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Pane said 18.3% of large-cap funds disappeared; 13.7% of mid-cap funds are gone and 14.3% of small-cap funds have been dissolved. When large-cap funds are broken down by style, S&P found that 11.2% of large-cap growth funds are gone; 23.6% of large-cap blend funds have been shut down; and 15.5% of large value funds have been shuttered. Among mid-cap and small-cap funds, blend funds show the least likelihood of longevity. Of mid-cap blend funds, 17.1% have shut their doors over the past five years, while 15.6% of small-cap blend funds are gone over the same time period. In addition, S&P found that only 36.8% of domestic equity funds remained true to their style over five years. S&P classifies funds into one of nine style boxes using returns-based style analysis. That analysis compares the historical performance of a fund to a series of index benchmarks to determine which one best describes the fund's actual returns. Of large-cap funds, 41.1% remained style consistent over five years, 22.9% of mid-cap funds were true to style and 37.4% of small-cap funds remained small-cap funds over the time period.
Two words to eliminate from your financial vocabulary: always and never" says Ian McAvity, who edits the Deliberations on World Markets newsletter. Always and never "imply an unforecastable period of time." To those who believe stock markets will always return 10% a year, McAvity says it may take a generation to revisit those lush fields of equity dreams. "The 1929 peak was finally exceeded in 1954," Gold bugs "are dreaming" about the old days when the precious metal reached its all-time high 23 years ago, he says, "while Japanese investors still haven't found a bottom 13 years after their bubble burst." "If you find yourself hoping to get back money you lost in the market, then you've hopped into the fire - get out," says Steve Hochberg, chief market analyst for Robert Prechter's Elliott Wave International. "In a bear market, hope is a four-letter word." "Learn to short sell and to cut losses short," says Joe Duarte, a Dallas fund manager, strategist and author of "Successful Energy Sector Investing." "Review portfolios at least on a weekly basis, and learn to get in the habit of selling what is not working." "Maybe you don't need your money working in the market every second," says Keenan Hauke, a hedge-fund manager at Longboat Global Advisors. "We were told to have our money working all the time, and it is causing problems. Even if you sit it out for a couple of years, that is not long in the lifespan of things."
Baseline screened companies that are in the S&P 500. Each company was assigned a score on a scale of zero to 100, with zero indicating that the dollar amount of "exclusions" from news releases was greater than net income and 100 meaning no exclusions. The scores were based on 12 quarters of earnings through September 2000. The conclusion: Companies with no news-release exclusions outperformed those with hefty exclusions. Over the 18 months beginning in October 2000, the 100 companies with no exclusions returned 23.3%, including reinvested dividends. The 24 companies with exclusions greater than net earnings posted total returns of negative 13.4%. The 358 companies that scored 75 or higher (meaning relatively few exclusions) had total returns of 14.8% in the 18 months after September 2000, compared with a 3.9% decline for the 39 companies that scored 25 or less (those with a lot of exclusions). [Tech companies tendency to use pro forma earnings could have skewed these results, given that the tech collapse happened during the study period.] Baseline also found that companies are stepping up the dollar amounts of excluded charges, relative to net earnings. In mid-2002, the number of companies with exclusions outweighing net income stood at 49, more than double the 23 in 2000.
But the model has had a poor record over the last 75 years in forecasting long-term returns, according to Clifford Asness, managing principal of AQR Capital Management. On average, Mr. Asness found, 10-year periods that began with high P/E ratios were followed by low returns over the decade. That was true whether interest rates were high or low at the beginning of those periods. Consider stocks' valuation at the end of 1964. The earnings yield of the S&P 500 was 5.4%, and the 10-year Treasury note yielded 4.2%. The Fed Model would interpret stocks' advantage of 1.2 percentage points as strong evidence of undervaluation. Yet over the next 10 years, the S&P's annualized return, after inflation, was minus 3.9%. The Fed Model would interpret the current stock market as being about as undervalued as it would have in 1964. But Mr. Asness's research gives us no reason to believe the market will perform any better over the next 10 years than it did after 1964. Why does the Fed Model fail? One shortcoming is that it does not take risk into account. Stocks must provide a higher long-term return than Treasury bonds in order to entice investors into incurring equities' greater risk. A higher earnings yield may not be evidence of undervaluation but instead may reflect nothing more than stocks' risk premium over bonds. A more subtle weakness of the Fed Model, according to another recent study, is its failure to account properly for inflation - an error that economists refer to as the "money illusion." The study (in the March 2002 issue of the Journal of Financial and Quantitative Analysis), by two finance professors, Jay Ritter of the University of Florida and Richard Warr of North Carolina State, has found that investors systematically price stocks too cheaply when inflation is high and place too rich a valuation on them when inflation is low. The professors said investors erroneously assume that nominal earnings will not grow faster when inflation rises, which means that they think real earnings will grow at a slower rate. If that assumption were accurate, stock prices would come down as inflation worsened. But the professors say nominal earnings historically have grown faster when inflation is rising, keeping the growth rate of real earnings more or less constant.
Omega takes into account all information readily available from historic investment returns data. As such, it is comparable across investment classes and can be used to rank potential investments in a manner specific to the threshold level determined by the decision-maker. Omega decisions are not static in at least two ways: (1) as returns information is updated, the probability distribution will change and Omega likewise will be updated; and (2) as an investor's desirable threshold level changes, the rankings among comparative investments may change. The second point is interesting in that Omega allows the decision-maker to visualize the trade-off between risk and return at differing threshold levels for various investment choices. OMEGA VERSUS OTHER STATISTICS How does Omega compare with rankings resulting from more commonly and traditionally used risk statistics? Utilizing returns data on several different investments yields the results shown in the table below. The investments are listed in descending order according to annualized returns. The result traditionally considered 'best' among the listed investments for each subsequent statistic is displayed in boldface type. The threshold level is denoted by the variable 'L'.
Annualized Return: Geometric average, based upon compounded net monthly returns. Standard Deviation: Annualized deviation, based upon net monthly returns. Maximum Drawdown: Largest compounded loss sustained during investment time period, including temporary gains, based upon net monthly returns. Sharpe Ratio: Annualized return less 3-month Treasury return, divided by standard deviation. (Sharpe Ratio in example above set Risk Free return = 3 Mo. T-Bill) Sharpe ratios are calculated with numerators determined by return less the risk-free interest rate, and standard deviation (volatility) of returns in the denominator. Annual Alpha: Expected rate of return when S&P 500 Index equals zero as determined from the regression line resulting from using the S&P 500 Index as the independent variable, based upon net monthly returns and annualized by multiplying by 12. Beta: Slope of the regression line determined by using the S&P 500 Index as the independent variable, based upon net monthly returns. Of the statistics listed above, only two, the Sharpe ratio and Omega, reflect information about both return and risk: simply, the Sharpe ratio is excess return per unit of volatility and Omega is the probability of returns at or above a desired threshold level. [Note: In a paper by Keating and Shadwick, they describe Omega as being a Sharper ratio.] It is interesting to note that at a threshold level equal to 0.0%, Omega and Sharpe rankings of investment alternatives as displayed above are similar for the first two positions (the fund of hedge funds and bonds, respectively), but the rankings differ for the remaining equity indices. Because the Sharpe ratio is calculated from returns data that has been averaged or annualized, the resulting ranking of investment alternatives does not include higher levels of information specific to the shape of the distribution of the underlying returns data. It is reasonable, there-fore, to conclude that the observed differences in rankings are due to the higher levels of information contained within the calculation of the Omega statistic. Omega's relative simplicity of calculation coupled with its more complete representation of the properties of an investment's true distribution of returns appears to yield a potentially significant source of information for more fully understanding the risk/reward scenario encapsulated within an investment's historic returns. Additional articles on Omega can be found at www.iamgroup.ca/eduCentre/articles/ Omega-Beyond%20Sharpe.pdf and cwis.livjm.ac.uk/bus/cibef/ffmpapers/ffm1.pdf. Both are by Keating and Shadwick, rich in formulas and graphs, and not too informative to the casual mathematician.
Since 1925, the median dividend yield on stocks in the Standard & Poor's 500-stock index was 4.1%, according to Ibbotson Associates. The median payout ratio -- the portion of profits paid out to investors in the form of dividends - was 54.6%. Today, the dividend yield for the S&P 500 index is 1% and the payout ratio is 32.8%. Dividends do represent a big chunk of money to investors. The IRS estimates that in 2000, the last year for which data are available, investors declared $142 billion in dividend income, compared with $185 billion in interest income. Double Taxation of Dividends Jerry Knight, Washington Post 12-16 [For every $100 in company profits, the government will claim roughly $35 in corporate taxes, leaving $65. If that $65 paid in dividends to someone in the 38.6% bracket, then the investor winds up with $39.91. Even if the investor is in the 28% bracket, the investor winds up with $46.80. So over 50% of every dividend dollar paid to investors holding stocks in non-tax-deferred accounts end up if the federal governments hands. So it is easy to make the case that dividends are over-taxed.] As a tax reform, the elimination of double taxation of dividends has wide bipartisan appeal. The last big push for it came from President Jimmy Carter. At that time, business groups were lobbying for a whole basket of tax cuts. When Congress told them they couldn't have everything they wanted, business lobbyists dropped the dividend issue. The interests of the companies took priority over the interests of shareholders. [There is a good chance history will repeat itself.] [From Mike Robbins, MSN Money 12-13: The Democrats might line up against the dividend tax reduction, since the biggest investors - and hence the biggest beneficiaries of investment tax cuts - tend to be the rich. And Republicans won't spend a portion of their political capital on an issue that most Americans don't even realize is an issue.] Nobody's counting on Congress to totally eliminate double taxation. That would cost too much, cutting government revenue by at least $25 billion this year [if given to investors] and maybe twice that much [if given to corporations]. [And it is the issue of 'who to give the tax break to' that complicates the issue to such an extent that reform is unlikely.] What the Economy Needs There are three reasons to cut taxes: to stimulate the economy, to reform the tax system, and to cut tax revenue so the government has less money to spend. If stimulating the economy is the goal, then giving corporations a tax deduction for dividends is most effective, because it directly increases corporate profits, giving them more money to spend. [Profit growth correlates to job growth.] If the tax cut went to investors, much of the tax cut would go to wealthy investors, who economists say are unlikely to go out and spend the money they save in taxes. Cutting taxes on investors is also inefficient because roughly half of all corporate dividends are paid to pension funds, retirement accounts and others that don't pay taxes anyway. And if taxes on dividends are cut next year, most taxpayers won't notice until they prepare their 2003 taxes in April of 2004. That lag delays whatever stimulus effect there may be. What the Politician's Want Allowing companies to deduct dividend payouts from corporate income eliminates one of the two taxes. But that gives the benefit to corporations, rather than individuals, which makes it less appealing politically. And curing the problem at the corporate level would double the revenue loss to $50 billion a year. What's more likely is that Congress will attack the issue at the taxpayer level, either by exempting some dividends from taxes, reducing the tax rate on dividends or giving investors a credit for the tax already paid by corporations on the dividends they receive. Exempting some dividends from taxation has problems already stated above. Giving individual investors a credit for the corporate taxes already paid on their dividends gets complicated in a hurry. [Who wants a reform that make the tax code even more difficult?] One suggestion is to make the tax on dividends the same as the rate on long-term capital gains - equalizing the taxes on the two forms of stock profit. But taxing capital gains and dividends at the same rate doesn't really equalize the appeal of the two forms of stock market profit. Even if dividends are taxed at capital-gain rates, you still have the issue that capital gains are preferred because the taxes are deferred. And taxing dividends and capital gains at the same rate doesn't eliminate "double taxation," either, it just reduces it. Related articles: High Dividends Are a Predictor of Growth - Mark Hulbert, NY Times, Dividends vs Capital Gains - Scott Burns, Dallas Morning News Praising Dividends - Clements, WSJ / Dividend Pay-out is Unsustainable - Lazo, Barrons.
In mutual funds, they have grown accustomed to thinking in terms of momentum investing, fully invested stock funds, rising benchmark indexes - the great performance chase. Imagine how radically that mindset might be altered in a grinding post-bubble environment with big trading swings. Much conjecture has already focused on a resurgent enthusiasm for dividends, which were little more than an afterthought in the 1990s. That's just one possibility. Momentum investing, which emphasizes looking for further gains from top-performing companies and stocks, could take a back seat to a revived interest in contrarian strategies, which go against the flow. The patience of many people who call themselves buy-and- holders would be put to a new test, challenging current dogma on such matters as the virtues of low portfolio turnover. Absent much capital appreciation, it's often suggested that mutual-fund investors will get more cost-conscious. That, in theory at least, should cast a favorable light on index funds, which tend to have lower fees than managed funds. Then again, maybe not. The great love affair with index funds in the late '90s blossomed as the Standard & Poor's 500 Index posted 20 percent gains or better for five straight years. If the indexes aren't going anywhere, the urge to invest in them could also languish. Investors have already begun paying increased attention to dividends, which naturally loom large in churning markets. From mid-1968 to mid-1982, Bloomberg data show, the Standard & Poor's 500 Index averaged a 5 percent annual gain, nine-tenths of which came from dividends. The Dow Jones Industrial Average actually declined slightly over those 14 years, if you don't count dividends that gave it a 4.1 percent-per-year total return. In hindsight, those years now can be seen as a great time to have been accumulating stock investments for the bull market that was about to begin. A new back-and-forth market could present a similar opportunity for far-sighted investors. To take advantage of that, though, may demand a lot of patience and the will to withstand the repeated discouragements of an entrenched trading range. A Long Flat Spell Michael Kahn, Barrons 12-16 Tired of waiting for a clear trend in the stock market? Get used to it. If an emerging pattern continues, the major indexes could be in for 15 years of bouncing around. That's right, 15 years. Since World War II, the market has seen an 18-year rally, followed by an 18-year flat period, followed by another 18-year rally - the one ending in 2000. That means we could be about three years into the next 18-year flat spell, albeit one that started with a precipitous drop. Although the tools of technical analysis indicate that the market may have hit a bottom, the case for a sustained rise is not yet complete. Indeed, the market may not be going anywhere for quite a while. The oft-mentioned double-bottom, or "W," pattern - where a new low is established and then tested several weeks later - has turned up in the Dow and, more firmly, in the S&P 500. The lows were established in July and tested in October, suggesting the possible existence of a floor. Volume surged on Oct. 10 as the market made its big turn upward. But, in a blow to the bullish case, volume didn't build further as prices climbed for the next two months. Rising volume would have signaled that investors were accepting the shift in the price trend, embracing the "Buy now before it's too late" idea. The more volume, the stronger the urgency to buy. One thing is clear: the strategy of buying and holding for the long term has lost some luster. It didn't work in the 1970s, and it probably won't work now.
To reach this counter-intuitive conclusion, the professors focused on those geopolitical events of the past 50 years that they thought would be most likely to cause the stock market to rise or fall. They started by taking entries in the "Chronology of Important World Events" from the World Almanac for the period beginning with Pearl Harbor and ending with the 1987 Crash. They then eliminated from their list any events that the NY Times did not carry as a lead story and that the Times' Business Section did not report as having affected investors. The result was a list of 49 distinct events, such as Pearl Harbor, the Korean War, Kennedy's assassination, and so forth. Guess how much the stock market moved in the wake of these events? Believe it or not, the average absolute return of the S&P 500 index on these days was just 1.46%. Because the average on all other days between 1941 and 1987 was 0.56%, the professors concluded that the biggest non-economic news events over this period added an average of less than 1% to the market's one-day volatility. To confirm that their result was not a fluke, the professors approached the subject in an entirely different way. This time, they looked to see if geopolitical events could help account for the market's behavior on any of the 50 days between 1945 and 1987 that had the largest percentage changes. In many cases they could not. Indeed, they noted that "on several of these days, the NY Times actually reported that there were no apparent explanations for the market's rise or decline." This study doesn't mean that the stock market is completely irrational or unpredictable. But it is a reality check on our attempts to forecast how the stock market will react to a war with Iraq. War, What's it Good For? Paul Farrell, CBS.MarketWatch 12-10 How much will the war cost? It depends on how long the war takes. But who can comprehend estimates between $600 billion and $2 trillion? Including reconstruction costs and fighting terrorist retaliations in other locations. That's about $2,000 to $6,000 per American. Unfortunately, the cost is not registering. The truth is that psychologically, America is tired of bad news. We've had enough of this rotten three-year bear market. We're ready for a recovery. Good news is really all we want to hear, so we tune out the bad news that just may push us back into a recession and a historic fourth year of a bear market. In his latest book, "Wealth & Democracy," Kevin Phillips [author of 25 books since working as President Nixon's chief strategist] warns that America is on the verge of repeating some bad history. Over the centuries, Phillips says, most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out. I hope he's wrong. But he could be right.
Chris Tilly, who teaches at the University of Massachusetts in Lowell, interviewed low-wage employers for a recent book on the job market. He found that 'Employers really love immigrants. They like the fact that they show up, work hard, and don't complain a lot.' Immigrants have the benefit of well-established networks. Many are brought to this country by friends and relatives who, in turn, recommend them to employers. Assuming the first immigrants on the job do well, employers are only too happy to hire the next friend or relative who comes through the door. For African-American dropouts, the barriers to working are considerable. Harry Holzer points to two critical barriers: criminal records and fathering children out of wedlock. Even though crime rates have come down, said Holzer, a professor at Georgetown University, many young black dropouts have criminal records that make them difficult, if not impossible, to employ. Those who have fathered children can be penalized by the child welfare system. Specifically, if they show up in a mainstream job, their wages can be attached by the government. If the dropout rate were miniscule, the plight of African-American dropouts would be worrisome, but manageable. In fact, in big cities with large black populations such as Philadelphia and Chicago, dropout rates can be as high as 50 percent. You don't need a doctorate in public policy to figure out that someone should be paying attention to these kids. In the current climate, however, not many people are. At a time when the slogan 'No child left behind' is the mantra for the education system, maybe we need to expand our definition of 'child.'
At IBM, the company plans to contribute $3 billion, split evenly between cash and common stock, by year-end. Based on IBM's assumed rate of return of 8.5% on its pension assets, that contribution would yield a $255 million ($3 billion multiplied by 8.5%) decrease in pension expense next year. That, in turn, would translate to an equal increase in operating income next year over what IBM would have earned without having made the contribution. More important, the entire benefit counts as a reduction of operating expense, creating the appearance of a fundamental improvement in the business's performance. The irony is that as resources are diverted from shareholders, creditors or reinvestment opportunities toward paying out future retiree benefits, the company gets to show improved earnings. The size of this boost to future earnings depends on how much companies contribute to their underfunded pension plans, multiplied by the rate of returns they project. On the former matter, 21 major corporations will contribute a total of $32 billion in the next few years to their pension plans, according to a recent survey by Pensions & Investments, an industry periodical. Of that, $7.6 billion will be added by yearend, the publication reported (prior to IBM's announcement). So how big will be the impact of pension-fund contributions on earnings? Chuck Hill, director of research at Thomson First Call, estimates that they will add 29 cents a share to the average 2003 analysts' estimate of $55.39 for the companies in the S&P 500. More Pension Stats Allan Sloan, Washington Post 12-3 Pension funds have lost money for three straight years because stock prices have fallen so sharply. Now the bill is coming due. Trevor Harris, chief accounting analyst at Morgan Stanley, estimates that the 360 of the S&P 500 companies that still have "defined benefit" pension plans will have aggregate pension deficits of $240 billion at the end of this year. That's compared with a slight surplus at the end of last year, and a $263 billion surplus at the end of 2000. I'm not trying to scare you. The world is ending. In the early 1980s many companies had pension problems far worse than those facing most corporations today. But what today's shortfalls mean is that lots of companies feel compelled to do something about their plans. In earlier, 'something' would consist of putting more money or company stock into pension plans. And some companies are doing that. But I suspect many companies that have pension shortfalls will try to shift pension risk away from themselves to their employees. I don't think that corporations are going to default on pension obligations en masse. Even if some default, the federal agency that insures pensions covers most workers' benefits up to about $43,000 a year. But it just feels creepy to contemplate taking on more retirement risk when accounts have been clobbered so badly. Related articles: Funding Pension Plans - Scott Burns, Dallas Morning News, Move Pension Reporting Out of the Dark - G Morgenson, NY Times / Others, Pensions & Company Income, Jim Jubak, MSN, Pensions Stats - WSJ / FRB
The burden of dependents - both old and young - for each U.S. worker peaked in 1965, says Gary Burtless, co-editor of "Aging Societies: The Global Dimension". Today it's only half that level. In 1965, there were far more children. There were 95 Americans either under age 20 or over age 64 for every 100 working-age adults. That's nearly one worker per dependent. These numbers suggest that the solution for Americans is to take the savings from having fewer children and apply them to retirement. "We can afford to continue retiring at the age we're retiring, if we want to devote more of our income before we retire to supporting ourselves after we retire," Mr. Burtless said.
While social funds have proven to be a viable alternative in the investment world, there is no denying that many carry above-average expense ratios, which dampen returns. Moreover, the fact that social funds remain a small segment of the industry shows that a large chunk of the public hasn't rushed off to invest its conscience. In practice, a more social agenda could now be forced on those investors. If a labor union is pressing funds to disclose proxies, it is reasonable to assume the same union might pressure the fund to vote a certain way in the future, or to abandon stocks that the union has contract issues with. From there, it's a small step to assume that other public-interest groups could get involved, so that a group representing retirees or a conservative religious organization might pillory a fund for the way in which it votes proxies. The leverage these groups have is fairly simple: threats of boycotts, movement of monies and other pressures that fund firms have no choice but to take seriously once the dollars involved get big enough. It leaves fund companies vulnerable to the same economic conflict of interest it has in voting proxies today when there's no disclosure, except that the pressure is coming from the other side of the ballot box. SEC Moves to Widen Disclosure Ian McDonald, WSJ 12-12 In an open meeting Wednesday, three SEC commissioners and Mr. Pitt voted in favor of redrafting decades-old rules governing how, and how often, mutual funds disclose fund holdings and other data to their shareholders. The proposed amendments, part of the SEC's effort to enhance transparency on Wall Street, would require mutual funds to report their full holdings quarterly, with a 60-day lag, to the SEC. For more than 50 years funds have only had to share that information with regulators and shareholders twice each year in shareholder reports that also had a 60-day lag. In addition, shareholder reports would have to include actual fees in dollars paid over the past six months by a hypothetical $10,000 account, according to the SEC's amendments. Annual shareholder reports would also have to feature a discussion and explanation of the fund's recent performance - funds are allowed to list this in a fund's prospectus today though few do so. Rather than offer a complete list of holdings, funds will be allowed to summarize their positions, listing their top-fifty holdings and all positions that comprise more than 1% of assets. The proposal does mandate that funds provide shareholders with their most recent full-holdings report upon request, and without charge, within three days. After a comment period, which will last 30 days but won't start until the proposal is added to the Federal Register in the coming days, the SEC will likely take several weeks or months to review comments from individuals and fund companies before deciding when and how to implement the amendments. Since the 1970s fund firms have reported their firm-wide holdings to the SEC quarterly with just a 45-day lag. In terms of expense, the SEC found that filing holdings electronically with the SEC and altering shareholder reports would cost about $15 million industry-wide. Demand for the services of Morningstar and other fund trackers among investors and financial advisers demonstrate a demand for portfolio data, the SEC staffers concluded. By slimming down the shareholder reports significantly, regulators are offering fund companies a significant carrot. Summarizing holdings data can shave more than 20 pages off a large index fund's shareholder report, SEC staffers noted. The end result might be lower expense ratio for fund shareholders. Related article: More Fund Disclosure Coming Soon - Charles Jaffe, Boston Globe
Virtually all [94%] of the 200 employers studied by Hewitt said they were seeking ways to better educate employees on their investment planning. And 82% said they planned to offer objective, third-party investment advice for their employees; more than half of those said they wanted online advice for employees, while others said they'd offer asset allocation advice. More than 60% of the employers said they were concerned about reducing their risk of liability and lawsuits related to their retirement plans. The notion of simplifying investment options has fallen out of fashion, Hewitt found. Sixty-three percent of the companies indicated that they would maintain their current number of investment choices, while one-third said they planned to increase the choices. [From Hewitt Press Release 12-4: Given the difficult economic and market environment, plan sponsors cite finding ways to decrease total plan costs as a key 2003 priority. Nearly three-quarters (74%) of employers agree that finding ways to decrease total plan costs is a priority. ]
Citing an earnings picture that he felt did not justify recent market gains, Merrill Lynch's respected chief U.S. equity strategist, Richard Bernstein recommended that investors reduce stock holdings to 45 from 50% of their assets and raise bond holdings to 35 from 30%. Bernstein said, in a report e-mailed to investors, that the remaining 20% of assets should be held in cash. He predicted that the S&P's 500-stock index will fall 8%, to 860, over the next 12 months. Christopher J. Wolfe, head of equity market strategy for J.P. Morgan's private banking business and one of the people charged with deciding J.P. Morgan's asset-allocation recommendations, sees things differently. J.P. Morgan yesterday issued a report recommending that investors increase equity holdings to 47 from 45% and lower their proportion of bonds to 53 from 55%. Wolfe said J.P. Morgan's views are rooted in the belief that interest rates, which are near 40-year lows, may be set to rebound. Wolfe's outlook for the economy is also more positive than Bernstein's.
Among individual investors polled by Gallup in November, only 50% thought it would be profitable to invest in stocks. About 59% said they think bonds are a more favorable investment than stocks. According to the November Gallup poll, people with five years or less of experience as investors think their portfolio will increase 15% in value over the next 12 months. About 70% of poll respondents say investors are skeptical because of corporations' questionable accounting practices, and 36% distrust investment advice because of conflicts of interest within securities firms. Investment Adviser Sentiment Mark Hulbert, CBS.MarketWatch 12-4 Investment advisers are more bullish today than they have been in nearly a year. In fact, their current bullishness is within shouting distance of setting a new record. The Hulbert Stock Newsletter Sentiment Index, which measures the average recommended stock market exposure among the investment advisory newsletters tracked by the Hulbert Financial Digest, stood at 62.8% as of Tuesday's close. At the late July market lows, in contrast, the HSSI stood at -15.1%. The last time the HSSI was as high as it is today was in early January, when the Dow was trading around 10,200. There have been 59 days on which the HSSI has been as high or higher than its current reading of 62.8%. The Dow declined over the weeks and months following each of these 59 occasions. If the stock market lives up to this historical pattern, the Dow will be trading at around 8,542 in early March of 2003. [From a Hulbert update on 12-12] The Hulbert Stock Newsletter Sentiment Index has dropped precipitously over the past six trading sessions. This is a short-term bright spot within an otherwise bleak sentiment picture. As of the close of trading on Wednesday, the HSNSI stood at 43.4%. It was as high as 62.8% as recently as Dec. 3.
In fact, the degree to which stocks and Treasuries have been moving in opposition to each other these days is extreme by historical standards. Robin Carpenter, who runs Carpenter Analytix in Hanover, N.H., calculates that the daily divergences in the two asset classes - expressed statistically as a measure of "negative beta" - have rarely been as pronounced as they are now, at least not since the mid-'80s. On a conceptual level, that wouldn't seem to be very worrisome for stock investors, given that Treasury bonds tend to react negatively to signs of strong economic growth. But Carpenter has found that in periods when stock and bond returns move in opposite directions, subsequent performance of stocks has been poor. Consider, for one thing, that the entire 'Nineties bull market - except for brief periods of financial crisis - happened while stocks and bonds were positively correlated. Over the past decade, he reports, on days when the two markets have diverged, returns for stocks over the ensuing three months were negative compared with an average three-month gain of 3% following all other days. When the markets have been as greatly at odds as they have lately, the underperformance of stocks has been even more. Carpenter hypothesizes that in these times, "unfolding events are not seen as mutually supportive of both classes" and "stock rallies are being funded from bonds and bond rallies funded from stocks," rather than by fresh new investments. It may be the case that the current environment simply represents an unwinding of an extreme condition of misvaluation of both markets that hasn't occurred in the recent past. Still, whatever the cause or conclusions drawn, perhaps continued weakness in the bond market shouldn't necessarily be on stock investors' wish list.
The result, with the Dow up 22% and the S&P up about 21% from their latest low readings, is that the market sits just about where it was at that point in the summer when the double-dip anxiety struck hard. The Dow is 6.5% below its August peak and the S&P less than 3% from its own. The risk implicit in this situation is the one that existed back at the August high. That is, investors now have a market that's not valued particularly cheaply and stands vulnerable to any weakening of the consensus of cautious economic optimism. The willingness of market players to continue bidding stocks higher as the broader indexes near those former levels - without stopping to harvest recent winnings - remains unproven for now. Related article: Double Dips vs Soft Patches - Donald Ratajczak, AJC
Other historians before DiLorenzo have already shown the Great Emancipator was never very interested in abolishing slavery. What "The Real Lincoln" adds to the story is that he did work tirelessly for a cause. Inspired by his hero and mentor, Whig Party leader Henry Clay, Lincoln believed that the way to promote the common good was through a strong centralized government that maintained high tariff barriers, controlled the nation's money supply, and subsidized corporations engaged in "internal improvement" projects like the building of the transcontinental railroad. So it was hardly surprising that Lincoln's devotion to the ideal of "Union," a word he always began with a capital letter, was the only reason he ever cited for his decision to oppose by force the southern states' attempt to secede. "My paramount objective in this struggle is to save the Union," he wrote in 1862, "and ... if I could save the Union without freeing any slave I would do it." DiLorenzo suggests that the key reason the southern states seceded was to get out from under the very same economic policies Lincoln stood for, which had been hurting their own economies for decades. The tariffs already in place protected northern industries, not southern. Lincoln's own justification for tariffs was an odd variation of the worthless-middleman myth. In his view, allowing imports into the country made things more expensive because so much was wasted on the "useless labor" of transporting the goods from abroad. To which DiLorenzo makes the obvious point that by this logic, Lincoln should have advised Chicago about all the useless labor that could be saved by prohibiting imports from Springfield. DiLorenzo grants that the abolition of slavery was "the one unequivocal good that came of Lincoln's war." But on Lincoln's watch, the U.S. became virtually the only nation in the world that could not end slavery peacefully. Here DiLorenzo argues a counterfactual that I find convincing. Dozens of countries, including the British Empire, had already ended slavery through "compensated emancipation" - buying them back from the slaveholders. With all his legendary political skills, and with just a portion of the money he spent on waging the most destructive war in history up to that time, Lincoln could have done the same.
Meanwhile, funds with front-end loads produced an average annual return between 1996 and 2001 of just 7.6% (or three points less than the S&P!) and a mere 5.5% after taxes. But forget taxes. Just look at returns - price appreciation plus dividends minus expenses. For the 10 years that ended last December, the average fund returned 11.4% while the S&P returned 12.9%. What's shocking is that even before expenses, the average fund did worse than the index over the past five years and 10 years. In 11 of the past 15 years, the S&P index outperformed a majority of U.S. diversified equity funds. In five of the 15 years, less than one-fourth of the funds beat the S&P. Over the past 10 years, only 194 funds - out of a total of 654 - beat the S&P. The proportion of index-beaters - just 29.7% - is actually exaggerated because of what's called "survivor bias". Figures like these make investors wonder why they should put any money at all into "managed" mutual funds -- that is, funds that are run by real human beings, who charge an average of about 1.4 percentage points in expenses (again, not counting sales costs). Instead, why not simply invest in a fund like Vanguard Index 500 (VFINX), a mutual fund that owns all the stocks in the S&P 500 index itself and, since it requires no highly paid manager, charges annual expenses of just 18 basis points (that is, less than one-fifth of a percentage point)? If the difference between 1.4% and 0.18% doesn't sound like much, take a look at the fund cost calculator at the SEC web site. I started with a hypothetical $10,000 and figured it would be invested for 30 years, achieving gross returns (before expenses) of 11% (roughly the market average for the past three-quarters of a century). Plugging in those numbers, I discovered that, for the fund charging 1.4%, the $10,000 would grow to $149,967. That sounds awfully good -- except that the SEC calculator found that total costs over the period were $78,956, which is more than eight times your original investment and 34% of the gross returns of the fund. Imagine this advertising slogan: "Invest With Us Long-Term. We'll Take One-Third of Your Account as Our Fee." For comparison, I assumed the same return for an index fund charging expenses of 0.18%. In this case, the $10,000 grows to $216,878, with expenses of only $12,045. Such a fund puts an extra $67,000 in your pocket (45% more) over 30 years. More on Indexing James Glassman, Washington Post 12-8 Warren Buffett wrote in the 1993 annual report of Berkshire Hathaway, that by "investing in an index fund, the know-nothing investor can actually outperform most investment professionals." He added: "Paradoxically, when 'dumb' money acknowledges its limitations, it ceases to be dumb." Since June 27, 1973, the date Growth Stock Outlook editor Charles Allmon started publishing a model portfolio, the Wilshire 5000 index has returned 2,322% while the S&P 500 has returned 2,247%. In other words, over 28 and 1/2 years, these two portfolios - one currently comprising more than 6,500 stocks; the other just 500 -- have produced almost precisely the same gains. Start with $10,000 in 1973, and you would have $242,220 with the Wilshire and $232,470 with the S&P - a difference of just 4%. Over time, as the title of a Flannery O'Connor book puts it, "Everything that rises must converge." As of Wednesday, the five largest U.S. companies by market cap were, in order, Microsoft, General Electric, Wal-Mart, Exxon Mobil and Pfizer. Together, their capitalization was about $1.2 trillion, compared with a total capitalization of $9 trillion for all the Wilshire 5000 stocks. At last report, the total market cap of the S&P was $8.5 trillion - or more than 90% of the market cap of the Wilshire. The S&P is more concentrated than the Wilshire: Its top five holdings recently represented 14.4% of total assets, compared with 11.8% for the Wilshire. The key to deciding which index fund to buy is the expense ratio: How much is the managing firm putting into its pocket? In the case of Vanguard's Wilshire fund, the answer is 0.2 percent - that is, 20 basis points, or one-fifth of 1 percent. Vanguard's S&P 500 fund charges only 18 basis points, rock-bottom. By contrast, the T. Rowe Price Equity Index 500 fund (PREIX, which also tracks the S&P) charges 35 basis points. Wilshire Associates has its own total-market fund, Wilshire 5000 Index Portfolio (WFIVX), charging 60 basis points. If that sounds high, remember that the average managed fund charges 140. Related articles: Indexing For the Long Haul - Scott Burns, Dallas Morning News, Defending Indexing - Clements, WSJ / Jaffe, Boston Globe, Passive Investing - Burns, Dallas Morning News, The 'Right' Index is No Longer the S&P 500 - Santoli, Barrons / Blake, Institutional Investor
Demographics are the most important factor in determining long-term market trends, according to the professors, who believe that individual investment behavior largely depends on age-related patterns. Younger adults, those from 20 to 39, are generally consumers. Middle-aged people, 40 to 59, tend to invest in stocks. Retirees are likely to sell more stocks than they buy. Market performance is strongly affected by the relative numbers of people in each of these three life stages, the professors say. When more people are entering middle age than retiring, for example, the market tends to rise because more people will be buying than selling. If the next generation of investors is smaller, the trend will reverse when the middle-aged investors retire. The model predicts that the market, after inflation, will lose more than half its value through 2018. As the first baby boomers approached middle age in 1985 and began investing heavily, stocks entered a multiyear bull market.That trend is reversing, according to the model, which predicts that the market has entered a long decline caused by baby boomers selling stocks as they approach retirement. Critics have been skeptical that the model will apply to other periods or countries as it has to American history. Professor Magill is using it to study Japan, and so far it appears to hold up well. The model suggests that much of the long-running bear market there can be explained by the high ratio of retirees to middle-aged people.
Foremost among European investor concerns is that despite signs of a U.S. economic recovery, share prices in the U.S. still look expensive compared with those in much of Europe and Asia. Europeans, like many investors around the world, also think that the dollar is due to fall. A Merrill Lynch November survey of 286 fund managers world-wide found that nearly half think the U.S. currency is overvalued, compared with only 14% who believe the euro is overvalued.
A: The insurance companies here are too heavily invested in equities. Likewise, a number of pension funds have become substantially underfunded, and they have had to move out of equities and into cash and bonds. They are such big investors that when they sell, they take the rest of the market down with them. The other big problem is that European markets, outside of Britain, are still very illiquid, so sell orders can have a disproportionate effect. When the U.S. goes down 1%, Europe drops 3%. Q: Is the recent upswing in European stock markets sustainable? A: European shares are the cheapest they've been in the last two decades, trading at about nine times 2003 cash flow, compared with 12 times in the U.S. Q: What will it take to convince retail investors to start buying again? A: The market will have to go up a further 30% to 40% for people to go back in again. So many investors, especially in Europe, have lost so much money that they may never invest again. For many Europeans, this was their first experience in the stock market. But at the end of the day, the small investor isn't moving the market. It's what the big insurers, pension funds, and hedge funds do. More on Europe Gene Epstein Barrons 11-25 In the year ending in the third quarter, GDP in the U.S. rose at 3% annual rate; in Germany by 0.4%. For Euroland as a whole, the most recent data available show annualized growth at 0.7% through the second quarter. And yet, despite this wretched performance, on Wednesday the German government announced substantial tax increases. Since you'd have to hail from the Darth Vader School of Economic Policy to want to hike taxes when the economy is hurting, the real aim is to appease the codicils of the galaxy's Growth and Stability Pact, which require that each member nation in the EMU cap its fiscal deficit at 3% of GDP. As noted, Germany's deficit is running well above that, which means the government must spend less or tax more to close the gap. "This is a prescription for catastrophe," remarks High Frequency Economics chief economist Carl Weinberg, "that will help ensure subpar economic growth in the core of Euroland." The European Central Bank is currently maintaining the short-term interest rate at 3.25%, compared to 1.25% in the U.S. The ECB could pursue a more growth-oriented monetary policy if only the seven member states with inflation rates above the ECB's 2% target for price stability would rein in their prices, a point of growing resentment for low-inflation states like France and Germany. When it comes to the dismal performance of the equity markets, for every percentage point lost by the U.S. stock market this year, the German market has shed two. Low UK Risk Premium Signals a 'Buy' Keith Johnson, WSJ 12-16 The equity risk premium, in theory, can help indicate which stock markets in the world are ripe for the picking, and which still have room to fall. On that basis, analysts say, the U.S. market still looks pricey, Europe as a whole looks fairly valued, and the United Kingdom looks like a good buy. Andrew Clare, a financial economist at Legal & General Investment Management in London, calculates a risk premium of 4% for the FTSE 100. James Montier, Global Equity Strategist with Dresdner Kleinwort Wasserstein in London, found the risk premium to be about 5.9%. That is on the high side by historical standards, and well above the 3% to 3.5% premium that he says most of his clients are demanding. What about the U.S.? Most analysts peg it around 2.5%. Risk premiums in the U.S. have averaged about 4.8% per year over the last century. That points to one of two conclusions: either earnings have to rise sharply, like they did in the late 1990s, or prices have to fall, if the risk premium is to settle toward its historical average. Just the Facts E-mail Infections According to a report from MessageLabs, an e-mail scanning firm, the number of e-mail infected with viruses nearly doubled from 2001 to 2002. Compared to one infected e-mail for every 389 in 2001, 2002 saw one infection per 215 e-mails. The Klez virus was the most active throughout the year, but its peak of one infection per 169 e-mails was well shy of the Bugbear virus's peak of one infection per 87 e-mails. Alex Shipp, senior antivirus technologist at MessageLabs, said much of the blame for the dramatic increase in infected e-mail rests with home users who do not have adequate protection on their systems.(ZDNet 12-16) E-mail Overload a Myth A new study from the Pew Internet and American Life Project finds that overwhelming levels of e-mail are quite atypical. In fact 60% of Americans who use e-mail at work receive 10 or fewer messages on an average day, the study released yesterday found. Only 6% receive more than 50. Only 11% say they feel overwhelmed by all the e-mail. Three-quarters of e-mail users at work spend an hour or less each day on e-mail. A quarter spend less than 15 minutes. The telephone-based survey of 2,447 Internet users, including 1,003 who use e-mail at work, was conducted April 9 to May 17. (AP, Boston Globe 12-9) Insider Selling Insiders will always be net sellers, and it is not usually a bearish signal. It is very common to see insiders selling, particularly flipping their options, after their stock has done terrifically well. That is a common pattern. There is an honest need to diversify assets. Insider selling after a stock has fallen a lot in price is a very bearish sign. (Jonathan Moreland, director of research at InsiderInsights.com, Kenneth Gilpen, NY Times 12-8) Emerging Market's Top Four The best-performing emerging stock market so far this year is Pakistan's, up 82.3%, Argentina, up 57.2%; Venezuela, 49.1%; and Colombia, 44.7%. Pakistan is in the middle of the war against terrorism. Argentina has had five presidents in the last year and is in its fourth year of recession. In Venezuela, President Hugo Ch vez was ousted temporarily earlier this year and faced strikes against his government last week. When these markets' gains, in local currencies, are translated back into dollars, they become losses of 56% for Argentina and 14.2% for Venezuela, up 18.6% for Columbia and up 2.7% for Pakistan. (Jonathan Fuerbringer, NY Times 12-8) A Clue to Saving on Home Insurance If you're buying a house, get a Clue. The Comprehensive Loss Underwriting Exchange is a shared industry repository containing 90% of the insurance claims made in the U.S. Insurers have used the database for years to assess the risk of individuals, and now they're using it to run background checks on homes. Owners of a home can get Clue reports instantly on the Web for $12.95 at choicetrust.com. But that's only after you own the home. Before you make an offer on a house, be sure to get the owner to supply one for you. Then run the claims history by an insurance agent to ensure that your new home isn't an insurance-premium time bomb. (Christopher Oster, WSJ 12-1) Historical Perspective Once upon a time, idealists imagined that America could have low interest rates, affordable energy, full employment without inflation and broad access to home ownership. Stocks, bonds and mutual funds, once the province of the rich, would become the domain of the middle class. The poor would be less dependent on welfare. Global trade would accelerate. We'd somehow learn to compete with the Japanese. And the men in the gray flannel suits would give way to casually attired workers of both sexes and many ethnicities. Seemed like a pipe dream, didn't it? How strange, then, that we have achieved all these things only to find ourselves surrounded by talk of a sour economy. (Daniel Akst, NY Times 12-1) Ancient History A platitude widely repeated nowadays is that "the markets almost never fall three years in a row." In fact, markets typically fall five years in a row, and they would have recently, except for those two extenuating circumstances. The market fell four years in a row from 1929-32 and 1939-42. The market did fall five years in a row in the 1966-82 cycle, in real but not nominal terms. The S&P (or its reconstructed equivalent) fell five years in a row from 1825-29 (inclusive). It fell seven years in a row from 1836-42, five years in a row from 1853-57, and five years in a row from 1873-77. The S&P fell four years in a row from 1881-84, five years in a row from 1892-96, and five years in a row from 1910-1914, and every one of these declines was part of a longer bear cycle. The British charts, covering the last four centuries, are peppered with five-year declines. Since most people don't know this ever happened, of course they don't think it can happen again. (James Kahn, ParkSouth Securities, Barrons 10-21) Quick Facts, Stats & Opinions A survey by International Communications Research conducted from 11-15 through 12-5 with 1,013 stock owners age 50 to 70, found that 77% of the investors surveyed said their holdings have dropped in value during the past two years, with 37% losing between 10% and 25% of their investments' value, and 25% losing between one-quarter and one-half of their holdings. Those losses have shaken up people's plans for their later years. At one time, 72% of the stockholders now postponing their retirement had expected to retire before age 65. Today, 67% expect to retire after age 65. (Kelly Greene, WSJ 12-17) So far this year, U.S. stock mutual funds have received only $7 billion in net new money, down from $59 billion at this point last year and $180 billion at this point in 2000, according to figures compiled by investment strategist Thomas McManus of Banc of America Securities. That's the lowest level of new money moving into stock funds in more than a decade. Investors in September and October took more money out of stock funds than they put in, according to the ICI. (E.S. Browning & Ianthe Dugan WSJ 12-16) Despite the lowest interest rates in 40 years, the debt-service costs per consumer as a percentage of disposable income, at over 13%, are near all-time highs, according to data from the Federal Reserve Board and Haver Analytics. (Henny Sender, WSJ 12-15) December traditionally has been the strongest, most consistently bullish month of the year. But a statistical wrinkle could mean this December is uncharacteristically weak. In more than half the 21 instances since 1897 when the Dow fell by 10% or more in the first 11 months of the year (it was down 11.2% this year) December was a weak month, according to new research by RiskMetrics Group. According to Ned Davis Research, the 74 Decembers when the Dow was up since 1900 have been up by an average of 1.5%, the best showing by far of any month, However, when the first 11 months of the year are weak, then December has averaged a mere 0.1 percentage-point gain. (Jeff Opdyke, WSJ 12-11) Based on the market-value decline of the Wilshire 5000 Index, a proxy for the total market, investors so far this year have lost roughly $2.6 trillion. If those numbers hold, it will be the worst shellacking investors have ever suffered in dollar terms, eclipsing the $1.9 trillion loss in 2000, when the bull market first cracked. (Jeff Opdyke, WSJ 12-11) The average health coverage premium for U.S. employees rose 14.7% in 2002, the largest one-year increase since 1990, according to a national study. Health insurance costs were $5,646 per employee, compared with $4,924 in 2001, according to the survey by Mercer Human Resource Consulting. Annual insurance premiums have risen an average 7.5% per employee since 1990, when they rose 17.1%. (AJC 12-10) If GDP expands at an annual rate of only 2% in Q4, growth for the full year will have run a pretty respectable 3%. And at 3%, the increase in jobs just about matches the increase in the labor force. Joblessness has remained flat since April (around 6%). But from April to November, payroll employment rose by 195,000. (Gene Epstein, Barrons 12-9) From the market's low on Oct. 9, the Dow has jumped nearly 19%, while the Nasdaq is up almost 28%. But a new study from the market-research firm Birinyi Associates indicates that the best-performing stocks during this period have been companies with the weakest earnings forecasts and the ones that look most expensive when their share prices are compared with earnings. "In the past eight weeks, the market has seen a momentum-driven rally, not one focused on the fundamentals," says Russ Koesterich, U.S. equity strategist for State Street Research & Management. "If stocks are to enjoy another leg up, it's unlikely to happen with just tech stocks as the leaders." (Craig Karmin, WSJ 12-8) Flat performance numbers and skittish investors have taken their toll on hedge funds, forcing 12.7% of them to close, according to data compiled by Credit Suisse First Boston Tremont Index LLC. So far this year, 223 of the 1,757 hedge funds tracked by the group have closed, said the group. Attrition rate last year was 4.82% and 1.6 percent in 2000. (Kansas City Star 12-8) Unemployment rates in South Dakota, Nebraska, North Dakota, Virginia, Delaware, Maryland, Minnesota, Vermont and Wyoming are under 4%. It is an uneven recovery just as it was an uneven recession. (Stephen Dunphy, Seattle Times 12-8) With near-term trading likely to be dominated by news regarding the economy, Iraq and terrorism, a deeper pullback in the market would not be surprising. From a Dow Theory perspective, it is the market's ability to rebound from such pullbacks that is most important, for, while bad news can trigger corrections, the market's underlying trend reflects expectations that go beyond today's headlines. (Dow Theory Forecasts via Washington Post 12-8) The stock market timers with the best long-term records are - on balance - quite cautious right now, if not outright bearish. In fact, these top-performing timers are today just as wary of the market as they were last February. And we all know how the stock market has behaved since then. (Mark Hulbert, Hulbert Financial Digest via Washington Post 12-8) Slowly but surely, the investment backdrop in the U.S. is improving. This may be too early to see, given recent market volatility, but a stronger foundation has been established. The mindset and responsibilities of nearly all participants in financial markets have been transformed by the events of the past two years. A healthy introspection has followed the initial pain and disbelief. Inherent conflicts of interest are being addressed. Integrity is being restored and ethical behavior is again expected. . . . Investors are wielding healthy skepticism in their portfolio and financial planning decisions. This can only add up to a more prosperous financial system over time. (Steven A. Dray, Babson Staff Letter via Washington Post 12-8) Risks of higher inflation mean the three-year bond bull rally could be over soon, says noted bond market voice and PIMCO head Bill Gross. Annual total returns of 4 to 5 percent from U.S. government bonds are likely over the next several years, he said in his monthly outlook posted on the fund's Web site. (CBSMarketWatch 12-4) Productivity, the output per hour of work, grew 5.1% in Q3, the Labor Dept. reported Wednesday. For the 12 months ending September, productivity grew at a 5.6% pace, the strongest showing since 1973. Hourly compensation, adjusted for inflation, jumped at a 3% rate, the biggest increase since Q3-2000 and a huge improvement over the 0.5% rate in Q2. (AP 12-4) Late last week, market-research firm Ned Davis Research released a study showing that, since 1900, December has been the strongest month of the year for the Dow industrials, with 73% of Decembers producing gains. The strongest part of the month, Ned Davis added, generally has been the final seven trading days. That is when money managers gear up for the new money they typically receive to manage at the start of each year. (E.S. Browning, WSJ 12-3) Leave it to bond aficionados to be gloomy amid a reviving stock market and improving economy. The worry now? The expanding federal budget deficit. Goldman Sachs predicts deficits topping $200 billion as far as the eye can see. While the yield on the 10-year Treasury has climbed to 4.2% from almost 3.5% since late summer, Merrill strategist Thomas Sowanick predicts it will soar to 5.25% during the next six months or so. (Jesse Eisinger, WSJ 12-2) For many Americans, the biggest tax break they get is the deduction for the interest shelled out every year on their mortgage. But those deductions could shrink by an estimated $10 billion this year, causing homeowners to pay close to $1.7 billion more in taxes, says Douglas Duncan of the Mortgage Bankers Association of America. The reason: A record 7.8 million households refinanced this year to take advantage of some of the lowest rates in decades. (Jane Kim, WSJ 12-3) The average time between finding a target and hitting it dropped to 15 minutes in Afghanistan a year ago from 45 minutes in the Persian Gulf war of 1991. And the Pentagon is pushing to trim that even more. (John Cuchman, NY Times 12-1) Bond investors seem to be acting like stock investors of two years ago. Hmmm, maybe they are the same folks. Bond investors are reaching for yield, pushing prices beyond reasonable points. The economy is still expanding. Inflation is still with us. As the bond bubble expands, you have a recipe for a bond disaster. . . . There is lots of risk and very little reward in the bond market. (Stephen McKee, No-Load Mutual Fund Selections and Timing via Wash Post 12-1) Consider this: The average American needs to save at least $230,000 to be able to draw $1,000 a month to supplement Social Security benefits and fund a comfortable retirement. Now consider this: Fewer than a third of American workers have saved $100,000 or more for retirement. (Eileen Powell, AP via AJC 12-1) "Here's a good rule of thumb: if you're having fun investing, then there's a good chance that you're not properly diversified, you're trading too much, and you're taking too much risk." (The Great Mutual Fund Trap by Gregory Baer and Gary Gensler) Afshad Irani, an assistant accounting professor at the University of New Hampshire, sees evidence that Regulation FD has increased stock-market volatility. The reason: When bad news is delivered to everyone at once, reaction to that bad news tends to be more intense. "There are more revisions (of ratings by stock analysts) after conference calls in the post-FD era, and the magnitude of the revisions is greater, which means more information is being given out in the calls," Irani said. (Dan Monk, Cincinnati Business Courier 11-8)Tech Tips & News Backing Up E-mail Files Before you can make backup copies of your Outlook Express 6 Inbox and Address Book files, you need to know where those files are located. To get the Inbox location, run Outlook Express 6 and open the mail folders. Right-click Inbox and choose File|Properties. The resulting dialog box will display the Inbox location. To locate the Address Book, click the Addresses button in the Outlook Express 6 toolbar and then choose Help|About Address Book. (Emazing 12-20) Blocking E-mail You can block messages from individual e-mail addresses in Outlook Express. All you have to do is click the undesirable message and choose Message|Block Sender. However, if you prefer, you can block all message from any domain. Just choose Tools|Message Rules|Blocked Senders List. (Emazing 12-14) Fill in the Blanks Searching Rather than agonizing over formulating the perfect query, take advantage of the power of search engines to easily "fill in the blank" for the answer to many types of questions. All of the major search engines do reasonably well at phrase matching, where they attempt to find an exact match for all the words in your query. Web writers often explain things in ordinary language. The trick is to create a phrase that someone has likely published on the web, then enclose the phrase in double quotes. Examples: Change "Who is the current president of Kyrgyzstan?" to "current president of Kyrgyzstan". Change "Which dog species is the most intelligent" to "most intelligent dog species". Change "When did Magellan circumnavigate the globe?" to "Magellan circumnavigated the globe". (Chris Sherman, Search Engine Watch 12-10) Net Shopping Mega-Sites When you think of online shopping, Amazon, Yahoo Shopping, eBay and MSN Shopping come to mind. These are four of the five most popular web shopping sites. The third largest shopping directory and guide on the web, DealTime, may still be unkown to you. Using DealTime is easy. Start by choosing a category or entering keywords for a product, and DealTime searches its database of more than 1,400 online merchants for a match. [Note: The "shopping search" function at AltaVista, LookSmart, Excite and iWon, among others, is powered by DealTime.] BizRate.com allows you to search for products from hundreds of online vendors. Features include merchant ratings, reviews, tax and shipping information, as well as a list of your own most searches and recently viewed products. Buyer's Index offers search of more than 20,000 web shopping sites and mail order catalogs with over 300 million product offerings. Incorporates reliability indicators from The Public Eye and BizRate.com Buyer's Index also has information about the year established and a 20 word description of each retailer. eShop - MSN Shopping is one of the most popular shopping guides on the web. Offers Buyer's Guides with tips and tools, editors' suggestions, and other features beyond the price comparisons offered by other shopping search sites. NexTag is a shopping search engine that offers total price comparison (which displays tax and shipping), store ratings, product reviews, and photos. mySimon is one of the original shopping search engines, now owned by CNET. mySimon was the creation of Stanford University student Yeogirl Yun, who later became the founder & chief technical officer of Wisenut, a crawler-based search engine now owned by LookSmart. PriceGrabber offers user provided merchant and product ratings, product pictures and specifications, and pricing information with "BottomLinePrice" to factor in estimates for applicable sales tax and shipping charges based on the delivery address. Available in English or Spanish, including specialized product searches for retailers in Mexico and Brazil. PriceScan's database consists of publicly available product and pricing information, including data from magazine ads, vendor catalogs, web sites, etc. Unlike most other shopping search engines, information is presented for both online and offline merchants, and PriceScan does not charge merchants for listings. Shopping.com is DealTime, with a clean, sparse interface, with just a shopping search engine and a simple hierarchal directory. If you're a "power shopper" that likes DealTime, you'll appreciate Shopping.com's fast performance and uncluttered results. Yahoo Shopping connects you with thousands of merchants -- traditional retail stores, name-brand catalog companies, small boutiques, and specialty vendors. (SearchEngineWatch.com 11-20/21) Shopping Part II For bargains, I browse SmartBargains.com, Bizrate.com and DealTime. Those sites cull deals from all over the Web and let you search by category and product. If you're really into discount shopping, you might visit DealCatcher.com, PriceGrabber.com, FatWallet.com and ClassicCloseouts.com [Stephanie Miles in a WSJ article of 11-28 suggests Overstock.com and Bluefly.com for discount hunting]. For my money, the Web's best price-comparison tool is at MySimon.com, which shows far more merchants selling each item than most comparison sites. I also like BizRate's shopping tools, particularly its site reviews. Another valuable tool is Google's search service for mail-order catalogues (catalogs.google.com). Google has scanned more than 1,500 paper catalogues and lets you search them by brand. (Leslie Walker, Washington Post 11-28) Shopping Part III Google has launched a beta version of a new shopping search tool called "Froogle" that the company claims is the most comprehensive product search engine available on the web. Froogle is organized as a directory, with 15 different product categories. Much like the Google Directory, you can look for products either by using a keyword search or by drilling down through a particular category and its subcategories. Search results are limited to one product per store. Each result displays a thumbnail image of the product to the left, with the product's name, price and description listed to the right of the thumbnail. (Chris Sherman, Search Engine Watch 12-10) Shopping Part IV www.naughtycodes.com displays discount codes that customers can use for savings on Internet purchases. The codes, which are usually meant for returning customers or friends and family of employees, are forwarded by those who receive them to naughtycodes for everyone to use. These codes aren't new to online shopping, but having them all in one place makes them easier to get. Scroll down the menu to find the store you want. Then enter the store's discount code as you complete your purchase. For the most part, retailers don't seem to mind this code-sharing practice. An Amazon.com spokesperson says these sites "are a way for folks to find out about deals." In fact, many retailers work directly with sites like this to promote discounts. The manager of Naughty Codes, Maggie Boone, also operates currentcodes, dealhunting and discountcodes. (Alex Frangos, WSJ 12-15) Home Page Previous Factoid Top Sites
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