|
Biz Links REIT Updates June 02 May 02 April 02 More Factoids June Part 1 May Part 2 May Part 1 April Part 2 April Part 1 March Part 2 March Part 1 Q1-02 Index Q4-01 Index Q3-01 Index Q2-01 Index Q1-01 Index Q4-00 Index Q3-00 Index |
"The market is being 'T.A.R.R.E.D.' by terrorism, accounting, research, regulators, earnings and the dollar," said Sam Stovall, investment strategist at Standard & Poor's. "There's so much going on that I have to make up an acronym to remember it all." (LA Times 6-7)
At one time, these funds had a performance-based rationale: their managers could incur more risks and, it was hoped, achieve greater returns. Because investors would tend to hold their shares longer, the managers would need to hold less cash to meet unexpected redemptions, and they could invest in less liquid securities, whose historical performance has been better. If that reasoning had been correct, managers should have had no trouble outperforming the average no-load fund, whose management had to invest more heavily in liquid securities and maintain more cash. The deferred-load funds never lived up to their promise. According to research conducted by Matthew Morey, an associate professor of finance at Pace University, the average deferred-load fund has shown no ability to outperform the average no-load fund. And by some measures, the deferred-load variety has performed worse. In his research, Professor Morey studied the performance of 59 deferred-load funds from the beginning of 1995 through 2000, assuming that each was bought at the start of the period; by the end of that time, the loads of virtually all of them would have declined to zero. Even if the performance-based rationale had been stronger, it would have disappeared by the late 1990's. By then, most fund families had begun to take advantage of a SEC ruling making it easier to offer multiple share classes of the same fund. Even if the original rationale has vanished, they would be better choices if their total expenses over the holding period were less than for another class of the same fund. But that is not often the case. Professor Morey found that the average deferred-load fund imposed significantly higher 12b-1 fees - almost seven-tenths of a percentage point higher than for the average front-end fund and almost nine-tenths of a point more than for the typical no-load fund. Investors often do not notice 12b-1 fees because they are deducted before a fund's net asset value is calculated. Still, they are significant. Funds have other expenses beyond 12b-1 fees, of course, and in many cases these are also higher for the deferred-load class. Consider an investor who buys the deferred-load version of AAL Capital Growth and sells after five years. Superficially, it looks as if this investor is ahead of the game by avoiding the 4% load of the Class A shares. But the 12b-1 fee for the deferred-load shares is three-quarters of a percentage point higher than for the front-end shares, and other expenses are just over two-tenths of a point higher. Over five years, these amount to well over 4%. My guess is that, if you do a similar calculation for most deferred-load funds and holding periods, you will reach the same conclusion: Invest in another class instead.
The same thinking goes for bond funds. If you hold U.S. funds that invest in long-term bonds, buy international funds that hold short-term or intermediate bonds, he advised. Investors looking for home runs may be attracted to single-country funds, while those happy with singles and doubles may be more comfortable with funds that invest in several countries, he said. "Double-digit swings in developing markets are not uncommon," Tjornehoj noted. An example: The ING Russia fund gained 80% in 2001, lost 18% in 2000, jumped 160% in 1999, fell 83% in 1998 and gained 67% in 1997.
What you do know is that you recently redid the kitchen, there's a shopping mall going up a couple of miles away and test scores for the local school system went up this year, all of which should make your home worth more. Contrast this with a stock you own. Earnings have been flat lately, but the firm's competitive position is improving as weaker players drop out, the industry is still quite attractive and the company just won a large long-term government contract. However, the shares keep going lower along with the rest of the market. A lot of investors would allow the negative share-price information to color their decision as to what to do with the stock. As Warren Buffett has said: "They could close the New York Stock Exchange for two years, and I wouldn't care. Whether the exchange is open or not doesn't tell me whether The Washington Post is getting more valuable." This is precisely the point, and I think a lot of investors would make better investment decisions if they spent more time watching the company, and less time watching the stock.
You can do a reasonable job at avoiding the characteristic scandals of this market by concentrating on just three extra steps. Is the board of directors minding the store? You can find out who sits on the board in the companyĚs annual proxy statement, on file with the SEC. In general the more management dominates the board - and the fewer outsiders sit on the board - the less likely the board is to take an active role in setting limits on executive behavior. Is the companyĚs outside accounting firm truly independent or massively compromised? The idea, of course, is that the outside auditors perform a public trust by giving an honest count and keeping management within the rules. But itĚs hard to perform that role if the company youĚre supposed to be auditing is stocked with former partners from your firm. ThatĚs exactly what happened when Global Crossing hired Joseph Perrone, who had been in charge of auditing Global CrossingĚs books for outside auditor Arthur Andersen, as executive vice-president of finance. An accounting firm that earns five or 10 times as much giving advice as it does auditing is certainly going to be tempted to turn a blind eye to accounting problems in order to retain that consulting revenue. From its 2001 proxy, for example, investors can learn that Qwest Communications paid Arthur Andersen $1.4 million that year for auditing its books. The same year Qwest paid the firm $10.5 million for other services, including $2 million for tax advice and $6 million for information-technology management and other consulting services. Is the companyĚs financial structure a logical response to the companyĚs business needs, or is it set up to leverage earnings growth, hide expenses and inflate revenue? The answer to this question lurks in the footnotes to the companyĚs financial statements. In general the more complex a companyĚs financial structure is, the more chance there is that the numbers can be massaged to present a misleading financial picture.
What's that mean? People really dislike uncertainty. And right now, it appears to investors that between WorldCom Inc.'s accounting fraud, the Enron-Arthur Andersen aftermath, chaos in Europe's technology sector and rapid-fire currency fluctuations, there is a ton of it everywhere they look. Academics, investors and others have studied the psychology of markets for decades. To many, the old saw is that markets are driven by fear and greed. Greed drove investors to buy stocks no matter the price in the 1990s boom. Right now, people are so scared of everything that the fear factor has overwhelmed the greed. They may have good reason to be afraid. Dr. Payne, however, says there is an irrational worry that bad news for one company is bad news for all companies. "There is a basic unwillingness to make any bets when there is so much uncertainty in people's thoughts," Dr. Payne says. "The increased uncertainty has created a current frame of mind of investors who interpret any negative signal, not as an isolated event, but more as a symptom of a deeper underlying problem." Richard Geist, who teaches psychology at Harvard Medical School says, "What underlies peoples' willingness to invest is a sense of hope, and there have been so many factors causing hope to wane." Dr. Geist says depressed and anxious investors are mired in "jigsaw puzzle thinking" - they can't see the whole picture. They focus on, and obsess over, just one item, such as WorldCom's bad news. Martin Weber, professor of banking and finance at Mannheim University in Mannheim, Germany, says people are exhibiting a behavior pattern called a "bad regime," which is established by mutual reinforcement of negative feelings. Translation: "You are in a bad mood about the markets, and you look at other people who have bad beliefs and the feeling cascades," Dr. Weber says. 'Negative' Bubble D.C. Denison, Boston Globe 6-27 During the late 1990s, Robert Shiller, an economics professor at Yale University and an expert on market volatility, studied the dynamics of an economic bubble as the tech-fueled boom took the financial markets to unprecedented heights. Now Shiller is seeing some of those same dynamics at work, but heading in the opposite direction. 'It's important to recognize that a bubble can go both ways,' Shiller said yesterday. 'And what we're seeing now has the nuance of a negative economic bubble.' Even before the WorldCom announcement, investor optimism was at its second-lowest level in history, according to the Index of Investor Optimism, a joint effort of the UBS AG financial services company and the Gallup. 'We're in the middle of what I would call a `bear market depressive syndrome,''' said Dr. John Schott, a clinical instructor in psychiatry at Harvard Medical School. 'It's not hard to notice many of the classic symptoms of depression playing out in individual investors and the market in general,' he said. Specifically, Schott mentions the denial and anxiety that affected investors early in the bear market. 'People were unbelieving at first,' he said. More recently, Schott believes that investors have moved to a second stage, 'a great sense of depression, a feeling that the down trend is going to go on and on.' People used to ask me, `When is it going to end?'' he said. 'Now I'm hearing investors saying, `I think this is going to go on forever.'' The 'classic' final stage of the current malaise, according to Schott, is ''a catastrophic sell-off, when a large number of investors throw in their cards and sell their stock. 'The day you see the Dow go down 700 points with 2 billion shares sold, that's when it will be over,' Schott said. 'That's the final stage: panic and capitulation.' Richard Geist, president of the Newton-based Institute of Psychology and Investing, believes investor confidence could turn around dramatically because many of the financial basics are positive. 'Interest rates are low, inflation is nonexistent,' he said. 'Investor confidence is one of the only things that's truly bearish, and that's because the focus today is on the very small percentage of companies that are not honest. That's not the whole picture.' Yale's Shiller has also been thinking about possible turnaround scenarios. He believes the triggers may turn out to be positive earnings numbers and increased regulation. 'If companies start meeting positive earnings estimates, that will make an impression on investors,'' Shiller said. 'Government action could also have an effect. Things started turning around in the 1930s, after the creation of regulatory bodies like the SEC,' he added. 'Investors are pretty confident in the government's ability to enact effective regulations.' Related article: See 'Pod People' further down on this page.
This strikes me as a terrible time to reduce your stock exposure. But this is a great time to sell losing stocks held in your taxable account. This is also a great time to consider converting your regular individual retirement account to a Roth IRA. If you got burnt buying individual stocks, consider returning to stock funds. Why? When the market rebounds, any decently diversified stock fund should go along for the ride. But the sad truth is, there are many individual stocks that will never revive. Many observers have speculated that this is the start of a dismal period that will rival the 16 and a half years that ended in 1982. Over that stretch, the blue-chip stocks in the S&P 500 gained just 5.1% a year, including dividends, according to Chicago's Ibbotson Associates. I am dubious of such historical analogies. Still, when folks discuss 1966-82, they often neglect to mention that smaller U.S. companies and foreign markets posted decent gains during this period. Over the 1966-82 stretch, small stocks jumped an average 12.7% a year, while foreign markets climbed more than 9% annually. I wouldn't be surprised to see a similar pattern over the next 10 years, with small and foreign stocks outpacing blue-chip shares. [Lesson: be diversified.] Saving more seems particularly smart right now. The fact is, the economic outlook today appears no worse than it did a few weeks ago and yet share prices are off sharply. My advice: Ignore the frightening headlines and the doom-and-gloom pundits. Nobody knows where the bottom of this market is. But if you regularly stash a little money in stocks, you will eventually be very happy you persevered. The market will indeed rebound, and the shares you buy today will someday be worth far more.
Of the 20 stocks held by the most customer accounts at Merrill Lynch at the beginning of this year, 16 have fallen by more than the 15.2% decline in the S&P 500, and 14 of the 20 widely held stocks are trading for less than they were in September. Over all, an investor who put an equal amount into each of the 20 stocks at the end of last year would have suffered a 36.1% decline. That is more than twice the fall of the S&P 500 and significantly worse than the 26.7% fall in the Nasdaq composite. By contrast, those 20 stocks fell an average of just 8.1% in 2001, while the S&P declined 13% and the Nasdaq, 21.1%. The fact that this bear market has been focused on shares that many own has made it different from the 2000 swoon, when many stocks were rising even as the dot-com stocks were collapsing. Because the Nasdaq composite index is weighted based on the market value of the companies, not on the value of the shares in public hands, that index's big fall overstated the damage to investors. Many of the companies that suffered the most had less than 20 percent of their shares held by the public, and thus their decline was less painful than it appeared. But this year has been different. And for that reason the declines could have a larger impact on spending by investors than might be expected from the declines in the overall averages.
Fact is, the capitulatory selling that people are looking for may never come. Capitulation is essentially a bull-market phenomenon, a sharp jog down in the midst of a general trend up. The rules are different in a bear market. To begin with, says Kirlin Securities chief market strategist Tony Dwyer, after two years of selling, plenty of the people who are supposed to capitulate are already out of the market. And then there's the other side of the equation - savvy investors who know when to come in and buy. After a dozen false dawns, it's unclear that they're out there.
Vanguard Group, Fidelity Investments and Pioneer Investments use performance fees in some funds. They conduct monthly data samplings during a 36-month rolling period to calculate performance fees. However, their fund's statement of additional information only provides quarterly statistical information, not the monthly data points necessary to calculate the fee. Related article: Fund Fees - Clements, WSJ / Lucchetti, WSJ / McDonald, WSJ
The $64,000 question is, are these earnings estimates going to be met and what quality are these earnings?" says Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School. "That's what's really worrying the market right now. Until investors believe that earnings represent real money, they are going to be very cautious about pricing stocks." Stocks may be cheap compared to bonds. But that doesn't make them a screaming buy. After all, if 10-year Treasury yields backed up to just 5.56%, stocks would no longer seem like much of a bargain. Indeed, rather than being an opportunity for stock jockeys, current valuations may offer a warning signal for bond investors. Bonds Beat Stocks after Risk-Adjustment Abby Schultz, NY Times 6-30 A new study by Moody's notes that the stock market has been so volatile, that when swings in market prices are factored in, corporate bonds outperformed stocks on a risk-adjusted basis from Jan. 1, 1990 to the end of May this year. The Sharpe ratio takes into account the return that an investor can receive without taking any risk. The Moody's study used the average monthly returns of a 90-day Treasury bill - considered a risk-free asset. The risk-free return is then subtracted from the return of the asset being analyzed. The difference is called the excess return. The excess return is divided by the investment's standard deviation (a statistical measure of volatility) to the the Shape ratio. The stocks in the S&P 500 index had an annualized total return of 12.2% from Jan. 1, 1990, through May 31, compared with 8.4% for bonds. The Sharpe ratio of the S&P 500 was 0.15 from Jan. 1, 1990, through May 31, while the ratio for investment-grade corporate bonds, based on returns estimated by Moody's, was 0.20. Taking risk into account, in other words, corporate bonds outperformed stocks. On a risk-adjusted basis, using the Sharpe ratio, long-term corporate bonds outperformed stocks from 1926 through the end of May 2001, according to Ibbotson Associates. None of the researchers, however, say the use of risk-adjusted returns should make investors abandon any one asset class and load up entirely on another. To invest strictly by limiting risk would lead to a lopsided portfolio that is fitting only for an investor with a short time horizon. Related article: Stocks vs Bonds - Clements, WSJ
One reason that S&P has not come under fire for the index's poor performance is that most investors seem to think that it is a quasi-scientific measure that depends on little or no human intervention. The truth is that an eight-person committee of S&P bureaucrats - editors, business managers, quantitiative analysts and an economist - wield a heavy hand in its purportedly passive management. There are no professionally trained or regulated money managers on the team, according to Elliott Shurgin, vice president for index services at S&P. Defenders point out that the Russell 3000, a measure of the marketĚs largest 3,000 stocks, has done about the same as the S&P 500. After technology stocks roared into favor in the late 1990s, S&P found that the market had given an 18% weighting to tech stocks while its index only had a 14% weighting. So the committee considered itself obligated to raise its weighting in tech stocks in short order. As a result, not only did S&P 500 index managers yank out the stocks of seemingly stodgy retailers and industrials to add shares of technology companies such as JDS Uniphase, Veritas Software and Broadcom near their historic highs in 2000, but because these decisions don't have a ripcord they then proceeded to hold them while many plunged 80%-plus. From Alan Newman, an analyst at brokerage H.D. Brous: 'The end game is that there was a move over several years toward index funds, and now we'll have a move away from them as people become distressed to learn that their so-called passive investment vehicles were actively managed by drivers who didn't know how to hit the brakes on stocks down 80-90%.' Related: Right Index is No Longer the '500' - Santoli, Barrons / Blake, Inst Investor
So when a Ft. Worth Star-Telegram article on 6-23 mentioned that there were five rules of napkin use, and omitted telling what they were, I was confused. I did not know there were five rules - just for napkins. So I did some research. From Dining and Business Etiquette, University of Tennessee: When dining with others place your napkin on your lap after everyone at your table has been seated. Do not open your napkin in mid-air. As you remove your napkin from the table begin to open below the table level and place on your lap. If you must leave a meal, do so between courses, and place your napkin on your chair or to the left of your plate [most other sites did NOT mention the left-of-plate option]. When a meal is completed, place your napkin to the right of your plate - never on the plate. [But that list amounts to only FOUR rules, so I searched further - finding more than five rules. So I am now confused as to what rules in Ft. Worth it in OK to ignore. It was only after finding the same article posted in another paper that I realized the source was AP from a New York writer - who could have actualy lived in Jersey, which would explain the inaccuracy.] From www.cuisinenet.com/digest/custom/etiquette/napkin_howto.shtml: If your napkin falls on the floor during a very formal event, do not retrieve it. You should be able to signal a member of the serving staff that you need a fresh one. [This is probably the FIFTH rule.] When you leave the table at the end of the meal, place your napkin loosely next to your plate. [Note that this site does not tell you which side of the plate.] It should not be crumpled or twisted, which would reveal untidiness or nervousness, respectively; nor should it be folded, which might be seen as an implication that you think your hosts might reuse it without washing. The napkin must also not be left on the chair. There is a European superstition that a diner who leaves the napkin on his chair will never sit at that table again, but other, less supernatural, reasons are often cited for this: it might seem as if you have an inappropriately dirty napkin to hide - or even that you are trying to run off with the table linens. From www.career.gatech.edu/student/interview/i_meal.html: As soon as everyone is seated, place napkin on lap with crease toward you. [This is the only site to cite the crease rule.] Remove bad food (gristle, bones, etc.) discreetly with your fork. [I remain confused as to how you remove a bone from your mouth with a fork - but then, at Georgia Tech, those engineers obviously know how.] Remove olive or fruit pits with your hand, if eaten with your hand, otherwise with your fork. Never spit food into your napkin. From cdc.richmond.edu/career/PsAndQs.html: At a crowded table with several diners, it's often hard to tell which glass, napkin or coffee cup is yours. This can be especially difficult if the table is round. Solve the problem by looking at the place setting in front of you. Your liquids (water, coffee, ice tea, etc.) are always located on your right. Nonliquids, such as a bread plate, are always on the left. [Other sites cite the rule 'Drink from your right, serve (bread, butter, desert) from your left'.] This was the third source of information posted by a southern school. Unless there is some anti-yankee bias in the google search algorithm, there are few (if any) etiquette sources from Northern schools. Note: If you are in another country, these rules may not apply. I ran across a site for instructions to German etiquette, and it would only serve the purpose of confusion to list the differences here. But let me give one exception. If you are an over-night guest - you place the napkin back in the napkin ring after the meal.
An analysis by the RiskMetrics Group found that more than a dozen of the largest balanced funds look more like growth funds and carry the risk associated with that higher-octane category. Next month, however, RiskMetrics will post a free analysis of risk levels at a wide variety of funds on its Web site, www.riskmetrics.com. It will also identify the best and worst fund performers adjusted for the risk taken by managers.
Capacity utilization is in a similar noninflationary environment. At 75.5% of utilization, capacity remains more than 1.5 points below levels that lead to further reductions in investment. Unit labor costs in manufacturing continue to plunge due to contained hourly wage increases and increased productivity. On balance, these indicators do not show inflation ahead. But profits will be increasing by a multiple amount of sales early in a recovery. Thus, growth in operating profits of 15% to 20% in the next 18 months is highly likely. If inflation also surfaces, the gains will be more, but the Federal Reserve will need to raise finance costs to get prices under control. In other words, my indicators see almost an ideal, if subdued, environment for improved corporate profitability. All I need now is for the stock market to agree.
We seem to be substituting day-trips to amusement parks like those run by Six Flags and OhioĚs Cedar Fair for longer trips to Disney destination parks. Cedar Fair saw a 6% increase in attendance at its six amusement parks and five water parks in the first five months of the year. The companies that will be really hurt in a substitution consumer economy are those that canĚt justify their prices on the basis of the quality of their product. Just ask any American, Delta or United. More on Airlines Trottman & McCartney, WSJ 6-19 Domestic passenger traffic last month at the nation's five largest airlines fell 10% from a year earlier. Meanwhile, traffic at their five biggest discount rivals increased 11%. Low-cost carriers now account for nearly 20% of U.S. domestic air capacity, up from 6% during the downturn of the early 1990s. In April, overall U.S. airline passenger traffic was down 10.5% from two years earlier, according to the Air Transport Association, a trade group based in Washington. But over the same period, the average cost of a 1,000-mile coach ticket for domestic travel fell at a much steeper rate of 14.7%. How do discounters cut costs? Labor costs are equivalent to just 25% of revenue at discounters AirTran Airways, Frontier and JetBlue and 30% at Southwest. But at United and Delta, labor costs exceed 40% of revenue. A second source of cost cutting: Southwest flies its Boeing 737s an average of more than nine hours a day, while United, Delta and Continental fly their 737s only about six hours daily, says Eclat Consulting. Another force behind the shift to discount airlines the Internet and freer consumer access to fare-price information. Southwest says it now gets more than 40% of its bookings through its own Web site. American and United both sell only 5% of their tickets on their Web sites.
So is it time to abandon funds specializing in large-company stocks? Not quite. Not only are the market's biggest components just too big to ignore - other factors could provide a second wind to the large-cap category. Two years of persistent losses in large-stock investments have brought valuations back below those of the once-unloved small-stock world. The PE ratio of the Russell 2000 small-stock index has moved from a 20% discount compared with large stocks in 2000 to a 40% premium today, the largest gap since 1988, according to Prudential Securities. Large-stock funds historically have performed better when the dollar is weakening, says Steven DeSanctis, director of small-cap research at Prudential. When the dollar strengthened against other world currencies during the early 1980s and again between 1995 and early 2002, small-cap stock funds outperformed large-cap stock funds by more than 10 percentage points, according to data provided by Lipper and JPMorgan Fleming Asset Management. When the dollar weakened between 1985 and 1988, on the other hand, large-stock funds did much better, returning 45%, compared with 20% for small-stock funds. Another reason not to put too much money in small-cap stocks is that they are traditionally more volatile than larger fare. While small-cap stocks have outperformed large stocks - 11.7% to 10.1% on an annualized basis since 1926, according to Ibbotson Associates - they do so with about 50% more volatility. Related article: Small Cap Vs Big Cap - Hulbert, NY Times
In 1917, the economy was churning out $6,039 annually for each of our citizens. In 2000, that had soared to $34,996 per person. Those, by the way, are all 2000 dollars, so that raise was not just another sign of inflation. We have just 5% of the world's population. But we produce a quarter of the world's goods and services. We are producing five times more goods and services today than we did in 1950. In 1950, only 34.3% of all Americans had at least a high school education. By 2000, some 84.1% of us did. And while just 6.2% of Americans had received college degrees in 1950, by 2000 that had zoomed to 25.6%. In 1880, the average life expectancy in this country was just 43 years. A child born today can expect to live 77.1 years, on average. In the years 1945-1950, there were 82.7 deaths per million miles driven in the United States. By the period 1996-2000, that had shrunk to 15.9 deaths per million miles. During the same periods, the number of deaths per million miles flown by commercial airlines fell from 16.7 to 0.14. Accidental deaths at work also fell - down 91% since 1928. These numbers are from W. Michael Cox and Richard Alm, who put them in the 2001 annual report for the Federal Reserve Bank of Dallas. So when you see all the gloom and doom, just remember: Yes, we've got problems today. And we always will. But unless history is indeed bunk, this country, long-term, has only one direction to go. And it isn't down.
More on Debit Cards Albert Crenshaw, Washington Post 6-23 When most people think of a debit card, they mean their ATM card, which can be used both in banking transactions and for many purchase (point-of-sale) transactions. ATM-type transactions are done "online," meaning that the automated teller machine or the merchant is hooked directly into an electronic-banking network, and the transfer of funds takes place immediately. Visa and MasterCard have come up with offline alternatives - Visa calls it the Visa Check Card; MasterCard calls it MasterCard Debit - that allow merchants that accept Visa and MasterCard credit cards to accept debit transactions. You authorize these transactions by signing a receipt, and the clerk is supposed to make sure your signature matches the one on the card. Your account is not debited immediately; instead, the merchant typically sends in all the transactions electronically at the end of the day and the funds are removed from your account a day or so later. According to an ABA survey, debits accounted for 26% of store-payment transactions, credit cards 21%, cash shrank to 33% (from 39% in 1999) and checks for 18%. Cards that started out simply as PIN-based ATM cards now commonly carry the signature-based option. Look at your ATM card for a Visa or MasterCard logo. If it's there, chances are it can be used in signature-based transactions. Thus, if you lose the card, don't be casual about it, figuring, well, nobody knows my PIN. They may not need it if they can forge your signature. Federal law protects you against losses on debit cards (both kinds) over certain thresholds. Your maximum liability is $50 Ů the same as for a credit card Ů if you report the loss or theft of the your card within two business days of discovering that it's gone. Your legal liability rises to $500 if you report it after two business days, and the liability is unlimited if you don't report the loss within 60 days of receiving a bank statement that shows unauthorized transactions. Visa and MasterCard, both eager to promote use of signature-based cards, promise zero liability for fraudulent or unauthorized transactions on both their credit and debit cards. But the zero liability applies only to signature-based transactions. That means that if someone obtains both your card and your ATM's PIN and empties your bank account or buys merchandise, the card association's limit does not apply.
"Why has Coporate America become a net issuer of stocks again? Because bond investors are demanding that Corporate America reduce its leverage." That leverage is a natural consequence, he asserts, of Corporate America's issuing bonds to retire stocks in the latter part of the 'Nineties. Richard Bernstein, the astute head strategist for Merrill Lynch, offers still another reason for companies to sell equities these days: the astoundingly high valuations stocks enjoy, despite the crummy market and investor disaffection. At the very least, he cautions, "any flood of issuance will probably meet and constrain stock market rallies." Dick also is troubled by the fact that although earnings on the S&P 500 are the least predictable - or the most variable - in 55 years, investors believe that a solid and extended upswing in corporate profits is a sure thing. Dick answers unhesitatingly "no" to the question, Are we near a market bottom? Or, as he puts it cutely, after disclaiming any desire to sound too cute: "The fact that we are asked that question so often leads us to believe that we are not near a market bottom." That's not a bad rule-of-thumb: there won't be a bottom until everybody stops looking for one. Related article: Share Growth Will Hurt P/Es - Gretchen Morgenson, NY Times
The Wall Street Journal ran a front-page story on the dollar's imminent demise early this month. And in many other venues, from the media to the investment houses, the talk has been not about whether the greenback can make a comeback, but on how the world will cope once the funeral is over. So maybe the time is ripe to buck the trend, fight the tape, and damn the financial torpedoes in the process. Is it just possible that the euro and yen are headed for a fall and that, conversely, the dollar is due for a major rebound? Carl Weinberg, chief economist at High Frequency Economics - who closely follows Europe and Japan - believes that very thing. In Weinberg's view, the euro should start looking toppy at 96.5 cents, with a probable destination of 90 cents or lower. Wrightson Associates chief economist Louis Crandall, with no strong outlook either way, believes this is a rather strange time for the dollar to be laid low. "The U.S. economy has hit a soft spot after a strong first quarter," observes Crandall, "but its growth prospects still put Europe and Japan to shame. First - claims to the contrary notwithstanding, so far there's no real evidence that foreign investors have lost interest in U.S. markets. "If you listen to the Europeans," says Weinberg, "America's economic recovery is flawed and will fail. But there's no real evidence that the U.S. economy is in danger of faltering, or that growth in Euroland will amount to much this year" says Weinberg. Euroland's GDP rose at an annualized rate of 0.8% in Q1; the current quarter should remain stagnant, and Eurolanders would be lucky to see growth average 2% through the next few quarters, says Weinberg. In the U.S., by contrast, Q1 GDP rose by 5.6%, and should run 3%-4% over the next few quarters. Wage costs adjusted for productivity - called unit labor costs - have been declining in the U.S., which is good news for profits. In Europe, productivity growth can't keep up with wage growth, so unit labor costs have been rising. The S&P 500 has declined this year, but the German DAX and French CAC are down by even more. Returns on European bonds have run slightly lower than on U.S. bonds. In Weinberg's view, the yen is an easier case. Starting with the fundamentals, the strength in Japan's first-quarter GDP growth was another example of d‚j… vu. First-quarter growth in 2001 was nearly as strong - only to be followed by three straight quarters of contraction. Weinberg expects much the same this year. True, the Nikkei stock index is still up for the year, but the steep slide over the past few weeks is surely cause for worry. Weinberg says the main risk to his forecast is that foreign investors will shun U.S. markets out of fear of more accounting scandals, a concern he has heard on his travels abroad. But otherwise, the euro might once again fall back into the eurinal - and the yen may never glimpse the rising sun. More on the Dollar Erin Schulte, WSJ 6-8 Lawrence Lindsey, head of the White House National Economic Council, said that the dollar, at its peak this year, was up 33% from its 1995 lows on a trade-weighted basis. It's fallen 3% since that peak, a movement he called a "wiggle." A sharply weaker dollar would boost import prices, possibly squelching consumer spending and curtailing the nascent economic recovery. But the one rule of thumb says that consumer inflation rises about 1% for a 10% drop in the value of the dollar over the course of a year. According to forecasts from 10 out of 12 banks responding to a recent survey by Dow Jones Newswires, the euro will firm to 98 U.S. cents by the end of the year. Only three anticipate the euro reaching parity. The Bureau of Economic Analysis's National Income and Product Account tables take into account earnings from 4.9 million U.S. corporations -- a much broader measure than the commonly cited S&P 500 index. The NIPA tables show Q1 profits rose 7.1% year over year. "Once earnings go up enough to make people comfortable enough with the valuations, whatever outflow may be happening will end," said Steve East, managing director of economic policy and research for Friedman, Billings, Ramsey Group. More on the Yen Steven Syre, Boston Globe 5-26 Why is Japan's currency getting stronger? Largely because foreigners around the world like the looks of Japan's stock market and are demanding yen to buy shares aggressively. In 2002, Japan's Nikkei index is tops among the world's big stock market measures if you measure dollars invested. It is up 13.6% on its own so far this year, a return that climbs to 19.9% with a currency adjustment to dollars. 'Investors were so convinced nothing could come right in Japan they were significantly underweighted,' said Avinash Persaud, the London-based head of global research at State Street Corp. 'They're underweight in the best-performing market and are scrambling to cover those positions.' He estimates cross-border investors have sent $5 billion to the Japanese stock market this year. The Nikkei stock index remains 13% below its levels of just one year ago. The index is 70% off its bubble-era peak in late 1989 and trades today at about the same level recorded in 1985. Investors warming to Japanese stocks see two potential opportunities. One is among the stocks of giant multinational companies like Toyota and Sony that are lean and quick, in position to benefit if the global economy improves. The other opportunity is among Japanese stocks that trade so cheaply they reflect nothing more than a company's cash and marketable securities, or even less. Asia and the Dollar Booth, Phillips & Schlesinger, WSJ 6-26 So far, the dollar devaluation remains under control, analysts said. And despite the often-stated worries, that is good news for a number of Asian economies because it reduces the threat of inflation while stimulating domestic sales - and in some cases stock markets. Michael Kurtz, equity strategist at Bear Stearns in Hong Kong, said a lot of money being pulled out of U.S. assets ends up in Asia, helping to fuel a rally by regional stock markets. And if currencies in Taiwan, South Korea and even Japan strengthen, investors may be more likely to put money into those economies. "You have a virtuous circle going on. The currencies appreciate as money comes in. Then more money comes in because the currencies are appreciating," Mr. Kurtz said. There are also economic benefits. A weaker dollar is also the best news the Hong Kong economy has had in a long time. As the Hong Kong dollar weakens, being pegged to the U.S. dollar, the city's exports become more competitive on the world stage, while more expensive imports should alleviate the deflation that has gripped the economy for more than three years. Countries like South Korea and Australia now appear less likely to raise interest rates in the medium term as the weaker dollar has diminished the threat of inflation. South Korea in particular is wholly dependent on imported oil, the price of which falls along with the dollar. Meanwhile, less-expensive imports from the U.S. should help to sustain that nation's fast-growing consumer economy. Euro vs Dollar Investing Silvia Ascarelli, WSJ 6-24 Jens Johansen, an equity derivatives strategist at UBS Warburg, estimates that 85% of the net global investment flows in the week ended June 14 went to Europe, including the U.K. Over the past month, North American investors have been net buyers of European shares while Europeans have been net sellers of U.S. shares. Colin McQueen, a global equity fund manager at UBS's asset management unit, figures European equities right now are "marginally cheap," based on discounted cash-flow valuations. They are also about 10% cheaper than U.S. stocks. Euro vs Dollar Investing II Christopher Rhoads, WSJ 6-28 Corporate and portfolio investment, such as bonds and equities, increased in the euro area in April to °19.3 billion ($18.95 billion), one of the largest net inflows in the past year, according to figures released by the European Central Bank on Thursday. The ECB figures show a repatriation of funds of European residents back to the Continent, about °3 billion in April into money-market instruments alone, suggesting that European equities aren't highly attractive at the moment either. Net inflows by nonresidents into the money market amounted to °7.8 billion, according to the ECB. In past years, overall capital flowed out of Europe largely via foreign direct investment, as European companies sought to expand market share in the booming U.S. economy. While the outflow of foreign direct investment continued through the first four months of this year, it declined to just °3.9 billion, compared with °39.8 billion in the equivalent year-earlier period, according to Stephen Hull, a currency strategist with Goldman Sachs. But for the first time since 1997, the broad balance of payments - a measure of trade, direct investment and portfolio flows which together show the underlying demand for a currency - was positive in the euro area through the 12 months ending in April, according to Mr. Hull. "The surplus shows the recent rally in the euro is justified," he wrote in a research report. He expects it to continue. Dollar Richard Bernstein, chief U.S. strategist at Merrill Lynch, NY Times 6-23 As far back as 2000, we felt the main influences on the dollar were not the traditional ones like the current account, but that foreigners were selling local currency to get into the stock market bubble. Even today, there is a very close correlation between movements in the Nasdaq composite index and the dollar. There was a vicious cycle that ran during the bubble of 1998 through 2000: People believed that technology was the only sector that could grow. That bid up technology stocks and bid up the dollar, which in turn depressed earnings of a lot of nontechnology companies. That in turn reinforced the view of technology's strength. Now, earnings in a lot of these other sectors may rise, which could reinforce the view that technology is no longer a growth sector. Soros Says . . . James Hagerty WSJ 6-28 George Soros said he wouldn't be surprised if the dollar loses a third of its value during the next several years. Against the euro, the dollar has fallen about 10% so far this year. Trends in currency markets tend to last several years and involve major swings, he said, so a drop of around a third in the dollar's value from recent levels "would not be unprecedented." To resolve the crisis of confidence in Brazil, he said, the Fed and other major central banks should intervene in the market to support Brazilian government debt, becoming the lenders of last resort. "Brazil has done all the right things according to the Washington consensus" on economic policy, he said. "If there is no relief for Brazil, then the whole system is basically bankrupt because it means that good behavior doesn't get you where you want to be." 4th of July Lifton & Demske, WSJ 7-1 One concern on the minds of investors as the U.S. prepares to celebrate the nation's independence is the potential for terrorist attacks, with some speculation that an attack of sorts may be planned around the public holiday. That should weigh on stocks and by extension, the dollar, as it has taken its cue to a large degree from the direction of stock markets. Dollar Still too Strong? Peter Coy, Business Week 7-8 To close the trade gap, the dollar needs to keep falling. Exports are so much lower than imports that they must climb 40% faster than imports just to keep the deficit from growing. Economists at Goldman, Sachs & Co. predict that even if the dollar falls another 5% to 10%, the trade deficit will climb to a record 5% of U.S. output by late 2003. Far from fretting about dollar weakness, people ought to worry that the dollar still isn't weak enough. Related articles: Dollar Update - Barrons/WSJ/others, Euro vs Dollar - WSJ
"Latin America has de facto lost another equity market in Argentina," says Damian Fraser, the Latin America equity strategist and research director for UBS Warburg. "We can't buy positions in Chile or Peru at all, because the liquidity is too low," sums up Thomas Rodwell, a London-based portfolio manager at Pictet Asset Management. One result: These days Mexico and Brazil - the area's two largest economies - have largely separated themselves from the rest of the region. Mexico and Brazil account for 71% of total Latin American GDP, up from 64% five years ago, and are expected to increase their share to 75% by the end of this year. More than 90% of Latin American equity trading involves Mexican and Brazilian shares, according to Santander. Mexico, where stock prices have surged 44 percent since late September, may prove to be the biggest beneficiary of a global rebound. The peso has actually appreciated against the dollar, inflation remains subdued, and the government last year passed an important securities law that increases transparency and the rights of minority shareholders. Venezuela is struggling to reach a consensus on whether to push ahead with a market-oriented economy. Colombia faces a continuing guerrilla insurgency and drug-related violence. Argentina - ravaged by a debt default, five changes in government leadership in the two weeks ended January 1, 2002, and a major currency devaluation - is simply trying to survive. Chile needs a new growth engine to complement its trade in copper, food and wine. Peru has a popular leader in President Alejandro Toledo but needs more foreign capital. Currently, there are only 13 dedicated Latin American mutual funds, and their assets have plummeted from $3.8 billion in 1997 to about $1.1 billion today, according to Morningstar. By contrast, the number of diversified emerging-markets funds - most of which include a Latin American component - has ballooned from 43 to 79, and their assets now total a robust $17 billion or so. According to fund flow analysis from AMG Data Services, Latin America equity funds have attracted $294 million this year through early May, refilling their coffers to $1.5 billion and reversing last year's $280 million outflow. More on Latin-America Mike Esterl, WSJ 6-19 Latin American shares have fallen 9.9% in dollar terms so far this year, including a 16% downturn since the end of March, with only Colombia in the black during the second quarter, as of Monday's close. By contrast, equities from emerging Asia and from emerging Europe, Middle East and Africa this year have gained 13% and 4.7%, respectively, according to Morgan Stanley's MSCI index. Investors aren't impressed with economic-growth prospects in the region. The IMF is forecasting that GDP will increase only about 0.5% after last year's mild 0.6% upturn - a far cry from the 6% growth projection for developing countries in Asia after a 5.6% expansion in 2001. Argentina's economy could contract as much as 15% this year, threatening to take smaller neighbors Uruguay and Paraguay down with it. Even Mexico, a longtime safe haven in the region, is having trouble shaking off an 18-month recession sparked by the U.S. downturn. More on Brazil Karp, Phillips & Karmin, WSJ 6-24 On Friday, Brazil's currency plunged to a historic low of 2.84 to the dollar, and its credit-worthiness fell to its lowest point since a chaotic 1999 devaluation. Brazilian sovereign-bond yields are higher than Nigeria's and second only to Argentina's. Treasury Secretary Paul O'Neill Friday suggested the U.S. opposes further IMF aid for Brazil. "Throwing the U.S. taxpayers' money at a political uncertainty in Brazil doesn't seem brilliant to me." He added, "The situation there is driven by politics. It's not driven by economic conditions. . . the Brazilian government is implementing the right economic policies to address the current difficulties." To be sure, market participants are divided on whether Brazil's woes are solely the result of political uncertainty given Mr. da Silva's strong lead in opinion polls and whether Brazil is headed for a default. "I think the true likelihood of default is lower than what the market is indicating right now," says Eric Fine, head of emerging market-bond research for Morgan Stanley. Brazil's debt amounts to 54.5% of gross domestic product, lower than many emerging markets. Most of that debt is domestic, but some 80% of those bonds are linked to interest rates or foreign-exchange rates. What's more, high interest rates and risk-averse global investors inhibit Brazil's ability to grow out of its potential debt trap. Latin Contagion Karp, Phillips & Karmin, WSJ 6-26 Panic-selling in Brazil contributed to a mood that is souring on global risk, offering investors an excuse to take profits on shares of some highflying markets elsewhere. Indonesia, where stocks have soared 59% in dollar terms this year, fell 3% last week. Despite the new concerns, analysts say there are reasons the latest bout of contagion won't be as serious as that seen in earlier crises. For one, emerging markets have built up a certain degree of resistance. The Asian financial crisis, which struck nearly five years ago when Thailand devalued the baht in early July 1997, traveled foremost through currencies. But most emerging markets have abandoned the fixed-rate programs investors attacked, offering their economies greater flexibility. Investors also aren't as heavily indebted, and so aren't as desperate for cash. Still, as investors have been painfully reminded this month, no market is immune from contagion, especially in Latin America, where a chain reaction has been unfolding. Example: Recently, when Argentina limited the amount of cash its citizens could withdraw, many Argentines withdrew dollar deposits they held in Uruguayan banks. That forced these banks to sell assets rapidly in order to meet the withdrawal demands, causing its own economic deterioration to accelerate. Worried about the ripple effects from Argentina, the IMF on Tuesday approved $1.5 billion in new lending for Uruguay.
This weekend, seeing Friday's overnight decimation of Intel and the rest of the market, I wondered if a similar invasion had taken over the markets. Only a few years ago, I was surrounded by investors full of emotion, eager to drink deeply from the economic miracle that is the United States. Now these same investors seemed drained of feeling, convinced that the miracle had been a hoax. They looked the same; they responded to the same names. But they were not the same. Investors are responding with the negative triad that psychiatrist Aaron Beck found among depressed people: dampened optimism about themselves, others and the future. It's the hubris meme,' says market psychologist, Brett Steenbarger. 'It's the same meme that told the Greeks that they could not fly too close to the sun, lest they meet the fate of Icarus. What is taking investors over is not the idea of a bear market. Those come and go. ItĚs the idea that they deserve a bear market.' 'Investors no longer feel deserving of rich rewards. They feel like arrogant dupes, and they must pay the price of Icarus for their hubris. This is what has taken over the world. Investors dare not hope. They are afraid they will bring an even greater calamity upon their heads.' More Optimism Dave Kansas, WSJ 6-19 The New Economy isn't dead. It's just resting. That distinction may seem semantic to people holding worthless Internet shares. But the flailing stock market, along with the recession, has clouded a viable New Economy thesis that may still hold treats in store for investors. The New Economy promised strong non-inflationary growth and greater profits through sustained productivity gains. These days, though, burned investors contend the only thing new about this economy is a massive falloff in corporate profits. But despite the doubters, a strong case can be made that the New Economy remains intact. Its structural gains - improved productivity - are in place and are ready to rev. What it needs badly is corporate capital spending, the lubricant that makes the economy go. Once that spending starts to rebound, the New Economy could get a second wind. The New Economy was a theory that maintained technology had transformed business, creating a new, higher "speed limit" for sustainable and more robust profits without the pricing pressures that lead to inflation. Thus the New Economy changes are not limited to the tech. Take the grocery business. Technology has linked the check-out lane with inventory management to create a more efficient system of stocking the shelves. The daily developments are showing in the macro data. In Q1, productivity rose 8.6% on an annualized basis after notching a 5.5% gain in Q4-01. The continued gains in productivity through the recession contrasted sharply with productivity retreats in the 1970, 1980, 1982 and 1991 downturns. So what gives? Doomsayers point to several issues. Some believe the productivity data are inaccurate - that the outsized gains are in error. But the consistency of the numbers dispute that. Others who accept the data contend that only the consumer has benefited from these gains. While a shoe store, for example, may be far more productive thanks to new technologies, it may be using that advantage to slash prices and win customers rather than increase margins. But there is a third possibility, that the U.S. economy, along with corporate profits, will rebound more sharply than investors may anticipate right now. The reason for this? The structural improvements brought on by the New Economy. So what's the catalyst for profits? Corporate capital spending. Computers are getting old, software programs are becoming dated. [Michael Murphy, editor of the California Technology Stock Letter and chief investment officer of Murphy New World Mutual Funds, NY Times 5-12: There are 550 million personal computers in the world, and 300 million of them can't run Windows XP. A lot of those PC's were bought in 1999, and their three-year cycle is pretty much up.] Capital spending can only be placed on hold for so long. The capital investment picture will start to improve. But when? When capital spending does start to ramp higher, the New Economy should get a second wind, to the positive surprise of investors. Until then, a dismissive attitude toward New Economy productivity gains can be expected. Skepticism toward data in general tends to emerge when markets go through a sustained downturn. Statistics are called into question, basic assumptions are re-examined. It's a sign of frustration. And that sign of frustration is a good thing. It means that we're starting to get the required pessimism that could mark a turning point for the market. Just the Facts Retirement Income Stats In 1990, Social Security benefits could be expected, on average, to replace 43.2% of pre-retirement income. By 2010, the figure is expected to fall to 39.5%. By 2030, it should hit 36.7%. Why the drop? Social Security is slowly raising the age of full retirement from 65 to 67. Since most workers retire before age 65, this amounts to a de facto cut in benefits. About half of all households have no pension other than Social Security. Of households with pension coverage, 60% have only defined contribution plans, 20% have defined benefit plans and 20% have both. (Scott Burns, Dallas Morning News 6-25) Junk Bond Update Junk bonds tend to trade more in tandem with equities than with other bonds because many heavily indebted companies' chief hope for paying off debt is via new equity sales. If stocks don't recover, the financial outlook for many junk-rated companies could suffer. Another big problem is mounting supply. The tally of "fallen angels" continues to rise. But the anualized default rate on junk issues worldwide has been stuck at 10.3% of total bonds outstanding for three months, Moody's said. The firm expects the rate to fall to about 8% by year's end, assuming the economy continues to recover. [Note: The price of WorldCom's 7.5% bonds maturing in 2011 has plunged from 94 cents on the dollar in early March to about 51 cents now. This was BEFORE WorldCom's profit re-statement and suspension of stock trading.] (Debora Vrana, LA Times, 6-24 ) Drop Fund-of-Funds Charles Schwab recently gave up on the fund-of-funds concept. It's time that most investors follow suit. The idea behind these offerings generally has been that they are a one-stop shop for investors who don't want the hassle of building a diversified portfolio of funds on their own. There are two types of funds that buy other funds. There are the proprietary or ''house'' models, where a big fund company buys funds from within its own shop. And there are nonproprietary funds, in which the manager buys funds run by other firms. It's this second genre that needs to be killed off. The biggest issue dooming these funds is simple: costs. You're paying the costs not only for the manager who is running the fund of funds but also for the funds that person buys with your money. In other words, you're paying two layers of expenses and stealing from your own bottom line to do it. (Charles Jaffe, Boston Globe 6-23) Sales, Profits & Stocks From World War II until 1990, annual sales for U.S. companies grew 8%. Since then it has been just 5% - the slowest decade for sales growth since the 1930s, according to Wells Capital Management. And in the last 12 months, sales grew an anemic 2.8%, close to a 40-year low. Recent earnings news suggests things may be getting worse, not better. What does it mean for investors? If sales stay lame, and price competition ferocious, companies will have to somehow boost margins further to get earnings going again. That happened in the 1990s, helping the economy soar. But cost cutting from things like mergers and acquisitions and technology may be running out of steam. Unless the pace of sales picks up, or companies can come up with a way of creating efficiencies, we are stuck with weak profits - putting a crimp on stocks for the foreseeable future. (Gregory Zuckerman, WSJ 6-21) Dollar Gets Color The Federal Reserve and the U.S. Treasury said they plan to introduce new background colors into the next redesign of U.S. greenbacks in an effort to thwart high-tech counterfeiters. The $20, $50 and $100 bills will all have multiple, "subtle" colors added behind the standard green and black engraving. The $20 bill, the first to be redesigned, will begin circulation as early as the fall of 2003, with the $50 and $100 bills following a year to 18 months later. The new series of currency will continue to use the current security features, including microprinting, watermarks and enhanced security threads that glow under ultraviolet light. (WSJ 6-21) IM Internet "instant messaging'' has overtaken the business world - and that has set off a scramble at Wall Street firms, which are required to archive their every communication. Once limited to teen and home users, instant-messaging has been embraced by many business users, who are attracted to the technology's real-time nature and the ability to quickly check which co-workers are online and at their desk. A recent study by Gartner Inc. and Reuters estimates that by 2003 more than two-thirds of workers at large corporations will be using consumer instant-messaging software. (Stephanie Miles, WSJ 6-18) Muni Risk Stephanie Pomboy, of MacroMavens, takes note that Moody's put some $7 billion of commercial mortgage-backed paper on its watchlist after the Senate failed to pass a terrorism insurance measure. That's not an inconsiderable chunk of the entire $70 billion worth of such debt currently extant. But the credit raters so far have ignored the implications of how tough it is to get affordable coverage - or any coverage at all - against terrorism for the muni market. There are $1.4 trillion in municipal bonds outstanding. And yet, Stephanie asks rhetorically, "don't municipalities face the same risk of terrorist attacks that the private sector does?" Even the rating agencies, she suspects, can't long ignore the question and its inescapable answer. (Alan Abelson, Barrons 6-17) Q2 Earnings Preview Overall, the number of companies previewing their numbers is up about 10% compared with their pace last year, with positive preannouncements more than doubling in number, to 277 so far, according to First Call. But analysts say those numbers are deceptive. First, because expectations going into the quarter were so low, it isn't surprising that some companies would be flagging that the gloomiest scenarios didn't materialize. Also, the roster of companies that has warned of earnings shortfalls includes some of the market's biggest stars. Of the 673 earnings preannouncements made at a comparable time in Q1, half were negative, and 28% were positive, said Chuck Hill, of First Call. This quarter, positive preannouncements account for 35%, and earnings warnings are down to 41%. (Peter McKay, WSJ 6-17) New Market Leaders Nearly half of the stocks on the NYS Exchange and Nasdaq have gained ground since late March 2000, according to a study by Birinyi Associates. The rising stocks are up a median 53% over that period of more than two years, while the decliners [mostly large cap stocks] have fallen a median 66%, Birinyi found. The big gainers cross a wide range of groups, including home builders, health-care providers, steel companies, clothing makers and restaurants. The new rules for a new set of leaders: (1) Simple and boring is better. (2) Small is better than big - of the nearly 300 stocks that have doubled in price during the past year, all but 17 have market values below $1 billion, according to Baseline. (3) Cheap/Value/Low PE stocks are back - since the market's peak in March 2000, the stocks that have risen trade at a median price of only 18 times their earnings for the previous 12 months, according to Birinyi Associates. That compares with 23 times earnings for stocks that have fallen since March 2000. And (4) Foreign is good. (E.S. Browning, WSJ 6-17) Visiting the Doctor Online Internet company Medem will offer a service enabling patients to visit their doctor online for a fee. Medem claims that the service meets eRisk guidelines for online medicine, which have been endorsed by 33 malpractice carriers, the AMA, and other medical societies. The service is meant for patients already under the participating doctor's care and expands Medem's "secure messaging" option, which lets patients request appointments and prescription refills and ask brief questions for no charge. Roughly 10% of Medem's 80,000 doctor users offer the messaging option. Once doctors enroll in the service through Medem, patients will register with their doctor and obtain a password. The doctor's terms of service will detail the cost and the expected response time. Patients will pay for e-mail consultation with a credit card. Those payments will be largely private, since e-mail consultations generally are not reimbursed by insurers. (WSJ via EduPage 6-17) Fed's Hand are Tied When an upturn seems in danger of fizzling, as this one does, the Fed normally keeps it on track by cutting interest rates. This time, however, Mr. Greenspan is a spectator just as the rest of us are, unable for now to exercise his power. The Fed has tied its own hands. Mr. Greenspan and his fellow policy makers have signed onto the proposition that the economy is expanding. An abrupt rate cut after so much happy talk about recovery would be viewed as an announcement that Mr. Greenspan and his colleagues had lost faith in the recovery. Whatever relief consumers would receive from lower rates would be offset by their fright. Adding to the damage, the weakening stock market would undoubtedly take another dive. (Louis Uchitelle, NY Times 6-16) Closed Door Can Be Good/Bad About two dozen top-performing small-cap value and micro-cap funds have closed to new investors in the last year. There are currently about 300 funds that have stopped taking money from new investors, according to Lipper. Closings can portend bad news, however, because they represent a lagging indicator. By the time any investment category sees funds close regularly, the chosen sector may be ready for a fall. Several studies have shown that performance tends to slow down after a fund closes. 'Obviously, when a sector heats up and there are fewer bargains in it, the funds that invest in that sector are going to have a harder time' explains Mario Gabelli of the Gabelli Funds. In the end, because a closing is a pro-investor move, existing shareholders shouldn't fear it. (Charles Jaffe, Boston Globe 6-16) Quick Facts, Stats & Opinions The trade bill that passed the Senate is full of side deals that are protectionist. This follows 30% steel tariffs, lumber tariffs against Canada and a farm bill that raises price supports by more than 50%. At the beginning of the last century, the average tariff was 20%. By the year 2000, it was just 2.5%. Now tariffs are headed back up. "In every Economics 101 textbook, a tariff on steel is shown as an example of poor public policy," says San Diego supply-side economist Arthur Laffer. (Don Bauder, San Diego Union-Tribune 6-30) A new report on retirement accounts by ICI said net cash flow into mutual funds in the accounts actually increased 18% 2001, to $140 billion, the third-highest inflow on record. But over all, the accounts lost 4% of their value. (Jeff Sommer, NY Times 6-30) Fund investors need to be careful about the natural desire to dump any manager caught holding a celebrity blowup. 'If you sell every fund that has a problem stock, you won't end up with better funds, just with funds that are better at window dressing,' says Russ Kinnel, director of fund analysis at Morningstar. (Charles Jaffe, Boston Globe 6-30) AARP looked at families headed by folks age 62 to 74. As of 1998, the median wealth for these families was $148,100, figured in 1999 dollars. Things are especially rough on the economic ladder's lower rungs. The poorest 25%, based on family income, had just $27,900 in assets, which means these families are almost totally dependent on Social Security retirement benefits. (Jonathan Clements, WSJ 6-30) So far, 26 of the S&P 500 companies have reported results for the second quarter. Nineteen of those topped Wall Street's expectations. Two missed and five matched. Thomson/First Call expects that'll be the pattern this quarter, a potentially good sign for stocks, as earnings ultimately drive prices. (Jeff Opdyke, WSJ 6-27) According to the 2002 Ariel Schwab Black Investor Survey, 74% of high-income blacks own stocks or stock mutual funds, thirty percent higher than the 1998 figure of 57%. In contrast, white stock ownership has remained statistically flat, moving from 81% to 84%, which narrows considerably the ownership gap between the two groups, according to the survey. (Pamela Yip, Dallas Morning News 6-24) "We're not low enough to not fall further if there is bad news," says a skeptical Michael Schoeck, Boston-based head of global active equities at State Street Global Advisors. "We're low enough to rise nicely on good news." (Silvia Ascarelli, 6-24) There are still 15,000 PC makers in the United States. Smaller computer companies have shown remarkable resilience amid the worldwide decline in the PC industry. (Steve Lohr, NY Times 6-24) A Reuters poll of 10 top brokerage strategists last week produced a median forecast that the Standard & Poor's 500 index would rise to 1,250 by year-end or sometime next year. That is scaled back from the last Reuters survey in March, when the mid-range forecast was 1,338. Even so, it would be a 9% gain from the S&P's 2001 close of 1,148 and would require a 26% rally from Friday's close of 989.14. (Reuters via LA Times 6-23) Edward Yardeni, investment strategist at Prudential, notes that the total of currency held by the public, plus cash in short-term accounts such as money market funds and bank savings deposits, reached $5.8 trillion in early June, up from about $4.5 trillion at the start of 2001. "Once the uncertainties that hang over the market dissipate, there's plenty of liquidity to fuel a rally in stocks," Yardeni said, assuming the economy remains in recovery mode. (Tom Petruno, LA Times 6-23) We continue to advise a 100% cash position. Make no mistake about it, we are in a bear market and things are going to get worse before they get better. (Dan Sullivan, The Chartist via Wash Post 6-23) With the Dow Theory in the bullish camp and the earnings environment improving, subscribers should be looking for opportunities. For now, our recommended cash position remains at 8%."Dow Theory Forecasts via Wash Post 6-23) Leila Heckman, head of global asset allocation at Salomon Smith Barney, makes a strong case for portfolio diversification. In a recent report to clients, she notes that while 1,164 U.S. companies have market capitalizations of $1 billion or more, there are 44% more, or 1,673, non-U.S. companies that fall into the big-boy category. If you want the pick-of-the-litter among the world's auto, chemical, oil and gas, pharmaceutical and pulp and paper companies, Dr. Heckman contends you've got to be willing to invest outside the U.S. (Michael Sesit, WSJ 6-21) In a California case this year, seven former managers at Gunderson Chevrolet, one of the largest Chevy dealerships in the country, were convicted of defrauding their customers. The most common scam: charging people as much as $6,000 for "theft etch," in which a number is etched on the car windows to deter theft and, if the car is later stolen, the owner is paid several thousand dollars. Cost to Gunderson? Only $37, according to Jeffrey McGrath, deputy DA in LA County. Gunderson is owned by AutoNation, the largest dealership chain in the U.S. (Karen Lundegaard, WSJ 6-20) Shaky equities are curbing the capital available to business executives, the group that is supposed to pick up the slack from consumers if the U.S. economy is to rebound conclusively. From the beginning of 2002 through Friday, companies had raised just $14.9 billion from IPOs, down 30% from the already-depressed level of last year's comparable period, according to Thomson Financial. (WSJ 6-17) Fallen angels, companies that lose investment-grade ratings, have been on the rise for six years, S&P said. So far this year, issuers with $47 billion of bonds have been cut to junk, a rating of BB-plus or lower, S&P said. Last year, a record 57 issuers with $107 billion of debt were cut to junk. S&P said 69 issuers worldwide now are one notch above junk and are on review for downgrade or have a negative credit outlook. (Reuters via LA Times 6-18) If you can get a handle on your life expectancy, you can make far savvier financial decisions. To that end, check out the longevity calculators you'll find at www.livingto100.com and the moneycentral.msn.com/retire/home.asp page. If either site suggests you will live to a ripe old age, you should be slower to spend down your retirement nest egg and you may want to buy an immediate annuity, thereby purchasing a stream of income you can't outlive. You may also want to delay Social Security. (Jonathan Clements, WSJ 6-16) Quick Tips The 'shortcut key' method of opening Favorites in IE Explorer - press Ctrl + I to open. To close the Favorites Explorer bar, just press Ctrl + I again. (Emazing 6-22) If you're away from your computer for a few days, you could find yourself with a full Outlook Express Inbox. One way to make a full Inbox less confusing is to tell Outlook Express to hide all the mail that you've already read. To do this, choose View/Current View/Hide Read Messages. Once you make this selection, all the already read mail will disappear from view. Your hidden messages aren't lost, however. All you have to do is choose View/Current View/Show All Messages to get them back again. (EMAZING 6-18) Home Page Previous Factoid Top Sites
|