7/13/2002
Consumer confidence and the budget deficit
It was only two days ago that my blog focused on the consumer and my expecting consumer spending to decline in the near term.
Yesterday the University of Michigan consumer sentiment index fell to its lowest level since last November. The sentiment indicates a forward look at what the consumer's habits will be. The fact that U.S. consumer spending grew at an annual rate of about 3% in the second quarter is a backwards look at what has taken place.
The other day I made a reference to the weakness in the dollar and the fact that our budget deficit would be $100 billion+ this year, a number which the administration had forecast a few months ago. Yesterday the administration proclaimed that the budget deficit would be 50% higher than this projection, and would rise to $165 billion. The difference was blamed on the declining stock market. Precisely, the OMB said: "the stock market and the capital gains receipts it generates have become more important than ever to the federal budget outlook." I have but two comments. If, within a few months, a CEO had been off in corporate forecasts by 50%, the company's stock would be taken to the cleaners and the stockholders would be screaming for new management amid the class action lawsuits which would be filed. Second, if the stock market is so important to OMB forecasts on gov't receipts, then it might be prudent to create a new post called stock market prognosticator. With unemployment rising and the Silicon Valley jobless rate at 7.6% there should be a great many candidates available. While we're cutting down on corporate abuses, let's take the time to cut down on gov't ineptness.
Friday, July 12, 2002
7/12/2002
Zipinvestor
This word is a take off from Zipcar, which is a service only accessible to members. They offer corporate, individual, and household memberships. They make a car available when the member wants it without the cost of ownership- no gas, insurance, maintenance, or parking costs. You get a membership card and just return the car where you picked it up. Wouldn't it be great if the service were available to investors and called zipinvestor? You could pick up(buy) a stock when you wanted it and return it (sell) when you wished. As in Zipcar you'd need to reserve your desired choice a minimum of one hour in advance. There would not be a need for research, commissions, no paperwork. Everything is accomplished online as a member. You'd be free of everyday stock ownership responsibility. Naturally this would not be for the long term investor. The service would be intended to provide quality of service and accessibility and convenience. Until this day arrives the investor is responsible for the hassle of stock ownership. It should be treated as investing in a business and not just a stock. When your decision-making is based on knowledge and not the advice of others, you can have a just beginning. Until zipinvestor comes along, please invest wisely and with knowledge. Don't follow the road to instant riches. Investing is not a crap game.
Zipinvestor
This word is a take off from Zipcar, which is a service only accessible to members. They offer corporate, individual, and household memberships. They make a car available when the member wants it without the cost of ownership- no gas, insurance, maintenance, or parking costs. You get a membership card and just return the car where you picked it up. Wouldn't it be great if the service were available to investors and called zipinvestor? You could pick up(buy) a stock when you wanted it and return it (sell) when you wished. As in Zipcar you'd need to reserve your desired choice a minimum of one hour in advance. There would not be a need for research, commissions, no paperwork. Everything is accomplished online as a member. You'd be free of everyday stock ownership responsibility. Naturally this would not be for the long term investor. The service would be intended to provide quality of service and accessibility and convenience. Until this day arrives the investor is responsible for the hassle of stock ownership. It should be treated as investing in a business and not just a stock. When your decision-making is based on knowledge and not the advice of others, you can have a just beginning. Until zipinvestor comes along, please invest wisely and with knowledge. Don't follow the road to instant riches. Investing is not a crap game.
Thursday, July 11, 2002
7/11/2002
The Consumer
It is well documented that two thirds of the U.S. economy is dependent on consumer spending. Forty per cent or more of annual retail sales is registered during the Christmas season. As we move further into the year, I hope stores are not anticipating a rosy Christmas or even a good Fall. This bear market has cut sharply into consumer optimism, 401K plans, and net worths. The consumer has fallen back on mortgage re-financing, equity lines of credit, and soaring home prices, which is our first 21st century bubble waiting to happen. Our nation's population is aging, and there are a growing number of retirees. Should net worths continue to drop, the ability to retire lessens. It's tough to stay in the workplace at 55 or 60 or 65 when your employer is trying to push you out thru forced retirement. There aren't many jobs available for the 55-65 group. It's difficult to start a business at that age, and credit certainly is tough to acquire.
Statistically, a greater percentage of consumers is the 50 and over group. As such, with the stock market malaise and a difficult job environment, it is reasonable to expect consumer spending to hit a brick wall just like the stock market did a little over two years ago. I hope I'm wrong- selfishly- I'm aging too. I've been trying to cut down on carbohydrates. Bread lines would be disastrous to our diets.
The Consumer
It is well documented that two thirds of the U.S. economy is dependent on consumer spending. Forty per cent or more of annual retail sales is registered during the Christmas season. As we move further into the year, I hope stores are not anticipating a rosy Christmas or even a good Fall. This bear market has cut sharply into consumer optimism, 401K plans, and net worths. The consumer has fallen back on mortgage re-financing, equity lines of credit, and soaring home prices, which is our first 21st century bubble waiting to happen. Our nation's population is aging, and there are a growing number of retirees. Should net worths continue to drop, the ability to retire lessens. It's tough to stay in the workplace at 55 or 60 or 65 when your employer is trying to push you out thru forced retirement. There aren't many jobs available for the 55-65 group. It's difficult to start a business at that age, and credit certainly is tough to acquire.
Statistically, a greater percentage of consumers is the 50 and over group. As such, with the stock market malaise and a difficult job environment, it is reasonable to expect consumer spending to hit a brick wall just like the stock market did a little over two years ago. I hope I'm wrong- selfishly- I'm aging too. I've been trying to cut down on carbohydrates. Bread lines would be disastrous to our diets.
Wednesday, July 10, 2002
7/10/2002
The dollar and a swat team to balance the budget
The value of the dollar has once again declined to the trading levels on 9/11. Much like the stock market there is little hope the dollar will hold here.Why? Simple really. We have gone from significant budget surpluses to once again 100+ billion deficits. Budget deficits are the enemy of the dollar as well as to foreign investors. The latter are necessary for making up the shortfall between revenues and spending. A strong dollar is a symbol of a vibrant and solvent economy. A weak dollar provides the opposite picture. President Bush appears very adept at creating taskforces. We have a homeland security taskforce-quite necessary. Yesterday he proposed a corporate fraud taskforce which "will function as a financial crime Swat team." How about a government bloat taskforce which will oversee a balance between revenues and spending, and then possibly the dollar will regain some stability and we as a country will be less dependent on foreign investment to fund our shortfalls. In describing this new taskforce we might consider eliminating the need to include the word fraud and self-dealing. Let's focus on the positive.
The dollar and a swat team to balance the budget
The value of the dollar has once again declined to the trading levels on 9/11. Much like the stock market there is little hope the dollar will hold here.Why? Simple really. We have gone from significant budget surpluses to once again 100+ billion deficits. Budget deficits are the enemy of the dollar as well as to foreign investors. The latter are necessary for making up the shortfall between revenues and spending. A strong dollar is a symbol of a vibrant and solvent economy. A weak dollar provides the opposite picture. President Bush appears very adept at creating taskforces. We have a homeland security taskforce-quite necessary. Yesterday he proposed a corporate fraud taskforce which "will function as a financial crime Swat team." How about a government bloat taskforce which will oversee a balance between revenues and spending, and then possibly the dollar will regain some stability and we as a country will be less dependent on foreign investment to fund our shortfalls. In describing this new taskforce we might consider eliminating the need to include the word fraud and self-dealing. Let's focus on the positive.
Tuesday, July 09, 2002
7/9/2002
Warren Buffett
Over the past couple of weeks I have used Buffett as an example for successful investing. That makes sense since he has demonstrated over the past 40 years that he is in a class by himself. That doesn't mean one can blindly follow his doings. In May his company, Berkshire Hathaway, issued $400 million in convertible bonds. They carried a negative interest rate. In other words Buffett paid you 3% interest on the bonds; however, the bonds carried a warrant attached to the bonds. The warrant enables the holder to purchase Berkshire Hathaway stock at a premium over the then market price. The holder of the warrants has to pay Buffett 3 3/4% interest. In order to make any money Berkshire Hathaway needs to rise a good deal in price. Mr. Buffett has stated several times recently that he is negative on the stock market for the near and intermediate term and is concentrating his purchases on privately owned companies. I have stated in prior postings that it is necessary to buy right if one is to make money. If one has a negative yield, as in the aforementioned example, then that is not buying right. If you are going to pay a premium for premium investing talent, make certain the deal is rational for all concerned. We owe it to ourselves to show that a sucker is not born every day.
Warren Buffett
Over the past couple of weeks I have used Buffett as an example for successful investing. That makes sense since he has demonstrated over the past 40 years that he is in a class by himself. That doesn't mean one can blindly follow his doings. In May his company, Berkshire Hathaway, issued $400 million in convertible bonds. They carried a negative interest rate. In other words Buffett paid you 3% interest on the bonds; however, the bonds carried a warrant attached to the bonds. The warrant enables the holder to purchase Berkshire Hathaway stock at a premium over the then market price. The holder of the warrants has to pay Buffett 3 3/4% interest. In order to make any money Berkshire Hathaway needs to rise a good deal in price. Mr. Buffett has stated several times recently that he is negative on the stock market for the near and intermediate term and is concentrating his purchases on privately owned companies. I have stated in prior postings that it is necessary to buy right if one is to make money. If one has a negative yield, as in the aforementioned example, then that is not buying right. If you are going to pay a premium for premium investing talent, make certain the deal is rational for all concerned. We owe it to ourselves to show that a sucker is not born every day.
Monday, July 08, 2002
7/8/2002
Semi-annual sales
I feel certain that most of my readers have been at semi-annual store sales. Some, such as, Nordstrom's do a big advertising campaign to get the consumer into the store and look at the 50% merchandise values. As such, a $120 dress shirt is now a screaming buy at $60. Make no mistake. There are takers at $60 and they leave believing a bargain has been achieved. I'm happy for them. Different strokes for different folks. Well a semi-annual sale is going on Wall Street right about now. Prices have been marked down 50% and in some cases 95%. When you take a real good look, some of these bargains don't look like they'll hold up all that well. There are exceptions, and that's the job for us to find the ones which will last and wear well in a portfolio. Some manufacturers have a reputation for providing lasting fabrics, such as, Ralph Lauren. He has a good eye for quality. We need to have a good eye for quality and not buy schlock or crap. Start with the companies where management and directors have a large stock ownership interest. That management will have a much larger incentive to deliver the goods. Microsoft and Berkshire Hathaway are good examples of large management ownership. Let's begin at this semi-annual sale to make a list of the bargains we see. Let's investigate those bargains for lasting value, and let's do our homework. Wall Street doesn't have a return policy. It's buyer beware.
Semi-annual sales
I feel certain that most of my readers have been at semi-annual store sales. Some, such as, Nordstrom's do a big advertising campaign to get the consumer into the store and look at the 50% merchandise values. As such, a $120 dress shirt is now a screaming buy at $60. Make no mistake. There are takers at $60 and they leave believing a bargain has been achieved. I'm happy for them. Different strokes for different folks. Well a semi-annual sale is going on Wall Street right about now. Prices have been marked down 50% and in some cases 95%. When you take a real good look, some of these bargains don't look like they'll hold up all that well. There are exceptions, and that's the job for us to find the ones which will last and wear well in a portfolio. Some manufacturers have a reputation for providing lasting fabrics, such as, Ralph Lauren. He has a good eye for quality. We need to have a good eye for quality and not buy schlock or crap. Start with the companies where management and directors have a large stock ownership interest. That management will have a much larger incentive to deliver the goods. Microsoft and Berkshire Hathaway are good examples of large management ownership. Let's begin at this semi-annual sale to make a list of the bargains we see. Let's investigate those bargains for lasting value, and let's do our homework. Wall Street doesn't have a return policy. It's buyer beware.
Sunday, July 07, 2002
7/7/2002
What your broker doesn't tell you
Do you spend time thinking about picking the bottom on your favorite stock? Are there days you dream you bought Microsoft when it went public in 1986 or Berkshire Hathaway in the 1960's at $20? There are precious few who did and still hold on to those positions. Let's understand that picking the absolute bottom is at best an educated guess or most likely just plain lucky. Therefore, should you, for example, purchase Microsoft at 53, the chances are excellent that the stock will NOT immediately go up after your purchase. At best it will remain the same, and in this bear market, will most likely go down. As such, when you make a stock purchase be realistic. There isn't instant gratification. You may be facing an instant paper loss. That's why it is so important to do your homework and know what you purchased. You will need to live with that purchase for awhile before you can realize a return on your investment. Don't dream about the homeruns you see on TV or in the magazines or in newspapers. The chances of you being another Babe Ruth or Hank Aaron are slim. You have as good a chance as getting a drug approved thru the FDA- about one in 5000.
I'm not beeing negative. On the contrary, I want to help you see the light. Success in the stockmarket comes thru hard work and not by dreaming.
What your broker doesn't tell you
Do you spend time thinking about picking the bottom on your favorite stock? Are there days you dream you bought Microsoft when it went public in 1986 or Berkshire Hathaway in the 1960's at $20? There are precious few who did and still hold on to those positions. Let's understand that picking the absolute bottom is at best an educated guess or most likely just plain lucky. Therefore, should you, for example, purchase Microsoft at 53, the chances are excellent that the stock will NOT immediately go up after your purchase. At best it will remain the same, and in this bear market, will most likely go down. As such, when you make a stock purchase be realistic. There isn't instant gratification. You may be facing an instant paper loss. That's why it is so important to do your homework and know what you purchased. You will need to live with that purchase for awhile before you can realize a return on your investment. Don't dream about the homeruns you see on TV or in the magazines or in newspapers. The chances of you being another Babe Ruth or Hank Aaron are slim. You have as good a chance as getting a drug approved thru the FDA- about one in 5000.
I'm not beeing negative. On the contrary, I want to help you see the light. Success in the stockmarket comes thru hard work and not by dreaming.
Saturday, July 06, 2002
7/6/2002
My son Neil
This evening Neil brought an important matter to my attention. I should mention that Neil is brighter than most everyone I know and appreciated every day by yours truly. Neil pointed out that 40% of our country is experiencing drought conditions, and some states like Conneticut, just had the drought restrictions lifted; however, ground water levels are still very much below normal.
Neil went back to the thirties reminding me of the dust bowl conditions, and we both wondered about the possibility of revisiting those economic times. As Neil outlined, it is difficult to imagine a business recovery with that much of the U.S. experiencing a drought. I agree with that scenario. We must remember that 2/3 of our economy is consumer based, and droughts certainly will be a detroadblock to job creation and consumer spending. Drought is just one more problem facing this nation, and uncertain times limit corporate earnings and p/e ratios.
My son Neil
This evening Neil brought an important matter to my attention. I should mention that Neil is brighter than most everyone I know and appreciated every day by yours truly. Neil pointed out that 40% of our country is experiencing drought conditions, and some states like Conneticut, just had the drought restrictions lifted; however, ground water levels are still very much below normal.
Neil went back to the thirties reminding me of the dust bowl conditions, and we both wondered about the possibility of revisiting those economic times. As Neil outlined, it is difficult to imagine a business recovery with that much of the U.S. experiencing a drought. I agree with that scenario. We must remember that 2/3 of our economy is consumer based, and droughts certainly will be a detroadblock to job creation and consumer spending. Drought is just one more problem facing this nation, and uncertain times limit corporate earnings and p/e ratios.
Friday, July 05, 2002
7/5/2002
Cash Flow Positive
If a company is to survive and prosper, then it MUST generate positive cash flow. In the last two over 60 customer relationship management companies have gone out of business; however, the leader in this field, Siebel Systems, has prospered from a cash flow analysis. You probably are thinking I have gone off the deep end. During the last two years SEBL stock has dropped 90+% from its high of almost 120. During 2001 the company generated 500 million dollars in cash and in the first quarter of 2002 another 220 million dollars. This is not an accounting gimmick. It's plain old cash generation. Now Siebel is building web services into its next generation of software. IT spending may not pick up dramatically for some time. The lesson to be learned from Siebel is to focus on positive cash flow during the downturn, keep improving the product, make the customers happy, and increase market share as companies in your industry fold. Siebel is the leader in customer relationship management. Its founder, Tom Siebel, is a relentless competitor. I am not suggesting that my readers go out and purchase SEBL stock. What I am suggesting is that Siebel Systems is going to survive, grow cash, and be around to reap the benefits when the upturn in IT arrives. We need to be looking for more companies like this.
Cash Flow Positive
If a company is to survive and prosper, then it MUST generate positive cash flow. In the last two over 60 customer relationship management companies have gone out of business; however, the leader in this field, Siebel Systems, has prospered from a cash flow analysis. You probably are thinking I have gone off the deep end. During the last two years SEBL stock has dropped 90+% from its high of almost 120. During 2001 the company generated 500 million dollars in cash and in the first quarter of 2002 another 220 million dollars. This is not an accounting gimmick. It's plain old cash generation. Now Siebel is building web services into its next generation of software. IT spending may not pick up dramatically for some time. The lesson to be learned from Siebel is to focus on positive cash flow during the downturn, keep improving the product, make the customers happy, and increase market share as companies in your industry fold. Siebel is the leader in customer relationship management. Its founder, Tom Siebel, is a relentless competitor. I am not suggesting that my readers go out and purchase SEBL stock. What I am suggesting is that Siebel Systems is going to survive, grow cash, and be around to reap the benefits when the upturn in IT arrives. We need to be looking for more companies like this.
Wednesday, July 03, 2002
7/4/02
Happy July 4th
Subject: Three styles of capitalism
>
> TRADITIONAL CAPITALISM:
>
>
> You have two cows. You sell one and buy a bull.
> Your
> herd
> multiplies, and
> the economy grows.You sell them and retire on the
> income.
>
>
> ENRON VENTURE CAPITALISM:
> You have two cows. You sell three of them to your
> publicly listed
> company,
> using letters of credit opened by your
> brother-in-law
> at the bank,
> then
> execute a debt/equity swap with an associated
> general
> offer so that
> you
> get
> all four cows back, with a tax exemption for five
> cows. The milk
> rights of
> the six cows are transferred via an intermediary to
> a
> Cayman Island
> company
> secretly owned by the majority shareholder who
> sells
> the rights to
> all
> seven cows back to your listed company. The annual
> report says the
> company
> owns eight cows, with an option on one more. Sell
> one
> cow to buy a
> new
> president of the United States, leaving you with
> nine
> cows. No
> balance
> sheet provided with the release. The public buys
> your
> bull.
>
> AN AMERICAN CORPORATION
>
>
> You have two cows. You sell one, and force the
> other
> to produce the
> milk
> of
> four cows. You are surprised when the cow drops dead
>
>
>
>
>
> Subject: Another joke about three clergymen
>
> >
> An Episcopal Priest, a Catholic Priest, and a Rabbi
> are discussing
> funerals
> and the question came up-"When you are in your
> casket, and friends,
> family,
> and congregates are mourning over you, what would
> you
> like to hear
> them
> say?"
>
>
> The Episcopal Priest says, "I would like to hear
> them
> say that I was
> a
> wonderful husband, a fine spiritual leader, and a
> great family man."
>
> The Catholic Priest says, "I would like to hear
> that
> I was a
> wonderful
> teacher and a servant of God who made a huge
> difference in people's
> lives."
>
>
> The Rabbi replies, "I would like to hear them say,
> '"Look, he's
> moving!'"
>
>
>
> Subject: Engineers
>
>
>
>
>
> Engineers - 1
> Two engineering students were walking across campus
> when one said,
> "Where
> did you get such a great bike?" The second
> engineer
> replied, "Well,
> I was
> walking along yesterday minding my own business
> when
> a beautiful
> woman
> rode
> up on this bike. She threw the bike to the ground,
> took off all her
> clothes
> and said, "Take what you want." "The second engineer
> nodded
> approvingly,
> 'Good choice; the clothes probably wouldn't have
> fit."
>
> Engineers - 2
> To the optimist, the glass is half full. To the
> pessimist, the glass
> is
> half empty. To the engineer, the glass is twice as
> big as it needs to
> be.
>
> Engineers- 3
> What is the difference between Mechanical Engineers
> and Civil
> Engineers?
> Mechanical Engineers build weapons, Civil Engineers
> build targets.
>
Happy July 4th
Subject: Three styles of capitalism
>
> TRADITIONAL CAPITALISM:
>
>
> You have two cows. You sell one and buy a bull.
> Your
> herd
> multiplies, and
> the economy grows.You sell them and retire on the
> income.
>
>
> ENRON VENTURE CAPITALISM:
> You have two cows. You sell three of them to your
> publicly listed
> company,
> using letters of credit opened by your
> brother-in-law
> at the bank,
> then
> execute a debt/equity swap with an associated
> general
> offer so that
> you
> get
> all four cows back, with a tax exemption for five
> cows. The milk
> rights of
> the six cows are transferred via an intermediary to
> a
> Cayman Island
> company
> secretly owned by the majority shareholder who
> sells
> the rights to
> all
> seven cows back to your listed company. The annual
> report says the
> company
> owns eight cows, with an option on one more. Sell
> one
> cow to buy a
> new
> president of the United States, leaving you with
> nine
> cows. No
> balance
> sheet provided with the release. The public buys
> your
> bull.
>
> AN AMERICAN CORPORATION
>
>
> You have two cows. You sell one, and force the
> other
> to produce the
> milk
> of
> four cows. You are surprised when the cow drops dead
>
>
>
>
>
> Subject: Another joke about three clergymen
>
> >
> An Episcopal Priest, a Catholic Priest, and a Rabbi
> are discussing
> funerals
> and the question came up-"When you are in your
> casket, and friends,
> family,
> and congregates are mourning over you, what would
> you
> like to hear
> them
> say?"
>
>
> The Episcopal Priest says, "I would like to hear
> them
> say that I was
> a
> wonderful husband, a fine spiritual leader, and a
> great family man."
>
> The Catholic Priest says, "I would like to hear
> that
> I was a
> wonderful
> teacher and a servant of God who made a huge
> difference in people's
> lives."
>
>
> The Rabbi replies, "I would like to hear them say,
> '"Look, he's
> moving!'"
>
>
>
> Subject: Engineers
>
>
>
>
>
> Engineers - 1
> Two engineering students were walking across campus
> when one said,
> "Where
> did you get such a great bike?" The second
> engineer
> replied, "Well,
> I was
> walking along yesterday minding my own business
> when
> a beautiful
> woman
> rode
> up on this bike. She threw the bike to the ground,
> took off all her
> clothes
> and said, "Take what you want." "The second engineer
> nodded
> approvingly,
> 'Good choice; the clothes probably wouldn't have
> fit."
>
> Engineers - 2
> To the optimist, the glass is half full. To the
> pessimist, the glass
> is
> half empty. To the engineer, the glass is twice as
> big as it needs to
> be.
>
> Engineers- 3
> What is the difference between Mechanical Engineers
> and Civil
> Engineers?
> Mechanical Engineers build weapons, Civil Engineers
> build targets.
>
7/3/02
The halfway mark
Now that we are in the second half of 2002 it is time to begin to think of tax selling time, and to prepare for it. There are three things to remember when approaching the thought of making money in the stock market: do your homework, buy right, and be patient. We don't make recommendations in this blog. We provide observations and thoughts we hope will prove helpful. So how do you prepare for tax selling? You begin each day by ooking at the new low list on the New York Stock Exchange and the Nasdaq. This morning a couple of names popped out at me: Pfizer and SunMicrosystems. It requires studying the information on their financials. Please don't assume that all companies are run by crooks. It's fair to say most substantial companies are run by honest folks. I used the word substantial because you want a company with a strong balance sheet and management that knows the business. In the case of the good examples I provided they would meet those criteria. Then after studying the companies make a daily record of the highs, lows, and close for each company. You will get more familiar that way. Keep adding to the list and follow the news stories on each company. News is not a research report. That's an opinion. You want only the facts. You'll develop your own opinion based on your own work. We will revisit this topic.
The halfway mark
Now that we are in the second half of 2002 it is time to begin to think of tax selling time, and to prepare for it. There are three things to remember when approaching the thought of making money in the stock market: do your homework, buy right, and be patient. We don't make recommendations in this blog. We provide observations and thoughts we hope will prove helpful. So how do you prepare for tax selling? You begin each day by ooking at the new low list on the New York Stock Exchange and the Nasdaq. This morning a couple of names popped out at me: Pfizer and SunMicrosystems. It requires studying the information on their financials. Please don't assume that all companies are run by crooks. It's fair to say most substantial companies are run by honest folks. I used the word substantial because you want a company with a strong balance sheet and management that knows the business. In the case of the good examples I provided they would meet those criteria. Then after studying the companies make a daily record of the highs, lows, and close for each company. You will get more familiar that way. Keep adding to the list and follow the news stories on each company. News is not a research report. That's an opinion. You want only the facts. You'll develop your own opinion based on your own work. We will revisit this topic.
Tuesday, July 02, 2002
7/2/02
retracing the past 5 years
The conventional belief is the internet bubble has burst. The reasoning is that the Nasdaq is trading below the level of 5 years ago. That's one measure of the air coming out of the balloon. How about the billions raised by the VC firms? You have 100s and 100s of VC firms with little or no reason to be in business. Slowly but surely the vast majority of these companies will disappear. Many pension funds accumulated huge gains in the late 1990s. With those gains corporate pension funds went into the overfunded category. With the downdraft in equity valuations and prices the overfunding is turning to underfunding. This will play havoc with corporate earning statements in the near and not so near future. Then we shall begin to properly evaluate the internet bubble fallout.
7/1/02
making the numbers
Everyone shares in the blame- directors, management, stockholders, Wall St. analysts, and the press coverage. Unrealistic expectations derail reality. Trainwrecks leave catastrophes in their wake. It is are that companies grow consistently at 80% or 40% or 20%. If they did, the average annual gain on the New York Stock Exchange would exceed 9%. Stock movements follow earnings. Greed can be accompanied by disappointment and sometimes fraud or both. Greed rarely has a good ending. The years 2000, 2001, and so far 2002 have proven that once again. We all have done our part to share in this arena. Now we must suffer the consequences.
6/30/02
Judge Henry Friendly
Does anyone remember back to 1969? Harvey Pitt? President Bush? The Congress? Obviously not. Judge Friendly ruled in the Second Court of Appeals in 1969 that, it doesn't mean a damn if a company follows accounting rules and regulations. What matters is the misleading of investors. If you mislead, it's fraud. Very simple. So whether it's Enron, Worldcom, or Moishe Whatever, it's fraud. That has definite penalties attached to it, and it's about time someone followed Judge Friendly's ruling from 1969.
6/29/02
pricing power #2
We have heard of viral marketing. How about viral pricing power? So the toll gets raised to $5 on the Golden Gate Bridge on 9/1, and lo and behold the elected officials are now discussing raising the fees on other public transportation venues- bridges, buses, ferries, and the like. Of course, demand has nothing to do with it. Demand is down. There is growing local unemployment and diminishing tourism. The attitude is simple- let's raise the fees because we can. Has anyone considered reducing expenditures in the public sector on a yearly basis? When was the last time spending actually was in line with revenues WITHOUT raising fees and taxes? We've had the internet bubble. When will we experience the public sector bubble?
6/28/02
Pricing Power
Have you wondered about pricing power as it relates to the public and private sector? In today's business environment companies have little or no power to raise prices. The demand is not there and the competition lurks on every street corner. Now we turn to the public sector. There is no competition for the Golden Gate Bridge. When constructed, the toll was voted in as a short-term measure to pay for the construction. A few years back the toll was raised to $3. Two days ago the vote was taken, and an 11-3 yes provided for an increase in the toll to $5 on 9/1/02. This is an increase of 66 2/3%. Tomorrow the U.S. Postal Service will raise the price of a first class letter from 34 to 37cents, an approximate 9% increase. It should be noted that traffic on the Golden Gate Bridge is going down and demand for first class letters is also going down. As such, pricing in the public sector does not reflect demand but possibly a more apt description is a reflection of inefficiency.
6/27/02
Worldcom and Accounting Irregularities
We're not reinventing the wheel here. Simply put, public companies have audit committees. They meet at least quarterly to go over the company's numbers with the CFO, Treasurer, and accounting dep't. They then meet with the auditing firm. Any irregularities or questions should come out of these reviews because the audit committee makes periodic reports to the company's board of directors. Whether it's Worldcom or Xerox or some other high profile situation, these irregularities should be caught prior to quarterly and annual reporting to stockholders. The SEC does not have this function nor does the NASD or a like gov't agency. It is the self-regulating job of each public company.
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