Subject: Big Apple by the Pound From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 21:54:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/nyregion/28tourism.html?8hpib=&pagewanted=all&position= Big Apple by the Pound By JENNIFER STEINHAUER Sheila Riley came for Macy's, evidenced by the pile of telltale red bags piled around her feet. Russell Whitehead and Robert Archibald made the trip for 'Wicked.' Jeff Taylor wanted to propose. Seb Sims's goals were admittedly more prosaic and yet they pleased him. 'I came to New York to go shopping and get drunk,' said Mr. Sims as he headed for a southbound No. 1 to 'Greenwich.' (No, not Connecticut, but why embarrass him?) Tourists from overseas - the most coveted of visitors thanks to their long stays and habit of shopping with abandon - are returning to New York for the first time since 2001, and no place is exporting more of them to the city than Britain, whose citizens are lured by the combination of a falling dollar, low air fares and an apparently insatiable lust for sneakers on the cheap. The British pound, which fetches almost $2 these days, goes farther in New York than in London in restaurants, theaters and stores, and rock-bottom package deals from the airlines make a quick weekend jaunt across the Atlantic all the more worthwhile. Then there is the shared language, coupled with that intangible something that is portrayed in film and television that shows the allure of a New York absent career worries, apartment valuations and the incalculable misery caused by the C train. 'We have all seen Woody Allen movies and 'Sex and the City' and 'NYPD Blue,' said Frances Tuke, a spokeswoman for Association of British Travel Agents in London, which found that airline travel to New York from London rose 127 percent in November from the same month in 2003. 'So you think it is an exciting place you have to go to. We don't hear that it is particularly dirty or unsafe. They know it is a big city and it is going to be loud and noisy and that is all O.K.' The city's tourism bureau estimates that 5.3 million foreign tourists came to New York last year, far fewer than the 6.8 million who flooded the city in 2000 but up 10 percent from 2003. Initial estimates show that the number of tourists from Britain rose 12 percent in 2004 from 2003, when the group led the return of international tourism to New York with 870,000 visitors. (Canadians came in second with 690,000 and Japanese tourists were a distant third, with 292,000 visitors in 2003.) Although most foreign visitors stay longer than domestic tourists, many visitors from Britain come for short stays, taking advantage of airline and hotel packages that land them in the city for long weekends into which they pack a whirlwind tour of the key Manhattan tourist destinations, peppered with quick stops at restaurants and bars culled from guidebooks. Anthony Thomas, a scaffold worker who flew over for a long weekend with his wife, Nadine, liked McSorley's Old Ale House. 'I liked that fact that it kept to its nature and that everyone who worked there was surly,' he said. Mr. Taylor, a sergeant in the British Army, saw an image of the city on television while home in Liverpool, and decided that it was the place to propose to Heather Stokoe, a sales associate from Newcastle. 'I thought that it seemed like quite a romantic place to propose,' he said. He planned a long weekend in the city with requisite stops at Planet Hollywood, Bloomingdale's and Macy's and a ride in a horse-drawn carriage in Central Park. 'It was there I asked her to marry me,' Mr. Taylor said. 'It was quite emotional, really.' His bride-to-be was thrilled. Some random facts about British visitors, gleamed from several days of observing them: ¶They have an almost alarming interest in shoes, particularly sneakers (or, as they call them, trainers). 'I got loads of Diesel trainers,' said Mr. Whitehead, an actor from London. 'They are a quarter of the price here. I bought three pairs for $25 each.' ¶They drink such concoctions as dry vermouth with Sprite (called a martini and lemonade) and Stella Artois beer with a shot of Rose's lime juice. 'They also get really tickled about fancy cocktails,' said Sara Najjar, a bartender at the Hotel Metro, which is a veritable outpost of tourists from England and Scotland. 'I guess because they can only get beers in their pubs over there. It's just crazy!' ¶They flock to Macy's as Americans might flock to Buckingham Palace, and at the department store they sate their appetite for hats, watches, handbags and coats. The store had more than 20,000 British shoppers last year, and company officials report they take advantage of the store's 11 percent discount for international visitors more than those of any other nationality. All international tourists have their quirks, and New York City loves all of them because they tend to stay longer, spend more money at museums and the like and are more enthusiastic about visiting the broader city than American tourists, said Cristyne L. Nicholas, president of NYC & Company, the city's tourism office. 'The Japanese and Germans love jazz,' she said. 'The new MOMA opening is great for the French.' The city has also run promotions in Japan featuring Japanese players for the Mets and the Yankees and has put together packages that feature games and tours of the stadiums. 'The Chinese are coming in leaps and bounds now that more of them are getting visas,' Ms. Nicholas said, 'but they won't come to New York because we don't have casino gambling. Las Vegas gets them.' British travelers typically like cultural attractions and shopping, Ms. Nicholas said. The number of visitors at Hotel Metro from England has soared about 30 percent over the last two years, said Linda Davis, director of sales for the hotel. On Tuesday afternoon, Gerald and Moira McGinty, who live outside Glasgow, waited nervously for their son David and his friend, Liam Hanlon, to join them in the lobby for their car trip to the airport, which was arriving in minutes. Seems some last-minute (shoe) shopping was occurring on Eighth Street. Among their bags was an electric guitar, bought for $1,400 rather than £2,000 in Scotland. They had their Tiffany key rings. They had their 'Chicago' programs. And, sorry Jean-Georges, they had their memories of TGI Friday's. Mr. Taylor and Ms. Stokoe feel they saw it all, too. Central Park, Macy's, Planet Hollywood, the bar of Hotel Metro. Ground zero was 'eerie, an emptiness,' he said. 'Someone tried to sell us photographs of the planes going into the buildings. We weren't interested. We grabbed a cab to Chinatown instead.'

Subject: Wages and Inflation From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 20:12:40 (EST) Email Address: Not Provided Message: Recently nominal wages have been lagging inflation, but real wages have lagged productivity increases. If my memory is correct earnings as a sahre of GDP are at historic highs in America. Also, I thought I read this was true for western Europe as well. Please tell me if I am correct about Europe.

Subject: Paul Krugman's Column Note From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 17:05:22 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000238.html#comments People: read this: http://www.cbpp.org/10-5-98socsec.htm It includes the SSA memo on Heritage. You'll see why I was justified in using life expectancy at 65 as shorthand; if I had 2500 words, and if I thought NYT readers had the patience, I would have laid out the full argument.

Subject: Chilean Stocks With Private Pensions From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 15:32:39 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html Morgan Stanley's Latin America and Chilean Stock Index data begins December 31, 1987. We have a 17 year view. The Chilean Index has trailed the Latin America Index since 1987. The Latin America Stock Index was at 100 on December 31, 1987 and was at 2,561.37 on December 31, 2004. So, 17 years to go from 100 to 2,561.37. This return is in dollars and includes all dividends. The Chilean Stock Index was at 100 on December 31, 1987 and was at 2,179.72 on December 31, 2004. So, 17 years to go from 100 to 2,179.72. This return is in dollars and includes all dividends.

Subject: Chilean Stocks With Private Pensions - 2 From: Terri To: Terri Date Posted: Fri, Jan 28, 2005 at 15:35:51 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html Interestingly, Chile's stock market has the worst 10 year performance of the 6 major Latin American economies. A poorer performance than Argentina. Only Argentina lagged Chile in 5 year performance; this during the fierce Argentine crisis. This is interesting, and should be looked to. The 10 year Chilean Index return is 3.01% a year in dollar terms. Not promising, but I have no sense why. Surely pension fund investing in Chilean stocks did not buoy the market. Surely pension fund investing in Chilean stocks did not buoy the market these last 10 years. Interesting puzzle. The Chilean Stock Index was at 100 on December 31, 1987 and was at 2,179.72 on December 31, 2004. So, 17 years to go from 100 to 2,179.72. This return is in dollars and includes all dividends. The Chilean market went from 100 to 1,000 from December 31, 1987 to 1993, and stayed at about 1,000 till 2003. Then, a move from 1,000 to 2,180 by 2005.

Subject: China's Currency Value From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 14:05:49 (EST) Email Address: Not Provided Message: Investing in China has meant technology or intellectual property transfer in addition. China does not wish to make the mistakes of other less low wage countries and allow investment that will add nothing to the country's intellectual capital. Technology transfer is most important to China in opening to international investment, so China is not going to readily revalue the Yuan and risk losing the flow of technology till China is sure she is prepared.

Subject: China's Technical Advance From: Terri To: Terri Date Posted: Fri, Jan 28, 2005 at 14:25:03 (EST) Email Address: Not Provided Message: China has just ordered 60 7E7 aircraft from Boeing. Part of the aircraft will be made in China, for in return for her business over the years Boeing has been asked to make selected aircraft parts in China. Boeing keeps much of its technical expertise in America, but China has gained expertise as well. China is does developing with foreign investment that is of no importance to the technical ability of her work force.

Subject: The Market Shall Set You Free From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:42:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/opinion/28wright.html?pagewanted=all&position= The Market Shall Set You Free By ROBERT WRIGHT Princeton, N.J. LAST week President Bush again laid out a faith-based view of the world and again took heat for it. Human history, the president said in his inaugural address, 'has a visible direction, set by liberty and the author of liberty.' Accordingly, America will pursue 'the ultimate goal of ending tyranny in our world' - and Mr. Bush has 'complete confidence' of success. Critics on the left and right warned against grounding foreign policy in such naïve optimism (a world without tyrants?) and such unbounded faith. But the problem with the speech is actually the opposite. Mr. Bush has too little hope, and too little faith. He underestimates the impetus behind freedom and so doesn't see how powerfully it imparts a 'visible direction' to history. This lack of faith helps explain some of his biggest foreign policy failures and suggests that there are more to come. Oddly, the underlying problem is that this Republican president doesn't appreciate free markets. Mr. Bush doesn't see how capitalism helps drive history toward freedom via an algorithm that for all we know is divinely designed and is in any event awesomely elegant. Namely: Capitalism's pre-eminence as a wealth generator means that every tyrant has to either embrace free markets or fall slowly into economic oblivion; but for markets to work, citizens need access to information technology and the freedom to use it - and that means having political power. This link between economic and political liberty has been extolled by conservative thinkers for centuries, but the microelectronic age has strengthened it. Even China's deftly capitalist-yet-authoritarian government - which embraces technology while blocking Web sites and censoring chat groups - is doomed to fail in the long run. China is increasingly porous to news and ideas, and its high-tech political ferment goes beyond online debates. Last year a government official treated a blue-collar worker high-handedly in a sidewalk encounter and set off a riot - after news of the incident spread by cell phones and text messaging. You won't hear much about such progress from neoconservatives, who prefer to stress how desperately the global fight for freedom needs American power behind it (and who last week raved about an inaugural speech that vowed to furnish this power). And, to be sure, neoconservatives can rightly point to lots of oppression and brutality in China and elsewhere - as can liberal human-rights activists. But anyone who talks as if Chinese freedom hasn't grown since China went capitalist is evincing a hazy historical memory and, however obliquely, is abetting war. Right-wing hawks thrive on depicting tyranny as a force of nature, when in fact nature is working toward its demise. The president said last week that military force isn't the principal lever he would use to punish tyrants. But that mainly leaves economic levers, like sanctions and exclusion from the World Trade Organization. Given that involvement in the larger capitalist world is time-release poison for tyranny, impeding this involvement is an odd way to aid history's march toward freedom. Four decades of economic isolation have transformed Fidel Castro from a young, fiery dictator into an old, fiery dictator. Economic exclusion is especially perverse in cases where inclusion could work as a carrot. Suppose, for example, that a malignant authoritarian regime was developing nuclear weapons and you might stop it by offering membership in the W.T.O. It's a twofer - you draw tyrants into a web of commerce that will ultimately spell their doom, and they pay for the privilege by disarming. What president could resist that? Correct! President Bush is sitting on the sidelines scowling as the European Union tries to strike that very bargain with Iran. It's possible that skepticism about the European initiative is justified - that Iran, in the end, would rather have the bomb than a seat in the W.T.O. But there's one way for the Bush administration to find out: Outline a highly intrusive arms inspection regime and say that the United States will support W.T.O. membership if the inspectors find no weapons program (or if Iran fesses up) and are allowed to set up long-term monitoring. There are various explanations for Mr. Bush's position. Maybe some in the administration fear losing a rationale for invading Iran. Maybe the administration is ideologically opposed to arms control agreements (a strange position, post-9/11). But part of the problem seems to be that Mr. Bush doesn't grasp the liberating power of capitalism, the lethal effect of luring authoritarian regimes into the modern world of free markets and free minds. That would help explain the amazing four-year paralysis of America's North Korea policy. Reluctant to invade, yet allergic to 'rewarding' tyrants with economic incentives and international engagement, the president sat by while North Korea's leader, Kim Jong Il, apparently built up a nuclear arsenal. Now, with Iran no more than a few years from having the bomb, we're watching this movie again. And it may be a double feature: the inertia we saw in North Korea followed by the war we've seen in Iraq. With Iraq and Iran in flames (live, on Al Jazeera!) and Mr. Kim coolly stockpiling nukes, President Bush will have hit the axis-of-evil trifecta. Pundits have mined Mr. Bush's inaugural address for literary antecedents - Kennedy here, Lincoln there, a trace of Truman. But some of it was pure Bill Clinton. Like Mr. Bush, Mr. Clinton said that history was on freedom's side and stressed that freedom abroad serves America's interests. But he also saw - and explicitly articulated - something absent from Mr. Bush's inaugural vision: the tight link between economic and political liberty in the information age, the essentially redeeming effect of globalization. That's one reason Mr. Clinton defied intraparty opposition to keep commerce with China and other nations strong. In the wake of John Kerry's defeat, Democrats have been searching for a new foreign policy vision. But Mr. Clinton laid down as solid a template for post-9/11 policy as you could expect from a pre-9/11 president. First, fight the spread of weapons of mass destruction, which means, among other things, making arms inspections innovatively intrusive, as in the landmark Chemical Weapons Convention that President Clinton signed (and that Dick Cheney, Donald Rumsfeld, et. al., opposed). Second, pursue terrorist networks overtly and covertly (something Mr. Clinton did more aggressively than the pre-9/11 Bush administration). Third, make America liked and respected abroad (as opposed to, say, loathed and reviled). Fourth, seek lasting peace in the Middle East (something Mr. Bush keeps putting off until after the next war). And finally, help the world mature into a comprehensive community of nations - bound by economic interdependence and a commitment to liberty, and cooperating in the global struggle against terrorism and in law enforcement generally. But in pursuing that last goal, respect and harness the forces in your favor. Give history some guidance, but resist the flattering delusion that you're its pilot. Don't take military and economic weapons off the table, but appreciate how sparingly you can use them when the architect of history is on your side. Have a little faith. Robert Wright, a fellow at Princeton University's Center for Human Values and at the New America Foundation, is the author of 'Nonzero: The Logic of Human Destiny.'

Subject: America's Promises to the Poor From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:38:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/opinion/28fri1.html America's Promises Three years ago, President Bush created the Millennium Challenge Account to give more money to poor countries that are committed to policies promoting development. Mr. Bush said his government would donate billions in incremental stages until the program got to a high of $5 billion a year starting in 2006. While $5 billion is just 0.04 percent of America's national income, President Bush touted the proposal as proof that he cares about poverty in Africa and elsewhere. 'I carry this commitment in my soul,' the president said. For the third straight year, Mr. Bush has committed a lot less than he promised. Michael Phillips of The Wall Street Journal reports that the White House has quietly informed the managers of the Millennium Challenge Account to expect about $3 billion in the next budget. This follows a sad pattern. Mr. Bush said he would ask Congress for $1.7 billion in 2004; he asked for $1.3 billion and got $1 billion. He said he would ask for $3.3 billion in 2005; he asked for $2.5 billion and got $1.5 billion. So if past is prologue, the Republican Congress will cut the diluted 2006 pledge even further. None of that appears to bother the Bush administration, which continues to send high-ranking officials into the world to promote the anemic Millennium Challenge Account to poor nations. The program - not the money, since the account has yet to pay out a single dollar - is high on the list of talking points for cabinet officials like the United States trade representative, Robert Zoellick, who visited Africa in December and cited the program every chance he got. Speaking to Latin American ambassadors in Washington this month, a Treasury under secretary, John Taylor, hailed it as a 'major way in which we are working with countries to meet the challenge of increasing productivity growth.' Officials at the Millennium Challenge Account are quick to list the countries that, through good governance, have qualified for the aid program. They are not as quick to list the countries that have received a dime: there aren't any. Still, Paul Applegarth, chief executive of the Millennium Challenge Corporation, assured us last week that President Bush's program is 'really moving at an extraordinarily quick pace.' Maybe the administration should tell that to the 300 million Africans who lack safe drinking water, or the 3,000 African children under the age of 5 who die every day from malaria, or the 1 in 16 African women who die in childbirth, or the 6,000 Africans who die each day of AIDS. But wait. Maybe the president is planning to deal with the African AIDS catastrophe through his 2003 proposal to increase AIDS funds by $10 billion over the following five years? Not unless he is planning to finish with a bang, because the White House is expected to ask Congress for only $1.6 billion more next year. When added to the amount that AIDS funds increased in 2004 and 2005, that would leave a whopping more than $6 billion to get out of Congress in the next two years to meet Mr. Bush's pledge. Congress and Mr. Bush will point to the ballooning deficit and say they don't have the money. But that was a matter of choice. They chose to spend billions on tax cuts for the wealthy and the war in Iraq. They can choose to spend it instead to keep America's promises.

Subject: From Ma Bell to Ma Bell From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:02:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/28phone.html?pagewanted=all&position= Dial M for Merger By KEN BELSON If SBC Communications succeeds in buying its former parent, AT&T, the reunion of two players in the old Bell system could set off another round of mergers in the rapidly consolidating phone industry. In other industries, a dwindling number of players typically means fewer choices and higher prices for consumers. Yet in the telecommunications industry, technology is turning that logic on its head. Cellphones, high-speed Internet connections and video - not plain old phone lines - now determine the winners and losers in today's market. Cable providers and a host of new businesses that barely existed a few years ago can easily provide those services just as well as old-line phone companies. According to executives close to the deal, AT&T and SBC, the second-largest regional phone company, could reach agreement as early as next week. But even if the talks stall, the industry reformation is likely to continue apace. For most consumers, the spread of these technologies has reduced prices on services and will continue to do so in the coming years, albeit more slowly. Per-minute rates for cellphone calls have fallen from 56 cents in 1996 to 11 cents last year, according to J. D. Power & Associates. The price of long-distance calls has dropped just as sharply. Competition between new technologies has made it possible for consumers to get more for their money with unlimited calling plans, video on computers and ever-faster Internet connections. 'Consumers have clearly won as real competition and the threat of future competition has developed,' said Jeffrey Halpern, a telecommunications industry analyst at Sanford C. Bernstein & Company. 'It took the development of Internet phones and wireless to even the playing field with the Bells.' Few people envisioned this technological free-for-all in 1996 when Congress last overhauled regulations on the telecommunications industry. Yet less than a decade after the federal law was enacted, consumers are seeing a convergence of services barely imagined then, as television moves onto cellphones and e-mail moves from computers to televisions. Cable companies now sell phone lines and the Bells are making plans to enter the television industry. Meanwhile, Vonage, an upstart from New Jersey, offers unlimited local and long-distance Internet-based phone calls for $25 a month. And millions now buy mobile phone service from resellers like Virgin Mobile, which do not even own radio spectrum. Technology is not just realigning the players on the chessboard, it is erasing some of the biggest and best-known companies altogether. Regardless of whether AT&T is bought in the near future, that the company that created phone service in America could be for sale suggests how fast the industry has changed. In the 1990's, phone lines into consumers' homes were still considered the industry's mainstay. Now, they are 'dumb pipes' that are conduits for broadband Internet access, video and other services. Wireless products are bypassing phone-line wall jacks altogether. 'Consumers want bundled packages of services from a company they know and trust,' said Edward Whitacre, SBC's chairman and chief executive, in an interview late last year. Still, there will be losers in the industry realignment. Consumers are increasingly being pushed to buy bundles of services that, while discounted, can still cost hundreds of dollars a month. And customers in search of just a local phone line may not enjoy big savings. Gene Kimmelman, a senior director of public policy at Consumers Union, which publishes Consumer Reports, for one, argues that the sale of AT&T would mark 'the end of the era of cutthroat long-distance competition and growing local competition.' Yet regulators are unlikely to block a deal between SBC and AT&T. In recent years, the Justice Department has approved several large mergers, signaling its intention to let the Bells, wireless carriers and cable companies get even larger. The logic appears to be that the cable industry and mobile phone carriers are a sufficient counterweight to the Bells. By swallowing its former parent, SBC would in some sense be reassembling a portion of the former Bell System, only this time it would stand among other oligopolies. For AT&T, a collapse of the merger talks would also mean the risk of continuing to die a slow death. The company is ensnarled in a seemingly endless price war as new Internet technology drives down the cost of phone and data services. It expects sales to fall a staggering 15 percent, or by $5 billion, next year. Few companies can survive for long with sales shrinking that rapidly. AT&T shares closed yesterday at $19.60, up $1.15; SBC closed at $23.67, down 91 cents. 'A Fortune 500 shrinking 15 percent a year is not natural,' said Scott Cleland, an analyst at the Precursor Group. 'The pressure here is coming from a once-in-a-hundred-years technology that makes it dramatically cheaper to offer voice and data.' Internet and wireless technology, in fact, make it likely that consumers will continue to win regardless of what happens to AT&T. For example, Verizon customers in New York who pay $163 a month receive unlimited local and long-distance calls, a broadband connection, a basic television satellite plan and a national cellphone service. Those products bought separately in 1995 would have cost $142, but would not have included an Internet connection, let alone a broadband line. In aggregate, consumers are spending more, but they are also receiving more. Since 2000, household spending on communications has jumped 33.8 percent, to $164.91 from $123.23, according to TNS Telecoms, a market research firm. Most of the increase has come because consumers are spending more on wireless phone and high-speed Internet services, each of which has doubled in the last four years. But consumers get far more for their higher bills. About a third of American homes now have broadband lines that offer unlimited access to the Internet. A typical broadband line is also 25 times faster than a dial-up connection. In a battle for customers, cable and phone companies are now doubling and tripling their speeds at no extra cost. The same is true for cellphone services. Wary of scaring off consumers, carriers are throwing more minutes at them. Cingular Wireless now lets consumers roll over their unused minutes to the next month, while T-Mobile offers 1,000 monthly minutes for a flat rate of $46. The discounts have made it cheaper to talk. Since 1997, the average number of minutes used by consumers has risen by 362 percent, according to the Cellular Telecommunications and Internet Association. Cellphone carriers are also discounting their handsets, which are lighter, smaller and capable of sending e-mail, snapping photos and playing music. Thanks to bigger networks, coverage has also improved. 'On the whole, consumers are saving money,' said Charles White, a vice president at TNS Telecoms. The danger, he said, is that some consumers who buy bundles of services may not use all of them. Even for consumers who only want a phone on the wall, prices continue to edge lower. Residential spending per month on fixed-line phones has dipped 16 percent since 2000, to $47.22. The price pressure has come from resellers of local phone services like AT&T, and from lower long-distance calls. And now that AT&T no longer markets its services to residential customers, cable companies like Cox and Comcast are stepping in to take its place. With all these new alternatives, consumers may not miss AT&T if it is acquired. The company's stature has steadily eroded since its break up in 1984. First, rivals like MCI and Sprint cut into AT&T's once-dominant share of the long-distance market. Since 1996, the Bell companies have entered that market, and growth in wireless and Internet-based phones have eroded its business further. Regulators and the courts have played a hand, too. Last year, the Bells won the right to raise the rates they charge AT&T and other resellers that want to use the Bells' networks to sell local phone service. As a result, AT&T said it would withdraw from that market. If AT&T is subsumed into SBC or another Bell company (Verizon Communications and BellSouth may bid for the company, too, analysts say), it is likely to live on as the business division of a bigger parent. In seeking shelter under the wing of an offspring, AT&T could continue focusing on big corporate clients. 'The AT&T brand still has significant value,' said Richard Nespola, the chief executive of the Management Network Group, an industry consultant. 'Ma Bell is just looking for a new home.'

Subject: P&G and Gillette From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:01:22 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/28cnd-procter.html?pagewanted=all&position= Procter Reaches $57 Billion Deal to Buy Gillette By ANDREW ROSS SORKIN and STEVE LOHR Procter & Gamble, the consumer products company, announced today that it had reached an agreement to acquire the Gillette Company, the shaving-products and battery maker, for about $57 billion in stock. In a statement on its Web site today, Procter & Gamble said the deal, which is subject to approval by regulators and shareholders, is expected to close next fall. 'This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity,' the chief executive of Procter & Gamble, A. G. Lafley, said in a statement. 'Gillette and P & G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit,' he added. James M. Kilts, chief executive of Gillette, who will join Procter's board, said: 'This marks the realization of an historic next phase of great opportunity for Gillette and also for P & G. It brings together two companies that are complementary in their strengths, cultures and vision to create the potential for superior sustainable growth.' 'This merger is going to create the greatest consumer products company in the world,' Warren E. Bufffet, chief executive of Berkshire Hathaway Inc., Gillette's largest shareholder, said in a statement. 'It's a dream deal.' He said that he intended to increase his holdings to 100 million shares in the combined company. Berkshire Hathaway currently holds 96 million shares of Gillette, or 9.67 percent of the company. The merger will create a consumer-products powerhouse, combining some of the world's best-known brands like Procter's Tide, Crest and Pampers with Gillette's razors and blades, Right Guard deodorant and Duracell. The combined company would have sales of more than $60 billion a year. The agreement, which the boards of both companies approved late yesterday, will officially be announced today at a news conference in Midtown Manhattan. The friendly transaction reflects just how much the balance of power has shifted from consumer-products makers to giant discount retailers, mainly Wal-Mart, in recent years. The move is a bid by two venerable consumer-products giants to strengthen their bargaining position with the likes of Wal-Mart and Aldi in Europe, which can now squeeze even the largest suppliers for lower prices. In addition, both companies have faced growing pressure on profits from private labels as consumers have become more price-conscious and less brand-conscious. The combined company, analysts say, will also have more power in its negotiations with media companies - television, magazines, newspapers and billboards - to buy billions of dollars a year in advertising. Last year, Procter spent $5.5 billion on advertising. Both Gillette, based in Boston, and Procter, based in Cincinnati, have started down this road at least once before. Five years ago, when Procter's sales were temporarily stagnating as new products floundered, Durk Jager, then the chief executive, broached the possibility of a merger with Gillette executives and was rebuffed. In the current round of talks, the overture came from Gillette. In December, Mr. Kilts approached Procter, according to executives close to the negotiations. Mr. Lafley will continue as the chief executive of Procter. The Procter-Gillette merger would be the largest acquisition in the nation since J. P. Morgan Chase acquired Bank One for $60 billion last year and it is the latest in a raft of mergers in the last several months that have swept across corporate America as boardroom confidence has surged. Last month was the busiest December in history, with a total of $283.7 billion in mergers and acquisitions worldwide, outpacing the deal volume in December 1999, at the height of the stock market bubble and merger mania, according to Thomson Financial. Last month, Sprint agreed to buy Nextel Communications for $35 billion; Johnson & Johnson made a deal to acquire Guidant for $25 billion; Symantec agreed to buy Veritas for $13.5 billion; PeopleSoft finally capitulated to Oracle's $10.3 billion offer; and I.B.M. sold its personal computer business to Lenovo of China for $1.75 billion. And this week, SBC Communications is negotiating to buy AT&T, according to executives close to the deal. Regulators are expected to look closely at the Gillette-Procter merger and could force Procter to divest itself of some businesses that overlap with Gillette's. The greatest overlaps are in the deodorant and oral health care segments. In deodorants, Procter owns Old Spice and Gillette owns Right Guard; in oral health, Procter owns Crest toothpaste and Gillette owns Oral-B. The merger, management specialists say, combines two companies in similar markets requiring complementary skills. 'These are companies with storied brands that work the same distribution channels,' said Eric Greenberg, an independent management consultant in New York. 'This sounds like a very viable merger; they are sticking to their knitting.' Over the years, major investors have regarded Gillette as a company with an enviable stable of brands with the potential to become even more lucrative. In the late 1990's, the leveraged buyout firm Kohlberg Kravis Roberts & Company took a large holding in Gillette, but sold its shares after Gillette's profits slipped in 1999. Shares of Procter closed down 12 cents yesterday at $55.32; Gillette shares closed up 85 cents, at $45.85. Procter apparently also sees untapped potential in Gillette, as its products can now be pushed hard by Procter's renowned marketers, both in the United States and abroad. Procter, in particular, sees great opportunity abroad. In a conference call last month, Procter executives said the total market in developing countries for its lines of consumer goods would reach nearly $100 billion by 2010. 'For our top brands, there are still lots of markets where we don't compete,' Robert A. McDonald, vice chairman for global operations, said in the conference call. In talks leading up to the merger, Procter and Gillette executives say they have also identified more strategic advantages than merely the greater size, buying power and efficiencies from combining two similar enterprises. In many ways, they say, the companies have complementary skills. Procter's executives regard their company as a master at marketing to women, given its long history in household, hygiene and food products. Gillette, whose name is synonymous with shaving for millions of men, sees itself as an expert in the male market. In addition, Procter has established a strong sales network in fast-growing foreign markets like China and Russia, while Gillette has not. Tapping that distribution network, the executives say, should lift Gillette's worldwide sales at little added cost to the combined enterprise. Indeed, executives of the two companies have identified $14 billion to $16 billion in annual benefits from the merger, a total that includes the gains from a stronger bargaining position with retailers and media companies, cost-cutting and anticipated additional revenues. Combining the companies is expected to lead to about 6,000 job cuts, or about 4 percent of the work force. Procter has 110,000 employees and Gillette has 29,400 workers. Under the terms of the deal, Procter will pay 0.975 share, or about $54, for each share of Gillette. That is about an 18 percent premium over Gillette's shares. After the deal is completed, Procter intends to buy back $18 billion to $20 billion worth of stock from the combined company, the companies said in a joint statement. That would have the effect of making the acquisition a 60 percent stock and 40 percent cash deal. Procter & Gamble reported second-quarter earnings yesterday that rose 12 percent. Net income was $2.04 billion, compared with $1.82 billion a year earlier. Sales in the quarter, which ended Dec. 31, rose 9.3 percent, to $14.45 billion. In October, Gillette reported earnings of $475 million in the third quarter, compared with $416 million last year. Over all, Gillette's quarterly sales reached $2.69 billion, up from $2.4 billion the year before. Gillette was advised by UBS and Goldman Sachs and received legal counsel from Davis Polk & Wardwell. Procter was advised by Merrill Lynch and received legal counsel from Cadwalader, Wickersham & Taft.

Subject: Interest Rates From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 10:49:57 (EST) Email Address: Not Provided Message: Notice that the report showing a slowing of our economic last quarter has sent the long term Treasury note to 4.15%. Make no mistake about it, long term interest rates have been most sensitive to domestic economic reports. Davos did not move long term interest rates. We are still in a bull market for bonds, much to my surprise.

Subject: America's Engagement From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 10:43:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/worldbusiness/28norris.html Watching America: Will It Listen to Foreigners, or Do as It Pleases? By FLOYD NORRIS DAVOS, Switzerland W HAT stresses me most,' the chief executive of Novartis, Daniel L. Vasella, said, 'is that we are getting new regulations from abroad without any consultation.' This has been the World Economic Forum that the United States government largely passed by. In a world that both respects and fears American power, there is worry that the United States does not care what others think. Or, as Tony Blair, the prime minister of Britain, put it in a speech to the forum, 'If America wants the rest of the world to be part of the agenda it has set, it must be part of their agenda, too.' He added, 'What people want is not for America to concede, but for America to engage.' It is a fair bet that Mr. Blair has given little thought to Section 404 of the Sarbanes-Oxley Act or to the way the Securities and Exchange Commission can adjust accounting rules, which is what concerns Mr. Vasella. Mr. Blair was more concerned with global warming and world poverty. The twin American deficits figured into concerns that the United States would do as it pleases regardless of the possible impact on the world economy. 'I don't see the budget deficit being dealt with,' said Jacob Frenkel, the former head of Israel's central bank and now a vice chairman of the American International Group, a large insurance company. 'I am concerned with the U.S. current-account deficit, not because it cannot be dealt with but because of the way it is not being dealt with.' The explanation for less American government participation than in past years - that this forum came at an awkward time just before the State of the Union address - makes some sense. And there were Americans here, like John A. Thain, the chief executive of the New York Stock Exchange, who gently suggested that the current-account deficit would decline if Europe grew faster. Some Americans are listening. William H. Donaldson, the chairman of the S.E.C., gave a speech in London this week that dealt with some of the concerns, indicating the commission may delay enforcing rules against foreign companies that trade in the United States and may make it easier for foreign companies already registered in the United States to withdraw. The rule that has both American and foreign companies complaining is Section 404, which requires extensive reviews of internal controls in companies to assure they are effective - and says outside auditors must certify the controls. 'It was an enormous, expensive exercise,' Mr. Vasella said in an interview. 'It raised the question, for my employees, 'Is the trust broken?' because you control everything.' Novartis has complied with the rule. The chief executive of PricewaterhouseCoopers, Samuel A. DiPiazza Jr., estimated that 10 percent of large American companies would fail to comply this year, either because they could not complete the work on time or because material problems were found. A survey of 1,324 chief executives by his firm found that bosses around the world were less confident they could comply with rules outside their home countries. Mr. Vasella said chief executives of several smaller European countries told him they might try to leave the American market. He said he asked them if they would do so because they had something to hide, or because of the expense. Mr. Donaldson is wise to try to assuage European concerns, but there is a risk that other parts of the American government are less sure of the need to take foreign views into account. That may prove to be unwise for a country that needs help in many areas, not the least of them being in borrowing money to finance the twin deficits.

Subject: PK's last column From: Yann To: All Date Posted: Fri, Jan 28, 2005 at 04:13:13 (EST) Email Address: Not Provided Message: As a Frenchman, because of my education, I am always surprised and dismayed to hear an American President (or a public person) using the “race card”, with self-interest or not. No politician could talk like this in France and I hope that it will never happen. What we call here “communautarisme” terrifies me...

Subject: Communautarisme From: Jennifer To: Yann Date Posted: Fri, Jan 28, 2005 at 11:14:49 (EST) Email Address: Not Provided Message: Communautarisme: Would communitarianism do, or community or social responsibility?

Subject: Re: PK's last column From: Pancho Villa To: Yann Date Posted: Fri, Jan 28, 2005 at 06:35:01 (EST) Email Address: nma@hotmail.com Message: Absolutely dear Yann: « Comment voulez-vous que le travailleur français qui travaille avec sa femme et qui ensemble gagnent environ 15000 francs, et qui voit sur le pallier à côté de son H.L.M., entassés, une famille avec un père de famille, trois ou quatre épouses, et une vingtaine de gosses, qui gagnent 50000 francs par mois de prestations sociales sans naturellement travailler ! Si vous ajoutez à celà le bruit et l'odeur, eh bien, le travailleur français sur le pallier il devient fou ! Et ce n'est pas être raciste que de dire cela.» (Jacques Chirac, Meeting électoral, 1990)

Subject: Re: PK's last column From: Jennifer To: Pancho Villa Date Posted: Fri, Jan 28, 2005 at 11:10:36 (EST) Email Address: Not Provided Message: Please translate just a bit for us :)

Subject: Re: PK's last column From: Yann To: Pancho Villa Date Posted: Fri, Jan 28, 2005 at 08:12:17 (EST) Email Address: Not Provided Message: The polemic is launched. Let's go!

Subject: America overwhelms world's savings From: johnny5 To: All Date Posted: Thurs, Jan 27, 2005 at 22:15:04 (EST) Email Address: johnny5@yahoo.com Message: Benson's Economic & Market Trends Will Central Banks Ever Say No To America? Richard Benson January 27, 2005 Americans suffering from an immediate gratification fix should really monitor their decisions when they are restless. When feeling restless, they may decide to sell their house and buy a bigger, more expensive one. Then, they could easily take some cash out - or simply a draw-down on their home equity loan - and go shopping until they drop! Foreign goods fly off the shelves at patriotic stores like Wal-Mart, sending more dollars to China for goods we have imported. These dollars get stuffed into government securities - in the United States and elsewhere - where they wait to get spent. How much of this is actually going on? But wait, there's more! The United States government is running federal deficits of over $400 billion a year, and we're not alone. As reported by the Financial Times, JP Morgan Chase estimates that global government bond supply will be $2,320 billion, up two-thirds from 2001! This insatiable need to borrow by governments and American households totally overwhelms the world's savings. So, where is all the money we are borrowing coming from? Thank the accommodative central banks. (See table below): It works something like this: Central banks create new money by buying something. The central banks almost always buy their own government debt, or debt of another country, theoretically printing money out of thin air (for a central bank to have a 'reserve' it must buy the debt of some other country). Foreign central banks own $280 billion worth of securities issued by United States' government agencies - go Fannie Mae! The Federal Reserve, as an example, holds United States' government and agency debt in custody for foreign central banks. We are looking at a mutual back scratching of world central banks printing up new money, the likes of which the world has never seen before! Will it ever end? As long as commercial banks continue to offer home equity lines of credit, issue credit cards to anyone regardless of age or credit worthiness, and finance companies that are cash-flow-negative with more high-yield debt, this party will continue. Borrowing by the government and consumers creates new money and spending which 'makes the world go 'round.' Over the last decade, every world central bank has remained accommodative to America's willingness to borrow and spend without limit. Indeed, while the war in Iraq has already cost $300 billion, its all been paid for by foreign central banks printing up fresh cash and handing the new money to the United States Treasury in return for those quaint treasury bills and bonds. Meanwhile, over-spending in the United States has created a $650 billion trade deficit that threatens the very existence of the dollar as the world reserve currency. The Federal Reserve realizes that if they raise interest rates to stabilize the dollar - by making its yield more attractive on dollar investments, as well as lowering the trade deficit - serious pain will be inflicted. Rising interest rates will crunch real estate sales as fewer consumers will be able to afford to pay current outrageous prices for housing, and service mortgages with higher monthly payments. Moreover, the burden of servicing consumer and home equity loans - whose costs are tied to rising short-term interest rates - will squeeze the American household even further. More money for debt service means less to spend on domestic and foreign goods. If and when the Federal Reserve starts the 'big squeeze' to save the dollar, the trade deficit will come down. However, if the dollar rallies, American companies will become less competitive just when the consumer is feeling strapped financially and spending less. In addition, our trading partners will not be happy that the free ride on America is over. When 40 percent of S&P corporate profits are related to financing, higher interest rates do not bode well for corporate profits. Moreover, rising interest rates would inevitably impact the price of stocks, bonds and housing. Perhaps investors should start paying closer attention to the statements and actions of the Federal Reserve governors. The question is, will central banks stay super easy or will they start acting like adults at the end of a wild party? January 26, 2005 Richard Benson http://www.321gold.com/editorials/benson/benson012705.html www.321gold.com/editorials/benson/benson012705.html

Subject: Re: America overwhelms world's savings From: jimsum To: johnny5 Date Posted: Thurs, Jan 27, 2005 at 23:05:23 (EST) Email Address: jim.summers@rogers.com Message: I love the line 'our trading partners will not be happy that the free ride on America is over'. Some free ride. Foreigners buy raw materials, build goods, then ship them to America; in exchange, they get a bond that won't mature for years, pays peanuts, and is denominated in depreciating U.S. dollars. Free ride is better used to describe the American consumer, who simply signs a Visa receipt and takes the item home.

Subject: P&G Buys Gillette From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 21:06:31 (EST) Email Address: Not Provided Message: Procter & Gamble to Buy Gillette for $55 Billion in Stock By ANDREW ROSS SORKIN - New Yotk Times The deal between Procter & Gamble and Gillette would create the world's largest consumer products business.

Subject: National Index Returns From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 20:57:10 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/04 - 1/27/05 Australia 0.7 Canada -4.0 Denmark -4.5 France -2.2 Germany -4.7 Hong Kong -4.9 Ireland -0.5 Japan -2.5 Norway -2.5 Sweden -4.3 Switzerland -2.8 UK -0.7

Subject: Sector Stock Indexes From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 19:54:01 (EST) Email Address: Not Provided Message: http://flagship2.vanguard.com/VGApp/hnw/FundsVIPERByType Sector Indexes 12/31/04 - 1/27/05 Energy 3.3 Financials -3.9 Health Care -2.6 Info Tech -6.6 Materials -4.2 Telecoms -5.8 Utilities 0.3

Subject: Vanguard Returns From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 19:16:03 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 1/27/04 S&P Index is -3.0 Large Cap Growth Index is -3.5 Large Cap Value Index is -2.6 Mid Cap Index is -3.6 Small Cap Index is -4.7 Small Cap Value Index is -4.9 Europe Index is -2.2 Pacific Index is -1.9 Energy is 2.2 Health Care is -2.6 REIT Index is -8.7 High Yield Corporate Bond Fund is -0.4 Long Term Corporate Bond Fund is 1.7

Subject: Luskin on new Fox show From: Kosh To: All Date Posted: Thurs, Jan 27, 2005 at 19:06:04 (EST) Email Address: jdog@hotmail.com Message: http://jameswolcott.com/archives/2005/01/exciting_update.php James Wolcott jameswolcott.com/archives/2005/01/exciting_update.php

Subject: America and China From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 18:59:08 (EST) Email Address: Not Provided Message: Grumble, grumble. The currency problem is real for China and us, though more so for us I feel, for China's dollar reserves are a claim against American assets and I do not expect we will choose to inflate our way free of the claim. What we must do is lessen the federal deficit that is contributing so much to the trade deficit, but that would take a Robert Rubin at Treasury and there is no chance. So, we grumble at China and China grumbles back and all stays about the same for the while. Hmmm.

Subject: Burden Growing on Pension Group From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 11:31:44 (EST) Email Address: Not Provided Message: December 16, 2004 Burden Growing on Pension Group By HAL R. VARIAN - New York Times LAST week, I.B.M. announced that it was closing its traditional defined-benefit pension plan to new employees and instead would offer new workers a 401(k) plan. This is just the most recent of many such announcements by major companies. In the mid-1980's, 40 percent of workers were covered by defined-benefit plans. But those plans have become less popular in recent years, and now only 20 percent of workers are covered by such plans. As the name implies, a defined-benefit plan bases its pension payment on a formula involving years of service, final salary and other considerations. The employer effectively promises workers that it will pay them some predetermined amount when they retire. But pension plans and companies sometimes become insolvent. Who back ups these promises? The Pension Benefit Guaranty Corporation was set up by the federal government 30 years ago to provide insurance for traditional pension plans. If an employer cannot pay the promised benefits, the pension agency steps in to cover the difference. In exchange for this insurance, the companies that offer traditional pension plans have to pay a fee to the agency. Zvi Bodie, a professor of economics and finance at Boston University, discusses some of the problems the agency faces in an article entitled 'Straight Talk about Government Pension Insurance,' which will appear in the next issue of The Milken Institute Review. The agency's biggest problem is that it faces significant potential liabilities. In 2000, it showed a net balance of assets over liabilities of $10 billion. By 2004, its financial position had deteriorated to a $23.5 billion deficit. If we add in other companies covered by the agency that face significant bankruptcy risk, the deficit could reach $96 billion. The problem, according to Mr. Bodie, is a mismatch between the assets and liabilities of the pension plans that the agency guarantees. In a defined-benefit plan, companies promise to pay a fixed amount of money to workers when they retire. A company could be sure of having enough money available by investing in secure assets like high-grade corporate bonds. But bonds pay relatively low rates of interest, meaning that companies would have to set aside a substantial amount of money to meet their pension obligations. They find it much more attractive to invest in assets like stocks that have a higher expected rate of return. But high expected returns go hand-in-hand with high risk, increasing the chance of a shortfall. In 2003, General Motors' net pension expense was $2.6 billion. Their financial statements assumed a 9 percent rate of return on investments, which were primarily in stocks and other risky assets. If these funds were invested in bonds yielding about 6.75 percent, G.M. would have had to put away $4.2 billion that year, making its pension plan much more expensive. So what is wrong with assuming a 9 percent rate of return? That is a reasonable figure for the average return on the stock market - but it is only an average. Given the historical fluctuations in the stock market, there is a reasonable chance that a stock market investment may not actually pay off enough to cover the liabilities. That is where the pension guaranty agency comes in. Even if the stock market drops, the workers' pensions will be covered. This means that G.M. has every incentive to invest in stocks rather than bonds: it is heads they win, tails the pension agency loses. As Mr. Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true. Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate. But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems. The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run. To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000. To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise. How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502. So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option. The problem is that the pension agency has a difficult time charging the actuarially fair price for the insurance it offers. Companies that are close to bankruptcy cannot pay, and healthy companies find it more attractive to opt out of the program entirely and offer 401(k) plans instead. So the financial position of the pension agency continues to deteriorate. Sooner or later, Congress will probably have to step in to fix it. The sooner it can put the program on a sound financial footing, the less it will cost the taxpayers in the long run. Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.

Subject: Re: Burden Growing on Pension Group From: jimsum To: Emma Date Posted: Thurs, Jan 27, 2005 at 22:21:44 (EST) Email Address: jim.summers@rogers.com Message: The reasoning in this article is a bit off. Yes it costs money to insure the stock returns; but $377 is the present value at 5%, the present value at 10% is only $149. So after adding $125 for the option to this figure, the cost of a guaranteed $1000 or more after 20 years is only $274. Of course the shortcoming of using this approach on a large scale is finding someone you think will be able to pay you billions or trillions of dollars in 20 years.

Subject: Re: Burden Growing on Pension Group From: Emma To: jimsum Date Posted: Fri, Jan 28, 2005 at 11:44:41 (EST) Email Address: Not Provided Message: Jim Summers Nice and useful comment, as always.

Subject: Pension Accounting From: Emma To: Emma Date Posted: Thurs, Jan 27, 2005 at 12:09:35 (EST) Email Address: Not Provided Message: http://www.sims.berkeley.edu/~hal/people/hal/NYTimes/2004-12-16.html As [Zvi] Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true. Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate. But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems. The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run. To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000. To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise. How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502. So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option.

Subject: Costs for Stock Investing From: Terri To: Emma Date Posted: Thurs, Jan 27, 2005 at 17:24:51 (EST) Email Address: Not Provided Message: Then the cost of investing a portion of payroll taxes in stocks is first: the amount that is diverted from current retirees at the current interest rate. Second: the investment cost, which will be low in the case of a total stock market index fund administered by Social Security. Third: the insurance cost, or the cost of the put option to secure at least the return of Treasury bonds. There will be large costs even if the Social Security system were to invest in a stock index for us. The costs involved for setting up and administering private accounts would be far higher, and properly insuring returns would have to be done by the Social Security system, as in Sweden, or the cost of such insurance would be beyond many many workers.

Subject: China and Japan and Trade From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:44:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27pension.html?oref=login&pagewanted=all&position= A Growing China Becomes Japan's Top Trade Partner By TODD ZAUN TOKYO - China surpassed the United States as Japan's top trading partner for the first time last year, highlighting the growing economic ties between Japan and its rapidly expanding neighbor. China, including Hong Kong, accounted for 20.1 percent of Japan's total foreign trade last year, compared with an 18.6 percent share for the United States, according to figures released Wednesday by Japan's Ministry of Finance. By value, Japan's trade with China and Hong Kong, including exports and imports, rose to a record high 22.20 trillion yen ($215 billion) in 2004, outstripping the 20.48 trillion yen in trade with its longtime top partner, the United States. The increase in Japan's trade with China has been driven in part by China's surging growth, but even more, economists say, by the expanding use of China as a production base for Japanese cars, computers and electronic gadgets that are then shipped around the world. While the trade figures show Japan's economic well-being is increasingly linked to China, that has not diminished the importance of the United States, economists say. 'China has become a major production base for foreign companies including Japanese,' said Peter Morgan, economist at HSBC Securities in Tokyo. 'But if one looks at the final destination of the products, the U.S. is clearly more important still.' Mr. Morgan calculated that about 60 percent of Japanese exports to China are tied to products bound elsewhere. For years, companies like Matsushita Electric Industrial have been shipping computer chips and other core components to factories in China where they are slotted into televisions, DVD players and cellphones to be sold in other markets. And now Japanese companies are using factories in China for even more sophisticated production. By 2007, the Honda Motor Company, for example, plans to nearly double its exports of motorcycles from China to about 300,000, from 170,000 last year. And later this year, the company plans to start exporting a hatchback called Jazz from China to showrooms in Europe. 'The shift in production from Japan to China has been conducted in stages. It started with the low-end stuff, then moved into machinery and obviously autos are the next stage,' said Ryo Hino, an economist in Tokyo for J. P. Morgan. 'Japan is doing the rational thing by attaching itself to a high-growth developing economy.' To be sure, the United States is still the largest single foreign market for Japanese goods - Japan's overall trade with China was higher than with the United States only because Japan imports much more from China than from the United States. That also means that Japan has a much larger trade surplus with the United States, at 6.96 trillion yen ($67.56 billion) last year, than with China, at 1.46 trillion yen. Still, China is where the action is for Japan in terms of export growth. Japan's exports to China, including Hong Kong, increased 21 percent last year, to 11.83 trillion yen, while Japan's exports to the United States rose just 2.3 percent, to 13.72 trillion yen. Over all, China accounted for a quarter of Japan's export growth last year, making it very important to a country whose two-year-old recovery has been built largely on exports. The crucial question for Japan now is how long China's appetite for imports will last. China reported earlier this week that its economy expanded at a fevered 9.5 percent in the fourth quarter, even as inflation seemed to be abating. Despite that growth, Japan's exports to China seem to have cooled somewhat. Growth of Japan's exports to China slowed to 9 percent in December, compared with a year earlier, from 22 percent in November. In December, Japan's overall trade surplus expanded at a modest pace of 1.8 percent from a year earlier, to 1.14 trillion yen ($11.06 billion), on an increase in shipments of autos and steel, while imports grew 10.9 percent, mainly because of rising oil prices.

Subject: Sinking Dollar Dominates Davos Debate From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:43:42 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27econ.html Sinking Dollar Dominates Davos Debate By MARK LANDLER DAVOS, Switzerland - Two things were as clear as the Alpine air on the opening day of the World Economic Forum on Wednesday: The relentlessly sinking dollar is Topic A, and anyone hoping for an answer to when it will stop dropping is likely to come away disappointed. Economists, politicians and business executives voiced deep unease about the imbalances in the global financial system, which are reflected in the dollar's steep fall against the euro and other currencies. But most expressed skepticism that the Bush administration would reduce the trade and budget deficits, which have fed those imbalances. The White House has said that it does not view these issues as a major problem because foreigners still view the American economy as an attractive investment. Some at the forum said they doubted that China, which is financing much of the American debt, would bow to pressure to allow its currency to rise against the dollar this year. 'The U.S. current-account deficit is a problem for the whole world,' said Jacob A. Frenkel, a former governor of the Bank of Israel. But, he said, 'I don't see the budget deficit being taken seriously.' The Bush administration, which dispatched Vice President Dick Cheney and Secretary of State Colin L. Powell to past Davos meetings to defend the Iraq war and other foreign policy actions, has not sent a similarly prominent economic policy maker to this gathering. That absence has lent the proceedings an imbalanced tone. 'In fairness, it's a transition period in Washington,' said Representative Barney Frank, Democrat of Massachusetts, who supplied the American voice on a panel about American leadership. He added, however, 'The administration doesn't really have anyone they trust enough to send here.' Mr. Frank, the ranking Democrat on the House Financial Services Committee, said that he worried that the United States was not paying enough attention to the risks of its growing indebtedness. The repercussions of a weak dollar, he said, had barely registered with the White House. Other critics were blunter. 'There's nobody home on economic policy in America right now,' said Stephen S. Roach, the chief economist at Morgan Stanley. The twin burdens of household and public debt in the United States, he said, are unsustainable. Describing American consumers as 'an accident waiting to happen,' he asked, 'When does the music stop?' With the dollar already trading at $1.30 to the euro - near the level of economic unacceptability for Europe - Mr. Roach said the United States could not rely on currency markets to right the imbalance between it and the Asian countries that finance American deficits by buying Treasury bills. The answer, he said, lies with the Federal Reserve, which he said would have to raise rates aggressively to curb the spending binge. Whether it could do that without triggering a recession is an open question. Few here held out hope for international coordination of the kind that stabilized the dollar in the 1980's. 'The Bush administration doesn't listen to people,' said Laura D. Tyson, who served as an economic adviser to President Bill Clinton. 'There's no hope of changing U.S. fiscal policy.' Professor Tyson, who is dean of the London Business School, said European leaders needed to stop worrying about the actions of other countries and set about streamlining their own economies. She pointed to recent wage negotiations in Germany, in which the unions agreed to longer hours and more flexible work rules, as a hopeful sign of change. Certainly, Europe cannot rely on Asia to take the pressure off the euro. While people here said they were guardedly optimistic that China would eventually allow its currency, the yuan, to rise against the dollar, few were willing to hazard a guess as to when - or to what extent. 'That will need a political commitment and a political will, and I don't see that happening this year,' said Takatoshi Ito, a specialist in international economics at the University of Tokyo. Some economists warned that the expanding trade deficit and weak dollar could cast a shadow over negotiations to liberalize world trade, which have been dragging for various reasons in the last year. China's record trade surplus with the United States could fuel protectionist forces in the United States, said C. Fred Bergsten, the director of the Institute for International Economics in Washington. He said he could foresee moves to impose import barriers on Chinese wood and shrimp. 'This is a poisonous environment for trade policy and for domestic politics in the United States.' In the last couple of years, with the White House's march to war in Iraq, Davos itself has been a rather poisonous environment for Americans. Those tensions have ebbed this year.

Subject: Chile's Private Penion Plan Shortfall From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:24:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27pension.html?oref=login&pagewanted=all&position= Chile's Retirees Find Shortfall in Private Plan By LARRY ROHTER SANTIAGO, Chile - Nearly 25 years ago, Chile embarked on a sweeping experiment that has since been emulated, in one way or another, in a score of other countries. Rather than finance pensions through a system to which workers, employers and the government all contributed, millions of people began to pay 10 percent of their salaries to private investment accounts that they controlled. Under the Chilean program - which President Bush has cited as a model for his plans to overhaul Social Security - the promise was that such investments, by helping to spur economic growth and generating higher returns, would deliver monthly pension benefits larger than what the traditional system could offer. But now that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised under the authoritarian government of Gen. Augusto Pinochet. For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system. Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system. Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month. 'Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me,' he said, 'are retiring with pensions of almost $700 a month - good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981.' With many Chileans finding themselves in a situation much like that of Mr. Sáez, people are still looking to the government, not private pension funds, to ensure a secure retirement. 'It is evident the system requires reform,' the minister of labor and social security, Ricardo Scolari, said in an interview here. Chile's current approach based on private pension funds has 'important strengths,' he said, but 'it is absolutely impossible to think that a system of this nature is going to resolve the income needs of Chileans when they reach old age.' In formulating proposals in the United States for individual accounts, advocates of partial privatization of Social Security have sought to overcome some of the problems in Chile. They have suggested, for example, setting low limits on the fees that fund managers will be allowed to charge and continuing to provide a major part of retirement income through the traditional system of guaranteed payments. The program in Chile differs from the voluntary model that President Bush is considering. Participation here has been not voluntary for people entering the labor force since 1981. On the other hand, Chile was careful before it started its private system to accumulate several years of budget surpluses, in contrast to the recent large deficits in the United States. The Chilean example also makes clear that introducing private accounts does not solve a lot of the problems faced in the United States, Europe and Japan, where pay-as-you-go systems remain the principal means of government retirement support. Over all, Chile has spent more than $66 billion on benefits since privatization was introduced. Despite initial projections that the system would be self-sustaining by now, spending on pensions makes up more than a quarter of the national budget, nearly as much as the spending on education and health combined. Faced with the likelihood of the gap remaining as it is or, as Mr. Scolari said, 'perhaps even widening,' the Chilean government is contemplating a new round of pension changes. Suggestions that have been floated include many also under consideration in the United States and Europe, like reducing benefits or setting a higher retirement age. The problems have emerged despite what all here agree is the main strength of the privatized system: an average 10 percent annual return on investments. Those results have been achieved by the pension funds largely through the purchase of stocks and corporate and government bonds - investments that helped fuel an economic expansion giving Chile the highest growth rate in Latin America over the last 20 years. 'The great success of the system is its high profit rate, more than double what was initially projected,' said Guillermo Arthur Errázuriz, executive director of the Association of Pension Fund Administrators. 'In total, workers have set aside nearly $61 billion, which is invested in the sectors of the economy that show the most potential.' Among the admirers of the privatized system here is Mr. Bush, who on a visit in November called Chile 'a great example' for other countries. On other occasions, he has suggested that the United States could 'take some lessons from Chile, particularly when it comes to how to run our pension plans.' The main architect of the Chilean system is José Piñera, who was labor and social security minister from 1978 to 1980 during the Pinochet dictatorship. Mr. Piñera is now chairman of the International Center for Pension Reform, co-chairman of the Cato Institute's Project on Social Security Choice, and he has been a board member of several Chilean corporations. Mr. Piñera declined repeated requests to be interviewed for this article. In an article on the Op-Ed page of The New York Times last month, though, he extolled the Chilean system as one based on ownership, choice and responsibility and one that is widely popular because it gives workers a stake in the economy. Among other achievements emphasized here by advocates of the privatized funds are the creation of a modern capital market, cheaper credit for companies that formerly could turn only to banks when they wanted to expand, and a brake on deficit spending by the government. Critics respond that the privatized system has been less successful in ensuring a dignified retirement for the elderly. 'What we have is a system that is good for Chile but bad for most Chileans,' said a government official who specializes in pension issues and who spoke on condition of anonymity, fearing retaliation from corporate interests. 'If people really had freedom of choice, 90 percent of them would opt to go back to the old system.' Among the complaints most often heard here is that contributors are forced to pay exorbitant commissions to the pension funds. Exactly how much goes to such fees is a subject of debate, but a recent World Bank study calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges. But most Chileans are unaware of how much they are paying to the funds because the lengthy quarterly financial balance sheet they receive 'is not comprehensible,' according to Guillermo Larraín, director of the Superintendency of Pension Funds, a government agency. 'It needs to be replaced by a simple and transparent financial statement,' he said, so workers can determine which fund charges the lowest fees. In recent years, the number of pension funds has been winnowed to 6 from a high of 22 in the early 1990's. They have enjoyed record earnings, so much so that foreign banks and insurance companies are investing in the industry. While the pension fund association puts the average annual return on assets just under 30 percent, government figures show profits of 50 percent in 2000, with some independent studies suggesting the funds did that well over the five-year period ended in 2003. Proponents of the system justify the high returns as an appropriate reward for the risk they undertake. But a recent World Bank report, 'Keeping the Promise of Social Security in Latin America,' minimized that, noting that through the 1990's, only three large companies accounted for half of all shares traded on the Santiago stock exchange and that pension funds tend to follow a herd instinct and invest in the safest choices on the market. Government officials like Mr. Larraín and Mr. Scolari acknowledge that 'commissions are high and need to come down.' They say that 'more competition is needed' to foster lower fees. But existing regulations frustrate the creation of new funds - something that seems just fine to pension funds that have become a powerful political and economic force. 'The dynamic of the market,' Mr. Larraín said, 'is one of consolidation and concentration.' Some other problems of the Chilean system stem from factors that do not apply with the same force in the United States and other advanced economies. Nearly half of Chilean workers, for example, are employed off the books in the so-called informal sector, while many others are hired as independent contractors, who are not required to contribute to a pension account and do not do so regularly because they cannot afford it. By the government's own calculations, only about half the work force contributes to a pension fund. 'We are aware there is a big hole and that we need to take corrective measures,' Mr. Larraín said. Because many of the claims initially made on behalf of the privatized system proved exaggerated or inaccurate, the transition period has turned out to be longer and more expensive than anticipated. The annual cost to the government, still the guarantor of last resort, has remained steady at 5 to 6 percent of the nation's economic output. (By comparison, in 2003, Social Security outlays in the United States totaled 4.2 percent of the gross domestic product.) Chile spends about $2 billion a year to pay retirees from its armed forces, according to Mr. Scolari. The military imposed privatization on the rest of the country, but was careful to preserve its own advantages and exclude fellow soldiers from the system. Despite calls that the military be forced to give up its exemption, no civilian government has been prepared to pursue that. Proponents of the privatized system argue that those costs will diminish in coming years, as those still receiving benefits from the old system gradually die off. But critics disagree, pointing to the large numbers of younger Chileans in the work force who either do not participate or whose contributions will fall short of the amount required for a minimum pension. For those remaining in the government's original pay-as-you-go system, the maximum retirement benefit is now about $1,250 a month. The National Center for Alternative Development Studies, a research institute here, calculates that to get that same amount from a private pension fund, workers would have to contribute more than $250,000 over their careers, a target that has been reached by fewer than 500 of the private system's 7 million past and present contributors. This leaves many Chileans in a situation that has led to the coining of a phrase: 'pension damage.' There is now even an Association of People With Pension Damage, 157,000 members and growing, that consists of Chileans, mostly former government employees, who find that their pensions, based on contributions to the private system, are significantly less than if they had remained in the old system. 'They come to us in desperation,' said Yasmir Fariña, the group's president, 'because those who stayed in the government system are often retiring with monthly pensions twice as large as everyone else's.'

Subject: No US representative at Davos From: Pete Weis To: All Date Posted: Wed, Jan 26, 2005 at 21:38:05 (EST) Email Address: Not Provided Message: US administration ignoring serious economic issues. Doesn't appear to be anyone in the pilot house. Associated Press Economist: China Loses Faith in Dollar 01.26.2005, 03:25 PM China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum. At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but 'to limit it from the U.S. dollar.' But he stressed that the Chinese government is under no pressure to revalue its currency. China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to US$1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency. 'The U.S. dollar is no longer - in our opinion is no longer - (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time,' Fan said, speaking in English. 'So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say Euros, yen, dollars - those kind of more diversified systems,' he said. 'If you do this, in the beginning you have some kind of initial shock,' Fan said. 'You have to deal with some devaluation pressures.' The dollar hit a new low in December against the euro and has been falling against other major currencies on concerns about the ever-growing U.S. trade and budget deficits. Fan said last year China lost a good opportunity to do revalue its currency, in July and October. 'High pressure, we don't do it. When the pressure's gone, we forgot,' Fan said, to laughter from the audience. 'But this time, I think Chinese authorities will not forget it. Now people understand the U.S. dollar will not stop devaluating.' Asked how speculation about revaluation could be curbed, he noted that China imposed a 3 percent tariff on Chinese exports. Some Chinese experts say that perhaps inflation can be reduced this year, 'but I'm not that optimistic,' Fan said, noting that fuel prices keep rising. 'So maybe China (will) have 4-5 percent inflation in 2005,' he said. Fan, whose nonprofit institute specializes in analyzing the Chinese economy, stressed that the country's development is a long-term process that will take decades, maybe a century. Since China's economic modernization began over a decade ago, 120 million rural laborers have moved into cities, but another 200 or 300 million people need to move into the cities from the countryside to spur development, he said. 'The income disparity is huge, and income disparity will stay with us for a long time, as long as those 200 to 300 million rural laborers stay in the countryside,' Fan said. Nonetheless, William Parrett, chief executive of Deloitte Touche Tohmatsu, told the panel that Chinese companies are making significant progress in becoming global giants, led by state-owned companies. 'It's probably at least 10 years before the objective of the government of 50 of the largest 500 companies in the world being Chinese' is achieved, he said.

Subject: China's Currency Policy From: Emma To: Pete Weis Date Posted: Thurs, Jan 27, 2005 at 06:09:38 (EST) Email Address: Not Provided Message: When I am puzzled about a stance by China, I turn back to Jonathan Spence and other historians. The guess is Fan Gang's comments have little importance. There is no reason to believe China's leadership feels a near term change in currency policy is necessary. There may be a need for a hint now and again that there may in time be a change, but little more. The Chinese leadership will not be pressured, and they do not intimate a change in economic policy in such a manner or in Switzerland. Mr. Fan is not part of leadership. The performance of the Chinese economy is excellent, and there has to be a reluctance for more than minor policy adjustments.

Subject: Re: China's Currency Policy From: Pete Weis To: Emma Date Posted: Thurs, Jan 27, 2005 at 10:21:52 (EST) Email Address: Not Provided Message: Emma. You are right - the Chinese are very slow to change policy direction. My present broker is Chinese and says this also. I suppose it depends on how fast the dollar falls and if there is a point at which a panic might ensue. There is no way this can carry on indefinitely - but the American consumer may not simply die, but merely fade away. I view it as a serious risk. There is a point at which the US consumer simply is not important enough in world markets to get 'most favored currency status'.

Subject: Inherently Unstable From: Emma To: Pete Weis Date Posted: Thurs, Jan 27, 2005 at 11:34:20 (EST) Email Address: Not Provided Message: The suppport of the dollar in light of our low rate of household saving and growing government and trade deficits is inherently unstable. I agree completely.

Subject: Re: China's Currency Policy From: Emma To: Emma Date Posted: Thurs, Jan 27, 2005 at 06:15:45 (EST) Email Address: Not Provided Message: Pete, thanks for finding the post though I would anticipate no near change in China's currency policy. This seems a public ploy. We will learn of a currency policy change only after it has happened. Why there is no Administration representative at Davos is a puzzle. We may not care much about the meeting?

Subject: Investment Banker and Client From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 18:20:27 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26place.html?pagewanted=all&position= Investment Banker and Client: A Bond Deepens By LANDON THOMAS Jr. The ballroom at the Grand Hyatt in Manhattan was overflowing with eager investors on Friday as James B. Lee Jr., a top executive of J. P. Morgan Chase, stepped to the podium. Mr. Lee was making a pitch for his newest client, Edward S. Lampert, the hedge fund investor who had resurrected the fortunes of Kmart and masterminded its $11 billion merger with Sears, Roebuck. 'Eddie is, in my view, one of the most important new figures in American business today,' said Mr. Lee, whose slicked-back hair and flashing cuff links harked back to his brasher days as a 1980's deal maker. 'And he is as old school in relationships as I am. If you want to have a relationship with these guys, get into this deal.' With a shy smile, Mr. Lampert started into a detailed description of his plan to turn two down-at-the-heels retailers into a new entity able to compete with the likes of Wal-Mart and Target. And with a nod to the 40 percent position that his fund, ESL Investments, will have in the new company, Mr. Lampert made it clear to the bankers in the room that it was his money, even more than theirs, that would be at stake. 'If this were to fail, ' he said coolly, 'we would lose our money before you lose a penny.' But on such a buoyant day, no one was prepared to contemplate that kind of outcome. Investors have already committed $5.65 billion to Mr. Lee's $4 billion syndicate deal, which is intended to provide Mr. Lampert the funds to run his new company as well as make acquisitions. The merger is expected to close in March. While a boon for both men, the deal also illuminates where the new power lies on Wall Street. Large banks like J. P. Morgan Chase have traditionally lent to Fortune 500 companies and leveraged buyout firms. Now, investors like Mr. Lampert, with their billions of fast-moving dollars and their emergence as deal makers, are becoming the most favored clients. At the same time, the growing bond between Mr. Lampert, 42, and Mr. Lee, 52, who communicate with each other at least once a day, suggests that even as banks grow larger and more impersonal, it is the power of personal relationships that remains the essential lubricant for deal making on Wall Street. 'I want that 20-year incredible partnership,' Mr. Lee said after the presentation. A pioneer of the syndicated loan market, Mr. Lee was an early backer of Stephen A. Schwarzman of the Blackstone Group, Theodore J. Forstmann of Forstmann Little and David Geffen, one of the founders of DreamWorks SKG. It was Mr. Geffen, a friend of both Mr. Lee and Mr. Lampert, who brought the two men together a few months ago. 'Banking at this level is all about picking people, ' Mr. Lee said, 'and I've made some good bets.' In many ways, the old model of the banker-client relationship has changed. Deals are no longer cut by likeminded men over drinks at their club, or during a round of golf. As banks have consolidated and commissions have shrunk, the competition for business has become all the more fierce, putting a strain on the bond that once linked a banker to his client. 'People have become very transaction-oriented as opposed to relationship-oriented,' Mr. Lambert said in an interview. The changing attitudes of Wall Street are familiar to Mr. Lampert, who walked away from a promising career as an arbitrage trader at Goldman, Sachs to start his own hedge fund in 1988 with a million-dollar stake. Since then, he has generated returns of 30 percent a year by investing in underperforming companies, taking a seat on the board and turning the firm's fortunes around. According to investors in his fund, Mr. Lampert's original position is now worth close to $3 billion, and the size of the fund is well over $10 billion. (Mr. Lampert declined to comment on any aspect of his wealth or the fund's size.) Along the way, Mr. Lampert has attracted a roster of celebrity clients, including Michael S. Dell, founder and chairman of Dell Inc., and Mr. Geffen, who happily agreed to his stringent conditions - a minimum investment of $20 million and a five-year fund lockup. Soft-spoken and slightly hesitant in demeanor, Mr. Lampert comes across more as an actuary than a multibillionaire hedge fund investor. And while his offices are situated on an avenue in Greenwich, Conn., they are unassuming as well as anonymous. ESL's name is not listed in the building reception area downstairs or on its front door, precautions taken after Mr. Lampert was briefly kidnapped two years ago. (He travels with a security guard). But there is nothing retiring about his main ambition for Sears Holding, the combined company, where he will be chairman. He wants to improve its image, profitability and cash flow as well as use it as a vehicle to buy other undervalued companies, as his mentor Warren E. Buffett has done with Berkshire Hathaway. 'Good businesses generate cash,' he said. 'The question is how does management invest the cash. We can open new stores, invest in new ones, buy other retailers or even other companies. We have a confidence in allocating capital and investing in businesses that is a value to the shareholders of the company.' His prescriptions for success at Sears, as they were at Kmart, seem simple enough: cut back on inefficient spending, reposition brands, redo vendor relationships and be ruthless in the use of capital. His instinct to hoard cash has led to a regulatory filing from the new Sears, saying that it expects to stop paying dividends for the first time since 1911. Though a product of Wall Street, Mr. Lampert disdains many of its conventions, especially those that he feels encourage a preoccupation with stock prices rather than company performance. He also bristles at the term hedge fund - he prefers investment partnership - contending that his fund borrows and trades very little, distinguishing it from its peers. Among his pet peeves: the quarterly earnings calls that companies hold with analysts, which he sees as a distraction; Wall Street analysts' reliance on statistics like same-store sales, or sales at stores open at least a year, to measure retail performance; and the liberal awarding of stock options to executives (at Sears, he plans to limit the allocations of options to senior executives). 'We don't want people to focus on the stock,' Mr. Lampert said. 'We will pay our team on the basis of the company's performance. As Warren Buffett said, companies get the shareholders they deserve.' Since the deal with Kmart was announced in November, Kmart's stock, which had soared from $15 to a high of $119 under his stewardship, has declined to $88.27 as a number of investors expressed doubts that the new company would survive. Some analysts question whether cost-cutting and other streamlining moves will be enough, saying the company needs to find a strong identity that will help it increase sales. Kmart remains one of the Nasdaq stocks most actively sold short, reflecting a view among some investors that its price has further to fall. 'People are saying if you compete against Wal-Mart, you will die,' Mr. Lampert said. 'We think that on the basis of the combined company's $55 billion in sales, we could generate a lot of cash.' It is that cash and Mr. Lampert's plans that are causing commercial and investment bankers on Wall Street to pay close attention, and he has received appeals from every major house for his business. But in the end it was J. P. Morgan and Mr. Lee that won out, and Mr. Lampert and the management teams at Kmart and Sears assigned the bank the lead role in the syndicate, with co-leads going to Citigroup and Bank of America. The rest of the syndicate included a who's who of prominent Wall Street banks, including Merrill Lynch, Morgan Stanley, Goldman Sachs and Lehman Brothers, which advised Kmart on the Sears merger. 'There are moments of truth,' Mr. Lampert said. 'Some people step up, others disappear. Jimmy is a guy that understands relationships.' The relationship between Mr. Lee and Mr. Lampert began with a timely phone call from Mr. Geffen, the Hollywood mogul. Mr. Geffen has invested in Mr. Lampert's funds since 1991, when he was one of Mr. Lampert's early investors, giving him $200 million. Mr. Geffen says that if he had left that amount with Mr. Lampert, it would be worth more than $5 billion. The two men are close friends - Mr. Lampert refers to him a partner, as he does all his investors - and he spent much of this month at Mr. Geffen's home in Beverly Hills. Mr. Lee and Mr. Geffen have been friends since 1994, when Mr. Lee, then at Chemical, a predecessor bank of J. P. Morgan Chase, underwrote a $1 billion loan for DreamWorks. That led to a coveted co-lead role for Morgan in the company's public offering last year. 'I'm all about my relationships,' Mr. Geffen said. 'I told Jimmy that Eddie was a genius, and I told Eddie that you might want to borrow some money from Jimmy.'

Subject: Paul and Brad and Joshua From: Terri To: All Date Posted: Wed, Jan 26, 2005 at 16:02:57 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000229.html#comments Just How Stupid Is the Wall Street Journal's Editorial Page? By Brad DeLong Paul Krugman drops Josh Micah Marshall a note: Talking Points Memo: by Joshua Micah Marshall: January 23, 2005 - January 29, 2005 Archives: A note from TPM reader Paul Krugman ... Today's WSJ lead editorial is a classic. It's titled 'All you need to know', and shows the CBO projection of declining deficits and stable debt. What they either don't know or believe readers don't know is that this is the *baseline* projection, which assumes that the sunset clauses in the tax cuts actually go into effect, with the whole thing expiring at the end of 2010 (which is halfway through fiscal 2011, in their chart.) It also assumes that nothing is done to reform the alternative minimum tax, which amounts to a stealth tax increase. So what they've proved is that the tax cuts are affordable as long as they go away ... I say that man deserves a Special Edition Privatize This! TPM T-Shirt! Do they not know that the CBO baseline projection assumes the expiration of the Bush tax cuts? Do they have so much contempt for their readers that they bet their readers won't notice? If they had any credibility, this would be a way to burn it to the ground.

Subject: The world´s (in-) dispensable nation From: Pancho Villa alias Sam To: All Date Posted: Wed, Jan 26, 2005 at 14:17:20 (EST) Email Address: nma@hotmail.com Message: FT Tuesday January 25 2005 Michael Lind How America became the world’s dispensable nation In a second inaugural address tinged with evangelical zeal, George W. Bush declared: “Today, America speaks anew to the peoples of the world.” The peoples of the world, however, do not seem to be listening. A new world order is indeed emerging – but its architecture is being drafted in Asia and Europe, at meetings to which Americans have not been invited. Consider Asean Plus Three (APT), which unites the member countries of the Association of Southeast Asian Nations with China, Japan and South Korea. This group could become the world’s largest bloc, dwarfing the European Union and North American Free Trade Association. The deepening ties of the APT member states are a big diplomatic defeat for the US, which hoped to use the Asia-Pacific Economic Co-operation forum to limit the growth of Asian economic regionalism at American expense. In the same way, recent moves by South American countries to bolster an economic community represent a clear rejection of US aims to dominate a western-hemisphere free-trade zone. Consider, as well, the EU’s rapid progress towards military independence. American protests failed to prevent the EU establishing its own military agency, independent of the NATO alliance (and thus of Washington). Europe is building up its own rapid reaction force. And despite US resistance, the EU is developing Galileo, its own satellite network, which will break the monopoly of the US global positioning satellite system. The participation of China in Europe’s Galileo project has alarmed the US military. But China shares an interest with other aspiring space powers in preventing American control of space for military and commercial uses. Even while collaborating with Europe on Galileo, China is partnering Brazil to launch satellites. And in an unprecedented move, China recently agreed to host Russian forces to joint Russo-Chinese military exercises. The US is being sidelined even in the area that Mr. Bush identified in last week’s address as America’s mission: the promotion of democracy and human rights. The EU has devoted for more resources to consolidating democracy in post-communist Europe than has the US. By contrast, under Mr. Bush the US hypocritically uses the promotion of democracy as the rationale for campaigns against states it opposes for strategic reasons. Washington denounces tyranny in Iran but tolerates it in Pakistan. In Iraq, the goal of democratization was invoked only after the invasion, which was justified earlier by claims that Saddam Hussein had weapons of mass destruction and was collaborating with al-qaeda. Nor is American democracy a shining example to mankind. The present one-party rule in the US has been produced in part by the artificial redrawing of political districts to favor Republicans. The role of money in American politics continues to grow. America’s judges – many of whom will be appointed by Mr. Bush – increasingly behave as artisan political activists in black robes. America’s antiquated winner-take-all electoral system has been abandoned by many other democracies for more inclusive versions of proportional representation. In other areas of global moral and institutional reform, the US today is a follower rather than a leader. Human rights ? Europe has banned the death penalty and torture. The US is a leading practitioner of execution. Under Mr. Bush, the US has constructed an international military gulag in which the torture of suspects has frequently occurred. The international rule of law ? For generations, promoting international law in collaboration with other nations was a US goal. But the neoconservatives who dominate Washington today mock the very idea of international law. The next US attorney general will be the WH counsel who scorned the Geneva Conventions as obsolete. A decade ago, American triumphalists mocked those who argued that the world was becoming multipolar rather than unipolar. Where was the evidence of balancing against the US? They asked. Today the evidence of foreign co-operation to reduce American primacy is everywhere – from the increasing importance of regional trade blocs that exclude the US to international space projects and military exercises in which the US is conspicuous by its absence. It is true the US remains the only country capable of projecting military power throughout the world. But unipolarity in the military sphere, narrowly defined, is not preventing the rapid development of multipolarity in the geopolitical and economic arenas – far from it. And the other great powers, with the exceptions of the UK, are content to let the US waste blood and treasure on its doomed attempt at hegemony in the Middle East. That the rest of the world is building institutions and alliances that shut out the US should come as no surprise. The view that American leaders can be trusted to use a monopoly of military and economic power for the good of humanity has never been widely shared outside the US. The trend toward multipolarity has probably been accelerated by the truculent unilateralism of the Bush administration, whose motto seems to be that of the Hollywood mogul Samuel Goldwyn: “Include me out.” In recent memory, nothing could be done without the US. But today, most of any long-term importance in global diplomacy and trade occurs without American participation. In 1998 Madeleine Albright, then US secretary of state, said of the US: “We are the indispensable nation.” By backfiring, the unilateralism of Mr. Bush has proved her wrong. The US, it turns out, is a dispensable nation. Europe, China, Russia, Latin America and other nations are quietly taking measures whose effect, if not sole purpose, will be to cut America down to size. Ironically, the US, having won the cold war is adopting the strategy that led Soviet union to lose it: hoping that raw military power will be sufficient to intimidate other great powers alienated buy its belligerence. To compound the irony, these other great powers are drafting the blueprints for new international institutions and alliances. That is what the US did during and after the second WW. But that was a different America (!), led by wise and constructive statesmen such as Dean Acheson, the secretary of state who wrote of being “present at creation”. The bullying approach of the Bush administration has ensured that the US will not be invited to take part in designing the international architecture of Europe and Asia in the 21st century. This time, the US is absent of creation. The writer is senior fellow at the New America Foundation in Washington DC.

Subject: A European Perspective on China From: Setanta To: All Date Posted: Wed, Jan 26, 2005 at 13:28:18 (EST) Email Address: Not Provided Message: The great march of China 24/01/2005 By the end of next year, 2 per cent of our population will be Chinese. This may be an extraordinary statistic, but in fact it should not surprise us. Walk into any Spar, Centra, Texaco or dry cleaner's and you will see them - young, hard-working Chinese students. Few Irish restaurants, bars or coffee shops would function without them. Griffith College in Dublin has over 1,000 Chinese students enrolled this year. A significant section of the English language school industry - which used to depend on Spanish students – now lives off the new Chinese. Make no mistake about it: our economy and our prosperity depend in part on these Chinese twenty-somethings - without them, many Irish firms would go to the wall. Not only will these Chinese immigrants influence our future, but China itself will shape our century. Most of us have become used to the idea that China is a major player in the global economy. Twenty years ago, the country barely rated a mention; ten years ago it was beginning to show up on economists' radar screens. Over the last three years, since it joined the World Trade Organisation, China has become the most dramatic - and arguably the most important – show on the global stage. The big question is what is next for China. Will its march to economic ascendancy be smooth, successful and orderly, or will it be problematic, volatile and dangerous? In the short term, most investors, politicians and commentators are focusing on trade opportunities, the Chinese currency and the impact on the US dollar of China's enormous trade surplus with America. But in the longer term, the big issues concern the impact China will have on our societies and how we in the West will respond. Let's look at the short-term issues first. The key here is the currency.For the last ten years, the exchange rate of the Chinese renminbi (or yuan) to the US dollar has been fixed in a very narrow range, around 8.28CNYto $1. This tight exchange rate regime means that the Chinese central bank - the People's Bank of China - is required to defend that rate. So, despite the growing trade surplus with the US, the Chinese currency has remained absolutely stable. This state of affairs is intolerable, both for the Americans and for us Europeans. The Americans need the Chinese to revalue because China's trade surplus with the US is rapidly swelling. If a weaker dollar generally is a necessary condition for the US current account deficit to shrink, then the dollar must weaken against the renminbi as well. The Europeans endorse that argument wholeheartedly because, so far, we have been obliged to carry the main burden of the dollar's decline. The Chinese have had a free ride: their currency is pegged to the dollar, so they maintain their competitive position vis-a-vis the US, while the fall in the dollar's value against the European currencies has meant that the renminbi, too, has been devalued against these currencies - thereby improving China's competitive position vis-a-vis the euro. So virtually the entire world wants China to revalue - and the pressure has grown in recent months. The Chinese government and central bank, however, are not keen on revaluing - least of all under pressure from foreigners, especially the US. They have a long-term strategy for gradually opening up their financial system, which will require them to sort out their very wobbly banking system and slowly remove the exchange controls, so that the renminbi eventually becomes a freely-convertible currency, traded openly on global markets. But that is a goal to be reached ten or more years down the road, as far as the Chinese authorities are concerned. This long-term and gradualist approach is now under serious threat - and with it, the entire Chinese financial system. The supreme irony of this situation is that the people mounting this threat are not Western governments, or shady speculators operating through offshore shelters on exotic Caribbean islands, but rather the Chinese people. The situation today on the streets of Shanghai is that tourists seeking to sell dollars for yuan are unwelcome. “Haven't you got a currency other than American dollars?” is the question the dealers are asking - because they and the entire market are awash with greenbacks. The source of this flood of dollar selling is Chinese firms and wealthy individuals (of whom there are now plenty),who are convinced that a revaluation is inevitable and are intent on divesting themselves of the dollars they have hoarded, legally or illegally, over the years. They are being joined in this effort by their family and friends throughout Greater China, and, indeed, throughout the ethnic Chinese émigré communities stretching across Asia and North America (and even into Europe). All these people see the yuan as a one-way bet and are selling their dollars. The only buyer in sight is the People's Bank of China, which is required to buy ever-larger quantities of dollars to preserve the exchange rate. In short, what seems to be happening in the narrow confines of China's foreign exchange market, is a showdown between the People's Bank of China and the people of China. Experience garnered around the world strongly suggests that, in contests of this kind, the market wins and the authorities lose. Therefore it would seem that the next big story in the history of China will be the first defeat ever of the Communist Party at the hands of the people of China - in the guise of a very capitalist revaluation of the currency.But what of the big picture? What impact will China have on you over the next few decades? China's impact is best seen in the consumer durable shops all around the country. China is having a remarkable effect on the price of manufactured goods worldwide. Because the cost of production is so low in China, and so much western investment in China is aimed at making stuff there and reselling it in the West, China is setting the floor for prices in everything from mobiles to computers, staplers to office desks. The question has to be asked: how can any western country compete with 50-cent-an-hour factory workers? And what happens? Manufacturing jobs will migrate to China, just as agricultural jobs did to the US in the 19th century. However, the main difference between now and then is emigration. Poor Europeans will not emigrate to China as millions of poor Irish did to the US in the 19th century. In fact, the emigration of Chinese students the other way is likely to continue. So poor Europeans will suffer in two ways from the emergence of China. First they will be actively competing with new Chinese immigrants in the services sector at home in bars, cafes and restaurants. If they are in European manufacturing, their wages will be gradually reduced as investment moves to China. History suggests that the West's reaction to the new China might be initial euphoria and fascination, followed by economic insecurity and ultimately closed doors to trade. The beginning of the Age of America coincided with the so-called ‘gilded age of free trade' from 1860-1914. This was followed by a great age of protectionism from 1918-1948. Who'd like to bet against history repeating itself in the 21st century?

Subject: Re: A European Perspective on China From: Ari To: Setanta Date Posted: Wed, Jan 26, 2005 at 14:12:09 (EST) Email Address: Not Provided Message: http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp The Great March of China By DAVID MACWILLAMS - Post.IE

Subject: Re: A European Perspective on China From: Setanta To: Ari Date Posted: Thurs, Jan 27, 2005 at 07:37:53 (EST) Email Address: Not Provided Message: i pulled it from www.davidmcwilliams.ie. Apologies, should have included the source. he was the anchor on newstalk 106fm breakfast show which was excellent. however, having one of the country's best economic/business/political commentators wasn't enough for the ratings so now they have a former soccerplayer (and a bad one at that) who is a controversial republican sympathiser and radical leftie (who also stumbles over complex financial terms like 'euro dollar exchange rate'). strewth...they banished david to the wilderness for a guy who keeps bringing up his glorious season at millwall (some unrated side) into coversations. are you a sunday business post fan?

Subject: Re: A European Perspective on China From: Ari To: Setanta Date Posted: Thurs, Jan 27, 2005 at 12:19:57 (EST) Email Address: Not Provided Message: I have looked to the Sunday Business Post ever since you referred to it. Always interesting and often useful. Thanks.

Subject: Understanding China? From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 12:38:21 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/opinion/26spence.html?ex=1107752400&en=235668be986000ee&ei=5070 Martyr Complex By JONATHAN SPENCE New Haven — WHY has the Chinese government been so intent on showing that the former Communist Party chief Zhao Ziyang was a man of no significance, a man whose life should not be celebrated and whose death should pass unsung? The answer that comes most readily to the historian's mind is that Mr. Zhao played a role that has often made Chinese governments deeply uneasy: that of a bold and visionary reformer who insistently calls for change and openness in a tightly controlled political environment. Saluted for a time as one of the leaders of the country, Mr. Zhao sought to use his power and visibility to grant a hearing to the voices of those excluded from the inner circles where decisions were normally made. And when he persisted in this course in the face of opposition from senior leaders in his party, he had to be discarded. Many others have played similar roles in China's long history, from as early as the seventh century B.C. Ancient texts suggest a tendency for historians to personalize the idea of reform, to let one or a few individuals give a human face to inchoate and broad-based pleas for change and innovation. Often, those seeking reforms were punished by their own colleagues, so that the concept of reform led to the construction in China of an elaborate and emotionally powerful martyrology. China's recent history is studded with such cases that also serve as markers for major political shifts. Near the end of the Qing dynasty, China's last in the long imperial cycle that had endured for over two millenniums, there was a dramatic example. The year was 1898, and the country was smarting from its recent defeat by Japan, and the loss of Taiwan as one of the spoils of war. China's political structure seemed frozen in time, unable to adjust to a new world's market and military forces. Persuaded of the need for change, the emperor himself tried to open up the system by inviting a group of independent-minded scholars to the court, where they swiftly introduced plans to develop the economy and tax system, transform education, foster industry, increase the productivity of agriculture, develop the press, and begin discussion of constitutional government and the possibilities of popular participation in decision-making. Before the year was out, the conservative opponents rallied, the emperor was placed under a form of palace arrest, and six of the most outspoken reformers were arrested and summarily executed. Those who had fled in time made it to Japan and a life of exile. The reform movement of 1898 became associated with the names of these six martyrs, though indeed they had spoken for a much larger constituency. In the years after the dynasty's fall in 1912, other individuals made parallel gestures or mounted similar challenges to central establishments, knowing how high the risks might be. One of the new breed of politicians who had risen to prominence in China's first republican elections, held in late 1912, used his newfound influence to challenge the centralizing and militaristic tendencies of China's interim president; he was gunned down in the Shanghai railway station en route to taking up a leadership position in the new Parliament. When Chiang Kai-shek was consolidating his power over the Nationalist Party in the 1920's, one of his closest lieutenants sought to increase the participation of leftists and to shift the government onto a more populist course. He too was shot dead on his way to a meeting. In 1946, just after the end of World War II, the popular poet Wen Yiduo cried out in anger against what he saw as government coercion against the liberals who were trying to open up the Nationalist Party - a goal that President Harry Truman's personal emissary to China, Gen. George Marshall, also sought to promote. Wen was shot and killed, just after giving a passionate speech daring the government to take action against him. The list could be expanded with many figures in the People's Republic: those who thought they could use the government's Hundred Flowers campaign of 1956-57 to bring a new humanity and a new openness to Communist Party rule; those who sought after the Great Leap Forward of 1958-60 and the famine that followed to bring back private plots and jump-start the rural economy; or those like the army marshal and minister of defense Peng Dehuai, who privately challenged Mao Zedong to open up the shutters that had darkened the economy since the Great Leap, and to listen to the voices of those who were suffering. In 1976, after his speech of homage to the deceased Prime Minister Zhou Enlai, when the people of Beijing demonstrated in thousands on Tiananmen Square, it was Deng Xiaoping who seemed to be demanding change; for that bravado, he was purged from the party for a second time. In 1987, it was Hu Yaobang, the party chief who was one of Deng's new protégés, who fell from grace because he was considered too soft on the fledgling democracy movement. Hu was replaced by Zhao Ziyang, who fell in his turn as he tried to persuade the government to respond more favorably to some of the ideas for greater political participation being framed so vociferously by the demonstrating citizens and students of Tiananmen Square. As the guns were being brought in, Zhao Ziyang wept, and for that the world remembers him. In contrast to many earlier reformers, Mr. Zhao was allowed to live out the 15 years of life that remained to him in house arrest in Beijing. But the main issues he had raised about political openness were not addressed. Instead, it was the market-energizing plans, which he had formulated in earlier years in Guangdong and Sichuan provinces, that were enshrined as basic policies for China's boom economy of the late 20th century. It did seem like petty spite for China's government to refuse Mr. Zhao a formal funeral and to deny him the credit that was his due. But, if the past is any guide, there will be a kind of corrective justice, as China's leaders seem already to be realizing by modifying their tough stance on the exact funeral arrangements. Indeed, the last thing that China's leaders probably want is for Mr. Zhao to join the long list of reforming martyrs who have made their mark before him. Jonathan Spence, a professor of modern Chinese history at Yale, is the author, most recently, of 'Treason by the Book.'

Subject: Betting on Drug Prices From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 11:26:52 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26rahr.html?pagewanted=all&position= Making a Fortune by Wagering That Drug Prices Tend to Rise By STEPHANIE SAUL Stewart Rahr's new $45 million East Hampton estate, the most expensive house ever purchased in New York State, is just across the pond from Steven Spielberg's. Mr. Rahr plays golf with Donald Trump and practices putting on an indoor green in the basement of his warehouse in Queens. He and his wife, Carol, last drew attention in 2003 when they bought four works of art, including a Renoir and a Picasso, in one sitting at Sotheby's. But as he becomes increasingly visible as one of New York's wealthiest men, Mr. Rahr, a 58-year-old law school dropout, is girding himself for the elimination of the system that helped generate his fortune. His success offers a rare glimpse into a lucrative but little-known corner of the pharmaceutical industry - the once-mundane business of delivering drugs from manufacturers to pharmacies. Over the last 20 years, the packing and shipping of drugs evolved into a game of arbitrage, called speculative buying, with distributors like Mr. Rahr wagering on drug price increases. This common industry practice seems more fitting to a casino than a distribution warehouse. And in the 1990's and the early years of this decade, with prices far outstripping inflation, it was a sure bet. Knowing that drug manufacturers typically increased prices at the same time, often in January, drug middlemen like Mr. Rahr, the sole owner of Kinray, which is based in Queens, made millions by overstocking their warehouses before manufacturers announced price increases. By acquiring extra inventory at the lower price, distributors made quick profits once they sold the drugs at higher prices a short time later to retail pharmacies. Prescription drug prices are a combustible political issue, and manufacturers feel intense pressure to restrain them. With their historically large profits threatened, and with regulators questioning aspects of the speculative buying system, the manufacturers have taken steps to shut it by limiting distributors to just one month's worth of inventory. Drug manufacturers have also begun using special software to help detect speculative buying. Mr. Rahr would not disclose exactly how much he made through speculative buying. Goldman Sachs estimated that the distribution industry, which is dominated by three large public companies, made 60 percent of its profit, or $980 million, from speculative buying in 2001, when the practice was at its peak. More recently, Goldman Sachs estimated speculative buying's contribution at 40 percent of profits. Mr. Rahr, who honed the practice with the help of a computer program, said that his profit from the practice never reached 40 percent. Mr. Rahr also said that his and other distributors' fees accounted for a tiny portion of the cost of drugs to consumers, with manufacturers taking the major share of profits. 'We're talking an infinitesimal impact on the consumer, based on the total cost of the health care industry,' Mr. Rahr said. 'Whether there is spec buying or not is not the greatest factor in the high cost of pharmaceuticals.' In some ways, the practice helped drug manufacturers, who relied on speculative buying in lieu of paying distributors to get drugs to pharmacies. In effect, it was a form of hidden compensation that never showed up as a cost to manufacturers. But speculative buying fostered many problems, industry analysts and economists said. Some say it played a role in drug cost inflation by adding an incentive for manufacturers to raise prices repeatedly. It also sometimes gave drug makers false signals that products were in demand, prompting them to turn out excess product. By encouraging distributor stockpiling, the system also led to shortages in some regions of the country, a situation known as a 'stock out' and one that the industry does not like to discuss. Last year, Bristol-Myers Squibb paid $150 million to settle allegations, without admitting or denying guilt, that it misled investors by aggressively encouraging wholesalers to flood their warehouses, thus artificially inflating its sales. The case, brought by the Securities and Exchange Commission, was the beginning of the end of speculative buying, as other manufacturers worried that they, too, might run afoul of securities laws. 'It was a dysfunctional model,' said Ken Abramowitz, an analyst and managing general partner at NGN Capital, a health care venture capital company in New York. Exactly how much retail drug prices have been affected by speculative buying is an open question. Adam J. Fein, a Philadelphia business economist, says that the end of speculative buying can reduce the rate of drug price inflation by one or two percentage points a year. Based on the 5.3 percent increase in retail drug prices in 2003, as calculated by IMS Health, a pharmaceutical-market research company, consumers could save $2.2 billion to $4.4 billion annually. Others agree that speculative buying created inflationary pressures, but are more concerned that ending the practice will drive up retail prices if distributors, who operate on slim profit margins, are forced to pass any costs to retail pharmacies. 'They'll have to make up their margins somewhere that they aren't getting from the manufacturer,' said Steven W. Schondelmeyer, a University of Minnesota professor who studies the economics of the pharmaceutical industry. 'They'll raise the prices to the pharmacies. The pharmacies have very thin margins to begin with, and all they can do is pass it on to consumers.' Experts agree, however, that consumers will benefit in at least one way. Speculative buying helped foster a secondary pharmaceutical market, with some distributors reselling extra drugs they did not need to other distributors. 'It invited the risk of the type of counterfeit and adulterated market that we saw with some of the biotech drugs and Lipitor,' said Christopher McFadden, an analyst with Goldman Sachs. The shift away from speculative buying has put pharmaceutical distribution at a critical point, according to Mr. Fein, whose company, Pembroke Consulting, advises both manufacturers and distributors. 'Of course it's affected our business,' said Mr. Rahr, who said he had no plans to raise prices to compensate for the loss of profit from speculative buying. Instead, he said that his company was working harder to control costs and expand its territory. 'Volume, volume, volume,' he said. The transformation has also affected bottom lines at the three large public pharmaceutical distribution companies - AmerisourceBergen, Cardinal Health and McKesson. Today, they deliver 90 percent of the $220 billion in drugs sold in the United States. As distributors try to recoup, they have become engaged in what Mr. Fein said were tough negotiations with manufacturers, asking that they pay fees for distributing drugs to pharmacies. 'The question is, How much more value or how much more fees is the manufacturing community going to be willing to pay?' Mr. McFadden said. 'It's kind of whatever you can negotiate.' In one of the first of these 'fee for service' deals, Eli Lilly recently announced it had struck an agreement with Cardinal Health, but neither side disclosed terms. Last week, Eisai, a Japanese pharmaceutical company, announced that it had broken off negotiations with Cardinal Health and warned patients of potential disruptions in the supply of drugs to treat Alzheimer's, epilepsy and gastrointestinal problems. Three days later, the companies announced that they had reached a deal, after all. Pfizer, the giant pharmaceutical manufacturer, said last week that it would not negotiate fee agreements with distributors. 'Someone like Pfizer says, 'the fact that you lost money is not my problem,' ' said Mr. Abramowitz, the health care analyst. As his profit margin narrows - Mr. Rahr describes it as 'razor thin' - Mr. Rahr is expressing confidence that Kinray will prosper even without speculative buying, based on its efficiency, low costs and the fact that he has no debt. His company has established a national telemarketing office that makes cold calls to pharmacies across the country. Mr. Rahr, whose company employs about 1,000 people, is expanding his business in home health equipment like walkers and bedpans, as well as generic drugs, both areas with higher profit margins than brand-name drugs, where he makes less than 2 cents on the dollar. 'We do all this work for pennies,' Mr. Rahr said. 'But like my father said, 'pennies do add up to dollars.' ' Last year, the pennies added up to $3.1 billion in sales. Mr. Rahr's business, he said, is dependent on a large computer-operated picking system that fills orders from among 34,000 items in the company's 400,000-foot warehouse. The items, he said, include anything a drugstore would sell. 'I'd be out of business without this technology,' he said. Despite his wealth, Mr. Rahr still exudes Queens from every pore. He is gregarious and down to earth, perpetually tanned, and seems both proud of his success and slightly apologetic about it, emphasizing that he still wears a $19.95 watch and drives himself to work in a 10-year-old Jeep Cherokee. He loves to tell stories about how a headwaiter or a security guard stopped him because he was wearing his usual attire, a baseball cap and jeans. 'My wife's used to it,' he said. 'I identify with the underdog.' He specializes in sales to 3,000 independent drugstores in seven Northeastern states. Mr. Rahr says he controls 75 percent of that market. Among the druggists, Kinray is known for its easy-to-use Web site. It has been 36 years since Mr. Rahr dropped out of New York Law School and persuaded his father, Joseph Rahr, not to sell the family's retail pharmacy in Brooklyn, which also supplied a few other drugstores. Mr. Rahr recently described the rejection he felt at first, when he tried to expand the wholesale business. 'I used to call the pharmacies and I would call and say, 'Kinray,' and they'd say, 'Nothing for you today.' And after about three or four in a row, I would get, 'Here's three aspirin for you and two Colgate toothpaste and one Mennen Speed Stick, if I were lucky,' ' Mr. Rahr recalled. 'And the sound of them hanging up on me, the 'nothing for you today,' just started to make me feel like I had to do something to get to become the primary jobber in these stores.' In 1973, Mr. Rahr and his wife, now a partner in a Manhattan jewelry design firm, Beach to Ballroom, bought their first home on one acre in suburban Dix Hills, N.Y. The Hamptons estate is considerably more grand, and Mr. Rahr sees it as his crowning achievement. It sits on 25 acres. The main house is 18,000 square feet, with 8 bedrooms and 14 baths, a private 2,000-foot beach with its own dock and boathouse, a waterside heated pool with waterfall and whirlpool, a tennis court and viewing pavilion, and a greenhouse. Mr. Rahr said that buying the property was an emotional experience for him. 'Here we were, 32 years later, walking on a much larger estate and feeling blessed that we were able to be in this position,' he said. Mr. Rahr says he has never borrowed a penny, so in a few days, when the deal closes on the oceanfront mansion, called Burnt Point, he will pay cash.

Subject: Japanese Return to U.S. Real Estate From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 11:10:48 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26prop.html?pagewanted=all&position= Echoes of the 80's: Japanese Return to U.S. Market By TERRY PRISTIN Japanese investment in United States real estate soared in the 1980's, as companies and financial institutions poured nearly $300 billion into high-profile properties like Rockefeller Center in New York and the Pebble Beach Golf Club in California. But the value of many of these assets plunged by as much as 50 percent in the early 90's, and for more than a decade, the Japanese have been sellers rather than buyers. After a 15-year hiatus, however, Japanese capital is re-entering the United States market, but much more quietly and cautiously this time. 'They have begun to test the waters again,' said Bill Collins, who runs the capital markets group at Cassidy & Pinkard, a real estate services firm in Washington. For the first time in years, for example, Mitsui Fudosan, Japan's largest real estate company and the owner since 1986 of 1251 Avenue of the Americas, the former Exxon Building, is searching for other buildings to buy in the two most competitive markets in the United States, said Michael W. McMahon, a senior vice president. 'We're targeting Midtown Manhattan and Washington, D.C.,' he said. A survey released this month by the Association of Foreign Investors in Real Estate, a trade group, found that most of its members expect the Japanese to lag only Germans and Australians as the most active foreign buyers of United States property. 'We have seen more activity from Japan in the past six months than we have in the past six years,' said James A. Fetgatter, the trade group's chief executive. 'I have Nikkei Shimbun coming in to talk to me today,' he said, referring to the Japanese newspaper. 'I've never met anyone from Nikkei Shimbun before.' So far, much of this Japanese money has been used to buy shares in publicly traded companies, rather than individual buildings. In October 2003, it became legal in Japan to sell portfolios of shares in real estate investment trusts, allowing special funds to be marketed specifically to Japanese investors. Some of these funds buy shares only in REIT's based in the United States, which largely own property in this country, while other funds own a portfolio of REIT shares from various countries, including the United States. Since these funds were first sold, investment in them has steadily increased, reaching $4.6 billion last month. Although this sum is just a fraction of the total $300 billion invested in United States REIT's, real estate specialists say it is significant nonetheless. 'It's not a huge number, but it's an encouraging number,' said Michael R. Grupe, a senior vice president of the National Association of Real Estate Investment Trusts, a trade group. 'It's been a fairly even growth path.' Takayuki Kiura, the managing director of a new Tokyo office that Heitman, a Chicago-based company that manages capital on behalf of pension funds and other investors, opened just this month, estimates that two-thirds of the $4.6 billion is invested in United States REIT's, with the rest in REIT's in other countries. A treaty that went into effect on July 1 gives Japanese investors in United States REIT's the same tax status as American investors, enhancing the appeal of these funds, said Tony Edwards, the general counsel of the REIT trade group. Heitman is just one of several American companies that have teamed with Japanese financial institutions to create REIT funds that are marketed to investors in Japan. Heitman manages about $270 million worth of assets for three funds with Nomura Asset Management and a fourth with Sumitomo Trust Bank. AEW Capital Management, a Boston company whose clients are mainly institutions, has a similar relationship with Nissay. And LaSalle Investment Management, part of the real estate services company Jones Lang LaSalle, manages a global REIT fund for Nikko that is aimed at Japanese investors. The American companies say they are focusing on Japan because it has an aging population with a long tradition of accumulating savings and a need for current income that cannot be met by low-yielding government bonds. REIT's, which pool money from investors to buy property, are required to return 90 percent of their taxable income to their investors, which means that they usually offer higher yields than most other types of securities. The Japanese have their own real estate investment trusts, but the industry is still relatively new, with only about 15 so-called J-REIT's in existence. The average dividend is about 3.5 to 4 percent, compared with an average of 6 percent for American companies. 'Besides that,' Jeroen Beimer, an analyst for Global Property Research, a company in Amsterdam that provides data for financial institutions, wrote in an e-mail message, 'J-REIT's primarily invest in Tokyo offices and to a lesser extent retail, so the spread of the portfolio in sector and geographical terms is limited. Another reason is that the underlying Japanese real estate market has faced tough times in the past 10 years, with declining prices and rising vacancy rates. The confidence in the market is therefore not that high.' Mark A. Grinis, a partner in Ernst & Young's real estate practice who recently moved back to New York after spending seven years in Tokyo, said that given their experiences of the past decade, Japanese investors would logically find more transparent and liquid investments in real estate attractive. 'You have a menu of options today that you didn't have in the late 1980's,' he said. The new focus on Japan is part of a growing globalization of the REIT industry. Mr. Grupe of the REIT trade group said that publicly traded real estate companies can be found in about 20 countries. 'They come in all different forms,' he said. 'Many of these countries tend to use the moniker 'REIT' to refer to that particular sector, but not all.' This trend is providing investors with a way to further diversify their real estate portfolios, said Michael J. Acton, the director of research for AEW Capital Management. 'Every city has its own cycles,' he said. Although the downturn in the United States real estate cycle in the early 1990's caused painful losses for many Japanese investors and banks, the Japanese continue to have significant holdings in this country. Mitsubishi Estate, for example, lost control of Rockefeller Center itself, but the company, through its wholly owned Rockefeller Group, still owns 7.7 million square feet of space there, including the Time & Life Building at 1271 Avenue of the Americas. Early last year, the Association of Foreign Investors in Real Estate reported that Japan was the leading source of foreign investment in American real estate, with a 26 percent share, the latest figure available. But Mr. Fetgatter cautioned that 'any statistics about foreign investment are always sketchy' since the countries do their own reporting. Sumitomo Life Realty (N.Y.) Inc., a subsidiary of the large Japanese insurance company (and a separate company from Sumitomo Trust), has a relatively new business strategy for geographically diversifying its United States portfolio in the hope of lowering its risk, said Norio Morimoto, the company president. Sumitomo Life Realty formed a partnership with Hines, the Houston-based real estate company, to invest in prime office buildings. The Japanese company subsequently sold four buildings to the fund: 499 Park Avenue, 425 Lexington Avenue and 600 Lexington Avenue in Midtown Manhattan and 1200 19th Street in Washington. About one-quarter of the investors in the Hines-Sumisei U.S. Core Office Fund, which now owns four more buildings in Houston and San Francisco, are Japanese, said Charles N. Hazen, the president. But other Japanese real estate companies are once again seeking to compete for buildings directly. Mr. Collins said that starting about six months ago, a 'handful of seasoned real estate companies' began looking for buildings priced around $100 million. Woody Heller, who heads the capital transactions group at Studley, the brokerage firm, said: 'We haven't seen any high-profile purchase, but we're all beginning to have conversations with them. Whether they will be competitive is unclear in my mind.' Mr. McMahon, the Mitsui Fudosan America executive, said his company was not looking for trophy buildings but rather for those that have potential for improvement. He acknowledged that bidding for properties in Washington and Midtown Manhattan, is challenging. 'We don't know at this point whether we're going to be successful,' he said. In the last decade, Japanese investors have become more sophisticated about market cycles, Mr. Morimoto said. 'We learned a lot from the experience,' he said. 'The best strategy is to diversify the location and timing of the investment, and by doing that we could have diversified our risk.'

Subject: Growth Up and Inflation Down in China From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 10:30:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/worldbusiness/26yuan.html Growth Up and Inflation Down in China By KEITH BRADSHER and CHRIS BUCKLEY HONG KONG - Economic growth in China accelerated to 9.5 percent in the fourth quarter, computed from the year-earlier period, while inflation slowed, the National Bureau of Statistics said Tuesday. Chinese officials promised to maintain controls on speculators, but took no new measures to temper economic growth. But just nine months after the Chinese economy seemed on the verge of an upward spiral of higher wages and prices, Beijing appears to have kept growth at a brisk pace while bringing inflation under control. Still, private-sector and academic economists are deeply divided over whether inflation can remain low, as Chinese leaders have eased some of the controls they imposed last spring. Growth had declined to 9.1 percent in the third quarter, compared with the year-earlier period, and had been expected to fall further in the fourth. The growth rate for all of 2004 was also 9.5 percent, despite the government's stated goal of lowering growth from the 9.3 percent pace of 2003 to try to calm inflation. Li Deshui, the commissioner of the National Bureau of Statistics, said Tuesday at a news conference in Beijing that policy makers would be cautious in controlling those areas of the economy that produced some of the most feverish growth a year ago. 'We must continue to strengthen and improve macroadjustment, and we can't relax, especially in managing land and credit - we need to closely guard those two gates,' he said. 'In particular, we must guard against a rebound in fixed-asset investment.' China brought down the year-over-year inflation rate from 5.3 percent in August to 2.4 percent last month. Mr. Li attributed the slowdown to a bumper grain harvest, as grain production grew 9 percent last year. But economists and business executives said the slowdown also reflected a combination of Herculean investments to relieve transportation and electricity bottlenecks, sometimes draconian administrative controls and a handful of market-based measures. Last winter, ships had to wait up to a month to discharge iron ore and other bulk cargos at overcrowded Chinese ports, power failures were widespread because of inadequate generating capacity and food prices leaped as demand grew faster than farmers could increase production. But shipping industry leaders, power company executives and manufacturers alike said over the last two weeks that the port delays, power disruptions and food price increases had diminished, though they had not disappeared. Companies have also learned to work around problems like blackouts. 'Our ships call on China and it's a pretty quick turnaround, particularly for our tankers - they realize they cannot afford bottlenecks,' said Sanjay Mehta, the managing director and chief executive of Essar Shipping in Mumbai, India. Many factories now run on evenings and weekends so they are no longer affected by weekday blackouts, said Harley Seyedin, the chief executive of the First Washington Group, which is based in Guangzhou, China, and owns a power plant in nearby Dongguan. Power regulators warn of disruptions days in advance, permitting factories to plan accordingly. Liang Hong, a Goldman Sachs economist here, said the government had expanded the capacity of many ports 30 percent to 60 percent within months, a task that would take years in practically any other country. China also achieved a 14 percent increase in electrical output last year, nearly twice the increase that utility analysts had thought possible. 'This is still a centrally planned regime - when it puts its money behind something, it gets done,' Ms. Liang said. The administrative controls imposed last spring included strictly enforcing land use regulations, denying loans from government banks to projects without government approval and even arresting and jailing executives and bank loan officers who proceed with projects without authorization. But the arrests in particular appear to have slowed - or at least are no longer trumpeted by the government-controlled media as a way to discourage speculation. A six-month freeze on converting land to industrial or commercial use expired in early November. Market-based initiatives have been confined mostly to bond sales; a single small increase last autumn in regulated lending rates; and three small increases a year ago in the reserves that banks must keep on deposit with the central bank. The growth figures released Tuesday were so strong that J. P. Morgan raised its forecast for China's growth this year to 8.5 percent from a previous 8.2 percent. Some economists remain convinced that the recent slowdown in inflation is only temporary. Tao Dong, a Credit Suisse First Boston economist here, predicted that inflation would double by this summer to 5 percent or 6 percent, given the loosening of administrative controls. Chinese economic policy makers will have to hit the brakes again when one of three things happens, he said: inflation rebounds; inflationary bottlenecks reappear; or bank depositors pull more of their savings out of banks and lend it privately, rather than continue accepting bank deposit rates that are well below the inflation rate. He Jun, an economist with Anbound, an investment consulting firm in Beijing, said strong growth throughout last year despite government controls showed the resilience of the economy and suggested that inflation could prove hard to control. 'Last year, the government was very forceful about implementing macrocontrols on the economy, but still the economy grew so fast - China's economic administrators have reason for concern about that,' Mr. He said. Chinese companies, Mr. He warned, may not be passing on their rising costs to consumers, instead borrowing huge sums, which could lead to an even greater burden of nonperforming loans at state-owned banks. Other experts are more optimistic. Wang Xiaolu, the deputy director of the National Economic Research Institute in Beijing, said China had succeeded in bringing down the global price of many commodities by taming domestic demand somewhat.

Subject: China's card From: Pete Weis To: All Date Posted: Wed, Jan 26, 2005 at 10:19:59 (EST) Email Address: Not Provided Message: ROBERT KUTTNER Oh yes, it can happen here By Robert Kuttner | January 26, 2005 ''How did you go bankrupt?' ''Two Ways. Gradually, and then suddenly.' Ernest Hemingway, The Sun Also Rises COUNTRIES GO broke gradually, by borrowing so much money that creditors lose confidence in their ability to pay the debt back. Then, they go broke suddenly as creditors stop lending. This has happened to more than a dozen Third World nations, who had the additional misfortune of having to borrow in dollars. As their own currency lost the confidence of world markets, they lost value against the dollar. This only increased their real debt burden. The optimists say, ''It can't happen here.' First, we're the people who print dollars. So if the dollar is losing value, it just means the money that we owe the rest of the world is getting cheaper. Lucky us. Second, we enjoy a codependency with our creditors. For instance, China, which keeps lending us money to finance our deficits, may be accumulating dollar credits that are losing their real worth. But China needs us to keep absorbing their products, so China will go right on lending. And third, the United States remains the anchor of the world economy. So even though other nations may not like America's immense trade and budget deficits, nobody is going to risk pushing the world into depression by crashing the dollar. That, as I say, is the optimistic view. Well, dream on. Yesterday, the bipartisan Congressional Budget Office, possibly the last intellectually honest government agency in George Bush's Washington, reported that our fiscal situation is even worse than expected. According to the CBO's latest ''Budget and Economic Outlook,' the projected deficit for 2005 will be about $400 billion. The CBO declares, politely but unmistakably, that it doesn't buy the Bush administration's budgetary gimmickry of trying to keep anticipated military outlays out of the official budget. ''The absence of further appropriations for activities in Iraq and Afghanistan,' CBO states, ''masks a further deterioration in budget projections over the [next] ten years.' Specifically, the deficit for the next decade is $504 billion worse than anticipated in CBO's previous estimate last September. The agency goes on to warn that other challenges not currently itemized in official administration projections, such as Medicare, Medicaid, and Social Security, will only increase future deficits. And, of course, if the Bush administration succeeds either in making permanent his major tax reductions (most of which sunset after 10 years), or in adding $2 trillion of borrowing to privatize Social Security, the fiscal situation would go from merely disastrous to catastrophic. But back to our story, ''It Can't Happen Here.' America's deteriorating fiscal situation, unfortunately, is not lost either on world money markets or on the Federal Reserve. Although no world leader would willfully plunge the world into depression, that's not how markets work. Markets are purely self-interested. Lately, markets, with good reason, have been betting against the dollar. As the US trade deficit approaches a staggering 7 percent, it's not clear how much longer foreign investors will keep investing in dollars and dollar-securities, such as corporate stocks and government bonds. As for the Chinese, Clyde Prestowitz of the Economic Strategy Institute, formerly a senior trade negotiator in the Reagan administration, offers the following scenario: In a future crisis involving the tense China-Taiwan relationship, the Chinese ambassador suggests to Secretary of State Condoleezza Rice that maybe the United States would like to move its warships 500 miles away from Taiwan. Rice demurs. The next day, the Bank of China sells a few --just a very few to get our attention -- US Treasury securities. Money markets reel. Would the Chinese play such a risky game? They have their own interests, geopolitical as well as economic. They are certainly not an American pawn, less so with every passing year. Miscalculations have happened in world economic relations before, and with calamitous results. The Federal Reserve, meanwhile, is increasingly worried about inflation, largely of the imported variety due to the weak dollar. The Fed is steadily raising interest rates. With every quarter-point hike, consumers pay more for mortgage and credit card loans, investors in stocks become more wary, and the air goes out of the economy. Alan Greenspan kept rates very low long enough to get George W. Bush reelected. Now he is reverting to type. The Bush administration is putting itself, and America's economic future, in grave jeopardy. The only good news is that all this bad news makes Social Security privatization, or permanent tax cuts for the wealthy, less than an even bet.

Subject: What to do About Bond Funds? From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 07:14:58 (EST) Email Address: Not Provided Message: Bond funds certainly are pricey. Then how are investors to fare in this bond market? Do we simply buy short term bond funds and settle for low returns to protect principle? I moved from Vanguard long term bond funds finally to intermediate. This bull market in bonds has given us a fabulous 5 years. We averaged a shade below 10% a year, while the S&P has a negative return these 5 years. Now what?

Subject: The New York Times From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 06:08:50 (EST) Email Address: Not Provided Message: Note: The New York Times has just made email of articles much harder. What are they thinking; are they thinking? Every family member subscribes to the New York Times, why make sharing articles by email more difficult? We can no longer send open articles. Good grief.

Subject: We Need Social Security From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 06:02:38 (EST) Email Address: Not Provided Message: We have been taught sadly wrong economic and civic lessons for quite a while. Imagine questioning whether we have a responsibility for the well being of our parents who have worked so and given so much to us. So we find absurd and false reasons to question wherther we can afford Social Security. Oh well.

Subject: Worry About Interest Rates From: Terri To: All Date Posted: Wed, Jan 26, 2005 at 05:38:48 (EST) Email Address: Not Provided Message: Politics aside, by which lights the bond market will never wake, this is a most dangerous bond market. The Vanguard Long Term Bond Index has a duration of 10 years. A 1 percentage point change in long term rates will result in a 10% change in price of fund. So, a 1 point rise in long term rates will cost an investor 2 years of earnings. Intermediate Term Bond Index has a 5 year duration. Short Term Bond Index a 2 year duration. Commodity prices are in a 2 year increase, and oil bounces from 45 to 50 dollars a barrel. Food and energy prices may not be part of the core price indexes, but they are contributing to a modest rise in inflation along with the weaker dollar. Asset prices are high. The federal deficit is simply not going to decline meaningfully. Remember, the Alternative Minimum Tax must be set aside again this year to avoid increasing harm to middle class households. So, the deficit and low household saving rate will continue balance of trade pressure and we become ever more dependant on imports of capital. Interest rates? There will be a time when long term rates finally begin to rise meaningfully. Who can say when, but we should indeed be cautious as investors and rather worried.

Subject: social security From: byron To: All Date Posted: Tues, Jan 25, 2005 at 22:48:14 (EST) Email Address: bconstl@juno.com Message: More than 20 years ago i was fed the same garbage that the Bush admin is spreading about SS going broke and i would never see a penny of it. Well i am 65 years old now, retired, been on SS since age 62. People don't believe the scare tactics that this Admin is spreading. SS is in good shape.

Subject: Re: social security From: mike To: byron Date Posted: Thurs, Jan 27, 2005 at 00:29:50 (EST) Email Address: dodgerfan123321@yahoo.com Message: Yea it's fine for you and your age group. People didn't start living as long until recently. Just wait to you baby boomers suck the ss dry and leave nothing for us but a total mess. What ever happened to planning ahead??

Subject: Re: social security From: byron To: mike Date Posted: Thurs, Jan 27, 2005 at 23:10:30 (EST) Email Address: Not Provided Message: Mike i paid into ss for 35yrs. I don't know how long you have paying into it, but you turn will come and you will be able to draw from it if Bush keeps his hands off of it.

Subject: Social Security is Fine From: Terri To: byron Date Posted: Wed, Jan 26, 2005 at 05:37:19 (EST) Email Address: Not Provided Message: Social Security is in fine shape for at least 40 more years, and with reasonable economic growth in fine shape for 70 years. The question is whether we care about a society in which Social Security has helped million and millions of retirees live a contented life after contributing so much to America.

Subject: Claims Against American Assets From: Terri To: All Date Posted: Tues, Jan 25, 2005 at 21:47:39 (EST) Email Address: Not Provided Message: What should be especially worrying is the combination of federal deficits and low household saving levels means that we must import ever more capital to fund our consumption. Thus, claims against earnings from American assets are piling up abroad. Earnings that we will need in future will be claimed by international investors.

Subject: Financial Company Expansion From: Terri To: All Date Posted: Tues, Jan 25, 2005 at 21:38:29 (EST) Email Address: Not Provided Message: http://www.barra.com/Research/SectorWeights.aspx Financial companies have gone from 6% of the S&P to almost 23%, from December 1977 to December 2004. This data however does not give us a sense of the importance of credit divisions of S&P companies such a GE. GE credit is easily the company's largest division. Still, I do not find a problem with such financial company growth.

Subject: Results for Canada's pension plan From: jimsum To: All Date Posted: Tues, Jan 25, 2005 at 14:53:41 (EST) Email Address: jim.summers@rogers.com Message: The Canadian equivalent of Social Security, the Canada Pension Plan (CPP) has been investing in the stock market since 2000. Approximately 50% of the $75 billion surplus in the CPP is invested in stocks, the rest in government bonds. (http://www.cppib.ca/invest/results/index.html) Here are the returns: returns year overall stock bond 2000 3.2 40.1 - 2001 7.0 (9.4) 9.9 2002 5.7 3.4 5.0 2003 (1.5) (20.9) 8.4 2004 17.6 31.8 8.7 2005* 0.9 0.8 0.8 * first half of 2005 Unfortunately, the CPP was only 5% invested in stock in 2000, missing out on a nice 40% return that year. On the other hand, it was only invested 14% in stock in 2001, missing out on a nasty -9.4% return that year. At any rate, you don't need private accounts to invest government pension surpluses; the government can do the same as private citizens or companies and pick an advisor or two to invest the surplus. In fact, maybe you Americans should consider investing your private SS accounts in the CPP; especially since the exchange rate changes of the last two years have increased the U.S. dollar value of the CPP surplus by 25% :-)

Subject: Canada's pension plan From: Terri To: jimsum Date Posted: Tues, Jan 25, 2005 at 16:06:54 (EST) Email Address: Not Provided Message: I think the initial year should by 1999, and so on.... December 31, 1998 to December 31, 1999 begins the investing with a 40.1% return in Canadian dollars. 1999 40.1 2000 ( 9.4) 2001 3.4 2002 (20.9) 2003 31.8 2004 13.8

Subject: Re: Canada's pension plan From: jimsum To: Terri Date Posted: Wed, Jan 26, 2005 at 10:03:55 (EST) Email Address: jim.summers@rogers.com Message: Sorry, I didn't notice that the years are 'Fiscal Years Ended March 31'. So each year contains 2/3 of the previous year, and 2005 started in April 2004. Government agencies are worse than car companies; at least car model years don't start until the fall :-)

Subject: Re: Canada's pension plan From: Terri To: jimsum Date Posted: Wed, Jan 26, 2005 at 14:14:07 (EST) Email Address: Not Provided Message: So, that is the secret :)

Subject: Paying a Price for Poor Food From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 14:11:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/nyregion/25wide.html?pagewanted=all&position= Paying a Price for Doughnuts, Burgers and Pizza By DAVID GONZALEZ Hunger - or insanity - could lead someone to eat his way around the intersection of East 149th Street and Southern Boulevard in the South Bronx. From the bakery filled with sugary cakes, past the Latin restaurant selling curled slabs of fried pork skin, past the Dunkin' Donuts and on to Popeyes Chicken and Biscuits. Just in case, a pizzeria and a White Castle beckon from nearby blocks, too. Towering over this strip is a giant mural for what by default is the only light thing around: Coors Light. It is no accident that one of the best views of this gastronomic gantlet is from the steps of the very place where it has led more than a few unfortunates: the Ortiz Funeral Home. 'I stopped trying to find anything because there's nothing healthy to eat around here,' lamented a woman who would give her name only as Miss David and who works at Public School 25. 'I was once buying coffee at the Dunkin' Donuts, and I saw a chubby young guy ordering a bacon something for breakfast. Two of them. That scared me.' The devastating results of poor diet, no exercise and lots of stress are increasingly scaring health advocates in poor communities across the city. Diabetes is now the city's fourth leading cause of death. In neighborhoods where homicide or AIDS were the leading killers among young men and women a decade ago, heart disease and obesity are claiming ever more lives. No wonder recent federal dietary guidelines recommend decreasing calories and increasing exercise. 'It is a truly bizarre situation where food itself makes you sick,' said Chris Norwood, the executive director of Health People, a community health education group whose office is just off East 149th Street. 'Throughout history, getting enough food to stay well was usually the challenge. Then again, most of this stuff is not food.' Although Ms. Norwood first came to the area in the 1980's to work with people who had H.I.V. and AIDS, she soon found herself vexed by how asthma, diabetes and heart disease were wreaking havoc on residents. She now thinks psychological stress is as much to blame as poor diet or smoking. 'A third of the men around here are in jail or on parole, and 50 percent of the rest don't have jobs,' she said. 'Women are raising children alone. We have a collapse of normal social support in the communal body, so that people become depressed in a way that they no longer understand that good health is possible.' But while, in the case of AIDS, a sense of crisis led to funding for prevention and community education, Ms. Norwood says that not enough resources have been devoted to fighting obesity, diabetes or smoking. Dr. Hal Strelnick, a professor of family and social medicine at the Albert Einstein College of Medicine, says he has seen more and more young people suffering from a combination of chronic conditions. In some cases, weight, cholesterol or blood pressure do not even have to be above critical levels to put people at risk for serious illness: if all three measures are borderline, the result, known as metabolic syndrome, can be just as dangerous. Most alarming, Dr. Strelnick said, is that more teenagers are developing Type 2 diabetes, a condition that affects the obese. While proper diet would help, local food stores usually stock what is cheap and popular, not what is best. Even more maddening, the most immediate health effect of the nearby Hunts Point Produce Market on residents is a bad one. 'There is a higher rate of asthma because of the volume of truck traffic to the market,' Dr. Strelnick said. 'Everybody else's food comes through Hunts Point. The great irony is there is all this wonderful food down the road. But none of it ends up on the local shelves.' This is not hyperbole. Although Patricia Jackson lives in Mott Haven, she shops for vegetables in Manhattan. As a diabetic, she watches her diet, she says, even if she recently splurged with some cake. 'We had this tenant association party, and there is this lady, Miss Sarah, who is from Macon, Ga.,' Ms. Jackson said. 'This lady can cook! She made pineapple cake. I didn't care. I wanted a piece. Oh, my God - the next day my sugar was so high.' Unlike many of her neighbors, Ms. Jackson was more cautious in the following days. She is a peer educator at Health People, enlisting others to watch what and how they eat. She learned all this the hard way, after doctors at one hospital gave her pills to treat her blood sugar but told her nothing about diet. 'I ate everything because I thought I was O.K. since I was taking the pills,' she said. 'Then I had a mini-stroke.' A group of peer educators - whose average blood sugar levels dropped by almost a third after training, according to one study - ventures out into the neighborhood several times a week to do quick health screenings. In one session at Hostos Community College, almost 40 percent of about 350 students screened were at risk for diabetes. The same results could be obtained pretty much anywhere in the neighborhood, the peer educators said. Ms. Jackson and her colleagues set up a table last week in the lobby of a job-training center near the Hub. Health People has an office there, though it can't be seen from the street because the gates are always down to shut out secondhand smoke from the sidewalk smokers. The screeners find the going hit or miss here in the early morning, since clients only have a few minutes break until lunch. Most rushed past the table, some clutching cookies or doughnuts, to smoke a cigarette. By lunchtime, however, several dozen people had stopped for a quick evaluation. Half of them were at risk for developing diabetes; many already had the disease in their families. Others suspected it might be only a matter of time. 'My boyfriend is overweight,' Mildred Diaz said. 'He's 415 pounds, and he eats all this fried food. He has a breathing problem. He has sleep apnea, so he has to sleep with a machine. He's only 26 years old.' Laurellie Franco, a solidly built woman with a teardrop tattooed beneath her left eye, signed up for a course on diabetes. She has a brother who already has the disease. 'He's 40, and he's got it bad, you know what I'm saying?' she said. 'I want to know if I might have it.' She clutched a small paper bag. 'That's a bagel with sausage and egg,' Ms. Franco said, sheepishly. 'These guys should have caught me before I went to the store.'

Subject: Opening the Consumer Market in China From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 11:03:31 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/worldbusiness/25shoes.html Let the Competition Begin By CHRIS BUCKLEY BEIJING - China is better known for making most of the world's sports shoes rather than wearing them, but the world's biggest athletic shoe brands are in a race here to change that. Adidas-Salomon announced Monday that it would be a major sponsor of the Olympic Games in Beijing in 2008. Chinese athletes will wear the Adidas brand shoes and sportswear throughout the Games. The announcement was part of Adidas's ambitious hopes for China. The company, based in Germany, intends to increase its stores in China to 4,000 by 2008 from 1,300 now, and to expand its China revenues to more than 1 billion euros ($1.3 billion) by the end of the decade. 'We foresee by 2008 China could be the No. 3, or with some push, No. 2 market in the world,' Christophe Bezu, the Adidas senior vice president for the Asia Pacific region, said at a news conference here. 'China clearly is the driver.' Annual revenue from China currently stood at well over $130 million, he said. Rival sportswear brands like Reebok and Nike and other multinational corporations also have their eyes on China's increasingly affluent and image-conscious young consumers. They have recruited sports stars like Yao Ming, the Shanghai-born center of the Houston Rockets, and Liu Xiang, China's gold-medalist hurdler, as icons of a confident sports-loving nation. Nike's sales in China rose two-thirds in 2003 to $300 million. Chinese consumers now spend about $5 billion a year on sports merchandise and events, a sliver of the $200 billion or more spent in the United States every year, said Terry Rhoads, a former Nike marketing executive who is now general manager of Zou Marketing, a Shanghai company that advises on sports management and promotion. 'Perhaps there's more hype than opportunities,' Mr. Rhoads said, 'but there's no doubt there's pent-up demand for sports in China.' Chinese city governments have also spied that opportunity, and many have spent heavily on new sports centers. Apart from Beijing's preparations for the 2008 Olympics, Shanghai has spent heavily on Formula One racetracks and tennis courts for international meets. But more than income and budgets stand in the way of turning China into a major sports market, experts say. As in many other areas of the economy, multinational companies hoping to profit from China's growth must contend with bureaucracies that want to profit from their involvement, but show only flickering awareness of customers and market competition. 'Sports in China are still greatly controlled by the government,' Mr. Rhoads said in an interview. 'The toughest thing the government is grappling with is that sports are entertainment.' But sports executives said that making China's sports administration more responsive to fans and consumers might be a long and troublesome process. Adidas sponsors China's soccer league, which has almost collapsed amid internal disputes between club managers and game officials, as well as charges of match fixing. 'It's the shenanigans around the sports that cause fans to lose interest,' Mr. Rhoads said. The government's reach into sports clubs means that little attention is given to making sports stadiums comfortable and convenient, and spicing up matches with midmatch entertainment, Mr. Rhoads said. China's premier soccer league regularly draws a few thousand spectators to games in stadiums that can seat tens of thousands, and last year China's national basketball league attracted only $1 million for television broadcast rights to its games. Multinational companies are instead tending to promote themselves through international events in Beijing or Shanghai, like games between American basketball teams and the Shanghai tennis open, Mr. Rhoads said. Chinese sports experts also said Chinese participation in sports is more restricted than in the United States or Europe. Multinational investors are hoping to encourage a youth culture devoted to sports by sponsoring high school basketball contests and university soccer leagues. Yu Jie, the acting director of the Fudan University FUON Sports Marketing Center in Shanghai, said that during a two-year stay in the United States she was struck by the relatively widespread participation of high school students in team sports, whereas Chinese students are so busy studying for a series of rigorous exams they have little time for sports. 'Here in China kids have lots of exam pressures, so they don't have the same opportunities to participate in team sports,' Professor Yu said in a phone interview. 'Kids like to play, but there are limits on their opportunities.'

Subject: Venezuela Tensions and Oil From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 11:00:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/worldbusiness/25oil.html?pagewanted=all&position= Venezuela Tensions Worry Oil Executives By SIMON ROMERO and BRIAN ELLSWORTH HOUSTON - Venezuela may be increasing tension in energy markets with decisions that are confounding international oil companies, but the government there says it is merely seeking more income and new markets for its oil. Peter J. Hill, chief executive of Harvest Natural Resources of Houston, which gets all its oil from Venezuela, has one view of the policies unfolding there. Harvest's stock lost a quarter of its value last week after the Venezuelan national oil company unexpectedly told it to suspend exploration. ConocoPhillips's plan to develop a new oil field in Venezuela was suspended about two weeks ago, and Rafael Ramírez, the Venezuelan energy minister, said last week that the government would review its 33 operating agreements with oil companies from the 1990's to see if they still made sense for Venezuela. Those delays come as officials, over the last month, have held talks with government-run oil companies from China, Russia and Iran. 'I'm a businessman and I don't like to get involved in politics,' Mr. Hill, whose company has operated in Venezuela for more than a decade, said in an interview. 'But there's been a demonstrable change in the way things are done in Venezuela.' The view from Venezuela is different. The government of President Hugo Chávez has said it will negotiate its disputes with Harvest and Conoco to reach agreement on production and spending. But analysts say that at a time of high crude oil prices worldwide and a shift in attention toward China, the Venezuelans are also trying to exert greater control over their resources and expand their range of buyers - as well as get more lucrative deals. Access to some of the most coveted oil reserves in the Western Hemisphere is at stake, with Venezuela exporting about 1.2 million barrels of oil a day to the United States, or nearly 15 percent of American imports. But the overtures to the Chinese, Russians and Iranians have added to worries among private oil companies that Venezuelan policies toward them are becoming increasingly unpredictable. Concern is also rising over the possibility that Venezuela may eventually divert shipments from the United States, which now receives more than half of Venezuela's total production. The Venezuelans say they still consider the United States their principal market, adding that only new production would be moved to China. All this concern has been acutely felt in Houston in recent days. Shares in Harvest, which produces about 30,000 barrels of oil a day in Venezuela, have plunged almost 30 percent since it said that Petróleos de Venezuela, the government-controlled oil company, had told it to effectively cut its production by one-third. 'I'm not able to read the mind of the Venezuelan government,' said Mr. Hill, who added on Monday that officials from the Venezuelan energy ministry signaled they were open to negotiations on Harvest's activities in the country. He said he did not know why the government oil company 'would want to restrict investment and production.' 'The interface for communication with the government is becoming much cloudier to read,' he added. Investors are focusing on the Venezuelan operations of ConocoPhillips, one of the largest international energy companies operating there, after its $480 million plan to develop an oil field off the eastern coast was put on hold this month amid feuding with Petróleos de Venezuela over the project's terms. Conoco gets about 7 percent of its worldwide production from Venezuela. [Dow Jones quoted Mr. Ramírez as saying Monday that the government was close to an agreement with Conoco.] Paul Sankey, a Deutsche Bank analyst, wrote in a note to investors last week that 'we are extremely concerned about what seems to be an escalating situation in Venezuela.' He recommended reducing holdings of ConocoPhillips shares. Mr. Sankey said American companies in Venezuela, including ConocoPhillips, Harvest and ChevronTexaco were the 'main potential losers from the unpredictable situation.' Shares of ConocoPhillips, based in Houston, fell more than 3 percent late last week amid greater scrutiny of its differences with Petróleos de Venezuela, and rebounded 1.3 percent on Monday. A spokeswoman declined to comment on its relations with the Venezuelan company. Higher oil prices, which increased the flow of hard currency to Venezuela's treasury, seem to have emboldened the dealings of the leftist Mr. Chávez with foreign energy companies as the rise in oil revenue offset the effects of declining production. Output fell to an estimated 2.7 million barrels a day from nearly 3.5 million barrels a day in the late 1990's, after strife in the state oil company resulted in a purge of employees, many of them virulently anti-Chávez, restricting its ability to grow. Venezuela's output is about 400,000 barrels a day short of its OPEC production quota of 3.11 million barrels a day, according to the International Energy Agency. But even as Venezuelan oil production has declined over all, foreign companies have provided more of the output, accounting for roughly 1.2 million barrels a day - a result of the opening of the Venezuelan energy industry to greater foreign investment by governments in the 1990's. With oil prices and demand high, Mr. Chávez appears to be seizing the moment to get more favorable contracts from the oil companies and greater control of his resources. 'I tend to believe that these disputes have to do with the government wanting a bigger share of the pie,' said Roger Tissot, director for markets and countries at PFC Energy, a consulting group in Washington. He added that 'in the past, they have been notoriously clumsy in asking for it.' In October, for instance, the Venezuelan government abruptly raised royalties to 16.6 percent from 1 percent for energy companies producing heavy-grade crude oil in the Orinoco belt. The measure, which ended a virtual tax holiday, affected companies like ChevronTexaco and Total of France. Mr. Tissot noted that the energy companies learned of the tax increase on a Sunday television broadcast by Mr. Chávez. The president and his officials also want to widen the customer base for Venezuelan oil. That is where China, which is seeking to secure long-term sources of oil, comes in. In December, Venezuela said it would allow the China National Petroleum Corporation, one of that country's largest energy companies, to expand exploration. It is more expensive to ship oil to China than to the United States, but Venezuela is trying to reduce those costs by negotiating with Panama to send its oil by pipeline across the isthmus. (Only small tankers are now able to pass through the Panama Canal.) An agreement between Venezuela and Panama would reverse the flow of a Panamanian pipeline, Petroterminales de Panamá, to the Pacific from the Atlantic coast with a capacity of 800,000 barrels a day. Chinese refineries would still have to be refitted since most cannot process the heavy crude oil exported by Venezuela, an adjustment that could take several years. But the difficulty that some energy companies are experiencing in Venezuela has added to already tense relations with the United States. Venezuelan officials scoffed at remarks in Senate testimony last week by Condoleezza Rice, President Bush's nominee for secretary of state, describing Mr. Chávez as 'a democratically elected leader who governs in an illiberal way.' Ultimately, industry executives say, what matters most is not necessarily a shift in exports to China. The American supplies could potentially be replaced by imports from countries in West Africa, the Middle East or Central Asia. But there is growing concern that oil production in Venezuela, which has the largest reserves in Latin America, could decline further if exploration ventures with international companies were suspended. That, in turn, could restrict global energy supplies and push prices even higher, producing an even larger windfall for Mr. Chávez's government. 'This type of strategy is fine as long as oil remains high,' said Antonio Szabo, a former executive at Petróleos de Venezuela, who now runs an energy and software consulting company in Houston. 'But if prices retreat, they'll have grave difficulty in fulfilling the promises that are now being made.'

Subject: Tensions As Dollar Slides? From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 10:58:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/25dollar.html?pagewanted=all&position= U.S. Faces More Tensions Abroad as Dollar Slides By DAVID E. SANGER WASHINGTON - After a first term in which terrorism and war dominated President Bush's foreign policy agenda, his allies in Europe and Asia suspect that his next confrontation with the world could take on a very different cast: a potential currency crisis, in which a steep plunge in the value of the dollar touches off economic waves around the world. Already, the tensions over the dollar are becoming a recurring source of friction, a conflict that does not reverberate as loudly as the differences over Iraq but may be as deeply felt. At a meeting in Paris on Monday, the finance ministers of Germany and France complained that Europe had unjustly borne the brunt of the dollar's decline, and called for coordinated action to stop it. 'Europe has until now paid too big a share in this readjustment,' Hervé Gaymard, the French finance minister, said. His German counterpart, Hans Eichel, said the United States needed to reduce its deficits, adding 'each one has to play its role.' Two months ago, similar sentiments came from China's prime minister, Wen Jiabao, whose nation is at the center of a struggle with Washington over currency policy. He complained about the fall of the dollar, asking, 'Shouldn't the relevant authorities be doing something about this?' In an interview just before President Bush's inauguration, Treasury Secretary John W. Snow played down the tensions. 'We understand that deficits matter,' he said, insisting that the tight budget Mr. Bush is expected to send to Congress next month should give foreigners and the financial markets the solace they seek. But should the dollar continue to fall - if, for example, global investors determined that Mr. Bush did not have the will to hold spending down - it would not only add to tensions, analysts said. It might also force up interest rates at home to keep foreigners interested in financing America's need to borrow more than $600 billion a year to cover its gap in the current account. The current account is the broadest measure of the trade and financial flows into and out of the country. To be sure, the dollar's fall may never reach crisis levels, and in the last few weeks, after a more or less steady fall of almost 35 percent against the euro and 24 percent against the Japanese yen over the last three years, the dollar has stabilized a bit. Many experts argue that a further decline, if relatively modest and gradual, is entirely manageable. Administration officials, along with a number of like-minded economists, contend that the nation's record trade and current account deficits are not particularly worrisome, a reflection more of strong foreign interest in investing in the American economy than any sign of global weakness. But across Asia and Europe, a wide range of officials and analysts worry that Mr. Bush's economic team may not be up to the challenge of grappling with the issue. They contend that Washington has retreated from efforts to marshal the biggest economies of the world into a mutual effort at more robust and balanced growth. Many European politicians and exporters cannot shake the suspicion that the Bush administration, despite its statements supporting a strong currency, has been perfectly happy to watch from the sidelines while the dollar heads down. At a moment of surging American trade deficits that have reached a record share of economic output, a falling dollar makes American exports more competitive and puts imports from Europe at a particular disadvantage. 'It's hard to tell an entrepreneur to wait two years for a policy to change when he says, 'I've got to deliver my goods tomorrow,' ' said Anton Boerner, the president of BGA, the Berlin-based association of wholesalers and exporters. Mr. Snow, for his part, paints a vastly different picture of the international economic landscape. He described the current situation as one of America's remaining the economic envy of the world, where yawning deficits are being addressed and where there is little risk that foreigners will rethink the wisdom of lending the United States hundreds of billions of dollars a year to finance the trade gap and to cover the vast borrowing needs of the federal government. Mr. Snow suggested some in Europe are seeking a convenient scapegoat, particularly after the tensions over Iraq, to blame for the Continent's own inability to generate stronger growth. 'The current deficit levels are too large,' Mr. Snow said, describing himself as a deficit hawk who sees a chance to cut spending because the American economy is growing again. 'They have to come down, and they will come down.' But deficits aside, he argued, 'overwhelmingly the United States is looked at as the model for success.' After years of stagnation in money flowing into the government, 'revenues look good,' and the turning point will come in a couple of weeks, he said, when Mr. Bush sends a budget to Congress in which 'you will see a number of programs that not only don't grow at the rate of inflation, but that decline.' While the budget is a domestic document, assessments of whether it will realistically grapple with the underlying problems and whether Mr. Bush has the political will to push tough measures through Congress may determine whether investors around the world stick with the American economy or head for the exits. 'At a Critical Juncture' No one knows for sure if the doubts that have already contributed to the dollar's decline will intensify. Some worry that the markets may conclude that Mr. Bush will put the financing of the Iraq war, military transformation and the costs of revamping Social Security ahead of deficit reduction. Others fret about the risk that a large, highly leveraged hedge fund or a big bank could be caught betting the wrong way in the markets, touching off a sudden currency sell-off that could have implications for the rest of Mr. Bush's term. 'We're at a critical juncture,' said C. Fred Bergsten, director of the Institute for International Economics, and a persistent critic of how Mr. Bush's team has handled its global economic role. 'The imbalances get worse and worse,' he said, rivaling Japan's in the mid-1990's. 'The projection is that they keep rising,' he added, noting that the current account deficit is running over 6 percent of the country's gross domestic product. 'And it is a trajectory that is bound to crack: people will stop buying dollars, and domestic politics will make the soaring trade deficit with China just unsustainable.' For all those fears, foreign investors are still buying American. While much of that lending last year came from central banks abroad, private investors have shown renewed confidence lately. In November, the last month for which there are reliable numbers, foreigners made net purchases of $81 billion, enough to easily pay for the amount by which American imports exceeded exports. 'Our growth rates are still higher, over the long term, than Europe's and Japan's,' said Daniel J. Ikenson, a trade policy analyst at the Cato Institute. Given that, for foreign investors, 'there is no reason to think they will sell.' But the argument around the world is as much about leadership as about the long-term strength of the economy. Unlike the debate over war in Iraq, in this case the complaint is not about American unilateralism, but American retreat. To America's allies, the era in which the world's largest economy also seeks to be the world's economic leader has simply halted. Under both James A. Baker III, a Republican, and Robert E. Rubin, a Democrat, the Treasury Department was viewed as one of Washington's most powerful institutions. It flexed its muscles to trim the market's extremes and stem crises, from an excessively strong dollar in the 1980's to the currency collapses of the 1990's that stretched from Latin America to Asia to Russia. There has not been an economic crisis of significant magnitude since Mr. Bush came to office. John B. Taylor, the Treasury under secretary for international affairs, said that was partly a result of preventive maintenance. 'My first days on the job we had a crisis in Turkey and one coming in Argentina and Brazil,' he said. 'Both were contained.' Today the Treasury is regarded as a vastly diminished institution, with comparatively little influence in the White House. Mr. Bush is seen, rightly or wrongly, as far less comfortable dealing with global economic management than he is sitting in the Situation Room, buried in the details of the Iraqi insurgency or Iran's nuclear threat. As a result, the weakening dollar, to the minds of many from Hong Kong to Berlin, is a metaphor for a presidency so distracted by national security issues that American economic influence has ebbed. China Stands Its Ground Washington's lack of success so far in pressuring China to finally allow its currency to float, or at least appreciate significantly to reflect its vastly stronger economy, is cited as the most striking evidence of Washington's diminished economic influence. Beijing has used other issues, chiefly the Bush administration's dependence on China to help prevent North Korea's development of nuclear weapons from touching off a wider conflagration, to keep currency demands on the back burner. That has contributed to a Chinese export surge that has soared to levels almost no one predicted when the United States, Europe and China reached agreement on the accord that brought Beijing into the World Trade Organization at the end of the Clinton administration. The Chinese, like the Japanese in their heyday, have begun to question American economic policy. American officials say that the Chinese could solve a lot of problems by not linking their currency to the dollar, a step toward solving a trade surplus that looks set to hit a record of nearly $200 billion for 2004. It is a subject of enormous political sensitivity in Beijing, because of its effect on the breakneck pace of China's economic growth. But Mr. Taylor, the Treasury official, notes that teams of officials have visited China to offer advice about how to manage a floating currency and the Chinese last year hired the Chicago Mercantile Exchange to help it develop a market in currency futures. 'You don't do that,' Mr. Snow said, 'if you are planning to keep the currency pegged to the dollar.' Seeking U.S. Leadership China is only one piece of the global economic puzzle. The lack of interest by Mr. Bush and Mr. Snow to put together a global accord on currency, akin to the Plaza Accord that Mr. Baker organized in 1985, is viewed as evidence that Washington is content with a downward drift of the dollar. And there is no one to replace the American role. 'It will be a world of chaos without a center,' said Hideo Kumano, a senior economist at the Dai-Ichi Life Research Institute in Tokyo. Japan itself, after a decade of downward spiral that only now seems to be ending, has lost all pretense of assuming the mantle of leadership. Bush administration officials have a deep skepticism bordering on an outright ideological objection to intervening in the markets. Certainly China, while growing in leaps and bounds, has neither the capacity nor the interest. 'China has a big population and big economic growth, but it is not a mature economic system yet,' Mr. Kumano noted. 'I cannot imagine it replacing Europe or Japan in terms of influence in the world economy. In such a condition, everyone must cope with a world economy where you cannot rely on America.' For all the worries abroad, the Bush administration sees few signs of stress. 'You don't have any major economy now in recession, and volatility is low,' Mr. Taylor said. 'Even inflation is contained in the emerging markets.' But the lesson of the 1990's is that currency crises, like the terror strikes of more recent years, are nearly impossible to predict. 'Financing of the U.S. current account deficit has gone more smoothly than many economists were predicting just a few years ago,' wrote Roger M. Kubarych, a former chief economist at the New York Stock Exchange who is now a scholar at the Council on Foreign Relations, a nonpartisan research group. 'But that does not mean that market stability can be taken for granted forever.'

Subject: 'After Greenspan' From: Pete Weis To: All Date Posted: Tues, Jan 25, 2005 at 10:27:55 (EST) Email Address: Not Provided Message: Interesting Paul Krugman piece in the NYT's about the candidates to replace Greenspan. This selection has huge implications.

Subject: Re: 'After Greenspan' From: Jennifer To: Pete Weis Date Posted: Tues, Jan 25, 2005 at 21:33:40 (EST) Email Address: Not Provided Message: The selction will be above all an Administration loyalist.

Subject: Social Sec.: another viewpoint... From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 07:21:40 (EST) Email Address: Not Provided Message: http://www.townhall.com/columnists/thomassowell/printts20050120.shtml

Subject: Virtues of personal accounts for SS From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 02:57:17 (EST) Email Address: Not Provided Message: http://www.bepress.com/cgi/viewcontent.cgi?article=1061&context=ev

Subject: Barro's last column From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 02:53:52 (EST) Email Address: Not Provided Message: http://post.economics.harvard.edu/faculty/barro/bw/bw05_01_24.pdf

Subject: 'For Richer' From: Robert To: All Date Posted: Mon, Jan 24, 2005 at 17:07:54 (EST) Email Address: skip10001@gmail.com Message: Just finished reading 'For Richer' as reprinted in 'Best Business Stories/2004'. Nice job! You spent time covering the paradox where the average American is against the 'death tax' even though it only affects a small fraction of the population, but I think you may want to talk about taxes in general. Our current administration somehow manages to make people think they're richer than they are! People whose house values have doubled in the past 12 years--even though that's about 5% return--think they're Donald Trump! And trinkets thrown to average Americans like $300 tax rebates are gobbled up. (The government could have saved millions in administration costs simply by putting a line that said -300 in next year's tax return, but Joe Sixpack wouldn't feel like he was getting anything back.) The real crime right now is the AMT. People who don't pay AMT have no right to complain about taxes! Salaried folks making 200K or so basically can't deduct ANYTHING, nor are they elibable for IRAs, Roth's etc, while the superrich pay no taxes. Robert www.robert.to/

Subject: Financial Company Growth From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 16:09:39 (EST) Email Address: Not Provided Message: http://www.barra.com/Research/SectorWeights.aspx Financials companies have gone from 6% of the S&P to almost 23%, from December 1977 to December 2004. This data however does not give us a sense of the importance of credit divisions of S&P companies such a GE. GE credit is easily the company's largest division. Still, I do not find a problem with such financial company growth.

Subject: Saving and Taxes From: Terri To: Terri Date Posted: Mon, Jan 24, 2005 at 16:57:50 (EST) Email Address: Not Provided Message: There is a significant distortion of investing returns in a 15% tax and capital gains and stock dividends, while interest income is taxed at our income tax rate. Lowering the tax rate on interest income to 15% could be an important saving incentive. Of course, I know, we have an awful government budget deficit and I am mentioning a tax cut. But, the are problem with our tax system. There will have to be an end to the Alternative Minimum Tax as well, for otherwise it will do ample harm to middle income households in years to come. We need a sensible tax structure to increase revenue but to do so with fairness and a lack of distortion in asset allocation. Oh well :)

Subject: Credit bubble? From: Pete Weis To: All Date Posted: Mon, Jan 24, 2005 at 15:10:57 (EST) Email Address: Not Provided Message: From the London Times: January 24, 2005 Economic agenda Why the credit bubble may yet burst By Patrick Hosking HAVE YOU ever wondered why banks suddenly dominate the corporate landscape? Five of Britain’s ten biggest companies are banks, compared with none 20 years ago. Ever wondered why Britain has more credit cards than people? Sixty million and rising fast. Or why credit is free for anyone with a job and a home? Nimble borrowers can juggle interest-free debt from one credit card lender with a special offer to the next. Or why you can barely enter a shop without being offered a store credit card. Or why private equity houses are taking over so many listed companies? The banks have thrown away the rulebook on leveraged buyouts, rubber-stamping loan multiples that they would not have countenanced five years ago. Or why Ford and General Motors each make more money from loans than from carmaking? Or why banks seem to be reckless in their lending rules. Bradford & Bingley last week started offering mortgages of up to 130 per cent of the home on which they are secured. The answer just might be that we — Britain and the United States — are in the midst of the mother and father of all credit bubbles. People, businesses and governments have been showered with credit to a degree never seen before. And, according to a new study, Crunch Time for Credit?, the relentless expansion of debt since the Second World War has put on a breakneck new spurt in the past few years. The extraordinary availability and cheapness of credit has created an illusion of prosperity, puffing up the prices of property and shares, the study argues. Higher asset prices have, in turn, justified further credit creation. The study’s author, Edward Chancellor, a former Lazard banker, says: “An Englishman’s home is no longer just his castle. It is also a leveraged hedge fund, a pension fund, a cash machine and a source of limitless credit creation.” Lenders have waxed fat in this environment, as will be illustrated again this week as Britain’s high street banks start their reporting season. They will in aggregate report record profits of about £33 billion. In America the phenomenon is even more acute, with the financial sector now accounting for a vast chunk of total US corporate profits. However, such breakneck credit growth cannot go on for ever, and when the bubble deflates, Chancellor says, asset prices will tumble and the true state of the two economies will be laid bare. At worst, this either means a deep and lengthy recession or a prolonged bout of inflation that erodes the debts we can no longer afford. Or possibly both — stagflation. Whatever, it will all end in tears, argues Chancellor, who is something of an expert on financial apocolypses. He wrote Devil Take The Hindmost, an analysis of investment bubbles from the great tulip mania of 17th century Amsterdam onwards. Warnings about the dangers of credit bubbles are nothing new. The Victorian economist Walter Bagehot gave warning about excess debt and the speculative temptations caused by low interest rates. “John Bull can stand many things, but he cannot stand 2 per cent,” he said. In the 1950s The Wall Street Journal described the accumulation of debt as “a menace to the economy”. In the 1980s Henry Kaufman, of Salomon Brothers, the Doctor Gloom of his day, called for the re-regulation of the credit markets, to clamp down on the mushrooming of credit. The doom-mongers of the past have had their moments, but have usually been wrong. The world has, on the whole, been able to borrow ever greater dollops of cash without serious injury. However, as the hedge fund manager Crispin Odey, who commissioned Chancellor’s report, remarks: “The fact that the doomsayers have been proven wrong so often in the past doesn’t mean they are wrong now.” A clutch of factors have led to the extraordinary surge in credit in the Anglo-Saxon world. People are richer, can afford interest payments and have the necessary collateral in their houses. The taboo over personal debt has all but vanished. Jennifer Aniston tells us that it’s fine to spend on our Barclaycards. Robert de Niro puffs the benefits of borrowing on American Express. Deferred gratification is no longer seen as a virtue. Credit controls restricting how much banks could lend and to whom have been dismantled. Economic stability and a less violent business cycle have persuaded bankers to ease their lending rules. Financial innovation has created new products that cushion creditors from defaults. Institutional investors have displayed a strong appetite for such loans — suitably parcelled up and securitised. Above all, confidence has boosted supply of, and demand for, debt. Rising incomes and plentiful jobs have persuaded borrowers that they can afford it. Very low rates of default and bad loans have persuaded the banks that it’s good business. Perversely, it is precisely this confidence that is part of the problem. Stability, Chancellor argues, breeds instability. The benign outlook encourages borrowers to borrow more and creditors to indulge them. We all have “risk thermostats”. When risks are apparently reduced by the authorities, we adjust our behaviour accordingly. For example, safety features incorporated into modern cars encourage us to drive faster. The soothing words from Alan Greenspan, Chairman of the Federal Reserve, not to mention his radical loosening of US monetary policy in the face of the dot-com bust, have encouraged borrowers and lenders alike. So have the repeated boasts about economic stability by Gordon Brown. On both sides of the Atlantic credit is on tap for all but the most dispossessed. According to the chairman of one US mortgage bank, “you’d have to be an insolvent arsonist not to get a loan right now”. Meanwhile, bankers and their regulators are deluding themselves if they believe that credit scoring, Value At Risk models and the rest of the paraphernalia of modern risk assessment will shield them from defaults. Chancellor is in the minority. Most economists say the recent growth in credit is sustainable. That we are wealthy enough, stable enough and smart enough to shoulder and service bigger debts than ever before. It may well be that the warming credit tap can be switched off or at least partly stemmed without leaving the West in a nasty cold bath. In Britain, we may soon know because there are strong signs that credit demand is slowing. However, there is no doubt that our forebears would see something very weird and unbalanced about a world in which banks are so dominant and credit is so plentiful.

Subject: Re: Credit bubble? From: Terri To: Pete Weis Date Posted: Mon, Jan 24, 2005 at 16:05:03 (EST) Email Address: Not Provided Message: Look to Barra.com for sector weights. Financial corporations are 22% of the S&P, though what about General electric and General Motors and Ford credit divisions. Interesting. Still, the credit fretting has been going on since credit card spending began.

Subject: Pricing Long Term Bonds From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 09:54:59 (EST) Email Address: Not Provided Message: Friends send along articles telling investors that the end of the bond world is here, and the articles sure make sense, but the Treasury 10 year note has a yield of 4.13%. If there has ever been a Federal Reserve tightening sequence that has left long term bonds so strengthened 7 months after the beginning of the tightening, I sure have not found it. Astonishing.

Subject: Burying Social Security With Debt From: Emma To: All Date Posted: Mon, Jan 24, 2005 at 08:39:08 (EST) Email Address: Not Provided Message: January 24, 2005 A Bridge to Sell - New York Times One of the main talking points in the administration's drive to privatize Social Security is that retirees have nothing to fear. 'If you're a senior receiving your Social Security check, nothing is going to change,' President Bush said recently. Mr. Bush seems to presume that older Americans are indifferent to the future retirement security of their children and grandchildren. But even taken on its face, the argument does not hold up. The president promises that under a private retirement scheme, anyone age 55 or older would continue to receive full Social Security benefits. What he repeatedly fails to mention is that privatization would require some $2 trillion in new borrowing over the next 10 years and an additional $4.5 trillion in the decade thereafter. That's on top of the trillions that need to be found to cover the costs of Medicare and Medicaid and - if the president gets his way - to make this decade's tax cuts permanent. It's foolhardy to assume that the government could continue to meet all of its obligations, including the payment of Social Security benefits, under such a mountain of debt....

Subject: Buying American Debt From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 07:47:06 (EST) Email Address: Not Provided Message: Central banks and private institutions try to mask much about the currency transactions they make, so we need to look at both the value of the dollar and interest rates to gain a sense of transactions. Japan and China and Brazil appear to be especially active in buying American debt. But, the Euro is weakening against the dollar and there may well be European buying of dollars. Also, Korea and India and Singapore and Taiwan are likely buying American debt. There must be considerable demand for American mortgage debt from abroad.

Subject: From The Financial Times From: Pete Weis To: All Date Posted: Sun, Jan 23, 2005 at 23:26:18 (EST) Email Address: Not Provided Message: Central banks shift reserves away from US By Chris Giles Published: January 24 2005 00:03 | Last updated: January 24 2005 00:03 Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit. In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US. The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years. Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004. At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003. Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets. 'The US cannot take support for the dollar for granted,' said Nick Carver, one of the authors of the study conducted by Central Banking Publications, a company that specialises in reporting on central banks. 'Central banks' enthusiasm for the dollar seem to be cooling off.' In a further worrying sign for the greenback, 47 per cent of reserve managers surveyed said they expected the growth of official reserves to slow to less than 20 per cent over the next four years. Between the end of 2000 and mid-2004, official reserves had increased by 66 per cent. Slower reserve accumulation growth implies the supply of official finance is likely to become more limited but few expect the demand from the US for finance to slow. The consensus among economists is that the US current account deficit will increase to $694bn in 2005. More than 90 per cent of central bank reserve managers said that the income from reserve management was 'important' or 'very important'. In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management. For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns. Alan Greenspan, the chairman of the Federal Reserve, warned in November that there was a limit to the willingness of foreign governments to finance the US current account deficit. The survey was conducted on the guarantee of anonymity for the banks involved. The 65 central banks that participated control 45 per cent of global official reserves. Individually, they had up to $250bn under management.

Subject: Demand for Bonds and Interest Rates From: Terri To: Pete Weis Date Posted: Mon, Jan 24, 2005 at 07:20:59 (EST) Email Address: Not Provided Message: Interesting article, but on the whole having no validity. Long term interest rates alone tell us that demand for American debt from international sources has been and remains markedly strong. A confidential central bank survey is just a tool used by central banks to pressure America to control the deficit, but there is no evidence of a move from the dollar. There has to be a reconciling of the problem and I would guess the dollar will continue to lose value, though the dollar has gained value this month. But, the central bank game here can not be taken seriously since demand for American debt from long term bonds to mortgage debt continues to be strong month after month.

Subject: When Stock is No Answer From: Terri To: All Date Posted: Sun, Jan 23, 2005 at 08:06:06 (EST) Email Address: Not Provided Message: Imagine then a turn in the stock market as the turn from 2000 through 2002. Private and public pensions are to be increasingly effected and now possibly Social Security as well. When stock is the only answer to pensions, stock is no answer.

Subject: Changing Our Pension Plans From: Jennifer To: All Date Posted: Sun, Jan 23, 2005 at 07:38:37 (EST) Email Address: Not Provided Message: The problem is that corporate pensions have been steadily switching from defined benefit to defined contribution plans, state and local pensions are switching. The superb California state pension programs are even threatened. About 1 in 8 of America's state employees and teachers are included in the state pension system. Now Social Security is under attack, as though we do not have ever more private and public pension fund choices even when we might prefer otherwise. So, what is the point in discussing investing of a portion of the Social Security trust fund in a stock index? What is needed is to make sure that Social Security is preserved against those who have wished to finish it these 60 years.

Subject: California's Pension System In Crisis? From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 06:25:20 (EST) Email Address: Not Provided Message: January 23, 2005 Schwarzenegger Aims at State Pension System By JOHN M. BRODER - New York Times LOS ANGELES - Gov. Arnold Schwarzenegger, echoing language used by those who claim Social Security is headed for a crisis, contends that California can no longer afford a generous traditional pension plan for state employees and teachers and should force all new workers into a 401(k)-style plan of private accounts. California's $300 billion pension system for its public employees is the largest state system in the nation and as early as this summer, Californians will be asked to vote on the proposed changes. The change that Mr. Schwarzenegger has endorsed is supported by a number of Republican state lawmakers and is driven by the same ideology behind the effort to transform Social Security. The outcome of the vote in California, pension experts and political analysts say, will not only have an impact on the state pension system, but will also provide an important marker of public opinion on proposed changes to Social Security. Mr. Schwarzenegger, in his State of the State address earlier this month, described California's pension system as 'another government program out of control,' careering toward fiscal ruin. He cited the state's obligation to inject $2.6 billion into the system this year to keep it actuarially sound, compared with $160 million four years ago. The impetus for Mr. Schwarzenegger's plan comes from some of the same antitax advocates, free-market enthusiasts and Wall Street interests pushing President Bush's Social Security initiative. Grover Norquist, the president of Americans for Tax Reform, a Washington lobbying and research group, has endorsed the plan. The Howard Jarvis Taxpayers Association, in California, is sponsoring a similar measure. The Jarvis group plans to put its proposal on a statewide ballot if the State Legislature does not act on the governor's plan. Although Social Security and the California pension plans have important differences and different long-term challenges, the proposed solution - private accounts managed by individual workers with a predetermined contribution by employers - is basically the same. 'They certainly are kissing sisters,' said Stephen Moore, the former director of the conservative Club for Growth who is now the president of a political action committee, the Free Enterprise Fund, which is dedicated to remaking Social Security. 'These are proposals that aim toward giving people real ownership and a real stake in how the economy and the stock market perform.' Mr. Moore, who has advised Mr. Schwarzenegger on economic policy and participated in an independent audit of state finances last year, said that California tends to lead the nation on social policy. If California moves from a traditional defined-benefit pension plan to a 401(k)-style defined contribution plan, the nation is likely to follow, he said.

Subject: California's Pension System In Crisis? - 2 From: Emma To: Emma Date Posted: Sun, Jan 23, 2005 at 06:26:08 (EST) Email Address: Not Provided Message: The proposal would affect the California Public Employees Retirement System, known as Calpers, which handles the accounts of 1.4 million state and municipal workers and retirees. It has $178 billion in assets and is one of the largest pools of investment capital in the world. The proposal would also cover the California State Teachers' Retirement System, with 750,000 members and $116 billion in assets. Although Mr. Schwarzenegger described the plans as a looming train wreck, even advocates of privatization in his own administration say the system is currently sound. The plans, taken together, are nearly 90 percent funded, a level that most experts consider quite healthy. 'We're not warning of imminent collapse,' said Tom Campbell, an economist and former member of Congress who is the state's new budget director. 'There is a potential danger for the state to have a defined benefit system, and to the extent we can move away from it, as many private employers in America have done, we should do that.' The danger, as Mr. Campbell and others describe it, is found in the vagaries of the stock market and the tendency of the State Legislature to award generous new retirement benefits in flush times. Unlike Social Security benefits, which can be changed by act of Congress, benefits granted to recipients of public pensions, at least in California, are virtually untouchable. Opponents of the plan, who include almost all Democrats in the Legislature, state employee unions and the trustees of the pension plans themselves, say that the plans have been well managed and provide a critical source of income security to workers who sacrifice pay in their working years to toil in the public sector. The state contribution to the system this year is large because of a downturn in the market, not because of extravagant benefits paid to retirees, they said. The state has benefited in the past from a strong stock market and in some years has had to make no payments into the funds. 'Calpers investments have generated $173 billion over the last 20 years,' said Patricia K. Macht, a spokeswoman for the fund. 'Why would anyone want to throw away the chance to add another $173 billion over the next 20 years? People see this as an opportunity to use a temporary downturn to drive a stake into the heart of a well-funded system.' Some opponents of privatization also detect a subtler agenda among those pushing private accounts - to silence the voice of workers and their pension fund managers, who oversee some of the largest institutional investment accounts in the nation. Calpers has been a leader in an effort to bring greater accountability to corporate boardrooms. It pulled its money out of tobacco companies in the 1990's, voted its shares against Michael Eisner, chairman of The Walt Disney Company and leaned on the Philippines to do more to protect worker health and safety. Critics say the role of pension funds is to safeguard their members' money, not make social policy. 'There is an overriding issue of what happens when you have these superlarge retirement systems straying from bottom line of the benefit of members and straying into corporate governance, even social engineering,' said Jon Coupal, president of the Howard Jarvis Taxpayers Association. 'A motivation for us, as you move to a system of individual accounts, is that over time you will depoliticize the retirement system in the state of California.' Supporters of Calpers and other traditional public pension plans intend to vigorously contest an overhaul and say they expect a costly battle if the plan makes the ballot. Richard C. Ferlauto, director of pension investment policy for the American Federation of State, County and Municipal Employees, said that Mr. Schwarzenegger and others were manufacturing a crisis to justify sweeping changes to the retirement systems that millions of workers rely on and to throttle the influence the workers wield through their pension plan investments. 'The debate around private accounts will be fought in California before the outcome of the Social Security debate is determined,' Mr. Ferlauto said. 'The attempt in California is the stalking horse for whether private accounts can be sold to the American public.

Subject: Deficits and the Fed's Patience From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 06:19:47 (EST) Email Address: Not Provided Message: January 23, 2005 Deficits May Be Wearing Thin at the Fed By EDMUND L. ANDREWS - New York Times WASHINGTON THEY are only low-level rumblings, oblique signals of discontent that are stripped of any direct political threat. But as President Bush embarked on his second term last week, it was hard to escape the sense that his longtime honeymoon with the Federal Reserve may be ending. The Fed and its chairman, Alan Greenspan, have arguably been Mr. Bush's most important economic supporters. Mr. Greenspan gave his blessing to the Bush tax cuts of 2001 and, less enthusiastically, to those of 2003. Despite Mr. Greenspan's reputation as a staunch opponent of fiscal deficits, he tiptoed around criticism of the soaring federal debt that Mr. Bush ran up in his first term and will almost certainly continue to run up in his second. Perhaps most important, the Greenspan Fed cut interest rates and showered the nation with cheap money to soften the recession of 2001 and to keep consumers spending through nearly three years of rising unemployment. But something new is afoot, and it is not just that the Fed is raising rates back to more normal levels. So far, a measured pace of rate increases has merely reflected the Fed's increased confidence that economic growth is on a steady course. The new element is a rising concern at the Fed about the nation's imbalances: the federal deficit, which hit $413 billion in 2004; a low and declining national savings rate; evidence of speculative behavior among investors and consumers; and the country's enormous trade and financial deficit with the rest of the world. In November, Mr. Greenspan noted that foreign claims on United States assets - essentially the nation's net indebtedness to the rest of the world - were now equal to one-quarter of the nation's gross domestic product. The trade deficit this year is almost certain to exceed $600 billion - nearly 6 percent of the nation's economy, and still climbing. 'This situation suggests that international investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher dollar returns to offset concentration risk,' Mr. Greenspan said. That, he continued, would make the cost of foreign debt 'increasingly less tenable.' To most economists, such comments are simply a statement of time-honored truth: a borrower who runs up huge debts will become a bigger risk to lenders and gradually have to pay higher rates. But Mr. Greenspan's comments also carried a warning: rising budget and trade deficits come at the price of higher interest rates.

Subject: Deficits and the Fed's Patience - 2 From: Emma To: Emma Date Posted: Sun, Jan 23, 2005 at 06:20:24 (EST) Email Address: Not Provided Message: The Fed fired off another warning in the published minutes from its policy meeting on Dec. 14, saying, 'a number of participants voiced concerns about domestic and global financial imbalances.' Some members of the Federal Open Market Committee, which sets policy, were said to believe that the odds of 'significant deficit reduction over the next few years were remote.' More surprising, the minutes said that some policy makers worried that the prolonged strategy of low rates might be fostering 'excessive risk-taking' in financial markets and in the market for houses and condominiums. That sounded like a veiled reference to concern about a 'housing bubble,' an idea that Mr. Greenspan has repeatedly shot down. A third veiled warning came on Jan. 13 from Timothy F. Geithner, president of the Federal Reserve Bank of New York. In a speech to financial executives about risk management, Mr. Geithner suggested that investors had become too complacent about risks posed by global imbalances - particularly those in the United States. Declaring that the current account deficit had reached an 'unprecedented scale,' even as investors continue to demand very low risk premiums, Mr. Geithner warned that they had little buffer for unexpected shocks. 'The present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world,' he said. In private sessions, Mr. Greenspan may well be warning Mr. Bush in blunter terms. The Fed chairman meets regularly with Vice President Dick Cheney and periodically with Mr. Bush. There is a rumor in Washington - thus far unconfirmed - that Mr. Greenspan warned the White House in mid-December that it would have to take more credible steps than it has so far to meet its goal of cutting the deficit in half by 2009. If true, the unspoken but inescapable threat would be clear: if the Fed wasn't satisfied, Mr. Greenspan could signal his lack of confidence in Mr. Bush's fiscal plan. Investors would be shaken and Mr. Bush's credibility would be damaged. What is certain is that the White House has started to signal tough cuts - trimming as much as $30 billion over six years at the Pentagon - and Mr. Bush has adjusted his rhetoric about the deficit. Where administration officials routinely called the deficits 'unwelcome but manageable,' Mr. Bush and other top officials now describe deficit reduction as the cornerstone of their strategy for shoring up the foreign exchange value of the dollar. Complicating the chemistry between the White House and the Fed this year is Mr. Greenspan's anticipated retirement in January 2006. White House officials are trying to expand their list of potential successors. One early favorite - John B. Taylor, under secretary of the Treasury - is no longer in contention, according to people close to the White House. White House officials are also cool about Martin Feldstein, the esteemed Harvard professor and director of the National Bureau of Economic Research. Mr. Feldstein has been a passionate supporter of tax cuts and partly privatizing Social Security - Mr. Bush's top economic priorities. But some officials are still angry that Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, criticized deficits run up by his boss. MR. FELDSTEIN is not out of the running, but White House officials are looking at others. One would be R. Glenn Hubbard, an architect of Mr. Bush's tax cuts and now dean of the Columbia Business School. A third possibility is Ben Bernanke, a Fed governor and a respected economist. While at the Fed, Mr. Bernanke, not a Bush insider, has impressed White House officials and is likely to be named chairman of Mr. Bush's Council of Economic Advisers. Though Mr. Bernanke would be a long shot to become Fed chairman, a successful tour at the White House could help his chances. No matter who succeeds Mr. Greenspan, Mr. Bush will have to tread warily at the Fed. It is noteworthy that Republican Fed officials have tended to be more hawkish of late about raising rates sooner rather than later. The most dovish voice has been that of a Democrat - Janet Yellen, president of the Federal Reserve Bank of San Francisco. If tea leaves from the Fed indicate anything, it is that Mr. Bush could get tough treatment from officials tied to his own party.

Subject: Re: Deficits and the Fed's Patience - 2 From: Pete Weis To: Emma Date Posted: Sun, Jan 23, 2005 at 11:56:11 (EST) Email Address: Not Provided Message: It's amazing to see the quick about-face positions of Greenspan. Not long ago he was pushing Adjustable Rate Mortgages and lauding the fact that consumers could cash out the equity in their homes. Now he's suggesting we may have a problem with a too leveraged housing market. This also seems to be a glimpse of the gap between what is provided for public consumption and what is really going on behind the scenes. Bernanke wants that fed chairmanship (not many economists wouldn't) and I always believed he was being promoted by many conservatives and Republican insiders for that job. He's a big follower and admirer of Milton Friedman's money supply theories. What will this mean for the future of the dollar?

Subject: Re: Deficits and the Fed's Patience - 2 From: Terri To: Pete Weis Date Posted: Sun, Jan 23, 2005 at 13:46:59 (EST) Email Address: Not Provided Message: Hard to know how to read this.

Subject: Re: Deficits and the Fed's Patience - 2 From: jimsum To: Terri Date Posted: Tues, Jan 25, 2005 at 15:21:11 (EST) Email Address: jim.summers@rogers.com Message: Well, I read it partly as a joke. The budget deficit was about $521 billion in 2004 (http://www.whitehouse.gov/omb/budget/fy2005/tables.html), and Bush is talking about cutting the Pentagon budget by $5 billion a year! The deficit is currently more than 22% of the overall budget, so spending has to go down by a lot more than $30 billion over 6 years to bring that total down. By the way, I didn't realize there was such a big tax increase this year. Revenues are projected to increase by $238 billion this year (and spending to increase by $81 billion - I wonder if that includes Iraq :-). What new taxes have been introduced (or tax breaks ended) that will increase tax revenues by 13%?

Subject: Social Security is Sound - 3 From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 01:03:10 (EST) Email Address: Not Provided Message: After all, we have our regular retirement accounts. We can hold as much in stock as we wish in these accounts. Social Security is our Treasury bond account, and completely secure. A perfect balance to stocks and real estate.

Subject: Social Security is Sound - 2 From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 00:38:02 (EST) Email Address: Not Provided Message: The problem with thinking about having the Social Security administration invest funds in a stock index is that this can be a way of undermining the program by cutting benefits or borrowing massive sums when there is already far too large a federal deficit. The greatest danger in using the stock market is weakening what is a wonderful sound program.

Subject: Social Security is Sound From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 00:30:04 (EST) Email Address: Not Provided Message: There is no Social Security crisis. Social Security is fine under conservative assumptions till somewhere between 2042 and 2052. With growth at historical levels, there will be no problem through this century. The program has been a wonderful help for retired women and men from the day it began to the present. Still, there are lobbying groups that aim to undermine Social Security. Given the harsh opposition to the program there should be no change at all, for change is likely to weaken not further strengthen this already sound program.

Subject: Demand for Bonds and Interest Rates From: Terri To: All Date Posted: Sat, Jan 22, 2005 at 19:04:40 (EST) Email Address: Not Provided Message: The Social Security trust fund continually buys treasury bonds. This demand for bonds like the demand that is coming from abroad is an important aide in keeping interest rates low. Considerable amounts of mortgage debt, for instance, are being bought by Japan and China and this provides us assistance in home buying and re-financing. Suppose Social Security demand for bonds decline as the trust fund is partly invested in a total market stock index. What of interest rates? These are questions that must be carefully addressed, and I am only thinking of whether the administration can invest in stock, not about private accounts which privide much more complexity and cost.

Subject: Privatizing Medicaid From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 16:16:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/23/national/23medicaid.html?pagewanted=all&position= Florida Offers a Bold Stroke to Fight Medicaid Cost By RICK LYMAN TALLAHASSEE, Fla. - America's governors, struggling for a grip on mounting Medicaid costs, are restricting access, squeezing providers and chipping away at services. But perhaps no one is proposing changes as far-reaching and fundamental as Gov. Jeb Bush of Florida. Mr. Bush is proposing that the state's 2.1 million Medicaid recipients be allotted money to buy their own health care coverage from managed care organizations and other private medical networks. If enacted, the program would make Florida the first state to allow private companies, not the state, to decide the scope and extent of services to the elderly, the disabled and the poor, half of them children. Mr. Bush is just one of many governors trying to scale back Medicaid costs. In California, Gov. Arnold Schwarzenegger said that some Medicaid recipients might be shifted to managed care programs and that others could see their copayments increase. Gov. Phil Bredesen of Tennessee said this month that he would save the once-vaunted TennCare program, a more expansive alternative to Medicaid, but only at the cost of eliminating some 323,000 people from the program. And in New York on Tuesday, Gov. George E. Pataki urged about $1.1 billon in state Medicaid cuts. Calling his proposal 'empowered care,' Governor Bush said when he announced it here on Jan. 11 that it would offer more choice and flexibility to users. Critics, watching closely to see whether he picks up political support and starts a trend, said the plan would mark the first time a state put a cap on state spending beyond which all services for Medicaid users could cease. William T. Pound, executive director of the National Conference of State Legislatures, said that controlling Medicaid costs was one of the biggest issues facing the states, both because the program is consuming such a large share of state budgets and because President Bush is expected to look for savings when he announces the federal budget next month. 'I think the federal government is clearly trying to limit its costs in this, and that presents a terrific problem for state governments,' Mr. Pound said. The National Governors Association, in a letter to the White House last month, said it would welcome some revamping of the program but would oppose efforts 'to simply shift federal costs to states.' Unlike Medicare, the federal health program for the nation's elderly, the cost of services for the nation's 50 million recipients of Medicaid is split between the federal government and the states, with states given great leeway in how they structure and pay for their programs. But as Medicaid costs rose 63 percent in the past five years, to more than $300 billion a year, and as the number of recipients grew by a third since 2001, governors saw the program gobble up more and more of their state budgets. In Tennessee, for example, the TennCare program has grown to a third of the state budget. The average is 22 percent. Most governors can produce a chart showing that if costs keep rising at the current rate Medicaid will eventually consume the entire budget. On the plus side, rising revenues in many states have made the problem somewhat less troublesome than it was a year ago, when revenues were lagging. Governors in several states, including Arizona and Idaho, said they were confident that their states would whittle away at Medicaid costs this year without harsh cuts. Some states are even bucking the trend. Maine and Illinois are considering proposals to expand the number of people eligible for Medicaid. Last year, 21 states enacted controls that either reduced or restricted Medicaid. This year, at least 14 states say they will do the same. Florida, with the most radical plan so far, would not be the only state to incorporate managed care into its Medicaid program. Most states do. The difference is that other states impose strict conditions about who will be covered and for which services. Under Governor Bush's plan, the private companies would make those important decisions without government interference. 'It's very radical,' said Joan Alker, senior researcher for the Health Policy Institute at Georgetown University. 'It seems clear that the intent is really based on the notion that the H.M.O.'s and private insurers will have substantial flexibility to make a profit at the expense of the Medicaid beneficiary, who essentially assumes the risk of not getting the services they need. That's unprecedented in Medicaid, really.' Governor Bush says his plan, which must be approved by the Legislature and federal regulators, would deal with 'unsustainable' health costs while putting individuals in charge of their own care. 'Our proposals put the focus back on the patient by encouraging strong patient-doctor relationships and allowing competition in the market to drive access and quality of care,' the governor said in putting forward his proposal here last week. Under his plan, those eligible for Medicaid would qualify for a set amount of money each month - an amount that would rise and fall depending on their particular needs, as in the case of a patient with H.I.V., who would have a higher premium than a healthy child. The money would be used to pay premiums for a person's choice of managed-care, insurance programs, provider-service networks or community-based systems. The private programs, then, would be able to set up their own competing programs, some offering fuller coverage and others restricting services but offering a lower premium. The idea is that competition between the companies would hold down costs. In addition, the state would offer incentives, in the form of more money for services, to those who live healthier lives, as well as flexible spending accounts with tax advantages to encourage people to save for medical needs. But where government officials in other states draw up intricate codes for specific levels of service, the government in Florida would be involved in only three areas: monitoring the companies involved in the plan to make sure they are capable of delivering the services, counseling Medicaid recipients on which of the competing plans might be most suitable for them and setting the spending level for the program. Florida health officials describe the plan as a necessary to control costs and philosophically in tune with the nation, shifting medical decisions from the government to patients and their health care providers. 'Florida can't afford to wait any longer for real Medicaid reform legislation,' said Alan Levine, secretary of the Agency for Health Care Administration, which administers Medicaid in Florida. 'This proposal is the starting point for a Medicaid program that Florida can live with well into the future.' Even the most ardent advocates for the poor acknowledge that Medicaid is unsustainable at the current rate of growth. But they argue that Florida is trying to limit spending without tackling the broader problem of rising health care costs. 'I don't fault the governor or the president,' said State Senator Walter G. Campbell Jr., the deputy minority leader. 'Let's face it,' Mr. Campbell, a Democrat, said, 'when you're approaching a situation where your Medicaid budget is going to surpass your education budget, something's got to be done.' Mr. Bush, like other governors, has tried before to control Medicaid growth, but nothing of this scope. Because Republicans also control the Florida Legislature, it is considered likely that some aspects of the governor's proposal will eventually pass. But it is uncertain how much of the plan will become law and whether a bill can be introduced as early as this spring's legislative session. The far-reaching nature of the proposal is similar to ideas Republicans in Congress have put forward for Medicare and has led some critics to wonder whether Governor Bush is providing a preview of the kind of health care system President Bush would like to see nationwide. 'This is all part of the scheme of privatizing all of government,' said Karen Woodall, a longtime Florida lobbyist for social services. Some details of the Florida plan are still vague, including at what point spending would be capped and whether any services would be guaranteed. 'It's not clear at all what benefit protections would be offered to people,' said Victoria Wachino, director of health policy for the Center for Budget and Policy Priorities, a research institute that advocates more spending on antipoverty programs. 'It does not seem to make full sense to us as yet. Clearly, though, it's really a radical restructuring of the way benefits flow to Medicaid beneficiaries.'

Subject: Privatizing Everything From: Jennifer To: Emma Date Posted: Sat, Jan 22, 2005 at 16:40:23 (EST) Email Address: Not Provided Message: Good grief. Privatize absolutely everything. Privatize away away away. Keep your dogs and cats safe, not to mention the kids :))

Subject: Social Security Interview From: Jennifer To: All Date Posted: Sat, Jan 22, 2005 at 16:05:21 (EST) Email Address: Not Provided Message: http://www.pbs.org/wsw/tvprogram/ Social Security KAREN GIBBS: There is a debate raging about the solvency of social security. It is the biggest government entitlement program, but also the most universal, most popular and most enduring. President Bush has put reform of the system at the top of his second term agenda, warning: 'the system is broken and promises are being made that Social Security cannot keep'… his fix? Allow social security dollars to be invested in the stock market. And supporters have wasted no time launching a public relations campaign. Critics such as New York Times columnist and Princeton economist Paul Krugman charge the president has created a fake crises and a fake solution. Dick Armey, former House Majority Leader and now chairman of Freedom Works is leading a grassroots movement to completely reform Social Security. He joins us from Dallas. GIBBS: Paul, are we in a crisis? PAUL KRUGMAN: No. Probably there's a little bit of a long-run shortfall in Social Security. But you know, when you look at that ad and it says there used to be 16 workers, blah, blah, blah, right now there are three workers for every retiree, and Social Security is running a big surplus. Now 40 years from now, there will be two workers for every retiree. That's not that big an adjustment. And Social Security is running a big surplus now, which means that it's accumulating a trust fund, which is legally binding. It's money that should be repaid. And most estimates say that it's a fairly small shortfall, tiny, way down on the list of our problems, and quite a few economists think the system, if the economy grows as fast over the next half century as it did over the past half century, no problem at all. The system is good forever. GIBBS: Dick Armey, how does it look from your perspective? DICK ARMEY: I think it's been headed for financial disaster at its inception. I frankly have been advocating this change for 40 years privately and for 20 years publicly. The fact of the matter is what the President's suggesting we do is allow people to voluntarily take some of their money that is now savings forced into Social Security, that promises most young people very little if any return, and then put it in private accounts. That, by the way, is pretty much exactly the bill that was initially passed by the Senate in 1936. And if the Senate had had its way, we'd have had the more correct system all these years and we wouldn't be facing this insolvency. And let me also say the day that we do not have current payroll tax receipts that cover current Social Security outlays is the day this government's got a big problem, and that day is coming very soon because the trust fund is a fiction and anybody that doesn't know that today has simply not been paying attention. GIBBS: Well, when you talk about the trust fund being fiction, isn't it full of IOUs from the United States government? ARMEY: That's right. This is one pocket of the government saying to the other pocket of the government, 'I'm empty, but I owe you this money. And if I get the money to pay you back, I'll have to take it out of your pocket in the first place.' It is really bizarre, and if violates, by the way, just about every principle of responsible solvency and investment that under federal law we imposed on every private investment in America. And it's amazing how this government can set such a bad example in doing what it by law forbids everybody else to do. GIBBS: Paul, what do you think about these government IOUs being worthless? KRUGMAN: Let me say that on all of these things it's really important to back up and say, you know, whatever you want to say about the future of Social Security -- and I think this crisis stuff is nonsense -- you know, the proposed solution is not we're going to allow people to invest money. It is that the U.S. government is going to borrow lots of money, because you're going to be taking payroll taxes that are being used to pay benefits and you're going to divert them into these private accounts, and we're going to borrow the money. And so this supposed solution is like your financial advisor saying to you, 'Well, here's how you prepare for your retirement. Don't save. Just borrow a lot of money, put the money in the stock market. You'll be fine.' This is crazy. This is absurd. There is this moment that this imaginary crisis in 2018 when Social Security is no longer taking in more payroll taxes than it pays out in benefits, I can think of a lot of reasons why we might have a fiscal crisis in 2018 or before. Social Security is not on the list. Right now we've got a huge budget deficit. Right now. Not hypothetically some decades in the future, but right now, because President Bush broke with all historical precedent by cutting taxes while waging a war. We have Medicare expenses which are going to grow by about 2.5 percent of GDP, more than Social Security will ever grow, even when 40 years from now, by 2020, with more than half of that rise because of that horrible Medicare bill that President Bush ran through Congress in 2003. So to say that we have a problem in Social Security, no, we do have a huge budget problem, which is created by policies that have nothing to do with Social Security. The Social Security system has been run quite responsibly. Last thing to say, let me just say, when Dick says he's been wanting to get rid of this for 40 years, that's the point. Republicans have always wanted to get rid of this thing. GIBBS: Dick, your response. ARMEY: Well, let me just say first of all the reason I've wanted to get rid of it was I'm an economist who believes in freedom. And what the President's saying is what a novel idea. Let's let people voluntarily to choose what they would do voluntarily instead of being another generation of people that are compelled by law to participate in a program that they have no confidence in, they don't like, and don't appreciate. And the fact of the matter is all we're saying is even if you say the liquidity problems are there whether you do the right thing or stay with the old wrong thing, how about, Paul, the idea that we should let people be free to choose for themselves how they will define their own retirement security in the future? Don't your children deserve that opportunity more than what the last three generations of Americans have had it because of this compulsory forced savings plan of the federal government? KRUGMAN: Let's just be clear. I mean Social Security is mostly a program that's run as a pay-as-you-go basis. Primarily most of the money that's collected is a tax that's used to pay benefits. It's retirement security. It's never intended to be the sole source of people's retirement savings, but it's something you can fall back on. It's social insurance. And again, all of these proposals are not saying let's let people invest their own money. They are saying let's let the federal government borrow money, and we're going to hope, it's all got to come from additional borrowing. This is completely an unfounded idea. And none of the programs, none of the proposals work even in the very long run, unless stocks are for sure, absolutely a better investment than bonds, which is this funny thing, because somebody's selling us the stocks and somebody's buying those government bonds. So I wonder how a former economics professor can believe what you have to to make this program work. You have to believe that you are smarter than the market, that you know that stocks are a great investment, but the market does not. ARMEY: Let me just say, Paul, I, like you, base all of my confidence about my financial security in my retirement years on my 401(k). And don't tell me that you're any different. You tell me where you put your money. Have you put it in stocks, bonds, in the private capital markets? Or are you willing to be dependent upon Social Security? The fact of the matter is right now the more privileged people have the privilege of the compound earnings of the private capital markets and the less privileged people are forced to put their money into the lowest paying retirement program in the history of the world. Why not let everybody be free to choose just as you're free to choose? And just as I know you're feeling quite confident about your security by virtue of the earnings you've had in the private capital markets throughout all your working life. GIBBS: Paul, let me ask you that. KRUGMAN: No, but this is the point. Social Security is not investing people's money badly. It's a program in which people pay taxes and get social insurance. It's not getting a lousy rate of return. There's no free lunch here. I don't know what happened. It's amazing to me that conservatives who believe in the free market now say that it's this enormous free lunch so we can somehow solve this problem they perceive by borrowing money and throwing it into the stock market because there's a money making machine out there that for some reason the private market is not exploiting. And the point is, yeah, I've done really well, and I don't think I'm going to need Social Security. But you know if I should screw up -- I'm getting a little bit old, I'm running out of time to make big mistakes -- but if I should screw up, I'd feel better knowing that there is a program that insures that you do not have lots of poverty among the elderly in the United States. Social Security is much more than just a way to invest your money. It is a bedrock of the reason why we don't have a lot of misery. And this is not hypothetical. Britain went for a privatization plan back 20 years ago under Margaret Thatcher thinking that they were going to solve the retirement issue forever. And now a big report by the UK Pensions Commission back in October saying we've got a problem here. Lots of people are going to find themselves in deep poverty when they retire because they're not making enough on those private investments. But look, the stock market did great in the past. Mutual funds are supposed to, you know, required to do this disclaimer, past returns are no guarantee of future performance. People have caught on to the fact that stocks were a good thing in the past and the price/earnings ratio is double what it was 50 years ago. So in the future stocks are not going to be that great of an investment. GIBBS: Dick, what about that? If stocks are so great, how come Social Security itself doesn't invest in the stock market and share the wealth among the beneficiaries? ARMEY: Well, because federal law requires Social Security to be put into United States Government securities. The argument at the inception of the program back in '36 was this is the safest thing you can do with the people's retirement security. Later on when you had the unified budget from President Johnson, it became clear, particularly to the Democrats, oh yeah, we can milk this for our other additional spending programs. I think it's a pretty frankly grievous trick to take a 25-, 30-year-old youngster that's working his heart out to take care of this family, force him to put the first 15 percent of all the money he earns into this program under the pretense that he's paying for Grandma's retirement, and then instead be spending the money on such foolish things as AmeriCare or AmeriCorps or the National Endowment for the Arts or any of the other sort of silly, what should I say, indulgings of the federal government's budget. The fact is these youngsters have serious things to do with their life. They don't need to have their savings forced into a program that is subsidizing frivolous government spending programs. GIBBS: Dick, House Ways and Means Committee Chairman Bill Thomas predicts that partisan warfare over Social Security is going to render his proposal pretty much a dead horse. How do you respond to that? ARMEY: I think Bill's wrong about that. I think the whole public mood on this subject is so markedly different than what it has been over the years that we're going to be amazed at the amount of grassroots uprising there is in America that says the President's right, now get it done. KRUGMAN: Let me say what's astonishing to me is the cowardice of the Bush Administration's approach because they're proposing this thing, they're saying we're going to secure the future, but actually we're not going to impose any pain on anyone. It's all going to be borrowed money and we're going to try and rewrite the budget rules so the borrowing doesn't even show in the budget deficit, but we're going to propose something which is going to cut the guaranteed benefits, but you know, none of that's really going to happen for several decades. So we're going to actually leave it to some other future government to actually impose the pain. So this is a fake. This is all propose, you know, claiming to be courageous, claiming to do good stuff, but in fact what we're going to do is we're going to borrow lots of money for an initiative and pretend that it's going to do something in the long run in ways that are totally nonbinding on whoever is running the United States in 2050. ARMEY: Let me just say it is so inappropriate to talk about the cowardice of the President. Democrats have been beating Republicans over the head to the tune of the third rail since 1964 in Barry Goldwater's election. Any Republican that has the courage to say let's have a serious adult discussion about a very important public policy issue that touches three or four generations is a president that has to be applauded. And, Paul, you ought to appreciate the fact that you now have a Republican president that dares to stand in the face of 40 years of effective mean-spirited Democrat demagoguery on this subject that should have been addressed when Goldwater tried to do it in '64. KRUGMAN: I'll just say that the mean-spiritedness and the demagoguery to me seems to be along the other side. Here we have a program that's doing just fine, you know, the problems are a tiny fraction of those associated with the tax cuts, a tiny fraction of those associated with Medicare, Medicaid, and here we are trying to trash the program with scare rhetoric. And it's again, remember that when the Congressional Budget Office scored what appears to be the most likely proposal -- you know, we don't actually have a proposal, that's very weird -- but what we think is going to be the Bush Administration's plan, it says that it will increase the deficit every year from now until 2050. So the good stuff that's supposed to happen is going to happen after the current generation of politicians is long gone. ARMEY: Well, why don't you join me then in calling for responsible cuts in the rest of the federal budget? If you really believe retirement security for the generations is important, will you join me in cutting out the National Endowment for the Arts, cutting out AmeriCorpsor any number of other programs that have no visible benefit to the American people and are nothing but budgetary indulgences for privileged people in the country? KRUGMAN: You know that those are pocket change. You know that all that is pocket change. ARMEY: No… KRUGMAN: Will you join me in calling for a repeal of tax cuts that were based upon budget forecasts that have turned out to be totally wrong? ARMEY: No, I will not. KRUGMAN: Well, there we are, there we are. No sacrifice. ARMEY: The problem is, there again, let me just say the real level of taxation, as Milton Friedman has pointed out oftentimes, is the level of spending. The fact of the matter is our problem is this government is too big, spends too much of our money, and spends it all too often too frivolously, and most of the people who want to save Social Security as they've known it for the past 40 years will not join in making any of the necessary budget cuts that would even make it possible to do the wrong thing you want to do on Social Security. GIBBS: Gentlemen, we've barely scratched the surface, and I know we could talk about this for hours. We'd love to have you back, but we're out of time. Dick Armey, Paul Krugman, thank you.

Subject: Re: Social Security Interview From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:29:40 (EST) Email Address: EgerJB@cs.com Message: Krugman is a hypocrite, as well as a liar. He has a retirement account with TIAA-CREFF who has been stock investing since 1952. SS is a giant ponzi scheme that WILL fail.

Subject: Re: Social Security Interview From: jimsum To: Bill Date Posted: Tues, Jan 25, 2005 at 14:26:12 (EST) Email Address: jim.summers@rogers.com Message: If it is hypocritical for someone to comment on SS when they are unlikely to collect it; then it is hypocritical for someone who is unlikely to collect welfare benefits to comment on the financing of the system. I don't understand how SS will fail. As far as I can tell, failure of SS is defined as paying more in benefits than collecting in taxes. By that measure, the current Bush administration budget is a collosal failure, since expenditures are about 33% higher than taxes.

Subject: New Medicare Rules on Drugs From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 15:47:22 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/politics/22drugs.html New Medicare Rules on Drugs Balance Access Against Costs By ROBERT PEAR WASHINGTON - The Bush administration on Friday unveiled rules for the new Medicare drug benefit that guarantee patients access to a wide variety of medicines while giving insurance companies potent tools to control costs. Issuance of the rules is one of the most significant events between Dec. 8, 2003, when President Bush signed the Medicare law, and Jan. 1 next year, when the drug benefit becomes available. The rules, which were made final after a long, contentious public comment period, will govern all who might be involved in the new program: health insurers, employers, drug manufacturers, pharmacies, benefit managers and up to 41 million elderly and disabled people covered by Medicare. On many issues, the rules strike a balance between competing interests. On the one hand, the rules say that every prescription drug plan must provide 'adequate coverage of the types of drugs most commonly needed' by Medicare beneficiaries. These include drugs to treat high blood pressure, heart disease, cancer, osteoporosis and Alzheimer's disease. On the other hand, the rules say that a plan can establish a list of preferred drugs and can refuse to pay for other medicines. In general, the list, known as a formulary, must have at least two drugs for treating each condition or illness. The rules do not dictate which specific drugs must be covered - for example, by specifying Paxil or Zoloft among the antidepressants, or Lipitor or Crestor among the cholesterol drugs. But Medicare officials said they could require insurers to cover 'specific drugs' or types of drugs, to be identified in the future. The rules also embody other important policy decisions that will determine exactly how the new program works and whether it succeeds. Consumers, insurers, drug companies and politicians have been sparring over almost every detail of the rules. The final rules address many concerns that people expressed about a preliminary version, issued in late July. One concern centered on the fact that Medicare will replace Medicaid as the source of drug coverage for many of the elderly poor. About 6.3 million low-income people are enrolled in both insurance programs. Medicaid, which is financed jointly by the federal government and the states, now pays for their drugs, but will not do so after Jan. 1, 2006. State officials and advocates for low-income people had expressed alarm that many of these beneficiaries would lose coverage for months, while they moved from Medicaid to a Medicare drug plan. Dr. Mark B. McClellan, administrator of the federal Centers for Medicare and Medicaid Services, said Friday that people eligible for the two programs would 'have no gap in coverage' because they would be automatically enrolled in Medicare drug plans this fall. The law, the biggest expansion of Medicare since its creation in 1965, depends on private health plans to deliver the new benefit. Insurers, eager to control costs, wanted to limit the number of drugs they must cover. Doctors, drug companies and advocates for beneficiaries wanted to maximize the number. The government offered a compromise. It allows the use of formularies and says insurers must cover only one drug in a therapeutic category or class if only two drugs are available and one is clearly superior. But if a doctor certifies that a particular drug is medically necessary for a patient, the drug plan must cover it, regardless of whether it is on the list of preferred medicines. Under the rules, the insurer 'must grant an exception whenever it determines that the drug is medically necessary,' and the insurer is supposed to accept the judgment of the prescribing physician on the question of medical necessity. Dr. McClellan said the rules offered 'comprehensive assistance for low-income beneficiaries,' nearly 11 million of the 41 million elderly and disabled people on Medicare. Many employers have cut retiree health benefits in the last 15 years. The law offers subsidies to employers to encourage them to continue providing drug benefits to retirees. Dr. McClellan predicted that 9.8 million retirees would receive drug coverage from employer-sponsored health plans that qualify for the federal subsidies. This number, he said, is more than one million above the highest previous estimates. The rules explain how a beneficiary can appeal the denial of coverage for a particular drug, and they set standards to ensure convenient access to drugstores. Patients denied coverage can appeal through a complex, five-stage process. They can ask for a redetermination by their drug plan, a reconsideration by an outside organization, a hearing before an administrative law judge and a review by the Medicare Appeals Council, a unit of the Department of Health and Human Services. A beneficiary who is still dissatisfied can file suit in a federal district court. Each prescription drug plan can establish a network of pharmacies that agree to sell drugs to Medicare patients at discounted prices. An insurer must have a large enough network so that 90 percent of the Medicare beneficiaries in urban areas live within two miles of a participating drugstore, and 90 percent of those in suburban areas are within five miles of a store. Beneficiaries who sign up with a drug plan are generally locked in for a year. Insurers can end coverage for a particular drug, or increase the co-payment, if they give 60 days' notice to patients and the government. The United States Chamber of Commerce, the Blue Cross and Blue Shield Association and America's Health Insurance Plans, a trade group for insurers, praised the new rules. Howard G. Phanstiel, chairman of PacifiCare Health Systems, a large insurer based in Cypress, Calif., said the rules showed that the government would be 'a good business partner.' But consumer advocates, like Families USA and the Medicare Rights Center, said they were somewhat disappointed. Judith A. Stein, director of the Center for Medicare Advocacy, a nonprofit group that counsels beneficiaries, said the rules allowed immense complexity and variation in benefits. Drug discount cards, offered as a temporary source of assistance, were too complex for many elderly people, she said, and the new drug benefit may be even more confusing. Many states, like New York, New Jersey and Pennsylvania, have programs that assist state residents with their drug costs. The new rules say states cannot select one Medicare drug plan and enroll all their beneficiaries in that plan. Instead, states must work with all available drug plans. Senator Jon Corzine, Democrat of New Jersey, said this requirement would disrupt a state program that had worked well for three decades.

Subject: Stocks' Payoff Myth From: Jennifer To: All Date Posted: Sat, Jan 22, 2005 at 15:01:44 (EST) Email Address: Not Provided Message: http://www.msnbc.msn.com/id/6839146/site/newsweek/ January 18, 2005 Stocks' Payoff Myth If you can stay in the stock market for the long term, your investments will pay off. But that long term can be very, very long. By Allan Sloan Friday was a historic day—and I'll bet you didn't even notice. No, I'm not talking about it having been the 91st anniversary of Henry Ford's introduction of the assembly line for the Model T. Or the 221st anniversary of Congress's ratification of the Treaty of Paris, which ended the Revolutionary War. I'm talking about something more recent and mundane: the fifth anniversary of the Dow Jones industrial average's all-time high, set on Jan. 14, 2000. Back in the day, the stock market bubble was still with us, and the Dow closed at 11,722.98. Twelve thousand, and points north, seemed within easy reach. Alas, the Dow promptly headed south, and has never come close to what it was. At Friday's close, the Dow was still 10 percent below its all-time high. And that understates the damage investors have suffered since stocks peaked five years ago. The Standard & Poor's 500-stock index and the Wilshire 5000, both far better measures of the market than the 30-stock Dow, are down 22 and 19 percent from their highs of March 2000. And the Nasdaq market? Yeckummm. It's down 59 percent from its peak, which means it has to way more than double just to get back to where it was five years ago. I'm dragging out all these numbers because there's a lesson here, one that some people have forgotten because stocks have done well the past two years. It's this: Even though stocks have produced double-digit profits on average every year, the market can go down and stay down for extended periods. So on average, you do great. But in the real world, you can lose your shirt if you need to cash in your chips during a bad market patch and don't have the staying power to hold on for better days. This all matters, big time, given the trial balloons the Bushies are launching to substitute private investment accounts for about half of Social Security's current benefit formula. (My math: The change they're floating to tie benefits to inflation rather than wages would cut benefits for next-generation workers by 46 percent, compared with the current formula.) On the charts, your private investment account looks great: Stocks have produced an average of 10.4 percent a year for investors since 1926, according to Ibbotson Associates. That makes stocks sound like sure-fire investments. But there's no guarantee that you'll actually make that kind of money, unless you have staying power measured in decades. If you got in at the Dow's 1929 peak, you had to wait until 1954 to break even. In 1964, you had to await 1972. Now, it's 2000 to who-knows-when. You make good money on average, but life isn't always average. A six-foot man can drown in a lake that averages six inches deep if he steps in the wrong place. I'm not any sort of guru, but simple arithmetic makes it unlikely that stocks over the next decade or two will repeat what they've averaged for the 79 years covered by Ibbotson. Here's why. A large part of stocks' long-term returns to investors has come from cash dividends, which are far lower now, relative to stock prices, than they were. Some 4.25 percentage points of stocks' 10.43 percent total return came from cash dividends, according to Ibbotson, and 5.93 percentage points came from share-price increases. (The rest came from reinvesting the cash dividends in additional shares.) Today, the S&P 500 dividend yield is well under 2 percent. Allow 6 percent a year for share-price increases—that's generous, given the current high level of stock prices—and you end up with a return of around 8 percent. That's more than two percentage points below the long-term historical return—and about two points below the assumptions underlying the administration's Social Security private-account projections. It's one thing to come in with a less-than-projected return on your 401(k) account or your regular stock portfolio. That's not basic-needs money—or at least it shouldn't be. But if you're counting on stocks to supplement your sharply reduced Social Security benefit to pay for basic needs, you're toast if stocks come in low. Ditto for bonds, which have excellent long-term returns—almost 6 percent in interest income and price appreciation since the end of 1925—but whose returns for the next few decades are likely to be lower, for technical reasons having to do with current interest-rate levels. One last piece of historical trivia. In addition to signaling the peak of the Dow, Friday also marked the 51st anniversary of the short-lived marriage of Marilyn Monroe and Joe DiMaggio. Like the bull market, it was fun to watch while it lasted. But as history teaches us, nothing goes on forever.

Subject: Re: Stocks' Payoff Myth From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:33:47 (EST) Email Address: EgerJB@cs.com Message: Well-known Princeton economics professor Burt Malkiel is providing meaningful, data-driven support of market-investing in personal savings accounts as part of Social Security reform. His is a significant endorsement of the Bush plan at a time when critics are popping up all over the political map. According to Malkiel, from 1926 to the present, yearly stock market returns have averaged about 10 percent pre-inflation and 7 percent after-inflation. The absolute worst return for a 25-year investor who started in 1929 was 6 percent; for a 35-year investor it was 8 percent. Malkiel wrote in the Wall Street Journal this week that ?Long-term investors can invest in the stock market with considerable confidence that they can earn a rate of return far above the 1% to 2% return afforded by the Social Security system.? This is an important defense of personal accounts. Malkiel is the former chairman of the president?s Council of Economic Advisors. He is also the former chair of the Princeton economics department. Yes, believe it or not, there?s an Ivy Leaguer in favor of Bush?s reform plan. As such, Malkiel brings enormous credibility to the issue. The Princeton professor also recommends periodic contributions to Social Security in the form of ?dollar cost averaging.? Long-term investors who started in the market in 1929 and acted this way got returns averaging 7 to 10 percent yearly as the minimal low end of their historical performance. Malkiel recommends asset diversification among stocks, bonds, and real estate, along with ?rebalancing? over time. In other words, younger workers should have more stocks than bonds in their personal accounts and older workers more bonds than stocks. Setting up stream-of-income annuities for the retirement years avoids the pitfalls of taking everything out of the market at a bad time (like 1929 or 2000-01). Malkiel?s defense of personal accounts comes in response to disingenuous anti-stock market ads from the AARP. The ads say, ?If we wanted to gamble, we?d play the slots.? In other words, the AARP believes that investing in stocks and bonds is a crap shoot. Their new slogan is ?Social Insecurity.? This campaign is flat-out hypocritical. The AARP advertises no fewer than 38 different stock and bond mutual-fund investments to their members. You can buy anything on their website from big-cap Dow stocks to emerging-market funds. If you want to ?gamble,? you can even buy Argentina ? through the good offices of the AARP. Of course, the AARP gets a nice fat commission on any of these fund sales. Yet, when steering their membership away from the Bush Social Security reforms, they never cite the long-run positive stock returns discussed in the work of Burt Malkiel, University of Pennsylvania professor Jeremy Siegel, or many other experts. The disingenuousness of the AARP is shameful. What?s good for their members should be good for the rest of us. After all, stock- and bond-market investing is not some new radical idea. For decades, state pension funds have successfully invested in markets for unionized policemen, firemen, and teachers. Ditto for the federal Thrift Savings Plan on behalf of the executive and legislative branches in Washington. Liberal academic critics of market investing ? such as Paul Krugman ? never tell us that their own retirements are taken care of by market investors like TIAA-CREF. Founded in New York City in 1918, TIAA-CREF provides retirement plans for professors of colleges and universities. They began common-stock investing in 1952. The Bush administration had better start communicating all of these facts. Last week?s Gallup poll showed that while 71 percent of Americans believe the Social Security system is either in crisis or has a major problem, folks also think ? by a huge 55 to 40 percent margin ? that investing some of their Social Security taxes in stocks or bonds is a bad idea. With nearly half of the public already invested in stocks, the Gallup finding has to be bad news for the Bushies. It may very well be that the White House and the Treasury are spending too much time worrying out loud about benefit cuts and the so-called transition costs of Social Security, and not nearly enough time talking up the superiority of market-driven benefits for future retirees. They?ve also been too quiet about the benefits of Social Security ?ownership? for the spouse, child, or other family heir of a deceased breadwinner.

Subject: Future Stock Returns From: Emma To: Jennifer Date Posted: Sat, Jan 22, 2005 at 15:18:20 (EST) Email Address: Not Provided Message: http://flagship2.vanguard.com/VGApp/hnw/FundsByName Given price earning ratios that are far higher than the historical norm, dividends that are much lower and not made up be stock buy-backs, and earnings that are remarkably high relative to wages, I can not imagine how the coming years will match the 12.4% yearly average for the Vanguard S&P since 1976.

Subject: Social Security Notes: Paul Krugman From: Terri To: All Date Posted: Sat, Jan 22, 2005 at 14:16:59 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000203.html#comments Couldn't resist a comment here. First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk. Second, I can't believe that privatizers still think they can score points by comparing the implicit rate of return on SS - which is decreased by legacy costs and the costs of providing disability insurance - with the rate of return on unencumbered investments. Guys, the relevant comparison is the opportunity cost of the funds borrowed to create the private accounts; anyone who says different is either uninformed or deliberately dishonest. For those puzzled about my example, the CBO study of Plan 2 assumes that half of private accounts are in bonds, half in stocks. So a 2 percent equity premium means that private accounts yield only 1 percent more than the bonds issued to pay for their creation. That's a sum that can easily be eaten up by fees. The reason the borrowing cost, not some calculation of internal rates of return, is relevant: privatization doesn't do any good unless it increases the size of the pie. Privatizers tell us not to worry about the borrowing, because it will be matched by benefit cuts of equal present value. But that leaves workers worse off unless their earnings on private accounts, again in present value terms, are bigger than the benefit cuts. If the return on accounts is no higher than the borrowing cost, all that happens is an increase in risk.

Subject: Re: Social Security Notes: Paul Krugman From: Emma To: Terri Date Posted: Sat, Jan 22, 2005 at 14:39:17 (EST) Email Address: Not Provided Message: There is no reason to explain why productivity growth should suddenly slow markedly, for I much doubt that it will. Unless you can tell me that variations of Moore's law are no longer workable, then I am content to assume productivity and economic growth will be conservatively high enough for there to be no Social Security problem. There is most certainly no crisis, and as for the trust fund it is as real as all Treasury bond obligations are real and will surely be honored. There must be no Social Security benefit cuts, for none are needed. Now and again, however, I think of the possibilities of Social Security investing part of the trust fund in a total market stock index with non-voting shares.

Subject: A New China for the Young From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 11:07:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/international/asia/22zhao.html?pagewanted=all&position= For Beijing Students Now, Protests Aren't Even a Memory By JIM YARDLEY BEIJING - For Yu Yang, a mop-haired biology major, the small notice posted this week on Beijing University's Web site about the death of a former Communist Party leader seemed like an irrelevant historical footnote. Growing up, Mr. Yu, now 21, barely knew about Zhao Ziyang, except that he had 'played a prominent role in 1989.' And Mr. Yu acknowledged Thursday that he barely knew about 1989. He knew students had protested at Tiananmen Square; he had heard that Chinese soldiers fired into the crowds to end the demonstrations. But Mr. Yu, an aspiring scientist, described that as hearsay. 'Rumors say so,' he said of a bloody crackdown witnessed by a worldwide television audience outside China, 'but I need a lot of evidence to believe it.' If the Chinese government can help it, he may never see that evidence. For years, the Communist Party has awaited Mr. Zhao's death with trepidation, fearing protests or riots. Purged for sympathizing with the students, then placed under house arrest in Beijing for almost 16 years, Mr. Zhao became a martyr to a generation of Chinese for whom Tiananmen remains an indelible scar. But for many younger Chinese, who did not witness those events, he is a virtual nonentity, banished from history books and the state-controlled news media. At Beijing University, a focal point of political dissent in 1989, his death scarcely seemed to register with the generation of students who were children when the massacre happened. Some, like Mr. Yu, were simply ill informed, knowing about it only in vague, often inaccurate, terms. Others, frightened, knew they should change the subject. Asked if any event in the news had seemed significant this week, one student standing in the doorway of his room replied, 'You mean the Australian Open?' When his visitor gave him a quizzical look, the student smiled almost imperceptibly. 'Oh, you mean Zhao,' he said. The government's deep concern about the lingering anger over Tiananmen - and the potential that it could still be the match that lights new protests - explains the official response since Mr. Zhao died Monday. Dissidents were quickly placed under surveillance or, in some cases, under house arrest. The Chinese media were banned from covering his death, other than a small mention in state-controlled newspapers. At elite universities in Beijing, security was increased, and faculty members were initially told to monitor their students to protect against demonstrations. Jiao Guobiao, an outspoken journalism teacher at Beijing University, said political speech was already tightly monitored long before Mr. Zhao's death, a fact that influenced the muted response by students. 'It's not that they don't care,' Mr. Jiao said. 'It's that they don't dare care. Any student who shows a concern for politics will be discriminated against. They will be sidelined, so they learn over time not to express opinions about political subjects like this.' Mr. Jiao himself is a telling example. Last year, he wrote a scathing indictment of the government's propaganda department. Since then, he has remained on the faculty but not been allowed to teach. Meanwhile, a popular chat room run by Beijing University students was closed last year after the postings became increasingly political and often critical of the government. Roger Jie, 21, a junior, laughed when asked if politics played a major role in campus life. 'Very nonpolitical,' he said. 'Neutralized, in fact, pretty neutral. Students are used to not talking about it.' Mr. Jie, who grew up in Guangzhou, said Tiananmen was rarely discussed at his high school. Instead, he learned about it from a program on an uncensored Hong Kong television station. 'The pictures were really brutal,' he recalled. Now, he said, the passage of time and economic progress in China have made Tiananmen seem less relevant to his life. 'It was long ago, and there hasn't been much news about Zhao for 10 years or longer,' he said. Asked if he now felt free in China, Mr. Jie paused for a moment. 'To a degree, it is free enough for me,' he said, even as he insisted on using his English-language name. Xu Youyu, a liberal political theorist at the Chinese Academy of Social Sciences, said the government blackout of information about Tiananmen meant that many younger people were ignorant about what happened in 1989. 'For this generation, it is not so important,' he said. 'They know very little or nothing about it.' In interviews with about a dozen students at a men's undergraduate dorm, several were not aware that Mr. Zhao had been general secretary of the Communist Party or that he had been under house arrest since being purged in 1989. Other students offered a softer gloss on the government's role in the crackdown. 'Many people left safely,' explained a 21-year-old student from Anhui Province who asked not to be identified. Did the soldiers fire on the students? 'It's really not clear,' the student continued. 'I heard the soldiers fired back when they were attacked.' His friend chimed in. 'I don't care too much about politics,' he said. What does he care about? 'Soccer,' he answered. In another room, four students - none willing to be identified - played video games. One student, who is majoring in Chinese history, said college students had access to information on the Internet that was not available to most Chinese and were aware of the problems here. But he thought that too much freedom of speech, too fast, was not a good thing. 'We need to phase in freedom of speech step by step,' he said. 'Not overnight.' His friend added. 'Overnight is like a revolution. Step by step is evolution. We oppose revolution.' On a different floor, a student who gave only his surname, Lei, watched music videos on his computer with a female friend. Mr. Lei, 22, said Mr. Zhao's death had had little impact on campus. He said he knew that historical events described on state television were often twisted or false. 'We listen, and it's all good things,' he said. He switched off the music video on his computer and punched up something else from his hard drive: a bootleg documentary on the Tiananmen protests. He said the Internet was the primary source of information on the protests for students. But if he was interested in the truth about Tiananmen, Mr. Lei said he questioned the broad idea of Western democracy for China. 'This country has too many people,' he said, echoing a line often repeated by government officials. 'It's hard to manage, and it may not be a great idea to practice Western democracy. It may cause chaos.' Mr. Lei's friend, visiting from another university, stood quietly nearby. Asked about Mr. Zhao and 1989, she blushed. 'I don't know who he is,' she said. 'I've never heard of him.' Nor had she ever heard of the Tiananmen protests.

Subject: People and Cars and Safety From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 11:05:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/international/europe/22monderman.html?pagewanted=all&position= A Path to Road Safety With No Signposts By SARAH LYALL DRACHTEN, The Netherlands 'I WANT to take you on a walk,' said Hans Monderman, abruptly stopping his car and striding - hatless, and nearly hairless - into the freezing rain. Like a naturalist conducting a tour of the jungle, he led the way to a busy intersection in the center of town, where several odd things immediately became clear. Not only was it virtually naked, stripped of all lights, signs and road markings, but there was no division between road and sidewalk. It was, basically, a bare brick square. But in spite of the apparently anarchical layout, the traffic, a steady stream of trucks, cars, buses, motorcycles, bicycles and pedestrians, moved along fluidly and easily, as if directed by an invisible conductor. When Mr. Monderman, a traffic engineer and the intersection's proud designer, deliberately failed to check for oncoming traffic before crossing the street, the drivers slowed for him. No one honked or shouted rude words out of the window. 'Who has the right of way?' he asked rhetorically. 'I don't care. People here have to find their own way, negotiate for themselves, use their own brains.' Used by some 20,000 drivers a day, the intersection is part of a road-design revolution pioneered by the 59-year-old Mr. Monderman. His work in Friesland, the district in northern Holland that takes in Drachten, is increasingly seen as the way of the future in Europe. His philosophy is simple, if counterintuitive. To make communities safer and more appealing, Mr. Monderman argues, you should first remove the traditional paraphernalia of their roads - the traffic lights and speed signs; the signs exhorting drivers to stop, slow down and merge; the center lines separating lanes from one another; even the speed bumps, speed-limit signs, bicycle lanes and pedestrian crossings. In his view, it is only when the road is made more dangerous, when drivers stop looking at signs and start looking at other people, that driving becomes safer. 'All those signs are saying to cars, 'This is your space, and we have organized your behavior so that as long as you behave this way, nothing can happen to you,' ' Mr. Monderman said. 'That is the wrong story.' The Drachten intersection is an example of the concept of 'shared space,' a street where cars and pedestrians are equal, and the design tells the driver what to do. 'It's a moving away from regulated, legislated traffic toward space which, by the way it's designed and configured, makes it clear what sort of behavior is anticipated,' said Ben Hamilton-Baillie, a British specialist in urban design and movement and a proponent of many of the same concepts. Highways, where the car is naturally king, are part of the 'traffic world' and another matter altogether. In Mr. Monderman's view, shared-space schemes thrive only in conjunction with well-organized, well-regulated highway systems. Variations on the shared-space theme are being tried in Spain, Denmark, Austria, Sweden and Britain, among other places. The European Union has appointed a committee of experts, including Mr. Monderman, for a Europe-wide study. MR. MONDERMAN is a man on a mission. On a daylong automotive tour of Friesland, he pointed out places he had improved, including a town where he ripped out the sidewalks, signs and crossings and put in brick paving on the central shopping street. An elderly woman crossed slowly in front of him. 'This is social space, so when Grandma is coming, you stop, because that's what normal, courteous human beings do,' he said. Planners and curious journalists are increasingly making pilgrimages to meet Mr. Monderman, considered one of the field's great innovators, although until a few years ago he was virtually unknown outside Holland. Mr. Hamilton-Baillie, whose writings have helped bring Mr. Monderman's work to wider attention, remembers with fondness his own first visit. Mr. Monderman drove him to a small country road with cows in every direction. Their presence was unnecessarily reinforced by a large, standard-issue European traffic sign with a picture of a cow on it. 'He said: 'What do you expect to find here? Wallabies?' ' Mr. Hamilton-Baillie recalled. ' 'They're treating you like you're a complete idiot, and if people treat you like a complete idiot, you'll act like one.' 'Here was someone who had rethought a lot of issues from complete scratch. Essentially, what it means is a transfer of power and responsibility from the state to the individual and the community.' Dressed in a beige jacket and patterned shirt, with scruffy facial hair and a stocky build, Mr. Monderman has the appearance of a football hooligan but the temperament of an engineer, which indeed he trained to be. His father was the headmaster of the primary school in their small village; Hans liked to fiddle with machines. 'I was always the guy who repaired the TV sets in our village,' he said. He was working as a civil engineer building highways in the 1970's when the Dutch government, alarmed at a sharp increase in traffic accidents, set up a network of traffic-safety offices. Mr. Monderman was appointed Friesland's traffic safety officer. In residential communities, Mr. Monderman began narrowing the roads and putting in design features like trees and flowers, red brick paving stones and even fountains to discourage people from speeding, following the principle now known as psychological traffic calming, where behavior follows design. He made his first nervous foray into shared space in a small village whose residents were upset at its being used as a daily thoroughfare for 6,000 speeding cars. When he took away the signs, lights and sidewalks, people drove more carefully. Within two weeks, speeds on the road had dropped by more than half. In fact, he said, there has never been a fatal accident on any of his roads. Several early studies bear out his contention that shared spaces are safer. In England, the district of Wiltshire found that removing the center line from a stretch of road reduced drivers' speed without any increase in accidents. WHILE something of a libertarian, Mr. Monderman concedes that road design can do only so much. It does not change the behavior, for instance, of the 15 percent of drivers who will behave badly no matter what the rules are. Nor are shared-space designs appropriate everywhere, like major urban centers, but only in neighborhoods that meet particular criteria. Recently a group of well-to-do parents asked him to widen the two-lane road leading to their children's school, saying it was too small to accommodate what he derisively calls 'their huge cars.' He refused, saying the fault was not with the road, but with the cars. 'They can't wait for each other to pass?' he asked. 'I wouldn't interfere with the right of people to buy the car they want, but nor should the government have to solve the problems they make with their choices.' Mr. Monderman's obsessions can cause friction at home. His wife hates talking about road design. But work is his passion and his focus for as many as 70 hours a week, despite quixotic promises to curtail his projects and stay home on Fridays. The current plan, instigated by Mrs. Monderman, is for him to retire in a few years. But it is unclear what a man who begins crawling the walls after three days at the beach ('If you want to go to a place without any cultural aspect, go to the Grand Canaries,' he grumbled) will do with all that free time. 'The most important thing is being master of my own time, and then doing things that we both enjoy,' he said. 'What are they? I don't know.'

Subject: Yuan Step At a Time From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 09:31:52 (EST) Email Address: Not Provided Message: http://www.economist.com/PrinterFriendly.cfm?Story_ID=3576444 January 20, 2005 Yuan step at a time The Economist The case for a big revaluation of the Chinese currency is weaker than commonly claimed MANY policymakers and economists argue that the Chinese yuan, pegged for a decade at 8.28 to the dollar, is grossly undervalued, and that a revaluation is essential to reduce America's huge current-account deficit. The issue is likely to be high on the agenda at the next G7 meeting of finance ministers and central bankers on February 4th and 5th, to which China has been invited. Figures last week, showing a further widening of America's trade deficit and a big increase in China's surplus, have surely increased the pressure on China. However, in a new paper, “To Be a Rock and Not to Roll”, Stephen King, the chief economist of HSBC bank, exposes several myths behind the conventional arguments for a revaluation of the yuan. The first is that China's large and growing trade surplus with America proves that the yuan is undervalued. China's surplus with America is offset by a deficit with other Asian countries (see left-hand chart), from which it imports capital equipment and components. As a result, China's overall trade surplus was a modest $32 billion last year, smaller than in the late 1990s and peanuts compared with America's trade deficit of over $600 billion. Nor does the extraordinarily rapid growth in Chinese exports prove that its currency is too cheap: imports have also been rising rapidly. But what about the huge increase in China's foreign-exchange reserves, which jumped by almost $100 billion in the fourth quarter of last year? To prevent the yuan rising against the dollar, the People's Bank of China is being forced to buy vast amounts of American Treasury securities. Surely, that proves that the yuan is being held below its market rate? Not necessarily. Much of the increase in reserves reflects inflows of short-term capital, from investors taking advantage of higher interest rates in China or speculating on a revaluation. In the long term, if China scrapped its controls on capital outflows, the yuan might well fall as Chinese households diversified into foreign assets. It is true that because of its peg to the dollar, the yuan's real trade-weighted exchange rate (adjusted for inflation differences with other countries) has fallen by 13% since 2001. But on a longer view the Chinese currency looks less cheap. Between 1994 and 2001, it gained 30%, dragged up by a rising dollar (see right-hand chart). Those who accuse the Chinese of pursuing a cheap-yuan policy conveniently forget that during the East Asian crisis China let pass the chance to devalue its currency in line with most of its neighbours. Perhaps the biggest myth of all, says Mr King, is that the yuan's value is the only stumbling block to reducing America's current-account deficit. China accounts for less than 10% of America's total trade so a 10% revaluation of the yuan—as much as might be reasonably expected—would reduce the dollar's trade-weighted value by only 1%. If it were matched by a 10% rise in all other Asian currencies, then the dollar's trade-weighted index would fall by 3.7%. But even that is small compared with the dollar's decline of 16% since early 2002, let alone with what would be needed to cut America's current-account deficit to a sustainable level. Assuming no other policy changes, HSBC estimates that the dollar needs to fall by a further 30% to reduce the deficit to 2-3% of GDP. Another reason why any plausible revaluation of the yuan would do little to reduce America's trade deficit is that China's exports have a high import content, which limits the impact of exchange-rate movements on export prices. For example, the Chinese value-added (in parts and labour) in a mobile phone exported to America might be only 15% of its price. So a 10% revaluation would raise its price in dollars by only 1.5%. A lot of hot air In addition to claims that “China is stealing our jobs”, another popular argument for revaluing the yuan is that the Chinese economy is overheating, because a fixed exchange rate forces the country's authorities to run an overly lax monetary policy. Rising foreign-exchange reserves boost the money supply, causing higher inflation and excessive bank lending. A rise in the exchange rate, it is argued, would give the central bank proper monetary control. The snag is that a small revaluation is likely to increase expectations of another future appreciation, attracting yet more speculative capital and swelling foreign reserves further. To discourage speculation would require a much larger revaluation than the Chinese are likely to accept. Some economists argue that as China gets richer it needs to allow its real exchange rate to rise, in order to reap the full gains of its economic success. A stronger exchange rate would boost consumers' purchasing power, by allowing them to buy more foreign goods. At present, growth is too dependent on exports, while consumption is weak. However, an increase in the real exchange rate need not require a rise in the nominal rate. Instead it could come about through higher inflation than in countries abroad—as occurred in Japan in the 1950s and 1960s. Mr King concludes that the biggest problem for China's current exchange-rate policy is not the yuan itself but the performance of the dollar. A fixed exchange rate is supposed to provide stability. So if the dollar continues to fall, China may wish to switch to a more reliable store of value and unit of account. One alternative is a currency basket reflecting the pattern of its trade. China already trades more with the European Union and Japan than with America. The real blame for America's current-account deficit lies with its lack of saving, not the Chinese yuan. Last year, Li Ruogu, the deputy governor of the People's Bank of China, warned the United States not to blame other countries for its economic difficulties. He said that foreign pressure would not force China to move faster to free its exchange rate. It would indeed be ironic if a change in China's exchange-rate policy came not as a result of American pressure, but from China's own disillusion with the dollar as an international reserve currency.

Subject: Our Balance of Payments From: Terri To: Emma Date Posted: Sat, Jan 22, 2005 at 09:39:47 (EST) Email Address: Not Provided Message: With a fierce federal deficit and little household saving, and international institutions and businesses willing to lend to America, I do not see how we can hope for a much more favorable trade balance. The problem is not China, rather the problem is a foolish fiscal policy that reversed the gains made through the 1990s in a remarkably short time.

Subject: Investing Not Speculating From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 08:34:32 (EST) Email Address: Not Provided Message: Let me try another example using John Bogel: Earnings growth has long averaged 7%. S&P dividends after costs are 1.5%. So, if price earning ratios hold we can expect a return of 8.5% on the S&P Index over time. The 10 year Treasury bond yield is 4.15% at present. Using this example, we can expect a premium above 4 percentage points from stocks if the p/e holds. Now if we have to borrow to buy stocks, we must pay interest. Then a 4.15% borrowing cost still leaves a margin for stocks if they return 8.5%. Even if the p/e ratio declines and stocks were to return 5%, they would seem to be a useful long term investment. Please correct me or John Bogle if this example is wrong.

Subject: Investing Example From: Emma To: Emma Date Posted: Sat, Jan 22, 2005 at 10:34:14 (EST) Email Address: Not Provided Message: Earnings growth, in nominal terms, for the last 28 years has been about 7%. Dividends, after costs, have been about 3.4%. The price earning ratio for the S&P has risen from about 10 to 20. This would account for the 12.4% yearly return for the Vanguard S&P Index since inception in 1976.

Subject: Social Security Note: Paul Krugman From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 19:08:26 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000203.html#comments Couldn't resist a comment here. First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk. Second, I can't believe that privatizers still think they can score points by comparing the implicit rate of return on SS - which is decreased by legacy costs and the costs of providing disability insurance - with the rate of return on unencumbered investments. Guys, the relevant comparison is the opportunity cost of the funds borrowed to create the private accounts; anyone who says different is either uninformed or deliberately dishonest.

Subject: Please Explain the Example From: Jennifer To: Terri Date Posted: Sat, Jan 22, 2005 at 06:29:20 (EST) Email Address: Not Provided Message: 'First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk.' Sorry, I do not understand the example. Please help me understand whether this is correct. Does a 5% return on stocks with a 3 point borrowing cost and a 1 point management fee lead to zero excess return over bonds? I find a 1% excess return of stocks over bonds.

Subject: Puzzling From: Terri To: Jennifer Date Posted: Sat, Jan 22, 2005 at 07:19:30 (EST) Email Address: Not Provided Message: When I look to the example I too am puzzled. Why is there not a 1 percentage point excess return of stocks over bonds after costs given a 5% stock return and a 3% interest rate? A 1 percentage point excess return will add up nicely over time if this example might hold. I expect the costs to be even higher because private account holders will seldom keep permanent index fund stock accounts. But, this example puzzles.

Subject: Puzzling From: David E.. To: Terri Date Posted: Sat, Jan 22, 2005 at 14:25:18 (EST) Email Address: Not Provided Message: Not quite sure what the confusion is about. Paraphrasing Paul Krugman - A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 5% and a bond return of 3% will yield 4% return. (5 3)/2=4). 4% portfolio return less 3% borrowing cost = 1% net return. But now we have to cover expenses. Chile and England have expense ratios of 1%. So if we have a 1 % ratio, there is nothing for the investor. 1% might sound high to us, but it sounded reasonable to legislators in Chile and England, I don't know what Republicans who are funded by Wall Street will think is reasonable. I do know that the prescription drug bill ended up with subsidies to HMO's that can't match Social Securities low medical cost of treatment. And with a guarantee to the drug companies that Medicare wouldn't negotiate prices en masse. A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 7% and a bond return of 3% will yield 5% return. (7 3)/2 =5). 5% portfolio return less 3% borrowing cost = 2% return. But now we have to cover expenses. 2% - 1% in expenses is 1%. $1 invested at 1% at the beginning will be worth $1.50 at the end of a 40 year career. $2 invested at 2% will be worth $2.20 at the end of a 40 year career. Money compounds very slowly at low interest rates. It is very hard to make money when you have to borrow to invest. The biggest part of the yield goes to the lender.

Subject: Re: Puzzling From: Jennifer To: David E.. Date Posted: Sat, Jan 22, 2005 at 16:20:40 (EST) Email Address: Not Provided Message: Nice response David. I did not pay attention to the return with 50% of the portfolio in stocks, assuming 100% instead.

Subject: From: David E.. To: Terri Date Posted: Sat, Jan 22, 2005 at 14:24:00 (EST) Email Address: Not Provided Message: Not quite sure what the confusion is about. Paraphrasing Paul Krugman - A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 5% and a bond return of 3% will yield 4% return. (5 3)/2=4). 4% portfolio return less 3% borrowing cost = 1% net return. But now we have to cover expenses. Chile and England have expense ratios of 1%. So if we have a 1 % ratio, there is nothing for the investor. 1% might sound high to us, but it sounded reasonable to legislators in Chile and England, I don't know what Republicans who are funded by Wall Street will think is reasonable. I do know that the prescription drug bill ended up with subsidies to HMO's that can't match Social Securities low medical cost of treatment. And with a guarantee to the drug companies that Medicare wouldn't negotiate prices en masse. A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 7% and a bond return of 3% will yield 5% return. (7 3)/2 =5). 5% portfolio return less 3% borrowing cost = 2% return. But now we have to cover expenses. 2% - 1% in expenses is 1%. $1 invested at 1% at the beginning will be worth $1.50 at the end of a 40 year career. $2 invested at 2% will be worth $2.20 at the end of a 40 year career. Money compounds very slowly at low interest rates. It is very hard to make money when you have to borrow to invest. The biggest part of the yield goes to the lender.

Subject: The Yuan-Dollar Peg From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 19:01:55 (EST) Email Address: Not Provided Message: Conditions change, but friends in China tell me there have been a number of leadership interviews that make it clear the Yuan-dollar peg is not going to be soon changed. The articles may simply be meant to shut down what speculation there is, by I seriously doubt the Chinese leadership will soon accede to pressure.

Subject: Siberian Pipeline From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 17:35:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/21/business/worldbusiness/21pipeline.html?oref=login&adxnnl=1&adxnnlx=1106341202-M6ut1wQV6Hczb8WoV5Y7EA&pagewanted=all&position= Disputes at Every Turn of Siberia Pipeline By JAMES BROOKE PEREVOZNAYA, Russia - Stretching from Lake Baikal to the Sea of Japan, the first trans-Siberian oil pipeline is to run 2,565 miles - more than three times the length of the Trans-Alaska Pipeline. With a price tag of $15.5 billion, it looms as modern Russia's biggest infrastructure investment, President Vladimir V. Putin's answer to the Trans-Siberian Railway of the czars. Because China and Japan both rely on the Middle East for about 85 percent of their oil imports, both economic giants competed fiercely over what could be the world's longest and most expensive oil pipeline. Trumping China with a more generous financing offer, Japan, the world's second-largest oil importer, hopes that the four-foot diameter pipe will bind it to Russia, the world's second-largest oil exporter. It may be a decade before the pipeline is completed. But the line would increase by about a third Russia's capacity to export oil by pipeline and would be a major Russian shift toward the Pacific, where oil could be sold to any country, including the United States. But the project still faces major hurdles. There are no guarantees there will be enough oil to fill the pipe, although Russia has as much as 67 billion barrels of untapped oil reserves along the pipeline route. When the oil reaches the Sea of Japan, there are no public commitments binding Russia to sell it to Japan, whose ports are only a day's sail away. And Russia's last-minute switch of the Pacific terminal site from an existing oil port to this pristine bay is already putting Japanese banks in the middle of a growing global environmental protest movement. Contrary to the traditionally opaque nature of many major Russian investments, the pipeline is expected to come under rigorous international scrutiny. The Kremlin has vowed not to contribute government funds for the pipeline construction. Instead, Transneft, the government pipeline monopoly, has been told to go find its own financing, preferably on international markets. Foreign banks, especially the Japan Bank for International Cooperation, will increasingly face questions over the pipeline's future profitability and over Moscow's little-publicized decision in December to switch the pipeline terminus from Vostochny, Russia's main industrial port in the Pacific, to Perevoznaya, a tranquil bay. In the summer, the bay's sandy beaches and warm waters are frequented by ferry loads of beachgoers from Vladivostok, 10 miles to the east. In the winter, this frozen semiwilderness is home to some of the last 30 to 40 Amur leopards in the world. The Amur is one of 50 endangered species found only in this corner of Pacific Russia. To get to the terminal and planned oil refinery, dozens of tankers would steam daily past Russia's only maritime nature reserve, a collection of 11 islands prized for 3,000 species, a rare wealth of biodiversity that comes from a meeting of boreal and subtropical water currents. Navigating a five-mile-wide channel littered with more small islands, the tankers would then enter a maritime cul-de-sac with such shallow waters and fragile ecology that environmentalists have started calling Perevoznaya Bay 'Siberia's Prince William Sound,' evoking memories of the 1989 oil spill in Alaska by the oil tanker Exxon Valdez. 'We are already seeing the start of an environmental campaign on this issue, which is really going to grow in coming months,' said David Gordon, executive director of Pacific Watch, an environmental group based in California. 'The pipeline will be a test case of whether or not Russia can meet the top-level environmental standards that the public expects from oil and gas projects around the world.' This winter, American and European environmentalists are organizing a campaign to persuade Moscow to build the pipeline terminal in Vostochny, a modern industrial port and railhead built 30 years ago next to Nakhodka. Adding urgency, May 1 is the new deadline for Transneft to devise a pipeline construction timetable and for the ministries of transport and defense to establish oil tanker shipping routes to Perevoznaya Bay. Last fall, Russian environmentalists began collecting signatures on petitions and writing letters of protest to President Putin and to Transneft, which plans to get the oil here by building the pipeline through one nature preserve and along the southern border of a second preserve. 'If the pipeline is to be built in this area, a tremendous part of the tiny leopard and tiger habitat will be cut off,' Dimitri G. Pikunov, a Russian biologist, said one recent afternoon as he drove through Barsovy Wildlife Refuge, which would be bisected by the pipeline. Noting that the Siberian tiger has other strongholds in the maritime region, he added: 'If a port is built near this reserve, no animals will stay. And this area represents the leopard's last stand.' Anatoly Lebedev, a Vladivostok environmentalist leading the opposition campaign, said: 'It is obviously a crazy idea to kill all the recreational industry in the district, which offers generally cheap and accessible recreation on the sea coast for millions of Far Easterners and Siberians.' Anton Semenov, another environmentalist in Vladivostok, said he was worried that the bay's 'strong currents would carry oil from any spills far and wide.' The oil terminal project also presents a test between Japan's energy anxieties and its environmental concerns. Representatives of Japan's development bank have participated closely in negotiating possible financing for the project. Conceivably, this Japanese bank could finance up to 80 percent of the project, which would make it the largest loan in the bank's history. From an original price tag of $6 billion, costs have ballooned over the last two years, inflated by rising steel prices and the technical challenge of building across soils affected by differing conditions of permafrost. Although Japanese studies say there will be enough oil found near the pipeline route to fill the pipeline, skeptics say the line could be a 21st-century Trans-Siberian Railway - a wonderful exercise in nation building that has never made a profit. Initially, the pipeline was to be far shorter, going to Skovorodino, a Siberian town 37 miles north of the Chinese border, and then angling south into northern China. A later version, had the pipeline forking at Skovorodino, with one third of the oil going to China, and two thirds going to Vostochny, and the open market. But Japan overpowered China in the bidding, although, to appease China, Russia has promised to increase its annual oil shipments to China by rail to 300,000 barrels a day next year. China is the world's fastest-rising major oil consumer. By 2020, China's oil imports are to be double the 2004 level. By 2030, China may have more cars than the United States. But China would not match Japan's financing power, and Russia feared falling captive to one buyer. Moving aggressively, Japan offered $7 billion in soft loans for construction of the line and billions more to help Japanese oil companies find and develop oil in Eastern Siberia. Tokyo lobbied heavily to get the entire pipeline to the Sea of Japan - 1.6 million barrels a day. Although oil supply guarantees have not been worked out, Japan, with its seaports only 275 miles to the southeast of Vladivostok, is expected to be the primary buyer. But much of the oil is expected to go on the open market, available for shipment to South Korea, China or even the United States. 'The Nakhodka route is undoubtedly a win-win not just for Russia, Japan, South Korea, and China, but also the United States,' Helen Teplitskaia, president of the American-Russian Chamber of Commerce and Industry, wrote in an e-mail message. 'New sources of oil, and should the idea of a parallel pipeline materialize, gas as well, will diversify the energy supply and ease dependence on the volatile Mideastern sources.' With Transneft keeping quiet about its decision to make Perevoznaya the terminus, many outsiders still believe that the planned route follows the Trans-Siberian Railroad to Nakhodka-Vostochny. But Japanese and American environmentalists are preparing to campaign to pressure the Japan Bank for International Cooperation to condition its loans on a Nakhodka terminus. 'Although we understand the pipeline construction is of great importance to the energy security of Japan, Friends of the Earth Japan believes that J.B.I.C. is not right if they start spending public money without looking at the environmental concerns, such as the possible threat to the survival of Amur leopards,' Eiichiro Y. Noguchi, Russia program director for Friends of the Earth Japan, said in Tokyo. With a major environmental battle looming, the Japanese development bank is stepping cautiously. 'If J.B.I.C. considers the possibility of financing this project, we have to review, not only in terms of the financial aspect, but of the environmental point of view,' Yoshimi Tamura, spokeswoman for the Japanese development bank, said in Tokyo. [American and European participation in pipeline construction contracts may be welcome, Victor Khristenko, the industry and energy minister of Russia, hinted last Friday at a news conference in Moscow. Speaking as Japan's visiting foreign minister, Nobutaka Machimura, listened, the Russian said, 'Russia counts on getting loans that won't be linked to the purchase of Japanese equipment or technology.'] In interviews in 2004, Sergei Darkin, governor of the Pacific Maritime region, was a determined backer of building the oil pipeline terminal and refinery in Perevoznaya. Mr. Darkin's local opponents, including Mayor Viktor S. Gnezdilov of Nakhodka, have accused Mr. Darkin of having financial interests in the Perevoznaya area. The governor has denied the accusation. It is unclear why Mr. Darkin has been able to persuade the Moscow-based pipeline company to shift the terminal to an area that he prefers. President Putin, who now has power to virtually hire and fire regional governors at will, is known to have chilly relations with Mr. Darkin. If Russian and international outcry becomes too strong, he could veto the plan to bring oil tankers into Perevoznaya Bay, part of the larger Peter the Great Bay, amid fears of threats to three nature reserves, the region's main beach resorts, and new fish farms for scallops and sea cucumbers. Two years ago, local environmentalists succeeded in halting a plan to open a coal mine in the middle of the Barsovy Refuge, the core habitat of the endangered leopards. 'People are not trying to eliminate the pipeline - they realize it would be the lifeline of the economy,' said Dale G. Miquelle, an American biologist here for the Wildlife Conservation Society of New York. 'Nobody is saying, 'Don't do it.' They are just saying, 'Do it in the most sensible way.' '

Subject: Social Security Investing From: Jennifer To: All Date Posted: Fri, Jan 21, 2005 at 16:22:19 (EST) Email Address: Not Provided Message: There may be a fine argument for having Social Security invest a portion of payroll tax revenue in a total stock market index with non-voting shares. The cost of administering an index account would be minimal, though there might be a rise in long term interest rates as Social Security bought fewer Treasury bonds. Private accounts however would likely be accompanied by high costs for management and advice, market timing, less money invested in stocks than hoped for, and difficulty gauging a movement from stocks to bonds as retirement age was neared. Also, also, also, there are the transition costs to consider for private accounts.

Subject: National Index Returns From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 15:45:01 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/04 - 1/20/05 Australia -3.0 Canada -4.9 Denmark -5.2 France -4.1 Germany -5.4 Hong Kong -5.3 Ireland -0.4 Japan -2.9 Norway -4.0 Sweden -4.9 Switzerland -4.1 UK -2.6

Subject: Sector Returns From: Terri To: Terri Date Posted: Fri, Jan 21, 2005 at 17:39:23 (EST) Email Address: Not Provided Message: http://www.msci.com/us/indexperf/index.html Sector Indexes 12/31/04 - 1/20/05 Energy -0.2 Materials -4.0 Health Care -2.2 Financials -3.3 Info Tech -6.5 Telecoms -5.1 Utilities -1.2

Subject: What Bush means by 'freedom' From: Jim Margolis To: All Date Posted: Fri, Jan 21, 2005 at 15:23:37 (EST) Email Address: jzmarg@aol.com Message: I am frustrated at the Dems. inability to compete with Repub. message. The following is from today's SF Chronicle. George Lakeoff deconstructs how they do it. Bush puts his own spin on 'freedom' Left's mainstay word recast in economic terms, analyst says - Joe Garofoli, Chronicle Staff Writer Friday, January 21, 2005 While progressives were turning their backs during George W. Bush's inaugural address Thursday, the president laid claim to one of their metaphorical mainstays: the meaning of 'freedom,' a word he mentioned 26 times in his 21-minute speech. In Bush's parlance, 'freedom' has been recast largely as 'economic freedom,' a political shift that could damage liberals already searching for a cohesive message, analysts said. 'What he's done is take over the old progressive language of 'freedom' and redefined it without explicitly saying it -- only with code words -- in terms of a conservative worldview,' said UC Berkeley linguistics Professor George Lakoff. 'Those people who've got that worldview will understand the code words.' In Lakoff's decoding of Thursday's address, 'freedom' meant 'unfettered economic markets.' Same goes for phrases such as 'ownership society' and 'the governing of the self.' They're conservative shorthand for believing that the government should not be regulating business.'Conservatives have been masterful at this, but they've been working on it for 35 years, while progressives have just been standing by,' Lakoff said. Outflanked liberals have tapped Lakoff for his skill at deconstructing how conservatives use language to dominate the political landscape. Democratic congressional leaders distributed copies of his most recent book, 'Don't Think of an Elephant,' to their membership. The conservative notion of 'freedom' isn't the one held by the progressives who are trying to pick Lakoff's brain. 'For progressives, yes, there is economic freedom,' he said. 'But freedom for them extends to other aspects of life.' When Bush is talking 'freedom,' Lakoff said, he isn't talking about 'freedom to marry.' Or 'freedom of a woman to control her own body and reproduction.' Or freedom to 'unfurl a banner protesting the president.' Bill Whalen, a research fellow at Stanford's Hoover Institution, agreed that Bush's speech had transferred the concept of freedom 'from the foreign policy world to the domestic policy world.' When Bush said, 'By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, ' Whalen said, he was espousing the conservative ideal of the self-made person who doesn't need a government handout. 'He's essentially using it to say the days of New Deal policies (of government assistance) are over,' said Whalen, who worked on George H.W. Bush's unsuccessful 1992 presidential campaign. Even when Bush used 'freedom' in political terms Thursday ('The best hope for peace in our world is the expansion of freedom in all the world'), Lakoff interpreted it as the desire for individuals to benefit from free markets -- not just personal liberties -- across the globe. 'Yes, (he means) freedom to pursue democracy,' Lakoff said. 'But what constitutes democracy? He's saying, 'This is freedom to pursue money.' ' Claiming the language of the other party isn't new, and it's often done by successful politicians of all stripes, Whalen said. Former President Bill Clinton used 'personal responsibility' to talk about welfare reform, a longtime Republican ideal, Whalen said. And, he said, John F. Kennedy's 1961 inaugural speech borrowed hawkish phrases such as 'pay any price, bear any burden' that would sound more familiar coming from a conservative. Bush used the word 'freedom' Thursday six more times than Martin Luther King did in his seminal 'I Have a Dream' speech in 1963. Recapturing the metaphorical war will be difficult for progressives in Bush's second term, Lakoff said. Their first battle is expected to be over the president's plans for partial privatization of Social Security, and winning won't be as simple as tweaking their sound bites. Democrats must come up with a set of values to explain why they feel that, say, Americans shouldn't be able to invest their Social Security funds in the stock market, Lakoff said. And the rhetorical battle will probably come back to the concept of 'freedom.' 'When Republicans talk about Social Security, they talk about freedom,' Lakoff said. ' 'You can invest your money better than the government can.' 'The Democrats respond by giving all the facts and figures,' he said. 'None of them say, 'This is an issue about whether we're going to have a guaranteed annuity for everyone in our family, the American family, or whether you're on your own, buddy.' 'Rather, they argue the details,' Lakoff said. 'As soon as progressives argue the details, conservatives come back and argue their own details, and nobody knows the difference. And as soon as you get into the technical details, the liberals lose. Because the other guys are arguing values.' E-mail Joe Garofoli at jgarofoli@sfchronicle.com. Page A - 15 URL: http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/01/21/MNG1HAU69V1.DTL

Subject: Freedom From: Ari To: Jim Margolis Date Posted: Sat, Jan 22, 2005 at 19:24:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/opinion/22patterson.1.html?ex=1107405852&ei=1&en=56e73a6fca43b15e The Speech Misheard Round the World By ORLANDO PATTERSON Cambridge, Mass. — SINCE 9/11, President Bush and his advisers have engaged in a series of arguments concerning the relation between freedom, tyranny and terrorism. The president's inaugural paean to freedom was the culmination of these arguments. The stratagem began immediately after 9/11 with the president's claims that the terrorist attacks were a deliberate assault on America's freedom. The next stage of the argument came after no weapons of mass destruction were found in Iraq, thus eliminating the reason for the war, and it took the form of a bogus syllogism: all terrorists are tyrants who hate freedom. Saddam Hussein is a tyrant who hates freedom. Therefore Saddam Hussein is a terrorist whose downfall was a victory in the war against terrorism. When this bogus syllogism began to lose public appeal, it was shored up with another flawed argument that was repeated during the campaign: tyranny breeds terrorism. Freedom is opposed to tyranny. Therefore the promotion of freedom is the best means of fighting terrorism. Promoting freedom, of course, is a noble and highly desirable pursuit. If America were to make the global diffusion of freedom a central pillar of its foreign policy, it would be cause for joy. The way the present administration has gone about this task, however, is likely to have the opposite effect. Moreover, what the president means by freedom may get lost in translation to the rest of the world. The administration's notion of freedom has been especially convenient, and its promotion of it especially cynical. In the first place, there is no evidence to support, and no good reason to believe, that Al Qaeda's attack on America was primarily motivated by a hatred of freedom. Osama bin Laden is clearly no lover of freedom, but this is an irrelevance. The attack on America was motivated by religious and cultural fanaticism. Second, while it may be implicitly true that all terrorists are tyrants, it does not follow that all tyrants are terrorists. The United States, of all nations, should know this. Over the past century it has supported a succession of tyrannical states with murderous records of oppression against their own people, none of which were terrorist states - Argentina and Brazil under military rule, Augusto Pinochet's Chile, South Africa under apartheid, to list but a few. Today, one of America's closest allies in the fight against tyranny is tyrannical Pakistan, and one of its biggest trading partners is the authoritarian Communist regime of China. Third, while the goal of promoting democracy is laudable, there is no evidence that free states are less likely to breed terrorists. Sadly, the very freedoms guaranteed under the rule of law are likely to shelter terrorists, especially within states making the transition from authoritarian to democratic rule. Transitional democratic states, like Russia today, are more violent than the authoritarian ones they replaced. And even advanced democratic regimes have been known to breed terrorists, the best example being the United States itself. For more than half a century a terrorist organization, the Ku Klux Klan, flourished in this country. According to the F.B.I., three of every four terrorist acts in the United States from 1980 to 2000 were committed by Americans. The president speaks eloquently and no doubt sincerely of freedom both abroad and at home. But it is plain for the world to see that there is a discrepancy between his words and his actions. He claims that freedom must be chosen and defended by citizens, yet his administration is in the process of imposing democracy at the point of a gun in Iraq. At home, he seeks to 'make our society more prosperous and just and equal,' yet during his first term there has been a great redistribution of income from working people to the wealthy as well as declining real income and job security for many Americans. Furthermore, he has presided over the erosion of civil liberties stemming from the Patriot Act. Is this pure hypocrisy - or is there another explanation for the discrepancy, and for Mr. Bush's perplexing sincerity? There is no gainsaying an element of hypocrisy here. But it is perhaps no greater than usual in speeches of this nature. The problem is that what the president means by freedom, and what the world hears when he says it, are not the same. In the 20th century two versions of freedom emerged in America. The modern liberal version emphasizes civil liberties, political participation and social justice. It is the version formally extolled by the federal government, debated by philosophers and taught in schools; it still informs the American judicial system. And it is the version most treasured by foreigners who struggle for freedom in their own countries. But most ordinary Americans view freedom in quite different terms. In their minds, freedom has been radically privatized. Its most striking feature is what is left out: politics, civic participation and the celebration of traditional rights, for instance. Freedom is largely a personal matter having to do with relations with others and success in the world. Freedom, in this conception, means doing what one wants and getting one's way. It is measured in terms of one's independence and autonomy, on the one hand, and one's influence and power, on the other. It is experienced most powerfully in mobility - both socioeconomic and geographic. In many ways this is the triumph of the classic 19th-century version of freedom, the version that philosophers and historians preached but society never quite achieved. This 19th-century freedom must now coexist with the more modern version of freedom. It does so by acknowledging the latter but not necessarily including it. It is not that Americans have rejected the formal model of freedom - ask any American if he believes in democracy and a free press and he will genuinely endorse both. Rather it is that such abstract notions of freedom are far removed from their notion of what freedom means and how it is experienced. The genius of President Bush is that he has acquired an exquisite grasp of this development in American political culture, and he can play both versions of freedom to his advantage. Because he so easily empathizes with the ordinary American's privatized view of freedom, the president was relatively immune from criticism that he disregarded more traditional measures of freedom like civil liberties. In the privatized conception of freedom that he and his followers share, the abuses of the Patriot Act play little or no part. (There are times, of course, when the president must voice support for the modern liberal version of freedom. The inaugural is such a day, 'prescribed by law and marked by ceremony,' as he ruefully noted.) Yet while these inconsistencies may not bother the president's followers or harm his standing in America, they matter to the rest of the world. Few foreigners are even aware of America's hybrid conception of freedom, much less accepting of it. In most of the rest of the world, the president's inaugural address was heard merely as hypocrisy. Orlando Patterson, a professor of sociology at Harvard, is the author of 'Freedom in the Making of Western Culture' and a forthcoming book on the meaning of freedom in the United States.

Subject: Re: What Bush means by 'freedom' From: Bill To: Jim Margolis Date Posted: Sat, Jan 22, 2005 at 16:45:39 (EST) Email Address: EgerJB@cs.com Message: Bush has spent more on social programs than LBJ. He introduced the largest entitlement increase (Perscription Drug benefit) in medicare ever. Why do you think conservatives are so upset with him? Don't worry.

Subject: Bonds and Stocks From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 14:45:00 (EST) Email Address: Not Provided Message: Interestingly enough the 10 year Treasury note is at 4.15%. Long bonds just do not want to sell off. The run of bonds these 5 years is astonishing. The Vanguard Long Term Bond Index is up 10.5% yearly, while the S&P is down 2.4%. I can find no larger 5 year difference in favor of bonds.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 13:04:14 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 1/20/04 S&P Index is -3.0 Large Cap Growth Index is -3.4 Large Cap Value Index is -2.5 Mid Cap Index is -3.6 Small Cap Index is -5.2 Small Cap Value Index is -5.1 Europe Index is -3.7 Pacific Index is -3.0 Energy is -1.1 Health Care is -2.7 REIT Index is -5.3 High Yield Corporate Bond Fund is -0.4 Long Term Corporate Bond Fund is 1.9

Subject: Buy Yield, Show No Fear From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 11:57:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/21/business/21norris.html Best of All Possible Worlds? Bond Buyers Crave Yield but Show No Fear By FLOYD NORRIS IN the world bond market, all is sweetness and light. Companies with bad credit do not have to pay very much to borrow, and they have no trouble meeting their obligations. So lenders also do well. Moody's Investors Service came out with its annual default study this week, finding that just 0.7 percent of companies with rated bonds defaulted last year. That was less than half the rate of 2003 and a fifth of the rate back in the recession year of 2001. The absence of default reflects the fact that corporate profits are generally in good shape. In 2004, for the first time since 1997, Moody's raised more corporate ratings than it lowered. Companies that need cash have little trouble finding lenders even if their credit is, as the people pitching mortgages on television say, less than perfect. Consider Warner Music, which Edgar Bronfman Jr. and some financial types bought in a leveraged buyout from Time Warner last March. They put up a little more than $1 billion in equity and borrowed the rest of the $2.6 billion price. Just before the end of the year, the company borrowed $700 million by issuing junk bonds, and used most of the money to repay investors. With that money and an earlier dividend, investors now have taken out nearly every dollar they invested. And they still own a highly leveraged company with talk of an initial offering this year. Warner Music has done a good job of cutting expenses, and it may be that Time Warner sold out too cheaply. But this would not be possible without a friendly bond market. The junior debt issued last month is rated Caa2 by Moody's, which is nearly as low as you can go. A few years ago, it would have been difficult to find buyers for such paper. But in 2004 almost 16 percent of new corporate bonds were rated Caa or lower, the highest proportion ever. 'They are really bad credits,' said Michael Lewitt, the president of Harsh Capital Management, a bond manager. 'But people feel they have to get yield somewhere.' Typically most bonds rated that low when they are issued default within a few years. Consider the class of 1998, the last year large quantities of such bonds were sold. More than 40 percent of the bonds defaulted within three years, and by now 74 percent of them have done so. Those buying low-rated bonds get relatively little extra yield now, because interest rate spreads over high-quality bonds are small. Spreads have been tight before, but not when the overall level of interest rates was as low as it is now. The result is cheap money, which has helped to finance both leveraged buyouts and payments to equity holders. In such cases, the buyers of the junior bonds assume the risks of stockholders, but get limited returns. In the Warner Music deal, the lowest-rated bonds pay no cash interest until they mature in 2014. Owners of the bonds will have nothing to fall back on if things do go wrong. 'Never before,' said James Grant, the editor of Grant's Interest Rate Observer, 'have junk-bond investors been paid so little for risking so much.' What could end this lovely state of affairs, in which lenders provide cheap money but suffer virtually no losses from bad credits? In 1998, the party was abruptly ended by the Asian financial crisis and the Russian default. No such crisis appears on the horizon now, but forecasting crises is not easy. And low-rated bonds make up 20 percent of outstanding speculative bonds, more than twice the 1998 level. 'This percentage of really risky debt is unprecedented,' said David T. Hamilton, the director of corporate bond default research for Moody's. He worries that defaults in coming years could alarm investors and hurt owners of better-quality junk bonds. But that has yet to occur. Investors crave yield and do not fear risk. Life is good for companies with bad credit.

Subject: Social Security is Secure From: Jennifer To: All Date Posted: Fri, Jan 21, 2005 at 10:43:56 (EST) Email Address: Not Provided Message: http://quote.bloomberg.com/apps/news?pid=10000039&sid=aJ9dbBFwsZ1k# Bush Makes False Claims About Social Security: John M. Berry Jan. 21 (Bloomberg) -- President George W. Bush's assertions that Social Security faces a crisis and is ``flat bust, bankrupt'' are patently false. Bush and other administration officials are greatly exaggerating potential problems facing the program to push through changes that would undermine the most successful social insurance program in the nation's history. The system is so far from crisis or bankruptcy that the truly prudent course at this point most certainly would be to make no changes in Social Security at all. Wait and see if even under conservative assumptions the date at which the system's trust fund would be exhausted keeps receding. In 1994, Social Security trustees put that date at 2030 using their intermediate projection, the middle one of three. By 2004, 10 years later, the date had been pushed out 12 years, to 2042. And even after that, 75 percent of promised benefits could still be paid. That's neither a looming crisis nor bankruptcy. Bush has no intention of being prudent. Instead, he obviously wants to undermine confidence in the program to create a political climate in which Congress will approve diverting a portion of the payroll tax that funds Social Security to individual accounts for workers with the money invested in equities and corporate and government bonds. By assuming unrealistically high returns on equities, the private accounts are being sold as a way to make up for the alleged inability of Social Security to pay promised benefits in the future. Wehner Memo Unfortunately for Bush, earlier this month a memo written by Peter Wehner, his director of strategic initiatives, appeared in the newsletter Congress Daily and has since been widely quoted. ``You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits -- therefore making no effort to address (the) fundamental problem'' in Social Security, Wehner said. ``In my judgment, that's a bad idea.'' In other words, private accounts would not fix the allegedly ``bankrupt'' system. Since no one working for Bush is about to suggest taxes be raised, the only alternative would be to reduce benefits. All the Washington chatter is about freezing the real value of benefits at their present average level of about $1,200 a month. Currently, benefits are indexed annually for both inflation and real wages. Ducking `Duty' ``If we duck our duty, it can have serious short-term consequences,'' Wehner said. ``If we borrow one to two trillion dollars to cover transition costs for personal savings accounts and make no change to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain- reaction: the markets go south, interest rates go up, and the economy stalls out.'' So far there is no word from the White House about whether Bush will follow Wehner's advice. That is, whether he will seek not just to borrow that ``one to two trillion dollars'' to finance creation of private accounts but also propose a major cut in long- term benefits through indexing benefits henceforth only for inflation. And a major cut it would be. Benefits Increase The first Social Security recipient got a monthly benefit of $22.54 in 1940. Indexed just for inflation, that benefit would have increased to about $304 for a worker retiring this year. Instead, as a result of specific legislated benefit increases prior to the late 1970s and of indexing for inflation and real wage increases since then, a single worker retiring this year will receive $955, according to projections by the Social Security Administration. Obviously, the real value of today's benefits is far higher than in 1940. On the other hand, those benefits replace roughly the same share of workers' earnings at retirement as they did many years ago. In other words, benefits have increased over the years reflecting the enormous gains in the nation's standard of living. In a speech on Dec. 18 before the Council on Foreign Relations in Washington, N. Gregory Mankiw, chairman of Bush's Council of Economic Advisers, addressed this point. Mankiw on Benefits ``A person with average wages retiring at age 65 this year gets an annual benefit of about $14,000, but a similar person retiring in 2050 is scheduled to get over $20,000 in today's dollars. In other words, even after adjusting for inflation, today's 20-year-old worker is promised benefits that are 40 percent higher than what his or her grandparent receives today,'' Mankiw said. Well, among other things, that would be a significantly smaller increase in real benefits than has occurred over the past 45 years. And if the real value of benefits were frozen over an extended period of time, public support for Social Security undoubtedly would be undermined. Some advocates of privatization of Social Security readily acknowledge that is their goal, and some of them have criticized Bush for not being bold enough in moving in that direction. Interestingly, Mankiw made no mention of private accounts in his speech. In closing, though, the CEA chairman derided everyone who questions the administration's claims about its finances. ``As the nation debates alternative proposals, you should be careful to avoid the sophistry of those opposed to reform,'' he cautioned. ``In particular, be wary of those who argue that there is no Social Security problem or that only small changes are needed to address it. The truth is that Social Security faces fundamental financing challenges.'' `Ostrich Caucus' ``Just ask the Social Security Trustees, the Congressional Budget Office, or any other group of nonpartisan analysts. Reasonable people can debate what kinds of reforms are best, but don't let the Ostrich Caucus convince you to put your head in the sand,'' he said. Well, the Ostrich Caucus includes some very knowledgeable economists such as Federal Reserve Governor Edward M. Gramlich, who headed a Social Security advisory commission a decade ago and believes that relatively small changes are needed. Or one could read last year's Social Security trustees report which, as usual, provided three alternative projections -- projections, mind you, not forecasts -- of the system's financial future. One of them showed it fully solvent for 75 years. And the report cautioned that ``significant uncertainty'' surrounds all of the projections, including the intermediate one on which the administration bases most of it allegations about long-run insolvency. `Grossest Malpractice' A moderately different set of assumptions used in the so- called low-cost projections show Social Security able to pay full benefits for the next 75 years. Compare the low-cost assumptions listed first below with the intermediate assumptions: -- Unemployment: 5.5 percent vs. 5.8 percent. -- Productivity Growth: 1.9 percent vs. 1.6 percent. -- Increase in Real Wages: 1.6 percent vs. 1.1 percent. -- Fertility Rate: 2.2 children per woman vs. 1.95. -- Rate of Decline in Mortality: 0.33 percent vs. 0.71 percent. -- Immigration: 1.3 million vs. 900,000. Why should someone be condemned to the Ostrich Caucus for believing that some of the low-cost assumptions are more likely to be closer to the mark than those of the intermediate set? What Bush, Mankiw and others are touting as certain disaster is not certain at all. Lest anyone question that view, Mankiw continued in his speech, ``Some will argue that these problems are far in the future and that there is no need to address them today. Imagine if a financial planner offered the same counsel to his 30-year-old client: `Don't worry, Joe, retirement is 35 years away, you don't need to save anything.' That planner would be guilty of the grossest malpractice.'' Actually, in making such an absurd comparison, Mankiw himself is guilty of the grossest malpractice. Of course, he has plenty of company in the White House.

Subject: Re: Social Security is Secure From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:40:53 (EST) Email Address: EgerJB@cs.com Message: Social Insecurity? Thomas Sowell January 20, 2005 The latest liberal spin on Social Security is that there is no problem. Of course, there is no problem with any obligation if you are willing to welsh when it comes time to pay it. Politically, the bottom line of this approach is that President Bush's plan is 'not a magic bullet,' in the words of Businessweek magazine. When people start talking about how this or that policy 'is no panacea' or 'not a magic bullet,' then you know their argument is not serious. Why don't we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet. Then we can start talking sense like adults. If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. What is different with the private retirement accounts that the President is proposing, compared to the Social Security system as it exists now? The biggest difference seems to get the least attention: With private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington. Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today's young workers retire and there is not enough money to pay them what they were promised? Many people are unaware that the money that is taken out of their paychecks for Social Security is not -- repeat, not -- being put aside to pay for their retirement. That money is paying for people who are retired right now, and anything that is left over is being spent by politicians in Washington for anything from farm subsidies to Congressional junkets. There is a legal and accounting fiction called the 'Social Security Trust Fund.' All that this means is that the Social Security system gets government bonds in exchange for the Social Security tax money that is being spent today instead of being saved. But you cannot spend and save the same money, no matter what accounting gimmicks you use. Government bonds are not an investment that adds to the country's wealth. They are a claim on future taxpayers. Without those bonds, future taxpayers would still be on the hook to provide the money to cover future Social Security pensions that are not covered by future Social Security taxes. The bonds change nothing. The other big difference between privatized pensions and Social Security is that the individual owns the pension he has paid for. This is not a fine philosophical distinction but a major practical difference. No matter what the law says or promises when you pay your Social Security taxes, Congress can pass a new law changing all that any time they want to. They have already done it and those who say that there is no problem with Social Security also say, as Businessweek does, that 'tax hikes' and a 'reduction of the benefit' can fix the Social Security problem. Of course it can. If you owe a million dollars, that is no problem, if you can decide to pay it off for whatever amount you can comfortably afford. It is just that most creditors take a much narrower view of the situation. If I tell the bank that I can't afford to make the mortgage payment because my income is not as high as I thought it would be, they are going to throw me out in the street and take the house. But no matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on. Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money. Liberals are desperate to keep Social Security the way it is, because that means they can keep spending your money as they see fit and keep you dependent on them. That's what the welfare state is all about.

Subject: Housing Market Bubbles and the Fed From: Terri To: All Date Posted: Thurs, Jan 20, 2005 at 14:32:16 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2005/01/housing_market.html Housing Market Bubbles and the Fed: The Higher They Blow, The Harder They Crash...or Why We May Need Houdini after Greenspan... A lot - academic, policy and market-wise - has been written recently on housing bubbles in the US and abroad, the risk of a housing bubble bursting and the relation between asset bubbles and monetary policy. So, not too much original may be said. A missing link between the good Ip dollar piece and the good Ip housing piece is that of the effects of a dollar crash on US bond markets and thus on housing markets. The link is implicit but worth fleshing out: i.e. a dollar crash/hard landing that would be associated with a bond market rout (see my previous blog) would have severe consequences on all other risky and overvalued assets, including housing values. In that scenario, the Fed would be in a ugly trade-off: to stave off a free fall of the dollar with its inflationary consequences it would have to sharply tighten monetary policy; but such tightening would be recessionary, it would also exacerbate the increase in short and long term interest rates and the fall in housing prices. In that regard, one issue missed by the Crane piece is the following one: in the usual comparison between the US and UK/Australia, the standatd argument is that in the US a larger fraction of mortgages are at fixed rates (compared to UK/Australia) and that the ability of households to refinance and move from adjustable rates to fixed rates (at a hint of expected increased in long rates) may reduce the impact of short term interest rate tightening by the Fed on the housing market compared to UK/Australia where such tightening may be restrained by concerns about a collapse in housing prices. I.e. the Fed - compared to the Bank of England - should be less concerned about the effects of its overdue tightening on the housing market. This argument is only partially - and comparatively - true. If households are not taking on the risk of rising long rates as they can refinance, someone else is gonna take such risk and the ability of banks, mortgage finance companies or, down the chain the large GSE's, to hedge such risk is limited. The hot potato of higher short-rates leading to higher long rates and losses deriving from households not taking the long rate increase risk will be borne by some other agents in the financial markets, banks/mortgage companies and/or GSE's. The general equilibrium effects of derivative hedging of the yield curve rising are not clear but, as it well know, the risk of a systemic crisis event are rising in such circumstances. Also, however dampened relative to other countries, the effects in the US of higher short and long rates on the housing market, both flows of new housing and new home demand and on the value of existing housing if a bubble burst, would likely be severe. 10 year Treasuries at 6% or 7% would have nasty effects on the housing market, period! Some may argue that it is not clear that there is a housing bubble. One can debate the evidence endlessly and, like the case of the stock market bubble in the late 1990s, one could justify current housing values as justified by fundamentals, structural, long-run, cyclical and otherwise. Alternatively, one could go through long reams of econometric evidence, theory and circumstantial evidence to argue that there is indeed a US and foreign housing bubble: the IMF made a long study showing serious evidence of a housing bubble in the UK, Spain and Australia and likely evidence in the US (after all US housing prices are up 35% in real terms since 1995); and indeed, housing has peaked and is starting to fall in UK and Australia (see also The Economist for similar points); many in the US have studied and expressed concerns about the housing bubble (Steve Roach for example). But rather than high brow theory and high tech econometrics to prove the existence of a housing bubble, I would suggest two simpler 'smell tests': - The first follows the famous - unscientific but much more reliable - Supreme Court justice 'smell test' (or better 'eyesight test') proof of pornography ('I cannot define it but I can tell it when I see it'). Greenspan smelled a stock market bubble in the mid-1990s and while he could not prove one, it was evident to all that there was one even if New Economy gurus - say folks of 'Dow at 36,000!' infamy and such acolytes - claimed otherwise. And even Greenspan himself was eventually swept by excessive New Economy optimism fever that clouded his realistic assessment and actions on the stock market bubble. - The second comes from the December 2004 FOMC discussion of housing markets. As usual, the discussion was cautious and only few governors expressed serious concerns about a housing bubble and excessive risk taking in housing. But remember: if FOMC governors start discussing an issue in some detail at an FOMC meeting, it means they are starting to be worried about it. In the June meeting they discussed the US current account sustainability and, guess what, throughout the fall the dollar plunged with Greenspan ending up having to eat his own words (with being blase' about the current account deficit in a speech in late 2003 while being very concerned in a speech at the end of 2004). So, while Fed folks have in the past told us not to worry about the housing market and potential bubbles in it, their typical cycle - on stock markets and now housing - is of: 1. early denial of the problem ('the boom is driven by fundamentals, not bubble'), followed by: 2. internal FOMC debates and concerns, followed by: 3. publicly expressed concerns by a few Governors, followed by: 4. public concern by the Chairman; this four-stage cycle may occur again for housing as it did for the dollar and the current account over the last year. And indeed, we are alredy at stage 2 and 3 of that cycle for housing as FOMC members have started to discuss their concern and Governor Gramlich has started to make public noises about his concerns (while Tim Geithner, while not speaking about housing, has re-expressed last week the Fed concerns about twin deficits). So, expect stage 4 of the cycle with the Chairman changing course relative to his early 2004 views and likely to express his concerns later this year... So, the great debate on whether the Fed caused an asset bubble in the stock market and then was forced to ease too much to avoid a price and asset price deflation when such bubble burst starting in 2000 may get its repeat for housing in 2005-2006. The entire Fed high command - Greenspan, Kohn, Bernanke, Ferguson - provided last year and this year intellectually sophisticated - but at the end not-fully convincing - defenses of why the Fed could not burst the stock bubble in the late 1990s - ( 'how do you know really there is one?' and 'trying to burst it may lead to severe consequences as in Japan' being the main lines of defense by the Chairman). Such arguments were not fully convincing because the most fine nose of Greenspan had already smelled bubble in stock markets in the 'irrational exuberance' of 1996 market prices and he had tried to burst it with a mini-Fed Funds hike in early 1997 only to give up on it and thus causing a worsening of the bubble when the post-Russia LTCM-induced liquidity crunch forced a 75bps Fed easing in 1998. So, since the fine smell test of Greenspan was showing that there was a clear, growing and stinking bubble as early as 1996, his early 2004 arguments on how hard it is to know for sure that there is a bubble are not convincing even if intellectually legitimate: of course, in economic policy every decision is made under uncertainty: the Fed does not know for sure whether the economy is slowing or overheating, whether inflation will increase down the line or not, whether there are asset bubbles or not. Since uncertainty is central to policy making, claiming that uncertainty about bubbles prevents taking actions against them is like saying that little policy action should be taken on anything because almost all policy decisions are under a cloud of significant uncertainty. And what is the logic for an asymmetric response to bubbles, i.e. failure to stop one when it is growing and aggressive response to the bursting of one when it occurs? Greenspan, Bernanke and other Fed Governors never gave a convincing answer to that question. So, the missed chance by the Fed to tighten early on to prevent the stock market bubble (and its further Fed Funds easing in 1998) was an important factor in alllowing the bubble go on and eventually burst. Then, the bubble bursting in 2000 - only partly driven by the 175bps reversal btw mid 1999 and mid 2000 - was the main factor behind the 2001 recession (dot.com and Nasdaq crash leading to a real investment crash after the real investment bubble that had been itself fed by easy liquidity for too long). And the attempt to avoid the real consequences of the dot.com (and of all stock markets) crash then triggered another massive Fed easing - from 6.5% to 1% - that created the great bubble of 2003-2004 with all risky assets - equities, emerging market debt, housing, high yield corporates, commodities and even long-treasuries - surging in value and becoming overvalued and feeding even further the US households' leverage build-up and savings contraction. So, as Ken Rogoff once put it, massive Fed easing (6.5% to 1%), massive and reckless fiscal easing (from 2.5% of GDP surplus to 4% deficit) and sharp dollar fall (15% trade weighted so far and still going) gave us the best recovery that money can buy; but it also gave us the most drugged and artificial recovery that money can buy but leaving the US imbalalances worse than before: twin deficit, short-term financing of these deficits with increasing rollover risk, sloshing liquidity, housing and risky assets bubbles, low savings and high leverage in households and among highly-leveraged agents, carry-trades and chasing for yield. So, this time around it will take a magician act to achieve a soft landing from these nasty imbalances. The smart Fed may try to do its best but: 1. Risks of hard landing for many assets, especially housing, may tie the hand of the Fed; a last Greenspan put? 2. With fiscal authorities on a train wreck path of unsustainable fiscal deficits and debt accumulation (is this a death wish on their part?) the ability of the Fed magicians to survive this high-wire act may be shaky: fiscal head winds may topple the great Alan attempts to walk along the thin razor-edge wire above twin deficit abyss. At a recent conference, former Fed Vice-Chairman Alan Blinder, was asked who would make a good Fed Chairman after Greenspan is gone; his reply was: Houdini! (some in the crowd thought he meant 'Rubin', some hapless foreign investors even told me they had misunderstood it as he saying 'Roubini' - not a joke). Certainly Rubin would have been the right and most credible and charismatic 'magician' to follow the brilliant Greenspan and unentangle us from the current mess. But this would have meant Kerry for Prez. Instead, Dubya may choose some bright mind such as Feldstein or Bernanke (as, hopefully, his choices for Fed Chair will be more enlighted than his pathetic choices for Treas and NEC) to try this high-wire attempt to manage a sound monetary policy while fiscal policy is an runaway train. But, given miracle that it would take to manage the US and global economy into a orderly rebalancing when U.S. fiscal policy is out of line, he may be better off with Houdini (maybe in its contemporary high-brow Matthew Barney's Cremaster re-incarnation) as his new Fed magician (speaking of faith-based initiatives)...as it will take real magic for that Houdini to be in twin tunnel and avoid being sandwiched in the middle of a twin crash when the two lights at the opposite ends of the tunnel are not those of the outside daylight but rather those of the incoming and menacing fiscal and current account runaway trains...As Bette Davis put it in All About Eve: 'Fasten Your Seat Belts as It's Gonna Be a Bumpy Ride!'....

Subject: Re: Housing Market Bubbles and the Fed From: Pete Weis To: Terri Date Posted: Thurs, Jan 20, 2005 at 22:11:44 (EST) Email Address: Not Provided Message: Good post Terri. I had read this and thought about posting it myself, but coming from you, somehow I think it has more semblance of neutrality.

Subject: Re: Housing Market Bubbles and the Fed From: Terri To: Pete Weis Date Posted: Fri, Jan 21, 2005 at 07:25:24 (EST) Email Address: Not Provided Message: Possibly we need a fresh conception of monetary policy, but I do not see such a conception yet.

Subject: Economic Policy From: Terri To: All Date Posted: Thurs, Jan 20, 2005 at 12:09:26 (EST) Email Address: Not Provided Message: Happily I am not an Austrian, since I can never make sense of Austrianism and make all sorts of sense of Keynes. Really, now and then I spend a few moments wondering about what Austrian economists are trying to tell me. I find I have no idea other than all is gloom and doom because the Fed changes short term interest rates to limit inflation or spur the economy, and because fiscal policy can also be used to spur growth. Though the Fed was too rash in tightening by half a percent in May 2000, when a tightening sequence had been well underway and there was no sign of inflation and the stock market had begun to decline, Fed policy strikes me as remarkably sound from Paul Volker on. The problem we have now stems from a gratuitous set of tax cuts that have left us with a severe limit to federal revenue. We turned a remarkable surplus to a fierce deficit, but did not even use the tax cuts to create an adaquate demand surge. We have a significant federal deficit and limited household saving. Then, the deficit must be funded in some manner and international capital flows to America is the manner of deficit funding. Though I have no idea how the problem will play out, I know we must either have a fresh approach to fiscal policy or there will be ever growing pressure on the dollar. Where is the mystery?

Subject: Re: Economic Policy From: David E.. To: Terri Date Posted: Thurs, Jan 20, 2005 at 14:40:17 (EST) Email Address: Not Provided Message: When you and Pete were discussing fiscal and monetary policy, I thought about Brad Delong's confession that he uses Austrian economics. Did you see the checklist to find out if you are an Austrian?

Subject: David E! From: Pete Weis To: David E.. Date Posted: Thurs, Jan 20, 2005 at 22:29:30 (EST) Email Address: Not Provided Message: I suspect you occassionally read the Mogambo Guru?

Subject: Mogambo Guru From: David E.. To: Pete Weis Date Posted: Fri, Jan 21, 2005 at 13:15:38 (EST) Email Address: Not Provided Message: Strange thing is I test out libertarian (politicalcompass.org). Wildly libertarian, I am an outlier. But and evidently its a big 'but', I am a little left to center. And cannot make sense out of most stuff labeled libertarian. These folks seem to think that life in a Charles Dickens novel would be good. Right wing libertarians don't connect with the phrase 'but for the grace of god, go I' Cheers David

Subject: Re: Mogambo Guru From: Terri To: David E.. Date Posted: Fri, Jan 21, 2005 at 14:46:08 (EST) Email Address: Not Provided Message: Well put, again :))

Subject: Ancient Economics From: Pete Weis To: Pete Weis Date Posted: Fri, Jan 21, 2005 at 10:25:20 (EST) Email Address: Not Provided Message: The Mogambo and the folks at the daily reckoning believe in every woman/man for her/himself economics. Little to no governmental policy - let the fools be punished for their foolishness - go back to the boom-bust cycles of the 19th century - the federal reserve and governmental 'interference' made the booms and busts of the 20th century longer and more extreme. Not sure if this is the true economic theory of Mises and Hayak, but some of what they say is interesting - much of it, though, is brutal survival of the fittest.

Subject: Re: Ancient Economics From: Terri To: Pete Weis Date Posted: Fri, Jan 21, 2005 at 10:47:57 (EST) Email Address: Not Provided Message: Wonderful summary, and this is just what is at the heart of the 'ancients.' Really nicely done.

Subject: Re: Economic Policy From: Terri To: David E.. Date Posted: Thurs, Jan 20, 2005 at 19:26:21 (EST) Email Address: Not Provided Message: Excellent, David.

Subject: Re: Economic Policy From: Paul G. Brown To: Terri Date Posted: Thurs, Jan 20, 2005 at 22:49:31 (EST) Email Address: Not Provided Message: Look - I've come to the conclusion that what we are seeing in the US is not 'policy'. Policy is about definite actions, with goals and methods and metrics--all informed by underlying values--in mind. What we are seeing in the US is

Subject: Pension Rules and Benefit Cuts? From: Emma To: All Date Posted: Thurs, Jan 20, 2005 at 11:35:07 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/20/business/20pension.html?ei=5094&en=7ecef6ee8010ae8f&hp=&ex=1106283600&partner=homepage&pagewanted=all&position= Talk of Changing Pension Math Raises Concern on Benefit Cuts By MARY WILLIAMS WALSH AT&T, the once-mighty phone giant, has a pension plan with obligations of about $10 billion, according to its annual report for 2003. Yet the company paints a somewhat rosier picture for employees: an extrapolation from workers' individual statements indicates that the plan owes them roughly $10.6 billion, or 6 percent more. There is nothing improper or unusual in AT&T's approach. Like many other companies, it uses two methods to calculate the value of its pensions: one to tell employees how much they have earned, the other to tell investors how large the company's pension liability is. But that may soon change. The seeming discrepancy in accounting, which has been an accepted business practice for two decades, has begun to bother accounting rule makers, who say the practice allows companies to understate to investors the extent of their pension liabilities. The panel that sets accounting standards is now preparing a proposal that would require many big American companies to give a more accurate financial picture of their pension plans. As a result, a number of them will have to increase the pension liabilities on their books, in essence telling investors that they owe their employees more than they have disclosed in the past. 'Depending on the company,' said Gerard O'Callaghan, project manager for the pension review by the Financial Accounting Standards Board, 'it could be nothing; it could be $10 million; it could be $100 million; it could be a billion; it could be more.' The board is a nongovernment body that establishes rules for American companies. While the amounts paid to retiring workers would not change immediately, some companies would have to increase their reported pension liabilities as much as 30 percent. To bring things back into balance, some may contribute more money to their pension funds - a boon to participants, but a jolt to shareholders, who may have thought that the money would be used for business operations. Other companies may delete attractive features from their plans, to bring the cost back down. There is precedent for such a cutback. When a change in accounting rules forced companies in 1990 to report the value of the health insurance they had promised to retirees, companies began to reduce the coverage. Indeed, the accounting board's proposal comes as the pension system itself is under pressure. Many companies, citing the burden of providing retirement benefits, have cut back, converted or closed their plans. At the same time, the Bush administration is proposing changes in both the way companies set aside money to pay for future benefits, and the way they pay to support the federal system of insuring traditional pensions. Business groups have warned that if companies are pushed too hard, they may stop offering pensions altogether. The looming changes in accounting rules are expected to be strongly opposed by companies. The staff of the Financial Accounting Standards Board hopes to present the draft of a proposal by the end of March. 'That's where a lot of people are going to be giving us a lot of pushback,' Mr. O'Callaghan said. The accounting board is grappling with something of an open secret in American business: the current accounting rules for pensions allow companies to underestimate, if not conceal, their liabilities legally. The board's efforts to improve reporting mirror recent administration proposals to overhaul the rules that companies follow in funding their pension plans. Both sets of rules are now widely thought to obscure the economic reality of a pension plan, sometimes allowing insolvency to grow, undetected by all but the best-informed insiders. United Airlines, for example, was able to state that its pension funds were fully funded even after sharp declines in the stock market wiped out much of their value. It thus went for several years without making any contributions. Now, however, the company is arguing in bankruptcy court that it can no longer fund the plans and that the government must take them over. The particular issues that the accounting board is looking at represent only 'a sliver' of the overall problem of pension accounting, Mr. O'Callaghan said. Other experts agreed. 'They're trying to repair a broken heating system in a house that's falling down,' said Jeremy Gold, a consulting actuary to the Financial Accounting Standards Board and an economist who has criticized current pension accounting rules. 'They're headed in the right direction. They're sending some signals about what a rewrite of the pension rules is going to look like.' Even so, the board may have a fight on its hands. If it approves its staff's proposal, public comment will then be solicited. The board has set a year-end target to put the rule into effect, but issues raised in the comment period could take months to sort out, pushing that deadline back. 'Nothing gets done here fast,' Mr. O'Callaghan said, recalling that it took more than 10 years to complete a rule on accounting for stock options. In that case, Congress weighed in, threatening to reduce the board's funds. The board, based in Norwalk, Conn., also gets contributions from business and accounting firms. Its current project was initially supposed to change the way companies calculate the value of a kind of pension plan known as a cash-balance plan. But more recently, the board said it also wanted companies with conventional defined-benefit plans to adopt the new approach if they allowed retirees to take their entire benefit in a lump sum. Thousands of companies, employing millions of people, have one or the other of these two types of pension plans. Lucent Technologies, I.B.M., Avon Products, AT&T, Colgate-Palmolive, Hewlett-Packard, Toshiba America, Wells Fargo, Qwest Communications, Bank of America, Cummins and Delta Air Lines are among the hundreds of companies with cash-balance pension plans. Delphi and U.S. Steel are among many companies that have conventional pension plans, allowing departing workers to take lump sums. So do American Airlines and Delta with the pension plans for their pilots. A cash-balance plan is a hybrid design, combining features of a conventional defined-benefit pension plan with those of a 401(k) plan. The company sets aside money to pay the benefits in a pooled trust fund, as it would for a traditional pension plan. But it provides each worker with regular statements, reporting the amount of benefits as an individual account balance, like a 401(k) balance. There are, in fact, no individual accounts, but expressing the benefits this way is said to make employees understand and value them more. Each year, an employee's balance increases, as the sponsoring company credits the account with interest at some specified rate. Often, the rate is linked to a conservative market rate, like that for Treasury bills. At AT&T, for example, the cash-balance plan has recently been offering employees interest credits at 4 percent a year. The discrepancy in accounting arises when the company calculates the total value of these obligations for its annual report. It must again factor in an interest rate, because pension values vary inversely with interest rates, much as bond prices do. But in this calculation, the crediting rate is not used. The current accounting standard for pensions lets companies use a high-quality bond rate instead. AT&T used 6 percent, according to its annual report for 2003. It is the difference between these rates that troubles the accounting rule makers. Because of the inverse relationship, using 6 percent produces a smaller pension value for the annual report than the one reported to workers in their statements. Actuaries say that correcting the reported value in AT&T's case would mean increasing it by about 24 percent, citing a rule of thumb that every percentage-point change in the interest rate causes about a 12 percent change in the value of the benefits. AT&T reported that its workers had earned about $10 billion of benefits at the end of 2003, but only about $2.5 billion of that was owed to active workers. Conforming to the accounting board's approach might require increasing the amount owed to active workers by 24 percent, or $614 million. That would increase AT&T's total pension debt to its work force to about $10.6 billion. AT&T declined to comment for this article. These adjustments would vary at different companies, depending on the interest rates used and the ages of the work force. The accounting board's work on cash-balance plans showed that companies also use two interest rates when calculating lump-sum distributions, with the result that they have also been reporting smaller pension obligations to investors than the amounts workers are really allowed to take. About half of all workers at big companies are currently allowed to take lump sums, according to Mark G. Beilke, director of employee benefits research at Milliman USA. The practice is much more common among plans for salaried white-collar workers than those for union or hourly workers, he said. Among the companies affected because they offer cash-balance plans or pay lump sums, some, like Toshiba and Wells Fargo, have written letters to the accounting board expressing opposition to the accounting change. 'The board's tentative conclusions could result in large charges to earnings for many companies,' wrote Richard D. Levy, the controller of Wells Fargo, in a letter sent in May 2004. 'These companies could conceivably implement changes to their pension plans to minimize the impact of the accounting changes on their financial results. These plan changes may ultimately result in reductions of pension benefits for employees.' Other companies like Avon, American Airlines, Hewlett-Packard and Delphi said that they did not want to comment because they were not yet sure what the new method would be. Some, including I.B.M., Qwest and Colgate-Palmolive, did not respond to requests for comment. A Lucent Technologies spokeswoman said the company's cash-balance plan accounted for a small part of the pension benefits it owes retirees, so the accounting change would have a minimal effect on its financial reports. Bank of America cited a lawsuit by its employees in connection with its cash-balance plan and declined to comment on possible accounting changes. Many actuaries find the accounting board's new approach disturbing, because it challenges core concepts of the actuarial approach to pensions. Years ago, cash-balance plans were marketed to companies on the very feature the accounting board now considers incorrect: the interest-rate differential that made them look cheaper than they turn out to be. 'There is substantial leverage in this assumption,' said a 1985 promotional brochure on cash-balance plans by Kwasha Lipton, an actuarial firm that has become a part of Mellon Financial. 'A '5 percent of pay' plan might require a contribution of only 4 percent of pay, after a realistic investment differential is taken into account.' Mr. Gold, the pension-accounting critic, who worked at Kwasha Lipton before it began to promote cash-balance plans, said: 'Kwasha Lipton's actuaries didn't think that was misleading. When Kwasha Lipton was writing this, that's what all actuaries believed. We were taught this. We were tested on it. The right answer was to say that you could give $5 at the cost of $4.'

Subject: Government and Business and History From: Emma To: All Date Posted: Thurs, Jan 20, 2005 at 11:20:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/20/business/20scene.html?pagewanted=all&position= Less Government Better for Business? Not if History Provides a Guide By JEFF MADRICK WHAT is the purpose of government in the American economy? To many people these days, it is axiomatic that less government is invariably better for the economy and the nation. In this way, tax cut after tax cut is justified despite a growing federal budget deficit. Such thinking also lies behind the efforts to privatize Social Security. But it is hard to square this view that government is always an economic menace with the long history of capitalist development. Going back in time, every successful capitalist economy in the world has had an active partnership between government and business. Even when the United States government was small in the nineteenth century, it built the canals, subsidized the railroads, made private ownership of land accessible, and developed a widely envied public education system. Consider how the role of government changed in America as the economy and society changed. The presidency of Thomas Jefferson is a good example. Jefferson is criticized today because he feared the encroachment of manufacturing on what he considered an American agricultural utopia. Jefferson fought against the establishment of American tariffs and promoted free trade, so farmers could easily sell their produce to Europe. He favored a small government and discouraged the public financing of internal improvements like roads. It was Alexander Hamilton, the favorite founding father of business, who wanted to protect domestic manufacturing from foreign competition by imposing tariffs. Hamilton also wanted a powerful central federal government, which could sell its own bonds and build the roads the nation badly needed. As the economy evolved, however, even Jefferson began to change his tune, accepting modest tariffs. More to the point, his followers became government activists. In the nation's early years, they began to support manufacturers and tariffs. In particular, the Jeffersonians in New York used government money to build the great public project of the day, the Erie Canal. Jeffersonians in other states followed suit. The United States economy is still changing radically. Consider the last 30 years. The two-worker family is now the norm, largely because a single wage can no longer support a family. The quality of public education is highly unequal, depending more than ever on how upscale one's neighborhood is. Health care costs are rising much faster than typical family incomes. Computers and the Internet have become necessities not luxuries. More use of the markets may help solve some of these problems. But judicious and imaginative use of government will also be necessary. Government, however, is being shut out as an alternative. Consider an index of economic freedom published annually by the Heritage Foundation and The Wall Street Journal, which ranks more than 150 nations largely on the level of government interference in the economy. The lower the taxes, the lower the barriers to free trade and the smaller the government share of gross domestic product, for example, the higher the nation's ranking on the index. Limited social programs, of course, also improve the freedom quotient. The editors of the report contend that such economic freedom is the 'universal' key to prosperity. But compare those top 10 countries to the 10 most competitive countries on a list compiled by an international business group, the World Economic Forum. The forum's growth competitive index is based heavily on an opinion survey of business executives, as well as measures of technological sophistication and other factors. Only 3 of the 10 most competitive nations are among the Heritage Foundation's index of the world's 10 freest nations. They are Singapore, Denmark, and Iceland. In fact, some countries like Finland, Sweden and Norway, all with high taxes and generous welfare systems, are considered by business executives among the 10 most competitive nations. Why? Because they use their government spending to improve education, for example. Indeed, Norway, which has the second highest gross domestic product per capita in the world, ranks 29 on the index of economically free nations. The Chinese economic miracle has occurred even though China ranks 112 on the index of economically free nations. Such attitudes that less government is invariably better have restricted this nation's vision, compared with the bold efforts of the past. Education is a good example. It has become as difficult to live a middle-class life today without a college degree as it was to lead a decent life without a high school education 100 years ago. One hundred years before that, the same was true for a primary school education. In the early 1900's, a dynamic nation built the free high schools it needed and hired the teachers. In the preceding century, it built a free primary school system that by 1850 was more widely attended than the system of any other nation. Government did all this. But if we ask the nation to consider financing a four-year college education for everyone today, neither Republicans nor Democrats will entertain the idea. They even find it quaint and naïve. We are mostly told that we cannot afford this and that individuals should fend for themselves. Yet the president may soon be willing to borrow $2 trillion to privatize Social Security. Advocates say that the Social Security system will cost less in five or six decades as a result of privatization. But if that $2 trillion were channeled into college education, imagine the gains in new ideas, in a superior labor force, and in productivity in general. Instead of bold new roles for government, the right increasingly reverts to a mantra about less government, while the left, hamstrung, offers few new imaginative plans for a changing society. If our politicians realize that the purpose of government is to adapt to, and even promote, change, they may at last deal successfully with the nation's problems. At the moment, that looks unlikely.

Subject: Monetary and Fiscal Policy From: Terri To: All Date Posted: Thurs, Jan 20, 2005 at 05:57:45 (EST) Email Address: Not Provided Message: There is no reason to believe monetary policy has been faulty. The Fed lowered interest rates in dramatic fashion from January 2001 in an attempt to lesson the effects of a slowing economy. The result was dramatic real estate investment and a vibrant consumer durables market that bouyed the economic from then till now. The problem has still however been to little corporate investment and this can be blamed on fiscal policy that while giving us a fierce structural deficit was largely focused on tax cuts that have had a relatively minor effect in stimulating demand.

Subject: Re: Monetary and Fiscal Policy From: Pete Weis To: Terri Date Posted: Thurs, Jan 20, 2005 at 10:31:21 (EST) Email Address: Not Provided Message: Terri. Is monetary policy supposed to be a one-way street - only add liquidity when the economy is in trouble? Should monetary policy ever tighten? If so, under what circumstances? Does monetary policy work as well with major adjustments to the economy as it might with minor adjustments? Clearly major adjustments are now headed our way, since things have gotten so out of wack (record current account combined with record consumer debt). It's interesting to note that this experiment in lowering interest rates has led to the greatest overall debt in history (relative to GDP - the last high being the early 30's). But corporate debt has been effectively reduced (unlike the 30's) and overall non-governmental debt has been shifted to the consumer. You have to wonder if the result might still be the same (as the 30's) since, at some point, consumption will have to fall steeply, either because the dollar will buy so much less and/or the consumer will finally have trouble servicing her/his mounting debt. Incidently, I agree that fiscal policy is presently a mess. But at this point, fiscal policy can only act as a pain reliever - it won't now necessarily save the patient.

Subject: Re: Monetary and Fiscal Policy From: Terri To: Pete Weis Date Posted: Thurs, Jan 20, 2005 at 11:46:41 (EST) Email Address: Not Provided Message: Well, we are tightening right now. When there is danger of too much inflation, the Federal Reserve is obliged to and does tighten. Monetary policy appears to work quite well with minor and major adjustments to growth, though fiscal policy assists may be useful and necessary. The problem now is a fiscal deficit, a federal government deficit. Though household saving is not as high as we might wish for, I find no gloom and doom problem for consumers. Though we are likely to have economic difficulty if we do not generate added federal revenue in coming years, I am just not worried about a near term recession let alone a depression. The economy has been and is growing nicely.

Subject: Re: Monetary and Fiscal Policy From: Terri To: Terri Date Posted: Thurs, Jan 20, 2005 at 11:53:26 (EST) Email Address: Not Provided Message: Fiscal policy is and will always be available to correct economic problem. That is what we learned from John Maynard Keynes. There is a different political climate now than 12 or 8 years ago, but fiscal policy can be properly used as we found during the 1990s.

Subject: The Japan-China Stew: Sweet and Sour From: Emma To: All Date Posted: Wed, Jan 19, 2005 at 10:57:30 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/19/international/asia/19letter.html The Japan-China Stew: Sweet and Sour By NORIMITSU ONISHI TOKYO - Like many Japanese businessmen these days, but particularly as co-chairman of the 21st Century Committee for Japan-China Friendship, Yotaro Kobayashi is worried about the state of affairs between Asia's two most powerful nations. On one hand, since the committee was formed in October 2003 under an agreement between the countries, Mr. Kobayashi, 71, who is also chairman of Fuji Xerox, has watched political relations fall to their lowest point in years. On the other hand, economic ties have continued to deepen, and China's rise has kept buoying up the Japanese economy. 'Japan Inc.,' the voguish term of the 1980's that described an economic juggernaut in which politicians, businessmen and bureaucrats moved in balletic unison, may have never been completely accurate. But as Japan confronts two realities - the rise of China's economy and its rise as a political and military power - the term may become history once and for all. In Japan today China has come to be regarded as a partner by the business class and a rival, if not outright adversary, by the political class. Indeed, the dichotomy in Japan's view toward China has widened to such an extent that, in recent months, leading businessmen have begun publicly expressing misgivings about Tokyo's policy toward Beijing: bad politics is hurting business. A flash point has been Prime Minister Junichiro Koizumi's continued visits to the Yasukuni Shrine here, where Japanese war dead are venerated along with Class A war criminals. Chinese leaders have demanded that he stop, essentially making that a condition for full-fledged Japanese participation in the world's most coveted market. For China, the visits symbolize Japan's lack of repentance over its militarist past, which includes the brutal colonization of Manchuria and the infamous 'Rape of Nanjing,' in which between 100,000 and 300,000 Chinese were massacred. 'Prime Minister Koizumi's visits to the Yasukuni Shrine could spread negative views about Japan and cause adverse effects on Japanese companies' activities' in China, Kakutaro Kitashiro, chief of the Japan Association of Corporate Executives and chairman of I.B.M. Japan, said at a recent news conference. After a meeting of his committee in September, Mr. Kobayashi, expressing a personal view, said the 'visits are rubbing against the grain of Chinese people's sentiments and are also preventing Japan and China from having a summit meeting.' After that comment, hard-line nationalist groups flooded Mr. Kobayashi's office with angry faxes and harassed his home with loudspeakers. The factors that are tearing apart Japan Inc. are only gathering strength, beginning with China's exploding economy. Indeed, with Japanese exports to China growing at a 20 percent annual rate in recent months, China is set to replace the United States as Japan's largest trading partner. Companies ranging from Canon to Matsushita Electrical Industrial, the maker of Panasonic brand products, are building factories in China and posting an increasingly larger share of their Japanese employees there. The recent recovery of Japan's economy would have been impossible without growth in China, economists agree, and it could quickly deflate with a Chinese downturn. 'Rather than seeing China's economic growth simply as a threat, as it once was, the view to take it as a challenge and chance is emerging recently,' Mr. Kobayashi said. 'In fact, this is one of the major elements that has been supporting the Japanese economy for the last few years.' In stark contrast, political ties are described as plumbing some of the lowest depths since relations were normalized in 1972. An unfortunate turning point was reached at last year's Asian Cup soccer final in Beijing when young Chinese fans - emboldened by an anti-Japanese nationalism and angered by the Yasukuni visits - aggressively harassed Japanese fans. A series of incidents followed, each making matters worse. In November, a Chinese Navy nuclear submarine intruded into Japanese waters. To the surprise and delight of Japanese conservatives, as well as United States officials who want Tokyo to act more assertively against Beijing, Japan chased the submarine and criticized China. At a meeting later in Santiago, Chile, President Hu Jintao urged Mr. Koizumi to stop visiting Yasukuni; so far, the Japanese leader has kept his intentions vague. Calls are also rising here for Tokyo to cut aid to China - Mr. Koizumi said it was time for China to 'graduate' from Japanese assistance - drawing protests from Chinese officials, who have always considered the aid more like de facto war reparations. Last month, Tokyo took two steps that would have been unthinkable a few years ago. In a rare adjustment of its National Defense Program Outline, Japan described China as a potential threat, drawing condemnation from Beijing. Then the Japanese government capped the year by granting a visa to Lee Teng-hui, the former Taiwan president, for a private visit, a move that infuriated the Chinese. 'I wonder if it's Japan's strategy to worsen its relationship with China,' Huang Xingyuan, a counselor at the Chinese Embassy here, said in a recent interview. What Japan may have intended as a new show of power, Mr. Huang said, would lead to both sides losing. In keeping with Beijing's strategy toward Tokyo, Mr. Huang quickly made the link between politics and business. In October, China closed a deal to buy $1.4 billion worth of trains. 'For China, it was ideal to buy them all from Japan in terms of technology and maintenance,' Mr. Huang said. 'But given Chinese political sentiment - the people's opposition was too strong - we could give only half of the project to Japan.'

Subject: Re: The Japan-China Stew: Sweet and Sour From: PanchoVilla To: Emma Date Posted: Wed, Jan 19, 2005 at 20:23:35 (EST) Email Address: nma@hotmail.com Message: http://www.lyricsfreak.com/f/frank-sinatra/55638.html

Subject: The Magic Moment Not on NYT website From: Bambitroll To: All Date Posted: Wed, Jan 19, 2005 at 10:54:04 (EST) Email Address: Not Provided Message: Hello! The column from Jan, 18th 2005 (The Magic Moment) is not on the NYT website (http://www.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/) It was published for a short while, and then removed! Does anybody know more about that? BT.

Subject: Re: The Magic Moment Not on NYT website From: Emma To: Bambitroll Date Posted: Wed, Jan 19, 2005 at 10:58:49 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/18/opinion/18krugman.html?incamp=article_popular_2 The Magic Moment

Subject: Re: The Magic Moment Not on NYT website From: Bambitroll To: Bambitroll Date Posted: Wed, Jan 19, 2005 at 10:57:41 (EST) Email Address: Not Provided Message: My mistake! It is there :) BT

Subject: Japan and America From: Terri To: All Date Posted: Wed, Jan 19, 2005 at 10:20:57 (EST) Email Address: Not Provided Message: http://web.mit.edu/krugman/www/jpage.html Paul Krugman has been deeply critical of economists for ignoring the slow slow growth economy of Japan these 12 years. The world's second largest economy grew far below potential through this time and has been a drag on world development. The problem of a paucity of consumption in Japan is partly our problem, for Japan might import more from America, partly a world problem. Then, I wonder whether we can learn anything from the plight of Japan? Paul Krugman's ideas on Japan seem correct to me, but they are not heeded. Why?

Subject: Medicaid Equipment Pleas Go Unanswered From: Emma To: All Date Posted: Tues, Jan 18, 2005 at 21:02:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/12/nyregion/12wheelchairs.html?ei=5070&en=a75d8f2b274515d2&ex=1106197200&oref=login&pagewanted=all&position= Medicaid Equipment Pleas Go Unanswered By RICHARD PÉREZ-PEÑA New York State has all but halted Medicaid payments for equipment used by severely disabled poor people in the metropolitan area, leaving thousands without devices like wheelchairs and walkers, according to the health professionals who treat them. To cut costs, the State Health Department eliminated the Medicaid office in Manhattan that handled equipment orders for the downstate region, an office that had approved the great majority of requests within a few weeks. Since the office closed on Nov. 1, the requests have gone through an office in Albany that has delayed and rejected nearly all of them, according to doctors, therapists and equipment vendors. The department said those people have not adequately justified their equipment orders to Medicaid, the government health plan for the poor, but the professionals dispute that position. 'We've sent well over a hundred requests since late October, and we've gotten just one approval,' which came last week, said Dr. Dara Richardson-Heron, chief medical officer of United Cerebral Palsy of New York City. In interviews last week, several other people who treat severely disabled people said that all or nearly all of their requests were being denied. A spokesman for the Health Department, William Van Slyke, said the doctors and therapists were exaggerating the extent of the problem, though he said he could not supply any figures. 'We are seeing a higher number of rejections out of the metropolitan area, but we would dispute that it's virtually all of the requests,' he said. 'The most common problem is the lack of documentation citing that the product is medically necessary,' he said. 'We found that the New York City office deviated from established protocols, and we're trying to apply the rules and regulations uniformly to every part of the state.' People who work with the disabled said that since the downstate office closed, the state's requests for more information have been vague, excessive or duplicative. And, they said, they have found it nearly impossible to communicate with the Health Department about their requests. Mr. Van Slyke said he did not have enough information to respond to such complaints, and the department would not make any official directly involved in the program available for an interview. The items in question fall in the category of durable medical equipment, including shower chairs, special beds, crutches and wheelchairs, but most requests are for replacement parts or repairs for those devices. Doctors said the Manhattan Medicaid office processed tens of thousands of equipment orders monthly, so the number of requests turned back since Nov. 1 must be in the thousands. They cannot cite more precise figures, but they said some patients had been left unable to leave their homes for school, work or medical treatment, while many more were using ill-fitting or broken equipment. Dr. Meg A. Krilov, who treats disabled patients at several clinics in New York City, said she had not had a single equipment request approved in months. She told of a patient who is homebound because he cannot get a new battery approved for his power wheelchair, one who cannot replace a broken belt to hold her in her chair, and one who can control her wheelchair only by moving her chin and cannot get a device that would let an attendant control the chair. Cerebral palsy has left Howard Stone, 44, with little use of his arms or legs, he suffers from scoliosis, and he is moderately retarded, said his mother, Dorothy. His wheelchair tilts forward or back - movements he cannot make on his own - but after years of hard use, it is broken. He has been trying for two months to get it repaired, so far without success. 'At the doctor's office, the chair froze in the horizontal position, so it took four of us to get him in position to give him a shot, and we weren't sure we would be able to get him home,' said Mrs. Stone, who, like her son, lives in the Bronx. Frank Ortiz, 18, has cerebral palsy and can walk only a few feet at a time, so he relies on a wheelchair, but it is not powered. He does not have the strength to control it on uneven ground or gentle slopes, and his mother, Mayra, said he had grown too big for her to push around. So the shops a few blocks from the family's home in the Bronx are now beyond his reach, they said. He has used the same wheelchair since he was 11, and it is small for him. The backrest does not go high enough for someone his size, and in any case, it no longer stays up, sliding down to the small of his back. The attachment for his crutches is held together with tape. 'When I fold the chair up, a lot of times something breaks or it's hard to open it up again,' Mrs. Ortiz said. 'He really needs a new chair, and he needs a power chair.' The doctors and therapists at Roosevelt Hospital in Manhattan agree with her, but their request to Medicaid was sent back. 'We did what we always do: send a letter, a couple of pages, saying this is the person's condition, this is what's needed, and this is why,' said Alyssa Colton, a senior occupational therapist at Roosevelt. 'All of a sudden, they're saying that's not enough, but they've never told us what we need to do.' Doctors and therapists said that requests take longer to process than in the past and more are rejected outright, but that most are returned as insufficient. They said that in some cases, they have received no response at all from the state, or that they get notes saying the application was inadequate, without indication how to correct it. But in many cases, the department has demanded voluminous paperwork. A checklist sent in response to some requests seeks a 'clinical history and description of patient's condition,' which can mean hundreds of pages, covering information that Medicaid often has already. The list asks for a 'comprehensive evaluation justifying specific equipment requested,' even for replacement parts for existing devices. For repairs, it asks for paperwork like a copy of the original invoice. 'When you get new windshield wipers for your car, you shouldn't have to do all the same paperwork as when you bought the car,' Dr. Richardson-Heron said. Vendors, doctors and therapists said that they used to call the Manhattan office to discuss applications but that since it closed, calls to Albany yield no help; calls are often not returned, or they cannot figure out whom to talk to. The department held a meeting on Dec. 28 to discuss its new approach, but only vendors were allowed to attend, and, according to several who went, officials answered only a few questions submitted in writing. A meeting with health care providers has been scheduled for next week.

Subject: Steel Industry Boom or Bubble? From: Emma To: All Date Posted: Tues, Jan 18, 2005 at 12:13:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/18/business/18place.html Is the Steel Industry in a Boom or on a Bubble? By CLAUDIA H. DEUTSCH Last year was a banner year for the steel industry. Steel companies consolidated and reorganized while demand soared, pushing up prices for steel - and for steel company stocks. Indeed, the Goldman Sachs index of steel companies was up 40 percent last year, with many of the stocks hitting record highs. 'No question, but price hike announcements sent steel stocks way up,' said Mark Mousseau, a research analyst at Thomson Financial. So why is the investment community so divided over steel's future? Why do only 6 of the 16 Wall Street analysts who follow the industry have buy ratings on steel stocks - and three of them have strong sells? As Merrill Lynch sees it, 2004 was a harbinger of good times to come. But CIBC World Markets, which downgraded the steel sector to underweight just last week, views the recent run-up in stock prices as the peak before the plunge. Investors are understandably torn. 'We're still bullish on the sector but we're already trying to identify when the game will be over,' said Timothy M. Ghriskey, chief investment officer of Solaris Asset Management, which owns shares of US Steel. Andrew G. Sharkey III, president of the American Iron and Steel Institute, said such uncertainty was typical. 'Last year was extraordinary, but nobody has a crystal ball,' he conceded. Everyone does have an opinion, though. And while nuances abound, the industry bulls and bears fall roughly into two schools of thought: the bulls say they believe that the domestic industry is in control of its own steel-making destiny, while the bears say that its fate is dependent on events that occur thousands of miles away. 'The health of the home industry is driven primarily by the U.S. market, and that means that steel prices are going to firm, even go up,' said Aldo J. Mazzaferro, the bullish metals analyst at Goldman Sachs. No way, counters Charles A. Bradford, his counterpart at Soleil Securities. Mr. Bradford put a sell recommendation on several steel companies in October. In the United States, he said, 'demand for steel was never as strong as everyone thought.' As he sees it, neither the automobile nor the construction industries, which account for 50 percent of steel consumption, seem poised to soar. 'China was sucking up all the steel on the planet,' he said, so 'customers feared shortages, and they bought double, triple what they needed.' Steel users are loath to predict their coming costs. 'The steel industry operates in a global marketplace, and with the volatility of the last few years, I would really hesitate to guess where prices will go,' said Brian J. Lipke, chairman of Gibraltar Industries, which buys about 750,000 tons of steel a year. Whatever happens, there's no imminent danger to most of the industry. Global steel production hit about 1.1 billion tons in 2004; American companies accounted for about 10 percent of that. Steel prices have dropped from their peak of $756 a ton in November, but they remain more than double the $300 a ton they commanded a year ago. China remains the wild card. It is the world's largest importer of steel, but its own steel production is growing even faster than its usage: it could easily switch from customer to formidable competitor soon. Indeed, for a few months last fall, China exported more steel than it imported. 'China is a huge swing factor, and if it becomes a long-term net exporter, you are going to see a whole bunch of new steel bankruptcies again,' said Wilbur L. Ross, who spent the last few years buying up bankrupt steel companies to create his International Steel Group. Others worry that smaller nations like Brazil or Thailand will set up their own heavily subsidized steel companies, flooding the market with cheap steel. 'When an industry goes through a strong year like 2004, inevitably some countries respond by building their own steel mills,' said Mr. Sharkey of the steel institute. The North American steel industry is in far better shape to weather even the worst-case situation than it was just a few years ago. In 1998, just before low-cost steel started flooding American markets again, there were 90 solvent steel producers in North America. By 2003, 28 of them were in bankruptcy, as they kept producing steel for customers whose needs were already sated. 'You can't run a steel mill at part speed,' Mr. Ross said, 'so if you don't have a way to cut out 5 percent of your production, you just keep producing.' Since then, some companies have disappeared, some have been acquired. Today, North America has 57 steel producers and only 3 are in bankruptcy. 'This has gone from a widely fragmented, poorly run industry to one that is consolidated and financially disciplined,' said Daniel A. Roling, the metals analyst at Merrill Lynch. For steel investors, Mr. Ross's decision to sell to Mittal Steel of London for about $4.5 billion - half in stock, half in cash - could be especially telling. When the smart money is selling, do you want to be buying? But Mr. Ross had other reasons to make his move. Mittal has facilities in Eastern Europe, Mexico and other areas where International Steel Group is weak. Mr. Ross wanted badly to play in those markets - but he did not want to add new capacity. 'We were at a cost disadvantage competing with them, and we could never reproduce what they had,' he said. Combining the two companies will yield the world's largest steel maker - a spot held until now by the French company Arcelor - with about $31.5 billion in annual revenues. But that's not the only reason Mr. Ross chose to hedge his bets. 'No one knows what will really happen to steel,' he said, 'because no one really knows what will happen to the global economy.'

Subject: India's Choice From: Emma To: All Date Posted: Tues, Jan 18, 2005 at 11:50:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/18/opinion/18tues2.html India's Choice For an AIDS patient in a poor country lucky enough to get antiretroviral treatment, chances are that the pills that stave off death come from India. Generic knockoffs of AIDS drugs made by Indian manufacturers - now treating patients in 200 countries - have brought the price of antiretroviral therapy down to $140 a year from $12,000. That luck may soon run out. India has become the world's supplier of cheap AIDS drugs because it has the necessary raw materials and a thriving and sophisticated copycat drug industry made possible by laws that grant patents to the process of making medicines, rather than to the drugs themselves. But when India signed the World Trade Organization's agreement on intellectual property in 1994, it was required to institute patents on products by Jan. 1, 2005. These rules have little to do with free trade and more to do with the lobbying power of the American and European pharmaceutical industries. India's government has issued rules that will effectively end the copycat industry for newer drugs. For the world's poor, this will be a double hit - cutting off the supply of affordable medicines and removing the generic competition that drives down the cost of brand-name drugs. But there is still a chance to fix the flaws in these rules, because they are contained in a decree that must be approved by Parliament. Heavily influenced by multinational and Indian drug makers eager to sell patented medicines to India's huge middle class, the decree is so tilted toward the pharmaceutical industry that it does not even take advantage of rights countries enjoy under the W.T.O. to protect public health. In November 2001, members of the World Trade Organization agreed that countries can issue compulsory licenses to permit generic production of patented drugs without the patent holder's agreement in order to protect public health, at home or abroad. But under the Indian decree, getting a compulsory license would be slow and difficult; each application would face a fight from multinational drug firms and the governments that do their bidding. India should adopt laws that expedite compulsory licenses, including allowing challenges to proceed after production begins instead of holding it up. In addition, India must close an important loophole affecting the sick overseas: under the current rules, Malawi, for example, could not import from India an inexpensive version of a medicine that is not under patent in Malawi. This needs to be changed. Industry lobbyists managed to insert two noxious provisions in the decree that go well beyond the W.T.O. rules. The decree would limit efforts to challenge patents before they take effect. Also, it is uncomfortably vague about whether companies could engage in 'evergreening' - extending their patents by switching from a capsule to tablet, for example, or finding a new use for the product. This practice, a problem in America and elsewhere, extends monopolies and discourages innovation. While some drugs - those that existed before 1995 - will always be off patent in India, some widely used drugs are at risk. So are new generations of much more expensive AIDS drugs that will soon be needed worldwide as resistance builds to current medicines. If the decree is not changed before Parliament approves it, it will be very difficult for India to supply them. India's parliamentarians must keep in mind that this arcane dispute is actually a crucial battleground for the health of hundreds of millions of people in India and worldwide.

Subject: China: It's Just Business From: Emma To: All Date Posted: Tues, Jan 18, 2005 at 11:48:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/weekinreview/16china.html It's Just Business, Nothing Geopolitical By KEITH BRADSHER HONG KONG — Shut up and keep buying. Few countries are benefiting as much as China these days from the international status quo - and Beijing knows it. So, as American criticisms of China have shifted from human rights to the value of its currency and the aggressiveness of its trade practices, Chinese leaders have tried hard to keep the peace while exporting ever more. China's economy is doubling in size every 10 years, and personal incomes have been climbing steeply, especially in the cities. Trade with the United States plays a huge role in that growth, as investors around the world pour money into Chinese factories that make goods destined mainly for the American market. China's trade surplus with the United States now equals slightly more than a 10th of its entire economic output - an extraordinary figure, considering how much of the country's economic output is inherently unexportable, from haircuts and construction to the Big Macs and grande mochas at the proliferating McDonald's and Starbucks stores. China is both a huge beneficiary of American consumer appetites, and profoundly dependent on them. That dependence makes China nervous, especially when the Bush administration imposes restrictions on Chinese shipments to the United States - everything from steel to bedroom furniture to brassieres. 'The Bush administration should have a vision and play a leading role in globalization and international trade, rather than sending a message to the world that 'We care more about our own businesses than anybody else's,' ' said Xu Xiaonian, a prominent Shanghai economist, voicing a common sentiment. China needs a prosperous America, with economic policies that not only steer clear of protectionism but also encourage consumption and keep the dollar fairly stable. Low interest rates and big budget deficits have helped in the short term, by fueling a consumption binge in the United States. While China has stayed focused on providing jobs for the millions of workers coming off its farms or losing jobs at inefficient state-owned enterprises, geopolitical issues like the war in Iraq have been only a secondary concern. China needs secure sea lanes for its ever-rising oil imports, and like the rest of Asia, it implicitly relies on the American Navy to keep the tankers safe. From Beijing's point of view, although not Washington's, the thorniest issue is also the oldest: America's continued support for Taiwan, which China regards as a renegade province. China has warned again in recent weeks that the United States should stop providing military support for the island. But with the planned purchase of I.B.M.'s personal computer division by Beijing-based Lenovo, China's main message is, 'Want a desktop computer to go with that microwave oven?'

Subject: China's Latest Capitalist Beachhead From: Emma To: All Date Posted: Tues, Jan 18, 2005 at 11:30:05 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/18/business/worldbusiness/18hainan.html?pagewanted=all&position= China's Latest Capitalist Beachhead By DAVID BARBOZA SANYA, China - China's leaders once tapped Hainan, this small sunny island off the southern coast of China, to be one of five experimental laboratories for capitalism. Hainan was supposed to compete to become a new Hong Kong, even a future Singapore. But more than a decade later, even as China's hot economy bubbles over with success in places like Shanghai and Shenzhen, Hainan is, well, still an experiment, like a lone laggard. It seems as though this place, despite its postcard-perfect views and year-round summer sheen, might be called one of China's earliest glitches on the road to capitalism, an isolated patch of somewhat undeveloped land that had once captured leadership attention, wads of cash and many talented Chinese wanting to strike it rich. 'The early 1990's experiment in Hainan was a failure,' said Li Renjun, a professor of economics at Hainan University in Haikou, on the north coast of the island. 'It has taken Hainan almost 10 years to recover from that failure.' The vast sums of capital that flowed into Hainan never built factories or brought migrant workers to its shores, experts say. Instead, they mostly lured speculators, real estate developers and financiers - many of whom dashed away when things began to collapse in the mid-1990's. But now Hainan is hoping to be reborn as a different sort of place; optimists here like to call it the next Hawaii. Rather than buck the speculators' first instincts, officials here are trying to work with them. After years of helter-skelter, boom-and-bust development, Hainan - a province of eight million people - is shedding its loftier ambitions of becoming an industrial center. It is still betting on property developers, but it is lowering its sights and rebranding itself as a playground for China's new rich. And in this reincarnation, it is finding some long-sought success. This tropical island in the South China Sea, just 13 miles off the China coast, is now busily erecting resort towns, golf courses, some multistory condos and low-rise villas. Not to mention a handful of mega-shopping malls. Sanya, a former fishing village on the island's most scenic shores, has been transformed into a bustling tourist haven. Five-star hotels now cling to the beaches of this southern resort town, which each year plays host to the Miss World pageant. And a spectacular international conference center in a resort town called Bo'ao is being promoted as China's answer to Davos, Switzerland, where each January the annual World Economic Forum of business leaders, government officials, activists and intellectuals is held. 'We want Hainan to be a vacation spot for China and the world,' declares Zhu Huayou, a government official in Hainan's Foreign Affairs Office. 'Bali has done something that fits the needs of its customers. We want to do something similar here.' Few visitors will mistake Hainan for Bali, with its rich and traditional customs as a backdrop to hundreds of resorts catering to visitors from all over the world. But millions of tourists, mostly from China and Russia, are now beginning to frequent this relatively inexpensive and less-developed island of magnificent beaches and lush mountain landscapes. Last year, more than 3.7 million tourists stayed in hotels in Hainan, a 20 percent increase from 2003, according to local tourism officials. Investors have taken notice. Li Ka-shing, the Hong Kong billionaire, is scouting development projects here. And Citic Pacific, a huge Hong Kong conglomerate, plans to spend hundreds of millions of dollars over the next few years to develop residential and commercial property in Bo'ao. Western hotels are coming, too. Starwood Hotels and Resorts Worldwide - the operator of Sheraton, Westin and W hotels - has already opened one resort in Sanya and plans to open another in Haikou, the provincial capital. Marriott International and Hilton Hotels are also newcomers. And so is Shangri-La Hotels and Resorts, which is planning a resort in Sanya, a village that three years ago did not have a single Western-operated hotel. 'Our target is to open up the expat and meetings market here,' said Robert J. Lohrmann, general manager at the Sanya Marriott Resort and Spa. 'We see Sanya as a serious competitor to Bali and Phuket in the next five years.' Few Americans come to Hainan for vacation, of course. (Most who come this far visit Beijing or Shanghai instead.) Direct flights from the United States to Sanya are not available. Travelers have to transit through Hong Kong or Guangzhou. But Hainan officials say the number of wealthy Chinese is growing rapidly, with an estimated 236,000 millionaires (in American dollars), according to Merrill Lynch. That's far more than in Russia and India combined, and a lot of that wealth has filtered down to hundreds of thousands of less affluent but increasingly comfortable Chinese. They are purchasing luxury items, buying cars and spending more on vacations. Hoping to tap into that wealth, investors and government officials here are once again trying to engineer a real estate boom. Indeed, hundreds of buildings that sat uncompleted for a decade, relics of the 1990's real estate bust, are finally coming to life in Haikou. In the northwest part of town, construction is going on around the clock to build a crush of new high-rise developments with names like Sunshine Classics and Dragon Pearl New City. Yet on some of the city's busiest streets, one can still see stretches of uncompleted buildings that stand out as eerie reminders of the previous boom. 'A lot of the buildings on this street went dark in '93,' Hu Hui, deputy chief editor of The Securities Daily, a Haikou business newspaper, said as he drove down Guomao Road. 'You should have seen what this area looked like three years ago.' Today, luxury apartments along the sea are selling briskly for $80,000, according to local real estate brokers. For a brief time, in 1992, Hainan was China's fastest-growing economic region. People came from all over the country to make their riches in this free-wheeling capitalist outpost. Prostitution and underground gambling flourished. But after 1993, when the government began to rein in some of the excesses, real estate prices plummeted and investors realized Hainan's economy was built on sand. 'The growth of the real estate business was too rapid during those years, and certainly there was a bubble in it,' said Professor Renjun at Hainan University. 'Officials hoped that Hainan would become a second Taiwan or Hong Kong, but that was just unrealistic.' Developers once sold apartments for as much as $1,500 a square meter, or about $150,000 for a comfortably sized apartment at a time when the average Chinese worker on Hainan made less than $250 a month. Now, those same apartments sell for as little as $200 a square meter. And villas that were priced at $1 million are now listed at about $100,000. The province's new freedoms, tax breaks and duty-free provisions also often gave rise to illegal car smuggling, government corruption and, for a brief time, even the opening of an illegal stock exchange. State-backed real estate ventures flopped. And a series of scandals in the 1990's destroyed some of the province's biggest financial institutions. Today, Hainan is no longer considered a pioneering province. Instead, it is a laggard in a nation of growing economic might; an island of lost opportunities. While other export-driven coastal provinces, like Zhejiang, Guangdong and Fujian are soaring, Hainan is in recovery. Indeed, of 31 regions with provincial status, Hainan's economic growth has ranked at or near the bottom in all but one of the last 10 years. Four times, it ranked dead last. Now, after a series of leadership shake-ups, Hainan's provincial government is looking to turn things around by pushing clean and sustainable growth. 'Because of 1988 and the special policies, Hainan got really hot,' said Mr. Zhu, in Hainan's foreign affairs office. 'Now, we don't think about it. We just want Hainan to have a good life quality and a good environment. Most important is protecting the environment.' But some residents here worry that tourism and real estate are not enough to sustain the local economy. 'Hainan doesn't have anything of its own, everything comes from outside,' said Tang Fengyu, an entrepreneur in Haikou. 'People just wait for the central government to act. But they don't want to pollute, so how can it have industry?' Developers, however, are naturally more optimistic. They say foreigners, including Japanese, South Koreans and even some Americans, are now coming to Hainan to purchase vacation homes. A growing number of wealthy Chinese are also looking for second homes. Some evidence of that can be seen in Haikou, where Changxin, a Hong Kong developer, is building a huge apartment complex, 900 units surrounded by palm trees, miniature bridges, man-made lakes, waterfalls, lush tropical gardens and a Miami-style shopping street. 'This was all developed this year,' said Ning Bo, a sales agent at Changxin. 'And now we're 60 percent sold out on the first phase of the development.' Sanya is also marketing aggressively, with flags in English, Chinese and Russian trying to lure buyers to purchase expensive apartments and villas. Still, many people in Haikou worry that the latest real estate boom could also be a mirage. Developers who acquire land in China, after all, are required by law to start building within two years of acquiring their property. And so whether there are buyers or not, buildings here in China go up, suggesting pent-up demand. Wen Ling, co-chief executive of Xing Ji Guang Yuan, a real estate advisory company, points to one building here that began as a hotel, then was converted into a residential building. But after two weeks of disappointing apartment sales, it was converted again - this time into an office complex. 'In Haikou, real estate development is really bad,' Ms. Wen said. 'There's more apartments than people need. How many people can buy an apartment for $70,000?' Government officials and real estate specialists are quick to say that outsiders are willing to pay that much. And they say that with tighter credit and less speculation Hainan will avoid another bubble. But tell that to Zhao Zhejun, a 36-year-old electrician who is dining at a makeshift restaurant that operates in the shell of an unfinished 14-story building in downtown Haikou. 'There's a lot of work, but no money,' he said. 'They tell us, 'We'll pay you after we sell the building,' ' Mr. Zhao said as he fingered some tools and sipped green tea. 'This is all government money. They love to build buildings like this one that no one lives in. Only the developers see the money.'

Subject: Seek petro-economy column From: Ivan Tital To: All Date Posted: Tues, Jan 18, 2005 at 10:54:06 (EST) Email Address: ivan.tital@billionairesforbush.com Message: I'm looking for a great piece Krugman did years ago comparing commodity based nations like Nigeria, Venezuela, and Zaire/Congo vs. places that invested in people, like S.Korea, Japan, Singapore, etc. This is for messaging the Billionaires for Bush 'Drain America First!' energy policy. Please respond ASAP Billionaires for Bush billionairesforbush.com

Subject: There is No Social Security Crisis From: Jennifer To: All Date Posted: Tues, Jan 18, 2005 at 10:03:57 (EST) Email Address: Not Provided Message: The trust fund will not have to be built again till between 2042 and 2052, and if the economy continues to grow at historical norms the trust fund will last for the century. Benefits do not have to be cut, a small small rise of less than 2% in the payroll tax may be needed years from now. That is unless money is diverted for private accounts, and then there is a huge debt to be filled. There is no crisis for Social Security and with reasonable growth no problem at all for many decades.

Subject: White House Memo on Social Security From: Terri To: All Date Posted: Tues, Jan 18, 2005 at 06:21:22 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000119.html From: Wehner, Peter H. [mailto:Peter_H._Wehner@who.eop.gov] Sent: Monday, January 03, 2005 2:57 PM Subject: Some Thoughts on Social Security I wanted to provide to you our latest thinking (not for attribution) on Social Security reform. I don't need to tell you that this will be one of the most important conservative undertakings of modern times. If we succeed in reforming Social Security, it will rank as one of the most significant conservative governing achievements ever. The scope and scale of this endeavor are hard to overestimate. Let me tell you first what our plans are in terms of sequencing and political strategy. We will focus on Social Security immediately in this new year. Our strategy will probably include speeches early this month to establish an important premise: the current system is heading for an iceberg. The notion that younger workers will receive anything like the benefits they have been promised is fiction, unless significant reforms are undertaken. We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course. That reality needs to be seared into the public consciousness; it is the pre-condition to authentic reform. Given that, our aim is to introduce market reforms in Social Security and make the system permanently solvent and sustainable. We intend to pursue the first goal by using our will and energy toward the creation of Personal Retirement Accounts. As you know, our advocacy for personal accounts is tied to our commitment to an Ownership Society -- one in which more people will own their health care plans and have the confidence of owning a piece of their retirement. Our goal is to provide a path to grater opportunity, more freedom, and more control for individuals over their own lives. That is what the personal account debate is fundamentally about -- and it is clearly the crucial new conservative idea in the history of the Social Security debate. Second, we're going to take a very close look at changing the way benefits are calculated. As you probably know, under current law benefits are calculated by a 'wage index' -- but because wages grow faster than inflation, so do Social Security benefits. If we don't address this aspect of the current system, we'll face serious economic risks. It's worth noting that wage indexation was not part of the original design of Social Security. The current method of wage indexation was created in 1977, under (you guessed it) the Carter Administration. Wage indexation makes it impossible to 'grow our way' out of the Social Security problem. If the economy grows faster and wages rise, this produces more tax revenue. But the faster wage growth also means that we owe more in Social Security benefits. This has produced a never-ending cycle of higher tax burdens, even during periods of robust economic growth. It is the classic case of the dog chasing his tail around the tree; he can run faster and faster, and never make any progress. You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits -- therefore making no effort to address this fundamental structural problem. In my judgment, that's a bad idea. We simply cannot solve the Social Security problem with Personal Retirement Accounts alone. If the goal is permanent solvency and sustainability -- as we believe it should be --then Personal Retirements Accounts, for all their virtues, are insufficient to that task. And playing 'kick the can' is simply not the credo of this President. He wants to do what needs to be done for genuine repair of Social Security. If we duck our duty, it can have serious short-term economic consequences. Here's why. If we borrow $1-2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain-reaction: the markets go south, interest rates go up, and the economy stalls out. To ignore the structural fiscal issues -- to wholly ignore the matter of the current system's benefit formula -- would be irresponsible. Here's a startling fact: under current law, an average retiree in 2050 would be scheduled to receive close to 40 percent more (in real terms) in benefits than an average retiree today -- and yet there are no mechanisms in place to produce the revenue to pay out those benefits. No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives. To meet those benefit levels, one option would be to raise the age at which people receive benefits. If we followed the formula used when Social Security was first created -- make the age at which you receive Social Security benefits above the average age of mortality -- we'd be looking at raising the benefit age to around 80. That ain't gonna happen. Another way to meet those benefit levels is through the traditional Democrat/liberal way: higher taxation. According to the latest report of the Social Security Trustees, the current system's benefit formula would require some $10 trillion in tax increases over the long term. We'd therefore need to raise the payroll tax almost 20 percent simply to provide wage-indexed benefit levels to those born this year. This will all sound familiar. In the past, the way Congress usually addressed the built-in funding problem was by raising payroll taxes (from 2 percent in 1937 to 12.4 percent today). In fact, Congress has raised Social Security taxes more than 30 times -- but it has never addressed the underlying problem. Avoiding the core issue by raising taxes is not the modus operandi of this President. The other key point, as you know, is that personal accounts, through the miracle of compound interest, will provide workers with higher retirement benefits than they are currently receiving from Social Security. At the end of the day, we want to promote both an ownership society and advance the idea of limited government. It seems to me our plan will do so; the plan of some others won't. Let me add one other important point: we consider our Social Security reform not simply an economic challenge, but a moral goal and a moral good. We have a responsibility to fulfill the promise of Social Security, not undermine it. And we have a duty to ensure that we do not create an inter-generational conflict -- which is precisely what will happen if the Social Security system is not reformed. We need to retain strong ties between the generations, which is of course a deeply conservative belief. The debate about Social Security is going to be a monumental clash of ideas -- and it's important for the conservative movement that we win both the battle of ideas and the legislation that will give those ideas life. The Democrat Party leadership, the AARP, and many others will go after Social Security reform hammer and tongs. See today's silly New York Times editorial (its only one for the day) as one example. But Democrats and liberals are in a precarious position; they are attempting to block reform to a system that almost every serious-minded person concedes needs it. They are in a position of arguing against modernizing a system created almost four generations ago. Increasingly the Democrat Party is the party of obstruction and opposition. It is the Party of the Past. For the first time in six decades, the Social Security battle is one we can win -- and in doing so, we can help transform the political and philosophical landscape of the country. We have it within our grasp to move away from dependency on government and toward giving greater power and responsibility to individuals. There are of course other important issues dealing with Social Security; for now, though, I've covered quite enough ground. I wanted to let you know where things stand. If you have any questions, or if we can send you anything to clarify our plans and respond to critics, just let me know. The President remains flexible on tactics -- and rock-solid on the principles. But there's nothing new there. In one of his last public acts of an extraordinary public life, the late Democratic Senator from New York, Daniel Patrick Moynihan, co-chaired the President's Commission to Strengthen Social Security. In the introduction of its report, Senator Moynihan (along with Richard Parsons, his co-chair) wrote, 'the time to include personal accounts in such action [reforming Social Security] has, indeed, arrived. The details of such accounts are negotiable, but their need is clear.... Carpe diem!' And so we shall.

Subject: Re: White House Memo on Social Security From: jimsum To: Terri Date Posted: Tues, Jan 18, 2005 at 13:11:19 (EST) Email Address: jim.summers@rogers.com Message: This memo twice mentions that Social Security benefits are tied to wages rather than inflation and claims 'there are no mechanisms in place to produce the revenue to pay out those benefits'. Well, aren't social security revenues tied to wages? Social Security taxes are based on wages, and are therefore wage-indexed, not inflation indexed. Charging social security taxes based on wages IS a mechanism to provide the revenue to pay out wage-indexed benefits!

Subject: Re: White House Memo on Social Security From: David E.. To: jimsum Date Posted: Tues, Jan 18, 2005 at 15:47:36 (EST) Email Address: Not Provided Message: Yes, there is a wage adjustment to Social Security. It is used to adjust an average wage in 1970 up to an average wage at 2005. This adjusted up average is used to calculate the benefit. After retirement CPI is used every December to adjust the monthly retirement check. This wage adjustment is a huge benefit in times of rising wages and inflation. Everybody talks like it will still be to the workers benefit in an age of flat wages reduced by inflation(like our future under trickle down economics). Bush staffers think they can stiff workers (reduce benefits) by using CPI instead of wage adjustments.

Subject: Re: White House Memo on Social Security From: Jennifer To: jimsum Date Posted: Tues, Jan 18, 2005 at 13:27:59 (EST) Email Address: Not Provided Message: Right right right. Both payroll taxes and Social Security payments are indexed to wages. Changing the indexing of payments will gradually lead to a poverty ridden class of older Americans as Social Security payments fall further from wages norms.

Subject: Arguing On Social Security From: Terri To: Terri Date Posted: Tues, Jan 18, 2005 at 06:25:42 (EST) Email Address: Not Provided Message: The White House Social security memo argues Social security is headed for an 'inceberg.' I believe Social Security is sound with conservative growth assumptions.

Subject: Re: Arguing On Social Security From: David E.. To: Terri Date Posted: Tues, Jan 18, 2005 at 11:28:40 (EST) Email Address: Not Provided Message: Terri, isn't a 'Social Security Trust Fund' with only bonds not cash an iceberg? Where is the money going to come from? Either huge budget cuts or huge amounts borrowed. Either way it will be painful. Of course Social Security is sound, renegging on the 'Social Security Trust Fund' won't happen, but it is an iceberg.

Subject: There is the Iceberg From: Terri To: David E.. Date Posted: Tues, Jan 18, 2005 at 11:42:31 (EST) Email Address: Not Provided Message: Ah, I finally understand. Fine point. The Social Security iceberg is supposed to be the interest and principle due on Treasury bonds after 2018. Interest however is in effect being paid even now on all Treasury bonds, and principle being met or bonds being newly issued. There will be no change from 2018. The question will be whether interest and principle payments are met by cutting general spending to an extent, by raising taxes to an extent or by issuing new debt. California 'solved' the budget deficit last year by cutting spending to an extent and issuing new debt. The federal government can use the same techniques as California, as well as asking more revenue. The problem we have in not a Social Security problem but a federal budget problem which has nothing to do with Social Security for Social Security is building a surplus and will continue to till 2018.

Subject: Re: There is the Iceberg From: David E... To: Terri Date Posted: Tues, Jan 18, 2005 at 13:40:34 (EST) Email Address: Not Provided Message: Now the part that surprises me, is it seems that the Trust Fund can be used to finance the conversion to individual accounts. And if I understand the graphs in the CBO report, the total cost to convert is roughly equal to the cost to support present law. In other words, the two choices cost the same. Converting to individual accounts costs the same amount of money as supporting social security present law thru 2053. Just one iceberg. What a delightful position for President Bush. There is no extra cost in converting to individual accounts. I hope I am wrong in my analysis, and hopefully someone will straighten me out. Because this means President Bush's hand is extraordinarily strong and a strong democratic opposition will appear to be ideologically obstructionist. I wonder if Alan Greenspan was smart enough to figure this out in 1983 when he proposed the Trust Fund.

Subject: Re: There is the Iceberg From: jimsum To: David E... Date Posted: Tues, Jan 18, 2005 at 18:26:03 (EST) Email Address: jim.summers@rogers.com Message: The CBO report gives a misleading picture, that's why things look like they might add up. The graph shows revenues as constant; but isn't money being diverted into private accounts? At first the private accounts can be financed by using the trust fund, but what happens after it runs out? I don't see a big jump in the outlays curve for his plan, so he must think private accounts will be self-funding. The only conclusion I can make is that Bush thinks that after the trust fund has been fully investing in private accounts, it will provide enough money both to make up for his reduced benefits and to provide all the money needed for the private acounts in the future. Of course, if that's true, you don't need private accounts, the government can invest the trust fund itself, and leave Social Security as it is. Bush claims the system isn't sustainable if the federal government invests the money in the trust fund; but claims it is sustainable if private citizens invest the money in the trust fund. If Bush ever does manage to convince us that the income from private accounts will make up for the cut in benefits; that same argument can be used to show that the system is sustainable if the government invests the money instead.

Subject: Re: There is the Iceberg From: byron To: jimsum Date Posted: Tues, Jan 18, 2005 at 23:14:30 (EST) Email Address: Not Provided Message: Tell me something. Here is this President telling us that we have a crisis in Social Security, when three years ago this same man was telling us that Iraq had all these wmd's and we can expect a mushroom cloud if avtion isn't taken soon. Are we that dumb as Americans as to be fooled again?

Subject: Is RSS possible? From: Richard Davey To: All Date Posted: Tues, Jan 18, 2005 at 05:43:35 (EST) Email Address: RDavey@hotmail.com Message: It would be great if there could be an RSS feed here that would allow an feed-reader to automatically update when a new Krugman column is written. Has Krugman ever indicated whether he would be interested in running for President of the United States in 2008? I think he could raise money and generate excitement far more spectacularly than Dean did in 2004. If he were to announce now, he'd be unstoppable by 2008 and he would get a lot more weight in his criticisms of Bush. Just some thoughts.

Subject: Re: Is RSS possible? From: byron To: Richard Davey Date Posted: Tues, Jan 18, 2005 at 23:18:12 (EST) Email Address: Not Provided Message: It would be great, but i am afraid that Karl Rove would find some way of destroying his character.

Subject: Krugman's Iceberg column From: David E.. To: All Date Posted: Tues, Jan 18, 2005 at 00:29:17 (EST) Email Address: daveellis_39@hotmail.com Message: Thanks Terri, no iceberg probably why I can't find one. I don't understand Paul's Iceberg column after looking at the CBO Report . I found a link where folks thought they had the same story as Paul by Stirling at daily kos. There is a red area of Stirling's chart that he calls 'borrow this now'. And Stirling's and Paul's point seem be balance the red area(borrow) against the blue area(savings). I am thinking the red area is a sunk cost anyways - so any blue savings are to the good. The red area is a sunk cost because even if we don't go with plan 2, the government has to come up with $1.5 trillion in cash to honor the 'The Social Security Trust Fund'. So with a sunk cost of $1.5 trillion almost all of the blue area is a savings. This is what I see and think, and I am troubled, because it is not what Paul and Stirling see. What am I missing? What is wrong with my assumption that because the trust fund has to be refilled, the cost is sunk, so if reductions can be made on expenditures by going with plan 2, almost all of the reductions are savings?

Subject: Re: Krugman's Iceberg column From: jimsum To: David E.. Date Posted: Tues, Jan 18, 2005 at 12:01:50 (EST) Email Address: jim.summers@rogers.com Message: I've spent some time studying this chart too; and it's hard to understand. I'm sure unintentionally :-) The red area is the money that will go into private accounts; it isn't extra borrowing (which is the difference between revenue and expenditure, or the red area above the revenue line). So part of the red wedge is extra borrowing and the rest of it is diverting money that would have gone into the trust fund into personal accounts instead. The red area is not sunk costs; it is the increase in expenditures that is part of plan 2. The government doesn't have to start honoring the trust fund until expenditures (on social security) exceed revenues (between 2015 and 2025). The blue wedge is the money saved by lowering benefits. Note that the blue wedge savings is independent of private accounts; you'd get those benefits even without a private account and they don't depend on any of the earnings in private accounts. In fact I don't see the benefits of private accounts in this diagram; which makes sense since the diagrams show the government's accounts. There isn't any kind of projection about what kind of return those private accounts will get. If the private accounts don't earn enough to replace the lower benefits, people will be worse off. I think the pertinent question is: will the red wedge, which represents private accounts, earn enough income to pay for the blue wedge (and the famous negative wedge after it)? It's nice to see the government has a solid plan to reduce retirement benefits; I'm waiting to see the explanation for how the leveraged investment represented by the red wedge will ensure that retirees won't be hurt by the benefit cut of the blue wedge (and beyond). Also, I'm curious about whether plan 2 assumes the trust fund can be spent on benefits; or if it assumes the trust fund is gone.

Subject: Jimsum - Plan 2 and Trust Fund From: David E To: jimsum Date Posted: Tues, Jan 18, 2005 at 13:47:45 (EST) Email Address: Not Provided Message: Jimsum, 'Also, I'm curious about whether plan 2 assumes the trust fund can be spent on benefits; or if it assumes the trust fund is gone.' We are curious about the same thing. What I think is that the trust fund will be used to cover the conversion. Which means that conversion costs are zero. Zero because the trust fund was already going to be spent. So spending it on the conversion doesnt require any new money. Gosh, I hope I am wrong.

Subject: Re: Krugman's Iceberg column From: Terri To: jimsum Date Posted: Tues, Jan 18, 2005 at 13:34:22 (EST) Email Address: Not Provided Message: 'I think the pertinent question is: will the red wedge, which represents private accounts, earn enough income to pay for the blue wedge (and the famous negative wedge after it)?' Remember the transition costs. Borrowing at 4% to 5% to allow private accounts that might in time make 7% to 9% before investment costs if fully invested in a stock index fund, is an awfully chancey plan.

Subject: Links (again) From: David E.. To: David E.. Date Posted: Tues, Jan 18, 2005 at 00:34:40 (EST) Email Address: Not Provided Message: My links don't work, but can be found in the quoted message. I am suspecting the wrapper for this site.

Subject: Speech by New York Fed President From: Terri To: All Date Posted: Mon, Jan 17, 2005 at 22:13:59 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/setser/archives/2005/01/tim_geithner_of.html#more January 15, 2005 Latest speech of FRBNY President Tim Geithner By Brad Setser I pay a certain amount of attention to what New York Federal Reserve President Tim Geithner has to say just because he was my boss at the Treasury and the IMF (noted in the spirit of full blog disclosure). But he also has just about as much experience dealing with financial crises as anyone -- almost as much as Stan Fischer. His most recent speech warns market participants and policy makers alike of the danger of not taking advantage of good times to build buffers and shock absorbers that can help cushion against unexpected risks. That is a lesson emerging economies learned the hard way. But today, perhaps the biggest risk out there -- as Geithner notes -- is the risk that the market moves required to correct major macroeconomic imbalances (i.e. the US current account deficit) may be large and abrupt, not small and undisruptive. In the financial markets, this broadly positive outlook has been accompanied by a dramatic reduction in risk premia, leaving the price of insurance unusually low against a less favorable or more volatile environment. These developments imply a view among market participants that future macroeconomic shocks will be more moderate than in the past and more likely to be absorbed without broader damage to economic performance or the financial system ... they imply that the imbalances in the global economy will be diffused smoothly A bit further along Geithner notes: This combination of fiscal sustainability problems, large external imbalances, and the tension in the existing exchange rate system creates the risk of unanticipated shocks to financial prices, even in a context where monetary policy credibility is strong. The probability of these shocks may be low, but it is higher than it has been, and higher than we should be comfortable with. Like Delong, I would put more emphasis on “higher than we should be comfortable with” than on “may be low.” What steps does Geithner suggest to protect ourselves against this set of risks. 1) Take advantage of the 'unusually low price' of insurance. After all, low prices can reflect an absence of sufficient demand for insurance. Consider one example: the US Treasury. It could insure against a rollover crisis -- or against the more probable risk of significantly higher short-term interest rates -- by lengthening the average maturity of its new Treasury issuance. 4.2% nominal for ten years is not bad! But issuing ten year Treasury notes rather than two year or five year Treasury notes means slightly higher current borrowing costs. It also runs against the current de facto policy of keeping the supply of ten year notes tight to help keep the 10 year rate low ... See this Roubini post for all the gory details of recent US debt management. Or consider the use of interest rate swaps by corporations who issue long-term fixed rate debt and then swap their long-term debt into short-term floating rate debt to save a bit of money -- and old Bill Gross concern relayed by the Capital Wire. This may note be as prevalent today: 'curve flattening' (the reduced gap between short-term and long-term rates) should be making this kind of trade less attractive. But no doubt there are other examples out there. 2) Borrow less. Geithner warns: 'the present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world.' I presume the reference to Rubin's In an Uncertain World will not be lost on many in the Bush Administration, nor will the implicit call for a Rubinesque policy of limiting US borrowing in good times, to better prepare for bad times. No disagreement here. The US is on track -- using realistic assumptions -- to run ongoing fiscal deficits of around 3.5% of GDP even with steady, sustained growth, and thus has no fiscal 'buffer' against worse than expected outcomes: an interest rate shock that increases the government's borrowing cost, a recession that reduces tax revenues, a more expensive than expected war ... One small point of disagreement. Geithner -- like most -- recognizes that current account deficits of 5-6% of GDP cannot be sustained indefinitely: the real debate right now is over how long those deficits can be sustained. Geithner, though, argues the flexibility of the US economy may allow a relatively painless adjustment (a Greenspan theme). I am a bit less sanguine. The US has a fair bit of experience shifting resources (capital, labor) out of the production of tradable goods; much less experience shifting resources back into the production of tradable goods. Yet it is pretty clear that at some point, the US either has to export more, or it will have to import less -- and the required change is large in relation to the United States small export base (a key point made by Rogoff and Obstfeld, among others) But even if labor can be redeployed quickly and easily into “tradables” production (Some people who left Ohio for Florida might need to move back!), there are limits to how fast the United States' capital stock can change. Consider how our existing capital stock constrains our ability to adjust to a different kind of shock – an oil shock. To paraphrase Rummy, when an oil price shock hits, you are stuck with the car you have, not the car you might want to have. Even if you want to dump your H2 in the used car market and buy a Smart car, someone else has to buy the H2. The auto fleet turns over, but not overnight. Even if all new car buyers opt for itsy bitsy fuel-efficient cars, there will be lots of SUVs in the American fleet for some time. Similarly, when the US finds it has to reduce its imports to match its exports, grow its exports to match its imports, or do some combination of the two, it will do so with the capital stock that is being created by investment decisions being made today. The US will go into an external adjustment with its current export sector, not the export sector it might want to have. My worry? I don't think there is much evidence that current low interest rates are spurring a wave of investment in US export industries, or in industries that compete with imports (deciding not to offshore something already done onshore doesn't help to reduce the US import bill ... activities now done offshore need to be moved onshore). Over the next five years, if you want a really big commercial airplane you won't be able to by one from an American manufacturer. Or, more accurately, the American product will be somewhat smaller and based on a 1960s era design (admittedly, a great design, and one that has been updated several times). While Airbus is creating a brand new production line to expand its product range, Boeing is shutting down several of its older aircraft production lines, and the new line for the 7E7 is still some ways off. Boeing-Airbus is just one example, and probably not the most typical, since Asia is not (yet?) a player in the commercial aircraft market. More generally, though, the current pattern of investment is, in part, a byproduct of the distortions created by the Bretton Woods two system of central bank financing for US deficits. The implicit interest rate subsidy from Asian central banks spurs interest sensitive sectors, but Asia's undervalued exchange rates discourages investment in sectors that currently compete with Asia, or will do so in the future. The result: plenty of investment in hard-to-export residential housing ...

Subject: Did Alan Greenspan, Ronald Reagan, and From: David E.. To: All Date Posted: Mon, Jan 17, 2005 at 12:35:08 (EST) Email Address: Not Provided Message: congress defraud american workers? I don't think so- I can not even imagine it. In 1983 they came up with a plan to save social security from collapse. The predicted collapse was due to the bulge of baby boomers. So since 1983 american workers have paid over $1.5 trillion more dollars into social security than they took out. Now in 2005 folks are screaming there is a social security crisis. How can there be a crisis if there is $1.5 trillion dollars in the trust fund? In 2001, Republican Secretary of the Treasury Paul O'Neil insists that there is nothing in the 'Social Security Trust Fund'. Senator Max Baucus of Montana < A HREF=''>forces Brian Rosewood (Prospective Undersecretary of State for Financial Markets) to admit that the 'Social Security Trust Fund' is supported by bonds issued with the full faith and credit of the federal government. Why does it require taking a hostage to make a Republican treasury employee admit the truth about the 'social security trust fund'? Since when is the 'full faith and credit' of the federal government nothing? I don't think that has happened yet. What does the Republican party plan to do when the bonds come due? Say, sorry American workers, you paid $1.5 trillion in and now the federal government is defaulting. I don't think so. Default would be the political end of the Republican party. Defaulting on the $1.5 trillion will increase treasury interest rates to banana republic rates immediately. The default will be avoided by a combination of budget cuts, tax increases, and borrowing, all the usual stuff. If we clean our financial house now, the shock will be less in 2019. Many, including myself, like the idea of private accounts in social security. I know many of you are in favor of private accounts, and all will hail you when shown how it can be done without causing huge disruptions in the financial markets. The difficulty is that financing the gap left in social security by privatizing accounts will cause a shortage of funds. The $2 trillion needed to privatize(cover the gap), plus the borrowing needed to cover the trust fund might be a perfect storm. The total increase in demand for money(both private and government) would be enough to cause interest rates to rise dramatically. Dramatically rising interest rates will cause the value of assets to decline. This is a two barreled problem because 1. higher interest rates will increase the cost of government and 2. Lower asset values makes it very likely that private accounts will not be as profitable as projected. The current plan to privatize social security by borrowing the gap is not a good idea. Cheers David

Subject: There is No Iceberg From: Terri To: David E.. Date Posted: Mon, Jan 17, 2005 at 22:19:58 (EST) Email Address: Not Provided Message: Right. There is no iceberg for Social Security, only the claims of an inceberg. Social Security will indeed be fully funded till between 2042 and 2052 under conservative economic growth assumptions, and can easily be preserved from there.

Subject: problem -read first From: David E... To: David E.. Date Posted: Mon, Jan 17, 2005 at 18:40:16 (EST) Email Address: Not Provided Message: I was looking at Figure 1B of a CBO report. It shows the social security trust fund and the transition costs look close.

Subject: Re: problem -read first From: David e To: David E... Date Posted: Mon, Jan 17, 2005 at 21:10:03 (EST) Email Address: Not Provided Message: I was looking at Figure 1B of a CBO special report, requested by Senator Larry Craig. The chart compares current law with Plan 2. The problem is that Paul Krugman's iceberg does not show up in the chart. Can anybody explain? Thanks

Subject: Can't get link right From: David E.. To: David e Date Posted: Mon, Jan 17, 2005 at 21:15:49 (EST) Email Address: Not Provided Message: Sorry, I keep finding ways to do the link wrong. I don't have a clue why the last link doesn't work - So here is where the special report with Figure 1B. There should be an iceberg there and I don't see it. http://www.cbo.gov/showdoc.cfm?index=5666&sequence=0

Subject: Re: problem -read first From: David E... To: David E... Date Posted: Mon, Jan 17, 2005 at 21:01:32 (EST) Email Address: Not Provided Message:

Subject: Missing link From: David E... To: David E.. Date Posted: Mon, Jan 17, 2005 at 12:38:34 (EST) Email Address: Not Provided Message: Max forces prospective treasury employee.

Subject: Borrowing for Social Security Accounts From: Terri To: All Date Posted: Mon, Jan 17, 2005 at 09:48:09 (EST) Email Address: Not Provided Message: Borrowing costs money, and the costs lower future returns from stocks. Also, stock returns can be poor relative to bonds for quite some time as they have been for the last 5 years. The question then is should we pay from 4% to 5% in borrowing costs for private Social Security accounts to capture what might hopefully be 9% to 11% in long term stock index returns? Of course, if we are talking about private accounts there will be substantial investment costs. Add another 1% or 2% to costs. We could easily have 5% to 7% investment costs to gain returns of 9% to 11% from fine performing stock portfolios. But, bond portfolios costing 5% will cost more than they can return. Private accounts must be fully invested in stock funds at all times, and we had better hope for returns that are fairly steadily 9% to 11%.

Subject: Paying for the Past in 2005 From: El Matador alias Pancho Villa To: All Date Posted: Mon, Jan 17, 2005 at 07:23:36 (EST) Email Address: nma@hotmail.com Message: Paying for the Past in 2005 by Joseph E. Stiglitz The beginning of each year is high season for economic forecasters. With few exceptions, Wall Street economists try to give as upbeat an interpretation as the data will allow: they want their clients to buy stocks, and gloom-and-doom forecasts do little to sell them. But even the salesmen are predicting that the American economy will be weaker in 2005 than in 2004. I agree, and am actually on the pessimistic side: this may be the year in which we begin to pay for past mistakes. The biggest global economic uncertainty is the price of oil. Clearly, oil producers failed to anticipate the growth of demand in China—so much for the wisdom and foresight of private markets. Supply-side problems in the Middle East (and Nigeria, Russia, and Venezuela) are also playing a role, while Bush’s misadventure in Iraq has brought further instability. While there has been some weakening of prices from their peaks, OPEC has made it clear that it does not intend to allow much price erosion. High oil prices are a drain on America, Europe, Japan, and other oil importing countries. The increase in America’s oil import bill over the past year alone is estimated to be some $75 billion. The effect is just like a huge tax that transfers wealth to the oil-exporting countries. If there were any assurance that prices would remain permanently above even $40 a barrel, alternative energy sources (including shale oil) would be developed. But we are now in the worst of all possible worlds—prices so high that they are damaging the global economy, but uncertainty so severe that the investments needed to bring prices down are not being made. Meanwhile, central bankers around the world have been trained to focus exclusively on inflation. So when high oil prices drive up the inflation rate, many will most likely respond as they’ve been taught. They will recall how oil price increases in the 1970’s fueled rapid inflation, and will want to show their resolve not to let it happen again. Interest rates will rise, and one economy after another will slow. The march towards higher interest rates has already begun in the United States, where the Federal Reserve is betting on a fundamental market asymmetry. For the past three years, falling interest rates have been the engine of growth, as households took on more debt to refinance their mortgages and used some of the savings to consume. The Fed is hoping that all of this will not play out in reverse – that higher interest rates will not dampen consumption. Hope may not be enough. American households are far deeper in debt today than four years ago, magnifying the potential adverse effects of an increase in interest rates. Of course, American mortgage markets allow households to lock in the lower interest rates. But in economics, there is no such thing as a free lunch, and here the cost can be enormous: new home buyers will have to pay more, and thus will be less willing and able to pay as much. Real estate prices could well decline, with a strong likelihood, at the very least, of a slowdown in the rate of increase. This too will dampen demand. This is only one of the uncertainties facing the US economy. Clearly, some of the growth in 2004 was due to provisions that encouraged investment in that year—when it mattered for electoral politics—at the expense of 2005. But there is uncertainty about how much. Then there is America’s huge fiscal and trade deficits, which not only jeopardize the well-being of future American generations, but represent a drag on the current US economy. (A trade deficit is a subtraction from aggregate demand.) As one of my predecessors as Chair of the Council of Economic Advisers, Herb Stein, famously put it, “If something can’t go on forever, it won’t.” But no one knows how, or when, it will all end. Indeed, President Bush has indicated an intention to spend the political capital he earned during the election; the problem is, he appears intent on spending America’s economic capital as well. His promises include partial privatization of social security and making his earlier tax cuts permanent, which, if adopted, will send the deficits soaring to record levels. What, exactly, this will do to business confidence and currency markets is anybody’s guess, but it won’t be pretty. As a result, an even weaker dollar is a strong possibility, which will further undermine the European and Japanese economies. And this is not a zero sum situation, with America’s gains equal to Europe’s losses: the uncertainty is bad for investment on both sides of the Atlantic, and if lack of confidence in the dollar leads to a shift out of American bonds and stocks, the American economy could be weakened further. Europe is finally beginning to recognize the problems with its macro-economic institutions, particularly a stability pact that restricts the use of fiscal policy and a central bank that focuses only on inflation, not on jobs or growth. But there is a good chance that reforms will not come fast enough to lift the economy in 2005. China – and Asia more generally – represents the bright spot on the horizon. It may be too soon to be sure, but prospects for taming the over exuberance of a year ago appear good, bringing economic growth rates to sustainable levels that would be the envy of most other countries. By contrast, the world’s other major economies will probably not begin performing up to potential in the next twelve months. They are all caught between the problems of the present and the mistakes of the past: in Europe, between institutions designed to avoid inflation when the problem is growth and employment; in America, between massive household and government debt and the demands of fiscal and monetary policy; and everywhere, between America’s failure to use the world’s scarce natural resources wisely and its failure to achieve peace and stability in the Middle East.

Subject: Thank You From: Emma To: El Matador alias Pancho Villa Date Posted: Mon, Jan 17, 2005 at 07:30:20 (EST) Email Address: Not Provided Message: Dear Pancho, please date these fine articles when you can. Thank you for the complete text as usual, for such articles are important to refer to.

Subject: Re: To Emma From: Yann To: Emma Date Posted: Wed, Jan 19, 2005 at 02:47:42 (EST) Email Address: Not Provided Message: http://www.project-syndicate.org/series/series_list.php4?id=11.

Subject: Energy & Prosperity From: Pete Weis To: Emma Date Posted: Mon, Jan 17, 2005 at 10:55:08 (EST) Email Address: Not Provided Message: When we look at the 'boom' years of the 80's and 90's we usually think of the development of the PC and the hightech tidal wave. But how much did cheap energy contribute?

Subject: Conservation and Efficiency From: Terri To: Pete Weis Date Posted: Mon, Jan 17, 2005 at 11:23:44 (EST) Email Address: Not Provided Message: Cheap energy contributed considerably to our well-being, but cheap energy was much contributed to by emphasis on conservation and efficiency. Where is our emphasis on energy efficiency and conservation now?

Subject: Conservation and Efficiency - 2 From: Terri To: Terri Date Posted: Mon, Jan 17, 2005 at 11:35:25 (EST) Email Address: Not Provided Message: American investment in energy efficieny and production may be too limited, but is energy investment in China and India too limited or solely limited to assuring diverse supply alternatives? What of energy efficiency in China and India? Europe at least has pushed hard for more energy efficiency, but I wonder even about Japan in recent years.

Subject: Little Energy Investment From: Terri To: Terri Date Posted: Mon, Jan 17, 2005 at 11:28:58 (EST) Email Address: Not Provided Message: Paying for the Past in 2005 By Joseph E. Stiglitz 'High oil prices are a drain on America, Europe, Japan, and other oil importing countries. The increase in America’s oil import bill over the past year alone is estimated to be some $75 billion. The effect is just like a huge tax that transfers wealth to the oil-exporting countries. 'If there were any assurance that prices would remain permanently above even $40 a barrel, alternative energy sources (including shale oil) would be developed. But we are now in the worst of all possible worlds—prices so high that they are damaging the global economy, but uncertainty so severe that the investments needed to bring prices down are not being made.' This is a surprising observation to me, and disturbing.

Subject: India and Energy Needs From: Emma To: All Date Posted: Mon, Jan 17, 2005 at 07:21:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/17/business/worldbusiness/17oil.html Alert to Gains by China, India Is Making Energy Deals By KEITH BRADSHER EW DELHI - India's prime minister warned on Sunday that China had moved ahead in securing worldwide oil and natural gas supplies, the bluntest expression yet of energy worries among Indian leaders. In the last two weeks, they have pursued a series of energy deals that have surprised global markets. 'I find China ahead of us in planning for the future in the field of energy security,' Prime Minister Manmohan Singh said in a speech here at the convention of India's oil and gas industry. 'We can no longer be complacent and must learn to think strategically, to think ahead, and to act swiftly and decisively.' Like China, India has a fast-growing economy but stagnant domestic oil production, which has led to a rapid rise in energy imports, at a cost that has soared with high oil prices. Indeed, India has become even more dependent than China on volatile producing countries in the Middle East, buying nearly three-quarters of its oil from them now, compared with less than half a decade ago. Government-owned Chinese oil companies have been busy in the last two years buying large stakes in gas fields in Indonesia and Australia and exploring possible investments in American and Canadian energy companies. After staying relatively quiet until recently, Indian companies, also government controlled, have completed their own agreements in recent days. On Jan. 7, for example, three Indian companies concluded a $40 billion deal to buy liquefied natural gas from Iran over the next 25 years and to invest in gas fields there. The biggest of these, the Oil and Natural Gas Corporation, emerged on Monday as a rival to China in bidding for a stake in oil operations taken from Yukos by the Russian government in a dispute over back taxes and, some say, politics. And on Thursday, Indian officials concluded an agreement to build a separate gas pipeline from Myanmar across Bangladesh to supply eastern India. Ecuador's oil minister, Eduardo Lopez, is in New Delhi this weekend to negotiate the possible sale of stakes in oil fields in his country to Indian companies. Abdallah S. Jumah, the chief executive and president of Saudi Aramco, is also here this weekend. He said that the company, which produces almost all of Saudi Arabia's oil, wanted to invest in refining and marketing operations in India, and would be prepared to discuss possible Indian investments in refining, marketing and petrochemicals businesses in Saudi Arabia. Subir Raha, chairman and managing director of the Oil and Natural Gas Corporation, said in an interview that 'substantive discussions' were under way with the Saudis and the Russians. He said his company was also interested in Canadian oil concerns with operations in South Asia - including Niko Resources, which has been active in India - and would consider buying companies outright or investing in their oil fields. Mani Shankar Aiyar, India's minister of oil and natural gas, said in an interview that Asian nations could avoid discord over energy and would be able to cooperate. He pointed to a gathering here on Jan. 6 of ministers from Asia's largest oil-producing and consuming nations that helped produce the gas agreements with Iran and Myanmar, and said that Asian governments should learn from regional free trade agreements on other continents in establishing a common energy policy. 'The Americas are together, Europe is together, Africa is together - Asia is to remain divided?' he said quizzically. 'Asia needs to come together.' Mr. Aiyar's ministry will begin a campaign on Tuesday to promote the auction of 20 onshore and offshore blocks of land for oil exploration. Until the mid-1990's, India banned 100 percent foreign ownership of its oil and gas fields and has been considered unenthusiastic about such investments since then. Only one foreign company, Niko Resources, initially won a block in the last auction two years ago, and it was disqualified later when Indian officials said it did not meet their rule that a successful bidder have a minimum net worth of $1 billion. G. C. Saxena, group general manager of the ministry's hydrocarbons directorate, which is running this month's auction, said the minimum net worth requirement had been lowered to $500 million, which would accommodate Niko. Niko has been successful in drilling for natural gas off India's southeastern coast as the minority partner of Reliance Industries of Mumbai. Asked if the Oil and Natural Gas Corporation might be interested either in acquiring Niko or forming some kind of alliance with it, Mr. Raha replied, 'Both,' then declined to elaborate except to say, 'Niko is of interest to us; let me leave it at that.' Niko executives were flying here on Sunday for the auction of oil exploration blocks and could not be reached for comment. The biggest multinational oil companies, like Exxon Mobil and BP, have largely avoided exploration in India, which has a reputation for bureaucratic red tape and corruption. Some of the most promising natural gas exploration and development lately has been north of Sri Lanka in the Bay of Bengal. The recent earthquake and sea wave did little damage to those operations because they are in very deep water, and the force of the wave was distributed from the top of the ocean to the seabed nearly 7,000 feet below, said A. S. Umi Krishnan, of India's National Institute of Oceanography.

Subject: India and China as Models From: Emma To: Emma Date Posted: Mon, Jan 17, 2005 at 07:27:10 (EST) Email Address: Not Provided Message: Notice that India and China can model for each other, and this can be healthy for each country.

Subject: A Question of Social Security Numbers From: Emma To: All Date Posted: Mon, Jan 17, 2005 at 07:03:11 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html A Question of Numbers By ROGER LOWENSTEIN PRIVATE ACCOUNTS DON'T SAVE MONEY Social Security does not provide, and was not meant to provide, a satisfactory retirement on its own. The average stipend for a 65-year-old retiring today is $1,184 a month, or about $14,000 a year. About half of Americans also have private pension plans, but for two-thirds of the elderly, Social Security supplies the majority of day-to-day income. For the poorest 20 percent, about seven million, Social Security is all they have. Even those figures understate the program's importance. According to an agency publication, ''Income of the Population 55 or Older: 2000,'' 8 percent of elderly beneficiaries were poor, but a startling 48 percent would have been below the poverty line had they not been receiving Social Security. Charles Blahous, the White House point man on Social Security, publicly criticized this calculation as ''mindless,'' and the Social Security agency no longer computes the figure. Conservative economists say the figure is irrelevant: if Social Security didn't exist, people would save more. This may be true of economists, but what about the rest of us? The argument illustrates the ideological agenda of those who favor privatization: they want to change people's behavior. But how will the proposals to privatize, several of which are before Congress, actually work? Basically, younger workers would be allowed to divert a portion of their payroll taxes into individual accounts. Upon retirement, these workers would get lower Social Security benefits supplemented by whatever had accumulated in their portfolios. But since the diverted money would not be available to pay benefits to current retirees, the government would have to undertake significant borrowing to pay people now in their middle and older decades. Eventually, the system might transition to one in which most people mostly relied on their personal accounts. But this transition would take many decades. The president is expected to back a plan similar to one recommended by the advisory council he appointed, in 2001. That plan opts for a slow transition, keeping entitlement-type minimums in place. The amount of money to be diverted into personal accounts -- and therefore, the potential gains -- is relatively small. Some free-market purists are unhappy about this. But Bush's economists, whatever else is said of them, are determined not to re-enact the Stockman debacle by moving too quickly and enacting immediate cuts. They have read their history. The White House asked the Congressional Budget Office to analyze one advisory council plan. That plan would allow workers born after a certain date (perhaps 1950) to siphon about a third of the payroll tax into individual accounts, up to $1,000 a year. The money could be invested in any of three choices (other plans provide for wider menus) and would be converted into an annuity upon retirement. The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now. Proponents hail the plan for forcing savings on the government. But the diversion of money into individual accounts would save the government nothing, since it would have to borrow to offset the loss of the diverted dollars. The individual accounts represent a transfer, not a savings. The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. That cut would mean a savings for the government. This is a political choice; we can always save money by reducing benefits. But it's important to stress that the savings result from cuts, not from the decision to privatize. Overall, the plan is gentler toward lower-income seniors than wealthier ones, but all seniors would be poorer than under present law. In other words, absent a sustained roaring bull market, the private accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis, which, like all projections of this sort should be regarded as a best guess, a low-income retiree in 2035 would receive annual benefits (including the annuity from his private account) of $9,100, down from the $9,500 forecast under the present program. A median retiree would be cut severely, from $17,700 to $13,600. On the plus side, budget deficits would be lower in the future. But, because of the lengthy transition, that ''future'' is exceedingly remote -some 50 years down the road. In the interim, deficits would rise by up to 1.5 percent of the country's G.D.P. ONE WAY TO USE THE MARKET One rationale for privatization is that workers would get a better return on their money in Wall Street securities than with Social Security's dowdy old Treasuries. This notion, which has Wall Street investment banks salivating, was especially in vogue during the 90's, when the stock market was soaring. When the bubble burst, advocates reined in their sales pitch, but they still are unrealistically sanguine. Last year, Tanner of the Cato Institute wrote that ''over the worst 20-year period of market performance in U.S. history . . . the stock market produced a positive real return of more than 3 percent.'' Actually, the market has done worse than 3 percent per annum in nine different 20-year periods. In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck. So it is notable that all the current proposals to privatize involve the economically inferior option of individual accounts. But privatization advocates aren't motivated solely, and perhaps not even primarily, by economics. Glenn Hubbard, Bush's former top economic adviser, wrote in Newsweek that an ''obvious objective'' of privatization is ''to advance the president's ownership society agenda.'' Such pro-free-market sentiment has a long lineage. Remember Senator Vandenberg, who fretted in the 30's that public ownership of private securities would amount to socialism? Even though state pension funds and some U.S. agencies, including the Federal Reserve, put some pension money in stock-index funds, conservatives still react as if such a solution for Social Security were akin to turning it over to the Kremlin. Peter Ferrara, a former White House staff member under Reagan and now senior fellow at the Institute for Policy Innovation, who has been proposing Social Security privatization plans since the late 1970's, told me that economics ''was not my primary motivation. It was ideological. We don't want the government controlling that much investment.'' HOW BUSH WOULD CUT BENEFITS There is a policy choice that unites Social Security's critics -- from Goldwater to Reagan to Bush -- which is that the program should be balanced by shaving benefits rather than by raising taxes. They favor smaller government, so shrinking Social Security (rather than increasing its financing) serves their broader aim. Indeed, though the public continues to oppose cutting benefits, Bush has ruled out any solution that involves a tax hike. Reagan said the program had morphed from the humble insurance plan formulated by F.D.R. (for whom he voted four times) into a swollen caricature of government excess. The first Social Security recipient, a legal secretary in Vermont named Ida Fuller, started with a benefit of $22.54 a month. Today's retirees obviously do better (even after adjusting for inflation). Nonetheless, according to Lawrence Thompson, who was the Social Security acting commissioner in the 90's, the retiree program is not really more ''generous'' now than it was in the past. Like other pension systems, Social Security was designed to replace a fixed portion of a retiree's previous earnings. For a single person with average earnings, initial benefits were intended to replace about 40 percent of income. They are still pegged to 40 percent of income. Since wages generally rise faster than inflation, retirees in each generation get more in real dollars than those in previous ones. Contemporary critics, like Kasich and the Bush council, would slow the rate of future increases by linking benefits only to inflation. Though this would save a lot of money, its effect on retirees should be understood. Seniors now get an initial benefit that is tied to a fixed portion of their pre-retirement wages. If the index was changed, their pensions would be pegged to a fixed portion of a previous generation's income. If this standard had been in force since the beginning, retirees today would be living like those in the 1940's -- like Ida Fuller, which would mean $300 a month in today's dollars, as opposed to roughly $1,200 a month. One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P. And though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ''dependency'' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. ''In a grand social sense,'' says Thompson, the former Social Security commissioner, ''we can support more seniors where there are fewer people in day care.'' THE INESCAPABLE COSTS OF AGING Ultimately, every 75-year forecast is just a guess, and therefore every approach must accommodate a range of possible outcomes. Plans that link worker benefits to the stock market automatically adjust -- if the economy underperforms, then workers get lower benefits. This enhances, rather than mitigates, whatever is the trend in people's private savings. As Thompson says, ''The default adjustment is you eat less.'' This could be brutal and also unfair, especially to the post-1983 generation of workers that, on the say-so of Greenspan and Reagan that the trust fund would be honored, has paid a sacrifice in both reduced benefits and higher taxes. What other solution is there? Ball, who joined the system in 1939 as a $1,620-a-year district officer in Newark, has thought of one. He starts from two premises: it would be reckless not to make some adjustments now, but foolish to make too much of 75-year prophecies. ''In 1928, there was no way to forecast the Depression, World War II, the birth-control pill. We have to stop acting as if 75-year estimates were absolute,'' he told me. Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast. The 2004 ''Economic Report of the President'' takes dead aim at such an approach. It reckons that all pay-as-you-go systems will eventually be doomed by demographics, and that solutions like Ball's will only push back the date that the trust fund runs out of money by a few years. The White House worries that any fix that covers 75 years of benefits could still bequeath a deficit in the 76th year. ''The nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs,'' the report states. Its assumptions may be true, or they may not be, but the conclusion suggests a misplaced allegiance: We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow? Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

Subject: A way to Use the Market From: Emma To: Emma Date Posted: Mon, Jan 17, 2005 at 07:11:49 (EST) Email Address: Not Provided Message: ONE WAY TO USE THE MARKET One rationale for privatization is that workers would get a better return on their money in Wall Street securities than with Social Security's dowdy old Treasuries. This notion, which has Wall Street investment banks salivating, was especially in vogue during the 90's, when the stock market was soaring. When the bubble burst, advocates reined in their sales pitch, but they still are unrealistically sanguine. Last year, Tanner of the Cato Institute wrote that ''over the worst 20-year period of market performance in U.S. history . . . the stock market produced a positive real return of more than 3 percent.'' Actually, the market has done worse than 3 percent per annum in nine different 20-year periods. In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck. So it is notable that all the current proposals to privatize involve the economically inferior option of individual accounts. But privatization advocates aren't motivated solely, and perhaps not even primarily, by economics. Glenn Hubbard, Bush's former top economic adviser, wrote in Newsweek that an ''obvious objective'' of privatization is ''to advance the president's ownership society agenda.'' Such pro-free-market sentiment has a long lineage. Remember Senator Vandenberg, who fretted in the 30's that public ownership of private securities would amount to socialism? Even though state pension funds and some U.S. agencies, including the Federal Reserve, put some pension money in stock-index funds, conservatives still react as if such a solution for Social Security were akin to turning it over to the Kremlin. Peter Ferrara, a former White House staff member under Reagan and now senior fellow at the Institute for Policy Innovation, who has been proposing Social Security privatization plans since the late 1970's, told me that economics ''was not my primary motivation. It was ideological. We don't want the government controlling that much investment.''

Subject: How Benefits would be Cut From: Emma To: Emma Date Posted: Mon, Jan 17, 2005 at 07:13:01 (EST) Email Address: Not Provided Message: HOW BUSH WOULD CUT BENEFITS There is a policy choice that unites Social Security's critics -- from Goldwater to Reagan to Bush -- which is that the program should be balanced by shaving benefits rather than by raising taxes. They favor smaller government, so shrinking Social Security (rather than increasing its financing) serves their broader aim. Indeed, though the public continues to oppose cutting benefits, Bush has ruled out any solution that involves a tax hike. Reagan said the program had morphed from the humble insurance plan formulated by F.D.R. (for whom he voted four times) into a swollen caricature of government excess. The first Social Security recipient, a legal secretary in Vermont named Ida Fuller, started with a benefit of $22.54 a month. Today's retirees obviously do better (even after adjusting for inflation). Nonetheless, according to Lawrence Thompson, who was the Social Security acting commissioner in the 90's, the retiree program is not really more ''generous'' now than it was in the past. Like other pension systems, Social Security was designed to replace a fixed portion of a retiree's previous earnings. For a single person with average earnings, initial benefits were intended to replace about 40 percent of income. They are still pegged to 40 percent of income. Since wages generally rise faster than inflation, retirees in each generation get more in real dollars than those in previous ones. Contemporary critics, like Kasich and the Bush council, would slow the rate of future increases by linking benefits only to inflation. Though this would save a lot of money, its effect on retirees should be understood. Seniors now get an initial benefit that is tied to a fixed portion of their pre-retirement wages. If the index was changed, their pensions would be pegged to a fixed portion of a previous generation's income. If this standard had been in force since the beginning, retirees today would be living like those in the 1940's -- like Ida Fuller, which would mean $300 a month in today's dollars, as opposed to roughly $1,200 a month. One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P. And though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ''dependency'' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. ''In a grand social sense,'' says Thompson, the former Social Security commissioner, ''we can support more seniors where there are fewer people in day care.''

Subject: The Inescapable Costs of Aging From: Emma To: Emma Date Posted: Mon, Jan 17, 2005 at 07:14:03 (EST) Email Address: Not Provided Message: THE INESCAPABLE COSTS OF AGING Ultimately, every 75-year forecast is just a guess, and therefore every approach must accommodate a range of possible outcomes. Plans that link worker benefits to the stock market automatically adjust -- if the economy underperforms, then workers get lower benefits. This enhances, rather than mitigates, whatever is the trend in people's private savings. As Thompson says, ''The default adjustment is you eat less.'' This could be brutal and also unfair, especially to the post-1983 generation of workers that, on the say-so of Greenspan and Reagan that the trust fund would be honored, has paid a sacrifice in both reduced benefits and higher taxes. What other solution is there? Ball, who joined the system in 1939 as a $1,620-a-year district officer in Newark, has thought of one. He starts from two premises: it would be reckless not to make some adjustments now, but foolish to make too much of 75-year prophecies. ''In 1928, there was no way to forecast the Depression, World War II, the birth-control pill. We have to stop acting as if 75-year estimates were absolute,'' he told me. Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast. The 2004 ''Economic Report of the President'' takes dead aim at such an approach. It reckons that all pay-as-you-go systems will eventually be doomed by demographics, and that solutions like Ball's will only push back the date that the trust fund runs out of money by a few years. The White House worries that any fix that covers 75 years of benefits could still bequeath a deficit in the 76th year. ''The nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs,'' the report states. Its assumptions may be true, or they may not be, but the conclusion suggests a misplaced allegiance: We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow? Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

Subject: Emerging Market Stocks From: Terri To: All Date Posted: Sun, Jan 16, 2005 at 15:06:18 (EST) Email Address: Not Provided Message: There can and should be a flow of funds to 'emerging markets.' But, remember, the Emerging Market Stock Index at Vanguard has a 10 year return of 5.2% while the Total American Stock Index return was 12.2%. From 1994 American investors were learning not to look to emerging markets. Though we are supposed to look ahead in investing, most look behind and from the Mexican crisis in 1994 there was reason after reason in returns to look away from emerging markets. Emerging Market Stock Index returns were anemic or negative from 1995 through 1998 in the midst of our astonishing bull market. Though the very fine emerging market returns in 1999, look at our technology returns. Then, emerging market returns were negative from 2000 to 2003. Investors were learning, stay away from emerging markets. The last 2 years were excellent, but investors take time learning.

Subject: Emerging Market Bonds From: Terri To: Terri Date Posted: Mon, Jan 17, 2005 at 06:59:01 (EST) Email Address: Not Provided Message: Remembering the bond market is important. While the last 5 years have still left negative S&P returns of -2.4% a year, the Vanguard long term bond index is up 9.7%. Emerging market bonds have done even better through these 5 years, while the Emerging Market Stock Index is up 5.3% a year due to superb gains in 2003 and 2004.

Subject: Stocks for Retirement From: Terri To: All Date Posted: Sun, Jan 16, 2005 at 14:46:55 (EST) Email Address: Not Provided Message: Remember that stock dividends are taxed at 15% as are capital gains. Capital gains on stocks are only paid when a stock is sold by us or within a mutual fund we may own. So, essentially investing in the S&P Index or Total Stock Market Index there is minimal taxing of dividends and no taxing of capital gains until we sell funds. I consider my index fund holdings another retirement account even though they are not formally sheltered.

Subject: Breaking the Tax Code From: Emma To: All Date Posted: Sun, Jan 16, 2005 at 12:25:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/magazine/16TAXES.html?pagewanted=all&position= Breaking the Code By NICHOLAS CONFESSORE One afternoon late last month, I paid a visit to the offices of Americans for Tax Reform, the conservative lobbying outfit headed by Grover Norquist. Though Norquist ranks among the Republican Party's leading operators, neither he nor his organization is quite yet a household name. Outside the Beltway, he is known mainly, if at all, for the cheerfully visceral quotations that regularly appear next to his name in newspaper articles. (Shortly after the G.O.P.'s Election Day victory, Norquist mused to The Washington Post that the city might become less bitter and fractious now that the Democrats had been more or less neutered. ''Certain animals run around and are unpleasant,'' he noted, ''but when they've been fixed, then they are happy and sedate.'') Inside the Beltway, however, Norquist has made his mark as a political organizer. Each Wednesday morning, more than a hundred leading conservative activists, policy pundits, talk-show producers and journalists, joined by assorted Hill staff members and White House aides, gather in Americans for Tax Reform's conference room to discuss the issues of the day, from prescription drugs to school choice. Within Republican circles, Norquist's job is to organize other organizations, making sure the different branches of conservatism are moving in the same direction, at the same time, to the greatest extent possible. His particular genius is for persuading one organization to reach beyond its own agenda to help out another -- for getting, say, the cultural traditionalists at the Eagle Forum to join the business libertarians at the Competitive Enterprise Institute in opposing fuel-economy standards for automobiles by convincing the traditionalists that, as Norquist once explained to me, ''it's backdoor family planning. You can't have nine kids in the little teeny cars. And what are you going to do when you go on a family vacation?'' Taxes, though, are Norquist's first passion. A.T.R. was formed 20 years ago, at the Reagan administration's behest, to rally grass-roots conservative support for an ambitious bipartisan effort to reform the federal tax code, which would culminate in the Tax Reform Act of 1986. Norquist, then a 29-year-old Reagan acolyte and former speechwriter at the United States Chamber of Commerce, was brought on board as the group's executive director. He soon discovered that many conservatives were deeply skeptical of the legislation, which proposed to slice reams of special-interest tax credits, breaks and shelters out of the tax code in exchange for lower marginal rates across the board. They were attracted to the idea of more tax cuts, but suspected that they might later be double-crossed. ''They said, 'We're going to get rid of these credits and deductions, we're going to broaden the base and then they're going to come back and raise the rates again, and we won't even have the deductions and credits anymore,''' Norquist recalled, sitting behind a massive desk, with a county-by-county map of the 2004 election results -- a blur of Republican red -- hanging nearby. ''At which point, I said, 'Well, what if we made it difficult for them to raise rates?''' Thus was born the Pledge. This was a promise, first circulated by Norquist in 1985 and originally signed by more than 100 members of Congress, never to vote to raise tax rates. The Pledge helped deliver enough conservative votes to pass tax reform, but not enough to prevent future backsliding. Four years later, President George H.W. Bush, who had famously promised voters that there would be ''no new taxes'' on his watch, changed his mind. Faced with a swelling federal deficit, he proposed a budget deal that raised taxes overall and even added a new bracket for high-income earners, and he urged Republican members to support it in the name of paying down the debt. Bush's betrayal -- a seminal moment in Republican politics, and one that reverberates still -- is immortalized in an enormous framed reproduction of an Oct. 2, 1990, Wall Street Journal editorial, occupying most of one wall near the entrance to A.T.R.'s office suite. Titled ''Honor Thy Pledge,'' the editorial listed the names of Republicans who took Norquist's oath and urged swift retribution on anyone who ended up voting with the president. More than 30 eventually did, providing the crucial margin for Bush's tax hikes. But the editorial isn't hanging there to commemorate failure: 1990 was the last year any G.O.P. politician at the national level voted for any income-tax increase, period. ''Had Bush broken his pledge and gotten re-elected, it would have made the Pledge much less valuable, maybe completely worthless,'' Norquist told me. ''But because the most famous pledge-taker-slash-pledge-breaker lost re-election, on that subject, it's had an effect.'' In the years since Bush's defeat, Norquist's way of thinking about taxes -- that they should be cut whenever and wherever possible -- has become the central tenet of American conservatism. Currently, the Pledge has been signed by 222 members of the House and 46 Senators, which includes pretty much every Republican in both chambers. It has also been signed by Bush's son President George W. Bush, who has not only kept his pledge but also made cutting taxes the signal domestic accomplishment of his first term. Taxes are likely to be at the heart of Bush's second-term agenda, too: not long after Election Day, Bush announced that the tax code had become ''complicated and outdated'' and ''a drag on our economy'' and that it was time, once again, for tax reform. Earlier this year, Bush named members to a bipartisan commission to get the ball rolling. ''All options,'' a Treasury Department official warned, ''are on the table.'' Boilerplate as they may sound, those kinds of words can set Washington aflame like little else. Just as in 1986, the call for tax reform puts at risk hundreds of special provisions, affecting nearly every organized interest in town, from insurance companies to charities, from Wall Street banks to forklift manufacturers, from the biggest state in the union on down to little municipalities putting out tax-free bonds. But the pressures Norquist and his allies have brought to bear on American politics over the last two decades make it unlikely that Bush's attempt at tax reform will much resemble the 1986 version. During the latter half of the 20th century, most Democrats and Republicans accepted -- at least in theory -- the notion that taxation should be as broad-based as possible; no one swathe of the public, and no one sector of the economy, should absorb too much of the cost of government, both because it was unfair and because it was inefficient. The 1986 act brought the federal tax code closer to that vision by cutting loopholes and, as a consequence, expanding the pool of taxpayers. But Republicans today have something else in mind. By their lights, the old consensus is not only outdated, but egregiously so, even offensively so. Bush's call for reform gives them a chance to replace it with something else. And in many respects, the replacement is already well under way. After four rounds of largely Republican-inspired tax legislation, today's code is a profoundly different instrument than the one that existed when Bush first took office. And though the White House has never publicly laid out a common rationale for its policies, Bush's changes -- which have cut income taxes on high earners, reduced rates on capital gains and dividend income, temporarily eliminated the estate tax and allowed businesses to write off the cost of new capital purchases more quickly -- depart drastically from the old model of reform. Bush's cuts have greatly reduced the costs formerly borne by corporations and the wealthy, leaving the tax code considerably less progressive than it once was. Instead of getting rid of loopholes so that fewer businesses escape paying taxes, conservatives have essentially set out to universalize those loopholes, aiming for a day when corporations won't have to pay taxes at all. (According to a recent report from the Center for Tax Justice, a liberal watchdog group, 82 of America's largest corporations paid no income tax in one or more years of Bush's first term.) Bush's tax reform, in other words, is shaping up to be not merely a departure from the spirit of the 1986 reform -- but a wholesale repudiation of it.

Subject: Breaking the Tax Code - a From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 12:28:07 (EST) Email Address: Not Provided Message: Though the end result was far from foreordained, the basic outlines of what would become the Tax Reform Act of 1986 began bubbling up on both sides of the aisle a couple of years into Reagan's first term. Liberal Democrats had long favored dumping corporate deductions and tax shelters for the wealthy; Republican supply-siders -- the architects of Reagan's large 1981 tax reduction -- were looking to push new cuts through Congress but needed to assuage deficit hawks in both parties who were concerned about the rising budget shortfall. Some of Reagan's political advisers had become concerned that loopholes for the wealthy might become a Democratic campaign issue in '84, while others had come to believe that narrow tax breaks weren't a very effective way to encourage growth in particular industries. Economists of all stripes agreed that the code had become so complicated by loopholes that it was sucking up potential growth. ''Pre-1986, you could get a tax reduction for investing in tobacco farms and bull sperm and windmills and things like that,'' notes Stephen Moore, then a budget expert at the conservative Heritage Foundation and now a senior fellow at the Cato Institute. ''The tax code looked like a piece of Swiss cheese.''

Subject: Breaking the Tax Code - b From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 12:29:26 (EST) Email Address: Not Provided Message: But that wasn't an accident. During the 70's and early 80's, the Beltway lobbying industry, known colloquially as ''K Street'' after the downtown avenue populated by trade associations and corporate offices, metastasized into the Fifth Estate of American politics. Over the years, these lobbyists spent millions of dollars to persuade members of Congress to carve this or that break into the tax code, breaks that benefited thousands of well-connected companies and individuals. And they were a powerful force against reform. As the reporters Jeffrey H. Birnbaum and Alan Murray explained in their definitive 1987 account, ''Showdown at Gucci Gulch,'' ''the groups with an interest in the existing tax system were well organized and ready to defend their breaks at a moment's notice; the populace who stood to benefit from lower rates was unorganized and diffuse.'' In 1985, the year tax reform began to be seriously considered in Washington, corporate PAC's substantially increased the amount of money they pumped into House and Senate coffers -- cash that exerted a powerful effect on rank-and-file members of Congress. Only by working in concert, from a shared sense of what reform should look like, could Democratic and Republican tax reformers keep a deal from being scuttled. In policy terms, that required the '86 effort to be a compromise between two groups that had vastly different visions of what an ideal tax system would look like. Ultimately, each side achieved some of its goals: liberal reformists got more corporations and high earners back on the books, while conservatives got lower marginal tax rates. ''Any time you change the tax code, it's obviously going to be controversial,'' says Ronald Pearlman, a Georgetown University law professor who helped create the Reagan administration's initial package of reform proposals. ''And it's nice to be able to say you've got bipartisan support for big, gutsy changes.'' The last four years in Washington have upended most of the political realities that fostered the bipartisan results of 1986. The most visible change is that Washington is no longer a functionally bipartisan town. Three successive electoral defeats have rendered the Democrats, once Washington's entrenched ruling class, a beleaguered opposition party. Significantly, Republicans have not only widened their hold on power but also tightened it. In the 10 years since the G.O.P. takeover of Congress, the House, in particular, has become progressively more centralized and top down than it was during the era of Democratic control. Important legislation tends to emerge from the leadership offices and be put to up-or-down votes; rank-and-file Republicans play a diminished role in policy making, and the Democrats next to no role at all. In November, Representative J. Dennis Hastert, the House speaker, announced that he wouldn't allow votes on any bills that lacked majority support among the Republican caucus, whether or not measures enjoyed majority support among the country's elected representatives as a whole. As Bush's second term takes shape, the G.O.P. has little incentive to broker compromises, and by all appearances, not much interest either. That means that to a degree unimagined in the 80's, tax reform under Bush can be a discussion within the Republican Party, among people who share a basic sense of how the tax code needs to change. The various constituent parts of the conservative coalition, of course, have multiple stakes in the broader agenda of tax cutting. Large industrial concerns might be most interested in lowering the tax bill on purchases of equipment; rich party donors would like to see the top marginal tax rates reduced; and social conservatives have rallied around calls for permanently eliminating the so-called marriage penalty. The key visionaries of conservative-style tax reform, however, are a vanguard of anti-tax activists, conservative economists and a handful of Republican politicians who have made taxes their pet issue. Like all conservatives, they think that the government is too big and that taxes ought to be lower and flatter. But This group has also come to share a few articles of faith about the relationship between taxes and growth. One is that for years the American economy has been enormously handicapped by excessive taxation on savings and investment; because people and businesses are discouraged from saving, the theory goes, there is a pervasive shortage of capital for future investments. Another belief is that lifting those burdens would create a permanent increase in most Americans' standards of living. Still another belief is that cutting all those taxes won't worsen the deficit, because the growth the cuts will unleash would produce more than enough income -- and, therefore, tax revenue -- to make up the difference. Most economists typically find this line of argument questionable. (When rates on savings and investments were cut back beginning in the 70's, they note, the savings rate actually went down, indicating that people's propensity to save probably isn't greatly affected by changes in marginal tax rates.) So Bush's proposals are unlikely to win the kind of expert consensus that the 1986 one did. But if the administration can count on much more resistance to its vision from professional economists, it can count on far less from the constituency that was once the most formidable obstacle to fundamental reform of the tax code: K Street. In part, this is a consequence of the broader power shift in Washington. When the parties shared power, business lobbyists could bid Democrats and Republicans against one another. (Reagan's 1981 tax cut became a deficit exploder in part because Congressional Democrats, eager to win back business support following the disastrous 1980 election, were competing against their Republican counterparts to see who could open more corporate loopholes in the tax code.) With Democrats more or less out of the picture, lobbyists must rely far more heavily on the G.O.P. to look after its interests -- and that gives Republican leaders more leverage over K Street than vice versa. Thanks to this arrangement, Bush's first three tax bills were fairly ''clean'' ones, containing relatively few special-interest breaks narrowly benefiting a given industry or corporation. That doesn't mean K Street hasn't done well under Republican rule. Bush's fourth tax cut -- a bill originally intended to fix an existing tax provision deemed illegal by the World Trade Association and passed with little public notice shortly before Election Day -- was packed with billions of dollars worth of corporate giveaways, most of it to the manufacturing sector. But it does mean that the party can compel business interests to delay narrow gratification -- special-interest loopholes that arouse public ire and inspire a political response -- in support of a broader and more ambitious ideological agenda that will pay dividends down the line. ''As long as we have the annual tax cut, all the business guys are in line,'' Norquist explained to me, noting that business trade associations like the National Association of Manufacturers helped lobby for Bush's 2001 cut, even though it did nothing to reduce corporate rates. Norquist described his pitch to K Street this way: ''This year, we're doing a tax cut. You want to help us with this year, you're at the front of the line for next. You didn't get in this year, you can get in line for next year. But we're going to be doing a tax cut, however small, because we can go as small as we have to to get a tax cut every year. That is what we did for the last four years. That is what we are going to do for the next four years.'' Just as important as the sequencing of Bush's tax cuts has been the substance of them, which provides a hint of where tax reform is likely to go. In theoretical terms, Bush's cuts have brought the United States tax code closer to a system under which income from savings and investments aren't taxed at all and revenues would be raised exclusively from taxes on labor. The consequence of those policies is that a greater proportion of tax revenues now come from what the middle class earns and a smaller proportion from what the wealthy earn. Whatever changes the Bush administration pursues, there is every reason to believe it will aim to move further in that direction. ''I think Bush does have a master plan on tax policy,'' Stephen Moore says. ''The goal is to eliminate all taxes on savings and investment. That means no capital-gains tax, no dividends tax, no estate tax, no tax on interest.''

Subject: Breaking the Tax Code - c From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 12:31:09 (EST) Email Address: Not Provided Message: How you view this arrangement depends a lot on whether you buy the assumption that letting the wealthy off the hook will eventually benefit everyone else. Early one recent Saturday morning, I paid a visit to John Podesta, the last chief of staff to serve under Clinton, at his home in Washington. He greeted me at the door in sweat pants and a T-shirt, and we sat down at his kitchen table to talk taxes. Podesta has a lean, shrewd face, a twinkle in his eye and a reputation as one of the party's canniest operatives; these days, he heads the Center for American Progress, which he founded a little more than a year ago to incubate new policies and approaches among left-of-center types. Podesta has little faith in the conservatives' trickle-down approach. He also says it is bad economic policy -- ''fatally flawed,'' as he put it. ''We're already seeing the current account deficit increase by $600 billion a year,'' he continued. ''People are mortgaged to the hilt. The middle class is now being fundamentally squeezed. They've gotten no benefit from the tax reduction. G.D.P. growth is going almost all to corporate profits. And we're creating an overall economic circumstance in which the dollar is certain to drop, interest rates are certain to rise and growth over the long term looks kind of sketchy.'' To understand why the G.O.P. has pursued such a policy, Podesta argues, you have to look at the political dividends, not the economic ones. ''What are the structural elements of what they are trying to do with the tax code?'' he began, busying himself at a small coffee machine. ''I would say there are three. One is to eliminate taxation on wealth and investment. Second is to create a revenue stream that aims at a government the size of which we haven't seen almost since before the Depression.'' Already, he points out, the government takes in far less than it spends, forcing the Bush administration to borrow billions of dollars to cover the revenue lost from cutting taxes. ''Three is that if you build in taxation only on wage income, you have massive resistance by the middle class to letting those taxes rise. So you've kind of locked in three structural components that end up being highly beneficial to wealthy people, and I think, from a conservative governance point of view, create not just restraint on the growth of government, but essentially pressure to downsize the government.'' Podesta's analysis suggests that conservative tax reformers are in something of a bind: telling middle-class voters you want them to pay for more of the government so that they will want to shrink it is not a very good way to win their votes. Conservatives insist, however, that their plans not only won't deepen the deficit; they won't increase the load on the middle class either. Not long ago, I spoke with South Carolina's new Republican senator, James DeMint, who over the past few years made a name for himself on tax issues in the House. DeMint's campaign Web site included pictures of him standing next to a tall stack of I.R.S. regulations and displayed statistics like the number of pages in the tax code (45,622) and the number of hours Americans spend each year filling out tax returns (6.1 billion), sure to ruffle taxpayers' feathers. Like many conservatives, he says that the middle class is already paying for most of the government -- they just haven't figured it out yet. ''People don't understand the cost of government,'' he told me. DeMint says he believes that taxes paid by corporations and wealthy investors tend to end up costing middle- and working-class people money, in the form of higher prices at the cash register or the lost jobs that result when rich people have to pay the estate tax instead of investing in, say, steel factories. Taxes on capital, from this point of view, are inevitably self-defeating: they are simply passed along to the rest of us, along with the accountant's bill. But because average workers pay less in ''visible'' taxes than corporations and the rich, they tend to think they're getting a good deal out of the federal government. ''They're paying a disproportionate share of their income in taxes, and they don't know it,'' DeMint said. ''So, politically, they're not activated to change it, because they can't see the taxes. They don't have that sense of urgency.'' DeMint advocates scrapping the entire tax code, including income taxes and taxes on wealth, and replacing it with a flat national sales tax. By his reasoning, that would convert all the hidden taxes embedded in the price of goods and services into one tax that is printed at the bottom of a cash-register receipt. Middle-class people wouldn't pay any more in federal taxes than they're effectively paying now, and they would end up economic winners, since the simpler tax system that resulted would be less of a drag on the economy. And once people were paying all their taxes up front, and could see how expensive the government really was, they would be much more inclined to demand huge cuts in spending than they are today. ''The intent here is not to shift the tax burden to the poor,'' he said, ''but to allow every American to see the real cost of government.'' Left unsaid, of course, is the alternative: if middle-class taxpayers wanted to keep the same size government that exists today, they would have to pay for it up front. But if you don't share conservatives' assumption that the middle class ends up footing the bill for onerous taxes on capital, a new flat sales tax would -- as Bush's previous cuts already do -- simply shift even more of the burden of taxation from businesses and the wealthy over to the middle and working classes. ''Any responsible person advocating tax reform has to admit the following: A reform that is revenue-neutral has losers,'' said Gene Sperling, a leading Democratic budget expert who served as a top economic adviser for John Kerry during the 2004 presidential campaign. ''There's a basic math to that. Every Republican flat-tax proposal lowers the rate on people at the top. Now, if you're raising less revenue from the most well-off, one of two things are going to happen. You're either going to raise more revenue from the middle class, or you're going to pass on more debt to our children. The only argument against that is supply-side magic -- that somehow, lowering taxes will generate more revenue so there's a free lunch for everyone.'' When I noted that Republicans seem much more energetic about tax reform than Democrats, Sperling got a little exasperated. ''It's not that Republicans are so much more noble,'' he said. ''The usual dialogue that happens on tax reform is, people love the idea of reducing deductions and lowering rates in theory. When they get to the specifics, they realize that they have to get rid of very popular deductions that people know well for the possible benefits of a system they don't know.'' For example, proposals for replacing the income tax with a tax on consumed income -- that is, the income people use to buy things -- have circulated among left-of-center tax experts for years. DeMint's sales tax is one version of a consumption tax. But, Sperling argues, it's a lot harder to design a version that is actually revenue-neutral, progressive in structure and politically viable: ''First, you're getting rid of popular breaks like the mortgage deduction, and second, by the time time you've finished exempting food, clothing and so forth, the new tax has gotten pretty high.'' And unlike Republicans, he maintains, Democrats aren't willing to pretend that there can be tax reform without any losers. (Later this month, Podesta's policy institute will release a detailed plan that eliminates loopholes, cuts taxes on the middle class and creates more savings incentives for those without much wealth income -- but finances it mostly by reversing Bush's rate cuts on the rich, who, of course, would be the losers should Podesta's plan come to pass.)

Subject: Breaking the Tax Code - d From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 13:10:41 (EST) Email Address: Not Provided Message: So what will Bush propose? The president did cause a minor stir during the campaign in the summer when he mentioned that a national sales tax was ''the kind of interesting idea that we ought to explore seriously.'' But he has since retreated into anodyne rhetoric about simplifying the code and promoting savings and investment. In part that's because a sales tax is indeed controversial; DeMint's Democratic opponent temporarily erased a double-digit deficit in the polls by hammering him on the sales tax, though DeMint did win in the end. But it is also because, while Republicans generally know what direction they want to move in, they don't agree on exactly how to get there. DeMint's is only one of several Republican tax-reform plans that have percolated through Washington in recent years. There are other sales-tax proposals, plus plans that put a flat tax on all forms of income or institute a European-style value-added tax (V.A.T.), basically a sales tax levied at each stage of production. In theory, the members of Bush's tax commission are supposed to approach their efforts with an open mind. In practice, its purpose is to test the political waters, to see which version of conservative tax reform would be most palatable to the public and how far it can be pushed. ''It'll come out with three or four proposals, which are already written, and already on people's desks,'' Grover Norquist told me. ''So this is not a commission to invent something, or several somethings. This is a commission to discuss several somethings. Poke 'em, bring 'em around the country, test-fly them, run 'em up the flagpole, see who shoots at it, see who salutes.'' Norquist argues that much as Bush's 2001 Social Security commission helped detoxify the argument over whether to privatize that program, the tax commission will make it safer to propose new ideas, even radical ones. Given the ultimate end goals of conservative tax reformers, this is no small concern: as a confidential 2002 memo prepared by the Treasury Department notes: ''Any reform is likely to have vocal losers and largely silent winners. In other countries, the adoption of a consumption tax has led to election losses for the incumbent party.'' For now, the Bush administration appears to be heeding that warning. After floating a few provocative ideas in the press last year -- eliminating the deductions for mortgages and state and local taxes, benefits enjoyed disproportionately by ordinary workers and families -- White House officials signaled that they were more likely to pursue the kind of incremental changes Bush has already shown a taste for when debate commences in earnest. ''We don't have to decide whether we want a flat tax, or a V.A.T. or a retail sales tax,'' Norquist said. ''Because there are a dozen things you have to do that would get you to the point which would get you to one of those three.'' But as Bush's first four years have made clear, incremental doesn't equal inconsequential. During his first term, the president floated the idea of large tax-free savings accounts, sort of like supersize I.R.A.'s, in which people who already have lots of money to save -- that is, high earners -- could shelter large amounts of income. Add in further cuts in taxes on capital gains and dividends, elimination of the estate tax and a move to make Bush's earlier income-tax reductions permanent, and even without big all-at-once tax reform, conservatives will come pretty close to legislating a new contract between the government and its citizens, one that has the power to change politics profoundly. ''Here's the danger,'' Norquist said. ''They'll say, 'Let's wait for tax reform,' which will be this sort of angels-dancing-on-the-head-of-a-pin argument. That may never be real. There may never be something that everyone agrees is tax reform. What was it -- Zeno's paradox, where you never quite get where you're going? ''You keep taking half-steps, eventually you're pretty darn close,'' he went on to say. ''I'll take three half-steps and call it a day.''

Subject: Message Board Archive Updated (at last) From: Bobby To: All Date Posted: Sun, Jan 16, 2005 at 12:16:16 (EST) Email Address: robert@pkarchive.org Message: I'm sorry about the message board archive. I just posted the archive for the previous message board 11.16.04 - 12.18.04 just now. I was busy until the past few days and I just now read the message at the bottom of this board informing me that I forgot to post it. It's at the link below. Message Board Archive Message Board Archive pkarchive.org/MBArchive.html

Subject: A Conservative New Deal From: Emma To: All Date Posted: Sun, Jan 16, 2005 at 10:38:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html A Question of Numbers By ROGER LOWENSTEIN THE CONSERVATIVE NEW DEAL In 1938, the Social Security Act was only three years old, but its future was already very much in doubt. Conservatives claimed it would bankrupt the nation, and independent critics argued that the way it was financed amounted to ''financial hocus-pocus,'' as one editorial in The New York Times put it. President Franklin D. Roosevelt defended the program, said by a cabinet member to be his favorite, with some of his trademark oratory. ''Because it has become increasingly difficult for individuals to build their own security,'' the president told a national radio audience, ''government must now step in and help them lay the foundation stones.'' Social Security did become the cornerstone -- not only the biggest government entitlement plan but also the most universal, the most popular and the most enduring. But the debate over Social Security never ended. Barry Goldwater wanted to repeal it; Milton Friedman wrote in 1962 that it was an unjustifiable incursion on personal liberty; and David Stockman, the budget director who personified Ronald Reagan's efforts to shrink the federal government, tried to take a hatchet to Social Security, which he called a ''monster.'' But in this 70-year struggle, no other conservative has ever come as close to transforming the program as George W. Bush. He is making Social Security reform, including a partial privatization, a centerpiece of his second term. If the most ardent ideologues have their way, such a reform would be a first step toward a wholly new approach to retirement security -- one that would set aside the notion of collective insurance and guaranteed minimums for that of personal investing and responsibility. This could do more to reverse the New Deal, and even the Great Society, than Goldwater, Stockman and Reagan ever dreamed of. ''We call it a conservative New Deal,'' says Stephen Moore, author of ''Bullish on Bush: How George W. Bush's Ownership Society Will Make America Stronger.'' In Moore's words, it will be a fundamental shift ''from an entitlement society to an ownership society.'' The key to this transformation, according to a generation of conservative thinkers and crusaders, is reducing the size and changing the nature of Social Security, which now pays benefits of half a trillion a year, and which will only grow bigger as America grows older. The campaign to privatize has not only been about ideology; it has also focused on Social Security's supposed insolvency. Moore's book calls Social Security a ''Titanic . . . headed toward the iceberg'' and a program ''on the verge of collapse.'' A stream of other conservatives have bombarded the public, over years and decades, with prophecies of trillion-dollar liabilities and with metaphors intended to frighten -- ''train wreck,'' ''bankruptcy,'' ''cancer'' and so forth. Recently, a White House political deputy wrote a strategy note in which he said that Social Security is ''on an unsustainable course. That reality needs to be seared into the public consciousness.'' The campaign is potentially self-fulfilling: persuade enough people that Social Security is going bankrupt, and it will lose public support. Then Congress will be forced to act. And thanks to such unceasing alarums, many, and perhaps most, people today think the program is in serious financial trouble. But is it? After Bush's re-election, I carefully read the 225-page annual report of the Social Security trustees. I also talked to actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is. Although prudence argues for making a fix sooner rather than later, the program is not in crisis, nor is its potential shortfall irresolvable. Ideology aside, the scale of the fixes would not require Social Security to abandon the role that was conceived for it in 1935, and that it still performs today -- as an insurance fail-safe for the aged and others and as a complement to people's private market savings.

Subject: Predictions From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 10:39:54 (EST) Email Address: Not Provided Message: PREDICTIONS AND BEST GUESSES About 47 million people -- retirees and their dependents, under-age survivors of deceased workers and the disabled -- receive a check from Social Security every month. The money for this colossal endeavor comes from a payroll tax on current workers and on their employers. The program is a model of efficiency; expenses are low, as pension plans go, and participation is near universal. Benefits rise with the level of earnings, but they are tilted toward progressivity, so that those at the bottom get more in proportion to their earnings and those at the top get less. Social Security also delivers a considerable nonmonetary benefit: people who have contributed throughout their working lives know that, regardless of the ebb and flow of their careers and, indeed, of the stock market, a guaranteed pension awaits them. Currently, Social Security is running a hefty surplus; the payroll tax brings in more dollars than what goes out in benefits. By law, Social Security invests that surplus in Treasury securities, which it deposits into a reserve known as a trust fund, which now holds more than one and a half trillion dollars. But by 2018, as baby boomers retire en masse, the system will go into deficit. At that point, in order to pay benefits, it will begin to draw on the assets in the trust fund. The debate over Social Security's solvency is really two debates. The first is over how long the trust fund will last. The law requires the Social Security Administration to estimate its financial condition for 75 years into the future, and the agency's conclusions depend on the assumptions it makes about what America will look like decades hence -- how much people will earn, how large their families will be, how long they will live. Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away. What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years. No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate. And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.

Subject: Trusting the Trust Fund From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 10:40:38 (EST) Email Address: Not Provided Message: IS THE TRUST FUND TRUSTWORTHY? The second debate concerning solvency is over whether the securities in the trust fund will be honored or whether, in Moore's pointed imagery, the fund will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This seems an odd preoccupation. Social Security does not own junk bonds or third-world debt; it invests in U.S. Treasuries, considered the safest investment on the planet. Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss. Goss, the agency's actuary, says he has no doubt it will be able to do so again. ''Absolutely,'' he said when asked if the trust-fund bonds are sound. This isn't what some conservatives have said. Paul O'Neill, the former treasury secretary, went so far as to say that Social Security has no assets. In anti-Social Security literature, the ''no assets'' contention isn't even debated; it's treated as gospel. According to Michael Tanner, head of the Cato Institute Project on Social Security Choice, the agency's pauperism has turned America's seniors into ''supplicants'': after working and paying taxes their entire lives, ''they earn the privilege of going hat in hand to the government and hoping that politicians decide to give them some money for retirement.'' The implication is that the money isn't there: graybeards will have to beg for it. Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.) Such hyperbolic claims aside, there is a serious issue at the heart of what worries critics. It isn't that the trust fund is broken; it's that the existence of the fund is seducing the government to spend more than it otherwise would, thus brooking larger deficits in the future. Since Social Security lends its surplus to the Treasury (that's what it means to be investing in Treasuries), it is parking its surplus cash with the government. And just as lending money to a child outside a candy store may impose an impossible temptation, so the government may feel tempted while it holds onto Social Security's purse. Ideally, Congress would recognize that the surplus is only temporary and would, therefore, take pains that the money lent to it is properly saved -- that is, that it run a surplus. But the government is operating at a deficit. So you must conclude that rather than saving Social Security's surplus, the government has been spending it -- on the military, education, tax cuts. In only 15 years, the government will have to start repaying its debt to Social Security. It will be able to do so. If need be, it will borrow, as it has borrowed for many purposes since 1776. The amount of borrowing, which could very gradually scale up to 1 or 2 percent of the country's gross domestic product, will be far smaller than the present federal deficit, which is just under 4 percent of G.D.P. But to avoid layering one deficit atop another, the government needs to exercise discipline -- to not overindulge in candy -- in the years when Social Security is running a surplus.

Subject: Deficits? From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 10:41:29 (EST) Email Address: Not Provided Message: DEMAGOGUES, DOCTORS AND DEFICITS The fear that the trust fund would represent a ''perpetual invitation'' to Congress has bedeviled Social Security since its inception. Economists of the 1930's knew that every pension plan starts with more workers contributing into the system than there are retirees. But down the road, as those workers retire, obligations mount. Therefore, they recognized, any system that builds an adequate reserve for the future must collect more than it needs in the early years. And though social scientists of the 30's could not anticipate the war or the baby boom that would follow it, they knew that America's population was going to age. In 1934, when Franklin Roosevelt formed the Committee on Economic Security to design what was in effect the first federal safety net, the committee hired three actuaries to stargaze into the future. The actuaries predicted that the proportion of Americans over 65 -- then only 5.4 percent -- would rise to 12.65 percent in 1990, meaning that retiree costs would soar. They were just a tad high; the actual figure would be 12.49 percent. The committee was sharply divided on how to prepare for this demographic onslaught. Harry Hopkins, who oversaw the New Deal's relief program, thought the U.S. should simply pay retirement benefits from general funds; the more fiscally minded Henry Morgenthau Jr., the treasury secretary, wanted a self-financed system. F.D.R. sided with Morgenthau; above all, he said the system should be simple -''nothing elaborate or alarming about it.'' But alarm was very much the order of the day. When Roosevelt was swept into office in 1933, he had been preoccupied with the emergency of the Depression -- 10 million unemployed, 18 million on relief, the country's business output cut by a quarter and its morale shattered. He responded with a whirlwind of legislation and with rhetoric that, for a while, truly inspired. By 1934, the energy of the New Deal's first days had begun to subside, and yet the Depression had not abated. Meanwhile, the administration was being outflanked by political zealots, utopians and snake-oil salesmen, who increasingly appealed to desperate Americans. In California, the novelist Upton Sinclair was running for governor on a radical platform to ''end poverty.'' In Louisiana, Huey Long was leveraging his ''share the wealth'' movement into a national campaign. The Rev. Charles Coughlin, a demagogic and incendiary radio orator, was attracting millions of listeners with his attacks on bankers, Bolsheviks and assorted other villains. By far the oddest of these ducks was an elderly doctor in Long Beach, Calif., Francis Townsend, who had lost his county medical job to the Depression. Dr. Townsend, a onetime ranch hand and mining speculator, wrote to the local newspaper suggesting a fantastic retirement scheme: the government should distribute $200 a month to each American over 60 and pay for it with a sales tax. When recycled through the economy, he augured, these lavish pensions would ''abolish unemployment'' forever. His proposed stipend was well above the average American's monthly wage, and his plan was demonstrably unworkable. But in rural America, it had the lure of an elixir. ''Townsend Clubs'' popped up across the country. Millions of members were recruited, a weekly newspaper was printed and dozens of U.S. representatives dutifully lined up in support. ''The Congress can't stand the pressure of the Townsend Plan unless we have a real old-age insurance system, nor can I face the country without'' one, Roosevelt told his labor secretary, Frances Perkins. Each had been thinking of social insurance since well before the emergence of Townsend -- as governor of New York, Roosevelt dispatched Perkins to England to study the British state insurance system. But characteristically, F.D.R. had let the idea simmer until the moment was ripe. The domestic agitation was his opportunity. In January 1935, the Economic Security committee delivered a sweeping proposal for ''cradle to grave'' insurance. Much of the bill merely authorized the federal government to distribute aid to the states, but two aspects of it were revolutionary: a plan for unemployment insurance and one for retirement. F.D.R., however, was greatly troubled by a detail in the latter. Though the payroll tax was scheduled to rise, in staircase fashion, within two generations it would be insufficient to cover benefits. Perkins explained that as the number of retirees rose, funds from the Treasury would have to cover the shortfall. ''Ah, but this is the same old dole under another name,'' F.D.R. said. F.D.R. had hoped that handouts would no longer be necessary as the economy recovered, and he shrewdly anticipated that in future generations, welfare-type programs would be vulnerable to political attack. He wanted Social Security to be different -- universal and enduring. Therefore, he insisted, it had to be self-supporting. Thus was conceived the (soon-controversial) trust fund. To build a future reserve, the New Dealers doubled the initial level of the payroll tax to 2 percent, applied up to a cap that was initially set at $3,000 of income. This added a regressive aspect to the plan, shielding the highest income brackets. Nonetheless, in August 1935, legislation was enacted that, in F.D.R.'s words, would ''give some measure of protection to the average citizen.'' The public strongly supported the new program, but conservatives attacked it as a socialistic scourge. Playing on the fact that each worker was to receive a government number, the Hearst papers published front-page illustrations of a man wearing a chain with a dog tag. Henry Ford said Social Security could cost Americans their basic freedoms, like the right to change jobs or to move from one town to another. A shareholder in a utility filed suit, claiming that the payroll tax was unconstitutional. The case went to the Supreme Court, where, in 1937, Justice Benjamin Cardozo, as if to resolve the historic debate over federalism, ruled, ''The conception of the spending power advocated by Hamilton . . . has prevailed over that of Madison.'' The new agency's organizational elan won over some critics. W. Albert Linton, a skeptical insurance executive, visited the Social Security headquarters in Baltimore and was amazed when the staff plucked his name and address from among the 26 million records. ''I think it is amazing,'' he said, ''the way they have solved the technical aspect.'' But the opposition wouldn't die. The issue that sparked the loudest protest was one that still burns today: the trust fund. Deductions from pay envelopes began in 1937, but benefits weren't scheduled to start until 1942, and there was a great deal of mistrust about where the money was going. Government actuaries sheepishly explained that Social Security was building a reserve eventually expected to reach $47 billion. This was an awesome sum -- eight times the total then in circulation. Alfred Landon, the Republican who ran against Roosevelt in 1936, called it ''a cruel hoax'' on the American people. His platform, sounding uncannily that like that of Republicans today, stated, ''The so-called reserve fund . . . is no reserve at all, because the fund will contain nothing but the government's promise to pay.'' Arthur Altmeyer, head of the Social Security board, came under heavy fire at a Congressional hearing. Looking for a way to safeguard the reserve, he made an intriguing suggestion: why not let the government invest in sound private securities, and thus insulate the surplus from Congress's eager hands? As Altmeyer recounted in his memoir, Arthur Vandenberg, a Republican senator from Michigan, threw up his hands and snickered, ''That would be socialism!'' To quell the furor, Roosevelt turned to that standby device for embattled politicians -- an advisory council. The council arrived at an expedient solution, though one with troubling longer-term implications. It suggested increasing benefits for the first generation of retirees, even though that group had paid little in payroll taxes. An amendment in 1939 raised their benefits and also created new classes of beneficiaries -- wives, widows and survivors. This was a departure from the principle that all workers would be treated equally (couples would get more than single workers) and added an element of ''need'' -- a point that would rankle conservatives and later fuel the privatization movement. But in the political climate of 1939, it had the advantage of soaking up surplus taxes and greatly reducing the rate at which reserves would accumulate in the trust fund. F.D.R., anxious to have the controversy settled, went along, even though the changes paved the way for the eventual deficits he had feared.

Subject: Crisis Past From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 13:08:16 (EST) Email Address: Not Provided Message: THE FIRST (AND ONLY) CRISIS The crunch came, as actuaries had predicted, in the late 1970's. Part of the problem they had not foreseen; Social Security benefits were skyrocketing because of inflation. In the 70's, Congress decided to index retirees' benefits to the cost of living. The timing was awful. Not only did inflation soar, but incomes -- the basis of payroll contributions -- stagnated. Critics like those at the newly formed Cato Institute warned of disaster. A former Nixon cabinet member, Peter Peterson, began to attract attention by arguing that any pay-as-you-go system (in which one generation supports another, as today) was inherently unstable, and advocated deep cuts in the rate at which benefits increased. The criticism had an ideological as well as an economic edge. In a pre-financed system -- in which, for instance, each worker invests for his own later retirement -- society never faces a liability. But individuals may come up short (if their investments fare badly) and live out poorer retirements. President Carter, responding to the darkening outlook, became, in 1977, the first president to legislate a belt-tightening. Carter's efforts, however, didn't suffice. The trouble was that Social Security's actuaries had been way too optimistic. The actuaries had assumed that from 1978 to 1982 inflation would total 28 percent; the actual figure would be 60 percent. And they had predicted that wages would grow by 13 percent after inflation, whereas, in fact, real wages didn't rise at all; they declined. Social Security's experts were hardly the only people surprised by the dreadful economy, which was buffeted by skyrocketing oil prices, Middle East turmoil and a slumping stock market. Regardless, in 1981, Social Security experts announced that the trust fund would run dry in a year or two. That left the problem up to a new president, Ronald Reagan. As a candidate for president, Reagan had proclaimed that he was ''pledged to a Social Security program that will reassure these senior citizens of ours they're going to continue to get their money.'' By then, Social Security had become a program that politicians couldn't afford to oppose and, indeed, that most Americans supported. President Eisenhower, a Republican, had proved this in 1956 when -- to the great disappointment of conservatives -- he supported a significant expansion of Social Security to include the disabled. But among adamant free marketers, the dream of upending Social Security lived on. One of the more prominent postwar opponents, in fact, was Reagan, a disarming actor then transitioning to political life. Reagan began speaking out against Social Security in the late 50's. At the time, Democrats were trying to extend Social Security to health care -- to what would eventually become Medicare -- and Reagan worked with the American Medical Association to try to stop them. The A.M.A. conducted a stealth campaign (unearthed in 1999 by the political scientist Max Skidmore) known as Operation Coffee Cup, in which doctors' wives would urge women in their communities to oppose the plan in letters to Congress. Reagan produced a record album for that campaign in which he criticized Social Security for ''supplanting'' private savings and warned that subsidized medicine would curtail Americans' freedom. Warm and folksy even as he envisioned a bleak Orwellian future, Reagan said that Big Brother could start with health care, ''and pretty soon your son won't decide when he's in school, where he will go or what he will do for a living. He will wait for the government to tell him.'' Reagan gave slightly altered versions of this speech in personal appearances around the country, attacking Social Security as a ''sure loser'' of a program, and one that would worsen, not alleviate, the hazards of age. In the 70's, Reagan continued to sermonize against Social Security, often suggesting that it be made voluntary or more voluntary. At first blush, this sounded reasonable. As most people don't save enough for their retirement, however, under a voluntary system many who opted out would wind up destitute. Higher-earning workers (who get a lower proportional return on their payroll taxes) would opt out for certain. This problem is known as adverse selection. Wealthier people contributing higher taxes exit the system, leaving less revenue and a higher burden for the poorer people who remain. In effect, it would become an unpopular welfare program. Once Reagan was in the Oval Office, he allowed his budget director, David Stockman, to handle the crisis. Stockman, who was waging a war on government spending, tried to exploit the moment to curtail Social Security sharply. It was Stockman's idea to cut benefits to early retirees by one-third. Without those cuts, he warned, the U.S. could suffer ''the most devastating bankruptcy in history.'' There were two weaknesses in the Stockman approach. First, he exaggerated. The deficit looming in 1983 was only temporary. (Since the birthrate dropped during the Depression, the number of seniors coming of age in the 1990's would decline, providing the agency with a respite.) Second, Stockman was politically naive. By proposing cuts for people on the verge of retirement, he triggered vehement protests. Members of the Republican-controlled Senate showed their instinct for self-preservation by voting 96-0 for a resolution intended to distance themselves from Stockman. James Baker, Reagan's chief of staff, urged the White House to do likewise. So Reagan, like F.D.R., bounced the problem to a commission, this time led by a well-known economic consultant, Alan Greenspan. The 15-member commission got nowhere until December 1982. Then, with default only months away, an unofficial subgroup began to meet in secret. Robert Ball, a former Social Security commissioner, and Senator Daniel Patrick Moynihan negotiated for the Democrats opposite Baker for the White House. In the end, they compromised on a combination of benefit cuts and tax hikes. The payroll tax, then 10.16 percent, was already scheduled to rise, but the negotiators sped up the implementation of the increase. (Today the rate is 12.4 percent.) Moreover, Congress agreed to hike the retirement age from 65 to 67. This change, which is being phased in very slowly (the retirement age is now 65 and 6 months) had the same effect as cutting benefits. Greenspan and company now calculated that Social Security would build a giant reserve, sufficient to see it through the middle decades of the 21st century. This was the original F.D.R. approach -- build a trust fund. President Reagan said the package ''assures the elderly that America will always keep the promises made in troubled times a half-century ago.'' Social Security's next few annual reports made best-guess (intermediate) projections of solvency for 75 years, meaning it expected the system to remain solvent until 2060 and beyond. So the question that should arise now, but that has been oddly ignored is, What happened?

Subject: Being too Gloomy From: Emma To: Emma Date Posted: Sun, Jan 16, 2005 at 13:12:34 (EST) Email Address: Not Provided Message: ARE ACTUARIES tOO GLOOMY? Nothing did. Or in the words of Robert Ball, the nonagenarian former commissioner, ''nothing in the real world.'' But perceptions changed, and the balance of opinion began to shift in favor of reform. To some extent, that shift was bipartisan. In the mid-1980's and early 90's, Democrats discovered they didn't love deficits after all. When it began to appear that Congress was incapable of keeping its hands off Social Security's surplus, fiscally prudent Democrats like Moynihan and Bob Kerrey came out in favor of individual accounts. President Clinton famously campaigned to ''save Social Security first'' -- meaning that Congress should balance the budget. Meanwhile, the popular impression that any fool could make money in the stock market (for a while, any fool did) made private accounts seem like a natural. In the 1996 campaign, even among Republican contenders, only Steve Forbes favored privatization; by 2000 it was party doctrine. Social Security's actuaries also began to make more pessimistic assumptions about the future. To quote the report of yet another Social Security advisory panel, this one from the mid 90's, ''It is pointed out that while today there are 3.3 workers paying into the system for every beneficiary drawing benefits, over time this ratio will change to two workers per beneficiary. . . . However, this has almost nothing to do with why there is a . . . deficit.'' The report continued, ''The ratio was fully taken into account in the 1983 financing provisions.'' So why did Social Security begin to forecast a more rapid exhaustion of the trust fund? Social Security was burned in the 70's and early 80's by being too optimistic. Now the actuaries are leaning the other way. ''It's a less optimistic estimate today,'' says Harry Ballantyne, who was chief actuary until 2001. Social Security's key long-range projection is that, over 75 years, it will come up short by an average of 1.89 percent of payroll. Though deficits would still loom beyond 2080, the problem could be fixed until then by an immediate tax increase of 1.89 percent, or a benefit cut of roughly 13 percent. (Democrats tend to favor a combination.) But this all assumes that the middle projection is right. And several underlying assumptions of that middle projection tend to exaggerate the potential deficit. The first concerns longevity. A 65-year-old man today can expect to live to nearly 82. According to the most likely projection, in 2080 he should expect to live to 86. Goss says that the agency is assuming that medical technology will deliver more ''miracles.'' Most demographers agree with him, and some even think the agency is not being optimistic enough. The only trouble is, as Goss notes, that over the past 20 years ''they have been wrong at every turn. There has been less improvement than we were expecting.'' Indeed, the improvement in mortality has slowed significantly. And no one is sure why it has slowed. Nonetheless, the agency expects a sharp rebound over ensuing decades. Its fiscal gloominess thus depends on a speculative uptick in medical miracles. Immigration is another contentious point. Immigration is good for the system because immigrants are earners and taxpayers. Though immigration has been rising, Social Security projects that it will taper off sharply, from 1.2 million a year to 900,000 in 20 years. This forecast is curious, because if the birthrate in America declines as anticipated, the country will need more foreign workers. Rising wages are also a boon to Social Security's finances. Forecasting wages is difficult, as the trustees' report frankly admits, but it seems undeniable that as society ages, businesses will be harder pressed to find workers, and that should push wages higher. The trustees, however, project that real wages will grow at only 1.1 percent a year -- roughly equal to the level of the last 40 years. The basic point here is that tiny swings in any of these or other factors could improve -- or worsen -- the program's balances. If a few of them lean in the direction of the optimistic forecast, the trust fund will cover benefits through 2080, or close to it. Would such a program, which appears to be solvent or near solvent until the limit of what is humanly forecastable, be improved upon by the various schemes for privatization?

Subject: Re: Being too Gloomy From: David E... To: Emma Date Posted: Mon, Jan 17, 2005 at 02:40:22 (EST) Email Address: Not Provided Message: Thanks for this history, Emma. I love facts. They have been so hard to find.

Subject: Social Security and Stock Indexing From: Emma To: All Date Posted: Sun, Jan 16, 2005 at 06:46:35 (EST) Email Address: Not Provided Message: Though I am not opposed to investing a portion of the Social Security trust fund in a total stock market index with non-voting shares, there will need to be provision of enough of a surplus from payroll taxes to do this. Can payroll taxes be raised even slightly at this time?

Subject: Marketing an End to Social Security From: Ari To: All Date Posted: Sun, Jan 16, 2005 at 05:42:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/politics/16benefit.html Agency Running Social Security to Push Change By ROBERT PEAR Over the objections of many of its own employees, the Social Security Administration is gearing up for a major effort to publicize the financial problems of Social Security and to convince the public that private accounts are needed as part of any solution. The agency's plans are set forth in internal documents, including a 'tactical plan' for communications and marketing of the idea that Social Security faces dire financial problems requiring immediate action. Social Security officials say the agency is carrying out its mission to educate the public, including more than 47 million beneficiaries, and to support President Bush's agenda. 'The system is broken, and promises are being made that Social Security cannot keep,' Mr. Bush said in his Saturday radio address. He is expected to address the issue in his Inaugural Address. But agency employees have complained to Social Security officials that they are being conscripted into a political battle over the future of the program. They question the accuracy of recent statements by the agency, and they say that money from the Social Security trust fund should not be used for such advocacy.

Subject: Pretense From: Ari To: Ari Date Posted: Sun, Jan 16, 2005 at 05:44:16 (EST) Email Address: Not Provided Message: http://yglesias.typepad.com/matthew/2005/01/putinization_wa.html Putinization Watch By Matthew Yglesias I've written before about Bush's Putinization of American society. The breakdown of the divisions between president and party, between his administration and the state it administers, between the state and the businesses it regulates, and between party propaganda and media. The recent Armstrong Williams fracas can be viewed in that light. Fundamentally, it's less an issue of journalistic ethics than of governing ethics. No free society will ever be free of some degree of malfeasance among its commentariat. The deplorable practice of op-eds for hire and the related plague of astroturf organizing should be resisted by good-hearted people, but some slippage on the part of unconsciencious people is inevitable. A desire by the administration to corrupt the purposes of the state and misuse its citizens tax dollars in this manner, however, is not. Today's report in The New York Times that the Social Security Administration will be transformed from its legitimate purpose of administering Social Security to serving as a propaganda organ for the privatization drive should be seen in this light. The government of the United States is not the personal property of the President of the United States. But to a president who's already used the Treasury Department on several occassions as propaganda outlet, who has maintained that wartime removes all limits on executive power, who feel frees to violate the rules of congress and illegally hide pertinent information from its Members, who uses the United States Navy as a campaign prop, and who views loyalty rather than accuracy as the primary value of an intelligence report, it apparently is.

Subject: New York Real Estate Prices From: Emma To: All Date Posted: Sat, Jan 15, 2005 at 16:25:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/15/nyregion/15property.html In New York Real Estate, What Goes up Keeps Rising By JENNIFER STEINHAUER and JIM RUTENBERG The market value of New York City real estate rose 14 percent last year, an increase that follows three successive years of sharp gains as property values continued a heady run, according to a report released yesterday by the city's Department of Finance. The report found the increases were broadly based throughout the city, as property values rose in every borough, with Staten Island rising almost as much in percentage terms as Manhattan, according to the figures, which put the total value of property in the city at $616 billion. In one stark indication of the strength of real estate in the city, the Time Warner building in Columbus Circle rose in value over the last year by more than $200 million to $1.2 billion. These increases, even in the face of sluggish job growth on Wall Street and an overall economy that lags the nation's, indicate that 'the rules of real estate have changed' as several factors have combined to keep pushing prices upward, said Jonathan J. Miller, president of Miller Samuel Inc., a real estate appraisal and consulting firm. Several years of historically low mortgage rates, coupled with the continued migration of new residents to the city, have kept demand high, and the market hot. The numbers further seal the real estate market's role as a singular force helping to drive the city's economy, with, as Mr. Miller put it, real estate replacing the stock market as the financial topic of choice to discuss at dinner parties. The strength of New York City's real estate market reflects a housing boom that has swept across the country. During the third quarter of 2004, home prices throughout the nation rose 13 percent from a year earlier, according to the federal government. A record 69 percent of households now own their homes; housing values on the West and East Coasts are highest. The increase in property values in the city means that homeowners can potentially enjoy better resale values, but it also presages higher tax bills for most property owners. For example, the 100,513 homeowners on Staten Island whose homes are now worth more than they were a year ago can expect their tax bill to go up an average of $136 next year if the tax rate remains at this year's level, according to the city, while the figure citywide for owners of single-family homes would be $141, according to officials. One of Mayor Michael R. Bloomberg's chief Democratic rivals, City Council Speaker Gifford Miller, cited the new data in arguing that the tax bills to be issued based on the new assessments would effectively wipe out a substantial portion of the $400 real estate tax rebate the city is offering again this year. 'The city shouldn't give with one hand in tax rebates and then take away with the other through arbitrarily higher tax burdens,' Mr. Miller said in a statement. But city officials said yesterday that they were taking new steps to address what they acknowledged to be longstanding inequities in the tax assessment system. For only the third time in the last 20 years, they said, the Department of Finance will reduce the taxable assessment value of one-, two- and three-family homes next fiscal year, to 6 percent of their market value from 8 percent. The change addresses perennial complaints from consumer advocates that the system effectively punishes people who live in neighborhoods where real estate values are not rising as quickly as those in hot neighborhoods. A large reason for the inequities in the tax system is a 6 percent cap on the increase in a property's taxable real estate values. That has had a perverse effect on tax burdens, as people with properties whose real estate values have shot up quickly are paying much lower taxes, proportionally, than those whose properties have not. Martha E. Stark, the city finance commissioner, said that people who buy newly built homes are similarly socked with disproportionately high assessments and that the change was meant to help them too. 'In order to make it uniform and therefore equitable, we've got to lower the ratio, and we did,' she said. Ms. Stark said the change would result in reductions of up to 25 percent in the assessments for 30,000 homeowners, and in a stable assessment for 60,000 people who otherwise would have had an increase. Most of those people are in Brooklyn, Staten Island and Queens, officials said. Ms. Stark said the city had also changed the assessment system to more fairly address the differences between rental buildings that charge market rates and those that remain in the rent regulation system and cannot. Manhattan experienced the biggest rise in overall property values, 15 percent. Staten Island was next at 14.5 percent. Suggesting that real estate developers might expect more gains in the future, the value of vacant land rose about 40 percent in Brooklyn, Queens, Staten Island and the Bronx and 27 percent in Manhattan. Yet economists and housing experts warn that the giddy real estate market may be dampened by even moderately rising interest rates or other bumps in the region's economy. In a recent article in The Regional Financial Review, published by Economy.com, a research and consulting firm, the company's chief economist, Mark M. Zandi, wrote that even a modest increase in mortgage interest rates 'is expected to have a substantial impact' on the housing outlook. Looking at the national picture, Mr. Zandi added: 'Housing is at a turning point. After a decade of steadily improving conditions, and current record levels of activity, the market is poised to weaken.' He cited New York as one of numerous cities around the country in which many residents with average household incomes could not afford typical new homes with a 20 percent down payment and a 30-year fixed mortgage rate of 6 percent. And the 14 percent rise in real estate values is smaller than the rise last year of 17 percent. But, acknowledging that, Ms. Stark said, 'The real estate market is stabilizing a little bit, not softening.' He added, 'Real estate continues to be a great investment.'

Subject: Japan Selling Bonds Abroad From: Emma To: All Date Posted: Sat, Jan 15, 2005 at 15:10:14 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/15/business/worldbusiness/15debt.html After 100 Years, Japanese Will Go Abroad to Sell Bonds By TODD ZAUN TOKYO - For the first time in a century, Japanese finance officials will travel abroad next week to drum up sales for the nation's bonds among foreign investors, with stops planned in New York and London. It will be the first overseas excursion to sell bonds since one that began in 1904 to finance the Russo-Japanese war, which Japan won a year later. This time, the only enemy is the rapidly advancing government debt, and Japan is likely to face a much longer battle before that is brought under control. Japan, which has the world's second-largest economy, has the worst fiscal health of any developed nation, with outstanding national debt that is expected to grow next year to 774 trillion yen ($7.4 trillion), or 150 percent of the size of the country's output. That is by far the largest ratio among the Group of 7 industrial nations. And with the government running a deficit this year of 34.4 trillion yen ($330 billion), its 15th consecutive, the number is not expected to improve anytime soon. The debt, which Japan's central bank chief, Toshihiko Fukui, once called a 'buried land mine,' is making Japanese officials nervous about finding buyers. Next week's road show for bankers, fund managers and executives at other institutions aims to expand the pool of investors beyond the relatively small group of Japanese banks and insurers that own most of the debt now. 'The fiscal problem is not going to go away and it cannot be solved quickly; it can only be solved over time,' said Jesper Koll, chief economist for Merrill Lynch in Tokyo. 'And when you need to solve something over time, the top thing you have to focus on is to get investors to buy into your plan.' The low ratings on Japanese debt will make this a challenge. Both Moody's Investors Service and Standard & Poor's rate Japanese government bonds the lowest among the Group of 7 nations. Moody's rating of A2 puts Japanese debt below Botswana's. About 60 percent of Japanese bonds are held by the nation's banks and insurers - including the government-run postal savings and insurance system - and only about 4 percent by foreign investors, half the share they held five years ago and much less than in other big economies. Forty percent of United States Treasury securities, for instance, are in the hands of foreigners, and the proportion is roughly the same for German government debt. That so much of Japan's debt is held by a relatively small group of Japanese financial institutions is a risk, given the possibility, however remote, that the group could become sellers all at once. Any decline in bond prices would push yields up, which would ripple through rates on mortgages to credit cards and car loans, seriously damping Japan's still fluttering economic recovery. Moreover, analysts say banks' appetite for government bonds is waning. Amid a long decline in demand for loans, banks have had little else to do with their money. But with Japan in the second year of a recovery, loan demand may pick up. And to foster that recovery, finance officials are more eager than ever to line up new buyers for Japanese bonds - any slackening in demand could move interest rates up. 'The No. 1, No. 2 and No. 3 policy priorities right now are to prevent an increase in interest rates,' Mr. Koll of Merrill said. 'They're basically trying to ensure that investors don't abandon them.' Japan's bond salesmen will travel to London on Tuesday and to New York on Thursday, where they expect groups of more than 100 large investors to turn up for their pitch. To be sure, it will be a tough sell. After a rally that has lasted more than a decade, few people expect Japanese bonds to rise further. Yields are low; after peaking at more than 8 percent in 1990, the yield on the 10-year government bond slid to an all-time low of 0.4 percent two years ago. The 10-year yield has since recovered to 1.4 percent, the lowest for any of the leading economies. The 10-year United States Treasury note, in contrast, was at 4.22 percent on Friday. Naoyuki Okamoto, director for government debt management policy at the Ministry of Finance, said ministry officials would emphasize recent positive developments, like the progress that Prime Minister Junichiro Koizumi's government has made in reducing spending, which they hope will alleviate concern that record bond issuance will continue indefinitely. The government is also removing some of the hurdles that foreign bond investors face. Japan has simplified filing requirements for bond purchases, and in April it will remove restrictions that prevent foreign investors from buying a new kind of government bond with a floating rate tied to inflation. Ministry officials hope this bond may appeal to foreigners now that prices may be picking up after years of deflation. More fundamentally, Mr. Okamoto said, a goal of the marketing effort is simply to contact big investors who might have lost interest in Japanese bonds because of the low rates. 'We should have been doing this kind of marketing activity from long ago,' he said. 'We have to imprint in investors' minds that they can't forget about Japanese bonds.'

Subject: Social Security Agency to Push Change From: Emma To: All Date Posted: Sat, Jan 15, 2005 at 14:31:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/16/politics/16benefit.html Agency Running Social Security to Push Change By ROBERT PEAR The Social Security Administration is preparing a major public relations campaign to market the idea that Social Security faces dire financial problems requiring immediate action and private accounts.

Subject: All Publicity, All the Time From: Jennifer To: Emma Date Posted: Sat, Jan 15, 2005 at 15:56:01 (EST) Email Address: Not Provided Message: The Social Security agency has created the crisis scenario by making an absurdly low estimate of American long term economic growth. Happily, there are realists about :) The agency has evidently become simply another publicity arm of the Administration.

Subject: Re: All Publicity, All the Time From: Poyetas To: Jennifer Date Posted: Sun, Jan 16, 2005 at 03:27:42 (EST) Email Address: Not Provided Message: Wait a minute, Then who were those people on CSPAN talking about NOT privatizing? I can't remember his name, it was something like Emstein or something like that. Anyways, I don't seem to understand how privatizers intend to kill social security and then fill the gap for future retirees. The plan seems to be unclear, does Bush intend to do away with social security all together or is he just trying to create a coplementary plan. Anyways, has anyone noticed how much CNN has been ripping into the current administration? I can't believe his social security reform will pass.

Subject: How to Build Capital From: Emma To: All Date Posted: Sat, Jan 15, 2005 at 14:19:10 (EST) Email Address: Not Provided Message: Silas sends home money to support parents and brother and sister. The money is sent to Nigeria, along with funds from many Nigerians living abroad. Now in Nigeria there is a surplus of saving, so Nigerians in turn invest in America or Europe or South Africa. Countries like Nigeria should be importing not exporting capital. How is the Nigerian government to encourage more domestic investment? Were we fairly wealthy in Nigeria or Chile or Indonesia we might invest at home, but we would at least as readily invest abroad to diversify and protect assets. The Australian economy is a lot more sound than the Indonesian, and building in Australia makes sense for Indonesians. Then when I think about how important it is for China to assure domestic investment flows, I can understand the reason for capital controls and why attracting international investment for export industries seems so important. Keep potential investment money in China and attract all the international capital possible.

Subject: Social Security From: Jennifer To: All Date Posted: Sat, Jan 15, 2005 at 10:36:18 (EST) Email Address: Not Provided Message: Possibly I am not clever enough to understand, but I find no problem with Social Security financing if economic growth continues at historically sustained levels. If growth is slower, the system will be sound with minor adjustments to payroll taxes. What I find especially troublesome is a wish to cut Social Security benefits to provide for private investment accounts, or a thought that a dramatic increase in debt now for private accounts will be dismissed because there might might might be meaningful gains to the accounts in future decades.

Subject: Nuclear Power in China From: Emma To: All Date Posted: Sat, Jan 15, 2005 at 09:23:48 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/15/international/asia/15china.html?pagewanted=all&position= China Promotes Another Boom: Nuclear Power By HOWARD W. FRENCH DAYA BAY, China - The view from this remote point by the sea, with lines of misty mountains stretching into the distance, is worthy of a classical Chinese painting. In the foreground, though, sits a less obvious attraction: one of China's first nuclear power reactors, and just behind it, another being rushed toward completion. There are countless ways to show how China is climbing the world's economic ladder, hurdling developed countries in its path, but few are more pronounced than the country's rush into nuclear energy - a technology that for environmental, safety and economic reasons most of the world has put on hold. In its anxiety to satisfy its seemingly bottomless demand for electricity, China plans to build reactors on a scale and pace comparable to the most ambitious nuclear energy programs the world has ever seen. Current plans - conservative ones, in the estimation of some people involved in China's nuclear energy program - call for new reactors to be commissioned at a rate of nearly two a year between now and 2020, a pace that experts say is comparable to the peak of the United States' nuclear energy push in the 1970's. 'We will certainly build more than one reactor per year,' said Zhou Dadi, director of the central government's Energy Research Institute, which has strongly supported the country's nuclear program. 'The challenge is not the technology. The barriers for China are mostly institutional arrangements, because reactors are big projects. What we need most is better operation, financing and management.' By 2010, planners predict a quadrupling of nuclear output to 16 billion kilowatt-hours and a doubling of that figure by 2015. And with commercial nuclear energy programs dead or stagnant in the United States and most of Europe, Western and other developers of nuclear plant technology are lining up to sell reactors and other equipment to the Chinese, whose purchasing decisions alone will determine in many instances who survives in the business. France, which derives about a third of its energy from nuclear power, is the only Western country committed to a large-scale nuclear energy program. It is in a building lull now, but will need to begin replacing aging reactors within a decade or so. Japan derives about 10 percent of its energy from nuclear sources and was once among the most favorably disposed toward nuclear energy. But a string of scandals involving comically shoddy practices, like mixing radioactive materials in a bucket, and near accidents have turned public opinion in many areas strongly antinuclear. That leaves China as the only potential growth area for nuclear energy. And for China, which still derives as much as 80 percent of its electricity from burning coal, the lure of nuclear energy is as obvious as the thick, acrid, choking haze that hangs over virtually all the country's cities. The problem with nuclear power, some experts say, is that China's energy needs are so immense - each year, by some estimates, the country plans to add generating capacity from all sources equivalent to the entire current energy consumption of Britain - that even the enormous expansion program will do little to offset the skyrocketing power demand. China's eight nuclear reactors in operation today supply less than 2 percent of current demand. By 2020, assuming the national plan is fulfilled, nuclear energy would still constitute under 4 percent of demand. There has been almost no public discussion of the merits and risks of nuclear energy here, as the government strictly censors news coverage of such issues. But critics question whether such a small payoff warrants exposure to the risk of catastrophic failures, nuclear proliferation, terrorism and the still unresolved problems of radioactive waste disposal. 'We don't have a very good plan for dealing with spent fuel, and we don't have very good emergency plans for dealing with catastrophe,' said Wang Yi, a nuclear energy expert at the Chinese Academy of Sciences in Beijing. 'The nuclear interest group wants to push this technology, but they don't understand the risks for the future. They want to make money. But we scientists, we want to take a very comprehensive approach, including safety, environment, dealing with waste and other factors, and not rush into anything.' Chinese nuclear operators, like the people who run the Daya Bay plants here, scoff at such concerns. 'In China we have state-owned power companies, whereas abroad they have private companies,' said Yu Jiechun, a senior engineer at the China Guangdong Nuclear Power Holding Company. 'It's not a matter of someone's profit here, whether we do something one way or another. The government decides, and they have spent huge amounts of money on safety.' The government is also looking into a new generation of 'pebble bed' reactors that some scientists say are far safer than traditional designs, though these are not a part of its immediate plans. One sure sign of the Chinese industry's self-assuredness is the promotion of the Daya Bay plants as a tourist attraction. For now - in a country where surging power demand has led major cities like Shanghai to force companies to stagger working hours, shut down during the week and operate on weekends - the public is likely to support anything that promises more electricity. American experts, mindful of the destructive consequences of the near catastrophic accident at the Three Mile Island nuclear plant in 1979, warn against overconfidence. 'In 1970 we had a net capability of 7 million kilowatt hours, and by 1981 we had reached 56 million kilowatt hours,' said John Moens, a nuclear analyst at the United States Department of Energy. 'So the rate of growth they propose is not only conceivable, it has been done before. The problem is, can you regulate it? Can you deal with the environmental problems? Can you deal with the hundred different things that creep up, as the Japanese found when they expanded their industry, just as we found when we expanded ours?' Reinforcing this point, David Lochbaum, a nuclear energy expert at the Union of Concerned Scientists, a private, nonprofit group based in Cambridge, Mass., said that of the 103 reactors in operation in the United States, 27 have been shut down for at least a year since September 1984. Daya Bay's location less than 50 miles from Hong Kong, where the proximity has become a political issue, only reinforces the environmental and safety concerns. That may sound like ample space, but it is not much different from the distance from New York City to the Indian Point nuclear plant in Buchanan, N.Y., which has become an issue since the Sept. 11 attacks. 'Of the technologies that exist today, you have to look at what can happen on the worst day,' Mr. Lochbaum said. 'With wind power, you can go bankrupt. With a dam burst, lives can and have been lost, but it's fairly localized. The cost of cleaning up after Chernobyl, though, is greater than all of the benefits of the entire Soviet nuclear power industry combined, and it could have been worse.'

Subject: Fed Member Cites Risks to Economy From: Terri To: All Date Posted: Sat, Jan 15, 2005 at 06:07:12 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000166.html#comments Tim Geithner Worries... Greg Ip reports: WSJ.com - Fed Member Cites Risks to Economy: In a speech yesterday, Timothy Geithner, president of the Federal Reserve Bank of New York, said markets have priced in a very optimistic outlook for the U.S. and world economies. But he said there are many risks to this outlook, which makes it all the more important that the Fed keep inflation low and the federal government rein in its budget deficit.... Mr. Geithner's remarks reflect a growing concern at the central bank over imbalances such as the budget and trade deficits. But there is little the central bank can do other than talk.... Speaking at a conference on risk management in New York, Mr. Geithner said the U.S. is enjoying 'pretty solid' growth and 'moderate' inflation, and global growth should be strong. He noted this is the scenario markets are pricing in, with little margin for error. But Mr. Geithner said the risks to this positive outlook include: rapid growth in government debt in the U.S. and other countries; 'unprecedented' external imbalances, in particular the large U.S. trade deficit; and -- in an apparent reference to China -- some countries' use of fixed exchange rates that interfere with the resolution of those imbalances. China pegs its currency at what critics say is an artificially low level to the dollar, enabling it to run a large and growing trade surplus with the U.S. These imbalances pose a threat to markets, Mr. Geithner said: 'The probability of these shocks may be low, but it is higher than it has been, and higher than we should be comfortable with.'... Brad DeLong Since I'm not President of the New York Fed, I can say that the probability of big bad shocks is not low but moderate, and that if they come we will find out exactly how good our central bankers are, and we will find out in a hurry.

Subject: Who is to Blame? From: Emma To: Terri Date Posted: Sat, Jan 15, 2005 at 11:14:21 (EST) Email Address: Not Provided Message: There is nothing wrong with Japan or China pegging the Yen or Yuan to the dollar. We encouraged China to do just this for years. Brazil and South Africa and Korea and India have at times also pegged exchange rates to the dollar. Brazil has been buying dollars for the past year. We have gained wonderful benefits from our trade relations with Asian and South American nations. The need is for us to worry about our fiscal policy. With proper fiscal policy that spurs demand but produces less structurally growing debt we will be fine. Blaming India or Japan or Brazil for our fiscal policy choices makes no sense. Inflation is being kept low in significant part by our trade relations. Japan is buying American mortgage debt and keeping mortgage rates low. China is buying treasury debt and keeping long term interest rates low. The question we must ask is how to again rein in the budget deficit as was done during the 1990s.

Subject: A Gift for Drug Makers From: Emma To: All Date Posted: Fri, Jan 14, 2005 at 13:54:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/14/opinion/14herbert.html?hp A Gift for Drug Makers By BOB HERBERT Vioxx, Celebrex, Prozac. ... With all the problems and the bad publicity that drug companies have been facing recently, you might think that this would not be a good time for the Bush administration to toss yet another bonanza their way. But the administration is like an ardent lover in its zeal to shower the rich and powerful with every imaginable benefit. So tucked like a gleaming diamond in proposed legislation to curb malpractice lawsuits is a provision that would give an unconscionable degree of protection to firms responsible for drugs or medical devices that turn out to be harmful. The provision would go beyond caps on certain damages. It would actually prohibit punitive damages in cases in which the drug or medical device had received Food and Drug Administration approval. We know the F.D.A. has failed time and again to ensure that unsafe drugs are kept off the market. To provide blanket legal protection against punitive damages in such cases is both unwarranted and dangerous.

Subject: A Bloody Mess From: Jennifer To: All Date Posted: Fri, Jan 14, 2005 at 13:29:41 (EST) Email Address: Not Provided Message: http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=8997 February 2005 How has Britain’s privatization scheme worked out? Well, today, they’re looking enviably upon Social Security. By Norma Cohen - American Prospect A conservative government sweeps to power for a second term. It views its victory as a mandate to slash the role of the state. In its first term, this policy objective was met by cutting taxes for the wealthy. Its top priority for its second term is tackling what it views as an enduring vestige of socialism: its system of social insurance for the elderly. Declaring the current program unaffordable in 50 years’ time, the administration proposes the privatization of a portion of old-age benefits. In exchange for giving up some future benefits, workers would get a tax rebate to put into an investment account to save for their own retirement. George W. Bush’s America in 2005? Think again. The year was 1984, the nation was Britain, the government was that of Margaret Thatcher -- and the results have been a disaster that America is about to emulate. For all the fanfare that surrounds the Bush administration’s efforts to present a bold new idea on pension reform, the truth is that it is not new at all. In fact, the proposal looks suspiciously like the plan set in train during Thatcher’s first term in 1979 and which has since led Britain to the brink of a crisis. Since then, the nation’s basic pension, which is paid for out of tax receipts, has shrunk dramatically. The United Kingdom has the stingiest state pension program of any G8 nation, and there is growing consensus -- even among British conservatives -- that reform is needed. And ironically enough, considering that America is on the verge of copying Britain’s mistake, most experts seek reform in the direction of a more generous, and simpler, basic state pension -- one similar in design, in other words, to America’s Social Security program....

Subject: A Bloody Mess (cont.) From: Jennifer To: Jennifer Date Posted: Fri, Jan 14, 2005 at 17:36:06 (EST) Email Address: Not Provided Message: David Willetts, the Conservative MP who is the opposition spokesman on pensions (and whose intellectual agility has earned him the sobriquet “Two Brains”), is one admirer of the U.S. system. “I like the way they distinguish between Social Security and means-tested welfare,” he says. “They have higher Social Security benefits to keep elderly people off welfare.” And last year, in a startling reversal of its decades-old policy, the Confederation of British Industry, the United Kingdom’s premier business group and the functional equivalent of the U.S. Chamber of Commerce, called for a more generous state retirement benefit, saying -- remember, this is the nation’s leading business lobby talking -- that it would even support raising taxes to help pay for it. (It also called for raising the retirement age.) Britain’s experiment with substituting private savings accounts for a portion of state benefits has been a failure. A shorthand explanation for what has gone wrong is that the costs and risks of running private investment accounts outweigh the value of the returns they are likely to earn. On average, fees and charges can reduce pension lump sums by up to 30 percent on retirement. The nation’s savings industry, which sells those private accounts, has already acknowledged this. Which brings us to irony No. 2: Just as the United States prepares to funnel untold billions to its private sector for the management of private accounts, back in 2002, many U.K. insurance companies, mindful of tough new rules against giving bad advice, began to write to their customers urging them to consider abandoning their private savings and returning to the state pension system -- something hundreds of thousands of Britons have done already. And this is the system that the United States is seeking to emulate? * * * How Britain’s retirement system got to where it is today is a twisted tale that combines political ideology with fiscal expediency. Britain has had pensions since medieval times; offering them to monks and abbesses was Henry VIII’s simple formula for dissolving Catholic monasteries without a revolt by their occupants. They were given more widespread use in the late 19th century by some of the more enlightened entrepreneurs. But it was the aftermath of World War II that saw the widespread inclusion of pension benefits into workers’ benefits packages. Britain’s nationalization of its heavy industries such as coal, steel, and railroads made pensions as much an element of social policy as of employment policy. At the time, Britain was suffering a manpower shortage so acute that, for the first time, it encouraged citizens of its former West Indian colonies to settle there. For employers in certain industries such as retailing and banking, dependent on large numbers of relatively low-wage workers in a labor-restricted economy, pensions were a low-cost insurance policy against high staff turnover that could drive up wage bills. The system was, to be sure, complex and not without its inequities. But it was not in crisis. Thatcher (now a baroness) came to power in May 1979 at a time when much of Britain was ready to hear her message. The now-infamous poster of workers on the dole queue, headlined “Labour Isn’t Working,” coupled with national disgust over a series of strikes during the 1979 “Winter of Discontent” that left bodies stacked at morgues in Liverpool and trash piled high in London’s Trafalgar Square, made Britons eager for change. Thatcher’s vision was the dismantling of much of what Britain’s Conservative Party calls “the nanny state.” Individual choice and individual opportunity were to be the hallmarks of this dismantling. No longer would the state seek to shield people from the force of the markets; people would have to learn to stand on their own two feet. Britain was to be a nation of home-owning, share-owning entrepreneurs who did not want the state snooping into their business or asking more of them than good citizenship. From the start, the new Tory government set out to make tax cutting the centerpiece of its fiscal policies. However, it was clear that this could not be accomplished without benefit cuts. As former Chancellor of the Exchequer Nigel Lawson notes in his memoirs, the single most important cut was directed at retirement benefits. So the Tories’ very first budget, passed by Parliament in 1979, included a fateful change in the formula for basic state pensions. For years before that, state pensions had risen in line with wages; but the 1979 budget decreed that in the future, they would rise in line with inflation. This is one key change that the Bush administration is contemplating today for Social Security. In Britain, by most accounts, the change caused little political fanfare at the time. Ros Altmann, a Harvard-trained specialist in pension economics and a governor at the London School of Economics, says that neither the voting public nor most politicians understood the true implications of altering the link to wages. But those who pushed for the change knew what they were doing: They were slowing the rate of growth in pension increases, because in the United Kingdom, wages have historically risen by 1.5 percentage points to 2 percentage points ahead of inflation each year. (Wages rise ahead of inflation in America as well.) “Two percent doesn’t sound like much,” Altmann notes. “But with the effects of compound interest, that amounts to nearly a 50-percent reduction in the value of benefits over 30 to 40 years.” As a result, the basic state pension in the United Kingdom -- the equivalent of U.S. Social Security -- is today lower than that in all but four other European countries: Portugal, Greece, Belgium, and Ireland. It is also substantially below that of its U.S. counterpart. The American observer may find it odd that Britain’s voting public was prepared to put up with so low a basic state pension. Why did voters never demand more generous old-age benefits? The answer lies in the fact that the United Kingdom has one of the most generous employer-backed pension systems in Europe. Aggregate assets in U.K. pension funds far outstrip the value of similar funds on the continent. Indeed, in a report issued last October, the Pensions Commission acknowledged this very point. “The UK pension system appeared in the past to work well because one of the least generous systems in the developed world was complemented by the most developed system of voluntary private funded pensions,” the commission wrote. “This rosy picture always hid multiple inadequacies relating to specific groups of people, but on average the system worked.” Thus, with most Britons assured that their private pensions would protect them, the Tories faced little opposition as they kept at reducing state pensions. The Labour Party, then in opposition, was relatively acquiescent, in part because just a few years earlier, a bipartisan group had agreed on a new legislative centerpiece that was designed to ensure that old-age pensions retained their purchasing power. This legislation established a new and more generous second tier of the basic state pension, which was to be known as SERPS (State Earnings-Related Pension Scheme) and which promised to deliver every worker an additional pension, over and above the basic-level pension and equal to a percentage of the average of his or her best 25 years of wages. * * * That additional pension was known as the Guaranteed Minimum Pension (GMP) because, unlike the basic state pension, it set a floor under the smallest benefit a worker could expect in retirement. But it contained an interesting wrinkle: Employers who provided their own schemes for their workers could be allowed a reduction of roughly 60 percent of their payroll taxes if they guaranteed to provide a pension at least as good as the GMP. Thus was established the principle of “contracting out,” the British term for allowing citizens to divert money from state schemes and to invest instead in private plans -- the term of art, in other words, for privatization. The practice was finally put into place in force with a piece of legislation that passed in 1986. The narrative of how this came to pass will sound familiar to those who have been following the current debate in America. At the start of 1984, then–Chancellor Nigel Lawson (now Sir Nigel; his daughter Nigella has more recently won great culinary fame on American television) had begun to express his alarm at projections for the cost of SERPS over the next 50 years. A colleague in the cabinet, Social Security Secretary Norman Fowler (also now a “Sir,” albeit one lacking a daughter famous in the States), advocated abolishing it altogether. In his memoirs, Lawson describes SERPS as “a doomsday machine” and calls its provisions “irresponsible generosity.” Both men were strong advocates of personal pensions. However, what Lawson does not say is that while the SERPS expenditure was likely to peak in the year 2030 (projections for that year appeared in all discussions about the need to curtail it), it was projected to fall off after that. But -- here’s another wrinkle that should sound familiar to American ears -- by focusing on projections for 2030, the sense of impending crisis prevailed in the media. And so, in 1985, the Conservatives pushed through what would become the landmark legislation of social-security privatization. The new law curtailed some SERPS benefits; allowed employees the choice of either joining SERPS or setting up a personal pension scheme; and, crucially, allowed those choosing a personal pension to contract out of SERPS altogether. It was these last two elements, when combined, that led to one of the greatest financial scandals in recent memory and that, together, have undermined confidence in long-term savings in Britain. The new rules on personal pensions and contracting out did not take effect until 1988. But in the months leading up to their launch, the government spent substantial sums on advertising aimed at encouraging Britons to take them up. The Thatcherite government was so eager to pursue its ideological agenda that it spent taxpayers’ money on it; the 1985 act had included a payment into the fund giving an additional 2-percent tax rebate to those taking out a new personal pension between 1988 and 1993. When contracting out began, predictions from the Government Actuary’s Department forecast that no more than 500,000 people would take up personal pensions. A former official told the Financial Times at the time, “We all told the secretary of state that personal pensions were really only good for the very young or for very high earners.” But in the first five years, the number of private pensions sold would turn out to be 10 times those two segments of the population. The legislation, and the accompanying public-relations blitz, worked: The “take-up,” as the British call it, of personal pensions was successful beyond the ministers’ wildest dreams and was hailed as one of the triumphs of the Tory government. By the end of the 1988–89 tax year -- the first year in which they were available -- more than 1 million private pensions had been sold, twice the government projection. By the end of the following tax year they totaled 3.9 million, rising to 4.3 million at the end of the 1991 tax year. It wasn’t until a July 1992 gathering of ministers and civil servants at Chevening, the chancellor of the exchequer’s country residence, that the government got its first official warning that all was not well. On the opening day of a strategy session called by then–Social Security Secretary Peter Lilley, ministers were alerted to the costs now associated with persuading people to opt out of occupational and state pension schemes into personal pension plans. The warning came from David Clark, then deputy secretary for pensions, in a paper to the assembled group. A minister recalled to me, “The paper said that, in some sense, personal pensions have been a tremendous success, but there are a few time bombs ticking away there.” A report written two years earlier by the National Audit Office confirmed what Clark had told the disbelieving ministers. The government had sent out £9 billion in rebates from 1988 to 1993 to people who had agreed to contract out; but at the same time, the massive shift to private pensions was going to cut SERPS costs by only £3.1 billion. In other words, the government was spending much more than it was saving by bribing people to leave SERPS. What had once been a £1.6-billion surplus in the National Insurance Fund vanished completely. Worst of all, many workers left good occupational plans and faced being worse off, not better off, in retirement by depending on the privatized schemes. Finally, Britain’s financial services regulator, the Securities and Investment Board, reacted. Over the objections of the insurance industry, it undertook random samples of paperwork from personal pension clients of most large providers and discovered that a staggering percentage of pensions had been sold to those who would be worse off in retirement as a result. The public outcry over the “mis-selling” scandal forced the government to act. It established a review panel and ordered that all those who had been made worse off by taking out a personal pension be compensated by the seller. Over the next eight years, roughly 1.7 million people sought and received compensation that ultimately cost the insurance industry £12 billion. In addition, hundreds of millions were paid out in fines and penalties. It was the biggest financial scandal in the United Kingdom to date. In retrospect, it is no surprise that personal pensions became controversial; the insurance industry, which would benefit most from their creation, was also the most influential in crafting their design. For advice, Fowler relied heavily on a small group that included the highly influential insurance executive Sir Mark Weinberg, who had launched three insurance companies. According to Fowler’s former aides, no one influenced Fowler more than Weinberg. “In the main, Weinberg was the only person in the industry who Fowler had direct contact with,” one former staffer says. * * * Today, another financial scandal looms, and this one could be bigger. It involves the United Kingdom’s occupational schemes, long the backbone of retirement provision (they are the British equivalent of traditional U.S. pension plans). The drop in real interest rates and the accompanying disappearance in high returns on equities have left most British occupational pension schemes in deficit. Employers sponsoring some 70 percent of all defined-benefit plans -- in which the retirement pay is a percentage of the final salary -- have shut their doors to new members. Instead, as with American 401(k) plans, employers are offering defined-contribution plans in which company contributions, per worker, are very much lower than those of the schemes they replace. They’re unlikely to ever deliver anything like the old-style retirement benefits. What has made this abandonment particularly acute is that the United Kingdom was so confident of the strength of its occupational plans that Tory and Labour governments alike insisted that no insurance scheme would be necessary. But the crisis within the occupational pension system has laid bare just how inadequate Britain’s public pension schemes have been. Now, some 65,000 British workers have lost all or part of their pensions as a wave of insolvent employers are discovered to have left their pension schemes severely underfunded. Some do not even have the cash to pay the GMPs that were promised in exchange for tax rebates. A 1995 attempt at reform fizzled. Those who have lost out have discovered that they have nothing to fall back on except the basic state pension, which is now so miserly because of changes put in place during the first year of the Thatcher reign that those relying solely upon it for their retirement income are defined as destitute. And that GMP, which was meant to supplement the basic state pension? “The Guaranteed Minimum Pension turned out to be neither guaranteed nor a minimum,” says Ros Altmann of the London School of Economics. “These people would have been better off keeping their money under the mattress.” This, then, is the situation in Britain today: According to the Department for Work and Pensions, in 2004 alone, 500,000 people abandoned private pensions and moved back into the state system. Government actuaries expect another 250,000 to contract back in this year. In 2004, the Association of British Insurers, the trade association representing the companies that sell the private accounts, made a collective decision not to risk any more allegations of mis-selling. It urged all of its member firms to warn those who had taken tax rebates to open private accounts that they might have made a bad choice. The advice was particularly aimed at older workers with fewer years until retirement. Many insurance companies -- the sellers of the private accounts -- have been writing their customers urging them to contract back in to the state system. And, of course, even the U.K. version of the U.S. Chamber of Commerce has endorsed the idea of raising taxes to increase benefit levels. * * * Pension policy threatens to become a key issue in the British elections in May. To be fair, the United Kingdom is hardly alone in facing a pension crisis. With sharp increases in life expectancy among the elderly and plunging fertility rates, every nation in the world will face similar challenges. Moreover, the demographic patterns are similar even in less-developed nations; Mexico, for instance, is forecast to have old-age life expectancy similar to that of the United States in a few decades’ time. But whatever the solution to that challenge, there is little disagreement within the United Kingdom that the path chosen by successive governments over the past 25 years is not the right one. The Pensions Commission recently completed the most comprehensive review ever of the U.K. system and concluded that there are only four possible solutions for the difficulties ahead: cutting state retirement benefits, increasing taxes, increasing savings, or delaying retirement. While noting that there is no political support for the first choice, the commission concluded that each of the three other choices, on its own, is too painful. Only some combination of them is likely to help Britain’s elderly obtain retirement with dignity. Adair Turner, chairman of the commission, a vice chairman of Merrill Lynch in London, and the former director general of the United Kingdom’s biggest business lobbying group, says, “There are no other choices.” And so, at the exact moment that America contemplates replicating this disaster, many in Britain -- some conservatives included -- are looking more and more kindly on American Social Security as a model for reform. The National Association of Pension Funds, a group of employers who sponsor the nation’s largest schemes, is urging government not to expect the private sector to shoulder the burden of keeping the nation’s elderly from poverty. Chief executive Christine Farnish notes that it’s “actually cheaper for the state to carry the risk,” adding that in looking for a system that offers the best combination of modest guaranteed retirement benefits delivered at low cost, the U.S. Social Security program seems the best model. “It doesn’t have to make a profit, and it delivers efficiencies of scale that most companies would die for,” she says. And that is how the British eye, wearied after beholding decades of privatization “reform,” views the American system, which has served the United States so remarkably well for seven decades but which supposedly is now in dire crisis and must be overhauled by the time the forsythia bloom. It’s a point of view Americans would do well to take in. Norma Cohen is senior corporate reporter at the Financial Times and is currently responsible for coverage of pension issues.

Subject: Tech or Trash Exports From: Emma To: All Date Posted: Fri, Jan 14, 2005 at 12:26:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/14/business/14norris.html U.S. Tech Exports Slide, but Trash Sales Are Up By Floyd Norris Who says the United States cannot compete? Trade statistics may indicate the country is slipping in technology, but we're still tops in trash. In the late 1990's, those who counseled Americans not to be worried about the growing trade deficit pointed to 'advanced technology products' - a category tracked by the government that reflects what it calls leading-edge technologies. The United States was running a sizable trade surplus in that area, and shipments of those products were rising much more rapidly than other exports. All that has changed. In November, the United States had a record trade deficit of $5.8 billion in advanced technology products. For the most recent 12 months, the deficit was $36.9 billion, also a record. And where is the strength? The trade surplus in what the government calls 'scrap and waste' is rising. The 12-month total of $8.4 billion in such exports is up 31 percent from a year earlier. 'What is effectively rubbish,' said John Lonski, the chief economist of Moody's, 'serves as one of the U.S.'s fastest-growing export categories.' Compare the annual levels of exports in those two areas with those of 1999, and you get a stark picture. Exports of advanced technology products are down 21 percent, while those of scrap and waste are up 135 percent. To some extent the technology decline reflects the bursting of the bubble, but imports of technology products are up 28 percent, indicating that it's not just the bubble at work. There are easy jokes to be made about trash and technology, but to make them is to risk overlooking the real importance of the deteriorating trade picture, which is that American competitiveness is waning rapidly, and the lower dollar has done nothing to correct that. 'Businesses and plants that might have weathered a few years of uncompetitive exchange rates are being permanently shut down,' wrote Bob Prince of Bridgewater Associates, a money management and advisory firm, after the November trade numbers came out. 'If prices adjusted more fluidly, these businesses and plants would recover once the dollar fell,' he wrote. Instead, China, which runs the biggest trade surplus with the United States, does not allow its yuan to rise against the dollar, and other Asian countries have similar policies. Mr. Prince calculates that the dollar is down only 5 percent against a basket of currencies weighted to reflect current American imports, although it is off 20 percent against a basket reflecting imports in 2000. The willingness of China to put its money into Treasury securities has served both to prevent changes in currency values and to hold down American interest rates, thus encouraging more American consumption and bigger trade deficits. In the words of Cathy E. Minehan, the president of the Federal Reserve Bank of Boston, 'Unavoidable economic logic suggests that eventually this situation will prove unsustainable.' But eventually can be a long time, and in Washington no one seems eager to deal with the root problems. The administration blames Europe and Japan for not growing rapidly enough, and thus wanting more American exports, which conveniently ignores questions of American competitiveness. Some other politicians hope to use the dismal trade numbers to gain support for protectionist legislation to benefit one industry or another. It is not clear what will end this trend. For now, foreigners seem happy to lend Americans money - largely through purchases of government and corporate bonds - thus allowing Americans to buy things and keep the foreigners working. The Americans are happy to keep borrowing and buying. But eventually there may be limits both to how much money foreigners will lend and to how much trash the United States can export.

Subject: Euro Crisis? What Euro Crisis? From: Emma To: All Date Posted: Fri, Jan 14, 2005 at 09:42:41 (EST) Email Address: Not Provided Message: In Europe, a Shift: Euro Crisis? What Euro Crisis? By MARK LANDLER FRANKFURT - Europeans, many of whom worked themselves up about the swooning dollar and the stampeding euro last year, suddenly seem to have mellowed, as the dollar has rebounded in recent weeks. Public and private comments by central bankers and other officials here have been noticeably more relaxed since the beginning of January, when the dollar reversed its relentless decline against the euro - even though economists caution that underlying trends have not changed. The European Central Bank left its benchmark interest rate unchanged at 2 percent on Thursday, and its president, Jean-Claude Trichet, delivered a more sanguine message about growth prospects and inflation. 'The environment has changed a little,' Mr. Trichet said at a news conference in Frankfurt. He noted that the recent decline in oil prices had eased inflationary pressure and removed another hurdle to growth. 'While short-term inflationary pressures persist, they have recently diminished somewhat,' Mr. Trichet declared, adding, 'the conditions remain in place for economic growth to proceed.' The European Central Bank has tried to avoid being buffeted by the daily swings in the currency markets, resisting pressure last month to reduce interest rates, as the euro set daily records against the dollar. European exporters complain that this has depressed their sales in the United States. On Thursday, Mr. Trichet reiterated that sharp currency moves were unwelcome and undesirable for growth. But his otherwise relaxed tone suggested that for now, the euro was a manageable problem. 'What central bankers really hate is a very quick appreciation in their currency,' said Jörg Krämer, a senior economist at the HVB Group in Munich. 'The speed of the euro's appreciation has come down somewhat, so they are a bit more relaxed.' Mr. Krämer and other economists warn that the dollar's rebound is probably a technical correction rather than a lasting shift. Most expect the euro to resume its upward course against the dollar, especially since the United States reported a record trade deficit and Asian countries, notably China, show few signs of letting their currencies appreciate against the dollar. But even at an exchange rate of $1.36, which the euro reached on Dec. 30, most economists say the pressure on European exporters is bearable (on Thursday, the euro declined slightly, to $1.3203). Germany reported on Thursday that its exports grew 8.2 percent last year, which drove the economy to a growth rate of 1.1 percent in 2004. While the strong euro cut into exports to the United States, Germany was able to offset that with robust shipments to other European countries and Asia. 'I'm not sure anymore whether the euro-dollar rate is such an enormous hurdle, especially for German industry,' said Thomas Mayer, the chief European economist at Deutsche Bank in London. The recent wage agreements negotiated by German companies like Siemens and Volkswagen made German industry more competitive, Mr. Mayer said. Italy and Spain, which have not undergone such a process, are feeling the effects of the currency on their exports more acutely. For the first time in years, economists are starting to speak of Germany as a potential engine of growth for Europe, rather than a dragging anchor. Retail sales picked up here over the Christmas holiday season, and surveys of German business confidence turned up sharply in December. The recovery of the dollar has also shifted many Europeans' gaze from the United States to Asia. While European leaders were calling on the United States to tackle its trade and budget deficits last month, they are now calling on the Asians to allow their currencies to rise. 'There is a need for emerging Asia to go progressively in the direction of perhaps progressive and orderly appreciation,' Mr. Trichet said, echoing comments made by the central bank's chief economist, Otmar Issing. The change in tone, economists say, is also a response to recent comments by the American Treasury secretary, John W. Snow, about the need to reduce the budget deficit in the United States. Mr. Trichet, among other officials, said he took Mr. Snow's remarks very seriously. There is still plenty of skepticism here about the readiness of the United States to confront the deficit or stanch the fall of the dollar, especially since a weak dollar benefits American exporters. But after months of frustration, some here are choosing to look on the bright side. 'Europe has worried so much about the fiscal situation in the United States, much more than anyone in the U.S. worries about it,' said Holger Schmieding, a European economist at Bank of America in London. 'This is one area where sentiment is changing a bit.'

Subject: China and the Dollar From: Emma To: All Date Posted: Fri, Jan 14, 2005 at 09:41:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/14/business/worldbusiness/14yuan.html?pagewanted=all&position= A Chinese Revaluation May Not Help U.S. By KEITH BRADSHER GUANGZHOU, China - Nearly the size of an old station wagon, a bright orange machine here mashes plastic pellets into rows of six-inch-long blue clips for hospitals across the United States. Pan Guotao, a 29-year-old worker from a village in northern China, sits on a plastic stool next to the machine and wields a straight razor to slice apart the clips, which are used to hold ice packs in plastic sleeves. It looks like a simple operation, but it lies at the heart of the American trade deficit with China. The Bush administration and many private economists have urged that the authorities in Beijing allow China's currency, the yuan, to rise in value against the dollar. They want the Chinese to stop buying up dollars in large amounts and issuing more and more yuan to hold down the value of the currency. But many Chinese and foreign executives in China say that a revaluation of the yuan, whose exchange value is linked to the dollar, is unlikely to be a silver bullet for dealing with the American deficit. Costs here are so low, they say, that a revaluation is unlikely to narrow the deficit appreciably, and might even increase it. China's edge in exports these days goes far beyond the low wages of Ms. Pan, who earns $1 an hour, with free room and board. Her employer, Charles M. Hubbs, who owns the plastics factory, calculates that the rent for his operation here, built by workers earning even less than Ms. Pan, is a quarter of what it would be in a city like Houston. Perhaps more important, China has learned to build factories and many kinds of equipment at a fraction of the cost in Western countries. The big orange plastic injection molding machine costs $18,000 here, compared with as much as $60,000 for American models; the Chinese-made machine breaks down a little more often, but can be quickly fixed because the assembly plant is less than two miles away. The costliest part, a specially hardened and shaped mold used to form the clips, runs less than $8,000, against $70,000 in the United States. Such savings leave Mr. Hubbs feeling insulated from even a big shift in the value of the yuan, which trades around 8.28 to the dollar. 'With the currency where it is today,' he said, 'we can save 30 percent over our competition in the Caribbean easily.' Making the yuan more expensive against the dollar would mean that American exporters to China, like Boeing, could sell more goods. Importers like Wal-Mart would have to pay more for the toys, clothes and other goods they buy. That would give Wal-Mart and others an incentive to import from other nations, or even use American suppliers. Yet executives in many industries say that China's competitive advantages are so great that even the largest increase in the yuan that Beijing might approve this year, perhaps 10 percent, would not significantly cut into the American trade deficit with China. Indeed, revaluation is likely to increase the deficit for months and perhaps years, by immediately driving up the already considerable cost of what the United States imports from China. A stronger yuan would give a boost to American companies exporting to China because their goods would become cheaper here. But the United States now buys nearly five times as much from China as China does from the United States. So the gains from a rise in the smaller amount of exports are likely to be overwhelmed by the much higher cost of the larger amount of imports. Alan G. Hassenfeld, the chairman of Hasbro, said that a revaluation of 3 percent to 5 percent this spring seems most likely. But that degree of change would not prompt toymakers to look seriously at moving production to lower-wage countries like Vietnam or India. Chinese toy factories, he said, had a big advantage over factories elsewhere in the quality and dedication of their workers and managers. Even a 25 percent increase in the value of the yuan, which few say they expect, would still allow many toymakers to export a wide range of products from China successfully. An increase that big would probably prompt manufacturers to move some of their bulkiest products, like car-racing sets, to countries closer to the United States to save on shipping costs, Mr. Hassenfeld said. 'You wouldn't run,' he said, 'but you would take some items and move them back to a Mexico' or some other nearby country. Companies, like toymakers, that use a lot of Chinese labor are the most likely to be affected by a stronger yuan. That is because the workers are paid in yuan, and wages are already rising in China - even without an appreciating yuan. Daniel Chou, export manager at the Ningbo Keerdeng Toys Company near Shanghai, said its average assembly-line wages had nearly doubled in the last five years, to $181 a month from $97. His factory, unlike Mr. Hubbs's, does not provide free room and board. Space in a shared apartment nearby costs $12 a month and food, $30. Improving conditions in rural areas have left workers more reluctant to move to the cities unless they are paid more. Ningbo Keerdeng has dealt with rising wages the same way as factories in advanced nations - by automating and investing more in design. The company makes Santa dolls that push themselves across the floor on skis, and machines sew zippers and hems for the dolls' garments. It would take a much larger revaluation of the yuan to create a serious problem for the business, and few people expect that, Mr. Chou said. If the currency 'increases 15 percent, that would be very high, and 20 percent would be a disaster,' he said. The Dandelion Greeting Card Company, in Yiwu, a city in southeastern China, has taken the same approach. The company's cards have delicate, intricate flowers glued to vases on the front and are promoted as handmade. But Zhu Songwei, the general manager, said that computer-controlled machines are now used to design, print and cut the material for the cards, improving quality, and that workers only glue on the flowers in a final step machines cannot affordably do. Mr. Zhu added that a revaluation of the yuan would 'not have much effect because we have better quality and design' than other countries that also had low-wage workers gluing greeting cards. The notable exception to corporate China's ability to withstand an increase in the yuan may be the industry that requires the most labor of all: apparel, especially low-end garments that involve a lot of very basic sewing that can be done by unskilled and even illiterate workers. Peter Peng, a manager at the Xiamen Point Light Industrial Company in southeastern China, which makes inexpensive knapsacks for children, said it would be 'a disaster' if Beijing allowed the yuan to increase by 10 percent. A few competitors from Taiwan have already begun setting up operations in Vietnam to take advantage of the lower wages, he said. A rising yuan would also offer some consolation to a sizable number of Chinese exporters. Factories that are less labor-intensive, like auto parts and computers, tend to rely heavily on imported material, from oil to computer chips, and those imports are priced mostly in dollars. So a rise in the yuan would reduce the cost of their material. Mr. Hubbs's business, Fortunique Ltd., buys various plastic resins from Saudi Arabia, Thailand and the United States, supplied by Exxon Mobil and Dow Chemical. He calculates that nearly a third of his total costs are incurred in dollars. Thus, in some ways, a stronger yuan might not only allow the Chinese to continue selling exports to Americans, but have a muted effect on the United States' relatively modest exports to this country. These totaled $25.06 billion in the first 11 months of 2004, compared with $114.19 billion in imports from China. The United States is strongest in exports of food, notably soybeans, and infrastructure equipment, like the big turbines that General Electric ships and the powerful digging equipment Caterpillar sells. American equipment makers do not compete directly with Chinese manufacturers in many products. The Chinese companies either do not produce the equipment at all or they produce equipment that is much inferior in quality. That limits the potential for the Americans to take advantage of a higher yuan to sell more products and take market share from the Chinese companies. At the same time, China's demand for food is growing more slowly than for many other kinds of products. Although the Chinese are eating more meat, which requires more tons of animal feed than importing food for direct consumption, overall increases remain modest. Merle A. Hinrichs, chief executive of Global Sources, an online intermediary and catalog company for 140,000 overseas suppliers to the American market, the majority in China, said the company's surveys of consumer-goods industries had found no sign that anything short of a very large revaluation would make much difference. 'It has more of a perception impact than an actual impact,' he said. 'It's not going to impact the actual trade a lot.'

Subject: letter to mr krugman From: renato de azevedo To: All Date Posted: Thurs, Jan 13, 2005 at 18:39:57 (EST) Email Address: igor.potter@uol.com.br Message:

Subject: Krugman's BOOKS From: Federico To: All Date Posted: Thurs, Jan 13, 2005 at 14:57:48 (EST) Email Address: friedrichkater@yahoo.com Message: Hello, I'm from Argentina and I would like to know the titles of two books I have understood P. Krugman has published. And, if it's possible, if exists a version in Spanish. The first one is about the way Malaysia (SouthEast of Asia) succeded solving it's debt payments problem, but finding the exit eluding the IMF orders and 'sugestions'. The second one is about the Financial System and National Money Value collapses in Argentina (2001-2002) and the attempts of this country to deal with the IMF to solve the Default (debt payment cease) problem. If you have any idea and you could write me I would be thankfull.

Subject: Betting The 'Eco-' From: Pancho Villa To: All Date Posted: Thurs, Jan 13, 2005 at 13:28:01 (EST) Email Address: nma@hotmail.com Message: Betting the House by Robert J. Shiller Homeowners around the world effectively gamble on home prices. Their risks today are often big due to real estate bubbles in such glamour cities as London, Paris, Madrid, Rome, Istanbul, Moscow, Shanghai, Hangzhou, Sydney, Melbourne, Vancouver, Los Angeles, Las Vegas, Boston, New York, Washington, D.C., and Miami. Those bubbles may keep expanding, or may burst, leaving many homeowners mired in debt. The risk to home prices in the aftermath of a bubble is real and substantial. In the last cycle of real estate busts, real (inflation-corrected) home prices fell 46% in London in 1988-95, 41% in Los Angeles in 1989-1997, 43% in Paris in 1991-98, 67% in Moscow in 1993-97, and 38% in Shanghai in 1995-1999. All of these drops were eventually reversed, and all of these markets have boomed recently. But this does not guarantee that future drops will have a similar outcome. On the contrary, the future real value of our homes is fundamentally uncertain. Most homeowners are not gambling for pleasure. They are just buying real estate because they need it. But, because they do nothing to protect themselves against their real estate price risks, they are unwitting gamblers. In fact, home buyers in most countries do nothing to protect themselves – short of selling their homes – because there is nothing to be done. A market for real estate derivatives that can help balance these risks is only just beginning to appear. Well-developed markets for real estate derivatives would allow homeowners to kick the gambling habit. A liquid, cash-settled futures market that is based on an index of home prices in a city would enable a homeowner living there to sell in a futures market to protect himself. If home prices fall sharply in that city, the drop in the value of the home would be offset by an increase in the value of the futures contract. That is how advanced risk management works, as financial professionals know. But the tools needed to hedge such risks should be made available to everyone. Attempts to set up derivatives markets for real estate have -- so far -- all met with only limited success. In May 2003, Goldman, Sachs & Co. began offering cash-settled covered warrants on house prices in the United Kingdom, based on the Halifax House Price Index and traded on the London Stock Exchange. In October 2004, Hedgestreet.com began offering “hedgelets” on real estate prices in US cities – contracts that pay out if the rate of increase in home prices based on the OFHEO Home Price Index falls within a pre-specified range. My former student Allan Weiss and I have been campaigning since 1990 for better risk management institutions for real estate. In 1999, we co-founded a firm, Macro Securities Research, LLC, to promote the development of such institutions, working with the American Stock Exchange to create securities that would allow people to manage real estate as well as other risks. These will be long-term securities that pay regular dividends, like stocks, whose value is tied – either positively or negatively ­– to a real estate price index. Early this month, the Chicago Mercantile Exchange announced that it will also work with us to explore the development of futures markets in US metropolitan-area home prices. We hope to facilitate the creation of such markets in other countries as well. Because even many financially sophisticated homeowners will find direct participation in derivative markets too daunting, the next stage in the development of real estate risk management will be to create suitable retail products. For example, the derivative markets should create an environment that encourages insurers to develop home equity insurance, which insures homeowners not just against a bust but also against drops in the market value of the home. Such insurance ­should be attractive to homeowners if it is offered as an add-on to their existing insurance policies. Derivatives markets for real estate should also facilitate the creation of mortgage loans that help homeowners manage risks by, say, reducing the amount owed if a home’s value drops. Such products should appeal to homebuyers when the mortgage is first issued. Insurance companies and mortgage companies ought to be willing to offer such products if they can hedge the home-price risks in liquid derivative markets. Creating these retail products will require time, experimentation, and some real innovation. Over the next decade, we might expect that a broad spectrum of insurance, lending, and securities companies will become involved. As these retail products start to take shape, they will spur increased activity in the derivative markets. As the new risk-management industry develops, its components will gradually boost each other. These developments offer hope that current and future homeowners will be spared the agony of worrying about the vicissitudes of the real estate market. They will be able to leave the game of real estate speculation to professionals and rest assured about the value that they have accumulated in their homes. That is good news, because there is a pretty strong chance that we are going to see major price declines in a number of cities around the globe in the next few years, and these price declines will cause real pain to many homeowners. But if the momentum toward better risk management continues, it will be the last real estate cycle in which homeowners are unable to protect themselves.

Subject: Betting the House From: Jennifer To: Pancho Villa Date Posted: Thurs, Jan 13, 2005 at 16:46:45 (EST) Email Address: Not Provided Message: http://www.dailytimes.com.pk/default.asp?page=story_22-12-2004_pg5_18 Betting the House

Subject: REITs From: Terri To: All Date Posted: Thurs, Jan 13, 2005 at 12:20:12 (EST) Email Address: Not Provided Message: Notice the REIT Index at Vanguard. REITs have had a negative earnings growth rate for the last 4 years, though property prices have risen and REITs have rapidly grown from 2000. This year the REIT Index is down more than 7%, so at least some profits are being taken.

Subject: Re: REITs From: Institutional Investor To: Terri Date Posted: Thurs, Jan 13, 2005 at 13:02:19 (EST) Email Address: Not Provided Message: i'd recommend looking at reits a different way. A lot of money has been moved to value stocks, particulary reits, because of the income they payout. A large part of their increase can be attributed to that fact (ie just like the shift to bonds), not just because property values are rising. If you look at the link below you'll see the diversification of wilshire's reit index, http://advisors.ssga.com/etf/fund/etf_detail_RWR.jsp Many real estate managers expect a pickup in the office space, retail, and hotels as the economy gains steam. Historically many property owners would have folded over the past few years due to the market environment, but due to extremely low interest rates they have been able to refinance and leverage their mortgages to maintain ownership. Should the industry pick up, like many managers expect, their maybe even more profits ahead in the future. (this isn't my view, rather a collection of opinions I've gained from talking to different NCREIF/REIT managers at different funds)

Subject: Re: REITs From: Jennifer To: Institutional Investor Date Posted: Thurs, Jan 13, 2005 at 18:47:45 (EST) Email Address: Not Provided Message: Another most helpful comment! Thanks, Institutional Investor.

Subject: Social Security Investing From: Emma To: All Date Posted: Thurs, Jan 13, 2005 at 10:56:28 (EST) Email Address: Not Provided Message: There is a serious structural government deficit, and any plan for Social Security such as direct investment of revenue in a total stock market index should not responsibly involve adding to government debt. As long as there is no chance for increasing payroll tax revenue, there should be no direct stock market investment of funds. Social Security is in surplus and will be for another 13 years at least. If the economy grows at an historically viable rate there may 'never' be a Social Security problem. With reasonable economic growth, the revenue stream will fund full benefits decade after decade. So, my wish is that we turn from Social Security to a more responsible fiscal policy. The most significant threat to reasonable long term economic growth is a fiscal policy that builds impossible deficits. There is my worry, but we are only responding to policy initiatives rather than defining them.

Subject: Social Security and Debt From: Emma To: Emma Date Posted: Thurs, Jan 13, 2005 at 10:57:15 (EST) Email Address: Not Provided Message: Generating a surplus in Social Security for a generation was sensible because of the population ripple that has been caused by parents of the baby boomers. The surplus accumulated will begin to be drawn down in another 13 years, so we must be careful before changing investments. Debt matters when it grows beyond the rate of economic growth, and this is what will happen with government debt in coming years. We should then surely avoid new debt.

Subject: China and the Persian Gulf From: Emma To: All Date Posted: Thurs, Jan 13, 2005 at 10:37:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/13/business/worldbusiness/13oil.html China Goes Beyond Oil in Forging Ties to Persian Gulf By BORZOU DARAGAHI BAGHDAD - Lured by the world's largest oil reserves and some markets considered too risky by Western companies, China is quickly becoming a major economic player in the Persian Gulf, making deals in transportation and technology, showcasing its consumer goods and shoring up agreements to meet its enormous energy needs. 'The current state of business ties between China and the gulf states is definitely growing, with an interest from both sides to expand ties,' said Christian Koch, program director at the Gulf Research Center, an independent institute based in the United Arab Emirates. 'Oil is certainly the most central aspect to the relations, but ties should not be seen exclusively through that prism.' Trade volume between China and the six rich countries of the Gulf Cooperation Council - the United Arab Emirates, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman - was expected to reach $20 billion in 2004, up from $16.9 billion in 2003, according to the National Bureau of Statistics in China. Trade between China and Iran is expected to have totaled $7 billion in 2004, up from $5.6 billion in 2003, according to the Iran-China Chamber of Commerce, which was established in 2000. China and the Gulf Cooperation Council countries began talks to try to strike a free trade agreement last summer. Middle East analysts say they have noticed increased business between Chinese officials and companies and their gulf counterparts. The increase has been 'in scale and scope,' said John Calabrese, an editor at The Middle East Journal, a scholarly quarterly in Washington, who wrote his doctoral thesis on relations between China and the Middle East. The surge in wheeling and dealing hardly represents a triumph of free enterprise. The trade mostly amounts to state-owned companies in China and the gulf nations pairing up to get oil and natural gas to China, and state-owned Chinese consumer and technology companies exporting their wares to the gulf. Recently, Chinese symbols have begun appearing on the sandy dunes of the Middle East. Last month, for instance, officials in Dubai, the glittering city-state of the United Arab Emirates, opened the Dragon Mart, a 1.6-million-square-foot shopping mall built in the shape of a dragon and heralded as a showcase for Chinese products. China has been buying crude oil from anywhere in the world that sells it since 1993, when its explosive economic growth turned it into a net importer of oil. But in the last few years, analysts say, the country has realized it must vie more aggressively and have a greater physical presence in the region to gain access to the Middle East's diminishing reserves at a time of increasing competition for them. 'They realize they can't just buy crude,' Mr. Calabrese said in a telephone interview. 'They've got to play ball now in producer countries and develop refining capacity in the region.' And there was a lot of ball-playing last year. In one of the biggest deals of a busy year between China and the gulf, the China Petroleum and Chemical Corporation, known as Sinopec, signed an agreement in March with Saudi Aramco to spend $300 million to develop natural gas resources in Saudi Arabia near the Ghawar field. The deal raised eyebrows for its high risk and potentially low returns. But Colin Lothian, senior analyst for the Middle East at the energy consultant firm Wood MacKenzie in Edinburgh, said it put China in a good position for the future. 'It's a political deal,' he said. 'It's about forming relations with Saudi Arabia in order to secure China's long-term energy needs so when they do come looking for crude they'll be viewed favorably.' Across the gulf in Iran, Sinopec agreed to buy 250 million tons of natural gas over 30 years, to jump-start the country's stalling natural gas industry. In exchange, Iran will export 150,000 barrels of crude a day to China after Sinopec has developed the Yadavaran oil field in a package deal worth $70 billion. Zhuhai Zhenrong, a Chinese oil-trading firm, signed a 25-year natural gas deal in Iran last March worth $20 billion. And the China National Petroleum Corporation bought the Iranian subsidiary of Sheer Energy of Calgary, Alberta, giving it a 49 percent stake in the Masjed-i-Suleiman oil field, in a seven-year deal worth $121 million. According to Amy Myers Jaffe, a fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston, 'The Chinese companies have a policy of trying to find oil and gas deals where they don't have to compete with the U.S. oil companies.' 'They tend toward countries where the U.S. has sanctions like Sudan, Iran and Iraq,' she added, in an e-mail message. China has been active in Iraq as well, despite security concerns there, though it now imports no more than four million barrels of Iraqi oil a month. In September, Sinopec signed a $15 million deal to build oil storage operations in Basra, while China National Petroleum continues to make noises about a memorandum of understanding it received from Saddam Hussein to develop the Ahdab oil field in Iraq. China has long had some ties to the Middle East, often marketing weapons to regimes that Washington abhorred as well as selling cheap consumer goods. In the 1980's, China's main exports to the Middle East were 'plastic fly swatters and Silkworm missiles,' Mr. Calabrese, the scholar, said. 'Though it had an interest in penetrating the Middle East economically, it didn't have the ability.' China's nonpetroleum businesses in the gulf now go much deeper. FiberHome Communication Technology, a Chinese maker of equipment for fiber optic networks, won a contract to help build a broadband network in Iran, while the Hisense Electric Company, a state-owned television maker, has built a factory there. Iran is also home to the first foreign assembly plant of the Chery Automobile Company, based in rural Anhui Province of China. Built last year, the plant is on track to turn out as many as 50,000 cars a year in partnership with an Iranian company, Sanabad Khodro Tus. The China North Industries Corporation, or Norinco, has signed a $680 million deal to build a line of Tehran's expanding subway system. Huawei Technologies, China's largest telecommunications equipment maker, won the contract to upgrade the broadband capacities of cellular networks in the United Arab Emirates, and a deal to build a G.S.M. network in Saudi Arabia. Also, the Sinoma International Engineering Company of Beijing won contracts last year worth $376 million to build cement plants in Saudi Arabia and the emirates. Oil needs may also motivate such nonpetroleum deals, Mr. Lothian, the analyst, said. 'If you're showing willingness to invest in those areas,' he said, 'it can only help in securing the oil supply.' Few experts say the Chinese can subvert the dominant economic position of the United States in the region, at least anytime soon. Trade between the United States and Saudi Arabia alone totaled $22 billion in 2003, up from $18 billion in 2002, according to reports by the Saudi Arabian Embassy in Washington. Still, America's military and political dominance in the Middle East does not seem to bother the Chinese. Indeed, analysts said, Beijing seems happy to sit back and let Washington manage the region's myriad security and stability issues.

Subject: Question From: Poyetas To: All Date Posted: Thurs, Jan 13, 2005 at 03:12:36 (EST) Email Address: Not Provided Message: Does anyone know what the market premium (rate of return on equity - the risk free rate) is? I mean the actual number, not the defenition. Thanx...

Subject: Private Accounts From: Sylvia To: All Date Posted: Wed, Jan 12, 2005 at 23:45:59 (EST) Email Address: fresyl@inteliport Message: Enjoy your column...wish I could receive Air America Radio in my area of NC. My question: Can you, please, tell me why Individual Retirement Accounts (IRAs)can't be considered 'Private Accounts' rather than spending $2 trillion (initially) to set up the private accounts. The IRAs are already there for us? Why do we need 'private accounts?' Look forward to your comments? Maybe you have already answered my question, but I missed it. Sorry.

Subject: Re: Private Accounts From: cnlowe To: Sylvia Date Posted: Sat, Jan 15, 2005 at 00:06:45 (EST) Email Address: minimc@yahoo.com Message: Depending on your internet access speed, you should be able to listen to Air America Radio. If you have DSL or cable you can stream it from http://www.airamericaradio.com/. If not, then you can go to http://www.airamericaplace.com/ and download any episode, then listen to it after it finishes downloading. 'Paul Krugman is a regular guest on the Al Franken Show every Tuesday.' As to your question about the difference between a retirement account for an individual and an IRA--well an IRA doesn't pull money out of the social security trust fund. The real question is whether the private accounts are really the goal or just a step towards complete privatization.

Subject: Re: Private Accounts From: Jennifer To: cnlowe Date Posted: Sat, Jan 15, 2005 at 09:22:10 (EST) Email Address: Not Provided Message: There is no question unless private accounts are funded with an increase in payroll tax revenue, they are a move to taking Social Security private because either benefits will have to be cut or huge amounts of debt will have to be added to what is already far too much structural government debt.

Subject: Social Security in Sweden From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 21:18:28 (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. In their new book, 'Saving Social Security: A Balanced Approach' (Brookings Institution Press), for example, Peter A. Diamond of M.I.T. and Peter R. Orszag of the Brookings Institution outline a plan to preserve the best elements of Social Security by making politically difficult but sensible reforms, like indexing benefits to rising life expectancy and collecting some payroll taxes above the earnings cap. Sometimes, a little status quo bias is not such a bad thing. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University and a co-editor of The Journal of the European Economic Association.

Subject: Stock and Bond Markets From: Terri To: All Date Posted: Wed, Jan 12, 2005 at 20:10:38 (EST) Email Address: Not Provided Message: So far the stock market is marked by minor profit taking. REITs are down more than 7%, and small caps are down more than large caps. The dollar has strengthened and international markets are a little down in dollar terms. Bonds have shown almost no movement with interest rates staying low.

Subject: To Private Social Security Accounts From: Jennifer To: All Date Posted: Wed, Jan 12, 2005 at 14:45:29 (EST) Email Address: Not Provided Message: The problem is with the cost of transition to private Social Security accounts. Private accounts can pay off far in the future, but the accounts have to be funded now. Funding now will draw off revenue from Social Security. The revenue drawn off would have gone to older workers as they retire. So, there must be a way to fund the change in the system. Raise taxes, cut benefits or borrow. There is no other way.

Subject: Private Social Security Accounts From: Jennifer To: Jennifer Date Posted: Wed, Jan 12, 2005 at 18:00:48 (EST) Email Address: Not Provided Message: These 60 years, there has been a disdain for Social Security on the part of some conservatives. The problem is not with the finances of Social Security, rather with having social benefits programs. The wish is to set us back to where we were before the New Deal, each entirely responsible for our own well-being. Should there be limitations that we face, well that is not the fault or responsibility of society. That is our fault. But, I find I must to an extent be responsible for others and wish in turn that others be responsible for me. Social Security and Medicare and Medicaid were achievements as wonderful as free public schools, and I do hope we can preserve these programs.

Subject: Hold onto the sackcloth and ashes From: Hold onto the sackcloth and ashes To: All Date Posted: Wed, Jan 12, 2005 at 13:43:53 (EST) Email Address: Not Provided Message: The biblical expression “sackcloth and ashes' has been bandied about quite a bit these days. Coming from Rev.Ian Paisley it may sound appropriate. However, it sounds strange coming from journalists and politicians, many of whom haven't an ounce of religion in them. The biblical practice of wearing a coarse sack of black goat hair and sitting on a pile of ashes was a sign of repentance. Although mentioned in Jonah (when the repentant King of Nineveh “arose from his throne, removed his robe, covered himself with sackcloth and sat in ashes'‘), in fact the practice was much more common in medieval times. It was used extensively as a punishment during the Spanish Inquisition, particularly against Jewish and Moorish merchants found guilty of the economic crime of “trading'‘. Not only were the Jews and Moors regarded as suspicious on religious grounds, but also because they maintained trade with other infidels, thus risking the contamination of Christian Spain. Imperial Spain, the richest nation on earth, soon saw the emergence of a pious moral majority coupled with a massive trade and current account deficit. Does this sound familiar? Well, the comparisons between 16th century Spain and 21st century America do not stop there. Imperial Spain, like modern day America, experienced a massive windfall from the gold of its Latin American Empire. The gold and spices flowed in and this should have put the Spaniards miles ahead of everyone. They had capital for projects, buildings and manufacturing; they could build more shipping fleets and trade even more. But they chose to spend the gold on luxury and war. Instead of Spanish merchants and manufacturers using this credit to reduce their costs and thus to export more, by 1575 Spain had almost stopped making things and imported everything. Spain even stopped producing enough food and very soon became a net importer of grain and beef. The wealth of the Spanish Empire ended up in the workshops of Amsterdam and London, the tanneries of France and the gunpowder mills of Genoa. Meanwhile, wars in Flanders cost the Spaniards a fortune, not just in the fighting but also in the cost of imported arms. Advisers to the king told him not to worry because, as long as the cash was coming in from the Americas, there was no need to worry about the current account deficit. In the event they were wrong. The debased Spanish ducats fell rapidly in value. There was a series of runs on the currency and, in the second half of the 16th century, when the gold stopped flowing and Spain was up to her eyes in debt, the crown was declared bankrupt on three successive occasions - in 1557,1575 and 1597. Now look at the United States today. It is suffering from a similar problem. Most White House advisers are telling George Bush not to worry about the current account deficit and the fact that the US needs to borrow $2 billion a day to cover its spending does not really matter. They are contending that it can just borrow and allow the currency to fall. It seems that few US commentators believe that a falling dollar is a problem. In fact, many see the collapsing dollar as a panacea. However, there are dissenting views from those who believe that the US is heading for a long-term decline with grave consequences for the nation. Here's what Warren Buffet, probably the world's finest investor, told Fortune magazine last February: “Through the spring of 2002, I lived nearly 72 years without purchasing a foreign currency. “Since then, Berkshire has made significant investments in - and today holds - several currencies. My reason is that our trade deficit has greatly worsened, to the point that our country's ‘net worth', so to speak, is now being transferred abroad at an alarming rate.” A few months ago, Paul Volcker, the widely respected former chairman of the Federal Reserve Board suggested that the US faced “a 75 per cent chance of a crisis within five years'‘. In his excellent book Running on Empty, Peter Peterson, the chairman of the US Council on Foreign Relations says: “America's twin deficits are now so large and our savings rate so low, that there is a real danger that investors around the world will simply lose faith in the dollar.” Meanwhile, Robert Rubin, Bill Clinton's top economic guru and former US Treasury Secretary, recently warned that the US was confronting “a day of serious reckoning'‘. Last month, Fed chairman Alan Greenspan said: “The question is how large a current account deficit in the US can be financed before resistance to acquiring new claims against US residents leads to adjustment. Net cross-border claims against US residents now amount to about one-fourth of annual USGDP.” He speculated whether “international investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher returns to offset concentration risk'‘. On the other hand, US president George W Bush believes that “the deficit is just a number on a piece of paper'‘, to which US vice-president Dick Cheney added: “Reagan proved that deficits don't matter.” So who is right? History suggests that we should consider the Spanish example. The only real difference between now and then is that the ripples from the US are felt instantaneously, flashing across screens in every dealing room around the world. Let us imagine that Buffet, Rubin et al are right, and Bush and Cheney are wrong. So this time next year, we should expect Morning Ireland's business news on Friday, December 23, 2005 - the last trading day before Christmas - to sound something like this: “The euro against the US dollar is trading at 1.59, the US dollar against the Japanese yen is just above 75.0. “The central banks of Japan and China have been intervening in waves overnight to keep the Chinese renminbi within its new trading band and to prevent the yen breaking even higher, but it's unclear whether either central bank can hold the line. “Ten-year US Treasury yields are well above 7 per cent and edging up as we speak and the S&P closed overnight below 8000. After yesterday's horrible inflation numbers, the fear is that the Fed will tighten again next week, by half a percentage point, even though fourth quarter US GDP growth looks likely to be negative and delinquencies on credit card debt have exploded. “Meanwhile, this morning's euro area data points to stagnation and a further rise in the unemployment rate to 12 per cent. The German and French budget deficits are at close to 5 per cent of GDP this year, the Italian deficit 6 per cent, but, given government popularity ratings, deficit reduction is now totally off the EU policy agenda. “The Stability and Growth Pact as originally formulated has been blown to smithereens, but the European political leadership is less interested in fiscal policy than in tightening immigration controls. “Next week,G4 finance ministers will be meeting in Beijing, with another dollar support package the prime topic of conversation. The problem is that the tariff and quota legislation going through Congress is alienating other members of the group and, given the social unrest erupting in Shanghai, the Chinese leadership is focused more on its own survival than on international economic cooperation. “Meanwhile, the IMF has come off the fence, describing US protectionism as a ‘huge and highly regrettable policy error' and concluding that the latest package of US public expenditure cuts and tax increases falls some way short of what is needed to turn the budget deficit and the dollar around. Basically, until the US can negotiate with the UN on a withdrawal from Iraq and Afghanistan and simultaneously raise taxes, it's hard to see how the budget numbers will add up.” Given that vista, I'll have the sackcloth and ashes please, Mr Paisley!

Subject: Re: Hold onto the sackcloth and ashes From: Pancho Villa To: Hold onto the sackcloth and ashes Date Posted: Wed, Jan 12, 2005 at 16:44:07 (EST) Email Address: nma@hotmail.com Message: That's what i call 'empirical observations'

Subject: Re: Hold onto the sackcloth and ashes From: Pete Weis To: Pancho Villa Date Posted: Thurs, Jan 13, 2005 at 10:54:31 (EST) Email Address: Not Provided Message: Our present economic leadership invites 'empirical observations'.

Subject: Rober Heilbroner From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 12:32:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/12/books/12heilbroner.html?pagewanted=all&position= Robert Heilbroner, Writer and Economist, Dies at 85 By HOLCOMB B. NOBLE Robert L. Heilbroner, an economist and writer of lively and provocative books that inspired generations of students with the drama of how the world earns, or fails to earn, its living - books that made him one of his profession's all-time best-selling authors - died on Jan. 4 in Manhattan. He was 85. His death, at New York Presbyterian Hospital, was announced Monday by the New School University, where he was professor emeritus on the graduate faculty of political and social science.... Dr. Heilbroner's first book, 'The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers,' written before he received his doctorate, is one of the most widely read economics books of all time. He was also a prominent lecturer as well as the author of 19 other books, which sold more than 10 million copies and, in many cases, became standard college textbooks. A witty writer, he called himself a 'radical conservative,' an oxymoron suggesting that, like Don Quixote, he wanted to rush rapidly forward, break the mold - and end up right where he was. But in that he was only half joking. He did indeed want to conserve the basic separation of the national economy from the national government, as suggested by Adam Smith in the 18th century. But he believed, too, that when the economy was hit with severe recessions or high unemployment or yawning income gaps, for example, government had to intervene with public spending that stimulated economic activity and generated jobs and the construction of public works that contributed to higher living standards. Although popular with students and the general reader, he was regarded by mainstream economists as a popularizer and historian whose insights made no great contribution to the study of the field. He, in turn, saw their reliance on mathematics and computer modeling as narrow in vision and as losing sight of the very purpose of economics - to help improve the well-being of people at work and of the society they work in. 'The worldly philosophers,' Dr. Heilbroner said in a 1999 interview, 'thought their task was to model all the complexities of an economic system - the political, the sociological, the psychological, the moral, the historical. And modern economists, au contraire, do not want so complex a vision. They favor two-dimensional models that in trying to be scientific leave out too much and leave modern economists without a true understanding of how the system works.' Dr. Heilbroner himself was the first to admit that he was not an economists' economist. He preferred writing to plotting the sale of widgets and calculating the effects of a heat wave on corn futures. And he was interested more in the history of economics and in what he considered its true dynamics than in working within the field itself. He liked to say that his chief accomplishment was in conning millions of students into thinking that the field was both interesting and in tune with their social ideas. 'The Worldly Philosophers,' published in 1953 (Simon & Schuster) and still in print, is widely regarded as one of the best texts for infusing clarity and excitement into the history of economic thought. John Kenneth Galbraith, the Harvard economist who, like Dr. Heilbroner, was often shunned as an outsider by mainstream economists, called the book a 'brilliant achievement handled nearly to perfection.' It went into its 10th edition in 1998 - 35 years after it was first published while Mr. Heilbroner was pursuing a doctorate at the New School for Social Research in Manhattan. Mainstream economists, while critical of the way Professors Heilbroner and Galbraith practiced economics, nevertheless acknowledged the importance of several of their observations. Milton Friedman, the godfather of American conservative economists, who shared both assessments, said Professor Heilbroner was right on point, for example, with his attack in 'The Crisis of Vision in Modern Economic Thought' (Cambridge University Press, 1996; written with William Milberg). By the end of the 20th century, the authors argued, economists had lost their concern for the social or political implications of their work, seeing themselves solely as sophisticated mathematical or statistical analysts. 'He was correct,' Mr. Friedman said. 'There was an increasing tendency to move economics in highly specialized directions without any real view of its broader aspects.' Robert Lewis Heilbroner was born on the Upper West Side of Manhattan on March 24, 1919, the third child and only son of Louis and Helen Heiler Heilbroner. His father was raised in a poor family in North Carolina but later prospered with a chain of men's clothing stores he founded in New York. He died when Robert was 5. The family business was sold, and he and his sisters were sent to private schools. The family chauffeur served as a surrogate father for 10 years, Dr. Heilbroner later said, playing a major role in shaping his thinking. As a student at Harvard, Dr. Heilbroner planned to major in writing but took a course in economics and, he said, 'I took to it like a duck to water.' After Harvard, he went to work in New York at the retail chain founded by his father and found that he hated the job. It took him 23 years after leaving Harvard to earn his doctorate in economics, however. Moving to Washington at the start of World War II, he worked with the Federal Office of Price Administration until he was drafted, assigned to Army intelligence and sent to the University of Michigan to learn Japanese. Over the course of the war, he interviewed some 2,000 enemy prisoners in the Pacific, gaining valuable information from voluble captives. The war taught him that he had a facility with language and words, and, after a brief term with a Wall Street commodities firm, he began writing freelance magazine articles on economics. He sold several to Harpers magazine, and caught the attention of editors at Simon & Schuster, who suggested that he write a book. He took their advice, quit business forever and from then on rarely stopped writing. In 1952, he married Joan Knapp, an author of children's books, and they had two children, Peter and David. His sons survive him, as does Ms. Knapp, from whom he was divorced in 1975, the year he married Shirley Eleanor Davis, who also survives him. Mr. Heilbroner completed his doctoral course requirements by 1952 and finished 'The Worldly Philosophers' the next year. The book was an account that laymen could easily read about the lives and theories of the economic superstars of the past, among them Adam Smith, Robert Malthus, David Ricardo, John Stuart Mill, Karl Marx, Alfred Marshall, Thorstein Veblen, John Maynard Keynes and Joseph Schumpeter. It was an immediate hit, and eventually sold millions of copies. But his Ph.D. took him 10 more years. He started and abandoned three dissertations. After 'The Worldly Philosophers' was published his faculty advisers scolded him, saying the book would have filled the bill beautifully. So he submitted his next manuscript, 'The Making of Economic Society,' and was promptly awarded his doctorate. Later books included 'The Limits of American Capitalism' (1966); 'Between Capitalism and Socialism' (1970); 'Marxism: For and Against' (1980), with Lester Thurow; 'The Nature and Logic of Capitalism' (1985); and 'Behind the Veil of Economics (1988). In '21st Century Capitalism,' (W. W. Norton & Co., 1993), Dr. Heilbroner explained his radical conservatism with a bow to Adam Smith. Dr. Heilbroner agreed with Smith that the separation of the economy and the state was central to capitalism and a nation's economic health, and essential for political liberty. But he believed that from time to time the people's government had to wade in with major repairs. He said in an interview in 1998 that 'feelings of dismay' penetrate the contemporary mind over unstable or depressed world economies and the widening income gap. He also noted capitalism's shortcomings in dealing with 'externalities' - for example, 'the higher laundry bills and health costs of people living in Pittsburgh before the pollution of the steel mills was brought under control.' 'Negative externalities,' particularly the pollution of land, water and air by private enterprises intent on holding down costs cried out for government intervention, he said, whether in the form of taxes, subsidies, legislation or regulation.

Subject: Argentina Tries to Emerge From Default From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 12:03:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/12/business/worldbusiness/12debt.html Argentina Starting Drive to Emerge From Default By TODD BENSON Three years after declaring the biggest sovereign debt default in history, Argentina will begin a global roadshow today, hoping to persuade wary investors to accept a write-down on about $100 billion of holdings. Many analysts and lending officials say that Argentina may succeed. The campaign will start at the Economy Ministry in Buenos Aires, where Roberto Lavagna, the minister of economy and production, will outline the remaining details of what the Argentine government insists is its final offer to repay part of the defaulted debt. From there, officials will travel to the United States and Europe to push for the proposal with foreign bondholders, many of whom have already criticized the idea in outline form. Under the terms of the proposed deal, Argentina would replace some $103 billion in defaulted debt and interest with up to $41.8 billion in new securities bearing lower interest rates and longer maturities. For bondholders - who have not received anything on their investments since the end of 2001 - that means potentially getting 25 cents to 30 cents on the dollar, according to most analysts' estimates.

Subject: Russia and China and Oil From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 11:31:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/12/business/worldbusiness/12russoil.html At a Crucial Oil Juncture, a Russian Calls on China By CHRIS BUCKLEY BEIJING - At a time when China and Russia are facing far-reaching choices about their oil trade, Russia's energy minister, Viktor B. Khristenko, made a quiet trip to Beijing over the weekend, people close to the industry said Tuesday. The trip, which was not reported in the Chinese or Russian media, was confirmed by a Western businessman involved in China's oil business and a Russian source close to the embassy, both based in Beijing. Both requested anonymity, citing the sensitivity of their dealings. The executive and official could not shed light on whom Mr. Khristenko met with or what was discussed, but the visit came at a crucial time in energy diplomacy between the two countries, which share a 2,640-mile border and a history of antagonism. Mr. Khristenko's unusually low-key visit took place just days after he announced that Russia was willing to sell China a stake in a major Russian oil producer. The trip also comes after the recent announcement that Russia would route an oil pipeline to the Pacific Coast of Siberia instead of to the Chinese oil hub of Daqing - the route favored by China.

Subject: Paying an Employee for an Invention From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 11:15:29 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/12/business/worldbusiness/12light.html Japanese Company to Pay Ex-Employee $8.1 Million for Invention By TODD ZAUN TOKYO - The inventor of a revolutionary lighting technology has reluctantly agreed to a record settlement from his former employer in a dispute that challenged the idea that the fruits of the labor of Japanese workers belong only to companies. Shuji Nakamura, now a professor at the University of California, Santa Barbara, will receive 840 million yen ($8.1 million) from his former employer, the Nichia Corporation, for inventing blue-light-emitting diodes. Nichia secured lucrative patents for Mr. Nakamura's invention, which allowed the creation of more vibrant video billboards and traffic signal lights and helped lead to the development of blue lasers, which are used in the latest DVD players. His invention was also useful in creating white-light-emitting diodes, which may someday replace incandescent bulbs as a source of indoor lighting. The case has been closely watched in Japan as a test of long-held notions that employees should sacrifice everything for their companies and the idea that there is something unseemly about individual workers, even the most productive ones, seeking a bigger cut of profits than their co-workers. Traditionally, in Japan, corporate engineers and scientists are treated just like less-skilled employees. It is unusual for Japanese companies to sign contracts with their researchers that specify how profits from their inventions will be shared, as is often the practice in American companies. The amount of the settlement was significantly smaller than the 20 billion yen, nearly $200 million, that a lower court ordered Nichia to pay Mr. Nakamura last year. The lower court said that would be a fair amount, given that his invention was worth about 60 billion yen, or roughly $580 million, to Nichia. Tuesday's settlement came after the company appealed that ruling. Mr. Nakamura sued his former employer four years ago, seeking a share of the royalties from his invention after the company gave him an award of 20,000 yen, or less than $200, for his work. The payment to Mr. Nakamura under the settlement, which was coordinated by the Tokyo High Court, would be the largest ever made to the employee of a company for an invention, Kyoto News and Nihon Keizai Shinbun said. A court representative said it did not maintain records on such matters. 'This kind of money didn't exist four years ago, so this is a great incentive for Japanese corporate engineers,' said Mr. Nakamura's lawyer, Hidetoshi Masunaga. 'Japanese society is starting to dramatically change.' Mr. Nakamura said he was not satisfied with the amount but accepted it on advice from his lawyer, according to Nikkei News. Mr. Nakamura did not respond to calls or e-mail messages seeking comment on the agreement. A Nichia spokeswoman declined to comment on the settlement. Mr. Nakamura's case is one of the first of a recent string of lawsuits by Japanese researchers against their companies. Last year, the electronics giant Hitachi was ordered to pay more than $1 million to an engineer who developed crucial technologies for DVD players. Also last year, Ajinomoto, a large maker of instant foods and spices, was ordered to pay more than $1 million to an employee who invented an artificial sweetener. The litigation is part of a broader change in Japan, as both individuals and companies focus increasingly on the value of intellectual property. Japanese companies, including Toshiba and the Matsushita Electric Industrial Company, are dropping their traditional reluctance to sue and are using the courts to protect their patents. 'The focus in Japan on intellectual property is changing, not just on the inventor level, but companies, too, are focusing on the value of their intellectual property in ways they have not done in the past,' said A. C. Johnston of the Tokyo office of the law firm Morrison & Foerster.

Subject: We Have a Capital Inflow From: Terri To: All Date Posted: Wed, Jan 12, 2005 at 10:41:40 (EST) Email Address: Not Provided Message: Something that may not be clear. When there is a trade deficit as we have now, the deficit must be financed with a capital inflow and so there is a capital inflow. More is being invested in America than we are investing abroad. This is not something to be happy about, for the income from such net investment will be going to citizens and institutions from other countries. More capital is coming to America than we are investing abroad.

Subject: Assets minus liabilities From: Pete Weis To: Terri Date Posted: Thurs, Jan 13, 2005 at 12:52:13 (EST) Email Address: Not Provided Message: There are various types of capital inflows. In the 90's we had a booming stock market and after the 'Asian crisis' there was a lot of shifting of capital inflow into US assets (stocks) from around the world. This helped to push both US stocks and the US dollar higher. During the last few years foreign investors have been selling their US assets and repatriating the US dollars they received from the sales into their own currencies. They then either reinvested whatever gains (if they had any) into overseas investments or spent the bulk of the gains overseas for non US products. Their sales became realized liabilities for the stock issuers, but as long as there was substantial net buying of US stocks, there was positive net capital inflow. Now we are getting capital inflow in the form of lending from Asian central banks, but most of this borrowed capital does not end up being spent broadly throughout the US economy where it can contribute to increasing US jobs. Instead it concentrates itself into certain assets like housing and to some extent in the stock markets. But the borrowed capital is a liability with, as Nouriel Roubini pointed out, an increasingly shorter 'rollover rate'. And it is makes increasing sense (because of the falling dollar) to invest much of this borrowed capital outside the borders of the US. This is the point I was making about US corporate insiders selling at record levels and then either investing the gains overseas where they can get better 'real' returns or spending the gains on luxury items manufactured abroad. The final point here, relates to where this capital whether earned or borrowed is being spent - if it is being spent for overseas products and overseas investments with a higher net dollar value than domestic products and investments, with an increasingly greater debt burden for the US, and it continues - eventually a crisis will occur. Paul Volker, Nouriel Roubini and others believe a crisis is not too distant. 'One of these years, and probably sooner than you think, the financial markets will look at the situation, and realize that the US government has made inconsistant promises - promises of benefits to future retirees, repayment to those who buy its debt, and tax rates far below what is necessary to pay for all of it. Something will have to give, and it won't be pretty. In fact, I think the United States is setting itself up for a Latin American-style financial crisis, in which fears that the government will try to resolve its dilemma by inflating away its debt causing interest rates to soar.' - Paul Krugman in THE GREAT UNRAVELING. Now I want to direct your attention to where most of that borrowed capital which has remained in America has ended up.

Subject: Re: Assets minus liabilities From: Terri To: Pete Weis Date Posted: Thurs, Jan 13, 2005 at 21:24:32 (EST) Email Address: Not Provided Message: Yes; this explanation makes sense and is more subtle than before. Thank you, Pete.

Subject: Re: We Have a Capital Inflow From: Terri To: Terri Date Posted: Wed, Jan 12, 2005 at 10:57:34 (EST) Email Address: Not Provided Message: Household saving is astonishingly small, we have a government deficit that will have to grow unless there are structural changes to generate more tax revenue. Only corporate saving is ample, and we would prefer such saving be invested. Domestic debt must be reflected by balances of payments debt, future American earnings are increasingly owed abroad, so we are slowly weakening ourselves economically. Though I have no guess on the relative value of the dollar, I am sure we are weakening economically and I worry.

Subject: Why Hold Dollar Assets From: Emma To: All Date Posted: Wed, Jan 12, 2005 at 06:06:07 (EST) Email Address: Not Provided Message: There is little inflation in America relative to Europe, so even if the dollar is likely to decline in value against the Euro there will still be United States assets to be purchased at a reasonably constant dollar value. So, dollars are held by private investors but they can not be help with any confidence as to exchange value. My Asian friends are content to hold dollar assets simply to diversify, though they believe the dollar will lose value relative to many Asian currencies. These friends however are not planning to add dollar holdings readily. How long, how long?

Subject: What International Assets Are We To Hold? From: Emma To: Emma Date Posted: Wed, Jan 12, 2005 at 06:22:12 (EST) Email Address: Not Provided Message: Since there is no reason to believe America will reduce its domestic or foreign debt, or even much limit the growth of debt, we can only assume there will be increased pressure on the dollar this year though the Fed will be raising short term interest rates. The questions are how long this dollar pressure can remain orderly, and what international assets Americans should hold?

Subject: A Note on Mortgage Debt From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 21:21:28 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/20050110-mon.html#anchor2 Richard Berner and David Greenlaw (New York) My colleague David Miles and I agree that the UK and US mortgage markets are quite different: Unlike their UK counterparts, for example, most US consumers have paid up for insurance against rising interest rates with fixed-rate mortgages. Despite the talk about an incipient 'ARM squeeze' in the United States, 75–80% of the stock of mortgages is fixed-rate, and of the other 20–25% that is adjustable, about half is ‘hybrid’ with rate protection of 3–7 years. And even true ARMs have periodic caps that limit annual rate increases to 200 bp....

Subject: The Economy and Markets From: Terri To: Terri Date Posted: Tues, Jan 11, 2005 at 21:32:25 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/20050110-mon.html#anchor1 Berner and Greenlaw fell that inflation will moderate this year under the careful watch of the Fed, while the economy stays resilient. Interest rates will rise at a moderate pace which will sustain economic growth, but there is danger in markets that are priced to perfection.

Subject: China: 2005 Policy Scenarios From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 21:13:48 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/20050111-tue.html#anchor0 China: 2005 Policy Scenarios Andy Xie (Hong Kong) I believe China will raise interest rates gradually and keep its exchange rate stable in 2005. This approach carries the lowest risk to the economy. China is facing the challenges of over-investment, insufficient energy resources, and rising US interest rates. Cost-push inflation and overcapacity-led deflation are unfolding at the same time. The massive amount of hot money in China’s economy makes it vulnerable to the US’s rising interest rate trend. Raising interest rates slowly would gradually cool China’s investment and deflate the property bubble. This approach offers the best chance of the Chinese economy achieving a soft landing. However, China’s politics have become more complicated in recent years. Now it appears possible for interest groups to affect national policy. The interests of powerful groups may push the country’s policies in a direction that is not optimal for the country but favorable to some. In addition, there is a strong desire among many people to extend this economic cycle to 2008 — the year in which China is to host the Olympic Games. Hence, if the economy decelerates quickly, which would occur if the US Federal Reserve raises interest rates faster than expected, policy may shift unexpectedly. I see four major policy scenarios for 2005. 1) Keep the status quo China essentially did not do much in 2004 and allowed the economy to go with the flow. The tightening talk in the spring and one rate hike in October were not followed up with consistent policy actions. On energy consumption, property investment, and trade data, I believe that the economy grew faster last year than in 2003. As a result, China is facing the same challenges now as it did one year ago, except that the investment excess is greater. Could 2005 turn out to be the same, i.e., no significant changes to either interest rates or currency? I assign a 25% probability to this scenario. China’s economy in such a scenario would unfold according to 1) how much excess capacity affects profitability, and 2) how fast the Fed raises interest rates. For example, if property oversupply is exposed, falling property prices would quickly bring fixed investment to a halt. If US inflation surprises on the upside, the Fed would raise interest rates faster than expected. Higher and faster rising US interest rates would cause hot money to leave China, which would bring down property prices and slow fixed investment. In such a scenario, China remains mostly a passive factor in the global economy, with emerging excess supply a potential shock. It serves as an amplifier for Fed Chairman Greenspan’s monetary policy, mainly through speculation in the renminbi and Chinese property. The fate of the US dollar depends on how fast the Fed raises interest rates. The global economic growth rate will be inversely correlated with the strength of the dollar. 2) Raise interest rates In this scenario, China raises interest rates gradually to deflate its property bubble, slow fixed investment, and deflate international speculation in the renminbi. When China’s economy has landed, demand for renminbi will reflect reality and China could float the exchange rate without fearing that speculation would distort the value. It is in China’s best interests to pursue this course, in my view. I give a 50% probability to this scenario. The Chinese economy would be likely to experience an orderly slowdown in this scenario. The prices of natural resources would cool, which would decrease inflationary pressure in China. The slowdown in investment would contain the creation of excess capacity and improve financial stability. When China cools its economy by raising interest rates, it would decrease speculation in the renminbi and help stabilize the dollar. A stable dollar and lower commodity prices would give the Fed more time to raise interest rates. It could create the best policy combination between China and the US to achieve a global soft landing. 3) Revalue the renminbi Under either international political pressure or internal inflationary pressure, China may revalue the currency in line with market expectations (say, by 15–25%). Such an approach is likely to lead to a hard landing as the massive amount of hot money flows out to realize profits. Commodity prices would fall sharply as a result, and the dollar would strengthen. China would immediately suffer deflation as falling commodity prices and excess capacity cause prices to decline. Since this scenario makes little sense for China overall, I give it a 10% probability. Revaluation logic centres on two fundamental arguments: 1) the need to respond to international pressure, and 2) the need to shift towards consumption-led growth. The former is a political argument that could not be dismissed with logic. However, as far as I can see, international pressure is dissipating in 2005. Outsourcing turned out to be insignificant in the US elections last year. The appreciating yen has decreased pressure on Europe from a strong euro. Developing economies are now more concerned about China’s growth prospects than the exchange rate. Changing the growth model is a legitimate concern. China has relied on investment and exports to develop its economy. As its exports become large, this model becomes less potent. Consumption has to pick up to sustain the fast development. Revaluing the currency, in theory, gives more purchasing power to households by decreasing consumption prices. I seriously doubt that this would work. China’s consumption weakness is due to 1) a labor surplus that keeps wages down, and 2) a low level of wealth due to a short history of market economics. Revaluation would not solve either problem. In practical terms, many argue that a revaluation would make natural resources more affordable to the Chinese economy. The argument makes some sense. First, the demand for natural resources is unnaturally high due to cheap money, which generates low-return investments that demand natural resources. China should not support inefficient investment through revaluation. Second, most investments in China destroy value due to bad decisions or management, not due to high prices of natural resources. The export sector has high returns and creates most of the wealth in China. For example, rising land prices reflect China’s export success. If China revalues to help value-destroying investments, economic efficiency would be further decreased. Hence, financial reforms are far more important than revaluation. Third, the best approach to help consumption is to return assets under government control to the people. These assets belong to the people in the first place. A higher currency value will only make such assets more valuable abroad. 4) Allow the renminbi to appreciate slowly This is a tantalising strategy. I see that many interests associated with the property industry are promoting it. The total volume of property under construction probably reached 1.5 billion square meters, or four times sales, in 2004, a year with vastly inflated property sales due to negative real interest rates. As interest rates rise, it will become difficult for all the properties under construction to be sold. Appreciating the currency bit by bit would tantalise foreign speculators and suck in more hot money that would enable the property industry to unload its inventory. If this scenario does unfold, I believe it would cause another wave of global speculation. Massive speculation would push the dollar down and commodity prices up. China’s actions would essentially extend the Fed liquidity bubble by creating more demand for liquidity under the same Fed Funds rate. Foreign demand for Chinese properties would indeed rise. However, it would cause property construction to increase even more with another wave of hot money. Six months later, China would face more investment excess, and a hard landing might be inevitable. Since this scenario helps only the property industry to unload its inventory and no one else, I think it is unlikely to materialize. However, the property industry has become the most powerful lobbying group in China, so I would not dismiss this scenario completely. I assign a 15% probability to it. Fed policy should remain the dominant factor in how the global economy unfolds in 2005. If the Fed continues to raise US rates slowly, this would keep real interest rates low, the dollar weak, and financial markets bubbly. While such a scenario may increase excesses and the pain of an eventual correction, it would keep the global economy relatively strong in 2005. If the US sees an inflation shock, this would likely force the Fed to raise interest rates quickly, which would cause the global economy and China to decelerate quickly. China’s actions could change the course of the global economy. If it raises interest rates gradually and keeps its exchange rate stable, the dollar would stabilize, commodity prices would decline, and the global economy might achieve a soft landing. At the other extreme, if China adopts a strategy of appreciating its currency bit by bit, this might lead to further speculation and increase excesses in the global economy. The global economy is experiencing over-consumption in the US, over-investment in China, and massive speculation in financial markets. In my opinion, only if China and the US both raise interest rates gradually can the global economy achieve a soft landing.

Subject: Vanguard Sprints but It's Not Racing From: Emma To: All Date Posted: Tues, Jan 11, 2005 at 19:16:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/09/business/mutfund/09vang.html?pagewanted=all&position= Vanguard Sprints but Says It's Not Racing By TIM GRAY JACK J. BRENNAN, chairman and chief executive of the Vanguard Group, is saying, as he has many times before, that his company isn't trying to become bigger. As Mr. Brennan speaks, he chops the air with his open hand for emphasis. 'We've never had a growth objective,' he says. 'Ever. And we never will. Vanguard's goal is to deliver value to the client. How big we are is irrelevant.' Not pursuing bigness for its own sake is a core tenet at the company, which is based in Malvern, Pa. Even so, Vanguard's assets under management swelled during 2004; it says that some $56.4 billion flowed into the company's stock and bond funds. Through December, Vanguard, which sells its funds directly to investors, had surpassed $815 billion in assets under management. That makes it the country's second-largest mutual fund company, behind Fidelity Investments in Boston, which manages $892 billion in mutual funds and an additional $134 billion in trust assets. Not everyone believes that Vanguard isn't aiming to surpass Fidelity. 'Vanguard is trying to become a one-stop shopping place,' said Roy Weitz, publisher of FundAlarm, a Web site that follows the mutual fund industry. 'They're becoming the down-to-earth version of Fidelity.' Lately, Mr. Weitz said, Vanguard has seemed intent on attracting new customers, not just better serving existing ones. Daniel P. Wiener, editor of the Independent Adviser for Vanguard Investors, a newsletter based in Watertown, Mass., echoed Mr. Weitz's observations. 'Bigness in itself isn't necessarily good,' he said. 'But if you're going to be a financial supermarket, you've got to have aisles for every customer to walk down.' Some of Vanguard's recent growth probably resulted from scandals at some smaller companies like Strong Capital Management, where the founder, Richard S. Strong, traded at his customers' expense, and a host of other companies, where hedge funds were allowed to trade illegally. Many shareholders who fled such companies' funds probably ended up at Vanguard, which has long had a reputation as a stalwart protector of small investors. Even so, Mr. Brennan's strategies almost certainly have added to his company's Schwarzeneggerian bulk. Those measures include offering financial planning services and many new financial products. The growth accompanying these changes has presented opportunities and, occasionally, headaches for Vanguard customers. During the bear market, the company allowed its staff to shrink through attrition: doing more with less is another Vanguard tenet. Then, as the mutual fund scandals spread in early 2004, new money rushed in faster than Vanguard expected. 'When the volumes hit us, we weren't ready,' said Michael S. Miller, managing director for planning and development. 'We have a service standard that we'll answer every phone call within three rings. It's seconds we're talking about. We weren't doing seconds early in the first quarter. We were sometimes stretched into minutes, sometimes many minutes.' Vanguard hired about 900 people during 2004, bringing total employment to about 10,500. The telephone times have returned to normal, said Dalbar, a Boston company that tracks customer service in the financial services industry. There is plenty of evidence that Vanguard's thrift helps its shareholders more often than it hurts them. It has enabled the company to keep pushing down average costs, increasing net return for shareholders. 'For retail investors, they're still the cheapest game in town,' said Jeffrey Ptak, a senior mutual fund analyst at Morningstar. In 1993, Vanguard's funds carried an annual expense ratio of 0.3 percent, or $3 for every $1,000 invested, said Lipper, the mutual fund research company. In 2004, that number was down to 0.23 percent. The industry's average expense ratio rose to 1.35 percent from 1.02 percent over the same period. IN August, Fidelity cut the expense ratios on several index funds, including one that tracks the S.& P. 500, to 0.1 percent. For small investors, the ratio on the Vanguard 500 Index fund is 0.18 percent. 'They agreed to waive part of their fee,' Mr. Ptak said of Fidelity. 'That's the catch.' The waiver could end at any time, he said. Vanguard says it sells services at cost to fund shareholders, who own the company. 'With Vanguard, the fact that the fee has remained as low as it is for so long, that's the guarantee,' Mr. Ptak said. A benefit of Vanguard's size is that the company can experiment, tiptoeing into new lines of business, without costing its shareholders much money. If these experiments show promise, they evolve into products or services. 'Anything we can do to diversify our business and create a better balance in our asset mix is something we'll do because it's to your advantage as a customer,' Mr. Brennan said. 'You want us to be the most financially robust organization in the world. You want us to have staying power and deliver economies of scale.' Since Mr. Brennan became chief executive in 1996 Vanguard has expanded its ability to counsel customers about their finances. Today, shareholders can turn to an array of services from online calculators to personalized financial plans put together after consultations with investment advisers. The cost of these services can depend on how much money an investor has at Vanguard. A person with no assets at Vanguard, for example, would pay $1,500 upfront for a full-fledged financial plan. A customer with more than $1 million in Vanguard assets would pay $250. Giving advice signals a cultural shift at Vanguard. Historically, the firm catered to self-sufficient investors who worried mainly about costs. People who were willing to pay more for advice went to full-service brokers. Brokers, for their part, weren't inclined to sell funds from Vanguard because it wouldn't pay them sales fees, called loads in the fund business. In recent years, though, Vanguard has begun building closer relationships with brokers. In 2001, it introduced exchanged-traded shares for two of its funds. Brokers can sell these shares as they would any exchange-traded stock or bond, and their customers pay the brokerage commission. By September 2004, Vanguard had E.T.F.'s for 20 funds. Vanguard calls its exchanged-traded shares Vanguard Index Participation Equity Receipts, or Vipers. They trade on the American Stock Exchange and enable investors to zip in and out of the company's funds. Vanguard otherwise discourages frequent trading because it drives up the costs for longer-term shareholders. At least one prominent mutual fund expert frowns on exchange-traded funds, saying they do little but encourage speculation. He is John C. Bogle, Vanguard's founder and former chairman and chief executive. 'While sector E.T.F.'s may well represent a better way to speculate, place me firmly in the camp who believe that any speculation is the ultimate loser's game,' he said in a September speech. For many investors, Mr. Bogle continues to represent the spirit of the company he started in 1975, though he has no official role within its management. He remains popular among hard-core hobby investors and even has groupies who call themselves Bogleheads. He has long fought for better mutual fund management and disclosure practices in the industry. And he has not been shy about calling attention to the recent mutual fund scandals and the shortcomings of competitors. Though he retired in January 1996, shortly before receiving a heart transplant, Vanguard provides him with an office and a small staff. And Mr. Bogle, who on a day in early December was padding around his office in wide-wale corduroys and a rose-colored sweater, hungers to be heard. He works 60 hours a week, writing speeches, books, opinion pieces and studies for finance journals. In contrast, Mr. Brennan, wearing Gucci loafers on the same December day, gives every indication that he couldn't care less about public attention; he jokes about his disdain for it, wisecracking about executives who like to see their faces on magazine covers. In conversation, he makes little effort to ingratiate himself, answering succinctly and correcting questions he doesn't like. Annoyance flashes across his face when he is contradicted. MR. BRENNAN'S dislike of public attention extends to his pay, which Vanguard refuses to disclose. In fact, Vanguard will not discuss the compensation details of any of its 'crew members,' its term for employees. (Mr. Bogle borrowed Vanguard's name from Adm. Horatio Nelson's flagship at the Battle of the Nile, and the company hews to the nautical theme. Its cafeteria is the 'galley'; its gym, 'Ship Shape.' Models of boats decorate some of its halls.) Vanguard's refusal to discuss compensation belies another bit of company orthodoxy, namely that it is owned by fund shareholders. Not everyone accepts that as a given. 'They want me to believe that I'm an owner if I'm a shareholder,' Mr. Wiener said. 'But I have no rights. I only have the right to walk, which anybody has investing in any fund.' Lately, of course, few people have been walking away from Vanguard.

Subject: Vanguard Returns From: Terri To: Emma Date Posted: Tues, Jan 11, 2005 at 20:15:25 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 1/11/04 S&P Index is -2.3 Large Cap Growth Index is -2.5 Large Cap Value Index is -2.5 Mid Cap Index is -4.2 Small Cap Index is -5.6 Small Cap Value Index is -5.5 Europe Index is -2.6 Pacific Index is -1.4 Energy is -3.3 Health Care is -1.9 REIT Index is -6.9 High Yield Corporate Bond Fund is -0.3 Long Term Corporate Bond Fund is 0.4

Subject: Where Wealth May Be Going From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 18:36:22 (EST) Email Address: Not Provided Message: 'Where would you guess those wealthy investors selling stock placed the proceeds?' The guess is that stock sales were simply for diversification and not fleeing investment for consumption. This would mean baskets of American and international stocks, American and Euro bonds, hedge funds, real estate here and possibly abroad, art.

Subject: The Sure-Thing Syndrome From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 16:39:02 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/20050110-mon.html#anchor0 The Sure-Thing Syndrome Stephen Roach In the end, denial is usually the only thing left. In my view, that’s pretty much the case today in world financial markets. Imbalances on the real side of the global economy have moved to once unfathomable extremes. And now the Federal Reserve belatedly enters the fray threatening to take away the proverbial punch bowl from a rip-roaring party. Financial markets hardly seem concerned over this impending collision. Spreads on most risky assets have fallen to razor-thin margins. Steeped in denial, investors have once again become true believers in the sure-thing syndrome. There can be no mistaking the absence of risk aversion in most segments of world financial markets. Even in the aftermath of the Fed’s early January wake-up call, so-called spread products have barely flinched. That’s true of high-yield and emerging-market debt, and it’s also the case for investment grade and bank swaps spreads. Even pricing of the “riskless” asset -- US Treasuries -- remains in rarefied territory, as yields on 10-year notes oscillate around the 4.25% threshold. At the same time, equity-market volatility has all but vanished into thin air. Market chatter is laced with impeccable logic as to why it still pays to buy risk. In most cases, the arguments rest on perceptions of “improved fundamentals.” Awash in cash flow and riding the wave of a new era of sustained productivity growth, Corporate America has nothing to worry about, most believe. That impression is evident across the risk spectrum, from high-yield to investment-grade companies. A similar verdict has been rendered with respect to emerging markets -- long the most crisis-prone segment of world financial markets. Improved external debt positions have the consensus convinced that emerging-market risk has also entered a new era. Hernando Cortina points out that emerging-market equities are now trading at the smallest discount to developed-market equities in a decade (see his 3 January research note, “Is There Still Upside in Emerging Markets?”). Perceptions of a Teflon-like US economy underpin this denial. A personal saving rate that has plunged to zero is widely dismissed as irrelevant. After all, goes the argument, it doesn’t reflect the new asset-based saving tactics of American consumers. Related to that, record levels of household indebtedness are now viewed as just fine -- a logical outgrowth of ever-appreciating asset values and super low financing rates. The budget deficit is depicted as “normal.” And why worry about a world record current-account deficit? Foreign investors know full well, goes the argument, that America is special -- offering superior rates of return and a system that the rest of the world can only envy. At the same time, Asian central banks have little choice other than to support the bid for dollar-denominated assets, lest they lose the currency competitiveness that lies at the core of their export-led growth models. This sure-thing syndrome all hangs together under the general rubric of what has been called the “carry-trade.” In its most basic sense, the carry trade depicts an unusually tantalizing financing climate -- in this case, underwritten by the extraordinary monetary accommodation of America’s Federal Reserve. The real federal funds rate was lowered into negative territory in 2002 and has only very recently moved back to the “zero” threshold. This marks the most protracted period of negative real short-term US interest rates since the late 1970s -- hardly a comforting comparison. Carry trades have become no-brainers for yield-starved investors, who can borrow for nothing at the short end of the curve and pocket the spread virtually anywhere else in the risk spectrum. Carry trades also become no-brainers for income-short American consumers, who can draw down income-based saving and use a very facile refinancing technology to extract newfound purchasing power from asset markets. America is hardly alone in reaping the spoils of the carry trade. In a US-centric global economy, the Fed has become the world’s central bank, and America’s carry trade has morphed into the global carry trade. This phenomenon underscores what I believe is the biggest risk today in world financial markets and the global economy. Courtesy of its post-equity bubble containment strategy, the Fed has taken the carry trade to an unprecedented extreme, with one bubble begetting another. There were always “good” reasons along the way that the Fed used to justify its successive moves of accommodation -- the bursting of the equity bubble in 2000, the post-bubble recession of 2000–01, and the deflation scare of early 2003. But whatever the reasons, the bonanza of costless short-term financing was there for the asking. Yet with the growing profusion of carry trades, systemic risks in financial markets and their real economic underpinnings have only mounted. In a world of mean reversion, those risks are personified in the form of the inevitable unwinding of the carry trade. In my view, the December FOMC minutes suggest that the Fed is now testing the waters for just such an exit strategy (see my 7 January dispatch, “Game Over?”). America’s monetary authorities face a most daunting challenge. The theory of policy strategy is very clear on one key point: The longer the central bank waits to deal with a serious imbalance, the greater the imbalance becomes -- and the larger the policy adjustment that eventually is required to deal with the problem. That’s precisely the problem the Fed now faces. The US central bank has waited too long. It can no longer address imbalances by simply taking the real federal funds rate out of negative territory. Nor will it be enough to return the real funds rate to its so-called “neutral” setting -- that level that is neither easy nor tight insofar as its impacts on the real economy or financial markets are concerned. Given its publicly avowed concerns about the confluence of inflation and speculative risks, the Fed now has no choice other than to push the real federal funds rate into the restrictive zone. In my view, that means at least 100 bps beyond neutrality -- consistent with a nominal federal funds rate somewhere in the 4% to 5% zone. Were it to occur, such a policy adjustment would undoubtedly spell the end of the carry trade. The risk is that the Fed becomes unnerved over such a possibility and shies away from a sharp policy adjustment -- continuing, instead, with its campaign of a “measured” recalibration of monetary policy. With spreads on risky assets remaining extremely tight, this is the outcome that the broad consensus of investors continues to be discounting. And as long as the Fed perpetuates this mindset, the more deeply entrenched the carry trade becomes -- and the more pervasive the concomitant perils of systemic risk. The Fed, in my view, sent a very clear signal in the December minutes of its policy meeting. A regime change in US monetary policy could well be at hand. These are the defining moments in history that are made for tough-minded, independent central banks. As was the case in 1994, I believe this Fed is up to the task. In a post-carry-trade climate, I worry most about two key areas of vulnerability -- the American consumer and emerging markets. Short of saving and income, asset-dependent and overly indebted consumers have been indulging in the biggest carry trade of them all. But now the asset base that supports this arrangement is in bubble territory; nationwide US home price inflation hit 13% in the year ending 3Q04, with double-digit increases in 25 states. In the absence of property inflation -- to say nothing of the possibility of a full-blown deflation scare in housing markets -- income-short consumers will have to reevaluate their wealth cushion. That raises real questions about any forecast of persistent consumption vigor. That same conclusion is equally evident for the US-centric global economy -- especially emerging markets, which, in my view, remain very much a levered play on the American consumer. Yes, the developing world -- especially Asia -- learned important lessons after the crisis of 1997–98. It has taken great strides in repairing its financial vulnerabilities -- especially by reducing dependence on external debt, building up foreign exchange reserves, and transforming current account deficits into surpluses. But this is a classic pattern for emerging markets -- coping with the future by fixing those problems that have arisen in the recent past. Unfortunately, the financial repair in the developing world has not been accompanied by better balance in the sources of support to the real economy. In large part, the developing world is still far too dependent on export-led growth models, which hinge largely on the excesses of the American consumer. The greater the sensitivity of US consumption to the unwinding of the carry trade, the greater the risk of collateral damage to emerging markets, in my view. Nor would I be too sanguine about prospects for the dollar in a more aggressive Fed tightening scenario. The recent trading rally in the greenback has given some investors hope that the currency-adjustment cycle has run its course -- offering the tantalizing prospect of reinvigorated foreign capital inflows triggering the ultimate virtuous circle for US financial assets. My advice: Don’t count on it. Back in 1994, when the Fed was last faced with a similar normalization challenge, the dollar fell like a stone even as the US authorities pushed the federal funds rate up by 300 bps. In today’s climate, with a US current account deficit that is nearly three times what it was back then, the downside for the dollar can hardly be minimized. There’s far more to currency adjustments than swings in relative interest rates. In retrospect, 2004 was a relatively easy year for financial markets. Returns moderated, but downside risks were tempered by a profusion of carry trades. There is a strong temptation to believe that this relatively benign climate can persist indefinitely. But what the Fed giveth it can now taketh. As I see it, the carry trade is about to meet its demise. Investors banking on the sure-thing syndrome are in for a rude awakening.

Subject: Re: The Sure-Thing Syndrome From: jimsum To: Terri Date Posted: Wed, Jan 12, 2005 at 09:28:53 (EST) Email Address: jim.summers@rogers.com Message: After reading this article, it occurred to me that privatizing Social Security is just another example of the carry trade. The government will be borrowing money at low treasury bill rates to allow taxpayers to buy investments with higher yields. It's a sure thing :-)

Subject: Re: The Sure-Thing Syndrome From: Jennifer To: jimsum Date Posted: Wed, Jan 12, 2005 at 11:01:29 (EST) Email Address: Not Provided Message: Clever. This is just the way the Administration hopes to sell making Social Security increasingly private. Borrow cheaply now for a large future payoff. Where then are the problems, for problem there are?

Subject: Re: The Sure-Thing Syndrome From: Jennifer To: Jennifer Date Posted: Wed, Jan 12, 2005 at 14:42:46 (EST) Email Address: Not Provided Message: The problem is with the cost of transition to private accounts. Private accounts can pay off far in the future, but the accounts have to be funded now. Funding now will draw off revenue from Social Security. The revenue drawn off would have gone to older workers as they retire. So, there must be a way to fund the change in the system. Raise taxes, cut benefits or borrow. There is no other way.

Subject: Sector Stock Indexes From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 12:45:51 (EST) Email Address: Not Provided Message: http://www.msci.com/us/indexperf/index.html Sector Indexes 12/31/03 - 12/31/04 Energy 33.2 Materials 16.9 Health Care 4.4 Financials 13.9 Info Tech 1.7 Telecoms 18.8 Utilities 23.3 .... Sector Indexes 12/31/04 - 1/10/05 Energy -3.0 Materials -3.4 Health Care -0.8 Financials -2.0 Info Tech -3.8 Telecoms -2.0 Utilities -2.5

Subject: How to obtain Graphs??? From: Joe Caucci To: All Date Posted: Tues, Jan 11, 2005 at 12:21:50 (EST) Email Address: caucci80@yahoo.com Message: I just read the article 'America the Polarized' by Krugman (January 4, 2002). But I recall that there was a graph that Krugman included with this article. I looked on the Net for it but couldn't find it. So I purchased the article from the NY Times, hoping they'd provide the graph. Still not there!!! Where can one obtain graphs and charts made by the Krugmeister? I'm desperate

Subject: Re: How to obtain Graphs??? From: Jennifer To: Joe Caucci Date Posted: Tues, Jan 11, 2005 at 12:29:39 (EST) Email Address: Not Provided Message: The article you wish is called 'For Richer.' [October 20, 2002 from the PKachive] Sources of the article are all there.

Subject: China and India From: Emma To: All Date Posted: Tues, Jan 11, 2005 at 11:26:30 (EST) Email Address: Not Provided Message: Which is the more open economy China or India? My sense has been that China is the more open economy, and China as such benefits more. But, there is China and oh does India notice. If there can be a right mindset it may come from competing with China. Therein is promise as never before for the developing countries.

Subject: The Carry Trade From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 10:16:35 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor0 Janaury 10, 2004 Stephen Roach 'The real federal funds rate was lowered into negative territory in 2002 and has only very recently moved back to the “zero” threshold. This marks the most protracted period of negative real short-term US interest rates since the late 1970s -- hardly a comforting comparison. Carry trades have become no-brainers for yield-starved investors, who can borrow for nothing at the short end of the curve and pocket the spread virtually anywhere else in the risk spectrum. Carry trades also become no-brainers for income-short American consumers, who can draw down income-based saving and use a very facile refinancing technology to extract newfound purchasing power from asset markets.'

Subject: Where is the Limit? From: Emma To: Terri Date Posted: Tues, Jan 11, 2005 at 10:22:08 (EST) Email Address: Not Provided Message: The question is how can the carry trade be wound down in a gentle way? Derivative positions are not easily pared in a tough market as we learned in 1994 and 1998 with bonds. There seems no limit to the prices of residential property in New York City or San Francisco. Suppose there is a limit?

Subject: Stocks and Bonds From: Terri To: All Date Posted: Tues, Jan 11, 2005 at 07:22:48 (EST) Email Address: Not Provided Message: Investors seem to be taking profits from the gains of last years and waiting to gauge the pace of Federal Reserve interest rate increases. I noticed that REITs have sold off more than 5.5%, but that is after another superb year above 25%. So, the market seems quite ordinary. There is little volatility, just moderate profit taking.

Subject: Social Security is Fine From: Jennifer To: All Date Posted: Tues, Jan 11, 2005 at 06:12:56 (EST) Email Address: Not Provided Message: Once we agree that a reduction in Social Security benefits is called for, the struggle to preserve Social Security is lost. Benefit levels are not overly-generous but reasonable, while convincing the young that they will have lower benefits is to lose the support of the young for the system. Social Security is fine, but we are busily convincing friends of Social security that Social Security is in sore trouble. I do wish that friends of Social Security were not self-defeating.

Subject: Interest Rates From: Terri To: All Date Posted: Mon, Jan 10, 2005 at 18:03:55 (EST) Email Address: Not Provided Message: The Fed really does seem to be telling us growth is fine and employment is fine, so a hint more of inflation and the tightening sequence will speed. Still, long term bonds are not effected.

Subject: Interest Rates and Saving From: Terri To: Terri Date Posted: Mon, Jan 10, 2005 at 19:58:41 (EST) Email Address: Not Provided Message: Stephen Roach has often repeated what Arthur Burns told him, 'Don't underestimate the American consumer.' Roach would repeat this when encouragement was needed, and would likely wish there were no encouragement now. Though I would much prefer more saving, I rather think only higher interest rates will bring this.

Subject: Higher Rates could bring From: David E.. To: Terri Date Posted: Mon, Jan 10, 2005 at 22:49:15 (EST) Email Address: Not Provided Message: Per Scott Burns we are balancing on a narrow ledge. If interest rates increase 3% (from 5% to 8%) stocks could fall to a PE ratio of 8. Interest rates could rise to 8% when China stops buying the dollar. 'If interest rates are 5 percent, the model says we can pay 33 times earnings for the S&P 500. But if rates rise to 6 percent, the same model says we can pay only 16 times earnings. It indicates only 10 times earnings for 7 percent bond yields and eight times earnings for 8 percent bond yields – about where stocks were priced at the 1982 market low. In fact, Standard & Poor's estimates 2005 earnings for the S&P 500 at $74, which gives a future P/E of 16, compared with the current multiple of 18. What does that mean for you and me as investors? Two things. First, valuations are likely to be reasonable in 2005, even if long-term interest rates climb to 6 percent. If interest rates remain the same, 2005 could be another good year for the U.S. stock market. Second, the caution light is on. We need to watch interest rates very, very carefully. '

Subject: Re: Higher Rates could bring From: Pete Weis To: David E.. Date Posted: Tues, Jan 11, 2005 at 10:07:07 (EST) Email Address: Not Provided Message: There are many things that factor into stock market pricing - much of it raw human emotion. As for interest rates, it has to be difficult to come up with any solid correlation. Afterall, the early 60's featured rates as low as we have now and a much stronger economy. Yet PE's were in the mid teens. Who knows what 2005 will bring? It really depends on how much longer the masses of small investors who drive the fund managers will continue to have enthusiasm for the markets and how much more money they are willing or can scrounge together to pump into them. I'm told that CNBC reported yesterday, insiders selling stock at 41.5 billion vs buying of only 1.5 billion in 2004.

Subject: Re: Higher Rates could bring From: Ari To: Pete Weis Date Posted: Tues, Jan 11, 2005 at 10:26:08 (EST) Email Address: Not Provided Message: Where would you guess those wealthy investors selling stock placed the proceeds?

Subject: Where did it go? From: Pete Weis To: Ari Date Posted: Tues, Jan 11, 2005 at 15:23:19 (EST) Email Address: Not Provided Message: 'Where would you guess those wealthy investors selling stock placed the proceeds?' Don't know for sure, but I would bet that most of it ended up outside the borders of the US whether it went for Lexus, Mercedes, Porsches, fancy swiss watches or overseas bonds, precious metals, etc.

Subject: Re: Where did it go? From: Terri To: Pete Weis Date Posted: Tues, Jan 11, 2005 at 18:38:00 (EST) Email Address: Not Provided Message: There is no evidence that wealth is leaving America more than in other periods.

Subject: Wealth leaving America From: Pete Weis To: Terri Date Posted: Wed, Jan 12, 2005 at 09:45:01 (EST) Email Address: Not Provided Message: Terri. The current account deficit is more than a trade deficit - it's a measurement of the net wealth leaving America (including investments).

Subject: A Capital Inflow From: Terri To: Pete Weis Date Posted: Wed, Jan 12, 2005 at 10:36:42 (EST) Email Address: Not Provided Message: I think you have this reversed. To finance a trade deficit there must be a capital inflow, and so there is a capital inflow that is far greater than our capital outflow.

Subject: Re: Higher Rates could bring From: Terri To: David E.. Date Posted: Tues, Jan 11, 2005 at 05:54:03 (EST) Email Address: Not Provided Message: According to Barra.com: the price earning ratio for the S&P in December 31, 2004 was 20.65 with losses counted and 19.16 with losses excluded. These numbers seem reasonable to me, and I have no worry about a return to a price earning ratio of 8 which has not been seen since 1980 and Treasury interest rates of 10% and above. Also, Japan and China and India and Europe are not likely to sell dollars in any meaningful amounts. So, as long as the Fed raises rates moderately, I am optimistic we can have a return of 6% to 10% for stocks since earnings are growing in this range.

Subject: Re: Higher Rates could bring From: Jennifer To: Terri Date Posted: Tues, Jan 11, 2005 at 11:31:01 (EST) Email Address: Not Provided Message: My guess is that any formula relating stock values to interest rates will prove troublesome to follow. Right now I am content with my value stock leanings here and abroad. Should long term rates rise, I will think increasingly about growth.

Subject: Malpractice Mythology From: Emma To: All Date Posted: Mon, Jan 10, 2005 at 13:51:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/09/opinion/9sun1.html Malpractice Mythology Tort reform,' the Bush administration's answer to the problem of high medical malpractice costs, makes sense from only one aspect: the political. The genius of tort reform, which focuses on putting a cap on the awards from malpractice suits, is that it offends only one big-money lobbying group: trial lawyers, who are important financial supporters of the Democratic Party. Meanwhile, it helps or holds harmless Republican special interests in the insurance, drug and health care industries. The only problem is that it hurts the hapless patients who suffer grievous harm at the hands of incompetent doctors. We hold no brief for the current medical liability system, which does a poor job of compensating most victims of medical malpractice. An authoritative study of thousands of patients in New York State found that the vast majority who were harmed by medical errors or negligence never filed suit, whereas the vast majority of those who did file suit were not actually harmed by negligent doctors. Some studies suggest that, once a suit is filed, the courts do a reasonably good job of sorting out who deserves compensation, while other research has found that juries are swayed more by the severity of a plaintiff's injuries than by evidence of negligence. But in a medical system that is coming under increased fire for failing to deliver consistent quality in hospital care, it is clear that only a small number of people are being compensated for malpractice. The problem with the president's approach, which would limit noneconomic damages to a paltry $250,000, is that it would punish many of those most deserving of compensation. If there is a problem with frivolous lawsuits, that is best addressed by raising the hurdles for filing a malpractice suit, perhaps by requiring an expert judgment on the merits of a case before it can proceed through the courts. But surely $250,000 hardly makes up for the physical and emotional damage done to people who have suffered total paralysis, permanent blindness or severe brain injury because of medical errors. Instead, Congress ought to consider requiring guidelines for judges and juries to help determine what compensation is reasonable in a given circumstance. Similar guidelines could help ensure that punitive damages are high enough to deter bad conduct; $250,000 would hardly amount to a wrist slap. Politicians endorsing tort reform say a crisis of escalating malpractice insurance premiums is forcing doctors out of business. The extent to which this is an actual problem is murky. Insurance companies have substantially raised premiums for malpractice coverage for doctors in high-risk specialties like obstetrics and neurosurgery in some states, leading at least some doctors to curtail their services, retire or move. The White House laments that patients in some areas are thus forced to travel long distances to find, for example, obstetrical care. But when the Government Accountability Office visited five of the hardest hit states in 2003, it found only scattered problems and was unable to document wide-scale lack of access to medical care. Most states that are burdened with high premiums have already set their own caps, generally at more reasonable levels than those proposed by the president. It would seem more useful to consider making it harder for insurance companies to gain rate increases. The best response, one that would benefit the public in general, would be to weed out the small number of negligent doctors responsible for generating most of the malpractice awards. None of the tort reform proposals deal with the underlying need to identify harmed patients and provide them with fair, prompt compensation. Experts have suggested a number of approaches, including special health courts with judges trained to deal with malpractice issues, required mediation, mandatory reporting of errors by doctors and prompt offers of compensation. But there is a lot of uncertainty about what would work best. Although the administration has been sponsoring some projects to reduce medical errors or speed the resolution of claims, these have faded behind the full-court political press to impose 'tort reform.' Instead of fixating on an idea that would do little to solve anything but the health care industry's desire for fewer big court awards, Congress should push for a wide range of demonstration projects aimed at solving the malpractice problem by actually cutting down on malpractice.

Subject: Re: Malpractice Mythology From: David E.. To: Emma Date Posted: Mon, Jan 10, 2005 at 16:39:26 (EST) Email Address: Not Provided Message: It is good to read a fair and balanced opinion piece.

Subject: For the Record On Social Security From: Emma To: All Date Posted: Mon, Jan 10, 2005 at 10:29:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/10/opinion/10mon1.html For the Record on Social Security Late February is now the time frame mentioned by the White House for unveiling President Bush's plan to privatize Social Security. The timing is no accident. By waiting until then, the president will conveniently avoid having to include the cost of privatization - as much as $2 trillion in new government borrowing over the next 10 years - in his 2006 budget, expected in early February. In this and other ways, the administration is manipulating information - a tacit, yet devastating, acknowledgement, we believe, that an informed public would reject privatizing Social Security. For the record: The administration has suggested that it would be justified in borrowing some $2 trillion to establish private accounts because doing so would head off $10 trillion in future Social Security liabilities. It's bad enough that the $10 trillion is a highly inflated figure, intended to overstate a problem that is reasonably estimated at $3.7 trillion or even considerably less. Worse are the true dimensions of the administration's proposed ploy, which were made painfully clear in a memo that was leaked to the press last week. Written in early January by Peter Wehner, the president's director of strategic initiatives and a top aide to Karl Rove, the president's political strategist, the memo states unequivocally that under a privatized system, only drastic benefit cuts - not borrowing - would relieve Social Security's financial problem. 'If we borrow $1-2 trillion to cover transition costs for personal savings accounts' without making benefit cuts, Mr. Wehner wrote, 'we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain reaction: the markets go south, interest rates go up, and the economy stalls out.' At a recent press conference, Mr. Bush exaggerated the timing of the system's shortfall by saying that Social Security would cross the 'line into red' in 2018. According to Congress's budget agency, the system comes up short in 2052; according to the system's trustees, the date is 2042. The year 2018 is when the system's trustees expect they will have to begin dipping into the Social Security trust fund to pay full benefits. If you had a trust fund to pay your bills when your income fell short, would you consider yourself insolvent? In suggesting that 2018 is doomsyear, the president is reinforcing a false impression that the trust fund is a worthless pile of I.O.U.'s - as detractors of Social Security so often claim. The facts are different: since 1983, payroll taxes have exceeded benefits, with the excess tax revenue invested in interest-bearing Treasury securities. (An alternative would be to, say, put the money in a mattress.) That accumulating interest and the securities themselves make up the Social Security trust fund. If the trust fund's Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities. The president is irresponsible to even imply that the United States might not honor its debt obligations. Mr. Bush's reason for ignoring the far more pressing problem of Medicare while he pursues Social Security privatization is especially tortured. Over the next 75 years, the mismatch between revenues and Medicare benefits for doctors' care and prescription drugs is 3.5 to 6 times as much as the shortfall in Social Security, according to the Center on Budget and Policy Priorities. The Medicare hospital trust fund mismatch is two to three times as big. Asked by a reporter last month why he wouldn't tackle Medicare first, Mr. Bush said that his administration had already taken on Medicare by pushing through the $500 billion-plus prescription drug benefit. Drug coverage, he said, would save money for Medicare by paying for medicine that would prevent the need for expensive heart surgery. 'I recognize some of the actuaries haven't come to that conclusion yet,' he said. 'But the logic is irrefutable.' Logic? That thinking is wishful to the point of being magical. Medicare is not going to fix itself any more than tax cuts will pay for themselves. And Social Security is not a crisis for which enormous borrowing, huge benefit cuts and risky private accounts are a solution. Rather, it's a financial problem of manageable proportions, solvable without new borrowing by a combination of modest benefit cuts and tax increases that could be distributed fairly and phased in over several decades, while guaranteeing a basic level of inflation-proof income for life. It appears that the president and his aides are trying to sow ignorance to gain support for their flawed privatization agenda. Lawmakers, policy makers and the American people have to let the administration know that they know better.

Subject: The high wire act From: Pete Weis To: All Date Posted: Mon, Jan 10, 2005 at 10:27:32 (EST) Email Address: Not Provided Message: ECB plunges deeper into the red as a result of weak dollar Mon Jan 10, 5:02 AM ET FRANKFURT (AFP) - The European Central Bank, which booked a 2003 loss of 477 million euros (625 million dollars), saw its net loss widen to at least one billion euros last year as a result of the weak dollar, according to the Handelsblatt business daily. If the numbers are correct, it would be the third annual loss posted by the guardian of the euro in the first few years of its existence. The wider loss in 2004 was largely due to the fall in the value of the dollar, since around three quarters of the ECB's foreign currency holdings are denominated in dollars. Last year, the euro rose by 16 percent against the dollar, representing an increase of more than 60 percent compared with the historic lows it posted in autumn of 2000. As a result, the ECB was compelled to make 1.6 billion euros' worth of writedowns against its dollar holdings, Handelsblatt reported. Another factor was the low level of interest rates around the world, which knocked around 700 million euros off the ECB's net interest income, the newspaper continued. The ECB declined to comment on the information. It might provide a preliminary estimate of its 2004 earnings when it hold its regular monthly policy-setting meeting on Thursday. Already last week, the Bundesbank said that its annual profit had been whittled down to next to nothing as a result of the sharp fall in the value of the dollar.

Subject: Re: The high wire act From: Terri To: Pete Weis Date Posted: Mon, Jan 10, 2005 at 13:56:02 (EST) Email Address: Not Provided Message: The European central banck could always sell dollars, but it will not. Selling dollars will lower the dollar's value against the Euro and also the Yuan and Yen values, and will cost Europe considerably in trade. So, there will be complaints but dollars will be held. Central banks have far more important interest than making profits.

Subject: Stephen Roach takes a swing From: Pete Weis To: All Date Posted: Mon, Jan 10, 2005 at 09:52:57 (EST) Email Address: Not Provided Message: From Forbes: World On Brink Of Ruin Dan Ackman, 01.07.05, 9:20 AM ET Alan Greenspan, that Matador of the Money Supply, the esteemed Impresario of Interest Rates, has suffered precious few slings or arrows over his many years as chairman of the Federal Reserve. Even the White House has had to offer its critiques off the record for fear of roiling the markets or upsetting the chairman's Elvis-in-Vegas-like following. So when the chief economist of one of the world's most prestigious banks calls Greenspan a bum, that's a big deal. And yesterday it happened. Stephen Roach, the chief economist for Morgan Stanley & Co. (nyse: MWD - news - people ), one of the most powerful investment banks and one of the 50 largest companies in the world, says Greenspan has 'driven the world to the economic brink.' Writing in an upcoming issue of Foreign Policy, Roach says that when Greenspan steps down as chairman of the Federal Reserve next year, he will leave behind a record foreign deficit and a generation of Americans with little savings and mountains of debt. Americans, Roach says, are far too dependent on the value of their assets, especially their homes, rather than on income-based savings; they are running a huge current-account deficit; and much of the resulting debt is now held by foreign countries, especially in Asia, which permits low interest rates and entices Americans into more debt. The 'economic brink' line is from the headline of a press release sent by Foreign Policy. In an interview this morning, Roach said, 'That's a little extreme.' He does admit the nation has prospered on Greenspan's watch. Still, he does not disavow the haymakers he directs at the chairman's chin. 'This is no way to run the global economy,' Roach says. So far, the Fed has bucked the odds, Roach adds. But the longer the situation exists, the more chance there is that it will spell danger for the United States and the world. Roach lays the blame for the peril at Greenspan's door. But first he takes out after his outsized reputation. Greenspan is not responsible for defeating inflation in the 1980s; Paul Volcker, his 'tough and courageous predecessor,' deserves more of the credit, Roach says. Greenspan's monetary policy deserves some accolades for the 1990s boom, but former President Bill Clinton's fiscal policy and other factors were equally responsible, Roach says. Greenspan may deserve some praise for softening the recession that followed the stock market meltdown, Roach concedes, but the chairman's cure may result in 'bigger problems down the road' and 'the biggest bubble of all: residential property.' Many have credited Greenspan with saving the world following the 1997-98 Asian financial crisis. Time magazine went so far as to put the gnome of Constitution Avenue on its cover, under the headline 'Committee to Save the World.' Though it is the case that the world did not end, 'In truth, the world weathered the Asian financial storm only to chart increasingly dangerous waters in the years that followed,' Roach writes. 'Global economic imbalances have intensified dramatically since 1999.' A good chunk of the U.S. prosperity is owed to these imbalances, Roach says: 'Asian countries holding enormous stocks of U.S. dollars recycle this cash back into the United States by buying U.S. [Treasury bills]. This process effectively subsidizes U.S. interest rates, thus propping up U.S. asset markets and enticing American consumers into even more debt. Awash in newfound purchasing power, Americans then turn around and buy everything from Chinese-made DVD players to Japanese cars.' While the economist has nothing against DVD players, he does say, 'Asia and Europe are increasingly dependent on overly indebted U.S. consumers, while those consumers are increasingly dependent on Asia's interest-rate subsidy. The longer these imbalances persist, the greater the likelihood of a sharp adjustment. A safer world? Not on your life.' Roach even questions Greenspan's political independence. He does not claim the chairman is a partisan Republican, but he does fault him for being a 'cheerleader for policies such as tax cuts...that could make the endgame all the more treacherous.' Greenspan is to central banking what J. Edgar Hoover was to fighting crime. He will soon surpass the fondly forgotten William McChesney Martin as the longest-serving Fed chairman. But his term as a member of the Federal Reserve Board of Governors expires in just over a year from now, and America will have to do without. Roach says, 'Greenspan will be a tough act to follow.' But the difficulty may not be living up to the chairman's reputation so much as cleaning up his mess.

Subject: Re: Stephen Roach takes a swing From: Terri To: Pete Weis Date Posted: Mon, Jan 10, 2005 at 12:22:04 (EST) Email Address: Not Provided Message: What I have to ask is whether the Fed was actively targeting asset prices from 1998? Similarly the Fed may have done just this from 1990 to 1994, as banking soundness appeared at risk. Then, too, the Fed Chair made what I consider a major mistake in supporting our turn to severe long term tax cutting in 2001.

Subject: Iraq From: Poyetas To: All Date Posted: Mon, Jan 10, 2005 at 01:10:21 (EST) Email Address: Not Provided Message: There seems to be a lot of confusion as too whether the war on Iraq was premeditated or an honest (although ill informed) response to the terrorist threat. There was an excellent documentary by frontline (PBS) that talks about the 'Wolfowitz Doctrine'. I recommend to everyone who has a chance, see it (you can look for it online). I think it will help answer all doubts... PS. Has anyone seen the movie Bob Roberts??? Unbelievably prophetic! A must see! Regards...

Subject: Oil price to remain high From: Pete Weis To: All Date Posted: Sun, Jan 09, 2005 at 21:40:47 (EST) Email Address: Not Provided Message: Many Wall Street bulls have predicted oil will drop into the $30 range and have used that prediction to bolster their predictions for a improving economy, improving profits and therefore a strong stock market. But it should be obvious that this is highly unlikely because of three factors - (1)OPEC will not allow oil to drop below a floor of $40 (future 'floors' will be higher), (2) the Bush administration is determined not to institute an energy policy which pushes energy conservation measures and (3) the falling dollar will mean higher dollar prices over time. Only an aggressive energy policy of conservation would force OPEC to concede lower oil prices. But its not likely to happen in the next 4 years. This is yet another example of how a falling dollar leads to higher inflation. This is a Dec 2004 article: Opec moves to keep oil at $40pb By Times Online The oil producers' cartel, Opec, today agreed to halt the extra production levels which it had introduced earlier this year in an effort to stabilise the then soaring price of crude. Oil prices have fallen about 25 per cent since their record peak of almost $56 per barrel in October. The decline has alarmed Opec members, which have seen crude oil prices drop below $35 a barrel this week for the first time since July. 'We have to defend prices at $35, because if you take the decline in the dollar then it is equivalent to about $25 two years ago,' Fathi Hamed Ben Shatwan, the Libyan energy minister, said. The cartel, meeting in Cairo, will cut the surplus production by one million barrels per day with effect from January 1. Further cuts in the production quota may be on the agenda when the oil ministers meet again at the end of January. Dealers responded to the announcement by increasing prices. London Brent crude for January delivery was up 63 cents at $40.30 a barrel. High oil prices this year have been blamed for the stalling of growth in the United States, Asia and Europe, so Opec's move to support oil prices above the $40 mark will be unpopular with consuming nations.

Subject: Tilt From: Emma To: All Date Posted: Sun, Jan 09, 2005 at 16:56:01 (EST) Email Address: Not Provided Message: November 2, 2003 Tilt By Carlos Fuentes - New York Times DON QUIXOTE By Miguel de Cervantes. Translated by Edith Grossman. 940 pp. New York: Ecco/HarperCollins Publishers. $29.95. In 2005, Don Quixote will be 400 years old. Most epic heroes are young, from Achilles to El Cid. It was part of the genius of Cervantes to put an old man in the saddle and send him off to relive the heroic tales of the past. But Don Quixote is not alone in his mad quest for chivalry. He is accompanied by his opposite in figure, speech and temperament: the round, earthy, plainspoken Sancho Panza. I stop right here, as the curtain goes up - or the pages open -- to celebrate the great new translation of ''Don Quixote'' by Edith Grossman. Nothing harder for the traduttore, if he or she is not to be seen as the traditore, than to render a classic in contemporary idiom yet retain its sense of time and space. Up to now, my favorite ''Quixote'' translation has been that of Tobias Smollett, the 18th-century picaresque novelist, who rendered Cervantes in the style proper to Smollett and his own age. His ''Quixote'' reads much like ''Humphry Clinker,'' and this seems appropriate and, even, delightful. The family relationship is there. Edith Grossman delivers her ''Quixote'' in plain but plentiful contemporary English. The quality of her translation is evident in the opening line: ''Somewhere in La Mancha, in a place whose name I do not care to remember, a gentleman lived not long ago, one of those who has a lance and ancient shield on a shelf and keeps a skinny nag and a greyhound for racing.'' This ''Don Quixote'' can be read with the same ease as the latest Philip Roth and with much greater facility than any Hawthorne. Yet there is not a single moment in which, in forthright English, we are not reading a 17th-century novel. This is truly masterly: the contemporaneous and the original co-exist. Not, mind you, the ''old'' and the ''new.'' Grossman sees to it that these facile categories do not creep into her work. To make the classic contemporary: this is the achievement. And through it, Grossman can highlight Don Quixote's flight into heroic rhetoric with great comic effect and meaningful emphasis. If for many reasons ''Don Quixote'' is the first modern novel, it is pre-eminently because of the different languages spoken in it. Characters in classical literature all spoke the same language. Achilles understands Hector; Ulysses can even speak to Polyphemus. But Quixote and Sancho speak two different idioms. Why? Because the characters are engaged in what the Spanish critic Claudio Guillén calls ''a dialogue of genres.'' There has been some dispute about whether ''Quixote'' is indeed the first modern novel. Ian Watt gives primacy to the 18th-century English novel, which was responding to the rise of a middle-class, book-buying public. André Malraux thought of Madame de Lafayette's ''Princesse de Clèves'' as the first because it initiated inner exploration of character. But I believe that ''Don Quixote'' really inaugurates what we understand modern fiction to be -- a reflection of our presence in the world as problematic beings in an unending history, whose continuity depends on subjecting reality to the imagination. Cervantes does it, as all writers do, in a precise time and space. This is Spain in the decadent reign of Philip III, a country that has conquered and plundered and built a New World in the Americas and returns, exhausted, to its native village in La Mancha with nothing but the memory of past deeds. It is also the Spain of the Counter-Reformation, where the Renaissance enlightenment brought to the court of Charles V by the Erasmist scholars had long been buried under the severe vigilance of the Inquisition and the edicts of the Council of Trent. Cervantes knew his times. One of his novellas, ''El Celoso Extremeño'' (''The Jealous Old Man From Extremadura''), came under the censorship of the archbishop of Seville because two lovers ended up together in bed. Heeding the church warnings, Cervantes changed the finale. The couple, as in movies from the Hays Office era, sleep in separate beds. Cervantes was a disciple of a daring Spanish Erasmist, Juan López de Hoyos. If ''The Praise of Folly'' and its author are never mentioned in the vast libraries of ''Don Quixote,'' it is for good reason: it was too dangerous. Yet could not ''Don Quixote'' accept as its perfect subtitle ''The Praise of Folly''? ''Don Quixote'' has so many levels of significance that I can set foot on only a couple of them. The first is the dialogue of genres. Cervantes inaugurates the modern novel through the impurity, the mestizaje of all known genres. Often criticized for ignoring the requirements of the well-made novel (recognizable characters, expert plotting, linear narrative), Cervantes audaciously brings into his book, first and foremost, the dialogue between the epic (Don Quixote) and the picaresque (Sancho Panza). But then he introduces the tale within the tale, the Moorish, the pastoral, the Byzantine modes and, of course, the love story. The modern novel is born as both an encounter of genres and a refusal of purity. Out of this meeting, Cervantes proposes a new way of writing and reading whose starting point is uncertainty. In a world of dogmatic certitude, he introduces a universe where nothing is certain. The place is uncertain: ''Somewhere in La Mancha. . . .'' The authorship is uncertain. Who wrote ''Don Quixote''? One Cervantes, ''more versed in pain than in verse''? A gentleman called de Saavedra, mentioned in the novel with admiration for his love of freedom? (Cervantes's full name was Miguel de Cervantes Saavedra.) Is the author the Moorish scribe Cide Hamete Benengeli, who discovers, by chance, an anonymous manuscript? Or is it the despicable Avellaneda, who writes an unauthorized sequel to ''Don Quixote'' (in real life, and in the novel)? Or could it be, if we follow this rich, fantastical path opened by Cervantes, that the author of ''Don Quixote'' is really Jorge Luis Borges, who wrote a tale called ''Pierre Menard, Author of the Quixote''? If authorship is uncertain, so are names. ''Don Quixote'' is a veritable onomastic carnival. For beginners, Don Quixote is the heroic name that a minor hidalgo named Alonso Quixano gives himself in order to ride out as a knight errant. But is the name Quixano or Quixada or Quesada? And Quixote himself is dubbed, as he moves through the novel, the Knight of the Sad Face, or the Knight of the Lions, but when he goes into the pastoral mode, he becomes Quixotiz. And when he finally makes it to the castle of the cruel dukes, he is promptly dubbed Don Azote (Mr. Scourge), whereas the disguised Countess Trifaldi calls him Don Jigote, or Mr. Mincemeat Stew. Whoever enters Don Quixote's sphere changes names, furthering the uncertainty that brands this novel. The nameless horse becomes Rocinante; the magicians who haunt the Don are tongue-twisted beyond recognition by Sancho, whose wife can be Teresa, Juana or Mari Gutiérrez; Don Quixote's adversaries have to assume heroic names in order to be credible. And above all, Dulcinea, the knight's damsel, the epitome of gentility, is in all truth none other than the sweaty peasant girl Aldonza. Don Quixote wants to live the books he has read, Michel Foucault pointedly observed. This leads the book to an extraordinary inaugural event and to a heartbreaking conclusion. The event is that Don Quixote, in pursuit of the malevolent plagiarist Avellaneda, rides into Barcelona and there visits . . . a printing shop. And what is being printed there? The book that we are reading. ''Don Quixote de la Mancha.'' They know all about us! exclaims Sancho, even the most private conversations. Cervantes and his ingenious squire have just inaugurated, de facto, the era of Gutenberg, the democratic society of readers and writers. But then, the terrifyingly destructive, not evil but just plain and cruelly destructive, dukes invite the knight and his squire to their castle. And here the sadness of the book is brought to our hearts. For in the castle, Quixote's dreams are offered to him in reality. Where his wonderful imagination could turn an inn into a palace, here the palace is real. Where he could imagine scullery maids as highborn princesses, here the aristocratic women are real. Both real and cruel. Don Quixote is subjected to incessant mockery. Even Sancho, the levelheaded peasant, is lured into the political comedy of becoming governor of a nonexistent island. The illusion comes crashing down. Books are no longer the grand, imaginative truth that moved Don Quixote through perils without end. So the windmills were not giants. So the armies were only flocks of sheep. So reality is shabby, gray, unarmed. . . . What can Don Quixote do but return home, get into bed, recover his reason and peacefully die? The ''impossible dream'' is over. No wonder that Dostoyevsky, in his diary, calls ''Don Quixote'' ''the saddest book ever written.'' For it is, he adds, ''the story of disillusionment.'' That Edith Grossman has brought all these levels -- and many more -- to contemporary life is a major literary achievement. For to read ''Don Quixote,'' in an increasingly Manichaean world of simplistic Good versus Evil and inquisitorial dogmas, becomes one of the healthiest experiences a modern, democratic citizen can undertake.

Subject: Re: Tilt II From: Pancho Villa To: Emma Date Posted: Mon, Jan 10, 2005 at 05:48:30 (EST) Email Address: nma@hotmail.com Message: http://mywebpages.comcast.net/doncamillo/genintro.htm

Subject: Re: Tilt II From: Emma To: Pancho Villa Date Posted: Mon, Jan 10, 2005 at 10:35:55 (EST) Email Address: Not Provided Message: Giovanni Guareschi (1908-1968). Well, I will have to look for his stories this week.

Subject: Intellectual Property and China From: Emma To: All Date Posted: Sun, Jan 09, 2005 at 16:01:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/09/magazine/09COUNTERFEIT.html?pagewanted=all&position= Manufaketure By TED C. FISHMAN Most of the pharmacies in China that dispense Western-style medicines have an antiquated, if reassuring, air about them. There are no posters on the walls for brand-name drugs. Candy is not for sale. Photo processing is not available. Druggists work in long white lab coats and surgical hats that could have been salvaged from a World War II hospital ship. Some pharmacies require prescriptions for the most potent drugs, others only an earnest chat with a druggist. Drug orders create paperwork that passes through three or four bureaucratic layers before reaching the solemn cashier, who issues a handwritten receipt. Such an old-fashioned scene might argue for just how far China trails the United States and other advanced economies, where both science and marketing are seemingly years ahead. Yet these pharmacies also represent a current and urgent battleground in one of the most important struggles between the developed world and China's surging economic power. This is the fight over intellectual property and the related investments essential to the knowledge economy, that amorphously defined new world in which better ideas, not faster, cheaper hands create jobs and wealth. Despite their appearances, Chinese pharmacies are stocked with expertly copied versions of some of the world's most profitable medicines, patented products that generate hundreds of billions of dollars' worth of business in the United States, Europe and Japan. Even the very latest miracle drugs sell in China for a fraction, often one-tenth or less, of what their authorized equivalents in the United States cost. Foreign companies lose control of their goods in two related ways: to counterfeiters who copy products and then sell them under different or altered brand names, and to pirates who make look-alikes and try to pass them off as the real thing. Using a lost-sales calculus, which measures the losses to foreign companies by determining the value of the dubious goods sold, the U.S. Department of Commerce estimates that American companies, as a result of counterfeiting and piracy, lose between $20 billion and $24 billion annually. The Japanese sacrifice even more: $34 billion. Throw in the sales lost by the European Union, and the cumulative losses for the three economic blocs approach $80 billion. While losses to American and other advanced economies are high, China's appropriation and dissemination of the world's most valuable products and technologies, if they continue unabated, will ultimately mean a lot more than dollars lost. China's pirating and counterfeiting could radically change the way entertainment, fashion, medicine and services are created and sold. The companies, big and small, that Americans work for could be weakened. Chinese practices might reduce the prices of what we buy, by undermining the powerful companies that now control essential but expensive goods like drugs and computer software -- or these practices might, should China's unwillingness to accede to American copyright demands ignite trade wars, drive prices up. A U.S. consular official in China who requested anonymity -- few American officials are willing to speak openly about sensitive issues relating to China -- told me: ''Nothing has a higher priority in our trade policy than the fight to protect American intellectual property. It is every bit as important an effort for us as the war against weapons of mass destruction.'' The analogy has some merit. As with stolen bombs, the chief worry about losing control over intellectual property is not that American manufacturers will forego sales opportunities; the fear is that its new ''owners'' will turn our own innovations back on us and inflict much broader economic damage. For the United States, the world's most formidable producer and exporter of invention, entertainment and trademarked brands, the stakes are highest. William H. Lash III, the Commerce Department official who is leading a new initiative to change China's practices, vows that the Bush administration will take ''whatever means are necessary'' to force a change. What makes China so troubling for American and other foreign companies is that the country is both a potential rival, with an alternative legal approach to intellectual property that limits their prospects in China and weakens their competitive strength globally, and a haven for pirates and counterfeiters. Start with the damage that fake drugs, for example, can do. Whether well made or poorly, they knock the genuine thing out of the market. According to the Chinese government-run press, hundreds of thousands of people in China have died from fake drugs that are either toxic or do not contain the active ingredients that users need. Drug companies report an increased threat from counterfeits entering the legitimate supply chains around the world. John Theriault, a 26-year veteran of the F.B.I. who now helps orchestrate anticounterfeiting efforts on behalf of Pfizer, says the company, working with Chinese authorities, has ''seized millions of units of counterfeit pharmaceuticals and thousands of kilos of compounds'' used to make them. In the worst cases, the fakes are commingled with legitimate products. ''You might have 2 bad pills mixed in with 28 good ones,'' he says. (In May 2003, 200,000 bottles that had been sold in U.S. pharmacies and that contained counterfeits of Lipitor, Pfizer's cholesterol-lowering pill, were recalled.) Fakes ''can ruin a brand and ruin a company,'' Theriault says. But if bad imitations are a big problem, good imitations may be a bigger one. Pfizer happens also to be a prime example of what is arguably the most serious threat to U.S. knowledge-based companies in China: its intellectual-property rules. In the case of drugs manufactured before China agreed (in order to join the World Trade Organization) to adopt patent standards closer to the international norm, production continues as before -- that is, without any licensing fees paid to Western companies. Even today, however, Chinese companies, many of them government-run, simply continue to ''reverse engineer'' -- that is, take the known ingredients and work backward to figure out a process that produces accurate copies of -- the drugs (including recent blockbusters) and pay the foreign patent holders nothing. Increasingly, China's pharmaceutical companies are rushing to claim patents for their copies before foreign patent owners can assert their rights. This is what happened with Pfizer's Viagra, which has multiple Chinese imitators: the Chinese authorities denied patent protection for Pfizer and opened the market to Chinese knockoffs instead. (Pfizer is appealing.) Press coverage in China of the Viagra decision made a point of noting that one Viagra pill costs 1 yuan to make, or around 12 cents, yet it sells for 98 yuan, or about $12. That sort of difference is sure to pique the attention of margin-squeezing Chinese manufacturers -- and perhaps encourage more copycats to rush into the market. Selling Chinese-made Viagra could turn a company into a future pharmaceutical Goliath, which would please China's rulers. Certainly China also has a public health incentive to see that drug prices are affordable for its people, who earn on average one-fortieth of what Americans do and who rarely have health insurance. China's strategy often works: the fear of knockoffs entering the market drives the price of the patented drug down, and many important drugs cost less there than they do nearly everywhere else in the world. (Historically, medicines lacking patent protection, either because a time limit has expired or because countries like India or China simply offer no such protection, can experience price drops of more than 90 percent.) The threat to American interests is not hard to identify. According to the Milken Institute, Big Pharma employs 400,000 Americans directly, creates another 2.7 million jobs and contributes $172 billion to the U.S. economy. It is one of the most important engines of the knowledge economy; in 2003 the pharmaceutical industry invested $33.2 billion in drug research. That does not include the nearly $30 billion spent on life sciences by the publicly financed National Institutes of Health, which pays for research that leads to commercial drugs. Weaken the drug industry and you weaken one pillar of the U.S. economy. And Pfizer's trouble with Viagra in China demonstrates just how vulnerable the American knowledge economy is in a world where ideas ''protected'' by our laws trade freely nonetheless. Behind almost every blockbuster drug, killer software application or computer-chip design is a public infrastructure that has steered uncountable sums and the country's best talents toward their creation. Consider what an advanced economy like ours does best: make movies, produce television shows watched from Helsinki to Cape Town, turn out global pop stars. We design the software and processes that streamline the operations of giant retail chains and global high-tech manufacturers. We engineer advanced engines and the guts of the world's computers. We devise brands, durable corporate identities and fashions. We conjure new ways to move money and put it to work. We turn the most basic tasks into knowledge work. Modern printers, to note one example, rely heavily on the most advanced automated presses, computerized design tools and management and shipping for delivering materials efficiently to consumers and are as dependent on the latest software and technological innovations as a biotech lab. And those 2.8 million American workers who in recent years have lost their factory jobs? They don't learn new ways to use power tools. They are retrained in front of a computer; they learn to run the robots that do the jobs they used to do. The trouble with this apparently successful state of affairs is that the stuff we do best exists nowhere and everywhere at the same time. Some of our most valuable things -- software codes, pharmaceutical processes, car designs, digital movie files -- weigh nothing and, as e-mail attachments, can move at the speed of light. To learn American ideas and procedures is all but the same as owning them. (Unless, of course, laws successfully prohibit their co-option.) In contrast, most of what China makes that finds its way into the world market is physical. The Chinese can borrow and steal the designs to our best products all they want. For instance, 90 percent of all software running on Chinese computers has been pirated and bought openly in stores for around $3 a copy. But if Americans wanted to borrow and steal what China makes, we would have to march in with an army and commandeer Chinese factories and workers. Western powers and the Japanese tried that in the mid-19th and -20th centuries, respectively, and will not repeat the experiment. China, however, can in a sense colonize the developed world simply through careful study and a willingness to go its own way on intellectual-property protection.

Subject: Intellectual Property and Development From: Emma To: Emma Date Posted: Sun, Jan 09, 2005 at 16:21:52 (EST) Email Address: Not Provided Message: A while ago, I went through World Bank data on intellectual property accumulation. I was thinking to southern Africa, and how Africa might fare giving the quickly growing imbalance in such accumulation. China was in my mind, for China 'asks' technology transfer as the price of business. But, what of Nigeria? What of Malawi? What of even South Africa? We must think about this.

Subject: Wait for New Work Grows Longer From: Emma To: All Date Posted: Sun, Jan 09, 2005 at 15:05:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/09/national/09jobless.html?pagewanted=all&position= For Unemployed, Wait for New Work Grows Longer By JOHN LELAND When Fabiola Quitiaquez lost her job in New York City last May, she moved to the Atlanta area, confident that she would easily find work there. 'I thought maybe it would take two or three months,' she said. But after six months Ms. Quitiaquez was still unable to find a job, even cleaning houses or caring for the elderly. As her unemployment benefits ran out in November, she found herself at odds with news reports of economic recovery. 'I realized what all these people like me were going through,' she said. Ms. Quitiaquez, 50, is one of about 3.6 million American workers who ran out of unemployment insurance benefits last year, the most in at least three decades, said Isaac Shapiro, a senior fellow at the Center on Budget and Policy Priorities, a research and advocacy group that supports extending unemployment benefits. Even as overall unemployment dropped last year, the share of unemployed workers who have been jobless for more than six months - the point at which most state benefits run out - has remained historically high. As of November, about 1.8 million, or one in five, unemployed workers were jobless for more than six months, compared with 1.1 million when the recession officially ended in November 2001. Since the start of the recession in March 2001, the average length of unemployment has risen to 20 weeks from 13. 'Usually at this point in a recovery, job creation is skyrocketing, but so far that hasn't happened,' said Kevin A. Hassett, economic director at the American Enterprise Institute for Public Policy Research, a conservative organization. 'It's not a partisan issue, it's a fact. The labor market is worse than in the typical recovery.' For Ms. Quitiaquez and many others who run out of unemployment benefits, this has meant a steady stream of difficult choices, as well as emotional and economic stress. She needed emergency dental work. Her daughter's car required expensive repairs. 'When I was working, things like that would happen, but I was getting a check every week, so I just said, 'I'll pay for this now, but next week I'll get another check,' ' she said. At Pfizer, where she processed data for clinical studies, Ms. Quitiaquez said she made as much as $1,002 a week before taxes. Her weekly unemployment check was $405, which she supplemented by drawing on savings and a severance package from Pfizer that she said she could not discuss. She sold her modest apartment in New York and bought a house in Atlanta. Now she has cut corners on her medical care, and she has put off the car repair, even though her daughter has to use a screwdriver to change gears. 'I don't know how much that's going to cost us,' she said. 'Then I have high blood pressure and cholesterol. But if you go to a doctor, that's a luxury.' Ellie Wegener, executive director of the Employment Support Center, a nonprofit group that works with unemployed job seekers in Washington, D.C., said that compared with past years more of the people coming to her group 'are living on thin ice,' with higher expenses and lower savings. 'There's a lot of different responses,' Ms. Wegener said. 'One of the major errors people make when they're suddenly unemployed, whether they're skilled or unskilled, is say, 'O.K., I'll take a vacation.' They feel that they'll get a job easily.' When they do not find work, unemployment begins what Richard H. Price, a professor of psychology at the University of Michigan, calls a 'chain of adversity,' which can include marital tension, psychological stress and other problems not immediately tied to the loss of income. Dr. Price studied 756 people for two years after they lost their jobs. 'The first thing that people don't understand about job loss is that it isn't the job loss that gets you,' he said. 'It's the cascade of negative life events that follow and that reverberate through families. You lose your health benefits, then, if someone in the family has an illness, the family is forced to ration health care. Or you can't send a child to college, or make a car payment - and then you don't have transportation to look for a job. Or you can't sell your house because everyone else in the neighborhood is unemployed, so property values are down.' Cleon Cox, who runs a support group called Job Finders in Portland, Ore., said Internet job boards have added to the stress for some people by creating false expectations and soaking up time and money. 'In the beginning, the Internet is exciting because there are so many listings out there,' Mr. Cox said. 'People say, 'This is great.' But most of the time they end up very frustrated and depressed. One guy said, 'It's as though my incoming phone line has been cut, because I'm sending stuff out there and getting nothing back.' I had a guy who sent 500 résumés, and what got him is he didn't get one response.' Mark Laska, a computer programmer in Hopkins, Minn., navigates a different pattern of long-term unemployment. For most of the last decade, he has found short periods of well-paid work, sometimes as a computer consultant, alternating with longer stretches without a job. This year he was unemployed until August, except for a one-day-a-week job he found at Walgreens. He does not have health insurance and goes to the emergency room when he needs medical care. He has not exhausted his unemployment benefits, but he has been homeless and once lived in the basement of a laundry. 'They say stress is highest when you don't know what's going to happen next,' Mr. Laska said. 'That's what I deal with day to day.' Though he would like a permanent job, he said, his résumé and the job market make that difficult. 'If I tell people all the jobs I did, they say, 'You're not steady,' or 'It looks like you don't want a permanent job, because you haven't worked one,' ' he said. 'But I can't find one. Nowadays in the job market, the type of work available is part-time or contract work, or now they're calling it 'seasonal work.' You don't get benefits.' When Loretta and Eleanor Jones, sisters who live together in Hempstead, N.Y., both were laid off in May, they made a point not to run up credit card debt. They cut down on expenses, and were determined to make the most of their time. They cared for their mother, and both enrolled in training programs for certificates in electrocardiography and phlebotomy. Loretta Jones, 42, lost her job as a lab assistant at Nassau University Medical Center. Her sister, 43, a senior collector at Chase Manhattan, said her department was moved to Texas and Florida. Their unemployment benefits ran out last month. 'We're both going to be looking for jobs, but we hope school will improve us,' Loretta Jones said. 'Our mother was already sick, so it gave us a chance to make sure she was being taken care of.' For Ms. Quitiaquez in Atlanta, being out of work and without unemployment benefits holds no such prospects. If she cannot find a job, she said, she will have to move in with her parents in the Bronx. Her lengthy unemployment has made her think differently about work and the self-esteem associated with it. 'When I was working, I was always thinking of getting ahead, and my title was so important,' she said. 'Now I don't care if I have a title. All I care about is to get a job. And to have health benefits.'

Subject: Limited Labor Costs From: Terri To: All Date Posted: Sun, Jan 09, 2005 at 14:56:55 (EST) Email Address: Not Provided Message: http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict_20050107 'Relative to last December, the hourly wage is up 2.7%, likely below inflation, which was up 3.5% in the most recent data for November 2003 through November 2004. Wage growth started the year considerably slower than in 2003, and averaging over all of 2004, hourly earnings were up only 2.1%. This increase was well below inflation and marked the lowest growth rate for hourly earnings on record, going back to 1964.' Though the dollar has fallen in value and commodity prices have climbed, labor costs for employers have been constrained these last 5 years. Labor is easily the most expensive component of production, and as long as labor costs are constrained there seem little reason to expect much inflation. So, why not have low long term interest rates?

Subject: A Divide China Must Conquer From: Emma To: All Date Posted: Sun, Jan 09, 2005 at 11:00:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/09/opinion/9sun2.html A Divide China Must Conquer To understand today's China, it is necessary to look beyond the unfathomable ebb and flow of 1.3 billion people. It is only by studying the few that it is possible to grasp what is happening to the overwhelming many - like Yu Jikui, a porter whose slight by a passer-by set off riots in Wanzhou; or the young Yang Shan, whose parents both work in distant cities; or the developer Zhang Yuchen, who built a castle fit for Marie Antoinette where 800 farmers once grew wheat. The human story behind the data about how China is blossoming economically lies in the writings of an 18-year-old that explain why he would commit suicide after he could not afford to take a college entrance exam. Wang Lincheng counts the cancer deaths near a viscous black stream filled with industrial toxins. These individuals, whose lives were described in articles by The Times's Joseph Kahn and Jim Yardley, provide telling clues about the gap between rich and poor, between the fortunate urbanites and the rural have-nots. This is the other, darker side of China's boom. When Hu Jintao took over China's leadership two years ago, he promised a more socially minded version of economic growth, in which ordinary people, their land and the environmental future would no longer be trampled in a heedless rush for higher output and exports. But the disparities between booming cities and the impoverished countryside, and between thriving export platforms and a hulking, hopeless rust belt, are growing even more brutal. Mr. Hu seems more interested in silencing the messengers than in dealing with these problems. Instead of beginning to institute a workable rule of law, a freer press and a better system for allowing the underdog to be heard, Mr. Hu has busied himself consolidating his own power and trying to restore order and discipline within an unreformed Communist Party. In keeping with his chilling comment that Western democracy is a 'blind alley,' Mr. Hu has already made it clear that the government is ready to crack down on journalists, scholars and protesters who cross his unmarked line. Silencing these critics brings no relief for those millions who are enduring the real abuses in the countryside. Chinese farmers and factory workers routinely talk about corrupt local officials who siphon off relief money from Beijing or steal funds allocated to farmers who give up their land for other uses. Simmering anger and even street protests occurring in some rural areas become all the more understandable after local officials freely seize farmland or village property, then reinforce actions with police goons. What adds to this unfairness is a system that allows city dwellers to buy and sell apartments while farmers may not own their own fields. A leadership that treats this unrest as a threat to its authority instead of a desperate cry for help threatens to negate much of the good that has come from China's economic upheaval - the opening to tourism, student exchanges and scientific cooperation; the ability for people to migrate; the creation of some independent farming; and a growing middle class whose cellphones can dial abroad. The test for Mr. Hu is not whether he can steer the new China into an ever-more-powerful position in the world marketplace. It is to deal wisely with the deepening chasm between rich and poor in his own country.

Subject: Bonds and what is safe From: David E.. To: All Date Posted: Sun, Jan 09, 2005 at 02:24:53 (EST) Email Address: Not Provided Message: Bill Gross thinks cash will be Prince. Not king, but prince. 'The successful 2005 bond strategy therefore, will likely be to avoid duration, avoid spread product and to flock to the stability of cash, TIPS, and foreign bonds issued by strong currency countries in an openly reflationary world. If so, bond market returns of 3-4% for the year may be all an investor can rationally expect, and if those Asian investors flee for the exits then longer duration portfolios might even wind up in the red.' link

Subject: Re: Bonds and what is safe From: Terri To: David E.. Date Posted: Sun, Jan 09, 2005 at 10:15:23 (EST) Email Address: Not Provided Message: Essentially Bill Gross is expecting a poor year for bonds, and is telling us to be patient with cash until bond yields have climbed to more attractive levels. Jeremy Grentham is telling us to find funds that short stock and bond markets. Neither of these strategies make sense for more intelligent investors however. Cash simply locks in a very low return and requires knowing when to buy. Short selling funds and expensive and very risky. Selling positions means paying capital gains taxes unless the idea is to seel retirement protected shares. But, shuffling about retirement shares is again very risky. Bears never seem to offer reasonable investment alternatives.

Subject: Re: Bonds and what is safe From: Pete Weis To: Terri Date Posted: Sun, Jan 09, 2005 at 13:54:19 (EST) Email Address: Not Provided Message: 'Bears never seem to offer reasonable investment alternatives.' Just as there are perma bulls there are perma bears, there are those who shift between being bullish and bearish according to their view of asset valuation. These are the folks to whom I tend to pay more attention. To have a meaningful track record they would need to have navigated through both bull and bear markets and accomplished it with a success rate which reveals their ability to rise above the crowd. Certainly Buffet is one of these. Richard Russell, IMO, is another. Russell, in his Dow Theory Letters, was advising readers to get into the stock market of the late 70's and early 80's because PE's were averaging below 10 and dividends were thru the roof. But at the time many small investors had just experienced the bear market of 1966 thru 1974 and would not listen to a 'bull' telling them to take advantage of an attractively valued market. Russell didn't start his Dow Theory Letters in the late 50's because he was a perma bear who would never invest in the markets - he started his investment letter because he believed in investing in the markets. But the investing public's appetite for investing is considerably out of phase with the actual climate for investing - when the appetite has become bullish it stays bullish long after it should have become bearish, and when it has become bearish (and it will) it stays bearish far longer than it should. Those with good track records, who are presently bearish, are giving investment advice. It's just that they are relatively few (in this bullish age) and the investment public is not inclined to listen because it suffers from the inertia of the biggest and longest bull market in history. Now there is a new twist to the investment environment. Buffet has always been the great genius of evaluating companies in which to invest. He would exam their balance sheets in great detail, evaluate their management, evaluate their products and the markets to which they were targeted, etc. But for the first time, in his investment career, he has changed his focus to the macro-economic picture. He's looking at the twin deficits and has come to the realization that smart investing needs to focus on the continued fall in the dollar. To be sure, investing in international bond funds such as American Century's (BEGBX) can be a rocky road, since every time the dollar rallies (especially after heavy central bank intervention) as we had in the first half of 2004, your investment takes a dip. Buffet lost over 200 million in his dollar shorts in the first half of 2004, but gained over 400 million in the second half. American Century took a sizable dip in the first qtr and a half of 2004 before gaining over 10% on the year. For those who want more 'balance', Permanent Portfolio (PRPFX) out of San Francisco invests 20% in gold, 5% in silver, 10% in Swiss Franc assets, 15% in stocks of US and foreign real estate and natural resource companies, 15% in US aggressive growth stocks, and 35% in cash, Treasury bills, and notes. This fund benefits from the fall in the dollar, but smooths out dollar volatility. The 5 year chart shows how well this fund has weathered hard times and how nicely it has gained since the dollar started its drop. This fund gained over 13% in 2004. A point which many of todays bears also try to make which is lost on most small investors is that we need to set our sites on more realistic investment goals and hold onto the investment capital we have now to invest in assets which will inevitably become undervalued in the future.

Subject: Where to invest? From: David E... To: Terri Date Posted: Sun, Jan 09, 2005 at 12:31:53 (EST) Email Address: Not Provided Message: Terri, Jeremy Grantham and Bill Gross are saying the same thing that you have been saying - Where to invest - everything is so expensive. Bill Gross doesn't have much choice so he says - cash. (note that he doesnt feel that TIPS are overpriced) Jeremy Grantham says, I have found an opportunity - emerging markets are just a little over-priced. Jeremy recomends emerging markets, the stock equivalent of a high yield bond fund. It is an unorthodox move, chasing yield with emerging markets. One of my EM choices (GCH- GreatChinaHoldings) has a standard deviation of 42% with an arithmetic mean return of 18% and a geometric return of 11%. The return chart looks like noise. I expect to make money but only after many years. Jeremey Grantham expects to make money there in the immediate future.

Subject: Re: Where to invest? From: Terri To: David E... Date Posted: Sun, Jan 09, 2005 at 15:19:29 (EST) Email Address: Not Provided Message: Terrific comments. Vanguard has a Meterials Exchange Traded Fund that bears watching. Notice also that energy companies tend to have lower price earning ratios than the S&P and higher dividends. Large drug and medical equipment makers seem more reasonably priced than many sectors. Emerging Market Index returns have lagged since 1994 and there are attractive values, but the volatility can be scary. As for bonds, unless inflation is above 3% the Inflation Protected Securities Fund seems pricey. I would prefer the Intermediate Term Bond Index. The rest is leaning to value both here and abroad.

Subject: Sancho Panza From: Jennifer To: All Date Posted: Sat, Jan 08, 2005 at 19:01:45 (EST) Email Address: Not Provided Message: This is the 400th birthday of Don quixote and our own Sanco Panza, who writes us cryptic messages every day. They were born fully grown 400 years ago, and I am dearly in love with them.

Subject: Don Quixote From: Jennifer To: Jennifer Date Posted: Sat, Jan 08, 2005 at 19:04:16 (EST) Email Address: Not Provided Message: DON QUIXOTE By Miguel de Cervantes A new translation by Edith Grossman. Introduction by Harold Bloom. 940 pages. Ecco. $29.95. Surely Don Quixote will not object to the mention of Sancho atop? All who wish to read Don Quixote are welcome to comment forever more.

Subject: Tilt From: Jennifer To: Jennifer Date Posted: Sat, Jan 08, 2005 at 19:29:13 (EST) Email Address: Not Provided Message: Knight of Doleful Countenance Gets Little Love at Home By RENWICK McLEAN - New York Times MADRID - This is the city where Miguel de Cervantes did most of his writing, published 'Don Quixote,' died and was buried. But his tomb is closed to the public, his house no longer stands and the shop where 'Don Quixote of La Mancha' was first printed is marked only by a plaque. Cervantes, always an outsider in Spain during his lifetime, is in some ways still struggling to fit in here, even as the country plans big celebrations for the 400th anniversary of the publication of 'Don Quixote' in January. 'Cervantes is the most important Spanish writer,' said Antonio Muñoz Molina, director of the New York office of the Instituto Cervantes, which promotes the teaching and study of Spanish. 'But he is not the most representative of the Spanish. His irony, his sense of humor - they are too subtle to seem Spanish.' The gulf between Cervantes and his people may help explain his hollow presence in the streets of Madrid.

Subject: Re: Tilt From: Terri To: Jennifer Date Posted: Sun, Jan 09, 2005 at 16:24:18 (EST) Email Address: Not Provided Message: We may all be Don Quixote. A fine knight indeed; a knight of dreams.

Subject: Currency to be Held From: Emma To: All Date Posted: Sat, Jan 08, 2005 at 16:26:38 (EST) Email Address: Not Provided Message: Are we really to believe that more wealthy Chinese are holding fewer American or Australian or Canadian dollars or Yen or Euros? But, the American dollar is so easily accumulated. Are the Chinese really holding fewer dollars? I must gently ask friends, but that will be the merest anecdote. What would I hold in currency were I a Chinese businesswoman? Euros or Swiss Francs?

Subject: Social Security From: Emma To: All Date Posted: Sat, Jan 08, 2005 at 15:57:18 (EST) Email Address: Not Provided Message: The idea that we must fret about a possible minor financing problem for Social Security in 38 to 48 years is absurd, when there are immediate financing problems to deal with. But, the wish is to undo the concept of Social Security and the press is largely convinced Social Security is failing awfully so the public is increasingly convinced.

Subject: The Fed Must Be Careful From: Emma To: All Date Posted: Sat, Jan 08, 2005 at 15:25:00 (EST) Email Address: Not Provided Message: The economy is growing, and we are beyond a jobless recovery, though not beyond one in which wages and benefits lag in growth. Care must be taken by the Federal Reserve that the tightening sequence does not slow us and further interfere with job creation or wage increases.

Subject: A bit premature From: David E.. To: Emma Date Posted: Sun, Jan 09, 2005 at 01:34:56 (EST) Email Address: Not Provided Message: I would wait until we at least recover the jobs lost before we declare us beyond the jobless recovery. p.s. I too love the Don Quixote story, and my dad did too.

Subject: The Valuation Problem From: Terri To: All Date Posted: Sat, Jan 08, 2005 at 14:41:36 (EST) Email Address: Not Provided Message: The problem then is we came out of a fierce bear market with still high price earning ratios for the S&P. To cope with the recession around the bear market the Fed lowered interest rates sparking elevated prices for bonds and real estate. We now have expensive assets through and through. Whether commodity prices are are elevated is not clear to me, but there is little investment value in the American economy unless traditional valuations are of no account.

Subject: Re: The Valuation Problem From: Jennifer To: Terri Date Posted: Sat, Jan 08, 2005 at 15:17:46 (EST) Email Address: Not Provided Message: Then, I suppose your sense is that TIPS are another asset that is already pricey. What we need to do is avoid paying too high a price for new assets. So, we look and look again.

Subject: Re: The Valuation Problem From: David E.. To: Jennifer Date Posted: Sun, Jan 09, 2005 at 01:56:52 (EST) Email Address: Not Provided Message: TIPS don't seem pricey to me. Add back 3% for inflation to the 1.22% real return and you get a yield greater than the market for regular treasuries. So you have a market return plus a promise that if inflation rages you will be compensated. Jeremey Grantham of GMO running $80 billion dollars has found one fairly priced asset class - Emerging Markets a little overpriced, but worth overweighting. It is interesting he feels like you that maybe TIPS are overpriced but just a tiny bit. But the most highly overpriced asset classes are US Large and Small Stocks. Here is a quote 'Now, for the first time in his career, he's faced with what he calls the 'asset-allocator's nightmare': asset classes of all stripes are either overpriced or fairly priced. So, what's an investor supposed to do? Grantham offered his advice in an interview conducted in late December.' The link above has Granthams' asset class predicted returns. Very interesting reading. I of course didnt find this stuff. Here is a link to a comment by anne in Brad DeLong's blog.

Subject: Job Creation and Wages From: Terri To: All Date Posted: Sat, Jan 08, 2005 at 13:56:45 (EST) Email Address: Not Provided Message: http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict_20050107 Payrolls up 157,000 for the month, 2.2 million for the year, but recovery still lags past experience According to today's report from the Bureau of Labor Statistics, the nation's employers continued adding jobs in December, with payrolls up 157,000. This increase closes out the first year since 1999 with job growth in every month and confirms that the jobless recovery is safely behind us. That said, the rate of job growth continues to lag other recoveries. Over the year—December 2003 to December 2004—employment is up 2.2 million. While this is the best year for job growth since 1999, it still lags the 3.3 million jobs added at the analogous stage of the last recovery. On average over the past year, monthly employment grew by 186,000, compared to 272,000 at a similar stage of the 1990s recovery. In fact, the average annual growth rate for payroll employment at this stage of a recovery is 2.8%, well above the 1.7% achieved this year. Had that average growth occurred this year, we would have added 3.6 million jobs since last December, 1.4 million more than the actual number. Thus, in historical context, the recent pace of job growth has been subpar.... Finally, earnings data from today's report reveal this to be an important trouble spot in the labor market recovery. Relative to last December, the hourly wage is up 2.7%, likely below inflation, which was up 3.5% in the most recent data for November 2003 through November 2004. Wage growth started the year considerably slower than in 2003, and averaging over all of 2004, hourly earnings were up only 2.1%. This increase was well below inflation and marked the lowest growth rate for hourly earnings on record, going back to 1964. The good news is that the jobless recovery is reliably behind us, and we just completed the best year for job growth since 1999. Most industries are expanding, though there are signs that employers have not fully abandoned their cautious hiring practices, especially relative to past recoveries. Had employment grown at its historical pace in the third year of an expansion, we would have added 1.4 million more jobs. Also, the remaining slack in the job market has led to wage growth that is uniquely weak in historical context. Thus, while the current level of job growth is likely enough to sustain an ongoing recovery, if that recovery is to reach more working families, much stronger employment growth will be needed in the coming months. By EPI Senior Economist Jared Bernstein, with research assistance from Yulia Fungard.

Subject: Asset Price Influence From: Terri To: All Date Posted: Sat, Jan 08, 2005 at 13:50:24 (EST) Email Address: Not Provided Message: The Federal Reserve has been criticized for failing to try to adjust asset prices with monetary policy. We might think through whether the Fed should interfere with asset prices other than in the bond market. My leaning is against any such specific price interference, but after all every Fed move effects asset prices in various ways so I am open to argument.

Subject: social security reform From: cnlowe To: All Date Posted: Sat, Jan 08, 2005 at 12:11:01 (EST) Email Address: minimc@yahoo.com Message: I was reading about the proposal for social security reform and had questions about what it actually meant. Under the current system, 6% of your wages are put into the Social Security trust fund, with your employer matching that amount. Under one of the proposed systems, 4% of your wages would go into your investment account, up to a limit of $1000 or $1300. Calculating from this, the withholdings only go to your investment account from the first $25,000 or $32,500 (depending on which limit you use), while your income up to $90,000 is subject to withholding. My question is, 'what happens to the money withheld above and beyond the $1000/year ?'. Does the remaining money go into the social security trust fund? If it does go into the trust fund, does it affect the amount I receive from social security at retirement, and how is that calculated? (which seems like it gets terribly complicated very quickly) If it does not affect the amount I recieve, then isn't it unfair to those earning between $25,000 and $90,000? If it does not go into the social security trust fund, does this mean I keep the money (effectively making it 6% withholding up to $25,000, and 2% withholding from $25,000-$90,000) and can invest it myself (or buy twinkies, fast cars, whatever). Alternately, if it does not go into the trust fund, does that mean it goes into the general budget of the US (in effect raising income tax withholding by 4% for income from $25,000-$90,000). In any case, I am having trouble squaring any of these solutions with the Bush rhetoric. 'It's your money, you should control how its invested (but only the first $1000/year, and only if you invest it conservatively in funds we approve first)'

Subject: Jeremy Grantham on Asset Allocation From: Terri To: All Date Posted: Sat, Jan 08, 2005 at 11:31:03 (EST) Email Address: Not Provided Message: http://bigpicture.typepad.com/comments/2005/01/an_interview_wi.html An Interview With Jeremy Grantham Asset allocators will be sorely tested in the coming year, says a skilled practitioner of the art: Duck and cover. That about sums up this investing great's view of how best to cope with what he thinks is likely to be a difficult year in the financial markets. A founder of Boston-based Grantham, Mayo, Van Otterloo, and steward of $80 billion for institutions and the wealthy, Grantham sizes up asset classes and seizes the best opportunities across the broad spectrum of available investments. Now, for the first time in his career, he's faced with what he calls the 'asset-allocator's nightmare': asset classes of all stripes are either overpriced or fairly priced. So, what's an investor supposed to do? Grantham offered his advice in an interview conducted in late December. For some of the best advice in the business, please read on: 'Underweight equities globally because they are expensive. Only emerging-market equities are close to fair value, and now could be considered a little overpriced.'

Subject: Jeremy Grantham on Asset Allocation - a From: Terri To: Terri Date Posted: Sat, Jan 08, 2005 at 11:31:39 (EST) Email Address: Not Provided Message: http://bigpicture.typepad.com/comments/2005/01/an_interview_wi.html EXCERPT: Q: The past few years have been very rough on short sellers. Are you suggesting a new golden period for them? A: It will probably be a pretty darn good period, and conservative hedge funds are the answer to a maiden's prayer. Even if they turn out to deliver a lower return than you expect going in because of the sheer volume of the competition -- say you expect 10% but get 5% -- that may turn out to be brilliant in the next couple of years. I personally have 50% of my money in such funds, which includes a net short fund but mostly conservative market-neutral funds. Of the balance, I'm very long emerging and international. I've shorted a few S&P 500 contracts against them, just to take some of the sting out of the next few years. Our highest-confidence strategy would be going long emerging markets and short S&P 500 contracts. Our seven-year forecast for asset classes expects a real return of around 6% from emerging markets. We expect to add three or four points to that from active management for a total return of 9%. We expect the S&P 500, on the other hand, to deliver minus-2%. That's an 11-point spread. And emerging markets have never looked higher-quality than now. Their reserves are fabulous. Their currencies, consequently, all look pretty good. Their growth rates are fabulous. The back page of the Economist lists the 24 emerging countries. If you were to take the gross-domestic-product growth rate of the European Union for the last year and add it to that page, it would rank dead last on a list that includes Egypt, Israel, Turkey and Slovakia. They are all beneficiaries of China, have a terrific fundamental strength at the moment and a good qualitative position. Still in all, they may go bump in the night. But on a three-year basis, I think they are going to hammer the S&P again.

Subject: Re: Jeremy Grantham on Asset Allocation - a From: Ari To: Terri Date Posted: Sat, Jan 08, 2005 at 11:46:05 (EST) Email Address: Not Provided Message: And you thought you were 'cautious.' Time to read Barrons this weekend.

Subject: Cosmetics Break the Skin Barrier From: Emma To: All Date Posted: Sat, Jan 08, 2005 at 10:05:17 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/08/business/08skin.html?pagewanted=all&position= Cosmetics Break the Skin Barrier By CLAUDIA H. DEUTSCH rocter & Gamble is about to sell ball bearings - but not the metal kind. Its minuscule mineral spheres are designed to help usher its Olay-brand body lotions deep into the skin. Freeze 24/7, meanwhile, is pushing the muscle relaxant GABA, or gamma-amino butyric acid, a common ingredient in over-the-counter antianxiety supplements. It is not using GABA to relax minds, however. Instead, the goal is to relax the muscles that cause face wrinkles. 'We knew that if we could find a way to use GABA topically, it would be a killer app,' said Scott E. Gurfein, the founder of the year-old company. The science of smoothing women's skin is going high tech. And cosmetics companies, whether they serve the masses or the elite, are adopting not just the language of Silicon Valley but many of its most sophisticated techniques. Researchers for cosmetics companies have spent several years developing chemical bullets to attack wrinkles. But now, the players in this growing industry are turning to the medical and electronics worlds for ways to keep human skin from bouncing those bullets off the body like so many blanks. 'What you are seeing in the skin care world is a mirror of the advancing technology in pharmaceuticals and biotechnology,' said Karyn Grossman, a dermatologist and international spokeswoman for the Prescriptives line of Estée Lauder. Scientists from far outside the cosmetics world are noticing the change. 'Skin care,' said Neil Gordon, president of the Canadian NanoBusiness Alliance, 'is definitely becoming a big area for nanoscience,' which involves working to manipulate nature at the supersmall level of individual atoms and molecules. There is a lot at stake. According to Lenka Contreras, vice president of Kline & Company, a research firm, sales of facial treatments represented $7 billion of the overall $12 billion skin care market last year, buoyed by more than 6 percent annual growth the last five years. The Olay line of Procter leads the pack, but Mary Kay and Clinique from Lauder are hot on its heels. Add in Neutrogena, from Johnson & Johnson; Avon; and the Estée Lauder brand, and you have accounted for about a third of the market, Ms. Contreras said. As American society ages demographically, she expects the healthy growth of recent years to continue unabated, for the tiny players as well as the household names. 'Women just don't mind spending a lot of money to look younger,' she said. Outfoxing nature's protective instincts - after all, the skin's well-evolved purpose is to keep foreign substances out - is no small task. The field is littered with failed ideas (researchers have pretty much ditched, for example, the idea of microneedles to create tiny pathways for skin care substances). Even some skin care insiders concede that there may be as much hype as substance to a lot of the emerging claims. 'We've all been looking at particle sizes and optimized formulas for a while, so maybe the trend now is to talk more about it,' said Janice J. Teal, chief scientific officer at Avon Products. Skin creams are not regulated by the Food and Drug Administration, so there is no government stamp of approval for the safety or effectiveness of any of the new delivery mechanisms. And most are too new to have passed the ultimate test: Will consumers be happy enough to buy them again? Still, many of the new delivery systems have proven their mettle in other fields, which suggests that cosmetics companies might be on to something in their bid to piggyback on proven technologies. Lighting manufacturers already use microparticles in high-tech lamps, while pharmaceutical companies have long used plant extracts to enable the skin to absorb drugs. So now the cosmetics industry is trying to build on research in other fields, in hopes of further proving that it offers more than hope in a jar.

Subject: Cosmetics Break the Skin Barrier - 1 From: Emma To: Emma Date Posted: Sat, Jan 08, 2005 at 10:05:38 (EST) Email Address: Not Provided Message: Skin care companies are notoriously tight-lipped about their research budgets, but industry insiders say they are throwing tens of millions of dollars into that effort. 'The trend in the whole industry,' said Allan G. Mottus, a consultant to the beauty industry and publisher of The Informationist, a trade publication, 'is to find ways to deliver ingredients to the skin with more efficacy.' Indeed it is. Harvey Gideon, Estée Lauder's executive vice president for research and development, said that the company devoted about 25 percent of its research budget to delivery systems; five years ago, he said, no more than 5 percent was focused on that objective. 'We're working on anything you can dream of that will allow us to make smaller amounts of material effective for longer periods of time,' he said. The research into delivery systems is beginning to yield lots of 'new' products. Olay's latest body lotion, which sells for less than $10, and night cream, which lists for about $20, are expected to hit the market this month, relying on the same basic antiwrinkle ingredients but adding mineral spheres to the lotion and a time-release technology to the cream. The price of the new version is staying the same as the prior model. 'We already have excellent active ingredients, so now we're finding better ways to get them into the skin,' said Emma Palfreyman, a senior scientist for the Olay division of Procter & Gamble. Similarly, Estée Lauder's latest version of its Future Perfect antiwrinkle moisturizers include 'cell vectors' - little balls of protein material that are slowly dissolved by enzymes in the skin intended to make the product more effective over time. Freeze 24/7 was created solely around a new method of teaming GABA, which does not penetrate skin, with gynostemma, a plant extract that does. The GABA 'programs' the gynostemma to mimic its muscle-relaxing properties. The new company, which says its revenue topped $5 million, recently introduced a line of antiwrinkle creams for $95 and up, relying on that technology. The products are on sale in stores like Nordstrom and Sephora. Of all the avenues of research, the most exciting - and the most frustrating - is the emerging field of nanotechnology. 'It's too early to tell whether nanotechnology will be particularly advantageous in skin care, but there's no question that everyone is interested in exploring it,' said Gerald N. McEwen Jr., vice president for science at the Cosmetic, Toiletry and Fragrance Association. The potential applications of nanotechnology go beyond making particles small enough to penetrate the skin. Sunscreens, for example, work best if they stay on the skin. But zinc and titanium oxides, the most effective sun blocks, often give the skin a matte whitish hue. More troublesome, because it is hard to densely pack the large oxide molecules, harmful rays still manage to get through the gaps. Neutrogena and Lauder have both introduced sunscreens with particles that while not quite nanosize, are tiny enough to be invisible on the skin. But the effort to shrink particles down to the molecular level is hitting snags. In Europe, a consumer reaction against nanotechnology research is on the rise, similar to the outcry against irradiated foods and genetically engineered crops. 'There's always a fear that nanoparticles will attack the body,' Mr. Gordon conceded. The fears are not without logic - after all, particles tiny enough to penetrate several layers of skin could, at least in theory, pierce all of them, enter the bloodstream, and wind up in organs for which they were not intended. Perhaps not surprisingly, skin care companies are proceeding warily in the nanoscience world. 'We are certainly looking at nanotechnology,' said Craig S. Slavtcheff, global director for skin cleansing and new technology at Unilever, 'but I doubt you'll see a product in less than 5 or 10 years.' Many of the companies are, meanwhile, pursuing more immediate pathways. Unilever, which owns the Dove and Ponds brands, is working on a consumer version of an ultrasound machine on the theory that ultrasonic energy can help some molecules better penetrate the skin. Olay is exploring whether applying heat can enhance the penetration of ingredients. It is also looking into ways to use the same technology behind Procter's spin toothbrushes for a hand-held skin polisher. Neutrogena, too, is about to introduce a battery-operated vibrating device topped with replaceable sponges imbedded with an aluminum oxide cream to slough away dead skin. E. Michael McNamara, Neutrogena's president, said the brand also hopes to adapt some Johnson & Johnson technologies for delivering medicine through the skin. There have been dead ends, of course. Microneedles made out of inert silica-based materials seemed like a winning formula for punching temporary holes into the dead cells that make up the skin's outermost layer to deliver antiaging ingredients. The problem was that preservatives, irritants and possibly microbes and bacteria got in as well. 'We put two solid years of research into this,' John E. Oblong, a principal scientist at Procter & Gamble, said, 'then shut it down because it just raised too many negative possibilities.' But the research failures are finally being outnumbered by the breakthroughs. And even as they explore better delivery methods, many of the companies are moving onto science Phase 3: the search for ingredients that act as treatments themselves, even as they carry other substances through the skin. 'Using substances that work as both delivery systems and ingredients,' Mr. Gideon of Estée Lauder said. 'Now that's a promising line of research.'

Subject: U.S. Paid TV Host to Back Policy From: Emma To: All Date Posted: Sat, Jan 08, 2005 at 09:56:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/08/national/08education.html?pagewanted=all&position= TV Host Says U.S. Paid Him to Back Policy By DAVID D. KIRKPATRICK Armstrong Williams, a prominent conservative commentator who was a protégé of Senator Strom Thurmond and Justice Clarence Thomas of the Supreme Court, acknowledged yesterday that he was paid $240,000 by the Department of Education to promote its initiatives on his syndicated television program and to other African-Americans in the news media. The disclosure of the payment set off a storm of criticism from Democrats over the Bush administration's spending to promote its policies to the public. According to a copy of the contract provided by the department yesterday, Mr. Williams, who also runs a small public relations firm and until yesterday wrote a syndicated newspaper column, was required to broadcast two one-minute advertisements in which Education Secretary Rod Paige extolled the merits of its national standards program, No Child Left Behind. But the arrangement, which started in late 2003 and was first reported yesterday by USA Today, also stipulated that a public relations firm hired by the department would 'arrange for Mr. Williams to regularly comment on N.C.L.B. during the course of his broadcasts,' that 'Secretary Paige and other department officials shall have the option of appearing from time to time as studio guests,' and that 'Mr. Williams shall utilize his long-term working relationships with 'America's Black Forum' ' - an African-American news program - 'to encourage the producers to periodically address the No Child Left Behind Act.' Mr. Williams, 45, apologized yesterday for blurring his roles as an independent commentator and a paid promoter. 'This is a great lesson to me,' he told Paul Begala of CNN, who himself has an off-air job as a paid Democratic political consultant but discloses both roles. Mr. Williams declined to blame the department for his woes. 'I can easily sit here and criticize the administration,' he said. 'But I got my own problems today, and that is what I am trying to deal with.' The disclosure about the arrangement coincides with a decision by the Government Accountability Office that the administration had violated a law against unauthorized federal propaganda by distributing television news segments that promoted drug enforcement policies without identifying their origin. More than 300 news programs reaching more than 22 million households broadcast the segments. The accountability office made a similar ruling in May about news segments promoting Medicare policies, and the Drug Enforcement Agency stopped distributing the segments then....

Subject: U.S. Paid TV Host to Back Policy - 1 From: Emma To: Emma Date Posted: Sat, Jan 08, 2005 at 10:07:10 (EST) Email Address: Not Provided Message: In a statement, the Department of Education said yesterday that the deal was an appropriate part of its efforts to explain its policy to 'minority parents.' The statement said: 'The contract paid to provide the straightforward distribution of information about the department's mission and N.C.L.B. - a permissible use of taxpayer funds.' John Gibbons, a spokesman for the department, said Mr. Williams was the only broadcaster or journalist paid to promote the policy. Mr. Williams and department officials said the department's payments to its public relations contractor, Ketchum, ran to $1 million. House Democrats including the minority leader, Nancy Pelosi, and Representative George Miller, senior minority member of the Education and Workforce Committee, both of California, released a letter to the president suggesting 'a deliberate pattern of behavior by your administration to deceive the public and the media in an effort to further your policy objectives' and urging disclosure of 'all past and ongoing efforts to engage in covert propaganda.' Questioned about the arrangement, Scott McClellan, a spokesman for the president, referred reporters to the Department of Education. In an interview, Mr. Miller called the release of the news segments and the payments to Mr. Williams part of 'a very dangerous practice that deceives the public' by concealing the role of taxpayer dollars in promoting partisan policies. 'Are they funding propaganda?' he asked. 'Are they funding money to their friends?' But public relations executives said that the government distribution of prepared news segments without on-air disclosures of their origin was a bipartisan practice that predated the Bush administration. 'The Clinton administration was probably even more active than the Bush administration' in distributing news segments promoting its policies, said Laurence Moskowitz, chairman and chief executive of Medialink, a major producer of promotional news segments. After the Government Accountability Office decision last spring, he said, his firm began advising government clients to disclose each tape's nature in its script. The arrangement with Mr. Williams 'is stupid, it is unseemly, and it is tacky,' said Jonah Goldberg, a contributing editor at the conservative National Review. The National Association of Black Journalists criticized the administration and Mr. Williams alike yesterday, calling on newspapers that use his column and television stations that use his commentary to 'drop him immediately.' 'I thought we in the media were supposed to be watchdogs, not lapdogs,' Bryan Monroe, an official of the black journalists' group and an assistant vice president at Knight Ridder, said in the statement. In an interview, Mr. Williams said his mistake was thinking like a businessman, without worrying enough about journalistic ethics. He began his career in politics as an aide to Mr. Thurmond of South Carolina. He entered the media business, he said, only after he became known for publicly defending Justice Thomas, his former boss at the Equal Employment Opportunity Commission, during his stormy confirmation hearings. After that, he said, he continued to operate a small public relations firm, Graham Williams, with his business partner Stedman Graham, who eventually became known as the partner of Oprah Winfrey and left the business. Aside from the Department of Education, Mr. Williams said, his clients were all private businesses. With about five employees, he said, his company's revenue runs to about $300,000 a year at most, and last year ended in a loss. But then he also began writing his newspaper column, syndicated by Tribune Media Services, which dropped him yesterday. He said about 50 papers ran the column. He also began broadcasting a syndicated conservative talk radio show that eventually faded away. And more recently he began a syndicated conservative television show, 'The Right Side,' and another series for a fledgling African-American cable channel, TV One. Mr. Armstrong said his news show ran on cable channels including Dr. Jerry Falwell's Liberty Television, Sky Angel television, the Christian Television Network and a handful of local stations. Yesterday, Mr. Williams was counting the lessons learned. 'I have realized, you know what? I am part of this media elite club, and I have to be more responsible.'

Subject: Count Me There From: Ari To: Emma Date Posted: Sat, Jan 08, 2005 at 10:17:58 (EST) Email Address: Not Provided Message: We really do need to switch sides. Being conservative pays; the more conservative the more pay. Women and people of color and children and the retired especially welcome. This is equal opportunity. Count me there.

Subject: Re: Count Me There From: Ari To: Ari Date Posted: Sat, Jan 08, 2005 at 10:37:00 (EST) Email Address: Not Provided Message: Repeat after me, 'We must all be Republicans.'

Subject: Re: Count Me There From: Jennifer To: Ari Date Posted: Sat, Jan 08, 2005 at 11:01:39 (EST) Email Address: Not Provided Message: We must all be Republicans :)

Subject: How We Invest From: Jennifer To: All Date Posted: Sat, Jan 08, 2005 at 09:53:05 (EST) Email Address: Not Provided Message: We have already been pushed to rely more than ever on asset price increases to fund our retirements as defined benefit pension plans have changed to defined contribution plans. Now we are to be asked to consider private investment plans to fund our Social Security needs. However as we become ever more dependant on asset accumulation and price increases, the relatively high prices of stocks and bonds and real estate should warn us that returns going forward are likely to be considerably lower than returns from any period between 1974 and 2000. Nonetheless, we must invest and the topic is critical for our well-being.

Subject: England's Public Pension Plan From: JT To: All Date Posted: Sat, Jan 08, 2005 at 08:30:44 (EST) Email Address: Not Provided Message: As with many bad economic ideas, [private Social security accounts has] been tested in England already, with predictable results. They made all private-sector workers responsible for managing their own pension accounts and -- given that not many of us are financial experts -- we sought advice from reputable firms. Result: 2 million people received demonstrably bad advice (advice that made them choose something that was more profitable for the company who gave the advice, but left people even less well provisioned than had they done nothing). The companies have been fined, some inadequate compensation paid, and I'm sure CRB could tell us each -- individually -- that it must have been our own fault for choosing bad experts, and we should have known better. Problem is, if consumers basically have one shot of buying such a product per lifetime, the usual rules of market and choice do not apply. They cannot gain the experience required to avoid getting ripped off. Once you notice there's a problem, you've lost 10, 20, 30 years of contributions, and you can't move elsewhere and just work through till you're 95. It's not like buying bus tickets, where, if it doesn't work out, you try a different company the next time. That's the difference. There's no room for a learning experience. That's why marketization is an ignorant idea here.

Subject: Re: England's Public Pension Plan From: Ari To: JT Date Posted: Sat, Jan 08, 2005 at 11:49:04 (EST) Email Address: Not Provided Message: Make a mistake with your Social Security account and the regret will last and last. I do not like this.

Subject: Commodity Stocks From: Jennifer To: All Date Posted: Sat, Jan 08, 2005 at 08:24:30 (EST) Email Address: Not Provided Message: There was a discussion on Wall Street Week about commodities investment. Buying commodities is too difficult for a regular investor. How can an investor go about buying some commodity based company stocks alone or in a fund for a portfolio?

Subject: Investing Ideas? From: Jennifer To: All Date Posted: Sat, Jan 08, 2005 at 08:20:59 (EST) Email Address: Not Provided Message: I also noticed that TIPS have declined in price more than regular Treasury notes in recent days. My guess is that TIPS as all securities are subject to supply and demand conditions, and professional investors may have decided to sell some holding thinking that TIPS became too expensive in the last years. The yields on TIPS seemed too low to make sense.

Subject: Inflation Protected Securities From: Ari To: All Date Posted: Sat, Jan 08, 2005 at 07:09:02 (EST) Email Address: Not Provided Message: I noticed that inflation protected securities have been weaker than the rest of the bond market so far the year. We should this be so?

Subject: Learning About Investing From: Ari To: All Date Posted: Sat, Jan 08, 2005 at 07:06:53 (EST) Email Address: Not Provided Message: What have we learned about the stock and bond markets in the opening week of the year? I know this is only a week, but I have always found January sets an investing tone for the year. The bond market seems stable, the stock market a little weak.

Subject: 'Worse Than Fiction' From: Pete Weis To: All Date Posted: Fri, Jan 07, 2005 at 21:44:06 (EST) Email Address: Not Provided Message: Paul Krugman tells it like it is and this one resonates!

Subject: Krugman denies that leftists can be antiSemites From: Sid Bachrach To: Pete Weis Date Posted: Fri, Jan 07, 2005 at 23:46:20 (EST) Email Address: sidb23@juno.com Message: Paul Krugman's column today shows that he feels the need to attack Israel to burnish his leftist credentials. First, Mr. Krugman accuses supporters of Israel of using 'antiSemitism' to silence critics of Israel. (DOn't worry Paul. We already knew you hate Israel as much as the next guy from the far left). From the left, Krugman is repeating the big lie that Patrick Buchanan preaches from the loony right. Both Krugman and Buchanan trot out the whiny 'They called me an antiSemite' line without ever naming who specifically called them an antiSemite. Then Krugman finds one obscure right wing Catholic who made an antiSemitic slur and Krugman says that supporters of Israel won't condemn him. Since this far right nut has an audience of about 5 people, Krugman should not expect every supporter of Israel throughout the world to even know about the guy, let alone publicly condemn him Krugman, of course, has never been particularly proud of his Jewish heritage. For Krugman, attacking Israel and bragging about it is his way of saying: 'I'm not one of THOSE Jews! I am cosmopolitan and a man of the Left'

Subject: Relativity From: Pete Weis To: Sid Bachrach Date Posted: Sat, Jan 08, 2005 at 13:23:53 (EST) Email Address: Not Provided Message: Sid. As, I stated - this one resonates. From your post, you appear to be coming from a conservative political view. The US has become so conservative over the last 20 years that moderates appear to be from the 'far left'. And like the tone of your post it is a very angry conservativatism which lashes out at anyone who dares question either its honesty or its motivations.

Subject: Okifyar From: Bonnie Yarbrough To: All Date Posted: Fri, Jan 07, 2005 at 21:40:53 (EST) Email Address: byarbrough1@triad.rr.com Message: What's the original source for the term 'Okifyar'? I've heard it, seen it on the web, and read it in your column today. Just curious how long it's been out there. Athena www.politicalstrategy.org

Subject: China's Dragon, Bearing Minicars From: Emma To: All Date Posted: Fri, Jan 07, 2005 at 18:45:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/07/business/worldbusiness/07auto.html?pagewanted=all&position= Enter the Chinese Dragon, Now Bearing Minicars By CHRIS BUCKLEY BEIJING - After a year in which dozens of Chinese corporations went global with their plans, the Chery Automobile Company has joined them with an ambitious gamble to become the first Chinese automaker to sell cars in the United States. The company announced this week that beginning in 2007 it would export 250,000 cars to the United States in partnership with Visionary Vehicles, an auto import and distribution company based in New York. Visionary Vehicles said the Chery cars would be 30 percent cheaper than comparable models sold in the United States and would offer a 10-year warranty. The plan's scope, and the company's own peculiarities, give the undertaking a faintly quixotic hue. For starters, there is the company's whimsical name, made up of two Chinese characters that suggest astonishing good fortune; its hometown amid the rice paddies of Anhui Province in eastern China, one of the country's poorest areas; and its American partner, Malcolm Bricklin, perhaps best known for his attempt to sell the clunky Yugo to American buyers. In 2002, he planned to bring a new line of Serbian-made cars to the United States and sell 60,000 a year. He said recently that he moved on to China because of concerns about quality issues at the Serbian plant. There is also Chery's history of generously drawing inspiration from other carmakers' designs. General Motors is suing Chery, claiming that Chery's QQ is a clone of its Chevrolet Spark, a minicar sold in China. Volkswagen has in the past complained that Chery poached parts of VW models. But the hardest part of the plan may be the production scale envisioned. With sales of about 80,000 vehicles last year, Chery is China's eighth-largest automaker, standing deep in the shadows of major multinational competitors like Volkswagen and G.M. To even produce the number of exports planned to the United States, Chery would have to nearly triple current output, though it says has the capacity to do so. While analysts are skeptical of Chery's immediate prospects in the United States, many of them describe it and other Chinese manufacturers as ambitious and dogged players focused on the long term. 'They might be trying to run before they can walk,' said Michael Dunne, the president of Auto Resources Asia, 'but don't underestimate the Chinese resolve to compete.' Auto Resources Asia advises carmakers investing in Asia. Mr. Bricklin, chief executive of Visionary Vehicles, said his company would initially sell five models of Chery cars, including a small sedan, a sport coupe and an S.U.V., through 250 dealerships across the United States. He said he hoped to sell a million Chery cars a year in the United States after five years. If Chery's ambitious move succeeds, it would be a breakthrough for a company best known for the QQ, a minicar with a $4,000 cost that appeals to China's budget-conscious consumers and is the backbone of Chery's revenue. The QQ will not be sold in the United States, owing to the G.M. litigation, analysts say. But Chery has a track record of unlikely breakthroughs. The company was founded in 1997 in Wuhu, a small port city on the Yangtse in the heavily agricultural Anhui Province, far from carmaking hubs like Shanghai. It is state-owned, and controlled by the Wuhu local government. Chery officials declined to be interviewed for this story. Many investors and competitors were initially doubtful that Chery would survive, said Mr. Dunne, who has visited its headquarters in Wuhu. 'They quietly got it done and surprised the market,' he said. Mr. Dunne recalled that when he visited Chery's plant he was surprised by its advanced building and equipment. Chery has developed Japanese-inspired production management to ensure quality and has used top international consultants to design its newest cars, he said. But those expensive investments must be recouped, and looking abroad is partly a survival strategy. As car sales in China slowed from breakneck growth of 80 percent in 2003 to about 20 percent last year, the country's 37 carmakers have been cutting prices, and competition is fierce. Chinese carmakers that have invested heavily in expensive technology are looking abroad to outrun even cheaper Chinese competitors. 'Now the party's over and they're starting to think, 'Let's make our way in the international market,' ' Mr. Dunne said, referring to Chinese carmakers. Those pressures are acute for Chery. It sold about 40,000 QQ's last year. But its higher-end cars, the A15 Qiyun and Son of East models released last year, failed to catch on. Other Chinese companies, like Great Wall Motors and the Geely Holding Group, are also developing plans to export in large numbers, analysts said. But more than purely commercial calculations may be driving Chery, whose main export markets so far are the Middle East, Africa and Southeast Asia. Chery and its rivals are also spurred by the cachet and brand recognition that come with exporting to the United States - even if it is to the low end of the market. 'They feel they haven't arrived until they have successful export markets,' said Ashvin Chotai, director of Asian auto research for Global Insight, a market analysis company in London. 'It's this prestige thing. If they're successful abroad, they're a serious player.' Chery will face a barrage of doubts from prospective dealers and purchasers as it prepares to enter the United States. Chery will also have to meet more stringent safety and emissions requirements than in China, will face questions about reliability and after-sales service, and probably be subject to a counteroffensive from Korean and Japanese competitors keen to protect their share of the economy car market. Chery also risks the fate of Hyundai, which had steep losses in the United States when it sold its lower-priced cars there in the 1980's. 'You can get it wrong and go too early,' Mr. Chotai said. 'In a sense, it's a little bit naïve.' To succeed, though, Chery and other Chinese manufacturers must evolve from being mimickers of other company's cars to innovators, Mr. Chotai said. To do that, Chery will have to have a steady stream of new models and innovations to control costs and attract new buyers. It has established a research and development center and hired engineers from big American carmakers in that effort. Whether it succeeds will also depend ultimately on its performance in China, which will remain its greatest source of revenue and a testing ground for new cars. 'China's a cutthroat market now,' Mr. Chotai said. 'If Chery comes out in a good financial position, its prospects will be good, but that depends also on new products.' In the United States, the challenges are different. But like Japanese and Korean car companies before them, Chinese automakers are likely to one day be serious competitors in America, analysts say. 'If you look at long-term trends, I would say that it's only a matter of time before China-made cars crack the U.S. market,' said James Sun, head of the greater China automotive practice of A. T. Kearney in Shanghai.

Subject: Asset Prices as a Policy Target From: Terri To: All Date Posted: Fri, Jan 07, 2005 at 15:48:19 (EST) Email Address: Not Provided Message: Again, since the dramatic interest rate reductions from January 2001, the Fed has obviously used asset price inflation as a means of spurring the economy? Would you argue then that Fed policy has really been long aimed at changed asset prices other than just bond prices? Interesting. Of course, this seems reasonable and we have long invested on just this premise. Why then does the Fed maintain it does not target asset prices?

Subject: Game Over? From: Terri To: All Date Posted: Fri, Jan 07, 2005 at 13:50:03 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Game Over? Stephen Roach The unraveling of the Asset Economy could well be at hand. America’s Federal Reserve has finally woken up to the perils of the risk culture that its reckless accommodation has spawned. The Fed has sounded simultaneous alarms on two fronts -- inflation and excesses in asset markets. Such explicit warnings from the US monetary authority are rare and should be taken seriously. This has important implications for the interest rate outlook, as well as for the asset-dependent US economy.... Many believe that the Fed would be over-reaching its mandate by squeezing carry trades. I don’t share that view. Unlike many central banks, America’s Federal Reserve is not a one-dimensional inflation targeter. Instead, it is charged by the US Congress with promoting price stability, full employment, and sustained economic growth. To the extent that speculative excesses jeopardize the stability of the US economy, the Fed is well within its purview of addressing financial market imbalances. It did so in 1994 and belatedly again in 2000. Given the current state of excess in the US economy -- the saving shortfall, debt overhang, and twin deficits -- in conjunction with mounting excesses in asset markets -- property and fixed income markets, alike -- aggressive Fed action is entirely appropriate, in my view. Investors won’t love the outcome, especially high-yield borrowers at home and abroad (i.e., emerging markets). But this was always the ultimate pitfall of the post-bubble shakeout. The Asset Economy has gone to excess, and it is high time to face the endgame before it’s too late. The Fed deserves credit for finally bringing these critical concerns to a head.

Subject: I hope Not From: Terri To: Terri Date Posted: Fri, Jan 07, 2005 at 14:13:48 (EST) Email Address: Not Provided Message: Steve Roach comes from the no pain-no gain approach to economic policy making. I do not find such an approach helpful, and hopefully the Fed will not. I do not think it is for the Fed to try to limit asset prices.

Subject: Re: I hope Not From: Pete Weis To: Terri Date Posted: Sat, Jan 08, 2005 at 13:13:04 (EST) Email Address: Not Provided Message: 'I do not think it is for the Fed to try to limit asset prices.' This is why the Fed was created - to loosen monetary policy when necessary, but also tighten it when necessary. The whole idea was to smooth out the business cycle. It can't be a one way policy of loosening when things have really come unglued. Atleast one fed governor argued with Greenspan back in the 90's that he was inviting disaster by not raising rates forcefully to get the 'irrational exuberance' under control. But the Wall Street crowd and millions of small investors who had visions of becoming rich made it clear they didn't want the fed interfering with their wealth accumulation. Greenspan received a very angry reaction for his 'irrational exuberance' statement and he rationalized to himself that raising rates was unnecessary. As small investors, we are much more inclined to listen to the Larry Kudlows of the world than we are the Paul Krugmans, Robert Shillers, Jeremy Granthams, etc. We may believe Kudlow is overly bullish and listen instead to those who are more 'down to earth' in their mildly bullish projections, but we will always 'accentuate the positive' and 'eliminate the negative' - we will always tend to want to see the 'glass as half full' rather than 'half empty'. We will rarely take the position that maybe the glass should be smaller.

Subject: Asset Prices From: Terri To: Pete Weis Date Posted: Sat, Jan 08, 2005 at 13:46:58 (EST) Email Address: Not Provided Message: I am thinking through whether the Fed should interfere with asset prices other than in the bond market. My leaning is against any such specific price interference, but I am open to argument. Look to Jeremy Grantham in Barrons. Careful of the troll above.

Subject: Stocks and Bonds - a From: Terri To: All Date Posted: Fri, Jan 07, 2005 at 13:46:18 (EST) Email Address: Not Provided Message: The 10 year Treasury yields about 4.3%. This is what we will earn if we hold a note for the coming decade. The S&P dividend is about 1.5% after costs. So, the S&P must average 2.5% in capital gains over the decade to equal the 4% return of a Treasury note. The last 5 years, the S&P has lost value. I would seriously believe the S&P will gain more than 4% this coming decade. For bonds to fare better than stocks for 15 years could happen, but I find the chance small.

Subject: Stocks and Bonds - b From: Terri To: Terri Date Posted: Fri, Jan 07, 2005 at 13:46:43 (EST) Email Address: Not Provided Message: The yield on the Vanguard Inflation Protected Securites Fund is 1.2%. So, if inflation is 2.8% over the coming decade TIPS are worth holding. Remember, stock dividends and capital gains are taxed at 15%, while bond interest is taxed at our income tax rate. Will TIPS be a superior investment to the S&P over the decade? I would guess not.

Subject: Stocks and Bonds - c From: Terri To: Terri Date Posted: Fri, Jan 07, 2005 at 16:36:38 (EST) Email Address: Not Provided Message: Stock dividends are far below historical norms. Still, the Vanguard Value Index yields 2.3%. A 2.0% capital gain and you match the Treasury note. While the REIT Index yields 3.9%. My guess is the REIT Index is overvalued since REIT earning growth has been negative for the last 4 years. Still, you can get 3.9% in dividends from the REIT Index with a chance for some long term price appreciation or settle for a Treasury note at 4.3%. Dividends are low, but tax policy favors most stock dividends and all capital gains, and the chance for even small capital gains makes stocks look enticing relative to bonds.

Subject: What Should the Fed Do? From: Terri To: All Date Posted: Fri, Jan 07, 2005 at 12:30:08 (EST) Email Address: Not Provided Message: What might the Federal Reserve do? Should short term interest rate increases be quickened? I would hope not for I find reason to worry about sluggish employment and wage and benefit levels. What might be done by the Fed? What might pension plans and private investors do to protect portfolios?

Subject: Re: What Should the Fed Do? From: Institutional Investor To: Terri Date Posted: Fri, Jan 07, 2005 at 17:15:07 (EST) Email Address: Not Provided Message: terri, why are you so against MPT. Why would a pension fund change its allocation on a day to day (or month to month basis) when they are looking 20-30 years down the road. I highly suggest check out http://www.ibbotson.com/ and read their research. Maybe even do the asset allocation example in the education section. There is no reason to change a fund's allocation because of short term concerns.

Subject: Re: What Should the Fed Do? From: Terri To: Institutional Investor Date Posted: Fri, Jan 07, 2005 at 17:26:21 (EST) Email Address: Not Provided Message: Institutional Investor, Thank you for pointing out a foolish comment. There is surely no reason for a pension fund to think short term. Foolish, and I will use Ibbotson this day. Likely I will once again agree with you about a private investor. Reading Stephen Roach can be a bit grim, and cause me to wonder beyond just playing with ideas. I always pay attention :)

Subject: AIDS in South Africa From: Emma To: All Date Posted: Fri, Jan 07, 2005 at 12:21:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/international/africa/06cnd-mand.html Breaking Taboo, Mandela Reveals Son Died of AIDS By MICHAEL WINES SALT ROCK, South Africa - Nelson Mandela, who has devoted much of his life after leaving South Africa's presidency to a campaign against AIDS, said today that his 54-year-old son had died of the disease in a Johannesburg clinic. The son, Makgatho L. Mandela, who was a lawyer, had been seriously ill for more than a month, but the nature of his ailment had not been made public before his death today. At a news conference in the garden of his Johannesburg home, the elder Mr. Mandela, 86, said that he was revealing the cause of his son's death to focus more public attention on AIDS, which is still a taboo topic among many South Africans. To keep the illness secret would wrongly imply that it is shameful, he said. 'That is why I have announced that my son has died of AIDS,' he said. 'Let us give publicity to H.I.V./AIDS and not hide it, because the only way to make it appear like a normal illness like TB, like cancer, is always to come out and say somebody has died because of H.I.V./AIDS, and people will stop regarding it as something extraordinary for which people go to hell and not to heaven.'

Subject: Nelson Mandela Loses a Son From: Emma To: Emma Date Posted: Fri, Jan 07, 2005 at 12:22:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/07/opinion/07fri3.html Nelson Mandela Loses a Son Among the biggest obstacles to combating the global AIDS epidemic is the culture of silence and shame that continues to surround the disease, especially in hard-hit countries like South Africa, where the United Nations estimates that one in five adults have AIDS or are infected with H.I.V. Yesterday's announcement by Nelson Mandela that his 54-year-old son, Makgatho, had died of AIDS was an important step toward ending a taboo that keeps many people across Africa from talking openly about the disease's impact on them and their families, thereby hampering treatment and prevention efforts.

Subject: A Thirst for Energy From: Emma To: All Date Posted: Fri, Jan 07, 2005 at 09:50:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/07/business/worldbusiness/07unocal.html China Oil Giant Said to Weigh Making an Offer for Unocal By THE NEW YORK TIMES China's state-controlled offshore oil company is studying a possible bid for Unocal, the ninth-largest oil company in the United States, people close to the American company said yesterday. The Chinese company, the China National Offshore Oil Corporation, or Cnooc, recently commissioned a review of Unocal's assets, the executives said, and has made a preliminary overture to Unocal to express its interest in a possible deal. Unocal, based in El Segundo, Calif., has a current market value of $11.7 billion. The overture by Cnooc is another sign of China's intense appetite for energy resources abroad to power its fast-growing economy. China is now second only to the United States in its demand for oil, but its domestic production has been stagnant in recent years and is expected to decline in the years ahead. Unocal has a large presence in Asia, including Thailand, Indonesia, Bangladesh and Myanmar. Still, one executive cautioned that Cnooc's pursuit of a deal was 'in the earliest of early stages' and that nothing may come of it.

Subject: China's Model From: Emma To: Emma Date Posted: Fri, Jan 07, 2005 at 10:00:18 (EST) Email Address: Not Provided Message: China's development strategy, complete with the accumulation of dollar reserves, seems awfully intelligent to me. For a century we wondered why less developed nations did not close the gulf with the most developed. Finally this may be happening with the model set by China.

Subject: New Keynesians vs. New Classicists From: dave To: All Date Posted: Thurs, Jan 06, 2005 at 18:27:48 (EST) Email Address: Not Provided Message: Just curious where you all stand on this issue. I like the idea that the New Keynesian theory is an intellectual movement and not ideas coming from observed phenomenom like most other economic theories.

Subject: Re: New Keynesians vs. New Classicists From: Paul G. Brown To: dave Date Posted: Thurs, Jan 06, 2005 at 18:48:24 (EST) Email Address: Not Provided Message: You mean like, 'price flexibility' and 'rational purchasing decision' are observed phenomena?

Subject: Re: New Keynesians vs. New Classicists From: dave To: Paul G. Brown Date Posted: Thurs, Jan 06, 2005 at 21:47:57 (EST) Email Address: Not Provided Message: What are your thoughts on monetary impotence and rigid wages? This was observed during and after the great depression. The classical idea that the labor market would self-correct itself did not live up to the historical facts. Wages did not change to bring the market to an equilibrium. Also, real GDP did not respond to an increase in the money supply. So basically, do you feel that fiscal policy should be used to stablize the markets or do you feel monetary policy should be used? or both?

Subject: Thoughts on X ... From: Paul G. Brown To: dave Date Posted: Fri, Jan 07, 2005 at 14:30:15 (EST) Email Address: Not Provided Message: 'What are your thoughts on monetary impotence and rigid wages?' The great cop-out: 'It depends.' One of the features of the models economists create to explain economic history is the set of assumptions they accept. Take price rigidity (wage is just the price of labor, interest is just the price of money). Now, clearly, prices do change over time. That's what inflation is. Some prices--such as interest--adjust up and down quite rapidly while others only ever seem to trend up--the prices charged for goods and services, and wages. Now, if prices don't adjust down, then a whole chunk of classical reasoning about the economic process is without foundation. But prices evidently do adjust up, so there is at least some merit to the way {Smith, Marshall, Knight, Freidman and Lucas} think about it all (though the Austrians are insane). I'd go further and say that they're mostly right: prices change more than they stay rigid. But, but, but, but! Not always. And the Great Depression is the definitive example of that. Prices did not fall. But they do remain rigid, and this kind of price rigidity inhibits the adjustment mechanisms the classicists propose. The solution was (and is) interventionist fiscal policy. I hope this lil' note gives you another perspective. I don't think it's an exclusive-or kind of question. Good economic policy is situational, and pragmatic.

Subject: Re: Thoughts on X ... From: Emma To: Paul G. Brown Date Posted: Fri, Jan 07, 2005 at 17:20:05 (EST) Email Address: Not Provided Message: The need is for policy flexibility both with the ways in which monetary and fiscal policy are used and when each tool is used. Conditions are ever changing in an economy.

Subject: Re: Thoughts on X ... From: Pancho Villa To: Emma Date Posted: Fri, Jan 07, 2005 at 17:45:45 (EST) Email Address: nma@hotmail.com Message: Dear Emma, totally (really totally) agreeing...

Subject: Re: Thoughts on X ... From: Emma To: Pancho Villa Date Posted: Fri, Jan 07, 2005 at 20:43:05 (EST) Email Address: Not Provided Message: Thanks :)

Subject: Re: New Keynesians vs. New Classicists From: Pete Weis To: dave Date Posted: Fri, Jan 07, 2005 at 10:22:04 (EST) Email Address: Not Provided Message: I believe John Keynes stated or wrote about the impracticality of arbitrarily adjusting wages in a world of unionized labor. Monetary policy was supposed to be a two-way street - 'take away the punch bowl when the irrational exuberance gets out of hand'. However, in a world of powerful social and political pressure our present fed chairman decided not to do that, stating instead - 'when one is inside a bubble it's hard to tell if, in fact, there is a bubble.' So the question becomes - is monetary policy also impractical - can we really expect to get a Paul Volker as fed chairman when things really get out of hand and would Paul Volker have acted any differently under the circumstances in which Alan Greenspan found himself? I tend to think he would have - but we'll never know. Wages are now being adjusted downward by a governmental policy of 'benign neglect' toward the dollar. This is, IMO, poison in a heavily leveraged economy such as ours. The amount of leverage has gotten to the point where some substantial pain is inevitable in the unwinding of it. Austere and somewhat painful fiscal policy would probably be needed at this point to lessen the damage. IMO, there will come a moment where a very tough choice will have to be made - save the dollar and sacrifice some of the economy or let the dollar tumble a lose the whole shebang.

Subject: Re: New Keynesians vs. New Classicists From: Terri To: Pete Weis Date Posted: Fri, Jan 07, 2005 at 10:33:23 (EST) Email Address: Not Provided Message: An austerity program to defend the dollar is happily precisely what Alan Greenspan has ruled out. The dollar rises and falls, but we should not harm the economy because of the one or the other. The dollar has fallen these last 2 years, and the recovery has continued. There will be no austerity plan; there must not be.

Subject: Our different view...... From: Pete Weis To: Terri Date Posted: Fri, Jan 07, 2005 at 15:03:35 (EST) Email Address: Not Provided Message: seems to hinge mainly on our concern or lack of concern about our present levels of debt - both governmental and personal. Call me an alarmist if you want, but I look at the growing debt fed by an incredibly easy money policy and see nothing but trouble ahead. The world I live in is full of folks who live at the limit and often beyond the limit of what they can afford, and increasingly it is on very 'creative' financing which offers fixed payments for a given period, but where the interest varies (mostly upward) almost on a daily basis and principle rises. On both a personal and governmental basis we live for today and pretty much pass the worries and responsibility on to future generations. But guess what - perhaps, we are the future generation which will finally have to deal with this mess!

Subject: You View is Important From: Terri To: Pete Weis Date Posted: Fri, Jan 07, 2005 at 15:51:42 (EST) Email Address: Not Provided Message: You are not an alarmist, if alarmist has the least negative sense. You are a cautious thoughtful realist, who is raising critical issues that must be considered even if they are not taken as immediately harmful. My view may well be increasingly frivolous.

Subject: Re: New Keynesians vs. New Classicists From: Emma To: Paul G. Brown Date Posted: Thurs, Jan 06, 2005 at 19:00:47 (EST) Email Address: Not Provided Message: Economic theory that is not testable should have no place in policy making.

Subject: With apologies to W.S. Gilbert ... From: Paul G. Brown To: Emma Date Posted: Thurs, Jan 06, 2005 at 21:33:24 (EST) Email Address: Not Provided Message: George Bush's Song of the Economic Summit As it regularly happens that excuses must be found, I've got a little list--I've got a little list of economic theories (of which so many do abound) And who never would be missed--no they never would be missed! There's the strident classicists who love that laise fair, And Ricardians, who recommend that we import our underwear, All Thorsten Veblen's teachings! They shall not rate a pass! (As if leisure weren't the only goal of the theory class!) And all that Keynesian mallarky (though James Tobin would be pissed!) They'd none of 'em be missed--hey! we know he's not been missed! CHORUS. He's got 'em on the list--he's got 'em on the list; And they'll none of 'em be missed--they'll none of 'em be missed. And the neo-classic synthesis! (A neologism quite bizarre). All that dreck from the Vienna school (they do take things too far). And a Marxist, if one can be found, who still haunts the academic grove, and just what the hell's that stuff we keep hearing from Karl Rove! And all that tedious nonsense the from the Chicago monetrists! I doubt that he'll be missed--I'm sure he'll not be missed! CHORUS. He's got 'em on the list--he's got 'em on the list; And they'll none of 'em be missed--they'll none of 'em be missed. Once you scratch the surface, it's hard to know when you're through. The task of filling up the blanks I'd rather leave to you. But it really doesn't matter whom you put upon the list, For they'd none of 'em be missed--they'd none of 'em be missed!

Subject: Energy Speculation From: Emma To: All Date Posted: Thurs, Jan 06, 2005 at 17:12:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/business/06place.html?pagewanted=all&position= Newcomers to Energy Investments Could Make This Year's Price Swings Wild By HEATHER TIMMONS London THE jarring swings in oil prices that gave investors and traders whiplash in 2004 are not preventing new investors from rushing into oil and other energy-related commodities this year. These investors are attracted by the promise of better returns than those offered by bonds and equities, bankers and traders say. Ultimately, the rising number of speculators could lead to even more price volatility in 2005 as they push the highs higher and the lows lower. Speculation on oil prices is not limited to hedge funds, which were popular scapegoats for high oil prices last year. Some of the largest pension funds, insurance companies and endowments are moving more and more money into commodity indexes, which are heavily weighted in oil and gas futures. Wealthy private investors are also snapping up new oil price-related products. 'After a generation in the wilderness,' the oil futures that are used to make a bet on oil prices 'have become a bona fide investment,' said Charles O'Donnell, who manages Lake Asset Management, a small energy fund based in London. In November 2004, 64.4 million futures and options contracts for light crude oil, the industry standard, were traded on the New York Mercantile Exchange, the biggest oil futures market. That was an increase of 15.6 percent from 55.7 million in the month a year earlier. On the International Petroleum Exchange in London, the second-biggest market, 3.098 million contracts were traded in November, the latest month from which figures were available, which was up 20 percent compared with the month a year earlier. Oil futures make up 40 percent of the Goldman Sachs Commodities Index, which attracted about $30 billion in investment by the end of 2004, about double the amount at the end of 2003 and up from $3 billion in 1998. Investors put an additional $10 billion into other commodities indexes by the end of 2004, according to Goldman. Commodity specialists say they do not expect these increases to disappear. David Kitson, head of global energy at J. P. Morgan in London, said investment in the commodity markets by pension funds and hedge funds would continue to rise in 2005, based on the level of interest expressed by clients. 'There are more investors coming in,' he said. In the past, commodities like crude oil and metals were often shunned by general long-term investors because they can vacillate as much as 100 percent in a year as economies rise and plummet and the ratio of supply to demand shifts rapidly around the globe. For example, crude oil prices peaked at a closing price of $55.17 a barrel in New York in 2004, up about 70 percent from the low of $32.48 a barrel for the year. This week, crude oil fell 3 percent on Monday and rose more than 4 percent on Tuesday before settling at $43.39 a barrel yesterday, down 1.2 percent. But there is a growing belief that economic expansion in countries like India and China and delivery bottlenecks caused by a lack of investment in tankers, pipelines and refineries will ensure that prices of oil and oil-related products will not plummet. That belief, though, has a dangerous downside if it turns out to be wrong.

Subject: Land Rush in South Africa From: Emma To: All Date Posted: Thurs, Jan 06, 2005 at 12:08:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/international/africa/06africa.html Land Rush by Foreign Investors Divides South Africa By SHARON LaFRANIERE HIBISCUS COAST, South Africa - David Bailey is about to buy his 11th piece of property here on this country's southeast coast, fully expecting to sell it in a year for a nice profit. And why not? He has done it three times in three years, he said, clearing a tidy $200,000 along the way. With this nation's housing prices headed toward the ionosphere, one could almost say that Mr. Bailey has captured for himself a piece of the South African dream. Except that he isn't South African. Mr. Bailey, 43, is a construction subcontractor from outside Belfast. 'Friends of ours had bought here. Property was so cheap compared to home. We decided to invest because we could see the land was getting scarce and prices were starting to move,' he said as he enjoyed an early brunch at a cafe overlooking the Indian Ocean. 'It has been excellent. The prices just keep going up.' Let others sniff out the coastline of Spain, France or Ireland, itself the site of a property boom. Mr. Bailey sees much better prospects along the breathtaking coastline of South Africa's Eastern Cape. Hidden from the world for decades under apartheid, it has now become the object of a minor land rush by foreign investors. That has touched off an emotional debate in South Africa over whether to welcome the world's Baileys or to fend them off with new restrictions on foreign land ownership. Six months ago, the South African minister of land affairs, Angela Thoko Didiza, said foreigners should be prohibited from buying land outright and allowed to acquire only 99-year leases. A government panel was subsequently formed to investigate the issue and is to deliver an interim report this month. What drives the government's concerns is clear. Housing prices here have leapt by double digits for four years straight. In December, The Economist reported that they surged by 35 percent in the year that ended last March - the steepest increase of 20 nations that the magazine surveyed. To many economists, the notion of turning away rich foreigners in a land starved for outside investment is ridiculous on its face. 'One must welcome foreigners who are injecting capital into a country, whether they buy a factory or a house,' said Erwin Rode, of Rode and Associates, a specialist in the economics of property. 'That real estate investors are buying is a good sign.' If stretches of the nation's coastline turn into playgrounds for rich Europeans, real estate agents say that is a tangible sign to the first world that South Africa deserves notice as a stable location for foreign investment. 'The more foreigners who buy property here, the more foreign interest there will be in South Africa from an economic point of view,' said Ronald Ennik, the chief operating officer of the Pam Golding Property Group, the nation's biggest real estate firm, 'We see it as an uplifting.' But this is South Africa, the quintessential land of haves and have-nots, and much is measured in terms of its impact on the millions of blacks who were dispossessed, rendered landless and impoverished by apartheid. Five million blacks live in shacks outside cities like Johannesburg, striving to move up to a rich family's servants' quarters - or, if they are really lucky, a one-room concrete, government-financed home of their own. They have no land to sell and even less hope of buying any as prices soar. As many of them see it, a hotter property market mainly benefits South African whites, because only whites could amass property under apartheid. Letepe Maisela, a resident of Johannesburg, summed up the resentment in July in a letter to the South African newspaper Business Day. 'There is something wrong when our country is being auctioned off to the highest bidder,' he wrote, 'while its native inhabitants, whose financial growth was stunted by colonialism and apartheid, do not yet have the means to compete.' Real estate agents and some economists counter that foreigners own less than 1 percent of the land in the country and almost uniformly seek high-priced property that is already out of reach of most South Africans. 'The game to be honest is primarily being played out at the very top of the market, the top 5 percent,' said Francois Viruly, a property economist in Johannesburg. In the thick of the debate is Shadrack Gutto, the leader of the Center for African Renaissance at the University of South Africa in Pretoria and chairman of the government's panel on foreign land ownership. In a telephone interview, he said there is little hard evidence to either prove or refute claims that foreign speculators are driving up prices for average South Africans. Nor, he said, is there any reliable data on how much land foreigners own in South Africa. Economists predict that South Africa's president, Thabo Mbeki, will be reluctant to limit foreign buyers without further study. But his only pronouncements to date - in late June, before Parliament - suggest he is quite open to a change in policy. 'Many countries have such restrictions,' he said then, mentioning Switzerland. 'We know of no reports that this has served as a red flag to foreigners who have invested in these countries.' Mr. Bailey, the Belfast subcontractor and beachfront property mogul, said he could understand the sense of protectiveness. 'It is no different than at home,' he said. 'A lot of foreigners bought up developments and drove prices way up.' Nonetheless, he said, South Africans have gone out of their way to make him feel welcome. As for his investments, he said, 'I have no fears at all.'

Subject: Conspicuous Spending From: Emma To: All Date Posted: Thurs, Jan 06, 2005 at 12:01:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/business/06scene.html?pagewanted=all&position= Doctoral Thesis Says Rich People Spend More on Conspicuous Things By ALAN KRUEGER LONG before Thorstein Veblen coined the term 'conspicuous consumption,' economists from Adam Smith to Karl Marx had argued that people choose to buy some goods because of what those goods reveal about their standing in society, not because of any intrinsic enjoyment they get from the purchase. Yet conspicuous consumption remained mainly a theoretical curiosity for more than a century, with little empirical content or support. Now, Ori Heffetz, a doctoral student in economics at Princeton University, has developed the first broad-gauged index of product visibility. Sure enough, he finds in his thesis that conspicuous items make up a greater share of the consumption budget in wealthier families. The idea of conspicuous consumption is intuitive. A Timex watch, for example, tells time about as well as a Rolex, but the particular watch you wear tells a lot about your purchasing power and personality. A major motivation for buying an extravagant watch is to signal to others that the consumer has 'made it,' a point not lost on advertisers. In Veblen's view, the wealthy engage in conspicuous consumption to advertise their wealth. If true, such behavior can set off a wasteful rat race, in which people buy expensive products they don't particularly like only to 'keep up with the Joneses' and signal their lofty status. Because conspicuous consumption makes others feel less successful, some economists have argued that society would be better off if a high tax rate were applied to goods that are the object of conspicuous consumption. It is unclear, however, whether conspicuous consumption is a motivation underlying the purchase of many products or just a few. Furthermore, products that are conspicuous may nonetheless be consumed for their intrinsic value, not their curb appeal. To determine whether conspicuous consumption is a rarity deserving little attention or central to understanding what people buy, it is necessary to have a measure of the extent to which a good is conspicuous. Mr. Heffetz measured the visibility of various products by conducting a telephone survey of 243 randomly chosen individuals last summer. He first requested that respondents 'imagine that you meet a new person who lives in a household similar to yours.' Then, for each of 29 types of products, which together account for most of consumer spending, he asked them to imagine that the household spent more than average on that product. 'Would you notice this about them, and if so, for how long would you have to have known them to notice it?' Responses were assigned a score of one to five, ranging from never to almost immediately. The index of visibility, or 'vindex,' is the average score for how long it would take to notice that the consumer spent more than average on a product. The logic is simple: visibility is a cultural as well as a physical property. If neighbors talk about their expenditures on some goods, then they are more conspicuous than otherwise. The more conspicuous a product, the sooner it is noticed. The visibility ranking that resulted from the survey is quite sensible. Cigarettes, clothing, cars and jewelry are the most visible products, while underwear, home insurance, life insurance and car insurance are the least. An implication of the theory of conspicuous consumption is that families spend relatively more on conspicuous goods as their incomes rise. Economists classify goods as 'necessities' if their share of the budget falls as income rises, and as 'luxuries' if their share of the budget rises as income rises. Are more visible goods more likely to be luxuries, as the theory predicts? To answer this question, Mr. Heffetz estimated the relationship between the amount spent on each of 29 products and a household's income, using data on 3,924 households from the 1997 Consumer Expenditure Survey, conducted by the Bureau of Labor Statistics. The 'income elasticity of demand,' defined as the percentage change in consumption for a 1 percent increase in income, summarizes the degree to which a good is a luxury or a necessity. A good is a luxury if a 1 percent increase in income is associated with more than a 1 percent increase in consumption of that good. Mr. Heffetz's analysis indicates that the higher the visibility of a good, the more likely it is to be a luxury item. For example, spending on cars and jewelry, two highly visible items, rises as a share of a household's budget as its income rises, while spending on home utilities, an inconspicuous category, falls as a share of the budget as income rises. The relationship is far from perfect, however. Cigarette consumption is greater among lower-income households than among higher-income ones, yet cigarettes are the most noticeable product of all, according to the findings of the study. Formally, the index of visibility accounts for 12 percent of the way in which income relates to consumption across products. Interestingly, the effect of visibility on consumption applies only to the richest half of families, for whom the visibility index accounts for 20 percent of the way additional income is spent on various products. For those in the bottom half, product visibility has no detectable effect on how income affects the pattern of consumption. Although conspicuous consumption is expected to apply mainly to the rich, this finding would come as a surprise even to Thorstein Veblen, who claimed, 'No class of society, not even the most abjectly poor, forgoes all customary conspicuous consumption.' Mr. Heffetz said he recently found support for another of Veblen's pet theories, though: the notion of 'vicarious consumption,' meaning the satisfaction someone derives from giving a conspicuous gift or throwing a lavish party. Christmas gifts are 40 percent more visible than the average consumer purchase, Mr. Heffetz calculated. Why give conspicuous presents? One reason is that gift givers wish to signal that they can afford to be generous. A conspicuous gift transmits that signal to a wider audience than an inconspicuous one. So before you return one of those loud ties, that gaudy pair of earrings or other conspicuous holiday gifts, recognize the impact of flaunting the gift on your reputation - and on your benefactor's reputation as well. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University.

Subject: To bad......... From: Pete Weis To: Emma Date Posted: Thurs, Jan 06, 2005 at 15:03:35 (EST) Email Address: Not Provided Message: so many of these 'conspicuous' things are not made in America.

Subject: Brazil: A Harvest at Peril From: Emma To: All Date Posted: Thurs, Jan 06, 2005 at 11:46:05 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/business/worldbusiness/06rust.html?pagewanted=all&position= A Harvest at Peril By TODD BENSON SÃO PAULO, Brazil - After almost a decade of rising prices and record profits, soybean farmers in Brazil, the world's second-largest soybean producer and exporter, are now bracing for tougher times. One reason is the tumble in soybean prices, down nearly 30 percent since March, when they hit their highest level in more than 15 years. The fall came largely because of China's decision to cut back on imports and because of a bumper crop in the United States, the world's No. 1 producer and exporter. But another big factor is Asian soy rust, a deadly crop fungus that has been ravaging plantations here since it made its way to South America three years ago. The emergence of the disease, which can destroy up to 80 percent of a crop if left untreated, has significantly raised production costs for farmers at a time when profit margins are already narrowing because of the price drop. As a result, the rapid growth of Brazil's soy industry, which accounts for nearly half of the country's farm exports, is starting to slow, making it unlikely that it will overtake the United States in soybean production as early as next season (2005-6), as some analysts had predicted. 'The days of euphoria are ending,' said Ademir Henning, a plant pathologist who specializes in soybeans at the Londrina office of the Brazilian Enterprise for Agricultural and Livestock Research, a government agency known as Embrapa. 'The margin for error is now shrinking,' he added. 'If producers don't spend what it takes to improve crop management and combat soy rust, they're going to lose a good portion of their crops and end up going broke.' Soy rust was first detected in Japan in the early 1900's. It is spread by the wind and thrives in warm, moist climates, making the tropical savannas of central Brazil - the heartland of the country's soy belt - especially vulnerable. Once the fungus takes hold, it causes plants to lose their leaves, inhibiting the development of the bean pod and reducing yields. Since it was detected in Brazil in 2001, Asian soy rust has spread to almost 80 percent of the country's soy-growing regions. It has also infected crops in Argentina, the world's third-largest soybean producer and exporter, and has affected Bolivia and Paraguay as well. In November, it was detected for the first time in the United States mainland, though the United States Agriculture Department said the disease - thought to have been brought north by hurricanes - has not yet had any economic impact. Still, the agency said it was monitoring the situation closely. Last season, when heavy rainfall in parts of Brazil made it difficult to control soy rust, the country's soybean output fell for the first time in five years, to 49.8 million metric tons, from 52 million the previous harvest. Over all, the fungus destroyed 4.5 million tons of soybeans that season, which ended in September, costing farmers $2 billion. To keep the disease in check, farmers must spray fungicides on the crop two to three times, and that can raise production costs by as much as 15 percent, according to the National Agriculture Confederation, a farm lobby in Brazil. When prices were at their peak last March, with buyers paying as much as $20 for a 60-kilogram (132-pound) bag of soybeans in the domestic market, most growers could afford the fungicides and still turn a heady profit. Now, with prices hovering at around $12.50 a bag here, many farmers are worried about breaking even. 'We've gone from a situation in which we were certain to make a big profit to one in which making a profit at all is no longer a given,' said Paulo Freitas, who grows soybeans on some 37,000 acres in Mato Grosso, Brazil's biggest soy-producing state. 'This is the first very bad year that I'm going to have since I started planting soy' nine years ago, added Mr. Freitas, who lost 30 percent of his harvest last season to rust. The double whammy of lower prices and higher production costs is putting the brakes on the explosive growth of Brazil's soy area, an expansion that environmental groups say threatens the Amazon. After years of expanding as much as 15 percent annually, the area planted in soybeans is expected to rise 6 percent this season, to 56.3 million acres, according to the government's statistics agency. 'The way things are now, soy in Brazil isn't going to expand nearly as much as people have been forecasting,' said André Pessoa, a managing partner at Agroconsult, an agribusiness consulting firm in Florianópolis. 'We're going to see a whole new situation in Brazil in the next year or two, which is probably a reduction in soy area.' Even if Brazil's soy area does contract next season, no one is predicting a huge drop in output just yet. The more rust spreads, the more farmers are learning how to contain the disease, albeit by spending more on fertilizer and fungicides. And crop management, in general, also keeps improving. This season, which ends next September, for example, Brazil is expected to produce 61.4 million to 64.5 million metric tons of soybeans, depending on the forecast, with just a modest increase in planted area. (The United States, by contrast, is expected to harvest 85.7 million metric tons of soybeans, up from 66.8 million last season, according to the Agriculture Department.) 'People are learning to live with the disease, but they are also learning that that means getting used to smaller profit margins,' said Fernando Muraro, an agronomist who runs a consulting firm in Curitiba called Agência Rural. 'Over time, that could mean that some farmers, especially the smaller ones, will migrate to other crops.' Eager to protect one of the country's biggest breadwinners in the global marketplace, the government and the private sector are scrambling to stop the spread of soy rust. Embrapa, the government's research agency, is investing heavily in a project that seeks to develop soy seeds by 2007 that either are resistant to rust or require less fungicide. So far, about $6 million has been set aside for the project. Meantime, the bad news for farmers has been good news for farm chemical companies like Bayer CropScience and Dow Chemical's AgroSciences unit, which are gearing up to reap the benefits of a surge in demand for fungicides. Brazilian farmers are expected to spend $500 million on fungicides this season to combat soy rust, up from $350 million in the last harvest, according to industry estimates. Bayer CropScience, for instance, already sells three types of fungicide for the disease and plans to introduce a fourth next year. 'The emergence of soy rust,' said Peter Ahlgrimm, director of institutional relations at Bayer CropScience in São Paulo, 'has created a promising new market.'

Subject: Korean Shipbuilders See China's Shadow From: Emma To: All Date Posted: Thurs, Jan 06, 2005 at 11:42:34 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/06/business/worldbusiness/06ships.html Korean Shipbuilders See China's Shadow By JAMES BROOKE ULSAN, South Korea - Down at the dry docks here, where workers are dwarfed by propellers larger than houses, the world's largest shipyard is now so efficient that a new $80 million vessel slips into the water every four working days. Not content with making some of the most complex products on the world market, naval engineers for the Hyundai Heavy Industries Company are drawing up computer models to increase the size of the largest container ships by more than 25 percent, creating a supervessel that could carry 10,000 steel containers, enough freight capacity for 30 million pairs of sneakers. Only in 2004, when South Korea exported ships with a value of $15.09 billion, did it definitively wrest from Japan the status of the world's leading shipbuilding nation. But the South Koreans are already looking over their shoulder at China, which has embarked on a path toward becoming the largest shipbuilder by 2015. Chinese competition, which has unnerved American manufacturers, is also putting much of Asia on edge as China rapidly narrows the technological gap with higher-wage Asian neighbors. 'When you are being chased, you have to do something that the chaser cannot do,' Han Dae Yoon, chief marketing officer of Hyundai's shipbuilding unit, said of China's ambitions. Company executives use the word 'selective' so much that they sound like snobs. Simple ore carriers and oil tankers are out. Technologically complex liquefied natural gas carriers, mammoth container ships and advanced offshore oil platforms are in. 'We obviously want the more value-added-type vessel - L.N.G. carriers, more complicated container vessels, ice-class gas carriers,' Mr. Han said in his office overlooking some of Hyundai's nine dry docks, a space that only 30 years ago was empty shoreline. 'Shipbuilders have to be selective.' South Koreans know that 650 miles from here, a similarly barren shoreline south of Shanghai is undergoing a $4 billion transformation aimed at making China State Shipbuilding the world's largest ship maker. 'The South Koreans are always working to keep three, four, five steps ahead of the Chinese and Japanese,' said Peter E. Bartholomew, managing director with Industrial Research and Consulting. Speaking by telephone from Seoul, the capital, where he has watched the nation's shipbuilding industry for 30 years, he added, 'Now the South Koreans are moving more toward the Lexus end in order to have an edge over the Chinese.' In a testament of sorts to China's growing economic power, the Chinese are behind many of the successes and failures in 2004 of Hyundai Heavy Industries, the world's largest shipbuilding company. The explosion in China trade has created a worldwide shortage of commercial vessels. Drewry Shipping Consultants of London says that container shipping capacity expanded 10 percent in 2004 and predicts that it will grow 12 percent in 2005 and 14 percent in 2006. With empty hulls in short supply, some rates for carrying goods doubled last year. In response, companies are scrambling to order vessels. After receiving record orders in 2004 - for 102 ships worth $8.3 billion - Hyundai can afford to be picky. With more than three years of work already booked, it is letting Chinese yards win contracts for low-end jobs like simple tankers and bulk carriers. Hyundai has three joint ventures in China, and it already farms out some of its low-technology shipbuilding work to these companies. South Korea's two other major shipbuilders, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries, are juggling a similar wealth of orders. Foreign investors own 24 percent of Hyundai Heavy Industries and 36 percent of Daewoo Shipbuilding. Hyundai, limited by its shoreline, has gained construction space by updating a technique popular in the days of the Vikings - building ships on skids. Using this method, it built a 105,000-ton crude oil tanker this fall. At the conclusion of construction, hydraulic jacks pushed the tanker down greased skids to a waiting barge, which towed it to deep water. Hyundai plans to build 15 more tankers this way. But China's booming economy has also resulted in short supplies of some building materials, including steel. For shipbuilders, that means that the price of steel plate jumped 70 percent in 2004, contributing to a $30 million loss at Hyundai Heavy Industries in the third quarter. With steel accounting for as much as 20 percent of the material for a ship, Hyundai found its profits squeezed as it sold vessels built in 2004 for the lower prices contracted in 2002. With no significant letup in sight for Chinese steel demand, the shortage of steel captured special attention in recent weeks when the automaker Nissan announced that it would have to reduce production for lack of material. The steel shortage threatens to crimp car building at Honda and Toyota, as well. Struggling to meet demand, Japan is producing steel at levels not seen since 1973. In 2005, South Korea's three largest steel makers plan to increase their investments in factories and machinery by 52 percent, or about $3.7 billion, according to the Korea Iron and Steel Association. Hyundai responded to the rise in steel prices by increasing the average price of its ships in 2004 by 23 percent and trying to win more contracts for technologically complex vessels like the dome-shaped carriers that run on liquefied natural gas. L.N.G. carriers cost on average $180 million, up to twice as expensive as other vessels of the same weight that are powered by diesel fuel. As China and other countries move to this comparatively clean-burning energy source, the consumption of liquefied gas is forecast to increase 25 percent a year for the next decade. During this time, the world's L.N.G. fleet is expected to double, to around 250 ships. Moving aggressively, Hyundai, Daewoo and Samsung won almost 90 percent of the contracts for L.N.G. tankers awarded worldwide in 2004. In the biggest single contract, Hyundai won orders and options from BP Shipbuilding to build eight such tankers. But even here, South Koreans feel the technological gap narrowing with China. From a marginal competitor in the 1990's, China has become the world's third-largest shipbuilding nation, winning 14 percent of orders in 2004, as measured by tonnage. Japan was second, with 24 percent, and South Korea led, with 40 percent, according to the Shipping Intelligence Network of London. The United States, whose share of the world's commercial shipbuilding market has steadily declined over the last two decades, now has less than 1 percent of orders. China, like Japan, is taking steps to channel much of its trade into Chinese-made ships. Most of Japan's vessels are built for Japanese exporters. The Chinese are seeking, as well, to improve their shipbuilding skills as a step toward creating the kind of navy that will allow them to patrol commercial sea lanes. By contrast, South Korea largely produces for the world market. In the Chinese shipyards, labor productivity lags far behind that in South Korean and Japanese yards, which are about even. But this winter, workers outside Shanghai are dealing with something new: China's first domestically made liquefied natural gas tanker. In a contract signed in August, Hudong-Zhongua Shipbuilding is to build five L.N.G. tankers. The shipyard, which is state-owned, wants to become the main supplier of liquefied gas tankers to feed the nine L.N.G. terminals that China plans for 2010. Mr. Bartholomew, the shipping consultant, said of South Korea, 'The Chinese are always trying to nip at their heels, but they are not there yet.'

Subject: Whinging about cancellation of Crossfire -- trying to blame some Eschaton posters From: Bobby To: All Date Posted: Thurs, Jan 06, 2005 at 05:40:58 (EST) Email Address: robert@pkarchive.org Message: Posted originally on Eschaton -- an angry rant at the comments of some posters there: The cancellation of Crossfire is *not* a good thing. It's the only show on TV where liberals -- or at least Democrats -- have a strong representative in Paul Begala and, to a lesser extent, James Carville. Yes, Novak and Carlson are annoying but when they debated with Begala (and Carville, again to a less extent) he was effective enough that it was fairly obvious that the Republican side lost the debate. Before we as Democrats had little. Now we have nothing. There are no liberals left on TV who have a regular post on a show, and the liberals who do appear in interviews are almost always self-hating pricks who delight in bashing other Democrats in order to prove that their views are 'balanced.' As an aside: No, Jon Stewart and Keith Olbermann do not fight Republicans or stand up for the Democratic message to even a scintilla of the extent that regular news reporters bash Democrats and fawn over George W. Bush -- and that's completely ignoring the openly conservative pundits and everyone on Fox. Paul Begala (and Carville to a less extent) were ferocious against the Republicans and now we've lost them. I have read on past Eschaton threads messages saying to the effect, 'Thank God for Stewart and Olbermann' as if they are somehow our representatives on TV and what a huge loss it would be to us if they were cancelled. This is even further testimony to the fact that many Democrats do not yet understand that we need a ferocious opposition on TV. That we are in fact going in reverse right now is a shameful disgrace, which should make us disgusted with ourselves and each other as Democrats. I can't help but think that this reversal is at least partly due to the fact that some of us relish the presence on television of neutral reporters and comedians, like Olbermann and Stewart, while rejoicing in the downfall of the lone few who actually fight for us.

Subject: Disagreeing ... (kinda) From: Paul G. Brown To: Bobby Date Posted: Thurs, Jan 06, 2005 at 13:35:20 (EST) Email Address: Not Provided Message: I don't own a television. The closest I get to shows like Crossfire is in Airport bars and hotel rooms. But I have seen the video of Jon Stewart on Crossfire. And I agree with him. There is no point, IMHO, crying foul at the steady degeneration of mainstream electronic media into an echo chamber for right-wing ideology. I think I posted this before, but it seems to me that's simply the natural evolutionary direction of the medium. TV is (to invoke McLuhan) a 'hot' media. It is very good at provoking an emotional and irrational reaction. If you look at the major sins, TV has a genre for each of them; fear, lust, anger, vanity, envy, gluttony. And the whole thing is sloth-in-a-box. For folk who think (on both sides of the ideological divide), TV is (almost entirely) banal dreck. It just sits there and lies to you. Blatantly. Repeatedly. Shamelessly. Consequently, folk are turning more and more to the web as a source of information. You can't tell a damn thing about the Social Security debate from TV. But all of the facts are available, right at your fingertips, on the web. So are the ideas and opinions of thoughtful people. To keep making money, TV needs to up the emotional ante, and that means more shouting-heads, cleavage and 'wing nuts. So don't cry for Crossfire, or the fate of liberal voices on TV. We have a ferocious opposition. It's us. Here. In this little community, and in others like it.

Subject: Re: Disagreeing ... (kinda) From: Bobby To: Paul G. Brown Date Posted: Thurs, Jan 06, 2005 at 17:09:56 (EST) Email Address: robert@pkarchive.org Message: 'It is very good at provoking an emotional and irrational reaction. If you look at the major sins, TV has a genre for each of them; fear, lust, anger, vanity, envy, gluttony. And the whole thing is sloth-in-a-box. ' The thing is that I accept TV and actually general politics to be that way, and I think that politics will go more in this direction in the future instead of against it, especially if Democrats do not reach parity with Republicans in the propaganda ward. It's a choice between bad and worse: either (1) We as Democrats don't participate in this gluttonous wasteland called television and let the Republicans stomp us in the propaganda war or (2) we as Democrats do sully ourselves by participating in it and maybe achieve something a little bit closer to parity, and maybe even, as a consequence, have a higher probability of winning some important elections. The direction of TV news' influence in politics is downward, but its decline is happening too slowly and in amounts too small for Democrats not to be justified in worrying desperately about their lack of presence there. Perhaps in the long run, Democrats' lack of presence on TV will become of negligible concern, but, even if this does eventually happen (which I doubt), it would not occur for an incredibly long time. Therefore, I suggest we put a lot more weight on the short run and TV than some other Democrats might suggest. My hope is that, if Democrats can somehow get the courage and means to smear Republicans publicly with enough slime, while Republicans continue to smear Democrats, the environment will eventually get so poisonous that such behavior by a politician or media member becomes an embarassment at least for a temporary period. That is, the norms of propriety in politics would change temporarily so those in politics who focus their message on 'character' red herrings and other superficial things will themselves be the focus of public ridicule. After a decade or two of this, people's natural tendencies would bring politics back into the gluttonous state we are in now, and the cycle would start over again.

Subject: Re: Disagreeing ... (kinda) From: Emma To: Bobby Date Posted: Thurs, Jan 06, 2005 at 17:14:46 (EST) Email Address: Not Provided Message: Bobby, you are so right.

Subject: Agreeing From: Terri To: Bobby Date Posted: Thurs, Jan 06, 2005 at 10:23:48 (EST) Email Address: Not Provided Message: I completely agree. We have lost even Bill Moyers, as PBS becomes increasingly inanely conservative. From PBS and NPR on, the broadcast media are more and more conservative or simply removed from fair discussion of critical issues.

Subject: social security From: Poyetas To: All Date Posted: Thurs, Jan 06, 2005 at 03:54:54 (EST) Email Address: rselem@northstar.ca Message: Hello, I was reading Krugman's article on Social security that was posted on this website not long ago 'confusions about social security'. He explains how social security surpluses are invested in treasury bills and ' As long as Social Security surpluses were being invested in government bonds, they would have reduced the government’s debt to the public, and hence its interest bill.' Can someone please clarify this. I mean to me it seems like the debt is just shifting from the public to the social security trust fund, which is in reality a public trust fund. So how does it reduce the interest bill? The gov't still has to pay, doesn't it? Thanks....

Subject: Re: social security From: jimsum To: Poyetas Date Posted: Thurs, Jan 06, 2005 at 17:06:52 (EST) Email Address: jim.summers@rogers.com Message: If the government were not running a Social Security surplus, the overall debt would be higher, hence the government would be paying more interest on the higher debt. Similarly, if the Social Security surplus was not invested in treasury bills (for example, in private accounts instead :-) the government debt would be higher and thus the interest bill.

Subject: Re: social security From: Terri To: Poyetas Date Posted: Thurs, Jan 06, 2005 at 10:17:34 (EST) Email Address: Not Provided Message: The Social Security surplus is used to buy Treasury bonds, this demand for the bonds helps keep long term interest rates relatively low.

Subject: Investment Outlook From: Terri To: All Date Posted: Wed, Jan 05, 2005 at 18:15:03 (EST) Email Address: Not Provided Message: Investment Outlook Bill Gross | January 2005 2005 will witness a changing environment in some ways – slower global growth, somewhat higher short-term rates – but the dominant moneymaking themes in the bond market should be the following: 1) The Fed stays relatively low, 2) China revalues its currency, 3) Spread product underperforms, 4) Europe remains sick, and 5) Cash is Prince. Let me elaborate: (1) The Fed stays relatively low Our belief that the Fed stays relatively low ( ½% real short rates or less) is a long-standing one and based on several secular and cyclical observations. Since the primary global economic problem is a lack of what is known as aggregate demand, central banks everywhere will continue to remedy the affliction by keeping real short rates low. Low short yields help stimulate demand by creating gradually rising inflation, and nurturing capital gains in equity, real estate, (and yes) bond markets. In addition, the highly levered U.S. consumer and their main conduit – mortgage debt – require low short rates just to keep their heads above water. Thirdly, with the Fed now implicitly on board in support of adjusting our balance of payments deficit via a depreciating currency (and a reduced deficit), low real short rates are the monetary policy tool of necessity. Whether the Fed stops at 2½, 2¾, or 3½% is really more of a debate as to the future of U.S. inflation, not the fact that real short rates must stay down for a long, long time. (2) China Revalues Admittedly our most problematic money making theme, if only because of its timing, is our belief that 2005 is the year when China/Asia revalue their currencies upward. Actually, the decision is entirely in China’s hands, but evolving events should force at least a semblance of a resolution. China will be more inclined to revalue if internal inflation accelerates (currently not the case), their banking system stabilizes, and/or tariff pressures from the U.S. threaten to kill the golden goose of free trade. Perhaps just as important, China’s gradual evolvement from WTO inductee to potential kingmaker at future G8 economic policy discussions argues for some type of symbolic move that speaks to cooperation in a global context. Should a meaningful (more than 5%) revaluation occur against the dollar or even a basket of diversified currencies, the event would signify a further extension of U.S. reflation via an upward repricing of U.S. labor and wage rates that accompany a falling dollar. Bond bearish? Yes, in several ways. First of all from the obvious effect on U.S. inflation – perhaps as much as ½% over the next several years depending on the extent of the Chinese reval. Secondly, from the prospective sale (or reduced buying) of U.S. Treasury and corporate bonds in anticipation of the revaluation. Such gingerliness may simply reflect the cautionary sales by the PIMCOs of the world in anticipation of the knock-on effects of future inflation. But additionally, the astronomically high levels of bond purchases by surplus generating economies (Japan primarily, China secondarily) may begin to come down as shown in Chart I. Although purchases are currently near peak levels, 2005 could witness a buyer’s strike of sorts that reflects an unwillingness to hold fixed income assets denominated in a deteriorating currency. As observers such as Jim Bianco point out, dollar depreciation hasn’t stopped them yet, but there are limits and even a marginal cessation of blind and near mindless Treasury purchases to support the Yen and other Asian currencies may soon begin. It is PIMCO’s opinion that central bank purchases in 2004 were the primary force in lowering 10-year Treasury rates from 4.90% to nearly 4.0% in October, while the Fed was in the process of raising short rates by 125 basis points. We could see a run back up towards those levels if foreign buying tapers off, even while the Fed stays low as pointed out in #1 above. (3) Spread product underperforms In fond memory of my six-year-old sandbox playmate Robin Rosentrater who, with tongue extended in a direction toward yours truly, gurgled the most overused mantra of my/our youth, let me gurgle my own impression of risk/spread product for the next 12 months (sans tongue): Spread and its clones may bruise my bones, but further capital gains, they just can’t hurt me. There, I’ve regressed and now I’ll grow up and explain my thesis like an adult (you be the judge). Spread product which basically includes anything riskier than Treasuries, had a fine year in 2004. It’s a wonder that PIMCO did so well because we didn’t own much of it. Not many corporates, slim on mortgages, reduced high yield, no flings with CDOs and CLOs except with clients willing to step up to the plate and own them as an asset class. No matter – TIPS and Bunds made up for our unwillingness and ineptitude in not climbing on board the risk-taking train during a year in which corporate profits soared, the economy stayed out of trouble, and investors chased yield like those buccaneers used to chase skirts at Disneyland’s Pirates of the Caribbean ride (discontinued in lieu of political correctness). Still as forward-looking investors in search of predictability, it is fair to ask whether near historically low spreads for corporate bonds as shown on Chart II can be maintained or extended for long. Our answer is “probably not,” but even if they do, spreads are so slim that the capital gains inherent in spread narrowing are no longer likely and the yield spreads offer little compensation for future risks of an economic or geopolitical nature. (4) Europe remains in its sickbed With the Euro soaring and Euroland inflation moving down not up, German Bunds remain a better alternative than U.S. Treasuries despite their 50 basis points lower yields. One should recognize that this 50 basis point negative hook come February’s Fed hike will be completely eliminated on a currency hedged basis. Additionally, accounting changes for insurance companies and other European financial institutions will soon mandate the purchase of long dated fixed income assets that could mimic the behavior (and inversion of its yield curve) of U.K. markets in recent years. Finally, Asian currency/asset diversification points toward further accumulation of Bunds as opposed to Treasuries over the next 12 months. They may not make our year in ’05 like they did in ’04, but there’s more life left in that old German mare. (5) Cash is Prince Finally, it seems difficult to imagine how many if any fixed income maturities/sectors can outperform good old cash in 2005. Take the example of a 5-year Treasury for instance whose duration and yield pretty well reflects that of the bond market itself. At 3.60% and with a duration of 4.25 years an increase of only 15 basis points over the next 12 months will lower its total return to 3% for 2005 – a return that most investors believe will be available from short-term commercial paper. The skirts that today’s bond market buccaneers are chasing therefore, are not only politically incorrect but needlessly risky relative to cash alternatives. Cash may not exactly be King in the current 2-3% range, but let’s call it a Prince. Better than being a 1% frog I suppose, like it was for much of 2004. The successful 2005 bond strategy therefore, will likely be to avoid duration, avoid spread product and to flock to the stability of cash, TIPS, and foreign bonds issued by strong currency countries in an openly reflationary world. If so, bond market returns of 3-4% for the year may be all an investor can rationally expect, and if those Asian investors flee for the exits then longer duration portfolios might even wind up in the red.

Subject: Bonds Bubble? From: Pete Weis To: All Date Posted: Wed, Jan 05, 2005 at 15:01:34 (EST) Email Address: Not Provided Message: Jan 5, 2005 Bond bubble, American-style By Jack Crooks The past seldom obliges by revealing to us when wildness will break out in the future. Wars, depressions, stock-market booms and crashes, and ethnic massacres come and go, but they always seem to arrive as surprises. After the fact, however, when we study the history of what happened, the source of the wildness appears to be so obvious to us that we have a hard time understanding how people on the scene were oblivious to what lay wait for them. - Peter Bernstein, Against the Gods We believe a nasty popping of the bond-market bubble lies in wait for investors. Why? In short, yields are too low, bond prices too high, and quality spreads too tight. The gargantuan rally, which actually peaked in June 2003, as evidenced in the monthly chart of 30-year bond futures below, should soon be history. The primary source of the 'wildness' seems easy to pinpoint ahead of time - this time. It's the US Federal Reserve. It was the engineering of the emergency Fed Funds rate, to save the world from the clutches of deflation (denying this as the proper cleansing agent for economic sins past) that proved most impressive as bubble fuel. It's now the long march toward the elusive 'normalization' of benchmark interest rates that will draw Zeppelin-like comparisons from observers as long-bond prices head toward earth. We wouldn't be surprised to see a surprise in the form of inflation scare, major hedge-fund collapse, or foreign bank reserve reallocation to hasten the descent of fixed income prices across the entire spectrum: from Treasury to junk. Those holding junk bonds, now the darling of yield chasers, will soon understand the moniker. Here are a few tidbits of anecdotal evidence for your perusal: Net purchases of all US fixed-income securities rose to a record high in October on a rolling 12-month basis. Custody holdings of US debt hit a new high of US$1.329 trillion. Foreign purchases of US corporate bonds hit a record high on a rolling 12-month basis. Foreign purchases of US Agency paper hit a record high on a rolling 12-month basis. US high-yield, or junk, bond issuance has reached record levels; issuance to date totaled $139.8 billion, beating $136 billion in the previous year and just edging ahead of 1998's $137.8 billion. Interest-rate derivatives held by US commercial banks increased to a record $73 trillion (notional value) in the third quarter of 2004. The credit spreads on double- B-rated securities are tighter than they were on the eve of the Long Term Capital Management debacle. Strong investor demand for the debt has pushed the premium over Treasuries to historically low levels. Sources: Thomson Financial, OCC Report, Financial Times, Weldon Money Monitor, Grant's This historic level of love for bonds did give bonds a boost recently. But bond futures didn't reach the highs made in early 2004 and are well below record highs made in June 2003. Prices have stalled and are turning over. It appears as a classic technical pattern of a failed high, leading to a series of lower highs that will lead to a series of lower lows. The market now realizes the Fed is serious about hiking the Fed Funds rate. That, we believe, is why the price action is turning negative. There is a good chance that Fed Funds may rise more quickly than now believed. If the thinking at the Fed is anywhere close to that of Morgan Stanley economist Ted Wieseman, the rush out of bonds may morph to a stampede. 'In an economy growing at a sustained 4% real rate, experiencing near-record low national savings, a corresponding record high current account gap and rising inflation, bubble seems the only reasonable way to describe real short rates of barely over 0%, real five-year rates of less than 1%, real 10-year rates of 1.6%, and real 20-year rates of less than 2%, probably 200 to 300 bp [basis points] below sustainable fair-value levels depending on maturity,' writes Wieseman. Many economists believe a hike in interest rates will improve the dismal US savings picture. 'The net national savings rate has averaged 1.7% through the first three quarters of 2004, just above the record low of 1.2% hit in 2002,' according to Wieseman. The structural dearth in savings rates adds to the US dependence on international investors for funding of the gaping twin deficits - the double-Ds of doom, so to speak. Thus higher rates will play a role in healing US and global 'imbalances'. This is the weighty justification the Fed will use for political cover. The Fed's 'policy mistake' was its decision to run the printing press 24/7 in order save the US economy from what it perceived as a Japan-style deflation. It was a conscious decision by the Fed to create asset bubbles rather than face the painfully healing music of recession. These asset bubbles and artificially lower interest rates have distorted consumer preferences. Instead of relying on genuine old-fashioned income growth to fund consumption, consumers have leveraged wealth off the stock and real-estate bubbles. And precisely because the yield on cash was at historic lows, both professional and not-so-professional investors quickly realized the advantages of borrowing short and lending long. In other words, the Fed has engineered the largest one-way bet in history. The bet: long rates will stay low as far as the eye can see. Risk and uncertainty don't enter into the equation when there's such 'easy' money to be made. What seems to be coming into focus is our 'understanding how people on the scene' are 'oblivious to what lay wait for them'. Jack Crooks has traded in global equity, fixed income, commodity, and currency markets for more than 20 years. He is president of Black Swan Capital, a currency and commodities market advisory firm - BlackSwanTrading.com.

Subject: Re: Bonds Bubble? From: Terri To: Pete Weis Date Posted: Wed, Jan 05, 2005 at 16:00:43 (EST) Email Address: Not Provided Message: The Vanguard Long Term Bond Index is up 10.53% a year for the last 5 years, while the S&P Index is down 2.38% a year. Now, there is a difference. From my perspective the Federal Reserve did just what it had to in lowering interest rates quickly and meaningfully, and allowed for only a short and shallow recession. The Fed is tightening now, but long term rates are still wonderfully low because there is strong demand from aborad for American middle and long term debt. As long as the international demand for American debt continues, the Fed can raise but long term rates are going to stay low. Is there a bond bubble? Not as long as international investors buy our debt.

Subject: Nouriel Roubini on bonds From: Pete Weis To: Terri Date Posted: Thurs, Jan 06, 2005 at 21:45:25 (EST) Email Address: Not Provided Message: Biggest Bond Manager in the world recommends to avoid US long bonds in 2005 as if they were pestilence: Cash is Prince...and Emperor too... As Brad Setser and I have been repeatedly warning about the risks of a bond market rout in 2005 (more details in our forthcoming papers but your can read our preliminary views here and here and here and here), it is refreshing to read that the bond guru Bill Gross, Managing Director at Pimco, the one of largest bond (fixed income) asset management firms in the world (over $400 billion assets under management), is recommending to stay away from US long term bond in 2005 and keep as much as possible in cash. Having the Managing Director of an institution specialized in selling to investors the widest variety of bonds and bond funds telling you to avoid bonds and hold cash is quite an irony: as if the largest world food multinational company were to start a global ad campaign to warn you to avoid its products as if they were poisonous or pestilence-inducing. Of course, the menu offered by these most respected bond managers includes a variety of poison-avoiding foods (inflation indexed bonds, foreign bonds that will gain from the dollar weakness, very short-duration bonds and, best of all, zero interest rate short-term bonds, i.e. Cash). As he Gross rightly and honesty puts it: in 2005 Cash will be King or Prince... This is indeed the most authoritative indirect endorsement of the view that the US government is on its way to bankruptcy. And you gotta give great credit and respect to the intellectual honesty of the biggest bond salesman around warning you about his wares with the loudest Caveat Emptor of all! Kudos to Gross for his honesty: truth above narrow self-interest! Here is Bill Gross's sharp wisdom in his words: ...2005 will witness a changing environment in some ways – slower global growth, somewhat higher short-term rates – but the dominant moneymaking themes in the bond market should be the following: 1) The Fed stays relatively low, 2) China revalues its currency, 3) Spread product underperforms, 4) Europe remains sick, and 5) Cash is Prince. ... (5) Cash is Prince Finally, it seems difficult to imagine how many if any fixed income maturities/sectors can outperform good old cash in 2005. Take the example of a 5-year Treasury for instance whose duration and yield pretty well reflects that of the bond market itself. At 3.60% and with a duration of 4.25 years an increase of only 15 basis points over the next 12 months will lower its total return to 3% for 2005 – a return that most investors believe will be available from short-term commercial paper. The skirts that today’s bond market buccaneers are chasing therefore, are not only politically incorrect but needlessly risky relative to cash alternatives. Cash may not exactly be King in the current 2-3% range, but let’s call it a Prince. Better than being a 1% frog I suppose, like it was for much of 2004. The successful 2005 bond strategy therefore, will likely be to avoid duration, avoid spread product and to flock to the stability of cash, TIPS, and foreign bonds issued by strong currency countries in an openly reflationary world. If so, bond market returns of 3-4% for the year may be all an investor can rationally expect, and if those Asian investors flee for the exits then longer duration portfolios might even wind up in the red. As always, I/we thank you for your confidence in PIMCO these many years and I in particular promise to be nicer and more sensitive when writing my Investment Outlooks (and if you believe that, you likely believe that Bush will actually cut the deficit in half, that we’ll be out of IRAQ in a few years time, and that privatization of social security will fix a suddenly bankrupt system!...) Gross also agrees with the views that we have been presenting for a while (that are fleshed out in more detail by Brad in his blog item today and by me here) that: 1. the main reason long rates have stayed low 2004 was the actions of Asian central banks and: 2. 2005 will see a shift in these central banks incentives. 2) China Revalues Admittedly our most problematic money making theme, if only because of its timing, is our belief that 2005 is the year when China/Asia revalue their currencies upward. Actually, the decision is entirely in China’s hands, but evolving events should force at least a semblance of a resolution. China will be more inclined to revalue if internal inflation accelerates (currently not the case), their banking system stabilizes, and/or tariff pressures from the U.S. threaten to kill the golden goose of free trade. Perhaps just as important, China’s gradual evolvement from WTO inductee to potential kingmaker at future G8 economic policy discussions argues for some type of symbolic move that speaks to cooperation in a global context. Should a meaningful (more than 5%) revaluation occur against the dollar or even a basket of diversified currencies, the event would signify a further extension of U.S. reflation via an upward repricing of U.S. labor and wage rates that accompany a falling dollar. Bond bearish? Yes, in several ways. First of all from the obvious effect on U.S. inflation – perhaps as much as ½% over the next several years depending on the extent of the Chinese reval. Secondly, from the prospective sale (or reduced buying) of U.S. Treasury and corporate bonds in anticipation of the revaluation. Such gingerliness may simply reflect the cautionary sales by the PIMCOs of the world in anticipation of the knock-on effects of future inflation. But additionally, the astronomically high levels of bond purchases by surplus generating economies (Japan primarily, China secondarily) may begin to come down... Although purchases are currently near peak levels, 2005 could witness a buyer’s strike of sorts that reflects an unwillingness to hold fixed income assets denominated in a deteriorating currency. As observers such as Jim Bianco point out, dollar depreciation hasn’t stopped them yet, but there are limits and even a marginal cessation of blind and near mindless Treasury purchases to support the Yen and other Asian currencies may soon begin. It is PIMCO’s opinion that central bank purchases in 2004 were the primary force in lowering 10-year Treasury rates from 4.90% to nearly 4.0% in October, while the Fed was in the process of raising short rates by 125 basis points. We could see a run back up towards those levels if foreign buying tapers off, even while the Fed stays low as pointed out in #1 above. So, as we have been arguing, 2005 is likely to be the YOTGBM (Year Of The Great Bond Market Rout): we got a bond market rout in 1994 and another one in 1998...so 2005 sounds just right if a bit delayed (mid 2004 was just a minor scare) and given our twin and growing deficit the rout will be nastier this time around... So, as Gross puts it right: Cash is Prince and King...and Emperor too as the Treasury Emperor has no clothes at all (and little foreign assets or reserves left) and is digging an even bigger multi-trillion funeral hole to himself with its wretched Social Security privatization plan...see my next blog item on this other bitter and poisonous saga...

Subject: Re: Bond Bubble? From: Pete Weis To: Terri Date Posted: Thurs, Jan 06, 2005 at 10:18:32 (EST) Email Address: Not Provided Message: As they say - 'past performance is no indicator of future performance.' With a weakening dollar, inflation is creaping upward. Asian central banks must have a pain threshold at some point. They will begin to realize that we have no intentions of paying back our debt with anything other than an extremely cheap dollar. Then there is the US consumer.......

Subject: Re: Bond Bubble? From: Terri To: Pete Weis Date Posted: Thurs, Jan 06, 2005 at 10:33:09 (EST) Email Address: Not Provided Message: Though I suspect the bull market in bonds is about over, there is no reason to believe the Chinese and Japanese will stop buying American debt soon. Also, unless the labor market tightens there is no reason to be concerned about inflation. So, I guess long term interest rates will be fairly stable these coming few months.

Subject: Inflation From: Pete Weis To: Terri Date Posted: Thurs, Jan 06, 2005 at 14:59:43 (EST) Email Address: Not Provided Message: If inflation depended significantly on the 'tightness' of the labor market, why has oil inflated to over $40 per barrel from the low $20's in the last few years? Why has the cost of building a house gone so much higher? Why have health care costs gone up so much? Why are grocery prices so much higher over the last few years? Why are raw materials so much more expensive now? Sure, greater demand from countries like China is part of the reason for some of the higher prices on raw materials and oil. But Europeans have not felt nearly as much inflation with the more stable Euro. So INFLATION from a faltering dollar is clearly a factor and it is going to have a pretty heavy impact on the US consumer at some point as it continues. And prolific spending by the US consumer is the only reason why Asian banks keep on buying US securities while taking substantial losses as the dollar steadily drops.

Subject: Re: Inflation From: jimsum To: Pete Weis Date Posted: Thurs, Jan 06, 2005 at 16:37:45 (EST) Email Address: jim.summers@rogers.com Message: I'm not so sure inflation will be caused by the faltering dollar, for two reasons. First, most foreign companies tend to price their products in U.S. dollars. I think they have been slow to raise prices for fear they will lose market share. Also, until now, any weakness in the U.S. dollar has quickly reversed; maybe now that the plunge looks permanent, foreign companies will raise their U.S. prices to maintain their profit levels. Second, I think a lot of the increase in import prices will be absorbed by importers. Take Nike for example; I don't think the cost of making shoes in Indonesia is anywhere close to the price they sell for. Even a doubling of the price might not take much of a bite out of the huge profit margins; so price increases might be muted. I don't think foreigners are going to be able to fix the U.S. economy. Trade is simply too small a fraction of GDP to force changes. Short of a total collapse in the U.S. dollar, I don't think trade effects will be enough to force an end to easy-money policies. However, the cynical observation that inflation rewards borrowers and that just about everyone in the U.S. is a net borrower, leads to the expectation that there will be serious inflation.

Subject: Besides Bill Gross and..... From: Pete Weis To: jimsum Date Posted: Thurs, Jan 06, 2005 at 20:47:58 (EST) Email Address: Not Provided Message: others who have written extensively about how the government understates CPI (and overstates GDP) with the use of 'hedonics' and 'substitution', there have been a number of articles, recently, similar to the following AP article. Incidently, the Euro has gone from being worth just over 80 cents US to $1.35 US over the last few years - a truely large change. This has occurred despite the fact that the Europeans have a supposedly weak economy. Here's the article: Jan. 5, 2005, 8:37PM Inflation heads to front burner Retailers begin to pass along cost increases from wholesalers By MARC LEVY Associated Press HARRISBURG, PA. - After a decade of relatively tame prices, consumers are starting to feel the 'ouch' of inflation as the cost of everything from coffee, candy and home appliances is marching higher. It's not a sharp pain yet, and some call it hardly noticeable. But with companies such as Procter & Gamble Co., Hershey Foods Corp. and Whirlpool Corp. passing along the higher prices they pay for raw materials to their customers, it's beginning to get attention from people who shop in grocery, appliance and department stores. It's also getting noticed by officials of the Federal Reserve, and that could mean higher costs for everything from car loans to home mortgages. Minutes of the Fed's Dec. 14 meeting released on Tuesday suggest that central bankers' worries about rising prices could prompt them to continue bumping up short-term interest rates — which they raised five times in 2004 — to keep inflation in check. Inflation has lagged For the most part, inflation as measured by the Labor Department's Consumer Price Index has lagged behind the rising cost of wholesale products like fuel, steel and plastics over the past year. In the 12 months ending in November, the CPI rose 3.5 percent, while the change in the price of finished goods at the wholesale level increased 5 percent. But the supply chain, which seems to have absorbed most of the higher costs, may be reaching its tipping point. Analysts say a slowly improving economy is giving producers more confidence to pass on higher prices, especially as excess inventories dwindle and commodities, from green coffee to oil, stay at elevated prices. 'I think the faster rate of inflation is here to stay,' said Nigel Gault, managing director of the U.S. economic service of Global Insight in Lexington, Mass. 'The important thing is whether it is stabilized at the rate it is at, or whether it will accelerate even faster. That is the question.' Coffee prices jump Procter & Gamble linked its December announcement of a 14 percent increase in prices for Folgers roast and ground coffee to sustained increases in the cost of green coffee. It was the largest price increase for Folgers products in a decade, and one that analysts say could be permanent as manufacturers opt for higher quality and more expensive coffee beans in more varieties. Also last month, Hershey, the nation's largest candy maker, cited rising costs for raw materials, packaging, fuel, utilities, transportation and employee benefits as reasons why it planned to raise prices on its entire domestic product line by about 3 percent early this year. With the arrival of the new year, appliance manufacturer Whirlpool bumped its prices up by 5 percent to 10 percent to pay for the rising cost of steel, transportation, plastics and resins. It's the largest price increase in at least 10 years for the maker of refrigerators, washers, dryers and microwave ovens, many of whose products are sold under the Kenmore brand at Sears Roebuck and Co. How consumers react to such price increases could play a role in whether more companies follow suit. Will consumers notice? Shoppers in Harrisburg, Pa., said they noticed the price of fuel, health insurance and tomatoes going up, but if prices are rising more broadly than that, it's not yet a major concern. 'That's the tricky thing,' said Jay LaRue, who was drinking a Starbucks coffee and browsing chocolates at a mall. 'They do it so gradually you don't notice.' Comments like that are no doubt good news for Starbucks Corp., which raised its prices an average 11 cents per cup in October. One of LaRue's companions, Jodi Reynhout, said she had noticed movie rentals becoming more expensive. And Lance Shaffer, a landscape contractor in the mall with his children, said nurseries have been raising the price on fertilizer and mulch. If inflation begins to squeeze his budget, retired accountant Willie Gaston said perhaps he'd get a part-time job and buy government I-bonds — whose interest rate is tied to the consumer price index — to protect his investments. Other shoppers said they would do things like buy cheaper groceries and coffee, replace clothing or household items less frequently, and cut back on vacations, cable television and dining out.

Subject: Little Inflation From: Terri To: Pete Weis Date Posted: Thurs, Jan 06, 2005 at 15:58:51 (EST) Email Address: Not Provided Message: Inflation is no more a problem in America than in Europe, and it is not a problem in either area. All you need do is look at the level of long term interest rates for proof. Take a look at housing prices in Europe, by the way. I am still cautiously bullish. Tomorrow, however, we get important news on employment.

Subject: Rates of Return on Private Accounts From: Terri To: All Date Posted: Wed, Jan 05, 2005 at 14:09:16 (EST) Email Address: Not Provided Message: The Economists' Voice Confusions about Social Security Paul Krugman - Princeton University Rates of Return on Private Accounts Privatizers believe that privatization can improve the government's long-term finances without requiring any sacrifice by anyone — no new taxes, no net benefit cuts (guaranteed benefits will be cut, but people will make it up with the returns on their accounts.) How is this possible? The answer is that they assume that stocks, which will make up part of those private accounts, will yield a much higher return than bonds, with minimal longterm risk. Now it's true that in the past stocks have yielded a very good return, around 7 percent in real terms — more than enough to compensate for additional risk. But a weird thing has happened in the debate: proposals by erstwhile serious economists such as Martin Feldstein appear to be based on the assertion that it's a sort of economic law that stocks will always yield a much higher rate of return than bonds. They seem to treat that 7 percent rate of return as if it were a natural constant, like the speed of light. What ordinary economics tells us is just the opposite: if there is a natural law here, it's that easy returns get competed away, and there's no such thing as a free lunch. If, as Jeremy Siegel tells us, stocks have yielded a high rate of return with relatively little risk for long-run investors, that doesn't tell us that they will always do so in the future. It tells us that in the past stocks were underpriced. And we can expect the market to correct that. In fact, a major correction has already taken place. Historically, the priceearnings ratio averaged about 14. Now, it's about 20. Siegel tells us that the real rate of return tends to be equal to the inverse of the price-earnings ratio, which makes a lot of sense.* More generally, if people are paying more for an asset, the rate of return is lower. So now that a typical price- earnings ratio is 20, a good estimate of the real rate of return on stocks in the future is 5 percent, not 7 percent. * For those who want to know: suppose that the economy is in steady-state growth, with both the rental rate on capital and Tobin's q constant. Then the rate of return on stocks is equal to the earnings-price ratio. Obviously that's an oversimplification, but it looks pretty good as a rule of thumb. Here's another way to arrive at the same result. Suppose that dividends are 3 percent of stock prices, and that the economy grows at 3 percent (enough, by the way, to make the trust fund more or less perpetual.) Not all of that 3 percent growth accrues to existing firms; the Dow of today is a very different set of firms than the Dow of 50 years ago. So at best, 3 percent economic growth is 2 percent growth for the set of existing firms; add to dividend yield, and we've got 5 percent again. That's still not bad, you may say. But now let's do the arithmetic of private accounts. These accounts won't be 100 percent in stocks; more like 60 percent. With a 2 percent real rate on bonds, we're down to 3.8 percent. Then there are management fees. In Britain, they're about 1.1 percent. So now we're down to 2.7 percent on personal accounts — barely above the implicit return on Social Security right now, but with lots of added risk. Except for Wall Street firms collecting fees, this is a formula to make everyone worse off. Privatizers say that they'll keep fees very low by restricting choice to a few index funds. Two points. First, I don't believe it. In the December 21 New York Times story on the subject, there was a crucial giveaway: 'At first, individuals would be offered a limited range of investment vehicles, mostly low-cost indexed funds. After a time, account holders would be given the option to upgrade to actively managed funds, which would invest in a more diverse range of assets with higher risk and potentially larger fees.' (My emphasis.) At first? Hmm. So the low-fee thing wouldn't be a permanent commitment. Within months, not years, the agitation to allow 'choice' would begin. And the British experience shows that this would quickly lead to substantial dissipation on management fees. Second point: if you're requiring that private accounts be invested in index funds chosen by government officials, what's the point of calling them private accounts? We're back where we were above, with the trust fund investing in the market via an index. Now I know that the privatizers have one more trick up their sleeve: they claim that because these are called private accounts, the mass of account holders will rise up and cry foul if the government tries to politicize investments. Just like large numbers of small stockholders police governance problems at corporations, right? (That's a joke, by the way.) If we are going to invest Social Security funds in stocks, keeping those investments as part of a government-run trust fund protects against a much clearer political economy danger than politicization of investments: the risk that Wall Street lobbyists will turn this into a giant fee-generating scheme. To sum up: claims that stocks will always yield high, low-risk returns are just bad economics. And tens of millions of small private accounts are a bad way to take advantage of whatever the stock market does have to offer. There is no free lunch, and certainly not from private accounts.

Subject: Why can't China spare some ships? From: johnny5 To: All Date Posted: Wed, Jan 05, 2005 at 13:48:13 (EST) Email Address: johnny5@yahoo.com Message: Are they too poor to send some ships and not just donating falling US dollars? http://www.msnbc.msn.com/id/6785287/ China fails the tsunami test Big power ambitions, bit player when the chips are down By Michael Moran Brave New World columnist MSNBC Updated: 12:09 p.m. ET Jan. 5, 2005As the ships, aircraft and crews of the Australian, New Zealand, Indonesian and Indian navies rushed to the aid of a region scoured by a tsunami, joining a large American flotilla and various British, Thai, Japanese and Malaysian units, the Chinese fleet remained in port. In fact, the only significant statement from China’s defense ministry in the days following the tsunami was a Dec. 27 announcement that China and Russia would hold major air and naval war games later this year. News reports of that announcement focused on Russia’s motives – it was speculated that this was Moscow’s way of showing how irritated Russia was that its tampering with Ukraine’s election had been thwarted by Western pressure. Yet the tin ear China showed for the suffering of its neighbors is even more important. At a time when tens of thousands in its neighborhood were at risk of starvation, dehydration and disease, China’s focus was right where it has been for centuries: China. No hands on deck With the exception of the American 7th Fleet, based in Japan, China maintains the largest amphibious force in the region, a force with precisely the kind of ships desperately needed in parts of the region rendered inaccessible by the battering waves. The newest and heaviest of these vessels, the 11 ships of the Yutang class, are capable of delivering large amounts of aid to the ragged shorelines now occupying the place where port facilities once sat. Designed for an invasion of Taiwan someday, they also can produce enough fresh water each day to keep a medium sized city alive. Even little Singapore dispatched two smaller landing vessels to the devastated region. So why are the Chinese still at their moorings? The answer is complicated by China’s historic policy of “non-interfere” in the internal affairs of its neighbors, and in some places — India, in particular — by historic suspicions and resentments built up over centuries of rivalry. But China's low profile also speaks volumes about the gap between its rhetoric, which stresses it’s coming of age as a great power in Asia, and the reality of China’s inward-oriented foreign policy. 'They don't have experience in doing this kind of thing, unlike the U.S., which just pushes a few of the right buttons and the relief effort starts,' says William Turcotte, professor emiritas at the U.S. Naval War College. 'But they have the sea-lift - they certainly could help. Maybe this will embarrass them into doing something next time.' Playing possum More seriously for China, it casts light at an inconvenient time on a somewhat cynical game the Chinese government has been playing for years: soaking up billions in aid and interest free development loans from the World Bank, Asian Development Bank and other NGOs, even as it has grown into the seventh largest economy in the world. That paradox increasingly angers its neighbors, especially Japan, which is the leading foreign investor in China. In November, Japan’s foreign minister called for China to “graduate” from aid recipient to donor nation. Like many countries, China committed money to tsunami relief -- $63 million, carefully trumping the $50 million pledged by its diminutive rival, Taiwan. Beijing also sent a number of search and rescue teams to the region and has encouraged private giving. (In contrast, Japan’s $500 million was the top pledge by any country until Wednesday, when Australia's $764 and Germany's $674 leap frogged it. To be sure, China's $63 million donation is welcomed, as any aid is from any country. But China is not just any country, particularly not in East and Southeast Asia, where its break-neck economic growth and maturing military might cast a large and long shadow. With the United States deeply distracted in the Middle East, China has moved, sometimes subtly, sometimes less so, to fill what many see as a regional leadership void. China has grown to eclipse Japan – and increasingly the United States – in terms of economic and political clout in the Pacific Rim. Its neighbors, once deeply suspicious of its designs, increasingly feel comfortable looking to Beijing for economic leadership and even for cues on how to vote on such issues as the Iraq War at the United Nations. Flexing muscles - selectively China’s influence in many of these countries, including Indonesia, Singapore, Vietnam and the Philippines, is magnified by highly successful ethnic Chinese minority communities that took roots centuries ago in many countries around the region. In some ways, the tsunami disaster came at a particularly inconvenient time for Beijing. Over the past two months, Beijing has made bold moves, given its inward looking history, to assume the helm of the world’s most dynamic region. In November, the Association of Southeast Asian Nations (ASEAN), a group once heavily inclined toward Washington and to which China does not even belong, asked China to organize and lead a new regional trading bloc – a group that could, potentially, dwarf both the EU and NAFTA is its commercial size. Not coincidentally, it is ASEAN which will host the Thursday summit of donor nations to discuss the tsunami tragedy. The announcement of joint exercises with Russia's military, too, was a departure for China, which fought a short, violent border war with the Soviet Union in 1969 and in the past has only flirted with a Sino-Russian alliance. The other rising power Contrast China’s stance with that of India, itself seriously affected by the tsunami, and Beijing’s behavior looks even less impressive. Within hours of the disaster, India – China’s near equal in terms of population and economic growth – told the world it did not need disaster relief for the time being, suggesting such money be diverted to poorer nations. What’s more, India dispatched navy ships and cargo aircraft to its devastated cousins in Sri Lanka, immediately staking a claim for itself in the “core” group of donor nations. Some Americans, and some in the region, may think it just as well that China remains a one-dimensional player on the world scene, a kind of gigantic idiot savant with a monster economy but not desire to engage in any foreign affairs issue that won’t be a direct benefit to it. That is an understandable sentiment, given the potential for China to be a disruptive, authoritarian force in world. But coaxing China out of the somewhat paranoid shell through which it has viewed the world for centuries is in the longer term interest of the United States and Asia. Had China, on Dec. 27, announced that its naval transports planned joint relief operations with Japan or the U.S. fleet instead of war games with Russia, an important line would have been crossed. Unfortunately, for China, Asia and the world, Beijing just can’t see the logic – yet. Michael Moran's Brave New World column appears weekly on MSNBC.com © 2005 MSNBC Interactive http://www.msnbc.msn.com/id/6785287/ www.msnbc.msn.com/id/6785287/

Subject: China's Aid Marks a Policy Shift From: Emma To: johnny5 Date Posted: Wed, Jan 05, 2005 at 21:02:14 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/04/international/worldspecial4/04china.html Size of China's Aid Marks a Policy Shift, but Is Still Dwarfed by That of Richer Countries By JIM YARDLEY BEIJING - China's response to the tsunami disaster is showing the nation's limitations as an aspiring superpower, despite its new and growing influence in Asia. China's offer of aid, if slightly belated, is sizable, given its often inward-looking history. But it is also a reminder that the world's most populous country is still far from being the dominant power in Asia. Last Friday, Prime Minister Wen Jiabao announced that China would donate about $63 million, one of its largest pledges of international relief aid. It was a marked increase from earlier in the week, when China had pledged only $2.6 million. But the higher figure was quickly eclipsed when the United States increased its pledge to $350 million and Japan followed with $500 million. Moreover, China has watched as American vessels have moved quickly into the region with Navy helicopters delivering food and critical supplies to the hardest hit areas of Indonesia. This week, a convoy of American ships is expected to arrive in Sri Lanka with more than 1,500 marines. By contrast, China's primary contribution at the scene of the catastrophe has been a 35-member medical team now treating patients in Indonesia. Other Chinese medical teams are being dispatched, and at least one commercial cargo plane has already left Beijing with $1.8 million in medicine, food and generators. For more than a year, China's top officials and diplomats have sought a leadership role in the region on the strength of the country's booming economy. Other Asian countries have eagerly sought trade deals with China, and Mr. Wen has promoted the idea of an Asian equivalent to the European Union. But gaining such economic clout has not yet translated into broader power or influence, according to Robert Sutter, a former American government official who has written extensively about United States-China relations. Mr. Sutter said China's 'soft power' is growing in the region but should not be overstated. 'The things China has been doing are all win-win,' said Mr. Sutter, now a visiting professor in the School of Foreign Service at Georgetown University. 'They don't generally cost China anything. But when you have to do something that costs something, it's hard for them to do it.' He added, 'They are still an aid recipient.' In the past few years, China has begun a transition from being a recipient of international assistance to a donor nation. The World Food Program will phase out subsidies to China by the end of this year, while China is now starting to make small donations to the agency. Japan also has been scaling down its aid to China while increasing support for India. Meanwhile, China has increased its donations to nations like Vietnam, Indonesia and Myanmar as part of its effort to raise its profile in the region. China is also believed to donate tens of millions of dollars in annual aid to help prop up North Korea. But such direct donations are different than responding to an international disaster. Last Thursday, a Chinese spokesman sounded defensive when asked about the country's relatively low initial donation of $2.6 million. At the time, by contrast, Taiwan had offered $5 million. 'China is a developing country,' said the Foreign Ministry spokesman, Liu Jianchao. The next day Mr. Wen announced that China had increased its aid.

Subject: Long Term Stock Returns From: Terri To: All Date Posted: Wed, Jan 05, 2005 at 11:10:49 (EST) Email Address: Not Provided Message: The return of the Vanguard S&P Index Fund since August 31, 1976 has been 12.38%. The return over the last 10 years has been 12.00%, even with the fierce bear market. A return of 7% over the coming generation should not be excessive and would be pleasing relative to the expected return from bonds. When Vanguard began its S&P Index Fund on 8/31/76, the price earning ratio was below 10. The p/e ratio did not climb above 10 till 1983. At the market peak on 8/31/87, the p/e ratio was above 17. The S&P began the 1990s at a p/e above 15 and finished at a p/e above 35 if this number can be trusted. Now, we are at 20. The Vanguard S&P Index Fund benefited by the p/e ratio going from below 10 to 20. Also, until recently dividends were far higher than they are today and I trust stock buybacks less than dividends in adding to stock market returns. So my long term sense of the market is rather than look for a 12.4% return as the Vanguard Fund records from inception, a 7% return seems conservatively reasonable.

Subject: Leonardo DiBecker From: Punch(oh!) Villa To: All Date Posted: Tues, Jan 04, 2005 at 17:53:54 (EST) Email Address: nma@hotmail.com Message: '... The moral hazard effects of such programs are always worrysome - families might continue to buil homes on earthquake fault lines if they expect government compensation when their homes are destroyed, or continue to build close to the shore in potential water-borne disaster areas. ...' (WSJ, Gary S. Becker ... And the Economics of Disaster Management) In this case I personnally do think that: 'On the one side, there seems to be a near-total lack of social or psychological texture (and demand side economics. Btw, I have some plans to build a hotel and leisure complex in Siberia (its gonna be a hit) and right now I'm trying to get most of my inspiration by watching movies like 'The Beach') - economists are notoriously uninterested in how people actually think or feel' (PK, Development, Geography, and Economic Trade)

Subject: Re: Leonardo DiBecker From: Ari To: Punch(oh!) Villa Date Posted: Wed, Jan 05, 2005 at 10:34:27 (EST) Email Address: Not Provided Message: Please explain this, for I do not understand what points are being shown.

Subject: Re: Leonardo DiBecker From: Pancho Villa To: Ari Date Posted: Wed, Jan 05, 2005 at 22:19:45 (EST) Email Address: nma@hotmail.com Message: The point is quite simple: The existence of hotels at certain places is not legitimated without demand.

Subject: Re: Leonardo DiBecker From: Ari To: Pancho Villa Date Posted: Thurs, Jan 06, 2005 at 14:17:37 (EST) Email Address: Not Provided Message: Simple, ah. But, you enjoy being cryptic. Thanks.

Subject: Re: Leonardo DiBecker From: Pancho Villa To: Ari Date Posted: Thurs, Jan 06, 2005 at 22:07:02 (EST) Email Address: nma@hotmail.com Message: Just imitating GS, hihi...

Subject: Equity Returns in the Future From: Terri To: All Date Posted: Tues, Jan 04, 2005 at 17:48:46 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000111.html January 04, 2005 Equity Returns in the Future By Brad DeLong The Economist writes a confusing article because it fails to consistently measure asset returns in real magnitudes. It writes, as I have straightened things out: Economist.com | Investing money: ...over the past 100 years American shares have outperformed bonds, property, art and gold, with an annual average total return of 9.7%, or 6.3% after inflation. Government bonds returned less than 5% [or 1.6% per year in real terms]. This performance underlies the common view that as long-term investments shares are hard to beat.... But a lot depends on how long the long term is. In a book in 2002, Triumph of the Optimists... Dimson... Marsh and... Staunton... found... in 13 of the 16 countries... shares did worse than cash in the bank in at least one 20-year period in the 20th century. Over ten-year periods, negative real returns on equities were not that uncommon. An investor buying American shares in 1964 and selling in 1974 would have made a real loss of 35%. Another reason for caution is that periods of exceptionally high returns--such as the 1980s and 1990s--are usually followed by phases of exceptionally poor performance. The 20-year bull markets in shares (which lasted until 2000) and in bonds (which continued into 2004) were fuelled by an almost continuous fall in inflation and hence interest rates. But now that inflation is low, neither shares nor bonds are likely to deliver double-digit returns.... [Nominal] bond returns in most countries will be broadly in line with their current yield of less than 5% [and, with 2% inflation, annual real bond returns of 3% or so]. What about equities?... price-earnings (p/e) ratios still look a bit high, notably on American shares, and share valuations are unlikely to benefit from falling interest rates in future. Meanwhile, lower inflation means that the pace of profits growth will slow. Assume that America's nominal GDP grows by 5% a year (3% in real terms, plus 2% for inflation).... Suppose... that profits do rise in line with GDP and that p/e ratios stay the same. Then... total [real annual] return[s] on American shares over the next decade will average [4].8% [in real terms] ([3]% [real] profits growth, plus dividends).... Investing in emerging stockmarkets could also pay off handsomely over the next decade. The average p/e ratio in emerging markets... is around ten.... [I]f governments can maintain their current, sounder economic policies, growth should be more stable in the years to come--and returns should be higher and less volatile. European shares could also outperform Wall Street. The old continent's economies are widely derided for their rigid markets, high taxes and lack of entrepreneurial vim. But financial markets have discounted all this, and European shares look cheap next to American ones.... The most important lesson for investors is that when [real] GDP is growing by only [3]% [per year], asset prices cannot on average be expected to rise much faster than this... Could be. But I think that the Economist is too pessimistic. Let me sketch out what I think of expected American equity returns: I tend to start from the equation: r = E/P (rs-r)(E-D)/E rs(E*-E)/E where r is the expected real rate of return, E/P is the earnings yield, rs is the rate of return the average company earns on its reinvested earnings (which Glenn Hubbard and company argue is significantly in excess of the market return becuase of various information and signaling problems), and E*-E is the gap between accounting earnings and the business's real Haig-Simons earnings (which Eric Brynnjolffson and company argue is significant because of all the trial-and-error investments in organizational form that are inaccurately counted as operating expenditures). This makes me think of the current earnings yield of 5% as a lower bound to expected equity returns, which I tend to see as 5.5-6%. And when I compare this to a real long Treasury bond return of 2-2.5%, and when I meditate on long-run inflation risk to which nominal bonds are uniquely vulnerable... Well, the upshot is that the 3-4% annual expected equity premium return that I see still seems very large to me: to correspond to the preferences of a 62-year-old male expecting to spend his wealth in the next fifteen years or to the preferences of a money manager for whom reporting a big loss in the next four years is a career-limiting move, rather than to the risk preferences of the economy considered as a frictionless social welfare maximizing machine. And this means that there is still a powerful, powerful case for stocks for patient investors with a long horizon of a quarter century or more. If you can wait a quarter century, stocks do not look like a sure thing relative to Treasury bonds, but they do look like a 90% thing.

Subject: Fiscal Policy From: Terri To: All Date Posted: Tues, Jan 04, 2005 at 12:29:43 (EST) Email Address: Not Provided Message: Through Bill Clinton's presidency the growth of income and wealth inequality stopped and reversed. There was continually rising employment and meaningful wage and benefit increases. The economy was in terrific shape by the end of the 1990s, and there is no reason we can not have as strong an economy again with sopund fiscal policy. The question is, will there be sound fiscal policy? At present I am not optimistic.

Subject: Re: Fiscal Policy From: John To: Terri Date Posted: Tues, Jan 04, 2005 at 13:47:08 (EST) Email Address: Not Provided Message: terri, when was the last time you read 'peddling prosperity'? If I recall correctly (i need to pull the book out again) according to krugman, fiscal policy can have a positive impact on the economy, but its mostly on the fringes. He specifically compares both reagan's policies and clinton's policies over the 80's and 90's and attributes very little of the overgrowth of the economy to either president's actions. While i agree its important to have sound fiscal policy, I don't believe it has as much impact as you think it does.

Subject: Re: Fiscal Policy From: dave To: John Date Posted: Thurs, Jan 06, 2005 at 18:22:37 (EST) Email Address: Not Provided Message: john, you sound like a classicist!

Subject: Re: Fiscal Policy From: Paul G. Brown To: John Date Posted: Tues, Jan 04, 2005 at 14:52:44 (EST) Email Address: Not Provided Message: John - Yeah, I'd agree. Except to note that fiscal policy is not so simple as you seem to suggest. When an economy has a shortfall of demand--overcapacity--then federal deficits a) minimize the short term impact of jobs losses by propping up demand, and b) provide the business sector with some encouragement to invest. Following the same policy at other phases of the business cycle (the expansion of the 1980's and 1990's) or when used like a club to address another problem such as an external shock -- energy price spike, collapse in exchange rate-- or runaway inflation, amounts to keepin' on diggin' once your in the hole. Recall how, during the 1990s, the Clinton White House was very aggressive in constraining government spending while tax revenues climbed. This reduced the deficit, and the amount the US government had to borrow, thereby helping to keep interest rates low, fueling the expansion. This kind of fiscal policy is an example of 'governmnent getting out of the way'. I mean, they didn't do anything. But it was an inspired inactivity. In other words, per Keynes, an activist fiscal policy is really only appropriate at certain points in time. And how you structure the stimulus is also important. During an economic expansion is a good time to push G back to zero. My guess is that it was the quietly competent way that they went about this task that endeared them to the forces of capital. But what we have now is, to quote Brad DeLong, a clown show. Good fiscal policy is mainly getting out of the way. But bad fiscal policy can be a completely disasterous. It can lead to a full blown financial crisis (Argentina) and it cause inefficiencies (Japan) and ultimately widespread suffering (Weimar Germany, depression era USA). Well managed economies are all pretty much alike. Screw ups of historical note typically involve a pretty specific delusion. Let's hope we won't we held up as an example of what not to do.

Subject: Re: Fiscal Policy From: John To: Paul G. Brown Date Posted: Tues, Jan 04, 2005 at 21:16:12 (EST) Email Address: Not Provided Message: still looking for the quote regarding fiscal policy, but on page 150 of the paper version of Peddling Prosperity, it says 'The bottom line of all this is taht while we can make some interesting speculations, we don't really know very well why inequlaity has increased.' (referrring to the reagan/bush 1 era). IMO, you can apply the same logic during the clinton era as well.

Subject: Re: Fiscal Policy From: Paul G. Brown To: John Date Posted: Wed, Jan 05, 2005 at 13:04:50 (EST) Email Address: Not Provided Message: But inequality didn't increase by as much during Clinton as it did during Reagan/Bush. In fact, the Reagan/Bush era was exceptional in the way income inequality grew. Now, economic growth, on the other hand, we can say a lot more about.

Subject: Re: Fiscal Policy From: John To: Paul G. Brown Date Posted: Wed, Jan 05, 2005 at 14:02:05 (EST) Email Address: Not Provided Message: very true, but the point is its not necessarily the policies that are causing the inequality.

Subject: Re: Fiscal Policy From: Emma To: Paul G. Brown Date Posted: Wed, Jan 05, 2005 at 13:17:49 (EST) Email Address: Not Provided Message: Important point.

Subject: Leo Tolstoy? From: Terri To: Paul G. Brown Date Posted: Tues, Jan 04, 2005 at 15:12:09 (EST) Email Address: Not Provided Message: Paul :) Even to the clever way you parahprase the opening of Anna Kamenia, I agree with you. 'All happy families are alike; each unhappy family is unhappy in its own way.'

Subject: Re: Leo Tolstoy? From: Paul G. Brown To: Terri Date Posted: Tues, Jan 04, 2005 at 15:24:28 (EST) Email Address: Not Provided Message: Jus' don't ask me to crack my knuckles. I've come to think of that little sentence of Tolstoi's as one of the most profound (and original) insights into the human condition.

Subject: Re: Fiscal Policy From: Emma To: John Date Posted: Tues, Jan 04, 2005 at 14:17:27 (EST) Email Address: Not Provided Message: Nice point, but I wonder what Paul Krugman would write now. The Clinton tax increase which cost the Democrats the House of Representatives, allowed for lower interest rates and quickening investment which in turn spurred job growth. I too give Clinton and economic policy architect Robert Rubin much credit.

Subject: India's Boom Spreads From: Emma To: All Date Posted: Tues, Jan 04, 2005 at 12:07:17 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/04/business/worldbusiness/04yum.html?pagewanted=all&position= India's Boom Spreads to Smaller Cities By SARITHA RAI COIMBATORE, India - When the first Kentucky Fried Chicken outlet opened in India, in the technology hub of Bangalore in 1995, the welcoming committee was largely absent. It was just four years after India opened its economy to outsiders, and the outlet quickly became a target of irate farmers, Hindu nationalists and others decrying what they saw as the encroachment of the corrupt, and corruptive, West. KFC's parent, Yum Brands, now has 100 KFC and Pizza Hut restaurants in India, 30 opened in 2004, and a goal of 1,000 by 2014. To realize such growth, the chains have begun a seemingly inexorable march into the country's smaller boomtowns, cities like Coimbatore and Cochin in the south, and Jaipur and Meerut in the north, where middle-class Indians - who increasingly crave localized Western foods, regional flavors and ingredients infused into the pizza, pasta or poultry - have hailed their arrival. The tsunamis that hit on Dec. 26 devastated the Andaman and Nicobar Islands in the Bay of Bengal and coastal villages in the southeastern state of Tamil Nadu, leaving 11,000 deaths in their wake. The country's cities were untouched, and despite the huge loss of life, little overall economic fallout is expected. As India's galloping economy has extended to its smaller cities, a younger population with expendable income is finding many Western and upmarket domestic products, brands and services increasingly accessible. Nearly 35 Indian cities have a population exceeding a million, and proliferating shopping malls cater to the rapidly growing consumer class. 'A swelling base of affluent, upwardly mobile consumers with the same needs, wants and desires as the residents of bigger cities is seeking gratification,' said Vatsala Misra, a consultant with the retail research firm KSA Technopak. With satellite television and the Internet now ubiquitous in smaller cities, she said, 'People are increasingly exposed to how the other half lives, and the aspirational distinctions are blurring.' Among the companies seeking customers in these second-tier cities are the athletic-shoe makers Reebok International and Adidas-Salomon, and the cellphone maker Nokia. Bacardi Martini India, a unit of Bacardi Ltd., distributes its alcoholic beverages in 50 Indian cities. Ford's Indian unit said most of its sales growth was coming from outside the primary cities. 'When we came in 1996, we set up with 12 dealer facilities in 8 cities; today, we have 90 facilities in 70 cities,' said Vinay Piparsania, vice president for sales and marketing at Ford India. 'People are finding cars more affordable, with banks chasing customers in smaller cities to offer loans.' Here in Coimbatore, population 1.25 million, a manufacturing center close to the garment hub of Tiruppur, people crowded into the Pizza Hut recently, a day after a festival. 'Traditional festival cuisine is vegetarian and we were surprised when 500 customers showed up, a lot of them ordering pizzas with nonvegetarian toppings,' said Vineet Sharma, area manager of Pizzeria Fast Foods Restaurants (Madras), the franchisee that runs the Coimbatore outlet. A local tea factory owner, P. S. Mahendran, 39; his wife, Jayanthi, 30; and their 11-year-old daughter, Arthi, are regulars there. 'We are no less conventional than we were five years ago, but, more and more, we splurge on imported cosmetics, Western brands and international foods,' Mrs. Mahendran said. Mr. Mahendran, who drives a Mercedes, ordered tandoori chicken pizzas. India's demographics support the expansion. According to a report by the National Council for Applied Economic Research, which is based in New Delhi and partly government financed, half of India's 10.7 million households with an income of up to a million rupees ($23,000) are in smaller cities. The report recorded a big rise in the number of rich households, those with incomes of 1 million rupees to 5 million rupees, in smaller cities like Vadodara, Nagpur, Ahmedabad and Vijayawada. And while in 1995 just 2.8 percent of households were counted as middle class, with income of 200,000 rupees to a million rupees, the report projected that 12.8 percent would be counted as such by 2009. With a manufacturing boom as well as an expansion of back-office outsourcing into the second-tier cities, 'wealth and purchasing power are no longer a big-city syndrome,' said the research group's senior fellow and economist, Rajesh Kumar Shukla. 'The urban market is more or less saturated for a lot of products, but in smaller cities consumers are hungry.' When the Bangalore-based Air Deccan added 22 flights in mid-December, most connected smaller cities like Kanpur, Surat and Jaipur. 'Doing the New Delhi-Mumbai route is a no-brainer,' said Air Deccan's managing director, G. R. Gopinath. 'The adrenaline rush is in connecting the smaller cities, where life is changing dramatically.' Bharti Tele-Ventures, the country's second-largest cellular services company after Reliance Infocomm, rolled out its service in five smaller cities, including Lucknow and Kanpur, in mid-October. By the end of November, it had signed on 100,000 new customers, helped by the fact that at about 2 cents a minute, India has one of the lowest telecommunications costs in the world. Contrary to expectations, even premium brands are doing well in second-tier cities. For Bacardi Martini India, the top six Indian cities now account for only 45 percent of sales, compared with 70 percent in 2001. 'We are going in and cashing on the demand that mass media has built up for upscale brands and products,' said Jayant Kapur, the unit's chairman and managing director. When the country's first lifestyle television channel, Zoom, began broadcasting in late 2004, its promoter, India's largest newspaper publisher, Bennett, Coleman & Company, ensured that its reach extended beyond the biggest cities. People in cities like Ludhiana and Chandigarh, said Arun Arora, president of the company, 'are just as likely to be the first to drive the latest-model foreign cars and gear up in the most expensive clothes and accessories.' The growth in smaller cities is not without its challenges, including bad infrastructure and difficult supply logistics. And the purchasing boom in cities, both big and not so big, is in sharp contrast to life in villages, where two-thirds of the country's one billion people live and the price of, say, a bottle of Bacardi Rum - around $10 for 750 milliliters - equals a farm laborer's weekly earnings. But among those newly able to partake, a good many seem eager to do so. Of course, there are still many Indians who spurn Coca-Cola and Pepsi for a glass of nimbu paani (freshly squeezed lemonade). But back at the Coimbatore Pizza Hut, the owner of a spinning mill, Ram Kumar, and his wife, Suhasini, both 29 and dressed in jeans and T-shirts, munch on pizza and rue that the city is changing too slowly. There are no pubs, discos or multiplex cinemas. 'Night life is nonexistent,' lamented Ms. Kumar, who said that Coimbatore could do with 'a lot more brands and entertainment options.' Such attitudes are making Pizza Hut project a 40 percent growth rate over the next several years. 'While they hold on to their rich traditions and very strong cultural heritage,' said Graham Allan, president of Yum Restaurants International, 'small-city consumers are open to new concepts and want to embrace brands openly, making them a very attractive market.'

Subject: Steve Leuthold Cautious on 2005 From: Terri To: All Date Posted: Mon, Jan 03, 2005 at 21:56:10 (EST) Email Address: Not Provided Message: http://www.pbs.org/wsw/tvprogram/ KAREN GIBBS: 2004 is history, and while it held some surprises, investors managed to eek out profits, especially if they listened to famed market researcher and money manager Steve Leuthold. Previously known as one of the markets’ biggest bulls, Steve sees some warning signs on the horizon, and joins us to share the investment advice he’s giving his clients for 2005. Steve, good to see you again. STEVE LEUTHOLD: Well, Happy New Year, Karen. Are you ready to party? GIBBS: Yes, I am. LEUTHOLD: All right. You look great. GIBBS: Thank you. Now tell me what you thought about 2004. You know, you nailed some really good things. You saw the election rally. You also saw CPI. You nailed that. But some of the things like the 2,400 Nasdaq and maybe interest rate moves, you’re off a little bit. LEUTHOLD: Yeah, we’re a little shy on that 2,400 Nasdaq, and I think we had initially thought a target of 1250 on the S&P. GIBBS: Well, now talk about what we see going on. You know there’s all sorts of political winds. There’s also economic winds. You’re saying you see some warning signs on the horizon. What are they? LEUTHOLD: I do for the stock market. This has been a long run. We’re over two years old in this bull market. We’ve gone up close to 50 percent, and that is about the typical magnitude of a cyclical bull market move, about 2 1/2 years and about 50-55 percent. So it’s possible that we could be heading for some trouble in 2005. I’ve been a resolute bull for over two years, and I really am a little cautious when I look toward 2005. GIBBS: Well, with the stock market being a leading economic indicator, what does your outlook for the stock market say about the economy? LEUTHOLD: Well, the economy still looks really strong. I can’t fault the economy at all. It isn’t overheating. The Fed isn’t going to have to act dramatically to cool off the economy. But again, if we look at the economic time clock, the typical economic expansion going back to World War II has been about 3 1/2 years. Now I know there’s been two much longer ones than that under Reagan and also under Clinton, but if we figure 3 1/2 years, we’re heading into, we’re about 3 years and one month into that. So I think we have to start looking for an economic slowdown in the U.S., probably in the fourth quarter of 2005. And as you mentioned, the stock market tends to look ahead, and normally turns down, oh, five to seven months before the economy turns down. GIBBS: Well, if the economy does turn down, what are the implications for corporate earnings? LEUTHOLD: Corporate earnings, there will be a lag, so I don’t think that that will have an impact in 2005 on corporate earnings, but what will have an impact is that currently profit margins by a number of calculations are the widest that they’ve been in 50 years. And so the only way I can see you’re going to get strong earnings growth in 2005 is see strong revenue growth, strong top-line growth. And I think the best maybe we can expect for earnings growth this coming year is maybe for the aggregate, say the S&P 500, is maybe 7, 8 percent, something like that. GIBBS: That’s still not bad, is it? LEUTHOLD: Not bad. GIBBS: Well, you know we were plagued with high energy prices in 2004. Are we going to still see that in 2005? LEUTHOLD: Well, I don’t think they’re going to come down a lot from where they are right now, but I would guess we’ll average somewhere around $39-$40 a barrel. And I also think in terms of dollars, we’ll be helped to some degree because, unlike most people, I think we could see a stronger dollar in 2005. GIBBS: Why do you think that? Because the international scene was really negative on the dollar for 2004. » Leuthold's 2005 LEUTHOLD: Yeah, I know, and the consensus is certainly negative now toward the dollar. I think particularly against the euro, we’re currently about 1.36 on the euro. And when I look at the comparison between euro land and the United States, I don’t think that big premium valuation on the euro is justified. I mean if we look at Europe, they have a lot of the same problems, in fact, some greater problems than we do. Their economy is slower than ours. It’s not as vibrant. Their social security and retirement programs are in worse shape than they are in the United States. And also, they are running deficits too, and they’ve all violated that 3 percent deficit limitation that was set up when the euro union was originally established. So I really think that you’re going to see, at least against the euro, by the end of the year the dollar is going to be stronger. GIBBS: What about China? A lot of people are saying that China should at least decouple its yuan from the dollar. Do you think that’s going to happen in 2005? LEUTHOLD: I don’t know. I think it should happen. I think it might happen later in the year, and I think it would be very constructive for the global economy if that did happen. Of course China’s reluctant to do that because it could slow down exports. But on the other hand, I think China would like to on a prestige basis become the premier, one of the premier currencies in the world, and this is one way they could do it, setting it free, letting it flow, letting the market determine the valuation of the yuan instead of linking to the U.S. GIBBS: Now when you mention exports, of course it brings up our trade deficit here, burgeoning trade deficit. Lots of people are worried about it. What do you think about the trade deficit? LEUTHOLD: I’m not so worried about the trade deficit. I think first of all with the price of oil probably not going to accelerate this year on average for the year, I think that is helpful. But the other thing that we have to keep in mind is that this decline in the dollar has helped, has really helped our exports. And exports in the United States are up over the last 5 to 6 months up about 10 percent. We think of mostly what’s happening in terms of China, but in fact when we look at the U.K., when we look at Canada, when we look at many other European countries, our export business is picking up, because finally the impact of that decline in the dollar is taking hold in terms of trade. So I think you’re going to see sometime in 2005, you’ll see the trade deficit flatten out and perhaps late in the year even start to decline a bit. GIBBS: What sectors or companies do you think would benefit from that? LEUTHOLD: Well, I think it would be a benefit to the financial area, except that I do think you’re going to see higher interest rates. So that’s a negative in terms of the financial area. I think it’s going to help in terms of our heavy machinery and manufacturing exports. I think it may also help in terms of, oh, perhaps agricultural exports. GIBBS: Interesting with the agricultural, because that’s something that you’re seeing for 2005 picks for your Leuthold Fund. Tell me about that. LEUTHOLD: Well, we’ve added recently a relatively small holding in agricultural products. Bunge Grain and ADM are a couple of the names. And they score very strongly on our quantitative disciplines. And even though it’s a relatively small industry group, we thought it might be appropriate for the portfolio. GIBBS: That’s kind of interesting, because you are seeing a lot of interest now in the grains all over the world. It’s one of the biggest commodities of all. But what about steel? We’re seeing a lot of interest in industrial metals and steel. LEUTHOLD: Well, I’ll tell you, the steels have been great for us lately. And you’ve got a situation here where we have a supply/demand imbalance, both in terms of steel and also in terms of the industrial metals like copper and aluminum and lead and zinc. And I think that supply/demand imbalance is going to continue next year with the global economy stronger. The problem is you can’t ramp up production in these areas overnight. It takes a long time to develop a new mine or build a new steel mill. And right now we have more demand. I mean you noticed the other day that we even saw Nissan had to shut down production over in Japan because they didn’t have enough steel. And I think this is going to prevail, this same supply/demand imbalance for the next, oh, for maybe the next year or maybe longer. GIBBS: So you’re looking at companies in the steel area such as Cleveland-Cliffs or Steel Dynamics. LEUTHOLD: Right. And also Nucor, and then we have a couple of foreign steel makers, but we also have those industrial metal companies, the coppers and the... GIBBS: I see BHP Billiton. I also see Rio Tinto and Inco on your list. LEUTHOLD: Yeah, BHP and Rio Tinto are big global natural resource companies, and I think they are very attractive on a longer-term basis. They have what a lot of the industrial world needs, and as a result the price has been going up. They just negotiated a big coal contract not too long ago with China for coking coal at BHP. GIBBS: Well, you know here in the United States we’re looking at sort of reforms going on in the Medicare industry, and we’ve got health care costs containment pretty high on your list. In fact, you like companies such as Cytyc, Cerner Corporation or Diagnostic Products. Why? LEUTHOLD: Well, a lot of people think the healthcare stocks did poorly last year, whereas actually our healthcare cost containment stocks were up about 25 percent on average for the year. And the reason why where we focused in healthcare is on companies that help control or contain healthcare costs. I think maybe some of the big drugs are getting awfully cheap and attractive, but at this point we still are focusing on companies that will help control or contain healthcare costs. GIBBS: What do you think about the move to reform Medicare, Social Security, and of course the tax code? Possibilities of success in 2005? LEUTHOLD: Well, I can’t see much happening in terms of the tax code, but perhaps. I think where we really need to have reform, and it’s where very little attention has been paid, is to Medicare. I mean if we think that Social Security is in bad shape, if you look at our Medicare program where we have $4.00 going out for every dollar that’s collected in taxes, that’s where the danger lies. And of course all of those medical expenses are going to increase with the new prescription drug benefits. And this is something that the politicians don’t seem to want to even touch. GIBBS: How about Social Security reform? I know you’re a proponent of means testing, and a lot of people aren’t, but that you’ve gone far enough to actually give the difference from what you think you should be getting and what you are getting to the Salvation Army. LEUTHOLD: Well, yes, that’s true. But my point is that Social Security was originally intended as a safety net for those who had nothing in retirement. And here I am, I’m eligible for Social Security, I’m getting the checks. I don’t need them, and so I thought that maybe it would be a good idea – and I’m still working – so I thought it would be a good idea to just maybe give the difference between what I paid into Social Security and what I took out to someone who knew how to spend the money correctly, and that’s the Salvation Army. GIBBS: Well, Steven Leuthold, it’s always a pleasure to see you. Happy New Year. LEUTHOLD: Well, Happy New Year to you, Karen. GIBBS: Thank you.

Subject: Manhattan Apartment Prices From: Emma To: All Date Posted: Mon, Jan 03, 2005 at 18:52:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/03/nyregion/03property.html?pagewanted=all&position= Average Manhattan Apartment Remains Over $1 Million By MOTOKO RICH For the third consecutive quarter, the average sales price of an apartment in most of Manhattan breached the $1 million barrier, although it slipped slightly from the previous quarter, according to an appraiser's report scheduled for release today. The average sales price of $1.04 million in the last three months of 2004 was 2.6 percent below the $1.07 million average in the third quarter, but was still 15.3 percent above the quarterly average of $903,259 a year earlier, according to the Prudential Douglas Elliman Manhattan Market Overview, which surveys the real estate market below 96th Street on the East Side and below 116th Street on the West. And apartments became even scarcer, with the number of available listings falling more than 23 percent from the previous quarter, the report said. Jonathan Miller, president of Miller Samuel, the appraisal firm that prepared the Elliman report, said jitters about the presidential election and concerns about increases in interest rates had led some buyers to hold back, which dampened prices in the final quarter. 'Some people were reluctant to pull the trigger during the election, especially in the first month of the quarter, in October,' Mr. Miller said on Friday. Indeed, according to the report, the number of sales during the quarter dropped 15 percent from the previous quarter, to 1,987 from 2,337. Dottie Herman, chief executive of Prudential Douglas Elliman Real Estate, said sale prices traditionally dip in the last quarter. 'I didn't see any red flags' for 2005, she said. In fact, according to the Elliman report, the median price - the exact midpoint - rose 2.3 percent to $670,000 in the last three months of 2004, a 15.5 percent increase over the last quarter a year ago. But the average sales price of luxury apartments - defined as those in the top 10 percent of all sales - fell 10.7 percent, to $3.67 million. Mr. Miller said one reason was that the average square footage of those apartments was down 7.4 percent, to 2,690 square feet. Average prices were still 15 percent above the same period in 2003. Ms. Herman said she expected prices to rise again this year, though perhaps not as significantly as in the past few years. She said demographic trends would continue to drive New York real estate, with empty nesters from the suburbs, families choosing to stay in Manhattan and European investors taking advantage of the strength of the euro all vying for the supply of apartments. The number of co-ops and condos available for sale dropped 23.3 percent to 3,922 units in the final quarter of 2004, down from 5,112 units in the third quarter. That was the sharpest quarterly decrease in available listings in four years, Mr. Miller said. The slim pickings led some buyers to get creative. A couple represented by Louise Phillips Forbes, a broker with Halstead Property in Manhattan, were looking for a three-bedroom apartment on the Upper West Side, but found little to entice them. When they realized that their best choices were a $3 million apartment on Riverside Drive that Ms. Forbes said needed a 'complete face-lift,' or a three-bedroom apartment in what she described as a 'B building' on 72nd Street, the couple, who already own a one-bedroom apartment, offered $1.45 million last week to the owner of the two-bedroom apartment next to them, which they plan to combine with their apartment. Ms. Forbes said the couple would pay a 30 percent premium over comparable sales prices in the building. Full-year figures from the Corcoran Group, one of the largest real estate brokers in Manhattan, showed that sales price appreciation was particularly strong downtown, as well as in emerging residential areas like Midtown East and Midtown West, defined as the neighborhoods between 34th and 57th Streets. Pamela Liebman, chief executive of the Corcoran Group, said, 'A lot of buyers were flocking to Midtown East and Midtown West because they are priced out of the traditional Upper West Side or Upper East Side neighborhoods.' Average yearly sales prices were up 20 percent in Midtown East, and 21 percent in Midtown West. Downtown prices were driven up by new condo developments offering luxury amenities, attracting buyers who might have previously stayed uptown. According to Corcoran, the average sales price of downtown condos increased 23 percent to $924,000. Average loft prices rose 35 percent to $1.49 million. Reid Price, a broker with Corcoran who sold 28 loft apartments in the Hubert, a new luxury condo development in TriBeCa, said, 'I think that it brought a lot of buyers from uptown as well as people who were empty nesters from Connecticut who were looking for a lifestyle change.' Sellers enjoyed price increases in the boroughs outside Manhattan, too. Average sales prices in Fort Greene, Brooklyn, increased 35 percent in this year compared with 2003, according to the Corcoran report. Fort Greene 'has been infiltrated at an unprecedented level' by buyers and developers from Manhattan, said Jerry Minsky, a Corcoran broker. Mr. Minsky said that in December he helped to sell 18 apartments, including a $1.2 million penthouse, in the GreeneHouse, a luxury condo in Fort Greene. Prices, which started at $600 per square foot, increased to $845 per square foot by the end of the month. Mr. Minsky said he also sold a three-family brownstone town house for $2.15 million in December. He said he believed that this was the first sale of a private residence in Fort Greene for more than $2 million. Meanwhile, renters are getting hit with higher rents. According to a report from Citi Habitats, a residential real estate brokerage firm, average Manhattan rents increased to $2,397 in 2004, from $2,334 in 2003. More significantly, said Andrew Heiberger, president of Citi Habitats, landlord concessions like a month's free rent and assistance with broker fees were disappearing. Mr. Heiberger said that of 1,300 buildings tracked by Citi Habitats, 150 now offered such perks, compared with 500 in 2003. Average vacancy rates in those building also dropped, from 3.25 percent at the end of 2003 to 1.55 percent at the end of 2004.

Subject: China's Saving and Trade Surplus From: Emma To: All Date Posted: Mon, Jan 03, 2005 at 11:18:26 (EST) Email Address: Not Provided Message: When we think about China running trade deficit, I do not know how that is possible given China's social structure and a fierce desire to determine its own development path. Also, the high household saving level makes it hard to think of China running much of a trade deficit any time soon. After all, look how successful Japan was between 1950 and 1990 developing with a surplus. I agree China must limit the accumulation of dollar reserves, and yet and yet China grows apace. What am I missing?

Subject: Re: China's Saving and Trade Surplus From: jimsum To: Emma Date Posted: Tues, Jan 04, 2005 at 14:01:34 (EST) Email Address: jim.summers@rogers.com Message: Yotu are missing the rest of the world :-) China has a big trade surplus with the U.S. and less of one with other western countries, but it has almost equally big trade deficits with other Asian and developing countries. China's trade balance is roughly even. This also a reason that a depreciation of China's currency may not make all that much difference; Chinese exports will cost more, but imported raw materials will cost less. Since only about 20% of the value of exports is added in China (mostly labour), changing the exchange rate probably won't reduce the U.S. trade deficit all that much.

Subject: Re: China's Saving and Trade Surplus From: Emma To: jimsum Date Posted: Tues, Jan 04, 2005 at 14:13:14 (EST) Email Address: Not Provided Message: A fine argument, and I agree. An appreciation of China's currency would raise export prices only a little, because materials imports to China would cost less as the currency became more valuable. And, the labor cost differential is simply not going to be made up by a change in currency valuation which I do not soon expect. How do you account for the high household saving rate in China?

Subject: Re: China's Saving and Trade Surplus From: jimsum To: Emma Date Posted: Tues, Jan 04, 2005 at 15:35:06 (EST) Email Address: jim.summers@rogers.com Message: I gave an answer to the savings rate question in another thread. I'll add one more now. It is hard to get a cheap consumer loan in China, so if you want to buy something big, you have to save for it. Americans have the option of borrowing cheaply to buy something, and they often take that option :-) I think the Chinese savings rate is better than the American savings rate; but I'm guessing that the Chinese are not all that much different than Americans, and they would probably borrow just as much and save just as little if they were offered the same choices. And in a way, the Chinese savings rate is also too low. Because of the one-child policy in China, they talk about the problem of four grand parents and two parents being supported by one child. Since China can't really afford a a higher birth rate, they are going to need a very expensive welfare system to support people who are too old to work.

Subject: Re: China's Saving and Trade Surplus From: Emma To: jimsum Date Posted: Tues, Jan 04, 2005 at 15:53:30 (EST) Email Address: Not Provided Message: Again, you make perfect sense though we are conjecturing. The Chinese saving rate is indeed far far higher than the American rate, even higher than the Japanese rate. Saving provides quite a nice cushion as a family ages.

Subject: Household Saving Rates From: Emma To: All Date Posted: Mon, Jan 03, 2005 at 10:13:25 (EST) Email Address: Not Provided Message: Why do you think saving rates are so high among Chinese families? Why so much higher than among Mexican families? Would you guess the difference between China and Mexico is a function of family cohesiveness and sharing? I do not take national household saving rates as a reflection of the strength of a social safety net. There must be much much more. Why should Sweden or Norway or France or Japan have so high a rate but America so low a rate? But, most of all what of China? Japan and China are buying American mortgage debt, so they are helping mightily to keep our mortgage rates low.

Subject: Re: Household Saving Rates From: jimsum To: Emma Date Posted: Tues, Jan 04, 2005 at 15:22:19 (EST) Email Address: jim.summers@rogers.com Message: I think the answer to your question was on the Sopranos a while back. One of the characters claimed that Americans only thought good things will happen, while every one else in the world expects bad things to happen. Right now, I think Americans are convinced they can have their cake and eat it too. There is no reason to save or avoid debt because it will only get easier to earn money in the future. Why not take out a home equity loan? Obviously house prices will continue to rise, so why not spend it now and retire on the future gains? I think a savings rate of 10-15% is the correct one. If you just consider retirement, you probably have to save at least 10% of your income to build up the required nest egg, assuming reasonable rates of return and inflation. When something bad happens in America in the next few years -- a collapse in the dollar, increase in inflation and interest rates, a drop in housing prices, a stockmarket crash, or all of the above -- people will be burned by the financial risks they have been taking and start saving again. I'd give another reason that developing countries like China have large savings rates; their governments don't provide as many services. Chinese people typically have to pay for schooling and medical care. Any kind of visit to a doctor can cost a month's salary or more, and schooling costs a huge fraction of typical income. Since there is no insurance available, people have to provide their own insurance by saving.

Subject: Re: Household Saving Rates From: Emma To: jimsum Date Posted: Tues, Jan 04, 2005 at 17:30:24 (EST) Email Address: Not Provided Message: Though I am probably more optimistic about asset prices holding in the long run, I generally agree.

Subject: Re: Household Saving Rates From: Pete Weis To: Emma Date Posted: Mon, Jan 03, 2005 at 22:04:11 (EST) Email Address: Not Provided Message: The current account deficit is a result of the low US savings rate and the low US savings rate is a result of the current account deficit. You might ask - how can two separate entities each be the simultaneous result of the other? Our two generations of prosperity has gotten us very used to an increasingly extravagant lifestyle - we now expect to have three car garages where only a generation or two ago we were happy with a one car garage; a 2000 sq ft house was once a 'large' house. Now it must be 3000-4000 plus sq ft to qualify for 'large'. We have enjoyed, for two decades, relatively cheap energy. We 'live for today' and expect more from tomorrow and have become the most prolific consumers who have ever walked the face of the Earth. But at some moment between 20-30 years ago we began to earn as a nation less than we continued to spend and we refused to reign in our spending. We have become a nation of overhead while our manufacturing base has shrunk to only 11% of our economy. Much of the core (financial services, mortgage industry, etc.) of the rest of our economy consists of administering the growing debt which reaches a new record level almost on a monthly basis. As Paul Krugman writes in THE GREAT UNRAVELING - 'In 1980 chief executives at large companies, according to Business Week's estimates, earned 45 times as much as non-supervisory workers. By 1995, however, the ratio had risen to 160; by 1997, it had reached 305....and by 2000 they were paid 458 times as much as ordinary workers.' During this period and continuing as we post, the vast majority of consumers have controlled a significantly smaller and smaller percentage of this nation's aggregate wealth. To find the last time it got this lopsided, you have to go back to the early 30's. We're a nation of conditioned consumers who salivate like Pavlov's dogs everytime we pull that magic plastic from our wallets. The easy credit line has filled in for the lack of increasing wealth from increasing wages which should have come from a sharing of the bounty of the hightech boom.

Subject: Social Security is Sound From: Terri To: Emma Date Posted: Mon, Jan 03, 2005 at 11:30:50 (EST) Email Address: Not Provided Message: Also, I am more than tired of hearing Social Security described as a limit to household saving. As though the more insecure we are the more we will save, so finish with all social benefits programs. Sweden, Norway, France, Japan, have no saving problem. The conservative plan is to finish the New Deal legacy. There is absolutely no Social Security crisis, but the plans to finish with the program. Phooey.

Subject: Hedge Funds Gain Ground From: Emma To: All Date Posted: Mon, Jan 03, 2005 at 09:24:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/03/business/x03hedge.html?ex=1105757671&ei=1&en=92b1611e3926b48a From Simple to Complex, Hedge Funds Gain Ground By KEVIN MALER MINNEAPOLIS THE founders of Powerplay Capital Management - Charles T. Gholl, Dave Christian and Mike Ramsey - know something about pressure. Before Mr. Gholl found his niche in finance and investment management, he was a litigator who tried cases for insurance companies. Mr. Christian and Mr. Ramsey were members of the 1980 Olympic hockey team that upset the Russians to win the gold medal, and later both played in the National Hockey League. Reminders of that time - including a hockey stick signed by members of the 1980 Russian team and an arcade-style hockey game - add to the décor of their firm, which, not surprisingly, is named for a hockey play. Now the three partners are players in another high-pressure contest: they are the managers of a hedge fund, with offices in downtown Minneapolis. In style and location, Powerplay is far from the epicenter of the hedge fund explosion. Yet in many ways it typifies the industry: upscale investors have poured billions of dollars into privately managed funds that pursue a host of investment strategies, from the daringly simple to the exceedingly complex. 'We didn't want the constraints of a mutual fund,' said Mr. Gholl, who is the company's managing member. Unlike mutual funds, Powerplay tends to concentrate its investments in a handful of stocks. And also unlike mutual funds, Powerplay charges its clients a 'performance fee.' If the fund does well, the managers get a percentage of the profits. For hedge funds over all last year, performance was less than stellar. The Standard & Poor's Hedge Fund index showed a year-to-date return of 3.79 percent through Dec. 28 , less than half the gain in the S.& P. 500 of 8.99 percent last year. In 2003, the hedge fund index rose a healthy 11.12 percent, but the gain in the S.&P. 500 was more than double that, up 26.38 percent. But their popularity has been growing. Industry experts say hedge funds now manage nearly $1 trillion. All told, there are roughly 7,000 hedge funds operating in the United States, but the number is not precise because most hedge fund managers are not required to register with the Securities and Exchange Commission. That will change in February 2006. Last month, the S.E.C. published a final rule that will require nearly all hedge funds to register with the agency. The far-reaching decision will impose new costs on a free-wheeling segment of the investment world. The new regulations also signal the maturing of an industry that, in part because of registration, will be positioned to play a much bigger role in managing the assets of pensions and insurers. So what is a hedge fund? The question does not have a clear-cut answer. Hedge funds can use a variety of investment techniques to offset - or hedge against - different types of market risks. If a fund holds stocks that might suffer because of changes in the value of the dollar, for example, it can offset that risk with currency hedges. Or a fund can limit its risk by shorting stocks - selling borrowed shares on a bet that the price will fall and that it will then be able to buy cheaper shares to repay its loan. The difference between the sales price and the purchase price is the fund's profit.. The same investing techniques can be used to exaggerate, or leverage, risk in hopes of making outsized returns. Many firms chart a middle course. 'Generally speaking, they will mine inefficiencies in the market,' said Charles S. Crow III, a partner in the Princeton, N.J., law firm Crow & Associates, who has been working with hedge funds since the 1980's. For example, a firm might track the stock performance of two drug manufacturers; when one drifts above the historical ratio of the two, the firm would short the stock that drifted above the range and buy the one that is now, by past market performance, too low. Most firms use proprietary trading programs. All jealously guard their techniques. Powerplay's technique involves bold picks on a handful of stocks. At times, the fund may own only a single stock. 'If we have 10 stocks, we have too many,' Mr. Gholl said, declining to name the stocks or their sectors. Though its charter permits it, the fund has never shorted stocks. Hedge funds cater to high-net-worth investors or to institutions. For the most part, they serve investors with net assets greater than $1.5 million. They are exempt from federal rules barring incentive fees because of the net worth, and hence the sophistication, of their clients. Hedge funds tend to be privately managed and are unavailable to the typical retail investor. Mutual funds, by contrast, are available through brokers to virtually any retail client and are subject to federal regulations on the kinds of investments they can make - limits that hedge funds are generally not required to follow. A typical hedge fund has assets between $100 million and $500 million, Mr. Crow said. But, again, there is much variation. For example, Powerplay's assets are 'greater than $10 million and less than $25 million,' Mr. Gholl said. Its clients - including some former professional athletes - number 'under 50 and more than 20,' he said. Like nearly all hedge fund managers, Mr. Gholl is tightlipped about specifics, citing concerns about competition, client confidentiality and securities regulations. But he is not overly concerned about the new S.E.C. requirements. Like many others, his firm registered voluntarily long before the rule was even proposed. 'Anybody who's out there investing significant dollars should go through the appropriate licensing,' he said. And funds often register anyway because large institutional investors would not invest with unregistered hedge fund managers. Still, for decades, hedge fund managers who did not want to register with the S.E.C. could easily avoid doing so, because many of their clients were limited partnerships, and the S.E.C. counted each limited partnership as a single client. Under the new rule, hedge fund managers will be required to count each limited partner in a partnership, resulting in all but the smallest hedge fund managers having to register. Paul F. Roye, director of the division of investment management for the S.E.C., said the new rules were needed because of the hedge fund industry's increasing influence over the markets - and the increasing incidence of fraud. In the past five years, he said, the S.E.C. has identified 51 cases of fraud among hedge funds, resulting in losses to investors of more than $1.1 billion. Those cases include outright theft by managers, falsifying portfolios and 'portfolio pumping' - a practice of buying illiquid securities just before a closing period to drive the price up and earn higher fees, he said. The S.E.C. was also concerned about the entry of hedge funds into the mainstream. Some hedge funds have lowered their minimum required investment over the years, Mr. Roye said, and theoretically, at least, that could result in less affluent people putting money into inappropriate, highly speculative investments. To comply with the regulations, hedge fund managers will have to maintain books and records - and be prepared for surprise audits, said Michael G. Tannenbaum, a partner with the New York law firm Tannenbaum Helpern Syracuse & Hirschtritt and president of the Hedge Fund Association, a trade group. In addition, hedge fund managers must have a compliance officer. But registration should not radically change the way hedge funds do business, many in the industry said. Registration will mean that some basic information about hedge fund managers will be available to the public, but only investors will have access to detailed financial statements. Mr. Tannenbaum sees an advantage to registration: 'It opens up a tremendous opportunity for managers not previously registered to approach large institutions, pensions, endowments and unions - all of which were loath to give money to unregistered hedge funds.' Michael Litt, a partner with FrontPoint Partners, a hedge fund manager in Greenwich, Conn., said institutional investors had fundamentally changed their strategies to include hedge funds. He said his fund, whose investors are primarily institutions like pension funds and insurers, had raised $4.3 billion in 36 months. But do modest returns for hedge funds last year mean that their popularity will wane among investors? Mr. Litt says no. 'One would think they are chasing returns. What is happening is more subtle than that,' he said. The lesson of the bear market, he said, was that institutional investors did not have adequate diversity simply by holding different classes of stocks - now they are looking to achieve returns that do not have a strong correlation to the S.& P. 500. Despite their recent popularity, though, Mr. Gholl of Powerplay suspects that some of the new hedge funds will end up closing their doors. 'Things go into fashion and go out of fashion,' he said. 'But funds that are able to deliver a rate of return will always have a market. Others will fall by the wayside.'

Subject: China : Exporting a Villages's Daughters From: Emma To: All Date Posted: Mon, Jan 03, 2005 at 09:17:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/03/international/asia/03china.html?ex=1105761392&ei=1&en=b2f3ba2d309e53b3 A Village Grows Rich Off Its Main Export: Its Daughters By HOWARD W. FRENCH LANGLE, China - There are two kinds of families in this village: the relatively rich, who live in tiled villas with air-conditioning, and those who still hunt in the wooded hills with bow and arrow and send their sons off to become Buddhist monks when there are too many mouths to feed. Such distinctions once lay in questions like who tills their paddies by hand under the broad, open skies in this rice-growing region of southwestern China, and who owns a water buffalo to perform the backbreaking work. But more and more these days, relative prosperity is tied to which families have daughters, many of whom go to Thailand and Malaysia to work in brothels. 'If you don't go to Thailand and you are a young woman here, what can you do,' said Ye Xiang, 20, whose features still had the pudgy look of a teenager's. 'You plant and you harvest. But in Thailand and Malaysia, I heard it was pretty easy to earn money, so I went.' At least 20 other young women from this tiny hamlet, which clings to a hillside just off a side road near the Mekong River, have headed off to foreign lands to work in the sex trade. 'All of the girls would like to go, but some have to take care of their parents,' Ms. Ye said. In this regard, there is nothing peculiar about Langle, at least nothing peculiar for this part of Yunnan Province, whose women are favorites in the brothel industry from Thailand - whose national language is related to their own dialect - to Singapore. Experts say that in some local villages a majority of women in their 20's work in this trade, leaving almost no family untouched and the young men without mates. Not long ago, many of the recruits were kidnapped to become modern-day sex slaves, but these days the trade has become largely voluntary. Ms. Ye told her story a bit haltingly, but without evident shame. Indeed, her father, a poor farmer, greeted visitors with glasses of hot water, in lieu of tea, and listened, along with a toothless aunt, as she spoke above the tinny noise of a cheap radio in their sparsely furnished one-room shack with a bare cement floor. She told of her sacrifices - from hiding in the baggage compartment of a bus to evade immigration police officers to the groping she endured in bars, where she lived not from a salary but from patrons' 'tips,' the sex with strangers and the fear of AIDS. But what underpinned it all were dreams: of marriage to a Chinese living abroad, or of at least putting away enough money to be able to return home in triumph. Ms. Ye's first two years in Thailand did not yield the success she had hoped for. She earned only enough to eat and buy clothes, not leaving enough to help out her parents. But she was not discouraged, and neither were they. There had been a suitor, and she was eagerly preparing to go back. 'There's a guy in Malaysia, and he calls me every day,' she announced proudly, showing off the cellular phone he had bought her. That dreams like those have come true in the past, however naïve they may sound, is beyond dispute. This region is strewn with muddy villages crowded with tumbledown shacks, where a gleaming villa with gaudy gold-and-green gates and satellite dish emerges suddenly from the undifferentiated mass. In some villages, indeed, the migrants' successes have been numerous enough to transform the hamlet itself, sprouting dazzling pockets of affluence that bear comparison with a Shanghai suburb. In most regions of China, male children are highly prized, but the affluence suggests that here it is the daughters who literally bring good fortune. 'These girls are motivated by their families and by their neighbors for one basic reason, because they are really poor,' said a Beijing-based sociologist who has studied the migrant sex trade in Yunnan. 'The women come home and build big cement homes, and this is like an advertisement to others: this is an easy way to make money. Everyone knows what these women are doing in Thailand, but no one calls it prostitution, even local officials, who talk only of girls 'working outside.' ' The sociologist, who asked not to be identified because the subject was so sensitive, said disease was rampant among women who worked in the sex trade, a situation aggravated by the denial of public health care to illegal foreign workers in Thailand. Despite that, the researcher said, no special efforts have been made to prevent the spread of AIDS in Yunnan by women returning from working in the sex trade in Thailand. In Mengbin, a small village of the Dai minority of Thai ethnicity, reached after several hours' drive, the sex trade has completely transformed local life, starting with the sumptuous villas that have become the rule rather than the exception. The practice of using beauty and sex to secure a livelihood has even worked its way into the home designs, with tiles depicting willowy, long-haired maidens interspersed here and there on the external walls and gates. One rich matron, Dao Xiaoshan, proudly invited a visitor into her chateau-like home, with lace-covered couches, four chandeliers, a large, golden Buddhist altar and twin home-entertainment centers. The secret of this bounty, she said, lay in her husband's ownership of a coal mine. Others might conclude her luck was in having two daughters, 23 and 21 and beautiful, featured in large, formal photographic portraits she had on display, including one showing a daughter dressed up in the gilt and violet regalia of a Thai princess. 'They have been able to work outside, but I've never asked them what they do,' said Ms. Dao, who is in her 50's. Lately, she said, one daughter had found happiness with a rich Singaporean, the other with a wealthy Malaysian. What about the young men here? 'Dai boys can't marry Dai girls, because they all leave, and the ones who come back don't like the local boys anymore,' Ms. Dao said, chuckling. 'Dai girls are beautiful, and they are very popular, but not all of them bring home money. Some of them don't know how to do anything but spend money and have a good time.'

Subject: A Cautious Bull From: Terri To: All Date Posted: Mon, Jan 03, 2005 at 08:02:52 (EST) Email Address: Not Provided Message: The bull market in stocks these last 2 years was deep and extremely broad. My experience has been that January sets a nice pattern for the year, and I try to pay closest attention through the month to determine whether to make changes in my portfolio. Right now I am carefully watching health care. I have always found it useful to add health care or large drug company shares when the sector is sluggish or weak. I am still a cautious bull. Call it what you will, but paying attention to investment and sharing ideas has been terrific for years.

Subject: A Cautious Bull As Well From: Jennifer To: Terri Date Posted: Mon, Jan 03, 2005 at 09:04:36 (EST) Email Address: Not Provided Message: Vanguard Health Care and Energy are managed, and superbly managed for more than 20 years. The Morgan Stanley Health Care and Energy Indexes are exchange traded funds and can be bought through Vanguard brokerage, as can Morgan Stanley individual country indexes. Thinking about investing is wonderfully interesting, and has been as productive for years, so why not happily continue? And, I have all the statistics to play with all the risk reward formulas but I find paying attention to the investing world and thinking works all sorts of wonders.

Subject: Investing Not Speculating From: Jennifer To: All Date Posted: Sun, Jan 02, 2005 at 09:48:44 (EST) Email Address: Not Provided Message: Investing and speculating are different. The Vanuard S&P is up 12% a year these last 10 years. Europe Index is up over 10.5% a year for 10 years. Long Term Bond Index is up over 9.5%. There is a global bull market in stocks these last 2 years that has been wonderful. Through worry after worry, the stock market has been splendid these last 2 years, and long term bond funds have continued a bull run. Waiting for the end of the world to invest makes no sense. With a mix of stock and bond indexes we would have been fine even if we had begun investing just as the bear market began in 2000. The dollar goes up and the dollar goes down. So what? There was Vanguard Health Care and Energy and REIT Index. There was Value Index and Mid Cap Index and Small Cap Value Index. We can move some money to Europe Index or International Value if the dollar looks to weaken, but the need is to invest broadly. Looking for a speculation, as though we are smarter than other speculators, will likely result in a poor poor portfolio.

Subject: Re: Investing Not Speculating From: Institutional Investor To: Jennifer Date Posted: Sun, Jan 02, 2005 at 16:48:38 (EST) Email Address: Not Provided Message: 'Looking for a speculation, as though we are smarter than other speculators, will likely result in a poor poor portfolio' isn't that what you are doing jennifer. You keep posting about changing your asset allocation on a weekly basis depending on how you see the economy. You are basically a)forecasting the future of the economy and b)forecasting how the market will react to this economic news. Getting one right is hard, getting them both correct is even more difficult. 'There was Vanguard Health Care and Energy and REIT Index' fyi, not sure if you realize it, but the health care product and energy fund are actively managed, they are not index funds. With that said, i'm surprised this board only discusses vanguard products, I would think people would want to explore other products offered in the market.

Subject: Re: Investing Not Speculating From: Jennifer To: Institutional Investor Date Posted: Mon, Jan 03, 2005 at 09:07:46 (EST) Email Address: Not Provided Message: Thanks for all the advice, and I do know Vanguard awfully well and love the company. But, I am always trying to learn :)

Subject: Re: Investing Not Speculating From: Ari To: Institutional Investor Date Posted: Sun, Jan 02, 2005 at 18:46:02 (EST) Email Address: Not Provided Message: Waiting for your suggested investing ideas Institutional Investor. The ideas we have had so far have been excellent.

Subject: Re: Investing Not Speculating From: Institutional Investor To: Ari Date Posted: Sun, Jan 02, 2005 at 19:37:39 (EST) Email Address: Not Provided Message: I've given my ideas in the past, they don't from week to week. Personally I think switching your asset allocation from month to month, year to year is a terrible idea unless something significant has occurred to you (ie a disease, a new job that doubles your salary, a new child in the family, etc). For the most part it adds volatility and unneccessary risk to your portfolio. I would expect a portfolio like that would have an extremely low sharpe ratio over the long term. For people concerned about their portfolio, I would recommend doing the equivalent of an asset allocation study (combining MVO, MPT, and Monte Carlo Simulation). Once your allocation is determined, maintain that asset allocation and rebalance when necessary (ie when asset classes get /-5% their target). Trying to guess what asset classes are going to be in favor historically has not been a sucessful strategy. In the past I've posted quotes from some of the most successful investors such as Warren Buffet, Peter Lynch, John Bogle, etc; saying you should not predict when/which stocks will be in favor. I've yet to come across any convincing research strongly supporting a 'timing' philosophy that many people seem to be following (yet not even realizing it)

Subject: Re: Investing Not Speculating From: Ari To: Institutional Investor Date Posted: Mon, Jan 03, 2005 at 10:28:24 (EST) Email Address: Not Provided Message: Well, I own index shares and Berkshire Hathaway A&B shares but I still keep an active portfolio and have gained useful ideas from this fine board and Paul Krugman. So, the more specific ideas the better.

Subject: Re: Investments: Korea and REITs From: Dorian To: All Date Posted: Sun, Jan 02, 2005 at 04:44:37 (EST) Email Address: Not Provided Message: Thanks for all the thoughts and suggestions re/ my question. But I think I should clarify where I am coming from. I haven't (though I should have been) an invester in the past. But in the recent years the continual growth of our current accounts deficit coupled with my scepticism that it will ever be dealt with (that is, until circumstances force our hand in very uncomfortable ways) has led me to conclude that the dollar will be headed towards decline. Well before 9/11, but after the initial Bush tax cuts my concern rose considerably and I explored for a time hedging against collar depreciation with foreign currencies. But not knowing a lot about investment and uncertain about how to translate my essentially political understanding into investment terms I did nothing. Since then we all know what has happened to the dollar. And I still, in the mid-term and perhaps long term cannot see how the dollar can go anywhere but down. In fact, that seems to be the consensus at this point, and especially amongst those economists and investment authorities I most respect. And this consensus makes sense to me in terms of what I anticipate politicially. Apart from the dollar itself, as someone else on this forum has observed, there is hardly any asset class which is starved for investment dollars; practically all investments are at historically high prices (leaving aside goverment bonds). Consequently I am not anticipating large gains in the stock marker or in real estate, the two principal investments which would otherwise interest me. But hedging against a falling US dollar has begun to look to me a rather difficult enterprise. Foreign stocks might help, but as someone at Vanguard pointed out to me, their mutual funds of foreign stocks have not done well over the past decade or so. They have appreciated considerably this year, but largely due to currency effects. And a fund purely dedicated to protecting reliably against declines of the dollar are non-existant as far as I've been able to make out. Regarding newsletters: yes, I know; they are unreliable. I don't trust any of them implicitely but some I think must have some useful general information. All in all, a confusing investment picture at the moment. And in the meantime, I would put my money on a dollar decline next year. If I could that is.... When Bush proposes privatising Social Security in his State of the Union message I'll bet the dollar takes a dive on the spot.... Dorian

Subject: Investments From: Ari To: Dorian Date Posted: Mon, Jan 03, 2005 at 18:58:24 (EST) Email Address: Not Provided Message: 'Foreign stocks might help, but as someone at Vanguard pointed out to me, their mutual funds of foreign stocks have not done well over the past decade or so.' The Pacific region has been held back by Japan since 1990, and emerging markets have fared poorly since 1964, but Europe has been fine. Every region did well these last 2 years. Also, you could have bought an index of a developed country that is a raw materials exporter such as Canada, Australia or Norway.

Subject: Re: Investments From: Dorian To: Ari Date Posted: Tues, Jan 04, 2005 at 07:23:39 (EST) Email Address: Not Provided Message: 'Also, you could have bought an index of a developed country that is a raw materials exporter such as Canada, Australia or Norway.' This is an interesting idea and in accord with my general concerns. Are P/E ratios as high for foreign companies as they are in the US? My concern here is that stocks are simply too pricy. It may well be that this is the case everywhere. Dorian

Subject: Re: Investments From: Ari To: Dorian Date Posted: Tues, Jan 04, 2005 at 10:25:08 (EST) Email Address: Not Provided Message: Prices earning ratios in Europe, Canada and Australia are lower than for the S&P though earnings growth has been comparable. But there are less expensive and more expensive sectors in America as well. Try to be more basic and less fancy.

Subject: Re: Investments: Korea and REITs From: Jennifer To: Dorian Date Posted: Sun, Jan 02, 2005 at 10:24:45 (EST) Email Address: Not Provided Message: Speculation and betting are not investing. Why miss a wonderful bull market on a bet that is for professional speculators?

Subject: The Ends of the World From: Emma To: All Date Posted: Sat, Jan 01, 2005 at 19:31:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/01/opinion/01diamond.html?ex=1105623826&ei=1&en=7a2db42ac5a2101f January 1, 2005 The Ends of the World as We Know Them By JARED DIAMOND Los Angeles — NEW Year's weekend traditionally is a time for us to reflect, and to make resolutions based on our reflections. In this fresh year, with the United States seemingly at the height of its power and at the start of a new presidential term, Americans are increasingly concerned and divided about where we are going. How long can America remain ascendant? Where will we stand 10 years from now, or even next year? Such questions seem especially appropriate this year. History warns us that when once-powerful societies collapse, they tend to do so quickly and unexpectedly. That shouldn't come as much of a surprise: peak power usually means peak population, peak needs, and hence peak vulnerability. What can be learned from history that could help us avoid joining the ranks of those who declined swiftly? We must expect the answers to be complex, because historical reality is complex: while some societies did indeed collapse spectacularly, others have managed to thrive for thousands of years without major reversal. When it comes to historical collapses, five groups of interacting factors have been especially important: the damage that people have inflicted on their environment; climate change; enemies; changes in friendly trading partners; and the society's political, economic and social responses to these shifts. That's not to say that all five causes play a role in every case. Instead, think of this as a useful checklist of factors that should be examined, but whose relative importance varies from case to case. For instance, in the collapse of the Polynesian society on Easter Island three centuries ago, environmental problems were dominant, and climate change, enemies and trade were insignificant; however, the latter three factors played big roles in the disappearance of the medieval Norse colonies on Greenland. Let's consider two examples of declines stemming from different mixes of causes: the falls of classic Maya civilization and of Polynesian settlements on the Pitcairn Islands. Maya Native Americans of the Yucatan Peninsula and adjacent parts of Central America developed the New World's most advanced civilization before Columbus. They were innovators in writing, astronomy, architecture and art. From local origins around 2,500 years ago, Maya societies rose especially after the year A.D. 250, reaching peaks of population and sophistication in the late 8th century. Thereafter, societies in the most densely populated areas of the southern Yucatan underwent a steep political and cultural collapse: between 760 and 910, kings were overthrown, large areas were abandoned, and at least 90 percent of the population disappeared, leaving cities to become overgrown by jungle. The last known date recorded on a Maya monument by their so-called Long Count calendar corresponds to the year 909. What happened? A major factor was environmental degradation by people: deforestation, soil erosion and water management problems, all of which resulted in less food. Those problems were exacerbated by droughts, which may have been partly caused by humans themselves through deforestation. Chronic warfare made matters worse, as more and more people fought over less and less land and resources. Why weren't these problems obvious to the Maya kings, who could surely see their forests vanishing and their hills becoming eroded? Part of the reason was that the kings were able to insulate themselves from problems afflicting the rest of society. By extracting wealth from commoners, they could remain well fed while everyone else was slowly starving. What's more, the kings were preoccupied with their own power struggles. They had to concentrate on fighting one another and keeping up their images through ostentatious displays of wealth. By insulating themselves in the short run from the problems of society, the elite merely bought themselves the privilege of being among the last to starve. Whereas Maya societies were undone by problems of their own making, Polynesian societies on Pitcairn and Henderson Islands in the tropical Pacific Ocean were undone largely by other people's mistakes. Pitcairn, the uninhabited island settled in 1790 by the H.M.S. Bounty mutineers, had actually been populated by Polynesians 800 years earlier. That society, which left behind temple platforms, stone and shell tools and huge garbage piles of fish and bird and turtle bones as evidence of its existence, survived for several centuries and then vanished. Why? In many respects, Pitcairn and Henderson are tropical paradises, rich in some food sources and essential raw materials. Pitcairn is home to Southeast Polynesia's largest quarry of stone suited for making adzes, while Henderson has the region's largest breeding seabird colony and its only nesting beach for sea turtles. Yet the islanders depended on imports from Mangareva Island, hundreds of miles away, for canoes, crops, livestock and oyster shells for making tools. Unfortunately for the inhabitants of Pitcairn and Henderson, their Mangarevan trading partner collapsed for reasons similar to those underlying the Maya decline: deforestation, erosion and warfare. Deprived of essential imports in a Polynesian equivalent of the 1973 oil crisis, the Pitcairn and Henderson societies declined until everybody had died or fled. The Maya and the Henderson and Pitcairn Islanders are not alone, of course. Over the centuries, many other societies have declined, collapsed or died out. Famous victims include the Anasazi in the American Southwest, who abandoned their cities in the 12th century because of environmental problems and climate change, and the Greenland Norse, who disappeared in the 15th century because of all five interacting factors on the checklist. There were also the ancient Fertile Crescent societies, the Khmer at Angkor Wat, the Moche society of Peru - the list goes on. But before we let ourselves get depressed, we should also remember that there is another long list of cultures that have managed to prosper for lengthy periods of time. Societies in Japan, Tonga, Tikopia, the New Guinea Highlands and Central and Northwest Europe, for example, have all found ways to sustain themselves. What separates the lost cultures from those that survived? Why did the Maya fail and the shogun succeed? Half of the answer involves environmental differences: geography deals worse cards to some societies than to others. Many of the societies that collapsed had the misfortune to occupy dry, cold or otherwise fragile environments, while many of the long-term survivors enjoyed more robust and fertile surroundings. But it's not the case that a congenial environment guarantees success: some societies (like the Maya) managed to ruin lush environments, while other societies - like the Incas, the Inuit, Icelanders and desert Australian Aborigines - have managed to carry on in some of the earth's most daunting environments. The other half of the answer involves differences in a society's responses to problems. Ninth-century New Guinea Highland villagers, 16th-century German landowners, and the Tokugawa shoguns of 17th-century Japan all recognized the deforestation spreading around them and solved the problem, either by developing scientific reforestation (Japan and Germany) or by transplanting tree seedlings (New Guinea). Conversely, the Maya, Mangarevans and Easter Islanders failed to address their forestry problems and so collapsed. Consider Japan. In the 1600's, the country faced its own crisis of deforestation, paradoxically brought on by the peace and prosperity following the Tokugawa shoguns' military triumph that ended 150 years of civil war. The subsequent explosion of Japan's population and economy set off rampant logging for construction of palaces and cities, and for fuel and fertilizer. The shoguns responded with both negative and positive measures. They reduced wood consumption by turning to light-timbered construction, to fuel-efficient stoves and heaters, and to coal as a source of energy. At the same time, they increased wood production by developing and carefully managing plantation forests. Both the shoguns and the Japanese peasants took a long-term view: the former expected to pass on their power to their children, and the latter expected to pass on their land. In addition, Japan's isolation at the time made it obvious that the country would have to depend on its own resources and couldn't meet its needs by pillaging other countries. Today, despite having the highest human population density of any large developed country, Japan is more than 70 percent forested. There is a similar story from Iceland. When the island was first settled by the Norse around 870, its light volcanic soils presented colonists with unfamiliar challenges. They proceeded to cut down trees and stock sheep as if they were still in Norway, with its robust soils. Significant erosion ensued, carrying half of Iceland's topsoil into the ocean within a century or two. Icelanders became the poorest people in Europe. But they gradually learned from their mistakes, over time instituting stocking limits on sheep and other strict controls, and establishing an entire government department charged with landscape management. Today, Iceland boasts the sixth-highest per-capita income in the world. What lessons can we draw from history? The most straightforward: take environmental problems seriously. They destroyed societies in the past, and they are even more likely to do so now. If 6,000 Polynesians with stone tools were able to destroy Mangareva Island, consider what six billion people with metal tools and bulldozers are doing today. Moreover, while the Maya collapse affected just a few neighboring societies in Central America, globalization now means that any society's problems have the potential to affect anyone else. Just think how crises in Somalia, Afghanistan and Iraq have shaped the United States today. Other lessons involve failures of group decision-making. There are many reasons why past societies made bad decisions, and thereby failed to solve or even to perceive the problems that would eventually destroy them. One reason involves conflicts of interest, whereby one group within a society (for instance, the pig farmers who caused the worst erosion in medieval Greenland and Iceland) can profit by engaging in practices that damage the rest of society. Another is the pursuit of short-term gains at the expense of long-term survival, as when fishermen overfish the stocks on which their livelihoods ultimately depend. History also teaches us two deeper lessons about what separates successful societies from those heading toward failure. A society contains a built-in blueprint for failure if the elite insulates itself from the consequences of its actions. That's why Maya kings, Norse Greenlanders and Easter Island chiefs made choices that eventually undermined their societies. They themselves did not begin to feel deprived until they had irreversibly destroyed their landscape. Could this happen in the United States? It's a thought that often occurs to me here in Los Angeles, when I drive by gated communities, guarded by private security patrols, and filled with people who drink bottled water, depend on private pensions, and send their children to private schools. By doing these things, they lose the motivation to support the police force, the municipal water supply, Social Security and public schools. If conditions deteriorate too much for poorer people, gates will not keep the rioters out. Rioters eventually burned the palaces of Maya kings and tore down the statues of Easter Island chiefs; they have also already threatened wealthy districts in Los Angeles twice in recent decades. In contrast, the elite in 17th-century Japan, as in modern Scandinavia and the Netherlands, could not ignore or insulate themselves from broad societal problems. For instance, the Dutch upper class for hundreds of years has been unable to insulate itself from the Netherlands' water management problems for a simple reason: the rich live in the same drained lands below sea level as the poor. If the dikes and pumps keeping out the sea fail, the well-off Dutch know that they will drown along with everybody else, which is precisely what happened during the floods of 1953. The other deep lesson involves a willingness to re-examine long-held core values, when conditions change and those values no longer make sense. The medieval Greenland Norse lacked such a willingness: they continued to view themselves as transplanted Norwegian pastoralists, and to despise the Inuit as pagan hunters, even after Norway stopped sending trading ships and the climate had grown too cold for a pastoral existence. They died off as a result, leaving Greenland to the Inuit. On the other hand, the British in the 1950's faced up to the need for a painful reappraisal of their former status as rulers of a world empire set apart from Europe. They are now finding a different avenue to wealth and power, as part of a united Europe. In this New Year, we Americans have our own painful reappraisals to face. Historically, we viewed the United States as a land of unlimited plenty, and so we practiced unrestrained consumerism, but that's no longer viable in a world of finite resources. We can't continue to deplete our own resources as well as those of much of the rest of the world. Historically, oceans protected us from external threats; we stepped back from our isolationism only temporarily during the crises of two world wars. Now, technology and global interconnectedness have robbed us of our protection. In recent years, we have responded to foreign threats largely by seeking short-term military solutions at the last minute. But how long can we keep this up? Though we are the richest nation on earth, there's simply no way we can afford (or muster the troops) to intervene in the dozens of countries where emerging threats lurk - particularly when each intervention these days can cost more than $100 billion and require more than 100,000 troops. A genuine reappraisal would require us to recognize that it will be far less expensive and far more effective to address the underlying problems of public health, population and environment that ultimately cause threats to us to emerge in poor countries. In the past, we have regarded foreign aid as either charity or as buying support; now, it's an act of self-interest to preserve our own economy and protect American lives. Do we have cause for hope? Many of my friends are pessimistic when they contemplate the world's growing population and human demands colliding with shrinking resources. But I draw hope from the knowledge that humanity's biggest problems today are ones entirely of our own making. Asteroids hurtling at us beyond our control don't figure high on our list of imminent dangers. To save ourselves, we don't need new technology: we just need the political will to face up to our problems of population and the environment. I also draw hope from a unique advantage that we enjoy. Unlike any previous society in history, our global society today is the first with the opportunity to learn from the mistakes of societies remote from us in space and in time. When the Maya and Mangarevans were cutting down their trees, there were no historians or archaeologists, no newspapers or television, to warn them of the consequences of their actions. We, on the other hand, have a detailed chronicle of human successes and failures at our disposal. Will we choose to use it? Jared Diamond, who won the 1998 Pulitzer Prize in general nonfiction for 'Guns, Germs and Steel: The Fates of Human Societies,' is the author of the forthcoming 'Collapse: How Societies Choose or Fail to Succeed.'

Subject: Re: The Ends of the World From: Jennifer To: Emma Date Posted: Sun, Jan 02, 2005 at 09:51:56 (EST) Email Address: Not Provided Message: Wonderful article.

Subject: Happy New Year From: Jennifer To: All Date Posted: Sat, Jan 01, 2005 at 10:17:36 (EST) Email Address: Not Provided Message: Wishing all a happy New Year. Hoping we can continue to grow soundly.

Subject: Re: Happy New Year From: Puncho Villa To: Jennifer Date Posted: Sat, Jan 01, 2005 at 11:05:19 (EST) Email Address: nma@hotmail.com Message: ...and a happy (new!?) year

Subject: Re: Happy New Year From: Emma To: Puncho Villa Date Posted: Sat, Jan 01, 2005 at 17:20:33 (EST) Email Address: Not Provided Message: We are in need of a happy new year. Let us hope.

Subject: Re: Happy New Year From: Pancho Villa To: Emma Date Posted: Sat, Jan 01, 2005 at 19:21:29 (EST) Email Address: nma@hotmail.com Message: 'He (or she) who has health has hope; and he (or she) who has hope has everything.'

Subject: We Will have ope From: Jennifer To: Pancho Villa Date Posted: Sun, Jan 02, 2005 at 09:49:46 (EST) Email Address: Not Provided Message: We will have hope.

Subject: We Will Have Hope From: Jennifer To: Jennifer Date Posted: Sun, Jan 02, 2005 at 09:50:21 (EST) Email Address: Not Provided Message:

Subject: BONNE ANNÉE 2005 ! From: Yann To: Jennifer Date Posted: Mon, Jan 03, 2005 at 04:29:52 (EST) Email Address: Not Provided Message:

Subject: Re: BONNE ANNÉE 2005 ! From: Terri To: Yann Date Posted: Mon, Jan 03, 2005 at 07:48:29 (EST) Email Address: Not Provided Message: Happy New Year Everyone.

Subject: Re: BONNE ANNÉE 2005 ! From: Ari To: Terri Date Posted: Mon, Jan 03, 2005 at 18:47:23 (EST) Email Address: Not Provided Message: Happiness to all.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Dec 31, 2004 at 14:35:35 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/30/04 S&P is up 10.9% Growth Index is 7.4 Value Index is 15.4 Mid Cap Index is 20.3 Small Cap Index is 20.1 Small Cap Value is 23.6 Europe Index is 21.1 Pacific Index is 18.1 Energy is 36.2 Health Care is 9.8 REIT Index is 31.0 High Yield Corporate Bond Fund is 8.5 Long Term Corporate Bond Fund is 8.2

Subject: REITs and Earnings From: Terri To: All Date Posted: Fri, Dec 31, 2004 at 10:13:04 (EST) Email Address: Not Provided Message: Actually the American REIT Index, taken back to the beginning of 1973, has been the best performing broad investment index, with the lowest degree of variability. Of course, the Morgan Stanley REIT Index was not available as a readily useable investment vehicle until a few years ago so the back extrapolations are a bit tricky. What is interesting about the REIT Index now, is that earnings growth for REITs has been negative for about 4 years. REITs are gaining in price as real estate prices rise, and not as rents or earnings of REITs from operations rise. Curious. What are we to make of this?

Subject: Price Earning Ratios From: Terri To: Terri Date Posted: Fri, Dec 31, 2004 at 10:23:17 (EST) Email Address: Not Provided Message: Sound macro-economic management is critical if we are going to count on the current S&P p/e ratios as a norm. Can we even expand the ratios? Why should a p/e ratio of 15 be more sound than 20 or 25? Is the critical factor simply low volatility? The p/e ratio was at 10 or below for about 8 years between 1975 and 1983. Before the short lived 1987 crash, the p/e ratio had risen to about 18.

Subject: China's Haves and Have Nots From: Emma To: All Date Posted: Fri, Dec 31, 2004 at 09:02:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/31/international/asia/31china.html?ex=1105497402&ei=1&en=3efeed330159c316 THE GREAT DIVIDE | TALKING BACK TO POWER China's 'Haves' Stir the 'Have Nots' to Violence By JOSEPH KAHN WANZHOU, China - The encounter, at first, seemed purely pedestrian. A man carrying a bag passed a husband and wife on a sidewalk. The man's bag brushed the woman's pants leg, leaving a trace of mud. Words were exchanged. A scuffle ensued. Easily forgettable, except that one of the men, Yu Jikui, was a lowly porter. The other, Hu Quanzong, boasted that he was a ranking government official. Mr. Hu beat Mr. Yu using the porter's own carrying stick, then threatened to have him killed. For Wanzhou, a Yangtze River port city, the script was incendiary. Onlookers spread word that a senior official had abused a helpless porter. By nightfall, tens of thousands of people had swarmed Wanzhou's central square, where they tipped over government vehicles, pummeled policemen and set fire to city hall. Minor street quarrel provokes mass riot. The Communist Party, obsessed with enforcing social stability, has few worse fears. Yet the Wanzhou uprising, which occurred on Oct. 18, is one of nearly a dozen such incidents in the past three months, many touched off by government corruption, police abuse and the inequality of the riches accruing to the powerful and well connected. 'People can see how corrupt the government is while they barely have enough to eat,' said Mr. Yu, reflecting on the uprising that made him an instant proletarian hero - and later forced him into seclusion. 'Our society has a short fuse, just waiting for a spark.' Though it is experiencing one of the most spectacular economic expansions in history, China is having more trouble maintaining social order than at any time since the Tiananmen Square democracy movement in 1989. Police statistics show the number of public protests reached nearly 60,000 in 2003, an increase of nearly 15 percent from 2002 and eight times the number a decade ago. Martial law and paramilitary troops are commonly needed to restore order when the police lose control. China does not have a Polish-style Solidarity labor movement. Protests may be so numerous in part because they are small, local expressions of discontent over layoffs, land seizures, use of natural resources, ethnic tensions, misspent state funds, forced immigration, unpaid wages or police killings. Yet several mass protests, like the one in Wanzhou, show how people with different causes can seize an opportunity to press their grievances together. The police recently arrested several advocates of peasant rights suspected of helping to coordinate protest activities nationally. Those are worrying signs for the one-party state, reflexively wary of even the hint of organized opposition. Wang Jian, a researcher at the Communist Party's training academy in Changchun, in northeast China, said the number and scale of protests had been rising because of 'frictions and even violent conflicts between different interest groups' in China's quasi market economy. 'These mass incidents have seriously harmed the country's social order and weakened government authority, with destructive consequences domestically and abroad,' Mr. Wang wrote in a recent study. China's top leaders said after their annual planning session in September that the 'life and death of the party' rests on 'improving governance,' which they define as making party officials less corrupt and more responsive to public concerns. But the only accessible outlet for farmers and workers to complain is the network of petition and appeals offices, a legacy of imperial rule. A new survey by Yu Jianrong, a leading sociologist at the Chinese Academy of Social Sciences in Beijing, found that petitions to the central government had increased 46 percent in 2003 from the year before, but that only two-hundredths of 1 percent of those who used the system said it worked. Last month, as many as 100,000 farmers in Sichuan Province, frustrated by months of fruitless appeals against a dam project that claimed their land, took matters into their own hands. They seized Hanyuan County government offices and barred work on the dam site for days. It took 10,000 paramilitary troops to quell the unrest. Also in November, in Wanrong County, Shanxi Province, in central China, two policemen were killed when enraged construction workers attacked a police station after a traffic dispute. Days later, in Guangdong Province, in the far south, riots erupted and a toll booth was burned down after a woman claimed she had been overcharged to use a bridge. In mid-December, a village filled with migrant workers in Guangdong erupted into a frenzy of violence after the police caught a 15-year-old migrant stealing a bicycle and beat him to death. Up to 50,000 migrants rioted there, Hong Kong newspapers reported. Wanzhou officials initially treated their riot in October as a fluke. They ordered Mr. Hu to declare on television that he is a fruit vendor, not a public official, and that his confrontation with Mr. Yu was a mistake. The police arrested a dozen people and declared social order restored. But the uprising alarmed Beijing, which told local officials they would be sacked if they failed to prevent recurrences, according to Chinese journalists briefed on the matter. Luo Gan, the member of the Politburo Standing Committee who is in charge of law and order, issued national guidelines warning that 'sudden mass incidents' were increasing and calling for tighter police measures. More than a dozen people interviewed in Wanzhou, part of Chongqing Municipality, described the city as tense. All said that they still believed that Mr. Hu was indeed an official and that the government concocted a cover story to calm things down. They say the anger excited by the riot awaits only a new affront.

Subject: China's Haves and Have Nots - 2 From: Emma To: Emma Date Posted: Fri, Dec 31, 2004 at 09:04:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/31/international/asia/31china.html?ex=1105497402&ei=1&en=3efeed330159c316 The Chance Encounter Like many farmers in the steeply graded hills along the Yangtze, Mr. Yu, 57, supplements his income hauling loads up and down city roads - grain, fertilizer, air conditioners, anything that he can balance on a bamboo pole and hoist on his slender shoulder. Sweaty and dirty, porters put their low-paying profession on parade. They are often referred to simply as bian dan, or pole men. Mr. Yu's lot is better than some others. He has another sideline collecting hair cuttings off the floors of beauty salons and barber shops, packing them in big burlap bags and selling them to wig-makers down south. On Oct. 18, he spent several hours collecting hair from upscale salons along Baiyan Road, a busy shopping street that runs near the government square downtown. His load was light - two bags of loose locks - and he scurried down the sidewalk to lunch. 'Hey, pole man, you got dirt all over my pants!' he heard a woman shout. When he turned to face her, the man by her side, Mr. Hu, was glaring at him. 'What are you looking at, bumpkin?' Mr. Yu recalls Mr. Hu saying. Mr. Yu is mild mannered, with a slightly raffish grin stained yellow from chain smoking. Mr. Hu, wearing a coat and tie and leather shoes, looked like he might be important. Mr. Yu said he should have let the moment pass. He did not. 'I work like this so that my daughter and son can dress better than I do, so don't look down on me,' he recalled saying. Then he added, 'I sell my strength just as a prostitute sells her body.' Mr. Yu said he was drawing a general comparison. Mr. Hu and his young wife, Zeng Qingrong, apparently thought he had insinuated something else. She jerked his shirt collar and slapped his ear. Mr. Hu picked up Mr. Yu's fallen pole and struck him in the legs and back repeatedly. Perhaps for the benefit of the crowd, Mr. Hu shouted that it was Mr. Yu, sprawled on the pavement, who was in big trouble. 'I'm a public official,' Mr. Hu said, according to Mr. Yu and other eyewitnesses. 'If this guy causes me more problems, I'll pay 20,000 kuai' - about $2,500 - 'and have him knocked off.' Those words never appeared in the state-controlled media. But is difficult to find anyone in Wanzhou today who has not heard some version of Mr. Hu's bluster: The putative official - he has been identified in the rumor mill as the deputy chief of the local land bureau - had boasted that he could have a porter killed for $2,500. It was a call to arms. Mr. Hu's threat, spread by mobile phones, text messages and the swelling crowd, encapsulated a thousand bitter grievances. 'I heard him say those exact words,' said Wen Jiabao, another porter who says he witnessed the confrontation. 'It proves that it's better to be rich than poor, but that being an official is even better than being rich.' Xiang Lin, a 18-year-old auto mechanic, had seen China's rising wealth when he worked near Shanghai. But when he returned home to Wanzhou, he felt frustrated that his plan to open a repair shop foundered. He was drawn downtown by the excitement. 'Don't officials realize that we would not have any economic development in Wanzhou without the porters?' Mr. Xiang asked. Cai Shizhong, a taxi driver, was angered when the authorities created a company to control taxi licenses, which he says cost him thousands of dollars but brought no benefits. The police also fine taxi drivers left and right, he said. 'If you drive a private car, they leave you alone because you might be important,' Mr. Cai said. 'If you drive a taxi, they find any excuse to take your money.' Peng Daosheng's home was flooded by the rising reservoir of the Three Gorges Dam. He was supposed to receive $4,000 in compensation as well as a new home. But his new apartment is smaller and less well located, and the cash never arrived. 'The officials take all the money for themselves,' said Mr. Peng, who spent eight hours protesting that night. 'I guess that's why that guy had $2,500 to kill someone.' It took the police more than four hours to remove Mr. Hu and Mr. Yu from the scene. The crowd surrounded police cars and refused to budge, afraid the police would cover up the beating, and even punish Mr. Yu. 'People knew the matter would never be resolved fairly behind closed doors,' Mr. Yu said. Even after the police formed a cordon around two cars - one for Mr. Hu and his wife, another for Mr. Yu - the crowd smashed the windows of the car carrying the couple. It was nearly 5 p.m. before the vehicles crawled through the assembled masses.

Subject: China's Haves and Have Nots - 3 From: Emma To: Emma Date Posted: Fri, Dec 31, 2004 at 09:05:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/31/international/asia/31china.html?ex=1105497402&ei=1&en=3efeed330159c316 A Loss of Control The police may have hoped that removing the main actors from the scene would defuse the tension. Instead, the crowd rampaged. At 6 p.m., a police van was surrounded and the policeman inside was beaten with bricks. Seven or eight people tipped the car over, stuffed toilet paper into the gas tank and set it ablaze, according to witnesses and a police report. When a fire truck arrived, the fire fighters were forced out and their truck commandeered. A driver smashed it into brick wall, then backed up and repeated the move to render the truck immobile. 'They lost control at once,' recalled Mr. Cai, the taxi driver, who wandered through the crowd that day. 'Suddenly the police were nobody and the people were in charge.' The local government never published an estimate of how many people took part in the protest. But unofficial estimates by Chinese journalists on the scene ranged from 30,000 to 70,000, enough to stop all traffic downtown and fill the government square. By 8 p.m., the rally focused on the 20-story headquarters of the Wanzhou District Government, with its blue-tinted windows and imposing terrace facing the square. The crowd chanted, 'Hand over the assassin!' Riot-police officers in full protective gear - but carrying no guns - held the terrace. Officials with loudspeakers urged the crowd to disperse, promising that the incident would be handed according to law. But the mob now followed its own law. An assembly line formed from a nearby construction site. Concrete building slabs were ferried along the line, then shattered with sledgehammers to make projectiles. Front-line rioters hurled the rocks at the police - tentatively at first, then in volleys. Under the barrage, the police retreated. Protesters charged the terrace, shattered the windows and doors of government headquarters and surged inside. Official documents were scattered. Protesters dumped computers and office furniture off the terrace. Soon, a raging fire illuminated the square with its flickering orange glow. Li Jian, 22, took part in the plunder. A young peasant, he had found a city job as a short-order cook. But he longed to study computers, said his father, Li Wanfa. The family bought an old computer keyboard so the young man could learn typing. 'He wanted to go to high school but the school said his cultural level was not high enough,' Mr. Li said. 'They said a country boy like him should be a cook.' The police arrested young Mr. Li scurrying through the melee with a Legend-brand computer that belonged to the government, according to an arrest notice. Yet even at the height of the incident, rioters set limits. They did not attack any of the restaurants or department stores along the government square, focusing their wrath on symbols of official power. By midnight, the crowd dwindled on its own. When paramilitary troops finally arrived on the scene after 3 a.m., there were only a few thousand hard-core protesters left. 'Most people went home,' said Mr. Peng, the man whose home had been flooded by the dam. 'But the armed police were fierce. They beat you even if you kneeled down before them.' The Tensions Persist The local government praised its own handling of the riot. An assessment published three days afterward in The Three Gorges City News, the daily paper of the Wanzhou Communist Party, also declared the uprising had no lasting ramifications. 'The district government displayed its strong governing ability at a crucial moment,' the report said. 'This incident was caused by a handful of agitators with ulterior motives who whipped up a street-side dispute into a mass riot.' The uprising did dissipate as quickly as it emerged. Baiyan Road now bustles with afternoon shoppers. After work, dancers bundled against the damp chill use government square as an outdoor ballroom, a synthesized two-step beat filling the night air. Yet the underlying tensions did not disappear. When the Wan Min Cotton Textile Factory declared bankruptcy in mid-December, scores of policemen occupied the factory grounds to prevent a riot. The next day, a handful of workers from the factor went to city hall to protest. Several hundred uniformed police surrounded them. Mr. Xiang, the auto mechanic, was arrested for throwing stones and taken into custody. One day, returning from the cold showers inmates were required to take in the unheated jail, guards told him to kneel. One elbowed him in the back and several others kicked him in the gut. As he lay prostrate, a prison supervisor said: 'Nothing happened to you here, did it? You're a smart kid.' He could not eat for two days. 'We were all brothers inside,' he said of his fellow detainees. 'The officials despise the ordinary people and are not afraid to bully them.' Then there's Mr. Yu. He missed the riot that occurred in his name, but has been under pressure ever since. The government kept him isolated in a hospital for nearly two weeks, even though bruises on his legs and the stitches he needed above his eye had healed. His daughter and son were told to take a vacation, paid by the government, to avoid contact with the news media. 'They told us not to talk or it would hurt the city,' Mr. Yu said in his first interview. Yet he said what really shook him was the reaction to the statement he made to Wanzhou television on Oct. 20, two days after the riot. The government told him to appear - he was still under guard - and had prepared questions in advance. 'They told me to emphasize the importance of law and order,' he said. 'I was told just to answer the questions and not to say anything else.' What he said on the evening news sounded innocuous enough. 'Let this be handled by law,' Mr. Yu told viewers. 'Everyone should stay at home.' So he was unprepared for the backlash. Relatives of those arrested criticized him for propagandizing for the government, saying their kin felt betrayed. Neighbors warned him not to plant rice this year because his enemies would just rip it out. His wife says she wants to move because she has heard too many threats. Mr. Yu is understandably confused. 'First an official tries to break my legs because I am a dirty porter,' he said. 'Now the common people want to break my legs because I spoke for the government.'

Subject: China's Tensions From: Emma To: Emma Date Posted: Fri, Dec 31, 2004 at 09:33:48 (EST) Email Address: Not Provided Message: My sense is that the rapidly developing but highly inequitable and tense domestic conditions in China are not being given enough attention. Only a highly secure Chinese leadership will further open financial markets to immediate international influence.

Subject: Investments: Korea and REITs From: Dorian To: All Date Posted: Thurs, Dec 30, 2004 at 19:48:22 (EST) Email Address: Not Provided Message: I read an article on Korea Telecom and how advanced Korea is in providing broadband to its citizens. Korean companies are also getting contracts in China and elsewhere to develop broadband services. Has anyone invested in Korean assets? I'm also curious about opinions on REITs as investments now. They have gained in value now for many years so I'm not sure whether they are already too expensive. Otherwise they seem like good investments. Dorian

Subject: Re: Investments: Korea and REITs From: David E... To: Dorian Date Posted: Thurs, Dec 30, 2004 at 20:39:40 (EST) Email Address: Not Provided Message: I bought a Korean fund with the ticker KF. It is a closed end fund. You can check it out a www.etfconnect.com. I bought it to fill a missing piece in my Emerging Market portfolio. I hope your anticipated purchase of korean funds is also a part of an integrated asset allocation plan. I am guessing and I hope that I am off base, but I am afraid that you are still reading investment newsletters. For your financial health I suggest you do the little bit of research I posted earlier this week. If you did, I would like to know. What do you think of the Couch Potato portfolio? Did the Coffee House Investor help? Have you worked on your asset allocation yet? How did your risk profile come out from IFA? I am hoping that you have done all of these things because they are the foundation of professional investing. Doing otherwise is bad for your financial health. Wishing you the best Cheers David

Subject: Re: Investments: Korea and REITs From: Emma To: David E... Date Posted: Fri, Dec 31, 2004 at 09:44:39 (EST) Email Address: Not Provided Message: David, your ideas are always carefully studied and helpful. I wonder however why you have such a broad portfolio that you would feel a need to add a Korean fund beyond an emerging market index. Besides, you could simply use the International Index at Vanguard and get Europe, the Pacific and emerging Markets. Do you find an advantage in using many different funds to create a global stock and bond portfolio? Do you find an advantage in managed funds over indexes, especially for international investing? Of course, I use the Europe Index and hold the country indexes for Sweden and Ireland.

Subject: Re: Investments: Korea and REITs From: David E... To: Emma Date Posted: Fri, Dec 31, 2004 at 13:01:03 (EST) Email Address: Not Provided Message: My first choice was to just use the value international fund. I liked that concept very much, but the value fund only has about about 150 companies to represent the world. So I went with the broad indexes to cover europe and the pacific. Then because leaving out Korea and China was too big a hole, I bought closed end funds to represent them. About being carefully studied, you can see I made my emerging market decisions based on intuition. I might fill in the missing pieces later. For instance, not having India covered might be a mistake. I hope I am mistaken, but Dorian should be careful. How can he buy korea now without knowing how much to buy? Or maybe it won't fit at all with the rest of what he needs. All of the pieces need to fit him like a suit. Measure twice buy once.

Subject: Re: Investments: Korea and REITs From: Emma To: David E... Date Posted: Fri, Dec 31, 2004 at 14:28:41 (EST) Email Address: Not Provided Message: We have been thinking in a similar vein. Though I wish we could buy the MSCI International Value Indexes, we must settle for the combined growth and value Europe and Pacific and emerging market indexes. Korea and China and Taiwan and India have been added to the Vanguard emerging market index only in the last 12 to 24 months. The world of markets does change.

Subject: Re: Investments: Korea and REITs From: Terri To: Dorian Date Posted: Thurs, Dec 30, 2004 at 19:59:26 (EST) Email Address: Not Provided Message: Interesting idea indeed. Korea is a proxy investment for China, along with Hong Kong and Taiwan and Singapore. We can look at the MSCI Korea Index as a possible long term invesment. REITs on the other hand have had an astonishing 5 year run and are most expensive unless there is really no limit to property price appreciation. REITs have been a terrific long term investment, but where we begin is important. Vanguard REIT Index is my choice in less pricey times.

Subject: John vs. Andrew From: Pancho Villa To: All Date Posted: Thurs, Dec 30, 2004 at 18:53:21 (EST) Email Address: nma@hotmail.com Message: http://online.wsj.com/public/article/0,,SB110432771634011946,00.html

Subject: Re: John vs. Andrew From: Terri To: Pancho Villa Date Posted: Fri, Dec 31, 2004 at 19:57:46 (EST) Email Address: Not Provided Message: Irons and Samwick. Fun.

Subject: SU to Sweden...? From: Pancho Villa To: All Date Posted: Thurs, Dec 30, 2004 at 02:47:49 (EST) Email Address: nma@hotmail.com Message: America’s Coming Social Democracy? by J. Bradford DeLong Most developed countries are social democracies: mixed economies with large governments performing a wide array of welfare and social insurance functions, with large chunks of wealth and commodity distribution removed from the market. The United States is different. Or is it? Whatever it has been in the past, the US in the future will have to choose whether, and how much, it will be a social democracy. Once upon a time, according to mythology at least, America had much upward but little downward mobility. Before the Civil War you could start out splitting rails, light out for the Western Territory, make a success of yourself on the frontier, and wind up as President – if you were named Abraham Lincoln. In the generation after World War II, you could secure a blue-collar unionized manufacturing job or climb to the top of a white collar bureaucracy that offered job security, relatively high salaries, and long, stable career ladders. This was always half myth. Setting out for the Western Territory was expensive. Covered wagons were not cheap. Even in the first post-WWII generation, only a minority of Americans – a largely white, male minority – found well-paying stable jobs at large, unionized, capital-intensive manufacturing companies like GM, GE, or AT&T. If this story was half myth, it was also half true, particularly after WWII, when economic risks were fairly low. The unemployment rate for married men during the 1960’s averaged 2.7%, and finding a new job was relatively simple. During this era – roughly from 1948 to 1973 – a majority of Americans first defined themselves as middle class. But the post-WWII era was probably an aberration. For decades, foreign competition exerted virtually no pressure on the economy, owing to the isolation of America’s continental market from the devastation of WWII. At the same time, the war left enormous pent-up demand for cars, washing machines, refrigerators, lawn mowers, television sets, and more. Government spending boosted the economy through huge military and R&D programs, and continued through massive public works program and suburbanization, underpinned by the Federal Highway Program and subsidized home ownership loans from the Federal Housing Administration. The regulatory institutions and behavioral norms that originated in the New Deal and developed during WWII came into full force: social security, a system of unionized labor relations, market regulation. Favorable macroeconomic circumstances, scant foreign competition, a system of government support and regulation, and large private provision of what in Europe would have been public social insurance benefits gave post-WWII America much of the benefits of social democracy without the costs. Corporate welfare capitalism substituted for what in Europe would have been government-provided social democracy. So there was little pressure for government-sponsored social democracy: Why bother? Now things are very different. The typical American employer is no longer General Motors. It is Wal-Mart. Private businesses provide their workers with less and less in the form of defined-benefit pensions, health insurance, and other forms of insurance against life’s economic risk. Moreover, a government that cannot balance its own finances cannot be relied on to provide macroeconomic stability. Indeed, former Chairman of the US Federal Reserve Paul Volcker sees the US as so vulnerable that there is 75% chance of a full-fledged dollar crisis over the next several years. The coming generation will be one of massive downward mobility for many Americans. The political struggles that this generates will determine whether America will move more closely to the social-democratic norm, or find some way to accept and rationalize its existence as a country of high economic risk and deep divisions of income and wealth.

Subject: Re: SU to Sweden...? From: Mike To: Pancho Villa Date Posted: Sat, Jan 01, 2005 at 04:24:01 (EST) Email Address: http://www.unlawflcombatnt.blogspot.com/ Message: It's important to understand America's uneven distribution of wealth. It is a requirement for capitalism. But in excess it is counterproductive. Though capitalism has been very successful, it can be hampered by its excesses. These excesses reduce the benefits. They can actually reduce the total wealth produced. An excessively uneven distribution of wealth is one of the drawbacks. The key word is 'excessively.' This applies to economic 'growth' as well as social and economic justice. The 'justice' issue is a more subjective concept. The economic issue is more objective, making it simpler to explain. In the economic realm, the degree of uneven wealth distribution is critical. Too little, as well as too much, can worsen the economy. There must be a balance to this 'unevenness.' Balance is necessary between the means of production and the means of consumption. In other words, there needs to be sufficient money to pay for the means of production, as well money for the means of consumption. (If balanced, consumption = production.) A shift in the balance in either direction hurts the economy. Uneven distribution of wealth is necessary to create capital. Some members of society must have enough money left over from consumption spending to invest in the means of production. This 'extra' money is necessary to pay for the components of production, such as factories, raw materials, and labor. More unevenness allows for more capital. However, the benefits of this uneven distribution disappear if it is too large. An excessively uneven distribution will actually reduce the growth of the economy, because it reduces the means of consumption. The means of consumption are also essential for a capitalistic society. Money also needs to be available to purchase the goods produced. Capitalists make money from the SALE of goods, not from the production. The value (or price) of the goods is determined by what the consumer will pay for the goods. The less spendable money consumers possess, the less the market value of the goods. If the aggregate spendable money of all consumers decreases, the aggregate market value of all goods decreases. Success of capitalistic society depends greatly on spendable consumer money. Too little consumer money decreases the aggregate value of all goods produced, regardless of the quantity of goods produced. When the aggregate money available to consumers decreases, there is no benefit to further 'capital' investment. There will not be further increase in wealth produced from that capital, because there won't be any increase in total dollar value of sales. Total market value of all goods produced decreases if money available to buy those goods decreases. More goods production will not increase the total dollar value. It will result in 0 increase in wealth. This describes the current U.S. economic situation. The Wall Street Journal states that the markets are 'glutted with capital.' Which means there is more capital available than necessary. Many investors are not investing this extra wealth in the 'means of production.' This seems reasonable, given the limited ability to increase sale of products. Much of this extra money, or capital, is put elsewhere. Savings is one such place. Savings money does little to help economic growth. It may facilitate investment loans somewhat, but there is little benefit to further investment. Again, the benefits to that investment are limited by consumer ability to buy the products of that investment. In our current situation, more 'progressive' tax policies and economic agenda will increase economic growth. A more progressive agenda would actually BENEFIT capitalism. Any policy that reduced the current uneven distribution would result in production of more wealth and increase overall prosperity. Reducing the current 'degree' of uneven wealth distribution would put more money in to consumer spending. It would increase demand for goods and services. It would increase the aggregate market value of all goods and services. It would benefit business, as well as consumers. It would increase the production and profits of corporations. It would increase the hiring and wages of workers. Thus, an initial increase in take home wages could initiate a self-perpetuating cycle of economic growth. This would return us to a more 'demand-side' economy. A return to more demand-side principles is not socialistic. It is not a move in the direction of socialism. It is a move towards capitalism. It would benefit capitalism, not hurt it. It is a move toward real economic growth, not fictitious economic growth. It would make our capitalistic economy thrive, instead of stagnate. Remember the adage: 'necessity is the mother of invention.' And so it is that 'demand is the mother of supply.' Demand will increase supply. But supply will not increase demand. If society demands round wheels for cars, someone will produce them. But if someone produces square wheels, no one will buy them. And no matter how many square wheels are produced, no money will ever be made from them. http://www.unlawflcombatnt.blogspot.com/ unlawflcombatnt: Economic Commentary www.unlawflcombatnt.blogspot.com/

Subject: Re: SU to Sweden...? From: Ari To: Mike Date Posted: Sat, Jan 01, 2005 at 18:42:14 (EST) Email Address: Not Provided Message: A tax increase cost the Democrats control of Congress for all the good it did for the economy. Oh well.

Subject: Re: SU to Sweden...? From: Terri To: Pancho Villa Date Posted: Thurs, Dec 30, 2004 at 20:00:19 (EST) Email Address: Not Provided Message: Gracias, Senor.

Subject: Re: SU to Sweden...? From: Pete Weis To: Pancho Villa Date Posted: Thurs, Dec 30, 2004 at 09:24:56 (EST) Email Address: Not Provided Message: 'The coming generation will be one of massive downward mobility for many Americans. The political struggles that this generates will determine whether America will move more closely to the social-democratic norm, or find some way to accept and rationalize its existence as a country of high economic risk and deep divisions of income and wealth.' I had thought the awakening that would bring about political change was going to begin in this last election - it didn't. But, inevitably IMO, there will be angry voters down the pike who will demand change.

Subject: Re: SU to Sweden...? From: Emma To: Pete Weis Date Posted: Thurs, Dec 30, 2004 at 16:52:25 (EST) Email Address: Not Provided Message: We are being so foolish.

Subject: Re: SU to Sweden...? From: Jennifer To: Pete Weis Date Posted: Thurs, Dec 30, 2004 at 11:40:15 (EST) Email Address: Not Provided Message: I am much discouraged. we must pay attention, but we do not pay attention. We are not Sweden or even close, alas. Interestingly Sweden has had among the most vibrant stock markets in the world for more than a decade. Look too at the fine Swedish growth rates.

Subject: Re: SU to Sweden...? From: Ari To: Jennifer Date Posted: Thurs, Dec 30, 2004 at 11:54:35 (EST) Email Address: Not Provided Message: 'The coming generation will be one of massive downward mobility for many Americans. The political struggles that this generates will determine whether America will move more closely to the social-democratic norm, or find some way to accept and rationalize its existence as a country of high economic risk and deep divisions of income and wealth.' Imagine how well off we were just 4 years ago. Bill Clinton and Robert Rubin and Lawrence Summers left us a huge surplus and terrific productivity growth and unemployment of less than 4%. Now we are a government in debt and no prospect of limiting the debt, because there will be no new revenue stream given our unwillingness to be taxed fairly.

Subject: Re: SU to Sweden...? From: Paul G. Brown To: Ari Date Posted: Thurs, Dec 30, 2004 at 14:12:48 (EST) Email Address: Not Provided Message: Great piece. Muchas gracias, Pancho. Ari - you're right on the facts but I think there's another layer of analysis to be applied. The Clinton surplus set the US up to solve a number of emerging problems--medical care for seniors, the continuing move away from a manufacturing economy--but what Brad's pointing to is something more (pardon the expression) seismic. The 'external factors' which have served as the underpinnings to US growth and global hegenomy are changing. Two generations of cheap oil, US moral authority, pro-first-world trade and financial arrangements; all of these are coming to an end. This is the historical context without which I would argue the US could not have developed in the way that it did. (Ain't sayin' it would be better or worse off; just sayin' it would be different.) [ed. that's one tangled sentence, boy!] History isn't inevitability. Individuals matter. Leaders with vision and talent make a difference. Unfortunately we do not have such leadership at the moment.

Subject: Re: SU to Sweden...? From: Pancho Villa To: Paul G. Brown Date Posted: Thurs, Dec 30, 2004 at 18:36:53 (EST) Email Address: nma@hotmail.com Message: De nada dear Paul, de nada

Subject: Re: SU to Sweden...? From: Ari To: Paul G. Brown Date Posted: Thurs, Dec 30, 2004 at 16:36:02 (EST) Email Address: Not Provided Message: Paul, what is your vision then? Why do I have so strong a feeling we are most poorly handling our human and material resources even though productivity remains robust? Leadership surely matters, but where would you have leadership take us? Why do we care so little about debt?

Subject: Re: SU to Sweden...? From: Paul G. Brown To: Ari Date Posted: Fri, Dec 31, 2004 at 14:02:43 (EST) Email Address: Not Provided Message: > Paul, what is your vision then? Ari - Dude, your question is very flattering and quite humiliating at the same time. It's flattering that someone thinks I'm worth asking. It's humiliating because, on reflection, I don't have anything coherent to say! I guess its easy to be a critic. If there is one thing I would say, it's that 'vision' is primarily about a clear perception of where we, coupled with some knowledge of what is possible. (End in mind, first things first, all that 'highly effective people' stuff). But, shoot! All of that don't amount to much.

Subject: Re: SU to Sweden...? From: Emma To: Paul G. Brown Date Posted: Fri, Dec 31, 2004 at 14:30:37 (EST) Email Address: Not Provided Message: Nice, Paul. This is a time to be humble about what we think we know.

Subject: Re: SU to Sweden...? From: Puncho Villa To: Emma Date Posted: Fri, Dec 31, 2004 at 22:12:14 (EST) Email Address: nma@hotmail.com Message: Anne, uuups (I did it again), Emma: 'One thing only I know, and that is that I know nothing.' --Socrates

Subject: Re: SU to Sweden...? From: Paul G. Brown To: Puncho Villa Date Posted: Fri, Dec 31, 2004 at 23:45:39 (EST) Email Address: Not Provided Message: I also enjoyed Socrates' other great one-liner: 'Needs honey.'

Subject: Re: SU to Sweden...? From: Pancho Villa To: Ari Date Posted: Thurs, Dec 30, 2004 at 17:19:44 (EST) Email Address: nma@hotmail.com Message: 'Leadership surely matters, but where would you have leadership take us?' http://www.nytimes.com/2004/12/30/international/worldspecial4/30prexy.html?ex=1262149200&en=6322de2cdb4969cd&ei=5088&partner=rssnyt

Subject: Re: SU to Sweden...? From: Jennifer To: Ari Date Posted: Thurs, Dec 30, 2004 at 13:07:27 (EST) Email Address: Not Provided Message: The need for us is to save what we can, and become more conservative with our investments. Saving is just what I am doing and being more conservative is what I am beginning to do with my portfolio.

Subject: On the U.S. Budget From: Terri To: All Date Posted: Wed, Dec 29, 2004 at 19:54:57 (EST) Email Address: Not Provided Message: December 29, 2004 A Letter to a Friend on the U.S. Budget By Brad DeLong You asked my opinion about Social Security, and about the long-run federal budget mess more general... Well, the way I look at it (and this *is* what I do at my day job), we think that the promises and commitments the U.S. government has made and its standard operating procedures for setting spending amounts commit us to an average federal spending level of 25% of total production over the next two or so generations. We know that number will be off--it might be 23%, it might be 27%. But 25% is the number we should have in our minds when we plan. Now taxes are currently set so that, if standard operating procedures for tax break extension, et cetera, are followed, the federal government will collect some 18% of total production in taxes. 18% is a lot less than 25%. We as a society have two choices. We can either ignore the gap between 18 and 25 until the foreigners we borrow from lose confidence that we will ever solve it, and our economy and currency go smash in the way that Argentina's seems to every generation, that Mexico's did in 1994, that Germany's did in 1923, and so forth. Or we can take steps to close the gap between 18 and 25. And the sooner we start to take those steps, the easier things will be. Let's assume that we decide not to let the economy and currency go smash, and that we take option 2. First, we wonder 'Where did this gap come from?' Well, if we did not have the Bush tax cuts--or if we let the Bush tax cuts expire--we will be at 21 instead of 18 on the tax side, and face a long-run fiscal gap of not 7% but 4% of total production, a smaller problem. In fact, if we hadn't done the Bush tax cuts, we would over thenext five years be (as we were in 2000; remember?) in surplus, with taxes at about 21 and current spending levels at about 20 percent of total production. But even though we would be in current surplus, we would not be in long-run surplus. The aging of the population and greater life expectancy is going to push Social Security spending up by about 2% of total production. Better and more costly medical technology coupled with the aging of the population and greater life expectancy is going to push Medicare and Medicaid spending up by about 4% of total production. Taking care of the 2% of production rise in the long-term funding gap coming from Social Security is straightforward. Either cut benefits (by raising the retirement age by 3 years, by cutting everyone's benefits by about a quarter, by shifting some of the risk that the stock market will tank from the government to Social Security beneficiaries by turning some of their benefits into private investment accounts, or some combination), raise Social Security taxes (by either removing the current lid on Social Security taxes, by increasing the Social Security tax rate by a couple of percentage points, by using general revenues to pay future Social Security benefits,* or some combination). The increase in the gap coming from the rise in Social Security spending is thus a serious, but a fixable problem. The system only goes smash if we take no steps over the next two generation to either cut benefits or raise taxes. The increase in the fiscal gap coming from Medicare and Medicaid is a bigger--and harder--problem. All trends suggest that the next two generations will see extraordinary improvements in medical technology coupled with large increases in medical costs. We believe that people who are sick should be treated: we don't think that the poor should die in the street because they cannot pay their hospital bills. But somebody has to pay. So either we grit our teeth and accept very large tax increases to preserve an income-independent right to medical care, we keep our taxes where they are and begin to ration life-saving and life-extending medical care bigtime depending on the thickness of your wallet, or we think up some clever scheme to make the medical system work much much better so we can get better medical care at much lower cost. I vote for the 'clever scheme' option myself, and there are bunches of people working for John Kerry who are trying to think of what the clever scheme should be (in contrast to the people working on health care for George Bush, who seem more interested in boosting the prices of drug companies and then jumping to drug-company jobs). But I'm not optimistic. I think we have a very hard social choice before us over the next couple of generations. Although the choices are hard, we can make them. We do have options. Decide what to do about health care, decide how much in the way of benefit cuts and how much in the way of tax increases we want for Social Security, let the Bush tax cuts expire--and we have a functioning, solvent government with in all probability a healthy, rapidly-growing economy. But if over the next generation or so we fail to make our social decisions about health care, fail to accept either benefit cuts or tax increases in Social Security, fail to let the Bush tax increases expire, continue to elect people like this pathetic bunch of modern Republicans.... Well, there is nobody outside to come and save us from the consequences of our own follies of governance. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- *As we are currently scheduled to do: the general fund owes Social Security a considerable hunk of change.

Subject: National Index Returns From: Terri To: All Date Posted: Wed, Dec 29, 2004 at 18:48:44 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/29/04 Australia 30.0 Canada 20.6 Denmark 31.0 France 19.3 Germany 16.4 Hong Kong 24.7 Ireland 42.8 Japan 13.0 Norway 53.7 Sweden 38.0 Switzerland 15.7 UK 19.4

Subject: How Do We See Beyond? From: Jennifer To: Terri Date Posted: Thurs, Dec 30, 2004 at 13:02:00 (EST) Email Address: Not Provided Message: When in the midst of a market boom, as we certainly are, how do we get people to focus on problems that are looming but not yet here?

Subject: Re: National Index Returns From: Terri To: Terri Date Posted: Wed, Dec 29, 2004 at 19:38:37 (EST) Email Address: Not Provided Message: A terrific international investing year. Just as after the dollar value decline with the Plaza Accord in 1985, international stocks proved the perfect hedge.

Subject: Re: National Index Returns From: Jennifer To: Terri Date Posted: Thurs, Dec 30, 2004 at 13:03:58 (EST) Email Address: Not Provided Message: I could not be happier with these last 2 investing years, and now am becoming more and more conservative.

Subject: National Index Returns From: Terri To: All Date Posted: Wed, Dec 29, 2004 at 18:48:41 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/29/04 Australia 30.0 Canada 20.6 Denmark 31.0 France 19.3 Germany 16.4 Hong Kong 24.7 Ireland 42.8 Japan 13.0 Norway 53.7 Sweden 38.0 Switzerland 15.7 UK 19.4

Subject: Sorry for Double Post From: Terri To: Terri Date Posted: Wed, Dec 29, 2004 at 18:50:41 (EST) Email Address: Not Provided Message: Sorry.

Subject: Inflation Disinformation From: johnny5 To: All Date Posted: Wed, Dec 29, 2004 at 07:44:32 (EST) Email Address: johnny5@yahoo.com Message: http://www.321gold.com/editorials/benson/benson122904.html Benson's Economic & Market Trends Inflation Disinformation Richard Benson Archives December 29, 2004 Now that the Pentagon has won the domestic war over the United States' intelligence services, our blinders have been removed and we are allowed to see the real reason that the Pentagon wants to control intelligence: to run 'disinformation' campaigns against America's enemies around the world. If our military industrial complex is serious about understanding disinformation, they should become students again and participate in a case study to learn how to get disinformation right. The Federal Reserve has done a masterful job of distributing disinformation. Last year, they were scaring Americans by announcing that deflation was a threat. This year, they continue to announce 'inflation is contained' so interest rates can be raised at a 'measured pace.' The Federal Funds Rate has moved up from 1 percent to 2.25 percent while the CPI has risen from 2 percent to 3.5 percent! The real interest rate - the Federal Funds Rate less inflation - remains clearly negative. 'Loose as a goose' as in continuing to 'goose the money supply' might be a good analogy. Meanwhile, everyone is fighting deflation and totally focused on the core inflation rate, which is running at about 2 percent. The reason the core rate goes up so slowly is because it is carefully designed to leave out the key expenses that really affect our lives and go up in price such as energy costs, food, and housing. The essence of disinformation is basically to get everyone to look the other way when something like inflation is really big and in your face constantly. Critically, the mainstream press has been a big help to the Fed in this endeavor. For the most part, they simply print what they are told without doing any factual digging or additional research, or actually examining the 'real' inflation numbers. When the Fed claims that all that matters is the core rate, you really need to go to the BLS and find out what the year-over-year rate is. Price increases are downright ugly and the last thing the government wants you to do is take a closer look. Well, let's peek anyway at some of the government's numbers on prices, courtesy of the Bureau of Labor Statistics ('BLS'): The prices above surely indicate there is a whole lot of inflation going on now and in the 'price pipeline.' The magnitude of real inflation is around us everywhere. An example of this could be seen in New York where taxi cab prices increased by 25 percent, while nationwide college tuition, health care, insurance, drug prices and property taxes are, in most cases, running near or above double digit annual rates of price increase. So, why does the CPI rate of increase look so low? Ah, the genius of disinformation. First, many of the items going into the CPI are adjusted for quality changes, referred to as hedonic adjustment. The idea is that since a new computer has twice the memory and processing speed for the same amount of money, the price actually fell in half. Even Bill Gross at PIMCO has caught on to this hedonic scam and estimates that these convenient but false hedonic adjustments pull the CPI down a full percentage point from where it would otherwise be. However, our favorite disinformation trick in the CPI is the grand assumption that everyone in America rents their house. In calculating the CPI, a full 29.5 percent of the index is related to the direct costs of housing. Looking at the price weights, 6.2 percent of this fraction relates to people who rent, while 23.4 percent of the total CPI relates to the total costs associated with home ownership but the CPI assumes these homeowners rent, not own! As you can imagine, rents have not been moving up as fast as housing prices. If the national housing prices as published by OFHEO were used in the CPI, that 23.4 percent weight of the index for prices rising at 13 percent a year would alone have added 3 percent to the CPI (that is if gasoline, groceries, and everything else had not increased in price and only rising housing prices were affecting it). What is the 'real' CPI? If we assume that housing prices are only increasing at three times the rate of the cost of renting, and the hedonic adjustment is only 0.5 percent, I think we can safely assume the following: In looking at these numerical facts and the actual world around us, we can truly appreciate the magnitude of disinformation on the inflation front. The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse. A lower dollar and higher inflation will ease the federal deficit while the foreign central banks, that have purchased U.S. Treasuries, will end up paying for the war in the Mid East as America's debt is inflated away. To make the disinformation plan work, it is critical that even if inflation is not contained, the knowledge and perception that inflation is kicking up, is contained. Unfortunately for savers, they are being slaughtered by inflation very silently but at least they are alive to work like a wage slave for another day. The average American is so busy trying to make ends meet that when it comes to inflation, they don't even know what's happening. We can only hope that the Pentagon will learn from the masters at the Fed how to have that soft touch when it comes to propaganda. December 29, 2004 Richard Benson

Subject: Bensen's peek taken from BLS From: Pete Weis To: johnny5 Date Posted: Wed, Dec 29, 2004 at 11:41:25 (EST) Email Address: Not Provided Message: 'Well, let's peek anyway at some of the government's numbers on prices, courtesy of the Bureau of Labor Statistics ('BLS'): Price Increase - November 2003 to November 2004 Producer Price Index ('PPI') Gasoline 47.5 percent Crude Materials 25.9 percent Intermediate Materials 9.7 percent Groceries at Supermarket 6.1 percent Finished Goods 5.1 percent Consumer Price Index ('CPI') 3.5 percent Price Increase - Office of Federal Housing Enterprise Oversight 'OPHEO National Housing Prices Third Quarter '03 to Third Quarter '04 13 percent Third Quarter '04 Annual Rate 18.5 percent The prices above surely indicate there is a whole lot of inflation going on now and in the 'price pipeline'. The magnitude of real inflation is around us everywhere. An example of this could be seen in New York where taxi cab prices increased by 25 percent, while nationwide college tuition, health care, insurance, drug prices and property taxes are, in most cases, running near or above double digit annual rates of price increase. So, why does the CPI rate of increase look so low? Ah, the genius of disinformation. First, many of the items going into the CPI are adjusted for quality changes, referred to as hedonic adjustment. The idea is that since a new computer has twice the memory and processing speed for the same amount of money, the price actually fell in half. Even Bill Gross at PIMCO has caught on to this hedonic scam and estimates that these convenient but false hedonic adjustments pull the CPI down a full percentage point from where it would otherwise be. However, our favorite disinformation trick in the CPI is the grand assumption that everyone in America rents their house. In calculating the CPI, a full 29.5 percent of the index is related to the direct costs of housing. Looking at the price weights, 6.2 percent of this fraction relates to people who rent, while 23.4 percent of the total CPI relates to the total costs associated with home ownership but the CPI assumes these homeowners rent, not own! As you can imagine, rents have not been moving up as fast as housing prices. If the national housing prices as published by OFHEO were used in the CPI, that 23.4 percent weight of the index for prices rising at 13 percent a year would alone have added 3 percent to the CPI (that is if gasoline, groceries, and everything else had not increased in price and only rising housing prices were affecting it). What is the 'real' CPI? If we assume that housing prices are only increasing at three times the rate of the cost of renting, and the hedonic adjustment is only 0.5 percent, I think we can safely assume the following: Real Consumer Price Index Reported 3.5 percent Including Housing Prices 2.0 percent Hedonic (fudge factor) 0.5 percent ==== Real Consumer Inflation 6.0 percent In looking at these numerical facts and the actual world around us, we can truly appreciate the magnitude of disinformation on the inflation front. The Fed needs inflation, wants inflation, and is getting inflation. Without inflation to inflate away a massive amount of personal, corporate, and government debt, our financial system could collapse. A lower dollar and higher inflation will ease the federal deficit while the foreign central banks, that have purchased U.S. Treasuries, will end up paying for the war in the Mid East as America's debt is inflated away. To make the disinformation plan work, it is critical that even if inflation is not contained, the knowledge and perception that inflation is kicking up, is contained. Unfortunately for savers, they are being slaughtered by inflation very silently but at least they are alive to work like a wage slave for another day. The average American is so busy trying to make ends meet that when it comes to inflation, they don't even know what's happening. We can only hope that the Pentagon will learn from the masters at the Fed how to have that soft touch when it comes to propaganda. Richard Benson Benson's Economic & Market Trends Specialty Finance Group, LLC

Subject: Re: Bensen's peek taken from BLS From: Dorian To: Pete Weis Date Posted: Wed, Dec 29, 2004 at 23:35:34 (EST) Email Address: Not Provided Message: Thanks very much for this report. I've felt the same way, i.e., that nearly everything has been going up in price while we are being assured that inflation is only 3%, but this Benson fellow makes this situation clear. And he is right about how the Fed, and the media, raised the ruse of the fear of possible deflation last year. I've never been through a period of deflation, but recall the inflation of the late 70's and so am always more guarded about protecting from inflation than the reverse. But all the noise about a possible deflation made me less confident about investing with an aim of hedging against inflation, despite the fact that inflation not only seemed a logical prospect, but was in fact happening all around me. So, a good analogy with the Defense Department's use of disinformation. Very apt. In fact disinformation seems to be the rule of the day. The Bush administration is nothing but a disinformation machine; whatever they say, assume the opposite is true. And the media a willing accomplice. The Bush administration is not only an assault not only on basic American values but on reality itself. But I digress. Who is this Benson fellow by the way? I think I'll look for his website. Thanks, Dorian

Subject: Re: Bensen's peek taken from BLS From: Auros To: Dorian Date Posted: Thurs, Dec 30, 2004 at 15:20:44 (EST) Email Address: rmharman@auros.org Message: They mention at the bottom of the article who Benson is and who he works for. Honestly, a brief period of deflation would be great for people who, like me, are not particularly in debt, but don't have a huge amount of savings or assets. Bringing down prices -- especially in the housing market -- would be a godsend for me. OTOH, it'd be terrible for people who already own...

Subject: Brokers, investment newsletters, etc. From: Dorian To: All Date Posted: Wed, Dec 29, 2004 at 03:16:21 (EST) Email Address: Drl2040@aol.com Message: I have never invested in anything other than short term T-bills but for several years I have wanted to do something to hedge against a falling dollar. But not knowing the first thing about investments, can somebody recommend, to begin with, a good brokerage? Waterhouse? Ameritrade? Vanguard? Does it matter? Then I have another question re/ investment newsletters. I get mailings from Richard Band's newsletter because a friend of mine once subscribed, but this fellow is a Bush supporter, which makes me question his judgement! Nevertheless, he does discuss the prospects for a falling dollar so he understands that, even if he doesn't somehow grasp how Bush's deficits and tax cuts are pushing along this process. So, are their other good newsletters which have an appreciation of the risks to the dollar, the likelihood of a rise in gold prices and most likely in commodities and a rise in interest rates and a fall in the price of long bonds. Dorian

Subject: Re: Brokers, investment newsletters, etc. From: David E.. To: Dorian Date Posted: Wed, Dec 29, 2004 at 20:05:43 (EST) Email Address: Not Provided Message: I subscribed to a newsletter once. Market letters are seductive. get a letter - do a little buying a little selling and make your fortune. The only one that gets rich is the letter writer. The good thing was that I only did that for about 2 months. Consider the fact that 90% of stock market gains happen on 10 days of the year. If you are not continuously invested the probability of market timing and picking winners is small. And the more times you follow that advice your probability of success for your portfolio becomes smaller. The thing to do is study asset allocation. For simple asset allocations try Scott Burns Couch Potato Portfolio or Coffee House Investors The advice in these places will get you most of the performance of a professional portfolio. And you will save money. A visit to a fee-only professional to set up your portfolio could be worth your while. Visit IFA fee only investors to get an idea of what a fee-only advisor will do. Take the risk profile test and maybe work your way through the 12-step program. These steps are necessary to know yourself and to know the market. Their sample portfolios are gems of portfolio design. IFA was my first stop and I recently retook their risk profile questionaire. My portfolio in major respects resembled IFA's recommendation. The bond/stock proportion was the same. And the US/Foreign proportions were the same. The major differences were the choices I made to design a portfolio that would do well in both an inflation or a deflation enviornment. To reach that objective I sacrificed about 1% of projected return. Good luck on your search for better returns and lower risks. Cheers David

Subject: Re: Brokers, investment newsletters, etc. From: Terri To: David E.. Date Posted: Fri, Dec 31, 2004 at 08:43:25 (EST) Email Address: Not Provided Message: David, I had missed this fine post. Thanks; I do agree.

Subject: Vanguard Services From: Jennifer To: Dorian Date Posted: Wed, Dec 29, 2004 at 16:40:37 (EST) Email Address: Not Provided Message: The investment house matters much. Vanguard is superb in quality and choice and cost and assistance. International funds at Vanguard are up from 15% to 25% this year. The Europe Index has been a perfect hedge against the falling dollar. We can also buy any single country index from Vanguard brokerage. Notice the number posted on the board.

Subject: Re: Vanguard Services From: Jason To: Jennifer Date Posted: Wed, Dec 29, 2004 at 21:18:14 (EST) Email Address: Not Provided Message: To say one brokerage house is better than another for investment consulting services is nonsense. It all depends on the individual advisor. Sure vanguard offers good index funds, but their investment consulting firm is not necessarily better or worse than other firms. BYW, where can you buy an index fund for any country? I only see 5 intl fund offerings, none that are country specific.

Subject: WWWD The biggest dollar Bear - Warren of course From: johnny5 To: Dorian Date Posted: Wed, Dec 29, 2004 at 07:42:48 (EST) Email Address: johnny5@yahoo.com Message: http://www.forbes.com/home/free_forbes/2005/0110/036.html WWWD What Would Warren Do? A Word From A Dollar Bear Robert Lenzner and Daniel Kruger , 01.10.05 Warren Buffett's vote of no confidence in U.S. fiscal policies is up to $20 billion. The dollar has fallen savagely against the euro for the past three years, and the trade deficit is running $55 billion a month. Is the currency rout over? Can the trade deficit be fixed with a rise in interest rates or an upward revaluation of the Chinese currency? Warren Buffett, the world's most visible dollar bear, says the answer to both these questions is no. His bet against the dollar, reported at $12 billion in his last annual report (for Dec. 31, 2003), has gotten all the bigger. Now his Berkshire Hathaway has a $20 billion bet in favor of the euro, the pound and six other foreign currencies. Buffett has for a long time been lecturing fellow Americans about their bad habit of borrowing from abroad to live well today. He made a big stink about his currency trades in his March 2004 letter to shareholders. FORBES phoned him recently for an update, hoping for the news that the Scold of Omaha had softened his views on the decline of the dollar. What we got was more doom and gloom, more than we have ever heard from the man. In other words, he is not about to cover his short position on the dollar. Buffett said that he began buying foreign currency forward contracts when the euro was worth 86 U.S. cents, and kept buying until the price reached $1.20. It's now worth $1.33. Buffett said he is not adding new positions now but has been rolling over contracts as they mature. Berkshire lost $205 million on currency speculations in the first half of 2004, but more than made that back with a $412 million gain in the third quarter. It's likely that the December quarter report will show another huge gain. Since January 2002 the dollar has fallen 33% against the euro. Buffett blames that on bad policy, coming from both the White House and Congress. It does appear that forex speculators are no big fans of George Bush or his Treasury secretary, John Snow. Since Nov. 2 the dollar has fallen 4.4% against the euro. Says Buffett: 'The rest of the world owns $10 trillion of us, or $3 trillion net.' That is, U.S. claims on foreign assets run to only $7 trillion. 'If lots of people try to leave the market, we'll have chaos because they won't get through the door.' In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: 'If we have the same policies, the dollar will go down.' The $20 billion bet has to be put in context. Berkshire has a huge portfolio of investments that includes $40 billion of Treasury securities. Budget and trade deficits are likely to make dollars worth less and bonds worth less. So the currency play is a partial hedge of a large position that can be read as bullish on the U.S. Still, that Buffett is making a currency bet at all is striking given that this investor has, in his 74 years, rarely made macroeconomic bets. He built Berkshire to a $130 billion market value by acquiring parts or all of lots of businesses, primarily in the insurance sector and primarily in the U.S. Now some of those assets are antidollar assets. Example: In 2002 he bought bonds of Level 3, a telecom company, that were denominated in euros. In 2000 Berkshire picked up MidAmerican Energy, a gas pipeline company. By doing so, Berkshire indirectly acquired the assets of Northern Electric, a utility in England, at a time when the pound was worth $1.58. Now it's worth $1.94, so Berkshire has a paper gain irrespective of any appreciation in the electric company's pound-denominated earning power. A continuing fall in the dollar 'could cause major disruptions in financial markets. There could be unpredictable side effects. It could be precipitated by some exogenous event like a Long-Term Capital Management,' Buffett says, referring to the 1998 collapse of a steeply leveraged hedge fund. How about a soft landing for our deficit-addicted economy? Don't count on it. We're running $100 billion a year in the hole against China, but Buffett doesn't expect that an upward revaluation of the renminbi (stoutly resisted, in any event, by the Chinese government) would greatly reduce this number. How about a rise in short-term interest rates? They used to say on Wall Street, 'Six percent interest will draw money from the moon.' Buffett is skeptical, though, that the recent tightening by Fed Chairman Alan Greenspan will do much more than 'put off the day of reckoning.' Nor does Buffett support the notion that intervention in the currency markets by one or another central bank can overcome the momentum of a currency that's losing value. 'Sooner or later markets win over the intervenors. The intervenors always run out of gas,' says Buffett. What is absolutely necessary to bolster the dollar is 'a public policy that brings imports and exports together.' Buffett has proposed a grand scheme to force imports and exports into perfect balance by demanding that each dollar of imports be accompanied by a certificate bought from an exporter who moved a dollar the other way. He concedes, using the self-deprecating humor for which he is known, that this scheme has met with deafening silence from policymakers. Moving beyond cloudland to economic history, Buffett reflects wistfully on the writings of David Ricardo, the 19th-century trade theorist: 'In those days the trade imbalances got settled in gold--and when they ran out of gold, people stopped doing business with you.' A gold standard? More wishful thinking. But Buffett is no goldbug. It's more that he's an antidollar bug. In dollar terms, gold, copper and oil have all climbed in the past several years; in euros, not so sharply. So, Warren, what are you buying now? And what's your prediction for the dollar next year? His answers, respectively: No comment, and I'm not making one. But here's a long-term perspective. He says he may hold foreign currencies 'for years and years.' And he says that the electorate of the U.S. may be strongly tempted to get out of hock by inflating away the country's dollar debts.

Subject: Supermarkets Crush Central Americans From: Emma To: All Date Posted: Tues, Dec 28, 2004 at 18:13:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/28/international/americas/28guatemala.html?ex=1105266306&ei=1&en=4faf211069914e8a Supermarket Giants Crush Central American Farmers By CELIA W. DUGGER PALENCIA, Guatemala - Mario Chinchilla, his face shaded by a battered straw hat, worriedly surveyed his field of sickly tomatoes. His hands and jeans were caked with dirt, but no amount of labor would ever turn his puny crop into the plump, unblemished produce the country's main supermarket chain displays in its big stores. For a time, the farmer's cooperative he heads managed to sell vegetables to the chain, part owned by the giant Dutch multinational, Ahold, which counts Stop & Shop among its assets. But the co-op's members lacked the expertise, as well as the money to invest in the modern greenhouses, drip irrigation and pest control that would have helped them meet supermarket specifications. Squatting next to his field, Mr. Chinchilla's rugged face was a portrait of defeat. 'They wanted consistent supply without ups and downs,' he said, scratching the soil with a stick. 'We didn't have the capacity to do it.' Across Latin America, supermarket chains partly or wholly owned by global corporate goliaths like Ahold, Wal-Mart and Carrefour have revolutionized food distribution in the short span of a decade and have now begun to transform food growing, too. The megastores are popular with customers for their lower prices, choice and convenience. But their sudden appearance has brought unanticipated and daunting challenges to millions of struggling, small farmers. The stark danger is that increasing numbers of them will go bust and join streams of desperate migrants to America and the urban slums of their own countries. Their declining fortunes, economists and agronomists fear, could worsen inequality in a region where the gap between rich and poor already yawns cavernously and the concentration of land in the hands of an elite has historically fueled cycles of rebellion and violent repression. 'It's like being on a train with a glass on a table and it's about to fall off and break,' said Prof. Thomas Reardon, an agricultural economist at Michigan State University. 'Everyone sees the glass on the table - but do they see it shaking? Do they see the edge? The edge is the structural changes in the market.' In the 1990's supermarkets went from controlling 10 to 20 percent of the market in the region to dominating it, a transition that took 50 years in the United States, according to researchers at Michigan State and the Latin American Center for Rural Development in Santiago, Chile. Brazil, Argentina, Chile, Costa Rica and Mexico are furthest along. While the changes have happened more slowly in poorer, more rural Central American countries, they have begun to quicken here, too. In Guatemala, the number of supermarkets has more than doubled in the past decade, as the share of food they retail has reached 35 percent. The hope that small farmers would benefit by banding together in business-minded associations has not been borne out. Some like Aj Ticonel, in the city of Chimaltenango, have succeeded. But the evidence suggests that the failure of Mr. Chinchilla's co-op is the more common fate. Its feeble attempts to sell to major supermarkets illustrate how the odds are stacked against small farmers, as well as the uneven effects of globalization itself. Many small farmers in the region are getting left behind, while medium-sized and larger growers, with more money and marketing savvy, are far more likely to benefit. Most fruits and vegetables in the region are still sold in small shops and open-air markets, but the value of supermarket purchases from farmers has soared and now surpasses that of produce exports by two and half times, researchers say. The bottom line: supermarkets and their privately set standards already loom larger for many farmers than the rules of the World Trade Organization. Still, stiff competition from foreign growers is also quite real. To enter the supermarkets of Guatemala's dominant supermarket chain, La Fragua - part of a holding company one-third owned by Ahold - is to understand why Professor Reardon likens them to a Trojan horse for foreign goods. At La Fragua's immense distribution center in Guatemala City, trucks back into loading docks, where electric forklifts unload apples from Washington State, pineapples from Chile, potatoes from Idaho and avocados from Mexico. The produce is trucked from here to the chain's supermarkets, which now span the country. Scenes at a mall in Guatemala City anchored by Maxi Bodega, one of the company's stores, suggest the evolving nature of grocery shopping for Latin America's 512 million people. On the ground floor was a sprawling, old-fashioned produce market. At the entry, there was a shrine to its patron saint, the Virgin of Rosario, who had plastic flowers sprinkled at her queenly feet. The sound of women patting out tortillas and the sweet smells of ripe tropical fruits drifted through the market as people stopped to squeeze the avocados, sniff the pineapples and haggle for cheaper oranges. To go upstairs was to leave Guatemala behind and enter a mall that could be in Bangkok or New York, with its synthetic Christmas wreaths, cheap clothing stores and oversized discount packages of napkins and symmetrical tomatoes in plastic trays at the Maxi Bodega. The Baldetti family exemplified the generational change unfolding here. Delia Baldetti, an 81-year-old housewife, will only shop for produce amid the heaps of tomatoes, chilies and papayas where she can bargain to her heart's content. Her daughter Elsa, a 56-year-old painter, shops both here and at Maxi Bodega, while Elsa's daughter, a 36-year-old business administrator, only has time for the supermarket. Elsa wistfully predicted that while the country's fragrant, raucous markets will never disappear, they will diminish. 'We'll lose some of our identity,' she said. 'We're copying the foreigners.' Farmers who do not or cannot afford to change fast enough to meet the standards set by supermarkets are threatened. The tiny farming community of Lo de Silva clings to a steep, verdant hillside. Slanting cornstalks look as if they would slide into the valley if they were not rooted to the earth. Some of the more than 300 farmers who originally belonged to Mr. Chinchilla's co-op, the Association of Small Irrigation Users of Palencia - known by its Spanish acronym, Asumpal - were from this village. Only eight remain. The only product they still sell is salad tomatoes - and they sell to middlemen, not supermarkets. José Luis Pérez Escobar, 44, a member of the co-op, scratched out a living for 20 years from his small field, perched in the clouds here. But after his potato crop failed last year, he migrated to the United States to save his land from foreclosure by the bank, leaving his wife, María Graciela Lorenzana, and their five children behind. He now works the graveyard shift at a golf course in Texas for $6 an hour so he can pay his debts. He had dreamed his cooperative would help him escape poverty by selling directly to the supermarkets. 'It would be magnificent,' Mrs. Lorenzana recalled of that more hopeful time. 'The small farmer would not need a middleman. But he was never able to achieve it.'

Subject: Supermarkets Crush Central Americans - 2 From: \Emma To: Emma Date Posted: Tues, Dec 28, 2004 at 18:16:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/28/international/americas/28guatemala.html?ex=1105266306&ei=1&en=4faf211069914e8a A Transformation Begins The transformation of Latin America's food retailing system began in the 1980's and accelerated in the 1990's as countries opened their economies, often to satisfy conditions for loans from the International Monetary Fund and the World Bank. As foreign investment flooded in, multinational retailers bought up domestic chains or entered joint ventures with them. Most concern about the perils of globalization for local farmers has focused on unfair trade competition from heavily subsidized American and European producers. But increasingly, supermarkets also leave small farmers exposed as the stores spread from big cities to small towns, from well-to-do enclaves to working-class neighborhoods, from richer countries to poorer ones. The chains now dominate sales of processed foods and their share of produce sales is growing. In Guatemala, supermarkets still control only 10 to 15 percent of fruit and vegetable sales. But in Argentina, their slice has grown to as much as 30 percent, while in Brazil they control half the market, according to Professor Reardon. As the chains' market share expands, farmers who are shut out find themselves forced to retreat to shrinking rural markets. The changes would not be so troubling if the region's economies were growing robustly and generating decent jobs for globalization's losers. After all, supermarkets are providing consumers with cheaper, cleaner places to buy food, economists say. 'It would be an appealing transformation of the sector if alternative jobs could be made available,' said Samuel Morley, an economist at the International Food Policy Research Institute in Washington. But economic growth has not kept pace with rising populations. The number of people living below poverty lines in Latin America has risen from 200 million in 1990 to 224 million this year. More than 6 in 10 people living in rural areas are still poor. Given the difficulties small farmers face in doing business with multinational corporations, traditional strategies, like providing peasants with fertilizer and improved seeds, now seem quaint here. Professor Reardon and Julio A. Berdegué, an agronomist who heads the Latin American Center for Rural Development, are collaborating with supermarket researchers across Asia and Africa, as well as Latin America, to document the trends. In addition, a team at Michigan State has financing from the United States Agency for International Development to help small farmers in Central America, India and Kenya sell to supermarkets. They and other development experts are brainstorming about what to do. Among the ideas: Regulations requiring that farmers be paid promptly. Enforcement of laws meant to curtail monopolies and oligopolies, including mergers of supermarket chains. Improved security and cleanliness at open-air markets. Infusions of credit and technical expertise for co-ops. But while such cooperatives are almost certainly necessary if small growers are to amass the clout and scale to sell to multinational chains, they have been a disappointment so far. Even in economically vibrant Chile, which has invested $1.5 billion in small-scale farming since 1990, a study of 750 farmer organizations found that 8 of 10 had failed or survived only with continuous infusions of government aid. Mr. Berdegué, author of the Chile study, had sought to make the associations work in the 1990's when he was a senior government official there. The pressure from the I.M.F. and the World Bank to allow greater foreign investment was intended to make Latin American economies more competitive. 'But the model did not have a social dimension at the real center,' he said. 'It was trickle-down economics.'

Subject: Supermarkets Crush Central Americans - 3 From: \Emma To: \Emma Date Posted: Tues, Dec 28, 2004 at 18:18:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/28/international/americas/28guatemala.html?ex=1105266306&ei=1&en=4faf211069914e8a An Experiment Disappoints Mr. Chinchilla, 46, drove his battered, 20-year-old pickup, laden with crates of tomatoes, into his cooperative's spacious packing shed. The building and the business are in decay. The water had been cut off. Toilets no longer flushed. The roof was missing over the bathroom, its floor covered with bird droppings. The live-in caretakers who sort the co-op's tomatoes had only an open pail of rainwater to wash their hands. They wore no gloves while handling the fruit. Typically, each farmer is growing less than an acre of salad tomatoes in rustic greenhouses that are fast deteriorating. Their production has plummeted because of the blight that dries out the plants, which then yield very small tomatoes. 'We haven't found a solution,' María Antonietta Muralles, a co-op member, said with a shrug. 'Maybe it's the water.' Mr. Chinchilla treated his plants with pesticides to no effect. 'You can't fight it with chemicals,' he said. Maybe the soil itself is infected, they speculated. 'Everything costs money,' he explained - money he does not have and cannot afford to borrow at the going rate of 21 percent. 'When you don't have access to credit, you can't expand,' he said. 'We don't want anything given to us, but we need a hand.' As the farmers talked, two workers separated tomatoes by size, with the shrunken ones far too numerous. But their co-op's hopes of selling to big supermarket chains withered well before the plants. The co-op got started in the late 1990's, with a small grant from the government to upgrade the packing shed. An agronomist, Candelario López, was given a two-year contract, also at government expense, to advise them. Over the next couple of years, Mr. López helped the co-op get its foot in the door with La Fragua and C.S.U., another major supermarket chain. The chains have since united to become the Central American Retail Holding Company, with 332 stores and almost $2 billion in sales in 2003. It is one-third owned by Ahold, which had more than $68 billion in sales last year. But the co-op did not manage to supply the big chains for long. The farmers themselves were uncomfortable with the rules of the supermarket game. They found it difficult to wait weeks to get paid. They did not want to sell their vegetables on the books and pay taxes that sharply cut profits. And some of what they supplied was rejected as too bruised or too limp or too ripe. The co-op's leaders said they quit selling to C.S.U. through its dedicated wholesaler in 2000 after two container loads of vegetables got held up for days at the Nicaraguan border, severely damaging the produce. 'We weren't prepared to absorb that kind of loss,' said Marco Tulio Alvizures, who then headed the co-op. Perhaps more fundamental, co-op members had trouble consistently delivering the quantity and quality of produce the supermarkets demanded, a problem Mr. Chinchilla readily acknowledged. In the case of La Fragua, Mr. Alvizures contended that the chain never gave the co-op a chance to sell the amount it was capable of. But Jorge González, the chain's manager for vegetables, said the small orders likely reflected La Fragua's judgment, based on weekly evaluations, that the co-op was not up to the task. The co-op was such a small supplier that Mr. González could not recall all the details of their dealings. The corporate imperative is to reward suppliers who consistently provide what the chain requires. If the vegetables do not arrive, shelves stand empty. 'We punish farmers very hard if they don't deliver what we order,' said Bernardo Roehrs, a spokesman for the chain. As the co-op members sought to navigate the difficult new world of supermarkets, they lost the critical guidance of Mr. López, the agronomist, when his contract expired in 2001. He is now a salesman for a company that makes high-tech greenhouses the co-op's farmers could never afford. A Rare Success Story Not too far from Palencia, in the city of Chimaltenango, is Aj Ticonel, an association of small farmers that has thrived because it has something Mr. Chinchilla's co-op lacked: a shrewd and enterprising businessman to run it. But even for a savvy company like Aj Ticonel, success came not from supplying choosy supermarket chains but rather from its ability to exploit a global market. Aj Ticonel sells three million pounds of mini-vegetables and snow peas for export to the United States, but only 80,000 pounds to supermarkets. Alberto Monterroso said he gave up on growing broccoli for La Fragua. He found the chain bought inconsistent amounts. 'There are a lot of competitors here,' he said, 'a lot of small farmers trying to sell to them, so the prices are low.' The company's success has been built instead on sales of pricey vegetables for export. It now sells the same to La Fragua, and its membership has risen from 40 families in 1999 to 2,000 today. Its plant sparkles. Its 53 packers wear gloves, face masks and hairnets as they sort slender French beans on stainless steel tables. Each box produce is marked with a bar code traceable to the family that grew it. Aj Ticonel sold $2.5 million worth of vegetables last year, but Mr. Monterroso, a sociologist and deal maker with a passion for justice, paid himself only $18,000. Most of the company's profits are plowed back into the plant, marketing campaigns and agricultural education for the farmers. 'I want a different country for my sons,' Mr. Monterroso said. 'I'm trying to redistribute the wealth so people will live in harmony.' One recent afternoon, a big Aj Ticonel truck took a meandering path into the hilly countryside, stopping for peasants waiting roadside with crates of vegetables to load. Many of them grumbled that Aj Ticonel does not pay enough and rejects too many of their vegetables, but most had been selling to the company for years. The evidence of their profit could be seen in new roofs, freshly painted homes and well-clothed children. Still, Mr. Monterroso acknowledged how hard it will be to replicate Aj Ticonel. Three times, the company loaned money to farmers to clone itself. Three times the farmers went out of business. For Latin America's millions of small farmers, he offered this sobering fact of life: 'The client buys from us not because poor people produce it, but because it's a good product.'

Subject: Finish From: Emma To: \Emma Date Posted: Tues, Dec 28, 2004 at 18:23:35 (EST) Email Address: Not Provided Message: Sorry for the blank posts. The following 2 posts ar empty, and Bobby may wish to remove them. I simply made a mistake, and hit the enter key TWICE.

Subject: Re: Supermarkets Crush Central Americans - 2 From: \ To: \Emma Date Posted: Tues, Dec 28, 2004 at 18:16:50 (EST) Email Address: Not Provided Message:

Subject: Re: Supermarkets Crush Central Americans - 2 From: \ To: \Emma Date Posted: Tues, Dec 28, 2004 at 18:16:33 (EST) Email Address: Not Provided Message:

Subject: Vanguard Returns From: Terri To: All Date Posted: Tues, Dec 28, 2004 at 15:33:32 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/27/04 S&P is up 10.1% Growth Index is 6.4 Value Index is 14.6 Mid Cap Index is 18.7 Small Cap Index is 18.3 Small Cap Value is 22.1 Europe Index is 21.0 Pacific Index is 16.8 Energy is 35.1 Health Care is 8.7 REIT Index is 29.4 High Yield Corporate Bond Fund is 8.3 Long Term Corporate Bond Fund is 7.7

Subject: Scary possibility: ignoring debt. From: Auros To: All Date Posted: Tues, Dec 28, 2004 at 15:15:14 (EST) Email Address: rmharman@auros.org Message: One of the key factors in the current SS debate is the conservative notion that the T-bonds making up the SS trust fund -- the IOUs from a general fund that has consistently sucked up the FICA surplus -- are worthless, because they for some reason will just not be repaid. Most people think this is ludicrous, since the US has never defaulted on a debt. (And if it did, given that our entire economy is currently financed by overseas investment, we'd have much bigger problems than SS. People don't invest in countries that default on their loans.) On the bright side, at least for the nation as a whole (though not for the retirees who would get screwed over if SS gets cheated out of the money it loaned to the rest of the gov't) it now looks like the technique of ignoring debt might possibly work to rescue a bankrupted economy. So at least, if the wing-nuts do trash everything, we have an example of how to fix it, even if it would inflict a lot of pain on the elderly. :-/ Argentina's Economic Rally Defies Forecasts By LARRY ROHTER Published: December 26, 2004 BUENOS AIRES, Dec. 23 - When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled. But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs - all without a debt settlement or the standard measures required by the International Monetary Fund for its approval. Argentina's recovery has been undeniable, and it has been achieved at least in part by ignoring and even defying economic and political orthodoxy. Rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, the Peronist-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else. 'This is a remarkable historical event, one that challenges 25 years of failed policies,' said Mark Weisbrot, an economist at the Center for Economic and Policy Research, a liberal research group in Washington. 'While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows.' The consequences of that decision can be seen in government statistics and in stores, where consumers once again were spending robustly before Christmas. More than two million jobs have been created since the depths of the crisis early in 2002, and according to official figures, inflation-adjusted income has also bounced back, returning almost to the level of the late 1990's. That is when the crisis emerged, as Argentina sought to tighten its belt according to I.M.F. prescriptions, only to collapse into the worst depression in its history, which also set off a political crisis. Some of the new jobs are from a low-paying government make-work program, but nearly half are in the private sector. As a result, unemployment has declined from more than 20 percent to about 13 percent, and the number of Argentines living below the poverty line has fallen by nearly 10 points from the record high of 53.4 percent early in 2002. 'Things are by no means back to normal, but we've got the feeling we're back on the right track,' said Mario Alberto Ortiz, a refrigeration repairman. 'For the first time since things fell apart, I can actually afford to spend a little money.' Traditional free-market economists remain skeptical of the government's approach. While acknowledging there has been a recovery, they attribute it mainly to external factors rather than the policies of President Néstor Kirchner, who has been in office since May 2003. Increasingly, they also maintain that the comeback is beginning to lose steam. 'We've been lucky,' said Juan Luis Bour, chief economist at the Latin American Foundation for Economic Research here. 'We've had high prices for commodities and low interest rates. But if we want to grow in 2005, we're going to have to settle the debt question and have foreign capital come in.' The I.M.F., which Argentine officials blame for inducing the crisis in the first place, argues that the current government is acting at least in part as the I.M.F. has always recommended. It has limited spending and moved to increase revenues, a classic prescription when an economy is ailing, and has built up a surplus twice the size of what the fund had asked before negotiations were put on hold several months ago. 'The return to these encouraging numbers has been helped a lot by a fiscal discipline that is almost unprecedented by Argentine standards,' said John Dodsworth, the senior I.M.F. representative here. 'We've had a primary surplus which has increased steadily over these past few years at both the central and provincial levels, and that has been the main anchor on the economic side.' But some of that record budget surplus has come from a pair of levies on exports and financial transactions that orthodox economists at the I.M.F. and elsewhere want to see repealed. About a third of government revenues are now raised by those taxes, which have surged. 'The I.M.F. wants these taxes to be eliminated, but on the other hand they also want Argentina to improve its offer to creditors and also pay back the fund so it can reduce its own exposure here,' said Alan Cibils, an Argentine economist associated with the independent Interdisciplinary Center for the Study of Public Policy here. 'In other words, they are saying, 'You have to pay out more and take in less,' which is a sure prescription for another crisis.' Because of the absence of a debt accord and a stalemate over utility tariffs, some investors, mainly European, continue to shun Argentina, citing what they call the lack of 'judicial security.' But others, mainly Latin Americans used to operating in unstable environments or themselves survivors of similar crises, have increased their presence here amid expanding opportunities. 'These are slogans that people repeat without thinking, as if they were parrots,' Roberto Lavagna, the minister of the economy, said when asked about the predictions that investment would disappear. 'In 2001 and the beginning of 2002, all kinds of contracts were destroyed,' he said. 'So why are they investing? Because today clearly they can get a very good rate of return.' The Brazilian oil company Petrobras bought a stake in a leading energy company. Another Brazilian company, AmBev, has acquired a large interest in Quilmes, Argentina's leading beer brand, and a Mexican company has bought up control of a leading bread and cake maker. Asian countries, with China and South Korea in the lead, have begun to move in. During a state visit last month, the Chinese president, Hu Jintao, announced that his country plans to invest $20 billion in Argentina over the next decade. But the bulk of the new investment comes from Argentines who are beginning to spend their money at home, either bringing their savings back from abroad or from under their mattresses. For the first time in three years, more money is coming into the country than is leaving it. That has given Mr. Kirchner the luxury of taking a hard line with the monetary fund and with foreign creditors clamoring for repayment. 'The thing is that Argentina has a current account surplus, so they don't really need so much foreign investment,' said Claudio Loser, an Argentine economist and the former Western Hemisphere director for the I.M.F. 'Domestic investment is taking place because there are opportunities in agriculture, oil and gas.' Just this week, the government announced that reserves of foreign currency have climbed back to $19.5 billion, their highest level since the crash and more than double the low recorded in the middle of 2002, a year with a net outflow of $12.7 billion. 'The peak of investment in the 1990's was 19.9 percent' of gross domestic product annually 'and today it is at 19.1 percent, having risen from a low of 10 percent,' Mr. Lavagna said. The Kirchner administration continues to seek an accord on the $167 billion in debt that is still outstanding, and plans to make what it calls its final offer early next month. But the turnabout here has inspired such a sense of confidence that the government is not only talking about cutting its last ties to the I.M.F. but also insisting that any payback to bondholders be linked to Argentina's continued good economic health. 'It's very simple,' Mr. Lavagna said. 'Nobody can collect from a country that is not growing.' Argentina's Economic Rally Defies Forecasts www.nytimes.com/2004/12/26/international/americas/26argent.html

Subject: Ignoring debt. From: Terri To: Auros Date Posted: Tues, Dec 28, 2004 at 15:36:27 (EST) Email Address: Not Provided Message: Worth the reminder, for Argentina may be recovering but the pain has been so so real.

Subject: US has defaulted in the past From: johnny5 To: Terri Date Posted: Tues, Dec 28, 2004 at 17:59:38 (EST) Email Address: johnny5@yahoo.com Message: http://216.239.51.104/search?q=cache:hSrAm_MS_eMJ:www.coinbooks.org/club_nbs_esylum_v06n23.html Nichols silver daniel bell price treasury&hl=en&ie=UTF-8 I haven't seen anyone reply to this, so I thought I'd comment on Joel Orosz' note from the 12/23/01 E-Sylum in which he refers to Scrooge's poor opinion of the soundness of American financial obligations with these quotes from Chapter One of 'The House of Morgan' by Ron Chernow: 'When Baltimore merchant George Peabody sailed for London in 1835, the world was in the throes of a debt crises. The defaulting governments weren't obscure Balkan nations or South American republics but American states. The United States had succumbed to a craze for building railroads, canals, and turnpikes, all backed by state credit. Now Maryland legislators, with the bravado of the ruined, threatened to join other states in skipping interest payments on their bonds, which were largely marketed in London.' Later, Chernow states: 'During the severe depression of the early 1840s - a decade dubbed the Hungry Forties - state debt plunged to fifty cents on the dollar. The worst came when five American states - Pennsylvania, Mississippi, Indiana, Arkansas, and Michigan - and the Florida territory defaulted on their interest payments.' 'British investors cursed America as a land of cheats, rascals, and ingrates. State defaults also tainted federal credit, and when Washington sent Treasury agents to Europe in 1842, James de Rothschild thundered, 'Tell them you have seen the man who is at the head of the finances of Europe, and that he has told you that they cannot borrow a dollar. Not a dollar.' Clergyman Sydney Smith sneered at the American 'mob' and said that whenever he met a Pennsylvanian at a London dinner, he felt 'a disposition to seize and divide him. . . . How such a man can set himself down at an English table without feeling that he owes two or three pounds to every man in the company, I am at a loss to conceive, he has no more right to eat with honest men than a leper has to eat with clean men.' Even Charles Dickens couldn't resist a jab, portraying a nightmare in which Scrooge's solid British assets are transformed into 'a mere United States' security.'' As you can see, Dickens wasn't the only person at the time with a poor opinion of US securities, and not without good reason!

Subject: Re: US has defaulted in the past From: Jennifer To: johnny5 Date Posted: Tues, Dec 28, 2004 at 21:33:24 (EST) Email Address: Not Provided Message: Interesting post.

Subject: Re: US has defaulted in the past From: Auros To: johnny5 Date Posted: Tues, Dec 28, 2004 at 19:57:26 (EST) Email Address: rmharman@auros.org Message: Interesting. Though it's the states that defaulted (even if it did make people worry about federal default) so my original statement remains true... And in any case, the point was that many of those arguing against the conservative hysterics have been pointing out that it's almost inconceivable that the modern US would just skip out on its debt. But maybe they're wrong, because the conservative hysterics have found a way to push us into a situation where doing so is the only sound policy. :-/

Subject: Re: US has defaulted in the past From: johnny5 To: Auros Date Posted: Wed, Dec 29, 2004 at 07:32:21 (EST) Email Address: johnny5@yahoo.com Message: True. Mosler says this: Yes, even today states are credit sensitive and can default. And then the federal govt could have defaulted in that it was on a fixed fx rate/gold standard and could have devalued, floated, etc. which would constitute default, as happened in 1934.

Subject: Conservative Expectations From: Terri To: All Date Posted: Mon, Dec 27, 2004 at 18:54:21 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/26/business/yourmoney/26view.html?ex=1105173330&ei=1&en=c13d315d20138ae8 Economic View: The Risky Assumption in Social Security Change December 26, 2004 By DANIEL ALTMAN ...'If you look back at what has happened, especially in the last 20 to 25 years, we've had two huge boosts to asset returns, both of which are now spent,' said Edward F. Keon Jr., chief investment strategist at Prudential Equity Group. The boosts that Mr. Keon referred to were the Federal Reserve's successful war against inflation and an upward trend in companies' profitability. 'When profitability is high, it tends to fall, when it's low, it tends to rise,' he said. 'Future profit growth is likely to be less than the profit growth over the last 50 years.' Taking a longer view, Mr. Keon said, a third factor has bolstered returns over the last century: the doubling of the average valuations of companies, as measured by price-to-earnings ratios. 'Back in 1926, the price-earnings ratio was roughly half what it is today,' he said. 'Putting aside whether you think this change in valuation is sustainable, I don't know anyone who thinks it's going to double again.' Taking those factors together, Mr. Keon predicted that returns from the stock market in the next 40 to 50 years would be only about two-thirds as high as the estimates used by the commission. Richard Bernstein, chief quantitative strategist at Merrill Lynch, offered another reason for pessimism on both stocks and bonds. 'Our view has been that the No. 1 rule of investing is that returns on capital are highest where capital is scarce,' he wrote in an e-mail response to questions. 'Right now, courtesy of the Fed's liquidity and their encouragement of investors to take more risk, there is no asset class that is starved for capital. That's why we think asset returns, across the board, will be muted relative to current expectations for perhaps quite some time.'...

Subject: Stock Returns: Past and Future From: Emma To: All Date Posted: Mon, Dec 27, 2004 at 17:43:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/26/business/yourmoney/26view.html?ex=1105173330&ei=1&en=c13d315d20138ae8 Economic View: The Risky Assumption in Social Security Change December 26, 2004 By DANIEL ALTMAN THE familiar disclaimer in ads for investment vehicles and money managers of all sorts is: 'Past performance is no guarantee of future returns.' It probably sounds obvious to anyone who has ever played the markets. So why, in proposing changes to Social Security, has the White House ignored that counsel? When President Bush set up the Commission to Strengthen Social Security, part of its mandate was to come up with a plan that included individual portfolio accounts. The commission's mathematical models assumed that such accounts would always be split 50-50 between stocks and bonds. In addition, the commission chose to assume that stocks would offer an average annual return of 6.5 percent after adjusting for inflation, and that bonds would pay about 3 percent. The assumptions about returns came mainly from historical averages. And to some experts, that seemed reasonable enough. 'I'm not sure what else one would do,' said Robert F. Stambaugh, a professor of finance at the Wharton School of the University of Pennsylvania. 'Over long periods of decades, it seems like average returns and risk are fairly stable.' Others begged to differ. 'If you look back at what has happened, especially in the last 20 to 25 years, we've had two huge boosts to asset returns, both of which are now spent,' said Edward F. Keon Jr., chief investment strategist at Prudential Equity Group. The boosts that Mr. Keon referred to were the Federal Reserve's successful war against inflation and an upward trend in companies' profitability. 'When profitability is high, it tends to fall, when it's low, it tends to rise,' he said. 'Future profit growth is likely to be less than the profit growth over the last 50 years.' Taking a longer view, Mr. Keon said, a third factor has bolstered returns over the last century: the doubling of the average valuations of companies, as measured by price-to-earnings ratios. 'Back in 1926, the price-earnings ratio was roughly half what it is today,' he said. 'Putting aside whether you think this change in valuation is sustainable, I don't know anyone who thinks it's going to double again.' Taking those factors together, Mr. Keon predicted that returns from the stock market in the next 40 to 50 years would be only about two-thirds as high as the estimates used by the commission. Richard Bernstein, chief quantitative strategist at Merrill Lynch, offered another reason for pessimism on both stocks and bonds. 'Our view has been that the No. 1 rule of investing is that returns on capital are highest where capital is scarce,' he wrote in an e-mail response to questions. 'Right now, courtesy of the Fed's liquidity and their encouragement of investors to take more risk, there is no asset class that is starved for capital. That's why we think asset returns, across the board, will be muted relative to current expectations for perhaps quite some time.'

Subject: Stock Returns: Past and Future - 2 From: Emma To: Emma Date Posted: Mon, Dec 27, 2004 at 17:44:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/26/business/yourmoney/26view.html?ex=1105173330&ei=1&en=c13d315d20138ae8 Given that some of the most senior people who earn their money predicting the stock market are so bearish, why have historical returns received so much attention? Part of the reason may have to do with the lack of a clear alternative, Professor Stambaugh said. 'There could be times where one might forecast stock returns to be either above or below their long-run average for the foreseeable future,' he said. 'It's one of the areas in academic finance that's under debate. People are working on it to see if they can derive a compelling model.' Another explanation could be human nature. 'We know that, in general, people tend to extrapolate too much from the past,' said Shlomo Benartzi, an associate professor of accounting at the University of California, Los Angeles, who specializes in behavioral approaches to finance. 'They invest a lot of their retirement funds in company stocks because they did well in the past.' That can be a lousy strategy, since stocks that have been popular among investors, giving them high market values relative to their assets, tend to pay lower returns than stocks for which the reverse holds true. Regardless of one's expectations about the performance of the markets, these layers of uncertainty may mean that another one of the commission's assumptions - a portfolio holding 50 percent stocks and 50 percent bonds - might not be appropriate. Bernard Dumas, a professor of banking at Insead, the French business school, argued against assuming any fixed percentage in stocks or bonds. 'The information is not available to make this sort of decision now,' he said. Professor Dumas asserted that the markets were so challenging that investment decisions should be left to professional managers, whose pay should be determined by the size of the dent they made in Social Security's massive liabilities. 'We should not let individuals make that choice, they are just not equipped,' he said. 'It's not that I'm against freedom of choice. But we must recognize that some people have expertise that others don't.' Instead, Professor Dumas suggested allowing savers to choose only a level of risk. Though that view may sound discouraging, Dr. Benartzi provides support for it. For instance, he and Richard H. Thaler, an economics professor at the University of Chicago, found that people made fairly arbitrary decisions when allocating money in their 401(k) accounts. When offered a choice between a stock fund and a bond fund, many people chose a 50-50 split. Yet when a second stock fund was added, many investors put a third into each fund and increased their stock holdings rather than opting to keep a total of 50 percent in stocks. 'Most people who picked portfolios on their own did not do a good job,' Dr. Benartzi said. 'Even they themselves, at the end of the day, once provided superior information, rated their portfolios inferior to the average portfolio.' He cited numerous other examples of common errors. People tend to put the most money into stocks when equities are likely to be closest to their peaks. And they rarely rebalance their portfolios to maintain fixed ratios between stocks and bonds, as the commission assumed. IF the stock market would do as well as it did in the last 30 years, by the time people retire, without rebalancing, they might have 90 percent in stocks,' Dr. Benartzi said. Finally, he added, assuring people of a minimum benefit in retirement - another part of the commission's plan - might also lead them to take excessive risks with their portfolios. In any case, Dr. Benartzi said, most people would rather have someone else make their investment decisions, and from an economic perspective, that might make the most sense. 'If you have a medical problem, rather than spending seven years to learn to be a doctor, you might as well just pay a doctor,' he said. 'If you need to figure out a portfolio allocation, then, rather then delegating it, now we're going to force you to spend all the time and learn how to do it? It doesn't seem to be a very efficient use of people's time.'

Subject: Worries and Hopes From: Emma To: All Date Posted: Sun, Dec 26, 2004 at 07:22:09 (EST) Email Address: Not Provided Message: Worries, worries through the year, but the year in global economies and markets was generally healthy. The question for the coming year is can we lessen our deficits and limit pressure on the dollar? The bear market is 2 years gone, but we do not wish another for years to come. Investors at least seem to be hopeful.

Subject: Political-Economic Competition From: Terri To: All Date Posted: Sat, Dec 25, 2004 at 17:49:09 (EST) Email Address: Not Provided Message: I am sympathetic to the sense that we have a political-economic competitive problem, as China looks to become an influence through developing nations on the order of America. But beyond China, beyond India, think of Brazil. Imagine Brazil having become the world's breadbasket. Ah, a new economic reality is being shaped in nations for whom we dictated economics or tho0ught we did. What now?

Subject: Political-Economic Development From: Emma To: Terri Date Posted: Sun, Dec 26, 2004 at 07:16:07 (EST) Email Address: Not Provided Message: We should not take lightly the middle level distortion of development plans in China. This is a traditional problem, and there needs to be increased attention paid be the leadership to providing for balances for redress. The problems could be crippling in different sectors.

Subject: Economic Rally for Argentines From: Emma To: All Date Posted: Sat, Dec 25, 2004 at 16:50:30 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/26/international/americas/26argent.html Economic Rally for Argentines Defies Forecasts By LARRY ROHTER BUENOS AIRES - When the Argentine economy collapsed in December 2001, doomsday predictions abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled. But three years after Argentina declared a record debt default of more than $100 billion, the largest in history, the apocalypse has not arrived. Instead, the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs - all without a debt settlement or the standard measures required by the International Monetary Fund for its approval. Argentina's recovery has been undeniable, and it has been achieved at least in part by ignoring and even defying economic and political orthodoxy. Rather than moving to immediately satisfy bondholders, private banks and the I.M.F., as other developing countries have done in less severe crises, the Peronist-led government chose to stimulate internal consumption first and told creditors to get in line with everyone else. 'This is a remarkable historical event, one that challenges 25 years of failed policies,' said Mark Weisbrot, an economist at the Center for Economic and Policy Research, a liberal research group in Washington. 'While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows.' The consequences of that decision can be seen in government statistics and in stores, where consumers once again were spending robustly before Christmas. More than two million jobs have been created since the depths of the crisis early in 2002, and according to official figures, inflation-adjusted income has also bounced back, returning almost to the level of the late 1990's. That is when the crisis emerged, as Argentina sought to tighten its belt according to I.M.F. prescriptions, only to collapse into the worst depression in its history, which also set off a political crisis. Some of the new jobs are from a low-paying government make-work program, but nearly half are in the private sector. As a result, unemployment has declined from more than 20 percent to about 13 percent, and the number of Argentines living below the poverty line has fallen by nearly 10 points from the record high of 53.4 percent early in 2002. 'Things are by no means back to normal, but we've got the feeling we're back on the right track,' said Mario Alberto Ortiz, a refrigeration repairman. 'For the first time since things fell apart, I can actually afford to spend a little money.' Traditional free-market economists remain skeptical of the government's approach. While acknowledging there has been a recovery, they attribute it mainly to external factors rather than the policies of President Néstor Kirchner, who has been in office since May 2003. Increasingly, they also maintain that the comeback is beginning to lose steam. 'We've been lucky,' said Juan Luis Bour, chief economist at the Latin American Foundation for Economic Research here. 'We've had high prices for commodities and low interest rates. But if we want to grow in 2005, we're going to have to settle the debt question and have foreign capital come in.'

Subject: Great minds think alike? From: Auros To: Emma Date Posted: Tues, Dec 28, 2004 at 15:16:28 (EST) Email Address: rmharman@auros.org Message: Ha. I saw the same thing, and also posted regarding this issue. Didn't see that you'd already hit it...

Subject: Economic Rally for Argentines - 2 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 16:51:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/26/international/americas/26argent.html The I.M.F., which Argentine officials blame for inducing the crisis in the first place, argues that the current government is acting at least in part as the I.M.F. has always recommended. It has limited spending and moved to increase revenues, a classic prescription when an economy is ailing, and has built up a surplus twice the size of what the fund had asked before negotiations were put on hold several months ago. 'The return to these encouraging numbers has been helped a lot by a fiscal discipline that is almost unprecedented by Argentine standards,' said John Dodsworth, the senior I.M.F. representative here. 'We've had a primary surplus which has increased steadily over these past few years at both the central and provincial levels, and that has been the main anchor on the economic side.' But some of that record budget surplus has come from a pair of levies on exports and financial transactions that orthodox economists at the I.M.F. and elsewhere want to see repealed. About a third of government revenues are now raised by those taxes, which have surged. 'The I.M.F. wants these taxes to be eliminated, but on the other hand they also want Argentina to improve its offer to creditors and also pay back the fund so it can reduce its own exposure here,' said Alan Cibils, an Argentine economist associated with the independent Interdisciplinary Center for the Study of Public Policy here. 'In other words, they are saying, 'You have to pay out more and take in less,' which is a sure prescription for another crisis.' Because of the absence of a debt accord and a stalemate over utility tariffs, some investors, mainly European, continue to shun Argentina, citing what they call the lack of 'judicial security.' But others, mainly Latin Americans used to operating in unstable environments or themselves survivors of similar crises, have increased their presence here amid expanding opportunities. 'These are slogans that people repeat without thinking, as if they were parrots,' Roberto Lavagna, the minister of the economy, said when asked about the predictions that investment would disappear. 'In 2001 and the beginning of 2002, all kinds of contracts were destroyed,' he said. 'So why are they investing? Because today clearly they can get a very good rate of return.' The Brazilian oil company Petrobras bought a stake in a leading energy company. Another Brazilian company, AmBev, has acquired a large interest in Quilmes, Argentina's leading beer brand, and a Mexican company has bought up control of a leading bread and cake maker. Asian countries, with China and South Korea in the lead, have begun to move in. During a state visit last month, the Chinese president, Hu Jintao, announced that his country plans to invest $20 billion in Argentina over the next decade. But the bulk of the new investment comes from Argentines who are beginning to spend their money at home, either bringing their savings back from abroad or from under their mattresses. For the first time in three years, more money is coming into the country than is leaving it. That has given Mr. Kirchner the luxury of taking a hard line with the monetary fund and with foreign creditors clamoring for repayment. 'The thing is that Argentina has a current account surplus, so they don't really need so much foreign investment,' said Claudio Loser, an Argentine economist and the former Western Hemisphere director for the I.M.F. 'Domestic investment is taking place because there are opportunities in agriculture, oil and gas.' Just this week, the government announced that reserves of foreign currency have climbed back to $19.5 billion, their highest level since the crash and more than double the low recorded in the middle of 2002, a year with a net outflow of $12.7 billion. 'The peak of investment in the 1990's was 19.9 percent' of gross domestic product annually 'and today it is at 19.1 percent, having risen from a low of 10 percent,' Mr. Lavagna said. The Kirchner administration continues to seek an accord on the $167 billion in debt that is still outstanding, and plans to make what it calls its final offer early next month. But the turnabout here has inspired such a sense of confidence that the government is not only talking about cutting its last ties to the I.M.F. but also insisting that any payback to bondholders be linked to Argentina's continued good economic health. 'It's very simple,' Mr. Lavagna said. 'Nobody can collect from a country that is not growing.'

Subject: A Revolution in Development From: Emma To: All Date Posted: Sat, Dec 25, 2004 at 15:01:50 (EST) Email Address: Not Provided Message: For a century, we wondered and worried about why developing nations lagged so sorely behind the developed. Now we are evidently finding a catching up by China, India, Brazil, and South Africa. There are other hopeful economies as well, and there is China for them all as a goad and goal. Imagine 2.5 billion people seeing themselves anew in hope. We must weld this revolution in development to economic and sociological models.

Subject: While the Landless Weep From: Emma To: All Date Posted: Sat, Dec 25, 2004 at 08:28:15 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/25/international/asia/25china.html?ex=1104977006&ei=1&en=1545d715c58cab8a China's Elite Learn to Flaunt It While the New Landless Weep By JOSEPH KAHN BEIJING - Chateau Zhang Laffitte is no ordinary imitation. It is the oriental twin of Château Maisons-Laffitte, the French architect François Mansart's 1650 landmark on the Seine. Its symmetrical facade and soaring slate roof were crafted using the historic blueprints, 10,000 photographs and the same white Chantilly stone. Yet its Chinese proprietor, a Beijing real estate developer named Zhang Yuchen, wanted more. He added a manicured sculpture garden and two wings, copying the palace at Fontainebleau. He even dug a deep, broad moat, though uniformed guards and a spiked fence also defend the castle. 'It cost me $50 million,' Mr. Zhang said. 'But that's because we made so many improvements compared with the original.' Rising out of the parched winter landscape of suburban Beijing, like a Gallic apparition, the chateau is a quirky extravagance intended to catch the eye of China's new rich. They can rent its rooms and, later, buy homes amid the ponds, equestrian trails and golf course on Mr. Zhang's 1.5-square-mile estate. It is even more conspicuous to its nearest neighbors, 800 now landless peasants who used to grow wheat on its expansive lawns. In a generation, China's ascetic, egalitarian society has acquired the trappings and the tensions of America in the age of the robber barons. A rough-and-tumble form of capitalism is eclipsing the remnants of socialism. Those who have made the transition live side by side with those who have not, separated by serrated fences and the Communist Party. The party's Central Committee conducted a survey of party officials in November in which the widening income gap ranked as the biggest concern, mainly because it stirs social unrest. Farm incomes were raised this year after emergency rural tax cuts. The government has tried to slow land confiscations. But officials have chosen not to give peasants control over the land they farm, effectively denying them a share in the new market economy. Meanwhile, the fleet footed and well connected have profited from surging exports, a bubbly urban real estate market and, occasionally, government boosterism. A wide income gap, like that in Britain and the United States at the end of the 19th century, is viewed by some officials as inevitable, even a rite of passage. China now has tens of thousands of multimillionaires, some of whom do not follow Confucian or Communist codes of austerity. In fact, pressure to stand out may be overtaking an earlier impulse to lie low. Mr. Zhang, 57, is a Communist Party member and former senior official at Beijing's municipal construction bureau. He made a fortune building private homes before he secured rights to a sprawling parcel of wheat fields. As the first step in his next project, he cloned the palace and named it after himself. He is wary of the political symbolism. His mirthful confidence gives way to bureaucratic hedging when he is asked to discuss the wealth gap. But he defends his indulgence as an excellent investment. 'Beijing is so crowded with luxury real estate projects that you need to do something special now,' he said one afternoon while leading visitors through the marble atrium of the chateau. 'Buyers want the right environment so they feel they are fully realizing their identity.' The bold display does attract attention, some of it unwelcome to Mr. Zhang. The residents of Yangge Village, who farmed the land as a collective until Mr. Zhang persuaded local leaders to let him develop the property, have led a tireless campaign for higher compensation. As part of a complex arrangement to use the land, Mr. Zhang's company gives the village's elderly a $45 monthly stipend. The able-bodied young can apply for jobs maintaining the grounds and waterways of the estate, or crushing grapes from its vineyard. They get $2 a day. For them, Mr. Zhang's French revival smacks of a retreat to feudalism. 'It was once our land, and now we have to apply to work there,' says Li Chang, a local peasant activist. 'To look at the place brings tears to my eyes.'

Subject: While the Landless Weep - 2 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 08:30:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/25/international/asia/25china.html?ex=1104977006&ei=1&en=1545d715c58cab8a Sudden Wealth The Chinese Academy of Social Sciences estimates that at least 10,000 businessmen in China have net assets that exceed $10 million. Some of them are peasants or migrant workers who saved every penny, devoted endless hours to their jobs and got rich despite overwhelming odds. Many others are like Mr. Zhang. He grew up in a peasant household in Shandong Province, in northeast China. But his prospects brightened at an early age, courtesy of the Communist Party. His older brother, then a young worker in a state factory, was transferred to Beijing, bringing along his whole family. Mr. Zhang attended school in the capital. He got a second break in the late 1960's, during the Cultural Revolution. Others were sent down to farms to work in the fields as part of Mao's effort to inculcate revolutionary enthusiasm among the urban elite. Mr. Zhang joined a construction brigade, quickly becoming a manager. After attending college, he rose to the top ranks of the construction bureau, which oversees major building projects in the capital. Mr. Zhang 'plunged into the sea' of commerce in 1991. He found a wealthy southern partner who needed help breaking into Beijing's real estate market, then just shaking off the shackles of state control. Mr. Zhang was an insider who could navigate the opaque bureaucracy. Their first project, called Baxian Villas, was not without risk. They found a plot of farmland surrounded by villages near the northern tip of the city. The secondary roads leading there passed through street-side markets that filled up with produce vendors by day. The trip could take 90 minutes. Yet at the time Beijing had few other California-style single-family houses like the ones Mr. Zhang built. By the late 1990's, Baxian had sold 500 homes, many of them spacious weekend retreats priced in the hundreds of thousands of dollars. They had acquired the land for a tiny fraction of that amount. To use a popular Chinese term, Mr. Zhang was a baofa hu. He had hit the jackpot. In 1995, he commissioned a Chinese artist to paint him together with his wife, son and daughter. Mr. Zhang told the painter to copy a style he had seen on a tour of Europe. It resembles a court portrait by Velázquez. The Zhang family poses casually in the center of a neo-Classical reception hall, whose walls are hung with other paintings - each one depicting a villa designed by Mr. Zhang. It covers an entire wall in the ballroom of his Baxian home. His fortunes improved further as the city expanded to meet him. His retreat became a bedroom community with its own highway exit. So Mr. Zhang set his sights on a much larger slice of land - nearly 1,000 acres - used as a mechanized wheat farm by Yangge Village and its 800 farmers. A river ran through part of the property, which abuts a forest preservation district. By Beijing standards, the setting was bucolic. Beijing's city government has tried to slow the loss of rural land. But Changping District struck an unusual deal with Mr. Zhang. The area he coveted would be converted from farmland to a conservation zone. He could then lease the land for an annual rent of $300 per acre, provided it mostly remained green space, according to villagers briefed on the arrangement by local officials. He was later granted an easement for the palace and a second one for a community of 1,000 luxury homes covering 170 acres. For that change in the contract he paid a lump sum of $9.7 million, or about $57,000 per acre, according to villagers. He declined to discuss the figures. Mr. Zhang is not one of China's richest men. Lists of the wealthy elite compiled by Forbes and Asiamoney do not mention him. Beijing alone has dozens of real estate companies that control more land. But the property gave Mr. Zhang a vast canvas to achieve something outstanding, he said. 'I wanted to show how Beijing was rushing out to meet the world,' he said. 'We have the Forbidden City. We have courtyard homes. I wanted something universal.'

Subject: While the Landless Weep - 3 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 08:31:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/25/international/asia/25china.html?ex=1104977006&ei=1&en=1545d715c58cab8a Across the Moat Aside from Mr. Zhang himself, perhaps no one knows the surroundings as well as Li Chang. A lifelong resident of Yangge Village, he farmed the land under Chateau Zhang Laffitte for most of his 77 years. When Mr. Zhang took over the property, an iron fence was erected around the perimeter, barring access to all but authorized workers and guests. Mr. Li is too old be to hired as a worker, but not to pose as one. He sneaks onto the property to chart its dimensions. He has filled every page in a soft-cloth notebook with tiny black characters and sketches. The chateau sits on 156,895 square feet, triple the size permitted in Mr. Zhang's contract, Mr. Li says. No moat was ever authorized, he claims, but Mr. Zhang's waterway stretches for just over a mile. To level the land and dig the moat, Mr. Zhang removed nearly 24 million cubic feet of dirt, Mr. Li calculated. He called this a enormous loss of fertile soil. Mr. Li and other villagers argue that Mr. Zhang has reduced the property's usefulness as farmland, violating the agreement that specified it was to be maintained for agriculture and conservation. 'This is a big violation of state land policy,' Mr. Li says, growing animated despite the frigid temperatures in his unheated village home. 'And it is happening right here in Beijing.' Mr. Zhang disputes Mr. Li's claims and says he has abided by his contract. Mr. Li has no evidence beyond his amateur surveys. Mr. Li and other villagers appealed to officials in the village, the town, the district, the city and even the national land bureau, so far without eliciting a reply, much less an investigation. They are focused on technical violations they see as likely to draw official scrutiny. But their concerns are broader. 'They took away our land,' says Li Youqing, a 68-year-old housewife in Yangge, who is not related to Mr. Li. 'That was our only guarantee in life.' Farmland cannot be bought or sold in China, only leased. To be converted to commercial use, it must be reclaimed by the government and rezoned. Officials then oversee the development or sale of the property. Though the terms of such transactions vary, peasants rarely have any say - or share any profits - when their land is developed. Yangge residents said the only compensation they have received is the $45 monthly stipend Mr. Zhang agreed to pay the elderly, as well as his promise to employ local workers to maintain and farm the estate. The money helps. But residents say they are poorer than before. They used to have their own grain, vegetables and farm animals. Now they have to buy all their food in market stalls that line the street outside the village. 'We have to pay city prices for our food but still live on farm incomes,' Ms. Li said. The bigger frustration is the spectacle of riches across the moat. The $9.7 million villagers say Mr. Zhang paid to build private villas understated the land's market value, they argue. They say there should have been no special deal for him. They also claim that the money he paid vanished. Local leaders promised that the money would be used to start companies, shares in which would be distributed to all who had farmed the land. But the villagers say that no such companies exist and that no shares were issued. Village, township and district land officials declined repeated requests to discuss the chateau. 'Maybe the Central Committee knows what happened to the money,' Mr. Li said, making a joke referring to a top decision-making body of the Communist Party. 'No one tells us anything.' An Official EmbraceEven when he discusses his chateau, Mr. Zhang's manner is reserved. When asked to discuss China's wealth gap - and the complaints of his neighbors - he turns icy. During an interview in a yellow-and-gold reception room on the top floor of the chateau, he declared that such issues were too sensitive to discuss and that any article mentioning him should include no references to social tensions. He then offered that he, unlike his neighbors, puts full faith in the government. 'My basic thinking is that, as a private company, I must absolutely embrace the government policies of the day,' he said. 'Today's leaders have exactly the right kind of thinking about how to handle these issues.' He said local peasants who complained were not representative. He said he would create 600 farming jobs on the estate, which would eventually have an organic vegetable garden and an orchard as well as the vineyard. 'This will be a boon for the farmers, who will make more money than if they tilled the land themselves,' he said. 'The whole project is exactly in line with Beijing's policy - to maintain the land as green space.' To date, the government appears to have offered strong backing. Beyond converting a large swath of farmland into a semiprotected conservation zone with easements for property development, Changping District made the chateau part of its annual plan. That minimized cumbersome red tape. His ties reach higher still. After the chateau opened, Mr. Zhang was host to Jia Qingling, a member of the standing committee of the ruling Politburo and the fourth most powerful man in China by rank. Two poster-sized color photos of Mr. Jia touring the castle hang in the wine bar. Some people, Mr. Zhang said, might misunderstand his project. It is not designed as a playground for the rich, but as a museum for the masses. 'It is for all the Beijing people, including the common people who do not have the opportunity to visit Europe themselves,' he said. 'I wanted everyone to get a taste of the finest world culture.'

Subject: Of China's Promise? From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 09:18:16 (EST) Email Address: Not Provided Message: How the inequities and tensions of development in China are handled will determine whether China's promise can be sustained. The article above is of exceptional importance in the entirety, as is the series.

Subject: Re: Of China's Promise? From: Pancho Villa To: Emma Date Posted: Sat, Dec 25, 2004 at 14:28:32 (EST) Email Address: nma@hotmail.com Message: Emma, always working...

Subject: Re: Of China's Promise? From: Jennifer To: Pancho Villa Date Posted: Sat, Dec 25, 2004 at 14:47:53 (EST) Email Address: Not Provided Message: Pancho Villa I am much interested in your sense of the development profiles or patterns of China. Do read this series of essays.

Subject: Thank You From: Jennifer To: Emma Date Posted: Sat, Dec 25, 2004 at 11:16:07 (EST) Email Address: Not Provided Message: Wonderful articles on China.

Subject: Land Value Tax From: johnny5 To: Jennifer Date Posted: Sun, Dec 26, 2004 at 04:20:10 (EST) Email Address: johnny5@yahoo.com Message: I know some georgists that will be sad to see this kind of development - thier vision of a land value tax that benefits all cannot be realized. Perhaps if the payment to the poor was based on a percentage of profit instead of being set at 45 dollars things would be better. How does the 45 dollar payout take into account the effects of inflation?

Subject: Vanguard Asset Management Services From: johnny5 To: All Date Posted: Sat, Dec 25, 2004 at 01:30:33 (EST) Email Address: Not Provided Message: Minimum 500K required to invest - some relatives have about 800K in real estate and are ready to retire and stop being landlords - I sent them to the local raymond james office but the person there tried to sell them high commission based products. Do the people that have had this Vanguard AMS feel it's managed effectively? TIA. http://flagship3.vanguard.com/web/planret/AdvicePTAdviceLearnAboutVGIServices.html# flagship3.vanguard.com/web/planret/AdvicePTAdviceLearnAboutVGIServices.html#

Subject: Vanguard Services From: Emma To: johnny5 Date Posted: Sat, Dec 25, 2004 at 07:57:35 (EST) Email Address: Not Provided Message: Vanguard is excellent with fair and low costs and high fund quality, but studying the Vanguard philosophy should allow your relatives to build a portfolio on their own. There is always a knowledgeable representative to help at Vanguard. Then, there is the advisory service or the management service. Representatives offer all sorts of information, but give only general advice about portfolios. Advisers discuss fund selection. Managers choose funds. Have your relatives ask for Vanguard literature and read read read.

Subject: Vanguard Services - 2 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 08:12:22 (EST) Email Address: Not Provided Message: Vanguard funds offer expenses of 0.3% and less, while a manager or adviser will cost less than 1% more. Other investment companies appear to charge 2% for advice or management, and use funds that charge an additional 2% along with sales loads. There are conservative Vanguard funds like the Balanced Index or Wellington or Wellesley fund, which combine stocks and bonds in different mixes. What do you find proper is the question for each investor. The Total Stock Market Index can be mixed with the Total Bond Market Index as an investor wishes. The portfolio can be as conservative as we wish.

Subject: Vanguard Services - 3 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 08:23:50 (EST) Email Address: Not Provided Message: Ask for Vanguard literature on a retirement portfolio. Those I know who are near or in retirement hold 40% or more of a portfolio in bond funds. Often they hold more 50% in bond funds. Ask or look at the percent of holdings in bonds for Balanced Index, Wellington and Wellesley funds. The Vanguard representatives will always help with any forms that must be filed. All should be as well as the markets allow, according to how conservative a portfolio is.

Subject: Vanguard Services - 4 From: Emma To: Emma Date Posted: Sat, Dec 25, 2004 at 09:29:08 (EST) Email Address: Not Provided Message: Vanguard Asset Allocation is a managed fund that changes allocations of stock and bond indexes according to perceived market conditions. From 800,000 dollars invested in a fund such a Wellington with a 60% stock and 40% bond mix, a reasonable way to preserve wealth might be to count on no more than 5% to 6% earnings a year. Wellesley with a 60% bond to 40% stock mix might safely allow for 4% to 5% earnings to be used a year. These are hopefully conservative estimates.

Subject: Vanguard Investing From: Jennifer To: Emma Date Posted: Sat, Dec 25, 2004 at 11:14:59 (EST) Email Address: Not Provided Message: Though I prefer to handle my own Vanguard portfolio, friends who use the advisers are pleased. The advice in these posts is excellent. Write out a portfolio on paper. I like to rely more on stock funds than some, because bond yields are so low. I use several funds. But, I know a retired woman who only uses the Wellington Fund along with a money market fund to write checks from. Another I know uses only the S&P and Long Term Investment Grade Bond Fund.

Subject: Re: Vanguard Investing From: johnny5 To: Jennifer Date Posted: Sun, Dec 26, 2004 at 04:04:36 (EST) Email Address: johnny5@yahoo.com Message: Thank you all for replying, I will make sure a vangaurd representative talks to them asap.

Subject: Possible Returns for Stocks From: Terri To: All Date Posted: Fri, Dec 24, 2004 at 11:50:43 (EST) Email Address: Not Provided Message: If productivity stays high and price/earning ratios stay about 20, why can we not make 7% in earnings, and another 1.5% in dividends, for a return of 8.5%. Better than bonds. Earnings have averaged 7% for several decades, why should this not continue? Long term bond funds at Vanguard have far bettered the returns of the S&P for 5 years. But, with yields so low it is hard to think this can long continue. Five Year Average Annual Return S&P - 1.9% Long Term Bond Index 9.7%

Subject: Possible Returns for Stocks and Bonds From: Terri To: Terri Date Posted: Fri, Dec 24, 2004 at 14:52:15 (EST) Email Address: Not Provided Message: John Bogle has always used the 7% growth in earnings number, which would be about 3.5% real earning growth. Add a 4% dividend to 7% earnings growth and you get an S&P return of about 11%. Since the p/e has risen, Bogle adds a small amount to returns. Now, dividends are not 4% but 1.5%. So, if earnings growth is 7%, and the p/e ratio stays about the same we might expect an 8.5% S&P return over an extended period. An 8.5% return for the S&P is far below the historical return. The Vanguard S&P opened in September 1976, and has returned about 12.5% a year. But, the p/e ratio was about 10 when the index fund opened. Economists have often told us the risk premium for stocks is oddly high. Suppose then the p/e does stay about 20. The problem is not that stock returns may be 8.5%, but that we must consider variability of returns. The question then is to keep enough in bonds to live comfortably through a difficult stock market period. The answer for bonds may be to buy the extra yield and simply stay in Vanguard Long Term Index or High Yield Tax Free. Why go short term or intermediate and give up the income, as long as you intend to stay in a bond fund through a duration period?

Subject: Steel Shortage in Asia From: Emma To: All Date Posted: Fri, Dec 24, 2004 at 10:54:27 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/worldbusiness/24steel.html Steel Shortage Squeezes Asia's Manufacturers By TODD ZAUN and WAYNE ARNOLD TOKYO - It has been a long time since Japan has experienced shortages of any kind. So it came as something of a surprise last month when Nissan Motor was forced to briefly suspend much of its production because it could not get hold of enough steel. Since then, Suzuki Motor has said a lack of steel would force it, too, to shut down assembly lines for a few days this month, and to reduce production from January to March. Even the giant Toyota Motor said Thursday that it has had to make adjustments in the kind of steel it buys to ensure steady supplies. The shortfall in steel is unusual in a country that for most of the last decade has been dealing with problems of excess - too many workers, unused plants and more banks than needed - but analysts and executives say it is a problem that could become increasingly common. Although widespread shortages are not expected, analysts say the supply of steel is likely to remain tight for at least the next six months, a situation that could drive steel prices higher, and in turn, raise costs for carmakers, construction companies and other industries that depend heavily on steel. So far, shortages have been limited to the high-grade steel used as automotive sheet metal, but strong demand, particularly from China, for everything from ships and office towers to home appliances, is driving steel prices broadly higher. With China now the world's biggest user of steel, prices in some markets have risen 60 percent over the past year and analysts expect further hikes in the year ahead. 'This is not a problem that can be solved in the short term,' Takeo Fukui, Honda's chief executive, said. Strong demand in China, India and elsewhere combined with limits on how fast steel production can be ramped up means supplies will remain tight for 'one, two or maybe several more years,' he said. After years of consolidation in the global steel industry, many producers are now operating near peak capacity. In Japan, where the number of large steel manufacturers has dwindled because of mergers, the industrywide capacity utilization rate is now 15 percent higher than the average rate of the last 26 years, according to the ministry of economy, trade and industry. For Japan's automakers, the steel shortages are at least partly a result of their own success. Both Toyota and Honda Motor announced earlier this week that they expected to sell record numbers of cars this year and forecast healthy gains for 2005. Nissan was forced to close plants in Japan for five days in late November because its steel sheet suppliers could not keep up with demand generated by strong sales of some of its newest models. But like so many recent wrinkles in global markets, much of the reason for the shortages can be attributed to the blurred pace of growth in China. 'People have been really caught by surprise by demand from China,' said Peter G. Harris, senior materials analyst at Commonwealth Securities in Melbourne. China's demand for steel, after rising 20 percent a year for the past three years, is now slowing as a result of the government's efforts to cool the economy, according to Piboonsak Arthabowornpisan, chairman of the Iron and Steel Industry Club of Thailand. But Mr. Piboonsak said he expected China's appetite for steel to remain relatively strong, predicting growth in demand of about 10 percent next year. While robust demand is pulling steel prices higher, they are also getting a push from below by rising raw material costs as prices march higher for both iron ore and the coking coal used to fire steel furnaces. Again, demand from China is behind the increases. The country recently began importing coking coal after domestic supplies fell short of what was needed to fuel Chinese steel mills. And competition is driving up prices. Two of Japan's largest makers, Nippon Steel and Kobe Steel, earlier this month agreed to more than double the price they pay Australian suppliers for coking coal. In the market for iron ore, analysts say that in the past Japanese steel makers pretty much set the price and could even get mining companies to commit to providing, at a set price, additional supplies if needed. But the tables have turned now that China has replaced Japan as the world's largest iron ore importer, putting ore producers in their strongest position in years. Australia's two dominant producers, BHP Billiton and Rio Tinto, are in annual price negotiations with Japanese steel makers, and ore prices are likely to rise as much as 30 percent next March, they say. The pressure to secure iron ore has become so intense that Japanese and Chinese steel mills are increasingly locking in long-term purchase contracts, even taking equity stakes in mine expansion. The Chinese are now financing infrastructure projects in Australia to encourage new players to enter the iron ore market. In November, Chinese government-owned companies agreed to bankroll a 1.85 billion Australian dollar ($1.42 billion) project to help the Fortescue Metals Group, an industry upstart, build a mine in western Australia to rival BHP Billiton, as well as port facilities and a 248-mile railway to connect the two. But until a lot more ore is made available, pressure to raise finished steel prices is likely to continue. In a report to clients this month, Andrew Gibson, a Goldman Sachs JB Were analyst based in Melbourne, said that steel prices in Australia had risen between 40 percent and 60 percent in the last year and predicted more increases in global prices next year. In Japan, prices of iron and steel have risen more than 18 percent in each of the last two months compared with levels a year earlier, according to Bank of Japan figures. To be sure, auto analysts do not expect the increase in steel prices by itself to have a significant impact on Japanese automakers, which buy about one-fifth of Japan's steel output. The bigger issue for carmakers is availability. Carlos Ghosn, chief of Nissan, said recently that the company might have to curb vehicle production again in March because of a shortage of steel. If that happens, Nissan would be forced to reduce production by a total of 40,000 vehicles, including the shutdown earlier this month, because of tight steel supplies. That reduction would reduce the company's profit by as much as 16 billion yen ($154 million), Mr. Ghosn said. And even if it crimps profits for carmakers, the prospect of rising steel prices is not necessarily an unwelcome development for the economy a whole. For most of the last decade, one of Japan's most persistent economic problems has been widespread deflation, which has kept incomes from rising and curtailed consumer spending. Rising steel prices are one sign that the price declines are coming to an end, economists say. 'It's quite positive in terms of beating deflation,' said Richard Jerram, an economist for Maquarie Securities in Tokyo.

Subject: How Do We Invest Conservatively? From: Ari To: All Date Posted: Fri, Dec 24, 2004 at 10:13:09 (EST) Email Address: Not Provided Message: Then, given all these worries, how are we to allocate an investment portfolio on which our retirement depends in the coming year? There were easy choice during the bear market, and through the last 2 years, but where now when domestic stock and bond funds all seem pricey? International stock funds?

Subject: Investing Conservatively From: Jennifer To: Ari Date Posted: Fri, Dec 24, 2004 at 11:32:17 (EST) Email Address: Not Provided Message: Here is a conservative 50% stock fund, 50% bond fund portfolio at Vanguard. 10% Value Index 20% Mid Cap Index 20% International Value Fund 10% Short Term Bond Index 40% Intermediate Term Bond Index

Subject: Re: Investing Conservatively From: Jennifer To: Jennifer Date Posted: Fri, Dec 24, 2004 at 11:36:13 (EST) Email Address: Not Provided Message: We can easily play with the percentages to make this portfolio more or less conservative: Less Conservative 10% Value Index 10% Energy or Health Care Fund 20% Mid Cap Index 20% International Value Fund 10% Short Term Bond Index 30% Intermediate Term Bond Index More Conservative 10% Value Index 15% Mid Cap Index 15International Value Fund 20% Short Term Bond Index 40% Intermediate Term Bond Index

Subject: Timid Hedge Fund and Warren Buffett - 1 From: Emma To: All Date Posted: Fri, Dec 24, 2004 at 09:37:08 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/24hedge.html Hedge Funds, Once Daring, Trim Their Currency Bets By RIVA D. ATLAS The fall in the dollar this year has been severe - the currency reached a low against the euro yesterday - but few of the best-known hedge funds have made a killing off the dollar's decline. That is a big change from years past, when the largest hedge funds made or lost fortunes by gambling on shifts in currencies. George Soros made $1 billion for his investors by anticipating a decline in the British pound in 1992, and Julian H. Robertson Jr.'s funds lost $2 billion in a single day in 1998 after betting the wrong way on the value of the yen against the dollar. The apparent absence of any big gains from large-scale speculative plays on the dollar says more about the state of hedge funds than it does about the currency markets. Hedge funds, once the last word in speculation, have become more timid as pension managers and other investors with some aversion to risk increasingly put money into the funds. This caution extends to so-called macro fund managers like Mr. Soros, who look for sharp swings up or down in a broad range of financial instruments including stocks, bonds and currencies. Macro funds, traditionally among the most aggressive, make concentrated bets when they spot a trend, often using leverage to magnify their returns - as Mr. Soros did when he gambled close to $10 billion on a decline in the pound more than a decade ago. His Quantum fund gained 69 percent in 1992. This year, a successor to that fund is up just 2 percent. Other macro funds have fared better, with returns approaching 10 percent, but that is still a shadow of the gains of 30 percent and more a decade ago. 'The tolerance for bets of that magnitude no longer exists among investors in hedge funds,' said David Gerstenhaber, the president of Argonaut Capital Management, which runs a macro fund. 'Investors are willing to accept single-digit returns,' he said. 'Why would you take that risk?' Mr. Soros declined requests for an interview on his current views about the currency markets.

Subject: Timid Hedge Fund and Warren Buffett - 2 From: Emma To: Emma Date Posted: Fri, Dec 24, 2004 at 09:38:07 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/24hedge.html The macro funds have not ignored the dollar, and have been anticipating its decline for years, an investor in hedge funds said. Hedge funds like the currency markets because they are extremely liquid, which makes it easy for the fund managers to make large bets. There has been ample opportunity for hedge funds to profit from the dollar this year. An index of the dollar's exchange rates against six leading currencies is down 11 percent since May - the decline of the dollar accelerating in October. But currencies make up one of perhaps dozens of positions that macro funds hold, so movement in any one market does not have a big impact. Mr. Gerstenhaber, for example, acknowledges that 'currency has been a huge play for us,' But his macro fund is up 10 percent, reflecting his diverse investments. Returns for macro funds are generally less robust, as well, because their managers are more reluctant to borrow heavily to increase the value of their bets, said Antoine Bernheim, publisher of the U.S. Offshore Funds Directory. 'They didn't miss it,' he said of the hedge funds and the dollar. 'But 10 years ago,' he said, 'they would have had much greater performance' because they were more willing to use leverage. Mr. Soros borrowed heavily to finance his $10 billion bet against the pound in 1992. To be sure, some investors have made a fortune by betting against the dollar in 2004, including Warren E. Buffett, the chief executive of Berkshire Hathaway. 'In 2002, we entered the foreign currency market for the first time in my life,' Mr. Buffett said in a letter to Berkshire investors in last year's annual report, 'and in 2003 we enlarged our position as I became increasingly bearish on the dollar.' Berkshire owned $12 billion in foreign currency contracts at the end of last year; by the end of September, that had increased to $20 billion. It reported a $412 million gain on those contracts in the third quarter, reversing a loss from the quarter before. An assistant to Mr. Buffett said yesterday that he was unavailable for comment, but referred to a recent interview in which Mr. Buffett remained bearish on the dollar. Specialists in currencies and commodities have also done well. A $189 million portfolio managed by John W. Henry & Company trades based on the dollar's movements against other major currencies. The portfolio rose 38 percent in November as the dollar's decline became more pronounced. John W. Henry runs $3.3 billion in managed futures funds - trading contracts for the delivery of assets, including currencies, at a future date at a set price. But the performance of the firm's Dollar Program reflects the volatility inherent in making concentrated bets on currencies. Even with its spectacular performance last month, the Henry Dollar Program was up just 3 percent for the year. Another investor who has long anticipated a decline in the dollar's value is Jim Rogers, who founded the Quantum fund with Mr. Soros in 1969 and retired a decade later to manage his own money. Mr. Rogers says that the dollar, having fallen so steeply, could rally in the short term. But any rally is likely to be temporary, he said, noting that he had set up a Swiss bank account for his baby daughter. 'The dollar is in a decline that will continue for years to come,' Mr. Rogers said. 'Somebody's making a whole lot of money, if not the hedge funds.'

Subject: Roaring China, Sweaters and Socks - 1 From: Emma To: All Date Posted: Fri, Dec 24, 2004 at 09:05:05 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/worldbusiness/24china.html?hp=&pagewanted=all&position= In Roaring China, Sweaters Are West of Socks City By DAVID BARBOZA DATANG, China - You probably have never heard of this factory town in coastal China, and there is no reason why you should have. But it fills your sock drawer. Datang produces an astounding nine billion pairs of socks each year - more than one set for every person on the planet. People here fondly call it Socks City, and its annual socks festival attracts 100,000 buyers from around the world. Southeast from here is Shenzhou, which is the world's necktie capital. To the west is Sweater City and Kid's Clothing City. To the south, in the low-rent district, is Underwear City. This remarkable specialization, one city for each drawer in your bureau, reflects the economies of scale and intense concentration that have helped turn China into a garment behemoth. On Jan. 1, a new trade regime will end the decades-old system of country-by-country quotas that divide the world's exports among roughly 150 countries. Now, China is banking on its immense size and efficient operators to grab an even larger share of the world's clothing orders. Neither Adam Smith nor Karl Marx could possibly have imagined that this kind of capitalism would evolve from a communist system in quite this way, with an obscure town in the middle of nowhere becoming the world's socks capital. But these days, buyers from New York to Tokyo want to be able to buy 500,000 pairs of socks all at once, or 300,000 neckties, 100,000 children's jackets, or 50,000 size 36B bras. And increasingly, the places that best accommodate those kinds of orders are China's giant new specialty cities. The abolition of quotas is expected to accelerate this trend over the next decade or so, particularly under the guidance of China's visible hand. The niche cities reflect China's ability to form 'lump' economies, where clusters or networks of businesses feed off each other, building technologies and enjoying the benefits of concentrated support centers - like the button capital nearby, which furnishes most of the buttons on the world's shirts, pants and jackets. The new era, thus, offers a glimpse into how China's fast-paced economy is developing into more than just a beehive of individual private enterprises. Beyond the entrepreneurial vigor so palpable here, the textile business is a prime example of how the Chinese government's attempt to guide development more indirectly through local planning instead of outright state ownership is starting to pay off in a big way. China is not just becoming the leader of the pack. In many ways, it hopes to run away with as much of the market as possible. New import limits by the United States, along with other external and internal forces, are expected to hamper China's progress in apparel and textiles for several years, if not longer. That should allow several other countries to maintain vigorous garment industries as well. But there is little question that China will ultimately be the dominant force in the business, and the growth of its industrial enclaves here highlights just how powerful a force China's industries are becoming in almost every sector they have entered. In the late 1970's, Datang was little more than a rice farming village with 1,000 people, who gathered in small groups and stitched socks together at home, and then sold them in baskets along the highway. Back then, government officials branded Datang's sock makers as capitalists and ordered them to stop selling socks. Now, they produce over a third of the world's output, and the government has nothing but praise for such entrepreneurs and their domination of the sock business. 'If the restrictions are dropped, there'll be even more production here,' says one government official, Weiming Feng, the town's deputy party secretary and an official at the city's sock market.

Subject: Roaring China, Sweaters and Socks - 2 From: Emma To: Emma Date Posted: Fri, Dec 24, 2004 at 09:07:17 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/worldbusiness/24china.html?hp=&pagewanted=all&position= Signs of Datang's rise as a socks capital are everywhere. The center of town is filled with a huge government-financed marketplace for socks. The rice paddies have given way to rows of paved streets lined with cookie-cutter factories. Banners promoting socks are draped across buildings. And each year, Datang is decorated with balloons and flags for the annual sock fair. And rags-to-riches tales abound in Datang. Just ask Dong Ying Hong, who in the 1970's gave up a $9-a-month job as an elementary-school teacher to make socks at home. Now, she is the owner of Zhejiang Socks - and a sock millionaire. Hai Yun Shi, the 41-year-old founder of Hongyun Socks, has a similar tale. 'I started out making socks by hand when I was 18,' he said at the company's headquarters. 'In '96 we founded this company. Now, we have a contract with Wal-Mart.' These kinds of gains have sharply eroded America's old sock-making might. American textile companies filed a petition earlier this year asking Washington to place limits on Chinese sock imports. Hoping to ease trade tensions, the Chinese government said in early December that it would voluntarily add tariffs on some of its own textile and apparel exports to reduce their competitive thrust. That is one reason, among others, why many specialists believe that China's wallop will not come all at once. 'It won't happen overnight,' said Bruce Rockowitz, president of Li & Fung, a Hong Kong company that is one of the world's largest apparel distributors. 'It's not a big movement to China right now for retailers. There's too much uncertainty.' Smaller countries, like Bangladesh and Cambodia - which feared they could not keep up with China - are breathing easier. At least for now. Still, China already accounts for about 16 percent of all apparel imports into the United States. And several studies project that in the next few years, once all the limits are lifted, that figure could soar to 50 percent to 70 percent. 'There's no question, at the end of the day, China ends up a much bigger player in the global apparel business,' said David Weil, an associate professor of economics at Boston University. Textile and apparel makers in China have long been preparing for the coming boom. In recent years, they have invested billions of dollars in new factories along the country's eastern seaboard, particularly here in the Yangtze River Delta. Many of the old government-owned operations are gone. Private enterprises are importing high-end machinery and luring millions of peasants from the countryside. Since the early 1980's, when China began moving to a market economy, much of its competitive advantage was built on low-cost labor. Companies spend about 92 cents an hour for each worker in China, versus $1.20 in Thailand, $1.70 in Mexico and about $21.80 in the United States, according to a study by Goldman Sachs. Among big exporters, only India, at about 70 cents an hour, is cheaper. Investors from Hong Kong, Taiwan, Japan and South Korea were among the first to come. But in recent years, Chinese entrepreneurs set up their own shops, starting out with small stitching operations and quickly expanding into gigantic factories. For instance, Shengzhou, now popularly known in Chinese as International Necktie City, developed after a Hong Kong investor moved his necktie operations there in 1985 and brought modern tie-making techniques to the city. That was only a few years after China opened itself to capitalism when Deng Xiaoping in 1978 declared, 'To get rich is glorious.' Later, some of the company's managers broke away to start their own tie companies. And within a decade, Shengzhou was awash in tie makers and suppliers. Similar stories can be heard throughout the province of Zhejiang, which is considered one of this country's most enterprising regions. But textile specialists say China's boom is not simply the product of the newfound entrepreneurialism that is sweeping this country; it is also the nation's ability to form what are called lump economies, focused on one product. Savvy entrepreneurs started out by luring suppliers, like fabric, dye or tool makers, to their cities, and as these clusters grew, they attracted more local investors who competed by trying to further specialize in socks or jeans production. 'The clusters are getting more and more specialized,' says Qingliang Gu, a professor of textile economics at Donghua University in Shanghai. 'It's a little like Italy, where you have the city of Como making silk fabric, Vicenza with fine wool and Veneto for knitting.'

Subject: Roaring China, Sweaters and Socks - 2a From: Emma To: Emma Date Posted: Fri, Dec 24, 2004 at 09:12:26 (EST) Email Address: Not Provided Message: The Chinese government has also played a crucial role, opening huge swaths of land for development, forming giant industrial parks, doling out tax benefits and developing the infrastructure and transportation networks needed to move products quickly to market. 'The textile cities started initially from the spontaneous development of private companies,' said Chunyi Xie, an economist at the Shanghai Garment Trade Association. 'But when it reached certain dimensions it drew attention from the government.'

Subject: Roaring China, Sweaters and Socks - 3 From: Emma To: Emma Date Posted: Fri, Dec 24, 2004 at 09:10:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/24/business/worldbusiness/24china.html?hp=&pagewanted=all&position= Private companies, with the support of the government, now build huge textile factory complexes, complete with dormitories, hospitals and even curfews to replace the state role in providing food, shelter and health care, along with close supervision. Many textile companies in the province of Jiangsu house and feed thousands of migrant workers who are bused in from the countryside, often for three- or four-year factory stints. The campus of the Huafang Group, one of China's largest textile companies, has over 100 factory buildings, 30,000 employees and round-the-clock operations. On any day, it teems with more than 20,000 workers, who live free of charge in Huafang's dormitories. Conditions are hardly heavenly, but they are often a step up for these workers, who are mostly young women from poorer inland provinces like Anhui or Henan. Many of them come here after high school, intending to stay for a few years before returning home to be married. Then, after those women return home, another 10,000 or so are bused in from the countryside, beginning yet another cycle in the pool of migrant labor that perpetually feeds China's bustling mills. 'When we need new workers,' said Wei Xin Shi, a Huafang Group executive, 'we just announce it and people here call home and tell their friends to come to work at our factories.' Yun Liu, 23, is one of those workers. She left a small town in northern Jiangsu four years ago. Now, she makes $130 a month in Huafang's cotton spinning mill, where she spins raw cotton into fine threads eight hours a day. 'I really like being here,' she said one afternoon outside the factory. 'It's a stable job, and I like the environment.' Few places on earth can match the sheer scale and variety of textile and apparel companies clustering in this region. 'In terms of vertical supply chain, China has no competition,' says Ruizhe Sun, president of the China Textile Information Center, a government-sponsored agency in Beijing. 'We have button makers, fabric makers, thread makers, zipper makers, you name it.' That situation is luring investors and competitors from other parts of the world. 'A few years ago, when I came here there were no Italians,' said Ellen Zhou, a Chinese citizen now working for a textile company based in Thiene, Italy. 'Now they're everywhere, in the hotels, at the cafes.' Chinese textile executives, however, are well aware of the risks of overexpansion. And there are other problems looming as well. The market for labor has tightened in the past year, pushing up wages. Companies and even government officials have long ferried migrant workers into Zhangjiagang from the nearby province of Anhui, many of whom were willing to work for $4 a day. But recently some factories have been struggling to find workers, and many executives say they expect wages to rise. 'We feel labor costs are going up,' Jianhong Gu, vice general manager of Pukun Textile, a Zhangjiagang suit maker whose factories operate 24 hours a day. 'There's tremendous competition.' Moreover, foreign designers and retailers are keen to keep a network of business ties with other countries with relatively modern factories, like India, Pakistan and Bangladesh. Fred Abernathy, a researcher at the Center for Textile and Apparel Research at Harvard, says retailers in the United States will continue to buy quantities of textiles and apparel close to home, particularly in Latin America and the Caribbean, because of the need for 'just in time' delivery for some items. He also expects specialty clothing and textiles operations to continue to survive in New York, North Carolina, France and Italy. But, he concedes, 'China will gain over the long run.' Jinfei Wang, the chairman of the Jiangsu Diao Garment factory in Tongzhou, just outside Nantong, says there's no doubt about that. 'I've been to factories all over the world,' he said in a recent interview while walking his own bustling factory floor, observing women's suits destined for J. C. Penney stores. 'And we can compete with any of them. Without restrictions, certainly China is going to be No. 1.'

Subject: China's Support of the Dollar From: Terri To: All Date Posted: Thurs, Dec 23, 2004 at 20:54:44 (EST) Email Address: Not Provided Message: What is China's strategic economic interest? When the question is so asked, my answer is all the interest of China rests in sustained 7% economic growth and a lessening of income inequality. China's development model is working, leadership will change the model with most caution. For now the dollar is likely to be supported by China, Japan, smaller Asian economies and Brazil.

Subject: Bleak Outlook for Hospitals and Patients From: Emma To: All Date Posted: Thurs, Dec 23, 2004 at 18:58:44 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/23/business/23place.html Health Care Analysts See Bleak Outlook for Hospitals By REED ABELSON A CHILL is in the air for hospitals accustomed to having insurers - both public programs like Medicare and private health plans - pay ever higher prices for hospital services. That era appears to be ending, some analysts say. For companies like HCA, Tenet Healthcare and other hospital chains, the outlook for the future is largely negative, said Gary Taylor, an analyst who follows for-profit hospitals for Banc of America Securities. 'I think it's a big risk,' he said. For example, Mr. Taylor noted, growing Medicare costs may well force the Bush administration to insist that hospitals bear the brunt of any future efforts to reduce the program's costs. Hospital stocks have had a lackluster year, largely because of slow growth in patient admissions and a rise in unpaid bills, or bad debt, from people without enough insurance coverage or any coverage at all. 'The stocks underperformed the market,' said John Ransom, director of health care research for Raymond James & Associates, who follows many hospital companies. Unless a better economy in 2005 leads more people to use hospital services and to pay their bills, he says he thinks the stocks will continue to suffer. The shares of HCA, which is the largest for-profit chain, for example, have fallen by about 9 percent since January. Shares closed yesterday at $39.10. And Tenet has said it does not expect to do more than break even in 2005. Shares in Tenet are down about a third this year and closed yesterday at $10.68. Tenet announced on Tuesday that it had agreed to settle, for $395 million, patient lawsuits stemming from accusations of unnecessary heart surgeries at one of its California hospitals. The company still faces numerous other lawsuits as well as significant operational challenges. The financial outlook for next year may be even worse, said Mr. Taylor, who recommends selling Tenet stock and is neutral on HCA. The hospital industry's weak prospects for the coming years have much to do with the Medicare bill enacted last year, which for the first time committed the federal government to help pay for prescription drugs for Medicare recipients. As part of that reform, the federal program says it will increase the participation of preferred-provider plans in delivering care. For most people, Medicare pays doctors and hospitals directly without making use of a managed-care plan. Expanding the use of preferred-provider plans, Mr. Taylor said, 'would be a huge negative for the hospitals' because those plans are better able to negotiate lower prices with hospitals and to restrict hospital admissions. While Medicare hospital payments are relatively generous under the reform bill, analysts say, those rates may be cut if the cost of drugs for the elderly soars and the federal budget deficit grows. Many say they believe federal policy makers will look to hospitals as a place where they can save money, as they did in the mid-1990's when they substantially reduced payments to balance the federal budget. Early next year, the Medicare trustees will issue their annual report on the financial health of the program. Mr. Taylor predicts that pressures from the new drug benefit will force a rethinking of hospital payments under Medicare. Mr. Ransom also said investors should keep an eye on Medicare discussions early in 2005, but he added that Congress might instead turn its attention to overhauling Medicaid, the state-federal insurance program for the poor.

Subject: Hedge Fund Speculation From: Terri To: All Date Posted: Thurs, Dec 23, 2004 at 18:31:41 (EST) Email Address: Not Provided Message: http://www.princeton.edu/~markus/research/papers/hedgefunds_bubble.htm Abstract: 'This article documents that hedge funds did not exert a correcting force on stock prices during the technology bubble. Instead, they were heavily invested in technology stocks. This does not seem to be the result of unawareness of the bubble: Hedge funds captured the upturn, but, by reducing their positions in stocks that were about to decline, avoided much of the downturn. Our findings question the efficient markets notion that rational speculators always stabilize prices. They are consistent with models in which rational investors may prefer to ride bubbles because of predictable investor sentiment and limits to arbitrage.'

Subject: Hedge Fund Speculation a From: Terri To: Terri Date Posted: Thurs, Dec 23, 2004 at 18:32:21 (EST) Email Address: Not Provided Message: Again, if I understand, stock hedge funds caught as they had to were they to survive the bubble market in technology. But, they were able to leave the technology sector stock by stock as the declines began and preserved gains. Interesting.

Subject: Hedge Fund Speculation b From: Terri To: Terri Date Posted: Thurs, Dec 23, 2004 at 18:32:46 (EST) Email Address: Not Provided Message: While we might think that hedge funds would bet against a forming bubble, and provide limits to the inflation, there is reason to expect the opposite. Why not bet with the bubble, knowing that bubble it is. After all, your investors expect you at least to keep up in a bull market and not to keep up in a bubble will cost you investors. There might also be a sense that there is no bubble, simply rising asset prices with which you wish to keep up. The problem with simply going along with the rise is forgetting how readily a turn can come. So, we have the hedge fund manager who will contribute to the bubble and continually be looking for reasons to sell.

Subject: Re: Hedge Fund Speculation b From: David E... To: Terri Date Posted: Thurs, Dec 23, 2004 at 19:06:51 (EST) Email Address: Not Provided Message: The black magic part is how they escape while the bubble was bursting. Mutual fund managers got totatled. What was their escape route.

Subject: Re: Hedge Fund Speculation b From: Terri To: David E... Date Posted: Thurs, Dec 23, 2004 at 19:45:48 (EST) Email Address: Not Provided Message: Darn, I do not yet know the answer to your perfect question but I am reading and thinking and asking. I love these questions.

Subject: Vanguard Returns From: Terri To: All Date Posted: Thurs, Dec 23, 2004 at 15:49:03 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/22/04 S&P is up 10.5% Growth Index is 6.6 Value Index is 15.2 Mid Cap Index is 19.4% Small Cap Index is 19.1% Small Cap Value is 23.0 Europe Index is 18.9 Pacific Index is 14.6 Energy is 35.4 Health Care is 7.9 REIT Index is 30.8 High Yield Corporate Bond Fund is 8.3 Long Term Corporate Bond Fund is 8.7

Subject: National Index Returns From: Terri To: All Date Posted: Thurs, Dec 23, 2004 at 15:48:24 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/22/04 Australia 27.8 Canada 18.7 Denmark 29.3 France 16.8 Germany 14.6 Hong Kong 23.1 Ireland 39.6 Japan 11.3 Norway 52.0 Sweden 35.6 Switzerland 13.9 UK 18.1

Subject: Truffles and the Dollar From: Emma To: All Date Posted: Thurs, Dec 23, 2004 at 13:26:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/23/business/23truffle.html?pagewanted=all&position= Leave No Truffle Behind? By EDUARDO PORTER At Le Bernardin, the four-star Manhattan seafood restaurant, the prix fixe menu these days runs a hefty $92. But Eric Ripert, the owner and chef, winces every time a customer orders the wild salmon on a bed of asparagus. 'If you choose the salmon you kill us,' Mr. Ripert said. 'We are losing money every time we sell a portion.' Mr. Ripert is not used to worrying about the value of the dollar in foreign currency markets but it is much on his mind lately. That's because one of the prime ingredients in the dish is black winter truffles imported from France's Périgord region. With the value of the dollar down by roughly 35 percent against the euro since the beginning of 2002, the preserved truffles Mr. Ripert imports to use in his sauce have risen sharply in price lately. Today, a seven-ounce tin costs him about $280, up from $200 a year ago. The dollar's weakness, Mr. Ripert said, 'is a real disaster at the level of the truffles.' Truffle inflation should come as no surprise. The devaluation of the dollar against the euro and some other currencies like the British pound and the Swiss franc forces American importers of goods from Europe to raise prices or accept sharply lower profits because they must spend more, in dollars, to buy products priced in European currencies. On things like truffles and caviar, where few equally good domestic substitutes exist and where aficionados can afford the best, there is little incentive to keep prices from rising in the United States. But apart from truffles, a variety of other imported foods and a handful of specialized European products, the sinking dollar has so far had a relatively modest impact on the prices paid by American consumers. Excluding oil, import prices rose by 0.7 percent in November, the fastest pace since January. The average price American importers pay for nonoil foreign goods has increased 3.4 percent over the last 12 months. That is significantly above the 2.3 percent rise in the general price index, excluding energy, but still quite modest. And most consumers have not yet felt much of a pinch. While the prices of commodities like steel and plastic have risen sharply, the products they go into have not become much more costly. Imported automotive vehicles and parts, for instance, inched up merely 2.1 percent over the last 12 months. As a whole, the consumer prices of all imported manufactured durable goods, excluding cars, actually fell 0.1 percent. 'Price trends have remained generally the same as in the past few years,' said Abe Brown, a spokesman for J&R Music and Computer World, which runs a suite of stores in downtown Manhattan. That is, electronic gadgets are either cheaper or they cost the same but have more bells and whistles. The main reason for this moderation is that while the dollar has declined substantially against several major currencies - besides European currencies, the Canadian dollar and the Japanese yen have also strengthened considerably - it has depreciated much less against the currencies of the Asian countries from which the United States imports many popular consumer items. 'In most consumer goods categories, China is the top supplier to the U.S.,' said Erik Autor, international trade counsel for the National Federation of Retailers. The price of the PC's, DVD players and sneakers imported from China and other low-wage countries in Asia are not rising because the yuan has been kept fixed against the dollar by the Chinese government. Countries that compete with China also tend to keep their currencies relatively stable against the dollar.

Subject: America, the Indifferent From: Emma To: All Date Posted: Thurs, Dec 23, 2004 at 12:10:44 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/23/opinion/23thurs1.html America, the Indifferent It was with great fanfare that the United States and 188 other countries signed the United Nations Millennium Declaration, a manifesto to eradicate extreme poverty, hunger and disease among the one billion people in the world who subsist on barely anything. The project set a deadline of 2015 to achieve its goals. Chief among them was the goal for developed countries, like America, Britain and France, to work toward giving 0.7 percent of their national incomes for development aid for poor countries. Almost a third of the way into the program, the latest available figures show that the percentage of United States income going to poor countries remains near rock bottom: 0.14 percent. Britain is at 0.34 percent, and France at 0.41 percent. (Norway and Sweden, to no one's surprise, are already exceeding the goal, at 0.92 percent and 0.79 percent.) And we learned this week that in the last two months, the Bush administration has reduced its contributions to global food aid programs aimed at helping hungry nations become self-sufficient, and it has told charities like Save the Children and Catholic Relief Services that it won't honor earlier promises. Instead, administration officials said that most of the country's emergency food aid would go to places where there were immediate crises. Something's not right here. The United States is the world's richest nation. Washington is quick to say that it contributes more money to foreign aid than any other country. But no one is impressed when a billionaire writes a $50 check for a needy family. The test is the percentage of national income we give to the poor, and on that basis this country is the stingiest in the Group of Seven industrialized nations. The administration has cited the federal budget deficit as the reason for its cutback in donations to help the hungry feed themselves. In fact, the amount involved is a pittance within the federal budget when compared with our $412 billion deficit, which has been fueled by war and tax cuts. The administration can conjure up $87 billion for the fighting in Iraq, but can it really not come up with more than $15.6 billion - our overall spending on development assistance in 2002 - to help stop an 8-year-old AIDS orphan in Cameroon from drinking sewer water or to buy a mosquito net for an infant in Sierra Leone? There is a very real belief abroad that the United States, which gave 2 percent of its national income to rebuild Europe after World War II, now engages with the rest of the world only when it perceives that its own immediate interests are at stake. If that is unfair, it's certainly true that American attention is mainly drawn to international hot spots. After the Sept. 11 bombings, Washington ratcheted up aid to Pakistan to help fight the war on terror. Just last week, it began talks aimed at contributing more aid to the Palestinians to encourage them to stop launching suicide bombers at Israel. Here's a novel idea: how about giving aid before the explosion, not just after? At the Monterey summit meeting on poverty in 2002, President Bush announced the Millennium Challenge Account, which was supposed to increase the United States' assistance to poor countries that are committed to policies promoting development. Mr. Bush said his government would donate $1.7 billion the first year, $3.3 billion the second and $5 billion the third. That $5 billion amount would have been just 0.04 percent of America's national income, but the administration still failed to match its promise with action. Back in Washington and away from the spotlight of the summit meeting, the administration didn't even ask Congress for the full $1.7 billion the first year; it asked for $1.3 billion, which Congress cut to $1 billion. The next year, the administration asked for $2.5 billion and got $1.5 billion. Worst of all, the account has yet to disperse a single dollar, while every year in Africa, one in 16 pregnant women still die in childbirth, 2.2 million die of AIDS, and 2 million children die from malaria. Jeffrey Sachs, the economist appointed by Kofi Annan to direct the Millennium Project, puts the gap between what America is capable of doing and what it actually does into stark relief. The government spends $450 billion annually on the military, and $15 billion on development help for poor countries, a 30-to-1 ratio that, as Mr. Sachs puts it, shows how the nation has become 'all war and no peace in our foreign policy.' Next month, he will present his report on how America and the world can actually cut global poverty in half by 2015. He says that if the Millennium Project has any chance of success, America must lead the donors. Washington has to step up to the plate soon. At the risk of mixing metaphors, it is nowhere even near the table now, and the world knows it.

Subject: China and U.S. Compete for Canada's Oil From: Emma To: All Date Posted: Thurs, Dec 23, 2004 at 11:50:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/23/business/worldbusiness/23canada.html China Emerging as U.S. Rival for Canada's Oil By SIMON ROMERO CALGARY, Alberta - China's thirst for oil has brought it to the doorstep of the United States. Chinese energy companies are on the verge of striking ambitious deals in Canada in efforts to win access to some of the most prized oil reserves in North America. The deals may create unease for the first time since the 1970's in the traditionally smooth energy relationship between the United States and Canada. Canada, the largest source of imported oil for the United States, has historically sent almost all its exports of oil south by pipeline to help quench America's thirst for energy. But that arrangement may be about to change as China, which has surpassed Japan as the second-largest market for oil, flexes its muscle in attempts to secure oil, even in places like the cold boreal forests of northern Alberta, where the oil has to be sucked out of the sticky, sandy soil. 'The China outlet would change our dynamic,' said Murray Smith, a former Alberta energy minister who was appointed this month to be the province's representative in Washington, a new position. Mr. Smith said he estimated that Canada could eventually export as many as one million barrels a day to China out of potential exports of more than three million barrels a day. 'Our main link would still be with the U.S. but this would give us multiple markets and competition for a prized resource,' Mr. Smith said. Delegations of senior executives from China's largest oil companies have been making frequent appearances in recent weeks here in Calgary, Canada's bustling energy capital, for talks on ventures that would send oil extracted from the oil sands in the northern reaches of the energy-rich province of Alberta to new ports in western Canada and onward by tanker to China. Chinese companies are also said to be considering direct investments in the oil sands, by buying into existing producers or acquiring companies with leases to produce oil in the region. In all, there are nearly half a dozen deals in consideration, initially valued at $2 billion and potentially much more, according to senior executives at energy companies here. One preliminary agreement could be signed in early January. A spokesman for the Department of Energy in Washington said officials were monitoring the talks but declined to comment further. China's appetite for Canadian oil derives from its own insatiable domestic energy demand, which has sent oil imports soaring 40 percent in the first half of this year over the period a year ago. China's attempts to diversify its sources of oil have already led to several foreign exploration projects in places considered on the periphery of the global oil industry like Sudan, Peru and Syria. In Calgary, however, the negotiations with China have focused on the oil sands, an unconventional but increasingly important source of energy for the United States. Higher oil prices have recently made oil sands projects profitable, justifying the expense of the untraditional methods of producing oil from the sands. Large-scale mining and drilling operations are required to suck a viscous substance called bitumen out of the soil. 'China's gone after the low-hanging fruit so far,' said Gal Luft, a Washington-based authority on energy security issues who is writing a book on China's search for oil supplies around the world. 'Now they're entering another level of ambition, in places such as Venezuela, Saudi Arabia and Canada that are well within the American sphere.' Canada's oil production from the sands surpassed one million barrels a day this year and was expected to reach three million barrels within a decade. The bulk of output is exported to the Midwestern United States. That flow pushed Canada ahead of Saudi Arabia, Mexico and Venezuela this year as the largest supplier of foreign oil to the United States, with average exports of 1.6 million barrels a day. Even so, there is the perception among many in Alberta's oil patch that Canada's rapidly growing energy industry remains an afterthought for most Americans. That might change, industry analysts say, if Canada were to start exporting oil elsewhere. 'A China agreement might serve as a wake-up call for the U.S.,' said Bob Dunbar, an independent energy consultant here who until recently followed oil issues at the Canadian Energy Research Institute. Executives at energy companies and investment banks in Calgary say an agreement with the Chinese could materialize as early as next month. Ian La Couvee, a spokesman for Enbridge, a Canadian pipeline company, said it was in talks to offer a Chinese company a 49 percent stake in a 720-mile pipeline planned between northern Alberta and the northwest coast of British Columbia. The pipeline project, which is expected to cost at least $2 billion, would send as much as 80 percent of its capacity of 400,000 barrels a day to China with the remainder going to California refineries. Sinopec, one of China's largest oil companies, was said by executives briefed on the talks to be the likeliest Chinese company in the project. A rival Canadian pipeline company, Terasen, meanwhile, has held its own talks with Sinopec and the China National Petroleum Corporation about joining forces to increase the capacity of an existing pipeline to Vancouver. Richard Ballantyne, president of Terasen, said it had supplied almost a dozen tankers this year to help Chinese refineries determine their ability to process the Alberta crude oil blends. 'There's been significant interest so far, but the way I understand it, their refineries are still better suited to handling Middle Eastern crude than ours,' Mr. Ballantyne said. 'That has to change if they're intent on diversifying their sources of oil.'

Subject: 'Twas the night before Christmas From: Setanta To: All Date Posted: Thurs, Dec 23, 2004 at 10:55:15 (EST) Email Address: Not Provided Message: I'm signing off until Jan 6th, i'm going to a quiet little island off the west coast of ireland where the nearest telephone is a 45 minute walk away...heaven!!! Hope you and you families have a lovely Christmas. See you in 2005, Setanta Courtesy of Investopedia.com 'Twas the night before Christmas, and all through the house Not a broker was churning, as they were home with the spouse; The stocks had been researched and purchased with care, In hopes that high returns soon would be there. Investors were nestled all snug in their beds, While visions of ten baggers danced in their heads. The Investopedia Staff had done their week-long preach, But they hadn't yet run out of things to teach. When on CNBC there arose such a clatter, I sprang from my chair to see what was the matter. Up to the TV I flew like a flash, To hear the latest rumors and political trash. The analyst picks, a normal part of the show; But smart investors knew it was all so much blow. When, what to my wondering eyes should appear, But Warren Buffett, with something for investors to hear, His eyes, how they twinkled with savvy and wit, I knew that his insight would be a smash hit. More rabid than eagles his listeners they came, And he bellowed, and shouted, and called out by name: 'Now, Stocks! Now, Bonds! Now, REITs and Mutuals! On Options! On Futures! On Technicals and Fundamentals! To the top of the world! And to prevent a great fall, Diversify! Diversify! Diversify All!' The market fluctuates, but long term it will fly, When met with uncertainty, you should diversify; Ignore the picks and advice, even from Uncle Hugh, Forget the day to day, you have better things to do. And then, in my e-mail, just what should arrive? The sound of a hot issue -- my heart was alive. I shivered and shook as I saw all the green, And realized the truth: IPOs return pretty lean. The life of your broker, the fortune and fame, 'Leave it to the expert!' you heard him exclaim. A bundle of 'wisdom' they have in their bags, Promising you they'll make riches from rags. The broker's empty promises and occasional skim, Are you sure you should leave your finances to him? His fees may be steep, but he seemed so credible. 'Stick with me,' he announced, 'it'll be unforgettable!' But quickly you thought, like a smart little elf, 'This doesn't seem hard.... I could do it myself!' With a sparkle in your eye you knew it was easy, And the lines from your broker just sounded so cheesy. The broker just laughed, as you gave him a 'NO!' But you know that your skills will make your cash grow. He ranted and raved as he stomped on the floor, 'Good luck!' he sneered, 'You know nothing of this chore!' Out the door he ran and drove off in his Beamer, But don't worry my friend, you are not just a dreamer. With a visit to Investopedia, you are starting it right, 'So Merry Christmas to All, and to All a Good Night!' Happy Holidays to You and Yours!

Subject: 'Twas the night before Christmas From: Emma To: Setanta Date Posted: Thurs, Dec 23, 2004 at 11:32:59 (EST) Email Address: Not Provided Message: We will be thinking of you and miss you. Fare well and think of us.

Subject: Merry Christmas AND Happy Holidays... From: Pete Weis To: All Date Posted: Thurs, Dec 23, 2004 at 10:21:47 (EST) Email Address: Not Provided Message: to all who post on and follow this site! Terri. Great posts on debate between Nouriel Roubini and Brad DeLong.

Subject: Bah! Humbug! From: Paul G. Brown To: Pete Weis Date Posted: Thurs, Dec 23, 2004 at 15:02:12 (EST) Email Address: Not Provided Message: ... and a lump of coal in sundry stockings. They know who they are.

Subject: Merry and Happy From: Jennifer To: Paul G. Brown Date Posted: Thurs, Dec 23, 2004 at 15:51:55 (EST) Email Address: Not Provided Message: A wonderful comment board. Thank you, thank you :)

Subject: Re: Merry Christmas AND Happy Holidays... From: Terri To: Pete Weis Date Posted: Thurs, Dec 23, 2004 at 10:28:12 (EST) Email Address: Not Provided Message: To all my fondest wishes. Thanks Pete, Emma, Jennifer, Pancho, David, Setanta, Jimsum, Mik, Paul, Ari, Institutional,...all. Thanks Bobby and Paul Krugman

Subject: Lovely Holiday All From: Emma To: Terri Date Posted: Thurs, Dec 23, 2004 at 14:03:28 (EST) Email Address: Not Provided Message: Happy holiday to all and all.

Subject: Lovely Holiday For All From: Ari To: Emma Date Posted: Thurs, Dec 23, 2004 at 17:28:33 (EST) Email Address: Not Provided Message: All my wishes for you.

Subject: Re: Lovely Holiday For All From: Pancho Villa To: Ari Date Posted: Fri, Dec 24, 2004 at 14:04:05 (EST) Email Address: nma@hotmail.com Message: I wish u a merry x-mas, i wish u a merry x-mas, i wish u a merry x-mas and ...

Subject: Nouriel Roubini on the Dollar From: Terri To: All Date Posted: Wed, Dec 22, 2004 at 19:33:33 (EST) Email Address: Not Provided Message: Nouriel Roubini: Brad DeLong says that the risk in my scenario of a severe rollover crisis is small if our foreign debt is in our currency and is mostly equities. But, increasingly our foreign liabilities are not equities but rather debt and, increasingly, public debt (see http://www.bea.doc.gov/bea/newsrel/intinvnewsrelease.htm for the BEA latest report on the US Net International Investment Position). In the 1990s our current account deficit was driven by a real investment boom and the capital inflow that was financing it was mostly foreign equities (FDI, M&A, greenfield investments). But since 2001, our current account deficit has worsned in spite of a fall in investment of 4% of GDP. Why? Our fiscal deficit with our public savings of 2.5% of GDP in 2000 turning into a fiscal deficit of 4% of GDP. So, for the last four years foreigners are financing our budget deficit and most of the increase in the net foreign liabilities of the US is debt, not equities and public debt especially. By the end of 2003, foreign central banks held 1,472 billion of reserves (mostly US Treasuries), other foreigners held 542 billlion of US Treasuries and other foreigners held $1,852 of corporate bonds (a good chunk of which are GSEs, a semi-public for of debt). Thus, out of $ 9,633 billion of foreign liabilities over 2,000 billion are US Treasuries and almost another 2 trillion is corporate bonds. If you add other foreign debt of the US (liabilities of the banking system), only about 3 trillion of the US foreign liabilities are equity (FDI and equity portfolio). So, over two thirds of our foreign liabilities is now debt. Thus, as i already agreed we do still borrow in our own currency (but for how long if we keep on debasing our currency?) while most of our foreign liabilities are now debt, not equity. Also, in Brad's mild scenario the fall in the US $ should lead to a sharp increase in US interest rates; thus, both traded and non-traded sectors will be hurt by high rates, more so the non-traded but also the traded one. Thus, the ensuing recession will hit both traded and non-traded sector. In other terms, what would US growth be if long rates were now 6 or 7% rather than 4% once foreign central banks stop intervening to prop the value of the dollar?

Subject: Nouriel Roubini on Interest Rates From: Terri To: Terri Date Posted: Wed, Dec 22, 2004 at 19:34:55 (EST) Email Address: Not Provided Message: The Fed directly controls only short term interest rates and any action to stabilize long-term interest rates would be more than unorthodox, it would be an attempt to manipulate long term interest rates that, while not unheard of (Operation Twist in the US in te 1950s or Japanse purchases of long term bonds in the recent Japanese deflation) it would be highly unusual and not consistent with Greenspan philosophy (but Ben Bernanke may think otherwise as he considered such unorthodoxy in fighting deflation). But let us assume the Fed does intervene to stabilize the long rate: domestic and foreign residents are dumping US Treasuries (both short and long) not because they want to hold dollar cash assets; it is because they are trying to flee a plunging dollar. Since the US does not have enough reserve to prevent the $ from collapsing, then the question is whether bond market intervention is a substitute to forex intervention to stop the free fall of the dollar. My answer is not. First, intervening in the bond market is first of all an act of true desperation; it undermines confidence. Second, that action increases by massive amounts the monetary base in the US; it could more than double it or triple it overnite. Third, in a situation in which investors are trying to flee US assets in a rollover crisis such increase in liquidity puts massive further pressure on the US dollar and since the US does not have the forex reserves to stop the dollar free fall, the dollar falls further and the flight from the bond market is further exacerbated leading to even further liquidity intervention to sustain a falling bond market. Then you get both a currency crack and a bond market crack...Again, the probability of such severe crisis scenarios are small and a nasty shock to the bond market is anyhow the pain that the economic idiots in Washington and the White House need to feel to reverse their tax cuts and give up on social security privatization. Thus, bond market intervention is neither helpful nor desirable. I am not saying a severe crisis will occur with certaintly. I am saying that continuing reckless fiscal policies will make it highly likely and force a policy adjustment. That is what we need.

Subject: Nouriel Roubini and Economic Prospects From: Terri To: Terri Date Posted: Wed, Dec 22, 2004 at 20:16:16 (EST) Email Address: Not Provided Message: Nouriel Roubini: The two 'cases' described by Brad De Long, where the real effect of the dollar crash are dampened do not appear as realistic. In Case 1, the Fed needs to intervene to support long Treasuries; apart from my previous critique of this, the ensuing collapse of the dollar driven by massive liquidity injection leads to sharply higher inflation and the need for the Fed to tighten short rates. Also, markets may test the willingness of this highly unorthodox Fed manuever to defend a particular long rate (that is causing a truly massive liquidity injections and sharply falling dollar that are both highly inflationary). And in this game of chicken the Fed gives up the defense of the long rate peg sooner rather than later. In case 2, you got a debt rollover crisis on all maturing debt, be it short or long that is coming to maturity. The De Long solution is to fully monetize the whole stock of public debt that is maturing and the one that would otherwise finance the budget deficit. Then, we are talking of liquidity injection (increase in monetary base) of over $1,000 billion in 2005 and much more if the crisis occurs in 20056 or later. Then, base money is liteally exploding (tripling, quadrupling or more), the dollar is then in real free fall and inflation goes through the roof. Note that in all these scenarios you get not just a dollar crash (as you get a currency run http://www.roubiniglobal.com/archives/2004/11/speculative_cen.html) and a bond market crash but also a stock market crash as in 1987. In fact, as very intelligently pointed out by Billmon in a reply to my blog posting: 'It seems to me the events of the summer and fall of 1987 provide at least a partial precedent for the kind of rollover crisis Dr. Roubini is describing. The short-term failure of the Louvre agreement to stablize the dollar, plus an abrupt perk-up in U.S. leading inflation indicators led to a fairly massive exodus of Japanese institutional investors from Treasury debt, albeit longer-dated maturies, not T-Bills.(If you look at the Treasury Dept's chart referenced in the post, you can see the abrupt downward spike in average maturity that this produced.) The end result, of course, was a rip-roaring bond bear market, a stock market crash, an emergency injection of liquidity by the Fed, and - depending on whose memoirs you believe - something close to a global financial crisis in the winter of 1988. On the other hand, 1987 was in the rosy dawn of our new world order of massive U.S. financial imbalances - domestic savings rates were higher, debt loads lower. And, as Dr. Roubini points out, the Treasury had not yet transformed itself into the modern-day version of the Weimer Republic's Reichsbank. So in the end, the Fed was able to engineer a soft landing, kind of, sort of. Alas, now we're two decades older, and a hell of a lot more leveraged. Presumably, a good old fashioned run on the T-Bill market would be infinitely more spectacular than the '87 crisis.(If nothing else, the effect on the monetary aggregates would be truly volcanic.) But if you were alive and sentient back then, and you remember what the world looked like on the evening of October 19, 1987, then you've got some idea what's in store.' So, we get a triple whammy (http://www.roubiniglobal.com/archives/2004/11/the_upcoming_tw.html): a dollar crash, a bond market rout and a 1987 style stock market crash...Of course, every other risky asset collapses in this scenario as pointed out by my co-author Brad Setser: Housing collapses, corporate spreads go through the roof, emerging market debt collapse and every other risky asset under the sun.... Then, we will have to sell our Treasures rather than our Treasuries as discussed in another recent blog posting of mine (http://www.roubiniglobal.com/archives/2004/12/on_selling_your.html) Sounds too gloomy? In 1987 our fundamentals were much sounder than today both in flow and stock terms...so, this time around 'the harder they will fall'...

Subject: Re: Nouriel Roubini's got it right From: Pancho Villa To: Terri Date Posted: Thurs, Dec 23, 2004 at 08:14:25 (EST) Email Address: nma@hotmail.com Message: 'In case 2, you got a debt rollover crisis on all maturing debt, be it short or long that is coming to maturity. The De Long solution is to fully monetize the whole stock of public debt that is maturing and the one that would otherwise finance the budget deficit. Then, we are talking of liquidity injection (increase in monetary base) of over $1,000 billion in 2005 and much more if the crisis occurs in 20056 or later. Then, base money is liteally exploding (tripling, quadrupling or more), the dollar is then in real free fall and inflation goes through the roof. '

Subject: Nouriel Roubini's got it right From: Emma To: Pancho Villa Date Posted: Thurs, Dec 23, 2004 at 11:34:55 (EST) Email Address: Not Provided Message: Agreed. We do have a problem, and we must worry, but such a problem could build for a long while.

Subject: Re: Nouriel Roubini and Economic Prospects From: Madame Lazora To: Terri Date Posted: Wed, Dec 22, 2004 at 21:28:52 (EST) Email Address: nma@hotmail.com Message: I see, I see..., I see a lot of things...

Subject: Brad DeLong on the Dollar From: Terri To: All Date Posted: Wed, Dec 22, 2004 at 17:37:41 (EST) Email Address: Not Provided Message: December 22, 2004 Brad DeLong: I don't see any possibility of a severe crisis for the U.S. as long as our foreign debt is denominated in dollars or consists of equities. The dollar falls steeply, interest rates rise, the U.S. has a slowdown and (likely) a recession as eight million foreign-funded jobs in construction, investment, and consumer services vanish and the workers have to find new jobs in export and import-competing industries--but the big problems all all abroad. Foreigners and their central banks take huge capital losses on their dollar-denominated assets and find the U.S. market for their exports drying up. It's our currency, but it's their problem. Let me put it this way: suppose foreign investors lose confidence in the dollar, and suppose that the Fed's reaction is, 'Our monetary policy is to maintain internal balance: we are going to peg the dollar price of the 10-year Treasury bond at what we regard at an appropriate level.' What happens then? The dollar falls. The dollar falls until foreign investors think, 'It's undervalued. It's so undervalued that 10-year Treasuries have got to be a good investment.' Are there any negative consequences to that fall in the dollar? Yes--for foreign central banks that find that their dollar interest receipts on their reserve portfolios no longer cover the renminbi payments they owe on the debt they issued to buy their reserves. Yes--for foreign producers who find U.S. demand for their exports dropping like a stone. Yes--for U.S. workers who ship, distribute, and sell foreign-made products. But the big domestic costs would come only should the Federal Reserve allow domestic interest rates to spike and keep them high. And why should the Fed allow that? Should the Fed raise interest rates to keep the value of the dollar from sinking too low? Should the Fed try to engineer a deeper recession to keep a one-time jump in the price level caused by higher dollar import prices from setting off an inflationary spiral? It's not clear to me it should. It's pretty clear to me it would not. Thus, as I said, I see a problem for the U.S. economy--and a probable recession--but not a real crisis. Exorbitant Privilege carries the day...

Subject: Brad DeLong on Interest Rates From: Terri To: Terri Date Posted: Wed, Dec 22, 2004 at 17:38:29 (EST) Email Address: Not Provided Message: December 22, 2004 Brad DeLong: Interest rates are presumably staying low because lots of people think the break is still a ways away, and think they'll see it coming and be able to sell before the crunch. If there were just one Asian central bank, it probably wouldn't ever dump the dollar. But there are at least four with huge positions. And then there are the European investors who hold dollar-denominated assets, who will one day decide that they would rather that Asian central banks were the ones bearing the risk of a dollar collapse... Let's distinguish two cases: (1) Foreigners decide to dump non-mature Treasuries. There is immediate downward pressure on the dollar, the yen, and the euro prices of Treasuries. The Fed decides to support the dollar price of Treasuries: it buys them for cash. The U.S. money supply goes up. The yen and euro prices of Treasuries collapse--hence the exchange rate collapses. But the U.S. still roughly maintains internal balance (or does the rising money stock ignite a wave of inflation?) And it seems to me the big problems are outside. (2) Foreigners decide not to rollover mature Treasuries. The supply of dollars spikes on the foreign exchange markets, as foreigners take their dollars at maturity and run. The dollar collapses. The Treasury turns around and needs to find domestic buyers for its extraordinary new issues. The Fed steps in and buys a bunch of Treasuries to keep their prices from falling too much. The money stock rises, but rough internal balance is maintained... or is it? The problem with me trying to think through both these stories is that I think them through assuming that financial markets are in rational-expectations equilibrium. Yet when I look around me I cannot believe that: the dollar is priced too high. The long-term Treasury bond is priced too high.

Subject: China's Promise From: Ari To: All Date Posted: Wed, Dec 22, 2004 at 14:33:25 (EST) Email Address: Not Provided Message: A close friend and several acquaintances from Nigeria repeatedly talk about China, and what they notice is the responsibility of leadership, which has been lacking in Nigeria, and an intellectual pride in China. For them, the wish is that a leadership tradition might develop to copy China's. Will China be successful? They are certain, as they wish.

Subject: U.S. Cutting Food Aid From: Emma To: All Date Posted: Wed, Dec 22, 2004 at 13:52:31 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/22/politics/22aid.html U.S. Cutting Food Aid Aimed at Self-Sufficiency By ELIZABETH BECKER WASHINGTON - In one of the first signs of the effects of the ever tightening federal budget, in the past two months the Bush administration has reduced its contributions to global food aid programs aimed at helping millions of people climb out of poverty. With the budget deficit growing and President Bush promising to reduce spending, the administration has told representatives of several charities that it was unable to honor some earlier promises and would have money to pay for food only in emergency crises like that in Darfur, in western Sudan. The cutbacks, estimated by some charities at up to $100 million, come at a time when the number of hungry in the world is rising for the first time in years and all food programs are being stretched. As a result, Save the Children, Catholic Relief Services and other charities have suspended or eliminated programs that were intended to help the poor feed themselves through improvements in farming, education and health. 'We have between five and seven million people who have been affected by these cuts,' said Lisa Kuennen, a food aid expert at Catholic Relief Services. 'We had approval for all of these programs, often a year in advance. We hired staff, signed agreements with governments and with local partners, and now we have had to delay everything.' Ms. Kuennen said Catholic Relief Services had to cut back programs in Indonesia, Malawi and Madagascar, among other countries. Officials of several charities, some Republican members of Congress and some administration officials say the food aid budget for the fiscal year that began Oct. 1 was at least $600 million less than what charities and aid agencies would need to carry out current programs. 'We are all at a crossroads, struggling with the budgetary crunch, but the problem is, there isn't enough to go around,' said Ina Schonberg, director of food security programs for Save the Children. She said the cutbacks had had the biggest effect for her agency in Tajikistan and Nicaragua. Ellen Levinson, head of the Food Aid Coalition, said the best estimate for the amount of food that was not delivered in November and December was 'at least $100 million.' The administration attributed the recent cutbacks to the huge demands from food crises this year, especially in Africa, and the long delay in approving a budget.

Subject: U.S. Cutting Food Aid - 2 From: Emma To: Emma Date Posted: Wed, Dec 22, 2004 at 15:53:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/22/politics/22aid.html One administration official involved in food aid voiced concern that putting such a high priority on emergency help might be short-sighted. The best way to avoid future famines is to help poor countries become self-sufficient with cash and food aid now, said the official, who asked not to be identified because of the continuing debate on the issue. 'The fact is, the development programs are being shortchanged, and I'm not sure the administration is going to make up the money,' the official said. At a private meeting with charities last month, Lauren Landis, the director of the Food for Peace program at the Agency for International Development, warned that her budget for food aid was smaller than in recent years and that the increased costs of buying and shipping commodities presented 'a significant challenge,' according to the minutes of the meeting. She also warned that the Office of Management and Budget had been pressing her office 'to reduce its spending on development programs, and this has been a consistent message over the past year.'

Subject: World Poverty? What World Poverty? From: Pancho Villa To: Emma Date Posted: Wed, Dec 22, 2004 at 18:26:26 (EST) Email Address: nma@hotmail.com Message:

Subject: Indeed. We are Obligated. From: Jennifer To: Pancho Villa Date Posted: Wed, Dec 22, 2004 at 20:18:23 (EST) Email Address: Not Provided Message: Indeed. We are obligated to help others.

Subject: Re: Indeed. We are Obligated. From: Pancho Villa To: Jennifer Date Posted: Wed, Dec 22, 2004 at 21:19:48 (EST) Email Address: nma@hotmail.com Message: Jenny, indeed: 'we'

Subject: Portfolio Allocation From: Jennifer To: All Date Posted: Wed, Dec 22, 2004 at 06:36:30 (EST) Email Address: Not Provided Message: The coming year, I will be prepared to move to a 50/50 stock fund to bond fund portfolio. Even 40/60 if necessary. I can easily wait out any difficult period in the Vanguard Short Term Bond Index or Short Term Tax Free. Possibly I will use the TIPS Fund. After doing well through the bear market, and these last 2 years, I can be as conservative as I wish. This year was a real relief for all the worry. What a year!

Subject: Re: Portfolio Allocation From: Terri To: Jennifer Date Posted: Wed, Dec 22, 2004 at 10:58:37 (EST) Email Address: Not Provided Message: The problem is bond yields are so darn low, they are only defensive. We can not expect another 8 to 10% return in the coming year. So, I will stay with value stock funds and international stock funds more heavily than I would if yields were higher. Though I am less bullish now than a year ago, I think this market will go higher. There is just no threatening volatility. As for inflation, even if the dollar falls sharply again inflation builds slowly and I think the Federal Reserve can limit inflation to about 3%.

Subject: Re: Portfolio Allocation From: Jennifer To: Terri Date Posted: Wed, Dec 22, 2004 at 17:26:28 (EST) Email Address: Not Provided Message: I agree, I agree. There is little left to be gained in bond funds. Even Vanguard High Yield Corporate has a yield that offers too little of a safety margin. High Yield Tax Free has a rather long duration. I could always keep to more of a stock fund allocation.

Subject: World Poverty? What World Poverty? From: Pancho Villa To: All Date Posted: Wed, Dec 22, 2004 at 06:15:18 (EST) Email Address: nma@hotmail.com Message: Fighting World Poverty a Worthy Second-term Goal San Francisco Chronicle, December 19, 2004 Strobe Talbott, President, Brookings Institution President Bush says he is considering spending the 'political capital' he accumulated in winning the recent election to push through reform of Social Security and simplification of the tax system. As he prepares his agenda to present to the new Congress next month, the president might also consider using some of his popularity and political power to help reduce global poverty. This would not only be an important humanitarian gesture, it would also be in America's interest. By making a commitment to help reduce global poverty, the United States could do well by doing good. Three billion people—half the world's population—survive on $2 a day or less, according to the World Bank. In addition to lacking adequate nutrition, many of them have no access to essential health services, basic education, social justice, decent housing or work opportunities. More than 50 countries are actually poorer today than they were a decade ago. A recent United Nations report showed that 5 million children die from hunger every year. The report also said the number of chronically hungry people worldwide increased by 18 million, to roughly 852 million—the first time in nine years that the estimated number of hungry people has increased. The United States has the resources and the technology to combat this scourge. If President Bush launched a serious campaign to do so, it would benefit the United States in a number of ways: * It would improve America's image in the world. People in other countries would see a kinder, gentler America, and this in turn would generate political good will in the international community and more support for other American policies. * Countries mired in poverty provide breeding grounds for instability, crime, drug cartels, and terrorism. Living in poverty, the people in these countries lose hope and vent their anger and frustration through fanaticism. Sudan, Afghanistan, Haiti, Somalia and so many other violent and unstable countries demonstrate the wider effects of poverty. By helping to reduce poverty in such places, the United States would defuse powder kegs and make the world a safer place. * It would also be in America's economic interest to ease global poverty. Stronger economies around the world create more affluent trading partners and customers for American goods. Look at the long-term economic benefits the United States reaped by helping to reconstruct a devastated Europe and a crushed Japan after World War II. More than 40 international leaders from the public, private and nonprofit sectors met recently to discuss America's role in the fight against global poverty and to develop a strategy for U.S. involvement. The gathering, jointly convened by the Brookings Institution, the Aspen Institute and Realizing Rights: The Ethical Globalization Initiative, was called the Blum Roundtable, after Richard C. Blum, a San Francisco investment banker with a strong commitment to reducing global poverty, who was a central figure in organizing the conference. From bankers to diplomats, from community organizers to legislators, my fellow conferees believe that most Americans recognize a moral obligation to address problems of pandemic disease, inadequate shelter and widespread famine in the poorest nations. At the Blum Roundtable, the fundamental moral case for fighting global poverty and the sober national security and economic arguments for doing so came together, making a compelling argument that President Bush should add this issue to his second-term agenda. He should spend some of that 'political capital' to fight global poverty. It will require bipartisan action as well as presidential leadership. After all, there is no Congressional constituency clamoring for international poverty reduction, no designated advocate on the White House staff. With so many competing strategic objectives, international development assistance is at a disadvantage in the budgeting process. The recent decision by Congress to cut $2 billion from the President's foreign aid budget—much of it from the highly-touted Millennium Challenge Account—was a shortsighted step in the wrong direction and a strategic mistake. At the Blum Roundtable, the most insightful comment about the decision President Bush faces in deciding how big an effort to make in reducing global poverty came from former United Nations High Commissioner for Human Rights, Mary Robinson. She said the challenge for the United States is how to deal with the global perception of our commitment. 'It's as stark as that,' she declared. 'Do we really care enough to address global poverty? Because, if we care enough, we can.'

Subject: Re: World Poverty? What World Poverty? From: Pete Weis To: Pancho Villa Date Posted: Wed, Dec 22, 2004 at 21:29:47 (EST) Email Address: Not Provided Message: 'Did the people you knew in the Thirties ever talk about what happened outside? You know...those on relief....?' 'I don't think we ever mentioned them. They did in private at the breakfast table or the tea table or at cocktail time. But never socially. Because I've always had a theory: when you're out with friends, out socially, everything must be charming, and you don't allow the ugly.' 'You don't recall the bread lines or stuff like that?' 'I never saw one. Never in New York. If they were, they were in Harlem or downtown in the village. They were never in this section of town. There was never any sign of poverty.' 'What does the phrase 'New Deal' mean to you?' 'It meant absolutely nothing except higher taxation.' 'Any final thoughts...? 'The thirties were a glamorous, glittering moment.' - Jerome Zerbe interviewed by Studs Terkel in HARD TIMES. Lately, we seem to be a nation of Jerome Zerbe's. The more baubles we have, even if we had to borrow heavily to obtain them, the more we seemed to be self absorbed with obtaining more, and less concerned we are with the tribulations of others. We don't understand their pain unless we are feeling that kind of pain ourselves and perhaps that kind of pain is somewhere around the corner for many of us. Maybe, just maybe, then we will become just a touch more human and start looking outward as we have long ago in our past. Social Will = Political Will - El Gringo.

Subject: Waiting From: Terri To: All Date Posted: Tues, Dec 21, 2004 at 20:59:36 (EST) Email Address: Not Provided Message: We can agree there are macro problems that will be tough to resolve gently, but we have no sense when the market will begin to recognize these problems. To date there is no such recognition. So, I prefer not to time this market but simply think conservatively, which has been just what was needed these last 2 years, and take profits now and then to increase a conservative stance. This market is so broadly positive and so clam, that we may continue on this course for longer than we have patience to time.

Subject: The Relativity of 'Facts' From: Pancho Villa To: All Date Posted: Tues, Dec 21, 2004 at 17:13:31 (EST) Email Address: nma@hotmail.com Message: Interpreting Facts the Bush Way by Joseph E. Stiglitz Last month's American election saw the two sides throw facts, figures, interpretations, and counter-interpretations at the hapless electorate. It is an old trick: throw enough mud and some of it will stick. Confuse the voters enough, and eventually more will be likely to stay with the horse they know. Most of the media not controlled by the right wing tried to play the role of honest broker, giving equal weight to each interpretation. If one side said the sky was blue and the other said it was orange, journalists would work hard, for the sake of appearing balanced, to find some academic, even a color blind one, willing to say that the sky was indeed orange. But is it all just a matter of opinion? Are all interpretations equally valid? I can answer that question only in my own area expertise, economics. With the election over, the debate itself has much to teach us about economics, economic policy, and media spin. President Bush cited seeming huge job growth in the last 13 months, claiming that America's labor market turned the corner. Is this true? The claimed increase in jobs has barely kept up with growth in the labor force. Although job growth in October was robust at last, in September there were only 96,000 new jobs, 50,000 short of what was needed. But at this point in the business cycle, the United States normally should be creating jobs at a rapid pace to make up for job losses earlier in the cycle - as it did in 1993-1995. In fact, this is the worst job recovery after any of America's nine postwar recessions. No spin can alter this fact. America has not turned the corner. On the contrary, most forecasters expect 2005 to be weaker than 2004, with growth insufficient to eliminate the 'job deficit' - the gap between the number of jobs needed during the past four years to provide employment for new labor-market entrants and the actual number of jobs created. But don't blame Bush. The economy was in a downturn when he took office in 2001, and 9/11 and Iraq made matters worse. True, the economy was slowing when Bush took office, but he also inherited an enormous fiscal surplus, amounting to 2% of GDP, which he transformed into a yawning deficit, equaling 4.5% of GDP. Normally, a fiscal turnaround of this magnitude would provide massive stimulus. The economy should be going gangbusters. Inflation - not jobs - should be the main worry. This has not happened because Bush pushed a tax cut that was not designed to stimulate the economy, but to benefit the rich. A tax cut to low-income individuals or increased unemployment benefits would have provided far more stimulus to consumption, just as a temporary investment tax credit would have boosted capital spending far more than reducing taxes on dividends did. In fact, fixed business investment as a share of GDP is some 2% lower today than 4 years ago. True, the terrorist attacks on America and the Iraq war hit the economy hard. But it was evident even before 9/11 that Bush's medicine wasn't working. In his annual economic report in February 2002, and again in February 2003 and February 2004, Bush confidently - and wrongly - predicted that his tax cut would create millions of jobs. Finally, Bush cannot be given a pass on the Iraq war and its economic consequences. Critics warned that the war would cause instability in Iraq and the Middle East, and that this would lead to high oil prices. Bush ignored these warnings. But the critics were right. Today, two factors threaten America's recovery. First, high household debt means that if interest rates rise, as they do in a normal recovery, households will find themselves strapped. Moreover, real estate prices might fall dramatically, in which case many households may find the value of their mortgage exceeding the value of their house. US bankruptcy rates are already up 33% over four years ago. But can Bush really be blamed for Americans' borrowing too much? He can and should. Failure to design an effective fiscal stimulus shifted the burden to monetary policy. Interest rates were brought to new lows, which helped the economy, but without stimulating much investment. Monetary loosening worked only because households took on more debt, leaving the economy more vulnerable to rising interest rates. The second threat to economic recovery is high oil prices. Bush's failed Mid-East policy is only part of the problem. He could, and should, have pushed for strong energy conservation measures; had he done so four years ago, America's consumption - and oil prices - would be lower today. Japan and other developed countries prove that a high standard of living requires only a fraction of the energy per dollar of GDP. Instead, Bush pushed for subsidies to oil companies to encourage more domestic production. This 'drain America first' policy will leave America more vulnerable in the future. We know from the recent US election campaign that facts do not always speak for themselves. Yet it doesn't take much to work out where America's economy is today, where it's heading, and who's to blame. But more important than assessing blame is correcting mistakes. Unfortunately, President Bush has been as reluctant to admit the mistakes of his economic policy as he has in the case of his Iraqi misadventure. Without grasping what has gone wrong in either area, it will be difficult to avoid repeating the same mistakes.

Subject: Re: The Relativity of 'Facts' From: Terri To: Pancho Villa Date Posted: Wed, Dec 22, 2004 at 20:51:45 (EST) Email Address: Not Provided Message: Fine essay

Subject: Year-End Checkup for Your Portfolio From: Terri To: All Date Posted: Tues, Dec 21, 2004 at 15:19:50 (EST) Email Address: Not Provided Message: December 21, 2004 A 10-Point Year-End Checkup for Your Portfolio: John Dorfman - Bloomberg Many investors do a year-end portfolio checkup, but they stop too soon. Their main goal is to assess performance: ``How did I do this year?'' That's fine for a start, but here are 10 other items you should examine. No. 1: Asset allocation. What is your blend of stocks, bonds and cash? A traditional allocation is 55 percent stocks, 35 percent bonds and 10 percent cash. A slightly more daring blend, now popular, is 60 percent stocks, 30 percent bonds and 10 percent cash. Personally, I favor very stock-heavy blends. And I think the present time, with the Federal Reserve actively raising interest rates, is a poor time to buy bonds. No matter what blend you use, it's useful to rebalance your holdings about once a year to stick with the blend you decided on. That way you put more into stocks when stocks are down, and take some profits when stocks are up. No. 2: Foreign vs. domestic. In my opinion, if non-U.S. holdings constitute less than 10 percent of your portfolio, you are excessively all-American. I prefer about 15 percent in non-U.S. securities, and some thoughtful investors go with a higher figure. Investment opportunities aren't confined to the U.S. Investing some of your money in companies based abroad may help you in years when the U.S. market sags. And it may give your portfolio a small amount of ``terrorism insurance.'' Long vs. Short No. 3: Long vs. short. Most investors buy stocks and never short them. A short sale is a bet that a stock will go down. Short selling is a risky technique and certainly not for everyone. The potential losses on a short sale are unlimited because there is no limit on how much a stock can rise. For those who sometimes sell short, 2005 may be a good year to do it. The first year of the four-year U.S. presidential cycle is traditionally the weakest year for the stock market, and the Fed's apparent desire to raise interest rates is also negative. Value vs. Growth No. 4: Value vs. growth. I am a strong advocate of value stocks, and have 100 percent of my personal portfolio in them. Many people, however, prefer a blend of growth and value. A growth stock is one whose earnings are rising rapidly -- or at least, are expected to do so. A value stock is one that is cheap relative to earnings, sales, book value or some other underlying measure of intrinsic worth. No. 5: Big stocks vs. small. Again, I have a strong point of view here -- I love small stocks. I believe the evidence is convincing that small-capitalization stocks are the superior performers over most long periods, such as 20 or 30 years. Without question, however, big stocks are less volatile. They are probably also safer. And certainly there are years when big stocks outperform their smaller brethren. No. 6: Assess your advisers. If you employ one or more money managers, their performance should be periodically reviewed -- preferably over a period of at least three to five years. No managers, you say? What about mutual funds? You may not be able to call your mutual fund manager for a chat, but you definitely depend upon his or her experience and skill. Turnaround Plays No. 7: Tally your turnarounds. Count the number of ``turnaround plays'' you have in the portfolio. These are stocks that are struggling (usually with negative earnings for the trailing four quarters) and whose fortunes you expect to improve. I think there should be room in most people's portfolios for one or two turnaround situations, but you might want to set a limit. At my firm, 90 percent of assets must be invested in companies that are currently profitable. No. 8: A tax review. Check your realized capital gains for the year. If the resulting taxes look onerous, consider taking some offsetting losses by selling stocks that are down. Tax selling shouldn't be done lightly because depressed stocks often rebound in late December or in January. Still, it may be worthwhile sell a stock in which you have a loss, wait 31 days, and then reinvest. No. 9: Focus on dividends. Historically at least 40 percent of the total return on stocks has come from dividends. So check the dividend yield on your portfolio. If it's skimpy, consider adding one or two stocks that pay solid dividends. No. 10: Think about key industries and themes. Two big issues for investors as 2005 approaches are whether to have exposure to China and how much exposure to have in the energy industry. Energy stocks boomed in 2003 and 2004. Now many people think they are due for a rest. Perhaps so, but I suspect it will be a short rest. China As for China, many investors think the recent run-up in China- related stocks was overdone. No doubt some of these stocks are speculative bubbles, but I think that Chinese economic growth is likely to continue strong. Other checkpoints: Financial stocks constitute 21 percent of the Standard & Poor's 500, technology 16 percent and health care 13 percent. If you want to be overweight or underweight these areas, that's fine -- as long as you are doing it for a reason. There are no pat answers in investing. Yet if your choices are made consciously, with a reasoned rationale, your chances of success increase.

Subject: Investment Plans From: Ari To: All Date Posted: Tues, Dec 21, 2004 at 14:01:21 (EST) Email Address: Not Provided Message: What plans are being made for investing in the coming year? The tone of the board has been more and more conservative about buying assets, but what does this mean in terms of stock or bond investing?

Subject: China's Migration for Work From: Emma To: All Date Posted: Tues, Dec 21, 2004 at 10:28:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/21/international/asia/21china.html?pagewanted=all&position= Rural Exodus for Work Fractures Chinese Family By JIM YARDLEY SHUANGHU, China - Yang Shan is in fourth grade and spends a few hours every day practicing her Chinese characters. Her script is neat and precise, and one day, instead of drills, she wrote letters to her parents and put them in the mail. 'How is your health?' she asked. Shan, who is 10, then added a more pointed question: 'What is happening with our family?' Her parents had left in March. Their absence was not new in Shan's short life. Her father, Yang Heqing, has left four times for work. He is now in Beijing on a construction site. Her mother, Ran Heping, has left three times. She is in a different city as a factory worker. Over the years, Shan's parents have returned to this remote village to bring money and reunite the family. They leave when the money runs out, as it did in March. Her father had medical debts and needed cash to see another doctor. Shan's school fees were due, and her grandparents also needed help. 'I think they are suffering in order to make my life better,' Shan said of her parents. She added a familiar Chinese expression: 'They are eating bitterness.' For the Yang family and millions of others in the Chinese countryside, the only way to survive as a family is to not live as one. Migrant workers like Shan's parents are the mules driving the country's stunning economic growth. And the money they send home has become essential for jobless rural China. Yet even that money is no longer enough. Migrant wages have stagnated, education and health costs are rising, and the rural social safety net has collapsed - a crushing combination that is a major reason the income divide is widening so rapidly in China at the expense of the rural poor. Migration also has meant that urban and rural children in China are growing up in starkly different worlds. In cities, upwardly mobile couples call their precious only child xiao taiyang, or 'little sun,' as in center of the universe. Children are indulged with clothes, toys and snacks: childhood obesity is a new urban ill. In the countryside, the new vernacular phrase is liu shou, or 'left behind' child. Millions of children like Shan are growing up without one or both parents. Villages often seem to be missing a generation. Grandparents work the fields and care for the children. 'We are a triangle, three people in three different places,' said Mr. Yang, 36, the father. 'The pain of missing one another is very difficult. All parents are the same in this world. All parents care about their children.' But Shan's parents, strapped with debt and obligation, are among the untold millions of people in rural China caught in a brutal cycle. Studies show that medical costs are the leading reason that people fall into poverty in China. Many city residents still have some health benefits, but peasants now fall under a pay-for-service system. Sickness can mean bankruptcy. Mr. Yang went to Beijing in part to earn enough money for medical treatment. He was warned four years ago that he needed treatment for prostate problems, but he could not afford it. Now, his health has worsened on his construction job. He has missed days and is jeopardizing the pay he needs to see a doctor. His wife, Ms. Ran, 33, wants to visit her daughter in February for the Lunar New Year, when migrant workers traditionally go home. But she said her factory in the city of Baoding will fine her $72 - roughly six weeks' pay - if she does not work straight through to July. Shan's school fees are due soon, and the family needs more money. Shan has never left this village in mountainous central China, a few hours' drive from the Three Gorges along the Yangtze River. She is still a child, but she understands the pressures on her family and how her own future depends on getting an education. She grew worried when the school began asking for next semester's tuition. 'I love school,' she said.

Subject: China's Migration for Work - 2 From: Emma To: Emma Date Posted: Tues, Dec 21, 2004 at 10:37:42 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/21/international/asia/21china.html?pagewanted=all&position= A Desperate Village The students in Shan's fourth grade class rose in unison as the teacher, Du Nengwei, tapped his pointer against his desk to start the lesson. 'Hello, teacher!' the children shouted dutifully in early December as Mr. Du, his eyes magnified through thick glasses, signaled for everyone to sit down. The children began shouting out memorization drills, and the sounds of rote drilling rose out of other classrooms, as noisy as squawking birds. The village school, the focus of so much hope, is little changed from a century ago. The dirty, whitewashed building is made of mud brick and concrete. Shan's classroom has no heat or electricity. Light comes from two small windows. Mr. Du said 8 of his 14 students had at least one parent who is a migrant worker. He knows that parents leave in order to pay tuition, about $50 a year for families that often live on less than $300 a year. School, even this school, is their only chance, he said. 'Some say they want to be a driver, a scientist or a teacher,' Mr. Du said. 'But nobody wants to go on being a farmer.' Of Shan, he said, 'she studies very hard and does well.' She usually ranks second or third in the class. At home, she studies as much as three hours a day. She said she wanted to advance to middle school, then high school, even college. 'The more schooling I have, the more knowledge I have,' she said. Her home is a mud-walled communal house built more than a century ago during the Qing Dynasty. Her grandparents sleep in one section, her aunt and younger cousin in another. Shan sleeps alone in two unheated rooms converted from a small barn. Her room is above the pen with the family's three pigs. Her parent's empty room is over the open pit that is the communal toilet. 'I'm not scared,' she said. She has painted her colorless wooden shutter with the Chinese characters for 'wealth' and 'prosperity.' Her grandfather, Yang Xianglin, 72, said his three sons each contributed $150 a year to support the family. Two of the three are migrant workers; the third just returned home from a migrant job. But the money is not enough, so the grandfather must borrow from other relatives. Shan knows she is poor, but does not seem to feel poverty's sharp sting. Asked if she has any toys, she brightened and showed off two tiny plastic figurines and a single silk flower. Her parents cannot afford more, though her mother stitched her a pink sweater. 'She misses them always,' her grandfather said. 'She keeps asking, when will her parents come home?' Nearly every family in Shuanghu has had someone leave. Local wages are as low as $1 a day; a migrant can make $5 or more. A few fortunate families have built concrete homes with migrant money. 'We have more freedom now than when we had a communal life,' said Lei Jinchen, 53, a neighbor whose two sons work at the same factory as Shan's mother. 'We can now go out and find work. But we only have enough to feed ourselves. That's it.' Central government leaders often boast of new programs to benefit China's poorest villages. One national program called for farmers to hand over land for reforestation in exchange for annual payments. In 2002, Shan's grandfather surrendered two-thirds of an acre for promised payments of $65 a year. As yet, he and other farmers have received nothing. Shuanghu was also designated for special antipoverty assistance, and about 50 families - including the Yangs - were named poverty households eligible to divide a $2,500 annual fund, or about $50 per family. But again, the Yangs and others have gotten nothing. 'Not many benefits get down to us,' Mr. Lei said. 'Local governments skim most of the money off.' So what remains is migrant work for the young and farming for the old. The mountainous landscape is impressive, but only narrow strips of land can be used for farming. In early December, Shan left for school one morning, and her grandparents walked up a rocky hillside toward their small plot. The frost had lifted, and the grandmother, Hu Yangui, 65, squatted in the dirt and pulled turnips. She takes medicine for stomach ailments and arthritis, and the work tires her. She would let the turnips dry in the sun until afternoon, then feed them to the pigs beneath Shan's bedroom. The grandfather grabbed a large bale of corn stalks to use as bedding for the pigs and loaded it onto his back. His arthritis sometimes keeps him from sleeping, but he said the corn was not heavy. In a lower field, a child's voice echoed against the hillsides. It was Shan's cousin, Yang Qinlin, 4. Her own father works several hours away, and she goes months without seeing him. She was singing a melancholy poem about missing home that is memorized by schoolchildren across China: Looking up, I find the moon bright; Bowing down, in homesickness I'm drowned.

Subject: China's Migration for Work - 3 From: Emma To: Emma Date Posted: Tues, Dec 21, 2004 at 10:39:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/21/international/asia/21china.html?pagewanted=all&position= A Factory Mother The outdoor market in Baoding is a patch of dirt where farmers have laid out mushrooms, tofu, cabbage and carrots. Cuts of meat are arranged on a flatbed, but Ran Heping cannot afford those. She and three relatives have just finished a 12-hour night shift at their factory and are making a weekly grocery run. A handsome vendor haggles with Ms. Ran over the price of a head of cabbage. He is flirting and offers her a ride home. She laughs and walks away. She later says distance has destroyed the marriages of several workers at the factory. Her factory in Baoding, about 90 minutes south of Beijing by train, makes metal balls for lawn games, to be exported to Europe and America, and smaller balls that Chinese manipulate with their hands as a form of traditional therapy. It is dirty, difficult work, but the factory is a popular destination for migrants from Shuanghu because of word-of-mouth referrals. More than half the 70 employees are from around the village. The job is piecework, so workers get paid for each ball. During peak months, a worker casting metal or polishing can make more than $100. Usually, though, workers make less than $50. Ms. Ran came here in 2000 when she left the village to support the family. Leaving her daughter worried Ms. Ran, but Shan was starting school and tuition was due. Ms. Ran also knew that her husband's illness gave her little choice. 'I knew we couldn't survive like this,' she said. 'I told Shan, 'I will go to work, and you be a good girl at home' ' She returned home nearly two years later. She brought almost $1,000, which went for medical bills, clothes, food, school fees, fertilizer and other farming costs. 'When the money was gone, we needed more,' she said. 'I decided to go out again.' This time it was a shorter trip, from July 2002 until February 2003. She brought home only $210 after the factory deducted $72 for leaving without working a full year. She was furious and filed a complaint with the local labor bureau. Nothing happened. The Yangs were together in the village for a year. But medical and school bills forced them apart again. When Mr. Yang left for Beijing last March, his wife left for a plastics factory. She later quit and tried to join her husband in Beijing. 'We are a family,' her husband told her. 'When we can, we should be together.' They were together for less than 10 days. Ms. Ran worked at a pastry factory but quit because the pay was so bad. She also said the cost of renting a room and living together in expensive Beijing would have erased the couple's savings. She returned to Baoding and the metal ball factory in September. She is an inspector, an easier job that pays up to $40 a month. She is not lonely because several cousins work at the factory. They talk about their children or visit a local park together. There are days when she says being away in a big city can be exciting. 'There are no department stores where we are from,' she said. In November, she bought a bottle of shampoo for her long black hair. It was first time in her life she had ever bought shampoo. It cost $1.50. These lighter moments are leavened by the dark. On the telephone, she pleads with her husband to see a doctor. 'I said, 'When you get paid, spend all your wages to get better.' I said I would send my money home to take care of the family.' 'But he doesn't really want treatment because it will cost so much,' she said. The grandparents called in December to ask for another $25 for Shan's tuition next year. Mrs. Ran wants to visit her daughter in February at New Year's. But her bosses insist she must work until July or again lose pay. She is angry but has decided she must stay. Her daughter does not know yet. 'I just hope that Heqing will recover and we can work together to put Yang Shan at least through high school,' Ms. Ran said, when asked what she wanted for her future. 'If his health doesn't improve, I'm worried we'll only be able to send her to middle school.' 'It's a hard life,' she added, 'but we have no other choice.'

Subject: China's Migration for Work - 4 From: Emma To: Emma Date Posted: Tues, Dec 21, 2004 at 10:40:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/21/international/asia/21china.html?pagewanted=all&position= An Unknown Future Shan's grandparents say she almost never cries. She is happy playing with her friends and her cousins. Her parents both called on her birthday in July. She said it had made her happy. In early December, she sat outside and practiced writing. The letters she had sent her parents months earlier never reached them; she did not have a reliable addresses. Now, she started writing in a notebook. 'I want a ticket, a boat ticket and a bus ticket,' she scribbled for a visiting photographer. Where does she want to go? 'To see my parents,' she answered. 'I want to see my mom and dad. I think about them all the time.' For the moment, her earlier, darker image of their life had lifted. She wanted to join them. She wanted to be a migrant worker. 'I think their life is very good,' the little girl answered. 'Their life is smooth.'

Subject: U-6 unemployment ? From: Pete Weis To: All Date Posted: Tues, Dec 21, 2004 at 10:20:41 (EST) Email Address: Not Provided Message: Anyone know anything about U-6 unemployment? From the New York Post: HOW NOS. CAN HURT REAL PEOPLE By JOHN CRUDELE December 21, 2004 -- TO Wall Street, the economic statistics spewed out by the Feds are a source of amusement and opportunity. For politicians, the numbers mean getting elected or not. The media interpret statistics as an endless source of headlines. But to corporations as well as ordinary people these numbers are vitally important because decisions are based on them. In the real world, folks get hurt when the official gauges for an economy can't be trusted or when they need to be viewed with increasingly skeptical eyes — the subject of this multipart series of columns. 'I am frustrated by the misleading information about the economy,' complains Lenny, a 49-year old reader who e-mailed me the other day about his experiences with repeated unemployment. 'I just wish that there was a little more realistic reporting.' Surveys of consumer confidence have been weak throughout 2004, which is a good indication that Lenny isn't alone. Businessmen are nervous too. It's extremely difficult to make decisions about whether to build a new manufacturing plant or hire workers, when your own experiences are vastly different from what the government says is happening. Last month a group of big shot real-estate developers, for instance, put together a panel of experts so they could have a look behind the economic statistics. 'Government economic statistics are almost useless for predicting the demand for office space,' said Jeffrey Kott, a principal at Bristol Group, a San Francisco real-estate developer and investor, and chairman of the panel. 'The reported drop in the unemployment rate does not correspond to the 235 million square feet of vacant office space in the U.S. over the past four years.' But can the huge amount of vacant commercial space be explained if the unemployment rate was, say, double the incredibly low 5.4 percent that's been holding for a couple of months? The answer is yes. In fact, the Labor Department reports that under a broader definition it calls U-6 unemployment rose to a frighteningly high 9.4 percent in November. The U-6 figure is buried in the department's monthly employment reports and is almost never reported in the press. The 9.4 percent rate is what the government gets when it includes people who are working part time because they can't find full-time employment and those it defines as 'marginally attached' to the work force. And the figure would be well over 10 percent if the government hadn't loosened the definition of a discouraged worker in the 1990s so millions of people were simply wiped from work-force calculations. In this column — the last in my series about government economic numbers — I hope to have demonstrated one thing: The everyday economy doesn't always look or feel like the one being portrayed by Washington. There's a saying in statistics: 'garbage in, garbage out.' In other words, your conclusions are only as good as the information you use to base them upon. The trouble today is that too many people are taking Washington's data at face value. If the information being produced by government agencies is wrong — or if the definitions have conveniently been changed — then economists using the data will come to wrong conclusions and faulty comparisons. In defense of Washington, often it's just that the government's information is being incorrectly used. Much of the government's data don't purport to be accurate when first made public, although Wall Street and others pretend that they are. In fact, it is only after a year's worth of revisions that most government stats are supposed to come close to reality. One erroneous number begets other garbage. Keeping inflation readings artificially low, for instance, causes a distorted view of other figures. A lower level of inflation automatically affects the nation's gross domestic product. For every drop in inflation, there is an equal increase in GDP growth. The government reported, for instance, that the nation's GDP grew at a 3.9 percent annual rate in the third quarter. If inflation has been tamped down by 1 percent through artificial methods, that means growth was really just 2.9 percent. But the garbage doesn't stop there. Experts often predict the number of new jobs by looking at the level of economic growth. And personal income and spending are derived from job-growth estimates, as are projections for tax revenue and budget deficits. It's only after people and corporations actually file tax returns that the government can be sure that many of its assumptions are correct. Washington made an enormous mistake, for instance, in what was then the gross national product in the early 1990s because of just such a comedy of statistical errors. The mistake was caught only after a study of tax returns. Backed by encouraging (but wrong) government stats, President George H.W. Bush threw caution to the wind and started to spread the good news to the voters. The president looked so completely out of touch with reality that he became just another statistic among the unemployed. So, what's the lesson we can all learn from economic statistics? It's that most people are their own best economist. And — as they say — if an economic number looks too good to be true, it probably is.

Subject: Re: U-6 unemployment ? From: Ari To: Pete Weis Date Posted: Tues, Dec 21, 2004 at 14:10:30 (EST) Email Address: Not Provided Message: Are you as convinced as ever that asset prices are inflated? You seem to be convincing others, as well as me. What are your plans to cope with this problem? I am not at all sure that more TIPS make sense now.

Subject: TIPS? From: Pete Weis To: Ari Date Posted: Tues, Dec 21, 2004 at 23:01:57 (EST) Email Address: Not Provided Message: Ari. I don't pretend to be a knowledgeable investor nor would I want the responsibility of giving anyone specific advice about how to invest their money. I am a strong believer that all investors should do their own homework. I, personally, don't except any of the dogma put out there for the small investor - 'buy and hold', and a 'balanced portfolio' (so much in stocks, so much in bond funds and so much in fixed income) will always do the best over the 'long run' no matter what your 'time horizon'. I suppose it depends on what you mean by the 'long run' - 10 years, 20 years, 30 years? Why should I invest in something which I truely believe is more likely to go down than go up? Does Buffet believe in this kind of balanced portfolio? He's sold out of the bond market in June of 2003 when interest rates bottomed. He hasn't participated in this market since March of 2003 and has continued to hold onto 'cash' since early 2003, since even before this year-and-a- half market rally, he stated that 'he saw few if any stocks at a value worth buying.' One can only assume that he still sees few if any stocks at a value worth buying presently. All investing is speculation. Certainly, if you 'put all your eggs into one basket' you are taking higher risk and so if your speculation is poor, you can risk ruin. The trouble with our present situation, IMO, is that the stock markets are overvalued for even a healthy economy and we simply don't have a healthy economy. Bond funds which trade bonds are not likely to do well since interest rates going forward are much more likely to go up than down. My own general approach to investing is to research what is going on with the economy and then to take a look at how our government and federal reserve is reacting to what is going on in our economy. I don't pay much attention to statements by our government or federal reserve, but I do pay attention to how they act. My research involves listening to those I believe have the best track record whether it comes to getting the economy right (Krugman, Shiller, etc) or getting investing right (Buffet, Russell, Gross, etc). The following article is good investing advice, I believe: Morningstar.com Seven Investment Ideas for a Low-Return World Wednesday September 29, 7:00 am ET By Curt Morrison, MD, FACC In a Stock Strategist column I wrote last month, I argued that the S&P 500 Index is currently priced to provide a long-term total real return of approximately 2%. Although this is less than one third of the index's historical average, the result might be even worse during the next two decades. On three occasions in the 20th century when the market sold at valuations similar to the current level, the subsequent 20-year real return fell short of 2%. In response to this article, many readers wrote me to ask how they should structure their investments. The answer is different for each investor because it is affected by his or her skills, special needs, and investment horizon. At Morningstar, we can't offer advice tailored to an individual, but I'll present ideas here that might be helpful to a broad swath of investors. 1. Don't worry too much about indexes. If you are an astute judge of business value with less than $10 million to invest, the prospective return of the broad market doesn't concern you very much. You can still find individual stocks that are attractively priced. It might be harder to find them, but they are out there. Small investors have an advantage over institutions with billions of dollars in capital to deploy. Many small-cap stocks aren't sufficiently liquid to satisfy pension funds and university endowments. Your investment universe is broader than theirs, and that should work to your advantage. You can use Morningstar's screening tools and Stock Analyst Reports to aid your research. 2. Don't be afraid to hold cash. The real return on cash is negative right now, so it can't be considered a way to store value. However, the stock market is volatile. If you investigate many companies and exhibit patience, eventually Mr. Market will provide you with the opportunity to buy undervalued businesses. It's smarter to hold cash than to purchase overpriced stocks. 3. Become a citizen of the world. U.S. stocks comprise only 50% of the world's market capitalization. Unless they are undervalued, domestic equities shouldn't be overweighted in a portfolio. To the contrary, there is some evidence that suggests foreign stocks as a group offer better value now, so investors should garner superior returns by focusing on foreign equities. Also, many overseas markets appear to be less efficient than the U.S. market. This means that there is a greater benefit from active management. There are a number of excellent mutual funds that invest abroad. Some of my favorites are Dodge & Cox International Stock (Nasdaq:DODFX - News), Matthews Pacific Tiger (Nasdaq:MAPTX - News), and Third Avenue International Value (Nasdaq:TAVIX - News). 4. Take a look at TIPS. Treasury Inflation-Protected Securities (TIPS) offer roughly the same real return as the S&P 500 Index, but their value is likely to be much less volatile. I think the natural real interest rate is between 2% and 3%. Given that, TIPS are selling near fair value today. They aren't a bargain, but relative to the broad stock market, they look very attractive. You can buy these bonds directly from the government, or you can invest through a mutual fund such as Vanguard Inflation-Protected Securities (Nasdaq:VIPSX - News). 5. Be careful with bonds. Conventional bonds (those without inflation links) promise payment in nominal dollars. However, I'm not sure if we'll experience inflation or deflation, or to what degree either will occur. Without that knowledge, it's impossible to assign a fair value to a long-term conventional bond. Investors got more inflation than they expected between 1940 and 1979, and the real return on long-term government bonds was a loss of 1.8% during that period. Few analysts expect deflation at this point, but if it occurs, then the value of government bonds will rise. Bonds might play an important role in your portfolio, but before you invest, make sure you understand the relationships between inflation, deflation, and bond values. 6. Consider commodities. There are reasons to think that commodities are in the early stages of a long bull market, but you needn't believe any of them to want to invest in this asset class. Commodities have demonstrated low correlation with other asset classes in the past, and they might perform well even if stocks, bonds, and the dollar do poorly. You can get exposure to commodities through PIMCO Commodity RealReturn Strategy (Nasdaq:PCRDX - News). 7. Defend against a falling dollar. Protect yourself against the possibility of a meaningful depreciation of the U.S. dollar. There are plenty of reasons to believe the dollar will fall in value and reduce your purchasing power. (Warren Buffett provided an easy-to-understand primer on this topic in a 2003 article in Fortune magazine). It's therefore prudent to hold at least a portion of your foreign stock and bond investments in funds that don't hedge their currency exposure. Dodge & Cox International Stock does not hedge its exposure. Third Avenue International Value does employ some hedges. American Century International Bond (Nasdaq:BEGBX - News) contains high-quality foreign bonds with relatively short maturities and no currency hedges, so its value tends to rise with a falling dollar (and vice versa). Also, a depreciating dollar is likely to benefit investors in commodities. In late 2004, stocks are expensive, bond yields are low, and the ratio of residential real estate prices to income or rental rates is near multigenerational highs. These rich valuations imply lower future returns. In this environment, I think investors should pay extra attention to capital preservation. In other words, be careful out there.

Subject: Re: TIPS? From: Setanta To: Pete Weis Date Posted: Thurs, Dec 23, 2004 at 05:40:36 (EST) Email Address: Not Provided Message: Pete, you mention Buffet's strategy (since 2003) of holding cash and not touching the bond or stock markets. i find it odd that someone of his financial savvyness (is that a word??) is holding a store of value that has depreciated since 2003. if what you said is true and he is holding dollar cash reserves then his wealth has depreciated by 30% against the euro in the space of 2 years and does not seem likely to recover for some time yet. of course, he may not be patriotic and may be holding everything other than dollars, in which case it should have been noticed that his multibillion portfolio was converted into foreign currencies... on balance, i think i'd take his assertions with a pinch of salt.

Subject: Cash From: Pete Weis To: Setanta Date Posted: Thurs, Dec 23, 2004 at 10:03:12 (EST) Email Address: Not Provided Message: Setanta. When Buffet says he is 'holding to cash' positions, he is not talking about US dollar cash positions.

Subject: Re: Cash From: Terri To: Pete Weis Date Posted: Thurs, Dec 23, 2004 at 11:56:03 (EST) Email Address: Not Provided Message: I assume 'cash' always refers to short term securities. In this case, securities in foreign currency as well as foreign currency future contrats.

Subject: Re: TIPS? From: Jennifer To: Setanta Date Posted: Thurs, Dec 23, 2004 at 06:30:59 (EST) Email Address: Not Provided Message: There have been many billions of dollars of foreign exchange future contract holdings in the Berkshire Hathaway portfolio. This company is most secretive, and exempt from certain filing rules to protect investments.

Subject: Re: TIPS? From: Setanta To: Pete Weis Date Posted: Thurs, Dec 23, 2004 at 05:29:26 (EST) Email Address: Not Provided Message: 'I suppose it depends on what you mean by the 'long run' - 10 years, 20 years, 30 years?' Didn't Keynes once say the in the long run everyone is dead?

Subject: Re: TIPS? From: Jennifer To: Pete Weis Date Posted: Wed, Dec 22, 2004 at 06:22:58 (EST) Email Address: Not Provided Message: This is helpful as I think ahead. Where do you find such helpful information on the ideas of Warren Buffett? I am reading all those sources you mentioned. Bond funds have been lovely for balance these last 5 years. We have had an average yearly return from bond funds above 9%. I am already shortening durations.

Subject: Buffet From: Pete Weis To: Jennifer Date Posted: Wed, Dec 22, 2004 at 20:48:15 (EST) Email Address: Not Provided Message: You can do a search for Buffet's March 2004, 2003, etc. annual letters to Berkshire-Hathaway shareholders. He also occasionally write pieces which are published in mainstream investing publications such as his very good description of the current account deficit and its threat to the dollar in FORTUNE magazine. Alot of his stuff gets reposted all over the internet. You can go directly to the Berkshire-Hathaway site and download the letters.

Subject: Buffet and Thanks From: Terri To: Pete Weis Date Posted: Wed, Dec 22, 2004 at 21:01:27 (EST) Email Address: Not Provided Message: Though I should have asked about where you found the Buffett comments on the trade deficit, I did not and did not look about. I will read the Fortune article of a year ago tomorrow!

Subject: Re: Buffet and Thanks From: Pancho Villa To: Terri Date Posted: Wed, Dec 22, 2004 at 21:23:29 (EST) Email Address: nma@hotmail.com Message: Who is 'Buffet'?

Subject: Re: Buffet and Thanks From: Jennifer To: Pancho Villa Date Posted: Thurs, Dec 23, 2004 at 06:27:12 (EST) Email Address: Not Provided Message: Warren Buffett writes articles for Fortune each December, and letters to shareholders each spring. These letters and articles are always worth reading. Find the letters at the Berkshire Hathaway website. Fortune must be found in a library or subscribed to.

Subject: TIPS From: Jennifer To: All Date Posted: Tues, Dec 21, 2004 at 06:07:52 (EST) Email Address: Not Provided Message: TIPS offer little in interest and the payments for inflation supplements are taxable as income. The price of the Vanguard fund changes each day along with regular Treasury funds. So, I also think a short term bond index will offer more protection than TIPS if long term interest rates finally begin to rise. I am increasingly thinking short term for bond funds rather than TIPS.

Subject: Do Not Welcome the Dollar's Fall From: Terri To: All Date Posted: Mon, Dec 20, 2004 at 15:46:04 (EST) Email Address: Not Provided Message: December 20, 2004 Why the dollar's fall is not to be welcomed By Barry Eichengreen - Financial Times Congenital optimists see the dollar's fall as part of a necessary rebalancing of the world economy. Without a change in exchange rates, the US current account deficit is on an explosive path. It could widen from its current 5-6 per cent of US gross domestic product to 8 per cent in 2008 and 12 per cent in 2010. In reality, deficits of this magnitude are not something that foreigners would willingly finance, especially in so far as they reflected chronic budget deficits rather than high levels of private investment. At some point foreign investors would pull the plug, and the dollar and the US economy would come crashing down. A smooth and moderate decline in the dollar that narrows the US current account now is thus preferable to a sudden and potentially catastrophic fall later. The question is whether or not it is already too late for a smooth adjustment. The current account is the difference between savings and investment. Narrowing the US deficit will therefore require some combination of increased savings and lower investment. The falling dollar will bring this about by tending to drive interest rates up. As Asian central banks curtail their purchases of US Treasury securities and sell some of their existing holdings, there will be upward pressure on US Treasury yields. Moreover, as the dollar falls, there will be upward pressure on US import prices and more inflationary pressure generally. In response, the Federal Reserve will have to raise interest rates faster than currently expected. Higher interest rates will make borrowing more expensive and slow investment growth. They will have a negative impact on asset valuations, including house prices. US households, no longer living off capital gains, will have to start saving again. With investment down and saving up, the current account deficit will narrow. Unfortunately, this happy observation is not the end of the story. A significant decline in both consumption and investment will mean a recession in the US. This conclusion is so obvious that the only question is why the markets are not forecasting it already. The answer, presumably, is that investors do not believe that the dollar's decline will produce a significant increase in inflation. The historical data say that a 10 per cent fall in the dollar produces 3 additional percentage points of inflation, which in turn implies a 450 basis-point increase in the discount rate. Clearly, we have not seen anything like this yet. Treasury inflation-protected securities spreads - the difference between yields on conventional Treasury securities and Tips - suggest only a modest increase in inflationary expectations. Maybe the 'new economy' has rendered the US economy more flexible and resilient so that the traditional relationship between dollar depreciation and inflation no longer holds. Perhaps, then, fears of significantly higher interest rates are exaggerated. But even if this observation is correct, it just means that the dollar will have to fall further to generate enough inflationary pressure to force the Federal Reserve to raise interest rates. At the root of the dollar's decline is the view that the US current account deficit is unsustainable. Foreigners will therefore keep selling dollars until it narrows. This in turn means that the dollar will keep falling until US inflation heats up to the point where the Fed does indeed have to raise interest rates. The implication, that the US economy will slow or more likely succumb to recession, is unavoidable. The question is whether there is anyone to take up the slack. For the world economy to avoid a serious downturn, less consumption and investment in the US will have to be offset by more consumption and investment elsewhere. But where? Europe is stagnant, and the European Central Bank has shown no awareness of the need for monetary stimulus. China is cooling off, and it will cool off more as it allows its currency to strengthen. Japan's modest recovery will disappoint now that it has to raise taxes to control its own spiralling debt. Countries outside the Group of Four nations (the US, the UK, Japan and Germany) are simply too small to make a difference. The implication is that the correction of the US current account deficit that is now getting under way will mean a recession not just for the US but for the rest of the world. The optimists who are welcoming the dollar's fall should think again. The writer is professor of economics and political science at the University of California, Berkeley

Subject: Re: Do Not Welcome the Dollar's Fall From: Terri To: Terri Date Posted: Mon, Dec 20, 2004 at 21:55:46 (EST) Email Address: Not Provided Message: A falling dollar, higher long term interest rates, slowing economic growth and falling profit margins do not bode well for the labor market or for asset markets.

Subject: Re: Do Not Welcome the Dollar's Fall From: Jennifer To: Terri Date Posted: Tues, Dec 21, 2004 at 05:53:42 (EST) Email Address: Not Provided Message: How then will you protect yourself against another round of dollar weakening and rising long term interest rates? I read the Vanguard literature carefully, and I too find no reason to believe that TIPS will hold up well in an environment with rising rates.

Subject: One reason - From: David E.. To: Jennifer Date Posted: Tues, Dec 21, 2004 at 13:10:11 (EST) Email Address: Not Provided Message: If hyperinflation happens, you will never notice the losses caused by interest rate hikes. Although the risk of hyperinflation is low, it is not zero, some portion of a portfolio should be devoted to that prospect. Hedonics will have a minimal effect on hyperinflation.

Subject: Re: One reason - From: Ari To: David E.. Date Posted: Tues, Dec 21, 2004 at 14:15:55 (EST) Email Address: Not Provided Message: What would hyper-inflation be? Why would or could the Fed not stop inflation of even 3 percent by raising interest rates quickly? If you buy TIPS and there is little inflation, you get little return. Tough problem.

Subject: Re: One reason - From: David E... To: Ari Date Posted: Tues, Dec 21, 2004 at 17:50:08 (EST) Email Address: Not Provided Message: Hyperinflation is too strong a word. I am thinking of a period like the 70's where a dollar becomes worth $.50 in 10 years. That is an average inflation rate of 7%. When China decides to not accept dollars to settle current accounts the dollar will plunge. Import prices will rise. Our faltering economy which is still short half a million jobs from the 2000 level, will start to lug down. After trillions in tax cuts, the tax cut ammunition is spent and employment recovery has not happened. So the Fed will have to choose between possible recession/deflation and inflation. A 7% inflation rate like we experienced in the 70's would be acceptable. To not chose inflation will cause big hardship and the risk of getting caught in the liquidity trap. I am just talking about a possibility, I don't know what the probability is. I think something in the portfolio that will not drop 50% is good insurance. Everybody to decide based on how much risk they want to take.

Subject: Shorter Duration From: Terri To: David E... Date Posted: Tues, Dec 21, 2004 at 20:53:02 (EST) Email Address: Not Provided Message: A fine argument. But, I would prefer to use a lower duration bond fund than the TIPS fund from here. My guess is that the Fed will not allow inflation above or much above 3%, and will raise rates sharply if necessary, so I will shorten my durations. This bull market in bonds has been a wonderful gift, and there is a time to take profits.

Subject: Re: Shorter Duration From: David E.. To: Terri Date Posted: Tues, Dec 21, 2004 at 23:21:37 (EST) Email Address: Not Provided Message: If your investing horizon is truly greater than the duration, you can do all right holding on to TIPS. Here is an example of what happened to 10 year Treasury Notes in a bond fund during 5 tumultuous years, when the yield rose from 6.9% to 13.7%. These tumultuous years covered the period December31, 1976 to December 31, 1981. If you had put $10,000 into the fund, reinvested dividends for 5 years and then cashed out after 5 years you would have received $12,126. Not bad, that is a 3.9% annualized return over the 5 years. I'll bet that is better than you thought it would be. Check the logic out for your self at Vanguard.

Subject: Stocks in 1977 to 1982 From: Terri To: David E.. Date Posted: Wed, Dec 22, 2004 at 11:10:02 (EST) Email Address: Not Provided Message: December 31, 1976 to December 31, 1981 was a fine period to be invested in stocks. The S&P Index had a price earning ratio below 10, for the entire period. Dividends for the S&P were 4 to 6% through the period. Values were excellent for large and small stocks, and they proved superb hedges against inflation. There was no reason to hold a bond fund until the Federal Reserve policy had to change to counter recession in 1982. But, then stocks were still wonderful values.

Subject: Re: Shorter Duration From: jimsum To: David E.. Date Posted: Wed, Dec 22, 2004 at 10:22:30 (EST) Email Address: jim.summers@rogers.com Message: How much was that $12126 worth in real terms after five years? With interest rates of 13.7%, I'd think inflation was higher than the 3.9% return earned by the investment. I think your logic is good; you can hold a bond to maturity and ignore all the capital gains and losses as interest rates fluctuate. But, bonds pay in nominal dollars and inflation will kill you if the yield is too low. I can't imagine how a 10 year 4% bond will end up being a wise investment (unless everything else is worse :-)

Subject: Missing Link From: David E.. To: David E.. Date Posted: Tues, Dec 21, 2004 at 23:25:46 (EST) Email Address: Not Provided Message: So many ways to do links wrong Vanguard. TIPS would do even better than these regular Treasury notes because higher interest rates would probably mean higher inflation/return rates.

Subject: Valuable From: Jennifer To: David E.. Date Posted: Wed, Dec 22, 2004 at 06:14:15 (EST) Email Address: Not Provided Message: The use of duration and patience in a bond fund, especially the Vanguard TIPS fund, was just what I needed. I am reading the Vanguard Diehard columns, but this board is as important. Thank you.

Subject: 1985 From: Emma To: All Date Posted: Mon, Dec 20, 2004 at 14:37:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/yourmoney/19doll.html?oref=login&pagewanted=all&position= Whoops! It's 1985 All Over Again By EDUARDO PORTER THE White and Gold Room at the Plaza Hotel in New York seems an appropriate spot for big financial decisions. Chandeliers drip crystal from high ceilings. White walls are bedecked in gold trim. It was in this opulent place on Sept. 22, 1985, that officials of the world's leading industrial powers convened to hammer out a plan to save the world from economic turmoil. Almost 20 years later, the Plaza's sumptuous settings could be put to similar use again. President Bush starts his second term facing a financial bugbear that shares many of the same qualities of the crisis two decades ago: The United States' budget deficit is bloated. Its trade deficit is hitting records every month. The mushrooming growth of its foreign debt is scaring financial markets. And foreign exchange rates seem out of kilter. In 1985, President Ronald Reagan managed to avert a storm. When he started his second term, a large budget deficit and high interest rates were fueling a relentless climb in the dollar, opening a huge gap in the trade balance. Yet by 1989 the dollar had fallen 50 percent against the Japanese yen and more than 40 percent against the West German mark, without prompting runaway inflation. And the current account deficit - the broad gap between exports and imports of goods and services - had finally begun to close. A major component of Mr. Reagan's strategy was built at the Plaza, where finance ministers and heads of central banks of the United States, Japan, West Germany, Britain and France agreed to intervene in currency markets - furiously buying yen and marks - to reduce the value of the dollar. The meeting also inaugurated a period of monetary policy coordination and introduced an international dimension to what had been strictly domestic discussions of fiscal policy. While the nation's economic tribulations today are not identical to those faced by Mr. Reagan, some economists suggest that the process of policy coordination formalized at the Plaza provides a map that Mr. Bush may want to follow. 'The second Bush administration should take a page from the second Reagan administration and do a midcourse correction,' said C. Fred Bergsten, director of the Institute of International Economics in Washington. But other than exerting pressure on China to let its currency, the yuan, fluctuate in value against the dollar, the Bush administration appears uninterested in coordinating economic policy with other countries. It has mostly just exhorted them to spend more to help close the United States' trade deficit. And Congress, now controlled by Republicans, has shown no more interest in taking action. The world's finances today are balanced rather precariously between a big spender - the United States - and several countries around the world that are big savers. In broad schematic terms, the United States imports and the rest of the world exports; the United States borrows and the rest of the world lends. Financial flows are so lopsided that last year America soaked up nearly three-fourths of the surplus savings in the entire world. Not surprisingly, this state of affairs is adding to the country's foreign debt. At the end of last year, the nation's financial deficit - what the United States owes the rest of the world, minus what the rest of the world owes the United States - amounted to more than $3 trillion, about 30 percent of the country's annual economic output. And it is growing. In the 12 months through October, foreigners acquired nearly $885 billion of new United States government and corporate debt. THAT wouldn't be a problem if the world were comfortable lending ever-larger sums to the United States to pay for American investment and consumption. But this is unlikely. The Federal Reserve chairman, Alan Greenspan, who hasn't been one to worry idly about deficits, warned in a speech to German bankers last month that foreigners would probably demand higher interest rates and bond yields to hold American debt. 'The question now confronting us,' he said, 'is how large a current account deficit in the United States can be financed before resistance to acquiring new claims against U.S. residents leads to adjustment.' That is, when does the debt become so big that foreigners begin to worry about getting their money back with a reasonable return?

Subject: 1985 - 2 From: Emma To: Emma Date Posted: Mon, Dec 20, 2004 at 14:37:41 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/yourmoney/19doll.html?oref=login&pagewanted=all&position= Some foreign investors are already jittery. In the last two years, the dollar has fallen substantially against several currencies, including the Canadian dollar and the euro, and has slipped somewhat less against the yen. Investment from abroad has been falling since March. Some economists are worrying that investor fears over the country's solvency could set off an uncontrolled run on the dollar, or worse. 'I think we are going to have a sharp increase in interest rates and a collapse in bonds,' said Jeffrey Frankel, a professor of economics at Harvard who was a member of the Council of Economic Advisers during the Clinton administration. Addressing this conundrum requires multiple changes on a global scale. Mr. Bergsten and other economists said they believed that today, as in 1985, international cooperation could come in handy. First, the dollar must decline further against the Chinese yuan and other Asian currencies. The dollar's steep but narrow fall to date has placed a heavy burden on the exports of a small set of countries, while doing nothing to the exchange rates of China and some other major Asian exporters. And with the yuan's value virtually pegged to the dollar's, other Asian countries, like Japan and South Korea, have been reluctant to let their currencies rise much. American pressure on China to let its currency float has been unsuccessful so far. But a multilateral approach - one that could guarantee that other Asian currencies rose in tandem so as not to reduce China's export competitiveness in the region - might work, some economists say. 'I could see the Europeans, the Japanese and the Canadians being very enthusiastic about this,' Robert D. Hormats, a vice chairman at Goldman Sachs International, said of such a multilateral agreement. 'They argue that they are taking the brunt of the dollar's adjustment.' Many economists say a change in the dollar's value, however, is not enough. If the adjustment is to work, Asians and Europeans need to spend more and save less, reducing their pressure to export and increasing their appetite for imports. Most important, demand in the United States must fall. That means the budget deficit must be trimmed from its current level of 4 percent of the nation's output. Otherwise, interest rates will rise substantially to bring private consumption down. 'It is not enough for finance ministers to announce that they are unhappy with the current configuration of exchange rates,' said Maurice Obstfeld, an economist at the University of California, Berkeley. But how much can economic diplomacy achieve today? In the 1980's, the Group of 5 leading industrial democracies, which was later expanded into the Group of 7, or G-7, with the addition of Canada and Italy, had a very compelling reason to stick together: the cold war. The collapse of the Soviet Union in the early 1990's has made other countries less willing to follow the United States. 'G-7 plus China would impress the world that under the pressure of the developed nations, China gave in - that's not really multilateral,' said Xu Xiaonian, a Chinese economist who recently became a professor at the China Europe International Business School in Shanghai. 'It's better than the U.S. versus China, but only marginally better.' Even traditional allies don't see eye-to-eye these days. Mr. Bergsten may want the yen to rise against the dollar, but the Japanese may not. MOREOVER, some things are just tough to coordinate. To begin with, fiscal policy is freighted with local politics and is virtually impossible to coordinate internationally. Persuading the indebted Japanese government to spend more or the European Central Bank to lower interest rates is not likely to be achieved by a global meeting at a five-star hotel. 'The sizable fiscal deficit of Japan and the convergence criteria of Europe are obstacles to easy fiscal policy,' said Tomomitsu Oba, a primary architect of the 1985 agreement as Japan's vice minister of finance for international affairs. Then there is the issue of getting the United States interested. Mr. Bush, in particular, has not shown a great enthusiasm for multilateral solutions to the world's problems. And his economic wish list - led by the privatization of Social Security and a reform of the tax code - leaves little space for policies that would reduce the bloated budget deficit. 'There is a strong argument for a Plaza-like agreement at the moment. But the chances of having it are zero,' said Barry Eichengreen, a professor of economics at the University of California, Berkeley. 'The Chinese are going to say, 'If you want cooperation from us, we want to know what your contribution will be,' and I don't think they will accept Social Security reform as a quid pro quo.' The Plaza agreement itself provides an interesting insight into the possibilities and limits of international economic collaboration. In the view of the United States' allies through early 1985, Mr. Reagan's economic policy had no place for international cooperation, either. That policy, executed by Donald T. Regan, the Treasury secretary at the time, was driven by an overriding belief in tax cuts. The administration contended there was no reason to worry about the trade deficit, and that a strong dollar was simply a measure of America's economic potency. Advisers who didn't toe the line were dispensed with. In February 1984, for example, the Council of Economic Advisers, then headed by Martin Feldstein, blamed the budget deficit for the current account deficit and noted that the market considered the dollar to be overvalued by more than 30 percent. Mr. Regan dismissed the warning - 'as far as I'm concerned, you can throw it away,' he said - and Mr. Feldstein resigned in July. He is now the president and chief executive of the National Bureau for Economic Research. But the politics would change. The rising dollar through the first Reagan term had been hurting some of the administration's most important allies in the business lobby. In early 1985, the National Association of Manufacturers said the $112 billion merchandise trade deficit of 1984 - then a record, and double the amount of the previous year - was a 'disaster' that was crimping growth and 'radically changing the way American firms are doing business' by 'driving more and more of them abroad.' Moreover, Congress, then controlled by the Democrats, started bubbling up with protectionist bills and resolutions. One proposal, by Senator Lloyd M. Bentsen of Texas and Representatives Richard A. Gephardt of Missouri and Dan Rostenkowski of Illinois, would have imposed import surcharges on countries with large trade surpluses with the United States. Another, by Senator Bill Bradley of New Jersey, would have mandated intervention in currency markets to weaken the dollar if the trade deficit hit certain triggers. So as he started his second term, Mr. Reagan changed course. Mr. Regan left the Treasury to become the president's chief of staff, while James A. Baker III, the chief of staff, moved to the Treasury. One of Mr. Baker's first statements was that the Treasury's policy of nonintervention was 'obviously something to be looked at.' By February 1985, the United States had started intervening in the currency markets to weaken the dollar. AT the Plaza seven months later, Mr. Baker and the Federal Reserve chairman at the time, Paul A. Volcker, agreed with their counterparts from Japan, West Germany, Britain and France to not only collectively spend billions to weaken the dollar, but also to usher in an era of economic policy coordination. In 1986, West Germany, Japan and the United States engaged in coordinated interest rate cuts. While there was no sustained coordination on fiscal policy, the multilateral process provided a forum to talk about its contributions to the global imbalances in the world economy. The United States even persuaded the Japanese government to increase public spending. 'The Plaza was very successful, measured economically or politically,' said someone who participated in the talks, a high-ranking American official at the time who spoke last week only on the condition that he not be identified. 'We didn't get protectionist legislation, and the dollar's decline did not create problems in the United States.' Some people dispute the notion that the Plaza meeting was a success. For one, the collaboration was messy. The dollar fell further than expected, leading the United States and its partners to quickly seek a new accord, signed at the Louvre palace in Paris in 1987, to try to stabilize the currency. And the wrangling among the allies over monetary policy and exchange-rate coordination helped to prompt the collapse of the United States stock market in October 1987. What's more, the current account deficit kept growing for two years after the Plaza accord. It started shrinking significantly only as the budget deficit narrowed and the economy slowed later in that decade. Some economists argue that intervening in the foreign exchange markets was an unnecessary expense and that the attempt at coordination was pointless because countries followed their own interests anyway. America's budget deficit started shrinking after Congress passed legislation limiting public spending. The Fed cut interest rates to support growth. Japan, West Germany and the other European allies were also following their own interests in cutting rates. The markets just responded to the economic fundamentals, these critics say. Richard H. Clarida, a professor of economics at Columbia University who was chief economist at the Treasury during Mr. Bush's first term, wrote in an e-mail message: 'I view Plaza as a public statement that conveyed to markets that the new Baker Treasury acknowledged that the dollar had to fall (and indeed it had been falling gradually since February 1985) and implicitly that monetary policy would be consistent with that goal, and that budget deficits would be coming down,' Yet for all the skepticism, Mr. Hormats of Goldman Sachs said he still saw a benefit from the efforts at multilateral coordination. He was at the Plaza on Sept. 22, 1985, waiting to hear news of the negotiations. 'The Plaza was the one thing that created the notion that we were willing at least to work with other countries on the exchange rate,' he said. 'It changed a neglectful approach to one of international cooperation.'

Subject: Re: 1985 - 2 From: Pete Weis To: Emma Date Posted: Tues, Dec 21, 2004 at 21:53:14 (EST) Email Address: Not Provided Message: 'For almost two decades, economists have worried about America's current-account deficit and predicted a plunge in the dollar and a hard landing for the economy. The dollar did indeed fall sharply in the late 1980s, but with few ill effects on the economy. So why worry more now? One good reason is that the current-account deficit, currently running at close to 6% of GDP, is almost twice as big as at its peak in the late 1980s, and on current policies it will keep widening. Second, in the 1980s America was still a net foreign creditor. Today it has net foreign liabilities and these are expected to reach $3.3 trillion, or 28% of GDP, by the end of 2004.' - The Economist.

Subject: A Toy With a Story From: Emma To: All Date Posted: Mon, Dec 20, 2004 at 12:33:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/20/technology/20joystick.html?pagewanted=all&position= A Toy With a Story By JOHN MARKOFF YAMHILL, Ore. - There is a story behind every electronic gadget sold on the QVC shopping channel. This one leads to a ramshackle farmhouse in rural Oregon, which is the home and circuit design lab of Jeri Ellsworth, a 30-year-old high school dropout and self-taught computer chip designer. Ms. Ellsworth has squeezed the entire circuitry of a two-decade-old Commodore 64 home computer onto a single chip, which she has tucked neatly into a joystick that connects by a cable to a TV set. Called the Commodore 64 - the same as the computer system - her device can run 30 video games, mostly sports, racing and puzzles games from the early 1980's, all without the hassle of changing game cartridges. She has also included five hidden games and other features - not found on the original Commodore computer - that only a fellow hobbyist would be likely to appreciate. For instance, someone who wanted to turn the device into an improved version of the original machine could modify it to add a keyboard, monitor and disk drive. Sold by Mammoth Toys, based in New York, for $30, the Commodore 64 joystick has been a hot item on QVC this Christmas season, selling 70,000 units in one day when it was introduced on the shopping channel last month; since then it has been sold through QVC's Web site. Frank Landi, president of Mammoth, said he expected the joystick would be distributed next year by bigger toy and electronics retailers like Radio Shack, Best Buy, Sears and Toys 'R' Us. 'To me, any toy that sells 70,000 in a day on QVC is a good indication of the kind of reception we can expect,' he said. Ms. Ellworth's first venture into toy making has not yet brought her great wealth - she said she is paid on a consulting basis at a rate that is competitive for her industry - 'but I'm having fun,' she said, and she continues with other projects in circuit design as a consultant. Her efforts in reverse-engineering old computers and giving them new life inside modern custom chips has already earned her a cult following among small groups of 'retro' personal computer enthusiasts, as well as broad respect among the insular world of the original computer hackers who created the first personal computers three decades ago. (The term 'hacker' first referred to people who liked to design and create machines, and only later began to be applied to people who broke into them.) More significant, perhaps, is that in an era of immensely complicated computer systems, huge factories and design teams that stretch across continents, Ms. Ellsworth is demonstrating that the spirit that once led from Silicon Valley garages to companies like Hewlett-Packard and Apple Computer can still thrive. 'She's a pure example of following your interests and someone who won't accept that you can't do it,' said Lee Felsenstein, the designer of the first portable PC and an original member of the Homebrew Computer Club. 'She is someone who can do it and do it brilliantly.' Ms. Ellsworth said that chip design was an opportunity to search for elegance in simplicity. She takes her greatest pleasure in examining a complex computer circuit and reducing it in cost and size by cleverly reusing basic electronic building blocks. It is a skill that is as much art as science, but one that Ms. Ellsworth has perfected, painstakingly refining her talent by plunging deeply into the minutiae of computer circuit design. Recently she interrupted a conversation with a visitor in her home to hunt in between the scattered circuit boards and components in her living room for a 1971 volume, 'MOS Integrated Circuits,' which she frequently consults. The book concerns an earlier chip technology based on fewer transistors than are used today. 'I look for older texts,' she said. 'A real good designer needs to know how the old stuff works.' Several years ago Ms. Ellsworth cornered Stephen Wozniak, co-founder of Apple Computer, at a festival for vintage Apple computers and badgered him for the secrets of his Apple II floppy disk controller. 'I was very impressed with her knowledge of all this stuff, and her interest too,' recalled Mr. Wozniak, whose fascination with hobbyist computers three decades ago helped create the personal computer industry.

Subject: A Toy With a Story - 2 From: Emma To: Emma Date Posted: Mon, Dec 20, 2004 at 12:34:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/20/technology/20joystick.html?pagewanted=all&position= She attributes her passion for design simplicity to her youth in Dallas, Ore., 35 miles south of Yamhill, where she was raised by her father, Jim Ellsworth, a mechanic who owned the local Mobil station. She became a computer hobbyist early, begging her father at age 7 to let her use a Commodore 64 computer originally purchased for her brother, and then learning to program it by reading the manuals that came with the machine. In a tiny rural town without access even to a surplus electronics store, her best sources of parts were the neighborhood ham radio operators. She learned to make the most of her scarce resources. 'It goes back to necessity,' she said. 'It went back to not having enough parts to design with when I was a kid.' Her first business foray came during high school when she began designing and selling the dirt-track race cars that she had been driving with her farther. Using his service station as a workshop, she was soon making so much money selling her custom race cars that she dropped out of high school. It was fun for several years, she said, but eventually she decided that she needed to get away from the race car scene. A friend had an early Intel 486-based PC and thought they could make money assembling and selling computers. She decided he was right: 'I looked at the margins and it seemed like a great way to make money.' They went into business together in 1995, but soon had a falling out and split up. For a short time Ms. Ellsworth considered leaving the computer business. Instead, she opened a store near that of her former partner, then drove him out of business. Ultimately her store became a chain of five Computers Made Easy shops in small towns. 'My business model was to find areas that were far enough away from the big cities where the larger stores were,' she said. 'I could generate a lot of loyalty and charge a bit more. It worked out well for quite a while.' Eventually, the collapsing price of the PC made it impossible to survive, she said, and in 2000 she sold off her stores. 'When the machines got down to $75 margins, then even putting a technician on the phone to answer a question meant you were almost losing money,' she said. Free from her business obligations, she decided to return to her first love - hobbyist electronics. She was eager to study computer hardware design, but soon found that there weren't many options for a high school dropout. She moved to Walla Walla, Wash., and began attending Walla Walla College, a Seventh Day Adventist school that offered a circuit design program. Her attempt at a formal education lasted less than a year, however. She was a cultural mismatch for the school, where she said questioning the professors' answers was frowned upon. 'I felt like a wolf in sheep's clothing,' she said. On her own again, Ms. Ellsworth decided to pursue her passion, designing computer circuits that mimicked the behavior of her first Commodore. She turned to a series of mentors and availed herself of free software design tools offered by chip companies. Her hobby produced a chameleon computer called the C-1. Changing its basic software could make it mimic not only a Commodore 64, but ultimately more than nine other popular home computers of the early 1980's, including the Atari, TI, Vic and Sinclair. Two years ago she showed it off at the Hackers' Conference, an annual meeting of some of the nation's best computer designers. To her surprise, she received a rousing ovation - and a series of job offers. One person who took notice was Andrew Singer, a computer scientist who is chief executive of Rapport Inc., a start-up based in Mountain View, Calif. Mr. Singer contracted with Ms. Ellsworth as a consultant and has since found that she has abilities that engineers with advanced degrees often do not. 'It's possible to get a credential and not have passion,' he said. He compared Ms. Ellsworth to Mr. Wozniak and to Burrell Smith, the hardware designer of the original Macintosh. Neither had formal training when they made their most significant contributions at Apple. Ms. Ellsworth was also discovered by Mammoth toys, which hired her to design the Commodore-emulating chip for the joystick. She began the project late last June and finished, including a frantic last-minute trip to a Chinese manufacturing factory, in early September - a design sprint fueled by Mountain Dew and 20-hour days. 'It worked out tremendously well for our company,' said Mr. Landi, president of Mammoth. 'It has entirely changed the way we design electronic toys.' He said that he has signed Ms. Ellsworth up for a series of design projects, although he would not divulge the financial details. Old-fashioned video games like the ones on Ms. Ellsworth's product have become less common recently because kids have grown jaded and expect a 'wow' factor, like intense graphics or realistic images that older computers could not produce, said Shyam Nagrani, principle consumer electronics analyst for iSupply, a market research firm based in El Segundo, Calif. He added, however, 'The parents are likely to pick this up and say, 'Why not? The kids may like it.'' When the C64, as the joystick is called informally, appeared on QVC last month, Ms. Ellsworth watched with obvious pride. 'It was one of one of the best projects I've ever done in my life,' she said. 'It was a tribute back to the computer that started it all for me.'

Subject: Re: A Toy With a Story - 2 From: Mik To: Emma Date Posted: Tues, Dec 21, 2004 at 16:55:39 (EST) Email Address: Not Provided Message: Cool story - thanks.

Subject: 'Interest rates and deficits' From: Pete Weis To: All Date Posted: Mon, Dec 20, 2004 at 10:34:10 (EST) Email Address: Not Provided Message: Interest rates and deficits The New York Times Monday, December 20, 2004 Alan Greenspan, chairman of the U.S. Federal Reserve, did what he had to do last week, raising interest rates for the fifth time in a row by a quarter point, to 2.25 percent, and leaving little doubt that the increases would continue. But whether the Federal Reserve's rate-setting committee will be able to stick to its self-described 'measured' pace is an open question. Much depends on decisions that have more to do with fiscal and trade policy, the domain of President George W. Bush and his merry band of weak-dollar-big-deficit policy makers, than with monetary policy, the domain of the Fed. That's because the administration's policies exert upward pressure on prices and interest rates, risking what a recent Fed staff report on trade imbalances calls 'wrenching changes.' The Fed has to raise rates because continued low rates would only contribute to a glut of dollars, further inflating real estate values and, eventually, other prices as well. At the same time, however, the Fed must contend with the inflationary pressures inherent in the administration's weak-dollar policy. The administration believes that it can rely on a weak dollar to fix America's huge trade imbalance, thereby avoiding the more fundamental fix of reducing the huge federal budget deficit. But a weak dollar runs the risk of inflating the prices of all goods, not just foreign ones, because as imports become more expensive, domestic producers raise prices in tandem. Moreover, the outsized deficits require huge infusions of capital from abroad, and that need could also lead to higher interest rates as the Treasury attempts to lure lenders to America's heavily indebted shores. Against this backdrop, measured interest rate increases may someday seem a luxury - and that someday could be soon. In a report issued on the day after the Fed's latest rate increase, the Treasury Department reported that money flowing into the United States - capital that is crucial to finance America's deficits - plummeted in October to $48.1 billion, a 12-month low. It was the seventh decline this year out of the 10 months for which data has been collected, and that is a bad omen for America's continued ability to finance its deficits on the terms currently being offered. The Fed's attempt to be 'measured' is imperiled by the administration's willingness to risk 'wrenching changes.' The wrenching change that the United States really needs is to move away from profligacy and toward a semblance of balance in fiscal and trade matters.

Subject: Re: 'Interest rates and deficits' From: Terri To: Pete Weis Date Posted: Mon, Dec 20, 2004 at 13:42:07 (EST) Email Address: Not Provided Message: What is keeping growth moderately strong are low long term interest rates. A spike in interest rates whether because of a sustained loss in confidence by international investors in American investment opportunities, or because the Fed felt inflation might accelerate, would be a severe limit to growth.

Subject: How Safe Are TIPS? From: Terri To: All Date Posted: Mon, Dec 20, 2004 at 10:12:10 (EST) Email Address: Not Provided Message: Vanguard TIPS fund began on June 30, 2000. The Federal Reserve had just finished a tightening sequence and interest rates would come down sharply. From then till now TIPS have been in high demand and interest rates have stayed low, so the TIPS fund has been an excellent investment. The fund does seem pricy. What will happen however if long term rates turn up sharply in a question. My guess is if long term interest rates rise sharply TIPS will sell off as strongly as Treasury notes, and there is the risk. The duration of the TIPS fund is about 6 years.

Subject: Social security in the stock markets From: Pete Weis To: All Date Posted: Mon, Dec 20, 2004 at 09:58:11 (EST) Email Address: Not Provided Message: Privatizing Social Security should scare you The idea assumes anyone can invest successfully and threatens to destroy the safety net for which Social Security was originally created. Yet privatization is being spuriously packaged as 'reform.' By Bill Fleckenstein If Mr. Market was easy to understand, we'd all become rich. But notwithstanding his inscrutable ways, there are pundits aplenty offering their opinions to anyone who will listen. It's a problem for folks sifting through all these opinions, as they try to discover the ones that will make them better investors. Meanwhile, successful investing will be an impossible goal for large numbers of Americans -- even as privatized Social Security is trotted out in the name of reform in the face of that reality. There's no shortage of people who have opinions about the stock market and many other markets. Some are worth listening to, and some aren't. Sometimes it's hard to tell whether or not you should factor someone's opinion into your thinking. But oftentimes, it's clear. If someone has consistently misunderstood the way the world works -- like Abby Joseph Cohen, Joe Battipaglia, and the rest of a long list of 'new era' talking heads -- there's not much point in listening to them. But it's worth paying attention to the people who've consistently demonstrated that they understand the way the world works -- guys like Jim Rogers, Jim Grant and Marc Faber, to name just a few of a short list of people. Set your junk-pundit filter to 'high' This is not to say that any one person is always right or, more importantly, can always get the timing right. My point is that a tremendous number of opinions exist, and, given how easy it is to access those opinions (thanks to the ability to communicate via the Internet), this information overload can leave everyone in a daze. The trick is in distilling it down to people you want to pay attention to and ignoring the ones you know are clueless. Readers of my daily Market Rap often ask my opinion of so and so, of whom I've never heard. Just because I've never heard of them doesn't mean they can't have a line of logic that's very useful and worthy of consideration. Conversely, just because someone's on Bubblevision doesn't mean that whatever they're saying is useful. Perhaps the fact that they're on Bubblevision means you should ignore them (though that notion might be just a little too clever). The bottom line is that folks have to process all the useful information they can, then come to conclusions that make sense to them and that they can live with. It's not easy figuring out what's liable to happen next. That's why getting the price right when you pick a stock or some asset is so important. You'd like some margin of safety in the event that your view of what the future holds for the economy or a company is incorrect. Bulls on the privatization bandwagon As if successful investing isn't challenging enough, even for the well-informed, a potential plan to privatize Social Security would turn that responsibility over to novice investors across America. Privatizing Social Security is one of the bulls' new reasons for being bullish, as they envision mountains of money moving into the stock market. I find it stunning that people behave as though there's actually money in the Social Security trust fund. As I stated in my column, 'Heads up for pension heartache,' the government spends the payroll-tax proceeds (and pays out current benefits) as part of its budget, then puts an IOU in the trust fund for future retirees. Prior to changes resulting from the Social Security Reform Act of 1983, the system was on a pay-as-you-go basis, and it was headed for trouble. The government supposedly put Social Security on an actuarially sound footing: Money would be paid in and surpluses would accumulate, to be paid out later when the baby boomers started to retire. Now the baby boomers are approaching retirement, and there won’t be enough money in the fund to deliver on past promises. So, now we’re talking about 'reform.' There's only one problem. The bulls are acting as though Social Security is a giant individual retirement account or personal pension fund. It is not. The Social Security system was established to make sure that those people who found themselves mostly penniless had something to get by on. You may agree or disagree with the principle under which Social Security was established, but that's what it was supposed to do. The present sugarplum plan dancing through the head of stock bulls is that everyone would be given their own money to invest and we'd all live happily ever after. But, if we go down that path, a disproportionately large segment of the population will probably be unsuccessful at investing and will wind up in the exact position that Social Security was supposed to prevent. This is not to demean the average person's good intentions. It's just that we have seen what can happen in the several years since the dot-com mania blew up, and I think we'll see more problems prospectively. It's difficult to be a successful investor, even if you have a long-term horizon. (And, no, indexing is not the answer, either). Further, if you hold down one or two low-paying jobs and have to hustle to make payments and make ends meet, or a myriad other combinations like that, it's easy to see how you would have some difficulty devoting the necessary time to your “investments.' Broken promises vs. a 'broken' system The money that comes out of our paychecks for Social Security is a tax. That tax goes into the trust fund to help defuse the government's liability. Social Security is a giant liability of the government. It has promised to pay people a certain income stream at some point in the future. That will no longer be possible. So, when someone says Social Security is broke, it's not like it is broke today. What they mean is that it's going to be unable to meet its liabilities as presently construed, especially as more baby boomers retire. A politically unacceptable but semi-intelligent solution would probably involve some form of means-testing -- if you don’t need it, you don’t get it. Obviously, people who've been financially successful do not need Social Security. Furthermore, I, for one, have always assumed that I would never see a penny from Social Security. It's been clear to me for decades that we'd end up where we are about to end up. I don't know why 'not getting what you put in' is such an unconscionable outcome to people, but it appears to be. Some people seem to believe that since they paid money into Social Security, they deserve their 'fair' share. Well, let me ask you this: Most of you probably pay a lot of money in taxes. Do you get a 'fair' return on your taxes? I thought so. Social Security is just another government program that won't work out as it was supposed to, but hey, that's life. Pretending Social Security is an IRA is lunacy Having said all that, there are lots of people in this country who, for one reason or another, desperately need what Social Security offers. I'm not a big-government fan, but if we as a country would still like to provide that for them, then going down the path of pretending Social Security is an individual retirement account is complete lunacy. As I said before, those folks are probably the exact same ones who will wind up unable to successfully invest their 'Social Security IRA.' So, let's call a spade a spade. Under the guise of fixing Social Security, this 'reform' is just a subterfuge to end the government's liability and let down the people it was supposed to help.

Subject: Re: Social security in the stock markets From: Terri To: Pete Weis Date Posted: Mon, Dec 20, 2004 at 10:17:53 (EST) Email Address: Not Provided Message: Privatizing Social Security does scare me. But, I wonder whether it would be useful for the Social Security system to invest part of payroll taxes in the Total Stock Market Index in non-voting shares. I see no reason why this would not lift Social Security returns over long time periods.

Subject: Re: Social security in the stock markets From: jimsum To: Terri Date Posted: Mon, Dec 20, 2004 at 17:01:39 (EST) Email Address: jim.summers@rogers.com Message: Your suggestion can be applied to all government programs, not just retirement benefits. Rather than just collecting enough money to pay benefits, the government could collect a little extra and invest it. Then the interest from that endowment could be used to either lower taxes or increase benefits. Of course, the government doesn't have an endowment, it has a huge and growing debt. We tried to create a system where at least some retirement money was saved before it was needed (i.e. the Social Security surplus), but the government didn't waste much time buying votes with that surplus, just as soon as people forgot why they were being charged extra for social security. Since it looks very unlikely that government will ever change its ways, we might as well forget about any plan that involves short-term pain for long-term gain. Forget about putting money aside for retirement, it would be achievement enough to have pay-as-you-go financing rather than the current borrow-as-you-go. Why stop at private financing for social security; why not stop collecting taxes at all? Let the government send us a bill for the services we receive each month, and we'll arrange our own financing for it. If the government can't be trusted to properly fund our modest and predictable social security benefits, it really can't be trusted to fund any government program.

Subject: Fannie Mae From: Emma To: All Date Posted: Sun, Dec 19, 2004 at 18:36:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/yourmoney/19watch.html Fannie's Fans Must Be in Denial By GRETCHEN MORGENSON THE Securities and Exchange Commission's smackdown of Fannie Mae should upset not only the company and its arrogant executives. It should also embarrass the Wall Street analysts who reassured investors last September that the S.E.C. would probably take a friendlier view of the company's accounting than did its other regulator, the Office of Federal Housing Enterprise Oversight. Instead, the S.E.C. said last week that Fannie Mae, the giant mortgage company, must restate its earnings for the past four years. But because shame is simply not in the typical brokerage analyst's DNA, investors were given further assurances that all remained fabulous in the house of Fannie. According to one of the shills, removing $9 billion in earnings from Fannie Mae's results since 2001 (Fannie's own estimate, by the way) would have 'no economic significance.' Of course, these are the same people who have never met a corporate management team they didn't like. And the steady stream of bounteous investment banking fees Fannie Mae provides to Wall Street probably doesn't hurt, either. In any case, the analysts' utterances had the desired effect: Fannie's stock fell only 0.5 percent by the end of the week. A few analysts are not under Fannie Mae's spell, however, and they take a different view. One such skeptic, Josh Rosner, an analyst at Medley Global Advisors in New York, said that while the company's regulatory woes were the immediate problem, other forces out of Fannie's control would put significant pressure on its business of buying and selling billions of dollars in mortgages. And on the subject of Fannie Mae, Mr. Rosner is worth heeding. For a year, he has been warning clients about coming Fannie Mae woes; his has been a lonely voice of reason on the company's prospects. Mr. Rosner said that even after Fannie Mae works out its differences with legislators who want to rein it in and with regulators who want more conservative accounting, its troubles are far from over. That's because the mortgage market is changing, and those shifts are sure to lessen the company's dominance and, more important, cut into its income growth. 'We're not in Kansas anymore,' Mr. Rosner said. In making his case for why the landscape around Fannie Mae is forever changed, Mr. Rosner pointed to three major shifts. First is the fact that the 30-year fixed rate mortgage, the highly profitable loan that is Fannie Mae's stock in trade, appears to be losing some appeal among homeowners. About 30 percent of the mortgage market is adjustable-rate mortgages. But so-called hybrid adjustables, which have a fixed rate of interest for a specified period and then move to a floating rate, are coming on strong. These hybrids make up almost three-quarters of the adjustable-rate mortgage market, up from 7 percent five years ago, Mr. Rosner said. Consumers will be more likely to choose hybrid adjustable-rate mortgages in the future, Mr. Rosner reckoned, and not only because they are cheaper than 30-year fixed-rate loans. Increased family mobility has shortened the typical mortgage to five to nine years. So homeowners will figure that hybrid mortgages with fixed rates for 7 or 10 years are preferable. The only factor that could alter this trend would be a significant increase in interest rates. Fannie Mae, of course, could compete in the adjustable-rate mortgage arena. But, Mr. Rosner noted, it would have a negative effect on the company's profit margins. A second element that could undermine Fannie's business in coming years relates to new capital requirements expected in 2006 from the Bank for International Settlements. As Mr. Rosner explained, one of Fannie Mae's main roles is as a conduit for lenders seeking to free up both the capital to make additional loans and the reserves that must be held against those loans. Lenders like to sell their loans to Fannie Mae because they can lend that money again, generating additional revenue. The banks can also swap loans for guarantees from Fannie Mae so that they have no exposure to the mortgages and do not have to add to reserves. UNDER the new rules, capital requirements will move away from the one-size-fits-all attitude toward risk assessment. Now, all loans in an asset class have the same capital requirements. In the future, banks will be allowed to adjust their capital to reflect the risks in a particular loan. This change, Mr. Rosner said, will significantly increase the economic incentives for banks to hold onto mortgages, especially those with the most predictable credit and cash-flow characteristics. But it will also cut into Fannie Mae's growth. Another worry is the prospect for a decline in the fees that Fannie Mae earns from banks for guaranteeing loans, a big source of its income. Mr. Rosner said that if Congress created a new regulator to oversee Fannie Mae and its mortgage finance sibling, Freddie Mac, that new entity would also likely supervise the Federal Home Loan Banks, which compete with Fannie and Freddie. Such a regulator would probably bring into line disparate practices at the entities; one of these relates to the size of guarantee fees they charge their customers. Fannie Mae charges guarantee fees that are roughly double those assessed by the home loan banks. Mr. Rosner said that this could soon change, further pressuring Fannie Mae's profit margins. Fannie Mae reaped $1.5 billion in such fees last year. Mr. Rosner concedes that these may be longer-term concerns. More immediately, he fears a possible wave of mortgage defaults. After all, mortgage defaults typically occur from three to five years after the loans are written. The flood of refinancing in recent years means that a great majority of outstanding mortgage loans are less than three years old. Defaults could rise substantially. A Fannie Mae spokeswoman said that the company would not comment, beyond its avowal to do what it must to comply with the S.E.C.'s findings on its accounting deficiencies. Why Fannie Mae shareholders are so unfazed by the company's mounting problems is a mystery. Sean Egan, president of Egan-Jones, an independent debt-rating firm that does not receive payments from companies it analyzes, said he was surprised by the denial at work among Fannie Mae's investors and debt holders. 'All big failures are built on false assumptions,' he said. 'The tulips were always going to be in short supply, so prices were always going to go up. In the case of Fannie Mae and Freddie Mac, they have terrific assets - mortgages that have historically been a low-default asset. And the federal government is going to stand behind them.' What if one or both assumptions are false? 'If Fannie Mae gets into difficulty,' Mr. Egan said, 'It's highly likely that current investors are not going to get paid back in full and on time by the federal government.' Ridiculous? Maybe not.

Subject: Re: Fannie Mae From: Pete Weis To: Emma Date Posted: Sun, Dec 19, 2004 at 22:49:14 (EST) Email Address: Not Provided Message: Gretchen Morgenson is a heroine of the 4th estate! Few other members of the American press have done such an excellent and courageous job of giving us the truth about what is going on Wall Street and it's negative effects on Jack and Jill Investor. Her writings along with those of Paul Krugman and Robert Shiller should be required reading for all small investors to balance all the 'bull' being slung on the likes of CNBC.

Subject: Who's Afraid of China? From: Emma To: All Date Posted: Sun, Dec 19, 2004 at 14:37:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/yourmoney/19dell.html Who's Afraid of China? By GARY RIVLIN Austin, Tex. SHAYNE MYHAND, the day-shift manager of Dell's flagship factory here, does a lot of chaperoning. As many as four or five times a day, he finds himself playing host to corporate chieftains and midlevel scouts who come to marvel at the dazzlingly efficient assembly plant that may be the best hope for keeping blue-collar jobs in the United States. A 31-year-old with a crisp, militarylike bearing, Mr. Myhand begins each tour the same way, moving to a display case and grabbing an unimpressive wooden plaque commemorating Dell's production of 49,269 personal computers in the last three months of 1991. 'On a good day, during peak demand, we'll exceed that number by lunchtime,' he said, with a slight nod and a faint smile gracing his lips. He told a visitor that even now, during the Christmas season rush, an order that hits the factory floor at 9 a.m. is typically stacked in the back of a truck motoring down an interstate highway by 1 p.m. Inside Dell, the world's largest computer maker, executives study the assembly process with the intensity of Alfred Kinsey and his researchers. They wheel in video equipment to examine a work team's every movement, looking for any extraneous bends or wasted twists. Designers give one another high-fives for eliminating even a single screw from a product, because that represents a saving of roughly four seconds per machine built - the time they've calculated it takes an employee, on average, to use the pneumatic screwdriver dangling above his or her head. Computer software clocks the assembly-line performance of workers, whether they're putting together PC's or the servers and storage equipment that Dell sells to large companies. The most able are declared 'master builders' and then videotaped so that others may watch and learn. The weak are told that it takes a special set of talents to cut it on the Dell factory floor - and shown the door. Steely-eyed cold, to be sure, but at a time when economists and politicians fret over the future of American manufacturing as China emerges as the workshop of the world, Dell isn't just defying a global trend; it's helping to set the standard. 'When everybody is outsourcing - when everybody is outsourcing - Dell continues to manufacture in the United States because over two decades of fine-tuning, they've figured out how to do it cheaper and smarter,' said Charles R. Wolf, an analyst at Needham & Company who has been following Dell since 1991. (He has also been reaping the financial rewards as a longtime Dell shareholder, seeing a 33-fold return on his investment.) 'They're truly in the 21st century when it comes to manufacturing.' No other major computer maker produces computers in the United States. Long ago, Dell's top rival, Hewlett-Packard, outsourced assembly of its PC's to third parties, primarily based in Asia, as did I.B.M., the world's third-largest PC maker. And I.B.M., which created the PC market in 1981, is leaving the business, announcing this month that it is selling its PC unit to Lenovo, the Chinese computer giant. 'It's been a long time since one of our competitors actually made a computer,' said Michael S. Dell, the founder and chairman of the company that bears his name. Dell, by contrast, operates three giant assembly plants in the United States - two in Austin and the third outside Nashville. Each is large enough to house six contiguous football fields. Last month, the company announced that it would build a fourth plant, twice as big as the others, near Winston-Salem, N.C. And, inside the company, executives talk about opening a fifth one, probably in Nevada, where it would build computers according to each customer's specifications. At a White House conference on the economy on Wednesday, Kevin D. Rollins, Dell's chief executive, boasted, not quite accurately, that all the computers the company sells domestically are made right here in the United States. 'None is outsourced; none is made in other countries and shipped in,' he said, though Dell laptops are in fact assembled overseas. Dell's decision to expand its American manufacturing presence, however, has nothing to do with patriotism. Executives here say their decisions are based on the bottom line as well as on geography; it is simply more efficient to stamp out computer equipment closer to the customer. 'The reason we continue to manufacture in the United States is that it's the optimal place to do so, and we can do it most cost effectively,' said John Hamlin, who oversees Dell's entire consumer line. Few rivals know that better than Lenovo itself. The questions that many analysts have been asking in the wake of the I.B.M. deal is how well Lenovo, based in Beijing, can compete with Dell outside China, given how cheaply Dell can make its machines. Dell has run a factory in Xiamen, China, since 1998 - but that's to produce computer equipment that the company sells to its Asian customers. Similarly, Dell's factory in Limerick, Ireland, makes machines for Europe. This month, Mr. Dell announced that his company would probably build a second European plant sometime soon. Dell is also bucking global trends on another front. In an era when a call center is more likely to be in India than Indiana, the company has announced that it is building a new customer assistance facility in Oklahoma City. Earlier this year, it opened a call center in Edmonton, Alberta. And while Dell's laptops are produced in Malaysia, they are built by Dell employees working inside a Dell-owned factory. 'I tell employees all the time that we're in a race on costs,' said Dick Hunter, who, as the Dell executive who oversees manufacturing in the United States, is Mr. Myhand's boss. 'When we lose the race on costs to Asia or wherever, that puts our own security in jeopardy.'

Subject: Who's Afraid of China? - 2 From: Emma To: Emma Date Posted: Sun, Dec 19, 2004 at 14:40:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/yourmoney/19dell.html EVER since 1984, when Michael Dell began selling personal computers from his University of Texas dorm room, his company has been able to sell cheaper PC's by cutting out the middleman, selling directly via the phone or, nowadays, the Internet. But the reason Dell continues to dominate as a low-cost leader - whether selling a PC, a server or, more recently, plasma televisions and portable music players - is its fanatical determination to save every penny it can. Mr. Dell may not quite be the Henry Ford of our time, but his company is certainly the Wal-Mart of the high-technology industry, for better or worse. 'I set irrational goals, Michael and I together, to encourage our team so they don't think of conventional solutions,' Mr. Rollins said in an interview. 'If we asked for a 10 or 15 percent increase in productivity, we'd get conventional solutions. But if we ask them to double their productivity, then they have to rethink everything.' This year, their goal was a 30 percent increase in the number of machines that the company's factories spit out - a target that Mr. Myhand says he is confident they will hit. Among the recent changes was a rerouting of cable so that it no longer had to be laced over and under other parts, and the decision to replace L-shaped tables with a single workbench, to avoid time-consuming twists. A decision was also made to apply one fewer sticker per machine. 'We're going to get there by saving four seconds here, and four seconds there,' Mr. Myhand said. The labor costs of a PC are 'roughly 10 bucks,' Mr. Rollins said, meaning that payroll costs account for maybe 2 percent of the overall cost of the typical Dell PC. Five years ago, it took two workers 14 minutes to build a PC; it now takes a single worker roughly five minutes to do the same.

Subject: About TIPS From: David E.. To: All Date Posted: Sun, Dec 19, 2004 at 14:20:47 (EST) Email Address: Not Provided Message: Here is a comment from a thread on Morningstar's Vanguard Diehard Forum - a source for good technical investment advice. This poster says in a few words and clearly thoughts that I have been thinking (unclearly of course). Thank goodness though, that no changes are needed in my asset allocation. >>with serious inflation tips and i bonds, gold, and commodities will be the three uncorrelated asseted to stocks/bonds...stocks and bonds will be correlated....serious inflation hurts both stocks and bonds....so they don't compensate for each other....if you don't have a serious stake in the first three uncorrelated assets, then serious inflation will be a serious problem....since both your stocks and bonds will be hurt....and you will have nothing to compensate....a classic case of compensating assets....

Subject: Re: About TIPS From: Jennifer To: David E.. Date Posted: Sun, Dec 19, 2004 at 14:58:43 (EST) Email Address: Not Provided Message: Vanguard has an exchange traded fund for materials, but I can not make up my mind whether to worry about inflation. Also, there is Precious Metals and Mining. I am using High Yield Taz Free and High Yield Corporate for bond funds. The durations are moderate for tax free and low for corporate, and I prefer the extra yield. Since I have nice gains, I can always become more conservative.

Subject: TIPS or Short Term Bonds From: Jennifer To: Jennifer Date Posted: Sun, Dec 19, 2004 at 19:39:56 (EST) Email Address: Not Provided Message: This year the TIPS fund at Vanguard is up 7.94%. The fund has a duration of 6 years. However, if long term interest rates climb will TIPS be a superior or inferior investment than Short Term Bond Index with a duration of 2 years?

Subject: Re: TIPS or Short Term Bonds From: David E... To: Jennifer Date Posted: Mon, Dec 20, 2004 at 00:47:04 (EST) Email Address: Not Provided Message: TIPS behaves like a different asset class. Its value correlates positively with inflation, inversely with interest rates. So TIPS are a bond play that works real well if inflation increases. TIPS will be just average if there is no change in inflation. The real question is the same question as the thread - Is there enough value in a current purchase? Best idea is to register for free and post the question on Morningstar Diehards. You will get a wide variety of experienced replies. I shared the thread because it was rich in different viewpoints. Some of the posters are professional financial advisors with deep technical backgrounds. And some of the non-professionals have a solid technical background also. SO it makes for an interesting thread like that one.

Subject: TIPS and Interest Rates From: Ari To: David E... Date Posted: Mon, Dec 20, 2004 at 19:58:44 (EST) Email Address: Not Provided Message: Though I trust your knowledge, I do not agree about TIPS. When long term interest rates increase, TIPS will decline in price. I have run a quick regression on the Vanguard TIPS fund and the long term Treasury fund and find they move in the same direction as interest rates move. Possibly, I just do not understand TIPS.

Subject: Averting The Old Age Crisis From: Pancho Villa To: All Date Posted: Sun, Dec 19, 2004 at 10:46:58 (EST) Email Address: nma@hotmail.com Message: CANADA PENSION PLAN INVESTMENT BOARD: AVERTING THE OLD AGE CRISIS … BY SIMPLY PLAYING THE MARKET? Thaddeus Hwong In 1994, the World Bank published an influential research report entitled “Averting the Old Age Crisis,” which sparked public policy debates on whether financing public pensions on a pay-as-you-go basis is viable and helped trigger the 1997 round of reforms of the Canada Pension Plan (CPP). The ostensible purpose of the reforms was to fix the alleged CPP financing problems so the pay-as-you-go public pension scheme will have enough money to pay for the retirement of future retirees. The prominent feature of the reforms was the establishment of the Canada Pension Plan Investment Board to invest money not required to make CPP payments immediately in instruments other than provincial government bonds. The creation of the Board reflected a change in public pension policy that is the first of its kind in Canada. Amidst the dot-com boom, the publicly-financed-but-privately-managed investment fund was set up to fix the alleged CPP financing problems by maximizing investment returns in private securities markets. Is investing in stocks, private equities and real estate the best-available policy to eradicate the alleged CPP financing woes? I would argue that a mere switch in investment strategy would not solve all the alleged CPP financing problems the 1997 public pension reforms were purported to fix. If the switch in the investment strategy were the answer, the alleged financial insecurity of the CPP would not have been the question. The pension reforms seemed to be built on an ideological belief that the new investment strategy could boost capital accumulation and economic growth and thus solve all the alleged CPP financing problems, but I would argue that such a belief ignores the disconnect between the financial markets and the rest of the economy and Canada could not avert the alleged old age crisis by simply playing the market. http://www.ccsd.ca/cswp/2003/papers/abstracts/hwong.htm

Subject: Re: Averting The Old Age Crisis From: Jennifer To: Pancho Villa Date Posted: Sun, Dec 19, 2004 at 19:41:53 (EST) Email Address: Not Provided Message: Please try to explain this essay a bit more simply. I do not really understand what the author is arguing.

Subject: Medicine Fueled By Marketing From: Emma To: All Date Posted: Sun, Dec 19, 2004 at 09:49:44 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/19drug.html?pagewanted=all&position= Medicine Fueled by Marketing Intensified Trouble for Pain Pills By BARRY MEIER In the mid-1990's, the medical community reached an inescapable conclusion. Researchers at the Stanford University Medical School and elsewhere who had long been monitoring arthritis and rheumatism patient records had found that thousands of patients, perhaps as many as 16,500, were dying annually from bleeding ulcers and other problems caused by widely used painkillers like ibuprofen. Within a few years, a new class of pain relievers, the so-called COX-2 inhibitors, burst onto the market with the promise they might reduce that toll. Sales of the best known products, Celebrex and Vioxx, quickly skyrocketed - thanks in part to changes in federal rules in 1997 that made it much easier for drug makers to advertise medications directly to consumers on television, in newspapers and in magazines. Now, though, the flight path of these blockbuster drugs has been aborted. On Friday, Pfizer the maker of Celebrex, which is expected to end up with sales of $3.3 billion this year, disclosed that a patient trial by the National Cancer Institute had found significant risks of heart attacks. Vioxx, which was made by Merck and had sales of $2.5 billion last year, was pulled from the market in late September after similar findings. In some ways, the story of the COX-2 drugs, a class that includes another troubled Pfizer medication, Bextra, is part of an age-old search for safer pain treatments. And some doctors say that they have helped. But it is also perhaps the clearest instance yet of how the confluence of medicine and marketing can turn hope into hype - and how difficult it is for the Food and Drug Administration to monitor the safety of drugs after they have been approved for the market. Celebrex and Vioxx, after fast-track approval from the F.D.A., hit the nation's pharmacies as revolutionary drugs that could not only treat arthritis patients' pain, but potentially save their lives. But having spent hundreds of millions of dollars to develop their drugs, the makers of Celebrex and Vioxx, cheered on by Wall Street, had every motivation to expand their markets beyond the older people most at risk of ulcers to encourage the drugs' use by millions more people of all ages. That was so even as, at least in the case of Vioxx, there was evidence as early as 2000 that a COX-2 drug could cause heart problems. 'You have to realize that these medications, they are not candies, they are not placebos,' said Dr. Gurkirpal Singh, a Stanford professor who has worked on the arthritis database project. A big problem with the COX-2 drugs, he said, has been the tendency of doctors to use them indiscriminately. 'Like all medications, you have to identify which people will benefit the most, and which won't.' Since the drugs' release, the companies have spent hundreds of millions of dollars on television, newspaper and magazine advertising for them and, by some estimates, at least as much on marketing and promoting the drugs to doctors. As a result, many medical experts now say that Celebrex and Vioxx, selling for $2 or $3 a pill, have been too widely prescribed to patients who could safely obtain the same pain benefits from over-the-counter drugs costing pennies apiece. Potentially wasted money, though, is not the main point about the sales push, now that there is clinical evidence that all the COX-2 drugs on the market can, in some circumstances, increase a user's likelihood of strokes or heart attacks. On Friday, Pfizer characterized the cancer trial findings as an anomaly requiring further study and said it was not ready to withdraw the drug. But the news of the trial results was enough to send drug stocks plummeting and to cast grave doubts on the future of the entire COX-2 drug category. Only a few weeks ago, the F.D.A. ordered Pfizer to put a label warning on Bextra, noting that it could pose cardiac risks to patients recovering from heart surgery. Pfizer and Merck have repeatedly said that their marketing has been accurate and responsible. 'We market all of our medicines consistent with regulation,' said a spokeswoman for Pfizer. 'Doctors and patients are in the best position to say which drugs are most appropriate for them.' But the rapid rise and now shaky future of this class of drugs, some researchers say, is emblematic of the way drug companies' efforts to spur the use of costly new medicines can distort the medical realities of safety and effectiveness. Too often, marketing can drown out medical science, said Dr. James F. Fries, the director for the Stanford arthritis database project, which receives funding from the National Institutes of Health. 'Here, it was not a fair battle.' The roots of Celebrex and Vioxx reach back to the early 1990's. At the time, Harvey R. Herschman and colleagues at the University of California, Los Angeles were screening large numbers of genes trying to find ones that might be involved in cancer. The screen turned up a gene that was in many ways similar to a known gene for an enzyme called cyclooxygenase or COX. It had long been understood that COX spurred the production in the body of chemicals called prostaglandins that contributed to pain, inflammation and fever. But it had always been thought that there was only one COX enzyme. Now in Dr. Herschman's laboratory emerged evidence of a new one, which came to be called COX-2. Similar discoveries were made about the same time in the laboratories of Donald A. Young at the University of Rochester and Daniel L. Simmons at Brigham Young University. 'It was totally unexpected, completely serendipitous,' Dr. Herschman said of his own discovery, adding that he believed that to be true of the other labs as well.

Subject: Medicine Fueled By Marketing - 2 From: Emma To: Emma Date Posted: Sun, Dec 19, 2004 at 09:52:31 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/19drug.html?pagewanted=all&position= But the implications were immediately clear to Philip Needleman, who had already hypothesized the existence of a second COX enzyme and had begun to characterize its role in the body. The original COX, now called COX-1, seemed to be present everywhere in the body and contributed to vital functions like protecting the stomach lining. COX-2 seemed to be present mostly during times of inflammation. So if a drug could be made to block COX-2 but not COX-1, the thinking went, it could relieve pain without causing ulcers. Convinced of the importance of the discovery, Dr. Needleman had moved from Washington University in St. Louis to Monsanto in 1989 to lead an all-out effort to develop a COX-2 inhibitor. The result of Dr. Needleman's effort was celecoxib, or Celebrex. Monsanto's drug division, Searle, eventually was acquired by Pharmacia, which in turn was gobbled up by Pfizer, in a rush of mergers that swept the drug industry over the past decade to satisfy Wall Street's desire for rapid growth. Thinking that Celebrex and Vioxx would help cut the rate of gastrointestinal bleeding, the F.D.A. took only six months to review the applications for both drugs, an accelerated process used only for drugs deemed medically important. But in both cases, the F.D.A. decided that the drugs had not sufficiently demonstrated that they reduced the rate of serious gastrointestinal problems compared with existing painkillers like aspirin and ibuprofen. So the drugs' labels contained the same warnings as the older drugs about such side effects. Merck later conducted studies that persuaded the F.D.A. to change the label, but Pfizer's results were never convincing enough for the agency to remove the warning from Celebrex's labeling. In other words, the world's best-selling COX-2 has never been proven to the F.D.A.'s satisfaction to have the stomach-protecting benefits that originally were supposed to be the point of that category of drugs. By the time they reached the market, the COX-2 drugs were marketed by makers as not simply improved versions of older treatments but as entirely new drugs. 'They wanted to use this as a discontinuity with the past,' said Dr. Fries, the Stanford professor. The audience also went beyond those at the highest risk of stomach bleeding - principally people over 65 years who have suffered from gastrointestinal problems or might be at risk for them. Dorothy Hamill, the 1976 Olympic figure skating gold medalist, was the middle-aged celebrity face of Vioxx. Television commercials for Celebrex presented actors engaged in activities like riding bicycles and performing tai chi to the strains of the song 'Celebrate' by the 1970's band Three Dog Night. The song's choice echoed more than the drug's name; it was also selected to appeal to a critical audience, baby boomers beginning to suffer from arthritis. Celebrex has been one of the most heavily promoted prescription drugs in advertising aimed at consumers. For the first nine months of this year, Pfizer spent almost $71.2 million on Celebrex, up about 55 percent from almost $46.1 million spent in the same period a year ago, according to data from the research firm TNS Media Intelligence/CMR. The effect of such advertising, many doctors say, was to drive to consumer demand for COX-2 drugs far beyond the bulk of those patients who really benefit from them. Dr. Elizabeth Tindall, the president of the American College of Rheumatology, a professional group, said her group believed that COX-2's are an appropriate treatment for patients at high risk of stomach problems. But 'we weren't saying to anyone if you have a 23-year-old with ankle pain put them on this drug,' said Dr. Tindall, who practices in Portland, Ore. 'That was the impression that the TV advertising was giving.' Within little more than a year, the drugs had grabbed about 40 percent of the market from traditional anti-inflammatory drugs like ibuprofen. Some efforts were made to determine who would most benefit from the drugs. Researchers at Stanford developed a scoring tool that physicians could use to determine, based on a patient's age and medical history, whether they were at high risk for stomach bleeding and, as a result, candidates for drugs like Celebrex and Vioxx. Dr. Singh, the Stanford professor, said that most patients did not fall in the high-risk category. Few groups or individuals, however, used the scoring tool. One organization that did was Kaiser Permanente, one of the nation's largest health care systems. Dr. David Campen, a medical director at Kaiser, said that because of the scoring system only about 5 percent of Kaiser's patients received a COX-2.

Subject: Medicine Fueled By Marketing - 3 From: Emma To: Emma Date Posted: Sun, Dec 19, 2004 at 09:53:05 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/19/business/19drug.html?pagewanted=all&position= Beyond their heavily promoted use as prescription-strength painkillers, COX-2's have been extensively studied for other potential uses, like fighting or even preventing cancer. And, perhaps ironically for the drug companies, it was cancer prevention studies that ultimately provided clinical evidence that Vioxx and Celebrex posed cardiac risks. For years scientists have pursued evidence that aspirin-like drugs may help control the occurrence of polyps in people at risk of colon cancer. But there was a problem with testing such drugs as cancer preventatives in healthy people: the drugs could cause ulcers and bleeding. So when Vioxx and Celebrex were developed as drugs that might act like aspirin, without the risks of bleeding, cancer researchers saw their chance. In fact, based on tests Searle had conducted with the National Cancer Institute, the F.D.A. approved Celebrex for patients at high-risk of getting colon cancer. By last year, more than a dozen studies of Vioxx and Celebrex were under way with people at high risk for cancers of the lung, breast, skin, prostate, colon, mouth, bladder or esophagus. They were being studied along with standard treatments in patients who already had cancer. The trials that disclosed the dangers involved healthy people who had already had polyps removed from their colons and who were randomly assigned to take a placebo or a COX-2 inhibitor. Each study sought to learn if taking a COX-2 inhibitor prevented the subsequent formation of polyps. That answer is not yet known and the researchers have not released those data. But in both studies, the participants taking the COX-2 inhibitor had more heart attacks and strokes than those taking a placebo. The problem was seen in the Vioxx trial after 18 months and after a longer period in the Celebrex trial among patients taking high doses. For all their early promise, the future of COX-2's is uncertain. Dr. Lester Crawford, the F.D.A.'s acting commissioner, said Friday that doctors should consider switching their Celebrex patients to other drugs. He said the F.D.A. had 'great concerns' about Celebrex and Pfizer's Bextra and was considering regulatory measures that could include forcing Celebrex's withdrawal or placing severe warnings on its label. Merck has a successor to Vioxx, called Arcoxia, pending approval at the F.D.A. But the agency, which has a panel planning to hold hearings on the entire class of drugs early next year, has tabled that application for now. Some physicians, like Dr. Tindall, the rheumatologist in Portland, said they were concerned that if Celebrex or Bextra, or perhaps both, were withdrawn from the market that some patients who need such drugs will not get them. Indeed, many former Vioxx patients have complained about the withdrawal of that drug, saying it was the only pain medication that worked for them. As it turns out, deaths and hospitalizations from stomach problems related to the use of ibuprofen and aspirin peaked in 1992 and had already dropped significantly before the appearance of Celebrex and Vioxx, according to data collected by Stanford University. In 1999, the year of the two drugs introductions, those problems also had another sharp decline. Dr. Fries of Stanford said the drop-off over the past decade reflected, among other things, the use of lower doses of various painkillers. There has also been growing use of less toxic ones, not only COX-2's but other medications, like Mobic, that other drug makers began to sell in response to concerns about stomach bleeding. Many doctors also have patients taking medications like Prilosec to offset the stomach irritation of some painkillers. In terms of stomach bleeding, the relative risks of some other less irritating painkillers like Mobic appear indistinguishable from COX-2's, Dr. Fries said. But because of the expense and difficulty of conducting broad-based clinical trials, there have been no studies comparing those drugs with one another and with the COX-2's. Dr. Fries said the story of the COX-2's was emblematic of the consumer marketing forces that now propel the drug industry. It is a market, he said, in which the lure of the new can run ahead of science. 'You have to have a new generation of drugs,' said Dr. Fries. And under that model, 'the old ones are dangerous, and the new ones are safe.' Or until proven otherwise.

Subject: Social Security Sadness From: Jennifer To: All Date Posted: Sun, Dec 19, 2004 at 06:57:22 (EST) Email Address: Not Provided Message: What is especially worrisome about the push to needlessly reform Social Security is the refrain in the media that tells us we do have a Social Security crisis and surely a crisis must be acted on. Conservatives have so long insisted on a Social Security crisis, and the logic is so deceptively simple, questioning the premise is most difficult. After all, there are fewer and fewer workers to support retirees. Soon there will be 10 people working to support 200 million retirees. Imagine 10 people working. But, this is a nonsense argument. Social Security is accumulating a surplus and will be for more than a decade, while full benefits can be afforded with no change in the program for 38 to 48 years. If economic growth is slightly better than the gloomy predictions of a few self-serving analysts, the program will have no payments problems for far more than 48 years. But, how do you convince people Social Security is fine when the media tells them constantly that it is not fine?

Subject: Vanguard Fund Returns From: Terri To: All Date Posted: Sun, Dec 19, 2004 at 05:15:54 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/17/04 S&P is up 9.1% Growth Index is 5.5 Value Index is 13.5 Mid Cap Index is 18.4% Small Cap Index is 17.9% Small Cap Value is 21.6 Europe Index is 16.9 Pacific Index is 13.2 Energy is 34.3 Health Care is 7.7 REIT Index is 29.0 High Yield Corporate Bond Fund is 8.2 Long Term Corporate Bond Fund is 8.5

Subject: Re: Vanguard Fund Returns From: Jennifer To: Terri Date Posted: Sun, Dec 19, 2004 at 13:22:50 (EST) Email Address: Not Provided Message: These posts have helped me better understand markets movements. They are more than moderately useful. Keep on and on; there is all sorts of room for learning.

Subject: Re: Vanguard Fund Returns From: Ari To: Jennifer Date Posted: Sun, Dec 19, 2004 at 21:13:12 (EST) Email Address: Not Provided Message: Love what you do, Terri!

Subject: Re: Vanguard Fund Returns From: John To: Terri Date Posted: Sun, Dec 19, 2004 at 10:17:26 (EST) Email Address: Not Provided Message: is it necessary to post these ytd returns everyday? Bobby just had to clean the board because it reach its threshold on post. I can recall maybe one discussion for every 25 posts on 'vanguard' returns. Just seems like it might be more appropriate once a month, rather than every day.

Subject: National Index Returns From: Terri To: All Date Posted: Sun, Dec 19, 2004 at 05:14:30 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/17/04 Australia 25.2 Canada 17.5 Denmark 25.2 France 13.9 Germany 11.9 Hong Kong 22.4 Ireland 38.8 Japan 10.1 Norway 48.1 Sweden 32.2 Switzerland 11.4 UK 17.5

Subject: Social Security Solution! From: Terri To: All Date Posted: Sat, Dec 18, 2004 at 22:06:58 (EST) Email Address: Not Provided Message: http://fafblog.blogspot.com/ December 16, 2004 Social Security Solution! As everyone who has followed Giblets's 50-part series 'Social Security: ARMAGEDDON!'1 knows, Social Security is going to EXPLODE! - MAYBE! - in FIFTY YEARS! - because it will run out of money, and the only thing to do is to borrow two trillion dollars from the Mystical Realm of Faerie to save us from going into debt. But there may be another solution! Right now the usual bunch of whiners (old people, sick people, poor people - really, what do they do except whine?) are whining about Bush's plan to get rid of tax breaks for health insurance. This could be the Social Security solution we've all been waiting for! If thousands of companies get punished for giving their workers health insurance, well damn! Millions could end up LOSING their health insurance. And the less health coverage you have, the sicker you are, and the sicker you are, the faster you die, and the faster you die, the less Giblets has to pay for your stupid Social Security! Between gutting health coverage and sending old people off to war, we've got a great start going putting a dent in American life expectancy. Right now it's somewhere around 77.2 years. That means 12.2 years where our parents and grandparents can leech off our hard-earned cash! If we work hard we can push that way lower - down to 75, 70 years, down to 68 and lower if we really work at it, and then we could just raise the retirement age and not have to worry about Social Security at all! So there you have it. Giblets has solved all your fiscal problems at once! Social Security is saved! The budget is saved!2 More cannon fodder for Iraq! Three birds, one stone, everybody happy! Except for the dead people, and hey, Giblets doesn't hear them complainin'! You can thank Giblets anytime. 1. soon to be a major motion picture by Jerry Bruckheimer 2. at least until the tax cuts become permanent

Subject: Message Board Cleaning From: Bobby To: All Date Posted: Sat, Dec 18, 2004 at 20:39:03 (EST) Email Address: robert@pkarchive.org Message: I had to clean the message board since it reached the threshold of 700 messages, after which it would begin eating old messages. I'm sorry to interrupt the conversations everyone was having. You can find your old posts on the Message Board Archive. Again, sorry for the inconvenience. Message Board Archive www.pkarchive.org/MBArchive.html

Subject: Re: Message Board Cleaning From: Ari To: Bobby Date Posted: Tues, Dec 21, 2004 at 13:58:37 (EST) Email Address: Not Provided Message: Bobby, notice also the format of the last archive posted differs from those before and is harder to use. Thanks, thanks. Ari

Subject: Archive Needed From: Ari To: Bobby Date Posted: Tues, Dec 21, 2004 at 13:56:04 (EST) Email Address: Not Provided Message: Dear Bobby, The archive just before December 18 is not posted. Just thought you should know. I too thank you so much for a wonderful website. What a pleasure to read Krugman and you and this comment board.

Subject: Re: Archive Needed From: Ari To: Ari Date Posted: Tues, Dec 21, 2004 at 14:07:01 (EST) Email Address: Not Provided Message: Oh, I see, there are 2 formats you use for archives. Whatever you think best will be fine. The missing achive begins November 16, 2004.

Subject: Re: Message Board Cleaning From: Emma To: Bobby Date Posted: Sun, Dec 19, 2004 at 22:11:59 (EST) Email Address: Not Provided Message: Thanks for all, Bobby.

Subject: Re: Message Board Cleaning From: Bobby To: Emma Date Posted: Sun, Jan 16, 2005 at 12:14:14 (EST) Email Address: robert@pkarchive.org Message: I'm sorry about that. I just posted the archive for the previous message board 11.16.04 - 12.18.04 just now. I was busy until the past few days and I just read the message now informing me that I forgot to post it. It's at the link below. Message Board Archive