar free fall. For instance, even Mr. Roche doesn't see the dollar falling to parity with the euro until the end of 2003. To be sure, the dollar still has its defenders. Traders and investors "are being excessively negative on the outlook for U.S. economic growth," says Jesper Dannesboe, a currency economist at Dresdner Kleinwort Wasserstein in London. By the end of September, the bank sees the dollar rebounding to 82 cents to the euro and 140 yen. Strategists at J.P. Morgan Chase also note that during the past three years, the dollar has fallen by similar amounts four times, and all of the declines proved short-lived. Predictions from WSJ 6-3 article by Schlesinger & Karmin Macroeconomic Advisers LLC, a St. Louis forecasting firm, says, "We assume the broad, real trade-weighted value of the dollar declines another 6% through the end of 2003." Mark Zandi, chief economist for Economy.com expects the dollar "to depreciate by some 10% beginning later this year and extending through the mid-part of this decade." Related article: Euro vs Dollar
But the conventional wisdom is under attack. In the March/April issue of the Financial Analysts Journal, Robert D. Arnott and Peter L. Bernstein examine two centuries of stock, bond and economic data. They conclude that our expectations have been distorted by the relatively brief 75 years of history in the Ibbotson Associates data. First, they conclude that the normal risk premium for stocks - the amount by which stock returns should exceed the return on bonds Ä is 2.4% or less. They also conclude that the risk premium isn't constant. "The current risk premium is approximately zero, and a sensible expectation for the future real return on both stocks and bonds is 2 to 4 percent, far lower than the actuarial assumptions on which most investors are basing their planning and spending," they conclude. Although the Ibbotson data indicate good portfolio survival at withdrawal rates just over 4%, the Arnott/Bernstein data could lower withdrawal rates to the return on long-term Treasury Inflation Protected Securities, or about 3.4%. Related article: 401(k) Hoax - Scott Burns Prediction Michael Santoli, Barrons 5-6 Barton Biggs of Morgan Stanley Asset Management has been making the case to investment managers and pension-plan overseers that U.S. and European stock markets stand to gain just 5-6% a year over the next decade, owing largely to the stout valuations of stocks at the outset of this period. Just the Facts I Just Don't Know On the evening of Oct. 25, Aaron Brown began his commentary for that night's edition of CNN's "NewsNight" with the following: "It occurred to me today that I just don't know. Will someone I know get sick and maybe die? I don't know . . . I don't know if anthrax will be replaced by something else. I don't know if more buildings will be attacked. I don't know if the terrorists have some other plans, something worse. I don't know. I'm in the news business, and not being able to predict the day has always been one part of the joy. Not now. And I suspect I'm not the only one sick and tired and stressed out by it all, by all these `I don't knows.' " (NY Times 5-26) Disclosure in Mutual Fund Ads Last week, the SEC proposed that mutual funds should change the way they present performance numbers in advertising. But the proposal doesn't go far enough in requiring the disclaimer on past performance. There are some funds - particularly those that are new and small when they first rack up big numbers - that have significant reason to believe they will never be able to duplicate performance. Given the current rush to small-cap value funds - one of the few fund categories where a firm might currently tout performance and a grouping where funds tend to stay true to their investment objective only if they remain small - investors may want to not only evaluate performance but also see how big a fund was when it achieved those results. (Charles Jaffe Boston Globe 5-22) MRIs & Mental Illness The magnetic resource imaging machine (MRIs), for years used to diagnose everything from back ailments to brain tumors, is being used as an instrument to detect depression, schizophrenia and other mental illnesses now mostly diagnosed through sessions on a psychiatrist's couch. The federal FDA hasn't approved MRIs for psychiatric use. But a dozen medical centers around the country, mainly academic institutions and teaching hospitals, are using the instruments to assess psychiatric disorders as part of ongoing research. Other institutions are using a range of scans to pinpoint evidence of tumors or strokes causing psychiatric disorders, and in the process are detecting other chemical and metabolic misfunctions in the brain that cause a variety of mental illnesses. (Amy Marcus, WSJ 5-22) Retail Sales & Manufacturing Output In the last two years, real retail sales have increased by 8% while manufacturing output has fallen 5%. `Given the degree of the shortfall in output, we've tried to tell people we don't need strong demand to get strong growth,' says Salomon economist Bob DiClemente. That's the counter-argument to the one being promulgated by Greenspan. He's been telling anyone who would listen that the impetus to the growth from inventories - from aggressive inventory de-stocking to a slower pace of drawdown or even accumulation - will be short-lived unless final demand sees a sustained increase. (Caroline Baum, Bloomberg 5-20) An Interesting Morningstar Stat Consider a portfolio that was always fully invested in the 55 funds that Morningstar rates highest in a twice-a-month newsletter, buying when they climb into this elite group and selling when they drop out. From Jan. 1, 1991, to March 31 this year, according to The Hulbert Financial Digest, this portfolio trailed the market by 5.9 percentage points, annualized, after paying sales charges, redemption fees and other transaction costs. (Mark Hulbert, NY Times 5-19) Two Faces of Industrial Production While industrial production turned up decisively in the new year, demand from consumers is outpacing that from business by a long shot. Output of consumer goods rose at an annualized 3.7% rate in Q1-02, while output of business equipment slid 3.9%. With the April increase, consumer goods output has recouped more than two-thirds of its decline from the September 2000 peak to the October 2001 low. Not so for business equipment. The April level of output was down almost 17% from the January 2001 peak. (Caroline Baum, Bloomberg 5-15) Six Sell Signals (1) When you have good news, what's the first thing you do? You tell someone. Silence equals trouble. (2) If the core business isn't growing and margins aren't holding up, it's only a matter of time till the stock follows suit. (3) Big M&A deals always sound exciting, but in many cases they don't make shareholders richer. Mergers that go awry can destroy shareholder value. So keep your eyes peeled. (4) Now that so many companies are based on intellect and insight rather than manufacturing muscle, watch and be warry when key employees leave the company. (5) Sometimes it pays to go contrarian. When everybody is talking up a company, and Wall Street is gaga over earnings prospects, it may be time to move on. (6) When two or more insiders sell after their stock has risen sharply, consider selling, too. (Glenn Curtis, editor of Value Investor newsletter, Washington Posy 5-8) RFID Some libraries have started using radio frequency identification (RFID) tags in their books to streamline check-in, check-out, and inventory tracking, as well as helping to minimize theft. RFID tags can be read without being visually scanned. Librarians can check books in or out without ever opening them or looking for the bar code. Inventory can be taken simply by walking through the stacks and passing a wireless reader wand over the books. At 50 cents or more, however, RFID tags are significantly more expensive than bar code tags, which cost about 2 cents. (Wired News via EduPage 5-20) Quick Facts, Stats & Opinions Investors actually seem to be growing more pessimistic about stocks. For example, according to a survey by Gallup for UBS, only 59% of U.S. investors see now as a good time to invest. ThatÌs down from 63% in April and 71% in March. Expectations of future returns continue to turn more pessimistic, too, according to the survey. In March, investors expected a return of 12.8% over the next year. In April, that fell to 10.6%. And in May, it dropped further, to 9.6%. (Jim Jubak, MSN Money 5-30) Bill McNabb, managing director for the institutional investor group for Vanguard, said investors had adapted their behavior to the reality of lower long-term stock returns. In Q1-02, investors increased the percentage of their paychecks they contribute to 401(k) retirement plans from 7.99% to 8.34%. He attributed some of the increase to a new law that allows people to contribute more to retirement plans, but he said that did not explain the entire increase. (Miriam Hill, Philadelphia Inquirer 5-28) Roy Weitz, a self-appointed fund industry gadfly who runs the FundAlarm.com Web site (www.fundalarm.com), found that 416 stock funds - about 10% of those in his database - trailed the rate of inflation for the five years through the end of the first quarter. (LA Times 5-27) In response to a new law in the UK giving law enforcement officials the right to snoop into electronic communications, a group of computer activists is developing a system called M-o-o-t, which keeps data out of the hands of law enforcement. The new law, the Regulation of Investigatory Powers Act (RIPA), allows government to demand the encryption keys to decode electronic communications. M-o-o-t circumvents that by storing data, as well as encryption keys, on overseas servers, outside the jurisdiction of the UK. (New Scientist, 5-28) The current issue of Dow Theory Forecasts notes that the total cost of holding the average no-load mutual fund, starting with a $10,000 investment, is a hefty $3,525 over 10 years. (James Glassman, Washington Post 5-26) In the last real estate cycle, the shift in values of office buildings from their peak to their trough was 56.6%. Retail real estate proved significantly less volatile, shifting 26.4% between peaks and troughs, while apartment buildings, the least volatile commercial property sector, changed only 18% in value. (Quoting a Moody's report, Financial Post 5-23) The U.S. scrutiny of allegedly misleading stock research by Wall Street brokerage firms is prodding regulators in other parts of the world to take a closer look at potential conflicts of interest. In Germany, financial regulators are quizzing brokerage and investment-banking firms about issues such as analysts' compensation and their involvement in pitching IPOs of stock and other banking business. In other countries, including Britain, France and Japan, market watchdogs have either tightened existing conflict-of-interest guidelines or are considering introducing new ones. (WSJ 5-21) There are an estimated 17.8 million American with between $100,000 and $1 million in investable assets. Nearly six million of these people have more than $500,000. Sorry, your house doesn't count in this tally. (Opdyke & Mollenkamp, WSJ 5-20) As of April 15, there were 146 million shares of the Nasdaq 100 fund sold short. That amounts to one of every four outstanding shares of the QQQ positioned for profit in the event of more Nasdaq losses. In other terms, it represents a collective $5 billion bet against the tech bellwethers. The 25% short-sale ratio seems a powerful swelling of bearish sentiment, being much higher even than among individual tech shares. Morgan Stanley strategists this month reported that in the technology sector, 16.3% of the group's market cap effectively had been sold short. Michael Santoli, Barrons 5-20() If you are over age 65, there is a 43% chance you will spend time in a nursing home at some point, according to the U.S. Department of Health and Human Services. (Jonathan Clements, WSJ 5-19) How to calculate NCAV (Net Current Asset Value): Look up a company's balance sheet on its Web site or Yahoo Finance or practically any other online financial service. Then take its total current assets (basically, the firm's cash, investments, receivables and inventory) and subtract from that figure its current liabilities (short-term debt and payables) plus its long-term debt, preferred stock, pension obligations and leases (all this is easy to find). The result is NCAV. You can then compare the number with the company's market capitalization to see of it sells at a discount. (James Glassman, Washington Post 5-19) In Dell Computer's last fiscal year, which ended Feb. 1, it bought back 69 million shares for $3 billion. The shares could have been bought for $1.25 billion less this year. That number is just a bit larger than Dell's net income for the year. (NY Times 5-3) Cargill Dow's new factory converts field corn into a biodegradable substance it calls NatureWorks PLA, is shipping the material in bulk to produce packaging materials, clothing and bedding products. Coca-Cola is using it to make soft-drink cups, McDonald's for salad containers and Pacific Coast Feather Co. to fill pillows and comforters. (Washington Post 5-3) Quick Tips There are times that you click a link and the page doesn't open. Don't give up too soon. We find that trying a link immediately after it fails often brings up the page. Even if you can't access a page immediately, you may be able to reach it later. Don't assume that a page is down. It may be simply a case of an overworked web server. And sometimes the web is just too slow. When you try again, you may get a better route to the site. (EMAZING 5-27) Any time you surf the Internet, you pick up a slew of temporary files that turn out to be more permanent than temporary. However, IE offers the option of deleting these files as soon as you close the browser. To use this option, choose Tools|Internet Options. When the dialog box opens, click the Advanced tab. Now, select the check box labeled "Empty Temporary Internet Files folder when browser is closed." Click OK to close the dialog box and apply your settings. (EMAZING 5-25) There are times when you can't access a new site using your current ISPs DNS. When this happens, you can try to ping with another DNS. The easiest way to do this is to visit a web site from which you can ping a new address. Fife is a site that you can use to ping Internet addresses. You can also run a trace at this site. (EMAZING 5-21) To save inbox space and stay organized, create personal folders in your email client (Microsoft Outlook, etc.). Create folders by right clicking on Personal Folders in the left navigational bar of your email client. Then, click on New Folder, type in the name of your new folder and click OK. Once you create the folders, you can move emails from your inbox to these folders in one of two ways: (1) Right click on the email you want to move, choose Move to Folder from the drop down menu that appears and then click on the folder where you want the message to be sent. (2) Click on the email you want to move and drag it to the desired folder. (This Week @ Prodigy 5-18) Home Page Previous Factoid Top Sites
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