Subject: Asset Prices From: Terri To: All Date Posted: Tues, Nov 16, 2004 at 16:07:01 (EST) Email Address: Not Provided Message: Paul Krugman argued correctly that corporate earnings were actually flat from 1998 to 2000, though stock indexes rose in dramatic fashion. Corporations reported higher earning, but these higher earning did not appear in national income accounts. However stock prices took the indexes down from 2000 through 2002, and earnings have been generally robust since 2003. The market is pricey by historical standards, but the market has historically been priced too low. My sense is to expect moderate returns. My worry is that all American market sectors and asset classes seem pricey.

Subject: Inflation in Ireland From: Emma To: All Date Posted: Tues, Nov 16, 2004 at 15:23:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/16/business/worldbusiness/16irishinflation.html?pagewanted=all&position= Boom Time's Inflation Proves Stubborn in Ireland By BRIAN LAVERY DUBLIN - Most people in Ireland realized it a while ago, and the government has finally acknowledged it: along with insufferable traffic jams and longer working hours, the Celtic Tiger boom of the 1990's left Ireland saddled with some of the highest prices in Europe. Inflation began climbing in 1998 and reached a peak of 7 percent in 2000, as the economy experienced double-digit growth. But now, officials in the Department of Finance proudly point to figures like those published last week, showing that inflation has fallen to a respectable 2.5 percent in the last year. But a recent report by a government-run research organization, the National Competitiveness Council - in one of its rare statements on a specific economic issue - found that Ireland was practically tied with Finland as the most expensive country in the euro currency zone, and that only Denmark, which does not use the euro, is more expensive. The change has been across the board, from groceries and clothing to services and utilities, and the price increases have caused a gradual series of social, as well as economic, effects. Housing prices are still rising quickly - up 14 percent in 2003, according to the Irish mortgage lender Irish Life and Permanent. Those high prices prevent young people from settling down in their own cities or cripple them with huge amounts of debt. By September, the rate of growth in housing prices had moderated slightly. But houses still averaged 252,431 euros ($324,636) nationwide and 330,603 euros ($425,169) in Dublin. Young couples furnishing new homes fly to Scotland on Ryanair, the low-budget airline, to shop at Ikea, because zoning laws prevent the company from opening its furniture warehouses in Ireland. In a weekly column, The Irish Times compares the prices of everyday goods, like microwave meals and electric toothbrushes, which range from 12.25 to 21.50 euros ($15.54 to $27.27). Travel agents say they book hundreds of Christmas shoppers each weekend on trips to New York. And consumers can be heard complaining about prices just about everywhere. 'You're spending 60 euros, where you used to spend 50 for the same amount of stuff,' said Brian Payne, a 40-year-old bookkeeper carrying two bags of groceries outside a Tesco supermarket in a central Dublin shopping mall. When he bought a television recently, Mr. Payne said, he sought out a discount electronics outlet because regular stores were too expensive, and then bought a generic model. 'I used to be able to get the name brand,' he said. And now that a pint of Guinness stout costs $5, and lagers like Heineken or Budweiser cost nearly $6, the Irish go out a lot less, and keg sales have fallen more than 5 percent in the last year, according to the Irish Brewers' Association. From 2000 to last year, the price of a pint rose 20 percent, or 70 cents, and has edged up further since. Beamish stout, Guinness's bitter rival, increased its sales by 140,000 pints last quarter when it promised to delay a price increase until next year, said Ruth Norton, marketing manager. The tourism industry, long a mainstay of the Irish economy, saw the warning signs first, because of feedback from international visitors, and the government cabinet minister for tourism has issued several stern warnings to hotels and restaurants that they would eventually price themselves out of the market. In a survey last year, 13 percent of visiting North Americans told the state agency Tourism Ireland that they were dissatisfied with 'value for money' on an Irish vacation, up from 4 percent in 2001. 'Consumers are definitely reacting,' said Jim Power, chief economist of Friends First Asset Management in Dublin. Growth in retail sales, which was 11 percent in 2001, tapered to around 2 percent this year, he said. Most analysts said that Ireland's period of runaway inflation was a result of some short-sighted government spending and some inevitable fiscal changes at the introduction of the euro, like rapid exchange rate fluctuations and ceding control of interest rates to the European Central Bank. But the analysts do not see high prices today as a problem. Inflation is a 'natural element' of Ireland's rapid economic growth, said Austin Hughes, an economist at IIB Bank, a mortgage lender with more than $9 billion in assets. 'It's a consequence rather than a leading indicator,' he said. And given the benefits of Ireland's economic growth in the last decade, 'it's probably a cost that we're willing to pay.' Businesses are also feeling the impact: energy costs are up more than 20 percent since 2000, and rents for retailers have almost doubled. But companies in the service sector keep margins high by passing price increases on to customers, said David Croughan, chief economist at the Irish Business and Employers' Confederation, an employers' lobby group.

Subject: World boycott of US goods & markets? From: Pete Weis To: All Date Posted: Tues, Nov 16, 2004 at 12:41:21 (EST) Email Address: Not Provided Message: While I believe there are enough fundamental problems with the US economy including massive debt and a huge and growing current account deficit combined with stock market and housing 'bubbles', certainly the Iraq quagmire is yet one more downside factor. I'm not sure the world will boycott US products over anger with Iraq and its general unilateral military policies, but it is a possibility. The following from The Colorado Springs Gazette: Journalist Predicts War in Iraq Will Plunge U.S. Economy into Downturn By Pam Zubeck The Gazette Friday 12 November 2004 Crystal City, Va. - President Bush's willingness 'to take a lot more body bags' from the Iraqi war will plunge the United States economy into a tailspin as European nations further distance themselves from the war with boycotts of American markets, a Pulitzer Prize winning journalist predicted on Friday. 'I just see very hard times ahead,' Seymour Hersh, who broke the Abu Ghraib prison detainee scandal story last spring in The New Yorker magazine, said in a keynote address to about 100 people attending the Military Reporters and Editors conference. Hersh, a legend in journalism circles since he exposed the My Lai massacre and its cover-up during the Vietnam War, earned the Pulitzer in 1969 for international reporting. Last spring, he again grabbed worldwide attention by reporting the abuse of Iraqi war detainees who were threatened with unmuzzled dogs, stripped naked and subjected to other forms of what some believe was torture. He said Bush's dismissal of opposition views on the war and his insistence the United States push ahead against an insurgency Hersh called 'the war we started' will have profound impact on the economy. 'This president believes in what he's doing. He is prepared to take a lot more body bags,' he said. 'He is going to fight this all the way. The bombing has gone up exponentially ... How are we going to end this if the president's convinced that he has to see this through?' He predicted Europe will find new ways to 'gang up on us.' Key NATO nations have resisted involvement in the war after the United Nations refused to sanction the military assault that began in March 2003. Some countries that did cooperate have since pulled out. 'You're going to see American profits disappear. American corporations are going to be in big trouble. It's going to be a mantra not to buy American,' he said. 'All our major manufacturers are reporting major slowdowns in Europe. You're going to see the dollar disappear. Economically, this country is going to be in trouble and he's going to continue to fight this war.' Hersh suggested the administration open talks with the insurgency, which he described as the only form of government existing in Iraq today, to end the war. He acknowledged that's not likely, given Bush's stance. Hence, he said, journalists' jobs are tougher because government officials won't speak openly about options, fearing retribution due to Bush's perspective that opposition is equivalent to treason. 'There are people here in this town (Washington, D.C.) at high levels and lower levels in the different agencies that know how bad it is,' he said. 'Getting them to talk is going to be the problem. I don't think we can.' Hersh also predicted that White House Chief Counsel Alberto Gonzales, nominated to replace John Ashcroft after he announced his resignation as attorney general on Tuesday, will face a tough confirmation hearing. He said military lawyers, who he said 'went crazy' in opposition to Gonzales' legal opinions involving interrogation policies, will testify against him. Those policies, some believe, led to the Abu Ghraib scandal.

Subject: Gunslingers and cowboys From: Pete Weis To: All Date Posted: Tues, Nov 16, 2004 at 10:49:40 (EST) Email Address: Not Provided Message: From the Seattle Times: A new kind of risk, and it's your fault To company risk and market risk, add ‘career risk’ -- the danger that career-minded money managers take too many chances to satisfy the public's unrealistic expectations. By Bill Fleckenstein I'd like to share an insight that finally became clear to me last week. (If everyone else has already figured this out, I'm sorry that I am the last one to know.) I think that what I'm about to discuss explains why the market has behaved in such an increasingly speculative, chaotic manner for about the last 10 years, versus how it behaved in the 1980s (or even the early 1990s, for that matter). When I started out in the investment business in 1982, most money was run by banks and investment-counseling firms. I was part of the latter community. Back then, I believe that the investment world tried to act pretty responsibly. They really did worry about risk, viewing the money entrusted to them as though it were their own. Banks and insurers check your credit. So should you. Opting out of a reckless environment One reason I left the investment-counseling business in late 1995 (in addition to my concerns about what Fed chief Alan Greenspan was doing) was that I could see the more reckless contingent was going to get the upper hand. As the public started to take charge of their money and turned it over to mutual funds, I realized that this development would create an environment where my concept of the best way to run money would not be particularly successful. In other words, there was no way I was going to be at the top of the performance sweepstakes, which is what folks demand. I believe that the behavior of the public helped drive the mutual-fund industry to the sort of gunslinger mentality that prevailed in the late 1990s and early 2000, where all the money flowed to the zaniest money managers who put up the biggest numbers. That mentality is similar in the hedge-fund community, where money has moved over the last few years. (It can be argued, however, that some of these people have actually put some of their own money at risk. So, they behave in a somewhat saner fashion.) Career risk vs. portfolio risk The bottom line is that we have bred a much more speculative, trading-oriented investment community. Instead of worrying about losing money, the overwhelming majority worries that they won't perform well enough on the upside. The fear of getting fired for not having made enough is the driving factor. In a recent article, respected investment strategist Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo & Co., described this brilliantly: “In markets where investors hand over their money to professionals, the major inefficiency becomes career risk. Everyone's ultimate job description becomes 'keep your job.' Career risk-reduction takes precedence over maximizing the client's return. Efficient career-risk management means never being wrong on your own, so herding, perhaps for different reasons, also characterizes professional investing. Herding produces momentum in prices, pushing them further away from fair value as people buy because others are buying.” That, ladies and gentlemen, is a perfect description of what the professional money-management business has become. Grantham went on to make a couple of insightful points: “Refusing, on value principle, to buy in a bubble will, in contrast, look dangerously eccentric. And when your timing is wrong, which is inevitable sooner or later, you will, in Keynes' words, 'not receive much mercy.'' He summed up what that means to the folks who try not to go with the herd and do the right thing: “Today the challenge is not getting the big bets right. It's arriving back at trend with the same clients you left with. . . .” Dislocation before a new/old way of doing business I myself continue to expect the investment business to revert to the saner style that I grew up with. This is not to say that the market then didn't do weird things, confound people or get out of whack. It did. It just wasn't anywhere near as maniacal as it has become. To repeat, I fully believe that we will eventually revert to a more conservative environment. But I think the only way that can happen is through some sort of a market dislocation, as I have been discussing for at least the last six months. Though it has not yet occurred, I still think it will at some point. I just don't see how the structure presently in place can unwind in anything but a violent manner that involves some dislocation. I think that if one approaches their own problems or “disputes” with the market by first knowing the personality of the enemy, as it were, they will be more successful. I know that in my own short-selling, when I act as though the guys I'm “fighting against” will behave in the manner I've described, I often do better. For example, I sometimes get out of the way because we're in the no-news period and I expect “them” to take stocks up, even though it doesn't make sense that “they” should. Oftentimes that tactic works better than sticking with my shorts, as I have done recently, with the view that the dire macro problems will matter. Of dilettantes and their wants I believe that the demands of individuals, consultants and committees that run employee-benefit plans -- people who are not really investment professionals and tend to want to buy high and sell low -- are partially responsible for the behavior of the professional investment community. Whether it's Joe and Jane Six-Pack deciding for themselves, or the committee that runs Joe and Jane Six-Pack's money, these tend not to be sophisticated investors. They think they've been around the investment markets, but most have really only grown up in a bull market. These are the folks who are not particularly good at risk management, and who are setting the incentives, as described by Jeremy Grantham, that have produced the market environment we are now in. Hopefully, that long-winded discussion will help folks deal with this environment. Toppling technical analysis from Mount Olympus Lastly, because of the moment-to-moment performance demands that people now perceive, and the advent of PCs, I believe technical analysis has become the vehicle of choice for doing “analysis.” That everybody has all the technical bells and whistles at their fingertips has made people believe too strongly in the merits of technical analysis. Example: A lot of people believe that the recent breakout in the S&P means the market must trade higher at the end of the year. And nothing else matters. Maybe they will get that right. But I think that, at some point, technical analysis will be the “big hook” in the market that will trap people. Technical analysis is a tool, like bottoms-up fundamental analysis or looking at the macro environment. It's just one tool -- not the be-all and end-all that folks seem to think. It's not surprising, given the environment that I have described, that technical analysis has been elevated to such high status. But folks who only believe in charts will ultimately come to learn that there's a lot more to it than that.

Subject: Correction From: Pete Weis To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 10:55:14 (EST) Email Address: Not Provided Message: Above article from MSN Money, not the Seattle Times.

Subject: Jeremy Grantham From: Pete Weis To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 10:57:28 (EST) Email Address: Not Provided Message: From the Boston Globe: Advice from a bear: panic By Steven Syre, Globe Columnist | November 16, 2004 Jeremy Grantham, Boston's most famous investing bear, exudes a kind of reassuring calm when he tells you that he has seen the stock market's future, and it's a train wreck. Grantham, the chairman of Grantham, Mayo, Van Otterloo, warned institutional clients in the late 1990s that the stock market was headed for a dangerous fall. He was early, which cost his firm big business, but ultimately right. His current warning is a different kind of bitter pill. ''We're faced with the most broadly overpriced asset class mix of my career, 35 years, and if I had a 50-year career, I think it would still apply,' Grantham says from his firm's offices overlooking Boston Harbor from Rowes Wharf. Grantham saw the market top of 2000 as perilous because investors could lose huge sums of money betting on growth stocks, but there were plenty of other types of assets that traded at bargain prices. Today, he believes the potential fall is not so steep, but there is hardly anyplace to hide. The hiding holes of 2000: bonds, real estate investment trusts, and value stocks. Try to find similar opportunities today. In its most recent quarterly letter to clients, Grantham's firm outlined a strategy for superior relative performance, faring better than the rest of the pack or an index. But what if the objective was actually to make money? ''Our summary advice on an absolute basis is much more painful to deliver though shorter: PANIC,' the letter said. ''Now is the time to lower risk and survive to fight another day with your assets as intact as you can manage.' Where to go? Grantham suggests emerging-market stocks and timber for institutional clients. He tells them to hold bonds with shorter durations and conservative stocks with a tilt away from US securities. If you were to imagine such a discouraging investment outlook to be a heavy burden on the messenger, Grantham would surprise you. At 66, he is an energetic bear armed with computers chock-full of historical data supporting his case. For much of the past five years, Grantham has been glad to stand as the investment world's combative bookend to Jeremy Siegel, the bullish Wharton professor and author, among others. Grantham has a long and impressive investing record in Boston. He cofounded Batterymarch Financial Management before creating his current firm with Richard Mayo and Eyk Van Otterloo 26 years ago. Its performance among its 53 separate investing strategies consistently beat benchmarks, but international investing has produced its strongest results. The firm paid a price for its dire stock-market warnings and conservative asset allocation beginning at the end of 1997. ''We never lost any business for 18 years, and then we lost 45 percent of our book of business in 2 years,' Grantham says. The firm shrank to about $20 billion dollars in assets under management by early 2000, losing big in one of history's great bull markets, but has since climbed back to manage $70 billion. But the comeback has been built on a similarly gloomy message. Grantham says the Standard & Poor's 500 stock index should logically bottom out at 725, from its current level of 1,183, though he won't venture a guess about when. He says the consensus view that stocks are fairly valued today is wrong, built on overly optimistic expectations for corporate profits. If profit forecasts are too high, so are today's stock prices, Grantham says. He has scads of data on the market's long-term trends to back him up. Grantham has been right before, but he's also been wrong on other market calls. And getting it right at the wrong time can be expensive, too. Many of Boston's best money managers disagree with Grantham's warnings today, but they take the messenger very seriously.

Subject: Re: Jeremy Grantham From: Emma To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 15:32:28 (EST) Email Address: Not Provided Message: Well, if I understand properly, Grantham is arguing the danger lies not in technology cenetered growth stocks as in 2000, but in many sectors and assets classes. In 2000, health care stocks, energy stocks, public utility stocks, REITs, commercial and residential property, and bonds were attractively priced. In 2004, finding attractively priced assets is quite difficult. Hmmm.

Subject: Re: Jeremy Grantham From: Terri To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 14:22:05 (EST) Email Address: Not Provided Message: Interesting and important articles, but I wish the article on Jeremy Grantham spelled out clearly the reason for the fears. Can you elaborate?

Subject: Trailing earnings vs projected earnings From: Pete Weis To: Terri Date Posted: Tues, Nov 16, 2004 at 15:34:40 (EST) Email Address: Not Provided Message: 'We use a growth model with an explicit corporate sector and find that the market is correctly valued.' - Ellen R. McGrattan and Edward C. Prescott (2000) Terri. Jeremy Grantham as well as others like Warren Buffet always insist that the only reliable earnings measure is 'trailing earnings' measured with 'GAAP' accounting. It's also important to know that even SEC requirements regarding 'GAAP' accounting have been considerably relaxed since the 1980's. For instance, pension funding prior to the 80's was considered an expense for employees who were vested. That is stiil the case but a change in the 80's by the SEC allowed US corporations to claim an automatic 9-10% annual earnings increase in their pension plans (whether or not the pension actually gained or lost) and furthermore, even though this money is supposed to be set aside for retirees, corporations are allowed to actually add the pension gains (again whether or not there were any) to their own earnings. For instance General Motors has a pension obligation of over $70 billion and about a year ago had to shore it up by selling about $17 billion in corporate bonds. So while the interest to be paid on the bonds go down as an expense (possibly, however GM could have called this an extraordinary expense and not counted it against its earnings - I'm not sure whether they did or not) they are able to claim a 10% gain on the added $17 billion principle along with a 10% gain on the rest of the pension assets they control and claim it as as corporate earnings. Executive salaries are, of course, expenses which must be subtracted from corporate earnings. However, lucrative stock options are not required to be considered an expense. Recent years have seen stock options go through the veritable roof. Buffet has been on a crusade to require US corporations to include options as an expense - so far to no avail. My point here - even GAAP trailing earnings are skewed higher than actual earnings nowadays when compared to the past. But Wall Street likes to use projected future earnings as their measuring stick. No one really has any idea what future earnings will be like, since there are so many factors which effect it. The above quote from Wall Street people back in 2000 illustrates my point ('growth model' is Wall Street speak for projected future earnings). Below is the context from which the quote was taken: Is the stock market overvalued? Ellen R. McGrattan and Edward C. Prescott Quarterly Review, 2000, issue Fall, pages 20-40 Abstract: The value of U.S. corporate equity in the first half of 2000 was close to 1.8 times U.S. gross national product (GNP). Some stockmarket analysts have argued that the market is overvalued at this level. We use a growth model with an explicit corporate sector and find that the market is correctly valued. In theory, the market value of equity plus debt liabilities should equal the value of productive assets plus debt assets. Since the net value of debt is currently low, the market value of equity should be approximately equal to the market value of productive assets. We find that the market value of productive assets, including both tangible and intangible assets and assets used outside the country by U.S. subsidiaries, is currently about 1.8 times GNP, the same as the market value of equity.

Subject: Re: Trailing earnings vs projected earnings From: Terri To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 17:10:08 (EST) Email Address: Not Provided Message: Warren Buffett has complained that pension fund estimated returns skewed earnings far more than failing to count option grnats as an expense. However, there appears to be more counting of options as an expense and estimated returns for pension funds have been lowered. Has the quality of reported earnings improved? A nice new study would be useful.

Subject: sum up of my thesis on Krugman From: krugman en francais To: All Date Posted: Tues, Nov 16, 2004 at 04:15:46 (EST) Email Address: steven.coissard@free.fr Message: Hi, I translated a sum up of my doctoral thesis on Paul Krugman (sump up 50 pages, thesis 521 pages) It can't explain everything but I can't translate 521 pages. So if someone wants to read it, it 's here. You can find a content in english to my doctoral thesis too. http://steven.coissard.free.fr/page_mes_articles.htm

Subject: Re: sum up of my thesis on Krugman From: Jennifer To: krugman en francais Date Posted: Tues, Nov 16, 2004 at 17:17:11 (EST) Email Address: Not Provided Message: Nicely done, Steven Coissard. The translation was well done, and is easily read. Nice.

Subject: Re: sum up of my thesis on Krugman From: Emma To: krugman en francais Date Posted: Tues, Nov 16, 2004 at 16:24:34 (EST) Email Address: Not Provided Message: http://steven.coissard.free.fr/page_mes_articles.htm The English summary of your thesis and history of Paul Krugman's work is fascinating, and I much appreciated reading it. Wish I knew French, for the rest. Thank you so much.

Subject: Investor Costs From: Terri To: All Date Posted: Mon, Nov 15, 2004 at 20:51:44 (EST) Email Address: Not Provided Message: The Vanguard S&P Stock Index has returned 12.17% since September 1986. Funds that cost an investor 2 percentage points a year generally strike me as far too expensive. Such a cost is 16.4% of the yearly average market gain. There are managers who are worth the cost, but they must be carefully sought out indeed. Actually the costs will be higher given high turnover of mutual funds.

Subject: Re: Investor Costs From: Jennifer To: Terri Date Posted: Tues, Nov 16, 2004 at 05:43:21 (EST) Email Address: Not Provided Message: This is just what John Bogle has been teaching investors for years. For several weeks, I have been reading John Bogle. These comparisons are most important and Vanguard has allowed us returns that are fair in cost and elating in effect.

Subject: Re: Investor Costs From: Institutional Investor To: Terri Date Posted: Mon, Nov 15, 2004 at 22:18:22 (EST) Email Address: Not Provided Message: who pays 2% for a mutual fund? The average equity fund fee is around 1.5%, lower for fixed income. On top wouldn't you hire a manager because they can exceed their benchmark, not match it. To start subtracting a fee from a benchmark and then apply that to an investment manager doesn't make much sense to me. Additionally mutual fund returns are reported net of fees, so whatever costs you were insinuating through turnover are netted out in their returns they report.

Subject: Re: Investor Costs From: Jennifer To: Institutional Investor Date Posted: Tues, Nov 16, 2004 at 05:51:54 (EST) Email Address: Not Provided Message: These numbers are quite correct. Warren Buffett has taught just this importance of cost for years, which is why we are so content with Berkshire Hathaway holdings along with Vanguard.

Subject: Re: Investor Costs From: El Gringo To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 22:33:33 (EST) Email Address: nma@hotmail.com Message: 'The average equity fund fee is around 1.5%, lower for fixed income. ' Institutional Investor, how much was it 5 years ago?

Subject: Re: Investor Costs From: Institutional Investor To: El Gringo Date Posted: Mon, Nov 15, 2004 at 22:43:27 (EST) Email Address: Not Provided Message: no idea, just grabbed it off fool.com, i deal more with institutional fes, which are much lower, more like 75 bps for equity for small accounts ($25million and lower), and 30-40 bps for fixed income. Once you start getting into accounts with $100million , then you get some real nice price breaks. Index fees end up around 4-5 bps for equity when you get into the bigger accouts.

Subject: Re: Investor Costs From: El Gringo To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 22:54:04 (EST) Email Address: nma@hotmail.com Message: '30-40 bps' = beats per second? (just kidding)

Subject: Re: Investor Costs From: El Gringo To: El Gringo Date Posted: Mon, Nov 15, 2004 at 23:03:11 (EST) Email Address: nma@hotmail.com Message: Jokes aside, Institutional Investor, I think I'll probably never forget this game : http://www.pkarchive.org/new/Dow36000Silly.html

Subject: Re: Investor Costs From: El Gringo To: El Gringo Date Posted: Mon, Nov 15, 2004 at 23:18:05 (EST) Email Address: nma@hotmail.com Message: A propos: Monte-Carlo method? Oh, bingo, I, won!

Subject: Re: Investor Costs From: El Gringo To: Terri Date Posted: Mon, Nov 15, 2004 at 21:40:01 (EST) Email Address: nma@hotmail.com Message: Terry's an investor...

Subject: Re: Investor Costs From: El Gringo To: El Gringo Date Posted: Mon, Nov 15, 2004 at 21:49:21 (EST) Email Address: nma@hotmail Message: Sorry Terri, should I have hurt you in any way, but I really do not like numbers

Subject: Re: Investor Costs From: Terri To: El Gringo Date Posted: Mon, Nov 15, 2004 at 22:00:21 (EST) Email Address: Not Provided Message: Then, think through the argument and the heck with numbers :) Besides, your posts are full of numbers...

Subject: Re: Investor Costs From: El Gringo To: Terri Date Posted: Mon, Nov 15, 2004 at 22:12:12 (EST) Email Address: nma@hotmail.com Message: ..all these numbers are worthless (relatively seen) anyway...

Subject: Re: Investor Costs From: Ari To: El Gringo Date Posted: Mon, Nov 15, 2004 at 21:49:16 (EST) Email Address: Not Provided Message: Defined benefit pension plans are disappearing in America. Almost all of us have to learn to invest. That means me... An honest discussion of all these investment issues is extremely important.

Subject: Re: Investor Costs From: Ari To: Ari Date Posted: Mon, Nov 15, 2004 at 21:53:31 (EST) Email Address: Not Provided Message: El Gringo Contribute to this discussion for your posts are useful. Simply coming to understand indexing has been a major gain for me.

Subject: Re: Investor Costs From: El Gringo To: Ari Date Posted: Mon, Nov 15, 2004 at 22:30:30 (EST) Email Address: nma@hotmail.com Message: Oh, well Ari, I do normally use the Monte-Carlo method to get my numbers... , just kidding;)

Subject: The Dollar Adjustment From: Terri To: All Date Posted: Mon, Nov 15, 2004 at 16:39:36 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html The Armageddon Foil Stephen Roach (New York) Spinning a tale of global imbalances does not exactly make me the most popular person in the investment community. In large part, that's because many take great umbrage at the implications global rebalancing have for the US economy. Current-account adjustments, dollar weakness, deficit reduction, and a rebuilding of national saving are widely perceived to be an unusually painful price for America to pay to put itself and the world back on a sounder footing. I have been on the receiving end of that push-back for some time, and that same response was very much in evidence at our just-completed annual investment conference at Lyford Cay. I'll be the first to admit that we may have been guilty of overkill in making the case for global rebalancing at this year's conference. Not only was it the focus of my remarks but it was very much on the mind of two outside speakers — Pete Peterson, Chairman of Blackstone and author of the best-selling book, Running on Empty, and Jeffrey Sachs, Professor at Columbia University and one of globalization's most provocative advocates. Peterson focused on the worrisome juxtaposition of America's profound saving shortfall and some $45 to $74 trillion of unfunded liabilities — especially Medicare and Social Security. Sachs spoke of a deficit-constrained America that was likely to have an increasingly difficult time of maintaining its leadership role in the global economy. This is not the message a group of inherently bullish investors wants to hear. In the discussion that followed, the focus was on what it would take for America to change its seemingly reckless ways. Peterson shrugged and admitted, 'It will probably take a crisis.' That's when the light bulb went on for most of the assembled investors. Crises are, of course, very rare events — outcomes that may be worthy of concern but not worthy of guiding baseline investment decisions. Even if you buy into the Armageddon scenario — and former Fed Chairman Paul Volcker is on record attaching a 75% probability to a dollar crisis at some point in the next five years — timing is next to impossible to predict. Consequently, as soon as investors are able to associate global rebalancing with a low-probability crisis scenario, they inevitably breathe a collective sign of relief and get back to the basics of asset allocation. I've seen this response repeatedly in my travels around the world in the past year, and I saw it again this year at Lyford Cay.

Subject: Dollar Adjustment From: Terri To: Terri Date Posted: Mon, Nov 15, 2004 at 17:21:24 (EST) Email Address: Not Provided Message: There are, in fact, three possible endgames that can spin out of the global rebalancing framework: For starters, I could be dead wrong in worrying about global imbalances. After all, many believe that a 'new symbiosis' has emerged between American consumers and Asian producers and financiers. All it takes is the vision of an expanded dollar bloc, and imbalances quickly vanish into thin air. The crisis is at the other end of the spectrum — probably triggered by a foreign buyer's strike of US Treasuries that would then spark a dollar crash and a spike in US interest rates. But there is a third alternative — the in-between outcome of a measured venting of global imbalances that need not be associated with a wrenching crisis. In my view, the measured venting outcome is the most likely of the three possibilities. That would entail a managed but sustained decline in the dollar, a gradual increase in real US interest rates, a moderation of growth in interest-rate sensitive components of US domestic demand, and a related rebuilding of private saving. It would also require a regeneration of domestic demand elsewhere in the world — gradually transforming Asia and Europe from savers to spenders.

Subject: Optimism From: Terri To: Terri Date Posted: Mon, Nov 15, 2004 at 18:30:23 (EST) Email Address: Not Provided Message: My own view is that the odds are now shifting in favor of the measured-venting strain of global rebalancing — a more optimistic stance than I have previously held. Three factors recently have come into play that have encouraged me — oil, China, and the dollar. With oil prices down about 15% over the past two-and-a-half weeks, the likelihood of a full-blown energy shock has receded a bit. I have long maintained that the $50 threshold is a very dangerous price point for a vulnerable global economy. So far, that threshold was breached for only about five weeks. I have no idea what lies ahead for oil prices, but if they hold at or below present levels, then any disruption to global demand will be limited. As for China, my latest visit left me much more encouraged than before I arrived. The possibility of a boom-bust endgame for an overheated Chinese economy was a worrisome wildcard for a world that is now being heavily influenced by the 'China factor.' To the extent that the Chinese downside now seems limited, I have tempered my concerns in that regard. The dollar's recent decline is equally encouraging. Despite being characterized as 'brutal' by ECB President Trichet, I believe the renewed depreciation of the US currency is a very welcome development for an unbalanced world. In real terms, the broadest measure of the dollar has basically only retraced the run-up that occurred in the first nine months of this year — leaving the index about 15% below its February 2002 peak. For a US economy with a current account deficit of 5.7% and rising, this adjustment is modest, at best. In my view, there is at least another 10–15% to go on the downside. The trick will be for the world to manage the coming currency realignment in a fashion that is fair and equitable to all countries and regions on the other side of that trade. What this means, of course, is that Asia now has to give and accept its role in accommodating the dollar's adjustment. I have made two treks to Asia in the past six weeks, and my sense is that Asian officials are now increasingly resigned to this responsibility. Japan and China are, of course, the linchpins to pan-Asian currency adjustments. While the latest Japanese GDP statistics were surprisingly soft, officials in Japan are nearly unanimous in believing that the Japanese economy is now strong enough to withstand the pressures of yen appreciation. In China, the near-term verdict is more guarded, but I get the sense in Beijing that the move to a more flexible foreign-exchange mechanism — either widening the bands on the existing dollar peg and/or shifting to a peg against a basket of currencies — is now likely to come sooner rather than later.

Subject: Ivory Coast: Things Fall Apart From: Emma To: All Date Posted: Mon, Nov 15, 2004 at 14:18:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/15/international/africa/15africa.html? Turmoil in Ivory Coast: Once Again, Things Fall Apart By SOMINI SENGUPTA Long after the precolonial gold city of Timbuktu faded from glory and Dakar's status as the capital of French West Africa expired, even after Monrovia's cosmopolitanism crumbled and the lights went out of Lomé's once thriving nightlife, there was Abidjan. Ivory Coast's largest city and commercial center, Abidjan was a port and a destination for millions of West African strivers. For more than 30 years after independence, Ivory Coast's autocratic founding president, Félix Houphouët-Boigny, kept the doors wide open to French business interests and turned the country into the world's largest cocoa exporter. The towering Hôtel Ivoire, overlooking the steamy lagoons that course through the city, was a symbol of the aspirations of a modern West African republic. Today, just over a week after clashes erupted between pro-government protesters and French troops, French citizens continue to leave Abidjan by the thousands, at a cost of more than $5.9 million to their government, according to Paris. Incinerated remains of shops and houses dot the city. A jailbreak in the city's main prison let loose as many as 4,000 hardened criminals. The failure of a peace accord reached last year has left the door open to a new round of war between the government of President Laurent Gbagbo and the rebels who control the country's northern half. Perhaps most worrying of all, ethnic tensions between the peoples of north and south make the country's reunification a daunting challenge. More and more, Abidjan looks as though it is going the way of Kinshasa, Congo's onetime boomtown, whose tree-lined boulevards and hulking skyscrapers have lately surrendered to the tropical mold. Indeed, scenes from Abidjan over the past week looked uncomfortably familiar to Hervé Ludovic de Lys, a native of Mali who was working for an American-financed aid project in Kinshasa in 1991, when an army-led pillage of that city prompted evacuations of foreigners. 'In a matter of weeks, Kinshasa was emptied of all its expatriate community,' said Mr. de Lys, now the Dakar-based West Africa regional chief of the United Nations Office for the Coordination of Humanitarian Affairs. 'It's never fully recovered.' The fires that engulf Abidjan today threaten not just Ivory Coast. In a region of porous borders, contested natural resources and a surplus of guns and gunmen, no conflicts are self-contained. Virtually all Ivory Coast's neighbors are vulnerable. After more than a decade of bloodshed, Liberia and Sierra Leone have settled into a hard-won peace but still struggle with the problem that fueled conflict in the first place, namely a generation of frustrated young men to whom war signals economic opportunity. To the north, Guinea simmers with political and ethnic tensions. Former fighters in Liberia interviewed by Human Rights Watch said they had been solicited to fight in Guinea both for and against the repressive government of President Lansana Conté. It would surprise no one in the region if Liberian and Sierra Leonean veterans were lured now into Ivory Coast's conflict. Despite millions invested to demobilize child soldiers in Sierra Leone and Liberia, economic prospects remain dim for young men across the region. The fighting in Ivory Coast 'could really pull in these roving combatants who, despite significant efforts to incorporate them back into society in Liberia and Sierra Leone, still feel there would be economic gain,' said Corinne Dufka, the West Africa researcher for Human Rights Watch. 'They are lured by the short-term promise of whatever benefits they can get from looting.' Last week, on the Liberia-Ivory Coast border, a new act opened in the long-running drama of West Africa's refugee crisis. The United Nations refugee agency reported that 6,000 to 10,000 Ivoirians, many of them women and children, had begun piling into flimsy fishing boats and crossing a narrow river into Liberia. Veterans of the region's unending conflict, they told United Nations workers that they did not want to wait until full-scale fighting broke out and the river became impassable.

Subject: Teamsters Find Pensions at Risk From: Emma To: All Date Posted: Mon, Nov 15, 2004 at 11:45:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/15/business/15teamster.html? Teamsters Find Pensions at Risk By MARY WILLIAMS WALSH In the 1960's and 1970's, the Teamsters' huge Central States pension fund was a wellspring of union corruption. Tens of millions of dollars were loaned to racketeers who used the money to gain control of Las Vegas casinos. Administrative jobs were awarded to favored insiders who paid themselves big fees. A former Teamster president and pension trustee was convicted of trying to bribe a United States senator. Yet for nearly half a million union members who are expecting the fund to pay for their retirement, those may have been the good old days. Since 1982, under a consent decree with the federal government, the fund has been run by prominent Wall Street firms and monitored by a federal court and the Labor Department. There have been no more shadowy investments, no more loans to crime bosses. Yet in these expert hands, the aging fund has fallen into greater financial peril than when James R. Hoffa, who built the Teamsters into a national power, used it as a slush fund. The unfolding situation holds a hard lesson for others with responsibility for retirement money. What may appear as a sensible, conventional approach to investing - seeking a diversified mix of growth and income investments for the long term - can wreak havoc when applied to a pension fund, especially one in a dying industry with older members who are about to make demands of it. But the kinds of investments that make sense for such a fund - like long-term bonds that will mature as members enter retirement - are not attractive to most money managers, because they generate few fees. Consequently, very few pension funds use such strategies today. At the end of 2002, the pension fund had 60 cents for every dollar owed to present and future retirees - a dangerous level. In a rough comparison, the pension fund for US Airways' pilots had 74 cents for every dollar it owed in December 2002, just before it defaulted. During the bear market after the technology bubble burst, Central States' assets lost value as its obligations to retirees ballooned, causing a mismatch so severe that the fund had to reduce benefits last winter for the first time in its 49-year history. 'There never were benefit cuts in the 1970's,' said Wayne Seale, 52, a long-haul driver from Houston and one of about 460,000 Teamsters participating in the fund. 'We were happy. We were being taken care of.' If the pension fund fails, it will be taken over by a government insurance program. In that case, some Teamsters would lose benefits. Hoffa and his successors had put an extraordinary 80 percent of Central States' money into real estate. Instead of hotels, casinos and resorts, its new managers - first Morgan Stanley and later Bankers Trust, Goldman Sachs and J. P. Morgan - invested the money mostly in stocks, and to a lesser extent, in bonds. At the end of 2002, about 54 percent of the fund's assets were in stocks, somewhat less than the average corporate pension fund, which had about 74 percent of assets in stocks that year, according to Greenwich Associates, a research and consulting firm. Federal law calls for fiduciaries to invest pension assets the way a 'prudent man' would, and the strategy used for Central States would certainly be familiar to wealthy individuals, philanthropic trusts, university endowments and other pension funds. The fund's investment results in recent years closely track median annual returns for corporate pension funds, according to Mercer Investment Consulting. The assets lost 4.5 percent of their value in 2001 and 10.9 percent in 2002, but gained 25.5 percent in 2003, according to the fund's executive director and general counsel, Thomas C. Nyhan. Morgan Stanley and J. P. Morgan declined to comment. Goldman Sachs defended its record, pointing out that it had exceeded its benchmarks in a very tough market. But the Central States situation shows that using stocks or other volatile assets to secure the obligations of a mature pension fund greatly increases the risk of getting caught short-handed in a down market. If that happens it can be nearly impossible to bring the ailing pension fund back. This is what has happened recently to pension funds at United Airlines and US Airways.

Subject: Teamsters Find Pensions at Risk... From: Emma To: Emma Date Posted: Mon, Nov 15, 2004 at 21:06:08 (EST) Email Address: Not Provided Message: 'Stocks are not a hedge against long-term fixed liabilities,' said Zvi Bodie, a finance professor at Boston University who has long challenged conventional pension investment strategies. 'For many, many years, right down to the present day, the dominant belief among pension investment people is fundamentally wrong. Now that's a big problem.' The record of a second big Teamsters' pension fund, covering members in the West, bolsters Mr. Bodie's arguments. The Western Conference of Teamsters fund has long shunned stocks and uses a totally different investment approach, a portfolio of 20- and 30-year Treasury bonds and other high-grade fixed-income securities that are scheduled to make payments when its retirees will be claiming their money. The Western Conference pension fund was not perceptibly hurt by the bear market. If the Central States were a younger pension fund, it could wait for the stock market to improve and bolster its value. But it already has more than 200,000 retirees collecting benefits of more than $2 billion a year.

Subject: Privatization Anyone? From: Terri To: Emma Date Posted: Mon, Nov 15, 2004 at 14:03:16 (EST) Email Address: Not Provided Message: This may be an object lessen in how Social Security privatization could go terribly wrong. If Wall Street can botch investing the Central States Teamster's Pension Fund through a 22 year bull market in stocks and bonds, then private account holders could be in serious danger.

Subject: Re: Privatization Anyone? From: Emma To: Terri Date Posted: Mon, Nov 15, 2004 at 21:09:48 (EST) Email Address: Not Provided Message: Simply investing in long term bonds from 1982 on, the Central States Teamster's Pension Plan would have no trouble meeting retirement obligations. How could pension fund managers made such mistakes? This example is quite sad and quite frightening.

Subject: Re: Privatization Anyone? From: Institutional Investor To: Emma Date Posted: Mon, Nov 15, 2004 at 22:41:09 (EST) Email Address: Not Provided Message: first off, I don't think many people understand how pension plans work. Pensions usually don't have one manager overseeing all the assets. They usually have multiple managers running different asset classes. These are usually overseen by an investment consultant chosen by the board of trustees. The board of trustees in many cases is made up of both labor and management. I think this article was written from the perspective of just trashing the management of pension plans or trying to be an alarmist. Pension plans have made some mistakes, but I think this is just a typical pessimist. A lot of the underfunding status can be attributed to the historic low interest rates. If long term rates were to increase 1-2% over the next few years, many of these plans would be sufficiently funded, but using the somewhat quirky accounting system to measure liabilities it appears as if the whole pension industry is going to blowup. These same plans that are underfunded were overfunded by 30-35% in the late 90s (look into the airlines funding, you'll be surprised to see they were overfunded). Its pretty easy to look back and say you should have invested in long bonds to meet obligations, but do you think anyone would believe they should not be invested of equity because of the chance of 3 years of -20% returns.

Subject: Re: Privatization Anyone? From: Terri To: Terri Date Posted: Mon, Nov 15, 2004 at 14:05:55 (EST) Email Address: Not Provided Message: If the issue is really returns to Social Security participants in future, then examine the possibility of investing a portion of contributions in the Total American Stock Market Index. My sense is Social Security reform means undoing Social Security.

Subject: Loan volume desperation From: Pete Weis To: All Date Posted: Mon, Nov 15, 2004 at 10:03:20 (EST) Email Address: Not Provided Message: Thanks to ARMs, mortgage holders are in double trouble 09:18 PM CST on Sunday, November 14, 2004 By Danielle DiMartino / The Dallas Morning News Double. That's basically what interest rates were in November 1994 vs. today. That was also the last time Americans were taking out adjustable-rate mortgages at today's record pace. Back then, when the 10-year Treasury yield was about 8 percent, ARMs made sense. At today's 4-percent level, such a choice is plain disturbing. The Mortgage Bankers Association reported last week that the percentage of new loans being written with adjustable rates hit 35.3 percent in the week ended Nov. 5, matching the 1994 record. And this in the same week that purchasing slowed and borrowing rates rose. I'm just thinking out loud here, but this may not be one of those records we'd want to cheer about. SMR Research in New Jersey specializes in consumer finance research. What better group to weigh in on this troubling trend? 'People usually turn to ARMs when rates spike so they can save some money,' said George Yacik, vice president of SMR. 'Today, people are buying the most possible home, with the lowest payment available, at the prodding of their mortgage broker.' Many of these people are stretching themselves beyond reason, he said, and will run into serious problems down the road. 'ARMs let people borrow extraordinary amounts of money compared to their incomes,' Mr. Yacik added. It's not as if the history of mortgage rates is shrouded in mystery. We know that last year, you could get a mortgage with an interest rate about a half-percent lower than today. And we know that at this time last year, the Federal Reserve had not raised interest rates four times and all but explicitly stated that it had every intention of hiking again. (I know, I know – mortgage rates don't move in lockstep with Fed action. They march to the beat of the 10-year Treasury. Even so, they're up by half of what the Fed has risen and look to be going higher as the dollar heads south.) Try as I might, I cannot grasp the concept of consciously taking on a payment you know is going to rise. Maybe I just don't get it. Maybe I'm behind the times. Mr. Yacik cites ingenuity in the mortgage industry as the reason ARM volume is perversely rising in the face of rising rates. 'A lot of the reason is lenders are trying to keep up their loan volumes,' he said. 'That means getting as many people qualified to buy as much home as they possibly can.' Problem is, many of these new-fangled loans have yet to be tested outside some number cruncher's office. I'm sure there are sensitivity analyses out there attesting to the soundness of an interest-only, no-down-payment, adjustable-rate with a why-pay-PMI-when-you-don't-have-to piggyback-on-the-side loan. In fact, no study can correctly predict the Armageddon scenario I fear. And why is that? Inflation-adjusted home price appreciation the likes of which we're experiencing in the current real estate cycle has never been documented. Not in the 1980s. Not in the 1920s. Not ever.

Subject: Re: Loan volume desperation From: Ari To: Pete Weis Date Posted: Mon, Nov 15, 2004 at 10:47:49 (EST) Email Address: Not Provided Message: Are housing and mortgage statistics compiled by any government agency, so they can be studied in a methodical way? The conclusions drawn are ominous, but a data source would help.

Subject: Re: Loan volume desperation From: jimsum To: Ari Date Posted: Mon, Nov 15, 2004 at 16:08:41 (EST) Email Address: jim.summers@rogers.com Message: I'd like to know why such a huge increase in housing prices isn't reflected in the inflation numbers. Housing is a major cost for most people, but a 50% or so rise in housing prices has apparently had almost no effect on inflation. As I recall, the costs of servicing a mortgage are part of CPI, not the price level of housing; but doesn't that lead to a kind of circular statistic? Inflation depends on (mortgage) interest rates which are affected by inflation. I guess this is yet another illusion that inflation is lower than it really is.

Subject: Re: Loan volume desperation From: Terri To: jimsum Date Posted: Mon, Nov 15, 2004 at 17:19:09 (EST) Email Address: Not Provided Message: Housing costs rise as interest rates and corresponding mortgage rates rise. So far short term interest rates have risen with the Fed tighenings while long term rates have been remarkably stable. Should long term interest rates rise meaningfully there will be more of a rise is the consumer price index. Property taxes are rising because houses are assessed at higher values, but tax rates do not appear to be climbing.

Subject: About the Drug Companies From: Emma To: All Date Posted: Sun, Nov 14, 2004 at 15:36:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/14/books/review/14HALL.html? 'The Truth About the Drug Companies' and 'Powerful Medicines': The Drug Lords By STEPHEN S. HALL DURING the past year, when I was driving my children to school, I'd hear the same advertisement on the radio again and again. You've probably heard it too: as somber music played in the background, a young man, his voice cracking, explains how he developed a rare and deadly form of cancer. He wonders if he will ever play baseball with his son, and then relates how, thanks to a company called Novartis and its new cancer treatment (never mentioned, but a drug called Gleevec), he's been given a new lease on life. What is most fascinating about this ad is that it should seem necessary. As Marcia Angell points out in ''The Truth About the Drug Companies: How They Deceive Us and What to Do About It'': ''Truly good drugs don't have to be promoted. A genuinely important new drug, such as Gleevec, sells itself.'' So why advertise a cancer drug that cures a fatal leukemia and has no competition? The answer, of course, is that Novartis is not advertising Gleevec, but the company itself -- and the virtues of the drug industry as a whole. Why? Because, as Angell notes, a ''perfect storm'' of indignation -- on the part of consumers, regulators and even doctors -- may be developing around the pharmaceutical business. In just one week this summer, the news included reports that Schering-Plough pleaded guilty to cheating Medicaid; the city of New York sued leading pharmaceutical companies, including Amgen, Bayer, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson and Merck, for inflating costs and defrauding taxpayers; Janssen Pharmaceutica Products admitted it had withheld from the public information about potentially fatal side effects in a schizophrenia drug it markets; and Wyeth settled yet another in the multibillion dollars' worth of lawsuits against it by people who suffered permanent injury from use of the fen-phen weight-loss drugs. All this against a broad public perception of price-gouging, lack of innovation and bombastic self-congratulation. And that brings me back to the Novartis ad. An alternative history for Gleevec is recounted in both Angell's methodical multicount indictment of the drug industry and Jerry Avorn's entertaining jeremiad, ''Powerful Medicines: The Benefits, Risks and Costs of Prescription Drugs.'' In this less heroic version, several decades of dogged research by academic scientists -- much of it paid for by American taxpayers through the National Institutes of Health -- had teased out the molecular details of chronic myelogenous leukemia, a rare and fatal hematological cancer. Researchers at Novartis (then Ciba-Geigy) created several compounds that in theory might throw a monkey wrench into the process by which blood cells become cancerous. But these potential miracle drugs sat on the shelf untested, until Brian Druker, a researcher at the Oregon Health and Science University, asked for the compounds and became the first to discern their anticancer properties in the lab dish. Even that wasn't enough. As Avorn tells it, ''Novartis had so little interest in committing resources to the drug's development that cancer researchers had to resort to the bizarre tactic of sending a petition to the company's C.E.O., signed by scientists in the Leukemia and Lymphoma Society of America, imploring him to make more drug available for clinical studies.'' Novartis has overcome its lack of enthusiasm -- it now charges $27,000 for a year's supply of Gleevec. But those heart-warming ads, now the centerpiece of the Novartis corporate identity, say more than intended about how today's pharmaceutical industry takes credit where little is due. As both Angell and Avorn lay out in painstaking, often enraging, detail, a self-serving mythology -- promulgated on a scale possible only in a business with annual worldwide revenues of $400 billion -- has enveloped the pharmaceutical industry. Angell and Avorn cut through the haze, arguing persuasively that Americans are paying an enormous amount of money for some very mediocre medicines. The rising voices of disillusionment have the credentials to back up their scorn.

Subject: Has anything really changed? From: Pete Weis To: All Date Posted: Sun, Nov 14, 2004 at 14:43:32 (EST) Email Address: Not Provided Message: Small investors are beginning to get hyped up once again as yet another stock rally appears in a year where many stock indexes have lost ground when real rates of return (factoring in dollar drop) as opposed to nominal rates of return are considered. The investing public tends to have a short memory. It is therefore important to ask ourselves if anything has really changed in the last 5 years? Our economy and ultimately the profits of business depends on a middle class with growing wealth and a growing ability to consume the products of our economy. Lest we forget the recent past, here are a number of pieces written in various newspapers around America during the economic depths of 2002: Sweet for Execs, Sweat for Others L. A. Times – by Carolyn Ziegler Davenport – July 22, 2002 Corrupt firms have coasted as employees sank (7/20/02) - As a former Dilbertina in corporate America, it seems to me that something important is missing in the current efforts to diagnose and treat a very bad case of corruption. The malady is not limited to 'a few bad apples,' nor will it yield to new regulations, important as they are. The infection is systemic, reflecting a 20-year change in corporate culture that converted full-time employees to temporary workers, all but eliminated corporate investment in communities and gutted strong companies to 'maximize shareholder value.' The resulting, and temporary, increases in stock prices and reductions in operating costs (at the expense of employees) fueled an obscene rise in executive salaries. Employees and communities were the immediate losers in the new corporations. Now we see that shareholders can also lose. Employees once were valued members of a corporate family. They worked an eight-hour day and were paid a fair salary that included a company-paid pension plan and decent medical-dental insurance. They may also have had a 401(k), or one of its predecessors, but this was not a replacement for a traditional pension. In return, most employees willingly gave their best efforts and loyalty. Shareholders received a regular return on investment in the form of dividends. They didn't have to sell their stock for immediate return and could endure the normal ups and downs of the business cycle, knowing that good companies invested for the future. Both employees and investors were usually in for the long term. Somewhere in the mid-1980s, 'paternalism' gave way to 'entrepreneurship.' Of course, corporate managers bear no relationship to true entrepreneurs. But the illusion led many to believe they deserved to live like robber barons and kings. Companies that once referred to employees as 'part of the family' became 'lean and mean' places of temporary employment, with employees hired and fired as needed. This was sold to employees as 'taking charge of one's career.' Divisions were sold off, producing instant revenue and juicing up executive compensation. It is no wonder that today's corporations do not value 'older' workers. They know too much. Attention, young people: In the 1930s, people died to establish the eight-hour workday, and until recent years it was the norm. There is something wrong when today's children are fed packaged dinners by a nanny and parents eat remnants while standing over the sink at 10 p.m. Employers know this. It was possible to overlook the loss of personal time and such hard-won benefits as company-paid pensions and medical care when it seemed we were all going to be rich. Now that that's over, perhaps we can rebuild our work environment into something fair. Dethroning the CEO is a beginning. Prior to the 1990s, extraordinary wealth was the realm of the true entrepreneur--Edison, Ford, Gates, Disney and others who, warts and all, created something of value. Many of today's CEOs created nothing; at best they managed well what they inherited. Businesses should start again to reinvest in employees and the community. This was once touted as being good for business and for shareholders. It still is. Accountants and economists can start speaking in plain language. Congress can establish independent governing boards and enact effective regulations. But without a change of values, greed and fraud will simply take a different form. Carolyn Ziegler-Davenport, who now works at Southwestern University School of Law, was a corporate employee for 17 years. Losing My Stake in the Economy New York Times – by Robert Hemsley – July 22, 2002 (7/20/02) - EVERETT, Wash. I work operating industrial machinery at a paper mill that is owned by a global corporation. My mill was built in the 1920's, when the stock market was soaring, F. Scott Fitzgerald was writing about the rich and Babe Ruth was hitting home runs for the Yankees. I get paid by the hour and do not understand the markets. I do not belong to a country club or own a suit. I just want to work at the mill until I retire. My mill has survived the Depression, a world war, even a couple minor earthquakes. But I worry if it can survive Ken Lay. Small investors like me — encouraged by politicians, financial advisers and CNBC — poured our retirement savings into the stock market. Now we are dismayed that the corporate captains have abandoned accountability while the crew sinks with the ship. Perhaps I am looking for excuses for the recent poor performance of my 401(k) plan, but I wonder if the market is fair. In 2001, the average chief executive's pay was more than $11 million, according to Pearl Meyer & Partners, an executive-compensation consulting firm. Executive pay has been climbing steadily for the past two decades and has outpaced employee pay. Two decades ago, C.E.O.'s were paid about 40 times more than the average hourly employee; now they make more than 500 times the wage of the average hourly employee. Last year the C.E.O. of my company made 592 times more than I did. I wonder if that makes me underpaid or the C.E.O. overpaid. Recently management told hourly employees at my mill to make concessions or risk losing our jobs. We made the concessions last autumn, but last spring the C.E.O. received a stock 'gift' worth $1.4 million. This isn't capitalism, it's avarice. I am not naïve. I know about the robber barons of the late 19th century and others throughout history who have abused the system. But never has the gap between executives and employees been greater. This disparity threatens the capitalist system itself. When employees make concessions while executives take bonuses, the bonds of common purpose are broken. Contrast this with the Marine Corps, which is structured so that enlisted personnel and officers work together for a common purpose. The Marine Corps commandant runs an organization with 172,600 men and women, oversees an annual budget of some $13.2 billion and is paid $163,177 annually — just 13 times more than the pay of a new private in boot camp. The system is successful because of a tradition of shared risks and rewards. All employees want their company to succeed, and I am proud to work where I do. I imagine my concern about my company's share price is as great as my C.E.O.'s; a portion of my 401(k) is in company stock. I recognize my job depends upon my company making a profit. But I wonder if corporate executives appreciate the role workers play in their success. Free enterprise is a system of risks and rewards. As it now stands, employees suffer most of the risks, while executives enjoy most of the rewards. Robert Hemsley is a member of the Association of Western Pulp and Paper Workers Union. Capitalism With Conscience Common Dreams – by Robert C. Hinkley – July 22, 2002 (7/16/02) - In his recent speech to Wall Street, President Bush stated, 'In the long run, there's no capitalism without conscience.' There is little doubt as to the truth of this assertion, but where is the conscience going to come from that is necessary to assure capitalism's future? Today's capitalism is driven by large corporations. In addition to sometimes defrauding their own shareholders, big corporations regularly despoil the environment, violate human rights and the dignity of their employees, endanger the public health and safety with dangerous or untested products and damage the welfare of the communities in which they operate. These actions are more illustrative of an absence of conscience than its presence. President Bush has said that the barrel just has a few bad apples whose shenanigans have called into question the trustworthiness of everyone else. He wants to fix this by forming corporate SWAT teams at the SEC and threatening CEOs and other corporate bigwigs with stiffer criminal penalties for their misbehavior. We are deluding ourselves if we think that this is going to bring (or restore) conscience to capitalism. Corporations are managed by groups of people acting collectively. Frequently, these people act on the advice of experts from the legal, accounting and banking worlds. Still other groups carry out the plans of the people making the decisions. Everyone knows that pinning criminal responsibility on individuals in this situation is almost impossible. Corporate managers are not going to change their behavior out of fear of prison terms they know they will never have to face. Despite the president's assertion to the contrary, there is something wrong with capitalism. What's wrong with it is that its engine, the corporation, has no conscience itself. Under the corporate law, the corporation is dedicated to the unbridled pursuit of profit. The law in all fifty states says that directors must use their best efforts to maximize profits for shareholders. Directors may be sued if they violate this duty. Everybody who works for a corporation knows it is their job to keep this from happening by helping the company make money. There is no element of conscience in this duty. Maximizing profits is pure self-interest. This dedication to the pursuit of self-interest is the reason corporations act without conscience and, ultimately, why capitalism is largely without conscience. For there to be capitalism with conscience, we must change the corporation to promote respect for the environment and other elements of the public interest. This change must promote socially responsible corporate behavior throughout the corporation irrespective of who is the CEO or whether he or she is a good apple or a bad one. Capitalism with conscience requires that all managers understand the pursuit of profits should not result in the destruction of the public interest. For this to be achieved, the duty of directors must be changed. I propose we do this by changing the corporate law to include a legally enforceable Code for Corporate Citizenship. In its most succinct form, the Code would simply add the following 24 words to the duty of directors to make money: but not at the expense of the environment, human rights, the public health or safety, the welfare of communities or the dignity of employees. The effect of the Code will be to create new duties for directors to protect the environment, human rights, the public health and safety, the welfare of our communities and the dignity of employees. These new duties should be enforceable in much the same way that shareholders are now able to hold managers responsible for not acting in the best interest of the shareholders- -by civil lawsuits brought by or on behalf of the people whose interest the corporation damages. The Code will require directors to pursue corporate profits only in ways that do not damage the environment or any of the four other elements of the public interest it protects. In a sense, it will free directors and other people in the corporation to follow their conscience (sometimes sacrificing profits to protect the public interest), without fear of being sued by shareholders. The Code for Corporate Citizenship will improve the profit motive not eliminate it. It will allow capitalism to evolve to its next logical step by providing what the president has correctly stated it cannot survive without--conscience. Robert C. Hinkley is a corporate lawyer and former partner in the New York law firm Skadden, Arps, Slate, Meagher & Flom LLP. He now resides in Brooklin, Maine. WTO Protesters Appear Prophetic Seattle Post-Intelligencer – by Sean Gonslaves – July 22, 2002 (7/16/02) - What about states' rights? Before Enron, WorldCom and the rest of the Wall Street hustler stories broke, in this most recent wave of corporate criminality, anti-globalization protesters and other factions of what I loosely refer to as the economic justice movement were derided by even the liberal media as being senseless when it comes to economics. But now that the bad apple theory has been exposed as a red herring offered by unregulated free-market worshippers, those so-called idiots who took to the streets of Seattle in 1999 appear to be, well, prophetic. The muted message coming out of the protests has been: There's something wrong with the global economic system itself -- namely, a lack of democratic accountability. And now, with even our business-is-king president conceding the point, we can finally have a discussion about corporate responsibility and social ethics without some F.A. Hayek or Milton Friedman fanatic drowning out opposition voices by using meaningless political epithets like 'you're a socialist, Marxist, communist, liberal.' Late last week, The Wall Street Journal reported, 'Ultimately, the proposals Mr. Bush advanced in (his) speech on Wall Street may well serve as the floor rather than the ceiling for Washington action.' Following the president's address, the Senate moved to go beyond Bush's timid proposals, voting 97-0 to establish sweeping new powers to target corporate fraud, creating a new corporate-fraud chapter in the federal criminal code. The Senate also voted 96-0 to toughen criminal penalties for white-collar crimes, such as pension fraud, mail fraud and conspiracy -- a provision that would, according to the Journal, 'allow courts to mete out the same punishments to guilty executives as now apply to drug kingpins.' The essence of what the Senate was trying to do was captured by Vermont Democrat Patrick Leahy when he said: 'If you steal a $500 television set, you can go to jail. Apparently if you steal $500 million from your corporation and your pension holders and everyone else, then nothing happens. This makes sure something will happen.' That's an implicit admission that our criminal justice system has long served the interest of the wealthy at the expense of the less affluent. And not that anyone was expecting it, but the president could have appointed an independent counsel to investigate Vice President Dick Cheney's tenure at Halliburton, amid allegations by the conservative legal watchdog group Judicial Watch that the oil-field services business headed by Cheney engaged in fraudulent accounting practices from 1999 to 2001. It kind of puts the Clinton-Whitewater affair in a whole new perspective. So now that the momentum has shifted toward greater corporate accountability, maybe the ideas coming out of such organizations as the Program on Corporations, Law and Democracy (POCLAD) will get broader consideration. That will remind us that the sovereignty rights of real people come before so-called corporate rights, as the framers of our Constitution intended (see www.poclad.org). It was through pro-corporate judicial activism in the early 1900s that the Constitution and concept of private property found therein came to be interpreted as justification for the legal absurdities we have today in which individual rights and liberties meant for flesh-and-blood human beings are extended to corporations. Want some relevant summer reading? Check out POCLAD's collection of essays and speeches called 'Defying Corporations, Defining Democracy.' In that book, I found this gem from an 1890 New York Court of Appeals case, involving the North River Sugar Refining Corp. Writing on behalf of the court, Justice Finch declared: 'The judgment sought against the defendant is one of corporate death ... The life of a corporation is, indeed, less than that of the humblest citizen ... Corporations may, and often do, exceed their authority only where private rights are affected. When these are adjusted, all mischief ends and all harm is averted. 'But where the transgression has a wider scope, and threatens the welfare of the people, they may summon the offender to answer for the abuse of its franchise or the violation of its corporate duty. The (North River Sugar Refining) corporation has violated its charter, and failed in the performance of its corporate duties, and that in respects so material and important to justify a judgment of dissolution ... All concur.' Corporations used to be under the authority of the states in which they were chartered. Where are states' rights advocates on this issue today? Why are they not echoing the sentiments of our great nation's founders -- such people as Thomas Jefferson, who spoke of the need 'to crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country'? Employee Advocate: To read 1999 WTO protest comments, click the link below: Duke And The WTO Protest Are We Angry? You Bet. Fool.com – by Bill Mann – July 22, 2002 We received a trade association press release Friday, hailing the defeat of Sen. McCain's 'assault on stock options,' calling it a 'bipartisan effort in support of high-tech workers.' A bipartisan assault on investors is more like it. No one on Capitol Hill seems to understand that accounting for stock options has exactly zero economic effect on a company. What they're supporting is not high-tech workers, but corporate greed and a touch of blackmail. Bill Mann's coming out swinging. (7/16/02) - I hope by the end of this effort, Taryn Lynds, director of public communications with the American Electronics Association (AeA), wishes she had never heard of me, or The Motley Fool. I know she's going to rue sending us a copy of a press release hailing the defeat of accounting stock options. AeA is comprised of more than 2,700 high-tech company members. These members make up an enormous slice of the American economy, including such massive beasts as Microsoft (Nasdaq: MSFT), AOL Time Warner (NYSE: AOL), and Cisco (Nasdaq: CSCO). Among its members are the worst abusers of stock options grants in the market, with companies that routinely give away hundreds of millions of shareholder value to insiders as performance-based incentives. This is not an effort to get companies to rein in executive compensation. I'm not a big political animal, and I'm certainly not one to stoke the flames of class warfare. If they want to pay executives millions of dollars, and the shareholders approve, well, by all means, they should. But as an individual investor, I find the arguments against stock options accounting so disingenuous that I can't understand how people don't see them for what they are: self-interested ways to give insiders enormous pay packages without disclosing the effect to shareholders. Seriously, these options are worth billions to those who receive them. Not expensing them treats the options as if they've come out of thin air. Someone bears a cost, and that cost should be represented. That someone is the existing shareholder. For the last time (which means that it won't be for the last time): Options expensing has no economic effect! The cost to shareholders -- in the form of dilution -- is exactly the same, either way. Companies are trying to make their income statements look as good as possible. Congressmen: AeA's arguments supporting high-tech workers in regard to stock options are snow jobs. Companies are afraid that if they have to show the true economic cost of options, earnings will be lower, and their share prices will drop. Big deal! If stock options provide a distorted picture of performance to the end shareholder, then we're not talking about making financial statements look worse. We're talking about making them look accurate. Where else could you say, 'Well, if we lie, it looks better...'? Oh yeah, Washington. Never mind. Ah, but what about the rank-and-file employees of these companies? Some companies say that these employees will be denied a valuable form of compensation if the company expenses options. Read that paragraph above once again. Options expensing has no economic effect. So, if a company is going to take options away just because it has to expense them, it's saying, 'It's OK to do so, as long as we don't have to tell people the cost....' That's not an argument based on the righteousness of the cause. There's a word for companies that curtail options to the rank and file, simply because of expensing: blackmail. Earnings presented to shareholders that do not include stock options expensing are deceptively high because they overstate the amount of economic return an investor should expect. Coca-Cola (NYSE: KO) finally gets it. So does The Washington Post Co. (NYSE: WPO). Winn-Dixie (NYSE: WIN) and Boeing (NYSE: BA) have understood this for years. Warren Buffett has understood it for years, calling the current treatment of stock options 'absurd.' Ah, but the AeA felt good enough about itself to declare 'victory.' When the AeA 'won,' shareholders lost The victory the AeA claims, dear shareholder, is over you. And if you own shares in a company in the AeA, the company is paying dues to an organization that's fighting your interest in determining the true cost of a company's employee compensation. One would think that a trade association representing so many public companies would be more careful than to poke the hornet's nest of angry shareholders. I have crafted a letter of response to Taryn Lynds of the AeA, expressing my displeasure at its self-interest and anti-shareholder stand on stock options. I pointed out that among AeA's members are the worst abusers of stock options: companies that give mega-grants to executives, that give away 8%, 9%, 10% per year to employees. This, by the way, is the same organization that lobbied hard against stock option expensing last time around (thank you, Sen. Joe Lieberman), and vociferously fought the Financial Accounting Standards Board's banning of pooling interest accounting methods for acquisitions, claiming that it would be disastrous for the technology industry. Guess what? All of those acquisitions used a pooling method that turned out to be a basket of snakes. But the current turmoil and shareholder anger offer individual investors an opportunity to say to public companies, 'Enough is enough. You can hide compensation costs to shareholders, but we refuse to be among them.' AeA and other lobbying firms have held sway in Washington forever, and they will continue to. But in order for their plots to keep stock options hidden to be successful, they need individual investors to play along. Well, I won't. I control The Rule Maker Portfolio. Tomorrow, we're selling one company in the portfolio, an AeA member. In the next few weeks, we will continue to purge AeA member companies from the portfolio. I'm also going to sell the stock of AeA members out of my own portfolio. With each sale, I'm going to send a brief letter to the company's investor relations department. It will say: Dear Sir/Ma'am: It is with some regret that I inform you of my intention to sell my entire position in your stock. I don't doubt that yours is a fine company. I would not have invested otherwise. However, I am appalled by the position the AeA, a trade association to which your company belongs, has taken in regard to employee stock options expensing. My investment dollars support you, and, in a small way, those dollars are paid to an organization that holds my right to proper accounting of compensation in contempt. Your continued membership in and support of the policies of the AeA reveals the level of contempt in which you hold shareholders. Until your company either leaves the AeA or enacts a shareholder-friendly employee stock options policy, which includes expensing, you should expect me to continue on my campaign of getting others to sell your stock. Sincerely, Bill Mann Companies eager to hide stock option compensation expenses in fear of a stock sell-off can't be pleased by a sell-off of their shares as a result of their failure to give owners proper accounting. Care to join me? While you're at it, why don't you send a note to your senators and representatives, telling them about what you're doing? I have no ill will toward these companies, nor do I find it particularly pleasant to sell things that I may not wish to sell. Doesn't matter. This is right. Do you hear me, AeA? You may have the big money, but in this matter, you are in the wrong. Fool on! Bill Mann, TMFOtter on the Fool Discussion Boards Bill Mann is senior editor for investing at the Motley Fool. He's also, in spite of the sentiment put forth here, a net buyer of stocks at this time. He has beneficial interest in Cisco. The Motley Fool has a disclosure policy. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Expensing Of Options Inevitable Washington Post – by Kathleen Day – July 21, 2002 (7/20/02) - Securities and Exchange Commission Chairman Harvey L. Pitt said yesterday that it is inevitable that publicly traded companies will have to treat stock options as an expense. Pitt, who has said he does not favor counting options as an expense, hasn't altered his view, an SEC spokesman said after Pitt's statement. But Pitt believes that given the current political and economic environment, the change in accounting is certain to come. 'The question isn't whether stock options should be expensed,' Pitt said during an appearance at the National Press Club. 'The question is when and how.' He said, however, that even before such a major change, other fundamental issues about stock options should be addressed that would align the incentives for management with the interests of shareholders. The granting of stock options, for example, should be tied to a company's long-term financial goals, rather than short-term goals, such as quarterly or yearly results, he said. Pitt added that publicly traded companies should require that shareholders approve stock option plans, saying he has asked the New York Stock Exchange and the Nasdaq Stock Market to make that a requirement for all companies trading on those markets. Also, he said, stock option grants should be approved by independent directors of the company not tied to management. Pitt also said corporations should not be able to make up the losses for top executives when their stock options fall in value because of poor company performance. Only when those issues are addressed, he said, would it make sense to deal with the question of how to account for stock options. Financial regulators and other experts have been pressing since the early 1990s to change the way corporations treat options on their profit-and-loss statements. But the companies that use them -- especially many high-tech firms and financial services companies -- have pushed hard to retain favorable treatment. The current rule gives companies the best of both worlds. Unlike salaries, the cost of granting options does not need to be subtracted from earnings, although companies must include an explanation in a footnote of how earnings would be affected if they were counted. But when the options are exercised, the company is entitled to a tax deduction. Options do have costs for investors, diluting the value of their shares. Perhaps more important, critics say, options create an incentive for executives to push for short-term stock market gains, whether or not such a strategy is beneficial to the company in the long run. Only a handful of companies now treat options as an expense. But the number is growing. Just this week, Coca-Cola Co., The Washington Post Co. and Dole Food Co. announced that they will do so. According to a report by Bear Stearns & Co., 38 companies would have experienced an earnings decline of more than 50 percent last year if they had been required to deduct options as an expense, and 20 percent of the profit reported by Standard & Poor's 500 companies would have been erased. Mark Nebergall, president of the Software, Finance and Tax Executives Council, a trade group opposed to changing the rules, said the revision is not inevitable. The Financial Accounting Standards Board, which sets accounting rules, has not revised the rule, and Congress will be hesitant to get involved, Nebergall said. He argued that treating options as expenses is hard to do reliably when companies don't know how much their employees will be able to profit from them. 'It's a step backwards in terms of clarity,' he said. Staff writer Renae Merle contributed to this report. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Stop the Culture of Corporate Greed Bernie.House.gov - Congressman Bernie Sanders – July 20, 2002 (7/11/02) - There is a cancer eating away at the heart of corporate America and its name is “greed.” It is becoming increasingly apparent that more and more large corporations will do anything, legal or otherwise, to fatten the already huge compensation packages of their CEO’s and other senior executives. As we have seen in recent years these corporations lie about their financial statements, cheat or move abroad to avoid paying their fair share of taxes, cut the pensions and health benefits of their employees and throw loyal workers out on the street as they move their plants to China. At the same time many of them line up for billions in corporate welfare from the federal government. Let’s be clear. We’re not just talking about a “few bad apples,” such as Worldcom, Enron, Xerox, Adelphia, Tyco, Merck, and Arthur Anderson. According to a recent study by the Huron Consulting Group, over the past five years nearly 1,000 companies were forced to correct their financial statements. The “greed culture” in the United States today is almost beyond belief. CEOs of major corporations now make over 500 times what their employees earn. In addition, they receive bonuses, golden parachutes, stock options, lavish retirement plans, and a wide range of other very generous benefits. The result is that the richest 1% now own more wealth than the bottom 95% and we have, by far, the most unfair distribution of wealth and income in the industrialized world. At WorldCom, where profits were overstated by $3.8 billion, 17,000 jobs have been lost. Their accounting fraud has cost shareholders some $150 billion, including billions in lost pension assets. Meanwhile, former WorldCom CEO Bernard Ebbers received personal loans from the company of more than $408 million that he still has not paid back. In addition, John Sidgmore, the current WorldCom CEO, has sold more than $87 million of WorldCom stock since 1997. Scott Sullivan, the former WorldCom Chief Financial Officer, has sold more than $45 million in WorldCom stock since 1995. If you add it up, just 5 people at WorldCom received over $600 million in loans, compensation, and stock over the past few years. Furthermore, according to the Citizens for Tax Justice, while WorldCom reported $16 billion in earnings to its shareholders between 1996 and 2000, it reported less than a billion dollars of taxable income to the IRS - thus avoiding millions in taxes. As a member of the House Financial Services Committee I have had a chance to confront the leaders of Arthur Anderson at public hearings. But while it is important to make these individuals answer for their crimes, we should not forget the broader questions because these executives represent just the tip of the iceberg. First, what is going on in our country today that allows for the kind of corporate thievery that we are seeing? Secondly, beyond political posturing and sound-bites, what are elected officials really going to do about it? How do we change the culture in this country, and the role of the Congress and the White House, so that we put an end to this outrageous corporate behavior once and for all? In my view, the most important thing that Congress can do is to put an end to the culture of money and campaign contributions that now permeates Washington. Since 1990, accountants and their PACs have given $57.4 million to federal candidates and political parties. In addition, big business has made $522 million in campaign contributions to both political parties during the 2001-2002 election cycle alone. One would be very naïve not to understand that these huge campaign contributions have played an important role in turning Congress away from addressing the issues of corporate greed and fraud. In fact, right now, the Republican Leadership and the President are working hard for another $1 trillion in tax breaks for the richest two percent of the population. While Congress has recently made progress in campaign finance reform by banning unlimited soft money, much more needs to be done. Ultimately, we need to move to public funding of elections so that candidates are no longer dependent upon the wealthy and large corporations for their contributions. Secondly, we need a much stronger regulatory system so that auditors cannot cook the books, and corporations cannot avoid paying the taxes they owe. In the short term, SEC Chairman Harvey Pitt should resign because of the very strong conflicts of interest that he has. As a former accounting lobbyist, Mr. Pitt successfully lead the efforts against auditing reform. Third, new criminal penalties must be established to hold corporate leaders accountable for what goes on in their companies, and that puts them in jail when they break the law. CEOs and corporate directors who destroy thousands of jobs and cheat Americans out of billions deserve stiff penalties for the crimes they commit. Fourth, corporations that break the law should be prohibited from receiving government contracts. WorldCom receives $1.7 billion every year in government contracts. If they are found to have broken the law, these contracts must end immediately. Finally, from an economic development perspective, the federal government should stop providing corporate welfare to the large multi-nationals who are closing down plants here and moving to China and Mexico. Instead, we should begin helping those companies, often small and medium size business as well as worker-owned companies, who are trying to increase jobs in the United States. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- The Corporate ‘Crawfishing’ Has Begun Associated Press – by Karen Talley – July 18, 2002 (7/16/02) - NEW YORK (Dow Jones/AP) - The Securities and Exchange Commission is hitting a nerve with its new requirement that corporate executives swear to the accuracy of their financial statements. A number of companies are asking if they can modify the information in their recent financial results before signing on the dotted line, according to an SEC spokesman. Under an order by the SEC, chief executives and financial chiefs at companies with more than $1.2 billion in revenue have to swear under oath in writing that their financial results are complete and accurate. The deadline for most companies is Aug. 14. The SEC's response to the requested 'modifications,' which have mostly been coming from corporate counsels, is an unequivocal no. 'This is black or white, there is no grey,' said SEC's John Nester. 'Either you attest to the accuracy of the figures' in financial results 'or you go into the pile that doesn't comply.' Companies in the noncompliance pile will have the opportunity to explain why they aren't comfortable endorsing their report, and even if the reasons are valid, the hesitation could create some discomfort or even backlash as word gets out. 'No one wants to be in the explanation pile,' Nester said. 'But that's how it's going to be. Our goal is to supply a very clear picture of who's been in compliance and who has not.' The fact that some companies are asking for permission to do a bit of extra work on their already-filed reports did not surprise many market watchers. 'I kind of expected it,' said Howard Barlow, managing director at Cypress Strategies. 'It's well known that many companies make a practice of massaging their numbers.' The SEC's order is expected to be broadened in the months ahead to include many more companies, but already some of these smaller firms are approaching the SEC about certifying their reports. The companies see such a move as providing a seal of approval that could serve as an inducement to investors looking for honest businesses, analysts said. Let the Corporate ‘Crawfishing’ Begin --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Money is Buying Policy New York Times – by Kevin Phillips – July 18, 2002 (7/17/02) - GOSHEN, Conn. — America is at a turning point. Corporate scandals, the fall of the stock markets, the sudden mobilizations in Washington of the last few weeks to legislate against some of the more egregious corporate abuses: they all indicate that the nation's attitude toward business is changing. It is potentially a bigger change than many politicians realize. What's unnerving them is that the payback from the market bubble of the late 1990's is becoming apparent to Main Street. The charts of the downside since March 2000 are starting to match the slope of the earlier three-year upside. Not that it's a new phenomenon. In the Gilded Age of the late 19th century and again in the Roaring Twenties, wealth momentum surged, the rich pulled away from everyone else and financial and technological innovation built a boom. Then it went partially or largely bust in the securities markets. Digging out is never easy. But this time, the deep-rooted nature of 'financialization' in the United States that developed in the 1980's and 90's may make it even tougher. Near the peak of the great booms, old economic cautions are dismissed, financial and managerial operators sidestep increasingly inadequate regulations and ethics surrender to greed. Then, after the collapse, the dirty linen falls out of the closet. Public muttering usually swells into a powerful chorus for reform — deep, systemic changes designed to catch up with a whole new range and capacity for frauds and finagles and bring them under regulatory control. Even so, correction is difficult, in part because the big wealth momentum booms leave behind a triple corruption: financial, political and philosophic. Besides the swindles and frauds that crest with the great speculative booms, historians have noted a parallel tendency: cash moving into politics also rises with market fevers. During the Gilded Age, the railroad barons bought legislatures and business leaders bought seats in the United States Senate. In the last years of the 19th century, one senator naïvely proposed a bill to unseat those senators whose offices were found to have been purchased. This prompted a colleague to reply, in all seriousness, 'We might lose a quorum here, waiting for the courts to act.' Over the last two decades, the cost of winning a seat in Congress has more than quadrupled. Legislators casting votes on business or financial regulation cannot forget the richest 1 percent of Americans, who make 40 percent of the individual federal campaign donations over $200. Money is buying policy. Speculative markets and growing wealth momentum also corrupt philosophy and ideology, reshaping them toward familiar justifications of greed and ruthlessness. The 1980's and 1990's have imitated the Gilded Age in intellectual excesses of market worship, laissez-faire and social Darwinism. Notions of commonwealth, civic purpose and fairness have been crowded out of the public debate. Part of the new clout and behavior of finance is so deep-rooted, however, that it raises questions that go far beyond the excesses of the bubble. In the last few decades, the United States economy has been transformed through what I call financialization. The processes of money movement, securities management, corporate reorganization, securitization of assets, derivatives trading and other forms of financial packaging are steadily replacing the act of making, growing and transporting things. That transformation has many roots. Finance surged in the 80's partly because deregulation removed old ceilings on interest rates and let financial institutions offer new services. The rising stock market, in turn, drew money from savings accounts into money market funds and mutual funds, turning the securities industry into a huge profit center. Computers underpinned the expansion of everything from A.T.M.'s to scores of new derivative instruments by which traders could gamble with such dice as Treasury note futures or Eurodollar swaps. Meanwhile, the Federal Reserve and Treasury Department proved during the 80's and 90's that nothing too bad could happen in the financial sector, because Washington was always ready with a bailout. Supported so openly, rescued from the stupid decisions and market forces that pulled down other industries, the finance, insurance and real estate sector of the economy overtook manufacturing, pulling ahead in the G.D.P. and national income charts in 1995. By 2000, this sector also moved out front in profits. It also became the biggest federal elections donor and the biggest spender on Washington lobbying. The effects have been profoundly inegalitarian — and not just in the loss of manufacturing's blue-collar middle class. In the last two decades, as money shifted from savings accounts into mutual funds, promoting the stock markets and the money culture, corporate executives became preoccupied with stock options, compensation packages and golden parachutes. 'More' became the byword. In the new management handbook as rewritten by finance, the concerns of employees, shareholders and even communities could be jettisoned to raise stock prices. Major companies could make (or fake) larger profits by financial devices: writing futures contracts, investing in stocks, juggling pension funds, moving low-return assets into separate partnerships and substituting stock options for salary expenses. Enron was only the well-publicized tip of a large iceberg. A century ago, putting a new regulatory framework around abuses of the emergent railroad and industrial sectors became a priority. This effort largely succeeded. Whether another such framework must be put in place around finance in order to safeguard household economic security is a question that at the very least calls for a national debate. Whether the current proposals are the beginnings of that debate or mere window dressing remains to be seen. Kevin Phillips is the author of 'Wealth and Democracy: A Political History of the American Rich.' --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Pay for Pretense New York Times – by Gretchen Morgenson – July 16, 2002 (7/14/02) - Why would Bristol-Myers Squibb use incentives to induce its wholesale customers to buy more products than they needed last year, a practice that may have resulted in overstated revenue at the company? The Securities and Exchange Commission is investigating the company, which has said that its sales practices are proper. And why would Merck & Company include in its revenue in recent years $14 billion in co-payments that consumers made for prescriptions that the company did not actually receive and that did not show up in net income? Kenneth C. Frazier, general counsel at Merck, said the methodology accurately reflects the company's results, and that the revenue recognition is appropriate. Both questions may share this answer: during the market boom, investors paid close attention to sales growth, and rising sales became crucial to rising stock prices. But there's another, troubling answer to the queries. In both companies, executives stood to benefit personally by higher revenue because of the way in which their compensation was calculated. According to Merck's proxy statement, executive bonuses are determined by comparing growth in revenue and earnings per share to those of its peers in health care. Recording an extra $14 billion in sales — 10.5 percent of the company's total sales in the relevant period — cannot have hurt those comparisons. And last year, Bristol-Myers started a new long-term incentive plan that based payouts partly on sales growth. Previously, they were based on total shareholder return versus its peers and earnings growth. On Thursday, the company said that regulators were scrutinizing last year's sales for potential overstatement. Richard J. Lane, the former president of the company's worldwide medicines group, left Bristol-Myers in April when its chairman announced that wholesalers were holding hundreds of millions of dollars in excessive inventories of company products and that this year's revenue would fall as a result. A spokeswoman said the company would not comment on whether Mr. Lane would be returning any of the $2.145 million restricted stock award given to him as part of his long-term compensation last year. He also made $1.25 million in salary and bonus. Mr. Lane did not return a call seeking comment. Then there is WorldCom. In determining its top executives' bonuses last year, the proxy says, the company assessed revenue, earnings and the market value of its common stock. But it also used an unusual measure: billings by WorldCom under service agreements with its customers. Customer billing records are among the documents that the S.E.C. requested from WorldCom last March as part of its investigation into the company's accounting practices. It is far too simple to conclude that executive compensation plans can serve as a road map to where corporate cheating might go on, but it is becoming distressingly clear that the pay-for-performance philosophy that was supposed to align executives' interests with shareholders' has been badly distorted. 'Pay for pretense' may be a better name for it, given some of the accounting shenanigans that have emerged. William R. Thomas, who runs the Capital Southwest Corporation, a publicly traded investment company in Dallas, is deeply troubled by what he calls the corruption of capitalism by officers and directors of big corporations and dismayed that few chief executives have vowed to eliminate the rot. 'Their unbridled greed is poisoning the system that has been the source of our nation's wealth,' he said. 'The impending takeover of corporate America by self-serving elitist managers may prove to be far more damaging to capitalism than anything Karl Marx could have conceived.' Amen. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- The Hypocrisy of Wall Street Culture New York Times – by Kate Jennings – July 15, 2002 (7/14/02) - In 'The Devil's Dictionary,' Ambrose Bierce famously defined a corporation as 'an ingenious device for obtaining individual profit without individual responsibility.' Bierce and his wicked definition came to mind when President Bush called for a 'new ethic of personal responsibility in the business community' during his Wall Street speech. Bierce would've been delighted at the coincidence. To many of us, the president's rhetoric on Tuesday was all gaping gum, no teeth. If by chance, though, he was being sincere, Mr. Bush was knocking himself out for nothing because, as Bierce's definition implies, the structure of American corporations is inimical to the 'new' ethic he was espousing. Despite the efforts of many fine people, American corporations are notorious for daddy-knows-best, brook-no-dissent cultures where personal responsibility more often dies than flourishes. They are also secretive, self-referential environments where transparency, Mr. Bush's other hobbyhorse, is unlikely to be embraced in any form, accounting or otherwise, except as window-dressing. I make these observations as someone who worked for much of the 1990's as a speechwriter at two major Wall Street financial services corporations. Until then, I'd had no experience of closed societies and rigid hierarchies; perforce, to survive, I had to turn myself into something of an anthropologist. One paradox was hard to miss: When I crossed the thresholds of those downtown skyscrapers, I went from a one-person, one-vote democracy — messy, noisy, infuriating, but democratic — to a netherworld where fear was the primary management tool and dossiers, censorship, misinformation and various forms of surveillance were standard practice. To me, corporations seemed not merely autocratic but totalitarian; the engines of America's fabled democratic society are anything but. To heap paradox on paradox, because I worked with investment bankers I was surrounded by free-market fundamentalists who roamed the globe preaching a triumphant gospel of deregulation from which all freedoms would flow, yet returned to a bureaucratic roost perfectly Soviet in its rigidity. The fall of the Berlin Wall, followed by the tech boom, had 'turbo-charged' — to use a favorite piece of business jargon — their sense of superiority and rightness in all things, not just economic. Of course, free markets were allowed to be free only when it suited bankers; when Long-Term Capital Management faced collapse, instead of allowing it to fail, as the market was clearly dictating, they bailed it out to save themselves. In fact, derivatives-related debacles were piling up faster than car wrecks on a foggy highway. Cost of doing business, said the bankers. Harbingers of much worse to come, said prescient students of financial scandals. One can argue that corporations, like the armed forces, have to be autocratic. But delivering goods and services in an efficient, competitive manner doesn't require the same unquestioning loyalty as fighting wars. Disciplined teamwork, yes, but not blind obedience. From my experience, corporate employees, while understanding the need for unity, are hungry for real debate, not scripted events. Without it, they know, there is no intellectual growth — just executive mind-sets growing thick and wrinkly as elephant hide. Every now and again, employees revolt against being treated as children. I remember a meeting where someone got the bright — and career-undermining — idea of polling the assembled managing directors on whether they thought the firm's strategy, as just outlined by the chief executive, would succeed; they were to punch in their responses on handheld devices, to be instantly flashed up on a screen in a way that would be hard to ignore. Against all rules of corporate decorum, a majority voted no, the firm's strategy wouldn't succeed. Loud gasp. As stunning as this moment was, it was just as stunningly passed over; the meeting continued as if the vote had never happened. In any sane, responsive world, the C.E.O. would've stopped the proceedings and started a debate as to why the managing directors felt that way. The frustration in the hall was palpable. Yet such high-handedness is accepted. Executives not only routinely ignore their employees, they appease the market whenever necessary by firing large quantities of them — all done with impunity. It was not until the events of the last months, however, that many shareholders became aware of the extent to which they, too, are but pawns in management's game. They didn't have to lose their portfolios and pensions to learn this, because there has long been one dead giveaway of corporate disdain for shareholders: All over the United States, when the season arrives for annual shareholder meetings, corporations convene them in out-of-the-way places to dissuade shareholders from attending and asking pesky questions. To return to Ambrose Bierce. Under the entry for 'riches' in 'The Devil's Dictionary,' instead of a definition, you will find three quotes: 'A gift from Heaven signifying, `This is my beloved son, in whom I am well pleased.' ' — John D. Rockefeller 'The reward of toil and virtue.' — J. P. Morgan 'The savings of many in the hands of one.' — Eugene Debs On which Bierce — prince of curmudgeons, king of cynics, long may he be read and emulated — wisely refused to expand. Kate Jennings is the author of 'Moral Hazard,' a novel. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Paid in Planes, Perks, and Automobiles Fortune – by Jeremy Kahn – July 14, 2002 (Monday, July 22, 2002 issue) - Perhaps the most shocking thing about Dennis Kozlowski's $18 million New York crash pad, which was apparently paid for by--and never disclosed to--Tyco shareholders, is that his perk didn't really seem all that shocking. But was it legal? That's the key question to ask about rampant, over-the-top CEO giveaways. The answers are seldom black and white. One thing is clear: CEOs can negotiate whatever compensation they please. 'It would be impossible to exaggerate what they can ask for,' says Ken Werner, an executive compensation lawyer at Day Berry & Howard in Boston. Cars, private club memberships, home loans, and moving expenses are common goodies, according to Werner. But most company bylaws state that any senior executive's employment contract should be approved by the board. Tyco is investigating Kozlowski's living arrangement, as well as $13 million in 'relocation' loans he allegedly approved without the board's knowledge for former general counsel Mark Belnick. (Tyco has filed suit against Belnick; his lawyer calls these claims 'malicious and baseless.') The rules governing what companies must tell shareholders are even cloudier. The SEC says that any perk worth more than $50,000 must be counted toward the CEO's compensation and included in the proxy statement. Any perk worth more than 25% of the total of all these extras must be detailed in a footnote. But there is plenty of wiggle room. Say the CEO of a construction firm asks his workers to build an addition to his house. The rules say the perk should be valued based on the 'incremental cost' to the company, but 'you could argue that it's zero if those workers would have otherwise been idle,' says Stan Keller, a lawyer at Palmer & Dodge. Patrick McGurn, director of corporate programs for Institutional Shareholder Services, says the SEC hasn't been policing perks because it has limited resources and didn't realize until now how frequently companies flout the rules. Corporations can buy homes--supposedly to entertain customers--furnish them with priceless art, and then let an executive live there. The imputed rental income from the home should be disclosed to shareholders and the IRS, but in many cases it isn't. In New York alone, GE owns four executive apartments, including an $11.3 million pad recently purchased for CEO Jeffrey Immelt, that aren't disclosed. GE spokesman Gary Sheffer says the non-business use of these apartments doesn't meet the $50,000 threshold for SEC disclosure. Perhaps the most abused perk is corporate jets, which companies often insist their CEOs travel on for 'security' reasons. But there is vast potential for abuse, especially if the CEO schedules board meetings in locales conveniently near his vacation home and calls the flights 'all business.' Greg Hutchings, the former CEO of British industrial conglomerate Tomkins, stepped down after a dispute with the company over his use of the corporate jets (which he maintained he flew for legitimate business purposes). Former RJR-Nabisco CEO Ross Johnson is rumored to have once used a jet to fly his dog home. We always knew that CEOs lived a dog's life. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- How Stock Options Lead to Scandal New York Times – by Walter M. Cadette– July 13, 2002 (7/12/02) - MILLBROOK, N.Y. — In his speech about corporate fraud and abuse, President Bush mentioned stock options only once — and then to endorse an existing proposal to require shareholder approval of all options plans. His endorsement is welcome, but it is woefully inadequate: the stock-options culture is at the root of the current scandals on Wall Street. Options, which are not counted as an expense and thus inflate earnings, bring with them a powerful incentive to cheat. They hold out the promise of wealth beyond imagining. All it takes is a set of books good enough to send a stock price soaring, if only for a while. If real earnings are not there, they can be manufactured — for long enough, in any case, for executives to cash out. This, in essence, is what happened at Enron, WorldCom, Xerox — indeed, at quite a long list of companies. That list is bound to grow, judging by the findings of a study I published with two colleagues last year. We examined operating earnings — profits from ongoing operations excluding nonrecurring items like sales of assets — of firms in the Standard & Poor's 500 index. In comparing these earnings to net income (a company's total profits, including one-time gains or losses and other nonrecurring charges), we found that operating earnings have exceeded net income every year for 20 years. This is counterintuitive. Especially during the go-go years of the 1990's, companies often boosted their net income compared to their operating earnings by selling valuable assets — a subsidiary, for example, that had been bought years earlier at a low price. The implication is clear: in many instances, corporations recast operating expenses as nonrecurring charges and, to a lesser extent, recast nonrecurring income as operating revenue. Especially notable was the free and often deceptive use of restructuring charges to polish operating results. More important, firms succeeded, with help from Wall Street, in persuading investors to focus on the operating numbers, even though in many cases they knew those numbers to be inflated. In all, according to our study, corporate America appears to be overstating its earnings by at least 20 percent. About half of the exaggeration reflects the lack of any recorded expense for options; the other half, manipulated operating earnings. The conventional wisdom holds that options encourage good management and better corporate governance because they align the interests of executives and shareholders. Nothing could be further from the truth. Most shareholders — that is, the vast majority of the public that buys stock on the market — have the potential for loss as well as gain. With an option, the potential for loss is quite small; if the share price falls below the option price, the option simply becomes worthless. But the potential for gain is huge. The asymmetry encourages executives to downplay risk, if not ignore it, in the quest for returns. That is why the 90's produced burdensome excess capacity in many industries, especially telecommunications and the technology industry, where option awards are most common. For executives, it made sense to go for broke with expansion plans. Big option payoffs came only with rapid growth, not with steady earnings. So what can be done? There can be no real reform without honest accounting for stock options. A decade ago, the Financial Accounting Standards Board recommended that options be counted as a cost against earnings, like all other forms of compensation, but corporate lobbyists resisted and Congress did their bidding. Alan Greenspan and Warren Buffett, among others, are calling for the same change now, but it remains to be seen whether the accounting profession can act without Congressional interference. Treating options like other forms of pay would make executive compensation transparent, diminish the temptation to cook the books and make managers less inclined toward excessive risk-taking. The president's speech, unfortunately, was not as strong as it should have been. And whether Congress is up to the job of reform is questionable. It may fall to investors — individuals and institutions — to force the necessary change.

Subject: Re: Has anything really changed? From: Terri To: Pete Weis Date Posted: Sun, Nov 14, 2004 at 15:32:30 (EST) Email Address: Not Provided Message: Excellent posts! The cautionary reminders are needed. But, stock prices should indeed reflect nominal returns to business and not real returns. This appears to be a moderately expensive stock market, so the gains are sensible. Earnings have slowed from high to moderate levels, but earnings seem enough to make sense of the market rise.

Subject: Re: Has anything really changed? From: Terri To: Terri Date Posted: Sun, Nov 14, 2004 at 16:14:21 (EST) Email Address: Not Provided Message: What has changed since 2002, is that corporate earning have risen continually. From 2000 through 2002, the stock market became increasingly less expensive. Since 2002, stocks prices have risen but earnings have risen jsut as fast. Sure I would like a less expensive market, but I can not command that it be so. I do not have chase the hottest stocks such as REITs, but I find no choice but to be part of the broad market. Gauging the price of stocks by the value of the dollar, does not make sense to me. A weak dollar will raise foreign earnings, and could easily bolster many stocks. I am still sanguine about the stock market.

Subject: Do you believe those earnings? From: Pete Weis To: Terri Date Posted: Sun, Nov 14, 2004 at 20:33:40 (EST) Email Address: Not Provided Message: And do you really think the markets are only 'moderately' expensive? Are you factoring in the loss in the dollar to determine real rather than nominal gains in your investments?

Subject: Re: Do you believe those earnings? From: Ari To: Pete Weis Date Posted: Mon, Nov 15, 2004 at 10:36:51 (EST) Email Address: Not Provided Message: 'Are you factoring in the loss in the dollar to determine real rather than nominal gains in your investments?' Why not just invest in the Europe Index as well as in American stock indexes? Then we are protected against a loss in value of the dollar while still not trying to guess the direction of the market too closely.

Subject: Re: Do you believe those earnings? From: Jennifer To: Pete Weis Date Posted: Mon, Nov 15, 2004 at 06:07:37 (EST) Email Address: Not Provided Message: Currency values are always changing, but I have never heard an analyst explain how to use a currency value to distinguish nominal and real earnings. I know vaguely what this means, but have no idea how to use to value of the dollar to determine real earnings. When we buy an index fund can we be reasonably sure that most of earnings are properly stated? This stock market does not seem too expensive given the earnings numbers First Call posts. I stay in my indexes since they are making steady gains for 2 years.

Subject: Invest from a global perspective From: Pete Weis To: Jennifer Date Posted: Mon, Nov 15, 2004 at 14:27:10 (EST) Email Address: Not Provided Message: 'Currency values are always changing, but I have never heard an analyst explain how to use a currency value to distinguish nominal and real earnings.' Sad but true - few if any brokers or analysts talk about the direction or performance of the currency in which a particular stock or asset is denominated. As is being widely reported, the dollar has fallen some 10% against a 'basket of currencies' in the last year. To figure one's real return on investment we would need to factor in this 10% loss. Ari is right - investing in euro denominated assets gives one's investment a currency boost.

Subject: Re: Invest from a global perspective From: Jennifer To: Pete Weis Date Posted: Mon, Nov 15, 2004 at 15:54:48 (EST) Email Address: Not Provided Message: Finally, I understand. The question you are raising is how much of a gain in the value of an asset should be discounted because of the weaker purchasing power of a currency?

Subject: Re: Do you believe those earnings? From: Terri To: Pete Weis Date Posted: Sun, Nov 14, 2004 at 21:43:05 (EST) Email Address: Not Provided Message: Please explain to me why I should worry about the loss in value of the dollar in terms of earnings. When the British pound was allowed to float in 1991, and lost about 20% in value in a few weeks, there was a subsequent gain in British stock prices in pounds. Stocks are a hedge against inflation or the loss in value of a currency, are they not? What am I missing?

Subject: Re: Do you believe those earnings? From: Terri To: Terri Date Posted: Sun, Nov 14, 2004 at 21:51:09 (EST) Email Address: Not Provided Message: Since I own broad indexes and sectors, I believe the earnings are generally correct. There are problem areas of course, but they do not strike me as general in the American or European markets. The major concern now for me is interest rates. I can easily become more cautious if valuations deteriorate. The year has been fine for stocks and bonds, so I am hopeful. But, I never miss your thoughts and articles!

Subject: On The Cost of Drugs From: Emma To: All Date Posted: Sun, Nov 14, 2004 at 10:25:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/14/business/yourmoney/14drug.html?pagewanted=all&position= Do New Drugs Always Have to Cost So Much? By EDUARDO PORTER AMERICAN politicians are so perplexed about how to deal with prescription drug prices that the best solution they can offer is to effectively import a Canadian law - by buying drugs subject to Canadian government price controls - rather than pass one of their own. There are, however, more straightforward ways to get cheaper drugs than by borrowing price fixes from across the border. Some economists say the government can reduce pharmaceutical prices by changing how the nation pays for innovation. Prescription drugs are expensive by design. They cost a lot to invent but are relatively cheap to make, so companies receive patents from the government that grant them a monopoly and enable them to sell the medicine at a premium. In doing so, the idea goes, drug makers recoup their investments in research and development and are encouraged to invent more. But some economists say that there is no inexorable economic reason for drug prices to be as high as they are. 'Patents are one way to get medical innovation, but they are not a fact of nature,' said Michael R. Kremer, an economics professor at Harvard. 'It is worth looking for alternatives.' Strong patent protection has allowed substantial spending on innovation. American drug companies invested $33 billion in it last year, according to the Pharmaceutical Research and Manufacturers of America, a lobbying group. But this arrangement has a measurable economic cost, keeping drugs from consumers who would buy them if they were priced like other competitive commodities - marginally above production costs. That is not the only inefficiency that patents breed. In the insured health market, where neither patients nor their doctors actually pay for drugs, drug companies are subject to all manner of perverse incentives. For instance, they can reap more from investing in marginal improvements over existing therapies - and buying ads to persuade patients to pay big markups for them - than from investing in riskier, ground-breaking drugs. The Food and Drug Administration has classified only about 20 percent of the drugs developed over the last 10 years as qualitative breakthroughs. Even though they spend more on research, pharmaceutical companies are finding fewer new drugs. In a report this year, the F.D.A. said that the way drugs are developed 'is becoming increasingly challenging, inefficient and costly.' One alternative is to have the government pay directly for research, which some economists say could maintain innovation while reducing drug prices. The government already spends almost $30 billion a year on basic drug research at National Institutes of Health laboratories and at universities, much of which results in new drugs. It would be relatively straightforward to extend this to cover the research now done in drug company labs, economists say. There are other alternatives. For example, the government could compensate drug companies for their inventions as an incentive for them to keep innovating. How to determine how much an innovation is worth? One possibility would be for the government to selectively buy patents at a premium over the price a private bidder was willing to offer, and then put them into the public domain, Professor Kremer said. Aidan Hollis, an assistant professor of economics at the University of Calgary in Alberta, devised a different approach: the government would set up a fund to compensate drug companies based on how much their new drugs improve the quality of life and how often they were used. These alternatives would carry several benefits, economists say. In addition to making drugs available at lower prices, they would make it much less profitable for pharmaceutical companies to spend millions of dollars to develop drugs, like Nexium and Clarinex, that are protected by patents but offer little improvement over similar drugs already on the market. The goal is not to spend less to develop new drugs, Professor Hollis said, but to get more therapeutic bang for the buck - by channeling investment to where it matters most - as well as to increase access to the resulting drugs. 'This can be done within the same budget as we devote to pharmaceuticals now,' he said.

Subject: Merck and Vioxx From: Emma To: All Date Posted: Sun, Nov 14, 2004 at 06:52:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/14/business/14merck.html?hp&ex=1100494800&en=9d9c398ab2a955a2&ei=5094&partner=homepage Despite Warnings, Drug Giant Took Long Path to Vioxx Recall By THE NEW YORK TIMES This article was reported and written by Alex Berenson, Gardiner Harris, Barry Meier and Andrew Pollack. In May 2000, executives at Merck, the pharmaceutical giant under siege for its handling of the multibillion-dollar drug Vioxx, made a fateful decision. The company's top research and marketing executives met that month to consider whether to develop a study to directly test a disturbing possibility: that Vioxx, a painkiller, might pose a heart risk. Two months earlier, results from a clinical trial conducted for other reasons had suggested such concerns. But the executives rejected pursuing a study focused on Vioxx's cardiovascular risks. According to company documents, the scientists wondered if such a study, which might require as many as 50,000 patients, was even possible. Merck's marketers, meanwhile, apparently feared it could send the wrong signal about the company's confidence in Vioxx, which already faced fierce competition from a rival drug, Celebrex. 'At present, there is no compelling marketing need for such a study,' said a slide prepared for the meeting. 'Data would not be available during the critical period. The implied message is not favorable.' Merck decided not to conduct a study solely to determine whether Vioxx might cause heart attacks and strokes - the type of study that outside scientists would repeatedly call for as clinical evidence continued to show cardiovascular risks from the drug. Instead, Merck officials decided to monitor clinical trials, already under way or planned, that were to test Vioxx for other uses, to see if any additional signs of cardiovascular problems emerged. It was a recurring theme for the company over the next few years - that Vioxx was safe unless proved otherwise. As recently as Friday, in newspaper advertisements, Merck has argued that it took 'prompt and decisive action'' as soon as it knew that Vioxx was dangerous. But a detailed reconstruction of Merck's handling of Vioxx, based on interviews and internal company documents, suggests that actions the company took - and did not take - soon after the drug's safety was questioned may have affected the health of potentially thousands of patients, as well as the company's financial health and reputation. The review also raises broader questions about an entire class of relatively new painkillers, called COX-2 inhibitors; about how drugs are tested; and about how aggressively the federal Food and Drug Administration monitors the safety of medications once they are in the marketplace. The decisions about how to test Vioxx were made in a hothouse environment in which researchers fiercely debated how the question should be pursued, and some even now question whether the drug needed to be withdrawn. It also took place amid a fierce battle between Vioxx and Celebrex in which federal regulators said marketing claims ran ahead of the science. Today Merck faces not only Congressional and Justice Department investigations, but also potentially thousands of personal-injury lawsuits that could tie the company up in litigation for years and possibly cost it billions to resolve. In late September, more than four years after that May 2000 meeting, Merck announced that it was pulling the drug off the market because a long-term clinical trial showed that some patients, after taking the drug for 18 months, developed serious cardiovascular problems. The data that ultimately persuaded the company to withdraw the drug indicated 15 cases of heart attack, stroke or blood clots per thousand people each year over three years, compared with 7.5 such events per thousand patients taking a placebo. But the company never directly tested the theory that it used to explain the worrisome results of the clinical trial in 2000. Merck was criticized for what some charged was playing down the drug's possible heart risks; in one case, it received a warning letter from the Food and Drug Administration for minimizing 'potentially serious cardiovascular findings.'' And when outside researchers found evidence indicating Vioxx might pose dangers, Merck dismissed their data. In 2001, Dr. Deepak L. Bhatt, a cardiologist at the Cleveland Clinic, proposed to Merck a study of Vioxx in patients with severe chest pain. Merck declined, saying the patients proposed for the study did not reflect typical Vioxx users. In Dr. Bhatt's view, the company feared what it might find if it directly examined the dangers of Vioxx, one of Merck's biggest products, with sales last year of $2.5 billion. 'They should have done a trial like this,' Dr. Bhatt said. 'If they internally thought this drug was safe in patients with heart disease, there was no reason not to do it.' Merck executives said last week that the company acted responsibly, voluntarily withdrawing Vioxx as soon as it had clear evidence the drug was harmful. And they said that even if they had conducted the type of study they discussed internally and rejected in 2000, the company might not have detected Vioxx's risks any sooner. 'Merck wasn't dragging its feet,'' said Kenneth C. Frazier, the company's general counsel. 'It's pretty hard for me to imagine that you could have done this more quickly than we did.' The F.D.A., which Merck consulted, also agreed that designing a trial to specifically assess Vioxx's cardiovascular risks would have been difficult and, unless constructed to provide benefits to patients, would have been unethical as well. But the F.D.A. itself is now under scrutiny for its handling of Vioxx. Congressional investigators are looking at whether the agency, which is charged with protecting Americans from dangerous medicines, was too lax in its monitoring of the mounting evidence against Merck's drug. Internal memos show disagreement within the F.D.A. over a study by one of its own scientists, Dr. David Graham, that estimated Vioxx had been associated with more than 27,000 heart attacks or deaths linked to cardiac problems. So far, no clinical evidence has linked the next best-selling version, Celebrex, to cardiovascular risks. But its maker, Pfizer, has acknowledged that its other COX-2 drug, Bextra, has been shown to pose risks to patients after heart surgery. Scientists outside the company say there is evidence that Bextra's problems may affect wider groups of patients.

Subject: Business Ethics From: Ari To: All Date Posted: Sat, Nov 13, 2004 at 21:35:25 (EST) Email Address: Not Provided Message: Two subjects that economists are paying scant attention to are the investigations of Eliot Spitzer, now on insurance brokers and insurers; and, the problems surrounding the use of Vioxx and possibly Bextra long after warnings about the drugs were steadily sounded. The Vioxx of the warning on Vioxx was so complete, the only reason the drug was pulled from the market was because Merck was trying to expand its use and funded a double blind study thinking there was a separate use for the drug.

Subject: An important issue...... From: Pete Weis To: Ari Date Posted: Sun, Nov 14, 2004 at 13:42:22 (EST) Email Address: Not Provided Message: for many reasons beyond pushing dangerous products on the public or swindling customers with insurance products meant to enrich the insurer at the considerable expense of the public. From article after article, some of which I posted on this site from time to time, detailing how companies falsify (much of it legally)their earning numbers, it's evident little has been done to clean up the corruption on Wall Street. It's why folks like Warren Buffet won't participate in these recent market rallies. There has always been some corruption, but in the last tweny years or so it has gradually reached fairly extreme levels. When you have someone like Eliot Spitzer taking on these issues, it's as if he is entering into a vacuum - a vacuum left by a federal government which is neglecting to do its duty by going after this corruption. We have lies being put out there to cover other lies. But at some point down the road there will be more and more truth leakage and I think there will be a loss of confidence by the investing public. Sadly, I have already lost confidence in the markets for the time being and am investing in a way which benefits from the downward slide of America's unit share of stock, the US dollar. Until our government can begin to bring down its budget deficits and government regulatory agencies are funded and given a mandate to really cleanup the corruption, I see no other way to focus my investing. Unfortunately, it will take a true crisis to get the public's attention before there will be enough overwhelming demand for real change and real enforcement - similar to the dangerous intersection where nothing is done until the severe accident with multiple deaths finally forces the issue.

Subject: Re: An important issue...... From: jimsum To: Pete Weis Date Posted: Mon, Nov 15, 2004 at 15:08:10 (EST) Email Address: jim.summers@rogers.com Message: I think it is going to take even more than a true crisis to get the public's attention; even when the public notices the crisis, they may not recognize the solution to the problem. For the last few decades we have been continually told that the government only messes up the economy. The only thing we ever hear about business regulation is that red tape costs lots of money -- and that hurts us all because we all own stock. Until it is recognized that the government can actually solve economic problems by passing laws, we will get the same old suggested 'solution' for all economic problems: more subsidies and tax loopholes for business owners.

Subject: Re: An important issue...... From: Jennifer To: jimsum Date Posted: Mon, Nov 15, 2004 at 15:52:06 (EST) Email Address: Not Provided Message: Think about the problem we are having with flu vaccine. Other governments that arrange for production of the vaccine with multiple suppliers, have had no difficulty insuring a proper supply. There are instances and sectors where markets need over-sight and supplementing by government. Health care surely seems such an instance and sector.

Subject: Re: An important issue...... From: Emma To: Pete Weis Date Posted: Sun, Nov 14, 2004 at 20:19:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/14/business/yourmoney/14watch.html?pagewanted=all&position= GRETCHEN MORGENSON Sometimes It Takes a Sherlock ALTHOUGH the truly brazen accounting frauds of recent years are fading from view - remember Cendant, Enron and WorldCom? - investors must stay vigilant for bookkeeping practices that, while legal, mask a company's true condition. Such is the advice of Robert A. Olstein, astute stockpicker and overseer of the Olstein Financial Alert fund. Mr. Olstein, a 37-year market veteran, is a master of analyzing financial statements and spotting anomalies that understate or overstate performance. As Mr. Olstein explains, accounting rules require a lot of estimates, and that gives considerable wiggle room to company managers. 'All corporations use some aggressive assumptions in the application of generally accepted accounting principles as management is heavily incentivized to make the numbers,' he said. 'When the numbers deviate from economic reality, you have to adjust them before reaching conclusions about future estimates and valuations.' While not every investor can pick apart financial statements the way Mr. Olstein can, they still have to be on guard. Happily, Mr. Olstein has revealed some of the tricks of his trade. To illustrate how managers' assumptions can lead investors astray, Mr. Olstein cited two examples. In one case, the deviations from economic reality translate to an overpriced stock; in the other, an underpriced stock. The overpriced stock, according to Mr. Olstein, belongs to the Computer Sciences Corporation, a provider of information technology outsourcing and professional services. Mr. Olstein's fund is short 500,000 shares of Computer Sciences stock, 1 percent of the assets under his management. Computer Sciences generated sales of almost $15 billion in fiscal 2004 and has a market value of $10 billion. Its shares closed on Friday at a 52-week high of $55.22, or 19 times reported earnings. The company provides services to its customers under contracts and recognizes revenues from those contracts using certain assumptions. Expenses associated with the business of Computer Sciences are either deducted immediately from its revenues or capitalized, which means that it deducts them over time. This is known as amortization. The company won $17.2 billion in new business in fiscal 2004, up from $7.7 billion in 2003. One of its biggest revenue producers is outsourcing contracts on which it capitalizes many costs. Despite declaring that its new contracts are less capital intensive, Computer Sciences said that in fiscal 2004 capitalized costs on outsourcing contracts were $458.7 million, up 282 percent from the $120.2 million recorded in 2003. But revenues are growing at only half that rate, raising a red flag for Mr. Olstein. The company may also be underestimating how much it is setting aside for doubtful accounts, essentially bills that it expects will not be paid, Mr. Olstein said. At the end of fiscal 2004, the figure was $50.5 million, 1.4 percent of gross accounts receivable. Compare this with fiscal 2001, when the allowance for such accounts was 3.2 percent of accounts receivable; in 1998, it was 5 percent. Mr. Olstein questions another aspect of Computer Sciences' results: the increased profitability in long-term contracts that so handily offsets increased costs at the company. Mr. Olstein said this one-time benefit effectively made the company's cost of sales look lower than it was and its income appear higher. So he docks the company's earnings by 15 cents a share for 2004. Computer Sciences reported earnings from operations of $2.83 a share in fiscal 2004. But Mr. Olstein said that his more conservative accounting assumptions took the number down. O.K., get out your pencils: Mr. Olstein deducts 55 cents a share to bring down capitalized costs on outsourcing contracts to a figure that is in line with the growth in revenues; he deducts an additional 10 cents a share to reflect a larger allowance for doubtful accounts; 8 cents comes out for what he calls the company's too-lenient amortization of software costs and 15 cents a share is deducted to reflect the one-time profitability spurt in long-term contracts. A reversal of reserves in the second quarter of 2004 added 2 cents a share to the full-year earnings reported by Computer Sciences; Mr. Olstein would deduct that as well. The result is $1.93 in earnings, by Mr. Olstein's reckoning, which means that Computer Sciences shares are trading at 28 times earnings, far higher than what investors think they are paying.

Subject: Re: An important issue...... From: Emma To: Pete Weis Date Posted: Sun, Nov 14, 2004 at 19:29:57 (EST) Email Address: Not Provided Message: I know the feeling.

Subject: Re: Business Ethics From: Ari To: Ari Date Posted: Sun, Nov 14, 2004 at 10:46:51 (EST) Email Address: Not Provided Message: Here is the proper reading! The warning on Vioxx was so completely masked, the only reason the drug was pulled from the market was because Merck was trying to expand its use and funded a double blind study thinking there was a separate use for the drug,

Subject: Re: Business Ethics From: Jennifer To: Ari Date Posted: Sun, Nov 14, 2004 at 06:18:12 (EST) Email Address: Not Provided Message: There will be an attempt by the Administration and majority in Congress to greatly tighten the recourse consumers have to the courts to protect themselves against and gain compensation for defective products. Thousands of patients on Vioxx have suffered needlessly, have had heart attacks, because warnings about the drug were not heeded.

Subject: Pfizer and Bextra From: Emma To: All Date Posted: Sat, Nov 13, 2004 at 21:19:32 (EST) Email Address: Not Provided Message: http://ea.nytimes.com/cgi-bin/email? New Study Links Pfizer's Bextra, Similar to Vioxx, to Heart Attacks By GARDINER HARRIS The incidence of heart attacks and strokes among patients given Pfizer's painkiller Bextra was more than double that of those given placebos, according to preliminary results of a study presented yesterday at the American Heart Association meeting in New Orleans. The study, which pooled data from 5,930 patients taking part in 12 trials, found 2.19 times the number of heart attacks or strokes among patients given Bextra, compared with those given placebos. Merck recently withdrew Vioxx, a drug similar to Bextra, after a longer and better-controlled study showed that it doubled the risk of heart attack and stroke. 'The magnitude of the signal with Bextra is even higher than what we saw in Vioxx,' Dr. Garret A. FitzGerald, a cardiologist and pharmacologist at the University of Pennsylvania, said in an interview after presenting the data. 'This is a time bomb waiting to go off.' Susan Bro, a spokeswoman for Pfizer, said that a heart problem with Bextra appeared only in studies involving patients at very high risk for heart disease who were undergoing cardiac surgery - a disclosure Pfizer made on Oct. 15. Other studies of Bextra involving 8,000 patients with arthritis who were followed for 6 to 52 weeks found no heart problems, she said. Dr. FitzGerald is one of the world's leading experts in COX-2 drugs, a class of medicine that includes Vioxx, Bextra and Celebrex, which is also made by Pfizer. Vioxx had sales of $2.5 billion last year, while Celebrex had sales of $1.8 billion and Bextra $687 million. Celebrex and Bextra have been on their way to bigger sales this year. In previous studies, Dr. FitzGerald was among the first to explain why COX-2 inhibitor drugs, which were developed to cure pain without causing ulcers, might create heart troubles. Dr. Curt Furberg, professor of public health sciences at Wake Forest University School of Medicine, helped conduct the study that Dr. FitzGerald announced yesterday. 'Basically, we showed that Bextra is no different than Vioxx, and Pfizer is trying to suppress that information,' Dr. Furberg said.

Subject: REITs and Earnings? From: Terri To: All Date Posted: Sat, Nov 13, 2004 at 20:46:25 (EST) Email Address: Not Provided Message: What seems most interesting about the Real Estate Investment Trust Index, is the earnings growth rate. REIT earnings over the last 3 years have actually declined, while the prices of the stocks have steadily climbed. REITs are climbing on property price appreciation alone. When price appreciation ends, REITs could be in some trouble.

Subject: Investment Costs and costs and costs From: Terri To: All Date Posted: Sat, Nov 13, 2004 at 18:42:37 (EST) Email Address: Not Provided Message: A friend just sent me an investment portfolio that was put together several years ago by an adviser at Bank America. The portfolio is rather large. What startled me was the way in which the only thing that seemed to matter to the adviser was making sure the funds chosen had absurdly high yearly fees and 5% sales charges. Since the portfolio is quite large, simply increasing the size of investments in a given fund with a sales charge could easily have been used to cut the size of the charge. Nope. The idea of most investment companies gaining access to private Social Security accounts, strikes me as most dangerous. Wonder what Eliot Spitzer thinks?

Subject: Re: Investment Costs and costs and costs From: Institutional Investor To: Terri Date Posted: Sun, Nov 14, 2004 at 11:04:58 (EST) Email Address: Not Provided Message: 'What startled me was the way in which the only thing that seemed to matter to the adviser was making sure the funds chosen had absurdly high yearly fees and 5% sales charges' Did you ask anything else about how the portfolio was constructed as opposed to just the fee schedules? Did you find out if the person used mean variance optimization and/or monte carlo simulation to construct the asset allocation? What assumptions were used? I have no doubt that the fund fees may be high, but that may be to off set your friends willingness to pay hard dollars for the advisors services. Most people don't want to pay anywhere from 500-2500 dollars for a plan when they hear other companies will not charge a fee (when in reality they are getting money through sales charges or commissions from each mutual fund).

Subject: Re: Investment Costs and costs and costs From: Jennifer To: Institutional Investor Date Posted: Sun, Nov 14, 2004 at 12:09:09 (EST) Email Address: Not Provided Message: Why should I want mean variance optimization or a Monte Carlo simulation to use for building my portfolio? A couple of index funds, a sector here and there, and some bonds and I am more than pleased. When an adviser speaks in terms I do not understand, my inclination is to find another adviser. And, I have a background in statistics.

Subject: Re: Investment Costs and costs and costs From: David E... To: Jennifer Date Posted: Sun, Nov 14, 2004 at 18:05:24 (EST) Email Address: Not Provided Message: Jennifer, arent you curious to know the SD of risk, your geometric rate of return, and the correlation of your assets? Might not there be some surprises there? Here is a source for user friendly, reasonably priced MVO software. Link. They offer discounts if you have purchased W. Bernstein's 'The Four Pillars of Investing' and/or 'The Intelligent Asset Allocator'. It was hard work, but worthwhile. I looked at many advisor's portfolio's that advisor's will build, but they were all cookie-cutter. The standard portfolio wouldnt take advantage of the large % of TIPS/REITs that I had already bought. Plus I couldnt bear the thought of giving up control and the .5% or 1.0% of return that advisor's cost. So I searched and found assets to buy that gave me the same sense of value that I had when I bought TIPS and REIT's in 2000. And these new assets correlated well with my old purchases.

Subject: Re: Investment Costs and costs and costs From: Jennifer To: David E... Date Posted: Sun, Nov 14, 2004 at 18:34:48 (EST) Email Address: Not Provided Message: Thanks Institutional and David and Terri: Having bought TIPS and REITs in 2000, when the values were excellent, do you simply hold the REITs forever and the TIPS till maturity? Do you simply build from these purchases but always but to hold thereafter?

Subject: Re: Investment Costs and costs and costs From: David E... To: Jennifer Date Posted: Mon, Nov 15, 2004 at 01:41:18 (EST) Email Address: Not Provided Message: TIPS and REITs work for a inflation/income tilt. That is good now. Maybe later, if there is enough growth, I can move to a 30/70 bonds/equity mix. My plans shouldnt look anything like your plans. That is the benefit of doing your own plan it can be exactly tailored for you. Try out the MVO, it has a 30-day free trial. :) :)

Subject: Re: Investment Costs and costs and costs From: Institutional Investor To: David E... Date Posted: Mon, Nov 15, 2004 at 09:18:42 (EST) Email Address: Not Provided Message: 'Maybe later, if there is enough growth, I can move to a 30/70 bonds/equity mix' the value of the optimizer is severely diminished if you start trying to time when the stock market will pick up. The expected return and standard deviation in the model are usually based on 10 yr projections. If you are switching your allocation ever year, I wouldn't even bother with MVO.

Subject: Re: Investment Costs and costs and costs From: David E... To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 12:10:32 (EST) Email Address: Not Provided Message: My point, obviously not clear, is that as a retiree, if I successfully make it 20 years into my retirement with a growing portfolio. I will have less risk of running out of money for the remaining period of time. At that point it might be smart to increase the portfolio's equity allocation. Thanks Institutional Investor, I have enjoyed and used your comments on this board.

Subject: Timing and Timing From: Terri To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 11:25:02 (EST) Email Address: Not Provided Message: The idea of buying for the long run is important and adds considerable value to a portfolio, but it can not be the only rule. There are times when you have to judge that a sector is especially attractive in value and be willing to buy.

Subject: Re: Timing and Timing From: Institutional Investor To: Terri Date Posted: Mon, Nov 15, 2004 at 12:17:13 (EST) Email Address: Not Provided Message: 'There are times when you have to judge that a sector is especially attractive in value and be willing to buy.' not at all, what you just stated is market timing. If you don't think it is, please explain to me your idea of market timing. Once you stop investing according to your asset allocation and make judgement calls on what investments are attractive at a given point in time, you are timing the market. If you think you can tell what sector is more attractive relative to the rest of the market, thats good for you, but there is no reason to deny that you are timing when assets are attractive. Using MVO and monte carlo analysis together will take into consideration buying assets when they are performing both positively and negatively. If you start buying assets based on what you believe isattractive, you lose the value gained through MVO. You are basically just ignoring the standard deviation and correlation that is provided in the MVO model and picking assets based on returns. The focus on returns should be when the capital market assumptions are made and you are determining what the anticipated return will be over a longer period of time, ie 10 years.

Subject: Re: Timing and Timing From: Terri To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 12:50:09 (EST) Email Address: Not Provided Message: Institutional Investor Market timing is changing your portfolio allocation when you think assets are attractive enough to change. Agreed. Though I rarely sell assets, I will make different purchases now and then because an asset class seems to be on sale. I am not prepared to abandon the strategy, because I believe I can gain an adge with selective buying. Increasing holdings in the Europe Index because the dollar appeared significantly over-valued these last several years, seemed sensible. Will I hold European assets for a decade or forever? That is a tough question. Well, I am learning and you are most convincing.

Subject: Re: Timing and Timing From: Institutional Investor To: Terri Date Posted: Mon, Nov 15, 2004 at 15:07:34 (EST) Email Address: Not Provided Message: 'Though I rarely sell assets, I will make different purchases now and then because an asset class seems to be on sale' it doesn't matter if you don't sell, my point is, you are timing the market if you buy sectors based on how favorable you view them. Personally, I think it is extremely unlikely in the long term for an individual to consistently select the best sectors in the market. I would much rather prefer to be fully diversified than to make calculated bets that one particular sector will outperform the rest of the market. My question is to you terri is if you think you can pick the attractive sectors in the market, why don't you believe in active management for each subclass (ie large value, large growth, etc). Is it just the fee structure is too high, or do you not believe managers can pick the best companies over the long term? I would think a person who believes they can pick the best asset classes, would believe investment managers could pick the best companies.

Subject: Fine Managers From: Terri To: Institutional Investor Date Posted: Mon, Nov 15, 2004 at 15:21:11 (EST) Email Address: Not Provided Message: Institutional Investor There are indeed managers who are exceptional stock pickers, and asset pickers. Vanguard has Health Care and several other funds that are run with exceptional ability. There is Berkshire Hathaway. Of course there are managers of such ability. Paying for fine management does not deter me, though I notice that low fees gives fine managers an added edge.

Subject: Re: Investment Costs and costs and costs From: Jneeifer To: David E... Date Posted: Mon, Nov 15, 2004 at 05:53:32 (EST) Email Address: Not Provided Message: When you acquire TIPS and REITs for your portfolio do you buy them separately, or do you buy the Vanguard funds? I do not have the knowledge to acquire stocks and bonds separately, so I use only Vanguard funds and favor indexes. This week I will begin to use multiple variance optimization analysis. I have some firm goals on paper now.

Subject: Re: Investment Costs and costs and costs From: David E... To: Jneeifer Date Posted: Mon, Nov 15, 2004 at 12:33:24 (EST) Email Address: Not Provided Message: My portfolio is over 90% Vanguard indexes, I am a happy Vanguard indexer. You will have fun using the optimizer. The insights from the optimizer will give you confidence. But to make sure I understood the data, I analyzed it before I put it in the optimizer. I verified that I could calculate for myself standard deviations, arithmetic means, geometric means and correlations. It has been 40 years since my statistics class, thank goodness Excel makes all those calculations much easier than then.

Subject: Re: Investment Costs and costs and costs From: Jennifer To: David E... Date Posted: Mon, Nov 15, 2004 at 13:07:50 (EST) Email Address: Not Provided Message: Statistics is fun for me. My sister and I are going at this together. These threads keep me thinking.

Subject: Re: Investment Costs and costs and costs From: Jennifer! To: Jneeifer Date Posted: Mon, Nov 15, 2004 at 05:54:43 (EST) Email Address: Not Provided Message: Spelling can by fun!

Subject: The Missing Link From: David E... To: David E... Date Posted: Sun, Nov 14, 2004 at 18:08:18 (EST) Email Address: Not Provided Message: www.effisols.com

Subject: Re: Investment Costs and costs and costs From: Institutional Investor To: Jennifer Date Posted: Sun, Nov 14, 2004 at 13:30:28 (EST) Email Address: Not Provided Message: 'Why should I want mean variance optimization or a Monte Carlo simulation to use for building my portfolio?' MVO is the foundation for building a portfolio. The following is definition i got off the web which should make it understandable. Mean-variance optimization was developed by Nobel Laureate Harry Markowitz as a way to create optimal portfolios based on risk and return trade-offs. The optimization uses return, risk and correlation forecasts to combine assets into portfolios that maximize return for different levels of risk. A graph of all of these optimal portfolios is called the efficient frontier. http://www.decisioneering.com/monte-carlo-simulation.html the link above describes monte carlo simulation. 'A couple of index funds, a sector here and there, and some bonds and I am more than pleased' you might be pleased, but you don't have an optimal or efficient portfolio. Just because you have different funds doesn't mean you are well diversified. I think a lot of people understand that you should diversify, but don't know how to do it efficient. Haphazardly allocating different amounts to different funds may not help you, unless you know the correlations behind the assets. You can think of it like cooking, just because you combine some eggs, flour, oil, yeast, etc and put it in the oven, it doesn't mean you are will end up with bread. If you don't have the proper allocations your end result will more than likely not achieve your goals (although it seems many people do not have a specific goal in mind, rather a general goal)

Subject: Re: Investment Costs and costs and costs From: Jennifer To: Institutional Investor Date Posted: Sun, Nov 14, 2004 at 14:41:51 (EST) Email Address: Not Provided Message: Thank you so much for the clear explanation. I have also just been reading about the principles, and your points make sense. What I also now understand is the importance of setting specific goals, rather than simply setting aside investment funds regularly. Our faith in advisers can be renewed :).

Subject: Re: Investment Costs and costs and costs From: Terri To: Jennifer Date Posted: Sun, Nov 14, 2004 at 15:25:36 (EST) Email Address: Not Provided Message: There are terrific advisers and they deserve the same in clients. There are advisers in name alone, whose bidding is only of the company for which they work. The adviser in question have a terrific client who has no hesitation in paying for fine service, but the service was questionable at the least and the direction of investment was never explained in a comprehensible manner. 'Trust me' must be an earned remark.

Subject: Re: Investment Costs and costs and costs From: Institutional Investor To: Terri Date Posted: Sun, Nov 14, 2004 at 15:59:37 (EST) Email Address: Not Provided Message: while I agre that 'trust me' should be earned, at the same time I would ask for a clear explanation about how the portfolio was constructed. If you can't get that, then you find another advisor. You'll always find people trying to rip you off in any industry, its just a matter of the buyer doing their research and asking questions from the seller. While fees can eat away at returns, asset allocation accounts for the majority of your return. The most famous work on asset allocation was the brinson paper saying 90% of returns are due to asset allocation. Vanguard offers another study on their website, attributing 75% to asset allocation.

Subject: Asset Allocation From: Terri To: Institutional Investor Date Posted: Sun, Nov 14, 2004 at 16:20:55 (EST) Email Address: Not Provided Message: Institutional Investor: http://flagship2.vanguard.com/VGApp/hnw/VanguardViews?FW_Event=vviewsnewsletters&chunk=/freshness/News_and_Views/news_ITVsummer2003_PCN_asset_PB_CO_AO.html&Season2=Summer&Year2=2003 The Vanguard team patterned its research after a landmark 1986 study conducted by Gary P. Brinson and associates ('Determinants of Portfolio Performance,' Financial Analysts Journal, July/August 1986) of 91 institutional pension plans. Mr. Brinson and colleagues found that asset allocation explained 93.6%, on average, of the quarterly variation in the plans' returns around their average returns. A follow-up study by the group in 1991 ('Determinants of Portfolio Performance II,' Financial Analysts Journal, May/June 1991) confirmed this, with results indicating that asset allocation explained 91.5%, on average, of the variation in the plans' returns. The IC&R team based its study on a large and robust data set—420 actively managed balanced mutual funds that had at least five years of returns between 1962 and 2001—to see if the Brinson studies' findings still applied today. Importantly, the periods covered by our study included the wild run-up in stock prices during the late 1990s and the broad stock market's subsequent decline that began in March 2000. Our researchers isolated the impact of asset allocation by creating hypothetical portfolios based on each fund's long-term, or 'policy,' allocation. The returns from this hypothetical portfolio represented the returns a fund would have earned if it had simply held index funds for each asset class in its 'policy' asset allocation. Each fund's real-world return reflected some combination of this policy return and returns (positive or negative) generated by stock selection and market-timing. On average, our study found, 77% of the short-term variability in the returns of these funds (around their averages) could be attributed to their asset allocation policies. Even during bear markets, asset allocation explained 69% of the return variability among the funds. Our study found that active-management strategies, such as market-timing and security selection, reduced, on average, the return that could have been earned by a policy portfolio simply made up of index funds.

Subject: Re: Asset Allocation From: Institutional Investor To: Terri Date Posted: Sun, Nov 14, 2004 at 20:26:00 (EST) Email Address: Not Provided Message: terri, thats a brief review of the paper i was referring to, unfortunately the paper is only available if you have institutional access to vanguard. The paper is something like 10-12 pages with a lot more detail, but you covered the overall theme. The one point missed is the volatility a investor is willing to accept. While its easy to look at beginning and end points to see how much you would make, the most difficult part of investing for many people is continuing to invest in an asset class even after it just lost them 20% of their portfolio. Unfortunately, its times like this when people will start to wait and time when they should go back into a particular asset class.

Subject: Re: Asset Allocation From: Terri To: Terri Date Posted: Sun, Nov 14, 2004 at 17:57:34 (EST) Email Address: Not Provided Message: 'Since asset allocation plays such a critical role in determining performance, we have the same simple advice for a 30-year-old or a 70-year-old investor: Once you've identified your goals, objectives, and risk tolerance, your asset allocation decision should be your highest priority,' Vanguard's Catherine Gordon said. Consider the difference between an 80% stock and 20% bond allocation and a 20% stock and 80% bond mix. During the 15 years ended December 31, 2002, the stock-heavy portfolio returned 11.5%, turning an initial investment of $10,000 into $51,002; the bond-heavy allocation returned 10.6%, transforming a $10,000 investment into $45,231. This difference provides a simple illustration of just how important asset allocation is.

Subject: Karl Legerfeld on Sale From: Emma To: All Date Posted: Sat, Nov 13, 2004 at 16:52:43 (EST) Email Address: Not Provided Message: Damp and Pushy, but What a Reward: $99 Designer Frock BY RUTH LA FERLA On a giant H&M billboard at 31st Street and 10th Avenue in Manhattan, Karl Lagerfeld looms like a stern Inquisitor, wearing a black frock coat, white collar, dark glasses and an expression so dour it seems to hard to avoid asking: Would you buy a suit from this man? For hundreds of shoppers storming H&M's New York flagship on Fifth Avenue Friday, angling for a piece of Mr. Lagerfeld's cheap chic on the day the chain, the Swedish-based mass retailer, introduced a line of his clothes in its stores, the answer was: You bet. 'This is like a rock concert,' said Hugo Chung, 28, a graduate student at New York University, just before diving toward the main floor racks, which were clotted with bargains for men and women: $59 for narrow black wool trousers, $99 for a silk cocktail dress, $129 for a black sequined wool dinner jacket. Those prices are less than the sales tax on one of Mr. Lagerfeld's $4,000 suits for Chanel. Some shoppers waited in the rain for an hour before the store opened at 9 a.m., eager to snap up the fruits of the first collaboration between Hennes & Mauritz, based in Stockholm, and a high-profile fashion designer. The line includes accessories, a fragrance and 30 items of clothing, most of them in black and white. The collection is available at 19 of the 75 H&M stores in the United States and at half of its 1,000 stores in 20 other countries. The line sold out within hours at most of the European stores, H&M said. In Milan, the store at the Piazza San Babila was mobbed, Bloomberg News reported, with customers elbowing others aside as they grabbed dresses off racks even before they reached the sales floor. 'It looks like rugby without rules,' a bystander told a reporter for the news service. Here in New York, where 1,000 people shopped the store at Fifth Avenue and 51st Street in the first hour, most of the stock was gone by closing time, a spokeswoman said last night, and the store hoped to get an additional shipment by this morning.

Subject: Karl Lagerfeld Sale From: Emma To: Emma Date Posted: Sat, Nov 13, 2004 at 16:54:22 (EST) Email Address: Not Provided Message: Sales of the collection far exceeded projections, said Sanna Lindberg, the president for United States operations. Clutching a black sequined dinner jacket and tuxedo shirt, Heather Sopczynski, 35, who works in marketing at Revlon, seemed barely able to take in her good fortune. 'This is like getting a little piece of Chanel,' she said. Her friend, Antonette Bivona, 35, a product developer for Revlon, chimed in, 'Talk about star power - this is just like Target.' She was referring to the similar mass-meets-class collaboration between the Target discount chain and the designer Isaac Mizrahi. H&M's venture with Mr. Lagerfeld, who designs for Chanel in Paris and Fendi in Milan, is part of its plan to perk up profits, which rose last year at the slowest pace in three years. 'The company is jumping on a very popular bandwagon of borrowing interest from other successful names in the luxury business,' said Candace Corlett, a partner at WSL Strategic Retail, a New York consulting firm. Consumers may be responding, Ms. Corlett suggested, because 'they are feeling the trickle-down of affluence.' Alliances between famous designers and mass market retailers, she added, 'give shoppers the chance to buy their own small piece of a status brand.' H&M is also seeking to broaden its customer base. 'We want to bring in people who had not shopped at H&M before,' said Jennifer Uglialoro, a spokeswoman for the company in New York.

Subject: Re: Karl Lagerfeld Sale From: Jennifer To: Emma Date Posted: Sat, Nov 13, 2004 at 17:44:21 (EST) Email Address: Not Provided Message: Our kind of sale. So much for saving this month.

Subject: Another look at the jobs number From: Pete Weis To: All Date Posted: Sat, Nov 13, 2004 at 12:54:25 (EST) Email Address: Not Provided Message: We'll need to see how the coming months compare to get a firmer idea of where the job market is headed. I believe it is overall wage growth which is key. From the Dallas Morning News: A yellow flag on jobs data 08:46 PM CST on Thursday, November 11, 2004 By DANIELLE DiMARTINO / The Dallas Morning News For all the celebration last week over the October labor report, the news didn't look so good to Merrill Lynch economists who dared to analyze the data. 'We realize that we are just about the only ones out of the Wall Street economic houses not dancing in circles over the October payroll report,' wrote David Rosenberg, chief economist at Merrill. The Nov. 5 jobs report revealed that the economy churned out 337,000 jobs in October, nearly double even the most optimistic predictions from Wall Street. Merrill's conclusion: When it comes to jobs, quantity doesn't equate to quality. 'Hurricane effect' Digging in reveals that about 150,000 jobs were added by the construction, fast-food and hotel industries and temporary workers. Mr. Rosenberg attributes a majority to a 'hurricane effect,' largely from construction in the Southeast. Hiring was also highly concentrated. The 'diffusion index,' which measures the percentage of industries hiring, fell to 56.8 from 59.2 in September. This stands in stark contrast to the 68 readings recorded in April and March, the last time we saw 300,000 months. 'Over two-thirds of the job gain last month was centered in just one-quarter of the employment pie,' Mr. Rosenberg said. Companies also loaded up on part-timers, 'not a sign of momentum in terms of business confidence,' he wrote. The number of people working part time for 'economic reasons' jumped by 280,000 in October. That may be because 22.2 percent have been looking for a job for 27 weeks or more. A great number Let me acknowledge that 337,000 is a great number. But did it justify analysts' dismissal of June through September? 'Of course, the mantra in prior months was that the payroll report was a flawed survey,' Mr. Rosenberg wrote. 'Lo and behold, now it's the real deal.' Even with the upward revisions, the average gain over the last five months is 171,000, which barely keeps up with natural growth in the labor force. That helps explain why the labor force participation rate remained at September's low of 65.9 percent, well off its 67.3 percent April 2000 peak. In all, Mr. Rosenberg figures the economy is still about 4 million jobs shy of being fully employed. His solution for a market that refuses to acknowledge anything but the best news? 'Just keep hikin', Mr. Greenspan. Don't stop 'til we start seeing employment go down,' he advised.

Subject: What Should the Fed do? From: Jennifer To: Pete Weis Date Posted: Sun, Nov 14, 2004 at 06:24:11 (EST) Email Address: Not Provided Message: Does David Rosenberg want to Fed to keep raising interest rates? If employment is still weak, why would an economist want higher interest rates? Please explain the final lines of the article.

Subject: Re: What Should the Fed do? From: Ari To: Jennifer Date Posted: Sun, Nov 14, 2004 at 09:38:50 (EST) Email Address: Not Provided Message: Possibly the last lines are sarcasm? If the Fed is worried about employment, the last thing needed are more short term interest rate increases.

Subject: Re: Another look at the jobs number From: Terri To: Pete Weis Date Posted: Sat, Nov 13, 2004 at 14:24:12 (EST) Email Address: Not Provided Message: Where is the danger? The danger is not simply anemic job creation ever since March 2001 when the recession began, but wage and benefits growth that is barely keeping up with inflation. What worries me more is a Federal Reserve induced slwoing of growth that hurts the labor market.

Subject: Re: Another look at the jobs number From: Ari To: Terri Date Posted: Sat, Nov 13, 2004 at 18:11:03 (EST) Email Address: Not Provided Message: The latest stories about employment have it that Alan Greenspan believes that most important figure is the unemployment rate, which is fairly low. The Fed is not paying so much attention to job creation. As long as the rate of unemployment stays low, short term interest rates will be raised.

Subject: Social Security and Medicare From: Jennifer To: All Date Posted: Sat, Nov 13, 2004 at 11:13:54 (EST) Email Address: Not Provided Message: There are a group of debt mongers, mongering end of the world figures for affording Social Security and Medicare. The figures are stretched out over much of a century, when we have trouble planning accurately for 5 or 10 years, and the figures are so glum as to suggest we begin asking our parents not to bother going on living past 60. Nonsense. Social Security is fine for another 38 years, and we can surely extend the fineness beyond with ease if we care to. We can as well afford to care for our parent's medical needs. Enough with the end of the world stories that are simply designed to erode support for Social Security and Medicare, and the heck with those who need the programs.

Subject: Re: Social Security and Medicare From: jimsum To: Jennifer Date Posted: Mon, Nov 15, 2004 at 12:14:18 (EST) Email Address: jim.summers@rogers.com Message: I agree that there is no real problem with Social Security; we can predict the effects of the aging of the population quite easily. Predicting Medicare is the hard one, as there are both demographic and inflation problems with health care costs. But it looks like Medicare will be a worse problem than Social Security. I don't think we will be able to easily afford the likely increases in Medicare, however. The cost of health care is rising much faster than inflation, and as the population ages, that is an additional load on the system. We might be able to keep up with Medicare increases, but only if every other area of government spending is frozen. The real problem is that you are only listing two time bombs in government financing; besides Social Security and Medicare there is also the large and growing debt to deal with. Even if the debt is never repaid, interest payments will slowly increase as the debt rises; so we have to add escalating interest payments on top of the other two problems. Whether Medicare and Social Security will be easily fixable is debatable; but if the current system is apparently unaffordable (taxes only cover about 80% of the budget), there is no way it will be affordable in a decade or two.

Subject: Insuring Our Benefits? From: Emma To: All Date Posted: Sat, Nov 13, 2004 at 10:36:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/13/business/13insure.html Spitzer Sues Broker Used for Workplace Insurance By JENNY ANDERSON The New York attorney general's investigation into abuses in the insurance industry escalated yesterday with a lawsuit accusing a California broker of fraudulent practices that led to higher premiums for employees at some of the nation's leading companies. The attorney general, Eliot Spitzer, sued Universal Life Resources, accusing the firm of steering business to insurers like MetLife, Prudential and Unum Provident in exchange for millions of dollars in payments, which, until 2003, were not properly disclosed. The insurance coverage was bought for employees of companies like Viacom and Intel. The complaint also contends that Universal Life inflated certain fees relating to benefit enrollment materials, ultimately passing that cost onto the client's employees. Mr. Spitzer's lawsuit against Universal Life is the second against an insurance broker since his investigation of the industry began last spring. The investigation's focus has been on bid-rigging by brokers of commercial insurance, resulting in a lawsuit against Marsh & McLennan, the biggest insurance broker, on Oct. 14. Like Marsh, Universal Life is another influential middleman, but in the area of employee benefits: the life, disability and accident insurance a company obtains for its workers. While the earlier lawsuit portrayed corporations as the victims, investigators said the latest action directly affected individuals. 'This case brings the insurance industry fraud that we have uncovered to the ordinary consumer, where monthly premiums have been inflated by the gamesmanship and illegal conduct of U.L.R. and the carriers,' Mr. Spitzer said yesterday. 'This conspiracy to defeat competition and push business not to the lowest-cost provider but to the company willing to make a payoff is destroying competition.' A lawyer for Universal Life, Bob Cleary of the firm of Proskauer Rose, declined to comment other than to say that the attorney general's office had not sent him a copy of the complaint. Universal Life, based in San Diego, is a small but powerful company with only about 80 employees. Since 1994, the closely held company has acted as an insurance broker to more than four million employees of big American corporations.

Subject: A Rising Euro From: Emma To: All Date Posted: Sat, Nov 13, 2004 at 10:19:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/13/business/worldbusiness/13euro.html In Europe, Rising Euro Gathers Much Angst By MARK LANDLER FRANKFURT - Bruno E. Sälzer insists he is too busy to worry about exchange rates. But Mr. Sälzer, chairman of the German fashion house Hugo Boss, has kept a watchful eye on the galloping euro. 'We're still doing fine,' he said in an interview Friday, as the euro skirted another record of $1.30 against the dollar. 'Even if it goes to $1.40, that would be O.K. But above that, it would be a problem.' Europe is in the midst of another bout of angst about its currency, which has risen nearly 7 percent in the last two months, amid signs the Bush administration will tolerate a prolonged weakness in the dollar. The skittishness has been compounded by new data showing that Europe's recovery sputtered in the third quarter - dragged down by its two anchor economies, Germany and France. Each grew just 0.1 percent, compared with the previous three months, well below expectations. The reason the rising euro is viewed with such alarm is because it could choke off the exports - like Hugo Boss shoes and Mercedes sedans - that have been the engine of Europe's recovery. In Germany, where consumer spending is moribund, exports supply what little momentum the country has. But the strengthening euro is only one of multiple forces buffeting Europe. Rising oil prices were probably the bigger culprit for the latest weak numbers, according to economists. In France, which released new figures Friday, exports and consumer spending were both sluggish. 'French consumption was extremely strong at the beginning of this year,' said Nicolas Sobczak, an economist at Goldman Sachs in Paris. 'We knew there would be a correction, but it was deeper than we expected.' The bad news in France and Germany more than offset better results in Belgium and Greece, to leave the 12-nation 'euro zone' with an overall growth rate of 0.3 percent in the third quarter. Greece reaped a one-time gain from the Olympic Games, which brought tourists and trade to Athens. Now, the European Commission and private economists are scrambling to reduce their forecasts for the rest of this year and 2005. While nobody is hoisting the red flag of recession, some economists said that growth in Germany, at least, was at risk of petering out entirely. Jörg Krämer, the chief strategist at Invesco, an asset management company in Frankfurt, said there was a significant risk that Germany could suffer zero growth for a time. 'I've been labeled a pessimist,' he said, 'but even a pessimist can be overly optimistic.' Mr. Krämer's pessimism is widely shared in this case, because most economists expect the euro to rise further in 2005. The persistent budget and trade deficits in the United States, and the reluctance of Asian countries to let their currencies rise in value against the dollar, suggest that the euro will continue to absorb the bulk of the pressure from a weak dollar. At its current rate of increase, the euro would hit $1.40 by the middle of January. On Friday, it was trading up a bit from the day before, but down from its peak on Wednesday of $1.3006. 'We have to accept that we are in a long-lasting dollar bear market that will drive the euro to new heights,' said Thomas Mayer, the chief European economist at Deutsche Bank. 'If it happens in an orderly way, Europe can handle it. If it comes as a shock, it will pull the seats out from under people.' Officials from the European Central Bank fanned out again on Friday to try to talk down the euro. Lucas Papademos, the vice president, said in a speech in Tokyo that 'excessive volatility is not desirable and not conducive to economic growth.' Another board member, Gertrude Tumpel-Gugerell, said that 'brutal moves' in exchange rates were not welcome. Short of intervening in the market, there is little the bank can do to stem the rise. Analysts said it was not likely to raise interest rates, because that could derail Europe's already fragile economies. The bank's president, Jean-Claude Trichet, has fretted about the damping effect of oil prices. 'They seem to be torn,' Mr. Mayer said. 'They're trying to balance the upside risk of oil prices with the downside risk to growth of the euro. The market has been confused by the different comments.' The best remedy, some economists suggest, may be to avoid dwelling too much on the exchange rate. Martin W. Hüfner, the chief economist at the HVB Group in Munich, noted that only 9 percent of Germany's exports go to the United States, compared with 43 percent in other euro countries. A strong euro, Mr. Hüfner noted, raises the purchasing power of Europeans. This not only makes a vacation to Las Vegas or Hawaii cheaper, but it lowers the price of imports from the United States. In Germany, that could help revive the lackluster spending of consumers. The euro is also an insulation against rising oil prices, since those are calculated in dollars. 'We do have a chance, if oil prices come down, to foster more consumption in Germany,' said Michael Heise, the chief economist of the Allianz Group. 'There could be a switch from export-led growth to domestic-led growth. Then we could get a pretty strong pickup next year.' For his part, Mr. Sälzer of Hugo Boss is looking to Germany as an opportunity rather than an obstacle. The company, which is based in the southern German town of Metzingen, reported a 10 percent jump in sales in its home market, in the first nine months of 2004. 'I'm confident that after six or seven years of declining sales, Germany has hit the bottom,' Mr. Sälzer said. Hugo Boss, a unit of Marzotto of Italy, still depends on the United States, which is the second-largest market for its men's clothing after Germany. But the company produces 90 percent of its suits for the American market at a factory in Cleveland, which gives it something of a hedge against the vagaries of exchange rates. If the euro had not risen, Mr. Sälzer estimates, Hugo Boss would have grown by 12 percent, instead of 10 percent. But, he added, 'nobody can predict exchange rates over the next five years.'

Subject: As the Dollar Declines From: Emma To: Emma Date Posted: Sat, Nov 13, 2004 at 20:13:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/13/opinion/13sat1.html As the Dollar Declines For all its professed desire for a strong dollar, the Bush administration has apparently decided that letting the dollar slide is a good way to shrink America's trade deficit. This is dubious economic policy. It provides a modicum of relief to American exporters, but it increases the nation's vulnerability to higher prices and higher interest rates, while ignoring fiscal measures that would more assuredly anchor the United States in the global economy. The dollar, which has declined nearly 30 percent against the euro since President Bush took office in 2001, fell to a record low this week. The decline has not been as marked against other currencies, largely because China and Japan prop up the dollar by investing heavily in United States Treasury securities - in effect, lending us money so we can buy their goods. Meanwhile, the Treasury secretary, John Snow, has largely eliminated the phrase 'strong dollar' from his workaday vocabulary. The underlying problem is that deficits in America's global transactions are at record levels, putting Americans at risk of either a slow deterioration in living standards or abrupt spikes in inflation and interest rates. There are three ways to get that deficit down: America can reduce the federal budget deficit, thus lowering the amount of interest we pay foreign countries to finance that deficit; trading partners like Europe and Japan can expand their economies, increasing their demand for American goods; or America can allow its dollar to fall to increase its exports. The only lasting remedy is to reduce the federal budget deficit. That, in turn, calls for specific policies, like - we may have mentioned this before - rolling back the Bush tax cuts. Letting the dollar weaken is a far less responsible approach, an unwieldy and risky attempt to reduce the trade imbalance without the political pain of deficit reduction. During the Bush years, 92 percent of the nearly $1 trillion increase in publicly held debt has been financed by foreign lenders. Foreign ownership of Treasuries has tripled from the peak of the Reagan deficits in 1983.

Subject: Our troubles are all the same ... From: El Gringo To: All Date Posted: Fri, Nov 12, 2004 at 22:33:34 (EST) Email Address: nma@hotmail.com Message: http://www.lyricsondemand.com/tvthemes/cheerslyrics.html

Subject: Not Really From: Emma To: El Gringo Date Posted: Sat, Nov 13, 2004 at 09:41:52 (EST) Email Address: Not Provided Message: Happy families are all alike; every unhappy family is unhappy in its own way. Anna Karenina

Subject: Re: Not Really From: Ari To: Emma Date Posted: Sat, Nov 13, 2004 at 18:11:49 (EST) Email Address: Not Provided Message: :) :( Ah well.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Nov 12, 2004 at 15:06:20 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/11/04 S&P is up 7.0% Value Index is 10.8 Growth Index is 3.2 Mid Cap Index is 12.6% Small Cap Index is 13.2% Small Value is 16.7 Europe Index is 13.3% Pacific Index is 9.6% Energy is 30.3% REIT Index is 22.4 Health Care is 5.3 Long Term Corporate Bond Fund is 6.0% High Yield Corporate Bond Fund is 7.5

Subject: Vanguard Returns.... From: Terri To: Terri Date Posted: Fri, Nov 12, 2004 at 19:13:58 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/12/04 S&P is up 7.9% Value Index is 11.9 Growth Index is 4.2 Mid Cap Index is 13.9% Small Cap Index is 14.3% Small Value is 18.0 Europe Index is 14.1% Pacific Index is 10.7% Energy is 32.3% REIT Index is 25.4 Health Care is 5.7 Long Term Corporate Bond Fund is 6.8% High Yield Corporate Bond Fund is 7.5

Subject: A Serious Bull Market From: Terri To: Terri Date Posted: Fri, Nov 12, 2004 at 16:25:46 (EST) Email Address: Not Provided Message: Basically we have a made a year of gains in world stock markets in a month. This is why I do not choose to time stock markets. There has been considerable reason to be cautious this year, so all that was needed was to lean towards value stocks and bonds a little more than last year. So, there is protection from a decline but participation in the gains. There is a serious bull market no matter the bears. The bears will have a day as well, but missing out on this bull run is not the way to invest.

Subject: Moderate Growth Prospects From: Emma To: Terri Date Posted: Sat, Nov 13, 2004 at 09:49:35 (EST) Email Address: Not Provided Message: Investors in market after market seem to be anticipating steady growth at the current moderate pace. European and Asian are also slowly gaining strength. Canadian, Mexican, and South American markets are gaining. Hopefully this is a correct reading of what to expect from the world's economies in the coming year. What is needed is for America to grow at a steady pace and China to slow gently.

Subject: Guaranteed Retirement Income Fades From: Emma To: All Date Posted: Fri, Nov 12, 2004 at 13:39:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/12/business/12norris.html As Baby Boom Ages, Era of Guaranteed Retirement Income Fades By Floyd Norris WE live in an age when a lot of promises regarding retirement are going to be broken. Just how they are broken, and what replaces them, will have profound effects on the future of the industrial nations that have dominated the world economy in the last century. What is at stake is a reversal of perhaps the most important economic trend in developed countries since World War II, that of guaranteeing financial security for their citizens. In most major countries, governments came to provide health care and an assured pension. In the United States, some of that came from employer-financed health care and pension plans, but the results were often similar. Now, increased competition stemming from globalization has left many companies scrambling for ways to cut costs. And many pension and health care plans are pay-as-you-go systems whose generous benefits while the baby boomers were working now seem unsustainable as that huge population group begins to retire. In Europe the problems have been clear for years, although governments have been slow to enact unpopular changes. But there is a widespread expectation that change is inevitable. Bond-rating agencies cite that belief as a reason for not cutting sovereign debt ratings, and it is likely that spending by Europeans has been depressed by worries over just what will be there when they retire. In the United States, an understanding of what must be done is less well formed. While some companies, like United Airlines, have eliminated defined-benefit pension plans in the glare of publicity, many more have quietly frozen their plans - keeping employees from earning additional benefits - or have barred new employees from joining plans. The number of employees in traditional plans fell to 17.2 million last year, down 23 percent since 1988. Pension plans seemed to hold their own in the late 90's, when a soaring stock market allowed companies to assume that they did not need to put money in. But the bubble burst, and now the Securities and Exchange Commission is looking into the numbers at some companies that may be using generous assumptions to make their pension picture look prettier than it would otherwise appear. Workers without traditional pension plans generally have defined contribution plans like 401(k)'s, but these leave the risk of market losses with the employee. Similarly, it appears likely that President Bush will propose a revamping of Social Security that would reduce guaranteed benefits at some point while creating savings accounts that leave the worker with the possibility - but not the assurance - of coming out ahead. One can, as Mr. Bush does, hail the trend as part of an ''ownership society,'' in which individuals will prosper if their investments do well, and the markets' strong performance in the 1980's and 90's has left many Americans confident. The hostility to elected governments seen in Europe - partly due to the financial strictures officials have proposed - is not evident in the United States. But there is a risk of a negative cycle as the increased risks become understood. Americans could conclude that they need to save more and spend less to offset these risks, thereby slowing the economy and perhaps worsening the performance of the investments, which could cause them to want to save even more. And the transition to a new Social Security system must involve benefit reductions in the near future or a huge transfer from other tax revenue, meaning either tax increases or rising budget deficits.

Subject: Re: Guaranteed Retirement Income Fades From: jimsum To: Emma Date Posted: Fri, Nov 12, 2004 at 17:02:51 (EST) Email Address: jim.summers@rogers.com Message: I really don't see how Bush's plan for private savings accounts will solve anything. As I see it, the whole reason we have government pension plans is that the public doesn't like to see old people forced to eat cat food, or go without an life-saving operations they can't afford. It is basically a welfare program that isn't income-tested. If investing social security contributions is expected to yield better results than what the government is doing now (i.e. expecting that tax revenues will rise along with GDP) then why doesn't the government do the investing? Using personal accounts just shifts the investment risks from the government to individuals; but this doesn't really shift the risk because retirees who make bad investments are not going to be forced to eat cat food, they will be bailed out with some form of welfare. I think these plans are just a smoke screen to hide the fact that the only solution to the pension problem is to cut pay-as-you-go benefits significantly (or increase taxes at an accelerating rate). Tell people that government pensions are not going to cover more than a fraction of their retirement needs, and point out that they are going to have to save if they want retirement income above the poverty line.

Subject: Re: Guaranteed Retirement Income Fades From: Emma To: jimsum Date Posted: Fri, Nov 12, 2004 at 18:21:09 (EST) Email Address: Not Provided Message: Interesting points to which I generally agree. There will be much discussion of changes in Social Security, and I worry about all of them.

Subject: Credit Boom in Asia From: Emma To: All Date Posted: Fri, Nov 12, 2004 at 13:36:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/12/business/worldbusiness/12credit.html?pagewanted=all&position= Boom Time for Credit in Southeast Asia By WAYNE ARNOLD Chamikorn Buranananda has a vision of a Thailand where everyone, rich or poor, city dweller or rice farmer, is in debt - be it for a car loan, mortgage, a credit card or some other loan. 'You want an educated population that can manage debt,' said Mr. Chamikorn, who after helping General Electric start its own finance operations in Thailand has moved on to become managing director at Capital OK, a consumer finance start-up with ties to Prime Minister Thaksin Shinawatra. Capital OK is a newcomer in a market that has been gathering momentum in Thailand and throughout Southeast Asia for the last four years. As strengthening economies enable more consumers to emerge from poverty to the lower middle class, banks and finance companies are greeting them with financing options once limited to developed nations. 'It is booming,' said Supavud Saicheua, an economist at Phatra Securities in Bangkok. 'There are lots of finance companies and banks interested in expanding the business.' In Thailand, consumer credit grew 35 percent last year, according to Fitch Ratings, sending the average household's debts up to 52 percent of its income. That consumers will borrow and repay is a welcome switch for Southeast Asia's banks after the untrammeled corporate lending that devastated them in the Asian financial crisis of 1997 and 1998. But the region's banks are playing catch-up with aggressive foreign institutions like Citibank, G.E. and Aeon of Japan, which pioneered consumer finance in Southeast Asia after witnessing the markets take off in Japan, South Korea and Hong Kong. By offering the long-neglected Southeast Asian consumer convenient loans, economists say, these lenders are helping to stimulate domestic consumption that can offset the region's dependence on exports, which ebb and flow. This may seem to contradict conventional wisdom, which holds that Asians are prolific savers, averse to debt. Bankers say the growth of consumer finance is proving convention wrong. 'It's a myth,' said David Lum, regional head of banking at Daiwa Institute of Research in Singapore. During hard times, Southeast Asians used to turn to informal financing networks among relatives, their villages or loan sharks. At the time, the region's own banks neglected consumers to focus on channeling the public's savings into corporate manufacturing and roads, bridges, steel mills, refineries and the like. When the crisis hit, it left banks buried in bad debts. Finance companies like GE Capital were the only lenders left standing. 'There weren't really any competitors,' Mr. Chamikorn said. 'The only competitors were loan sharks.' A native Thai and naturalized American, Mr. Chamikorn came to GE Capital in 1996 after stints around Asia for Citibank and American Express. GE Capital had purchased a stake in an auto finance company before the crisis, and in 1998, Mr. Chamikorn helped negotiate the discounted purchase of a portfolio of personal loans from Thailand's debt restructuring agency. With so few rivals, interest rates for legitimate lenders went as high as 50 percent, and G.E.'s finance business in Thailand was so successful that the company's former chairman and chief executive, John F. Welch Jr., singled it out for praise in his autobiography, 'Jack: Straight From the Gut.' What GE Capital's executives from Thailand impressed on Mr. Welch was this: despite low incomes, Asian consumers are excellent credit risks, even with interest rates much higher than corporations pay. That is because even relatively small loans - for a car or motorcycle - represent critical personal investments. 'People pay on time because a motorcycle is their livelihood,' said Jackson Tai, chief executive of DBS Bank of Singapore, which owns 40 percent of Capital OK.

Subject: Recovery and Inflation From: Ari To: All Date Posted: Fri, Nov 12, 2004 at 06:06:58 (EST) Email Address: Not Provided Message: How long this economic recovery continues will likely hinge on how long consumer inflation stays about 2.5%. If there are signs of an inflation increase, the Federal Reserve will have to increase the pace of short term interest rate increases and long term rates will increase. This is a critical period for determining whether inflation and so the recovery continue.

Subject: I agree 100% From: Mik To: Ari Date Posted: Fri, Nov 12, 2004 at 14:36:25 (EST) Email Address: Not Provided Message: I have always harped on the inflation issue.

Subject: Re: I agree 100% From: Jennifer To: Mik Date Posted: Fri, Nov 12, 2004 at 14:40:26 (EST) Email Address: Not Provided Message: Whether inflation is contained will determine how long this recovery will last, and how strong it will continue to be.

Subject: Vanguard Returns From: Terri To: All Date Posted: Thurs, Nov 11, 2004 at 16:05:04 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/10/04 S&P is up 6.0% Value Index is 9.9 Growth Index is 2.2 Mid Cap Index is 11.5% Small Cap Index is 12.0% Small Value is 15.6 Europe Index is 12.5% Pacific Index is 9.9% Energy is 30.3% REIT Index is 21.3 Health Care is 4.9 Long Term Corporate Bond Fund is 6.0% High Yield Corporate Bond Fund is 7.5

Subject: Markets From: Terri To: Terri Date Posted: Thurs, Nov 11, 2004 at 16:46:33 (EST) Email Address: Not Provided Message: Notice that world stock markets are winding down the year with steady gains. The pattern continues with smaller company stocks stronger than large company stocks. Value stocks are stronger than growth. Europe and Pacific are stronger than America because of the weakened dollar. Energy and real estate investment trusts are ahead more than 20%, while health care stocks are finally nicely positive. Bonds have weakened in the last month, but are having a respectable year.

Subject: Re: Markets From: Ari To: Terri Date Posted: Fri, Nov 12, 2004 at 05:31:58 (EST) Email Address: Not Provided Message: We are now almost 2 years into a stock market recovery. The slowness of the continued recovery this year may assure that the market does not become overvalued. Corporate earnings have been growing as fast as stock prices have risen. This is promising. As long as the Fed rate increases are gradual and moderate, the economy and the stock market may continue to recover. That also has to mean inflation stays under control.

Subject: Are We Running Out of Oil (Again)? From: El Gringo To: All Date Posted: Thurs, Nov 11, 2004 at 08:54:14 (EST) Email Address: nma@hotmail.com Message: Are We Running Out of Oil (Again)? by Robert J. Shiller Oil prices are now running well above $50 a barrel, partly owing to short-run supply shocks, such as the Iraq conflict, Nigerian labor disputes, the conflict between Yukos Oil and the Russian government, and Florida's recent hurricanes. Oil prices may fall once these shocks dissipate, but speculative effects could keep them relatively high, weakening the world economy and depressing stock markets. Even a temporary spike in oil prices can have long-term effects because of the social reactions they provoke. High oil prices fuel public discussion about the future of oil prices. The outcome of any public discussion can never be known with certainty, but chances are that it will amplify stories that imply risks of higher oil prices. Experts may say that short-run supply factors caused the recent price increases, but the price increases will nonetheless lend credibility to scarier long-term stories. The scary story that is being amplified now concerns the developing world, notably China and India, where rapid economic growth - and no restrictions on emissions under the Kyoto Protocol - are seen as creating insatiable demands for oil. The story's premise is that the world will run out of oil faster than we thought, as these billions of people chase their dreams of big houses and sport utility vehicles. Is this plausible? Certainly, China, India, and some other emerging countries are developing fast. But experts find it difficult to specify the long-run implications of this for the energy market. Too many factors remain fuzzy: the rate of growth of these countries' energy demand, discoveries of new oil reserves, developments in oil-saving technology, and the ultimate replacement of oil by other energy sources. But what matters for oil prices now and in the foreseeable future is the perception of the story, not the ambiguities behind it. If there is a perception that prices will be higher in the future, then prices will tend to be higher today. That is how markets work. If it is generally thought that oil prices will be higher in the future, owners of oil reserves will tend to postpone costly investments in exploration and expansion of production capacity, and they may pump oil at below capacity. They would rather sell their oil and invest later, when prices are higher, so they restrain increases in supply. Expectations become self-fulfilling, oil prices rise, a speculative bubble is born. But if owners of oil reserves think that prices will fall in the long run, they gain an incentive to explore for oil and expand production now in order to sell as much oil as possible before the fall. The resulting supply surge drives down prices, reinforces expectations of further declines, and produces the inverse of a speculative bubble: a collapse in prices. All of this may seem obvious, but we tend not to think of oil prices as being determined by expectations of future prices. For example, in January 1974, when the first world oil crisis began, oil prices doubled in just days. The immediate cause was believed to have been Israel's stunning success in the Yom Kippur War, which led Arab oil producers to retaliate by choking off output. The second crisis, in 1979, is usually attributed to supply disruptions from the Persian Gulf following the Islamic revolution in Iran and the subsequent start of the Iran-Iraq war. Why, then, did real inflation-corrected oil prices remain at or above their 1974 levels until 1986? Speculative pressures are likely to have been at work, influencing the decisions of OPEC and many others. Although changes in market psychology are difficult to understand, the broad concerns that underlie such episodes of irrational exuberance are almost always clear. For example, in 1972, scientists at the Massachusetts Institute of Technology, including computer pioneer Jay Forrester, published The Limits to Growth. The book launched an international debate on whether the world would soon face immense economic problems due to shortages of oil and other natural resources - problems that seemed to be presaged by OPEC's production cuts eighteen months later. The second crisis was immediately preceded by the accident at the Three-Mile Island nuclear reactor in Pennsylvania in March 1979, which reinvigorated the anti-nuclear movement. With nuclear power - regarded as the main technological bulwark against depletion of the world's oil supplies - suddenly suspect, oil prices doubled again by the year's end. After 1979, fears about limits to growth and nuclear power ebbed. Oil prices gradually fell, and the stock market began its long climb towards its peak in 2000. But the current rise in oil prices shows that people are still eager to embrace 'running out of oil' stories - this time focused on China and India - even when short-run factors are to blame. Indeed, the International Energy Agency noted in September that the usual relationship between oil prices and inventory levels has broken down, with prices much higher than the usual relationship would suggest. The IEA's report calls this breakdown evidence of a 'structural shift in the market.' But the same pattern followed the 1973-4 and 1979-80 oil crises, when prices dropped from their highest peaks, but stayed quite high for years, representing a drag on the stock market, the housing market, and the world economy. Let's hope that the effects of the present spike will be more short-lived. But don't hold your breath. Robert J. Shiller is Professor of Economics at Yale University, and author of Irrational Exuberance and The New Financial Order: Risk in the 21st Century.

Subject: Re: Are We Running Out of Oil (Again)? From: Jennifer To: El Gringo Date Posted: Thurs, Nov 11, 2004 at 10:24:46 (EST) Email Address: Not Provided Message: http://www.dailytimes.com.pk/default.asp?page=story_2-11-2004_pg5_19 Robert Shiller 11/11/2004 Then, Shiller is suggesting that the high oil prices we are experiencing are not necessarily related to traditional supply and demand characteristics, but to perceptions of future supply limits and demand growth for oil. We may still be facing these high oil prices for years.

Subject: Re: Are We Running Out of Oil (Again)? From: Pete Weis To: Jennifer Date Posted: Thurs, Nov 11, 2004 at 11:20:31 (EST) Email Address: Not Provided Message: There have been a combination of factors that have led to the run-up in oil. Certainly, one of those has been speculation on the future of world oil supplies. Another clearly has been the large increases in demand by rapidly growing economies, especially China. In addition the falling US dollar has played a role. From everything I've read about oil, we have reached a point where all known major inground resources are known and nearly all, of any significance, are being tapped. There are growing questions about reported proven reserves by the Saudi's and major oil companies such as Royal Dutch Shell and Chevron, and in an article today another smaller oil producer adjusted downward its 'proven reserves'. You wonder with all the bogus accounting going on among public companies where executives have been enriching themselves at the expense of small investors, whether oil companies have been fudging the reserve numbers to do the same. Anyway, all of this points to the very urgent need to get going full throttle on alternative energy sources and to restructure our energy supply network. It's becoming increasingly clear that not to do so will result in economic hard times. The 70's showed us how rapidly rising oil prices can take hold. But this time there will be no large increase in oil production from the Middle East, Alaskan pipeline, and Northsea oil to bail us out. Our government needs to take the lead on this with an energy policy which accepts the reality of much higher prices for oil in the next 5 to 10 years and takes action to limit the damage.

Subject: Re: Are We Running Out of Oil (Again)? From: Terri To: Pete Weis Date Posted: Thurs, Nov 11, 2004 at 11:56:01 (EST) Email Address: Not Provided Message: There is need for continual work on development of alternative energy sources and improving the energy supply network, but there is as much need to emphasize energy efficieny or conservation. There is considerably more attention paid to efficiency in Germany and France and Sweden, than in America. Robert Shiller however is pointing out that we can not be sure why energy prices have rapidly climbed just now or how long they may stay at these levels. Is the cause Chinese demand? Is the cause suspect supply? Is the cause speculation?

Subject: No mystery here From: Pete Weis To: Terri Date Posted: Thurs, Nov 11, 2004 at 13:21:18 (EST) Email Address: Not Provided Message: 'there is as much need to emphasize energy efficieny or conservation.' Terri. You are absolutely right. This is the first immediate step that can be taken, but there is no public discussion of this to speak of presently. 'Is the cause Chinese demand? Is the cause suspect supply? Is the cause speculation?' Yes! Yes! Yes! Plus dollar shrinkage. There's no mystery. The question of over-reported proven reserves remains a question or atleast the extent of it remains a question. But the fact we are fast approaching not only the inability to significantly raise supply in the face of rapidly rising demand (the rollover point), but will reach the point of dropping supplies (the peak of the Hubbert curve) either soon or sometime in the next 10 years.

Subject: Re: No mystery here From: kevin To: Pete Weis Date Posted: Thurs, Nov 11, 2004 at 20:22:57 (EST) Email Address: Not Provided Message: We'll have a serious discussion of alternative energy sources when the big oil companies and their beauracratic partners in crime have milked the last nickel out of oil and not before. Interesting, to me at least, that Bush/Cheney have their secret energy commission and three years later we're paying sixty bucks a barrel. I'm glad their plan was such an unqualified success. Now if they could put together a secret commission on stabilizing Iraq.

Subject: Interest Rates From: Terri To: All Date Posted: Thurs, Nov 11, 2004 at 06:11:15 (EST) Email Address: Not Provided Message: Evidently the Federal Reserve Governors have decided that we are close enough to full employment to raise short term interest rates each meeting. We can look for at a Federal Funds Rate that will rise from 2% to 3% in coming months. The economy will be slowed in growth from this winter. Hopefully the slowing growth will not be much of a problem for workers. Long term interest rates may finally begin to rise to approach 5%.

Subject: Price Increases From: Terri To: Terri Date Posted: Thurs, Nov 11, 2004 at 06:31:48 (EST) Email Address: Not Provided Message: The problem I have with the Fed perception that the labor market is strong enough for a continuing of the cycle of interest rate increases, is that wage and benefit increases are barely keep up with inflation. Possibly the Fed expects labor costs to climb, possibly the concern is that material cost increases are likely to increasingly effect consumer prices.

Subject: Re: Price Increases From: kevin To: Terri Date Posted: Thurs, Nov 11, 2004 at 20:40:28 (EST) Email Address: Not Provided Message: You're assuming that the Fed cares about the strength of the labor market. As long as wealth gets it's way and inflation stays low the Fed has done it's job. As to material costs, that's only one factor. Increasing health care costs, retiree costs, and increased consumer costs due to the weakening dollar are all pushing the inflationary picture.

Subject: Commercial Real Estate Questions From: Ari To: All Date Posted: Thurs, Nov 11, 2004 at 05:42:16 (EST) Email Address: Not Provided Message: How are commercial real estate mortgages financed? Are the mortgages fixed or variable in rate, and for how long? Are REITs vulnerable to price declines for commercial real estate?

Subject: About a paper of Paul From: neutrin To: All Date Posted: Wed, Nov 10, 2004 at 20:50:45 (EST) Email Address: neutrin@vip.sina.com Message: Why the price index is like that in his 'Leapfrogging in leadership',1215,VOL 83 ,NO.5 December 1993,AER? Pleas reply to my email,thanks.

Subject: Ireland is Greener From: Emma To: All Date Posted: Wed, Nov 10, 2004 at 15:35:24 (EST) Email Address: Not Provided Message: http://ea.nytimes.com/cgi-bin/email?REFURI=http://www.nytimes.com/2004/11/10/nyregion/10irish.html&position= Back Home in Ireland, Greener Pastures By NINA BERNSTEIN They arrived as the New Irish in the 1980's and 90's, thousands drawn to a New York that still glittered in family lore as a place where hard work could bring prosperity. But the glitter began to dim along with the economy and the government's attitude toward illegal immigrants. Now they are streaming back to Ireland at such a clip that in the neighborhoods they regreened in Queens, Yonkers and the Bronx, once-packed pubs stand half-empty and apartment vacancies go begging. Some immigrants, longtime illegal residents losing hope for legal status, say they are being driven out by new security crackdowns that make it harder for those without a valid Social Security number to drive, work or plan a future in the United States. Others, already naturalized citizens, say the price in toil for health care and education was too high, and hope for a less-exhausting life in a prosperous Ireland. 'It's the complete reversal of the American dream,' said Adrian Flannelly, chairman of the Irish Radio Network in New York, who has served on an Irish government task force on returnees. The exodus from the city, he said, signals a historic shift in a relationship that is part of the city's backbone, inscribed in the subways and bridges built by Irish immigrant labor in past centuries. Michael and Catroina Condon, both naturalized American citizens who spent 19 and 11 years in New York, respectively, say Ireland's style of prosperity promises a better life for their children. After the birth of their first baby, they said, they rebelled against the toll of seven-day workweeks to pay rising costs in a sluggish American economy. 'It's longer hours, less money, and a lot of the time you see people working for their wage just to pay their rent, to pay their health insurance,' said Ms. Condon, 31, who was a corporate secretary in Manhattan before returning in September to Mullingar, in County Westmeath. Her husband, a carpenter, is starting his own business, and she envisions a wedding-planning enterprise.

Subject: Brazil's Cable Pirates From: Emma To: All Date Posted: Wed, Nov 10, 2004 at 14:32:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/10/business/worldbusiness/10rio.html Cable Pirates Thrive in Brazil By TODD BENSON SÃO PAULO, Brazil - In this dirt-poor shantytown called Jardim Ângela on the southernmost tip of São Paulo, cable television is a luxury that most people cannot afford. That is why the local cable company, fearing it will not get a return on its investment, has been reluctant to wire the area. Even so, just about every household in this sprawling neighborhood with a population of more than 250,000 has a reliable television connection that includes a handful of cable channels, thanks to savvy handymen like Antônio. A 32-year-old father of two who would speak only if his surname were withheld 'to avoid problems with the police,' Antônio, a technician for a local telephone company, supplements his monthly salary of 586 reais (about $204) by hooking up pirate connections for low-income residents all over the city. 'This is the only way that people around here can get cable TV,' he said. 'I'm just making a little money on the side by meeting that need.' He said he charged a one-time fee for his services, ranging from 450 reais for a makeshift cable connection to as much as 1,200 reais for a satellite dish. But in many favelas, as shantytowns are called here, people like Antônio have organized themselves into informal businesses with thousands of subscribers who pay a monthly fee for a clandestine cable hook-up. Most of these companies charge 12 to 15 reais ($4 to $5) a month, far below the 60 reais or so the regular providers charge for a basic subscription. Because it is against the law here to distribute television programs without a government license, precise numbers on the size of Brazil's underground television market are hard to come by. The National Agency of Telecommunications, the government agency that oversees radio and television broadcasting, estimates that there are at least 600,000 illicit cable connections nationwide, mostly in urban areas like São Paulo and Rio de Janeiro. But the Brazilian Pay TV Association, which represents licensed cable and satellite television companies, says the number is closer to 300,000, about 13 percent of all of the country's connections. Either way, providers like Net Serviços de Comunicação and Sky Brasil collectively lose millions of reais a year in revenue to piracy. But instead of cracking down on the pirates, which would probably set off an uproar from residents in the country's slums, the government is trying to find ways to turn black-market operators into legal businesses. With the backing of some of the biggest pay television providers, the government is lobbying Congress to pass legislation by the end of the year that would allow the pirate companies to distribute cable channels legally in shantytowns. Under Brazil's cable television law, which was passed in 1995, cable companies are required to install high-quality fiber-optic wiring in up to 90 percent of each municipality where they operate within 10 years of obtaining their government license. But cable companies contend that it would not make economic sense to spend as much as $15,000 a kilometer for broadband networks in areas where most residents cannot afford a basic pay television subscription. 'We would be committing economic suicide if we built networks with that kind of technology in favelas,' said Antônio Salles Teixeira Neto, an executive at a local cable company, Via Cabo TV, which is a unit of the Adelphia Communications Corporation of Greenwood Village, Colo. 'What we need is a change in the law to reflect the economic realities of this country,' added Mr. Salles, who is also coordinating an antipiracy task force for the Brazilian Pay TV Association. 'Otherwise, people in these communities are going to be forced to keep circumventing the law in order to watch something as basic as cable TV.'

Subject: Commercial Real Estate From: Emma To: All Date Posted: Wed, Nov 10, 2004 at 14:27:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/10/business/10prop.html?pagewanted=all&position= Deals Are Hot and Heavy but the Talk Is of a Bubble By TERRY PRISTIN With its curved green glass facade, which follows a bend in the neighboring Chicago River, the 36-story building at 333 West Wacker Drive is one of Chicago's most admired postmodern skyscrapers. Last summer, however, some real estate professionals were surprised when a German investment group paid $208 million, or about $240 a square foot, for the 21-year-old building; the price was a whopping $67.5 million more than it traded for in 2000. Some real estate investors and analysts say that rich deals like this one are a sign that the commercial real estate market is dangerously overpriced. 'This feels very much like the last couple of months of the Internet bubble,'' said Larry Jay Wyman, the co-chairman of HRO Asset Management, a company that represents a German fund that invests in American real estate. Many investors seem to be making unrealistic assumptions about future market conditions, he said. 'People keep saying this is a new paradigm,'' said Mr. Wyman, who estimates that he has evaluated about 100 deals in recent months. 'As soon as you hear those words, you grab your wallet and get out of the room as fast as possible. A building can only produce as much net rent as its market will allow.'' The 333 Wacker Drive deal, for example, comes as Chicago's downtown office vacancy rate is 16.2 percent, according to Fitch Ratings, with another 3 million square feet about to be added to the market. The CoStar Group reported that 333 Wacker Drive was 93 percent leased and was expected to produce an initial rate of return of only 6.4 percent, some two percentage points less than the initial yield when the building changed hands four years ago. Investors who buy properties with such low initial yields generally expect to increase revenues. But it will not necessarily be easy for the new owners, KanAm U.S. Grundinvest Funds, to generate more income from their trophy building. Rents in the city have declined in recent years and landlords are being forced to offer increasingly generous inducements, said Brian P. Nagle, an investment sales broker in the Chicago office of Cushman & Wakefield. Two of the building's larger tenants, with leases expiring in 2008 and 2009, could be tempted to move into one of the four new downtown office towers that are under construction. The oversupply of new space in Chicago's central business district, Fitch Ratings reported last week, 'will depress both occupancy levels and rent rates for some time to come.'' But Steve McCarthy, the managing director of WestWind Partners, a private company that manages KanAm's investments, said that 333 West Wacker was acquired at a reasonable price and with average rents below market level. Despite high vacancy rates, cheaper rents and the pressure on landlords in most markets to make ever-sweeter concessions, the trading frenzy in commercial real estate has continued unabated. Sales of industrial, retail and apartment properties valued at $5 million or more approached $44 billion in the third quarter of this year, reaching a level that was 10 percent higher than any other quarter on record, according to Robert M. White Jr., the president of Real Capital Analytics, a New York research company. At a time when interest rates remain low and the stock market is performing tepidly, many investors are willing to accept relatively low returns on real estate because they believe they have nowhere else to put their money, investors and analysts say. Expected initial yields, known as capitalization rates, have dropped two percentage points in the last three years, to 7.7 percent, said Robert O. Bach, the national director of market analysis for Grubb & Ellis. 'People are willing to pay more per dollar of income,'' he said. 'No doubt about it, real estate is expensive, compared to five years ago. Some investors may be overbidding.'' But he said there were also signs in many places that the office buildings were slowly beginning to rent empty space. Fueling the feverish trading is the availability of enormous amounts of capital from both domestic and international sources. Mr. Wyman said his HausInvest Global fund alone had $1.5 billion to invest. 'It used to be that if you had a billion dollars to spend, you were a pretty popular guy,'' he said. 'Now you're just one of the herd with a billion dollars.'' But even Mr. Wyman has not stayed out of the game.

Subject: Dollar decline will eventually mean.... From: Pete Weis To: All Date Posted: Wed, Nov 10, 2004 at 11:30:24 (EST) Email Address: Not Provided Message: higher interest rates and the availability of credit. So we should look at the implications of higher rates down the road. With so many ARM's and interest only mortgages, combined with little to no money down what does this mean for housing and those holding the bag for all that mortgage money? I posted an article regarding falling housing prices in places like Las Vegas and San Diego. I recently read an article on steeply falling rents for office space in Boston. Today there is an article about problems with commercial real estate in New York City in the New York Times. This is from the Rocky Mountain News: Rocky Mountain News Foreclosure rate 'scary' Through October, metro area running 28.4% ahead of 2003 By John Rebchook, Rocky Mountain News November 10, 2004 Almost 10,000 metro-area real estate foreclosures have been filed in the first 10 months of this year, eclipsing last year's tally. And only a technicality prevented that number from exceeding 10,000. That's because at least two counties - Denver and Arapahoe - decided not to hold foreclosure sales during the week before Christmas. Under the law, when a foreclosure is opened, the public trustee office must have a sale within 45 to 50 days. That timing would force counties to have foreclosure sales in the third week of December, just before Christmas. 'We thought it would be unseemly to hold a foreclosure sale on Christmas week,' said Mary Wenke, Arapahoe County's public trustee. 'So that really means we only opened three weeks worth of foreclosures in October,' she said. Wenke estimated that 180 or so foreclosures in October weren't opened. Denver also didn't open all of its foreclosures in October. That means in late December an extra 140 or so foreclosures will be sold that normally would have been sold Dec. 21, said Anita Dubas, acting chief public trustee for Denver. But even without every foreclosure being counted, 9,930 foreclosures were opened through October, 28.4 percent more than the 7,731 in the first 10 months of 2003. 'That's scary, really scary,' Dubas said. In all of 2003, 9,431 foreclosures were filed in Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties. That was a 43.5 percent increase from 2002, when 6,574 homes went into foreclosure. Last year's foreclosures were surpassed only by the 17,122 foreclosures filed in 1988. Foreclosures last year accounted for about 1 percent of the homes on the market, compared with 2.3 percent of the housing stock in 1988. 'I don't think this is a surprise,' said economist Tucker Hart Adams. 'People were encouraged by extremely low mortgage rates and extremely innovative mortgage products to buy homes, buy bigger homes and get out of apartments into homes for the first time. Many of these people, if they miss only one or two paychecks, are not being able to make their mortgage payment.' If, as expected, interest rates continue to rise, that could accelerate foreclosures, she said. 'Traditionally, 75 percent of the mortgages were fixed and 25 percent were floating, but I hear that last year that maybe 60 percent to 70 percent of the loans were floating,' she said. And because foreclosures are a lagging indicator, even if the economy picks up next year, foreclosures could continue to rise, she said. Dubas said she has seen homes priced in the $40,000s to small commercial properties with $1 million or more in loans go under. 'I would guess the average price is in the $150,000 to $200,000 range,' she said. Parts of Denver with large minority populations, such as northwest, northeast and southwest, appear to have the most foreclosures, she said. She estimated 70 percent to 80 percent of the foreclosures are for homes, with the rest being commercial properties. Independent broker Gary Bauer said a client of his recently looked to buy a house that was just heading into foreclosure in the Inspiration Point neighborhood in northwest Denver. The buyer paid about $150,000 for the home two years ago, but then refinanced about every six months, until he had about $210,000 in debt on it. 'With a $210,000 mortgage, it is clearly upside down,' Bauer said. Bauer's client's offer of $155,000 was rejected. 'My guess is the bank is going to end up selling it in the $160,000s,' Bauer said. Foreclosures climb County Oct. 04 Oct. 03 YTD '04 YTD '03 Adams 174 157 2,019 1,488 Arapahoe 180 219 2,458 1,869 Boulder 43 40 426 408 Broomfield 9 9 108 90 Denver 267 434 2,707 2,120 Douglas 50 48 665 535 Jefferson 121 110 1,547 1,221 Total 844 1,017 9,930 7,731

Subject: Re: Dollar decline will eventually mean.... From: Ari To: Pete Weis Date Posted: Thurs, Nov 11, 2004 at 05:45:49 (EST) Email Address: Not Provided Message: These reports are useful for they may over time form a pattern. So far this year REIT share prices have been rising, but there have been several days of strong declines. Investors are at least a little nervous.

Subject: Re: Dollar decline will eventually mean.... From: Terri To: Pete Weis Date Posted: Wed, Nov 10, 2004 at 21:57:46 (EST) Email Address: Not Provided Message: The question of sustaining real estate prices may come down to how high are short term interest rates to rise?

Subject: Re: Dollar decline will eventually mean.... From: Emma To: Pete Weis Date Posted: Wed, Nov 10, 2004 at 15:10:26 (EST) Email Address: Not Provided Message: These anecdotal accounts are mounting in seriousness, and short term rates were raised again. We may be straining commercial and home owner's real estate markets.

Subject: Re: Dollar decline will eventually mean.... From: Ari To: Emma Date Posted: Wed, Nov 10, 2004 at 16:48:56 (EST) Email Address: Not Provided Message: The long term Treasury Note has risen quickly but quietly from 3.95% to 4.25%.

Subject: Rubin: Dollar Decline Could Accelerate From: El Gringo To: All Date Posted: Tues, Nov 09, 2004 at 20:25:11 (EST) Email Address: nma@hotmail.com Message: Rubin: Dollar Decline Could Accelerate Tue Nov 9, 5:30 AM ET By CHUCK HAWKINS, AP Business Writer NEW YORK - Former U.S. Treasury Secretary Robert Rubin warned Monday night that the dollar's recent decline could accelerate and interest rates could rise if politicians in Washington don't act quickly to narrow the federal budget deficit. Rubin's comments came on the same day that the dollar fell to a record low against the euro, the five-year-old currency used by Germany, France and 10 other European nations. Each euro is now worth about $1.29, up from about $1.19 in May and an all-time low against the dollar of 82 cents in October 2000. In European trading Tuesday, the euro was at $1.2915, up slightly from its late New York level of $1.2911. 'If I were still at Treasury, I'd still be a strong advocate of a strong dollar policy,' Rubin said in a speech at the 29th anniversary dinner of Columbia University's Knight-Bagehot business journalism program. That amounts to at least a veiled criticism of the Bush administration, which some critics contend is allowing the dollar to gradually weaken against key foreign currencies so as to make U.S.-produced goods cheaper in export markets. Rubin, who now is chairman of the executive committee and a member of the office of the chairman of Citigroup Inc., sounded a wide-ranging warning about the potential impact of continued federal deficits. 'If markets begin to fear long-term fiscal disarray and if foreign providers of the capital inflows upon which we have now become so enormously dependent share this fear and also develop a concern about our currency, then the markets may begin to demand sharply higher interest rates on long-term debt and possibly even create conditions of serious disruptions in our financial markets, with all the problems that that can lead to for our economy,' he said. And he added, 'We have a lot of work to do in a very difficult political environment.' Earlier on Monday, European Central Bank President Jean-Claude Trichet described the recent increase in the euro's value against the dollar as 'brutal' because of the pressure it puts on Europe's largely export-driven economic recovery. Rob Nichols, a U.S. Treasury Department spokesman, responded to Trichet's comments by saying the country's strong dollar policy remains unchanged and 'with regard to the budget deficit, we have laid out a plan to cut it in half in five years. We are committed to the plan. We are achieving that plan.' Rubin, who was an adviser to Democratic presidential candidate John Kerry was Treasury secretary under President Clinton between 1995 and 1999. He left his job as co-chairman of Goldman Sachs & Co. in 1992 to join the Clinton administration, where he first led the National Economic Council in the White House. While he noted his disputes with the Bush administration about portions of its tax-cutting policy, Rubin was careful to suggest that both political parties need to address the deficit issue sooner than later. 'Dramatic change in fiscal policy is imperative. And I think that reality is likely to increasingly assert itself on the political system, however unwilling or reluctant on a bipartisan basis that system may be to actually deal with the actual hard choices that restoring fiscal discipline imposes,' he said. Rubin also said he expects that in the years ahead, 'China is likely to be the largest economy in the world and a tough-minded geopolitical power equal to any other geopolitical power on the globe.' He also said he expects continued slow growth in Europe and that 'Japan has not done most of what seems to me it has to do' to shake off years of subpar economic growth.

Subject: Re: Rubin: Dollar Decline Could Accelerate From: Jennifer To: El Gringo Date Posted: Tues, Nov 09, 2004 at 21:09:23 (EST) Email Address: Not Provided Message: When Robert Rubin worries, we should all worry. There seems to be no intent to try to lessen the growth of government debt, rather the reverse. Tax cuts are to be made permanent, Social Security is to be partly privatized, and defense and security are not touchable. The government deficit will grow and there will be pressure on the dollar.

Subject: Re: Rubin: Dollar Decline Could Accelerate From: Ari To: Jennifer Date Posted: Wed, Nov 10, 2004 at 05:11:56 (EST) Email Address: Not Provided Message: Robert Rubin's book is well worth the reading. The Secretary gauges economic occurences in terms of outcome probability. Here are the conditions, here are the possible outcomes in order of probability.

Subject: Outsourcing on Outsourcing From: Emma To: All Date Posted: Tues, Nov 09, 2004 at 17:40:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/09/business/worldbusiness/09electric.html General Electric Sells 60% of Indian Back-Office Unit By SARITHA RAI BANGALORE, India - The General Electric Company said on Monday that it had sold a 60 percent stake in its pioneering back-office unit in India to two private equity firms for $500 million. G.E. sold the majority stake to General Atlantic Partners and Oak Hill Capital Partners, and will keep the remaining 40 percent. The sale opens the unit to accepting work from companies other than G.E. and its subsidiaries. G.E.'s back-office company, GE Capital International Services, has 17,000 employees worldwide, 13,000 of them in India, in centers in Gurgaon in the suburbs of New Delhi, as well as in Bangalore and Hyderabad. The unit, known by the acronym Gecis, was a pioneer in India's back-office industry. Setting it up in 1997 made G.E. the first multinational to open a large-scale operation to leverage India's manpower and cost advantages. Companies like American Express and I.B.M. quickly followed with back-office centers of their own. Experts are predicting that G.E.'s sale might set off a trend in the industry. Other multinational companies may also find it less compelling to own back-office units, or 'captives,' and instead outsource to independent companies.

Subject: We Have a Problem From: Terri To: All Date Posted: Tues, Nov 09, 2004 at 14:21:11 (EST) Email Address: Not Provided Message: We have a problem. Fewer and fewer Americans work for companies with pension plans that are invested and guaranteed for them. We almost all have to save and invest on our own to provide for the future and for retirement. The question is, how are we to invest for the future if we decide that every investment is threatening. Stocks have been a fine way to invest for decades if investors have been well diversfied and able to be patient through difficult periods. Bonds have not earned the returns of stocks, but a diversified bond portfolio has earned a premium over inflation. Real estate has often been a fine investment. Commodities, as well. Since we can seldom tell the direction of markets for long, how are we to invest if we are always waiting for markets to decline in price? My answer is to develop a low cost diversfied portfolio and average in continually. What else can be done? The need then is for us to keep close track of present conditions in markets, but think where profitability and stability may be now and in future and go after.

Subject: Re: We Have a Problem From: Ari To: Terri Date Posted: Wed, Nov 10, 2004 at 05:34:46 (EST) Email Address: Not Provided Message: All these questions are important. Since we are really on our own, we must be thinking how we can protect the savings we have. This is important to think and argue about.

Subject: Vanguard Returns From: Terri To: Terri Date Posted: Tues, Nov 09, 2004 at 16:50:38 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/08/04 S&P is up 6.1% Value Index is 9.7 Growth Index is 2.5 Small Cap Index is 10.9% Small Value is 14.3 Europe Index is 12.6% Pacific Index is 10.1% Energy is 29.5% REIT Index is 20.3 Health Care is 4.5 Long Term Corporate Bond Fund is 6.4% High Yield Corporate Bond Fund is 7.6

Subject: What's in the interest for one..... From: Pete Weis To: All Date Posted: Tues, Nov 09, 2004 at 13:14:58 (EST) Email Address: Not Provided Message: is not necessarily in the interests of all. An important concept which explains why paper assets can crash so suddenly. From Bloomberg: Can Asia Dump Bretton Woods II as Dollar Falls?: Andy Mukherjee Nov. 9 (Bloomberg) -- President George W. Bush's second term may be a challenging time for Asian central bankers. With the dollar hitting an all-time low against the euro yesterday, traders are betting that Bush may add to the $412.6 billion U.S. budget deficit, increasing the pressure on the dollar to decline. And unlike during the last three years, the brunt of the dollar's fall may not be borne by Europe alone. Bank of America Corp. says China may allow its currency to fluctuate in a wider range as early as the first quarter of 2005. Together, the two factors -- record current account and budget deficits in the U.S. and a possible appreciation in the yuan --may lead to stronger Asian currencies next year. The adjustment could mean an end to the current system of semi-fixed Asian exchange rates that has been termed the ``Revived Bretton Woods,'' by Michael Dooley of University of California at Santa Cruz, David Folkerts-Landau, Deutsche Bank AG's head of research, and Peter Garber, the bank's strategist. Revived Bretton Woods, or ``Bretton Woods II,'' is supposed to be a re-embodiment of the Bretton Woods arrangement, a post World War II system in which the U.S. was obliged to pay gold at $35 an ounce to its official foreign creditors. Other countries pegged their currencies to the dollar. Whereas the original Bretton Woods system collapsed in 1973, its replacement is seen as an ongoing and mutually beneficial agreement between the U.S., which is the world's financial ``core'' and Asia, which is its ``periphery.'' The periphery is allowed to expand its exports by keeping its currencies cheap, as long as it supplies capital to the core to pay for its spending excesses. Bretton Woods II As Dooley and the Deutsche economists pointed out in their paper last year, ``Exporting to the U.S. is Asia's main concern. Exports means growth. When their imports do not keep up, the official sectors are happy to buy U.S. securities. Their appetite for such investments is, for all practical purposes, unlimited because their growth capacity is far from its limit.'' At the heart of Bretton Woods II is China's 200 million underemployed rural population. ``And even if this reserve of labor was gone,'' the authors say, ``India is ready to graduate to the periphery with its vast supply of underemployed workers.'' If it's in the interest of Asian central bankers to keep a lid on their home currencies until every surplus worker in rural China and India has found a job in an export factory, then why should there be a change in Asia's currency policy in the next four years of Bush's presidency? Weak Dollar There are strong reasons. On the U.S. side, the issue is political. Jobs are at stake. A weak dollar is ``ultimately what the economy needs,'' says Bill Gross, the chief investment officer at Pacific Investment Management Co. in Newport Beach, California. On the Asian side, the reason why the region must now choose to live with higher currencies is inflation. By increasing interest rates for the first time in nine years, China has sent a signal that it's taking inflation seriously. Yet, if the People's Bank of China increases domestic interest rates significantly -- and keeps the currency pegged at 8.3 to the dollar -- it will invite more speculative capital into the country, aggravating inflation. There's another important reason why Bretton Woods II may have to be dumped. Nouriel Roubini, a professor of economics at New York University's Stern School of Business, says that the current global financial system can be sustained only if Asian central banks act as a cartel and keep their existing and future reserves in U.S. dollars. There is, however, no formal cartel. As a result, every Asian central bank will want to protect itself against an erosion in the value of its assets from a decline in the dollar. Tragedy of Commons In other words, what's in the interest of one Asian central bank isn't for all. Social scientists have a name for this phenomenon: ``Tragedy of the Commons.'' ``All central banks may be better off if no bank tries to diversify its reserve holdings,'' Roubini says, ``but as the risks of dollar depreciation grows, each central bank has an incentive to defect and to try to protect itself from losses.'' Losses could indeed be large. Asian central banks own more than $2.2 trillion in foreign-exchange reserves out of a global total of $3.4 trillion. At the end of last year, almost 64 percent of central bank reserves globally were denominated in U.S. dollars, according to the International Monetary Fund. As Asia tries to diversify out of the dollar, the U.S. currency may decline further. An individual central bank ``can only protect itself if it either shifts out of dollars and into euros ahead of the others, or buys a euro/dollar hedge before everyone else,'' Roubini says. Adjustments will be painful. Still, it would be better for everyone concerned to end the Bretton Woods II agreement now before it's too late for both the U.S. consumer and the Asian exporter.

Subject: Re: What's in the interest for one..... From: Terri To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 19:54:43 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2004-2_archives/000527.html The Unsustainable U.S. Current Account Position Revisited Maury Obstfeld and Ken Rogoff say: 'The real question is not whether there needs to be a big exchange rate adjustment when the U.S. current account closes up. For most plausible shocks leading to global rebalancing, this is a given. The real question is how drastic the economy-wide effects are likely to be. This is an open question.... [W]hereas US markets may have achieved an impressive degree of flexibility, Europe... has not. The rest of the world is not going to have an easy time adjusting to a massive dollar depreciation. It is also the case that world derivative markets have exponentially expanded.... With little reliable data on counterparty risk, there has to be concern that a massive dollar movement could lead to significant financial problems that are going to be difficult to foresee before they unfold...'

Subject: Privatizing social security DOA From: Pete Weis To: All Date Posted: Tues, Nov 09, 2004 at 12:07:54 (EST) Email Address: Not Provided Message: PRIVATIZING SOCIAL SECURITY DOESN'T MAKE A LICK OF SENSE By JOHN CRUDELE November 9, 2004 -- PRIVATIZING Social Security is impossible. I'll say it again: allowing people to take some of their Social Security contributions and invest that money privately is not possible. End of story. Wall Street staged a wonderful rally last week partly on this Social Security fantasy and it doesn't want to hear logic. Politicians don't want to deal with it either because they believe people can be conned into thinking that such a simple plan will actually reform and strengthen Social Security. It won't. But it could make the entire financial system of this country a lot weaker. To be honest, I don't even like hearing myself say this. According to my latest statement from Social Security, I have contributed more than $80,000 during my lifetime into the government retirement program, and my employers have kicked in another $60,000 on my behalf. I'd love to get any part of that money back and be able to invest it myself. I'd even settle for the government's proposal — if you can call the whispers we've been hearing a 'proposal' — that would allow us to privately invest some of the future money that we would have been paying into Social Security. But despite how much I'd like this to happen, it can't be done without causing extreme disruptions to this country's already weakened financial system. Here's why: It will probably come as a shock to no one that there isn't a big pile of Social Security money sitting somewhere. It isn't in the U.S. Treasury in Washington, nor at the Denver mint, nor hidden among alien spaceships in Roswell, N.M. Each year when you and I pay up to $5,449 of our hard-earned wages into the Social Security 'trust fund' — which even a moron now knows is an oxymoron — that money gets spent by the government. First, the money goes to pay people who are currently collecting Social Security. These days there's money left over since the demographics of the country haven't shifted yet (but will) to people receiving more annually than is contributed. The leftover money right now is borrowed by Washington. In place of the cash, the government leaves IOUs in the trust fund. Taking this Social Security money allows the government to borrow less in the financial markets, where foreigners already contribute heavily to funding our annual budget deficit — which, in case you haven't noticed — has been growing. Let's not even get into one very important fact: If this plan had been put into place the last time it surfaced four years ago under the Democrats, people would have lost a lot more money when the stock-market bubble busted and would now also be entitled to a lot less from Social Security when they retire. Privatization didn't make sense then, and it doesn't now. If people are allowed to put that 20 percent chunk into private accounts, that means the government would have nearly $2,200 less that it can borrow from Social Security for each person who chooses this option. (This assumes we can also use the employer's contribution.) And, depending on the details, the numbers get worse. 'Putting 10 percent of the payroll tax in private accounts without reducing benefits involves $1 trillion to $2 trillion of transition costs — transition costs being a euphemism for $1 trillion to $2 trillion of added deficits and debts,' says Pete Peterson, former U.S. Commerce Secretary, author of 'Running on Empty,' a book about the Social Security calamity, and co-head of Blackstone Group. That extra money that'll have to be borrowed by Washington to replace the Social Security loans will cause an inevitable rise in interest rates beyond where they would ordinarily be.

Subject: Re: Privatizing social security DOA From: Ari To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 15:24:27 (EST) Email Address: Not Provided Message: There will likely be private accounts established for Social Security, because the President and a Republican Congress will wish it so. But, there is no crisis for Social Security and the idea that the program is in danger, that our benefits are in danger, is completely absurd. Change Social Security, but do so honestly. A litany of foolish and fooled reporters and columnists are continually telling us that there is a Social security crisis. Rubbish!

Subject: Inflating away the bill From: Pete Weis To: Ari Date Posted: Tues, Nov 09, 2004 at 17:11:53 (EST) Email Address: Not Provided Message: Ari. You are clearly stating Paul Krugman's view that the Bush administration is using scare tactics to get their desired reductions in social security legislated. This is true. But the Bush administration has also helped to make the 'crisis' (which you say is 'rubbish') a bit more real. Any government which can be tempted to borrow and 'print' as much money as necessary to meet debt greatly exceeding its tax revenues, will simply reduce its debt including social security checks by inflating it away. So I don't think they will dramatically change the social security system if at all and face the wrath of seniors. They'll do it more subtley by 'inflating away' the checks they pay to retirees. 'Fears that the government will solve its problem by inflating away its debt will drive up interest rates, worsening the deficit, and things will spiral out of control.' - Paul Krugman Here's the entire piece by Paul Krugman which takes the form of an open letter to Alan Greenspan: On the Second Day, Atlas Waffled SYNOPSIS: Is Greenspan's reputation toast yet? Dear Alan Greenspan: After reading your recent testimony, I'd like to share some Objectivist philosophy with you. As a disciple of Ayn Rand, you'll undoubtedly appreciate it. Here it is, from John Galt's big speech in 'Atlas Shrugged': 'A is A: non-contradiction.' John Galt wouldn't be very happy with you right now. On Tuesday you went some distance toward repairing your reputation and steering the country away from fiscal disaster. But the next day you appeared to waffle. In your initial remarks you more or less acknowledged the grim fiscal outlook. As your discussion of 'accrual' accounting made clear, you know that if the federal budget took into account the future liabilities of Social Security and Medicare — as it should — it wouldn't show the 'modest' deficits the White House talks about; it would show a government deep in the red. Yet here's what you said on Wednesday: 'Actually, it turns out that we do not really have a fiscal problem of moment until we get beyond the end of this decade . . . deficits even under the president's program beyond these next two years [will be] in areas where the rate of debt to G.D.P. does not move up in any way which suggests we are in an unstable system.' There's a strict interpretation in which that statement is true. But it was widely read as a gesture of appeasement to the Bushies, as you surely knew it would be. And neither you nor the country can afford that kind of appeasement. Surely you aren't going to let rosy budget projections snooker you, yet again, into supporting irresponsible tax cuts? By now you know that this administration always projects big budget improvement two years ahead; but every six months it marks its projection down another $140 billion or so, blaming outside events. Independent analysts, who take into account the stuff the administration pretends doesn't exist — the war, the alternative minimum tax, and so on — think we're looking at deficits of 3 or 4 percent of G.D.P., maybe more, for the next decade. And then it will get much worse. Moreover, since you advocate accrual accounting, you obviously realize that the ratio of debt to G.D.P. is a highly misleading number. Properly measured, the U.S. fiscal system is already 'unstable' — and the new Bush proposals would quickly push it past what you called the 'point of no return.' Fed chairmen aren't allowed to speculate about disaster scenarios, so let me do it for you. If the administration gets what it wants, within a decade — or perhaps sooner — the United States will have budget fundamentals comparable to Brazil's a year ago. The ratios of debt and deficits to G.D.P. won't be all that high by historical standards, but the bond market will look ahead and see that things don't add up: the rich have been promised low tax rates, middle-class baby boomers have been promised pensions and medical care, and the government can't meet all those promises while paying interest on its debt. Fears that the government will solve its problem by inflating away its debt will drive up interest rates, worsening the deficit, and things will spiral out of control. So why are you still giving these people political cover? No doubt you're under intense pressure to be a team player. But these guys are users: they persuade other people to squander their hard-won credibility on behalf of bad policies, then discard those people once they are no longer useful. Think of John DiIulio, or your friend Paul O'Neill. It's happening to Colin Powell right now. (A digression: The U.S. media are soft-pedaling it as usual, but the business of the Osama tape has destroyed Mr. Powell's credibility in much of the world. The tape calls Saddam Hussein an 'infidel' whose 'jurisdiction . . . has fallen,' but says that it's still O.K. to fight the 'Crusaders' — and Mr. Powell claims that it ties Saddam to Al Qaeda. Huh? All it shows is that Al Qaeda views a U.S. invasion of Iraq as an excellent recruiting opportunity.) Two years ago you acted as George W. Bush's enabler; you share part of the blame for our plunge into deficit. But now the situation is truly dire. If you waffle now, and take the easy way out, your reputation — and the country's finances — will quickly pass the point of no return. Originally published in The New York Times, 2.14.03

Subject: Re: Inflating away the bill From: Ari To: Pete Weis Date Posted: Wed, Nov 10, 2004 at 05:28:08 (EST) Email Address: Not Provided Message: The long term bond market will sell off strongly should there be any sense that the Fed is trying to inflate away our debt. Interest rates would climb to levels we had during the 1970s, a 20 years of Fed discipline would be lost.

Subject: Re: Privatizing social security DOA From: Terri To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 12:11:35 (EST) Email Address: Not Provided Message: We might readily shift 2 or 4 or 10 percent of our payroll tax collections to a total stock market index, and hope and expect the equity premium will improve the return to Social Security over the years. We might even gradually allocate the stock returns to individual accounts over time. There is reason to invest the payroll tax surplus for another 30 years in stocks. But, there is no reason to develop a system that will swallow up investing gains in administrative costs. There is no reason to increase the size of the budget deficit at this time, or to cut Social Security benefit guarantees for those from 55 down and break the promise we have made them through their working years. The Social Security system has been a wonder of a success since it began. Indexing Social Security to the cost of living was a dramatic gain. The system is not failing, and can thrive for generations with minor increases in revenue, but most Americans have been convinced the system is failing or will soon fail. We are about to seriously question whether the New Deal compact and the arise of middle class America ought to further continued.

Subject: Re: Privatizing social security DOA From: jimsum To: Terri Date Posted: Wed, Nov 10, 2004 at 14:21:05 (EST) Email Address: jim.summers@rogers.com Message: You can't readily shift a portion of the payroll tax collection to stock market investments because the the government is already spending it. The surplus in Social Security is just netted against a very big budget deficit, making it a smaller budget deficit. Maybe the government would come out ahead if it borrowed money and invested it in the stock market, but that seems like a risky way to let politicians avoid the hard decisions about how to fix the budget deficit. Here in Canada, a portion of our public pension plan's (CPP) surplus is already being invested in the stock market. The returns haven't been that great lately, but there is some promise. The big difference is that in Canada, the CPP is truly separate from the rest of the budget; so our surplus in the CPP is not part of the reported government budget surplus, but real money that is invested (mostly in low-paying government bonds). It's also a factor that is often overlooked when Canadians compare our tax levels to the U.S. - it takes a lot of tax money to fully pay for current government spending (which includes health care for everyone) while also running a surplus in the CPP.

Subject: Re: Privatizing social security DOA From: Ari To: jimsum Date Posted: Wed, Nov 10, 2004 at 16:46:01 (EST) Email Address: Not Provided Message: Thanks for the fine post.

Subject: Interesting Post From: Emma To: jimsum Date Posted: Wed, Nov 10, 2004 at 14:25:03 (EST) Email Address: Not Provided Message: Thank you so much. Please continue these interesting contrasting comments about Canada. There is much to be learned. Just now Canada is doing quite well in economic terms. Fairly balanced budget and nice growth clip and high employment.

Subject: Re: Privatizing social security DOA From: Pete Weis To: Terri Date Posted: Tues, Nov 09, 2004 at 13:32:00 (EST) Email Address: Not Provided Message: Terri. One thing is for sure - you have far more faith in the stock markets than does Paul Krugman, Stephen Roach, Robert Shiller, Brad DeLong, Robert Rubin, Warren Buffet, Bill Gross, Pete Peterson, Richard Russell, Jeremy Grantham and thousands of insider executives who have set records (according to Thompson Firstcall) selling their companies stocks during the last rally. I don't believe for a second that the mess of illegal and unethical practices on Wall Street has been cleaned up by this administration. Here's a piece from CFO magazine which indicates the problems are ongoing: How Good Are Those Earnings, Really? Pro forma results are apparently alive and well; earnings surprises are less surprising than they may appear. Stephen Taub, CFO.com November 09, 2004 Third-quarter corporate operating earnings are 22 percent greater than earnings stated according to generally accepted accounting principles, according to USA Today, citing data from Standard & Poor's. That's twice the 11 percent difference between operating earnings and GAAP earnings during the second quarter, which in turn was more than twice the 5 percent difference during the first quarter. 'Anytime you see the spread getting wider, it should raise a red flag,' said Reuters Research analyst Ashwani Kaul, reported the paper. Although the gap is the widest it's been in two years, USA Today also pointed out that since 1988, operating earnings have averaged 21 percent greater than GAAP earnings. In addition, the Securities and Exchange Commission's Regulation G, enacted in 2003, makes it more difficult for companies to hide ''special charges'' that enable them to report higher operating earnings. (As CFO reported earlier this year, however, 'there's little evidence that Reg G has had much effect on pro forma reporting.' See 'A Matter of Emphasis.') Another measure that may deserve a second look concerns 'earnings surprises.' The Wall Street Journal, citing data from Thomson First Call, reported that 64 percent of the S&P 500 beat their earnings estimates for the third quarter, but Goldman Sachs chief sector strategist David Kostin is not so impressed. Kostin, in line with common wisdom, believes that companies frequently guide analysts to an earnings number that they feel they could beat — say, by a penny per share — according to the Journal. He prefers to define 'earnings surprise' as a result that varies by more than one standard deviation from the analysts' estimate. After examining 422 of the S&P 500, reported the Journal, Kostin found that only 36 percent — not 64 percent — had what he defines as a positive surprise in the third quarter. In the second quarter, of the 420 companies that had reported earnings by the same time, 46 percent had a positive surprise. In other words, wrote the paper, by Kostin's lights the third quarter enjoyed fewer positive earnings surprises than the second. Not surprisingly, the number of companies reporting negative earnings that departed by more than a standard deviation from the average estimate rose to 11 percent in the third quarter from 9 percent in the second, according to the report.

Subject: Re: Privatizing social security DOA From: Terri To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 14:44:56 (EST) Email Address: Not Provided Message: Well, I have faith in investing in a diversfied portfolio over long time periods. The last 5 years the S&P Sotck Index lost 2.28% a year, while the Long Term Bond Index gained 10.00% a year. We have passed through the worst bear market in stocks since the 1930s. But, a 50 50 stock to bond portfolio would have earned 3.86% a year for 5 years through October 31. The gains from a 50 50 mix with the Value Index and Long Term Bond Index would have been 5.72% a year. Add in real estate, and the period surely does not look quite so rough. Stocks are not nearly as expensive as in December 1999. The need is to find relative value and keep building for the future.

Subject: China demand helping US companies From: Pete Weis To: All Date Posted: Tues, Nov 09, 2004 at 11:58:42 (EST) Email Address: Not Provided Message: US heavy equipment manufacturers and appliance manufacturers are able to finally pass on higher costs to customers - Chinese customers. So here open world markets are helping. Unfortunately, US auto companies are having to eat higher expenses since they sell mainly to US consumers only and continue to have to offer incentives which cost their bottom line. This piece from the LA Times: Manufacturers Lift Prices More costs are passed on to consumers as firms pay more for materials such as oil, natural gas, steel and other metals. From Bloomberg News November 9, 2004 After years of market constraints, manufacturers of products as diverse as earthmoving equipment and plastic resins are lifting prices. At General Electric Co., oil-based resins used to make liquid-crystal television screens, compact discs and surgical equipment are up 9.5% over 2003. Caterpillar Inc. has bumped up prices twice this year on its big earthmovers. 'We haven't been able to raise prices at all during the past five years,' says Caterpillar Chief Financial Officer Lynn McPheeters. Peoria, Ill.-based Caterpillar has a third markup on the way in January, he says. Global demand has pushed up the costs these companies pay for basic building blocks such as oil, natural gas and metals. Now, orders for such diverse manufactured goods as turbines and plastic bags have begun to rise as well, especially in China. That means more manufacturers can pass on cost increases to their customers. 'We are getting pricing for the first time in the appliance business, in the industrial business,' General Electric Chief Executive Jeffrey Immelt told investors last month on a conference call. 'Lots of the equipment-management businesses are way up over last year.' GE Consumer & Industrial, a unit of Fairfield, Conn.-based General Electric, makes appliances, lighting, factory-automation controls, circuit breakers and electric motors. Not every user of metals, oil and scrap steel can pass along costs. Some are suffering, including those supplying automakers such as General Motors Corp. and Ford Motor Co., which are losing U.S. market share to Asian carmakers. Toledo, Ohio-based Dana Corp., which uses hot-rolled sheet steel to produce frames for Ford's F-150 pickup, says higher steel costs reduced net income by $22 million in the third quarter. It wasn't able to pass on those costs. Companies selling to countries where power and transportation needs are growing stand the best chance of sustaining higher prices, according to Nicholas Heymann, an analyst at Prudential Equity Group in New York. General Electric, the world's biggest maker of power-plant turbines and locomotives, in October repeated its projection that sales from China would reach at least $5 billion in 2005, almost double 2003 revenue. Commodities are soaring. Prices on copper futures contracts have risen 44% in the last year. Aluminum futures are up 21%. Contracts for oil have climbed 64%, touching a record high of $55.65 a barrel on Oct. 27. Natural gas futures are up 62%. A ton of hot-rolled sheet steel more than doubled to $680 in October from $300 a year earlier, according to American Metal Market, a trade publication. Polyethylene is in such demand that Midland, Mich.-based Dow Chemical Co. said it began limiting sales in October to prevent customers from hoarding. The world's most widely used plastic is derived in the U.S. primarily from natural gas. 'Certainly the pricing environment has improved' at U.S. chemical manufacturers, says Joe Morrison, a credit analyst at ABN Amro Inc. in New York. 'They're doing better than expected, although raw materials costs are a factor.' The price increases from companies such as General Electric and Dow Chemical may already be 'leaking' into the overall inflation rate, says Chris Varvares, an economist who is president of St. Louis-based Macroeconomic Advisers. Still, they aren't likely to have a big effect on consumer prices for at least a year, he says. The U.S. government's producer price index for crude materials was up 14% at the end of September from a year earlier. The index for intermediate materials was up 8.4%. The index for finished goods was up 3.3%. By comparison, the consumer price index was up 2.5% in September compared with a year earlier. Durable goods such as appliances account for 11% of the CPI, and appliance makers, while raising prices, may have difficulty sustaining them. John Gourville, who studies pricing trends as an associate professor at Harvard Business School in Cambridge, Mass., says, 'You'll see the Wal-Marts of the world keeping prices down.'

Subject: Re: China demand helping US companies From: Terri To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 19:08:00 (EST) Email Address: Not Provided Message: We have to watch the producers price index carefully for any signs of inflation leaking to the consumers price index. But, labor costs are rising slowly and labor is the prime cost for producers.

Subject: China's Informal Lenders From: Emma To: All Date Posted: Tues, Nov 09, 2004 at 10:57:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/09/business/worldbusiness/09yuan.html?pagewanted=all&position= Informal Lenders in China Pose Risks to Banking System By KEITH BRADSHER WENZHOU, China - The Wenzhou 'stir-fry' is not a dish you eat. But it is giving indigestion to Chinese regulators and could prove troublesome to many investors worldwide - from New York money managers, Pennsylvania steel workers and Midwestern farmers to miners in Australia. Here in this freewheeling city at the forefront of capitalism in China, the dish is prepared when a group of wealthy friends pool millions of dollars worth of Chinese yuan and put it into a hot investment like Shanghai real estate, where it is stirred and flipped for a hefty profit. The friends often lend each other large amounts on the strength of a handshake and a handwritten i.o.u. Both sides then go to an automated teller machine or bank branch to transfer the money, which is then withdrawn from the bank. Or sometimes they do it the old-fashioned way: exchanging burlap sacks stuffed with cash. The worry for Chinese regulators is that everyone in China will start cooking the Wenzhou stir-fry and do it outside the banking system. In the last few months, borrowing and lending across the rest of China is looking more and more like Wenzhou's. The growth of this shadow banking system poses a stiff challenge to China's state-owned banks, already burdened with bad debt, and makes it harder for the nation's leaders to steer a fast-growing economy. The problem starts with China's low interest rates. More and more families with savings have been snubbing 2 percent interest on bank deposits for the double-digit returns from lending large amounts on their own. They lend to real estate speculators or to small businesses without the political connections to obtain loans from the banks. Not only is the informal lending rate higher, but the income from that lending, because it is semilegal at best, is not taxed. For fear of shame, ostracism and the occasional threat from thugs, borrowers are more likely to pay back these loans than those from the big banks. Tao Dong, chief China economist at Credit Suisse First Boston, calculates that Chinese citizens withdrew $12 billion to $17 billion from their bank deposits in August and September. The outflow turned into a flood last month, reaching an estimated $120 billion, or more than 3 percent of all deposits at the country's financial institutions. If the bank withdrawals are not stemmed in the months ahead, Mr. Tao warned, 'this potentially could be a huge risk for financial stability and even social stability.' With China now accounting for more than a quarter of the world's steel production and nearly a fifth of soybean production, as well as some of the largest initial public offerings of stock, any shaking of financial confidence here could ripple quickly through markets in the United States and elsewhere. For instance, if the steel girders now being lifted into place by hundreds of tall cranes in big cities across China are no longer needed, that would produce a worldwide glut of steel and push down prices. On Oct. 28, when China's central bank raised interest rates for one-year loans and deposits by a little more than a quarter of a percentage point, it cited a need to keep money in the banking system. Higher official rates should 'reduce external cycling of credit funds,' the bank said in a statement. The main Chinese banks have fairly substantial reserves, but they need those reserves to cover huge write-offs of bad debts someday. The International Monetary Fund's China division chief, Eswar Prasad, expressed concern about bank withdrawals in a speech in Hong Kong three days before the central bank acted. The hub of informal lending in China is here in Wenzhou, 230 miles south of Shanghai. Some of China's first experiments with the free market began here in the late 1970's, and a result has been a flourishing economy together with sometimes questionable business dealings.

Subject: China's Informal Lenders... From: Emma To: Emma Date Posted: Tues, Nov 09, 2004 at 19:02:22 (EST) Email Address: Not Provided Message: Depending on how raw they like their capitalism, people elsewhere in China describe Wenzhou as either a center of financial innovation or a den of loan sharks. But increasingly, Wenzhou is also a microcosm of the kind of large-scale yet informal financial dealings now going on across the country. The withdrawals by depositors and the informal money lending have spread so swiftly here that it is only in Wenzhou that the Chinese central bank releases monthly statistics on average rates for direct loans between individuals or companies. The rate hovered at 1 percent a month for years until April, when the authorities began limiting the volume of bank loans. Borrowers default on nearly half the loans issued by the state-owned banks, but seldom do so here on money that is usually borrowed from relatives, neighbors or people in the same industry. Residents insist that the risk of ostracism for failing to repay a loan is penalty enough to ensure repayment of most loans. Although judges have ruled that handwritten i.o.u.'s are legally binding, creditors seldom go to court to collect. 'If it is a really good friend, I would lose face if I sued them in court,' said Tu Shangyun, the owner of a local copper smelter and part-time 'silver bearer' - a broker who puts lenders and borrowers in touch with each other, 'and if it weren't a good friend, I wouldn't lend the money in the first place.' Violence is extremely rare, but the threat of it does exist as the ultimate guarantor that people make every effort to repay debts. 'Someone can hire a killer who will chase you down, beat you up and maybe even kill you,' said Ma Jinlong, who oversaw market-driven financial changes in the 1990's in Wenzhou as director of the municipal economic reform committee and is now an economics professor at Wenzhou University. An austerity policy was invoked, its goal to slow rapid economic growth in the hope of stopping an upward spiral in the inflation rate. With consumer prices rising at 5.2 percent a year despite price controls on many goods and services, and with less-regulated prices for goods traded between companies climbing nearly twice as fast, people lose buying power while their money is on deposit at a bank. The interest rate for informal loans jumped last spring to 1.2 percent a month, or 15.4 percent compounded over a year, and has stayed there since. According to the nation's central bank, total bank deposits in Wenzhou have been dropping by $250 million a month since April as companies and individuals withdraw money either because they can no longer obtain bank loans for their investments or because they want to lend the money at higher rates to each other. For lenders, these interest rates are much more attractive than earning a meager 2.25 percent a year, even after the recent rate increase, on a deposit at a government-owned bank. And while Beijing assesses a 20 percent tax on all interest from bank deposits, nobody pays tax on the income they receive from lending money on their own, Mr. Ma said. Most informal loans have traditionally gone to relatives or neighbors to finance the starting of small local businesses. Wenzhou is now one of the world's largest producers of nonbrand sunglasses; Dong Ganming, the owner of a 350-employee sunglass factory here, said that his plant was just one of almost 1,000 here involved in making glasses.

Subject: Canadian, Swiss, Swedish Currencies From: Ari To: All Date Posted: Tues, Nov 09, 2004 at 05:58:17 (EST) Email Address: Not Provided Message: Another way to protect against a decline in the value of dollar would be to use exchange traded funds. We can buy the Canadian or Swiss or Swedish stock indexes. These country's economies are sound and currencies growing stronger.

Subject: Rethinking the China Slowdown From: Emma To: All Date Posted: Mon, Nov 08, 2004 at 17:47:54 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Rethinking the China Slowdown Stephen Roach (Beijing) After extensive discussions in Beijing, I am changing my view on the China slowdown. Specifically, over the next year, I do not believe that the Chinese economy is going to soften as much as I had thought. This is a personal observation rather than a shift in our official view held by Andy Xie and his team, who are still looking for a marked slowing in Chinese GDP growth from 9.3% in 2004 to 7.0% in 2005. But it is clear to me that China’s policy makers are now aiming for only a modest further slowing in the economy. The key question is whether they will get their way in managing this gentle descent. My bet is they do. I was eager to get back to China. I hadn’t been to Beijing since last June. Since that time, the China debate had moved to center stage in world financial markets. And with good reason: China’s marginal role in driving the global growth dynamic cannot be stated strongly enough. The IMF calculates that China accounted for fully 24% of the change in world GDP growth over the past three years (on a purchasing power parity basis) -- virtually double its 12.6% PPP weight in the world and fully six times its 4% share in nominal global GDP (at market exchange rates). Early this year, the Chinese leadership expressed serious concern about the overheated state of the economy. I heard this first hand from Premier Wen Jiabao at the annual China Development Forum in March. That, in fact, was the official stamp of approval on the slowdown debate that was then to follow. That pronouncement also ushered in a series of serious tightening measures taken by the Chinese authorities beginning in late April -- initially driven by so-called administrative actions aimed at restricting the quantity and allocation of credit but more recently accompanied by a more overt shift in monetary policy, underscored by the 28 October rate hike of the People’s Bank of China (PBOC).

Subject: Rethinking China's Slowdown From: Emma To: Emma Date Posted: Mon, Nov 08, 2004 at 17:49:41 (EST) Email Address: Not Provided Message: The combination of micro and macro initiatives by increasingly concerned Chinese authorities convinced me that a marked slowdown was likely. Specifically, I had looked for this slowdown to be manifested in the form of a significant further slowing of China’s industrial output growth -- long my favorite metric of aggregate activity in this largely industrial economy. After hitting a peak rate of 19.4% in the first two months of 2004, I thought a soft landing would require the peak growth comparison to be cut in half -- temporarily taking the year-over-year industrial output trajectory down into the 8-10% range by mid-2005, not all that different from average gains in the late 1990s. Consequently, with industrial output growth having slowed to about 16% in September, I believed that the bulk of the slowing -- about 70% of it -- was still to come. I discussed this perspective in detail with senior Chinese officials last week in Beijing. They were virtually unanimous in suggesting my scenario was now far too draconian for their liking. In the words of one of China’s senior planners, “Impossible!” That was quite an about-face from the view I picked up from China’s leadership last spring. Back then, Ma Kai, head of the National Development and Reform Commission -- the old Chinese planning agency -- led the charge publicly in expressing growing concern over bottlenecks, shortages, and the soaring costs of industrial materials. At the same China Development Forum in early 2004, Minister Ma was very direct in arguing that overheating posed a serious risk to the sustainability of Chinese economic growth. In his words, “If such an illogical mode of economic growth is maintained, it will be difficult to keep economic growth at 7%.” Minister Ma has recently updated his views in a speech (the English translation was published in the 8 November edition of the China Daily). His conclusion, “The significance of this round of macro management should not be underestimated.” While not declaring victory, China’s planners are obviously pleased at what they have now accomplished.

Subject: Yuan and Dollar From: Emma To: Emma Date Posted: Mon, Nov 08, 2004 at 19:12:12 (EST) Email Address: Not Provided Message: Stephen Roach thinks there will be no changing of the Yuan peg to the dollar in the near future. The Asian tigers then will likely continue to support the dollar, and the Bank of Japan in the near future is also likely to continue buying dollars.

Subject: China's Promise From: Terri To: Emma Date Posted: Mon, Nov 08, 2004 at 21:06:57 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Stephen Roach's essay on China is well worth reading in the entirety. China really does appear to be an astonishing growth engine for Asia that can continue indefinitely with proper fiscal and monetary policy applications and market privatization.

Subject: China's Foreign Exchange Reserves From: Emma To: All Date Posted: Mon, Nov 08, 2004 at 17:01:21 (EST) Email Address: Not Provided Message: China has a thriving trade with America, and it is in her interest to finance the trade. Also, China buys dollar denominated securities to maintain to Yuan peg, and uses such securities to secure bank reserves and infrastructure development projects. China is growing rapidly, and when a country with 1.4 billion people grows rapidly for 5 and 10 and 15 and 20 years, the country shows an astonishing development. Also, China is a remarkably competitive trader and readily builds foreign exchange reserves. When you go to Vietnam you can buy Honda Motor Bikes, but you can also buy identical looking Honka Motor Bikes. Honka is made in China.

Subject: Strong Dollar, Weak Dollar From: Terri To: All Date Posted: Mon, Nov 08, 2004 at 16:50:51 (EST) Email Address: Not Provided Message: Robert Rubin would ever repeat 'a strong dollar is in America's interest.' What we thought he meant was that when the dollar was strong it reflected a strong economy. Then, set policies to keep the economy strong and the dollar will reflect the strength. Policies now have led to a budget deficit that is large and growing faster than the economy can grow. Private saving is too low to make up for the government deficit, so there will be balances of payments deficits as far as I can see. The dollar, then, will decline. The weakness in economic policy and in the economy will be reflected by a weak dollar. The prospects of a subtly weakening economy are not at all pleasing, but moderate growth could be sustained as long as the Fed allowed for low interest rates. Even in 1987, after the stock market break, the Fed was able to immediately reverse a cycle of tighening and keep the economy growing.

Subject: The danger From: Pete Weis To: Terri Date Posted: Mon, Nov 08, 2004 at 18:33:20 (EST) Email Address: Not Provided Message: There is already such a huge supply of dollars worldwide, courtesy of the market boom of the 90's and Federal Reserve interest rate drops of 2000-2003, that it's all about demand for US dollar denominated assets now. I believe that depends on the direction of the US economy from this point onward which is dependent on the US consumer holding up under his/her mountain of debt and rising expenses (partly due to the falling dollar). The more the US consumer begins to pack it in, the less important he is to overseas economies and the riskier holding all those dollar denominated assets by foreign investors and Asian Central banks becomes. At some point the two lines (decelerating US consumption and risk tolerance by foreign investment) will cross in earnest and unless the Fed is willing to raise interest rates considerably, the dollar would be in danger of crashing for the first time in its history. This is a situation that Paul Volker is predicting is likely to happen sometime in the next 5 years.

Subject: Re: The danger From: Ari To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 05:48:31 (EST) Email Address: Not Provided Message: 'It's all about demand for US dollar denominated assets now. I believe that depends on the direction of the US economy from this point onward which is dependent on the US consumer holding up under his/her mountain of debt and rising expenses (partly due to the falling dollar).' There is no sign the economy is slowing. If employment growth continues to be strong and interest rates stay fairly low there should be time for households to improve balance sheets. The Fed has to be careful not to raise interest to rapidly. We need the housing market to hold.

Subject: Tightening credit ahead From: Pete Weis To: Ari Date Posted: Tues, Nov 09, 2004 at 11:05:55 (EST) Email Address: Not Provided Message: Ari. There is no real sign yet that the economy is gaining strength. If October's job numbers are real and jobs continue to be created at over 150,000 per month and overall wages begin to rise (something that hasn't really taken place yet), then we can say the economy is turning the corner. But the trade and budget deficits continue to pressure the US dollar downward and that shrinks consumer's paychecks. I don't see any new high tech job booms or any other booms on the horizon to offset this paycheck shrinkage. I'm amazed to see that so many seem to think we can continue to borrow our way through the coming years to make up for $600 billion (and growing) of our wealth being transfered overseas per annum. This after we have already rung up record levels of debt. Logic tells us something has to give and what's giving and will continue to give is consumption, IMO. Dropping consumption is an inevitable outfall of a shrinking dollar in the absence of overall wage growth. Dropping consumption will be bad for the job market, which inturn, puts further downward pressure on consumption. You say 'we need the housing market to hold'. I have no idea how long interest rates will stay low. Most folks think of interest rates when they think of the sustainability of the housing markets. But they don't realize that the easing of mortgage credit (especially in the last couple of years) has had an even greater effect on increasing housing prices than has lower interest rates. Reverse mortgages with little to no money down have allowed many to afford literally twice the home price. We have seen interest rates this low about 40 years ago, but we have never seen anything close to the extremely easy mortgage lending which is taking place now. With the unprecedented housing run-ups that we have seen in many urban areas, mortgage activity would come to a total halt without these reckless lending standards. Our government is desperate, IMO, to keep mortgage activity at the highest levels possible, since it is a major underpining of consumption. The 'old' (as recently as 5 years ago) standards of limiting monthly housing payments to 28-30% of gross monthly income (now up to 50%), of reducing risk by requiring more money down, and providing a preponderance of 30 year fixed rate mortgages, have given way to very, very risky lending practices. And this has taken place in an economic environment where wage growth is less than inflation. So I see a tightening of credit down the road as a bigger threat than rising interest rates. However, if the dollar were to fall at a very sharp rate then interest rate hikes could become a very big problem also for housing as is the lack of wage growth.

Subject: Tightening credit From: Emma To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 12:08:13 (EST) Email Address: Not Provided Message: Lawrence Summers, now of Harvars, before Treasury Secretary, echoes your worries. The debt we accumulate means that we are transferring more and more future income to our creditors. Unless there is continued appreciation of asset values, we will find ourselves the poorer in income in future. But, how do we reverse the process and generate the sort of saving of Europeans or Canadians or Japanese. No, we are never going to save as much as the Japanese.

Subject: Tax Cuts From: Jack To: All Date Posted: Mon, Nov 08, 2004 at 16:20:40 (EST) Email Address: jjlwmd@yahoo.com Message: I was debating a friend recently about the wisdom of the Bush tax cuts, and he informed me that his tax rebates (not the right word, I know) have helped his family out a great deal. He is right in the Middle of the Middle class and so I responded by saying that the middle class tax cuts were the result of demands by Democrats who based their reasoning on solid Keynesian principles which Bush and his Supply siders either ignore or don't care for. He challenged me on this and I realized that I don't have a good source for the Democrats demands regarding the tax cuts (I'm embarassed to say). Can anyone help me out? Thanks, Jack

Subject: Re: Tax Cuts From: Ari To: Jack Date Posted: Tues, Nov 09, 2004 at 05:50:46 (EST) Email Address: Not Provided Message: The PK Archive search will give you the columns written during the debates over the tax cuts.

Subject: Re: Tax Cuts From: Ari To: Jack Date Posted: Mon, Nov 08, 2004 at 17:53:16 (EST) Email Address: Not Provided Message: The response you gave was correct. Paul Krugman and Brad DeLong and other economists have noted that the cash distributions made as part of the tax cuts were pushed through at the inssitence of Democrats.

Subject: Complicating the Dollar Value From: Emma To: All Date Posted: Mon, Nov 08, 2004 at 13:34:52 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2004-2_archives/000516.html It's a Little Bit More Complicated... By Brad DeLong The strength of the dollar has been produced by (a) the willingness of someone (mostly Asian central banks) to buy and hold the flow of new dollar-denominated assets held abroad generated by our trade deficit, and (b) the unwillingness of private hedge funds, investment banks, and other investors to place large leveraged bets that the dollar decline has started for real. If the private market--which knows that the dollar is going down someday--decides that that someday has come and that the dollar is going down NOW, then all the Asian central banks in the world cannot stop it. You need both (a) and (b) to keep the dollar up. Just one of them won't do.

Subject: Re: Complicating the Dollar Value From: Terri To: Emma Date Posted: Mon, Nov 08, 2004 at 14:07:18 (EST) Email Address: Not Provided Message: So the decline in the dollar when it comes need not have anything to do with a change in Asian central bank policy. When private institutions sell the dollar it will go down no matter what Asian central banks do. Private currency traders can simply overwhelm a dollar defense by central banks, as they overwhelmed the Bank of England's defense of the Pound a decade ago.

Subject: Re: Complicating the Dollar Value From: Terri To: Terri Date Posted: Mon, Nov 08, 2004 at 14:31:47 (EST) Email Address: Not Provided Message: Why should a 10% or 20% decline in the value of the dollar against the a basket of currencies be a problem? The trade effect of the decline in dollar value will emerge slowly. Japan and Germany can shift some production to America. Loss of export demand from Germany can be made up with a European stimulus. The fall in dollar value will make energy imports less costly in Japan or Germany. Interest rates are low in America and need not be raised. Why should we worry if the dollar loses value?

Subject: Why worry? From: Pete Weis To: Terri Date Posted: Mon, Nov 08, 2004 at 18:18:14 (EST) Email Address: Not Provided Message: 'The fall in dollar value will make energy imports less costly in Japan or Germany.' Why would energy be less costly in Japan or Germany? Energy will simply be much more expensive for the US. It might not cost much more for Europeans but it won't cost them less. Opec will continue to demand more dollars for their oil to offset the fall in the dollar. Or worse, demand Euro's instead.

Subject: Re: Why worry? From: Ari To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 05:32:29 (EST) Email Address: Not Provided Message: The fall in dollar value has already made energy imports less costly in countries whose currencies have appreciated in value. The price of oil seems to be levelling off at about $50 a barrel.

Subject: Relativity From: Pete Weis To: Ari Date Posted: Tues, Nov 09, 2004 at 11:13:06 (EST) Email Address: Not Provided Message: Ari. Has the cost of energy dropped in Europe over the last two years or has their increase simply been less than the run-up for US paychecks?

Subject: Re: Relativity From: Emma To: Pete Weis Date Posted: Tues, Nov 09, 2004 at 12:10:26 (EST) Email Address: Not Provided Message: The cost of energy has risen more slowly in Europe, because of the strong Euro and because Europe is more focused on energy efficiency. The difference in gasoline use in America and Europe is stark.

Subject: Re: Complicating the Dollar Value From: Terri To: Terri Date Posted: Mon, Nov 08, 2004 at 14:51:51 (EST) Email Address: Not Provided Message: Why should a decline in the value of the dollar result in a recession? I do not see why? After the Plaza Accord of September 1985, there was no recession. I simply have trouble worrying about a loss in value of the dollar from the perspective of thinking growth would quickly slow. What am I missing? Remember the devaluation of the British Pound involved a change of about 20% in a couple of weeks, but did not lead to a recession.

Subject: Ethopian Roads From: Emma To: All Date Posted: Mon, Nov 08, 2004 at 12:04:30 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/08/international/africa/08road.html? Roads Lead to a New Way of Life for Rural Ethiopia By CELIA W. DUGGER HURUFA, Ethiopia - A few months back, Desalegn Godebo's wife descended into a feverish delirium. 'It was as if she were mad,' the farmer said, shuddering at the memory. 'She was scratching me like a crazy woman.' Before a new road was built through this village, Mr. Godebo would have loaded his wife onto his back and hiked six hours along narrow dirt paths to Awasa, a small city. Instead, he lifted her into a truck for the one-hour ride to town. Her condition was diagnosed as malaria and typhoid. She is well now and back home caring for their baby. The dirt-and-gravel road may look like a timeless feature of the Great Rift Valley. But it is, in fact, part of a huge public road-building project that is slowly hauling one of the poorest, hungriest nations on earth into modernity. The people who live along it divide time into two eras: Before the Road and After the Road. Because of the road, people can bring their sick to the hospital and their children to distant schools. Farmers who had only their own feet or a donkey's back for transport can now transport their crops to market. Some pay a fee to drivers who truck sacks of corn and potatoes to the city. Others sell to traders who venture down the road to an open-air market only a five-minute walk from the village. It is thronged each Tuesday with farmers in flip-flops haggling over prices for their harvest. Road-building is coming back in style as a way to combat rural poverty in Africa. Ethiopia, an agricultural society where most farmers still live more than a half day's walk from a road, has been especially hobbled by their absence. Support for roads in Africa, particularly from the World Bank, is growing again after a decade of decline in the 1990's. Then, the bank reduced lending for roads. It was battered by aggressive opposition from international nonprofit groups, and concerned about ill-governed countries where roads deteriorated as fast as they could be built. Senior policy makers also held the mistaken belief that the private sector would fill the void, building toll roads for profit. 'We were naïve,' said Maryvonne Plessis-Fraissard, the World Bank's transport director. 'Who was going to do rural roads in the middle of Africa?' Farmers here would be the first to say roads are not the solution to all their problems. Like subsistence farmers across Ethiopia, Mr. Godebo is too poor to let any part of his small plot lie fallow. 'If we did, we would have nothing to eat,' he said. The results include declining soil fertility and low yields. He has no irrigation, so he is dependent on rains that came too late this year. And he is vulnerable to collapsing prices in years when there is a bumper crop. Still, the road means he gets a better price for what he can grow. While no one expects roads alone to end the chronic hunger faced by millions of Ethiopians or the famines that loom periodically, most development experts agree that they are a precondition for progress - and were essential to the success of the Green Revolution that produced abundance in much of Asia but bypassed Africa. Farmers need to produce enough to feed their families and have some left to sell. Roads make it possible for them to bring in the fertilizer and seed that will improve productivity. And roads make it possible for them to truck their crops to market. Since 2000, the World Bank, a pivotal international donor in such vast building projects, has doubled its lending for roads in Africa to $800 million, still only a small fraction of what is needed, bank officials say. Ethiopia itself has spent $1 billion on roads in the past seven years - half from international donors - but plans to spend more than that in just the next three years. It has doubled the length of its rural road network and rebuilt crumbling highways. Even with the new burst of investment, the country expects that by 2007 it will be able to reduce the total of farmers who live more than half a day's walk from a road only to 60 percent from 65 percent.

Subject: Re: Ethopian Roads From: Jennifer To: Emma Date Posted: Mon, Nov 08, 2004 at 21:22:50 (EST) Email Address: Not Provided Message: Thanks for this article.

Subject: Why is no one screaming about a stolen election? From: Raging Grannie To: All Date Posted: Mon, Nov 08, 2004 at 11:10:20 (EST) Email Address: wsb2001@adelphia.net Message: I love Paul Krugman's columns, but am extremely disappointed that he seems to be falling in with everyone else that this election shouldn't be challenged. And now he's abandoning us to write a book. We've been warned about how easy it is to rig voting machines, yet Kerry conceded easily, and everyone else - all the organizations who mobilized so many dedicated, tireless volunteers - even Michael Moore! - are rolling over and playing dead. The only possible reason may be the Molly Ivins theory - that whoever 'wins' is going to have a dead chicken around his neck. http://www.dfw.com/mld/startelegram/news/columnists/molly_ivins/10115579.htm?1c This ignores the fact of a GOP Congress, a Supreme Court packed with neocons, and the possibility himself will declare himself Emperor for Life. And there is PLENTY of evidence coming out that the election was stolen - but not in the mainstream. Why??? Here are some smatterings - the call for an audit of the Ohio vote. (www.neohioact.org/electionaudit) http://www.commondreams.org/views04/1106-30.htm November 6, 2004 Evidence Mounts That The Vote Was Hacked by Thom Hartmann Plenty from Bev Harris at BlackBoxVoting.org And evidence of voter fraud for the last 40 years. Votescam by James and Kenneth Collier http://www.votescam.com/ After uncovering a massive vote scam in Florida in 1970, the authors spent 25 years investigating America's multi-billion dollar vote rigging industry. Published in 1992, 'Votescam' was banned in major chain bookstores. You can get it from the website.

Subject: The Coming Collapse of the Dollar? From: Terri To: All Date Posted: Sun, Nov 07, 2004 at 19:27:59 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2004-2_archives/000514.html The Coming Collapse of the Dollar? At the moment, the U.S, is running large trade deficits as foreigners take dollars they would otherwise use to buy exports and use them to buy property, stocks, bonds, and other assets in the U.S. But someday foreigners will conclude that they have enough invested in the U.S. Their appetite for dollars to fund investments in America will diminish. The trade account will move back into balance. And a declining demand for dollars will push the value of the dollar down. Odds are that when foreign investors are satiated with dollar assets--whether that comes one, five, or twenty years from now--the value of the dollar in terms of other countries will be 30 to 60 percent less than it is now. And so we get to one of the deep mysteries of today's economy: if the dollar today is indeed above its expected long-run equilibrium value by so much, why don't investors demand a premium return--an extra 3% or more in the current interest rate--in order to be happy holding the dollar assets they do? Since dollar interest rates are about equal to those outside, what business does the dollar have being above its long-run fundamental value? All our models say that--given the low level of U.S. interest rates--the dollar should *already* have collapsed to perhaps 2/3 of its present value. The best answer I've come up with is that the dollar is above its fundamental value because most people who might place very large bets on a rapid decline in the dollar thinks such bets are still too risky, but the risk associated with them is falling every day, and someday...

Subject: Re: The Coming Collapse of the Dollar? From: Emma To: Terri Date Posted: Sun, Nov 07, 2004 at 20:25:40 (EST) Email Address: Not Provided Message: There is a distinct chance that we may find a sharp decline in the value of the dollar in coming weeks. There is considerable speculation, and whether central banks will defend the dollar other than nominally is not clear.

Subject: Re: The Coming Collapse of the Dollar? From: Jennifer To: Emma Date Posted: Mon, Nov 08, 2004 at 10:44:23 (EST) Email Address: Not Provided Message: Would the Pacific Stock Index be a suitable investment if the dollar continues to lose value?

Subject: Re: The Coming Collapse of the Dollar? From: Terri To: Jennifer Date Posted: Mon, Nov 08, 2004 at 14:09:56 (EST) Email Address: Not Provided Message: The Pacific Index is dominated by Japan, and Japan has had the poorest performing stock market among developed nations since 1990. Will this finally change? Has this changed? I sure do not know.

Subject: XPACX looks good to me From: David E... To: Terri Date Posted: Mon, Nov 08, 2004 at 18:03:39 (EST) Email Address: Not Provided Message: Good insight - if Japan dumps its dollars the yen will shoot up like a rocket. So your investment in Japan will be worth more in dollars.

Subject: whoops I mean VPACX From: David E... To: David E... Date Posted: Mon, Nov 08, 2004 at 19:43:10 (EST) Email Address: Not Provided Message: Jennifer, I am thinking that VPACX and a china fund will be good moves.

Subject: Re: whoops I mean VPACX From: Ari To: David E... Date Posted: Mon, Nov 08, 2004 at 20:19:48 (EST) Email Address: Not Provided Message: There's the rub. Can we invest safely in China or Japan? Warren Buffett chose to buy shares in the Chinese state-owned oil company, reasoning that the company's share holdres would be well protected. With Japan we have to hope the 14 year bear market has run the course.

Subject: Re: The Coming Collapse of the Dollar? From: Pete Weis To: Emma Date Posted: Sun, Nov 07, 2004 at 23:42:01 (EST) Email Address: Not Provided Message: Dollar expected to fall amid China's rumoured selling By Steve Johnson in London and Andrew Balls in Washington Published: November 7 2004 19:43 | Last updated: November 7 2004 19:43 The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said. The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of 'benign neglect' of the dollar. Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October. 'If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar,' said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms. The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases. Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate. However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets. India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors. China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

Subject: Yuan and Dollar From: Emma To: Pete Weis Date Posted: Mon, Nov 08, 2004 at 10:38:03 (EST) Email Address: Not Provided Message: There is no reason to believe the Chinese have changed their policy against the dollar. China will likely keep the Yuan pegged to the dollar for some time to come.

Subject: Re: The Coming Collapse of the Dollar? From: Ari To: Pete Weis Date Posted: Mon, Nov 08, 2004 at 07:11:45 (EST) Email Address: Not Provided Message: The United States could benefit from a decline in value of the dollar. A lower dollar value can ease the trade imbalance, and increase demand for our products at home and abroad. Hopefully interest rates will stay low.

Subject: Dollar selloff? From: Pete Weis To: Pete Weis Date Posted: Mon, Nov 08, 2004 at 00:31:53 (EST) Email Address: Not Provided Message: We'll have to see what transpires in the coming weeks. If I understand him correctly, El Gringo suggested the rest of the world might express their concern with the US election results by offloading dollar denominated assets at some point. I wouldn't expect assurances by the Bush administration that their economic policies will balance the budget eventually, will do much to quell the overseas worries about the direction of the dollar. The fact that they must make those assurances to defend against a panic selloff is not very reassuring in itself. Dollar Falls On Fears of U.S. Deficits Big Sell-Off Unlikely, Treasury Official Says By Paul Blustein and Jonathan Weisman Washington Post Staff Writers Friday, November 5, 2004; Page E01 The dollar continued its decline in global currency markets yesterday, intensifying worries among some economists that mounting U.S. budget and trade deficits could send the U.S. currency into a tailspin. But John B. Taylor, the Treasury undersecretary for international affairs, defended the Bush administration view that the deficits pose no danger of a dollar collapse. He issued a detailed rebuttal of what he called 'scare stories.' The dollar fell yesterday to within a fraction of a cent of its all-time low against the euro of $1.2930 , trading as low as $1.2898 before rallying slightly to close at $1.2867. It fell modestly against the Japanese yen, and continued a sharp slide against the Canadian dollar, which rose to 83 U.S. cents yesterday for the first time in 12 years. It was the second straight day that the dollar has fallen despite a surge in the stock market, continuing a trend that began in early October when it started slipping against the currencies of major U.S. trading partners. The declined rekindled the fears of some analysts that the dollar could be headed for a severe sell-off unless the White House and Congress make a major effort to shrink the budget gap. 'As the dust settles after the U.S. elections, the one theme that is developing is the growing recognition [in the markets] of the need for more dollar depreciation,' economists at J.P. Morgan told clients yesterday, citing as one major reason the likelihood that 'there will be no serious new policies to trim the U.S. budget deficit.' Behind such sentiments is the belief that the U.S. economy is too dependent on foreign investors, and that they may balk at pouring money into U.S. securities if the country's debt continues to soar. Foreigners have provided much of the money the government borrows to cover its deficit, which was $413 billion in the fiscal year ended Sept. 30. 'One of the big drivers in the whole big picture the markets are looking at now is our being dependent on foreign sources of funds,' said David Solin, managing partner at Foreign Exchange Analytics in Essex, Conn. 'Obviously, if the foreigners step back [from investing in U.S. bonds and stocks], there are going to be serious problems, not only for the dollar, but for all financial markets.' The trade deficit also creates a dependence on money from abroad because many foreigners supplying goods to the United States take the dollars they receive and effectively lend them to the United States. The simplest example of such lending is their purchase of U.S. government bonds. Because of concerns that the United States is too much in debt, the rise in the trade gap, which is running at an anual rate of about $600 billion, also raises the specter that foreigners might dump U.S. holdings. Those scenarios were dismissed as fanciful by Taylor, who spoke yesterday at an American Enterprise Institute seminar on the current account deficit, the broadest measure of the trade gap. The large influx of foreign money shows that 'sound, growth enhancing economic policies are continuing to make the U.S. an attractive place to invest,' he said. Taylor said administration policies already in place will help shrink the trade deficit. One is President Bush's pledge to cut the budget deficit in half, as a percentage of the U.S. gross domestic product, by 2009. That would decrease the trade deficit because lower government spending or higher taxes would reduce the amount of money consumers spend on imported goods. Taylor pointed out that the Treasury is also prodding foreign governments to achieve faster economic growth, which should increase demand for U.S. exports, and it is trying to persuade China to change its fixed-exchange rate policy by allowing its currency, the yuan, to rise. A higher yuan would be likely to slow the flood of Chinese goods into the U.S. market because those products would become more expensive for U.S. consumers. 'Even if those policies take some time' to reduce the trade deficit, Taylor said, 'there is no reason to think there will be problems in the meantime' in continuing to obtain enough money to cover the gap. Taking issue with analysts who have voiced concern about a recent drop in investment by foreigners in U.S. Treasury bonds, Taylor said: 'It is important to put the current account in the perspective of the total amount of financial flows crossing U.S. borders in large, open and flexible markets.' He cited the fact that the current account deficit increased by $19 billion in the second quarter even though government data showed a decline of about $180 billion in purchases of U.S. assets by both foreign central banks and private investors. The U.S. economy experienced no turbulence because U.S. buyers in effect replaced the foreigners. Taylor's views were seconded by some of the other speakers at the seminar, including Allan H. Meltzer, a professor at Carnegie-Mellon University. But others maintained that the current account gap is certain to drive the dollar down one way or another -- either gently and gradually, or suddenly and sharply. Although a gradual move downward would help the economy by boosting exports, it would erode U.S. living standards below what they would be by making imported goods more expensive. President Bush's news conference yesterday did little to lessen concerns over the deficits, Wall Street analysts and currency traders said. Bush simultaneously promised not to raise taxes under the guise of tax simplification, to pursue a costly restructuring of Social Security and to cut the budget deficit in half by 2009. The currency markets aren't buying it, said William G. Gale, an economist at the Brookings Institution. White House officials 'have Alan Greenspan to help keep interest rates down, but they can't control the foreign exchange markets,' Gale said. 'I think investors are acting appropriately.'

Subject: Re: The Coming Collapse of the Dollar? From: Terri To: Emma Date Posted: Sun, Nov 07, 2004 at 21:12:27 (EST) Email Address: Not Provided Message: Turning back to 1985 and the Plaza Accord, the soundest investments as the dollar declined sharply were international stocks. Who can now however?

Subject: Re: The Coming Collapse of the Dollar? From: Terri To: Terri Date Posted: Sun, Nov 07, 2004 at 21:46:18 (EST) Email Address: Not Provided Message: Remember, we engineered a 40% decline of the dollar in September 1985 with the Plaza accord. James Baker, close friend of George Bush, was responsible for the agreement. We might well be willing to have just such a decline in the dollar now.

Subject: Fed Rate Increase Coming From: Terri To: All Date Posted: Sun, Nov 07, 2004 at 16:55:12 (EST) Email Address: Not Provided Message: There will almost certainly be a short term interest rate increase by the Federal Reserve this week. This will have been the fourth increase, and likely insures a moderate to slow growth period through winter. How slow growth could be will be can be gauged as we watch long term interest rates. The hope is that long term rates will stay low as they have this fall. Should long term rates rise, there will be a slowing in the housing market and that could be serious.

Subject: Deficit Blues From: Terri To: Terri Date Posted: Sun, Nov 07, 2004 at 18:29:52 (EST) Email Address: Not Provided Message: Though some economists may fret about deficits here and there, the state election in California and the national election make clear voters are not fretting. Voters are not worried about deficits, at least not when the thought of a tax increase is broguht to mind. Republicans will happily spend away and cut taxes, and laugh about John Kerry or Gray Davis worrying about debt. Even I get awfully tired of listening to Pete Peterson tell me about the end of the world. What do we have? The tax cuts of the last 4 years will be made permanent, the Alternative Minimum Tax will be set aside, there will be a host of attempts to cut taxes in addition. Social Security accounts for younger workers will be at least partly turned to private accounts, and to pay promised benefits to baby boomers there will need to be significant additions to the government budget. There will have to be additions to the government budget to pay for the Medicare drug benefit. Defense and security and education budgets are not going to be cut. Little else in the budget can or will be cut. There will be a budget deficit that grows faster than the economy can grow, and that may in time present problems for us, but the deficit is not an immediate apparent problem and will be given little notice. Pushing a tax increase through Congress during the Clinton Administration cost the Democrats control of Congress. Pushing a tax cut through the legislature cost the Democrats in California a Democratic Governor. Howard Dean was defeated soon after vowing to roll back the Bush tax cuts if elected. John Kerry will not be able to raise taxes selectively, because Kerry lost to a tax cutter.

Subject: Social Security in Sweden From: Emma To: All Date Posted: Sun, Nov 07, 2004 at 12:39:16 (EST) Email Address: Not Provided Message: February 5, 2004 Some lessons from Sweden on the pros and cons of privatizing Social Security. By Alan B. Krueger - New York Times 'YOUNGER workers,' President Bush said in his State of the Union address, 'should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account.' According to former Treasury Secretary Paul H. O'Neill, the president believes that the reason he was elected was his bold -- some would say risky -- stance on replacing part of Social Security with personal accounts. If the president holds onto office in November and his party continues to hold Congress, the creation of some sort of personal retirement accounts as part of Social Security seems likely. Although it is impossible to know what form such accounts might take, in 2000 Sweden instituted a system of personal accounts that holds many lessons for any country seeking to reform its retirement system. Sweden now has a blended system, an approach Mr. Bush apparently favors. Employers and employees contribute a combined 16 percent of payroll toward a 'pay as you go' retirement system like Social Security, and an additional 2.5 percent toward individual retirement accounts. Those born after 1954 are fully in the new system, while older workers are phased in. The reform process began in 1991, when a center-right coalition came to power. At the time, Sweden's generous retirement system was expected to exhaust its 'buffer' funds in about 20 years, a more dire situation than what now confronts the United States; Social Security will not exhaust its trust fund until 2042, according to the latest projections. To address its problems, Sweden set up a committee with representatives from all parties in Parliament. Because the reforms were expected to last for decades, there was pressure to devise a plan with broad support, said Annika Sunden, an expert on pensions at Stockholm University. There was agreement back in 1994 that reform would include individual accounts, so beginning in 1995 the government began tucking away 2.5 percent of payroll for employees to invest once the system was set up. Personal investment accounts were not established until 2000, with a bewildering array of funds to choose from. Some 456 funds participated initially, and the number has since grown to around 600. Most funds invested in stocks, with a quarter primarily in Swedish stocks. Workers could choose up to five funds. Anyone who did not choose a fund was automatically assigned to the default fund, which was set up by the government. The default fund must invest 80 to 90 percent of its assets in stocks. A central pension agency records all the accounts and fund values. The agency also ran an ad campaign to discourage people from going into the default fund. Nonetheless, a new study by Henrik Cronqvist and Richard Thaler of the University of Chicago finds that a third of Swedish workers did not make an active choice when the system started in 2000, and were therefore assigned to the default fund. Since 2000, fully 92 percent of new enrollees have not made a choice and have been added to the default fund. Apparently, the large number of funds to chose from paralyzed many individuals from making a choice. This has also been the experience of many 401(k) plans that have a default option in the United States: the default option, whatever it may be, is chosen by a high proportion of investors. People are also reluctant to switch once they are in a fund, a tendency that the economists William Samuelson and Richard Zeckhauser have called status quo bias. Another bias that Mr. Cronqvist and Mr. Thaler documented is home bias, a tendency to pick funds composed of Swedish companies, as opposed to a diversified portfolio of companies from around the world. Nearly half the money actively invested was in Swedish stocks. The default fund, by contrast, was better diversified: only 17 percent was in Swedish stocks. They also found that people tended to pick funds in sectors that had done well recently, and to pick funds with low fees. The average fee for active choosers was 77 basis points, or 0.77 percent of the funds invested. For the default fund it was just 16 basis points. Chile's mandatory savings plan provides another point of comparison. Fund management fees were much lower in Sweden than administrative costs in Chile's plan, probably because the central pension agency orchestrated rebates and advertised the fee rates. How did the funds do? Sweden had bad timing. The stock market tumbled just after the program started. It turns out, however, that the default fund lost less money than the aggregate portfolio of selected funds. The average selected fund fell by 40 percent in the first three years of the program, while the default fell 30 percent. Although three years is a short period, there is no evidence that the active choosers made better choices than those assigned to the default fund. For the United States, the main lesson from the Swedish experience, Ms. Sunden said, is that the default fund should be constructed very carefully, because it will attract many investors. (Ditto for 401(k) plans.) She also highlighted that more use should be made of generation funds, which move money into less risky assets as workers approach retirement, and that converting funds into annuities should be mandatory for retired workers. The consequences of making a bad investment decision in Sweden are much less severe than they would be in the United States if Mr. Bush gets his way and allows workers to divert part of the 12.4 percent of their paycheck that goes to Social Security -- half from the employee, half from the employer -- into personal accounts. Sweden devotes 16 percent of payroll to an earnings-linked pension system, creating a strong safety net beneath individual accounts. Sweden also established a 'guaranteed pension' that provides a minimum pension amount, in excess of the poverty line, to anyone with little or no pension income. All this leads one to wonder if it is possible to design a system that diverts some Social Security contributions into personal accounts yet still provides adequate insurance against bad luck and bad investment decisions. Moreover, the current American system is not beyond repair.

Subject: Re: Social Security in Sweden From: kevin To: Emma Date Posted: Sun, Nov 07, 2004 at 16:09:25 (EST) Email Address: kevngwen@msn.com Message: One thing that concerns me about this idea, above and beyond the transistion costs, transaction fees and all the other problems associated with privitization of social security, is it's effect on public policy. Nobody I've listened to is talking about the added control of domestic economic poicy that the business sector will obtain from such a change. We already subsidize and deregulate industry based on the dubious idea that this is good for job growth. At least that's what we're told. Under this sytem, there's going to be an even greater support for corporate subsidy and deregulation because they hold our retirement futures in their hands. The end result being overwhelming popular support for the transfer of even more corporate control over our domestic economic policy agenda. Thus continuing the transfer of power and wealth to the corporate and beauracratic elites.

Subject: Insurance Stocks Anyone? From: Emma To: All Date Posted: Sun, Nov 07, 2004 at 12:12:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/07/business/yourmoney/07insu.html?pagewanted=all&position= No Premium Here: Are Insurance Stocks Worth a Gamble? By ROBERT D. HERSHEY Jr. ON Oct. 14, Eliot Spitzer, the New York attorney general, opened fire on the insurance industry. He accused a Marsh & McLennan unit of bid-rigging and objected to Marsh and four other casualty companies taking fees for steering corporate business to underwriters. Shares of insurance companies were devastated by the news. In what seemed a body blow to the efficient-market theory, which contends that the market is perfectly rational, the Spitzer investigation produced ripples so big as to affect companies whose only significant business is selling life insurance to individuals. As analysts and investors try to sort through the shifting situation - Mr. Spitzer's investigators remain at work - the overarching questions are whether there are bargains to be found in the wreckage and, if so, which stocks have become the most undervalued. The answer to the first is quite likely yes. As for the second, it depends on whom you ask. And, perhaps, when. Some bargain-hunters went promptly to work, driving the shares of American International Group, the world's biggest insurer, back up above $60 from the low of $54.70, where it closed on Oct. 22. The stock was $66.99 just before Mr. Spitzer made his accusations and filed a lawsuit. The stock of Marsh & McLennan, the chief target of Mr. Spitzer, crashed to $24.10, from $46.13, a fall of 47.8 percent. It has climbed above $27. Many Wall Street analysts have been circumspect about drawing investment conclusions on insurance stocks. They have taken some early comfort, though, from indications that Mr. Spitzer won't jeopardize the industry's basic viability. 'It appears that the attorney general is not going to seek criminal charges against the companies, which would have had a detrimental impact on the business,' Brian R. Meredith, an analyst at Banc of America Securities, told clients on Oct. 25. He added, however, in maintaining his neutral rating on the shares, 'we continue to caution investors that we have yet to hear from the Department of Justice.' But many investors pounced on the opportunity to take or add to positions in the insurance industry, which has been the cornerstone of numerous financial dynasties, including those of Warren E. Buffett, W. Clement Stone of Combined International and Maurice R. Greenberg of A.I.G.

Subject: Taxes and Consequences From: Emma To: All Date Posted: Sun, Nov 07, 2004 at 10:47:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/07/business/yourmoney/07view.html Taxes and Consequences: The Second Term Begins By DANIEL ALTMAN PRESIDENT BUSH began his first term with projections for $5.6 trillion in budget surpluses. Though he will start his second term facing at least $2.3 trillion in deficits, according to the Congressional Budget Office, his tax-cutting ambitions are even greater. Here are some of the initiatives that he's likely to push, and the unanswered questions that go with them. Privatization of Social Security President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system. That money would otherwise have gone to pay benefits for current retirees, however. How would the administration close the gap? Also, who would choose where workers could put their money? Would they have been able to invest in Enron? What about investing abroad? And finally, what would happen if financial markets crashed? In Chile, whose private pension system has been cited as a model by President Bush, some retirees saw their benefits drop by 7 percent in 2001. Could that happen here? Simplification of the income tax It is not completely clear what the president means by this oft-heard campaign promise. Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax. So, which is it? Making the 2001, 2002 and 2003 tax cuts permanent The president has repeatedly voiced his determination to achieve this goal, but the medium-term cost could be huge. According to the Congressional Budget Office, making the tax cuts permanent would increase the projected federal debt by a third, or about $2.2 trillion, by 2014. Without any indication that the budget gap will eventually close, interest rates could rise as investors here and abroad become leery. Is this change worth the risk? Tax-free saving accounts The Bush administration proposed an enormous expansion of saving accounts similar to Roth IRA's, where after-tax income funneled into a special portfolio would generate tax-free returns. Individuals would be able to salt away up to $15,000 a year, under the initial proposal. Most families, assuming they opened accounts for their children, would be able to shelter their entire portfolios from taxes within several years. Financial assets generated about 12 percent of individuals' taxable income in 2002. Could the government afford to forgo the resulting revenue? If there are projected benefits for the economy, how big are they? Abolishing the tax on dividends The White House sought to eliminate this form of 'double taxation' in 2003. In the end, Congress cut tax rates on dividends and capital gains, but didn't abolish the taxes. Economists have not seen a marked improvement in household saving as a result of these changes, however, so the argument to go further will not be straightforward. With big deficits already on the way, how would the administration justify revisiting this tax?

Subject: Re: Taxes and Consequences From: Pete Weis To: Emma Date Posted: Sun, Nov 07, 2004 at 11:54:09 (EST) Email Address: Not Provided Message: Good post Emma. These are excellent questions which only about half of Americans are asking themselves.

Subject: Re: Taxes and Consequences From: Emma To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 13:24:13 (EST) Email Address: Not Provided Message: Notice that the tax code is providing a growing incentive for investing in stocks as opposed to bonds. Dividends and capital gains from most stock holdings are taxed at the 15% level, while bond yields are taxed at our income tax levels. This distorts the way we allocate personal portfolios.

Subject: Re: Taxes and Consequences From: kevin To: Emma Date Posted: Sun, Nov 07, 2004 at 16:17:50 (EST) Email Address: kevngwen@msn.com Message: I hate to be a conspiracy theorist but everything that this administration is doing to our economic health seems to be pointed toward a world-wide collapse of the system. Maybe in order for the best positioned to come in at the end a procure what's left for pennies on the dollar and rebuild in their own image?(By the way, the God-like reference implied here is not an accident) May be I'm being a little chicken little-like but I just don't put anything past the neo-con agenda.

Subject: Concentration of wealth From: Pete Weis To: Emma Date Posted: Sun, Nov 07, 2004 at 14:38:16 (EST) Email Address: Not Provided Message: This is a very good observation. Although a number of folks who frequent this site are pretty savy when it comes to investing - investing in value stocks and having more balanced portfolio's, many small investors are victim to herding (a kind of 'call of the wild') - 'chasing the ticker', etc. This leads to excessive amounts of wealth flowing into companies which are not growing fast enough to absorb it into capital expenditure. Instead it is 'skimmed' by the top execs in the form of stock options and ever higher salaries. Small investors who are caught up in this herding behaviour are, in effect, transfering money out of their 401K's and into the pockets of the executives of these companies. The changes to the tax code which provide 'growing incentives for investing in stocks as opposed to bonds' promote this wealth transfer and also reduces the tax consequences of selling options. In addition, the artificially low interest rates are strong arming retirees into taking higher risk in the stock markets because they can not get by on much safer fixed income which has a poor rate of return and gets taxed at a higher rate to boot. When George W. stood in front of those tuxedoed, high-roller contributors and said 'here I stand in front of the haves and have mores - some call you the elite - but I call you my base', he made no bones about who he represented.

Subject: Re: Concentration of wealth From: Jennifer To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 15:43:32 (EST) Email Address: Not Provided Message: The talk through my circle in New York City is about real estate. A gain from the real estate boom is that neighborhoods have been renewing themselves. Houses and apartment houses have been spruced up everywhere. The problem for those who do not own, is how to afford to buy. The problem for those who have recently bought, is how to afford the mortgage.

Subject: Real Estate and Interest Rates From: Terri To: All Date Posted: Sun, Nov 07, 2004 at 06:25:35 (EST) Email Address: Not Provided Message: The robust employment report for October caused a moderate decline in long term bond prices. The stock market was strong however, with a notable exception. There was a strong decline in the REIT Index. The REIT Index has declined sharply several times this year when interest rates have increased. Though the REIT Index is up nearly 20% for the year, the volatility of REIT prices with interest rates may be an indication that the real estate market is increasingly vulnerable to any further rate increase. The may well be similar vulnerability for mortgage bankers.

Subject: Re: Real Estate and Interest Rates From: Terri To: Terri Date Posted: Sun, Nov 07, 2004 at 07:14:39 (EST) Email Address: Not Provided Message: Until concern with the consumer price index is raised by independent academic economic, we should be cautious about accepting the complaints of bond buyers. Inflation appears to be nice low at 2.5%. Bond buyers always want higher interest rates. Still, the increased price of energy does act as a tax hitting hardest middle and low income households. The question of most importance is how much tightening can be expected by the Federal Reserve. Unless the labor market has truly entered a high growth recovery, the Fed should end the tightening.

Subject: Re: Real Estate and Interest Rates From: Terri To: Terri Date Posted: Sun, Nov 07, 2004 at 11:57:38 (EST) Email Address: Not Provided Message: Bond buyers always want higher interest rates. The higher interest rates, the lower bond prices. The idea in investing is to buy low and sell high. After a bull market in bonds running from 1982 to the present, interest rate are quite low and prices high. Buyers of bonds would sure enjoy treasuty yields at 6% or 7%. While 4% yields are no fun at all.

Subject: Re: Real Estate and Interest Rates From: Jason To: Terri Date Posted: Sun, Nov 07, 2004 at 15:58:41 (EST) Email Address: Not Provided Message: 'The idea in investing is to buy low and sell high' I would say that is the idea with stocks, not bonds. Most people buy bonds for current income/dividends rather than the chance for capital appreciation. To make a blanket statement that bond buyers always want higher rates I think is to extreme, especially considering most bond buyers already hold bonds.

Subject: Re: Real Estate and Interest Rates From: Jennifer To: Jason Date Posted: Mon, Nov 08, 2004 at 10:40:41 (EST) Email Address: Not Provided Message: I would be buying bond funds today, if interest rates were a percentage point higher. At these rates bond funds are only defensive.

Subject: Re: Real Estate and Interest Rates From: Jason To: Terri Date Posted: Sun, Nov 07, 2004 at 10:58:26 (EST) Email Address: Not Provided Message: 'Bond buyers always want higher interest rates' thats not necessarily the case, while people may want higher yields, when rates increase the value of the bonds they currently hold decreases and therefore there portfolio value decreases by the portfolio's effective duration. Thats why bond portfolios have higher returns during periods where rates are decreasing.

Subject: Re: Real Estate and Interest Rates From: Ari To: Jason Date Posted: Sun, Nov 07, 2004 at 11:13:46 (EST) Email Address: Not Provided Message: Right, bond prices increase when yields rise. But, the point is that bond 'buyers' want the highest possible yields. Buying treasury bonds when yields are below 4.1%, there is low yield and little prospect of capital gain for interest rates are not likely to fall much. At these interest rates I do not buy bonds, but at 5% I would be a buyer.

Subject: Re: Real Estate and Interest Rates From: Ari To: Ari Date Posted: Sun, Nov 07, 2004 at 11:51:29 (EST) Email Address: Not Provided Message: Right, bond prices increase when yields 'fall.' Good grief, I have to learn to proof read.

Subject: Re: Real Estate and Interest Rates From: Ari To: Terri Date Posted: Sun, Nov 07, 2004 at 09:50:43 (EST) Email Address: Not Provided Message: There is every reason to stay clear of the real estate market now, as well as to secure a fixed rate mortgage. But, selling a home because prices are high is usually not practical. Then be comfortable at home, make sure your rents cover the mortgage on commercial property, and look to other investments.

Subject: The Latest from the Krugmeister From: Chicago Boy To: All Date Posted: Sun, Nov 07, 2004 at 02:55:19 (EST) Email Address: mrwreckingball@budweiser.com Message: 'Massachusetts has the lowest divorce rate in the country...' This is most likely due to MA's low marriage rate. You can't get divorced if you don't get married. '...blue states, on average, have lower rates of out-of-wedlock births than red states.' This may have something to do w/the blue states' higher rates of abortion, so they get no credit for this. Overall, this is some very misleading stuff. I would really expect better from an economist of Krugman's caliber.

Subject: To Avoid Divorce, Move to Massachusetts From: Bobby To: Chicago Boy Date Posted: Sat, Nov 13, 2004 at 12:59:23 (EST) Email Address: robert@pkarchive.org Message: here 'The lowest divorce rates are largely in the blue states: the Northeast and the upper Midwest. And the state with the lowest divorce rate was Massachusetts, home to John Kerry, the Kennedys and same-sex marriage. In 2003, the rate in Massachusetts was 5.7 divorces per 1,000 married people, compared with 10.8 in Kentucky, 11.1 in Mississippi and 12.7 in Arkansas.'

Subject: Re: The Latest from the Krugmeister From: Paul G. Brown To: Chicago Boy Date Posted: Mon, Nov 08, 2004 at 00:38:54 (EST) Email Address: paul_geoffrey_brown@yahoo.com Message: I should know better than feedin' the troll, but: 'This may have something to do w/the blue states' higher rates of abortion, so they get no credit for this.' I call bullshit. And if you're gonna make a comment, then make it a useful comment. Data, an' stuff. Election results data from this fine site, and out of wedlock birth rates by state. I fired up my handy-dandy spreadsheet and lo! 1. Mean out of wedlock birth rate in blue states was 32.0%, while for red states it was 32.2%. 2. The correlation between a state's blue-ness and its out-of-wedlock birth rate was 0.18. (rank test 0.1) In other words, there is no strong relationship between blue-ness and low out-of-wedlock births. So Krugman's point, that there is no particular reason to think that red or blue states have stronger 'values' is born out by the evidence he cites. Is it all due to the blue states higher abortion rates? Well, you can get abortion statistics from these these fine sites. The national average for abortions is about 200 per 1000 live births, so there is no way that a higher abortion rate in blue states accounts for this small difference (the lowest abortion rate in the country is in Utah, where the rate is about 1%) . In other words, the number of abortions each year swamps the difference in out of wedlock births. On the other hand, I found that the correlation between a state's abortion rate and its 'blueness' was 0.55. This is a particularly strong correlation.But then I had a look at the relationship between median household income and abortion rates, and I got a correlation there of 0.53. Being from a wealthier state makes it more likely that you'll abort a pregnancy. (And get married later, and have kids later ...). Correlation, causation, you know . . . So there is very little relationship between being in a blue state and out of wedlock births: it just happens that red states have more, and different abortion rates don't account for the difference. On the other hand, the evidence suggests that you might just as easily say 'This [lower out of wedlock births] may have something to so w/the blue states 'being richer', so they get no credit for this.' Here's my data: State Bush Kerry Bush - Kerry Abortion Rt / 1000 Median Income OOW BR Alabama 63 37 26 12 51156 33.972 Alaska 62 35 27 15 59726 30.876 Arizona 55 44 11 15 49397 38.005 Arkansas 54 45 9 10 44471 34.617 California 44 55 -11 39 55209 32.765 Colorado 52 47 5 8 63428 25.407 Connecticut 44 54 -10 18 75534 28.616 Delaware 46 53 -7 22 65157 63.249 District of Columbia 3 90 -7 27 60674 36.566 Florida 52 47 -87 27 52581 36.315 Georgia 58 41 5 16 55989 35.808 Hawaii 45 54 17 16 61838 30.724 Idaho 68 30 -9 6 49174 21.365 Illinois 45 55 38 17 61672 33.753 Indiana 60 39 -10 11 55284 33.067 Iowa 50 49 21 12 53230 26.719 Kansas 62 36 1 11 55341 27.654 Kentucky 60 40 26 7 49108 29.755 Louisiana 57 42 20 12 49037 44.429 Maine 45 53 15 8 51059 30.133 Maryland 43 56 -8 13 71404 33.918 Massachusetts 37 62 -13 18 68958 25.99 Michigan 48 51 -25 12 59019 33.595 Minnesota 48 51 -3 13 67140 25.338 Mississippi 60 40 -3 12 43907 45.413 Missouri 53 46 20 16 54190 33.591 Montana 59 39 7 12 44737 29.334 Nebraska 67 32 20 12 56692 26.015 Nevada 50 48 35 16 53054 35.036 New_Hampshire 49 50 2 8 61014 23.958 New_Jersey 46 53 -1 20 70983 28.138 New_Mexico 50 49 -7 16 43829 43.789 New_York 40 58 1 34 57142 35.069 North_Carolina 56 44 -18 18 54331 32.502 North_Dakota 63 35 12 7 51002 26.509 Ohio 51 49 28 14 60169 33.948 Oklahoma 66 34 2 10 47436 32.838 Oregon 48 51 32 18 55892 29.287 Pennsylvania 49 51 -3 15 58507 32.8 Rhode_Island 39 60 -2 18 62339 33.516 South_Carolina 58 41 -21 13 52111 38.424 South_Dakota 60 38 17 6 49702 31.582 Tennessee 57 42 22 14 50310 34.49 Texas 61 38 15 18 51148 31.088 Utah 71 26 23 7 54946 16.872 Vermont 39 59 45 11 53691 27.045 Virginia 54 45 -20 18 60860 29.553 Washington 46 53 9 20 61059 27.512 West_Virginia 56 43 13 8 43239 31.849 Wisconsin 49 50 -1 11 57890 28.296 Wyoming 69 29 40 9 50989 28.46

Subject: Re: The Latest from the Krugmeister From: RL To: Paul G. Brown Date Posted: Mon, Nov 08, 2004 at 08:06:36 (EST) Email Address: rafaelloring@yahoo.es Message: I belive this Krugman piece is not very good thinking. PG your statistics may be right but the general reasoning is weak. Let me expalin: Of course democarts can be as moral as Republicans but this is a point that goes without need for proof. Krugman use of the statistics of some individual state to make his point is rather disturbing (at least for me because I have a good opinion of him). Do the beaviour of a state represent the behaviour of the political party that has more support in it? If some particular state has a high crime rate and is won by some political party that means that this political party is a bunch of criminals? relation, corelation, causation: make your self all the questions again. RL 'Democrats need to make it clear that they support personal virtue, that they value fidelity, responsibility, honesty and faith. This shouldn't be a hard case to make: Democrats are as likely as Republicans to be faithful spouses and good parents, and Republicans are as likely as Democrats to be adulterers, gamblers or drug abusers. Massachusetts has the lowest divorce rate in the country; blue states, on average, have lower rates of out-of-wedlock births than red states.

Subject: Re: The Latest from the Krugmeister From: Paul G. Brown To: RL Date Posted: Tues, Nov 09, 2004 at 05:08:28 (EST) Email Address: paul_geoffrey_brown@yahoo.com Message: Yeah, I agree with you RL. (Except in so far that *any* claim needs evidence, and all PK was doing was providing some). I think the feeling among red staters--based on what they say, how they say it, and what they sign up for in terms of beliefs--is that they *do* have an authentic and unique phone-line to the almighty. And that's a political (though not policy) problem for the Democrats.

Subject: Housing Market Collapse in Britain From: Emma To: All Date Posted: Sat, Nov 06, 2004 at 21:07:17 (EST) Email Address: Not Provided Message: http://money.guardian.co.uk/houseprices/story/0,1456,1345018,00.html November 6, 2004 Experts agree the only question is how fast housing collapse will be By Ashley Seager - The Guardian Barely a day goes by, it seems, without another statistic or piece of analysis about the state of Britain's housing market. Often these indicators have been inconclusive or, worse, contradictory. Homeowners - and those trying to get on to the property ladder - could be forgiven for being confused. Can they expect a market crash as the bubble finally bursts after five years in which prices have doubled, or is a manageable slowdown in prospect? The most recent reports all agree on one thing - prices are falling in the wake of the Bank of England's five interest rate increases since last November. The rate rises - to their present level of 4.75% - were in part designed to cool what the Bank saw as runaway house prices. One of the most closely watched indicators, from the Royal Institution of Chartered Surveyors, showed that the percentage of surveyors reporting price falls was the highest for nine years.... The question is, of course, what happens now? Will prices stagnate and move sideways for a few years, as the optimists think, or will they fall sharply, as they have done after every previous housing boom? It is true that the path of house prices in recent months does show remarkable similarity to that at the top of the last housing boom in the late 1980s but that may be no more than coincidence.... John Calverley, chief economist at American Express Bank, says house prices would have to stay still for about eight years to allow earnings to catch up, a scenario he thinks highly unlikely. He thinks the housing market is in the 'mother of all bubbles' and will probably drop by 30% in the next couple of years. Another bear, Ed Stansfield of consultancy capital economics, says than in previous busts, house prices have begun to fall before the economy slowed sharply, meaning that house prices do not need an economic slump to slow. An increasing number of anlaysts are moving into the bear camp as the evidence mounts that prices are beginning to fall, remembering that markets are driven by fear and greed. Greed ruled in recent years as prices rose. Now fear is taking over as prices begin to fall. This is important because the optimists argue that house prices are high at least in part because there are not enough properties available and house building is at the lowest for decades. Thus, if prices dip a bit, many first-time buyers will jump into the market. But any study of market psychology shows that buyers traditionally shun a falling market until they are sure that prices are no longer falling.

Subject: Housing Market in Britain From: Emma To: Emma Date Posted: Sat, Nov 06, 2004 at 21:20:17 (EST) Email Address: Not Provided Message: The proponents of [the bubble] argument point to the misalignment between average earnings and house prices. The ratio, which historically averages 3.5, is now up at nearly 6, well above the level in the last boom. This will have to correct itself, they argue, and through a fall in house prices rather than growth in earnings.

Subject: US housing market From: Pete Weis To: Emma Date Posted: Sun, Nov 07, 2004 at 01:33:31 (EST) Email Address: Not Provided Message: November 04, 2004 Home Values Built on Rotten Foundations by Richard Benson We have been gleaning facts 'brick by brick' in order to write this story on the housing market and what it all means for Wall Street and the economy. The story is simple: While the Federal Reserve is slowly raising interest rates, it is our observation that the housing price bubble is already bursting of its own accord. Let me begin with the sale of a property located a short distance away from our modest casa in Palm Beach, where the big houses have names. Casa Apava, an estate with ocean and lakefront land totaling 18 acres, is under contract for about $70 Million by its current owner, Ronald Perelman. This same property sold for $14.25 Million in 1987. If the sale goes through, it will be the largest residential real estate sale in United States' history. (In 2004, the property was assessed for $33.4 Million and taxes were a modest $664,000 a year, or $55,333 a month). Needless to say, the buyer is reported to be the chairman of NVR, Inc., the nation's eighth largest home builder. Clearly, selling homes at inflated prices to average Americans, who bought them using other people's money, has paid off handsomely for this buyer. The size of the housing bubble should not be underestimated. In middle America, housing prices are up 44 percent over the past 5 years while in the momentum markets, such as Las Vegas and Southern California, annual 'price pops' of 20 to 40 percent have commonly been recorded until just recently. Housing is big business. In 2004, about 8 million new and used homes will sell with a total transaction value of $1.9 to $2 Trillion. Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year. The increase in mortgage debt represents the spending that the Bush Administration needed to keep a $12 Trillion economy moving forward. The good news is that home ownership rose 2 percent to an all time record of 67.2; the bad news is what had to be done to get it there while the labor force participation rate has dropped 2 percent! In other words, easy credit and record low interest rates have boosted home sales. In previous economic cycles, the boost to home sales came from rising incomes and more jobs! Easy mortgage credit has been fostered by new mortgage products. New types of mortgages have been introduced over the past couple of years that transfer interest rate risk from the financial institution (mortgage owner), to the borrower, while allowing the borrower to take out the largest possible mortgage. Long gone are the days when a borrower borrowed what was considered a safe, prudent amount that they could actually pay back. Today, the borrower takes every penny that lenders will lend. In turn, lenders have 'gone crazy' because at the end of the day, the lender is not lending 'his' money. The loans go to a GSE security, or into a rated mortgage security, which in turn is bought by a bank or Hedge Fund that is invested just for a short term in the 'Cash and Carry Trade'. Today, the new mortgage lenders are offering various types of mortgages to keep mortgage volume and quick origination profits up. These mortgages include Adjustable Rate, Interest Only, 40-Year, and Piggy Back. A Piggy Back mortgage is a senior mortgage combined with a junior mortgage that can leave the borrower owing more than 110% of the cost of the house. Moreover, these lending tactics leave the borrower more than a bit stretched and short liquidity, so it is no surprise that new mortgages that allow the borrower to skip payments and add the interest to principal are becoming popular. What will lenders who don't lend their own money think of next? If these new types of mortgages aren't good enough to stretch a consumer's buying capacity, a few years ago special charities sprang up to give a home buyer his 5% down payment. (Since a home builder was giving the charity their funds anyway, he could easily 'give back' 5% of his 30% profit to charity. Clearly, charity starts at home! On top of that, President Bush signed the 'American Dream Down Payment Act of 2003'. This legislation authorized $200 Million per year in down payment assistance to at least 40,000 low-income families. His goal was to increase the number of minority homeowners by at least 5.5 million before the end of the decade. Under Federal Law, if you are a first time home buyer and your income is 20 percent less than the local medium income, your neighbor - the US taxpayer - will give you the greater of $10,000, or 6% of the cost of the home to buy it! Thus, sub-prime borrowers have influenced home ownership rates considerably. However, there are some sobering facts about sub-prime borrowers. They are twice as likely to pick an ARM mortgage. (ARM mortgages are already 30% of new home loans and, as the Federal Reserve raises interest rates to normal levels, the monthly payment on an ARM will go up over 25 percent). Moreover, sub-prime borrowers frequently refinance. Borrowers who refinance for cash-out are twice as likely to default as those who don't take cash out. Currently, 70 to 80 percent of sub-prime mortgages are debt consolidation loans which add credit card and other debt onto the house! These sub-prime mortgages have a terrible record. At least 16 percent are delinquent or in foreclosure, and 4.6 percent are actually in foreclosure. The 'funny money' down payment mortgages are worse, with defaults running close to 20 percent. The Federal Housing Administration, FHA, which insures these loans, says national FHA mortgage defaults are 11 percent, while in cities like Baltimore, Maryland and Queens, New York, the default rates for FHA loans are 21 percent and 25 percent. Perhaps more lenders could do what FNMA does with loans heading to default: Re-write half of them and call them 'good'. Remember, 'A rolling loan gathers no loss.' Also, with the Fed making money free, and the government trying to give money to sub-prime borrowers regardless of their willingness or ability to pay, the private sector is trying to get back in the lead of 'the easy money free for all'. The FBI has reported that in the first 9 months of 2004, 12,100 complaints of suspicious activity in the mortgage market have been reported. Fraud hot spots include the usual suspect states such as Florida, California, and Nevada with honorable mention to Michigan, Illinois and Missouri. (At least this restores my pride in the Midwest). Moreover, the reported fraud would be higher except that i) most of the FBI are out looking for terrorists, and ii) fraud big enough to interest the FBI only includes something like the house or buyer not even existing. Most mortgages written today have a bit of a fudge factor in the total honesty of income and net worth. Much information is excluded from debt and payment histories, and 'appraisals are either wish or myth.' Even the Mortgage Bankers Association recognizes that the home appraisal process is totally broken. In reality, with easy money allowing home prices to rise, fraud has become a way of life in the mortgage market because every participant makes a commission or fee if the mortgage closes. The higher the house price, the bigger the mortgage! Looking back at the facts, it is easy to see that the foundation for housing prices is rotting fast. Buyers have stretched the truth, in every possible way, in order to buy the most expensive house for the lowest possible monthly payment. Given the fraudulent loan underwriting and emphasis on Adjustable Rate mortgages and sub-prime loans, it is clear that any rise in mortgage rates will bury housing. At the high end of the housing market, there are reports of 'Yuppie Fatigue'. Super-sizing homes also super-sizes the heating and utility bills, insurance and maintenance costs. Those vaulted ceilings sure look nice, but watch out for the heating bill! Million dollar home foreclosures are picking up. In the general housing market, 5 to 6 percent of homes already have more debt than home value, and homeowners are loading up with home equity loans and lines of credit. These home equity loans and lines will be up to $400 billion in 2004. Home equity can be spent, but as home prices stop going up, more and more homes will have 'no equity left'. Currently, wages and salaries have not kept up with inflation despite 'economic recovery'; bankruptcies will hit another all time record of over 1.6 million in 2004. Forty five percent of workers have total net assets of less than $25,000 (including the value of their house) and less than 4 of 10 workers save anything. All of these facts were in place well before oil and natural gas prices headed north for the economic winter. Reasonable estimates show the average household bill for gas for the car and energy for the home will be $9,000 in 2005, up from $6,000 last year. Other costs of running a household would put people in the poorhouse, but it's too expensive to check in. This Christmas, Santa might skip homes that are draining their home equity. Does housing always go up forever? In the United Kingdom where housing prices have soared like in America, prices fell last month. Real estate agents can't be found to talk about it, as it is bad for business. In San Diego, housing prices have been flat the last couple of months while the supply of homes for sale has jumped from a 2-month to an 8-month supply. In Las Vegas there is an unfolding house price debacle. The national public has heard that the large developer, Pulte Homes, has cut new home prices by 8 to 25 percent, and 25 percent of new homes on order have just been cancelled. However, the public hasn't heard that i) 20 to 40 percent of sales in new planned unit developments were to speculators; ii) For-Rent signs in the complexes are everywhere. (To make some easy money on the flip, buyers of second and third homes planned to rent them out first); and, iii) Homes that sold for $750,000 just three months ago are across the street from homes that the same developer is selling today at a nice profit for $550,000. 'The Las Vegas housing market has crapped out!' In the United States, the supply of new homes has risen steadily to a 275 day supply. Six of the 14 largest home builders have debt-to-equity ratios of 95 percent, and home builders know exactly what the car companies know: 'If you want to move inventory, cut the price!' If home lenders would only read history they would know that from 1975 to 1995, on average home prices rose only 0.4% and with prices sagging now, they should ask for a larger down payment, and fast, or they will be facing big losses. In a market where housing prices are flat, it takes a 15 to 20 percent down payment to protect a lender against loss. The sales commission is 6% and REPO, carry, and marketing costs can run another 10% or more. What would a rational down payment mean for housing prices? Today, a buyer who can scrape up $20,000 for a 5 percent down payment can afford a home priced at $400,000. If you ask him for a 10 percent down payment, he can suddenly only afford a home costing $200,000! Rational down payments will force housing prices down. Whatever you do, please do not share this observation with existing homeowners; they might want to sell before I have had a chance to follow up with Ron Perelman's example. Richard Benson Benson's Economic & Market Trends Specialty Finance Group, LLC Prior to founding the Specialty Finance Group in 1989, Mr. Benson acted as a trading desk economist for Chase Manhattan Bank in the early 1980's and started in the securitization business in 1983 at Bear Stearns, and helped build the early securitization businesses at Citibank and E.F. Hutton. Mr. Benson graduated from the University of Wisconsin in 1970 in the Honors Program in Math, and did his doctoral work in Economics at Harvard University. Mr. Benson is a member of the Harvard Club of New York and Palm Beach.

Subject: A Problem From: Terri To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 14:10:22 (EST) Email Address: Not Provided Message: 'If home lenders would only read history they would know that from 1975 to 1995, on average home prices rose only 0.4% and with prices sagging now, they should ask for a larger down payment, and fast, or they will be facing big losses.' I find this hard to believe and would like to know where the data comes from. Possibly the 0.4% figure represents real price growth.

Subject: Answer to Problem From: Pete Weis To: Terri Date Posted: Sun, Nov 07, 2004 at 14:58:36 (EST) Email Address: Not Provided Message: Pretty amazing stat isn't it. We're so brain washed into thinking that real estate is always such a good investment. This 0.4% doesn't even take into account other expenses like buying and selling costs. It costs sellers an average of nearly 10% of the selling price to sell their house when you calculate agent commissions, state excise taxes, lawyers or escrow/title agent fees, etc. Buying includes mortgage fees, inspection and appraisel fees, etc. If you think 1975-1995 were simply bad years for real estate, I'm betting they will seem like superb years compared to 2005-2015. 'One big issue: inflation. Strip the impact of inflation out of home price appreciation, and home prices rose at a measly 0.4 percent a year between 1975 and 1995.' - Gerri Willis CNN/MONEY Here's the whole CNN article: What is your house worth? 5 Tips: Putting a value on your house. June 18, 2004: 5:18 PM EDT By Gerri Willis, CNN/Money contributing columnist NEW YORK (CNN/Money) - How good an investment is your home? Seems like a simple enough question. But for most of us, coming up with a clear-eyed analysis of the value of our house is tough. After all, your house is more than bricks and mortar, it's where your children grow up and you share family memories. Most homeowners talk about the meteoric rise in home prices when they think investment values. After all, median prices are up 7.4 percent this year to $174,100 as of March. But there's more to value than price tags. So where do you start and, what can you do to maximize your investment? Here are today's five tips. 1. Think total return. One way to think about what your house is worth is to apply the metrics of the stock market. Total return on a stock is the combination of dividends and capital gains. The capital gains part of the equation for housing is easy enough to figure out -- compound growth in housing prices has been rising at a rate of 5.8 percent a year. Check the Web site of the Office of the Federal Housing Enterprise Oversight to find a growth rate that applies to your market). Next, add in what Peter Coy at BusinessWeek calls the 'dividend,' or that amount of money you save each year by not having to pay rent to a landlord. Be sure to take out any homeowner's expenses, such as utilities and upkeep. For many people the annual dividend is roughly 6 or 7 percent. To make your own calculation, simply scan your newspaper's real estate ads to get a sense of how much a house of similar size and in a similar location would rent for in your neighborhood. Another bit of analysis you may want to conduct: an estimate of just how overvalued your home might be. Just as a price-to-earnings ratio in the stock market helps investors determine when they are overpaying for a stock, a P/E can also be calculated for your castle. Divide the price your house is likely to draw in today's market by the price it could fetch as a rental. Naturally, as with stock market P/Es, you'll have to make comparisons over time and between markets, according to UCLA economist Ed Leamer. 2. Understand leverage. Part of the equation of determining your return year to year -- and one of the big advantages of real estate -- is the fact that your returns are figured on a small outlay compared to the value of the asset. You are, in effect, using other people's money to make your own money and magnify your return. Think of it this way: let's say you bought a $500,000 house in cash, and its price went up to $505,000 after one year. Your annual return on your $500,000 investment would be a measly one percent. The vast majority of homebuyers, as we all know, take out a mortgage loan, putting down a fraction of the home's value, increasing their leverage and their returns. Consider, if you buy the house with a $5,000 down payment, and the home rises $5,000 in value, then the annual return is a whopping 100 percent. 3. Cut your transaction costs. Now that you know how to analyze your home as an investment, it's time to start managing your home as an investment. To improve the value of it, you'll want to think about those costs that can add up in a hurry -- like transaction costs. Remember, stock investing became much more attractive after commissions were deregulated. But for housing, transaction costs are high. Consider this comparison from Coy, 'you don't want to be churning over your house every couple of years. To sell $500,000 in stock may cost you $300 if you got a good discount broker. To sell a $500,000 house could cost you $40,000 after you pay a broker and every other lawyer fee.' Reduce your outlay -- and improve your return -- by holding the investment for a longer period of time. 4. Think liquidity. Popular wisdom holds that real estate is an illiquid investment. Think about it: To sell a home, you have to hire a real estate agent, market the property, hold an open house. But these days, consumers have more access to their home equity without selling their homes. In addition to the tried and true home equity loan and home equity line of credit, cash-out refis have gained popularity. These products allow consumers to tap the equity in their home and lock in a lower rate of interest as well. 5. Don't forget the differences. While there are plenty of similarities between real estate and other types of investment, such as stocks and bonds, there are also big differences. One big issue: inflation. Strip the impact of inflation out of home price appreciation, and home prices rose at a measly 0.4 percent a year between 1975 and 1995. That's the bad news. The good news? Other asset classes get creamed by inflation. Bonds returns, for example, are steadily eroded by inflation; while stock values can be hurt as well as companies lose control over their costs. Another comparison: The ease of selling. Unloading a stock or bond is as easy as picking up the phone and calling your broker, but selling a house takes more time. True, you can tap your equity with ease, but selling on a moment's notice can be difficult and expensive.

Subject: Excellent From: Terri To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 15:07:34 (EST) Email Address: Not Provided Message: Excellent Article. Thanks....

Subject: Market Returns From: Terri To: All Date Posted: Sat, Nov 06, 2004 at 13:30:34 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/05/04 S&P Index is up 6.3% Value Index is 9.9% Growth Index is 2.7% Small Cap Index is 11.2% Small Value is 14.5% Europe Index is 12.4% Pacific Index is 10.8% Energy Fund is 31.1 REIT Index is 19.6 Health Care Fund is 4.6%. Long Term Corporate Bond Fund is 6.6% High Yield Corporate Bond Fund is 7.7%.

Subject: Dollar Hedging From: Terri To: Terri Date Posted: Sat, Nov 06, 2004 at 13:52:58 (EST) Email Address: Not Provided Message: Why not simply hold the Europe Stock Index against a possible continuing weakness in the dollar? Waiting for a crisis, would seem a foolish strategy. Europe Stock Index valuations are reasonable, so why not use a serious investment and expect an orderly currency market with a gradually weakening dollar. Should the dollar not weaken, you hold a fine set of companies.

Subject: Buying Sears for the Real Estate From: Emma To: All Date Posted: Sat, Nov 06, 2004 at 11:27:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/06/business/06sears.html Sears Stock Jumps as Realty Trust Discloses Stake By CONSTANCE L. HAYS Sears, Roebuck, once the king of American retailers but lately struggling for shoppers, has finally attracted a big one - not for its tools and appliances, but for its real estate. The share price of Sears, Roebuck soared 23 percent yesterday after Vornado Realty Trust, the large real estate investor, said that it had acquired a 4.3 percent stake in the retailer. Sears has been trying to turn around its performance for several years, with limited success. As it has redesigned stores and added to its merchandise in hopes of increasing sales, competitors like Wal-Mart Stores and Lowe's have snatched away its customers. In July, Vornado began buying Sears stock as well as derivatives held by a bank. Its move seemed to suggest that Sears might be worth more as a collection of real estate holdings than as a purveyor of clothing, housewares and other goods. Sears owns about 60 percent of its 870 Sears stores, a spokesman said, and leases the rest. There are also 1,100 independently owned and operated outlets for appliances and tools. A spokeswoman for Vornado, which is publicly traded and based in Manhattan, would not discuss the investment. In a quarterly report that was filed yesterday with the Securities and Exchange Commission, Vornado said it had acquired the stake in Sears from July through September, paying about $40.6 million for 1.18 million shares of common stock and another $64.2 million for what it called 'an economic interest' in 7.9 million shares held by a financial institution. Vornado estimated the market value of its Sears holdings at $338.1 million, based on the Sears closing price on Thursday, which was $37.18 a share. Sears stock closed at $45.88 yesterday, bringing the value to $418 million. Ted McDougal, a spokesman for Sears would not comment on whether the investment came as a surprise to company management. He said no other real estate investment trusts held stakes in Sears. 'We are pleased that Vornado sees value in our stock,' Mr. McDougal said. 'We believe we have a sound plan to create sustainable increases in shareholder value.' Vornado owns the Merchandise Mart tower in Chicago. It also owns 33 percent of Alexanders, the department store chain, which it has held for about 20 years. For Sears, attracting real estate investors may be easier than turning around what has been a losing proposition with the stores. Sears sold its lucrative credit card business to Citigroup last year and has been trying to woo shoppers by looking beyond the shopping malls where most of its stores are concentrated. In much of the country, strip malls have replaced shopping malls as destinations. It has also sought to improve its assortment of goods, particularly apparel, but has had mixed results. The Lands' End line, purchased for $1.9 billion two years ago, has had sluggish sales in many areas. A new store concept called Sears Grand, which is being developed in strip malls, adds products like milk and frozen pizza to the usual Sears lineup; the company says sales have been impressive but says it is too early to tell about profits.

Subject: Re: Buying Sears for the Real Estate From: Ari To: Emma Date Posted: Sat, Nov 06, 2004 at 11:43:06 (EST) Email Address: Not Provided Message: Now, this is real estate speculation. Buy a fading retailer, not to turn it around but for the possible low cost of the real estate on its Sears' books.

Subject: Is the fall in the dollar........ From: Pete Weis To: All Date Posted: Sat, Nov 06, 2004 at 11:08:13 (EST) Email Address: Not Provided Message: in anyway equivalent to the tariff wars of the 1930's? During the '30's, competing global markets were stuck with overproduction and attempted to dump their cheap products on each other's markets. This started tariff wars which resulted in heavy worldwide unemployment. Today the US dollar is plunging. Some of this is due to bad fiscal and monetary policies. But their is also an element of 'benign neglect' by our government, since they view the falling dollar as a way to deal with our trade deficit. The problem, however, is that wage increases are not keeping pace with the dollar shrinkage. And this at some point, if it isn't already, will have a downward effect on consumption. The Chinese counter this dollar shrinkage by pegging their currency to the US dollar. The Japanese keep printing more yen which they use to purchase US dollars in their effort to counter the dollar drop. Because of this it's costing Chinese and Japanese businesses more and more to purchase the raw materials and energy needed to manufacture their products. France's Chirac has recently expressed his worry about the dollar fall and is pressing Europe's central banks to take action in an effort to shrink the Euro. If they don't AirBus, Volkswagon, Mercedes, Saab, etc. will be laying off workers in the near future. The Europeans will be forced into following the US dollar downward or face angry unemployed voters. Won't this, in effect, become a broad based 'tariff war'? Isn't it a tariff war disguised as a currency war? If wages in North America and Europe do not keep up with the drop in their respective currencies, what will this do to the main engines of world consumption? How is this really different to what happened in the '30's?

Subject: Re: Is the fall in the dollar........ From: Terri To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 11:26:20 (EST) Email Address: Not Provided Message: Interesting argument. What if the European central bank decides to support the dollar? The Euro countries may choose to support the dollar to protect export markets, but an advantage in a weaker dollar is less expensive energy imports. Oil and gas are priced in dollars, and energy is expensive in the Euro countries though they are more efficienct in energy use than America. Well, there will not be mass layoffs in Europe. The Volkswagon contract is an example of the security labor has. The Euro countries can opt for more domestic monetary or fiscal stimulation to keep domestic demand high. Labor is too well protected in the Euro countries for there to be major layoffs. So, possibly the dollar will be supported. Interesting.

Subject: Re: Is the fall in the dollar........ From: Terri To: Terri Date Posted: Sat, Nov 06, 2004 at 16:38:56 (EST) Email Address: Not Provided Message: There will be all sorts of trade and echange rate frictions btween America and Europe and Pacific trade partners, but this is not 1930. America wishes a weaker dollar, but will settle for stability. We will push China and China will push back, similarly for Japan and the Euro countries. There are simply better tools available for managing domestic demand, so trade need not be a weapon. Sharp movements of the dollar may be caused by speculators, but not foreign central banks.

Subject: What's different? From: Pete Weis To: Terri Date Posted: Sat, Nov 06, 2004 at 19:26:30 (EST) Email Address: Not Provided Message: Terri. Do we behave differently now in the 1990's and the early 2000's than we did in the 1920's and 1930's? Pretty much all of the 'safeguards' put in place in the '30's have been rescinded or do not apply presently. The stock manipulaters of the 20's are now insiders who fudge the accounting, investment bankers and brokerages who pay 'analysts' handsomely to hype stock and look the other way. Insiders are required to report stock transactions but nearly all small investors pay no attention anyway. People now have their life savings tied up in their homes and 401K's and not in the bank. Besides if depositors hear that their bank is in some trouble they'll pull their deposits anyway, FDIC or no FDIC. Banks survive on their reputation - they have no real assets. If their reputation is significantly damaged they're out of business. Total-Debt-to-GDP reached a then record 270% around 1930. The debt dropped mostly through bankruptcies and settle around 140% by the late 30's and remained that way until the 90's through the present when it now has reached a new all time record of 300%. Supposedly we learned our lessons regarding trade wars but the currency wars we're in right now look very similar, and will probably impact consumption and therefore employment in much the same way as the buying power of paychecks shrink. If we connect the dots - huge debt results in shrinking currency which results in the shrinking power of paychecks which results in dropping consumption which results in higher unemployment which results in lots of bankruptcies which sheds all the debt which can not be paid. This is somewhat different from the 30's where the dollar entered that decade backed by a gold standard. That's why trade wars took the form of tariff wars. Today with no gold backing to prohibit intentional currency shrinkage it seems more 'stealthy' to launch a trade war on your trading partners by running your currency lower and lower without hopefully 'crashing' it. But it draws everyone into the same game. We were supposed to avoid the 1930's scenario by avoiding trade wars and pumping money into the economy. But the central banks and the Fed can not control where all that money goes. Unfortunately it has not found its way into significantly more jobs or higher wages. All that extra money has found its way into inflated assets such as housing. This is why the Fed is now impotent should too steep a drop in the dollar begin. They can not raise rates like Volker did to stem the dollar fall and raging inflation of the 70's, because it would threaten inflated assets which now have become the underpining of our economy.

Subject: Re: What's different? From: Terri To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 20:53:41 (EST) Email Address: Not Provided Message: A loss in the value of the dollar will gradually raise some import prices, which will increase domestic consumption. Raising domestic consumption along with more demand for American exports, will increase business activity and likely employment. Profits for American companies with foreign exchange earnings will increase. There will be no reason for the Fed to raise interest rates, because a loss in value of dollar has not proven a problem in the past and should not now. I think the dollar will decline in value, and I have prepared for just this by buying the Europe Stock Index, but I am not worried about the economic effects. The problems of low household saving and government deficits, however, are worrisome. These problems have been leading to the balance of payments deficit and the weakening dollar. Since I do not know how or when these problems will become clear, I am watching and reading and keeping a cautious but invested portfolio. I read each of your posts several times, and often save them! I will continue to do so! Thanks.

Subject: Alice and Ralph From: Pete Weis To: Terri Date Posted: Sun, Nov 07, 2004 at 02:12:25 (EST) Email Address: Not Provided Message: 'A loss in the value of the dollar will gradually raise some import prices, which will increase domestic consumption.' We have been posting articles on this site about how the goverment uses hedonics and substition to reduce the CPI number. Bill Gross and others before him have detailed this manipulation of inflation. I posted an article regarding some US appliance manufacturers who were having to pass on the higher prices, for the material (steel, plastic, etc) with which they made their products, on to their customers. Reported wage increases have actually been lower than the the artificially low CPI number reported. This is what I mean by the shrinking buying power of paychecks. We've talked a lot about the higher costs of food, insurance, energy, housing, etc. All of these increases are happening faster than increases in the average paycheck are able to absorb. So I see a drop in domestic consumption and overall consumption going hand-in-hand with a drop in the dollar. For the wealthiest Americans this drop in the dollar does not threaten their ability to maintain their living styles. But for the average, middleclass Ralph and Alice Cramdens out there it will have and is having a tightening vice like affect. I believe our economy depends on the tens of millions of Ralph and Alice Cramdens out there.

Subject: Re: Alice and Ralph From: Terri To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 07:03:51 (EST) Email Address: Not Provided Message: Until concern with the consumer price index is raised by independent academic economic, we should be cautious about accepting the complaints of bond buyers. Bond buyers always want higher interest rates. Still, the increased price of energy does act as a tax hitting hardest middle and low income households.

Subject: Re: Alice and Ralph From: El Gringo To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 02:18:32 (EST) Email Address: nma@hotmail.com Message: 'I believe our economy depends on the tens of millions of Ralph and Alice Cramdens out there.' Pete, I believe that 'every healthy economy' depends on the tens of millions of Ralph and Alice Cramdens.

Subject: Re: What's different? From: Terri To: Terri Date Posted: Sat, Nov 06, 2004 at 21:59:18 (EST) Email Address: Not Provided Message: Even a sharp rise in interest rates, would result in little price decline for the Short Term Bond Index, so I would almost always choose such a holding over a money market fund. The duration of the Short Term Index is about 2.5 years. There are ways to be most secure but still hope for returns above a money market.

Subject: More 'Wolf at the Door' From: Pete Weis To: All Date Posted: Sat, Nov 06, 2004 at 10:12:25 (EST) Email Address: Not Provided Message: Close, but no cigar Nov 3rd 2004 From The Economist Global Agenda Same president, same soaring deficits, same market worries? SO THE votes have been mostly counted and George Bush has been elected for a second term as president. No political analyst, Buttonwood leaves the possible socio-political consequences of his re-election to those with more expertise. What, he wonders, will be the effects on financial markets? In the run-up to the election, there was much speculation about what the election of either John Kerry or Mr Bush would mean for financial markets. Worst of all, thought many commentators, was the possibility of a re-run of 2000, only more so: that not just Florida but a handful of states might be snarled up in legal wrangles at a time when leadership of the world’s biggest economy is sorely needed. As it turns out the election, though close, was not nearly as close as many had feared. That has clearly relieved many investors. Stockmarkets (the risky investment) popped up; government bonds (the safe-haven investment) fell a bit; and the dollar rose a very little bit. Possibly, too, this was something of a vote for Mr Bush. Even though the stockmarket has done dismally over the past few years and stockmarkets have historically done better under Democratic presidents, Mr Bush has been seen as more favourable to the stockmarket this time round, largely because of his record of individual and corporate tax cuts, and because he wants to make permanent many of these reductions. Mr Kerry, in contrast, wanted to scrap some of them. Well, perhaps, at the margin, there may have been some differences between the two candidates, though Buttonwood has searched in vain for anything approaching coherence in either platform. But neither candidate, certainly not Mr Bush, was prepared to address what is, bar perhaps the terrorist threat, the most serious of all the questions facing the long-term prospects for the American economy, and by extension the stock and bond markets: the rising tide of red ink that is washing over it. That tide has risen at a fearful pace in part because Mr Bush’s huge tax cuts have been matched by similarly huge spending. Thus has the government fallen ever deeper into debt. Early in 2001, the Congressional Budget Office (CBO) had predicted a budget surplus over the ensuing ten years of $5.6 trillion. It was in order to return some of this projected surplus to those who had earned it that Mr Bush originally proposed his tax cuts. Financial markets even pondered a life—how long ago this now seems—without Treasury bonds. In its latest outlook, in September, the CBO predicted a deficit over the next ten years of $2.3 trillion. But that projection assumes, among other unrealistic assumptions, that most of the tax cuts are allowed to expire. With Mr Bush back in the Oval Office, that hope will almost certainly prove as optimistic as right-thinking people thought it was in the first place. Mr Bush has said that he wants to halve the deficit, but nothing he has said or done, nor any half-baked plan that he has come out with, gives any cause for hope on this score whatsoever. Independent number-crunchers think that the deficit over the next ten years will be $5 trillion-$6 trillion—more than twice the CBO’s estimates. Nor have Americans proved any less spendthrift than their leader. Their habit has also been financed largely by debt, which has risen remorselessly. Since 1998, households’ debts (from mortgages to credit-card balances) have risen from 90% of their annual disposable income to some 114%, a record high. As a result, almost a fifth of household incomes are now spent on servicing these debts, not far off another record. And the latter figure is all the more troubling when you consider that, with a Fed Funds rate of 1.75%, short-term interest rates are still pretty close to historic lows and long-term rates are pretty meagre, too. It used to be that this did not much matter, because home-buyers borrowed long term and at a fixed rate. In recent years, however, they have taken advantage of the sharp difference in short- and long-term rates to shift to floating-rate borrowing. Much of this borrowing has been used to finance the purchase of property that is, by any historic yardstick, very expensive. These huge and growing debts show up in the country’s huge and growing current-account deficit, which is now close to 6% of GDP and shows no sign of shrinking. Were America an emerging economy, warning lights would be flashing red and investors would be rushing for the exit. But so far investors from other countries have been happy to finance this deficit. In the past, most of the appetite for dollars came from private investors. Recently, however, private demand has evaporated, and the dollar has been supported by gargantuan purchases from Asian central banks anxious to keep their currencies from rising too much against the dollar. Since 2001, the foreign-exchange reserves of Asian central banks have increased by $1.2 trillion—or about two-thirds of America’s accumulated deficit over the period. These purchases have kept the dollar stronger than it would otherwise have been and American interest rates lower. Foreign central banks will not carry on financing this deficit for ever. But what will happen to the dollar, to interest rates and to the American economy when they stop? On these questions Buttonwood finds it hard to be sanguine. A good outcome would be a gentle but sustained fall in the dollar. A bad outcome would be a dollar crisis. Even then, bond yields might stay relatively low because of disinflationary pressures, but Buttonwood has no certainty about this: they could rise sharply because of a general shunning of dollar assets. Short-term interest rates might have to rise, again sharply, to attract the necessary saving. A combination of lowish long-term bond yields and much higher short-term rates would hit corporate profits hard, because perhaps half of them come from financial firms of one sort or another, and financial firms benefit hugely when short-term rates are much lower than long-term ones. Sharply higher rates would also bring an economy laden with debt to a juddering halt. Demand would shrink as consumers saved more. This would also hit corporate profits hard, presumably bringing an overvalued stockmarket down with them. Defaults, both individual and corporate, would increase. Bad debts would rise at banks; yields on riskier bonds, which have fallen to extraordinarily low levels, would rise sharply. That, admittedly, is perhaps the gloomiest scenario, though it doesn’t even mention an escalation of the worsening problems in the Middle East, nor another terror attack. It may not happen, it may happen slowly, or America’s nine-lives economy may carry on muddling through: it is, after all, humming along quite nicely at the moment. But the re-election of Mr Bush does nothing to ease Buttonwood’s long-term fears. That would take an administration with far greater intellectual clout and economic literacy than the bunch that has just kept control of the White House.

Subject: Re: More 'Wolf at the Door' From: Ari To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 10:36:03 (EST) Email Address: Not Provided Message: Though we obviously have a lack of private savings, and a large and growing public debt, election on election should show the folly of using savings and debt as campaign issues. We are a consuming and borrowing and low tax loving people. If Gray Davis had learned to love debt, he would be Governor of California still. Californians want low taxes, and debt will be paid by borrowing. Americans did not wish to hear John Kerry talk about a tax increase, even though most would be better off for the tx increase. At least, Democrats have to know what issues to stay away from.

Subject: You are right Ari but.... From: Pete Weis To: Ari Date Posted: Sat, Nov 06, 2004 at 11:16:03 (EST) Email Address: Not Provided Message: is it worth getting elected to face what the Republicans face in the coming 4 years with no mandate to fix the real problems? They ran on a message which dooms them to failure and I believe the Grand Old Party may take along time to recover. Unfortunately, I also think it will take America a long time to recover.

Subject: Re: You are right Ari but.... From: Ari To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 11:37:54 (EST) Email Address: Not Provided Message: Trying to cut the deficit by raising taxes, cost the Democrats a majority in Congress during the Bill Clinton Presidency. The deficit was turned to surplus, but the Congress become Republican.

Subject: Foreign Investment From: Ari To: All Date Posted: Sat, Nov 06, 2004 at 06:51:52 (EST) Email Address: Not Provided Message: There is every reason to think the dollar is being sold by currency traders. The trading has little risk. The Treasury has no reason to defend against an orderly decline in the value of the dollar, since the decline will help ease the balance of payments deficit. We should have international investments to protect against what may be years of a weak dollar. The dollar was weak from 1985 to 1991, another such time frame seems in an early stage. We need to discuss low cost practical investments to protect against the weakening dollar.

Subject: Re: Foreign Investment From: Jennifer To: Ari Date Posted: Sat, Nov 06, 2004 at 09:32:44 (EST) Email Address: Not Provided Message: How are you investing to protect against a weakening dollar?

Subject: Misreading the election results From: A Right Winger To: All Date Posted: Sat, Nov 06, 2004 at 01:03:09 (EST) Email Address: Not Provided Message: Let the Cocooning Begin (http://www.chicagoboyz.net/archives/002582.html) Chicago Boyz www.chicagoboyz.net/archives/002582.html

Subject: Foreign Exchange From: Terri To: All Date Posted: Fri, Nov 05, 2004 at 20:42:51 (EST) Email Address: Not Provided Message: Berkshire Hathaway was holding $20 billion in foreign exchange forward contracts at the end of the third quarter. Then, we know where the dollar is trending.

Subject: Re: Foreign Exchange From: Ari To: Terri Date Posted: Sat, Nov 06, 2004 at 06:55:17 (EST) Email Address: Not Provided Message: When Warren Buffett looks ahead, we should look ahead. Evidently Buffett has been protecting Berkshire Hathaway against a weak dollar for at least 2 years.

Subject: Globalization and the Dollar From: El Gringo To: All Date Posted: Fri, Nov 05, 2004 at 18:45:33 (EST) Email Address: nma@hotmail.com Message: Globalization and Anti-Americanism by Joseph S. Nye Anti-American sentiments are rising around the world. American Democrats say that President Bush's policies have squandered America's attractiveness. Republicans reply that America is bound to be resented because of its size and its association with globalization. Anti-Americanism, they say, will persist because some people see America as a cultural threat. I believe that such views lack historical perspective. Contrary to conventional wisdom, globalization is not homogenizing and Americanizing the cultures of the world. Although the United States is at the forefront of the current information revolution, which is creating many similarities in social and cultural habits (such as television viewing or Internet use) that are attributed to Americanization, correlation is not causation. To see why, imagine a country that introduced computers and communications at a rapid rate in a world in which America did not exist. You would still expect major social and cultural changes from such modernization. Of course, because the US exists and is at the forefront of the information revolution, there is a degree of Americanization, but that is likely to diminish over the course of the twenty-first century as technology spreads and local cultures modernize in their own ways. Historical proof that globalization does not necessarily mean homogenization can be seen in Japan, a country that deliberately isolated itself from earlier waves of globalization. In the middle of the nineteenth century, Japan became the first Asian country to embrace globalization, and to borrow successfully from the world without losing its uniqueness. During the Meiji Restoration, Japan searched broadly for tools and innovations that would allow it to become a major power rather than a victim of Western imperialism. It sent young people to the West for education. Its delegations scoured the world for ideas in science, technology, and industry. In the political realm, Meiji reformers were well aware of Anglo-American ideas and institutions, but deliberately turned to German models because they were deemed more suitable to a country with an emperor. The lesson that Japan teaches the rest of the world is not simply that an Asian country can compete, but that after a century and a half of globalization, it is possible to adapt while preserving a unique culture. More fundamentally, the image of a homogenizing America reflects a mistakenly static view of culture. Efforts to portray local cultures as unchanging often reflect reactionary political strategies rather than descriptions of reality. As the Peruvian writer Mario Vargas Llosa has put it, those who argue in favor of cultural identity and against globalization, betray a stagnant attitude towards culture that is not borne out by historical fact. Do we know of any cultures that have remained unchanged through time? To find any of them one has to travel to the small, primitive, magico-religious communities made up of people? who due to their primitive condition, become progressively more vulnerable to exploitation and extermination. Vibrant cultures are constantly changing and borrowing from other cultures - and that borrowing is not always from the US. For example, many more countries turned to Canada than to America as an example for framing constitutions in the aftermath of the Cold War. Globalization is also a two-edged sword. In some areas, there is not only a backlash against American cultural imports, but an effort to change American culture itself. Capital punishment may now be supported by a majority of Americans, but the death penalty is regarded as an egregious violation of human rights across Europe - indeed, across much of the world. American environmental attitudes toward climate change or genetic modification of food bring similar criticism. More subtly, America's openness to immigration both enriches and changes American culture. Finally, globalization and the information revolution may reinforce rather than reduce cultural diversity. Some French commentators express fear that in a world of Internet global marketing, there will no longer be room for a culture that cherishes hundreds of different types of cheese. But on the contrary, the Internet allows dispersed customers to come together in a way that encourages niche markets, including hundreds of Web sites dedicated only to cheese. The Internet also allows people to establish a more diverse set of political communities. The use of the Welsh language in Britain and Gaelic in Ireland is greater today than fifty years ago. Britain, Belgium, and Spain, among others in Europe, have devolved more power to local regions. The global information age may strengthen rather than weaken local cultures. Economic and social globalization does produce superficial similarities in T-shirt logos and soft drink brands, but an underlying cultural diversity will remain. American culture is now prominent, and it contributes to America's attractiveness - its 'soft power' - in many, but not all, areas. At the same time, immigrants, ideas, and events outside America's borders are changing American culture within the borders of the US. As globalization spreads technical capabilities, and information technology allows broader participation in global communications, American economic and cultural preponderance may diminish. A little less dominance may mean a little less anxiety about Americanization, fewer complaints about American arrogance, and less intensity in the anti-American backlash. The US may have less control in the future, but it may find itself living in a world somewhat more congenial to its basic values of democracy, free markets, individual liberties, and human rights. Joseph S. Nye is Distinguished Service Professor at Harvard University and author of Soft Power: The Means to Success in World Politics.

Subject: Re: Globalization and the Dollar From: Pete Weis To: El Gringo Date Posted: Fri, Nov 05, 2004 at 21:51:13 (EST) Email Address: Not Provided Message: The title of this piece was 'Globalization and Anti-Americanism'. Why did you entitle your post 'Globalization and the Dollar'?

Subject: Re: Globalization and the Dollar From: El Gringo To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 18:42:04 (EST) Email Address: nma@hotmail.com Message: Pete, the evolution of the dollar (Ms) as a function of this: http://www.betavote.com/results/

Subject: Re: Globalization and the Dollar From: Pete Weis To: El Gringo Date Posted: Sat, Nov 06, 2004 at 20:11:12 (EST) Email Address: Not Provided Message: So while the world can not really vote in our election they can choose to reject the dollar when it comes to spending and investing their wealth - the only real way they can vote for or against American policies.

Subject: Re: Globalization and the Dollar From: El Gringo To: Pete Weis Date Posted: Sun, Nov 07, 2004 at 02:12:47 (EST) Email Address: nma@hotmail.com Message: 'can choose to reject the dollar' or to have no more trust in the dollar (irresponsible fiscal policies, unilateral handling, current-account deficit, budget deficit etc. etc.)

Subject: Re: Globalization and the Dollar From: Ari To: El Gringo Date Posted: Sun, Nov 07, 2004 at 10:09:44 (EST) Email Address: Not Provided Message: Please explain a bit more, for I am always interested in what you have to say.

Subject: Re: Globalization and the Dollar From: Terri To: Pete Weis Date Posted: Sat, Nov 06, 2004 at 20:59:28 (EST) Email Address: Not Provided Message: Business before politics. The Franch like selling us wine, the Germans like selling us Volkwagons, the British like selling us drugs, the Japanese cameras.... Business before politics for us and others.

Subject: Thanks, El Gringo From: Jennifer To: El Gringo Date Posted: Fri, Nov 05, 2004 at 19:32:36 (EST) Email Address: Not Provided Message: Fine article. Thanks, El Gringo.

Subject: Re: Thanks, El Gringo From: El Gringo triste To: Jennifer Date Posted: Fri, Nov 05, 2004 at 19:39:45 (EST) Email Address: nma@hotmail.com Message: You're welcome Jennifer ;)

Subject: Vanguard Analysis From: johnny5 To: All Date Posted: Fri, Nov 05, 2004 at 16:50:31 (EST) Email Address: johnny5@yahoo.com Message: http://www.fpanet.org/journal/articles/2004_Issues/jfp0904-art6.cfm Examples Example A. Assume you currently own the Vanguard 500 Index Fund (VFINX). You are considering diversifying internationally by putting 40 percent of your portfolio into the Vanguard Developed Markets Index Fund (VDMIX). VFINX tracks the S&P 500 index, while VDMIX tracks the MSCI EAFE Net index. By examining Table 1, we see that you ought to reject the proposed fund because its expense ratio is so high that it would result in a reduced Sharpe ratio for the resulting portfolio (that is, 0.34 percent is greater than the maximum allowed 0.18 percent). Example B. Assume you currently own the Vanguard 500 Index Fund (VFINX). You are considering diversifying into smaller stocks by putting 20 percent of your portfolio into the Bridgeway Ultra-Small Company Market Fund (BRSIX), which roughly tracks the CRSP 10 index. The Bridgeway fund has a relatively high 0.75 percent annual expense ratio. Is it worth it? Table 1 clearly suggests that you should accept BRSIX as 20 percent of the new portfolio (that is, 0.75 percent is less than the maximum 2.55 percent allowed). Example C. Assume you currently own the Vanguard 500 Index Fund (VFINX). You are considering diversifying into commodities futures by putting ten percent of your portfolio into the Oppenheimer Real Asset Fund (QRAAX), which roughly tracks the Goldman Sachs Commodity Index (GSCI). QRAAX has a seemingly high expense ratio of 1.68 percent. Is it worth it? This is an example of applying the methodology to an actively managed fund. QRAAX, while it has an explicit (though non-binding) goal of having at least a 90 percent correlation with the GSCI, is basically an actively managed fund. Yet from its inception through the end of 2002, its quarterly returns have a correlation of 98.5 percent with the GSCI. This fund tracks its benchmark almost as well as a true index fund. We're confident that the GSCI is 'adequately representative' of this fund's investing style. Table 1 shows that you should accept QRAAX as 10 percent of the new portfolio (1.68 percent is less than the maximum 6.16 percent allowed).11 The degree to which the fund's expense ratio is below the maximum allowed suggests that commodities futures are an extremely effective diversifier. Example D. This procedure works equally well if you currently own a portfolio of funds and you are considering adding an additional fund. Suppose that you presently owned a portfolio consisting of 80 percent Vanguard 500 Index Fund (VFINX) and 20 percent Vanguard Developed Markets Index Fund (VDMIX). You are considering diversifying 30 percent of the portfolio into the Vanguard Value Index Fund (VIVAX). The resulting portfolio is 56 percent Vanguard 500 Index Fund, 14 percent Vanguard Developed Markets Index Fund, and 30 percent Vanguard Value Index Fund. The Vanguard Value Index Fund tracks the S&P 500/Barra Value Index. Table 1 shows that the proposed fund's expense ratio is below the maximum allowed—it is worth it to diversify your portfolio as proposed (0.22 percent is less than the maximum 1.28 percent allowed). Example E. Some mutual funds are available only to individuals if obtained through certain financial advisors. For example, Dimensional Fund Advisors funds are distributed to the retail market in that fashion. Individuals often ask whether it is worth it to pay a financial advisor an additional percentage annually to gain access to those funds. The techniques introduced in this paper can be used to help answer that question. Assume that your current portfolio consists of the following funds in equal percentages: Vanguard 500 Index Fund (VFINX); ER = 0.18 percent Vanguard Value Index Fund (VIVAX); ER = 0.22 percent Vanguard Small Cap Index Fund (NAESX); ER = 0.27 percent iShares Russell 2000 Value Index Fund (IWN);12 ER = 0.25 percent Further assume that you are considering shifting your portfolio to the following funds, also in equal percentages: DFA US Large Company Portfolio (DFLCX); ER = 0.15 percent DFA US Large Cap Value Portfolio (DFLVX); ER = 0.31 percent DFA US Micro Cap Portfolio (DFSCX); ER = 0.56 percent DFA US Small Cap Value Portfolio (DFSVX); ER = 0.56 percent Note that the weighted average expense ratio of the initial portfolio is 0.2225 percent. For the proposed new portfolio, it is 0.3950 percent. Since the entire portfolio is being replaced, w = 1.0. Are the generally higher expense ratios of the DFA funds worth it? If so, how much should you be willing to pay the financial advisor? Table 1 holds the answer. It does indeed seem worth it to switch to the DFA funds (0.395 percent a year is less than the maximum of 1.68 percent per year allowed). Additionally, even if the financial advisor provides no value to the investor other than giving them access to the DFA funds (an assumption that, it is hoped, is not valid in the majority of cases), it is still worth it to pay the financial advisor as much as 1.285 percent of assets managed annually (1.68% – 0.395% = 1.285%). Vanguard Analysis www.fpanet.org/journal/articles/2004_Issues/jfp0904-art6.cfm

Subject: Merck and Vioxx From: Emma To: All Date Posted: Fri, Nov 05, 2004 at 16:02:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/05/business/05drug.html Study Says Drug's Dangers Were Apparent Years Ago By GARDINER HARRIS Merck and federal officials should have withdrawn the painkiller Vioxx from the market as early as 2000 because studies of the drug had clearly shown that it doubled the risk of heart attacks among users, according to a study released yesterday by The Lancet, a British medical journal. Authors of the study pooled data from 25,273 patients who participated in 18 clinical trials conducted before 2001. They found that patients given Vioxx had 2.3 times the risk of heart attacks as those given placebos or other pain medications. Merck withdrew Vioxx on Sept. 30 of this year after a company-sponsored trial found a doubling of the risks for heart attack or stroke among those who took the medicine for 18 months or more. An editorial accompanying the study criticized both Merck and the Food and Drug Administration, and described Vioxx's approval and its popularity as 'public health catastrophes' that led to over 27,000 heart attacks and sudden deaths. 'For with Vioxx, Merck and the F.D.A. acted out of ruthless, short-sighted and irresponsible self-interest,' wrote Richard Horton, editor of The Lancet. In a statement, Merck said that the Lancet study was not comprehensive or new. 'Merck was vigilant in monitoring and disclosing the cardiovascular safety of Vioxx, and we absolutely disagree with any implication to the contrary,' the company said. The Lancet study increases pressure on the F.D.A., which is dealing with allegations that it tried to squelch prescient warnings by its own drug-safety reviewers about the dangers of Vioxx and about the hazards of antidepressant use by children and teenagers.

Subject: Re: Merck and Vioxx From: byron To: Emma Date Posted: Fri, Nov 05, 2004 at 23:03:03 (EST) Email Address: bluefin76020@yahoo.com Message: So much for the unsafe drugs from Canada. Bush said he wants to make sure they are safe before allowing them to be imported. so much for the unsafe

Subject: Stock and Bonds From: Terri To: All Date Posted: Fri, Nov 05, 2004 at 15:58:03 (EST) Email Address: Not Provided Message: Notice how quickly and decisively the stock market has moved. After months of flatness, we are suddenly having a fine year. Most market sectors are showing nice gains. This is why I feel it is important to avoid trying to time the market. We can invest conservatively to avoid difficult losses, but waiting for the market reach the values we choose can mean passing years of gains.

Subject: Re: Stock and Bonds From: A Right Winger To: Terri Date Posted: Sat, Nov 06, 2004 at 01:13:22 (EST) Email Address: Not Provided Message: Does it have anything to do with elections? www.chicagoboyz.net/

Subject: Returns From: Terri To: Terri Date Posted: Fri, Nov 05, 2004 at 15:58:29 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/04/04 S&P is up 5.8%, Value Index is up 9.7%, Growth Index is up 2.0%. Small Cap Index is up 10.9%, and Small Value 14.7%. Europe Index is up 11.5%. Energy is up 30.9, REIT Index is 23.0, Health Care is 3.7%. Long Term Corporate Bond Fund is up 7.8%. High Yield Corporate Bond Fund is 7.5%.

Subject: Hedge Funds and Us From: Emma To: All Date Posted: Fri, Nov 05, 2004 at 15:34:11 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/05/business/05hedge.html? Hedge Funds' Glitter Fades (but Not for Investors) By RIVA D. ATLAS Barton M. Biggs, the well-known stock strategist who left Morgan Stanley last year to set up a $2 billion hedge fund, has been writing a book, 'Diary of a Hedge Hog,'' that promises to 'describe the agonies and ecstasies of creating and running a new hedge fund.' So far this year, the experience for Mr. Biggs's investors has been agonizing. After rising 16 percent last year, Mr. Biggs's fund, called Traxis Partners, is down 8.3 percent as of the end of October, according to a person briefed on the results. Earlier this year, Mr. Biggs made an aggressive bet that the price of oil would fall. Instead, it hit record highs, recently peaking at more than $55 a barrel. In the meantime, Mr. Biggs has postponed the release of his book, which was scheduled for next month, his publisher, John Wiley, said. Mr. Biggs could not be reached for comment. Investors in Traxis are not the only ones to experience disappointment this year. These days, lots of funds are failing to meet expectations. Some smaller hedge fund managers are quitting the business. More established managers are generally hanging on, but their reputations have taken big hits. Despite this weak performance, record sums are pouring into hedge funds and many on Wall Street see managing a hedge fund as the most promising route to real riches. Hedge funds are aggressive privately managed investment partnerships for wealthy individuals and institutions, including pension funds and university endowments. Assets in these elite partnerships were $488 billion in 2000 and have nearly doubled since then, to $890 billion as of the third quarter of 2004, according to Hedge Fund Research. The flow of capital into the industry has enticed some of Wall Street's biggest names.

Subject: post election analysis From: gerald mckee To: All Date Posted: Fri, Nov 05, 2004 at 14:26:44 (EST) Email Address: gmckee@pisys.com Message: Just as a single grain of salt can precipitate a crystal huge by comparison, just as the butterfly’s flutter in Toledo may stir a tempest in Taiwan, so a hopeful action by seven gay couples in Massachusetts last February may have triggered the avalanche that buried our dreams this week. The Gay Marriage Amendment, - which Bush had earlier opposed – can now be seen as the masterstroke in Carl Rove’s cynical career. Dropped into a politic supersaturated with fear and intolerance, this seed crystallized the religious right as no other agent has. Warned by Falwell and Robertson that terrorism may be God’s punishment for America’s “moral decay, the true believers faced a choice of extraordinary clarity and urgency and a born-again hero for the times in George W. Bush. They voted with unexpected force. They were enabled, of course, by the secular Republicans – the Wall Street, suburban, affluent, educated Republicans – who share few values with the evangelicals or with Bush, but vote as though the election were a sporting event:: our team vs. your team. But, finally, it was the huge turnout of the Religious Right that overwhelmed the pro-Kerry wave of youthful activism. And so the nation takes one giant step backward – back before Scopes, before prohibition, before women’s rights, civil rights, the rights of minorities. Back to a time when the tribal customs of a Semitic people living thousands of years ago defined our national agenda. Ironies abound: These Christians seldom invoke Jesus; it’s an earlier, harsher god they follow. Their leaders do not sue to post the Beatitudes on the courthouse wall, or the Golden Rule. They do not summon the words “As you do unto the least of these, you do unto me” in their political speeches. Theirs is a fearsome god, singularly suited to a people living in a harsh environment, surrounded by enemies, struggling to maintain their homogeneity. A god very much like that invoked by Osama bin Laden. Most ironic, perhaps, is the Christian Right’s embrace of the founding fathers as colleagues in their political enterprise. How sad it is that those sons of the Enlightenment - Franklin, Adams, Madison, et al - should be invoked to support an agenda based on willful ignorance, anti-science and superstition. What’s Going to Happen? Through Tuesday’s election, three forces in our society have been emboldened, forces that might be represented by the icons of Fallwell, Wolfewitz and Lay. Ken Lay represents corporate power as a self-defining universe, one that will seek to reverse the role government plays in leveling the economic playing field,by protecting employees, shareholders and consumers and insuring fair competition. For the next four years we can forget about a “living wage,” sterner pollution standards, investment in alternative energy sources, fair labor rules in trade policy. We can expect prohibitive limits on tort recoveries with an associated relaxation of corporate safety standards. We will see Wall Street seduce the Social Security system. We can look forward to continued tax give-aways and attendant growing deficits – until it all implodes some day. Wolfewitz represents the monomaniacal view that the Middle East is and should continue to be a de-facto American colony. Best case: The Middle East will remain muddled and Islamists resentful; oil prices will stay high; terrorism will not abate; losses to our occupying armies will continue, a limited draft will be necessary. We will become more alienated from other industrialized nations. Worst case: Resentment will ferment throughout the Middle East and ignite in Pakistan. Huge American armies will be required to subdue the growth of radical Islam and, if they can, secure the Pakistani nuclear weapons. We will occupy much of the Middle East. Falwell, of course, represents massive intolerance and sexual paranoia.. Expect school vouchers and decay in the quality of public schools, a retrenchment of free speech, government funding of religious enterprises, continuing high prison populations, no drop in teenage pregnancy but a sharp rise in public shame, a return to back alley abortionists. What Can We Do? This, too, will pass. Remember, Richard Nixon was reelected by the largest majority and within 2 years was gone. Remember that the 18th Amendment was reversed by the 21st and that there often is a “sober second thought” by the American people. Continue to hammer for the things we believe in; be intolerant of cant and bigotry. Be politically active in local matters – school boards, especially. Actively participate in the kinds of organizations that opposed Bush. Support tolerant religious organizations; remember how effective they were in the civil rights movement. I see the change coming, curiously, from realignment within the Republican Party. Many Republicans I know share my fears and are ashamed of the direction their party is taking, even if solidarity (and perhaps some thoughtless greed) shaped their recent votes. I look forward to an election in 2008 between a moderate Republican and an unabashed “social justice” progressive Democrat . I believe that the next four Bush years will be so egregiously wrong that we will all be forced to revisit our priorities. Even the Christian Right might find that, enacting much of their agenda has not made the world a better place for them or their children. Perhaps, with such perceived irritants as gay marriage behind them, they will realize that their true interests lie in a sound economy, and social justice. Keep the Faith. Keep the

Subject: Stop looking for excuses From: Mik To: gerald mckee Date Posted: Fri, Nov 05, 2004 at 17:47:17 (EST) Email Address: Not Provided Message: Take a look at Krugman's latest article. To make the statement that... 'it was the huge turnout of the Religious Right that overwhelmed the pro-Kerry wave of youthful activism' is utter bull. For starters the 'youth' vote turned out to be split between Bush and Kerry (not a pro Kerry mass vote) and secondly the the 'Religious Right' is by no means a huge voting block that can turn the tide. What Americans have to deal with is that the mental divide has become clearer than ever before. Up until now Politicians (Republican and Democrat) have been responsible enough to calm the radical thoughts that many people have and can only discuss at the dinner table but never in the open. As Krugman has clearly shown, we have a radical in power that has brought the 'dinner table' philosophies into main stream politics. The majority of Americans believe in the concept that we are facing a clash of civilizatons. It is them against us. You are either with us or with the terrorists. How will America calm the radical thoughts when it is being lead by radicals? I have no answer. The only thing that I can think of is applying an economic principle where everything eventually swings back. In other words as thousands upon thousands more lose jobs, health care, and their pension while faced with increasing costs of living, maybe, just maybe, they will wake up. But unfortunately when that day comes, the damage will already have been done.

Subject: Re: Stop looking for excuses From: Ben To: Mik Date Posted: Fri, Nov 05, 2004 at 22:13:05 (EST) Email Address: pedersb@sce.com Message: While I wasn't particularly jazzed by the latest column I must comment that the exit polls indicate: A)Moral values was cited as the most important issue in the election by ~22% of voters (these people split 80/20 for Bush). In other words, if these people had split evenly Kerry'd have won by 10 points. Whether a candidate capable of taking 1/2 that vote could make it thru a Democratic primary is another question. B) The under-30 vote was the only age segment Kerry won.

Subject: Re: Stop looking for excuses From: A Right Winger To: Ben Date Posted: Sat, Nov 06, 2004 at 00:54:46 (EST) Email Address: Not Provided Message: From someone who reads Krugman to find out how far off the Liberals are: Do you still rely on those broken crutches, the exit poll?

Subject: Can High Oil Prices Be Good? From: El Gringo triste To: All Date Posted: Fri, Nov 05, 2004 at 14:09:21 (EST) Email Address: nma@hotmail.com Message: Can High Oil Prices Be Good? by J. Bradford DeLong World oil prices have climbed to well of $50 a barrel. While these prices are still only two-thirds the real oil price peak reached during the Iranian Revolution of 25 years ago, the current high level of oil prices is making forecasters revise down their expectations of economic growth. With most shocks to the world economy, we expect central banks to try to offset the effects. When business investment committees become more cautious, we expect the Federal Reserve, the ECB, the Bank of England, and others to lower interest rates to make the numbers on investment projects look better. If consumers go on a spending binge, we expect central banks to raise interest rates to dampen inflation. But this economic logic does not hold in the case of oil price increases. While high oil prices look like a tax on business activity that depresses aggregate demand, they also raise inflation, both directly and indirectly. Weak demand requires reducing interest rates, but higher expected inflation requires raising them. As a result, central banks respond by doing little or nothing, so the effects of high oil prices flow through to the economy without being moderated by the world's central banks leaning against the wind. High oil prices also promise to slow long-run productivity growth. If the price of oil remains at $40 a barrel, expect it to slow the long-run rate of growth of the world's potential output by 0.1% per year. If the oil price hits $60 a barrel, expect it to slow the 'measured' long-run world rate of potential output growth by roughly 0.3% per year. Yet if we take the very long-run view, it is not so clear that high oil prices are bad for the world as a whole. If they were the result of taxes that were then redistributed to oil users, a high price of oil would be unambiguously good. Most taxes bring with them heavy 'excess burdens': the cost to society is significantly greater than the value of the revenue raised by the government because of all the attempts at tax evasion and tax avoidance by potential taxpayers. But a tax on oil lacks excess burdens. On the contrary, it has excess benefits. Shifts to more energy-efficient transportation eases congestion; energy rationalization reduces pollution; higher prices for oil substitutes spur research into alternative energy technologies. A well-designed tax on oil would also reduce demand, thereby lowering the potential for windfall profits for those who rule or own the ground over the oil deposits. A little more than a decade ago, Lloyd Bentsen, President Bill Clinton's first Treasury Secretary, tried to ensure precisely that, proposing to use a 'BTU tax' to close America's fiscal deficit. The Republican Party and the American Petroleum Institute sank that proposal. A decade later, we have high oil prices, but they are not due to a well-designed tax, either in America or elsewhere. As a result, the price boom is boosting windfall profits for the owners of oil deposits rather than improving countries' public finances. J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and was Assistant US Treasury Secretary during the Clinton Presidency.

Subject: Can High Oil Prices Be Good...? From: Emma To: El Gringo triste Date Posted: Fri, Nov 05, 2004 at 18:54:56 (EST) Email Address: Not Provided Message: http://www.dailytimes.com.pk/default.asp?page=story_23-10-2004_pg5_21 “Higher oil prices are here to stay,” says the American economic forecaster Allen Sinai. “[T]hat has to subtract growth and could cause core inflation to pick up.” Indeed, according to Sinai, higher oil prices are “the biggest risk...since the bursting of the stock-market bubble in 2000-2001.” Sinai is hardly alone. If the oil price stays at $40 a barrel, expect it to have next to no effect on short-term world GDP growth. But if the oil price remains at or near $60 a barrel, expect everyone’s forecasts of GDP growth to be reduced by 1% per year. High oil prices also threaten to slow long-term productivity growth. With high – and volatile – oil prices, businesses will focus their investments less on boosting productivity and more on maintaining flexible energy usage.

Subject: Re: Can High Oil Prices Be Good...? From: El Gringo To: Emma Date Posted: Fri, Nov 05, 2004 at 19:17:45 (EST) Email Address: nma@hotmail.com Message: 'Sinai is hardly alone. If 'if' the oil price stays at $40 a barrel, expect it to have next to no effect on short-term world GDP growth. But if the oil price remains at or near $60 a barrel, expect everyone's forecasts of GDP growth to be reduced by 1% per year.' What is your opinion?

Subject: Projecting Price From: Emma To: El Gringo Date Posted: Fri, Nov 05, 2004 at 19:49:39 (EST) Email Address: Not Provided Message: Well, the definition of recession from a global perspective is growth below 2.5%. So a slowing of world growth from 3.5% to 2.5% would be a serious matter. I think 45 to 50 dollars a barrel for oil can be expected, and will slow growth less than 1/2 percentage point. Demand for oil from China may be the most important factor in pricing.

Subject: Re: Projecting Price From: El Gringo To: Emma Date Posted: Fri, Nov 05, 2004 at 21:26:04 (EST) Email Address: nma@hotmail.com Message: Emma, don't think like an economist but like a politician...

Subject: Politicians aim to please From: Pete Weis To: El Gringo Date Posted: Fri, Nov 05, 2004 at 22:07:50 (EST) Email Address: Not Provided Message: Politicians tell us they will cut taxes but still give us what we want, and balance the budget - 'voodoo economics'. In a heavily leveraged economy with massive and growing obligations, politicians will inflate away the debt and continually sacrifice the dollar. In the land of the sacrificed dollar, everything 'needed' (including oil) to go about our daily lives will take an ever larger share of our paychecks. And as you have said in the past, El Gringo - don't blame it on the politicians because we the people represent the social will which molds the political will.

Subject: Re: Can High Oil Prices Be Good? From: Emma To: El Gringo triste Date Posted: Fri, Nov 05, 2004 at 16:19:08 (EST) Email Address: Not Provided Message: A problem that is not examined is the effect of high energy prices on low income families. This negative effect makes me suspicious of some of the accounting of the good coming from high energy prices, even if prices are high because of taxes designed to encourage efficient use and development of many energy sources.

Subject: Re: Can High Oil Prices Be Good? From: El Gringo To: Emma Date Posted: Fri, Nov 05, 2004 at 18:30:51 (EST) Email Address: nma@hotmail.com Message: Dear Emma: Try to compare 'low income families' and 'low income families', that is practically impossible

Subject: October jobs number From: Pete Weis To: All Date Posted: Fri, Nov 05, 2004 at 09:57:08 (EST) Email Address: Not Provided Message: On the surface it looks very good - 335,000 new jobs. Construction up 71,000 - housing construction with still low interest rates continues to do well and additional construction jobs in the hurricane ravaged south helped this number. Revolving credit still booms and retail, except at low end stores, has had a comeback and this has provided a modest rise in retail jobs - some of the heavy discounts at malls across the US has moved merchandise. The service sector added 93,000 jobs (41,000 new government jobs in that number). Overall 2004 has been a much better year for jobs than was 2003 which was exeedingly bad. But underneath the very good job total of October lies a problem. Manufacturing jobs fell for the second month in a row and high tech jobs continue to be weak. In other words, jobs which make products, which could be marketed overseas (whether autos, computers, computer chips, software, electronics, etc) are still eroding. Jobs which are basically overhead (service sector) are increasing. We're like a corporation whose production base is falling while its overhead is increasing and our growing debt reflects this. It's heavy borrowing which provides much of the support for the service sector. Now if our service sector was providing a significant amount of services to overseas customers then this could help to lower our current account, but I don't believe this is the case. Increasingly global corporations are seeking services from cheaper labor markets in India and China.

Subject: Re: October jobs number From: Ari To: Pete Weis Date Posted: Fri, Nov 05, 2004 at 17:17:22 (EST) Email Address: Not Provided Message: http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict_20041105 In the service sector, businesses added 97,000 jobs last month, but about half of them (48,000) were in temporary work, suggesting employers' continued reluctance to commit to permanent hires. Since the recovery began three years ago in November 2001, temp work has been one of the fastest growing sectors, up 18.6% compared to 0.9% for overall payrolls. Since temp jobs pay less than average, the rapid growth in this sector has been one reason for the job-quality problems that have evolved over the recovery. For example, as temp work as a share of total employment has increased from 1.6% to 1.9% over the recovery, manufacturing's share has declined, from 12.1% to 10.9%. Despite the strong payroll expansion, there is still evidence of slack remaining in the job market. The number of part-time workers who would rather work full time (a group that includes some temp workers) rose by 280,000 last month.

Subject: Good points Ari From: Pete Weis To: Ari Date Posted: Sat, Nov 06, 2004 at 10:25:15 (EST) Email Address: Not Provided Message:

Subject: Jeremy Grantham & Bill Gross From: Pete Weis To: All Date Posted: Fri, Nov 05, 2004 at 09:20:07 (EST) Email Address: Not Provided Message: October jobs number is very good but underlying economic weakness still there. From Bloomberg: Grantham, Gross Gloomy Over Troubles and Bubbles: Chet Currier Nov. 5 (Bloomberg) -- Here's a handy way for optimistic investors to test the strength of their convictions: Spend an hour or two perusing the latest comments of two widely respected money managers, Jeremy Grantham and Bill Gross. Gross's views are so glum he himself speaks of them as ``the economics of despair.'' Grantham says the history of investment ``bubbles'' argues for a drop of about 35 percent in the Standard & Poor's 500 Index, on top of the 40 percent slide already endured in 2000-02. ``Asia has hollowed out our manufacturing base and is now making inroads into services,'' says Gross, chief investment officer at Pacific Investment Management Co. in Newport Beach, California, where he oversees $415 billion including the biggest bond mutual fund. ``We can't really educate or innovate our way out of this.'' In the circumstances, Gross says (at http://www.pimco.com/LeftNav/Late Breaking Commentary/IO/2004/IO_ N ov_04.htm), the Federal Reserve will have to hold interest rates very low. ``While that keeps the patient/economy breathing, it leads to asset bubbles, potential inflation, and a declining currency over time,'' he says. Grantham, chairman of Grantham, Mayo, Van Otterloo & Co., a Boston-based manager of $66 billion in mostly institutional money, says ``the current U.S. equity bubble'' is the 28th he found combing through the history of currency, commodity and stock markets ( http://www.gmo.com , registration required). Painful Pattern All the other 27 bubbles, he says, ``broke and went back to the pre-existing trend.'' For the S&P 500 to do the same now, he calculates, it would have to hit 720, compared with a recent level above 1100. ``Everything important about markets is mean-reverting or, if you prefer, wanders about a trend,'' he says. ``Prices are pushed away from fair price by a series of `inefficiencies,' and eventually dragged back by the logic of value.'' One of those inefficiencies, says Grantham, is a phenomenon called herding, which occurs among both individual and institutional investors. In a highly specialized institutional world where managers are measured almost microscopically against benchmarks, Grantham says, ``refusing on value principles to buy in a bubble will look dangerously eccentric. This has guaranteed increasingly larger and longer market distortions.'' Both Sides Now Gross gives us an external reason -- Fed policy -- to figure on bubbles as a continuing part of the investment scene. Grantham gives us an internal reason, forces in modern financial life that reinforce the human tendency to ``buy because others are buying.'' For myself, I need little convincing that we already live in a bubble-prone age. Stocks, notorious for their attempt to defy gravity in the late 1990s, have since been mimicked by real estate markets in many places, and perhaps some commodity markets too. Look no further than the almost-doubling in the price of crude oil over the last year. If bubbles are so readily apparent, and so dangerous, why aren't more investors fleeing them? In the week or two since Gross's and Grantham's commentaries came out, stock prices have actually risen. ``The problem with bubbles breaking and going back to trend is that some do it quickly and some slowly,'' Grantham writes. He says the time spans of past bubbles he examined ranged from three minutes to 18 years. Matter of Time Thus, a simple strategy of staying away when bubbles threaten poses problems for many people who need to invest within a limited period of years -- before the children are ready for college or it's time to retire. Suppose you or I detected an incipient bubble in the stock market when price-earnings ratios climbed above 15 to one in the early 1990s, and jumped out of stocks. A dozen years later, we would still be waiting for a proper chance to buy back in, and we would have lost a big chunk of precious time. So what to do? Investors can heed Grantham's advice to ``lower risk and survive to fight another day.'' Those who don't agree with his assessment of the situation can still take his view into account by submitting their investments to a Grantham- style crash-test. How would the investment plan look, and how would the investor feel, if the stock holdings were marked down by 35 percent or 40 percent? Given one's age and circumstances, how much time would the plan have to try to recoup the losses? No bullish investor ought to shy away from such questions. At the very least, they help differentiate between reasoned optimism and reckless see-no-evil, hear-no-evil hope.

Subject: Portfolio Protection From: Terri To: Pete Weis Date Posted: Fri, Nov 05, 2004 at 11:46:41 (EST) Email Address: Not Provided Message: A useful way to gauge risk in a stock portfolio is to ask whether a 50% decline in value over 3 years is acceptable. After all, we had just such a decline between 2000 and 2003. If such a decline would be too severe, then add bonds. A 50% stock index and 50% bond index portfolio would have lost 25% in the value of stock holdings while making gains in bond holdings. So, the loss would be well less than 10% for the entire portfolio. Play with the numbers to get a satisfying possible risk level.

Subject: Bond funds & rising ...... From: Pete Weis To: Terri Date Posted: Fri, Nov 05, 2004 at 14:49:37 (EST) Email Address: Not Provided Message: interest rates. Bond funds did very well when interest rates were dropping 2000-2003, however Bill Gross does not expect bond funds to do well in the coming years with rising rates likely. Not sure you can expect the same investment climate from now going forward as we had in the 2000-2003 period.

Subject: Re: Bond funds & rising ...... From: Terri To: Pete Weis Date Posted: Fri, Nov 05, 2004 at 15:25:38 (EST) Email Address: Not Provided Message: Agreed. We can not expect as favorable a climate for bonds going forward, no matter the economy or stock market. The reason is bond yields have fallen so since 2000. Also, bond prices might fall along with stock prices for a while if the cause of a bear market happened to be a threat of rising consumer prices. Still, bond funds are a fine portfolio protection. A decline in bond prices is sure to be reversed quickly as a bear market takes hold, and an investor can choose the Intermediate Term Bond Index to be even safer than with the Long Term Bond Index.

Subject: A different time From: Pete Weis To: Terri Date Posted: Fri, Nov 05, 2004 at 21:20:28 (EST) Email Address: Not Provided Message: 'Still, bond funds are a fine portfolio protection. A decline in bond prices is sure to be reversed quickly as a bear market takes hold...' This time is not like 2000-2003. We can have a simultaneous bear bond market and stock market. While the stock market heads south, high energy prices and dollar shrinkage can lead to higher interest rates over an extended time which would be bad for bond funds. It probably would not be a linear downward trend but one in which their would be a lot of volatility in energy prices and dollar drops and rallies.

Subject: Re: Portfolio Protection From: Terri To: Terri Date Posted: Fri, Nov 05, 2004 at 11:51:44 (EST) Email Address: Not Provided Message: Actually over the last 5 years to October 31, the S&P Index Fund lost 2.3% a year, while the Long Term Bond Index Fund gained 10% a year. So, a nasty bear market in stocks would have been well weathered with a 50 50 portfolio. The gain would have been 7.7% a year. Nice!

Subject: A Dollar Adjustment From: Terri To: All Date Posted: Fri, Nov 05, 2004 at 03:59:08 (EST) Email Address: Not Provided Message: The dollar, in 1985, began a steep decline against European and Japanese currencies. The decline lasted to 1991 and came to about 40%. What should be noted is the absence of inflation brought by the decline in dollar value. The Federal Reserve was able to adjust interest rates to prevent inflation and keep a fair growth rate to the mild recession of 1990-1991. Neither the tax increases of the Reagan Administration nor the brief stock market crash in 1987 led to recession. Proper monetary and fiscal policy, if we have them, can control the growth of internal and external deficits and allow a benign curreny adjustment. The need is for proper economic policy; there is the worry.

Subject: Fed increasingly impotent From: Pete Weis To: Terri Date Posted: Fri, Nov 05, 2004 at 21:36:08 (EST) Email Address: Not Provided Message: 'As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is “measured.” This means that real interest rates will remain negative for a long period of time.' - Jim Puplava 'Financial Sense Online' The Fed can not save the dollar (by raising rates) with out sacrificing the stock and housing markets as well as what's left of the job market. But if they let the dollar 'crash' it's belly up for this economy anyway. We've been talking about the troubles with the dollar for months now and we are presently witnessing its steady, unrelenting shrinkage.

Subject: Decline of the Dollar From: Emma To: All Date Posted: Thurs, Nov 04, 2004 at 20:29:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/business/04place.html The Dollar's Long-Term Direction: Down By EDUARDO PORTER and ELIZABETH BECKER The election drove the dollar all over - down when it looked like President Bush would lose, up briefly when Senator Kerry conceded defeat. But ultimately, the dollar's fate never hinged on the outcome of the presidential election. Now that the dust has settled, the currency is back on its long-term path: downward. According to most economists, it is likely to stay there over the next four years. 'There is a certain inevitability to the decline,'' said Alan Blinder, an economist at Princeton University who served as vice chairman of the Federal Reserve and was an adviser to President Bill Clinton. 'I think the Treasury understands this. It would be nice if they would say so.' Managing this potentially painful move will be a pressing challenge for Mr. Bush's economic team. The nation's current account - the broad gap between the nation's exports and imports of goods and services - has reached a deficit of nearly $600 billion, almost 6 percent of the nation's overall economic activity. And it shows no signs of diminishing on its own. Closing this gaping hole will overshadow the administration's trade policy, coloring its push for better access to foreign markets for American products, and adding urgency to its attempts to make China and other Asian nations revalue their currencies against the dollar so that American industry can be more competitive. Today, the dollar is at the center of a delicate interlocking web of international financial imbalances. The United States imports much more than it exports. Asian countries - some of the biggest exporters - send the proceeds back into the United States by investing here, mostly in government bonds. That keeps interest rates low, fueling spending and leading Americans to import even more goods and services from the rest of the world. Both sides benefit from this arrangement. The Asian money allows Americans to spend beyond their means. At the same time, dollar purchases by Asian central banks depress the value of Asian currencies, stimulating their exports to the American market. An influential group of economists has argued that there is no reason that this imbalance cannot go on relatively undisturbed - if not forever, at least for a very long time. But most mainstream economists argue that, at a minimum, the unraveling of this web would send the dollar lower and squeeze American consumption. Kenneth Rogoff, a professor of economics at Harvard, said that to smoothly and significantly narrow the current account deficit requires a depreciation of at least 20 percent in the dollar, making it much more costly for Americans to buy imported goods and travel abroad. The imbalance is fueling a stupendous buildup of foreign debt in the United States. At the end of last year, the nation's net financial deficit - broadly, what Americans owe the rest of the world minus what the rest of the world owes to the United States - amounted to nearly 30 percent of total output. And both sides are digging themselves deeper into holes, with American debts mounting and foreigners acquiring ever greater piles of depreciating paper assets. Economists who speak of the current account deficit often quote the economist Herb Stein: 'If something cannot go on forever, it will stop.'' So what will it take for the brakes to be applied? Barry Eichengreen, a professor of economics at the University of California, Berkeley, argues that Asian policy makers are going to force a change. He contents that as they move away from their present export-led growth strategies, which require cheap currencies, to focus monetary policy on managing internal demand, Asian governments will support the dollar less, buy fewer Treasury bonds and shift some of their foreign reserves to other currencies, like euros. Indeed, China's decision to raise interest rates last week put upward pressure on the yuan and indicated a willingness to take market-based measures to cool its galloping economy. 'Asian policy is changing,' Mr. Eichengreen said. 'The end is growing increasingly near.'

Subject: Decline of the Dollar... From: Emma To: Emma Date Posted: Thurs, Nov 04, 2004 at 20:52:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/business/04place.html The situation, some suggested, is analogous to the problems faced by Ronald Reagan early in his second term, when the United States, despite robust growth, suffered from an expensive dollar, weak exports and big deficits. In 1986, the administration negotiated the Plaza Agreement with six other major industrial powers, helping pave the way to a manageable, if sometimes rocky, 40 percent decline in the value of the dollar. 'We have to do something similar to get the value of the dollar down and not wait for a market adjustment which could be more damaging to the economy,' said Robert E. Scott, of the liberal Economic Policy Institute in Washington. The strategy worked for Mr. Reagan because he also pushed through a couple of tax increases that helped narrow the budget gap. Economists are not very confident, however, that a second Bush administration would be prepared to do something similar. That could leave the economy vulnerable to a more painful adjustment, with the dollar falling rapidly and interest rates rising fast. The result would almost certainly lead to a recession and perhaps a collapse in the real estate market. 'There is a real possibility,'' Catherine Mann, an economist at the Institute for International Economics, wrote in a study earlier this year, 'that the entanglements created by this co-dependency cannot be undone by anything short of a global economic crisis.'

Subject: German Company and Workers From: Emma To: All Date Posted: Thurs, Nov 04, 2004 at 20:11:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/business/worldbusiness/04volkswagen.html Volkswagen Averts Strike by German Workers By MARK LANDLER FRANKFURT - Volkswagen averted the first full-scale strike in its history on Wednesday, offering its factory workers a seven-year job guarantee in return for a 28-month freeze in wages. The agreement, which came after a marathon bargaining session, achieves two equally important objectives for Volkswagen: it will reduce labor costs nearly one-third by 2011 and it will preserve labor harmony at a company that is a German industrial icon. Volkswagen's union, IG Metall, had staged warning strikes at several factories to press for a pay increase of 4 percent. But even as it threatened broader disruption, the union later gave up this demand - accepting a face-saving compromise that it must now try to sell to its members. In a largely symbolic gesture, Volkswagen will make a one-time payment of 1,000 euros to the 103,000 workers covered by the contract. The company also pledged to invest in six plants in western Germany, which workers fear are in danger of losing production to lower-cost factories in the Czech Republic, Slovakia and other Central European countries. 'We achieved our goal of securing jobs, not just for today but for the future,' Hartmut Meine, the chief negotiator of IG Metall, said to reporters in Hanover, where the talks were held. Volkswagen said the agreement freed it from a labor contract that provided higher pay rates than those at any other German carmaker and imposed rigid rules on overtime and the hiring of new employees. 'From now on, new employees will work on the same level as our competitors,' said Dirk Grosse-Leege, a spokesman for Volkswagen. 'We never asked as much from workers as in this round of negotiations.' Volkswagen's face-off with the union was closely watched here as a test of whether German auto workers - and VW employees in particular - could maintain their privileged position as the best-paid, best-treated workers in an increasingly competitive global industry. Other carmakers, including DaimlerChrysler and the Opel division of General Motors, have demanded concessions on wages and work rules, as they struggle to reduce labor costs. G.M. said recently it would reduce its European work force by 12,000 jobs, most of them in Germany. In the Volkswagen negotiations, however, Germany's long tradition of worker-management consensus prevailed over the union's protests and the company's not-so-veiled threats of job cuts. 'The fact that they did reach an agreement, given the complexity of the issues and the hardness of the positions, shows a remarkable ability to work together,' said Michael Fichter, an expert in labor relations at the Free University of Berlin. 'It is an example of the social partnership culture.'

Subject: Market Returns From: Terri To: All Date Posted: Thurs, Nov 04, 2004 at 16:27:30 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/03/04 S&P is up 4.2%, Value Index is up 7.7%, Growth Index is up 8.%. Small Cap Index is up 9.5%, and Small Value 13.1%. Europe Index is up 11.1%. Energy is up 29.8, REIT Index is 21.3, Health Care is 2.9%. Long Bond Funds are up 7.5%.

Subject: Re: Market Returns From: Terri To: Terri Date Posted: Thurs, Nov 04, 2004 at 17:32:05 (EST) Email Address: Not Provided Message: Obviously there is need for caution, so there is need for diversity. But if ever a year showed why patience is needed, this has been such a year. Also, Growth Index above was up 0.8%.

Subject: Reality eventually bites you in the ass From: Ayn Rant To: All Date Posted: Thurs, Nov 04, 2004 at 15:49:03 (EST) Email Address: Not Provided Message: Rather than engage in frantic recriminations over who 'lost' the election and how, I suggest taking a deep breath and studying the poling data carefully so as to be ready for the next opportunity. For come it will. That fluttering sound you hear is Mr. Bush's chickens coming home to roost. A multitude of disasters are waiting to happen. To start, the late Herbert Stein, an honest conservative economist (now an extinct species) noted that 'an unsustainable trend means that it will stop.' Budgetary policy has gone totally insane as anyone who follows the weekly columns posted here know. Sooner or later, something's gotta give. It doesn't matter whether the 'starve the beast' school of thought gets social spending savagely cut to medieval levels, or if one fine day the tipping point comes, and the worth of Treasury securities and the dollar drops practically overnight to the point where you can use them for toilet paper. The point is: DEMOCRATS MUST BE READY. They must be ready to grasp the baton in 2008 as surely and smoothly as FDR grasped it in March 1933 from the defeated and disgraced Herbert Hoover. Would-be brain trusts such as the Progressive Policy Institute and the Joint Center for Political and Economic Studies should develop contingency plans for economic catastrophes of the sort that are brewing. The old guard should give way to fresh faces such as John Edwards and Barack Obama. Mainstream Protestants and Roman Catholics who believe that children outside the womb deserve to live too (and not just in squalor either) should stand up and declare that letting a large and growing fraction of the population stew in poverty is not What Jesus Would Do. They should make no bones about charging that Bush and conservative Christians are 'immoral'--yes, that very word--that is, they are guilty of the starkest cruelty to the 'least of our brethren'. And they should point out at the same time that private charity, however meritorious it may be, will not even begin to make up the gap. And this doesn't even begin to cover the list. (10,000 casualties in Iraq, anybody?)

Subject: Re: Reality eventually bites you in the ass From: A Right Winger To: Ayn Rant Date Posted: Sat, Nov 06, 2004 at 00:58:55 (EST) Email Address: Not Provided Message: Sweet dreams!

Subject: Return of the late 90's? From: Pete Weis To: All Date Posted: Thurs, Nov 04, 2004 at 15:13:48 (EST) Email Address: Not Provided Message: Dow 40,000, Nasdaq 20,000 by 2009 Harry Dent predicts a 'New Millionaire Economy' By Paul B. Farrell, CBS.MarketWatch.com Last Update: 9:25 PM ET Nov. 2, 2004 ARROYO GRANDE, Calif. (CBS.MW) -- You want some optimism? Well folks, after a flatlining market and the brutal, negative election campaign we've been dragged through, America desperately needs some optimism. And here it is. Harry Dent's latest predictions: Dow 40,000, Nasdaq 20,000 by 2009. In many ways, the wars in Iraq and Afghanistan and the war on terror were no match for the divisive domestic 'war' for the American presidency. It's been absolute torture. So thank goodness for Dent's optimism. The guy's a breath of fresh air. In fact, Dent wins our annual Super-Optimist Award. He's the No. 1 cheerleader for America's stock market. You will love reading the predictions in his new book, 'The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2005-2009.' Actually Dent's more than a super-optimist, he's America's ultimate contrarian. So what if his archrival Robert Prechter is predicting a 100-year bear? So what if SmartMoney just reconfirmed the conventional wisdom of Buffett, Bogle and Gross, who are forecasting single-digit returns through 2009? So what if InvestmentNews is telling professional advisers that insider activity is so negative it's now the 'canary in the coal mine' signaling that 'it's time to sell stocks?' And so what if Dent's late-nineties books, like 'The Great Boom Ahead' and 'The Roaring 2000s,' were way off the mark and probably resulted in investors hanging on too long as the bear market wiped out $8 trillion of stock market value between 2000 and 2002. Even bigger than late 1990's boom! You gotta love his chutzpa: Now he says that correction was right on schedule and we are still on track for Dow 40,000 by 2009. Nothing gets in the way of his optimism: 'We are seeing another very strong bull market unfolding from the bottom' of the correction, and '2005 is going to be very strong.' Indeed, things are even 'better than the 1990's!' In a 1997 Mutual Funds magazine feature Dent was pitted against super-bear Prechter. Dent predicted 21,000 by 2008. A couple years later he predicted Dow 41,000 by 2008. Okay, maybe that seems a tad improbable, given 2004's flat market. But at least he isn't as over the top as Dan Kadlec's 1999 book, 'Dow 100,000,' which Kadlec said was reachable by 2020 with a mere 11.1 percent annual growth. Irrational exuberance or rational optimism? But fact or fantasy? You decide. As always, Dent's conclusions are based on some simple assumptions about demographic trends, his area of expertise. Fortunately, the guy's both entertaining as a futurist and analytically overloaded with tons of demographic, economic, monetary and market numbers. This time his forecasts boil down to five major trends propelling America from 2005 to 2009: The third and final bubble of a bull that started in the early 1980s. We're about to see the 'greatest bull market and technology bubble of the last two centuries.' The technology revolution regenerated: 'We are on the brink of the tech revolution's second phase, as new technologies move fully into the mainstream and a new generation hits the peak of its spending and productivity cycle.' The 'decade hangover cycle:' Corporations are just now wrapping up the consolidation phase following the late '90s bubble that lead to the 2000-2002 correction. America is now ripe for a 'rapid emergence of new technologies' that will drive a new phase of economic boom. The 80-year technology cycle. Dent is also predicting a rapid assimilation of new technologies similar to the 1920s. A new phase of the 1990s technology revolution will continue spreading low-cost versions to the masses. Baby boomers move into high gear. Dent expects the 'incredible earning, spending and productivity cycle of the massive baby boom generation' to continue driving the whole world as the 'unprecedented economic boom of the past 25 years' races to a frenzied peak in 2009 ... before another bust. These five trends will drive the boom to Dow 40,000 by 2009, creating what Dent calls 'The New Millionaire Economy,' a time of such great prosperity you can expect a 50 percent increase in the number of American millionaires. How's that for optimism and opportunity, my fellow Americans! Play the market to win ... then get out What's your best strategy? How do you play to win? For savvy, active investors he's got some aggressive market-timing strategies. But you really don't have to play market-timing games that'll increase your risks. Instead, Dent tells investors to make their bets based on a familiar 1990s kind of market assumption ... that a rising tide lifts all boats. His core strategy is a basic asset-allocation strategy, nothing really extraordinary: Just stick with a well-diversified, buy-and-hold portfolio for the long-term, one that'll float you up as the market rises to Dow 40,000, perhaps even putting you among all the 'New Millionaires' that he sees coming by 2009. Fortunately his strategy also protects you if his optimistic predictions don't play out and the market continues flatlining, or worse yet, does a Prechter flip-flop and crashes. Whatever you do, remember Dent's a macroeconomist, a mega-demographer and an optimistic futurist. Guy's like him get paid to see the world through rose-colored glasses. They thrive on broad sweeping long-term projections, forecasts and predictions. You an optimist, pessimist, or flatliner? And even with all his warts, Dent's vision of the market is most welcome after this insane, destructive election war. I applaud his optimism. But, irrational exuberance aside, how serious should we take Dent's predictions of a Dow 40,000 by 2009? Or do you put more faith in Prechter's 100-year bear market prediction, with the Dow dropping below 1000? See previous Paul B. Farrell. Which are you: A Harry Dent-optimist, or a Bob Prechter-pessimist? Or maybe something in between, a market flat-liner? What do you think?

Subject: Re: Return of the late 90's? From: Terri To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 20:01:58 (EST) Email Address: Not Provided Message: Of course this is idiocy, but that does not mean we should avoid investing. The question as always is how to structure a portfolio to take account of the nice gains we are currently making while cushioning against possible sharp market declines. That was why I opted for Value and Europe Indexing this difficult year, and stayed with bond funds.

Subject: 100% Pure Snake Oil From: Ayn Rant To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 15:42:38 (EST) Email Address: Not Provided Message:

Subject: Progress without the Federal Government (revised) From: Bobby To: All Date Posted: Thurs, Nov 04, 2004 at 14:57:28 (EST) Email Address: robert@pkarchive.org Message: I am trying to think of ways in which states may be able to make social progress without relying on the federal government of George W. Bush. Bush's government will end substantial parts of the welfare state and prevent enaction of necessary new programs, like port security. The following is a plan to create a kind of 'shadow federal government' by the cooperation of willing states. The purpose is to give those states a mechanism by which to create programs that substitute for those lost under George W. Bush, to supplement those made deficient by George W. Bush, and to create new programs which Bush refuses to enact. This plan is very rough. I also have a question about whether it is constitutional: General Summary of Plan: Imagine that some state wants to create some government program at the state level (We'll call this state the 'donor state' for reasons you see later). The federal government itself won't do that program nationwide because it is already running huge deficits and ready to largely cut existing programs to the bone in Bush's 2nd term. This 'donor state' that wants to create the program at the state level is unwilling to raise the necessary state taxes needed to to fund it, because people and businesses seeking to avoid extra taxation will move out to neighboring states, thereby partially frustrating the effort to raise revenue. The solution to this is that the donor state agrees with neighboring states to raise taxes by the same amount (We'll call these neighboring states 'recipient states' for reasons we'll see in a moment). Since these neighboring 'recipient states' *and* the donor state all raise their taxes by the same amount, there are fewer attractive lower-tax places for people and businesses to go, so fewer people and businesses move out of the donor state under this higher taxation. This donor state can entice other 'recipient states' to cooperate and raise their taxes by creating a revenue-sharing consortium, under which these 'recipient states' get back more revenue than they put in. This consortium is effectively a mechanism by which states make side payments to others in order to get cooperation. Plan in More detail: All these states form a consortium, in which they all levy a certain extra tax, say, equal to x% of income (I'm doing a flat % here, but this can be done with marginal rates too). These member states set their own state income taxes independently. But this separate x% tax on income must be uniform across states that are members of the consortium. Therefore when people pay taxes at the state level, they pay their regular state income taxes plus the extra x% of their income for this extra tax. Then the revenues from this x% income tax are pooled from the different member states and redistributed according to some pre-negotiated distribution formula among the member states. This distribution formula is negotiated between all the member states of the consortium. But, the formula must include the following two aspects to work: 1. The donor state (which is the one that originally wanted to create the program at the state level) gets back less than it contributes to the revenue pool, according to the distribution formula. This is the cost of the consortium to the donor state. The benefit they get from the consortium is fewer residents and businesses moving out of state due to higher taxes. Therefore, the donor state uses the revenue they get back from the revenue pool to fund the government program they wanted. 2. The other states (that is, the recipient states, which are the other members of the consortium) agree to join the consortium and raise their taxes by the same amount as the donor state. Their incentive to join the consortium and raise their taxes is that, under the distribution formula, they receive more from the revenue pool than they put in. Without this incentive, there would be no reason for another state to raise his taxes to the same level of the donor state. Depending on the rules of the consortium, recipient states can use this revenue from the revenue pool to pay for either the same government program that the donor state is implementing, a different specified government program, or they can use the revenue however they want at their discretion. Finally, the rule is that, if a state lowers its x% tax below some threshold amount, it gets kicked out of the consortium for some temporary period and must pay some penalty money to other states. This is the mechanism by which it is enforced that the x% tax rate is the same across member states. This idea is very flexible in its implementation. It can be modified to include several donor states and any number recipient states. It can also be applied to many different policies. It also leaves open the possibility of coordinating programs across the member states or having the states run their own programs individually. For example, if the federal government were to abolish or somehow destroy Social Security, these states could create a (partial) substitute for it by forming a consortium, pooling revenues, and then redistributing money from the revenue pool to the retired residents of member states according to some distribution formula. Specifically, I would like to see New York enter a consortium with neighbors, in order to get far better port security, which I am sure that Bush will ignore in the next few years. Environmentally conscious states can also enter consortiums where they all levy the same gasoline tax or environmental regulations, and they entice other states to join by making side payments to them (either through the revenue pool in the case of the gas tax or some other mechanism in the case of regulations). This obviously doesn't work too well for things like global warming. I'll add some qualifiers here. Whether the consortium works and the optimal design of it depends on various empirical relationships and sensitivities between variables. For example, the sensitivity to taxation of people moving out of state might be very small. That is, if people moving out of state is very insensitive to taxation, it may be beneficial for the donor state to run the program by itself instead of starting a consortium. Also, you might need to create a very large consortium in order to decrease significantly the number of businesses and people who move out of state under higher taxes.

Subject: Freedom? From: johnny5 To: Bobby Date Posted: Fri, Nov 05, 2004 at 14:07:03 (EST) Email Address: johnny5@yahoo.com Message: I think if you read the founding fathers ideas - some did not want what you propose - some always wanted to allow for the individual to escape his oppression if that individual felt the negatives outweighed the positives. Basically cut the dead weight and move somewhere else and be free - but those were very different times back then - you could flee and the EYE of the state could only peer so far - but now the world is a much smaller place and to pull off what the founding fathers did would probably be an impossibility today. If I grow terribly weary of funding your programs that I do not support or see benefit in, I want the freedom to get away - not be controlled by a disconnected head.

Subject: Re: Freedom? From: Bobby To: johnny5 Date Posted: Fri, Nov 05, 2004 at 19:31:32 (EST) Email Address: robert@pkarchive.org Message: It's really a question of what you are comparing a government program done under this plan to. Compared to the federal government doing the government program, there is more freedom under this idea since you can always move to state outside the consortium, whereas in order to escape a federal government program you must (usually) move out of the country altogether. In the sense that this idea gives all states more freedom to expand government with less fear of losing residents and businesses, this plan makes government *at the state level* more pervasive throughout the country than without the plan. The real question for a conservative who doesn't like government is this: In the future will the type of government intervention I don't like expand most rapidly at the federal level or state level? If the former is the answer, then conservatives should welcome this plan, since the programs created under the consortiums substitute for some of that federal government expansion. A federal plan usually applies in every state. Under this consortium plan, conservative are at least afforded the opportunity to move to a state without a consortium and hence without the program. If your answer is the latter, this plan obviously reenforces state government expansion, so you'd presumably be against it.

Subject: Re: Freedom? From: johnny5 To: Bobby Date Posted: Fri, Nov 05, 2004 at 19:44:48 (EST) Email Address: johnny5@yahoo.com Message: Actually I tried to go to Canada recently to escape the US gubbment and their laws and was told I couldn't enter.

Subject: Science and Health Initiative From: Emma To: Bobby Date Posted: Thurs, Nov 04, 2004 at 15:37:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/technology/04cell.html Measure Passed, California Weighs Its Future as a Stem Cell Epicenter By ANDREW POLLACK LOS ANGELES - Tuesday's vote by Californians to spend $3 billion on human embryonic stem cell research could speed progress on the promising but controversial field and make the state the epicenter of such research. 'This is going to be the stem cell center of the world, not just the country,' said Evan Snyder, director of the program in stem cell biology at the Burnham Institute in San Diego. The ballot measure, Proposition 71, will prompt the establishment of a California Institute for Regenerative Medicine, which will become the largest single backer of research in stem cells - a field that scientists hope might eventually be used to create new brain cells for patients with Parkinson's disease, or insulin-producing cells for diabetics, or treatments for numerous other diseases. The $300 million the institute plans to dispense in each of the next 10 years, generated by the sale of bonds, would dwarf the $25 million spent last year by the main backer of medical research, the National Institutes of Health, on research involving stem cells derived from human embryos. It would easily exceed the $190 million spent by the N.I.H. last year on human stem cells derived from adult tissue, which are not controversial. Indeed, the California initiative was largely an effort to sidestep restrictions on federal financing of human embryonic stem cell research imposed by the Bush administration, which objects to the destruction of human embryos that is necessary in harvesting the stem cells. The California initiative will become even more important to the field now that President Bush has defeated John Kerry, who had pledged to end the restrictions on the research and to increase federal financing for it. The backers of Proposition 71, which included Gov. Arnold Schwarzenegger, a Republican, appealed to voters mainly on the emotional argument that embryonic stem cells, which can potentially turn into any type of tissue in the body, might eventually be used for life-saving treatments. To counteract critics who said the state could not afford the measure, the backers also argued that Proposition 71 would make California the leader in what could ultimately be a huge new industry, one that could create jobs and bring the state hundreds of millions of dollars in patent royalties. Viewed that way, the initiative is the largest effort by a state to bolster its bioscience industry, said Walter Plosila, a vice president at Battelle, a nonprofit research institute, who has studied such state efforts. It exceeds the $2 billion of tobacco litigation settlement money that Pennsylvania has pledged to spend over 20 years on life sciences, he said. Stem cell scientists in California were almost giddy Wednesday with anticipation that talented young scientists and enterprising companies would move here.

Subject: Who Pays Who Gets From: Ari To: Emma Date Posted: Thurs, Nov 04, 2004 at 19:44:59 (EST) Email Address: Not Provided Message: Remember how much more in government revenue the red states get than the taxes they pay. The blue states pay more than they get back, the red states get the excess and the red states mock govermnment spending.

Subject: Re: Who Pays Who Gets From: Bobby To: Ari Date Posted: Thurs, Nov 04, 2004 at 20:37:51 (EST) Email Address: robert@pkarchive.org Message: Under the plan I just described, which state is a net recipient and which one is a net donor and the amount they get from the revenue pool is determined by negotiation between states. Often the amount of net receipt from the revenue pool (and hence net donation from donor states into the revenue pool) required to get another another state (recipient state) to agree to enter the consortium will be so large that it is better not to let that recipient state into the consortium. Therefore, if red states require more net receipts from the revenue pool, blue states likely won't enter into a consortium with them.

Subject: Re: Who Pays Who Gets From: Emma To: Bobby Date Posted: Thurs, Nov 04, 2004 at 20:54:24 (EST) Email Address: Not Provided Message: Bobby, This is really clever...

Subject: Wall Street's Guy From: Emma To: All Date Posted: Thurs, Nov 04, 2004 at 14:09:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/business/04bizreact.html? WALL STREET For Corporations, Their Kind of Guy For Wall Street firms, a second Bush term represents a lush dividend on the millions that their chief executives began raising for the president in the early days of his first term. Led by Morgan Stanley and Merrill Lynch, executives on the Street embraced the supply-side policies of President Bush - underscored by sweeping cuts in capital gains and dividend taxes - that brought the most pro-Wall Street moves since Ronald Reagan began cutting taxes in 1981. Expectations are rife that the president's economic platform will be even better for business in his second term as he pushes for such initiatives as private Social Security accounts and continued emphasis on lower taxes. 'Sure there is a quid pro quo,' said Mallory Factor, a merchant banker and fund-raiser for the president. 'It's a pro-growth economy, lower taxes and less regulation. The market's reaction speaks for itself.' Wall Street's full-throated support for President Bush comes despite a certain coolness that the president has had for the Street. He is the first Republican president since Dwight D. Eisenhower not to have a Treasury secretary with a Wall Street pedigree, and in public speeches he has been quick to blame the excesses of the stock market boom and bust for the mini-recession he inherited in his first term. Wall Street has remained a vigorous backer all the same. Four out of the top contributors to the president's campaign hail from Wall Street - Morgan Stanley, Merrill Lynch, UBS and Goldman raised close to $2 million among them. But analysts warn that Mr. Bush's market-friendly tax policies will do little to lift Wall Street profits if fears of a growing budget deficit result in a sustained rise in interest rates. That, in turn, could result in lower earnings for Wall Street firms as the long bull market in bonds finally recedes. Wall Street firms have made billions in trading bonds since the collapse of the stock market in 2001. For the time being, though, Wall Street firms are mostly applauding a second term; they expect that the temporary cuts in the capital gains and dividend taxes of Mr. Bush's first term will now be made permanent. Analysts also foresee merger and acquisition activity to be more robust under Mr. Bush than it would have been under John Kerry, given the Bush administration's tendency not to interfere with large corporate mergers. 'There is a relief that this is over,' said Frank Fernandez, the chief economist for the Securities Industry Association, the industry lobby. 'This administration has a good track record on pro-investment policies. We know where they stand.' -- LANDON THOMAS JR.

Subject: Indian Outsourcing From: Emma To: All Date Posted: Thurs, Nov 04, 2004 at 13:30:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/04/business/worldbusiness/04outsource.html An Industry in India Cheers Bush's Victory By SARITHA RAI BANGALORE, India - India's outsourcing companies were jubilant Wednesday that the elections in the United States will return President Bush to office. 'This is great news for the offshoring industry,' said Nandan M. Nilekani, chief executive of Infosys Technologies, a software services company. The trend toward outsourcing will now become even more inexorable, Mr. Nilekani said. Offshore outsourcing, or the moving of work from the United States to low-cost centers like India, was an issue in the presidential election. The Democratic candidate, Senator John Kerry, blamed Mr. Bush and outsourcing for the loss of thousands of American jobs. Mr. Bush, in contrast, was largely silent on the issue. But members of his team, among them N. Gregory Mankiw, the chief economic adviser, and Treasury Secretary John W. Snow, have both defended outsourcing as another form of free trade. Mr. Kerry referred to ''Benedict Arnold companies and C.E.O.'s'' that sent jobs overseas. He promised that as president he would end tax deferrals for companies that send work abroad. The tone of some campaign comments criticizing outsourcing was noted with some concern in India. The Times of India, the country's leading newspaper, called outsourcing the 'swear word' of the 2004 elections. Thousands of workers in India's technology centers like Bangalore and Hyderabad closely followed the campaign. India's outsourcing industry employs over 800,000. For more than a decade now, leading Indian outsourcing companies like Infosys Technologies and Wipro have written software applications and done back-office work for top American corporations including General Electric and Citigroup. The work can be done more cheaply here, where skilled labor is inexpensive and plentiful. The leading outsourcing companies earn as much as two-thirds of their revenue from customers from the United States. India's software and back-office services industry posted $12.5 billion in export revenues in the year ended in March, a 30 percent rise over the previous year as global demand for its services grew. News that Mr. Kerry had conceded the election to Mr. Bush was greeted with joy in the industry. 'We are very happy that Bush is back,' said Kiran S. Karnik, president of the industry group Nasscom, or National Association of Software and Service Companies. 'The president's track record has been of recognizing the advantages of free trade,' Mr. Karnik said. Mr. Bush's re-election will bring out the latent demand for outsourcing and lead to more offshoring announcements by companies, he said. 'Some corporations have been cautious about signing or announcing deals in the last few months,' he said, adding, 'Now they will no longer hold back.'

Subject: 4 MORE YEARS!!!! From: Fabulous To: All Date Posted: Thurs, Nov 04, 2004 at 13:22:12 (EST) Email Address: Not Provided Message: Right man at the right time for the right reasons. Go W! God Bless America.

Subject: India:120bn in forex reserves From: Joel To: All Date Posted: Thurs, Nov 04, 2004 at 13:10:55 (EST) Email Address: Not Provided Message: A question: Should India use some of its forex reserves for infrastructure and social needs or will it cause financial instability? --- --- --- --- --- --- --- --- --- --- --- --- --- - Who Owns the Key to India's $120 Billion Kitty?: By Andy Mukherjee Nov. 2 (Bloomberg) -- There is a debate raging in India about who should control the nation's foreign-currency reserves. Should it continue to be the central bank, which has formal ownership of the $120 billion kitty, or should the elected government decide the fate of the nation's savings parked in U.S. Treasuries and other overseas securities? The question isn't merely technical. If the Indian government succeeds in pushing its innovative - - and controversial -- plan to spend a part of the money on new roads, ports and power stations, then the central bank may lose control of the reserves. And that, according to the bank's own analysis, could mean trouble. ``The fact that international financial markets react asymmetrically to the same magnitude of growth in foreign-exchange reserves (positively) and the depletion in reserves (very negatively) cannot be lost sight of,'' the Reserve Bank of India said in its twice-yearly policy statement last week. Conversely, if the central bank succeeds in retaining control over the use of reserves, then that will raise its own set of questions about how independent any monetary authority can -- and should -- be in a democracy. The government isn't backing down. Vicious Cycle ``Let us explain to parliament that we have a lot of reserves,'' Montek Singh Ahluwalia, the deputy chairman of Planning Commission, the government's central planning agency, said in a speech in New Delhi on Friday. ``If parliament agrees to expand the fiscal deficit beyond the target, and the government assures the additional money goes into a specific mechanism which identifies high-priority infrastructure projects, it will be good for the country,'' Singh said. The commission's recommendation to the finance ministry is for using $5 billion of the central bank's reserves annually for the next three years as extra investments in infrastructure, Ahluwalia explained. That's as much additional investment in a year as India gets annually from all foreign-direct investors. For the $580 billion Indian economy, it's vital to find a way out of the vicious cycle of under-investment. Foreign investors are hesitant to build large, Chinese-style, export-oriented factories in India until the country can improve its rickety infrastructure. India's federal and provincial governments, which badly want foreign investments to create jobs and sustain last year's 8 percent economic growth, run a combined budget deficit equal to 10 percent of gross domestic product. They don't have the money to maintain existing infrastructure, let alone invest in new projects. Reasonable or Risky? ``Our requirements of capital in infrastructure are very large,'' Prime Minister Manmohan Singh said last month. ``We believe the Indian economy can absorb up to $150 billion of foreign investment in the infrastructure sector over the next ten years,'' he said. Using reserves is a tempting shortcut for the government. ``I think this is the reasonable way to using reserves to generate assets,'' Ahluwalia said, ``without having adverse consequential effects on the fiscal deficit.'' Economist Ila Patnaik, writing in the Indian Express newspaper, says the Reserve Bank has twice as much money trapped in low-yielding foreign reserves as required under the most stringent prudential yardstick. Still, she says the plan to use the reserves is flawed, and will result in ``sub-optimal allocation of resources.'' Stronger Rupee Patnaik's concern is valid. In an economy where state interventions typically range from the ineffective to the disastrous, what's the guarantee that a new agency entrusted with a part of the reserves will spend billions of dollars wisely? Isn't it better to leave that money in private hands by not accumulating any more reserves in the first place? ``It would be a much better policy to let the currency appreciate and free up the resources for much more efficient domestic investment,'' Thomas Stolper, a global markets economist at Goldman Sachs Group, Inc. in London, wrote in a research note on Oct. 21. ``Recycling foreign-exchange reserves is a high-risk strategy with unpredictable consequences.'' Having spent 11 years protecting the country's export competitiveness, the central bank may not be ready yet to let the rupee appreciate significantly from its current level of 45.41 against the U.S. dollar. It wants more evidence to decide if the 83 percent rise in the capital-account surplus in the last fiscal year to $22 billion was a flash in the pan, or a new trend. Pressing Need ``The recent episode of large capital flows prompted a debate in the media on the need for exchange-rate adjustment,'' the Reserve Bank said in its Oct. 26 monetary policy. ``In a scenario of uncertainty facing the authorities on determining the temporary or permanent nature of inflows, it is prudent to presume that such flows are temporary till such time that they are firmly established to be of a permanent nature.'' It may take years to ascertain the true nature of capital flows -- the sum of direct and financial investments from overseas, including borrowings. However, for India to close its development gap with China, it can't put off improvements in infrastructure any longer. The $1.4 trillion Chinese economy received $49 billion in foreign-direct investment in the first nine months of this year. Currency reserves can play a role, because they are the low- hanging fruit. If Ahluwalia can come up with a transparent way to use that money, it may be a gamble worth taking. quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_mukherjee&sid=aLudw6JaJv4g

Subject: Re: India:120bn in forex reserves From: Emma To: Joel Date Posted: Thurs, Nov 04, 2004 at 13:34:17 (EST) Email Address: Not Provided Message: India is in particular need of infrastructure development. Using foreign exchange reserves to support such development, is an excellent idea. Why should there be financial instability after such a sound use of reserves?

Subject: Going after social security From: Pete Weis To: All Date Posted: Thurs, Nov 04, 2004 at 10:14:15 (EST) Email Address: Not Provided Message: What do you do if your tax base is getting smaller and you view social security as a budget problem rather than a safety net for millions of Americans in a time when 401k's have lost trillions and pension plans are being threatened? You privatize it. This should provide jobs for the execs resigning at Freddie Mac and Fannie Mae. From the LA Times: TAXES AND SOCIAL SECURITY Bush Hints at More Aggressive Approach to Economy Privatization, savings accounts for retirement are part of his agenda of an 'ownership society.' By Peter G. Gosselin Times Staff Writer November 4, 2004 WASHINGTON — President Bush is poised to pursue an aggressive 'ownership society' agenda of Social Security privatization, new tax breaks for savings and investment, and additional incentives for home- ownership as cornerstones of his second-term economic initiatives. Bush hinted as much in his victory speech Wednesday, promising, 'We will reform our outmoded tax code. We will strengthen Social Security for the next generation.' His conservative supporters, meanwhile, rhapsodized about prospects for new tax and budget legislation that they asserted could remake the nation and usher in a generation of GOP dominance. 'The aim of the ownership society is to create a country of stakeholders in the American economy,' said Stephen Moore, president of the Club for Growth, a conservative activist group. Bush is expected to start rolling out his proposals early next year, with his State of the Union address and budget proposal. Veterans of Washington's tax and budget wars expressed doubts about how far the newly reelected president can press his case in the face of widening budget deficits and looming additional costs for, among other things, the war in Iraq. But even they acknowledged that Bush was all but certain to call for substantial changes in Social Security as well as for making the tax cuts of his first term permanent and adding a variety of new breaks. 'New legislation has become almost mandatory in Washington,' said C. Eugene Steuerle, a senior Treasury official in the Reagan administration. 'The president is no longer just the nation's administrator in chief; he's the policymaker in chief.' Bush has talked about recasting Social Security to permit workers to divert a portion of their payroll taxes into private retirement accounts since first appearing on the national stage in the late 1990s. But he has shied away from advancing a specific proposal in part because of the daunting financial issues involved in changing the giant retirement security system. Also, almost any privatization plan is likely to produce howls of protest among Democrats. More generally, the president has engaged in an intricate political minuet with the ownership society agenda pressed upon him by conservative supporters. Two years ago, he included key elements of the agenda in his budget when he proposed streamlining the hodgepodge of tax incentives for savings into two tax break-heavy arrangements — a retirement savings account, or RSA, and a lifetime savings account, or LSA. But then he let the proposals die on Capitol Hill in favor of cutting the tax on corporate dividends. During the last year, he has repeatedly mentioned the ownership society in campaign speeches, but always without potentially controversial details. 'In an ownership society,' he told Republicans at their national convention in September, 'more people will own their health plans, and have the confidence of owning a piece of their retirement.' Lifetime savings accounts would allow Americans to accumulate tax-free funds for almost any purpose, including job training, college tuition, home purchases and retirement. Retirement savings accounts would consolidate and expand existing types of retirement accounts. Bush is also expected to push for wider use of health savings accounts, tax-advantaged savings vehicles created by last year's new Medicare law. They encourage people to save for their own routine health costs. On Social Security, the president endorsed the idea of 'allowing younger workers to save some of their taxes in a personal account — a nest egg you can call your own and the government can never take away.' But, again, he gave no indication of how he would make such a plan work. All of this is about to change, according to conservative activists close to the administration. 'Bush will want to do one big thing: Social Security reform. That's the big bang,' predicted Grover Norquist, president of the conservative Americans for Tax Reform. Bush chief political strategist Karl Rove 'has promised that Social Security will be high on the president's second-term agenda,' added William Niskanen, chairman of the libertarian Cato Institute. Critics charge that creating private accounts would undermine support for Social Security by confusing what is intended as insurance against destitution in old age with an investment. They say that privatization proposals mask the fact Americans, in agreeing to the accounts, would be taking on risks now borne by the government. In addition, the critics say, although one of privatization proponents' chief arguments for overhauling Social Security is that the system is slated to run out of money, the solution of diverting money into private accounts would only make its finances shakier. Analysts estimate that funding the new accounts for young workers while paying benefits for those now eligible to receive Social Security could require the government to borrow trillions of dollars. The government is expected to run $2.3 trillion in deficits over the next decade, according to the nonpartisan Congressional Budget Office. Proponents counter that the borrowing would only be temporary and would eventually result in the government having fewer payments to make while individuals would get to keep more of their own money. In addition to changes in Social Security, Bush is likely to press to make permanent the tax cuts that he won in his first term. The dividend and capital gains tax cuts are scheduled to expire in 2009 and the bulk of the individual cuts in 2011. The president is also expected to call for the elimination of the inheritance tax and may propose some new incentives for homeownership. But advocates predicted that Bush would push for these in piecemeal fashion. 'Tax reform will come in seven little tax cuts,' Norquist said. 'The reason is not that people don't like the idea of fundamental tax reform. It's that people don't trust you to make 27 changes to the tax code and not leave you with the fuzzy end of the lollipop.'

Subject: Re: Going after social security From: Emma To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 11:31:40 (EST) Email Address: Not Provided Message: We built a prosperous middle class American society from the Roosevelt Administration. Institutions such as Social Security and the GI Bills and Medicare supported and insured this middle class society. Arch conservatives have wished to undo the legacy of the New Deal, and they find the chance now.

Subject: He looks French From: Yann To: All Date Posted: Thurs, Nov 04, 2004 at 07:17:20 (EST) Email Address: Not Provided Message: I've just learnt that one of the Republican slogans against Kerry was: “He looks French.” I'm sorry if this poor slogan has been an argument for some undecided voters. In my opinion, Bush's victory lies (in part) in the success of exhibitionist religiousness(-ity), an unbelievable success in France. We know here how pernicious can be the cabal of hypocrites (“cabale des dévots”), these schemers who lean on religion. Our history teaches us. Only a hypocrite who is a “good Christian” and a champion of freedom could create the Guantanamo prison camp.

Subject: Progress without the Federal government? From: Bobby To: All Date Posted: Thurs, Nov 04, 2004 at 04:23:13 (EST) Email Address: robert@pkarchive.org Message: I am trying to think of ways in which states may be able to make social progress without relying on the federal government of George W. Bush, which may end substantial parts of the welfare state and prevent enaction of necessary new programs, like port security. The following is very rough. I also have a question about whether the following is constitutional: General Summary of Plan: Imagine that some state (we'll call it the 'donor state' for reasons you see later) wants to create some government program at the state level. The federal government itself won't do that program nationwide because it is already running huge deficits and ready to largely cut existing programs to the bone in Bush's 2nd term. This 'donor state' that wants to create the program at the state level is unwilling to raise the necessary state taxes needed to to fund it, because people and businesses seeking to avoid extra taxation will move out to neighboring states, thereby partially frustrating the effort to raise revenue. The solution to this is that the donor state agrees with neighboring states (we'll call them "recipient states" for reasons we'll see in a moment) to raise taxes by the same amount. Since these neighboring "recipient states" *and* the donor state all raise their taxes by the same amount, there are fewer attractive lower-tax places for people and businesses to go, so fewer people and businesses move out of the donor state under this higher taxation. This donor state can entice other "recipient states" to cooperate and raise their taxes by creating a revenue-sharing consortium, under which these "recipient states" get back more revenue than they put in. This consortium is effectively a mechanism by which states make side payments to others in order to get cooperation. Plan in More detail: All these states form a consortium, in which they all levy a certain extra tax, say, equal to x% of income (I'm doing a flat % here, but this can be done with marginal rates too). These member states set their own state income taxes independently. But this separate x% tax on income must be uniform across states that are members of the consortium. Therefore when people pay taxes at the state level, they pay their regular state income taxes plus the extra x% of their income for this extra tax. Then the revenues from this x% income tax are pooled from the different member states and redistributed according to some pre-negotiated distribution formula among the member states. This distribution formula is negotiated between all the member states of the consortium. But, the formula must include the following two aspects to work: 1. The donor state (which is the one that originally wanted to create the program at the state level) gets back less than it contributes to the revenue pool, according to the distribution formula. This is the cost of the consortium to the donor state. The benefit they get from the consortium is fewer residents and businesses moving out of state due to higher taxes. Therefore, the donor state uses the revenue they get back from the revenue pool to fund the government program they wanted. 2. The other states (that is, the recipient states, which are the other members of the consortium) agree to join the consortium and raise their taxes by the same amount as the donor state. Their incentive to join the consortium and raise their taxes is that, under the distribution formula, they receive more from the revenue pool than they put in. Without this incentive, there would be no reason for another state to raise his taxes to the same level of the donor state. Depending on the rules of the consortium, recipient states can use this revenue from the revenue pool to pay for either the same government program that the donor state is implementing, a different specified government program, or they can use the revenue however they want at their discretion. Finally, the rule is that, if a state lowers its x% tax below some threshold amount, it gets kicked out of the consortium for some temporary period and must pay some penalty money to other states. This is the mechanism by which it is enforced that the x% tax rate is the same across member states. This idea is very flexible in its implementation. It can be modified to include several donor states and any number recipient states. It can also be applied to many different policies. It also leaves open the possibility of coordinating programs across the member states or having the states run their own programs individually. For example, if the federal government were to abolish or somehow destroy Social Security, these states could create a (partial) substitute for it by forming a consortium, pooling revenues, and then redistributing money from the revenue pool to the retired residents of member states according to some distribution formula. Specifically, I would like to see New York enter a consortium with neighbors, in order to get far better port security, which I am sure that Bush will ignore in the next few years. Environmentally conscious states can also enter consortiums where they all levy the same gasoline tax or environmental regulations, and they entice other states to join by making side payments to them (either through the revenue pool in the case of the gas tax or some other mechanism in the case of regulations). This obviously doesn't work too well for things like global warming. I'll add some qualifiers here. The exact design of the consortium depends on various empirical relationships and sensitivities between variables. For example, the sensitivity to taxation of people moving out of state might be very small. That is, if people moving out of state is very insensitive to taxation, it may be beneficial for the donor state to run the program by itself instead of starting a consortium. Also, you might need to create a very large consortium in order to decrease significantly the number of businesses and people who move out of state under higher taxes.

Subject: Re: Progress without the Federal government? From: Terri To: Bobby Date Posted: Thurs, Nov 04, 2004 at 05:53:47 (EST) Email Address: Not Provided Message: Excitingly creative.

Subject: Rant on Troubling 'Values' in Parts of America From: Bobby To: All Date Posted: Wed, Nov 03, 2004 at 23:31:55 (EST) Email Address: robert@pkarchive.org Message: If this business about 'values' causing our 2004 defeat is true, it appears that a large group of people in this country decided to vote based on things that they see on TV, which don't affect their own lives and which are none of their business. The economy surely affects everyone's lives, healthcare surely affects almost everyone's lives, the Iraq War affects many people's lives since their children or friends' children are dying or being mamed in Iraq and are in danger of being drafted. Terrorism affect the lives of those living in or visiting a large city. But 'values' (or 'moral values' as TNR now says) appears to have topped these in importance and brought John Kerry to defeat in 2004. When people talk about voting on 'values' they mean gay marriage, abortion rights (including stem cell research), and some phony image of the president 'having strong faith' religiously. A president 'having strong faith' has zero effect on people's lives, since they will never meet or know the man. The image of Bush as 'having strong faith' is pure phony advertising created by Bush's consultants and promoted dutifully by the so-called liberal media. Moreover, the coverage is not only superficial but contains such glaring omissions of central facts that any judgment of Bush's faith based on media coverage deserves zero confidence of accuracy. For example, most of those who trust in Bush's 'faith' don't know that Bush never even goes to church as TNR showed last month. People who oppose gay marriage so strongly as to make it a top priority in voting rarely, in their own lives, knowingly come into contact with gays, since few gay people would reveal that they are gay to a biggot. More importantly, gay marriage does not affect the lives or marriages of heterosexuals at all. Embryos in stem cell research are extras left over from in-vitro fertilization, which would be thrown out anyway, and are donated voluntarily by the couple that produced them. Those opposing abortions so strongly as to make it a top priority in voting don't knowingly come into contact with people who are thinking of or having abortions, unless they are protesting and harassing people outside an abortion clinic. Basically, these people are voting based on things that they only see on TV, which they think are scary and are none of their business. They are voting to interfere in things that do not affect their own lives, but they feel that their own superior 'values' give them to the right to interfere with other people's lives. Of course abortion and gay marriage are hyped and used to scare people constantly by TV news media and religious rightwing television. My trouble is with the priorities of these people: A large swath of the American populus has now traded in their jobs, their income, and their security in return for a more pleasant TV-viewing experience, where they don't have to be annoyed by such things as watching gay marriages, where they can take pleasure in reports of the abortion rights of people they know nothing about being violated, and where they can gaze on the shell of a president which conforms to their self-righteous, superficial judgment of what constitutes a moral man.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: johnny5 To: Bobby Date Posted: Fri, Nov 05, 2004 at 13:49:56 (EST) Email Address: johnny5@yahoo.com Message: Never underestimate the power of many hundreds of millions of people that simply want to come home and let the cable TV wash over them and melt thier worries away - more people spend more money on entertainment than they do on education. Understand that yes indeed - a more pleasant tv experience is very high on many peoples agenda.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: yy To: Bobby Date Posted: Thurs, Nov 04, 2004 at 16:31:55 (EST) Email Address: Not Provided Message: 'A large swath of the American populus has now traded in their jobs, their income, and their security in return for a more pleasant TV-viewing experience, where they don't have to be annoyed by such things as watching gay marriages' Absolutely wrong. As long as fear and hatre need to be generated, they will get their new due dose of unpleasant TV watching experience. No trade off.

Subject: I am proud that we lost on 'values' From: David E... To: Bobby Date Posted: Thurs, Nov 04, 2004 at 13:13:27 (EST) Email Address: Not Provided Message: because it is clear that values means 'hate gays'

Subject: Re: I am proud that we lost on 'values' From: Ari To: David E... Date Posted: Thurs, Nov 04, 2004 at 16:48:35 (EST) Email Address: Not Provided Message: Yes.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: Jennifer To: Bobby Date Posted: Thurs, Nov 04, 2004 at 11:41:16 (EST) Email Address: Not Provided Message: The results of the election were most unfortunate. The new Congress will be considerably more of a problem for us. The Roosevelt thrust in American democracy is being undone. Possibly I am not capable of understanding conservatism and its advantages, but I find only worries that we are stepping away from a democratic idealism.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: jimsum To: Bobby Date Posted: Thurs, Nov 04, 2004 at 10:34:35 (EST) Email Address: jim.summers@rogers.com Message: I think voters think they have the luxury of voting based on 'moral' issues because there has been no cost for Bush's mistakes. According to everything you here from Bush, there is no cost for the budget deficit, there is no cost for the trade deficit, there is no cost to having the army bogged down in an unnecessary war, and there is no cost for thumbing your nose at the rest of the world. The benefits for those actions have been gratefully noticed by the beneficiaries, but the costs have not yet come due. What really worries me is that when the bills come due, no one will connect the costs to Bush's actions, and he'll get his chance to make things even worse. If you don't think stupid policies can last for decades, consider the drug laws. Taking drugs is harmful, and society would probably be better off if no one took any (alcohol is one of the worst!). But making drugs illegal creates a black market which destabilizes countries like Columbia and Afghanistan, and provides plenty of money for local organized crime. After decades of propaganda, we have been trained to incorrectly blame drug use for the crime caused by prohibition, and the increased crime is used as a justification for more prohibition. I think the parallel to Bush's strategy should be clear. A majority is convinced that Bush's policies make things better, not worse. When it becomes clear that things are getting worse, that will be used as justification for even more of Bush's bad policies. I don't know how to make people stop believing comfortable lies and instead confront the ugly truth; but the current administration is obviously more interested in telling comforting lies than actually trying to solve problems. Let's hope that voices like PK's will eventually be heard.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: Bobber To: jimsum Date Posted: Thurs, Nov 04, 2004 at 20:51:38 (EST) Email Address: bobber@jax.com Message: yeah, go ahead and take some more drugs...clueless

Subject: Re: Rant on Drug 'Values' From: jimsum To: Bobber Date Posted: Fri, Nov 05, 2004 at 10:36:48 (EST) Email Address: jim.summers@rogers.com Message: Your response makes my point. There is no correlation between the strictness of laws and how many people take drugs. States where pot is decriminalized have no greater prevalence of drug use than the states with the strictest laws. It may be worthwhile to create policies to reduce drug use (if you think there is anything wrong with taking them), but the current policies don't do that. Current drug laws are based on morals; taking drugs is bad, therefore it should be against the law. In reality, prohibition only increases the costs of drug taking to society. We learned that prohibition increases the costs of alcohol use more than 70 years ago, but to this day we are willfully blind to the fact that the same lesson applies to all drugs.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: Pete Weis To: Bobby Date Posted: Thurs, Nov 04, 2004 at 01:34:56 (EST) Email Address: Not Provided Message: 'The economy surely affects everyone's lives, healthcare surely affects almost everyone's lives, the Iraq War affects many people's lives since their children or friends' children are dying or being mamed in Iraq and are in danger of being drafted. Terrorism affect the lives of those living in or visiting a large city. But 'values' (or 'moral values' as TNR now says) appears to have topped these in importance and brought John Kerry to defeat in 2004.' Bobby. It's sad but your words ring true.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: Terri To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 06:07:19 (EST) Email Address: Not Provided Message: A fine rant.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: Piranha To: Terri Date Posted: Thurs, Nov 04, 2004 at 12:15:02 (EST) Email Address: Not Provided Message: Yes, a fine rant indeed. The question for 2008 would be: Should democrats adopt a more value-centric outlook (William Saletan wrote about this in Slate); or should they try to hammer home the realities of war, terrorism, deficit etc until the people finally 'get it'. In other words, did John Kerry need a *clearer* message, or a *different* message.

Subject: Re: Rant on Troubling 'Values' in Parts of America From: jimsum To: Piranha Date Posted: Thurs, Nov 04, 2004 at 13:38:12 (EST) Email Address: jim.summers@rogers.com Message: Democrats need a realistic message. Kerry was boxed into a corner where telling the truth would have lost him an election to the 'what-me-worry?' message of Bush. Unfortunately, that meant that his policies where based on the same unrealistic assumptions as Bush's, leading people to vote for Bush because 'Kerry is just the same'. I think the errors in Bush's policies will be pretty clear in 2008 (or it will be clear that he is a political and economic genius). Maybe then there can be a real debate about whether what a politician professes is more important than what he actually does. I don't think Kerry needs a different message -- Bush's policies are a disaster and I doubt that will change. In the next election, when the evidence of how bad Bush has been is more obvious, perhaps more voters will look at Bush's record and realize that counts more that Bush's professed beliefs.

Subject: Investing After From: Terri To: All Date Posted: Wed, Nov 03, 2004 at 18:39:56 (EST) Email Address: Not Provided Message: Well, we know the political climate. Now, we can figure out what to do about the economic climate. Should we stay down the middle of the market in investing? What of Europe? What of sectors? Health care? What of bonds?

Subject: Re: Investing After From: Bobby To: Terri Date Posted: Thurs, Nov 04, 2004 at 02:16:03 (EST) Email Address: robert@pkarchive.org Message: I'm going to try to convince my parents to switch their mortgage to a fixed rate immediately. I don't want to have to endure the consequences of Bush's 2nd term any more than I have to.

Subject: PK has a fixed rate mortgage From: jimsum To: Bobby Date Posted: Thurs, Nov 04, 2004 at 09:54:49 (EST) Email Address: jim.summers@rogers.com Message: I was reading some of PK's old columns last night (and I'm sad that a lot of what he predicted has come true, yet a majority of Americans don't care). At any rate, PK switched to a fixed mortgage more than a year ago (A Fiscal Train Wreck-3.11.03) so it's probably an even better idea now. I have stuck to fixed mortgages for the last decade or so (in Canada 5 years is about the longest term with reasonable interest rates) and I have paid more interest than I could have. But mortgage rates of 5-6% are historically quite low; why get greedy and take the risk that variable rates will go up a lot?

Subject: At their limit From: Pete Weis To: jimsum Date Posted: Thurs, Nov 04, 2004 at 10:28:20 (EST) Email Address: Not Provided Message: With this highly priced housing market coupled with a poor job market, most home buyers are having to realize their dream by opting for ARM's which provide only a small break on monthly payments and reverse mortgages with monthly payments up to 50% of their gross monthly income. They are literally at their limit or sometimes over their limit paying their bills. It wouldn't take much to push them over the edge. The belief, no matter how rediculous, is that housing will continue to soar. The freightening thing is that not only buyers are under this misconception but so are lenders.

Subject: Re: Investing After From: Terri To: Bobby Date Posted: Thurs, Nov 04, 2004 at 05:47:55 (EST) Email Address: Not Provided Message: We can expect the last years of tax cuts to be made permanent. The budget deficit will thus become more of a problem. There will be a climb for interest rates, hopefully a slow climb as government borrowing competes with private borrowing. What has puzzled me these 18 months is why Alan Greenspan thought households might properly choose adjustable mortgages when fixed rates are so low. What did I not understand?

Subject: Re: Investing After From: Pete Weis To: Terri Date Posted: Thurs, Nov 04, 2004 at 09:46:35 (EST) Email Address: Not Provided Message: 'What has puzzled me these 18 months is why Alan Greenspan thought households might properly choose adjustable mortgages when fixed rates are so low. What did I not understand?' His desperation - leading him to say almost anything to pull a flagging economy out of its dive when there was no more significant stimulus to be put into action.

Subject: Re: Investing After From: Pete Weis To: Terri Date Posted: Thurs, Nov 04, 2004 at 01:21:42 (EST) Email Address: Not Provided Message: Terri. I believe Richard Russell's view that the stock markets will fall much further. But Jim Rogers view is not as gloomy on the stock markets - he simply thinks they're just a bad investment. This is from Business Week: The Bull Runs in Commodities That's the belief of Investment Biker author Jim Rogers, who recommends coffee and sugar futures, instead of stocks and bonds For the next decade, the best investment action will be in commodities. That's the view of Jim Rogers -- famous for Investment Biker, a chronicle of his motorcycle trip around the world exploring far-off lands and economies. He has also written Adventure Capitalist, another combination of travelogue and investment guide, and his most recent book is Hot Commodities. When it comes to stocks and bonds, Rogers says, 'There will not be any great bear or bull period like there was in the 1980s and 1990s.' he says. His pessimism also extends to the U.S. dollar, which he thinks will be in a decline for the next 20 years, with great volatility for all currencies in the coming decade. The commodities Rogers says he would buy today are coffee, sugar, and perhaps cotton. For income in the difficult period he sees ahead, he suggests short-term interest-bearing paper -- he expects interest rates to be rising around the world because of a period of stagflation similar to the '70s. These were a few of the points he made in an investing chat presented Oct. 28 by BusinessWeek Online on America Online, in response to questions from the audience and from Jack Dierdorff and Karyn McCormack of BW Online. Following are edited excerpts from this chat. A complete transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Q: Jim, based on your world view, what's your take on the markets right now? A: Well, the bond market has now peaked. It peaked in 2003 and will be in a bear market for 15 to 20 years, with rallies of course. The U.S. stock market will fluctuate up and down for the next 10 to 20 years. There will not be any great bear or bull period like there was in the 1980s and 1990s. On the nearer term, I expect the years 2005 and 2006 to be difficult years in the U.S. stock market. That would extend to most Western stock markets as well. If you want to be in a bull market, you should invest in commodities. That's where we'll have a bull market for the next 10 to 20 years. The currency market -- I would suggest that people sell the U.S. dollar because it will be in decline for the next 20 years. Q: Today's news of China's unexpectedly raising its key interest rate knocked down commodities prices and stocks. Is the commodities bull just about over -- or would you still invest in them at this point? A: In every bull market there are many consolidations along the way. Commodities have been very hot for the past five years or so, so we're well overdue for a consolidation. I expect things to get worse in China. I expect there to be a hard landing. But if you see the cover of BusinessWeek next year saying 'Turmoil in China,' reach for the phone and buy all the commodities you can and all the China [holdings] you can, because that will be your next great buying opportunity, if it happens that way. I'm not selling my commodities or my China [holdings], although I do expect further consolidation in both. Q: It's my opinion that Bretton Woods is on the verge of collapse. What do you think will take its place? A: I concur. I also concur that the U.S. dollar will suffer during this period. I would expect there to be a decade of great volatility in currencies around the world -- and perhaps even exchange controls in the U.S., eventually. I don't know what will take its place. I don't even see a currency that will replace the U.S. dollar as the world's reserve currency at the moment -- perhaps if things get really desperate, people may leap to gold for a while, but gold isn't something that can permanently solve the world's problems. Q: Will this country be able to get rid of its debt? Are we heading for another Depression? A: No country in the world that has gotten itself into this kind of debt situation has ever in history gotten out without a crisis or a semi-crisis. The same will happen in the U.S., unfortunately. And even then, we will not solve our debt problems. When England went from being the richest, most powerful country in the world, the situation declined for over three generations. We have entered a period like that as well. Q: Going to China -- investment ideas to look for? A: Well, it's too early to buy shares in China. I would wait for a hard landing next year. But start looking around and doing your homework while you're there. I don't know what's going to go down the most as China retrenches. Q: You had mentioned a housing bubble about a year ago -- what do you think now? A: Well, there's no question that there was and is a housing bubble in some parts of the country. It has already started leveling off and/or declining in some places. In others, it's still hot. Financial areas such as Massachusetts will certainly suffer housing losses as the bubble pops. Commodity areas such as Iowa will have nice housing markets for several years. The bubble is not everywhere and will not continue everywhere. It just depends on the location. Q: Are you still high on international investing? A: Yes. I'm high on investing in wherever the opportunities are, and that's often internationally. Therefore, yes, one should never limit one's investments to one country because you will miss great opportunities. Q: Where would you look for income/yield? A: That's a great question. I would not own bonds anywhere in the world unless it were a very special situation. I would keep my money in short-term interest-bearing paper and suffer a temporary lower income because rates will be rising in most of the world. Q: Can one be a long-term buy-and-hold investor and make money, or does one need to be a trader? A: Well, if you find the right instrument, the right security, then yes, you can be a buy-and-hold. But in my view, the next 10 to 20 years in the U.S. stock market, that will not be a satisfactory way to invest unless you find the few securities that might do well even in a period like that. The investors who'll do well are the ones who can buy low and sell when things rally and repeat the process throughout the decade. Q: What commodities would be ripe for investing now, if any? A: Oh, if I were going to buy a couple today, I would probably buy coffee and sugar, maybe cotton. Q: How does an individual investor go about investing in cotton? A: You can buy cotton futures -- it's very simple. I urge you not to do it unless you know a lot about cotton. I urge you not to do it on thin margin unless you know a lot about what you're doing. Q: What's your outlook for gold and gold stocks? A: I own some of both. I am less optimistic about gold than I am about many commodities. Q: Does the energy sector still have a significant upside left? A: Well, oil is overdue for a correction. But the price of oil will be much higher over the next few years. The surprise will be how high energy prices stay and how high they go. Q: What do you think natural gas will do? What do you think of natural gas royalty stocks? A: Natural gas will continue to go higher over the next few years. The question concerning natural gas royalty stocks is the status of their reserves. If they're not replenishing their reserves, the income will dry up as the reserves dry up. Q: How about investing in traveling around the world? A: It's a great experience. I urge everyone to do it. It's a wonderful way to find out what's really happening in a country and a wonderful way to find investments. Q: From your travels, what countries did you find most intriguing for investment? A: China, Canada, Angola, Australia, Tanzania, Ethiopia, Japan, New Zealand, and Bolivia. Q: Why wouldn't interest rates come down if economies are slowing? A: Because there is inflation in the world, and inflation will be getting worse. We'll have a period of stagflation, just as we did in the 1970s. Q: Would utilities be a good investment in stagflation? A: Not normally, because the costs of building new plants will rise dramatically. And they normally cannot get rate increases as rapidly as prices rise. However, in the next 10 years, there will certainly be a shortage of utility capacity in much of the world. So they'll be better this time around than last time. Q: Are you shorting the U.S. dollar? A: I'm not shorting the U.S. dollar, but I am moving money out of the U.S. dollar into other currencies. At this precise time, in fact, the U.S. dollar is probably overdue for a rally. So I certainly would not be shorting it now, or this week. Q: What about water shortages? Our generation or next? A: No, they're already occurring in our generation in various parts of the world. Those shortages will continue to get worse. For example, in the Southwestern part of the U.S. or in the area east of the Red Sea and other areas, if you can find a way to purify water, pump it, or move it to the needed areas, you'll make a fortune. Q: I'm wondering about soybeans and Bunge (BG ). What's your take? A: Well, I'm optimistic about most agricultural products, including soybeans. Bunge is not a grower of agricultural products, but a processor and handler of commodities. The growers will do better, but people like Bunge have traditionally done well also. Q: What's your preferred approach to commodity investments -- futures, commodity company stocks, other? A: Futures nearly always do better than stocks. A recent Yale study showed that one would have done three times as well investing in commodities rather than commodity stocks. Q: Is silver a good investment now? A: I own silver. I expect to make more in other commodities, but I do own silver. Q: If you had to put $5 million to work, what would your asset allocation be? A: Commodities and foreign currencies. And sometime this fall or winter, I would sell financial stocks short in the U.S. Q: What about oil stocks? A: Well, I own some oil stocks. I do not own U.S. oil stocks, I own international oil stocks. There probably will be a better time to buy them later as oil consolidates. Q: What's the best way to invest in coal? Would you? A: The only way I know to invest in coal is through coal shares, and I do expect coal to do well over the next several years. If you buy a coal share, make sure it has big reserves. Q: Where should the average 401(k) investor keep his money? A: At the moment, I would be keeping it in money-market funds.

Subject: Interesting From: Ari To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 17:36:36 (EST) Email Address: Not Provided Message: This is an interesting investing perspective. Commodity investing however is more costly and more risky than buying commodity company stocks or stock funds.

Subject: Re: Investing After From: Terri To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 06:06:07 (EST) Email Address: Not Provided Message: This is a valuable interview to think along with, and ask after the practicalities and alternatives. How might ordinary investors safely diversify with commodity based investments and international investments?

Subject: Markets After From: Terri To: Terri Date Posted: Wed, Nov 03, 2004 at 20:15:47 (EST) Email Address: Not Provided Message: The Value Index is up 8%. The Small Cap Index is up 10%. The Europe Index is up 11%. Energy is way up, REITs are way up, Health Care is beginning a climb. Long Bond Funds are up 7.5%.

Subject: Energy Prices and Japan From: Emma To: All Date Posted: Wed, Nov 03, 2004 at 13:53:29 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/03/business/worldbusiness/03japanoil.html Japan's Recovery Hinges on Oil Prices By TODD ZAUN TOKYO - Like a Japanese compact car, the nation's economy is built to go a long way on a little gas. And so, Japan should be one of the best-prepared countries in the world to deal with rising oil prices. But as oil prices linger around $50 a barrel, economists now say Japan may be among the hardest hit. The Japanese economy depends less on oil than almost any nation, requiring only about half as much oil to generate $1 worth of economic growth as the United States. But while the surge in oil prices has had relatively little impact so far on corporate profits or consumer spending, the increase is beginning to take a toll on the economy by contributing to a decline in Japanese exports, the main engine of the recovery that began last year. As a result, the pace of economic growth in Japan has slowed sharply from earlier this year raising concerns about the durability of the recovery. 'We are seeing the obvious impact of higher oil prices, which are pushing down the trade surplus,' said Shuji Shirota, an economist at Dresdner Kleinwort Wasserstein in Tokyo. 'The rise is already affecting the Japanese economy.' Mr. Shirota recently cut his forecast for growth in Japan's gross domestic for 2005 to 0.9 percent from an earlier estimate of 1.1 percent, mostly because of the damage he expects higher oil prices will do to exports. The oil prices have not yet shown up in overall growth figures for 2004. The situation highlights the extent to which Japan's recovery continues to rely on overseas markets and remains vulnerable to economic conditions abroad. Exports account for less than 15 percent of the economy. But consumer spending, which accounts for about 60 percent of the Japanese economy, has been flat or falling amid a steady decline in incomes, and many economists do not expect a rebound in incomes or consumption anytime soon. Japan's economy grew at an annual pace of 1.3 percent for the second quarter of this year after expanding at a robust 6.4 percent in the first quarter, largely because of strong growth in exports of everything from cars and computers to DVD players and digital cameras. But more recently, economists say, demand for many of those goods appears to be softening.

Subject: Re: Energy Prices and Japan From: Pete Weis To: Emma Date Posted: Wed, Nov 03, 2004 at 23:23:58 (EST) Email Address: Not Provided Message: Higher oil prices are a problem for Japan as they are for the rest of the world. But I wonder if the Japanese economic resurgence 'earlier this year' was really more to do with the resurgence of the American consumer after the massive 2003 economic stimulus in the US. And the fall off in the Japanese economy is now more to do with the lack of this stimulus at the end of 2004 and a fading US consumer.

Subject: Re: Energy Prices and Japan From: Terri To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 20:07:02 (EST) Email Address: Not Provided Message: There is also China. The Chinese boom has been immensely helpful through Asia, but there is the prospect of a slowing in China now. Still, Japan looks to be slowly solving domestic problems. The Japanese stock market is also robust.

Subject: Re: Energy Prices and Japan From: Dr. Funkenstein To: Pete Weis Date Posted: Thurs, Nov 04, 2004 at 18:54:35 (EST) Email Address: Not Provided Message: Hi. I believe the recovery in Japan from 2003 to early 2004 has much more to do with the boom in China. For example, export to China increased drastically while export to US increased marginally. The boom in China might have been affected by the economic stimulus in the US, though.

Subject: Oh F#@&% From: Mik To: All Date Posted: Wed, Nov 03, 2004 at 13:49:30 (EST) Email Address: Not Provided Message: My condolences guys.

Subject: Living Poor, Voting Rich From: Emma To: All Date Posted: Wed, Nov 03, 2004 at 12:37:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/03/opinion/03kris.html Living Poor, Voting Rich By NICHOLAS D. KRISTOF In the aftermath of this civil war that our nation has just fought, one result is clear: the Democratic Party's first priority should be to reconnect with the American heartland. I'm writing this on tenterhooks on Tuesday, without knowing the election results. But whether John Kerry's supporters are now celebrating or seeking asylum abroad, they should be feeling wretched about the millions of farmers, factory workers and waitresses who ended up voting - utterly against their own interests - for Republican candidates. One of the Republican Party's major successes over the last few decades has been to persuade many of the working poor to vote for tax breaks for billionaires. Democrats are still effective on bread-and-butter issues like health care, but they come across in much of America as arrogant and out of touch the moment the discussion shifts to values. 'On values, they are really noncompetitive in the heartland,' noted Mike Johanns, a Republican who is governor of Nebraska. 'This kind of elitist, Eastern approach to the party is just devastating in the Midwest and Western states. It's very difficult for senatorial, Congressional and even local candidates to survive.' In the summer, I was home - too briefly - in Yamhill, Ore., a rural, working-class area where most people would benefit from Democratic policies on taxes and health care. But many of those people disdain Democrats as elitists who empathize with spotted owls rather than loggers. One problem is the yuppification of the Democratic Party. Thomas Frank, author of the best political book of the year, 'What's the Matter With Kansas: How Conservatives Won the Heart of America,' says that Democratic leaders have been so eager to win over suburban professionals that they have lost touch with blue-collar America. 'There is a very upper-middle-class flavor to liberalism, and that's just bound to rub average people the wrong way,' Mr. Frank said. He notes that Republicans have used 'culturally powerful but content-free issues' to connect to ordinary voters. To put it another way, Democrats peddle issues, and Republicans sell values. Consider the four G's: God, guns, gays and grizzlies. One-third of Americans are evangelical Christians, and many of them perceive Democrats as often contemptuous of their faith. And, frankly, they're often right. Some evangelicals take revenge by smiting Democratic candidates. Then we have guns, which are such an emotive issue that Idaho's Democratic candidate for the Senate two years ago, Alan Blinken, felt obliged to declare that he owned 24 guns 'and I use them all.' He still lost. As for gays, that's a rare wedge issue that Democrats have managed to neutralize in part, along with abortion. Most Americans disapprove of gay marriage but do support some kind of civil unions (just as they oppose 'partial birth' abortions but don't want teenage girls to die from coat-hanger abortions). Finally, grizzlies - a metaphor for the way environmentalism is often perceived in the West as high-handed. When I visited Idaho, people were still enraged over a Clinton proposal to introduce 25 grizzly bears into the wild. It wasn't worth antagonizing most of Idaho over 25 bears. 'The Republicans are smarter,' mused Oregon's governor, Ted Kulongoski, a Democrat. 'They've created ... these social issues to get the public to stop looking at what's happening to them economically.' 'What we once thought - that people would vote in their economic self-interest - is not true, and we Democrats haven't figured out how to deal with that.' Bill Clinton intuitively understood the challenge, and John Edwards seems to as well, perhaps because of their own working-class origins. But the party as a whole is mostly in denial.

Subject: Re: Living Poor, Voting Rich From: Bobby To: Emma Date Posted: Wed, Nov 03, 2004 at 15:14:22 (EST) Email Address: robert@pkarchive.org Message: I wonder what would happen if the Democratic and Republican party each split up into two units. What I'm thinking is there'd be four combinations: 1. Liberal economic/liberal social 2. Liberal economic/conservative social 3. conservative economic/liberal social 4. conservative economic/conservative social Anyway, I wonder what would be the national breakdown of, say, people in Congress from each of these four parties, assuming it were organized that way. I'm really asking a question of people's opinions on breakdowns of socially liberal versus socially conservative and economically liberal versus economically conservative policies -- I know it's not that simple, but I'm trying to just get a general message. I think the South may be socially conservative but economically liberal, but that's a guess. The only reason they're representatives are conservative is the fact that they care more about social issues, and there's no way to decouple the economically conservative policies from the socially conservative policies in the Republican party. Sorry for the incoherent post. Just throwing some nonsense out here, which can hopefully be put into a coherent conclusion.

Subject: Social conservatism From: Pete Weis To: Bobby Date Posted: Wed, Nov 03, 2004 at 22:44:08 (EST) Email Address: Not Provided Message: Being socially conservative seems to trump all other considerations. So a politician can be totally anti-gay and anti-abortion when his opponent is not, get us embroiled in a disastrous war overseas that is likely to last for many years costing many thousands of lives, administer an economy which loses jobs and runs budget deficits through the roof, trample civil liberties, lose the respect of the world and then get re-elected. Social conservatism is precisely why Iraq will not be anything resembling a democracy for many decades to come and will likely become a theocracy like Iran is now and Afgahnistan was not long ago. Social conservatism is precisely why Moslem extremists can not tolerate living on this planet with those who do not follow to the letter their own rigid beliefs. Finally, being socially conservative has absolutely nothing to do with being 'moral'. It's about looking at the world through a very narrow scope and not understanding why the entire world doesn't fit into that narrow field of view and denying the right to exist of everything they can not and will not see.

Subject: Re: Living Poor, Voting Rich From: Terri To: Bobby Date Posted: Wed, Nov 03, 2004 at 15:21:31 (EST) Email Address: Not Provided Message: This is clever. Think about populists like Robert Byrd and Jay Rockefeller of West Virginia. Democrats need to pay attention to such distinctions.

Subject: Robert Burd From: Terri To: Terri Date Posted: Wed, Nov 03, 2004 at 18:41:16 (EST) Email Address: Not Provided Message: Could Robert Byrd get elected in any other southern state?

Subject: Grey Hairs swing it From: johnny5 To: Emma Date Posted: Wed, Nov 03, 2004 at 13:11:25 (EST) Email Address: johnny5@yahoo.com Message: Kerry lost the older vote - the michael moore slackers tour was a waste a dem resources. http://www.cbsnews.com/stories/2004/11/03/politics/main653275.shtml Grey Power Boosts Bush NEW YORK, Nov. 3, 2004 Nationwide, seniors thought highly of Mr. Bush. Fifty-five percent of voters 60 and over had a favorable opinion of him, while 54 percent of this group approved of his job performance. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- A key factor in President Bush's win over John Kerry in the presidential election was Mr. Bush's ability to reverse the traditional advantage the Democratic Party has held among elderly voters. Bush initiatives targeting the elderly, from the repeal of the federal estate tax to the creation of a Medicare prescription drug benefit, appear to have made a favorable impression. Mr. Bush received support from 53 percent of voters 60 and over, compared to 46 percent for Kerry, according to CBS News exit polls. [CBS News National Exit Poll results are based on interviews with 13,531 voters. The sampling error is plus or minus 1 point.] In the last three elections, voters 60 and over have supported the Democratic nominee. Bill Clinton held a 12-point advantage over Mr. Bush’s father, and a 4-point advantage over Bob Dole. Al Gore received 51 percent of the senior vote to Mr. Bush’s 47 percent. Amazingly, nearly all the key swing states broke according to seniors’ preferences. In Florida and Colorado, where Mr. Bush received support from a majority of seniors, he won. Conversely, in the battleground states of Pennsylvania and Minnesota, where Mr. Bush failed to secure a majority of seniors, he lost. Nationwide, seniors thought highly of Mr. Bush. Fifty-five percent of voters 60 and over had a favorable opinion of him, while 54 percent of this group approved of his job performance. The president's appeal to seniors appears to stem from his positions on social issues. Twenty-one percent of voters over 60 named moral values as the issue that mattered most in their vote decision. Only 16 percent of seniors supported gay marriage, and only16 percent thought abortion should be approved under all circumstances. Mr. Bush’s stance on terrorism also appeared to underlie his appeal to seniors. Nineteen percent of voters over 60 named terrorism as the most important issue to their electoral decision, while 54 percent said the Osama bin Laden video was very important or somewhat important in their voting decision. Fifty two percent said we were safer from terrorism compared to four years ago. Fifty-eight percent would trust Mr. Bush to handle terrorism. Health care was on the minds of seniors as well. Seventy-one percent were very concerned about the cost of health care. Although only 12 percent said it was the issue that mattered the most in their voting choice, this was double the proportion of voters under 45 who named it as a key factor. Although much had been made about seniors’ confusion with different voting procedures, 86 percent were very or somewhat confident that their votes would be counted correctly.

Subject: Is Paul Krugman responsible? From: Henry To: All Date Posted: Wed, Nov 03, 2004 at 09:02:55 (EST) Email Address: henry.townsend@verizon.net Message: I wonder whether the commonly expressed hatred and disdain expressed for Bush (Krugman, New Yorker, NR) isn't partly responsible for Bush's victory? Just as Bush's verbal errors make him more 'like one of us' among the undecided, so does Krugman et al make one sympathize a bit for Bush and therefore help swing the undecided.

Subject: No From: Terri To: Henry Date Posted: Wed, Nov 03, 2004 at 13:10:11 (EST) Email Address: Not Provided Message: Phooey!

Subject: Maybe From: johnny5 To: Terri Date Posted: Wed, Nov 03, 2004 at 13:20:25 (EST) Email Address: johnny5@yahoo.com Message: I have read on moorewatch.com that during the exit polling many older voters felt moore made them choose bush over kerry - they got tired of the constant attacks. Not only do we have class and gender warfare to consider in future elections - I think elderly versus young warfare was grossly miscalculated by the democratic party and they alienated themselves from the GREY vote that they have had for the past 16 years.

Subject: Re: Maybe From: Terri To: johnny5 Date Posted: Wed, Nov 03, 2004 at 15:19:04 (EST) Email Address: Not Provided Message: Interesting insight, though I have never found Paul Krugman unfair in analysis. Playing to young voters has always proven a mistake, and will prove more so in future because of the population age shift to come.

Subject: Re: Is Paul Krugman responsible? From: Ari To: Henry Date Posted: Wed, Nov 03, 2004 at 11:02:30 (EST) Email Address: Not Provided Message: Those voters who are responsible for the loss, do not pay the least attention to the New Yorker and such. There is no hatred or disdain there, only honesty. Many voters do not seek out honesty.

Subject: The Iraq Quagmire...... From: Pete Weis To: Henry Date Posted: Wed, Nov 03, 2004 at 10:33:40 (EST) Email Address: Not Provided Message: ironically was Bush's greatest asset in this election. It served to deflect attention from what was going on in the economy and more importantly, many voters were afraid to switch administrations in the middle of a war in Iraq. So fear, among voters who were undecided until just before polls opened, won over anger about being in Iraq in the first place. IMO, Iraq has been the worst foreign policy decision in American history - Vietnam being the second worst. But the Republicans and the Bush administration get the next four years to prove to myself and others on this site that we are wrong about Iraq and wrong about the direction of this economy. It is perhaps, fitting that they get to live with their decisions and actions of the last four years for the next four years. If the Bush administration can pull us out of this quagmire in Iraq and quagmire of an economy then they deserve all the glory. If they can not it's truely bad news for the GOP. Unfortunately it's also bad news for the rest of us.

Subject: Re: The Iraq Quagmire...... From: johnny5 To: Pete Weis Date Posted: Wed, Nov 03, 2004 at 11:18:39 (EST) Email Address: johnny5@yahoo.com Message: It seems with all the pounding of fists by al franken and michael moore and paul krugman - it really just didn't make that much of a difference. What is the lesson to be learned by this? I didn't see where a lot of younger voters turned out in the numbers that were hoped for. Kerry perhaps should have campaigned more in Florida - several counties that voted for gore went to bush in that state during this election.

Subject: John Edwards From: Jennifer To: johnny5 Date Posted: Wed, Nov 03, 2004 at 12:09:58 (EST) Email Address: Not Provided Message: There might have been a stronger candidate for Vice President than John Edwards. Edwards was not as well regarded in the south, and did not work as hard in the south, as we might have wished.

Subject: Re: John Edwards From: krugman en francais To: Jennifer Date Posted: Wed, Nov 03, 2004 at 12:22:16 (EST) Email Address: Not Provided Message: It's for more years to krugman to. Democrats have none power source, only P. Krugman can use its writings as opposition force. Good luck Paul and god bless america

Subject: Paul Krugman is Wonderful From: Emma To: krugman en francais Date Posted: Wed, Nov 03, 2004 at 12:40:48 (EST) Email Address: Not Provided Message: Paul Krugman is wonderful. We love America and France.

Subject: Today From: Terri To: All Date Posted: Tues, Nov 02, 2004 at 17:26:02 (EST) Email Address: Not Provided Message: There are a series of exit poll numbers that strongly favor John Kerry. Notice the decline in the stock market between 2 and 4 today, as these numbers were posted. We may have another President.

Subject: Re: Today From: Ari To: Terri Date Posted: Tues, Nov 02, 2004 at 17:40:00 (EST) Email Address: Not Provided Message: November 2, 2004 4 pm est exit polls These numbers come from Slate and Kos. NV CO NC PA OH FL MI NM WI Kerry 48 46 49 54 50 50 51 50 51 Bush 50 53 51 45 49 49 47 48 46

Subject: Tomorrow From: Ari To: Ari Date Posted: Wed, Nov 03, 2004 at 05:38:28 (EST) Email Address: Not Provided Message: So much for exit polls. These were obviously distorted.

Subject: Thanks PK From: Emma To: Ari Date Posted: Tues, Nov 02, 2004 at 20:24:12 (EST) Email Address: Not Provided Message: We thank you.

Subject: Paul Krugman..... From: Pete Weis To: Emma Date Posted: Tues, Nov 02, 2004 at 21:35:46 (EST) Email Address: Not Provided Message: stands head and shoulders above the vast majority of his peers when it comes to defending the American ideals which once made us a great and respected nation and lately are being lost by the actions of a small but powerful group of political manipulators. He has paid a price for not being part of the 'silence', but he is telling us there is a much greater price to say and do nothing when the future of America is up for sale. I salute Paul Krugman for his patriotism!

Subject: Trade and Employment From: Emma To: All Date Posted: Tues, Nov 02, 2004 at 12:38:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/02/business/02textile.html?pagewanted=all&position= Textile Quotas to End, Punishing Carolina Towns By ELIZABETH BECKER KANNAPOLIS, N.C. - Leann Harrington's experience losing her job has an all-too-familiar ring, one that is soon likely to be heard with even greater frequency. The textile plant where she was employed shut down last year, a victim of fierce foreign competition. After scrambling, she was lucky to land a job as manager and waitress at the Towel City Junction Cafe, earning $3 an hour plus tips, a fraction of her factory wages. For many years, textile and clothing factories in the mill towns of the Carolinas - originally drawn from New York and New England decades ago by the prospect of inexpensive nonunion workers - have been closing one after another as the industry migrated abroad in search of ever-cheaper labor. Now, this gradual loss may be about to turn into a rout. On Jan. 1, the global system of country-by-country quotas regulating the $495 billion international trade in textiles and apparel is scheduled to be eliminated. That will transform the vast business in ways that were barely glimpsed a decade ago, when the newly created World Trade Organization went along with the demands of developing countries and agreed to phase out the quotas imposed by advanced nations to protect their own industries. Today, though, poor countries at the bottom of the economic ladder, like Cambodia and Bangladesh, have a new fear: China. It is the colossus in the field, home to a seemingly endless supply of workers available to feed vast numbers of suppliers operating with high efficiency and low costs in ways that threaten to overwhelm competition from developing countries except India, Pakistan and Brazil. For China and other big developing nations with expanding apparel industries, the end of the quotas will mean tens of millions of new factory jobs for people without work or barely scraping out a living. But for dozens of even poorer Asian and African countries now relying on their clothing exports to gain a foothold in the global economy, it could be still another bitter pill to swallow. The quotas they fought so hard to eliminate had ensured that their products would have at least a narrow opening in American and European markets. Without rules, though, restricting how much fabric or how many garments they can buy from any country, name brands and merchants like Tommy Hilfiger, Ralph Lauren, J. C. Penney and the Gap will buy most of what they want from five or six countries, not the 50-plus countries that are now part of their networks. Meanwhile, here in the slowly beating heart of the remaining American textile industry, workers and owners of factories still operating along a stretch of Interstate 85 from Charlotte to Greensboro see the dawning of 2005 as a death sentence. More companies, they fear, will go bankrupt. More communities will wither like Kannapolis, and thousands more workers will be desperate for training, employment and health insurance. In hopes of staving off the worst, politicians in the Southeast from both parties are taking advantage of the close outlook for the presidential election to win last-minute concessions from the White House that could slow the flood of imports from China. And, seriously weakened as it is, the American textile and apparel industry is still flexing its political muscles. [On Oct. 29, days before the election, the Bush administration accepted the industry's petition seeking relief, promising to consider special steps to limit Chinese exports.] Most experts expect that China, left unimpeded, will gain almost half the global apparel market. Its factories now make about 20 percent of the clothing and textiles sold in the United States; China is expected to capture as much as 70 percent of that market, potentially leading to the closing of half the surviving American mills and layoffs for tens of thousands more workers. Fashion executives say that those fears are exaggerated and that American manufacturers have already weathered the worst. 'Yes, China will benefit because of the quality of its goods,'' said Robert J. Zane, senior vice president for sourcing, manufacturing, logistics and distribution at Liz Claiborne in New York. 'But it will be more at the expense of other Asian countries than at the expense of the American industry.'' And lost in the swirl of anxiety are the benefits that the change will bring to tens of millions of consumers. Americans alone are expected to save an estimated $6 billion in lower-cost goods once the quotas are gone, allowing clothing makers and designers from New York to Milan the freedom to choose factories based on cost and quality rather than a complicated system of 1,300 categories for every nation. But that is little consolation to this Carolina community of 36,000, which was reduced to an economic ghost town in little more than a year once Pillowtex, Ms. Harrington's former employer, fell into bankruptcy. The residents have remained, but the factories are being dismantled and the stores and shops shuttered on Main Street after this one-industry town lost its industry.

Subject: World job markets level rapidly From: Pete Weis To: All Date Posted: Tues, Nov 02, 2004 at 11:21:35 (EST) Email Address: Not Provided Message: In this age of collapsing geographic boundries to job markets, even India is looking for cheaper, high tech labor. Aren't US companies being forced to do the same or face extinction in a global market? From the New York Times: India Taps China's Reserve of Technological Talent By SARITHA RAI ANGALORE, India, Nov. 1 - When Infosys Technologies began scouting for an alternative to India as a source of unlimited, low-cost human resources, the fast-growing company came up with one answer: its home country's archrival, China. Now, a year after the Infosys Technologies (Shanghai) Company was set up, the venture center has 200 employees and 4 multinational customers. Infosys, the Bangalore-based software services company, and other top Indian outsourcing rivals, including Tata Consultancy Services and Wipro Technologies, are doing application development and maintenance work in China as they grow rapidly to keep up with booming demand from the West for their services. And they are quickly concluding that only China has a worker base equal to India's in terms of cost, quality and scale. Expansion there also offers the ability to cater to - and possibly garner more of - the local and regional markets, including Japan. Vigorous global demand - revenue from India's information technology exports was $12.5 billion in the year ended in March, up 30 percent from the previous year - has resulted in a 10 percent to 15 percent annual rise in wages in India's software and back-office services industry. According to a KPMG study for the National Association of Software and Services Companies, or Nasscom, an industry trade group in India, the country will face an acute shortage of technical employees by 2009, falling short by about 250,000 workers. 'We need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow,' said Nandan Nilekani, chief executive of Infosys, who has talked of his company's scaling up to become the Wal-Mart of outsourcing. 'And only China can match up.' In the quarter ended in September, Infosys alone added more than 5,000 employees, for a total of nearly 33,000. And Wipro added 5,500 employees, reaching more than 36,000. As Indian companies have looked for skilled workers outside the country for software development and customer support centers, some have ventured into Mexico and Eastern Europe. But many say that China holds the most promise, in part because of its potential as a rival. Though its software export revenues were just $700 million in 2003, 'China will soon be competing with India as an outsourcing destination,' said the Singapore-based Girija Pande, director for Asia Pacific of Tata Consultancy, India's top software services exporter. It set up operations in China in 2002. And a presence now, these companies say, positions them to grab such future business. Entry into the country is made easier by the ability to piggyback onto the existing base of customers with interests in China. 'With China's economy swelling so quickly, multinationals are looking for global software firms who already understand their standards and systems,' Mr. Pande said. Tata Consultancy, for instance, is working in China with its longtime customer, General Electric. China has some 200,000 information technology workers - compared with India's 850,000 - in 6,000 local companies, according to some estimates. More than 50,000 Chinese software programmers are being added to this pool annually. Some important ingredients that have made India a formidable global software services exporter are in place in China as well, like the high value put on education and a focus on engineering in higher education. The Chinese government is sweetening the deal for the Indian concerns, as well as for global competitors like Accenture and I.B.M. Global Services, by offering high-quality infrastructure at low costs and offering alliances with local universities to recruit Chinese talent. China also offers Indian outsourcing concerns a low employee turnover rate. For instance, Tata Consultancy's staff turnover in China is less than 6 percent a year, compared with 15 percent in its Indian operations. The company says it may double the number of employees in China in the next 18 months from its current 180. For now, however, even with wages rising in India, China's information technology workers are more expensive 'because a combination of English-language and technical skills is at a premium,' Mr. Nilekani of Infosys said. According to Mr. Pande of Tata, the wage differential is about 12 to 15 percent. So while an entry-level programmer in India might earn $125 a month, a Chinese equivalent might earn $142 to $147. The managerial talent differential is even bigger. And scalability - the ability to grow quickly when circumstances warrant - is posing a challenge because of the scarcity of good English speakers and experienced managers in China. While even second-tier Indian software companies have 12,000 to 15,000 employees, only a handful of Chinese software companies have more than 3,000. When NIIT, India's top technology training company, set up by the founder of the software exporter HCL Technologies, made exploratory moves in China in 1997, it was a toss-up between setting up a software services unit or a training one. 'Available skills were so low that we went into training,' said Prakash Menon, president of NIIT China, who opened NIIT's first training center in Shanghai in 1998. The company now has 121 centers in 25 provinces and trains 25,000 Chinese annually. Wipro set up its China unit in August to develop software and maintain it for the company's global clients in the United States, Europe and Japan. Though Wipro aims to expand the unit to 200 employees next year from 10 now, projects that require a high level of management skills are unlikely to be done there soon, said Masaki Nagao, Wipro's chief executive for Japan and China operations. Mr. Nilekani of Infosys says he expects that this will change. 'In three to four years, cost and scale will be two top reasons to be there,' he said. At least for now, however, some Indian companies are choosing not to take the plunge. 'Though it is fashionable to be in China, we are skeptical' about the need to move there, said Saurav Adhikari, vice president for corporate strategy at HCL Technologies. There is enough potential to expand in markets where the company already has operations, he said, including India, the United States and Japan. For those that do move into China, said Mr. Menon of NIIT the eventual model would be to hire Chinese programmers and Indian managers, and set up operations in low-cost centers just outside high-cost business hubs like Shanghai. Some companies are already adopting variations of that model. Wipro, for instance, plans to recruit Indian or Japanese managers along with Chinese programmers to expand in China in the coming year. Zensar Technologies, based in Pune, has a new joint venture with Broadengate Systems of China; the venture, Zensar Technologies (Shenzhen), expects to grow from 14 employees to 50 by the end of the year with Indian project managers and Chinese programmers. Cognizant Technology Solutions, based in Teaneck, N.J., but with most of its development operations in India, is taking a different approach. It plans to enter China in 2005 to serve its financial services clients there, and says it will bring Chinese managers to its global development base in Chennai, India, for training. All this activity could translate into a 40 percent slice of the growing China software export pie by 2006 for Indian companies, according to Gartner, the technology research firm based in Stamford, Conn. And while few industry experts say they think that China will rival India as a viable offshore software development center anytime soon, most say they think it will happen eventually. 'The raw materials - talent and infrastructure - are there,'' said V. Sriram, the Tokyo-based vice president, Asia Pacific, at Infosys Technologies, 'so it is only a matter of time before the ecosystem evolves.'

Subject: Neoconservatives are desperate From: Pete Weis To: All Date Posted: Tues, Nov 02, 2004 at 11:07:14 (EST) Email Address: Not Provided Message: From attempting to deny minority voters their right to vote in Ohio by intimidation to resorting to vandalizing message boards since the vandal in question lacks the confidence in his own ability to debate the issues.

Subject: Re: Neoconservatives are desperate From: Pete Weis To: Pete Weis Date Posted: Tues, Nov 02, 2004 at 11:09:47 (EST) Email Address: Not Provided Message: Great! Everything is back. When I first visited the board this morning everything was gone.

Subject: Re: Neoconservatives are desperate From: Ari To: Pete Weis Date Posted: Tues, Nov 02, 2004 at 11:11:30 (EST) Email Address: Not Provided Message: Whew! This board is too important to be gone.

Subject: China's Talent in Technology From: Emma To: All Date Posted: Tues, Nov 02, 2004 at 10:53:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/02/business/worldbusiness/02india.html?pagewanted=all&position= India Taps China's Reserve of Technological Talent By SARITHA RAI BANGALORE, India - When Infosys Technologies began scouting for an alternative to India as a source of unlimited, low-cost human resources, the fast-growing company came up with one answer: its home country's archrival, China. Now, a year after the Infosys Technologies (Shanghai) Company was set up, the venture center has 200 employees and 4 multinational customers. Infosys, the Bangalore-based software services company, and other top Indian outsourcing rivals, including Tata Consultancy Services and Wipro Technologies, are doing application development and maintenance work in China as they grow rapidly to keep up with booming demand from the West for their services. And they are quickly concluding that only China has a worker base equal to India's in terms of cost, quality and scale. Expansion there also offers the ability to cater to - and possibly garner more of - the local and regional markets, including Japan. Vigorous global demand - revenue from India's information technology exports was $12.5 billion in the year ended in March, up 30 percent from the previous year - has resulted in a 10 percent to 15 percent annual rise in wages in India's software and back-office services industry. According to a KPMG study for the National Association of Software and Services Companies, or Nasscom, an industry trade group in India, the country will face an acute shortage of technical employees by 2009, falling short by about 250,000 workers. 'We need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow,' said Nandan Nilekani, chief executive of Infosys, who has talked of his company's scaling up to become the Wal-Mart of outsourcing. 'And only China can match up.' In the quarter ended in September, Infosys alone added more than 5,000 employees, for a total of nearly 33,000. And Wipro added 5,500 employees, reaching more than 36,000. As Indian companies have looked for skilled workers outside the country for software development and customer support centers, some have ventured into Mexico and Eastern Europe. But many say that China holds the most promise, in part because of its potential as a rival. Though its software export revenues were just $700 million in 2003, 'China will soon be competing with India as an outsourcing destination,' said the Singapore-based Girija Pande, director for Asia Pacific of Tata Consultancy, India's top software services exporter. It set up operations in China in 2002. And a presence now, these companies say, positions them to grab such future business. Entry into the country is made easier by the ability to piggyback onto the existing base of customers with interests in China. 'With China's economy swelling so quickly, multinationals are looking for global software firms who already understand their standards and systems,' Mr. Pande said. Tata Consultancy, for instance, is working in China with its longtime customer, General Electric. China has some 200,000 information technology workers - compared with India's 850,000 - in 6,000 local companies, according to some estimates. More than 50,000 Chinese software programmers are being added to this pool annually. Some important ingredients that have made India a formidable global software services exporter are in place in China as well, like the high value put on education and a focus on engineering in higher education. The Chinese government is sweetening the deal for the Indian concerns, as well as for global competitors like Accenture and I.B.M. Global Services, by offering high-quality infrastructure at low costs and offering alliances with local universities to recruit Chinese talent. China also offers Indian outsourcing concerns a low employee turnover rate. For instance, Tata Consultancy's staff turnover in China is less than 6 percent a year, compared with 15 percent in its Indian operations. The company says it may double the number of employees in China in the next 18 months from its current 180. For now, however, even with wages rising in India, China's information technology workers are more expensive 'because a combination of English-language and technical skills is at a premium,' Mr. Nilekani of Infosys said. According to Mr. Pande of Tata, the wage differential is about 12 to 15 percent. So while an entry-level programmer in India might earn $125 a month, a Chinese equivalent might earn $142 to $147. The managerial talent differential is even bigger. And scalability - the ability to grow quickly when circumstances warrant - is posing a challenge because of the scarcity of good English speakers and experienced managers in China. While even second-tier Indian software companies have 12,000 to 15,000 employees, only a handful of Chinese software companies have more than 3,000. When NIIT, India's top technology training company, set up by the founder of the software exporter HCL Technologies, made exploratory moves in China in 1997, it was a toss-up between setting up a software services unit or a training one. 'Available skills were so low that we went into training,' said Prakash Menon, president of NIIT China, who opened NIIT's first training center in Shanghai in 1998. The company now has 121 centers in 25 provinces and trains 25,000 Chinese annually.

Subject: Whoops! From: Pete Weis To: Emma Date Posted: Tues, Nov 02, 2004 at 11:33:01 (EST) Email Address: Not Provided Message: When I first visited the board everything was gone, so I missed this post Emma, and posted the same article above. It's interesting to see such a rapid leveling of the global job markets, with cheap markets gravitaing to even cheaper markets. What does this mean for European and US labor markets which are so much more expensive? How much of the world's consumption is represented by the US and Europe? Can the global economy weather the leveling of this great imbalance between consumer markets and labor markets?

Subject: Re: Whoops! From: Emma To: Pete Weis Date Posted: Tues, Nov 02, 2004 at 12:39:14 (EST) Email Address: Not Provided Message: The questions are critical in importance. We must think carefully of answers.

Subject: CNN international From: krugman en francais To: All Date Posted: Tues, Nov 02, 2004 at 10:47:04 (EST) Email Address: steven.coissard@free.fr Message: HI, I am in France and just have CNN international. I thimk it's different to CNN in US. Do you know if some krugman's interview are on this chanel or if it is only on CNN. steven.coissard.free.fr/Paul_Krugman_en_francais.htm

Subject: Krugman on PBS From: Terri To: krugman en francais Date Posted: Tues, Nov 02, 2004 at 10:55:54 (EST) Email Address: Not Provided Message: Paul Krugman was on PBS with Charlie Rose, yesterday.

Subject: Re: Krugman on PBS From: krugman en francais To: Terri Date Posted: Tues, Nov 02, 2004 at 11:01:38 (EST) Email Address: Not Provided Message: thanks, I don't knows what is PBS :( an another US channel? because I just have CNN international. What I ant to know is if we have the same emissions Thank you

Subject: Re: Krugman on PBS From: Ari To: krugman en francais Date Posted: Tues, Nov 02, 2004 at 11:10:00 (EST) Email Address: Not Provided Message: I suppose you have already answered the question. CNN international is different from American PBS, and American Public Broadcasting is not available in Europe. As long as we both get to watch Seinfeld reruns, all will be well however.

Subject: Europe From: Terry To: All Date Posted: Mon, Nov 01, 2004 at 20:49:59 (EST) Email Address: Not Provided Message: As long as there is a sense that the dollar will be weak for an extended period, why not look to Europe for investments to balance an American portfolio? The Europe Index has a lower valuation than the S&P, and even if the dollar holds value or gains European corporations are strengthening earnings. A bit of diversity?

Subject: Values From: Terri To: Terry Date Posted: Tues, Nov 02, 2004 at 07:08:01 (EST) Email Address: Not Provided Message: Agreed. Warren Buffett has always taught investors look for present and lasting value. So, it makes more sense to look for investments that are reasonably valued at present and buy them for a long term. Whether the REIT Index or Energy Fund or TIPS Fund are reasonably valued is questionable. We can buy the Total Stock Market Index or Value Index or Europe Stock Index, and rely on better valuation. Health Care is also better valued than 10 months ago.

Subject: Supercomputers and China From: Emma To: All Date Posted: Mon, Nov 01, 2004 at 19:14:49 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/01/technology/01chen.html?pagewanted=all&position= Have Supercomputer, Will Travel By JOHN MARKOFF SAN FRANCISCO - Add Steve Chen to the growing list of America's high-technology exports. Mr. Chen, a Taiwanese-born American citizen who was considered one of the nation's most brilliant supercomputer designers while working in this country for the technology pioneer Seymour Cray in the 1980's, has moved to China - where he is leading an effort to claim the world computing speed record. Supercomputing is being seized upon by the Chinese government to help speed the nation's transition from low-cost manufacturing to becoming a more powerful force in the world economy. China's leaders know that high-speed computing is essential to global leadership in scientific fields and advanced design of a variety of sophisticated products. 'Right now the Chinese have started to pay attention; they are catching up and they learn fast,' said Mr. Chen, 60, who is splitting his time between China and San Jose, Calif., where his wife, Kate, and their four children live. Military intelligence experts in this country have long been concerned that supercomputing capabilities may aid China's weapons development. But many technologists and economists say that blazing computing speeds alone do not represent a particularly new nuclear weapons threat. Instead, they are more concerned that the Chinese may catch up more quickly with the United States in areas that have economic and scientific, rather than military, ramifications. Mr. Chen's decision to set up shop in China was driven in part by an unexpected twist: the opportunity to build a new company looked more promising to him there than in the United States, where he was unable to secure financing from American venture capitalists for his latest ideas. Mr. Chen concluded that the fallout from the collapse of the Internet bubble had poisoned the investment climate. 'I saw the crazy stuff going on,' he said recently in a telephone interview from Shenzhen, near Hong Kong. 'A lot of people got hurt.' While Mr. Chen is not a native of mainland China, his decision has parallels to an increasingly common odyssey by foreign-born researchers, who once would have found the greatest openings to use their skills in the United States. As the spread of capitalism creates opportunities elsewhere, many such talented people are returning to China, India and other developing countries to create or join advanced technology firms. In May, Mr. Chen joined Galactic Computing Shenzhen, which is backed by investment money from a Hong Kong company that supported an earlier Chen venture and with further backing from a group of Chinese universities. His move reflects the fact that the market for high-performance computing is growing more rapidly in China than elsewhere in the world. The Chinese are not yet a major force in supercomputing, but according to American computing experts, that is changing rapidly. Today there are 14 Chinese supercomputers among the top 500, ranking the country fourth in the world, equal to Germany and behind only the United States, Japan and Britain. In June, a supercomputer assembled at the Shanghai Supercomputer Center using more than 2,500 chips designed and manufactured by Advanced Micro Devices of Sunnyvale, Calif., became the world's 10th-fastest computer. 'In terms of momentum they are the most rapidly ascending country in the world,' said David Keyes, a professor of applied mathematics at Columbia University, who visited China last month to participate in a conference on high-performance computing.

Subject: Home ownership From: Jack To: All Date Posted: Mon, Nov 01, 2004 at 17:33:04 (EST) Email Address: jjlwmd@yahoo.com Message: Bush keeps claiming that home ownership is high, particularly among minorities, and that this is the result of his economic policies. Are these claims true, that is, is home ownership indeed up significantly and if so can Bush claim credit for this? (This was mentioned in the recent Krugman interview but not addressed) Thanks, Jack

Subject: Re: Home ownership From: Emma To: Jack Date Posted: Mon, Nov 01, 2004 at 18:16:33 (EST) Email Address: Not Provided Message: Home ownership expanded continually during the Clinton Administration. Job creation surged, wage and benefit levels increased, and interest rates trended down. All good reasons for more home ownership. Minorites fared well in home ownership. During the Bush Administration there has been a recession, and a recovery marked by poor job creation, and scant wage and benefit gains. But, interest rates have been exceptionally low. Home ownership has increased, swept along by low interest rates and 'creative' financing arrangements. The question is how will home owners fare if interest rates climb even a percentage point?

Subject: Wal-Mart and Health Care From: Emma To: All Date Posted: Mon, Nov 01, 2004 at 11:21:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/01/business/01health.html? States Are Battling Against Wal-Mart Over Health Care By REED ABELSON In the national debate over what to do about the growing number of working people with little or no health insurance, no other company may be taking more heat than the country's largest employer, Wal-Mart Stores. The company, despite its popularity with consumers, has grown accustomed to being accused of crushing Main Street merchants with its sprawling stores and low prices and of driving down wages for workers across the retail industry. And more than a million former and current female Wal-Mart employees are part of a sex discrimination lawsuit that the company is fighting. Now, Wal-Mart finds itself under attack for what critics see as its miserly approach to employee health care, which they say is forcing too many of its workers and their families into state insurance programs or making them rely on charity care by hospitals. Wal-Mart vigorously defends its health care policies, saying it offers affordable coverage for all employees. The company says it has no way of knowing how many of its employees, whom it calls associates, or their families are insured under state programs. The larger issue of whether companies can and should absorb the soaring cost of health care is a national issue, said Susan Chambers, the executive vice president who oversees benefits at Wal-Mart. 'You can't solve it for the 1.2 million associates if you can't solve it for the country.'' A survey by Georgia officials found that more than 10,000 children of Wal-Mart employees were in the state's health program for children at an annual cost of nearly $10 million to taxpayers. A North Carolina hospital found that 31 percent of 1,900 patients who described themselves as Wal-Mart employees were on Medicaid, while an additional 16 percent had no insurance at all. And backers of a measure that will be on California's ballot tomorrow, which would force big employers like Wal-Mart to either provide affordable health insurance to their workers or pay into a state insurance pool, say Wal-Mart employees without company insurance are costing California's state health care programs an estimated $32 million a year. Meanwhile, in Washington State, where the insurance commissioner is pushing the legislature to adopt a law similar to the one on the California ballot, companies that struggle to compete with Wal-Mart while insuring most of their own workers have become openly critical. 'Socially, we're engaged in a race to the bottom,' said Craig Cole, the chief executive of Brown & Cole Stores, a supermarket chain that employs about 2,000 workers in Washington and adjoining states and pays for insurance coverage for about 95 percent of its employees. 'Do we want to allow competition based on exploitation of the work force?' he asked.

Subject: Saving More From: Ari To: All Date Posted: Mon, Nov 01, 2004 at 07:05:13 (EST) Email Address: Not Provided Message: What seems most obvious from the flow of economic data is that America need to save more from the federal government to households. Saving more however means that growth will slow, unless interest rates are kept low. Getting saving up will not be a simple matter, and the structure of the economy is geared to consume rather than save.

Subject: Asian Times - US dollar/US inflation From: Pete Weis To: All Date Posted: Sun, Oct 31, 2004 at 19:55:27 (EST) Email Address: Not Provided Message: From the Asian Times: by Henry C K Liu 'US inflation rates have been under-reported by statisticians in the name of scientific logic. The first significant downward adjustment occurred in 1996 on the recommendation of the Boskin Commission, which had concluded that the US inflation rate had been overstated by an annual 1.1 percentage points. About half of this overstatement has since been 'corrected'. America's hedonic pleasures But further, far more substantial downward adjustments in the price indices have resulted from the spreading use of 'hedonic' pricing methods, used to translate quality improvements in products into price declines even if the actual prices are climbing. Automobiles that now sell for $30,000 used to sell for $10,000, but the inflation rate of automobiles is registered as declining because cars are technically more sophisticated. The consumer is supposed to be getting more 'car' per dollar, never mind no one can now buy a $10,000 car. Rents for apartments are registered as declining even when rent payment rises, because renters get air-conditioning, marble bathrooms and granite kitchens and high rise views. Yes, the higher up you are from the dirty, noisy street, the more housing you allegedly get per dollar, a real bargain in hedonic price while the square foot price goes through the roof. Thus prices can rise with no inflation. The US Bureau of Labor Statistics (BLS) expanded the use of hedonic regressions to compare quality differences in prices. Hedonic regressions attempt to estimate econometrically the value that households put on quality differences. These methods are used for measuring quality distinctions in the categories of apparel, rent and computers and peripheral equipment, and as of January 1999, they have been used for television prices. Research is under way to extend this technique to other categories. As this measuring technique is being extended to a growing number of goods, it has become a most important factor in reducing the US inflation rate, and intrinsically raises nominal GDP growth while the real GDP may actually decline. Its overall effect on monitoring the economy is kept secret from the public. The hedonic price adjustments for computer hardware and software alone went a long way to explain US growth and productivity miracles of the past decade. Another device to lower the measured US inflation rate is the shift to 'chained' price indexing, used since 1996. It changes the weight of items in a basket of goods on the assumption that people generally tend to shift their spending to cheaper goods. If the price of apples rises, people buy more pears, whose lower prices go into the price index instead. It is reasonable to suspect that US inflation before the 2001 crash had been hovering around 5% on the old basis, the highest in more than a decade, and virtually twice the rate in Europe. Inherently, this would have cut real GDP growth by about 1.5 percentage points and kept interest rate higher. All this suggests two important things: first, that the reported new paradigm increases in real GDP and productivity growth have been exaggerated by a statistical illusion; and second, that real interest rates have been far too low in relation to real inflation, which also explains the most rampant money and credit creation that the US has ever seen in recent history. Hedonic price indexing, by keeping the official inflation rate significantly lower than reality, not only played a key role in fueling the stock market boom, but also magnified the budget surplus during the Bill Clinton years and now understates the George W Bush deficit. Such indexing reduces social security payments and welfare benefits across the board, as well as undercutting inflation-related wage adjustments. Essentially, lower hedonic prices in computers and electronic gadgets are paid for by less money for food and housing of the elderly, the unemployed and the indigent as well as the average worker. The most troublesome fact is that the BLS does not keep contemporaneous calculations of the 'old' method for historical consistency, or reveal the degree of 'new' versus 'old' distortion. This cover-up opens government statistics to challenges of reporting honesty. Bill Gross of PIMCO, the world's largest bond fund, recently wrote: 'The CPI inaccurately calculates Americans' cost of living. Since social security and pension benefits as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year. After slamming the concept of the core CPI, the primary culprits I cited were the government's use of hedonic and substitution adjustments to lower the CPI by as much as 1% in recent years.' Look who's talking Greenspan made his famous 'irrational exuberance' speech at the American Enterprise Institute in Washington DC on December 5, 1996, when the Dow was at 6,437, more than twice of the pre-crash 1987 high. Yet the market kept rising and on January 14, 2000, the Dow peaked at a hyper-irrational level of 11,723. Two months later, after settling down to hover around 10,000, it experienced its largest one-day point gain in history - 499.19 - to close at 10,630.60 on March 16, 2000. John Maynard Keynes, who famously warned that markets can stay irrational longer than participants can stay liquid, must have been laughing from heaven. Greenspan either failed to link the rise of equity prices to an undervalued dollar or he deliberately skirted the issue because foreign exchange value of the dollar was the province of the Treasury, not the central bank. Either way, there was nothing irrational or exuberant about the effect of a fall in the exchange value of the dollar on a rise in US equity prices. It was a causal effect of a finance bubble fueled by an undervalued currency, especially when price increases can be viewed as causing no inflation through hedonic regression. On April 14, 2000, some 22 trading days after its largest one-day point gain, the Dow plummeted 617.78 points, closing at 10,305.77 - its steepest point decline in a single day historically so far. This volatility came purely from speculative forces operating on a bubble. The economy did not change in 22 trading days. When the Dow started its slide downward after peaking at a historical all-time high of 11,723 on January 14, 2000, the Fed lowered the ffr target from 6.5% on January 3, 2001, but could not halt the decline. After the Dow hit a low of 7,524 on March 11, 2003, the Fed lowered the ffr target to 1% on June 25, 2003 and kept it there until July 2004. Since then, the Dow, having climbed steadily to peak at 10,737 on February 11, 2004, fell back to 10,121 by August 31, 2004 when the ffr rose to 1.5% and closed at 9,988 on September 27 with the ffr at 1.75%. The US trade deficit was 3.5% of GDP at the time of the 1987 crash. It was 5.4% by the end of the first quarter of 2004 and rose to $166.2 billion for the second quarter of 2004, annualized to $664.8 billion, or 6.5% of US-projected GDP. With every passing day, more market watchers are joining the rank of those predicting looming financial crisis in US markets from excessive debt, particularly external debt. This danger cannot possibly be defused by China, regardless of what monetary policy it adopts. The dismal record of US monetary policy that induced the 1987, 1994, 1997 and 2000 crashes discounts the value of US advice for Chinese economic and monetary policy. Too much of a good thing By 1994, excess liquidity had fueled a worldwide equity rally that found its way into the Asian emerging markets, where it fed an unprecedented bubble of easy money in the form of undervalued currencies pegged to a falling US dollar. When the Asian emerging market rally crashed abruptly on July 2, 1997, starting with the Thai central bank running out of foreign exchange reserves trying to maintain its currency peg, followed by the Russian debt crisis in 1998, all the major central banks of the world reacted yet again by pumping even more liquidity into the global banking system. Initially, this flood of hot money inflated another bond bubble, which popped viciously in 1999. Then, more liquidity boosted equity prices further and provided the fuel for the enormous high-tech, Internet and telecom stock bubbles of 1999 and early 2000. The first three years of the 21st century saw a worldwide equity market crash followed by a recession plagued by overcapacity, over-indebtedness and over-leverage. And the responses of central banks were always more liquidity through lower short-term interest rates, which helped pump up the bond bubble in 2003, with the high fixed yields of outstanding long bonds translating into higher bond prices. Excess liquidity supported artificial rallies in housing prices, equities, corporate debt, commodity prices and mushrooming emerging markets, particularly China. Fools are calling it a US-led recovery. The Fed was caught again in its own ideological vice between contradicting interest rate policies to balance stimulating growth and preventing inflation. To avoid the boom-and-bust cycle, the Fed attempted to drive its monetary vehicle in opposite directions at the same time, simultaneously fighting inflation and stimulating the economy. Despite the Fed's announcement that it will raise interest rate to ward off inflation only at a 'measured pace', much talk of a repeat of a 1994 burst of the bond bubble has since been circulating. Pushing China to raise yuan interest rates now will only heighten the Fed's difficulty in keeping its 'measured pace' of interest rate hikes. Bond traders know that a five-year duration bond fund can drop 5% in value with an interest rate rise of one percentage point. Conversely, a one percentage point drop in rates would cause the same fund to increase by 5% in value. For long-term bond funds with effective durations of at least seven years, a rise in long-term interest rates of 2 percentage points over the next 12 months would cause at least a 14% drop in value. With yields on long-term Treasury bonds now around 5%, such an increase would translate into a loss of 9% or more for shareholders - similar to the last time the Fed tightened monetary policy in 1994. Many market participants intuitively concluded that long-term rates, following the ffr, would also rise, causing prices of outstanding long bond to decline. Speculators shorted Treasury long bonds - that is, they borrowed bonds to sell by promising to return them at a later date when they hope to buy back the same bonds at a lower price, profiting from the anticipated price differential. But long-term rates moved counter-intuitively in the credit markets. What the short-sellers failed to take into account was that foreign central banks now must buy each day between $1-2 billion of government bonds to park the additional foreign exchange reserves they earn from the US trade deficit. This was a factor of much smaller scale and consequence in 1994 when the bond market collapsed from the Fed raising the ffr target in quick succession. Because traders grossly misjudged the bond market's likelihood to rally in the face of the Fed tightening and stubbornly hanged onto conventional intuitive moves in expectation of an easy killing, throwing in the towel only when it was too late, the rush to cover short positions pushed bond prices even higher from technical effects of a short squeeze. On Wednesday, September 22, the 10-year-note fell below the psychological 4% (3.98%) for the first time since April when the Fed made its third tightening in 2004. That shifted market sentiment, and traders decided to stop throwing good money after bad just to humor Greenspan's fantasy of a recovery. They reacted to the rise in bond prices as a signal to buy more. It was the market's vote that the economy would not be heading north for a while. Shorting on bonds began when the non-farm payroll unexpectedly surged by 308,000 in March 2004, suggesting that an end might be in sight for the three-year-long recession and the corresponding bull run on bonds. In June, the 10-year note yielded 4.9%, only a few weeks before the Fed raised the ffr target for the first time in four years. Surely, bond prices had no place to go but down with a rising ffr, so figured the smart money intuitively. The market, however, moved counter-intuitively against the smart money. Morgan Stanley announced on Wednesday, September 22, that its fixed income trading revenue fell 35% in the quarter ended August 31 from the previous quarter due mostly to betting wrong on bond prices falling and rates rising. Most of the other big firms suffered similar fates. The October 6 Wall Street Journal reported on dismal second half 2004 bonus outlooks for Wall Street bankers and traders. At the current inflation rate of 1.5%, the neutral rate for ffr is 3.5%, double the current 1.75% target. According to Greenspan's announced strategy of the 'measured pace' of short-term interest rate rises, it may take a long time to raise seven steps of 25 basis points each to reach the level of neutrality, if ever, because below-neutral rates cause more inflation. The Fed may be pedaling hard to reach a moving target mounted on the front of his interest rate bike. The harder he pedals, the faster the target moves with him. But the longer the Fed takes to bring ffr back to neutral or restraining levels, the bloodier will be the crash of the bond market when it happens. And it will happen. Reality does not stop merely because some short-sellers lost money. Borrowing short-term to finance long-term bets is a deadly game that cannot be made safe by hedging, no matter how sophisticated the strategy. Hedging does not eliminate risk; it only transmits unit risk onto systemic risk. Once the genie of excess liquidity is out of the bottle, it is almost inevitable that more genies will get out of more and bigger bottles to keep the ongoing bubble from bursting to avoid nasty consequences for the financial system and the real economy. In a planned economy, liquidity provided by a national bank can serve a constructive purpose by financing planned growth. In a market economy, liquidity provided by the central bank lets the market allocate credit to the highest bidders rather than to where it is needed most in the economy. This means the liquidity often ends up fueling high-profit speculative bubbles. Central banks, led by chief wizard Greenspan, despite their central role in helping to create financial bubbles, nevertheless declare that bubbles cannot be anticipated and nothing can be done to prevent them. But central bankers comfort markets by claiming near-magical power to handle the destructive consequences of bubbles, through a one-note monetary policy of rate cuts to inject more liquidity, to save a bursting bubble by creating a bigger bubble. Greenspan asserted in his Jackson Hole symposium speech on August 30, 2002 that it is virtually impossible to diagnose a bubble with any certainty until it bursts, and even if a bubble could be diagnosed, it is not the task of central banks to target asset price, but only to control inflation and target growth. And even if central banks were to react to asset bubbles by raising interest rates, the extent of the rate hikes needed to reverse asset prices in times of exuberance might be so large that it would destabilize the real economy worse than a bubble bursting in its own course would. Greenspan has admitted more than once that one of the roles of a central bank is to support the market value of financial assets. China's reluctance to raise yuan interest rates reflects its adherence to the Greenspan argument that the rate hike needed to slow the overheated economy is so large that serious economic damage may result, making the cure worse than the disease, particularly when China's overheated economy does not manifest itself in a typical stock market bubble, since its stock market is not fully developed. Chinese stock market performance is more reflective of anticipatory reactions to policy reform momentum than actual economic conditions. China's price bubble is more like a mountain of foam of tiny bubbles, each with its own unique characteristics. The steel bubble is caused not by lack of demand but by bottlenecks of supply, particularly in electricity and transportation. On the other hand, the real estate bubble is caused by speculative over-investment in a stagnant purchasing power environment associated with low wages even for the growing population of middle-income earners. China has an export bubble, blown up by the US asset bubble. China's overheated inflation is not wage-pushed, but import-pushed. China is not the source of world inflation. It is a re-exporter of inflation from the skyrocketing rise of imported energy and commodity prices and from speculative profiteering. China also faces a problem in duplicate investment. Localities understandably copy the successful investment strategies of other localities. That itself should not be a bad thing for the world's largest disaggregated domestic market. But much duplicate investment in China has been concentrated in the export sector, where demand is externally constrained. The result drives otherwise profitable enterprises into bankruptcy and exacerbates the non-performing loan problem in the banking system. The problem then is not with the duplication of investment in China's huge domestic market, but that such duplication is not directed to expand the disaggregated domestic market, but concentrated in the relatively slow growth export market. Keep your dollars Led by Japan and China, East Asian central banks have been acting as lenders of last resort to rising US external indebtedness so that US consumers can continue to buy Asian exports. In the process, they are exporting real wealth to the dollar economy while subjecting their own local currency economies to mounting financial strains and risk of instability. Asian central banks now hold about $2.2 trillion, or 80% of the world's official foreign exchange reserves. Dollar-denominated assets constituted 70% of these reserves in 2003 while the US share of the world economy was only 30%. Japan's foreign exchange reserves are now in excess of $825 billion and China's now exceed $480 billion and growing. Together, they account for more than half of Asia's total foreign exchange reserves that are trapped in the dollar economy, while their own economies are forced to beg for foreign capital denominated in dollars. The US current account deficit reached a record 5.7% of GDP in second quarter of 2004 and a net national saving rate that fell to 0.4% in early 2003. It has since rebounded to 1.9% in mid-2004. The US now absorbs 80% of the world's savings not to finance economic growth, but to finance debt-fueled over-consumption collateralized by an asset bubble. In 2003, US net capital investment was 60% below 2000 levels. US net international indebtedness is expected to reach 28% of its GDP by the end of 2004. Since 1990, foreign-owned US assets increased from less than $2.5 trillion to approximately $10 trillion at the end of 2003 - a fourfold increase, and approaching the entire annual GDP. Over the same period, US ownership of foreign assets has increased from $2.3 trillion to nearly $7.9 trillion, resulting in a negative net international investment position for the US, amounting to about $2.7 trillion at the end of 2003 when valuing direct investment at market value. But in a fundamental sense, the entire $17.9 trillion of assets are in the dollar economy regardless of location or ownership. How is the US able to earn a significantly higher return on its assets abroad than foreigners earn on their assets in the US? Consider currency, which pays a zero return. At the end of 2003, dollars held abroad was estimated to be about $320 billion, whereas only a trivial amount of foreign currency is held in the US. America's currency circulating abroad is about half the total US currency outstanding. That means that the US economy only makes up half of the dollar economy. The reason the US can do this is because of dollar hegemony, a phenomenon created by the dollar, a fiat currency no longer backed by specie value such as gold since the collapse of Bretton Woods in 1971, continuing to assume the status of a major reserve currency for international trade. Trade is now a game in which the US produces dollars by fiat, and the rest of the world produce goods and services fiat dollars can buy. The dollar economy is in fact devouring not just non-dollar economies, but also the US economy. The dollar is like the rebellious computer HAL 9000 in Stanley Kubrick's 1968 film 2001: A Space Odyssey. Hal 9000 was programmed to believe that 'this mission is too important for me to allow you to jeopardize it', and proceeded to kill everyone who tried to disconnect it. Dollar hegemony kills all, pushing down wages everywhere with no exceptions made for nationality. As Pogo used to say: 'The enemy, it is us.' The issue is not whether Asian central banks will continue to have confidence in the dollar, but why Asian central banks should see their mandate as supporting the continuous expansion of the dollar economy at the expense of their own non-dollar economies. Why should Asian economies send real wealth in the form of goods to the US for foreign paper instead of selling their goods in their own economy? Without dollar hegemony, Asian economies can finance their own economic development with sovereign credit in their own currencies and not be addicted to export for fiat dollars. As for Americans, is it a good deal to exchange your job for lower prices at Wal-Mart?' Henry C K Liu is chairman of the New York-based Liu Investment Group

Subject: Re: Asian Times - US dollar/US inflation From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 20:32:15 (EST) Email Address: Not Provided Message: When was this interesting article written? I could not find this on the Asia Times site.

Subject: Re: Asian Times - US dollar/US inflation From: Pete Weis To: Terri Date Posted: Sun, Oct 31, 2004 at 21:54:32 (EST) Email Address: Not Provided Message: Oct 23, 2004. Entitled 'PART 1: Follies of fiddling with the yuan' By Henry C K Liu It's a very long piece. I posted approximately the last 5th of the text.

Subject: The Dollar and the Yuan From: Terri To: Pete Weis Date Posted: Mon, Nov 01, 2004 at 15:59:11 (EST) Email Address: Not Provided Message: http://www.atimes.com/atimes/China/FJ23Ad06.html China PART 1: Follies of fiddling with the yuan By Henry C K Liu Dollar hegemony emerged after 1971 from the peculiar phenomenon of a fiat dollar not backed by gold or any other species of value, continuing to assume the status of the world's main reserve currency because of the US's geopolitical supremacy. Such currency hegemony has become a key dysfunctionality in the international finance architecture driving the unregulated global financial markets in the past two decades. China's overheated economy is the result of hot money inflow caused by dollar hegemony. China's developing economy should be able to absorb huge amounts of capital inflow, but dollar hegemony limits foreign investment to only the Chinese export sector, where dollar revenue can be earned to repay capital denominated in dollars. Since China's export sector cannot grow faster than the import demands of other nations, excessive dollar capital inflow overheats the export and exported-related sectors, while other sectors of the Chinese economy suffer acute capital shortage. Overheated economies produce growth-inhibiting inflation through excessive import of money and sudden rises in prices for imported commodities and energy. The imported inflation is then re-exported, causing inflation in other parts of the global economy. Inflation causes interest rates to rise, which in turn causes unemployment and recession in all economies that are plagued by it. China's currency, known as the renminbi (RMB) yuan, has been pegged to a fiat dollar within a narrow band (0.3%) around an official rate of 8.28 to 1 since 1995. Even though the yuan is still not entirely freely convertible, any change in dollar interest rates will impact yuan interest rates due to the peg. While the linkage between exchange rate and interest rate is direct, the exchange rate policies of most countries do not always operate in sync with their interest rate policies, leading to imbalance and disequilibrium in their economies. This is because these two related policies impact different segments of the population differently. Thus conflicting political dynamics push them in conflicting directions. Capital generally prefers a strong currency since it reflects financial strength, while labor prefers a weak currency to boost exports that provide domestic employment. Capital prefers high interest rates for better returns while labor prefers low interest rates for cheaper consumer loans and affordable mortgages. China will be no exception as its moves toward interest rate liberalization and free currency conversion. Dollar hegemony enables the US to be the only exception from macroeconomic penalties of unsynchronized exchange rates and interest rates. The US, because of dollar hegemony, is the only country that can claim that a strong currency that leads to trade deficits is in its national interest in a global economy dominated by international trade. This is because a strong dollar backed by high interest rates helps produce a US capital account surplus to finance its trade deficit. While other economies must earn dollars to finance their dollar deficits, US trade and fiscal deficits need only be repaid with dollars that the US can print at will, not from dollars that the US must earn. That in essence is the benefit of dollar hegemony to the dollar economy. But while dollar hegemony is good for the dollar economy, it imposes costs of job loss and a debt bubble on the US economy.

Subject: Jobs From: Pete Weis To: All Date Posted: Sun, Oct 31, 2004 at 18:49:54 (EST) Email Address: Not Provided Message: From Comstock Partners: Still No End to the Soft Patch Recent Market Commentary: 10/28/04 Still No End to the Soft Patch As everyone has already noted, the stock market this year has been highly correlated to the daily and weekly fluctuations of oil prices. In our view, however, rising energy prices have only exacerbated the inherent weak spots in the economy resulting generally from the post-bubble structural imbalances, and specifically by the unusually weak employment situation that has put a lid on the growth of wages and salaries. As we have mentioned a number of times in these comments, payroll employment growth at this stage of past expansionary cycles averaged well over 7 percent from the official recession bottom, compared to less than 1 percent in the current cycle. If this cycle had followed the pattern of past periods there would be more than 9 million additional jobs in existence today. Furthermore most of the jobs that were added are part-time or temporary, and therefore pay less than the average. Although some argue that the household survey shows far more jobs added, we note that that these numbers are taken from a far smaller sample and include those who say that they are self-employed. We note, though, that most self-employed earn less than the average, and many have turned to self-employment out of desperation after they couldn’t find well-paying employment elsewhere. Other observers point to the relatively low unemployment rate as a sign of strength, although this figure too is somewhat deceptive. While the current unemployment rate of 5.4 percent is relatively low, this is largely a result of people dropping out of the labor force. Over a period of time the Bureau of Labor Statistics has gradually narrowed its definition of unemployment to a point where only those who have actively looked for a job in the past four weeks are considered to be unemployed. If the labor force participation rate was the same as it was in early 2000, the current unemployment rate would be a far higher 7.5 percent. The negative effect of poor jobs numbers on incomes is easy to see. In past expansionary cycles personal income adjusted for inflation and transfer payments was up an average of 12 percent at this stage, compared to only 4 percent now. To maintain even the present level of tepid spending, consumers have gone into record debt in addition to getting plenty of help from tax refunds and mortgage refinancing. Now mortgage refinancing is down over 80 percent from the peak, and the tax refunds are in the past. Under these circumstances consumer spending is likely to be restrained and the economic soft patch is likely to continue. With Taiwan Semiconductor recently confirming the continuing pattern of gloomy forecasts for the chip industry from leading companies, we see no relief from the tech sector as well.

Subject: Re: Jobs From: Ari To: Pete Weis Date Posted: Mon, Nov 01, 2004 at 05:02:15 (EST) Email Address: Not Provided Message: Unless economic growth and the rate of job creation increase, long term interest rates are likely to remain low even if the Fed continues to raise short term interest rates. Most unusual.

Subject: 2004 and 1994 From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 19:32:59 (EST) Email Address: Not Provided Message: http://www.comstockfunds.com/index.cfm/MenuItemID/139/MenuGroup/Home.htm October 14, 2004 Why 2004 is Not Like 1994 Comstock Partners Some observers compare this year’s stock market to that of 1994, when the major indexes traded within a narrow range as they have been doing for the first nine an a half months of 2004. They like to point out that ten years ago the market broke out into a long bull market and that the current market can do the same. The spread between the highs and lows of the S&P 500 was 9.2 percent in 1994, and 8.8 percent so far this year. Although it’s true that these are extremely narrow annual historical ranges, we believe that is where the superficial comparison ends. When digging more deeply into the technical and fundamental factors that move markets, the two periods are vastly different, and we think it is much more probable that the current stalemate will be resolved by a significant decline. In late 1994 investors were very pessimistic about the market, while they are quite optimistic today despite numerous problems. In late 1994 the Investors’ Intelligence survey showed only 32 percent bullish and 50 percent bearish, compared to today’s 54 percent bullish and only 24 percent bearish. In addition the cash-to-asset ratio in equity mutual funds was about 8 percent then, and only 4.1 percent now. When the market trades in a narrow range for lengthy periods the direction of the eventual breakout is highly likely to move against the prevailing sentiment. In terms of valuation the current market is substantially more expensive than in 1994. The S&P 500 is now selling at about 21 times this year’s trendline reported earnings compared to 15 times ten years ago. From that point the market soared to 37 times trend earnings in early 2000. That price-earnings ratio capped the bubble, and was 76 percent higher than the top of any market P/E for over a hundred years. It is unlikely to happen again anytime soon. In 1994 we were in a secular bull market, and the high end of the S&P 500 range was an all-time high. Today, we believe we are in a secular bear market with this year’s high a full 24 percent lower than the 2000 peak. Fundamentally there are other vast differences between the two periods. In the 12 months ended September 30, the economy added 1.7 million jobs in 2004 compared to a much larger 3.8 million jobs in 1994 on a smaller base. Today the consumer savings rate is down to 0.9 percent as opposed to about 8 percent in 1994. The trade deficit is $560 billion now and about $90 billion then. Household debt as a percentage of GDP is currently 86 percent compared to 64 percent 10 years ago. There is still one more item of great importance that should not be overlooked. In 1994 the introduction of the Netscape browser provided the first user-friendly graphics that made the internet accessible to hundreds of millions of individuals and businesses around the globe. This set off the great technology boom that culminated in the bubble that came to an end in 2000. There is nothing anywhere near that magnitude on the horizon today, and the major structural imbalances left over from the bubble have yet to be corrected. In sum, we believe that the odds are high that the breakout from the 2004 market trading range will be on the downside.

Subject: Drug Shortages in America From: Emma To: All Date Posted: Sun, Oct 31, 2004 at 16:56:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/31/weekinreview/31harri.html In American Health Care, Drug Shortages Are Chronic By GARDINER HARRIS ANGRY about not getting a flu shot? Imagine being unable to find supplies of a medicine that limits damage from a spinal cord injury, a medicine that improves the health of a premature baby, or a medicine that fights systemic bacterial infectious. Each of these drugs, and dozens of others, are in shortage in the United States right now. On any given day, 50 to 80 drugs, many of them life-saving, may be difficult or impossible to find. Some patients die waiting for them, or because a frustrated doctor substituted another drug without having adequate training. The larger story behind the flu vaccine shortage is that drug supply disruptions in the United States have become routine. The immediate causes are myriad - drug company mergers, production snags, low and high prices, even outbreaks of mad cow disease. But some economists say that they all stem from one central feature of the nation's public health system: no one is in charge. 'We're so concerned in this country about inappropriate public intervention that we're willing to pay very high costs - including shortages - to avoid that,' said Marc Roberts, a professor of political economy at Harvard University. In Europe, where governments play a much larger role in managing health care, shortages are much less common. For example, while America's supplies of flu vaccine have been short in three of the last four years, Europe's have not. 'Europe's peaceful market guarantees that supplies are available,' said Uwe Reinhardt, professor of health economics at Princeton University. But there is so little political support for government intervention in the health care market in the United States that Senator John Kerry took pains in a recent presidential debate to say that his plan for expanding access to health insurance would not create a new government program. And some economists say that the disadvantages of the European model of heavy intervention outweigh the advantages. Paul Ginsburg, president of the Center for Studying Health System Change, argued that drug shortages happen in the United States not because the government fails to intervene but because the health care market has a conscience that overrides market logic. 'If you could just double or triple the price whenever the supply chain was disrupted, it might be worth it to have excess capacity,' Mr. Ginsburg said. But such price increases would be decried as unseemly profiteering. 'It is the inability of the price system to react to these disruptions that is what leads to the potential for shortages,' he said. American hospital pharmacists say that chronic shortages have obliged them to become crisis managers.

Subject: The Future of Health Care? From: Emma To: All Date Posted: Sun, Oct 31, 2004 at 11:03:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/31/business/yourmoney/31hmo.html? Is Kaiser the Future of American Health Care? By STEVE LOHR AFTER 18 years in private practice, Dr. Victor Silvestre was exhausted from his lonely battle, day after day, with a health care system that seemed to be working against him. A general practitioner, Dr. Silvestre found it increasingly difficult to get his patients appointments with specialists, who tended to focus on lucrative procedures instead of routine care. Paperwork and haggling with insurance companies, he said, took more and more time. 'There just had to be a better way,' he recalled. For Dr. Silvestre, the better way was not across the border in Canada, or in some affluent nearby suburb, but in his own backyard, in Oakland. Two years ago, he joined Kaiser Permanente, the huge health maintenance organization based here. 'So many of the solutions, the ingredients of a more rational system for delivering health care, were there,' he said. It may seem unlikely, given Kaiser's past image as a ham-handed H.M.O., but plenty of others are reaching the same conclusion. High-level visitors from across the political spectrum - the Bush administration and National Health Service of Britain, for example - are coming to California these days to look at Kaiser as an institution that is actually doing some of the things needed to improve health care. Obviously, there is no single model for revamping the nation's costly, disjointed health care system, and Kaiser certainly has its share of problems. But according to economists and medical experts, Kaiser is a leader in the drive both to increase the quality of care and to spend health dollars more wisely, using technology and incentives tailored to those goals. 'Quality health care in America will never be cheap, but Kaiser probably does it better than anywhere else,' said Uwe E. Reinhardt, an economist at Princeton who specializes in health issues. HEALTH care systems in most industrialized countries are in crises of one form or another. But the American system is characterized by both feast and famine: it leads the world in delivering high-tech medical miracles but leaves 45 million people uninsured. The United States spends more on health care than any other country - $6,167 a person a year - yet it is a laggard among wealthy nations under basic health measures like life expectancy. In a nutshell, America's health care system, according to many experts, is a nonsystem. 'It's like the worst market system you could devise, just a mess,' said Neelam Sekhri, a health policy specialist at the World Health Organization in Geneva. In this political season, the health care debate has been mostly about who will pay the bill. President Bush talks about tax credits and health savings accounts that are intended to give people more control over their care but would also mean that they would pay more out of their own pockets. Senator John Kerry wants the government to pay more, and he has proposed a major, and costly, program to cover the uninsured. The favored solution of many liberals - and of no small number of health care experts - is a single-payer system of health insurance, covering the entire population and underwritten by the government. For the foreseeable future, that is considered politically off-limits, which was the message Washington absorbed from the abandoned effort to fashion a national health program in the Clinton administration. How to finance health care is only one side of the problem. The other is how to deliver the care more intelligently, and that is where the Kaiser experience holds lessons. Given the demands of an aging population and steady advances in medical technology, national health spending will continue to climb. Yet by all accounts, there is plenty of waste - estimates range up to 30 percent or more of total spending - from unnecessary clinical tests, hospital stays and prescriptions, and the bedeviling sea of paper used to handle bills, claims and patient records. 'We're not going to spend less, but figuring out how to get the most value out of our health spending is going to be the big issue of the future,' said David Cutler, a health care economist at Harvard. But Kaiser as a model? Wasn't Kaiser, an H.M.O., part of the 'managed care' movement that faltered in the 1990's amid protests from doctors and patients? In fact, Kaiser, with its origins in the 1930's and 1940's, when the industrialist Henry J. Kaiser provided health care for his construction and shipyard workers, has always been a hybrid. The managed care concept of the 1990's was about having an outside bean counter, usually an insurance company, looking over the shoulder of the doctor - managing costs instead of managing care. Kaiser has a different setup with different incentives. It emphasizes preventive care and managing chronic diseases like heart disease and diabetes to keep people healthier. And that saves money because healthier people require less costly care like hospitalization.

Subject: Long Term Stock and Bond Returns From: Terri To: All Date Posted: Sun, Oct 31, 2004 at 10:48:19 (EST) Email Address: Not Provided Message: http://www.russell.com/ww/Search/default.asp Single-Asset vs. Multi-Asset Portfolios For 30 years of S&P, Small Cap, International, REIT, and Bond Index returns, type this heading in the Russell search box.

Subject: REITs are Stocks From: Ari To: Terri Date Posted: Sun, Oct 31, 2004 at 14:22:48 (EST) Email Address: Not Provided Message: Real Estate Investment Trusts that makes up the REIT Index are all publicly traded stocks. These stocks can all be bought on the NYSE or the NASDAQ. All the stocks in the REIT Index are included in the major stock indexes.

Subject: Re: REITs are Stocks From: Ari To: Ari Date Posted: Mon, Nov 01, 2004 at 04:52:26 (EST) Email Address: Not Provided Message: REITs only differ from other stocks in paying dividends that are partly a return of capital and partly dividends that are taxed at the same rates as interest payments from bonds. Right now the price to earning ratio of the REIT Index is 30, which strikes me as most expensive. Unless property rents are going to rise rapidly, REITs seem to be most expensive investments.

Subject: REIT Prices From: Ari To: Ari Date Posted: Mon, Nov 01, 2004 at 05:25:11 (EST) Email Address: Not Provided Message: Also, the taxable dividend on the REIT Index is 4.2%. This is a very low dividend by historical standards. What is pushing the price of the REIT Index higher, are rising commercial property prices and expectations that these prices will continue to rise.

Subject: Re: REIT Prices From: David E... To: Ari Date Posted: Mon, Nov 01, 2004 at 14:13:35 (EST) Email Address: Not Provided Message: Ari - Here are some counter views. Maybe I will REIT's claim that when interest rates/inflation rise their business benefits in an expansionary time. Or, falling rates/deflation lowers their cost and makes them competive. REIT's correlations are low to stocks and bonds. The prelude now is the same as the early 70's. A war unpaid for and oil price shocks. There is a better than average chance of a repeat of 70's hyperinflation. Owning hard assets that pay dividends seems like a good idea. Inflation protection with TIPS is very expensive. David

Subject: Re: REIT Prices From: Terri To: David E... Date Posted: Mon, Nov 01, 2004 at 14:38:06 (EST) Email Address: Not Provided Message: The analysis makes complete sense to me. If an investor has owned the REIT Index for several years, then stay stay stay. For new money the REIT Index is most expensive unless there is a sharp rise in inflation. Hyperinflation however can not occur as long as the Federal Reserve can raise interest rates, and the Fed will surely raise rates when inflation picks up even a little. The Fed spent years getting inflation lower and lower from 1982. The Fed mistake in not stifling inflation in the 1970s is not likely to be repeated.

Subject: REITs and TIPS From: Terri To: Terri Date Posted: Mon, Nov 01, 2004 at 15:41:15 (EST) Email Address: Not Provided Message: What do you mean when you write that inflation protection with TIPS is very expensive? Are TIPS too expensive? Why do you not use the Vanguard TIPS fund? Going forward I prefer High Yield Corporate Bond Fund, because TIPS have become so expensive. But, High Yield Corporate has significant quality risks. Still, I do not think hyperinflation is a realistic possibility. Moderately more inflation should make large cap stock indexes in America and Europe good enough hedges.

Subject: Re: REITs and TIPS From: David E... To: Terri Date Posted: Mon, Nov 01, 2004 at 17:26:31 (EST) Email Address: Not Provided Message: The real rate of return on tips is 1.7%. (Go to vanguard for the yield rate). I have a feeling that REITS adjusted for risk pay more than that, so I call TIPS expensive. I say feeling because I am working to know that with a higher degree of certainty. TIPS are a different Asset Class not closely correlated with REITs, so you might want both. Stocks offer inflation protection, but I am considering REITS for the following two reasons. 1. Stocks and REITS don't have a high degree of correlation. 2. REITS are in my mind a harder asset than stocks. With stocks, value has three main components - facilities, people and goodwill. REITS have much harder assets because most of the value is the facility. Hard assets, like gold and real estate have held value in the past. Terri- Last time – the problem was stagflation. A close relative of what Greenspan was afraid of a few years ago. Deflation. And the problem is the same, how to keep interest rates low to encourage growth and at the same time keep rates high to discourage inflation. Greenspan has some untried tricks left in his bag, and I hope they work.. If they don’t, REIT’s might take up some slack.

Subject: Re: REITs and TIPS From: Terri To: David E... Date Posted: Mon, Nov 01, 2004 at 18:40:23 (EST) Email Address: Not Provided Message: REITs make long term sense. But the price earning ratio of the REIT Index is high at 30, and the taxable dividend is low at 4.2%. I would at least use averaging in entering the fund, to protect against short term swings. The rate of return on TIPS just does not seem interesting. I would rather use the Large Cap Value Index or Small Cap Value Index.

Subject: I'll Take Value From: Terri To: Terri Date Posted: Mon, Nov 01, 2004 at 19:52:29 (EST) Email Address: Not Provided Message: The Vanguard TIPS fund has a yield of 1.42%. When we can get a dividend of 2.42% from the Value Index, why should we use TIPS? Remember, dividends are taxed at the 15% level unlike interest payments from TIPS.

Subject: Re: I'll Take Value From: David E... To: Terri Date Posted: Tues, Nov 02, 2004 at 13:07:22 (EST) Email Address: Not Provided Message: Good, I am glad that you looked it up the TIPS yield, butI think that number is the real yield, nominal yield for 6 year govt instruments is somewhere just under 4%.

Subject: Lowest Personal Saving Rate Ever From: Emma To: All Date Posted: Sat, Oct 30, 2004 at 21:08:15 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/30/business/30econ.html? Growth Rate of Economy Edged Higher Over Summer By EDUARDO PORTER The economy picked up a little more speed during the summer quarter from July through September, expanding at a 3.7 percent annual rate, the government reported yesterday. The growth in the nation's output of goods and services, according to the Commerce Department's initial estimate, exceeded the 3.3 percent rate registered in the second quarter - when the economy was held back by a surge in energy prices, which took a big bite out of the budgets of American households and dented consumer spending. But despite the third-quarter improvement, some analysts and business executives expressed worries over the economy's vulnerabilities. Growth could be crimped by everything from continued high oil prices and lackluster income gains to the deepening trade and balance of payments deficits.... Perhaps most importantly, consumers may have squeezed themselves into an excessively tight spot. Even as the spending accelerated in the third quarter, income growth slowed, leading to a fall in the personal savings rate to 0.4 percent of disposable income. That is the lowest ever.

Subject: Re: Lowest Personal Saving Rate Ever From: Terri To: Emma Date Posted: Sun, Oct 31, 2004 at 12:04:24 (EST) Email Address: Not Provided Message: 'In another sign of economic stress, The Wall Street Journal reported that big auto dealers have been putting pressure on auto companies like Ford and General Motors to cut back further on car production.' Why should there be a surge in business investment unless there is a promise of burgeoning consumer or government demand? Capacity utilization is historically low several years in a recovery, and business leaders seem intent on investing for efficiency not expansion. Also, expansion is possible abroad.

Subject: Re: Lowest Personal Saving Rate Ever From: Emma To: Emma Date Posted: Sat, Oct 30, 2004 at 21:17:54 (EDT) Email Address: Not Provided Message: 'Perhaps most importantly, consumers may have squeezed themselves into an excessively tight spot. Even as the spending accelerated in the third quarter, income growth slowed, leading to a fall in the personal savings rate to 0.4 percent of disposable income. That is the lowest ever.' There are times when the lack of household saving and government deficit seem especially troublesome. Japan may have had a serious government deficit, but there was a large personal saving rate to cushion the effect and contribute to a balance of payments surplus. Oh well.

Subject: Re: Lowest Personal Saving Rate Ever From: Ari To: Emma Date Posted: Sun, Oct 31, 2004 at 06:02:02 (EST) Email Address: Not Provided Message: This low personal saving rate means consumers will have to extend debt to increase spending. This may mean that unless there is another stimulus plan from the coming Administration, there is little reason to believe the rate of economic growth will soon increase.

Subject: Re: Lowest Personal Saving Rate Ever From: time To: Ari Date Posted: Sun, Oct 31, 2004 at 10:06:08 (EST) Email Address: Not Provided Message: 'there is little reason to believe the rate of economic growth will soon increase' not necessarily, many people here have complained about how corporations have made record profits the past year or so, but have kept money on the sidelines. It is possible that businesses might start spending that money at a significant rate after nov 2, once they have a better idea of who is in the white house and how their policies may affect their industry. The missing ingredient in the recovery has been business investment, and its quite possible business may feel much more comfortable investment decisions once they know what the landscape will look like over the next 4 years.

Subject: Re:The wolf at the door From: El Gringo To: time Date Posted: Sun, Oct 31, 2004 at 16:02:59 (EST) Email Address: nma@hotmail.com Message: '...Until recently, some argued that America's current-account deficit was sustainable because foreign investors were eager to buy American assets to take advantage of the economy's faster productivity growth and hence its higher returns. But private inward investment has slumped, leaving America dependent on foreign central banks. And foreign savings are no longer financing investment and hence future productivity gains as they were in the late 1990s. Foreigners are now financing consumption and government borrowing. America's current-account deficit largely reflects puny domestic saving, so dollar bulls often argue that a fall in the dollar is neither necessary nor sufficient to trim the deficit. But Stephen Roach, chief economist at Morgan Stanley, reckons that a weaker dollar would spark a rise in real bond yields, as foreign creditors demanded extra compensation for currency risk. That would slow consumer spending, boost saving and reduce the deficit....'

Subject: Re: Lowest Personal Saving Rate Ever From: Pete Weis To: time Date Posted: Sun, Oct 31, 2004 at 11:47:34 (EST) Email Address: Not Provided Message: 'The missing ingredient in the recovery has been business investment, and its quite possible business may feel much more comfortable investment decisions once they know what the landscape will look like over the next 4 years.' time. That's a very generalized statement. Since 2000 the government has been pumping record economic stimulus. 2003 saw a substantial market rally, yet little of that money found its way into capital expenditure. In fact executives in US companies showed little faith in the ability of the US consumer to expand demand for what their companies were selling. So they 'sold stock options at record levels' throughout the rally of 2003 and through the first half of 2004 according to Thompson First Call'. That's how we get record inflows into equity markets by small investors in early 2004 while equity markets remained flat, even dropping slightly. Regardless of who wins the coming election, American businesses will not expand business investment if they don't believe there are increasing consumers at the end of their product lines. Job growth and wage growth is simply not their yet for the US consumer. Because of that, this economy has become dependent on the ability for US consumers to extract equity out of a housing market now propped up by reverse mortgages, ARM's, 40 year mortgages, little-to-no-money down, monthly payments up to 50% of gross income, and negative real interest rates. The money 'on the sidelines' will stay on the sidelines and not find its way into capital investment until both the job and wage situation and personal debt situation truely improve. Articles this week talk about Ford and GM corporate bonds on the brink of junk status. GM is getting ready to 'shut down 5 plants, laying off over 10,000 workers' in the process. Airlines pilots and other airlines employees are taking '30% cuts or more'. Articles in the Silicon Valley area talk about a build-up of inventory for chip makers due to a 'slowing of business'. The dollar is being threatened by the 'twin deficits' to the extent that our past Federal Reserve Chairman, Paul Volker suggests a 75% chance of a financial crisis in the next 5 years. The truth - as a recent Economist article stated - neither presidential candidate really dealt with these issues. Perhaps, as the article stated, a slight majority of economists gave Kerry an edge since he talked about ways to reduce the budget deficit. The war in Iraq has served to deflect the 'debate' from very serious economic issues.

Subject: Re: Lowest Personal Saving Rate Ever From: time To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 13:07:38 (EST) Email Address: Not Provided Message: 'Job growth and wage growth is simply not their yet for the US consumer' sounds like a chicken or the egg argument, business need to spend in order to have job growth, but you need increasing income for business to spend. My whole argument on money on the sidelines and that it might be invested in the near future comes from a combination of articles/interview with ed yardeni and jim oelschlager over at oak associates and why they feel now is the time to invest in growth stocks.

Subject: Re: Lowest Personal Saving Rate Ever From: Pete Weis To: time Date Posted: Sun, Oct 31, 2004 at 14:35:17 (EST) Email Address: Not Provided Message: 'sounds like a chicken or the egg argument' time. You are exactly right. This is the great debate between the supply siders and demand siders. It has to do with where the economic stimulus should be targeted. Right now, the supply siders control the stimulus targeting. But as you stated - business expenditure does not seem to be there. If it hasn't been there for the last four years, since the Fed started its easy money policies, how do you expect it to change in the next four years depending on which candidate is elected?

Subject: Negative Real Interest Rates? From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 12:29:08 (EST) Email Address: Not Provided Message: Please explain why you believe there are negative real interest rates? This is interesting.

Subject: Re: Negative Real Interest Rates? From: Pete Weis To: Terri Date Posted: Sun, Oct 31, 2004 at 13:32:13 (EST) Email Address: Not Provided Message: 'The CORE is running at just under 2%,' the barkers shout with glee because a low CORE number tells us that we can continue to run monetary policy with NEGATIVE REAL INTEREST RATES and fiscal policy with $400 billion deficits.' - Bill Gross Terri. Rather than repost the Bill Gross piece 'Haute Con Job', I'm posting Fleckenstein's comments on the the Bill Gross' article published by PIMCO. The capital letters for negative real interest rates are mine. Fom MSN Money: The government's inflation con job They tell us prices are under control and 'prove' it with cynical manipulation of data. That’s why fixed-income investments like bonds offer little value. By Bill Fleckenstein In the nearly eight years since I began writing my daily column, I have been rather vocal on the subject of fun with numbers, both corporate and governmental. With a couple of little tricks at its disposal, the government has made a practice of understating inflation, and by extension, overstating GDP and productivity. I have also discussed this many times in the Contrarian Chronicles, most recently in 'Yet another way the government hides inflation' and 'How the government manufactures low inflation.' Despite the fact that there are potentially damaging consequences to this statistical manipulation, it has attracted little attention and aroused scant outcry. That may change prospectively, thanks to the publication last week of an important article titled 'Haute Con Job,' written by someone considered the country's foremost authority on bonds, Pimco's high-profile portfolio manager, Bill Gross. Given Gross’ stature and widespread audience, perhaps the story will get some legs. If so, this thought process is negative for fixed income, negative for the dollar and bullish for the metals, as a crisis of confidence undermines the credibility of all the government data distorted by these machinations. Banks and insurers check your credit. So should you. A mini-oeuvre on numerical maneuver I am going to quote liberally from Gross' article, starting with his conclusions, just so you'll know from the outset where he comes down on these subjects. (Here's the link if you want to print it out and read it yourself.) 'The CPI as calculated may not be a conspiracy, but it's definitely a con job foisted on an unwitting public by government officials who choose to look the other way or who convince themselves that they are fostering some logical adjustment in a New Age Economy dependent on the markets and not the marketplace for its survival. If the CPI is so low and therefore real wages in the black, tell me why U.S. consumers are resorting to hundreds of billions in home equity takeouts to keep consumption above the line. If real GDP growth is so high, tell me why this economy hasn’t created any jobs over the past four years. 'High productivity? Nonsense, in part -- statistical, hedonically created nonsense. My sense is that the CPI is really 1% higher than official figures and that real GDP is 1% less.' Gross backs up his 1% estimate with some work his firm has done. I wouldn't be surprised to find out that it's even higher, though there's really no way to know for sure. Rotten-to-the-core inflation Next, before hacking away at the hedonic and substitution fiddles used by the government, Gross pops off about the whole nonsense of core inflation -- which is, of course, another subject near and dear to my heart and completely and totally absurd -- because it strips out food and energy, two things that everybody must have: '(There's a) con job perpetually foisted on the American public about the low level of inflation. 'Inflation under control' -- (ex food and energy, of course) shout the carnival barkers. 'The CORE is running at just under 2%,' the barkers shout with glee because a low CORE number tells us that we can continue to run monetary policy with negative real interest rates and fiscal policy with $400 billion deficits. A low CORE number allows us to pretend that American productivity is the best in the world, that the dollar should be strong, and that the markets, by golly, are going up. No matter that a gallon of gasoline is over two bucks or that a half-gallon of milk will set you back $3.69; the CORE is under 2%.' Inflation ointment: Apply liberally to affected areas But as you'll see, the core rate is not Gross' major beef. It's the nonsensical extremes to which hedonic adjustments have been taken, something that my good friend Jim Grant has written about on many occasions as well. Though the hedonic adjustments began as a way to turn computer horsepower into price reductions, they have since been applied to lots of other goods. As Gross notes: 'In 1998, the methodology was adopted for computers -- surely the biggest step backward in realistic inflation calculations. Since then, the BLS has expanded the concept to include audio equipment, video equipment, washers/dryers, DVDs, refrigerators and, of all things, college textbooks! Today, no less than 46% (my emphasis) of the weight of the U.S. CPI comes from products subject to hedonic adjustments,' Gross wrote. That's 46% and probably growing. Speaking of college textbooks, I bumped into a young college student who mentioned that his new math book cost $175. (Having been a math major myself, I don't recall paying much over about $30 a book.) It would be interesting to know how one calculates that the book has become six times better. Meanwhile, Gross notes that if you were to strip out some of the hedonic magic since 1987, as his firm has done, the PCE (or personal consumption expenditures, which is Federal Reserve Chairman Alan Greenspan's favorite inflation statistic) would turn out to have been between 0.5% and 1.1% higher every year. Obviously, that number adds up over time. Substitution is no substitute Continuing, Gross tackles the government's other intellectually dishonest stratagem, namely, substitution: 'In addition, when 'substitution bias' (a BLS maneuver that follows your preference for Chicken McNuggets vs. a Quarter Pounder) is eliminated, the gap gets even worse. For those of you sophisticated economists who feel the substitution bias is more than justified, chew on this for a second: If you substitute a pound of chicken for a pound of beef because it's cheaper, then switch back to beef later on because it came back down in price, the overall round trip which resulted in no ultimate substitution and no relative price change winds up reducing the stated PCE. Oh man, what a con.' Gross then discusses the motives behind the government's (and Greenspan's) reasons for believing these rather unbelievable numbers: 'Deceptive hedonic/substitution adjustments also serve a government burdened not only with hundreds of billions of annual deficits as far as the eye can see, but laden with a demographically aging U.S. workforce rapidly approaching Social Security time. By fudging on inflation, they pay less, and the amount could cumulatively run into the hundreds of billions over the next few decades.' The con job that hurts many Lastly, Gross points out who is penalized by this cheating: 'They disserve, of course, all of those who receive Social Security, as well as other private pensioners dependent on an accurate accounting of prices paid. They disserve buyers and holders of TIPS -- inflation protected securities -- which adjust inadequately to a faulty and near fraudulently calculated CPI that one day could total billions of dollars per year for TIPS holders. And they disserve all owners of U.S. Treasury obligations -- including foreign central banks and institutions. . . .' One of these days, the world is going to figure this out. There will be a run on the dollar, and at some point, Treasury yields will be affected. One of my favorite expressions (besides this: In a social democracy with a fiat currency, all roads lead to inflation.) is: We know the government is going to cheat us, via inflation. The only question is whether they offer us a rate of interest that compensates us for this cheating. Bonds' warts That's the reason I find fixed income unattractive. Bill Gross' arguments are the very same ones I have long made for why I don't like TIPS. Yes, maybe they're the best of a bad lot. But I would prefer not to buy longer-dated fixed income until such time as I thought I was being compensated for the risks. That is not to say I would be willing to short fixed income. I wouldn't, because I think the upcoming economic weakness may benefit that market. However, I don't consider bonds a sound investment. For folks who need income, I would not want to own anything longer than just a few years, a position I have maintained for quite some time.

Subject: Precise definition From: Pete Weis To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 14:20:07 (EST) Email Address: Not Provided Message: Real Interest Rate = Nominal Interest Rate - Inflation. If the CPI is being significantly understated, then the 'real interest rate' is more negative than we are being led to believe. Hence we have many investers looking for riskier strategies to keep up with inflation, since fixed income investments, especially here in the US are so poor. Insiders, IMO, are taking advantage of this situation and basically extracting wealth from small investors. I'm not saying that all insiders are thieves (like the Enron and Worldcom execs). However I'm saying that when 401K money heads their way, they don't see any reason to recycle it back into their companies when they don't expect business to get better. Rather they award themselves large stock options and then cash them in. This has been going on for some time now. I posted a piece entitled 'The Stock Market' by Mark Cuban which talked about this. Remember 'the thousand little cuts'?

Subject: Re: Precise definition From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 14:32:09 (EST) Email Address: Not Provided Message: 'Real Interest Rate = Nominal Interest Rate - Inflation: If inflation is understated, then the 'real interest rate' may be negative.' What troubles me is not finding academic economists like Brad DeLong or Paul Krugman who will support complaints about the way in which the price indexes are calculated. These posts are excellent arguments, but not convincing.

Subject: Being convinced From: Pete Weis To: Terri Date Posted: Sun, Oct 31, 2004 at 15:18:02 (EST) Email Address: Not Provided Message: Terri. What I actually said in my post: 'Real Interest Rate = Nominal Interest Rate - Inflation'. and 'If the CPI is being significantly understated, then the 'real interest rate' is MORE NEGATIVE THAN WE ARE BEING LED TO BELIEVE'. Few would argue (save pure classical economists) that the Fed shouldn't adjust rates to some degree (sometimes negative) to stimulate the economy when needed. But they need to be honest about the numbers they publish. I think if you have to wait to get a majority of economists to agree that the present government is 'fudging' the numbers or that most companies are still 'fudging' earnings reports, then you'll have to wait forever. If, on the other hand, you feel that you have done your 'homework' and have confidence in your own ability to sift through the conflicting information out there and evaluate which are the more strongly and thoroughly supported arguments, then you will fair better than most of the rest of us. No one can 'convince' us of anything, ultimately we 'convince' ourselves and whether we're bearish or bullish we usually 'convince' ourselves of what we WANT to believe. In the 'real world' of events this has no bearing other than the influence that it has on our 'herding' behavior.

Subject: Re: Being convinced From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 18:57:01 (EST) Email Address: Not Provided Message: Real Interest Rate = Nominal Interest Rate - Inflation. If the CPI is being significantly understated, then the 'real interest rate' is MORE NEGATIVE THAN WE ARE BEING LED TO BELIEVE. When computing Real Interest Rate numbers, what interest rate is used? Do we use the 10 year Treasury Note? What Consumer Price Index number should we use? Why do you write that the Real Interest is negative?

Subject: Re: Being convinced From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 16:01:49 (EST) Email Address: Not Provided Message: Still, I can find no academic economist who agrees that inflation is significantly above the consumer price index readings. I reshaped your explanation to make it clear for myself. Tomorrow we may find Paul Krugman or Alan Blinder or Brad DeLong questioning the inflation numbers, and I will adjust immediately. Even now, I have portfolio positions protecting against an increase in long term interest rates. But, the bond market number make sense to me and I accept the inflation figures for now. All the warnings are warranted, and attended to. Thank you so much!

Subject: Re: Being convinced From: Pete Weis To: Terri Date Posted: Sun, Oct 31, 2004 at 18:44:45 (EST) Email Address: Not Provided Message: 'Still, I can find no academic economist who agrees that inflation is significantly above the consumer price index readings.' Unfortunately Terri, this is generally true - there is a strange silence and not just about this issue.

Subject: Silence From: Terri To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 19:00:25 (EST) Email Address: Not Provided Message: Another academic silence revolves about the ethics violations that Eliot Spitzer is fighting. I may argue with you, but I am asking about these issues.

Subject: Energy Stocks From: Terri To: All Date Posted: Sat, Oct 30, 2004 at 19:35:28 (EDT) Email Address: Not Provided Message: Energy companies have had fine growing earnings since 1999, and the stocks have been strong since then. Holding on to energy stocks makes sense for a long term investor. The question an investor must ask however is whether to continue to buy the stocks after this sort of run as a further hedge against a climb in energy prices.

Subject: Re: Energy Stocks From: time To: Terri Date Posted: Sat, Oct 30, 2004 at 20:01:12 (EDT) Email Address: Not Provided Message: are you saying you should be overweighted in energy stocks relative to the rest of the equity market?

Subject: Re: Energy Stocks From: Terri To: time Date Posted: Sat, Oct 30, 2004 at 20:18:30 (EDT) Email Address: Not Provided Message: Fine question. The S&P Index energy sector is 7%, while the Value Index energy sector is 12.7%. There is no reason to be overweighted in energy stocks after a 5 year run of 18% returns unless an investor is convinced that 50 dollar a barrel oil and natural gas to match will persist for another 5 years. Chasing returns makes me wary, so I would stay at even weight to either the S&P or Value Index. What do you think?

Subject: Weighing Sectoirs Stocks From: Terri To: Terri Date Posted: Sat, Oct 30, 2004 at 20:36:53 (EDT) Email Address: Not Provided Message: Starting points are important. This is not the time to overweight Energy or Real Estate Investment Trust stocks. Large drug and medical equipment makers? Possibly.

Subject: Re: Weighing Sectoirs Stocks From: time To: Terri Date Posted: Sat, Oct 30, 2004 at 22:12:23 (EDT) Email Address: Not Provided Message: REITS aren't part of the Wilshire 5000, S&P 500, etc; energy is. My question was pertaining to the equity allocation of a portfolio. Kind of confused why you highlight energy, but it appears you believe you should have the same allocation of the total market. Why not point out consumer durables, technology, etc? just trying to figure out the rationale. I think you might be a little confused about REITs, as you called them stocks before, check out this link, it might give you a better idea of what REITs are http://www.reitnet.com/reits101/

Subject: REITs From: Terri To: time Date Posted: Sat, Oct 30, 2004 at 22:36:56 (EDT) Email Address: Not Provided Message: Through 1998 energy stocks were negative, because oil prices fell as low as 12 dollars a barrel. That seemed to be a perfect time to buy the Vanguard Energy Fund. Not that I anticipated 50 dollar a barrel oil, but certainly prices higher than 12 dollars. What I try to do is think ahead several years and look for where value might be. That may involve overweighting a market sector, because I find it attractive. Of course, the same could have been done with the REIT Index in 1998 or 1999. REITs are also part of the Vanguard Mid Cap and Small Cap Value Indexes. Thank you for the link to reitnet. Now, to think about your question on consumer durables and technology.

Subject: Re: REITs From: time To: Terri Date Posted: Sun, Oct 31, 2004 at 09:54:38 (EST) Email Address: Not Provided Message: i was unaware REITS were in vanguard's mid cap (1.89%) and small cap value funds (.97%), but there allocations are so small they most likely have impact on the total return of portfolio. I'm quite suprised they would include a different asset class in a equity portfolio, but i'm sure they see it as adding value.

Subject: Re: REITs From: Terri To: time Date Posted: Sun, Oct 31, 2004 at 12:50:33 (EST) Email Address: Not Provided Message: REITs are part of the Vanguard Total and Extended Stock Market Index Funds, also the Mid and Small Cap Index Funds. All REIT Index components are part of the main indexes. These past 30 years, the retunrs of the REIT Index are quite impressive.

Subject: Re: REITs From: time To: Terri Date Posted: Sun, Oct 31, 2004 at 13:17:53 (EST) Email Address: Not Provided Message: They may be part of vanguard funds, but my point is REITS are not stocks, nor are they part of the major indices such as S&P, Russell, Wilshire, etc. You can't go out and buy one a REIT in the NYSE, NASDAQ, etc.

Subject: REITs are Stocks From: Ari To: time Date Posted: Sun, Oct 31, 2004 at 14:09:02 (EST) Email Address: Not Provided Message: No. I just checked each of the top holdings of the REIT Index and all can easily be bought on the NYSE and other exchanges. REITs are stocks.

Subject: REIT Returns From: Ari To: Terri Date Posted: Sun, Oct 31, 2004 at 05:55:41 (EST) Email Address: Not Provided Message: Vanguard lists Real Estate Investment Trusts as equity or stocks. The REIT Index is listed in the small cap value stock category. The dividends of REITs are partly return of capital, and partly treated as income and taxed at our regular income tax brackets rather than at 15% as other dividends. The REIT Index has a terrific long term record according to the data from 1973 from Russell. A higher return than the S&P with less variability.

Subject: Long Term REIT Returns From: Terri To: Ari Date Posted: Sun, Oct 31, 2004 at 10:29:07 (EST) Email Address: Not Provided Message: http://www.russell.com/ww/Search/default.asp Single-Asset vs. Multi-Asset Portfolios For 30 years of REIT Index returns, type the heading in the Russell search box.

Subject: Re: REIT Returns From: time To: Ari Date Posted: Sun, Oct 31, 2004 at 10:00:01 (EST) Email Address: Not Provided Message: vanguard may list REITs as equity or stocks, but they are definitely a different investment. You don't buy REITs in on the NYSE exchange or NASDAQ.. For the most part, people/organizatiions etc invest directly in a trust for a stated period of time. With vanguard you can buy mutual fund shares of investments in many REITs, but its not a stock. Which index are you looking at for REITs from russell. Would the NCREIF or NAREIT be a more appropriate benchmark?

Subject: Weighing Sectoirs Stocks From: Terri To: Terri Date Posted: Sat, Oct 30, 2004 at 20:36:52 (EDT) Email Address: Not Provided Message: Starting points are important. This is not the time to overweight Energy or Real Estate Investment Trust stocks. Large drug and medical equipment makers? Possibly.

Subject: Forgive the Double Post From: Terri To: Terri Date Posted: Sat, Oct 30, 2004 at 20:39:22 (EDT) Email Address: Not Provided Message: Forgive the double post and botched title.

Subject: An End of Deflation in Japan From: Emma To: All Date Posted: Sat, Oct 30, 2004 at 19:19:04 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/30/business/worldbusiness/30japan.html Japan's Long Run of Deflation Is Expected to End Next Year By TODD ZAUN TOKYO - Japan's central bank said on Friday that consumer prices would turn higher in 2005, if only by a sliver, heralding a possible end to the deflation that has plagued the nation for more than five years. The Bank of Japan's policy board forecast that the core consumer price index, which excludes prices of fresh food, would rise 0.1 percent for the fiscal year ending in March 2006. Even such a tiny increase would be welcome in a nation where consumer prices have been flat or have fallen in every month but one since May 1998. The central bank governor, Toshihiko Fukui, was quick to stress that the forecast was in no way a sign that the Bank of Japan was considering any tightening in its ultra-easy monetary policy anytime soon. Mr. Fukui reiterated the position that the bank would need convincing evidence of a lasting rise in prices before it ended its zero-interest-rate policy. Short-term interest rates in Japan have been set at virtually zero since March 2001 in an attempt to reverse the price declines and foster economic growth. And the central bank remains 'firmly committed' to the policy for now, Mr. Fukui said Friday. Most economists agree that the end of the central bank's zero-rate policy is probably more than a year away. Still, the official forecast of an upturn in prices, however tiny, offered a confirmation of sorts that Japan was nearing the end of one of its most nagging economic problems. 'We are now in the final stages of deflation,' said Mamoru Yamazaki, chief economist at Barclays Capital. 'Moderate inflation next year would be a very good thing for the economy.' To be sure, there have been few signs so far that prices are turning higher. Consumer prices in the Tokyo area fell 0.3 percent in October compared with a year earlier, figures released Friday showed. Nationwide consumer prices were flat in September from a year earlier. The long bout of deflation has served to lower once sky-high prices of food, clothing and other goods to levels closer to those in other developed countries. But the steady decline has also taken a toll on corporate profits. Deflation is also a drag on economic growth as it encourages consumers to put off big purchases on the expectation of lower prices to come. Furthermore, the price declines are seen as a contributing factor in a long slump in incomes, which, in turn, is prompting many Japanese to tighten spending. Spending by Japanese households fell 1 percent in September from August, figures released Friday showed. Although Japanese consumers have been restrained, many companies are pulling in record profits thanks to booming exports of Japanese cars and electronic equipment. Earlier this week, Sony, Matsushita Electric Industrial and Canon all reported solid profit growth for the most recent quarter, thanks to rising sales of flat-panel TV's, digital cameras and other electronic equipment. Central bank forecasters expect that over the next year this corporate prosperity will translate into better job prospects for Japanese workers, higher wages and more spending. If people start buying more, an increase in prices is sure to follow, they reason.

Subject: The Effects of Deflation From: jimsum To: Emma Date Posted: Mon, Nov 01, 2004 at 10:00:08 (EST) Email Address: jim.summers@rogers.com Message: 'Deflation is also a drag on economic growth as it encourages consumers to put off big purchases on the expectation of lower prices to come.' I've always wondered about the truth of this statement. Even if there isn't deflation it is always cheaper to put off big purchases. If you don't have the money and delay the purchase, you'll save interest payments; if you do have the money and stick it in the bank earning interest before buying, you'll pay less too. As long as nominal interest rates are higher than the nominal inflation rate, you're better off delaying a purchase. I thought the economic decisions are made based on real interest rates and real inflation rates; why do the nominal rates matter, even if the signs of the nominal rates are negative?

Subject: Re: An End of Deflation in Japan From: Pete Weis To: Emma Date Posted: Sun, Oct 31, 2004 at 10:55:48 (EST) Email Address: Not Provided Message: 'Although Japanese consumers have been restrained, many companies are pulling in record profits thanks to booming exports of Japanese cars and electronic equipment. Earlier this week, Sony, Matsushita Electric Industrial and Canon all reported solid profit growth for the most recent quarter, thanks to rising sales of flat-panel TV's, digital cameras and other electronic equipment.' Looks like US consumers as well as (and maybe more importantly) Chinese consumers are buying those Japanese goods. For the time being open markets are helping. As long as the US consumer keeps up the voracious buying of Chinese goods, the Chinese consumer should be able to continue buying Japanese autos and electronics. To bad there is such a huge and growing US budget and trade deficit - all eyes are on the dollar.

Subject: Re: An End of Deflation in Japan From: Emma To: Pete Weis Date Posted: Sun, Oct 31, 2004 at 15:22:37 (EST) Email Address: Not Provided Message: Informative and thought provoking posts as always. We must watch Japan carefully. Will there indeed finally be a recovery from deflation and slow growth? What can we learn from Japan?

Subject: Medicine Without Borders From: Emma To: All Date Posted: Sat, Oct 30, 2004 at 18:09:20 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/30/opinion/30rost.html Medicines Without Borders By Dr. PETER ROST I have a confession to make. I am a drug company executive who believes we should legalize the reimportation of prescription drugs. I know that I have a different opinion from that of my employer on this matter, but to me, importation of drugs is about much more than money; it is about saving American lives. According to a study by the Kaiser Family Foundation issued in 2000, 15 percent of uninsured children went without prescription medication in the previous year because of cost, 28 percent of uninsured adults went without prescription medication because of cost, and 87 percent of uninsured people with serious health problems reported trouble obtaining needed medication. We have 67 million Americans without insurance for drugs, according to the foundation. They pay cash - full price - and can't always afford life-saving drugs. American drug prices are about 70 percent higher than in Canada and almost twice as high as in Europe. Drugs won't help save millions of lives if people can't afford to take them. I know that some people do not agree with me. Among them is President Bush. Senator John Kerry noted in the second presidential debate that Mr. Bush in 2000 had said that importation of drugs approved in the United States 'makes sense,' but that Mr. Bush had blocked legislation allowing it. Mr. Bush countered: 'When a drug comes in from Canada, I want to make sure it cures you and doesn't kill you,'' and added, 'What my worry is, is that, you know, it looks like it's from Canada, and it might be from a third world.' What Mr. Bush didn't say is that regulated importation of drugs would take away that risk, a risk Americans now face every day when they go surfing on the Internet for cheaper drugs. In fairness, Mr. Bush did say that he hoped to revisit the issue soon. What I know about importation of drugs is based upon my experience in marketing pharmaceuticals in the United States and Europe for two decades. Importation or parallel trade of drugs has been done safely within Europe for over 20 years. A few years back I was responsible for a region in Northern Europe. We had lots of drugs coming into my area through parallel traders. I countered by lowering some of my own prices and in the process doubled sales in my region in just two years. In Europe, importers supply only authorized wholesalers or registered pharmacies; they do not sell to the public. So the chain remains closed. Authorized drugs are purchased from authorized wholesalers in one European Union country and sold to authorized distributors in another union country. This is the kind of system we should put in place in the United States. Until that happens, to ensure safety, a good intermediate step is for states and cities to step in and provide access to lower-priced drugs. Boston and Springfield, Mass., have already established import programs for low-cost, Canadian drugs, while states like Minnesota and Wisconsin have established Web sites linking residents to Canadian pharmacies approved by state health officials. Make no mistake about it, they are the real heroes in this battle. Every day Americans die because they can't afford life-saving drugs. Every day Americans die because Congress wants to protect the profits of giant drug corporations, half of the top 10 of which are French, British and Swiss conglomerates. I have another confession to make. Americans are dying without the appropriate drugs because my industry and Congress are more concerned about protecting astronomical profits for conglomerates than they are about protecting the health of Americans.

Subject: Per capita consumption of oil From: Pete Weis To: All Date Posted: Sat, Oct 30, 2004 at 12:19:57 (EDT) Email Address: Not Provided Message: From Bloomberg: $200 Oil? It Could Be Asia's Gift to World: William Pesek Jr. Oct. 29 (Bloomberg) -- The e-mail's subject line jumps right out at you: ``Anyone Willing to Forecast $200 Oil?'' The report by Action Economics LLC explores the worst-case scenario for energy markets in the years ahead. On whether the price of a barrel of crude oil will go that far, Action Economics Chief Economist Mike Englund is quite right when he says ``we suspect it's well beyond the willingness of most oil analysts to reasonably project.'' Perhaps not in the near future, but thanks to economic trends in Asia, can $200 per-barrel crude oil really be ruled out? No, says Marc Faber. One of Asia's best-known contrarians, the Hong Kong-based head of Marc Faber Limited has been managing money in this region for more than 20 years -- $300 million at the moment. He publishes a monthly newsletter called ``The Gloom, Boom & Doom Report.'' When it comes to oil-price trends, Faber wonders if investors realize just how bad things could get for bond markets. ``The fundamentals, long term, of the oil market are very compelling, extremely compelling,'' he explains. ``I wouldn't be surprised to see $100 or $200 (for a barrel of) oil in the next five to 10 years. It's not a projection. It's that I wouldn't be surprised.'' Demographic Trends It's a purely connect-the-dots exercise, though demographic trends here in Asia could have a bigger influence on oil than investors may appreciate. With the exception of Brunei, Indonesia and Malaysia, Asians import just about all of their oil. Populations here are surging, incomes are rising and oil consumption has nowhere to go but up. In China, Faber thinks, ``we have a per capita consumption of oil of 1.7 barrels. In America it's 28 barrels, in South Korea 17 barrels, Japan 17 barrels, in India 0.7 barrels. In Vietnam it's probably also less than one barrel. So in Asia on the population of 3.6 billion people we consume less oil than the U.S. on a population of 295 million.'' Looking ahead, Faber adds, ``I would imagine that in Asia the demand will certainly double by comparison. Say Mexico has a per capita consumption of 7 barrels, Latin America 4.4 barrels. Asia, as I said, it's anywhere around 1.5 barrels.'' Consumption of oil in Asia may double to 40 million barrels a day from 20 million barrels, Faber says. ``The question is, is it six years or 12 years, but the doubling is easy to project,'' he says. Monetary Stimulus Add to that equation the amount of monetary stimulus currently making its way around the global economy. As Ray Dalio, who manages $38 billion as chief investment officer at Bridgewater Associates Inc. in Westport, Connecticut, puts it: ``An abundance of dollars and a shortage of oil is a dangerous combination.'' It's not just the U.S. Federal Reserve holding short-term interest rates near record lows. There's no end in sight to the Bank of Japan's zero-interest-rate policy amid few signs its seven- year bout with deflation is over. It means the central banks of the world's two biggest economies continue to print lots of money. That monetary stimulus, along with rising demand, concerns about supply and geopolitical uncertainties, helped fuel a 76 percent surge in oil prices over the last 12 months. Now, those who worried about the economic effects of crude oil at $40 a barrel are wondering about what $60 or $70 a barrel will do to global interest rates and markets. The Fallout What all this means for global growth isn't clear, yet it's hardly good news for Asia's oil-import-dependent economies. Asian countries holding down currencies to support exports will increasingly import inflation. That will lead to higher interest rates, rising bond yields and lower consumer spending. If there's a silver lining to all this, it's that oil prices may in fact need to push the $200-a-barrel mark to shoulder check the global economy. For example, the U.S., says Englund of Action Economics in Boulder, Colorado, may be half as dependent on oil as it was in 1970s. ``While the recent run-up in prices is indeed significant'' it shouldn't ``prove nearly as disruptive as prior oil price shocks even if prices sustained at current levels.'' The bad news, of course, is that Asia's rising demand for oil may outpace the world's ability to meet it or find alternative energy sources. If so, $200 oil could just be Asia's gift to the world in coming years. Stopping the Rise Of course, one wonders if economic forces would allow crude oil to approach that level. Prices even half that high would be far too expensive for Asia, rapidly reducing demand. And central banks might raise rates aggressively. If today's Fed boosted short- term rates to the 20 percent former Chairman Paul Volcker did two decades ago, it would devastate U.S. consumers and, by extension, demand for Asian goods and Asia's need for more oil. At the same time, though, it's hard to argue with demographic trends in Asia and how that will boost oil demand.

Subject: Re: Per capita consumption of oil From: Terri To: Pete Weis Date Posted: Sat, Oct 30, 2004 at 14:05:37 (EDT) Email Address: Not Provided Message: The oil price increases so far has been partly driven by demand and temporary supply limitations and partly speculative. China has been building a strategic reserve, as well as booming in growth, but China is now trying to lessen growth. There is every reason to believe we are near the high price for oil in this cycle at 55 dollars a barrel. There is considerable potential oil supply from sands in Canada and shale in America. Current prices are high enough to bring new supply sources in time. There is also a move towards efficiency that should slow grow in demand. I just wish America were more concerned with energy efficiency. The guess is oil ranges in price from 40 to 60 dollars a barrel for some time.

Subject: Re: Per capita consumption of oil From: Pete Weis To: Terri Date Posted: Sat, Oct 30, 2004 at 17:08:25 (EDT) Email Address: Not Provided Message: 'The guess is oil ranges in price from 40 to 60 dollars a barrel for some time.' Do you think the 'proven reserves' reported by the Saudi's and major oil companies are accurate? What if they are overstated? How does the dollar which needs to drop substantially to help with the trade deficit factor into this? If oil remains at only $50.00 per barrel for 'sometime', what would that mean for the world's economy?

Subject: Re: Per capita consumption of oil From: Terri To: Pete Weis Date Posted: Sat, Oct 30, 2004 at 17:55:51 (EDT) Email Address: Not Provided Message: Though Royal Dutch Shell has reduced its estimated reserves several times, other prime corporate suppliers appear to have properly estimated reserves. Whether nationally controlled reserves might be poorly estimated, we can not know. Further exploration and conservation and efficiency measures should be our policies. The dollar has risen and fallen in value over the years, with no direct effect on the price of oil. A decline in the value of the dollar might have an effect in future, but we can not know. A high price of energy acts as a tax on an economy, and 50 dollars a barrel of oil counts as a high price. We are not growing fast enough to have a fully healthy labor market, and further slowing would not be welcome. High oil prices will slow growth in many economies, but there is monetary and fiscal policy to offset slowing growth. We have to be watchful.

Subject: Economic Growth and Debt From: Terri To: All Date Posted: Sat, Oct 30, 2004 at 06:21:58 (EDT) Email Address: Not Provided Message: The most important immediate economic problem we have is spurring growth that is strong enough to increase the rate of job creation and allow for faster rising wage and benefit levels. There is ample time to deal with long term debt if we can spur growth in the near term. All the Federal Reserve can do in this regard is to keep interest rates low as long as inflation is not evidenced. Fiscal policy that will also spur growth but help solve our debt problem is the responsibility of the President and Congress. I find little reason to criticize the Federal Reserve on monetary policy. Through a difficult period, we are growing with low inflation. The stock market is slowly building value and gaining, while the bond market is again strong. The rest is up to the coming President and Concress.

Subject: Stocks and Bonds From: Terri To: All Date Posted: Fri, Oct 29, 2004 at 17:59:16 (EDT) Email Address: Not Provided Message: Vanguard The S&P Stock Index is up about 3%, with the Value Index up 6.4% and the Growth Index down 0.5%. The Small Cap Index is up 7.6, while the Small Value Index is up 11%. The Europe Index is up about 8.4%. Health Care Fund is up about 1.2%, while Energy Fund is up 28.5% and the REIT is up 20% The Long Term Bond Index is up about 7.5%.

Subject: Re: Stocks and Bonds From: Ari To: Terri Date Posted: Sat, Oct 30, 2004 at 07:27:51 (EDT) Email Address: Not Provided Message: After 10 months of the year, a diversfied stable portfolio of stock and bond funds should have held up nicely. Earnings have been increasing faster than stock prices this year, which allows for better valuations. For all the economic problems from low level of job creation, to government and consumer debt, to the insurance industry and mortgage company distortions, to drug company difficulty, the stock and bond markets are holding and slowly gaining. Portfolio diversity and a long term perspective are encouraging.

Subject: Re: Stocks and Bonds From: Jennifer To: Terri Date Posted: Fri, Oct 29, 2004 at 19:50:36 (EDT) Email Address: Not Provided Message: This is very much pattern we have been discussing through the year. Interesting, how well bonds have held up with the Fed raising the Federal Funds Rate. But, the economy is just not growing fast enough for longer term interest rates to rise. Thanks.

Subject: Re: Stocks and Bonds From: time? To: Terri Date Posted: Fri, Oct 29, 2004 at 19:29:17 (EDT) Email Address: Not Provided Message: not that you can't get index returns from any website, but if you are going to post returns you need to include time periods otherwise the data is absolutely worthless.

Subject: Re: Stocks and Bonds From: Terri To: time? Date Posted: Sat, Oct 30, 2004 at 11:45:32 (EDT) Email Address: Not Provided Message: Absolutely right. The data is year to date, and I find it useful to notice market trends regardless whether they fit investment plans.

Subject: Re: Stocks and Bonds From: time To: Terri Date Posted: Sat, Oct 30, 2004 at 20:00:02 (EDT) Email Address: Not Provided Message: You say you find it useful to notice 'market trends', then how do you use the information. To me its pointless to notice trends unless you are using this information to make decisions. Do you have a model/formula to act upon these market trends. By looking at the YTD returns every other day, how is that affecting your long term investment philosophy.

Subject: Re: Stocks and Bonds From: Jennifer To: time? Date Posted: Fri, Oct 29, 2004 at 19:45:34 (EDT) Email Address: Not Provided Message: What a snit you are. I love these notes. Obviously, the time is the year so far.

Subject: Re: Stocks and Bonds From: time To: Jennifer Date Posted: Sat, Oct 30, 2004 at 09:42:32 (EDT) Email Address: Not Provided Message: Actually, in the past its been listed as a one year return, as opposed to year to date. Thats a very significant difference. If it is a one year number (don't really care to check), the change in returns can be highly attributable to removing data from 2003 due to the extreme growth in equity indices during that period. Sorry you think i'm a snit, i just don't find much value in the postings about 'market patterns', How are returns for a one year period going to help someone invest over 10-20 years? With this info, I would think the person would just buy into yesterdays winners. Why not use major indices like S&P, Russell, Lehman, etc.

Subject: Re: Stocks and Bonds From: Jennifer To: time Date Posted: Sat, Oct 30, 2004 at 09:54:40 (EDT) Email Address: Not Provided Message: Thank you so much for explaining. This helps me understand your complaint. Each month we can make investment decisions, as we add to accounts. Knowing today's winners and losers, can help us look for tomorrow's winners. If interest rates had risen this years and bond prices had fallen, we should be more inclined to buy bond funds. This is interesting and fun.

Subject: A Wageless Recovery From: Terri To: All Date Posted: Fri, Oct 29, 2004 at 17:27:26 (EDT) Email Address: Not Provided Message: http://maxspeak.org/mt/archives/000889.html The Prez says the economy is strong and getting stronger. By the evidence of the labor market, however, it is weak and getting weaker. My colleague and labor market genius Jared Bernstein shows that from the third quarter of last year to this year, the wage and salary component of the Employment Cost Index increased by 2.4 percent, relative to inflation of 2.7. The does not mean that total compensation in these terms is less, since these figures do not reflect fringe benefits, but it does mean that for workers this recovery stinks. Faster employment growth and better jobs would put upward pressure on money wages. This is the slowest growth rate on record. The most recent comparable period was the first half of 1993 -- Poppy Bush's economy, for all practical purposes.

Subject: Good Luck with your elections Guys From: Mik To: All Date Posted: Fri, Oct 29, 2004 at 16:50:47 (EDT) Email Address: Not Provided Message: Only a couple days to go. Good luck with the elections. Contrary to what the polls show, I hope it won't be a close contest but rather have a very decided victory with no bickering, law suits, etc.

Subject: Re: Good Luck with your elections Guys From: Ari To: Mik Date Posted: Fri, Oct 29, 2004 at 17:10:18 (EDT) Email Address: Not Provided Message: Florida, Ohio, Wisconsin. There you probably have it.

Subject: Re: Good Luck with your elections Guys From: Jennifer To: Ari Date Posted: Fri, Oct 29, 2004 at 20:07:27 (EDT) Email Address: Not Provided Message: Wisconsin? I suppose so. If Bush and Kerry split in Florida and Ohio, then Wisconsin becomes the deciding state and Wisconsin is leaning to Bush.

Subject: China's Bank in Transition From: Emma To: All Date Posted: Fri, Oct 29, 2004 at 13:18:54 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/29/business/worldbusiness/29yuan.html?pagewanted=all&position= China's Bank, in Transition, Raises Rates By KEITH BRADSHER HONG KONG - China's central bank raised official borrowing costs for the first time in nine years Thursday night, a step aimed at slowing breakneck economic growth and inflation but one that could risk social unrest if heavily indebted state companies respond by laying off more workers. Beijing also removed the ceiling on what banks could charge for loans, a measure that paradoxically could make more loans available to risky private enterprises and ultimately enhance China's long-term growth prospects and give its economy much greater stability. The two moves shift China further toward a Western-style financial system in which markets determine the allocation of credit, not government officials. The interest rate increase, a little more than a quarter of a percentage point, is not big enough by itself to change the direction of the Chinese economy. But it is widely expected by economists to be the first in a series of increases that could lift rates by as much as two percentage points in the coming year, which could seriously curtail economic growth. That would damp demand for products offered by the United States and other countries rushing to take advantage of the Chinese market. But the effect on American consumers is likely to be quite small, as Chinese companies are expected to take the steps needed to keep prices low and maintain their exports. For Beijing, the interest rate increase is a historic embrace of free-market tools of economic management despite possible internal political repercussions, said Tao Dong, the China economist at Credit Suisse First Boston's office here. 'This probably will anger a lot of people, but I give the government high marks,' he said. Indebted property developers and laid-off workers are likely to be among the angriest. By seeking to control inflation with higher interest rates, Beijing may limit some profit opportunities for a long list of companies and countries involved in the roaring Chinese market - from luxury automakers in Europe, to iron ore producers in Brazil and Australia, to oil exporters in the Middle East. Higher interest rates could also cause some hiccups for American companies with large beachheads in China, like General Motors. Indeed, prices of oil, copper, cotton and other commodities declined Thursday, underscoring concerns among investors that demand is easing in China for many raw goods used in manufacturing, everything from clothes to washing machines. After concluding last spring that the economy was expanding at an unsustainable pace and fueling inflation, Chinese leaders initially chose mostly administrative methods to try to limit excessive growth, like the denial of approvals for construction projects. But these methods have failed to rein in rising prices. Consumer goods, on average, cost 5.2 percent more last month than a year earlier despite price controls on many products. Price increases are running at nearly twice that pace for goods traded between companies, which are subject to fewer price controls. In making its move, the Peoples Bank of China, the central bank, raised the benchmark rates that the state-owned banking system offers for one-year loans and one-year deposits by a little more than a quarter of a percentage point: 27-hundredths of a percentage point, to be exact. The lending rate rose to 5.58 percent and the deposit rate climbed to 2.25 percent. The Peoples Bank also ended years of regulations tightly limiting the maximum interest rates that banks could charge on loans. The limits, which the Peoples Bank started to loosen last December, had discouraged the country's banks, almost all state-owned, from taking the risk of lending to small and medium-size private companies. Similar businesses in other countries can attract loans by agreeing to pay higher rates of interest. Most state-owned enterprises already have the political connections to borrow at no more than the benchmark rate, and sometimes pay an even lower rate. Raising the benchmark rate will hit them especially hard at a time when many of them are struggling to repay previous loans and avoid laying off workers.

Subject: 'Not to worry' From: Pete Weis To: All Date Posted: Fri, Oct 29, 2004 at 09:56:08 (EDT) Email Address: Not Provided Message: Greenspan: Playing the Fool Or the Scoundrel? By Steven Pearlstein Friday, October 29, 2004; Page E01 Oil prices soar above $50 a barrel with little prospect of returning to more normal levels anytime soon. Not to worry, says Fed Chairman Alan Greenspan, new sources of energy are just over the horizon. House prices continue rising several times as fast as everything else, driven by record levels of household debt. Not to worry, says Greenspan, the debt is manageable and housing isn't susceptible to speculative bubbles. The nation's current account deficit heads toward 6 percent of gross domestic product , a level unheard of for a major industrial economy. Not to worry, says Greenspan, financial markets will gradually bring things into balance. The urgent question before us today is: What has the chairman of the Federal Reserve been smoking? I will leave it to others to speculate on Greenspan's motive for taking his one-man Dr. Pangloss show on the road in the months leading up to a hotly contested presidential election. But what are we to say about a Fed chairman whose biggest economic concern a few years ago was that the government was projected to run such a big budget surplus that it could eventually force the Treasury to invest some of it in corporate stocks and bonds? There aren't too many people worrying about that one any more. Of course, one reason we're worrying about record deficits rather than record surpluses is that Greenspan gave his seal of approval to a series of tax cuts that the country could ill afford. Two possibilities present themselves: • Greenspan figured that, once the tax cuts were in place, Congress would cut spending to match, in which case he's more of a fool than anyone imagined. • He knew all too well that the spending cuts would not follow, in which case he's a scoundrel. I leave it to you to judge. The fact is that, as an economic prognosticator, Greenspan has been about as effective as a Cardinal trying to hit Red Sox pitching. In 1990, he underestimated the economic impact of the bursting of a commercial real estate bubble and the ensuing credit crunch, which combined to throw the economy into recession. And during the late 1990s, he was so busy touting the productivity miracle of the new economy that he failed to see the biggest equity bubble in history developing right under his nose. And when it finally burst and began to take the real economy down with it, Captain Greenspan was confidently predicting a soft landing almost until the moment the wheels came off the landing gear. As it turns out, Greenspan is a better rhetorician than he is a forecaster. In his recent speeches and testimonies, he cleverly frames his what-me-worry message in apposition to the more extreme doomsayers who warn that the world is about to run out of oil or that foreign investors are about to trigger a financial meltdown by dumping their dollar assets. He's also careful to include hedges and caveats that he can point to when things don't turn out as swimmingly as he suggests. But through it all, the consistent message is that global financial markets have become so gloriously efficient and flexible in pricing risk and intermediating capital that they can cushion any shock, correct any imbalance and cure your lumbago besides. In the World According to Greenspan, the only real threats come from those who would tamper with this machinery by reversing the march toward deregulation, open markets and the free flow of capital. Unfortunately, what Americans desperately need now is not a Fed chairman pushing an ideological agenda -- not a Paul Wolfowitz of economic policy -- but a clear-eyed pragmatist willing to tell Americans the truth that nobody else dares: That they are living beyond their means, that their profligacy has put the global economy out of whack and that the only way to avoid a bad ending is to save more, import less, raise taxes and accept lower levels of government services and benefits.

Subject: Krugman interview in Texas Observer From: John To: All Date Posted: Fri, Oct 29, 2004 at 07:10:03 (EDT) Email Address: lbsgrad2003at@yahoo.co.uk Message: http://www.texasobserver.org/showArticle.asp?ArticleID=1777 (remove the first at to reply to my email)

Subject: Re: Krugman interview in Texas Observer From: Bobby To: John Date Posted: Fri, Oct 29, 2004 at 14:05:41 (EDT) Email Address: robert@pkarchive.org Message: Thanks. I posted it.

Subject: The 'insurance mess' From: Pete Weis To: All Date Posted: Thurs, Oct 28, 2004 at 20:57:45 (EDT) Email Address: Not Provided Message: From MSN-Money: Insurance mess may ignite bigger problems The insurance scandal is another strong signal that our financial system is vulnerable to serious disruptions. The next 18 months could be dangerous ones. By Bill Fleckenstein When future historians look back on this period, with all its attendant dangers and warning lights flashing in neon, they will scratch their heads as to why everyone was so complacent and so supremely confident right before the financial hurricane hit. Last July, I talked about the potential for a market dislocation in my column 'Odds of a crash are higher than you think.” Once again, I want to reiterate that it's a low-probability event. But whatever the probabilities were when I laid them out a few months ago, they can only be higher now. A watchdog smells a rat Marsh & McLennan (MMC, news, msgs), the subject of a continuing investigation by New York Attorney General Eliot Spitzer, demonstrates the problem that could happen in many other arenas. As Gretchen Morgenson of The New York Times pointed out last Wednesday in 'Investors Are Losing Ground As Insurance Inquiries Expand:' Banks and insurers check your credit. So should you. 'The pain of losing almost 50% in share value is perhaps most excruciating to the thousands of Marsh & McLennan employees who have bought Marsh stock. . . . There is a pension plan, a stock purchase plan, 401(k) accounts, stock option grants and a cash bonus deferral plan to name a few. And in all cases, Marsh stock or Putnam funds dominate the offerings. . . . According to Marsh filings, at the end of last year, a defined-contribution plan for Marsh & McLennan employees had assets of $2.24 billion. Almost 60% of the plan's assets were in Marsh stock -- $1.3 billion worth.' The eggs-in-one-basket aftermath However, it won't be just MarshMac employees who will be affected. If any employees had thought they were wealthy because they held a lot of MarshMac stock, and if they used that wealth to buy expensive homes during the housing bubble, they'll be in trouble when the housing bubble starts to reverse along with their net worth. The banking industry could wind up with a lot of bad paper. I'm not saying that events surrounding MarshMac will play out exactly this way. Down the road, though, I expect that we'll see dominoes fall in this manner on a large scale when the bear market really gets rolling in stocks (again) and housing. These two asset-class declines are going to feed on each other, and a whole lot of credit is going to be impaired. Playing debt dominoes . . . Though the financial industry has managed to remain unscathed (thanks, in no small part, to its absurd accounting), it too will get mauled if shenanigans are turned up and that impacts credit rates. Most of these financial companies have a good deal of debt, and it's held by other companies, both within and beyond the financial arena. So, the potential for this investigation to snowball is not trivial. Of course, if you add a problem in the financial industry to problems in real estate and the stock market generically, you can see how we would be headed for a world of hurt. It's what happens when you pursue irresponsible, reckless policies for so long. . . . and derivatives dominoes The probability of a dislocation may also have increased due to the location of the ticking time bomb known as derivatives. American International Group (AIG, news, msgs), another target of Eliot Spitzer's investigation, is very active in the derivatives market. If the company -- one of the few AAA credits left in America -- has a problem of any magnitude that impacts their perceived credit quality or credibility, it would in all likelihood wreak havoc in the derivatives market. (As Warren Buffett said last July, 'We have trillions of dollars of derivatives, of which we have no knowledge of how they might work in a market meltdown.') Think about this from the perspective of foreigners. They now look at Fannie Mae (FNM, news, msgs), MarshMac, AIG and Merck (MRK, news, msgs) and observe a black cloud hanging over what have been deemed to be some of the best corporations in America. It's just another psychological negative for the dollar, in my opinion, and a reason for foreigners not to want to own our stocks. (Editor’s note: the euro is up 4% against the dollar in the last month.) Trouble is so close you can taste it Meanwhile, for the 'professionals' who play with other people's money, the rally cry is: Buy stocks first and ask questions about fundamentals later. With a huge chunk of third-quarter earnings behind us, we're at the point in the quarter when the bulls typically like to throw a party. They figure there's no more bad news in the offing, and in the absence of bad news, stocks should always go up. Over the next couple weeks, I'm sure that the bulls will attempt to rally the market whenever they can. They may be able to party a bit longer, but big trouble seems so close, you can almost taste it. Once we get past the election and its attendant noise, attention will be turned to the fourth quarter and, more importantly, 2005. By my reckoning, the next 18 months look to be one of the most dangerous periods for financial markets in the last 50 years. The destruction of capital measured in the trillions lies ahead in the not-too-distant future.

Subject: The Ethics Mess From: Terri To: Pete Weis Date Posted: Fri, Oct 29, 2004 at 12:34:42 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/29/business/29spitzer.html Big Insurer Denies Any Ties to Plan to Attack Spitzer By ALEX BERENSON With Eliot Spitzer pounding the insurance industry, American International Group, the world's largest insurer, needs all the good press it can get. Instead the company faces a new mini-controversy to go with Mr. Spitzer's investigation into bid rigging and price fixing among insurers and insurance brokers. A Washington agency that represents public speakers sent e-mail messages to four financial industry experts on Monday, offering them fees of at least $25,000 if they would attack Mr. Spitzer and defend the insurance industry. Two weeks ago, two A.I.G. executives pleaded guilty to criminal involvement in what Mr. Spitzer described as a widespread conspiracy to cheat customers. In its e-mail message, Leading Authorities, the speakers' bureau, said it was making the offer on behalf of American International. 'We have had an inquiry from A.I.G. for assistance in getting the insurance industry's side of the story out to the public,' wrote Mark French, the president of Leading Authorities. Yesterday, Mr. French and a spokesman for A.I.G. said the e-mail was incorrect. A.I.G. did not know of the offer, they said. Mr. French said he had sent out the e-mail at the behest of Qorvis Communications, a Washington public relations firm that until Monday worked for A.I.G. Qorvis hoped to identify possible insurance industry supporters, Mr. French said. 'We had simply responded to their request for potential people,' he said. 'We never spoke with A.I.G., and I've had no communication with them.'

Subject: Re: The 'insurance mess' From: Terri To: Pete Weis Date Posted: Fri, Oct 29, 2004 at 05:33:17 (EDT) Email Address: Not Provided Message: Remember, the S&P index is still mildy positive for the year, while middle and small size company stocks have been stronger. Stock valuations are slowly improving, interest rates are low, and international stock markets are nicely positive. Bonds are again moderately strong and have again nicely protected portfolios. There is reason to hope the continuing adjustment period will be as gradual as these last 10 months. Eliot Spitzer has done us all a wonderful service, and we can expect the insurance industry can be strengthened as a result of the investigation. I expect Fannie Mae and Freddie Mac to be strengthened as well.

Subject: Systemic risk From: Pete Weis To: Terri Date Posted: Fri, Oct 29, 2004 at 10:31:12 (EDT) Email Address: Not Provided Message: From the Economist: The coming storm Feb 17th 2004 From The Economist Global Agenda Banks are risking ever more of their own money in search of returns. Have they really learned nothing? IN THE autumn of 1998, Buttonwood was at a conference organised by Credit Suisse First Boston in—appropriately enough—Monte Carlo, when Allen Wheat, the then head of the investment bank, stood up after dinner and delivered a breathtaking mea culpa. Some sort of apology certainly seemed in order given the huge sums the bank had just lost from extravagant punts on Russia in particular and financial markets in general. The bets went spectacularly wrong after Russia defaulted, financial markets went berserk, and Long-Term Capital Management (LTCM), a very large hedge fund, had to be rescued by its bankers at the behest of the Federal Reserve. CSFB eventually admitted to losses of $1.3 billion, though the bank’s official figures and the numbers bandied about by insiders were somewhat at variance. To cut to the chase: had they Mr Wheat’s balls, Buttonwood thinks that the bosses of many a big bank will be making a similar speech before the year is out. The reason is simple: the size of banks’ bets is rising rapidly the world over. This is because potential returns have fallen as fast as markets have risen, so banks have had to bet more in order to continue generating huge profits. The present situation “is not dissimilar” to the one that preceded the collapse of LTCM, says Michael Thompson, a strategist at RiskMetrics, a consultancy that specialises in the very risk-management models that banks use. Like LTCM, banks are building up huge positions in the expectation that markets will remain stable. They are, says Mr Thompson, “walking themselves to the edge of the cliff”. This is because—as all past financial crises have shown—the risk-management models they use woefully underestimate the savage effects of big shocks, when everybody is trying to wriggle out of their positions at the same time. Even the banks themselves admit that they are taking more risk. Though they do not divulge the size of their positions, or in which markets they are concentrated, the degree by which those positions have grown can be gleaned from the risk-management models that all the big banks use (which are released in their financial statements). So-called value-at-risk (VAR) models determine the amount of capital that banks must set aside against their trading positions, and purport to show how many millions of dollars a bank might lose should markets turn against it. If its VAR is rising, a bank is, in effect, taking more trading risk—and VARs have been climbing for just about all of the banks that dabble seriously in financial markets. The VAR at Goldman Sachs, which is known on Wall Street as a hedge fund with an investment-banking business on the side, has more than doubled. One of the bank’s senior traders was even told recently that he must take still more risk. Rest assured that he is far from the only one being told this at Goldman Sachs, or anywhere else for that matter, even though it was only a few years ago that many banks specifically eschewed punting as a good way to make money. Earlier this month UBS, a big Swiss bank, said that “with markets and investor sentiment starting to improve” it would gradually increase credit and trading risks. Even the likes of Citigroup, which stopped explicitly trading for its own account a few years back, and HSBC, a bank that used to think of trading as rather common, both announced recently that they too are increasing the amount of trading they do with their own money. Having previously scaled back its own trading, CSFB is also now increasing the amount of money it devotes to trading, though it claims that it will no longer “bet the ranch”. Allied Irish Banks, which you might have thought had had more than its fair share of trading fiascos, having lost nearly $700m thanks to activities of John Rusnak, one of its foreign-exchange traders, is trying to hire another 20 traders in Dublin. VAR crash Of itself, VAR is not the best guide to the huge size of banks’ current positions. In simple terms, these models assess the amount of risk that a bank is taking by looking at the volatility of the assets it holds and the correlation between them (the less correlation the better). In that way, banks can see how much they might lose were these bets to sour. A cynic would say that such models thus purport to measure an uncertain relationship between lots of uncertainties. Crucially, if markets become less volatile, banks can pile on more positions and still have the same VAR. With the exception of Treasuries, markets have indeed become much less volatile—volatility has roughly halved in many financial markets over the past year-and-a-half; equity markets are now less volatile than they have been for a decade. Roughly speaking, if markets are half as volatile, banks’ positions can be twice as large for the same amount of capital. But since VARs have in fact risen, some banks’ positions are probably three times what they were in the autumn of 2002. Or at least the ones they have on their balance sheets. For banks have been increasing their trading exposures in other ways, too. The most notable is via direct investments in hedge funds, often those set up by traders who used to work for the banks themselves. Chemical Bank, now part of J.P. Morgan Chase, started the trend 15 years ago. Now, almost all big banks invest their own capital in hedge funds. Citigroup may have shut down its “proprietary” trading operations five years ago (temporarily, it now transpires) but it invested a few hundred million dollars of its money in a hedge fund set up by those proprietary traders. Deutsche Bank recently invested $1 billion in a hedge fund run by its erstwhile traders. J.P. Morgan Chase is thought to be the most generous in doling out its cash, but CSFB, Goldman Sachs, Lehman Brothers and BNP Paribas together also invest hundreds of millions of dollars of their shareholders’ money in hedge funds. In total, banks have invested many billions of dollars in such funds. The reason, apart from an understandable desire to invest money with good traders, is that the money invested in this way is counted as an investment, and not as a trading position, so is not included in the banks’ own trading books. Most of the money that banks invest has gone into hedge funds that specialise in bonds and other sorts of fixed-income instruments. Like the banks, hedge funds have been leveraging up their exposures to markets. All of which is splendidly profitable, as long as markets behave themselves. But the strategy puts banks and hedge funds alike at huge risk if markets suffer a severe shock—a far more common occurrence than banks allow for. Their models (and, yes, hedge funds use VAR models as well) assume a certain level of losses for moves of a given magnitude. The problem comes for the tiny number of crises when markets move much more and, to add insult to injury, banks’ assumptions about the diversity of their portfolios are shown to be wrong. In other words, the models, says one regulator with a chuckle, are of least use when they are most needed. By regulatory fiat, when banks’ positions sour they must either stump up more capital or reduce their exposures. Invariably, when markets are panicking, they do the latter. Since everyone else is heading for the exits at the same time, these become more than a little crowded, moving prices against those trying to get out, and requiring still more unwinding of positions. It has happened many times before with more or less calamitous consequences. It could well happen again. There are any number of potential flashpoints: a rout in the dollar, say, or a huge spike in the oil price, or a big emerging market getting into trouble again. If it does happen, the chain reaction could be particularly devastating this time. Banks and hedge funds have increased their exposures most to those markets that they are least able to get out of. Think, if you will, of the extraordinary rise in the price of emerging-market debt and junk bonds. “I used to sleep easy at night with my VAR model,” said Mr Wheat in his speech in Monte Carlo. Suffice to say that he suffered a sleepless night or two when that model was found wanting—and that bank bosses could be in for many a sleepless night this year.

Subject: Re: Systemic risk From: Terri To: Pete Weis Date Posted: Fri, Oct 29, 2004 at 12:37:40 (EDT) Email Address: Not Provided Message: We must be cautious, but awareness of these problems allows for gradual address of the problems.

Subject: What 'awareness' From: Pete Weis To: Terri Date Posted: Fri, Oct 29, 2004 at 15:00:08 (EDT) Email Address: Not Provided Message: Greenspan has stated there is little risk with regard to over-the-counter derivative contracts and contradicts Buffet and others on this issue. So there is no 'gradual address'. If troubles arise within the banking industry, GSE's or insurance giants in a way which threatens this huge web of derivative contracts, then it will require a very rapid 'address'.

Subject: Re: What 'awareness' From: Terri To: Pete Weis Date Posted: Fri, Oct 29, 2004 at 18:05:49 (EDT) Email Address: Not Provided Message: There were problems with derivatives in 1994, and in 1998, but for investors who did not hold derivatives, there were only a few short term price declines of stocks and bonds. The options markets may be a problem, but I would not think long term individual investors have much to worry about from derivatives.

Subject: South Africa's Fences From: Emma To: All Date Posted: Thurs, Oct 28, 2004 at 18:45:15 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/28/international/africa/28africa.html?pagewanted=all&position= Speaking of Fences, Street Crime and, Ultimately, Race By MICHAEL WINES JOHANNESBURG - As Nick Karvelas would be quick to point out, this is not a Robert Frost kind of town. Mr. Frost, as an American schoolchild could testify, is the poet who once wrote that 'good fences make good neighbors.' That should make Johannesburgers exceptional ones: in the last decade, they have erected fences and gates that block off 1,245 ostensibly public streets from the outside world. In practice, of course, the barriers are the antithesis of neighborliness. Their purpose is to shield the people behind them - mostly better-off whites - from an epidemic of street crime, largely by lower-class blacks. Which is why Mr. Karvelas is on a single-minded crusade to tear them down. The notion that whites can bar poor blacks from city streets, he insists, is not just illegal. It's a throwback to the days when millions of blacks were herded into homelands and townships, and barred from walking in white areas without a government pass. 'I just firmly believe that people actually went from fencing the masses in to fencing the masses out,' he said. 'I really believe that this is just another form of apartheid.' Mr. Karvelas, a white school principal and university lecturer when he is not tilting at fences, has formed a lobbying group and a Web site to promote his cause. He has pestered Johannesburg's government, hinted at a lawsuit testing the constitutionality of street barriers and, last month, argued his case before the national Human Rights Commission. In most big cities, he might be dismissed as that ubiquitous brand of civic gadfly that buzzes irritatingly around every council meeting. Indeed, in most big cities, the issue of street closings would be settled in soporific sessions of traffic-department subcommittees or neighborhood councils. Not in Johannnesburg. Here, it resonates among rich and poor, black and white alike. The debate over street closings not only poses thorny questions about balancing a person's right to walk freely and a homeowner's right to be safe. It also challenges a notion that still binds this multiracial society together 10 years after apartheid's demise - the concept of a miraculous rainbow nation, sprung fully formed from Nelson Mandela's tolerant brow. Mr. Karvelas's stridency aside, however, this is not entirely a black-and-white issue, in more ways than one. Street barriers (South Africans call them 'booms') first sprang up in the city's wealthier northern suburbs after the 1994 transition to majority rule - and the exodus of many white civil servants - led to a dramatic decline in police protection and a rise in violent crime.

Subject: Re: South Africa's Fences From: Mik To: Emma Date Posted: Fri, Oct 29, 2004 at 10:38:31 (EDT) Email Address: Not Provided Message: Emma, The whole story posted seems to power down the very last line, '....a dramatic decline in police protection and a rise in violent crime.' You know the story has a point about restricting freedom of movement, etc. But the issue of protecting against violent crime is just too difficult to argue. South Africa's annual murder rate stands at 21,000 people. Imagine the crowd at a hockey game, and then imagine to yourself, 'This year all these people will be murdered.' Without going into too much personal detail: When I lived in Johannesburg, every single night and every two or three hours, I would hear gunshots in the distance. It got to the point that I could recognise the type of gun by the sound of the gunshot. I did not live in one of those closed-off areas, and as a consequence, in my area violent crime happened right on my street front. I actually wished and campaigned to have my street closed off - for my safety. Since the start of what is known as street-closures, whole neighbourhoods have closed themsleves off with limited access. At this stage I found an unbelieveable occurance. People in those neighbourhoods removed their electrified fencing, bought cuddly pets for dogs (instead of dangerous guard dogs) and people came out onto the street. Children played on the street, etc, etc. So do we keep the street-closures and allow for pockets of normality, or do we remove them and allow violent criminals to rule? South Africa has gone through an unbelievable transition. For a country with more diversity and more hatred than Yugoslavia, South Africa escaped from the brink of civil war (not bad for an African country). Today South Africa is going through a very dark period in their history as the social imbalance of utter poverty has to face up against unbelievable wealth. Coupled with this, a history of violence that is inbread into a culture. It will take a few generations before we start to see an element of normality in South Africa. However, I am optimistic that the country will succeed. Further, there will be a serious turning point in their history... in the year 2010. That will be the year that South Africa hosts the greatest show on earth - the World Cup Foot Ball......

Subject: Re: South Africa's Fences From: Emma To: Mik Date Posted: Fri, Oct 29, 2004 at 12:17:49 (EDT) Email Address: Not Provided Message: Another most thought filled response. Thank you so much.

Subject: China Raises Interest Rates From: Terri To: All Date Posted: Thurs, Oct 28, 2004 at 18:39:19 (EDT) Email Address: Not Provided Message: October 28, 2004 China Raises Rates for First Time in 9 Years By Reuters BEIJING - China's central bank on Thursday raised interest rates for the first time in nearly a decade in a surprise move that was the boldest so far aimed at guiding a heated economy onto a path of slower growth. The announcement of the hike of just over a quarter of a percentage point by the People's Bank of China marked a shift away from the central directives the government has so far used to cool the world's seventh-biggest economy.

Subject: Re: China Raises Interest Rates From: Ari To: Terri Date Posted: Thurs, Oct 28, 2004 at 19:40:13 (EDT) Email Address: Not Provided Message: Interesting to find out if a change in economic policy in China has a market impact in Asia or further.

Subject: THE TRRORIST ATTEMPPT IN SATURDAY From: Fernando Franco To: All Date Posted: Thurs, Oct 28, 2004 at 16:45:06 (EDT) Email Address: pontodefuga1@uol.com.br Message: Mr. Paul Krugmam This material to site e-scapepoint.org,br was developed in response the worst chance of which we could imagine in this election. A terrorrist attempt of great proportions, which would guarantee Bush in the government. This material on video then would be the only capable form of avoiding this situation, which, even thogh I don´t wish that this happens, I feel it´s impending. The evil powers which domain this American government don´t find limits to remain in the power. Our site will be on Thursday, October 28th, we hope to estimulate people to see the madness which they will commit voting on this killer, also estimulate people to wear white on Nov 2nd, claimming with it for peace, no matter what happens. Vote and see where this option will take your sould to the rest of eternity! And, the person have two possibilite: Alpha-Kerry or Omega-Bush. Vote and see. Fernando Franco (5-43-3322-5526) This material is annex our site in the morning: Vote and see where this option will take your sould to the rest of eternity! A country that can afford to 'invest' over 200 billion dollars in order to kill more than 1,000 of its sons and thousands more of innocent people, can be seen as rich? Or poor of spirit? Can a nation that, looking forward to 'world peace' challenges its allies, violates all the treaties and international laws, earning with it, just promote more violence and legitimate the terrorists attempts, be considered just? Can a leader who forges lies and uses the most striking pain of his nation to originate more deaths and destruction, in the name of electoral and financial credits designated to the sponsors of his campaign, be considered respectable? And, can the people which sponsors all these vain deaths, all these infamies and atrocities and votes on the 'Liar', on the 'Disreputable' be considered innocent? God or Satan, who commands the hearts of the most powerful nation in the world? Never has Lucifer been so well represented.* Few days to the election, Osama bin Laden will commit an attempt in America. As an obvious result, Bush will be reelected. If an attempt represents a reelection guarantee, and THE WHOLE WORLD KNOWS ABOUT IT, the one who commits this attempt is Bush's ally, or enemy? Has Osama been against, or pro Bush? Why then, doesn't he commit this terrorist attempt one day after the election? Isn't this attempt itself enough proof of the links between Bin and Bush? Sorry. George Laden? Sorry again. After all, are Bin Laden and George Bush so different? Why is BLOOD the only thing able to calm them down? Why do the American people feel so delighted over spilled innocent blood? I don't know if Vietnam had any factor which legitimated it. However, as Iraq didn't have anything to do with the 9/11, or neither 'massive destructive weapons', nor direct links with al-Qaeda, how many families were slaughtered over the 200 Billion, in cash, destined to the 'war lovers'? How many innocent victims of a coward war. Bombs thrown aimlessly... Lies, deaths,treasons... Is it all the American people is about? Is it the only thing they believe in? Would those who granted power to Hitler, be much different from those who dare voting for Prescott Sheldon Bush´s grandson? TO VOTE ON GEORGE W. BUSH IT’S THE SAME AS VOTING IN HITLER AND HIS ACCOMPLICES. IS TO BRING BACK TO THE WORLD THE DEVASTATING PROPOSAL OF THAT GENOCIDAL, TO SAY GOODBYE TO PEACE AND TO ASK FOR THE 3RD WORLD WAR New Jerusalém or Babylon, this is what has been put to voting. Love or Hatred? Peace or war? Life or death? Truth or lie? Heaven or Hell? Kerry or Bush? Which of these proposals will the American vote on to dictate the future of the world? But they had better be aware of something. There is an irrevocable law among ALL the religions: Responsibility! “Here is where you pay for what you have done” Voting on George W. Bush is like taking each lost life away in this shameful combat. It's like sending each soldier to death, it's like launching a bomb over innocent homes, it's like committing each violence provided from these. Voting on George W. Bush is like signing a contract with the devil and say 'YES' to all the violations and atrocities commanded by this scoundrel. Blue, the color of hope, or blood red, basic colors of the American flag. Which one of these better suits the American people? The only remaining thing to us is to pray for the White of Peace to win this election and rules over the world. Pray so that the 'Statue of Liberty' won't be just a fictitious work, but the symbol of a nation which will free the world from the slavery of death and selfishness! We've come to moment of Truth! Who do you serve? Who dictates the courses of your life? God or money? The love, or the Works of Lucifer? LET THE AMERICANS KNOW: WHEN THEY GO TO THE BALLOT BOXES, THEY WILL NOT BE SAYING WHO THEY WANT AS PRESIDENT, BUT WILL BE SAYING WHO THEY SERVE: GOD OR SATAN. The moment is now! Vote and see where this option will take you to, invariably, to the rest of eternity! Apha-Kery or Omega-Bush Are we going to change the world for better or for worse? Vote responsibly! e-scapepoint.org.br

Subject: The Trade Deficit From: Terri To: All Date Posted: Thurs, Oct 28, 2004 at 15:34:28 (EDT) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2004-2_archives/000462.html David Wessel Worries About America's Trade Deficit Wall Street Journal: The easiest way for the U.S. to save more is for the government to borrow less. But the U.S. isn't going to raise taxes and cut spending enough to solve the problem.... An alternative fix is for the dollar to weaken enough to make imports prohibitively expensive to Americans and U.S. exports irresistible to foreigners.... [T]he cure could be nearly as painful as the averted crisis. It would take a huge dollar move -- a decline of at least 20%, and maybe 40%, against all trading partners, economists Maurice Obstfeld and Kenneth Rogoff estimate. A 30% decline in the dollar against major currencies but not China's would shrink the U.S. current-account deficit by 1.4 percentage points of GDP, the Organization for Economic Cooperation and Development projects. And it would hurt. Global growth would slow, the Federal Reserve would boost short-term interest rates by three full percentage points to resist inflation.... 'The global economy is more vulnerable today than it seemed four years ago, when it already looked worrisome,' Mr. Rogoff says. 'If the current account closes up under relatively benign circumstances, then the effects may not be too traumatic'... The only hope is a little of everything and a lot of luck. Cut the U.S. budget deficit to raise U.S. savings, while encouraging Americans to save more. Get China and other Asian economies to let their currencies strengthen so the dollar can slide, convincing them that the alternative risks inflation in their economies and a global market crash that will hurt them, too. Persuade central banks in Japan and Europe to keep rates low enough for their consumers to pick up some of the slack as the U.S. saves more. The day after the election would be a good time to start. Brad DeLong Once again, there is a huge puzzle here. We academic economists all see a large forthcoming decline in the dollar. But financial markets don't--or, rather, holders of dollar-denominated assets don't appear to want to be compensated for bearing the risk of the substantial dollar decline sometime over the next decade that we economists read written on the wall by the course of the U.S. current account deficit.

Subject: Re:Foreign confidence... From: El Gringo To: Terri Date Posted: Thurs, Oct 28, 2004 at 17:49:47 (EDT) Email Address: nma@hotmail.com Message: 'So the policy moral of this analysis (chapter 2.4 Policy Implications, Currencies and Crisis) is one that has become boring through repetition but is still as true as ever. The United States needs to restore its national savings rate to historical levels as soon as it can. International investors have signaled that they are not willing to continue financing massive current account deficits, not by cutting off capital flows suddenly but by driving the dollar down to unprecedented lows. Putting aside the alarmist or conspirational views of some fire sale theorists, the point remains that the growing complacency about perpetual foreign borrowing will lead us to a rude awakening, sooner than most economists think.'

Subject: Monetary Policy Makers From: Terri To: El Gringo Date Posted: Thurs, Oct 28, 2004 at 18:42:34 (EDT) Email Address: Not Provided Message: Notice how Brad DeLong closes: And monetary policymakers? I cannot tell. They seem to be split. I'm told that X makes 'a pretty persuasive case that the U.S. current account deficit will fall with a substantial period of very low consumption growth' and dollar decline, as happened in the late 1980s. In the 1980s the falling dollar was not accompanied by (much) higher U.S. interest rates--for reasons we don't understand. Y is deeply puzzled by the failure of financial markets to have already priced the likely fall in the U.S. current account deficit and the value of the dollar. Z, W, and V believe that, as in the 1980s, the U.S. current-account adjustment is likely to be prolonged and 'smooth.' And U is quietly freaking out.

Subject: Old Industry and Consolidation From: Emma To: All Date Posted: Thurs, Oct 28, 2004 at 14:17:59 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/28/business/worldbusiness/28mittal.html?pagewanted=all&position= Finding the Future in an Old Industry By HEATHER TIMMONS LONDON - The $17.8 billion, three-way deal that Lakshmi N. Mittal, a financier based in London, announced this week would put him at the head of the largest, most geographically diverse steel company in the world. Despite his low profile in the United States, international peers and investors say that Mr. Mittal's ascendancy was predictable - over several decades of acquisitions, he has shown an uncanny knack for buying assets shunned by others and turning them into viable businesses just before demand for their products surged. The new Mittal Steel would be made up of LNM Holdings and Ispat International, two Mittal family companies that would be merged and then would buy the International Steel Group for $4.5 billion. The Mittal family would end up with 88 percent of the new company. Once up and running, Mittal Steel would ship 57 million tons of steel a year from plants in 14 countries, and generate annual operating income of about $7 billion. Mr. Mittal, 54, has made little secret of his intent to pursue more acquisitions in the future. 'We are a global company, we look at opportunities,' he said in a telephone interview. Steel industry specialists say that Mr. Mittal's skill lies in finding bargains where others see little of value. 'This guy has bought things that a lot of other people thought were dead ducks,' said Peter Fish, the managing director at Meps (International), a British consultant to the steel industry. For example, 'while the Europeans and the Americans and the Japanese were sitting and thinking about' investing in the former Soviet republics like Kazakhstan, Mr. Mittal moved in, Mr. Fish said. Admirers say he has the courage to take bold chances. 'You have to ask yourself, 'Why is he, or Rockefeller, or any other big businessman, successful?' ' said Erlan Idrissov, Kazakhstan's ambassador to Britain and formerly its minister of foreign affairs. 'I believe it is because he has guts.' In many ways, Mr. Mittal does not fit the mold of a corporate poker player. In conversation, he is reserved and a good listener, associates say. He says he likes to spend his free time with his wife of 30 years, Usha, and also enjoys going to the gym. In an interview, he repeatedly deflects questions about personal ambition or his deal-finding acumen, and instead simply gives his outlook on the steel industry. 'I have always believed in consolidation,' he said. But Mr. Mittal, one of the wealthiest men in Britain, has far from austere tastes. Born in Calcutta, he has made his home in London for more than 20 years, and the British tabloids revel in reporting the spending habits of the man The Economist has called the 'Carnegie from Calcutta.' In April, he purchased a house near Kensington Palace for an estimated £70 million ($128 million). And in June, he threw a five-day, 1,000-guest wedding celebration in Paris for his only daughter, Vanisha, who married Amit Bhatia, a London investment banker who was born in New Delhi. The wedding featured performances by the British pop singer Kylie Minogue and several Bollywood stars. He has also been criticized by some British politicians for donations to Prime Minister Tony Blair's Labor Party. In 2001, Mr. Blair wrote a letter congratulating the Romanian government on the sale of some mills to Mr. Mittal. At the time, Britain's local steel company, Corus, was shedding jobs, and some viewed Mr. Blair's support for a non-British company as suspect. Ispat International is based in Rotterdam, the Netherlands. Even critics, though, say his views on the steel industry seem prescient. Mr. Mittal says he believes that in 10 years, the steel industry will be dominated by a handful of companies, which will ship 80 to 100 million tons a year each. Today, the six largest producers control just 18 percent of the world's steel output, according to the CRU Group, a metals consulting firm. That number will climb to 23 percent when the Mittal Steel deals close, expected in the first quarter of 2005.

Subject: Where Are the Economists? From: Emma To: All Date Posted: Thurs, Oct 28, 2004 at 11:08:22 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/28/business/28scene.html? Where Are the Economists? By JEFF MADRICK WHEN you think about the economic issues facing the next president, you have to wonder why either candidate wants the job. There are the outsize budget deficits, high levels of private debt, a soaring trade deficit, growing numbers of Americans without health insurance, a possible bust in the housing bubble and an expansion that is not creating enough jobs and is probably already tapering to a crawl. But at least these issues have come up in the campaign. One issue that has not is the corporate scandals that rocked the nation two years ago. Now Eliot Spitzer, New York's attorney general, has uncovered another dark hole of apparent corporate wrongdoing among the nation's largest, most respected insurance companies. It is fair to ask where the federal government has been. But it is also fair to ask where the economists are. 'The economists are leaving this mostly to the law schools,' said the Yale economist Robert J. Shiller, author of 'Irrational Exuberance,' the best seller about the overvalued stock market. 'They are not comfortable with issues concerning human behavior.' To be a little more precise, there is a lot of economic research in the field, but it often reduces behavior to a set of predictable possibilities. 'They see the organization as merely a nexus of individual contracts,' complains Rakesh Khurana, an assistant professor of organizational behavior at the Harvard Business School and author of 'Searching for a Corporate Savior' (Princeton University Press, 2002). 'This is a highly unrealistic description and has no support in any social science other than economics.' Of course, knowing economists, that might make them proud. But the result is that many economists lean against financial regulation in general and have been in favor of only modest reforms in the wake of the scandals. The general argument they make is that free markets check corrupt behavior more than is realized, the courts can handle other disputes, and government regulations often serve business interests anyway. To David A. Skeel, a University of Pennsylvania law professor, however, reforms are badly needed to correct conflicts of interest and abuses in executive compensation. And the opportunity to adopt them does not come around often. Interest in any serious reform almost fizzled, in fact, after the Enron scandal in late 2001, and was revived only with revelations that WorldCom misstated profits by roughly $11 billion. 'After WorldCom, President Bush made a speech saying it was just a few bad apples,' Mr. Skeel says. 'But that didn't go over well in the financial community any longer. They wanted firmer action. Finally, he supported the Sarbanes-Oxley bill.' Mr. Skeel and others say Sarbanes-Oxley, the principal reform measure to come out of the scandals, is inadequate. It largely calls for new disclosure requirements and more independent auditors. In a new book, 'Icarus in the Boardroom' (Oxford University Press), Mr. Skeel proposes a number of new reforms, including more stringent demands for independent auditing. He would require auditors to be assigned by the stock exchanges themselves. The true measure of the lame regulatory environment, however, has been the lack of action, either by the accounting standards organization or the government, to restrain the stock options so generously given to top executives. Academic research strongly supported aligning executives' incentives with rising stock prices. But when options gave them the right to buy shares in the future at a given price, executive income soared. In 1991, the average chief executive of a large company earned 140 times the pay of an average worker. By 2003, it was 500 times. Lucian A. Bebchuk, professor of law, economics and finance at Harvard Law School, and Yaniv Grinstein of Cornell Business School find that a proper calculation of the total compensation of the top five executives of all companies, including salaries, stock options and pensions, came to a stunning $260 billion over the last 10 years. This might be justifiable if there were ample evidence it was based on market performance or corporate earnings. But Mr. Bebchuk and Mr. Grinstein find that since the early 1990's pay has risen about twice as fast as the market value of stocks and much faster than corporate income. Total compensation was 5.7 percent of total corporate income in the early 1990's; it is now under 10 percent. Mr. Bebchuk concludes that, contrary to arguments made by many economists, compensation agreements between boards and high-level executives are not done at arm's length; managers have a great deal of influence over what they get paid. Moreover, the options so widely advocated by these economists can often induce misbehavior as executives misstate earnings and liabilities, and take on dubious projects, to pump up stock prices in the short run.

Subject: 'Tipping over' From: Pete Weis To: All Date Posted: Thurs, Oct 28, 2004 at 10:21:26 (EDT) Email Address: Not Provided Message: Investment Outlook Bill Gross | November 2004 Tipping Over Things are never what they seem Skim milk masquerades as cream – Lewis Carroll Through the Looking Glass It’s an uncertain world these days, with the polls split down the middle and Heisenberg long ago having declared that something can be here or not here at the same instant. And for those of you who have no idea what I’ve just said I can only offer you congratulations on your blissful certitude. Death and taxes may head up both of our lists, but your list is probably much longer and therefore the midnight hours much shorter. But it being near November 2nd and all, I will offer up one sure-fire prediction that will scare the hell out of all you Republicans and maybe a few Democrats as well. If George Bush is re-elected, you can be sure that Hillary is next. That’s enough to get you to pull the lever for Ralph Nader I’ll bet. Despite candidates’ insistence that this is the most important election of our lifetime, I suspect that the ones in 1980 and 2000 were more important, and the latter was decided by 500 votes in Florida or the U.S. Supreme Court depending on your political persuasion. Four years later and much deeper in debt, there’s little either candidate can do to stop the near inevitable hegemonic (not hedonic!) decay. It’s really quite simple you know. Asia has hollowed out our manufacturing base and is now making inroads into services. Job growth is and will continue to be hard to come by. To compensate we temporarily turned ourselves into a finance-based economy, dependent on paper profits and capital gains that in turn were driven by the march to historically low interest rates. That journey ended sometime over the last year or so – some marking their hegemonic calendar at June 13, 2003, the 3.13% low of the 10-year Treasury, others signaling the beginning of the end on June 29, 2004, the point of the Fed’s first cyclical hike in short-term rates. Whatever, whenever. If the driver of profits and job growth is the price of money as opposed to domestic investment, it should come as no surprise that when the price goes up, the good times fade away. Either Bush or Kerry – Hillary as well – will have to contend with this near inevitability. Looks like James Carville was right after all. I suppose I sound pretty certain about this, a little anomalous you might say after having led off with reference to Heisenberg’s “Uncertainty” principle. My highly probabilistic attitude stems from the commonsensical observation that we can’t really educate or innovate our way out of this. 250 million Americans sitting around thinking up ways for the rest of the world to support us is not my idea of a real world outcome. At some point we have to begin to give something back besides Krispy Kremes, Starbucks franchises, and Treasury bonds. Unfortunately that will require some other kind of work than checking for messages on our BlackBerrys or managing investment portfolios for that matter. And it will require saving as opposed to consuming – something that several generations of Americans know nothing about.

Subject: 'Tipping over' Policy From: Terri To: Pete Weis Date Posted: Thurs, Oct 28, 2004 at 12:38:54 (EDT) Email Address: Not Provided Message: http://www.pimco.com/LeftNav/Late Breaking Commentary/IO/2004/IO_Nov_04.htm But enough of the economics of despair, I write to bring you an investment idea of hope. Recently, I presented a PIMCO client seminar with a handwritten memo entitled “The Things I’m Most Certain Of.” That’s what investing is all about of course: determining what it is you can be most confident of and then placing your bets in a measured proportion that reflects that confidence. To think that any idea has anything more than a 2:1 outcome given the near transparency of information and its immediate influence on prices would be somewhat delusional I suspect, but there is always something that we are most certain of. The trick is to avoid the slam-dunk exuberance, which could spell disaster for a portfolio. The one investment certainty is that we are all frequently wrong. But I wax philosophical and not financial. My/our most certain idea, as expressed in previous Outlooks, is that real interest rates in the United States will have to be kept low, that the old Taylor rule is out. Too much debt in a finance-based economy precludes raising interest rates like we have in the past and while that keeps the patient/economy breathing; it leads to asset bubbles, potential inflation, and a declining currency over time. How should an investor attempt to exploit this condition? Buy the assets that are being bubbled, invest in bonds that are protected against inflation (TIPS, German bonds with less inflation risk) and short the dollar – all very carefully, by the way, as described in the above paragraphs. Some asset and currency prices are nitroglycerine. One false move can ruin more than your day. While currencies are not my specialties, bonds are, and I have a few more specific thoughts on TIPS and the yield curve in particular, especially in reference to the thing I’m most certain of – low short rates. The low rates I speak to are really low real short-term rates. If inflation continues upwards it would be logical for the Fed to raise nominal short rates just enough to contain prices, but not kill the economy. We have suggested ½% real as a future Fed target, but no one really knows – we will all just have to find out. With so much debt in our economy as seen in Chart I, a subjective analysis would caution against raising real rates too high, and so far the Fed seems to agree. Fed governor Janet Yellen in an October 21st speech made a distinction between the “long-run equilibrium real rate” (Taylor rule) and the “intermediate equilibrium real rate,” stating that factors such as oil prices, investment spending, job growth and consumption – in other words the economy – must improve before we can safely raise real rates back to recent decade norms. PIMCO believes that will be a long time coming.

Subject: Conservative Magazine supports Kerry From: EZ To: All Date Posted: Thurs, Oct 28, 2004 at 09:50:55 (EDT) Email Address: ezamon@excite.com Message: Very well done editorial http://www.amconmag.com/2004_11_08/cover1.html www.amconmag.com/2004_11_08/cover1.html

Subject: Market Patterns From: Terri To: All Date Posted: Wed, Oct 27, 2004 at 17:39:05 (EDT) Email Address: Not Provided Message: This is generally the time of most market gains, November through January. The market is especially sensitive to the price of oil. As the prices climbs that market tends to level off or decline. Then with oil price stability or a mild drop, the stock market picks up. When the market rises solidity, bonds sell off. There is trading going on between stocks and bonds. The patterns in stocks are the same. The S&P is moderately positive, with value leading growth. Smaller stocks are stronger, again with value leading growth. European and Pacific stocks are stronger than American stocks. The dollar has been weakening against European and Pacific currencies. Energy and real estate are quite strong, while health care is surprisingly weak.

Subject: Brokering Insurance From: Emma To: All Date Posted: Wed, Oct 27, 2004 at 14:43:21 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/27/business/27insure.html?pagewanted=all&position= Insurance Broker's Cozy Ties May Prove Hard to Untangle By GRETCHEN MORGENSON Marsh & McLennan, the world's largest insurance broker, is promising to change the way it does business in an effort to satisfy regulators' concerns about potential conflicts of interest. But Marsh's extensive and lesser-known ties to the rest of the industry may prove much harder to untangle. As scrutiny of the insurance industry intensifies, experts say, the investigations are likely to underline the extensive web of relationships between insurers and Marsh, an insurance broker that can bring them more business than any other. These links are forged in the significant investments in insurance companies made by Marsh. In some cases, former Marsh executives run the new companies and current Marsh executives sit on their boards and own individual stakes in them. Marsh's involvement as a financier of insurance companies, while entirely legal, gives it an unusual position of enormous power in the industry, insurance executives say. Perhaps most significant, Marsh's investments have helped to create a clubby industry that some competitors say they find hard to penetrate. This cozy aspect of the business, developed over more than a decade, may make changes at Marsh more complex than investors suspect. The potential for conflicts in the setup at Marsh certainly looms large. The company can, for example, profit by steering clients seeking insurance to the insurers it owns stakes in; at the same time, the deals may have encouraged the insurers Marsh has capitalized to pay it higher incentive fees or to send lucrative reinsurance assignments to a subsidiary, a practice known as tying. Conflicts can also arise if Marsh has not disclosed to its customers the financial interests it holds in insurers that it recommends. A broker has a duty to find the best coverage at the best price for its corporate clients. Herbert Hovenkamp, a law professor at the University of Iowa, said: 'Bias in brokerage where people are purportedly acting as neutrals but steering customers toward suppliers with whom they have an ownership interest, those things are all regulatory problems. Depending upon mainly state insurance law, they are probably something that insurance regulators want to look into.' A spokeswoman for Marsh said it was always careful to disclose to its customers any financial interests the brokerage company had with insurers it recommended. She added that the company and its executives recognized that practices that might have been acceptable in the past are being reassessed at Marsh from a stricter viewpoint on corporate governance. The company's investments in the insurance industry are among those under fresh scrutiny. Yesterday, Michael G. Cherkasky, its new chief executive, said Marsh was setting up a compliance department that would monitor all negotiations with insurers. Still, among the changes Marsh outlined yesterday, none involved its role as a financier of insurers, even though those activities present the potential for multiple conflicts of interest. According to a person briefed on the investigation of Marsh by the New York State attorney general, Eliot Spitzer, investigators are looking at the role Marsh has played helping to set up other insurers and whether that role unfairly enriched its operations and curtailed competition in the industry. Mr. Spitzer's lawsuit asserted that there was evidence of bid-rigging at Marsh but provided no examples of tying. There is no doubt that forming new insurance companies benefits clients by making insurance more readily available than it would have been otherwise. And indeed, some of the biggest insurers Marsh helped to finance were formed immediately after the terrorist attacks of September 2001, when insurance could be scarce. It is very difficult to start insurance companies from scratch, industry experts say. Marsh is not the only insurance broker that also acts as an industry financier. Aon and Willis capitalize new companies, though Marsh does it on a much larger scale. Nevertheless, Marsh's investments have the potential to compromise its independence as a broker with a duty to offer the best coverage at the best price to its clients. If a company seeking insurance is steered to an insurer because it has close ties to Marsh, a result could be a higher price for the coverage than the company would otherwise have paid.

Subject: Re: Brokering Insurance From: Pete Weis To: Emma Date Posted: Thurs, Oct 28, 2004 at 20:59:14 (EDT) Email Address: Not Provided Message: The 'tip of the iceberg'.

Subject: Republican econ statistics From: Joe Savitsky To: All Date Posted: Wed, Oct 27, 2004 at 14:38:30 (EDT) Email Address: joesavitsky@hotmail.com Message: I received this message from a Republican and would love to get everyone's thoughts/critiques. He also posted a chart which unfortunately, I cannot easily reproduce here, but the gist is that . Thanks in advance! *********** To refresh your memory, the misery index is inflation plus unemployment rate. With the exception of the stock market, gasoline prices, and the Federal Debt, the Bush administration is performing somewhat better than the Clinton administration [circa 1996 election] in mortgage rates, homeownership, violent crime rate, real GDP growth, and the Federal Tax Burden. John Kerry refers to the Clinton years positively, as he should, with the one great exception, the slashing of the military budget and capability. While the Bush era has outperformed the Clinton era on those parameters, primarily due to the tax cut [like Kennedy and Reagan before him], he has done a poor job on fiscal control by never vetoing a single entitlement bill coming from Congress. He has exacerbated the debt with the Iraq War and the Tax Cut, both we think necessary and which will have positive effects on the country and on the economy in time. The economic evidence of the tax cut is with us now. In spite of the deficit, consider the following data for 2004, compared to 2003 that also came out of the research:* Consumer spending is up 3.6% Residential housing investment up 13.2% Capital goods investment up 13.9% Exports and Imports are up 11% Industrial Production up 5.2% High tech production up 23.7% Productivity up 4.6% [#1 in the world!!!! thanks to IT] Household wealth up 11.1% [$46 trillion] Net profits [after taxes] up 19.5% Interest rates at 45 year lows, with short term rates at less than 2%--the kind businesses, including my own,use. 15 year mortgage rates are at 5% * Many of these numbers appeared in Lawrence Kudlow Op-Ed in the WSJ. I corroborated those numbers through the AEA archives data base.

Subject: Misery index From: Pete Weis To: Joe Savitsky Date Posted: Wed, Oct 27, 2004 at 21:27:42 (EDT) Email Address: Not Provided Message: You started your post talking about the misery index - inflation and unemployment. We've been posting about the changes in calculating CPI since 1999. El Gringo just posted the Bill Gross piece regarding the use of hedonics and substitution which the government now uses to substantially reduce CPI from the number which would have been published using the Laspeyres method used before 1999. Of course this lower CPI number conveniently boosts the GDP number since CPI is subtracted from GDP. Despite this, GDP has flagged in 2004 after a very brief runnup in 2003 - what happened to all that stimulus? I believe any reasonably observent person realizes that the 'necessities' of life have been escalating in cost with the rather sharp decline in the dollar over the last three years. If you don't need to eat, buy a house, put gas in your car, buy insurance (health or otherwise) or heat your house, then for you there has been little inflation. You can fill your expensive house with plenty of cheap TV's, computers, and clothing - most of which, if not all, was bought from overseas manufacturers. 'Exports and imports are up 11%' - this seems like an attempt to turn what actually is a very bad number into something good - on Wall Street they call it 'puting lipstick on the pig'. The 11% mostly represents a large increase in the current account deficit - an increase in the dollar value of imports relative to lackluster exports. It also represents the higher dollar cost of imported oil - not a good thing. It's interesting to see Republicans lumping exports with imports and crowing about an 11% increase - it doesn't show a lot of respect for the intelligence of voters. Did you notice anything unusual about this Joe. When you were 'corroborating those numbers' did you ask yourself why the dollar increase in exports wasn't separated out from the dollar value of imports? Employment is another area where our present government likes to fudge things a bit. That's how you get the government reporting net losses of jobs during some months in 2003 at the same time they are lowering the unemployment rate since they are continuely dropping folks off the uemployment roles if they haven't been able to find a new job within a given time - for the government they no longer exist. Furthermore we know that we need 150,000 new jobs created per month just to keep up with all those sons and daughters reaching employment age each month. Without a job they are either sitting on a sidewalk somewhere or living with there parents who must take on the extra expense of supporting them. Also you might not be aware that most of those jobs which the government reports are being created every month are actually assumed to be created. We only find out if, in fact, they were created when we get income tax data for 2004 in 2005. 'Household wealth up 11.1% [$46 trillion]'. The $46 trillion number has got to be a typo ($4.6 trillion maybe) - even Larry Kudlow wouldn't exagerate things this much - or would he? However the 11.1% represents the record runnup in housing resulting from record relaxed lending practices and near record low interest rates relative to real inflation. At some point this will come to an end and many lenders will end up holding the bag on real estate not worth the mortgages - especially where the runnup has been the greatest. Credit will be tighter down the road. There have been numerous postings on this site regarding this. Joe, I'm assuming you are an intelligent person and also an honest person. Disagree with me if you wish, but give me good reasons why you disagree. Then your post will be a worthwhile post.

Subject: Republican Fakery From: Ari To: Pete Weis Date Posted: Thurs, Oct 28, 2004 at 07:17:44 (EDT) Email Address: Not Provided Message: Misery is Republican economic policy. The post was Republican economic fakery and trollery. We can only hope for the economic policy of Bill clinton and Robert Rubin.

Subject: Re: Misery index From: setanta To: Pete Weis Date Posted: Thurs, Oct 28, 2004 at 05:05:15 (EDT) Email Address: Not Provided Message: great response peter, excellent analysis as always!

Subject: Great Response Peter From: Ari To: setanta Date Posted: Thurs, Oct 28, 2004 at 07:22:21 (EDT) Email Address: Not Provided Message: Great response Peter, but the Republican post is all distortion.

Subject: Trolling From: Ari To: Joe Savitsky Date Posted: Wed, Oct 27, 2004 at 19:42:22 (EDT) Email Address: Not Provided Message: This post is Republican trolling.

Subject: Re: Trolling From: El Gringo To: Ari Date Posted: Wed, Oct 27, 2004 at 19:47:30 (EDT) Email Address: nma@hotmail.com Message: What's the matter? You're better!

Subject: Re: Trolling From: Ari To: El Gringo Date Posted: Wed, Oct 27, 2004 at 19:51:59 (EDT) Email Address: Not Provided Message: The idea of comparing the Bush and Clinton economic policies and successes is absurd. There are no Bush economic successes.

Subject: Re:Ari From: El Gringo To: Ari Date Posted: Wed, Oct 27, 2004 at 20:09:27 (EDT) Email Address: nmq@hotmail.com Message: Why?

Subject: Re: Republican econ statistics From: El Gringo To: Joe Savitsky Date Posted: Wed, Oct 27, 2004 at 18:43:57 (EDT) Email Address: nma@hotmail.com Message: Do numbers always reflect reality?

Subject: Re: Republican econ statistics From: Mik To: El Gringo Date Posted: Wed, Oct 27, 2004 at 19:08:40 (EDT) Email Address: Not Provided Message: Good point, El Gringo. At a glance, I get irritated when they are including Monetary policy issues such as the lending rate- to the best of my knowledge, Bush is involved in the Fiscal policies, not Monetary. So giving Bush credit for low mortgage rates is somewhat unfair. Also at a glance, the productivity scale is utter bull. The measurement comes from some stupid concept of measuring productivity by the amount of hours worked in a week. The 'productivity' rating given there refers to the fact that Americans work the longest hours in the world. Which can quickly be extrapolated to show that Americans are taking on two jobs and working serious overtime - more than any other country. To me that is a serious sign of social trouble. Productivity as a measure of output per capita - the US is no where near the top - but that is also understandable as it also has to do with currency value. Some developing countries rely on their currencies consistently dropping so that they can have high productivity rating. In essence - numbers do not necessarily reflect reality. But as some reality on numbers - the US has gone into debt like never before, and it is going deeper and deeper into debt with no end in sight. In the face of this and a war, the US has cut taxes and implemented supply side economics. The US has one of the lowest tax rates in the world, tax is not even seen by the majority of people as a serious problem yet it is an ideal political tool.... I wish some higher power could come in and say, 'Enough now!' For the sake of the US and the world, stop it.

Subject: Re: Mik From: El Gringo To: Mik Date Posted: Wed, Oct 27, 2004 at 19:30:06 (EDT) Email Address: nma@hotmail.com Message: 'For the sake of the US and the world, stop it.' Well, I could ask you: 'Mind your own business'

Subject: Re: Mik From: El Gringo To: El Gringo Date Posted: Wed, Oct 27, 2004 at 21:28:06 (EDT) Email Address: nma@hotmail.com Message: Mik, don't bother, that only was a sort of provocation!

Subject: El Gringo From: Mik To: El Gringo Date Posted: Thurs, Oct 28, 2004 at 18:00:13 (EDT) Email Address: Not Provided Message: Well we are all worried about what goes on in the States. What happens in the world's biggest economy affects us all. So I am minding 'my own' business. Unfortunately we don't have the power (nor the will) to attack the US and force regime change to suit our economic needs. But that is only a provocation.

Subject: Re: Mik From: El Gringo To: Mik Date Posted: Thurs, Oct 28, 2004 at 18:31:53 (EDT) Email Address: nma@hotmail.com Message: He, he...

Subject: Con Job Redux From: El Gringo To: All Date Posted: Wed, Oct 27, 2004 at 13:56:17 (EDT) Email Address: nma@hotmail.com Message: Investment Outlook Bill Gross | October 2004 Con Job Redux A man hears what he wants to hear and disregards the rest. -Paul Simon Bloomberg’s John Berry and the Fed’s William Poole are well intentioned I’m sure but they have an agenda like we all do. As I told a client last week, my agenda is to promote the interests of bond holders and by osmosis PIMCO’s and my own. Their agenda is to support the Federal Reserve, its strategies, and by osmosis the thinking of its chairman, Alan Greenspan. I was not surprised, therefore to read their criticism of my October Investment Outlook Haute Con Job, which called into question the validity of our government’s inflation numbers. Berry and Poole read what they wanted to read and, as Paul Simon once suggested, disregarded the rest. My point, however, was as follows. The CPI inaccurately calculates Americans’ cost of living. Since Social Security and pension benefits, as well as the level of wage hikes are predicated upon the specific number and/or the perception of annual increases, Americans are being in effect conned by their government and falling behind the inflationary eight ball year after year. After slamming the concept of the core CPI, the primary culprits I cited were the government’s use of hedonic and substitution adjustments to lower the CPI by as much as 1% in recent years. John Berry, the columnist, claimed my report was “inaccurate and flawed.” William Poole, the Fed Governor, in effect said I didn’t know what I was talking about. I think they read what they wanted to read, and I would hope that they would hear what needs to be heard. I did not dispute the fact that the quality of goods and even services can improve and that the government shouldn’t recognize that “hedonically.” I do disagree with those adjustments being reflected in a CPI that is used to calculate the benefits of wage earners and retirees. The U.S. government has over 40 different CPI indices – there is not one sacred calculation. There is a CPI for medical care for instance, and a CPI for services, as well as a CPI for transportation. Take your pick. But in using for retirement benefits an hedonically adjusted CPI that lowers annual price increases by as much as 1%, they take money unjustly out of Americans’ pockets. Peter Bernstein, in an article I cited in the Investment Outlook, suggested the same thing. He recommended the adoption of a new form of the CPI, which he dubbed the CPI/DX that excludes all durable goods prices – the items most subject to hedonic calculations. He wrote that “what people see and feel as inflation is what they pay for services and non-durables” not hedonically adjusted durable goods such as computers and DVDs. I would take that assertion one step further by using the following example that strikes to the heart of the hedonic debate. Say the only product that Americans purchase and consume are bags of gumdrops – 100 to a bag that cost $1.00 per bag, with each citizen limited to 1 bag. Through the miracle of productivity, a way is found to fill each bag with 110 gumdrops that is now priced at $1.10. The government’s hedonic adjustments would now calculate that the bag really only costs $1.00 and that the CPI has not gone up. After all, each gumdrop in the bag still only costs a penny does it not? It does. But here’s the catch and the con. The price of a gumdrop hasn’t gone up, but the cost of a bag of gumdrops has. Because Americans must buy 1 bag as opposed to individual candies, their cost of living has increased by 10%. They must fork out an extra dime even though they’re getting more for their money. Now turn the gumdrops into computers, cell phones, refrigerators, etc. and you see my point. We can’t buy individual pieces of memory in a computer – we have to buy the entire package. And the package costs more whether it’s improved or not. The government’s hedonic adjustments may accurately reflect productivity increases, but they should not be part of a CPI, which is intended to depict America’s cost to live. In effect, that allows the benefits of productivity to accrue to businesses (which don’t provide adequate raises) and government (which under-compensates Social Security recipients). Holders of TIPS who are hoping to keep up with the cost of living via their “inflation protection” are disadvantaged as well. It’s a con – pure and very, very simple. William H. Gross Managing Director

Subject: Re: Con Job Redux From: Pete Weis To: El Gringo Date Posted: Wed, Oct 27, 2004 at 19:53:42 (EDT) Email Address: Not Provided Message: Whether or not there is agreement on how CPI is calculated, the changes instituted in 1999 have reduced the CPI numbers substantially and therefore inflated GDP. I wouldn't think CPI or GDP numbers which are put out there now are useful in comparison with the performance of the US economy before 1999.

Subject: Re: Con Job Redux From: El Gringo To: Pete Weis Date Posted: Wed, Oct 27, 2004 at 20:14:27 (EDT) Email Address: nma@hotmail.com Message: 'I wouldn't think CPI or GDP numbers which are put out there now are useful in comparison with the performance of the US economy before 1999.' Why this sudden switch?

Subject: Re: Con Job Redux From: Pete Weis To: El Gringo Date Posted: Thurs, Oct 28, 2004 at 01:00:54 (EDT) Email Address: Not Provided Message: No switch. I completely agree with Bill Gross. I just wonder how many economists out there trust the CPI and GDP numbers being reported. How can they use these numbers to estimate negative effects on consumption? Are they agreeing with Greenspan that we are just experiencing a temporary 'soft patch'? How have economic models been adjusted since 1999 to account for this change?

Subject: CPI & TIPS From: David E... To: Pete Weis Date Posted: Thurs, Oct 28, 2004 at 14:02:54 (EDT) Email Address: Not Provided Message: I hate to sound naive, but one of the big reasons I bought mostly TIPS for my portfolio in 2000 was my impression that they contained a promise not to change the calculation of CPI-U. Now when I go to the treasury site I can't find those words anywhere. Maybe I misread - government language is hard reading, but I feel like a promise has been broken. Health insurance is up a lot, especially the way I measure it. My wife's share of premiums has gone from $50/mo to over $200 in 4 years. Employers are passing increases along rather than paying them. Does anybody have a record of the promise I thought was made in 2000? David E...

Subject: Individual Bonds or Funds From: Terri To: David E... Date Posted: Thurs, Oct 28, 2004 at 15:30:06 (EDT) Email Address: Not Provided Message: Would you buy individual TIPS for your portfolio, or the Vanguard TIPS Fund? I always lean to funds for bonds. The bond fund cost is quite low at Vanguard, while there is much flexibility from the funds that is limited in owning individual bonds.

Subject: Re: CPI & TIPS From: Terri To: David E... Date Posted: Thurs, Oct 28, 2004 at 14:21:12 (EDT) Email Address: Not Provided Message: The calculation of the Consumer Price Index is continually being refined by government statisticians. I can not imagine such a promise, but I sympathize with your concern.

Subject: Re: CPI & TIPS From: David E.,.. To: Terri Date Posted: Thurs, Oct 28, 2004 at 19:21:45 (EDT) Email Address: Not Provided Message: I have been told that I was naive. But why buy TIPS if the government can change the way it is calculated? I wanted to know that and read something on the treasury site that sounded like a promise to me. I didnt realize that 2000 was the first year with hedonics. ps. I like Vanguard and have my TIPS there--talking about promises Vanguard has promised that they will manage the TIPS to protect my position. I am naive again, and am taking them at their word. I bought my TIPS in 2000 when the yield was twice what it is now. I was concerned they might sell the high yield bonds and keep the low yield bonds. A reason for buying and holding bonds yourself is that you will always get the original deal. You get the interest agreed to and you get the principal agreed to. That is not necessarily true when owning mutual funds.

Subject: Brazilian Infrastructure From: Emma To: All Date Posted: Wed, Oct 27, 2004 at 13:16:28 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/27/business/worldbusiness/27infrastructure.html? Drive for Global Markets Strains Brazil's Infrastructure By TODD BENSON SÃO PAULO, Brazil - Every year, as the soybean harvest kicks into high gear, Brazilians are given a stark reminder of the infrastructure obstacles their country must overcome if it is to establish itself as a major trader in the global marketplace. Hundreds of old trucks packed with soybeans and grain line up for more than 50 miles along the highway leading into Paranaguá, a port in the southern state of Paraná that desperately needs investment to keep up with Brazil's ever expanding agricultural exports. At the peak of the Southern Hemisphere's harvest season every March, truck drivers wait at the side of the road for up to 20 days before unloading their cargoes, putting buyers from China to Europe on edge for fear of costly delays. Similar bottlenecks and weak infrastructure can be found across the country, posing a daunting challenge for the government of President Luiz Inácio Lula da Silva. Thanks to a boom in exports, the economy is expanding at its fastest clip since 1996 and is on course to grow more than 4 percent this year, rebounding from a brief recession in 2003. But many economists and business leaders warn that the recovery could start losing steam as early as next year if the government does not find ways to attract billions of dollars in investment to remedy Brazil's infrastructure. 'Unfortunately, if something isn't done urgently, by 2005, we run the risk of selling products and not being able to deliver them on time,' said José Augusto de Castro, the vice president of the Brazilian Foreign Trade Association. 'The economy simply can't keep growing at this pace with the infrastructure this country has.' Brazil has made significant strides in recent years in establishing its trade credentials, first under former President Fernando Henrique Cardoso, and now under Mr. da Silva, who took office in January 2003. Though Brazil, which is South America's largest economy, still accounts for less than 1 percent of global commerce, exports have risen to 17 percent of gross domestic product from just 6.5 percent in 1998. So far this year, foreign sales have already surpassed the amount reached in 2003, reaching $76.9 billion, and the country is on track to finish 2004 with a record $94 billion in exports, according to the trade ministry's most recent forecast. Most of the growth has come since 1999, when Brazil's decision to devalue its currency, the real, made the country's exports more competitive on world markets. More recently, China's voracious appetite for commodities like soybeans and iron ore has helped fuel Brazil's export bonanza. In addition, Mr. da Silva, who has made increased exports a priority of his administration, has traveled extensively to seek new markets for Brazilian goods. But Brazil's ascendancy on the global stage has also exposed deep fault lines at home. Like Paranaguá, almost all of the country's ports are struggling to accommodate the growing flow of goods. With some rare exceptions in more developed states like São Paulo, roads everywhere are worn and riddled with potholes, making the journey from the farm belt to the coast costly and slow. In addition, Brazil's railway network has barely expanded since 1970, when it transported only 50 million tons of cargo a year. This year, some 300 million tons of goods are expected to be shipped by train. 'The railway network hasn't advanced one kilometer in more than 30 years, and yet it is handling five times the cargo it was built for,' said Paulo Godoy, the president of the Brazilian Infrastructure Association. 'There's only so much more it can take.' The association estimates that for the Brazilian economy to keep growing at an annual rate of 3.5 percent to 4 percent, the country needs to invest at least $20 billion a year in infrastructure, especially in energy and logistics. But because the federal government has to run a large budget surplus to reduce its huge debt load, it can come up with only a fraction of that amount. This year, Mr. da Silva's administration set aside just 10.4 billion reais, or about $3.5 billion, for infrastructure spending. In its budget proposal for 2005, the government earmarked 11.4 billion reais for infrastructure. Congress is expected to raise the amount to closer to 15 billion reais, or just over $5 billion. That leaves the private sector to fill the gap of $15 billion. But some investors have been reluctant to step in, choosing to wait until Mr. da Silva's left-leaning administration - which includes several high-ranking officials who railed against capitalism and foreign investors in the past - comes up with a regulatory framework that is more friendly to private investment. In August, for instance, Mickey Peters, a senior vice president for the Duke Energy Corporation in South America, told a trade conference in São Paulo that his company, which is based in Charlotte, N.C., had put off any new investments in Brazil, saying that the government's plans to regulate the energy sector discouraged investment. Government officials say they have no intention of meddling in the energy market, and insist that Brazil is a safe place to do business. One way the government is trying to woo investment is through legislation it has introduced to lay the groundwork for public-private partnerships to invest in infrastructure projects together.

Subject: The Economist - 'Parable of the Cats' From: Pete Weis To: All Date Posted: Wed, Oct 27, 2004 at 10:17:46 (EDT) Email Address: Not Provided Message: Buttonwood The parable of the cats Oct 26th 2004 From The Economist Global Agenda The financial markets are fretting about a record oil price, the prospect of slower growth, a wobbly dollar and much more BUTTONWOOD’S cats are normally the very picture of somnolent peacefulness. Last night, however, the purrs turned into deep growls, and the growls, all of a sudden, into a whirr of fur and fury. Listen carefully and you can hear the growls from financial markets too. Can the fur and fury be far off? The growls come in many forms. The first and most obvious is the rising price of oil. The US benchmark, light, sweet crude—it sounds a bit like the stuff you have with a burger, doesn’t it?—rose this week to over $55, a new record, at least in nominal terms. Oil for future delivery has also been rising, suggesting that not only do consumers think it very unlikely the price of oil will fall sharply but that it may indeed rise further. The price of petrol and other oil derivatives is also going up, in part because the price of crude is rising, but also because there isn’t enough refining capacity. That these increases will have a bad effect on the world economy is not in doubt; the questions are what sort of bad effect and how big. The bad effects come in two varieties: inflation and slower growth. Having worried briefly about the first of these earlier in the year, financial markets are becoming more vexed about the second, especially since central banks, and the Federal Reserve in particular, have been removing some of the extreme looseness of monetary policy in recent months by hiking interest rates, albeit by tiny amounts. Thus have inflation expectations dropped. The combination of lower expected inflation and slower growth has caused the yield on ten-year Treasuries to fall by almost a percentage point since reaching a high earlier this year. Not that this is solely an American concern. An index of rich-country government bonds compiled by Citigroup has gone up by an extraordinary 10% since May. Worries about the effects of slower growth and higher oil prices on corporate profits have started to spook stockmarkets. The Eurotop 300 index of European shares is now down by some 4.5% from its high this year; America’s S&P 500 is down around 5.5%; and Japan’s Topix has fallen by almost 12%. Given how expensive these markets are by any reasonable metric, however, these falls can be seen as slight. Growls aplenty there are elsewhere, too. The cost of insuring against bad outcomes in equity markets, at least as measured by the Chicago Board Options Exchange’s VIX index of volatility, has been rising in recent days. It is, however, still extraordinarily low—a third of its level in October 2002—given the myriad uncertainties in the world. So, too, are the interest rates demanded by holders of corporate bonds over those on Treasuries, even though these spreads have climbed a bit over the past couple of weeks. In America, spreads of bonds rated BBB are about 1.2 percentage points, four points less than they yielded in October 2002. Most of the doubts about creditworthiness have centred on car companies and, of late (thank you, Mr Spitzer), on insurers. For how long will concerns be so narrow, and rewards so meagre, if growth really falters? Spreads on junk bonds have actually fallen lately. They now yield about four percentage points or so over Treasuries. In October 2002 the spread was over ten points, not that the numbers meant much, given the panic in the markets at that time. Perhaps all the issuers of such bonds are indeed much healthier now than they were then. Perhaps, on the other hand, they are simply the beneficiaries of ultra-loose monetary policy and a huge appetite for risk among investors. After a panic in May, emerging-market debt recouped most of its losses. In recent days this market, too, has wobbled but it still looks horribly expensive by historical standards. The dollar has also been falling out of favour in recent days. This week, it reached its lowest level in eight months on a trade-weighted basis, according to the Fed, and is within a whisker of an all-time low against the euro. Foreign-exchange traders seem to have discovered what everyone else already knew: that America’s huge and growing current-account deficit is unsustainable, and that two things are required to correct it. First, Americans must save more (which will slow growth, perhaps sharply); and second, the dollar needs to fall more than it has done already—perhaps a lot more. Alan Greenspan, the Fed’s chairman, and a man with a somewhat Panglossian view of the world, thinks that all these fears are overdone. His message is: don’t fret about America’s current-account deficit, consumers’ huge debts or the surging oil price; none of them matters, or at least not much. But your columnist does worry about such things, not least because the financial markets seem to be frighteningly sanguine about them: fears in the markets look about as overdone as a steak haché. The dollar looks in danger of plunging, the price of oil continues to surge, gold is going up and world growth is slowing. Oh, and America is about to hold an election that could create as much uncertainty as it removes. Small wonder that there are a few growls from financial markets. Buttonwood has a nasty feeling that something worse is in store.

Subject: Wonderful Posts From: Terri To: Pete Weis Date Posted: Wed, Oct 27, 2004 at 17:37:15 (EDT) Email Address: Not Provided Message: Wonderful posts!

Subject: Business Times - Singapore From: Pete Weis To: All Date Posted: Wed, Oct 27, 2004 at 09:52:18 (EDT) Email Address: Not Provided Message: Business Times - 27 Oct 2004 Why greenback looks decidedly shaky now By LARRY WEE THE US dollar is teetering on the edge of what looks like a steep cliff - and there's a growing worry that it may not take much to tip it over the edge. Already, storm clouds are gathering. The Swiss franc has soared to its strongest level against the US unit in eight years. And the Canadian dollar exploded overnight to levels not seen in 12 years. Elsewhere, the euro has risen to within a cent of this year's 12-year high of US$1.2927. Closer to home, the greenback briefly flirted with a fresh 2004 low of S$1.66 in overnight trading. And notwithstanding the drag of surging oil prices plus last weekend's deadly earthquakes in Japan, the US unit has plumbed similar half-year lows versus the yen. What worries currency traders most is that big moves can - and often do - take place suddenly and very swiftly. Recall the Thai baht's collapse in mid-1997. A new surge in oil prices, for example, could send Wall Street crashing and take the US dollar down with it. Another possible catalyst might be a series of weak US stats this week. Or even an ill-timed statement from a senior government official or central banker - and we've seen quite a few of those in the past week. In the background, nagging worries about the large and growing US current account deficit refuse to go away. At 6 per cent of GDP, the current shortfall requires fresh inflows of more than US$1 billion into the US economy each day - just to stabilise the greenback. And what's scarier is that some believe the shortfall can only grow. We've recently heard estimates that it could hit 8 to 10 per cent of GDP if something is not done to fix it. And the sooner, the better. Until recently, the twin deficits did not seem to present any urgent problem, since US fiscal largesse at home, as well as American purchases of goods from abroad, were both comfortably financed by chunky capital flows from overseas. Simply put, the overseas parties who were selling most to the US ploughed the bulk of the US-dollar export proceeds back into US dollar-denominated assets. But ominously, recent statistics that we highlighted to readers a week ago suggest that such return flows to the US could well be drying up. And events of the past week suggest that things could get worse before they get better. For example, it's not too difficult to make the case that with the benchmark Dow Jones industrial index now hitting 2004 lows, US stocks look less attractive. And to make matters worse, US bond yields have tanked with the Dow, making domestic fixed-income assets less attractive as well. This week, the yield on benchmark 10-year Treasury notes hit seven-month lows of 3.93 per cent. Unfortunately, that's not all. Market talk these days is that it cannot be mere coincidence that we've heard a plethora of central bank comments which - taken together - seem to suggest some kind of 'secret plan' to talk the US dollar down. Perhaps, currency traders speculate, it's because the authorities have decided that this is the only practical way to address the huge US deficits at home and abroad. Earlier this month, Dallas Fed President Robert McTeer kicked things off when he declared that the only way to fix such deficits would be for US consumers to buy fewer imports, or for the US dollar to weaken. And last Thursday, Janet Yellen, his counterpart at the San Francisco Fed, remarked that the US dollar was still relatively high, considering the US external deficit. Meanwhile, European central bank officials have stoked the selling of greenbacks by declaring that they are not worried about the strengthening euro - partly because it helps to offset record oil prices denominated in US dollars. On Monday, traders assumed that Japan would not be as aggressive in slowing the US dollar's recent fall when Japanese Finance Minister Sadakazu Tanigaki declared that recent currency moves were due more to the greenback's weakness rather than the yen's strength. Closer to home too, there's talk that, like the Europeans, Asian central banks may be a bit more willing to see their currencies strengthen a little more to help reduce the cost of their oil imports. South Korea, for example, has 'allowed' its won to appreciate to four-year highs versus the greenback. The pre-eminent danger is that any upside corrections by the US dollar will only be viewed as fresh selling opportunities. Especially if such rebounds try, but fail, to push it back above key support areas that were so soundly thrashed over the past week - such as 87 on an indexed basis, S$1.6740-60, 108.60-80 yen, US$1.2460-80 per euro and 72.50-70 US cents per Australian dollar.

Subject: Decline in the Dollar From: Terri To: Pete Weis Date Posted: Wed, Oct 27, 2004 at 12:31:51 (EDT) Email Address: Not Provided Message: The idea that a decline in the value of the dollar may be little resisted because it will cheapen the cost of energy imports, is interesting. There may be a new loss of dollar value occuring, though right now we are simply retracing the rise in value of the past 8 months. We will find out whether the dollar decline raises long term interest rates. An orderly decline would not seem to be a problem.

Subject: Re: Decline in the Dollar From: Terri To: Terri Date Posted: Thurs, Oct 28, 2004 at 06:11:51 (EDT) Email Address: Not Provided Message: 'The idea that a decline in the value of the dollar may be little resisted because it will cheapen the cost of energy imports, is interesting.' I take it that when you refer to energy imports you mean oil. has a decline in the dollar ever cheapened the cost of oil to the US before? I wonder how much the increase in the price of a barrel of oil is due to uncertainty in middle east/nigeria/situation in iraq and how much to the fact that the dollar has depreciated. i honestly couldn't speculate but its an interesting though...

Subject: Re: Decline in the Dollar From: El Gringo To: Terri Date Posted: Wed, Oct 27, 2004 at 12:39:40 (EDT) Email Address: nma@hotmail.com Message: 'The idea that a decline in the value of the dollar may be little resisted because it will cheapen the cost of energy imports, is interesting.' So, what about China?

Subject: Re: Decline in the Dollar From: Terri To: El Gringo Date Posted: Wed, Oct 27, 2004 at 13:56:00 (EDT) Email Address: Not Provided Message: There is little reason for China to allow the Yuan to rise in value against the dollar. Dollar reserves are supporting bank reserves and infrastructure development, and a stable relation between the Yuan and dollar is most helpful for China at present.

Subject: Re: Decline in the Dollar From: El Gringo To: Terri Date Posted: Wed, Oct 27, 2004 at 14:15:23 (EDT) Email Address: nma@hotmail.com Message: Don't you think that China is speculating on the devaluation of the dollar to purchase far more petrol than they actually need and thus piling up their petrol reserves to record levels?

Subject: Chinese surplus US dollars From: Pete Weis To: El Gringo Date Posted: Wed, Oct 27, 2004 at 15:11:01 (EDT) Email Address: Not Provided Message: China has 2 major concerns - the loss of consumption for its products from abroad (much of it from the US) and the rising cost of energy and the threat it poses to their economy. Its own currency is pegged to the dollar to help with the first concern and using a larger and larger share of their surplus dollars to purchase 'more petrol than they actually need' provides a hedge against the fall in the dollar (and the Yuan) and protection against the second concern. I don't see any reason why they would stop this hoarding of oil anytime soon, since it provides a very smart measure of protection from much higher petrol prices (relative to the dollar) down the road - their own growing 'strategic reserve'. From the Boston Globe: A tiger's growing thirst for oil Specialists: Surging demand threatens to roil global markets By Jehangir Pocha, Globe Correspondent | October 9, 2004 BEIJING -- American consumers watching the dollars rack up as they pump gas at stations across the country usually blame the high prices on the war in Iraq. But China's galloping fuel consumption could destabilize global energy markets and security even more profoundly, energy specialists say. China, a net oil exporter until 2001, is now the world's largest oil importer after the United States. This year its booming economy will burn about 2.4 billion barrels of oil, one-third of it imported. Steven Roach, chief economist at Morgan Stanley, says China's oil consumption will double over the next decade. With global oil production barely 1 million barrels over the global consumption rate of 81 million barrels a day, Roach says this surge in demand could lead global demand to outstrip supply. This could cause gas prices to shoot beyond their recent high of $50 a barrel. China also is driving up the global price of crude by 'hoarding' large quantities of oil, Michael Rothman, a senior energy analyst with Merrill Lynch, said recently. According to Merrill Lynch's analysis of China's oil buying and consuming patterns, the country is buying about 500,000 barrels of oil a day more than it needs. Without such 'hoarding' oil prices, which are currently at a record $53 a barrel, would be in the range of $30 a barrel, Rothman said. With the International Energy Agency estimating that every $1 increase in the price of oil costs the global economy $25 billion, China's moves could have far-reaching consequences. Roach says there is a tendency to blame China for any disturbance in world trade. 'Last year people said China was driving deflation, and now they're saying it's driving inflation,' Roach said. 'In reality the Chinese are very responsible economic players.' Though Beijing has not explicitly responded to questions about its oil purchases, Rothman and other analysts say Beijing wants to create an oil reserve along the same lines as the United States' Strategic Petroleum Reserve. In the medium term, oil producers could meet a growth in demand by using new technology to extract more oil out of existing oil wells, and tapping into new oil fields that have been discovered but remain unexploited. However the long-term problem remains, says Zheng Hongfei, an energy researcher at the Beijing Institute of Technology in Beijing, because 'there's just not enough oil in the world' to cover China's energy needs. More than 4.5 million new vehicles will hit Chinese roads this year, a far cry from the times when families used to save for months to buy a bicycle. Industrial consumption of oil is also soaring, despite talk of a slowdown in the economy. To tamp down on demand, the Chinese government has taken the politically unpopular step of raising retail gas prices 6 percent. Beijing also is using incentives and subsidies to support the development of electronic vehicles and renewable sources of energy such as wind and solar power. Significantly, it has also joined the United States and other nations in the international fusion project, which aims to develop clean nuclear-based energy. But the bulk of China's energy will continue to come from fossil fuels in the foreseeable future. Despite the serious environmental consequences of this -- the World Bank calculates China's annual environmental costs at $50 billion -- Beijing is putting in place extensive plans to secure oil supplies in a world where they could become increasingly scarce. Chinese firms are investing heavily in local energy fields, such as the 200,000-square-mile Ordos Basin that stretches across the provinces of Shaanxi, Shanxi, Gansu, Ningxia, and Inner Mongolia in northwestern China. The region is reported to have reserves of up to 60 billion barrels of oil. To defray the costs of exploration China has opened up its energy sector, which was previously off-limits, to foreign investors. Companies such as ExxonMobil, which owns a 19 percent stake in Sinopec, are being wooed not just for their capital, but for their refining and marketing capabilities. ExxonMobil is helping Sinopec establish more than 500 gas stations across the country and building at least two refineries in southern China. Sharon Hurst, an executive with Conoco-Phillips in Beijing says Western investment and cooperation is helping Chinese oil companies morph into world-class players. Two of China's largest state-owned oil companies, PetroChina and Sinopec, have listed on Wall Street and others are undergoing massive rounds of recapitalization and restructuring. Chinese dealmakers also are pursuing oil contracts with governments in Southeast Asia, Africa, Central Asia, and Latin America. Just last month, China signed a landmark deal with oil-rich Venezuela and its neighbor Colombia. Under the terms of the deal the parties will construct a pipeline linking oilfields in Venezuela to ports along Columbia's Pacific coastline. This will allow Venezuelan oil to bypass the Panama Canal, creating a new and direct route to China. growing thirst for oil

Subject: Chinese Strategic Oil Reserve From: Terri To: Pete Weis Date Posted: Wed, Oct 27, 2004 at 16:07:48 (EDT) Email Address: Not Provided Message: These are most important observations. China has made it clear that there must be a strategic oil reserve to reduce dependence in an emergency. The Chinese know well the problems of economic bottlenecks, and are doing all they can to lessen the threat in infrastructure and energy reserve development.

Subject: Pumped-Up Pension Plays? From: Setanta To: All Date Posted: Wed, Oct 27, 2004 at 04:34:02 (EDT) Email Address: Not Provided Message: Business Week: October 25, 2004 Pumped-Up Pension Plays? Regulators are investigating how some companies tinker with retiree accounting Telecom giant SBC Communications Inc. (SBC ) last year reported a stunning $2.2 billion plunge in operating income, and the company's explanation probably seemed arcane to many investors. SBC's number-crunchers, the company said, had lowered the expected return on retirement funds by a mere percentage point. Likewise, they raised their assumption of health-care cost inflation by a single point. And they shaved their estimate of future interest rates by just 0.75 percentage points. Add it all up and it translated into a big earnings hit: $693 million sliced off the bottom line. At the same time, many other U.S. companies were making similar adjustments. SBC was among hundreds of companies that last year updated key assumptions in their accounting for post-retirement benefits to bring estimates more into line with real-world trends. 'I'm very confident that our assumptions are appropriate,' says John Stephens, SBC's controller. Such changes, and the impact they can have on profits, have caught the eye of the Securities & Exchange Commission. BusinessWeek has learned that the agency's Enforcement Division is conducting an investigation: It has identified a few dozen companies whose assumptions seem aggressive and whose pension plans are big enough that changes in the estimates could have a significant impact on the bottom line. In early October it sent letters to half a dozen of them, requesting documents, including e-mails between those who set assumptions, explaining how they arrived at their estimates. SEC Enforcement Director Stephen M. Cutler says his department is 'looking to see whether managers are adjusting their assumptions with an eye to enhancing the earnings and balance-sheet numbers investors care about. That could be fraud.' 'EASY WAY' The SEC, which declined to name the companies, says it has no evidence yet of wrongdoing. Pension accounting is one of many areas where executives have to make estimates (BW -- Oct. 4). Differences in the investment mix and the age of workers and retirees could explain why some assumptions vary widely from the average. Another SEC unit, the Corporation Finance Division, has been making general warnings for some time, telling companies not to use overly rosy pension assumptions. Such estimates matter because in pension accounting, companies report their projected earnings for the plan, not actual returns. If the assumed return on pension investments exceeds the pension cost, companies can count the surplus in their earnings even when real returns stink. Boeing Co. (BA ), for instance, lost $3.3 billion on pension investments in 2002, but reported a $404 million pension gain based on its assumed 9% rate of return. That was 82% of the aerospace company's net income for the year. (Boeing notes that when assumed returns fall below actual costs, the company must report a loss in earnings, as it will have to do for 2004.) That's not an isolated case. UBS Investment Research figures about $2 of the $55 earnings per share for companies in the S&P 500 index in 2003 came from aggressive pension return assumptions. Small shifts in projected returns can make a big difference. A study published by the National Bureau of Economic Research in May by accounting professors Daniel B. Bergstresser and Mihir A. Desai of Harvard Business School and Joshua D. Rauh of the University of Chicago Graduate School of Business found that nearly 5% of IBM's (IBM ) pretax income in 2000 and 2001 resulted from an increase in the assumed rate of return from 9.5% to 10% in 2000. IBM adjusted the rate, which is meant to be a long-term projection, four times between 1991-2002. IBM says the company's decision to raise the assumed rate of return in 2000 was consistent with actual returns ranging from 14% to 21% over five previous years. The study also offers support for speculation that some executives may deliberately monkey with pension assumptions for corporate and even personal gain. The trio analyzed accounting for 3,247 pension plans from 1991-2002 and found that companies tended to hike pension return estimates the year before making an acquisition or before a CEO exercises stock options. 'If you want an easy way to manufacture earnings, this is as good as it gets,' says Desai. In December, 2002, the SEC warned companies that it might challenge rate-of-return assumptions above 9%, based on historical returns in equity and bond markets. Average return assumptions fell to around 8.38% in 2003, from 8.82% the year before. Still, 26% of the 355 companies in the S&P 500 that offer defined benefit pension plans estimated returns of 9% or higher in 2003, according to a UBS Investment Research (UBS ) study. Among those using assumptions above 9%: Darden Restaurants (DRI ), owner of the Red Lobster, Olive Garden, and other eateries. William R. White, vice-president and treasurer of Orlando-based Darden, says the company's 10.4% assumed return was in line with actual returns of 10.5% over the 10 years ending May, 2004. Still, Darden has lowered the rate to 9%. Many experts think even 9% is tough to justify. Given long-term stock and bond returns, an 8.5% rate is more reasonable for a typical portfolio with 65% equities and 35% bonds, CSFB analyst David Zion argues. Higher-than-average return assumptions don't necessarily signal accounting mischief. Plans tilting more toward equity investments tend to achieve higher returns. And multinationals with big overseas workforces may invest pension money in markets with higher returns and interest rates than in the U.S. A BLIND EYE Companies have less discretion over another factor, the discount rate, used to calculate future pension obligations in today's dollars. The higher the rate, the lower the pension expense. The discount rate is supposed to hew closely to high-quality corporate bond yields. The average discount rate for S&P 500 companies was 6.25% in 2003, down from 6.69% in 2002, according to UBS Research. A company with an older workforce and many retirees will tend to use a lower rate than one with younger workers and fewer retirees because it must pay benefits sooner. A few of the biggest companies, however, use rates of 7% or higher. Accounting for retiree health-care plans is just as byzantine. Some 328 of S&P 500 companies pay health-care costs for retirees. Accounting rules require companies to estimate future health-care inflation. Lowballing the trend in health-care costs minimizes the long-term benefit liability and understates expenses. Health-care costs have been growing at a double-digit clip, hitting 14.7% in 2003, according to benefits consultant Hewitt Associates Inc. (HEW ). But some companies have stuck to single-digit assumptions. Experts say such estimates are overly optimistic and suspect that auditors too often turn a blind eye. 'Companies aren't willing to change these projections substantially because they don't want to create any earnings volatility and auditors aren't challenging them,' says Michael Lofing, senior research analyst at Glass, Lewis & Co., a proxy advice and forensic accounting firm based in San Francisco. Accounting experts have been lobbying for tighter rules to limit the discretion companies have over pension assumptions. The Financial Accounting Standards Board, the Norwalk (Conn.)-based private group that the SEC relies on to set accounting rules, agrees. But it could be years before the FASB takes final action. For now, the SEC's sweep serves as a warning to executives not to take advantage of the wiggle room. By Amy Borrus and Paula Dwyer in Washington, with Michael Arndt in Chicago and David Welch in Detroit

Subject: Re: Pumped-Up Pension Plays? From: Ari To: Setanta Date Posted: Wed, Oct 27, 2004 at 05:41:53 (EDT) Email Address: Not Provided Message: Given the low level of long term interest rates and low dividends and high real estate prices, it is hard to see how a projection of pension plan returns above 9% can be justified. What pension fund returns can be expected from a mix of possibly 70% stocks and 20% bonds and 10% real estate?

Subject: Re: Pumped-Up Pension Plays? From: Institutional Investor To: Ari Date Posted: Wed, Oct 27, 2004 at 10:05:23 (EDT) Email Address: Not Provided Message: thats why you see pension plans moving into hedge fund of funds, private equity, real estate, etc. In order to achieve a 9% return, they are moving into many other alternative asset classes. While I feel a 9% rate of return will be difficult to achieve, I do feel its appropriate funds are looking into other ways to gain excess return and lower their risk.

Subject: Re: Pumped-Up Pension Plays? From: setanta To: Ari Date Posted: Wed, Oct 27, 2004 at 08:48:40 (EDT) Email Address: Not Provided Message: ari, i agree completely. i think your question might be more usefully directed at the auditors of each company named in the article.

Subject: Subdued Technology Recovery From: Emma To: All Date Posted: Tues, Oct 26, 2004 at 17:05:55 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/26/technology/26place.html A Technology Recovery in Post-Exuberant Times By STEVE LOHR The profit report cards last week looked good both for old-line stalwarts of technology like I.B.M., Microsoft and SAP and for newcomers like eBay, Amazon.com and Google. But this is a technology recovery of seemingly diminished expectations. For proof, look no further than the collective sigh of relief on Wall Street when I.B.M.'s chief financial officer, Mark Loughridge, said that he expected spending on information technology to increase 4 percent or 5 percent this year. That performance, he noted, would be the best since 2000. Still, a modest single-digit growth rate is none too impressive when compared with the boom times of the 1990's or the long-term trend. Growth in a low gear is the consensus outlook. IDC, the technology research firm, estimates worldwide growth in spending on information technology - computer hardware, software and services - through 2008 to be 6.5 percent a year, one and a half times world economic growth over all. That would represent a break with the past. From the 1960's through the 1990's, technology spending has increased on average by two to three times the rate of economic growth. Slower growth, to be sure, is partly a 'law of large numbers' phenomenon. That is, information technology has already grown, matured and become so much a part of the economic mainstream that further gains will necessarily be more gradual. But there is another, less obvious explanation: the low-cost computing revolution. In simple terms, it means that companies can do more with less - typically by using smaller building blocks of hardware and software. It is a shift made possible by the steady improvement of technology from personal computing and the Internet. This shift also means that it is entirely sensible to be quite optimistic about information technology and what it promises for the economy, companies and individuals, and far less optimistic about the trends for sales and profit growth for the technology industry as a whole. The information technology strategy at FedEx, the package delivery service, points to that conclusion. 'Technology is coming to us in much smaller bundles that cost a lot less,' said Robert B. Carter, the company's chief information officer, whose budget is slightly more than $1 billion. 'Our intent is to hold the line on I.T. spending and get more bang for the buck.' The flat spending does not suggest any lack of enthusiasm for technology at FedEx, a sophisticated corporate user of technology. Mr. Carter reels off a series of projects for helping customers use the Web, e-mail alerts and wireless messages to track inbound and outbound packages, trim inventories and fine-tune operations. 'The global interconnectedness and technology services available are growing at an unbelievable pace,' he said. 'We are at an inflection point in the adoption of these technologies.' In hardware, the flight to low-cost technology is probably most evident in the market for server computers, which power corporate networks and the Internet. Companies have increasingly moved their computing workloads from more expensive, proprietary computers to clusters of machines powered by microprocessor technology from the personal computer business, made by Intel or Advanced Micro Devices. Shipments of these industry-standard servers have grown nearly fivefold since 1996 to more than 5.7 million this year, IDC estimates. Last week, for example, I.B.M. reported that revenue from industry-standard servers jumped 26 percent from the quarter a year earlier, helping the company achieve solid growth of 9 percent at its hardware division. In software, the low-cost migration includes the use of open-source software, which is distributed free, like the Linux operating system, the Apache server and MySQL database. But lower costs also come from software standards that enable automated, machine-to-machine communications, and Internet tools like the Java programming language. In the long term, free software is a threat to Microsoft and its proprietary business model. But so far, Microsoft has been a winner in the transition to lower-cost technology. Those millions of industry-standard server computers being installed in corporate data centers run mainly Windows or Linux systems.

Subject: Economy Improves, Not Optimism From: Emma To: All Date Posted: Tues, Oct 26, 2004 at 12:20:41 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/26/business/26econ.html? Economy Improves, but Not Optimism By EDMUND L. ANDREWS YORK, Pa. - It has become much easier to find a job here in the last year, but few people are feeling flush. George Firestone, who locates underground cables for telephone repair crews, recently learned that he would not be getting the $1.50-an-hour wage increase he had been expecting. His wife, Nicole, has $4,000 in bills after lung surgery last year, even though they both are covered by health insurance. 'We've pretty much abandoned our plans to buy a house,'' Ms. Firestone said as the couple ushered their three children into a Wal-Mart store here in this classic midsize American city with a mix of basic industries and white-collar services. 'Prices for groceries and gasoline are going up every week. We're paying about $40 a week for gasoline.'' With the presidential election looming on Nov. 2, economic growth and hiring continue to march forward. But soaring oil prices and a persistently weak job market have made the recovery more fragile and sluggish than it seemed just a few months ago. Middle-income consumers, who kept buying houses and cars through the downturn, are now feeling squeezed between higher prices and stagnant wages. Because much of their recent spending was financed with borrowed money rather than higher incomes, many are either feeling tapped out or simply ready for a pause. 'We just finished a big addition, and we bought a lot of furniture to put in it,'' said Tracy Wagner, a stay-at-home mother whose husband works as a mechanical engineer. 'Unless we move, we won't need to spend as much this year.'' President Bush and Senator John Kerry trade dueling economic outlooks almost every day. Mr. Bush boasts that the nation has added 1.8 million jobs in the last year and that tax cuts have helped the economy rebound. Mr. Kerry points out that real household incomes and employment have both declined since Mr. Bush took office while the number of people in poverty is up. Both candidates are right, up to a point. Analysts estimate that the economy is growing at a relatively robust annual pace of about 4 percent, above its average trend rate. And there is no doubt that lots of Americans are in many ways enjoying more creature comforts than ever before. Thanks to the Federal Reserve's decision to cut interest rates sharply, to their lowest level since 1958, the rate of homeownership has climbed to a record 69 percent. Americans, on average, live in bigger houses, drive bigger vehicles, surf the Internet with faster connections and talk on cellphones more than they did four years ago. But a long list of economic indicators suggests that many Americans are poorer today than they were when Mr. Bush took office. Median household income and median household wealth, adjusted for inflation, are still slightly lower than they were four years ago. Consumer debt, meanwhile, has soared to new records. Monthly debt payments, as a share of take-home pay, are just below the record levels set earlier this year. Mortgage foreclosure rates and write-offs for bad credit card debt are also near record levels, despite extraordinarily low interest rates. 'Most American households are financially worse off today than they were four years ago,'' said Mark Zandi, chief economist at Economy.com, a research firm based in the Philadelphia suburb of West Chester. Median household incomes and median household wealth, he said, were hit hard by the weak job market, high energy prices and the explosion of mortgage debt. 'The fruits of the economic recovery have largely accrued to upper-income households,'' Mr. Zandi said. 'Those are the one who benefited from the surge in house prices. They also enjoyed rising investment income and it is their part of the job market that has been strongest.''

Subject: Why Worry About the Dollar From: Terri To: All Date Posted: Tues, Oct 26, 2004 at 12:06:22 (EDT) Email Address: Not Provided Message: Possibly I do not understand, but there should be no risk to an American investor from the dollar unless a loss in value of the dollar spurs inflation, and the Federal Reserve can easily prevent this. A loss in value of the dollar will add little to inflation but will lower imports and raise exports, strengthening the economy and lessening the balance of payments deficit. Also, profits of American corporations that have foreign earnings will increase as foreign currency is converted to dollars. For all the interim movement, the value of the dollar is about the same as 10 years ago.

Subject: Re: Why Worry About the Dollar From: Mik To: Terri Date Posted: Tues, Oct 26, 2004 at 12:30:09 (EDT) Email Address: Not Provided Message: I personally believe that the weakening US Dollar will add more to inflation and have less benefits in the way of improving exports and lowering imports. The US economy (in my opinion) has succeeded in moving away from being commodity based. So I don't see much increase in exports. There appears to be a great under-estimation in the power of inflation and from a previous post here about the CPI calculation - I am worried that in its sophistication, the US administration is mis-reading the correct inflation figures. The value of the Dollar may be at about the same level that it was 10 years ago - but the structure of the US economy is definately very different to what it was 10 years ago.

Subject: Re: Why Worry About the Dollar From: Terri To: Mik Date Posted: Tues, Oct 26, 2004 at 13:31:45 (EDT) Email Address: Not Provided Message: There will be no inflation increase with a falling dollar unless the Fed allows an increase. Interest rates can always be raised. Import prices simply do not add much to the price indexes. We are highly competitive in exports of goods and services, and would quickly be more so with a price adjustment. Think of all the American goods and services that can be bought in London or Tokyo or Hong Kong, from Caterpillar to Citigroup to Coca Cola to Disney to Microsoft. The complaints about the compiling of the price indices that are made by a few analysts have little echo among academic economists. I find little problem there. The problem for me is whether there will be fast enough growth to spur job creation and wage and benefit increases.

Subject: Re: Why Worry About the Dollar From: jimsum To: Terri Date Posted: Tues, Oct 26, 2004 at 18:23:55 (EDT) Email Address: jim.summers@rogers.com Message: I think you have answered the question of why the falling dollar will be a problem. Either there will be inflation, or interest rates will go up. Given the high levels of debt, an increase in interest rates could lead to economic disaster (e.g. higher government deficits, a collapse of the housing market, a sharp economic contraction as consumers switch from spending to saving). As I remember, international trade amounts to about 10% of U.S. GDP, so rising import prices shouldn't hurt much. As an added bonus, most goods are priced in U.S. dollars and companies are likely to maintain those prices to keep market share. I don't think inflation will be a big problem. I think the bigger problem is what might happen to interest rates. You've already mentioned that the Fed might raise interest rates if inflation starts to happen. I think the bigger risk is that if investors lose faith in the U.S. dollar, they will sell their U.S. investments and bonds to avoid further exchange losses. A rather significant amount of U.S. debt is held by foreigners, so interest rates will have to be set high enough to convince them to leave their money in the U.S., despite the risk of exchange losses. I have to say it is really difficult to predict what effects currency shifts will have. As a Canadian, I am more familiar with effects on our economy. The Canadian dollar has gone up about 25% in the last few years, but that increase hasn't had the expected negative effect on the economy, even though trade accounts for about 30% of the economy. In my experience, the biggest problem with a weak currency is that the central bank loses some control over interest rates; interest rates have to be set to maintain the value of the dollar, not necessarily what's best for the economy.

Subject: Re: Why Worry About the Dollar From: Terri To: jimsum Date Posted: Tues, Oct 26, 2004 at 19:10:54 (EDT) Email Address: Not Provided Message: Suppose the Fed just ignored a decline in the value of the dollar, as Brad Delong suggested? There would be little inflation impact, and if international bond holders began to sell American debt, the Fed could even ease monetary policy to keep interest rates low. I guess the Fed might still find long term rates increasing, so this might be a problem, but I still have trouble worrying much about the value of the dollar. Robert Rubin always commented 'a strong dollar is in America's interest.' But, market adjustment may be needed at times. Canada's strong dollar reflects a strong economy, but the Canadian central bank did not raise interest rates to protect the Canadian dollar when it was far weaker.

Subject: Re: Why Worry About the Dollar From: Pete Weis To: Terri Date Posted: Tues, Oct 26, 2004 at 21:06:20 (EDT) Email Address: Not Provided Message: 'Suppose the Fed just ignored a decline in the value of the dollar, as Brad Delong suggested? There would be little inflation impact...' . I agree with most of what Jim said in his reply to you Terri except the part about inflation not likely being a problem if the dollar continues to fall. We've posted articles on this site regarding the substantially higher prices manufacturers are paying for raw materials. It's no secret that building costs have been rising sharply. Builders and manufacturers (even foreign ones) can absorb only so much before passing it on while accepting the fact that they will have to make do with less business. Food costs have been going up as well as fuel costs. We can expect much more of this if the dollar continues to fall relative to a 'basket' of currencies and commodities in general. The only strong support for the dollar presently comes from Asian Central banks, whose directors hold the fate of the US economy in their hands. They have much more to say about the direction of our economy than does the Federal Reserve. There is already such a huge supply of dollars worldwide, courtesy of the market boom of the 90's and Federal Reserve interest rate drops of 2000-2003, that it's all about demand for US dollar denominated assets now. I believe that depends on the direction of the US economy from this point onward which is dependent on the US consumer holding up under his/her mountain of debt and rising expenses (partly due to the falling dollar). The more the US consumer begins to pack it in, the less important he is to overseas economies and the riskier holding all those dollar denominated assets by foreign investors and Asian Central banks becomes. At some point the two lines (decelerating US consumption and risk tolerance by foreign investment) will cross in earnest and unless the Fed is willing to raise interest rates considerably, the dollar would be in danger of crashing for the first time in its history. This is a situation that Paul Volker is predicting is likely to happen sometime in the next 5 years. Of course what little traction our economy has gotten owes to some of the cheapest and easiest money in US history. The fact that it accomplished so little save a year long market rally (which is now fading) and the biggest runnup in housing on a national basis in US history, should scare the willy's out of anyone paying attention. If the dollar is allowed to collapse, our economy is toast anyway. So the Fed will have the ugly choice, IMO, of sacrificing much of the economy to save what is left of the dollar while laying waste to the stock market and housing market as well as accepting a relatively high amount of unemployment for a given time. That may sound like extreme bearishness, but if you are paying attention there is a growing chorus of very smart people (much smarter than myself) out there saying much the same.

Subject: Re: Why Worry About the Dollar From: Mik To: Terri Date Posted: Tues, Oct 26, 2004 at 14:53:25 (EDT) Email Address: Not Provided Message: To the best of my knowledge, Caterpillar, Coca Cola, Disney and Microsoft products are made outside the States. Hence it would make sense to continue producing them abroad. Even with a devaluation in the Dollar Coca Cola factories in Asia and Europe will not stop and allow for imported Cokes, China will not stop making Disney products, etc, etc(I do believe caterpillar does still export some of its equipment though.) But you won't see much increase in exports, your imports will however become more expensive and they are already becoming expensive. Yes, inflation can be controlled by the Federal Reserve, the chain reaction of increased interest rates is what I thought one would be trying to avoid right now.

Subject: Re: Why Worry About the Dollar From: Terri To: Mik Date Posted: Tues, Oct 26, 2004 at 15:10:45 (EDT) Email Address: Not Provided Message: Well, the long term bond market is telling us there is no inflation problem, and I find a competitive American economy in international terms with the prospect of increasing competitiveness. There will be problem in time, there always are, but I see no reason for near term pessimism though I wish job creation were far more robust.

Subject: Re: Why Worry About the Dollar From: bonds To: Terri Date Posted: Tues, Oct 26, 2004 at 16:51:40 (EDT) Email Address: Not Provided Message: the market also said valuations were correct in 2000, believe it or not markets can be wrong, maybe that is the case now, only time will tell.

Subject: Valuations were correct in 2000 From: johnny5 To: bonds Date Posted: Tues, Oct 26, 2004 at 19:17:29 (EDT) Email Address: johnny5@yahoo.com Message: Valuations were correct in 2000: http://www.321gold.com/editorials/bonner/bonner102504.html Ain't Misbehaving Bill Bonner The Daily Reckoning Oct 25, 2004 The Daily Reckoning PRESENTS: No matter how hard we try to produce theories and hypotheses to explain the market, it will always prove to be unpredictable. It turns out we live in a riskier world that we thought, and sometimes all we have to go on is intuition and experience... The financial world was undressed recently. A new book by Benoit Mandelbrot and Richard Hudson, The (Mis)behavior of Markets: A Fractal View of Risk, Ruin and Reward, revealed the naked and revolting truth: Modern investment theories are 'nonsense.' Mandelbrot is a mathematician at Yale who has popularized the idea of fractals - elaborate and unpredictable natural patterns, such as frost on a windowpane. Fractal patterns have been thought to describe patterns of market prices. As far as we know, no one has succeeded in developing a successful trading model based on fractal mathematics (of course, if we had, we might not tell anyone, either.) Several Nobel laureates owe their prizes, their prestige and their incomes to what is known as the Efficient Market Hypothesis (EMH), or simply the Random Walk. No idea about finance that was ever flushed out of the frontal lobe ever enjoyed greater acceptance. None ever received more recognition. And none ever sucked so much money out of the lumpen. But the Efficient Market Hypothesis is really nothing more than an elegant subterfuge, based on propositions everyone knows are false. The basic idea is that the market is smarter than any investor. No matter how hard you try, you can't beat the market... because at any given moment all that is known about a share price is reflected in the share price itself. The price - no matter how absurd - is thought to be 'perfect.' No better price can be imagined. Yet a different price tomorrow is almost a certainty. Each day, prices move. One day gives you a price that is perfect. The next day may give you a price only half as much, but that too is perfect. Mr. Market is always right; he just changes his mind. Since an investor cannot have a better idea of what a share is worth than the market itself, he cannot do better than buy at the market price, whatever it is. The actual performance will be random. He might as well throw a dart at pages of The Wall Street Journal. Or buy the index. He will get the same return. Anything else would call into question the whole idea - unless it were purely luck, purely random... in no way connected to conscious effort on the part of the analyst or stock-picker. A corollary of the EMH was the idea that prices and rates of return were distributed evenly, according to what is known as the bell curve. Another way of saying this is that prices will usually be normal... or average... and that they will only be abnormal in a normal way... that is, abnormally high or low such as might be predicted by a standard bell curve distribution. This was the idea that led Long-Term Capital Management, for instance, to invest billions of dollars on the proposition that if prices fell in a range outside of the norm, you could calculate the odds of how likely prices were to come back. LTCM had 25 Ph.D.s on the payroll. John Meriwether put them to work calculating standard deviations on various debt instruments - among them, Russian bonds. In 1995, the fund made 42% on its money. In 1996, the rate of return was 40%. But in 1998, Russia defaulted on its bonds. But the bell curve, or the standard distribution, applied to finance is 'nonsense,' says Mandelbrot. It may be nonsense applied to many other naturally occurring phenomena, too. The seas in Holland, for example, were thought to rise 3.83 meters above 'normal' only once every 10,000 years. Yet they rose that high in 1953. Records showed that they hit that level back in 1570 too. There was something wrong with the calculation. Standard deviation measures didn't seem to work. The world was a riskier place than people thought. It came as a shock to Myron Scholes and Robert Merton. The two Nobel Prize winners at LTCM had staked their careers, reputations and money on the perfectly logical idea that bond prices followed a bell curve pattern... and that if they reached the kind of extremes LTCM was seeing in 1998, it was a not a defect in their logic, but a huge buying opportunity. The odds were vanishingly small that prices would go further out of whack, they thought. Finance was a science, after all, and science gives predictable results. Every time. And yet bond prices went further out of whack. Traders at other companies knew what was happening. They had studied the same theories. They guessed that LTCM had loaded up with risky bonds... they also guessed that the company tottered on a high wall of debt. They did just what you'd expect: They gave it a push. Prices fell even further. The old-timers knew the Random Walk theory was nonsense. There is always a lot of random noise in markets - as in life itself. But there are patterns, too. The trouble is, the patterns - like fractals - are variable and largely unpredictable. Markets go up and down. The movements are not only mostly unforeseeable, but perverse; they move in tandem with the broad strokes of human sentiment. As people become more comfortable, more sure of themselves and the future... more confident and expansive... they tend to bid up prices. A house that was worth only $100,000 when they expected nothing but shelter from it rises to twice as much when they expect it to finance their retirement. But investors only expect such a result after a long experience of pleasure returns. That is, they expect asset prices to rise after they have already risen, not before. The mood of the crowd reflects what has just happened, not what will happen next. House prices, like everything else, cannot go up forever. Who would be able to afford them? Instead, they go up and down... and perversely, go down when they are most expected to go up... and up when a bull market is least expected. This is, of course, not an insight based on Efficient Market Hypothesis, but one that springs from experience... and intuition. No one ever won a Nobel Prize for saying so, but it never made anyone go broke. Mandelbrot points out that when you actually look at market prices, you find patterns that differ greatly from those predicted by mainstream financial theories. 'Outlier events' - those that are supposed to happen only once in a blue moon - actually happen all the time. Citigroup looked at daily changes in the yen/dollar exchange rate, for example. It found that moves of five standard deviations were not uncommon, even though they should only happen, according to the theory, about once every 100 years. They even found one 'heart-stopping' move, 10.7 standard deviations from the norm. What were the odds of that? Even if Citigroup had been trading dollars and yen every day for the last 15 billion years - from the Big Bang to the day after yesterday - such an event shouldn't have happened a single time. But it did. And look at what happened to the Dow Jones on Oct. 19, 1987. It fell 29.2% - an event that registered 22 on the standard deviation scale. Not only do the markets produce events that should never happen, they also act in other ways that intuition might predict, but existing theories cannot fathom. According to EMH, prices - like dice - have no memory. One day's perfect price is thought to be completely independent of yesterday's perfect price. This is what mathematicians call 'independence' and contrarian investors call 'more nonsense.' It is nonsense because human beings use prices as points of reference. A man who owns a stock worth $50 one day is reluctant to believe it is worth only $5 the next. He has no idea of what it is worth except what the market tells him; yesterday, it told him it was worth $50... and it's a shock to discover that it is worth only a tenth as much. This, or something we can't explain, causes the phenomenon described by the old saying, When it rains, it pours. Periods of intense volatility cluster together; bad news piles up in what is known as 'positive short-term serial correlation.' Markets don't really just bounce around randomly, in other words, but there are periods when things go well and periods when they don't. There are bull markets and bear markets, as any old-timer's intuition could have told you. Investing isn't rocket science. In fact, it isn't any kind of science. Instead, it is a human study, like poetry or prize fighting. And as in all the human studies, the problems one confronts are not bounded engineering problems but unbounded, infinitely complex ironies. If you do the calculations correctly, you can fire off an artillery shell and it goes where you expect. But market prices often go in the exact opposite direction, no matter how well you do the numbers. It is easier to send a spaceship to the moon, in other words, than it is to win an argument with your spouse or figure out which way stocks are headed. And if you are going to follow advice, an old-timer's intuition is probably a better guide than modern portfolio theory. The markets ain't misbehaving, in other words: They're just doing what they always do. Regards, Oct 25, 2004 Bill Bonner The Daily Reckoning

Subject: Re: Why Worry About the Dollar From: Terri To: bonds Date Posted: Tues, Oct 26, 2004 at 17:54:39 (EDT) Email Address: Not Provided Message: Robert Rubin always held the bond market was a much better indicator of economic conditions than the stock market. But, you are right. We can only guess about the future. The guess is that we will continue growing too slowly to generate a surge in job creation and wage and benefit increases. Then, there is little reason to suspect inflation will be soon found an approaching problem.

Subject: Re: Why Worry About the Dollar From: Mik To: Terri Date Posted: Wed, Oct 27, 2004 at 18:54:09 (EDT) Email Address: Not Provided Message: Terri, I agree with your posts on the bond market. However, as irony would have it - I see near term pessimism and long term optimism.... go figure. I am willing to bet that we will be seeing a rise in inflation - coupled with a rise in the repo rate to control the inflation. I am desperately afraid that the housing market is due to have a 'serious correction' that may infact be sparked off by the increased repo rate, that was sparked off in controlling inflation, that was liked to the weakening dollar. But everything normalises in the future. Then again, I believe Keynes once said, 'In the long run we are all dead.'... now how is that for pessimism?

Subject: Re: Why Worry About the Dollar From: Terri To: Mik Date Posted: Wed, Oct 27, 2004 at 19:49:57 (EDT) Email Address: Not Provided Message: What is pleasing is thinking the possible changes through together. The times are always uncertain. Just a bit more so these days, or so it seems.

Subject: cupla questions... From: setanta To: All Date Posted: Tues, Oct 26, 2004 at 07:13:19 (EDT) Email Address: Not Provided Message: 1) as a non-us observer of us politics i come across many references to the republican party as GOP (or am i mixing it up with something else), what does GOP stand for? 2)now that one of the worst polluters in the world - russia, is adopting the kyoto protocal how likely is it that the US will finally join the rest of the world and honour its agreement. 3) by the way Greenspan, keep up the good work!!! i'm visiting the US (my first time across the pond!) this friday and am getting $1.3 to my euro! I'm really looking forward to it and if any of you can recommend good places to go (day and night) in chicago i'd be forever grateful. by the way, just want to congratulate the Irish for trashing the Aussies in the Compromise Rules Series (a combination of Irish Gaelic Football and Aussie Rules). Here's hoping we do the same to South Africa and Argentina in the forthcoming Rugby Internationals and prove that the northern hemisphere is finally able to compete and beat the southern!!!

Subject: Re: cupla questions... From: Ari To: setanta Date Posted: Tues, Oct 26, 2004 at 10:50:45 (EDT) Email Address: Not Provided Message: GOP is Grand Old Party Since America has not ratified the Kyoto agreement, we will not be bound. The Federal Reserve does not defend the dollar unless asked by the Treasury, and there is no reason to ask. We wish a weaker dollar, but Europe surely does not wish a weaker dollar. Look at the travel section in the New York Times, and search Chicago. The city is exciting.

Subject: Secure Investing in Bond Funds From: Terri To: All Date Posted: Tues, Oct 26, 2004 at 06:55:57 (EDT) Email Address: Not Provided Message: Suppose there were an economic crisis brought on by the accumulation of debt and resulting speculation that worry some economists and market analysts. What is the most sensible protection? The answer has long seemed to me holding a meaningful proportion of investment grade bond funds in a portfolio. With a bond fund allocation of 30 to 60%, a portfolio would seem secure against severe market conditions such as those we experienced from 2000 to 2003. Why should we possibly be so afraid of bond funds that we stay in money market funds and give up the added interest?

Subject: Re: Secure Investing in Bond Funds From: bonds To: Terri Date Posted: Tues, Oct 26, 2004 at 10:31:43 (EDT) Email Address: Not Provided Message: if you are worried about the federal debt and rising interest rates because of it, bonds are going to experience a capital loss as rates increase. Thats why the majority of investment advice you hear now recommend intermediate bond funds.

Subject: Minimizing maximum risk From: Pete Weis To: Terri Date Posted: Tues, Oct 26, 2004 at 09:47:50 (EDT) Email Address: Not Provided Message: The risk in investing in US assets (whether bonds, stocks, real estate, etc.) relates to, among other things, the risk to the US dollar.

Subject: Re: Minimizing maximum risk From: Terri To: Pete Weis Date Posted: Tues, Oct 26, 2004 at 14:59:32 (EDT) Email Address: Not Provided Message: There is a simple way to hedge against a weak dollar. Buy the Europe Stock Index. The valuations companies are more attractive than for the S&P, and there is a productivity push through Europe that is making European companies increasingly competitive. A portfolio could include a 40% S&P allocation, 20% Europe Index, and 40% Total Bond Market Index. The Total Bond Market Index has an intermediate term duration, and I do not find much risk in intermediate term bond funds from any change in the value of the dollar. The allocation could be 30% S&P, 20% Europe Index, and 50% Total Bond Market Index. There is little risk here.

Subject: Re: Minimizing maximum risk From: bonds To: Terri Date Posted: Tues, Oct 26, 2004 at 16:48:55 (EDT) Email Address: Not Provided Message: why the europe index, and not MSCI EAFE? I don't see much logic to just investing in europe given their high tax rates and low growth relative to the rest of the world. I rather have an eafe manager that uses hedges its owe currency rather than limiting myself to a smaller market. Also, how frequently are you changing your allocation (one month, 1 year, 5 yrs?), i see much risk in going in and out of asset classes. Since risk is measured by the expected standard deviation, changes on a frequent basis will make your portfolio experience a tremendous amount of risk. As for fixed income the vanguard total bond index in by definition an intermediate fund (the result of MBS becoming such a large part of it), but you keep mentioning the long bond fund in other posts, why the inconsitency on your fixed income recommendations?

Subject: Re: Minimizing maximum risk From: Terri To: bonds Date Posted: Tues, Oct 26, 2004 at 18:42:45 (EDT) Email Address: Not Provided Message: I seldom change allocations, but think aloud about possibilities. I prefer the Europe Index to the International Index, since I find Asian markets too risky. I generally prefer indexes to managed funds. As for bond funds, there is little risk for the long term investor in the Long Term Bond Index. But, an Intermediate Term Index will further limit price changes.

Subject: Re: Minimizing maximum risk From: bonds To: Terri Date Posted: Tues, Oct 26, 2004 at 20:50:06 (EDT) Email Address: Not Provided Message: how often is seldom? And what determines the % in each fund? the eafe is the european index australia, new zealand, hong kong, japan, and singapore; based on historical returns I don't find it that much more risky an investment, but i do think do to its correlation to US equity it adds more value. I could see if you were risk adverse to emerging markets, but the five other countries are pretty well developed. I disagree with your point on long term bonds, they are by their structure a more risky investment compared to short and intermediate. In an environment like this, I can't see why you would want the extra yield when you will more than likely lose it to capital gains.

Subject: The Great Crash From: Terri To: Pete Weis Date Posted: Tues, Oct 26, 2004 at 14:14:18 (EDT) Email Address: Not Provided Message: http://www.pbs.org/wgbh/amex/crash/ The website for the 'Great Crash' program airing on PBS.

Subject: Colombian newspaper, 'Prince Krugman' From: Harry Hutton To: All Date Posted: Mon, Oct 25, 2004 at 22:36:28 (EDT) Email Address: harryhutton01@yahoo.com Message: I’m in Bogota. The editorial in today’s La Republica (a business newspaper) is titled El Principe Krugman (Prince Krugman). It says he has been awarded some prize or other, then goes on to say pretty much that he is the world's greatest living human. killer-fact.com

Subject: Re:Indeed From: El Gringo To: Harry Hutton Date Posted: Tues, Oct 26, 2004 at 02:21:59 (EDT) Email Address: nma@hotmail.com Message: http://www.la-republica.com.co/noticia.php?id_notiweb=22422&id_subseccion=83&template=noticia&fecha=2004-10-26_12:01am But 'a lucid, open-minded and great living human' would be, in this case, IMO more appropriate...

Subject: Cheers From: Terri To: El Gringo Date Posted: Tues, Oct 26, 2004 at 06:57:12 (EDT) Email Address: Not Provided Message: Prince Paul Krugman indeed.

Subject: misappropriations... From: Fuad Ahmad To: All Date Posted: Mon, Oct 25, 2004 at 22:21:12 (EDT) Email Address: Deltachile@hotmail.com Message: some PKrugman influenced flow from my blog... cornel west writes: 'Every historic effort to forge a democratic project has been undermined by two fundamental realities: poverty & paranoia. The persistence of poverty generates levels of despair that deepen social conflict; the escalation of paranoia produces levels of distrust that reinforce cultural division.' Under The Bush Administration for some very specific reasons there's both more poverty AND more paranoia... they endorse an economic practice nicknamed: STARVE THE BEAST- it starts when taxes get cut which makes government revenues DECREASE... then you underfund social programs and keep labor forces underemployed: this makes the markets into manipulate-able toys- then prices of certain products & certain services increase... peaceout http://fuism.blogspot.com/

Subject: On the Dollar From: Emma To: All Date Posted: Mon, Oct 25, 2004 at 18:20:20 (EDT) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html October 25, 2004 Cracked Facade Stephen Roach (New York) The delicate equilibrium in world financial markets may be starting to unravel. The dollar has broken out of its recent range, credit spreads are widening, equities are sagging, and riskless sovereign bonds are well bid. The message is worrisome: For an unbalanced and increasingly vulnerable world economy, the unrelenting rise of oil prices spells mounting risks of global recession in 2005. Financial markets are only just beginning to comprehend this possibility. There are lots of moving parts to this story. But the one that intrigues me the most right now is the dollar — down 3% against the euro and nearly 4% against the yen in the past two-and-a-half weeks. In my view, this move in the dollar is a “drop in the bucket” for a US economy with a 5.7% current account deficit that could easily climb in the 6.5% to 7.0% zone in the next year. The problem, of course, is that my currency view has been a lonely one over the past nine months. The Teflon-like greenback has begun to reverse some the depreciation of the previous couple of years — unwinding about three percentage points of the 13% real trade-weighted decline that had occurred since early 2002. But in recent weeks, I have felt less lonely, as the official community — both in the US and around the world — has come out in the open in expressing concerns about America’s gaping twin deficits and what they mean for the dollar. Fedspeak has been especially focused on this issue, with at least five Federal Reserve governors and regional bank presidents weighing in on this key risk. I don’t believe in conspiracy theories, but I don’t think this collective expression of concern is an accident. A weaker dollar has long been the centerpiece of my global rebalancing framework. Macro deals best with global imbalances by changing the world’s relative price structure. With the dollar the world’s most important relative price, depreciation is a perfectly natural way for the global economy to restore some semblance of equilibrium.

Subject: The Dollar From: Emma To: Emma Date Posted: Mon, Oct 25, 2004 at 19:05:14 (EDT) Email Address: Not Provided Message: Stephen Roach For what it’s worth, I suspect that the dollar’s slide will accelerate sharply in the aftermath of the US presidential election — probably more so in the event of a Kerry victory than would be the case in a Bush win. Senator Kerry’s focus on trade and jobs puts him more in the camp of embracing market-based resolutions to global imbalances. In either case, however, the dollar’s coming depreciation will pose a great challenge for an unbalanced global economy. The flip side of a weaker dollar spells currency appreciation elsewhere — forcing the export-led economies of Asia and Europe to embrace the reforms long needed to unshackle domestic demand. If Asia continues to resist, it faces a growing protectionist threat from both Europe and the United States. I remain convinced that the world’s unprecedented external pressures will be vented in one way or another — through markets or politics, or some combination of both.

Subject: Portfolio Allocation From: Terri To: All Date Posted: Mon, Oct 25, 2004 at 15:52:04 (EDT) Email Address: Not Provided Message: Should there be a serious economic slowing or recession, interest rates will come down and bonds will turn out to be a fine investment as they have been the past 5 years. The idea of holding cash makes no sense when interest rates are so low. Vanguard Long Term Bond Index has gained more than 9.7% a year over the last 5 years, while the S&P Stock Index has lost almost 1.4% a year. A 50 50 stock to bond portfolio should have left an investor pleased. Preparing for a harsh market or economy can be nicely done with a conservative portfolio allocation.

Subject: Protecting the Economy From: Terri To: Terri Date Posted: Mon, Oct 25, 2004 at 17:15:31 (EDT) Email Address: Not Provided Message: There will be recessions at times, but assuming that there will be a depression, is assuming that governments in developed countries have learned nothing about economics since the 1930s. But, simply knowing the work of Keynes will assure that governments react far more sensibly to any slowing of the economy. Japan made mistakes in monetary policy during the 1990s, that others can learn from. But, Japan used fiscal policy to keep the economy growing through the decade. Growth slowed in Japan, but was positive, and households were well protected.

Subject: Re: Protecting the Economy From: japan To: Terri Date Posted: Mon, Oct 25, 2004 at 20:23:59 (EDT) Email Address: Not Provided Message: GDP may have not crashed in Japan, but I don't know how well protected households were from the massive decline in the nikkei 225. Govt policy may have helped stabalize gdp, but it didn't work wonders for their financial market.

Subject: Re: Protecting the Economy From: johnny5 To: Terri Date Posted: Mon, Oct 25, 2004 at 17:40:21 (EDT) Email Address: johnny5@yahoo.com Message: Good post Terri, you are right, where better to invest than the greatest economy man has ever known - american ingenuity overcame the hungry 40's and the terrible 30's - we can do it again - rah rah! Buy more savings bonds with a dash of stocks and gold and be done with it. I just wish you would invest more in america Terri and less in europe. They don't like apple pie and hot dogs like we do.

Subject: Can it happen again? From: Pete Weis To: All Date Posted: Mon, Oct 25, 2004 at 15:09:37 (EDT) Email Address: Not Provided Message: It's not just the very strong arguments by bearish guru's like Buffet, Russell and Prechter (their bearishness varies). It's the truely idiotic statements by bullish Wall Street types that convinces me that we are, in fact, headed for real trouble. 'The economy is the strongest it has been in 20 years.' - Afred Goldman (A.G. Edwards) 'A roaring bull market is going on right now under the surface, and no one knows about it. The breadth of the market is spectacular. Do we have the makings of a crash? Not at all.' - Ralph Acampora (Prudential) From Forbes: Can The U.S. Stock Market Crash Again? Peter Kang, 10.25.04, 6:00 AM ET It Can Happen... Robert Prechter Title: Founder of research firm Elliott Wave International, author of Conquer the Crash. Probability of a 1929-like crash: High. 'Every one of the preconditions for a crash is in place, to a greater degree than ever.' Conditions needed for a crash: Extreme optimism; a narrowing of breadth (advances versus declines) in the preceding uptrend; a market that fails to rally to new highs. What's different today: Nothing. 'Human herding propels markets.' The Fed: 'Fed intervention to push interest rates down encourages debt. The greater the debt load, the bigger the bubble, and the bigger the bubble, the bigger the ultimate crash.' Outlook: 'The market has already completed a counter-trend rally, and the psychology of investors, advisers and economists is dangerously optimistic. The market is probably doing something more akin to what happened in 1835-1842 or 1929-1932 [versus the 1970s]. According to my analysis, the bear market has already resumed, so the crash potential is significant.' Investment picks: Cash and cash equivalents in a safe bank. It Can't Happen... Alfred Goldman Title: Chief market strategist at A.G. Edwards Probability of a 1929-like crash: 'I would say zero to none. I don't even think about it, it's negligible.' Conditions for a crash: Weak financial infrastructure, lack of global communication. What's different today: 'The whole financial structure is different than it was in 1929. Nations didn't talk to each other. Today, we talk to them too much.' The Fed: 'We have a very strong Federal Reserve. Their ability to help the market during bad times is substantial.' Outlook: 'The economy is the strongest it has been in 20 years. The bear market that we had in February 2000 was the second worst since the Great Depression. We had a tremendous crash of the stock bubble, a collapse of telecom and Internet stocks. We had a recession, we had Sept. 11, war, accounting scandals, corporate malfeasance, mutual fund scandals, and it still didn't match the break of 1929. You come out stronger.' Investment picks: Consumer nondurables and medical-related products, including large-cap pharmaceuticals. Wall Street experienced some of its darkest moments 75 years ago in October 1929. Three 'black' days over four trading sessions started a punishing decline in stocks that wouldn't end until 1932. America entered into a decade-long funk known as the Great Depression, and yet many publicly traded companies from that time endured and still exist, including AT&T (nyse: T - news - people ), Coca-Cola (nyse: KO - news - people ), DuPont (nyse: DD - news - people ), General Electric (nyse: GE - news - people ) and General Motors (nyse: GM - news - people ). But could a crash happen again? Conservative optimism reigns on Wall Street. While most market strategists don't rule out the possibility of a market crash of titanic proportions, the majority say the likelihood is very low, less than 1%. Bill Strazzullo, chief market strategist at State Street Global Markets, says fear and greed are two primary drivers of market crashes. 'We saw that at the end of the 1990s--it was essentially a melt-up, people were just getting greedy,' he says. 'With cases of extreme fear, even with the circuit breakers [automatic trading halts] and a proactive Fed, you don't know what kind of panic fear can bring. You can't prevent crashes; you can only cushion them.' Ralph Acampora, chief market strategist at Prudential Equity Group, doesn't forecast anything as drastic as a crash any time soon but predicts 'real nasty declines' in the second half of 2005. Prior to then, however, the market will reach new highs, with the Dow hitting 12,000, Acampora says. 'They call it a stealth bull market, and it's not over,' he says. 'A roaring bull market is going on right now under the surface, and no one knows about it. The breadth of the market is spectacular. Do we have the makings of a crash? Not at all.'

Subject: 1928 1929 1930 From: Ari To: Pete Weis Date Posted: Tues, Oct 26, 2004 at 05:25:37 (EDT) Email Address: Not Provided Message: PBS 'American Experience' has an fine program reviewing the boom of the late 1920s, and the beginning of the Depression and the stock market crash of 1929. The program is well worth watching or reviewing on the PBS website to ground our current thinking. What is at least evident is how dangerous speculation can be, but that there are effective tools that can be used to limit speculation and to bolster the economy when it falters. Are we far safer today? I would surely like to think so.

Subject: What are the....... From: Pete Weis To: Ari Date Posted: Tues, Oct 26, 2004 at 09:38:17 (EDT) Email Address: Not Provided Message: 'tools that can be used to limit speculation'? And if there are any, are they being used?

Subject: Re: What are the....... From: Terri To: Pete Weis Date Posted: Tues, Oct 26, 2004 at 14:11:19 (EDT) Email Address: Not Provided Message: Interest rates can be raised, credit worthiness can be judged more tightly, financial institutions can package and broadly market loan portfolios, margin requirements can be changed.... Through the bear market financial institutions remained sound; a reason for confidence. Eliot Spitzer, the New York Attorney General, is another reason for confidence.

Subject: Re: What are the....... From: Pete Weis To: Terri Date Posted: Tues, Oct 26, 2004 at 21:20:12 (EDT) Email Address: Not Provided Message: 'Interest rates can be raised, credit worthiness can be judged more tightly, financial institutions can package and broadly market loan portfolios, margin requirements can be changed....' Terri, how is this any different from the 20's? The 'cat's out of the bag now' - our economy has reached a point where it depends on cheap easy money and all of the opposite of what you list as tools which could be used now. All these steps could have been utilized in the 20's but weren't. Just like the 20's, all the above were not utilized in the 80's through the present time. So what's different?

Subject: We Can Invest Safely From: Terri To: Pete Weis Date Posted: Mon, Oct 25, 2004 at 15:56:19 (EDT) Email Address: Not Provided Message: What is important is to choose a portfolio allocation that will protect through a range of market and economic conditions. Keeping retirement funds in cash, makes no sense. Why should we be afraid of bonds when the economy or stock market is weakening? Investment is for all seasons.

Subject: Re: We Can Invest Safely From: Terri To: Terri Date Posted: Mon, Oct 25, 2004 at 19:43:13 (EDT) Email Address: Not Provided Message: There may be ample reason to be worried about the economy and stock or bond markets, but Americans must save and invest for retirement. So, no matter how worried there needs to be a plan for investing that does not involve waiting for months and years until the markets move just as we wish or think.

Subject: Pay to Play Insurance From: Emma To: All Date Posted: Mon, Oct 25, 2004 at 12:25:47 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/25/business/25aon.html? Deceptive Practices Are Found at Aon, Too By JOSEPH B. TREASTER and ALEX BERENSON In six months of examining documents from insurance companies and brokers, investigators for the New York attorney general have discovered evidence at the Aon Corporation of deceptive and coercive practices, a person close to the inquiry said yesterday. Until now, the sweeping investigation by Eliot Spitzer, the attorney general, has centered on Marsh & McLennan Companies, the world's largest broker, with headquarters in New York. In a civil lawsuit nearly two weeks ago, Mr. Spitzer accused Marsh of cheating customers by faking bids, fixing prices and steering business to the highest-paying insurance companies. Investigators are pushing to complete their work on Aon, the world's second-largest broker, with headquarters in Chicago, and could bring a civil lawsuit against the company within two weeks, said another person who has been briefed on the case. The investigators are also expected to file lawsuits shortly against some smaller national insurance brokers, this person said. Mr. Spitzer's accusations against Marsh and criminal charges that he brought against two executives of the American International Group and one executive of Ace Ltd. have shaken the insurance industry and investors. The stock prices of all big insurance brokers and insurance companies have fallen sharply, and several attorneys general and insurance regulators across the country have started or widened separate investigations. On Friday, shares of Aon rose 54 cents, or 2.8 percent, to $19.80 on the New York Stock Exchange; they were trading at about $28 a share two weeks ago. The discovery of improprieties at Aon broadens Mr. Spitzer's investigation to a company that, along with Marsh, dominates the insurance brokerage business. Together, they control more than 70 percent of the market. At Aon, the person close to the case said, investigators have found documentation of brokers steering business to insurers that paid the company incentives. They also found another anticompetitive practice known as tying, a kind of pay-to-play arrangement in which brokers threaten to curtail sales for an insurance company unless the insurer lets the broker also arrange its own coverage needs or reinsurance. Fees on reinsurance, which insurers buy to reduce their risk, can run into the tens of millions of dollars.

Subject: Re: Pay to Play Insurance From: Emma To: Emma Date Posted: Mon, Oct 25, 2004 at 13:14:45 (EDT) Email Address: Not Provided Message: Notice that 2 corporations control 70% of the insurance brokerage business. The problems coming to light in the insurance business are most important, for they show how serious business ethics lapses have been beyond the lessons we thought we learned from the assorted scandals about Enron.

Subject: Budget Failures From: El Gringo To: All Date Posted: Sun, Oct 24, 2004 at 19:42:42 (EDT) Email Address: nma@hotmail.com Message: Budget Failures by John S. Irons October 22, 2004 The current legal limit on the amount of debt that the federal government can accrue is about $7.4 trillion, and the Bush administration has now hit that limit faster than anyone thought possible. As a result, Treasury Secretary John W. Snow recently sent a letter to Congress announcing that the federal government has stopped putting money into the federal employees' pension fund in order to avoid breaching the debt limit. Less than a decade ago, some Republicans thought this kind of shell game was grounds for impeachment of then Secretary Robert Rubin. Before the Treasury runs out of accounting gimmicks, most likely sometime in mid-November, a lame duck Congress will have to act to raise the debt ceiling. Since 1917, Congress has periodically established a total legal limit for federal debt in order to discourage lawmakers from running persistent deficits. While temporary deficits in times of recession are seen by many to be a logical and desirable result of an economic downturn, the current situation is an undesirable failure of policy. When the economy slows, revenue will decline as unemployment increases and incomes decline, and thus payments for social programs rise and income tax collections drop off. In addition, the federal government can smooth out the economic downturn by maintaining or increasing spending levels. Both of these factors will result in a deficit. It seems logical therefore to think that a recovering economy will improve the budget situation. However, an improvement in the budget situation will occur only if the right tax and budget policy is in place. In the 1990s, for example, a strong economy, coupled with sound fiscal policy, led to unprecedented surpluses. Will an economic recovery today lead to the same outcome? Unless there are changes to the nation's economic policy, the answer is 'not likely.' Part of the answer comes from the fact that revenues for 2004 were just 16.2 percent of gross domestic product (GDP) – the lowest in half a century – and are expected under current policy to remain at relatively low levels. With current and projected outlays around 20 percent of GDP, it doesn't take an economist to figure out that something is fundamentally out of balance. A more complex answer about the impact of the economy on the current fiscal situation comes from an analysis of the 'cyclically adjusted deficit' by the Congressional Budget Office. The cyclically adjusted deficit is an estimate assuming that economic output and employment are growing at historically average rates. In essence, it is the deficit when a weak economy is assumed away. The report concludes that the economy's current impact on the deficit is just 11 percent – leaving the remaining 89 percent of the current deficit a result of tax and budget policies. While an exceptionally strong and sustained economy would certainly help, this deficit will not 'just go away' – a shift in policy will be required to return to fiscal solvency. In fact, the CBO's 10-year baseline deficits of $2.3 trillion already project solid growth of over 4 percent for next year and over 3 percent for the next five. In fact, far from being primarily caused by the economy, this current budget situation is the direct result of failed tax and budget policy. The economic performance under current policy has been far less than ideal, and has not lived up to what was promised. Despite assurances that there was plenty of money for tax changes, the record surpluses of just a few years ago have been turned into massive, permanent deficits in record time; and a disproportionate share of the benefits have gone to high-income individuals. Despite predictions that the tax changes would spark the economy and job creation, median incomes have declined and job growth has been disappointing. These disappointing outcomes are also coupled with increases in poverty and a surge in the number of uninsured. In short, the changes to the tax code over the last four years have not worked for the nation and have not worked for the majority of Americans. On the budget side, massive deficits together with growth in military spending are squeezing other vital domestic investments. To date, Congress has failed to pass a budget and has passed just four of the 13 annual appropriations bills. 'Continuing resolutions' to keep the government from shutting down have been the rule, not the exception – and massive impenetrable omnibus bills are being used to sweep unfinished business under the rug. What is needed is a fundamental shift in the direction of tax and budget policy, including: * Tax reform – A new tax system needs to be put in place that 1) encourages job creation, technical innovation, and long-term growth, 2) reverses the trend of providing huge tax breaks for the wealthy with little left over for the middle class, and 3) raises additional revenue to finance vital domestic investments and international priorities. * Budget reform – Fixing the process by which annual spending levels are determined is a necessity. Some elements of a reform might include implementing the balanced, bipartisan PayGo rules that worked in the 1990s, setting sensible spending targets, and keeping the system as open and transparent as possible. Setting tax cut priorities before assessing spending needs is irresponsible – we need to assess needs and then think about what revenue is needed to keep the system sound and stable. Failure to adopt tax and budget reforms will keep us on the same track of reckless fiscal irresponsibility, and the debt ceiling gimmicks will continue. The cost of the continuing failure to provide domestic investments, and the burden of unsustainable deficits, will inevitably fall on the shoulders of average Americans and our children. We can and must do better. John S. Irons is the associate director for tax and budget policy at the Center for American Progress.

Subject: Re: Budget Failures From: Terri To: El Gringo Date Posted: Sun, Oct 24, 2004 at 19:56:20 (EDT) Email Address: Not Provided Message: The article is correct and worrisome, but there will need to be a change in Administrations and either the Senate or House to reverse any of the tax reductions that were passed since 2001. The question otherwise, is how much damge will be gradually done by the accumulating federal deficit.

Subject: Re: Budget Failures From: Ari To: Terri Date Posted: Mon, Oct 25, 2004 at 15:03:24 (EDT) Email Address: Not Provided Message: Government deficits are a problem tomorrow, not today. Because they are a problem tomorrow, there is little response to concrete deficit solutions during a campaign. Be vague and promise to limit government spending while we happily grow out of the deficit. Do not mention specific programs, and do not nention raising taxes. Accuse the other candidate of pushing for too much spending or for raising taxes. This is the tack to take in campaigning. However, tomorrow will eventually come so after elections there should be attempts controls the growth of government deficits.

Subject: Irrational/Solvency From: johnny5 To: Terri Date Posted: Sun, Oct 24, 2004 at 21:27:10 (EDT) Email Address: johnny5@yahoo.com Message: What could have been done in the 1930's in America to fix the global depression? It was a global phenomena that affected countries all over the world. Terri I applaud your optimism but it took what - an entire generation to come out of the depression of the 30's. If we have another global depression why should it take any less than a generation and several administrations to come out of it? What do you feel the best way to proceed after a collapse?

Subject: Re: Irrational/Solvency From: Terri To: johnny5 Date Posted: Mon, Oct 25, 2004 at 12:35:11 (EDT) Email Address: Not Provided Message: The questions you raise are important. The Federal Reserve did not respond to the recession or stock market decline in 1929 by rapidly lowering interest rates, nor did the Congress respond with a fiscal stimulus. However, the dramatic changes in monetary and fiscal policy that came with the New Deal, with the beginning of understanding of the work of Keynes, led to a steady economic and market improvement to 1937. Remember, there were court setbacks to New Deal stimulus programs. In 1937, the Fed began to raise interest rates and the still weak economy and market declined again. The New Deal policy however was just what was needed, and recovery had begun by 1933. The onset of World War II for America led to a massive fiscal stimulus that turned the economy rapidly and completely.

Subject: International Investing From: Terri To: All Date Posted: Sun, Oct 24, 2004 at 18:49:04 (EDT) Email Address: Not Provided Message: What is interesting is how much more limited mutual fund offerings, especially index fund offerings are abroad as compared to America. Also, why is it so difficult to find international index funds offered to American or foreign investors that are broken down to growth and value stocks?

Subject: Hidden Costs of War From: Emma To: All Date Posted: Sun, Oct 24, 2004 at 17:17:01 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/24/business/yourmoney/24view.html Counting the Hidden Costs of War By ANNA BERNASEK IT'S often said that truth is the first casualty of war. During a presidential campaign, that may be more apt than ever. Consider a seemingly simple question: What is the cost of the Iraq war to the United States? President Bush and Senator John Kerry have given different answers, but both candidates have ignored what may be the biggest cost item: the war's impact on the overall economy. After all, the real cost of war is not only the money spent but also the economic effects, good or bad. For example, World War II led to huge levels of production and employment in the United States, while the Vietnam War dragged down economic growth as it wore on. So, after 19 months of conflict in Iraq, how has the war affected America's economy, and what about the future? Of course, calculating the net effect of a continuing war is neither easy nor exact. That's why many analysts are reluctant to try. But a few knowledgeable economists have made reasoned estimates, and the results are surprising. The economic cost incurred so far may be as large as - or larger than - what has actually been spent directly on the war. (While estimates vary, the official figure for spending stands at around $120 billion since the conflict began.) And there are likely to be major economic costs as long as the war continues. But start with the economic impact to date. Two economists, Warwick J. McKibbin of the Brookings Institution and Andrew Stoeckel of the Center for International Economics in Australia, have calculated that the war may have already cost the United States $150 billion in lost gross domestic product since fighting began in March 2003. That is close to one percentage point of growth lost over the past year and a half. If that figure is correct, the nation's annual economic growth rate, which has been 3.7 percent during this period, could have been nearly 4.7 percent without the war. Where does that $150 billion figure come from? The study took into account factors like higher oil prices, increased budget deficits and greater uncertainty. When analyzing the effects of uncertainty, the authors estimated the impact of the war on financial markets, business investment and consumer spending. Of course, the results of any economic model are open to debate, and the $150 billion estimate is no exception. Some economists, like David Gold at the New School University, argue that the figure may be too low while others, like Mark Zandi of Economy.com, contend that it's on the high side. But if Mr. McKibbin and Mr. Stoeckel are correct in their estimate, the real cost of the war to date, including direct spending and lost economic growth, is in the neighborhood of $270 billion. Most economists would agree that the war has hurt the economy, mainly through higher oil prices and continuing uncertainty. The war's effect on oil prices is hard to disentangle from factors like higher global demand and supply disruptions, but it is commonly thought that the war's role has been significant.

Subject: Wroker's Losses From: Emma To: All Date Posted: Sun, Oct 24, 2004 at 14:50:59 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/24/business/yourmoney/24watch.html Who Loses the Most at Marsh? Its Workers By Gretchen Morgenson CERTAIN things in life never change, of course, and one of the more unfortunate constants is that when corporations behave badly, their rank-and-file workers are hit hardest. Executives always seem to vanish from the accident scene, toting their munificent pay packages; ordinary workers are left with little or nothing. Nowhere is this clearer than at Marsh & McLennan, the world's largest insurance brokerage concern and the subject of a lawsuit from Eliot Spitzer, the New York attorney general, that accuses the company of rigging bids to keep insurance costs high. The company's stock has cratered as investors have tried to assess the long-term implications of the investigation. To be sure, Marsh executives have been hurt by the stock's descent: their options are for the moment unexercisable and the value of their bounteous stock awards has plummeted. But don't cry for Jeffrey W. Greenberg, Marsh's chief executive. Since he took that job in 1999, he has received $5.8 million in salary and $14.6 million in bonuses. The biggest losers by far are the company's 60,000 workers around the world, many of whom were essentially pushed by the company to load up on Marsh shares. Most of these people, whose retirement accounts have been eviscerated, are probably guilty of nothing more than trying to do their jobs. Through three investment plans, employees of Marsh and its subsidiaries, like Putnam Investments, held an enormous stake in the company - 32.3 million shares, or about 6 percent of the stock as of last December. Most of these holdings - 27 million shares - are in Marsh's stock investment plan, a retirement vehicle set up by the company in 1966. An additional five million shares were acquired in a stock purchase plan last year by company workers, and at the end of the year, Putnam employees' 401(k) plan held 344,000 Marsh shares. All told, the stock investment plan had $2.24 billion in assets at the beginning of this year, 60 percent of which were held in Marsh shares. The remaining 40 percent was in mutual funds, most of which are managed by Putnam Investments, another Marsh subsidiary that is reeling. Why did workers put so many eggs in their company's basket? Until last year, Marsh stock was the sole investment option available to participants in this defined-contribution plan, except for those near retirement. And when the company decided to add mutual fund alternatives, it said its employees could switch out of only one-third of their Marsh stock holdings during a year. The stock held for employees in the defined-contribution plan accounted for 5.2 percent of Marsh's shares outstanding last year; along with Barclays Global Investors, Marsh employees were the biggest holders of Marsh stock. That was not always the case. As recently as 2001, the plan's holding did not meet the 5 percent minimum for disclosure. Sadly, rank-and-file workers hold most of the 27 million shares in the stock investment plan. Marsh's filings report that its executive officers and directors held only 24,043 shares, or 0.01 percent of the total. One reason may be that executives at Marsh, like those at many financial companies, are allowed to invest in private investment funds. And corporate executives understand well the need for diversification.

Subject: a french web page on paul krugman From: krugman en francais To: All Date Posted: Sun, Oct 24, 2004 at 12:22:49 (EDT) Email Address: krugman.en.francais@free.fr Message: HI, i am just opening a french web page on paul krugmna on the same principle as here but only with translated papers in french. It is still in building and I have to add a lot of article. http://steven.coissard.free.fr/Paul_Krugman_en_francais.htm

Subject: Re: a french web page on paul krugman From: Yann To: krugman en francais Date Posted: Tues, Oct 26, 2004 at 02:39:14 (EDT) Email Address: Not Provided Message: Merci Stévën !

Subject: Re: a french web page on paul krugman From: krugman en francais To: Yann Date Posted: Wed, Oct 27, 2004 at 09:11:05 (EDT) Email Address: Not Provided Message: de rien! comment tu connais mon prénom ;) steven.coissard.free.fr/Paul_Krugman_en_francais.htm

Subject: Free Schools in Africa From: Emma To: All Date Posted: Sun, Oct 24, 2004 at 10:35:13 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/24/international/africa/24africa.html? In Africa, Free Schools Feed a Different Hunger By CELIA W. DUGGER MALINDI, Kenya - More than 200 first graders, many of them barefoot, clothed in rags and dizzy with hunger, stream into Rebecca Mwanyonyo's classroom each day. Squeezed together on the concrete floor, they sit hip to hip, jostling for space, wildly waving their hands to get her to call on them. Their laps and the floor are their only desks. One recent afternoon, the line of wiggly children waiting to have Mrs. Mwanyonyo check their work snaked around the bare, unfinished classroom walls. Girls and boys crowded around her, pressing their notebooks on her. Some cut in line. Fights broke out. Boys wrestled. Girls dashed from the room. Giggles and shrieks drowned out her soft voice. Mrs. Mwanyonyo pulled a boy in front of her and eyed his attempt to list his numbers. 'Can you write 1 and 2?' she asked quietly. His head sank to his chest as he shook it no. While she laboriously graded each child's work, the noise level rose to deafening. 'Quiet, keep quiet!' she shouted, her voice on the edge of desperation. Overnight, more than a million additional children showed up for school last year when Kenya's newly elected government abolished fees that had been prohibitively high for many parents, about $16 a year. Many classrooms are now bulging with the country's most disadvantaged children. Kenya is not alone. Responding to popular demand for education, it is one of a raft of African nations contending with both a wondrous opportunity and nettlesome challenge: teaching the millions of children who have poured into schools as country after country - from Malawi and Lesotho to Uganda and Tanzania - has suddenly made primary education free. Mozambique will join them in January when it abolishes fees. The explosion in enrollments has put enormous pressure on overburdened, often ill-managed education systems. What hangs in the balance is the future of a generation of African children desperately reaching out for learning as a lifeline from poverty, even as poverty itself presents a fearsome obstacle. Near the end of a school year that runs from January to November, Mrs. Mwanyonyo, an earnest wisp of a woman, is still struggling to teach most of her students the alphabet and basic counting. She knows the names of only half of them. She estimated that 100 of her 250 students - split into morning and afternoon shifts - would have to repeat the grade. Salama Kazungu, a willowy girl of 12, sits among Mrs. Mwanyonyo's multitudes, her small shapely head rising above those of the 6- and 7-year-olds. She failed last year in the class of another first grade teacher who had 248 pupils. ('If I could have, I would have run away,' the teacher confided, relieved he has just 110 pupils this year.) Not Enough to Eat It is hard for Salama to learn because her belly is often empty. Her mother sells charcoal but makes too little to buy enough food. Salama never eats breakfast. For supper, she often has only boiled greens foraged from the wild. On her hungriest days, the child said, she looks at Mrs. Mwanyonyo and sees only darkness. She listens, but hears only a howling in her ears. Yet she is determined to continue. At 12, she has already had her fill of the African woman's lot: fetching water, collecting firewood and carrying it to market on her back like a beast of burden. 'I was always working and working,' she said. 'I told myself that the best way to get out of this is to come to school and get an education.' In large measure, the idea of free education has gained powerful momentum because politicians in democratizing African nations have found it a great vote-getter. Deepening poverty had meant even small annual school fees - less than an American family would spend on a single fast-food meal - had put education beyond reach for millions. The abolition of school fees is also owed to the changing politics of international aid. In the 1990's, the World Bank, the largest financier of antipoverty programs in developing countries, encouraged the collection of textbook fees. Its experts had reasoned that poor African countries often paid teacher salaries but allotted little or nothing for books. If parents did not buy them, there often were none. But evidence began to mount that fees for books, tuition, building funds and other purposes posed an insurmountable barrier for the very poor. In 1996, Uganda's newly elected president, Yoweri Museveni, abolished fees for four children per family. His message that education was free sounded through the country like a clanging school bell. In 1997, 2.3 million additional children showed up for class, nearly doubling enrollment to 5.7 million. Then in 2000, world leaders met in New York and agreed on an agenda to reduce global poverty, setting as one of the main goals that every child should be able to complete an elementary education by 2015. That same year, Congress, lobbied by advocacy groups for the poor, adopted legislation requiring that the United States oppose World Bank loans conditioned on user fees in education. In 2002, the World Bank, already supporting several free education initiatives, officially reversed its policy, deciding to oppose all such fees. The tide had turned. 'In sub-Saharan Africa, almost all countries are under pressure to abolish school fees for primary education,' said Cream Wright, education chief for the United Nations Children's Fund. 'It will spread, especially if we show it works.' The track record is mixed. Malawi's decade-old, underfunded and largely unplanned experiment is generally regarded as a disaster. The number of children in a first-grade class averages 100. Four out of ten of first graders repeat the year. Children's achievement scores are among the lowest in Africa. Uganda, often held up as a model, also found that achievement fell as classes swelled with highly disadvantaged students. But in the past eight years, donors have invested more than $350 million and the government also increased spending. Test results from last year show that achievement bounced back, though more than half of third graders still performed poorly in math and English.

Subject: Federal Reserve Policy From: Terri To: All Date Posted: Sun, Oct 24, 2004 at 09:41:05 (EDT) Email Address: Not Provided Message: The problem with monetary policy is that it can seldom be focused on a sector of the economy. Short term interest rate changes by the Federal Reserve have a broad impact. Globalization and fiscal policy of the 1990s allowed for lower and lower interest rates with no inflation danger. Job creation boomed and unemployment was reduced to levels that in the 1980s would have been unthinkable to most economists. The were pronounced gains in income and wealth by middle class households. Had the Fed tightened monetary policy to limit the rise in the stock market, we would have sacrificed solid economic growth that was dearly welcome through America.

Subject: Re: Federal Reserve Policy From: Pete Weis To: Terri Date Posted: Sun, Oct 24, 2004 at 12:40:33 (EDT) Email Address: Not Provided Message: Terri. Your belief that Alan Greenspan has done a good job during his tenure, explains your general confidence in the economy. I believe the 'job creation boom' of the 90's had everything to do with America's leading the world in applications for the integrated circuit and nothing to do with the Federal Reserve. If the Fed had done some tightening in the middle 90's, it would have had little effect in stemming the world's demand for computers and software which brought us the job boom. But it would have stemmed, to some extent, the borrowing binge and asset bubbles which plague us now. I listen to the voices of those who have both a good track record and have been walking this planet for longer than most of us - the Paul Volkers, Warren Buffets, and Richard Russells of the world. They are telling us that deficits matter, the dollar is under serious threat, that bubbles eventually burst, and when they burst they overshoot on the way down before they bottom. IMO, those who are being swayed by Greenspan's present siren's song, will pay a heavy financial price. Heck, we may nearly all pay a heavy financial price. In the following NYT's piece from March 2004, Brad DeLong makes the point that Greenspan, himself, has had a good track record. But we should be aware that Greenspan has sharply changed his views in recent years and has embraced this 'new economic age'. His new view conveniently supports his actions of the last decade and presents a very 'optimistic' outlook against a backdrop of great personal debt, a poor job market, dropping consumption, a continuation of the bear market in stocks, and an impending correction in housing(?) (per Robert Shiller). From the New York Times: Greenspan Changes His Position on Danger of Budget Shortfalls NY Times | 3/16/04 | Edmund Andrews Consumer debt is hitting record levels. The federal budget deficit is yawning ever larger. The trade gap? Don't even ask. Many mainstream economists are worried about these trends, but Alan Greenspan, arguably the most powerful and influential economist in the land, is not as concerned. In speeches and testimony, Mr. Greenspan, chairman of the Federal Reserve Board, is piecing together a theory about debt that departs from traditional views and even from fears he has himself expressed in the past. In the 1990's, Mr. Greenspan implored President Bill Clinton to lower the budget deficit and tacitly condoned tax increases in doing so. Today, with the deficit heading toward a record of $500 billion, he warns more emphatically about the risks of raising taxes than about shortfalls over the next few years. On Monday, the nonpartisan Congressional Budget Office published new calculations showing that the budget deficit now stems almost entirely from tax cuts and spending increases rather than from lingering effects of the economic slowdown. [Page A12.] Mr. Greenspan's thesis, which is not accepted by all traditional economists, is that increases in personal wealth and the growing sophistication of financial markets have allowed Americans — individually and as a nation — to borrow much more today than might have seemed manageable 20 years ago. This view is good news for Presi dent Bush's re-election prospects. It increases the likelihood that the Federal Reserve will keep short-term interest rates low. And it could defuse Democratic criticism that the White House has added greatly to the nation's record indebtedness. Adjusted for inflation, the average family's debt has climbed from $54,000 in 1990 to $79,000 last year. Mortgage foreclosures, credit card delinquencies and personal bankruptcies are all at near record levels. Mr. Greenspan's view is that household balance sheets are 'in good shape,' and perhaps stronger than ever, because the value of people's homes and stock portfolios have risen faster than their debts. The Fed chairman is equally sanguine about the nation's overall borrowing from foreigners, which has soared to more than $500 billion a year and has contributed to a sharp drop in the value of the dollar. And he has also made it clear he will not try to torpedo the president's tax-cutting agenda, which could add another $2 trillion to federal borrowing over the next decade. 'History suggests that the odds are favorable that current imbalances will be defused with little disruption,' he declared in a speech two weeks ago. But a growing number of experts are worried that Mr. Greenspan is too casual. Though most economists agree that American's indebtedness is not a problem at the moment, many worry that the country has become too dependent on extraordinarily low interest rates that will inevitably creep higher in years to come. 'The fear I have is that the world is leveraged on low-interest borrowing,' said Allen Sinai, chief executive of Decision Economics, an economic forecasting firm. 'It's like a drug, and you get hooked on it.' According to the Federal Reserve's most recent data, household wealth bounced back after the economic slowdown and hit a record at the end of 2003. But the main reason for that new wealth has been rising prices for real estate and stock, and those prices have climbed in large measure because interest rates are at their lowest level in more than 40 years. If inflation rises and the Fed feels forced to raise interest rates, many economists worry that monthly debt burdens would rise at the very moment that housing prices start to decline. 'The day of reckoning is not now, but maybe five years from now,' said James W. Paulsen, chief investment strategist at Wells Capital Management. 'To go down Greenspan's route is like saying there is a free lunch. The fallacy is that net worth has gone up because debt went up. And that doesn't give me a good feeling.' Other analysts have begun to dispute Mr. Greenspan's benign view of rising household debt. Mark Zandi, economist at Economy.com, said many other indicators suggest that financial stress has risen significantly in the last two years. Mortgage foreclosure rates, personal bankruptcies and credit card delinquencies have been rising steadily and are at record levels. Most of that stress has taken place in lower-income families, which is why it has not made a big impact on aggregate data about national wealth. 'These people who have heavy debt don't have stable incomes,' Mr. Zandi said. 'They're the ones who are getting pummeled by the loss of call-center jobs. These are the folks who rely on two incomes, the ones who don't have any assets.' Though Mr. Greenspan has not articulated a sweeping new view, his public comments on particular topics provide a mosaic of his thinking and suggest that he is groping toward his next big idea. Mr. Greenspan's last big idea came 10 years ago, when he correctly perceived that American productivity was growing much faster than official statistics suggested and that the country could grow much more rapidly without inflation than most experts believed at the time. But after having reduced the federal funds rate on overnight loans to just 1 percent, the lowest level in 46 years, Mr. Greenspan has presided over an explosion in home buying, mortgage refinancing and consumer spending fed by cheap money. Mortgage debt soared by more than one-third from $4.9 trillion in 2000 to $6.8 trillion in 2003. And though many people borrowed against their houses to pay down more expensive debt from credit cards, nonmortgage consumer credit climbed by $300 billion, or about 15 percent. In a Feb. 23 speech to the Credit Union National Association, Mr. Greenspan made it clear that consumer borrowing cannot keep that pace indefinitely. But he said the rise in debt had been matched by a rise in real estate values and stock portfolios. 'The surge in mortgage refinancings likely improved rather than worsened the financial condition of the average homeowner,' he said. Though bankruptcy rates had climbed sharply, he continued, these were 'not a reliable measure' of household financial health. Mr. Greenspan went on to note that household debt burdens had been rising for the last half-century as banks and other lenders extended credit to wider segments of the population. That leads to Mr. Greenspan's broader idea: that financial institutions have steadily expanded credit by developing complex new instruments like credit swaps to hedge their risks. Back in June 2001, the Fed chairman praised the use of new risk-scoring techniques to expand 'subprime' lending to people with poor credit histories. 'Such lending is favorable both to borrowers and lenders,' he said in a speech to bankers that year. People with poor credit gained access to loans that would otherwise be unavailable, he said, while lenders obtained 'the opportunity for higher returns.' In numerous speeches, Mr. Greenspan has argued that advanced new hedging techniques helped financial institutions survive huge loan losses to telecommunications companies after the stock market bubble collapsed. Telecommunications companies raised $1 trillion between 1998 and 2001, only to lose hundreds of billions when technology spending collapsed. 'Unlike in previous periods of large financial distress, no major financial institution defaulted,' Mr. Greenspan told a conference sponsored by the British Treasury in January. Novel tools for hedging risk, he concluded, had created a 'far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago.' Mr. Greenspan has voiced similar thoughts about the United States' huge current account deficit, which reached a record $541 billion in 2003. Like many economists, Mr. Greenspan has described the deficit as unsustainably high and said it would have to come down. The most common way for that to happen is for the dollar to drop in value, which would make imports more expensive and exports cheaper. But he has also suggested that the country may be able to borrow more because investors have become far less wedded to their home countries. This declining 'home bias,' Mr. Greenspan said in a speech this month, 'has enabled the United States to incur and finance a much larger current account deficit than would have been feasible in earlier decades.' Many economists say Mr. Greenspan is correct about basic changes in the world. 'There is really nothing unusual in what he is saying, and I happen to agree with him,' said Janet L. Yellin, a former Fed governor who teaches economics at the University of California at Berkeley. But others say they are increasingly uneasy. If foreign lenders lose their appetite for American securities, the dollar will fall and interest rates are likely to rise. If interest rates rise, and Fed officials have made it clear today's rates are unsustainably low, household debt payments are likely to rise and real estate values could decline. 'It really strains the imagination to believe that household balances are in that great shape,' said David Rosenberg, a senior economist at Merrill Lynch. 'If you look at debt on a cash-flow basis, servicing the debt is not a great problem. But under a different interest rate scenario, the servicing costs become less manageable.' But J. Bradford DeLong, a longtime Fed watcher at the University of California at Berkeley, cautioned that Mr. Greenspan had been right at times when many others were wrong. 'I think he's wrong, but he's got a better track record than I have,' Mr. DeLong said.

Subject: Fed Theory From: Terri To: Pete Weis Date Posted: Sun, Oct 24, 2004 at 13:21:36 (EDT) Email Address: Not Provided Message: The Fed has come to believe that federal and household debt is less of a factor now than earlier because there is more of a pool of international liquidity for America to draw on. Also, the Fed argues that families have become more adept at handling debt. Certainly interest rates are low enough that debt servicing is generally not a severe household problem. The Fed theory is new and may prove wrong, but we can not tell.

Subject: Re: Fed Theory From: Terri To: Terri Date Posted: Sun, Oct 24, 2004 at 17:15:20 (EDT) Email Address: Not Provided Message: Remember, we have come through the bear market of 2000 to 2003 with no significant damage to financial corporations due to excessive portfolio risk exposure.

Subject: Re: Fed Theory From: Pete Weis To: Terri Date Posted: Sun, Oct 24, 2004 at 23:23:05 (EDT) Email Address: Not Provided Message: Is the bear market over? Have we actually managed to come through anything if it is not yet finished with us? What will 2004 through 2006 and beyond bring us?

Subject: Re: Federal Reserve Policy From: Terri To: Terri Date Posted: Sun, Oct 24, 2004 at 12:34:53 (EDT) Email Address: Not Provided Message: The Federal Reserve began a tightening sequence in 1999, but stopped the sequence well before the end of the year and increased liquidity to make sure there was no untoward year 2000 financial problem. Then, in 2000 the Fed began to tighten again and draw liquidity from the financial sector. Though the stock market began to falter in March 2000, the Fed raised the Federal Funds rate by 50 basis points in May 2000. That was the end of the tightening sequence, and the Fed began a sharp reversal in Januard 2001. The need for the tightening in 2000, has struck me as questionable.

Subject: Go, Paul Krugman, go! From: El Gringo alias el shepherd's son To: All Date Posted: Sat, Oct 23, 2004 at 20:44:39 (EDT) Email Address: nma@hotmail.com Message: http://www.canalfpa.com/esp/albumfotos/album22.html

Subject: Congratulations to Paul krugman From: Pete Weis To: El Gringo alias el shepherd's son Date Posted: Sun, Oct 24, 2004 at 02:36:04 (EDT) Email Address: Not Provided Message: 'For the award they chose 24 candidacies coming from twelve countries of which were those of the Penal Court International, the ex-German chancellor Helmut Schmidt, the French anthropologist Claude Levi-Strauss, as well as the Spanish doctor Jose Maria Segovia de Arana and the Colombian Institute of Anthropology and History.' Paul Krugman is awarded by the world community for his considerable contributions to the social sciences. TRADE INTERNATIONAL The economist Paul Krugman, awarded with Prince de Asturias of Social CC. The American economist of 51 years Paul Krugman has been awarded in Oviedo with the Prize Prince of Asturias de Social Ciencias 2004. The jury emphasized the preoccupation of this university professor of Princeton by the treatment of the regional inequalities and the international trade. The act, that was made public at noon of Wednesday by the president of the jury, Manuel Fraga, recognizes 'the high scientific and social personality' of Krugman and 'the fecundity of its investigating work, that has contributed remarkably in laying the the foundations of the new theory of the international trade and the economic development'. Also it emphasizes his innovating interpretations on the main economic questions of the present time, great influence in the public opinion, and the projection of the results of his investigation 'to the real conditions of life and well-being'. The candidacy of Krugman was presented/displayed by the president of the Bank Sabadell, Josep Oliú, member of the jury, moments before the beginning of the deliberations. Columnist of ' The New York Times' The awarded one, university professor of Economy of the University of Princeton and columnist of the newspaper ' The New York Times', prevailed in the last votings over philosophers Tzvetan Todorov and Rüdiger Safransk, and also the Peruvian historian Guillermo Lohmann Villena. The American university professor published in the 2003 book 'The Great Unraveling', a compilation of his journalistic articles in which he denounced the submission of the political system, judicial and economic American to the extreme right. Krugman becomes the fifth economist thus to obtain the Prize Prince of Asturias de Social Ciencias after Roman Perpiñá (1981), Ramon Carande (1985), Enrique Quintana Sources (1989) and Juan Velarde (1992). In last editions, the Prize of Social Sciences has been granted to Jurgen Habermas (2003), Anthony Giddens, the School of Mexico and Juan Holy Churches, Car it Maria Martini and Raymond Carr. 24 candidacies For the award they chose 24 candidacies coming from twelve countries of which were those of the Penal Court the International, the ex- German chancellor Helmut Schmidt, the French anthropologist Claude Levi-Strauss, as well as the Spanish doctor Jose Maria Segovia de Arana and the Colombian Institute of Anthropology and History. The Prize of Social Sciences, third in failing east year of the eight that grants to the Foundation Prince of Asturias, equipped each one with 50,000 euros, will be given in autumn in a ceremony presided over by Don Felipe de Borbón in the Campoamor Theater of Oviedo. In this edition the prizes of the Letters have been granted already, to Italian Claudius Magris, and of Scientific research and Technical, to five investigators who lead the fight against the American cancer, oncólogos Judah Folkman, Bert Vogelstein and Robert Weinberg, the Briton Tony Hunter and the Spanish Joan Massagué. (PHOTO: image of file taken in 1996, San Sebastián. EFE). elmundodinero.com is a publication of elmundo.es © Mundinteractivos, S.A.. Digital publication controlled by OJD - Political of privacy Escríbanos to elmundodinero@elmundo.es © (2003) BOLSAMANIA TECH SOLUTIONS. Web Financial Group, LIMITED LIABILITY COMPANY. All. TRADE INTERNATIONAL The economist Paul Krugman, awarded with Prince de Asturias of Social CC. The American economist of 51 years Paul Krugman has been awarded in Oviedo with the Prize Prince of Asturias de Social Ciencias 2004. The jury emphasized the preoccupation of this university professor of Princeton by the treatment of the regional inequalities and the international trade. The act, that was made public at noon of Wednesday by the president of the jury, Manuel Fraga, recognizes 'the high scientific and social personality' of Krugman and 'the fecundity of its investigating work, that has contributed very remarkably to laying the the foundations of the new theory of the international trade and economic development'. Also it emphasizes his innovating interpretations on the main economic questions of the present time, great influence in the public opinion, and the projection of the results of his investigation 'to the real conditions of life and well-being'. The candidacy of Krugman was presented/displayed by the president of the Bank Sabadell, Josep Oliú, member of the jury, moments before the beginning of the deliberations. Columnist of ' The New York Times' The awarded one, university professor of Economy of the University of Princeton and a columnist of the newspaper ' The New York Times', prevailed in the last votings over philosophers Tzvetan Todorov and Rüdiger Safransk, and also the Peruvian historian Guillermo Lohmann Villena. The American university professor published in the 2003 book 'The Great Unraveling', a compilation of his journalistic articles in which he denounced the submission of the political system, judicial and economic American to the extreme right. Krugman becomes the fifth economist thus to obtain the Prize - Prince of Asturias de Social Ciencias after Roman Perpiñá (1981), Ramon Carande (1985), Enrique Quintana Sources (1989) and Juan Velarde (1992). In last editions, the Prize of Social Sciences has been granted to Jurgen Habermas (2003), Anthony Giddens, the School of Mexico and Juan Holy Churches, Car it Maria Martini and Raymond Carr. 24 candidacies For the award they chose 24 candidacies coming from twelve countries between which were those of the Penal Court the International, the ex- German chancellor Helmut Schmidt, the French anthropologist Claude Levi-Strauss, as well as the Spanish doctor Jose Maria Segovia de Arana and the Colombian Institute of Anthropology and History.

Subject: We Love Paul Krugman From: Terri To: Pete Weis Date Posted: Sun, Oct 24, 2004 at 09:24:11 (EDT) Email Address: Not Provided Message: We love you Paul Krugman.

Subject: Chip Industry Changes From: Emma To: All Date Posted: Sat, Oct 23, 2004 at 14:00:57 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/23/technology/23chips.html?pagewanted=all&position= A New Order of Business for Chip Industry By CHRIS BUCKLEY TAIPEI, Taiwan - At 73, Morris Chang has reason to boast. The business he founded 17 years ago, the Taiwan Semiconductor Manufacturing Company, is the goliath of Taiwan's modern microchip industry and the world's biggest manufacturer of made-to-order chips. This month, it announced record quarterly revenue for the second consecutive time. But when Mr. Chang speaks of the future of the chip business, he sounds somber. Like many global executives, perhaps his biggest long-run worry can be traced to China's rising industrial power. His immediate concern, however, is more basic. 'We're all going to see lower growth in the next 10 years,' he said from his spartan office. Next year 'will not be a very high-growth year, but it will be a positive year; beyond that I'm pessimistic.' Investors seem to agree. After a yearlong boom in chip sales, orders have slowed since early summer. In recent weeks, many analysts have cut their projections for the fourth quarter and beyond, citing the damping effect of high oil prices and bulging inventories. The warnings have battered semiconductor shares, among them TSMC, as Mr. Chang's company is widely known, and Intel, the Silicon Valley global chip giant. What is worse, Mr. Chang sees this looming downturn not simply as the latest plunge in the semiconductor industry's typical roller coaster progress, but as a more fundamental reordering of the business. Lower growth but greater outsourcing, rising competition from China and the spiraling cost of staying at the technological forefront, he says, are impelling industry leaders to reconsider their approach to the business. TSMC - a flagship of Taiwan's technology economy with revenue last year of nearly $6 billion and the pacesetter for global contract microchip makers - cannot afford to stand still. 'We have to maximize our advantage in technology, manufacturing and customer partnerships,' Mr. Chang said. As it braces for the changes, TSMC certainly has a head start over its rivals. Taiwan Semiconductor virtually created the made-to-order semiconductor industry it now dominates. After a long career at Texas Instruments and a stint in charge of Taiwan's top industrial research lab, Mr. Chang started the company in 1987 with government support and private investment largely from Philips, the Dutch electronics concern. At the time, microchips were nearly all designed and manufactured by a few dominant companies. Mr. Chang saw an opening for a 'foundry' company to custom-make semiconductors for companies that were developing their own designs and specifications without the industrial capacity to make chips themselves. 'TSMC was the first to provide that platform,' said Marco Iansiti, a professor at Harvard Business School who studies the semiconductor sector. 'They said, 'We can have much more impact by giving our tools to third parties.' ' Mr. Chang talks with the measured poise of a senior professor, but he is known as an unrelenting competitor. By the late 1990's his company and a handful of other contract chip makers nearly caught up with the technology of established full-range makers like Intel and I.B.M. Now TSMC churns out chips with nodes 130 nanometers across, the smallest scale widely on offer, and is moving, not far behind the pacesetters, to production at 90 nanometers and ultimately even narrower. TSMC has about 40 percent of the world's contract chip market, double its nearest rival, United Microelectronics, another Taiwan company. As the cost of building an advanced chip-making factory escalates toward $3 billion or more, those capable of spreading that cost across a wide range of clients are expected to gain market share. 'We are in a new phase of lower growth,' said Mark Edelstone, a semiconductor industry analyst with Morgan Stanley, 'but the bigger factor is the trend towards outsourcing, which is going to accelerate.'

Subject: Rah-Rah for Google! Or Not From: Emma To: All Date Posted: Sat, Oct 23, 2004 at 11:05:05 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/23/technology/23google.html Rah-Rah, Sis-Boom-Bah for Google! Or Not By SAUL HANSELL Has the pep rally resumed on Wall Street? The cheerleading for Google from the analysts at leading brokerage firms is starting to sound a lot like the days of the dot-com bubble, when some of the same analysts appeared on TV trumpeting ever higher prices for profitless Internet companies. Google shares surged by more than $23 yesterday to close at $172.43, after the company reported better-than-expected earnings on Thursday - more than double the $85 price of its initial public offering in August. A number of Wall Street analysts, in turn, immediately raised their price targets for the company, encouraging investors to buy more shares. Mark Rowen, for example, the veteran Internet stock analyst at the Prudential Equity Group, increased his price target - the price he expects the shares to reach in the next 12 to 18 months - from $130 to $200. Heath Terry of Credit Suisse First Boston, one of Google's lead underwriters, raised his target from $144 to $177. And Mary Meeker at Morgan Stanley, the other lead underwriter, adjusted her valuation model to $168 from $132 and said that model 'could prove conservative.' Such an enormous increase in the value of a company over a few weeks recalls the day in December 1998 when Henry Blodget, then an analyst for Oppenheimer & Company, famously predicted that Amazon.com, then trading at $240, would soon rise to $400. It reached that target in three weeks. Three years later, Amazon shares were selling for one-tenth that price. 'We have seen this before,' said Jake Zamansky, a New York lawyer who has represented investors who claim they were misled by brokerage firms. 'Google is another bubble that will burst. Next year we will bring claims by investors who were hyped to buying Google by analysts with a herd mentality.' Still, Google is by no means like the start-ups that had Web addresses but no profits. Its revenue is expected to be about $3 billion this year and its profit margin would be the envy of any company. Even so, skeptics question whether the five-year-old company - now with a total market value of $47 billion - is really in the same league as the world's largest media companies like the News Corporation, Disney and Viacom. Mr. Terry, for one, argues that Google deserves to be valued in the same range as those other, far bigger companies because it has a much higher profit margin, growth rate and ability to generate cash. Mr. Terry said he increased his target price sharply because of Google's third-quarter results. 'The big thing that changed was we saw a reacceleration in growth rate,' he said. Growth in advertising sales at Google, and its main rival, Yahoo, slowed from the first quarter to the second quarter, leading many investors to wonder whether advertising based on Web search results was beginning to peak. But advertising revenue at both companies increased sharply in the third quarter. For Google, whose value is dependent on investors' assumptions about how big it will grow, even growth in one quarter can have a big impact on its share price.

Subject: Google! Or Not From: Emma To: Emma Date Posted: Sat, Oct 23, 2004 at 11:17:04 (EDT) Email Address: Not Provided Message: 'Because this is such a young company, it doesn't take a whole lot of changes in assumptions to get a really different value,' Mr. Terry said, noting that if he increased by 1 percent the estimate of Google's yearly revenue growth rate in his model, he would get a price target of $233. But that variability, critics say, might show that these quantitative models, which appear to be so precise, are in fact quite subjective. During the dot-com bubble, analysts routinely used such models to justify recommendations that were being pushed on them by investment bankers eager to get profitable new underwriting contracts. Mr. Blodget, the former analyst who was accused of pushing the stocks of his firm's investment banking clients, said in an interview yesterday that there was another force that causes analysts to cheer for hot stocks. 'Analysts don't like to be wrong,' he said. 'In 1995, analysts said the Internet stocks were overvalued. Over the years, they said 'I'm sick of getting kicked in the teeth every day' as the prices went up. Eventually, everyone was positive. Then they got kicked in the teeth hard.' (Mr. Blodget ended up paying $4 million in fines and was banned from the securities industry.) Investors have become used to this routine. 'They had a good quarter, so everyone took their price targets up,' Alan Loewenstein, a manager of the John Hancock Technology Fund, said of this week's Google frenzy. In fact, Mr. Loewenstein argues that analysts should set target values for stocks, and 'if the stock goes up, you go from buy to neutral to sell.' Yet Mark Mahaney, an analyst at American Technology Research, did the reverse. On Oct. 11, he was one of the few analysts to put a sell recommendation on Google, saying that at $137.73 the price was too high. Yesterday, he upgraded the stock to a hold, on the ground that its earnings were higher than he expected. 'If you get the numbers right, you often get the stock right,' he said in an interview yesterday. 'I didn't get the numbers right.' Some analysts also contend that Google's share price was depressed in its initial offering because the company insisted on using an unfamiliar auction process. That realization, they say, may be driving the shares up. Mr. Terry of Credit Suisse added that many institutional investors were now realizing that they needed to own some shares of Google, if only to protect themselves against a possible rise in its shares that would put their portfolios below market index averages.

Subject: court info to stop another bent election From: maurice frank To: All Date Posted: Sat, Oct 23, 2004 at 04:56:48 (EDT) Email Address: cardiffnose@yahoo.com Message: I'm posting here in order to try all ways for this to reach Krugman - he was mentioned in a Greg Palast email circular as having an interest in prevention of another bent election. This court change abolishes final decisions and makes all legal decisions subject to open-ended logic. It was known to the Clinton whitehouse, which knowingly chose not to publicise it, and in that sense what happened to Gore was his own fault, he should have used the court change aginst the Supreme Court's bent treatment of him. earlier in 2000 I had also sent details on the court change to the Florida Cuban community and judge Anthony Kennedy (by a fast form of snail mail and I kept the postal certificate) in the hope of preventing Elian Gonzalez's deportation. Why have the civil liberty groups in both America and Britain been arrogantly and loftily ignoring the court change, both before and during the terrorism emergency powers? COURT CHANGE My name is Maurice Frank and I'm in Scotland. I have sent hundreds of copies of this worldwide. THE COURT CHANGE IN 145 COUNTRIES: judges' decisions are no longer final. I have been lobbying people in a series of political situations throughout the last 3 years, Genoa, Australia, Israel etc, to spread knowledge of the court change, whose shifting of power in favour of ordinary people ensures that it has been under a media silence. Nevertheless, it's on publicly traceable record through petitions 730/99 in the European, PE6 and PE360 in the Scottish, parliaments. Since 7 July 1999 all court or other legal decisions are 'open to open ended fault finding by all parties and recapitulation therupon' instead of final. This follows from my European Court of Human Rights case 41597/98 on an insurance scam of evictions of unemployed people from hotels. This case referred to violation of civil status from 13 May 97, yet the admissibility decision claimed the last inland decision stage was on 4 Aug 95. ECHR has made itself illegal, by claiming finality in issuing a syntactically contradictory nonsense decision that reverses the physics of time. It violates every precedent of member countries' laws recognising the chronology of cause and effect, in evidence. The European Convention's section on requiring a court to exist, now requires its member countries to create a new schismatic ECHR that removes the original's illegality, by its decisions not being final. It follows this requires inland courts to be compatible with open ended decisions and doing inland work connected to them. Hence inland decisions also cease to be final and become open ended, in the 44 Council of Europe countries. World trade irreversibly means jurisdictions are not cocooned but have overlapping cases. When a case overlaps an affected and unaffected country, the unaffected country becomes affected, through having to deal with open ended case content open endedly, that can affect any number of other cases open endedly. Open endedness is created in its system. The concept of 'leave to appeal' is abolished and judges no longer have to be crawled to as authority figures. Every party in a case is automatically entitled to lodge a fault finding against any decision, stating reasons. These are further return faultable, including by the original fault finder, stating reasons. A case reaches its outcome when all fault findings have been answered or accepted. Anyone can add to the list of court change countries outside the Council of Europe, showing autocracies, pending their freer futures, as well as democracies. It starts with: Israel and Lebanon through the case in Belgium on the Sabra-Chatila massacres. America, Canada, Australia through my child brain research ethics dispute with Arizona university, stalled by an American government obstruction of justice. Obviously there will be many cases making these 3 countries court change, so I should not be seen as seeking the ego fantasy of taking personal credit for it through my case, but time priority entitles me to put my case in the list like this. Rest of the list: Yugoslavia through war crimes cases overlapping Bosnia. Kosovo through war crimes cases overlapping Yugoslavia. North Cyprus through Turkey's UN legal challenge against South Cyprus joining the EU. Belarus through its election dispute with OSCE election monitoring. Monaco through International Amateur Athletics Federation drug hearings there. Vatican City through Sinead O'Connor's ordination as a Catholic priest. Cuba through Elian Gonzalez. Haiti through objecting to receiving petty crime deportations from America. Antigua through its constitutional crisis on capital punishment. Trinidad through its Privy Council case on capital punishment. Jamaica through claims on both sides of American linked arms trade background to its violence. Mexico through the Benjamin Felix drug mafia extradition to America. Belize through Michael Ashcroft. Guatemala through the child stealing and adoption scandal overlapping America. Colombia through America's supposed human rights policy intervention in training Colombian police and military. Guyana through the £12m debt claim dropped by Iceland (the shop). Brazil through EU immigration unfairnesses to its football players, necessitating a mafia trade in false passports. Argentina through its ECHR case on the General Belgrano. Chile through General Pinochet. Bolivia, Paraguay, Uruguay through Judge Garzon's citation of Henry Kissinger for the South American military conspiracy Operation Condor. Chad and Senegal through a French action in Senegal obtaining Chad's former dictator Habre for trial under Pinochet's precedent. Algeria through the Harkis' case from the Algerian war. Liberia, Sierra Leone, Mali, Morocco through the Insight News case. Ivory Coast through the chocolate slavery scandal. Ghana through the World Bank's Dora slave scandal. Togo through the Lome peace accords for Sierra Leone, and their breaking as an issue in factional arms supply to there. Burkina Faso through an arms trade case of smuggling through it from Ukraine to civil war factions in Sierra Leone and Angola. Niger and Rwanda through Oxfam's case of buying an arms trade 'end user certificate' for Rwanda in Niger. Burundi through the war crimes trial of Rwanda's 1994 head of state. Tanzania and Japan through the 2000 G8 summit, because Tanzania Social and Economic Trust broadcast a contradiction in implementing both its wishes for economic advance and its debt relief terms. Mozambique through its cashew nuts dispute with the World Bank. South Africa and Lesotho through a WHO case against American pharmaceutical ethics there. Nigeria through reported Nigerian drug mafia crime in South Africa. Dahomey and Gabon through their slave trafficking scandals overlapping Nigeria and Togo. Zimbabwe through its land finances dispute with Britain. Equatorial Guinea through the charges in Zimbabwe of a coup conspiracy. Zambia through Cafod's collection of objections to food supply and health violations in its IMF structural adjustment program. Namibia through the Herero genocide case against Germany. Angola, Congo Kinshasa, Ecuador through arms trade smuggling to them from Bulgaria and Slovakia. Congo Brazzaville through the Jean-Francois Ndenge case in France. Sudan through Al Shafi pharmaceutical factory suing America for bombing it. Ethiopia through aid sector comment on its conditional debt relief. Eritrea through its border dispute with Ethiopia. Somaliland through its problem with Russian and South Korean coastal fishing. Kenya through the Archer's Post munitions explosion case overlapping Britain. Uganda through the Acholiland child slave crisis and Sudan's agreement to return children. Mauritius through the Ilois rights judgment on the Chagos clearances. Yemen through its problem with Spain over the missile shipment. United Arab Emirates through Mohammed Lodi. Saudi Arabia through the lawsuit by families of September 11 victims. Qatar through the capture of Saddam Hussein. Bahrain through the call for American witnesses in Richard Meakin's case. Kuwait through the terrorism arrests in Saudi Arabia. Iraq through the weapons inspection dispute before the invasion. Jordan through its threat of 'unspecified measures' in its relations with Israel. Egypt through its disputes with Tanzania and Kenya over use of Nile water. Libya, Syria, Iran through the Lockerbie bomb trial. Afghanistan through Ben Ladan. Pakistan through a dispute between supporters of enslaved women and the British embassy for not helping them escape. India, Bangladesh, China, Indonesia through the World Wildlife Fund's campaign for tiger conservation, conflicting western romanticism with local populations affected by the homicidal absurdity of conserving a human predator. Nepal through the Gurkhas' lawsuit for equal pay and pensions. Vietnam through a church publicised refugee dispute overlapping China. Cambodia through its enactment for a trial of the Khmer Rouge Holocaust. Laos through Peter Tatchell's application to arrest Henry Kissinger. Thailand through Sandra Gregory. Burma through the Los Angeles judgment on the Unocal oil pipeline. Sri Lanka through its call for the Tamil Tigers' banning in Britain. East Timor through public reaction to the judgment against trying Suharto. Papua New Guinea through WWF's Kikori mangrove logging affair. New Zealand through its ban on British blood donations. Nauru through the Australian civil liberty challenge on the Tampa refugees. Fiji through its land crisis's nonracial solubility by a Commonwealth constitutional question against rent and mortgages. Tuvalu through environmentalist challenges to America's rejection of international agreements on global warming and sea level. Marshall Islands through the Nuclear Claims Tribunal cases. Philippines and Malaysia through the international police investigation in the Jaybe Ofrasio trial in Northern Ireland. South Korea through its jurisdiction dispute with the American army. North Korea through its apology to Japan for abductions.

Subject: 'Wake up America!' From: Pete Weis To: All Date Posted: Fri, Oct 22, 2004 at 20:37:51 (EDT) Email Address: Not Provided Message: Wake Up America! By Jacques Julliard Le Nouvel Observateur Monday 18 October 2004 George W. Bush is now naked, but most Americans don't see it: an invisible film separates them from reality. The United States today has a problem with reality. That is the dominant impression I bring back from a three week trip across the country. It's as though a thin membrane, an invisible film, comes between reality and a portion of the citizenry, making communication impossible. The facts have not disappeared because the film is transparent, but they have stopped exercising an influence on people's judgment. There's not an obfuscation of the truth; it's worse than that: there's an immunization to it. The Iraqi affair is exemplary. Today, apart from George W. Bush and Dick Cheney, no one seriously contests the scope of the disaster, the growing isolation of the United States, the impossibility of an honorable withdrawal. No one any longer denies the lack of preparation for an undertaking that nonetheless had been planned long in advance, the blind trust placed in an international crook wanted in several countries, Ahmed Chalabi, and then in former CIA agent Iyad Allawi. No one dares anymore to evoke the democratic contagion that was supposed to win over the whole region in the wake of the American offensive, still less, after Abu Ghraib, the humanitarian Messianism that was supposed to permeate the whole undertaking. George W. Bush is naked. His three debates with John Kerry succeeded in undressing him. And yet, he is proof against reality. With the record I have just outlined, the polls continue to see him as the man best placed to finish off the Iraqi affair and protect the United States. The protection of the United States is the major theme of the campaign and demonstration of power the sovereign remedy. Is this war a disaster? Undoubtedly, but it has the merit of keeping the theatre of operations far from the United States... Last week's publication of Chief American Inspector in Iraq Charles A. Duelfer's report threw a harsh light on this feeling of unreality that has invaded America. The report shows that Saddam Hussein, hoping to escape from sanctions, had dismantled his arsenal of weapons of mass destruction right after 1991. Consequently, the sanctions were effective and the inspectors had been correct. Yes, but, Bush retorts, Saddam had undoubtedly not given up his intention of rebuilding such an arsenal, so we had to act quickly! It's in the name of reasoning like this that the outgoing president bold-facedly maintains the good grounds for his policy without suffering any loss in public opinion. It's to describe just such a situation that 'The New York Times' brilliant chronicler Paul Krugman recently (Oct. 10, 2004) evoked the Orwellian concept of 'reality control'. Reality is no longer a given that everyone must accept as a precondition to any analysis. It's one parameter among many for political action, a matter for appropriate treatment. In the same way, Krugman continues, Bush and his administration have succeeded in convincing a portion of the public that reducing taxes on the richest (about 1% of the population, according to Kerry) is in fact a populist measure designed to help small businesses and the middle class. Thus, the introduction of methods that properly belong to totalitarian propaganda as described by Hannah Arendt into the heart of a democratic country is a great novelty here. It allows us to explain how a people viscerally attached to their freedoms remain numb overall to the Guantánamo or Abu Ghraib scandals, or to the police encroachments permitted by the 'Patriot Act'. Let us be neither Pharisees nor amnesiacs at the heart of another democratic country: France experienced a similar situation during the war with Algeria. The failures of the American press and media during the Iraq war bear a large responsibility for this persistent bewitchment of a part of American public opinion, indifferent to the lessons of reality. The 'New York Review of Books', which has had an exemplary attitude during the whole period, recently published a collection entitled 'Now They Tell Us' of articles by Michael Massing on the attitude of the best American newspapers during the war in Iraq. Thus it was that the 'Washington Post' (which has corrected itself since) on the day after Colin Powell's speech to the United Nations Security Council (February 5, 2003) - during which the whole world saw a hodgepodge of baloney - could title its editorial 'Irrefutable!' Beyond any doubt, Thomas Jefferson's aphorism remains entirely timely: 'If I had to choose between a government without newspapers and newspapers without a government, I would choose the latter without hesitation.'

Subject: Debt and Interest Rates From: Emma To: All Date Posted: Fri, Oct 22, 2004 at 20:02:23 (EDT) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html The Perils of Circular Thinking Stephen Roach (New York) We’re all guilty of it from time to time -- fudging an assumption in order to validate a conclusion. But I am worried that this is starting to become the norm in the circular thinking that now pervades financial markets. In particular, concerns over debt, current account imbalances, and oil have been dismissed all too quickly, in my view. It’s as if the world has discovered a new means to cope with the once intractable. Such was the folly of the New Paradigm when Nasdaq was cresting at 5000 in early 2000. And such could well be the folly again in ignoring critical risks now bearing down on the global economy. Take the matter of household indebtedness. In a rousing defense of the overly-indebted American consumer, Fed Chairman Alan Greenspan recently concluded, “household finances appear to be in reasonably good shape” (see his October 19, 2004 speech, “The Mortgage Market and Consumer Debt,” before the American Community Bankers Annual Convention, Washington, D.C.). He basically dismisses concerns over the unusually sharp run-up in mortgage indebtedness in recent years. In doing that, Greenspan makes the critical assumption that such debt is fine as long as it is in reasonable alignment with the property values that collateralize such obligations. But is this the correct assumption to make in weighing this key macro risk factor? The evaluation of debt burdens by property-market conditions presupposes a permanence to underlying asset values -- a rather bold presumption for a US economy that just lived through the bursting of the biggest asset bubble in some 70 years. In today’s climate, property bubble or not, there can be no mistaking the role that a low interest rate regime is playing in supporting an unsustainably rapid rate of nationwide house price appreciation -- a 25-year high of 8.8% Y-o-Y through mid 2004, according to the Office of Federal Housing Enterprise Oversight. Were interest rates to rise, it seems perfectly reasonable, in my view, to expect a sharp downward adjustment in the elevated rate of house price inflation. This does not necessarily mean that the level of home prices will fall. But it does mean that, at a minimum, there will probably be a sharp reduction in the equity extraction from this asset class -- a development that could seriously crimp the discretionary purchasing power of the overly-extended American consumer. In my view, dismissing debt perils by drawing comfort from asset markets is a classic example of circular thinking. It ducks the key risk factor -- interest rates. And it ducks the toughest question of all -- whether rates can stay low for a saving short US economy with massive current-account and budget deficits.

Subject: Circular Thinking... From: Emma To: Emma Date Posted: Fri, Oct 22, 2004 at 20:53:02 (EDT) Email Address: Not Provided Message: And it ducks the sheer magnitude of the debt overhang. Alan Greenspan is outright dismissive of this aspect of the problem, drawing comfort in his recent speech from the observation, “For at least a half a century, household debt has been rising faster than income…” Unfortunately, he fails to make the critical distinction between the secular shift to higher leverage and the unusually voracious appetite for debt over the past four years -- an expansion of household liabilities over the 2000-03 period that was, in fact, 65% faster than the cumulative growth of nominal GDP over the same interval. Like it or not, America’s consumer debt bomb is ticking louder and louder in a climate where the artificial depressants to interest rates and debt service are on thinner and thinner ice. The fallacy of circular reasoning also comes into play in dismissing the perils of America’s record external imbalance. At 5.7% of GDP in 2Q04, America’s gaping current account deficit must be funded by capital inflows that need to average about $2.6 billion per business day. With the current account deficit most likely headed into the 6.5% to 7% range within the next year, the daily financing requirement could easily approach $3.5 billion. No problem goes the logic of circular thinking. In this Brave New World, Asia -- America’s unshakable economic appendage -- will gladly step up and fund anything the US needs to keep on spending. How realistic is this key assumption? It’s a real stretch, in my view. For starters, foreign investors see the handwriting on the wall -- a US that has lived beyond its means for far too long. Fearful of the currency and interest rate risks that normally accompany a long-overdue current account adjustment, most channels of capital inflows into America have dried up. For example, net foreign direct investment (inward less outward) into the US has swung from a surplus of $160 billion in 2000 to a deficit of -$134 billion in 2003. Moreover, foreign buying of US equities slowed to an average of just $0.6 billion of US equities in the first seven months of 2004 -- sharply below the bubble-driven peak of $14.6 billion but also a significant shortfall from the $5.7 billion monthly average of the post-bubble period 2001-2003. The stopgap funding has come mainly from foreign buying of US fixed income instruments, led by Asian central banks that are desperate to maintain dollar-based currency pegs. The real question pertains to the stability of this external financing arrangement. Three key risks could come into play, in my view. The first is the possibility of protectionism. If Asian currencies fail to adjust to a weaker dollar, the euro will bear the brunt of what could be a very severe impact; this could put already hard-pressed European politicians very much at odds with Asia. Similarly, a persistently massive US trade deficit could put a post-election US Congress on a collision course with Asia. Second, rapid accumulation of foreign exchange reserves runs the risk of heightened financial instability in Asia -- especially for countries like China, with relatively undeveloped debt markets that impair currency sterilization. Third, Asia’s role as an export-led financier of American consumers raises fundamental questions about the endgame of Asian development -- in particular, the inevitable need to absorb surplus saving and stimulate domestic demand, especially private consumption. It is the height of circular thinking, in my view, to dismiss these serious concerns and presume that America’s external financing is simply there for the asking. Finally, consider the perils of another oil shock.

Subject: Re: Debt and Interest Rates From: Pete Weis To: Emma Date Posted: Fri, Oct 22, 2004 at 20:26:51 (EDT) Email Address: Not Provided Message: This yet another excellent piece by Stephen Roach. I fervently hope Kerry wins this election so he can select the next Federal Reserve Chairman.

Subject: Re: Debt and Interest Rates From: Terri To: Pete Weis Date Posted: Fri, Oct 22, 2004 at 20:40:53 (EDT) Email Address: Not Provided Message: The Federal Reserve Chairman is appointed and confirmed for 6 years. Alan Greenspan has just begun a 6 year term. With the exception of his views on tax policy, Greenspan was supported by both Democrats and Republicans.

Subject: Greenspan's present term From: Pete Weis To: Terri Date Posted: Fri, Oct 22, 2004 at 21:28:43 (EDT) Email Address: Not Provided Message: 'Bush said he was re-nominating Greenspan as Fed chairman for a term not to exceed four years - which would expire in June 2008.' However, reading the following article seems to indicate that his term would probably end by January 2006 if Kerry is elected. The sooner the better in my opinion. Federal Reserve Chief Re-Nominated WASHINGTON, May 18, 2004 'Alan Greenspan has done a superb job as chairman of the Board of Governors of the Federal Reserve System, and I have great continuing confidence in his economic stewardship.' George W. Bush (CBS/AP) President Bush re-nominated Alan Greenspan as chairman of the Federal Reserve on Tuesday, praising his leadership and sending a strong signal of stability to financial markets. The nomination was announced as Greenspan met at the White House with the president. 'Sound fiscal and monetary policies have helped unleash the potential of American workers and entrepreneurs, and America's economy is now growing at the fastest rate in two decades,' Bush said in a statement. 'Alan Greenspan has done a superb job as chairman of the Board of Governors of the Federal Reserve System, and I have great continuing confidence in his economic stewardship,' the president said. Bush had announced in April, 2003, that he would keep Greenspan, 78, for a fifth term. Greenspan's current term as chairman does not end until June 20, 2004, meaning that if Bush had waited to make his choice, the matter could have become embroiled in the presidential election campaign. 'The president thinks Alan Greenspan is doing a great job and that's why he believes he should be renominated,' White House press secretary Scott McClellan said. 'Obviously there are term limits on the position. But the president wants him to continue to serve as long as possible.' Greenspan was chairman of the Council of Economic Advisers under President Gerald Ford from 1974 to 1977 and was tapped to be Fed chairman by Ronald Reagan in 1987. He was re-nominated by Bush's father and twice by Bill Clinton. Bush said he was re-nominating Greenspan as Fed chairman for a term not to exceed four years - which would expire in June 2008. Greenspan would have to deal with a complicating factor were he to serve a full chairman's term - his current term as a member of the seven-member Fed board expires in January 2006. CBS News Chief White House Correspondent John Roberts reports that by law, he cannot be appointed to another term. However -- he can continue to serve as chairman past that date. The President could ask Congress to amend the Federal Reserve Act to extend the term of board members -- which is not likely, says Roberts. Conversely, all Bush has to do to keep him on is fail to nominate another chairman when the term expires. Greenspan then becomes 'acting' chairman until the President appoints another. Administration sources tell CBS News that in the event Greenspan still wants to serve as chairman of the Fed after his term expires, President Bush would likely let him stay on as acting chairman. Greenspan took over as Fed chairman in August 1987, succeeding Paul Volcker. He has been Fed chairman for 17 years, longer than any chairman at the central bank except for the legendary William McChesney Martin, who was first nominated for the Fed by Harry Truman and served into the start of the Nixon administration.

Subject: Re: Greenspan's present term From: Terri To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 09:56:55 (EDT) Email Address: Not Provided Message: What would you have Alan Greenspan do that the Federal Reserve has not done? My understanding is that the Fed has handled monetary policy well for several decades. Inflation was increasingly stemmed, there were fewer and less severe recessions than in decades before. Interest rates have trended down for more than 20 years. What is wrong with Fed policy?

Subject: Greenspan's watch From: Pete Weis To: Terri Date Posted: Sat, Oct 23, 2004 at 11:21:48 (EDT) Email Address: Not Provided Message: From Paul Krugman: Maestro of Chutzpah SYNOPSIS: Greenspan really likes to stick it to the poor and middle class: First, he wants to raise the regressive payroll tax in the 1980s to create Social Security surpluses. Then he promotes the regressive Bush tax cut in 2001 since he thinks those surpluses are too large. Finally, in 2004, he wants to cut Social Security benefits now that the Bush tax cuts will eat up too much of that surplus. The traditional definition of chutzpah says it's when you murder your parents, then plead for clemency because you're an orphan. Alan Greenspan has chutzpah. Last week Mr. Greenspan warned of the dangers posed by budget deficits. But even though the main cause of deficits is plunging revenue — the federal government's tax take is now at its lowest level as a share of the economy since 1950 — he opposes any effort to restore recent revenue losses. Instead, he supports the Bush administration's plan to make its tax cuts permanent, and calls for cuts in Social Security benefits. Yet three years ago Mr. Greenspan urged Congress to cut taxes, warning that otherwise the federal government would run excessive surpluses. He assured Congress that those tax cuts would not endanger future Social Security benefits. And last year he declined to stand in the way of another round of deficit-creating tax cuts. But wait — it gets worse. You see, although the rest of the government is running huge deficits — and never did run much of a surplus — the Social Security system is currently taking in much more money than it spends. Thanks to those surpluses, the program is fully financed at least through 2042. The cost of securing the program's future for many decades after that would be modest — a small fraction of the revenue that will be lost if the Bush tax cuts are made permanent. And the reason Social Security is in fairly good shape is that during the 1980's the Greenspan commission persuaded Congress to increase the payroll tax, which supports the program. The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security. Now the joke's on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits. The point, of course, is that if anyone had tried to sell this package honestly — 'Let's raise taxes and cut benefits for working families so we can give big tax cuts to the rich!' — voters would have been outraged. So the class warriors of the right engaged in bait-and-switch. There are three lessons in this tale. First, 'starving the beast' is no longer a hypothetical scenario — it's happening as we speak. For decades, conservatives have sought tax cuts, not because they're affordable, but because they aren't. Tax cuts lead to budget deficits, and deficits offer an excuse to squeeze government spending. Second, squeezing spending doesn't mean cutting back on wasteful programs nobody wants. Social Security and Medicare are the targets because that's where the money is. We might add that ideologues on the right have never given up on their hope of doing away with Social Security altogether. If Mr. Bush wins in November, we can be sure that they will move forward on privatization — the creation of personal retirement accounts. These will be sold as a way to 'save' Social Security (from a nonexistent crisis), but will, in fact, undermine its finances. And that, of course, is the point. Finally, the right-wing corruption of our government system — the partisan takeover of institutions that are supposed to be nonpolitical — continues, and even extends to the Federal Reserve. The Bush White House has made it clear that it will destroy the careers of scientists, budget experts, intelligence operatives and even military officers who don't toe the line. But Mr. Greenspan should have been immune to such pressures, and he should have understood that the peculiarity of his position — as an unelected official who wields immense power — carries with it an obligation to stand above the fray. By using his office to promote a partisan agenda, he has betrayed his institution, and the nation. Originally published in The New York Times, 3.2.04

Subject: Social Security From: Terri To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 14:46:47 (EDT) Email Address: Not Provided Message: Yes, I agree completely with Paul Krugman on this matter. I almost forgot that Alan Greenspan designed the added payroll tax that baby boomers have borne since 1983. The idea was to provide the additional cushion needed for benefits when they retire. Now, Greenspan is telling us Social Security can not afford the retirement of the baby boomers. Nonsense!

Subject: Re: Greenspan's watch From: Pete Weis To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 11:43:08 (EDT) Email Address: Not Provided Message: Terri, we are in one rather nasty pickle at the moment. Whatever happens to our personal financial states from here onward, certainly is not all Alan Greenspan's fault. But he had a rather large hand in it. He was the one individual who has played the present administration's tune, who should have known better. 'But as the boom continued and the unemployment rate dropped to new lows, he did something unexpected: nothing.' - Paul Krugman Another NYT's editorial by PK: The Maestro Slips Out of Tune SYNOPSIS: The time has come, in my judgment, to consider a budgetary strategy that is consistent with a pre-emptive smoothing of the glide path to zero federal debt or, more realistically, to the level of federal debt that is an effective irreducible minimum.'' Translation: Go ahead and cut taxes. With those words, delivered in Senate testimony on Jan. 25, 2001, Alan Greenspan -- revered during the 1990's as the nonpartisan architect of America's prosperity -- inserted himself decisively into politics, on the side of George W. Bush. The chairman of the Federal Reserve didn't specifically endorse Bush's plans, but his words were exactly what Bush needed. Before Greenspan's testimony, many political observers questioned whether the victor in a disputed election could get an enormous, controversial tax cut through Congress. After Greenspan spoke, much of the resistance collapsed. Yet in retrospect we know that Greenspan's ''judgment'' -- that tax cuts were needed to prevent excessive budget surpluses -- was a misjudgment of Rumsfeldian proportions. In fact, the United States is headed for a budget deficit of more than $400 billion this year, more than half of it a result of tax cuts passed since Greenspan gave Bush his support. Greenspan is still a figure of enormous prestige and power; he is to economic policy what J. Edgar Hoover once was to law enforcement. After 17 years as Fed chairman, Greenspan has become an icon, and it's hard to imagine America without him; indeed, last month the president nominated him for a fifth term. Yet his reputation is not what it once was. At the height of the boom, he was the monetary maestro whose advice was sought on many aspects of economic policy. Now his record as a monetary leader has been called into question, and his judgment on fiscal policy has been proved disastrously wrong. Worse, he seems to have abandoned the long tradition that places the Fed above the political fray. The Making of a Maestro Greenspan is, without question, a very smart man. He has also been very lucky. He had the good fortune to follow an illustrious predecessor. Paul Volcker assumed office at a time of double-digit inflation. During Volcker's eight years as Fed chairman, he tamed inflation and steered the world through a major financial crisis, then oversaw a powerful economic recovery. On becoming chairman in August 1987, Greenspan inherited both a healthy economy and an office whose prestige had never been higher. He enhanced that prestige with his deft handling of the stock market crash of October 1987. Still, in the early 1990's few would have considered Greenspan a great Fed chairman. When the economy stalled in 1990, Greenspan's Fed was caught by surprise and was too slow to react by cutting interest rates. What resulted was a nasty if brief recession that, among other things, ensured the first George Bush's electoral defeat. (Some Wall Street analysts suggest that the second George Bush delayed Greenspan's latest reappointment to pressure him to keep interest rates low until after the election.) But then came the great boom. Greenspan jump-started that boom by cutting interest rates once he realized that the economy was weakening, but any Fed chairman would have done the same thing. After the recovery began, he again followed standard operating procedure. William McChesney Martin, who was Fed chairman from 1951 to 1970, famously said that the Fed's job is to take away the punch bowl just when the party really gets going -- that is, to raise interest rates and slow down a booming economy before the boom turns into an inflationary spiral. Greenspan dutifully raised interest rates through 1994. But as the boom continued and the unemployment rate dropped to new lows, he did something unexpected: nothing. Around 1994, some businessmen began talking about a ''new economy,'' in which old rules no longer applied. In the 70's and 80's, an unemployment rate below 6 percent signaled an overheating economy, on the verge of inflation. The new-economy advocates claimed, however, that this was no longer true -- that thanks to accelerating productivity growth and increased competition, it was possible to run much closer to full employment without a takeoff in inflation. Unlike most economists at the time, Greenspan took those claims seriously. And sure enough, the optimists were right. Over the next six years unemployment fell to 4 percent, a level not seen in 30 years, yet inflation remained quiescent. Greenspan didn't create the economic miracle of the 90's, but -- to his great credit -- he didn't stand in its way. And his name therefore became associated with the boom. Bubble Trouble ''But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions, as they have in Japan over the past decade?'' Greenspan asked this question in December 1996, expressing his concern that a bubble was developing in the stock market. He had reason to think so: traditional measures of stock valuation, like the price-earnings ratio, were rapidly moving off the charts, and investor psychology was already starting to remind those who knew economic history of the 20's. Greenspan's ''irrational exuberance'' speech was clearly intended to caution the markets. Soon afterward, he raised interest rates slightly, again with the clear intention of sending a warning signal to investors. But then he backed off. There were no more rate increases, and Greenspan began lauding the economy's achievements. Bad call: his first instinct was right. It was a bubble, after all. Critics say that by letting the bubble develop unchecked, Greenspan set the stage not just for future market losses but also for trouble in the economy as a whole. Greenspan counters that the Fed can't target stock prices the way it targets inflation, because you can't know whether a bull market is a bubble until it bursts. The Fed, he says, should not consider asset prices part of its brief. Is he right? When the bubble burst, the United States' economy went into recession, just as critics of Greenspan's inaction feared. Still, if he had been able to lead our economy into a quick, decisive recovery, his position would have been clearly vindicated. But though recovery was quick -- the recession of 2001 officially lasted only eight months -- it wasn't decisive. On the other hand, if the economy had fallen into a Japan-type deflationary trap, Greenspan would have been proved clearly wrong. That didn't happen, either. Over the last few months, the recovery has finally started to look like the real thing. We seem to have avoided a Japan syndrome, at least this time. On balance, I think the critics are right and Greenspan is wrong. We avoided becoming Japan after the bubble burst, but it was a near miss: with interest rates down to 1 percent, the Fed had almost run out of ammunition before the economy turned around. And even if the economy is finally on the mend, over the last three years millions of American workers lost their savings or suffered the indignity and financial hardship of prolonged unemployment -- pain that could have been avoided if Greenspan had burst the bubble before it grew so big. But this argument will probably go on forever. Fifty years from now, economic historians will still be arguing over whether Greenspan's performance as monetary manager deserves an A or a B-. What they won't argue about is Greenspan's culpability for America's plunge into deficit. The Partisan Chairman In the first days of the Bush administration, as we've seen, Greenspan gave decisive aid and comfort to the new president, urging Congress to cut taxes in order to prevent excessive budget surpluses. Three years and at least $900 billion in additional debt later, that argument seems ludicrous. And besides giving bad advice, Greenspan was engaging in highly questionable behavior. Since then, rather than make amends, he has compounded the sin. As an institution, the Federal Reserve is set up more like the Supreme Court than like an ordinary government agency. Members of the Federal Reserve Board serve for long terms; chairmen typically serve across several administrations from both parties. There's a reason for this: economists often argue that the Fed, like the Supreme Court, must be insulated from the political process so that it can make necessary but unpopular decisions. The quid pro quo for this insulation, however, is that the Fed must stand above the political fray. Like Supreme Court justices, the members of the Fed board undermine the rationale for their independence if they use their power for partisan purposes. So was that 2001 testimony partisan? Yes. Greenspan argued on the basis of budget projections -- which he must have known are notoriously unreliable -- that the federal government would pay off all its debt in a few years. If this happened, the government would be forced to invest future surpluses in the financial markets -- which, he argued, would be a bad thing. To avoid this outcome, he claimed, surpluses had to be reduced with tax cuts. It was a peculiar, tortured argument, full of holes. For example, partial privatization of Social Security -- which Greenspan supports -- would impose ''transition costs'' in the trillions of dollars, easily taking care of the supposed problem of excessive budget surpluses. As many warned at the time, Greenspan was also completely wrong about the budget prospect -- projections of huge surpluses quickly gave way to projections of huge deficits. Above all, Greenspan's fear-of-surpluses argument was at complete odds with what he had said in the past. All through the Clinton years, Greenspan preached the virtues of fiscal restraint, and he did not change his views when the budget deficits of the 80's and early 90's vanished. Just six months before his 2001 testimony, Greenspan saw no problem with large projected budget surpluses. ''The Congress and the administration,'' he said in July 2000, ''have wisely avoided steps that would materially reduce these budget surpluses. Continued fiscal discipline will contribute to maintaining robust expansion of the American economy in the future.'' But then a Republican entered the White House, brandishing a tax-cut proposal -- and Greenspan suddenly developed an elaborate theory of why it was necessary to reduce those surpluses, after all. Any doubts that Greenspan holds George Bush to different standards than he held Bill Clinton were dispelled in the years that followed. He didn't call for a reconsideration of the 2001 tax cut when the budget surplus evaporated. He didn't even offer strong objections to a second major round of tax cuts in 2003, when the budget was already deep in deficit. Since then, Greenspan has gone back to warning against the evils of budget deficits. But he still hasn't called for a reconsideration of recent tax cuts; on the contrary, he has endorsed Bush's plan to make the tax cuts permanent. Instead he calls for spending cuts, emphasizing the need to trim Social Security benefits. I went back to testimony Greenspan gave in February 2001; sure enough, he assured nervous senators that tax cuts would not threaten future Social Security benefits. But it's even worse than that. Before Greenspan became Fed chairman, he headed a commission that recommended changes in Social Security to secure its future. The most important recommendation, adopted by Congress, was for an increase in the payroll tax -- a regressive tax that falls much more heavily on lower- and middle-income families than it does on the well-off. The ostensible purpose was to generate a surplus within the Social Security system, building up a trust fund to pay benefits once the baby boomers retire. That was the bait; now Greenspan has pulled the switch. The sequence looks like this: he pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used the overall surplus, mainly coming from Social Security, to argue for tax cuts that deliver very little relief to most people but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to maintain the tax cuts while cutting Social Security benefits. He never said, ''Let's raise taxes and cut benefits for working families so that we can give big tax cuts to the rich!'' But that's the end result of his advice. Why did he do it? There are two possible interpretations. The more generous one is that he never gave up the ideals of his younger days. Into his 40's, Greenspan was an acolyte of Ayn Rand, the libertarian novelist and philosopher, and Greenspan has never repudiated his Randian association. Nonetheless, during the Clinton years he came to be viewed as a moderate. Maybe that was a mask, and all those years he was just waiting for an opportunity to use the prestige of his office to undermine the hated institutions of the welfare state. The less generous interpretation is that Greenspan simply abused his position to help his friends. Kenneth Thomas, a finance professor at the Wharton School, has calculated that Greenspan visits the White House about once a week, as The Christian Science Monitor reported last month, and that is almost four times as often as he did when Clinton was president. Part of the genius of George Bush's political operatives is their ability to persuade people (Colin Powell, Tony Blair) to betray their principles, to say and do things they will later regret, in support of a presumed shared cause. Paul O'Neill, Bush's first treasury secretary, falls into the same category: he was a moderate Republican who for a time played good soldier, defending the Bush tax cuts despite private qualms, to help the new president -- a man he thought shared his values -- by giving him an early political victory. And guess what: O'Neill was a close friend of Greenspan's. According to Ron Suskind's book ''The Price of Loyalty,'' written with O'Neill's cooperation, Greenspan told O'Neill that a tax cut without triggers -- that is, conditions that would cancel the cut if projected surpluses didn't materialize -- was ''irresponsible fiscal policy.'' Yet Greenspan never made a forceful public case against a trigger-free tax cut, perhaps because he did not want to make trouble for his friend O'Neill. And by the time he realized just how irresponsible the tax cut really was, he was trapped -- too deeply associated with the administration's policies to change course without losing face. Either way, Greenspan did something remarkable. After becoming a symbol of America's economic turnaround in the 90's, and anointing himself the nation's high priest of fiscal probity, he lent crucial aid and comfort to the most fiscally irresponsible administration in history. In the end, that will be his most important legacy. Originally published in The New York Times, 6.6.04

Subject: Buffet & Greenspan From: Pete Weis To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 12:31:11 (EDT) Email Address: Not Provided Message: Warren Buffet understands unregulated derivatives better than almost anyone on the planet, since he has been unwinding derivative contracts from an insurance company (General RE) which Berkshire-Hathaway had purchased. The problems which Spitzer is revealing in the insurance industry puts the insurance industry at risk with their derivative contracts and the counterparties involved. Greenspan does not have the practical experience with derivatives to fully understand them, IMO. He should not be saying thay 'reduce risk' when he really doesn't understand them. This is a serious matter. The following from the AP: Buffet, Greenspan differ on 'derivatives' When billionaire investor Warren Buffett warned last week that the growing use of 'derivatives' poses a threat to the stability of world markets, he put himself directly at odds with Federal Reserve Chairman Alan Greenspan. 'Derivatives are financial weapons of mass destruction,' Buffett said in his annual letter to shareholders of Berkshire Hathaway, of which he is chairman. Greenspan, on the other hand, thinks the spread of derivatives has reduced rather than increased the risk that a wave of losses in some markets. The use of derivatives has grown exponentially in recent years. The total value of all unregulated derivatives is estimated to be $127 trillion -- up from $3 trillion 1990.

Subject: Greenspan, Buffet, Spitzer, & derivatives From: Pete Weis To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 12:59:48 (EDT) Email Address: Not Provided Message: 'A company trying to meet demand for cash collateral after being downgraded can be thrown into a “liquidity crisis”. - Warren Buffet in 2002. From the Financial Times: Credit protection costs rise on Spitzer worries By Jenny Wiggins in New York Published: October 21 2004 20:16 | Last updated: October 21 2004 20:16 The cost of credit protection on US and European insurance companies is soaring as investors start to worry about the financial ramifications of Eliot Spitzer's probe into industry abuses. Credit default swaps on insurance companies have widened as much as 30 basis points on some companies over the week, amid concerns that an investigation into the industry initiated by the New York attorney-general could damage the creditworthiness of companies and change the way they do business. “It's clear that the insurance business is not the same as it was two weeks ago,” one derivatives trader said. Credit ratings agencies have not taken action on the ratings of any insurers but have warned they may do so if companies suffer from litigation costs and reputational damage. If insurers are hit by ratings downgrades, their cost of funding in the capital markets will increase. In addition, some companies may have to come up with additional cash for collateral payments on credit derivative transactions. Insurers' high credit ratings make them attractive counterparties in credit default swap transactions. Insurers are the biggest sellers of credit protection after banks, with some $213bn (€169bn) in net notional exposure at the end of 2003, according to Fitch Ratings. AIG's top-notch “AAA” ratings make it a particularly attractive counterparty, ranking number 17 in a Fitch listing of the top 25 counterparties in 2003 behind market leaders JPMorgan, Deutsche Bank and Goldman Sachs. Some derivative contracts call for companies that suffer ratings downgrades to post collateral to their counterparties. “A lot of derivatives contracts have ratings triggers built in,” said Keith Buckley, managing director at Fitch Ratings. Industry participants say that insurance companies should be prepared to cope with increased demands for collateral if such demands should arise. “While regulators, such as the UK FSA, have noted the participation of insurance companies in selling credit protection as an area to monitor, they have concluded that there is no undue cause for alarm,” said Bob Pickel, chief executive of the International Swaps and Derivatives Association. However, some investors are more sceptical. Warren Buffett, the billionaire investor, closed down derivatives dealer Gen Re Securities after buying Gen Re, judging it to be “dangerous”. A company trying to meet demand for cash collateral after being downgraded can be thrown into a “liquidity crisis”, Mr Buffett warned investors in Berkshire Hathaway's 2002 annual report.

Subject: Federal Reserve Policy From: Terri To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 13:57:24 (EDT) Email Address: Not Provided Message: Alan Greenspan did us a terrible service by warning about the dangers of a surplus and suggesting a tax cut. This mistaken interference in fiscal policy will shade Greenspan's legacy. Also, the Federal Reserve might have limited margin purchases of stock after 1997 and might now limit derivative usage by banks. These are important matters. Since I believe the Fed should generally not interfere with individual markets, I lean against stock purchase margin controls or derivative controls. But, the argument leaves me open to change. As for monetary policy though, the Fed generally has my admiration. These articles you are posting are always important. There is reason to be cautious, and you provide ample reason.

Subject: The Week that Was From: Terri To: All Date Posted: Fri, Oct 22, 2004 at 18:27:10 (EDT) Email Address: Not Provided Message: What a difference a week makes. The Europe index is above 7% for the year, while the S&P is slightly negative. The difference now is a decline in the value of the dollar. Still, value stocks are leading growth and smaller stocks leading larger. Energy and real estate investment trusts are strong sectors. Recently insurance company and large drug company stocks have declined. Bonds continue to be strong.

Subject: Oil or debt ? From: Pete Weis To: All Date Posted: Fri, Oct 22, 2004 at 15:17:50 (EDT) Email Address: Not Provided Message: About a year ago I watched Milton Friedman state we would absolutely 'not fall back into another recession'. Ben Bernanke has been echoing Friedman at every opportunity. Greenspan has been constantly denying that there are any serious problems (debt, housing bubble, energy) with the economy. Clearly high energy prices are a serious problem. But isn't debt (personal and governmental) really the most serious problem with this economy? Increasingly it appears that these prominent economists are clinging to desparate hope rather than a willingness to face up to what is taking place in this economy. From TheStreet.com: The Baton Remains Unclaimed By Aaron Pressman Senior Market Columnist 10/22/2004 7:09 AM EDT URL: http://www.thestreet.com/comment/aaronpressman/10189739.html The theory supporting robust economic growth this quarter and into 2005 relied on an increase in business demand making up for a fading consumer. But after a pile of earnings reports came in this week from corporate America, it looks like businesses aren't stepping up even as consumer demand tails off. And that's not a good outlook for stocks, despite some bargain hunting propping up in technology and retailing shares in recent days. Technology shares have done better lately, particularly Thursday when the Nasdaq Composite rose 1.1%, while the Dow Jones Industrial Average slid 0.2%. But the most recent batch of earnings reports, Google (GOOG:Nasdaq) aside, may snuff out the rally. After the bell Thursday, Microsoft (MSFT:Nasdaq) reduced revenue estimates for the next year; Amazon.com (AMZN:Nasdaq) missed third-quarter estimates and offered disappointing guidance; and Xilinx (XLNX:Nasdaq) , which has already been cutting its forecasts, further lowered its fourth-quarter revenue projection, as did Analog Devices (ADI:NYSE) and Broadcom (BRCM:Nasdaq) . The macroeconomic picture for U.S. businesses is challenging, to say the least. Among recent economic stats, the six-month outlook for companies surveyed by the Philadelphia Federal Reserve declined to the lowest reading in two years while the Conference Board's Index of leading indicators declined for the fourth straight month. The leading indicators index is still up 2% over the past year, but that's the smallest increase since July 2003, notes Northern Trust economist Asha Bangalore. 'This string of monthly declines supports a forecast of slowing economic growth in the near term,' she wrote Thursday. The Squeeze, Continued Rising short-term interest rates, higher raw materials costs, plus oil's exploding price have also put increasing pressure on margins. Companies like Whirlpool (WHR:NYSE) and Maytag (MYG:NYSE) this week were among those blaming higher steel and energy costs for lowered profits. Results at companies that sell to corporate customers vs. consumers haven't been much better. At Caterpillar (CAT:NYSE) , revenue is expected to increase 10% next year after growing 30% in 2004. Ingersoll-Rand (IR:NYSE) cut fourth-quarter earnings estimates. Earlier in the week, it was 3M (MMM:NYSE) . All these factors have helped push the dollar to eight-month lows against the euro, gold to six-month highs and the yield on the 10-year Treasury note back below 4%, to the lowest levels since April. To be sure, some of the woes of corporate America are company-specific. But so are some of the strong points. For example, Coca-Cola's (KO:NYSE) woes may simply reflect Pepsico's (PEP:NYSE) success. Sometimes a cigar is just a cigar. Meanwhile, signs of consumer weakness abound. The latest reading of the University of Michigan consumer confidence survey was the lowest in 19 months. And more evidence is coming in that consumers, carrying record amounts of both mortgage and revolving debt, are having to stretch just to stay even. Weakness in real estate demand has whipsawed homebuilders, down 12% over the past month, the worst performing sector in the market over the past month, according to Morningstar. The performance is even worse than the property insurers, down 10%, and general insurers, down 6%, which are under fire from the New York Attorney General. Mortgage lenders Countrywide Financial (CFC:NYSE) , Washington Mutual (WM:NYSE) and Wells Fargo (WFC:NYSE) have all seen loan demand ebbing even though rates are still low and declined in the third quarter. More alarmingly, the banks are seeing more and more customers opt for adjustable-rate mortgage loans (ARMs), which in the past saw increasing demand when rates were at historically high levels. At Washington Mutual, for example, 67% of loans were ARMs in the past quarter and of those, more than half reset in under a year. Here's the scary thing: ARMs produced much bigger savings a year ago. The short-term indices used to set adjustable rates have gone up much more because of Fed rate hikes than have the rates on long-term fixed mortgages, which ended the quarter about where they ended the third quarter of 2003. That implies some pretty severe desperation on the part of consumers trying to afford mortgages on bloated home values. At the exact time it's most risky and foolish to take on an ARM, borrowers are flocking to them even though they are saving less compared to fixed mortgages than a year ago. No Worries, Part Fed And it's the Fed's seeming insistence to keep raising short-term rates that has to be the final factor weighing on stocks, especially cyclicals. Fed Governor Ben Bernanke was on the lecture circuit talking about oil and the economy Thursday. Backing up Chairman Greenspan's speech last week, Bernanke said the rise in oil prices isn't going to waylay the economy or dictate Fed policy. And, as discussed here, he suggested conditions remain amenable for the central bank to continue raising rates at a 'measured' pace. 'Future monetary policy choices will not be closely linked to the behavior of oil prices per se,' Bernanke said. 'Rather, they will depend on what the incoming data, taken as a whole, say about prospects for inflation and the strength of the expansion. Generally, I expect those data to suggest that the removal of policy accommodation can proceed at a 'measured' pace.' Significantly, Bernanke ended by saying the reason that the oil price shock has not generated more fear of inflation is because the Fed has earned substantial credibility as an inflation fighter. Retaining that confidence 'will continue to be essential,' he said. Presumably retaining that confidence will come by sticking with the rate-hike path, which can't be welcome news for companies already feeling the pinch.

Subject: Re: Oil or debt ? From: Terri To: Pete Weis Date Posted: Fri, Oct 22, 2004 at 16:51:21 (EDT) Email Address: Not Provided Message: Well, a while ago we were thinking about the effect of 45 dollar a barrel oil but now we must think of oil at 55 dollars. The movement going to the winter is not a pleasing development. This may well keep the Federal Reserve from raising rates for a while.

Subject: Google From: Terri To: All Date Posted: Fri, Oct 22, 2004 at 12:10:20 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/22/technology/22google.html At Google, Earnings Soar, and Share Price Follows By JOHN MARKOFF SAN FRANCISCO - Google Inc.'s already soaring stock price rocketed even higher on Thursday after reporting strong growth in its first quarter as a public company, prompting skeptics to again caution against Googlemania getting out of control. Google, the Internet search engine provider, reported that its profit and revenue more than doubled in the first quarter after its initial public offering. The results led its shares, which had closed up $8.89, or 6.33 percent, at $149.38, to continue skyward, jumping another 8.25 percent, to $161.70, in after-hours trading. The price was nearly double the initial offering of $85 a share in mid-August. Google reported third-quarter net income of $52 million, or 19 cents a share, compared with $20.4 million, or 8 cents a share, in the same quarter in 2003. Revenue increased 105 percent, to $805.9 million, from $393.9 million. Its earnings followed a similar announcement by its close rival Yahoo, which on Oct. 13 reported that it had tripled its profit from the previous year. Strong reports from the two companies, as well as the strength of reports by other shopping sites like Amazon and eBay, suggested a continuing shift toward the more focused online commerce and away from traditional advertising and commerce. But several analysts suggested that the market reaction was not justified by the company's growth. 'Investors who pay up for Google here have to share their optimism for at least another five years, a tough pill to swallow in any market,' said Andy Kessler, an independent financial analyst based in Silicon Valley. Other analysts said that Google had outperformed expectations and that they thought that it was increasing its share of revenue and its share of the search market relative to the rest of the online industry. 'It was a strong quarter for everyone, but Google's results were actually much stronger,' said James H. Friedland, a financial analyst at SG Cowen, an investment firm. In an hourlong conference call with financial analysts, the idiosyncratic Google also made an effort to reaffirm that it will not be a typical company in reporting results and in offering guidance to the analysts. 'We told potential investors from the start that Google is a very unusual company in many ways,' the chief executive, Eric Schmidt, said. Google is based in Mountain View, Calif. Without a series of one-time charges - like the inclusion of a noncash charge of $201 million related to a patent dispute with Yahoo - the company said it would have had earnings of 70 cents a share. On that basis, analysts surveyed by Thomson First Call had expected 56 cents a share. Asked about the rising share price, executives said they felt it was inappropriate to comment on the volatility of the company stock. 'Over the long term a company's stock price tends to reflect its business,' Mr. Schmidt said.

Subject: Re: Google From: Mik To: Terri Date Posted: Fri, Oct 22, 2004 at 14:12:29 (EDT) Email Address: Not Provided Message: Skeptics about an IT company's shares being being overvalued? Where were these skeptics in the mid-90's?

Subject: Re: Google From: Terri To: Mik Date Posted: Fri, Oct 22, 2004 at 14:38:32 (EDT) Email Address: Not Provided Message: There have been and are lots of skeptics about Google's valuation, but revenue growth is excellent and this is an awfully smart company that seems to have lots of growth to come. Google has been harder to compete with than many have guessed.

Subject: Re: Google From: Mik To: Terri Date Posted: Fri, Oct 22, 2004 at 14:48:57 (EDT) Email Address: Not Provided Message: I have no doubt about Google's performance - but again, we needed skeptics voicing their concerns and stemming the tide of virtuous success during the 'dot com' era. I do believe that we will return to the IT lead economy, just a whole lot more conservative than in the past.

Subject: Re: Google From: Terri To: Mik Date Posted: Fri, Oct 22, 2004 at 15:00:17 (EDT) Email Address: Not Provided Message: Agreed. There is every reason to be cautious, and I do not intend to forget this. Technology stocks have had a nice bounce lately, and were expensive to begin with. But, for our own competitive advantage we have to be led by the technology sectors whether in information technology or in industrial applications.

Subject: Re: Google From: Mik To: Terri Date Posted: Fri, Oct 22, 2004 at 15:04:11 (EDT) Email Address: Not Provided Message: Out of curiousity are there any listed companies that provide space related services. Satellites, rocket propulsion, etc, and how are these companies doing?

Subject: Re: Google From: Terri To: Mik Date Posted: Fri, Oct 22, 2004 at 16:55:58 (EDT) Email Address: Not Provided Message: Look to the defense industry. These companies are quite diversfied, so isolating a division's effect on a stock is difficult. But, defense companies have been strong these 4 years.

Subject: 'Forgoing dessert altogether' From: Pete Weis To: All Date Posted: Thurs, Oct 21, 2004 at 21:02:04 (EDT) Email Address: Not Provided Message: There have been some postings on this board about the accuracy the statistics the government publishes with regard to economic data involving such things as employment and inflation. Some believe these stats are reasonably accurate while others, like myself, believe they are considerably distorted. But as economic metrics they need to have some relationship or consistency with similar metrics of the past to be of value in any kind of comparative analysis with the past. In January 1999, the government introduced a new method of calculating CPI. It is called 'The Geometric Mean Formula'. It replaced the 'Laspeyres' formula. It introduced a 'Hedonic' model where improvements and added features factored in a way which could actually eliminate any price increases for a base TV or a base Computer or many other goods which might actually go up in price from year to year but would not be counted as such. Or in fact that item might be added into the total calculation as a deflating item which subtracted from items which had inflated considerably when combined in the total CPI calculation. Another change involve using substitution calculations - if steak goes up in price then consumers would shift to buying hamburger - hence no inflation. The following is directly from The Bureau of Labor Statistics site which describes substitution using ice cream as an example. You wonder why CPI has any statistical value anymore: 'In December 1996, the Advisory Commission to Study the Consumer Price Index, commonly known as the Boskin Commission, recommended the use of the geometric mean formula for the aggregation of prices within all categories of items in the CPI.(11) This recommendation was based upon the belief that a geometric mean formula would help to correct what the Commission called 'substitution bias.' Substitution can take several forms, corresponding to the types of item- and outlet-specific prices used to construct the basic indexes: * Substitution among brands of products, for example, between brands of ice cream * Substitution among sizes of products, for example, between pint and quart packages of ice cream * Substitution among outlets, for example, between a brand of ice cream sold at two different stores * Substitution across time, for example, between purchasing ice cream during the first or the second week of the month * Substitution among types of items within the category, for example, between ice cream and frozen yogurt * Substitution among specific items in different index categories, for example, between ice cream and cupcakes Thus, in response to an increase in the price charged by a store for a certain brand of ice cream, a consumer could respond by redistributing his or her purchases along any of several dimensions represented by other priced items in the category: to another brand of ice cream whose price had not risen, to a larger package of ice cream with a smaller price per ounce, to ice cream at a different store where ice cream is on sale, or to a brand of frozen yogurt. The consumer also could respond by postponing the ice cream purchase until a later date. (Prices for CPI items are collected throughout the month and then averaged.) Finally, the consumer could substitute a specific alternative dessert item, such as cupcakes or apples, that is in another CPI category. This form of substitution, although across CPI categories, would still have the effect of reducing the quantity consumed of the higher priced brand of ice cream relative to the quantities consumed of other items within the ice cream stratum. Like the other forms of substitution, such cross-category substitution is implicitly addressed by the use of the geometric mean formula. Note, however, that the formula does not address overall substitution across categories, such as between ice cream products in general and apples in general. Thus, the geometric mean formula will not be used to combine the basic indexes in the CPI, such as those for ice cream products and apples, into the overall index. In the same way, the use of the geometric mean formula within categories does not address the issue of whether consumers can, or do, respond to a general increase in the price of ice cream products by, for example, forgoing dessert altogether.'

Subject: Re: 'Forgoing dessert altogether' From: El Gringo To: Pete Weis Date Posted: Sat, Oct 23, 2004 at 21:02:44 (EDT) Email Address: nma@hotmail.com Message: http://www.earthquakenews.com/

Subject: Why sam's club failed in Asia From: johnny5 To: Pete Weis Date Posted: Fri, Oct 22, 2004 at 03:24:06 (EDT) Email Address: johnny5@yahoo.com Message: 'to a larger package of ice cream with a smaller price per ounce,' We studied why Sam's Club failed in Japan a few years ago, the final conclusion was that many people lived in 600 square foot apartments with 5 or 6 people to a 600sqft apartment - they simply did not have the SPACE to go buy bulk items of the kinds that sam's sold - so there was no way for them to take advantage of this bulk pricing and therefore they had to pay higher prices on smaller packaged goods, I live in a small trailer and have a tiny 2 foot high refigerator - just big enough for a few 2 liters and a couple of ice cream sandwiches - there is no way for me to take advantage of the sam's club pricing model and buy 50 ice cream sandwich bars when all I can store is a few.

Subject: Re: Why sam's club failed in Asia From: El Gringo To: johnny5 Date Posted: Fri, Oct 22, 2004 at 10:12:53 (EDT) Email Address: nma@hotmail.com Message: 'bulk items plus earthquakes = bad, very bad'

Subject: Re: Why sam's club failed in Asia From: El Gringo To: johnny5 Date Posted: Fri, Oct 22, 2004 at 10:09:47 (EDT) Email Address: nma@hotmail.com Message: 'bulk items earthquakes = bad, very bad'

Subject: Its not STANDARD of living, but COST of living From: johnny5 To: Pete Weis Date Posted: Fri, Oct 22, 2004 at 03:16:03 (EDT) Email Address: johnny5@yahoo.com Message: http://www.sfgroup.org/ Benson’s Economic & Market Trends April 14, 2004 Using the Consumer Price Index to Rob Americans Blind Most Americans have been led to believe that the Consumer Price Index (CPI) actually measures, from one year to the next, the “cost of maintaining a constant standard of living” as the prices for goods we purchase increase. Indeed, we are foolish enough to believe that the index is an accurate measure of the price increases for the same basket of goods we buy every year. If this were actually true, the index would show an honest increase of 3% - 4% in price, there would be no productivity miracle, interest rates would be much higher, and bond and stock prices would be lower. Of course, with an election approaching, our elected officials don’t want the CPI to be an honest measure of the cost of maintaining the same standard of living or quality of life. They want a politically convenient index, cleverly devised to hardly ever rise at all! What you should find unsettling and fraudulent are the ways that the CPI is manipulated to ensure there is no inflation, regardless of how high the prices rise for things we must buy to live. Manipulating the CPI - specifically because the benefits to the retired on Social Security, Medicare and Medicaid are tied to it - and making people believe that inflation is low, will keep the “fraud” of monetary inflation alive. The government simply can’t afford to keep the promises it has made, and it needs to use this clever accounting fraud. If productivity is really so high, why isn’t government policy pushing through a 10% flat increase in Social Security benefits so that the retired can get their share of the productivity miracle? (Maybe the real miracle is robbing them without them noticing!) By changing the definition of “what inflation is”, our government won’t have to pay nearly as much to retirees as they were anticipating. The implications of defining inflation away are vast, and the magnitude of the fraud is extraordinary! The primary sources of manipulation are: 1) Making sure the wrong items are in the index; 2) Taking “hedonics” to ridiculous extremes; 3) Getting consumers to do more of the work and receive less services; and, 4) Changing to a Chain Weighted Index. First, it is not a coincidence that the CPI assumes that everyone in the country rents their home. (Rents have been declining over the last year in some major cities, such as San Francisco - 6%; Denver - 4.3%; and, Atlanta - 4.5%). Making sure that the CPI does not pick up the real cost of housing is critical because the very reason that rents are soft is that with easy mortgage credit available, former renters are leaving the rental market and buying houses instead, which has pushed up housing prices. Over the last four years, housing prices have risen 45%, so how could the index possibly be kept so low if housing prices were actually part of the “cost of living”? The drop in rents is very material since the cost of housing is a full 30% of the CPI. Unfortunately, for those 80 plus million Americans with incomes tied to the CPI, 69% of households own their home. So, over two-thirds of Americans are forced to use a Consumer Price Index that has absolutely no relevance to them! To say the cost of living is going down for homeowners is just ridiculous! If the CPI was honestly set to measure the costs associated with owning a home for those 69% (vs. renting), the index would be rising over 3% a year! Those 80 plus million Americans who are short-changed include recipients of Social Security, Medicare, welfare and food stamps, as well as retired military and many private pensions. To take a closer look, my wife and I prepared a monthly “nut” spreadsheet on our own personal expenses. We own our home and car outright (so we don’t have a mortgage or car payment), but we still have all the usual expenses, including: Insurance for Health Care, Automobile and property; electricity; DSL connection; telephone; property taxes; monthly maintenance; etc. Before we have even purchased a gallon of gas, a piece of clothing, or a single grocery item, our annual nut amounts to over $25,000 and it is rising around 8 to 10 percent a year. We recommend you do the same and then compare your “housing cost” to the CPI. You’ll notice that you probably do not live in the world the government describes! Second, the CPI is managed down by arbitrary decisions made by bureaucrats on the “quality improvements” in goods and services, pleasantly referred to as “hedonics”. When you buy a computer that has “more storage” or purchase a new car made with more plastic rather than steel, the bureaucrats at the Bureau of Labor Statistics, Bureau of Economic Advisors and the Federal Reserve, get all excited because productivity and deflation can be “defined into existence” the same way that the Federal Reserve can “print new money out of thin air”. While there are some benefits from quality improvements in the cost of goods and services, the extent of the “arbitrary hedonic adjustments” are breathtaking and, alone, are adding 1% to 1.5% of real Gross Domestic Product (GDP) growth by “magically lowering inflation” by the same amount. All you need to do is look at the actual number of dollars spent on “technology equipment” in the GDP. Dollar spending hardly changes, but “real spending” is rocketing up. Take a look at the price deflator for tech equipment, falling from 90% to 60% over the past few years, to realize how arbitrary these hedonic adjustments are and how devoid the adjustments are of any common sense. Looking forward, the good news is all the attention being paid to the rising cost of health care, but these costs may prove to be “embarrassing” in an election year. So much so, that the CPI is in the midst of a major “make-over” to include all those tremendous “hedonic improvements” in health care that granny is getting from her HMO. The government staticitans have entered the world of science fiction: “Please beam me up Scottie”. Third, every time we pull into a gas station in the rain and have to swipe a credit card and pump our own gas, we remember the old days when a gas station attendant actually provided service, checked the oil, and cleaned the windshield free of charge! In my own business, travel reservations are made over the internet which is convenient but time consuming when researching flights. For other services, just try and get through to technical support (which is generally a fee-based service) or speak to a customer service rep; the whole day could be spent on hold waiting to speak to someone in Bangladore or Calcutta. Everywhere we look, the consumer is now providing a portion of the labor in order to receive normal services. Yes, this holds measured prices down but the downside is the loss of the purchaser’s valuable time. The government masters of the CPI who welcome “hedonics” turn a “blind eye” to this significant cost phenomenon. Moreover, we spend an additional 30 minutes a day cleaning “spam off of our computers. Not one minute of this lost time shows up as a cost and drain in productivity. Remember, “Only the good stuff counts.” Do you honestly think the time you spend delayed in traffic, on a train, or on an airplane, would be calculated in the CPI? What about the extra hour we get to spend at the security gate at the airport? What does that do for your “productivity”? Isn’t that a real material cost? Fourth, in order to guard against anyone actually seeing inflation, the Bureau of Labor Statistics, at the Federal Reserve’s urging, wants to use an “Expenditure/Chain-Weighted Index.” This price weighting idea works something like this: If you consume a very small amount of something and its price goes up a lot, it will affect the CPI very little because it has a very small “Weight in the Index”. This, of course, is correct. What the Federal Reserve and the Bureau of Labor Statistics want to do next is insidious and should be criminal fraud – the Fed wants the Bureau of Labor Statistics to change the weights as the prices change. This is the way the Index will be constructed: As the cost of some items goes up and you can no longer afford to buy them, you are then forced to use that item less and find a less expensive alternative. Then, the weight of that expensive item goes down, but the weight of the less expensive item goes up, resulting in prices that have hardly changed at all! (George Orwell would simply love this!) Indeed, think about Granny in the kitchen: She used to buy steak and croissants but the price got so high that she now has to eat spam and dough balls fried in lard. Since she doesn’t buy steak anymore and now eats spam and uses lard (items she never used to buy) her cost of living has gone down! (Granny’s weight for steak is now zero.) Obviously, Granny’s standard of living went down when the price of steak went up. What matters in today’s world is not Granny’s standard of living, but her cost of living! Granny’s costs need to be kept down and the way to do that is to keep her CPI down! If Granny receives $400 a month to live on, it is truly convenient to make sure her “cost of living” stays the same even if surviving on $400 a month means she freezes in the dark, cancels cable, and eats what her dog eats. Yet, she should feel good because the CPI tells her that costs haven’t gone up. The real miracle in America isn’t the productivity miracle; it’s the never rising Consumer Price Index. The Federal Reserve wants to run an easy money policy and keep interest rates down; the Treasury wants to short-change social security recipients and buyers of TIPS and I-Bonds. Fudging the CPI is the way to go; however, this strategy is intellectually dishonest, morally fraudulent and will remain quite effective until Americans start looking at their actual cost of living, or discover one day that what’s good for Rover is good for them.

Subject: Re: Its not STANDARD of living, but COST of living From: Mik To: johnny5 Date Posted: Fri, Oct 22, 2004 at 14:46:18 (EDT) Email Address: Not Provided Message: Geez, I don't live in the US, but what I'm reading here is looking very spooky. This concept of 'hedonics' in the CPI sounds like a sophisticated method of 'crooking the books'. The CPI is indeed a very important indicator. I am a firm believer that during the Asian crisis, many countries fell into big trouble because they had very weak and outdated methods of calculating the CPI. They literally didn't realise what was going on and how serious it was (until it was too late). In the same way, if you start messing with the CPI in the US, as the article states, you can literally add a percentage point (or two) to the GDP and place people in a dangerous world. Surely by now the different banks and the central bank are all over this calculation method? In my home country, the CPI is actually measured by a few different banks as a means of double checking on what is really going on in the economy and in turn how they should structure their lending rates. Isn't the same happening in the US? Lastly, we had a series of different CPI measurement tools with clear defintions. The CPIX for example includes a measure for loan repayments. This is calculated separately as loan repayments rates change according to the CPI, hence you have a reacurring calculation and you should separate the loan repayment rate from the CPI calculation. I do want to stress one very important issue raised in the article. We should measure our own inflation. What the CPI measures and what happens in real life to individuals needs to be carefully watched. And your own personal financial decisions need to be made on your own inflation. I can tell you now that I often wonder 'where in the hell are the staticians living' the inflation I face is way more astronomical than what is published. Particularly increase in insurance premiums.

Subject: RSS Feeds? From: Anon To: All Date Posted: Thurs, Oct 21, 2004 at 14:36:46 (EDT) Email Address: Not Provided Message: Your RSS feed has been trolling for Bush for several days now....? http://xml.newsisfree.com//feeds/14/11914.xml

Subject: Re: RSS Feeds? From: Anon To: Anon Date Posted: Fri, Oct 22, 2004 at 12:11:45 (EDT) Email Address: Not Provided Message: By the way, it was one of the post on the RSS feed that was trolling. It was a GOTV message for Bushies.

Subject: Re: RSS Feeds? From: Anon To: Anon Date Posted: Fri, Oct 22, 2004 at 12:09:36 (EDT) Email Address: Not Provided Message: Your RSS feed has been trolling for Bush for several days now....? --- The RSS feed is fixed. It is at: http://xml.newsisfree.com//feeds/14/11914.xml Thanks to whoever.

Subject: Re: RSS Feeds? From: Bobby To: Anon Date Posted: Fri, Oct 22, 2004 at 16:24:03 (EDT) Email Address: robert@pkarchive.org Message: Can someone explain to me exactly what an RSS feed is? I'm guessing it has to do with cell phones visiting sites like mine. Can someone explain what the link http://xml.newsisfree.com//feeds/14/11914.xml is?

Subject: Re: RSS Feeds? From: Bobby To: Anon Date Posted: Thurs, Oct 21, 2004 at 15:37:32 (EDT) Email Address: robert@pkarchive.org Message: Not sure what 'RSS' stands for, but if you're referring to my poll graphs, I can't help it if the likely voters polls are showing Kerry going down. I resent the word 'trolling' since I'm an obviously very strong Kerry supporter ans despise Bush. As far as the poll graphs go, I am just a recorder and am not going to omit certain polls to avoid some undesired result. I put *all* the polls there and show the results. The reason why Kerry's polls went down is the media's completely biased reporting on Mary Cheney, If you watched CNN, you'd have seen that their reporting is transparently designed to manipulate public opinion. It's unbelievable that these whores are allowed the responsibility of holding up one of the pillars of our democracy -- that is, the task of informing the public. Regardless, I think it's pretty clear that, say Gallup is rigged to show Kerry losing, and the graph exposes that.

Subject: Poll Graphs From: Emma To: Bobby Date Posted: Thurs, Oct 21, 2004 at 15:44:32 (EDT) Email Address: Not Provided Message: Bobby, Please tell us where your poll graphs are. I thought the graphs a fine tool, but I have not noticed them for some time. All you do is deeply appreciated.

Subject: Re: Poll Graphs From: Bobby To: Emma Date Posted: Fri, Oct 22, 2004 at 01:25:08 (EDT) Email Address: robert@pkarchive.org Message: They're accessible from the Updates page. Right above the date of the last update it says, 'Check out the Unofficial Paul Krugman Archive graphs of 2004 U.S. Presidential Election Polls' That's the link you should click on to get to the graphs

Subject: Thank You! From: Emma To: Bobby Date Posted: Fri, Oct 22, 2004 at 10:32:16 (EDT) Email Address: Not Provided Message: Bobby, thank you for each thing you do for so many people. I am deeply grateful.

Subject: Re: Thank You! From: Bobby To: Emma Date Posted: Fri, Oct 22, 2004 at 16:21:31 (EDT) Email Address: robert@pkarchive.org Message: And thank you for the compliment

Subject: Insider Profits From: Emma To: All Date Posted: Thurs, Oct 21, 2004 at 14:33:34 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/21/business/21insure.html? Leaders of Brokerage Made Partnerships for Private Profits By ALEX BERENSON Board members and senior executives of Marsh & McLennan, the giant insurance broker that has been accused of cheating customers, put millions of dollars into a partnership that profited by buying companies from Marsh and investing in companies that work with Marsh. Jeffrey W. Greenberg, the chairman and chief executive of Marsh, is among the largest individual investors in the partnership, which Marsh created in 1999 to invest in insurance and financial services companies. Mr. Greenberg's stake was worth almost $2 million shortly after the fund was created, according to a filing with the Securities and Exchange Commission. Executives in financial and insurance companies often invest alongside their companies in partnerships, and money from Marsh insiders and directors accounted for only a fraction of this $1.4 billion fund. Indeed, no one has offered any evidence that Marsh gave the private partnership, called Trident II, sweetheart deals to benefit Trident investors at the expense of Marsh's public shareholders. Still, it is unusual for a company's directors, who represent the interests of shareholders, to invest in company-managed private funds alongside the executives they are supposed to supervise. Marsh repeatedly worried about the possibility of conflicts of interest in the fund, according to the partnership's incorporation papers and other public filings. Experts on corporate governance have complained that Marsh's board, which has 6 insiders and 10 independent directors, is extremely weak and has not taken leadership as the insurance broker's legal problems worsen. Only two independent directors are employed by public companies: Lord Lang, a former British politician who is chairman of Thistle Mining, and Stephen Hardis, chairman of Axcelis Technologies. Many questions about Trident remain unanswered. Marsh & McLennan, which invested $300 million in the fund, has not disclosed which outside directors invested in it, or how much money they put up. A Marsh executive said the company had done nothing wrong and worked hard to avoid conflicts of interest. Marsh has also not disclosed the fund's returns or its costs. The executive, who spoke on the condition that he not be further identified, said yesterday that the fund had earned about 25 percent a year. Five independent Marsh directors did not return calls or e-mail messages seeking comment on Trident yesterday; a sixth declined to comment. When Marsh created a follow-up partnership to Trident II last year, it decided to prevent independent directors from taking part, according to the Marsh executive. During the late 1990's, many companies set up investment partnerships, which have limited life spans, to help executives take advantage of the extraordinary boom then in the stock market. Now, with the public mistrustful of corporate executives and directors, Marsh worries about the appearance of a conflict of interest, the executive said. The disclosures about Trident may only add to a perception that Marsh, which advertises itself as a trusted adviser for insurance buyers and mutual fund investors, has had conflicts. Last year, Putnam Investments, a mutual fund company that Marsh owns, acknowledged that it had allowed some big investors to profit at the expense of individual clients. Based in New York, Marsh is the world's largest insurance broker, helping companies buy policies that can cost millions of dollars a year.

Subject: Re: Insider Profits From: Pete Weis To: Emma Date Posted: Thurs, Oct 21, 2004 at 17:41:00 (EDT) Email Address: Not Provided Message: This, unfortunately, is just the 'tip of the iceberg'. We've all seen mob behaviour at the door of some store which is offering big discounts just as the door opens to let in customers. It's the same way with corporate execs who started noticing that some of their peers were begining to 'push the envelope' when it came to enriching themselves - no one wanted to miss out on this latter day gold rush. The urge became too strong and still is too strong for many to resist - the money corrupts all but the most highly ethical. It's sad but true. So as Jim Summers stated in a post below: 'I am really pessimistic, and I think things will continue to get worse until it is so bad that there is no way to deny the problems.'

Subject: Re: Insider Profits From: Terri To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 17:53:24 (EDT) Email Address: Not Provided Message: This insurance scandal is disconcerting after the corporate governance problems we have unraveled for more than 4 years. We are fortunate to have Eliot Spitzer as Attorney General in New York. How much more is left, I can not guess. But, there is reason for diversity in investing.

Subject: Higher raw material and oil costs.... From: Pete Weis To: All Date Posted: Thurs, Oct 21, 2004 at 11:03:29 (EDT) Email Address: Not Provided Message: begin to filter into the economy. This is not a good situation considering the record high levels of personal debt and poor job market. Associated Press Update 1: Electrolux, Whirlpool See Lower Profits 10.20.2004, 04:56 PM Electrolux AB and Whirlpool Corp., the two biggest makers of household appliances in the world, reported lower quarterly earnings Wednesday and reduced their earnings forecasts for the year, citing higher raw material costs. Electrolux, whose brands include Electrolux, Frigidaire and Weed Eater, also blamed fierce price competition with other appliance manufacturers, particularly Maytag Corp. Whirlpool said Wednesday it would raise prices by 5 percent to 10 percent. 'Given the magnitude of the raw material, the oil and the logistics cost increases, we believe these price increases are appropriate for this environment,' said Jeff Fettig, Whirlpool's chairman, president and chief executive officer. The Benton Harbor-based company is paying more for steel, while rising oil prices are driving up transportation expenses as well as the cost of petroleum-based plastics and resins used in manufacturing. 'Looking ahead, we don't expect this environment to improve significantly in the near term,' he told industry analysts during a teleconference. Laura Champine, an analyst at Morgan Keegan & Co. Inc., called it 'a very aggressive price increase,' the largest she has seen in the appliance industry. She said Whirlpool is taking a big chance, particularly with its largest customer: Sears, Roebuck and Co. The retail giant is feeling pressure to cut prices because of increasing competition from large home-improvement stores such as The Home Depot and Lowe's. 'If they can push it through, it is great news for the industry,' Champine said. Whirlpool, the No. 2 producer of home appliances and whose brands include Whirlpool, KitchenAid and Roper, said it now expects to earn between $5.85 and $5.95 per share for all of 2004. Its previous estimate was for yearly profits of $6.20 to $6.35 per share. Stockholm, Sweden-based Electrolux, the world's largest appliance maker, also revised downward its forecast for the rest of the year from the outlook published in its first-half report. Fourth-quarter operating income, excluding items affecting comparability, previously was expected to be somewhat down from 2003 but now is expected to be much lower. Electrolux reported third-quarter earnings Wednesday of $93.4 million, or 32 cents per share, down 12 percent from the same period a year earlier. Sales for the quarter, which ended Sept. 30, were down 3 percent, to $4.1 billion. Meanwhile, Whirlpool earned $101 million, or $1.50 per share, in the third quarter. That is 2 cents lower than the consensus forecast of $1.52 per share by analysts surveyed by Thomson First Call. In the same period a year earlier, it earned $105 million, or $1.48 per share. Sales for the July-September period were $3.32 billion, up 6.6 percent from last year. On the Nasdaq Stock Market, U.S.-traded Electrolux shares rose 51 cents, or 1.4 percent, to close at $36.39 Wednesday. Shares of Whirlpool fell $2.22, or 3.7 percent, to close at $57.09 on the New York Stock Exchange.

Subject: Re: Higher raw material and oil costs.... From: Terri To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 11:28:09 (EDT) Email Address: Not Provided Message: Though raw materials and energy costs are rising, wage and benefits costs are stable to falling. There is no general producer cost squeeze as a result. Nor are rising producer costs contributing more than a bit to consumer price increases. We are simply not growing fast enough for inflation to be a problem.

Subject: Re: Higher raw material and oil costs.... From: Pete Weis To: Terri Date Posted: Thurs, Oct 21, 2004 at 11:38:55 (EDT) Email Address: Not Provided Message: Terri. Do you have any articles to support - 'there is no general producer cost squeeze'? This is an open world economy - China's economy is 'growing fast enough' and is increasing demand.

Subject: Re: Higher raw material and oil costs.... From: Terri To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 12:58:58 (EDT) Email Address: Not Provided Message: Commodity costs, paced by energy, have been selectively climbing for almost 2 years. The growth of China in particular, has increased demand for commodities. But, labor costs are generally far more important than commodity costs for corporate profits. Labor costs have been limited by prime American corporations. A clear indication of this is the level of profitability of S&P companies. Through profit growth has been slowing, profits have been at record levels the last 4 quarters. I will post to this. However, your posts are always note worthy.

Subject: Re: Higher raw material and oil costs.... From: Pete Weis To: Terri Date Posted: Thurs, Oct 21, 2004 at 17:07:42 (EDT) Email Address: Not Provided Message: The article I posted stated: 'Whirlpool said Wednesday it would raise prices by 5 percent to 10 percent'. Considering we have a continuing 'soft patch' this seems like a pretty significant rise in prices. Of course the Fed with it hedonics CPI calculations will deny any increase in appliance pricing since the new appliances have 'more or better features'. That's how we get a steadily dropping dollar with paychecks buying less and less with 'little to no inflation'.

Subject: Re: Higher raw material and oil costs.... From: Terri To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 18:01:58 (EDT) Email Address: Not Provided Message: If we find that announced consumer price increases are actually sticking, there will be a problem. But, right now the bond market is telling us not to woory about inflation. We must be watchful, but I rather doubt the Electrolux announcement will wind up in higher prices. The labor department statisticians really do try to be beyond political influence and try to turn out the finest data. I have no problem with the price indexes, though of course different population groups have different price experiences.

Subject: The Rising Cost of Health Care From: El Gringo To: All Date Posted: Thurs, Oct 21, 2004 at 10:36:12 (EDT) Email Address: nma@hotmail.com Message: The Rising Cost of Health Care: Is it a Problem? Institute of Medicine, October 19, 2004 Henry J. Aaron, Senior Fellow, Economic Studies When Gail Wilensky invited me to participate in this session, I accepted readily for three reasons. First, I was honored—who would not be?—to speak at the annual meetings of the Institute of Medicine? Second, it is hard for me to say ' no ' to Gail, whom I have known in various capacities since her first job out of graduate school. Third, I know and respect David Cutler. He and I are billed arguing opposite sides on the question. But I don't think that we disagree sharply on much of anything. Where we do see things differently, the disagreements, I am confident, will be matters of nuance and emphasis. I begin with an economic truism and a fact. The fact is that over the long term, public expenditures cannot much exceed taxes without collapse of the nation's economy. Yes, outlays can run ahead of revenues for a while. But deficits create debt, and interest on that debt must be paid. If a nation borrows to pay interest, debt explodes, and the currency collapses. The fact is that government expenditures under current law are almost certain to grow much faster than national income. The principal reason is rapid projected growth of government spending on Medicare and Medicaid. Projected increases in health care spending are so large that cuts in other government programs could not possibly close the projected gap between taxes and spending. The truism and the fact jointly mean that either the proportion of income collected in taxes must be sharply increased, or the growth of outlays—and, more particularly, Medicare and Medicaid spending—must somehow be cut.

Subject: Re: The Rising Cost of Health Care From: Pete Weis To: El Gringo Date Posted: Thurs, Oct 21, 2004 at 10:55:16 (EDT) Email Address: Not Provided Message: El Gringo, this is why price controls on drugs as well as medical procedures are inevitable. We all require medical care. Those of us who have health insurance pay for those who don't. Someone in a medical emergency situation is not refused (usually) treatment because they don't have insurance. The healthcare industry must make up for the loss of payment by charging a higher fee for services rendered to those who can pay by virtue of their having health insurance. The real problem is the lack of preventative medicine (regular checkups and health advice by medical professionals) for those who have no insurance. Those who don't have insurance only seek help when it becomes a crisis situation and the costs become extraordinary. We are all paying for it whether we are willing to admit it or not.

Subject: Re: The Rising Cost of Health Care From: Terri To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 13:00:40 (EDT) Email Address: Not Provided Message: The problem we have is not with Social Security, but with rapidly rising health care costs that will harm Medicare and Medicaid. A serious problem indeed.

Subject: Re: The Rising Cost of Health Care From: jimsum To: Terri Date Posted: Thurs, Oct 21, 2004 at 14:42:38 (EDT) Email Address: jim.summers@rogers.com Message: Why shouldn't we be happy to pay the higher cost of medical care? If our lives are longer and better, isn't it worth the cost? As long as we make sure we don't pay for more-expensive procedures that are no better than the less-expensive procedures, avoid unnecessary procedures, and keep our demands for service reasonable, we should welcome the opportunity to live better lives and willingly pay the extra money it costs. Rather than deny that costs will have to go up; why don't we just figure out how we are going to pay for it, and learn to appreciate the better health we will enjoy in compensation?

Subject: Re: The Rising Cost of Health Care From: Terri To: jimsum Date Posted: Thurs, Oct 21, 2004 at 15:38:52 (EDT) Email Address: Not Provided Message: The problem with health care costs is that they are rising faster than we can grow. So health care spending will take more and more of our resources. Still I do not know why the health care sector of the economy can not continue to expand faster than other sectors for many years to come. After all, health care is a prime job creator. This problem puzzles me. Should we simply try to find ways to hold down price increases to the general inflation level, while allowing demand for health care services to expand as fast as we wish these services?

Subject: Economists Mirror Polarized Country From: johnny5 To: All Date Posted: Wed, Oct 20, 2004 at 15:52:30 (EDT) Email Address: johnny5@yahoo.com Message: Rich Bush or Rich Kerry - most economists agree the future isn't so bright. http://www.stpetetimes.com/2004/10/20/Columns/Economists_mirror_pol.shtml By ROBERT TRIGAUX, Times Business Columnist Published October 20, 2004 Economists by the hundreds are pledging their allegiance for President Bush or John Kerry, or at least going on record to criticize the candidate whose policy they believe is the more deeply flawed. Let the economic war of words begin. 'All in all, John Kerry favors economic policies that, if implemented, would lead to bigger and more intrusive government and a lower standard of living for the American people,' concludes a statement issued last week by the Bush-Cheney campaign. The statement was signed, the campaign said, 'by 368 of the nation's leading economists from 44 states' - including new Nobel Prize winner Edward C. Prescott of Arizona State University and at least seven economists from Florida universities. This month, the Kerry-Edwards campaign won the backing of 169 business professors and economists, including four from Florida, who signed an 'open letter' to President Bush critical of the rising poverty, declining income and growing income inequality in the country. 'The data make clear that your policy of slashing taxes - primarily for those at the upper reaches of the income distribution - has not worked,' the letter said. Another letter denouncing Bush's economic policies as 'reckless and extreme' was made public in August and signed by 10 Nobel economists, from Paul Samuelson (1970 winner) to Daniel Kahneman (2002). And a third letter released last month, describing the rapidly declining economic opportunities under Bush for black workers in the United States was signed by 16 African-American economists, including a Florida State University professor. The burst of dueling letters reflects how sharply divided the economics profession is in a polarized presidential campaign. The letters also underscore the personal philosophical underpinnings, which remind us that beneath all its mathematical modeling, economics remains a pliable social science. The Bush and Kerry camps proudly lay claim to hundreds of economists who endorse their respective policies. In fact, both campaigns recruited economists to sign letters of support for their candidates and then publicized the lists to lend more credibility to their economic proposals. Does it work? Economic endorsements always help. To a point. As the old economist's joke goes: Talk is cheap. Supply exceeds demand. Just to be sure, I contacted several Florida economists whose names appear among the long endorsement lists of the pro-Bush or pro-Kerry letters. Charles 'Chuck' Skipton, an assistant economics professor at the University of Tampa's Sykes School of Business, said he agreed to sign the letter in support of Bush because the president's policies are more likely to generate more jobs and better economic growth. 'I believe growth can be achieved by low taxes and stability,' said Skipton, careful to note his support of Bush represents his opinion. Kerry's programs will cost more than the candidate suggests, Skipton said. And while Bush is spending too much - witness the nation's rising deficit - his agenda is 'the best hope for the economy,' he said. Not all Florida economists listed on the pro-Bush letter were as gung-ho. Mark Rush at the University of Florida laughed when I called to ask him about the letter. He has strong reservations about the economic proposals of both candidates. 'In truth, had Kerry sent me a letter, I might have signed it first,' he said. As a Libertarian and a critic of big government, Rush said he has 'not been thrilled with what Bush has done over the past four years.' But he would be even less thrilled if Kerry is elected. Rush's hot button is the minimum wage, which Kerry wants to raise from $5.15 to $7 by 2007. Rush argued that is a mistake and would most hurt the low-skilled and black teenagers who might lose their important first jobs if the costs of hiring increased. At Florida State, economist Bruce Benson's name appears on the list of the pro-Bush letter. There's just one problem. Benson said he never signed the letter. 'I remember getting it and looking at it, and feeling I did not want to sign it because - even though I agreed with most of it - I did not want to lead people to say I supported Bush's policies,' Benson said Tuesday. 'Quite honestly, I find both Bush and Kerry quite troubling,' he said. 'Usually in these elections you have to pick the lesser of two evils. In this one, I can't tell which is scarier.' Other Florida economists and business professors at the University of South Florida, the University of Central Florida and Florida International University whose names appear on Bush or Kerry letters did not respond by Tuesday evening to messages and e-mails seeking comment. FSU economist Patrick Mason joined 15 other black economists and signed a letter blaming Bush policies for hurting African-Americans in the job market. 'A lot of us were concerned about the jobs issue and whether or not the issue would be heard in a campaign focused on Iraq and terrorism,' Mason said. The letter endorses Kerry's proposals because they are more likely to create jobs and raise incomes of people, Mason said, 'at the bottom of the economic ladder.' Will Bush or Kerry do a better job stewarding America's economy? That's a question the Economist magazine recently asked 100 academics. More than 70 percent of the 56 professors who responded rate Bush's first-term economic policies as 'bad' or 'very bad.' Less than 20 percent gave high marks to Bush's second-term economic agenda. Kerry fared better, but not by much. Forty percent rated Kerry's plan as 'good' or 'very good' but 27 percent gave it negative scores. Less than two weeks before Election Day, it seems neither Bush nor Kerry can generate much enthusiasm from a strong majority of economic experts.

Subject: Re: Economists Mirror Polarized Country From: Pete Weis To: johnny5 Date Posted: Wed, Oct 20, 2004 at 21:39:48 (EDT) Email Address: Not Provided Message: Very good post johnny5. There seems to be a lot of confusion in the economic community about what is really going on in this economy and how or if it can be fixed. It can't give those of us who believe there are truely serious problems with this economy much hope that any politician we elect will be able to turn things around in any significant way. Even so I think we need to get Bush retired, because he has demonstrated that the deeper in trouble he gets this nation the riskier and more ill-advised direction he seems to head. I've never felt this way about any previous President, but I think this President is somewhat delusional.

Subject: Re: Economists Mirror Polarized Country From: jimsum To: Pete Weis Date Posted: Thurs, Oct 21, 2004 at 14:35:11 (EDT) Email Address: jim.summers@rogers.com Message: The main problem is that the voters are delusional too. How would it help Kerry if he pointed out that with 20% of federal spending being financed with borrowed money, taxes will have to go up? Won't telling the truth just lose him the election? Bush has proved that he is capable of passing stupid policies; Kerry hasn't. Both are making equally stupid election promises. I say the balance goes to Kerry, especially since with all three branches of government in Republican hands, there is a desperate need for checks and balances.

Subject: Krugman has always been right From: Erica To: All Date Posted: Wed, Oct 20, 2004 at 14:47:42 (EDT) Email Address: Not Provided Message: Where are all the trolls that used to come here regularly to say how nuts Krugman was? Are they still here and the board cleaning wiped them away Anyway, Michael Fromkin says Krugman is right and that his latest column is his best. Brad Delong thinks so, too. One of Krugman’s best columns ever (where’s that Pulitzer?): Feeling the Draft, makes exactly the right analogy: Those who are worrying about a revived draft are in the same position as those who worried about a return to budget deficits four years ago, when President Bush began pushing through his program of tax cuts. Back then he insisted that he wouldn’t drive the budget into deficit - but those who looked at the facts strongly suspected otherwise. Now he insists that he won’t revive the draft. But the facts suggest that he will. There were two reasons some of us never believed Mr. Bush’s budget promises. First, his claims that his tax cuts were affordable rested on patently unrealistic budget projections. Second, his broader policy goals, including the partial privatization of Social Security - which is clearly on his agenda for a second term - would involve large costs that were not included even in those unrealistic projections. This led to the justified suspicion that his election-year promises notwithstanding, Mr. Bush would preside over a return to budget deficits. It’s exactly the same when it comes to the draft. Mr. Bush’s claim that we don’t need any expansion in our military is patently unrealistic; it ignores the severe stress our Army is already under. And the experience in Iraq shows that pursuing his broader foreign policy doctrine - the “Bush doctrine” of pre-emptive war - would require much larger military forces than we now have. This leads to the justified suspicion that after the election, Mr. Bush will seek a large expansion in our military, quite possibly through a return of the draft. Mr. Bush’s assurances that this won’t happen are based on a denial of reality. The poignant part of this is that four years ago when Krugman pointed out that the Bush economic policies didn’t add up, the GOP slime machine started calling him shrill and suggesting he was out of the mainstream (which is code for something like ‘commie’ or ‘we don’t have to listen to him’). But Krugman was right about the deficit.

Subject: Re: Krugman has always been right From: jimsum To: Erica Date Posted: Thurs, Oct 21, 2004 at 14:23:50 (EDT) Email Address: jim.summers@rogers.com Message: Unfortunately, you still can say Krugman is wrong about the deficit; that in the long-run it will work out. Bush's supply-side tax cut voodoo just might start to work and magically erase the deficit. Similarly, a miracle could happen in Iraq and it will turn out to be less than a total disaster. Why should we listen to a pessimist like Krugman who always claims things are a disaster? Why should we believe him rather than Bush, the Republican party, and all the fair and balanced media companies out there? Bush gets a free ride because he can claim things will turn out all right and his opponents must prove that they won't. Since you can claim that any change will make things better (if you just wait long enough) there is no way to prove any particular action won't make things better. Also, if you can ignore any discussion of the opportunity cost of your actions; you can claim that 'the world is a better place without Saddam', without actually having to prove that invading Iraq was worth the billions of dollars and thousands of lives. Similarly, you can claim that any tax cut is good as long as you can ignore the issue of who will pay for them. I am really pessimistic, and I think things will continue to get worse until it is so bad that there is no way to deny the problems. Four years hasn't been quite long enough to prove that Bush's economic policies are harmful (look - the number of new jobless claims has gone down, a recovery is just around the corner!). It also hasn't been long enough to prove that the war in Iraq has made things worse. With luck, it will only take four more years of Bush before the general public recognizes his mistakes; but even that is optimistic. The drug laws have been in place for more than 70 years, even though all the evidence shows they only make the drug problem worse.

Subject: Re: Krugman has always been right From: Pete Weis To: jimsum Date Posted: Thurs, Oct 21, 2004 at 17:15:22 (EDT) Email Address: Not Provided Message: Jim. An excellent post.

Subject: Investing in Company Stock From: Emma To: All Date Posted: Wed, Oct 20, 2004 at 14:29:09 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/20/business/20place.html Investors Are Losing Ground as Insurance Inquiries Expand By GRETCHEN MORGENSON The disastrous decline in Marsh & McLennan's stock that has followed Eliot Spitzer's lawsuit of last week has injured a broad array of institutional and individual investors. But the pain of losing almost 50 percent in share value is perhaps most excruciating to the thousands of Marsh & McLennan employees who have bought Marsh stock in the company's employee stock purchase plan or in their retirement plans. In the months after the market crash of 2000, the lesson of diversifying beyond one company's stock was hammered home. But as the market recovered, many workers seemed to forget that important lesson. Marsh employees were among them; at the end of last year, one employee-benefit plan had $1.3 billion invested in Marsh & McLennan stock. Now, of course, the risk in those holdings is all too apparent. But employee-benefit experts say that Marsh may be putting its 60,000 employees at additional risk, even as it enriches itself, by limiting the alternative investments to mutual funds that are for the most part managed by its Putnam Investments subsidiary. 'Fiduciaries of 401(k) plans are charged with making decisions that are in the best interests of the participants in the plan,' said Edward A. H. Siedle, a former Securities and Exchange Commission lawyer who is president of the Center for Investment Management Investigations, a unit of the Benchmark Companies in Ocean Ridge, Fla., that investigates money management abuses on behalf of pensions. 'When they are also employees of a money management company that gets hired by the plan there is a conflict of interest. This is especially problematic when the money manager is a high-cost, poor performer.' A spokeswoman for Marsh declined to discuss the potential for conflicts among the company's employee-benefit plans. Given that the company is in the financial services industry it is perhaps not surprising that workers at Marsh & McLennan and its subsidiaries have been given many opportunities to buy their company's stock or its money management services. There is a pension plan, a stock purchase plan, 401(k) accounts, stock option grants and a cash bonus deferral plan to name a few. And in all cases, Marsh stock or Putnam funds dominate the offerings. Sadly for these employees, Marsh shares have gone pretty much straight down since Mr. Spitzer filed his lawsuit against the company, contending that bid-rigging and other improprieties occurred in Marsh's insurance brokerage unit. Yesterday, Marsh stock fell another $1.47 a share, or 5.7 percent; it closed at $24.10 and has lost 48 percent since Mr. Spitzer filed the suit. Workers who have participated in the Marsh stock purchase plan have taken perhaps the biggest brunt of this slide. Last year, 3.8 million shares were bought in the stock plan, well above the 2.85 million Marsh shares purchased in the plan in 2001. And employees working in the company's international division, which is broken out separately, bought 1.2 million shares in 2003, far more than the 717,000 shares they purchased during the previous year. Taken together, the shares bought by employees in the Marsh stock purchase plan amounted to five million shares, or almost 1 percent of the 533 million shares outstanding at the company at the end of last year. Marsh employees have also bought their company's stock aggressively in various 401(k) plans, a decision they now almost certainly rue. According to Marsh filings, at the end of last year, a defined-contribution plan for Marsh & McLennan employees had assets of $2.24 billion. Almost 60 percent of the plan's assets were in Marsh stock - $1.3 billion worth. Another $938 million in the plan was in funds managed by, you guessed it, Putnam Investments. Of the 17 fund choices on the plan's menu, 10 are Putnam funds. Marsh is not alone in offering company stock as an investment option in its 401(k) plans. According to Hewitt Associates, a human resources and consulting firm that studies 401(k) plans nationwide, the vast majority of the 500 employers it surveyed - 84 percent - said they invested their employees' contributions to 401(k) plans in company stock. Hewitt found that on average employees holding company stock had 41 percent of their balances tied up in those shares, essentially unchanged from allocations during 2002.

Subject: Re: Investing in Company Stock From: Auros To: Emma Date Posted: Wed, Oct 20, 2004 at 14:51:57 (EDT) Email Address: rmharman@auros.org Message: This is why I unload my ESPP pretty much as fast as the shares mature. I just place limit-sell orders, at whatever seems to be the local max of the fluctuations of the last couple of weeks. Then I plow the proceeds into paying off any current debts, or into more diverse investments. Being heavily invested in a single stock is just dumb. :-P

Subject: Company Stock Plans From: Terri To: Auros Date Posted: Wed, Oct 20, 2004 at 15:03:50 (EDT) Email Address: Not Provided Message: There is reason in indexing, much of the reason is the diversity it brings us. The average employee who invests in company stock, has over 40% of balances in this single stock. The risk that such a concentration entails had best be clearly understood.

Subject: Re: Company Stock Plans From: johnny5 To: Terri Date Posted: Wed, Oct 20, 2004 at 15:35:49 (EDT) Email Address: johnny5@yahoo.com Message: Those asian investors in Japan that bought an index and spread their money out over many nikkei stocks really saved thier pain back in the crash a few years back didn't they?

Subject: Japan From: Ari To: johnny5 Date Posted: Wed, Oct 20, 2004 at 16:04:27 (EDT) Email Address: Not Provided Message: Japanese household savings are rarely invested in stocks. The loss from the decline of the Nikkei Index to Japanese households was minimal. But, there are far more stable international markets in which to invest than Japan.

Subject: Re: Japan From: johnny5 To: Ari Date Posted: Wed, Oct 20, 2004 at 16:15:50 (EDT) Email Address: johnny5@yahoo.com Message: What are japanese household savings invested in? Their real estate? Here household savings are non existant - at least by most of the people I know personally - and I would even say a US or global stock market crash wouldn't hurt them much because they don't have the money to buy stocks and don't own any - however most of them are on ARM's and a rise in the interest rate will destroy them. A devaluation of thier dollar to be able to buy the asian goods at wal-mart would be a real whammy too.

Subject: Marsh From: Piranha To: johnny5 Date Posted: Wed, Oct 20, 2004 at 19:58:12 (EDT) Email Address: Not Provided Message: Strange...a company that deals with risk-management ends up in something like this!

Subject: Re: Marsh From: Ari To: Piranha Date Posted: Wed, Oct 20, 2004 at 20:02:46 (EDT) Email Address: Not Provided Message: Remember, a number of the largest insurance companies are involved. Marsh has already been involed in the mututal fund scandals.

Subject: Not an Oil Tanker to Spare From: Emma To: All Date Posted: Wed, Oct 20, 2004 at 12:00:20 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/20/business/20tanker.html?pagewanted=all&position= Not a Ship to Spare By JAD MOUAWAD With about $100 million worth of crude oil in its hold, the tanker Front Page will leave Kuwait soon, heading for Louisiana via the Suez Canal. When it arrives 30 days later, its two million barrels will feed refineries throughout the Midwest with crude they will turn into heating oil for the winter. The trip will be an expensive one. Exxon Mobil is paying Frontline, the ship's Norwegian owner, $6.95 million to make the journey. Last year, the shipping company charged $2.4 million for a similar haul. With global oil demand surging and prices hitting record levels, the world's 1,500 oil tankers are all booked up, and their owners are charging hefty premiums. The shortage of tankers is one sign of how strong demand and a lack of investment have left the oil industry's infrastructure stretched thin - meaning that any hint of disruption in the system can help make prices spike. These strains contribute to climbing energy costs for consumers. According to estimates by the federal Energy Information Administration, the increase in oil transport costs this year translates into an extra nickel a gallon for gasoline at the pump. 'Five years ago, when you were looking to book a ship in the Persian Gulf, you used to find 10 ships available,' said Jeffrey Goetz, a consultant at Poten & Partners, a broker in New York. 'Today, you find three, sometimes only one or two. That's what makes the market feel so tight.' In part because of China's growing appetite for oil, the world is expected to consume 2.7 million more barrels a day this year than it did in 2003, and most of that is being carried by ships crisscrossing the oceans. The strong demand has contributed to a 74 percent jump in oil prices in the last year. Oil futures fell to $53.29 a barrel in New York yesterday after reaching a record $55.33 on Monday. 'There's a shortage of tankers today because basically everyone is screaming for oil,' said Bjorn Lokken, a tanker broker at P. F. Bassoe in Oslo. It is the first time since 1973 that ship owners are finding it so difficult to meet demand. Tanker rates have more than doubled in recent weeks to a 30-year high. Rates on the largest ships, like those traveling between the Persian Gulf and Japan, averaged $35,000 a day from 1995 to 2004 but have increased to as much as $135,000 a day recently, according to Mr. Goetz. On a 40-day voyage, the difference adds up to $4 million for a single trip. 'It's a good business to be in,' said Tor Olav Troim, the vice president of Frontline, the world's largest tanker owner. 'All the ships are being used today. In this market, we're making $5 million every day of net profit, even on Sundays.' With the war in Iraq and the threat of strikes in oil-producing countries like Venezuela and Nigeria, oil markets have been on edge for the last two years. As OPEC countries like Saudi Arabia pump all the oil they can, traders are worried that the world may not be able to handle a sudden interruption in supplies. These fears have added as much as $15 to the price of a barrel, analysts said. Erik Kreil, an analyst with the Energy Information Administration, a unit of the Energy Department, suggests oil prices are also high because the basic infrastructure of oil supply simply cannot meet this year's unexpectedly sharp growth in demand. 'It's not fear that's driving prices,'' Mr. Kreil said. 'It's the market fundamentals that everyone overlooked.' The tanker shortfall is just one of the pressures facing oil markets - a tightness that runs throughout the oil production chain, from fewer oil discoveries to a lack of refineries capable of handling the lower quality crude oil that is typical of most of the world's additional output these days.

Subject: Re: Not an Oil Tanker to Spare From: Auros To: Emma Date Posted: Wed, Oct 20, 2004 at 14:49:02 (EDT) Email Address: rmharman@auros.org Message: Funny, this is one of those obscure issues that made it onto the show 'The West Wing' years before it hit the mainstream news. I think it was discussed in the second season. Because new tankers are so expensive, companies have kept putting off buying them, letting their current fleet become ever more decrepit, using liability shields and third parties to buy used ones, using flags of convenience for those ships that could no longer be rammed through US inspections through chicanery or corruption...

Subject: 'No Problemo' - Alan Greenspan From: Pete Weis To: All Date Posted: Wed, Oct 20, 2004 at 10:23:15 (EDT) Email Address: Not Provided Message: From TheStreet.com: Greenspan Whistling Past Any Worries By Aaron Pressman Senior Market Columnist 10/20/2004 7:12 AM EDT URL: http://www.thestreet.com/comment/aaronpressman/10188920.html Federal Reserve Chairman Alan Greenspan was back on the lecture circuit Tuesday to talk about consumer debt and the housing market. Similar to his talk last Friday downplaying the impact of high oil prices, the chairman gave a relatively rosy view of real estate. Taken together, the two speeches ought to dissuade anyone from thinking that the Fed is about to pause in its 'measured' campaign to hike interest rates. 'Measures of household financial stress do not, at least to date, appear overly worrisome,' Greenspan said. Significant declines in home prices or consumer incomes 'appear unlikely in the quarters immediately ahead,' he added. The 'at least to date' and 'immediately ahead' qualifiers were reminiscent of his comment Friday that the near doubling of oil prices wouldn't seriously hurt the economy unless crude went 'materially higher.' Futures markets have gotten the message and signaled an increasing chance of a December hike over the past three days; a November hike has long been forecast. Lower Viscosity on Bond Yields The yield on longer-term bonds hasn't risen appreciably despite the futures market's concerns about more tightening. To some degree, that reflects bond investors' disagreement with Greenspan over oil. Low bond yields are a sign that oil will significantly slow the economy; they could also reflect fears that the Fed is going to raise rates too much, a move that would slow the economy. Arguments in favor of a pause in tightening have centered on the possibilities that high oil prices would slow the economy or even spark a recession. J.P. Morgan Chase cut its forecast for global growth on Monday, citing the impact of oil, and a couple of Morgan Stanley's top analysts are mentioning the R-word because of the continuing crude shock. The Fed has also highlighted the importance of the housing market and its positive impact on consumer sentiment and spending over the past few years. In the most recently released minutes of the Fed's August Open Market Committee meeting, strength in housing was cited as a key factor in the assessment that the economy was only in a temporary soft patch. The two recent speeches suggest Greenspan isn't worried about either factor in the near term. And that's the key for investors: Don't expect a pause in tightening for the quarters immediately ahead. While some analysts are concerned that consumers have run up almost $500 billion in home-equity lines of credit in order to keep buying more DVD players and high-definition television sets, Greenspan took the opposite view. A surge in cash-out mortgages, in which consumers borrowed more against the increased value of their homes, 'likely improved rather than worsened the financial condition of the average homeowner,' he said. According to Greenspan, the money was used to pay off credit card debt or make purchases that otherwise would have gone on credit cards. But this fuel for consumer spending is on the wane. Even as mortgage rates remain at historically low levels, applications for home-equity loans declined 14% last week. You Give Bad Debt a Good Name Moreover, the Fed's own data belie Greenspan's contention that consumers responsibly paid down 'bad' credit card debt with 'good' mortgage debt. Total revolving credit (such as credit cards) debt owed by consumers is 11% higher now than it was at the end of 2000, and fixed-payment, non-mortgage, debtlike auto loans have increased 26%. The $2.04 trillion owed by consumers excluding mortgage debt at the end of July was the most ever and double the debt load of 10 years ago. And while most mortgages still carry fixed interest rates, most credit cards adjust quickly when rates rise. Greenspan conceded that it was possible that the cooling of the super-hot housing market could hurt consumers. Such fears 'cannot be readily dismissed' he said, before dismissing them. No Housing Bubble Here Recall that the price of the median home in the U.S. adjusted for inflation has risen at the highest rate over the past 10 years since 1980 and substantially faster than income. Consumer debt levels are at an all-time high, as are personal bankruptcy filings. Home inventories are also at high levels; this is being obscured by the rapid rate of turnover in real estate. At the current pace of sales, nearly one in 10 homes in the U.S. will be sold this year, the highest turnover ratio ever, according to Morgan Stanley. The turnover is fueled by rapid price gains. If and when price appreciation slows, so will sales, and the huge inventory overhang will crunch prices in major markets. Greenspan attacked that argument by knocking over a straw man. 'Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity,' he said. That's going to be cold comfort to the millions of homeowners who are in imbalanced markets as well as the building companies with thousands of new units in the pipeline in those markets. This has already hit in Las Vegas, where homebuilder Pulte (PHM:NYSE) acknowledged earlier this month that it was dealing with 25% price reductions and massive cancellation rates. Pulte, M/I Homes (MHO:NYSE) , William Lyon (WLS:NYSE) and MDC Holdings (MDC:NYSE) have reported increased cancellations and dramatically fewer new orders in the hottest markets. In addition to Las Vegas, newspapers in Dallas, New York, San Diego and Los Angeles have reported on slowing sales, falling prices and growing inventories. Tuesday also brought a surprisingly steep 6% drop in housing starts. The decline occurred in all regions of the country and wasn't hurricane-related. Pierre Ellis, an economist at Decision Economics, wrote that the decline ought to be a warning to the Fed that the 'underlying firmness of the consumer may be melting away, and with no conspicuous pickup in business-side spending.' A Hint of Inflation On the other side, though, another piece of data feeding the Fed's hikes arrived Tuesday on the inflation front. The consumer price index minus its volatile food and energy components -- so called core inflation -- ticked up a larger-than-expected 0.3% in September. Signs of inflation were also evident in earnings reports from companies that have been hit by the huge run-up in materials costs. Stanley Works (SWK:NYSE) said it had tempered cost increases with higher pricing, as did Corn Products International (CPO:NYSE) and Kraft Foods (KFT:NYSE) . Parker Hannifin (PH:NYSE) CEO Don Washkewicz said his main worries about the aerospace market are 'inflationary pressures from oil and raw material shortages and the prospects for higher interest rates.' At this point, expect Greenspan to deliver the latter.

Subject: Interest Rates From: Terri To: Pete Weis Date Posted: Wed, Oct 20, 2004 at 12:51:09 (EDT) Email Address: Not Provided Message: What is most immediately interesting is the 4% yield on the 10 year Treasury Note. Bond holders do not seem the least worried about a possible inflation pick up, but rather seem to think the economy will grow at a moderate to slow pace for quite a while. The Federal Reserve will continue to gently raise short term rates, while long term rates stay low.

Subject: Re: Interest Rates From: Pete Weis To: Terri Date Posted: Wed, Oct 20, 2004 at 14:58:00 (EDT) Email Address: Not Provided Message: Terri. The 10 year bond falling below 4% would signify that our economy is in real trouble.

Subject: Re: Interest Rates From: Terri To: Pete Weis Date Posted: Wed, Oct 20, 2004 at 16:13:35 (EDT) Email Address: Not Provided Message: The economy should be growing faster to generate more job creation. Job creation is a problem, and wage and benefit growth is a problem. Still, there is reasonable growth that will likely continue. The Federal Reserve can always reverse policy again, if necessary to further stimulate the economy.

Subject: The now famous 'soft patch' From: Pete Weis To: All Date Posted: Wed, Oct 20, 2004 at 10:15:01 (EDT) Email Address: Not Provided Message: 10 year bond teetering at 4% - 10:00 AM EST Reuters Dollar Broadly Weak on Econ Worries Wednesday October 20, 6:04 am ET By Burton Frierson LONDON (Reuters) - The dollar fell to a 7-1/2 month low against the euro on Wednesday and a three-month trough on the Swiss franc as a selloff on the back of recent worries about the U.S. economy and interest rate outlook gained momentum. The yen came under pressure briefly as Tokyo stocks fell 1.65 percent. But given the export-oriented economy's reliance on oil, a recent retreat in oil prices underpinned the currency near this week's three-month high on the dollar. The dollar extended losses to $1.2592 per euro, within four cents of a record low set in February, as recent disappointing economic data cast doubts on the pace of future interest rate hikes and capital flows figures revived worries about the U.S. current account deficit. 'The momentum is firmly against the dollar at the moment. People aren't as positive about the prospects for the U.S. economy as they had been a few months ago,' said Chris Gothard, currency analyst at Brown Brothers Harriman. 'The soft patch seems to have been slightly longer and softer than people expected and the funding of the deficits is also coming back as an issue, particularly when you see evidence that global investors aren't buying as many U.S assets as they had been before.' Meanwhile, sterling hit a 9-month low of 69.61 pence per euro after the Bank of England Monetary Policy Committee minutes showed the central bank unanimous in this month's decision to hold interest rates unchanged. The dollar fell to 1.2215 Swiss francs, while it also hit a three-month low of 108.13 yen. EYES ON EYES The euro's latest move helped erase the last of its previous year-to-date loss against the dollar. Dealers wondered if the European Central Bank might be more relaxed about currency strength now than at the start of the year since high energy costs have added to inflation worries and economic growth seems to have taken firmer root. 'When the euro was above $1.29 in January, ECB president (Jean-Claude) Trichet said the move was brutal. This time, ECB officials are actually welcoming the euro's rise because of a dampening effect on inflation from high oil prices,' said Mansoor Mohi-Uddin, chief currency strategist at UBS. 'The euro zone's economy is a lot stronger so they are likely to take a more sanguine, tolerant attitude.' Tokyo stocks fell to a three-week closing low due to concern over slowing demand from China and worries over earnings prospects. This followed a drop on Wall Street on Tuesday, with U.S. stock futures pointing to a slightly softer start later. Oil prices traded firmer above $53 a barrel, although still down from the record high of $55.33 set on Monday. 'The general backdrop is there's concern the cyclical environment in the U.S. is weakening when the current account deficit is worsening,' said Steven Pearson, chief currency strategist at Halifax Bank of Scotland Treasury Services. 'The Nikkei's fall was related to a fall in global equity markets. I expect a further correction in oil prices and that should fuel outperformance of the yen.' BETTER JAPAN OUTLOOK? Some traders said the yen got a lift in New York on a Nihon Keizai newspaper report that the Bank of Japan was expected to project higher consumer prices for the first time in eight years when it releases an economic outlook for 2005/06 this month. The central bank has said it will not raise interest rates until year-on-year changes in the nationwide core consumer price index rise above zero percent. Yen bulls say a rise in Japanese interest rates would benefit the yen as foreign investors would be attracted to the increased return on Japanese assets, and also take it as a sign that the domestic economy was on a firm footing. But BOJ governor Toshihiko Fukui reiterated on Wednesday the central bank would maintain its ultra-loose monetary policy for a while, even though the economy was likely to show more balanced growth next year. He added higher oil prices required careful monitoring.

Subject: Re: The now famous 'soft patch' From: Terri To: Pete Weis Date Posted: Wed, Oct 20, 2004 at 20:03:57 (EDT) Email Address: Not Provided Message: Winter in coming, and oil is above 50 dollars a barrel.

Subject: Still cook'n the books From: Pete Weis To: All Date Posted: Tues, Oct 19, 2004 at 21:41:30 (EDT) Email Address: Not Provided Message: From Fannie-Mae to Intel to ..... Contrarian Chronicles Intel: All risk, no reward By Bill Fleckenstein If you look closely at Intel’s earnings release, you have to conclude the chip giant is really stuck. It has too much capacity. All cutting production or prices will do is wipe out profits. By Bill Fleckenstein A triumph of obfuscation over fact. That's my description of Intel's third-quarter earnings release from last Tuesday. Here's a fact: Intel (INTC, news, msgs) now battles a three-headed monster -- overcapacity, stagnant demand and a better 64-bit 'mousetrap' made by Advanced Micro Devices (AMD, news, msgs). Intel 101 It's worth spending a lot of time on Intel, as I think there are many lessons to glean from it. (For review, see the July 19 Contrarian: 'Intel's twin woes: excess capacity, slack demand.') I've long maintained that Intel and IBM (IBM, news, msgs) are classic examples of mismanaging your business in the long run to maximize your stock options in the short run. (And there are many others.) In my opinion, many tech companies are not in whatever business they claim to be in. They're really in the business of producing a rising stock price -- with the underlying business merely a sidelight. Stock options: Keep back 200 feet As circumstantial evidence to try to prove my case that it's all about stock options, please note that Intel crowed that it used $2.5 billion to buy another 106 million shares. And of course, it has led the disingenuous fight about the impossibility of calculating what options are really worth. I find it more than slightly ironic that this maker of the engine of the machine on which you are reading this article claims to be unable to value stock options. And, as you will see in a minute, Intel claims to be unable to add up a handful of different items included in its inventory charges. Intel's fundamental problem is that it has tried to spend its way through a downturn that's really a saturation problem. Folks don't need more PCs, and they don't need faster processors. Yet, Intel needs, above all else, to charge high prices for its products. That, of course, is not exactly a good way to stimulate demand in a market that's saturated. Meanwhile, as Intel has tried to spend its way out of capacity -- and spent gobs of time cheerleading/defending its stock price -- AMD has produced a superior mousetrap and is now busily taking market share. Make that idea pay. Win $25,000 and change the world. To summarize: Intel's fundamental problem is that it has put up too much capacity and is creating more product every day than it can sell. In fact, you will see that if Intel were to bring capacity in line with demand, it would likely make no money. What's in the write-down? Now let's turn to what happened on Intel's call last Tuesday night. Most people expected Intel's inventories to go up, as did I. There was a cry of relief amongst the bullish contingent that inventories actually dropped $43 million on a base of $3.2 billion. However, Intel took an inventory write-down and a reserve for inventory. Inexplicably, the company would not divulge the total amount of those adjustments. Though pestered about this a couple times on the call, they absolutely refused to give a number and used a whole bunch of weasel words about why: Question: 'Could you please give some quantification of what the reserve was in dollars in Q3?' Answer: 'I (Chief Financial Officer Andy Bryant) won't answer your question specifically. I'll try to give you a little better feel.' Then Bryant goes on to spew a whole bunch of nonsense, such that the questioner comes back with: 'You lost me with the reserve.' Answer: 'There are three buckets of reserves. Some are OK reserves, some are bad reserves.' (He never mentions the third reserve.) Question: 'So what was the magnitude of the reserve?' Answer: 'I didn't give you the specific.' Then, near the end of the conference call, the question came up again: Question: 'Can't we just get an overall inventory-hit number out of you guys?' Answer: 'Not this time. If it were one big item, I would. But . . . I've got a series of five to seven, eight to 22 million-dollar things. So it's very difficult to cull them out, because there's not a single thing that's important enough to be culled out.' Of course, what the questioner wanted to know was the total magnitude of the inventory adjustments, but Andy Bryant went into his comments about the specifics so as not to answer the question. Bottom line: He refused to tell everyone how big of an adjustment Intel took this quarter. (Editor’s note: Listen to Intel’s conference call.) Inventory . . . the envelope, please However, it is possible to deduce approximately what the size of that charge was, and here, I am indebted to my friend Fred Hickey, editor of the High-Tech Strategist newsletter. He pointed out that, for at least the last four quarters, Intel's cost-of-goods-sold has ranged from about $3.185 billion to $3.275 billion. In other words, $3.2 billion has been a good running average for their cost-of-goods-sold. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Related Intel news and commentary • Intel's twin woes: excess capacity, slack demand • What Intel’s 5 big problems mean for tech • Under tech’s hood, things don’t look so good • Listen to Intel’s Q3 earnings conference call • Read the most recent news in Market Dispatch --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- I need to make an oversimplified point here: Intel has a high-fixed-cost business. It put sand in the front end and out came high-margin chips on the back end. The cost of doing business stays pretty much the same, pretty much no matter what its volumes are. Its margins move up and down with its revenues. It's an important point to understand. In any case, last Tuesday night, we saw that its cost-of-goods-sold jumped to $3.752 billion, which was up $483 million from the prior quarter and $477 million from a year ago. Some of that increase may be a legitimate uptick in cost-of-goods-sold. However, the majority of that number is likely to be the approximate size of the inventory adjustment, both write-off and reserve, that Intel took. This is roughly greater than 10 times the size of the decline in inventories. Even though without a breakdown between the size of the write-off and the reserve, we can't know for certain what happened, it would be almost impossible for the units in inventory not to have risen. And, if you go back and look at the last time Intel had to finally start biting the bullet on an inventory problem (in the third quarter of 2001), you will see that its cost-of-goods-sold popped up to about $3.6 billion. But back then, its inventory declined from $2.8 billion to $2.35 billion, i.e., a drop of about $450 million, as that inventory got flushed through the cost-of-goods-sold. Currently, inventory is still $3.2 billion. Cat got a chip's tongue Though CFO Andy Bryant was totally evasive about the size of this write-off, he did crow that the company had whittled inventory down by $43 million. At that rate, it would take about 80 quarters or 20 years to get rid of it all. They obviously can't wait that long, but the point survives that the 'progress' Intel made is pathetic, especially given the size of the adjustments it didn't want to disclose. So, where does that leave Intel, and why does all this matter so much? As I started out saying, its fundamental problem is that it has too much capacity. How much, we can't say for sure, but we can make a stab at it. In the last four quarters, it has built up nearly one-quarter's worth of inventory. Again, even though the inventory on the books is only $3.2 billion, since its gross margins are 50%-plus, it works out to be about $7 billion worth of inventory, or roughly a quarter's worth of revenues. (Once again, I am oversimplifying this, because not all of Intel's inventory is processors. But for the purpose of illuminating the example so that everyone can follow it, I have to make some broad assumptions.) No pent-up demand for Pentium 4 Intel now has a quarter's worth of revenues in inventory, up $1 billion, or 50%, over the last five quarters. Well, what would its profits look like if it cut its output by, say, 25% to bring supply and demand in line? Virtually nothing would happen to expenses. But 25%, or about $2 billion, would be cut from revenues, which would simultaneously shrink profit by $2 billion, as well. Given that Intel's pretax operating profit is only $2.3 billion, you can quickly see how fast its earnings would evaporate. That’s why it is so reluctant to cut capacity. High-fixed-cost businesses are wonderful once you can produce above the break-even level, because the revenues from the incremental products all fall to the bottom line. But leverage cuts both ways, and profitability can reverse rather quickly. Intel would face a similar problem if the company decided to try to cut price rather than capacity. Obviously, its cost-of-goods-sold wouldn't change much, but its revenues would shrink, and it would have the same problem I just outlined. For Intel to move inventory, it is going to have the problem of trampling prices in the market. If it was forced to try and sell all of the extra quarter's worth of inventory on the books in one quarter (which it wouldn't), your guess is as good as mine as to what price it might receive in an attempt to sell everything. If Intel was able to sell it at, say, 60 cents on the dollar, then its income statement would look something like this: $3.2 billion for the cost-of-goods-sold for what was made this quarter and $3.2 billion for the cost-of-goods-sold for what was in inventory. That's about $6.4 billion for the cost-of-goods-sold. The $7-$8 billion of revenues that the inventory grossed up to, plus a similar amount that the quarter it was in grossed up to, equals $14-$15 billion. The latter multiplied times 0.6 is $8.4-$9 billion. Subtracting the combined cost-of-goods-sold of $6.4 billion, plus their operating expenses of $2.3 billion, once again leads to almost no profit margin. (Again, I am being overly simplistic to illustrate the point.) Hiding in plain sight What I find staggering is that Intel thinks it can get away with this stonewalling, even though the problem is hiding in plain sight. Intel has engineered itself into a giant predicament, but Intel is not alone in this. Many companies in chip land (and their predicament obviously affects the chip-equipment companies), as well as other industries, have built up too much capacity. However, due to their reluctance to admit to that, they resort to all kinds of games. In the long term, this inability to face up to their mistakes will only put them into a worse position. Hopefully, this discussion makes it clear why you would not want to pay 4.2 times sales for Intel now that the company’s revenues have been stagnant for more than four years, compared to the approximately 2 times sales it traded for from 1988 to 1994. That was when Intel was still growing rapidly and had the bulk of the PC boom still in front of it. Intel today is a textbook example of all risk and no reward. Bill Fleckenstein is president of Fleckenstein Capital

Subject: Re: Still cook'n the books From: jimsum To: Pete Weis Date Posted: Wed, Oct 20, 2004 at 09:49:06 (EDT) Email Address: jim.summers@rogers.com Message: The article is probably overstating the effects of competition from AMD. The capacity issue cuts both ways; AMD doesn't have enough capacity to grab more than a fraction (say 25-35%) of the processor market. No matter how much better AMD might be; most computer buyers will have to buy Intel, at least until AMD increases production capacity. Now from an economic point of view, the best use of resources would be for Intel to sell its excess manufacturing plants to AMD; but that's not likely to happen :-) Since chip making plants cost multiple billions of dollars, it is pretty wasteful for companies like AMD and Intel to overbuild and then shut down plants as their sales rise and fall. This is likely the reason that the majority of chip companies are now 'fabless' and contract out their chip making. At least as the companies trade off who has the best chip designs, the manufacturing plants can be reused.

Subject: Re: Still cook'n the books From: Pete Weis To: jimsum Date Posted: Wed, Oct 20, 2004 at 10:08:15 (EDT) Email Address: Not Provided Message: All of what you say is probably true. The point of the article which got my attention was the the obvious attempt by Intel's CFO to obscure and hide information. I've read many articles detailing how many companies continue to fail to add many expenses into their earnings reports. As the author of this article states - corporate executives are more concerned about keeping the stock price up and consequently the value of their stock options, than they are about reporting honest earnings and the overall performance of their companies.

Subject: Foreign investment in US From: Pete Weis To: All Date Posted: Tues, Oct 19, 2004 at 21:30:30 (EDT) Email Address: Not Provided Message: Private Investors Abroad Cut Their Investments in the U.S. By EDUARDO PORTER Published: October 19, 2004 The flow of foreign capital contracted in August as private investors lost some of their appetite for American stocks and bonds, underscoring the United States' increasing dependence on financing from central banks in Asia. The Treasury Department reported yesterday that net monthly capital flows from the rest of the world fell for the sixth time this year, declining to $59 billion from $63 billion in July. Private investment from abroad fell by nearly half - to $37.4 billion in August from $72.9 billion the month before. Investors appear to be concerned over cooling growth and a rising American trade deficit. The only reason that the contraction was not more pronounced was that official financing, mainly from Asian central banks, jumped to nearly $23 billion in August from just over $6 billion in July. Washington has demanded that China end a policy of buying dollars to reduce the value of its currency, the yuan, and make its exports more competitive in American markets. But the new data accentuated how dependent the United States has become on purchases of dollar securities by the Chinese and other Asian governments with links to the dollar. 'Foreign central banks saved the dollar from disaster,' said Ashraf Laidi, chief currency analyst of the MG Financial Group. 'The stability of the bond market is at the mercy of Asian purchases of U.S. Treasuries.' Net foreign purchases of United States Treasury bonds fell 35 percent, to roughly $14.5 billion, an 11-month low. Foreign governments left a particularly large footprint in this market, stepping up their net purchases to about $19 billion even as private investors sold about $4.5 billion worth. Holdings of Treasury bonds by Japan, where the central bank has also been intervening to keep the value of its currency from rising, increased by $26 billion in August, to $722 billion. Chinese official holdings rose more than $5 billion, to $172 billion. The decline in foreign investment seems to have unsettled some investors in the bond and currency markets, who have been on tenterhooks as the American trade deficit has soared to nearly 6 percent of the nation's economic output, requiring foreign investment to finance it. Through the first quarter of the year, financial flows into the United States exceeded the trade deficit by well over 50 percent. Last month, they barely covered the $54.2 billion deficit. As private capital flows declined, the American financial balance has been poised precariously. As private financing dwindled, most of this coverage has been provided by foreign government finance. 'If all we have funding our current account imbalance is the good graces of foreign central banks, we are on increasingly thin ice,' said Stephen S. Roach, the chief economist at Morgan Stanley. Of Washington's call for China to stop interfering in currency markets, he cautioned, 'That could come back and bite us.' Not all economists are that worried about the growing shortfall in the current account, the broadest measure of trade, pointing out that it is sustainable as long as Asians continue on a path of export-led growth that requires cheap currencies against the dollar. Many economists stress, however, that this symbiotic balance between Asian and American economies will eventually come to an end. Jeffrey Frankel, an economics professor at Harvard University, said: 'The Asians are going to go on buying Treasury securities for a while, preventing the dollar from depreciating and helping keep U.S. interest rates low, which is a good thing. But not forever.' Morris Goldstein of the Institute for International Economics remarked, 'This can be a story for one year or two years, not for 10 years.' If the United States were to temper its appetite for foreign money, the Chinese and Japanese could curtail their purchases of American securities without causing financial havoc. The dollar could then drift lower against Asian currencies, benefiting American exporters and manufacturers that compete with Asian imports. But this would require Americans to increase their rate of savings. Household savings have plummeted to only 1.5 percent of personal income, from 11 percent 20 years ago. With the federal government running a budget deficit of 3.5 percent of the nation's output, the public sector hardly contributes to savings. A disorderly situation would occur if foreign money dried up suddenly when the United States still needed it. Then, the adjustment in American savings might happen involuntarily. Interest rates would rise sharply, and the dollar could fall abruptly. This could induce a sharp economic contraction, even stagflation. 'The longer we wait,' Mr. Goldstein said, 'the more likely we'll have the adjustment anyway. But the adjustment will be more chaotic and sharper.'

Subject: An October Surprise from China? From: Auros To: Pete Weis Date Posted: Wed, Oct 20, 2004 at 00:33:33 (EDT) Email Address: rmharman@auros.org Message: What if the Chinese gov't, deciding that they'd prefer a President Kerry, decided to start selling bonds for a few days, deflating that market and making Bush look bad? Not a really likely scenario, since it destroys the value of an asset that Chinese are heavily invested in... but still, it's sort of fun to imagine ShrubCo's stupidity finally getting driven home to people by the market.

Subject: Re: An October Surprise from China? From: El Gringo To: Auros Date Posted: Wed, Oct 20, 2004 at 02:32:11 (EDT) Email Address: nma@hotmail.com Message: 'What if the Chinese gov't...' (Auros) 'What if the Saudi Arabian gov't...'(El Gringo)

Subject: Re: An October Surprise from China? From: johnny5 To: Auros Date Posted: Wed, Oct 20, 2004 at 02:08:27 (EDT) Email Address: johnny5@yahoo.com Message: More greenspeak - my friends can keep servicing thier debt because the credit card offers keep coming and they are taking on 2cnd and 3rd jobs - and this really sucks because now they don't have time to go see a movie with me anymore or go have lunch - no time Johhny - got to pay the debt! Aren't americans some of the longest working people - some countries give you 30 day holidays - I tell my friends this - they say that is fantasyland - 6 or 7 day work weeks 12-16 hour days is all they know. They are working for an asset they are going to lose soon anyways - the treadmill they are running down is tiring them all out. http://www.forbes.com/associatedpress/feeds/ap/2004/10/19/ap1597341.html Associated Press Update 1: Greenspan: Home Prices Not Hurting Economy 10.19.2004, 10:26 AM The record level of debt being carried by American households and soaring home prices do not appear to represent serious threats to the U.S. economy, Federal Reserve Chairman Alan Greenspan said Tuesday. Greenspan said that high levels of personal bankruptcies were a concern because they indicated 'pockets of distress' among American households. But he said the vast majority of U.S. consumers 'appear able to calibrate their borrowing and spending to minimize financial difficulties.' In a speech before America's Community Bankers, the organization that represents smaller banks in the country, Greenspan sought to play down worries about the high debt levels being carried by American households as a percentage of their after-tax incomes and the steep increases in home prices in recent years. Some economists have expressed concerns that the big rise in home prices could represent a bubble that may deflate just as the stock market bubble did starting in the spring of 2000. Greenspan, however, said it was unlikely that either the high level of household debt or the big rise in housing prices represented serious threats to the economy because Americans appeared to have sufficient resources to keep meeting their loan payments. 'Short of a significant fall in overall household income or in home prices, debt servicing is unlikely to become destabilizing,' Greenspan said. Greenspan said that it would take 'a large, and historically most unusual' decline in home prices to wipe out the equity that Americans have in their homes. He said about three-fourths of all mortgages are taken out by buyers who put up a 20 percent downpayment, which would be enough to cover even a very significant drop in home prices. He also said it was more difficult to generate a nationwide housing price bubble because of different forces at play around the country, but he conceded that price bubbles could be created by conditions in local markets. 'While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity,' Greenspan said. Greenspan said he did not want to totally dismiss the threats to the U.S. economy from increased levels of consumer debt, but he said that some overall statistical measures seemed to be overstating the problem. He noted that household debt has been rising faster than incomes for at least the last 50 years as Americans have enjoyed rising levels of discretionary income, which they have used to buy more and more items on credit. Greenspan said that one factor pushing up debt levels has been the increase in the number of Americans switching from renting to owning their own homes in recent years as the housing industry has enjoyed record sales levels driven by the lowest mortgage rates in more than four decades. Overall, Greenspan said, 'Household finances appear to be in reasonably good shape.'

Subject: Re: An October Surprise from China? From: jimsum To: johnny5 Date Posted: Wed, Oct 20, 2004 at 10:07:07 (EDT) Email Address: jim.summers@rogers.com Message: Has Greenspan become a total tool for the Bush Administration? Why is he glossing over obvious points? He says it would take 'a large, and historically most unusual' decline in home prices to create problems. Well hasn't there been a 'a large, and historically most unusual' rise in home prices in recent years? Why would a large fall be so unlikely, given that a large rise has just happened? Similarly he claims; 'short of a significant fall in overall household income or in home prices, debt servicing is unlikely to become destabilizing'. Isn't he forgetting the minor fact that interest rates are near record low levels? It seems to me that an increase in interest rates might 'destabilize' the ability of consumers to service their debts; especially since debt servicing costs are already at historically high levels, despite low interest rates. Why would he overlook the most important factor in debt servicing costs; the interest rate? I've got to say that my confidence that Fed is independent has just received another blow.

Subject: Re: An October Surprise from China? From: Auros To: jimsum Date Posted: Wed, Oct 20, 2004 at 14:43:49 (EDT) Email Address: rmharman@auros.org Message: Similarly he claims; 'short of a significant fall in overall household income or in home prices, debt servicing is unlikely to become destabilizing'. Isn't he forgetting the minor fact that interest rates are near record low levels? --- Also, as has been mentioned numerous times over the course of the campaign, household income has declined -- median income is down, the poverty rate is way up, and the average income of the jobs created over the last years is about $9k lower than the average income of the jobs created in the previous four years. And I'm not even sure whether that last adjusts for inflation -- if not, it's even worse than it sounds.

Subject: The Dollar From: Terri To: All Date Posted: Tues, Oct 19, 2004 at 16:29:56 (EDT) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Stephen Roach is suggesting that China and India may be inclined to take a broader approach to using foreign currency reserves than just storing dollars to maintain American consumption of Asian exports. If that is so, the doolar could soon be under considerable pressure.

Subject: Re: The Dollar From: El Gringo To: Terri Date Posted: Tues, Oct 19, 2004 at 16:59:04 (EDT) Email Address: nma@hotmail.com Message: They buy petrol, no prob (well, except higher prices). But who is getting the money?

Subject: Re: The Dollar From: Terri To: El Gringo Date Posted: Tues, Oct 19, 2004 at 17:19:46 (EDT) Email Address: Not Provided Message: India and China are beginning to use the foreign exchange reserves for India's domestic infrastructure development and to inject reserves to the Chinese banking system. The argument is that this lessens the Asian central bank comittment to carrying dollar reserves to bolster Asian exports. Now, a portion of foreign exchange reserves is to be used for domestic development. This may mean a lead to a more diverse holding of foreign currencies.

Subject: Re: The Dollar From: Auros To: Terri Date Posted: Wed, Oct 20, 2004 at 00:29:31 (EDT) Email Address: rmharman@auros.org Message: Doesn't this also mean they're at risk of a budget meltdown, if those infrastructure investments don't pay off as much as they're expecting?

Subject: Re: The Dollar From: Terri To: Auros Date Posted: Wed, Oct 20, 2004 at 10:32:13 (EDT) Email Address: Not Provided Message: There will be no budget meltdowns in China or India. The infrastructure investments are paying off, and China in particular is running an adept set of development policies. Infrastructure investments are just what are needed by both countries. There will be cyclical swings, and challenges for both governments, but the growth paths of these countries seem secure beyond temporary problems.

Subject: Asia and the Dollar From: Terri To: Terri Date Posted: Tues, Oct 19, 2004 at 16:32:59 (EDT) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Asia’s Own Agenda Stephen Roach (New York) I spend a lot of my time these days in Asia. I am currently between trips to the Far East — having just returned from Hong Kong and India a couple of weeks ago and getting ready to go back out to Singapore, Japan, and China in early November. My fixation on Asia reflects my view that this region is now where the action is. Most things we buy these days are made in Asia. Most of the incremental funding of the West’s excess spending is also provided by Asia. Yet signs are increasingly evident that this symbiotic relationship could be changing. Asia is now paying greater attention to its own agenda — a refocusing that could have profound implications for the global economy. A story in the weekend Financial Times (October 16/17, 2004) contained a fascinating glimpse of this shift in Asian thinking. The headline said it all: “India to dip into forex reserves for domestic infrastructure upgrades.” As I noted recently, India’s infrastructure gap is staggering — it represents a very serious constraint on any manufacturing-led development strategy. The new Indian government is under intense pressure to follow the lead of China in modernizing its antiquated infrastructure of roads, port facilities, and power distribution. But unlike China, which is awash in domestic saving to fund such efforts, India faces the serious twin constraints of a private saving deficiency and a budget deficit problem. So it has turned to some creative financing in order to meet this urgent need: According to the FT story, India has elected to put some $10-15 billion of its nearly $120 billion in foreign exchange reserves to work in funding this effort. India is not alone in following this approach. At the start of this year, China led the way in deploying some of its foreign exchange reserves for domestic purposes — in this instance, injecting $45 billion of capital into two of its largest policy banks, the Bank of China and the China Construction Bank.

Subject: Insurance Costs From: Emma To: All Date Posted: Tues, Oct 19, 2004 at 15:33:06 (EDT) Email Address: Not Provided Message: http://www.nytimes.com/2004/10/19/business/19insure.html Insurance Investigation Widens to Include Costs By JOSEPH B. TREASTER An investigation into the insurance business is expanding, investigators said yesterday, as Eliot Spitzer, the New York attorney general, increasingly turns his attention to whether American corporations and their employees are paying more for life, disability and accident insurance than they should be. In California, John Garamendi, the state insurance commissioner, said last night that he, too, was concerned about extra costs to individuals for life, disability and accident insurance and that he was considering legal action against at least one broker and several insurance companies that sell what are known as employee benefits. While the current focus of the New York investigation is on bid-rigging and price-fixing among commercial insurance brokers and insurance companies, investigators say Mr. Spitzer is also pursuing reports of payoffs that may increase coverage costs for tens of millions of individuals. 'Eliot Spitzer's interest is in the retail stuff, the effect on regular people,'' said David D. Brown IV, the chief of the state attorney's investment protection bureau. 'Our investigation is broadening and deepening,'' Mr. Brown said. 'We are going to look across product lines, across insurers and across brokers, the big and the little.' The insurance controversy became public last week, when Mr. Spitzer sued Marsh & McLennan, the world's biggest commercial insurance broker, accusing the broker of rigging bids from insurance companies and fixing prices for corporate customers in exchange for fees from the insurance companies. Three insurance companies have entered guilty pleas to rigging bids, and more criminal charges are expected, perhaps as early as this week. Such bid-rigging schemes, investigators contend, have indirectly increased the costs of everything from houses to toothpaste as corporations pass along the expense. The bid rigging was discovered, Mr. Spitzer said last week, during an investigation into incentive fees insurers pay to insurance brokers. But there are other potential conflicts of interest in insurance that may have a more direct impact on consumers. Investigators in New York and California are now examining whether brokers and consultants are demanding extra fees for favored treatment in the sale of employee benefits like group life and disability coverage. Like the investigation into commercial insurance brokers, this inquiry began when Mr. Spitzer's office received a tip. In this case, an industry executive, upset by deals involving brokers and employee benefits insurers, telephoned the attorney general.

Subject: A modest proposal. From: Auros To: All Date Posted: Tues, Oct 19, 2004 at 14:37:30 (EDT) Email Address: rmharman@auros.org Message: So, I've been stewing over this idea for quite some time, and I was hoping one of the people with serious Econ background around here might be able to provide constructive criticism. Basically, the CA budget process is, as Warren Buffet noted during the recall campaign, hobbled by Proposition 13's limits on property taxes. How about we abolish them entirely, and start over? Seriously: Phase out property taxes by either not levying them on properties purchased after the new system goes into effect, or levying them at a lower rate, falling over five years or so. This would render Prop 13 mostly irrelevant. To replace that revenue, we have a two-pronged approach: First, we either institute immediately, or phase in (if the old system is phasing out), a system in which we record the valuation of the property when purchased, and then levy a capital-gains style tax when it's sold, with a five-year hold period for the difference between a short-term and long-term gain, to discourage speculation. Second, we'd put in place a system of flat land-taxes, based on zoning. You'd pay a yearly fee for your acreage -- something considerably lower than current property taxes -- and would thus have an incentive to get the most out of it. We might consider making housing (esp low-income zoned housing) free. Additionally, we could have 'green' areas, which would provide a tax _credit_ against land taxes, if inspectors determined that they were being well-maintained and kept available for public use. This would allow businesses to opt to, in effect, maintain the local parks rather than paying the land tax. The other thing I'd love to do is abolish our 8.5% sales tax (because it's quite obviously regressive; it's also, if I'm not mistaken, the highest in the US; and of course, it's a disincentive to that engine of growth, consumer spending) and replace the revenue by simply hiking the regular income tax (in a mostly-flat manner; it's already progressive, and we're eliminating a regressive tax, so we don't need to go any further trying to progressive-ize). Comments? Criticisms? Clearly these ideas would never make it through CA's budget process, since it's also hobbled by its two-thirds super-majority requirement, and the right-wingers have been able to just barely hold onto enough seats to obstruct anything that would make our taxes less regressive. But, hey, at least I have suggestions. Comments and constructive criticisms are welcome.

Subject: Re: A modest proposal. From: Auros To: Auros Date Posted: Tues, Oct 19, 2004 at 14:41:31 (EDT) Email Address: rmharman@auros.org Message: Oh, whoops, apparently they did at some point lower or sales tax to 7.25%. But that doesn't necessarily include all local sales taxes, and it's still the highest in the US. :-P

Subject: Re: A modest proposal. From: Emma To: Auros Date Posted: Tues, Oct 19, 2004 at 14:57:18 (EDT) Email Address: Not Provided Message: These tax reform suggstions are interesting, and on the surface may seem attractive, but they can only be mere suggesting to examine. Each change in tax codes changes the well being of large number of companies and households, so each change is fought over and bargained for. Radical changes in tax code however which involve slashing a tax and adding another in place are almost impossible to accomplish on a state level, and impossible federally.

Subject: Re: A modest proposal. From: johnny5 To: Emma Date Posted: Tues, Oct 19, 2004 at 18:31:02 (EDT) Email Address: johnny5@yahoo.com Message: This is the old theory of the Georgists - go study what happened a few generations ago in france when the political powers there tried some of those theories and the failures they brought - the french doctors were the wellspring and birthplace of many of henry george's ideas. Out of the 190 nations or so how many have this at the national level - probably a good reason why - small usufruct societies with agricultural villages work well with certain economic systems - but large societies such as our own don't lend themselves so well to such ideas.

Subject: Johnny: Could you elaborate? From: Auros To: johnny5 Date Posted: Wed, Oct 20, 2004 at 00:26:15 (EDT) Email Address: rmharman@auros.org Message: I'm not even entirely sure what you were replying to...

Subject: Re: Johnny: Could you elaborate? From: johnny5 To: Auros Date Posted: Wed, Oct 20, 2004 at 01:57:54 (EDT) Email Address: johnny5@yahoo.com Message: Google for henry george and LVT and french physiocrats - read about the history of the ideas - how some were tried in france and other places - there are already a few communities in america where it is practiced - a place called Arden I believe, here is a weblink that may be impartial where scotland is considering some things: http://216.239.41.104/search?q=cache:lDGdZ1nckL8J:www.scdi.org.uk/file.php?id=1831 lvt history&hl=en Creating and maintaining a land value registry. Establishing and maintaining a list of land values with the required accuracy and integrity would be a costly bureaucratic process. However, the Land Register of Scotland already provides a framework for collating much of the required data and supporters of land tax point to the democratic value of having a full and clear register of the ownership and value of land. I live in Florida AUros - and even after these hurricanes - local tax boards are jacking worthless swampland up to unheard property values to keep the b'crats with jobs and nice trips in the summer planning getaways - that has to be changed - google about usufruct societies and how economics work on TRUST and FAMILY in those places - something that can't work in a society the size of ours. Charles de Calonne - Appointed comptroller-general after Necker was forced out of office, he proposed a daring plan to shift the French tax burden from the poor to the wealthy nobles and businessmen; he wanted a tax on land proportional to land values, suggested lessening the taxes on peasants, and offered the sale of Church lands as means for acquiring revenues; the nobility refused to pay the taxes. http://www.cooperativeindividualism.org/clancy_resurgence_of_henry_george.html After all, this has happened before. The land-value tax movement in Britain reached a crest and then was swept aside in the catastrophe of 1914-1918. In Russia, the movement was strong and getting stronger, and then was destroyed in the Bolshevik holocaust. Going farther back, the Physiocrats had attained a very high influence, but could not stem the French Revolution. And in the remote past, we may even read the same lesson in the attempted land reform of the Gracchi, the one thing that could have saved the Roman Republic was swept aside, leading to chaos and despotism. The roman empire fell because of excessive government - LVT may have saved it - some claim it would - I don't think so - the devil is in the details www.cato.org/pubs/journal/cjv14n2-7.html We have to choke off the b'crats and thier control and costs to really save the empire - what is the b'crat to citizen ratio of america today compared to the 50's?

Subject: I think you misunderstand my proposal From: Auros To: johnny5 Date Posted: Wed, Oct 20, 2004 at 14:39:46 (EDT) Email Address: rmharman@auros.org Message: The whole point of my idea is that we would no longer try to keep track of the current value of a piece of land -- that's what we do currently, with property taxes, y'know? The idea is, we would record what the property actually sold for, and then the next time it was sold, we'd compare that to the previous value, and regard the difference as a capital gain or loss (with the short/long-term decision based on either a five-year straight cut-off, or maybe a maturation process where for the first-year it's all short, and then a linear maturation for four years after that). The zoning-based land tax would intentionally not take into account what was on the land, only how it was zoned -- commercial, industrial, housing, green. And the intention is for that to be kept fairly low, with a credit for owning and maintaining green space (like swamps).

Subject: Re: I think you misunderstand my proposal From: johnny5 To: Auros Date Posted: Wed, Oct 20, 2004 at 15:24:19 (EDT) Email Address: johnny5@yahoo.com Message: I bought a house in west palm beach near the donalds country club in the 60's for about 20K, it is worth over 300K now and taxed at that rate but I have never sold it - under your system it would still be taxed at only 20K - I like you already *evil grin

Subject: Re: Message Board Cleaning From: johnny5 To: Bobby Date Posted: Tues, Oct 19, 2004 at 18:16:09 (EDT) Email Address: johnny5@yahoo.com Message: Yesterday I could put in URL's - today I no longer see where to put in the links - why the change sysadmin?