Subject: The Alpha Currency is the Dollar From: Emma To: All Date Posted: Sun, Feb 27, 2005 at 14:37:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/27/business/yourmoney/27advi.html The Alpha Currency? It's Still the Dollar By WILLIAM J. HOLSTEIN FEARS that the dollar could go into a free fall because of big budget and trade deficits are overblown, says Henry Kaufman, known for his longtime work as an economist at Salomon Brothers, where he was often bearish about American economic prospects. Now 77, he is an independent consultant and is on the board of Lehman Brothers. Here are excerpts from a recent conversation: Q. As someone who has been bearish in general, why are you positive about the dollar? A. 'Positive' is a little bit of an overstatement. I believe the dollar will remain the key reserve currency for the foreseeable future. The United States is the dominant world power, and with world power goes leadership of the currency. If you go back to the British Empire or the Dutch or the Spanish, you'll find that world power also means a dominant currency. We have an economy that is performing far, far better than the other industrialized countries. Therefore, profits here are better than they are in most places around the world. Our interest rates are competitive. Q. But the Bush administration, despite some statements to the contrary, seems intent on expanding government deficits. Isn't that sending a bad signal? A. The immediate issue is, 'Who is going to finance the American budget deficit?' Let me give you a couple of numbers. Japan will continue to buy about $200 billion of U.S. government debt a year. They have a large export surplus to the United States. China, which also has a large surplus, will also probably buy about $100 billion. Thirdly, the Federal Reserve is a buyer for monetary reasons, and that will account for $50 billion to $75 billion. Lastly, other buyers have emerged over the past year, namely some of the oil-producing countries. The price of oil has increased very dramatically. That money cannot readily be spent by producers such as Saudi Arabia and Qatar. Therefore, you have to put them in for $50 billion to $75 billion of purchases of American securities. So there isn't very much left for the time being for domestic investors to finance. Q. But it appears there is a deeply felt sense in the administration that a cheap dollar will spur American economic growth and reduce the debt to the rest of the world. A. If it becomes an outspoken approach by the administration, that would be quite dangerous. Talking down your own currency when you're the key reserve currency and when you are dependent on foreign sources of money would ultimately create problems. The secretary of the Treasury, as well as the president, should always articulate that 'we are in favor of a stable currency.' They should never even whisper the idea that 'if the dollar goes down, that's all right with us.' Q. What do you think of the quotation attributed to Vice President Dick Cheney that 'Reagan proved deficits don't matter'? A. That is an incorrect observation by the vice president. Deficits do matter over the long term. There are times in the business cycle in which the U.S. Treasury competes very heavily against the private sector. When that occurs, it escalates interest rates. It puts pressure on inflation. It's a dangerous approach. Q. In its heart of hearts, do you think the Bush administration agrees with you? A. I think a number of people in the administration probably believe so. I believe a number of people in the Federal Reserve believe so. But whether the inner sanctum of the administration will say that a stable dollar is a key consideration, that may be questionable. We are just in a fortuitous situation today, meaning this year and probably next year, in which the size of the budget deficit doesn't matter for the immediate future. But ongoing budget deficits of this order of magnitude over time will matter. Q. A Chinese official was quoted as saying that his government was not happy with the dollar's weakness. Do you think the Chinese or Japanese could shift their holdings elsewhere? A. I doubt that very much. Both China and Japan are big exporters to the United States. I believe that the Chinese and Japanese, down deep, realize that if they shifted from the American dollar to the euro, it would endanger their export drive to the United States. Q. So what is your prognosis for the dollar? A. I think there is going to be reasonable stability with occasionally a little bit of a give in the value of the dollar. Q. Do you think a decline in the value of the dollar sharply stimulates our exports? A. I do not. It takes much longer this time around for the decline in the dollar to have a significant impact on our trade. It involves a number of countries such as India and China that provide goods and services to us at a very low labor cost. To turn that around, that will require a really significant decline in the value of the dollar. That's not about to happen. Q. In your lifetime, have you seen a time of such huge fiscal and trade imbalances? A. Not really. Today, there is an enormous international disequilibrium. For the near term, it is in the best interest of all the participants to maintain it. Q. What could trip that disequilibrium into an economic disaster for the United States? A. We could have a massive terrorist attack. The price of oil could ratchet very high. No. 3, if Europe and Japan lifted economic activity significantly, that would turn things around and put more pressure on the United States.

Subject: Hoyt Book for the history buffs From: johnny5 To: All Date Posted: Sun, Feb 27, 2005 at 14:35:55 (EST) Email Address: johnny5@yahoo.com Message: http://www.beardbooks.com/one_hundred_years_of_land_values_in_chicago.html One Hundred Years of Land Values in Chicago: The Relationship of the Growth of Chicago to the Rise of Its Land Values, 1830-1933 By Homer Hoyt 2000/09 - Beard Books 1587980169 - Paperback - Reprint - 452 pp. US$34.95 A meaningful addition to the social and economic history of Chicago from 1830 to 1933. Category: Real Estate Early American Land Companies: Their Influence on Corporate Development Land Title Origins: A Tale of Force and Fraud From the back cover blurb: A source of invaluable data and analysis for students of urban land economics, One Hundred Years Of Land Values In Chicago was the first comprehensive study of land values in a large city over a long period of time. The author successfully wove in the social and economic history of Chicago as well. The book covers the years 1830-1933, a period of dizzying growth during which Chicago grew from a cluster of a dozen log huts at the site where the Chicago River meets Lake Michigan, to a booming city of 211 square miles and a population of almost 3.5 million. Over those hundred years, ground value grew from a few thousand dollars to more than $5 billion. What a century it was! Chicago rode a roller-coaster ride of the railroad boom, the Civil War, the Great Chicago Fire, the first skyscrapers, the First World's Fair, the First World War, and the Great Depression. The book is exhaustively researched, with 103 maps showing land values of specific sections in various years; the evolution of the railroad; the growth of public transportation (from horse car lines and street-car lines to elevated lines); sewer construction; the distribution of buildings of various heights; population densities; residential areas by predominant ethnic groups, among others. There are 103 data tables as well, including employment and wage figures; mortgage rates and amounts; property sales and rents; and various comparisons with cities of similar size. Review by Gail Owens Hoelscher From Turnarounds and Workouts, August 15, 2001 This book represents the first comprehensive study of land values in a large city over a long period of time. The author's goal was to trace cyclical fluctuation in land values in an American city, in the expectation of contributing to the policy debate on taxing real estate investments. He managed to achieve much more, however. Indeed from the viewpoint of land values, he offers a fascinating general history of Chicago through the early 1930s. He very skillfully interweaves the city's social and economic history into its land economic history and interprets the interrelationships among them. The book covers the years 1830-1933, a period of dizzying growth, during which time Chicago grew from a cluster of a dozen log huts at the site where the Chicago River meets Lake Michigan, to a booming city of 211 square miles and a population of almost 3.5 million. Over those hundred years, ground value grew from a few thousand dollars to more than $5 billion. And what a century it was, a roller coaster of the railroad boom, the Civil War, the Great Chicago Fire, the first skyscrapers, the first World's Fair, World War I and the Great Depression. The reader is immediately struck by the sheer size of the research project the author designed and undertook. He examined thousands of actual real estate sales and compared them with the appraisals and opinions of real estate dealers. He researched and had drawn 103 maps showing land values of specific sections of the city in various years; the evolution of the railroad; the growth of public transportation (from horse-car lines and street-car lines to elevated lines); sewer construction; the distribution of buildings of various heights; population densities; and residential areas by predominant ethnic group, among others. There are 103 data tables as well, including the value of various buildings in different years; construction of infrastructure; number and types of registered vehicles; employment and wages; mortgage rates and amounts; property sales and rents; and various comparisons with cities of similar size. The author defines a real estate cycle as 'the composite effect of the cyclical movements of a series of forces that are to a certain degree independent and yet which communicate impulses to each other in a time sequence, so that when the initial or primary factor appears it tends to set the others in motion in a definite order.' He found that in Chicago during the period studied, these forces, in the order in which they appeared , were population growth; rent levels, and operating costs of existing buildings and new construction; land values; and subdivision activity. He divides these forces into 20 'events,' all the way from the first, 'gross rents begin to rise rapidly;' through to the sixth, 'volume of building is stimulated by easy credit;' the eleventh, 'lavish expenditure for public improvements;' the seventeenth, 'banks reverse their boom policy on real estate,' leading to stagnation and foreclosures; the nineteenth, 'the wreckage is cleared away;' and finally, 'ready for another boom.' One Hundred Years of Land Values in Chicago is a source of invaluable data and analysis on the subject of urban land economics, and is equally fascinating from the standpoint of American history. The author notes that 'with all its kaleidoscopic neighborhoods and its babble of tongues... with all its rough edges and its bluntness, Chicago is a city with a unique and magnetic personality.' And well worth reading about. Homer Hoyt was one of the early well respected real estate theorists who developed the theory that communities will tend to grow toward their largest neighboring city, all other things being equal. My Hoyt was overjoyed with the application of his theory in a modern setting and donated funds to establish the Homer Hoyt Center at Florida State University, which is now known as the Homer Hoyt Program in Land Economics and Finance. List of Illustrations xxiii List of Tables xxvii Part I. History of the Relation of the Growth of Chicago to the Rise in its Land Values, 1830-1933 Chapter I. The Canal Land Boom, 1830-42 3 Chapter II. The Land Boom of the Railroad Era, 1843-62 45 Chapter III. The Land Boom That Followed a Panic, a Civil War, and a Great Fire, 1803-77 81 Chapter IV. The Land Boom of the First Skyscrapers and the First World's Fair, 1878-98 128 Chapter V. The Land Boom of a New Era That Followed a World War, 1898-1933 196 Part II. Analysis of the Relation of the Growth of Chicago to the Rise of its Land Values Chapter VI. The Relation Between the Growth of Chicago and the Rise of Its Land Values 279 Chapter VII. The Chicago Real Estate Cycle 368 Appendixes Appendix I. The Chicago Land Market 427 Appendix II. Methods Employed in Determining Chicago Land Values, 1830-1932 460 Appendix III. Statistical Tables 470 Bibliography 497 Index 503

Subject: Coming Generational Storm - a reveiw From: David E.. To: All Date Posted: Sun, Feb 27, 2005 at 12:12:44 (EST) Email Address: Not Provided Message: by Paul Krugman. Sweet reason makes the storm clear. link http://www.nybooks.com/articles/17771

Subject: Real Estate and REITs From: Jennifer To: All Date Posted: Sun, Feb 27, 2005 at 07:01:07 (EST) Email Address: Not Provided Message: A way to invest fluidly in real estate is through REITs. REITs generally specialize in particular markets or market segments. The REIT Index can be bought as can individual REITs, though the index has the diversification. REIT research is in order.

Subject: REITs From: Terri To: Jennifer Date Posted: Sun, Feb 27, 2005 at 07:12:55 (EST) Email Address: Not Provided Message: REITs have had strong gains since 2000. How the REIT Index fairs as the Federal Reserve continues to raise short term interest rates will be important to notice.

Subject: Real estate in inflation or deflation From: Dorian To: All Date Posted: Sun, Feb 27, 2005 at 06:10:55 (EST) Email Address: Not Provided Message: So far I have not been able to find any serious flaw in my conclusion that of all possible investments in the economic uncertainty which lies ahead, real estate in markets which haven't already inflated beyond common sense looks like the best investment. If the dollar falls, which is virtually certain, it won't affect real estate or more likely will increase its value. If there is deflation, people will still need a place to live and the less expensive properties will if anything be in greater demand. Interest rates will no doubt have to go up, but I remember in the late 70's when inflation and interest rates rose past the double digits that real estate gained in value - in fact it created a bubble in real estate - despite the high interest rates. The problem is that real estate in most major markets has already appreciated to dangerously high levels, but if you can see out markets which have not yet over-inflated, and in cities which have economies which won't be wiped out by major economic upheavals, then I think lower end real estate will be the safest investment. The major drawback is that real estate much harder to invest in than stocks and bonds, and not something which everyone will want to get involved with. Dorian

Subject: Re: Real estate in inflation or deflation From: David E.. To: Dorian Date Posted: Sun, Feb 27, 2005 at 12:07:28 (EST) Email Address: Not Provided Message: Hi Dorian, here is another view. Diversification is key, don't pick one asset class, especially don't pick one end of an asset class and especially don't focus on lower end. It is possible that demand for lower end will not increase as you expect. There are other choices besides moving to the lower end, many will decide to take in boarders and stay in their high end houses. And some could decide to move into RV's. It is not a lock that demand for lower end will increase. There is no such thing as a perfect investment that will always be better than anything else. Be careful with your money.

Subject: Hud's demographic projections From: johnny5 To: David E.. Date Posted: Sun, Feb 27, 2005 at 13:09:58 (EST) Email Address: johnny5@yahoo.com Message: Long paper but a good read http://www.huduser.org/Publications/PDF/demographic_trends.pdf This paper addresses current and projected changes in the nature of the nation’s population and its households that will affect the demand for housing.1 Perhaps the most important change is that, for the first time in history, we are looking at a population that will have roughly equal numbers of people in every age group. (The age picture of the country is looking more like a pillar than the classic pyramid.) Although the nation’s population continues to grow at all ages, the largest growth is in the population that has largely completed its child rearing. Other things equal, this shift should in itself increase the proportion of the population that owns, rather than rents, its housing. Households are a better predictor of changes in housing demand than population, and the nation’s increasingly [MR1] diverse age structure is changing its household composition. In particular, household size is shrinking, as married couples without children (in the home) and single-person households each outnumber “traditional family” households. Among other things, this trend is undermining old assumptions about age-based choices of city versus suburban housing. Not too many years ago, housing professionals thought almost exclusively about the housing needs and preferences of families with children. (Indeed, houses were generally referred to as “family” houses.) Now they need to understand the needs and preferences of several different household types, not just for housing construction but also including preferences for refitting a current home to meet the needs of a new, post-child-rearing household configuration and avoid a move from a cherished home or valued neighborhood. Building flexibility into housing financing is another implication, given the increasing numbers of householders at different stages of the life course. Financing has traditionally been designed for young couples acquiring a home they might live in for most of their adult lives (and has been based on the assumption that their income would increase over the life of the mortgage). But longer lives are creating new life stages, as well as multiple household types for a given individual over a lifetime. A broader range of households also raises several policy issues. For example, people have a tendency to share preferences and lifestyles according to their broad age group and family situation. On the one hand, that implies a “balkanization” of neighborhoods that could be harmful to maintaining a viable community. On the other hand, it implies that “mixed” neighborhoods could be riven by disputes over such classic issues as noise, appearance, and use and support of community resources, like parks. In the past, differences in affordability assured a certain homogeneity of tastes among those living in a given neighborhood. In the future, housing policymakers may have to be more proactive in managing age-based differences and establishing consensus-based standards. Finally, households are not becoming equally diverse everywhere in the country. First, tabulations of 2000 census results for The Brookings Institution show that growing cities are adding population faster than households, and declining cities are losing population faster than households.12 This seeming conundrum largely reflects the dominance of young adults among interstate movers. As they leave their parents’ households, many choose new cities with vibrant job markets. They have their children in the new location, thus swelling the population. As a result, the traditional married with children families are a growing segment in many parts of the South and West, while they are now outnumbered by single-parent families in northern and midwestern cities, where population has declined significantly. In sum, the nation’s two major demographic changes—shifts in the population’s age and racial composition—have already created appreciable differences in the nation’s household picture. In an overall sense, the nation’s traditional household is increasingly minority, while the nation’s majority population increasingly lives in nontraditional households. Perhaps the most important implication for housing comes from the industry’s traditional focus on families with children. The survival of most adults to older ages has increased the share of older, childless adult households, and the increase in the minority population via immigration and higher fertility rates has increased the minority share of younger adult households. Consequently, households with children in them are increasingly minority. The effects of this shift are already being seen in changing character of familiar locations. The 2000 census found that cities where growth reflected large numbers of recent immigrants were particularly likely to develop a more “suburban” character via strong growth in the numbers of married couples with children. Meanwhile, suburbs around the country became more “urban,” as nonfamily households, especially young singles and elderly people living alone, came to outnumber traditional families in their populations. Given the obvious differences in household type and income by lifestage, the intersection of trends in age and racial and ethnic origin suggest that housing analysts need to understand each large age/race/income/household segment within their particular housing market. Such an understanding will enable them to identify needs and preferences that are shared, and thus constitute a large market, and distinguish those needs and preferences that need special treatment.

Subject: Real Estate and REITs From: Terri To: Dorian Date Posted: Sun, Feb 27, 2005 at 07:17:52 (EST) Email Address: Not Provided Message: The problem is how to invest intelligently in real estate markets beyond your home market or apart from a major market. REITs, even our own REIT, would be an answer. Then, research on REITs is needed.

Subject: Homer Hoyt Reits From: johnny5 To: Terri Date Posted: Sun, Feb 27, 2005 at 07:53:15 (EST) Email Address: johnny5@yahoo.com Message: These guys help my dad out. http://www.hoyt.org/has/main.html The Hoyt REIT Model The Homer Hoyt Institute (HHI) and Hoyt Advisory Services (HAS) have developed a proprietary model (the Hoyt REIT Model) for investing in real estate investment trusts (REITs). For the last several years, the Institute has invested a substantial portion of its endowed funds in REITs. The cumulative return on those funds has greatly exceeded the return on the NAREIT index. Because of the success of its investment program using the Hoyt REIT Model, the Institute, through HAS, has decided to make the Model available for commercial applications. The professional services available include: Portfolio Analysis and Construction Planning, including: Market Entrance Strategies and Growth Strategies Market Research and Analysis, including Feasibility Studies and Public Offering Analysis Merger and Acquisition Analysis Further information on the Hoyt REIT Model is available on this site, or at www.reitnet.com. You may also contact Hoyt Advisory Services directly.

Subject: A Sham? From: Jennifer To: johnny5 Date Posted: Sun, Feb 27, 2005 at 13:01:38 (EST) Email Address: Not Provided Message: I would be more than careful with whoever these folks are. This has all the feel of a sham.

Subject: Re: A Sham? From: johnny5 To: Jennifer Date Posted: Sun, Feb 27, 2005 at 13:17:28 (EST) Email Address: johnny5@yahoo.com Message: Why do you feel they are a SHAM jennifer? I was under the impression they were one of the more respected organizations. Here is some more info - I will keep digging for you so we can get more educated - perhaps I am wrong: http://www.hoyt.org/asi/ Homer Hoyt Advanced Studies Institute (ASI) The Weimer School of Advanced Studies in Real Estate and Land Economics Established in 1982, the Weimer School is a unique and effective forum for fostering academic work that improves the quality of decision making in real estate and land economics. Through open discussion of evolving research, the real estate body of knowledge is expanded and focused on applications for industry. Academic, business, and government leaders share their knowledge, experience, and ideas to influence relevant research. This unique interactive program provides post-doctoral education for leading educators, and concentrated study of current academic thought and research for leading executives who have major research responsibilities. The Weimer School has financed research studies by faculty members of the nation's most prestigious real estate programs, including: University of California/Los Angeles, University of California/Berkeley, University of Georgia, University of Florida, Southern Methodist University, University of Wisconsin, University of Connecticut, University of Pennsylvania, The Ohio State University, University of Illinois, University of North Carolina, Indiana University, University of Texas/Austin, and University of Michigan. Most Weimer School Fellows are faculty members in major university real estate programs and researchers with organizations such as the American Enterprise Institute, the Federal Home Loan Mortgage Corporation, U.S. League of Savings Institutions, and the Joint Center for Housing Studies/Harvard University. An important feature of the Weimer School is the opportunity it affords academics and industry experts to learn from each other. Guest lecturers have represented some of America's most important companies including: Goldman Sachs & Company, U.S. Gypsum Corporation, Tramell Crow, LaSalle Partners, Landauer Associates, Inc., Arthur Andersen & Company, Strouse Greenberg & Co., MGIC, and Wachovia Corporation. Further confirmation of the quality of the Weimer School's programs and personnel came by way of a U.S. News and World Report survey of the nation's best departments in colleges and schools of business. The top five real estate programs in 1997 are as follows: University of Pennsylvania (Wharton), University of California at Berkeley (Haas), University of Wisconsin at Madison, Massachusetts Institute of Technology, and The Ohio State University. All five programs are associated with the Weimer School - as sources of Weimer School Fellows, home institutions of faculty members, and/or recipients of research grants from ASI. All of the five programs are represented on the Weimer School faculty.

Subject: Right From: Jennifer To: johnny5 Date Posted: Sun, Feb 27, 2005 at 14:17:19 (EST) Email Address: Not Provided Message: Johnny, this look fine now. The links I used were strange, I should have tried others. Right you are.

Subject: Re: Right From: johnny5 To: Jennifer Date Posted: Sun, Feb 27, 2005 at 14:29:59 (EST) Email Address: johnny5@yahoo.com Message: http://www.areuea.org/publications/ THE journal for real estate economics - hoyt group *a major sponsor* has been trying to bring more respect to real estate in academia - although this is my dad's field - being the stingy bastard that he is I am sure he would not throw money away with people that are scammers. I have so much reading to do on these journals myself. Hoyt himself was an early pioneer in city development. http://www.revision-notes.co.uk/revision/180.html http://www.ribbonrail.com/grizzlyflat/florida/florida3.htm Dick received a B.S.in 1981 in Economic Geography (locational and transportation theory) and a M.S. in Land Use and Resource Management in 1982, also in the Department of Geography at Florida State. Dick's Masters Thesis was the Applicability of the Homer Hoyt Sector Theory to Tallahassee. Homer Hoyt was one of the early well respected real estate theorists who developed the theory that communities will tend to grow toward their largest neighboring city, all other things being equal. My Hoyt was overjoyed with the application of his theory in a modern setting and donated funds to establish the Homer Hoyt Center at Florida State University, which is now known as the Homer Hoyt Program in Land Economics and Finance.

Subject: Complete Right From: Jennifer To: johnny5 Date Posted: Sun, Feb 27, 2005 at 15:47:30 (EST) Email Address: Not Provided Message: Johnny, you are completely right. Thank you for correcting me. HOmer Hoyt is a real estate think tank and advisor on real estate, and the more I look the more interesting the work is.

Subject: Re: A Sham? From: johnny5 To: johnny5 Date Posted: Sun, Feb 27, 2005 at 13:24:39 (EST) Email Address: johnny5@yahoo.com Message: They sure have lots of smart people to be a SHAM don't they?? http://www.hoyt.org/asi/faculty.html Faculty members of the Weimer School include: Dr. Dennis R. Capozza Ross Professor of Real Estate Finance University of Michigan Business School Dr. John M. Clapp Professor Department of Finance University of Connecticut Dr. Peter F. Colwell (Faculty Emeritus) Professor of Finance, ORER Prof. of RE Director, Office of Real Estate Research University of Illinois Dr.Robert H. Edelstein Co-Chairman & Real Estate Development Chair Professor Fisher Center for R. E. & Urban Economics University of California-Berkeley Dr. Jeffrey Fisher Professor Center for Real Estate Studies Indiana University School of Business Dr. James Follain Housing Economics and Fin. Research Freddie Mac Dr. Patric H. Hendershott Professor University of Aberdeen Dr. G. Donald Jud (Faculty Emeritus) Department of Finance University of North Carolina-Greensboro Dr. David C. Ling William D. Hussey Professor Warrington College of Business University of Florida Dr. Stephen Malpezzi Associate Professor Center for Urban Land Econ. Research University of Wisconsin-Madison Dr. Norman Miller West Shell Professor University of Cincinnati Dr. Hough O. Nourse (Faculty Emeritus) Retired, The University of Georgia Dr. Henry Pollakowski Editor Journal of Housing Economics Massachusetts Institute of Technology Dr. John M. Quigley Chancellor's Professor of Economics and Public Policy Department of Economics University of California - Berkeley Dr. Ronald L. Racster Professor Emeritus Director, Center for Real Estate Education and Research The Ohio State University Dr. Lynne B. Sagalyn Professor University of Pennsylvania Dr. Maury Seldin Realtor Chair Professor Emeritus The American University Dr. Halbert C. Smith Professor Department of Finance, Insurance, & Real Estate University of Florida Dr. Kerry Vandell Tiefenthaler Chair and Director Center for Urban Land Economics Research University of Wisconsin-Madison Dr. Susan M. Wachter Professor of Real Estate and Finance, Real Estate Dept. Chairperson Wharton Real Estate Department University of Pennsylvania Dr. John C. Weicher (Faculty Emeritus) Senior Fellow HUD Dr. John E. Williams Dean Morehouse College http://www.hoyt.org/asi/awards_manuscript.html American Real Estate Society Manuscript Prize Winners sponsored by HOMER HOYT ADVANCED STUDIES INSTITUTE I. 'Thinking out of the Box' category -- awarded for best research paper presented at the American Real Estate Society Annual Meeting: 2004 Dr. Seow Eng Ong National University of Singapore 2003 Dr. Roger J. Brown San Diego State University 2002 Dr. Theron R. Nelson University of North Dakota Dr. Susan Logan Nelson University of North Dakota 2001 Dr. G. Donald Jud The University of North Carolina - Greensboro Dr. Dan Winkler The University of North Carolina - Greensboro 2000 Dr. Richard A. Graff Electrum Partners II. 'Best' research paper -- published in the Journal of Real Estate Research 2004 Portfolio Implications of Apartment Investing Randy I Anderson, Richard McLemore, Philip Conner and Yougou Liang JRER vol. 25 No. 2-2003 p. 113 - 131 2003 Time, Place, Space, Technology and Corporate Real Estate Strategy Karen M. Gibler, Roy T. Black and Kimberly P. Moon JRER vol. 24 No. 3-2002 p. 235 - 262 2002 The Stock of Private Real Estate Capital in the United States James D. Shilling and Yu Yun Jessie Yang JRER vol. 22 No. 3-2001 p. 243 - 270 2001 Office Rent Determinants During Market Decline Barrett A. Slade JRER vol. 20 No. 3-2000 p. 357 - 380 2000 Real Estate Cycle and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy Stephen A. Phyrr, Stephen E. Roulac and Waldo L. Born JRER vol. 18 No. 1-1999 p. 7 - 68 1999 (tie) Ownership Structure and the Value of the Firm: The Case of REITs H. Swint Friday, G. Stacy Sirmans, and C. Mitchell Conover JRER vol. 17 , No. 1-1999 p. 71-90 and Stationarity and Co-Integration in Systems with Three National Real Estate Indices F.C. Neil Myer, Mukesh K. Chaudhry, and James R. Webb JRER vol. 13 no. 3-1997, pages 369-381

Subject: Re: Homer Hoyt Reits From: Terri To: johnny5 Date Posted: Sun, Feb 27, 2005 at 10:15:16 (EST) Email Address: Not Provided Message: Carefully look to the Vanguard MSCI REIT Index for comparison. If a company that markets investment advice can show that the advice has even kept up with the index over a meaningful time period, then the company may be worth using. I wonder whether there will be such evidence, if so there would likely be a fund offered with a long public record.

Subject: More problems From: johnny5 To: All Date Posted: Sun, Feb 27, 2005 at 00:56:48 (EST) Email Address: johnny5@yahoo.com Message: http://qrc.depaul.edu/djabon/cpi.htm#6 6. Problems with the CPI The CPI is widely used as a cost of living index, but technically it is not. The CPI measures the average change over time in the prices paid by urban consumers for a relatively fixed market basket of goods and services. A cost of living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or 'standard of living.' The CPI completely ignores important changes in taxes, health care, water and air quality, crime levels, consumer safety, and educational quality. Furthermore, the experience of any individual may vary dramatically from what the CPI indicates, because an individual's purchasing patterns may differ considerably from the standard market basket. Families with children have considerably different buying patterns than elderly households, for example. The CPI does not even attempt to represent the experience of people living in rural areas. Even accepting these limitations of application, the CPI has some possibly serious limitations in measurement. The limitations fall into two broad categories. Sampling errors The CPI measures the prices of only a sample of items from a sample of outlets in a sample of cities. The items are chosen by the use of the Consumer Expenditure Survey (CES). The interview portion of the survey, conducted quarterly from 5000 households, collects data on expenditures, assets, liabilities, incomes, large item purchases and household expenses. The diary portion of the CES (also administered to 5000 households) asks each sample household to make a complete record of all expenses for a two-week period. Another survey, the Point of Purchase Survey (POPS), is used to determine which outlets are used for prices. The Point of Purchase Survey is administered 16,800 individuals each year. It determines how much consumers spend for different classes of items and also how much they spend at each of the places from which the items were bought. Even after one has chosen a sample of items and a sample of outlets, one much choose which particular models or brands will be priced and on which day of the month prices will be sampled. An attempt is made to represent sale days and nonsale days in their proper proportions. The cities are sampled as well; the largest cities are always included and an attempt is made to choose samples from cities of intermediate and small sizes. This complex stratified sampling has errors simply because one cannot record the price of every item purchased by every household in every urban area. Non-sampling errors More significant than sampling errors are possible sources of systematic error. Most of these errors are thought to bias the CPI upward, so that the CPI would tend to report more inflation than consumers are really experiencing. Substitution bias Substitution bias refers to the fact that consumers respond to price changes by substituting relatively cheaper goods for goods that have become more expensive. For example as the price of beef rises, families may substitute chicken for beef. The households' market baskets change (perhaps with no decline in utility) keeping expenditures down, but the CPI reports inflation of the original market basket. For example, suppose in one month the price of beef is $1 per pound and the price of chicken is $1 per pound, and that the household consumes 1 pound of each for a total expenditure of 2 pounds. Next suppose the next month the price of beef rises to $1.50 and the price of chicken remains the same. The fixed market basket would report an expenditure of $2.50 (1 pound of each again), a 25% inflation rate. In fact, the household may cut back to 0.5 pound of beef and 1.5 pounds of chicken with an expenditure of 0.5*1.50 1.5*1=$2.25, yielding a 12.5% inflation rate. Complicating matters is that utility of each situation may well be different. Substitution bias can occur within item categories (e.g., consumers might substitute red delicious apples for granny smith apples when the price of granny smiths rise) and across item categories (e.g., consumers might substitute oranges for apples if the price of apples rises). The former is called lower level substitution bias, the latter high level substitution bias. Formula Bias Formula bias refers to a subtle problem relating to the fact that the initial quantities for items in the market basket were determined by dividing the current expenditure by the current average price. If the item happened to be on sale as of the point in time when they were first priced, that item would be systematically overweighted in the market basket and would bias the CPI upward because the prices of sale items tend to rise in subsequent months. The Bureau of Labor Statistics has developed a method called 'seasoning' to adjust for this bias. New Outlet Bias The opening of a new discount outlet may give consumers the opportunity to purchase the same goods at a lower price. The current CPI ignores these price changes. To take the price changes totally into account would bias the CPI downward, since purchasing at discount stores tends to be accompanied with lower levels of service; discount stores tend to have less knowledgeable sales staff, less variety, less convenient store hours, less liberal return policies. However, some economists believe that ignoring outlet switching effects altogether biases the CPI upward because price differentials are not totally offset by differences in service quality, especially as discount stores have taken advantage of more efficient technologies of distribution. For example, Wal-Mart, a discount chain., has the most sophisticated distribution system of any retailer. That Wal-Mart has become the largest retailer in the US suggests that consumers do not consider the Wal-Mart's lower prices to be offset by inferior service. Quality Change Bias The Bureau of Labor Statistics does make an attempt to adjust for quality changes. If a product is 10% 'better', and its price rises by 15%, the Bureau of Labor Statistics will attempt to record a price increase of approximately 5%. For example, median rent from 1976 to 1993 for all rental occupied units increased 2.92 times. The CPI rental index ratio for the same period was only 2.46. This difference means that the Bureau of Labor Statistics had factored in improvements in rental units at rate of approximately 1% per year. However, some economists believe that the Bureau of Labor Statistics systematically underestimates quality improvements, thereby biasing the CPI upward. For example in the case of rental units, from1970 to 1993 time period, the mean number of rooms in rental units increased by 9.7%; the mean number of rooms per person increased by 27%. The mean number of bathrooms increase by 23.3%. The fraction of all units containing central air conditioning increased from 10.8% to 41.7%. The number of rental units with dishwashers increased dramatically, and the quality of the refrigerators, stoves or oven/cooktop combinations, and garbage disposals increased considerably. Other categories whose quality improvements may not be completely factored in are apparel, new and used cars, and professional medical services. New Product Bias New products and new models of existing products tend to have a 'product cycle.' A typical new product is introduced at a relatively high price with low sales volume. Improvements in manufacturing techniques and higher sales volumes usually allow prices to be reduced and quality to improve. Later, when the product 'matures,' the price will tend to increase more rapidly than average. This pattern can be seen with many familiar products such as microwave ovens, VCR's, and cellular telephones. As with quality changes, the Bureau of Labor Statistics has methods to continually incorporate new products into the market basket, because the interval between the major revisions of the market basket (approximately ten years) is too long. However, there tends to be lag between introduction of a new product and its inclusion in the market basket, so that new products tend to be included later in their product cycles. The result is that the CPI might be biased upward. Time of Month Bias The Bureau of Labor Statistics does not collect prices on weekends and holidays when certain items are disproportionately put on sale in certain outlets. There is some evidence that the fraction of purchases made on weekends and holidays has increased as well. This effect would make the CPI less representative of the average consumer and bias it upward. In 1996, the Senate Finance Committee appointed a advisory commission to study the consumer price index. Its chairman was Michael J. Boskin of Stanford University, and the report became widely known as the Boskin Report. The report recommended downward adjustments in the CPI of 1.1% broken down as follows: Estimates Of Biases In The CPI-Based Measure Of The Cost Of Living (Percentage Points Per Annum) from the Boskin Report Sources of Bias Estimate Upper Level Substitution 0.15 Lower Level Substitution 0.25 New Products/Quality Change 0.60 New Outlets 0.10 Total 1.10 Plausible range (0.80-1.60) If the CPI is biased upward, it has numerous undesirable consequences. Many government programs have mandatory cost of living adjustments based on the CPI. The increases in the past would have been too high. Tax brackets are adjusted upward using the CPI; if the CPI is biased upward, tax brackets would have been adjusted too high, leading to less tax revenue. The higher payments and lower revenues would contribute to a higher national debt. An inaccurate CPI also gives citizens an incorrect view of the state of the US economy as well.

Subject: Pirce Hedonics: A Critical Review From: johnny5 To: johnny5 Date Posted: Sun, Feb 27, 2005 at 01:49:24 (EST) Email Address: johnny5@yahoo.com Message: http://www.newyorkfed.org/research/epr/03v09n3/0309hult.pdf The new debate began in early 1995, when Federal Reserve Chairman Alan Greenspan testified before the Senate Finance Committee that he thought that the CPI was biased upward by perhaps 0.5 to 1.5 percentage points per year. This remark did not surprise specialists who understood the technical difficulties involved in constructing accurate price indexes, but it created a small sensation in the political arena. Here at last was a chance to get around one of the most difficult issues in the debate over balancing the federal budget: what to do about the social security program. Here was a way to reduce expenditures to balance the federal budget and rescue the social security trust fund from insolvency in the next century. The beauty of it all was that the solution did not involve raising new taxes or changing benefit formulas. Instead, the solution involved “fixing” a biased method of adjusting social security benefits for the effects of price inflation, .....The NRC panel did not provide unanimous support for the underlying philosophy of the CPI as a pure cost-of-living index, and, in its own words, differs from the Stigler and Boskin et al. reports in this regard (National Research Council 2002, p. 3). The report’s Recommendation 4-2 noted that the “BLS should continue to expand its experimental development and testing of hedonic methods.” On the other hand, Recommendation 4-3 of the report cautioned against immediately expanding the use of hedonics in constructing the CPI itself: “Relative to our view on BLS research, we recommend a more cautious integration of hedonically adjusted price change estimates into the CPI.” The report explained the apparent disconnect between the two recommendations by pointing to a “concern for the perceived credibility of current methods,” adding that “while there is an established academic literature on estimating hedonic functions, researchers are much less experienced using them across a wide variety of goods” (National Research Council 2002, pp. 6-7). ....The absence of explicit criteria is not surprising because the political economy of statistical measurement is largely terra incognita in the practice of economics. However, the NRC panel report forces the debate in this new direction. ....The upward shift in the hedonic function indicates that inflationary pressures dominate any cost-reducing product innovation, but from the data in the exhibit it is not possible to separate the two effects (or even tell if product innovation has occurred). variety. A problem arises if the variety disappears from the sample. When this happens, a replacement must be found, and if a new variety is selected, whose observed price is , then the BLS must consider the possibility that some part of the observed price increase may be because of a change in quality.4 At this point, the BLS must decide if the new variety is a comparable or noncomparable substitute. If it is comparable, and are deemed to be equivalent and the observed price ratio is not adjusted for quality. If this is wrong and the new variety is really a noncomparable substitute, the ratio overstates the true rate of pure price increase when .5 More generally, the price ratio is the product of a pure price term and a quality term. ....The portrait of price hedonics painted in the preceding section is rather flattering, particularly when compared with competing alternatives. What, then, accounts for the conservative Recommendation 4-3 from the NRC panel and an ambient skepticism on the part of some users? One of the leading developers and practitioners of price hedonics, Triplett, found it necessary to devote an entire article to the analysis and refutation of common criticisms of the hedonic method (Triplett 1990). I believe that a large part of the problem reflects a lower degree of confidence in data that are imputed using regression analysis. Price estimates collected directly from an underlying population are generally regarded as “facts.” When the price is inferred using regression techniques, it becomes a “processed” fact subject to researcher discretion. ....The resulting price estimates involve a sampling variance and a potential for bias and are no different in this regard than estimates obtained using regression analysis. There is, however, an important difference from the standpoint of perceived credibility. The CPI sample is constructed directly from the population of consumption goods in retail outlets whose prices are “facts on the ground.” Full enumeration of the population is conceptually possible, lending verisimilitude to the sampling process. The perceived credibility of the researcher discretion involved in regression analysis is not so well anchored. The old saw about statistical regressions applies here: “If you torture Mother Nature long enough, she will ultimately confess to anything you want.” This quip reflects a widely understood but seldom emphasized truth about applied econometrics: researchers rarely complete their analysis with the very first regression they try. The first pass-through of the data often produces unsatisfactory results, such as poor statistical fits and implausible coefficient estimates. Rather than stop the analysis at this point, researchers typically use the same data to try out different functional forms and estimation techniques, and drop weak explanatory variables until plausible or satisfactory results are obtained (or the project is abandoned). The NRC panel report cites instances of these practices during the incorporation of price hedonics in the CPI program (National Research Council 2002, p. 142). ...The first general issue is that price hedonics is subject to the problem of all product differentiation models: where does a good stop being a variety of a given product class and become a product on its own? It is intuitively reasonable to group all Toyota Corollas in the same class and treat different equipment options as characteristics. Is it as reasonable to group included near-substitutes such as Toyota Camrys or all Toyota passenger cars into the same product class? Perhaps the product classes should be functional—subcompacts, compacts, luxury sedans, suburban utility vehicles—regardless of brand. Theory gives only the following guidance: items should be grouped according to a common hedonic function. For example, if equation is the correct specification, all items in the hedonic class must have the same list of characteristics and the same -coefficients. This implied grouping seems reasonable for different configurations of a Toyota Corolla, but increasingly less so as the range of included items is expanded. It should be possible to test for homogeneity of items included in a hedonic class, but it is not clear how often this is actually done. Dummy variables for different brands within a given class can be used in some cases, but this is essentially an admission that some important characteristics are missing or that the -coefficients differ in at least one dimension. This problem is attenuated in the CPI because the items included in the matched-model design are rather narrowly specified. However, although the narrowness of matchedmodel item specifications helps with the problem of heterogeneous -coefficients, it exacerbates the problem of “representativeness.” Learning a lot about inflation and quality change in one narrowly defined class like Toyota Corollas may not be indicative of the experience of the broader class of automobiles. A second general class of issues involves the selection of characteristics. Hedonic theory suggests that a characteristic should be included in the analysis if the characteristic influences consumer and producer behavior. This implicitly assumes that consumers and producers have the same list, which is far from obvious (Pakes 2002). The consumer may be interested in performance characteristics such as top speed and acceleration, while the seller may focus on product attributes like engine horsepower, and the design engineer on technical characteristics like valve design. Furthermore, different consumers may base their spending decisions on different sets of characteristics or assign different weights to them, meaning that the -coefficients in equation 1 are really not fixed parameters, but weighted averages. As a result, estimated parameters may not be stable over time, and the implied estimates of price and quality may shift simply because of changes in the mix of consumers Another concern is the problem of separability and “inside” and “outside” characteristics. The -coefficients in equation 1 may be unstable over time for another reason: the characteristics defining one good are not separable from the characteristics defining other goods. This is a well-known result in aggregation theory and is hardly unique to price hedonics. But the hedonic hypothesis is a form of aggregation and the stringent conditions for separability may fail. In this case, a change in some characteristic outside the set of “insidethe- hedonic-function” characteristics may cause the relation between the inside elements to shift, leading to a change in the -coefficients.7 A similar problem can arise when some of the relevant characteristics are left out of the regression analysis. The problem of missing inside characteristics and nonseparability with respect to outside characteristics can be subjected to econometric tests. However, the truth is that the selection of characteristics is heavily influenced by data availability, and it is not clear how much progress can realistically be expected to occur when dealing with these conceptual issues. Choice of appropriate functional form is the third general class of problems often raised in critiques of price hedonics. The three most common forms—linear, semi-log, and loglog— do not allow for a very rich set of possible interactions among characteristics. Important complementarities often exist, for example, between microprocessor speed and storage capacity. One does not substitute for the other at a given price in most applications. Expanding an automobile’s performance to racecar levels involves an increase in many characteristics, not just a very large increase in horsepower alone. This suggests the use of more flexible functional forms such as the trans-log. Furthermore, as noted in the preceding section, innovations in product quality can take the form of extensions of the length of the hedonic function over time, and this is hard to capture with the usual functional forms. Pakes derives an alternative interpretation of the hedonic function in which price equals marginal cost plus a market power term that depends on the elasticity of demand for the characteristic. This is the Pakes-I result, and it is surely correct for many of the goods for which price hedonics is employed. However, the implications of this result are novel to the point of heterodoxy: Hedonic regressions have been used in research for some time and they are often found to have coefficients which are “unstable” either over time or across markets, and which clash with naive intuition that characteristics which are generally thought to be desirable should have positive coefficients. This intuition was formalized in a series of early models whose equilibrium implied that the “marginal willingness to pay for a characteristic equaled its marginal cost of production.” I hope [the preceding] discussion has made it amply clear that these models can be very misleading [author’s emphasis]. The derivatives of a hedonic price function should not be interpreted as willingness to pay derivatives or cost derivatives; rather they are formed from a complex equilibrium process (Pakes 2002, p. 14). This view clashes strongly with the conventional view, which is summarized in the National Research Council (2002) report in the following way: Strange-looking variable coefficients could be indicative of larger problems—including omission of key value indicators, characteristic mismeasurement, and functional form issues (p. 142). Furthermore, It is hard to know when a hedonic function is good enough for CPI work: the absence of coefficients with the “wrong” sign may be necessary, but it is surely not sufficient (p. 143). These results represent a potential paradigm shift in the field of price hedonics. They have yet to be vetted by the specialists in the field, but some or all of each proposition is likely to survive scholarly scrutiny.8 There are a number of issues to be resolved, such as the problem of cross-sectional stability. The same mechanism that causes the hedonic coefficients to be unstable over time may also cause them to be unstable in a cross-section of consumer prices drawn from different locations and different types of retail outlets. In this case, the movement along the hedonic function at any point in time may not be possible. This, and other issues, await further debate. The Political Economy of Price Hedonics There is a saying in tax policy that “an old tax is a good tax.” This does not follow from any deep analytical insight into optimal tax theory, but from the pragmatic observation that taxation requires the consent of the governed. The public must accept and respect the tax, and this does not happen automatically when a tax is introduced. There is typically a learning curve as people adjust their behavior in light of new tax incentives, and gainers and losers are sorted out. The tax matures as affected groups negotiate changes and as unforeseen consequences become apparent and are dealt with. A similar argument leads to the proposition that “old data are good data.” Old data, like old taxes, involve learning by the public and by policymakers about a new set of facts, and both may involve large economic stakes. In the case of CPI reform, the Boskin Commission estimated that the cumulative effects of a 1 percentage point per year bias would have added $1 trillion to the national debt between 1997 and 2008. If price hedonics were completely successful in eliminating the Boskin Commission’s quality bias, the growth rate of the CPI would fall by about 25 basis points to 60 basis points per year, with an attendant reduction in cost-of-living payments to individuals.9 In addition, cost-of-living adjustments to social security, federal civilian and military retirement, supplemental security income, and other programs are not the only dimension of policy affected by this line of argument, because the CPI is used to index income tax parameters, Treasury inflation-indexed bonds, and some federal contracts. Moreover, a revision to the CPI also changes the metric that policymakers use to gauge the rate of inflation. They have to assess how much of the change in measured inflation is the result of underlying inflationary pressures and how much is the result of the new methods. This reflects a fundamental truth about the policy process: policy decisions (indeed, most decisions) must be made with imperfect information. There is learning over time about the nature of the data and the useful information they contain. Chairman Greenspan’s 1995 comment about his perception of a bias of 0.5 to 1.5 percentage points in the CPI is a case in point. The expanded use of price hedonics thus looks different to users who are interested in the “output” of the technique than to expert practitioners who are interested in developing the technique per se. Put differently, there is a policy-user learning curve that is different from the researcher learning curve. However, the two curves are related. The weaker the professional consensus is about a technique, the lower the level of confidence is in the technique’s consequences and in its acceptance by the public and policymakers. This is the essence of the “perceived credibility” standard.10 This line of argument has implications for the use of price hedonics in the CPI. Perceived credibility is linked to the degree of professional consensus, and Pakes (2002) has pretty much upset whatever consensus had existed. It will doubtless take time to sort out the propositions advanced by Pakes, and this alone justifies the conservatism of the NRC’s Recommendation 4-3. More research is needed on the robustness of price hedonic results to changes in assumptions about functional forms and characteristics and about the circumstances under which parameter instability and “wrong” signs occur. Monte Carlo studies, in which the true value of the parameters is known in advance, could be a useful way of understanding the pathology of the hedonic technique and assessing the accuracy of this technique and its ability to forecast the CPI, both in absolute terms and relative to other quality-adjustment methods. Research at the frontier should be innovative and challenging, aimed at convincing peer researchers. However, this is not the way good policy is made. Policy ultimately relies on the consent of the public, not the vision of convinced experts. Changes in official statistical policy therefore should be conservative and credible, and the research agenda must include a component aimed at building confidence that the benefits of change outweigh the costs. Accordingly, the National Research Council panel is right to insist on a conservative approach to the increased use of price hedonics in the CPI. However, the research community is also right to insist that this technique is the most promising way to account for changes in product quality in official price statistics. Researchers would also be right to point out that part of the credibility issue with hedonics is about the switch to the new technique, and not just about the technique itself. Had the BLS used price hedonics more extensively in the past rather than the more commonly used quality-adjustment methods, hedonics would probably have evolved by now to the point of perceived credibility. Indeed, if positions were reversed and the link, overlap, and class-mean methods were offered as substitutes for an entrenched hedonics methodology, the debate would be very different.

Subject: Core Inflation Measurement From: johnny5 To: All Date Posted: Sat, Feb 26, 2005 at 23:54:54 (EST) Email Address: johnny5@yahoo.com Message: Not only are we strugglinh here in America - the euro boys are too :( http://www.dallasfed.org/research/papers/1999/wp9903.pdf The notion of core inflation has played an important role in the deliberations of monetary policymakers for the past twenty-five years. However, despite the central role of this concept, there is still no consensus on how best to go about measuring core inflation. The most elementary approach, and the one that is probably the most widely used, consists of simply excluding certain categories of prices from the overall inflation rate. This is the so-called “Ex. food and energy” approach to core inflation measurement, and it reflects the origin of the concept of core inflation in the turbulent decade of the 1970’s. More recently, however, there have been a variety of attempts to put the measurement of core inflation on a more solid footing. The newer approaches have two key features in common. First, they adopt a more statistical rather than behavioural approach to the problem of price measurement. And second, they invoke an alternative, monetary, concept of inflation, as opposed to the traditional microeconomic cost of living concept, as the guiding theory. This paper critically reviews various approaches to measuring core inflation. I do so by linking these approaches in a single theoretical framework, the so-called stochastic approach to index numbers. I evaluate the competing merits of the different approaches, and argue that a common shortcoming is the absence of a well-formulated theory of what these measures of inflation are supposed to be capturing. The notion that they somehow better capture the “monetary” component of inflation, or the component of inflation that ought to be of primary concern to central bankers, is of questionable validity. ...Eurostat can legitimately motivate the exclusion of certain categories of prices from the HICP. The category that has attracted the most attention by it omission is the costs of owner occupied housing. ...These calculations raise the question of what it is we want a core inflation statistic to measure. If the object we are pursuing is a true cost of living index, then it is not clear that we should be eliminating the effects of tax increases from our price measure. Furthermore, the reasoning above is only partial equilibrium. A proper treatment of the effects of indirect taxes on a measure of the price level would require a detailed general equilibrium analysis of the effects of the tax increase that would go well beyond current practice.2 While it is possible that some of the costs of inflation are captured by changes in the cost of living, some of them may require a much broader measure of market transactions. One conclusion from this line of reasoning is that for the purposes of monetary policy what is needed is not a microeconomic theory of the cost of living, but a macroeconomic theory of the cost of inflation. Thus we can interpret various measures of core inflation as attempts to better measure this more appropriate measure of inflation for monetary policy purposes. ....Note that so far nothing has been said about which prices to include in the calculations. The prices to be averaged in arriving at a measure of inflation could be just consumer prices, or could include the prices of all GDP transactions or the prices of all transactions (including intermediate transactions) or could even include the prices of assets. Fisher (1920) argued that when it comes to constructing a measure of the purchasing power of money we ought to look at as many prices as possible: “Perhaps the best and most practical scheme [for the construction of an index number] is that which has been used in the explanation of P in our equation of exchange, an index number in which every article and service is weighted according to the value of it exchanged at base prices in the year whose level of prices it is desired to find. By this means, goods bought for immediate consumption are included in the weighting, as are also all durable capital goods exchanged during the period covered by the index number. What is repaid in contracts so measured is the same general purchasing power. This includes purchasing power over everything purchased and purchasable, including real estate, securities, labor, other services, such as the services rendered by corporations, and commodities.” (Fisher, 1920, 217-218) It is interesting to note that the preamble to the European Council Regulation governing the calculation of the HICP which will form the basis for assessing inflation developments in the euro area notes that “• it is recognised that inflation is a phenomenon manifesting itself in all forms of market transactions including capital purchases, government purchases, payments to labour as well as purchases by consumers.” (European Commission, 1998) Once we have abandoned the cost of living as the guiding concept for inflation measurement for monetary policy purposes 6 See Diewert (1995). 9 there is no reason for confining our attention to changes in the prices of final consumer goods. Changes in the prices received by producers, changes in the prices of intermediate goods and changes in the prices of existing assets all carry information about monetary inflation. ...But why do we need to confine ourselves to looking to budget shares for weights? The use of budget shares as weights is best motivated by an appeal to the (atemporal) theory of the cost of living index. Yet implicit in the notion of core inflation that ought to be of primary concern to monetary policymakers is the idea that such inflation is inherently different to inflation as measured by the cost of living index. Thus the weighting scheme that is optimal from the perspective of constructing a cost of living index may no longer be optimal from the perspective of measuring inflation for the purposes of monetary policy. ...A weighting scheme that might be more appropriate for monetary policy purposes would weight prices by the strength or quality of the inflation “signal” they provide. Indeed this is the approach that implicitly underlies the “Ex. food and energy” or “Ex. indirect taxes” approaches to estimating core inflation that are used by many central banks and statistical agencies. In these approaches we attach zero weight to certain prices on the (unstated) grounds that they convey zero information about core inflation. Formally, 0 = i w if 2 2 ~ s s > i where 2 ~ s is some “unacceptably high” level of variability in short term price changes. It is worth noting that there is no justification for such a practice from the perspective of the theory of the cost of living index. The rationale for excluding certain prices from an estimate of core inflation must lie other than in the theory of the cost of living index. That is, choose weights for the various individual prices that are inversely proportional to the volatility of those prices. A weighting scheme along these lines has been investigated by Dow (1994), who termed the resulting measure of inflation a Variance Weighted Price Index, and by Diewert (1995), who termed the resulting measure of inflation Neo-Edgeworthian. Wynne (1997) reports the results of applying a scheme along these lines to US CPI data. The advantage of employing a variance weighting scheme to calculate core inflation is that we do not discard potentially useful information about core inflation that may be contained in food and energy prices, or whatever categories are excluded. The “Ex. food and energy” approach to estimating core inflation is further compromised by the fact that it requires that we make a once and for all judgement about what the least informative categories of prices are for estimating core inflation. A variance weighting scheme such as the above allows weights to change over time as the volatility of different categories of prices changes over time. Yet another weighting scheme was proposed informally by Blinder (1997). Starting from a definition of core inflation as the persistent or durable component of inflation, Blinder suggests that when it comes to calculating core inflation, individual price changes should be weighted by their ability to forecast future inflation. Blinder argues that central bankers are a lot more concerned about future inflation than they are about past inflation, and that when thinking about the measurement of core inflation as a signal extraction problem, future inflation is the object about which we are seeking information via current signals. Thus core inflation is defined in terms of its ability to predict future headline inflation. At present there have not been any attempts to operationalize this approach.10 ...Perhaps a more serious shortcoming of these models is that they fail to take account of persistence in both individual price changes and the inflation rate. Some of the dynamic models that have been proposed in recent years seek to remedy this problem, and succeed to varying degrees. We will start by looking at the Dynamic Factor Index (DFI) model proposed by Bryan and Cecchetti (1993) and Cecchetti (1997). This model is of interest for many reasons, not least of which is the fact that it is the only model that attempts to combine information on both the cross-section and time series characteristics of individual price changes in deriving a core inflation measure. Monetary theory tells us that, under a fiat monetary standard, the price level is ultimately determined by the stock of base money outstanding relative to the demand for it. Therefore the appropriate measure of M in the system above is a measure of the base money stock. However, the assumption of stationary velocity of base money is probably at odds with the data for several, if not all, industrialised countries. First and foremost before choosing a measure of core inflation we need to specify what it is we want the measure for. Do we want a measure of core inflation to answer the question “What would the inflation rate have been if oil prices (or indirect taxes) had not increased last month?” If so, then none of the approaches reviewed above will help. This question can only be answered in the context of a full general equilibrium model of the economy. Furthermore if the measure of inflation we are interested in is the cost of living, then it is not clear why we would ever want to exclude the effects of oil price increases or indirect taxes. Thus it must be the case that when measuring core inflation we have some other inflation concept in mind. Ideally a central bank would be most interested in a measure of inflation that measured the rate of decline in the purchasing power of money. Unfortunately there is no well developed and generally agreed upon theory that can serve as a guide to constructing such a measure. Thus in practical terms we left with the options of constructing a core inflation measure so as to better track the trend inflation rate (somehow defined) in real time, or what in many circumstances may amount to the same thing, forecast the future headline inflation rate.

Subject: More academic papers From: johnny5 To: johnny5 Date Posted: Sun, Feb 27, 2005 at 00:12:54 (EST) Email Address: johnny5@yahoo.com Message: http://www.dnb.nl/dnb/bin/doc/sr063_tcm13-36668.pdf Since the oil crises of the 70’s the term core inflation has played an important role in the monetary policy debate. In particular at central banks various estimators have been developed to measure what is sometimes called core, permanent, underlying or monetary inflation. Although there is no consensus in the literature on what core inflation actually is, all approaches intend to provide an inflation measure which is more informative for monetary policy than the change of the official consumer price index. There are several reasons why the CPI is not an ideal measure of inflation for monetary policy purposes. Firstly, the CPI is a noisy signal of the inflationary pressures in an economy. For example, seasonal influences, changes of the indirect tax rate, or purely relative price changes affect the CPI, but do not call for monetary policy action. Finally, central banks cannot control inflation as measured by the CPI. At least in the short run the CPI reacts to nearly every shock impinging on the economy and not only to variations of the money stock, for which the central bank is responsible. Since credibility is crucial to central bank performance, it would be desirable to have an operational inflation concept which only reflects price level movements for which the monetary authority is accountable. Such a concept would not only be interesting for the public, but also for central banks, because it would enable the early detection and correction of control errors. Motivated by one or more of these arguments, a host of methods has been developed to estimate core inflation. Most of these methods, however, lack a clear definition of what they are supposed to measure, which specific quantity in the population they should estimate. The methods suggested are either based on cross-sectional information, i.e. the distribution of individual price changes with respect to some reference period, on univariate or multivariate time series or on pooled cross-sectional and time series data 3. Cross-sectional methods attempt to refine the CPI, aiming to eliminate its transitory move-ments and to increase the signal-to-noise ratio. Three different types of inflation measures rely on purely cross-sectional information. The most well-known type encompasses price indices that simply exclude allegedly volatile components, such as seasonal food or energy prices. A more sophisticated class of measures contains the various trimmed mean estimators. These measures do not a priori exclude specific commodities from the price index once and for all, but remove those commodities of which the observed price change relative to the previous period is an ‘outlier’ 4. The weighted median belongs to this class of inflation measures. Finally, there are price indices which use the full cross-sectional information but aggregate the price changes with weights which are inversely related to their volatility. Clearly, since the weights of these price indices are not derived from budget shares, the scope of these inflation measures is not restricted to consumer prices 5. We will argue that our general equilibrium model provides a reasonable interpretation of empirical data. Furthermore, we will show that the standard battery of tests applied to the time series generated by our model does not reject the testable implications of the different SVAR models. In this sense, our simulation study yields results which are relevant for actual monetary policy. THey conclude svars aren't currently applicable to monetary authorities.

Subject: Re: More academic papers From: johnny5 To: johnny5 Date Posted: Sun, Feb 27, 2005 at 00:53:59 (EST) Email Address: johnny5@yahoo.com Message: CPI can really lack some useful information when you exclude f&e http://www.bankofengland.co.uk/workingpapers/wp242.pdf This paper examines a range of measures of core inflation for the United Kingdom, both conceptually and empirically, setting out their motivation and highlighting their potential limitations. No single measure performs well across the board, but a compromise conclusion on the usefulness of measures of core inflation is that each one may provide a different insight into the inflation process. There can be value in looking at a range of measures, as long as one bears in mind what information each type of indicator is best at providing. When all measures are giving the same message then, in a sense, monetary policy makers can reasonably consider that these measures are providing a reliable guide to inflationary pressures. It is when the measures start to diverge that policymakers need to take a much closer look at the reasons for those divergences. path, save perhaps for some unavoidable and unforecastable error. If we were to perform Marques et al’s tests on a measure of core inflation, it would fail conditions (ii) and (iii). That is, CPI inflation would not be attracted to the measure of core inflation since it follows the exogenously prescribed path, but core inflation would be attracted to CPI inflation.(18) This finding would cause us to reject this measure of core inflation as useful in providing forward-looking information about the future path of CPI inflation, even though it might well be useful in setting policy. Thus, failure in the tests does not necessarily mean that a measure of core inflation is not informative—it may just be that the effects of past policy mean that Marques et al’s tests do not help us make that judgment. In addition, because the differential between targeted and core inflation is likely to be some function of the stance of monetary policy, at least in the short run, the tests may be vulnerable to the Lucas critique. That is, if policy were to be based on some estimated relationship between core and targeted inflation, that relationship may change and become misleading as a guide to the future.

Subject: Inflation, Renats or Housing From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 21:32:11 (EST) Email Address: Not Provided Message: We know there is a lack of connection between rents and real estate prices, we know how much housing costs contribute to the consumer price index. So change the way we calculate the index by using not rentals but housing cost, and there is inflation. Lots of inflation. This is what the Economist has done, and this is disturbing. Housing costs are 30% of the Consumer Price Index, and while rents are rising at a moderate pace housing prices are rising at a rapid pace. Then, is there inflation?

Subject: Inflation, Rents or Housing [cont.] From: Terri To: Terri Date Posted: Sat, Feb 26, 2005 at 21:50:41 (EST) Email Address: Not Provided Message: While I have no argument about the way the Consumer Price Index is calculated, the possibility that the current divergence between rents and housing prices has become so large that core inflation is much higher than we record may have to be considered. Of course, this would apply to other country statistics as well. In any event, I am a step closer to worrying about inflation.

Subject: Re: Inflation, Rents or Housing [cont.] From: Pete Weis To: Terri Date Posted: Sun, Feb 27, 2005 at 13:01:23 (EST) Email Address: Not Provided Message: I think the point to ponder about housing costs is the tendency for so many of us to take on mortgages at or near the limit of what the mortgage industry will allow. The mortgage industry has allowed dramatically higher mortgages as a percentage of gross income in recent years and they allow the borrower to service them with initially low (sometimes rediculously low) monthly payments. With many of these loans, the payments will rise after the begining years even if rates don't rise. If rates do rise than the situation becomes even worse. Folks have been willing to take on this high risk of not being able to service their mortgage payments a few years down the road because they believe their home will continue to rise in value rapidly and they don't want to be left behind. Mortgage brokers are willing to loosen requirements and invent very risky interest rate schemes because it is the only way to keep the golden egg rolling with home prices going up much faster than paychecks. Besides they are able to pass the risk on to bond holders and home owners. The government is not and has not been inclined to step in and regulate this mess because it has been the one thing which has kept our economy afloat over the last few years. So the question becomes - how much longer can this last and will it be long enough before something comes along to finally lift middle class wage earners out of their funk or......

Subject: Energy Stocks in the S&P From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 17:10:50 (EST) Email Address: Not Provided Message: http://www.barra.com/Research/SectorWeights.aspx Notice that in Janaury 1980 the S&P weights was 20% energy stocks, where now after all the run of prices the weights is 7%. The economy has indeed changed. Financial servcies are now 22%, while in 1980 they were 5.4%. Technology and telecommunications went from 17% in 1980 to 18% now. So we have gone from being energy drives to finance driven in a sense.

Subject: Paul Krugman's Note on Oil From: Terri To: Terri Date Posted: Sat, Feb 26, 2005 at 20:19:51 (EST) Email Address: Not Provided Message: http://www.wws.princeton.edu/~pkrugman/oil.html April 9, 2002 A QUICK NOTE ON OIL If you want to get slightly scared about the economic implications of Middle East conflict, here's a useful chart from an Energy Information Agency report from a few years back. It shows how the strategic importance of OPEC, and of the Persian Gulf in particular, declined dramatically after the oil crises of the 1970s; that's why there weren't any more crises for 20 years. But now, through inattention, laziness, and greed, we've revived that strategic centrality. And no, drilling in ANWR is no answer. At peak, more than 10 years from start, it would produce a bit more than 1 percent of the world total. Take a look at the chart and see if that would make much difference. Conservation is the only way to make big inroads on this vulnerability in the medium term. And alternative sources of energy are the only long-term answer.

Subject: Good post Terri From: Pete Weis To: Terri Date Posted: Sun, Feb 27, 2005 at 12:34:14 (EST) Email Address: Not Provided Message: This is such an extremely important issue to the world economy. We must aggressively develop alternatives and we need to buy ourselves time with a real commitment to conservation.

Subject: Safety Above All From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 16:29:19 (EST) Email Address: Not Provided Message: Suppose you invest an entire portfolio in the Vanguard GNMA fund. The yield is 5%, the duration 2.5 years. A 2 percentage point increase in mortgage rates would lower the price of the fund about 5%, but the yield would begin to rise toward 7%. In less than than 2.5 years, you would have earned about 5% annually. GNMAs are government insured. Where is the long term risk? A 50% stock index and 50% Bond Index fund portfolio strikes me as nicely protected against risk. Try the Value Stock Index if you wish. Try the Europe Index if you wish. A 40% stock index and 60% bond index portfolio is even more risk averse. A 60% stock portfolio of course and you are adding risk. What would you have? There are ways to invest with long term safety.

Subject: Re: Safety Above All From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 19:04:12 (EST) Email Address: Not Provided Message: 'GNMAs are government insured. Where is the long term risk?' The risk is in the dollar in which they are denominated. Anyone who has invested in GNMA's and gotten 5% nominal returns over the last 2 years has actually lost at least 5% or more each year since the dollar has lost 10% or more against a 'basket' of currencies. In fact it has lost considerably more than that against many of the 'necessary' personal expenditures in life such as food, housing, energy, gas for the suv, insurance of every sort and sending your kid to college. The phony core CPI number the government puts out there is used to pump up the GDP number and for validation of negative real interest rates - I would call it a 'Snow' job foisted on the public by the Bush administration. So we need to remember that if we are invested in US dollar denominated investments, we need to make at least a 10% nominal (perhaps more) per annum gain if we are to break even with a 0% real return on investment. Am I wrong on this?

Subject: How to be Most Secure From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 19:36:49 (EST) Email Address: Not Provided Message: Interesting argument. I have not found any academic study criticizing the way we measure prices, but I will attend at once if I do. Of course, I hold the Europe Index as a dollar hedge. Australia Index as well. I hold the Value Index and the energy and health care funds as as hedges against inflation. But, bond fund have been terrific investments. The return of the Vanguard Long Term Bond Index these 5 years ending Janaury 31, 2005, was 10.9% annually. This is superb regardless of the dollar or inflation. The GNMA example is a fine example. Inflation is moderate, and if you wish to make a secure 5% there is the opportunity. If it becomes more expensive to travel to London, so what? The dollar gained in value from 1993 till 2001, now the gains have reversed. Should a highly conservative investor trail inflation for a while, but still have a reasonable nominal return, all will be well. Interest rates adjust to price changes. I understand the nagging doubts, for this is not Robert Rubin's economy, and we are trying to compensate, but there are ways to be secure with a most conservative domestic portfolio. Remember the duration of the GNMA portfolio is just 2.5 years.

Subject: Academic studies From: johnny5 To: Terri Date Posted: Sat, Feb 26, 2005 at 23:10:09 (EST) Email Address: johnny5@yahoo.com Message: http://ideas.repec.org/p/fip/feddwp/99-03.html#related http://ideas.repec.org/p/fip/feddwp/99-03.html This paper reviews various approaches to the measurement of core inflation that have been proposed in recent years. The objective is to determine whether the European Central Bank (ECB) should pay special attention to one or other of these measures in assessing inflation developments in the euro area. I put particular emphasis on the conceptual and practical problems that arise in the measurement of core inflation, and propose some criteria that could be used by the ECB to choose a core inflation measure http://www.bankofengland.co.uk/workingpapers/wp242.pdf

Subject: Short and Long Term From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 14:20:00 (EST) Email Address: Not Provided Message: Cyclical or secular, I really do not know the difference. An investor who held the Long Term Bond Index from 2000 has gained 10.9% annually these 5 years. Such an investor should be quite pleased. An investor with a conservative stock portfolio has been gaining for 28 months, and made up most or all the losses of the bear market. The Large Cap Value Stock Index is positive for these 5 years, the Mid Cap Index is positive, the Small Cap Index is positive. Gains have been substantial. The REIT Index has flourished, as have the Vanguard Health Care and Energy funds. The Europe Stock Index is positive over the past 5 years. With a conservative portfolio an investor should be most pleased, and should be well protected in furute.

Subject: Risk Protection From: Terri To: Terri Date Posted: Sat, Feb 26, 2005 at 15:04:45 (EST) Email Address: Not Provided Message: The Vanguard GNMA fund has a yield of 5.03% and a duration of 2.5 years. The bonds are government insured. What more could be asked for risk aversion? The really is minimal risk in any of the short term bond funds, and the yields are reasonable. The Fed intend to continue to raise interest rates, but there is little to worry about with a short term bond fund. The Inflated Protected Bond Fund has a longer duration, and I still do not know how the fund will behave if long term interest rates rise sharply.

Subject: Bond Funds as Protection From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 14:02:18 (EST) Email Address: Not Provided Message: Suppose there is to be a bear market. There simplest recourse to the bear market of 2000 to 2002 was bond funds. The S&P Stock Index lost 1.9% annually these last 5 years from January 31, 2000 to January 31 2005. However the Vanguard Long Term Bond Index gained 10.9% annually during this period. While bond funds were weaker in the 1973 to 1974 bear market, they still were positive for the period. Rising interest rates may bring about a bear market, but there is little likelihood that rates will rise in the course of a bear market. An investor can choose to balance stock risk in a portfolio with any proportion of bonds. The bond funds chosen can be high in interest rate sensitivity as long term funds or low as short term funds. The beauty of diversifying with bond funds is they allow an investor not to have to worry about always timing the market while always being invested.

Subject: Question? From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 14:23:00 (EST) Email Address: Not Provided Message: What's the chance of rates staying low (regardless of a bear market) if fiscal policies cause large budget deficits and a current account deficit remains high in tandem? Typically, in a bear market economy tax revenues decrease making the budget deficit more severe. Either taxes must be increased on the wealthiest who suffer very little from a consumption point of view during such periods, or government spending must be slashed, or our political leaders will continue to borrow to the max. Under our present administration which scenario is most likely? What does this mean for our currency and our interest rates? Can we load up on cake and ice cream and expect to lose weight? Are consequences a thing of the past?

Subject: Federal Reserve Protection From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 14:36:22 (EST) Email Address: Not Provided Message: The Federal Reserve can and will protect the economy. There is scant general inflation, and should economic growth slow significantly for any reason the Fed can and will reverse course and begin to lower short term interest rates. Though the Fed will continue to slowly raise short term interest rates for a while, with a nicely growing economy there is leeway. Slow enough growth and the Fed will reverse course. We grew at 3.8% last quarter, which gives the Fed leeway. The Fed has made it clear the economy will not be harmed to stem the trade deficit or relative dollar value decline. Government budget deficits will be a problem for quite a while, but they do not preclude low interest rates. This is not to say in the least there is no danger, just to argue there is a Fed recourse.

Subject: Not much room for lowering From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 15:39:13 (EST) Email Address: Not Provided Message: Besides lowering rates risks further damage to confidence in the dollar. Alan Greenspan is discovering a disconnect between the fed rate and long term rates. Long term rates seem to be more dependent on the willingness of foreign central banks to absorb more dollar risk and bond investors belief that foreign central banks will continue to buy US debt. The fed rate doesn't seem to have much effect on long term rates and Greenspan seems to be worried about this. Greenspan has dropped his 'measured rate increase' terminology precisely because he has become more concerned by the twin deficits and dangers to the dollar. He may not (at least publically) be as worried as Paul Volker but he seems to be leaning more in Volker's direction. So I read the dropping of this terminology to mean - if necessary they might raise rates more aggressively to prevent a financial crisis. Risking a recession caused by steeper rates is preferabled to a financial crisis/collapse. One is a serious problem the other is a disaster. I think one could argue that this is the worst predicament a fed chairman has ever faced, since this is the greatest risk to the dollar in history.

Subject: There is Lots of Room From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 15:50:30 (EST) Email Address: Not Provided Message: Alan Greenspan and other Federal Reserve governors have been clear that the economy will not be harmed for the sake of the value of the dollar. I can not imagine otherwise. What if the dollar were to fall in short order 15 to 20%? The same happened in England and France in 1991-1992, with no ill effects beyond a brief attempt to stem the loss in value. We do learn, and we will not try to defend the dollar as the Bank of England tried to defend the Pound. The disaster is sacrificing the economy for the dollar and it will not be done, for the Fed governors have told us this, and the policy would be harmful as Keynes knew many years ago. There is lots of room to lower rates should that be needed. Right now we are growing well, the dollar is fine, the bond and stock markets are fine, so there is no near term worry.

Subject: What if There is a Bear Market? From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 13:46:39 (EST) Email Address: Not Provided Message: The longest bear market of the past 60 years ended in October 2002, and lasted from 26 to 30 months depending on the index used to measure. So, a bear market of more than a year is seldom seen and seen only once in 60 years. The answer however to protecting against a bear market has been and seems to be bond funds.

Subject: Value Stocks From: Terri To: Terri Date Posted: Sat, Feb 26, 2005 at 16:03:39 (EST) Email Address: Not Provided Message: Notice that large and small cap value stocks held up remarkably well in both the 2000-2002 and 1973-1974 bear market periods. Valuation and dividends matter in difficult markets.

Subject: Think you may be.... From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 14:04:07 (EST) Email Address: Not Provided Message: getting mixed up by cyclical bear markets vs. secular bear markets. 2000-2002 was either the longest and deepest cyclical bull market in history or it was the begining of a secular bear market (which is what I believe). The following is from an outfit which profits from investors staying in the markets and they are much more bullish than I. However, they provide a good explanation of bear markets (the stats regarding bear market periods were in table format so you have to jump back and forth line up the data): Will the Bear Be With Us a Long Time? This article is written by Dennis Tilley, director of research at Merriman Capital Management. A former aerospace engineer who has developed market timing systems for many years, Dennis has updated and improved virtually every timing system in use by MCM. by Dennis Tilley Director of Research Recently, I was watching the Suze Orman show on CNBC when a caller asked: “What is a secular bear market?” Apparently more and more investors are wondering about this, and I’ll use this article to address the topic. More important, I’ll talk about what investment strategies are effective in a secular bear market. There are no universally accepted rules for defining a secular bear market. But in very general terms, it’s a long time, perhaps 10 to 20 years, characterized by below-average stock market returns. Contrast this with a cyclical bear market, which typically lasts from a few months to a year. The four most recent cyclical bear markets didn’t last long: three months in 1987, four months in 1990, 10 months in 1994 and two months in 1998. The current bear market has lasted longer than these four combined. More and more commentators are claiming we are now in the beginning stages of a secular bear market. But in truth, it’s simply too soon to know. The last secular bear market in the United States was from 1966 to 1982. Japan continues to struggle through a severe secular bear market that started in 1990. Figure 1, showing the performance of the S&P 500 Index from 1929 to 1999, is divided into four time periods: two secular bear markets and two secular bull markets. Note that during the secular bear markets (1929 to 1941 and 1966 to 1981), the annualized returns for the index were significantly lower than its long-term average of 10.6 percent. Figure 1 Stock market returns (in percent) 1929-1999 1929-1941 1942-1965 1966-1981 1982-1999 Type of Market Total Period Secular Bear Secular Bull Secular Bear Secular Bull Length in Years 71 yrs 13 yrs 24 yrs 16 yrs 18 yrs Annualized Return of S&P 500 10.6 (2.4) 15.7 6.0 18.5 Inflation Index (CPI) 3.3 (0.8) 3.1 7.0 3.3 S&P500 Real Return 7.1 (1.6) 12.2 (0.9) 14.7 The 1966-1981 annualized return of 6.0 percent may not seem so bad in the current stock market climate. But adjusted for inflation, it represents a loss of 0.9 percent per year. While the protracted length of a secular bear market can be extremely discouraging, those with the fortitude to stick with their investments over the long term have eventually reaped the rewards of their patience. The two secular bull markets shown in this table produced exceptional returns for even longer periods of time. A secular bear market doesn’t mean stocks go straight down over a long period. Figure 2 shows the Dow Jones Industrial Average and S&P 500 since 1962. Though the period from 1966 to 1981 was a secular bear market, stocks went up and down in many cyclical bull and bear markets. But all the zigging and zagging did not lead to ever-higher stock prices. Still, the zigs and zags were often prominent enough that nimble investors could take advantage of them. The stock market is partly a creature of psychology. Near the end of a typical secular bull market, stocks are widely regarded as the best way to get rich. (Does that sound like late 1999?) But near the end of a typical secular bear market, many investors are looking at other asset classes to achieve their financial goals – bonds, real estate, gold and commodities. Strategies for a secular bear market The bad news may be the possibility of a new secular bear market. But the good news is that investors can maximize their chances for preservation and growth in such an environment with two strategies: diversification and timing. Because investors can’t see very well into the future, there’s simply no substitute for proper asset diversification. That means having significant exposure to international stocks as well as U.S. stocks, to small-cap stocks as well as large-cap ones and to value stocks as well as growth stocks.

Subject: Planning Planning From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 16:50:39 (EST) Email Address: Not Provided Message: The board will be gone soon, but we will begin again. What is necessary is to have definite plans for ourselves. Worry, and plan. I worry, and plan and you help wonderfully. This essay is useful, but when will these guys cite sources and date their work?

Subject: 1973 - 1974 From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 14:45:20 (EST) Email Address: Not Provided Message: There are all sorts of stories and games with data to show that investors made no money from 1966 to 1981, and even if they did they really did not because of inflation. Phooey. Stock dividends were above 4% through the period, and when added to index returns show there were gains through the period and while inflation was a problem stock returns compensated nicely for inflation. Money was made in stocks, and bonds and real estate through the period from 1966 to 1981. The need was for a conservative or diversified portfolio. We can better and more easily diversify now.

Subject: You are an absolute.... From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 15:50:49 (EST) Email Address: Not Provided Message: stalwart! It will be interesting if you begin to change your mind over time. Hey, maybe somehow we get through this economic minefield - the Chinese begin to shop at some store which sells many American goods or we develop enough products which consumers in emerging economies must have. I just don't see how we can live off all this borrowing and our housing market for many more years. You must believe we can, however.

Subject: Being Realistic From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 16:14:45 (EST) Email Address: Not Provided Message: Though I do wish economic policy were otherwise, I have been hearing about the dread of debt year after year after year, and I am sure not going to wait for debt to finally emerge as an investing problem. Rather I will invest cautiously and happily, for there are fine ways to do so. I do wish professional bears would offer more useable advice, but where? So, we learn. I try to be a realist.

Subject: Bill Gross From: David E.. To: Terri Date Posted: Sat, Feb 26, 2005 at 20:12:07 (EST) Email Address: Not Provided Message: Bill Gross's column this month covers every investor's dilemna. The possibility that Japan and China will stop buying treasuries is the Sword of Damocle's over our heads. Everything will be great until the sword drops. But remember, in 1996 Greenspan talked about Irrational Exuberance. That was 9 years ago - and no real pain yet. There is a possibility that the bubble won't burst. You have to decide where to place yourself on the continum of risk. Balance the risk you will miss out on capital gains against the risk of suffering capital losses.

Subject: Crying wolf........ From: Pete Weis To: Terri Date Posted: Sat, Feb 26, 2005 at 16:26:00 (EST) Email Address: Not Provided Message: gets the inevitable result.

Subject: Caution From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 16:45:18 (EST) Email Address: Not Provided Message: There is ample reason for caution, but then we can be cautious. Look to Japan and we can take heart at how the economy has held up since 1990, no matter the endless policy mistakes. Not a pleasing example, but the Japanese are living through this period of anemic growth quite nicely. I would have it otherwise, but it is comforting. We can learn from the Japanese. I wish Paul Krugman would write more on Japan.

Subject: Politician tells economist to...... From: Pete Weis To: All Date Posted: Sat, Feb 26, 2005 at 12:07:23 (EST) Email Address: Not Provided Message: mind his P's & Q's. Its very comforting to know that we have such level headed and knowledgeable politicians in this world to counter these 'alarmist' economists. Australian PM rejects as alarmist warning that US deficits risk crash Thu Feb 24, 7:44 PM ET SYDNEY (AFP) - Australian Prime Minister John Howard dismissed as 'alarmist' a warning by the government's chief economic adviser that the United States was heading for a financial crash that could ravage the global economy. Secretary to the Treasury Ken Henry said Thursday the United States' current account and budget deficits were creating imbalances in savings and investment that could lead to a sharp fall in the US dollar and a bond market sell-off. Addressing a private meeting of Asian treasurers in Sydney, Henry likened a flood of money pouring into the United States to support its twin deficits to the stockmarket's dotcom bubble of the late 1990s, saying it could push up US and world interest rates. It was 'worryingly reminiscent of Federal Reserve (news - web sites) chairman Alan Greenspan (news - web sites)'s warning in 1996 of irrational exuberance in US stocks,' Henry said. He said it would damage US economic growth, cutting Chinese exports of manufactured products to US markets and threaten the world economy, including the boom in Australian mineral exports to China. But Howard said any talk of a world economic crash was alarmist. 'There are a lot of people who think the American budget deficit is too high,' he told a Melbourne radio station. 'I certainly would like to see the American budget deficit reduced ... but it's too alarmist to talk about a crash.' He said the outlook presented to the cabinet this week by Reserve Bank governor Ian MacFarlane was of 'pretty strong world growth' and Australia's budget was protected by the general strength of the economy and because the government ran budget surpluses. The International Monetary Fund (news - web sites) (IMF (news - web sites)), which is responsible for the stability of the global economy, has also warned that a current account deficit like that of the United States could not be sustained indefinitely. IMF managing director Rodrigo Rato told the Foreign Policy Association in New York Wednesday that while current account deficits were not in themselves necessarily undesirable, 'What is undesirable, however, is an unsustainable deficit.'

Subject: If it does get worse? From: johnny5 To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 12:15:28 (EST) Email Address: johnny5@yahoo.com Message: I-bonds? Bank CD's? Low expense ratio bear funds? More XOM? Where do you go Pete? More vanguard precious metals? Where is Pete and family gonna go to escape the bear chasing him in the forest? Johnny5 is in ibonds (can only get 30K a year) and some dividend paying dow's and adding xom but thinking about getting into some short term cd's at countrywide.

Subject: Re: If it does get worse? From: Pete Weis To: johnny5 Date Posted: Sat, Feb 26, 2005 at 16:24:30 (EST) Email Address: Not Provided Message: I'm not an investment guru. I'm invested in a way which benefits from a falling dollar - some of it more speculative, but most of it very conservative. A well managed fund which has performed rather well over the last 5 years - through stock market bust and dollar tribulations is PERMANENT PORTFOLIO. TEMPLETON GLOBAL INCOME FUND and PRUDENT BEAR GLOBAL INCOME FUND are conservative hedges against dollar droppage. I invest in precious metals funds such as Vanguard's and Tocqueville and have invested in a junior called Novagold since before it was sold on the AMEX - these are speculative and no one should invest in precious metals if they can not deal with the volatility. My wife and I have invested in oil companies for many years and are probably overweight in oil - I believe long term (the next 10 years) they will likely have higher and higher profits although they could suffer setbacks in a broad market downturn and a recession (they'll weather it better). Commodity funds such as PIMCO's have high fees but have been well worth it. State Street Natural Resource fund has been a good investment. These are a few, but anyone who takes investment advice from me and doesn't do the research themselves, takes the responsibility of any losses upon themselves.

Subject: Benchmarks From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 17:37:43 (EST) Email Address: Not Provided Message: Well done. Remember you can benchmark against the Vanguard-MSCI Indexes I post. http://flagship2.vanguard.com/VGApp/hnw/FundsVIPERByName http://www.msci.com/us/indexperf/index.html Sector Indexes 12/31/04 - 2/25/05 Energy 21.6 Financials -2.5 Health Care 1.1 Info Tech -5.1 Materials 5.9 REITs -5.1 Telecoms -3.6 Utilities 4.3

Subject: Women's Voices in Rwanda From: Emma To: All Date Posted: Sat, Feb 26, 2005 at 11:21:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/26/international/africa/26rwanda.html?pagewanted=all&position= Women's Voices Rise as Rwanda Reinvents Itself By MARC LACEY KIGALI, Rwanda - The most remarkable thing about Rwanda's Parliament is not the war-damaged building that houses it, with its bullet holes and huge artillery gashes still visible a decade after the end of the fighting. It is inside the hilltop structure, from the spectator seats of the lower house, that one sees a most unusual sight for this part of the world: mixed in with all the dark-suited male legislators are many, many women - a greater percentage than in any other parliamentary body in the world. A decade after a killing frenzy left this tiny Central Africa country in ruins, Rwanda is reinventing itself in some surprising ways. Women make up 48.8 percent of seats in the lower house of Parliament, a higher percentage than in the legislative bodies in countries like Sweden, Denmark, the Netherlands and Norway, known for their progressive policies. The rise of women stems in part from government initiatives aimed at propelling them to the upper ranks of politics. But their numbers do not necessarily add up to influence. They are more a reflection of the demographics and disillusionment spawned by the killing spree that left 800,000 or more people dead, though some lawmakers are trying to use their new place in government to enhance the lot of women in what remains a deeply patriarchal land. 'Before the genocide, women always figured their husbands would take care of them,' said Aurea Kayiganwa, the coordinator of Avega, a national organization representing Rwanda's many war widows. 'But the genocide changed all that. It forced women to get active, to take care of themselves. So many of the men were gone.' At the end of the ethnic warfare of the 1990's, women greatly outnumbered men - some estimate the ratio as 7 to 1 - a result of the wanton killing of so many men and the escape of so many others involved in the carnage. During the rebuilding of the country, then, women's anguished voices were difficult not to hear, and they became what was seen as a powerful and credible force for reconciliation. 'I used to see politics as something bad,' said Athanasie Gahondogo, a member of Parliament and executive secretary of the Forum for Rwandan Women Parliamentarians. 'It's what caused our problems and made me a refugee for so long. But now I want to have a seat at the table.' Women were a tiny percentage of those jailed for taking part in the strife between the Tutsi, who make up about 15 percent of the population, and the Hutu, who represent nearly all of the rest. One study put the portion of women involved at just 2.3 percent. A minister of family and women's affairs in the old government, Pauline Nyiramasuhukon, is on trial on genocide charges at the International Criminal Tribunal in Arusha, Tanzania, but the heinous charges attributed to her, including inciting others to rape Tutsi women, are considered by many here to be an aberration when it comes to women. 'There's a widespread perception in Rwanda that women are better at reconciliation and forgiveness,' said Elizabeth Powley, who has studied Rwandan women's political rise for Women Waging Peace, an organization based in Cambridge, Mass. 'Giving them such prominence is partly an effort at conflict prevention.' During the drafting of the country's new postwar Constitution, 30 percent of the seats in the two house of Parliament were designated for women. But an unexpected thing happened in October 2003 when voters went to the polls to elect a Parliament for the first time since the war. They chose even more women than many male politicians expected. 'Some men even complained that women were taking some of the 'men' seats,' said Donnah Kamashazi, a representative in Rwanda for the United Nations Development Fund for Women. Six of the 20 seats in the Senate are held by women, meeting the 30 percent set aside. But in the lower house, which has 80 seats, women won 39, 15 more than the number reserved for them. Taken together, women make up 45 percent of the two chambers, just below the 45.3 percent in Sweden's single-chamber Parliament. The political representation of Rwandan women is not limited to the legislative arena. There is a female chief justice of the Supreme Court, several female cabinet members, a female head of the influential National Unity and Reconciliation Commission and a female deputy police chief, to name but a few of the prominent women in Rwanda's political world. All that said, women continue to suffer profoundly in today's Rwanda. 'I try to forget what happened in 1994,' said one of the suffering ones, Cécille Mukampabuka, 64, whose leg was shattered and who lost much of her family back then. 'I would go mad if I didn't try to forget. But I can't ever forget. It's not over yet for me. I'm still suffering.' Rwanda remains a male-dominated land, far more than the gendersensitive numbers would suggest. Patriarchal traditions remain strong in the home, where experts say women continue to suffer from spousal abuse and where the notion that the man is the lord of the manor thrives. A female senator disclosed to colleagues recently that she still deferred to her husband during official functions in her home so as not to question his supremacy there. And the uppermost reaches of government remain the preserves of men. In Rwanda, President Paul Kagame, the former rebel leader whose forces quelled the mass killing of Tutsi and moderate Hutu in 1994, holds a firm grip on power, and loyalty to him remains a prerequisite for political survival, no matter one's sex. Criticism of any aspect of governing in Rwanda, including the country's promotion of women, is done at one's own risk. Recently, when the head of a women's organization questioned the effectiveness of the country's female legislators in solving women's problems and likened them to flowers, which look good but do little else, she was condemned and threatened. Shortly afterward, she fled the country. 'It was bad research,' complained Odette Nyiramirimo, an influential senator and former cabinet minister. 'She was calling the women stupid. She used the word flower to describe them. I think she was wrong.' Ms. Nyiramirimo and other women in politics here acknowledge that Parliament does not play an overly confrontation role with the executive branch, an outgrowth, they say, of the divisive politics of the country's past. Only a handful of pieces of legislation have originated in Parliament in recent years, for instance, and little if anything that Mr. Kagame suggests is rejected, or even substantially altered, before adoption. Women also agree that it has taken some time for the female legislators to get their feet wet in politics. During a recent afternoon of political debate, it was clear that the proceedings were being dominated by men. But women are making inroads. Legislation passed in 1999, before the current influx of women, liberalized the rules restricting inheritance for women, which were a major force in keeping women poor. Penalties for child rapists have been toughened, an outgrowth of the brutal treatment that women and girls suffered in 1994. 'Men are watching us,' Ms. Nyiramirimo said. 'They wonder if we'll rise up to a higher level. We're learning fast, because we have to. We say to each other that we can't be as good as the men - we have to be better.' Ms. Nyiramirimo said the true test of women's success would be how much they changed the lives of rural women, those who do not tool around the capital in chauffeur-driven vehicles and do not spend their time debating the issues of the day. 'Women in leadership are doing the little they can, but the problems are as big as the sea,' said Mrs. Kamashazi of the United Nations Development Fund for Women. 'Sometimes you just say, 'Oh, my goodness.' ' Rwanda remains a desperately poor country, where social indicators like life expectancy, child mortality and literacy lag significantly behind most of the world. Much of the day-to-day toil falls squarely on the shoulders of the nation's war-weary women. 'I grew up in a rural area, and every morning before school I had to get up early and fetch water at the river,' Ms. Nyiramirimo recalled. 'It was so painful to balance it on your head. Every time I go to my village I see girls and women still doing it.' One initiative she hopes to push her colleagues to adopt is a program to import donkeys, which are common in other parts of Africa but rather rare here. They would be bred and then distributed to villages to help relieve the loads women must bear. Talk of putting 1994 in the past is difficult for many women across Rwanda, who find themselves poor and alone, or who suffer from AIDS contracted during a violent rape then, or who are now raising many children who are not their own but who were orphaned in the killing spree. One of them is Winfred Mukagirhana, 46, who was raped repeatedly in 1994 and like so many other Rwandan women is now dying of AIDS. She lost her husband and four of her five children in 1994. Her lone surviving boy, who was 12 back then, is now an emotionally disturbed young man who cannot get the brutal attacks that he witnessed out of his head. 'What can the government do for me?' she asked, saying she could not feel much satisfaction from the statistics on women's progress that have put Rwanda so high compared with other countries in the world. 'My life is over. I'm almost dead.'

Subject: Re: Women's Voices in Rwanda From: johnny5 To: Emma Date Posted: Sat, Feb 26, 2005 at 12:30:09 (EST) Email Address: johnny5@yahoo.com Message: So sad, she has lost all hope, maybe we will invent a cure for her disease and give her a new lease on life.

Subject: Re: Women's Voices in Rwanda From: Emma To: johnny5 Date Posted: Sat, Feb 26, 2005 at 17:54:45 (EST) Email Address: Not Provided Message: Thank you.

Subject: Building contractors, electricians,... From: Pete Weis To: All Date Posted: Sat, Feb 26, 2005 at 11:18:16 (EST) Email Address: Not Provided Message: plumbers, carpenters, mortgage brokers, real estate agents, appraisors, residential insurance brokers, etc. still doing well. They, along with Home Depot, have become the heart of our economy: washingtonpost.com Foreign Investment's Flip Side U.S. Trade Deficit Swells Along With Consumption, Debt By Paul Blustein Washington Post Staff Writer Friday, February 25, 2005; Page A01 Every other night or so, the calls start pouring in from Asia to the homes of Peter Leonard and several traders he supervises at Nomura Securities in New York, jolting them awake sometimes as often as five times a night. The calls come from places such as Tokyo, Shanghai, Hong Kong and Singapore, where investors want to buy U.S. mortgage-backed securities, which are essentially giant packages of mortgages on thousands of American homes. Such sleep disturbances have roughly doubled in the past year, according to Leonard, reflecting the sizzling demand among Asian money managers for a piece of the U.S. mortgage market. The interrupted slumber of Nomura's New York mortgage traders is one small facet of the rapidly rising flow of foreign money into U.S. financial markets. This torrent of capital from overseas has become indispensable fuel for the U.S. economic engine, helping to keep interest rates low. But the influx of capital has an ominous flip side -- the ballooning U.S. trade deficit, which soared 24 percent in 2004, to $617.7 billion. The dollars spent by Americans on Japanese cars, Chinese televisions and other imported goods end up in the hands of foreigners, who plow them into U.S. Treasury bonds and other securities like the ones sold by Leonard and his fellow traders. Therein lies a serious worry for many economists: As the deficit mounts, so does America's overall indebtedness to foreigners, which now totals about $3 trillion. That would be less troubling if the money streaming in from overseas were helping to finance a boom in productive assets such as factories and machinery. But to the contrary, economic data show historic highs in the proportion of U.S. spending on consumption and housing. Not only is the United States piling up debt, it is doing so while consuming at record levels. 'It's like, 'I'm going to Bermuda with the credit I'm racking up on my credit card,' rather than, 'I'm going to school and putting my school books on my credit card,' ' said Catherine L. Mann, a scholar at the Institute for International Economics. That dark perspective is at odds with the position often taken by Bush administration officials, among others, about the trade deficit (or current account deficit, as its broadest measure is called). The gap, according to the administration, should be viewed in a more positive than negative light, given the eagerness with which foreigners supply funds to the United States. As Treasury Secretary John W. Snow put it in an op-ed piece in the Financial Times a few months ago: 'The deficit reflects foremost the strengths of the U.S. economy -- high productivity, strong U.S. growth relative to growth abroad, and the relative attraction of investing in our robust, dynamic economy, which has the deepest and most resilient capital markets in the world.' America's attraction for foreign capital can be readily discerned in the streets of Washington, where a number of buildings have been sold to foreigners in recent months. A group funded by Middle Eastern investors recently bought 901 F St. NW for $56 million, German money was behind the purchase of 2100 M St. NW for $95 million, and other foreign investors bought a portfolio of properties, including 5225 Wisconsin Ave. NW, for a sum in the $200 million range, according to Bill Collins of Cassidy & Pinkard, a real estate services firm involved in some of the transactions. A survey of global real estate investors last year showed that the United States continues to rank as the No. 1 country for 'stable and secure' property investments, with Washington as foreign investors' top city. But the administration's critics see plenty of reason to be uneasy about the trade deficit, which is approaching 6 percent of gross domestic product as measured by the current account, the highest percentage of any major industrial country in modern times. 'There's always the question when you look at a current account deficit -- is it a sign of strength, because capital is pouring into your country, or is it a sign of concern?' Lawrence H. Summers, Snow's predecessor during the Clinton administration, told a panel at the World Economic Forum in Davos, Switzerland, last month. 'If you look behind the 6 percent of GDP deficit, there's a lot to make you worry,' because foreign money 'is financing consumption, not investment' in plants and equipment. Furthermore, he added, much of the investment by businesses in the United States is going into real estate, which does not generate the production of goods for export that are needed to help shrink the trade gap. At some point, he warned, sentiment among foreign investors could turn against America's deteriorating fundamentals, triggering a sharp sell-off in U.S. stocks and bonds that would threaten to throw the economy's expansion into reverse. 'Will those risks ever come home to roost? One can't predict with great confidence,' said Summers, who is now president of Harvard University. 'Will they come home very soon? Probably not. If you keep taking them, will they eventually catch up with us? I worry that they will.' An analysis by economists at Goldman, Sachs provides data to bolster Summers's point: Consumption and spending on residential buildings are a much larger share of the U.S. economy 'than has historically been the case,' the firm noted in a report to clients last month. Taken together, spending on consumer goods and housing has totaled nearly 76 percent of GDP in the past couple of years, compared with an average of about 69 percent of GDP over the past half-century. Given that the trade deficit is also at an all-time high, 'these imbalances place the economy on a path that is ultimately unsustainable,' the report said. Among the factors helping to spur spending on housing is the same factor causing sleep deprivation among the Nomura traders -- the surge in demand from Asia for U.S. mortgage-backed securities, which has been led by China's central bank. As Asians buy these packages of mortgages from U.S. financial institutions, they effectively add to the pool of capital available for Americans to finance their homes. 'If you think about it, there are a lot of homeowners who are having money lent to them by Beijing,' said Steven Abrahams, a senior managing director at Bear, Stearns & Co. who specializes in the mortgage market. 'These are big, complex markets, but the involvement of the non-U.S. investor in the mortgage market has certainly helped keep mortgage rates lower than they would be without their presence. It means that American homeowners end up paying a little less to own a home.' That is no cause for worry, maintained Arthur B. Laffer, one of the gurus of the supply-side economics movement. 'You would clearly rather have capital lined up on our borders trying to get into our country than trying to get out,' Laffer wrote in an article on the Wall Street Journal's editorial page last month. 'Growth countries, like growth companies, borrow money, and the U.S. is the only growth country of all the developed countries. As a result, we're a capital magnet. . . . That's why we have such a large trade deficit.' But other economists argue that it all depends on how the influx of capital is used. The large trade gap the United States ran in the late 1990s posed relatively little concern because the money being borrowed from abroad was helping to fund a major surge in investment by business, said Nouriel Roubini, an economist at New York University. In 1999 and 2000, spending on buildings, structures and equipment -- the portion not spent on residential housing -- was about 13.5 percent of GDP. By contrast, in 2002 through 2004, that figure fell to about 10.25 percent of GDP. Also crucial, Roubini and others contend, is the type of capital the country is attracting. Direct investment by foreigners in U.S. companies and operations -- the building of auto plants in the South, for example, or the takeover of Chrysler Corp. by Daimler-Benz AG -- has dropped precipitously. In 1999 and 2000, foreign direct investment averaged about $300 billion annually; in 2003, it shriveled to about one-tenth that amount, and in 2004, it rebounded only to $91 billion in the first three quarters. Replacing much of the private foreign capital during the past few years has been the purchase of hundreds of billions of dollars in U.S. Treasury bonds by foreign central banks, especially Japan's and China's. Their buying of Treasurys has been motivated in large part by financial operations aimed at keeping their currencies from rising, thereby ensuring that their nations' exports remain competitive. 'Far from saying the external deficit is a sign of strength, given that it is going primarily to finance consumption, it is primarily a sign of weakness,' said George Magnus, chief economist with UBS Investment Research in London. 'And given that roughly half of the financing has come from foreign central banks, it's a classic sign of weakness.' Administration officials counter that the data for the past few months suggest that all these worrisome factors are starting to create a trend in a healthier direction. 'Investment growth has been quite strong in the U.S. over the past year,' said Kristin J. Forbes, a member of the Council of Economic Advisers, noting that although business spending on plants and equipment still isn't where it was in the late 1990s, the previous period was inflated somewhat by the technology bubble. As for capital inflows, she added, the most recent figures show that 'over two-thirds of the inflows have come through private purchases, not official sources like central banks.' Economists like Magnus remain unimpressed. 'A lot of people think this is courting some sort of financial crisis at some point,' he said. 'When that will happen, of course, is hard to say.'

Subject: Re: Building contractors, electricians,... From: Terri To: Pete Weis Date Posted: Sat, Feb 26, 2005 at 11:37:06 (EST) Email Address: Not Provided Message: A useful article. Real estate, commercial and residential, have been the ultimate big ticket items for this economy. Lowering interest rates has a different effect on different industries, and is especially effective for real estate. So we have a real estate boom that kept us from a deep and long recession and is helping the recovery. Since fiscal policy has only been marginally stimulative the Fed has had little choice in interest rate policy. Hopefully, if price movements have been too severe as many argue, the gradual Fed tightening will calm the real estate market but not lead to a recession.

Subject: Conservative Investing From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 10:15:08 (EST) Email Address: Not Provided Message: There are bull markets and bear markets, but the direction of the American stock market as a while was gradually higher through a difficult century. Every stock market in a developed country has risen over 60 years. The most serious problem is currently found in Japan, for here is a bear market that has been 15 years in the making. Japan however is the exception and there is no reason to believe any other developed market will prove remotely as difficult. So, the general investment response should be to be bullish. There are times for increased conservatism, but a conservative portfolio balance is easily obtained between stocks and bonds. Professional or skilled investors may well try hedging, but using a bear fund seems costly and a way to insure losses over time.

Subject: Beautiful Minds From: johnny5 To: Terri Date Posted: Sat, Feb 26, 2005 at 11:59:01 (EST) Email Address: johnny5@yahoo.com Message: I think many agree that the secular bear is coming - when he will get here is anyone's guess - bear funds except for just one or 2 are very expensive and costs matter a lot. http://www.321gold.com/editorials/mauldin/mauldin022605.html Initially, Garber, Dooley and Folkerts-Landau suggested the new system of fixed and quasi-fixed exchange rates would last a generation, until China's agricultural labor surplus was absorbed in a new urban industrial sector. More recently, Peter Garber backed off a bit, but he still maintained that the new Bretton Woods system would last another eight years. Michael Mussa has suggested it will not last another four years. We believe it may have difficulty lasting for another two years. '...we [that is, Roubini and Setser] argue that there is a meaningful risk the Bretton Woods 2 system will unravel before the end of 2006.' Even demographer Mr. Dent predicts a bear in 2009 after dow 40K. http://www.prudentbear.com/funds_pbfund_perform.html Timing the market is often analyzed to be a loser's game - but if you could have ridden the cheaper bear funds on the way down and the vanguard index funds on the way up your returns would allow for much earlier retirement. I was an individual stock picker from 96-2000 - I did well until the end - HAHA - then from dec 2000 til dec 2003 I used this strategy http://www.dogsofthedow.com/dogyrs.htm with an etrade account. I had some problems with etrade, switched over to scottrade and have now mostly been making monthly purchases of exxon and chevron. I don't have to get out at the top Terri, I have been looking at the 6 and 12 month cd's at countrywide and bought i-bonds the past 2 years. I have sustained losses in the past and can't afford large ones anymore. My dad has real estate in south georgia and west florida, in both those towns the big new businesses are home supply stores (home depot, lowes) and car dealers - the new car dealerships being built are kia, honda, nissan, isuzu, hyundai, and subaru - the american car lots look older and run down. The housing renovation market is built out, the asian car market is built out - what are the new big businesses gonna be in these 2 cities - I don't see any. Some of the larger restaurant chains have started to close stores and these cities are where you have a lot of retirees that only eat out and sit home and watch tv. Demographically baby boomers are tied to thier jobs right now - but when thier jobs end - either through recession or retirement - they can leave those freezing climates and come to sunny florida or arizona. Globally retirees can leave unstable political areas or poorer areas and move to the USA where we have all the great malls and shopping. What is so great about our country is exemplified right here in my little city near the beach - wether mexican, asian, latin, canadian, european - within 5 miles I have all these choices in food and products and people and culture - I ate german last week from real germans, scottish the day after from real scots, mexican the next from real mexicans, chinese from the chinaman etc etc - who wants to retire in mexico where you only get one culture and one people and the diversity is very low in most parts of the country and thier legal system is not innocent until proven guilty? Most of the rich baby boomers I talk too tell me thier plans - travel (oil and energy) eat good and have a house in switzerland or ontario or west palm beach or all three and move between them. They will have nice cars, new cellphones, and go to lots of events with all thier new free time. In the trailer park here in florida the poorer retirees have old run down trailers and ride bicycles, they don't eat out at expensive places much and thier biggest bills are AC and Cable after rent. They all play a lot of bingo and take a lot of red yeast rice pills.

Subject: Wal-Mart and Unions In Canada From: Emma To: All Date Posted: Sat, Feb 26, 2005 at 09:24:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/26/business/worldbusiness/26walmarts.html Wal-Mart Told to End Intimidation in Canada By IAN AUSTEN OTTAWA - Wal-Mart Canada was ordered by Quebec's labor relations board on Friday to stop intimidating workers at a store in the midst of an organizing drive. The decision involves three cashiers at a store in the Quebec City suburb of St. Foy and is the second unfair labor practice ruling against Wal-Mart in Quebec since September. Earlier this month, Wal-Mart Canada, a unit of Wal-Mart Stores Inc., announced that it would close a store in Jonquiére, Quebec, where employees had unionized and were trying to negotiate the first collective agreement with the retail giant in North America. The board ordered Wal-Mart to immediately stop 'intimidating and harassing' the cashiers in St. Foy. But it imposed a relatively light penalty: Wal-Mart must post the decision in the store's lunchroom for 30 days. Nevertheless, Jossée Lemieux, president of Local 503 of the United Food and Commercial Workers' Union, said the decision was significant. 'Wal-Mart cannot violate the fundamental rights of its employees without paying any consequences,' Ms. Lemieux said in a statement. Andrew Pelletier, a spokesman for Wal-Mart Canada, which is based in Mississauga, Ontario, said the company took issue with the board's finding that its managers intimidated employees. But Mr. Pelletier added that Wal-Mart would not challenge the ruling. 'We feel the appropriate thing to do is not appeal,' Mr. Pelletier said. 'We want to comply and just move forward in St. Foy.' The labor board found that the three workers experienced varying forms of intimidation. One was taken into an office by the manager and an assistant manager who demanded the names of union sympathizers. Another was threatened with a negative job evaluation if she supported the union drive. In the third case, a manager suggested that the cashier retract a recently signed union card.

Subject: Indonesia and Oil Prices From: Emma To: All Date Posted: Sat, Feb 26, 2005 at 09:20:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/26/business/worldbusiness/26oil.html?pagewanted=all&position= OPEC Member Burdened by High Oil Prices By KEITH BRADSHER and JAD MOUAWAD JAKARTA, Indonesia - What's good for OPEC is no longer good for one of its smallest members and its only representative from Asia. While most oil ministers, from Saudi Arabia to Venezuela to Libya, say high prices are here to stay, one oil minister may be trying to talk prices down. Purnomo Yusgiantoro, the minister of energy and mineral resources for Indonesia, said that a rough consensus had formed among oil ministers from the Organization of the Petroleum Exporting Countries that oil prices were too high. 'It has got to be lower than what we see today, because even OPEC doesn't like to see the high oil price,' Mr. Purnomo said in an interview. That consensus may not be as widely shared as Mr. Purnomo says. There are growing indications that OPEC's larger producers are actually getting more comfortable with higher oil prices. That puts Indonesia in a unique - and increasingly odd - position that reflects how its standing within OPEC has changed as Indonesian oil production declines and domestic consumption grows. For the last two years, Indonesia has not been able to meet its share of production assigned by OPEC, which stands at 1.4 million barrels a day. The country produced an average of 1.1 million barrels a day in 2004, down from 1991's average of 1.6 million barrels a day, according to figures compiled by the United States Energy Information Administration. And while the world's producers struggled last year to meet runaway demand, Indonesia suffered the final infamy for a member of the oil-exporters' club: during the last four months of 2004, the country had to import some oil. Now, the government is considering leaving OPEC. Paradoxically for an oil producer, the high international prices are hurting Indonesia's public finances because the government subsidizes its domestic fuel sales, fixing a lower price at home than on the international market. With rising costs, Mr. Purnomo said that the cabinet planned to announce a 29 percent increase in retail prices for gasoline and diesel fuel on Monday night. The measure, he acknowledged, will be unpopular and is likely to prompt protests. But these concerns are far from the minds of Mr. Purnomo's counterparts within OPEC, who are getting bolder in their public comments about where they think prices are headed. On Thursday, Ali al-Naimi, Saudi Arabia's oil minister, said he thought prices would remain at $40 to $50 a barrel in 2005. His remarks echoed a similar message from the last meeting of OPEC ministers, in January, when many said prices of $50 a barrel were not hurting the world economy. Acknowledging such sentiments, Mr. Purnomo cautioned that OPEC ministers would not necessarily agree to increase production at their next meeting, on March 16 in Isfahan, Iran. International oil demand tends to drop each spring, he said, and OPEC oil ministers will be wary of adjusting supply before seeing how big this year's drop may be. Mr. Purnomo said he personally would like to see a drop in Indonesian crude oil prices by late spring to $35 a barrel, the price assumed in the national budget for calculating the cost of domestic gasoline and diesel subsidies. Indonesian crude trades at a slight discount to the much more heavily traded West Texas Intermediate and Brent crudes. In New York, crude oil futures for April delivery rose 10 cents to $51.49 a barrel. Prices have risen 44 percent in the last year. The increase in retail prices of gasoline and diesel in Indonesia is aimed at cutting the high cost of subsidizing domestic consumption and freeing more oil for export. Gasoline now costs 75 cents a gallon in Indonesia, while diesel costs 68 cents. Last year, the government spent $6.8 billion on subsidies, a seventh of all government spending. Mr. Purnomo's comments, made in a 45-minute interview in his high-ceilinged, elegant receiving room, are nonetheless important both in terms of a rare willingness to speak so publicly about Indonesia's position and his assessment of the consensus among other oil ministers.

Subject: Indonesia and Oil Prices - 1 From: Emma To: Emma Date Posted: Sat, Feb 26, 2005 at 09:20:39 (EST) Email Address: Not Provided Message: Current world oil prices, Mr. Purnomo said, are so high they are starting to feed inflation in industrialized countries, driving up the cost of construction equipment and other capital goods oil exporters need to buy overseas. The Indonesian government announced plans last month for huge spending increases for roads, pipelines and other infrastructure projects, including $11 billion for energy-related projects. OPEC ministers are not likely to adopt a new target range for oil prices, as this is a step that still requires considerable study, he said. OPEC set a price range, or band, of $22 to $28 a barrel in 2000 but abandoned it on Jan. 30 at the meeting in Vienna. A panel of top OPEC officials led by Saudi Arabia is studying whether to introduce a new price range, but this is unlikely to produce any specific action soon, Mr. Purnomo said. 'OPEC now is removing the price band for the time being.' Mr. Purnomo predicted that the increases in fuel prices could result in street demonstrations, but said that the government would not retreat. While government officials have said they would increase prices 30 percent to 40 percent, Mr. Purnomo is the first to specify a day for the announcement and the first minister to specify the amount. He said the 29 percent increase was 'an arithmetic average' of increases for various grades of gasoline and diesel, and declined to give specific increases by refined product. The proceeds from higher prices will be used for schools, hospitals and poverty programs, he said. Prices for kerosene, now at a quarter of world levels here, will not be changed for political reasons, he said. The poor commonly use kerosene for cooking. Mr. Purnomo said he had just received a preliminary report from an international oil company suggesting the discovery of a major new oil field in Indonesia. Declining to say what oil company had made the find or where the field was located, Mr. Purnomo said the new field looked as though it could be similar in size to the large Cepu field in eastern Java that Exxon Mobil wants to develop. Mr. Purnomo said two wells had already struck oil and had found an underground reservoir of oil roughly 300 meters thick, or 1,000 feet. More wells need to be drilled to assess the geographical area that the reservoir underlies, he said. Exxon Mobil estimates that the Cepu field could produce 170,000 barrels a day, which would increase Indonesian oil production by a fifth. Exxon Mobil has been unable to begin production at Cepu for the last three years because of a dispute with the Indonesian government over how to share the revenue from the field. Maman Budiman, the vice president for planning, commercial and public affairs at Exxon Mobil Oil Indonesia, said in an interview here on Wednesday that the company asked the newly elected government of President Susilo Bambang Yudhoyono in December to open negotiations after a preliminary deal fell through last summer, but had received no reply. Mr. Purnomo said that he personally wanted to see Cepu go into production as quickly as possible, but that the issue was up to Pertamina, the government-owned oil company, and the ministry of state-owned enterprises. Mr. Purnomo made headlines on Feb. 6 when he told a parliamentary committee that he would form a team to review whether Indonesia should pull out of OPEC, a move advocated by populists here so as to save Indonesia's nearly $2 million in annual dues. OPEC officials in Vienna declined this week to comment on Indonesia's review. While Mr. Purnomo indicated a reluctance to pull out of OPEC, he noted that the final decision would have to be made by the Indonesian cabinet. But in Friday's interview, the first he has granted to domestic or international media since that statement, Mr. Purnomo said that Indonesia's Ministry of Foreign Affairs opposed any withdrawal because it would hurt relations with Indonesian allies in the Mideast. Some in the government also feel that as one of the oldest members of OPEC, Indonesia should be wary of withdrawing. Perhaps most important, it is not clear that Indonesia will lose its status as an oil exporter, Mr. Purnomo said. Recent discoveries should add 300,000 barrels a day to Indonesia's annual production over the next several years, offsetting declines of 16 percent a year from existing Indonesian oil fields and permitting the country to maintain overall production above a million barrels a day in the coming years, he said. By comparison, output dipped to 950,000 barrels a day in December, a level Mr. Purnomo ascribed to some fields temporarily closing or reducing output for a variety of reasons.

Subject: Conservative Investing From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 07:25:19 (EST) Email Address: Not Provided Message: Whether the year will continue positive for stocks and bonds we can not tell. We simply know where we have been. The bull market began in October 2002 and in time it will end, but I have no guess at all as to when it will end. Since the market has been rewarding conservative investors, I prefer to be conservative. But, I have no interest in trying to time the market for I do not know how.

Subject: Stabilty in Markets From: Terri To: All Date Posted: Sat, Feb 26, 2005 at 06:40:09 (EST) Email Address: Not Provided Message: There was a mild decline in stocks and bonds for a day this week, because of concern that the central bank of Korea might sell off American debt. The decline lasted a day, and Korean and other Asian central bankers denied there would be any such sell off. The week ended with almost every prime stock market ahead in domestic currency and dollars for the year. The lone domestic currency exception was Hong Kong which is mildly negative. Japan is negative only in dollars. American stocks turned positive. Long term bond interest rates remain low and the dollar is stronger than when the year began. What is striking is the continued positive stability of international markets.

Subject: Re: Stabilty in Markets From: johnny5 To: Terri Date Posted: Sat, Feb 26, 2005 at 10:39:41 (EST) Email Address: johnny5@yahoo.com Message: They don't have to sell off the debt - just stop buying at ever increasing levels like they have been no? After the depression lots of people didn't have work so they watched a lot of larry, moe and curly. Buffet is ahead of the game if we have a huge deflation - all these currently occupied people are gonna sit home and watch thier comcast cause they have nothing else to do. Plus all the retirees about to stop working will want to watch thier comcast too. http://www.321gold.com/editorials/mauldin/mauldin022605.html 'Thirdly, a Chinese revaluation would have no perceptible impact on the US trade imbalance because Chinese wages are so far below America's that even a 30% or 50% revaluation of the RMB (Renminbi), would not be enough to send labour intensive industries back to the US.

Subject: USA only accounts for 16% global growth From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 20:58:59 (EST) Email Address: johnny5@yahoo.com Message: Is there a bull out there that sees some new holy grail catalyst? Warren Buffet is buying cable - he must see a lot of previously employed people sitting at home on their butt watching the tv. http://www.morganstanley.com/GEFdata/digests/20050225-fri.html ...Courtesy of the dollar’s decline, the US contribution to world GDP growth averaged only 16% over the 2003-04 period — down dramatically from the 98% share recorded over the 1995 to 2005 interval (all calculations expressed at market exchange rates). Will the growth come from the warlords in africa like Carly Fiorina postulated? Will china's space program give us the growth? European car markets? Saudi bio-science? New oil discoveries? What is going to drive the growth now that america has shot it's wad? Simple demographics as dent says taking us to Dow 40K?

Subject: threat to commercial aviation From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 18:34:54 (EST) Email Address: johnny5@yahoo.com Message: Why does denmark need stingers? U.S. Says 'Thousands' of Missiles Missing By ROBERT BURNS, AP An Afghan guerrilla handles a U.S.-made Stinger missile in late 1987 or early 1988. The U.S. has agreements with several countries to destroy shoulder-fired missiles. WASHINGTON (Feb. 25) - It has been known for years that thousands of light and lethal shoulder-fired missiles are in black-market circulation. What is not known is exactly who has them and whether many have fallen into the hands of terrorists or criminals. A worrisome puzzle, it explains why the United States and Russia signed an agreement Thursday to cooperate in destroying surplus Soviet-era SA-7s and other portable anti-aircraft missiles. The smallest of these are durable, relatively cheap and easy to smuggle. The United States also has understandings with several other countries, including Nicaragua, Bosnia, Cambodia and Liberia, for Washington to provide technical assistance or money to destroy anti-aircraft missiles. The State Department estimates that about 1 million shoulder-fired anti-aircraft missiles have been produced worldwide since the 1950s. The number believed to be in the hands of 'nonstate actors,'' such as terrorist groups, is 'in the thousands,'' the department says. 'What's driving this is concern about the threat to commercial aviation,'' said Wade Boese, research director at the private Arms Control Association. A single successful missile attack on a passenger plane could paralyze the airline industry, at enormous economic loss, he said. There has been only one known attempt against a commercial airliner outside of a war zone. In November 2002, two surface-to-air missiles barely missed an Israeli charter airliner taking off from the airport in Mombasa, Kenya, with tourists returning to Israel. Osama bin Laden's al-Qaida network claimed responsibility for the attempt. The U.S.-Russian agreement signed by Secretary of State Condoleezza Rice and Defense Minister Sergei Ivanov calls for sharing information about exports of these missiles to third countries. Of note, Boese said, is the absence of a commitment by either Washington or Moscow to halt the exports. The United States began selling its Stinger shoulder-fired missile to foreign countries in 1982. The CIA secretly transferred an estimated 2,000 to Afghanistan mujahedeen rebels in the mid-1980s, and they were used to down hundreds of Soviet helicopters and transport aircraft. When the war against the Soviets ended in 1989, the CIA began offering to buy back the Stingers for as much as $150,000 apiece. In his book 'Ghost Wars,'' author Steve Coll wrote that as recently as 1996 the CIA estimated there were about 600 Stingers still unaccounted for in Afghanistan. There also are an unknown number of SA-7 and other types of shoulder-fired missiles in the hands of insurgents in Iraq. A study published last year by the Government Accountability Office, the investigative arm of Congress, said the U.S. government's records on exports of shoulder-fired missiles are 'neither complete nor reliable.'' The GAO said the Army and the office within the Pentagon that manages arms transfers have conflicted figures on missile exports. One says 7,551 Stingers have been sold abroad since 1982 and the other puts the figure at 8,331. One says Egypt bought 89; the other says Egypt bought none. The biggest buyer over the period was Taiwan, with more than 2,200, followed by Denmark with 1,140; Japan with between 871 and 1,025, and Italy with as many as 885.

Subject: The Bull Market Continues From: Terri To: All Date Posted: Fri, Feb 25, 2005 at 15:29:41 (EST) Email Address: Not Provided Message: The international bull market continues. Market gains internationally seem suddued because of the strong dollar, but almost every market is positive in local currency and most are positive in dollars. The American market has turned positive as well. Long term bonds continue to hold value. Energy is the leading sector, but materials and utilities and health care are gaining strength. REITs are somewhat weak. Large cap value continues to lead large cap growth.

Subject: Davos - where are the catalysts? From: johnny5 To: Terri Date Posted: Fri, Feb 25, 2005 at 18:20:33 (EST) Email Address: johnny5@yahoo.com Message: Global Savings Disparities in relation to sustained global growth: rtsp://video.c-span.org/15days/e022405_wef.rm 47 minutes into it Stephen Roach gives them some good questions - how do we specifically get the US deficit down without tax increases or spending cuts in the military - Robert Zoellick (US trade representative) didn't seem clear to me. And can europe help global growth and can the ECB do anything to stimulate european domestic demand - Jean-Claude Trichet didn't seem to say much either. Carly Fiorina was in the panel too complaining about too much regulation and too many meetings with legislators, lawyers and accountants - and then later says growth is gonna come from south africa. I don't see the citizens putting down the hoe's and machine guns and beating back the people stealing the shirts off thier backs to get on the internet and chat it up on thier new HP laptop at the pkarchive BBS. She is unemployed at this point :( She said 5 years ago they all had pie in the sky anticipations about growth for at least 10 years. Robert talked about cutting 'all' domestic subsidies and how that relates to europe - but keynes said in his currency union paper that domestic subsidies were good for all domestic consumption needs and you only cut subsidies for the exports I believe. Walter Kielhoz (credit swiss group) kept saying 'pushing on a rope' and no revolution like in technology 10 years ago and making money in the financial industries was going to be very hard from here on out and he doesn't see how the industry will do it and said there is no more catalysts for growth opportunity in the global markets like tech was before - he seemed the realist of the bunch. And then that poor japanese guy head of IBM japan sitting there while everyone said japan was really letting the rest of the world down - I felt sorry for the guy - he needed a stiff saki. http://www.cspan.org/VideoArchives.asp?z1=&PopupMenu_Name=Economy/Fiscal&CatCodePairs=Issue,EF; Programs 1-10 of 70 World Economic Forum Panel on Global Economy from Davos, Switzerland Robert Zoellick, then-U.S. Trade Representative, participates in a discussion of the Global Economy at this year’s World Economic Forum in Davos, Switzerland. Carly Fiorina, former Chair and Chief Executive Officer, Hewlett-Packard Company, and Matthew Winkler, editor-in-chief of Bloomberg USA, also take part. 2/24/2005: DAVOS, SWITZERLAND: 1 hr. 10 min.

Subject: National Index Returns From: Terri To: All Date Posted: Fri, Feb 25, 2005 at 14:32:51 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns [Dollars] 12/31/04 - 2/23/05 Australia 2.9 Canada 0.6 Denmark 3.7 France 1.4 Germany -1.6 Hong Kong -1.9 Ireland 2.8 Japan -3.0 Norway 5.8 Sweden -0.9 Switzerland 0.7 UK 3.1

Subject: Vanguard no longer offering metals? From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 13:39:34 (EST) Email Address: johnny5@yahoo.com Message: Why Terri? What a racket!! They show it online but you can't even buy it - why BOGLE - we TRUSTED you! http://www.siliconinvestor.com/readmsgs.aspx?subjectid=54696&msgnum=24414&batchsize=10&batchtype=Next I would like to present this years 'DOM FOCKER' AWARD (you had to see the movie http://www.meetthefockers.com/index.php ) to the American Century Mutaul fund group. http://www.americancentury.com/index.jsp American Century in their infinite wisdom, overrode the vote of it's shareholders and dissolved their 'Global Natural Resources Fund' 11 months ago and even returned the money in form of a check to it's shareholders. They cited the reason as the fund isn't performing...never mind it was one of the few funds they offer that was even with the Y2K. You can only imagine how it would have performed over the last 11 months. Similar funds are up as much as 60-70% over the same time period. Vanguard closed it's one and only precious metals fund because it was getting too scary for them, and then later I was kicked out because they said my 403b wasn't supposed to have let buy those shares in the first place. It still shows up online as one of the funds I can buy, although if I try, it rejects it. Clowns...

Subject: Vanguard offering metals and materials From: Ari To: johnny5 Date Posted: Fri, Feb 25, 2005 at 15:56:27 (EST) Email Address: Not Provided Message: Vanguard is offering both precious metals and materials funds.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Feb 25, 2005 at 12:06:02 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 2/24/05 S&P Index is -0.7 Large Cap Growth Index is -2.0 Large Cap Value Index is 0.6 Mid Cap Index is 0.1 Small Cap Index is -2.4 Small Cap Value Index is -2.6 Europe Index is 2.1 Pacific Index is -1.3 Energy is 14.1 Health Care is 0.7 REIT Index is -6.8 High Yield Corporate Bond Fund is 0.9 Long Term Corporate Bond Fund is 2.2

Subject: Sector Returns From: Terri To: Terri Date Posted: Fri, Feb 25, 2005 at 12:06:36 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsVIPERByName Sector Indexes 12/31/04 - 2/24/05 Energy 18.8 Financials -3.5 Health Care 0.1 Info Tech -5.8 Materials 4.3 REITs -6.8 Telecoms -4.2 Utilities 2.5

Subject: 2 way street From: johnny5 To: Terri Date Posted: Fri, Feb 25, 2005 at 12:48:34 (EST) Email Address: johnny5@yahoo.com Message: Johhny5 versus Warren Buffet: http://finance.yahoo.com/q/bc?t=3m&s=CMCSA&l=on&z=m&q=l&c=xom Don't forget your bear index funds Terri http://biz.yahoo.com/p/tops/bm.html Why doesn't vanguard offer these yet? Man if I could get a bear fund with vanguard expense ratio's I would cream my pants! http://finance.yahoo.com/q?s=RYAIX This bear fund seems to have the best expense ratio - no loads - no 12b1 fees. YTD Return*: 6.69%

Subject: Free Money floating in the air! From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 09:56:37 (EST) Email Address: johnny5@yahoo.com Message: http://yro.slashdot.org/yro/05/02/25/1256254.shtml?tid=158&tid=126 VISA To Push RFID Credit Cards VISA To Push RFID Credit Cards Posted by Zonk on Friday February 25, @08:46AM from the tossing-your-money-into-the-aether dept. BobPaul writes 'ZDNet is running an article about VISA's plan to incorporate RFID tags into Credit Cards so that 'consumers need only wave credit and debit cards within a few inches of a reader to complete a purchase. And for purchases of less than $25, no signature is required.' VISA claims their system is very secure, stating that 'Each transmission between card and reader has a unique code that cannot be reused even if it is intercepted,' but isn't that very similar to how TI's car RFID system was made?' One of the comments: What protects consumers from fraudulent merchants waving some kind of electronic cash-sucking wand by your back pocket which contains your wallet which contains your RFID Visa card? There's no mention of this in the article at all! It's a standard scam now for an unscrupulous merchant to charge millions of people a small amount of money fraudulently with the hopes that the vast majority won't even notice. Imagine what they will do when all they have to do is walk around a mall waving something at people purse's and backpockets!

Subject: Keynes on currency settlements From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 07:51:05 (EST) Email Address: johnny5@yahoo.com Message: Keynes thoughts on the subject: http://www.eco.utexas.edu/~hmcleave/368keynesoncutable.pdf The idea underlying my proposals for a Currency Union is simple, namely to generalise the essential principle of bank ing, as it is exhibited within any closed system, through the establishment of an International Clearing Bank. This principle is the necessary equality of credits and debits, of assets and liabilities. If no credits can be removed outside the banking system but only transferred within it, the Bank itself can never be in difficulties. It can with safety make what advances it wishes to any of its customers with the assurance that the proceeds can only be transferred to the bank account of another customer. Its problem is solely to see to it that its customers behave themselves and that the advances made to each of them are prudent and advisable from the point of view of its customers as a whole. In only one important respect must an International Bank differ from the model suitable to a national bank within a closed system, namely that much more must be settled by rules and by general principles agreed beforehand and much less by day-to-day discretion. To give confidence in, and understanding of, what is afoot, it is necessary to prescribe beforehand certain definite principles of policy, particularly in regard to the maximum limits of permitted overdraft and the provisions proposed to keep the scale of individual credits and debits within a reasonable amount, so that the system is in stable equilibrium with proper and sufficient measures taken in good time to reverse excessive movements of individual balances in either direction. Many countries, including ourselves, will find a difficulty in paying for their imports, and will need time and resources before they can establish a re-adjustment. The efforts of each of these debtor countries to preserve its own equilibrium, by forcing its exports and by cutting off all imports which are not strictly necessary, will aggravate the problem of all the others. On the other hand, if each feels free from undue pressure, the volume of international exchange will be increased and everyone will find it easier to re-establish equilibrium without injury to the standard of life. Now this can only be accomplished by the countries whoever they may turn out to be, which are for the time being in the creditor position, showing themselves ready to remain so without exercising a pressure towards contraction, pending the establishment of a new equilibrium. There are one or two other ways of effecting this. For example, U.S.A. might redistribute her gold. Or there might be a number of bilateral arrangements having the effect of providing international overdrafts, as for example an agreement by the Federal Reserve Board to accumulate, if necessary, a large sterling balance at the Bank of England. The objection to particular arrangements of this kind is that they are likely to be influenced by extraneous, political reasons and put specific countries into a position of particular obligation towards others; and also that the distribution of the assistance between different countries may not correspond to need and to the actual requirements as they will ultimately develop. It should be much easier, and surely more satisfactory, to persuade the U.S. to enter into a general and collective responsibility, applying to all countries alike, that a country finding itself in a creditor position against the rest o f the world as a whole should enter into an obligation to dispose of this credit balance and not to allow it meanwhile to exercise a contractionist pressure against the world economy and, by repercussion, against the economy of the creditor country itself. This would give us, and all others, the great assistance of multilateral clearing, whereby (for example) we could offset favourable balances arising out of our exports to Europe against unfavourable balances due to the U.S. or South America or elsewhere. I cannot see how we can hope to afford to start up trade with Europe (which will be of vast importance to us) during the relief and reconstruction period on any other terms. It has been suggested that we should mainly depend on the restriction or prohibition of imports as a means of preserving equilibrium in the international balance of payments. When the Bank of England felt that our gold and dollar resources were falling dangerously low, instead of raising the Bank rate to attract foreign funds or restricting domestic credit to cause a deflation of incomes, or depreciating the exchange to stimulate a more favourable balance, the Bank would notify the Board of Trade that another Ł25 million or Ł5o million or Ł 100 million of imports must be cut off. Perhaps this would be the worst method of control of all, since it would have no obvious or direct tendency to reverse the forces which had led up to the dangerous situation and so permit of removal of the restrictions later on. Apart from this, the opposite remedy is surely the right one. If, indeed, we lack the productive capacity to maintain our standard of life, then a reduction in this standard is not avoidable. If our price levels are hopelessly wrong, a change in the rate of exchange is inevitable. But if we possess the productive capacity and the difficulty is the lack of markets as a result of restrictive policies throughout the world, then the remedy lies in expanding opportunities for export by removal of restrictive pressure, not in contracting imports. I believe that there is great force in Prof. Hansen's contention that the problem of surpluses and unwanted exports will largely disappear if active employment and ample purchasing power can be sustained in the main centres of world trade. The proposal differs from the existing state of affairs by putting at least as much pressure of adjustment on the creditor country, as on the debtor. This is an attempt to return to the state of affairs which existed in the nineteenth century when a favourable balance in favour of London and Paris, which were the main creditor centres, immediately produced an expansionist pressure in those markets, but which has been lost since New York succeeded to the position of main creditor, aggravated by the break-down of international borrowing credit and by the flight of loose funds from one depository to another. I did not contemplate that the sanction, proposed in the first version of this scheme, by which creditor balances in excess of a stipulated amount were confiscated, would ever come into force in practice. For obviously it would always be t6 the interest of the country concerned to find some way of dealing with the surplus other than that. The object of this and of further provisions was to make sure that some other way could be found. The main point is that the creditor should not be allowed to remain passive. For if he is, an impossible task is laid on the debtor country, which is for that very reason in the weaker position, so that the evils with which we are familiar are very likely to ensue. By making possible rules as to when changes in the rates of exchange of a national currency are allowed or prescribed, it much increases the efficacy of small changes such as 5 or io per cent. In the first place, it makes the creditor contribute to the change by appreciating his currency, which countries, left to themselves, will very seldom do. In the second place, it protects any permitted change from being neutralised by an unjustified competitive depreciation elsewhere. Thus the new system should make possible undertakings not to use protective expedients except when they are required. There should be a general agreement amongst members of the Union to the following effect against every version of discriminatory action: (1) No tariffs or preferences* exceeding 25 per cent ad valorem; * The formula I prefer for preferences is that they are permitted up to a figure of 25 per cent between members of political and geographical groups, (2) No export subsidies either direct or by supplying exporting manufacturers with raw material etc. at prices below the prices at which they are available (apart from differences in cost of transport) for export; (3) No import quotas or prohibitions; (4) No barter agreements; Keynes’ 2nd Draft on Int’l Currency Union 6 (5) No restrictions on the disposal of receipts arising out of current trade. This forswearing of discriminatory policies would apply to all states subject- (1) to their being allowed three (or five) years in which to bring the new policy into full effect; (2) to their being allowed, if they wish to do so, to fall back on the forbidden protective devices in the event of their central bank becoming a Deficiency Bank. It should be noted that no rule is proposed against subsidies in favour of domestic producers for domestic consumption, with a countervailing levy when such subsidised goods are exported. This is a necessary safety-valve which provides for protective expedients called for on political, social and industrial grounds. Such subsidies would become the approved way of giving purely domestic protection to an industry which for special reasons ought to be maintained for domestic purposes only. But control of this kind will be much harder to work, especially in the absence of a postal censorship, by unilateral action than as part of a uniform multilateral agreement by which movements of capital can be controlled at both ends. We should, therefore, urge the United States and all other members of the Currency Union to adopt machinery similar to that which we have now gone a long way towards perfecting in this country. This does not mean that the era of international investment should now be brought to an end. On the contrary, the system proposed should greatly facilitate the restoration of international credit for loan purposes in ways to be discussed below. The object, and it is a vital object, is to have a means of distinguishing (a) between movements of floating funds and genuine new investment for developing the world's resources; and (b) between movements, which will help to maintain equilibrium, from surplus countries, to deficiency countries and speculative movements or flights out of deficiency countries or from one surplus country to another. There is no country which can, in future, safely allow the flight of funds for political reasons or to evade domestic taxation or in anticipation of the owner turning refugee. Equally, there is no country that can safely receive fugitive funds which cannot safely be used for fixed investment and might turn it into a deficiency country against its will and contrary to the real facts. The following general principles are, therefore, essential: (i) All remittances must be canalised through central banks and the resulting balances cleared by them through the International Clearing Bank. (ii) No remittances in respect of the outstanding capital of existing or future assets owned by non-residents shall be made except under licence of both the central banks concerned. (iii) The ownership of such assets may be freely shifted between non-residents, and non-residents may exchange one investment for another within a country. (iv) The net current income of such assets may be freely remitted together with an annual amortisation of capital not exceeding (say) 5 per cent. (v) The offer of investments or assets to non-residents to be newly acquired by them shall require the approval of both the central banks concerned. (vi) Floating and liquid funds, apart from those required to finance current trade through bills and acceptances and in connection with current banking business approved by the central bank concerned (much as in this country under present conditions) shall only be lent and borrowed between central banks. These rules would not preclude the issue of general licences of indefinite duration by agreement between the central banks concerned. Moreover, membership would be thus established as a privilege only open to those who conformed to certain general principles and standards of international economic conduct. I conceive of the management and the effective voting power as being permanently Anglo-American. Thus it would be preferable, if it were possible, that the members should, in some cases at least, be groups of countries rather than separate units. But this provision is not essential to the scheme. We might start with mixed modes, and it might sometimes be better to begin with separate units with the intention of encouraging subsequent combination rather than to force premature inter-arrangements for which those concerned were not ready. For we have to face the fact that the pooling of balances within a limited area as against the rest of the world represents a high degree of mutual trust and dependence and might be difficult without a single central bank and uniform currency and banking within the whole group. In the second place a greater surrender of sovereign rights must be in order in the post-war world than has been accepted hitherto. The arrangements proposed could be described as a measure of financial disarmament. They are very mild in comparison with the measures of military disarmament which, it is to be hoped, the world will be asked to accept. (3) The Bank might set up an account in favour of the supranational policing body charged with the duty of preserving the peace and maintaining international order. If any country were to infringe its properly authorised orders, the policing body might be entitled to request the Governors of the Clearing Bank to hold the Clearing Account of the central bank of the delinquent country to its order and permit no further transactions on the account except by its authority. This would provide an excellent machinery for enforcing a financial blockade. (4) The Bank might set up an account in favour of international bodies charged with the management of a Commodity Control, and might finance stocks of commodities held by such bodies, allowing them overdraft facilities on their accounts up to an agreed maximum. By this means the financial problem of holding pools and `ever-normal' granaries would be satisfactorily solved. B.2. A central bank whose Clearing Account has been in debit for more than a year by an amount exceeding a quarter of its index-quota shall be designated a Deficiency Bank. A Deficiency Bank shall be allowed to reduce the value of its national currency in terms of grammor by an amount not exceeding 5 per cent within any year. A Deficiency Bank may borrow from the Clearing Account of a Surplus Bank (see below) .on any terms which may be mutually agreed. B.3. A central bank whose Clearing Account has been in debit for more than a year by an amount exceeding a half of its index-quota shall be designated a Supervised Bank. A Supervised Bank may be required by the Governors of the Clearing Bank Keynes’ 2nd Draft on Int’l Currency Union 13 to reduce the grammor value of its national currency by amounts not exceeding 5 per cent in any year; to hand over in reduction of its deficiency any free gold in the possession of itself or its Government; and to prohibit outward capital transactions except with the permission of the Governors, who may also disallow at their discretion any other requirement from it for foreign exchange. A Supervised Bank may be requested by the Governors to withdraw from the system in which event its debit balance shall be transferred to the Reserve Fund (see below) of the Clearing Bank. B.4. A Central Bank whose Clearing Account has been in credit for more than a year by an amount exceeding a quarter of its index-quota shall be designated a Surplus Bank. A Surplus Bank may increase the exchange value of its national currency by an amount not exceeding 5 per cent within any year. A Surplus Bank shall grant a general licence for the withdrawal of foreign-owned balances and investments within its jurisdiction. A Surplus Bank may make advances to the Clearing Account of a Deficiency Bank. B.5. A central bank whose Clearing Account has been in credit for more than a year by an amount exceeding a half of its index-quota shall be required by the Governors of the Clearing Bank to increase the exchange value of its national currency by 5 per cent, and the requirement shall be repeated after any subsequent year in which the average credit balance has increased by a further 10 per cent of its index-quota since the previous upward adjustment. Would keynes think today we have kept our credits and debits within a reasonable amount?

Subject: Waking up homeless in America From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 07:34:05 (EST) Email Address: johnny5@yahoo.com Message: Foreign Investment's Flip Side U.S. Trade Deficit Swells Along With Consumption, Debt By Paul Blustein Washington Post Staff Writer Friday, February 25, 2005; Page A01 Every other night or so, the calls start pouring in from Asia to the homes of Peter Leonard and several traders he supervises at Nomura Securities in New York, jolting them awake sometimes as often as five times a night. The calls come from places such as Tokyo, Shanghai, Hong Kong and Singapore, where investors want to buy U.S. mortgage-backed securities, which are essentially giant packages of mortgages on thousands of American homes. Such sleep disturbances have roughly doubled in the past year, according to Leonard, reflecting the sizzling demand among Asian money managers for a piece of the U.S. mortgage market. The interrupted slumber of Nomura's New York mortgage traders is one small facet of the rapidly rising flow of foreign money into U.S. financial markets. This torrent of capital from overseas has become indispensable fuel for the U.S. economic engine, helping to keep interest rates low. But the influx of capital has an ominous flip side -- the ballooning U.S. trade deficit, which soared 24 percent in 2004, to $617.7 billion. The dollars spent by Americans on Japanese cars, Chinese televisions and other imported goods end up in the hands of foreigners, who plow them into U.S. Treasury bonds and other securities like the ones sold by Leonard and his fellow traders. http://www.washingtonpost.com/wp-dyn/articles/A51650-2005Feb24.html http://www.321gold.com/editorials/daughty/daughty022305.html Thomson Financial, an information firm in New York, says that 'A boom in foreign purchases of US firms, now seen as a bargain, may have started. Last year, 1,126 US businesses were sold to foreign buyers, up from 1,032 in 2003 and 980 in 2002.' This is how Thomas Jefferson came to say something about how fiat money will ruin us and that we will, and I am quoting from memory 'Wake up homeless on the continent their forefathers gave them.' They will have strong money and we will have weak money, and thus they can buy us, lock, stock and barrel. ...Ron Paul asked Greenspan whether a gold standard would prevent the government from amassing such huge debts. He replied, 'I think we have been remarkably successful, in my judgment mimicking much of what the gold standard does I think in that context so far we have maintained a stable monetary system.' ...Then he REALLY goes bananas when he says, 'I do not think that you could claim that the central bank is facilitating the expansion of expenditures in this country' Hahahaha! I am laughing so hard in contempt and rage I am spitting up blood! What a lying moron!

Subject: Laura we can From: johnny5 To: All Date Posted: Fri, Feb 25, 2005 at 06:42:01 (EST) Email Address: johnny5@yahoo.com Message: When a country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time. Honey, I Shrunk the Dollar By THOMAS L. FRIEDMAN Published: February 24, 2005 http://www.nytimes.com/2005/02/24/opinion/24friedman.html? have just one question about President Bush's trip to Europe: Did he and Laura go shopping? If they did, I would love to have been a fly on the wall when Laura must have said to George: 'George, do you remember how much these Belgian chocolates cost when we were here four years ago? This box of mints was $10. Now it's $15? What happened to the dollar, George? Why is the euro worth so much more now, honey? Didn't Rummy say Europe was old? If we didn't have Air Force One, we never could have afforded this trip on your salary!' The dollar is falling! The dollar is falling! But the Bush team has basically told the world that unless the markets make the falling dollar into a full-blown New York Stock Exchange crisis and trade war, it is not going to raise taxes, cut spending or reduce oil consumption in ways that could really shrink our budget and trade deficits and reverse the dollar's slide. This administration is content to let the dollar fall and bet that the global markets will glide the greenback lower in an 'orderly' manner. Right. Ever talk to someone who trades currencies? 'Orderly' is not always in the playbook. I make no predictions, but this could start to get very 'disorderly.' As a former Clinton Commerce Department official, David Rothkopf, notes, despite all the talk about Social Security, many Americans are not really depending on it alone for their retirement. What many Americans are counting on is having their homes retain and increase their value. And what's been fueling the home-building boom and bubble has been low interest rates for a long time. If you see a continuing slide of the dollar - some analysts believe it needs to fall another 20 percent before it stabilizes - you could see a substantial, and painful, rise in interest rates. 'Given the number of people who have refinanced their homes with floating-rate mortgages, the falling dollar is a kind of sword of Damocles, getting closer and closer to their heads,' Mr. Rothkopf said. 'And with any kind of sudden market disruption - caused by anything from a terror attack to signs that a big country has gotten queasy about buying dollars - the bubble could burst in a very unpleasant way.' Why is that sword getting closer? Because global markets are realizing that we have two major vulnerabilities that this administration doesn't want to address: We are importing too much oil, so the dollar's strength is being sapped as oil prices continue to rise. And we are importing too much capital, because we are saving too little and spending too much, as both a society and a government. 'When people ask what we are doing about these twin vulnerabilities, they have a hard time coming up with an answer,' noted Robert Hormats, the vice chairman of Goldman Sachs International. 'There is no energy policy and no real effort to reduce our voracious demand of foreign capital. The U.S. pulled in 80 percent of total world savings last year [largely to finance our consumption].' That's a big reason why some '43 percent of all U.S. Treasury bills, notes and bonds are now held by foreigners,' Mr. Hormats said. And the foreign holders of all those bonds are listening to our debate. They are listening to a country that is refusing to raise taxes, and an administration talking about borrowing an additional $2 trillion so Americans can invest some of their Social Security money in stocks. If that happened, it would almost certainly weaken the dollar, further depreciating the U.S. Treasury bonds held by all those foreigners. On Monday, the Bank of Korea said it planned to diversify more of its reserves into nondollar assets, after years of holding too many low-yielding and depreciating U.S. government securities. The fear that this could become a trend sparked a major sell-off in U.S. equity markets on Tuesday. To calm the markets, the Koreans said the next day that they had no intention of selling their dollars. Oh, good. Now I'm relieved. 'These countries don't have to dump dollars - they just have to reduce their purchases of them for the dollar to be severely affected,' Mr. Hormats noted. 'Korea is the fourth-largest holder of dollar reserves. ... You don't want others to see them diversifying and say, 'We'd better do that, too, so that we're not the last ones out.' Remember, the October 1987 stock market crash began with a currency crisis.' When a country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time. As I said, usually the markets do it in an orderly way - except when they don't.

Subject: Guckert Story From: http://www.lasun.net To: All Date Posted: Thurs, Feb 24, 2005 at 23:52:25 (EST) Email Address: johntully@gmail.com Message: THE JAMES GUCKERT/ JEFF GANNON, FAKE REPORTER IN THE WHITE HOUSE QUESTION IS MOOT! BY JOHN TULLYTHE LOS ANGELES SUNFEB 23 A weekend journalism-school reporter, using a fake name, was given access to the President of the United States at White House press briefings before he even worked for any news organization. He claims that he has seen a confidential, so-called C.I.A. document which reveals the name of former Ambassador Joseph Wilson's wife and shows her recommending him for the trip to Niger to investigate yellowcake uranium sales to the Iraqis. It turns out that Secret Service has been waving James Guckert by the guardhouse for two and a half years and once inside, he became Jeff Gannon. He wrote for a fake website, Talon News, run by Republican strategist Bobby Eberle and the organization GOPUSA. To understand how something like this could Not be a story, that this could happen to begin with, is to understand how The District of Columbia really runs. However, one can only watch and wait as the laws of physics begin to rear their ugly head. Try as they might and for whatever reason, The Mainstream Media (as good of a description as any) just can't keep this monster down. Howard Kurtz, the longtime and wise sage media critic with The Washington Post, trusted by little old Quaker ladies in Cleveland Park D.C. and lobbyists alike, just could not figure out what the big fuss was all about and immediately chalked it up to over-eager WWW types and their preoccupation with the salacious part of the story.Oh that.The Great Diversion and the reason why non-political junkies in America are apparently not talking about this story is that this fella' publicly advertised his services as a male prostitute on numerous sites on the Internet and registered and launched numerous gay male pornographic websites. Really. CNN's Aaron Brown, so brilliant in his earlier years on the old ABC overnight news program, pooh-poohed the scandal as a bit of 'so what'. On Wolf Blitzer's 'Hard News' program, Mr. Guckert/Gannon was treated almost softly, as if not to upset. The New York Times finally ran the story, deep in the back pages on Friday, Feb 11th, more than a week after website journalists began to fully reveal this fake journalist's deceptions.The shockjock mentality came out instantly in the groupthink mainstream media with a curious mix of apathy and frat-boy jokes. There was no outrage to be outraged over.Meanwhile , writers on web sites like The Daily Kos, David Brock's Media Matters and John Aravosis's America Blog, among others, had been doing their own journalism and found out that Mr. Guckert was not who or what he appeared to be. They started their dig after witnessing a press briefing by the President back in late January. A strange reporter asked a clearly partisan question / pronouncement that, among other things, stated that the Democrats were 'divorced from reality'. They got dirt all right. Columnists Frank Rich and Maureen Dowd finally had to write cute pieces about the mess nearing the end of last week. Katie, Matt, and The Today Show eventually did a quick three- minute story in the first hour last Wednesday. Radio man Don Imus couldn't get anyone to bite and wondered aloud about the titillating aspect of the thing. This was now more than ten days since the story had broken, or hadn't broken. No one was even discussing, outside of the Web, the nasty business of the C.I.A. memo that Mr.Guckert had claimed to have seen or knew about right there on Mr. Blitzer's show. Links to web sites where Mr. Guckert solicited clients for sex were widely available at the very same time Mr. Blitzer was tripping all over himself to give Mr. Guckert an Easypass.Ultimate Washington insider Mary Matalin, Vice President Cheney's sometimes consultant, told Imus that she just wished Ms. Dowd would just come in from the cold and get with the program. Why did President Bush and Scott McClellan, the President's spokesman, call on Mr. Guckert/Gannon so often in those two and a half years and how could other reporters not write about Talon News and GOPUSA 's illegitimacy? Veterans of the White House beat sometimes don't see a question for years. Was he a plant? But just like the high school sophomores that they are, the Washington press corps have hemmed and hawed and giggled their way for weeks now through a real-live genuine scandal unfurling at the White House. Waving their collective finger, they dismissed the whole affair in full. It was simply The Bloggers and their liberal retribution for the Rather/CBS assassination and a lurid fascination with the X-rated angle thrown in for good measure. Now the simply idiotic Bush-Tapes story, along with a long weekend and a brilliant fake-outrage campaign over a congressman's comments about Karl Rove, is threatening to bury forever a story that the entire profession of journalism would like to pretend was never born to begin with. Everyone seems to be looking around at each other and tsk-tsking the lack of outrage on each other's part, as if to say 'This is terrible. Someone do some real reporting. 'Someone did - as Mr. Bush would say, on the 'Internets'. Stay Tuned. FOR IMMEDIATE RELEASE (I need people to link to me btw) HTTP//:WWW.LASUN.NET johntully@gmail.com The Los Angeles Sun www.lasun.net

Subject: Soylent Green - new use for the old? From: johnny5 To: All Date Posted: Thurs, Feb 24, 2005 at 19:02:06 (EST) Email Address: johnny5@yahoo.com Message: Graveyards may lose business to this in the future: $80 a barrel Oil http://www.fortune.com/fortune/smallbusiness/articles/0,15114,1018747,00.html SMALL & GREEN A Turkey In Your Tank Could poultry scraps be the next big source of fuel oil? By Ellyn Spragins One solution to america's energy crisis just may be gobbling away at a poultry farm near you. Changing World Technologies has developed a working system to convert turkey guts and scraps into fuel oil. But CWT's tribulations show how hard it is for even the most innovative green company to compete in the energy business. CWT's improbable alchemy is based on an idea that scientists have been kicking around for three decades: mimicking the earth's process for creating oil and gas. By subjecting organic materials to extreme heat and pressure, CWT produces in minutes what the planet takes thousands of years to make. The company says its process works on tires, various hazardous wastes, and plastic as well as heavy metals. The key question is whether the end products are pure enough and cheap enough to compete with other biofuels and petroleum. Until recently it seemed that turkey fuel would score big on both counts. CWT saw opportunity in the mad cow scare of December 2003. Expecting U.S. authorities to ban the feeding of animal offal to livestock—a practice linked to mad cow disease—CWT and ConAgra formed a joint venture that built a $30 million plant in Carthage, Mo. The venture assumed that nearby turkey processors would provide lots of free turkey waste. Last year the Carthage plant began selling its output to a Midwestern manufacturer, which buys it for roughly $40 a barrel (25% less than conventional fuel) and uses it to run its plant. The Carthage factory now produces 400 barrels a day. That's a drop in the ocean of U.S. oil consumption, currently running around 20 million barrels a day. But making more turkey fuel isn't as hard as nailing down its costs. It turns out that feeding animals to animals remains standard practice in the U.S., despite a modest tightening in the regulations last year. So instead of being free, turkey leftovers cost $30 to $40 a ton, a hefty expense considering that one ton of turkey yields just two barrels of oil. And turkey fuel has so far been excluded from biofuel tax breaks. In October, Congress passed a bill that gave biodiesel, which is also derived from biological material, such as soybean oil and animal fat, but has a different chemical composition, a tax incentive that translates into a $1-a-gallon break on production costs. 'The good news is that the government finally gave an incentive for producing fuel from waste,' says CWT chairman and CEO Brian Appel. 'The bad news is that it narrowly defined the kind of fuel receiving the incentive.' As a result of those two setbacks, CWT's production costs have doubled, to nearly $80 a barrel, a crippling blow given that conventional diesel sells for about $50 a barrel. CWT is staying afloat, thanks to a $10 million grant from the U.S. Department of Energy. But the company's next operation is likely to be in Europe, where food processors will pay to have CWT dispose of animal offal and where most governments offer tax incentives to biofuel producers. Appel is negotiating to license CWT's technology to Irish Food Processors, one of Europe's largest, which plans to build a biofuel facility by the end of 2006.

Subject: Flexible Investing From: Terri To: All Date Posted: Thurs, Feb 24, 2005 at 17:18:43 (EST) Email Address: Not Provided Message: While high price/earning ratios for the S&P Stock Index have limited gains or presaged losses, the market has been at high p/e levels for long periods. This presents the problem of having to not invest in stocks for long periods if p/e is the guideline. An investor who relied on p/e ratios would have been out of the market since 1997. The question that needs to be asked however is can suitably priced stocks be found even in a market in which general prices are high? I would suggest so. At the peaks of the general market in 1999 and 2000, there were reasonably priced sectors such as energy, health care and REITs. These sectors as a whole were reasonably priced, so that an investor did not have to buy individual stocks but could buy the entire sector in a fund. Tne need is not to let a single measure blind us to an entire market.

Subject: Re: Flexible Investing From: johnny5 To: Terri Date Posted: Thurs, Feb 24, 2005 at 18:01:51 (EST) Email Address: johnny5@yahoo.com Message: Now you are back to stock picking or US sector picking - not global asset allocation right? What if your us centric stocks are all going to tumble no matter the sector - would it not be prudent to withdraw from the entire US market - sectors and all? What sectors have the fairest valuations? Hussman had more to say: I frequently present calculations of probable long-term stock returns by making a few assumptions about long-term peak-to-peak growth in earnings and various future P/E multiples. I generally base these P/E ratios on peak-earnings. The price/peak-earnings multiple is the ratio of the S&P 500 to the highest level of earnings attained to date, even if current earnings on the index have declined below that peak. I constructed this in order to filter out the uninformative spike in the P/E ratio that occurs when earnings plunge during recessions. The price/peak earnings ratio is equal to the raw P/E when earnings are at a new high, as they are today, and is otherwise lower than the raw P/E. This makes it a conservative measure of market valuation, so very high levels properly merit concern. Based on newly released quarterly earnings figures, the S&P 500's price/peak earnings ratio is nearly 20. Consider that level from a long-term perspective. Except for the reckless and unsustainable valuations at the 2000 peak, the current multiple has been observed only at the 1929, 1972 and 1987 market extremes and at the late 1960's market extremes. While the market plunges beginning in 1929, 1972 and 1987 are well-known, those mid-1960's valuations deserve some context as well. The Dow first approached 1000 in late 1965. It reached a durable low in 1982, seventeen years later, at 777 – a level it first achieved in January 1964. Investors forget these things if they ignore the data long enough.

Subject: 'Toys' or 'Noise' ? From: Pancho Villa alias Green-go To: All Date Posted: Thurs, Feb 24, 2005 at 17:09:58 (EST) Email Address: nma@hotmail.com Message: Dollar scare reveals fragile support Underlying weakness makes the dollar vulnerable to rumor Crisis over? Not really. For sure, the market overreacted to reports that the Bank of Korea wanted to reduce the share of dollars in its portfolio. What the Korean actually said was that they want to diversify out of low-yielding US Treasuries into higher yielding securities, which could include riskier US assets as well as non-US government bonds. And they intend to do so by diversifying the flow of reserves, not the $200bn stock. But while Tuesday's sell-off was founded on error, it nonetheless exposed the underlying weakness of the US currency. If the mighty dollar can be rocked by a single paragraph in a report to the Korean parliament something is amiss. That something is the dependence of the dollar on a handful of Asian central banks, which between them control $2,400bn reserves. These reserves are already large relative to the size of the Asian economies, and getting bigger by the day. As they grow so does the incentive to guard against capital loss from further dollar depreciation. Very obviously, if all the Asian central banks were to start selling their stock of dollars the US currency would plunge. But such a generalised rout would also force the Asian currencies to appreciate against the dollar. If either Japan or China were to sell dollars, the effect would probably be the same. However, the first mid-sized country to bail out of the dollar might be able to get a good price for its assets and maintain its bilateral exchange rate, encouraging others to follow. But even if Asian central banks do not sell their stock of dollars, the US currency is not safe. With private appetite for US assets inadequate and volatile, the US relies on continued purchasess by central banks to fund its current account deficit and aquisition of foreign assets by US residents. If their appetite dims, unless private flows sore, the dollar will still fall (and keep on doing so until the change in the relative price of imports and exports narrows the current account deficit to a sustainable level.) Diversification might not succed in its objective of minimising capital loss. It all depends on what currency one diversifies into. The euro is no longer obviously cheap. If and when Asia revalues the euro could even fall against the dollar. In this case the capital loss would be greater on euro holdings than on dollars. Asian countries need more Asian assets. Again, in aggregate they cannot obtain them without forcing up their currencies, though individual countries acting alone could do so. In the end the only sure way to limit capital loss is to stop intervening and allow currencies to rise. The yen and Korean won have appreciated significantly since 2002. But while others remain pegged, such appreciation disrupts intra-Asian exchange rates and trade. The optimal solution is a coordinated revaluation, led by China. But while the Chinese economy thrives and inflation stays under control, Beijing has little incentive to agree.

Subject: Sparks to light a powder keg? From: johnny5 To: Pancho Villa alias Green-go Date Posted: Thurs, Feb 24, 2005 at 17:30:21 (EST) Email Address: johnny5@yahoo.com Message: How were tensions right before the assassination that started world war I? http://www.321energy.com/editorials/chapman/chapman022305.html February 23, 2005 War Jitters! Last week jittery waves crawled through the markets when Iranian television reported that an explosion occurred near its only nuclear reactor. The stock markets briefly roiled and oil prices jumped. Initially it was feared that a missile had hit, fired either by Israel or the United States both of who are accusing the Iranian government of secretly developing nuclear arms. Washington denied knowledge of the blast and Iranian television later reported it was a fuel tank falling from a plane and then later said it was because of a blast linked to the construction of a nearby dam. Either way the message was clear to the markets. A real strike in Iran could shake the world. A bomb of a different sort fell on Tuesday when South Korea announced that its Central Bank will diversify its currency reserves. There is talk that other central banks will back away from the US$ as well. Indeed there is evidence to suggest that this action is already underway and if that is correct then the demise of the US$ as the world’s reserve currency is already underway. This economic bomb hit the US$, then the stock markets and later oil markets soared over $51 and Gold soared $7 over $430. South Korea, who has one of the largest foreign exchange reserves in the world, has to be taken seriously. Later South Korea issued a note that the plan to diversify their foreign exchange reserves was not new and didn’t say specifically that they would sell the US$. Certainly with $200 billion in US Treasuries they are not going to do that without seriously disrupting the bond market. Markets steadied on Wednesday so the message was effectively damage control. Some other economic bombs lurking in the background are the Russians and possibly other oil producing nations demanding payment in Euros rather than US$ for oil and the birth of a nascent oil trading market in Tehran that could threaten the supremacy of London’s International Petroleum Exchange. In the case of the oil trading market the major oil producing countries are determined to take control of trading advising that the current markets in London and the NYMEX in New York do not work in their favour. Neither of these stories is new either. The potential for war of either the real or economic kind is what makes markets roil and raises the stakes for the potential of a financial meltdown. For months now the rhetoric has been rising between Tehran and Washington over the potential for Iran’s nuclear industry to produce nuclear weapons. The Europeans have been trying to cut a deal with Iran now for some time in order to keep the problem under control. The Iranians deny that they are aiming to produce nuclear weapons. And on it goes. In 1981 Israel pre-emptively struck nuclear facilities in Iraq on the basis that the Iraqis were going to produce a nuclear weapon. A strike today in Iran could trigger a global conflict as both China and Russia have significant ties to Iran through oil agreements in the case of China and Russia supplying military assistance. But Iran is seen by the US and Israel as supporting terrorism through Hezbollah and other groups. Iran has been accused of supporting the insurgents in Iraq. Tehran has close ties with groups who won the recent election in Iraq where numerous Iraqi Shiite clerics were in exile in Tehran. Conflict has existed for years between Israel and Iran and it is no secret that Israel would like to see Iran taken out. This also fits with the agenda in Washington who sees regime change as essential for the countries deemed to be anti-American or as they put it “countries of tyranny”. This includes Iran and Syria who is being accused of being behind the recent assassination of Rafik Harriri the former Lebanese Prime Minister. Iran and Syria have vowed to assist each other should they be invaded. Other countries in the Mid-East on the list include Saudi Arabia and Yemen. The Mid-East sits on the biggest oil reserves in the world and currently supplies the US with about 21% of its imports. Amongst other countries on the US hit list for regime change is Venezuela where there is no love between the US and the Chavez government. Venezuela supplies about 11% of US oil. Recent indications are that Venezuela is signing contracts to provide more oil to China and less to the US. It has been surmised that the US was behind a failed coup d’etat in 2002. Chavez was elected as President of Venezuela and as well survived a recall vote with strong majorities following the failed coup d’etat. Continuing to lurk in the background is the Israeli/Palestinian conflict. While efforts are being made to reach an accord with Yassir Arafat out of the way and the newly elected Mahmoud Abbas in charge many challenges remain that could derail the current shaky peace. Recall it was hard right Israeli settlers that derailed earlier peace efforts including the assassination of Yitzhak Rabin. As well Abbas has to deal with hard core groups such as Hamas. Any of these could derail the current process. Both Abbas and Sharon could face civil war and either could be target for assassins. Despite the great claim that democracy is breaking out in Afghanistan and Iraq we are reminded that much of Afghanistan remains under the control of war lords and is effectively a narco state with one of the lowest standards of living in the world. The Iraqi election has not ended the Sunni insurgency. The party blessed by Shiite Ayatollah Sistani with close ties to Iran won the most seats in Iraq election. Al-Jaafari a former Iranian exile stands to become President. There have been calls to institute Islamic law which would be very problematic for the US. Other groups in the Iraqi coalition are unlikely to want Islamic law and the Shiite groups that won will have to compromise or there is the risk of civil war. Calls have been made by numerous groups that now that the election is over that US should leave. So election or not in Iraq there remain very high risks. What all this is pointing to is that any incident that may have already occurred or one that has not occurred could trigger war, either of the real or economic kind. Markets do not like war. The thought of it or the outbreak of hostilities does trigger sharp drops in the markets. In this case a sharply falling US$ could also trigger a bond market collapse. This tells us that the odds of a financial accident in the upcoming months has now become real and very high. While it might not happen the question that needs to be asked is “do we feel lucky”? Given the high level of debts and leverage that exist in North America today coupled with the low level of savings this heightens the concern of a financial meltdown. We are potentially staring at a precipice or as Financial Sense (www.financialsense.com) would say “we are facing a potential perfect storm”. We thought it would be interesting to provide a short summary of US wars in the 20th century and their impact on US stock markets (using the Dow Jones Industrials as the proxy). The general observation is that threats of war or a trigger event (i.e. Pearl Harbour, 9/11) are more likely to trigger market sell offs while invasions and an appearance that the war is going well triggers huge market rallies. An unexpected escalation of the war also triggers market sell offs. The 20th century and early part of the current century has seen the US involved directly in seven wars starting with the Spanish American War that got underway at the end of the 19th century. We did not count the long Cold War (1945-1989) as that involved no direct conflict but instead proxy wars. Nor did we count the Balkan Wars of the 1990’s where the US involvement was through NATO. We follow the wars chart with a weekly chart of the S&P 500 and of Gold as we believe that Gold will be a major beneficiary of a market meltdown. We have placed some interpretations on the charts. Please keep in mind that these are interpretations only and there may be others as well. Elliott wave is subject to numerous interpretations even by serious devoted Elliott wave practioneers. We have only looked at big waves and made no attempt to interpret sub waves that can change the entire count.

Subject: Re: Sparks to light a powder keg? From: Pancho Villa alias Gringo To: johnny5 Date Posted: Thurs, Feb 24, 2005 at 18:03:28 (EST) Email Address: nma@hotmail.com Message: 'It is lamentable, that to be a good (very best) patriot one must become the enemy of the rest of mankind.' Voltaire

Subject: What is the current P/E of the market? From: johnny5 To: All Date Posted: Thurs, Feb 24, 2005 at 16:21:10 (EST) Email Address: johnny5@yahoo.com Message: http://www.hussmanfunds.com/wmc/wmc050222.htm One of the important elements in the success of great investors like Warren Buffett is the ability to maintain what J.K. Galbraith once called a “durable sense of doom” during periods of market overvaluation. This is not easy, because investors often confuse temporary stock returns with permanent ones. They accept excessive risk in overvalued markets because they fear “leaving money on the table.” Historically speaking, advances that emerge from low valuations have typically been “permanent” in the sense that they are not erased by later market declines. In contrast, market returns from price/peak-earnings ratios over 18-19 have regularly been given back, often painfully. Though I certainly wouldn't advise it as a strategy, investors would have historically outperformed the S&P 500 with much less risk than a buy-and-hold simply by selling stocks when the S&P reached 19 times earnings and staying in T-bills until the P/E reverted to 15, even if it took years to do so. In effect, market gains (over and above T-bill yields) from P/E multiples over 18-19 have historically been purely temporary. Investors are often warned that missing a modest number of the strongest days or weeks in the market would have resulted in dismal long-term performance. Aside from the absurdly low probability of missing those specific periods while holding stocks in all the others, what's not recognized is that those strong periods don't occur randomly. If you look at market data, over two-thirds of the best 30 weeks, for example, have occurred in periods when market valuations were below their historical medians. Importantly, the converse is not true. The majority of bad weeks don't concentrate in overvalued periods. Instead, they concentrate in periods when the quality of market action has already deteriorated on the basis of yield trends, price action and so forth.

Subject: Industry Standard Reporting From: johnny5 To: All Date Posted: Thurs, Feb 24, 2005 at 15:38:58 (EST) Email Address: johnny5@yahoo.com Message: Can some of you point me to any research on how tightening bi-monthly 401K contributions could distort markets? Something similar to this but focusing on the contribution inflows and not the transers: http://www.bc.edu/centers/crr/papers/Fifth/Agnew-Balduzzi.pdf How an individual trades in a 401(k) account has implications for both the financial security of the individual’s retirement and for the financial markets as a whole. At the individual level, the success of trading strategies can directly impact whether an individual has sufficient funds for retirement or not. At the market level, understanding 401(k) flows may provide insights into how the introduction of private Social Security accounts could affect the stability of the financial markets. Indeed, previous research has suggested that flows and certain types of trading strategies can influence the returns and volatility of financial markets (Balduzzi, Bertola and Foresi 1995; DeLong, Shleifer, Summers, and Waldmann 1990). Given that the introduction of private Social Security accounts could result in an inflow of billions of dollars into individual trading accounts, a better understanding of how these personal accounts might be traded is relevant to assessing their potential impact on the market. Unfortunately, drawing direct inferences about retirement flows from past research of portfolio flows and asset returns may not be advisable. This is because most existing papers have studied data sets that combine both non-retirement and retirement fund flows, or simply non-retirement flows. Given that previous research (Agnew, Balduzzi, and Súnden 2002; Barber and Odean 2001) has shown a marked difference in trading between individual stocks and mutual funds, this pooling may result in a misrepresentation of the retirement flows. This paper overcomes this problem and contributes to the literature by studying a new and unique data set that focuses solely on the portfolio flows within 401(k) accounts. In addition to its novelty, this data set also has the important featur e of breaking down mutual fund flows into three components: contributions, outflows, and net transfers. Separating out transfers from other flows may be important. Fant (1999) shows in his analysis of monthly mutual fund flows that only the transfer component of flows has a significant relationship with asset returns.1 Thus, this paper focuses solely on transfer activity, making it the first paper to do so using data at the daily frequency. I know people say market timing is a losers game but: http://www.usatoday.com/money/perfi/funds/2003-11-02-hearing_x.htm?csp=20 The SEC survey also found: • 'Almost 30% of ... broker-dealers indicate that they assisted market timers in some way.' Now think about 401K contributions - most of my friends get paid the 15th and the 30th/1st. http://www.webmasterworld.com/forum31/1381-3-10.htm In my experience in the US: Old-style Human Resource people in the US think that employees must be paid on Fridays because they will not come to work the day after a payday. So many pay on Friday, for no other reason. They usually hand out the checks before lunch specifically because they want to the employees to spend their own time (lunch break) online at the bank, instead of 'running out to cash the check' during company time. Of course with most salaried people choosing direct deposit these days, this doesn't make sense, but when did that bother an HR person? They process payroll after the payweek closes (often a Friday) and the checks are ready by Tuesday. The signer of the checks gloats over his power for a day or so, and the checks are generally ready by Thursday afternoon - then held for Friday morning delivery. They pay for 2 weeks of work, every 2 weeks (with the 5 day delay). http://64.233.161.104/search?q=cache:iKD25ol8X2QJ:cbs.marketwatch.com/news/story.asp?guid=%7B55D4E190-F43D-4919-851A-D3160C113D9D%7D&siteid=mktw&dist= mutual fund flow contributions 401k&hl=en Skimming the 401(k) Delayed deposits costing U.S. workers millions SAN FRANCISCO (MarketWatch) -- In an age of instantaneous electronic fund transfers, many U.S. companies are capitalizing on an outdated law that allows them to earn money off their employees' 401(k) deductions. Personal checks now clear in a day, and online payments are expedited with a click, but millions of U.S. employees still wait several days or longer for 401(k) deductions to hit their accounts, costing them tens of millions of dollars each year. A 1997 federal law gives employers up to seven weeks to deposit 401(k) deductions, when they previously had 90 days. Over that time, companies earn short-term interest on the 'float' -- the period between deduction and deposit -- or retain the cash for their own use. A senior U.S. Department of Labor official told MarketWatch Friday that the agency intends to update the law with tighter deposit deadlines. 'It would be a matter of days, a couple of weeks or so -- shorter than the current outside limit,' said Ann Combs, assistant secretary for the Employee Benefits Security Administration, the DOL unit that oversees 401(k) plans. Americans pour an estimated $80 billion a year into 401(k) and similar 'defined-contribution' plans, according to the Profit Sharing/401k Council of America. Delaying deposit for just one week after every bi-weekly payroll -- intentionally or not -- equates to $55 million in short-term interest that U.S. workers forfeit each year, according to data supplied to MarketWatch from investment research firm Ibbotson Associates. Rules and practices around 401(k) plans haven't advanced with technology. So the estimated 45 million employees who fund such accounts -- often as their sole means of retirement savings -- essentially depend on management acting fairly and responsibly to ensure deposits are made as quickly as possible. 'There's nothing a participant can do about it -- it's going to happen when it happens,' said Ted Benna, an employee-benefits expert who created the first 401(k) plan. 'The technology exists today that my contribution could be deposited just the way paychecks get direct deposited. Clearly employers could do it every pay period; it's not that big of a job.' Tightening rules Relief for workers may be in sight. In the last decade, the Labor Department stepped up the auditing and penalizing of employers for forestalling 401(k) contributions. The number of civil violations rose to 1,269 in fiscal 2004 from 34 in 1995, the first year the agency began targeting 401(k) abuse, according to the DOL. The enforcement actions have produced more than $340 million in penalties and fines through Sept. 30. The Labor Department now intends to issue new 401(k) contribution guidelines that could dramatically impact employers and employees alike. Existing law says a plan sponsor must deposit 401(k) money for employees as soon as possible, but no later 15 business days after the month in which the payroll deduction was made. At the extreme, a deduction made on Dec. 1 could land in an employee's account on Jan. 21 -- seven weeks later -- and still be legal. 'That regulation was issued years ago, before we had automated payroll systems,' said Eric Keller, an attorney with Paul, Hastings, Janofsky & Walker in Washington. 'You're expected to do it much quicker.' The Labor Department's expectations should become clearer once the agency issues a stricter definition of 'timely deposit' for employers to follow, Combs said in a telephone interview. The DOL will consider public comment before reaching a final decision, she added, but aims to create a legal safe harbor for companies that reduces the guesswork and uncertainty that plagues many companies. 'The vast majority of employers should be able to meet that much shorter deadline,' Combs said. 'In those few cases where they can't, they have to demonstrate why.' Withholding contributions may shave only about a quarter of 1 percent from the annual return on an all-stock 401(k) portfolio, but still can amount to several thousand dollars of lost gains over a 25-year savings period, according to Ibbotson. 'When it's your retirement savings, it's very important,' Combs said. 'It needs to be invested as quickly as possible so it can start to earn interest and provide retirement security.' Contributor beware The Labor Department's Web site, in fact, cites employer failure to make timely retirement plan deposits as a key warning sign that pension contributions are being misused. Most often, however, experts say that a few days' lag time suggests lax administration rather than cash flow problems. 'We don't see plan sponsors trying to game this process or hang onto employees' money,' said Scott Peterson, head of retirement outsourcing services at pension consultant Hewitt Associates. 'The vast majority of our clients are getting the money invested within three or four days of payroll, and many are doing it more quickly.' But Hewitt and other leading retirement plan administrators such as Automatic Data Processing (ADP: news, chart, profile) and mutual-fund companies The Vanguard Group and Fidelity Investments deal mostly with large companies. Such Fortune 1000 firms typically have more sophisticated payroll systems than smaller businesses, which sometimes aren't even automated. 'The smaller end of the market is where you're more likely to see periods of longer delay,' said Jim Norris, head of Vanguard's institutional retirement plan services. 'If you're a smaller company, you're less likely to have people who are dedicated to retirement plans.' Regardless of size, some companies are reluctant to speed response time, even though doing so could improve employee morale and avoid potential legal problems. 'Not a lot of money gets invested in the administrative end of a 401(k) because it generally doesn't produce any income,' said Ed Slott, a retirement plan advisor who runs the IRAhelp.com Web site. 'There's no effect on the bottom line, except if employees start griping.' Employees who are surprised to find out that 401(k) contributions are held back for days or weeks should know that complaints can produce equally surprising results, Slott added. 'Too many employees, even in the post-Enron era, have blind faith that their companies are doing the right thing,' he said. 'The law of the land is not the law of the plan. There's a set of federal guidelines, but you don't really know. The only way to know is to check your monthly statement. If it's too slow, then say something.' So they shorten 401K contribution timeframes - tightening the time in which this influx of funds are going to hit the market and funds. Now you have these 2 concepts - time weighted reporting and dollar weighted reporting - you are a market maker - you know a large percentage of investment cash is going to hit the market 2 days each month, every other friday. Now you are a crook of the most loathsome sort - when do you jack the prices to really sock it to these fools on thier systematic influx of cash into the markets through thier 401k? It seems obvious to me - every other friday or whatever model best correlates to the new tightening of 401K contribution time frames. Now you are a money manager who understands this concept - what is the best way to report performance to your 401k customers to give them the rosy colored picture of thier investing? That thier dollars are being infused into the markets when they have peaks every other friday - or time weighted reporting? institutional investor am I way off base again? please help me understand because I am confused again :(

Subject: Bush buys raymond james? From: johnny5 To: All Date Posted: Thurs, Feb 24, 2005 at 13:36:16 (EST) Email Address: johnny5@yahoo.com Message: Notice Pres Bush has investments in raymond james from his tax filings - also vanguard and oil and timber: http://www.opensecrets.org/pfds/pfd2003/N00008072_2003.pdf I don't know who this dent guy is but I guess that throws me into the bull camp as I purchase dividend paying oil company shares with all my loose money and don't see why anyone would horde gold. I buy p/e ratios of the historical average close to 14 though and mr. buffet just bought one that had 34 so I will have to reflect on this. If the DJIA hit 40K I should do well in XOM. http://www.lewrockwell.com/french/french27.html

Subject: Ryanair announce purchase of 140 Boeings From: Setanta To: All Date Posted: Thurs, Feb 24, 2005 at 13:26:55 (EST) Email Address: Not Provided Message: not bad for an airline that had a few beat up turbo-prop planes on a shuttle run from Dublin to London! 24/02/2005 - 9:09:13 AM Ryanair expands with 70 new planes and 2,500 jobs No-frills carrier Ryanair today announced a major expansion involving 2,500 new jobs, 10 new bases, continuing lower fares and more than €2.9bn-worth of new planes. The Irish budget airline said it had placed an order for 70 more Boeing 737-800 aircraft with options on 70 more. The planes will arrive between 2008 and 2012 and are expected to take Ryanair’s passenger numbers up to more than 70 million a year. The new planes will help create more than 2,500 jobs – principally for pilots, cabin crew and engineering people. The airline said: “Half of these jobs will be generated at the airline’s existing 12 European bases, with the remainder at the 10 or more new bases which will be developed by Ryanair over the next seven years.” Announcing the expansion plans in London today, Ryanair’s chairman David Bonderman said: “The Boeing 737-800 series aircraft is the most efficient narrow-body short-haul aircraft in the world. 'Since its introduction into the Ryanair fleet in March 1999, it has transformed our technical reliability, making Ryanair the number one on-time major airline in Europe. “At the same time, the 737-800 has significantly reduced our unit operating costs and allowed us to reduce air fares each year for the last five years. With this new order and new pricing in place, Ryanair expects that unit operating costs (excluding fuel) will continue to fall each year for the next five years. “This will enable Ryanair to offer even lower fares and underpin our growth strategy as we plan to double traffic from 34 million passengers in 2005-06 to over 70 million passengers in 2011-12.” Ryanair began its day’s trading on the ISEQ at €6.14.

Subject: Why Is Ryanair a Success From: Terri To: Setanta Date Posted: Thurs, Feb 24, 2005 at 14:33:57 (EST) Email Address: Not Provided Message: Setanta, what is the secret? How were Ryanair and Virgin able to compete so easily from Europe? Are the older airlines so hopelessly inefficienct that they can not effectively compete on price? I avoid airlines, for they have been impossible investment for decades, but the success of new airlines in Europe and America is consistent and intriguing.

Subject: Re: Why Is Ryanair a Success From: Setanta To: Terri Date Posted: Fri, Feb 25, 2005 at 04:59:14 (EST) Email Address: Not Provided Message: Terri, its all to do with market segmentation. historically it was extremely expensive to fly within Europe with reciprocal agreements and accords dating from the 1950's governing air traffic. for every flight, for example, from London to Paris (granted to the flagship carrier of uk - british airways) there was a reciprocal flight from Paris to London (granted to the french flagship carrier - air france). with the development of the European Union came the removal of restrictions of the movement of capital and labour within the EU. this led to the rise of competition legislation which prohibited these practices. ryanair, following lufthansa's lead, embarked on the road to a low cost structure. they achieved this by the following: cutting out all the frills - no free tea, coffee, sandwich etc on the flight. limiting the bookings to the ryanair website only - cutting out the travel agents. flying into lesser known airports in the country - the parisian airport is beauvais, not charles de gaulle, and is about 40 mins from the city. decreasing the turnaround time between flights - achieved by the purchase of B737 as in the posted article above. no insignificant part of this success was down to Michael O'Leary (the businessman i admire most) and his firebrand, revolutionary management style. there is still a market for the higher end airlines, such as aer lingus, BA, British Midland, Air France etc but air travel has been opened up to millions in europe as a result of ryanair's philosophies. virgin, however, defies explanation, i think it is subsidised by richard branson's other enterprises. it is essentially an all-the-frills airline without the prices of the budget airlines. furthermore it tends to have the high profile routes to North America, Asia and Australia while leaving the short hop routes in europe to the budget airlines. (budget airlines won't fly transatlantic as it will not fit in their cost models). to place the air fare revolution in context: 10 years ago the price of a return flight from dublin to london was approximately IRŁ250 (Eur317) now it is possible to fly return to london, madrid or rome for Eur50 (cheaper than a return rail ticket from Dublin to Cork). you have to be willing to book in advance for awkward times and dates to avail of these prices though!

Subject: Re: Why Is Ryanair a Success From: Terri To: Setanta Date Posted: Fri, Feb 25, 2005 at 12:41:44 (EST) Email Address: Not Provided Message: Excellent Setanta. Makes perfect sense, and I suspect you are right about Virgin, though we both may not understand how inefficient the old airlines really were.

Subject: For the Starve the Beast Fans From: Setanta To: All Date Posted: Thurs, Feb 24, 2005 at 12:10:33 (EST) Email Address: Not Provided Message: spotted something here that should be of interest to those 'starve the beast' supporters. www.bbc.co.uk Living in Somalia's anarchy As Somalia's new government prepares to return to restore order after years of anarchy, the BBC News website's Joseph Winter reports from Mogadishu on life with no central control. Somalia is the only country in the world where there is no government. Seventeenth century philosopher Thomas Hobbes wrote that 'life is solitary, poor, nasty, brutish and short', if there is no central authority. Few Somalis have probably heard of Hobbes but most would agree with his description - except for 'solitary', as family and clan ties remain extremely strong. The last government, of Siad Barre, was toppled in 1991. Since then Somalia has been divided into a myriad of different fiefdoms controlled by rival warlords, who occasionally clash for territory. So what is life like after more than a decade without a government? No public spending Driving 50km (30 miles) from one of the airstrips near the capital, Mogadishu, to the city, you pass seven checkpoints, each run by a different militia. At each of these 'border crossings' all passenger vehicles and goods lorries must pay an 'entry fee', ranging from $3 - $300, depending on the value of the goods being carried - and what the militiamen think they can get away with. There is no pretence that any of this money goes on public services, such as health, education or roads. Much of it is spent by the militiamen on khat, an addictive stimulant, whose green leaves they can chew for hours on end. Those who can afford it travel with several armed guards - and then you can pass the road-blocks unmolested. Much of south Mogadishu appears deceptively calm but parts, including the north, remain too dangerous to visit. While Siad Barre is commonly referred to as a dictator and people were press-ganged into fighting wars with Somalia's neighbours, some now remember with fondness that schools and hospitals were free. It is now estimated that only about 15% of children of primary-school age actually go to school, compared with at least 75% even in Somalia's poor neighbours. In Mogadishu, many schools, colleges, universities and even government buildings, have become camps for the people who fled to the capital seeking sanctuary from fighting elsewhere. Kidnappings Makeshift shelters made from branches, orange plastic sheets and old pieces of metal cover what were once manicured lawns outside schools and offices. And since some of the militiamen started to kidnap aid workers, demanding huge ransom fees, many of the aid agencies have pulled out, leaving many of those in the camps without any assistance whatsoever. 'Some of my children sell nuts in the street to earn some money. We can't afford to send them to school,' says Ladan Barow Nur with resignation, as she cooks chapattis for the evening meal on an open fire just outside her tent. 'My husband helps shoppers carry their goods in the market but it's not enough. We're always hungry.' She lives in what was a school in Mogadishu. There are no toilets in what is now a refugee camp, and in the rainy season, diseases such as malaria, tuberculosis, diarrhoea and dysentery spread quickly. Some schools, universities and hospitals continue to operate but they are mostly privately run and charge fees. The many thousands of people like Mrs Ladan are unable to pay the $3 it costs to see a doctor and so people die of diseases which could be easily prevented or cured. Market forces 'Somalia is a pure free market,' one diplomat told me. And the central Bakara market certainly looks to be thriving. Some businesses, such as telecoms, are also doing well, with mobile phone masts and internet cafes among the few new structures in Mogadishu, a city where many buildings still bear the scars of the heavy fighting between rival militias of the early 1990s. But is a pure free market a good thing? Speaking from a theoretical point of view, some economists might say so, but in the very harsh reality of Mogadishu, it means guns and other military hardware are freely available in a market not far from the city centre. I was advised that it was too dangerous to visit, as customers were constantly firing the weapons to make sure they work before buying them. The cost of an AK-47 is the equivalent of a survey of business confidence in more stable countries. Following the election of a new president in October, the price fell, as people anticipated that militias may soon no longer be able to operate with impunity. But a month on, with a government still not named, nor a clear plan for how or when President Abdullahi Yusuf and his team will even go to Mogadishu, let alone get anything done, the price of a weapon has been creeping higher. Passports for sale The lack of a government also means that the US dollar is the currency of choice - even refugees beg in hard currency. Somali shillings are still used but the notes only come in one denomination - 1,000, worth seven US cents. Three types of notes are in circulation - some still survive from the last government, some were printed by the newly elected President Yusuf, when he was in charge of his native Puntland region, and others were commissioned by private businessmen. At first, some traders in Mogadishu refused to accept the new notes but now they are all used side-by-side. Similarly, the printing of passports has been privatised. For just $80 and in less than 24 hours, I became a Somali citizen, born in Mogadishu. As I had omitted to travel with any passport-sized photos, my supplier kindly left the laminate for that page intact, for me to stick down at home. For a slightly higher fee, I was offered a diplomatic passport, with my choice of posting or ministerial job. With passports and guns freely available, those wanting to launch terror attacks have just about everything they need. And some fear that in the absence of any other authority, terror training camps could be set up in Somalia. Although Somalis are able to survive and some are even prospering, everyone I spoke to in Mogadishu is desperate for a return to some semblance of law and order - schools and hospitals can only follow security on the new government's to-do list. 'I just want a government, any government will do,' one man told me. We all seem to enjoy criticising our governments but life in Somalia shows the alternative is far worse, as Hobbes wrote 350 years ago. A former Somali army major, now a refugee in London, summed up life without a government very well. 'There is nothing you can do when kids with guns steal everything you have, even your clothes. I'm from a small clan, so I was unable to fight back,' he said. 'Here, there are rules which people respect and so you can get on with your life in peace.'

Subject: Medical Companies Joining Offshore Trend From: Emma To: All Date Posted: Thurs, Feb 24, 2005 at 11:21:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/24/business/worldbusiness/24offshore.html?pagewanted=all&position= Medical Companies Joining Offshore Trend By ANDREW POLLACK Bala S. Manian rarely looked back when he left India to attend graduate school in the United States. Since 1979, he has started one medical technology company after another in Silicon Valley. But Dr. Manian is now rediscovering his native country. His newest medical venture, ReaMetrix, which makes test kits for pharmaceutical research, is still based in Silicon Valley. But 20 of its 28 employees are in India, where costs for everything from labor to rent are lower. The exporting of jobs by ReaMetrix is telling evidence that the relentless shifting of employment to countries like India and China that has occurred in manufacturing, back-office work and computer programming is now spreading to a crown jewel of corporate America: the medical and drug industries. It could be a worrisome sign. The life sciences industry, with its largely white-collar work force and its heavy reliance on scientific innovation, was long thought to be less vulnerable to the outsourcing trend. The industry, moreover, is viewed as an economic growth engine and the source of new jobs, particularly as growth slows in other sectors like information technology. 'What I see in India is the same kind of opportunity I saw in the Valley in 1979,' said Dr. Manian. In the United States, he said, 'a million dollars doesn't go more than three months.' In India, by contrast, 'I can run a group of 20 people for a whole year for half a million dollars.' While life sciences jobs may be less vulnerable to outsourcing than jobs in information technology, industry officials say many companies are looking at that option as pressures mount to control drug prices and cut development costs. First toys, clothes, those kind of things, then electronics and computers and now, finally, pharmaceuticals and biotech,' said Jimmy Wei, a venture capitalist in San Francisco who helped start Bridge Pharmaceuticals, a company that is doing drug screening in Asia for American pharmaceutical companies. The outsourcing of some life sciences jobs could be seen as evidence that American biotechnology companies, like their counterparts in other industries, are doing nothing more than building global connections that help make them more competitive around the world. So far, the job movement has been small. According to the most recent data compiled by the Commerce Department, less than 6 percent of American companies with biotechnology operations employed contract workers abroad in 2002, but industry specialists say that percentage has increased in the last three years. 'It's a trend that's becoming more pronounced as people's budgets get tight,' said Riccardo Pigliucci, chief executive of Discovery Partners International, a San Diego company that does chemistry work for drug companies. He said a chemist in India made $20,000 to $40,000 a year, in contrast to $80,000 to $100,000 in the United States. Discovery Partners started a small operation in India to offer lower-cost services. In conjunction with that move it consolidated its American operations in San Diego and South San Francisco, closing a facility in Tucson and laying off 28 employees, according to its regulatory filings. Clinical trials of new drugs, for instance, are already moving to countries in Asia, Eastern Europe and Latin America, because the costs of conducting the trials are lower and human subjects can be recruited more easily. Drug manufacturing is another area that can move. India already has a thriving generic drug manufacturing sector and is moving into biotechnology. One biotechnology company, Biocon, went public in India last year. Its founder and chief executive, Kiran Mazumdar-Shaw, has been described in the news media as the richest woman in India. With revenues of more than $100 million last year, Biocon is a leading producer of generic cholesterol-lowering drugs called statins. It has designs to become a major producer of insulin and monoclonal antibodies. It also has divisions that do contract research and run clinical trials for large American and European pharmaceutical companies. Fueling the outsourcing trend are Indian and Chinese scientists who obtained graduate degrees and work experience in the United States and Europe and are now returning to their native countries. Ge Li, the founder of WuXi Pharmatech in Shanghai, for example, spent 12 years in the United States, earning a doctorate in organic chemistry at Columbia University and then co-founding Pharmacopeia, a New Jersey drug company. In 2001, Dr. Li moved to Shanghai to start WuXi, which does chemistry work for American and European companies. The company has grown to 570 employees and had revenues of $21.5 million last year, Dr. Li said. 'Essentially all of the big pharmas are our customers,' he said. PTC Therapeutics, a biotech company in South Plainfield, N.J., hires WuXi when extra help is needed for a short time. 'We can turn them on and off as needed,' said John Babiak, senior vice president for discovery technologies at PTC. But he said PTC decides which compounds to make to test as potential drugs, leaving WuXi to make them. 'We're just farming out the bench work,' he said. In that sense, what is going offshore might be called 'back laboratory' work, somewhat equivalent to the back-office information technology functions that have moved in the past. But there are signs that the biotech migration will go beyond low-level work. Roche, the big Swiss drug company, just opened a research center in Shanghai to make use of Chinese scientists returning from abroad. 'U.S. academia had been run by Chinese post-docs for the last 10 years, if not 15,' said Jonathan Knowles, head of global research for Roche. China and India are starting to invest heavily in developing biotechnology expertise. Meanwhile, Singapore has created a cluster of research centers and has attracted some top scientists. Another potential advantage for some Asian countries is their more permissive stance on embryonic stem cell research, a promising new field that is restricted in the United States. A group of British stem cell specialists that visited China, Singapore and South Korea said scientists in those countries were as talented as in Britain but better equipped and funded. 'The challenge to Western pre-eminence in stem cell science from China, Singapore and South Korea is real,' it concluded in a report. However, the life sciences industry, even without outsourcing, is not so big that it can make up for jobs lost in other sectors. By a broad definition of the industry, including medical devices, pharmaceuticals and certain parts of agriculture and chemicals, employment reaches 885,000, according to a study by Battelle Memorial Institute for the Biotechnology Industry Organization. Some 225,000 jobs, mainly in computers and back-office work, moved offshore in 2004 alone, according to an estimate by Forrester Research. There are some factors that suggest life science jobs will be slower to migrate offshore than those in information technology. For one thing, drug companies face less pressure to cut costs than, say, computer disk drive manufacturers because pharmaceuticals have relatively high profit margins. 'We're not trying to eke out another percent of operating margin,' said Kevin Sharer, chief executive of Amgen, the largest biotech company, which is based outside Los Angeles. Also, life sciences companies often prefer to be near the best university research, which, for now, is largely in the United States because of ample funding from the National Institutes of Health. Novartis, the Swiss pharmaceutical giant, for example, shifted its research headquarters from its home country to Cambridge, Mass., in large measure to be near Harvard, M.I.T. and the numerous biotechnology companies there. 'The lead the United States has built in biomedical sciences is so great that I don't think this will be lost anytime soon,' said Paul Herrling, head of research for Novartis. Moving research and development far from customers in the United States can also pose problems. Aviva Biosciences of San Diego, which makes chips for biological research, for example, was started by Chinese scientists with the idea that much of the technology would be developed in China. But now Aviva does most of its work in San Diego because the scientists in China could not grasp the needs of American researchers, said Jia Xu, vice president for research and development. 'In terms of the market we're trying to address you really need people who are from the industry,' he said. 'And that's something you cannot find in China.' These barriers to foreign outsourcing, say those in the business, are not likely to slow the trend. Besides, they argue, cost savings from outsourcing can free up resources for more drug development in the United States. Dr. Manian said ReaMetrix, for instance, can prepare material in advance so scientists in the United States can do experiments faster. 'I am not interested in replacing jobs here,' he said. 'I am interested in taking those opportunities that are compelling, and yet are not economical to do here and do them in India.' An expert in optics, Dr. Manian first started Digital Optics, which made equipment to transfer digital medical images, like CT scans, onto film. (That same technology is used to put computer-generated special effects onto movie film, earning Dr. Manian an Academy Award certificate for technical achievement.) Among the other companies he co-founded were Molecular Dynamics, which developed a DNA-sequencing machine, Surromed, a drug and diagnostics company, and Quantum Dot, which has a system for detecting biological molecules. These days, he thinks India holds big advantages, including a young population. 'The exodus of jobs in life sciences will take place,' he said. 'There's no avoiding it. There's no way that you can sustain the inefficient research and development that exists in the U.S.'

Subject: Medical Malpractice Rates? From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 14:19:44 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/22/business/22insure.html?ei=5070&en=436b5da09a135eba&ex=1109307600&pagewanted=all&position= Behind Those Medical Malpractice Rates By JOSEPH B. TREASTER and JOEL BRINKLEY Speaking before hundreds of doctors and medical workers in a St. Louis suburb last month, President Bush called attention to a neurosurgeon on stage with him in the small auditorium. The doctor, the president said, was paying $265,000 a year in premiums for insurance against malpractice claims. Such high prices, 'don't start in an examining room or an operating room,' the president declared. 'They start in a courtroom.' Indeed, at many recent appearances, Mr. Bush has complained about the 'skyrocketing' costs of 'junk lawsuits' against doctors and hospitals. But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department. 'There is an underlying cost push,' said J. Robert Hunter, the director of insurance for the Consumer Federation of America, who is a former insurance regulator in Texas. 'But there has not been an explosion of big jury verdicts or settlements. It's a constant drip, drip every year.' Lawsuits against doctors are just one of several factors that have driven up the cost of malpractice insurance, specialists say. Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry. The recent spike in premiums - which is now showing signs of steadying - says more about the insurance business than it does about the judicial system. 'You get these jolts in insurance prices periodically, and they attract a lot of attention,' said Frank A. Sloan, a Duke University economist who has been following medical malpractice trends for nearly 20 years. 'They're a result of a confluence of many things.' Data compiled by both the federal government and by insurance organizations show costs for the insurance companies climbing steadily over the last decade at an average annual rate of about 3 percent, after adjusting for inflation. Over most of that period, premiums for doctors rose modestly and sometimes even dropped as the insurance companies battled for market share in a scramble to collect more money to invest in strong bond and stock markets. But when the markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors. 'The insurers were catching up, getting to where they should have been,' said Larry Smarr, the president of the Physician Insurers Association of America, a trade group of companies that provide more than 60 percent of the nation's medical malpractice insurance. While acknowledging the impact of industry forces and practices on prices, Mr. Smarr and many others in the insurance industry still regard lawsuits as their biggest problem. Claims of medical malpractice are typically complex and are rarely paid without a lawsuit or the threat of a lawsuit. If the insurance companies could find a way to limit payments for lawsuits, they say, they could significantly reduce their costs. President Bush, supported by the insurance industry and the American Medical Association, is proposing a remedy: a national limit on what juries can award in medical malpractice cases. Such a limit, or cap, has often been cited by the president as an important part of what has been called tort reform - limiting what Mr. Bush calls costly and frivolous lawsuits. The Bush administration is pushing for a $250,000 limit on jury awards to victims of medical mistakes and their families for pain and suffering. No limit would be placed on the more quantifiable payments for economic losses, including medical expenses and lost wages. Introduction of legislation calling for such national medical malpractice limits - traditionally left to individual states - is at least a month away. Still, the administration has been bolstered by stronger Republican majorities in the House and Senate and by last week's signing into law of a measure that would move many class-action lawsuits to federal court, sharply limiting their potential spread. Senate Majority Leader Bill Frist of Tennessee, who is a doctor, calls malpractice award limits 'a majority priority.' The House has passed similar proposals seven times in the last 10 years, most recently in 2003. While this Congress might be the best opportunity yet for supporters of jury award limits, there will certainly be a fierce battle from Democrats, consumer groups and plaintiffs' lawyers. Consumer advocates say such limits would mean that some of the most seriously hurt patients would not receive fair compensation. Also, they say, in the death of an infant, an elderly person or a homemaker, there would be little compensation because of the prevailing view that there could be no economic loss because no income was being earned. Trial lawyers and consumer groups have been parading heart-wrenching victims of doctors' mistakes to make their argument. Among them, the American Trial Lawyers Association says, is Alice Lloyd of North Carolina. Doctors failed to treat her blood infection for so long that finally they had to amputate both legs above her knees, her left arm and all the fingers from her right hand. She still has her right thumb. As the two sides dig in for a fight in Congress, 27 states have already adopted award limits, with caps ranging from $250,000 to $1 million. In some states, insurers have agreed to reduce, at least temporarily, premiums in exchange for limits on awards. Insurers say that caps not only promise lower costs, but greater predictability on potential payouts. 'It takes an unknown entity, which is the pain and suffering component, and makes it quantifiable and estimate-able,' said Mr. Smarr of the Physician Insurers Association of America. Insurers acknowledge that they consider several factors besides claims costs in setting prices for doctors. In the 1990's, even as their costs were rising, malpractice insurers held firm on prices, even lowering them in some years to hold or win a share of the market. 'You always try to say you're not chasing market share,' said Donald J. Zuk, the chief executive of Scipie, a medical malpractice insurer that does business in about 30 states. 'On the other hand, you have to have a certain market share, you have to show a certain amount of growth, or you don't survive.' But by the late 1990's, some insurers discovered that they had dropped prices well below the cost of paying claims. Several went out of business. One of the biggest insurers, the St. Paul Companies, now Travelers St. Paul Companies, stopped offering medical malpractice coverage. The surviving companies 'had to raise prices or go out of business,' Mr. Smarr said. In 2000, about the same time that under-pricing and other market conditions began to push up prices in medical malpractice, the much larger world of commercial insurance was also going through a cycle of higher prices. The Sept. 11 terrorist attacks cost insurers $40 billion and accelerated the upward pressure of the latest premium cycle. Martin D. Weiss, the chairman of Weiss Ratings Inc., an independent financial rating agency, said the cyclical nature of the insurance business and a drop in insurers' investment earnings when markets fell had been among the strongest forces behind the rise in medical malpractice premiums. Over the last year, insurance analysts say, prices for most lines of commercial insurance appear to have peaked and have begun to decline. While prices for medical malpractice coverage are not yet falling, they rose less steeply in 2004. Costs for most doctors last year rose between 6.9 percent and 24.9 percent compared with increases of between 10 percent and 49 percent in 2003, according to The Medical Liability Monitor, a newsletter published in Chicago. The most expensive place in the country is South Florida, where some obstetricians and general surgeons paid nearly $280,000 for coverage last year, according to The Monitor. Obstetricians in Illinois paid as much as $230,428, The Monitor said, while in Nebraska, the least expensive place in the country for malpractice insurance, obstetricians paid $16,194. Florida adopted a cap on awards of $500,000 to $1 million in 2003. Illinois has no cap and Nebraska has a cap of $500,000. The recent jump in premiums shows little correlation to the rise in claims. According to the National Practitioner Data Bank of the Health and Human Services Department, the total paid out by insurance companies for claims against doctors and other medical professionals rose 3.1 percent annually, on average, between 1993 and 2003 and then declined last year. The average payment in 2003 for malpractice, the data bank said, was $268,605, up from $197, 753 in 1993, after adjusting for inflation. In 2004, the average payment fell to $262,486 and the number of payments made for medical malpractice cases dropped to 17,696 from 18,996 the year before. What may muddy the public picture is that while claims are rising at a measured pace, there have been more headline-grabbing big awards. Data compiled by the Physician Insurers Association of America show a distinct rise in payments of more than $1 million to victims of medical mistakes. In 1993, the organization said, 2.9 percent of the payments made by its companies exceeded $1 million. A decade later, 8.5 percent of the payments were for more than $1 million. Many insurers regard the $250,000 limit in California as a model for Mr. Bush. They see it as largely responsible for California's shift from being one of the most expensive places for medical malpractice insurance to one of the least expensive. Consumer advocates, however, say the main reason costs for doctors have fallen in California has been a 1988 law that prohibits insurers from raising rates more than 15 percent a year without a public hearing. And some researchers are skeptical that caps ultimately reduce costs for doctors. Mr. Weiss of Weiss Ratings and researchers at Dartmouth College, who separately studied data on premiums and payouts for medical mistakes in the 1990's and early 2000's, said they were unable to find a meaningful link between claims payments by insurers and the prices they charged doctors. 'We didn't see it,' said Amitabh Chandra, an assistant professor of economics at Dartmouth. 'Surprisingly, there appears to be a fairly weak relationship.'

Subject: Re: Medical Malpractice Rates? From: johnny5 To: Emma Date Posted: Wed, Feb 23, 2005 at 14:36:35 (EST) Email Address: johnny5@yahoo.com Message: This doctor is critical of the couch potatoes and smokers but is privatization the answer? http://www.lewrockwell.com/orig6/armstrong1.html February 22, 2005 Within the past few years I have read repeatedly in the opinion sections of newspapers the call for the federal government to provide a 'single payer' system for America’s medical care. These proposals are classics of left-wing thinking – they work out beautifully in the heads of those doing the proposing. The comedy occurs when they are subjected to the scrutiny of reality; the tragedy when they become reality. Government involvement in medicine exacerbates rather than alleviates its ills. HMOs and the government are pre-paid systems that are the cause of the financial crisis facing health care (I mean in addition to the contribution of greedy lawyers and irrational juries). A caller on a talk show recently commented: 'The rest of the world has a one-payer government system, so why don’t we?' The answer: Because then we’ll have the same quality of care of the rest of the world. Socialized medical care is a disaster worldwide for patients who need attention now or tomorrow or by next week, especially if that attention entails a procedure or surgery. I offer the perspective of a practitioner who has lived through the changes in the system. The cost of health care has increased alarmingly during the decades of my career because of third-party payer systems: HMOs and the government. Health care costs will increase and quality decrease with every increase in government involvement. The working citizen pays for health care regardless of the system: entirely government, entirely private, or HMO. Therefore, we the people should have access to the most efficient system possible, 'efficient' meaning the most cost-effective and most free in terms of the patient's right to choose. It’s a happy coincidence that such a system would also be the most health-efficient (health-promoting) and most fair – the best plan from both moral and practical standpoints. In the HMO system, the patient has turned over to the HMO – or rather the employer has done so for the employee-patient – what would have been the employee’s larger salary. That is, the employee pays by forgoing a larger salary or another benefit. That’s because employers are not in the business of printing money. They can pay the employee one way or another, but not both. The HMO must then ration care in order to make a profit – profit being a requisite for the survival of a private business. The employee, the patient, is naturally motivated to squeeze what he or she can from the third-party payer. Under a 'single payer' system (rhetorical code for federal socialized medicine), the citizen pays through taxes. Government and HMO are third-party, pre-paid payers. The patient’s position is, under those two systems, 'I have already paid, so I want only the most and the best – and today.' That demand is independent of medical need, independent of fairness, and independent of any thought about the effect on overall cost. That’s all natural; it is not a reflection of sinister attitude. Under a pre-paid system, seeking attention for trivialities or requesting a sub-specialist for a problem that can be handled quite competently by a physician’s assistant or a nurse-practitioner is only natural. Thirty years of experience have led me to the following conclusions on how to solve existing problems of health care and forestall new ones. Under a sensible – meaning private – plan, the patient can go anywhere he or she wants. Private insurance is 'third party,' but it is a mutually voluntary contract negotiated to cover whatever the patient selects and pays for. The patient’s premiums depend upon – or should depend upon – his or her life-style. That is, the cost to the patient of the protection from medical expenses should depend on the patient’s health habits, and his or her premiums should be adjusted accordingly. The patient can request and pay for all the benefits and 'rights' he or she chooses, from catastrophic to weekly drop-ins for reassurance. Catastrophic would be the least expensive, weekly visits the most expensive. The patient would be free to go to a sub-specialist at any time for any problem that could be handled quite handsomely at the primary-care office. But the patient usually would not, since the cost will be multiples of the cost of primary-care, and the patient will pay this out of pocket or his or her premiums will rise accordingly. Under a sane system, instead of pressuring the doctor for an expensive procedure under the slightest pretext, the patient would ask what the chances are of this procedure (say an MRI) being positive. When the doctor answers, 'Approximately five percent,' then the patient will respond, 'Then I’ll take your suggestions for treatment and get back with you if any of the symptoms or criteria you listed occur.' The numerically most significant (the most common) killers are diseases that are by and large self-inflicted – caused by lifestyle. The vast majority of cardiovascular disease (heart disease, stroke, peripheral vascular disease), and a significant amount of (and perhaps most) cancer, kidney disease, osteoporosis and large-joint arthritis are self-inflicted by smoking, dietary malfeasance, obesity, lack of exercise, alcohol and other substance abuse, and by their resultant, intermediate disorders – hypertension, hyperlipidemia (blood fats, including cholesterol), and diabetes (90% of diabetics have the self-inflicted Type 2, which is exclusive to overweight people). Not only life-threatening diseases are self-inflicted. Numerous others less deadly but as costly in lost productivity and needless suffering are also, including disorders of the gallbladder, back – muscular and spinal – and those transmitted sexually. If you believe people with bad health-habits are motivated by longevity, you are clearly someone with good health habits. People with bad habits are motivated only by cost. If we reward people for irresponsible behavior we reap a bumper harvest of irresponsible behavior. Paying people (by a 'third-party' system) to continue their bad health habits negates any potential motivation to live healthfully. When we physicians bring up the subject of making crucial changes in behavior, most patients who live unhealthfully listen with the face of the deer whose eyes are fixed on the headlights; they look at us – or respond – with the thought, 'If this guy doesn’t quit hassling me about the way I live, I’m going to switch to a real doctor who will cut out the prevention noise and give me my pills.' Why live healthfully when you get pre-paid care and can take free or subsidized medications? The HMO and government systems serve as 'enablers' by rewarding and subsidizing those bad habits, thus reinforcing them. The employee who lives responsibly pays for the expenses of his or her fellow employee who lives irresponsibly by foregoing what would have been a bigger salary but was withheld so that the employer can pay the HMO for the care of the irresponsible. This increases costs both by the exacerbation of the illnesses, and by patients’ tendencies to abuse the prepaid system. Six to twelve times per day at the clinic where I work in Ventura-Oxnard, California I hand out to obese patients a copy of my one-page detailed diet protocol: physical work-out daily, low-fat, high-fiber diet including just say no to the cheeseburgers and other fast foods. Regularly another patient comes in to announce that his or her insurance no longer covers the cost of prescription drugs. 'Therefore, may I have another copy of the diet and exercise protocol you gave me last year?' Translation: 'As soon as I exited your clinic last year I dumped your guide in the trash. Now that I have to pay for my medicines, I believe I just might be interested after all in getting rid of my diabetes, my high blood pressure, and my [go down the list].' I recall suggesting to one obese couch potato that he take and live by my diet protocol. 'Those are fighting words, doctor.' Well fine, live and die as you desire, but the idea of responsible taxpayers paying for that attitude and behavior is unfair, immoral, and counterproductive in terms of health and economics. A) Infinite and arbitrary demand because of third-party payer, and B) just as arbitrary bureaucratic rationing to control the resulting mushroom cloud of costs – these are the reasons Medicare’s budget is (adjusted for inflation), let’s see, about twelve or fifteen times that predicted by its founders, and would be much worse if it were not for bureaucratic restrictions placed upon the patient – call that the deletion of the patient’s freedom. These faults would increase geometrically under a government system-for-all because of infinite demand and ever-expanding bureaucracy to deal with the inevitable rationing. The only effective approach is a system in which the doctor can say, 'Mr. Lipidus, aren’t you tired of paying $5 or $10 per pill? Aren’t you tired of your insurance premiums going up annually because of your medical-care outlay? If you will eat properly and exercise daily as we discussed, you probably won’t need these pills at all, and you certainly won’t require this frequency of office-visits and hospital admissions, and your premiums are going to plummet.' I have never heard this crucial factor in the cost of medical care discussed on Capitol Hill. Genuine reform would provide that a patient's pay-in per year would depend on his or her habits – automobile insurance style. In the movie As Good as It Gets (I don’t recall the names of the characters, so we’ll call them Jack Nicholson and Helen Hunt), Jack has funded a rescue of Helen’s asthmatic eight-year-old son from the 'greedy' restrictions of the 'evil' corporate HMO. Helen makes a disgusted reference to the HMO, to which the audience responds with spirited approbation for her sentiments and derision for the HMO. HMOs were resorted to by employers as a means of controlling costs, which is to say rationing under the euphemism of 'managed care.' It’s private socialism, so to speak and it’s the wrong approach since it costs the patient his or her freedom and penalizes those who live healthfully as they pay for it with smaller salaries and restricted access to care. Let’s sing the refrain one more time: Costs should be controlled by coupling patient cost to patient behavior. Do away with government and HMO involvement. Provide the needy with the means to buy private insurance. Have laws against price conspiracies and monopoly by the insurance companies. People with unhealthy habits, now faced with high premiums and expensive pills, are going to find themselves suddenly very interested in Prevention. Costs will plummet. Now those with innocent bystander diseases such as asthma (except that some asthmatics smoke; no, I’m not kidding) will not have to call upon Jack to bail them out. California’s Medi-Cal program is a huge microcosm – a paradox that helps make the point – of the bane of federal involvement in medicine. The average wait for a patient at the clinic where I work is about 90 minutes and is often several hours because the waiting room is overrun with Medi-Cal moms bringing in their children with stuffy noses and stubbed toes. Whenever I see two or three charts waiting at the same treatment-room door, I know it’s a Medi-Cal family. One of the kids seems sick, so why not bring in all the kids? Another of them had a touch of diarrhea a few days ago. Still another bruised his knee last week. Bringing one? Bring them all. Why not?! Service is 'free.' Demand skyrockets. To compound the tragi-comedy, Medi-Cal is rife with ridiculous and costly rules. Government further escalates the cost of medical care as bureaucrats require procedures for those who don’t need them. If the primary-care physician wants a $150 referral to a specialist, the rules dictate that a $1000 MRI is required in advance, when part of the point of the referral was to obtain the specialist’s agreement that the MRI is not needed. With unlimited demand and irrational rules, no wonder it takes several weeks for the patient to reach the specialist she should have seen within a day or three of the referral. How are costs of demand and diktat to be controlled? Here’s how: by the arbitrary rationing of those same bureaucrats, who place restrictions on procedures for those who do need them. Welcome to the land of buronic wisdom. How does the new plan to have Medicare pay for the pharmacy costs of seniors affect a young working couple? Let’s suppose he is a heating-air conditioning specialist and she the manager of a store, both living responsibly and healthfully and doing their best to raise a child or two. Along comes the government and confiscates their income to pay for the $5 per pill medicines for a well-to-do 68- or 78-year-old who refuses to cure his diabetes, or to give up his cigars, or to walk from tee to green at the country club, or even to use the exercise room on the cruise ship. Nice going, government! How’s that for social justice? The same principles hold if the patient with bad habits, instead of enjoying a cruise, is on Medicaid or Medi-Cal. The system is just as pragmatically backward and morally reprehensible whether the one who refuses to change his or her habits is rich or poor. This subsidy of destructive habits, this enabling and rewarding those who choose not to live healthfully, is grossly unfair to those who live responsibly – who live healthfully. It escalates demand; it escalates costs. In short, it is counterproductive in every respect of health and cost. The third-party payer system is a disaster for everyone concerned except for HMOs and politicians who derive power from citizen dependency upon government. The more prevalent the HMO or government pre-pay system, the greater the demand. The only way a 'single-payer' (Medicare for all) universal government system is going to control stratospheric demand and costs is rationing that will make HMOs look like a genie fulfilling your every wish. Private medical savings accounts would beat the Medicare system in every respect. MSAs are pro-choice: seniors would have more freedom to select their care; they would be motivated to live healthfully, since the excess MSA money would be theirs to enjoy; and there would be greater availability of care since demand would be determined by need as agreed to by patient and physician. The best system for poor and marginal-income people would be state-provided vouchers or cash with which to buy private insurance. As the recipient’s health habits improve, he or she would be allowed to keep the difference (for a certain number of years) as the insurance premiums decreased because of those improved health habits. There could be decreasing coverage for every year the individual refuses to cooperate by living healthfully. Now you’re going to see smokers, substance-abusers and couch-potatoes suddenly discovering a new life style. This plan increases individual choice and decreases dependency on the government and will therefore be fiercely opposed by left-wing political forces, their politicians, and certain lobbies. By financing health care through a private patient-controlled system, the cost of health care will be as high or as low as the public wants. If the American public has a lapse of intellect and judgment serious enough to elect the politicians who want to socialize our medical care, I have a health advisory for you: get rich, or don’t get sick. On second thought, don’t bother getting rich: there will probably be laws against going outside the system – unless, of course, you’re a member of Congress. Charles L. Armstrong, MD [send him mail], is a practicing physician in Oxnard, California.

Subject: Re: Medical Malpractice Rates? From: Setanta To: johnny5 Date Posted: Thurs, Feb 24, 2005 at 09:36:13 (EST) Email Address: Not Provided Message: thank god i live in europe! private medical savings accounts sound like anarchy. those that can take care of themselves are ok and damn anyone who can't.

Subject: Insurance for 'Good' Patients From: Terri To: Setanta Date Posted: Thurs, Feb 24, 2005 at 11:06:49 (EST) Email Address: Not Provided Message: Setanta That was surely a frightening essay, but the idea of such medical insurance for 'good' patients is completely absurd and will never be seriously entertained. Happily I have never know such a physician.

Subject: Re: Insurance for 'Good' Patients From: johnny5 To: Terri Date Posted: Thurs, Feb 24, 2005 at 11:48:23 (EST) Email Address: johnny5@yahoo.com Message: I normally have voted republican - after recent events I knew I had to get bush out of the stewardship of our country. Never underestimate what a bunch of near sighted closed minded individuals can do to unravel the bright points of human compassion. The idea may be completely absurd but there is a lot that is seriously entertained and executed that is even more absurd - economic hit men - political assassinations - support for tyranny as long as they are USA friendly. Terri where all have you lived in your life? What classes of people have you intermingled with? I read a lot here from the NYtimes but the blues have lost the country to hypocritical oreilly's and limbaughs and bush's - absurd as it is. http://www.latimes.com/news/opinion/commentary/la-oe-scheer22feb22,0,744296,print.column?coll=la-news-comment-opinions Of, by and for Big Business Robert Scheer February 22, 2005 Watching the 109th Congress, one would be forgiven for thinking our Constitution was the blueprint for a government of Big Business, by Big Business and for Big Business. Forget the people — this is Robin Hood in reverse. Here's the agenda, as laid out by the president and the Republicans who control Congress: First, limit people's power to right wrongs done to them by corporations. Next, force people to repay usurious loans to credit card companies that make gazillions off the fine print. Then, for the coup de grace, hand over history's most successful public safety net to Wall Street. Of course, the GOP and the White House use slightly different language for this corporate-lobbyist trifecta: 'Tort reform,' 'eliminating abuse of bankruptcy' and 'keeping Social Security solvent' are the preferred Beltway phrasings for messing with the little guy. The first installment came last week with the passage of a law that will make it more difficult for consumers to win class-action lawsuits against private companies. Because state courts, which are closer to the people, have proved sympathetic to the liability claims of ordinary folks, the new legislation puts many class-action suits in federal courts, which turn out decisions more attuned to the heartfelt pleas of corporate attorneys. What is so phony about the much ballyhooed tort reform is that it aims not at overzealous lawyers but only at those who happen to represent poorer plaintiffs. Corporate lawyers are very much in play in writing this new legislation. Which is why we should expect severe limits on the amount of damages that can be collected by those harmed by asbestos exposure or by medical malpractice. Memo to would-be Erin Brockoviches: Don't give up your day job. Next on the corporate wish list is savaging Chapter 7 bankruptcy relief, which is offered to individuals who can't pay their debts. It allows them to give up nonessential assets in exchange for a fresh start. Chapter 7 has been a tool for family and societal stability for decades; torquing it in the favor of credit card companies has been a fantasy of the industry for almost as long. Never mind that it is obvious to everybody who gets junk mail that lenders should be far more responsible about how they hand out credit cards. The credit industry's sleazy come-ons, onerous interest rates and frantic marketing to teenagers go unaddressed by Congress; it is only consumers who are expected to be conscientious. Is 'onerous' too strong? Hardly. It's way beyond onerous when a struggling parent puts back-to-school expenses on an 'introductory rate' credit card and then sees the interest rate surge toward 30% when she's two days late with her payment. Now $500 in books and clothes are going to cost her thousands by the time she can afford to finish paying for them. Ironically, considering the number of senators and representatives who love to quote Scripture, such outrageous usury was explicitly condemned in the Old Testament as what it is, 'extortion.' And while the story of Jesus in the temple is also being roundly ignored, so is that other once- sacred pillar of the Republican philosophy, states' rights. Nearly all states have reasonable limits on interest rates, which have been trumped by D.C. politicians in the thrall of corporate lobbies. Sure, business interests deserve some clout in a democracy, but this is ridiculous. In fact, the GOP's legislative calendar looks like a wish list sent over to the White House from the Chamber of Commerce across the street. Senate Republican Majority Leader Bill Frist (Tenn.) dropped in there the other day after a breakfast meeting with the president to assure the chamber that its wishes would soon be law. After all, the chamber spent $168 million to push the anti-class-action lawsuit bill along. Still to come this session: raising allowable emissions standards on major pollutants, oil drilling in the Arctic National Wildlife Refuge and the granddaddy of all corporate payouts, privatization of Social Security. So what's the big revelation? That, almost 2,000 years after Jesus routed those scoundrels, the money changers have not merely reentered the temple — they are the temple.

Subject: Re: Medical Malpractice Rates? From: Alfred E. Neuman To: johnny5 Date Posted: Wed, Feb 23, 2005 at 22:49:24 (EST) Email Address: ziggystardust@aol.com Message: People honestly think the government can straighten out the healthcare industry? Yeah right, just like they fixed the airline and S&L industries. Mr. Krugman and his leftist bretheren need to quit expecting more government and less free market forces to be the answer.

Subject: Commercial Real Estate From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 13:53:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/23/business/23real.html A Lexington Ave. Deal Is Now Looking Up By JOHN HOLUSHA When SL Green Realty paid $480 million last summer for two buildings occupying the block bounded by Lexington and Third Avenues and 46th and 47th Streets, some real estate executives wondered what was going on. Green is a publicly traded real estate investment trust, and as such is required to pay out 90 percent of its earnings each year to shareholders. As a result, most REIT's tend to buy buildings that are almost like annuities - fully rented with leases that extend into the distant future. But TIAA-CREF, a giant pension fund for educators, which sold the buildings that SL Green bought at 485 Lexington and 750 Third Avenues, is planning to leave them by the end of the year, throwing 1.1 million square feet of office space on the market. That made the transaction look quite speculative, with the risk that the buildings would be a drag on SL Green's financial performance if it took a long time to find tenants. In addition, the interiors of the 1950's buildings were built for TIAA-CREF's specialized needs and will require substantial additional investment to attract tenants looking for modern office space. Indeed, Green has said it will invest $90 million to upgrade the buildings and convert them into a single 1.7-million-square-foot entity to be called Grand Central Square. Lately, however, the investment has been looking a lot less speculative. The vacancy rate for Midtown Manhattan has declined below 10 percent, the proportion that most real estate executives consider the dividing line between a surplus of space and a scarcity. And the rate is likely to keep declining because no major new office buildings are scheduled to open for a few years. The number of blocks of lease space over 125,000 square feet - which are attractive to a corporation seeking to establish a visible headquarters - has declined from 28 at the end of 2003 to 22 at the end of last year. And with buildings in Manhattan trading recently at an average of $350 a square foot, the $282 a square foot that Green paid for the two buildings is looking more like a bargain, real estate executives said. 'With the vacancy rate in the high 8's now, it looks like a very shrewd purchase at this point,' said Mitchell S. Steir, chief executive of Studley, a brokerage firm that represents tenants in negotiations with landlords like Green. 'You probably could not have picked a better time in the last 20 years to come on line with a block of space like that.' Others said the purchase fits well with Green's basic strategy of buying well-located, but tired, buildings and than refurbishing them to something approaching Class A status, the category of the most modern and best-situated properties. 'SL Green does a good job of fixing up buildings and jacking up the rent,' said Ruth Colp-Haber, of Wharton Property Advisors, a commercial brokerage. 'This purchase will have synergy because they have so much property in the area.' According to SL Green executives, the office space market in Midtown had tightened to the extent that they were forced to make a move. 'By the end of 2003, we realized that we were 95 percent leased,' said Marc Holliday, the president and chief executive of SL Green, whose chairman is Stephen L. Green. 'Office space is our fundamental product, and we realized we would not have enough vacant space to meet demand in '05 and '06,' Mr. Holliday said. The strong demand for the REIT's space went largely unnoticed because there was not a flood of new tenants to the Midtown area, Mr. Green said. 'It was our existing tenants who renewed their leases and expanded, adding 5,000 or 10,000 feet,' he said. The 900,000-square-foot 485 Lexington, which is to be empty by the end of the year, presents an opportunity for a major corporation to establish a headquarters without having to wait years for a new tower to be built, as Bloomberg L.P., the financial information company, did at the former Alexander's department store site on Lexington Avenue and 58th Street, or as Bank of America is doing at One Bryant Park at 42nd Street and the Avenue of the Americas, Mr. Green said. 'This is a branding opportunity within a block and a half of Grand Central,' he said. 'We can plan, execute and have someone in within a year.' The remaining 200,000 square feet of space to become available is in the tower of 750 Third Avenue, on the 18th to 33rd floors. The lower floors are occupied by long-term tenants. The renovations to the building will include replacing all 4,000 clear glass windows with tinted ones and replacing silver-covered outdoor trim at 485 Lexington to create a uniform dark blue look. The lobby and retail space in the buildings will be remodeled and clad in light-colored stone, producing the look of a dark mass over a light one. The company has already demolished and partially rebuilt the fifth floor of the Lexington Avenue building to demonstrate how the space can be divided and equipped. 'This is our marketing floor; this is how we put a new face on the building,' said Gerard T. Nocera, the chief operating officer of SL Green. TIAA-CREF occupied the Lexington Avenue building for so long that most brokers and prospective tenants are not familiar with it, he said. 'There was a single tenant in here, so it has not been part of the commercial market for 25 years,' Mr. Nocera said. 'We have to reintroduce it to the brokers and put it back onto the market.' SL Green executives clearly hope to attract a financial services company as the anchor tenant at 485 Lexington. They say they are prepared to remove a floor slab to create a 20-foot-high space that could be used for securities trading. Mr. Nocera said the buildings already had the back-up generators that financial companies require to maintain essential services in the event of power blackouts, and there was the capacity to add more if a company wanted its own independent power supply.

Subject: Your paper about Currency Crises From: Flor Pereda To: All Date Posted: Wed, Feb 23, 2005 at 11:42:02 (EST) Email Address: fpereda@cantv.net Message: Dear Dr. Krugman: I work in my master's tesis on currency crises. I read your paper title Currency Crises but I don't appear the date in which you have wrote it. In other to put it to the references correctly or completly, please inform me when was. Best Regard, FLOR PEREDA CARACAS-VENEZUELA

Subject: Re: Your paper about Currency Crises From: Jennifer To: Flor Pereda Date Posted: Wed, Feb 23, 2005 at 12:26:47 (EST) Email Address: Not Provided Message: What is the exact title and wheree was the essay published? Then we can look on Google to find the date.

Subject: Re: Your paper about Currency Crises From: Flor Pereda To: Jennifer Date Posted: Wed, Feb 23, 2005 at 15:34:00 (EST) Email Address: fpereda@cantv.net Message: What is the exact title and wheree was the essay published? Then we can look on Google to find the date. --- The title is 'Currency Crises' and it is publicated in the Krugman's web site at MIT and in this too. It is in the last position of the list with a '?'. Thank! FLOR PEREDA

Subject: Re: Your paper about Currency Crises From: Pancho Villa alias El Gringo To: Flor Pereda Date Posted: Wed, Feb 23, 2005 at 16:48:16 (EST) Email Address: nma@hotmail.com Message: Hope this will help: # Hardcover: 356 pages # Publisher: University of Chicago Press (September 1, 2000) # ISBN: 0226454622 # Product Dimensions: 9.3 x 6.2 x 1.1 inches

Subject: Re: Your paper about Currency Crises From: Jennifer To: Pancho Villa alias El Gringo Date Posted: Wed, Feb 23, 2005 at 19:44:16 (EST) Email Address: Not Provided Message: http://www.press.uchicago.edu/cgi-bin/hfs.cgi/00/14111.ctl Krugman, Paul, editor Currency Crises. 356 p., 49 line drawings, 41 tables. 6 x 9 2000 Series: (NBER-C) National Bureau of Economic Research Conference Report Cloth $47.00spec 0-226-45462-2 Fall 2000 There is no universally accepted definition of a currency crisis, but most would agree that they all involve one key element: investors fleeing a currency en masse out of fear that it might be devalued, in turn fueling the very devaluation they anticipated. Although such crises--the Latin American debt crisis of the 1980s, the speculations on European currencies in the early 1990s, and the ensuing Mexican, South American, and Asian crises--have played a central role in world affairs and continue to occur at an alarming rate, many questions about their causes and effects remain to be answered. In this wide-ranging volume, some of the best minds in economics focus on the historical and theoretical aspects of currency crises to investigate three fundamental issues: What drives currency crises? How should government behavior be modeled? And what are the actual consequences to the real economy? Reflecting the latest thinking on the subject, this offering from the NBER will serve as a useful basis for further debate on the theory and practice of speculative attacks, as well as a valuable resource as new crises loom. .... Paul Krugman wrote the Introduction, and a comment on an essay by Robert Gordon.

Subject: Re: Your paper about Currency Crises From: Flor To: Jennifer Date Posted: Thurs, Feb 24, 2005 at 06:08:06 (EST) Email Address: fpereda@cantv.net Message: Jennifer: Thank you very much!! FLOR PEREDA Caracas-Venezuela

Subject: Flor on Currency Crises From: Jennifer To: Flor Date Posted: Thurs, Feb 24, 2005 at 11:08:12 (EST) Email Address: Not Provided Message: Flor Pereda Please post your essay when you are done. I would like to read it.

Subject: Re: Your paper about Currency Crises From: Jennifer To: Pancho Villa alias El Gringo Date Posted: Wed, Feb 23, 2005 at 19:37:22 (EST) Email Address: Not Provided Message: Ah, the book, the book. I passed right by, looking for an essay. Thanks Pancho.

Subject: Sending Money to Mexican Families From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 11:06:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/23/international/americas/23migrants.html?pagewanted=all&position= Mexico's Migrants Profit From Dollars Sent Home By GINGER THOMPSON VALPARAÍSO, Mexico - Less than two months after he was elected, Mayor Alberto Ruiz Flores climbed in his truck and set out on a 26-hour road trip across the border to Southern California, carrying a wish list of public works projects to a backyard barbecue in Oxnard. The reason? To solicit money from some of the 400,000 Mexicans who abandon their country each year for work in the United States, including half his town in Central Mexico. Those who have left Valparaíso send home an estimated $100,000 a day, as much money in one month as the municipality will spend all year. A week later, Mr. Ruiz was at a restaurant in Aurora, Ill., for a meeting with a Mexican factory worker and billboard painter who has raised hundreds of thousands of dollars for Valparaíso. The week after that, he invited migrant leaders from Dallas and Las Vegas to join him at home for the annual crowning of the municipal beauty queen. 'I consider myself the mayor of Valparaíso, and the mayor to those, like you, who had to leave Valparaíso in search of a decent life,' Mr. Ruiz said at the start of each encounter. 'You have shown with your generosity that you are still a part of Mexico. Without you, who knows where we would be.' For Mr. Ruiz, politics does not stop at the United States border. The same is true across Mexico, the Caribbean and Latin America, where more and more officials like him answer to cross-border constituencies made up of the people at home who cast ballots and the ones abroad who pull the purse strings. Today more than ever, the remittances sent home by immigrant workers, both legal and illegal, are translating into political clout, and their communities in the United States, better organized and more vocal than before, have become social and political forces too important to ignore. It is a phenomenon that has made Washington a principal battleground to lobby support among Salvadorans for the Central American Free Trade Agreement; New York a crucial state in elections in the Dominican Republic, which allows its citizens to vote from the United States; and Chicago a mandatory campaign stop for Mexican politicians. On Tuesday, in Mexico City, migrant power was further consolidated when the lower Chamber of Deputies passed legislation allowing the migrants to cast absentee ballots from the United States, which will allow Mexicans with American citizenship to vote in both places. The measure opens the way for an estimated 10 million Mexicans and Mexican-Americans to vote in presidential elections next year, in a potential tidal wave that could have significant impact on this country's fledgling democracy. Other countries including Venezuela, Colombia, Brazil and Honduras also allow their migrants to cast absentee ballots. For Mexico, the logistics of the huge endeavor remain unclear; legislators estimated that operating polls in the United States could cost at least $50 million. The measure, which was passed by an overwhelming majority and is expected to win easy passage by the Senate, also provides money for Mexican political parties to campaign in the United States. However, it prohibits them from receiving foreign campaign donations. Already, the economic influence of the migrants is undeniable. The Inter-American Development Bank estimates that migrants sent more than $45 billion to Latin America and the Caribbean last year, exceeding foreign investment and official development assistance for the third year in a row. Mexico - where people compete with oil as the country's chief export - received some $17 billion in remittances, almost twice the amount of just four years ago. Óscar Chacón, of the immigrant advocacy group Enlaces América, calls the phenomenon a quiet revolution led by an expanding network of more than 500 mom and pop organizations that are filling in where more than a decade of free trade and foreign investment has failed to narrow the gap between the rich and poor. Today those immigrant groups are using the power that comes with their remittances to place ever greater demands on politicians at all levels. Their leaders have met with advisers to President Bush to push for sweeping immigration reform, and with presidents across Latin America to demand everything from the power to cast absentee ballots and run for office in their homelands, to universal health insurance and college scholarships. 'Once the voices of immigrants were weak,' said Efraín Jiménez, a former auto mechanic who now oversees multimillion-dollar infrastructure projects in Zacatecas, financed by immigrants in California. 'We had money, but we had no organizations. 'Now we have hundreds of organizations,' he said. 'No president can ignore us.' So far, migrants have lost more of those political battles than they have won, especially in the United States, where Mr. Bush's plans have stalled for a guest worker program. It would offer temporary legal status to an estimated three million Mexican laborers. Still, says Mr. Chacón, migrants are raising money for public works, forming political action committees to support candidates at home and, in small but growing numbers, returning home to run for public office themselves. Some are serving as mayors, city council members and state legislators, bringing fresh perspective and ideas from their time spent in the United States and new demands for accountability from governments long regarded as corrupt or ineffective. Like Mexico, most countries prohibit political parties from receiving foreign campaign donations. But in recent years, migrants in the United States have formed political action committees to sponsor campaign trips to America for candidates from their home countries. And they send delegations of campaign workers back home to help candidates press the pavement, more and more of which they have paid for. Few places understand the changes better than Zacatecas, the Central Mexican state where Mr. Ruiz serves as mayor. More than a century of migration has inextricably linked Zacatecas to the United States. Today more than half of the state's people live north of the border, mostly in California, Illinois and Texas. The Political Process Expands While the rest of Mexico debates whether to give migrants the power to cast absentee ballots, Zacatecas is already allowing its migrants to come home and run for office. Two migrants, including Andrés Bermúdez, a wealthy California grower known as the Tomato King, won mayoral races. Two other immigrants won seats in the state legislature. The governor of Zacatecas, Amalia García, has traveled to the United States at least four times since she was inaugurated in September. She spent a weekend in November in Los Angeles, listening to migrant complaints at the Mexican Consulate, discussing investment opportunities with Mexican business leaders, and helping to crown the new Miss Zacatecas at the annual Zacatecano Ball. When asked during her whirlwind visit to explain why she gives so much attention to Mexicans thousands of miles away, Ms. García said: 'I consider Zacatecas as a binational state. Although the reasons our people have migrated are painful, these people have guaranteed our social stability.' Southern California is the capital of the Mexican diaspora, and a hotbed of Mexican politics, led by the Federation of Zacatecan Clubs and men like Guadalupe Gómez. The federation meets in a drab gray building in the City Terrace section of East Los Angeles that looks more like an abandoned warehouse than a transnational seat of power. And its leaders are auto mechanics, postal workers, hospital administrators, real estate agents and tax consultants. Nearly everybody who wants to be anybody in Zacatecan politics has walked through its doors. Presidential agreements have been signed there. Political campaigns have been started. The federation proclaims that it is apolitical. But it is precisely its close ties to the government of Zacatecas that have helped it grow out of its members' garages into one of the most successful migrant fund-raising groups in the United States - and helped men like Mr. Gómez change from a mild-mannered tax consultant to a high-powered, cross-border political operative. Today in his lobbying efforts, he rubs shoulders with President Fox as well as President Bush. To spend time with the 44-year-old father of four is to glimpse a world without borders, where Spanglish is the first language. One day he is in Los Angeles addressing a ballroom full of Guatemalan mayors seeking his advice on how to get their own migrants to invest in public works projects back home. The next, he is giving the same advice to a room full of Mexican mayors in Zacatecas. In 1998, Mr. Gómez established a migrant political action committee that was key to electing the first opposition governor of Zacatecas, helping the state break free of nearly seven decades of authoritarian rule by the Institutional Revolutionary Party. Two years later he helped Mr. Fox win the support of Mexican migrants in his historic bid to become this country's first democratically elected opposition president. In an agreement negotiated by Mr. Gómez and other federation leaders, every dollar sent home was matched by three more dollars from the local, state and federal governments in a program called Tres por Uno, or Three for One. Mr. Gómez then negotiated with President Fox to nationalize the program. For the first time, Mexican migrants were not only sending money home, but also had a say in how the money was spent. 'We do not want anyone deciding for us what our communities need,' Mr. Gómez said. 'We are not going to Mexico asking for help. We are offering help. We want to play a key role in the future. 'If Mexico is ever going to get out of the third world,' he said, 'then we need to be a part of that.' Balancing Needs and Wants All it takes is one night at a federation meeting to understand that the relationship between Mexican elected officials and the migrants is not all love and happiness. Negotiations are far from easy. The street outside at a recent meeting was packed with sport utility vehicles. Inside, the meeting hall looked like a small sea of cowboy hats. Seated on the dais was a federal senator, two state legislators and at least seven members of Governor García's cabinet, including the ministers of economic development and agricultural industry, and the director of migrant affairs. In the audience sat at least 16 mayors from municipalities across Zacatecas. Each one got up to address the crowd. And they seemed to have one common plea. 'Many clubs have come to us offering to build rodeo arenas or to renovate churches in areas that do not have electricity or potable water,' said Mayor Rodolfo Monreal of the municipality of Fresnillo. 'We are asking you to consider projects with greater social impact. 'I understand that the migrants should have a voice in what we do in Mexico,' he went on. 'But we know better than anybody what our communities need, and those needs should come first.' The room began to grumble. Some of the migrant leaders whispered that the mayors did not care so much about 'projects with greater social impact' as they did about projects aimed at making the government look good to voters. Other mayors argued back that the migrants had fallen out of touch with Mexican realities, and that they wanted to remake Mexico in the image of the United States. 'The migrants want to have here the lives they have over there,' Mr. Monreal said. 'They do not listen to what we want.' Mr. Jiménez, who manages the federation's public works spending, stepped to the microphone with a diplomat's demeanor. It is true, he told the mayors, that migrants might start out renovating churches. Many of them want to show thanks to God for their success in the United States. But if local authorities support their churches, the migrants will come around and support local authorities to build roads and schools and clinics. Mr. Gómez watched from the back of the room. He said he had been listening to this debate since the federation began. For a while, he said, the staunchly secular government refused to contribute public funds to help renovate churches - almost all of them Roman Catholic - or build recreation facilities. But when migrants threatened to withdraw from Tres por Uno, the government relented, and in the last four years it has helped renovate more than 100 churches in Zacatecas alone. 'Those are the projects that inspired us to organize,' Mr. Gómez said. 'And if the government says no to what we want, then we are not going to support the projects the government wants.' Hardships and Homecomings Christmas in Valparaíso is one of the best times and places to get a look at what drives immigrant politics, and at the hardships and homecomings that make this cross-border phenomenon what it is. In November, villages like Boquilla del Refugio were almost empty. By the first weekend of December, they had come back to life as immigrants came home from the United States for the holiday. Lights turned on in houses that are vacant the rest of the year. Expensive sport utility vehicles with license plates from Arizona, Oklahoma, Colorado, Texas, California and Illinois roared through the streets. Local stores extended their hours and doubled their prices. Lines of people wearing American-style T-shirts and baseball caps crawled up the aisles of a nearby chapel and the walls around the sanctuary were sprinkled with photos of Mexicans and Mexican-Americans in the United States armed forces, who had returned safely from duty in Iraq. Almost every night there was a dance, flowing with beer and tequila. And when there was no dance, the immigrants hired street musicians to follow them as they paraded, swigging tequila, through town. There were success stories among the throngs who had come home. Román Cabral, the state legislator from Valparaíso, lived 30 years in California and Oregon. He started out as a dishwasher, and when he left last year to run for office, he was earning millions from his construction company and used-car lots. But more common were men like the president of the hometown club from Boquilla del Refugio, a 54-year-old metal worker named Rosendo Rivera. The club was started by a dozen working-class immigrants in the Chicago area, and in the last three years it has raised more than $350,000 for projects in a town where the population has dropped to nearly 600 people from 2,000. In Aurora, Mr. Rivera lives a working-class life, supplementing the income from his factory job by selling expensive cowboy attire. In Boquilla del Refugio, he is received like a hero. Mayor Ruiz said: 'If you listen to the migrants, all you will hear are success stories. They never talk about how hard their lives are in the United States. All of them say they have made it, and they spend money as if they are rich. 'So people here admire them,' Mr. Ruiz said. 'They have tremendous influence.' But after decades of watching the phenomenon up close, Mr. Ruiz said he saw immigrants and their remittances as more of a mixed blessing. The more people go, the more money flows back. But the more money that flows back, the more people go. And once everyone is gone, he said, immigrants will not have any reason to send more money. There are already places in Zacatecas, he said, where remittances have peaked and are beginning to decline. Boquilla del Refugio seems headed toward the same fate. Florencio Herrera, treasurer of the village's hometown association and a resident of Elgin, Ill., says the elementary school buses in children from other communities so the government will keep it open. There are so few people left to worship in the village's church, lovingly renovated with remittances from the United States, that Mr. Herrera calls it an 'empty palace.' Still, the club raises money. On the first Saturday night of December, it held a dance that would help pay to install a sewage system in Boquilla del Refugio. When asked why he keeps raising money for a ghost town, Mr. Rivera seems stuck at first for an answer. 'I ask myself that sometimes,' he said. 'I guess because I lived here and suffered here, and I want to make things better. But no matter how much we try to make things better, it's not going to stop people from leaving.' 'I guess it's just a matter of pride,' he concluded. 'It's our way of making something of ourselves, and making a difference in the world.'

Subject: Re: Sending Money to Mexican Families From: johnny5 To: Emma Date Posted: Wed, Feb 23, 2005 at 14:23:54 (EST) Email Address: johnny5@yahoo.com Message: If the dollar falls a lot and all our jobs leave to asia or india - what would be the incentive to being broke and unemployed here as compared to anywhere else?

Subject: Re: Sending Money to Mexican Families From: Harry Paranuts To: johnny5 Date Posted: Wed, Feb 23, 2005 at 23:01:07 (EST) Email Address: harryp@mindspring.com Message: All of our jobs are not leaving to Asia and India - quit believing all that drivel that Lou Dobbs is spewing.

Subject: India: Having the Vote and Little Else From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 10:51:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/23/international/asia/23india.html?pagewanted=all&position= In a Corner of India, They Have the Vote, but Little Else By SOMINI SENGUPTA PATNA, India - On the next-to-last day of the toughest election race of his career, Laloo Prasad Yadav, one of India's canniest and most caricatured politicians, is wrapped up in a rambunctious campaign caravan known here as a 'road show.' Laloo-ji, as he is universally called, sits in the cab of his forest-green campaign bus, eats sugar-cane candy out of a plastic bag and promises factories and bridges to the roaring crowds outside. Marigold garlands are tossed at him in adoration; campaign fliers are tossed out to the crowds; his fans practically stampede for a chance to touch his outstretched hand. Mr. Yadav, scion of lower-caste farmers, self-fashioned champion of the downtrodden, now a federal cabinet minister who rules India's third most populous state, Bihar, worships them in return. 'I salute you, I pay my respect to you,' he bellows. 'The government of India is yours.' As dusk turns to dark, on the edges of the road, Laloo loyalists display his party symbol in a show of support: they hold up lanterns to light up the road. Actually, they do not have much of a choice. Only 5 percent of households in Bihar have electricity, compared with 40 percent nationwide, according to the World Bank. On virtually every other development indicator, from infant mortality to literacy to its share of people below the poverty line, Bihar and its 82 million people sit at or near the bottom. Many of its politicians, jailed on criminal charges, are campaigning from behind bars. Unemployed Biharis leave the state in droves to seek work across India. And a spate of widely publicized kidnappings of doctors, businessmen and, lately, schoolchildren has prompted one of Mr. Yadav's political rivals, Ram Vilas Paswan, to remark, 'Except kidnappings, there is not a single industry in Bihar.' At a time when other parts of India are experiencing remarkable economic growth and optimism, Bihar is a stark reminder of an India left behind. In this respect, Bihar's state assembly race, the results of which will be announced Sunday, offers an object lesson in Indian elections - one that upends conventional wisdom on what democracy yields in poor countries. Democracy here, as Mr. Yadav's ascent amply demonstrates, has empowered those on the lower rungs of the social ladder. But it has not necessarily delivered material gains, like roads, hospitals and drinking water, nor a longer, healthier life. 'If you expect democracy to deliver development, governance, there's nothing of the sort,' observed Yogendra Yadav, a sociologist who studies elections and is no relation to Mr. Yadav, the politician. 'It's paradoxical.' Mr. Yadav has never cast himself as Bihar's Mr. Pothole. Yet for 15 years he has worked the arithmetic of Bihar's identity politics in his favor: with a coalition of voters most threatened by upper-caste Hindu rule, mainly Muslims and lower-caste Biharis, he and his party have consistently won over one-third of the electorate, enough to choose the chief minister of the state. (While Mr. Yadav does not technically hold the post - he is forbidden to, after his role in a corruption scandal a few years back - he still rules through his wife, Rabri Devi, whom he picked as his successor.) However, that coalition is now widely believed to be eroding. Middle- and low-caste voters could splinter among Mr. Yadav and his two main rivals, who come from the low-end of the caste ladder. Muslims no longer have a Hindu nationalist government in Delhi to fear. Therein, as many analysts see it, lies the test of these elections: how long can India's most infamous populist milk his folksy brand of identity politics without dispensing other material benefits to his people? Not much longer, his critics and rivals say. Nitish Kumar, the candidate aligned with the Hindu nationalist Bharatiya Janata Party, has been trumpeting the need to restore law and order. An independent lower-caste candidate in Rabri Devi's home district has cast herself as the 'nokrani against the maharani,' the housemaid against the queen. Anwar Ali, the spokesman for a group that represents lower-caste Muslims (in India, caste divisions are not restricted to Hindus), has urged Muslim voters to think independently instead of reflexively backing Mr. Yadav out of fear. Among Mr. Yadav's claims to fame is having checked Bihar's long and ugly history of Hindu-Muslim riots. 'The question of bread, the question of the stomach remains,' Mr. Ali argued. Mr. Paswan, who is stumping on behalf of a candidate who happens to be in jail right now, has promised a raft of services for the poor: interest-free loans, free school lunches, a financial bonus for parents with girl children, jobs. 'My fight is not for caste, not for religion,' Mr. Paswan told a campaign rally Monday evening. 'My friends, I fight for development.' On the edges of the rally, Surendar Jha, an upper-caste farmer who had voted for Mr. Yadav in previous elections, said this time he would defect. 'In the last 15 years, he has eaten flesh from our bodies,' Mr. Jha said. 'If we vote for him again, he'll eat our bones.' For his part, Mr. Yadav remained unbowed about his victory. 'Every election I face is a tough fight,' he said in an interview on his shaded patio, as one of his uniformed attendants came running up with a fistful of tobacco. Mr. Yadav disgorged into the spittoon, before tucking a fresh bunch into his mouth. 'Always Laloo versus all,' he added. 'Everybody 'gherao' me, and I escape.' (In Hindi, to 'gherao' means to corral.) At a Laloo rally on Sunday, a group of men sat in the shade of a tree strung with loudspeakers and waited for his helicopter to arrive. Asked what he has gained from Laloo's 15-year reign, Ganesh Thakur, 48, a farmer from the Yadav caste, said it was neither electricity nor jobs, the two things his village needs badly, but something else altogether. 'He gave us self-respect,' Mr. Thakur said. 'We walk with our heads high.' Cries of 'Laloo jindabad!' - 'Long Live Laloo!' - rose up from the fields. Mr. Yadav's helicopter arrived, kicking up clouds of dust. Dressed head to toe in white, waving a sky-blue hand towel, Mr. Yadav boomed from the stage. 'All the poor people, they have given a lot of strength, a lot of power for Laloo to conquer Delhi,' he cried. 'Now we can do development in Bihar. The Treasury is open to us.'

Subject: Interest Rates From: Terri To: All Date Posted: Wed, Feb 23, 2005 at 10:23:12 (EST) Email Address: Not Provided Message: Notice that the consumer inflation report showed no inflation to worry about, and the long term Treasury note is yielding a low 4.24%. The long term bond market is showing remarkable stability, and this is a positive sign indeed. Whoever is buying is not worried about inflation increasing from here. Surprising, but nonetheless the bond market is stable at healthy interest rates.

Subject: Re: Interest Rates From: johnny5 To: Terri Date Posted: Wed, Feb 23, 2005 at 10:33:42 (EST) Email Address: johnny5@yahoo.com Message: I thought it had been pointed out by the BIS and IMF and several others when looking at post bubble dynamics - it is not CPI you must concern yourself with - but asset inflation - as in the 2 biggest bubbles of this past century - the america of the late 20's and the japanese of recently - CPI was not high?

Subject: Asset Prices From: Terri To: johnny5 Date Posted: Wed, Feb 23, 2005 at 12:39:53 (EST) Email Address: Not Provided Message: There are selectively high prices for certain assets, such as real estate in several urban and related areas or oil, but I find no reason to compare this to the American in 1929 or Japan in 1989. Conditions in Japan in 1989 and America in 1929 were also far different. For the present, I think long term interest rates are telling.

Subject: Saving and Debt From: Terri To: Terri Date Posted: Wed, Feb 23, 2005 at 14:08:30 (EST) Email Address: Not Provided Message: The guess is that the problems we may face will be due to lack of household saving and government debt as a result of a decline in tax revenue from high income households and corporations. So, long term interest rates may be a proper guide to our health. We can wish Paul Krugman will write extensively on these issues should they seem pressing enough.

Subject: Fund Managers understating risk by 40%? From: johnny5 To: All Date Posted: Wed, Feb 23, 2005 at 09:06:55 (EST) Email Address: johnny5@yahoo.com Message: Isaac Asimov's 'machines' still aren't there yet. http://www.wilshire.com/Company/Fund_Managers.pdf January 26, 2005 US – The conventional quantitative methods of portfolio analysis widely used by fund managers could systematically understate the risks in both passively managed and actively managed investment portfolios, Wilshire Associates has warned. According to research by the consulting firm, excess value at risk in retirement equity portfolios could be as high as 5% of the portfolio. Robert Kuberek, a senior managing director at Wilshire, commented: “The biases are such that the standard deviation of return in a pension fund’s equity portfolio may be understated by 40% or more. “As a result, the excess value at risk for a conventional equity portfolio may be as much as 5% of the portfolio. For a typical individual investor with a US$500,000 retirement nest egg, this could amount to an unintended exposure to loss of as much as US$25,000 during a one year period.” http://www.pionline.com/article.cms?articleId=49234 Getting a Handle on Risk--Really Pensions & Investments (02/07/05) Vol. 33, No. 3, P. 8 ; Chernoff, Joel Portfolio managers often use optimizers in investment decisions, but these tools underestimate risk, leaving many portfolios open to exposures up to 5 percent of the value of the portfolio in a given year. Some managers that rely merely on risk ratings are also at risk for taking on too many unknown exposures because those ratings are often based on similar biases. Wilshire Associates Inc. stated its new ShaPTSE estimator has been created to eliminate a majority of those biases, including those segments unrelated to geographic location and industry. http://uk.biz.yahoo.com/050125/81/fb0wn.html Wilshire Associates' Research Concludes Excess Value at Risk in Retirement Equity Portfolios as High as Five Percent SANTA MONICA, Calif., Jan. 25, 2005 (PRIMEZONE) -- Research announced today by Wilshire Associates Incorporated, a global leader in investment technology, investment consulting and investment management, concludes that conventional quantitative methods of portfolio analysis in wide use by fund managers can systematically understate the risks in both passively managed and actively managed investment portfolios. 'The biases are such that the standard deviation of return in a pension fund's equity portfolio may be understated by 40% or more. As a result, the excess value at risk for a conventional equity portfolio may be as much as five percent of the portfolio. For a typical individual investor with a $500,000 retirement nest egg, this could amount to an unintended exposure to loss of as much as $25,000 during a one year period,' noted Robert Kuberek, a senior managing director at Wilshire Associates who supervises quantitative research and software development for the Equity Management, Fixed Income Management, Total Fund Management and Asset Allocation products offered by the firm. To reduce or eliminate these kinds of biases in risk estimation, Wilshire Analytics, a business unit of Wilshire Associates that develops and markets asset allocation, risk management and accounting analytical solutions, has developed sophisticated, new technology and has incorporated it into the most recent versions of Wilshire's analytical systems provided to investment professionals, Mr. Kuberek said. Among the technology solutions utilizing the new technology are The Wilshire Atlas, The Wilshire Axiom, The Wilshire Spectrum and The Wilshire iQuantum, the next generation in analytical solutions. Traditionally, portfolio managers estimate risk in a portfolio using the statistical notion of variance, a measure of randomness in the dispersion of payoffs that was pioneered in the 1950's by Nobel laureate Harry Markowitz. Since the mid-1970's analytics firms like Wilshire have used this powerful and highly successful idea to measure investment risk in institutional portfolios such as pension funds that focus on total return. Since the early 1990's, J. P. Morgan has used an essentially equivalent approach, characterized Value-at-Risk, for financial institutions such as banks and brokerage firms that focus on dollar exposure. Both approaches are based on the same underlying mathematics and measure essentially the same thing. According to Mr. Kuberek, a critical step in the risk measurement process is estimation of the variances and covariances for the variables that drive changes in portfolio value. This set of numbers, arranged in an array called a matrix, summarizes the risk level of the underlying variables, taking into account the tendency of some of the variables to move together. Frequently, the matrix of variances and covariances is estimated using historical returns. However, he noted that when historical returns are used to estimate variances and covariances, noise in the particular sample employed results in errors in the estimated covariance matrix. This means that some of the sample covariances will be smaller, and some larger, than they really are. 'On average, these errors in the sample covariance matrix will tend to cancel: the sample covariance matrix is said to be an unbiased estimator for the true covariance matrix. However, if optimization is applied to the portfolio with the objective of minimizing risk, using the sample covariance matrix as an input, the resulting 'optimized' portfolio will almost always appear to be less risky than it really is: optimization tends to favor portfolios for which risk is underestimated,' said Peter Matheos, Ph.D., a managing director at Wilshire and the lead researcher for this study. 'The amount of the bias will depend on the number and magnitudes of the underlying true covariances and on the length of the historical sample used to estimate them.' 'The tendency for optimization to result in portfolios for which estimation errors are greatest is known. However, what may not be as well appreciated is that even if optimization is not used to construct portfolios explicitly, it could often be the case that optimization is used implicitly. This would happen if in considering trades portfolio managers cannot resist the temptation to 'peek' at their risk estimates,' said Mr. Kuberek. 'The tendency would be to attribute higher reward/risk ratios to trades which produce value-added at what appears to be low marginal risk. Since such trades appear attractive, chances are good that the trades will be executed, and the resulting positions will reflect a preponderance of the trades. However, unless the portfolio manager has a lot of data from which to estimate variances and covariances, what is 'low risk' will likely depend on exactly the same covariance matrix that is used to report risk on the portfolio after the trades are done. This more insidious form of risk estimation bias may be less pronounced than in the case where optimization is used explicitly, but likely will still be present.' Using mathematics that have only been known for a few years, Wilshire's SHaPTSE estimator explicitly corrects for the bias in the estimate of portfolio risk that results from the use the sample covariance matrix. (SHaPTSE stands for Structured Hadamard Product Target Shrinkage Estimator.) The SHaPTSE estimator works by adjusting the sample covariance matrix in a way that takes account of things that are known (or can be assumed) about the true covariance matrix. In this respect, the SHaPTSE estimator resembles a Bayesian estimator. 'From the point of view of the ultimate investor, the issue is a technical one,' Mr. Kuberek acknowledged. 'However, it is a little like a computer virus: the technical details of how computers are infected with a virus and how a virus works are obscure to many of us, but the effects are obvious, and sometimes disastrous, to most of us.' 'For investors the main concern likely will be the possibility of underestimating risk in the portfolio -- in particular, being caught off-guard by portfolios whose true risks are large but whose estimated risks are small. SHaPTSE directly addresses that possibility by optimally adjusting the measured risk in the portfolio and offering a better characterization of that risk. This is a material step forward in practical modern risk management,' said Dr. Matheos. About Wilshire Associates Wilshire Associates is a leading global investment technology, investment consulting and investment management firm with four business units including Wilshire Analytics, Wilshire Funds Management, Wilshire Consulting, and Wilshire Private Markets. The firm was founded in 1972 revolutionizing the industry by pioneering the application of investment analytics and research for investment managers in the institutional marketplace. Wilshire also is credited with helping to develop the field of quantitative investment analysis that uses mathematical tools to analyze market risks. All other business units evolved from Wilshire's strong analytics foundation. Wilshire developed the index now known as the Dow Jones Wilshire 5000 Total Market Index, the first asset/liability models for pension funds, the first U.S. equity style metrics work and many other 'firsts' as the firm grew to more than 300 employees serving the investment needs of institutional and high net worth clients around the world. Based in Santa Monica, CA, Wilshire provides services to clients in more than 20 countries representing in excess of 600 organizations with assets totaling more than $12.5 trillion. With eight offices on four continents, Wilshire Associates and its affiliates are dedicated to providing clients with the highest quality counsel, products and services. For more information go to www.wilshire.com

Subject: The Dollar From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 06:24:14 (EST) Email Address: Not Provided Message: These past 2 years the stock and bond markets have not reacted adversely to the government deficit, the balance of trade deficit, the decline in value of the dollar, or even the rise in energy costs. We may now find if a change in central bank dollar policy has such market impacts.

Subject: Re: The Dollar From: emma To: Emma Date Posted: Wed, Feb 23, 2005 at 07:26:09 (EST) Email Address: Not Provided Message: Markets to watch adjust to a currency value change should the change continue are Europe, Canada, Australia.

Subject: A Decline in Dollar Value From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 05:52:32 (EST) Email Address: Not Provided Message: What puzzles me is why a central bank would discuss a change in reserve policy before the policy is implemented. Why should the Korean central bank tell us of policy before there has been significant diversification? Currency traders will simply play off the information. Curious.

Subject: Good question From: Pete Weis To: Emma Date Posted: Wed, Feb 23, 2005 at 09:21:47 (EST) Email Address: Not Provided Message: Not sure either unless they are sending a public message to the US administration and Congress as they are about to go into budget discussions. Here is more: Dollar Declines as Bank of Korea Plans to Diversify Reserves Feb. 22 (Bloomberg) -- The dollar fell the most in more than four months against the yen and dropped versus the euro, Korean won and at least 30 other currencies after the Bank of Korea said it plans to diversify its reserves. South Korea's central bank, which has a total of $200 billion in reserves, said in a Feb. 18 report to a parliamentary committee it will increase investments in assets denominated in currencies such as the Australian and Canadian dollars. The country's reserves are the world's fourth biggest, behind Japan, China and Taiwan, according to data compiled by Bloomberg. ``The market will now be looking to other central banks and what they will be doing, including the European central banks and Middle Eastern banks,'' said Mansoor Mohi-Uddin, head of currency strategy at UBS AG in London. ``The market has got nervous and has continued selling the dollar.'' The dollar weakened 1.3 percent to 104.26 yen at 8:51 a.m. in New York, from 105.54 late yesterday in Toronto, according to EBS, an electronic foreign-exchange dealing system. It dropped to as low as $1.3227 per euro, from $1.3068. U.S. markets were closed yesterday for President's Day. UBS forecasts the dollar will fall to a record $1.40 per euro by year-end. Australia's currency climbed as high as 79.57 U.S. cents today, the strongest in more than a year. Canada's dollar reached 81.71 cents, the highest in a month. ``Support for the dollar is quickly disappearing,'' said Kenichiro Ikezawa, who manages $1 billion in overseas debt at Daiwa SB Investments in Tokyo. Korea's report ``feeds into suspicion that others are also seeking to cut their exposure to the dollar.'' Pimco's Call The dollar has dropped for the past three years against the euro and the yen, in part on concern demand for U.S. assets will fail to match a widening current-account deficit. The gap was a record $164.7 billion in the third quarter, meaning the U.S. must attract $1.8 billion a day to fund the shortfall and support the dollar's value, according to Bloomberg calculations. ``I'd prefer not to own dollars,'' said Andrew Bosomworth, a former European Central Bank economist and a fund manager at Pacific Investment Management Co. in Munich. Pimco manages about $415 billion in assets. ``The list of fundamentals doesn't add up to a stack of positives for the U.S. currency.'' Korean investors, including the central bank, are the fifth- biggest foreign holders of U.S. Treasuries, with $69 billion as of December, the most recent figures available, according to the Treasury Department. Japan, the largest, has $711.8 billion. The Bank of Korea report was given to some legislators on Feb. 18 and reported by Reuters yesterday. `The Anti-Dollar' ``The likes of Thailand, Taiwan and smaller, medium-sized central banks may follow suit'' in diversifying their reserves, said Stephen Jen, global head of currency research at Morgan Stanley in London. ``The euro is going to be the anti-dollar,'' he said. Japan and China, the second-biggest holder of Treasuries, probably won't shift out of the dollar, Jen said. They ``cannot diversify while the dollar is under pressure.'' China has kept its currency pegged to the dollar since 1995. Japan sold a record amount of yen in the first quarter of last year to help stem its advance. ``In the long run I still have faith in the U.S. dollar,'' said Jen, who raised his forecasts for the currency on Feb. 10. Jen predicts the dollar will trade at $1.24 per euro and 96 yen at year-end, up from previous estimates of $1.32 and 92 yen. Other currency strategists, including Meg Browne at Brown Brothers Harriman & Co. in New York, also said they expect the dollar to regain momentum after today's slide. ``There has been an overreaction'' to the Korean report, she said. Browne said the dollar may rebound to $1.30 per euro. The Bank of Korea report, distributed to members of the parliament's finance and economy committee in advance of a debate scheduled for Feb. 24, also said the bank will expand investments into assets with lower credit ratings than the South Korean government. The plan must be approved by parliament. `Sheer Size' ``The sheer size of Korea's reserves makes it unignorable,'' said Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth-largest lender. ``That revives the memory in people's minds how badly the dollar was sold when Russia said it was diversifying.'' The dollar fell to a then-record against the euro on Nov. 23 after Russia's central bank said it may increase the amount of euros in its reserves. The dollar slid as much as half a percent against the euro on Jan. 24, after a survey sponsored by Royal Bank of Scotland Plc showed central banks boosted euro holdings. Almost 70 percent of the 56 central banks surveyed said they increased exposure to the 12-nation currency, according to the survey conducted by Central Banking Publications Ltd., a London- based publisher, between September and December 2004. `Good to Diversify' U.S. Treasuries were the second-worst-performing major government market in the world last year, returning 3.5 percent to investors, according to Merrill Lynch & Co. indexes. Only Japanese bonds, which returned 1.3 percent, did worse among the world's largest government bond markets. ``To have a high proportion in U.S. assets is far from ideal, so it's good to diversify,'' said Mark Austin, head of currency strategy at HSBC Holdings Plc in London. HSBC forecasts the dollar will fall to a record $1.40 per euro and to 98 yen, the weakest in a decade, by the end of the year. ``South Korea wants to start picking up higher yields, so that includes moves in to the Australian currency and sterling, and they'll be buying government bonds,'' said Austin. The yen's advance began earlier today on speculation Japan's economy will recover from its fourth recession since 1991. Traders may renew bets on the yen after it retreated 3 percent from a five-year high of 101.69 on Jan. 17, said Sabrina Jacobs, a currency strategist at Dresdner Kleinwort Wasserstein. Japanese Economy ``Investors are increasingly realizing that the second-half recession in 2004 was the low point in Japan and that it's most likely getting better,'' said Singapore-based Jacobs. ``That's helping the yen.'' Finance Minister Sadakazu Tanigaki said on Feb. 20 Japan's economy will ``improve in the latter half of this year,'' after it contracted at an annualized 0.5 percent pace in the fourth quarter. The economy contracted for three straight quarters. Japan's Cabinet office kept its assessment that the economy is recovering, in its February report released today. The government removed currency moves as a risk for the economic outlook in its report. A stronger currency may slow export growth by making Japanese goods more expensive abroad.

Subject: A Decline in Dollar Value - 1 From: Emma To: Emma Date Posted: Wed, Feb 23, 2005 at 06:00:33 (EST) Email Address: Not Provided Message: Does OPEC have the intent and market impact to increase the price of oil in line with any decline of the value of the dollar?

Subject: OPEC From: Pete Weis To: Emma Date Posted: Wed, Feb 23, 2005 at 15:06:57 (EST) Email Address: Not Provided Message: OPEC ministers have talked about demanding Euros instead of US dollars for their oil, but so far its only talk. What they have done at times is cut production when they feel they are getting too few dollars for their oil. They've stated that at least part of the reason for production cuts has been the falling dollar.

Subject: Re: OPEC From: johnny5 To: Pete Weis Date Posted: Wed, Feb 23, 2005 at 17:41:47 (EST) Email Address: johnny5@yahoo.com Message: But Pete, as he opens a new pier for oil trading he promises he will stabilize prices! http://www.nasdaq.com/asp/quotes_news.asp?cpath=20050223\ACQDJON200502230432DOWJONESDJONLINE000315.htm&selected=9999&StoryTargetFrame=_top&mkt=WORLD&chk=unchecked&lang=&link=&headlinereturnpage=http://www.international.nasdaq.com/asp/gmWorldNews.asp&headl OPEC President: OPEC Will Act To Stabilize World Oil Market MANAMA, Bahrain -(Dow Jones)- The president of the Organization of Petroleum Exporting Countries said Wednesday that OPEC won't allow the prices to 'surge to record levels' and will work to stabilize the global oil market. Sheik Ahmad Fahad al-Ahmad al-Sabah, who is also Kuwait Oil Minister, was reacting to an increase in oil prices Tuesday when crude oil futures for March in New York ended up nearly $3 a barrel to a more than three-month high. Front-month light, sweet crude futures on the New York Mercantile Exchange settled up $2.80 at $51.15 - the highest settlement price this year. Al-Sabah said there will be an OPEC reaction to help cap any surge in oil prices, but gave no specific details. 'Oil prices rose again yesterday. It's premature to say that we will support or reject a production increase but I can say that we will act to stabilize the market as we did in 2004', he said. 'This is our policy which is part of OPEC strategy,' he added. Tuesday, al-Sabah said that OPEC was unlikely to cut output at its upcoming March 16 meeting in Isfahan, Iran. 'Until now, we don't have to cut. The price is very high and we have to respect that price and cooperate with others for oil market stability,' he said. Al-Sabah was speaking to reporters in Kuwait on the sidelines of a function marking the opening of a new pier at al-Ahmadi oil export terminal. -By Abdulla Fardan, Dow Jones Newswires; (973) 17530758; abdulla.fardan@ dowjones.com

Subject: Right From: Pete Weis To: johnny5 Date Posted: Wed, Feb 23, 2005 at 19:44:46 (EST) Email Address: Not Provided Message: Right Johnny5. You notice he does not say they will act to reduce pricing, but rather 'stabilize'. They don't like it when the pricing is erratic, especially when it falls steeply. What they like is a 'stable', steady increase in pricing.

Subject: Smooth it out! From: johnny5 To: Pete Weis Date Posted: Thurs, Feb 24, 2005 at 05:38:29 (EST) Email Address: johnny5@yahoo.com Message: How they word things keeps noam chomsky up at night. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=476981 I can't help but think of terri when I read this - I don't know why that is so however - I just do: Irrational Optimism ELROY DIMSON London Business School - Institute of Finance and Accounting PAUL MARSH London Business School - Institute of Finance and Accounting MIKE STAUNTON London Business School - Institute of Finance and Accounting December 2003 LBS Institute of Finance and Accounting Working Paper No. IFA397 Abstract: We address the tendency of many investors to overestimate the rewards and underestimate the risks of investing in stocks over the long term - that is, investors' irrational optimism. In particular, we examine the widely held belief that stocks are a 'safe' investment for the long run. The probability of experiencing a real loss on equities depends on the expected real return and standard deviation of stocks. Judgments about the future magnitude of these two parameters typically involve extrapolating from history. We use a global database of real equity returns from 16 countries during the 103-year period from 1900 through 2002 to confront the optimism of investors with the reality of history. Since 1900, the worldwide real return on equities averaged close to 5 percent a year (before costs, fees, and taxes). This is appreciably lower than is frequently quoted from historical averages, a difference that arises because we use a longer time frame than other studies and adopt a global focus. Prior views on the long-run safety of equities have been overly influenced by the experience of the United States. Furthermore, the US evidence that, over the long haul, stocks have beaten inflation over all 20-year periods is based on relatively few nonoverlapping observations and is hence subject to large sampling error. To counteract this dependency on projections of the US experience, we examine the histories of other countries. We find only three non-US equity markets (with a fourth on the borderline) that never experienced a shortfall in real returns over a 20-year period. The worst 20-year real returns of 11 countries were negative. Historically, in 6 of the 16 countries, investors would need to have waited more than 50 years to be assured of a positive return. We also analyze the future shortfall risk of an equity portfolio. The base case for the projections is a worldwide historical volatility level of 20 percent and mean real return of 5 percent, and we also examine a lower return of 4 percent. The projected shortfall risk exceeds the historical risk of shortfall - partly because of the lower assumed real returns, and partly because, even though volatility was projected to be the same as in the past, the shortfall analysis focuses on the full range of possible future returns rather than a single historical outcome. By construction, historical returns converged on long-term realized performance, but the forward-looking analysis shows that there is always risk from investing in volatile securities. Although the probable rewards from equity investment are attractive, stocks did not and cannot offer a guaranteed superior performance over the investment horizon of most investors. Furthermore, their prospective returns are lower than many investors project, whereas their risk is higher than many investors appreciate. Investors who assume that favorable equity returns can be relied on in the long term or that stocks are safe so long as they are held for 20 years are optimists. Their optimism is irrational. Keywords: Portfolio management, asset allocation, long-run returns, shortfall analysis JEL Classifications: F30, G12, G15, G23, J26, N20 Working Paper Series Abstract has been viewed 7399 times

Subject: Steadfastly positive From: Pete Weis To: johnny5 Date Posted: Thurs, Feb 24, 2005 at 10:16:09 (EST) Email Address: Not Provided Message: While I do agree with what this article has to say, I don't think of Terri when I read it. I believe Terri is not irrationaly optimistic. Rather I see Terri as the kind of steadfastly positive human being whom makes this world a better place in which to live. If we are truely in a mess, Terri would be the first to say there is a way to get out of this mess. It's great to have a diversity of opinion on this board, because it improves the quality of the board. Johnny5, you and I keep hammering away at what we see as the threats and risks to our economic wellbeing and I believe with you that it's important to do so. But just as important are those who say 'yes but...' to our 'no-it's-absolutely-this-way'. So I probably would do well to tone it down and listen more - something I haven't always been that good at.

Subject: Yah - what you said! From: johnny5 To: Pete Weis Date Posted: Thurs, Feb 24, 2005 at 11:29:31 (EST) Email Address: johnny5@yahoo.com Message: I would hate for you to tone it down as much as I would hate for Terri to do the same. Without both of you dueling it out - many would lose the education you 2 are giving them. Terri while maybe not preventing you from a loss will be there to make life better after the reality hits and get you up out of the collapse much faster than otherwise - I think if hunter s thompson had friends like terri around, whatever was troubling him would have mattered less. I think in the past the optimists did not avoid the 29 crash or other bubbles - many great people were sucked into them - that is a part of life - but after those things dealt thier psychological damage if you didn't have terri's around to give you hope the loss would have killed your soul - I have seen this happen first hand to people that didn't have terri's in thier life. Terri's hopeful spirit a few others are truly the life blood that keeps things so interesting here. If they toned things down - bear or bull - what are the rest of us dummies gonna learn without good debate and opposing discussions. Although I don't share terri's 'feelings' or hope about the immediate future - without terri slinging away your gloom Pete - this place just wouldn't be any fun at all and certainly not educational. You are right, the major points of the bears have been made and now it is time to give the fingers a rest a let terri educate us some more and expand our horizons but please don't tone it down Pete, the debate itself is perhaps more important than the conclusions it arrives at. If everyone sits around in agreement with nothing left to discuss - how sad that will be.

Subject: Agree From: Pete Weis To: johnny5 Date Posted: Thurs, Feb 24, 2005 at 11:48:56 (EST) Email Address: Not Provided Message:

Subject: Thank you, Pete. From: Terri To: Pete Weis Date Posted: Thurs, Feb 24, 2005 at 11:12:11 (EST) Email Address: Not Provided Message: Thank you, Dear Pete.

Subject: America's Senior Moment - Paul Krugman From: Emma To: All Date Posted: Wed, Feb 23, 2005 at 05:37:46 (EST) Email Address: Not Provided Message: http://www.nybooks.com/articles/17771 America's Senior Moment By Paul Krugman - New York Review of Books Posted Below In This Section....

Subject: Re: America's Senior Moment - Paul Krugman From: Javier Penos To: Emma Date Posted: Wed, Feb 23, 2005 at 23:10:19 (EST) Email Address: jp6794@hotmail.com Message: erwuqtuyruywqetuy9835y7986891707trquygfvhhijgrtuieytu94656462-569389768gfeyurtuy945678546897589769877346278647ruehhcvnb hbgkjiyu89675893687589768548967589098y698thrigiouri6587-re0-wiutryuthgioyu5t87658438907068908793498907846-89jgjjngkljdjliotur[3prtw9-3586-=39859

Subject: Paul Krugman's New Essay From: Emma To: Emma Date Posted: Wed, Feb 23, 2005 at 08:33:55 (EST) Email Address: Not Provided Message: http://www.nybooks.com/articles/17771 America's Senior Moment By Paul Krugman - New York Review of Books Posted Below In This Section....

Subject: New bush faith based financial products From: johnny5 To: All Date Posted: Tues, Feb 22, 2005 at 23:04:42 (EST) Email Address: johnny5@yahoo.com Message: Build it and they will come... Islamic Indexing http://www.wilmott.com/messageview.cfm?catid=3&threadid=20919 Islamic hedge fund won't be caught short By William Wallis Published: October 11 2004 03:00 | Last updated: October 11 2004 03:00 The launch yesterday of the first hedge fund deemed to comply with 'Shariah'law is a landmark for thefast-growing Islamic financial industry. Demand in the Muslim world for financial instruments that can compete with conventional ones while complying with Islam's strict rules on money and risk-taking has driven rapid growth and innovation at a time of surging liquidity in oil-producing Middle Eastern states. Islamic banking has been growing by 25 per cent a year since 1998, according to Ezzedine Khofa, secretary-general of Bahrain-based General Council for Islamic Banks and Financial Institutions. He says the industry, for which Bahrain is the Middle Eastern hub, controls $300bn in assets. But until now the creation of an Islamic hedge fund allowing long-term institutional investors to seek higher returns than those provided by Islamic bond markets, for example, was deemed near impossible. The Koran prohibits both interest (riba) and speculation (gharar) as well as investing in companies with debt to equity ratios of more than a third. Islamic finance recognises the value of money only when backed by economic activity - in other words tangible assets or profits. Savings accounts, therefore, derive equivalent returns to interest through commodity trades. But the biggest challenge for the US-based fund manager, Eric Meyer and the Islamic scholars and legal experts he assembled to create the Shariah Equity Opportunity Fund was to find an equivalent of selling short. Selling short appears to run against the Koran as well as prohibiting the sale of what you do not own. Mohamad Toufic Kanafani, chief executive of Noriba, Islamic banking arm of UBS Warburg and project adviser, says the team devised ways round this by enforcing a downpayment towards each transaction, which must be detailed in writing. While in conventional hedge funds, investors place money towards borrowing shares, in the Islamic fund they would advance the money towards buying them, he said. Meanwhile, new software developed as part of the project will screen companies for compliance with Koranic law. This precludes businesses that are highly leveraged, are polluters, and are involved in selling weapons, tobacco, alcohol, and pornography. The Shariah Equity Opportunity Fund, based in the US, will target high net-worth individuals and institutional investors in the Muslim world with more than $10m. Its nature will be defensive. But Islamic bankers see this as one of the advantages their industry provides. 'I myself once thought that Islamic banking was window dressing,' Mr Kanafani said. 'But look what has happened to the Nasdaq in the last few years. Compare that to the Dow Jones Islamic market where the index has risen by 2.7 per cent.' While us yanks smoke it up in our 8MPG hummer and invest in the vicefund.com What a crazy world.

Subject: The future generation of risk managers From: johnny5 To: All Date Posted: Tues, Feb 22, 2005 at 22:48:50 (EST) Email Address: johnny5@yahoo.com Message: http://www.wilmott.com/messageview.cfm?catid=3&threadid=8393 Some of the new up and comings in risk manangement - they are arguing about Schweser's cliff notes for the test being too complicated - these are the people that control our financial world?? Huh? If nobel prize winners can fail - what chance do they have?

Subject: Setser on recent events From: Pete Weis To: All Date Posted: Tues, Feb 22, 2005 at 21:12:35 (EST) Email Address: Not Provided Message: From Brad Setser's blog site: February 22, 2005 Korea, enough said It looks the remarks of Korea's Central Bank President last week were a leading indicator of today's big news: Korea plans to diversify its reserves away from the dollar! Bloomberg is right: the real question is who [formerly, how -- oops] else follows suit -- Thailand already has shifted out of the dollar (look at how its reserves moved in January, when the dollar rose v. the Euro), Russia too. But most central banks are still massively overweight dollars. ``The market will now be looking to other central banks and what they will be doing, including the European central banks and Middle Eastern banks,'' said Mansoor Mohi-Uddin, head of currency strategy at UBS AG in London. ``The market has got nervous and has continued selling the dollar.'' ... ``Support for the dollar is quickly disappearing,'' said Kenichiro Ikezawa, who manages $1 billion in overseas debt at Daiwa SB Investments in Tokyo. Korea's report ``feeds into suspicion that others are also seeking to cut their exposure to the dollar.'' It will be interesting to see how far Korea is willing to let the won appreciate. Diversification in the context of rapidly growing reserves is a bit different than diversifying your existing holdings. If a country's reserves are growing faster enough, their dollar holdings can go up even as the share of dollars in their overall portfolio goes down. I suspect that is what happened with Russia last year, for example. The other big question, of course, is how much additional pressure this all places on China: the Bretton Woods 2 system of central bank financing of the US current account deficit increasingly hinges on the People's Bank of China's willingness to keep adding to its dollar reserves at an accelerating rate. The more other central banks shift out of the dollar, the weaker the dollar -- and the weaker the renminbi. And the weaker the renminbi, the more reason to bet on its eventual revaluation ...

Subject: Re: Setser on recent events From: johnny5 To: Pete Weis Date Posted: Tues, Feb 22, 2005 at 22:53:31 (EST) Email Address: johnny5@yahoo.com Message: I hope this equilibrium krugman predicted comes soon - I have some depreciating dollars I will invest when the good deals come around. (hehe)

Subject: Africans Entering America From: Emma To: All Date Posted: Tues, Feb 22, 2005 at 20:56:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/21/nyregion/21africa.html?ei=5094&en=5dd1d3d870037d78&hp=&ex=1109048400&partner=homepage&pagewanted=all&position= More Africans Enter U.S. Than in Days of Slavery By SAM ROBERTS For the first time, more blacks are coming to the United States from Africa than during the slave trade. Since 1990, according to immigration figures, more have arrived voluntarily than the total who disembarked in chains before the United States outlawed international slave trafficking in 1807. More have been coming here annually - about 50,000 legal immigrants - than in any of the peak years of the middle passage across the Atlantic, and more have migrated here from Africa since 1990 than in nearly the entire preceding two centuries. New York State draws the most; Nigeria and Ghana are among the top 20 sources of immigrants to New York City. But many have moved to metropolitan Washington, Atlanta, Chicago, Los Angeles, Boston and Houston. Pockets of refugees, especially Somalis, have found havens in Minnesota, Maine and Oregon. The movement is still a trickle compared with the number of newcomers from Latin America and Asia, but it is already redefining what it means to be African-American. The steady decline in the percentage of African-Americans with ancestors who suffered directly through the middle passage and Jim Crow is also shaping the debate over affirmative action, diversity programs and other initiatives intended to redress the legacy of slavery. In Africa, the flow is contributing to a brain drain. But at the same time, African-born residents of the United States are sharing their relative prosperity here by sending more than $1 billion annually back to their families and friends. 'Basically, people are coming to reclaim the wealth that's been taken from their countries,' said Howard Dodson, director of the Schomburg Center for Research in Black Culture, in Harlem, which has just inaugurated an exhibition, Web site and book, titled 'In Motion,' to commemorate the African diaspora. The influx has other potential implications, from recalibrating the largely monolithic way white America views blacks to raising concerns that American-born blacks will again be left behind. 'Historically, every immigrant group has jumped over American-born blacks,' said Eric Foner, the Columbia University historian. 'The final irony would be if African immigrants did, too.' The flow from Africa began in the 1970's, mostly with refugees from Ethiopia and Somalia, and escalated in the 1990's, when the number of black residents of the United States born in sub-Saharan Africa nearly tripled. Combined with the much larger flow of Caribbean blacks, the recent arrivals from Africa accounted for about 25 percent of black population growth in the United States over all during the decade. Nationally, the proportion of blacks who are foreign born rose to about 7.3 percent from 4.9 percent in the 1990's. In New York City, about 1 in 3 blacks are foreign born. According to the census, the proportion of black people living in the United States who describe themselves as African-born, while still small, more than doubled in the 1990's, to 1.7 percent from about 0.8 percent, for a total estimated conservatively at more than 600,000. About 1.7 million United States residents identify their ancestry as sub-Saharan. Those numbers reflect only legal immigrants, who have been arriving at the rate of about 50,000 a year, first mostly as refugees and students and more recently through family reunification and diversity visas. Many speak English, were raised in large cities and capitalist economies, live in families headed by married couples and are generally more highly educated and have higher-paying jobs than American-born blacks. There is no official count of the many others who entered the country illegally or have overstayed their visas and who are likely to be less well off. Kim Nichols, co-executive director of the African Services Committee, which directs newcomers to health care, housing and other services in the New York region, estimates that the number of illegal African immigrants dwarfs the legal ones. 'We think it's a multiple of at least four,' she said. Africans' reasons for coming echo the aspirations of earlier immigrants. 'Senegal became too small,' said Marie Lopy, who arrived as a student in 1996, worked as a bookkeeper in a restaurant and earned an associate degree in biology from the City University of New York. After winning a place in an American immigration lottery that his secretary had entered for him in 1994, Daouda Ndiaye recalls being persuaded by his six children to leave Senegal, where he was working as a financial manager. 'I said, 'I'm 45, I'd have to build a whole new life, I'd have to go to school to learn English,' ' he recalled. 'They said, 'We want you to go and we want you to send for us because there's more opportunity in the U.S. than here.' ' His wife and two of his children have joined him in the United States, where he has worked as a sporting goods store manager and is now a translator. That the latest movement of black Africans arriving voluntarily surpasses the total who disembarked in chains before the United States outlawed international slave trafficking is a bit of a statistical anomaly. That total, most historians now agree, was about 500,000, with an annual peak of perhaps 30,000, compared with the millions overall who were sold into slavery from Africa. Many died aboard ship. Most were transported to the Caribbean and Brazil, where they were vulnerable to indigenous diseases and to the rigors of raising sugar cane, which was harder to cultivate than cotton or rice, the predominant crops on plantations in the United States, where the slave population was better able to survive and reproduce. Moreover, black Africans represented a much higher proportion of the population then than they do today. In 1800, about 20 percent of the 5 million or so people in the United States were black. Among nearly 300 million Americans today, about 13 percent are black. Still, with Europe increasingly inhospitable and much of Africa still suffering from the ravages of drought and the AIDS epidemic and the vagaries of economic mismanagement, the number migrating to the United States is growing - despite the reluctance of some Africans to come face to face with the effects of centuries of enduring discrimination. In the 1960's, 28,954 legal immigrants were admitted from all of Africa, a figure that rose geometrically to 80,779 in the 1970's, 176,893 in the 1980's and 354,939 in the 1990's. In 2002, 60,269 were admitted, including 8,291 from Nigeria, 7,574 from Ethiopia, 4,537 from Somalia, 4,256 from Ghana and 3,207 from Kenya. To many Americans, the most visible signs of the movement are the proliferation of African churches, mosques, hair-braiding salons, street vendors and supermarket deliverymen, the controversy over female genital mutilation and the election last year of Barack Obama, son of a native Kenyan, to the United States Senate from Illinois. Especially in New York City, the shooting deaths of two unarmed African immigrants, Amadou Diallo from Guinea in 1999 and Ousmane Zongo from Burkina Faso in 2003, come to mind. Immigrants arrive with their own perceptions and expectations, from countries where blacks constitute a majority at every level of society, only to discover that whether they are professors or peddlers, they may be lumped together here by whites and even by American-born blacks. 'You have the positive impact that race is not seen to be an absolute definer of people's opportunities,' Kathleen Newland, director of the Migration Policy Institute, a nonpartisan research group, said, 'but that begs the larger question of what does it mean to have a black skin in the United States.' Agba Mangalabou, who arrived from Togo in 2002, recalls his surprise when he moved here from Europe. 'In Germany, everyone knew I was African,' he said. 'Here, nobody knows if I'm African or American.' Ms. Lopy, who now works as a medical interpreter for the African Services Committee, describes herself as 'African, first and foremost,' though the identity of her children will depend on whom she marries and where. 'I'll raise them to be African-something,' she said, 'but ultimately they'll define it for themselves.' Sylviane A. Diouf, a historian and researcher at the New York Public Library's Schomburg Center and Dr. Dodson's co-author of 'In Motion,' said that Americans have a more positive view of immigrants in general than they do of American-born blacks. Referring to African immigrants, she said: 'They are better educated, they're here to work, to prosper, they're more compliant and don't pose a threat.' Dr. Dodson added, 'They're not politically mobilized as yet and not as closely tied to the African-American agenda.' While the ancestors of most Caribbean-born blacks were enslaved, and slavery also victimized the forbears of many African-born blacks, the growing proportion of immigrants may further complicate the debate over programs envisioned to redress the legacies of slavery. 'I think there is a legitimate set of specific claims by persons born in the United States that don't necessarily apply to Caribbean or African populations that have come here subsequently,' Dr. Dodson said. 'African-born and Caribbean-born brothers and sisters have realized that the police don't discriminate on the basis of nationality - ask Amadou Diallo,' said Professor Charles J. Ogletree Jr., who teaches at Harvard Law School and has warned colleges and universities that admitting mostly foreign-born blacks to meet the goals of affirmative action is insufficient. 'Whether you are from Brazil or from Cuba, you are still products of slavery,' he continued. 'But the threshold is that people of African descent who were born and raised and suffered in America have to be the first among equals.' French-speaking Haitians do not necessarily mix with English-speaking West Indians, much less with Africans, and competition for jobs has been another source of tension. 'The Africans tend to be quite industrious and entrepreneurial and often take advantage of opportunities that might have been here for others before,' said Kim Nichols of the African Services Committee. 'We're talking about very profoundly different cultures,' Kathleen Newland said. Analyses by the Department of City Planning, and by the Lewis Mumford Center for Comparative Urban and Regional Research, in Albany found recent immigrants often segregated from other blacks. The census found Nigerian clusters in Flatlands and Canarsie in Brooklyn and Ghanaians in Morris Heights and High Bridge in the Bronx. 'As with European ethnics at the turn of the century,' Joseph J. Salvo, the director of the population division of the Department of City Planning, and Arun Peter Lobo, the deputy director, wrote recently, 'ethnicity has been a powerful force in shaping black residential settlement in New York.' Immigration may also shift some of the nation's focus from racial distinctions to ethnic ones. 'Certainly, South Africa showed us that minority status does not necessarily correlate to one's position in society, but rather that power and its uses are the issues,' said Samuel K. Roberts of Columbia, a history professor who is also on the faculty of the university's Institute for Research in African-American Studies. 'That being said, increasingly distinguishing between black Americans and black Africans may produce conditions in which we will be less prone to think of a fictional construct of 'race' as the distinguishing factor among all of us in North America.' How long might those distinctions last? 'I guess one of the questions will have to be what happens in the next generation or two,' said Professor Foner of Columbia. 'In America, marriage is the great solvent. Are they going to melt into the African-American population? Most likely yes.'

Subject: Re: Africans Entering America From: johnny5 To: Emma Date Posted: Tues, Feb 22, 2005 at 22:48:06 (EST) Email Address: johnny5@yahoo.com Message: I just watched o'reilly tonight, he said the hispanics have taken all the african americans political power away - they are now the largest minority and now the black americans have to compete with native africans. One of the guests said we can't assimilate these people fast enough and thier culture was too different from the euro centric culture of immigrants past to be absorbed quickly. It is going to be interesting to see the civil strife this will create in certain areas - we better prepare. America is a great melting pot - we will grow strong from all this diversity - IDIC.

Subject: Efficient Markets and Indexing From: Terri To: All Date Posted: Tues, Feb 22, 2005 at 17:42:51 (EST) Email Address: Not Provided Message: Efficient market theory posits markets as reacting rapidly to known changes in an economy. If the stock market is efficient it should be difficult to find stocks that are significantly mis-priced. Now, the will be some mis-pricing, but reasonably little. So the proper course for most investors is simply to buy the entire market and hold forever. Portfolios will gain in time as the economy grows. Bonds can similarly be indexed for investors. Since indexing is highly efficient over time, it is a nuisance to advisors who have an interest in promoting other more expensive investment vehicles. There are then continual attacks on indexing. After all, it is a market of stocks and not a stock market. Duh. There is no reason not to try active management, but indexing works and will continue to work as long as America is healthy over time. The criticisms of indexing are continual but typically distorted or worse.

Subject: 33% value, growth, small cap? From: johnny5 To: Terri Date Posted: Tues, Feb 22, 2005 at 19:01:32 (EST) Email Address: johnny5@yahoo.com Message: OK granted - so put it all into one vanguard index fund - but having a vanguard s&p 500 is not diversified enough - the US stock market is not representative of the entire world? http://library.dfaus.com/articles/new_indexing/ More interesting is when old-fashioned indexers advocate putting lighter-than-market proportions of money into international stocks. Clements recommends 25% when the actual non-US stock universe is more like 60% of world markets. If you really believed in indexing every publicly traded security in proportion, you'd invest 60% of your assets overseas. Most indexers only want to mimic markets within countries, but not across countries—which is reasonable. Unless there's evidence of a common engine driving expected returns for stocks across all countries, there's no obvious reason to hold them in market proportions. Markets are not unified around the world (as Japanese investors witnessing the recent US bull markets can attest), so it makes sense for different investors to have different exposures to overseas indexes. The same logic works within the US market. Suppose market volatility is only one of several factors that drives US portfolio returns. In such a world the market would no longer be the only legitimate indexing solution. Academic research over the last ten years by Eugene Fama and Ken French, among others, suggests that market risk is only one of three distinct risk factors in stock investing. Small company stocks expose investors to a completely different form of volatility. Distressed stocks with poor earnings prospects, usually mislabeled 'value' stocks, also have unique risk-return characteristics. Each of these three risk 'flavors' is unrelated to the others. Small stocks can do well when the overall market does poorly and value stocks can have dreadful returns when small stocks do well, and so on. Yet each of the three risk factors has as much potential for increasing investment returns (the extra return expected for taking each of these risks is about 5% per year on average). That's why it's reasonable, as in the international case, to consider indexing a portfolio with other-than-market weights. Large growth stocks, especially in the wake of the recent boom, dominate the market. If this situation reverts, the market portfolio might not be diversified enough into small cap and value sectors to suit many investors. It's a question of preference. If you work at a large growth company like, say, Cisco, you may want to diversify your career exposure with the stocks of small value stocks. If you work at some dinosaur value company, you might similarly opt for less than the market share of value stocks. Managing factors this way is a technological advancement over the market portfolio. In the presence of more than one risk factor, the goal of indexing switches from diversification across the available stocks to diversification across the available risk-return dimensions. This might seem like 'sector betting' to traditional indexers like Vanguard founder John Bogle, who still believe that market risk primarily determines performance and that small stocks and value stocks aren't separate sources of risk and return. The academic community is arriving at a different consensus, one that recognizes multiple independent risks. Investors might even have natural combinations of the different risk exposures that best suit their individual time horizons and preferences. As long as the portfolios they use to gain these exposures are index funds, and as long as the exposures are consistent and not timed to predict markets, this sort of portfolio structuring is not a 'sector bet'—it's the new face of indexing.

Subject: Indexing and Market Efficiency -terri? From: johnny5 To: All Date Posted: Tues, Feb 22, 2005 at 16:48:47 (EST) Email Address: johnny5@yahoo.com Message: Buffet buys value - not indexes 7 things to think about - great charts in this analysis - what are your comments Terri? http://www2.cfapubs.org/rf/Seven_Risks_TFAP.pdf 1. Market Index Funds are subject to “Irrational Exuberance” It would be hard to believe that all investors were rational in the bidding up of Internet stocks (with little or no earnings) to their stratospheric prices in early 2000 (See Exhibit III). Some investors would buy a stock merely because it had a “.com” in its name or had some affiliation with the Internet. The rising prices of technology and internet-related stocks had a significant effect in boosting the performance of market index funds relative to “rational” portfolio managers. As a result, many active portfolio managers (particularly, managers with a valuation discipline) significantly underperformed the index funds from 1998 through first quarter 2000. Some portfolio managers “threw in the towel,” rationalizing that this time the market was different and that stock valuations no longer mattered. 2. Indexing: Overvalued Stocks Are Overweighted If value stocks continue to outperform growth stocks in the future as they have in the past, an actively managed portfolio with a greater weighting towards value stocks should provide the investor with a higher return and less downside volatility than market index funds. A value style bias also appears prudent when considering the currently high price/earnings ratios of large cap growth stocks 3. Index Funds Favor Large Cap Stocks Another argument against overweighting larger stocks is based on the long-term historical performance of small cap stocks versus large cap stocks. An analysis of historical returns from Ibbotson Associates indicates superior long-term performance of small cap stocks. In exhibit XI, small cap stocks have provided an annual compounded return of 12.4% versus 11.0% for the S&P 500 since 1925. 4. Index Funds Have Become Less Diversified Index funds are attractive to individual investors as an inexpensive way of owning a well-diversified portfolio of stocks. However, the dominance of large cap growth stocks in recent years has led the index funds to have a greater exposure in fewer stocks with potentially higher volatility. As of December 31, 1995, the top ten stocks represented about 18% of the S&P 500 Index, and the 40 largest stocks accounted for about 42% of the index. By year-end 1999, the top 10 stocks, including six technology stocks, had grown to a 25% market share of the index and the top forty stocks accounted for more than 54% of the index. However, the sell-off of technology stocks in 2000 caused a reduction in their market capitalizations and their share of the S&P 500 Index. As of yearend 2000, the ten largest stocks represented a 23% weight of the S&P 500 Index, although the 40 largest stocks still accounted for more than half of the index (51%). 5. Index Sector Weightings Are Volatile At its peak in early March 2000, technology stocks represented more than 38% of the market capitalization of the S&P 500.8 The broader market indices like the Wilshire 5000 also reflected similar weightings in technology stocks by including the high valuations of smaller Internet companies. As a result, investors in market cap-based index funds owned more volatile equity portfolios and were subject to greater downside risk. By year-end 2000, index fund investors suffered from the decline in technology stocks to a 21% share of the S&P 500. Exhibit XIII depicts the fluctuation of S&P sector weightings over the last 20 years. At year-end 1992, the technology sector was less than 7% of the S&P 500 versus about 14% in 1984. Energy stocks represented the largest sector in the early 1980s while consumer stocks dominated in the early to mid-1990s. 6. Index Funds Are Not Really Tax Efficient The comparatively low turnover of index funds has usually rewarded the investor with higher aftertax returns versus most active managers with greater turnover. However, index funds do not recognize the investor’s unique tax situation. An active manager can reduce the client’s income taxes by differentiating the tax lots of equity holdings to be sold. They can also defer short-term capital gains and take advantage of tax loss harvesting opportunities in which short-term capital losses can be used to offset long-term capital gains. Another potential risk of indexing for a taxable investor is the accumulation of unrealized gains in index funds. During the bull market of 1990s, an increasing number of individuals invested in index funds and many index stocks appreciated significantly in valued. As a result, mature index funds have built up a significant base of unrealized capital gains. This can have a potential negative tax consequence to index fund investors, especially new or recent investors. If any investor redeems their investment in the index fund, all investors in the fund will be subject to the realization of capital gains. As more investors pull out of the index fund, greater capital gains would be realized, 17 creating an even larger tax burden to all fund participants. If we were to experience an extended bear market with a large number of individuals leaving index funds, remaining investors would experience significantly lower after-tax returns. In an individually managed portfolio, the investment manager has the advantage of controlling the realization of capital gains for the client’s best interest. 7. Excessive Indexing Can Lead To An Inefficient Market Investors appetite for index funds has grown dramatically in recent years from about $50 billion in 1995 to $363 billion at year end 2000. The $272 billion in S&P 500 index funds as of year-end 2000 accounted for about 4% of the total market capitalization of the S&P 500.9 The growth in index funds has been supported by their strong return performance in the 1990s.The S&P 500 with five consecutive years of 20% returns outperformed most active equity managers. But, it should be noted that the superior performance of index funds was reflective of their inherent bias towards large cap growth stocks which outperformed value and smaller cap stocks during this period. In addition, lower fees and transaction costs of index funds had contributed to their favorable performance. But, as indexing continues to gain in popularity and active managers are increasingly pressured to control their performance tracking error relative to benchmark indexes, the equity market may become less efficient and potentially subject to increased risks. In the extreme case, if investors only invested in equity index funds, individual equity prices would move solely based on their relative weight in the index. Individual stocks returns would not be differentiated based on new company releases such as earnings reports, new product developments or management changes.

Subject: Time-Weighted performance reporting? From: johnny5 To: All Date Posted: Tues, Feb 22, 2005 at 13:25:30 (EST) Email Address: johnny5@yahoo.com Message: Is this ethical?? If part of the asset allocation strategy is to move the portfolio into and out of cash and you stop analyzing how cash deposits affect overall performance haven't you lost something? http://www.raymondjames.com/invbrf/04q4_statement_change.htm Statement Change: Portfolio Performance Reporting by Joseph A. Meyer Senior Business Systems Specialist As part of our ongoing commitment to clear communication about your account, Raymond James is pleased to announce that many statements will now include performance reporting. Qualified accounts should see the change beginning with this year-end statement, then on a quarterly basis. The type of account you have with Raymond James will dictate which type of performance calculation you receive. Time-Weighted Performance Reporting Passport, Ambassador, Opportunity, PPA, MIP and Freedom accounts will generally receive time-weighted performance reporting. Raymond James Consulting Services, Eagle and outside managed accounts will also be provided with this type of reporting, although the change will occur later in the calendar year. Time-weighted performance reporting attempts to eliminate the impact of cash flows and produces a more appropriate measure of investment manager performance. For example, if an investor earns a 5% rate of return in Year One and an 8% return in Year Two, and deposits $50,000 in assets into the account at the end of Year One, this method would give equal weight to each year when calculating total return, although there were more assets in the account during Year Two. Dollar-Weighted Performance Reporting All Elite accounts, as well as household accounts with an aggregate account balance greater than $50,000, will receive dollar-weighted performance reporting. Dollar-weighted performance reporting represents the return on a portfolio’s assets and is therefore impacted by the timing of deposits and withdrawals. Using the same example, if an investor earns a 5% rate of return in Year One and an 8% return in Year Two, and deposits $50,000 in assets into the account at the end of Year One, the dollar-weighted calculation would weight the second year more heavily due to the $50,000 contribution at the beginning of the second year to arrive at the total two-year return. For those who have received performance reporting in the past, the report now provides current quarter, year-to-date, and one, three, five and 10-year performance (as applicable), as well as since-inception return. We are confident that this added information will be a valuable tool as you assess your portfolio’s performance. If you have any questions about this change or your account in general, please contact your financial advisor. http://www.raymondjames.com/invbrf/04q4_expectations.htm Realistic Expectations and Asset Allocation: Important Factors for Long-Term Success by Chet Helck President & Chief Operating Officer Raymond James Financial As the markets continue their recovery, investor expectations are on the rise. According to a survey of investors conducted by the Securities Industry Association (SIA), the average expected rate of return for equities is 14.1% for 2005. While this is closer to being realistic than expectations of above 30% in 2000, the number has risen from last year and may continue to increase as we look ahead. That can be problematic, since an overly optimistic outlook could translate into losing sight of lessons learned during recent years. For example, the SIA study for 2001 showed that investors expected their investments to earn 19% on average. That year, the S&P 500 – the unmanaged index of 500 widely held stocks generally considered to be representative of the U.S. stock market – finished down more than 20%.

Subject: Re: Time-Weighted performance reporting? From: Institutional Investor To: johnny5 Date Posted: Wed, Feb 23, 2005 at 19:09:09 (EST) Email Address: Not Provided Message: 'Is this ethical??' yes, its the industry standard. There are a ton or reasons why you should time weight vs dollar weight. Go read some journals on performance measurement if you would like information about it. 'If part of the asset allocation strategy is to move the portfolio into and out of cash' thats not part of asset allocation. Timing the market historically gives you below market returns. Johnny, I'd hihgly suggesting taking an into investment class or some other type of finance educational course because a lot of your basic fundamental questions should/would be covered in it.

Subject: Being standard = ethical? From: johnny5 To: Institutional Investor Date Posted: Wed, Feb 23, 2005 at 23:54:18 (EST) Email Address: johnny5@yahoo.com Message: 'yes, its the industry standard. There are a ton or reasons why you should time weight vs dollar weight.' BWAHA - the best one I can see is so that you might can show your clients they are making more money when in fact they aren't as the example shows can easily happen. Don't take it from me though, read Bogle's testimony before congress of how the mutual fund people have bilked the hard working citizens of this country out of billions upon billions with reporting that is industry standard and industry standard fees that have risen while his fees have went down. He specifically mentions time - weighting versus dollar weighting in several of his speeches before congress in 2003-2004. I fully admit I have not had the training, education, 'thought control' that is part of the quantitative financial industry - all I have is a good ole southern boy instinct that probably isn't worth much more than a pig in a poke. I have found articles from mr. spaulding himself where the very people 'in the know' of thier own vendor systems and software do not understand the difference between linkage or attribution or the terms geometric or arithmetic - mistakes that have and will probably continue to cost them business and money. I have provided discussions from a risk management bulletin board where new students are wanting the quick and easy 'cliff notes' to pass the FRM test instead of really studying, comprehending and learning the material at a fundamental level so well they breathe it in thier sleep. I have also provided where the wilshire 'experts' recently admitted there are basic flaws in thier own modeling that have caused a majority of managers to possibly understate risk by as much as 40% in this industry. And then to top it all off me and all the other tax payers got to bail out the smartest nobel prize winners in the world from LTCM - so at my core I distrust the industry and doubt taking a class to answer questions are going to alter my feelings about ethics even if they alter my knowledge of quantitative finance - notice I don't distrust the invidual 'people' but the industry as a whole. Then after reading Bogle's testimony to congress about his industry I really feel sad for our citizens and the stewards of thier financial future. I expect much better from the industry standards than what I am seeing because this industry really can affect the outcome of the entire planet in very crucial ways. I think people that mean well can easily be led astray and hurt others thinking they are doing a contstructive good just like american investors such as prescott bush did when he gave german parties lots of investment money and time while they forced poor jews at auschwitz to work for free to dig out the coal. I hear this term efficient market hypothesis bantered about and today I went to carmax with my uncle and they tried to give him 6K for a 1998 infinity QX4 that he is hopefully selling tomorrow for 9k and they offered him 4.7k for a 1998 ford e-150 conversion van that he sold shortly after leaving carmax for 10K to a buyer after parking it on HWY US19 for a few hours - but the salesmen at carmax assured him thier prices were fair and they would only make a few hundred to 1K off of each vehicle and he would not get much more than they were offering. If he believed all market participants in the car market made for a highly efficient market and the pro's buy/sell prices were honest and they were only going to make a little bit of money - then that large difference would be non-existant no? Maybe there is some formula where my uncle was high on the delta or black-scholes numbers - I don't know - but he would have lost a lot of money if he had let the pro's at carmax handle things for him - maybe they really believed he could not get much more than he did - but they were very wrong. Unfortunately he does not apply the same logic to his buddy at raymond james and earlier today he gave them 250K of his 500K so they could make him money with thier 3% fees. I have met his advisor at this company and fully feel this person is honest and trying to do what she believes is 'helping' my uncle and take care of him because she believes in all the industry 'standard' things like others and that they are right and correct and 3% fees are worth it - but Bogle has a lot to say negatively about her industry and her fees and people in congress seem to be agreeing with him. All of us can do invidual benevolent things that in it's totality is very dark and foreboding - too many people forget this today. Thier may be times when time weighted is better than dollar weighted - but if I am an investor with raymond james - I want to know if I made money - thats it - I don't want averages that distort the weightings of my uncle's investment and may make it appear he made different returns than he really made - this starts us down a slippery slope where 'industry standards' can get further and further away from helping the individual investor even though there are many situations when they are correct - I can in no way fathom how they are ever 'correct' for my uncle if they don't paint an honest picture of wether he made more money or not - no matter how standard they are in the industry. If he lost money and dollar weighted would show this - but time weighted would not - I ask the same question again - is it ethical even though it may be an industry standard?

Subject: Moving Money From: johnny5 To: johnny5 Date Posted: Thurs, Feb 24, 2005 at 00:26:22 (EST) Email Address: johnny5@yahoo.com Message: I do believe a lot of research shows that timing the market is a loser strategy and moving cash in and out of the market is doomed to failure. I can't help but to feel that the times I have used scottrade to purchase shares of XOM and the timings I used to do this and the money I moved in or out over time were profitable. The research shows I have good chances to turn out a net loser over the long term - we shall see. Perhaps I have simply been lucky with low fees and a good stock - the research talks about this too. Perhaps in the future behavioral modeling will show some people simply would rather lose money on thier own and 'feel' right than make money but 'feel' wrong with someone else. When the equations can begin to predict human emotion from irrational individuals up to entire societies - I may 'feel' better about the research - but right now I don't - even though I should.

Subject: Could you help me? From: Yann To: All Date Posted: Tues, Feb 22, 2005 at 12:35:54 (EST) Email Address: Not Provided Message: Please would you know one or two little clear articles by PK about “new trade theory”? Thanks.

Subject: New Trade Theory From: Terri To: Yann Date Posted: Tues, Feb 22, 2005 at 14:56:54 (EST) Email Address: Not Provided Message: Use the 'Search' on the top left of the page. The references and articles are there.

Subject: Re: New Trade Theory From: Pancho Villa alias El Gringo To: Terri Date Posted: Tues, Feb 22, 2005 at 17:03:17 (EST) Email Address: nma@hotmail.com Message: Peddling Prosperity (p.233-234) 'The New Trade Theory Not every industry is like the aircraft industry. The ability of a country to grow wheat cheaply depends mostly on climate and soil. A big subsidy can turn a wheat importer into a wheat exporter, as European nations have done with their Common Agricultural Policy, but it cannot create an advantage where none existed: remove the subsidies and European wheat output would crash. In other words, comparative advantage is still alive and well, and still governs much of trade. On the other hand, not every industry is like wheat. Between 1978 and 1985, a group of economists (Krugman, Dixit & Co.) hammered out what has come to be known as the 'new trade theory', a theory that says, in effect, that a lot of world trade is in goods like aircraft rather than goods like wheat. The new trade theory picture of the world looks something like this: Each country has, at any given time, a set of broad resources - land, skilled labour, capital, climate (see Edward Denison), general technological competence. These resources define up to a point the industries in which the country can hope to be competitive on world markets. Japan is not going to make it in the world wheat market: Canada will not be a successful exporter of tropical fruit; Brazil is not ready to compete in supercomputers (but already in jets). But a country's resources do not fully determine what it produces, because the detailed pattern of advantage reflects the self-reinforcing virtuous circles, set in motion by the vagaries of history. At a broad level, then, trade reflects resources. A country with a highly skilled labour force will, in general, export goods whose production requires a high ratio of skilled and unskilled labor, and import goods for which the reverse is true. But precisely which goods the country exports cannot be determined from its sources alone. That final determination rests in the realm of chance and history, in the land of QWERTY. This may sound a little vague, and if the ideas of new trade theory had only been expressed in this general way, they would probably not have had much impact. What the new trade theorists did, however, was to package this vision of trade in extremely sharply focused mathematical models. These models served two puroposes. First, they helped to pin down the concepts in a way that dispelled a fog of confusion that had previously surrounded these ideas. Second, they legitimized QWERTYish ideas for other economists, by showing that they could be expressed with the same degree of clarity as more traditional app-Roach-es. It's all a nice example of intellectual progress. Still, does it matter? (Of course it does matter) Does knowing that much of world trade is in goods like aircraft, not goods like wheat, change our opinions about economic policy? (The earth is 'not!' flat) Yes - maybe. And then again, maybe not.'

Subject: Big Oil and Alaska From: Emma To: All Date Posted: Tues, Feb 22, 2005 at 12:31:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/21/politics/21refuge.html?ei=5070&en=beb2ec20a30c3010&ex=1109653200&pagewanted=all&position= Big Oil Steps Aside in Battle Over Arctic By JEFF GERTH WASHINGTON - George W. Bush first proposed drilling for oil in a small part of the Arctic National Wildlife Refuge in Alaska in 2000, after oil industry experts helped his presidential campaign develop an energy plan. Five years later, he is pushing the proposal again, saying the nation urgently needs to increase domestic production. But if Mr. Bush's drilling plan passes in Congress after what is expected to be a fierce fight, it may prove to be a triumph of politics over geology. Once allied, the administration and the oil industry are now far apart on the issue. The major oil companies are largely uninterested in drilling in the refuge, skeptical about the potential there. Even the plan's most optimistic backers agree that any oil from the refuge would meet only a tiny fraction of America's needs. While Democrats have repeatedly blocked the drilling plan, many legislators believe it has its best chance of passage this year, because of a Republican-led White House and Congress and tighter energy supplies. Though the oil industry is on the sidelines, the president still has plenty of allies. The Alaska Congressional delegation is eager for the revenue and jobs drilling could provide. Other legislators favor exploring the refuge because more promising prospects, like drilling off the coasts of Florida or California, are not politically palatable. And many Republicans hope to claim opening the refuge to exploration as a victory in the long-running conflict between development interests and environmentalists. The refuge is a symbol of that larger debate, said Senator Lisa Murkowski, an Alaska Republican who is a major supporter of drilling. Opponents agree. 'This is the No. 1 environmental battle of the decade,' said Representative Edward J. Markey, Democrat of Massachusetts. Whether that battle will be worthwhile, though, is not clear. Neither advocates nor critics can answer a crucial question: how much oil lies beneath the wilderness where the administration wants to permit drilling? Advocates cite a 1998 government study that estimated the part of the refuge proposed for drilling might hold 10 billion barrels of oil. But only one test well has been drilled, in the 1980's, and its results are one of the industry's most closely guarded secrets. A Bush adviser says the major oil companies have a dimmer view of the refuge's prospects than the administration does. 'If the government gave them the leases for free they wouldn't take them,' said the adviser, who would speak only anonymously because of his position. 'No oil company really cares about ANWR,' the adviser said, using an acronym for the refuge, pronounced 'an-war.' Wayne Kelley, who worked in Alaska as a petroleum engineer for Halliburton, the oil services corporation, and is now managing director of RSK, an oil consulting company, said the refuge's potential could 'only be determined by drilling.' 'The enthusiasm of government officials about ANWR exceeds that of industry because oil companies are driven by market forces, investing resources in direct proportion to the economic potential, and the evidence so far about ANWR is not promising,' Mr. Kelley said. The project has long been on Mr. Bush's agenda. When he formulated a national energy policy during the 2000 campaign he turned to the oil industry for help. Heading the effort was Hunter Hunt, a top executive of the Hunt Oil Company, based in Dallas. The Bush energy advisers endorsed opening a small part - less than 10 percent of the 19-million-acre refuge - to oil exploration, an idea first proposed more than two decades ago. The refuge, their report stated, 'could eventually produce more than the amount of oil the United States now imports from Iraq.' The plan criticized President Bill Clinton's energy policies, both in the Middle East, where most of the world's oil lies, and in the United States. In 1995 Mr. Clinton vetoed legislation that authorized leasing in the Alaska refuge. An earlier opportunity to open it collapsed after oil spilled into Alaskan waters in 1989 from the Exxon Valdez. Subsequent efforts, including one in Mr. Bush's first term, also failed. Mr. Hunt, through an aide, declined an interview request. Others who advised Mr. Bush on his energy plan said including the refuge was seen as a political maneuver to open the door to more geologically promising prospects off the coasts of California and Florida. Those areas, where tests have found oil, have been blocked for years by federal moratoriums because of political and environmental concerns. 'If you can't do ANWR,' said Matthew R. Simmons, a Houston investment banker for the energy industry and a Bush adviser in 2000, 'you'll never be able to drill in the promising areas.' Shortly after assuming office, Mr. Bush asked Vice President Dick Cheney to lead an examination of energy policy. A May 2001 report by a task force Mr. Cheney assembled echoed many of Mr. Bush's campaign promises, including opening up part of the refuge. The report called for further study of the Gulf of Mexico and other areas. The next year, Mr. Bush said 'our national security makes it urgent' to explore the refuge. By then, the industry was moving in the opposite direction. In 2002 BP withdrew financial support from Arctic Power, a lobbying group financed by the state of Alaska, after an earlier withdrawal by Chevron Texaco. BP, long active in Alaska, later moved its team of executives to Houston from Alaska, a company executive said. 'We're leaving this to the American public to sort out,' said Ronnie Chappell, a BP spokesman, of the refuge. About a year ago, ConocoPhillips also stopped its financial support for Arctic Power, said Kristi A. DesJarlais, a company spokeswoman. Ms. DesJarlais said her company had a 'conceptual interest' in the refuge but 'a more immediate interest in opportunities elsewhere.' Other companies have taken similar positions. George L. Kirkland, an executive vice president of Chevron Texaco, said a still-banned section in the Gulf of Mexico, where the company has already drilled, was of more immediate interest. ExxonMobil also has shown little public enthusiasm for the refuge. Lee R. Raymond, the chairman and chief executive, said in an television interview last December, 'I don't know if there is anything in ANWR or not.' For the Interior Department, however, the refuge is the best land-based opportunity to find new oil. Any lease revenues, estimated by the department to be $2.4 billion in 2007, would be split between the federal and state governments. Advocates say oil production could reach one million barrels per day. In a decade from now, when the site might be fully developed, that would be about 4 percent of American consumption, according to federal forecasts. David L. Bernhardt, deputy chief of staff to the secretary of the interior, cited a 1998 study by the United States Geological Survey estimating that the refuge might hold 10.4 billion barrels of recoverable oil. (The estimate for offshore oil is 76 billion barrels.) But that study has significant weaknesses, which Mr. Bernhardt acknowledged. Its estimates are of 'petroleum resources' - potential oil deposits - instead of 'petroleum reserves,' which refers to oil that has been discovered. Ken Bird, a geological survey official who worked on the study, said the federal geologists did not have access to test data from the only exploratory well drilled on the refuge, by Chevron Texaco and BP in the 1980's. An official with one of the companies, speaking anonymously because of the confidentiality of the test, said that if the results had been encouraging the company would be more engaged in the political effort to open the refuge. There has not been much discussion about the refuge between the companies and the Bush administration, according to industry and government officials. 'I don't think I've talked to the oil industry over the last several years about the economic potential of ANWR,' Mr. Bernhardt said. The relationship between the administration and the oil industry has been a flashpoint for critics of Mr. Bush. Democrats, upset that Mr. Cheney refused to disclose information about his task force meetings with industry executives, see a cozy alliance. Their concerns are heightened because of the former ties between the industry and Mr. Bush and Mr. Cheney and the administration's stance on issues like climate change. The president once headed a small exploration company, and Mr. Cheney previously was chief executive of Halliburton. 'Big oil,' Senator John Kerry said in last year's presidential campaign, now calls 'the White House their home.' Some industry executives say their views are more aligned with those of Republicans on a broad range of issues including regulation, the environment and energy supply, and they were heartened by the initial pronouncements of the Bush administration. But some say they feel let down by Mr. Bush's inability to lift bans on oil exploration. 'When this administration came in, the president and the vice president recognized there was a problem of energy supply and demand,' said Tom Fry, the executive director of the National Offshore Industries Association. But Mr. Cheney's task force, Mr. Fry said, talked only about offshore drilling as something to be studied. 'They never say they will lift the moratoria,' he said.

Subject: Raymond James being sued by the SEC From: johnny5 To: All Date Posted: Tues, Feb 22, 2005 at 11:46:31 (EST) Email Address: johnny5@yahoo.com Message: Great - now my uncle is giving his money to crooks. If this trial turns out bad for raymond james - what do you think the effects will be for them and for mutual funds in general? http://registeredrep.com/news/Herula-jail-sentence/ From Brokerage House to the Big House By John Churchill Feb 17, 2005 2:56 PM Dennis Herula, the 59-year-old former Raymond James Financial Services broker who lavished himself with homes and other gifts using millions of dollars stolen from clients, was sentenced to 16 years in federal prison on Friday. “My greed and total disregard put my career into a new league—that of a thief,” said Herula in a Denver federal court before being sentenced by U.S. District Judge Robert Blackburn. The judge concluded that 16 years was appropriate, saying Herula’s stealing would not have stopped if it weren’t for his capture in Boston in May 2004, where he’d been living under an assumed name. Herula pleaded guilty in November 2004 to conducting a fraudulent scheme that promised big returns to investors with “no risk.” Along with his wife, Mary Lee Capalbo, and the son of the former co-owner of the New England Patriots, Charles Sullivan, he solicited funds for a bogus venture called Brite Business, raising $44.5 million between 1999 and 2000, which he then kept in a RJFS brokerage account. Herula used much of the money to buy expensive homes and other gifts for himself and his wife, including a $200,000 Bentley and a 13.5-carat diamond ring. In a rare move, the SEC filed a civil-fraud case in September 2004 against not only Herula’s supervisors, but also RJFS itself. J. Stephen Putnam, former president and COO, and David Ullom, the former branch manager at the Cranston, R.I., office, were charged with failure to supervise. The SEC complaint alleges the firm knew of the suspicious nature of Herula’s activities in mid-2000 but didn’t fire him until December, thus allowing him to continue the fraud. RJFS refused to settle with the SEC and denies all charges. The firm’s trial in front of an administrative law judge began Jan. 31 in Boston

Subject: Latin America Fails On Basic Needs From: Emma To: All Date Posted: Tues, Feb 22, 2005 at 10:10:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/22/international/americas/22bolivia.html?pagewanted=all&position= Latin America Fails to Deliver on Basic Needs By JUAN FORERO EL ALTO, Bolivia - Piped water, like the runoff from the glaciers above this city, runs tantalizingly close to Remedios Cuyuńa's home. But with no way to pay the $450 hookup fee charged by the French-run waterworks, she washes her clothes and bathes her three children in frigid well water beside a fetid creek. So in January, when legions of angry residents rose up against the company, she eagerly joined in. The fragile government of President Carlos Mesa, hoping to avert the same kind of uprising that toppled his predecessor in 2003, then took a step that proved popular but shook foreign investors to their core. It canceled the contract of Aguas del Illimani, a subsidiary of the $53 billion French giant Suez, effectively tossing it out of the country and leaving the state responsible. 'For us, this is good,' Ms. Cuyuńa said, voicing the sentiment in much of El Alto. 'Maybe now, they will charge us less.' That is far from certain. Even less certain is how she and 130 million other Latin Americans will get clean water anytime soon in a region where providing basic services remains among the most pressing public health and political issues. Governments like Bolivia's tried the task themselves before, abandoned it as too costly, and turned to private companies in the 1990's. Today as privatization is rejected, foreign investment is plummeting across the region and the challenge is being returned to states perhaps less equipped than a decade ago. The trend is not unique to Bolivia, where a lack of clean water contributes to the death of every tenth child before the age of 5, and it has presented Latin American leaders with a nettlesome question: what now? 'The decisions that have to be made are stark and difficult,' said Riordan Roett, director of Latin American studies at Johns Hopkins University. 'They're going to have to make some sort of compromise, and that compromise often means buying back and taking over those services - and then, of course, making them efficient in the hands of the state. Their track record doing this in the past was miserable.' Indeed, the heated backlash against free-market changes - fueled by the sense that they promised more than they delivered while offering overpriced, often flawed services - has at once left governments vulnerable to volatile protests and forced foreign companies to retreat. No companies have been more buffeted than those running public utilities offering water, electrical and telephone services, or those that extract minerals and hydrocarbons, which, like water, are seen as part of a nation's patrimony. In Peru, despite major economic growth, foreign investment fell to $1.3 billion last year from $2.1 billion in 2002. Ecuador has also seen investments sag, as oil companies that once saw the country as a rosy destination have faced the increasingly determined opposition of Indian tribes and environmental groups. Argentina, which has taken a decidedly leftist path in the economic recovery following its 2001 collapse, has recouped only a fraction of the investments it attracted just a few years ago. Across the region, companies are more than ever weighing political risks when considering expansion plans. Political leaders, meanwhile, are having to weigh the need for foreign investment against the demands of citizens who are increasingly quick to hit the streets. 'In the last decade, non-economic factors have become even more important in affecting investments,' said César Gaviria, former secretary general of the Organization of American States. 'Political risks have grown to a great degree,' added Mr. Gaviria, now chairman of Hemispheric Partners, a firm based in the United States that provides political and economic risk analysis to investors. 'There's no doubt about it.' The fall in foreign investment is perhaps most pronounced in Bolivia, where in 1999 it totaled $1 billion as gas companies flocked here to mine newly discovered fields. Last year, it fell to $134 million, as companies proved skittish after President Gonzalo Sánchez de Lozada was ousted in uprisings set off by his plans to permit multinational companies to export Bolivia's natural gas. Those who resist the trends of globalization have been emboldened by what they see as the success of local people in asserting their control over resources. 'It has been phenomenal to see a movement largely made up of the indigenous and peasant farmers fight and win,' said Deborah James, who directs campaigns against American-led globalization efforts at Global Exchange, a San Francisco group. 'What you see is a massive popular rejection of transnational companies owning essential services.'

Subject: Latin America Fails On Basic Needs - 1 From: Emma To: Emma Date Posted: Tues, Feb 22, 2005 at 10:11:34 (EST) Email Address: Not Provided Message: Others, less enthusiastic, see a troubling degree of political instability and a perfect storm of uncertainty on the horizon. 'You see, in country after country, that the battle lines are being drawn over utility questions,' said Michael Shifter, a senior fellow who closely tracks the Andes for the Washington policy group Inter-American Dialogue. 'It builds a great resentment and rage that things so essential to people, like water, like electricity, are not being delivered in a fair and equitable way. That's a formula for rage that leads to mobilization, and that's why we're seeing a convulsed region.' In Uruguay, a referendum in October guaranteed public control over water resources, enshrining water as a 'basic human right.' In Chile's central valley region, 99.2 percent of voters in a plebiscite in 2000 rejected privatization of the state-run water company. (The government privatized anyway.) In Argentina, another French water provider was tossed out in 1998, while Ecuador's government has repeatedly failed to privatize telecommunications and electricity generating companies. In Peru, protests against plans to privatize electric utilities have been persistent, while as far north as Nicaragua and Mexico, activists have fought efforts to battle privatization plans for water systems. The battle surrounding Aguas del Illimani, which provided water for El Alto, is revealing of the anger over privatizations that many here say they were never consulted about and never asked for, but were put in place as a condition for loans from the World Bank and International Monetary Fund. Indeed, Aguas del Illimani was not the first company to get a taste of Bolivians' fury. In 2000, in the midst of angry demonstrations, the state annulled a contract with Bechtel, a multinational based in San Francisco that had doubled fees on being granted the concession in Cochabamba. In 2003, in the face of protests and instability, a consortium of companies signaled that it had all but called off a $5 billion pipeline project to transport natural gas to the Pacific, from where it would have been shipped to the United States. Under continuing pressure, the government of President Mesa is now moving forward with legislation that would raise taxes and increase government control of energy projects in Bolivia. So the stage was set for the outburst against Aguas, which grew out of a decision by Mr. Mesa to raise subsidized fuel prices on Dec. 30, even though the company did not seem a likely target before now. The Bolivian government had in fact welcomed Aguas in 1997 to turn around an inefficient public system that provided water to El Alto and the adjacent capital, La Paz. After it arrived, Aguas says it met its contractual obligations and expanded services, and even government officials concede that the company did an admirable job at first. Potable water, offered by the state water company to 152,812 households in the two cities in 1997, rose by 81,180 households in seven years. Sewage service was expanded to more than 160,000 households by last year from 95,995. But eight years into its contract, Aguas ran into problems. Profits were never as high as the company would have liked, since the former country people who flocked to El Alto, a mostly indigenous city of 750,000, were used to conserving and never consumed much water. When company officials asked state regulators for permission to increase monthly fees, their request was rejected. But the company won permission to increase the hookup fees, to $450 from just over $300. It was a fee most people here - where the average monthly wage is about $55 - could never hope to pay. 'It was contractual, so I cannot blame Aguas del Illimani,' said José Barragán, the government's vice minister of basic services, in charge of water service. 'But a prudent administrator would not have taken that road.' Mr. Barragán says that the government 'is not accusing Aguas for not complying with the contract.' Instead, he said, the company avoided government efforts to renegotiate so that service could be expanded, a contention the company denies. The lack of a resolution effectively left 200,000 people without any real chance of obtaining water service, Mr. Barragán said. 'That's completely false,' said Alberto Chávez, Aguas's general manager, emphasizing that the company had shown a willingness to meet with both the government and the leaders of Fejuve, an El Alto group that organized protests. Still, Mr. Chávez conceded that 70,000 people in Aguas's concession area in El Alto still had no water. Now, with Aguas's contract canceled, the question in El Alto remains how to expand and improve service. No one believes that the state or the city of El Alto, both cash poor, will be able to do so. 'Ultimately, if Bolivians are going to get real access for water it's going to have to be subsidized,' said Jim Shultz, director of the Democracy Center, a policy group in Cochabamba, Bolivia's third-largest city, that studies the effects of free market reforms. 'And it's going to have to be subsidized in some form of foreign assistance.' That, he noted, is not a realistic proposition, because Bolivia cannot afford to seek more loans and foreign governments are not so willing to make big cash outlays to a state they view as increasingly erratic. Many residents, like Franz Choque, 31, a construction worker, are worried. He said that he was not philosophically opposed to a private company running the water system. He only wanted the costs to be just and the service to be effective. 'It is O.K. for a foreign company to be here, but they should charge the Bolivian rate, not like in the country where they come from,' said Mr. Choque, as he worked on a new school that will have running water only because residents have pooled resources to pay for the hookup. 'Not everything can be free. We can pay a little. But we just want a fair price.'

Subject: Japan's Ties to China From: Emma To: All Date Posted: Tues, Feb 22, 2005 at 10:08:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/22/international/asia/22japan.html Japan's Ties to China: Strong Trade, Shaky Politics By JAMES BROOKE TOKYO - Just as China's state news agency was berating Japan for its 'wild behavior' in joining the United States to express their 'common strategic objectives' in Taiwan, the news came Monday that Japanese trade with China jumped 27 percent last year, hitting a record high of $168 billion. It was only the latest example of a troubling dynamic in the countries' relations: white hot economics and deep freeze politics. The joint United States-Japan declaration on Taiwan, buried last week in a long, seemingly bland statement of cooperative security objectives, left many Chinese analysts outraged. 'Japan colonized Taiwan for half a century,' one Chinese expert based here said Monday, hardly containing his anger. 'When Japan talks about Taiwan, we think they have no right to talk.' He asked to remain unidentified because he did not want to criticize Japan publicly. But others say Japan's mention of Taiwan in its list of goals for a safer Asia was part of a larger effort to stand up to China's expanding power. Japan's growing economic dependence on China would seem to point toward a greater deference from Tokyo. But political and military affairs have risen in importance in the region, and for Japan's government they may now be edging out economic concerns. As a result, many here say, it makes sense for Tokyo to bolster Taiwan, a convenient buffer state that absorbs the military hostility and expansive energy of its rival. To the east of Taiwan, Japanese islands already feel Chinese pressure: Chinese drilling last fall for gas in an area claimed by Japan, a Chinese submarine caught in November trying to slip through Japanese territorial waters, and a continuing effort by China to have a Japanese island declared a rock, a legal strategy that would deprive Japan of thousands of square miles of economic rights. Discarding the language of diplomacy, Hatsuhisa Takashima, the spokesman for the Foreign Ministry of Japan, said in an interview on Monday that the inclusion of Taiwan in the security list was a consequence of those actions. China has been increasing its military budget by 10 percent annually for the past 10 years, continued Mr. Takashima, whose government is actually cutting its defense spending this year. Fear of a rising China prompted Hiroyuki Hosoda, the government's chief cabinet secretary, to ask the European Union on Monday to retain its embargo on arm sales to China. 'The sale of advanced weaponry would fuel tensions and is a concern for Japan,' he said. The Chinese argue that Japan must adapt to a new reality in Asia. Recalling Japan's occupation of Taiwan and its depredations on the mainland, the Chinese analyst, a graduate of American and Chinese universities, said: 'For almost two centuries, Japan had a weak and divided China. Now we have a nearly integrated, strong China. The Japanese are not ready for that.' For Taiwan, which was delighted by Tokyo's surprise announcement, the best strategy is to form an alliance to check China. Taiwanese officials note that South Korea recently renewed direct flights between Seoul and Taiwan, a link broken over a decade ago. And they eagerly endorse the stalled six-party talks on North Korea's nuclear weapons, which aim to preclude North Korea from even considering a military option. 'With regards to China, we hope that there is a military encirclement so China will not go for a military adventure as well,' Koh Se-kai, Taiwan's representative to Japan, said in an interview on Monday. Speaking fluent Japanese acquired during a three-decades-long exile here that ended in the 1990's, he added: 'The United States and Japan announced their interest in the Taiwan straits issue. We welcome it for it seems to be the first step for such an encirclement.' The Japanese see themselves as moving cautiously. The Taiwan statement may have set off fire alarms in Chinese newsrooms, but to Japanese eyes it was so subtle that it received light mention on Monday in the Japanese press. Briefing reporters in Washington on Saturday, Mr. Takashima, the Japanese spokesman, said that in the event of war between Taiwan and China, Japan would limit itself to providing logistical support, saying: 'Surely, Japan would support American action, but we wouldn't join the military action itself. It is prohibited by the Constitution.' Yet, one observer left Tokyo last week with words of caution for Japan and China. 'The biggest challenge to Japan is going to be how it arranges its relationship with China,' Howard H. Baker Jr. said Wednesday at a small news briefing before stepping down as American ambassador here. 'Japan is a superpower. China is on its way to being a superpower. They are both rich, they both have a history and tradition in this region. And they don't much like each other.'

Subject: The Dollar From: Emma To: All Date Posted: Tues, Feb 22, 2005 at 06:12:15 (EST) Email Address: Not Provided Message: BBC is reporting that Korea has announced they will diversify currency reserves. We will find how that effects the Euro and dollar, and the bond market. This may be the quiet beginning of an Asian change in holding reserves, but Korea is only a marginal holder of reserves.

Subject: Transition From: Emma To: Emma Date Posted: Tues, Feb 22, 2005 at 06:34:10 (EST) Email Address: Not Provided Message: The hope is the transition to diversified reserves as it comes will be gradual, and there is reason to believe that will be the case.

Subject: Free Riders From: Pete Weis To: Emma Date Posted: Tues, Feb 22, 2005 at 10:09:23 (EST) Email Address: Not Provided Message: It's interesting to note, at this time, Nouriel Roubini's and Brad Setser's fine paper regarding the possibility of a 'hard landing' for the dollar sometime in the 2005-2006 time frame. Today we have reports of Korea shedding dollars and also oil producers doing the same. This is one of the triggers Roubini and Setser pointed to when they talked about 'free riders'. They mentioned - whether or not Japan or China began to shed assets, free riders like small Asian countries and oil producers would be tempted to dump dollars for, say, Euros thinking they were too small to make a difference. But acting together they would have a similar effect as a very large dollar asset holder divesting. This then could start a dollar rout. We'll see what happens.

Subject: Re: China urged to drop dollar peg From: Pancho Villa alias El Gringo To: Pete Weis Date Posted: Tues, Feb 22, 2005 at 14:12:50 (EST) Email Address: nma@hotmail.com Message: FT, Tuesday Feb. 22 2005 China urged to drop dollar peg China should be moving towards greater exchange rate flexibility and the US must put its economic house in order to mitigate against the kind of market turbulance that buffeted east Asian economies over the past year, according to South Korea's central bank governor. Defending the Bank of Korea's record intervention in currency markets last year, Park Seung advocated global exchange rate adjustment to allow for a gradual fall in the dollar. 'In order to develop its economy further, the time has come for China to consider whether it should continue to peg to the dollar.' Mr Park said in an interview with Central Banking journal. 'I do not think that a change in its foreign exchange regime would have a major impact on China's economy. Ultimately the government has the instruments to control the situation.' China has come under international pressure to revalue the renmimbi, which has remained artificially low as the US dollar has fallen. This has left other currencies to absorb the impact of the weak dollar,particularly the Korean won, which rose by 15 % last year, more than any other Asian currency. Mr Park said he agreed that Asian countries needed to adopt more flexible exchange rate systems to absorb shocks to the domestic economy and help correct external imbalances. 'But in a country whose economic framework has not become firmly based, or whose financial system is fragile, this may leave it easily exposed to speculative attack,' Mr Park said. The US needed to help redress global imabalances, exacerbated by its twin budget and payments deficits, by adopting policies to lower domestic demand 'both by pursuing soundness of its government's finances and by raising its private saving ratio' (could this explain the privatisation of the Social Security system?), Mr Park said. 'This should be followed by global exchange rate adjustment and co-operation in economic policy. The dollar needs to weaken gradually within a range of values that is sustainable for east Asian countries.' South Korean authorities have intervened relatively heavily in the foreign exchange markets as the dollar weakened, with the country's foreign foreign exchange reserves rising by 23% over the past year to breach the $200bn mark this month. Mr Park nevertheless repeated the government's line that South Korea's exchange rate policy should be decided freely in the market. The Bank of Korea said yesterday it would diversify its foreign exchange reserves, Asia's fourth largest, away from government bonds into high yielding papers and a greater variety of currencies, Reuters reports from Seoul. A large chunk of South Korea's foreign exchange reserves have been held in US Treasuries.

Subject: Dollar strain worsening From: Pete Weis To: Pancho Villa alias El Gringo Date Posted: Tues, Feb 22, 2005 at 15:12:31 (EST) Email Address: Not Provided Message: Not sure what the Chinese are thinking. If they don't unpeg we will continue to have serious imbalances. The only other way we get a quick reduction in the current account would be significantly higher long term rates. This would cut into cheap borrowing and therefore consumption. This would also likely cause a recession and could possibly stress our financial system to the brink if long term rates rose too fast. Oil exporters' shift to euros hurts dollar By Mona Megalli, Reuters JEDDAH, Saudi Arabia, — Moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros lie behind the U.S. currency's weakness, and a further rise in crude prices could prompt more declines, billionaire investor George Soros said Monday. Soros told delegates to the Jeddah Economic Forum that the dollar's fall should help to lower the U.S current account and trade deficits, but warned that a fall beyond an unknown 'tipping point' would severely disrupt markets. The U.S. current account deficit is more than five percent of gross domestic product despite the dollar's three-year slide. The currency, however, has staged a comeback recently, gaining about 3.6% against the euro and three percent versus the yen this year. 'The oil exporting countries' central banks ... have been switching out of dollars mainly into euros, and Russia also plays an important role in this. That is, I think, at the bottom of the current weakness of the dollar,' Soros said. Soros, dubbed 'The Man who broke the Bank of England' for his role in betting the pound would drop in 1992, said he was not predicting further falls in the value of the dollar. But he linked its fate to the price of oil. 'The higher the price of oil, the more the dollars there are to be switched to euro (so) the strength of oil will reinforce the weakness of the dollar,' he said. 'That is only one factor, but I think there is such a relationship.' U.S. crude hit a record $55.67 a barrel late last year and prices remain close to $50 a barrel. In later comments to Reuters, Soros said the U.S. current account deficit could be financed at the current level of the dollar. 'There are willing holders of the dollar. There are the Asian countries that are happy to accumulate dollar balances in order to have an export surplus and a market for their dollars,' he said. Soros would not make detailed comments on why long-term borrowing costs in the USA have fallen in the face of short-term interest rate increases, a development U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday he found difficult to explain. 'A flattening of the yield curve is usually an indication of a slowing economy, but here I don't know,' Soros said. The Hungarian-born financier, a critic of U.S. involvement in Iraq, said he is considering backing an Arab foundation to promote the ideals of civil and open societies in the Middle East.

Subject: China no like Soros From: johnny5 To: Pete Weis Date Posted: Tues, Feb 22, 2005 at 15:42:18 (EST) Email Address: johnny5@yahoo.com Message: I think the chinese might be thinking the only thing that saved them in the past was not having people like Soros speculate in their currency - why give him the chance now?

Subject: Confidence, the J(LO)-Curve(s), and ... From: Pancho Villa To: All Date Posted: Mon, Feb 21, 2005 at 20:23:29 (EST) Email Address: nma@hotmail.com Message: EXCHANGE RATE POLICY The J-Curve, the Fire Sale, and the Hard Landing By Paul Krugman II. Confidence, the J-Curve, and the Exchange Rate Suppose that international investors were suddenly to lose confidence in the US. What it means to “lose confidence” is a slightly problematic issue; perhaps investors start to demand a risk premium on US assets, perhaps the revise downward their views about the long-run equilibrium real exchange rate, or perhaps they start to have a “peso problem,” viewing a catastrophic fall in the dollar as a possibility though not probability. Whatever the precise nature of the loss of confidence, the important point is that we suppose that investors become unwilling to hold claims on the US at their current rates of return. What happens next? Investors cannot simply pull their money out of the US, since there would be nobody on the other side of the transaction. When everybody wants to sell, the result is not a lot of sales but a fall in the price. The immediate result of a loss of confidence in the US, then, is not a sudden flight of capital but a sudden fall in the dollar. The textbook view of what happens next is that the fall in the dollar leads to a reduction in the US CA-deficit. This deficit reduction has its counterpart a decline in the rate of capital inflow, so this is the channel through which a decline in confidence leads to a cutoff of capital flows. The move toward CA-balance also reduces the supply of savings domestically, driving up the interest rate; equilibrium is reached when the interest rate is driven up sufficiently to make investors willing to hold US assets again. This textbook view is consistent, and correct as a description of the medium run. As a short-run story, however, it overlooks a crucial point: the sluggishness with which the trade balance responds to the exchange rate. As a recent experience has confirmed, the response of trade flows to the exchange rate takes years, both because consumers are slow to change habits and, even more important, because many changes in supply and sourcing require long-term investment decisions. As a result o this sluggishness, a fall in the dollar does not lead to any immediate reduction of the US trade deficit, and indeed probably leads to a temporary rise in that deficit. Since the rate of capital inflow is by definition equal to the CA-deficit., we have a paradoxical result: capital markets cannot determine the rate of capital inflow. All they can do is determine the value of the dollar, which itself can influence the rate of capital flow only with a long (very long?) lag. This may at first sight appear to leave the dollar with no bottom. As the dollar drops, however, it falls relative to its expected long-run level, and thus offers foreign investors a higher expected rate of return. At some point this will be enough to induce these investors to hold on to US assets. And since the CA-deficit remains, foreign investors will actually continue to put funds into the US; indeed, thanks to the J-curve they (under normal circumstances) may be putting capital in at a greater rate than before. Only over time does a textbook answer emerge, as a weak dollar gradually reduces the trade deficit. Eventually the result is a smaller external deficit on one side, and a rise in interest rates on the other. But this result takes time, and meanwhile foreigners continue to finance the deficit. In this not entirely hypothetical story, we see some aspects of the US story of the past few years emerge. The loss of confidence by foreigners is initially reflected in a decline in the currency, not in a decline in the rate of capital inflow; someone who looked only at the CA financing would conclude that foreigners were as willing to invest here as ever. What attracts the foreigners is precisely the fire sale of US assets: the fall in the dollar makes the assets cheap, thus presenting foreigners with a higher expected rate of return. This fire sale is not, however, a windfall presented to foreigners by a arbitrary decline in the dollar; both the decline in the dollar and the fire sale result from the unwillingness of foreigners to keep investing in the US, which requires that they be offered a higher expected rate of return. Finally, notice that a hard landing – a financial squeeze brought about by a cutoff of foreign financing – does occur in this story, but not immediately. Because the loss of confidence by foreign investors cannot immediately show up in a reduce capital inflow, the hard landing takes time to develop. It would clearly be a mistake, however, to look at the absence of financial strain in the immediate aftermath of dollar decline and conclude that there will never be a financial problem.

Subject: Where and When From: Emma To: Pancho Villa Date Posted: Tues, Feb 22, 2005 at 08:25:57 (EST) Email Address: Not Provided Message: Pancho Villa, Where is this fine article from and whenwas it written? Thank you for the reference.

Subject: Re: Where and When From: Pancho Villa alias Gringo To: Emma Date Posted: Tues, Feb 22, 2005 at 09:21:18 (EST) Email Address: nma@hotmail.com Message: Dear Emma here are the references: The J-Curve, the Fire Sale, and the Hard Landing (in Exchange Rate Policy) Paul Krugman The American Economic Review, 79 (2), Papers and Proceedings of the Hundred and First Annual Meeting of the American Economic Association, May 1989, pp. 31–35. http://math.stanford.edu/~lekheng/krugman/

Subject: Re: Where and When From: johnny5 To: Pancho Villa alias Gringo Date Posted: Tues, Feb 22, 2005 at 09:44:38 (EST) Email Address: johnny5@yahoo.com Message: So where does Paul say we should invest? The assets like gold and housing have already had significant increases. China is going to contract. Oil is going to fall to 25 a barrel. The dollar is going to have a hard fall. Do we short the dollar like Mr. Gates? Isn't that unamerican - I don't think raymond james offers my uncle a way to short markets - they must think things are always going to only head in one direction.

Subject: China Credit crunch coming? From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 19:36:48 (EST) Email Address: johnny5@yahoo.com Message: Hoye said in the late 1890's the usa was subject to available credit from london, and that today china would follow that model and be vulnerable to available credit from today's financial capital. http://www.bizjournals.com/houston/stories/2005/02/21/newscolumn1.html Stratfor's scenario: Economic woes in China will deflate oil prices Monica Perin Houston Business Journal An Austin-based intelligence research firm with a strong reputation for on-target forecasts sees the world price of oil will dropping to under $30 a barrel later this year. The price decline will coincide with economic collapse in China, according to Strategic Forecasting Inc., referred to in the information industry as 'Stratfor.' The private company defies the traditional 'liberal' and 'conservative' think-tank labels by using 'zero-based' analytical methodology. A partial client list of government, corporate and private entities includes the U.S. Navy, the U.S. International Trade Commission, the U.S. House of Representatives, Halliburton, UBS Financial Services Group, the World Bank and the United Nations. 'Geopolitical assessment is what we do,' says Peter Zeihan, a Stratfor economics analyst. 'We look for geopolitical drivers,' he explains. Current signs all point toward the China scenario, he says. 'We see China's economic model -- which is a variation of the Asian model that failed in 1989 in Japan, and again in 1997 across the Asian Rim -- coming to a head in the latter half of this year.' The root of the problem, Zeihan says, is that in China and other countries with state-controlled companies, money is lent to these monopolies regardless of their profitability or quality of asset management. 'The only way they survive is with an ongoing supply of cheap capital in large amounts,' he says. But in China today, anywhere from 14 percent to 40 percent of the country's Gross Domestic Product is 'locked up in bad loans,' Zeihan says. By comparison, the savings and loan debacle that hit the United States in the 1980s cost the country about 3 percent of GDP over a period of several years, Zeihan says. And the United States 'recognized the problem early on and dealt with it.' But China, Zeihan says, has 'made this a way of life.' China owes creditors far more than the country's entire foreign currency reserves and doesn't have the capability to pay down debt. So when the cost of capital credit goes up -- which is already happening with the Federal Reserve's raise in interest rates -- it will force a credit crunch that will, in turn, raise the cost of the loans for China, Zeihan says. Such an economic disaster would lead to a steep drop in demand in a country with a voracious appetite for oil and gas. China's cutback in consumption would put downward pressure on the price of oil -- repeating a scenario that also took place in 1997-98 during the last Asian economic crisis. But this time Zeihan thinks the price of oil will still stay well above $25 a barrel. At that level 'Texas producers will still do well, although they won't have the kind of year they had in 2004,' Zeihan says. Anticipated lower oil prices are factored into another Stratfor forecast for 2005 -- a strengthening U.S. economy. Again, the Asian financial crisis of 1997-98 is instructive. 'When everyone realized that Asia was going down, the foreign money all came here to the U.S. as a safe haven,' Zeihan explains. 'We see the U.S. as the No. 1 destination for foreign investment by the end of the year.' In conjunction with that forecast is this week's pronouncement by the Russian Ministry of Natural Resources banning all foreign-owned companies from bidding on Russia's licenses to produce that country's huge oil and gas reserves. The new ruling could have a significant impact on major producers such as ExxonMobil, ChevronTexaco, Shell and ConocoPhillips. All have operations in Russia and will not be able to bid on new or expanded projects if they have stakes greater than 50 percent. 'Russia is a dead letter for foreign investment in 2005,' Zeihan says. The country that stands to lose the most in a Chinese economic collapse could be Venezuela. President Hugo Chavez has decided to cut off U.S. access to Venezuelan oil, which currently accounts for 15 percent of U.S. oil imports. In addition to denying renewal of contracts with U.S. producers, Zeihan says, Chavez has 'made a strategic decision to sell' Citgo Petroleum Corp., the Houston-based oil refiner owned by Venezuela's state oil company, PDVSA. To replace U.S. producers, Chavez recently signed a raft of oil and other trade agreements with China and is courting Russia. 'The time of Venezuelan crude in the U.S. is at an end,' Zeihan predicts. But Chavez's strategy 'will hurt Venezuela more than the U.S.,' he says. 'Chavez has bet the farm on China, and when China's crunch comes, Venezuela will be left out in the cold.' Who has international investments in Venezuela?

Subject: On Hedge Fund Management From: Terri To: All Date Posted: Mon, Feb 21, 2005 at 18:08:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/09/business/09scene.html?ei=1&en=0ec382040be1c14d&ex=1110026994&pagewanted=all&position= Hedge Funds Better at Managing Data Than Managing Money By ALAN B. KRUEGER HEDGE funds have grown at supersonic speed. In 1990, about $50 billion was invested in hedge funds; today, the amount is estimated at $1 trillion. Does superior performance explain the rapid growth? No, says Burton G. Malkiel, a professor of economics at Princeton University, and Atanu Saha, a managing principal at the Analysis Group, a consulting firm. The researchers recently completed a study that challenges the often-made claim that hedge funds, in general, produce lofty returns. Hedge funds are a diverse set of investment funds that typically cater to wealthy clients and institutions. The funds pursue various strategies, like holding both long and short positions, and often employ substantial leverage. Their fees are usually much higher than those charged by mutual funds or other financial assets. Data on the performance of hedge funds comes from indexes like the CSFB/Tremont Index or the Van Hedge Fund Index. Those indexes are generated by companies that advise investors and operate funds. 'Hedge funds in aggregate,' Van Hedge Fund Advisors boasts on its Web site, 'in most multiyear periods, have provided both superior returns and lower statistical risk than the S.& P. 500 or mutual funds.' The catch, according to Professor Malkiel, is that the information on performance is voluntarily provided to the organizations who track the funds. Because a good record helps attract investors, funds have a tendency to start reporting results only after they have achieved some success. Funds that are losers right out of the gate may never be represented in the database. Furthermore, when funds start reporting, they have the option of 'backfilling' their data, or providing information on returns for previous months. If a fund was successful in preceding months, it has an incentive to backfill its data to increase its attractiveness to investors. This process creates a 'backfill bias,' because better results are overrepresented in the database. It is as if the Boston Red Sox waited until 2004 to report their World Series success, while the Yankees started in 1923; both franchises would look like smashing successes. By analyzing statistics from TASS Research, which is owned by Tremont Capital and has perhaps the most comprehensive data on returns, Mr. Malkiel and Mr. Saha have shown that the backfill bias is substantial. The returns that were backfilled for a given year were 5.8 percentage points higher than the returns of other funds whose results were contemporaneously reported for that year. 'I think there are a lot of people in the financial community who have a vested interest in showing only those pieces of data that help them sell products,' said Professor Malkiel, who is also a director for the Vanguard Group. Another problem he noted, called survivor bias, is a tendency for funds to stop reporting their monthly returns when they suffer losses and are on the verge of closing. Long-Term Capital Management, for example, did not report its losses to any of the database services from October 1997 to October 1998, a period when it lost 92 percent of its capital. (Long-Term Capital never reported to the TASS database.) Looking only at the past returns of hedge funds that are in existence today - that is, the surviving funds - it does appear as if hedge funds do produce generous returns. But this is tantamount to judging the success of a war by ignoring all the casualties. Mr. Malkiel and Mr. Saha have found that the funds that cease reporting their data, so-called dead funds, tend to have weak returns in the months before they cease reporting. The average annual return for dead funds was 7.4 percentage points less than that of surviving funds for the same years. And hedge funds have a tendency to die - more than 10 percent stop reporting to the database each year. Although it is possible that some of these funds withdrew because they were so successful that they no longer desired further investors, the researchers found that smaller and underperforming funds were the most likely to cease reporting - not a profile of successful funds that were turning away business. Using data from 1996 to 2003, Mr. Malkiel and Mr. Saha found that correcting for backfill and survivor biases reduced the average annual return on hedge funds, after deducting fees, from 13.5 percent to, at most, 9.7 percent, which is almost three percentage points less than the return on the Standard & Poor's 500-stock index for that time period. The lower return could be justified if hedge funds helped to diversify portfolios by providing an investment that did not move in lock step with other investments, and the researchers did find that hedge funds do not move closely with the stock market over time. Yet they also found that choosing a particular hedge fund entailed considerable risk because the funds exhibited enormous variability in performance in any given year. The best funds perform extraordinarily well, but the worst ones perform extremely poorly, with the spread between the best and worst greatly exceeding the spread between the best and worst equity or bond funds in a typical year. 'Clearly, there is a risk in investing in hedge funds that is far greater than the risk of investing in the other asset classes,' the researchers said. Even the so-called fund of funds hedge funds, which try to diversify risks by investing in other hedge funds, display nearly as much variability in performance across funds in a given year as is exhibited across the entire universe of mutual funds. Moreover, from 1995 to 2003, the average fund of funds yielded only a 7 percent annual rate of return after deducting fees, well below that of the average mutual fund. Picking a good fund is also dicey because there is little persistence in performance from one year to the next. The chance that a hedge fund that performed in the top half of the universe of funds in one year would do so again the following year is no better than 50-50, which raises the question of how the funds can command such high fees. Most hedge funds will be required to register and provide data to the Securities and Exchange Commission beginning in February 2006. While some people have argued that the S.E.C. already has too much to do, it would seem that collecting and disclosing information on performance is a small burden for the commission, and a great potential benefit to investors. 'As a free market person, I think markets work better when there is fuller and more accurate information,' Mr. Malkiel said. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University. E-mail: akrueger@princeton .edu.

Subject: lawyers derivatives = FUN From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 17:58:06 (EST) Email Address: johnny5@yahoo.com Message: http://www.reuters.com/newsArticle.jhtml;jsessionid=S5ZHO520V20SWCRBAEZSFFA?type=topNews&storyID=7689767 By David Wigan LONDON, Feb 21 (Reuters) - A decline in credit markets could prompt a wave of lawsuits against investment banks, as investors ratchet up losses on risky credit derivatives, lawyers said on Monday. The warnings come after Barclays Capital (BARC.L: Quote, Profile, Research) last week settled a claim by Germany's HSH Nordbank over a $151 million CDO, while Italy's Banca Popolare di Intra (PINI.MI: Quote, Profile, Research) sued Bank of America Corp. (BAC.N: Quote, Profile, Research) for selling credit-linked notes at what it called an 'excessive price with respect to their risk level'. Low volatility in the past two years has encouraged investors into highly-leveraged investments such as collateralised debt obligations (CDOs). But many do not understand the pitfalls, say lawyers, and will blame their bankers should the bets go wrong. 'Spread reversal will produce large losses which inevitably will lead to lawsuits,' said Claude Brown, a partner in the CDO group at Clifford Chance. 'The value of these transactions means many will regard litigation as a tool in the negotiation toolbox.' European and U.S. credit spreads are hovering near record tight levels after a sustained period of low interest rates and stable ratings. With global growth slowing, however, and interest rates predicted to rise, spreads could widen in coming months, analysts say. Collateralised debt obligations are structured assets that can be divided into tranches. Returns are higher than on single-name investments but lose more when spreads widen or underlying credits default. Further, says Brown, their complexity makes them fertile grounds for legal machinations. 'Litigants will argue either they were sold something they didn't want, were sold a toxic product or were exposed to some risk that was hidden from them,' he said. Already many cases are thought to have been settled out of court. Those reported include the European Bank for Reconstruction and Development settling a claim against Barclays, while Prudential Bach last year paid out on an unspecified $40 million claim for misselling. 'The vast majority of cases are dealt with without ever reaching court,' said Simon Hart, a solicitor at Richards Butler. 'The volume of disputes is impossible to estimate but where complex products are developing quickly there is always scope for litigation.' Among innovations heavily marketed this year are CDO squared - or CDOs of CDOs - and options on credit default swaps. The credit derivatives market reached $5 trillion at the end of 2004 and is expected by the British Bankers Association to hit $8 trillion by December 2006. REGULATOR CONCERN Such is the level of concern among regulators that the Bank for International Settlements last month warned investors to beware credit ratings on structured products. 'Market participants, in using ratings, need to be aware of their limitations,' the BIS said. 'The one-dimensional nature of credit ratings ... is not an adequate (matrix) to gauge the riskiness of these instruments.' The main concern for investors, however, is not inaccurate ratings but ratings volatility. The cases currently making the headlines had their origins in structures made before the economic downturn in 2001 and 2002, which saw many companies lose their investment grade status. The CDOs owned by HSH, for example, had initial ratings of AAA to BBB, but subsequently dropped by at least 11 levels to as low as CC as credit quality worsened. Still, Moody's Investors Service, while recognising that deals are becoming more complex, said in January it expects greater stability in 2005 in terms of rating migration, with an increase in the number of deals upgraded. 'The obvious ingredients for improved credit exposure in existing deals are already present, including older deals with reduced average lives and the relatively healthy underlying corporate markets,' said Moody's vice-president Katherine Frey. Meanwhile, bankers have mixed views on the question of responsibility, with some focusing on the need for investor education and others reluctant to shoulder the blame for potential losses. 'You are getting paid a lot more on these products so if you think there is no risk you are stupid,' said the head of derivative research at a major U.S. bank. 'If you are in charge of investing billions of dollars of other people's money you shouldn't turn round and say you didn't understand what you were getting into.'

Subject: We now invest in a very different... From: Pete Weis To: All Date Posted: Mon, Feb 21, 2005 at 17:39:34 (EST) Email Address: Not Provided Message: time than that of our past. Investment strategies (such as index investing) which worked well in our previous life's experience may not work well in the coming decade. Views from the 2004 AIMR Conference William Hester, CFA March 2004 In February some of the most respected academics and practitioners in the investment management business met in New York City to discuss the industry's future. The message of the conference: times have changed. As an attendee, it felt like an emergency meeting on the deck of a ship that was thrown off course by nasty weather. The storm began to brew last summer when investment consultant and historian Peter Bernstein wrote an article detailing the changes that can be expected in the field of money management 1 . There are few people in the business as respected as Mr. Bernstein, who is the founding editor of the Journal of Portfolio Management and the author of several books including Against the Gods: The Remarkable Story of Risk . His words were a jolt to an industry that had become comfortable with its own dogma. Things are different this time, says Mr. Bernstein. The mental models and industry standards that were created during the great bull market are outdated and will be ineffective for the type of asset returns of the next decade or so. “What we have been doing has begun to outlive its usefulness; the world in which we invest today bears too little resemblance to the world of yesterday.” In the original article Mr. Bernstein focused on four areas where he expects to see substantial change: indexing, benchmarking, long only equity management, and soft dollar research. At the conference in February he expanded and defended these ideas. He also discussed how the demands of mutual fund shareholders could be creating inefficiencies in the market. Here are some of his thoughts both from the original article and his discussion at the conference. Indexing Indexing will lose its luster, says Mr. Bernstein. The power of equity indexing is broad diversification at a low cost. But the dynamic US economy undermines both attributes. In 2000 there were 57 additions to the S&P 500 index, the most heavily indexed benchmark. Harley Davidson replaced Fleetwood Enterprises, Starbucks stepped in for Shared Medical Systems, and JDS Uniphase took the place of Rite Aid. Even since the market's peak, 23 changes a year have been made, according to Bloomberg data. “New companies come along all the time to threaten and then overthrow the dominance of older companies. Creative destruction is our trademark,” says Mr. Bernstein. Since the pace of technological advancement continues unabated, he thinks turnover will likely remain high. He also points out that many of the most popular benchmarks are weighted by market value. This makes them top-heavy and strains the benefits of diversification. For example, the 10 largest companies in the S&P 500 index – only 2 percent of the total number – account for about 20 percent of its market value. The top 25 companies account for 35 percent of its value. This concentration can increase the volatility of the index, as was seen at the peak of the bubble. Even though the larger indexes, such as the Wilshire 5000 Index and the Russell indexes, are spread out over more stocks, the largest companies affect the behavior of those benchmarks as well. These indexes have their own problems, too. “Strictly speaking, they are not investable pools of securities; they are floating crap games because their membership is much more fluid than even the membership of the S&P 500”. So funds that attempt to index these benchmarks are saddled with the costs of frequent rebalancing. Mr. Bernstein also pointed out that in the world of double-digit returns, beating the market was nice, but not mandatory to meet investment objectives. When investors begin to compare their expected future liabilities with the returns they can realistically earn on their assets, active investing may become “more attractive, even essential.”

Subject: Re: We now invest in a very different... From: johnny5 To: Pete Weis Date Posted: Tues, Feb 22, 2005 at 09:47:47 (EST) Email Address: johnny5@yahoo.com Message: long only equity management, Right, markets move in 2 directions - but raymond james seems to think they will always go one way - there is no way to short anything in thier investment philosophy from what I can tell. Over the 200 year history of the US stock market - have the majority of firms went up or went down? Haven't a lot went both ways?

Subject: Are Hedge Funds the Answer? From: Terri To: Pete Weis Date Posted: Mon, Feb 21, 2005 at 18:06:59 (EST) Email Address: Not Provided Message: The gist of Peter Bernstein's discussion was that we would be better off with hedge funds than mutual funds, and especially index funds. There is no reason to believe this yet. I will post an article by Alan Krueger of Princeton on the issue.

Subject: Re: Are Hedge Funds the Answer? From: johnny5 To: Terri Date Posted: Tues, Feb 22, 2005 at 13:44:21 (EST) Email Address: johnny5@yahoo.com Message: Mr. Bogle speaks again: http://www.investorscoalition.com/BogleJune18testimony.pdf Shareholder Returns vs. Stock Market Returns: During the past 20 years, the U.S. stock market has earned a return of 13% per year, while the average mutual fund investor has earned a return of approximately 2% per year. An initial investment of $10,000 in the stock market, then, would have earned a profit of $105,000, while the average fund owner would have earned a profit of just $5,000. Is that a scandal, or is it not?

Subject: Re: Are Hedge Funds the Answer? From: Pete Weis To: Terri Date Posted: Mon, Feb 21, 2005 at 22:25:55 (EST) Email Address: Not Provided Message: Terri. I don't know that hedgefunds are the answer. I just know that broad market index funds carry more risk against expected return than I'm willing to accept. I see all investments which are vulnerable to a fall in the dollar as risky. I see all investments which are least vulnerable to a fall in the dollar and which are the most conservative as probably the most prudent for the vast majority us at this time. It won't always be this way - but I think we need to wait for the 'equilibrium' which Pancho Villa points to in his post regarding the Paul Krugman piece above - and as Paul Krugman seems to be saying - equilibrium could be a long ways off. At this time its all about safety and preserving capital.

Subject: Alternate Indexes From: Terri To: Terri Date Posted: Mon, Feb 21, 2005 at 18:27:54 (EST) Email Address: Not Provided Message: Turnover of the Vanguard S&P Index in the last 12 months was 4%. Vanguard Large cap Index had a turnover of 2%. The top 10 companies in the indexes make up about 20% of the portfolio, since the indexes are weighted by size. The Dow however is price weighted. Value Line simply gives equal weight to companies.

Subject: Turnover TOO HIGH From: johnny5 To: Terri Date Posted: Tues, Feb 22, 2005 at 13:51:39 (EST) Email Address: johnny5@yahoo.com Message: Bogle has many negative things to say about turnover Terri This is from testimony given to congress during the recent mutual fund hearings. http://www.investorscoalition.com/boglefeb26testimony.pdf 4. Turnover Goes Through the Roof Together, the coming of more aggressive funds, the burgeoning emphasis on short-term performance, and the move from investment committees to portfolio managers had a profound impact on mutual fund investment strategies—most obviously in soaring portfolio turnover. At M.I.T. and the other funds described in that Fortune article, they didn’t even talk about long-term investing. They just did it, simply because that’s what trusteeship is all about. But over the next half-century that basic tenet was turned on its head, and short-term speculation became the order of the day. Not that the long-term focus didn’t resist change. Indeed, between 1950 and 1965, it was a rare year when fund portfolio turnover much exceeded 16%, meaning that the average fund held its average stock for an average of about six years. In the Go-Go era, that figure nearly tripled, to 48% (a two-year holding period), only to fall back to an average of 37% (a three-year holding period) after the 1973-74 market crash. But that was just the beginning. With the elimination of fixed commissions on stocks in 1975 and the later burgeoning of electronic trading networks, the unit costs of buying and selling plunged. Turnover rose accordingly, averaging about 80% from the early 1980s through 1999. And it’s risen even further since then, with fund managers turning their portfolios over at an astonishing average annual rate of 110%(!). Result: Compared to that earlier six-year standard that prevailed for so long, the average stock is now held for just eleven months. The contrast is stunning. At 16% turnover, a $1 billion fund sells $160 million of stocks in a given year and then reinvests the $160 million in other stocks, $320 million in all. At 110%, a $1 billion fund sells and then buys a total of $2.2 billion of stocks each year—nearly seven times as much. Even with lower unit transaction costs, it’s hard to imagine that such turnover levels aren’t a major drain on shareholder assets. When I say that this industry has moved from investment to speculation, I do not use the word speculation lightly. Indeed, in my thesis I used Lord Keynes’ terminology, contrasting speculation (“forecasting the psychology of the market”) with enterprise (“forecasting the prospective yield of an asset”). I concluded that as funds grew they would move away from speculation and toward enterprise (which I called “investment”), focusing, not on the price of the share but on the value of the corporation. As a result, I concluded, fund managers would supply the stock market “with a demand for securities that is steady, sophisticated, enlightened, and analytic.” I was dead wrong. Mutual fund managers are no longer stock owners. They are stock traders, as far away as we can possibly be from investing for investment icon Warren Buffett’s favorite holding period: Forever

Subject: Re: Alternate Indexes From: Terri To: Terri Date Posted: Mon, Feb 21, 2005 at 18:36:37 (EST) Email Address: Not Provided Message: Peter Bernstein is telling us the investing world has changed, but why? Why should I leave indexing which has been a successful strategy for decades? Why should I believe markets are suddenly inefficient and so easily beaten by many managers? I want more evidence and argument. Also, the Value Line Fund has badly trailed the S&P over 10 years. Why should this be if the Value Line Indexes and system are so efficient?

Subject: Shell had the BEST system EVER! From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 17:18:11 (EST) Email Address: johnny5@yahoo.com Message: BWAHAHA! This would be funny if so many REAL people weren't hurt! How did they MISS it? Why did people lose jobs? They had the best system in the WORLD?? http://www.spgshop.com/product.asp?0=264&1=265&3=400 What calculation method is your performance attribution system based on? The authors say it's most likely one developed by Brinson and Fachler, Allen, or Karnosky and Singer. However, these methods aren't always the best choice, say the authors, because they 'do not follow the investment decision process exactly.' As you might suspect, they have their own model to offer--The Investment Decision Process Model. The Investment Decision Process Model http://www.ortec.com/us/case_shell.php In 1993, the management company of the Shell Pension Fund in the Netherlands evaluated different options for a performance measurement system. However, given the firm's profound internal investment and performance measurement knowledge and consequent information needs, none of the available products met its requirements. Therefore, Shell turned to ORTEC, a leading provider of optimization and decision support solutions and services, to match Shell's visionary views on performance evaluation with ORTEC's unique modeling expertise. As Shell's Finance Manager, Paul Gerla stated: 'In ORTEC we found the partner to really put our concepts of decision based performance evaluation to work'. In turn, the firms worked closely together for years to develop a model that would exactly track Shell's investment process. The result is the revolutionary PEARL solution. Traditionally, measuring performance had been about portfolios or composites and attributing performance to arguable market factors. From this time on, the challenge was increased to comprehensively decompose excess returns into sources that really mattered for Shell. As with every investment decision process that is more complex than just security selection, Shell's decisions were interrelated in a hierarchical manner. Furthermore, all decisions were expected to adhere to certain guidelines and should be measured against global risk and performance benchmarks provided by the plan sponsor. The (long-term) liabilities formed the ultimate benchmark and had to be outperformed by the aggregated returns of all isolated investment decisions, while also maintaining control of the individual and overall risk; daily challenges for every asset manager. Decision Based Performance Evaluation Based on the concepts that were researched in the 80's and 90's by experts including Brinson & al. and Karnosky & Singer, PEARL took performance measurement to the next level with the unprecedented Investment Decision Process Model (IDP). This model transferred arbitrary measurement factors into decision-based performance evaluation by stacking strategic, tactical and operational decisions according to Shell's true investment process. With the IDP, ORTEC was in a position to mimic Shell's daily operations, thereby enabling Shell to really evaluate its entire organization and at the same time measure the added value of every decision taken. Prior to PEARL, linking performance attribution up to an entire investment process was unheard of, measuring the value added of each and every decision, and relating it to exposures and risks. A unique system was born, but the market did not yet fully understand the new concepts. New ideas about increased flexibility and faster implementation of other investment processes for helping this education process, led to a complete revision of the system. The new PEARL system was recently completed for Shell, with perfect timing for current market needs. Equipped with the newest version of the IDP model, PEARL is now optimally prepared to make the difference in a new era of performance measurement. Needless to say - Paul Gerla no longer works at Shell but still doing portfolio management. http://www.kempen.nl/home/kco/pers/Media/2004/20041018_Focus_Kempen_ligt_op_midcaps.asp?ComponentID=18653&SourcePageID=18659 Paul Gerla (ex-Shell Finance in Azi?wordt director give control portfolio management

Subject: Risk not important?? Huh? From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 16:22:50 (EST) Email Address: johnny5@yahoo.com Message: I appeal to the more cerebral out there but if just using the Brinson Model don't you lose the ability to calculate for currency affects which Pete says we need to be very FOCUSED on for the future. Could it be that only 17% of firms are using the BHB model because they are shifting out of USA centric investment views and 36% are using the brinson-fachler model because they foresee problems in the USA and want to diversify away from this nation? Why isn't raymond james using karnosky-singer to analyze with currency effects? I am so confused. 2 G. Brinson, N. Fachler, “Measuring non-US Equity Portfolio Performance”, Journal of Portfolio Management, Spring 1985 This is to say nothing about a lot of firms that don't even use proper risk analysis and can't afford the IT systems or spend the time to do the work? Huh? They use equity models for fixed income investments? Huh? http://www.pwcglobal.com/ch/ger/ins-sol/publ/bank/download/pwc_spps_survey_03e.pdf Similar to the 2001 results, the majority of respondents use external vendor systems for performance attribution analysis. The following systems were most frequently named: Factset, FMC Sylvan, Russell/Mellon and Triple A. Quite a large share of respondents work with internally developed applications, which may be due to special needs that external systems do not provide and to cost-benefit considerations. When choosing an attribution model, firms should obviously select one which best represents their investment decision process. However, the choice is very often influenced by limitations of the IT systems and complexity of models. The majority of respondents (62%) apply the Brinson model, which exists in various variations (e.g. the Brinson-Hood-Beebower model1, the Brinson-Fachler model2). The wide popularity of these models can be explained by the fact that they are intuitively straight-forward and feasible to apply (even in spreadsheets). Although designed for equity attribution analysis, the Brinson model is in practice sometimes also applied for fixed income portfolios. Further considering the equity attribution, some respondents (14%) also apply the Karnosky-Singer approach3, which in addition to the Brinson model specifically accounts for the currency effects and thus, is used for globally invested portfolios. Specific fixed income attribution models appear to be less spread than those for equity portfolios. The results show that the following approaches for attribution of fixed income portfolios are mostly applied: 1 G. Brinson, L. Hood, G. Beebower, “Determinants of Portfolio Performance”, Financial Analysts Journal, July-August 1986 2 G. Brinson, N. Fachler, “Measuring non-US Equity Portfolio Performance”, Journal of Portfolio Management, Spring 1985 3 D. Karnosky, B. Singer, „Global Asset Management and Performance Attribution“, the Research Foundation of the Institute of Chartered Financial Analysts, 1994 4 see P. Dietz, H. Fogler, D. Hardy, “The Challenge of Analyzing Bond Portfolio Returns”, Journal of Portfolio Management, Attribution effects calculated for subperiods (e.g. months) need to be linked to present results for longer periods (e.g. years). Doing this, one would expect that the sum of the linked attribution effects equals the sum of the linked excess returns. However, if excess returns are derived in the arithmetic way (see the previous question), regardless how linking is performed (arithmetically or geometrically), the expected equation will not work. There are various methodologies available to “smooth” or adjust the linking process to overcome the above problem.The survey results show that the overwhelming majority of respondents do not employ any additional adjustment algorithms to the linking process. The reason for that could be that most linking adjustment methods are quite complex and need to be supported in IT systems, i.e. firms are dependent on their IT providers in this respect. 57. Do you perform risk attribution analysis? Risk attribution identifies the sources of a portfolio’s risks, both ex-post (historic) and ex-ante (predicted), both in the absolute terms and relative to the selected benchmark. Risk attribution helps to evaluate how various factors (e.g. industry, value, growth, etc.) affect a portfolio’s risk. Risk attribution often implies applying standard risk statistics (e.g. volatility, tracking error, Value-at-Risk, etc.) to the excess returns against a benchmark attributed to each investment decision.Risk attribution appears to enjoy a much lower grade of acceptance among the Swiss investment managers than return attribution (only 9% of respondents do not intend to implement performance attribution, but the whole 35% do not plan to implement risk attribution). The reasons for that are provided in the following question. 58. Why do you not produce/plan to produce risk attribution? Similar to the analogous question on performance attribution, the respondents named costs and quantity of work as the main reason for their reluctance to introduce risk attribution analysis. In addition, quite a few respondents also think that risk attribution is not important. The majority of respondents use external vendor systems for performance attribution analysis. However, quite a large share of respondents work with internally developed applications, which may be due to special needs that external systems do not provide and to cost-benefit considerations.The following external vendor systems were most frequently named: Barra (57%) Wilshire (29%) Performance contribution is basically a process of determination how individual securities or other portfolio components have contributed to the overall portfolio return. In Switzerland performance contribution is often a part of the standard client reporting. As the results show, the most popular is a contribution analysis on an asset-class and security level. So because of the quantity of work and the costs involved they are not doing risk analysis - it took my uncle 40 years of work to make 500K but they can't do the work to properly analyze his risk? They can't afford to buy the systems to do complex computing. My uncle is not gonna be happy about this.

Subject: Re: Risk not important?? Huh? From: Institutional Investor To: johnny5 Date Posted: Mon, Feb 21, 2005 at 20:42:59 (EST) Email Address: Not Provided Message: I think you are a little confused with attribution reporting. For the most part it is used to explained past performance, not future returns. Attribution reports typically break down a portfolio and show how it performed against a benchmark on a sector and security level. One would be able to see if the under/out performance was attributable to picking good/bad stocks or just being in the right/wrong sector. This approach can be used for fixed income as well, althoughmodel designed for a fixed income portfolio will be more accurate. My feeling is that you believe its something else from your posts. As for using different models, its a matter of cost/benefit to the firm. Now new models may be more exact in terms of attributing performance to sectors, security selection, etc, but that is not to say older models are inaccurate. You also have to weigh how much value it is adding to a firm. It not like attribution reporting systems are cheap. ' don't see how he is going to make money long term and since they have him in 65% stocks - if things go bad - he will lose a lot.' When does he plan to retire, or is he already retired. If he isn't retiring for 10-15 years, I can't see him making much money in any other type of investment. Also, its hard to judge a person's allocation, without knowing what type of risk they are willing to take and what type of return the person needs to retire successfully. Its pretty easy to say a person is over/underweighted in a particular asset class, but unless you have specific details (which the financial planner most likely will have) in my opinion, its hard to give a qualified answer.

Subject: Costs matter and there are no gaurantees From: johnny5 To: Institutional Investor Date Posted: Mon, Feb 21, 2005 at 21:11:28 (EST) Email Address: johnny5@yahoo.com Message: I am very confused II, thanks for taking the time to clear things up for me. I read how shell had this good model and they busted, and raymond james is telling my uncle this BHB model is how they make good investment decisions and this is why he needs to pay them 3% annual expenses and like you pointed out - it is NO GAURANTEE of tomorrows performance - only used to analyze a manager or an investment policy - but that is all hindsight. He is retired - he sold his business for 500K and will not be earning income from any work - only what he makes on his investments. At 3% they will get 15K a year out of him, but vanguard said for 500K they would only charge 4.5K. I don't know how to convince him that those costs will eat up his investment - he just doesn't believe internet companies like vanguard with cheap costs can compete with raymond james and thier annuities and plush offices and Safeguard 7 fees. I want to help the guy, he always took care of me at christmas - but I have regulated myself to the fact he is from a different 'era' and this new math doesn't register with him. Bogle and the telephone doesn't make sense to him, paying high fees but having a face to face person to talk too seems to make him 'feel' better.

Subject: Re: Risk not important?? Huh? From: Institutional Investor To: johnny5 Date Posted: Mon, Feb 21, 2005 at 17:29:58 (EST) Email Address: Not Provided Message: johnny, I think you are misunderstanding the use of both attribution models. Its not a matter of investing in US vs Intl stocks. If currency effects are a concern, they would have shown up in the capital market assumptions when projecting future returns and volatility of each asset class. Side note: I have actually been to a couple of david spauldings seminars regarding attribution. If you have serious and specific concerns regarding the models, my guess is that there is a high probability that he would respond to you if you e-mailed. Or you just buy his book on performance measurement, which is the more or the less 'standard' for performance measurement.

Subject: Re: Risk not important?? Huh? From: johnny5 To: Institutional Investor Date Posted: Mon, Feb 21, 2005 at 17:49:27 (EST) Email Address: johnny5@yahoo.com Message: I would not want to trouble him - Mr. Spaulding already commented that he doesn't know why the BHB model is down to only 17% use in responding firms and the BF model is up to 36% use in 2004 - if HE doesn't know - and he is one of the worlds experts - who can know? As my uncle is about to put 500K - the totality of his life's financial work into a company's annuity that uses a model that only 17% of firms are using as of 2004 - I worry. I am very thankful to you and the other members of this board for all your insight and to terri for pointing out bogle and vanguard - but even after telling my uncle about fees and expenses he still will not listen. I really don't want my uncle investing with this jackson national life/raymond james outfit - further reading of thier material I found out they are going to charge him a 'Safeguard 7' fee of .4% - this is on top of the 1.5% expense and 12b1 fees and 1.1% mortality risk fee - so he is up to 3% in fees - and using a BHB model that is on the decline and being used by less and less firms each year. I don't see how he is going to make money long term and since they have him in 65% stocks - if things go bad - he will lose a lot.

Subject: Linkage - attribution - whats the difference? From: johnny5 To: johnny5 Date Posted: Mon, Feb 21, 2005 at 16:36:44 (EST) Email Address: johnny5@yahoo.com Message: Are you kidding me? Is this a joke? I sit here listening to the last chapter of my I, Robot audiobook by Isaac Asimov thinking the machines have the economy covered - but the dumb managers are gumming it up!! http://www.spauldinggrp.com/Oct03Newsletter.pdf I recently learned a lesson (or, perhaps more correctly, was reminded of a lesson): don’t assume that the person who completes the RFP knows everything they’re talking about. This doesn’t mean “don’t trust what is said.” While I’m aware that some vendors resort to hyperbole when they respond to questions, I am referring to the accuracy of what is shared. We recently were engaged by a client to help them with a search for an attribution system. In our Attribution class, I mention how this type of a search is more complex because it requires you to give some thought to the model attributes [sorry about the pun]. But when you ask a question, such as “does your system support the Brinson-Fachler model,” you tend to expect the vendor to give you a correct answer. Well, this didn’t happen all the time. To this question, for example, one vendor responded “no.” Well, had they said “yes,” we might want to insure that they actually are able to support this model, but a response of “no” should require no validation. Well, this particular vendor did warrant such a check, as I was pretty sure that they did support this model. So, I reached out to someone other than the sales person (someone who actually works with the design of the system) to check, and I was told “That’s a funny response to the RFP question (indicating somebody here doesn’t know what Brinson Fachler is!). To answer your question: Yes, we do use Brinson-Fachler, with the interaction effect thrown into the stock selection.” We asked the vendors if they provide arithmetic (additive) or geometric (multiplicative) attribution. One firm responded “geometric.” Since I wasn’t that familiar with their system, I initially accepted this response. And, because I felt that our client would prefer arithmetic, was considering excluding them from further consideration. But, to make sure I sent an e-mail: “I want to confirm that you only provide a geometric approach, not arithmetic.” Their response to this question left it unclear, so to make sure we were talking apples-to-apples, I sent another e-mail, stating “A key difference between the two is how you view excess return; with arithmetic, it’s Rp-Rb (portfolio return minus benchmark return); w/geometric, it’s [(Rp 1)/(Rb 1)]-1,” and again asked “Does your system calculate the excess returns geometrically?” Now, we got to the truth: “Perhaps I confused the issue. I spoke with some colleagues to make sure I wasn’t mixing terms and I guess I was. One colleague, cleared things up a bit. The system name, like most of our wellknown domestic competitors, applies an Arithmetic method for calculating excess returns, based on the definition you provide. I used the term ‘geometric,’ perhaps confusingly, to describe how we link multiple period returns.” This individual, unfortunately, isn’t alone when it comes to confusing “geometric attribution” with “geometric linking.” However, we would generally expect the vendor to know the difference, wouldn’t we? There’s always the fear that a vendor will stretch the truth, exaggerate, or even use some hyperbole when they market their system. However, when a vendor provides erroneous information because of their own ignorance or lack of familiarity with either terminology or their systems, that complicates things in a whole different way. How can you guard against this? It’s difficult. Knowing when a vendor may be making a mistake (even unintentionally) is quite a challenge. I guess it reinforces the need to rely not just on the vendor responses, but also on your own familiarity with the product, as a result of input you get from others in the industry, conference exhibits, etc. If a response doesn’t jibe (i.e., agree) with your expectations, then confirmation is needed. http://www.imf.org/external/np/mae/ferm/2003/eng/part2a.pdf 439. Attribution analysis is performed by Axiom using its multi-factor model for each of the risk factors at the following levels: security, asset classes, countries, currencies, portfolio and composites. This model offers an attribution measurement that goes beyond the traditional approach33 since it allows an integrated analysis of return and risk factors which determines the efficiency of the overall investment strategy. 33 The Brinson-Fachler model measures attribution in terms of asset allocation, security selection and an interaction effect. It appears to me the people programming the machines are sometimes confused by terms like geometric or arithmetic - and that brinson alone does not take into account currency affects but this is all that is being used by several firms. Eternal vigilance my friends.

Subject: The Social Security Scam fine tuning From: Saul Berger To: All Date Posted: Mon, Feb 21, 2005 at 14:35:38 (EST) Email Address: sberger2@erols.com Message: Hi Paul, I read your review titled the Social Security Scam and appreciated the clarity of the discussion as well as the motives. As talking points in response to Bushes point in attempting to sell off Social Security to the private sector investment companies. It would be useful to: 1. Spell out the names of the wall street investment firms behind this lobbying effort 2. Compare the current cost to administer the Social Security program as compared to 401’s, England & Chile. 3. Spell out the rate of return a retiree receives on their investment. I understand you already made the point that Social Security and a 401 k are not comparable because Social Security should be considered as an insurance program, but defining the rate return underscores the efficient fiscal performance of Social Security. I look forward to your comments. Saul Berger Email: sberger2@erols.com

Subject: America's Senior Moment - Paul Krugman From: Emma To: All Date Posted: Mon, Feb 21, 2005 at 14:06:16 (EST) Email Address: Not Provided Message: March 10, 2005 America's Senior Moment By Paul Krugman - New York Review of Books The Coming Generational Storm: What You Need to Know About America's Economic Future by Laurence J. Kotlikoff and Scott Burns 1. Two Problems, Not One America in 2030 will be 'a country whose collective population is older than that in Florida today.' It will be in 'desperate trouble' because the expense of caring for all those old people will cause a fiscal crisis. The nation will be plagued by 'political instability, unemployment, labor strikes, high and rising crime rates.' That's the picture painted in The Coming Generational Storm by Laurence Kotlikoff and Scott Burns, a book that has helped to feed a rising tide of demographic alarm. But is that picture right? Yes and no. America does have an aging population, and a responsible government would take preparatory action while the baby boomers are still in the labor force. America also has very serious long-run fiscal problems. But these issues aren't nearly as closely linked as much of the discussion would lead you to believe. The view of demography as destiny is only a half-truth, and in some ways it's as damaging as a lie. In this essay I'll try to set the record straight. Unfortunately, I can't do that by following Kotlikoff and Burns closely. Kotlikoff is a fine economist, one of the world's leading experts on long-run fiscal issues. His book with Burns is full of valuable information and sharp insights. Yet in their effort to grab the lay reader's attention, Kotlikoff and Burns do little to alert readers to the distinction between two quite different issues—an aging population and rising spending on health care. And their failure to make that distinction grossly distorts their discussion. The demographic problem is, of course, real. It is, however, of manageable size—exaggerating the problem by confounding it with the problem of medical costs just gets in the way of dealing with it. The problem posed by rising medical costs, on the other hand, would be there even if the population weren't aging—and misrepresenting the problem as one of demography gets in the way of confronting it. I'll start here by looking at the demographic problem—the aging population—which mainly concerns Social Security, then at proposals for Social Security 'reform'—the scare quotes are there because the scheme currently under discussion would undermine our social insurance system, not save it. At the end I'll talk briefly about the much bigger, more intractable issue of paying for the expanding quality and quantity of health care, and the current state of political debate. 2. Social Security and the Demographic Challenge Chapter 1 of Kotlikoff and Burns's book is called 'From Strollers to Walkers'—a catchy way to describe the aging of the US population. It's followed with a chapter called 'Truth Is Worse Than Fiction,' centered on a chart familiar to everyone who has looked at this issue: long-run projections from the Congressional Budget Office showing the combined expense of Social Security, Medicare, and Medicaid rising from less than 8 percent of GDP now to more than 20 percent by 2075. It seems natural to assume that the grim cost projections follow directly from the aging of the population, and the book doesn't tell you that this assumption is wrong. One way to describe the truth is to say that there is no program called Socialsecuritymedicareandmedicaid: these are separate programs with separate problems. Look at the accompanying chart which shows the same CBO projection that Kotlikoff and Burns present, but breaks it down by program. Yes, the total rises drastically—but Social Security, although it is the biggest of the programs now and the only one of the three programs whose costs are driven mainly by demography, accounts for only a small part of that rise. That tells us that demography is not the main driver of these long-run projections. How big is the demographic challenge? Pundits who want to sound serious love to contrast Social Security as it was in 1950, when sixteen workers were paying in for every retiree drawing benefits, with Social Security as it will be once the baby boomers have retired, with only two workers per retiree. But most of the transition from sixteen to two happened a long time ago. Since the mid-1970s there have been about three workers per retiree —and Social Security has been running a surplus. The real issue is what happens when three goes to two. How big a problem is that? The answer is, medium-sized. As you can see in the chart, the aging of the population will cause Social Security spending to rise from its current level of 4.2 percent of GDP to a little over 6 percent by 2030, at which point it will stabilize. If demography were the only factor driving rising Medicare spending, it would rise in roughly the same proportion, from 2.7 to around 4 percent of GDP. So if demography were the whole story, we'd be looking at an eventual demography-driven rise in spending of between 3 and 3.5 percent of GDP by 2030, and no further increase after that. That's not a trivial increase, but it's also not overwhelming; a tax increase big enough to cover that rise in spending would still leave overall taxation in the United States well below the average for other advanced countries. Still, a responsible government would prepare for the aging of America. Textbook fiscal economics says that when a government knows that its expenses will rise in the future, it should start running a surplus now. At first, this surplus should be used to pay off debt, which reduces the government's future interest costs. If the government runs out of debt to pay off, it can start to invest in assets such as stocks and bonds, which will yield future income. That's exactly the path the Social Security system, though not the government as a whole, has been following. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Social Security has its own budget, with its own dedicated revenue base. In 1983, following the recommendations of a commission headed by Alan Greenspan, Congress tried to prepare the program to deal with the baby boomers: it raised the payroll tax, so that Social Security would run a surplus, with the express intention of building up a trust fund to help pay benefits once the baby boomers had retired. At first, it seemed that this action, together with some changes in benefits, had done the job: 'For the next 75 years, the OASDI program is estimated to be in close actuarial balance,' declared the Social Security trustees in their 1985 report.[1] Later, the trustees lowered their estimates; the public's impression of a looming Social Security crisis largely dates from the mid-1990s, when they were predicting exhaustion of the trust fund by 2029. But the trustees have lately become more optimistic again: they now say the trust fund will last until 2042. The Congressional Budget Office says 2052, and many economists now think that the original optimism was right after all: if the economy grows as fast over the next fifty years as it did over the past fifty years, Social Security will be sound for the foreseeable future. And if the economy doesn't grow that fast, by the way, the high rate of return on stocks needed to make privatization work can't possibly materialize, either. At this point a loud chorus on the right insists that such estimates are irrelevant, because the Social Security trust fund is just a meaningless piece of bookkeeping: it's a claim by one part of the government on another part of the government. The real crisis will come much earlier than 2042, that chorus says, because payroll tax receipts will no longer cover the full cost of providing Social Security benefits as early as 2018. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- Let's take this argument a step at a time. There are two ways to look at Social Security: you can view it as a stand-alone program with its own funding, or you can view it as just part of the federal budget. These aren't mutually exclusive views. On one side, Social Security has always been run as an independent program, and the independence of its budget has considerable legal and political force. On the other side, Social Security is, of course, part of the federal government, and its benefits must ultimately be paid out of the government's revenue. Depending on the question, it's sometimes useful to focus either on Social Security's specific finances or on its role in overall budgeting. What one can't do, however, is switch views in mid-argument. If you want to discuss the budget of the Social Security system, the trust fund and the interest paid on that fund must be part of the picture. If you want to discuss Social Security's role in the overall federal budget, well, you have to talk about the federal budget as a whole; the fact that one particular tax brings in less revenue than one particular category of spending has no significance. What the crisis-mongers do, however, is switch between views to suit their convenience. For example, in his magisterial survey of Social Security issues in The New York Times Magazine of January 16, Roger Lowenstein caught Michael Tanner of the Cato Institute red-handed. Mr. Tanner's estimate of a $26 trillion deficit for Social Security turned out to be the result of a calculation based on the principle of heads I win, tails you lose: when Social Security runs a surplus, Mr. Tanner doesn't count it, because the system is just part of the government, but when Social Security runs a deficit, he treats Social Security as an independent entity. If all this seems metaphysical, let's put it this way: What will actually happen when payroll tax receipts no longer cover 100 percent of benefits? The answer, quite clearly, is nothing. There are only two ways Social Security could be unable to pay full benefits in 2018. One would be if Congress voted specifically to repudiate the Social Security trust fund, that is, not to pay interest or principal on the trust fund's bonds, which would in effect be a decision not to honor debts to retirees. In 2018 the payments on the trust fund's bonds would be sufficient to cover Social Security benefits. Repudiation of those payments is pretty much inconceivable as a political matter; writing in the periodical The Economists' Voice, David Kaiser of the National War College suggests that such a repudiation might even violate the Constitution. In that sense, the trust fund is as real an obligation of the US government as bonds held by Japanese pension funds. The other way would be if the United States found itself in a general fiscal crisis, unable to honor any of its debt. Given the size of the current deficit and the prospect that the deficit will get much bigger over time, that could happen. But it won't happen because of Social Security, which is a much smaller factor in projected deficits than either tax cuts or rising Medicare spending. The grain of truth in questions about the meaning of the trust fund is that the rest of the federal budget has not been run responsibly. The Social Security surplus should have been kept in a 'lockbox.' Although this term has come in for a lot of derision, it was a useful shorthand way of saying that the federal government as a whole should in an average year run budget surpluses at least equal to the surplus of the Social Security system. And this in turn was a shorthand way of saying that the federal government as a whole should do the responsible thing and try to prepay some of the costs of an aging population. In the 2000 campaign both candidates pledged to honor the lockbox. President Bush clearly never had any intention of honoring that pledge; his first tax cut would have broken the lockbox all by itself, and his insistence on pushing through another major tax cut after launching the Iraq war made it clear that this wasn't a fluke. But that's not a Social Security problem. Viewed on its own terms, Social Security has been run responsibly and is a sustainable system. And the policy implication of that observation is also clear: the problem isn't with Social Security, it's with the rest of the budget. Social Security has already taken the steps needed to cope with an aging population; at most, it needs some minor tinkering. The main thing we need to do to cope with the demographic challenge is for the rest of the federal government to do its part, by dealing with the huge deficit we already have in the general fund. 3. What About Privatization? Let's now turn to the sort-of plan ('sort-of' because the administration still hasn't provided key details) to partially privatize Social Security, diverting part of payroll taxes from their current uses, paying benefits and building up a trust fund, and placing them in private accounts instead. The administration's rationale for privatization is that it is needed because Social Security is in crisis. As we've seen, that's a huge exaggeration, and many of the things President Bush says—such as his assertions that the system will be 'flat broke, bust' when the trust fund runs out—are just plain false. Also, the administration pretends that the core of our failure to prepare for an aging population resides in the finances of Social Security; again, as we've seen, Social Security has actually done a lot to prepare for the baby boomers. Mr. Bush's own actions— above all, his insistence on cutting taxes while waging war—are largely responsible for the real problem, the huge deficit in the general fund. But even if a drastic change in how Social Security operates isn't necessary, there's still the question of whether such a change is a good idea. When they aren't warning that only privatization can save us from doom, privatizers often make their case with the argument that people can do better investing their own money than the deal they get from Social Security. Here's a classic example of the genre: during the 2000 campaign, then-candidate Bush urged his listeners to 'consider this simple fact: even if a worker chose only the safest investment in the world, an inflation-adjusted US government bond, he or she would receive twice the rate of return of Social Security.' Vice President Cheney made a similar comparison, although he spoke about investing in stocks rather than bonds, just a few weeks ago. As I pointed out at the time Mr. Bush made his remarks: That's an amazing fact; it's even more amazing when you realize that the Social Security system invests all its money in, you guessed it, US government bonds. But the explanation—which Mr. Bush's advisers understand very well, even if [Bush himself] does not—is that today's workers are not only paying for their own retirement, but are also supporting today's retirees. Or to put it a different way, you could equally well say that my family would have more cash on hand if we took all my mother-in-law's money and let her starve. Somebody must pay the cost of caring for retirees and older workers, whose own payroll taxes went to support a previous generation. If the payroll taxes of younger workers are no longer available for that purpose because they are being placed in private accounts, some other source of money must be found. This problem is often summarized with the deceptively innocuous term 'transition costs,' but it's an enormous one. Kotlikoff and Burns offer a privatization plan that doesn't try to fudge the issue of transition costs. They call for a 12 percent national sales tax to pay benefits to current retirees and older workers. This tax would gradually be reduced as the beneficiaries of the current system died off, but it would remain high for a long time. That should give you an idea of what a responsible privatization scheme would entail. I'd argue that even if we had some way to pay the transition costs, it would be a mistake to privatize Social Security: it was always intended to be an insurance program, not a 401(k), and we need that insurance more than ever in the face of growing economic insecurity. In any case, however, Mr. Bush isn't about to propose a tax increase on that scale or any other. Instead, he proposes covering the costs of paying benefits to older Americans by borrowing the money. Private accounts would be created using payroll taxes that are currently used to pay for benefits; the government would therefore have to borrow to make up for lost revenue. The government would offset this loss of revenue in the long run by gradually reducing benefits relative to those under current law. These future benefit cuts supposedly wouldn't hurt workers, however, because they would be more than offset by the growth in their personal accounts. Such schemes come wrapped in fine phrases about the 'ownership society,' but stripped down to their essence they are equivalent to an investment adviser telling you that you won't have enough money when you retire, but that you should make up for this shortfall not by saving more but by borrowing a lot of money, investing it, and trusting in capital gains. Even if this strategy were successful, the payoff would be a long time coming. A Congressional Budget Office analysis of 'plan 2' from Mr. Bush's social security commission, which is widely believed to be what Mr. Bush will eventually propose, found that it would increase the budget deficit every year until 2050. A similar analysis in last year's Economic Report of the President concluded that the debt incurred to establish private accounts, which would peak at almost 24 percent of GDP, wouldn't be paid off until 2060. It's likely that financial markets would be made very nervous by borrowing on that scale, with the prospect of repayment so far in the future. Bear in mind that the debt incurred during the four decades of increased deficits would be a real, legally binding promise to repay, while the claim that privatization would save money in the long run depends on the assumption that whoever is running America half a century from now will follow through on benefit cuts, even if private accounts have performed poorly and left many retirees in poverty. In the real world, the bond market would consider the solid fact of soaring debt a lot more significant than projections of savings through politically determined benefit cuts many decades in the future. In practice, privatization would significantly increase the risk that international investors will stop lending to the United States, provoking a fiscal crisis, sometime in the not too distant future. Even if we ignore the danger of provoking a fiscal crisis, the claim that borrowing to create private accounts will somehow benefit everyone is a remarkable exercise in free-lunch thinking. If nobody suffers any pain, where does the gain come from? If private accounts were invested in government bonds, as Mr. Bush suggested back in 2000, there would be no possible gain; the interest earned by private accounts would be completely offset by the interest paid on the government borrowing to fund these accounts. So the claim that there will be gains from privatization always comes down to this: part of the private accounts will be invested in stocks, and privatizers insist that stocks are more or less guaranteed to yield a much higher rate of return than the government bonds issued to pay for the creation of those accounts. As Michael Kinsley of the Los Angeles Times has pointed out, there's something very peculiar about that assertion: if stocks are a clearly better investment than government bonds, why would anyone out there be willing to sell all the stocks that would end up in private accounts, and buy all the bonds the government would have to issue along the way? Are politicians pushing for privatization asserting that they know more about future rates of return than investors making decisions about where to put their own money? --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- In response to such questions, privatizers duck the conceptual issue, and take refuge in history: stocks have, in fact, been a much better investment than bonds in recent decades. But as the mutual fund ads say, 'Past performance is no guarantee of future results.' Stocks are much more expensive relative to underlying profits than they were in the past, which means that they can be expected to yield a lower return. The best bet, suggested both by a look at the numbers and by basic economic theory, is that prospective returns in the form of dividends and capital gains on stocks are somewhat higher than those on bonds, but not much higher—and that the higher expected return on stocks is offset by higher risk. That's why prudent investors hold portfolios containing both stocks and bonds, and why borrowing to buy stocks—which is, to repeat, what Bush-style privatization boils down to—is a very bad idea. Taking away the assumption that stocks will yield very high rates of return fatally undermines the arithmetic of privatization. Again, consider the analogy of borrowing and using the money to buy stocks: if those stocks end up yielding a lower rate of return than the interest rate on the loan, you've made yourself worse off. Even if your best guess is that the return on stocks will somewhat exceed the interest rate, you can't be sure of that, and you'll be in a lot of trouble if your guess proves wrong. Most privatizers assume, when selling their schemes, that stocks will yield about 7 percent a year on average after inflation, while the interest rate after inflation will be only 3 percent. If the equity premium —the spread between the average return on stocks and the average return on bonds—really were that large, borrowing to buy stocks wouldn't be a sure thing, but the odds would be strongly in favor of coming out ahead. But if the expected rate of return on stocks is only 5 percent or less, which many economists think is more reasonable, the chances that borrowing to buy stock will end up being a los-ing proposition are quite high—especially if one takes mutual fund fees into account. Privatizers hate it when you talk about fees—about the fact, for example, that the much-touted Chilean system has administrative costs about twenty times those of Social Security, or that according to Britain's Pensions Commission, 'providers' charges' in that country's privatized system reduce the size of retirement nest eggs by between 20 and 30 percent. But when we're talking about the narrow equity premium produced by realistic expectations of future yields, fees become a central issue. The plan of Kotlikoff and Burns for personal accounts is useful as an example of what would be necessary to keep fees minimal: it calls for a system in which workers have no control at all over how their personal accounts are invested. Instead, all accounts would be placed in a global index fund administered by the government: 'a single computer, situated in the Social Security Administration, would be programmed to buy and sell securities.' In essence, the government, not individuals, would be doing the investing, and the personal accounts would simply be an accounting device. The administrative costs of running this system would be very low. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- But it's very unlikely, if Social Security is privatized, that the system will look like that. For one thing, the advertising for privatization stresses 'choice.' In fact, in 2002 the Cato Institute quietly renamed its Project on Social Security Privatization the Project on Social Security Choice (focus groups said that 'privatization' had negative connotations). It's hard to see how to reconcile that advertising with a system in which a computer programmed by bureaucrats does all the choosing. Also, as a matter of political reality, the investment management industry isn't going to accept the idea that a huge pool of money and potential profits is off-limits. Investment companies gave lavishly to the inaugural celebrations, and are major contributors to the lobbying organizations that have been set up to push privatization. They aren't spending that money simply because they think privatization is in the public interest. Suppose that we end up with a system like that of Britain or Chile, in which mutual funds compete to attract private accounts. In that case, there's every reason to believe that fees will take a large bite. In 2003, the average 'expense ratio' on US stock funds— the ratio of all the various fees charged by management to the amount invested —was 1.5 percent. In Britain, providers' charges used to take more than 2 percent off the return of the average retirement account; new regulations have reduced that, but only to about 1.1 percent. Put fees of that magnitude plus a realistic rate of return on stocks into a typical numerical model of privatization, like the one in the CBO report on plan 2, and privatization quickly turns into a sure-fire losing proposition: the government borrows to establish private accounts that if anything yield an expected rate of return lower than the rate the government pays on its bonds; yet those accounts introduce a major new element of risk. If Bush-style privatization actually goes through, the end game is fairly predictable: it's what is happening in Britain now. A couple of decades from now, it will be obvious to everyone that the returns on private accounts have fallen far short of expectations, and that America is about to experience a resurgence of poverty among the elderly. There will be irresistible demands for the government to call off cuts in benefit levels. (Remember, the over-sixty-five population will be an even larger share of the electorate than it is now.) And the result will be to make the fiscal outlook much worse than it would have been without privatization: the government will have borrowed trillions of dollars with the promise of future budget savings, but those savings will never materialize. 4. Medicare, Medicaid, and the Health Care Challenge If demography is only a medium-sized problem, why do long-run federal budget projections look so scary? The answer is that they assume that the long-term historical tendency of health care spending to rise faster than gross domestic product will continue. That trend has not reflected runaway government spending: private spending on health care has risen almost as fast as government spending. (In 1980, private health spending was 5 percent of GDP, and government health spending was 3.8 percent. By 2003 the numbers were 8.3 and 7.0, respectively.) Nor is it a case of runaway inflation: rising medical costs have not historically been driven by rising prices for existing medical procedures. There is plenty of gouging and waste in the US health care system, but there always has been, so that's not a big factor in the trend. The main reason health care is continuing to absorb a larger share of the economy is innovation: that the range of things that medicine can do keeps increasing. A good example of what drives rising health care spending is the recent decision by Medicare to pay for implanted cardiac devices in many patients with heart trouble, now that research has shown them to be highly effective. Should this be considered a cost increase? Only if we're careful about what we mean by 'cost.' It doesn't increase the cost of providing the same care as before; Medicare is spending more to take advantage of a new opportunity to save lives. Because rising health care spending is, for the most part, driven by increased opportunities, it's not clear that a rising share of health care spending in the economy should be considered a bad thing. Here's what the Congressional Budget Office, the source of those frightening long-term projections, had to say: Although the rise in health care costs is a serious concern for many policymakers, it largely reflects private choices.... As income rises, consumers may prefer to allocate a larger share of their resources to health care and a smaller share to other goods and services.[2] Still, there is a problem—but it is social and moral as much as economic: How much inequality in the human condition are we prepared to accept? In Charles Dickens's Britain there were huge class differences in health and longevity, because only the well-off had access to adequate nutrition and, if living in urban areas, to a more or less sanitary environment. Today those differences still exist but are much narrower, in part because of economic growth (which means that more people can afford an adequate diet), but also in large part because of public spending on sanitation, disease control, and health insurance systems that try, however, imperfectly, to provide essential care to everyone. --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- But what do we do as medical advances make it possible to extend lives or greatly improve their quality, but only at a very high cost? Today we expect the public sector to pay for essential care when individuals cannot pay, and we do so for good reason. Imagine the inequalities that would already exist in America if Medicare wasn't there: high-income Americans would receive hip replacements and bypass surgery in their old age, while low-income Americans would find themselves crippled or dead. Yet the cost of preventing fundamental inequalities in medical care will grow over time. This isn't just, or even primarily, a question of whether we are prepared to raise federal taxes to pay for rising Medicare and Medicaid spending. The clear and present dangers, health econ- omists tell me, are the inability of state governments to pay their share of Medicaid, and the threat to private health insurance, which is gradually unraveling in the face of rising costs. Between 2001 and 2004, according to the Kaiser Family Foundation, the percentage of American workers receiving health insurance through their employers fell from 65 to 61, and this decline will continue unless the government starts helping out. (John Kerry's plan to have the government pay catastrophic health costs was an example of the sort of thing that may be required, but even that would have provided only limited relief.) The problem of rising medical costs is much harder to resolve than that of an aging population. In the long run, in fact, it may be impossible to resolve. But there are things we could do to postpone the day of reckoning. One would be to prepay some of those future medical costs; at the very least, we ought to be building up a Medicare trust fund to deal with the demographic component of rising costs, i.e., the increase resulting from the rising proportion of people over sixty-five. Another would be to find ways to make the US health care system more efficient. For the most part, that's a subject for another essay, but it seems worth making one point: when it comes to health care, the free-market ideology that currently dominates American political discourse seems utterly wrong. Systems that provide universal coverage, like those of France or Canada, are much cheaper to run than our market-based system, yet they yield better results with respect to life expectancy and infant mortality. Or if you don't trust foreign examples, consider the remarkable renaissance of the Veterans' Administration hospital system, described in an important article by Phillip Longman in the February Washington Monthly: he shows that the VA system's centralization of information and control over resources allow it to provide better care at lower costs than any private system.[3] In other words, whatever the current administration and congressional majority propose to deal with the health care crisis—you can be sure they'll declare a crisis as soon as they're done with Social Security— will actually move our system in the wrong direction. 5. Back to the Future Unless something very unexpected happens, Kotlikoff and Burns's vision of an America that in 2030 has an older population than Florida today will come to pass. It's also quite possible that the state of the nation will be as bad as they suggest in their opening account. But one won't be the result of the other, and in a perverse way exaggerating the demographic challenge makes that grim future more likely. Here's how the debate is really playing out, in four easy steps: 1. Talking heads and other opinion leaders perceive the issue of an aging population not as it is—a middle-sized problem that can be dealt with through ordinary changes in taxing and spending—but as an immense problem that requires changing everything. This perception is, alas, fueled by books like The Coming Generational Storm, which blur the distinction between the costs imposed by an aging population and the expense of paying for medical advances. 2. Because the demographic problem is perceived as being much bigger than it really is, the spotlight is off the gross irresponsibility of current fiscal policy. As you may have noticed, right now everyone is talking about Social Security, and nobody is talking about the stunning shift from budget surplus to budget deficit since Bush took office. 3. The focus on Social Security— the one part of the federal budget that is actually being run responsibly—is, in practice, offering the architects of our budget deficit an opportunity to do even more damage. 4. Finally, we're not having a serious national discussion about the bigger problem of paying for health care, and we probably can't in today's ideological climate. Four years ago, I and many other economists urged policymakers to think about the future cost of Social Security benefits, not because we thought there was anything wrong with Social Security itself, but because we regarded the future costs as a compelling reason not to cut taxes even if the overall budget was in surplus. Today, with the overall budget deep in deficit, and the administration considering 'tax reform' that will amount to even more tax cuts for the well-to-do, it all seems a moot point. The first priority is to do something about the fiscal crisis we have right now, not worry about the fiscal crisis we might face a generation from now. —February 10, 2005 Notes [1] See www.ssa.gov/history/reports/trust/ trustyears.html, pp. 2–3. [2] See www.cbo.gov/showdoc.cfm?index= 4916&sequence=2. [3] Phillip Longman, 'The Best Care Ever,' Washington Monthly, February 2005.

Subject: Re: America's Senior Moment - Paul Krugman From: Saul To: Emma Date Posted: Mon, Feb 21, 2005 at 14:33:30 (EST) Email Address: sberger2@erols.com Message: Hi Paul, I read your review titled the Social Security Scam and appreciated the clarity of the discussion as well as the motives. As talking points in response to Bushes point in attempting to sell off Social Security to the private sector investment companies. It would be useful to: 1. Spell out the names of the wall street investment firms behind this lobbying effort 2. Compare the current cost to administer the Social Security program as compared to 401’s, England & Chile. 3. Spell out the rate of return a retiree receives on their investment. I understand you already made the point that Social Security and a 401 k are not comparable because Social Security should be considered as an insurance program, but defining the rate return underscores the efficient fiscal performance of Social Security. I look forward to your comments. Saul Berger Email: sberger2@erols.com

Subject: Paul Krugman's Review From: Jennifer To: Saul Date Posted: Mon, Feb 21, 2005 at 19:21:02 (EST) Email Address: Not Provided Message: This is easily the best critique of the 'aging' problem I have found. Thanks Emma.

Subject: Ten years after: Leeson looks back From: Setanta To: All Date Posted: Mon, Feb 21, 2005 at 13:42:15 (EST) Email Address: Not Provided Message: Ten years after: Leeson looks back 20 February 2005 By Nick Leeson “In no circumstances enter the derivatives trading market without first agreeing it in writing with me at some time in the future; it could bring the world's financial system to its knees.” - Sir Julian Hodge memo, dated November 1990, to senior executives of the Cardiff-based Julian Hodge Bank, quoted in the Western Mail, February 28, 1995, after the collapse of Barings. “We view them as time bombs, both for the parties that deal in them and for the economic system. In our view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” - Warren Buffett, ‘the Sage of Omaha' and the world's greatest stock-market investor, in his chairman's letter in the Berkshire Hathaway 2002 annual report. These warnings represent the soundest advice, but it is not clear how many of the world's financial institutions have really taken note. Evidently not all of them. I wish someone had given me a similar warning before I set foot in Singapore. Ten years ago this week, Barings Bank collapsed. It was possibly the greatest financial scandal of the 20th century. My role in the bank's collapse is well chronicled - perhaps more so than many of the warnings that followed. My own calamitous mistakes were spectacular enough; they were clearly the most illegal that were perpetrated at the time, but the multiple oversights by the bank's managers were equally spectacular. Amazingly, I never realised quite how bad the situation had become. I blundered on in the forlorn hope that one day I could eventually rectify the situation. Displaying extreme stupidity, I would glance at the positions in BSS account number 88888 and sneak a quick look at the margins that we had deposited from the London office. But I would always refrain from doing the simple computation that would spell out loud and clear the worsening financial picture. Anyone could have done the computations. No complex algorithm was needed. A rudimentary understanding of mathematics was all that was required. This wasn't the week that I had planned to abscond; nothing was ever planned, I was holding on, one day at a time, hoping for that eureka moment when all the markets would fall into line. But it wasn't until the morning of February 20, 1995, that people finally started to ask some sensible questions. Tony Railton, a manager from the London office, had found a massive hole in the balance sheet, a $1.4 billion black hole that ridiculed the balance sheets that were sent to London on a monthly basis. Group treasurer Tony Hawes was on a tour of south-east Asia looking at funding requirements and was due to arrive in Singapore on my birthday, February 25. Still I managed to fob them off, disappearing from the trading floor as soon as I could and turning off all the phones when I got home. I can only believe that they were all so desperate to believe in my success for personal reasons: their bonuses depended on it, and there were only a number of days before the bonuses were due to be signed off. Still I could not tell anybody; I had avoided the situation for so long that it was now the only coping strategy at my disposal. But it all became too much on February 23, a Thursday that will be imprinted on my mind forever. My ex-wife Lisa and I packed a couple of small suitcases and made our way rather sedately to the airport in the eye of a hurricane that was shortly to leave havoc in its wake. Derivatives markets remain the Achilles' heel of the financial markets: they continually evolve into new hybrid forms and many industry professionals still understand little about how they are structured and work. The consequences of this are immeasurable. But some financial institutions seem to treat this threat with the same cavalier disregard that they usually treat risk management and compliance. The beginning of 2005 saw another set of liquidators trying to resolve the fallout from China Aviation Oil's disastrous foray into the derivatives market. A Chinese state-run newspaper reported that the former head of China Aviation Oil (Singapore) Corp said he was unaware that the company was involved in potentially ruinous speculative trading until nine months after it began. He blamed an Australian trader for $550 million in losses. This type of story seems only too familiar. The derivatives markets were set up to take the uncertainty out of the future for traders and financial institutions alike. But they have grown to such an extent that the total value of the derivatives markets far outstrips the value of most leading economies. Since the stability of these markets is crucial to the “new global age'‘ referred to by the British chancellor, Gordon Brown, you would imagine that risk management and compliance would have kept pace with these developments. Unfortunately that is not the case. Unlike Buffett, the Welsh banker Julian Hodge issued his apocalyptic warning three years before the first rash of derivatives disasters involving Metal lgesel lschaft, Orange County, Sears Roebuck and Procter & Gamble broke out in 1994. More was to come in 1995 with Barings. None of these, taken on their own, threatened to bring the world financial system to its knees. The crisis that has come closest to doing so occurred in September 1998 and involved hedge fund Long-Term Capital Management. But could a new mega-catastrophe lie around the corner? With the British economy already in a rather fragile state, a pension crisis looming and personal debt at record levels, how much more of a knock to confidence is needed before we start leaving the banks wholesale? The knock-on effect of such a move on the global economy would be calamitous. Last year started with another rogue-trading scandal at National Australia Bank in Melbourne. This was followed by the overstating of oil and gas reserves at Shell and irregular accounting at the Italian food company Parmalat, which forced it out of business. It is clear that, regardless of the warnings and implications, the warnings don't strike a chord with everyone. The banks foolishly believe they are beyond reproach. My own actions in Singapore caused the collapse of Barings, but other institutions that have recently suffered similar rogue-trading episodes just dust themselves off and carry on regardless. Losses at AIB (Allied Irish Banks Plc) subsidiary Allfirst and National Australia Bank were quickly absorbed, and the banks swiftly returned to the business of making money. Maybe not all the lessons were learned. AIB is a case in point. The case of John Rusnak, the rogue currency-trader who lost the bank $691 million in 2002, combined with the eight-year period of overcharging on foreign exchange transactions should have hit the bank's bottom line - but they didn't. Instead, the bank's profits go from strength to strength. Paying back overcharged customers cost about €34 million, which amounts to roughly four days' profits for the bank. In fact, AIB posted profits of more than €1 billion in its most recent financial year, so it does not need to be too concerned about €34 million. The fact that AIB continued to make such large profits suggests that these were isolated incidents. But the number of irregularities raises questions about the lack of control at the bank. Meanwhile, two shareholder lawsuits are being aimed at Allfirst, the Baltimore-based bank that suffered one of the largest bank frauds in history. The suits, which allege fraud among top executives, will be merged this week into a single complaint in a federal court in New York. Shareholders say bank executives should have known about, and policed, the $691 million trading scandal. In January 2003, AIB's Rusnak was sentenced to more than seven years in jail after pleading guilty to criminal charges. But the Allfirst suit marks the first fraud accusations directed at bank executives since Rusnak's sentence. The case, experts say, has the potential to re-examine how much AIB executives knew, or should have known, about Rusnak's activities. I don't think anyone can have any doubt that, if the Allfirst executives didn't know about the scandal, they should have. Many of the bank's employees should have been involved on a daily basis in ensuring that the risks being taken in the Baltimore office were within prescribed limits. A similar number of employees should have been involved in ensuring that all the contracts undertaken by Rusnak were bona fide and that all monies were accounted for. These are commonsense measures. Imagine running a multinational company with $691 million of your capital risked by one trader in a small remote subsidiary of the bank. Wouldn't you want to know where it was and what it was being used for? This doesn't diminish what Rusnak or I did. Our custodial sentences were justified. But it is only after a reasonable period of time that the full story starts to unfold. The Board of Banking Supervision report that swiftly followed my arrest was a work of almost total fiction. Alarmist and sensational stories at the onset of such a scandal are carefully managed by the banks to focus blame on the individual, thus deflecting attention away from their own shortcomings and buying time to put their house in order. The lawsuits that are to be heard in New York may focus attention on several individuals within the bank's hierarchy but, with the passage of time, the fallout is likely to be minimal. For the record, I don't bank with AIB. Leeson, 37, was jailed for six and a half years in Singapore following the collapse of Barings. He was released from prison in 1999 and now lives in Galway, Ireland.

Subject: Short memories From: johnny5 To: Setanta Date Posted: Mon, Feb 21, 2005 at 14:49:03 (EST) Email Address: johnny5@yahoo.com Message: 'Leeson, 37, was jailed for six and a half years in Singapore following the collapse of Barings. He was released from prison in 1999 and now lives in Galway, Ireland' How quickly we forget: http://www.economist.com/agenda/displaystory.cfm?story_id=2440313 ...Rest assured that he is far from the only one being told this at Goldman Sachs, or anywhere else for that matter, even though it was only a few years ago that many banks specifically eschewed punting as a good way to make money. Earlier this month UBS, a big Swiss bank, said that “with markets and investor sentiment starting to improve” it would gradually increase credit and trading risks. Even the likes of Citigroup, which stopped explicitly trading for its own account a few years back, and HSBC, a bank that used to think of trading as rather common, both announced recently that they too are increasing the amount of trading they do with their own money. Having previously scaled back its own trading, CSFB is also now increasing the amount of money it devotes to trading, though it claims that it will no longer “bet the ranch”. Allied Irish Banks, which you might have thought had had more than its fair share of trading fiascos, having lost nearly $700m thanks to activities of John Rusnak, one of its foreign-exchange traders, is trying to hire another 20 traders in Dublin.

Subject: Shiller advocated derivates for housing From: johnny5 To: Setanta Date Posted: Mon, Feb 21, 2005 at 14:31:57 (EST) Email Address: johnny5@yahoo.com Message: http://www.project-syndicate.org/commentaries/commentary_text.php4?id=1815&m=series 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. Robert J. Shiller is Professor of Economics at Yale University, and author of Irrational Exuberance and The New Financial Order: Risk in the 21st Century.

Subject: Re: Shiller advocated derivates for housing From: Setanta To: johnny5 Date Posted: Tues, Feb 22, 2005 at 04:08:45 (EST) Email Address: Not Provided Message: Johnny, this post scares me... a market for individual 'real estate' futures would be a disaster for homeowners. where the price of oil futures affects the price at the pump, this idea will have an impact on the price of houses (with the value of derivatives built into the price of the house whether or not there is a derivative in place or not) which will not be understood by 90% of house buyers.

Subject: What's in your wallet? From: johnny5 To: Setanta Date Posted: Tues, Feb 22, 2005 at 09:39:04 (EST) Email Address: johnny5@yahoo.com Message: I am confused and don't understand and I have all you guys trying to help me learn. Some have said all that saved china in the 97 crisis was that their currency was not open to speculation. Why so many smart people think derivatives are the magic that will protect everyone I don't know - history sometimes shows a different opinion. Even now we are hearing that the lawyers are grinding thier axes to attack the banks for bad derivatives. I can't help but be reminded of that commercial where all the viking warriors are coming to kill the credit card user as he pulls out his plastic. Maybe shiller is onto something - he is a professor at yale. I can't imagine how an insurance contract on the price of your house is going to alter financial markets - won't it smooth out boom/bust cycles in housing the same way it has smoothed out oil - oh that's right - oil just had a price shock :(

Subject: The Alternative Minimum Tax From: Emma To: All Date Posted: Mon, Feb 21, 2005 at 11:49:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/21/business/21tax.html?pagewanted=all&position= Case of Vanishing Deductions: Alternative Tax Called Culprit By DAVID LEONHARDT The valuable federal tax deductions that people receive for paying local and state taxes have quietly started to vanish for many households, raising the cost of living in places like New York, Massachusetts and California, already among the nation's most expensive. The culprit is a once-obscure federal tax provision known as the alternative minimum tax, which was created in 1969 to ensure that a relatively small number of wealthy people did not use loopholes to avoid paying taxes. But it is increasingly being applied to families with incomes of $75,000 to $250,000 a year who claim relatively high deductions - like the ones for property taxes, state and local income taxes - and the exemption for children. When it does apply, it cancels some of those deductions. The impact is about to mushroom. Barring a change in the law, almost 19 million taxpayers will be subject next year to the alternative minimum tax, or A.M.T., up from roughly 3.4 million this year and 1.3 million in 2000, according to the Tax Policy Center, a Washington research group whose calculations on this issue are widely accepted. The shrinking of the deduction for local taxes for millions more families in the next few years has the potential to cool price increases in thriving real estate markets, particularly in the Northeast and on the West Coast. About half the people paying the alternative minimum tax in recent years live in one of four states - California, Massachusetts, New Jersey and New York - accounting for almost a quarter of the nation's population. 'If you're just talking about a rank-and-file working couple, they're getting hit in these towns,' said Timothy F. Allen, a tax preparer in Belmont, Mass., about many of the middle- to upper-middle-class two-income families he serves in the Boston suburbs. 'It grabbed me in 2004, and I was kind of surprised.' The A.M.T. effectively sets up a parallel tax system for all households, in which few deductions are allowed. Taxpayers whose alternative tax is higher than their regular federal income tax must pay the alternative one. The taxes that people pay to their local and state governments become a deduction in the standard federal system but not in the alternative one. The higher those deductions, the more likely a household is to fall into the A.M.T. A commission appointed by President Bush to make recommendations for overhauling the tax system met Wednesday in Washington for the first time, with a deadline of July 31 to issue a report, meaning there will not be a change before this year's deadline for filing 2004 taxes. While many powerful members of Congress have called for a change, the administration's proposed budget did not offer one. Almost any plan to ease the tax without raising other taxes would cost the Treasury hundreds of billions of dollars in revenue over the next decade, worsening the federal budget deficit. Some tax experts say the relative simplicity of the A.M.T. offers a good model for tax reform. The problem, people of almost all political viewpoints say, is the combination of the A.M.T. and the regular federal income tax. 'It makes the system completely opaque,' said Pamela F. Olson, an assistant Treasury secretary for tax policy in Mr. Bush's first term and now a partner at the law firm of Skadden, Arps, Slate, Meagher & Flom. 'People have no idea what their taxes are going to be, and it takes back things we put in the code.' The interplay between local taxes and the A.M.T. has in effect become a face-off between two forces that many economists consider unsustainable: the rising federal budget deficit and the continuing leaps in home prices. Left unchanged, the alternative tax would produce more revenue by 2009 than the ordinary federal income tax, according to the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. 'It's an enormous issue,' said Connie Mack, a former Republican senator from Florida who heads the commission Mr. Bush appointed to study tax reform, 'and one we're clearly going to take a look at.' If the tax remains, living in many localities will become more expensive, potentially curtailing the growth in home values that has been a major boon to the economy recently. It could also create pressure to cut property taxes, the major source of public education funding in many communities. Without a change in the A.M.T., 30 million taxpayers are likely to face it five years from now, many of them concentrated in high-tax states. 'Taxes do affect the market,' said Raymond G. Russolillo, who oversees tax-consulting services at U.S. Trust in New York. 'I suspect it will affect behavior at some point.' Michael Levin, 52, is an anesthesiologist in Manhattan, married, with a daughter in high school and a son in college. He does not use tax shelters or take big deductions from investments, he said. But his income, while not outsize by New York standards, is relatively high and he owns a condominium in the West Village section of Manhattan. As a result, he fell into the A.M.T. last year, costing him almost $5,000 in additional taxes. 'When I first heard about it,' Dr. Levin said, 'my understanding was that the concept was to prevent fat cats from not paying any taxes. Well, that's fair. Everybody should pay something. But it's killing the middle class as well.' The alternative minimum tax began in 1969, after Joseph W. Barr, the departing Treasury secretary under President Lyndon B. Johnson, told Congress that 155 wealthy families had used loopholes to avoid paying any federal income tax in 1967. Mr. Barr warned of the possibility of a middle-class taxpayer revolt in response. Congress, deluged with letters, created the tax soon after, and President Richard M. Nixon signed it into law. When Congress overhauled the tax code in 1986, it changed the provision so that it no longer offered tax breaks for local taxes, among other things. Today, it exempts a standard amount of income - as much as $58,000 for a married couple this year - and allows further deductions for mortgage interest and contributions to charity. It then taxes nearly all other income at a flat rate of at least 26 percent. Though the calculation usually remains hidden, tax-preparation software figures out both the regular income tax and the alternative one for all households, and they must pay whichever is higher. The surcharge for the tax appears on a single line - Line 43 - of the Form 1040. The triggers for the alternative tax have not kept up with inflation, causing it to capture many people whose main deductions come from nothing more exotic than children and local taxes. People in towns with high property taxes sometimes face the A.M.T., while others with similar incomes in the next town do not. The average property tax in Belmont, Mass., for example, will exceed $7,500 this year. In Arlington, the next town north, the average is $4,500. In parts of Fairfield County, Conn., homeowners pay $10,000, said Alan J. Clavette, an accountant there. In Montclair, N.J. - a town with many New York commuters, in the state with the highest per-capita property taxes in the nation - the typical bill is about $12,000. Over all, people from Connecticut, New York and New Jersey have the highest average deductions for local taxes, which are mainly property taxes and state and local income taxes, according to the Internal Revenue Service. Local taxes have risen in recent years, as both property values and local tax rates have increased. Consider a married couple with three children, living in Massachusetts and making $100,000 a year. With a typical-size home equity loan and $9,000 in property taxes, the couple would face an A.M.T. surcharge of almost $700, increasing their federal tax bill to nearly $11,000, from $10,300, according to Ernst & Young. A similar couple paying significantly less in property taxes would not fall under the alternative tax. The tax falls hardest on states that are overwhelmingly Democratic, including Connecticut, Maryland and Oregon. Some Dermocrats say the uneven effect is one reason that the provision has not yet been changed. 'The Republican majority may not be acting on it because they see it as a red state-blue state issue,' Representative Carolyn B. Maloney, a New York Democrat, said. 'But it is really a middle-class issue, and the middle class is everywhere.' Republicans said that Congress, under their leadership, had created temporary fixes - including one for 2005 - that reduced the number of people subject to the extra tax. They said they expected to devise a long-term solution by overhauling the tax code in the next two years. The A.M.T. is just one of many factors influencing the housing market; the effect of mortgage rates and the ups and downs of the economy certainly outweigh it in importance. But specialists foresee taxes becoming a more prominent factor in real estate markets as the alternative tax affects many more homeowners. 'It's not until people sit in front of their Quicken program and find out that in fact some of their deductions have been in a sense disallowed that they might come to understand this issue,' said Eric S. Belsky, executive director of the Joint Center for Housing Studies at Harvard University. 'As it does affect more and more people, there is an argument that it will have some influence on people's willingness to take on mortgage debt and pay property taxes.' Many of the families who have already been hit by the A.M.T. make enough money that its cost is not a hardship. Barring a change, though, the tax will cover more than half of all households with incomes of $75,000 to $100,000 five years from now, the Tax Policy Center forecasts. Nearly all families who have children and make more than $100,000 would fall into it. Many would lose some or all the tax cuts they have received since President Bush took office. Of course, many also live in houses that are worth much more than they were a few years ago. Someone who sold a home and moved to a less expensive one would easily make up for any additional taxes they had paid as a result of the alternative minimum tax. But extracting the value from a home is not easy. To make a significant gain, a homeowner often must move to a much cheaper region or a far smaller house. Carlo and Chris Marano bought their home in Danbury, Conn., for $265,000 in 1992. After its value had more than doubled, they put it up for sale a year ago and looked into moving. Their three children are grown, Ms. Marano said, and 'we have significant space we don't need.' But the Maranos - he is self-employed, helping design employee benefit plans, and she works for an accounting firm - could not find any house around Danbury that they wanted and that was inexpensive enough to make a move seem worthwhile. So they stayed put, and they paid the A.M.T.

Subject: Blue States From: johnny5 To: Emma Date Posted: Mon, Feb 21, 2005 at 14:23:02 (EST) Email Address: johnny5@yahoo.com Message: Connie Mack, a former Republican senator from Florida who heads the commission Mr. Bush appointed to study tax reform BWAHAHA! This makes me laugh! She is gonna take care of your blues - literally!

Subject: The signs don't look good! From: Setanta To: All Date Posted: Mon, Feb 21, 2005 at 11:29:00 (EST) Email Address: Not Provided Message: http://www.financialsense.com/Market/archive/2004/0223.html

Subject: Is There Inflation? From: Ari To: Setanta Date Posted: Mon, Feb 21, 2005 at 11:40:25 (EST) Email Address: Not Provided Message: The analyst reports that liquidity is increasing internationally, but there is deflation in Japan, low inflation in Europe and America, Australia and Canada. Inflation has been a middling problem in China, but appears to be lessening. Interest rates can easily be tightened further and faster to check inflation. So, I am not sure there is a problem of too much liquidity. The Federal Reserve stopped using money supply targets 15 years ago, for the finding was that growth of the money supply was not directly related to general price changes.

Subject: Re: Is There Inflation? From: johnny5 To: Ari Date Posted: Mon, Feb 21, 2005 at 13:59:05 (EST) Email Address: johnny5@yahoo.com Message: I thought the problem according to mr. hoye was that there is no where to stick all the money and investment in PPE is gone so according to roach we are left with a megawave of restructuring that will deflate everything and put serious downward pressure on the consumer. Businesses stop spending, banks stop lending, and down we go and all the carry trade unravels because there is no more growth. Cash is at a 35 year high. Institutional Investor points out that domestic and international growth are getting more heavily linked - doesn't this increase the systemic risk for the whole world to be correlated so heavily? If a killer flu virus is about to descend on the world - isn't species survival better in a world of isolated islands than one overcrowded mainland? Weren't the aztecz A ok until the europeans started getting linked to them?

Subject: Re: Is There Inflation? From: Setanta To: Ari Date Posted: Mon, Feb 21, 2005 at 13:51:54 (EST) Email Address: Not Provided Message: while CPI inflation is low in europe, asset inflation is a different matter. you have a situation where property has increased in value by about 300% in the past 6-10 years. at the moment the CPI is running at about 3% whereas asset inflation has been 'scaled' down to 8-10%.

Subject: Asset Inflation or General Inflation From: Terri To: Setanta Date Posted: Mon, Feb 21, 2005 at 14:10:29 (EST) Email Address: Not Provided Message: There is reason for concern when asset prices climb so rapidly, but I am not sure this will translate to general inflation. We must think.

Subject: Re: Is There Inflation? From: johnny5 To: Setanta Date Posted: Mon, Feb 21, 2005 at 13:59:30 (EST) Email Address: johnny5@yahoo.com Message: http://www.economist.com/surveys/displayStory.cfm?Story_id=242138 And asset-price inflation can be even more harmful to growth than ordinary inflation. Indeed, there is reason to believe that financial bubbles may be more likely to develop during periods of low CPI inflation. The two biggest bubbles this century—America’s in the 1920s and Japan’s in the 1980s—both developed when inflation was modest. When interest rates are low, people are also able to borrow a much bigger multiple of their incomes to finance speculative investment Flemming Larsen, the deputy director of research at the IMF, pointed out in a recent speech that there was much evidence that an economy can overheat even at a time of price stability as conventionally defined. Excess demand shows up instead in balance sheets and asset prices. Traditional indicators of inflation may mislead monetary policymakers. By describing America’s economy as a bubble in early 1998, The Economist made few friends for itself in that country. Optimists claim that the surge in share prices reflects the “new era” of rapid growth in productivity and profits, brought about by new technology and corporate restructuring. This, they argue, justifies the high share prices recently seen. The p/e ratio of the S&P 500 currently stands at 33, compared with an average of 14 over the past century. By every standard method of valuation, Wall Street is now more overvalued than it was on the eve of its crashes in 1929 and 1987.

Subject: Africans Entering America From: Emma To: All Date Posted: Mon, Feb 21, 2005 at 11:09:22 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/21/nyregion/21africa.html?ei=5094&en=5dd1d3d870037d78&hp=&ex=1109048400&partner=homepage&pagewanted=all&position= More Africans Enter U.S. Than in Days of Slavery By SAM ROBERTS For the first time, more blacks are coming to the United States from Africa than during the slave trade. Since 1990, according to immigration figures, more have arrived voluntarily than the total who disembarked in chains before the United States outlawed international slave trafficking in 1807. More have been coming here annually - about 50,000 legal immigrants - than in any of the peak years of the middle passage across the Atlantic, and more have migrated here from Africa since 1990 than in nearly the entire preceding two centuries. New York State draws the most; Nigeria and Ghana are among the top 20 sources of immigrants to New York City. But many have moved to metropolitan Washington, Atlanta, Chicago, Los Angeles, Boston and Houston. Pockets of refugees, especially Somalis, have found havens in Minnesota, Maine and Oregon. The movement is still a trickle compared with the number of newcomers from Latin America and Asia, but it is already redefining what it means to be African-American. The steady decline in the percentage of African-Americans with ancestors who suffered directly through the middle passage and Jim Crow is also shaping the debate over affirmative action, diversity programs and other initiatives intended to redress the legacy of slavery. In Africa, the flow is contributing to a brain drain. But at the same time, African-born residents of the United States are sharing their relative prosperity here by sending more than $1 billion annually back to their families and friends. 'Basically, people are coming to reclaim the wealth that's been taken from their countries,' said Howard Dodson, director of the Schomburg Center for Research in Black Culture, in Harlem, which has just inaugurated an exhibition, Web site and book, titled 'In Motion,' to commemorate the African diaspora. The influx has other potential implications, from recalibrating the largely monolithic way white America views blacks to raising concerns that American-born blacks will again be left behind. 'Historically, every immigrant group has jumped over American-born blacks,' said Eric Foner, the Columbia University historian. 'The final irony would be if African immigrants did, too.' The flow from Africa began in the 1970's, mostly with refugees from Ethiopia and Somalia, and escalated in the 1990's, when the number of black residents of the United States born in sub-Saharan Africa nearly tripled. Combined with the much larger flow of Caribbean blacks, the recent arrivals from Africa accounted for about 25 percent of black population growth in the United States over all during the decade. Nationally, the proportion of blacks who are foreign born rose to about 7.3 percent from 4.9 percent in the 1990's. In New York City, about 1 in 3 blacks are foreign born. According to the census, the proportion of black people living in the United States who describe themselves as African-born, while still small, more than doubled in the 1990's, to 1.7 percent from about 0.8 percent, for a total estimated conservatively at more than 600,000. About 1.7 million United States residents identify their ancestry as sub-Saharan. Those numbers reflect only legal immigrants, who have been arriving at the rate of about 50,000 a year, first mostly as refugees and students and more recently through family reunification and diversity visas. Many speak English, were raised in large cities and capitalist economies, live in families headed by married couples and are generally more highly educated and have higher-paying jobs than American-born blacks. There is no official count of the many others who entered the country illegally or have overstayed their visas and who are likely to be less well off. Kim Nichols, co-executive director of the African Services Committee, which directs newcomers to health care, housing and other services in the New York region, estimates that the number of illegal African immigrants dwarfs the legal ones. 'We think it's a multiple of at least four,' she said. Africans' reasons for coming echo the aspirations of earlier immigrants. 'Senegal became too small,' said Marie Lopy, who arrived as a student in 1996, worked as a bookkeeper in a restaurant and earned an associate degree in biology from the City University of New York. After winning a place in an American immigration lottery that his secretary had entered for him in 1994, Daouda Ndiaye recalls being persuaded by his six children to leave Senegal, where he was working as a financial manager. 'I said, 'I'm 45, I'd have to build a whole new life, I'd have to go to school to learn English,' ' he recalled. 'They said, 'We want you to go and we want you to send for us because there's more opportunity in the U.S. than here.' ' His wife and two of his children have joined him in the United States, where he has worked as a sporting goods store manager and is now a translator. That the latest movement of black Africans arriving voluntarily surpasses the total who disembarked in chains before the United States outlawed international slave trafficking is a bit of a statistical anomaly. That total, most historians now agree, was about 500,000, with an annual peak of perhaps 30,000, compared with the millions overall who were sold into slavery from Africa. Many died aboard ship. Most were transported to the Caribbean and Brazil, where they were vulnerable to indigenous diseases and to the rigors of raising sugar cane, which was harder to cultivate than cotton or rice, the predominant crops on plantations in the United States, where the slave population was better able to survive and reproduce. Moreover, black Africans represented a much higher proportion of the population then than they do today. In 1800, about 20 percent of the 5 million or so people in the United States were black. Among nearly 300 million Americans today, about 13 percent are black. Still, with Europe increasingly inhospitable and much of Africa still suffering from the ravages of drought and the AIDS epidemic and the vagaries of economic mismanagement, the number migrating to the United States is growing - despite the reluctance of some Africans to come face to face with the effects of centuries of enduring discrimination. In the 1960's, 28,954 legal immigrants were admitted from all of Africa, a figure that rose geometrically to 80,779 in the 1970's, 176,893 in the 1980's and 354,939 in the 1990's. In 2002, 60,269 were admitted, including 8,291 from Nigeria, 7,574 from Ethiopia, 4,537 from Somalia, 4,256 from Ghana and 3,207 from Kenya. To many Americans, the most visible signs of the movement are the proliferation of African churches, mosques, hair-braiding salons, street vendors and supermarket deliverymen, the controversy over female genital mutilation and the election last year of Barack Obama, son of a native Kenyan, to the United States Senate from Illinois. Especially in New York City, the shooting deaths of two unarmed African immigrants, Amadou Diallo from Guinea in 1999 and Ousmane Zongo from Burkina Faso in 2003, come to mind. Immigrants arrive with their own perceptions and expectations, from countries where blacks constitute a majority at every level of society, only to discover that whether they are professors or peddlers, they may be lumped together here by whites and even by American-born blacks. 'You have the positive impact that race is not seen to be an absolute definer of people's opportunities,' Kathleen Newland, director of the Migration Policy Institute, a nonpartisan research group, said, 'but that begs the larger question of what does it mean to have a black skin in the United States.' Agba Mangalabou, who arrived from Togo in 2002, recalls his surprise when he moved here from Europe. 'In Germany, everyone knew I was African,' he said. 'Here, nobody knows if I'm African or American.' Ms. Lopy, who now works as a medical interpreter for the African Services Committee, describes herself as 'African, first and foremost,' though the identity of her children will depend on whom she marries and where. 'I'll raise them to be African-something,' she said, 'but ultimately they'll define it for themselves.' Sylviane A. Diouf, a historian and researcher at the New York Public Library's Schomburg Center and Dr. Dodson's co-author of 'In Motion,' said that Americans have a more positive view of immigrants in general than they do of American-born blacks. Referring to African immigrants, she said: 'They are better educated, they're here to work, to prosper, they're more compliant and don't pose a threat.' Dr. Dodson added, 'They're not politically mobilized as yet and not as closely tied to the African-American agenda.' While the ancestors of most Caribbean-born blacks were enslaved, and slavery also victimized the forbears of many African-born blacks, the growing proportion of immigrants may further complicate the debate over programs envisioned to redress the legacies of slavery. 'I think there is a legitimate set of specific claims by persons born in the United States that don't necessarily apply to Caribbean or African populations that have come here subsequently,' Dr. Dodson said. 'African-born and Caribbean-born brothers and sisters have realized that the police don't discriminate on the basis of nationality - ask Amadou Diallo,' said Professor Charles J. Ogletree Jr., who teaches at Harvard Law School and has warned colleges and universities that admitting mostly foreign-born blacks to meet the goals of affirmative action is insufficient. 'Whether you are from Brazil or from Cuba, you are still products of slavery,' he continued. 'But the threshold is that people of African descent who were born and raised and suffered in America have to be the first among equals.' French-speaking Haitians do not necessarily mix with English-speaking West Indians, much less with Africans, and competition for jobs has been another source of tension. 'The Africans tend to be quite industrious and entrepreneurial and often take advantage of opportunities that might have been here for others before,' said Kim Nichols of the African Services Committee. 'We're talking about very profoundly different cultures,' Kathleen Newland said. Analyses by the Department of City Planning, and by the Lewis Mumford Center for Comparative Urban and Regional Research, in Albany found recent immigrants often segregated from other blacks. The census found Nigerian clusters in Flatlands and Canarsie in Brooklyn and Ghanaians in Morris Heights and High Bridge in the Bronx. 'As with European ethnics at the turn of the century,' Joseph J. Salvo, the director of the population division of the Department of City Planning, and Arun Peter Lobo, the deputy director, wrote recently, 'ethnicity has been a powerful force in shaping black residential settlement in New York.' Immigration may also shift some of the nation's focus from racial distinctions to ethnic ones. 'Certainly, South Africa showed us that minority status does not necessarily correlate to one's position in society, but rather that power and its uses are the issues,' said Samuel K. Roberts of Columbia, a history professor who is also on the faculty of the university's Institute for Research in African-American Studies. 'That being said, increasingly distinguishing between black Americans and black Africans may produce conditions in which we will be less prone to think of a fictional construct of 'race' as the distinguishing factor among all of us in North America.' How long might those distinctions last? 'I guess one of the questions will have to be what happens in the next generation or two,' said Professor Foner of Columbia. 'In America, marriage is the great solvent. Are they going to melt into the African-American population? Most likely yes.'

Subject: Buffet's WMD's From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 10:33:00 (EST) Email Address: johnny5@yahoo.com Message: Barclays Opens Up a Pandora's Box of Derivatives: Mark Gilbert Feb. 18 (Bloomberg) -- A Pandora's box threatens to creak open in the derivatives market, as aggrieved investors seek compensation from banks that sold them collateralized debt obligations whose ratings and value subsequently plummeted. HSH Nordbank AG, a Hamburg-based lender, sued Barclays Plc over $151 million of collateralized debt it bought in 2000. The German bank said the bonds ``if saleable at all, have become worth a very great deal less.'' The London trial was set for Feb. 21. The case raised the tantalizing prospect of a whole basket of dirty derivatives laundry airing in public. Pre-trial document teasers included claims that Barclays invested HSH's notes in another Barclays issue called Taunton, which invested in a Barclays issue named Flavius, which itself invested in Barclays notes called Savannah II, which bought part of two more issues, Dorset and Tullas, from (you guessed it) Barclays. ``Contrary to its duty and to its promises, Barclays substituted poorly performing assets,'' including buying aircraft- lease securities after terrorist attacks destroyed the World Trade Center on Sept. 11, HSH said in an outline of the case filed in the U.K. High Court in December. Barclays said it did nothing wrong in its selling or management of the HSH bonds, which were named Corvus. The case notes said the London-based bank ``blames the fall in value of the Corvus notes primarily upon market conditions.'' Undisclosed Settlement On Feb. 14, Barclays and HSH issued a joint press statement saying they'd reached a settlement. The terms of the accord weren't released. Given that HSH said it invested a further $420 million in two other collateralized debt sales managed by Barclays, the accommodation could have been for anything from zero to $571 million. It looked like those of us hoping to see a car crash in the derivatives market would be disappointed. Later that day, though, Italy's Banca Popolare di Intra Scrl said in a statement through the Italian exchange that it's suing Bank of America Corp. in the U.K. courts for selling it ``securities having a higher risk than was represented by the seller and for an excessive price with respect to their risk level.'' The Italian bank, based in Verbania, wants the U.S. lender to either rewind the sales, which took place in 2000 and 2001, or pay it 40 million euros ($52 million) in compensation. Bank of America said ``the allegations are unfounded.'' $350 Billion Question So here's the question: How many other owners of the $350 billion of collateralized debt that was in the market by mid-2002 are forming a line to sue their bankers? To make a collateralized debt obligation, you bundle together a package of other securities, such as corporate bonds or credit- default swaps tied to company creditworthiness. By splitting the package into slices of differing quality, you make the riskiest portions absorb any losses first, cushioning the higher-rated pieces. Yet, just as the collateralized debt market started to take off at the start of the decade, global creditworthiness plunged. Some 16 percent of securities that had AAA ratings in January 2002 lost their top grade in the next few years. The newfangled securities soured much more rapidly than other, similar asset- backed bonds had done in the past. The collateralized debt owned by HSH, for example, started life with ratings of AAA to BBB from Fitch Ratings, all above investment grade. By the end of last year, they had dropped by at least 11 levels, to between BBB- and CC, well below investment grade. Booming Market The credit derivatives market has boomed in recent years, becoming very lucrative for the banks and traders involved. Recruitment consultants estimate that bonuses for U.S. derivatives professionals climbed as much as 20 percent last year as banks paid up to stop top performers from jumping on the hedge-fund bandwagon. Barclays, for example, said in its 2004 earnings report that it held more than 191 billion pounds ($360 billion) of credit derivatives last year, a fourfold increase from the previous year, as measured by notional value. Moody's Investors Service said last month it rated $56 billion of European collateralized debt backed by default swaps in 2004, a 20 percent gain from the previous year. As the credit derivatives market has grown, standards have improved. Everyone uses the same standard documents, and the rules governing changes in the baskets of assets underlying collateralized debt have been tightened. That wasn't the case at the start of the decade, when banks were still experimenting. The decision by Barclays to settle with HSH will have given heart to any investor that's considering going to court to seek compensation. It's easy to see why even a bank convinced of its own innocence would rather pay off a litigant than see details of its derivatives dealing pored over in a lawsuit. Maybe there won't be a flood of similar complaints. Still, as Dennis Gartman, editor of the daily market strategy report Gartman Letter, often points out, there's never only one cockroach.

Subject: Simple Sound Asset Allocation From: Terri To: All Date Posted: Mon, Feb 21, 2005 at 10:15:27 (EST) Email Address: Not Provided Message: Efficient markets mean that an ideal allocation strategy an investor is to buy the entire stock and bond markets. This can be done with 2 American funds, the Vanguard Total Stock Market Index and the Total Bond Market Index. All that needs to be done is selected an proportion for each fund. A conservative proportion ranges from 60% stocks to 40% bonds to 40% stocks and 60% bonds. If an investor wishes to own international market, then there is the Total International Stock Index. So, 2 or 3 funds is all the is needed to cover America or the globe. An investor who wishes to be highly conservative could opt for 40% stocks and 60% bonds, or even 30% stocks and 70% bonds for an extremely conservative investor. An investor who wishes to be far from conservative can choose 80% or even more stocks.

Subject: Re: Simple Sound Asset Allocation From: johnny5 To: Terri Date Posted: Mon, Feb 21, 2005 at 11:30:38 (EST) Email Address: johnny5@yahoo.com Message: I recall during the election months the pundits were talking to ben stein and mr. forbes and one of them said Mrs. Kerry had ALL her wealth in tax free municipal bonds - how has she not been educated to the benefits of asset allocation spread out in different areas like Bogle says?

Subject: Municipal Bonds From: Jennifer To: johnny5 Date Posted: Mon, Feb 21, 2005 at 12:45:34 (EST) Email Address: Not Provided Message: John Kerry has long been a Senator. There is every reason for Teresa Kerry to invest in municipal bonds for just this reason. There is every reason for any person to invest in municipal bonds if they choose. If you are comfortable with an investment in municipal bonds, then there is no reason anyone should be critical.

Subject: Asset allocation increasing in stocks From: johnny5 To: All Date Posted: Mon, Feb 21, 2005 at 06:22:16 (EST) Email Address: johnny5@yahoo.com Message: This report praises HIGH cash companies - but I have already provided several links that say having HIGH cash is a sign of coming deflation and contraction just like in Japan and is very bad for future growth. Cash is at a 35 year high right now. Companies are not reinvesting in growth or PPE and wall street insiders are not buying thier own stock. So are these wall street experts wrong or is financial history wrong when analyzing high levels of cash and what that means for future growth? 'Stocks could overtake housing' BY GAIL MARKSJARVIS Posted on Sun, Feb. 20, 2005 Pioneer Press During the last five years, skyrocketing home values salved the wounds of investors who lost fortunes in the stock market. The average home price climbed nearly 57 percent in the Twin Cities in that time, while the devastation from the market crash of 2000 left some investment portfolios in worse condition than five years ago. A person who put money into the stock market (the Standard & Poor's 500) at the end of 1999 would still be down 17.5 percent, and an investment in the average stock mutual fund would be up just 0.46 percent, according to Lipper. The difference in performance between housing and the stock market is even more pronounced if you consider how people invest in homes. Typically, people put only a small amount of money into a home purchase. So if a person made a $20,000 down payment on the average Twin Cities home five years ago, the homeowner would have enjoyed almost a 400 percent return on their money, says Lawrence Yun, senior economist for the National Association of Realtors. Whether you look at it that way or not, it's no wonder that financial planners such as David Hoelke have been talking clients back to reality when they've insisted: 'The only thing that doesn't go down is real estate.' The scars remaining from 2000 and 2001 have left some people 'repulsed by the stock market,' says Hoelke of Minnetonka. If investment managers from throughout the world are correct, average investors might come to see reality differently during the next year. In a monthly survey of the world's fund managers, Merrill Lynch found that two-thirds of investment professionals think stocks will deliver returns that are better than, or at least as good as, housing in the next 12 months. The world's managers are increasingly optimistic about the stock market — boosting their investments, while cutting back on bonds. Of course, the managers are in the business of investing in stocks and bonds, so that could be coloring their view of housing. Yet, to select the best performing stocks and bonds, professional investors must analyze the economy and various industries worldwide. If the pros are correct, people who have avoided the stock market and invested in homes instead could end up rethinking their strategy. Last year, counting on homes was definitely the right move in certain markets. The prices of homes in Las Vegas climbed 48.7 percent — one of the hottest markets in the nation. But nationwide, home appreciation was slightly behind the stock market's returns: The market was up 8.9 percent and homes added 8.3 percent to their value. Home appreciation in the Twin Cities was neck and neck with the S&P 500's 8.9 percent return. The National Association of Realtors is predicting 5 percent growth in U.S. home values for 2005. The fund managers in Merrill's survey did not predict either home or stock market returns specifically, but 96 percent are expecting the Federal Reserve to raise rates. Rising rates can restrain business profits and stock market returns, as well as slow the housing market. When companies must pay more to borrow money, their costs of doing business go up. But the fund managers are not worried about that. Instead, Merrill Lynch chief investment strategist David Bowers said in a report, 'What is striking this month is just how positive asset allocators are on equities.' 'Asset allocators' decide how much money to invest in stocks, bonds and cash. When they are nervous about stocks, they increase the percentage of money they put into bonds and cash and decrease their exposure to stocks. But for the sixth month in a row, those surveyed have increased their exposure to stocks. Typically, if they kept the money in their funds in balance, they would hold 50 percent in stocks and 50 percent in bonds. But one in four managers is so optimistic about stocks they've boosted stock holdings to 65 percent of their portfolios. Interestingly, the managers see risks ahead for corporate profits. But their enthusiasm for stocks remains high anyway because of one key fact: During the last four years, companies have put a lid on spending and have used cash to pay down debts and build up a war chest of savings. Now, the managers say companies have so much cash available that they can make purchases or expand their businesses by dipping into their own coffers or using their strong financial position to borrow at low rates. It's a luxury that deeply indebted consumers might not have when buying homes. http://www.twincities.com/mld/twincities/business/columnists/10938321.htm

Subject: Sector Stock Indexes From: Terri To: All Date Posted: Sun, Feb 20, 2005 at 21:00:55 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsVIPERByName Sector Indexes 12/31/04 - 2/18/05 Energy 15.8 Financials -2.8 Health Care 0.1 Info Tech -5.6 Materials 2.9 REITs -3.9 Telecoms -4.8 Utilities 3.5

Subject: International asset allocation a waste? From: johnny5 To: All Date Posted: Sun, Feb 20, 2005 at 17:07:56 (EST) Email Address: johnny5@yahoo.com Message: From the same journal - one paper for international diversification - one against it. http://www2.cfapubs.org/cp/issues/v2002n4/abs/p0020012a.html Global Diversification Is [Still] Good for Your Clients Many people, including the author of an article that appeared in the New York Times, are arguing that international diversification is no longer a good strategy for investors because of the rising correlation between U.S. and non-U.S. markets. But is this argument truly based on a strategic call, or is it a tactical call? The evidence points to it being a tactical call in strategic 'clothing.' http://www2.cfapubs.org/cfam/issues/v14n4/abs/p0030040a.html With domestic and foreign markets increasingly moving in the same directions, investors lose some of the diversification benefits of going outside their own borders. Yet consultants and asset managers report that investors continue to commit assets to global equities. There are several possible explanations: perhaps recent events narrowed differences only for the near term, or the expanded opportunity set is critically important, or possibly the focus on sector and industry investing demands a worldwide view. This article explores how the reasons for investing beyond one's borders have changed, but the move to global investing continues to grow. All this contradiction by the pro's makes my brain hurt - it's just easier to stick the cash into a dividend paying oil stock in scott trade.

Subject: Focused Investment..... From: Pete Weis To: johnny5 Date Posted: Sun, Feb 20, 2005 at 19:31:02 (EST) Email Address: Not Provided Message: combined with a base of low risk investment such as short duration government bonds issued by nations with strong currencies or funds which invest in fixed income securities found in these same countries. The focus has to be the falling US dollar. So clearly commodities and natural resource companies are good hedges against dollar droppage. Precious metals funds such as Vanguard's excellent fund call for a strong stomach for the volatility involved with the ups and downs of the dollar. Anyone who invests in precious metals must have strong convictions in doing so or they will get out at the bottom of one of those periodic selloffs just at the time when more experienced precious metals investors are increasing their positions. I tend to not like US pharmaceuticals simply because their stocks are dollar denominated so overseas pharmaceuticals look more attractive to me. Those who are not bearish when it comes to US markets and indeed world stock markets in general must believe at least four things - (1)the US housing market which is propping up the US consumer will continue for sometime to come; (2) foreign central banks will continue to buy US treasuries near or at the same levels they have been doing so that long term rates can remain low; (3) there will be no major financial collapse (Fannie Mae, Freddi Mac); and (4) oil will drop from its near $50 price per barrel presently, rather that increase from here. We could add other events which might have negative effects on worldwide markets, but if anyone or more of these four things don't pan out for the bulls, we will have some very tough times ahead. IMO, the risk is too high to have a non-focused or non-conservative (meaning very conservative) investment strategy. We should have learned from the 2000-2002 period and we should remember that the first wave of a tsunami is followed by another.

Subject: Re: Focused Investment..... From: johnny5 To: Pete Weis Date Posted: Mon, Feb 21, 2005 at 04:38:12 (EST) Email Address: johnny5@yahoo.com Message: Greenspan says we have a bubble that won’t collapse Greenspan And His Bubble http://www.forbes.com/home_asia/strategies/2005/02/18/cx_da_0218topnews.html 'I think we're running into certain problems in certain localized areas. We do have characteristics of bubbles in certain areas but not, as best I can judge, nationwide,' Greenspan told the House Financial Services Committee. He added: 'I don't expect that we will run into anything resembling a collapsing bubble,' though it's 'conceivable that we will get some reduction in overall prices as we've had in the past, but that is not a particular problem.' meanwhile...... The number of homes being constructed in the United States is increasing at nearly twice the rate as the number of households. http://www.siliconinvestor.com/readmsgs.aspx?subjectid=54696&msgnum=23926&batchsize=10&batchtype=Next Greenspan admits a housing bubble in some areas, but not Nationwide? Hmmm ... the recent FDIC report says that 40% of Americans live in 'boom' areas. That is the largest housing boom they have ever measured. NOTE: FDIC defines a 'boom' as 'a 30 percent or greater increase in inflation-adjusted (or real) home prices during any three-year period'. Even most of the other 60% (outside of Detriot ) have seen some housing price appreciation over the last 3 years - just not 30%. Where I live, housing is up close to 30% in just the last year! As someone familiar with real estate Pete - if a contraction in real estate does come - how is greenspan supposed to prevent the systemic risk that fannie and freddie may cause? Take over the mortgages even though fannie and freddie aren't backed and stick another bill on the backs of the us tax payer? I read another article that if the price of oil goes up world GDP will fall in relation and still has to fall in relation to how much it has already went up because a lot of things have been priced with the expectations it would go back down to 20-30 a barrel. XOM thinks it will go down and we are in a business cycle but chevron doesn't. This confuses me further that 2 of the largest companies cannot agree on future oil prices for the world market.

Subject: GNMA and Value Stocks From: Terri To: Pete Weis Date Posted: Sun, Feb 20, 2005 at 20:54:39 (EST) Email Address: Not Provided Message: The Vanguard GNMA fund has a 2.5 year duration, and a 4.9% yield. GNMAs are government backed, so there is no credit risk. Even a 2 percentage point rise in interest rates will not be a problem for a reasonably patient investor. Seems perfect if you anticipate rising interest rates. As for stocks, it makes sense to lean to value. I still like the Value Stock Index. But, there are several interesting managed value funds at Vanguard and there is Energy for a value choice,

Subject: Re: International asset allocation a waste? From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 19:28:51 (EST) Email Address: Not Provided Message: Remember the Vanguard Energy Fund, which offers immediate diversification and long term safety. Also, the long term returns of the S&P and Europe stock indexes have been remarkably close and I expect they will be close in future. But, for a few years the indexes may well diverge so there is a smoothing of near or intermediate term returns likely with the added diversification. Japan has limited the returns of the Pacific Index since 1989.

Subject: Alpha and Omega From: johnny5 To: Terri Date Posted: Mon, Feb 21, 2005 at 05:16:27 (EST) Email Address: johnny5@yahoo.com Message: So for proper asset allocation we need a little energy, and some stocks and bonds and maybe put some cash on the side. Now how do you determine the proper mix? 10% energy, 30% stock index, 60% bond index? 15% energy, 35% stock, 50% bond? If you expect many years of higher oil prices - 30% energy, 30% stock, 60% bond? How are these ratios determined by the professionals? Is there a magic formula in an academic paper with lots of calculus and derivatives and greek symbols? I have read where Bogle frequently says about 50%stocks/50% bonds - but where is the mathematical science to back that up? http://library.iea.org/dbtw-wpd/textbase/papers/2004/high_oil_prices.pdf Similarly, the boost to economic growth in oil-exporting countries provided by higher oil prices in the past has always been less than the loss of economic growth in importing countries, such that the net effect has always been negative. The growth of the world economy has always fallen sharply in the wake of each major run-up in oil prices, including that of 1999-2000. This is mainly because the propensity to consume of net importing countries that lose from higher prices is generally higher than that of the exporting countries. Demand in the latter countries tends to rise only gradually in response to higher prices and export earnings, so that net global demand tends to fall in the short term. ...The economic impact of higher oil prices varies considerably across OECD countries, largely according to the degree to which they are net importers of oil. Euro-zone countries, which are highly dependent on oil imports, suffer most in the short term (Figure 3). Job losses would be particularly large, aggravating current high unemployment levels across the region. Japan’s relatively low oil intensity compensates to some extent for its almost total dependence on imported oil. GDP losses in both Europe and Japan would also exacerbate budget deficits, which are already large (close to 3% on average in the euro-zone and 7% in Japan). The United States suffers the least, largely because indigenous production still meets over 40% of its oil needs. Unemployment, a major current policy concern, would nonetheless worsen significantly in the short term. ...The adverse economic impact of higher oil prices on oil-importing developing countries is generally more pronounced than for OECD countries. The economic impact on the poorest and most indebted countries is most severe. The Sub-Saharan African countries within this grouping, with more oil intensive and fragile economies, would suffer an even bigger loss of GDP, of more than 3%. So it looks like africa and friends are going to go into even more poverty :(

Subject: Re: Alpha and Omega From: Institutional Investor To: johnny5 Date Posted: Mon, Feb 21, 2005 at 10:57:08 (EST) Email Address: Not Provided Message: Johnny, it appears that you have taken a wrong turn somewhere as I think you have a couple of misconstrued ideas about Asset Allocation. The main article you cited regarding AA was not so much a critique of the BHB paper as it was an attack on the press/industry and their use of the paper. I think you could do that with anything the press uses. The main point of contention is the use of the word variation, or non-use in this case. Aside from all the semantics that reminded me of a Luskin article, the author (Nuttall a physics professor) makes a significant point in that the paper researched the variation of returns of portfolios. He believes that you can’t say AA determines the returns of the portfolio, because that is not what the data says. While he is correct in his statement, it’s really a matter of taking it to the next level and saying because AA determines the variation of its returns, does it explain the actual returns. Most people I know believe the answer is yes, although you shouldn’t use that 93% as proof. Nuttall doesn’t prove or disprove anything, he just argues how people are using the report. You made a point earlier saying that everyone is basing their work on just the BHB paper, this really isn't the case. I can think of many consultants that evaluate their own clients’ returns using this type of analysis and come to the same conclusions. Its not like people are lemmings and just believe the first thing they read, this has been tested in the real world and is consistently monitored. Ok, as for asset allocation. The links below shed some light on this “science/art”. The first link has Wilshire’s capital market assumptions as of 2001. The first link has 10-year forward-looking capital market assumptions with return and volatility expectations. Since these are 10-year projections, they shouldn’t be used if you are looking to invest for the 3-5 years only. The main data missing are the correlation between assets. This touches on your point regarding Intl stocks in your portfolio. Even though intl is becoming more correlated with domestic equity, its still far from 1.0. More like .7 or .8, therefore when you use an optimizer you’ll most likely see intl being included in your efficient frontier. As you see, there are no energy asset classes. Most people consultants wouldn’t put such an overweight in sector like that. You could if come up with your own capital market assumption should you have such a strong belief in its returns, but in general you won’t see that. You may see TIPS as their own asset class, but for most institutional investors, it’s not because of the illiquidity of the market. Its just fine for retail investors, but it needs more time to grow for all these multi-billion dollar funds to be heavily invested in it. The second link is a software program used by many investment consultants. It uses a combination of MPT in determining your efficient frontier, based on using your capital market assumptions. The main thing most people don’t seem to understand is that they need to determine a expected rated of return and how much volatility are they willing to accept. That is going to have the biggest impact on the make up of the portfolio. If you can’t handle a 20% one-year loss, chances are you’ll have a low exposure to equities. If you just looking to make money and not determining a rate of return, these models probably won’t be helpful for you, but then again, I can’t think of any model that would be. After coming up with your AA using MPT, you can test that portfolio and its expected returns using Monte Carlo simulation. I believe it runs 1000 trials of each portfolio and then comes up with ranges of expected returns. http://www.wilshirecompass.com/PDFs/winter2000-2001.pdf http://www.wilshirecompass.com/assetallocation.htm I hope this helps. If you are really interest in this stuff, why not try and get a CFA charter or an advanced degree in finance. I think you’ll be better off than trying to just piece everything together based on various journals that are out there.

Subject: Nice Set of Posts From: Terri To: Institutional Investor Date Posted: Mon, Feb 21, 2005 at 14:53:32 (EST) Email Address: Not Provided Message: Nice set of posts, Institutional Investor.

Subject: Re: Alpha and Omega From: johnny5 To: Institutional Investor Date Posted: Mon, Feb 21, 2005 at 12:45:44 (EST) Email Address: johnny5@yahoo.com Message: Thanks for the link, it is interesting reading - this is mostly to help my uncle. Some of his friends had to leave retirement after what happened in 2000 and the subsequent fall of enron and worldcom. If that happens to him he will be bugging me all the time and whining. I just want to prevent myself some stress - HAHA. The marketing material given by raymond james/jackson national life only makes reference to one academic paper - the determinant of portfolio performance http://www2.cfapubs.org/faj/issues/v51n1/pdf/f0510133a.pdf And there was an article presented in forbes called False Prophets showing how asset allocators did much worse than a general index fund. Your arguements are compelling. I suppose it comes down to your belief in the future of energy prices. Unless oil prices continue to rise most of the profit in oil stocks has already been realized in the first year according to the earlier link so having that in the portfolio now may not help much. Why do you think most consultants do not have the energy sector in thier portfolios? What other assets have such an effect on global GDP as energy? In the profile put together for my uncle there is NO investment in the energy sector fund they have even though that is about the only positive one on the page. Chevron fully expects bidding wars and higher prices but then exxon thinks it is just the normal business cycle - how can they be in disagreement?

Subject: Re: Alpha and Omega From: Institutional Investor To: johnny5 Date Posted: Mon, Feb 21, 2005 at 12:56:10 (EST) Email Address: Not Provided Message: regarding energy, it is in most portfolios. I think you are missing the point that the Wilshire 5000 contains the entire domestic equity market, thats every single stock, energy, tech, consumer durables, etc. The reason why most consultants don't have a seperate energy sector is because it would require predicting the actual return of energy vs every other sector of the Wilshire 5000, not to mention you would have to come up with a correlation of each sector, and if you get that far, there is a good chance your model will be worthless due to garbage in, garbage out. In your uncle's profile, I would be very surprised if there were no 'energy' stocks in his S&P 500 benchmarked products, or more specifically value funds. Just because someone like vanguard has a sector fund, doesn't mean its not included in the total stock market index.

Subject: Re: Alpha and Omega From: johnny5 To: Institutional Investor Date Posted: Mon, Feb 21, 2005 at 13:27:12 (EST) Email Address: johnny5@yahoo.com Message: Of Course!! Why do you think the use of the BHB model decreased to only 17% in 2004? This fully leaves my uncle in the very small minority if raymond james is using this model while 36% use the other. http://www.spauldinggrp.com/Jan05NL.pdf The number of firms using the Brinson-Fachler model has increased, while the number using the Brinson-Hood-Beebower has decreased: 2002 2004 Brinson-Fachler 6% 36% Brinson-Hood-Beebower 21% 17% Why? We don’t know. Perhaps the respondents better understand what model they’re using? Or, they have consciously made a change?

Subject: Re: Alpha and Omega From: Institutional Investor To: johnny5 Date Posted: Mon, Feb 21, 2005 at 12:47:24 (EST) Email Address: Not Provided Message: One more thing on AA. Another way to look at it is if you break down your equity or fixed income portfolio. I’ll use equity as an example since it’s easier to show. For the most part, most pension plans target their equity exposure to look like the Wilshire 5000. This is usually based on looking at 3 and 5 year rolling return history of the r3k growth vs. r3k value and seeing there is no clear winner when looking at historical returns. If you used a static point right now, most people would say historically value stocks were your best investment, but when you look at rolling returns (including Sharpe ratios) there is no consistent winner. Now lets imagine two portfolios with 2 managers each. Portfolio A invests in two Morgan Stanley Funds, one is benchmarked to the S&P 500 the other is benchmarked to the Wilshire 4500. Assume equal weightings for Portfolio A. Portfolio B invests in two Vanguard Funds with the same benchmarks, but with 80% in the S&P 500 fund and 20% in the Wilshire 4500 fund. Now, imagine the Morgan Stanley funds return 4% for the S&P 500 product and 12% for the Wilshire 4500 Product. The Vanguard funds return 6% for the S&P 500 product and 14% for the Wilshire 4500 product. Portfolio A (Morgan Stanley Funds) will have a return of 8%, while portfolio B (Vanguard Funds) will have a return of 7.6%. Even though both fund Vanguard funds outperformed there counterpart, the asset allocation is what determined which portfolio had the higher return. Portfolio A’s overweight in small/mid cap is the reason why they outperformed Portfolio B. That is the point people are trying to make when saying Asset Allocation is responsible for the portfolio’s return, and manager selection comes a distant second. Now if you have managers who aren’t correlated to their benchmark, this wouldn’t hold, but in actuality, most managers are managing against a benchmark and typically have a high correlation with it.

Subject: Procter & Gamble Goes After Men From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 15:35:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/29/business/yourmoney/30sund-web.html?ex=1109048400&en=352ac545e4a0987d&ei=5070 Procter & Gamble Goes After Men By LAURA RICH PROCTER & GAMBLE made its own contribution to a month of mega-merger announcements on Friday when it said it planned to buy Gillette in a deal initially valued at $57 billion. In addition to making Procter the largest consumer products firm by a long shot, the deal would expand its stable of personal care products, a relatively new area for the company known for Tide, Coast and Ivory. On the day of the announcement, Davis Dyer, the founding director of The Winthrop Group consulting firm in Cambridge, Mass., and the lead author of “Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble” (Harvard Business Review Press, 2004) spoke about the company’s strategy and its growing clout. Following are excerpts from the conversation. Q. Procter & Gamble is already the world’s biggest advertiser by a large margin. What benefit does the company get as a marketer of brand-name products from the deal? A. There are a number of benefits. Perhaps the biggest is that it’s a complementary set of products that it would be getting, most notably in personal care products. P.&.G. in the last 10 to 15 years has built up a major business in beauty care. They have a few brands, such as Old Spice, for men, but, really, not much of a position there for men. And of course Gillette is one of the preeminent personal care products companies for men. So combining what P.&.G. has with what Gillette has makes this a real powerhouse in that industry. Q. Does Procter & Gamble need to be in men’s products? A. To the extent that P.&.G. aspires to become a major global leader in personal care products, it’s a pretty big hole in the portfolio not to have men’s products. The other thing about it is, P.&.G. is already, has been for some time, the market leader in its other big brands such as baby care products, specifically disposable diapers; paper towels; detergents; oral care products. Those growth opportunities are finite, so the company has to continually develop big new businesses to graft on to what it has. Otherwise its growth slows. Q. Where do you see the weak links in Gillette’s brand lineup? A. Well, I think they’re obviously a leader in men’s personal care products: deodorants, shaving creams, shaving supplies and razors, of course. And they have a number of other brands, and they’re obviously extremely skilled at consumer marketing in those lines. The line that has always stood out is Duracell Batteries. The fit with the rest of Gillette’s portfolio isn’t as obvious there. It’s a question mark. Q. Do you see similar consumer marketing styles between the two companies, or do you expect Procter, which has been the standard-bearer for the way consumer products are marketed, to change the way Gillette products are promoted? A. I would expect that P.&.G. will add a few things to Gillette. P.&.G. does have a very powerful formula and a strong culture and a strong conviction about ways of effective consumer marketing. So I think that over time, that will spread into Gillette. But I’ll qualify that by saying P.&.G. is also very good at absorbing companies it has acquired and learning from them. With Gillette, Gillette’s a sophisticated, older, experienced company and it’s also very good at what it does. So, the likelihood that P.&.G. would massively reorder how Gillette goes about marketing is pretty slight. Q. Are there things that Procter could learn from Gillette? A. Oh, sure. Especially about marketing to men. And, who knows, when you get down into the details of brand management, I’m sure there are best practices at Gillette that will back into P.&.G. Q. There are a couple of areas where the two companies have overlapping or competing products, like oral care and deodorant. Should P.&.G. jointly promote those brands? A. That would be consistent. Assuming that there are no S.E.C. or antitrust issues there, and if there are, I don’t know. That to one side, P.&.G. has a history of maintaining multiple brands in the same category. In detergents, they have Tide and Cheer and Ariel and so forth. And in soaps, they have Ivory, Camay and Zest. And even in disposable diapers, they have two major brands in Pampers and Luvs. So, the fact of having two toothbrush brands is not a particular concern. The Oral-B brand has a lot of equity behind it, I’m sure P.&.G. wants to preserve it. Q. Would this merger give Procter more leverage in the ad market? A. I would say so. If you’re thinking about an overall ad buy and the relationship P.&.G. has with that media — and it already has a lot. It has more now. Q. Do brands lose their impact when companies merge into mega-corporations, such as this one? A. I believe not. Part of it is that branding is the way these companies make their money. So they have every incentive in the world to make sure those brands remain strong, so they’re not going to under-invest in them. And if they continue to keep them contemporary and relevant to consumers, there’s no reason they shouldn’t be successful for a long time.

Subject: Bogle makes me depressed From: johnny5 To: All Date Posted: Sun, Feb 20, 2005 at 13:37:10 (EST) Email Address: johnny5@yahoo.com Message: The final value of 1,000 bucks invested from 1950 to 1999 after expenses and taxes is 10K - and bush is going to turn our retirees onto these wolves :( http://www.vanguard.com/bogle_site/december042000.html When we consider that annual data through the remarkable magnifying glass we call compounding, we can describe the investment returns earned by the fund—on cost and tax assumptions that I think we can all agree are hardly excessive—as shocking. The investor lost 63% of the market's cumulative return to the intermediaries, 66% of that to taxes, and 85% of that to inflation, ending up with just $10,000, or less than 2% of the $514,000 compound market return. Yes, the U.S. mutual fund industry is an expensive home for long-term investors.

Subject: The Way to be Happy From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 14:51:51 (EST) Email Address: Not Provided Message: Bogle went a bit too far. A thousand dollars invested in stocks in 1959 would be 514,000 dollars in 1999 in the S&P Index. In a typical mutual fund the return would be 193,000 dollars, while in the S&P Index fund the return would be 471,000. This is after costs and before taxes. Of course there is inflation, but so what? We would be happy indeed to be in the S&P Index over 40 years.

Subject: Re: The Way to be Happy From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 16:02:42 (EST) Email Address: johnny5@yahoo.com Message: I just got sadder. He talked about mortality risk fees with tax deferred annuities in that article - well I just read some more of my uncle's raymond james jackson national life paperwork and in very small writing there is a 1.10% mortality risk fee - on top of the 12b-1 and expense fees - so that is like 2.5% off the top every year. Some of the funds have 5.5% loading and 35 dollar transaction fees. Why they want to sell him a tax deferred annuity with all those fees when there is so much data showing that is robbing him makes me distrust his planner. He won't even give vanguard a chance - how many other people make this decision terri? Going to their local office because they want to sit down with someone and not trusting 'internet companies?' Just how many people are falling prey to this wall street swindle? It breeds inefficiency and waste on a grand scale. And Bush is going to take SS from people and send them to these wolves in sheeps clothing. Is this common at other financial planner offices? What is hilarious is I have read prudential is recommending energy stocks as part of thier asset allocation strategy 2005 - jackson national life is tied to prudential and this financial planner isn't including energy in her recommended stock mix. I wish I could trust more easily terri - but I had too many older friends that were retired in 2000 that are now working and miserable in thier golden years because they went broke. One of them a pharmacist, one a retired boeing employee, one an army captain - all busted. One of my friends from IBM lives on the bench on hwy 19 in st pete - he is smart and could make a lot of money but all his hope was crushed after he lost his job in 95 and lost his stocks in 2000. I hope greenspan and bush understand that too many big losses in life and people just give up - after that you can give them all the free housing and money in the world and it just doesn't fix em.

Subject: Re: The Way to be Happy From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 16:32:59 (EST) Email Address: Not Provided Message: The 10 year return of the Vanguard S&P Index is 11.43%, even through the bear market period. There is no reason for any person to have been severely hurt by the bear market if they were sensibly invested. Any older person who was sensibly invested should have had no problem at all, for bonds have been fabulous. With any balanced portfolio a person near or in retirement would have been fine.

Subject: Re: The Way to be Happy From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 16:57:11 (EST) Email Address: johnny5@yahoo.com Message: 2 were invested with smith barney and for some reason were over weighted in MSFT, worldcom and enron. Without those cost savings from being in a vanguard fund - they just didn't stand a chance I guess and they got in near the top 99-2000 - the army captain has 2 daughters that had college dreams for thier kids off grand daddy. I don't know if they were in annuities and had the 2.5% to 3% a year expeneses and fees - but probably.

Subject: When is a Stock Priced Well? From: Terri To: All Date Posted: Sun, Feb 20, 2005 at 13:10:32 (EST) Email Address: Not Provided Message: Whether a stock is a reasonable investment has to do with current price relative to future earning potential. But, future earning potential will wary depending on competition and costs. There are companies that may be securing themselves from competition and justify a higher price. Other companies may have current costs that will grow more slowly the earnings and justify a higher price. We have to be flexible in deciding when a stock is priced attractively. There is a difference between the entire market having a price earning ratio of 30, and an individual corporation having the same p/e. Comcast has good revenue, but high expenses for improving cable capability. When improvements taper off you are left with lower costs and the fine revenue stream. So, the price earning ratio is higher now than it will be. That is the thinking. The cable franchise has competition, but not much. Debt is moderate. A reasonable investment. Comcast by the way has management that is reliable and trusted. We have to think flexibly.

Subject: The UNIVERSAL hedging formula From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 14:22:32 (EST) Email Address: johnny5@yahoo.com Message: ANOTHER article saying to invest internationally in the SAME Financial Analysts Journal that the determinant of portfolio performance paper was released in - yet raymond james wants my uncle to have 90% investments in USA stocks and bonds. Aren't they scamming my relatives by making all investment decisions on one paper published in this journal instead of all the rest? http://www2.cfapubs.org/faj/issues/v51n1/abs/f0510161a.html Universal Hedging: Optimizing Currency Risk and Reward in International Equity Portfolios Fischer Black Investors can increase their returns by holding foreign stocks in addition to domestic ones. They can also gain by taking the appropriate amount of exchange risk. But what amount is appropriate? Assume that investors see the world in light of their own consumption goods and count both risk and expected return when figuring their optimum hedges. Assume that they share common views on stocks and currencies and that markets are liquid and there are no barriers to international investing. In this perfect world, it is possible to derive a formula for the optimal hedge ratio. This formula requires three basic inputs—the average across countries of the expected returns on the world market portfolio; the average across countries of the volatility of the world market portfolio; and the average across all pairs of countries of exchange rate volatility. These values can be estimated from historical data. The formula, in turn, gives the circumstances for three rules. (1) Hedge foreign equity. (2) Hedge less than 100 percent of foreign equity. (3) Hedge equities equally for all countries. The formula's solution applies no matter where an investor lives or what investments are held—which is why it is called 'the universal hedging formula.'

Subject: Real Estate Agents Represent Whom From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 11:13:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/20/business/yourmoney/20view.html?ex=1109048400&en=5c8fb890f3afbcb9&ei=5070 Why a Real Estate Agent May Skip the Extra Mile By DANIEL GROSS AS housing prices keep rising year after year, real estate has become a national obsession - and a more powerful economic engine. Sales of homes and condominiums totaled an estimated $2.17 trillion in 2004, said Lawrence Yun, senior economist at the National Association of Realtors. The industry couldn't function without the armies of agents who help buyers and sellers reach mutually agreeable terms on those four-bedroom, center-hall colonials, and who generally collect hefty 6 percent commissions for their trouble. But a recent study by two University of Chicago economists suggests that home sellers should regard agents with some caution. The study does not suggest that agents are inherently untrustworthy. Rather, it says, the housing market remains inefficient, and the incentives for agents to maximize profits for their clients aren't powerful enough. The study was instigated by Steven D. Levitt, a self-described 'rogue economist' who has applied the analytical tools of his trade to everything from sumo wrestlers to drug-dealing gangs; his work is cataloged in the forthcoming book 'Freakonomics,' written with Stephen J. Dubner. Professor Levitt had fixed up and sold several houses in Oak Park, Ill., a suburb of Chicago. When working with real estate agents, he said, 'I got the impression they weren't working solely in their clients' best interest.' Along with a colleague, Chad Syverson, Professor Levitt set out to prove it by comparing data on homes that agents sold on behalf of others with those that they owned and sold for themselves. They analyzed sales from 1992 to 2002 of 98,000 homes in suburban Chicago, of which 3,300 were owned by real estate agents. When the economists constructed an analysis that controlled for amenities, location and the adjectives used to describe the houses, they found that agent-owned homes, on average, stayed on the market 9.5 days longer and commanded median prices that were 3.7 percent higher than comparable homes owned by clients. Of course, agents may just know how to position homes for sale better than other people do. It's their job, after all. And, being human, they may work harder selling their own homes, the way a dentist may take extra care cleaning her own child's teeth. But these explanations don't square with the data. 'If that were the case, you'd expect the clients' homes to stay on the market longer than the brokers' homes,' Professor Levitt said. The two professors conclude that poorly designed incentives bear some of the blame. 'You have to keep in mind that the agent's incentives don't line up perfectly with your own,' Professor Syverson said. Real estate agents have a better sense than others of the best price a home can command. But when they work for others, they don't have the financial incentive to pursue it. Most home sales generate a 6 percent commission, split between the brokerage firms representing the buyer and seller. The agent generally receives half of the firm's draw, or 1.5 percent of the sale. So if a home sells for $500,000, the agent personally receives $7,500. Not bad for what may be just a few days of work. If the agent works for an additional week and urges the seller to hold out for $515,000, that's an extra $15,000 for the seller, but only an extra $225 for the agent. Because every additional dollar throws only a penny and a half into the pocket of the agent, the economists reason, the agent may push clients to accept lowball offers. Of course, price is just one factor motivating sellers to accept offers. Many are in a hurry, maybe because they are relocating for new jobs, or want to be in their new city by the time the next school year starts. So they may feel compelled to accept the first offer. Most agents who sell their own homes, by contrast, aren't leaving the area. 'The brokers may be in a situation where they can be more patient,' said Mr. Yun of the National Association of Realtors. Armed with this knowledge, what should home sellers do? 'You cannot completely trust the advice your broker gives you,' said Christopher J. Mayer, a professor of real estate at Columbia Business School. 'You have to become more educated as a buyer.' In fact, the economists concluded that sellers, empowered by the Internet, are already eroding agents' advantage. Sites like Realtor.com and domania.com allow anyone to survey the market and check out neighborhood price histories. From 1992 to 1995, in the days before such sites existed, agents' homes commanded prices that were 4.9 percent higher and stayed on the market more than 14 days longer than equivalent other homes. But from 2000 to 2002, a period when such sites came into popular use, the margins shrank to 2.9 percent and 2.5 days. 'As consumers become more comfortable with the idea that they can price their own properties, times will get tougher and tougher for real estate agents,' Professor Levitt said.

Subject: Re: Real Estate Agents Represent Whom From: Pete Weis To: Emma Date Posted: Sun, Feb 20, 2005 at 13:04:35 (EST) Email Address: Not Provided Message: 'So if a home sells for $500,000, the agent personally receives $7,500. Not bad for what may be just a few days of work.' Having been a licensed real estate agent in the past (on a part time basis) and my wife on a full time basis, I could offer some observations regarding this article. The impression many homebuyers and especially home sellers may have is that the average agent makes quite a lot of money - lists a home, does very little, and collects a '$7500' dollar check. The reality - about 70-80% of begining agents quit the business within the first 18 months. Of the remaining 20-25%, only about 10% make a lot of money (a very few make very large annual incomes). What really happens - agents work with sellers and buyers. Some deals go quickly and easily (especially when the market is hot) and others take much more time. Often an agent will spend many days with a buyer who never buys through them. This article makes some good points - certainly agents want turn-over-rate - remember the agent is often paying for advertising in local real estate publications out of her/his own pockets and the longer a house is on the market the more they end up paying for advertising. Some agents are selling in order to move quickly on a piece of property they wish to buy. My wife and I offered a 1% higher commission than the going rate in order to attract more agents to sell our home in order for us to buy a waterfront property which was selling for a good price. We sold our house in nine days. Of course we were saving on the listing side, but we believed offering a 1% higher commission was more effective in selling our house quickly than dropping our price by 1%. Interesting article.

Subject: Re: Real Estate Agents Represent Whom From: Terri To: Pete Weis Date Posted: Sun, Feb 20, 2005 at 14:23:09 (EST) Email Address: Not Provided Message: Clever idea of offering the agents a 1% commission bonus.

Subject: Japan's Puzzles From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 10:41:51 (EST) Email Address: Not Provided Message: Deflation plays tricks with perception. Wages may not rise, but wages buy increasingly more. Interest income may be minimal, but the income buys more. Growth is anemic, but prices are falling so real growth is higher than nominal growth. Besides Japanese statistics do not cover quality improvements in baskets of products. The economy is sluggish but unemployment is below 4.5%. The last thing however Japan would seem to need is a tax increase now, but government debt builds and builds. Government debt builds but household saving is high enough to assure a balance of trade surplus. Should there be more debt?

Subject: Re: Japan's Puzzles From: Pete Weis To: Emma Date Posted: Sun, Feb 20, 2005 at 14:37:28 (EST) Email Address: Not Provided Message: 'The economy is sluggish but unemployment is below 4.5%.' What about growth in aggregate wages in Japan? What about deflating assets? Besides the fact that the Japanese are savers to begin with, we know that long term bear markets in both stocks and housing have a reverse wealth effect. Today, for instance, overall residential housing in Japan is worth much less today than it was more than 10 years ago. During the 80's the middle class of Japan was one of the world's wealthiest middle classes. Now its foundations have been eroded. Japan still has more than its share of billionares and very wealthy types but consumption comes mostly from the masses of middle class consumers. We are spenders here in the US (not savers) but, as we all know or should know, borrowing can only keep things afloat for so long. We've had and are having the same erosion of middle class wealth and I think most of the asset deflation (housing & stock markets) is yet to come. As Stephen Roach has pointed out - the US consumer is so important to the global economy and there is no one out there yet to fill in completely if the US consumer fades. With all the build-up of personal debt, it's a good bet that any drop in consumption here in the US will be faster than it has been in Japan. You would also expect it to drag down Europe, China and Japan each of whom are still hooked to a great extent on the US consumer. Common sense tells us that the US housing market, the main support for the US economy, presently, will correct in many regions even without mortgage rate increases. If we get sell-offs in the bond markets and higher long term rates, the housing correction will be even more steep. All of this points to how 'trickle down' isn't really working. If it was we would see stronger job growth and aggregate wage increases. It's just not happening and it would certainly need to happen in a hurry to avoid the damage from all this debt. We are Japan with the added personal debt. To say we are different is grasping at straws.

Subject: Asset allocate out of the USA From: johnny5 To: Pete Weis Date Posted: Sun, Feb 20, 2005 at 14:44:46 (EST) Email Address: johnny5@yahoo.com Message: Great insights Pete - you and terri have been so helpful with your ideas. What Wall Street's Best Are Telling Their Clients Investment Firms Push Large Stocks and Short Bonds; A Comeback for Telecom? By JANE J. KIM Staff Reporter of THE WALL STREET JOURNAL January 11, 2005; Page D1 Wall Street's annual race to predict what will happen in the markets over the next 12 months is on. In recent weeks, major banks have been presenting their biggest clients with forecasts as well as ASSET-ALLOCATION and investment strategies geared to 2005. Goldman Sachs Group Inc. sees the Standard & Poor's 500-stock index at 1325 by year-end (it closed yesterday at 1190), while Bank of America Securities, a unit of Bank of America Corp. has a target of 1200. Prudential Equity Group, a unit of Prudential Financial Inc., is bullish on energy stocks; PNC Advisors, the investment-management arm of PNC Financial Services Group Inc., is unenthusiastic about them. But, from a review of what some of the biggest outfits are recommending, a number of common themes and strategies emerge. Most agree that the economy will grow at a steady if somewhat slower pace -- with stock returns, like last year's, in the mid-to-upper single digits. Nearly all advocate putting more money overseas and, given the likelihood of higher interest rates, shifting to bonds with shorter maturities. The general leaning is toward large-cap stocks -- rather than small-cap or medium-cap ones -- because they tend to hold up better in a slower economy. http://online.wsj.com/article/0,,SB110540040784122109,00.html?mod=mkts_main_featured_stories%5...

Subject: Paul Krugman on Japan's Economy From: Emma To: Emma Date Posted: Sun, Feb 20, 2005 at 12:27:08 (EST) Email Address: Not Provided Message: http://web.mit.edu/krugman/www/jpage.html Paul Krugman's articles on Japan.

Subject: Re: Japan's Puzzles From: johnny5 To: Emma Date Posted: Sun, Feb 20, 2005 at 11:21:10 (EST) Email Address: johnny5@yahoo.com Message: http://www.bis.org/publ/bispap06.pdf BIS Papers No 6 The financial crisis in Japan during the 1990s: how the Bank of Japan responded and the lessons learnt Hiroshi Nakaso Monetary and Economic Department In Japan, the tools for crisis management were limited in the initial stages of the crisis. An improved safety net was introduced in response to the unfolding of events during the 1990s. In the process, it was acutely felt that the cost of resolving the financial crisis was becoming progressively larger as the necessary actions were not taken or delayed. It was learned, with hindsight, that in facing a potential crisis, the authorities ought to anticipate the worst and draw up contingency plans based on a worst case scenario. Indeed, nothing could be more dangerous than adhering to wishful thinking in a crisis situation. Such a prompt or precautionary reaction by the authorities might have reduced the cost of resolving the financial crisis. A question that may be raised today in this connection is whether there were any signs or indices that could have effectively warned the authorities of the mounting risks. Naturally, one can be wise only after the event and it must in fact have been very difficult for the authorities at that time to precisely predict a financial crisis. However, although identifying a single indicator that effectively predicts any financial crisis may be neither realistic nor feasible, there are areas that deserve to be further explored in assessing the overall soundness of the financial system. Conceptually, there may be micro- and macroprudential information that can predict future financial instability. Microprudential information on individual financial institutions is collected by the supervisors. Supervisory data on banks' asset qualities are typical examples. But central banks have a legitimate interest in the microprudential information, because problems with a financial institution could lead to a systemic disruption. Some microprudential information may be collected and analysed by central banks. For example, liquidity positions of individual financial institutions may tell a lot about sequential changes in the creditworthiness of these institutions. Such information on liquidity positions may be collected by a central bank as a part of its market monitoring and surveillance. Macroprudential information would have more direct system-wide implications and thus would attract the attention of those central banks that have responsibilities for financial stability. Such information may be obtained by aggregating microprudential data or through other means of market monitoring and surveillance. At any rate, much still needs to be done to identify or develop micro- and macroprudential data that effectively capture potential problems embedded in the financial system. In this section, as examples of ongoing efforts, some preliminary work by the Bank of Japan in the area of market monitoring and surveillance is introduced. The section picks up two issues: changes in bank behaviour and some early work on “expected default probabilities”. 5.1 Changes in bank behaviour Japan’s experience in the 1990s shows that a build-up of risks in the financial system is reflected, not only in risk-related indices, but also in changes in bank behaviour; in particular their lending behaviour. As demonstrated in Figure 12, Japanese banks were engaged in fierce competition in the bubble economy to gain increased shares in the lending market. The profitability and riskiness of each loan were often neglected and loans were extended at negative lending spreads. This aggressive lending attitude was reversed dramatically after the bubble burst. After early 1990, as stock prices started to fall, banks changed their lending strategies to ensure positive margins consistent with more conservative views on risk assessment. However, this rapid shift in lending behaviour then resulted in a sharp deceleration in the amount of new loans. Changes in behaviour were also witnessed in banks’ funding operations. This is analysed in a paper by the staff of the Bank of Japan (2000). According to the paper, as the crisis developed in 1997-98, some banks started to face funding difficulties. Particularly the larger banks, which had the following common structural problems, were vulnerable to funding difficulties once reputational risk materialised: (a) The amount of funds invested (core investment) substantially exceeded the amount of funds raised in the retail markets (core deposits). This resulted in a high dependence on funds raised in the wholesale markets. (b) The term structure of funds raised in the wholesale markets was predominantly overnight (almost 60% in 1998). (c) General reluctance to liquidate loan assets in order to preserve the relationship with their clients. BIS Papers No 6 37 The banks changed their funding behaviour over time as their problems deepened. This paper traces the funding operations of three major banks38 that eventually failed in the 1990s, using the data obtained by the Bank of Japan in its daily monitoring and surveillance of the markets. Evidence shows that these banks had undergone different stages of funding difficulties before their failures were announced. The extent of funding difficulties may be described in the following four stages, although they did not take place in a completely sequential way. Stage 1 Risk-sensitive market participants and large depositors became more selective and reluctant to do business with the troubled banks. As a result, higher risk premiums were charged to these banks. This is shown in Figure 13, where the funding costs for these banks are expressed in terms of the spread over those of a sound bank. The symptoms seem to appear well in advance (approximately two to three years) of the failure. The funding costs became progressively larger as they approached the fateful days on which the failures were finally announced. Stage 2 As information about the troubled banks spread to the market, providers of funds in the market also started to avoid placing long-term deposits with these banks. Thus, the average maturities of deposits with the troubled banks grew shorter over time. This seems to have taken place almost simultaneously with the rise in funding costs. Figure 14 shows how the average maturities of deposits with these banks grew shorter relative to that of a sound bank, as their fateful days approached. Stage 3 As their problems became more widely known, even retail depositors began losing confidence in the banks and started withdrawing their deposits. This is reflected in the decline of the “deposit surplus ratio” which represents increased reliance on (particularly overnight) borrowing from the interbank money market. Unstable funding seems to have intensified one to one and a half years prior to the failures (Figure 15). At this stage, the banks started recalling loans or selling liquid assets in a desperate attempt to ease the funding pressures. Stage 4 When the liquid assets for sale were exhausted and funding in the interbank market became unsustainable, the banks gave up their attempt to continue business on their own. Consequently, they were placed under the arrangements of the safety net and their failures were formally announced by the authorities. The above description indicates that the funding capability of the troubled bank was a key element that determined the timing of the failure of the bank. It suggests that careful monitoring of the funding operations of a bank would provide the authorities with useful information with respect to the sustainability of the bank in question. Another finding is that retail deposits tend to be “stickier” than wholesale deposits. While wholesale deposits were quickly withdrawn, or the maturity became extremely short (typically overnight) at an earlier stage, retail deposits tended to be relatively stable until the reputation of the bank deteriorated to an unsustainable level. Although it must be further analysed why there were large-scale deposit outflows in spite of the repeated announcements by the authorities that the deposits would be fully protected, the experience of the Japanese banks in 1997-98 provides a strategically important hypothesis; a bank with a relatively large retail deposit base will benefit more from stable funding and thus be more resistant to a stress situation. This could become particularly important after April 2002 when only deposits under Ą10 million per depositor will be under permanent full protection. This portion of deposits may form the most stable source of funding for Japanese banks. 5.2 Expected default probabilities While market monitoring and surveillance continue to be important tools used by the central bank to evaluate the soundness of the financial system, some quantitative analysis may also supplement the evaluation. One such analysis that may deserve further exploration is the calculation of expected default probabilities (EDP). This is a way to quantify the market assessment of a firm’s credit risk. The EDP data are derived from the Merton-type model using share prices of individual firms. The method 38 Hokkaido Takushoku Bank, Long Term Credit Bank of Japan and Nippon Credit Bank. 38 BIS Papers No 6 uses the insight that the share price (as the market value of the firm’s equity) can be interpreted as the price of a call option with a strike price equal to the book value of the firm’s debt. In the EDP approach, a firm is regarded as having defaulted when the firm’s debt exceeds the market value of the firm’s assets. (Then, the market value of the firm’s equity becomes nil below the strike price.) The EDP approach assumes that the market value of assets follows a random walk along the growth trend. An EDP figure represents the probability that a firm will default within a given horizon, typically one year. While EDP is typically calculated for individual firms, it can also be aggregated to provide industrywide insights. Figure 16 shows the average EDP for six major Japanese banks as calculated by a research team within the Financial Markets Department of the Bank of Japan.39 It can be observed that the average EDP rose markedly as the financial crisis of autumn 1997 unfolded. The EDP data may provide a useful measure with which to assess the overall health of the financial system. If the EDP is measured on a continuous basis, it will also be possible to assess the effectiveness of policy measures by observing the changes in the aggregate EDP before and after the implementation of a policy change. 5.3 Summary There is no doubt that monitoring changes in banks’ lending and funding behaviour provides important clues concerning future financial instability. Similarly, quantitative analysis may also be useful to assess the overall health of the financial system. However, in order to gain a comprehensive view of the financial system, such measures would still not be sufficient. Other macro- and microprudential information is necessary. The macroeconomic climate must also be taken into consideration. After all, it would be necessary to make an overall judgment based on sets of macro- and microprudential information against macroeconomic backgrounds. Moreover, the indices that require particular attention may vary over time because no two financial crises could be identical in a changing and evolving world. In this context, a constant search for new methodologies and indices to support an overall judgment on the soundness of the financial system remains an important item on the research agenda. 6. The new safety net Japan’s safety net revealed a number of shortcomings during the crisis and underwent several overhauls before a comprehensive framework was established in 1998. As of December 2000, the safety net for depository institutions had Ą70 trillion of available public funds. Although the comprehensive framework was badly needed to address financial instability, it was a moral hazardcreating system in the sense that so much public money was used and all depositors and other creditors were protected unconditionally. Therefore, it was deemed necessary to replace the safety net with a new, less morally hazardous framework once the systemic threat subsided. The original target date to terminate full protection measures was March 2001. A working party of the Financial Council, an advisory body to the Finance Minister, started work on designing the new safety net in the spring of 1999. The working party was composed of academics, legal experts and officials of the financial authorities including the Bank of Japan. The key features of new framework were discussed in the working group from very practical viewpoints in an effort to incorporate the lessons learned from dealing with past bank failures. The Financial Council produced a report in December 1999 recommending key features for the new safety net. Many of the new aspects were modelled on the deposit insurance system in the United States, but adapted to the Japanese legal environment while maintaining sufficient flexibility. The report assumed that the comprehensive protection measures would be terminated in March 2001 to be replaced by a new system in which large depositors (in excess of Ą10 million per depositor) and other general creditors would not be protected in principle. The idea to shift to a new system in April 2001 was contested by a political argument that part of the financial system, notably the credit cooperatives, remained fragile. The political decision prevailed and the full protection period was extended by one year until March 2002. Nonetheless, other key features set forth in the Financial Council’s report were legislated. The amended Deposit Insurance Law was approved by the Diet in May 2000 and became effective in April 2001. This section describes the outline of the new safety net40 and highlights the key aspects in which the lessons learned from the crisis management during the 1990s are actually reflected. 6.1 Purchase and assumption (P&A) There are several fundamental principles that underlie the new safety net framework based on the lessons learned from dealing with various types of bank failures. First, once a bank is found unviable, a prompt resolution is essential in order to minimise the resolution cost. Second, large depositors and creditors must be required to assume part of the resolution cost of the failed bank. This would not only contribute to reducing the cost for the DIC but also to containing moral hazard. Third, the financial function and the franchise value of the failed bank should be preserved, to the extent there is a significant remaining value. A resolution method that is commonly referred to as the Japanese version of P&A was designed to basically satisfy all of the three principles mentioned above. The P&A method will be the core approach to deal with a failed bank under the new safety net regime. A payoff41 remains an option but a P&A would be preferred as long as there is remaining franchise value in the failed bank, because in a payoff the failed bank is closed down for liquidation and the franchise value is lost completely. An example of a P&A with hypothetical numbers is shown in Figure 17 and actual proceedings in a P&A are displayed in Figure 18. Key characteristics of a P&A may be summarised as follows: (a) In a well-prepared P&A, insured deposits (in Figure 17, assumed to be 40) and the uninsured portion of insured deposits (ie deposits in excess of the insurance limit: in Figure 17, this is 14 after deduction of anticipated loss42) are transferred to an assuming bank along with normal assets (54).43 Note here that a haircut is applied to uninsured depositors upon the business transfer of sound assets and deposits to the assuming bank. The business transfer to the assuming bank is typically completed over a weekend. This means a bank is announced as a failure on a Friday evening and reopens as a new bank on Monday morning. In this way, the financial services of the failed bank are provided uninterruptedly. In the previous safety net framework, 6-12 months were generally required after the failure announcement until the assumption by a rescuing bank. The dramatic shortening of the period was enabled, for example, by judicial intervention. If a bank is found insolvent, a subrogation authorisation will be given by the court, which substitutes for the shareholders’ approval. Also certain proceedings such as those aimed at creditors protection can be omitted under the P&A. It must be noted, however, that as shown in Figure 18, a preparatory period of a few months would still be necessary for a successful P&A. During this period, on-site examination by the FSA and the DIC would be conducted to check the latest quality of the balance sheet of the failed bank. Due diligence by the candidate assuming banks is also exercised during this period. (b) If the preparation of a P&A for a failed bank is interrupted at a very premature stage, when no assuming bank has been found, a bridge bank will be established by the DIC. Normal assets and insured deposits along with the uninsured portion of insured deposits are transferred to the bridge bank. Thus, also in this case, the financial services of the failed bank are provided uninterruptedly by the bridge bank. Note here too that uninsured 7. Future challenges The experience of the 1990s was costly and sometimes very painful. However, lessons were learned and a number of new measures were taken to overcome the shortcomings identified in the 1990s. For example, lack of transparency of banks’ balance sheets was one of the factors that delayed the introduction of a comprehensive safety net. Today, the bank supervisor and the central bank are equipped with tougher bank examination standards. The accounting treatment of bad loans (chargeoffs and provisioning rules) have become consistent with these new tougher examination standards. In FY 2001, fair value accounting for most marketable financial instruments was introduced, requiring banks to report unrealised capital gains and losses in their financial statements. Furthermore, the 45 Until January 2001, the request had been jointly made by the Finance Minister and the Financial Reconstruction Commission. As a result of a restructuring of the central governmental agencies in January 2001, Article 38 has undergone technical amendment. Under the amended article, the Prime Minister and the Finance Minister will request the activation of emergency financial support by the Bank of Japan. Implementation of such emergency support continues to require the approval of the Policy Board of the Bank of Japan. 42 BIS Papers No 6 disclosure standard for NPLs introduced in 1999 is probably among the world’s most far-reaching. Under these arrangements, banks would be motivated to recognise and dispose of bad loans at an early stage before they developed into serious problems that could undermine their market reputation. The central bank, meanwhile, in fulfilling its responsibility to maintain financial stability, established explicit principles to exercise its power as lender of last resort. The Bank moved towards increased policy transparency and accountability and distanced itself somewhat from the traditional notion of “constructive ambiguity”. In the early stages of the crisis, the authorities suffered from a lack of effective policy tools within the safety net framework to address large-scale bank failures. Today, Japan’s safety net for banks has been substantially improved by incorporating the lessons from the past. It is designed to minimise resolution costs in ordinary bank failures, while retaining flexibility to cope with a systemic event. In the private financial sector, more than 100 institutions failed in the 1990s and were eliminated. The banking crisis, coupled with the Japanese Big Bang initiative launched in 1996, triggered consolidation in the financial sector. Consolidation was particularly conspicuous among cooperative financial institutions and large internationally active banks.46 With regard to major banks, 21 banks that were operating in 1995 were consolidated into four groups by 2001. All of these changes were almost unimaginable a few years before. Indeed, there has been a dramatic reshaping of the financial landscape in Japan. While these changes are undoubtedly steps in the right direction, a number of issues remain to be addressed to achieve the ultimate goal of transforming the banking sector into a more competitive and efficient financial industry, as well as to reinforce the mechanisms that safeguard financial stability. This final section focuses on some of the future challenges that need to be addressed to underpin financial stability in Japan. 7.1 Reinforcing the central bank’s research capacity There are incidents that argue in favour of the view that the central bank’s research capacity on financial stability must be reinforced. First, the Bank was among the earliest in the official sector to assess the scale of the potential risks in the financial system after the bursting of the bubble. The Bank suspected that additional comprehensive measures might become necessary if the downside risk materialised. However, the Bank was not totally confident, because the view was not necessarily backed by solid research and analysis. The assumption that asset prices would decline significantly further was thought overly pessimistic by many. It later proved not to be pessimistic at all. In fact, it was still too optimistic in view of what happened afterwards. Second, the incidents in the autumn of 1997 demonstrated that there could be a variety of mechanisms in which a systemic crisis etc etc....

Subject: Fruit and Big Macs? From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 10:28:05 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/20/business/yourmoney/20mac.html?pagewanted=all&position= You Want Any Fruit With That Big Mac? By MELANIE WARNER EACH day, 50,000 shiny, fire-engine-red Gala apples work their way through a sprawling factory in Swedesboro, N.J. Inside, 26 machines wash them, core them, peel them, seed them, slice them and chill them. At the end of the line, they are dunked in a solution of calcium ascorbate and then deposited into little green bags featuring a jogging Ronald McDonald. From there, the bags make their way in refrigerated trucks to refrigerated containers in cavernous distribution centers, and then to thousands of McDonald's restaurants up and down the Eastern Seaboard. No more than 14 days after leaving the plant, the fruit will take the place of French fries in some child's Happy Meal. The apple slices, called Apple Dippers, are a symbol of how McDonald's is trying to offer healthier food to its customers - and to answer the many critics who contend that most of its menu is of poor nutritional quality. McDonald's has also introduced 'premium' salads, in Caesar, California Cobb and Bacon Ranch varieties, a lineup that will soon be joined by a salad of grapes, walnuts - and, of course, apples. It remains to be seen whether these new offerings will assuage the concerns of public health officials and other critics of McDonald's highly processed fat- and calorie-laden sandwiches, drinks and fries. So far, they have not - at least not entirely. But this much is already clear: Just as its staple burger-and-fries meals have made McDonald's the largest single buyer of beef and potatoes in the country, its new focus on fresh fruits and vegetables is making the company a major player in the $80 billion American produce industry. The potential impact goes beyond dollars and cents. Some people believe that McDonald's could influence not only the volume, variety and prices of fruit and produce in the nation but also how they are grown. The company now buys more fresh apples than any other restaurant or food service operation, by far. This year, it expects to buy 54 million pounds of fresh apples - about 135 million individual pieces of fruit. That is up from zero apples just two years ago. (This does not include fruit used to make juice and pies, which use a different quality of apple.) And it is not just apples: McDonald's is also among the top five food-service buyers of grape tomatoes and spring mix lettuce - a combination of greens like arugula, radicchio and frisée. The boom has been so big and so fast that growers of other produce, like carrots and oranges, are scrambling for a piece of the action. OF course, other fast-food chains have similar salads and fruit choices on their menus, but they have not had a comparable influence on the market because of their smaller size. Burger King, for example, has 7,600 restaurants in the United States, while Wendy's has 5,900 and Arby's has 3,300. McDonald's has 13,700. While salads have been offered at McDonald's in some form or another since the late 1980's, this is the first time they have been big sellers. And Apple Dippers are the first fruit the chain has sold that did not reside between two layers of pie crust. Missa Bay, the company that runs the Swedesboro plant - one of six McDonald's apple slicing facilities around the country - could not be happier about that. 'McDonald's is really pioneering the concept of ready-to-eat sliced apples,' said Sal Tedesco, the chief operating officer of Missa Bay, which built the new production line specifically to process apple slices for McDonald's. In a few months, Missa Bay, owned by Ready Pac Produce of Irwindale, Calif., will also be supplying roughly one-quarter of the 13,700 restaurants with sliced green apples for the new fruit salad, which is scheduled to be introduced in May. Mr. Tedesco said that these two items would increase Missa Bay's revenue by at least 10 percent this year. With those kinds of numbers comes power. Just as the enormous size of McDonald's once helped the company turn the nation's beef, chicken and potato industries into highly mechanized, consistent, efficient and low-cost businesses, McDonald's is using its purchasing decisions to build a reliable supply of fresh fruits and vegetables that meet its exacting specifications. At the U.S. Apple Association's annual marketing conference in Chicago last summer, Mitch Smith, the McDonald's director of quality systems in the United States, told a crowd of growers, many from the big apple-producing states of Washington and New York, that if they wanted to work with McDonald's, they should grow more Cameo and Pink Lady apples. Historically, growers have produced relatively few apples of these varieties, but McDonald's likes them for their crispness and flavor. Already, Cameo production in Washington State is up 58 percent in the current crop year from a year earlier, according to the Yakima Valley Growers-Shippers Association. Eventually, a bigger supply of certain varieties will drive prices down, which will be good for McDonald's. But right now, the company's huge presence in the market is keeping prices high. James R. Cranney Jr., vice president of the apple association, said that McDonald's was one of the reasons that apple prices had not declined this year, despite favorable growing conditions that produced an abundant crop. 'When you've got such a big buyer like that it's going to keep the prices from falling,' Mr. Cranney said. If the new power that McDonald's exerts over the produce industry ends up reducing prices and squeezing margins, he said, it would be a trade-off that many growers and processors seem willing to accept. 'Apple consumption has been flat over the past 10 to 15 years,' he said. 'This is exactly what the apple industry needs because we think it's going to increase consumption.' J. M. Procacci, chief operating officer of the Procacci Brothers Sales Corporation in Cedarville, N.J., said sales of grape tomatoes, climbing for the past five years, had received a particular boost from their inclusion in the McDonald's premium salads. Since early 2003, grape tomato sales in the United States have risen 25 percent; he attributes a significant part of the gain to McDonald's. For decades, of course, McDonald's has been buying produce like iceberg lettuce, tomatoes and onions for its hamburgers and other sandwiches. But the premium salads - unlike their poor-selling predecessors, the Shaker salads that came in plastic cups - are an entree and have found a considerable following. Michael Donahue, the McDonald's vice president for communication and customer satisfaction, said the salads now on the company's menu were among the most successful introductions in the last 10 years. While the double cheeseburger is still the most beloved single item - 1.5 billion of them are ordered every year in the United States - Mr. Donahue said the company has sold more than 300 million of the premium salads since their introduction in March 2003. At $4 a salad, that translates to roughly $600 million a year, or 10 percent of domestic revenue for McDonald's last year. 'The salads have definitely been a driver for McDonald's sales in the U.S.,' said John Glass, an analyst at CIBC. Mr. Donahue conceded that the Shaker salads 'did not resonate with customers' in part because customers did not like the idea of eating salad from a plastic cup. The company sold about 170 million of them in the 18 months they were on sale. At the McDonald's corporate headquarters in Oak Brook, Ill., the excitement over the new salads has as much to do with public opinion as rising sales. Five months before the salads were introduced, the company had to contend with a debate over what role it has played in the nation's expanding waistlines after two overweight, burger-loving New York teenagers filed a lawsuit accusing McDonald's of making them fat. A judge dismissed the case, but a federal appeals court last month overruled that decision, allowing the suit to proceed. Many had already come to see McDonald's as a symbol of everything that is wrong with the American food supply. 'Salads have changed the way people think of our brand,' said Wade Thoma, vice president for menu management in the United States. 'It tells people that we are very serious about offering things people feel comfortable eating.' Apple Dippers, which come with caramel dipping sauce and are offered either as part of a Happy Meal or sold separately for $1, do not have the same blockbuster status as the salads. But they have also given McDonald's customers some alternatives to burgers, chicken nuggets and fried potatoes. Mr. Thoma said the salads help explain why the company is serving one million more Americans now than it was a year ago. Many of these customers, he said, are mothers who feel better about giving their children Happy Meals if they come with fruit rather than fries. McDonald's executives say they hope to put even more fresh fruits and vegetables on the menu. 'We're always thinking about this,' said Mark Lepine, the director of food innovation and development. 'We're looking at whether we can leverage the Apple Dipper concept for carrots.' That is music to the ears of Grimmway Farms, the country's largest producer of carrots. 'We think snack packs of baby carrots really make sense for the fast-food environment,' said Lisa McNeese, vice president for food service sales. 'Today we're growing sweeter varieties and improving flavor.' The potential payoff from suddenly moving a product into 13,700 restaurants is so big that the orange industry is kicking itself for not being better positioned for the fast-food market. Oranges are not sold at McDonald's or the other big chains, with the exception of canned mandarin oranges at Wendy's. 'We've got to pool our resources and do a better job of processing oranges in an economical fashion,' said Joel Nelsen, president of California Citrus Mutual, a trade association of citrus growers. Mr. Lepine says he gets frequent calls from fruit and vegetable growers, industry associations and processors wanting to enlighten him on the attributes of their products and to offer him taste tests. At times, he says, his desk is stacked with bags of lettuce and stalks of broccoli. BUT there are limits to what Mr. Lepine and his team can do. 'There has to be a willingness on the part of the customer to buy these products,' said Mr. Lepine, who has been working on menus at McDonald's for seven years. 'We only sell things that people want to buy.' For instance, McDonald's does not want to sell something that people may have readily available at home. It learned that lesson from the disappointment of Go-Gurt, a squeezable tube of fruit yogurt that McDonald's sold in a deal with Go-Gurt's manufacturer, General Mills. Despite Go-Gurt's popularity in supermarkets, it didn't sell well at McDonald's and was pulled within a year. 'Kids think of McDonald's as a treat, and it's not a treat if you have it at home,' said Vicki Spiller, the director of new product purchasing. McDonald's also faces the problem of trying to satisfy contradictory consumer demands. Maura Havenga, senior vice president for supply chain management in the United States, said that a lot of McDonald's customers say in focus groups that they want healthy food, but less than 10 percent actually buy the salads. 'Everyone says they want a veggie burger, but we sell about two or three a day in stores that sell still them,' she said. For that reason, McDonald's is cautious in introducing products, especially nontraditional ones like sliced apples. Mr. Lepine's team took three years just to get the internal approval to move ahead with consumer testing on the Apple Dippers. It took an additional year to complete the required four stages of focus group research. Mr. Lepine was among those who wanted to sell apple slices without the sugary dipping sauce. But because McDonald's insists that all new products get a clear thumbs-up from more than 70 percent of its test customers, dipless apples did not make the cut. 'The cost of failure is extreme,' Ms. Spiller explained. 'We have 26 million customers we serve every day in the U.S., and we've got to make sure we get it right.' It helps if healthy food looks nice, too. The premium salads were designed, in part, for aesthetic appeal. Cheap and reliable iceberg and romaine account for 90 percent of the lettuce in the salad; the 10 percent smattering of spring mix is intended to make the salads more attractive to the eye as well as the palate. The carrots in the salads, for example, are sliced so thin that customers are lucky if they end up eating one-quarter of a small carrot, but the delicate slices don't fall to a puddle at the bottom of the bowl. 'Women look at the salads and say, 'It's beautiful,' ' said Ms. Spiller, proudly. About 80 percent of salad buyers at McDonald's are women, she added. Healthier fare does not come cheap, for McDonald's or its customers. Fruits and vegetables are much more expensive and complicated to ship and store than meat and potatoes. Unlike meat patties, chicken breasts, French fries and other items on the McDonald's menu, salads and fruit cannot be frozen and stored for a month in distribution centers. Shipments of Apple Dippers and salad components leave McDonald's warehouses several times a week, which is part of the reason salads cost $4 and everything else can be had for less than $3. The care required for perishable food also raises the costs. Spring mix is much more delicate than iceberg and romaine lettuce and is twice as expensive, said Bill Zinke, vice president for marketing at Ready Pac, which supplies McDonald's with all three kinds. 'It's almost like you have to protect every leaf,' he said. Similarly, grape tomatoes, which dot the lettuce on McDonald's salads, are more than double the price of plum or standard tomatoes. Despite the fragility of the salads and fruit, McDonald's says it does not use any artificial preservatives or additives to keep them fresh longer. The calcium ascorbate in the Apple Dippers is not much different from the orange or lemon juice that many people pour on their homemade fruit salad to keep it from browning. At Ready Pac's plant in Irwindale, Calif., oxygen is sucked out of the large lettuce packing bags and replaced with nitrogen, an inert gas. This is the same process used on bags of lettuce sold in supermarkets, and, as a result, the McDonald's supply of spring mix lasts about the same as they do: 14 days. Because of that, said Mr. Smith, the McDonald's executive, 'we have to have a very tight-knit distribution network.' PRESERVATIVES were a big issue for Newman's Own, which is responsible for supplying dressing for the salads. When McDonald's first approached the company in early 2002, Paul Newman, the actor who is its chief executive, made it clear that the arrangement would have to be on his terms. One condition was that the company would not use artificial preservatives. 'When we told them we wouldn't do salad dressings with preservatives, they were a little scared,' recalled Tom Indoe, the chief operating officer at Newman's Own. 'We taught them they really didn't need them.' He added that McDonald's was eager to work with Newman's because of the company's all-natural products and reputation for corporate responsibility. Despite his initial reservations about working with McDonald's, Mr. Newman went ahead because sales to a customer of McDonald's size could improve his company's bottom line - and therefore increase the amount it gives to charity. Newman's Own contributes all its profits to charity; working with McDonald's has increased that amount by more than $3 million a year. As part of the three-year deal, though, Mr. Newman has approval over all advertisements and promotions that feature the premium salads. That represents an unusual concession for a company like McDonald's, which is accustomed to calling the shots. So far, nothing has been rejected, Mr. Indoe said. Some critics bristle at the notion that McDonald's has somehow become healthier simply because it uses natural dressings and sells salads and some fruit. 'Nearly all the entree choices at McDonald's - as well as Burger King and Wendy's - are still all of poor nutritional value,' said Margo Wootan, director of nutritional policy at the Center for Science in the Public Interest, a food activist group. 'I applaud them for making those changes, but there's still a lot more that needs to be done.' Ms. Wootan also points out that the Apple Dipper caramel sauce, which is packaged separately, has nine grams of sugar, one-quarter of the total recommended daily limit under new guidelines of the Department of Agriculture. Other advocacy groups said that they were hopeful that McDonald's would one day use its power not only to get better prices and greater supply, but also to change the way the produce industry operates - for the better. Ronnie Cummins, national director of the Organic Consumers Association, an advocacy group based in Little Marais, Minn., said he would like to see McDonald's buy some organic products, which he believes are more healthful for consumers. In a 2003 report on pesticides in produce, the Environmental Working Group, a public-policy outfit based in Washington, ranked apples as the third-most-contaminated produce group, after peaches and strawberries, in terms of pesticide residue. The findings were based on tests done by the Agriculture Department and the Food and Drug Administration from 1992 to 2001. 'McDonald's could have a huge impact,' Mr. Cummins said. 'They could be the company that changes agriculture toward a more organic and sustainable model.' It may sound far-fetched, but from a company that's come a long way from the days of selling mainly hamburgers and fries, anything is possible.

Subject: Bond Market Caution From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 09:34:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/20/business/yourmoney/20port.html? When Greenspan Is Stumped, Investors Should Play It Safe By JONATHAN FUERBRINGER WHEN Alan Greenspan says he cannot explain why longer-term interest rates are so low, what's an investor to do? Take cover. Some money managers are doing just that because they have had the same problem as Mr. Greenspan, the Fed chairman: they cannot understand the decline of longer-term rates despite six increases in short-term rates by Fed policy makers since June. 'This development contrasts with most experience,' Mr. Greenspan said last week in testimony to Congress. 'Other things being equal, increasing short-term interest rates are normally accompanied by a rise in longer-term yields.' Instead, the yield on the Treasury's 10-year note has fallen to 4.26 percent from 4.69 percent at the end of June 2004, despite a climb of 1.5 percentage points in the central bank's short-term rate benchmark, to 2.5 percent. While Mr. Greenspan cited many possible reasons for this unusual happening, he ultimately concluded that 'it remains a conundrum.' That's enough to make Paul A. McCulley cautious. 'When the Fed chairman says he's scratching his dome, you should be scratching yours,' said Mr. McCulley, a portfolio manager and economist at Pimco, the asset management and mutual fund company in Newport Beach, Calif. 'You should always be wary when the central bank says an asset price is aberrant.' Thomas H. Atteberry, a manager of the New Income fund at First Pacific Advisors in Los Angeles, agrees. 'He's the guy who is supposed to have all the information,' Mr. Atteberry said of the Fed chairman. 'And he is telling me he doesn't know why. Why commit capital to a long-term investment when you don't understand why it's valued that way?' Mr. Greenspan also acknowledged that he was puzzled by other economic behavior. Although investors seem willing to take on more risk, businesspeople appear reluctant to do so. Capital investment has lagged behind the big rise in corporate profits. And worker productivity, a factor in restraining inflation, has proved to be 'notoriously difficult to predict,' he said. Both Mr. McCulley and Mr. Atteberry still think that longer-term rates will rise. That is why Mr. McCulley said Pimco had reduced its exposure to the Treasury market, and why Mr. Atteberry said he was staying away from it. Mr. McCulley said Pimco had not participated in a popular Treasury trade in which shorter-term securities are sold and longer-term ones are bought. This is called a flattening trade - a bet that the yield on longer-term securities will fall, or at least rise more slowly, than the yield on shorter-term securities. It has proved profitable with the unexpected decline in longer-term yields. Mr. Atteberry has 40 percent of his money as far from Treasuries as possible without stuffing it into a mattress. It is in money market funds. Most of the rest is in mortgage and agency securities, which he said would fare better than Treasury securities in a rising rate environment. Mr. McCulley argues that longer-term rates will rise partly because one factor now holding them down may soon vanish. Unlike other explanations, including the buying of Treasuries by foreign central banks and a general preference among investors worldwide for putting their excess savings into American bonds, this one is obscure. But Wall Street has not overlooked it. It involves plans announced on Jan. 10 by the Labor Department to shore up the Pension Benefit Guaranty Corporation, the federal agency that insures pension funds. On Wall Street, Mr. McCulley said, the announcement was viewed as a step toward advocating that pension funds invest more in long-term notes and bonds. MR. McCULLEY says he believes that hedge funds, eager to be ahead of the game, have increased their purchases of longer-term securities since the announcement. One sign of this could be the sharp decline in the spread, or difference in the yields, of the Treasury's so-called 30-year bond, which matures in 2031, and the current 10-year note. That spread was 0.38 percent on Friday, smaller than the 0.57 percent just before the announcement. The change means that 30-year bonds have been in much greater demand than 10-year notes. But Mr. McCulley expects this run to exhaust itself as soon as speculators see that the change for pension funds will come very slowly; as a result, he said, 30-year bond yields should rise. Mr. Greenspan may have been giving a similar warning to investors, saying that the recent performance of longer-term interest rates 'may be a short-term aberration.' In other words, the normal upward tilt of longer-term rates could return.

Subject: What Can We Learn From Japan From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 07:35:50 (EST) Email Address: Not Provided Message: We must argue over the problems of Japan, for in a wonderfully developed country there appears to have an economic break that defies fixing. Why should this be so, if so it is? When we are worrying about rising asset prices in America, coupled with rising public debt and so little household saving, could find economic growth vanishing as in Japan? What can we learn from Japan? What can we learn from Europe?

Subject: Re: What Can We Learn From Japan From: johnny5 To: Emma Date Posted: Sun, Feb 20, 2005 at 08:23:16 (EST) Email Address: johnny5@yahoo.com Message: Right, I will ask again, it is post stock bubble time in europe in the 18th or 19th century - you are in the richest country ever - the world trades in your currency - your military and empire is supreme - a book about the rise and fall of the roman empire is making great waves in your home city of london while those troublesome colonists in america barely make any fanfare at all. Asset allocator advisors are recommending to all your rich relatives to put thier money in london stocks and bonds 65%/35% - even though london and europe will be going through a depression while those redneck farmers in the colonies will have great boom/bust cycles over the next few decades. Today wall street is the financial capital and china/latin america are like the troublesome colonists of the USA 100 years ago. http://www.chinadaily.com.cn/english/doc/2005-02/19/content_417495.htm In 2002, China’s economy ranked as 69th among the 108 nations in the world. Even though in the last 2 decades, China has had a high total growth rate, due to the extremely low base of per capita GDP, the absolute gap bet. Chinese per capita GDP and that of other developed nations is actually increasing. Measured by PPP purchasing power, China in 2001 had per capita GDP of $3,580. The US has had per capita GDP of that amount in 1892, Netherlands, in 1897. If measured by the percent of agricultural labor, the gap bet. China and Britain is more than 200 years. In 2000, 50% of Chinese labor was farm labor, while only 34% of all the British labor force was farm labor in 1801. It is estimated that by the year of 2050, the economy of China will be reaching to the level of the US in 2002. This is to say the gap bet. China and the US will be shortened from 100 years (as of 2001) to 50 years. By the year of 2100, the gap bet. the US and China will be shorten for 10 years, and the modernization of the Chinese economy will be among the top 10 in the world by then. In order to reach the above goal, China has to have an average annual growth rate of 8% for their transportation industry, 6% for energy, 5% for phone, and 3% for knowledge-based equipment. As a conclusion, China has to keep a cool head, and face the reality. China cannot ignore his average standard of GDP of the entire country and only focus on the couple of more developed big cities.

Subject: Could We Be Japan From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 07:34:39 (EST) Email Address: Not Provided Message: Paul Krugman wrote that the economic problems of Japan should be an affront to economists. What are the causes of this stagnation? What can be done? Can Japan recover? Possibly well-being in Japan is masked by recorded data and the Japanese are thriving. Possibly Japan is hopelessly aging. I do not understand. Now, a general consumption tax increase is planned during a recession? What is happening? Where is the economic vibrancy?

Subject: We beat inflation uncle Al From: johnny5 To: Emma Date Posted: Sun, Feb 20, 2005 at 09:24:10 (EST) Email Address: johnny5@yahoo.com Message: I am confused too. How do you fight deflation? equities outperform during inflation. http://www.safehaven.com/article-2622.htm When I visited with Bob in Vancouver, he insisted that an accurate study of history can only lead to the conclusion that major bubbles like the one we are now in the process of working our way out of, are always concluded with deflation, not inflation. It is deflation, not inflation, that leads to the loss of control by the ruling elite when the mathematics of an exponential rise in debt simply overwhelm the ability of central bankers to inflate any further.

Subject: We Have Beaten Inflation From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 10:04:32 (EST) Email Address: Not Provided Message: High asset prices does not necessarily mean 'bubble.' But, we do need to worry about the example of Japan. Deflation may be a tougher problem than inflation targets by the Federal Reserve could easily reverse, though I think they could.

Subject: What is Wrong With Japan From: Emma To: All Date Posted: Sun, Feb 20, 2005 at 07:33:23 (EST) Email Address: Not Provided Message: After years of paying attention to Japan, other than in appreciating Japanese arts I am lost. What then is wrong with Japan or with Japanese economic policy? A rapidly growing powerful economy shows incrasing signs of asset inflation, finally asset inflation begins to be reversed in 1990. By 1992, the stock market is severly depressed and shows no sign of recovery even now. Real estate values begin to decline in 1992. Deflation sets in be 1994. Japan has barely grown since 1994, costing the country and the world vast losses in realization of potential growth. There is a tragedy here, but after reading and talking and thinking I am lost in understanding. What is wrong with Japan?

Subject: Post Bubble Dynamics From: johnny5 To: Emma Date Posted: Sun, Feb 20, 2005 at 08:01:55 (EST) Email Address: johnny5@yahoo.com Message: Here is what I tried to point out in earlier posts - japan succumbed to thier own domestic speculative excesses - just as china will and why this will stall growth in the future for the USA - we still have to go through a 'wrenching wave of restructuring' http://www.morganstanley.com/GEFdata/digests/20050218-fri.html#anchor0 Japan’s first recession was dominated by a severe contraction in business capital spending; the fall in the sector was more than 80% larger than the cumulative decline in real GDP over the 1991–93 interval. Similarly, America’s first post-bubble recession, as well as the early stages of the recovery from that downturn, was dominated by a precipitous decline in capital spending. The corollary of that observation is that consumers are usually spared from the first wave of post-bubble aftershocks. That was the case in Japan in the early 1990s and has also been the case so far in the US. But that initial resilience may be deceiving. The post-bubble purging of excess capacity invariably leads to a wrenching wave of restructuring, which then deals a sharp blow to job and income security that eventually imparts a downward bias to consumer demand. That trend kicked in with a vengeance in Japan’s second post-bubble recession; in the downturn of 1997–99, the sharp contraction of real consumer spending accounted for fully 72% of the cumulative decline in real GDP. Japan was quick to purge its bubble-induced overhang of excess capacity. But it has taken a much longer period for its consumers to adjust to harsh post-bubble realities. The coming normalization of US interest rates could well be the catalyst that takes the US economy into the next phase of its post-bubble adjustment. Financial markets are priced for ongoing resilience of the American consumer. Should that not turn out to be the case, the dollar would undoubtedly fall further and the US bond market could stage a Japanese-style rally. It is far too soon, in my view, to dismiss the lessons of Japan. http://www.institutionaladvisors.com/pdf/050210 JAY TAYLOR INTERVIEW.pdf TAYLOR: Corporations have had great profits in 2004, and they are building up a huge amount of cash or they are buying their own shares. But they don’t seem to be borrowing much or using the cash they have to invest in plant and equipment. That, along with the fact that corporate insiders have been selling their own shares en masse, suggests to me that the folks who manage corporate America are not overly optimistic about U.S. business prospects, even though profits have been so high. Would you agree and do you see any long-term significance of the cash buildup of American corporations? HOYE: Cash is at a 35-year high. You have had a huge buildup of plant and equipment during the ’90s boom. One of the features of past post-bubble contractions is that corporations with cash keep it because they get concerned about their AA or even AAA credit rating. And then at the same time, banks will only lend to AAA accounts. So corporations stop spending, and banks stop lending. It’s classic. TAYLOR: So the Fed can’t expand the money supply when that happens? HOYE: Yes. Central banks can increase reserves but if corporations don’t borrow, that’s it, game over. That’s why Keynes and all that bunch just went crazy about people hoarding money in the 1930s. Keynes said that if you saved a schilling, you put a man out of work. So now in the U.S. and Canada where we have adopted the Keynesian model, we are now down to virtually a zero savings rate. So if Keynes was right we should have 100% employment. He was a flaming idiot. TAYLOR: Part of Jim Rogers’ argument hinges on China. He thinks, as do most people, that economic growth in China will continue at a torrid pace for as far into the future as the eye can see. Do you have any thoughts on the influence of China in the post-bubble era? Might demand from China overwhelm normal post-bubble dynamics? HOYE: First step is that in the 70s and 80s it was Japan that was the engine of growth and was buying industrial commodities. What’s more, they had the most brilliant policy makers in history. But then tangible asset speculation collapsed so the world could enjoy another financial bubble. But the best model is the U.S. after the 1873 stock bubble. There were huge migrations of people into the U.S. The U.S. was building railroads and canals. It was a very vibrant and innovative economy. But it was subject to its own domestic speculative excesses. It was also subject to the availability of credit from the world’s financial capital in London. So until the global depression bottomed in 1895, the U.S. had bull markets and very sharp collapses, but nonetheless, England and Europe had a depression. The U.S. was within that envelope, and I believe China is going to be vulnerable to its own speculative exc esses and vulnerable to the availability of credit in the world’s financial capital. It’s nice to have them becoming more and more free, but we saw the same pitch in 1929 when the end of socialism in Europe was seen to be a great opportunity for the market and industry in the U.S. That came to play in the 1990s when another collapse of socialism was again seen to provide a great stock market. They were going to sell all kinds of BMWs to the people in East Germany. But if we should go back to an economist by the name of Say, Say’s Law said if you must consume you must produce. The Chinese are in the anomaly of consuming immediately a lot of raw materials from elsewhere. At some point they will develop iron deposits, copper mines, and coal deposits on their own. TAYLOR: I’ve noticed recently that the Chinese are cutting back on some plans to build nuclear power plants. Might this be the start of a contraction in China? I think the lessons are that china just can't grow for much longer anywhere near the rates they have - they can only absorb so much of the worlds resources before they run up against the wall - when they hit the wall - their economy and everyone else linked to them - like the USA can say goodbye to recent growth rates for the next 10 - 20 years. Japan shows when the capital stops being spent on PPE it is a sign of the future - well american companies are cash rich now and not spending on PPE - take it for what it is worth.

Subject: On China From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 10:00:30 (EST) Email Address: Not Provided Message: The guess is that with proper economic management, which they have had, the Chinese economy can grow from 7% for several decades. There are excesses, but they have been and are readily manageable. This seem to me America after the Civil War. Similarly the asset price gains in America are far more moderate than in Japan by 1989.

Subject: Re: On China From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 10:51:28 (EST) Email Address: johnny5@yahoo.com Message: What is a bubble then? The economist in 99 didn't like p/e ratios of 33 - but you tell me warren buffet just bought comcast that has one of 34 - I am so confused. http://www.economist.com/surveys/displayStory.cfm?Story_id=242138 And asset-price inflation can be even more harmful to growth than ordinary inflation. Indeed, there is reason to believe that financial bubbles may be more likely to develop during periods of low CPI inflation. The two biggest bubbles this century—America’s in the 1920s and Japan’s in the 1980s—both developed when inflation was modest. When interest rates are low, people are also able to borrow a much bigger multiple of their incomes to finance speculative investment Flemming Larsen, the deputy director of research at the IMF, pointed out in a recent speech that there was much evidence that an economy can overheat even at a time of price stability as conventionally defined. Excess demand shows up instead in balance sheets and asset prices. Traditional indicators of inflation may mislead monetary policymakers. By describing America’s economy as a bubble in early 1998, The Economist made few friends for itself in that country. Optimists claim that the surge in share prices reflects the “new era” of rapid growth in productivity and profits, brought about by new technology and corporate restructuring. This, they argue, justifies the high share prices recently seen. The p/e ratio of the S&P 500 currently stands at 33, compared with an average of 14 over the past century. By every standard method of valuation, Wall Street is now more overvalued than it was on the eve of its crashes in 1929 and 1987. Today, besides runaway share prices, America shows plenty of other signs of excess. Consumers have been on a borrowing and spending binge, and household saving has turned negative for the first time since the 1930s. Firms are also borrowing heavily. As imports soar, America’s current-account deficit is heading for a record 4% of GDP. The property market is also starting to look frothy: prices of prime residential property in many big cities are soaring. Last, but not least, money-supply growth seems excessive. These are all classic symptoms of a bubble. The consumer-price index is a flawed measure of inflation. Ideally, an effective measure should include not only the prices of goods and services consumed today, but also of those to be consumed tomorrow, since they, too, affect the value of money. Given these costs, there is a strong case for central banks to pay more attention to rising asset prices, and to raise interest rates to deflate a bubble in its early stages Last, and most important, central banks do not have a political mandate to halt asset-price inflation. The awkward truth is that bubbles are popular. Whereas everybody accepts that inflation in goods and services is a bad thing, almost everybody regards rising equity and property prices as a good thing. If, by raising interest rates, the Fed were to reduce the wealth of the 50% of American households who own shares, it would not be long before Congress acted to curb the Fed’s power How not to do it There are two examples of central banks deliberately trying to burst a bubble: America in 1928-29 and Japan in 1989-90. Both attempts did indeed end in tears. But that was largely because both central banks left it very late before they acted, and then pursued over-tight policies after asset prices had crashed. The lesson may be not that central banks should keep clear of bubbles, but that they should intervene as early as possible to prevent them. In Japan, share prices and property prices increased more than fourfold between 1981 and 1989. Geoffrey Miller, the director of the Center for the Study of Central Banks at New York University, who has studied Japan’s bubble**, reckons that with hindsight it is clear that monetary policy was too lax. The Bank of Japan started to fret about rising property and share prices and rampant bank lending in 1987. If it had tightened policy then, the economic damage would have been considerably less. So why did the bank wait two more years? Uncertainties about whether it really was a bubble and how asset prices would respond to higher interest rates both played a part. And as in America today, CPI inflation was low (in part because of a strong yen), so politically the bank would have found it hard to take action. But, says Mr Miller, the Bank of Japan also faced another constraint: political pressure from America. The Louvre Accord agreed by the G7 in early 1987 committed Japan to boosting domestic demand to help reduce America’s trade deficit. Mr Miller concludes that pricking bubbles is far from easy. But he argues that there will be times when asset-price bubbles become so large that they pose a threat to the entire economy—and when they do, central banks should raise interest rates to deflate them. Although most central banks have ignored asset prices, the Bank for International Settlements (BIS, the central bankers’ bank) has been sounding the alarm for years. Its latest annual report expresses deep concerns about the surge in share prices in America. Charles Goodhart, a member of the Bank of England’s Monetary Policy Committee, has also argued for several years that central banks have concentrated on too narrow an index of inflation. The focus on the CPI, he says, is one of the main reasons why monetary policy was too lax in Britain during the property bubble in the late 1980s, and then too tight in the early 1990s. In a recent paper†† he argues that housing and financial assets should be included in some way in a broad inflation index. But in practice this would be tricky, because asset prices are volatile and hard to interpret.

Subject: Why Comcast? From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 12:33:24 (EST) Email Address: Not Provided Message: There is a difference between the entire market having a price earning ratio of 30, and an individual corporation. Comcast has good revenue, but high expenses for improving cable capability. When improvements taper off you are left with lower costs and the fine revenue stream. So, the price earning ratio is higher now than it will be. That is the thinking. The cable franchise has competition, but not much. Debt is moderate. A reasonable investment. Comcast by the way has management that is reliable and trusted. We have to think flexibly.

Subject: Re: Why Comcast? From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 14:31:54 (EST) Email Address: johnny5@yahoo.com Message: I used to be the biggest couch potato terri and let the cable wash over me and rinse my problems away, but now I watch cspan off their website and check out dvd movies from my library if I watch them at all - I quit watching cable 2 years ago. Now with high speed internet on my verizon wireless cellphone I only need a POWER cable coming into my trailer. My buddies in japan watch movies and tv on their 3G cell phones while they ride the bus - I don't think they have had cable ever. If china keeps up with thier satellite plans who will ever choose a wire over a wireless connection for anything? satellite radio, satellite tv, cellular tv and radio etc. If comcast can transition into this market quickly - they could take over the wireless delivery of all this entertainment. I know when cellphones got rolling I cut my landline about 5 years ago. Has Warren made costly mistakes in the past or does he usually only win? Your commentary is really educational terri - thanks for all the input. I could be watching the daytona 500 if I still had cable instead of reading all these interesting financial analyst papers.

Subject: Re: Why Comcast? From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 19:32:24 (EST) Email Address: Not Provided Message: Investors make mistakes, but when you pay reasonable prices the mistakes tend to be softened. Comcast has competition, but they are quite competitive. Buffett also has just bought Proctor and Gamble shares to go along with the Gillette shares that will be merged to P&G. P&G has competition, but are they ever competitive.

Subject: 1720 Carry Trade - Credit Ballooned? From: johnny5 To: All Date Posted: Sat, Feb 19, 2005 at 15:53:12 (EST) Email Address: johnny5@yahoo.com Message: I don't have access to the forumals used in asset allocation modeling - but has anyone done a study not just of 10 year analysis like the BHB determinant paper but used these models with 1920's data to see if they would have predicted the 1929 collapse? http://www.institutionaladvisors.com/pdf/050210 JAY TAYLOR INTERVIEW.pdf HOYE: Yes. The first big reckless central banker was John Law in Paris during the bubble of 1720. He was celebrated so long as the financial party was on and the market didn’t crash. But when it crashed, he then had to have a false passport and a disguise to escape France with his life. TAYLOR: He may have lost his head. HOYE: In more ways than one. For those who think a central banker can keep inflation going forever, Law had 8 printing presses going in Paris. And then when the mania collapsed, the public demanded to see the plates destroyed. England was on a gold standard and was not printing money, but with the carry trade running full blast and as asset prices soared, credit ballooned. Speculation is fungible, and it doesn’t matter what the tout is, so long as it soars, it creates credit. Sterling was backed by gold, so London’s bubble was accomplished with a huge expansion of credit. Paris enjoyed that plus a huge printing of currency. In the crash, agents of the boom suffered a devastating loss of esteem. TAYLOR: Of course, now, Ben Bernanke has reminded us that with advanced technology, we have digital money and helicopter money. We are not limited, as was John Law, to just 8 printing presses! HOYE: Well, I think the market will disappoint even the most ambitious of today’s central bankers. And the thing to understand is that unless they go to a pure paper inflation—which would require them to chew through the whole credit market—that would provoke such an uproar that it would force them to quit it. So here we are: it’s a credit inflation, which depends on margin. As long as the prices are going up, everything is fine and it doesn’t matter that short rates are going up. The cost of money doesn’t matter if you know you can double your money every six months. And once the contraction starts, I suggest that it overwhelms the ability of the Fed to pursue its portion of credit creation. I’m not saying that the Fed is going to suddenly tighten. No bloody way—not willingly! But the whole system is going to tighten as all the leveraged “liquidity” disappears. TAYLOR: Because the private sector or the economics don’t allow it to generate returns any longer. So, out of economic necessities, start to turn their non essential items into cash and repay debts? HOYE: As prices start going down, it gives undeniable power to the margin clerks. And their job description is vastly different to that of your typical central banker. TAYLOR: The margin clerks and I would guess it also will involve the fractional reserve banking system overall? HOYE: Yes. TAYLOR: Let me understand. As prices drop, the loan officers and margin clerks at brokerage houses and in banks begin to worry that their clients won’t be able to repay their loans, so they ask for more and more margin—which then triggers further liquidation because people have to sell non essential items to raise cash to meet margin requirements. That then results in a collapse in the value of less liquid assets relative to cash and the ultimate liquidity, namely gold? HOYE: That’s happened many times but, at the top, the street ardently believes that “this time it’s different.” Some years ago, a big mining company spent a lot of money to solve the problem of forecasting the business cycle. In order to make sure the study was impartial, none of the researchers had had any courses in business or economics. The top macroeconomic models were then hired and, when tested, were found inadequate. While those inadequacies were acceptable within the macroeconomic fraternity, the modeling was considered impractical within such a cyclical industry as mining. Much of this work was done before the stock bubble launched and one program was fascinating; this was the attempt to use 1920s data to forecast the monumental reversal of the economy in 1929. A number of macroeconomic models were tried, then modified with some breakthrough mathematics in geophysics, and one of the most important events in financial history couldn’t be anticipated. The group did put together an approach to the big financial events that has been reasonably successful. Within this were the conclusions that in the final stages of a great inflation in either tangible or financial assets, the growth curves become skewed. At the time, we tried to find proof that skewed curves were mathematically unsolvable, but it could not be found. Perhaps this proof may have been accomplished since, but the members of this research group have gone on to other endeavors. But I found no reason to think that macroeconomic modeling would be successful in our go-around with sensationally skewed growth curves. That is just a fancy way of describing the high volatility that has accompanied every bubble era. TAYLOR: A big mining company was spending money and time to find a mathematical proof that skewed curves were unsolvable. Why? HOYE: Glad you asked. So that we could be confident that the economic establishment would be unable to predict the top of the next great financial bubble. It seems that to the establishment it was unanticipated, had an unpredictable collapse and, as instructed by Alan Greenspan, et al., couldn’t even be identified until it was over. http://www.siliconinvestor.com/readmsg.aspx?msgid=21062799 In 1929 we had the stock market in a mania stage with 90% debt and the major cities in the northeast in a commercial building boom even though monetary policy had been tightening for a while. The yield curve was pretty flat in the 6% range, homes were not highly leveraged, savings rates were still high even though consumer spending and borrowing was at records not seen up till that time and we had budget and trade surpluses. Now compare then to today's imbalances and it is downright scary. Perhaps Fannie Mae at over 4 year lows is one of the first signs of perhaps a major credit bust coming and reversal of the carry trade benefits. looking at the charts here - tell me why there is going to be high growth in the american stock market over the next 10 or 20 years. http://www.chartingtheeconomy.com/Stock-Valuations205.html Conclusion This report establishes a direct correlation between GDP, corporate profits and stock valuations over the long term. The purpose of this report is not to forecast the rate of future growth in any of these categories. It is to give perspective on stock valuations today. Even if you assume future growth is at historic rates, stock prices are way out in front of corporate profits. If you assume that corporate profits have benefited in the past several years by potentially unsustainable factors such as low interest rates, low capital spending, favorable tax rates, and high productivity gains, it becomes even more difficult to see how corporate profits can support stock prices at current levels. Why are my relatives being told to put their 500K 65% in US stocks?

Subject: Portfolio Allocation From: Jennifer To: johnny5 Date Posted: Sat, Feb 19, 2005 at 18:14:32 (EST) Email Address: Not Provided Message: Vanguard Wellington Fund is 65% stocks and 35% bonds. Balanced Fund is 60% to 40%. Wellesley Fund is 40% to 60%. Retirement Target 2015 is 50% to 50%.

Subject: Re: Portfolio Allocation From: johnny5 To: Jennifer Date Posted: Sat, Feb 19, 2005 at 19:20:47 (EST) Email Address: johnny5@yahoo.com Message: Ok so it's 1920 or 1915 or 1925, and my uncle's financial planner put's 500K of his money into 65% in US stocks and 35% in US bonds - he finds a good company like vanguard with really low costs cause those are important - does his proper 'asset allocation' as the BHB determinant paper states - save his butt in 1929? How long after 1929 does it take my uncle to recover his 500K investment being that the asset allocators strategy didn't seem to save his butt. Does my 62 year old uncle live to see any recovery or does he die from a stroke in october 29 because his ignorance made him think he was gonna be a OK?

Subject: Yield Curve - low grade bonds From: johnny5 To: johnny5 Date Posted: Sat, Feb 19, 2005 at 16:04:07 (EST) Email Address: johnny5@yahoo.com Message: CONT: TAYLOR: But with the Japanese being able to borrow so cheaply in their own currency and then buy higher-yielding dollar assets, and with the dollar getting stronger, wouldn’t there be an inclination for them to keep doing that for awhile? HOYE: That is best answered by looking at the yield curve itself. This is how the post-bubble scenario goes. The lower grade bonds are already selling off. But at some point they will sell off further, and there will be no liquidity in them, and then you get credit downgrading because weakening commodities suggest weakening earnings; weakening earnings suggest inability to service debt, and then you get into the credit rating problem. Following a bubble, this process can get so bad that it even pulls down the prices of long Treasuries. So once the mania ends, short rates will come down, long rates will go up. TAYLOR: This is exactly John Exter’s inverted liquidity pyramid. As people look for liquidity they sell longer-term, less liquid assets, and go to the most liquid assets so that people panic into liquid assets? HOYE: Yes, so that gets back to the real definition of liquidity, which typically has been found in gold and short-term bills in the senior currency. We’ve advised bond traders not to even think about whether the Japanese are going to stop buying the long bond or not. If they stop buying the long bond, will that drive the dollar down? No, because when the curve reverses, where they may have been buying the long bond, they will stop doing that and they will begin buying the short end of the curve. And that is why I am not concerned about any further downside in the U.S. dollar. The dollar crisis will occur when it becomes too strong. TAYLOR: Corporations have had great profits in 2004, and they are building up a huge amount of cash or they are buying their own shares. But they don’t seem to be borrowing much or using the cash they have to invest in plant and equipment. That, along with the fact that corporate insiders have been selling their own shares en masse, suggests to me that the folks who manage corporate America are not overly optimistic about U.S. business prospects, even though profits have been so high. Would you agree and do you see any long-term significance of the cash buildup of American corporations? HOYE: Cash is at a 35-year high. You have had a huge buildup of plant and equipment during the ’90s boom. One of the features of past post-bubble contractions is that corporations with cash keep it because they get concerned about their AA or even AAA credit rating. And then at the same time, banks will only lend to AAA accounts. So corporations stop spending, and banks stop lending. It’s classic. TAYLOR: So the Fed can’t expand the money supply when that happens? HOYE: Yes. Central banks can increase reserves but if corporations don’t borrow, that’s it, game over. That’s why Keynes and all that bunch just went crazy about people hoarding money in the 1930s. Keynes said that if you saved a schilling, you put a man out of work. So now in the U.S. and Canada where we have adopted the Keynesian model, we are now down to virtually a zero savings rate. So if Keynes was right we should have 100% employment. He was a flaming idiot. TAYLOR: He was a flaming bunch of things, but . . . I’d like to get back to the topic of commodities. Jimmy Rogers, who we interviewed on a couple of occasions in this letter, is extremely bullish on commodities. He told me that lead would outperform gold and so far, I think he has been right. What would you tell Jim Rogers if he challenged you with that statement? HOYE: The debate would likely be his opinion versus financial history. TAYLOR: He sometimes reads this letter, so that statement might make some sparks fly! HOYE: Well, he is a perma-bull on commodities. And financial history suggests that no one sector is good forever. Our gold/commodities index includes crude oil, copper, lead, zinc, aluminum, nickel, as well as the grains, and gold has been outperforming commodities for almost a year now. I concluded the research by about 1980 and said that once that commodity blow-off was over, a long bull market could start. When taking this concept to institutions in 1981 and 1982, the standard response was “no,” the Fed will keep printing and there will continue to be inflation. They had been dismayed by their returns on stocks and bonds during the “old” era of inflation. So I came up with the line that, “no matter how much the Fed prints, stocks will outperform commodities.” And that baffled the street for some time. Some are still unclear about the reality of inflation in financial assets. The only reason I could come up with that line was because in every new financial era, stocks outperformed commodities. So then the next difficult part—it is really difficult—is that no matter how hard the Fed tries to print, you still get a contraction. And that I think we should know more about that by October. But I would enjoy having a drink and discussion with Jimmy Rogers. TAYLOR: Perhaps that could be arranged when you come to New York to speak at the next CMRE? HOYE: Sure. TAYLOR: Part of Jim Rogers’ argument hinges on China. He thinks, as do most people, that economic growth in China will continue at a torrid pace for as far into the future as the eye can see. Do you have any thoughts on the influence of China in the post-bubble era? Might demand from China overwhelm normal post-bubble dynamics? HOYE: First step is that in the 70s and 80s it was Japan that was the engine of growth and was buying industrial commodities. What’s more, they had the most brilliant policy makers in history. But then tangible asset speculation collapsed so the world could enjoy another financial bubble. But the best model is the U.S. after the 1873 stock bubble. There were huge migrations of people into the U.S. The U.S. was building railroads and canals. It was a very vibrant and innovative economy. But it was subject to its own domestic speculative excesses. It was also subject to the availability of credit from the world’s financial capital in London. So until the global depression bottomed in 1895, the U.S. had bull markets and very sharp collapses, but nonetheless, England and Europe had a depression. The U.S. was within that envelope, and I believe China is going to be vulnerable to its own speculative exc esses and vulnerable to the availability of credit in the world’s financial capital. It’s nice to have them becoming more and more free, but we saw the same pitch in 1929 when the end of socialism in Europe was seen to be a great opportunity for the market and industry in the U.S. That came to play in the 1990s when another collapse of socialism was again seen to provide a great stock market. They were going to sell all kinds of BMWs to the people in East Germany. But if we should go back to an economist by the name of Say, Say’s Law said if you must consume you must produce. The Chinese are in the anomaly of consuming immediately a lot of raw materials from elsewhere. At some point they will develop iron deposits, copper mines, and coal deposits on their own. TAYLOR: I’ve noticed recently that the Chinese are cutting back on some plans to build nuclear power plants. Might this be the start of a contraction in China? HOYE: It’s possible that the authorities who are deciding on nuclear power may be concerned about running out of money. Let me quote from St Luke. “Which of you intending to build a tower has not sat down first and counted the cost? Whether he has sufficient to finish it. Lest happily, if he has laid the foundation and is not able to finish it, all behold and begin to mock him.” (Luke 14:28-29). But then again, perhaps the Sierra Club has opened a chapter in Beijing. TAYLOR: It might be appropriate for the U.S. as well, no? HOYE: Well, yes, for everyone who has become over-extended on the party. TAYLOR: You have expressed the view that investors will seek gold as liquidity along with T-Bills. But do we have any evidence of investors doing that in recent times since policy makers have gotten rid of the barbaric notion of gold as money? HOYE: Yes we do. At each of those bubble tops I mentioned earlier, from 1720 to recent, all participants including government agencies were caught up in the party. Nobody wanted prosperity to end. But it ends anyway. I might mention this for your gold readers who have the notion that the club of central bankers can run gold down. The best argument against that is to go back to 1946, which was the secular low in interest rates. Then they started to rise, naturally. So when rates approached 3%, policy makers got concerned because it was very easy to figure out that this was going to increase the cost of servicing the debt. So then the Treasury started buying bonds off the market in order to keep rates from rising above 3%. Then in the 1960s when it was at 6%, they were still at it. And in fact they got all excited about their promotion to buy bonds and called it “Operation Twist,” whereby they were going to drive long rates down. But eventually rates got up to 15%. Now, the central bankers with the 1990s’ bubble, had history on their side. The price of gold was going to go down anyway. So then it looked like they were doing it. But they have never been tested by a really big recovery in gold that you can get following a bubble. But this next bear market in stocks and corporate bonds will set up the conditions for a real move in gold that will test just how powerful the central bankers are. And I think they will be just as unsuccessful in keeping gold down as the U.S. policy makers were in keeping interest rates down through the 1960s and ’70s. TAYLOR: In your “ChartWorks” publication of January 25, you addressed the gold markets; you noted that the U.S. dollar and gold were poised for a joint advance. Could you tell our readers what prompted you to predict that and could you also provide some indication of what your target levels and time frame are for the advance in both the dollar and gold? More asset allocator advice: You have already lost the easy money in metals waiting on your asset allocator friends to clue you in. http://www.siliconinvestor.com/readmsg.aspx?msgid=21038945&srchtxt=asset allocation Deutsche Bank AG last year began encouraging some investors to include in their ASSET ALLOCATION decisions a 3% stake in commodities, including metals. Morgan Stanley's Individual Investor Group also recommends investors increase their short-term position in alternative investments, which includes, among others, metals and managed futures funds, in which a manager actively trades commodity and financial futures, including metals contracts. In many cases, Wall Street's interest in metals is coming after the easy money already has been made. Metals prices have moved higher, and many metals-related stocks have soared recently. As copper prices essentially doubled during the past two years, shares of Phelps Dodge Corp., the Phoenix-based copper giant, have tripled. Nickel in December averaged $6.30 a pound, up from $1.89 a pound in 1998. That's the highest price the metal has seen in 15 years. Silver is up about 40% for the past two years, and gold is up more than 50% since Sept. 11, 2001. But some are betting that the bull market in metal prices isn't over. For one thing, China's growth continues to absorb vast amounts of the world's metal production, particularly steel, copper and aluminum. Where is the long term proof that asset allocation adopted in just your own country as your financial planner recommends it will save your butt?

Subject: Re: Yield Curve - low grade bonds From: Terri To: johnny5 Date Posted: Sat, Feb 19, 2005 at 16:16:42 (EST) Email Address: Not Provided Message: What is needed is to answer the question is a particular asset reasonably priced now. I say reasonably for bargains are awfully tricky to find now. If an asset is reasonably priced now, chances are high you will be fine years from now.

Subject: Where is the cheap stuff? From: johnny5 To: Terri Date Posted: Sat, Feb 19, 2005 at 16:36:13 (EST) Email Address: johnny5@yahoo.com Message: Thanks terri - I will try to find some reasonably priced assets - mr roach doesn't think I can: http://www.morganstanley.com/GEFdata/digests/20050218-fri.html#anchor0 Moreover, I have long argued that the Fed’s success has come at a real cost. Courtesy of extraordinary monetary accommodation and a building sense of froth in asset markets, wealth creation shifted seamlessly from equity to property markets, and American consumers migrated from the job- and income-dependent spending models of yesteryear to the asset-based mindset of today. As a result, households have been more than willing to take the income-based personal saving rate down toward zero, while, at the same time, turning to the home mortgage refi market as the principal means to extract newfound purchasing power from increasingly overvalued property assets. And, of course, US consumers have gone deeply into debt in order to monetize this claim on the asset-based portion of their income stream. But now the Fed faces a most perilous post-bubble exit strategy — taking real interest rates up to a more normal level. That, in my view, will be an exceedingly delicate exercise. Still suffering from subpar job creation and income generation, the overly indebted, saving-short, and asset-dependent American consumer is exceedingly vulnerable to higher interest rates and to the corrections in overextended asset markets that invariably occur in a Fed tightening cycle. The US central bank bought time with its “prevent-Japan” drill in the immediate aftermath of the bursting of the equity bubble. But that time has now run out as the Fed seeks to normalize interest rates. Ironically, the US probably has more to lose from a consumer capitulation than Japan. In large part, that’s because the excesses of America’s consumer culture dwarf the role of the Japanese consumer. The US buying binge of recent years was sufficient to boost consumption to a record 71% of real GDP in early 2003 — a sharp breakout from the 25-year trend of 67% that prevailed over the 1975–2000 period. By contrast, the Japanese consumption share has hovered at only around 55% of GDP since 1990. Japan knows very little of the rampant consumerism that has dominated America’s post-bubble experience. That could well come back to haunt a US consumer who is far more overextended than the Japanese counterpart

Subject: Re: Where is the cheap stuff? From: Terri To: johnny5 Date Posted: Sat, Feb 19, 2005 at 17:05:25 (EST) Email Address: Not Provided Message: Notice I did not suggest what is cheap, because I do not really know just now. Where am I looking? Financials and materials and drugs. Oil? The earnings could not be better, but do I want more energy shares? Warren Buffett bought a chunk of Comcast. Hmmm.

Subject: Re: Where is the cheap stuff? From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 10:07:52 (EST) Email Address: johnny5@yahoo.com Message: I thought the Holy One was sitting on a horde of cash waiting on a crash?? This is from about a year ago. http://www.prudentbear.com/archive_comm_article.asp?category=Guest Commentary&content_idx=31605 The financial markets are leveraged for a crash The only question is when. The financial press has been noticing that the small investor is still putting massive sums of cash into stock mutual funds, while corporate insiders are, on average, selling like crazy. The average investor, who has benefited from increased stock market prices through January 2004, is just like the major hedge funds who are sitting on “pins and needles.” They have one finger on the buy button and another finger on the sell button and are ready to jump one way or the other at a moment’s notice. We predict that before the spring of 2005, the vast majority of investors and hedge funds will be hitting the sell button. The average investor is constantly told by Wall Street that he is an investor but it is becoming clear, in this market, that there are only speculators. Meanwhile, investors such as Warren Buffet are already sitting on over $32 billion in cash with at least $12 Billion in foreign currencies that benefit from a falling dollar. Why is it, then, that some of the biggest and smartest money managers are already in cash? Don’t they know that with Japan buying our 10-year Treasury yield down to 3.75 percent, the United States will have another mortgage REFI boom and there will be great corporate earnings released this April? We expect that Wall Street will be hyping stocks as cheap to the investing sheep. The problem for the American investor and, consequently, world stock and bond markets, is excess and unsustainable leverage. Stock and bond prices can only be sustained if interest rates are held artificially low. The riskiest stuff such as internet stocks, junk bonds, and emerging markets, have gone up the most in price and are “flying pigs” priced for perfection. The financial markets need constant jolts of new stimulus to keep them up in the air. The Fed has given our stock and bond markets a major simulative jolt by cutting the Fed funds rate to 1 percent and holding it down even as inflation is starting to “heat up”. Whether the Fed likes it or not in this election year, rising inflation will “take the punch bowl away.” A major market event seems inevitable. Meanwhile, we wait patiently for the market to tighten, forcing the Fed to follow. Alan Greenspan has encouraged new credit creation primarily through the borrowing against single family homes to levels that, just a few years ago, could not be contemplated. Currently, our financial system has at least $2 Trillion of mortgages directly financed at 1 percent with Fed Funds and REPO, and the financial system including banks, Wall Street, the GSEs and hedge funds, puts total leveraged finance closer to $10 Trillion. Everything is financed with almost no money down and anyone can get credit. Take a moment to examine the terms you can get today on a new car, home, a mortgage, treasury to junk bonds, commodities and foreign currencies. The capital markets have become one massive casino – anyone and everyone can come in and play and everyone’s credit is good! Our financial system supports about $35 Trillion of debt and we have virtually no savings. Very few people believe they are gambling with their own money because borrowing with other people’s money to place the bets has become so easy. The market is really wild! Money is being made in the leveraged carry trade or in speculating on margin. Even the average patriotic homeowner with a variable rate mortgage is borrowing short-term to buy stocks, and to pay the bills. The NASD has finally come out and warned brokers that they should not be suggesting to their individual clients to borrow against their houses to buy stocks. This warning may be too late! What happens when investors want to reduce their risk and need to sell but can’t find a buyer? The old story from the stock market crash of 1929 comes to mind about an investor who kept buying a stock from his broker that continued going up in price. Finally, the investor asked his broker to sell. The Broker responded, “Who am I supposed to sell the stock to? You’re the buyer!” That is why the elephants like Warren Buffet and other smart players are already in cash! You can sell a few million dollars worth of stock without rocking the market too badly. But, can you imagine what might happen if some really large hedge fund or Wall Street firm wants to unwind a small $100 billion of levered “cash and carry” trade in mortgage securities. What if a few hedge funds decided to sell a measly $500 billion in mortgage securities? They would be trapped because the markets are just not that liquid, especially when everyone wants to sell! That’s why it’s important to be in cash before the crash! The situation today could be much worse than 1929. In 1929, the major fault in the financial system was stock market leverage. In the 1920’s, stocks could be bought with 10% down! Those who waited to sell stocks were crushed. Stock prices triggered margin calls and forced them to sell. This is not a virtuous cycle; it’s called de-leveraging and it causes a crash. Paying off debt reduces the money supply. [Money is borrowed into existence and paying down debt destroys money]. The problem for our financial system is that in many asset classes, the leverage is extreme. In order to run a leveraged position in mortgage-backed securities, a firm may only need 5 percent equity and can run leverage at 20 to 1. This leverage is way beyond the leverage that crushed stocks in 1929 to 1934. A small rise in short-term interest rates is all that is necessary to trigger a sale of mortgages and treasuries by financial institutions. With respect to bonds, a 5 percent fall in prices is not major and can occur very quickly. Unfortunately, a 5% fall in bond prices could wipe out 100 percent of a financial player’s equity! As the prices for stocks and bonds begin to fall and you still own them, you may wonder who in the world you can sell to, because everyone else is selling. Of course, you pray you can sell to a central bank. Japan’s central bank has already financed half of the United States treasury deficit; that leaves the Federal Reserve. Can you imagine what will happen to money growth in the United States if the Federal Reserve suddenly has to buy $200 to $500 Billion in Treasury and GSE securities? Moreover, the direct leverage in the financial system is only “the tip of the iceberg” of total leverage. Our financial system is held together with more than $150 Trillion of notional derivatives and “spit and bubble gum”. A crash in stocks or bonds will shatter the derivatives market. It is inevitable that major counter parties to these contracts will fail. When that occurs, you do not want to be on the other side of the trade. Indeed, Right Now and Right Here in River City, the U.S. financial markets are nothing more than a huge “Long Term Capital.” The pressure points are everywhere. In the silver, copper, gold and other commodity markets, the open interest in long and short futures positions dwarf the actual physical markets. Steel is being horded and there is likely to be an obvious world shortage by July. Existing stock piles of copper at the current rates of consumption and production may be gone by June. How does a metal exchange operate when there is no metal for delivery? In silver, there are well over 1,000 individuals and financial institutions who, at today’s prices, could buy each and every last ounce of silver in silver bars above ground. Meanwhile, the demand for silver has outstripped the annual supply for the last 14 years. In many cases, the short financial derivative positions in financials can not possibly be delivered in physical form. Exchanges will suffer financial distress and likely need aid; smaller counter parties will be wiped out. Brokerage firms will fail. The biggest hedge funds and derivative players, such as Fannie Mae, Freddie Mac, JP Morgan Chase, as well as one or more Wall Street firms, may need to be effectively taken over by our central bank. Ultimately, if an investor is risk adverse, there are very few places to keep your money safe. Holding gold coins works because, by weight, the value is high. For silver, if you have a safe place to store it, physical holding is certainly preferable to leaving it in any financial institution or exchange. Short-term Treasuries, bank CD’s (but only up to $100,000 per institution), I-bonds, and TIPS are a wonderful place to sit out any potential storm. Asset managers who run bearish funds are worth a serious look. The stock markets have been under pressure since February and we sense the anticipation of great pain when interest rates go up for those who are long stocks and bonds. If we must pick a scenario, the Federal Reserve and Japan’s Central Bank engineered one last rally in the 10-year Treasury to get the mortgage money machine pumping “lucky bucks” into the consumer’s pockets before the November election. This may only work until June. For investors knowledgeable about the Treasury financing cycle, following is the most likely time frame when we expect the “wheels might come off and the markets and roll over a cliff”: - In January to March of this year, the U.S. Treasury financing need was $177 Billion and the Japanese bought over $142 Billion (15 trillion Yen) of our debt. (In the February 2004 refunding, Asian central banks bought 50% of the auctions, which caught the world’s attention.) - In April to June, the U.S. Treasury receives both quarter-end and annual tax payments, keeping the financing need a modest $75 Billion. - In July to December, the U.S. Treasury has to raise $300 Billion. The August and November re-fundings will be critical. If the Japanese and the rest of Asia don’t come in to buy $200 Billion, bond prices are virtually certain to roll off that cliff. Our entire deficit needs to be financed with newly printed American, Asian or European central bank currency. Worse yet, the Fed funds rate is 1 percent, and the 10-year Treasury note yield is 3.75 percent. In the first 2 months of 2004, the CPI was up 0.8 percent, or a 4.8 percent annual rate. Even if the CPI settles down to 0.3 percent a month for the rest of the year, the CPI for 2004 will be tracking 4 percent! Inflation from rising commodity, oil, and a weak dollar, is seeping in. No investor in their right mind will accept a 10-year note yield of 4 percent with 3 to 4 percent inflation. By July, just in time for the Treasury’s August re-funding, it will be clear that inflation is too high to justify a Fed funds rate of 1 percent, and 10-year Treasury rates of 4 percent. The big money players in the “carry trade” aren’t known for being totally blind or stupid. These big owners of Treasuries and GSE bonds will want out! The carry trade will have to test the “Greenspan put” and we do not intend to be long stocks or bonds when the test comes. Indeed, this spring would be an opportune time to go to cash using any rally to get liquid, and out of margin debt. Going short on some of the “flying pigs” is greedy, but tempting, because if the markets go down with a thud and we are not positioned properly, it could be devastating to our ego. However, for the average investor who is risk adverse and for any investor who considers losing a dollar, worse than making a dollar, our advice is to get into cash and be prepared to wait until early 2005. Good hunters know how to wait and good things happen to those who are patient, like buying what they like at half price! But remember, you can only afford to buy assets at a discount if you have the cash. If you understand this, you can truly appreciate Warren Buffet’s greatest secret - having the patience to sit on cash earning little but losing nothing, until the great deals come his way! Nothing beats cash and patience in the long run.

Subject: Warren Buffett Invests From: Terri To: johnny5 Date Posted: Sun, Feb 20, 2005 at 11:22:12 (EST) Email Address: Not Provided Message: Warren Buffett just bought a chunk of Comcast. Buffett uses cash all the time when there are values to be had. Staying in cash and timing the market is foolish, when there is a value 'buy.' Also, cash to Buffett means short term investments or hedges. These Prudent Bear folks never seem to have an idea other than 'hide.'

Subject: International Diversification From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 14:08:28 (EST) Email Address: johnny5@yahoo.com Message: You are right Terri. ALl the models say timing the market is foolish - especially that determinant of portfolio performance 2 paper. Asset allocation is the key factor - but read this - it comes from the same issue of the Financial Analysts Journal that the determinant paper was published in: http://www2.cfapubs.org/faj/issues/v51n1/abs/f0510089a.html Why Not Diversify Internationally Rather Than Domestically? Bruno H. Solnik Because total risk for a portfolio declines not only with the number of securities included but with the degree of independence among these securities, substantial risk reduction results from diversifying a portfolio across foreign as well as domestic common stocks. http://www2.cfapubs.org/faj/issues/v51n1/toc.html So why is everyone so focused on one nations for thier investments?

Subject: Investing in Long Term Bonds Since 1973 From: Terri To: All Date Posted: Sat, Feb 19, 2005 at 15:29:54 (EST) Email Address: Not Provided Message: Please help me understand: There is a refrain that tells us how poor the return to Social Security has been. I do not understand. Since the Social Security system began to build a surplus in 1983, the return to 30 year Treasury bonds has been above 9% a year. How is such a return poor? Long term Treasury bonds have returned over 9% a year these last 10 years. Where is the problem? Long term treasury bonds have returned over 9% for 30 years. Why the complaints? For Social Security to be invested in bonds these last 5 or 10 or 20 or 30 years, sure seems fine to me.

Subject: SS asset allocation From: johnny5 To: Terri Date Posted: Sun, Feb 20, 2005 at 15:43:29 (EST) Email Address: johnny5@yahoo.com Message: http://www2.cfapubs.org/cfa/issues/v32n2/abs/c0320077a.html Strategic Asset Allocation for Individual Investors: The Impact of the Present Value of Social Security Benefits Steve P. Fraser Financial Services Review vol. 9, no. 4 (Winter 2000):295–326 The authors study the optimal asset allocation of an individual's financial portfolio if the present value of the expected Social Security retirement benefit is considered as a part of that portfolio. Because the benefits are expected to increase with inflation and are guaranteed by the U.S. government, the authors consider the benefits similar to those of Treasury Inflation-Protected Securities (TIPS). They include synthetic Social Security benefits (i.e., TIPS) in portfolios and calculate the optimal composition of the combined portfolios for various individual circumstances using four different asset allocation strategies. In all instances, the optimal portfolio composition with Social Security benefits contains more stocks than would have been optimal without the Social Security benefits.

Subject: Re: Investing in Long Term Bonds Since 1973 From: jimsum To: Terri Date Posted: Sat, Feb 19, 2005 at 18:40:21 (EST) Email Address: jim.summers@rogers.com Message: Very little Social Security money has actually been invested in bonds, most goes out as benefits as soon as the money comes in. You are looking at the rate of return for the small fraction of Social Security taxes that were actually invested. Critics are talking about the notional return of Social Security for individuals; which is basically the rate of return that would be required in a private investment that has the same costs and expected benefits as Social Security. Since Social Security taxes and benefits are more-or-less tied to the rate of growth of GDP; Social Security 'returns' are going to be about the same as GDP growth, much less than we expect from private investments or from Treasury bonds.

Subject: Many Happy Returns From: Terri To: jimsum Date Posted: Sat, Feb 19, 2005 at 20:31:38 (EST) Email Address: Not Provided Message: Right Jim, But, I am first after the notion of trust fund returns. After all, there is a trillion dollar trust fund and growing. Next, remember that Social Security covers survivors and disability payments. Social Security is indexed to wage increases. My father collects more than 25,000 dollars a year. After all, he worked many years. This is the same as drawing from a 500,000 corporate bond account with a wage index increase built in. Not bad.

Subject: Re: Investing in Long Term Bonds Since 1973 From: johnny5 To: jimsum Date Posted: Sat, Feb 19, 2005 at 19:13:06 (EST) Email Address: johnny5@yahoo.com Message: I am confused - how does stock or bond returns outpace the underlying GDP growth of the country they are based upon over a very long amount of time? If the USA grows 3% per year - over time doesn't everything else have to come into line with that? If the world GDP falls 3% per year for a sustained term - can anything be a good investment over time?

Subject: Returns From: Terri To: johnny5 Date Posted: Sat, Feb 19, 2005 at 20:36:12 (EST) Email Address: Not Provided Message: Long term real growth has been 3.4%. Add inflation and the nominal rate is about 6.8%. Add dividends and you get about 10.2%. Add an increase in the price earning ratio, and there you have almost 11%. Dividends are important!

Subject: Fannie Mae and Freddie Mac From: Terri To: All Date Posted: Sat, Feb 19, 2005 at 11:16:53 (EST) Email Address: Not Provided Message: Again, I have been wondering why there should be systemic risk in Fannie Mae and Freddie Mac. The near government agency status of the corporations has allowed for lower middle class mortgage for decades, and Fannie Mae has been moving to mortgage for lower income households that will shield the households from excessively priced debt. The hedging techniques used by Fannie and Freddie are fairly transparent and conservative. What then is the problem? The problem seems to be persistent lobbying by other finance corporations for more of the mortgage market. So, there is another conservative target.

Subject: Transparent? From: Pete Weis To: Terri Date Posted: Sat, Feb 19, 2005 at 13:49:40 (EST) Email Address: Not Provided Message: Terri. Why have Fannie Mae and Freddie Mac top execs been forced to resign? Why is 'everything is mostly fine' Alan Greenspan expressing such concern? We're learning - rather than being transparent that both GSE's have been hiding actual earnings in an attempt not to spook those who invest in their securities. On the surface it's obvious that both GSE's are very important to the US housing market - they provide nearly 50% of the mortgage money in the US. The threat to Fannie Mae and Freddie Mac comes from a number of different directions: They are, of course, 'holding the bag' when it comes to the housing market. They depend on homeowners to continue paying on their mortgages so that they can continue to service the bonds they have issued. If we do have a significant housing bubble in many US urban areas, about which Greenspan is finally becoming concerned, and there is a significant correction in the housing market then homeowners will almost certainly begin to default on greater numbers of these loans. This, of course, puts pressure on the ability for the two GSE's to service their bonds - this is there credit risk. The ability for homeowners to refinance their loans without penalty as mortgage rates dropped reduced homeowners payments which backed mortgage securities issued by Fannie Mae and Freddi Mac at higher rates. This has resulted in a loss of income for these companies. Interest rate increases not only threaten the housing market which is the backing for securities provided by these GSE's, but too sharp an interest rate increase threatens trillions in interest rate derivitive contracts. If bond investors get spooked by rising interest rates and/or troubles at Fannie Mae and Freddi Mac we could see much steeper rises in mortgage rates and long term rates in general. This is where systemic risk shows its ugly face (remember Volker's warning of a 75% chance of a financial crisis). This is also where JP Morgan & Citigroup with huge entanglements in interest rate swap derivitive contracts come into the picture as well as many other institutions including other large banks, insurance companies, etc. As I have posted before - Warren Buffet, after purchasing General Re, got a detailed look at these derivitive contracts and declared them 'financial weapons of mass destruction'. He went on the state that banking execs really had no understanding of the threat they posed. The bottom line - in a steady state interest rate environment Fannie Mae and Freddi Mac do fine, but when things begin to fluctuate strongly these two companies have difficult transitioning. That in itself is not a real problem. But the fact that Fannie Mae and Freddi Mac have become so overly important to our economy, its housing market, and the complex world of interest rate derivitive contracts is a very real problem. Could Greenspan and the federal reserve act fast enough with the proper methods to prevent a catastrophy? I bet Greenspan is asking himself that question and I bet they are running 'what ifs' and 'worst case scenarios' right now. They certainly better be.

Subject: Re: Transparent? From: Terri To: Pete Weis Date Posted: Sat, Feb 19, 2005 at 14:51:08 (EST) Email Address: Not Provided Message: Pete, you are right. But, but, but the accounting issues here were not to conceal loss, rather to take income swings that can and should be significant quarter to quarter and smooth them. This is a German accounting trick. The transparency is in the use of options and matching asset to debt in backing mortgages. I may well be wrong, but I do not find systemic risk here.

Subject: Nobel Prize winners failed! From: johnny5 To: Terri Date Posted: Sat, Feb 19, 2005 at 19:05:13 (EST) Email Address: johnny5@yahoo.com Message: http://www.bis.org/review/r041011a.pdf It means that the actions taken by the GSEs to manage interest rate risk can have a substantial impact on interest rate volatility. And, it means that the exposures of major banks and investment banks to these GSEs is larger than in the past, measured relative to capital, and large relative to other major counterparties. Together, these changes mean there are a larger number of non-bank financial intermediaries operating outside the supervisory safety and soundness framework established for banking organizations, that are sufficiently large or integral to the financial system that their failure or anticipated failure could have major implications for the functioning of the markets in which they operate and their financial institution counterparties. ...Within the clearance and settlement infrastructure, economies of scale have led to high levels of concentration in some areas. Two institutions together now handle the vast majority of clearing business for U.S. government securities and the associated triparty repo market in which over $1 trillion turns over twice each day. The dramatic increase in the volume of transactions handled by the core parts of the payments infrastructure places substantially greater demands on the operations of those institutions. Moreover, many of the major payment and settlement utilities operate across national boundaries, raising complicated questions for the appropriate allocation of oversight responsibility. Alongside these changes in the relative size of institutions and in market structure, financial innovation has led to a dramatic increase in the complexity of the risk management challenge. The frontier of financial innovation inevitably advances somewhat ahead of improvements in the risk management and clearing infrastructure. The models used to assess risk in the more novel areas of finance are, by definition, less grounded in experience and less valuable in anticipating how prices and correlations change in conditions of stress. Consensus on the appropriate accounting treatment is less well established. With the dramatic increase in the scope of operations of the major financial institutions, the challenge of pulling together an integrated risk management framework that captures exposures across the entirety of the firm is much greater. The potential for conflicts of interest and opportunities for fraud are greater, placing significant burdens on internal compliance regimes. The changes in regulation and technology that have increased the opportunities for risk transfer mean that more risk may end up in parts of the financial system where supervision and disclosure is weaker and in parts of the economy less well able to manage it. The major U.S. banks and investment banks are more global in the scope of their operations, and their affiliates are a major presence in many of the countries in which they operate, in some cases with a larger share of financial activity than they have in the U.S. market. Payments and clearing arrangements are increasingly transnational in scope. But, the legal and supervisory frameworks for financial activity are still national, and are likely to remain so for the foreseeable future. And despite the development of a much more intensive and extensive network of cooperation among supervisory and regulatory and enforcement authorities, and movement toward an ever-higher standard of convergence in key elements of the regulatory structure across jurisdictions, the regime is inevitably uneven, with different standards across jurisdictions and therefore continuing opportunities for regulatory arbitrage. This is important for banks and financial institutions built around banks because of their access to the safety net and their special role in the payments system. Our approach at the Fed seeks to achieve this outcome for the major institutions for which we are the consolidated supervisor. But the basic argument for applying exacting standards for risk based capital, for liquidity management, and for operational resilience applies to a broader range of supervised and regulated financial institutions whose operations pose significant systemic implications for the financial system. This is particularly compelling in the case of the major GSEs, where the regulatory framework, capital regime and sophistication of the internal risk management framework need to be upgraded to a standard more commensurate with their risk profile and the risks they present to the system. http://www.gsereport.com/SSS/FannieFreddieandSystemicRisk.pdf Only fifteen years have passed since insolvency threatened a housing government-sponsored enterprise (GSE). However, memories are short, and both companies are vastly larger than they were in 1985. As we saw with Long Term Capital Management, even Nobel Prize winners can get it wrong with alarming consequences. Statistically speaking, it is only a matter of time before any management makes costly misjudgments. Almost every company can make major mistakes without imposing stress on our financial system. Even if these companies are large, they are subject to market and government regulation that does not permit financial intermediaries to expose themselves to excessive risk; if such dominoes fall, no others are nearby. Therefore, few companies occupy such strategic ground that their troubles will ripple across the country with alarming speed and danger. Fannie Mae and Freddie Mac are two such companies, and they are weakly regulated. In 1986, when Fannie Mae and Freddie Mac were one-tenth the size they are today, limited oversight provided adequate protection against market disruption. By the early 1990s, Congress recognized that systemic risk was increasing, and strengthened GSE regulation. Now that Fannie Mae and Freddie Mac are five times larger than they were in 1992, the need for broader regulation is urgent. As these two companies grow larger, systemic risk is not rising proportionately. It’s rising exponentially. Today, these two GSEs have grown so large that they need regulation consistent with the “precautionary principle” that compels the development of safety systems that become increasingly robust as danger escalates. Moreover, because the marketplace perceives that obligations of the GSEs carry the implicit backing of the federal government, banks and thrifts do not carry sufficient capital to cover default risk for their holdings of GSE securities Federal Reserve Chairman Alan Greenspan has warned House Financial Services Capital Markets Subcommittee Chairman Richard Baker against allowing the GSEs to take advantage of their ties to the federal government. According to the Chairman, “If the subsidy enables Fannie and Freddie to hold less capital, then bondholders and taxpayers may be at a greater risk if these government-sponsored enterprises need financial assistance in the future.” The second scenario is more probable than the first. This would be the occurrence of a significant loss at a GSE that results in pressure on management to “bet the bank,” i.e., increase financial risk by taking a large gamble to recoup the original loss. Betting the bank occurred at many thrift institutions that incurred losses because of a serious interest rate mismatch in the early 1980s, for example. Such risky gambles often compound initial losses substantially. The problem of a weak regulator is especially important in this scenario: it is not clear that OFHEO has the capacity either to detect the first loss or to act to prevent managers of a troubled GSE from trying to “bet the bank.” GSE managements do not recognize concerns that their missteps could plunge their companies into insolvency. However, the most dangerous financial failures of the past twenty years all have involved institutions that were considered beyond reproach. For example: • Long Term Capital Management (LTCM) was a multi-billion dollar hedge fund managed by Nobel laureates lauded as geniuses in derivative investment. In order to maintain above-market rates of return as it grew, LTCM took on riskier investment positions that plunged in value when the market unexpectedly turned. Many savings and loan institutions failed dramatically in the early 1980s despite serving their communities for decades, costing taxpayers $150 billion. • Orange County, California, was the largest municipal bankruptcy in U.S. history. This was the result of the county following a leverage-based investment strategy that could not withstand unanticipated derivatives losses. • Continental Illinois National Bank failed and this led the FDIC to provide $4 billion to repay debt that carried no explicit federal guarantee. This bailout was justified by the fact that other banks that did business with Continental Illinois might fail if Continental defaulted on its debt obligations. To justify their confidence, Fannie Mae and Freddie Mac rely on econometric models to protect their burgeoning investment portfolios against interest rate fluctuations. This is another way that the two GSEs resemble the LTCM hedge fund. If, as happened to LTCM, a GSE suddenly faces financial circumstances that differ from the predictions of its models, significant losses could occur. The high leverage and lack of diversity in assets of the GSEs could mean that, as with LTCM, the shock could cause failure of the institutions. Of course, even GSE management would acknowledge that their skill set is unlikely to earn anyone on their teams a Nobel Prize in finance. If it can happen to the very best when leverage is employed, it can happen to anyone. They have poor asset diversification, concentrated only in residential housing. This concentration means that a shock impairing a portion of the company’s assets is likely to devalue many other assets simultaneously; • They have only one-third the capital of large banks that hold a diversified asset mix; • According to Dow Jones Newswire1, the GSEs’ giant derivatives portfolios are “the glue that hold together their enormously leveraged businesses.” In 2000, only $35 billion in shareholder’s equity supported over $700 billion of notional derivatives risk. If only a few counterparties fail to perform, or if the GSEs hedge strategies have not adequately covered derivatives risk, this equity could disappear overnight; • Their earnings are propped up by large federal subsidies that are generating growing controversy. If these earnings fall, so do the long-term financial reserves of the companies. According to the Congressional Budget Office, 40 percent of their 1995 profits came from their government subsidies. • They have on retainer an array of lobbyists and ex-government officials that likely would be deployed to limit early intervention efforts by their regulator to manage a troubled GSE. Finally, a small financial regulator, the Office of Federal Housing Enterprise Oversight, with inadequate statutory authority, supervises Fannie Mae and Freddie Mac. The shortcomings of the regulator include: • OFHEO is subject to the annual appropriations process. The GSEs have used their lobbying strength to limit OFHEO’s appropriations; • The GAO has found that OFHEO lacks the regulatory enforcement powers that are possessed by other federal regulators, including the bank and thrift regulators and even the Farm Credit Administration, another GSE regulator; • OFHEO lacks the authority to put a failed GSE into receivership; and • OFHEO is located within the Department of Housing and Urban Development rather than at the Treasury, a department that would have the stature and motivation to protect OFHEO from political attack. Of course, it is not the prospect of large losses at a GSE alone that creates systemic risk. After all, the stock market dropped $3 trillion in value in 2000 without creating systemic danger. While there was substantial private pain due to the slump, much of it was absorbed by private institutions and investors that were unleveraged. Therefore, there was no contagion effect. If a GSE stumbles, the same cannot be said. Contagion is likely. When Continental Illinois failed in 1984, the Comptroller of the Currency warned that over 2,000 banks had made deposits or invested in Continental Illinois obligations and that over a hundred banks might fail if Continental closed without a bailout. Yet, Continental was only a $41 billion institution, about 25 times smaller than Fannie Mae or Freddie Mac. Many leveraged financial institutions own a large amount of GSE financial obligations. This creates an environment conducive to the transmission of risk from a GSE to the larger financial system; if a GSE became troubled, holders of GSE debt might panic and try to sell at a loss. As the market value of GSE debt obligations dropped, the capitalization of banks with large holdings of this debt could be threatened to the point that regulators might believe themselves obligated to intervene to close the banks. In Congressional testimony on March 22, 2000, Gary Gensler, the Undersecretary of the Treasury for Domestic Finance addressed this issue. He declared that there are significant linkages between insured depositories and GSEs. Consequently, he recommended that Congress limit bank and thrift investments in GSE debt obligations to amounts that conform to the “loans to one borrower” rule that applies to other loans. As Gensler declared: To protect the exposure of banking institutions, current law places limits on an individual bank's credit exposure to any one entity. National banks may hold no more than 10 percent of their capital in the corporate bonds of any one issuer or lend unsecured more than 15 percent of their capital to any one borrower. Most state banks are subject to similar limits. Among all debt securities issued by private companies, however, only GSE debt securities are exempt from this investment limit. The GSEs are major players in the derivatives market. Counterparty risk can be many times larger than the liabilities on their balance sheets. When Long Term Capital Management was on the brink of default, its investors learned that a default on any one of seven thousand outstanding derivatives contracts would automatically trigger a default in all contracts, having a total notional value of $1.4 trillion. At its zenith, LTCM had total assets of approximately $130 billion and capital of $4.7 billion standing behind this trillion dollar counterparty arrangement. Fannie Mae is running its own derivatives business with substantially higher leverage than LTCM. The Wall Street Journal recently reported that Fannie Mae had a debt-to-equity ratio on its derivatives portfolio of 2019 percent. Together, Fannie Mae and Freddie Mac held a notional amount of $743 billion of derivatives outstanding as of September 30, 2000. The amount of disruption that a GSE failure causes depends on the government’s reaction speed. If the federal government stops losses before they exceed GSE capital, then disruption can be contained and only minor macroeconomic damage will result. However, the weak state of supervision of Fannie Mae and Freddie Mac makes this an outcome that is far from assured. Fannie Mae and Freddie Mac possess a threatening combination of three factors – size, high leverage and limited financial supervision – that greatly increase the odds that the government will not be able to deal with a high-impact event before it transmits a major shock both to other institutions and throughout the housing market. Fannie Mae and Freddie Mac also are subject to leverage and risk-based requirements, but at far lower and riskier levels than banks. Increasing capital cushions at Fannie Mae and Freddie Mac will increase the time available to OFHEO to deal with a financial crisis. A larger equity cushion will reduce the pressure on the managers of a troubled GSE to bet the bank. The managers will be discouraged from risk-taking if they still have significant stockholder capital at risk after the GSE has taken the first shock. Under current conditions of very thin capitalization, GSE managers will be under far more pressure to bet the bank in the event of a crisis. They will have so little capital at stake that they could perceive great benefits from taking a gamble: much to win and little to lose. Taxpayers often are big losers when others reap the gains from speculation while they suffer the losses. http://www.ofheo.gov/media/archive/docs/reports/sysrisk.pdf A newer report with 113 pages - after reading this I do not know that I can share your level of confidence terri. It's all making my brain hurt reading it all - who can keep all this knowledge in thier head - I yield to your superiority in this systemic risk.

Subject: 'The Fall of Fannie Mae'.. From: Pete Weis To: johnny5 Date Posted: Sat, Feb 19, 2005 at 21:31:48 (EST) Email Address: Not Provided Message: by Bethany Mclean in Fortune magazine is an excellent overview of the GSE problem. I won't post it here because it is quite long, but for anyone interested they can put THE FALL OF FANNIE MAE BETHANY MCLEAN (capitals not needed) in a google search and find it easily.

Subject: Re: 'The Fall of Fannie Mae'.. From: johnny5 To: Pete Weis Date Posted: Sun, Feb 20, 2005 at 06:47:45 (EST) Email Address: johnny5@yahoo.com Message: Thanks Pete. http://www.knowledgeplex.org/news/66640.html And then Frank Raines overplayed his hand one last time. In a highly unusual move, Fannie insisted that the SEC review OFHEO's accounting allegations. .' Fannie representatives tried to argue that if they couldn't get it right, no one could. Nicolaisen wasn't having any of it. 'Many companies out there get it right,' he said. What the SEC failed to point out was that many companies don't have the complicated linkage that Fannie does. The best people in the world couldn't get it right at LTCM - and fannie admits to having nowhere near that skill set - perhaps Raines believed in his heart they were right and lost perspective - but I feel the SEC and the rest of us need to realize things get so big and complicated even teams of experts perhaps cannot encompass all the risk and variables. Outside of the politics we need to examine the financial history - too big to fail fooled many smart people just in the recent past. Perhaps I am wrong but I have seen buffet in many interviews and he appears more ethical than others in his line of work. If those WMD's have him worried - I would think it is for good cause. http://www.knowledgeplex.org/news/74599.html On Thursday, Mr Greenspan urged Congress to step in and cut the two agencies down to size. If 'immediate divestiture' of their mortgage holdings would be too abrupt, their portfolios should nonetheless be slimmed down over several years. His words wiped more than 2% off Fannie Mae's share price, and 3% off Freddie Mac's. The chairman's words have hurt the two agencies before. Last year, the Fed chairman suggested homebuyers should take out flexible-rate mortgages, rather than fixed-rate. This is questionable advice for homebuyers, but it is unquestionably bad for Fannie Mae and Freddie Mac. Borrowers, who are averse to risk and often overexposed to mortgage debt, pay a premium for the security of a constant stream of interest payments, a premium Fannie Mae and Freddie Mac are happy to pocket. The implicit guarantee the agencies exploit accounts for half of their stockmarket value, according to Wayne Passmore, an economist at the Fed. But only a small fraction of this subsidy is passed on to homebuyers in the form of cheaper mortgages. The rest is pocketed by the agencies' shareholders. This is, said Mr Greenspan last year, an 'opaque and circuitous' way to subsidise homeownership. If the words of one economist can have that kind of effect - how fragile our markets are. Why is an agency that is subsidizing the poor and giving them a chance at home ownership a for profit company?

Subject: Business Leadership in China From: Emma To: All Date Posted: Sat, Feb 19, 2005 at 10:43:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/19/business/worldbusiness/19guru.html 7 Habits of Highly Effective Cadres By DAVID BARBOZA HARBIN, China - The crowded auditorium began to take on the feel of a rock concert. At the urging of the speaker, people suddenly stood up and, to the pulsing strains of a recording by the group Barenaked Ladies, thrust their fists in the air and shouted, 'Yes! Yes! Yes!' After the speaker finished, a middle-aged woman, who had been lucky enough to catch one of the souvenir furry carrots tossed into the crowd, dashed toward the podium like a wild teenager, seeking another one. Then a larger throng of people scrambled toward the dais in search of autographs. Elbows flew. Something similar happened a few days earlier, at the prestigious Tsinghua University in Beijing, when a group of students and faculty members pushed one another trying to reach the speaker: a tall, Western business icon. Several students crashed to the floor in the mayhem. Everyone wanted to meet ... Chester Elton. Chester who? Mr. Elton, the 46-year-old author of a 105-page management handbook called 'The 24-Carrot Manager,' is practically unknown in the United States. But in China, where Western business and management gurus are suddenly all the rage, he is a big celebrity. 'I just love coming to China,' Mr. Elton said while signing one of his books and nearly being pushed over in the frenzy here in Harbin. 'I feel like a rock star here.' Mr. Elton is actually just one of many popular management gurus: experts say the country has a severe shortage of skilled business managers and a growing cadre of people who want to be the next Bill Gates. So Western management experts - teaching everything from how to reward employees to how to foster innovation - are flocking to China, trying to capitalize on this capitalist frenzy. Big names are coming, like John F. Welch Jr., Stephen R. Covey and Michael E. Porter, a Harvard Business School specialist on competition. But so are the lesser known. They are conducting management-training seminars, hawking their books, making television appearances and soaking up the adoration. Many of them, like Mr. Elton, have even been hired by Communist Party officials, who are eager to transform China's struggling, money-losing state-owned companies into lean, mean capitalist machines. 'There's a huge demand for management training in this country,' says Juan A. Fernandez, a professor of management at the China Europe International Business School in Shanghai. 'There's a transformation going on, from the state-owned mentality, where the only objective was production, to a market-oriented mentality, where you have to care about employees and customers.' And profits. Along with the management gurus and motivational speakers, America's leading universities are now offering high-priced executive M.B.A. programs here. Major consulting firms are rushing into China to help state-owned companies realign their operations. The management problems are particularly acute here in northeast China, the nation's Rust Belt, where large industrial companies are struggling with bloated, inefficient operations. Hoping to reinvent some of these companies, government officials are asking Western experts to unleash a new form of government-backed propaganda, one with decidedly non-Communist slogans, like 'downsizing' and 'performance-based pay.' The management craze is also being fed by the growth of private enterprises here. Business newspapers, magazines and television shows are proliferating; bookstores are stocking management best sellers translated from English; and airport shops are regularly drawing crowds by showing motivational videos with titles like 'You Will Be Rich!' Wang Renping, a 32-year-old Harbin entrepreneur, exemplifies the changes reshaping China. He keeps a photograph of Mao on his office wall, and a picture of Peter F. Drucker, the ultimate management guru, on his desk. 'I started reading Peter Drucker's books four years ago,' Mr. Wang, general manager of an online real estate company, said. 'He's my idol, and that's why I put his picture on my desk. It reminds me of his theories when I'm working.' In China's biggest cities, people like Mr. Wang are not just reading the works of their heroes. They also want to get as close to them as they can. Last June, for instance, an overflow crowd paid $1,000 a ticket - a huge sum in a country where the average worker earns less than $3,000 a year - to receive the gospel according to Mr. Porter, a professor at the Harvard Business School with an international reputation for his works on competition between companies and across national borders. Many of them, of course, probably had their way paid by their employers. The money is making a small dent in the American trade deficit with China. Mr. Covey, the best-selling author of 'The Seven Habits of Highly Effective People,' earned about $50,000 last year just by speaking via video to a group of Chinese businessmen. Given the demand as China's economy continues to boom, it is no surprise that many decidedly lesser lights have sought to bask in the glow. Robert P. Miles drew crowds by billing himself in promotions here as the 'spokesman' for Warren E. Buffett, the billionaire investor. Officials at Berkshire Hathaway, Mr. Buffett's investment vehicle, said Mr. Miles was not a spokesman for Mr. Buffett. He is an author who has written about Mr. Buffett. Mr. Elton began to focus on China about a year ago. His book, 'The 24-Carrot Manager,' has sold more than 50,000 copies in China. So Mr. Elton, a motivational speaker, came to China with his Utah-based 'rewards and recognition' company, O. C. Tanner, hoping to sell more books and earn large fees. His message is quite simple, even elementary: treat your workers with respect, reward them with gifts - carrots, in his metaphor - and productivity and profits will soar. 'How do you motivate and engage your employees?' he asks his audience rhetorically. 'You have to find out what's important to them: that's the power of carrots.' Western-educated M.B.A. students might consider this baby talk. But here in Harbin, an old industrial center that has little of the allure of coastal China, more than 300 entrepreneurs and government officials seemed to find such talk enlightening. On a recent visit, the bald-headed Mr. Elton, helped by a translator, paced the stage, peppering his talk with slapstick humor: a segment on how not to reward employees opens with a video showing a penguin slapping another penguin down, repeatedly. 'People want a pat on the back,' he said, 'not a slap in the head.' The act includes props (he tossed furry carrots into the audience), rock music and even historical references: 'When times got tough for Mao in the new government, Mao would say, 'This is not tough. The Long March was tough.' ' But his teachings did not always hit the mark. In Beijing, when he asked the audience who was in love, a woman raised her hand and he called her forward. 'How many times does your husband say, 'I love you'?' he asked. Never, the woman shot back. 'Can he say, 'I love you,' too much? Is it possible to say, 'I love you' too much?' 'Yes,' the woman answered, saying that would be unrealistic and essentially meaningless. The audience seemed confused. Mr. Elton laughed and said: 'You failed. Here's a carrot. Go sit down.' Mr. Elton's message was that saying 'I love you' or telling employees they are important should be part of a manager's everyday thought. But that did not translate very well here. Indeed, much of his talk seemed lost on the Chinese audience. Some people slumped in their chairs, some slept, others toyed with their mobile phones. But when Mr. Elton blared rock music and asked the audience to participate in the closing, saying, 'Do you believe in the power of the carrot?' the crowd leapt to its feet. When he asked them to raise their hands and shout, 'Yes!' they did. And before long, the stampede for carrots and autographs began. After the speech, a human resources manager from the impoverished Anhui Province, who spoke on condition he not be identified, said: 'This really broadens your mind. This is the first time I get this kind of method.' Others said the talk was 'refreshing' and 'creative,' though not always so adaptable to Chinese circumstances. 'In state-owned companies it's not that easy to launch a decision promoting someone or raising his salary,' said Yanchun Liu, 46, the director of human resources at Beiya Dairy in Harbin, suggesting that jealousy and hard feelings develop among other employees. But even as several experts here agreed that China was not yet ready for many of the ideas espoused by Western managers, the demand for those promising to unlock the secrets of capitalist success remains strong. When Mr. Welch, the former chairman of General Electric, came to China last summer - for a $500,000 fee - fistfights nearly broke out after his speech as cameramen jostled with audience members who had paid more than $3,000 to get close to him. 'We didn't hire many security people,' said Zhou Fei, whose company organized the Welch appearances. 'Things turned into chaos after the forum was over. People ran to Jack Welch asking for autographs and photos.'

Subject: AIDS in South Africa From: Emma To: All Date Posted: Sat, Feb 19, 2005 at 10:22:29 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/19/international/africa/19africa.html AIDS-Linked Death Data Stir Political Storm in South Africa By MICHAEL WINES JOHANNESBURG - In an implicit but devastating account of the havoc AIDS is causing here, South Africa's government reported Friday that annual deaths increased 57 percent from 1997 to 2003, with common AIDS-related diseases like tuberculosis and pneumonia fueling much of the rise. The increase in mortality spanned all age groups, but was most pronounced among those between ages 15 and 49, where deaths more than doubled. Working-age adults are more sexually active than the rest of the population, and the opportunity for transmitting H.I.V. is greatest among members of this group. The report, by the government agency Statistics South Africa, caused contention even before its release, which came more than a month after the originally scheduled date. Critics charged - and the agency denied - that the delay was because of political pressure from President Thabo Mbeki's government, which they say has long played down the dimensions of the AIDS crisis here. Mr. Mbeki's office sharply rebuked the agency in 2001 after it reported that 4 in 10 deaths among working-age adults probably resulted from AIDS, saying that statisticians could not prove their conclusion. The statistics agency has denied that its report was politically influenced. The report notes that both the total number of deaths and their causes are undoubtedly inaccurate, because death reporting is not consistent in rural areas, and medical expertise is uneven across the nation. The report states that 499,000 of South Africa's roughly 44 million people died in 2002, up sharply from 318,000 in 1997. Much of that increase appears to result from H.I.V., the virus that causes AIDS. Experts agree that there are at least five million H.I.V.-positive citizens here, the most of any country. Diagnosing AIDS as a cause of death can require advanced medical knowledge and equipment. Moreover, an unknown number of AIDS deaths go unreported because South African life insurance policies frequently do not cover AIDS-related deaths. Nevertheless, the agency reported that the new figures 'provide indirect evidence that H.I.V. may be contributing to the increase in the level of mortality for prime-aged adults, given the increasing number of deaths due to associated diseases.' Dr. Steve Andrews, an H.I.V. clinician and consultant in Cape Town, said the sobering figures in the report suggested that it had not been politically varnished. Given the improvement in medical care and living standards in South Africa, he said, 'we should not be seeing this aggressive move in death rates - not at all.' The report concluded that the average number of deaths in South Africa rose to 1,370 per day in 2002 from 870 in 1997, an increase that could not be explained by the 10 percent increase in population during the same period. The reported causes of death point to AIDS as the factor underlying much of the increase in mortality. Deaths from tuberculosis, influenza and pneumonia - all primary causes of AIDS-related deaths - more than doubled in the five years encompassing 1997 to 2001, while deaths from other AIDS-related diseases like gastrointestinal infections rose about 25 percent. Deaths from some ailments unrelated to AIDS, like hypertension and cerebrovascular problems, also rose, but at lower rate. General heart disease, once by far the biggest killer of South Africans, fell during the period and was well behind tuberculosis and influenza in 2001. Two aspects of the report were especially notable. The death-certificate figures indicate the proportion of deaths among sexually active women is rising significantly compared with deaths among men - a ratio that strongly indicates a country's AIDS-related mortality rate. In 1997, 149 men ages 25 to 29 died for every 100 deaths among women; the comparable figure in 2003 was 77 male deaths for every 100 female deaths. The report also suggested that AIDS was increasingly exacting a toll among the very youngest South Africans. In 1999, the report stated, disorders of the immune system emerged for the first time as one of the 10 leading causes of deaths of children under 15.

Subject: An Indian Refinery From: Emma To: All Date Posted: Fri, Feb 18, 2005 at 16:24:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/18/business/worldbusiness/18refinery.html A Former Gas Station Attendant's Big Bet on a Refinery Has Paid Off By KEITH BRADSHER JAMNAGAR, India - The vast refinery and petrochemical complex here is the size of Manhattan south of Central Park. It could have been a costly white elephant. Instead, the quirky project, which includes the world's largest mango plantation, has become one of the most profitable bets in the global refining industry. The success of the complex shows the changing economics of refining, a business once regarded as an unglamorous backwater by oil executives more interested in finding the next big oil field. Completed by Reliance Industries of Mumbai in 1999 at a cost of $6 billion, the operation's $7 billion a year in sales equals 4 percent of the entire revenue of India's corporations. It is one of the few refineries in the world that can take very thick high-sulfur highly acidic grades of crude oil and process them into extremely pure, low-polluting gasoline and diesel fuel. The New York region, with its demanding environmental standards, has become the biggest single destination for shipments from here, said Captain Sunil Pradham, who manages a four-mile-long jetty that stretches into deep water where tankers pick up cargos, four at a time. Crude oil tankers with deeper drafts unload their cargos even farther offshore, pumping the oil through an undersea pipeline to the refinery. Rapidly rising energy demand from China and India in the last several years has benefited the refinery in two ways. Saudi Arabia and other oil exporters have stretched their output by producing more thick grades of crude oil with lots of sulfur and other contaminants; they were already pumping better grades of crude at close to full capacity before the surge in Asian demand. So much low-quality crude has flooded the market that it now sells at a discount of up to several dollars a barrel compared with better grades. That has meant savings for refineries like the one here that can handle poor-quality crude. At the same time, Asia has run short of refinery capacity, as oil companies failed to foresee the soaring car sales that have driven up the region's demand. That has allowed refineries to charge higher markups for gasoline and other refined products. Gross pretax profit margins run $10 to $14 a barrel, said P. K. Kapil, the president of the complex here. That is remarkably high by the standards of the refining industry, where margins have often been $1 or $2 a barrel and sometimes disappeared altogether in the 1990's. The complex here is the creation of Reliance's founder, Dhirubhai Ambani, who died in 2002. As a young man working as a gas station attendant in Yemen in the 1950's, Mr. Ambani dreamed of someday owning his own oil empire, from drilling to refining to marketing. Returning to India with $100 in his pocket, Mr. Ambani entered the textile business, then moved into the production of polyester and other chemicals needed for synthetic fabrics, becoming one of India's wealthiest tycoons. Hobbled by a debilitating stroke, he ordered the construction in 1996 of what remains the world's largest refinery complex built as a single project. The refinery is the third largest in the world, trailing ones in Venezuela and South Korea that grew to their current size through a series of expansions. Critics of Reliance often accuse the company of wielding tremendous influence with local and national governments in India and being obsessed with secrecy. The refinery complex here, which includes a 350-megawatt power plant and two chemical plants, shows signs of both. The government of Gujarat granted the company a 10-year holiday from steep sales taxes to attract the refinery. The Indian Air Force has moved a squadron of F-14 fighter jets to an airfield three miles away, along with a battery of surface-to-air missiles, to protect the site from any possible attack from Pakistan, a little over 100 miles away. The complex has two command centers, one above ground and another in a subterranean bunker in case of bombing raids. Cameras on the complex's fences can spot a snake more than a half mile away. Employees not only must wear badges, but even have their palm prints scanned by devices to confirm their identities. 'You can steal a card; you can't steal a hand,' said S. C. Malhotra, the Reliance senior vice president who oversaw construction. Most unusual of all are the extensive orchards of mangos, avocados, figs and more. Excess heat from the refinery is used to desalinate seawater for the irrigation of the fruit trees, and teak is grown with treated effluent from the refinery. Hital R. Meswani, a great-nephew of Mr. Ambani who is now the Reliance board member responsible for the oil and manufacturing businesses, said that the giant refinery's location in a militarily sensitive area near the Pakistani border made sense. The harbor here is deep and well protected from storms, the sailing times from Mideast oil fields are short and modern weapons systems would make it possible for the refinery to come under attack even if it were deeper in India, he said. Since Mr. Ambani died, his sons, Mukesh and Anil, have quarreled over control of his empire. But their father's influence still pervades the refinery, where visitors are strongly urged to watch videos extolling him, including one in which he floats in a chair in front of his orchards, a faint white light radiating from his image. And the founder's many sayings about the virtues of hard work and achievement are still recited reverently by executives. 'His words,' Mr. Kapil, the president, said, 'were like gospel truth to us.'

Subject: India and China and Oil From: Emma To: All Date Posted: Fri, Feb 18, 2005 at 15:53:59 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/18/business/worldbusiness/18energy.html?pagewanted=all&position= 2 Big Appetites Take Seats at the Oil Table By KEITH BRADSHER MUMBAI - India, sharing a ravenous thirst for oil, has joined China in an increasingly naked grab at oil and natural gas fields that has the world's two most populous nations bidding up energy prices and racing against each other and global energy companies. Energy economists in the West cannot help admiring the success of both China and India in kindling their industrialization furnaces. But they also cannot help worrying about what the effect will be on energy supplies as the 37 percent of the world's population that lives in these two countries rushes to catch up with Europe, the United States and Japan. And environmentalists worry about the effects on global warming from the two nations' plans to burn more fossil fuels. With engineering expertise and equipment more available around the world, one result is that oil executives and drillers in remote spots increasingly speak Mandarin or Hindi, not English. Their newfound commercial confidants live in pariah states like Sudan and Myanmar, one sign that the political dynamics of the world oil market pose a difficult challenge for the Bush administration. The prospect of China's consuming ever growing lakes of oil has been noted over the years, although it is gaining new urgency as Chinese consumption continues to soar. China's oil imports climbed by a third last year as its oil demand exceeded Japan's for the first time. Now India is joining China in a stepped-up contest for energy, with both economies booming recently just as their oil production at home has sagged. China trails only the United States in energy consumption; India has moved into fourth place, behind Russia. Voracious energy demand is coming from people like Kalpana Anil Gaikar, a 35-year-old unemployed widow with three children here who keeps running up costly electricity bills. Her appetite, millions of times over, is pushing India and China to vie for control of oil and natural gas fields from Sudan to Siberia. Both countries are also expanding their navies as they become increasingly dependent on lines of oil tankers from the Mideast, posing the beginnings of an eventual challenge to American influence in the Indian Ocean and South China Sea. As millions of Indians and Chinese buy cars, television sets and air-conditioners, the fossil fuels burned to power their purchases have become some of the fastest-growing contributors to global warming. Chinese emissions alone soared close to 15 percent last year. Under the Kyoto Protocol, neither India nor China faces any specific limits on its emissions of global warming gases. Both countries joined the agreement with promises to try to restrain emissions, but even environmentalists hesitate to demand stringent restrictions on China or India. That is because their energy consumption per person remains less than one-sixth the American level. Ms. Gaikar pays $9.30 a month in rent for her tiny apartment in a public housing project here in Mumbai, formerly known as Bombay, but up to another $4.50 a month for electricity to power the lights, ceiling fan and other amenities. That is a hefty electrical bill for someone who earned less than $30 a month at a bedsheet factory until she lost her job in late December because of a broken leg. Her children need the lights to study for school, however, and she has no intention of cutting the power. 'Whatever my leg, I'll have to go back to work,' she said. To meet the demand, India's government, like China's, is looking to tap countries the Bush administration and the European Union have tried to isolate. During a recent conference in New Delhi, a succession of top Indian officials saluted Omer Mohamed Kheir, the secretary general of the Ministry of Energy and Mining in Sudan, who sat beaming in the middle of the front row. The Oil and Natural Gas Corporation, which is controlled by the Indian government, recently began producing oil in Sudan in cooperation with Chinese state-owned companies. It is now building a pipeline in Sudan and negotiating to erect a refinery as well. 'The Asians came to Sudan in a very difficult time, and we created a very good strategic relationship with them,' Mr. Kheir said in an interview. He dismissed Western accusations that militias with links to government forces have been raping and murdering large numbers of villagers and refugees in the Darfur region. 'Darfur is not a deeply rooted problem; we think it is quite artificial,' he said. Three government-controlled Indian companies concluded a $40 billion contract with Iran on Jan. 7 for the purchase of liquefied natural gas over 25 years and for stakes in oil fields there. The Indian government followed up on Jan. 13 by concluding a deal with the military government of Myanmar for the construction of a gas pipeline. Subir Raha, chairman and managing director of the Oil and Natural Gas Corporation, said that Western countries had been arbitrary in their imposition and removal of sanctions on countries like Libya, so his company could not be expected to follow their practices for countries like Sudan and Myanmar. 'If you talk about pariah states, Libya is an excellent example,' he said. 'One fine morning, you see there are no sanctions.' China has also been in the spotlight lately because of suspected sales of missile technology to Iran, one of the biggest sellers of oil to China and other Asian markets. China's deputy foreign minister, Zhou Wenzhong, took similar positions to India's in an interview in the summer of 2004. 'Business is business,' he said then. 'We try to separate politics from business. Secondly, I think the internal situation in the Sudan is an internal affair, and we are not in a position to impose upon them.' India's oil imports climbed by 11 percent in 2004, and China's by 33 percent, straining the capacity of production operations, pipelines, refineries and shipping lines and helping to keep oil prices above $40 a barrel. The International Energy Agency expects them to use 11.3 million barrels a day by 2010, which will be more than one-fifth of global demand. Western engineers and equipment for complex drilling are now readily available for hire, making it easier for India's and China's state-owned companies to work together and undertake ventures on their own. Around the world, countries 'are using their state oil companies to ally with each other,' said William Gammell, the chief executive of Cairn Energy of Scotland, one of the biggest foreign oil companies operating in India. 'The majors used to have all the technology, and now you can get the technology by buying it.' India's recent enthusiasm for energy security has extended to assets that are the subject of legal scrutiny as well. Companies controlled by the Indian and Chinese governments are the two main bidders publicly pursuing large stakes in the Yukos oil and gas assets that the Russian government recently confiscated in a tax dispute. The confiscation is the subject of litigation in Texas. Mr. Raha said he would not be dissuaded from the pursuit by the controversy over how the Russian government obtained the assets. 'I haven't seen a single deal or transaction basically that didn't have legal issues,' he said. A vigorous debate has emerged in India over whether this country's need for oil will inevitably put it at odds with China. Mani Shankar Aiyar, India's minister of oil and natural gas, said that India and other Asian nations needed to pursue their own interests in oil markets and that he wanted to cooperate with China, not compete with it. Greater private automobile ownership and expanding industries have increased energy demand in China and India just as traditional sources of energy are fading away. In India, thousands of villages are switching from burning dried dung or brush for fuel to buying liquefied petroleum gas for stoves or plugging into the national electricity grid to power everything from ceiling lights to computers. Beijing and now New Delhi are following a long tradition of rising economic powers seeking to secure energy supplies. Britain, Japan and the United States wheeled and dealed in the years leading up to World War II for control of oil fields around the world, with diplomats often working with oil company executives. Through the 1980's and early 1990's, government-controlled oil companies from Malaysia and Brazil also invested in distant oil fields, notably in China and the South China Sea. As Chinese and Indian companies venture into countries like Sudan, where risk-averse multinationals have hesitated to enter, questions are being raised in the industry about whether state-owned companies are accurately judging the risks to their own investments, or whether they are just more willing to gamble with taxpayers' money than multinationals are willing to gamble with shareholders' investments. 'Sudan is the beneficiary,' said Philip Andrews-Speed, a former BP geologist in China who now runs an oil policy study center at the University of Dundee in Scotland. 'If these state-owned companies were not in the game, there would not be much interest in Sudan.' China made many of its investments in the 1990's, when oil fell as low as $10 a barrel, and signed large contracts for liquefied natural gas in 2002, before recent sharp increases in gas prices. India made its first big investment in Sudan three years ago, but its national leaders are calling for a greater effort to secure oil fields now despite high prices. Some Western countries, like Germany, have dismissed as outdated the whole idea of owning far-flung oil fields. They have relied on being able to buy oil in world markets, instead of buying oil fields, and have emphasized energy conservation, notably through high gasoline taxes. China and India have not only avoided imposing steep taxes, but have even regulated energy prices directly and indirectly for years. India in particular still keeps domestic prices for natural gas below world levels to subsidize power generation and fertilizer production, two industries with customers who still have the political power to prevent price increases. 'This is a basic reality of the Indian market,' said Proshanto Banerjee, the chairman and managing director of GAIL (India) Ltd., a big state-controlled gas company, 'and it would not be proper to ignore this.'

Subject: China is now worlds leading consumer From: johnny5 To: Emma Date Posted: Fri, Feb 18, 2005 at 16:17:56 (EST) Email Address: johnny5@yahoo.com Message: The whole mess with Yukos makes me laugh - like having the court case here really makes a difference - BWAHAHA! http://atimes01.atimes.com/atimes/China/GB18Ad01.html Greater China Feb 18, 2005 China overtakes US as world's leading consumer By Emad Mekay WASHINGTON - China is quickly overtaking the United States as the world's biggest consumer of global resources, energized by a dynamic economy that is growing at a record pace, says a Washington research group. 'China is no longer just a developing country. It is an emerging economic superpower, one that is writing economic history,' said Lester Brown, founder of the Earth Policy Institute and author of Wednesday's report. 'If the last century was America's, this one looks to be the Chinese century,' he said. The report says China is outpacing the US in four of the five most important commodities: grain, meat, coal and steel. The fifth, oil, is still consumed in the US at rates triple that of China, about 20.4 million barrels per day. But while oil use in the US rose by 15% from 1994 to 2004, its use in the Asian giant more than doubled. China has now surpassed Japan as the world's second-largest consumer of oil after the US, said the report, titled 'China Replacing United States as World's Biggest Consumer'. China also consumes about 800 million tonnes of another fossil fuel, coal, which meets nearly two-thirds of the country's energy demand. 'With its coal use far exceeding that of the US and with its oil and natural gas use climbing fast, it is only a matter of time when China will also be the world's top emitter of carbon,' says the report. 'Soon the world may have two major climate disrupters.' Chinese consumption patterns are rising in other categories. It has opened a wide lead with grain: 382 million tonnes, compared to 278 million tonnes of the US last year. Among the three big grains, the world's most populous country leads in the consumption of both wheat and rice, and trails the US only in corn. Among leading consumer products, China trails the US only in automobiles. By 2003, it had 24 million motor vehicles, scarcely one-tenth of the 226 million on US roads. But with car sales doubling over the last two years, China's fleet is quickly catching up. Sales of electronic goods are growing strong in China. In 1996, China had 7 million mobile phones, by 2003 it had 269 million. This far outpaces the growth in the US, which had 44 million mobile phones in 1996 and 159 million in 2003. The use of personal computers is booming as well, with the number of computers in use doubling every 28 months. Even China's use of fertilizer is double that of the US: 41.2 million tonnes. Currently, China imports vast quantities of grain, soybeans, iron ore, aluminum, copper, platinum, phosphates, potash, oil and natural gas, forest products for lumber and paper, and the cotton needed for its world-dominating textile industry. These massive imports have put China at the center of the raw materials economy. Its huge appetite for materials has driven up not only commodity prices but ocean shipping rates as well. China's use of steel, a key indicator of industrial development, has also soared. Steel consumption is now more than twice that of the US, driven by urban migration and the construction of thousands of factories, highrises and office buildings. The US still maintains a wide lead over China in terms of individual consumption patterns, mainly due to the latter's much lower per capita income of US$5,300 - about one-seventh of America's $38,000. However, the report predicts that as Chinese incomes rise at a record pace, use of foodstuffs, energy, raw materials and sales of consumer goods will continue to climb. Brown said these trends are an early warning that China's rapid growth could lead to a globally unsustainable use of resources. 'At one time, it wouldn't have been credible even to ask these questions but now that China has passed the US in aggregate consumption and given the greater momentum for its growth, it sort of gives one license to think about what if they reach US consumption levels in per capita terms,' Brown said. 'What we are learning from China is this: the Western industrial development model is not going to work for China and therefore for the world - that is, a fossil fuel-based, automobile-centered, throwaway economy.' For example, if paper use per person in China were to reach the US level, China would need more paper than the entire world produces, he said. 'They have done that on the national level for a lot of key resources. But what if they do it per person, which means expanding consumption something like four-fold over what it is today?' The report also examines China's growing influence on the US economy, which has become heavily dependent on Chinese capital to underwrite its fast-growing debt. If China ever decides to divert this capital surplus elsewhere, either to internal investment or to the development of oil, gas, and mineral resources elsewhere in the world, the US economy will be in trouble, the report says. China's record-high domestic savings and huge trade surplus with the US are just two of the most visible manifestations of its economic strength. It is now China, along with Japan, that is buying the US treasury securities that enables the US to run the largest fiscal deficit in history. 'China's eclipse of the US as a consumer nation should be seen as another milestone along the path of its evolution as a world economic leader,' Brown said.

Subject: 'Masters' or 'Servants'? From: Pancho Villa To: All Date Posted: Fri, Feb 18, 2005 at 15:35:53 (EST) Email Address: nma@hotmail.com Message: from The Economist: School for scandal Is the MBA responsible for moral turpitude at the top ? Several of the corporate scandals that took place in the early years of this decade are currently being replayed in courtrooms from NY to Alabama(-song). The trials of top executives at HealthSouth, Tyco International and Worldcom are reminding the public how unethical was the behavior of some of the nation’s top managers only a few short years ago. The finger of blame for this behavior is sometimes pointed at the MBA, the degree offered by business schools from Harvard to Hawaii. Perhaps this is not as odd as it sounds. After all, MBA(ce)s lay as thick on the ground at Enron as managerial hubris, and disinterested outsiders are not lone in asking whether there might have been some connection. In an extraordinary mea culpa, Sumantra Ghoshal, a respected business academic who died last year, argued in a paper to be published shortly that the way MBA students are taught has freed them “from any sense of moral responsibility” for what they subsequently do in their business lives. This, he believed (and other respected academics, such as Jeffrey Pfeffer of Stanford, are carrying his argument forward ), is because management studies have been hi-jacked intellectually by the dismal science (not the book) of economics. A stout defense of the virtues of economics from a publication called The Economist would hardly be a surprise. But, in fact, this is not necessary to refute the claim that business schools are responsible for moral turpitude at the top of corporate America. As it happens, most of the erstwhile corporate leaders currently appearing in the dock never went near one (see page 53), whereas many acknowledged champions of business ethics, such as Lou Gerstner at IBM, did. What’s more, many of the top business schools have taken steps to offset any ethically desensitizing influence there may have been in their MBA coursework. They have greatly expanded their teaching of business ethics - some by introducing special courses, others in more memorable ways. Tuck School of Business, for example, persuades an ex-convict to come every year to tell its MBA students of his regrets. The dubious claim that business schools are responsible for the moral failures of their graduates decades after graduation does, however, highlight one widespread misunderstanding about the role and purpose on an MBA. Mr Ghoshal and his supporters are right that the top business schools strive for academic respectability, and that this has led to criticize this. As long as schools are teaching academic degrees (and, after all, the letters MBA stand for Master of Business Administration), they have to tech the most compelling business theories around. It may be a pity that these are disciplines for not coming up with the ideas to rival, for example, agency theory or the maximization of shareholder value. The real problem arises when students, or their new employers, believe that an MBA is, somehow, a qualification for business leadership. It is not, nor could any academic degree provide this. Law or medical degrees are necessary but not sufficient for the making of outstanding lawyers or doctors. In a similar way, a good MBA degree can help provide a student with analytical skills and theoretical knowledge useful to a business career. But becoming a successful leader of men and women in a turbulent business world requires maturity and wisdom. Happily, there is no degree programme for those.

Subject: We yearn for respect from... From: Pete Weis To: Pancho Villa Date Posted: Fri, Feb 18, 2005 at 21:42:08 (EST) Email Address: Not Provided Message: our peers. But somehow we've developed this belief that an accumulation of wealth will bring us this respect. We deny it and at times doubt it, but deep down inside we believe it. So we are fascinated with Donald Trump and his jetset lifestyle, even though we may think he is a bit phony. Even 'new age' Christianity, here in America, tells us if we give heavily to the latest and greatest TV evangelist, we will, in turn, be richly rewarded by God. Pat Robertson has told us this - and he's perhaps one of the best examples of how to reach exceedingly high levels of wealth 'spreading the word of God'. 'Blessed are the poor' has been replace by 'blessed is my offering plate' and 'blessed is my stock portfolio'. The new age economics is 'trickle down' but that's the problem it's just a trickle as corporate execs too often siphon of all the excess liquidity into huge stock options and not very much into capital expansion. All the while our Fed chairman tells us that adjustable mortgage rates are a good thing to keep the liquidity flowing - more trickle down. 'Family values' have become which families have the greatest personal value as our financial magazines rate the 100 richest people in America from 1 thru a 100 - wouldn't many of us like to be on that list? So is it a wonder that when a few started to stretch the ethical boundries and then the legal boundaries, and their peers began to notice how much wealth was being accumulated, they couldn't wait to get in line. Afterall, it's respect and acceptance we are all after in the end.

Subject: Re: We yearn for respect from... From: Emma To: Pete Weis Date Posted: Sat, Feb 19, 2005 at 10:45:01 (EST) Email Address: Not Provided Message: Sensitive statements, wonderfully expressed.

Subject: We are Reminded Why Costs Matter From: Terri To: All Date Posted: Fri, Feb 18, 2005 at 15:30:20 (EST) Email Address: Not Provided Message: Johnny5 reminds us: http://www.vanguard.com/bogle_site/lib/jcbspch4.html John Bogle's research shows that mutual fund investors have over the last 25 years made significantly lower returns on stocks than the S&P Index returns. The problem of course is investment cost. Mutual funds are expensive; too darned expensive. Well, the equity premium has been lower than through the century these last 10 and 20 and 25 years. With mutual fund costs that are even 1% the equity premium is cut in half. With 2% costs, the equity premium is about gone. Thanks, Johnny5.

Subject: Peak conventional world oil..... From: Pete Weis To: All Date Posted: Fri, Feb 18, 2005 at 15:07:40 (EST) Email Address: Not Provided Message: production has got to be pretty close. Not a good thing with demand rising so steeply and a world hooked on low interest rates. This just adds to the information about growing 'water cuts' in Middle Eastern oil fields: Shell, Exxon Tap Oil Sands, Gas as Reserves Dwindle (Update1) Feb. 18 (Bloomberg) -- Shell Canada Ltd. Chief Executive Officer Clive Mather says oil from his Athabasca project, where tar sands are boiled to produce crude, can cost twice as much as drilling in the North Sea. And it's worth every cent, he says. ``If we had access to unlimited conventional oil, I guess the interest in Athabasca would diminish quite quickly, but that isn't the case,'' Mather said in a Feb. 3 interview in London. ``This is high-cost oil, there's no question about that. At current prices, it's still very good business.'' A 15-year decline in oil reserves is spurring companies such as Royal Dutch/Shell Group, Exxon Mobil Corp. and ChevronTexaco Corp. to spend $76 billion in the next decade to boost supplies of oil from tar sands and diesel fuel from Qatari natural gas. Oil executives say they have no choice but to try alternatives to drilling because there is not much more crude to be found in their current fields. ``We're damn close'' to the peak in conventional oil production, Boone Pickens, who oversees more than $1 billion in energy-related investments at his Dallas hedge fund firm, said in an interview in New York Feb. 16. ``I think we're there.'' Suncor Energy Inc., the world's second-biggest oil-sands miner, is his largest holding. New Production Companies will produce 10.1 million barrels of oil a day by 2030 from projects in Canada and Qatar, more than Saudi Arabia does today, according to forecasts by the International Energy Agency in Paris. That's 8 percent of the world's total. Shell is spending $13.70 per barrel at its Athabasca project in Canada, higher than drilling projects, said Mather. Oil executives say that crude prices near $45 a barrel more than offset the extra cost. Crude for March delivery today was little changed, trading at $47.68 a barrel on the New York Mercantile Exchange at 9:30 a.m. London time. The oil industry needs to spend $3 trillion by 2030, or $105 billion a year, to meet an expected surge in demand, the IEA estimates. ``Pressure on supply will become sufficient for more money to be put into non-conventional oil,'' said Peter Odell, an oil politics and economics professor emeritus at the Erasmus University in Rotterdam. ``This is a natural development of a resource base from the lowest cost to the highest cost.'' Exxon Mobil, BP Plc, Shell, ChevronTexaco and Total SA, the five largest publicly traded oil companies, last year reported net income of about $85 billion, equal to the economic output of Venezuela, a nation of 25 million people and the third-largest member of the Organization of Petroleum Exporting Countries. Falling Reserves, Returns Oil-sand mining projects offer a rate of return of 13.6 percent, less than half the 33.4 percent at a deepwater Gulf of Mexico field such as BP's Mad Dog project, said Scott Mitchell, an analyst at energy consultant Wood Mackenzie in Edinburgh. West Africa's deep waters offer an 18.2 percent return, he said. The estimates are based on an average price of $21 per barrel. Shell and BP, Europe's two largest oil companies, this month reported oil and gas reserves declined in 2004, based on U.S. rules. It was the first drop in more than six years for London- based BP, whose only investment in non-conventional oil sources is in Venezuelan heavy crude. BP acquired the stake when it bought the Veba Oel German oil-refining business from E.ON AG. Shell Reserve Slump Shell, based in London and The Hague, reported Feb. 3 that reserves fell in 2004 because it found enough oil to replace just 15 percent to 25 percent of what the company pumped. BP replaced 89 percent of production, the company said Feb. 8. BP forecasts it can expand oil and gas output by 5 percent a year using existing deposits and doesn't need to turn to non- conventional projects. BP's growth comes from Russia, where it spent $7.7 billion on the TNK-BP joint venture. ``To renew our exploration business, we only need to rely on the exploration for and development of primarily conventional oil and gas resources,'' Chief Executive John Browne said on a Feb. 8 conference call. Oil futures show crude prices will stay close to $40 a barrel until 2011 because of rising demand, spurring investment in projects once considered to be marginal. Futures contracts are a promise to deliver a commodity at a specified price at an agreed- upon date in the future. Supply Pressure Canada's tar sands may get $48 billion of investment by 2012, according to Canada's National Energy Board, double the amount spent in the decade ending in 2003. As part of that, Imperial Oil Ltd., controlled by Exxon, said in November it may pay $6.5 billion to double its capacity to produce oil from tar sands. For investors, oil sands have been a better bet than the best- known oil companies. Canadian Oil Sands Trust, which invests only in the Albertan mining projects, is up 67 percent in the past year. BP shares during that time are up 34 percent in London and Exxon Mobil, based in Irving, Texas, gained 39 percent in New York. Current spending plans show Canada's oil sands may produce 2 million barrels a day by 2015, more than Iraq today, crude worth $29.2 billion of revenue a year at oil prices of $40 a barrel. Qatar may receive more than $28 billion of investment, to cause a 22-fold surge in the amount of fuels produced from natural gas, based on IEA estimates. Only two gas-to-liquids projects exist now, in Malaysia and South Africa, representing 35,000 barrels of daily production. The Qatari ventures are for a total of almost 800,000 barrels a day in 2011, according to the IEA. The fuels may be worth $15.5 billion a year in revenue, based on today's diesel prices. Oil's Limits Shell will spend as much as $6 billion in Qatar to produce diesel fuel in 2009, according to project director Andrew Brown. Projects announced by Exxon, ConocoPhillips, Marathon Oil Corp., ChevronTexaco and Sasol Ltd. will cost another $22.3 billion. The potential for non-conventional oils may exceed the IEA forecasts. Should oil reserves be lower than expected, non- conventional oil production may be 37 million barrels a day in 2030, or 39 percent of global demand, the IEA said in an alternative to its most likely scenario in the 2004 World Energy Outlook, released in October. Ignoring oil sands and the potential to make fuels from natural gas ``is a mistake,'' said Ian Henderson, who manages $680 million at the JP Morgan Fleming Natural Resources Fund in London. ``It's taken millions and millions of years for hydrocarbons to form, and we are running out of them.'' Henderson owns shares of Canadian Natural Resources Ltd. and Petro-Canada, a partner in Syncrude Canada Ltd., the world's largest oil-sands mining business. Both companies are based in Calgary. His investment fund is up 30 percent in the past year, compared with a 20 percent gain in the FTSE 350 Mining Index. Making Canada's oil sands viable would ease demand for crude from Saudi Arabia and other suppliers, Odell said. Alberta's oil sands deposits contain 174.5 billion barrels of reserves, according to the Alberta Energy and Utilities Board. That total is two-thirds of Saudi Arabia's proven reserves of 262 billion barrels. Sticky Mixture Alberta's oil sands cover an area larger than the state of Florida, and about two tons have to be dug up, heated and processed to make a single 42-gallon barrel of oil. Suncor Energy spends C$12 ($9.62) to C$12.50 to mine and upgrade a barrel of oil. Saudi Arabia pumps a barrel of oil for about $2. Devon Energy Corp. President John Richels, a Canadian and a lawyer by training, remembers the first time he held a handful of the oil-encrusted sand, in the early 1990s. He said he had a hard time believing the sticky mixture could be turned into smooth- flowing crude. Devon, based in Oklahoma City, is now investing C$527 million in the Jackfish oil sands project in Alberta. ``They're not particularly high-return projects,'' he said in an interview. ``We see the same kinds of returns, though, in other parts of the world.'' And given the lack of exploration and political risk, the projects pay off, he said. `Operating Risks' Failures are costly. A blaze at Suncor Energy in Alberta slashed output by about half, and full production won't resume for months. The lost output is worth $4.4 million a day at $40 a barrel. The company expects insurance to cover most of its losses. ``There are operating risks,'' Suncor Chief Financial Officer Ken Alley said in an interview. ``It's not unlike the refining industry where you operate with hydrocarbons, at high pressure and high temperature, and that is a risk that you design facilities to protect against. Nevertheless there is a level of residual risk.'' Oil sands projects of Shell and Suncor failed to meet their budgets and deadlines, the companies said, the result of competition for equipment and labor. `Cost Overruns' Syncrude Canada's project to boost capacity by 100,000 barrels a day to about 350,000 is expected to cost $6 billion by mid-2006, almost double a 2001 forecast of $3.14 billion, according to Canadian Oil Sands Trust, lead partner in the venture. Developments by Shell Canada, 78 percent-owned by Shell, and Suncor cost as much as 70 percent more than planned, the companies reported. ``The problem is the consistent, continual and predictable cost overruns,'' Pickens said. ``That can't keep happening, I don't think, but still those overruns are a concern.'' Exploiting Venezuela's heavy oil may double the reserves of non-conventional sources. Paris-based Total SA, Europe's third- largest oil company, and Statoil ASA, the biggest in Norway, are among those exploiting Venezuela's heavy oil deposits, reserves that may equal another 100 billion barrels to 270 billion, according to the U.S. Energy Department. The country already is processing 500,000 barrels a day of heavy crude. In Qatar, the plants use a basic technology invented in the 1920s and exploited by the Nazis during World War II to make oil products from coal when embargoes cut off crude oil imports. The technology was also used in South Africa during Apartheid. Wasted Gas The gas-to-liquids process is wasteful, with about 45 percent of the natural gas lost in conversion, the IEA estimated. The process consumes 10,000 cubic feet of gas to make one barrel of fuel, according to Malcolm Wells, a spokesman for Sasol Chevron Ltd., a joint venture between San Ramon, California-based ChevronTexaco and South Africa's Sasol, which is spending at least $6 billion on building plants in Qatar. At that rate, the amount of gas used for seven barrels of diesel is equal to what is burned in the average American household in an entire year. Project costs are escalating because of higher steel prices and increasing demand for equipment. Shell's gas-to-liquids plant will cost as much as $6 billion, 20 percent more than initially forecast, the company said. BP just closed its gas-to-liquids pilot plant in the U.S. and is planning instead to sell natural gas to use in power plants, said Robert Wine, a BP spokesman in London. `Isn't Cheap' Gas-to-liquids ``isn't a cheap industry to get into,'' said Wells at Sasol Chevron. ``It requires massive investment into infrastructure and huge sources of gas.'' Qatar has the world's third-largest natural gas reserves, after Russia and Iran. Another 12 plants to make fuels from natural gas are in various stages of planning, in Nigeria, Iran, Egypt, Australia, Venezuela, Brazil and elsewhere, according to Paris-based Technip SA, Europe's largest oil-services company. A lack of information about proven oil reserves complicates assessing when supply from the world's conventional oil fields will peak, the IEA said in its world energy outlook. The agency estimated it will occur sometime between 2013 and 2037. ``Oil won't last forever,'' said Manouchehr Takin, a senior analyst at the Centre for Global Energy Studies in London, a consulting company founded by former Saudi oil minister Sheikh Zaki Yamani.

Subject: Re: Peak conventional world oil..... From: johnny5 To: Pete Weis Date Posted: Fri, Feb 18, 2005 at 15:33:41 (EST) Email Address: johnny5@yahoo.com Message: XOM's calm in this regard confuses me - if we are just in a business cycle then oil will fall back to $20 a barrel. http://biz.yahoo.com/rb/050215/energy_chevrontexaco_1.html Reuters ChevronTexaco Warns of Global Bidding War Tuesday February 15, 5:32 pm ET By Deepa Babington HOUSTON (Reuters) - Asia's insatiable appetite for oil coupled with tight supplies has triggered the start of a global bidding war for oil from the Middle East, the head of ChevronTexaco Corp. said on Tuesday. The rapid growth in energy demand from Asia coupled with difficulties in accessing oil reserves has also resulted in a new energy equation where the days of cheap oil and gas are numbered, Dave O'Reilly, chief executive of ChevronTexaco, told a Cambridge Energy Research Associates conference. Asian giants like China and India figure prominently in this new energy equation -- a development that should not go unnoticed by the U.S. government, O'Reilly said, without specifying what exactly Uncle Sam should do about it. 'What I see happening is the beginning of alliances forming between Asian entities and Middle East entities for the long term,' O'Reilly told reporters. 'And I think it's very important that our government recognizes and understands the implications of that.' The remarks come as the emergence of fast-growing nations like India and China on the global energy scene sparks fears that they may outbid Western oil majors in asset deals or in securing access to a shrinking pool of oil reserves. 'We are seeing the beginnings of a bidding war for Mideast supplies between East and West,' O'Reilly said. 'The new Asian demand is reshaping the marketplace -- and we're seeing the center of gravity of petroleum markets shift to Asia, and in particular to China and India.' The Asian impact on demand coupled with the lack of easy access to areas of plentiful oil reserves has also meant that oil prices aren't coming down anytime soon, he said. Oil prices shot up dramatically in the past year thanks to fears of a supply disruption and the spike in demand, prompting a growing crowd within the energy industry to ponder whether sky-high oil prices are here to stay. 'The time when we could count on cheap oil and even cheaper natural gas is clearly ending,' O'Reilly told the conference. Not everyone shares ChevronTexaco's perspective on oil prices. Exxon Mobil Corp. (NYSE:XOM - News), the world's largest publicly traded company, for example, maintains that there has been no fundamental shift in the energy paradigm and that the oil business is simply one that is characterized by cycles.

Subject: Appreciate You Guys From: Terri To: johnny5 Date Posted: Fri, Feb 18, 2005 at 21:13:03 (EST) Email Address: Not Provided Message: Appreciate you guys lots and lots.

Subject: Vangaurd analyzes US asset allocation From: johnny5 To: All Date Posted: Fri, Feb 18, 2005 at 12:39:07 (EST) Email Address: johnny5@yahoo.com Message: Still US centric analysis - where are the people that think outside the box like Buffet? http://global.vanguard.com/international/hEurEN/research/srcsofprtprfEN.html SOURCES OF PORTFOLIO PERFORMANCE: STRATEGIC ASSET ALLOCATION IS THE DOMINANT FORCE IN DETERMINING A PORTFOLIO’S LONG-TERM PERFORMANCE. Are the findings of a landmark paper published in 1986 – which concluded that asset allocation was the primary determinant of portfolio return’s variability, with security selection and market timing playing minor roles – still relevant today? A recent research conducted by Vanguard sought to answer this question by building on this pioneering study, using a larger and more robust set of US balanced funds data. A portfolio’s performance depends on three interrelated decisions: security selection, market timing and an investor’s policy, or long-term asset allocation. Once an investor has determined a policy allocation to stocks, bonds and cash, this allocation can be implemented through an indexing strategy – simply aiming to mirror the returns of the stock, bond and cash benchmarks that make up the policy allocation – or through active management. An actively managed strategy attempts to exceed the expected return of the policy allocation through security selection and/or market-timing. The original Brinson, Hood and Beebower (“BHB”) paper1 analyzed quarterly return data of 91 large pension funds over the period 1974 to 1983. Its main conclusion was that 94% of the variability of total portfolio returns is explained by the strategic asset allocation. Other academic researchers have offered an alternative measure to the variability of total portfolio returns. Surz, Stevens and Wimer2 use, for example, the ratio of the benchmark return to the fund return as explanatory factor. Vanguard’s research key findings – US analysis The Vanguard Group, Inc. recently conducted an analysis3 of 420 US balanced mutual funds from the CRSP Survivorship-Bias Free US Mutual Fund Database. These funds operated at any time between 1962 and 2001; a 40-year database incorporating major bull and bear markets in both equities and bonds. The data included monthly returns, annual allocations to asset classes and some fund characteristics such as expense ratios and turnover. To ensure reliability, we analyzed only funds with at least 60 months of return history. The key findings were: On average, benchmark portfolios (after index management fees) had a higher return than the corresponding funds, On average, benchmark portfolios (after index management fees) had lower risk (volatility of return) than the corresponding funds, On average, 77% of the variability of a fund’s returns was explained by its strategic asset allocation policy, with market timing and stock selection playing minor roles, These conclusions held in all time periods and all observed investment environments over the time period in bull market or bear; and On average, the return for the highest cost funds lags their own benchmark much more so than do the lowest cost funds. The importance of strategic asset allocation can be intuitively grasped Figure 1 gives three examples of the effects of asset allocation and stock selection on total portfolio return over time. The three curves reflect sample asset allocation strategies: aggressive, balanced and conservative, implemented using index funds. The straight vertical lines represent the range of returns by using an active management stock selection strategy. Although active strategies can clearly have an impact on performance, they play a subordinate role for the average investor. That is, you cannot expect to earn equity-like returns in a cash fund and vice versa. Research results The study found that, on average, 77% of the short-term variability of a fund’s returns can be attributed to its benchmark (asset allocation) strategy. However, the results for each fund depend on its degree of active management. For example, a fund that implements its strategy with index funds and rebalances the asset allocation to benchmark will clearly have a very high outcome. However, one that uses only active management, with high tracking error portfolios, will have much more variability of the actual fund return relative to benchmark. As a result, in the latter case, the benchmark could be expected to explain a lower proportion of the fund return variability. Our analysis also shows that, on average, more than 100% of the long-term performance of a fund is determined by its strategic asset allocation. This implies that, on average, market-timing and security selection have been unable to overcome the higher costs, such as operating expenses and trading costs, associated with active management. The benchmark portfolio thus produces a higher average return than the actual portfolio – interestingly with less risk. On average, the benchmark portfolio’s return volatility is 87% of the actual fund’s volatility. Figure 2 shows the key results in the various periods analysed, both bull and bear. Characteristics of funds that add value Figure 3 gives a summary of the nature of funds that outperformed, underperformed and those that performed in line with the benchmark. On average, outperforming funds had lower expense ratios (costs) and lower turnover. Figure 4 shows the proportion of funds whose returns were higher, lower or in line with those of their own benchmark portfolios. This is clear evidence of the difficulty of consistently outperforming a highly-diversified and efficiently managed all-index portfolio. Over the long-term, the higher costs of active management are also playing a key role. Conclusion It is widely claimed that strategic asset allocation is an investor’s most important decision and is the most important determinant of portfolio performance. This US analysis conducted by Vanguard reports new results supportive of the earlier studies that short-term return variability and long-term average return of a broadly diversified portfolio are largely explained by its asset allocation policy. Since the vast majority of investment returns can be attributed to an asset allocation decision, investors should concentrate on understanding the requisite factors to make their asset allocation decision: goals, the risk and return characteristics of the asset classes, risk tolerance, and investment horizon. Should they wish to pursue active management strategies, they should attempt to do so by investigating the funds with lower expenses, fees, and turnover. So what does the research tell us? Strategic asset allocation is the dominant influence on US total fund returns. Market timing and stock selection play minor roles and over the long-term have detracted value after costs and added risk. Higher cost funds deliver, on average, lower returns relative to their benchmark, compared to lower cost funds. Conclusions are quite consistent in all market environments – bull and bear! 1 “Determinants of Portfolio Performance”, Financial Analysts Journal, July/August 1986, vol. 42, no 4.back 2 “The Importance of Investment Policy”, Journal of Investing, vol. 8, no 4 (Winter).back 3 “Sources of Portfolio Performance: The Enduring Importance of Asset Allocation”, The Vanguard Group, Inc., July 2003.back

Subject: asset allocation MYTHS From: johnny5 To: All Date Posted: Fri, Feb 18, 2005 at 12:36:39 (EST) Email Address: johnny5@yahoo.com Message: http://www.forbes.com/forbes/1997/0113/5901270a.html False prophets By David Dreman, 01.13.97 IN JANUARY of 1995, many market timers and asset allocators warned that the market looked toppy. The S&P 500 had run up 71% from its 1990 low, and close to 600% from the beginning of the great bull market. Toppy? The market proceeded to advance another 71%. Market timers and asset allocators promise to get you in and out of the market at the right time. Asset allocators go one promise further. Working with a host of technical, fundamental and economic variables, they claim they can maximize your returns through the proper blend of stocks, bonds, cash and other investments. If they could do what they claim to be able to do, the timers and allocators would make their followers rich. Who, after all, wouldn't have wanted to be out of the market in October of 1987 and back in early the following year? But in practice no one I repeat, no one can consistently call market turns with precision. ; The chart, taken from Morningstar data, tells it all. It shows the returns of 186 asset allocators for the 11 years to last September, compared with the S&P 500 and the average of all domestic equity funds. The period covers a good part of the bull market, as well as the 1987 crash, the worst on record, and the sharp downturn of 1990. This was an ideal period for the market timers or asset allocators to prove their mettle. They should have gotten you out before the 1987 and 1990 crashes and back in on time to ride the resurgent bull. Had they succeeded, you would have outperformed the market handily. As the chart shows, heroes they ain't. While the market surged 508% over the entire period and the average equity fund moved up 410%, the asset allocators increased only 296% (all figures are dividend adjusted). With hundreds of market letter writers and asset allocators bandying forecasts about, some of them are bound to make good calls it's the law of the coin toss. But calling heads once does not seem to improve the chances of calling it right at the next toss. ; Mistiming Take the case of a well-known market timer whose claim to fame was that she called the 1987 crash, a claim somewhat disputed because she never issued it to her clients. As the market fell sharply in July 1996, this seer predicted it would drop another 1,000 points. Her revised forecast drove the Dow down 40 points the day it was issued. But her revised forecast notwithstanding, the Dow had moved up 1,129 points near the end of December. Even when the timers and allocators make lucky calls at the top, there is almost no chance they will get you back in anywhere near the bottom. On paper their claims make sense. In the real world they don't. Still, what do you do after the market's enormous gains? I wouldn't sell quality stocks, particularly if the gains are taxable. If you bought a stock at 10 and it is now at 50, you owe Uncle Sam $10 a share in capital gains taxes. So even if you could buy the stock back at 40, you still wouldn't be cash ahead. The way to make big money is to buy and hold quality stocks, not to try and outsmart the market. Is there enough asset classes outside of US markets? http://publish.uwo.ca/~jnuttall/asset.html 'Data from 91 large US pension plans indicate that investment policy dominates investment strategy (market timing and security selection), explaining on average 93.6% of the variation in total plan return .' Brinson et al. 1986. Almost all the 'quotes' omit the important qualifier 'on average'. Many omit the word 'variation', and claim that 93.6% of investment RETURNS come from asset allocation. Others incorrectly interpret 'variation' to mean variation of return from plan to plan. Most seriously, there has been a frequent misunderstanding of what the authors meant by 'investment policy' or 'asset allocation'. Brinson et al. defined investment policy to be a combination of the choice of asset classes and the choice of asset mix. Many think it is just asset mix that determines over 90% of your return. Later work showed that it is the first part of investment policy, the decision to invest in the various asset classes, that is responsible for the major part of return, represented by the return due to the market portfolio. An advisor or manager does not deserve any credit for this return. The return due to investment strategy is defined as the return of the portfolio relative to a portfolio of index funds with fixed weights. Averaged over plans, this return will be close to zero. Brinson et al. unjustifiably declared that this return was therefore due to chance and did not contribute to overall return. That is the real meaning of their statement that the return due to investment policy is overwhelmingly dominant, in spite of the fact that, for some plans, strategy returns were large. Important conclusions are Asset mix choice is usually responsible for a minor part of portfolio return. An investor who believes that asset allocation dominates portfolio return should invest in index funds and not try to time markets.

Subject: Blantyre, Malawi: AIDS and Custom From: Emma To: All Date Posted: Fri, Feb 18, 2005 at 10:51:52 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/18/international/africa/18property.html?ei=5094&en=61483272e1048466&hp=&ex=1108789200&partner=homepage&pagewanted=all&position= AIDS and Custom Leave African Families Nothing By SHARON LaFRANIERE BLANTYRE, Malawi - There are two reasons 11-year-old Chikumbutso Zuze never sees his three sisters, why he seldom has a full belly, why he sleeps packed sardinelike with six cousins on the dirt floor of his aunt's thatched mud hut. One is AIDS, which claimed his father in 2000 and his mother in 2001. The other is his father's nephew, a tall, light-complexioned man whom Chikumbutso knows only as Mr. Sululu. It was Mr. Sululu who came to his village five years ago, after his father died, and commandeered all of the family's belongings - mattresses, chairs and, most important, the family's green Toyota pickup, an almost unimaginable luxury in this, one of the poorest nations on earth. And it was Mr. Sululu who rejected the pleas of the boy's mother, herself dying of AIDS, to leave the truck so that her children would have an inheritance to sustain them after her death. Instead, Chikumbutso said, he left behind a battery-powered transistor radio. 'I feel very bitter about it,' he said, plopped on a wooden bench in 12-by-12-foot hut rented by his maternal aunt and uncle on the outskirts of this town in the lush hills of southern Malawi. 'We don't really know why they did all this. We couldn't understand.' Actually, the answer is simple: custom. Throughout sub-Saharan Africa the death of a father automatically entitles his side of the family to claim most, if not all, of the property he leaves behind, even if it leaves his survivors destitute. In an era when AIDS is claiming about 2.3 million lives a year in sub-Saharan Africa - roughly 80,000 people last year in Malawi alone - disease and stubborn tradition have combined in a terrible synergy, robbing countless mothers and children not only of their loved ones but of everything they own. 'It is the saddest, saddest story,' said Seodi White, who heads the Malawi chapter of Women and Law in Southern Africa, a nonprofit research organization. 'People are cashing in on AIDS. Women are left with nothing but the disease. Every time you hear it you get shocked, but in fact it is normal. That's the horror of it.' The tradition is rooted in the notion that men are the breadwinners and the property of a married couple represents the fruits of the man's labor. Women may tend the goats and plant the corn, but throughout the region's rural communities they are still regarded as one step up from minors, unable to make an economic contribution to the household. When the husband dies the widow is left essentially to start over, much like a young girl, presumably to search for another husband. Since the children typically remain with the mother, her losses are also theirs. 'Women are traditionally behind, so they are vulnerable to this kind of exploitation,' Phil Ya Nangoloh, executive director of the National Society for Human Rights in Namibia, said in a recent interview. 'It is bad because it makes a weak person even weaker and more vulnerable.' The degree to which men control household property varies from country to country and tribe to tribe. In matrilineal tribes, children are considered descendants of the mother, and the family typically lives in the mother's village. Should the husband die, the widow typically keeps the house and land, plus items judged to be women's essentials like pots, pans, kitchen utensils and buckets, according to studies by Women and Law in Southern Africa. Her in-laws collect the more valuable belongings, like bicycles, sewing machines, vehicles and furniture. Many tribes are patrilineal, meaning children are considered the father's descendants and men are seen as the sole property owners in the family. If her husband dies, the wife may be allowed to stay in the couple's house - but, sometimes, only on condition that she marry one of her husband's relatives. If she wants to move, perhaps back to her own family, she typically leaves with nothing but the clothes on her back. Or she may simply be driven out altogether. Increasingly, in-laws cite the possibility that a widow is infected with the AIDS virus as reason to confiscate her home.

Subject: Blantyre, Malawi: AIDS and Custom - 1 From: Emma To: Emma Date Posted: Fri, Feb 18, 2005 at 10:53:02 (EST) Email Address: Not Provided Message: 'Families have even more of an out now,' said Birte Scholz, who wrote a report on inheritance practices in sub-Saharan Africa for the Geneva-based Center on Housing Rights and Evictions. 'They simply say: 'You have AIDS. You must get out.' ' In a culture where women are prized for their docility and obedience, few widows protest. Consider, for example, the fate of Ellen Wyson, who lived with her husband and two children in Chiwaya, a southern Malawi village, until her husband died two years ago, apparently of AIDS. The family income from farming and selling fish had enabled the couple not only to build a six-room house and till an adjoining plot of land, but to give a stipend to her husband's struggling younger brother. Still, Mrs. Wyson said, her brother-in-law was jealous. When her husband died, she said, he saw a chance to get even. As in nine out of 10 cases here, Mrs. Wyson's husband left no will to protect her and their children. 'Two weeks after the funeral my husband's younger brother and his wife arrived and took the iron roofing, doors, bicycles, even the produce from the garden,' she said in an interview. 'He became very forceful. He told me: 'You are supposed to go back to your home, because your husband is dead. And you are not taking anything.' 'They chased me away. There was nothing I could do. I just gave up.' Ms. Wyson, 38, sought refuge in an unfurnished abandoned hut in the nearby village of Ndanga, where she now lives off relatives' handouts. In the advanced stages of AIDS herself, she has sent her son and daughter, 13 and 15, to live with her parents while she tries antiretroviral therapy at a clinic four hours away by foot. Under Malawi law Mrs. Wyson was entitled to half or two-fifths of what her husband left behind. Her in-laws might even have been convicted of property grabbing under a 1998 amendment to the inheritance law that provides for a fine of up to $200 or five years in prison. But Mrs. Wyson says she has no money or energy to pursue such remedies when her life is at stake. 'I don't want to reopen old wounds,' she said, staring down at her dirty blue dress. Legal centers and human rights advocates say such cases are ubiquitous in sub-Saharan Africa. In one 2001 study in Uganda financed by the United States Agency for International Development, 29 percent of widows said they had been victims of property grabbing. One in five teenage orphans said outsiders had seized their belonging after their parents had died. Laws to protect the inheritance rights of widows and children are not enforced or are simply no match for the power of tradition, legal advocates say. Few widows know their rights, and fewer still are able to seek legal help, especially in countries like Malawi, where about 500 lawyers serve a population of 11 million. 'Even in families that are better off economically there is normally some sort of coercion or family pressure that forces women to give up their inheritance,' said Ms. Scholz, of the housing rights center. Some in-laws threaten to invoke witchcraft if widows persist with their claims. Others simply make life unbearable. When one widow in Zambia refused to marry her brother-in-law in order to keep her home, her in-laws turned her homestead into a cemetery, Ms. Scholz said in a telephone interview from Geneva. Sixteen graves now lace her property. A local judge recently ruled that the court had no jurisdiction to settle the dispute. Still, more and more widows are putting up a fight. In Zambia, the police say they investigated 458 cases of property grabbing in 2003. In Malawi, the nonprofit Center for Advice, Education and Research counseled some 120 people on issues of inheritance, death benefits or property grabbing from last July to September, a 60 percent increase from the preceding three months. By the time his father, Jonas, died, Chikumbutso Zuze recalled, his mother was too sick even to cook for him and his three sisters in their three-room house in the village of Bvumbwe in southern Malawi. Still, he said, she tried to defy her husband's nephew when, with Dickensian callousness, he showed up after the funeral demanding the keys to the family truck. He also demanded the beds and any other possessions they had not already sold off to pay for medicine and food. 'My mother told him: 'Don't take the vehicle. It should be used to assist these children.' He said he had a right to inherit it and he would leave behind the radio, which the children should listen to,' ' Chikumbutso recalled. A strongly built boy with a serious demeanor, Chikumbutso now lives off the charity of his maternal aunt and uncle, who say they struggle daily to feed their own six school-age children. To raise money for food, the boy carries buckets of water, hauls sand from the river and solicits other chores from the neighbor. 'I don't have a permanent place to stay,' he wrote in a notebook provided to him by Unicef, which endeavors to track and aid orphans like Chikumbutso. 'I am shifted from one place to another, sometimes on a weekly basis. Assistance which I need: food, clothes, blankets, school uniform.' He is at least marginally better off than his 14-year-old sister, Labbecca. A few weeks ago she turned up on the doorstep of his aunt, Befiya Phaelemwe, begging to be taken in. But the aunt said the pittance her husband earned patching clothes was not enough to feed her own children and Chikumbutso. She gestured toward a metal bucket half-filled with corn on the floor - the sum total, she said, of the family's provisions. 'I told her the house was small and I could not take one more child,' she said. 'She was full of sorrow.' In tears, Labbecca trudged off, saying maybe a boyfriend would provide her with a place to sleep. Ms. Phaelemwe said she had not seen her since and had no idea where she was. Said Chikumbutso: 'I am very worried.'

Subject: One of the Fed's chief worries From: Pete Weis To: All Date Posted: Fri, Feb 18, 2005 at 10:27:36 (EST) Email Address: Not Provided Message: Considering the inflated importance of the housing market to the US economy this represents a mega threat: Greenspan urges cuts at Fannie, Freddie Fed chief says $1.5 trillion mortgage portfolio will cause problems for nation's financial system. February 18, 2005: 9:19 AM EST WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan urged Congress to significantly cut the mortgage portfolios of the big mortgage firms Fannie Mae and Freddie Mac to avoid 'almost inevitable' problems for the U.S. financial system. Greenspan has in the past expressed concern about the growth of the companies' mortgage holdings, saying they could pose a risk if allowed to increase unchecked. The Fed chairman went farther Thursday, telling members of the House Financial Services Committee they should require the companies to slash their mortgage holdings. Congress is weighing tighter supervision of the mortgage finance companies after accounting controversies and senior management ousters at both firms in 2003 and 2004. Fannie Mae (Research) and Freddie Mac (Research) buy home loans from lenders and repackage them as securities for investors, but they also retain mortgages and mortgage-backed securities for their portfolios. Congress chartered the shareholder-owned companies to ensure there are plenty of funds available for home buyers to take out mortgages. Greenspan said in response to lawmakers' questions that the growth of those portfolios, which together top $1.5 trillion, primarily allows the companies to leverage their federal charters to generate substantial profits. 'We have found no reasonable basis for that portfolio above very minimal needs and what I would suggest is that for liquidity purposes they're able to hold U.S. Treasury bills in whatever quantity they would choose ... and a $100 billion, $200 billion, whatever the number might turn out to be, limit on the size of the aggregate portfolios of those institutions,' he said. A Freddie Mac official disagreed with Greenspan, saying that Freddie Mac's mortgage and mortgage-security purchases pump money into mortgage markets, lowering costs by boosting demand and guaranteeing stability even during unsettled periods, such as the Asian debt crisis of 1997-1998. 'Our retained mortgage portfolio helps us fulfill our charter purposes of providing liquidity and stability to the U.S. residential mortgage market in good and bad economic times,' said Freddie Mac spokeswoman Sharon McHale. But Greenspan said congressional failure to cap the growth of the companies' mortgage portfolios would invite potentially serious risk. He recommended that lawmakers pass legislation within several years requiring Fannie Mae and Freddie Mac to divest a large share of their holdings. 'Over time, several years, that should be done because these institutions, if they continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios which they need to do for interest risk diversion, they potentially create ever-growing potential systemic risk down the road,' Greenspan said. While there is no risk now, problems are 'almost inevitable' in the remainder of the decade if lawmakers fail to act, he added. 'If you get large enough ... and something goes wrong, then we have a very serious problem, because the existing conservatorship does not create the funds which would be needed to keep these institutions going in the event of default, which is what the conservatorship is supposed to do, and we have no obvious stabilizing force within the marketplace,' he said. 'Enabling these institutions to increase in size -- and they will, once the crisis passes ... -- we are placing the total financial system of the future at a substantial risk,' Greenspan added. Rep. Richard Baker, a Louisiana Republican, said he is considering a proposal to limit the size of their portfolios.

Subject: Systemic risk From: Pete Weis To: Pete Weis Date Posted: Fri, Feb 18, 2005 at 21:49:49 (EST) Email Address: Not Provided Message: Wonder how this might affect JP Morgan and Citigroup down the road.

Subject: And the Lord did come across a T-Rex From: Setanta To: All Date Posted: Fri, Feb 18, 2005 at 10:15:58 (EST) Email Address: Not Provided Message: They say you should take solace wherever you can, and we often find ourselves in religious book stores, perusing some of the more amusingly eccentric tracts on sale. So you can imagine our delicious jolt of excitement at the flyer in the store which informed us that world-renowned Creationist Ken Ham is visiting these shores in the next few weeks. Ham is revered by those who believe that the earth is only 6,000 years old, and viewed with a mixture of contempt and amusement by those heathens who are prepared to accept the incontrovertible scientific evidence of evolution. The head of a group called Answers In Genesis, Ham claims that evolution is simply a nonsense which is easily disproved. In fact, it's apparently as ridiculous as the Big Bang and that whole notion of an old universe. According to Ham: 'Adam and Eve were also made on day six, so dinosaurs lived at the same time as people, not separated by aeons of time. Dinosaurs could not have died out before people appeared, because dinosaurs had not previously existed, and death, bloodshed, disease and suffering are a result of Adam's sin.' Continuing his full scientific mode, he goes on to explain that dinosaurs are mentioned in the Bible, but they were simply creatures which weren't allowed onto Noah's Ark and thus perished. 'There is no mystery surrounding dinosaurs,' says Ham, 'if you accept the Bible's totally different account of dinosaur history.' Fair 'nuf. a colleague of mine mentioned, on the train this morning, that he was hopeful for the future now that these types are having more and more influence on education in the US. 'they won't be engineering anymore biological weapons because God didn't create these organisms in the first place!'. while he was only joking, it doesn't look bright for the US's future should this kind of education hold sway!

Subject: Re: And the Lord did come across a T-Rex From: Emma To: Setanta Date Posted: Fri, Feb 18, 2005 at 15:43:41 (EST) Email Address: Not Provided Message: Wonderful and sad and wise. Ernst Mayr, the wonderful evolutionary biologist has just died at 100.

Subject: Building a Bond Portfolio From: Terri To: All Date Posted: Fri, Feb 18, 2005 at 07:22:34 (EST) Email Address: Not Provided Message: Please do argue, but I can find no reason to fear any Vanguard bond portfolio if an investor is willing to be patient during a period of rising interest rates. Putting together a portfolio of bonds other than Treasuries that will match Vanguard's, would be more than just difficult.

Subject: Where should londoners have invested 19th century? From: johnny5 To: Terri Date Posted: Fri, Feb 18, 2005 at 10:18:50 (EST) Email Address: johnny5@yahoo.com Message: It all comes down to your faith in the future of global development but Vanguard as a company seems to have the right 'costs' for individual investors. http://www.investorhome.com/asset.htm My relatives keep bugging me about their raymond james retirement planner and how she says asset allocation makes up 91.5% of their potential success based on a 1991 study 'determinant of portfolio performance II' - with market timing being 1.8% and security selection being 4.6% and other factors 2.1%. I told them to call Vanguard and get into the 500K asset management program that has a $4500 annual fee, but my relatives insist an 'internet company' is a fly by night operation and they want someone to go see and sit down in an office every so often. I tried showing them the comparison of the products offered - how the jackson national life annuities and various funds they will be investing in through that will have expense and distribution fees much higher than vanguard and the possible tax differences but they do not listen. Needless to say the majority of investements in the raymond james/jackson national life asset allocation model is US based with only 2 international funds and one energy sector fund. For my relatives particular makeup only 6% of thier money was going into a mellon capital mgmt international index and 4% going into an oppenhiemer global growth fund - Fully leaving my aunt and uncle 90% invested in american stocks and bonds with about a 65%stock/35%bond makeup. I assume this is going to be similar at many other investment advisors offices. So if the growth is leaving america and heading to asia and profits leaving financial assets and going into energy - the asset allocation they have been given is actually VERY narrow and not diversified at all - basing thier future earnings on the success of one nation out of almost 200 in this 'global market' They call me a 'fool' for having the majority of my investment in a scott trade account mostly in oil companies - chevron and exxon. I figure no matter the currency it is traded in on the 'global market' oil will always have value as you pointed out in an earlier post. Even in raymond james/jackson national life's own offerings there is a mellon capital energy sector fund with 10 year returns clobbering all other offerings but that is just market timing according to the professional. I worry for the future of our retirees being given this USA centric investing advice when diversification at this point I would think requires less US investment for proper allocation and 2 rich boys named gates and buffet seem to concur. I provided them the link at the top but they say they will not TRUST anything on the internet even though there are fair refutations to raymond james asset allocation advice because of 'Costs' - one of them from Bogle himself. http://www.vanguard.com/bogle_site/lib/jcbspch4.html So, it would seem fair to reaffirm our earlier amendment of the BHB conclusion: 'Although investment strategy can result in significant returns, these are dwarfed by the return contribution from investment policy, and the total return is severely impacted by costs.' http://www.vanguard.com/bogle_site/lib/jcbspch4.html An even more extreme conclusion was reached by William W. Jahnke, like BHB a winner of the yearly Graham and Dodd Award for an outstanding article published by the Financial Analysts Journal. Writing in a recent issue of the Journal of Financial Planning, Jahnke concludes: 'For many individual investors, cost is the most important determinant of portfolio performance, not asset allocation policy, market timing, or security selection.' To summarize the concepts I have presented today (as shown in Exhibit IX): Costs may be expressed as (1) an average annual percentage of assets managed (the conventional measure); (2) a percentage of total equity return; (3) a percentage of initial capital consumed over ten years; and (4) a percentage of equity risk premium, an important new concept. It's up to you whether you wish to relinquish 5.7% of the historic premium norm or 62.9%. In any event, costs truly matter. The riddle of performance attribution that I posed at the outset—is performance determined by asset allocation or by cost?—has a very simple answer: Both.

Subject: Where Should We Have Invested? From: Terri To: johnny5 Date Posted: Fri, Feb 18, 2005 at 17:55:10 (EST) Email Address: Not Provided Message: This is a most important post, and teaches me a lot. The experiences you have had are well shared. The above post 'We are Reminded Why Costs Matter' is a summary of an idea you so well introduced.

Subject: Re: Building a Bond Portfolio From: Pete Weis To: Terri Date Posted: Fri, Feb 18, 2005 at 10:18:02 (EST) Email Address: Not Provided Message: Terri. With all investments there is a certain amount of risk involved. Good investors (and I'm not claiming to be one) do a good job of assessing both the risk of an investment and its expected return. If an investment has higher risks than we must demand a higher expected return. I'm not telling you something you don't already know and as you know there is a lot more to investing (balancing asset classes, etc). But in this case it's the risk vs expected return assessment. When it comes to the bond market, there are two primary risks to consider - interest rate risk and currency risk (currency risk applies to all investments - so are interest rates, but the bond market is especially vulnerable to interest rates). When it comes to the bond market in the US, it is generally agreed that both risks are high. Of course, one can reduce interest rate risk by investing in bonds with shorter duration. I believe in the present climate the US dollar will have to drop considerably from here and it is my primary focus when it comes to investing, presently. I'm hoping it will drop slowly but increasingly folks like Nouriel Roubini and Paul Volker cause me to wonder about the risk of a sudden steep drop. I don't necessarily disagree with your belief that the Euro might also drop (especially relative to commodities). Roubini doesn't think it will happen, but perhaps the European central banks will join with Asian central banks in buying US treasuries. At this time I think the US bond market is too risky for the expected return. It's a minefield out there when it comes to investing - IMO, those who focus their investments based on a falling dollar and lower risk will do the best in the immediate years ahead. Those who don't will lose a lot of their life savings. Eventually the environment will change and when that time comes it will call for a different investment strategy. Will commodities and natural resource companies (both of which have risen sharply in recent years) continue to be good investments. Whether or not the world slides into a recession with reduced overall consumption will decide that. It's a minefield.

Subject: YESBUT From: johnny5 To: Pete Weis Date Posted: Fri, Feb 18, 2005 at 10:23:46 (EST) Email Address: johnny5@yahoo.com Message: Check out the charts here - but the studies raymond james and Bogle himself seemed to agree with say market timing and stock picking are your enemies - not your friends - knowing all this I am gonna pull a YESBUT like Emma posted about. http://www.321gold.com/editorials/aden/aden021805.html Looking at the truly big 200 year picture of commodity prices from 1804 to 2004, you can see that all commodities generally move together (see Chart 1, above). There have been five major upmoves since 1804 and we're just beginning the sixth. This strongly suggests commodity prices will be rising for years to come, which would coincide with China's growth and ongoing demand. But it's not only China. There are now three billion people in the world economy who weren't there before when we consider the emergence of India and the former communist countries, in addition to China. As these people become more affluent they'll be buying more oil for their cars, metals for their industries and infrastructure, and food, which will keep upward pressure on commodity prices. So looking out to the years ahead, this is going to be inflationary. Also interesting, these big commodity price rises have always coincided with major wars throughout history. And the current rise will probably coincide with the war on terror. In other words, wars and/or geopolitical tensions will likely increase in the years ahead. DELICATE WORLD OF OIL This shouldn't really come as a surprise. Despite the successful election in Iraq, Bin Laden has stated many times he's out to destroy the U.S. economically. He wants the U.S. and royal family out of Saudi Arabia and he's been telling his followers, which are growing in numbers, to attack oil fields and halt supplies, which are essential to Western economies. U.S oil imports are at record levels and the U.S. uses more oil than Germany, Russia, China, Japan and India combined. Saudi Arabia is one of our biggest oil suppliers and this alone makes the entire oil picture vulnerable. Even though it's hard to imagine because we tend to take oil for granted, it's a threat that could not only cripple our economy but intensify the war on terror if anything were to happen to disrupt our oil supplies. It would also drive the oil price up to unprecedented levels, which would tie in with this new mega rise in commodity prices. For now, we don't know what's going to happen, but somehow rising oil seems like it'll be part of the equation. CHANGING WEATHER At the same time, modern society and our dependence on oil has led to the worst weather disruptions in 1,000 years. This is resulting in more disasters like floods, hurricanes and droughts. Here again, as this continues in the years ahead, crops will be damaged and in more demand, which will also drive commodity prices higher. That's the way we currently see it. This could change but until we see evidence to the contrary, we feel there's a greater likelihood inflation is in our future rather than deflation and that should prove to be good for the metals and commodities prices. Interestingly, this commodity mega trend is coinciding with the new investment era that began in the late 1990s with a shift out of financial assets like stocks, into tangible assets like gold (see Chart 2 below).

Subject: Your opinion? From: Yann To: All Date Posted: Fri, Feb 18, 2005 at 07:11:16 (EST) Email Address: Not Provided Message: There is a “movie (corporate) tax credit” in France for one year. If you shoot your film with a crew in France rather than, say, in Spain you get the credit because outsourcing is reduced... What do you think of it?

Subject: Re: Your opinion? From: Setanta To: Yann Date Posted: Fri, Feb 18, 2005 at 10:32:19 (EST) Email Address: Not Provided Message: Yann, Ireland has had a similar measure for years, well not so much a tax credit as a tax exemption. in fact any income deriving from an original work (film included, but books, art, music principally) is tax exempt. this has drawn big pictures such as: saving private ryan, arthur, reign of fire, and the latest 'lassie'. well, maybe not so big!!!

Subject: Re: Your opinion? From: Jennifer To: Setanta Date Posted: Fri, Feb 18, 2005 at 15:41:23 (EST) Email Address: Not Provided Message: Ireland has successfully used tax incentives to attract investment for quite a while. An important aspect of the wonderful development spurt.

Subject: Stocks and Bonds From: Terri To: All Date Posted: Fri, Feb 18, 2005 at 06:19:12 (EST) Email Address: Not Provided Message: There is no reason to expect the equity premium to be more than 2 percentage point in future, but that is a significant margin. Also, tax law favors dividend income and capital gains over interest.

Subject: The Modern Equity Premium From: Terri To: All Date Posted: Fri, Feb 18, 2005 at 06:17:58 (EST) Email Address: Not Provided Message: The equity premium has not been what it was for quite some time :) The last 10 years the Vanguard S&P Index was up 11.4%, while the long term bond index was up 9.7%. Starting date changes the margin, of course. Since 1973 the S&P Index was up about 11.4%, and the long term bond index was up about 9.2%.

Subject: 3.5%? From: johnny5 To: Terri Date Posted: Fri, Feb 18, 2005 at 09:48:08 (EST) Email Address: johnny5@yahoo.com Message: Bogle had some good insight but I assume the following link only considers USA based stocks,bonds,cash - I am just concerned all this analysis and several centuries of historical data falls apart when you take away the agricultural gift we were given in the USA 200 years ago and how foreign development is marginalizing the US centric viewpoints. What good is it to factor in US bonds in your asset allocation models when the US may fall as the world economic leader very soon and the US stock market may take a dive. 'global markets' http://www.vanguard.com/bogle_site/lib/jcbspch4.html And now is the time to introduce a fourth concept of costs, a new concept (at least one I have not seen before): cost as a percentage of the equity risk premium. It would seem clear, to take an extreme example, that if equities were to carry a risk premium of 2.5% over long-term U.S. Treasury bonds, the choice between an equity fund with an expense ratio of 2.5% and a Treasury bond would be indifferent: Theory would say that the long-term returns of the two investments over time would be identical. Cost would have consumed 100% of the equity premium. Viewed in this light, all of the costs of investing—advisory fees, other fund expenses, and transaction costs—bite into the risk premium. The difference is simply a matter of degree, although at the highest cost levels it is arguably a difference in kind. This table shows the percentage of the risk premium consumed by mutual fund expenses at various premium levels (for the purpose of simplicity, transaction costs, which could add another 0.1% to 1.0% of cost, are ignored): Looking out over time, from the price levels in today's market, a 2% risk premium might be a reasonable guess for the coming decade. Indeed, many respected investment advisers might place the probable number at less than 2%. Well, I'm often wrong (seldom in doubt), so first let's explore what a normal equity premium might be. I went to the acknowledged authority on the subject, best-selling author ('Stocks for the Long Run') and Wharton School Professor Jeremy J. Siegel. He obligingly sent me a two-century history of equity premiums on U.S. stocks over long-term U.S. Treasury bonds. The average equity premium over this long, long period is 3.5%. I will leave it to you to decide what is a fair number to use today, but, for the rest of my analysis, I'm going to rely on this average. So, let's imagine you are an investor confronting the real world of mutual funds today, and examine what happens when you come to make your asset allocation decision. For the purpose of argument, let's assume you expect to maintain a stock-bond ratio of 65%/35%, and you determine to consider the implications of cost on your decision. Further, let's assume a long-term return of 10% on stocks and a risk premium of 3.5% over long-term Treasuries. You decide to hold a Treasury bond for the bond allocation. For the equity allocation your choice is between a fund in the lowest cost range of 0.20% and an equity fund in the highest cost quartile, with an expense ratio of 2.2%. The resulting 1.3% spread in assumed return—with risk (the stock/bond ratio) held constant—it is safe to say, is a meaningful difference. The low-cost program would build your $10,000 to $22,800 in 10 years and $78,700 in 25 years (taxes excluded). The respective results for the high-cost program would be $20,200 and $58,200. But now let's look at the situation slightly differently, from the standpoint of risk premium. You accept my basic premises—a 10% return in stocks and a 3.5% equity risk premium—and are investing with the hope and objective of receiving a long-term return of 7.5%. Question: What allocation would you make, given a choice between a low-cost equity fund and a high-cost equity fund? Answer: If you select the low-cost program, your required ratio would be 30% stocks and 70% bonds. But if you select the high-cost program, your ratio would be 75% stocks and 25% bonds. To say the least, the difference in risk exposure is dramatic. Put another way, you could reduce your exposure to the risk of the stock market by 45 percentage points—a reduction of 60%—by the simple expedient of choosing the low-cost fund. This example obviously assumes that other factors are held constant; in effect, that costs make the difference in long-term performance. (I have amply highlighted the basis for this thesis earlier in this paper.) And it also assumes what we have learned from long years of experience: that a top-performing fund cannot be selected in advance. While we may know history's appraisal of the equity premium in the past, we never can be certain of what will be the equity premium that will prevail in the future. So, let's consider the implications of two future environments, one bearish, the other bullish: (1) an equity return of 7% and a risk premium of 1%; and (2) an equity return of 12% and a risk premium of 4%. In the former case, the low-cost stock fund consumes 20% of the 1% risk premium compared to 220%(!) for the high-cost fund—and please recall that fully 25% of funds in the industry have costs in that range. In the latter case, costs of the low-cost fund would consume 5% of the 4% risk premium; the high-cost fund would consume 55%. This example contrasts the returns achieved by the three portfolios at various asset allocations: So, it would seem fair to reaffirm our earlier amendment of the BHB conclusion: 'Although investment strategy can result in significant returns, these are dwarfed by the return contribution from investment policy, and the total return is severely impacted by costs.' An even more extreme conclusion was reached by William W. Jahnke, like BHB a winner of the yearly Graham and Dodd Award for an outstanding article published by the Financial Analysts Journal. Writing in a recent issue of the Journal of Financial Planning, Jahnke concludes: 'For many individual investors, cost is the most important determinant of portfolio performance, not asset allocation policy, market timing, or security selection.'

Subject: Thank You Thank You From: Terri To: johnny5 Date Posted: Fri, Feb 18, 2005 at 15:05:00 (EST) Email Address: Not Provided Message: Thanks for this important article! Yes, yes.

Subject: Reviewing introductory economics From: Yann To: All Date Posted: Fri, Feb 18, 2005 at 04:16:23 (EST) Email Address: Not Provided Message: February 16, 2005—The U.S. is very proud that our aid to Colombia, a major producer of coca, the raw material for cocaine, has led to a 60 percent drop in acreage planted incoca. One would think that this decrease in supply would have caused the price of cocaine to increase and the quantity demanded to drop. The opposite has happened: The price of a gram of cocaine is down to $38 from $48 in 2000. How can this be? The answer is very simple: In response to the reduction in supply in Colombia producers in nearby Peru and Bolivia have been expanding their crop rapidly. Producers in those countries have, moreover, been adopting technologies that allow them to produce the final product more efficiently. It’s not clear that our effort has helped control drugs in the U.S.; but it has certainly helped Peruvian and Bolivian coca farmers and drug producers. (By Daniel S. HAMERMESH) (http://www.eco.utexas.edu/faculty/Hamermesh/EconThought.htm)

Subject: Re: Reviewing introductory economics From: johnny5 To: Yann Date Posted: Fri, Feb 18, 2005 at 09:25:52 (EST) Email Address: johnny5@yahoo.com Message: BWAHAHA! What a good laugh! It would seem controlling the borders or the shipping routes for the drugs would be a much better target of their resources than trying to police the entire world and control all the sources no? My redneck buddies in south georgia stopped growing cotton and peanuts and weed and moved into makeshift meth labs. They are high tech rednecks now. Going in and out of jail has become an accepted part of their lifestyle. They often make jokes to me now that all their friends and family are in jail so they always like to visit home - the truth of it is very sad. I used to live in hawaii where I thought certainly the law could control such a small geographically isolated region but alas it was not to be so: http://www.drug-rehabs.org/content.php?cid=419&state=Hawaii All of the illegal drugs that are available on the mainland can also be found in the islands, with cocaine HCl, crack cocaine, crystal methamphetamine ('ice'), Ecstasy, and OxyContin being the leading threats in the state. Hawaii also remains the producer of some of the highest-grade marijuana in the country (such as 'Kona Gold'), and it is suspected that much of it is exported to the mainland. The tourist industry throughout the state perpetuates the demand for user quantities, therefore ounce type dealers flourish in the bar, nightclub and hotel scenes. The majority of seized heroin is body carried into the islands from Los Angeles by Mexican organizations and distributed throughout the state by a close-knit cell of distributors

Subject: Re: Reviewing introductory economics From: jimsum To: johnny5 Date Posted: Fri, Feb 18, 2005 at 13:53:12 (EST) Email Address: jim.summers@rogers.com Message: I think this is a good economics lesson about how people do not make rational decisions. Alcohol is a dangerous, addictive drug that regularly kills people from overdoses, causes birth defects and cancer, and contributes to a huge percentage of crimes. But, we tried banning alcohol 70 years ago, and quickly determined that as bad as legal alcohol was, the problems caused by banning it were worse than the benefits from reducing consumption. We know prohibition has higher costs than benefits for alcohol; there is no reason to think this isn't true for all drugs. People are going to take drugs and alcohol no matter what the laws are; studies have shown there is no correlation between drug use and the severity of laws forbidding it. All prohibition does is put a huge market in the hands of criminals to exploit, and costs us large amounts of money for the police and prisons to hold all the users.

Subject: Re: Reviewing introductory economics From: Setanta To: Yann Date Posted: Fri, Feb 18, 2005 at 04:37:31 (EST) Email Address: Not Provided Message: Yann, my introduction to economics (a first year book by stiglitz, can't remember its name!!!) only had a 2 country 2 product model for international economics (the ricardian model i think). clearly, the geniuses in the DEA studied the same and haven't got to Bo Soderson's or Paul Krugman's international economics books yet!

Subject: Re: Reviewing introductory economics From: Yann To: Setanta Date Posted: Fri, Feb 18, 2005 at 06:49:27 (EST) Email Address: Not Provided Message: Setanta, I think you are more informed than me...

Subject: Stocks and Currency Movements From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 20:56:21 (EST) Email Address: Not Provided Message: Stocks when reasonably valued represent real assets. If the dollar were to drop by 25%, a French investor could buy Exxon at a 25% discount. Too steep a drop, I think. Exxon would drop little as the dollar fell, rather than become an amazing buy for French investors. Stocks compensate after currency movements, I have repeatedly found.

Subject: Re: Stocks and Currency Movements From: johnny5 To: Terri Date Posted: Fri, Feb 18, 2005 at 01:42:41 (EST) Email Address: johnny5@yahoo.com Message: Has the dollar not already fallen 50% in the past few years to the euro? http://www.streetauthority.com/cmnts/cp/2005/01-05.asp Forget oil. Forget Fed Chief Alan Greenspan. What’s really moving the markets right now is the rise and fall of the American dollar. The world’s most important currency has been on a steady decline throughout the past three years, but recently has taken a turn for the worse. Since 2000, the U.S. dollar has fallen nearly -50% against the euro and in the past few weeks it hit its lowest level since 1995 against the world’s major currencies. The greenback is now near an all-time low against the euro, close to a five-year low against the Japanese yen and nearly half the value of the British pound.

Subject: International Bonds From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 11:41:27 (EST) Email Address: Not Provided Message: Though I believe the dollar will decline in value, whether the decline will continue against the Euro is not clear. So, I prefer a more flexible investment and find that in value stocks. Value stocks should adjust for currency and then some if the dollar should gain or lose against the Euro. I would be more inclined to buy bonds in Australia or Canada as a currency hedge. But, though I do believe the dollar will decline against a basket of currencies I favor value stocks for a hedge. Also attractive would be the Europe Stock Index.

Subject: Re: International Bonds From: johnny5 To: Terri Date Posted: Thurs, Feb 17, 2005 at 14:24:42 (EST) Email Address: johnny5@yahoo.com Message: Why europe instead of energy? http://flagship5.vanguard.com/VGApp/hnw/FundsCompareResult?entryPoint=null&step=fundCompare&FundIntExt1=INT&FundIntExt2=INT&fundFamilyId1=286&fundFamilyId2=286&FundId1=0079&FundId2=0051 I have done well with XOM over the past 2 years. Vanguard Funds: European Stock Index Inv Energy Fund Investor Year To Date -1.89% 2.12% 1 Year* 17.25% 38.90% 3 Year* 12.45% 23.76% 5 Year* 1.24% 20.55% 10 Year* 10.65% 16.82% Since Inception* 9.21% 13.32% Inception Date 06/18/1990 05/23/1984

Subject: Energy and Materials From: Terri To: johnny5 Date Posted: Thurs, Feb 17, 2005 at 17:53:23 (EST) Email Address: Not Provided Message: Agreed Agreed. There is reason to think of energy and materials investments, for patient accumulation.

Subject: news From: A. Lee Biggs To: All Date Posted: Thurs, Feb 17, 2005 at 11:35:27 (EST) Email Address: aleebiggs@hotmail.com Message: On National Public Radio's interview program Fresh Air on Thursday 17 February 2005: Michael Tanner vs Paul Krugman re Social Security 'reform'. Paul has a new book out, entitled Fuzzy Math, about W's tax cuts. Paul is moving website from 'http://web.mit.edu/krugman/www/' to 'http://www.wws.princeton.edu/~pkrugman/'.

Subject: Pushing on a string? From: Pete Weis To: All Date Posted: Thurs, Feb 17, 2005 at 10:14:43 (EST) Email Address: Not Provided Message: 'Japanese banks are increasingly unwilling to take the funds': Japan's central bank vows to keep stimulus policy as economy slumps Thu Feb 17, 3:42 AM ET Business - AFP TOKYO (AFP) - Japan's central bank has renewed its pledge to keep monetary policy ultra-loose in an effort to support an economy which was in recession for most of last year. The Bank of Japan earlier voted unanimously to leave policy unchanged, targeting an outstanding balance of current account deposits held by financial institutions at the bank of around 30-35 trillion yen (286-333 billion dollars). The bank has been conducting a 'quantitative' credit easing whereby it pumps cash into the financial system instead of lowering key short-term rates that are already near zero percent. There had been some speculation bank's policy board might change the liquidity target to a weekly or even monthly average from the current daily commitment as it has proven difficult recently to maintain it on a daily basis. The central bank has repeatedly failed in its day-to-day open market operations to inject the targeted amount as Japanese banks are increasingly unwilling to take the funds since their own financial position has improved with the steady reduction in their bad debt burden. At the same time, they have enough funds on hand to cover lacklustre new loan demand. 'We believe that we can continue to meet the reserve target of 32-35 trillion yen in any foreseeable future,' Bank of Japan governor Toshihiko Fukui told a press conference. He said the bank also has no plans to boost its Japanese government bond purchases to help it meet the reserve target. The underlying concern has been that if the central bank were to reduce the amount of liquidity on offer, it technically would result in higher interest rates -- a tightening of monetary policy in an economy still far from rude health. When asked whether the bank should consider a new monetary policy to replace the quantitative easing, Fukui said: 'I have no intention of ending the current framework until the CPI criteria are met.' Fukui has repeatedly said he would maintain the central bank's super-loose credit policy until the year-on-year change in the nationwide core consumer price index (CPI) stays at or above zero. Core consumer prices in Japan, which exclude volatile fresh food prices but includes energy costs, fell 0.2 percent in December from a year earlier, in a sign that deflation is easing but far from turning into mild inflation. The Bank of Japan on Thursday said the economy continues to recover, leaving its view unchanged for a third consecutive month despite data Wednesday showing that Japan was in recession for most of last year. In its regular monthly report for February, it said exports have been flat and industrial output soft, hit by slowing demand in the information technology sector, but both corporate capital spending and the labour market continued to improve. The fact remains, however, that while the major banks have slashed bad debt, the economic recovery since early 2001 lost steam in the middle of last year. Data released Wednesday showed that, contrary to economists' forecasts, Japan's economy contracted mildly from April, slipping into a technical recession as slower exports and consumption hit output. The Cabinet Office said the economy shrank 0.1 percent in the three months to December compared with the previous quarter, giving an annualized drop of 0.5 percent. It also revised the July-September quarter figures to a 0.3 percent contraction from the previous estimate of 0.1 percent growth, following a fall of 0.2 percent in the previous three months. The three quarters' downturn is the worst since the economy contracted for four consecutive quarters from April-June 2001 to January-March 2002, when it was hit by the bursting of the information technology bubble. The bank last changed policy on January 20, 2004, when it raised the upper limit of the current account balance to the current 30-35 trillion yen from 27-32 trillion yen to support the economy.

Subject: Re: Pushing on a string? From: Emma To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 12:33:51 (EST) Email Address: Not Provided Message: http://web.mit.edu/krugman/www/jpage.html What a difficult problem this has been, but I think Paul Krugman's analysis and advice is sound. Pushing on string has not been a problem since the Depression, but it surely seems to be a problem in Japan.

Subject: Is Self-Interest the Sole Motivator? From: Emma To: All Date Posted: Thurs, Feb 17, 2005 at 10:09:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/17/business/17scene.html The Theory That Self-Interest Is the Sole Motivator Is Self-Fulfilling By ROBERT H. FRANK A NEW YORKER cartoon depicts a well-heeled, elderly gentleman taking his grandson for a walk in the woods. 'It's good to know about trees,' he tells the boy, before adding, 'Just remember, nobody ever made big money knowing about trees.' If the man's advice was not inspired directly by the economist's rational-actor model, it could have been. This model assumes that people are selfish in the narrow sense. It may be nice to know about trees, it acknowledges, but it goes on to caution that the world out there is bitterly competitive, and that those who do not pursue their own interests ruthlessly are likely to be swept aside by others who do. To be sure, self-interest is an important human motive, and the self-interest model has well-established explanatory power. When energy prices rise, for example, people are more likely to buy hybrid vehicles and add extra insulation in their attics. But some economists go so far as to say that self-interest explains virtually all behavior. As Gordon Tullock of the University of Arizona has written, for example, 'the average human being is about 95 percent selfish in the narrow sense of the term.' Is he right? Or do we often heed social and cultural norms that urge us to set aside self-interest in the name of some greater good? If the search is for examples that contradict the predictions of standard economic models, a good rule of thumb is to start in France. During my recent sabbatical in Paris, I encountered many such examples, but one in particular stands out. One mid-November afternoon, I asked my neighborhood wine merchant if he could recommend a good Champagne. It was the week before Thanksgiving, and my wife and I had invited a few American friends to our apartment for a turkey dinner. He just happened to have an excellent one on sale for only 18 euros. (Normal price, 24 euros.) Fine, I said, and then asked if he could also recommend a bottle of cassis, since I knew some of our guests would want a kir royale - a cocktail of cassis and Champagne. In that case, he said, I would have no need for the high-quality Champagne, because no one would be able to tell the difference once it was mixed with cassis. Well, then, what should I buy? He brought back a bottle that he said would be just right for the purpose. That particular Champagne, however, was not on sale. When he told me it was 20 euros per bottle - 2 euros more than the better one - an awkward pause ensued. Though I thought I knew the answer, I felt I had to ask whether a kir royale would taste worse if made with the better Champagne. He assured me it would not. And because I knew that some of us would be drinking our Champagne straight, I bought several bottles of the better one. He did not protest, but I could feel him reclassify me as yet another American barbarian. For many French, the logic of the self-interest model is trumped by an aesthetic principle about what Champagnes are right for specific applications. This particular principle leads to a better outcome over all, because it directs the best Champagne to the uses in which quality matters most. So even though I personally was better off for having ignored the merchant's advice (because I got to drink a better Champagne and spent less), at least some of the better Champagne I bought was wasted. France is, of course, not the only place in which the self-interest model's predictions fall short. Most Americans, for example, leave tips even after dining in restaurants they will never visit again. We take the trouble to vote in presidential elections, even though no single individual's vote has ever changed the outcome in any state. We make anonymous donations to charity. From society's perspective, our willingness to forgo self-interest in such instances leads to better outcomes than when we all act in a purely selfish manner. Does what we believe about human motivation matter? In an experimental study of private contributions to a common project, two sociologists from the University of Wisconsin, Gerald Marwell and Ruth Ames, found that first-year graduate students in economics contributed an average of less than half the amount contributed by students from other disciplines. Other studies have found that repeated exposure to the self-interest model makes selfish behavior more likely. In one experiment, for example, the cooperation rates of economics majors fell short of those of nonmajors, and the difference grew the longer the students had been in their respective majors. My point is not that my fellow economists are wrong to stress the importance of self-interest. But those who insist that it is the only important human motive are missing something important. Even more troubling, the narrow self-interest model, which encourages us to expect the worst in others, often brings out the worst in us as well. Perhaps the theories of human behavior embraced by other disciplines influence their practitioners in similar ways. A core principle of behavioral biology, for example, is that males are far more likely than females to engage in 'extra-pair copulations.' Does teaching this model year after year make male biologists more likely to stray? Several years ago, I attended a dinner with a group of biologists that included a married couple. After describing the research about how economics training appears to inhibit cooperation, I asked whether anyone had ever done a study of whether males in biology were more likely than scholars from other disciplines to be unfaithful to their partners. The uncomfortable silence that greeted my question made me wonder whether I had stumbled onto a data point relevant for such a study. But if biologists are like economists in being influenced by their own theories, they are different from us in another respect: Their most cherished hypothesis is much less likely than ours to be contradicted by the French. Robert H. Frank is an economist at the Johnson School of Management at Cornell University and the author, most recently, of 'What Price the Moral High Ground?'

Subject: Re: Is Self-Interest the Sole Motivator? From: Setanta To: Emma Date Posted: Thurs, Feb 17, 2005 at 12:45:08 (EST) Email Address: Not Provided Message: sounds like the contributors to this foruma are supposed to be a cold hearted and mean spirited bunch!!!!

Subject: Re: Is Self-Interest the Sole Motivator? From: Paul G. Brown To: Setanta Date Posted: Thurs, Feb 17, 2005 at 14:09:13 (EST) Email Address: Not Provided Message: Now yer talkin' my language!

Subject: Re: Is Self-Interest the Sole Motivator? From: Emma To: Paul G. Brown Date Posted: Thurs, Feb 17, 2005 at 14:17:50 (EST) Email Address: Not Provided Message: But, now you must explain you take on the article. So must I.

Subject: Re: Is Self-Interest the Sole Motivator? From: Setanta To: Emma Date Posted: Fri, Feb 18, 2005 at 04:18:15 (EST) Email Address: Not Provided Message: Emma, its a very interesting post. and certainly poses a lot of questions on morality. i wonder, even if i was a rector, would i have responded to the dinner table question differently? does your chosen profession change who you are? if you are a doctor have you a saintly demeanour. if you are a lawyer do you incorporate the successful attributes necessary in a courtroom (ruthlessness, argumentative (even on a weak footing)). if you are an accountant do you value everything in terms of monetary value. are you attracted to a profession because you have the attributes necessary to be successful or do we develop the traits and incorporate them into our being the longer we are exposed to them? i have no answer, and suspect no-one has, but all those jokes come from somewhere....

Subject: We Must Think From: Emma To: Setanta Date Posted: Fri, Feb 18, 2005 at 14:54:42 (EST) Email Address: Not Provided Message: 'are you attracted to a profession because you have the attributes necessary to be successful or do we develop the traits and incorporate them into our being the longer we are exposed to them?' What a fine question. Do I have an answer? NO, but I will think long and hard.

Subject: Make your mind up - are you a YesBut From: Setanta To: All Date Posted: Thurs, Feb 17, 2005 at 09:51:15 (EST) Email Address: Not Provided Message: Make your mind up are you a YesBut? Move over Yuppies, Dinkies, Yuffies and NIMBYs - the YesButs are coming. In fact, if the US advertising guru behind the phrase is to be believed, they're already here and equivocating all around us. Simply stated, a 'YesBut' is someone who believes one thing and does another. Do you know anyone like that? Someone who believes that health and fitness are very important but never gets off the couch? Someone who tells you she just loves cooking but lives on microwave meals? Someone who professes to be a liberal but can't resist taking a pop at the less fortunate at every opportunity? The picture is getting a little clearer now, isn't it? We've actually known them for years. Now at last we have a name for them. The term YesBut was invented for advertising and marketing people to focus into the minds of us consumers and identify immediately when we're professing to believe one thing but doing the opposite. The man who brought the concept to Ireland is Marty Horn, head of strategic planning and research at Chicago advertising agency DDB, who spoke recently at a Bord Bia conference. In his speech to the gathering of food industry types, Horn advised them, in a nutshell, not to believe all the ballyhoo about people wanting healthier food. Since consumers in the developed economies still eat convenience meals at a huge rate, keep making them, he said. Horn called it a classic YesBut situation. Yes, we all imagine healthy eating is on the rise but the opposite is actually true. In the US, where cookbook sales are flourishing, the number of women who think that meal preparation should take as little time as possible has grown by 50% since the mid-1970s, while the percentage who feel guilty serving convenience foods to their family has declined significantly. 'The YesBut idea was actually coined by a former boss of mine to point out that many trends we hear and read about only begin to scratch the surface of what's really going on,' says Horn. If it applies in the US, experts agree it is also applies here. Look to the area of public health. Yes, we think exercise is important and tracksuit sales have probably never been higher but all the statistics show obesity, especially among children, is on the rise. In the area of public infrastructure you find the same thing. Yes, we agree that infrastructural progress is important and that roads and buildings are important for the growth of our society. But the reality is we don't like infrastructure and we hamper it to such an extent that it takes longer to get planning permission for an office block in Ireland than it does to build one. You can even apply the concept to the volatile arena of politics. Yes, according to a recent poll most of us in the Republic believe Sinn Fein is working towards the end of paramilitary violence in the North. But, according to same poll, nearly half of us also believe it was involved in the Northern Bank robbery. The list goes on. Yes, we think fast food is bad for our kids, but McDonald's profits are on the rise. Yes, we think our youth drink culture is out of control, but we don't do anything about it. Yes, we imagine ourselves a relatively religious society, but practising Catholics are now a minority sector. Yes, we told pollsters last June that we were split 50/50 on the Citizenship Referendum. But after the votes were counted a resounding majority of us supported it. Yes, we have become a tax compliant nation, but hordes of us smuggle in personal gifts from the US every Christmas. So what is going on? 'What is happening is that as consumers we live in a complex world and we are trying to find simple, achievable truths for ourselves with which to deal with that complexity,' says public opinion specialist Roger Jupp, managing director of Lansdowne Market Research. 'The YesBut is the real truth behind the simple, obvious response that people give.' He explains that our sound-bite world of mass communications has given us a taste for black and white, simplistic answers to all our questions. 'What the YesBut concept reminds us is that we are not black and white at all, but that we actually live in grey most of the time,' Jupp says. Another view is that we have so much choice today that we want to have it all. And this crosses over from our way of consuming to our way of thinking. 'Faced with a decline in the established order in our society, and coupled with the huge increase in choice and disposable incomes, we are faced with what we call 'hyper-choice' today,' says consumer guru Phelim O'Leary, of research firm Behaviour & Attitudes. 'We want the modern but we also want the old. In effect we want both and we want more of it.' In O'Leary's view, we want the perceived healthier lifestyle of yesterday but we also want the casual one of today. Yes, we want wholesome food of the past, but we also want the convenience of the present. Yes, we want the pace of life of the 1950s, but we want the affluence of 2005. 'The YesBut nicely captures a trend in our Western consumer societies that stems from conflict anxiety which arises when faced with so much choice,' O'Leary says. Whatever the explanations, all are agreed that YesButs have long been with us. What is new is that the marketing tools to discover them, and their conflicting views, have become so sophisticated they have nowhere to hide any more. But if the YesBut concept goes beyond simple consumer habits and opinion polls, then it must be something to do with the way we think. And scientists have been working on that for a long time. Back in 1957, psychologist Leon Festinger gave the world the phrase 'cognitive dissonance'. It has been one of the most influential theories in social psychology since then, generating thousands of follow-on studies. Essentially what Festinger said was that if someone holds two opposing beliefs or ideas - dissonant cognitions - it will cause internal anxiety. We will do everything we can to reduce this anxiety and will avoid anything that will increase it. But deal with it we must. In order to do so we can try a number of things: we can reduce our belief in one idea, increase our belief in the other or add a third idea to alleviate the anxiety. So if you believe that paying your taxes is the right thing but you also believe that smuggling in gifts from the US at Christmas without paying duty is okay too, then you are in a classic YesBut, or cognitive dissonance, situation. What to do? You can either reduce your belief in one idea by telling yourself that we are all overtaxed and pay too much as it is. Or you can increase your belief in the other by telling yourself that 'sure it's only a few pieces of clothing and it won't make any difference'. Or you can add a third idea by telling yourself that if clothes were cheaper here we wouldn't have to go the US in the first place. For something that has been around but unnoticed for so long, it rings painfully true. It also goes some way towards explaining the often contradictory signals which we as a society send out. In the area of human attitudes and beliefs, it seems the only certainty is uncertainty. So can you decide? Answer yes or no to the following questions to see if you are a YesBut * It is important to live a healthy life. * I go to Mass every Sunday. * Society works best if we all do our share. * I would never eat processed food. * I believe all human beings have a spiritual side. * I pay every cent in tax I owe. Score: Yes = 2 points; No = -2 points. If you score 12 = you are a perfect citizen;-12 = you are a bad citizen; 0 = you are a YesBut.

Subject: Absorbed by the State From: johnny5 To: Setanta Date Posted: Thurs, Feb 17, 2005 at 10:58:28 (EST) Email Address: johnny5@yahoo.com Message: http://mises.org/fullstory.aspx?Id=1750 Absorbed by the State Llewellyn H. Rockwell, Jr. [Posted February 16, 2005] If you have read the Screwtape Letters by C.S. Lewis, you know that the Devil is an expert in turning good impulses toward evil ends, and in leading people to misapply virtues in ways that serve the cause of evil. Well, so it is with the state. In every age, it takes the intellectual and political fashions alive in the culture, and turns them toward power for itself, money for itself, authority and affection for itself. The end is always and everywhere the same and as predictable as the tides. However, the means the state uses to achieve this end are forever changing in ways that surprise us. This tendency takes peculiar turns in the course of Republican administrations, when the rhetoric of freedom, free markets, and limited government is used for the paradoxical purpose of expanding state power. Let us begin with the most obvious point. Most people are ready to concede that defense is one function that government should provide. The first act of a Republican administration is to vastly expand military spending, always with the assumption that unless hundreds of billions more is spent, the country will be left undefended. When Republicans are running the show, it seems that there is no limit to how far this racket can be carried. We proceed as if the need to drink means that we should shove the water hose down our throat. At the height of World War II, before spending plummeted after the war ended, the federal government spent less than $90 billion on defense (in current dollars), which was the same spent as late as 1961. Today it spends 5 times that amount in real terms, meaning that these figures factor in inflation. Do we really need 5 times the annual spending of the height of World War II or might the excuse of defense serve as a convenient way to slather money on military contractors and to otherwise feed the friends of the government? So it is with homeland security. For decades, people on the political right have complained that money for defense is being spent on far-flung missions overseas and to subsidize the defense budgets of friendly foreign governments. The left has long brought attention to the subsidies given to authoritarian regimes. And so how does the state absorb these energetic movements? With new programs to provide 'homeland security' – more power for the state, but with an even better excuse. The example of how the cultural conservatives are being absorbed is especially egregious. For decades, conservatives complained that government was waging a war on families by taxing marriage, punishing savings, subsidizing anti-family political movements, and promoting contraception, sex education, and abortion, and the like. And yet, if you look at the pro-family movement today, it is all about big government: a federal marriage amendment, ridiculous family programs at the federal level, bureaucratic intervention into family life, and manipulation of American families for Republican purposes. The pro-family movement used to be plausibly pro-liberty, especially given that the family predates government, exists in a state of anarchy, and is foundational for civilization. But leave it to politics to convert a pro-family movement into one that endorses statism of every sort. It may yet support the state forcing us into associations of which it approves while forbidding all others. That way lies corruption of the worst sort. The same is true of religion. From the 1970-1990s, religious people had the general sense that the government was against them, attempting to tax their churches, forbidding them from making public expressions of their faith, and funding anti-religious propaganda. Then the Bush administration gets control, and what happens? The government is funding religious charities, using religion to justify its foreign policy, courting certain religious groups for votes and support, and doing its best to weave the American faith into the fabric of the American state. Whereas the religious right once had just complaints against the government, and an agenda to get the state's hand out of their churches, the opposite now seems true. The state has enlisted the religious right in a cause that will only lead to more government power over society and economy and the world in general. Here again, we see how the state can turn all movements to its own purposes. In the last 60 years, the energies of free-market intellectuals have been spent on debunking the need for the social welfare state. But these energies are now being used to expand rather than shrink the state. Consider the cry to 'privatize' Social Security. It uses the good work of many great thinkers to debunk a bad system, so that it can be recreated with a wholly new system of forced savings that could end up worse than the original. The anti-Social Security movement that has existed since the 1930s is being re-channeled into a pro-forced savings movement. A further tragedy: all the efforts of the past to debunk Social Security now risk being discredited when this new program turns out to be wildly expensive, terribly coercive, dangerous to the independence of capital markets, and ultimately fruitless for workers who put their hopes in it. But meanwhile, the energies of the anti-Social Security movement will have been spent. Education is another area. In the 1970s and 80s, a movement grew among conservative intellectuals and the general public against the dumbing down of curricula in public school. As a result of the collectivism at the heart of centrally controlled public schooling, standards were lowered to the extent that everyone was seen as above average. It was this movement that led to demands for the abolition of the Department of Education and to the rise of home schooling and the flourishing of alternative schools. But these days, the movement has been diverted and all its energies put not into tearing down public schools but expanding the state. The voucher program favors federal payments to private schools, which will nationalize an industry and end up making it share in the problems of the public schools. The movement for standards has led to 'No Child Left Behind' and regimentation of all schools by Washington, DC. The Department of Education has turned its energies to feeding conservative intellectuals and browbeating everyone into a general 'back to basics' movement. Even homeschooling has not escaped corruption, as the nation's leading college for homeschooled kids works to place smart, decent kids in the worst imaginable place: at the heart of the executive branch of government, and even the CIA. The tragedy just overwhelms you. These kids have studied hard for many years to prepare themselves to achieve greatness, with moms and dads making enormous sacrifices. So, under the belief that greatness equals power, these kids are being sent to serve in the state apparatus to learn the main practices that government teaches its drones: to lie, deceive, manipulate, and abuse, without feelings any pangs of conscience. This can turn a good person into a lifetime cynic. The list goes on. The anti-tax movement becomes a tax reform movement that ends up making government more expensive, the movement against government bureaucracy becomes a movement for contracting out and putting more people on the payroll, the slogan of 'America First' is perverted into a call for protectionism, and so on. How to avoid the trap? How does any political movement that begins by being opposed to the state avoid being absorbed by the state? The most crucial step is to decide what you are for and what you are against from the very outset. It is not enough to be against a particular government program or for a particular institution such as the family. What we need is a comprehensive ideology of liberty to displace the comprehensive ideology of statism – with no compromises. In the struggle against power, the battle is too important to risk absorption by the enemy. There are no proxies for genuine liberty. Using rhetorical maneuvers to disguise the movement for freedom as something else is dangerous business indeed.

Subject: Re: Make your mind up - are you a YesBut From: Jennifer To: Setanta Date Posted: Thurs, Feb 17, 2005 at 10:06:59 (EST) Email Address: Not Provided Message: I am trying, I am trying, but not quite yet, but I am trying :)

Subject: Re: Make your mind up - are you a YesBut From: Setanta To: Jennifer Date Posted: Thurs, Feb 17, 2005 at 12:40:22 (EST) Email Address: Not Provided Message: Jennifer, the reason i posted this is because i am still trying too!!!! i found the central message resonated with Galbraith's ideas. was he not the among the first (as per several worthy posts earlier in the week) to agrue that economics did not alway follow rational models. (forgive my crude paraphrasing!) in the same way, we claim to be rational, we have enough information at our fingertips (sometimes too much!) yet we make irrational choices!!! just a thought on a wet thursday evening on a windswept outpost of europe!

Subject: Re: Make your mind up - are you a YesBut From: Jennifer To: Setanta Date Posted: Thurs, Feb 17, 2005 at 12:56:44 (EST) Email Address: Not Provided Message: The post, as all your posts, was perfect. I do agree with you completely, even on a wet windswept evening in February. Nice to be in and looking out :) Thank you for tying the ideas to John Galbraith's, for I would not have thought of such a link. Be warm this evening.

Subject: Financial Companies Abroad From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 07:26:33 (EST) Email Address: Not Provided Message: Vanguard has European and Australian divisions. The Australian division has been highly successful and lowered investing cost in Australia. Whether this has been the case for Europe I can not tell. Mutual funds in Europe are generally expensive to a degree that is puzzling. Japanese mutual funds are even more expensive than those in Europe. Financial intermediaries are compete in marketing, seldom in cost.

Subject: Hedging With Stocks or Bonds From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 07:19:35 (EST) Email Address: Not Provided Message: Though many forms of assets are expensive, stocks seem less relatively expensive, especially European value stocks. Rather than use risky high priced European bond funds to hedge, stocks make much more sense, for there is better adjustment to adverse currency movements in stocks and reasonably priced stocks are a hedge against inflation.

Subject: TIPS From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 06:10:32 (EST) Email Address: Not Provided Message: Duration for Vanguard Inflation Protected Securities Fund [TIPS] is 6.6 years. So, a 2% rise in interest rates could lower the fund price about 13% depending on convexity. What then might the convexity measure be?

Subject: Understanding TIPS From: David E.. To: Terri Date Posted: Thurs, Feb 17, 2005 at 18:29:10 (EST) Email Address: Not Provided Message: https://ecommerce.barcap.com/inflation/documents/wright_sunday.pdf

Subject: European Bonds or Stocks? From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 05:49:42 (EST) Email Address: Not Provided Message: European bonds are a currency play that seems little worth the risk. The Euro may or may not continue to gain against the dollar, and yields in Europe may well rise lowering bond prices. A currency loss added to a loss with rising interest rates can be a real problem. Also, buying a European bond fund is expensive. European value stocks seem a far better investment. There is a reason Vanguard does not offer a European bond fund; too much risk and cost for too little reward.

Subject: Stocks less risky? From: Pete Weis To: Terri Date Posted: Thurs, Feb 17, 2005 at 09:56:29 (EST) Email Address: Not Provided Message: So short duration European government bonds are less risky than the European stock market? How would European value stocks do in a broad market downturn?

Subject: Correction! From: Pete Weis To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 09:58:32 (EST) Email Address: Not Provided Message: I meant to ask - so short duration European government bonds are more risky than the European stock market?

Subject: European Stocks or Euros? From: Terri To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 12:40:54 (EST) Email Address: Not Provided Message: Better possibly to ask if European currency is more risky than the European Stock Market. This seems clearer to me. I would prefer to hold the Europe Stock Index than Euros in my portfolio. I believe in 3 to 5 years the Europe Index will have gained more than the Euro.

Subject: Don't understand From: Pete Weis To: Terri Date Posted: Thurs, Feb 17, 2005 at 15:14:36 (EST) Email Address: Not Provided Message: Terri. Any drop in the Euro relative to the US dollar will subtract from real gains in the European stock markets since they are Euro denominated assets. Your return on investment would be the nominal gains or losses on your Euro stock combined with the losses or gains in the Euro (relative to the dollar) when you sell your stock and repatriate back to US dollars. Sorry. Don't mean to be such disagreeable sort. Just don't understand your reasoning.

Subject: Important From: Terri To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 20:51:01 (EST) Email Address: Not Provided Message: Please please argue over each point, so we each understand the logic if not the real world result. Stocks when reasonably valued represent real assets. If the dollar were to drop by 50%, a French investor could buy Exxon at a 50% discount. Too steep a drop. Exxon would drop little as the dollar fell, rather than become an amazing buy for French investors. Stocks compensate after currency movements, I have repeatedly found.

Subject: Re: Important From: Terrell To: Terri Date Posted: Thurs, Feb 17, 2005 at 23:10:20 (EST) Email Address: Not Provided Message: 'Please please argue over each point' he is only making one point, which I think is very straight foward. Lets use the dollar, euro and microsoft stock as an example Assume that microsoft increases by 3% and the dollar depreciates by 3% relative to the euro. For the american investor, they have made a 3% return. For the european investor, they broke even. Although the stock increases by 3%, it is offset by 3% depreciation of the currency to the european investor. Pete's point is that unless you believe the european stock market is going to decline, any appreciation in the euro will be added to the return of the international stock that the american investor holds. Your example of a 50% depreciation is just not realistic and makes the scenario one that is hard to discuss, because such an event doesn't happen.

Subject: Re: Important From: Terrell To: Terrell Date Posted: Fri, Feb 18, 2005 at 12:57:11 (EST) Email Address: Not Provided Message: I was talking about a 1 day fall of 50%. If you want to find a 2 year period, thats great, but chances are the stock price won't be static for 2 years.

Subject: Re: Important From: Terri To: Terrell Date Posted: Fri, Feb 18, 2005 at 06:25:47 (EST) Email Address: Not Provided Message: The dollar fell 40% to 50% against the prime currencies from 1985 to 1987. The latest dollar movement against the Euro has been 25%. I will repond further when freer.

Subject: Re: Important From: Terri To: Terri Date Posted: Fri, Feb 18, 2005 at 14:52:41 (EST) Email Address: Not Provided Message: When the Pound was devalued in 1992, there were immediate losses to holders of Pounds or British bonds, and British stocks declined in value significantly. Those who held leveraged currency contracts against the Pound, were hugh winners. Stocks took several months to make up the currency related losses, but in 1993 British stocks more than made up for the currency losses. Thank you for the comment.

Subject: Dollar has fallen 50% From: johnny5 To: Terrell Date Posted: Fri, Feb 18, 2005 at 01:38:48 (EST) Email Address: johnny5@yahoo.com Message: 'Your example of a 50% depreciation is just not realistic and makes the scenario one that is hard to discuss, because such an event doesn't happen.' You asked for a 50 percent fall.... http://www.streetauthority.com/cmnts/cp/2005/01-05.asp Forget oil. Forget Fed Chief Alan Greenspan. What’s really moving the markets right now is the rise and fall of the American dollar. The world’s most important currency has been on a steady decline throughout the past three years, but recently has taken a turn for the worse. Since 2000, the U.S. dollar has fallen nearly -50% against the euro and in the past few weeks it hit its lowest level since 1995 against the world’s major currencies. The greenback is now near an all-time low against the euro, close to a five-year low against the Japanese yen and nearly half the value of the British pound. You might wonder what the weak dollar has to do with the stock market. The answer to that question is simple, as the dollar’s value affects everything from the price of toothpaste to the pace of economic growth. Simply put, the danger of a weak dollar is that it can trigger inflation. That's because imported goods, like electronics and clothing, become more expensive when the dollar loses its value relative to foreign currencies. Even more alarming is the impact a declining dollar can have on the financial markets. As the dollar's value falls against foreign currencies like the euro or Japanese yen, overseas investors are often inclined to dump their investments in U.S. stocks and bonds. (After all, when the dollar loses value relative to their home currency, foreign investors do not see great returns from U.S. investments.) If these foreign investors, whose huge bond holdings are propping up the dollar, were to sell their investments, the dollar would lose even more of its value. When making new portfolio choices in 2005, investors need to be especially wary of companies that may see their margins squeezed by high-cost imports from abroad. Importers such as Wal-Mart (WMT, $52.82) could suffer, as the cost of goods they buy from abroad might become more expensive in dollar terms, yet competitive pressures could force them to keep prices low. The dollar’s slide is not all bad news, though. In fact, savvy investors are likely to profit from the dollar’s decline by identifying stocks that stand to benefit from a slumping greenback. With this in mind, in the January issue of our High-Yield Investing newsletter we zeroed in on leading stocks in three sectors that should gain ground from a weak dollar. All three of the following groups should benefit from a falling dollar: -- U.S. companies that operate heavily in overseas markets -- Firms in the tourist industry -- Foreign companies trading on U.S. exchanges

Subject: Re: Dollar has fallen 50% From: Setanta To: johnny5 Date Posted: Fri, Feb 18, 2005 at 05:34:52 (EST) Email Address: Not Provided Message: i hate the way '50%' has been bounced around without examination. i spent a little time analysing the rates at certain periods and as of 31 Jan 2005, the following are the increases/decreases (source for the rates was the ECB). since inception of the euro the decrease of the dollar vs the euro is 11%. From Jan 00, the decrease of the dollar vs the euro is 22%. From Jan 01, the decrease of the dollar vs the euro is 28%. From Jan 02, the decrease of the dollar vs the euro is 32%. From Jan 03, the decrease of the dollar vs the euro is 19%. From Jan 04, the decrease of the dollar vs the euro is 3%. The comparison of the annual average rate to the rate at 31 Jan 05 is as follows: Average for 99, the dollar has fallen by 18% Average for 00, the dollar has fallen by 29% Average for 01, the dollar has fallen by 31% Average for 02, the dollar has fallen by 28% Average for 03, the dollar has fallen by 13% Average for 04, the dollar has fallen by 5%. while my figures do not compare it to the all time high, which would be misleading, the average figures speak volumes on the actual trend. the largest decrease was 31%. around that time there was uncertainty regarding the new currency and central banks were adopting a wait and see approach before selling dollars and readjusting the composition of their currency portfolio (prudent diversification). the important figure, in my humble opinion, is the one from inception of the euro (Jan 99) because that was when the euro was built from the weightings of the former eurozone currencies, and was closer to the true value of the dollar than the 'new' standalone currency. as you can see the decrease is 18%, this is very significant because if one could strip out the demand for USD due to the fact that every country in the world must buy oil in USD, i think the value of the USD could be up to 20% worse than it is at present. which bodes ill for both the US and Europe. The US because the asians will not want their usd holdings to depreciate by that amount and will initiate withdrawals that may trigger a financial crises. The EU, because our exports to the US (our largest trading partner) will not sell, the importers/exporters will not be able to absorb that change and there will be job losses and inflation within our own countries.

Subject: Re: Dollar has fallen 50% From: johnny5 To: Setanta Date Posted: Fri, Feb 18, 2005 at 07:06:19 (EST) Email Address: johnny5@yahoo.com Message: Agreed, every year my mother would buy her investment planner a bottle of imported German Gluehwein for xmas here in Florida. Her planner asked her why she didn't get her any this past xmas - my mother said they don't sell it at the store anymore. When she asked the grocery store manager why not he said it cost too much and was no longer a good seller. I guess Asia has not figured out how to make a cheap Gluehwein to export to the USA. Mum lived in germany when 1 US dollar was exchanged into 4 german marks during the 60's - so she has been feeling currency depreciation in her US dollars for awhile when she bought the german wine. It's not a question of price - mum always paid the higher price - but now the old supply channels have dried up and mum is too old and stubborn to get on the web and order it online. If she can't get it at the local grocery store - she will not spend the time.

Subject: Re: Dollar has fallen 50% From: Terri To: johnny5 Date Posted: Fri, Feb 18, 2005 at 10:46:55 (EST) Email Address: Not Provided Message: Thanks thanks. I should have been more careful to note I was simply investing an example. But, there have been currency moves up and down in the developed nations that were both pronounced and long lasting.

Subject: Duration and Convexity From: Terri To: All Date Posted: Thurs, Feb 17, 2005 at 05:43:49 (EST) Email Address: Not Provided Message: Duration and convexity measure the relation between interest rate changes and price change for a bond fund. Duration overstates the price change for a fund beyond 1% changes in interest rates. So, a 2% change in interest rates will lower the price of the short term bond index less than 4% while the fund will rise in yield 2%. The loss in price is made up in less than 2 years given the additional yield. Duration alone then should gives us confidence, convexity more so. Vanguard also keep durations fairly constant and uses no derivatives, while other companies may vary duration and use derivatives which can add considerably to risk.

Subject: Convexity Measures From: Terri To: Terri Date Posted: Thurs, Feb 17, 2005 at 05:56:19 (EST) Email Address: Not Provided Message: Vanguard can be asked for convexity measures of bond funds. Remember duration ranges about 2, 5, and 10 years for short, intermediate and long term bond funds. The GNMA fund varies most in duration, but appears to be quite resistant to losses from rate increases possibly because of early mortgage payments adding to portfolio turnover even when rates rise. Only High Yield Corporate uses below investment grade bonds.

Subject: Germany and Japan—shrinking giants From: johnny5 To: All Date Posted: Thurs, Feb 17, 2005 at 03:14:32 (EST) Email Address: johnny5@yahoo.com Message: As Pete said - who is next? http://www.economist.com/agenda/displayStory.cfm?story_id=3666048 Germany and Japan—shrinking giants Feb 16th 2005 From The Economist Global Agenda Exports have traditionally rescued the mighty Japanese and German economies from downturns. But new figures show both countries’ economies shrank in the last quarter, despite strong world trade. What has gone wrong? THE world’s second and third biggest economies both got a little smaller last quarter. Japan’s gross domestic product contracted at an annual rate of 0.5% in the final quarter of 2004, according to figures released on Wednesday February 16th. The numbers from Germany the day before were grimmer still. Its economy shrank at an annualised rate of 0.9% in the same period. Both economies started 2004 well, but failed to live up to the expectations they fleetingly raised. Japan’s figures bemuse as well as disappoint. As the yen value of Japan’s output fluctuates, the statisticians must sort out how much is down to changes in prices rather than quantities. For much of last year, prices seemed to be falling sharply and quantities rising. But the cabinet office introduced a new way of counting GDP in November, which showed less deflation, but less output as well. Since November, however, the cabinet office has reworked its recalculations several times. On Wednesday, it said it now reckoned that the economy contracted by 0.8% in the second quarter and 1.1% in the third, meaning that Japan spent three-quarters of last year in recession. Richard Jerram, an economist at Macquarie Bank, laments that estimates of Japan’s GDP are “such a rapidly moving target” it is hard to make much sense of them. Japan’s official statistics, it seems, offer lies, damned lies and revised lies. What does seem clear, however, is that Japan is in the grip of a protracted “inventory cycle”. Makers of goods, unlike service providers, can stockpile their products, ready for future sale. When sales fall, however, manufacturers seek to clear their groaning shelves by cutting production by more than the fall in sales. Japan’s manufacturers, after adding to their inventories at a healthy pace in the first quarter of last year, spent the remaining nine months waiting for their shelves to clear. Sales may be about to pick up again, however. Orders for machinery from abroad were at record levels in December, and consumer confidence rose last month. Economists nevertheless remain divided about whether this fragile and fretful recovery will be sufficient to drag Japan out of its structural slump. It has, after all, been more than a decade since Japan first succumbed to debt-deflation, with falling prices raising the real burden of accumulated borrowing. Japan’s banks and companies have worked off some of these debts since then. The gross interest-bearing debts of Japan’s corporations fell from 146% of GDP in the 1993 fiscal year, to 84% in 2003. Debt held by banks has also fallen. But, as Andrew Smithers, an independent analyst, points out, Japan’s debt burden has been shifted, not lifted—from the shoulders of firms and banks on to the backs of taxpayers. The government’s (gross) debt burden grew from 72% of GDP in 1993 to 162% in the 2003 fiscal year. Inflation, should it ever return, would erode the burden of those debts. But some in Japan’s policymaking circles are not willing to wait that long. In December, the government announced that in January 2006 it would halve an income-tax rebate, which can be worth Ą290,000 per person. Last month, the finance minister threatened to raise the consumption tax, a move widely blamed for snuffing out Japan’s last promising recovery, in 1997. Such contractionary policies sit uneasily beside such bad economic numbers. Either the politicians are myopic, or the figures are so unreliable they are being ignored. In Germany, like Japan, recovery usually starts abroad. The order books of the two countries’ giant manufacturers, from Siemens to Sony, quickly fill as the world economy revives. The stimulating effects of foreign sales then multiply throughout the domestic economy. And last year was a vintage one for world trade. In 2004 Germany carried off the prize for the world’s leading exporter (of goods, if not of services) for the second year in a row; and Japan’s manufacturers hitched a ride on China’s prodigious investment boom. But towards the end of the year both economies departed from the usual script of an export-led recovery. In Japan’s case, what was surprising and encouraging about its strong start to 2004 had been how little it owed to international trade. Most first-half growth came in fact from domestic consumption and investment. But in the second half, investment growth slowed, while consumer spending actually fell. Meanwhile, unaccustomedly, Japan’s imports grew rather faster than its exports: in the final quarter, imports grew 3.1% (quarter-on-quarter) while exports increased by only 1.3%. This meant that a greater share of Japanese demand was filled by foreign producers, thereby affecting Japanese firms’ contribution to GDP. If Japan had a consumption boomlet that fizzled out in 2004, Germany never had one in the first place. According to Goldman Sachs, an investment bank, Germany’s “silent corporate revolution” may partly explain the failure of domestic demand to respond to the country’s strong export performance. The much noisier overhaul of Germany’s welfare system, pursued by Gerhard Schröder, the chancellor, may also have been a factor. German firms have squeezed extra hours out of their workers, but for no extra pay. In June, for example, Siemens lengthened the working week from 35 hours to 40 in two plants, without raising wages. Wage moderation has also prevailed in Germany’s public sector. Workers, therefore, have had no extra money to spend: retail sales fell in December, for the third month in four. The shops, in turn, had no reason to hire. Thus the sales assistants they might have employed remained on Germany’s jobless rolls, which topped 5m in December, where they linger, waiting for Mr Schröder to cut their benefits.

Subject: Re: Germany and Japan—shrinking giants From: Terri To: johnny5 Date Posted: Thurs, Feb 17, 2005 at 17:57:13 (EST) Email Address: Not Provided Message: Another important article.

Subject: The fall of the middle class From: johnny5 To: johnny5 Date Posted: Thurs, Feb 17, 2005 at 04:51:15 (EST) Email Address: johnny5@yahoo.com Message: How could the middle class in rome have been saved? 'Last month, the finance minister threatened to raise the consumption tax, a move widely blamed for snuffing out Japan’s last promising recovery, in 1997' 'In June, for example, Siemens lengthened the working week from 35 hours to 40 in two plants, without raising wages. Wage moderation has also prevailed in Germany’s public sector.' http://www.mindfully.org/Reform/Rome-FellMar95.htm When the first volume of Edward Gibbon's The History of the Decline and Fall of the Roman Empire appeared in 1776, it raised far more lively interest in London than the news from the troublesome colonies in North America. 'The decline of Rome,' wrote Gibbon, 'was the natural and inevitable effect of immoderate greatness.' Such a perception fit well with the cool and rational temper of the time. But as the more conventional English gentlemen of the late eighteenth century continued to turn the pages of Mr. Gibbon's discourse, their blood began to boil. 'As the happiness of a future life is the great object of religion,' he continued, 'we may hear, without surprise or scandal, that the introduction, or at least the abuse, of Christianity had some influence on the decline and fall of the Roman empire. The clergy successfully preached the doctrines of patience and pusillanimity; the active virtues of society were discouraged; and the last remains of the military spirit were buried in the cloister; a large portion of public and private wealth was consecrated to the specious demands of charity and devotion; and the soldiers' pay was lavished on the useless multitudes of both sexes, who could only plead the merits of abstinence and chastity.' These earlier interpreters— first the pagan critics of Christianity, then Augustine, Petrarch, Machiavelli, and Gibbon have defined the limits of all later interpretation: Rome fell because of inner weakness, either social or spiritual; or Rome fell because of outer pressure— the barbarian hordes. What we can say with confidence is that Rome fell gradually and that Romans for many decades scarcely noticed what was happening. We should not think of the emperors as active persecutors of the poor curiales. (They actually thought of themselves as protecting them— and all Roman citizens— from the cruel vagaries of life beyond the Roman orbis. And, after all, what blessedness could be greater than the honor of Roman citizenship? An imperial edict of this period even tries to shame the recusant curiales by reminding them of their noble rank, of 'the splendor of their birth.') Rather, the bureaucratic and social establishments of Rome had become so top-heavy and entrenched that effective reform was no longer possible. By the fifth century, in the years before the complete collapse of Roman government, the imperial approach to taxation had produced a caste as hopeless as any in history. Their rapacious exactions, taken wherever and whenever they could, were the direct result of their desperation about their own increasingly unpayable tax bills. As these nerved-up outcasts commenced to prey on whoever was weaker than they, the rich became even richer. The great landowners ate up the little ones, the tax base shrank still further, and the middle classes, never encouraged by the Roman state, began to disappear from the face of the earth. Nor would they return till the appearance of the Italian mercantile families of the high Middle Ages. Though it is difficult to imagine the Pax Romana lasting as long as it did without the increasing militarization of the Imperium Romanum, the Romans themselves were never happy about their army. It suggested dictatorship, rather than those good old republican values, and they preferred to avert their eyes, keeping themselves carefully ignorant of the army's essential contribution to their well-being. There are, no doubt, lessons here for the contemporary reader. The changing character of the native population, brought about through unremarked pressures on porous borders; the creation of an increasingly unwieldy and rigid bureaucracy, whose own survival becomes its overriding goal; the despising of the military and the avoidance of its service by established families, while its offices present unprecedented opportunity for marginal men to whom its ranks had once been closed; the lip service paid to values long dead; the pretense that we still are what we once were; the increasing concentrations of the populace into richer and poorer by way of a corrupt tax system, and the desperation that inevitably follows; the aggrandizement of executive power at the expense of the legislature; ineffectual legislation promulgated with great show; the moral vocation of the man at the top to maintain order at all costs, while growing blind to the cruel dilemmas of ordinary life— these are all themes with which our world is familiar, nor are they the God-given property of any party or political point of view, even though we often act as if they were. At least, the emperor could not heap his economic burdens on posterity by creating long-term public debt, for floating capital had not yet been conceptualized. The only kinds of wealth worth speaking of were the fruits of the earth. Though it is easy for us to perceive the wild instability of the Roman Imperium in its final days, it was not easy for the Romans. Rome, the Eternal City, had been untouchable since the Celts of Gaul had sacked it by surprise in 390 B.C. In the ensuing eight centuries Rome built itself into the world's only superpower, unassailable save for the occasional war on a distant border. The citizens of the City of Rome, therefore, could not believe it when toward the end of the first decade of the fifth century, they woke to find Alaric, king of the Visigoths, and all his forces parked at their gates. He might as well have been the king of the Fuzzy-Wuzzies, or any other of the inconsequential outlanders that civilized people have looked down their noses at throughout history. It was preposterous. They dispatched a pair of envoys to conduct the tiresome negotiation and send him away. The envoys began with empty threats: any attack on Rome was doomed, for it would be met by invincible strength and innumerable ranks of warriors. Alaric was a sharp man, and in his rough fashion a just one. He also had a sense of humor. 'The thicker the grass, the more easily scythed,' he replied evenly. The envoys quickly recognized that their man was no fool. All right, then, what was the price of his departure? Alaric told them: his men would sweep through the city, taking all gold, all silver, and everything of value that could be moved. They would also round up and cart off every barbarian slave. But, protested the hysterical envoys, what will that leave us? Alaric paused. 'Your lives.' In that pause, Roman security died and a new world was conceived.

Subject: Understanding Alan Greenspan From: Terri To: All Date Posted: Wed, Feb 16, 2005 at 20:39:16 (EST) Email Address: Not Provided Message: There is the answer, we must separate out the monetary policy aspects of the testimony from the fiscal policy suggestions. Alan Greenspan may worry about federal debt, but the worry will be spending and not revenue related. The wish is to limit spending in any possible way and include Social Security and Medicare in the limiting. I should not be surprised or puzzled, because Greenspan has turned from worrying about a budget 'surplus,' to supporting tax cuts to rid us of the surplus, to telling us we can not afford Social Security for baby boomers who have been building a Social Security surplus for a generation.

Subject: Many people are troubled by Greenspan From: David E.. To: Terri Date Posted: Wed, Feb 16, 2005 at 22:11:26 (EST) Email Address: Not Provided Message: http://www.tcf.org/4L/4LMain.asp?SubjectID=4&ArticleID=873

Subject: Risk and Duration From: Terri To: All Date Posted: Wed, Feb 16, 2005 at 20:26:36 (EST) Email Address: Not Provided Message: The key to assessing bond portfolio risk is knowing duration. Vanguard keeps the duration of its bond funds fairly constant, and uses no derivatives which can significantly effect duration. So, the short term bond index can be expected to have about a 2 year duration. This will mean that even a dramatic change in interest rates will have little effect on the price of the fund. A 2 percentage point increase in interest rates, would only lower the price of the short term bond index by 4%. The price loss would be made up in less than 2 years. Knowing duration is quite a comfort.

Subject: Re: Risk and Duration From: David E.. To: Terri Date Posted: Wed, Feb 16, 2005 at 21:50:33 (EST) Email Address: Not Provided Message: I recently emailed Vanguard asking them what would happen if the real rate from TIPS moved from 1% (present) to 3.4% (4 years ago). I gave them an example. I worked out the expected value in 6 years would move from $100,000 to $106,152 at 1%. (CURRENT POSITION) The expected value in 6 years of the $100,000 at 3.4% would be $104,616 [starting with a NAV loss of 14,400 calculated at 6 years duration * (3.4 -1) interest rate] (FORECAST POSITION) Using the standard duration calculation of loss - that is an expected loss of $1536 over 6 years. Here is what Vanguard said back. 'Since duration is a linear equation but the bond yield curve is curved, duration calculations tends to be accurate only for 1% changes in interest rates. Beyond that point duration calculations overestimate losses in bond price due to increases in interest rates and underestimate gains due to declines in interest rates.' I don't know how curvilear the duration curve is, but I guess that Vanguard is telling me that my loss will be less than the 1.5% I have calculated. (of course all of these calculations hold CPI adjustments constant). Also considering the real rate probably won't move up 2.4 % in one step - there is a possibility that I wont suffer a loss if I keep the TIPS at least as long as the duration. Bottom line - I am becoming confident that the general advice of Vanguard that holding bonds at least as long as the duration is good advice. However, I wish they would give me examples showing calculations, so the Missouri streak in me can be satified.

Subject: Re: Risk and Duration From: Terri To: David E.. Date Posted: Thurs, Feb 17, 2005 at 06:01:04 (EST) Email Address: Not Provided Message: We should ask Vanguard for convexity measures. Duration measures are always posted. The risk from the TIPS fund if rates rise 2% is not clear.

Subject: US bonds = losses From: Pete Weis To: David E.. Date Posted: Wed, Feb 16, 2005 at 22:22:08 (EST) Email Address: Not Provided Message: Asian central banks buy US bonds because they want us to keep buying their goods and because they have dug themselves a hole in which they have to swallow a pretty bitter pill if they don't want to continue digging it deeper. We don't have to dig ourselves into the same hole. We can buy bonds denominated in pounds sterling or euros and get the double benefit of higher yields and a currency which is appreciating 10% per year (or more) vs the dollar. I think they call this a 'no-brainer'!

Subject: Re: US bonds = losses From: Terri To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 06:03:14 (EST) Email Address: Not Provided Message: Whether European bonds are worth the risk is a problem. I much prefer European value stocks.

Subject: Re: US bonds = losses From: Pete Weis To: Terri Date Posted: Thurs, Feb 17, 2005 at 09:09:40 (EST) Email Address: Not Provided Message: Why do you think European bonds are riskier than US bonds? Both are subject to higher interest rate risk, however US bonds are far more subject to currency risk. What's wrong with short duration European bonds?

Subject: Re: US bonds = losses From: jimsum To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 20:40:09 (EST) Email Address: jim.summers@rogers.com Message: I see risk in both bonds. Of course, for Europeans and Americans, bonds from their own country don't hold any exchange risk. For investors outside both countries, there is a risk that both of these currencies will drop. Don't Europeans complain that the Euro is overvalued because other countries have pegged the dollar? If the Europeans are right, when the dollar gives way the Euro will be abble to come down a bit. I think it is safe to say the U.S. dollar will decline against any given currency; but for the Euro, it depends on the country. I'm investing in short duration bonds in my own currency.

Subject: Canada and Australia From: Terri To: jimsum Date Posted: Thurs, Feb 17, 2005 at 20:53:46 (EST) Email Address: Not Provided Message: Canadian and Australian bonds strike me as safer investments at this time than American or Euro bonds.

Subject: Re: US bonds = losses From: Terri To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 11:43:45 (EST) Email Address: Not Provided Message: Possibly I am too wedded to Vanguard's philosophy of investment, but I stick with them wholly on bonds. I am devoting much thought to your fine arguments.

Subject: What is Systemic Risk? From: Terri To: All Date Posted: Wed, Feb 16, 2005 at 19:01:55 (EST) Email Address: Not Provided Message: When there is discussion of systemic risk, what might this mean? In 1987, the stock began to fall in August and crashed over 2 days in October. The market bounced back strongly in the few days after and slid again till the beginning of December. But, by the end of the year the S&P was up 5% and since the decline had come from a market up 45% there was little damage. There was little damage in 1990, and in 1994, and in 1998. Severe damage however was done from 1973 to 1974 and from 2000 to 2002. Is this systemic risk?

Subject: Re: What is Systemic Risk? From: David E.. To: Terri Date Posted: Wed, Feb 16, 2005 at 22:09:41 (EST) Email Address: Not Provided Message: Systematic risk is that risk which cannot be diversified away. Nonsystematic risk it that risk which can be diversified away. (See 'The Intelligent Asset Allocator' by William Bernstein) I am going to guess that one way of looking at my portfolio with a SD of 5% - the 5% is the systematic risk. The nonsystematic risk is my investment in China with a 43% standard deviation. Maybe not a smart move, but it is a tiny part of my portfolio. And China, an emerging market needs representation. I have diversified away most of nonsystemic risk of investing in China.

Subject: On Systemic Risk From: Terri To: Terri Date Posted: Wed, Feb 16, 2005 at 19:51:49 (EST) Email Address: Not Provided Message: Remember that in 1998 there was a quick 20% decline in the S&P in a matter of a few weeks. The stock market declined to the end of August, bounced back and declined again to the beginning of October. The Long Term Credit problem was evidently severe enough that it could have frozen the bond market. But, the Fed lowered rate 3 times, there was coverage for Long Term Credit, and the stock market finished up over 20%. Low quality high yield bonds funds however took significant losses.

Subject: Bond Supply and Demand From: Emma To: All Date Posted: Wed, Feb 16, 2005 at 14:21:20 (EST) Email Address: Not Provided Message: The Treasury has been issuing far more short term than long term debt. Also, corporate savings are near record levels and there has been less need to issue long term debt than might otherwise be the case. So there is a supply limitation. At the same time private and institutional investors may well be reaching for yield and buying long term debt. Mortgage and high yield debt, by the way, is also being gobbled up for the extra yield.

Subject: Supply of Long Term bonds From: David E.. To: Emma Date Posted: Wed, Feb 16, 2005 at 22:23:37 (EST) Email Address: Not Provided Message: There is demand for long-term debt at current low rates. Insurance companies love long term bonds - they are needed to reduce their risk on annuities. Treasury could always issue long term bonds and it would be very smart to do so. When the crunch happens in 2012 when SS surplus is no longer 200 billion it would be very nice not to have to cover all of the short term bonds plus sell new bonds.

Subject: Demand is for short term From: Pete Weis To: Emma Date Posted: Wed, Feb 16, 2005 at 17:26:24 (EST) Email Address: Not Provided Message: With a caving dollar there is much less risk in short term bonds. Roubini did an interesting piece on the shortening 'rollover' rate for US debt. It was also part of his excellent paper, 'Will the Bretton Woods 2 Regime Unravel Soon?' written by Roubini and Brad Setser for the SF Federal Reserve regarding the dollar and the current account. The paper is over 50 pages long so I couldn't post it here but it is well worth reading. They believe the dollar is likely to experience a 'hard landing' sometime in the 2005-2006 time-frame. This echo's Paul Volcher's prediction of a 75% chance of a 'financial crisis' sometime in the next 5 years which he issued about a year ago. Another paper worth reading is MIT economist Olivier Blanchard's regarding the current account and the dollar (read it online - forgot the title). He wrote it with two other colleagues. It also calls for a considerable drop in the dollar and places emphasis on the need for a balanced US budget and a float for the Chinese Yuan. I don't think either of these are likely. Blanchard's outlook, though, is a bit more 'optimistic'.

Subject: Re: Demand is for short term From: Terri To: Pete Weis Date Posted: Wed, Feb 16, 2005 at 19:05:49 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2005/02/my_new_paper_wi_1.html The Roubini-Setser essay is excellent. Here is the summary.

Subject: John Kenneth Galbraith From: Emma To: All Date Posted: Wed, Feb 16, 2005 at 12:11:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/16/books/16norr.html?pagewanted=all&position= An Economist Who Didn't Just Play by the Numbers By FLOYD NORRIS JOHN KENNETH GALBRAITH His Life, His Politics, His Economics By Richard Parker There was a time when John Kenneth Galbraith was the most famous economist in America, a man whose books regularly became best sellers. But today he is little honored in the economics profession, where, as Richard Parker remarks in his engaging and exhaustive biography, Mr. Galbraith is regarded as something of an outsider, a fine writer who never became comfortable with the detailed mathematical formulas that came to dominate economics. When a Galbraith book, 'The Affluent Society,' spent months on the best-seller list in 1958, George J. Stigler, the University of Chicago economist who would eventually win the Nobel Prize in economics for his work on the economic effects of government regulation, was outraged. He called it 'shocking that more Americans have read 'The Affluent Society' than 'The Wealth of Nations,' ' the classic work by Adam Smith. Mr. Galbraith's response was typical, witty and anything but self-deprecating. 'Professor Stigler's sorrow,' he suggested, 'may be not that so many read Galbraith and so few read Smith but that hardly anyone reads Stigler at all.' A man who grew up on a Canadian farm and who spent formative years trying to control wages and prices during the New Deal, and then did pioneering work assessing the effectiveness of strategic bombing at the end of World War II, Mr. Galbraith was acutely aware of the role of power in society at a time when many economists preferred to step around that issue. How does his work stand up now? Mr. Parker - like Mr. Galbraith, a man who was trained in economics and who taught at Harvard while active in both journalism and Democratic politics - is generally supportive. He praises Mr. Galbraith's ability to analyze how the economy really worked, as opposed to how models said it should work, and sees in his writing a precursor to behavioral economics, which has become a major force in the profession by moving away from assumptions that investors and consumers can be expected to act rationally. His early work showed that large companies in mid-20th-century America were run more for the benefit of their managers, who seldom owned much stock, than for the benefit of their shareholders, and were not as interested in maximizing profits as conventional economists assumed. But he did not see the renewal that was coming, as the threat of takeovers and new technologies revolutionized American business. Mr. Galbraith, 96, leaves no Galbraithian school of economists, although Mr. Parker quotes Amartya Sen, the Indian economist and Nobel Prize winner, as saying his work will endure. Reading 'The Affluent Society' now, Mr. Sen said, is 'like reading 'Hamlet' and deciding it is full of quotations.' 'You realize,' he continued, 'where they came from.' Mr. Galbraith's early days did not signal great academic success. After repeating 12th grade at a high school in rural Ontario, he graduated from Ontario Agricultural College, an institution whose entrance requirements did not include a high school diploma. Years later the college gave him an honorary degree, then considered taking it back after Mr. Galbraith described it as 'not only the cheapest but probably the worst college in the English-speaking world.' Such a comment bespoke a haughtiness that would characterize his career as he earned a doctorate at the University of California at Berkeley and then arrived at Harvard as an agricultural economist, a field that has largely died out but one that clearly influenced the critiques of the larger economy that made him famous. Mr. Galbraith had a way of getting under conservatives' skins. In 1954, on the 25th anniversary of the 1929 crash, he testified before Congress on the dangers of excessive speculation, and the stock market promptly stumbled - a move for which some blamed him. Homer E. Capehart, a Republican senator from Indiana, saw evidence of Communism in the idea, and then another of Mr. Galbraith's opponents, Secretary of Commerce Sinclair Weeks, demanded that J. Edgar Hoover conduct an F.B.I. investigation. In due course, the report came back to Mr. Hoover, and was forwarded to Mr. Weeks: 'Investigation favorable except conceited, egotistical and snobbish.' Republican enmity toward Mr. Galbraith - which was richly reciprocated - endured for decades. In 1971 he testified before Congress that the government should consider wage and price controls. President Richard M. Nixon told his treasury secretary that the testimony had 'unmasked' the real aim of 'all these bright New Dealers' and could be used to destroy Mr. Galbraith. 'Make the Democratic candidates and spokesmen repudiate him,' he said. Less than three weeks later, Nixon announced his New Economic Policy, which featured wage and price controls. Mr. Galbraith told a reporter he felt 'like the streetwalker who had just learned that the profession was not only legal but the highest form of municipal service.' His own service to the government came as President John F. Kennedy's ambassador to India. Mr. Parker credits him with doing excellent work to defuse a war that broke out between China and India in 1962, just as the Cuban missile crisis was preoccupying Washington. He was also an early critic of the Vietnam War inside - and later outside - the government. It was characteristic of Mr. Galbraith that his nomination to the Indian post was threatened by his willingness to speak what he saw as common sense but that others saw as 'virtual treason,' as Mr. Parker puts it. At his confirmation hearing in 1961, he suggested that the United States might consider offering diplomatic recognition to the Chinese government in Beijing if that government would accept the right of Taiwan to exist independently. When the United States finally did recognize China, it made no such demand, and today China threatens war if Taiwan formally proclaims an independence that has in fact lasted more than half a century. This book may tell some readers more than they want to know about the details of politics, economics and public policy in the mid-20th century. But it also shows how good Mr. Galbraith was at both assessing problems and dealing with them. It was 52 years ago, after Adlai E. Stevenson lost to Dwight D. Eisenhower despite witty speeches written by Mr. Galbraith, that this economist summed up the problem in words that sound as if they could have been written last year. 'American liberals have made scarcely a new proposal for reform in 20 years,' he wrote. 'It is not evident that they have had any important new ideas.' In the following years, Mr. Galbraith helped to provide the ideas that shaped the Kennedy and Johnson administrations. Liberals could use a new Galbraith now.

Subject: Great look back in time... From: Pete Weis To: Emma Date Posted: Thurs, Feb 17, 2005 at 09:15:44 (EST) Email Address: Not Provided Message: at a great human being.

Subject: Re: Great look back in time... From: Jennifer To: Pete Weis Date Posted: Thurs, Feb 17, 2005 at 12:57:31 (EST) Email Address: Not Provided Message: What should I read?

Subject: Rougher Bond Markets? From: Terri To: All Date Posted: Wed, Feb 16, 2005 at 10:54:41 (EST) Email Address: Not Provided Message: Alan Greenspan has noted surprise at the lowness and calmness of the long term debt market, so lowness and calmness are going to be more suspect from here.

Subject: new nuclear energy From: johnny5 To: All Date Posted: Wed, Feb 16, 2005 at 10:13:01 (EST) Email Address: johnny5@yahoo.com Message: http://64.233.161.104/search?q=cache:GlWNTzRXaYsJ:news.ft.com/cms/s/3a6108ae-7977-11d9-89c5-00000e2511c8.html China set to pioneer meltdown-proof reactor and take lead in nuclear race&hl=en China set to pioneer meltdown-proof reactor and take lead in nuclear race By Mure Dickie in Beijing Published: February 8 2005 02:00 | Last updated: February 8 2005 02:00 China is poised to develop the world's first commercially operated 'pebble bed' nuclear reactor after a Chinese energy consortium chose a site in the eastern province of Shandong to build a 195MW gas-cooled power plant. An official representing the consortium, led by Huaneng, one of China's biggest power producers, said the proposed reactor could start producing electricity within five years. If successfully commercialised, the pebble bed reactor would be the first radically new reactor design for several decades. It would push China to the forefront of development of a technology that researchers claim offers a new 'meltdown-proof' alternative to standard water-cooled nuclear power stations. China and South Africa have led efforts to develop pebble bed reactors, so called because they are fuelled by small graphite spheres the size of billiard balls, with uranium cores. The reactor's proponents say its small core and the dispersal of its fuel among hundreds of thousands of spheres prevents a meltdown. Advocates of 'modular' pebble bed reactors argue they offer the hope of cheap, safe and easily expandable nuclear power stations - a potent appeal for China, which is struggling to meet huge growth in energy demand while avoiding environmental disaster. Pebble bed reactors are small, which suits remote and rural areas and makes them easy to expand. The reactor's supporters argue that the technology is secure from proliferation. The low-enriched uranium fuel consists of half-millimetre particles of uranium dioxide encased in graphite and silicon carbide, which in turn is encased in a graphite ball. Experts say it is difficult to process such spent fuel. Plans for a rival pilot plant near Cape Town, developed by Eskom, the South African power utility, US-based Exelon and British Nuclear Fuels, have been stalled by environmental challenges. The Institute of Nuclear and New Energy Technology at Beijing's Tsinghua University, which has links with the Massachusetts Institute of Technology, operates the world's only test pebble bed reactor in a military zone outside Beijing and is providing the technology for the planned power station. The Chinese consortium, which includes Huaneng, Tsinghua and China Nuclear Engineering and Construction (CNEC), has identified the city of Weihai on Shandong's north-eastern coast as its preferred site for the plant and is preparing to apply for government approval. Huaneng, one of China's biggest electricity generators, plans to take a 50 per cent stake in the joint venture that will build the plant. CNEC would own 35 per cent and Tsinghua 5 per cent. The remaining 10 per cent may be offered to other investors. Thabo Mbeki, South Africa's president, had said his country was seeking co-operation with China for the development of the nuclear technology.

Subject: Re: new nuclear energy From: Emma To: johnny5 Date Posted: Thurs, Feb 17, 2005 at 18:02:44 (EST) Email Address: Not Provided Message: 'Thabo Mbeki, South Africa's president, had said his country was seeking co-operation with China for the development of the nuclear technology.' Quite a sentence. We need to be reaching out economically in just this way to South Africa and beyond. We would have missed this were it not for you. Thanks.

Subject: The face that launched a thousand ships From: johnny5 To: All Date Posted: Wed, Feb 16, 2005 at 09:16:52 (EST) Email Address: johnny5@yahoo.com Message: I recall that some historians feel the battle of troy was really to gain control of trade routes. Funny how one of our oldest lessons of war still reverberates thousands of years later in almost identical ways. http://www.321energy.com/editorials/engdahl/engdahl021305.html Control all 'tyrannical' world oil chokepoints? A Peek Behind Bush II's 'War on Tyranny' William Engdahl February 14, 2005 William Engdahl is author of the book, 'A Century of War: Anglo-American Oil Politics and the New World Order,' recently released by Pluto Press Ltd, London. Part I: Control all 'tyrannical' world oil chokepoints? In recent public speeches, George W. Bush and others in the Administration, including Condi Rice, have begun to make a significant shift in the rhetoric of war. A new 'War on Tyranny' is being groomed to replace the outmoded War on Terror. Far from being a semantic nuance, the shift is highly revealing of the next phase of Washington's global agenda. In his 20 January inaugural speech, Bush declared, 'It is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.' Bush repeated the last formulation, 'ending tyranny in our world' in the State of the Union. (author's emphasis). In 1917 it was a 'war to make the world safe for democracy,' and in 1941 it was a 'war to end all wars.' The use of tyranny as justification for US military intervention marks a dramatic new step on the road to Washington's quest for global domination. Washington of course today is shorthand for the policy domination by a private group of military and energy conglomerates, from Halliburton to McDonnell Douglas, from Bechtel to ExxonMobil and ChevronTexaco, not unlike that foreseen in Eisenhower's 1961 speech warning of excessive control of government by a military-industrial complex. Congress declared World War II following a Japanese aggressive attack on the US fleet at Pearl Harbor. While Washington stretched the limits of deception and fakery in Vietnam and elsewhere to justify its wars, up to now it has always at least justified the effort with the claim that another power had initiated aggression or hostile military acts against the USA. Tyranny has to do with the internal affairs of a nation: it has to do with how a leader and a people interact, not with its foreign policy. It has nothing to do with aggression against the United States or others. Historically Washington has had no problem befriending some of the world's all-time tyrants, as long as they were 'pro-Washington' tyrants, such as the military dictatorship Pervez Musharraf in Pakistan, a paragon of oppression. We might name other befriended tyrants-- Aliyev's Azerbaijan, or Karimov's Uzbekistan, or the Al-Sabah's Kuwait, or Oman. Maybe Morocco, or Uribe's Colombia. There is a long list of pro-Washington tyrants. For obvious reasons, Washington is unlikely to turn against its 'friends.' The new anti-tyranny crusade would seem then, to be directed against 'anti-American' tyrants. The question is which tyrants are on the radar screen for the Pentagon's awesome arsenal of smart bombs and covert operations commandoes? Condoleezza Rice dropped a hint in her Senate Foreign Relations Committee testimony two days prior to the Bush inauguration. The White House, of course, cleared her speech first. Target some tyrannies, nurture others Rice hinted at Washington's target-list of tyrants amidst an otherwise bland statement in her Senate testimony. She declared, 'in our world there remain outposts of tyranny in Cuba, and Burma and North Korea, and Iran and Belarus, and Zimbabwe.' Aside from the fact that the designated Secretary of State did not bother to refer to Burma under its present name, Myanmar, the list is an indication of the next phase in Washington's strategy of pre-emptive wars for its global domination strategy. As reckless as this seems given the Iraq quagmire, the fact that little open debate on such a broadened war has yet taken place, indicates how extensive the consensus is within the US Washington establishment for the war policy. According to the January 24 New Yorker report from Seymour Hersh, Washington already approved a war plan for the coming 4 years of Bush II, which targets ten countries from the Middle East to East Asia. The Rice statement gives a clue to six of the ten. She also suggested Venezuela is high on the non-public target list. Pentagon Special Forces units are reported already active inside Iran, according to the Hersh report, preparing details of key military and nuclear sites for presumable future bomb hits. At the highest levels, France, Germany and the EU are well aware of the US agenda for Iran, on the nuclear issue, which explains the frantic EU diplomatic forays with Iran. The President declared in his State of the Union speech that Iran was, 'the world's primary state sponsor of terror.' Congress is falling in line as usual, beginning to sound war drums on Iran. Testimony to the Israeli Knesset by the Mossad chief recently, reported in the Jerusalem Post, estimated that by the end of 2005 Iran's nuclear weapons program would be 'unstoppable.' This suggests strong pressure from Israel on Washington to 'stop' Iran this year. According also to former CIA official, Vince Cannistraro, the new Rumsfeld war agenda includes a list of ten priority countries. In addition to Iran, it includes Syria, Sudan, Algeria, Yemen and Malaysia. According to a report in the January 23 Washington Post, Gen. Richard Myers, the Chairman of the Joint Chiefs of Staff, also has a list of what the Pentagon calls 'emerging targets' for pre-emptive war, which includes Somalia, Yemen, Indonesia, and Philippines and Georgia, a list he has sent to Secretary Rumsfeld. While Georgia may now be considered under de facto NATO or US control since the election of Saakashvili, the other states are highly suggestive of the overall US agenda for the new War on Tyranny. If we add Syria, Sudan, Algeria and Malaysia, as well as Condi Rice's list of Cuba, Belarus, Myanmar (Burma) and Zimbabwe, to the JCS list of Somalia, Yemen, Indonesia and Philippines, we have some 12 potential targets for either Pentagon covert destabilization or direct military intervention, surgical or broader. And, of course, North Korea, which seems to serve as a useful permanent friction point to justify US military presence in the strategic region between China and Japan. Whether it is ten or twelve targets, the direction is clear. What is striking is just how directly this list of US 'emerging target' countries, 'outposts of tyranny' maps onto the Administration strategic goal of total global energy control, which is clearly the central strategic focus of the Bush-Cheney Administration. General Norman Schwarzkopf, who led the 1991 attack on Iraq, told the US Congress in 1990: ``Middle East oil is the West's lifeblood. It fuels us today, and being 77% of the free world's proven oil reserves, is going to fuel us when the rest of the world runs dry.'' He was talking about what some geologists call peak oil, the end of the era of cheap oil, without drawing undue attention to the fact. That was in 1990. Today, with US troops preparing a semi-permanent stay in Iraq and moves to control global oil and energy chokepoints, the situation is far more advanced. China and India have rapidly emerged as major oil import economies in the last several years at a time existing sources of the West's oil, from North Sea to Alaska and beyond, are in significant decline. Here we have a pre-programmed scenario for future resource conflict on a global scale. Oil geopolitics and the War on Tyranny Cuba as a 'tyranny target' is a surrogate for Chavez' Venezuela, which is strongly supported by Putin, via Cuba, and now by China. Rice explicitly mentioned the close ties between Castro and Chavez. After a failed CIA putsch attempt early in the Bush tenure, Washington is clearly trying to keep a lower profile in Caracas. The goal remains regime change of the recalcitrant Chavez, whose most recent affront to Washington was his latest visit to China, where he signed a major bilateral energy deal. Chavez also had the gall to announce plans to divert oil sales away from the US to China, and sell its US refineries. Part of the China deal would involve a new pipeline to a port on Colombia's coast, which avoids US control of the Panama Canal. Rice told the Senate that Cuba was an 'outpost of tyranny' and in the same breath labeled Venezuela a 'regional troublemaker.' Indonesia, with huge natural gas resources serving mainly China and Japan, presents an interesting case, since the country has apparently been cooperative with Washington's War on Terror since September 2001. Indonesia's Government raised an outcry in the wake of the recent Tsunami disaster when the Pentagon dispatched a US aircraft carrier and special troops within 72 hours to land on Aceh to do 'rescue work.' The USS Abraham Lincoln aircraft carrier, with 2,000 supposedly Iraq-bound Marines aboard, together with the USS Bonhomme Richard from Guam, landed some 13,000 US troops on Aceh, which alarmed many in the Indonesian military and government. The government acceded, but demanded the US leave by end March and not establish a base camp on Aceh. No less than Deputy Defense Secretary and Iraq war strategist, Paul Wolfowitz, former US Ambassador to Indonesia, made an immediate 'fact-finding' tour of the region. ExxonMobil runs a huge LNG production on Aceh, which supplies energy to China and Japan. If we add Myanmar to the list of 'emerging targets', a state which, however disrespectful of human rights, is also a major ally and recipient of military aid from Beijing, a strategic encirclement potential against China emerges quite visibly. Malaysia, Myanmar and Aceh in Indonesia represent strategic flanks on which the vital sea lanes from the Strait of Malacca, through which oil tankers from the Persian Gulf travel to China , can be controlled. Moreover, 80% of Japan's oil passes here. The US Government's Energy Information Administration identifies the Malacca Strait as one of the most strategic 'world oil transit chokepoints.' How convenient if in the course of cleaning out a nest of tyrant regimes, Washington might militarily acquire control of these Straits? Until now the states in the area have vehemently rejected repeated Washington attempts to militarize the Straits. Control or militarization of Malaysia, Indonesia and Myanmar would give US forces choke-point control over the world's busiest sea-channel for oil from the Gulf to China and Japan. It would be a huge blow to China's efforts to secure energy independence from the US. Not only has China already lost huge oil concessions in Iraq with the US occupation, but China's oil supply from Sudan is also under increasing pressure from Washington. Taking Iran from the Mullahs would give Washington chokepoint control over the world's most strategically important oil waterway, the Straits of Hormuz, a two-mile-wide passage between the Persian Gulf and the Arabian Sea. The major US military base in the entire Middle East region is just across the Straits from Iran in Doha Qatar. One of the world's largest gas fields also lies here. Algeria is another obvious target for the 'war on tyranny.' Algeria is the second most important supplier of natural gas to Continental Europe, and has significant reserves of the highest-quality low sulfur crude oil, just the kind US refineries need. Some 90% of Algeria's oil goes to Europe, mainly Italy, France and Germany. President Bouteflika read the September 11 Washington tea leaves and promptly pledged his support for the War on Terror. Bouteflika has made motions to privatize various state holdings,, but not the vital state oil company, Sonatrach. That will clearly not be enough to satisfy the appetite of Washington planners. Sudan, as noted, has become a major oil supplier to China whose national oil company has invested more than $3 billions since 1999, building oil pipelines from the south to the Red Sea port. The coincidence of this fact with the escalating concern in Washington about genocide and humanitarian disaster in oil-rich Darfur in southern Sudan, is not lost on Beijing. China threatened a UN veto against any intervention against Sudan. The first act of a re-elected Dick Cheney late last year was to fill his Vice Presidential jet with UN Security Council members to fly to Nairobi to discuss the humanitarian crisis in Darfur, an eerie reminder of Defense Secretary Cheney's 'humanitarian' concern over Somalia in 1991. Washington's choice of Somalia and Yemen is a matched pair, as a look at a Middle East /Horn of Africa map will confirm. Yemen sits at the oil transit chokepoint of Bab el-Mandap, the narrow point controlling oil flow connecting the Red Sea with the Indian Ocean. Yemen also has oil, although no one yet knows just how much. It could be huge. A US firm, Hunt Oil Co. is pumping 200, 000 barrels a day from there but that is likely only the tip of the find. Yemen fits nicely as an 'emerging target' with the other target nearby, Somalia. 'Yes, Virginia', the 1992 Somalia military action by Herbert Walker Bush, which gave the US a bloody nose, was in fact about oil too... Little-known was the fact that the humanitarian intervention by 20,000 US troops, ordered by father Bush in Somalia, had little to do with the purported famine relief for starving Somalians. It had a lot to do with the fact that four major American oil companies, led by Bush's friends at Conoco of Houston Texas, and including Amoco (now BP), Condi Rice's Chevron, and Phillips, all held huge oil exploration concessions in Somalia. The deals had been made with the former 'pro-Washington' tyrannical and corrupt regime of Siad Barre. Barre was inconveniently deposed just as Conoco reportedly hit black gold with nine exploratory wells, confirmed by World Bank geologists. US Somalia Envoy, Robert B. Oakley, a veteran of the US Mujahadeen project in Afghanistan in the 1980's, almost blew the US game when, during the height of the civil war in Mogadishu in 1992, he moved his quarters onto the Conoco compound for safety. A new US cleansing of Somalian 'tyranny' would open the door for these US oil companies to map and develop the possibly huge oil potential in Somalia. Yemen and Somalia are two flanks of the same geological configuration, which holds large potential petroleum deposits, as well as being the flanks of the oil chokepoint from the Red Sea. Belarus is also no champion of human rights, but from Washington's standpoint, the fact that its government is tightly bound to Moscow makes it the obvious candidate for a Ukraine-style 'Orange Revolution' regime change effort. That would complete the US encirclement of Russia on the west, and of Russia's export pipelines to Europe, were it to succeed. Some 81% of all Russian oil exports today go to Western European markets. Such a Belarus regime change now would limit the potential for a nuclear-armed Russia to form a bond with France, Germany and the EU as potential counterweight against the power of the United States sole superpower, a highest priority for Washington Eurasia geopolitics. The military infrastructure for dealing with such tyrant states seems to be shaping up as well. In the January 24 New Yorker magazine, veteran journalist Seymour Hersh cited Pentagon and CIA sources to claim that the position of Rumsfeld and the warhawks is even stronger today than before the Iraq war. Hersh reported that Bush signed an Executive Order last year, without fanfare, placing major CIA covert operations and strategic analysis into the hands of the Pentagon, sidestepping any Congressional oversight. He adds that plans for the widening of the War on Terror under Rumsfeld were also agreed upon in the Administration well before the election. The Washington Post confirmed Hersh's allegation, reporting that Rumsfeld's Pentagon had created, by Presidential Order, and bypassing Congress, a new Strategic Support Branch, which co-opts traditional clandestine and other functions of the CIA. According to a report by US Army Col.(ret.) Dan Smith, in Foreign Policy in Focus last November, the new SSB unit includes the elite military special SEAL Team Six, Delta Force Army squadrons and potentially, a paramilitary army of 50,000 available for 'splendid little wars' outside Congressional purview. The list of emerging targets in a new War on Tyranny is clearly fluid, provisional, and adaptable as developments change. It is clear that a breathtaking array of future military and economic offensives is in the works at the highest policy levels to transform the world. A world oil price of $150 a barrel or more in the next few years would be joined by chokepoint control of the supply by one power if Washington has its way. (to be continued) February 14, 2005 William Engdahl

Subject: Debt is killing the poor From: johnny5 To: All Date Posted: Wed, Feb 16, 2005 at 08:05:39 (EST) Email Address: johnny5@yahoo.com Message: You will need realplayer installed to watch this c-span video. http://www.cspan.org/VideoArchives.asp?z1=&PopupMenu_Name=Economy/Fiscal&CatCodePairs=Issue,EF; Noreena Hertz, Author, 'The Debt Threat' Noreena Hertz, Author for 'The Debt Threat: How Debt is Destroying the Developing World,' discusses third world debt and economic globalization. 2/14/2005: WASHINGTON, DC: 30 min.

Subject: Japan in Recession From: Terri To: All Date Posted: Wed, Feb 16, 2005 at 07:25:07 (EST) Email Address: Not Provided Message: What has happened to Japan should give us pause, and should be cause for extensive analysis, for I can not believe the problem is so intrinsic to Japan that Europe and America should be immune. If Japan is in a liquidity trap, can we become so trapped? Paul Krugman speaks to this matter convincingly to me.

Subject: Germany is near recession From: Peter Weis To: Terri Date Posted: Wed, Feb 16, 2005 at 22:30:08 (EST) Email Address: Not Provided Message: This makes two of the world's largest economies - who's next?

Subject: South Korea's 'Sea Women' From: Emma To: All Date Posted: Tues, Feb 15, 2005 at 15:57:07 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/15/international/asia/15udo.html South Korea's 'Sea Women' Trap Prey and Turn Tables By NORIMITSU ONISHI UDO, South Korea - On a cold, rainy morning, the sea women of this islet donned their black wetsuits, strapped on their goggles and swam out into the waves. Over several hours, they dove to reach the sea bottom, holding their breath for about a minute before bobbing up to the surface. Sometimes, several dove in unison, their flippers jutting out together for a split second, looking like synchronized swimmers. That illusion lasted until they resurfaced, one clutching an octopus, another a sea urchin, and until a closer look at the sunburned, leathery faces behind the goggles revealed women in their 50's, 60's and older. The sea women here and on larger Cheju Island, off the southern coast of South Korea, are among the world's most skillful and toughest natural divers. Year round, they plumb the sea bottom with no scuba gear, in one- or two-minute dives that mix dexterity, desire and death. 'Every time I go in,' said Yang Jung Sun, 75, 'I feel as if I am going to the other side of the world. When I see something I could sell, I push myself in toward it. 'When I get out of breath, I push myself out of the water. It is all black in front of me. My lungs are throbbing. At that moment I feel I am dead. It happens every time. Every time. I tell myself I am not going to do that again. I always tell myself that. But greed makes me go back again.' Since the late 1970's, exports of sea products to Japan have made the sea women richer than they had ever imagined, allowing them to fix their houses, build new ones in Cheju City and send their daughters to college. Some of the best divers, like Yang Hwa Soon, 67, not related to the older Ms. Yang, now make about $30,000 a year. Most dive 10 days each month but also work the fields. With tourism also popular here, many sea woman run restaurants and inns. But their very success means that, within a decade or two, with the daughters choosing to work in the island's tourism industry or in the big cities, the 1,700-year history of Cheju's sea women will probably end. In 2003, 5,650 sea women were registered in Cheju, of whom 85 percent were over 50 years old. Only two were under 30. 'We are the end,' Ms. Yang Jung Sun said, satisfaction spreading across her face. 'I told my daughter not to do this. It's too difficult.' Men dived until the 19th century but found the job unprofitable because they, unlike women, had to pay heavy taxes, said Ko Chang Hoon, a professor at Cheju National University. So the women took over what was considered the lowest of jobs and became the main breadwinners. This clashed with Korea's Confucian culture, in which women have traditionally been treated as inferior, leading administrators from Seoul to bar the women from diving, ostensibly because they exposed bare skin while at sea. 'The central government forbade the women from diving, but the women just gave them some abalone to look away,' said Professor Ko, whose mother and grandmother were sea women. Not surprisingly, the sea women's power was greatest in villages that relied more on sea products than on farming. On Mara Island, where sea products accounted for almost all sources of revenue until tourism became popular in recent years, sex roles were entirely reversed. In a study of Mara Island, Seo Kyung Lim, a professor at Cheju National University whose mother was a sea woman, found that men took care of the children, shopping and feeding the pigs. Women ruled their households and their community. If their husbands cheated on them, Professor Seo said, 'they could simply tell them to get out of the house.' On Cheju, market forces prevailed over the Confucian preference for boys. 'If people had a boy, they didn't celebrate,' Professor Ko said. 'If it was a girl, they celebrated, because they knew that the girl would dive and bring money to the family.' On Udo, though farming traditionally made up a third of revenues, with sea products accounting for the rest, women's status was also high. 'We always made more money than the men,' Yang Jung Sun said. 'They just made enough to feed themselves. We paid for fuel and education. Everything.' Perhaps realizing that men, including the head of a local fishing association, sat within earshot, Ms. Yang added, with a smile that bridged the gap between her words and the reality: 'How can women have more power at home? There's only one captain in a house and that's clearly the father.' The girls begin going to sea at age 8 or 10, first picking up seaweed near the shore. The best divers can plunge 40 feet deep and hold their breath for over two minutes. (To avoid overfishing, scuba gear remains illegal.) With a flat tool attached to one wrist, the sea women try to dislodge abalone from under rocks. Occasionally, though, the abalone clamp down on the tool and trap one of them underwater. At least one sea woman dies every year while diving. With the number of sea women declining, and with tourism giving Cheju men more opportunities, it is unclear what will happen to their daughters' status in their communities and home. What is clear, though, is the pervasive sense that the end of something is near. 'When I wanted to go deeper, until last year I would push myself to go deeper,' Yang Hwa Soon said. 'Now I feel I'm aging. When I want to go deeper, instead of pushing myself, I usually decide not to go. I started feeling older last year, after I turned 65.'

Subject: China INC. From: Emma To: All Date Posted: Tues, Feb 15, 2005 at 14:06:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/15/books/15grim.html Car Clones and Other Tales of the Mighty Economic Engine Known as China By WILLIAM GRIMES CHINA INC. How the Rise of the Next Superpower Challenges America and the World By Ted C. Fishman If the 20th was the American century, then the 21st belongs to China. It's that simple, Ted C. Fishman says, and anyone who doubts it should take his whirlwind tour of the world's fastest-developing economy. The numbers are staggering. From 1982 through 2002, the United States economy grew at an annual rate of 3.3 percent, he writes, well above average for the world's most prosperous nations. China's economy grew at an annual rate of 9.5 percent, meaning it 'doubled nearly three times over,' in the generation since market reforms were introduced. In 2003 it bought 7 percent of the world's oil, a quarter of its aluminum and steel, almost a third of its iron ore and coal, and 40 percent of its cement. It makes 40 percent of all furniture sold in the United States. Its 3,000 Christmas-decoration factories exported more than $900 million tree trimmings and plastic Santas in the first 10 months of 2003. 'China still only makes one-twentieth of everything produced in the world, but on the world stage it plays the role of a new factory in an old industrial town,' Mr. Fishman says. 'It can spend, it can bully, it can hire and dictate wages, it can throw old-line competitors out of work. It changes the way everyone does business.' One of the most powerful weapons in China's economic arsenal is what businesses have come to know as 'the China price.' A stampede from the countryside to China's new industrial boomtowns has created a vast low-wage army, working for an average of 40 cents an hour, that can turn out consumer goods of every description even cheaper than Mexican or Malaysian factories can. American factories that cannot deliver to Wal-Mart or General Motors at the China price often face two stark choices: they can go under or set up shop in China. Many choose option No. 2. But danger lies in that direction too. The Chinese are adept at copying and quite loose in their interpretation of intellectual property rights. One of Mr. Fishman's more striking examples is the auto industry, which looms large in China's economic plans. American and Japanese companies spend $1 billion to $2 billion to develop a new car. The Chinese, by forcing foreign car companies to form joint ventures with their companies and to share their technology in order to enter China, hope to leapfrog over those kinds of development costs. Foreign companies, salivating at the thought of 100 million Chinese customers, cannot stop themselves from signing on the dotted line. Sometimes, rude surprises await. At the 2003 Shanghai auto show, G.M. executives unveiled a new $9,000 small family van, only to discover an identical vehicle, priced at $6,000, at a Chinese booth in the same row. The clone was made by Chery, a Chinese company owned in part by Shanghai Auto, G.M.'s joint-venture partner. Americans who fret over Japanese-style assaults on major industries miss the point, Mr. Fishman maintains. The real competition, he argues, and the real source of China's strength, lie in local enterprises 'that spring on the scene lean and mean, planned and financed by investors who want to make money quickly.' No one in Beijing analyzed the German toy industry and decided that China needed to move in. Mr. Fishman describes China's miracle economy with a mixture of fear and admiration. He is a lively writer, and some of his most vivid pages are devoted to the wrenching transformations brought about by the government's controlled experiment in free enterprise. He paints a neon-lit portrait of Shanghai, the showcase city of the new China. He also walks through the market stalls and factory floors of new super-cities like Shenzhen, a fishing town of 70,000 20 years ago that now has 7 million people, making it larger than Los Angeles or Paris, swelled by migrants from the countryside looking for a better life in the city. They are part of the largest human migration in history, a tide estimated to be as high as 300 million Chinese who account for the dynamism of the Chinese economy. Their wishes, increasingly, will be our commands, Mr. Fishman says. Their production and consumption patterns are already changing the way Americans shop, the kinds of jobs, wages and pensions they can expect and even the air they breathe. The Asian Brown Cloud, a wind-borne industrial smog that originates on China's east coast, can be seen in California as it rides the jet stream. (China has 7 of the world's 10 most polluted cities.) Mr. Fishman does not really have any convincing ideas on how to meet the Chinese challenge. The book goes a bit soft at the end, as he recommends better education to deal with the narrowing research and development gap between China and the United States. He would like to see Washington pay as much attention to China as to the Middle East. But he's a much better worrier than he is a problem solver. If it's any consolation, China is beating just about everybody in the world right now. How can you stop a nation where peasants figure out a way to sell on eBay? It's simple, Mr. Fishman seems to be saying. You can't.

Subject: Re: The giant's feet of clay From: Diogenes To: Emma Date Posted: Wed, Feb 16, 2005 at 16:42:58 (EST) Email Address: dio23@earthlink,net Message: I perused the book at Border's, and it is pretty hair-raising. The author doesn't seem to get into some of the things that might make the China boom fizzle though. ('If a trend is unsustainable, then that means it will stop.'--the late Herbert Stein, an economist and one of the last honest, rational conservatives. His son Ben--trained as an economist--worked as a scriptwriter in Hollywood for many years. His Tinseltown intellect is on display in his latest fantasy book.) The bottlenecks that are developing in energy and raw materials may finally act to put a real crimp on Chinese economic growth. Also, the social unrest of hundreds of millions of displaced former peasants descending on urbanized coastal China may be beyond the Communist party's ability to control--even if it reverted to massacres 'pour encouragement les autres'. Thanks to China's 'one child policy' and a traditional preferance for first-born males, the male-to-female disparity in a predominanly youthful population is bad and growing worse. Millions of old ladies may live lives of quiet mourning for their lost husbands, but if history shows anything (e.g., the wild Irish slums of New York in the 19th century and their late-twentieth and early-twenty-first century equivalents), it is that masses of young men without a secure place in society and lacking the opportunity to form families of their own are a recipe for civil disorder on an epic scale. We shall see.

Subject: Mongolia: E for Engllish F for Future From: Emma To: All Date Posted: Tues, Feb 15, 2005 at 13:42:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/15/international/asia/15mongolia.html?pagewanted=all&position= For Mongolians, E Is for English, F Is for Future By JAMES BROOKE ULAN BATOR, Mongolia - As she searched for the English words to name the razor-tooth fish swimming around her stomach on her faded blue and white T-shirt, 10-year-old Urantsetseg hardly seemed to embody an urgent new national policy. 'Father shark, mother shark, sister shark,' she recited carefully as the winter light filled her classroom. Stumped by a smaller, worried-looking fish, she paused, frowning. Then she cried out, 'Lunch!' Even here on the edge of the nation's capital, in this settlement of dirt tracks, plank shanties and the circular felt yurts of herdsmen, the sounds of English can be heard from the youngest of students - part of a nationwide drive to make it the primary foreign language learned in Mongolia, a landlocked expanse of open steppe sandwiched between Russia and China. 'We are looking at Singapore as a model,' Tsakhia Elbegdorj, Mongolia's prime minister, said in an interview, his own American English honed in graduate school at Harvard. 'We see English not only as a way of communicating, but as a way of opening windows on the wider world.' Its camel herders may not yet be referring to one another as 'dude,' but this Central Asian nation, thousands of miles from the nearest English-speaking country, is a reflection of the steady march of English as a world language. Fueled by the Internet, the growing dominance of American culture and the financial realities of globalization, English is taking hold in Asia, and elsewhere, just as it has in many European countries. In South Korea, six private 'English villages' are being established where paying students can have their passports stamped for intensive weeks of English-language immersion, taught by native speakers from all over the English-speaking world. The most ambitious village, an $85 million English town near Seoul, will have Western architecture and signs, and a resident population of English-speaking foreigners. In Iraq, where Arabic and Kurdish are to be the official languages, a movement is growing to add English, a neutral link for a nation split along ethnic lines. Iraqi Kurdistan has had an explosion in English-language studies, fueled partly by an affinity for Britain and the United States, and partly by the knowledge that neighboring Turkey may soon join the European Union, a group where English is emerging as the dominant language. In Chile, the government has embarked on a national program to teach English in all elementary and high schools. The goal is to make the nation of 15 million people bilingual within a generation. The models are the Netherlands and the Nordic nations, which have achieved proficiency in English since World War II. The rush toward English in Mongolia has not been without its bumps. After taking office after elections here last June, Mr. Elbegdorj shocked Mongolians by announcing that the nation of 2.8 million would become bilingual, with English as the second language. For Mongolians still debating whether to jettison the Cyrillic alphabet imposed by Stalin in 1941, that was too much, too fast. Later, on his bilingual English-Mongolian Web site, the prime minister lowered his sights and fine-tuned his program, developing a national curriculum devised to make English replace Russian in September as the primary foreign language taught here. Still, as fast as Mr. Elbegdorj wants the Mongolian government to proceed, the state is merely catching up with the private sector.

Subject: Mongolia: E for Engllish F for Future - 1 From: Emma To: Emma Date Posted: Tues, Feb 15, 2005 at 13:43:17 (EST) Email Address: Not Provided Message: 'This building is three times the size of our old building,' Doloonjin Orgilmaa, director general of Santis Educational Services, said, showing a visitor around her three-story English school that opened here in November near Mongolia's Sports Palace. This Mongolian-American venture, which was the first private English school when it started in 1999, now faces competition from all sides. With schools easing the way, English is penetrating Ulan Bator through the electronic media: bilingual Mongolian Web sites, cellphones with bilingual text messaging, cable television packages with English-language news and movie channels, and radio stations that broadcast Voice of America and the BBC on FM frequencies. At Mongolian International University, all classes are in English. English is so popular that Mormon missionaries here offer free lessons to attract potential converts. Increased international tourism and a growing number of resident foreigners explain some developments, like the two English-language newspapers here and the growing numbers of bilingual store signs and restaurant menus. During the first eight months of 2004, international tourist arrivals here were up 54 percent; visits by Americans doubled to nearly 9,000, helped by popular Mongolian movies like 'The Story of the Weeping Camel.' Foreign arrivals increased across the board, with the exception of Russians, whose visits declined by 9.5 percent. That reflects a wider decline here of Russia's influence and the Russian language. Until the collapse of the Soviet Union, Russian was universally taught in Mongolia and was required for admission to universities. 'Russia is going downhill very fast,' said Tom Dyer, 28, an Australian teacher at the Lotus Children's Center, the orphanage where Urantsetseg was describing the shark family. Russia, leery of immigration from Asia, has imposed visa requirements on Mongolians. China has not. Today, it is hard to find a Mongolian under 40 who speaks better than broken Russian. Within a decade, Mongolia is expected to convert its written language to the Roman alphabet from Cyrillic characters. 'Everyone knows that Russian was the official foreign language here,' T. Layton Croft, Mongolia's representative for The Asia Foundation, said in an interview. 'So by announcing that English is the official foreign language, it is yet another step in a way of consolidating Mongolia's independence, autonomy and identity.' So far, Beijing has adopted a laissez-faire stance toward Mongolia's flirtation with English, even though China is now the country's leading source of foreign investment, trade and tourism. Such a stance is easy to maintain because Chinese-language studies also are undergoing a boom here. For a trading people known for straddling the East-West Silk Road, Mongolians have long been linguists, often learning multiple languages. But for many of Mongolia's young people, English is viewed as hip and universal. 'Chinese is very boring,' Anuudari Batzaya, a fashionably dressed 10-year-old, said in the Santis language lab, pausing an interactive computer program that intoned in crisp British vowels: 'When he lands in London, he'll claim his baggage, and go through customs.' Stopped on a sidewalk on a snowy afternoon here, Amarsanaa Bazargarid, a 20-year-old management student at Mongolian Technical University, said optimistically: 'I'd like English be our official second language. Mongolians would be comfortable in any country. Russian was our second official language, but it wasn't very useful.' With official encouragement, the American Embassy, the British Embassy, and a private Swiss group have all opened English-language reading rooms here in the past 18 months. 'If there is a shortcut to development, it is English; parents understand that, kids understand that,' Munh-Orgil Tsend, Mongolia's foreign minister, said in an interview, speaking American English, also honed at Harvard. 'We want to come up with solid, workable, financially backable plan to introduce English from early level all the way up to highest level.' After trying in the 1990's to retrain about half of Mongolia's 1,400 Russian-language teachers to teach English, Mongolia now is embarking on a program to attract hundreds of qualified teachers from around the world to teach here. 'I need 2,000 English teachers,' said Puntsag Tsagaan, Mongolia's minister of education, culture and science. Mr. Tsagaan, a graduate of a Soviet university, laboriously explained in English that Mongolia hoped to attract English teachers, not only from Britain and North America, but from India, Singapore and Malaysia. Getting visas for teachers, a cumbersome process, will be streamlined, he said. Mr. Tsagaan spins an optimistic vision of Mongolia's bilingual future if he can lure English teachers. 'If we combine our academic knowledge with the English language, we can do outsourcing here, just like Bangalore,' he said.

Subject: The start of a trade war? From: jimsum To: All Date Posted: Tues, Feb 15, 2005 at 13:40:24 (EST) Email Address: jim.summers@rogers.com Message: Who's afraid of NAFTA's bite? Not the U.S., whose dogged attacks on softwood lumber undermine trade agreements, warns former negotiator GORDON RITCHIE By GORDON RITCHIE http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20050215/CORITCHIE15/TPComment/TopStories On the public stage, the Bush administration joins the chorus calling for improved Canada-U.S. relations. Behind the scenes, it is threatening to launch an unprecedented attack that could leave the free-trade agreement in ruins. Its immediate target is the Canadian lumber industry. Stripped of legal technicalities, the underlying facts of the lumber situation are these: The U.S. softwood industry, inefficient and undercapitalized, fears increased imports from Canada. Under the pretext that Canadian lumber enjoys an unfair advantage from provincial resource-management policies, the U.S. industry has launched four trade actions since 1980. In the first case, the action was dismissed as unwarranted by the U.S. administration itself. In the second, before the free-trade agreement, the administration forced Canada to agree to impose border taxes on its own industry by its threat of unilateral action. By the third, Canada was able to use the protections of the free-trade deal to demonstrate that the U.S. action was unfounded, and forced the administration to return the penalties illegally extracted from the Canadian industry. Rather than face the harassment of yet another trade case, Canada agreed to limit the volume of its exports to the United States (albeit to very high levels) for a promise of no further trade actions for five years. When that agreement was, unwisely, allowed to lapse, the U.S. industry waited two whole days before launching yet another trade case, even more outlandish than its predecessors. That case is still, four years later, winding its way through NAFTA and World Trade Organization panels, which have consistently ordered the U.S. authorities to clean up their act. So far, déjŕ vu all over again: The administration, acting as the agent of its protectionist industry, launches an unjustified trade action and imposes punitive duties; the Canadian industry and government are forced to spend millions to defend themselves; the free-trade panels declare the U.S. actions improper and send them back to the authorities to correct. In the past, the next step has been for the United States to grudgingly rectify the situation and comply with the rules. But, in the past few weeks, the Bush administration has engaged in an unprecedented escalation of its threats, to the point where the whole relationship is at serious risk, in order to cater to the demands of one protectionist U.S. industry, albeit a major employer and significant political contributor with enormous clout on Capitol Hill. Today, the lumber industry is the principal target. Tomorrow, we can expect these tactics to be applied to everything from energy to agriculture, and ultimately to strip the protections from the free-trade agreement itself. First, a senior Commerce Department official has formally declared that when the administration finally loses its cases before the free-trade panels, after exhausting all reasonable (and some highly questionable) legal tricks, it will simply refuse to pay back the money illegally collected -- now more than $4-billion Canadian -- unless and until the Canadian government agrees to meet the demands of the U.S. industry. This is indisputably in direct contravention of the NAFTA and amounts to nothing less than a unilateral abrogation of the central provisions of the free-trade agreement. Second, the administration is beginning to distribute these and other illegally collected duties to its own industries as a bounty, in direct defiance of the rulings of the WTO, leaving other countries no choice but to retaliate. Congress is blamed but experts say the Bush administration could have, but has not, used its discretion to interpret the offending legislation not to apply to Canada and Mexico. Third, in a highly cynical manoeuvre, the U.S. Trade Representative has taken the unprecedented step of ordering the Commerce Department to amend the trade orders to overrule the NAFTA-panel decision (that found that imports from Canada had not been shown to injure, or threaten to injure, U.S. producers). Finally, the U.S. industry has pulled out all the stops in its campaign to evade the NAFTA tribunals. It is threatening to challenge the very constitutionality of the NAFTA panel process, enlisting the support, for a fee, of two former attorneys-general who, conveniently forgetting that the Justice Department certified to Congress that the system was perfectly constitutional, are prepared to argue that it is unthinkable that Americans would ever be subject to decisions in which foreign judges take part. If successful, this challenge could demolish the very provisions of NAFTA without which Canada (and Mexico) would never have ratified the agreement. As U.S. senators have bragged, the purpose of all these actions is to demonstrate to Canada that it does no good to prove in the FTA panels that the U.S. actions are capricious and illegal. The only escape for the Canadians is to surrender to U.S. industry demands for an agreement to limit imports of lumber from Canada on the most unfavourable terms. Only then will the United States be prepared to return some (if not all) of the illegally collected duties. I predict that this campaign is bound to produce the opposite result, making it very difficult to reach agreement on terms remotely acceptable to Canada. It is difficult to credit that this could be a deliberately orchestrated policy offensive by the Bush administration. The Prime Minister is making a serious effort to improve the Canada-U.S. relationship. There are high-level discussions of a broad range of vital common issues, from border-crossing infrastructure to continental security and missile defence. It's a strange time to choose to let the administration's attack dogs loose to savage America's closest trading partner. After all, exports are to Canada what national security is to the United States, the central pillar of our national interest. It's more likely that matters have simply been allowed to get out of hand while the White House's attention was focused on other questions of greater strategic interest. It is time for the Prime Minister to invite the President to muzzle the dogs and put them back in their kennels. Canada must expect the United States to live up to its obligations (the letter and the spirit) before it can contemplate agreement on new issues on the agenda.

Subject: Stocks and Bonds From: Terri To: All Date Posted: Tues, Feb 15, 2005 at 11:31:46 (EST) Email Address: Not Provided Message: Stocks markets are turning positive again as the bull market continues. The Europe Stock Index is up 5.0% in domestic currencies and 1.2% in dollars. The only negative stock market in domestic currency is Hong Kong. Australia and Canada are positive in domestic and dollar terms. America may turn positive this day. Corporate debt, both investment grade and higher rated below investment grade debt, has been relatively strong for 14 months.

Subject: Roubini on The Bush Budget (Part X^x) From: Pancho Villa To: All Date Posted: Tues, Feb 15, 2005 at 10:20:59 (EST) Email Address: nma@hotmail.com Message: Read this: http://www.roubiniglobal.com/archives/2005/02/budget_lies_it.html Nouriel Roubini's Global Economics Blog: Bush Damned Budget Lies and Voodoo Budget Magic: it will be a $600b deficit, not $233b by 2009...and over $1,100b by 2015! The dishonesty of the administration about budget deficits has reached levels unheard of. These folks have absolutely no shame. Bush presented today a budget that claims that he will achieve his goal of reducing the deficit by half by 2008 (from a false 2004 baseline of $521 billion rather than the actual 2004 deficit of $412b) and will achieve a deficit of 'only' $233b by 2009. Even better news, the administration claims today: the 'halving' of the deficit will be reached by 2008, a year earlier than original 2009 target for it. Who are these accounting scam artists trying to deceive? Do they think everyone in America and around the world is a mathematically challenged total idiot or an accounting moron? The reality is, that based on realistic scenarios outlined last week by the non-partisan Congressional Budget Office, the deficit by 2009 will be close to $600b (or 4.0% of GDP) rather than falling to $233b; and the deficit will reach over $1,100b (or 5.5% of GDP) by 2015. How do they create the false $233b deficit by 2009? 1. They assume spending cuts that are, by any historical and political standard, impossible to achieve. 2. They assume revenue growth that is altogether wishful thinking and false based on current trends. And they do not consider the long-run costs of making all the Bush tax cuts permanent. 3. They do not count the ongoing costs of the continued defense and homeland security spending and of future military and homeland security build-ups. 4. They phase-in a budget busting social security privatization (that will cost alone $4.5 trillion in the next 20 years) only starting in 2009. This is worse than dishonesty; it is the most squalid manipulation of budgets ever seen aimed at pretending to achieve a budget figure that is utterly unrealistic and false in every possible dimension. What would be a more realistic and honest scenario for the 2009 and 2015 budget deficits, given the administration tax goals and the likely path of spending? Realistic and sensible assumptions imply that the 2009 deficit will be close to $600b (or 4.0% of GDP), even excluding social security reform; and the deficit will reach over $1,100b (or about 5.5.% of GDP) by 2015, including the effects of social security reform. http://www.argmax.com/mt_blog/#

Subject: Re: Roubini on The Bush Budget (Part X^x) From: Jennifer To: Pancho Villa Date Posted: Tues, Feb 15, 2005 at 12:49:42 (EST) Email Address: Not Provided Message: Interesting essay. Thanks.

Subject: Aye Aye Mister Nye From: Pancho Villa To: All Date Posted: Tues, Feb 15, 2005 at 10:11:51 (EST) Email Address: nma@hotmail.com Message: http://www.dailytimes.com.pk/default.asp?page=story_8-2-2005_pg3_6 Selling America —Joseph S Nye A year ago, then United States National Security Adviser Condoleezza Rice announced that, “We are engaged primarily in a war of ideas, not of armies.” She was right, but it is a war that the US is losing, because it is regularly out-flanked by Al Qaeda. Rising anti-Americanism around the world threatens to deprive the US of the soft or attractive power that it needs to succeed in the struggle against terrorism. As Iraq has shown, hard military power alone cannot provide a solution. Poll after poll confirms that America’s soft power has declined, particularly in the Islamic world. Even in supposedly-friendly countries like Jordan and Pakistan, more people say they trust Osama Bin Laden than George Bush. Information is power, and today a much larger part of the world’s population has access to it. Long gone are the days when US Foreign Service officers drove Jeeps to remote regions of the Third World to show reel-to-reel movies to isolated villagers. Technological advances have led to an information explosion, and publics have become more sensitised to propaganda. The world is awash in information, some of it accurate, some misleading. As a result, politics has become a contest about credibility. Whereas the world of traditional power politics is typically defined by whose military or economy wins, politics in an information age is about whose story wins. Governments compete with each other and with other organisations to enhance their own credibility and weaken that of their opponents. Unfortunately, the US government has not kept up. Even the Pentagon’s Defence Science Board admits this, reporting that America’s strategic communication “lacks Presidential direction, effective inter-agency coordination, optimal private sector partnerships, and adequate resources.” In the final years of the Clinton administration, Congress mistakenly abolished the US Information Agency and gave its tasks to a new Under-Secretary for Public Diplomacy in the State Department. This office has subsequently been left vacant or, for two of the past four years, filled on only an interim basis. The entire budget for public diplomacy (broadcasting, information, and exchange programmes) is $1.2 billion, about the same as France, or what McDonald’s spends on advertising. The US government spends 450 times more on hard military power than on soft power. In 1963, Edward R Murrow, the famous journalist who directed the US Information Agency in the Kennedy Administration, defined public diplomacy as interactions not only with foreign governments, but primarily with non-governmental individuals and organisations, often presenting a variety of private views in addition to government views. Sceptics who treat “public diplomacy” as a euphemism for broadcasting government propaganda miss the point. Simple propaganda lacks credibility and thus is counterproductive. Public diplomacy, by contrast, involves building long-term relationships. Most important in the current situation will be the development of a long-term strategy of cultural and educational exchanges aimed at developing a richer and more open civil society in Middle Eastern countries. Given low official credibility, America’s most effective spokesmen will often be non-governmental. Indeed, some analysts have even suggested that the US create a non-partisan corporation for public diplomacy that would receive government and private funds, but would stimulate independent cross-border communications. Corporations, foundations, universities, and other non-profit organisations can promote much of the work of developing an open civil society. Companies and foundations can offer technology to help modernise Arab educational systems and take them beyond rote learning. American universities can establish more exchange programmes for students and faculty. Foundations can support the development of institutions of American studies in Muslim countries, or programmes that enhance journalistic professionalism. They can support the teaching of English and finance student exchanges. In short, there are many strands to an effective long-term strategy for creating soft power resources and promoting conditions for the development of democracy. The response to the recent tsunami disaster in Asia is a case in point. President George W Bush pledged — albeit belatedly — $350 million in relief to the victims, and sent high-level emissaries to the region. There has also been an impressive outpouring of private support by American charities and non-profit organisations. The images of US soldiers battling in Iraq have been supplemented by images of America’s military delivering relief to disaster victims. But effective follow-up is essential. Bush’s prior announcements of increased development assistance and stronger efforts to combat HIV/AIDS in Africa were not only moral imperatives, but also important investments in American soft power. Unfortunately, the funds needed to implement these initiatives have not flowed as rapidly as the rhetoric. Equally important, none of these efforts at relief or public diplomacy will be effective unless the style and substance of US policies are consistent with a larger democratic message. That means that Condoleezza Rice’s chief task as Secretary of State will be to make American foreign policy more consultative in style as she seeks a political solution in Iraq and progress on Middle East peace. Only then will she be able to begin the job of repairing America’s tattered reputation by shoring up its neglected public diplomacy. —DT-PS Joseph S Nye, a former US assistant secretary of defense, is Distinguished Service Professor at Harvard and author of The Power Game: A Washington Novel

Subject: 100 times fatality rate From: johnny5 To: All Date Posted: Tues, Feb 15, 2005 at 08:53:23 (EST) Email Address: johnny5@yahoo.com Message: 80% of world mine deaths occur in china - people are cheap over there it seems and safety is sloppy. As chinese energy demands increase - what does this predict for future accidents? http://hosted.ap.org/dynamic/stories/C/CHINA_MINE_EXPLOSION?SITE=FLPET&SECTION=HOME 203 killed in China coal mine explosion By STEPHANIE HOO Associated Press Writer FUXIN, China (AP) -- Rescue crews were searching Tuesday for coal miners missing nearly 800 feet underground after a gas explosion in China's northeast killed 203 people in the deadliest mining disaster reported since communist rule began in 1949. The explosion Monday afternoon at the Sunjiawan mine left 12 miners trapped underground and injured 22 others with carbon monoxide poisoning, burns and fractures, the official Xinhua News Agency reported. One trapped miner was rescued Tuesday afternoon, nearly 24 hours after the blast occurred, Xinhua said. The cause of the blast was under investigation, Xinhua said. It said the disaster occurred 794 feet below the surface of the mine. President Hu Jintao and other Chinese leaders issued orders for local officials 'to spare no effort to rescue those stranded in the mine,' Xinhua said. It said they called for 'strict measures' to prevent any more such disasters. A government work team headed by a member of China's Cabinet arrived Tuesday morning at the mine in Liaoning province to help find the missing, treat the injured and prepare compensation for victims' families, Xinhua said. Rescuers in the far northeastern province were faced with roads made wet by an overnight snowfall and below freezing temperatures. China has suffered a string of deadly mining disasters in recent months despite a nationwide safety campaign. A blast in the northern province of Shaanxi in November killed 166 miners. Another explosion in October killed 148. Before that, the deadliest reported mining accident in recent years was a fire in southern China that killed 162 miners in 2000. The endless accidents are an embarrassment to the new Chinese leadership that took power in 2003 and has taken pains to portray itself as sympathetic to the concerns of the common people, especially farmers and miners. Last month, Premier Wen Jiabao visited some of the families of the 166 miners killed in Shaanxi, crying during the visit and saying the accident was a 'lesson paid for with blood.' He promised better mine safety measures and better training. In 2003, just before being named premier, Wen made a highly publicized visit to a mine in the Fuxin region of Liaoning, donning a miner's cap and eating pork dumplings with workers deep below the surface. The accident Monday also occurred in Fuxin but it wasn't immediately clear whether the mine Wen visited was the same one involved in the accident. Monday's disaster was the deadliest reported by the Chinese government since the 1949 communist revolution. However, until the late 1990s, when the government began regularly announcing statistics on mining deaths, many industrial accidents were never disclosed. In 1942, China's northeast was the site of the world's deadliest coal mining disaster when an accident killed 1,549 miners in Japanese-occupied Manchuria during World War II. China's mines are by far the world's deadliest, with more than 6,000 deaths last year in mine floods, explosions and fires. The government said the toll was 8 percent below the number killed the previous year. But the government says China's fatality rate per ton of coal mined is still 100 times that of the United States. China says it accounted for 80 percent of all coal mining deaths worldwide last year. Mine owners and local officials are frequently blamed for putting profits ahead of safety, especially as the nation's soaring energy needs increase demand for coal. The Chinese government says it has budgeted some $500 million since 2000 to improve ventilation in mines and reduce other safety hazards. Fuxin is one of China's oldest coal mining regions, and many of its mines have already been depleted, according to state media reports. Miners in many such regions must tunnel far underground to reach coal seams, and the risk of explosion due to methane gas is high.

Subject: Demographic Trends & Economic Indicators From: Setanta To: All Date Posted: Tues, Feb 15, 2005 at 04:29:39 (EST) Email Address: Not Provided Message: Making some sense of the Houghton baby boom effect 14/02/2005 The entire hullabaloo this week in the media about babies, fertility, marriage and parents should focus our minds on a most puzzling development in Ireland over the past few years: we are having a lot of children. Why are we experiencing our second baby boom since the late 1970s? In every other European country over the past 40 years, the richer the country becomes, the fewer children are born. Here, we are bucking that trend. When we were poor in the 1980s our birth rate collapsed, but now our population is rising in tandem with our wealth. More perplexingly, why are Irish women having more children than anywhere else in Europe, in the face of the most woeful childcare provision? Economic theory and basic logic predict that countries with the best state-provided pre-school childcare should make it easier for women, particularly working women, to have children. Therefore, women in places such as Scandinavia, Spain, Germany and Holland should have higher birth rates than countries that make it harder for working women to have children. Yet this has not happened. In the rich world, Irish, Kiwi and American women are having considerably more babies than their counterparts in Europe. On average, Irish women are having two children each, while women in Catholic Spain are having half that number. We are having 20 per cent more children than the EU average. Ireland, New Zealand and America are what could be called neo-liberal economies, where childcare is ad-hoc and not nearly as comprehensive as the continental countries where the state provides excellent childcare, maternity and paternity leave, tax breaks for extra children and a variety of other state supports for parents. So why are the hard-pressed, hardworking women in neo-liberal economies defying logic and having more babies? To paraphrase the Tánaiste, why is Boston more fertile than Berlin? Before we examine this issue, it's worth having a look at trends in Irish fertility. In 1960 we had the oldest population in Europe. By the time the Pope came here in 1979 we had the youngest. Thereafter the birth rate plummeted to such an extent that by 1990 we had one of the lowest birth rates in the EU. All demographers suggested back then that this trend would embed itself in our culture and Ireland would follow the low birth rate experience of other Catholic countries such as Italy and Spain. But this did not happen. Instead, we experienced what I term the Ray Houghton effect. Nine months after Houghton lobbed the ball over the Italian keeper in Giants Stadium, we started having babies again - and lots of them. Houghton's aphrodisiac effect outlasted his own fine career, and by 1999 - just ten years after Ireland registered the fastest declining birth rate in Europe - we were back up there again on top of the EU baby list. No other country in the western world has experienced such a zig-zagging birth rate. If couples are not going to behave in a predictable fashion, perhaps we might excuse some of the more ham-fisted mistakes of our planners. The birth rate and the structure of the population determine how many hospitals, schools and roads need to be built. More importantly, the age of the population influences the politics of the nation - the older the population, the more conservative the state. In the 1960s, the concerns, morals and preferences of Europe's oldest population were reflected in our laws and our political status quo. Trends in Irish fertility back then seem quite bizarre today. Our population was maintained by relatively few women having relatively many children. Those Irish women who were married had four children on average. An amazing statistic is that one-third of all births in Dublin's maternity hospitals in 1960 were the fifth birth or higher. By the late 1990s that figure had plunged. Today, only one in 20 women has a fifth child or more. (Figures from Trends in Irish Fertility by Tony Fahey, ESRI 2001.) Instead of a relatively small number of large families, we are now seeing a boom in small families in Ireland. Our new baby boom is characterised by one and two-child families. Using the same statistical basis as above, over half of the women giving birth this year in our maternity hospitals will be having their first baby - way ahead of the EU average. But the question is: why now? Ireland does not have any childcare provision to speak of, and paid maternity leave is among the shortest in Europe. Also, Irishwomen are working harder than ever. Taken together with exorbitant creche fees, the expansion of private education and the increased paid supervision of our children, economics would suggest that the cost of having a kid has risen so much that the birth rate should fall. But the opposite has happened. Contrast this with the eastern European states. Birth rates are falling rapidly in eastern Europe, despite the eastern European countries having fantastic state provided child support. The reason that Serbs, Bulgarians, Russians, Czechs and Poles are not having children is that they simply cannot afford them. It is also possible that their hopes for the future have been so blighted by economic devastation that they are not inclined to bring children into the world. In fact, there is an intriguing argument: that a baby boom is an indicator of national optimism about the future. In societies where contraception has been widely available for many years, there does seem to be a link between choosing to have children and economic expectation about the future. Western European countries responded to the hope brought about by the end of World War II by having huge families. Americans did likewise, as did the Japanese, Russians and Germans. Contrast this with Ireland after the Famine. Because the national psyche was damaged and hopelessness reigned, family structures changed profoundly, and this torpor and economic desperation lasted for over 100 years. Without contraception, we responded to economic hopelessness with sexual abstinence. The explosion in family formation since Ray Houghton's famous lob - as seen by over half of births in Holles Street being to first-time mothers - is a sign of economic hope. The Celtic Tiger was conceived on an unseasonably humid June night in 1994. We bring children into this world when we think the place is going in the right direction. In general, children are the most conspicuous example of ‘buyin' a couple can make to a society. Maybe the outrageous zig-zagging of our birth rate since the 1960s is a reflection of the stop-start economics that characterised this place until the early 1990s. This might be why neo-liberal economies are seeing higher fertility than their quasi-socialist neighbours. For the moment, the neo-liberal economies are doing better and providing more job opportunities, and appear to have a vibrancy and optimism that is lacking in the more state-dominated economies. Forget all the hi-falutin' theories - the leading indicators of economic buoyancy are sales of prams, rattles and babygros. After all the negative talk this week about children, it is heartening to know that even the dismal science can see them all - no matter where they come from - as a cause for celebration. www.davidmcwilliams.ie

Subject: Re: Demographic Trends & Economic Indicators From: johnny5 To: Setanta Date Posted: Tues, Feb 15, 2005 at 09:30:30 (EST) Email Address: johnny5@yahoo.com Message: Intersting article, I always felt as westerners horizon's were expanded through more work and opportunity there was less incentive for having many children - not more. My grandfather had 8 children because he needed farm hands for cheap - as we have moved away from an agricultural society this need has changed. If this reasoning is accurate - then as economic conditions improve in china perhaps the one child policy will be turned around as that nation perceives improvement.

Subject: Re: Demographic Trends & Economic Indicators From: jimsum To: johnny5 Date Posted: Tues, Feb 15, 2005 at 17:58:31 (EST) Email Address: jim.summers@rogers.com Message: Maybe conventional wisdom is wrong or incomplete. Most discussions I've seen assume that people have children to support themselves in old age and help on the farm; hence children are a benefit. This article is suggesting that children may instead be a cost, so only optimistic people will think they can afford children. This also might explain the lower number of children per family, since costs go up with the number of children. So do we conclude that children are a benefit in developing and a cost in developing countries; and that we will see high birthrates in both optimistic developed countries and pessimistic developing countries?

Subject: Re: Demographic Trends & Economic Indicators From: Terri To: jimsum Date Posted: Tues, Feb 15, 2005 at 19:31:08 (EST) Email Address: Not Provided Message: Clever argument :)

Subject: Re: Demographic Trends & Economic Indicators From: Jennifer To: johnny5 Date Posted: Tues, Feb 15, 2005 at 12:51:16 (EST) Email Address: Not Provided Message: This is surprising. Thanks!

Subject: How the Irish Paved Civilization From: Emma To: All Date Posted: Mon, Feb 14, 2005 at 13:50:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/13/books/review/13KLEIN.html 'Empire Rising': How the Irish Paved Civilization By JOE KLEIN EMPIRE RISING By Thomas Kelly. NO writer owns New York -- not the way that William Kennedy owns Albany or Raymond Chandler once owned Los Angeles. The city is just too big. The best lay claim to a neighborhood, an ethnic group or a moment. Damon Runyon had Broadway in the 30's; Edith Wharton, high society in the Gilded Age; Henry Roth, the immigrant Lower East Side; Louis Auchincloss, the Upper East Side; more recently, Jonathan Lethem has captured a significant patch of Brooklyn. Now comes Thomas Kelly to stake his claim -- on a group, Irish immigrant construction workers, and on a transaction that is central to the political geography of the city: the kickback. ''Nothing,'' he writes, at the outset of his new novel, ''Empire Rising,'' ''gets built in Gotham without a kickback.'' Kelly is a former construction worker -- he worked his way through Fordham, that underappreciated Jesuit launching pad in the Bronx -- and a former advance man for Mayor David Dinkins; his resume positions him perfectly for his chosen turf. His claim is not quite literary. He is neither an elegant stylist nor a particularly close observer of the human condition. But there is a compelling muscularity to his work -- the plots barrel along, the characters are wildly colorful -- and there is a dead-on authenticity to the dialogue and the atmospherics. There is also a bracing, and rare, appreciation for the sheer satisfaction of honest work: ''Briody steadied his legs and back and torso and arms and clenched his jaw against the rattle of the pneumatic gun. His muscles were fluid one second with movement, static the next to drive the rivet home, a contracting and easing of his brawn that over the weeks had become as regular as breathing. The gang moved in perfect sync as four parts of one whole, advancing nonstop from beam to column to beam. The sun was out now, overhead and hot. The morning chill was gone. Sweat poured down their backs. Briody watched their rivet punk walk along a beam with a burlap bag full of bolts slung over his shoulder, his hat askance. He was 17 and glided along the six-inch-wide crossbeam with the assurance of the oblivious.'' The work in question is the grandest imaginable, the construction of the Empire State Building in 1930 -- a particularly resonant moment in the history of New York, the exclamation point that punctuated the Roaring Twenties. The stock market has recently crashed, but the depth of the economic abyss is not entirely apparent yet. The city is still blithely ignoring Prohibition, dancing the Charleston, drowning in bathtub gin. Gentleman Jimmy Walker is the mayor, nonchalantly adulterous, complaisant, casually corrupt. Franklin Roosevelt is governor, about to run for president, anxious to separate himself from the local political stench, and also from his predecessor -- Al Smith, a Roman Catholic and, arguably, Tammany Hall's finest flower, a great governor but a disaster as a presidential candidate in 1928. (Smith, for his part, detests Roosevelt.) Tammany itself is in decline, still suffering after the death of the brilliant ''silent'' boss Charles Murphy, and run now by an insurance man, John F. Curry, a shadowy nonpresence in ''Empire Rising.'' (Curry's absence is a distinct personal disappointment to me since my grandfather, also named Joe Klein, ran that boss's favored conduit for honest graft: the John F. Curry Insurance Agency.) ''Empire Rising'' is, then, a historical novel -- and there are perils that come with the territory, foremost of which is what an editor of mine once called the ''Oh, look, there's Walt Whitman'' problem. It takes a certain amount of grit -- Kelly would use a more graphic reference -- to mix and match historical and fictional characters. Even so talented an artist as E. L. Doctorow had only intermittent success with it in ''Ragtime.'' And Kelly has his hands full here, introducing not only Jimmy Walker, Al Smith and Franklin Roosevelt, but also Babe Ruth, Lewis Hine and Primo Carnera. Judge Crater is a character. In fact, the mystery of the judge's disappearance is ''solved'' by Kelly, which also takes grit. Some of the historical showboating is a diversion -- the celebrities, with the exception of the elegant Mayor Walker, don't have much life to them -- but Kelly has chosen a particular time and place, and the elected officials of that moment are, each in his way, crucial to the intricate choreography of corruption in old New York. At the center of ''Empire Rising,'' though, is Johnny Farrell, a fictional aide to Mayor Walker. Farrell's job is to orchestrate the kickbacks. Early on, Kelly explains how it worked: ''The developers needed two changes in the building code to make the Empire State Building feasible, never mind profitable. Steel gauge and elevator speed. Two simple adjustments in the way skyscrapers were built that the mayor had vetoed twice without comment. Farrell had played the developers beautifully. . . . [He] had secured the mayor's signature, after doubling its price, of course, to a nice round one million dollars. And that was just the beginning. There were to be dozens of subcontractors on the job who would have to pay for the privilege, not to mention ancillary work like sewer lines, roads and a sparkling new subway station. Plus, someone had to meet the gambling and policy needs of several thousand workers. Farrell controlled all of it.'' Farrell is a second-generation Irish immigrant, college-educated but street-smart. He dresses flashy -- diamond stickpin, fancy watch -- drops $20 tips and flaunts an upper-class Protestant wife and kids. He wants to be loyal to his old boys from the neighborhood, but there is a city to run and new alliances beckon. There is a lot to work with here, and I wish Kelly had given us a bit more of Farrell's inner life, the conflicts that cause him to be just a shade too weak to be a really effective bagman, a shade too decent to be a truly frightening villain. (Frankie Keefe, the corrupt Teamster boss in Kelly's previous novel, ''The Rackets,'' was a magnificently awful bad guy.) Indeed, the emotional heart of ''Empire Rising'' lies elsewhere, in the romance between Farrell's Irish immigrant mistress, Grace Masterson, and a construc-tion worker, Mike Briody, who spends his spare time running guns for the Irish Republican Army. The word most often used, not always favorably, to describe this sort of novel is sprawling, but Kelly is a big-hearted and admirably ambitious writer. He wants to show the city top to bottom, from Jimmy Walker's boudoir to the Irish pubs in the South Bronx where the construction workers drink their paychecks. ''The Rackets'' had a similar scope -- it was about a Teamsters Union election in the 1990's (the mayor, unnamed in that case, was a deftly arrogant Giuliani sort). In both books, Kelly takes lots of chances, drawing his characters broadly, jamming the plots with coincidence, violence and melodrama. Not all of it works, but Kelly's city is palpably alive and passionate, and very recognizably New York -- especially in the vertiginous rush of upward mobility, the fissures it causes within families, the loyalties strained, the traditions lost. Kelly knows in his bones the lesson that Daniel Patrick Moynihan and Nathan Glazer posited in their classic of urban sociology, ''Beyond the Melting Pot'': this is a tribal town, and ethnicity trumps economic class as a social determinant. The tribes have their rituals, and Kelly knows his own too well to gild the lily: his Irish construction workers drink hard, curse with genius and swoon over their mothers. They are pigheaded, honor bound and always game for a good punch-up. His heroines are a construction worker's fantasy -- tall, gorgeous, tough-talking and with no illusions at all about Irish men. Those who belong to other tribes, especially the Italians, are incomprehensibly barbaric. (In both ''Empire Rising'' and ''The Rackets,'' there are Italian mobsters who terrify their Irish counterparts -- Irish violence, according to Kelly, is volcanic, emotional, a consequence of pride and stubbornness; Italian violence is dispassionate, surgical, corporate.) And at the center of Thomas Kelly's New York, more vital than plot or characters, is politics. Not the politics of elections, personalities, reform or progress -- no, this is the politics of the never-ending transaction. Public employees' unions may supplant Tammany, bundled campaign contributions may replace envelopes filled with cash, and new ethnic groups provide the crooks and the muscle labor. But the buildings still go up, the contracts are still let out (and not always to the lowest bidder) and zoning variances remain an adventure. There are lawyers, insurance brokers, pension fund managers and mobsters crawling all over each other for a payday, and good government sorts (''goo-goos'' is the term of art) trying to thwart them. Kelly is too smart for idealism, too romantic for reflexive cynicism. He is a realist, who understands that there's just too much here -- too much money, glamour, power -- for the city to ever completely reform itself. The structures are too big to run without a little grease. ''Empire Rising'' is an ode to urban grease; I'll never look at that grand old building the same way again.

Subject: Environmental Violence in Brazil From: Emma To: All Date Posted: Mon, Feb 14, 2005 at 12:08:08 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/14/international/americas/14brazil.html Brazil Promises Crackdown After Nun's Shooting Death By LARRY ROHTER RIO DE JANEIRO - An American nun and environmental activist was shot to death in the Amazon jungle on Saturday, heightening tensions between land speculators and peasant settlers in the region and bringing a government pledge to crack down on lawlessness. The nun, Sister Dorothy Stang, 74, was shot four times in the chest and head by a pair of gunmen while visiting a remote rural encampment near the Trans-Amazon Highway in Pará State. She was renowned throughout the Amazon region for her work with the poor and landless and for her efforts to preserve the rain forest. Officials view the attack as a challenge to the authority of the government, which has faced resistance from loggers and land speculators in the region over new land-use and ownership regulations. Immediately after the killing, President Luiz Inácio Lula da Silva ordered two members of his cabinet and a special police investigative unit to the area. 'Solving this crime and apprehending those who ordered and committed it is a question of honor for us,' Nilmário Miranda, the government's secretary for human rights, told reporters late on Saturday before heading for the region. 'This is intolerable. We cannot permit impunity in a case like this.' A spokesman for the American Embassy in Brasília said officials there were following the case and were awaiting additional information once the new workweek begins and weather improves in the region. 'We trust there will be a full investigation by the police,' he said. Sister Dorothy was a native of Dayton, Ohio, and belonged to the order of the Sisters of Notre Dame de Namur. She had lived and worked in the Amazon region since the early 1970's, focusing on organizing and educating peasant groups about issues that included land tenure and the economic and environmental benefits of avoiding deforestation. 'This is a terrible, tremendous loss,' Paulo Moutinho, coordinator of the Institute for Environmental Research in the Amazon and a longtime associate of Sister Dorothy, said in a telephone interview on Sunday. 'She was an extremely important person, a spokesman for the sustainable development movement with a capacity for leadership as big as that of Chico Mendes,' the internationally known rubber tapper leader killed in 1988. In an interview late in 2001, Sister Dorothy complained that she was constantly receiving death threats, which she attributed to loggers and land speculators. But she had tense relations with the local police, who viewed her as a social agitator and once detained her on suspicion of inciting violence and supplying guns to peasant groups, and so could not look to them for protection. Just last week, Sister Dorothy met with Mr. Miranda to discuss a new round of death threats against religious, peasant and environmental groups in the region along the Trans-Amazon Highway, which Mr. Moutinho called 'perhaps the most violent in the Amazon.' Her Brazilian associates said Sunday that they feared new attacks aimed at intimidating them and crippling their efforts. 'We're all incensed, but at the same time we're also very afraid,' Ana Paula Santos Souza, a leader of the Movement for the Development of the Trans-Amazon and the Xingu, a peasant group with which Sister Dorothy worked closely, said Sunday in an interview. 'Sister Dorothy was an American citizen and a nun, and even with all that prominence, she was still killed publicly. What does that mean for the rest of us?' Two male associates traveling with Sister Dorothy were spared by the gunmen and are reported to have identified one of the killers. The suspect's name and background have not been disclosed, but the Pastoral Land Commission of the Roman Catholic Church issued a statement saying the killing could have been ordered only by the powerful economic and political interests Sister Dorothy had always fought. 'The hatred of ranchers and loggers respects nothing,' the statement said. 'The reprehensible murder of our sister brings back to us memories of a past that we had thought was closed.' Sister Dorothy's killing comes at a time of mounting tension in Pará State. Last month, responding to new government regulation of land use and ownership, loggers blocked highways and rivers, burned buses, threatened to pollute rivers with chemicals and warned that 'blood will flow' if Mr. da Silva's government did not suspend decrees they found objectionable. Early this month, the government acceded to those pressures and rescheduled the timetable for enforcing the regulations. Environmental groups strongly criticized the action, saying it would only encourage more acts of lawlessness in a part of the country where the government's control has always been incomplete and tenuous. At the moment Sister Dorothy was attacked and killed, the environment minister, Marina Silva, was scheduled to be attending a ceremony to mark the creation of new 'extractive reserves' in Pará in which the government put large areas of jungle off limits to ranchers, loggers and land speculators. To some of Sister Dorothy's associates, that suggests that her murder had an even broader political motive. 'The timing wasn't a coincidence, because they could have killed Sister Dorothy anytime they chose,' Ms. Souza said. 'But they saw they were losing areas, and they wanted to provoke the state and send a warning. Now it is up to the government to defend the principles Sister Dorothy represented.'

Subject: A Philosopher's Inquiry From: Emma To: All Date Posted: Mon, Feb 14, 2005 at 11:51:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/14/books/14bull.html?incamp=article_popular_4&pagewanted=all&position= A Princeton Philosopher's Unprintable Book Title By PETER EDIDIN Harry G. Frankfurt, 76, is a moral philosopher of international reputation and a professor emeritus at Princeton. He is also the author of a book recently published by the Princeton University Press that is the first in the publishing house's distinguished history to carry a title most newspapers, including this one, would find unfit to print. The work is called 'On Bull - - - - .' The opening paragraph of the 67-page essay is a model of reason and composition, repeatedly disrupted by that single obscenity: 'One of the most salient features of our culture is that there is so much [bull]. Everyone knows this. Each of us contributes his share. But we tend to take the situation for granted. Most people are rather confident of their ability to recognize [bull] and to avoid being taken in by it. So the phenomenon has not aroused much deliberate concern, nor attracted much sustained inquiry.' The essay goes on to lament that lack of inquiry, despite the universality of the phenomenon. 'Even the most basic and preliminary questions about [bull] remain, after all,' Mr. Frankfurt writes, 'not only unanswered but unasked.' The balance of the work tries, with the help of Wittgenstein, Pound, St. Augustine and the spy novelist Eric Ambler, among others, to ask some of the preliminary questions - to define the nature of a thing recognized by all but understood by none. What is [bull], after all? Mr. Frankfurt points out it is neither fish nor fowl. Those who produce it certainly aren't honest, but neither are they liars, given that the liar and the honest man are linked in their common, if not identical, regard for the truth. 'It is impossible for someone to lie unless he thinks he knows the truth,' Mr. Frankfurt writes. 'A person who lies is thereby responding to the truth, and he is to that extent respectful of it.' The bull artist, on the other hand, cares nothing for truth or falsehood. The only thing that matters to him is 'getting away with what he says,' Mr. Frankfurt writes. An advertiser or a politician or talk show host given to [bull] 'does not reject the authority of the truth, as the liar does, and oppose himself to it,' he writes. 'He pays no attention to it at all.' And this makes him, Mr. Frankfurt says, potentially more harmful than any liar, because any culture and he means this culture rife with [bull] is one in danger of rejecting 'the possibility of knowing how things truly are.' It follows that any form of political argument or intellectual analysis or commercial appeal is only as legitimate, and true, as it is persuasive. There is no other court of appeal. The reader is left to imagine a culture in which institutions, leaders, events, ethics feel improvised and lacking in substance. 'All that is solid,' as Marx once wrote, 'melts into air.' Mr. Frankfurt is an unlikely slinger of barnyard expletives. He is a courtly man, with a broad smile and a philosophic beard, and he lives in apparently decorous retirement with his wife, Joan Gilbert, in a lovely old house near the university. On a visit there earlier this month, there was Heifetz was on the stereo, good food and wine on the table. But appearances, in this case, are somewhat misleading. Mr. Frankfurt spent much of his childhood in Brooklyn, and still sees himself as a disputatious Brooklynite - one who still speaks of the Dodgers as 'having betrayed us.' And, in any event, Mr. Frankfurt is not particularly academic in the way he views his calling. 'I got interested in philosophy because of two things,' he said. 'One is that I was never satisfied with the answers that were given to questions, and it seemed to me that philosophy was an attempt to get down to the bottom of things.' 'The other thing,' he added, 'was that I could never make up my mind what I was interested in, and philosophy enabled you to be interested in anything.' Those interests found expression in a small and scrupulous body of work that tries to make sense of free will, desire and love in closely reasoned but jargon-free prose, illustrated by examples of behavior (philosophers speak of the 'Frankfurt example') that anyone would recognize. 'He's dealing with very abstract matters,' said Sarah Buss, who teaches philosophy at the University of Iowa, 'but trying not to lose touch with the human condition. His work keeps faith with that condition.' Mr. Frankfurt's teaching shares with his prose a spirit Ms. Buss, who was once his graduate student, defines as, 'Come in and let's struggle with something.' 'He was very willing,' she added, 'to say, 'I just don't understand this.' ' The essay on [bull] arose from that kind of struggle. In 1986, Mr. Frankfurt was teaching at Yale, where he took part in a weekly seminar. The idea was to get people of various disciplines to listen to a paper written by one of their number, after which everyone would talk about it over lunch. Mr. Frankfurt decided his contribution would be a paper on [bull]. 'I had always been concerned about the importance of truth,' he recalled, 'the way in which truth is foundational to civilization and the various deformities of it that were current.' 'I'd been concerned about the prevalence' of [bull], he continued, 'and the lack of concern for truth and respect for truth that it represented.' 'I used the title I did,' he added, 'because I wanted to talk about [bull] without any [bull], so I didn't use 'humbug' or 'bunkum.' ' Research was a problem. The closest analogue came from Socrates. 'He called it rhetoric or sophistry,' Mr. Frankfurt said, 'and regarded philosophy as the great enemy of rhetoric and sophistry.' 'These were opposite, incompatible ways of persuading people,' he added. 'You could persuade them with rhetoric' - or [bull] - 'with sophistic arguments that weren't really sound but that you could put over on people, or you could persuade them by philosophical arguments which were dedicated to rigor and clarity of thought.' Mr. Frankfurt recalled that it took him about a month to write the essay, after which he delivered it to the humanities group. 'I guess I should say it was received enthusiastically,' he said, 'but they didn't know whether to laugh or to take it seriously.' Some months after the reading, the essay, title intact, was published by The Raritan Review, a journal then edited by Richard Poirier, a distinguished literary critic. In 1988, Mr. Frankfurt included it in 'The Importance of What We Care About,' a collection of his essays. The audience for academic journals and collections of philosophical essays is limited, however, and so the essay tended to be passed along, samizdat style, from one aficionado to another. 'In the 20 years since it was published,' Mr. Frankfurt said, 'I don't think a year has passed in which I haven't gotten one or two letters or e-mails from people about it.' One man from Wales set some of the text to music; another who worked in the financial industry wanted to create an annual award for the worst piece of analysis published in his field (an idea apparently rejected by his superiors). G. A. Cohen, the Chichele professor of social and political theory at All Souls College, Oxford University, has written two papers on the subject. 'Harry has a unique capacity to take a simple truth and draw from it very consequential implications,' Mr. Cohen said. 'He is very good at identifying the potent elementary fact.' It was Ian Malcolm, the Princeton University Press editor responsible for philosophy, who approached Mr. Frankfurt about publishing the essay as a stand-alone volume. 'The only way the essay would get the audience it deserved was to publish it as a small book,' he said. 'I had a feeling it would sell, but we weren't quite prepared for the interest it got.' For Mr. Frankfurt, who says it has always been his ambition to move philosophy 'back to what most people think of as philosophy, which is a concern with the problems of life and with understanding the world,' the book might be considered a successful achievement. But he finds he is still trying to get to the bottom of things, and hasn't arrived. 'When I reread it recently,' he said at home, 'I was sort of disappointed. It wasn't as good as I'd thought it was. It was a fairly superficial and incomplete treatment of the subject.' 'Why,' he wondered, 'do we respond to [bull] in such a different way than we respond to lies? When we find somebody lying, we get angry, we feel we've been betrayed or violated or insulted in some way, and the liar is regarded as deceptive, deficient, morally at fault.' Why we are more tolerant of [bull] than lying is something Mr. Frankfurt believes would be worth considering. 'Why is lying regarded almost as a criminal act?' he asked, while bull 'is sort of cuddly and warm? It's outside the realm of serious moral criticism. Why is that?'

Subject: The Public Thinker From: Emma To: All Date Posted: Mon, Feb 14, 2005 at 11:35:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/14/opinion/14herbert.html The Public Thinker By BOB HERBERT Arthur Miller, in his autobiography, 'Timebends,' quoted the great physicist Hans Bethe as saying, 'Well, I come down in the morning and I take up a pencil and I try to think. ...' It's a notion that appears to have gone the way of the rotary phone. Americans not only seem to be doing less serious thinking lately, they seem to have less and less tolerance for those who spend their time wrestling with important and complex matters. If you can't say it in 30 seconds, you have to move on. God made man and the godless evolutionists are on the run. Donald Trump ('You're fired!') and Paris Hilton ('That's hot!') are cultural icons. Ignorance is in. The nation is at war and its appetite for torture may be undermining the very essence of the American character, but the public at large seems much more interested in what Martha will do when she gets out of prison and what Jacko will do if he has to go in. Mr. Miller's death last week meant more than the loss of an outstanding playwright. It was the loss of a great public thinker who believed strongly, as Archibald MacLeish had written, that the essence of America - its greatness - was in its promises. Mr. Miller knew what ignorance and fear and the madness of crowds, especially when exploited by sinister leadership, could do to those promises. His greatest concerns, as Charles Isherwood wrote in Saturday's Times, 'were with the moral corruption brought on by bending one's ideals to society's dictates, buying into the values of a group when they conflict with the voice of personal conscience.' The individual, in Mr. Miller's view, had an abiding moral responsibility for his or her own behavior, and for the behavior of society as a whole. He said that while writing 'The Crucible,' 'The longer I worked the more certain I felt that as improbable as it might seem, there were moments when an individual conscience was all that could keep a world from falling.' For the United States, which launched a misguided, pre-emptive war in Iraq, is shipping prisoners off to foreign countries to be tortured and has pressed the rewind button on matters of social progress, this may be one of those moments. Reading Miller again, and looking back on his life, it's interesting to see some of the differences he has spotlighted in two sharply defined eras: the Depression-wracked 1930's and the prosperous, postwar 1950's. 'It was not that people were more altruistic,' he wrote in 'Timebends,' 'but that a point arrived - perhaps around 1936 - when for the first time unpolitical people began thinking of common action as a way out of their impossible conditions. Out of dire necessity came the surge of mass trade unionism and the federal government's first systematic relief programs, the resurgent farm cooperative movement, the TVA and other public projects that put people to work and brought electricity to vast new areas, repaired and built new bridges and aqueducts, carried out vast reforestation projects, funded student loans and research into the country's folk history - its songs and tales collected and published for the first time - and this burst of imaginative action created the sense of a government that for all its blunders and waste was on the side of the people.' By the early 50's the agony of the Depression was gone. McCarthyism was in flower and the dean of Mr. Miller's alma mater, the University of Michigan, was complaining that his students' highest goal was to fit in with corporate America rather than separating truth from falsehood. The dean, Erich Walter, said, 'They become experts at grade-getting, but there's less hanging round the lamppost now, no more chewing the fat,' or, as Mr. Miller put it, 'speculating about the wrongs of the world and ideal solutions, something no employer was interested in, and might even suspect.' Mr. Miller understood early that keeping the population entertained was becoming the paramount imperative of the U.S. We're now all but buried in entertainment and the republic is running amok. Mr. Miller is gone, and if we're not wise enough to pay attention, his uncomfortable truths will die with him. (He felt, among other things, that most men and women knew 'little or nothing' about the forces manipulating their lives.) Anyway, the Grammys were last night and Michael Jackson's trial resumes today. Arthur Miller? Broadway dimmed its lights Friday night. His country may decide that's enough of a tribute and it's time to move on.

Subject: Re: The Public Thinker From: johnny5 To: Emma Date Posted: Tues, Feb 15, 2005 at 10:43:15 (EST) Email Address: johnny5@yahoo.com Message: They better get on the ball with the grammy's - they lost a lot of viewers this year. I wonder what the roman leaders did when the populace got bored with the gladiator games? A good campaign or war took the mobs mind off things I suppose. http://hosted.ap.org/dynamic/stories/T/TV_LIVELY_GRAMMYS?SITE=FLPET&SECTION=ENTERTAINMENT Grammy Awards get lowest rating since '95 By DAVID BAUDER AP Television Writer NEW YORK (AP) -- From J.Lo to James Brown, Usher to U2, the Grammys had it all this year - except a lot of interested viewers. An estimated 18.8 million people watched Ray Charles' swan song clean up with eight awards Sunday night, a startling 28 percent drop from the 2004 Grammys.

Subject: The Importance of Being Earnest From: Emma To: All Date Posted: Mon, Feb 14, 2005 at 11:29:41 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/14/opinion/14mon1.html The Importance of Being Earnest For all its talk of deficit reduction, President Bush's 2006 budget is a map of reckless economic policies and shows how they have backed the United States into a precarious position in the global financial markets. Mr. Bush needs to convince foreign investors that he's serious about cutting the budget deficit. Here's why: Each day, the United States must borrow billions of dollars from abroad to finance its enormous budget and trade deficits. Without a steady stream of huge loans, the country would face rising interest rates, higher inflation, a dropping dollar and slower economic growth. The lenders want to see less of a gap between what the government collects in taxes and what it spends, because a lower budget deficit always eases a trade deficit. A lower trade deficit also implies a stronger dollar. And a stronger dollar would reassure foreign investors that dollar-based assets remain their best choice. As it is, their belief is being sorely tested: in 2003, the European Central Bank lost $625 million to the weak dollar and reportedly stands to lose $1.3 billion for 2004. Japan's central bank, which has the world's largest foreign stash of dollars - some $715 billion - could lose an estimated $40 billion if the dollar weakened to around 95 yen, a level many analysts expect to see this year. No wonder that a week before Mr. Bush released his budget, Japan's finance minister said that Japan had to be careful in managing those dollar-filled foreign currency reserves. It's not hard to see what brought the United States to this juncture. Mr. Bush's first-term tax cuts were too expensive and too skewed toward top earners to work as effective, self-correcting economic stimulus. Instead, predictably, they've driven the nation deep into the red. Having reduced tax revenue to a share of the economy not seen since 1959, the cuts are a huge factor in the swing from a budget surplus to a $412 billion deficit. The administration also erred big in deciding to deal with the ballooning trade imbalance by letting the dollar slide. That might have been a winning gambit if it had been paired with a commitment to cut the deficit. Theoretically, a weakening dollar would have begun the process of easing the trade imbalance, while deficit reduction, which takes longer to bring about, would have addressed the gap in a more lasting way. Instead, Mr. Bush has unceasingly pursued deficit-financed tax cuts, even as the weak dollar has failed to fix the trade imbalance. The result is that the country's deficits - and borrowing needs - remain enormous even as dollar-based investments are becoming less attractive. Lately, Mr. Bush has been talking the deficit reduction talk, but there's no sign that he is willing to walk the walk. In his 2006 budget, he pledges to slash spending, but largely in areas that would have only a small impact on the deficit and where cuts would be politically difficult, not to mention cruel, such as food stamps, veterans' medical care, child care and low-income housing. Meanwhile, he is pounding the table for more deficit-bloating measures - making his first-term tax cuts permanent, at a 10-year cost of as much as $2.1 trillion; putting into effect two high-income tax breaks that were enacted in 2001 but have been on hold, at a 10-year cost of $115 billion; and introducing new tax incentives to allow high earners to shift even more cash into tax shelters, at a cost that would ultimately work out to more than $30 billion a year when investors cashed in their accounts tax-free. Oh, yes. Mr. Bush also wants to borrow some $4.5 trillion over two decades to privatize Social Security, which is a bad idea even without the borrowing and a horrendous one with it. The global financial community won't be fooled. The dollar may have bouts of relative strength, as it has recently. But these are due largely to currency traders' focus on short-term advantages, like Federal Reserve interest-rate hikes, which are perceived as a positive for the dollar, or the appearance of profit-taking opportunities. Inevitably, the budget and trade deficits will reassert their drag on the dollar, and then on Washington's ability to comfortably borrow money from abroad. Congress can avert this crisis-in-waiting by forcing Mr. Bush to be serious about deficit reduction. The first-term tax cuts should be allowed to lapse. Cuts that are not yet in effect should not be allowed to begin. And no new programs should be started that require megaborrowing. If the president doesn't see that he has more important tasks than cutting taxes for the rich and undermining Social Security, Congress should set him straight.

Subject: Productivity and Economic Growth From: Terri To: All Date Posted: Mon, Feb 14, 2005 at 10:56:51 (EST) Email Address: Not Provided Message: Growth in productivity does not in itself generate economic growth or increasing returns to workers. Productivity growth was high during the Depression, and we have had 3 years of more than 4% productivity growth, which is excellent, but wages have risen far less than productivity. Growth in productivity allows the potential growth rate of the economy to increase. There is the point. Growth in productivity is a base for workers increasing wages with no inflation impact. The need is for proper monetary and fiscal policy to take advantage of productivity increases. There is every reason to expect that if we continue to encourage educational broadening and deepening as well as ample research, productivity growth can well continue to increase economic potential by 2%. That will certainly allow for healthy economic expansion if we get policy right.

Subject: Productivity and Excess From: Terri To: Terri Date Posted: Mon, Feb 14, 2005 at 11:22:50 (EST) Email Address: Not Provided Message: There is even a case for financing excess that extends back to the development of the American railroads and forward to the development of the internet. There was excess each way but we were left with a modern transportation and communication system respectively. The Japanese did become a prime economic power, rich in infrastructure, and the Chinese wish for the same.

Subject: Projection of S&P Returns From: Terri To: All Date Posted: Mon, Feb 14, 2005 at 07:18:58 (EST) Email Address: Not Provided Message: Growth of 2.2% for the economy is enoguh to allow Social Security to flourish as far as we can project. With 2.2% real growth in earnings, along with the current dividend yield for the Vanguard S&P Index of 1.6%, we have a basis for a 3.8% stock market return. Add to the base return another 1.0% for share buybacks and we might have a 4.8% return at current price earnings ratios. So, I am fairly comfortable with a long term nominal return projection of 7.8% for the S&P Index. Remember, economic growth has been 3.4% for the last 75 years.

Subject: Re: Projection of S&P Returns From: Pete Weis To: Terri Date Posted: Mon, Feb 14, 2005 at 10:29:21 (EST) Email Address: Not Provided Message: Terri. Averaging economic growth over the last 75 years is not very useful for projecting it over the next ten years. Isn't it more useful to examine the underlying conditions that affect economic growth? For instance - how do aggregate wages influence growth? What about overall debt - how does this affect future growth? How does the direction of the dollar affect growth? How about overvalued assets?

Subject: Re: Projection of S&P Returns From: Terri To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 13:20:29 (EST) Email Address: Not Provided Message: Thinking just about this as you are. The long term projection of the Social Security actuaries is 1.9%. Should we agree?

Subject: Re: Projection of S&P Returns From: Pete Weis To: Terri Date Posted: Mon, Feb 14, 2005 at 15:11:26 (EST) Email Address: Not Provided Message: 'So, I am fairly comfortable with a long term nominal return projection of 7.8% for the S&P Index. Remember, economic growth has been 3.4% for the last 75 years.' We are in unchartered waters. Both personal debt and governmental debt are at levels never before seen. We have a continuing current account deficit way beyond anything we've seen in the past. All of this comes at a time when interest rates have reached a bottom and almost certainly are headed higher in the next 5 to 10 years. All of this also comes after the largest and longest run-up in stocks in history as well as the longest and largest run-up in housing, worldwide, in history. Add to this rising demand for energy resources which are rapidly reaching a point of diminishing returns and you begin to see how difficult it is to project future growth of our economy and performance of the S&P based on the last 40 years or 75 years. Record debt and rising future energy costs will definitely subtract from future growth.

Subject: Conservative Projection From: Terri To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 15:40:25 (EST) Email Address: Not Provided Message: Then, assume a conservative real economic growth of 1.5% for the coming decade and add the current S&P dividend of 1.6% and we have stock returns of 3.1% already at the current price earning level. Add only 0.4% return for share buybacks and the real return is 3.5%. [Nominal return of 6.5%]. This return will still be better than investmet grade bonds.

Subject: How does this affect US & ........ From: Pete Weis To: All Date Posted: Mon, Feb 14, 2005 at 00:02:50 (EST) Email Address: Not Provided Message: global economy? Yen Declines for Fourth Straight Week on Japan Economy Concern Feb. 12 (Bloomberg) -- The yen declined for a fourth straight week against the dollar, the longest losing streak since May, on signs the Japanese economy is weakening. Japan's currency has dropped about 3.8 percent since reaching a five-year high on Jan. 17, after reports showed falling household spending and industrial output. A government report next week may show little expansion in the world's second- largest economy last quarter. ``The Japanese data remains largely unconvincing,'' said Ian Gunner, a currency strategist at Mellon Financial Corp. in London. ``People have been keen to see a broader recovery in the numbers and that hasn't happened yet,'' which weakens the yen. The yen fell 1.5 percent this week to 105.71 per dollar at 5 p.m. in New York from 104.07 last week, according to electronic currency-dealing system EBS. The losing streak is the longest since the six weeks starting in April through mid-May. It also traded at 136.03 per euro from 133.93, down 1.5 percent this week. Bank of Japan Governor Toshihiko Fukui on Feb. 3 said ``there's still a little distance to go before the economy can be said to be on a sustainable recovery path.'' The bank has kept its benchmark interest rate near zero since 2001 to spur growth and end deflation in goods and services. Prices have risen in just one month since April 1998. Demand for the yen also waned this week after China said it has no immediate plan to alter the decade-log peg of the yuan to the dollar, said Mitul Kotecha, head of currency strategy in London at Calyon, the securities unit of Credit Agricole SA. A stronger yuan may boost Japan's competitiveness by making China's exports more expensive. Lowered Forecast Morgan Stanley on Feb. 10 lowered its forecast for the yen, in part because of postponed expectations for a strengthening in China's currency. The firm cut its estimate for June to 103 yen, from 95. Morgan Stanley now predicts China will keep its currency fixed at least until mid-year. Japan's economy probably expanded at an annual 0.1 percent pace in last three months of 2004, the same as in the third quarter, according to the median of 30 forecasts in a Bloomberg survey. The report is scheduled for Feb. 16. The yen has dropped from a more than five-year high of 101.69 per dollar last month as government figures showed on Jan. 27 that industrial output dropped 1.2 percent in December and on Feb. 8 that household spending fell 3.5 percent. ``The Japanese economy has been uniformly uninspiring for some time,'' said Simon Derrick, chief currency strategist in London at Bank of New York. ``There's not a lot in the Japanese economy to make you want to buy the yen.'' He said the yen may fall to 107 per dollar next week. U.S. Trade Gap The dollar erased a weekly gain against the euro Feb. 10 after a U.S. government report showed the second-widest trade deficit on record. The dollar finished the week little changed at $1.2866 per euro. The U.S. currency had appreciated to $1.2732 on Feb. 7, the strongest since Nov. 3. The Feb. 10 ``trade data was still leaving the deficit at extremely wide levels so it's not particularly good news for the dollar,'' said Kotecha. Imports exceeded exports by $56.4 billion in December, after a record $59.3 billion deficit in November, the Commerce Department said. A wider gap means more dollars need to be converted to other currencies to pay for imports. The U.S. currency fell for the third straight year against the euro and the yen last year, in part because of the widening gap. ``I don't think there's a great degree of willingness to continue to buy the dollar at the moment,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. Lehman Brothers Holdings Inc. recommended investors to increase bets on a drop in the dollar against the yen, in the firm's weekly currency report published this week. `Decidedly Unconvinced' ``We are decidedly unconvinced by the arguments building for a more lasting dollar rally,'' James McCormick, the firm's head of foreign-exchange strategy in London, wrote in the report. Japan's Nikkei 225 Stock Average rose to a seven-month this week, after a government report showed machinery orders fell 8.8 percent in December, less than the 10 percent drop expected, according to the median forecast. A smaller drop may ease concern the economy will fall back into recession. Ten-year Japanese government bonds fell Feb. 10, pushing the yield up 8 basis points for the week, to 1.40 percent. A basis point is 0.01 percentage point. Japanese markets were closed for a holiday yesterday. Chinese central bank Governor Zhou Xiaochuan was cited on Feb. 7 by state-run Xinhua News Agency as saying China's currency isn't undervalued. The report came two days after a meeting of the Group of Seven in London ended without any signal China is moving closer to letting the yuan appreciate. Zhou said in a Feb. 4 interview ``now is not the time'' to change policy. ``Unless China revalues, then it's hard to see Japanese authorities accepting a stronger yen,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney. He forecasts the yen to weaken to 108 per dollar in a month.

Subject: Re: How does this affect US & ........ From: Terri To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 06:02:30 (EST) Email Address: Not Provided Message: A slow growth weak Japan affects America and indeed the global economy for Japan has the second largest economy to America. Japan has languished in growth for 12 years. We must newly examine why. This is a serious matter for Japan as for global growth.

Subject: With the yen weakening... From: Pete Weis To: Terri Date Posted: Mon, Feb 14, 2005 at 09:27:45 (EST) Email Address: Not Provided Message: can they afford to continue buying US debt?

Subject: Japan Can Buy US Debt From: Terri To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 10:18:36 (EST) Email Address: Not Provided Message: Definitely. Japan may or may not continue to buy American debt, but Japan has a massive trade surplus that will only grow should the Yen weaken against other currencies and especially the dollar. So, the Japanese can buy dollars with no limit. That does not mean they will do so. When the Japanese feel the domestic economy is strong enough to allow the Yen to strengthen, they will likely cut the purchase of American debt. The Japanese buy a lot of mortgage debt from us, by the way. The question remains can the Japanese economy sustain growth of at least 3% and hopefully 4% to 5%? Terrific questions.

Subject: Re: Japan Can Buy US Debt From: Pete Weis To: Terri Date Posted: Mon, Feb 14, 2005 at 15:18:58 (EST) Email Address: Not Provided Message: The Japanese have been buying US debt when the yen as strengthened vs the dollar. If their economy is begining to contract and the yen is falling vs the dollar anyway, why would the BOJ continue to buy US treasuries and add to their losses? If they slow their purchasing of US treasuries, how will this affect long term rates in the US?

Subject: Re: Japan Can Buy US Debt From: Terri To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 15:31:04 (EST) Email Address: Not Provided Message: Japan can and will buy American debt as long as it has to to keep the Yen from rising in value. This will surely be necessary even if Japan's economy continues to slow. There is no limit to the amount of debt they can afford. The Bank of Japan does not care about foreign exchange losses, rather about the well-being of the Japanese economy. The Japanese will surely continue to buy American debt especially if the Japanese economy stays sluggish. No doubt.

Subject: Dustin Hoffman, 'Death of Salesman' From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 20:31:17 (EST) Email Address: Not Provided Message: http://www.nytimes.com/books/00/11/12/specials/miller-hoffstage.html March 30, 1984 Dustin Hoffman, 'Death of Salesman' By FRANK RICH As Willy Loman in Arthur Miller's ''Death of a Salesman,'' Dustin Hoffman doesn't trudge heavily to the grave - he sprints. His fist is raised and his face is cocked defiantly upwards, so that his rimless spectacles glint in the Brooklyn moonlight. But how does one square that feisty image with what will come after his final exit - and with what has come before? Earlier, Mr. Hoffman's Willy has collapsed to the floor of a Broadway steakhouse, mewling and shrieking like an abandoned baby. That moment had led to the spectacle of the actor sitting in the straightback chair of his kitchen, crying out in rage to his elder son, Biff. ''I'm not a dime a dozen!,'' Mr. Hoffman rants, looking and sounding so small that we fear the price quoted by Biff may, if anything, be too high. To reconcile these sides of Willy - the brave fighter and the whipped child - you really have no choice but to see what Mr. Hoffman is up to at the Broadhurst. In undertaking one of our theater's classic roles, this daring actor has pursued his own brilliant conception of the character. Mr. Hoffman is not playing a larger-than-life protagonist but the small man described in the script - the ''little boat looking for a harbor,'' the eternally adolescent American male who goes to the grave without ever learning who he is. And by staking no claim to the stature of a tragic hero, Mr. Hoffman's Willy becomes a harrowing American everyman. His bouncy final exit is the death of a salesman, all right. Willy rides to suicide, as he rode through life, on the foolish, empty pride of ''a smile and a shoeshine.'' Even when Mr. Hoffman's follow- through falls short of his characterization - it takes a good while to accept him as 63 years old - we're riveted by the wasted vitality of his small Willy, a man full of fight for all the wrong battles. What's more, the star has not turned ''Death of a Salesman'' into a vehicle. Under the balanced direction of Michael Rudman, this revival is an exceptional ensemble effort, strongly cast throughout. John Malkovich, who plays the lost Biff, gives a performance of such spellbinding effect that he becomes the evening's anchor. When Biff finally forgives Willy and nestles his head lovingly on his father's chest, the whole audience leans forward to be folded into the embrace: we know we're watching the salesman arrive, however temporarily, at the only safe harbor he'll ever know. But as much as we marvel at the acting in this ''Death of a Salesman,'' we also marvel at the play. Mr. Miller's masterwork has been picked to death by critics over the last 35 years, and its reputation has been clouded by the author's subsequent career. We know its flaws by heart - the big secret withheld from the audience until Act II, and the symbolic old brother Ben (Louis Zorich), forever championing the American dream in literary prose. Yet how small and academic these quibbles look when set against the fact of the thunderous thing itself. In ''Death of Salesman,'' Mr. Miller wrote with a fierce, liberating urgency. Even as his play marches steadily onward to its preordained conclusion, it roams about through time and space, connecting present miseries with past traumas and drawing blood almost everywhere it goes. Though the author's condemnation of the American success ethic is stated baldly, it is also woven, at times humorously, into the action. When Willy proudly speaks of owning a refrigerator that's promoted with the ''biggest ads,'' we see that the pathological credo of being ''well liked'' requires that he consume products that have the aura of popularity, too. Still, Mr. Rudman and his cast don't make the mistake of presenting the play as a monument of social thought: the author's themes can take care of themselves. Like most of Mr. Miller's work, ''Death of a Salesman'' is most of all about fathers and sons. There are many father-son relationships in the play - not just those of the Loman household, but those enmeshing Willy's neighbors and employer. The drama's tidal pull comes from the sons' tortured attempts to reconcile themselves to their fathers' dreams. It's not Willy's pointless death that moves us; it's Biff's decision to go on living. Biff, the princely high school football hero turned drifter, must find the courage both to love his father and leave him forever behind. Mr. Hoffman's Willy takes flight late in Act I, when he first alludes to his relationship with his own father. Recalling how his father left when he was still a child, Willy says, ''I never had a chance to talk to him, and I still feel - kind of temporary about myself.'' As Mr. Hoffman's voice breaks on the word ''temporary,'' his spirit cracks into aged defeat. From then on, it's a merciless drop to the bottom of his ''strange thoughts'' - the hallucinatory memory sequences that send him careening in and out of a lifetime of anxiety. Mr. Rudman stages these apparitional flashbacks with bruising force; we see why Biff says that Willy is spewing out ''vomit from his mind.'' As Mr. Hoffman stumbles through the shadowy recollections of his past, trying both to deny and transmute the awful truth of an impoverished existence, he lurches and bobs like a strand of broken straw tossed by a mean wind. As we expect from this star, he has affected a new physical and vocal presence for Willy: a baldish, silver- maned head; a shuffling walk; a brash, Brooklyn-tinged voice that well serves the character's comic penchant for contradicting himself in nearly every sentence. But what's most poignant about the getup may be the costume (designed by Ruth Morley). Mr. Hoffman's Willy is a total break with the mountainous Lee J. Cobb image. He's a trim, immaculately outfitted go-getter in a three- piece suit - replete with bright matching tie and handkerchief. Is there anything sadder than a nobody dressed for success, or an old man masquerading as his younger self? The star seems to wilt within the self- parodistic costume throughout the evening. ''You can't eat the orange and throw away the peel!,'' Willy pleads to the callow young boss (Jon Polito) who fires him - and, looking at the wizened and spent Mr. Hoffman, we realize that he is indeed the peel, tossed into the gutter. Mr. Malkovich, hulking and unsmiling, is an inversion of Mr. Hoffman's father; he's what Willy might be if he'd ever stopped lying to himself. Anyone who saw this remarkable young actor as the rambunctious rascal of ''True West'' may find his transformation here as astonishing as the star's. His Biff is soft and tentative, with sullen eyes and a slow, distant voice that seems entombed with his aborted teen-age promise; his big hands flop around diffidently as he tries to convey his anguish to his roguish brother Happy (Stephen Lang). Once Biff accepts who he is - and who his father is - the catharic recognition seems to break through Mr. Malkovich (and the theater) like a raging fever. ''Help him!'' he yells as his father collapses at the restaurant - only to melt instantly into a blurry, tearful plea of ''Help me! Help me!'' In the problematic role of the mother, Kate Reid is miraculously convincing: Whether she's professing her love for Willy or damning Happy as a ''philandering bum,'' she somehow melds affection with pure steel. Mr. Lang captures the vulgarity and desperate narcissism of the younger brother, and David Chandler takes the goo out of the model boy next door. As Mr. Chandler's father - and Willy's only friend - David Huddleston radiates a quiet benovolence as expansive as his considerable girth. One must also applaud Thomas Skelton, whose lighting imaginatively meets every shift in time and mood, and the set designer Ben Edwards, who surrounds the shabby Loman house with malevolent apartment towers poised to swallow Willy up. But it's Mr. Hoffman and Mr. Malkovich who demand that our attention be paid anew to ''Death of a Salesman.'' When their performances meet in a great, binding passion, we see the transcendant sum of two of the American theater's most lowly, yet enduring, parts.

Subject: Interesting article from the past From: Pete Weis To: All Date Posted: Sun, Feb 13, 2005 at 20:26:18 (EST) Email Address: Not Provided Message: Conservatives, amazingly, continue to crow about Larry Kudlow's great powers of predictions. The following is a largely laudatory article regarding Larry Kudlow's rise from a bout with alchohol and drug abuse to a return to the upper echelons of Wall Street and influence within the Republican Party. He was part of a Reagan economic team which cut non-payroll taxes and saw very large budget deficits. According to this article, Larry Kudlow would have liked the tax cuts to go deeper which almost certainly would have made the deficits larger. What surprised me was to learn that, while he attended The Woodrow Wilson School of Politics and Economics at Princeton, he never 'received an advanced degree'. I thought, since he served as an economics advisor for the Reagan administration and he and others continually refer to him as a Princeton economist, that he was a Ph.D'd economist from Princeton. Now, I have no problem with someone who is self-taught, but learning one's profession on Wall Street is not likely to give one an objective base to view economic theories or give one an appreciation for the plight of the average man and woman far distant from Wall Street. The article talks about his correct 'anticipation' of the 1990-1991 recession. But this fits into his idea of heavy cuts in taxes to promote economic growth. George ('read my lips') Bush had to raise taxes to stop the heavy bleeding of the Reagan deficits. Of course, when George Bush senior raised taxes Larry Kudlow predicted recession. So Larry Kudlow is very much a part of the neo-conservative view that deficits don't matter and it's primarily about cutting taxes. Here in 1998, he is predicting budget surpluses well into the future and is pushing for steep tax cuts which would be very advantageous for the Wall Street crowd (many of whom are stretching the envelope and beyond, in 1998, when it comes to 'accounting', market 'analysis', and under-the-table payments to fund managers). I listened to Larry Kudlow as he made over-the-top market predictions year-after-year on CNBC. He was wrong in 2000, 2001, 2002, right in 2003, wrong in 2004 (it was well below his prediction), and so far he's not looking so good in 2005. His predictions of budget surpluses seem to have been way off the mark also. Anyway, I thought, given Kudlow's new ascendancy of influence within this Bush administration, this was an interesting article in retrospect: Kudlow, the Mind Behind a Tax Cut Push By Eric Pianin Washington Post Staff Writer Tuesday, July 14, 1998; Page A01 NEW YORK—He has advised House Budget Committee Chairman John R. Kasich (R-Ohio) on how to boost his presidential prospects and coaxed House Speaker Newt Gingrich (Ga.) and other Republican leaders to take a more aggressive stand on tax cuts. As the reigning optimist on Wall Street, he has issued economic forecasts that promise budget surpluses of hundreds of billions of dollars beyond those predicted by government officials. After a strange journey that took him from the Reagan White House to Wall Street to a drug rehab clinic, Lawrence A. Kudlow, 50, is back precisely where he likes to be: at the center of a brewing controversy over economic policy. When Congress resumes deliberations this week on how to reshape budget and tax strategy in an era of record economic growth and prospective budget surpluses, Kudlow's views will be very much in the mix. Kudlow's detractors -- including a number of prominent economists -- complain that his extraordinarily rosy forecasts defy mainstream economic models and are steeped more in wishful thinking than empirical data. But more remarkable -- and troubling -- for some is Kudlow's rapid return to influence in Washington less than three years after he appeared washed up because of a serious drug and alcohol problem. 'Some people still ask, 'can he handle it?' ' said Stephen Moore of the Cato Institute, one of Kudlow's closest friends and a collaborator in recent memorandums and newspaper columns belittling the Congressional Budget Office (CBO) for 'low-balling' its long-term economic and surplus forecasts. Kudlow acknowledges the legitimacy of the concern that some lawmakers may write tax laws on the basis of forecasts by a controversial economist with an erratic past. 'For those who choose not to rely on me or believe me, I understand and I'm okay with that,' he said. The onetime acolyte of Reagan budget chief David A. Stockman lost his $1 million-a-year post as chief economist for the Bear, Stearns & Co. investment house in 1994 and a subsequent job as an economics writer for William F. Buckley's National Review in a devastating downward spiral of drug and alcohol abuse that Kudlow said dates to the mid-1980s. He resigned from Bear Stearns shortly after he blacked out on a cocaine binge and missed a speaking engagement in Boston with 200 of the company's most important clients. The glib, urbane Kudlow for years had dominated the lecture circuit and television talk shows, including 'Firing Line,' 'Crossfire' and 'The McLaughlin Group' with his crisp, conservative views on government, politics and finance. He once even starred in a Cadillac commercial. Suddenly, he was persona non grata in Washington and on Wall Street. In 1995 he hit rock bottom and checked into a drug and alcohol treatment program at the Hazelden Foundation in Minnesota after his third wife caught him draining their retirement account to support his drug habit and, in a display of tough love, threatened to divorce him. 'I was squandering all our money,' he said. 'It was without question the worst period of my life.' Now he's back -- sober for the past three years, chastened by his experiences on the edge, newly converted from Judaism to Catholicism and ensconced as a well-paid chief economist for American Skandia Marketing, a Shelton, Conn.-based subsidiary of an international insurance conglomerate. He is once again a familiar face on CNBC, C-SPAN and network talk shows, and he writes for the Bloomberg News Service and the op-ed pages of the Wall Street Journal and the Washington Times. Last year, Kudlow's company published a vanity collection of his essays entitled 'American Abundance: The New Economic and Moral Prosperity.' 'I'm not a martyr, I'm not a hero,' Kudlow explained last week while seated in the mahogany-paneled lounge of the exclusive Union League Club on Manhattan's East Side. 'I'm just grateful to be back in play.' Although he says he lacks the passion and drive for politics that once marked him as one of the most aggressive and arrogant players in Washington, Kudlow appears to be angling to make his mark on public policy. He offers advice on Capitol Hill to a small but influential group of Republicans, including Kasich, House Ways and Means Committee Chairman Bill Archer (Tex.) and Sens. Paul Coverdell (Ga.), Connie Mack (Fla.) and Sam Brownback (Kan.). 'His star is rising once again,' said Ari L. Fleischer, Archer's press secretary. 'His forecasts and analysis have the double benefit of being accurate and appealing to what Republicans want to do.' Already this year he persuaded Kasich to draft a House budget resolution that dedicates future surpluses -- other than those in the Social Security trust fund -- to tax cuts. Kasich had been more concerned about balancing the budget and shoring up Social Security than cutting taxes. But Kudlow told Kasich last winter that 'you're holding a much fuller deck than you think' and that Congress could use huge future surpluses to provide more tax relief as well as take care of Social Security. 'The vision has to be big think and big bang,' Kudlow said last week in urging Republican leaders to raise their sights higher. 'I think taxpayers of all political stripes are just fed up with the complexity and rate structure. If I'm even remotely right on the surplus numbers, those funds should be turned back with tax reform.' A surge in Treasury revenue figures in April that caught the CBO and lawmakers by surprise seemed to validate Kudlow's views. 'Larry makes very bold predictions about things and he made very bold predictions about surpluses that look like they're starting to come true,' Kasich said. Kudlow has had no direct dealings with Gingrich and until recently had criticized the speaker's 'old paradigm' thinking and 'obsession' with balancing the budget over cutting taxes. Jack Kemp, a Gingrich confidant, said Kudlow was 'one of many' supply-side economists whose views helped to influence the speaker to commit to using more of the anticipated surplus for tax relief. Hampered by the strictures of last year's balanced-budget deal and the cautious CBO forecasts, House and Senate Republican leaders are agonizing over how to pass tax cuts of $60 billion to $100 billion over five years. By contrast, Kudlow is advocating tax cuts of $500 billion to $1 trillion over the same period. Unfazed by speculation about an economic downturn later this year and the ricocheting effects of the Asian financial crisis on U.S. markets, Kudlow insists the economy will continue to rock along. 'I think I have much greater confidence in the economy's potential to grow,' he said. The son of a wealthy Englewood, N.J., textile businessman, Kudlow graduated from the University of Rochester in 1969 and later studied politics and economics at the Woodrow Wilson School at Princeton -- but without obtaining an advanced degree. A self-taught student of financial markets, he did a stint as a staff economist with the Federal Reserve Bank in New York before moving on to senior economics posts at PaineWebber Inc. and Bear Stearns. Shortly after Ronald Reagan won election in 1980, Kudlow caught Stockman's eye during a chance encounter at Bear Stearns's offices. Kudlow soon followed Stockman to Washington to serve as chief economist at the Office of Management and Budget. Both men initially were viewed as supply-siders committed to a huge, three-year, 30 percent tax cut. But Stockman shifted gears in 1982 and attempted to roll back part of the tax cut to avert a large deficit, and Kudlow had little choice but to go along. 'Our disdain was reserved for Stockman's politics of austerity,' recalled Kemp, then a member of Congress and a leader of the supply-side movement. 'There wasn't a whole lot of focus on Larry.' After two tumultuous years of the Reagan Revolution, Kudlow left the administration and eventually returned to Wall Street and Bear Stearns, where he prospered for the next decade until he was toppled by his drug and alcohol problems. An ardent advocate of across-the-board tax cuts, free trade and deregulation, Kudlow largely credits Reagan's tax cuts and economic policies for today's historic economic good times, while conceding that President Clinton's efforts to strengthen the dollar and combat inflation also were instrumental. Citing economic data going back to the early days of Reagan's first term, Kudlow predicts the economy will continue to grow for the foreseeable future at an annual rate of 3 percent -- nearly a full percentage point more than CBO has predicted for this year and seven-tenths of a percentage point higher than CBO's long-term prediction. Moreover, Kudlow foresees far more in future revenue than CBO is counting on. CBO officials and other mainstream economists argue that Kudlow's forecasts are premised on productivity and capital investment levels that cannot be sustained. Last month, Kudlow was invited to present his views to CBO officials and a panel of economists advising the agency. Kudlow described the session as 'walking into the lion's den.' 'If, in fact, policymakers begin to believe these high forecasted growth rates and the revenue coming out of them and start spending . . . it would be dangerous for fiscal policy,' said William D. Nordhaus, a Yale University economist and CBO adviser. 'Kudlow is more optimistic about the future, and everyone hopes he's right,' said N. Gregory Mankiw, a Harvard economist who also advises CBO. 'But it's premature to assume he's right to make it a working assumption for planning fiscal policy.' CBO officials and other mainstream economists are on shaky ground in their criticisms because their forecasts have been so far off the mark in the past two years. What's more, Kudlow's track record as a forecaster on Wall Street was better than average. He first made his name in the late 1970s by correctly taking a far more bearish position on interest rates and inflation than the consensus on Wall Street. He also correctly anticipated the timing of the 1990-91 recession and the subsequent recovery. Kudlow turned up from time to time on an 'All American' list of superior Wall Street forecasters compiled by Institutional Investor magazine. 'I don't get every turn right,' Kudlow said. 'I wasn't Superman by any stretch. But I think I've had a pretty good record down through the years.'

Subject: The Chinese Way to Brand Identity From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 18:42:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/13/business/yourmoney/13advi.html The Chinese Way to Brand Identity By WILLIAM J. HOLSTEIN A CHINESE company's plan to acquire I.B.M.'s personal computer division is just one example of current Chinese efforts to buy or build recognizable brand names in the United States, says Oded Shenkar, professor of international business at the Fisher College of Business of Ohio State University and the author of 'The Chinese Century' (Wharton School Publishing, $25.95). Here are excerpts from a conversation with him. Q. Will Chinese companies be as successful in establishing brand names in this market as those in Japan and South Korea? A. Absolutely. They're going to take a different path, but I definitely believe they are going to get to the place where the Japanese and Koreans are now. Q. If Lenovo, the Chinese company, actually acquires I.B.M.'s PC division, what challenges will it face? A. We have to see if the deal gets approved by the U.S. government. But if it does, I see this a sign of things to come. Yes, managing it will be an enormous task, a very difficult exercise. We know that success rates for cross-border acquisitions are fairly dismal. We know that they are especially dismal for companies that have little experience in managing such acquisitions. Lenovo obviously has zero experience in overseas acquisitions. Q. Lenovo says it will keep I.B.M. managers. Will that make the acquisition successful? A. It's a hybrid between an alliance and an acquisition. I.B.M. will retain a certain equity stake in the venture, and I.B.M. executives will be working there as mentors to the Chinese. If they are able to pull it off, I see a big part of the value of the deal to the Chinese as being not only distribution and the trademark, but also learning how to operate a world-class global enterprise. Q. What are the prospects for two Chinese companies, Haier and Kelon, in establishing brands for appliances in America? A. Both Haier and Kelon started with niche products, such as small refrigerators used mostly in offices. They are gradually expanding. They already are opening manufacturing facilities in the United States. Because of the nature of their products, there are substantial shipping costs from China. My own guess is that one of the two at some point will buy an established brand. Q. Could Whirlpool or Maytag sell to one of the Chinese appliance makers? A. Yes, they are at risk. I will not be surprised if one of them decides to exit the business. But a more likely possibility would be that Haier or Kelon will acquire General Electric's appliance business. Q. Both Japanese and Korean companies were sophisticated in their initial establishment of distribution channels, marketing and advertising methods and brand names. Are Chinese companies that sophisticated? A. Not at this point, which is the interesting thing. They're entering this market at a much earlier phase of development than the Japanese or Koreans. They are looking for a shortcut, which is where this brand acquisition strategy is coming from. Instead of developing your own brands, which takes many years and costs billions of dollars, you buy an existing brand. The idea is to use the acquisitions to leapfrog. Q. Are there other examples of Chinese companies acquiring foreign brands? A. TCL in television has obtained majority control over Thomson's television business, which also has the RCA trademark. Previously, they bought Schneider, which was a defunct German manufacturer of appliances. In autos, Shanghai Automotive Industry Corporation [SAIC] has acquired the automotive operations of SsangYong in South Korea and soon could gain majority control of MG Rover in England. Q. Wal-Mart, Target and the other superretailers have emerged only in recent years. That's a much different retail environment from two decades ago. Does that help or hurt the Chinese? A. There's a very nice complementarity there. Without a Wal-Mart that now controls much of the retail landscape, they would have difficulty executing the strategy they are following. These Chinese companies start as no-name makers of generic products. If you lack marketing capability and distribution and don't have a global supply chain, which is the situation most Chinese companies face, you sell to Wal-Mart or Target and they will do all that for you. That capability didn't exist when the Japanese entered. Sony had to build a brand name. They didn't have a choice. Q. Has China progressed toward having 50 companies among the world's largest 500? A. SAIC would already fit into the top 500, barely so, but they would make it. They make not only parts but also cars in joint ventures with Volkswagen and General Motors. Q. Many Chinese enterprises are controlled by the Communist Party. How can they understand world markets? A. The situation is changing. The Shanghai government has a controlling interest in SAIC, but this is definitely a government that understands business. The state players are learning fast. We also see the emergence of private companies. Q. Are any of the so-called Big Three automakers vulnerable to Chinese takeover? A. None of the Big Three assemblers are candidates. The logical candidates are the component makers, such as Delphi and Visteon, that are not doing that well financial- ly.

Subject: Re: The Chinese Way to Brand Identity From: johnny5 To: Emma Date Posted: Sun, Feb 13, 2005 at 19:48:03 (EST) Email Address: johnny5@yahoo.com Message: I think in IBM's situation they wanted access to the largest potential growth market of this century. To achieve this they had to give the people in control an asset at firesale prices. Many companies want a piece of china and as the 1 billion plus come off the rice farms and move into city life the profits could be astounding. More companies should follow this strategy. I wonder if the energy and commodity supply can keep pace - look at the price of platinum used in catalytic converters when suppliers (mostly russia I believe) tried to make too much money - I think prices spiked several fold - what can you use for a substitute to clean the air? Transportation of the energy and commodities needs serious consideration too. Look at russia and cuba today - not that long ago they were very developed - good roads - cars everywhere - now that cuba doesn't have cheap russian subsidized energy they have traded in their cars for bicycles. I read without cheap energy inputs they have really went downhill in cuba. Back to china - you have these multinationals looking at profit and growth and the social aspect is completely ignored - it will lead to bad human rights violations if we don't keep our conscience intact. The multinational will be less beholden to american ideals the more integrated its profits tie to china and thier markets. If we didn't have well established nuclear power technology I would be worried for the future population. Even in the worst scenarios for oil we do have something we can rely on to support our energy needs in a tight.

Subject: Fat Substitute Out of the Kitchen From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 18:24:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/13/business/13transfat.html?ei=5094&en=da08bcbdf5293542&hp=&ex=1108357200&partner=homepage&pagewanted=all&position= February 13, 2005 Fat Substitute Is Pushed Out of the Kitchen By KIM SEVERSON and MELANIE WARNER Bob Pitts knows doughnuts. He fried his first one in 1961 at the original Dunkin' Donuts shop in Quincy, Mass. Just by looking at the lumps and cracks on a misshapen doughnut, he can tell if the frying oil is too cool or the batter too warm. But Mr. Pitts, the company's doughnut specialist, cannot find a way to make one that tastes good without using partially hydrogenated oil, now considered the worst fat in the American diet. An artificial fat once embraced as a cheap and seemingly healthy alternative to saturated fats like butter or tropical oils, partially hydrogenated oil has been the food industry's favorite cooking medium for decades. It makes French fries crisp and sweets creamy, and keeps packaged pastries fresh for months. But scientists contend that trans fat, a component of the oil, is more dangerous than the fat it replaced. Studies show trans fat has the same heart-clogging properties as saturated fat, but unlike saturated fat, it reduces the good cholesterol that can clear arteries. A small but growing body of research has connected it to metabolic problems. The Food and Drug Administration has declared that there is no healthy level in the diet and has ordered food companies to disclose trans fat amounts on food labels by January 2006. That has sent Mr. Pitts and his counterparts at dozens of companies on an expensive and frustrating race to change America's oil. In the last year, Mr. Pitts has tried 19 alternatives in the company's test kitchen near Boston, but the doughnuts were either too heavy or so slick the icing slid off. Most simply didn't taste good. So far, only the most health conscious consumers are shopping to avoid trans fat. But food companies are betting that will change when the labeling law takes effect, and they have already spent tens of millions of dollars trying to get rid of trans fat without changing the taste of America's favorite processed and fast foods. 'Whoever's on that list of products with trans fats is going to be sweating bullets,' said Harry Balzer, vice president for the NPD Group, a consumer research company based in Port Washington, N.Y. At least 30,000 and as many as 100,000 cardiac deaths a year in the United States could be prevented if people replaced trans fat with healthier nonhydrogenated polyunsaturated or monounsaturated oils, according to a 1999 joint report by researchers at the Harvard School of Public Health and the Brigham and Women's Hospital in Boston. This and other studies led the government's top medical advisers for the Institute of Medicine at the National Academy of Sciences to declare in 2002 that they could not determine a healthful limit of trans fat, as they had for other dietary fats. The following year the government approved the labeling law. The $500 billion food processing industry has long defended trans fat, starting in the 1970's when scientists first raised concerns. But with the new labeling requirement looming and lawmakers searching for ways to hold food companies responsible for their customers' health, getting rid of it has become an obsession. 'It's the perfect storm for these companies: concern over litigation and legislation, as well as a market opportunity of baby boomers getting older and being more concerned with their health,' said Dean Ornish, the director for the Preventive Medicine Research Institute in Sausalito, Calif., and a consultant to PepsiCo, McDonald's and ConAgra Foods. PepsiCo has already scrubbed trans fats from its Frito-Lay brand chips. Health-oriented grocery stores like Whole Foods and Wild Oats refuse to sell any processed food that contains it. Last month, Gorton's removed trans fat from its fish sticks, and Tyson Foods introduced frozen fried chicken products without it. Executives at Kraft Foods, ConAgra, Kellogg and Campbell Soup want to get trans fat out of most or all of their products by the beginning of next year. Unlike diet-driven trends that filled store shelves with low-fat products in the 1990's and, more recently, low-carb foods, the removal of trans fats does not have a strong consumer constituency. Although some market research shows that more than 80 percent of consumers have heard that trans fat is unhealthy, few shop to avoid it. Most seem to be like Joan Nicholson, 57, a New Yorker who retired to Boise, Idaho. 'I read about cholesterol and trans fats and fatty acids and I try to keep it all straight,' she said, 'but I'm afraid I don't do a great job of it.' Unsatisfying Alternatives Finding a substitute for partially hydrogenated oil is more daunting and considerably more expensive than food companies first imagined. That is because it is the perfect fat for modern food manufacturers. Produced by pumping liquid vegetable oil full of hydrogen with a metal catalyst at high heat, the fat stays solid at room temperature - an essential trait for mass-produced baked goods like crackers or cakes. But that is the very process that creates the dangerous trans fat. The shortening-like oil is an industry workhorse. Its smoothness and high melting point make it a great medium for the creamy filling in an Oreo. In the deep-fat fryer, partially hydrogenated oil can take repeated heatings without breaking down. It also helps products stay fresh longer on supermarket shelves. Small amounts keep peanut butter from separating. It is even found in products promoted as healthful, like Nutri-Grain yogurt bars and Quaker granola bars. According to one survey on trans fat issued by the Food and Drug Administration in 1999, partially hydrogenated oil was in 95 percent of the cookies, 100 percent of crackers and 80 percent of frozen breakfast foods on supermarket shelves. Margarine, which was very high in trans fat, was one of the first foods to change. ConAgra Foods in Omaha spent about a year creating trans fat-free versions of soft tub margarines like Parkay and Fleichmann's. But the company is having a tougher time cracking the code on stick margarines, frozen dinners and microwave popcorn. The company tested liquid soybean oil in its Marie Callender's frozen dinners, but the oil puddled under the roasted potatoes and the sauce slipped right off the meat, leaving it barren and dry. 'It wasn't very appealing,' recalled Pat Verduin, senior vice president for product quality and development at ConAgra, which owns dozens of household brands, including La Choy, Hunt's and Peter Pan. At the Pepperidge Farm division of Campbell Soup, in Norwalk, Conn., puff pastry sheets and pot pies are causing the most trouble. Concoctions tested over the last year have made the crusts unpalatably dense and breadlike. 'We can't get the flakiness and layering with these softer fats,' said Scott Gantwerker, its quality assurance chief. The company had more success with its Goldfish snack crackers, which after two years of tinkering are made with a sunflower oil blend and are free of trans fat. The oil, called NuSun, resists oxidation and spoilage. But it will not solve every company's problem. Only 2 million acres of the sunflowers are planted each year, compared with 75 million acres of soybeans. As a result, the sunflower oil can cost 20 percent to 25 percent more, said Larry Kleingartner, executive director of the National Sunflower Association. Feeding the Fast Food Giants Finding a way to have businesses change the oil they use is even more problematic for the fast-food industry, which uses partially hydrogenated oil in deep-fat fryers and on griddles. Some chains, like Legal Seafood and Ruby Tuesday, replaced their oil with healthier versions, but they are the exceptions. Restaurants face no government labeling requirement. 'We're not into knee-jerk reactions,' said Yum Brands' chief executive, David C. Novak, whose company owns KFC, Taco Bell and Pizza Hut. 'We've seen things come and go.' Yum Brands, Mr. Novak said, 'is at the early stages' of trans fat replacement. McDonald's replaced beef tallow with partially hydrogenated soybean oil in 1990. In September 2002, the company vowed it would use healthier oil in its 13,000 stores in the United States by February 2003. Two years later, it is still serving up six grams of trans fat in a large order of fries and has given no indication of when that will change. Last week, the company agreed to a $8.5 million settlement of a lawsuit accusing it of misleading the public about its efforts to remove trans fat. During a conference call in December, McDonald's chief executive, James A. Skinner, offered few specifics on the company's progress in eliminating trans fat. He would say only that levels had been reduced in fried chicken products by 15 percent. 'We remain committed to reduce trans fats,' he said. McDonald's problem, like that of many other giant food companies, is one of supply and demand. There simply is not enough reasonably priced replacement oil that is capable of retaining the signature flavor of a McDonald's fry, said John Jansen, senior vice president for sales and marketing at Bunge, the world's largest processor of oilseeds like soybean and canola. Among the options McDonald's considered is a new breed of oil called high-oleic canola, which can withstand repeated heating in a deep-fat fryer without compromising taste. But it is in short supply and expensive. The annual production of the oil this year will be about a billion pounds and McDonald's would require about a third of that, Mr. Jansen said. At roughly 20 cents more a pound, the switch would cost the company an additional $70 million a year, according to figures offered by Mr. Jansen. And until large users like McDonald's commit themselves to it, oil-seed growers will not produce more. The scale of the problem becomes clear at the J. R. Simplot French fry and hash brown plant in Caldwell, Idaho, where Burbank russet potatoes become McDonald's fries. Before being frozen and shipped to restaurants and supermarkets, all frozen fries are given an initial light frying, usually in cheap partially hydrogenated soybean oil. Simplot food scientists recently developed the Infinity fry, cooked in a high-oleic canola blend. The fry takes well to baking in the school cafeteria, where it has found a market. It can also be fried in trans-fat-free oil. The Infinity can cost up to 50 percent more than the average fast-food fry. As a result, it is expected to make up only 1 percent to 2 percent of food sales this year for Simplot, a privately held company with $3 billion in annual sales that was the first to sell frozen fries to McDonald's. Simplot's real profit center is the huge fry factory just across a muddy parking lot from the test kitchen where the Infinity fry was born. There, 720,000 pounds of frozen fries made with partially hydrogenated vegetable oil tumble off the line every day and are shipped to restaurants like McDonald's. 'Logistically, trying to turn the restaurant industry on its head is essentially impossible on a 'let's do it by May' sort of basis,' said Kevin Storms, president of Simplot's food group. And then there is the matter of cost. 'Most restaurant customers,' Mr. Storms said, 'want a specific taste at a specific price.' Medical Advice Changes Balancing health with taste has long been a challenge for food manufacturers. In the 1980's, on scientists' advice, the industry replaced saturated fats like coconut oil and butter with oil containing trans fat. Now nutritionists have changed their edict. 'There was a lot of resistance from the scientific community because a lot of people had made their careers telling people to eat margarine instead of butter,' said Walter Willett, chairman of the Department of Nutrition at the Harvard School of Public Health and one of a handful of medical researchers who have led the fight against trans fat. 'When I was a physician in the 1980's, that's what I was telling people to do and unfortunately we were often sending them to their graves prematurely.' He and other researchers say that cells rely on natural fatty acids to function. Trans fat is artificial, and acts in the body like grains of sand do in the workings of a clock. The strongest argument against trans fat is its role in heart disease. Like lard, beef fat or butter, trans fat increases low-density lipoprotein, or LDL, the so-called bad cholesterol. But it also decreases HDL, the good cholesterol that helps clean arteries, several studies have shown. Food companies have, for the most part, accepted the word of scientists and are working to remove trans fat, even though they know finding a new oil is going to cost them. Not only does equipment need to be retooled, budgets must be re-examined. Taste and Technology Food companies argue that completely eliminating trans fat might be impossible given the cost and the fact that consumers do not want the taste of favorite foods to change. That is why a coalition of edible oil producers and food manufacturers persuaded both the Agriculture and Health and Human Services Departments to soften the federal government's stance on trans fat consumption in the latest version of the dietary guidelines released in January. The scientific advisory committee that created the guidelines originally warned that trans fat consumption should be 'limited to less than 1 percent of total calories,' or about the amount in half a doughnut. But the numeric value was replaced with the phrase 'keep trans fatty acid consumption as low as possible.' Food companies are also fighting a campaign by the Center for Science in the Public Interest, which frequently criticizes the industry, and a group of cardiologists and researchers to ban trans fat altogether, a proposal similar to one snaking through Canada's legislative system. Faced with the lack of trans fat free vegetable oil alternatives, some companies are gingerly turning back to palm oil, a saturated fat that was taken out of many products in the late 1980's after an effective campaign waged in part by the American Soybean Association and the Center for Science in the Public Interest helped turn Americans away from all forms of 'tropical grease.' Kraft is using a combination of palm fruit oil and high-oleic canola for the filling in its three trans-fat-free Oreo varieties - a reduced-fat version and two with yellow, rather than chocolate, wafers. Without the firmness of palm oil, getting the consistency that Oreo lovers expect would have been nearly impossible, said Jean Spence, Kraft's executive vice president for technical quality. The trade-off was an extra half-gram of saturated fat per serving. The company still has not figured out how to make the traditional Oreo taste the same without trans fat or significantly higher saturated fat levels. So far the new versions make up 9 percent of Oreo sales, according to data from Information Resources, an industry research firm. Some companies are experimenting with new blends of liquid oil and fully hydrogenated oil, which does not contain trans fat. Others are using an enzyme method called intersterification to blend the oils. Critics say that these offerings are still artificial, highly processed ingredients that may not be much safer than oils produced by partial hydrogenation. And nutritionists wonder whether consumers know enough to distinguish good fat from bad, and natural oils from artificial. 'I don't know that they will look at a label that has low trans fat and high saturated fat and be able to figure out if it is healthy or not,' Joanne Ikeda, a nutrition professor at the Center of Health and Weight at the University of California, Berkeley. And consumers might not even care. 'I know there are healthy fats and there are unhealthy fats and that trans fats are the unhealthy ones, but I don't know what they are supposed to do to you,' said Thai Bu, 32, who was buying whole-grain bread and eggs recently at a West Seattle grocery store. 'If I want a cookie and it has it in it, I'll still eat one or two.'

Subject: Arthur Miller on Tianamen From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 17:22:38 (EST) Email Address: Not Provided Message: http://partners.nytimes.com/books/00/11/12/specials/miller-tiananmen.html September 10, 1989 Death in Tiananmen By ARTHUR MILLER FOXBURY, Conn. -- That month in Beijing six years ago was exhausting but exhilarating, too. As the first foreign theatrical director in the People's Republic of China, I was directing ''Death of a Salesman'' with Chinese actors in Beijing's People's Art Theater, the equivalent of the Moscow Art Theater. There was a lot of skepticism surrounding the project, with many Chinese and foreigners doubting that the Chinese audience would understand the very American play. As it turned out, we needn't have worried. ''Salesman'' is about a family and business, and the Chinese practically invented both, and their reaction was little different than audience reaction had been in New York City and in theaters in any other Western city. The man who made it all possible was Ying Ruocheng, actor, director (he played the leading role of the prison warden in the movie ''The Last Emperor''). He is also a scholar and linguist and did the incredible ''Salesman'' translation. It was so close to the English that I found myself able to stop actors on specific lines in order to change their interpretations. Mr. Ying played Willy Loman brilliantly, acted as my translator to the actors, and, of course, also cast the play. The production has become a staple in the repertoire and has played all over China, and I have been told that it has been a strong influence on the new generation of China's playwrights. I am putting this down for a reason. Mr. Ying's father was the head of Beijing University and decided to leave China when the Revolution exploded, taking the family to Taiwan. Then in his teens, Mr. Ying soon decided to return to the mainland to cast his fate with the new regime, and, despite being exiled to the distant countryside during the Cultural Revolution, has never ceased being a passionate but sagacious patriot. Not long ago, he was appointed Vice Minister of Culture - a sacrifice for so busy an actor in both films and theater. With the novelist Wang Meng, who a bit earlier had been made Minister of Culture, Mr. Ying began the immense work of opening China to world literature and art, to which it had been largely closed off. As one who had worked in Europe in film, Mr. Ying had a more accurate understanding than most of China's need to create its own modernist styles, while retaining its uniqueness. There are not many Chinese with his background, his profound knowledge and love for the Chinese cultural past and a sophisticated appreciation of foreign works and trends. The development of a contemporary Chinese culture is hard to imagine without such people, rare as they are. In the weeks following the violent repression in Tiananmen Square, Chinese officials were required to issue statements in support of the Government's action against the students. Wang Meng failed to make such a statement and so did Ying Ruocheng. Both have been relieved of their duties. On Oct. 1, the Federation of Chinese Students in the United States will conduct a march on the Chinese Embassy in Washington. Ten thousand of the 40,000 in this country are expected to participate. These young Chinese, the future of China, are trying to keep alive the spirit that I was privileged to have seen awakening six years ago when the very idea of staging an American play in Beijing was close to incredible, and the hope of China's opening to the creative winds of our century was something new and wonderful. Without being especially aware of it, and notwithstanding its own terrible social problems, America has become a sort of light-bearer to the Chinese. This students' demonstration in the Capitol will be a protest, but it is implicitly a gesture as well of their confidence in America's support of the libertarian spirit that our nation has helped to engender in China and in its stubbornly dedicated younger generation. Surely all Americans - artists, students and teachers especially -will sympathize with them.

Subject: Attention Must Be Paid From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 17:10:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/books/00/11/12/specials/miller-attention.html February 11, 1999 Attention Must Be Paid, Again By BEN BRANTLEY His right hand, so sturdy and thick-fingered, keeps flying pitifully to his forehead, to what he assumes is the source of all that pain. He presses at his temples, he pulls at his cheek, so hard that you're surprised that his face remains intact. You get the sense that Willy Loman would crush his own skull to destroy the images inside. The most frightening thing of all is that you understand exactly what he's feeling. In the harrowing revival of Arthur Miller's ''Death of a Salesman'' that opened last night at the Eugene O'Neill Theater, 50 years to the day after it made its epochal Broadway debut, you walk right into the mind of its decimated hero, played with majestic, unnerving transparency by Brian Dennehy. Robert Falls's powerhouse staging, first seen at the Goodman Theater in Chicago last fall, never looks down on Mr. Miller's deluded Brooklyn dreamer or looks ennoblingly up to him as a martyr to a success-driven country. Instead, it demands that you experience Willy's suffering without sociological distance, that you surrender to the sense of one man's pain and of the the toll it takes on everyone around him. Mr. Miller, who had originally titled the play ''The Inside of His Head,'' has said he thought of having it occur in a set that would indeed be in the shape of a man's head. Although Mr. Falls and his expert production team are mercifully less literal, that is effectively the landscape they create here. The Brooklyn home to which Willy Loman returns from an aborted road trip at the play's beginning is no stable sanctuary. The designer Mark Wendland has conceived the rooms of the Lomans' house as moving platforms that shift into and out of focus, just as Willy himself is unable to remain fixed in an immediate reality; the lines between the play's harsh present and Willy's reimagining of the past have seldom seemed so fluid. Michael Philippi's lighting floods the stage with a darkness that is always threatening to consume, the image of the tidal pull of depression itself. In the opening scene the audience's eyes are seared by the headlights of Willy's car. Mr. Dennehy first appears, fabled salesman's cases in hand, as a sinister silhouette. A jagged, fragmented jazz score, by Richard Woodbury, slices the air. When Willy's wife, Linda, played by the sublime Elizabeth Franz, materializes in her bathrobe on a raised platform, her voice spectrally amplified as she calls his name, she seems a phantom whom her husband can't quite summon into full being. ''It's all right,'' Willy says wearily. ''I've come back.'' The lines, Willy's first, have seldom registered so clearly as lies. There is admittedly a flavor of melodrama in this insistent air of urgency, but it doesn't feel disproportionate. When Linda admonishes the couple's grown sons, Biff (Kevin Anderson) and Happy (Ted Koch), saying that Willy is ''a human being, and a terrible thing is happening to him,'' it is not mere hyperbole. Linda goes on to conclude the sentence with the famous words ''so attention must be paid.'' That line has traditionally been held up as a social signpost, a cry to heed the plight of an aging, insignificant man seduced and abandoned by a capitalist system that promised unattainable glory. Yet as Ms. Franz delivers the words with a rage that seems shaped by both horrified compassion and selfish fears, they are at once more particular and universal: when people hurt as Willie does, it is inhuman to look away. Scholarly analyses of ''Salesman'' have most often focused on its political consciousness (surely you remember discussing ''tragedy and the common man'' in high school) or its expressionistic form. The play certainly provides ample fodder, including those now clunky-seeming ''j'accuse'' declarations aimed at the corporate dream machine, for both kinds of dissection. But these aspects of the drama are secondary to what gives ''Salesman'' its staying power and has allowed it to grip audiences as far from the United States as Beijing: its almost operatic emotional sweep in examining one unhappy family and the desperate, mortally wounded father at its center. For Mr. Falls and his fiercely engaged cast are, above all, committed to the work's tragic, conflicted familial love story, between husband and wife, between father and sons. The play's most remarkable aspect is that even as it conjures Willy's grimly distorted worldview, it lets us see clearly his effect on those around him. In this staging, those people express, in highly personalized portraits, the genuine pity and terror given more abstract voice by the choruses of Greek tragedy. ''I live in fear,'' says Linda at one point. Ms. Franz's astonishing portrayal shatters that character's traditional passivity to create a searing image of a woman fighting for her life, for that is what Willy is to Linda. She also emerges as the only realist in the family, even as she does everything she can to bolster Willy's sagging illusions. Watch how Ms. Franz's face changes from taut, smiling reassurance to a fearful exhaustion the moment Mr. Dennehy looks away from her. The continuing, tremulous nodding of her head registers as a direct consequence of having worked too hard and too long to be a reassuring wife. When she speaks to her neglectful sons in their father's absence, it is with a fury that scorches. If need be, she will sacrifice her children for her husband, to whom she clearly remains, on some level, sexually bonded. The second and equally important love story in ''Salesman'' is that of a father and his elder son. And the ambivalent, tentative dance of courtship and rejection enacted by Mr. Anderson's Biff, who has returned home after a long, self-imposed exile, and Mr. Dennehy's Willy is heartbreaking. In his deeply affecting performance, Mr. Anderson tempers the adolescent rage of a man who has never overcome a father's betrayal with a more profound sense of conflict: the only way to win Willy's approval is to give in to his fantasies, and that way lies self-destruction. The cocky, callous Happy, sharply drawn by Mr. Koch, doesn't bear the burden of such consciousness, and you can already sense that one not so distant day he is going to wake up as lonely and frightened as his father. The rest of the supporting cast is fine, especially Howard Witt as Charley, Willy's gruff, argumentative and ultimately beneficent next-door neighbor. A scene set in the more successful Charley's business office offers the evening's most jolting shock of recognition. Mr. Dennehy, his face inches from Mr. Witt's, stares hard, as though in prelude to a fistfight. What he says, after a long pause, is: ''Charley, you're the only friend I got. Isn't that a remarkable thing?'' Mr. Dennehy's performance will probably be the most debated aspect of this production. It is not in the idiosyncratic, finely detailed vein so memorably provided by Dustin Hoffman in 1984. What this actor goes for is close to an everyman quality, with a grand emotional expansiveness that matches his monumental physique. Yet these emotions ring so unerringly true that Mr. Dennehy seems to kidnap you by force, trapping you inside Willy's psyche. The rhythms of his performance are exactly those of the play itself, in which every scene moves from artificially inflated optimism into free-falling despair. Mr. Dennehy's eyes go bleak and fearful even as that broad salesman's smile splits his face. He continually brings his finger to his lower lip, like a fretful child, as though suddenly forced to remember what he had been trying so very hard to forget. It is also jarring, and utterly appropriate, to see such a large man physically pushed around by the other, smaller men in the play. And I will always be haunted by the image of Mr. Dennehy's infantile fragility when he shields his face with his hands, palms outward, before an angry, confrontational Mr. Anderson. In art, greatness and perfection seldom keep close company, and the flaws of ''Salesman'' are apparent here: the contrived, detective-story-like exposition of why Biff resents Willy; the unfortunate moments of speechifying, especially in the final requiem scene, and the iconic presence of the fantasy figure of Willy's older brother, Ben (Allen Hamilton, who looks a bit too much like Colonel Sanders here) as the American Dream incarnate. Watching ''Salesman'' in this production, you acknowledge the flaws, but only fleetingly. In willing himself into the imagination of a small-time, big-thinking loser, Mr. Miller generated an immense natural force of empathy that, oddly, he never equaled in his more autobiographical works, like ''After the Fall.'' I could hear people around me not just sniffling but sobbing. I feel sure that audiences for ''Salesman'' will be doing the same thing 50 years from now.

Subject: Re: Attention Must Be Paid From: johnny5 To: Emma Date Posted: Sun, Feb 13, 2005 at 19:03:14 (EST) Email Address: johnny5@yahoo.com Message: ' a cry to heed the plight of an aging, insignificant man seduced and abandoned by a capitalist system that promised unattainable glory.' I know a lot of people that have wound up feeling this way towards the end of their life. That is the trajedy. Willy grew up in a relative free country, not a jew in nazi germany. He did have a lot of good times with his wife and children, not the murderous hate in Rwanda. He did have a place to live and a car - not walking his feet raw in the sands of Iraq under Saddam starving to death. For all he did not achieve - he lived better than most in this world can even dream about. How many millions in somalia would gladly trade willy's trajedy times 100 for thier own? Death of a salesman is one of my favorite plays. One that strikes the heart of the flaws of our system, but those flaws would be welcome by most of the world's people given their current alternative - that is the real trajedy. Great post Emma.

Subject: Re: Attention Must Be Paid From: Jennifer To: johnny5 Date Posted: Sun, Feb 13, 2005 at 19:38:02 (EST) Email Address: Not Provided Message: Well written, Johnny5.

Subject: Ghawar From: Pete Weis To: All Date Posted: Sun, Feb 13, 2005 at 14:35:01 (EST) Email Address: Not Provided Message: $80 Oil, Here We Come!!! by Bill Powers, Editor Canadian Energy Viewpoint November 4, 2004 In January of this year, I put together an article that appeared in the February issue that laid out the case for and against $50 oil. While the arguments against $50 oil have been thoroughly discredited, most market observers still do not understand that the price of oil will continue to head much higher. In this issue, I will examine several of the reasons why the price of oil will not significantly pull back from today’s levels and is likely to reach the $80 mark within the next 24 months. At the foundation of many oil analysts’ argument for lower oil prices is the belief that OPEC can control the price of oil and use its spare capacity to keep the price within acceptable limits. There is one main reason this line of thinking is not valid -- OPEC has no spare capacity whatsoever. OPEC, or more specifically Saudi Arabia, has given several indications over the past two years that it will increase production to keep oil prices at palatable levels, yet we continue to see oil prices reach new highs. I believe OPEC’s ability to increase prices is a geological impossibility since Saudi Arabia’s Ghawar field is dying. Ghawar, the world’s largest oil field, produces approximately 4.5 million barrels of oil per day and has been on production since 1951. Due to the outstanding work of Matt Simmons, the world has become increasingly aware of the high water cuts at Ghawar and several other large fields in Saudi Arabia. According to Mr. Simmons, the use extensive of water injection wells has provided an illusion of stable production at Ghawar and elsewhere. Water injection wells are designed to push the oil column to the producing well bores and keep reservoir pressure high. However, as the amount of water produced along with oil increases, production often heads into a steep decline. High water cuts at Ghawar (7 million barrels of water a day according to Simmons) are a clear indication that the world’s largest field is about to head into a steep and irreversible decline. Without spare capacity and with several members experiencing steep production declines, OPEC is no longer a cartel. It has morphed into an extremely exclusive social club. Many market observers are about to wake up to the reality that making pronouncements of more supply coming online at some future date will no longer push oil prices down, even temporarily. In past years, when there was excess production capacity both inside and outside of OPEC, high prices always brought additional supply onto the market. Times have changed and many analysts have failed to recognize it. Now that the world has reached the apex of Hubbert’s Peak (the thesis that once half of a petroleum producing region’s reserves have been extracted, that region’s oil production will peak and decline along a bell shaped curve), the world’s supply of oil will go down irrespective of price. This is an extremely bullish situation for the price of oil. The reaching of Hubbert’s Peak is not an economic event but rather a geological event. Oil, unlike many other commodities such corn and wheat, was not created during a growing season but rather over millions of years. For all intents and purposes, the world contains a finite amount of oil and there is strong evidence to suggest that there is a limit to what can be produced at any given time. Some of the industry’s most informed participants believe there is little that can be done to increase worldwide oil production. Earlier this year, British Petroleum announced that it will be returning to shareholders all cash flow it receives in excess of $25US per barrel. For every dollar the company receives in excess of $25US per barrel, BP will adjust its dividend or increase its share buyback program to return the cash flow to shareholders. BP has essentially given up its efforts to increase production or even keep production flat. Instead, the company has chosen to give shareholders back their capital with interest. The analyst community and many economists could not have been more wrong about oil production in Iraq. It was only 18 months ago that many market observers were calling for the price of oil to fall precipitously once the US took control of the country. I have always been skeptical of this scenario for a number of reasons that are now quite obvious. The political situation in Iraq has gone from bad to worse and the country’s oil industry continues to spiral downward. While there is little doubt that Iraq has one of the world’s largest endowments of oil, it will take years and tens of billions of dollars to restore Iraqi production to 2.5 million barrels of oil per day. Another reason the price of oil is headed higher is that OPEC’s reserve base is vastly overstated. One of the world’s leading experts on petroleum supply, Dr. Colin Campbell, contends that OPEC has been vastly overstating its reserves for years. Campbell offers substantial evidence that OPEC reserve estimates are politically motivated. Kuwait is an excellent example of what is wrong with the way OPEC countries report reserves. The country reported a gradual decline in its reserve base from 1980 to 1984. This should be expected from a mature producing country. However, in 1985 the country reported a 50% increase in reserves with no corresponding discovery. The Kuwaiti government increased its reserve estimate following the implementation of an OPEC production quota system that set country production levels based on country reserves. Kuwait was not alone in increasing its reserves for political reasons. In 1988, Abu Dubai, Dubai, Iran and Iraq all significantly increased their reported reserves for political reasons. Even OPEC heavyweight Saudi Arabia followed suit and reported a massive increase in reserves in 1990. OPEC is not alone in its overstatement of reserves. In January 2004, Royal Dutch/Shell announced a huge write down of reserves. The company wrote off 20% of its reserves or 2.4 billion barrels of equivalent (boe). To be fair, most oil and gas companies do not overstate reserves but rather understate them. Due to the strict regulations set forth by the SEC about reserve estimates, a company that makes a new discovery may grossly underestimate the recoverable oil that is likely to be produced. As a result, conservative reserve reporting has created a distorted view of how much oil is being discovered each year. While OPEC members have grossly overstated reserves and, on balance, most Western oil companies have understated their reserves, where does that leave us? Since OPEC member countries own 62.3% of world oil reserves (See the following URL for more information: http://www.eia.doe.gov/pub/international/iea2002/table81.xls), OPEC reserve numbers more than offset any underreporting by Western oil companies. Therefore I believe world oil reserves are grossly overstated. Lack of new discoveries in both OPEC countries and non-OPEC countries has led to the current situation in which the world consumes far more oil each year than it discovers. According to Dr. Campbell, the world consumes four barrels of oil for every one it discovers. Clearly this situation cannot continue indefinitely since discovery and consumption must mirror each other. Another pillar of many analysts’ belief that oil prices will drop is the notion that high oil prices will choke off economic growth which in turn will lead to lower prices. In a wonderfully researched white paper published in 2003 entitled “Price Signals or Cheap Oil Noise?” economist Andrew McKillop provided substantial evidence to suggest that high oil prices and economic growth are not mutually exclusive. Below is an excerpt from his white paper: “The US economy achieved its highest ever postwar growth of real GDP, achieving today what would be the unthinkable and impossible growth rate of 7.5%, in the Reagan re-election year of 1984. At the time, in dollars of 2003 corrected for inflation and purchasing power parity, the oil price range for daily traded volume crudes was $57-65/barrel. Despite this fact of economic history, Cheap Oil is still regarded by uninformed sectarian opinion as a passport to economic growth.” - Andrew McKillop, “Price Signals or Cheap Oil Noise”, 2003 Despite record high oil prices in the third quarter of 2004, the entire developed world achieved economic growth. Part of the reason for this growth is that oil prices are still not high enough to substantially alter spending habits. Spending on gasoline and home heating oil remains a small percentage of many consumers’ disposable income. To put today’s oil price in perspective, let’s compare the price of oil to the cost of housing. In 1981, the cost of a barrel of oil domestically produced was $31.77 (Source: US Department of Energy) and the average cost of a new home in the US was $83,000 (Source: National Association of Home Builders). In 2003, the average price of a new home was $246,300 (Source: ibid) and the average cost for a barrel of domestically produced crude was $27.56 (Source: ibid). Over the course of 22 years, the average price of a home has tripled while the price of a barrel of domestically produced oil went down in price. With the exception of weakness in select markets in the late 1980’s and early 1990’s, the price of housing has gone straight up for nearly a quarter of a century. Even with today’s low interest rates, spending on housing consumes a larger percentage of household income than at anytime in history. If the price of oil kept up with the price of housing, domestically produced oil would cost $95.31 a barrel today. The last reason that I believe we will see $80 oil within the next 24 months is that worldwide oil supply is dropping and prices have not yet reached levels high enough to choke off demand. Despite record gasoline prices in the US last summer, we saw demand increase 4% over 2003 levels. While Western economies will see modest demand growth due to the slow-growth nature of their economies, the developing world will see explosive demand growth for the foreseeable future. In 2004, China became the number two consumer of oil and the number two importer of oil behind the US. With Chinese oil imports up 30% from 2003 levels (despite today’s record prices), it is quite clear that oil prices would have to achieve much higher levels before Chinese demand recedes. What does $80 oil mean for investors? Quite a lot. It is difficult to overstate the impact that $80 oil will have on every unhedged publicly traded oil and gas producer. While most companies in North America are extremely profitable at $35 oil, $80 oil will generate earnings that will dwarf the so-called “windfall profits” of the 1970s. While many Wall Street and Bay Street analysts continue to use $35 oil in their assumptions for 2005, savvy investors should realize that the average price for oil will be far higher and should adjust their portfolios accordingly. © 2004 Bill Powers, Editor Canadian Energy Viewpoint

Subject: Is there enough for us all? From: johnny5 To: Pete Weis Date Posted: Sun, Feb 13, 2005 at 20:01:19 (EST) Email Address: johnny5@yahoo.com Message: http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/132011/1/.html Energy-hungry China digs deeper to boost oil reserves by 25% BEIJING : China is digging deeper in search of oil, boosting its reserves by at least 25 percent over the past year as part of a strategy to locate new energy sources at home and abroad. Intensified exploration efforts helped the two biggest oil companies to locate nearly 850 million tonnes of oil reserves in the course of 2004, the Xinhua news agency said. This suggests that China's proven oil reserves topped four billion tonnes at the end of last year, given earlier reports stating the country had 3.2 billion tonnes by late 2003. The nation's largest oil producer, China National Petroleum Corp, or CNPC, reported finding 520 million tonnes of new oil reserves in 2004, while Sinopec, the industry's number two, found 328 million tonnes, according to Xinhua. The two companies also discovered a combined 422 billion cubic meters of natural gas last year, Xinhua said. The report did not state how exploitable the newly-found reserves were. One of China's top strategic concerns is to find enough energy to fuel its booming economy, which expanded 9.5 percent last year for its fastest growth rate since 1996. Two-thirds of China's provinces had too little power at the end of last year and energy shortages have been identified as a major bottleneck for the coming months. Consumption of crude oil in China, already the second-largest user of oil after the United States, will jump to 320 million tons, an 11 percent rise over the 288 million tonnes used last year, according to predictions. A net importer of petroleum products since 1993 and of crude oil since 1996, China is reliant on overseas producers for one third of its demand, a share that may rise as Asia's second-largest economy continues to expand. The voracious demand for energy means China's major oil companies are exploring everywhere from the Tarim Basin in the country's western desert to Bohai Gulf in the east. But a deliberate government strategy in place since the late 1990s to look for oil overseas has also turned China into a significant player on the global energy scene. To date, CNPC has signed 48 investment and cooperation contracts overseas with 20 countries in areas as diverse as Africa, Central Asia and Latin America. Last year, the company obtained the right to 16 million tonnes of overseas oil, previous reports have said. CNPC's most high-profile overseas effort last year was its participation in the construction of 1,000-kilometer (625-mile), 700-million-dollar Kazakh oil pipeline with a capacity of transporting 10 million tonnes of oil annually. CNPC is also involved in a project to build an oil refinery in Venezuela with a capacity of processing 6.5 million tonnes a year. Sinopec was equally active in overseas oil fields last year, getting the right to 100 million tonnes of reserves, an earlier report in the state media said. - AFP

Subject: Foreign Aid? From: Emma To: All Date Posted: Sun, Feb 13, 2005 at 10:35:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/13/opinion/13sun1.html Repaying Tony Blair John Taylor, a Treasury under secretary, delivered a personal blow to the British chancellor of the exchequer, Gordon Brown, last week by putting the kibosh on Mr. Brown's ambitious proposal for cutting third-world debt. Mr. Taylor was standing in for his boss, Treasury Secretary John Snow, at the Group of 7 finance ministers meeting in London. One United Nations official joked that Mr. Snow probably caught the flu because he did not want to be the Grim Reaper at the meeting. No problem. Mr. Taylor played that role admirably. If this is Tony Blair's repayment for putting his political career on the line to support President Bush in Iraq, then Mr. Blair might want to rethink that so-called special relationship. Mr. Blair has made it his mission to use Britain's turn in the Group of 7 presidency this year to work on poverty in Africa and around the world. To that end, Britain is pressing the group's members to take over the World Bank debt payments of the poorest countries for the next 10 years, to the tune of $9.5 billion a year, spread among the world's seven richest countries. Britain also wants the International Monetary Fund to tap its $43 billion gold reserve to finance the write-off of the loans it has outstanding to poor countries. Mr. Taylor, representing the richest member of the club of nations, said no to both of these good ideas. Instead, Mr. Taylor had his own proposal, which goes something like this: America believes in debt forgiveness, but this should come as grants, not loans. So let's have the World Bank just forgive 100 percent of the debt of these poor countries. And after that, instead of giving these countries loans, let's give them grants. As for the monetary fund, it needs to stop making loans to really poor countries and just focus on loans to countries like Argentina and Brazil. Sounds good, right? Wrong. If the World Bank just forgave those debts out of its own pocket, its funds would eventually be depleted, since the World Bank depends on those loan payments to finance other projects - and more loans - to these same poor countries. To counter that, Mr. Taylor would have the World Bank subtract the debt forgiven from whatever project or additional loan it planned to give a country that year. So, let's say Tanzania gets $100 million a year from the World Bank, and makes a loan payment every year of $20 million. Under Mr. Brown's plan, Tanzania gets $100 million in World Bank money, and Group of 7 members pick up the $20 million debt payment. That's foreign aid. Under Mr. Taylor's plan, Tanzania gets $80 million, and the World Bank picks up the $20 million debt payment. That's an accounting gimmick. Supposedly, if the Group of 7 signs on to the Taylor plan and the time comes that the World Bank funds are depleted, America would rush to refill the coffers. Just as America has rushed to fulfill its Millennium Challenge Account? That account, first announced by Mr. Bush in 2002, has fallen billions of dollars behind in promised budget requests. So we're not holding our breath....

Subject: Re: Foreign Aid? From: johnny5 To: Emma Date Posted: Sun, Feb 13, 2005 at 19:18:44 (EST) Email Address: johnny5@yahoo.com Message: If we aren't collecting debt payments you will put the economic hit men out of a job. Don't you like the cushy standard of living we have in this country? That won't happen with grants will it? We need usury.

Subject: Re: Foreign Aid? From: Pete Weis To: Emma Date Posted: Sun, Feb 13, 2005 at 12:44:13 (EST) Email Address: Not Provided Message: This proposal was made in the past (not sure of the date) but was opposed by the US and I, believe, Canada. It takes an 85% vote for the proposal to succeed. The US controls a 17% vote (so it can kill the proposal by itself) and Canada 5%. This 'North American block' killed the proposal the last time.

Subject: Re: Foreign Aid? From: Emma To: Pete Weis Date Posted: Sun, Feb 13, 2005 at 17:11:24 (EST) Email Address: Not Provided Message: Well done, Pete.

Subject: C-Span Broadcast - Economic Hit Man From: johnny5 To: All Date Posted: Sat, Feb 12, 2005 at 17:21:01 (EST) Email Address: johnny5@yahoo.com Message: This is shown on their website to be playing in my market tomorrow at 9:30 AM http://inside.c-spanarchives.org:8080/cspan/cspan.csp?command=dprogram&record=178704751 Speech Confessions of an Economic Hit Man Books and Books Coral Gables, Florida (United States) ID: 179538 - 01/08/2005 - 0:59 - $29.95 Perkins, John M., Author Mr. Perkins talked about his book Confessions of an Economic Hit Man, published by Berrett-Koehler Publishers. The book discussed some of the assignments he was given while working as what he terms an 'economic hit man' for the U.S. government. Mr. Perkins said that since the 1950s the U.S. government has used a form of international loan-sharking to gain leverage over poor countries that it deems to be strategically important. He explained that his role was to get countries to take on loans, via the World Bank and other institutions, in order to finance large engineering projects that are sold on false pretenses and ultimately end up bankrupting those countries. After his presentation he responded to questions from members of the audience.

Subject: Oil and Debt From: Katie To: All Date Posted: Sat, Feb 12, 2005 at 17:20:06 (EST) Email Address: Katie@gmail.com Message: http://www.nottingham.ac.uk/~ajxsm1/issue2/goodchild.pdf. Page 1 Oil and Debt – the Collision Between Ecology and Economy Philip Goodchild The single over-riding issue that will shape the history and politics of the twenty-first century is the conflict between economic growth and development, on the one hand, and ecological limits, on the other. This conflict already predominates to such an extent that the modern dream of politics has been largely suspended, leaving us as pawns in the play of much greater forces. The drama that we now see unfolding, and which will continue for many decades to come, is, quite simply, the battle for resources. The existence of future ecological ‘challenges’ and ‘serious threats’ to the environment is widely accepted; yet this discourse is extraordinarily weak as a description of a condition when significant sections of the global population will have insufficient access to fertile land, fresh water, clean air, and energy, while also being repeatedly afflicted by extreme events arising from environmental instability, such as diseases, plagues, pests, droughts, famines, fires, storms and floods. Since it is difficult to predict the extent of such conditions, it is easy to imagine them as a continuation of the kinds of ‘natural disasters’ with which we are familiar. This does little to address the intensity, severity and extent of what is to come. For a way of life that depends on an increasing consumption of material resources – pitching consumer desires and market imperatives against responsible restraint – will necessarily continue to deplete vital resources, creating imbalance and instability. It will therefore continue to increase the intensity, severity and extent of these so-called ‘natural disasters’ until that way of life is no more. Economic globalisation will soon be over; the only uncertainties are the rates at which ‘unnatural disasters’ will intensify, and whether the human race will adapt or die. Given the population explosion in domestic farm animals, Situation Analysis, Issue 2 Spring 2003. ISSN 1478-2014 (print) / 1478-2022 (online) Page 2 6 Philip Goodchild Oil and Debt which have multiplied fivefold since 1945 while 13% of agricultural land has degraded; given that the rate of production of carbon dioxide has increased fourfold, while weather-related natural disasters double in quantity every two decades; given that two-thirds of the world’s population are likely to be effected by water scarcity by 2025; and given that estimates of a four degree temperature rise this century are spoken about, with no clear evidence that those temperatures will stabilise in future centuries, it seems probable that the environmental crisis is about to arrive in force. Our inability to take responsible action in the face of this threat is epitomised by our attitudes towards the resource of oil and its waste product, carbon dioxide. Some environmentalists have warned that if more than a quarter of the world’s remaining oil reserves are consumed, then the concentration of carbon dioxide in the atmosphere will lead to runaway global warming. One may suspect that this threshold is somewhat arbitrary, and in reality unknown; nevertheless, the principle is not (see the Intergovernmental Panel on Climate Change report, Climate Change 2001; and the National Association of Scientists’ report, ‘Abrupt Climate Change: Inevitable Surprises’, 2002 1 ). Moreover, given that there are only 40 years of known crude oil reserves remaining at the current rate of production, this putative threshold would be crossed within a decade. Current trends, however, suggest that the consumption of the majority of the world’s remaining oil reserves, some 800 thousand million barrels, is now all but inevitable. Even the replacement of petroleum and diesel engines by hydrogen fuel cells would still require a source of primary energy to produce the hydrogen by electrolysis (see Rifkin, 2002). Why are we so unable to change? Is it simply a failure of collective will? Here, I believe, most contemporary consciousness is out of step with the political constitution of our current situation: the critical source of power is not to be located in the White House, on board aircraft carriers, in the United Nations, in international financial organisations, in corporate boardrooms, in the corporate media, in the universities, in the will of the people, or even in their daily practices. Any resistance exerted in these directions will be too weak to contest countervailing powers. Quite simply, our humanistic models of the political world are blind to the fact that this occupies a rather narrow band between the natural world, on the one hand, and what I will call the ‘spiritual’ world (consonant with Derrida’s ‘spectral’ analysis of Marx (see Derrida, 1994), but modified (see Goodchild, 2000)), on the other – epitomised by oil and debt. For the human ways of exercising power are in the last instance determined by the powers which bound them, from without and within. 1 see: http://www.nap.edu/books/0309074347/html/ Page 3 Situation Analysis March 2003 7 The essential technological innovation that made the modern world possible was the harnessing of preserved organic energy. Myriads of life forms, which had stored up the sun’s energy over millions of years, return to life once more when their undead energy is liberated for a moment in the combustion of coal, oil or natural gas. What are essential here are both the quantities of energy involved, resulting from the residue of millions upon millions of lives, and the capacity for this energy to be generated, transported and stored at will. In the combustion of fossil fuels, the complexity of life is converted into a pure, undifferentiated flow of energy. As in all symbiotic partnerships, the distribution of ‘power’ between the human agents who direct the flows of energy and this undead fossil force is more ambivalent than one might think. For human life has become increasingly dependent on this external energy supply, and vulnerable to its only modes of exercising power: to exist, or not; to be available, or not. Now, insofar as we can predict the existence and availability of fossil fuels, they would appear to be a part of a passive natural world to be acted upon by intelligent, technological humanity. But if the extent of technological activity is effectively determined by the availability of fossil fuels, then such ‘passivity’ is extraordinarily powerful: it will determine human conduct to maximise its opportunities for access to fossil fuels. While such maximisation appears to be a choice, it is one made on the basis of the desire to preserve human activity and its way of life as it is now. While the depletion of fertile land and fresh water has affected many countries, it will be the depletion of oil that first announces the conflict between economy and ecology for the global economy as a whole. Although there are apparently 40 years of oil remaining worldwide, including 86 years in Saudi Arabia and 63 years in Venezuela 2 , oil production will decline much more rapidly elsewhere. Within 20 years, reserves in Europe, North America, India, China and the former Soviet Union will one by one become exhausted. The raw data suggest that in 15 years’ time, 40% of current oil production will have ceased. The discovery of new reserves has been at a much slower rate than the rate of production over the past 30 years 3 . According to a report by the Oil Depletion Analysis Centre submitted to the UK Cabinet Office Energy Review in September 2001, global output of conventional oil will decline after about five to ten years (depending in part on whether oil production in Iraq is increased). Non-conventional oils and gases may do a little to compensate, but their quantities will never be sufficient. In short, the report predicts that by 2020, supply of hydrocarbon liquids as a whole will decrease by about 10%, while demand increases by a notional 40%. Natural gas production is also due to peak around that time, 2 see http://www.bp.com/centres/energy2002 3 see http://www.oilcrisis.com Page 4 8 Philip Goodchild Oil and Debt with the current reserves lasting 62 years at the present rate of production. At present, fossil fuels constitute nearly 90% of the world’s primary energy supply, with oil around 38%, and natural gas around 24%. An optimistic portrait of the significance of these figures can be painted: increased prices will make other sources of energy, including the extraction of non-conventional oil, economically viable; the resources of other kinds of oils will mean that vital oil-derived products, including chemicals and medicines, will remain available; rising oil prices due to scarcity will also mean that there are much greater profits to be made for oil companies, in spite of a slightly reduced rate of production. Moreover, the laws of supply and demand are such that even though some may no longer buy oil because of price rises, the price will remain low enough for all the oil to be sold and consumed. There is no question of the US military running out of oil in the immediate future. In the longer term, global warming implies that we will never be short of primary energy, so long as we can find ways to extract, store and transport it. Thus it is possible to imagine a transition to a ‘hydrogen economy’, where hydrogen is used for the storage, transport and reproduction of energy, where individuals can act as local producers and suppliers, and where the energy supply is thoroughly democratised (see Rifkin, 2002). If there are no technical limits on the production of primary energy from renewable energy sources such as solar, wind, and hydroelectric power (Dunn 2001), then this is a future which probably will be achieved at some stage. There is much more to the scenario than this, however. It is important to emphasise that hydrogen is not a source of primary energy, except when extracted from natural gas. World consumption of energy increased by 12% over the decade from 1991-2001; it is an inseparable part of industrial production, agricultural production, and trade. While it is possible to speculate that the world’s primary energy supply could be provided by covering 0.5% of its surface in solar panels, actual predictions of the growth in solar power suggest that it could provide only 21% of the world’s electricity in 2040 (see Cameron et al. 2001). Renewables may not even meet the growth in energy demand, let alone replace current supplies. Thus we envisage a gap of several decades of deficiency in primary energy. A squeeze on oil production means that prices will rise as high as the global economy can support; it will also mean that the least profitable economic activities that depend on oil will no longer be able to continue. Once most countries of the world exhaust their oil production capacity, they will become dependent on the only remaining supplies: those in the Middle East. It is important to appreciate that the geopolitical significance of oil is not simply that it may yield large profits in the future as prices rise. It is usually too expensive to fight wars for the sake of profits. The vital strategic consideration is economic security, for the size of the global economy is Page 5 Situation Analysis March 2003 9 limited by the supply of oil. One should not assume that just because George W. Bush, and other leading figures in the current US presidential administration are former executives or directors of oil companies, their foreign policy is simply determined by a quest for oil for the sake of profits. The underlying demands of energy security outweigh a quest for profits, just as they outweigh fanciful concerns about threats from weapons of mass destruction. Indeed, the explicit ideas underpinning current US foreign policy can be read in the report of a right-wing think tank, the Project for a New American Century, entitled ‘Rebuilding America’s Defenses’, published in 2000 4 : several of the report’s authors are senior figures in the Bush administration, and many of its recommendations have been instituted as policy, including provoking war in Iraq and North Korea. Indeed, the report sees beyond the limited aim of regime change to attacking Iraq for the sake of establishing a strong military presence in an area vital to US interests. Such interests can only mean the preservation of access to oil against threats from political opponents who could shatter the US economy. The report explicitly aims at establishing a Pax Americana to replace existing international institutions and security arrangements, and to prevent the emergence of competing powers. Yet the significance of oil depletion goes beyond providing a motive for current US foreign policy, significant enough though that is. If we leave aside the shallow and grandiose aspirations to eternal empire that explicitly motivate the US executive, we may notice that they are faced with a stark choice: either to control access to the world’s shrinking energy supply, or risk the US coming to resemble a ‘poor developing country’. The ‘Strategic Energy Policy Challenges for the 21 st Century’ report for Dick Cheney in April 2001 5 points out that ‘the United States remains a prisoner of its energy dilemma’, and that one of the ‘consequences’ of this is a ‘need for military intervention’. It focuses on the vulnerability of the US to political control over oil supplies, with Iraq named as the key swing producer. It warns that: in a world of energy capacity constraints, complacency could shackle the American economy for years to come. If it does not respond strategically to the current energy situation, the US risks perpetuating the unacceptable leverage of adversaries and leaving the country’s economy vulnerable to disruptions and volatile energy prices (p. 15). Thus Iraq does indeed possess a weapon of mass destruction. For: As the 21 st century opens, the energy sector is in a critical condition. A crisis could erupt at any time from any number of factors and would inevitably affect every country in today’s globalized world. While the origins of a crisis are hard to 4 see: http://www.newamericancentury.org 5 see: http://www.rice.edu/projects/baker Page 6 10 Philip Goodchild Oil and Debt pinpoint, it is clear that energy disruptions could have a potentially enormous impact on the U.S. and the world economy, and would affect U.S. national security and foreign policy in dramatic ways (p. 8). More specifically: Iraq remains a destabilizing influence to U.S. allies in the Middle East, as well as to regional and global order, and to the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export program to manipulate oil markets. This would display his personal power, enhance his image as a “Pan Arab” leader supporting the Palestinians against Israel, and pressure others for a lifting of economic sanctions against his regime. The United States should conduct an immediate policy review toward Iraq, including military, energy, economic, and political/diplomatic assessments (p. 42). We may note that not all governments have the opportunity to take such an active response to the risks of ‘oil price spikes’ and supply shortages; yet if one is taken on their behalf, then there is a considerable incentive to support it.There is, however, a further dimension to our current global predicament, which relates to another condition for the modern world: what I have termed our ‘spiritual’ world. In 1694, a new gospel was preached by an apparently trustworthy source. It was a gospel of such influence and ramifications that I still carry one of its tracts wherever I go. It’s very short. It reads: ‘I promise to pay the bearer on demand the sum of twenty pounds.’ What a promise! I’m a believer. I will spend my life working for a salary and pension so that I can gather such promises. For with such promises I can buy anything I need, anything I want. I am promised freedom from the control of nature and material need; I am promised freedom from dependency on others and social obligation; I am promised the opportunity to spend my money on what I value the most. Of course, we all know that the Bank of England does not possess enough money to deliver its promises; and we all know that the rest of the money in circulation in the UK economy, some 32 times the amount available in bank notes, is composed of promises that cannot be delivered; but we only have to act as if they will be delivered, and, by some miracle, they are. These promises are delivered by others because we are all believers. We are all obliged to accept money and wish to accept money, for we all have to behave like believers to survive and prosper, whatever our private opinions. The significance of the founding of the Bank of England in 1694 is that it allowed the money supply to be increased through the creation of a permanent, ever-expanding debt (see Hutchinson 1998: 107-10; Rowbotham 1998: 189-93; Goodchild 2002: 31: in the UK, private sector debt has increased by two to five times its total for each of the past four decades). Page 7 Situation Analysis March 2003 11 Prior to reliable paper money, there were natural limits to the acquisition of wealth through production and trade; wealth was earned in competition through plunder, piracy, conquest, slavery and exploitation, but was immediately passed on to others through trade and consumption. Once the intrinsic limits to the money supply were removed, however, a different mode of social organisation could emerge without limitation: production for the sake of profit. The great transformation was as follows: where, formerly, trades and profits were a limited segment of social life which was otherwise shaped by communal obligations and religious observances, the profit motive founded a new ordering of society, subordinating communal obligations and religious observances to economic ends (see Polanyi 1944; Hutchinson, Mellor & Olsen 2002). In order to appreciate the power of this social revolution, the most significant in recorded history, it is necessary to explore the logic of profit and money. In the first place, money appears to have no power of its own. Money is an inert commodity, neutral in relation to exchange (according to mainstream economic theory), possessed and thus apparently mastered by us. It is also apparently politically neutral. The organisation of society for the sake of profit would seem to hold no power over other modes of social organisation, unless we exercise power on its behalf. In the second place, however, we have no choice but to exercise power on its behalf. For, just as wealth gives access to military superiority in the form of weapons of war, wealth is the source of all power through its non- exercise of power in trade. The unique property of money is that it is both a commodity that can be possessed and a measure of value. My values and wishes will only be as significant as the amount of money that I have to pay for them. In order to realise my own values and wishes, insofar as this involves dependency upon others, I must value the acquisition of wealth as a means to my ends (see Goodchild 2002: 127-9). The acquisition of wealth is necessary for what I desire. Similarly, whether a government pursues welfare, health, education, development, prosperity or sustainability, the acquisition of wealth now comes first. Thus, in contemporary globalisation, priority is given above all to the creation of profits. This is the only way to realise the promises of wealth. Those who are committed to the generation of profits must continually increase the opportunities for profit through the exercise of human modes of power – such as provision, production, reproduction, possession, association, representation, legislation, jurisdiction, normalisation, violence, promise, threat, selection, persuasion, funding, reason, knowledge, morality, piety, and attracting or giving attention. And this very exercise of power is the organisation of society for the sake of profit. In short, the semblance of democracy is subverted by a condition of financial totalitarianism, whereby profitability is the condition of possibility for most kinds of social activity. Those with wealth, who are most attuned to Page 8 12 Philip Goodchild Oil and Debt the need to increase wealth, are those who determine the flows of finance, and what activity will be possible. The process, however, is structural: it is not that the US Treasury exercises sovereignty over indebted nations via the IMF; it is the structural demand for maintaining conditions of profitability that imposes its impersonal will. Of course, one need not follow this structural demand. But those organisations that do follow this structural demand will grow and prosper, and increase their influence over others that do not. Thus there is no question of adopting a moral or heroic response of resistance to financial totalitarianism. Opinions and stances already matter little; they pass away in due course. All that matters is growth and survival. In the third place, profit itself is external to any particular ordering of society: it is simply an abstract quantity, a differential rate, with no intrinsic meaning. It is an unlimited ‘good’: accountable to no one and limited by no one. For money is simply a token: it measures a reputation of value, not intrinsic value. When profit, the increase in reputation, takes priority, intrinsic values are sacrificed to an abstract symbol. Moreover, whereas any finite stock of wealth depends on past performance, the current value of any asset depends on expectations about its future performance and expected yield. Financial value depends on an imagined future. This imagined future transcends current reality, and, furthermore, the future never comes (Goodchild 2002: 142-5). For, even if there is a stock market crash, the value of any asset still depends on projections about its future. In this respect, financial value is essentially a degree of hope, expectation, or credibility. Being transcendent to material and social reality, yet the pivot around which material and social reality is continually reconstructed, the value of money is essentially religious. To believe in the value of wealth is to believe in a promise that can never be realised; it is a religious faith (Goodchild 2002: 36- 8). It is now possible to clarify what I have termed the ‘spiritual’ dimension of our current political constitution. Power is mediated via a faith in a transcendent future; moreover, such a faith is not a personal decision. It is a condition for survival and prosperity. One does not need to believe anything to hold such a ‘faith’; it is merely sufficient to act in accordance with it. Thus the spiritual power of money, if once created by us, is something over which we have no power any longer. Any resistance to its claims confines one to a form of life which will eventually be superseded by the growth and attractions of global capitalism. If there is a single history that has been repeated throughout the world in the twentieth century, it is this. In the fourth place, wealth gives access to power in market transactions between nominal equals, a point largely ignored by mainstream economic theory which assumes that prices are fixed by supply and demand. The fundamental power differential or class difference lies between those who trade to meet household subsistence needs and those who trade to make a profit (Goodchild 2002: 135-7). While those who seek subsistence must find Page 9 Situation Analysis March 2003 13 a trade locally, those who seek to make a profit are not compelled to trade at all, or can choose to trade elsewhere. This makes for an extreme imbalance in negotiating power. Alongside the other benefits of wealth such as mobility, advantages of scale, access to resources, information, technology, political influence, and marketing power, and the ability to undercut competitors and price them out of the market, this power differential makes ‘free trade’ extraordinarily unequal trade. As a result, the wealthy grow richer. The creation of wealth is the creation of a spiral of inequality, leading to exponential increases in power and inequality. Since production is organised for the sake of profit, and profit is obtained by selling to those with wealth, there is no need to organise production for the sake of those with no wealth who are excluded from the global economy, or to meet the needs of subsistence and sustainability. The increasing shift of power from householders to speculators is the theoretical reason why a global market economy will over time necessarily destroy a large proportion of the global population (Goodchild 2002: 138). In the fifth place, an increase in the money supply does not in itself constitute an increase in wealth; it may simply produce an increase in prices, as in a boom in the property market, where the quantity of goods in circulation is relatively slow to expand. To realise profits, an increasing volume of goods must circulate. Creation of money must be paralleled by an ever increasing production of goods and services. Greater proportions of land, labour and technological advance must be given over to production for the sake of trade; and, to achieve this, more and more land, resources, labour- time, and thought must be turned into property, and sold as a commodity. The creation of wealth is bought at the expense of the commodification of the life-world. The global economic system can, therefore, only operate through a process of continual accumulation that extracts a surplus value from the labour of subsistence and sustainable ecosystems (see Mies and Shiva 1993). In the sixth place, and most significantly, wealth created through economic development must be accompanied by an increase in the money supply. For the production of goods and services is one thing; the production of money is another. If economic production is to expand, so must the money supply. In practice, however, the causality works the other way round: it is the demand for profits, in the form of investment, that increases production. Money is largely supplied to the economy by banks in the form of loans: homeowners, businesses, and national governments can borrow against future earnings or revenue, and, overall, each sector faces an ever-increasing spiral of debt. Now future earnings come through increased production and trade, but debt is paid back in the form of money. So increased production through a process of continual accumulation will never be sufficient in itself to pay back debt. Instead, the money that is used to pay back debts is ultimately created elsewhere as a further debt, leading the entire global economic system Page 10 14 Philip Goodchild Oil and Debt into an increasing spiral of debt, always dependent on its future expansion (see Hutchinson 1998 & 2002; Rowbotham 1998; in the UK, private sector debt stood at Ł30 billion in 1972, Ł145 billion in 1982, Ł605 billion in 1992, and Ł1,262 billion in 2002) 6 . Without such debt, the system cannot function. The quest for profit is not simply a question of power or greed. Everyone is in debt, everyone is mortgaged to the future, everyone is enslaved to expectations of future economic growth. Rates of profit are essential for survival when one is in a state of debt. A transnational corporation must maintain its edge against its competitors. A US President must act in the short-term national economic interest, whether in relation to climate change, trade wars, the UN, World Bank, IMF or WTO, or foreign military intervention; he must control access to remaining reserves of oil. A UK Prime Minister must expand the role of private funding and profits in transport, education and healthcare. An increasing proportion of academic teaching and research must be given over to commercial ends and measurable goals. Society must become increasingly fragmented into commodified and flexible labourers, travelling large distances to places of work. Individuals must derive an increasing proportion of their satisfaction from consumption, whether of goods, tourism, entertainment, or sex. And once resources become scarce, whether of fertile land, fresh water, or cheap oil, ‘full spectrum domination’ of military and economic spheres is the only guarantee of survival. In short, the fundamental reason why responsible action cannot be taken to alleviate poverty and save the environment is because there is no scope for political choice in such matters: the world is ruled by an impersonal, anonymous, economic system, and not by financial speculators or investors, governments or economists. There is no more true politics. It is time, therefore, for us to be realistic about our situation. We are locked into an abstract machine of capital that colonises all dimensions of our lives. It has successfully conquered almost all sections of the globe, disrupting indigenous societies and those ordered by religious commitment. It has overcome the secular reactions of Nazism, Stalinism, Maoism, and third world independence movements. Any appeals for reform will have to fight against a system of financial totalitarianism that controls public opinion or makes individuals feel powerless. Any attempt to return to local, subsistence economies will have to resist the colonising power that has wiped out most prior ones. Any major attempt at economic reform, such as through land taxation or social credit, must reckon with the expansionary power of the current global system, and its addiction to profit. Any election of a reformist government on a platform of social justice must reckon with external destabilisation through control of the media, military, trade, or, finally, direct 6 see http://www.bankofengland.co.uk Page 11 Situation Analysis March 2003 15 military intervention. All attempts to change must deal with the problem of universal debt slavery. This is what the history of the past century must teach us. It profits little to engage the properly ‘spiritual’ power of a system of debt with human powers of resistance, emancipation, or revolution, for in the condition of financial totalitarianism, the political powers upon which finance depends will be constantly re-born, like heads of the hydra. Yet the era of the religion of capital is drawing to a close. The global economy, based on credit, is a speculative bubble which must one day eventually burst; we have mortgaged ourselves to the future, and one day that loan will be called in. There are a number of phenomena that point towards a forthcoming collapse of the global economic system. The contradiction between ecology and economy is the most significant. Yet there are also internal problems within the system: inequality of wealth distribution leads to a lack of purchasing power, and a problem of over-supply; financial scandals cause distrust in the system; the relative size of markets in financial capital and their increasing volatility shows that they may soon grow too great for their crises to be bailed out by national governments and international institutions; and the necessary defaults on unpayable loans as economies collapse may undermine the entire system. Most significant, here, is the spiral of debt. Money itself is a promise to repay in the future, and thus a sum borrowed against the future. The exponential increases of government, business and consumer debt reflect a condition whereby debt is only shifted around, and never alleviated: in practice, the debts can only be repaid if someone elsewhere creates more money by borrowing further money. To avoid inflation, new money can only be created as a debt. But new loans are only issued against security if it is likely that they can be repaid with interest in due course through productive activity. The entire global economy is deeply indebted, and thus deeply committed to expansion. Given the amounts of debt involved, based on former periods of optimism, the economy is in an extraordinarily fragile state. An oil price shock may be sufficient to bring about a major collapse. What we see occurring in the battle for resources is an increasing dependency on oil and credit, coupled with increasing instability. The sphere of human political activity and the spectrum of political choices available are narrowing ever further, squeezed by the constraints of the natural world on the one hand, and the constraints of the ‘spiritual’ world on the other. One can still construct alternatives, but at the moment, they cannot survive and grow. One can still contest corporate globalisation and US imperialism, but, given the power of money, there is nothing viable to put in their place. One can still protest at the extraordinary evil of the desire to blame the victims in international relations: the tyrannical wish to attack nations such as Iraq and North Korea that have been stricken in the past by military action, and recently starved by genocidal economic sanctions. One can still protest that Page 12 16 Philip Goodchild Oil and Debt the corporate media encourages ‘decent, civilised people’ to acquiesce in complicity with the greatest atrocities of human history, as it has done for the past two centuries and more. But the collision between the economy and ecology is approaching so fast that our ‘situation’ will soon be changed beyond recognition, much faster than any political action will change it. What is likely to happen? In the short term, an intensification of the principles of ‘security first’ (see the United Nations Environment Programme’s report, ‘Global Environmental Outlook 3’ 7 , with increasing economic, political and military domination of the world by the United States through exercise of its already existing advantages. Over the medium term, we will see a whole range of economic collapses, for which we have models of possible futures in those that are already under way: not only stock market collapses, but collapses of currency, as in Argentina; collapses of law and order, as in Russia; deflation, as in Japan; struggles over land, as in Zimbabwe. Ecological and economic collapses may lead to rises in nationalism and racism; rises in religious fundamentalism; mass migrations; wars; and many other undesirable social consequences. All this is in addition to the environmental instabilities discussed earlier. The most significant global economic collapse, as far as our present political constitution of reality is concerned, will be that of the United States. My best guess is that this might occur in about 10-15 years’ time, although it could occur at any time over the next 30 years. While economic collapse would not immediately undermine US military domination, and may even intensify it in the short term, it would probably eventually undermine the political will upon which it seems dependent. And it will only be then, in the uncertainty that follows crisis, that there will be the possibility of human agency making a difference. In the meantime, political activity is merely a preparation for what is to come – and it will find its most fruitful form in the construction of embryonic alternatives to global capitalism. Yet what will not be automatically destroyed is the capitalist system of creating wealth as a debt on the basis of production through harnessing flows of energy. The new situation will of course require the invention of a whole range of local economies, adapted to cope with their individual predicaments. But all such local economies will be vulnerable to the predations of a perpetually buoyant, capitalist system. Those who survive will only be able to resist its temptations if they fully understand the nature of human dependency on ecosystems, land, water, air and energy on the one hand, and human dependency on strategies of hope, faith and commitment that integrate social cooperation, on the other. They will only be able to resist its temptations if they fully understand what has caused the environmental and economic apocalypse that approaches, and, in particular, the logic of 7 see http://unep.org/geo Page 13 Situation Analysis March 2003 17 profit and money. To clarify our understanding of our impotence within our current situation is perhaps the best gift that we can offer to our future. For only as such can we identify where power truly lies. Works Cited Cameron, Murray et al. (2001) ‘Solar Generation’, Renewable Energy World 4:5. Derrida, Jacques (1994) Specters of Marx, trans. Peggy Kamuf. London:Routledge. Dunn, Seth (2001) ‘Routes to a Hydrogen Economy’, Renewable Energy World 4:4. Goodchild, Philip (2000) ‘Spirit of Philosophy: Derrida and Deleuze’, Angelaki 5:2, pp. 43-58. Goodchild, Philip (2002) Capitalism and Religion: The Price of Piety. London: Routledge. Hutchinson, Frances (1998) What Everyone Really Wants to Know about Money. Charlbury: Jon Carpenter. Hutchinson, Frances, Mary Mellor & Wendy Olsen (2002) The Politics of Money: Towards Sustainability and Economic Democracy London: Pluto Press. Intergovernmental Panel on Climate Change (2001) Climate Change 2001. Cambridge: Cambridge University Press. Mies, Maria & Vandana Shiva (1993) Ecofeminism. London: Zed Books. Polanyi, Karl (1944) The Great Transformation. Boston: Beacon Press. Rifkin, Jeremy (2002) The Hydrogen Economy. Cambridge: Polity Press. Rowbotham, Michael (1998) The Grip of Death. Charlbury: Jon Carpenter.

Subject: Re: Oil and Debt From: Setanta To: Katie Date Posted: Mon, Feb 14, 2005 at 11:51:43 (EST) Email Address: Not Provided Message: It started off as an interesting post with excellent points on oil and debt but unfortunately lapsed into an anti-capitalist rant. Frankly, i'm dissappointed with some of the assertions (along with the 'end of capitalism as we know it' prediction, in 10-15 years time by the way!). capitalism and fiat money, for those with a cursory knowledge of economic history, developed naturally as society developed during the industrial revolution. i find the following two statements bizarre...'One can still protest at the extraordinary evil of the desire to blame the victims in international relations: the tyrannical wish to attack nations such as Iraq and North Korea that have been stricken in the past by military action, and recently starved by genocidal economic sanctions. One can still protest that the corporate media encourages ‘decent, civilised people’ to acquiesce in complicity with the greatest atrocities of human history, as it has done for the past two centuries and more.' First, while not being a supporter of the war on iraq, i was a supporter of the war in afganistan, and would support a war in the sudan. warring for oil is evil but you cannot stand idly by while fellow human beings are being murdered and raped by an inhuman regime. anyway, north korea was not striken, the south koreans were defended (by the UN and WW2 allies) against a dictatorial invasion from the north (and china). Secondly, i fail to understand how 'corporate media encourages decent, civilised people to acquiesce in complicity with the greatest atrocities of human history'. i would have put a) stalin's murder of 20 million russians, eastern europeans and asians b) hitler's murder of 15m europeans as a far greater human atrocity than the effects of capitalism. incredibly, the piece goes on to claim (in sandwich board fashion) that the end of the world is nigh due to the five riders of the apocalypse, namely recent stock collapses, recent currency collapses, recent collapses of (sic) law and order, recent deflation and recent struggles over land. call me a cynic but serious as the recent events are, they pale in comparison to the events in the years between WW1 and WW2. again, my background would be as a firm believer in keynes but even i find this piece has the emotional content and intellectual confidence of an undergraduate dissertation.

Subject: My read of this is different From: Pete Weis To: Setanta Date Posted: Mon, Feb 14, 2005 at 21:51:50 (EST) Email Address: Not Provided Message: Think of how a person from the Middle East or for that matter Africa, Central and South America might read this piece. They would likely agree with much of what it says. That's because even though they have suffered through tyrants and despots, many of them take a very dim view of the 'benevolence' of the West and especially America. We can all agree that the world and America should provide help for the Sudanese. But the wealthy capitalist nations of the West are not really providing much help. The Sudan is not economically important enough to the West. Neither was Cambodia. Would the US, Great Britian, and the 'coalition of the willing' have troops in the Middle East if there wasn't oil there? Would we have really stepped in when Kuwait was invaded by Iraq if Kuwait had no oil and Saudi Arabia wasn't next on the list for Saddam? I'm not saying, and I don't believe that Goodchild is necessarily saying that the West shouldn't protect it's economic interests and the world's economic interests. I don't believe he is saying that the Allies shouldn't have joined together to stop Hitler. What he is saying, and using strong language in doing so, is that capitalist nations often readily sacrifice the well being of other peoples to achieve there own gain. The US did little to oppose apartheid in South Africa, because the South African regime was an important source of natural resources and they provided what we wanted. America and Great Britian put the Shah in power in Iran to protect British and American Oil corporations from being nationalized by the Iranian socialist leader. The Shah ruled mercilessly using his Savak (secret police) to torture any who opposed him. Look at what we finally ended up with in Iran. The US helped Samoza gain power in Central America and the Chilean dictator General Pinochet who is now being tried for crimes against humanity. All of these actions were at the expense of the poor majority of people who lived in these countries. We talk a lot here in the US about 'moral values' and 'democratic values' but we are just not very believable to most of the world's poor. So it makes a big difference, depending on which side of the world's 'street' you happen to live on, whether one sees this post as something that resonates or simply an 'anti-capitalist rant'. As for the media - we have posted about media as an enterprise which markets to its audience. You simply can not stay in business if you tell your readers, on a regular basis, what they don't want to hear. You are far more successfull telling them what they do want to hear - we generally like to be 'acquiesced' - life is far more pleasant that way. When someone points to some ugliness which we perhaps have an 'indirect hand' in because our elected leaders are responsible for it, we'd often rather not know about it. Now for all its foibles, private ownership of the media is the only way to go. We all know where state control of media leads. But certainly Goodchild is refering to 'corporate media' in the early stages of Nazi Germany, among other examples, when he talks about 'acquiesce in complicity with the greatest atrocities of human history'. Now when it comes to the 'end of capitalism as we know it' - I view this as meaning very dramatic changes are ahead. The industrial revolution is all about harnessing energy and therefore modern economics derives from harnessing energy. It's amazing to realize that for many thousands of years of human existance, with few exceptions, the ability to do work derived from either human or animal power. Then a little more than 250 years ago we have a sudden change - harnessing water power on a large scale brings dramatic changes. In the 19th century water power is still going strong as a conversion to steam power ignites a new era of steam powered machinery and railroads revolutionize transportation of both people and goods. In the latter part of the 19th century steam power is still going strong when electric power begins to get rolling and eventually gives us the internal combustion engine, electric powered machinery, the assembly line, etc. Oil and natural gas eventually become predominant in the automobile and electric power age. All of this is obvious, but what we forget is that all the previous transitions were without interuption. This time we have an interuption. We didn't have diminishing water power or steam power (fired by coal) when we transitioned to the next fuel. There was no fuel crisis to deal with. This time it's different. That's what, among other things, Philip Goodchild is saying. I think it's a bit more than 'an undergraduate dissertation'.

Subject: Re: My read of this is different From: Setanta To: Pete Weis Date Posted: Tues, Feb 15, 2005 at 05:53:29 (EST) Email Address: Not Provided Message: Pete, great points as usual. certainly recent (within the last few years) history suggests that capitalism (i.e. US, UK, AUS, not the rest of the EU, India, Canada and other capitalist countries)are willing to invade to secure resources i'm still not too sure that the evils of strategic invasion/interference can be pinned uniquely on capitalism. in the 20th century, fascism and communism proved willing to carry out all the deeds Goodchild has listed also. i still do not believe that 'corporate media' encourages ‘decent, civilised people’ to acquiesce in complicity with the greatest atrocities of human history, as it has done for the past two centuries and more. i suspect corporate media in Nazi Germany had little more independence that it had in Hussein's Iraq and certainly it did not exist in Stalin's Russia. (as an aside, ireland had controlled media/censorship during the war years to ensure neutrality however when headlines such as '300 british sailors die in boating accident in the mediterranean' everyone knew what was happening in the world!) as to my comparison of this article with an undergraduate dissertation, i realise that was a little harsh. my point was that certain sentences like 'Any election of a reformist government on a platform of social justice must reckon with external destabilisation through control of the media, military, trade, or, finally, direct military intervention' and 'genocidal economic sanctions', 'greatest atrocities of human history', 'predations of a perpetually buoyant, capitalist system'. Statements like these have no place in academic discussion, maybe an Op-Ed piece though. i like your points on energy harnessing and the transition from horse power to steam to oil/gas. my opinion is that there is enough alternative energy (waves/wind/geothermal/safe nuclear (if possible) and even thunderstorms) out there, its just a matter of developing the technology to capture it. does anyone have any information on a bet i heard about between two prominent economists. one bet the other that the price of a number of metals would be cheaper in 20 years time than they were at that time? i vaguely recall it from a development economics lecture many years ago.

Subject: Re: My read of this is different From: Pete Weis To: Setanta Date Posted: Tues, Feb 15, 2005 at 09:31:19 (EST) Email Address: Not Provided Message: Setanta, I certainly agree with not pinning the evils of the world uniquely on capitalism - suspect it has more to do with primitive human drive for dominance regardless of the economic or political system. I'm not familiar enough with Goodchild's overall 'agenda'. But I thought this post dealt with important issues, even if Goodchild may have used language which might offend most of us. I do remember something about a wager regarding the price of manufactured products falling in real terms (as a ratio to one's wages) over time. Not sure that it involved pricing of natural resources such as metals - but had more to do with technological advancement and resulting, increased productivity. This discussion about diminishing natural resources and the development of new energy sources - how long it will take - what direction will the new development take - and what effects on the global economy and ecology will be the result - would make very interesting material for future posts.

Subject: The Irish From: Emma To: Setanta Date Posted: Mon, Feb 14, 2005 at 12:44:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/13/books/review/13KLEIN.html For the Irish...

Subject: Re: Oil and Debt From: Setanta To: Setanta Date Posted: Mon, Feb 14, 2005 at 12:05:12 (EST) Email Address: Not Provided Message: and by the way: Ireland for the 6 Nations!!!!

Subject: Very important post From: Pete Weis To: Katie Date Posted: Sun, Feb 13, 2005 at 13:43:30 (EST) Email Address: Not Provided Message: Philip Goodchild clearly has a gift for bringing into focus our future. These are the issues which should be the main focus of world leaders - energy conservation, alternative energy along with extensive modifications to energy distribution systems, preserving our environment, natural resource conservation (especially water resource). We tend to have political and economic leadership which is reactive and waits until the crises are already upon us before we take action. This is our history. But those with vision, like Philip Goodchild and Paul Krugman who have a 'pulpit' from which to speak, hopefully will give us a slight edge (however thin) of being proactive enough to reduce the inevitable pain.

Subject: Re: Very important post From: Tom To: Pete Weis Date Posted: Mon, Feb 14, 2005 at 06:02:44 (EST) Email Address: Not Provided Message: Where does Krugman deal with the potential ruin of the global economey due to 'the nature of human dependency on ecosystems, land, water, air and energy on the one hand, and human dependency on strategies of hope, faith and commitment that integrate social cooperation, on the other?' Are there other economists working on these crucial topics?

Subject: Re: Very important post From: Jennifer To: Tom Date Posted: Mon, Feb 14, 2005 at 11:00:56 (EST) Email Address: Not Provided Message: Interesting questions. Economiists such as Jeffrey Sachs and Joseph Stiglitz are where we can begin to turn.

Subject: India's Infrastructure From: Emma To: All Date Posted: Sat, Feb 12, 2005 at 17:15:31 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/12/business/worldbusiness/12outsource.html Gridlock on India's New Paths to Prosperity By SARITHA RAI MUMBAI, India - Anxieties over the United States economy have receded and worries about the political backlash have ebbed. But India's $17 billion outsourcing industry has a new dread: the poor infrastructure in the country's crowded cities is taking a big toll and may even curb the growth of the fast-expanding industry. Inadequate roads, a shortage of hotel rooms, inadequate power, traffic jams, too few overseas flights and high telecommunication fees are all becoming major concerns. They were the main topic this week at the annual meeting of India's outsourcing industry trade group. 'Shortcomings in the environment are hurting company bottom lines by 1 to 2 percent annually,' Kiran Karnik, president of the group, the National Association of Software and Service Companies, or Nasscom, said in an interview. 'You pay a price when you have to bus thousands of employees to work, run your own generators to make up for power shortages, and pay exorbitant rates because hotel rooms are scarce.' As companies performing outsourced white-collar work in low-cost India add thousands of skilled, English-speaking employees each quarter to meet the swelling demand, the growth puts increasing pressure on the already-creaky infrastructures. And growth is projected to continue at a rate of 25 percent to 30 percent a year in the next few years. Nasscom has been prevailing upon the government to make big investments in infrastructure across the board, Mr. Karnik said in a press briefing before the conference. It has already eased the air travel situation a bit by letting private Indian airlines fly abroad - formerly a monopoly of the state-owned airlines - and by giving landing rights to more foreign airlines. But by all accounts, infrastructure in India is much worse than in China, where the government is building huge expressways, office and residential townships, and some 33 office parks. In the meantime, larger outsourcing companies have taken matters into their own hands. Two Indian software and back-office giants, Wipro and Infosys Technologies, for instance, both based in Bangalore (population seven million), have built suburban campuses with luxuriously landscaped gardens, modern office buildings, food courts, gyms, swimming pools, supermarkets and clothing stores. They run their own bus services to ferry employees and operate generators to meet their energy requirements. Infosys is also building a 500-room hotel in its campus for visiting employees, customers and guests. With the hotel squeeze particularly bad in Bangalore, and room rates more than doubling in the last two years, Mr. Karnik said it was becoming common for outsourcing industry executives and customers to stay in Mumbai or Chennai and commute by air to Bangalore daily. The flight from Mumbai, 650 miles away, is one and a half hours, while Chennai, 208 miles away, is a half-hour by air from Bangalore. Some American companies, including Microsoft and Intel, have also set up campuses in India. The lavish 50-acre New Oroville township that Catalytic Software of Kirkland, Wash., built an hour's drive south of Hyderabad, has Western-quality housing, work, recreational and shopping facilities, and lets 'U.S. managers in India overcome communication hurdles' with 'Always On connectivity' and '24/7 power backup,' according to the company's Web site. Until now, outsourcing companies have built such infrastructure for their own use - and have been accused of creating 'islands of affluence' in a country with millions of poor people. But companies are starting to step forward to help finance public transportation. Wipro, Infosys and other Bangalore companies have volunteered a third of the cost of a $100 million elevated expressway from the city to the Electronics City suburb, home to many outsourcing companies. Construction is set to begin in April. This should bring relief to workers like Leena Limaye, a 26-year-old software engineer at Wipro, who lives with her parents in a Bangalore neighborhood 21 miles from Wipro's Electronics City campus. Ms. Limaye says she spends an hour and a half in the mornings and two hours in the evenings commuting in a Wipro bus. 'Traffic jams are a hot topic of discussion when colleagues and friends sit down to talk,' she said. Her employer, with 14,000 of its 39,000 employees in Bangalore, runs a fleet of 170 buses and 100 sport utility vehicles to transport workers. The lack of infrastructure is not yet driving away outsourcing customers, said Stephanie Moore, a vice president at Forrester Research, in an interview during the Nasscom conference. In fact, business continues to boom, with the country's top three outsourcing companies - Tata Consultancy Services, Infosys and Wipro - each reporting huge profit increases and the addition of thousands of employees. But Akshaya Kumar, managing director of Colliers International, the Indian unit of the global commercial real estate services firm, said, 'The sorry state of the infrastructure is making companies improvise.' Many, especially back-office companies providing customer service, are moving to second-tier Indian cities, like Jaipur and Mysore, he said. Convergys, the Cincinnati-based back-office services company, has 10,000 employees in India and expects to double that in the next two years. The company is considering using a vehicle-tracking system in its buses and sport utility vehicles to monitor its vehicles stuck in traffic jams so it can know which employees will be late for work. Convergys also operates in Brazil and Israel, besides the United States and Britain. 'India is the weakest in terms of good infrastructure,' said Larry Schwartz, executive vice president for global operations. The company constantly has to work around the gridlock in India, he said. 'It is a limiting factor to how fast we can expand' in the country. 'The costs of running our own bus service, providing employees with pagers and mobiles because phone lines are not reliable,' Mr. Schwartz said, 'all this kicks into costs, making India less competitive.' Convergys says it is currently able to pass the costs on to its customers. Overseas businesses and customers have choices and will exercise them, S. Ramadorai, chief executive of Tata Consultancy and Nasscom's vice chairman, warned at the annual meeting. 'The government is now sensitized that while there is a demand for Indian services and talent, unless the ecosystem is upgraded, we will lose out,' he said....

Subject: Arthur Miller: An Appreciation From: Emma To: All Date Posted: Sat, Feb 12, 2005 at 11:39:39 (EST) Email Address: Not Provided Message: http://nytimes.com/2005/02/11/theater/11cnd-appr.html?pagewanted=print&position= February 11, 2005 AN APPRECIATION A Playwright Whose Convictions Challenged Conventions By CHARLES ISHERWOOD Arthur Miller may or may not be the greatest playwright America has produced - Eugene O'Neill and Tennessee Williams both have equal, if not more, claim to that phantom title - but he is certainly the most American of the country's greatest playwrights. He was the moralist of the three, and America, as some recent pollsters rushed to remind us, is a country that likes moralists. The irony, of course, is that Mr. Miller's strongest plays are fired by convictions that assail some of the central ideals enshrined in American culture. If O'Neill's concerns were more cosmic, and Williams' more psychological, Miller wrote most forcefully of man in conflict with society. His characters have no existence outside the context of their culture; they live only in relation to other men. Indeed, it was a fierce belief in man's responsibility to his fellow man - and the self-destruction that followed on his betrayal of that responsibility - that animated Mr. Miller's most significant work. His greatest concerns, in the handful of major plays on which his reputation will last, were with the moral corruption brought on by bending one's ideals to society's dictates, buying into the values of a group when they conflict with the voice of personal conscience. To sell out your brother is to sell out yourself, Mr. Miller firmly believed. Like all artists, Mr. Miller was a product of a particular historical moment. He lived through the Depression, absorbed the fiery righteousness of Clifford Odets's agitprop, and began writing plays just before and during the years of World War II. His first great success, 'All My Sons,' produced in 1947, fired a warning shot in the face of the country's growing complacency, in the wake of a war that was seen as establishing America's reputation as both the world's policeman and its moral conscience. Mr. Miller's play scorchingly questioned that status, shining a harsh light on the ethos that underlay an exclusive veneration of individual rights. 'All My Sons,' in which a middle-class businessman looking out for his family causes the deaths of Army pilots, argued that a moral code that heedlessly placed the interests of the individual over responsibility to the group could breed corruption and destruction. The roots of Mr. Miller's art stretch back to Ibsen, the Norwegian playwright who used tropes of melodrama to expose rents in the fabric of bourgeois society. But with 'Death of a Salesman,' inarguably his masterwork, Mr. Miller broke free from the conventions of naturalistic drama to write in a more stylistically unfettered manner. In this impressionistic portrait of a deluded man discarded by society, he achieved something akin to poetry. As Harold Clurman astutely put it, the poetry in 'Death of a Salesman' is 'not the poetry of the sense or of the soul, but of ethical conscience.' In 'Death of a Salesman,' Mr. Miller stated in clean dramatic terms his belief that the tragic hero of the American 20th century was the average man, a belief that caused ripples of contempt in academic circles even as it struck a powerful chord with audiences. Tragic or merely piteous, Willy Loman's desperate struggle against the onrushing knowledge that he has slaved in service to a false ideal of worldly success was a powerful repudiation of the hollow promises of the American dream. As he sourly noted more than once, Mr. Miller was not long fashionable with many of the country's theater critics. Even in his finest work, he sometimes succumbed to overstatement. He was probably the least subtle of America's Big Three - and neither O'Neill nor Williams was a particularly subtle playwright. Themes, motifs, moral conclusions often glare from his plays like neon signs in a diner window. But, like all significant artists, in his finest works Mr. Miller transcended his flaws. In the case of 'Death of a Salesman,' he even made a virtue of them: The repeated iterations of the play's sonorous lines - 'Attention must be paid,' 'Nobody dast blame this man' - have the solemn and unforgettable effect of a bell tolling deep, loud and long. And, as continual revivals of 'The Crucible,' 'All My Sons' and 'A View From the Bridge' attest, his plays are so strongly saturated in trenchant observations about man's flaws, and his struggles against the social forces that will exploit them, that they retain their full power to engage and move us. In the last decades of his life, Mr. Miller continued to write plays in the face of critical indifference; he never lost faith in the value of the writer's work. His decline in popularity coincided with Broadway's loss of hegemony in the American theater, although he had nothing but contempt for the crass atmosphere of the commercial theater. The playwrights associated with the Off Broadway movement that bloomed in the 1960's - Edward Albee, Sam Shepard and others - wanted to tear down the conventional structures that had served so solidly as the vessels for Mr. Miller's ideas. And yet in their stylistically far different analyses of the contaminations of late 20th-century life, and their use of the American family as an image to be ruthlessly dissected, can be heard distant echoes of Mr. Miller's vision. 'Death of a Salesman' has been cited by innumerable and wildly different playwrights as a seminal influence, from Lorraine Hansberry to Vaclav Havel to Tom Stoppard. That his greatest plays have been produced widely on international stages suggests that the ills Mr. Miller diagnosed in America in the postwar years are not specific to the country or the era; they merely took firmest root in the soil of a country on a meteoric rise to the top of the global heap. By now, the American dream has been thoroughly dissected, but American values continue to be touted by politicians as the country's most fruitful export. And so Mr. Miller's greatest plays, in which he used both his conscience and his compassion to question the prerogatives of American society, remain both as unfashionable and as necessary as ever.

Subject: Sweden's Take on Private Pensions From: Emma To: All Date Posted: Sat, Feb 12, 2005 at 10:33:49 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/12/business/worldbusiness/12pension.html?pagewanted=all&position= February 12, 2005 Sweden's Take on Private Pensions By ALAN COWELL STOCKHOLM - Every spring Marie-Louise Graveleij, a 62-year-old receptionist in a funeral home, receives a large orange envelope through the mail. Now, it is about to become her lifeline, offering her an alternative to a full-time job. Soon, she said, she will end her current work contract and decide whether she can afford to retire. The orange envelope she expects to receive within the next few weeks will contain a statement of her rights under a five-year-old restructuring of this country's still-generous state pension program that - like the changes President Bush wants to introduce in Social Security - includes a personal investment account. The question is, will she be able to get by on what the envelope offers or not? As in other lands where private accounts have been introduced in various forms, the answer seems ambiguous. For all the uncertainty over such accounts, what may be most surprising to Americans is that Sweden, long known for its cradle-to-grave welfare state, has already embraced a system that partly resembles the White House proposals. 'I felt everything was going to be simple; this is Sweden,' Ms. Graveleij said in an interview, musing over her understanding of her pension rights before and after the changes in the system. 'I didn't worry about it before. I felt safe. I felt everything would be O.K. Then, the safety net was gone.' Even after poring over the statement of benefits, she said, she was still not sure how much she would receive to help her afford the $450-a-month rent on her 400-square-foot apartment. 'Everything has become very complicated,' she said. Her anxiety could eventually be shared by Americans who would lose some of the guaranteed benefits of Social Security if President Bush's plans to introduce privatized accounts became law. But Sweden's struggle with a new approach to pensions is by no means unique. Its experience, along with those from other countries, highlights some of the benefits involved but also underscores the various risks when a government turns over an important investment decision to people not always comfortable with managing their retirement money. With the possible exception of Singapore's ambitious and expensive savings programs, the experience of other countries has been mixed. In Britain, in the late 1980's, legislation permitting savers to divert funds from company and state retirement plans into private investments backfired when the value of those investments fell and insurance sales representatives were accused of selling products under false pretenses. In Chile, the introduction of private investment accounts almost 25 years ago led to accusations that hidden fees reduced benefits by as much as a third. In Poland, an army of sales agents, hired under a new private savings regime in 1999, defrauded the system by charging commissions on false accounts. Since some of the sales agents were paid a commission for every new account, they simply invented them. Other accounts were in the names of deceased people. To try to avoid such fraud and secret costs Sweden introduced its private pensions system by placing a state-appointed intermediary, the Premium Pensions Authority, between savers and fund managers, much as President Bush is proposing to do. Moreover, Sweden created a state-administered default account, comprising foreign and Swedish equities, for people who did not want to choose their own investments. But in seeking a highly competitive program, Sweden threw open its private accounts system to a staggering 675 funds (compared with 6 in Chile and 21 in Poland), requiring savers to pick 5 of them or invest in the default fund. Unlike Mr. Bush's Social Security overhaul proposal, which would carve voluntary private accounts out of existing taxes, the Swedish system imposes a mandatory 2.5 percent saving on top of its basic benefit. In Sweden, 16 percent of wages goes into an overhauled pay-as-you-go system that defines the contributions savers make but no longer guarantees the same benefits as in the past. But while the system was meant to help people like Ms. Graveleij make her investments, it has left many Swedes confused, with some expressing indifference. To some here, the government seems to be requiring savers to take on too much risk with too little expertise after decades of having the state take care of most such issues.

Subject: Sweden's Take on Private Pensions - 1 From: Emma To: Emma Date Posted: Sat, Feb 12, 2005 at 10:34:12 (EST) Email Address: Not Provided Message: 'After a working life, the legislative process should provide a proper standard of living,' said Busse Ekvall, 65, who took early retirement six years ago. 'As far as the private pension is concerned, it's too risky. We want a guarantee so that the money is not exposed to risk,' added Mr. Ekvall, who receives about $3,300 a month before taxes, about 72.5 percent of his final salary. Similarly, Lars Gedda, 66, a retired bank employee, noted that many of his friends did not feel they were qualified to pick 5 funds out of the 675 offered. 'You must have a knowledge that the average person does not have,' he said. And for many of those still quite a few years from retirement, it is difficult to come to grips with the contents of the orange envelope. 'Its 2.5 percent, so who cares?' said Hakan Ehn, 39, an airplane engineer who says he expects to be able to retire at 55 by relying on gains from owning his $250,000 four-bedroom home, a private savings plan costing $300 a month and an anticipated inheritance. Sweden's investment plan has suffered from poor timing, having been introduced in 2000, just before the global stock market boom came to an end. 'Those who chose to put their money in funds have lost their money in some way,' said Berit Andnor, the minister of social affairs. 'I think that the experience has not been so good.' Of five million current savers, only three million actively choose their investments - mostly people who chose their five funds when the system was introduced and the market looked more promising. After the initial enthusiasm, according to official figures, only 8 percent to 10 percent of new entrants into the system opt to make their own investments. Many people do not even bother to open their orange envelopes, the authorities say, either because they are too young to regard pensions as relevant or unsure of how the figures inside will translate into benefits. Such is the uncertainty that the government has ordered an inquiry into the private accounts system. 'The government has misled and under-educated the Swedish people in this huge change of responsibility,' said Christer Elmehagen, chief executive of AMF, a leading pension fund manager that makes most of its money in Sweden's thriving regular pension business but also sells funds in the new private accounts system. 'In the United States you have a history of taking responsibility,' he said. 'We are educated in a completely different landscape where the government has been our big brother.' Christina Lindenius, director general of the Premium Pensions Authority, the state body that oversees the private account system, said the reason the proportion of active investors has fallen is that the new entrants into the system are 'young people with very little money in the system' who 'are not yet thinking about retirement.' Nonetheless, she said, 'my belief is that we should go in the direction of fewer funds.' In some ways, the Swedish model offers important lessons for the United States. A proliferation of funds, for instance, evidently creates confusion, while a default fund attracts savers unsure of themselves in the open market, drawing them away from active investment choices that could turn out to be perilous or profitable - or both. The Premium Pensions Authority in Sweden aggregates trades between funds made by individual savers on a huge computer system and places them each day in bulk with the specific funds that savers have requested. That cuts out individual transaction costs but it also prevents fund managers from knowing their customers. Mr. Bush has proposed something similar for the United States. Despite these similarities, the Swedish pension overhaul grew out of political and economic circumstances different from those driving change in the United States. In the early 1990's, said Klas Eklund, the chief economist at SEB Bank, a deep recession, growing unemployment and soaring interest rates 'had a traumatic effect on Sweden and we realized that we were not God's chosen people.' In contrast to the ideological rift in the United States, moreover, the overhaul grew out of a binding consensus among the dominant Social Democrats and four other parties accounting, in total, for over 80 percent of the Swedish Parliament. And the changes were introduced at a time of fiscal surpluses to help offset the costs of switching systems. But there are similarities, too. The old pay-as-you-go system, like the one in the United States, was under strain as increasing numbers of pensioners relied on decreasing numbers of taxpayers for support. Under the previous system, pensioners were guaranteed 65 percent of the average salary of their 15 best-paid years up to salary levels of around $50,000 a year. Beyond that, more than 90 percent of all Swedish employees belong to occupational pension plans worth 10 percent to 15 percent of their final salary up to $50,000 and a much higher proportion for higher salaries. By contrast, the new pay-as-you-go component offers retirees even higher pensions if they postpone their retirement, and it includes a complex formula, known as the brake, that automatically reduces pensions if the system goes into deficit. So while the level of contributions has remained the same, the overall value of benefits will fall as pensioners in coming decades move increasingly onto the new system. That is where the private accounts come in, forecast, ideally, to provide up to 30 percent of Swedish pensions from real savings for those who are entering the system now. At the moment, the private accounts system holds about $20 billion. But it seems inevitable that the new plan will lead to greater financial disparities in a society that has long valued equality. 'It will all depend,' said Ellen Nygren, a specialist in the LO labor union federation, 'on which fund you invested in and when you retire.'

Subject: Big Oil's Cash Burden From: Emma To: All Date Posted: Sat, Feb 12, 2005 at 10:03:27 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/12/business/12oil.html?oref=login&pagewanted=all&position= February 12, 2005 Big Oil's Burden of Too Much Cash By JAD MOUAWAD Born from the megamergers of the 1990's, the world's giant oil companies have delivered on their promise. They have cut costs, increased returns and raised profits to records. Now, flush with cash, they find themselves in a paradoxical position - they are making more money than they can comfortably spend. Thanks to crude prices that averaged $41 a barrel in New York last year, the world's 10 biggest oil companies earned more than $100 billion in 2004, a windfall greater than the economic output of Malaysia. Together, their sales are expected to exceed $1 trillion for 2004, which is more than Canada's gross domestic product. But even as fears of shortages grow throughout the world and prices remain high, the cash-rich oil companies are not pouring a large portion of their money into their basic business: drilling for oil. Indeed, oil executives, in their second straight year of rising profits, are finding that too much money is chasing too few oil fields. Instead, they are giving much of their cash back to shareholders. For example, Exxon Mobil, the world's largest publicly traded oil company, earned more than $25 billion last year and spent $9.95 billion to buy back its own stock; Royal Dutch/Shell Group, whose revisions to its oil reserves have left many investors wary, pledged to hand out at least $10 billion as dividends to shareholders this year. And BP, which earned $16.2 billion in 2004, will return as much as $23 billion to its investors this year and next, mostly as dividends. At the same time, it is cutting capital expenditure for the first time in at least four years, to $14.1 billion in 2005 from $14.4 billion last year. Other oil companies, like the French giant, Total, plan to report results next week. Altogether, profits in 2004 for the top 10 companies jumped by more than 30 percent from the previous year, when they totaled $80 billion. Still, oil executives bristle at the suggestion that they are not investing enough and point to new operations in places like Angola or Kazakhstan. Exploration in those places underscores the trend of West Africa and the Caspian Sea taking over from North America and the North Sea as a main focus of exploration and growth for oil companies. Executives also remember that only six years ago, crude oil futures were trading below $15 a barrel - a third of today's levels. That is a lesson no one is ready to forget. 'We're a cyclical business,' David J. O'Reilly, chief executive of ChevronTexaco, the second-largest American oil company, said in a telephone interview, 'and at the high end of the cycle it makes sense to get the company in good shape and strengthen our balance sheet. 'History tells us that what goes up also goes down.'

Subject: Big Oil's Cash Burden - 1 From: Emma To: Emma Date Posted: Sat, Feb 12, 2005 at 10:03:57 (EST) Email Address: Not Provided Message: Lord Browne, BP's chief executive, said oil companies were doing their job. 'Investment is going in, a lot of reserves are being developed,' he said in an interview in London. 'Looking at the percentage of oil profits reinvested, rather than the amount of cash invested, gives a skewed perspective. I think you have to think of the dollar value.' One reason exploration spending is declining is quite simple - there is less oil left to drill for in places that are open for exploration, like North America or the North Sea, while the bulk of the world's known reserves, mainly in the Middle East, are mostly shut off to foreign investors. 'If they had attractive things to invest in, they'd be investing their little heads off,' said Gerald Kepes, a managing director at PFC Energy, a consultancy based in Washington. 'Twenty-five years ago, if prices had risen to $45 a barrel, you would have seen everyone in the United States drop everything, jump in a pickup truck, and drill in their backyards. The fact that you don't see this today says a lot. These kinds of easy opportunities have largely dried up.' Last year, the larger integrated oil companies spent about 24 percent of their cash on dividends, 12 percent on share buybacks, and 12 percent on paring debt, Mr. Kepes said. Less than half of their cash, or 46 percent, went into capital spending. As a share of exploration and production expenses, spending on exploration has declined over the last decade, and now accounts for about 20 percent of the total, compared with about 30 percent in 1991, according to PFC. 'The very easy money-making investments are gone,' said Fatih Birol, the chief economist at the Paris-based International Energy Agency. 'The problem isn't that there's not enough oil. It's there's not enough opportunities to find oil.' Mr. Birol said that two-thirds of the wells drilled worldwide from 1997 to 2003 were in North America, where production is falling, while the Middle East accounted for 2 percent of global investments. Early successes in Alaska and in the British and Norwegian areas of the North Sea, both regions developed in the late 1970's and 1980's, are giving way to mature and declining operations in these areas as oil reserves slowly dry up. At the same time, the Persian Gulf region, which holds the bulk of the world's proven reserves of conventional oil, remains mostly off limits to international investors. In one way or another, Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates limit access to international companies. High oil prices are not a guaranteed boon for oil companies. When oil prices are low, oil executives are courted by commodity-rich countries to develop national resources. But when prices rise, governments have a tendency to rethink their contracts and seek higher royalties. That is happening in Venezuela, which is reviewing its operating agreements with foreign oil companies; it is also happening in Russia, where the government is assuming more control of the country's oil industry. 'The net effect of $50-a-barrel oil is to reduce opportunities,' said Paul Sankey, an analyst with Deutsche Bank in New York. 'Large profits make governments think that they're not taxing sufficiently enough.' For example, the Russian government collects most of the profits when oil prices rise above $25 a barrel. Some countries - including Kuwait, Angola and Iran - put limits on the gains foreign companies can make if prices rise above a certain level. In many production-sharing agreements, for example, oil companies agree to a revenue cap, so that when prices rise, producers must reduce their volumes. 'The industry would much rather have lower oil prices and more stability and a more sustainable environment,' Mr. Sankey said. 'Record prices mean record revenue, but also too much attention for an industry that basically likes to remain out of sight.'

Subject: The Dollar From: Terri To: All Date Posted: Sat, Feb 12, 2005 at 06:45:45 (EST) Email Address: Not Provided Message: The relative value of the dollar is a marker of the health of the economy. So far the decline in dollar value has been slow and mild. Any further decline may continue to be slow and mild. Inflation is well under control so long term interest rates have not risen. Federal Reserve policy is assuring that inflation stays under control and that we can readily lower rates if necessary. There is cause for worry about the structural government deficit and the low level of household saving. Though the dollar has risen well this year, the dollar is likely to decline again if we do not improve fiscal policy. Still, there is far more reason to believe a further decline will be manageable than disruptive. Worry moderately.

Subject: A New Deal Legacy From: Emma To: All Date Posted: Sat, Feb 12, 2005 at 05:59:45 (EST) Email Address: Not Provided Message: Social Security has been the focus of attacks on the New Deal for decades. The reason for the attacks are the consensus that we reached during the New Deal to go beyond the protections set in place during the Administration of Theodore Roosevelt for what would be our middle class America. The negative protections of Theodore Roosevelt might limit child labor or check monopoly, but what of a need to positively provide for the well-being of millions of households when confronted by severe economic pressure and peril much beyond individual control? The New Deal consensus was that household support would be afforded to provide for a middle class base for Americans. There were monuments from the sense that fiscal and monetary policy could be used to spur a desirable level of general economic activity. There were monuments of infrastructure development from education to energy and communications and transportation to what would be mortgage support for housing. There was the notion of employment and income support for those most vulnerable to economic disruption. There would be medical support for children. There was a sense that we had an obligation to American workers to secure retirements. There was Social Security and in time Medicare. There were complaints against the negative protections of Theodore Roosevelt's Administration, but far more complaints against the positive supports of Franklin Roosevelt's Administration. Social Security is now threatened. A program that has been a wonderful success, is not subject to reform but to being gradually se aside. Benefits are to be cut, risks to a retirement base are to be raised, what is secure will be in increasing and dramatic fashion less secure, while severe costs are set in place for the undoing of the program. We can not spend too much time learning about what Social Security is, what it has meant and why and how the program is so attacked. These posts have simply been a superb way for us to learn.

Subject: Fear of foreign currency debt overblown? From: johnny5 To: All Date Posted: Sat, Feb 12, 2005 at 03:22:31 (EST) Email Address: johnny5@yahoo.com Message: A stronger chinese currency may allow for cheaper oil coming in, but don't they hold a lot of foreign debt? http://www.morganstanley.com/GEFdata/digests/20050211-fri.html#anchor0 Stephen Roach 'IMF (PRW) also stresses that fears of currency exposure of Chinese banks are overblown -- mainly because the banks have limited exposure to foreign-currency denominated debt. ' I wonder if the PRW economic HIT MAN is fudging the numbers on this - are the fears not justified? Stephen Roach goes on to say: ' I have long been impressed by the wisdom of the Chinese leadership to stay the course and to do so by resisting, from time to time, the sage advice of outsiders. The Chinese economy barely flinched during the Asian crisis of 1997-98 for precisely that reason. ' Reading below the autor aurgues that lack of currency speculation nuetralizing Soros and Co. was what saved china: http://zena.secureforum.com/Znet/zmag/articles/rosemontmay98.htm There is a fairly simple, factual explanation for why China has not suffered the woes of its neighbors, which simultaneously reveals the true source of those woes: China’s currency (the renminbi) is not fully convertible, hence is not available on the international market for speculation by high-rolling currency traders and deep-pocket speculative investors, whose activities have nearly brought the other countries to their knees, with countless (and increasing) suffering by millions of people in the region who are blameless for their plight. These and other problems cannot be considered in isolation, however, because the Chinese government—corrupt, cronyist, and authoritarian or otherwise—is not free to deal with these problems on its own; its options, despite the size and importance of the country in world affairs, are greatly constrained by those same high-rolling traders and deep-pocket investors who have wrought so much havoc in Southeast Asia and Korea. Thus any serious analysis of China’s economic and political prospects must first place them in the context of a fuller economic and political analysis of what has happened to its neighbors, and why. ... Thus these latter speculations did not quickly bring returns, and as the loans came due, governments/corporations became concerned to increase exports in order to repay them with much-needed foreign exchange. But many countries were now exporting the same products, so the only way to compete successfully would be to devalue the national currency, thus decreasing the costs of production. But that didn’t (couldn’t) work, as Thailand was the first to see. The tale was told succinctly by the Washington Post: 'Currency speculators thought it was inevitable that Thailand’s currency [the baht], which was pegged to the U.S. dollar, would be devalued to boost Thailand’s exports, and began selling the currency in hopes of bringing about a self-fulfilling prophecy.' 'But the Thais had borrowed billions of foreign dollars. A baht devaluation would make those loans far more expensive to pay off. So for several months the Thai government fought off speculators, buying mountains of baht to prop up the currency. On July 2 [1997] the government announced it was surrendering and would let the baht drop.' Thus the meltdown began and became a self-fulfilling prophecy. Taking Thailand as typical of all the Asian economies, the herd mentality took over, and, in unprecedented amounts, currency speculators began dumping the Indonesian rupiah, Malaysian ringgit, and Korean won as well. In terms of the real world of 'cabbages and kings' then, there are relatively few problems in and among Asia’s economies. Rather the problem lies with the 'fools and things' increasingly dominating world affairs. Malaysia’s Prime Minister Mahathir Mohammed blamed the problem on George Soros; hyperbolic to be sure, but if we make it 'George Soros and his fellow super-rich friends,' Mahathir is pretty much on the mark. To see why this is so, we must first understand that speculative currency trading can be extremely profitable, usually much more so than investment in production. This explains why currency trading has gone from 80 percent involvement in the real economy—exchanging currencies for imports and exports, etc.—as recently as 1975 to less than 3 percent today, as Noam Chomsky and others have pointed out; 97 percent of all current money trading is purely speculative, having little to do with productive capital investment It follows that only very large corporations will be willing to invest in the real economies of foreign nations; those corporations, that is, that also have a large financial services organization as part of their conglomerate holdings. ... Bernard Lietaer has noted this point well: true market risk (i.e., that which deals with the real economy) has given way to foreign exchange risk (pure speculation), much more difficult to assess rationally, or to change; the potential profit differential is too great. It is for this reason that the quantification techniques—counting goods and services provided, bought, traded, and sold—so beloved by economists, have become increasingly irrelevant for understanding contemporary economic activity; what matters now are the hopes, fears, dreams, calculations, beliefs, and gambling instincts of the super rich in the financial market. The Asian Wall Street Journal provides an example: '... [O]ne popular trade among institutional investors was to sell the ringgit against the dollar and simultaneously buy the rupiah against the dollar; the dollars canceled out and the investor was left with a pure bet on the performance of the rupiah against the ringgit.'

Subject: Re: Fear of foreign currency debt overblown? From: johnny5 To: johnny5 Date Posted: Sat, Feb 12, 2005 at 03:53:29 (EST) Email Address: johnny5@yahoo.com Message: Cont: All of this has been explained differently by Michel Camdessus, head of the IMF, in statements that are models of obfuscation. Troubles began to brew, he observed, when 'Markets' began 'to look more critically at weaknesses they had previously considered minor, or at least manageable.' And again, 'Market doubts were compounded by a general lack of transparency. In the absence of adequate information, markets tended to fear the worst.' Thus the Asian countries are solely responsible for their problems, because they have not acknowledged their 'weaknesses,' nor increased the 'transparency' of their financial dealings. But 'markets' are a conceptual construct; they are not living things. Having no eyes, they cannot 'look' for economic weaknesses, or anything else. And lacking minds, they can neither 'doubt' nor 'fear' what any government may do with respect to its economy. Our friends in Saudia Arabia have recently said oil FEARS are hurting - not true supply shortages: http://www.belfasttelegraph.co.uk/news/business/story.jsp?story=608949 Its state-owned operator, Aramco, insists the country has proven reserves of slightly more than 261 billion barrels - a quarter of global reserves. Taking into account probable and possible reserves, that figure rises as high as 1 trillion. But what if these numbers are wrong? If someone cast doubt on the depth of reserves held by the Federal Reserve system, there would be a financial crisis. Within the oil industry, such doubts are starting to emerge about exactly how reliable these forecasts are. Matthew Simmons, a US banker, says: 'Until an independent third party conducts an independent reserve audit, the whole world would be wise to cast doubt on the quality of reliability of these numbers.' Mr Simmons, the chairman and chief executive of a Texan energy investment bank, is calling for a new global standard of transparency for all serious oil and gas producers. He argues that 90 per cent of Saudi Arabia's oil comes from just five or six fields - of which the three most important were established before 1950. He points out that reserves estimates have risen from 110 billion to 160 billion in 26 years without major new discoveries. He warns that Saudi oil production may be close to peaking, pointing to the increasing use of high-pressurised water to maintain production in some fields. 'At some point in time the 'water sweep' will end and the high reservoir pressure will drop. This is simply the ageing process of any oilfield,' he says, pointing to the North Sea as an example. His concerns have caught the attention of the US government's Energy Information Administration, which tracks data across the world's major producers. It is worried that the Saudis' fields are suffering from an annual rate of decline of between 5 and 12 per cent, meaning it would have to add 600,000 and 800,000 barrels a day in new capacity each year just to compensate. Mr Simmons is not alone in gloomy forecasts for an end of oil production. The Association for the Study of Peak Oil believes the Middle East no longer has sufficient spare capacity to play a 'swing role' in the market. It sees annual production peaking at 30 billion barrels in 2010 and declining to 12 billion by 2050. A survey by Barclays Capital of 150 institutional investors at a conference found that almost three-quarters believed prices would end 2005 at least at their current level of $45 (Ł24) a barrel. One in seven thought they would hit $60. Saudi Arabia has repeatedly played down these concerns. In a recent speech to the Chatham House think-tank in London, Ali al-Naimi, the Saudi oil minister, insisted the kingdom was confident it could continue to provide stability to the oil market. 'People have cast doubt and talked about oil peaking very soon but that is not the reason the oil price is high - that is because there is a very clear fear premium,' he said. Now if what saved China in the past was a closed currency - would it be prudent for them to make the choice to open thier currency to speculation with thier future growth in delicate uncertainty? Even the pound was broke by Soros and friends - why let him in to play with your currency if you don't have too?

Subject: Dow 30 returns for foreigners From: johnny5 To: All Date Posted: Sat, Feb 12, 2005 at 01:50:10 (EST) Email Address: johnny5@yahoo.com Message: http://www.321gold.com/editorials/hamilton/hamilton021105.html Once again, the dollar bear obliterated any ethereal election rally gains that ensued and there was no breakout from the Dow's relentless grinding downtrend. In constant-dollar terms the Dow 30 is carving a massive multi-year top, not a foundation for a huge new bull market. Foreign investors understand this well, and American investors can only ignore it at their own great peril. If you live outside the States, think carefully of what the ongoing dollar bear will do to your overall US gains before you actually deploy capital in the US markets. If the dollar bear continues dragging US fiat down at a similar rate to recent years, then you are going to need stellar gains indeed to offset dollar losses. If you can't ultimately earn profits in your local currency via US investing, then there is no reason to invest in the US. Look to markets where you can earn strong real returns even after currency fluctuations.

Subject: Projections for Stocks and Bonds From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 17:26:58 (EST) Email Address: Not Provided Message: Well, we can project. The returns to stocks at present from dividends and share buybacks are about 1.6% and 1% respectively. Real economic growth over the coming decade might be 2.4%. Then, we have a projected return at the current price earning ratio of 5%. The growth rate can be changed as we think realistic. What of investment grade bonds? The Vanguard Long Term Investment Grade Bond Fund has a yield of 5%. In real terms we can use 2% for the yield. The duration is about 10 years. So, match up an expected return for bonds of 2% for the decade against 5% for stocks. Stocks offer a projected 3% margin over bonds.

Subject: what's your dollar projection? From: Pete Weis To: Terri Date Posted: Fri, Feb 11, 2005 at 21:07:25 (EST) Email Address: Not Provided Message:

Subject: Decline Decline From: Terri To: Pete Weis Date Posted: Fri, Feb 11, 2005 at 21:19:26 (EST) Email Address: Not Provided Message: Remember, I am playing at models. The play helps me think more broadly and carefully, but does not convince me. The dollar will continue to lose value. When the decline will continue is not clear, though I believe the dollar decline will continue this year. Unless there were to be a change in tax policy by the Republican leadership, there will be a growing federal deficit. Household saving is simply too little to cancel the government deficit, so we must run a balance of trade deficit and import capital. The dollar then can not hold. The problem is not Europe or Canada or Mexico or Japan or China. We have faulty fiscal policy. We will watch and analyze.

Subject: Re: Decline Decline From: Terri To: Terri Date Posted: Fri, Feb 11, 2005 at 22:06:40 (EST) Email Address: Not Provided Message: Will the decline of the dollar continue to be orderly? I do not know, but there is a meaningful chance not. We do not wish long term Treasury interest rates much above 5%, and even 5% can be worrisome. All of the economists I trust worry.

Subject: Projections for Stocks and Bonds - 1 From: Terri To: Terri Date Posted: Fri, Feb 11, 2005 at 17:27:32 (EST) Email Address: Not Provided Message: Suppose we lower the real economic growth rate to 2%. Simply adding the current 1.6% dividend for the S&P Index after Vanguard costs, we can project return of 3.6%. Here we are not allowing share buybacks. But, the Vanguard Long Term Investment Grade Bond Fund is likely to return a real 2%. Again, the projection gives us a margin of 1.6% for stocks over the coming decade.

Subject: Column from Friday Feb 11 From: Opine_Man To: All Date Posted: Fri, Feb 11, 2005 at 17:02:29 (EST) Email Address: opine_man@yahoo.com Message: I just read 'Bush aims to foil FDR legacy' and have to say - I am so confused by your writings. All I've read of yours in the past you aggressively purport to be progressive and then you write this piece about hanging on to a worn out system and tearing at the President's motives with strategically chosen facts from different sources. None of your facts corroborate your claims and you offer no context for them. Mr Krugman is an intelligent man, but I feel somewhat dismayed with a lack of intelligent discourse on this critical subject.

Subject: Re: Column from Friday Feb 11 From: Paul G. Brown To: Opine_Man Date Posted: Fri, Feb 11, 2005 at 17:14:40 (EST) Email Address: Not Provided Message: Hi Opine Man! Welcome to the site! I'm just wondering why you think the Social Secuity system is 'worn out'? I'm also wondering if you can give an example of what you mean when you say, 'None of your facts corroborate your claims and you offer no context for them.' Clearly you too are an intelligent man. I'm hoping you'll help us to understand your point of view better.

Subject: Worries and Proportion From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 16:09:14 (EST) Email Address: Not Provided Message: Remember, for all the justly worrisome discussion, international stock and bond markets do not reflect a sense of economic foreboding. Robert Rubin always taught us, pay attention to the bond market. The long term bond market is strong. Most world stock markets are positive in domestic currency for the year to date, while the American market is slightly negative. Stock markets have risen strongly these last 28 months.

Subject: Alan Greenspan's Messages From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 13:54:31 (EST) Email Address: Not Provided Message: Mixed messages on our economic well-being from Alan Greenspan do not help. The Federal Reserve chief supported tax cuts that had a mild stimulative effect on the economy but turned a wonderful government budget surplus to a firece structural deficit in an astonishingly short time. We have a severe structural budget deficit that is contributing to a severe balance of payments problem, and other than cutting a few social benefit programs there is no plan to deal with the situation. Social benefit program cuts will have a minimal budget effect, but will be most difficult for lower income households losing Medicaid support to research scientists losing grant support. So, mixed messages from Alan Greenspan are to no avail.

Subject: Political Reality? From: Terri To: Terri Date Posted: Fri, Feb 11, 2005 at 13:55:11 (EST) Email Address: Not Provided Message: We must remember that Republicans are in control of the White House and Congress for the first time since the New Deal, and they intend to stay in control. That means spend for constituents who matter and do not raise taxes. Republicans have been beating up on Democrats for raising taxes for years with increasinf success. There will be modest spending cuts at best and no noticeable tax increases. That is politically reality, and right now that is the way the public wishes it to be.

Subject: Profits versus Wages From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 11:53:49 (EST) Email Address: Not Provided Message: http://www.economist.com/opinion/PrinterFriendly.cfm?Story_ID=3645126 February 10, 2005 Capitalists are grabbing a rising share of national income at the expense of workers From The Economist WOODY ALLEN once quipped “If my films don't show a profit, I know I'm doing something right.” For most other people, in most other circumstances, profit is a mark of success, and in most countries corporate profits are currently booming. Last year, America's after-tax profits rose to their highest as a proportion of GDP for 75 years; the shares of profit in the euro area and Japan are also close to their highest for at least 25 years. UBS, a Swiss bank, estimates that in the G7 economies as a whole, the share of profits in national income has never been higher. The flip side is that labour's share of the cake has never been lower. So are current profit margins (and hence equity values) sustainable? Are they fair? Corporate profits may be inflated in various ways. If firms made full provision for the future cost of pensions, their earnings would be smaller. And especially in America, the share of profits in national income has been bolstered by the surging profits of the financial sector which have benefited hugely from falling interest rates. Even so, the impressive efforts of American firms to boost productivity and cut costs are genuine (see article). Firms elsewhere, notably in Japan and Germany, are also restructuring aggressively. The share of profit in GDP always rises sharply after a downturn, but in the United States a bigger slice of the increase in national income this time has gone to profits than in any previous post-war recovery. Over the past three years American corporate profits have risen by 60%, wage income by only 10%. If the share of wages in GDP continues to slide, there could be a backlash from workers who feel short-changed. Yet the chances of this are lower than before. The old divide between “them” and “us” is becoming blurred: many workers also own shares directly or through pension funds, which sooner or later will give them a slice of profits. In any case, there are good reasons to believe that profits growth will soon slow sharply and that workers will make up some of their lost ground. The usual explanation for why profits are booming is that productivity growth has increased thanks to the computer revolution and tougher management. Thus, goes the argument, increased productivity and hence lower production costs mean fatter profit margins. History suggests otherwise. It is normal for the share of profits in national income to rise during the early stages of a technological revolution, but then those extra profits tend to be competed away. Higher profits tempt firms to cut prices to steal market share; they also increase the incentive for new firms to enter the market. The benefits of the productivity gains from railways, electricity or the car eventually went not to producers but to consumers and workers, as competition forced firms to pass cost savings on as lower prices and higher real wages. There is even greater reason for thinking that the benefits of computing technology will flow the same way, for it also increases competition in many industries by lowering barriers to entry and making it easier for consumers to compare prices on the internet. However, there is another factor that might have raised the return on capital relative to labour in a lasting way, namely the integration of China and India into the world economy, along with their vast supply of cheap labour. To the extent that this increases the global ratio of labour to capital, it will lift the relative return to capital. Outsourcing may not have destroyed many jobs in developed economies, but the threat that firms could produce offshore helps to keep a lid on wages. As a result, the share of profits in national income could stay relatively high for a period. Labour's share would remain low, though workers may still be better off if the cake itself is growing faster. But this is not a reason to expect profits to continue to grow faster than GDP; indeed, in a competitive market profit margins will eventually narrow. Even if outsourcing reduces costs, competition will eventually force firms to reduce prices, distributing the benefits back to consumers and workers. Stockmarket investors seem to think otherwise: current share valuations appear to assume that profits will continue to outpace GDP growth. Most analysts still expect American profits to grow by an annual 10% over the next couple of years. With nominal GDP growth of around 5%, that implies the proportion of GDP going to profits growing still larger. But this looks unlikely, and if so, share prices are overvalued. Both economic theory and historical experience argue that, in the long run, profits grow at the same pace as GDP. Such long-standing rules deserve more respect.

Subject: Marketing of Vioxx From: Emma To: All Date Posted: Fri, Feb 11, 2005 at 10:34:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/11/business/11merck.html?ei=5094&en=74b7893c78ad24a1&hp=&ex=1108184400&partner=homepage&pagewanted=all&position= Marketing of Vioxx: How Merck Played Game of Catch-Up By BARRY MEIER and STEPHANIE SAUL At times, it is necessary to 'neutralize' the opposition, or at least Merck & Company executives seemed to think so. In 1999, the company's new pain drug, Vioxx, was beaten to pharmacy shelves by a competing drug, Celebrex. Merck apparently hoped that nationally known rheumatologists like Dr. Roy Altman could help it catch up. At a dinner that year in Miami, a Merck executive asked Dr. Altman what it would take to win his support, the doctor recalled. Dr. Altman said he told the executive that he wanted to run a clinical trial involving Vioxx, and, later, Merck put up $25,000 for it. 'Show me the money,' appeared on an internal Merck document near Dr. Altman's name. He said those were neither his words nor his intent. He also said his involvement in the trial did not affect his prescribing. Merck's dinner with Dr. Altman, internal company documents show, was a brief stop in a long-running campaign by Merck to enlist the support of doctors for Vioxx or, at the least, to defuse their support for Celebrex - to 'neutralize' them as the documents put it. 'We were all aware that there was a great deal of marketing' at the time, said one doctor who was named in the Merck 'neutralize' documents, Dr. Robert Ettlinger, a rheumatologist in Tacoma, Wash. 'Like a Coke-Pepsi war.' The company's campaign was one part of a broader marketing effort that helped propel Vioxx to annual sales of $2.5 billion, until it was with-drawn from the market last September after a clinical trial found that it increased the risk of heart attacks and strokes. And next week, an advisory panel to the Food and Drug Administration will review whether the agency should add warnings or restrictions on the use of Celebrex and other drugs known as COX-2 inhibitors, a category that also includes Vioxx. In a statement, Merck said that it stood behind its marketing programs and added that all were intended to provide accurate information about its products. With respect to references to a program to 'neutralize' physicians, Merck said that when doctors had 'misinformation' or a 'lack of information' about a drug, it 'provided information to bring them back to a balanced or neutral position.' Drug companies routinely try to woo doctors to prescribe or promote their drugs, taking them out to fancy meals, hiring them as speakers, or contributing to medical schools. But the internal Merck documents offer a rare, behind-the-scenes look into the extremes of this process - one that may have blurred the line between legitimate promotion and offering inducements to doctors to prescribe a drug. In recent months, federal investigators, state officials, Congressional committees and lawyers for plaintiffs have obtained thousands of internal Merck documents while pursuing investigations and lawsuits related to Vioxx. The New York Times obtained the documents cited in this article - records that include e-mail messages, memorandums and spreadsheets - through a public official. Some of those records involved physicians Merck sought to 'neutralize,' while others described promotional activities aimed at doctors not on that list. In the 'neutralize' documents written by a Merck marketing executive, company officials identified dozens of influential but 'problem' physicians whom the company believed had either a negative view of Merck or Vioxx or were active boosters of Celebrex. To win them over, the documents show, Merck officials planned to offer them carrots like clinical trials, posts as consultants or give them grants. 'Attached is the complete list of 36 physicians to neutralize with background information and recommended tactics,' the marketing official wrote in an e-mail message. Merck officials insisted that all the activities they financed were 'educational.' But one part of a standardized form requesting payments to doctors had a somewhat less erudite tone. It read 'Expected Outcome/Return on Investment.' To be sure, some claims made in the Merck internal documents and other company memos might have reflected idle boasts by company sales officials seeking to impress their superiors. In addition, the Merck documents indicated that some of tactics were meant to counter moves by Celebrex. As part of the COX-2 marketing war, Merck monitored its competitors' activities, regularly compiling digests of instances in which physicians speaking on behalf of Celebrex made statements that it viewed as misleading or false. Many of those internal complaints involved claims that some academic researchers were inflating Celebrex's benefits while exaggerating Vioxx's side effects. In a statement, Pfizer, which now makes and markets Celebrex, said that it always strived to provide a balanced picture of Celebrex's risks and benefits and that it could not comment on specific incidents that might have involved other companies that were once part of Celebrex's promotion. Over the years, Merck and Pfizer or its marketing partners all received warning letters admonishing them for misleading claims.

Subject: Marketing of Vioxx - 1 From: Emma To: Emma Date Posted: Fri, Feb 11, 2005 at 10:35:32 (EST) Email Address: Not Provided Message: Both Celebrex and Vioxx were marketed as a safer alternative to traditional pain relievers like Advil and Aleve, which can cause ulcers and stomach bleeding. The 'neutralize' list reflected the battle for the hearts and minds of doctors in the COX-2 wars. One physician on the list - Dr. Ettlinger from Tacoma - was described in Merck documents as an adviser to the formulary board of a regional insurer who was being 'heavily courted by Searle and Pfizer.' At the time, Searle was the manufacturer of Celebrex, and Pfizer helped market it. A Merck document recommended that Dr. Ettlinger be giving more paid speeches, be invited to more meetings and be asked to do more drug trials. 'He is participating in a number of clinical trials,' the Merck memo noted. 'Keep him busy.' In bold letters beneath Dr. Ettlinger's name was the term 'neutralized.' The physician said in an interview that he was 'absolutely shocked' that he had been singled out for attention, saying he regularly gave speeches for many drug companies. Such work never affected the drugs he prescribed, including Vioxx or Celebrex, he said. But in some cases, Merck sales officials apparently hoped that showering physicians with favors would bring some returns, the records indicate. For example, one Merck representative requested in 1999 that the company make a $25,000 donation to the West Coast Sports Medicine Foundation, a nonprofit organization founded by Dr. Keith Feder, a Los Angeles-area orthopedic surgeon. The foundation helps pay medical insurance for low-income students in California so they can have the coverage required by the state to participate in team sports. A Merck sales representative said in the document that the $25,000 payment to the foundation was needed to 'be competitive with Searle,' which, had also made such a grant. In a form requesting the payment, the Merck representative listed the 'Expected Outcome/Return on Investment' as '51 percent share of COX-2 market in 2000.' In an interview, Dr. Feder confirmed that the foundation had received money from both Searle and Merck, but said that the grants helped support a continuing medical education program and were not intended to influence his prescribing habits and did not do so. 'It had nothing to do with their product in any way, shape or form,' he said. Concerns about the sales of Celebrex and Vioxx also came up in connection with Dr. Max Hamburger, a rheumatologist in Melville, N.Y. Dr. Hamburger, who was also on Merck's 'neutralize' list, headed a large consortium of physicians in the New York metropolitan area who, by the time Vioxx went on the market, were 'high-volume prescribers and huge adopters of Celebrex.' At the time, Dr. Hamburger was approaching drug companies to subsidize retreats for his group during which the physicians would put together guidelines on what drugs to prescribe. 'Companies that provide funding will receive preferred status with its members and those that do not will have trouble accessing' the group, the Merck memo stated. 'Price tag is $25,000.' Merck officials stated in the internal document that Pfizer and Searle had already agreed to pay. And Merck did so, too, the document shows. On the 'neutralize' list, Dr. Hamburger was described as having been 'turned around' and the word 'advocate' appears. In an interview, Dr. Hamburger said that his group solicited funds from a large number of pharmaceutical companies to support its educational meetings and that payments from those drug makers did not influence the medications prescribed. As for his description as an advocate, Dr. Hamburger said he was a strong believer in the value of COX-2 drugs but not a champion of any company's medication. James Sheehan, a federal prosecutor in Philadelphia who specializes in health care fraud, did not review the documents. But, speaking generally, he said that while drug companies can give money to doctors for educational or scientific purposes, payments intended to influence whether a physician prescribes a drug might qualify as an illegal kickback. Asked about the propriety of the company's marketing program, Merck said in a statement that it stood behind its marketing and would defend it. 'Merck believes that the provision of educational grants to support the exchange of information in a medical or scientific form is not only proper but is a valuable contribution,' the company said. Merck also said that the documents reviewed by The Times reflected only a selection of the company's marketing materials and so might misrepresent its activities. In the end, Merck's efforts might not have been needed in some cases and failed to work in others. Several doctors on the company's list of 'problem' physicians said they had no problem with Merck or Vioxx, while others said they felt that the drug, while frequently killing pain better than Celebrex, did have its own problematic side effects like increasing blood pressure and fluid retention. As for Dr. Altman, who is now a professor of medicine at the University of California, Los Angeles, he never spoke for Merck or said he felt any more pressure from the company after the dinner in Miami. As for the $25,000 study Merck financed to look for the drug's value in the treatment of gout, he said he never completed it. He could not recruit enough patients for it.

Subject: Why we Invest From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 07:21:30 (EST) Email Address: Not Provided Message: 'American' corporations or corporate parts abroad are owned by shareholders whoever they may be and wherever located. To the extent that Americans own shares of fine international companies we gain. That is the point of saving and investing.

Subject: Bonds and Dividends From: Terri To: All Date Posted: Fri, Feb 11, 2005 at 06:21:35 (EST) Email Address: Not Provided Message: A point that Robert Rubin made that I have not seen otherwise discussed is that the difference in taxation of dividend and bond income creates distortions in allocation of investment funds. A 15% maximum dividend tax is opposed to a 35% maximum tax on interest income. This difference in tax rates alone may well be contributing to corporate dividend levels that are near historic lows despite high earnings and historic levels of corporate savings. Stock buybacks as John Bogle points out have been suspect as a way of returning earning to shareholders.

Subject: Stocks and Interest From: Terri To: Terri Date Posted: Fri, Feb 11, 2005 at 07:25:12 (EST) Email Address: Not Provided Message: There are fine stocks that offer dividends alone that compete with bond interest. We can emphasize dividend paying stocks in our portfolios to meaningful advantage. That is the reason value stocks have been so robust through this bull market.

Subject: The end of the Oil Standard From: johnny5 To: All Date Posted: Thurs, Feb 10, 2005 at 22:44:44 (EST) Email Address: johnny5@yahoo.com Message: http://www.energybulletin.net/4281.html?PHPSESSID=fb3e887fdb55fa902ad64e2b3503c6da The End of The Oil Standard by Greg Croft Few commentators have recognized the significance of OPEC's January 30 decision to temporarily suspend their price band mechanism. If the suspension is indeed temporary, it may not be that important. If it isn't, there are some interesting parallels to the suspension of the U.S. gold standard in 1968 to 1971. The gold standard was maintained by fixing the dollar price of gold and by federal stockpiling of gold. This was the means by which most currencies had maintained their value since ancient times. By the late nineteenth century, the growth in international trade had made the system difficult to maintain, but it continued for lack of an alternative. The Bretton Woods agreements at the end of the Second World War reduced the importance of precious metals in the international financial system and the United States government suspended purchases of newly-mined gold in 1968. The United States gold market was fully deregulated in 1971. Oil was sold at fixed prices under long-term contracts until the nationalizations of the mid-seventies, when oil traders began to play an important role. Oil prices became more transparent in 1983 when crude oil futures began to be traded on the New York Mercantile Exchange. From 1979 to 1985, OPEC tried to defend too high a price target and lost market share. According to Pennwell's Energy Statistics Sourcebook, OPEC production declined from 30.67 million barrels per day in 1979 to 16.02 million barrels per day in 1985. The same source list OPEC's maximum sustainable production capacity as 34.4 million barrels per day in 1985. By the end of 1985, OPEC had 18 million barrels per day of shut-in oil production capacity. It became clear that there had to be a price ceiling as well as a floor. This was the price band. Viewed from a different angle, an oil price ceiling is a dollar floor. Oil is traded in greater dollar volumes than any other commodity so the oil standard had more liquidity than gold ever did. The value of OPEC's oil production is more than a billion dollars per day. The oil equivalent of Fort Knox was not the Strategic Petroleum Reserve; it was the combined oil reserves of OPEC, three orders of magnitude greater and much larger in value than all the gold mined since the dawn of history. According to the December 20, 2004 issue of the Oil and Gas Journal, the oil reserves of OPEC at yearend 2004 are estimated to be 885 billion barrels. According to the United States Geological Survey, the total gold ever mined in the world is about 3.4 billion troy ounces. At $42 per barrel for oil and $420 per troy ounce for gold, the value of Opec's reserves is 26 times the value of all gold ever mined. The United States Strategic Petroleum Reserve contained about 680 million barrels as of February 7, so it's role is an emergency supply in case of an oil market disruption; it is too small to have any long-term influence on oil markets. Was the oil standard an accident or was it a deliberate product of U.S. policy? Motives are difficult to determine and the U.S. Treasury has not claimed to tie the dollar to oil prices. The ultimate effect of the end of the oil standard is difficult to predict, but one should not understate its importance.

Subject: China, India Move Closer in Trade From: Terri To: All Date Posted: Thurs, Feb 10, 2005 at 20:54:01 (EST) Email Address: Not Provided Message: http://www.atimes.com/atimes/South_Asia/GB11Df07.html February 11, 2005 China, India move closer in trade HONG KONG - China has edged past the United Arab Emirates to become India's second-largest trading partner. Bilateral trade has set a record, touching US$13.6 billion in 2004, up by 79% over the total trade volume of 2003. India enjoyed a comfortable trade surplus of $1.75 billion, according to Chinese customs statistics. If growth remains at current levels, India-China trade could cross $17 billion by end of 2004-05. In contrast, India's trade with the United States - its largest trading partner - has grown by just over 23% in April-August 2004. The total figure achieved during 2004 was $3.6 billion more than expected at the beginning of the year, indicating the huge trade potential between the two fastest-growing economies. Bilateral trade at the end of 2000 stood at $3 billion, increasing to $5 billion at the end of 2002 and touching $7.6 billion the next year. These represent year-on-year increases of 23.4%, 37.6% and 53.6%, higher than those of the incremental Chinese trade volume in the corresponding periods - 7.5%, 21.8% and 37.1%. During this period, India's annual trade surplus with China widened rapidly. Before 2002, India's trade deficit with China was about $0.2 billion on average, never exceeding $0.4 billion. In 2003, India's trade deficit with China was converted to a surplus of $0.91 billion. The trade surplus in the first half of this year reached $1.78 billion, exceeding the total amount of India's trade deficit with China over the years. In 2004, Indian exports to China grew by 80.5% to reach $7.68 billion, while India's imports from China registered a 77.2% year-on-year growth to hit $5.93 billion. For China, India has emerged among the top 10 Asian trading partners for the first time. India was the ninth-largest trading partner of China in Asia in 2004 while the European Union breezed past Japan and the US to become its biggest trading partner. Though Japan was relegated to the third position in overall ranking, it was China's top Asian trade partner with bilateral trade at $167.88 billion in 2004, up 25.7%. China's exports to Japan last year reached $73.51 billion, up 23.7%. However, Chinese imports also rose 27.3% to touch $94.36 billion, resulting in a trade surplus worth $20.86 billion in favor of Tokyo. The EU toppled Japan and the US to become China's biggest trading partner in 2004, with bilateral trade mounting to $177.28 billion, registering a 33.6% growth over the previous year. Monthly trade volume between India and China recorded in December stood at a yearly high of $1.44 billion, surpassing November's high of $1.32 billion. Indian exports to China in December touched $744 million and imports for the month reached $697 million. India mainly exports iron ore to China. China-India trade maintains a momentum of rapid increase this financial year as well. According to the statistics of China's customs, the gross volume of imports and exports in the first six months reached $6.674 billion, a year-on-year increase of 93.1%. China's exports to India amounted to $2.447 billion, while imports from India stood at $4.427 billion, increases of 65.7 % and 113.5% respectively. Exuding confidence on the growing Sino-Indian trade, industry lobby FICCI (Federation of Indian Chambers of Commerce and Industry) president Onkar Kanwar was quoted by media reports as saying: 'It's a stunning development. Our view is that China is poised to emerge as India's largest trading partner in two to three years. And this is just the beginning.' FICCI believes the bilateral trade figure will hit $30 billion by the end of this decade. But most experts are of the opinion that even that is a conservative estimate. 'It is a positive trend and we strongly believe India and China will be the largest trading partners. In all our global industry interactions, it is no more China or India. It is now China and India. In the coming years we see it as China with India,' the Times of India quoted CII Director-General N Srinivasan as saying. ASSOCHAM (the Associated Chambers of Commerce and Industry of India), another industry body, holds that trade will increase between India and China but US will be the major partner for both. China's total bilateral trade with the US in 2004 touched $169.62 billion, up 34.3% over that of 2003. According to a research by Deutsche Bank, China and India will be the world's second and third largest economies by 2020, pushing Japan into fourth place. However, India and Malaysia will overtake China to become the world's fastest-growing economies over the next 15 years primarily because of strong population growth. The National Intelligence Council, the think-tank of the Director of Central Intelligence, recently came out with a study titled 'Mapping the Global Future' that also forecast the rise of India and China as potential global powers by 2020. Of the two countries, China's GDP is predicted in the NIC document to overtake America's by the year 2042. India's demographics compare well with China, with a labor force of 600 million people and a good base of top-notch scientific, technological and managerial manpower. This workforce is set to overtake China's by 2025. India is already the second-highest source of legal immigration into the US after Mexico, a trend that is likely to continue for some time.

Subject: Re: China, India Move Closer in Trade From: johnny5 To: Terri Date Posted: Fri, Feb 11, 2005 at 01:03:31 (EST) Email Address: johnny5@yahoo.com Message: Great article Terri, if things go right they will be an emerging source of great profit. I am concerned about the religious/social/political stability in that region - the caste system and human rights violations. They are growing on the backs of practical slaves in some places over there and as the rich get richer with the new growth what social stress is this going to cause between the class divisions? Let's not forget the coming resource problems - like Pete said - we have to see the forest. http://www.energybulletin.net/4256.html Published on Friday, February 11, 2005 China and the Final War for Resources by Bill Ridley I. Unrestricted War Unrestricted War: China’s Master Plan to Destroy America is a treatise for world domination written in 1999 by People’s Liberation Army Colonels Qiao Liang and Wang Xiangsui. In order for China to become a dominant global power over the United States, the PLA emphasizes “The Final War over Resources”, must be won. The Colonels state that the aggressor nation “must adjust its own financial strategy, use currency revaluation or devaluation as primary weapons, and combine means such as getting the upper hand in public opinion and changing the rules sufficiently to make financial turbulence and economic crisis appear in the targeted country or area, weakening its overall power, including its military strength. Whether it be the intrusions of hackers, a major explosion at the World Trade Center, or a bombing attack by bin Laden, all of these greatly exceed the frequency bandwidths understood by the American military...' Can you imagine if U.S. military leaders or politicians made such threatening comments? People would be up in arms and demanding resignations and Congressional inquiries! However, in another case where truth is stranger than fiction – for the most part the U.S. media and government officials are keeping a lid on this volatile story. As you are about to read, the Chinese have already positioned themselves to inflict major damage to the U.S. economy. For those few brave souls in Washington and the media who are talking, their words are ominous. Writing in the Los Angeles Times, Gal Luft, executive director of the Institute for the Analysis of Global Security, said: 'Without a comprehensive strategy designed to prevent China from becoming an oil consumer on par with the U.S., a superpower collision is in the cards.' The New York Times has also weighed in stating that China’s actions threaten “the very stability of the global economy.” The final war for the planet’s resources has already started. You name the commodity and China’s buying it and consuming it in HUGE quantities. Last year they consumed nearly half of the world’s cement, twice the world’s consumption of copper, and nearly a third of the world’s coal, 90% of the world’s steel plus nearly every other commodity you can think of has been in greater demand by China. However in order to propel such furious economic growth, there is one key commodity you need above all the others. And if you can’t get enough of it, having all the other resources won’t matter. The most prized and sought after commodity which makes the world tick is oil. With out it, you have nothing. Your economy would be frozen and your military would be left inept. As China’s Master Plan to Destroy America manifesto outlines, the multifaceted battle plan recommended by the Chinese military has taken shape..… Financially: Using Currency as the Primary Weapon I hate to admit it, but the Chinese have done a masterful job. While America’s media is hypnotizing us with frivolous entertainment such as American Idol or The Amazing Race, they are totally ignoring the perilous economic time bomb the Chinese have placed against us. The Government of China is holding U.S. currency and Treasury notes in a $1.9 trillion Treasury bond trap. When they pull the trigger on their “primary weapon,” the dollar will crash and gold will break $600 in a heart beat and just keep going. Political and Military Alliances China has made several deals with OPEC countries whose ideology is very much anti-American. Headlining the list is Iran who President Bush recently singled out as 'the world's primary state sponsor of terror pursuing nuclear weapons while depriving its people of the freedom they seek and deserve.' Also alliances have been made with Venezuela who are threatening to cut off oil exports to the U.S. entirely while giving China as much as it wants. These new deals China is making with these and other hostile OPEC countries also involve trading oil in euros not U.S. dollars. The dumping of U.S. dollars for euros would be devastating to an already weakening dollar. China’s plan is both brilliant and deviously well planned. New alliances with radical groups, arms for oil deals with Iran, a new military build up, major acquisitions of large western resource companies such as Noranda are just a few of the multifaceted maneuvers now taking place. In my last issue I reviewed the fact the U.S. oil demand is soaring while domestic supplies are dwindling forcing imports to increase to 60%. However many of America’s foreign suppliers are hostile countries whose ideology and hatred have been forged over the decades and now have reached a boiling point in the Mid East. Before we get into how the final war for resources is building momentum let’s recap the supply and demand scenarios of the U.S. and China. II. The Growing Demand from a Dwindling Supply According to the International Energy Agency (IEA), global demand for oil grew last year at its fastest pace since 1980, now averaging 88.1 million barrels a day. Out of that, about 20 million barrels of oil demand comes from the United States. THAT'S A LOT OF OIL! And remember, once it's burned, it's gone for good! Over the next twenty years the global demand for oil will increase sharply, hitting 120 million barrels by 2025. Asia is expected to consume 80% of that output – that is if there is that much extra supply capacity. Today production is barely keeping pace with the world’s consumption needs as it is. What is even more concerning is that peak oil production has already hit all the world’s oil producing nations with the exception of Iran, Iraq and Saudi Arabia. Colin Campbell, one of the world’s leading oil geologists, estimates global production will hit its peak this year. Campbell has stated that the world started using more oil then it found since 1981 and consuming from reserves of past discoveries ever since. Oil Supply Shortages Likely After 2007, New Report Shows Global oil suppliers could start to have difficulty meeting growing demand after 2007, according to a study of existing and planned major oil-recovery projects published this month in Petroleum Review. While a flood of new production is set to hit the market over the next three years, the volumes expected from anticipated new projects thereafter are likely to fall well below requirements, the report says. 'There are not enough large-scale projects in the development pipeline right now to offset declining production in mature areas and meet global demand growth beyond 2007,' said Chris Skrebowski, author of the report, editor of Petroleum Review and a recently appointed Board member of the Oil Depletion Analysis Centre (ODAC) in London. Major Oil Firms Actions Reflect a Peak Oil Market Credit Suisse First Boston reported that major oil companies are replacing dwindling reserves by acquiring other oil companies instead of exploring for new fields, a strategic shift with implications for global oil supplies, according to a recent report. “If the actions - rather than the words - of the oil business' major players provide the best gauge of how they see the future, then ponder the following.. Crude oil prices have doubled since 2001, but oil companies have increased their budgets for exploring new oil fields by only a small fraction. Likewise, U.S. refineries are working close to capacity, yet no new refinery has been constructed since 1976. And oil tankers are fully booked, but outdated ships are being decommissioned faster than new ones are being built.” - Mark Williams, Technology Review, February 2005 The rate of major new oil field discoveries has fallen dramatically in recent years. There were 13 discoveries of over 500 million barrels in 2000, 6 in 2001 and just 2 in 2002, according to the industry analysts IHS Energy. For 2003, not a single new discovery over 500 million barrels has been reported. It appears likely that from 2007, the volumes of new production will fall short of the need to replace lost capacity from depleting older fields. Look at this imbalance: The average American consumes 25 barrels of oil a year. In China, the average is about 1.3 barrels per year; in India, less than one… The challenge is huge. For China and India to reach just one-quarter of the level of US oil consumption, world output would have to rise by 44 percent. To get to half the US level, world production would need to nearly double. That's impossible. The world's oil reserves are finite. And the view is spreading that global oil output will soon peak. - The Christian Science Monitor, January 20, 2005 There’s a historic oil market squeeze coming and it’s clear, not everyone on the planet will have their oil needs met. The San Francisco Chronicle predicts that a “social and economic upheaval across the globe” is coming. Consumption Statistics We are living in an age where oil demand is escalating at an unprecedented rate while global production is on the decrease. Today one barrel of oil is found for every 6 consumed. The day of reasonably priced $35 barrel oil has come to an end. With about 5% of the world’s population, the U.S. consumes about 25% of the world’s total oil supply. It’s hard to believe that just 50 years ago, America was producing half the world’s oil and today we can’t produce even half of our own needs. From 1970 to date, our demand has increased from 17.7 million barrels of oil per day to nearly 21 million barrels. At the same time domestic oil production is decreasing, having dropped from 10 million barrels per day in 1970 to a projected 5.58 million barrels in 2005. As a nation, the United States depends on foreign oil for 60% of its needs and that amount will only get bigger over time. The Department of Energy forecasts consumption demand will be 26 million barrels a day or greater by 2020, imports representing two-thirds of the supply needed. US Oil Production and Consumption Versus China–Million Barrels Per Day For America to maintain economic and military dominance, oil consumption will need to sharply increase. At the same time, other nations are also competing for the same supplies. The world’s second largest consumer of oil is China whose oil consumption increased by 40% last year. Going forward China’s growing oil needs will present one of the largest obstacles facing the security of the United States. As you will soon read, their strategy for assuring themselves adequate supplies has been well planned economically, politically, and militarily. As Secretary of Energy Spencer Abraham pointed out, oil and economic strength go hand in hand. “Energy security is a fundamental component of national security. Military force will be an increasingly important prerequisite to safe guard the flow of foreign oil.” Without more oil for the U.S., the American dream is over. Without more oil for China, their dream of building a modern economy, strong currency, and a military superpower will be over. $100 Oil A startling fact is that world’s richest 1 billion people - just one-sixth of the world’s population - account for three-quarters or more of global consumption of oil, steel, cement, copper, aluminum, timber, coal, and other energy. You could say it’s this group of consumers who have helped pushed the price of oil up beyond $50 a barrel. A United Nations report points out that China’s recent prosperity has raised the living standard of 160 million Chinese who once existed in poverty. Behind them are another 1 billion who are awaiting their turn to live a life once thought unattainable. As the Chinese middle class grows so will the demand of goods and services which require oil to produce them. Given the projections from the U.S. Department of Energy and other oil experts, it’s not hard to envision $100 oil in the not too distant future. As the global trend for greater oil demand grows over the months ahead it’s clear there are those in the world who will get the short end of the oil supply and other commodities. It’s also clear either the United States or China will not get all the oil they require. Hence, the Final War for Resources. III. China and the Final War for Resources Using Currency as the Primary Weapon 'Financial war is a form of nonmilitary warfare which is just as terribly destructive as a bloody war, but in which no blood is actually shed... When people revise the history books... the section on financial warfare will command the reader's utmost attention.' -Unrestricted War: China's Master Plan to Destroy America The U.S. government has been keeping a lid on the brewing problems with China because of the delicate situation which has the Chinese Central Bank holding billions in U.S. dollars and treasury bonds which Washington fears they might stop buying or sell off. China has been instrumental in helping the U.S. government bank roll its national debt and consequently, this reliance on the Chinese to support has America up against a rock and a hard place. Meanwhile, the United States is financing its ever ballooning budget deficit, which is officially reported to be $412 billion in 2004 up $35 billion over 2003. Adding to the overall debt problem is the trade deficit shortfall of $575 billion with China accounting for the greatest imbalance last year of $150 billion. So all told, the nation spent $987 billion more then what it brought in over 2004. National Debt Increases by over $2 billion daily. The Treasury Trap: So with this large annual trade surplus China enjoys with the United States, billions are spent to buy up Treasury bonds and notes. The total federal debt in FY 2004 exceeded $7.4 Trillion. By the end of January 2005 it was up to $7.631 Trillion and it is growing at a rate of over $2 billion a day. Most of this debt is owed to what the Federal Reserve calls the 'public,' from whom the federal government borrowed and gave T-Bonds, T-bills, etc. in return. But, the 'public' does not mean only U.S. citizens - - it means anyone in the world who owns those IOUs, with a right to the principal and interest pertaining to same. The United States is the world's largest DEBTOR NATION, and continue to rely on foreigners to help finance our over spending. Foreigners hold $1.9 trillion of our debt with China accounting for 10% or $190 billion. If they or any other major country start a sell off of the greenback, the U.S. dollar would be in crisis. 'We are beholden to the Chinese by our Treasures. That worries me.' Carla Hills Former U.S. Trade Representative Added to the treasury notes held by China, the U.S. dollar reserves of China’s central bank soared 271% to $449 billion from 2000 to April of 2004. Zhu Min, general manager and advisor to the President for the Bank of China was quoted in the China Daily last year saying that: “The United States is benefiting from China using its trade surplus to buy U.S. Treasury paper as a reserve currency, along with other Asian nations. But in the long run, this is not sustainable.... China will focus more and more on domestic demand, which is growing fast. Then we won't be able to finance the U.S. deficit.' So the multi billion dollar question is what happens when China starts selling U.S. dollars to help expand their infrastructure and secure their supply of global resources? 'All Beijing has to do is to mention the possibility of a sell order going down the wires. It would devastate the U.S. economy more than any nuclear strike.' Asia Times, Jan. 23, 2004 A year ago, the Wall Street Journal reported that a sell off of U.S. treasuries has already started. If a small country like Vietnam or Thailand started selling it may not be the end of the world but if China started selling, the U.S. economy would be in a tail spin. Long term interest rates would climb and bond yields would sky rocket. This could start a stampede of selling which would devastate the stock market. This is the treasury trap America is in. Though a major sell off hasn’t happened, it’s clear the U.S. dollar is losing ground to the euro and other major currencies. Consequently we have seen rising interest rates, a falling dollar and an upward flight of gold as well as upward pressure on oil, gas, coal, copper and other key commodities. The implications of this fact are staggering. As the demand for commodities increases, insightful investors who can see this trend and position themselves now in growth oriented equities holding gold, oil, copper and other key commodities will be sitting pretty if a few years time and will have weathered the U.S. dollar collapse better than most. In the final war for resources there are no clear winners. Everyone on the globe will feel the pinch. Some countries will fare better than others. The question remains, how will the United States come out of this? This is after all the hugest threat to the national security that the country faces yet it’s hardly ever mentioned by the mainstream media. Given the strong economic growth of China and the uncertain purse strings it holds on U.S. dollars and treasury bonds, I can’t help but wonder how this might tie in with their aggressive militaristic actions lately. 'The era of the resource war has arrived' -Alexander Haig, Former Secretary of State Military Maneuvering and Strategic Alliances As the last War for Resources heats up so does the military posturing, alliances and build up of arms. Last November a Chinese nuclear powered submarine cruised into Japanese territorial waters in an apparent test of Japan’s will to enforce its own sovereignty. The Chinese navy tried to stop a Norwegian survey ship (working for Japan) from conducting its work, and two Japanese naval vessels apparently chased a Chinese submarine away. A Bloomberg News report from Tokyo says Japan is considering issuing petroleum leases in the disputed area. Though the war for resources includes Japan and its territory, it’s really the Persian Gulf and Caspian Basin where the biggest power struggles are occurring. This comes in the form of alliances in order to influence and control the political landscape of an oil producing nation. What this usually means is supplying military hardware, troops, or training which the politicians refer to as “aid.” More to the point, you give us oil and we give you military hardware, training, and protection. One fact which doesn’t sit well with the Bush Administration is that U.S. intelligence reports claim China’s military provided training to both the Taliban and al Qaeda. Though U.S. officials are at a loss to explain why the Chinese provided this training some analysts believe it was an attempt to gain influence over these terrorist groups. President Bush, Dick Cheney, and Donald Rumsfeld have all stated that the protection of America’s oil supplies is the most important national security priority. However, as strong as Washington’s views are, the same view is held by Chinese leaders in terms of their own county’s national security. China’s minister for state land and resources remarked in 2002 that rising demand for imported oil will “increase supply side risks…and will damage the country’s capacity to ensure its oil resources as well as economic and political security.” In January, Bill Gertz reported in the Washington Times on a briefing by Booz Allen Hamilton entitled 'Energy Futures in Asia'. The conclusions of the report state that China fears the US is too easily able to disrupt energy supplies in the event of a conflict. So China has adopted a 'string of pearls' strategy of military bases and diplomatic ties stretching from the Middle East to southern China that includes a combination of dual purpose naval installations at critical chokepoints. A previously undisclosed internal report prepared for Defense Secretary Donald Rumsfeld reiterated this point. 'China is building strategic relationships along the sea lanes from the Middle East to the South China Sea in ways that suggest defensive and offensive positioning to protect China's energy interests, but also to serve broad security objectives.' The report reflects growing fears in the Pentagon that China's military buildup is taking place faster than earlier estimates, and that China will use its power to project force and undermine U.S. and regional security. Chinese weapons for sea-lane control include new warships equipped with long-range cruise missiles, submarines and undersea mines, the report said. China also is buying aircraft and long-range target acquisition systems, including optical satellites and maritime unmanned aerial vehicles. The report states that Chinese believe that the United States as an “unpredictable country” that violates others' sovereignty and wants to 'encircle' China. Eighty percent of China's oil currently passes through the Strait of Malacca, and China believes the sea area is 'controlled by the U.S. Navy.' Oil-tanker traffic through the Strait, which is closest to Indonesia, is projected to grow from 10 million barrels a day in 2002 to 20 million barrels a day in 2020, the report said. Chinese specialists interviewed for the report said the United States has the military capability to cut off Chinese oil imports and could 'severely cripple' China by blocking its energy supplies. Throughout the 1990’s as the neoconservatives started becoming more vocal about national security issues focusing on rouge states such as Saddam’s Iraq but China was always on the top of the list as being the most potentially troublesome. The primary concern was oil and getting our fair share in the face of raising demand from China. Furthering the national security issue was China’s support of rouge states. Very troubling for the United States is the fact that China has negotiated a new oil supply deal with Iran which would see Iran receiving both arms and cash. China has long standing alliances with Iran and has supported Iran’s efforts to develop nuclear power amid much protesting from the U.S. and Western Europe allies. As President Bush embarks on his second term in office, news agencies from around the globe are commenting that Iran could be the next target for Bush’s war on terror campaign. In his State of the Union address President Bush characterized Iran as 'the world's primary state sponsor of terror pursuing nuclear weapons while depriving its people of the freedom they seek and deserve.' Another troublesome situation is with Venezuelan President Hugo Chavez whose hatred for the U.S. is well known. He has signed an energy pact with China and has publicly stated he will divert as much oil as possible to the Chinese. As Venezuela is the fourth biggest supplier of oil to the U.S., Washington has instructed the Government Accountability Office (GAO) to investigate the potential impact this could have. Seth de Long, a senior research fellow with the U.S.-based Council on Hemispheric Affairs, is also concerned with China's quest for energy security: 'China's recent initiative towards Venezuela comes at a time when Beijing has just recently indicated that it has similar designs on Canadian oil markets that today are dominated by the U.S.,' he said in an analysis published this week. 'In other words, not only is Beijing poking its nose in 'our backyard,' but Washington's front yard as well.' China is aggressively forging alliances and attempting mergers with other countries as well through it’s national oil corporations. “China’s energy security is the first concern” stated a China National Petrochemical Corp. executive. Deals have also been made with Angola, Burma, Ecuador, Egypt, Indonesia, Iraq, Kazakhstan, Kuwait, Libya, Nigeria, Oman, Peru, Russia, Saudi Arabia, Sudan, Thailand, and Yemen. “The relative fortunes of any power in this epic contest will rest on a combination of military strength, geographic advantage, economic might, strategic prowess, diplomatic cunning, and many other factors.” Blood and Oil, Michael Klare Conclusion There is no question that China is a booming economic powerhouse with a huge appetite for global commodities and primarily oil. Just how far will China go in following their master plan to destroy America in order to secure their energy requirements? Only time will tell. Despite what Washington may say about Iran, it’s China is the primary number-one national security threat for these reasons: China and the United States are the largest users and competitors for the world's rapidly diminishing oil reserves. Going forward, the US and China’s projected requirements will consume 60%-70% of the world’s production. This demand cannot be met and one country will experience brown outs, gasoline shortages, factory shutdowns as a result of having a lack of energy. China has aligned itself with Iran, cited by Bush as the world’s leading terrorist exporting nation and nuclear threat. Military alliances with Iran coupled with a massive naval build up have Washington concerned. The Chinese have the United States in a dollar and Treasury note trap which could put the economy in a tail spin with one news announcement that they are no longer buyers of U.S. debt. The war for final resources is the ultimate global showdown. The People’s Liberation Army Colonels have developed a blueprint to destroy America. Actions, not words, seem to be bearing out this fact. China is merging financial, economic, political, and military forces together in a pursuit to dominate the world’s resources, particularly oil. Regardless of the unknown factors, the facts we are aware of support the premise that in order to protect ourselves as a private investors, diversification into gold, oil and other key commodities makes good sense not only to profit but help keep your wealth intact in the face of a depreciating dollar.

Subject: Economic and Social Partners From: Jennifer To: johnny5 Date Posted: Fri, Feb 11, 2005 at 09:59:25 (EST) Email Address: Not Provided Message: There is every reason to believe the Japanese and Chinese and Indians can be ever closer partners in economic and social relations as in development with America. I am completely optimistic.

Subject: Re: Economic and Social Partners From: Ari To: Jennifer Date Posted: Fri, Feb 11, 2005 at 11:09:06 (EST) Email Address: Not Provided Message: There is no reason for China bashing or Asia bashing.

Subject: Profit on the backs of slaves From: johnny5 To: Ari Date Posted: Fri, Feb 11, 2005 at 18:35:18 (EST) Email Address: johnny5@yahoo.com Message: Heated words in the article, the outcome it predicts shouldn't be taken lightly. To have the growth required for china to bring its 1 billion into higher standards of living is going to take a lot of energy. 80 years ago there was a man called prescott bush - our presidents grandfather who had great friends in germany and with a man called thyssen basically funded the expansion of a great powerful german friend into poland for cheap energy - the slave labor of auschwitz made getting that coal very profitable. There are already severe human rights abuses on the backs of practical slaves. I recall during the recent tsunami that ships were desperately needed - china sent none instead choosing wargames with russia to give practive to it's navy. That is not very neighborly. http://www.clamormagazine.org/issues/14/feature3.shtml The survivor concluded his reminiscence saying, 'We tremble to think what could happen if we allow a new generation to arise ignorant of the tragedy which is still shaping the future.' President Bush, appearing almost uncomfortable, read a statement that said that humanity was 'bound by conscience to remember what happened' and that 'the record has been kept and preserved.' The record, Mr. Bush stated, was that one of the worst acts of genocide in human history 'came not from crude and uneducated men, but from men who regarded themselves as cultured and well schooled, modern men, forward looking. Their crime showed the world that evil can slip in and blend in amid the most civilized surroundings. In the end only conscience can stop it.'

Subject: Alan Greenspan From: Terri To: All Date Posted: Thurs, Feb 10, 2005 at 19:47:33 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2005/02/index.html#000188 February 9, 2005 What did the Delphic Oracle mean on the current account? Reading Alan Greenspan's Tea Leaves. And a modest appeal to the Chairman to speak up on our reckless fiscal policy. Last Friday Greenspan gave a speech on the current account arguing that the US current account deficit will soon shrink as the US fiscal deficit will improve and as the J-curve effects of delayed adjustment of import prices following the dollar fall work their way into import and export quantities. Following his speech the dollar appreciated continuing his recent rally relative to euro and yen. The speech also seemed to be an implicit endorsement of the view that the Bush administration will tackle the fiscal deficit as in the budget announced on Monday. But today John Berry (leading Fed Watcher and Bloomberg columnist) says - in his latest column - that markets and commentators got it all wrong on what Greenspan meant.... The Chairman already made the biggest mistake of his two-decade long tenure when he repeatedly endorsed the two Bush tax cuts of 2001 and 2003 that turned the $5 trillion expected cumulative (over ten years) fiscal surplus in 2000 into a $5 trillion dollar cumulative budget deficit today over the next decade. This is the most reckless change in US fiscal history ever and the Chairman fully endorsed it. One would have expected that by now the Chairman may be ready to change his views on the tax cuts and say in public what any honest observer - including everyone on Wall Street - knows: fixing the disaster of our budget deficit will require reversing many of the tax cuts of 2001-2003, the income tax cut, the dividends tax cut, the capital gains tax cut, the estate tax cut. Everyone under the sun, including the Republicans in Congress and Greenspan, knows that spending cuts alone will not be sufficient to reduce the deficit and that the budget presented by Bush and his circus of cheerleading clowns is utter non-sense (see the extensive media coverage of markets' and Congress' reaction to this voodoo black magic fake budget plan). We need to reverse the tax cuts and start some serious fiscal adjustment before we fall over the abyss and risk public debt bankruptcy. The Chairman also knows very well that the proposed Bush Social Security privatization is a total scam that will create transition costs and additional public debt of over $4.5 trillion over the next two decades while doing nothing - nothing - to fix the $3.4 trillion unfunded gap - over the next 75 years - in the current system. And he knows well that, like in 1983 when he presided over the rescue of the Social Security system, the appropriate solution for Social Security is not the current sham and scam privatization proposals but a variant of what he proposed and implemented in 1983, a modest raise in the payroll tax, a modest lengthening of the retirement age and a modest reduction of benefits (i.e. a modest adjustment that equals, at most, 1.89% of the payroll tax total). So, since he is by now a brilliant and very successful but effectively lame duck Fed Chairman, the least that he owes to the country is to speak clearly for once - rather than your usual cryptic delphic oracle obfsucation - and give a serious new major speech on fiscal policy arguing the following: 1. Let us control fiscal spending by reintroducing the PAYGO rules that require new financing sources - via spending cuts or revenue increases - of any attempt to make the tax cuts permanent. These rules - that successfully controlled spending during the Clinton years - are now opposed by the Bushies because they would prevent them from passing their unsustainable permanent tax cuts. Let us reintroduce PAYGO rules rather than the fake senseless, draconian and politically-impossible spending cuts proposed by Bush; 'fake' cuts as the White House knows very well that such spending program cuts have no chance at all to be passed by Congress. The White House fiscal discipline is no discipline at all: it is a farcical travesty of fiscal discipline full of lies and accounting gimmicks (see my latest blog on this scam 'budget'). 2. We need to reverse a meaningful fraction of the tax cuts passed in 2001-2003, especially those that favor the wealthiest, i.e. the top income tax brackets tax cuts and the dividends/capital gains/estate tax cuts. We may not even be able to afford some of the middle class tax cuts, let alone those for the very rich. Also, the AMT should only be partially fixed as fixing it altogether will cost another $70 billion a year by the end of the decade. A partial - rather than full- fix of the AMT will ensure that the mostly wealthy households do not unfairly escape its grip. 3. Let us fix the current Social Security funding gap - the $3.4 trillion expected gap over the next 75 years - via a variant of the Greenspan 1983 solution or a variant of the Gale-Orszag solution. And let us dump any idea of carving existing payroll contributions to create private accounts. Such idea does not make any economic sense (see my blog discussion), it will cost us $4.5 trillion in new debt in the next two decades, and $10 trillions more in the following decades. If we really want to create private accounts, such accounts should be add-ons to the current system where, on top of current contributions to the current Social Security system, poor and middle class workers are incentivated - via some public subsidies - to put new savings in such private accounts. That solution would increase national savings while the scam Bush privatization will have zero effect on national savings. So, dump privatization scams, fix the current system and create incentive for new private savings with no diversion of current payroll taxes. 4. Let us create a commission to seriously address the long-run problems of Medicare. The Bush administration passed last year another budget-busting measure that won them the election: a new prescription drug benefit. They first lied and lied and lied about the cost of this new entitlement claiming that it would be only $350 billion over a decade. Then, after the bill was passed, it was discovered that they had literally lied and that the cost would be $500 billion. And now this morning the New York Times says in its front page that the cost will be at least $750 billion. And most likely, in due time, these cost estimates will be increased to over a trillion, and dozen of trillions more over the next few decades. So, the sleaze band of the Bushies passed legislation that will increase the public debt by at least $750 billion (as the entire measure is financed by debt) in order to win Florida and the election. A total scam on the back of the American public: financing with debt a new entitlement that we cannot afford unless we raise revenues and fix the Medicare system....

Subject: Medicare Costs From: Emma To: All Date Posted: Thurs, Feb 10, 2005 at 17:41:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/10/politics/10medicare.html?adxnnl=1&adxnnlx=1108075245-ZF1Mqnfu4FV2GbQt1ElyVw&pagewanted=all&position= Estimate Revives Fight on Medicare Costs By ROBERT PEAR WASHINGTON - New cost estimates for Medicare's prescription drug benefit prompted members of Congress of all political stripes on Wednesday to demand changes in the Medicare law before the benefit becomes available next year. The new estimates created another tough issue for the White House and Republican leaders of Congress at the same time they were defending President Bush's proposal for sweeping changes in Social Security and his 2006 budget, which would cut spending for many popular domestic programs. The commotion over Medicare was quickly spilling into the Social Security fight. Democrats seized on the new cost estimates as evidence that the Bush administration's accounting should be viewed with skepticism. The fine points of accounting were swept up in a political tempest over the 2003 Medicare law, which Mr. Bush often cites as one of his greatest achievements in domestic policy. At the time, many lawmakers worried that the original cost estimate - $400 billion from 2004 to 2013 - might be low. Lawmakers said the new estimate, $724 billion from 2006 to 2015, confirmed their fear that costs would explode. Asked how he reacted to the latest estimate, Representative Steve King, Republican of Iowa, said, 'I saw red for two reasons: the red ink and the frustration with getting a number that's been readjusted upward so close to passage of the final bill.' Mr. King said he cast a 'painful vote' for the measure in 2003. Senator Dianne Feinstein, Democrat of California, called for an investigation. 'This new information further demonstrates what appears to be an attempt to dupe Congress and win passage of the legislation,' she said. The White House press secretary, Scott McClellan, and his brother, Dr. Mark B. McClellan, the Medicare administrator, tried to quell the tempest. Scott McClellan said it was misleading to compare the numbers because they covered different periods of time. 'It is a false comparison,' like 'comparing apples and oranges,' he said. Mark McClellan said the costs naturally increased when actuaries computed the costs in 2014 and 2015. In those years, he said, 'there will be more people on Medicare, using more prescription drugs.' In January 2004, less than two months after Mr. Bush signed the law, the White House said it would cost $534 billion from 2004 to 2013. Of that amount, $511 billion was specifically for the drug benefit. For the same 10-year period, the administration now puts the cost of the drug benefit at $518 billion. The president said the drug benefit would 'make the life of our seniors better.' He acknowledged that Medicare faced financial problems. 'There's no question that there is an unfunded liability inherent in Medicare that Congress and the administration is going to have to deal with over time,' Mr. Bush told reporters on Wednesday. 'Obviously, I've chosen to deal with Social Security first. Once we modernize and save Social Security for a young generation of Americans, then it will be time to deal with the unfunded liabilities in Medicare.' Under pressure from lawmakers of both parties, Mr. Bush's budget director, Joshua B. Bolten, said the White House would work with Congress on measures to control the cost of the drug benefit. Mr. Bolten did not endorse a specific measure. But lawmakers listed several options: imposing a cap on spending for the drug benefit; cutting the federal subsidy for wealthy beneficiaries; requiring the government to negotiate prices with drug manufacturers; legalizing imports of lower-cost medicines from Canada and other countries; and prohibiting Medicare coverage of 'lifestyle drugs' like Viagra. Fiscal conservatives like Representative Jeff Flake, Republican of Arizona, said they wanted to cap the cost of the drug benefit at $400 billion. Representative Jeb Hensarling, Republican of Texas, said Congress should rewrite the law to 'focus resources on low-income people who really need the help.' The new drug coverage will be available to all 41 million Medicare beneficiaries, regardless of their income or assets. The 2003 law forbids the government to negotiate directly with drug companies to secure lower prices for Medicare beneficiaries. Senators John McCain of Arizona and Olympia J. Snowe of Maine, both Republicans, joined Senator Edward M. Kennedy, Democrat of Massachusetts, in calling for the repeal of that ban. Mr. McCain said the ban was 'egregious and outrageous.' He described it as a 'glaring, disgraceful example' of how pharmaceutical companies had influenced Congress. Senator Ron Wyden, Democrat of Oregon, said, 'The cost of this program is going through the stratosphere.' He and Ms. Snowe have introduced a bill directing the secretary of health and human services to negotiate prices with drug makers. Mr. McCain said the latest cost estimate would also increase pressure on Congress to allow drug imports. On Wednesday, Senator Charles E. Grassley, Republican of Iowa, signed on as a co-sponsor of a bipartisan bill to allow imports by individuals, pharmacies and drug wholesalers. Mr. Grassley, the chairman of the Finance Committee, said the United States welcomed imports of other goods and services, so, he asked, 'Why not for pharmaceuticals?' Senator Judd Gregg, Republican of New Hampshire, voted against the Medicare bill in 2003, saying, 'It puts in place a massive new benefit without any control over the costs.' On Wednesday, Mr. Gregg, the new chairman of the Senate Budget Committee, said, 'I do think we are going to have to go back and readdress it.' Senator Jeff Sessions, Republican of Alabama, said, 'We may need legislation' to ensure that the cost does not exceed $400 billion. At a Budget Committee hearing, Mr. Sessions asked Mr. Bolten, the White House budget director, 'Do we have any interest on the part of the administration in trying to be faithful to the basic commitment that we had when we passed this bill to see that this prescription drug program does not get out of control?' Mr. Bolten replied, 'Sure we do, senator, and we would be glad to work with you on whatever cost-control measures you are interested in pursuing.'

Subject: Low-cost real estate as hedge From: Dorian To: All Date Posted: Thurs, Feb 10, 2005 at 16:49:26 (EST) Email Address: Not Provided Message: Soft landing or hard landing, there will have to be a serious realignment of the financial system as a consequence of the United State's huge and growing balance of trade and budget deficits. It is common sense that it simply cannot go on for ever. So what consequences can we expect for the US economy and investments in particular? I think the evidence is persuasive for a continued fall in the dollar, a rise in inflation, rising interest rates and probably a recession. I know less about deflation, but perhaps that would be a possibility in the event of a liquidity crisis (I would be interested in someone explaining how deflation could occur in response to the US deficits as I have a general idea but have never read a persuasive account). It seems to me that all investments will devalue whether we have a soft landing or a hard one: stocks, inflated real estate, bonds, etc. So what investments might preserve assets in this environment? My current thinking is low-end rental properties markets where prices have not inflated or are only now beginning to inflate. It is still possible to buy low-end properties in some areas where one can have a positive cash flow. My thinking is that no matter what economic environment prevails, people will need somewhere to live and will pay rents, and one advantage of low-cost properties (in less than desirable neighborhoods) is that there may well be increased demand for low-cost rentals in an adverse economic environment. And even if property values decline everywhere, rents should not decline as much and a positive cash flow could probably be maintained. In an inflationary environment property values could still rise (as they did in the late 70's); in a deflationary environment property values might deflate, but this should be mostly in over-inflated properties. So what do others think of low-end real estate as a hedge against economic adversity which, given all indications, appears inevitable. Phoenix is one area where I believe it is possible to still buy low-end properties which will provide a positive cash flow. At the moment there has been considerable inflation in property values there at the high end and mid-level properties are now appreciating at an eventually unsustainable level; properties in less desirable areas are appreciating at lower rates. But with the exception of expensive properties real estate is still affordable at current levels of income, something which cannot be said for markets in many other areas, such as Los Angeles for example. Thanks Pete for bringing attention to the human cost of difficult economic times and what it will require of all of us to get through. God help everyone if Bush and Co. succeed in privatizing Social Security and dismantling Medicare.

Subject: Re: Low-cost real estate as hedge From: johnny5 To: Dorian Date Posted: Thurs, Feb 10, 2005 at 17:27:48 (EST) Email Address: johnny5@yahoo.com Message: Several friends were doing well in south florida with section 8 housing - then the hurricanes hit and the insurance companies didn't want to pay 100% of the repairs. The developers are doing well with 'rondos.' As the baby boomers age and retire - many are heading south for the better weather in retirement years. Arizona gives them the warm weather - and no hurricanes to fear.

Subject: Re: Low-cost real estate as hedge From: Terri To: Dorian Date Posted: Thurs, Feb 10, 2005 at 17:14:10 (EST) Email Address: Not Provided Message: Interesting analysis, indeed.

Subject: Sticker Shock on Appliances From: Emma To: All Date Posted: Thurs, Feb 10, 2005 at 13:21:18 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/10/garden/10appl.html Sticker Shock in the Showroom, This Time for Goods Without Wheels By ERNEST BECK GET ready, shoppers: all those new appliances you want for your kitchen and laundry room just got more expensive. Faced with increased costs for materials like steel and certain plastics, the major appliance makers - from big names including G.E., Maytag and Whirlpool to boutique companies like Sub-Zero and Fisher & Paykel - have quietly put through price rises of 2 to 10 percent in recent months. They are reflected (to varying extents) on price stickers. Expect to pay more at retailers like Sears, the Home Depot and Lowe's, and not only for the latest ultraquiet dishwashers, European-style washer-driers, convection ovens and refrigerators in bold colors. For many consumers the price hikes come as a surprise. 'I didn't know anything about it,' said Lisa Eggert Litvin, who was nosing around a P. C. Richard store on the Upper West Side yesterday hoping to find a stainless steel range for less than $1,000. Some of the cheapest models in the showroom, with a modicum of steel, were being offered for $849, from G.E. and Frigidaire. Manufacturers, citing the increased cost of materials, say they had no choice but to raise prices. 'Everyone in the industry is getting whacked,' said Steve Duthie, a spokesman for Whirlpool, which announced a 5 to 10 percent increase in suggested retail prices for all of its goods, worldwide, as of Jan. 1. 'We haven't faced an environment like this in a long time.' (While manufacturers recommend prices, dealers and retailers set them on the sales floor.) The suggested retail price for Whirlpool's Gold washer, described as a 'super capacity' machine that promises a quiet wash, is now $599, up from $549 last year. For many consumers the new prices will mean recalculating the value of a certain look or material. Sub-Zero's model 632 fridge, for example, with 29 cubic feet of storage and acres of stainless steel, now lists for $6,270, compared with $6,000 last year, a 4.5 percent increase. Michele Bedard, the marketing director at Sub-Zero in Madison, Wis., played down the sticker adjustment. 'It's not an overly aggressive increase compared to how dramatic the situation is in the shortage of stainless steel,' Ms. Bedard said. Certain consumers, she predicted, would hang in because Sub-Zero products 'are still worth the money.' European appliance makers are also feeling the heat. Electrolux raised prices 5 to 10 percent and Bosch, a German company that markets its products as technologically advanced, increased its prices to distributors by 2 percent on Feb. 1. In showrooms, this could raise the cost of Bosch's superquiet Integra Vision dishwasher, which has a current list price of $1,699. Blame quickly industrializing China, which is consuming vast amounts of steel. High oil prices, the weak dollar and the escalating value of the euro are other factors. Whirlpool, for example, manufactures its front-loading European-style Duet washer-dryer in Germany, where production costs are relatively high. Even before commodity prices started climbing, Whirlpool started selling fridges with a Satina finish that resembles stainless but costs much less: a 25.6-cubic-foot Satina model is listed at $1,799 on the company's Web site; a 24.5-cubic-foot stainless steel fridge goes for $2,499. About a year ago, the company brought out a refrigerator with a grayish 'meteorite' finish, a baked-on composite with a rugged look. For some companies redesigns are not viewed as an option. 'We won't cut corners or shortchange consumers,' said Ms. Bedard, the Sub-Zero spokeswoman. Fisher & Paykel, a New Zealand company with a cult following in the United States, raised suggested prices 6 percent this year and is also holding firm. Bryce Wells, the company's marketing manager in the United States, said consumers appreciate the appliances' lavish stainless steel 'skins' because the material conveys 'a perception of durability and style.' But at a cost: the suggested price for its hulking stainless steel DCS brand Professional Dual Fuel Range is $6,479, up from $6,109 last year. The price rises follow a relatively good year for the industry. Overall shipments of all major appliances were up 5.8 percent in 2004 to just under 78 million units, according to the Association of Home Appliance Manufacturers, a trade group in Washington. For those who are willing to comparison shop, there may be relative bargains. Chris Ahearn, a spokeswoman for Lowe's, said the company has tried to keep price increases to a minimum. In addition, she said, it has negotiated deals with vendors that call for prices to come down if commodity costs decline. Despite the price hikes, 'appliances are still a great value,' said Larry Costello, a spokesman for Sears, the largest seller of appliances in the United States. And new technology and energy-saving features, Mr. Costello noted, can in the long run offset a higher sticker price. Alex Cheimets, editor of a Web site that reviews products and publishes industry news, www.applianceadvisor.com, said he doesn't think consumers will back away from buying appliances. 'If they really need a fridge, that 5 percent won't make a difference,' Mr. Cheimets said. 'You can't put off that kind of purchase forever.'

Subject: Out of whack From: Pete Weis To: All Date Posted: Thurs, Feb 10, 2005 at 12:44:33 (EST) Email Address: Not Provided Message: The times are out of whack Richard Russell snippet Dow Theory Letters February 10, 2005 Extracted from the February 9th, 2005 edition of Richard's Remarks Is intuition and gut feeling worth anything in this business? Some people claim yes, but I've always been dubious. As a matter of fact, I suspect that emotions can be your worst enemy when it comes to investing. I've often said that 90 percent of all decisions about anything from choosing a spouse to buying a house to taking a job to picking a hobby to buying a dog are based on emotions. So what are emotions and intuitions worth? In life, they can steer you right. In the market, well, they can steer you very wrong. In my business, you gotta watch out for those deceptive emotions. Nevertheless, I'm going to unload my emotions (I'd rather call them intuitions) on you, my beloved subscribers. Here goes -- I have the feeling that 'things' just aren't going right. Too many people are now struggling to make ends meet. Too many people are having a hard time making a living in jobs they don't like. Too many people can't find any jobs at all. Too many people are finding that they can't afford to retire. As a result, many people in their 50s and 60s are taking jobs or at least looking for jobs. Younger people (and I meet a lot of them) are holding two and even three low-paying jobs just to stay afloat. Too many people are too deep in debt. Too many people are living in homes they can't afford. There's too big a division between the American rich and the American middle and lower-middle class. There's too much spread in salaries between workers and CEOs. To put it succinctly, I get the feeling that 'the times are out of whack.' Meanwhile, the war in Iraq drags on. The US deficits and debts continue. The President's 'approval ratings' drops below 50 percent. Housing turnover is beginning to slow. Nobody can agree on Social Security. The Democratic party deteriorates and the Dems fail to even come up with a presentable leader. 'What's it all about, Alfie?' And the answer is, 'Who knows, maybe Russell just got up today on the wrong side of bed.' But you know something -- I don't think so. Hey, the market advisors are still cheery. The latest count from Investor's Intelligence shows bulls at 54.4% and bears at 25.3%. Those are hardly gloomy statistics (the problem, of course, is that we read these statistics on a contrary opinion basis). Nevertheless, I get this feeling that almost everything is up and 'over the top.' The nation's wild optimism is almost exhausted. Suddenly, reality is starting to slap America's consumers in the face. 'Hey, wake up Buddy, there's a crack in the punch bowl and the juice is running out.' Well, enough of the so-called Russell 'intuition.' . . . more follows for subscribers . . . Richard Russell Dow Theory Letters

Subject: Diamonds and Competition are Forever From: Emma To: All Date Posted: Thurs, Feb 10, 2005 at 10:54:43 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/09/business/09diamonds.html?ei=5070&en=97ca1ab16c82121c&ex=1108184400&pagewanted=all&position= Competition Is Forever By TRACIE ROZHON Michael Smyth, who works for a pharmaceutical company, was peering not long ago at three large diamonds perched on the tops of metal rods, balanced above pure white paper in a shop in the Manhattan diamond district. Like countless young men in the generations before his, Mr. Smyth was looking for an engagement ring. But Mr. Smyth is different from earlier suitors, who often trembled at the approach of a salesman. Before he started out, he had carefully researched diamond sizes, cuts and quality on the Internet. He knew the wholesale prices, and he was ready to bargain. Plenty of his friends actually bought their rings on the Web, he said, 'but since I'm here in New York, I figured I'd take a look.' 'If I were in Iowa, I'd probably buy it online.' From mine to merchant to customer, the diamond business is changing while it expands like never before - and the Internet is only part of it. Consumers, both men and women, are demanding better stones, often for lower prices, in a wider variety of locations. Mom-and-pop stores are being squeezed by giant chains like Wal-Mart Stores, now the world's largest jeweler, and Costco, which increasingly sells diamonds over two carats. Department stores, too, are upgrading their jewelry counters. (Jewelry did much better than clothing in many of them over the holidays.) And sales of diamonds, for all the predictions from critics that the industry has long been riding for a fall, are continuing to thrive. In 2003, the last year for which data are available, $20.5 billion in diamonds and diamond jewelry was sold in the United States, according to the Jewelers of America, up nearly 10 percent from $18.7 billion two years before. Eighty-three percent of the brides in the United States say that they want a diamond engagement ring - and their grooms, in turn, spent $4.3 billion last year on them. And diamonds have spread well beyond engagement rings. Right-hand rings are promoted to women looking to flaunt their independence. Pop stars like Sean Combs wear watches with 1,200 cut stones on their faces that cost tens of thousands of dollars. While the number of stones sold is increasing, complex changes are taking place. Wholesalers in the diamond district, on 47th Street between Fifth Avenue and the Avenue of the Americas, which was once the epicenter of diamond wholesaling in the United States, are laying off dozens of stone-cutters, commissioning the work in India and China, and using the former factory space as showrooms for jewelry they never sold before. Everyone is trying to cut out the middlemen distributors, who are now regarded as extraneous. Most of the Internet sites do not even buy the diamonds; they act as a clearinghouse for dealers. The prices, meanwhile, have gone to two extremes. At the low end, the discount chains and many online diamond sites are offering prices that - even the Main Street jewelers admit - are at least 20 percent lower than in their own shops. At the other end, to satisfy the cravings of rock stars, Russian millionaires and others with bottomless pockets, prices for the much bigger, much rarer stones have soared as supplies have tightened. For diamond retailers, branded diamonds and new cuts have become hot. Luxury retailers like Tiffany, and even some 47th Street dealers, are patenting cuts to differentiate their diamonds from other retailers' and, they hope, add cachet. To give more guidance to an increasingly confused marketplace, the Gemological Institute of America, the industry's lead rating service, plans to update this year its 1950's-era grading system for diamond cuts. As part of the effort, the institute will for the first time use computers to define what gives a diamond its beauty, measuring the light patterns that create 'scintillation' and the color flashes that make 'fire.' Some dealers are doing their best to capture both the wholesale and retail ends of the business. Aber, a Canadian diamond company that owns 40 percent of the Diviak mine not far from the Arctic Ocean, bought the controlling interest last spring in Harry Winston, the Fifth Avenue jeweler. De Beers, the world's largest diamond producer, has opened a shop on Old Bond Street in London and three locations in Tokyo, and now plans to open its first shop in the United States, on Fifth Avenue in Midtown Manhattan, in mid-June, according to a spokeswoman. Kwiat, with offices in the diamond district, used to confine itself to importing and polishing diamonds. Now, the family-owned company, like many on 47th Street, is branching out. It has begun selling diamonds laser-branded with its own crown logo; two weeks ago, the company introduced its own diamond earrings, brooches and rings. 'If you are 'just' a diamond dealer, everyone is trying to get rid of you,' wrote Martin Rappaport in The Rappaport Diamond Report, an influential newsletter that he publishes. For 100 years, the diamond business was closed to outsiders; for those who knew the trade, handed down from generation to generation, it was a hard but predictable business. De Beers, the South African conglomerate, had a lock on the market, supplying about 80 percent of the world's diamonds. But within the last decade, De Beers's grip has loosened. It now controls less than 50 percent of the market, analysts say, and no longer has a firm grip on prices. New and independent mines in Australia and, most recently, Canada, have begun producing diamonds, small and large. Yet supplies from the new mines can be unpredictable. In the last year, there has been a 50 percent drop in production at the Argyle mine in Australia, according to The Rappaport Report. Dana L. Telsey, a Bear Stearns analyst who covers the diamond market, said in a report in December that while 'industry sources estimate that rough diamond prices have grown as much as 25 percent over the last year,' gemstone prices are up only about 8 percent at retail. Besieged by competition, jewelry stores have not felt they could pass on the full markup, their owners said in interviews. Jewelers say that traditional ring buyers like Mr. Smyth are no longer shy and insecure. If they still visit the small-town jewelry store, they have probably done their homework on the Internet: 90 percent of those who log on to bluenile.com, a popular diamond site that says it sells as many engagement rings in America as Tiffany does, do so just to become educated, not to buy. Still, online sales of all jewelry rose to $1.9 billion during the 2004 Christmas season, more than doubling from $900 million the year before, according to Bear Stearns. While it may seem risky to buy jewelry sight unseen, consumers appear satisfied. Cecilia Gardner, counsel for the Jewelers' Vigilance Committee, an industry watchdog group, said she had not received a greater number of complaints about Internet purchases than about jewelry bought in stores. The most complaints about online diamond purchases, she added, are about eBay, the auction site. Jeffrey H. Fischer, a diamond cutter and importer and president of the International Diamond Manufacturers Association, said some buyers find the Internet less threatening. 'They don't want to deal face-to-face with the salesperson where they feel at a disadvantage because they're not as knowledgeable.' He paused. 'There is a tremendous debate, a confrontation, on how to cope with the Internet presence. It's a very, very hot-button topic.' In January, the International Jewelry Show at the Jacob K. Javits Convention Center in Manhattan featured a panel discussion titled 'Threat: Internet Diamond Supersellers.' Mr. Rappaport said that merchants 'know that the diamond business is changing in ways that threaten their very existence, but they don't know what to do about it.' The discounters and Internet sites do not sell just cheap diamonds. The average price for an engagement ring on bluenile.com is close to $5,000 - about twice the national average - and one sold for $257,000 last fall, said Mark Vadon, Blue Nile's founder and chief executive. To combat the competition from the Internet and discount chains, traditional retailers are introducing branded stones. Successful brands can generate exceptionally high profit margins - an average of 55 percent, Ms. Telsey, the analyst with Bear Stearns, said. Within the last two years, new diamond cuts - like Lucida from Tiffany, the Crown of Light from Premier Gem and Dream from Hearts on Fire - have been developed in an effort to differentiate one diamond from another. The new types of diamonds seem to be selling: the Leo diamond, introduced in 1999, has already sold $100 million at retail, while the Hearts on Fire brand has sold $250 million, Ms. Telsey said. Yet John Green, the chief executive of Lux, Bond & Green in Hartford, was dismissive of many of the new branded diamonds. 'It's a lot of smoke and mirrors with the branding - hearts and arrows, an ideal cut, Hearts on Fire, whatever,' going through his sales pitch. 'Our own Lux, Bond & Green diamond is no different' from the branded ones, he added, asserting the high quality of his own company's stones. Some diamond dealers are trying a little bit of everything. 'If you're making only a few dollars at each level, the more levels you have, the better,' Mr. Fischer, the diamond importer, said. 'You make a little on the jewelry, a little bit on the diamonds.' Like the Kwiat family, Mr. Fischer has just started producing his own line of diamond jewelry, in partnership with a designer. 'I am indicative of what's going on,' he said. 'Ten years ago, I could never have envisioned - What, me? Making jewelry?' And the old owners of Harry Winston may not have envisioned themselves catering to the walk-in customer. Until a few months ago, customers were ushered through wrought-iron double doors into a reception room with only one desk, where a beautifully groomed associate asked if they had an appointment. The stores are now more approachable. Entering the reception room, customers are free to browse through showcases featuring several pieces priced under $5,000. The industry recently sought to dispense with one of its biggest scandals: introducing a warranty program aimed at cutting off the retail supply of 'blood diamonds' or 'conflict diamonds' - those mined in Angola and Sierra Leone by revolutionaries bent on using diamond profits to buy bombs and guns. Yet even with all the industry's travails, some retailers are unconcerned. Take Jacob Arabo, a jeweler to the stars, who just moved from a shop on West 47th Street to East 57th Street near Buccellati, one of the world's most expensive jewelers. He recently showed a visitor a flawless, 16.51-carat, canary yellow diamond ring, with a price of $920,000. But Mr. Smyth, the soon-to-be fiancé, was not looking for canary yellow. Or 16 carats. Or a great investment. He was buying a ring for an entirely different reason. 'I never thought I'd get married, even though my parents were married for 40 years,' he said. 'She swept away all my resolve, and now I want to buy her something - not gaudy and huge - but something she'd be happy to wear for a long time.'

Subject: Wal-Mart and Unions and Canada From: Emma To: All Date Posted: Thurs, Feb 10, 2005 at 10:20:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/10/business/worldbusiness/10cmart.html Wal-Mart to Close Store in Canada With a Union By IAN AUSTEN OTTAWA - Wal-Mart Canada, a division of Wal-Mart Stores, said on Wednesday that it would close a store in Quebec where unionized workers are attempting to negotiate the first collective agreement in North America with the company . A spokesman for Wal-Mart Canada, Andrew Pelletier, said the store in Jonquičre, Quebec, would close in May because it had failed to meet financial goals, which he declined to specify. 'It has struggled from the beginning,' Mr. Pelletier said of the store. 'The situation has continued to deteriorate since the union. The store environment became very fractured because there were some people who were part of the union and some who were not.' Michael J. Fraser, national director of United Food and Commercial Workers Canada, said that Wal-Mart's decision to close the store, a first for the company in Canada, was provoked by an application to Quebec's labor minister made last week by the union, which represents the employees at the store. Under an unusual provision of Quebec's labor laws, either a company or a union can ask for an arbitrator who can impose a first contract on newly organized workplaces. 'Wal-Mart has decided to go very hard against the union,' said Christian Lévesque, a professor of labor relations at HEC Montreal, a business school. 'The union must now show the workers that it will support them whatever Wal-Mart does. If it takes just a legalistic approach, it's dead.' Mr. Fraser said the decision to shut a store showed contempt for workers' right to join a union. He said the union would appeal the closing to Quebec's labor relations board. But a recent Supreme Court of Canada ruling affirmed the right of employers to close for any reason. The situation may repeat itself in other cities and towns in Canada. A union bargaining unit was recently certified at another Wal-Mart store, in St. Hyacinthe, Quebec. While Mr. Pelletier said the company would ask the courts to overturn that decision, he said that it was not considering shutting that store. An application for a bargaining unit has been submitted by a third Quebec Wal-Mart store and the U.F.C.W. has about a dozen organizing campaigns through Canada, particularly in provinces like Quebec with labor laws that improve the chances of union recognition. The bargaining unit in the Jonquičre store was recognized in August and the union and Wal-Mart Canada, based in Mississauga, Ontario, first met in October. There were nine bargaining sessions that brought little apparent satisfaction to either side. Before the union's request for an arbitrator, Wal-Mart asked for the assistance of conciliator, which is similar to a mediator. In a statement last week, Marie-Josée Lemieux, president of U.F.C.W. Canada Local 503, which represents the Jonquičre employees, said the talks had not 'resulted in any progress on major issues.' From Wal-Mart's perspective, Mr. Pelletier said the union's demands 'would have fundamentally changed the economic model.' By Wal-Mart's calculations, the union's position on scheduling would have required adding 30 employees to the store's work force of 190. Jacques Nantel, who teaches marketing at HEC Montreal, said the store's closing might provoke a reaction against Wal-Mart in Quebec, an area where unions enjoy unusual strength. However, he added that it was unlikely to be long-lasting.

Subject: North Korea announces it has nuclear weapons From: Mik To: All Date Posted: Thurs, Feb 10, 2005 at 09:41:37 (EST) Email Address: Not Provided Message: North Korea has announced for the first time that it has nuclear weapons and rejected moves to restart disarmament talks any time soon, saying it needs the weapons as protection against anincreasingly hostile United States. The communist state’s pronouncement dramatically raised the stakes in the two-year-old nuclear confrontation and posed a grave challenge to US President George W. Bush, who started his second term with a vow to end North Korea’s nuclear program through six-nation talks. 'We ... have manufactured nukes for self-defense to cope with the Bush administration’s evermore undisguised policy to isolate and stifle the (North),' the North Korean Foreign Ministry said in a statement carried by the state-run Korean Central News Agency. The claim could not be independently verified. North Korea expelled the last U.N. nuclear monitors in late 2002 and has never tested a nuclear bomb, although international officials have long suspected it has one or two nuclear bombs and enough fuel for several more. US Secretary of State Condoleezza Rice said the North shouldn’t worry about any US plans for invasion. 'The North Koreans have no reason to believe that anyone wants to attack them,' she told the Netherlands’ RTL TV in an interview while on a trip through Europe. 'They have been told they can have multilateral security assurances if they will make the important decision to give up their nuclear weapons program.' Previously, North Korea had reportedly told US negotiators in private talks that it had nuclear weapons and might test one of them. The North’s UN envoy said last year that the country had 'weaponized' plutonium from its pool of 8,000 nuclear spent fuel rods. Those rods contained enough plutonium for several bombs. But Thursday’s statement was North Korea’s first public acknowledgement that it has nuclear weapons. North Korea’s 'nuclear weapons will remain (a) nuclear deterrent for self-defense under any circumstances,' the ministry said. It said Washington’s alleged attempt to topple the North’s regime »compels us to take a measure to bolster its nuclear weapons arsenal in order to protect the ideology, system, freedom and democracy chosen by its people.» Since 2003, the United States, the two Koreas, China, Japan and Russia have held three rounds of talks in Beijing aimed at persuading the North to abandon nuclear weapons development in return for economic and diplomatic rewards. No significant progress has been made. A fourth round scheduled for last September was canceled when North Korea refused to attend, citing what it called a «hostile» US policy. In recent weeks, hopes had risen that North Korea might return to the six-nation talks, especially after Bush refrained from any direct criticism of North Korea when he started his second term last month. On Thursday, North Korea said it decided not to rejoin such talks any time soon after studying Bush’s inaugural and State of the Union speeches and after Rice labeled North Korea one of the 'outposts of tyranny.' 'We have wanted the six-party talks but we are compelled to suspend our participation in the talks for an indefinite period till we have recognized that there is justification for us to attend the talks and there are ample conditions and atmosphere to expect positive results from the talks,' the ministry said. Still, North Korea said it retained its 'principled stand to solve the issue through dialogue and negotiations and its ultimate goal to denuclearize the Korean Peninsula remain unchanged.' Such a comment has widely been interpreted as North Korea’s negotiating tactic to get more economic and diplomatic concessions from the United States before joining any crucial talks. In Japan, the top government spokesman said he wanted to confirm the North’s intentions. 'They have used this sort of phrasing every so often. They didn’t say anything particularly new,' Chief Cabinet Secretary Hiroyuki Hosoda told a regular news conference. For months, North Korea has lashed out at what it calls US attempts to demolish the regime of leader Kim Jong Il and meddle in the human rights situation in the North. Washington has said it wants to resolve the nuclear talks through dialogue. In his Jan. 20 inaugural speech, Bush vowed that his new administration would not shrink from 'the great objective of ending tyranny' around the globe. In his State of the Union address earlier this month, Bush only mentioned North Korea once, saying Washington was 'working closely with governments in Asia to convince North Korea to abandon its nuclear ambitions.' Bush’s tone was in stark contrast to three years ago, when he branded North Korea part of an 'axis of evil' with Iran and Iraq, raising hopes of a positive response from North Korea. Last week, Michael Green, the US National Security Council’s senior director for Asian affairs, visited the region to relay Bush’s desire to restart the diplomatic process to Chinese President Hu Jintao, South Korean President Roh Moo-hyun and Koizumi. The nuclear crisis erupted in October 2002 when US officials accused North Korea of running a secret uranium-enrichment program in violation of international treaties. Washington and its allies cut off free fuel oil shipments for the impoverished country under a 1994 deal with the US. North Korea retaliated by quitting the Nuclear Nonproliferation Treaty in early 2003 and restarting its plutonium-based nuclear weapons program, which had been frozen under the 1994 agreement.

Subject: Re: North Korea announces it has nuclear weapons From: Setanta To: Mik Date Posted: Fri, Feb 11, 2005 at 04:05:40 (EST) Email Address: Not Provided Message: 'We ... have manufactured nukes for self-defense to cope with the Bush administration’s evermore undisguised policy to isolate and stifle the (North),' the North Korean Foreign Ministry said in a statement carried by the state-run Korean Central News Agency the north korean foreign ministry said this???? sounds like a tabloid headline more than an official pronouncement. can anyone source this quote to a reputable news agency? i doubt a communist country would call its nuclear weapons 'nukes'. furthermore, it doesn't sound paranoid enough for north korea. i would expect something along the lines of 'occupying american forces' and 'invaders' as per the usual north korean statements.

Subject: Re: North Korea announces it has nuclear weapons From: Emma To: Setanta Date Posted: Fri, Feb 11, 2005 at 15:06:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/11/international/asia/11korea.html?pagewanted=all&position= Here is the New York Times story....

Subject: Re: North Korea announces it has nuclear weapons From: Mik To: Setanta Date Posted: Fri, Feb 11, 2005 at 11:52:31 (EST) Email Address: Not Provided Message: The article comes from Rheuters. And although I agree it does sound a bit 'tabloidish' the base is clear - the N Koreans see the US as a threat. This Iraqi invasion appears to have forced the rogue nations to hurry-up and get their Nukes developed instead of discourage them into behaving. The Republicans were beating a drum when making reference to Libya's turnaround, but anyone who knows better, will know that the Libyans have been making a turnaround (and coming clean) long before Bush even came into power.

Subject: America and China From: Emma To: Mik Date Posted: Fri, Feb 11, 2005 at 15:10:23 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/09/politics/09prexy.html?pagewanted=all&position= February 9, 2005 U.S. Asks China to Increase Pressure on North Korea By DAVID E. SANGER and WILLIAM J. BROAD WASHINGTON - Driven by new evidence that North Korea may have begun selling nuclear materials around the world, President Bush sent an emissary last week to see President Hu Jintao of China and urge him to intensify diplomatic pressure on the North to give up its weapons program, according to senior American and Asian officials. The emissary, Michael Green, delivered a letter from Mr. Bush to Mr. Hu that, in the words of one American official, 'was written to underscore the greatly heightened urgency' of the problem. According to Asian officials, the Chinese promised to send a delegation to Pyongyang later this month, but also advised Mr. Bush against making public pronouncements about the North Korean situation, the way he regularly talked about the threat posed by Iraq in the year leading up to the March 2003 invasion. Mr. Bush has never publicly mentioned the new information about suspect North Korean nuclear sales, which was reported by The New York Times last week. 'The Chinese advised that we not demonstrate to the North how anxious everyone is about this,' said one senior Asian diplomat who is deeply involved in the six-country negotiations over North Korea's nuclear program. 'But the Chinese also seemed surprised by the quality of the scientific evidence,' the diplomat added, that North Korea had produced several tons of a uranium compound that ended up in Libya. Until now, the Chinese, at least in public, had dismissed American charges that North Korea had a secret program to build weapons from uranium, based on technology it obtained from A. Q. Khan, the Pakistani nuclear scientist....

Subject: Miserable Failure n/m From: David E.. To: Mik Date Posted: Thurs, Feb 10, 2005 at 11:43:38 (EST) Email Address: Not Provided Message: n/m

Subject: Happiness is Bond Funds From: Jennifer To: All Date Posted: Thurs, Feb 10, 2005 at 08:47:32 (EST) Email Address: Not Provided Message: Foolish questions: Can the Federal reserve counter any rise in interest rates caused by a decline in international demand for our long term debt? Besides, why is it the long term Treasury interest rates are 3.98%? Is it absense of supply of long term debt that is driving the market? I am astonished. The Vanguard Long Term Investment Grade Bond Fund is up 5% for the year. Bond funds have been splendid investments these 5 years, but I no longer have a sense why this is so.

Subject: Mississipppi as a Model From: Ari To: All Date Posted: Thurs, Feb 10, 2005 at 06:10:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/08/national/08haley.html?pagewanted=all&position= In Mississippi, Setting the Pace for a New Generation of Republican Governors By JAMES DAO JACKSON, Miss. - Inside the domed State Capitol here, the gold-framed portraits lining the Hall of Governors testify to one party's centurylong grip on Mississippi politics. Since 1876, all but one of them is of a Democrat. Haley Barbour, the former chairman of the Republican National Committee who is now the second Republican governor of Mississippi since Reconstruction, is in a rush to try to end that tradition once and for all. After ousting the Democratic incumbent, Ronnie Musgrove, in 2003, Mr. Barbour, who came back home after being a political adviser to presidents, a party chairman and a high-paid Washington lobbyist, pushed sweeping restrictions on civil liability lawsuits through the Democratic-controlled Legislature, presaging similar efforts by President Bush and other Republican governors. But he has not only taken on the Republicans' bęte noire, trial lawyers, in the battle over civil liability. He has also fought taxes, spending, growing Medicaid costs and the state's public employee union, setting a pace for a new generation of Republican governors who, like Mr. Barbour, embraced the ideas of Ronald Reagan in the 1980's but honed their sharp-elbowed political styles during the Republican revolution of the 1990's.... To help control spiraling Medicaid costs, he won the authority to eliminate state health care benefits for 48,000 low-income elderly and disabled people, resisting efforts to increase taxes to bail out the program. Mr. Barbour has warned that he will make other deep cuts to Medicaid if the Legislature does not come up with its own cost-savings plan....

Subject: Emerging Markets From: Ari To: All Date Posted: Thurs, Feb 10, 2005 at 05:57:30 (EST) Email Address: Not Provided Message: Imagine the absurity of thinking what will save us all is tossing our retirement saving to emerging markets or relying on investors from emerging markets to in turn support our retirements by buying up our assets. Huh?

Subject: Re: Emerging Markets From: johnny5 To: Ari Date Posted: Thurs, Feb 10, 2005 at 22:06:25 (EST) Email Address: johnny5@yahoo.com Message: True Ari, what worries me about future emerging markets is the political/religious differences in many of them compared to the current USA. From a pure numerical advantage india and china with others look profitable, but the caste sytem and political changes may not be condusive to stability. What did the ruling economies of the past do? Rome, China, Spain, England most recently? Where should have the wealthy of England invested 100 years ago? Their empire was the one true global superpower of the day but the USA eclipsed them in a short time - relatively speaking.

Subject: Accounting Accounting From: Terri To: All Date Posted: Wed, Feb 09, 2005 at 11:22:28 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2005/02/budget_lies_it.html February 7, 2005 Bush Damned Budget Lies and Voodoo Budget Magic: it will be a $600b deficit, not $233b by 2009...and over $1,100b by 2015! The dishonesty of the administration about budget deficits has reached levels unheard of. These folks have absolutely no shame. Bush presented today a budget that claims that he will achieve his goal of reducing the deficit by half by 2008 (from a false 2004 baseline of $521 billion rather than the actual 2004 deficit of $412b) and will achieve a deficit of 'only' $233b by 2009. Even better news, the administration claims today: the 'halving' of the deficit will be reached by 2008, a year earlier than original 2009 target for it. Who are these accounting scam artists trying to deceive? Do they think everyone in America and around the world is a mathematically challenged total idiot or an accounting moron?

Subject: The Risk of Hard Landing in 2005-2006 From: Terri To: All Date Posted: Wed, Feb 09, 2005 at 11:09:34 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2005/02/my_new_paper_wi_1.html February 9, 2005 Brad Setser and I have written a new paper: 'Will the Bretton Woods 2 Regime Unravel Soon? The Risk of Hard Landing in 2005-2006'. The paper presents a number of original contributions and controversial ideas: - We critique the view that the new US-Asian dollar-standard regime of semi-fixed rates, dubbed as the so callled 'Bretton Woods 2' regime, is stable and durable. - We argue that such regime - where large US twin deficits require persistent and massive foreign financing and forex intervention - is highly fragile and unstable because of a number of its structural vulnerabilities. - We discuss a number of triggers that are likely to lead to the unraveling and collapse of this regime in 2005 or, at the latest, in 2006. We also discuss a number of mitigating factors that may delay, but not prevent, its early demise. - Essentially, there is a fundamental contradiction between the large and growing US financing needs for its twin current account and fiscal deficits and the shrinking willingness over time of the rest of the world - both central banks and private investors - to provide such massive and growing financing. - We argue that the likely collapse of this regime in the next couple of years would result in a Hard Landing scenario: the dollar would sharply fall, US long term interest rates would sharply increase, the price of most risky assets - equities, housing, high yield debt, emerging market sovereign debt - would significantly fall, and a sharp US and global economic slowdown - if not outright recession - may ensue. The probability of such hard landing is increasing. - Chances of an orderly global rebalancing rest on three elements: 1. a significant fiscal adjustment in the US that requires - at the very least - a reversal of unsustainable tax cuts (as spending controls will not be sufficient) and giving up a budget-busting social security privatization; 2. a revaluation of the Chinese and other Asian currencies; 3. policies leading to higher growth in Europe and Japan. - Since the current US fiscal goals - tax cuts and social security privatization - effectively clash with the attainment of meaningful fiscal deficit reduction while the US current account is still worsening given low US private and public savings and the lack of currency adjustment in large parts of Asia, the risks of a hard landing outcome are increasing. The paper can be found online at: http://www.stern.nyu.edu/globalmacro/BW2-Unraveling-Roubini-Setser.pdf

Subject: A view of the forest..... From: Pete Weis To: Terri Date Posted: Wed, Feb 09, 2005 at 14:59:13 (EST) Email Address: Not Provided Message: which surrounds John Bogle's tree.

Subject: A little more of the forest From: Pete Weis To: Pete Weis Date Posted: Wed, Feb 09, 2005 at 15:18:58 (EST) Email Address: Not Provided Message: Today in Finance for February 09, 2005 You are here: Home : Today in Finance : Article Insider Buying Falls to 12-Year Low Corporate executives and directors are bearish on their own companies' stock. Stephen Taub, CFO.com February 09, 2005 In January, insiders bought a mere $34.1 million of their own companies' stock, little more than a third of the $95 million for December, according to MarketWatch, which cited data from Thomson Financial. The January number was the lowest since July 1993, when insiders bought just $26.3 million, according to MarketWatch. That month, however, insider purchases still accounted for roughly 5.5 percent of all dollars spent on insider-trading activity; in January 2005, purchases accounted for a mere 1.8 percent of the total dollars spent by insiders.

Subject: Re: A little more of the forest From: johnny5 To: Pete Weis Date Posted: Wed, Feb 09, 2005 at 23:03:00 (EST) Email Address: johnny5@yahoo.com Message: Another article on insiders and expanding on how tariffs hurt nations in the past: Insiders Send a Signal John Mauldin January 31, 2005 Wedding of the Waters China and the Erie Canal The Vital Few or the Trivial Many It's Starting to Look Ugly Toronto, New York, CNBC and Rodeo Is the US stock market rolling over? What are insider investors telling us? Are there sectors that might run counter to the overall trend? We look at a variety of topics this week, I point some of my hedge fund and institutional managers to an excellent source for information on insider investing and point the rests of my readers to a new book which shows you how to separate the 'Vital Few from the Trivial Many.' All in all, it should be an informative letter. But before we delve into the arcane matters of the market, I want to direct your attention to a hot-off-the-press new book by Peter Bernstein entitled 'Wedding of the Waters.' Peter is the author of the best-selling (and one of my all time favorite books) 'Against the Gods: the Amazing Story of Risk' and the fascinating and well-told tale of 'The Power of Gold: History of an Obsession.' Whenever Peter writes anything, it will be worth your time. His economic advice and research is some of the most keen and insightful anywhere, as attested by his numerous awards and well-deserved honors. But his knowledge of history and the ability to tell a story puts him into league of his own among financial writers. (He and Richard Russell are my heroes. Both are in their early 80's and doing their best work. I hope to be going as strong as they do in 25 years.) 'Wedding of the Waters' is sub-titled: 'The Erie Canal and the Making of a Great Nation.' It details the building of the Erie Canal in the early 19th century which connected the Great Lakes (Lake Erie) and Buffalo to Albany and the Hudson River, which led to New York and the rest of the world. This opened up the Mid-West to cheap and easy transport of their products and allowed people to travel to new homes in the Mid-West. Now, I know many of you are thinking, 'Why do I care about a big ditch built almost 200 years ago destined to become a big polluted ditch later in the next century?' First, it is fascinating history. Second, if you don't know history, how will you know when it is getting ready to at least rhyme, if not repeat? Every new technological innovation has a set of events that happen on its way to becoming the catalyst for a new economic boom. It is the new advances and wealth that spring from the primary innovation that become the enabler of ever new ways for entrepreneurs to thrive in a free market. The Erie Canal is really three stories. First, it is a testimony to the vision and drive of a small group of men, primarily DeWitt Clinton, who by force of will caused the Canal project to come into fruition. Secondly, it was an engineering marvel that required whole new technologies and systems, many of which were not invented when the project started. They had to build monster aqueducts over huge chasms, an entirely new lock system, to get past the Niagara cliffs, and went through such desolate country that to 'fly over it would make an owl weep.' That it was finished was amazing. Finally, it was the catalyst for an economic boom that turned the US into an agricultural and manufacturing power and cemented the US into a country. It is the latter point I will deal with for a few moments. I read this book as I was researching last week's article on China. As I was contemplating the question of whether (and when) China would become as large an economy as the US, I also reflected upon why the US became larger than England. Were there any parallels? England in the 1800's was at the peak of her world power. She was an economic force and mercantile power. Gold was flowing into its coffers from the far corners of the world. Who could predict that one day the US would be a far larger economic power? England was the birth place of the steam engine, railroads, canals, ironworks, cloth mills and on and on. What happened? I think freedom and an entrepreneurial spirit is what happened. In 1815, England passed the Corn Laws, putting high tariffs onto imported food, especially grains to protect their aristocratic farmers. This made the cost of food for a laborer the majority of his wages, and left him nothing to spend on other products. It slowed the development of the middle class. Grain in Europe and in the US was much cheaper, and the aristocracy which had always lived off the value of their lands did not want to see their profits lessen, so they kept the prices artificially high, which limited English growth. It took 30 years to repeal, and only after suffering through a famine in all of Europe and especially Ireland which saw millions of Irish lose their lives, and other millions come to the US, where their backs helped us grow. While England was protecting the ruling class, politicians in the US were dreaming bold dreams. None was more audacious than that of DeWitt Clinton, Governor of New York, who correctly foresaw that a canal connecting the Great Lakes and ultimately New York City would be a catalyst for economic enterprise plus cement together the west with the eastern United States. Without commerce, both Clinton and George Washington observed (and the mountains were a formidable barrier), what would hold the loyalties to the East of those going over the mountains to the West? Washington favored a private company building a canal from the Potomac through the Virginia mountains, and raised the money for the enterprise. Clinton wanted the government to build a route though upstate New York. As you might imagine, it was opposed on most fronts. First as wasteful government spending from many of Governor Clinton's allies in politics, and then simply opposed by his political opponents because it was Clinton's idea. They opposed anything he wanted to do because they simply did not like him. (As an aside, the amount of acrimony and the level of discourse among the various political factions were far worse during that period than it is today. It is instructive to read some of the various political writings of the time. The recent biographies of Alexander Hamilton, John Adams and Ben Franklin are almost startling in the level of vituperative language that prevailed as political discussion of the time. That same level of political factionalism that was present on a federal level was alive and well in New York.) It is a long story, and one told well by Bernstein, but eventually Clinton rounded up enough support through compromise and force of character to fund the project. Amazingly, it came in on budget, on time and the projections for tolls were quite close for the first few years, although over time, they out-stripped all projections. Who would have thought? A private venture run by one of the great administrators and visionaries (Washington) failed while the public one succeeded in spite of politicians meddling at every turn, to the immense benefit of the rest of the country, but especially to New York, which financed the canal with state funds. The canal opened up the west to new settlement in a way only a few visionaries imagined. With an ability to get products like grain and ores to a world market, the economic opportunity encouraged millions to move to the west. Over time, railroads become a bigger force, but the first real drive was the completion of the canal in 1826, a along time before railroads became a real factor in the US. The canal also became a catalyst for manufacturing. All along the canal, mills and manufacturing enterprises of every kind sprung up rapidly. By 1835 there were over 13,000 various types of manufacturing businesses in New York, making products for a young nation. The growth of businesses and commerce in that time looks like the growth of telecommunications or the spread of electricity in a later era. Just as the phone and electricity spawned whole new industries, far larger in total than the enabling innovation, the development of the Erie Canal birthed a wave of economic growth. An entire middle class was born, spurring employment and prosperity. It was not growth without problems, of course, but the die was cast. The beginnings of the eventual economic growth of the US into its role of today was forecast by, and partly due to, the success of the Erie Canal. To see how yet another innovation resulted in economic growth in other areas is instructive. Chicago was another city on a lake until it could be connected to the eastern shores. The mines and ores of the mid-west got an outlet to the mills in the east. A lot of cotton came up the Mississippi through later canals connecting the Great Lakes and then on through the Erie Canal to the mills of New York and new England. When we look at the next innovation cycle, whether biotech, nanotech, robotics or energy, what will be the ancillary consequences and industries that will come from them and what will be the investment opportunities? Studying history will help us find them. China and the Erie Canal Finally, a few of my thoughts on China and the US. It would have been hard for the elite of England in 1826 to imagine that one day the rough and uncouth colonists, without nearly the infrastructure and wealth, education or markets, would eclipse the Empire. Further, the English desire to protect their elite from market forces hurt them a great deal. Their consumers suffered. Yet, is there not an almost constant call from many quarters in the US to protect 'American' jobs at the cost of the consumer? Rather than allowing the workers and entrepreneurs of a nation to do what they do best, and allowing market forces to re-allocate resources to the most productive members, when a government tries to interfere, it simply enshrines mediocrity and non-competitiveness. Necessity is the mother of invention. Change is the lubricant of progress. Most of us (and now I speak to all my readers, and not just those in the US) have been the subject of the forces of the market which forced change upon us whether we liked it or not. I have had to 're-invent' myself on more than one occasion. It is not always fun, nor do we as individuals always wind up in a better place. Resisting change will mean that as a group and as a nation we will end up poorer. I look across the Pacific and see a generation unleashed, who have seen the potential of what their hard work can bring them. They are being slowly given the power to dream their own dreams. In just 20 years they have gone from being a third rate power with nukes mired in massive poverty to a growing economic power. I can think of no story like this in history. If the United States tries to resist change, we will retreat. If we look at China and Asia and try to protect uncompetitive industries we will not like the long-term outcome. However, if the US (and Europe) embrace change as we always have, if we allow our entrepreneurs the room to compete and find new markets and businesses, it will not matter if China becomes a larger economic power. After all, the population of China is four times as big as the US and with continued growth should eventually be larger. But we will find our lives and standard of living, and that of our children, far better in such a future. We can better see the future by understanding the past. I highly recommend Wedding of the Waters, and if you have not yet read Against the Gods, you should pick that up as well, and get free shipping from Amazon. Go to www.Amazon.com and order the books. You will be glad you did. The Vital Few or the Trivial Many Wouldn't it be nice to know what the management and directors of the companies we invest in really think? The kind of inside information that gives us a signal whether to buy or sell? One of the nice things about what I do is that I get sent a lot of books that I might not ordinarily come across. There is an imposing stack across from my desk along with the dozen or so 'important' books that I want to read in my studies of the markets and history to try and get an inferential glimpse into the future; to find an edge, even if it only lasts for a short while. I was sent a copy of George Muzea's book called 'The Vital Few or the Trivial Many,' which is a study of how to invest with the insiders. George has been doing this for as long as anyone I know, and offers some insights in this really rather brief monograph. As compared with most books (mine especially!), you can read this book in a few hours and pick up a number of insights that will make you a better investor. Muzea runs Muzea Insiders Consulting Services at www.smartinsider.net. It is designed for hedge funds and institutions and is priced as such, at $20,000 per year. Basically, he catalogs all the insider trading in listed stocks, ranks them and then rates the stocks according to the trading pattern. Some of the largest firms in the world use his service to try and give them an edge. (Contact info below, for those of my readers who run larger amounts of money.) I was able to get into contact with him, and he graciously took me through his database. I made some notes and thought I would pass them along to you as to what insiders are doing today. He also allowed me to quote liberally from his book, so we can get an idea of how to get access to our own inside information. It is useful to listen to George. He nailed the last bear market for his clients, as insiders were selling in masses in early 2000. He called the bottom of the recent bear, as again insiders delivered the signal. (He tracks movement in industry sectors and indexes, as well as individual stocks.) Interpreting insider trades is partially an art, as George has learned not all insider trading is meaningful. Sometimes, it can even be misleading. First of all, this type of insider buying and selling is not necessarily illegal. If you are an officer or director of a company, you can buy and sell the shares of your stock. Before Enron, you simply had to file all your trades within a 30-45 day period. Now you have to file within two days. From these filings, one can now quickly discern what is going on in the 'inside.' Quoting George: 'The key word that you will read many times in this book is 'divergence.' Normal insider behavior would be to buy into price weakness and to sell into price strength. Just because they are corporate insiders does not necessarily mean they are savvy investors. A minority of insiders, mostly those with Wall Street roots, understand the investment community's response to news and are very conscious of the future trend of earnings and other important developments they expect to report. The majority of insiders, however, do not have a clue as to what causes their companies' stock prices to go up or down. This group is primarily focused on the inherent value of the stock relative to its current price. 'Regardless of whether corporate insiders are focused on news they expect to report or comparative values, all insiders understand the intrinsic value of their own companies' stock. Intrinsic value is the price at which a company could be liquidated or sold to an interested buyer. When their company's stock approaches or drops below intrinsic value, insiders buy. The lower it goes, the more they buy. One the other hand, when stock prices rise above their perception of intrinsic value, insiders sell. The higher it goes, the more they sell. 'Since it is normal for insiders to buy as their stock goes down and sell as it goes up, what we want to look for are divergences from this normal behavior. Your eyes should become wide open when you see an insider, especially the Chief Financial Officer who normally sells stock only when the price rises, suddenly break this pattern by selling into price weakness. It usually means that the company's business conditions have deteriorated and that bad news is coming. On the other hand, you should really be impressed when you see insiders buy at higher prices than their earlier purchases. This usually means business conditions are at least as strong as they were when these insiders first bought, and in many cases, getting stronger. Better than expected news usually surfaces a few months later.' George later summarizes his rules (quoting): 1. Insiders normally buy into price weakness and sell into price strength; therefore it is important to look for deviations from this behavior. 2. Stocks that have insider selling (three or more insiders) into price weakness should be considered seriously as candidates to sell. 3. Insider trading by operating officers is more predictive than those of other insiders, especially outside directors. 4. When analyzing insider trading, it is important to observe previous trading patterns to see if the current trade is in line with or a divergence from normal behavior. 5 .When insiders buy stocks that are depressed in price and out of favor, much of the time the buying is a sign of value, but sometimes it is simply designed to ignite investor confidence. The best way to determine which is which is to review carefully the dollar value of the purchases. If the insiders had sold previously at higher levels, they should be buying back at least 25 percent of what they sold; otherwise, they could be window dressing. 6. Most of the time one should look for clusters of insider buyers who have all made decisions to buy stock in their companies. However, sometimes a single trade can be predictive, especially when the buying insider has a good trading history in that stock or the purchase is an unusual divergence from past behavior. The book is a paperback and is just $13.57 from Amazon. There is an older version so make sure you get the just released one. It is a collection of wisdom and great stories from a market veteran and a wonderful story-teller. You can find it at Amazon. So what is George telling his clients today? First, in his January 11 letter he still has sell signals on the S&P500, S&P 400 (mid-cap), S&P600 (small cap) and the Russell 2000, based on patterns of insider selling from December He presciently wrote: 'Last week, the media was scrambling to come up with reasons for the decline. Discussions ranged from profit taking in last year's winners to back-to-back weeks of $1.1 billion in cash outflows from stock mutual funds. It might be useful at this time to avoid headlines and government statistics and look at the market itself for clues as to how serious to take the current decline. 'In last month's review, we reported that insider selling increased dramatically in December, reaching previous top levels. At the same time that insider selling reached top levels, Investor's Intelligence Advisory Sentiment bulls was 62.9%, the highest level since January 1987 and the American Association of Individual Investors (AAII) weekly poll had 60% bulls and only 18% bears.' When you read his book, you find out that when there is a divergence between insider selling and public opinion (thus the Vital Few vs. the Trivial Many) it is an indication of major and intermediate tops and bottoms. What we are still seeing today is a very bullish public and insider selling - not a good sign. He goes on: 'In our opinion, whether or not the current decline escalates into something more sinister depends on the actions of insiders and stock mutual fund investors. The peak of redemptions and forced liquidations of stocks by equity fund managers always occurs at or near market bottoms. For example, the short- term bottom of September 2001 had net outflows of $29 billion. The actual bottom for most stocks occurred in July 2002, which had $53 billion in outflows. In both cases, insiders bought into these redemptions. 'Current outflows are modest but whether or not they cascade into double-digit outflows depends largely on the mood of the public, heavily influenced by the actions of the market and the sentiment of market letter writers that influence them. Last week's AAII poll showed bulls dropped to 38% and bears increased to 35%, a sign that last week's decline frightened individual investors. Low risk entry points occur when insiders are bullish and investment sentiment is extremely bearish into a deeply oversold market fueled by forced equity fund liquidations, often accompanied by a negative news story. None of these ingredients are in place now, and we expect it will take a much more serious decline to get what we want. 'Most short-term technical indicators are now oversold; therefore, a rally could occur at any time [and we saw one this last week, which lasted all of two days - JM]. However, long-term indicators are still overbought. For example, the percentage of stocks in up trends in our four major indexes is 70% and most market bottoms occur below 30%. With insiders still negative, we believe there is a high probability that short-term rallies will fail and the next low risk entry point for long-term investors will occur later this year. We continue to recommend portfolio managers be focused and selective in buying. 'CONCLUSION: Current insider trading patterns suggest that overall market risk remains high. We will monitor short-term rallies carefully to see if insiders sell into them. We will also monitor stock mutual funds cash flows.' But it is not all doom and gloom. There are places where there is quite a bit of insider optimism. One of those is energy, where Muzea has a sector buy based on insider buying. Looking through the group, the buying seems to be focused in various smaller oil and gas plays. Looking at other sectors, there is strong insider buying in certain smaller regional banks. So how does the little guy play the insider game? Muzea points out several ways. You look for companies that are making new lows, go to http://finance.yahoo.com and type in the company symbol. On the right hand column there are several listings of insider trading. If a company is down, but the insiders are buying, it is time to start your fundamental research to see if this looks like a turnaround. It is contrarian investing, and tough to do, but with a hint from the insiders that something is afoot it can be your most successful investing. Before you buy any stock, you should perform that simple task. It is free and quick and may be worth more than all the research reports you read. Not to put too fine a point (or sales job) on the book, but if you are a stock buyer, you should pony up the $13 and buy the book to get the wisdom of a guy who has been looking at insider trading longer than most of us have been investing. For those institutions interested in George's services mentioned above, you can contact him at his email address at gmuzea@charter.net. He will offer a free trial if you mention my name. It's Starting to Look Ugly To follow up on Muzea's market call, let's look at a few other thoughts. Those clever folks at The Leuthold Group noted on Wednesday that we are about to get a record January. Typically, mutual fund inflows are positive in January. Last year we saw $28 billion flowing into mutual funds. So far this month, we have seen a net estimated outflow of $9 billion. Since the markets are well off the last two days, it is likely that number is worse. They note: 'Record January On Tap? In recent years, it has become relatively rare to use the term 'net redemptions' and 'January' in the same sentence. Net outflow did occur in January 2003, but was a relatively small -$1.3 billion. But this year, January is not only shaping up to be a month of net redemptions, but record net redemptions. Unless the final three days show very strong positive cash flow (we'll have a better idea if this is the case in next week's report) it is likely that we'll be reporting a new cash flow record for January. But just not the kind of 'record' we have come to expect.' My friend and the very smart Richard Russell notes today: 'Here's what I think we're seeing. The market established oversold lows on January 24 (I keep talking about those January 24 lows). Next we have the bounce off those lows, which we can call an upward correction. The longer and higher the move off the January 24 lows, the more important those January 24 lows become. 'Somewhere ahead the market will turn down to test those lows. That will be a very important test. If one or both Averages (Industrials and Transports) hold above the Jan. 24 lows, that will be an important and constructive test for the market. However, if the two Averages, BOTH of THEM, break below their January 24 lows, particularly on heavy volume, we're in for trouble, important trouble. 'To refresh your memory, the January 24 lows were Industrials 10368.61. Transports 3454.78. Mark 'em down, and keep 'em in mind.' The Dow is one bad session from those lows. The Leuthold Report noted that large cap mutual funds saw positive inflows. If there is investor concern over the weekend in that arena, we cold see those stocks drop as well. Of course, there has been a lot of selling by traders prior to this weekend's election in Iraq. If they come off modestly well, they could be back in with force. My thoughts? I think we drift down from here with a last gasp rally later in the early spring, then into an ugly summer, much as last year, with a late year rally after tax loss selling by institutions (mostly mutual funds), which must sell by October 31st, if they are to balance their gains. Will the rally recover to new highs? It did last year, but I think the economy will be seen as weaker in the winter of 2005. Thus I expect the market to be lower at the end of the year. We do not see the resumption of a real bear market until a recession is peering around the corner at us. We saw the economy drop to a 3.1% GDP last quarter. That is down sharply from 4% the previous quarter, and some of the growth was from inventory build-up. It is like the old children's campfire scare story: 'Slowly he turned. Inch by inch, step by step, until....' Toronto, New York, CNBC and Rodeo Saturday we go 'ringside' at the Fort Worth rodeo, courtesy of John and Metta Collier. Texas rodeos are lots of fun and quite the spectacle, and Fort Worth's is one of the best. Yes, I do have the boots and the belt and the hat (I did grow up in West Texas in the country), and will dust them off, if only to embarrass my teenage son. Parents must get those small pleasures when we can. Sunday I am off to Toronto to meet with Stuart McKinnon of Pro-Hedge and then fly to New York on Monday and start an irrationally busy two days before coming home Wednesday night. Remember, this is the year I was going to travel less. My first quarter wanderings are not shaping up as a home schedule. Oh, well. I will be on CNBC Squawkbox at 9:15 EST with Mark Haines, but guarantee no caffeine in my system this time. We will be talking about the future of the markets, and where a few opportunities lie hidden here and there. Since this seems to be my week for book recommendations, let me mention my own book, Bull's Eye Investing. It is now in its third printing (over 50,000) and still doing well. You should go to Amazon and read the independent reviews. And that with that, I need to run as it is quite late. My best to you for the coming week. Your 'still a country boy at heart' analyst, John Mauldin John@frontlinethoughts.com http://www.321gold.com/editorials/mauldin/mauldin013105.html www.321gold.com/editorials/mauldin/mauldin013105.html

Subject: Re: A little more of the forest From: Jennifer To: johnny5 Date Posted: Thurs, Feb 10, 2005 at 20:46:10 (EST) Email Address: Not Provided Message: Worrisome article. Worrisome, but thanks as always.

Subject: Retirement Benefits Dwindle From: Emma To: All Date Posted: Wed, Feb 09, 2005 at 09:53:34 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/09/business/09retire.html?ei=5094&en=626a785ff37ba9aa&hp=&ex=1108011600&partner=homepage&pagewanted=all&position= Retirement Turns Into a Rest Stop as Benefits Dwindle By EDUARDO PORTER and MARY WILLIAMS WALSH LITTLETON, Colo. - For John A. Lemoine, retirement has been hard work. Forced to take an early pension package at AT&T three years ago, Mr. Lemoine, 54, a former building manager who once made more than $70,000 a year handling the operations of several AT&T sites, soon found that retirement was something he just could not afford. To supplement the greatly reduced pension he received upon his retirement, he first took an $11-an-hour job as a maintenance worker at the Sam's Club up the road from his home here. He retrained as an X-ray technician, and began earning $17.50 an hour as a part-time radiology technician for several clinics. Still unable to make ends meet, he also took a full-time job as a security guard for an hourly wage of $10.50. 'I put in for other jobs, too,' Mr. Lemoine said. 'You'd be surprised who won't hire you because of your age.' Employers had better get used to seeing older people's résumés. As numerous companies across the country withdraw retiree medical and dental benefits while others switch to less generous retirement plans, many aging workers who had expected to ease comfortably out of the labor force in their 50's and early 60's are discovering that they do not have the financial resources to support themselves in retirement. As a result, a lot more of them are returning to work. Since the mid-1990's, older people have become the fastest-growing portion of the work force. The Labor Department projects that workers over 55 will make up 19.1 percent of the labor force by 2012, up from 14.3 percent in 2002. Until recently, most economists said that older people were being lured back into the labor force largely because of opportunities growing out of the vibrant economy of the 1990's. But these days, they say, many such Americans are being drawn to work out of necessity rather than choice. As the nation gears up for a fundamental debate over the future of Social Security, these circumstances hint at potential changes in the federal program that supports more than 40 million elderly Americans. Just as companies are seeking ways to reduce their roles in financing former employees in retirement, many economists say that the Social Security program should also scale back in response to the aging of the population. Some have pointed out that continuing to raise the official retirement age in step with increases in Americans' average longevity could probably guarantee Social Security's solvency forever. 'Policies promoting longer working life could ameliorate some of the potential demographic stresses,' Alan Greenspan, the Federal Reserve chairman, told a conference of economists and policy makers in Jackson Hole, Wyo., last year. 'Early initiatives to address the economic effects of baby-boom retirements could smooth the transition to a new balance between workers and retirees.' To some extent, that transition is already under way - although not in the way Mr. Greenspan, 78 himself, proposed. As they stay longer in their jobs or peruse the help-wanted ads for post-retirement employment, Americans are reversing what had been a nearly century-long decline in the participation of older people in the work force. 'Everyone that I talked to is looking at working part time,' said Jim Drummond, 59, a 37-year veteran of US Airways in Pittsburgh who retired on Jan. 1 and whose pension plan recently failed and was taken over by the federal government. 'The pension is not enough unless you are single and living alone.' Gerald Fronek, 62, an electrician for Lucent Technologies in Lockport, Ill., now plans to retire in April, five years after his original plan was thwarted by the collapse of Lucent's stock in 2000, which took most of his lifetime savings with it. 'I was dealt a bad card,' Mr. Fronek said. 'I just have to forget about that and move ahead.'

Subject: Stock Index Returns From: Emma To: Emma Date Posted: Thurs, Feb 10, 2005 at 13:29:38 (EST) Email Address: Not Provided Message: http://www.economagic.com/ Looking at Economagic you will find the annual return from the S&P since 1969 to be 11.2%.

Subject: What if you privatized in 1969? From: johnny5 To: Emma Date Posted: Thurs, Feb 10, 2005 at 00:19:28 (EST) Email Address: johnny5@yahoo.com Message: http://www.321gold.com/editorials/daughty/daughty020305.html But he writes, 'Contrary to a common belief, equities didn't simply move sideways through the 1970's before moving to new highs with the great bull market starting in 1982. This illusion is caused by the inflation which plagued the period. Deflating the S&P 500 with the CPI reveals that the market peaked in 1969, not 1973, before falling 64% over the subsequent 13 years, ultimately bottoming in 1982.' I will pause there to let the significance of that seep into our brains, as I am not sure that I comprehend the full significance, although there are several rude audience members who can't restrain themselves, and who blurt out that I am such an idiot that I can't comprehend the significance of a twist-off bottle cap, which is probably true, but beside the point. But if they had privatized Social Security in 1969, how would you feel to see that your retirement lost 64% in buying power, as you got poorer and poorer, until 1982? In effect, you can afford to buy slightly more than a THIRD of the basket of stuff you could have bought in 1969! But it gets worse than that! He goes on to say, still adjusting things for inflation, 'Stock prices failed to exceed the 1969 peak until 1993, 24 years later, and didn't move convincingly through the 1969 level until 1995.' That's 26 freaking years in a row that you failed to break even in the stock market, i.e. before the 1969 level was reached. And how long will it be before the guys who bought at the exact bottom actually make a profit? Don't ask.

Subject: Re: What if you privatized in 1969? From: Ari To: johnny5 Date Posted: Thurs, Feb 10, 2005 at 07:19:58 (EST) Email Address: Not Provided Message: This data is completely wrong; completely and purposely distorted. We must be carefully who we pay attention to; definitely not such nonsense. Investing in the S&P Index since 1969, you have been quite rich long long before now.

Subject: No distortion From: David E.. To: Ari Date Posted: Thurs, Feb 10, 2005 at 11:54:18 (EST) Email Address: Not Provided Message: I think it is a fair characterization. What is not mentioned is that dividends were 4% plus in the covered period. Wall street guys love to point out that with dividends, the depression in asset returns only lasted 17 years. I love to point out that dividends are now only 1%, so if prices dip again it will be lot longer than 17 years before people can dig out again. I know people who retired in this period. Their pensions became 'beer' money. A 25 year dip, or even only a 17 year dip is a tough obstacle for even the most astute investor.

Subject: Distortion From: Ari To: David E.. Date Posted: Thurs, Feb 10, 2005 at 15:46:35 (EST) Email Address: Not Provided Message: There was no 25 year or 17 year dip in the stock market. Anyone who simply averaged into stocks through the 1970s did well that decade and of course better the next 2 decades. Look at the figures from 'Economagic.' What a resource for us. A writer who pretneds no one has made any money in the stock market in the last 35 years is just not a honest.

Subject: Re: Distortion From: David E.. To: Ari Date Posted: Thurs, Feb 10, 2005 at 17:45:50 (EST) Email Address: Not Provided Message: You didnt give me a link, so here is one link Click On 'why the bear market is not over', page thru three pages and you will see another take on this issue. You will notice the page makes the same point I did - dividends not included. Three years ago I spent a lot of time comparing Prudent Bear's info with Schiller's. I believe it is substantially correct. It is just a different viewpoint, and one that I believe is better than the Wall Street viewpoint. Wall Street admits to a 17 year bear because Wall street uses dividends. Dividends at less than 1% will not materially offset price declines. So it seems fair to me to use prices/inlfation only to define how long a bear market lasts. Please note it is a matter of timing. The writer did not say 'no one' has made money in the stock market. He is just writing about the poor unfortunate soul who bought/retired on the day of the market high had to wait many years to break even.

Subject: Phantom gains due to inflation From: johnny5 To: David E.. Date Posted: Thurs, Feb 10, 2005 at 20:18:13 (EST) Email Address: johnny5@yahoo.com Message: Thanks David even after 4% dividends - The original author wrote after the capital gains taxes on the phantom inflated gain (300%), the management and inactivity fees and states taxes you may have not done all that well at all. If we are about to go through years of inflation this is important to determine.

Subject: Re: Phantom gains due to inflation From: David E.. To: johnny5 Date Posted: Fri, Feb 11, 2005 at 15:07:56 (EST) Email Address: Not Provided Message: You are right of course Johnny5 about taxes. My TIPS will not keep me even. First, I get adjusted with a hedonic CPI, Second, I get to pay taxes on my CPI adjustment. And this is supposed to be one of the good games in town.

Subject: Re: Phantom gains due to inflation From: Terri To: David E.. Date Posted: Fri, Feb 11, 2005 at 15:37:04 (EST) Email Address: Not Provided Message: I am much more drawn to dividend paying stocks than TIPS.

Subject: Re: Distortion From: Terri To: David E.. Date Posted: Thurs, Feb 10, 2005 at 19:04:58 (EST) Email Address: Not Provided Message: Fine argument, David. Interesting.

Subject: Re: What if you privatized in 1969? From: johnny5 To: johnny5 Date Posted: Thurs, Feb 10, 2005 at 00:24:31 (EST) Email Address: johnny5@yahoo.com Message: CONT: And sure enough, they go on to say, 'At this point the weary, and rather aged, investor still faced capital gains taxes on a phantom 300% gain wholly due to inflation. Covering this tax liability likely extended the true recovery period to within shouting distance of the bear market in stocks beginning in 2000, the most recent peak in equity markets.' So, net of inflation, and net of taxes, the investing dudes and dudettes in 1969 NEVER actually showed a profit from their investing in the stock market! And the two authors did not even mention the fees and commissions and costs that their hypothetical investor would have had to pay to the greedy, grubby financial services industry all these years, nickel-and-diming you to death, including 'inactivity fees' which you have to pay because you don't do enough trading to suit the guys who charge you fees for that trading. And, depending where you live, they neglected to deduct state taxes on the gains, and/or the value of the holdings! What a racket! And they call this 'investing'' Hahahaha!

Subject: Retirement Benefits Dwindle - 1 From: Emma To: Emma Date Posted: Wed, Feb 09, 2005 at 09:54:24 (EST) Email Address: Not Provided Message: Necessity, Not Choice Made to carry more of the burden of their retirement, many retirees say they feel that a social compact between workers and employers - a set of expectations established over the second half of the 20th century - is being dismantled. Not only are many discovering that they cannot afford to retire, they are also finding themselves in a labor market in which companies facing tough competition seem intent on controlling costs, partly by ridding themselves of higher-earning older workers. 'I spent 25 years with this company,' Mr. Lemoine said. 'When we were hired at Ma Bell there was this premise that the more dedication you gave the company, the more they would take care of you.' The steepest turnaround in labor participation has occurred among older men. The percentage of men 55 to 64 years old in the work force fell steadily from 87 percent in 1950 to under 65 percent in 1994. Then it began inching back up, reaching 69 percent last year, according to the Labor Department. Among men 65 and older, the participation rate rose from 15 percent in 1994 to 19 percent last year. For older women, who entered the labor force at increasing rates through the 1950's and 1960's, the change has been less pronounced. Nevertheless, the rate of participation for women over 55, after declining from around 26 percent in the late 1960's to nearly 21 percent in the mid-1980's, has rebounded over the last two decades, to 31 percent. A big factor keeping people in the work force later is Social Security itself, which until recently provided relatively generous benefits for people retiring as early as 62 and discouraged work after 65. But in 1983, to deal with Social Security's first financial crisis, Washington approved a law to raise the normal retirement age from 65 to 67 and increase the benefit paid to people who kept working for additional years. That law only began to bite for those retiring after 2002. Many economists say that older Americans under 65, and therefore not yet eligible for Medicare, are being forced to accept work they might have disdained earlier so they can afford health insurance and pay for other necessities. 'In the recessions through the 1980's and even in the early 1990's, the biggest drop in participation rates was among people in their 50's and 60's,' said Gary Burtless, an economist at the Brookings Institution who studies retirement issues. But 'that has not been true since 2000,' he said. 'My gut feeling is that what changed is the persistence and willingness of older workers to accept a job that would not have been to their liking 15 or 20 years ago.' Joe Janson, for example, retired three years ago, when he was 55, from an $83,000-a-year engineering job at Lucent to a $35,000 pension. But now he is looking for work again to pay for his family's health insurance, which Lucent cut last year. And he is not setting his sights high. In January, he and his wife, Mary, made $140 in two days delivering phone books for Qwest. 'If I have to,' he said, 'I will drive a school bus.'

Subject: Retirement Benefits Dwindle - 2 From: Emma To: Emma Date Posted: Wed, Feb 09, 2005 at 09:54:45 (EST) Email Address: Not Provided Message: Working Older and Longer Among the most vulnerable workers are those who made their careers at some of the titans of yore - companies like United Airlines, AT&T and Bethlehem Steel. In the labor-abundant baby boom era, large companies could offer generous benefit packages and valuable incentives for early retirement. Big unions like the Teamsters and the United Automobile Workers promoted early retirement, too, to clear the way for new hiring. Today, after rounds of downsizings, many companies have sharply cut their work forces to survive intensified competition from home and abroad, only to be left with large pools of retirees collecting benefits far longer than predicted. Lucent, for instance, has only 20,000 active workers in the United States to generate the business needed to help support nearly 120,000 retirees, whose health care last year cost about $775 million, an amount equal to 70 percent of Lucent's net profit. So the company has been aggressively paring the health insurance it offers its retirees, prompting older employees to rethink their retirement plans. 'We simply cannot afford to absorb U.S. retiree health care costs at this level and remain a sustainable, competitive company,' Lucent notified its management retirees last September in explaining a new round of health benefit cuts. As companies have whittled away at benefit packages, they have pushed their retirees back to work. The first step was the dismantling of many traditional pensions: the defined-benefit plans that offer a predetermined monthly income after retirement, and usually offer incentives for early retirees. Companies have been steadily replacing such plans with defined-contribution plans in which workers save a portion of their pay for retirement tax-deferred, and companies contribute a partial match. As recently as 1979, the Center for Retirement Research at Boston College found more than 80 percent of the workers covered by a company retirement plan had a defined-benefit pension. By 2001, the percentage had dropped to a little over 40 percent. The dismantling of traditional defined-benefit pensions left many older workers - who had accumulated pension credit under the old system - feeling short-changed. 'They did us wrong,' said Mr. Lemoine, who says that a realignment of AT&T's pension plan in 1996 slashed his benefits. He joined a retiree organization that is supporting a lawsuit against AT&T over the changes. According to Stephen Bruce, a lawyer for the plaintiffs, Mr. Lemoine's final pension - valued by the company at $135,000, which he took as a $70,500 lump sum plus $402 a month - was less than half of what he would have been due under the previous defined-benefit system. Citing the lawsuit, an AT&T spokesman said the company could not comment on the matter. Health Benefits Hold Sway Even more critical has been the collapse of company-paid health insurance for retirees, prodding growing numbers of workers to hang on to some job, almost any job, to keep their health coverage until Medicare kicks in at 65. In 1988, two-thirds of all large employers offered health benefits to retirees; last year only about one-third did. And employers who offer coverage are forcing workers to shoulder more of the cost. In 2004, 79 percent of them increased their retirees' premiums. A survey by Watson Wyatt, a corporate-benefits consulting firm, found that the absence of company-financed retiree health insurance increased the average retirement age by two years for women and 1.5 years for men. 'In this day and age,' said Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology, 'retiree health insurance is perhaps the biggest single determinant of retirement.' Mr. Janson, the former Lucent engineer, agrees with that. Even though he has two teenage daughters at home and his wife, Mary, does not work outside the home, he could afford to stay retired, he said, as long as Lucent kept paying for his family's health insurance. But last year Lucent stopped paying for his dependents' coverage. That left him with an extra monthly bill of about $500. 'We were making it before they took medical away,' Mr. Janson said. 'It's kind of like the company pulling the rug out from under me now.' Mr. Janson is also suffering because he put most of his retirement savings into Lucent stock. Shares he bought at $80 are now trading at less than $4 and his nest egg - worth about $700,000 in 1999, he said - is now less than $150,000. For Americans heading into retirement, the contrast to the previous generation is stark. The typical household headed by a 47- to 64-year-old is poorer today, in constant dollars, than a similar household was in 1983. The main reason is the disappearance of the traditional pension, according to Edward N. Wolff, a New York University economist who analyzed Federal Reserve wealth data. Mr. Lemoine is lucky that AT&T still offers health insurance that covers his family, even though the monthly premium of $421.52 is more than his pension check. A head injury in a car accident in August ended his stints as a security guard and part-time X-ray technician. That shifted the financial burden of a four-teenager household onto his wife, Susan, 41, who draws a modest salary as a paralegal. Mr. Lemoine's 80-year-old mother also pitches in, lending the family money. The ordeal has profoundly changed Susan Lemoine's outlook on the future. 'I will work,' she said, 'until the day I die.'

Subject: Medicare's Drug Benefit Cost From: Emma To: All Date Posted: Wed, Feb 09, 2005 at 09:49:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/09/national/09medicare.html New White House Estimate Lifts Drug Benefit Cost to $720 Billion By ROBERT PEAR WASHINGTON - The Bush administration offered a new estimate of the cost of the Medicare drug benefit on Tuesday, saying it would cost $720 billion in the next 10 years. That is much more than the $400 billion Congress assumed when it passed legislation creating the benefit in late 2003. But administration officials said the numbers were not comparable. The original estimate was for the years 2004 to 2013. The new estimate covers the period from 2006, when the drug benefit becomes available, to 2015. The higher figure, which provides the first glimpse of the true cost of the drug benefit, could touch off a political uproar in Congress, where conservative Republicans were already expressing alarm about the costs of Medicare, including the drug benefit. In a recent interview, the new chairman of the Senate Budget Committee, Judd Gregg, Republican of New Hampshire, said he wanted to 'put the brakes on the growth of entitlements' and take a close look at the new Medicare law. 'Since it was sold as a $400 billion program, that's what we should keep it at,' Mr. Gregg said. Representative Rahm Emanuel, Democrat of Illinois, asked about the issue on Tuesday when Treasury Secretary John W. Snow was testifying before the Ways and Means Committee. Mr. Snow said he did not have detailed figures at hand. Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, said later that the drug benefit would cost $720 billion from 2006 to 2015. Passage of the Medicare bill was a major political achievement for President Bush and the Republican leaders of Congress. It squeaked through the House by a vote of 220 to 215, and it would probably not have been approved in its current form if lawmakers had thought the cost would exceed a half-trillion dollars. Mr. Emanuel said: 'The new cost estimate destroys the credibility of the Bush administration. Officials were so far off in estimating the cost of the Medicare law. Why should we believe what they say about the financial problems of Social Security?' Representative Pete Stark of California, the senior Democrat on the Ways and Means Subcommittee on Health, said: 'I told you so. We can't trust numbers provided by administration officials. They'll say anything to get a bill passed. And if the new drug benefit costs more, the extra money goes to their friends in the pharmaceutical industry, not to senior citizens.' Mr. Stark said the higher cost estimate showed that Congress should allow the secretary of health and human services to negotiate with drug manufacturers to secure lower prices for Medicare beneficiaries. The law forbids such negotiations. But Tommy G. Thompson, the former secretary of health and human services, said he wished Congress had given him the power to negotiate. When the Medicare bill was passed, the Congressional Budget Office said the cost would not exceed $400 billion over 10 years. In a letter to The New York Times published on Nov. 20, 2003, Thomas A. Scully, who was then the Medicare administrator, wrote, 'We are spending $400 billion.' Just two months later, in January 2004, the White House said the cost, for the same 10-year period, would be $534 billion. Dr. McClellan said Tuesday that 'there has been no significant change in the cost of the drug benefit' for the years 2006 to 2013. But, he said, the new estimate covers two additional years, 2014 and 2015, when Medicare enrollment will be larger and drug prices will be higher. In 2015 alone, he said, Medicare will spend well over $100 billion on the drug benefit. Assumptions about the cost of the Medicare drug benefit were included in the budget that Mr. Bush unveiled on Monday. A table in one volume of the budget, titled 'Analytical Perspectives,' shows the drug benefit as costing $345 billion from 2005 to 2010. Lawmakers said they were shocked to see that number because it was close to the $400 billion figure they had previously been given as the price tag for a full decade. Estimates prepared by the chief Medicare actuary show that the spending for the prescription drug benefit will total $1.2 trillion from 2006 to 2015, before taking account of income that will offset some of that cost. Dr. McClellan tried to reconcile the numbers on Tuesday night. He said the $345 billion figure and the $1.2 trillion showed 'gross costs' and did not reflect the premiums that would be paid by Medicare beneficiaries, compulsory contributions by states or savings to Medicaid that would result from the new law. Several members of Congress cited the latest cost estimates as a reason Medicare should not pay for Viagra and other 'lifestyle drugs.' Medicare officials said last week that the new benefit would pay for Viagra, Levitra and similar drugs when they were needed to treat erectile dysfunction.

Subject: Long Term Interest Rates From: Terri To: All Date Posted: Wed, Feb 09, 2005 at 06:24:05 (EST) Email Address: Not Provided Message: Why are we not issuing 30 or 50 year Treasury bonds when long term interest rates are so low? This approach to the debt seems to be in accord with the projections of Alan Greenspan that there is little reason to assume long term interest rates will rise meaningfully over time. I am completely puzzled. Paul Krugman tells us to lock in a long term mortgage, the Fed chief tells us to stay with a short term adjustable mortgage. Of course, I say sell 30 or 50 year bonds at the current long term rates.

Subject: Re: Long Term Interest Rates From: RL To: Terri Date Posted: Wed, Feb 09, 2005 at 08:29:01 (EST) Email Address: rafaelloring@yahoo.es Message: I'd say there is no market for 30 to 50 years bonds because it is a very long term. I would not wait so many years to profit from my savings (I will be probably dead). In any case I agree with you that long term interest rates are going up. How much? How fast? That is the crucial issue taht will determine the economic performance of the comming years. I belive it depends on too many changing factors to know (oil shocks, terrorism, iraq, deficits, fed replacment...). keep in mind that the behaviour of the finatial markets are impredictible.

Subject: Re: Long Term Interest Rates From: Jennifer To: RL Date Posted: Wed, Feb 09, 2005 at 09:41:30 (EST) Email Address: Not Provided Message: There is an active market for 30 year debt and 50 year debt in Europe. Institutions such as insurance companies and pension plans often have to buy the longest term debt they can find to match liabilities. The Treasury by issuing short term debt almost exclusively is actually betting that interest rates will not rise for many years. Excellent post.

Subject: S&P Return History From: Terri To: All Date Posted: Wed, Feb 09, 2005 at 06:09:41 (EST) Email Address: Not Provided Message: The Vanguard S&P Index return was 11.43% for the last 10 years, while the Index return was 11.51%. A difference of .08% a year in return shows portfolio costs can be quite low. The Vanguard S&P return was 12.25% from 8/31/76 to 1/31/05. The current p/e for the Vanguard S$P is 19.6%, the dividend 1.6%.

Subject: Summary Growth and Market Projections From: Terri To: All Date Posted: Wed, Feb 09, 2005 at 05:59:27 (EST) Email Address: Not Provided Message: Brad DeLong We are assuming the price earning ratio stays a constant. Economic growth is assumed to be 1.9%. Then growth in earnings can be 0.9% and stock buybacks can be 1.0%, which gives 1.9% stock returns for these sources. Add in current dividends which are 1.6% for the Vanguard S&P Stock Market Index. That gives us 3.5% real stock returns [Nominal returns of 6.5%]. The only ways in which long term stock market returns are likely to be more than 3.5% are faster economic growth or higher p/e ratios. .... Paul Krugman Paul Krugman's first analysis suggests earnings growth at 1.9% and stock dividends and buybacks at 3%. So, we can project real returns to be 4.9%. [Nominal returns of 7.9%]. The 1.9% economic growth or earnings growth estimate is taken from the actuaries for Social Security. Paul Krugman's second analysis suggests earnings growth at 3.4% and stock dividends and buybacks at 3%. So, we can project real returns to be 6.4%. [Nominal returns of 9.4%]. The 3.4% economic growth or earnings growth estimate is the rate for the last 75 years. .... John Bogle Nominal corporate earnings growth was 7% from 1961 to 2001. The price earning ratio for the S&P Index was 22 in 1961 and 20 in 2001. Returns for the S&P through the 40 year period were 11.2%, which is equal to earnings growth and dividends. If we assume earnings growth can continue to be 7% with current dividends at 1.6%, we might expect S&P growth to be 8.6% over the coming decade if the p/e ratio is constant [Real returns of 5.6%].

Subject: Re: Summary Growth and Market Projections From: Jennifer To: Terri Date Posted: Wed, Feb 09, 2005 at 08:41:49 (EST) Email Address: Not Provided Message: Every projection of stock returns is still superior to what we can expect from bond returns in the coming years.

Subject: Risk? From: Pete Weis To: Jennifer Date Posted: Wed, Feb 09, 2005 at 09:28:49 (EST) Email Address: Not Provided Message: How does risk factor into this? Stock returns need to be of a certain level to offset risk?

Subject: Re: Risk? From: Terri To: Pete Weis Date Posted: Wed, Feb 09, 2005 at 09:50:54 (EST) Email Address: Not Provided Message: John Bogle always taught that an extra 1% long term return is worth far more than an extra 1% risk. I do agree, though your question is excellent.

Subject: looking for a Krugman reference From: James To: All Date Posted: Tues, Feb 08, 2005 at 22:54:02 (EST) Email Address: james.haughton@anu.edu.au Message: I read a krugman essay or chapter somewhere in which he talked about population distribution amongst cities as fitting an inverse power law, after a model by an economist called Simon? and the observation that countries with Primate cities do not fit the curve. Can anyone give me the reference for this?

Subject: The Sources of Stock Market Returns From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 20:33:01 (EST) Email Address: Not Provided Message: http://www.vanguard.com/bogle_site/april162001.html The Sources of Stock Market Returns By John Bogle With apologies to Dickens, I turn again to a tale of two markets . . . but a tale of two other markets: Stock markets past, and stock markets yet-to-come. Do we have everything before us, or nothing before us? To answer that question, we must look at the U.S. stock market in total, well-represented by the Standard & Poor's 500 Stock Index, which includes both listed stocks (now 85% of its value) and Nasdaq stocks (15%). Let's begin with the eternal mathematics of the stock market, in which returns are derived from two distinct elements: Investment, and speculation. Investment return is represented by the sum of a stock's dividend yield plus the rate of its earnings growth: It tends to be steady, recurrent, and almost always positive. Speculative return is measured by the willingness of investors to pay more—or les—for each dollar of earnings: It is intermittent, spasmodic, and may as easily be negative (a falling price/earnings ratio) as positive (a rising price/earning ratio). Simply adding the two elements together gives us the total market return. But over the long run, it is investment return—earnings and dividends—that calls the market's tune. Consider the past 40 years: Dividend yield plus earnings growth came to a total of 11.2% per year. The actual return of the stock market came to an identical 11.2%. If speculative return came, as it did, to zero over the full period, in the short-term, and even over extended periods, it plays a crucial role, beautifully exemplified by dividing that 40-year period into two equal 20-year segments. Both periods saw excellent annual investment returns: 12% during 1961-1981; 10% during 1981-2001. But speculative return subtracted 4˝% in the first period and added 5% during the second. Result: a market return of 7˝% in the first 20 years, and 15% in the second. Curiously, despite a lower rate of corporate earnings growth and dividends during the second period, the annual return on stocks doubled. Why? Because the price/earnings ratio, which had tumbled from 22 times in 1961 to 8 times in 1981, had returned to 20 times in April 2001 (after reaching an astonishing 32 times at the market high in March 2000). The point is that the economics of market returns—the earnings and dividends of America's corporations over two centuries—are almost always both predictable and productive. The emotions of market returns, on the other hand—the change in the price that investors are willing to pay for each dollar of earnings—are unpredictable, at times remarkably productive; at other times, remarkably counterproductive. This dramatic example of the two forces that determine stock returns—investment and speculation—helps us look ahead and consider what returns we might expect over the coming decade. We begin with a dividend yield that is only 1%, a fraction of the historical norm of 4%. That, to put it bluntly, is not a lot of gas in the market's tank. But if we assume that corporate earnings growth will continue at its 7% annual rate of the past 40 years, stocks would enjoy a total investment return of 8% annually during the coming decade.

Subject: Possible Stock Market Returns From: Terri To: Terri Date Posted: Tues, Feb 08, 2005 at 20:34:58 (EST) Email Address: Not Provided Message: John Bogle writes that corporate earnings growth was 7% from 1961 to 2001. The price earning ratio for the S&P Index was 22 in 1961 and 20 in 2001. Returns for the S&P through the 40 year period were 11.2%, which is equal to earnings growth and dividends. If we assume earnings growth can continue to be 7% with dividends at 1.6%, we might expect S&P growth to be 8.6% over the coming decade if the p/e ratio is constant....

Subject: Possible Stock Market Returns [cont.] From: Terri To: Terri Date Posted: Tues, Feb 08, 2005 at 20:40:51 (EST) Email Address: Not Provided Message: John Bogle's work make sense to me. When he presented just this analysis in a lecture and seminar at MIT, there were no contradictions. The base assumptions are that we can grow at about the rate from 1961 to 2001, and p/e ratios will be about 20 in a decade or longer. Of course, if economic growth slows for a sustained period we can expect lower earnings growth and lower stock market returns.

Subject: Just one problem From: Pete Weis To: Terri Date Posted: Tues, Feb 08, 2005 at 22:04:23 (EST) Email Address: Not Provided Message: It is not likely the next 10 years will resemble the last 40 in many ways. John Bogle seems to totally ignore some truely huge factors: (1) 40 years ago (1965) the US had a current account surplus and the US equaled or outproduced the entire rest of the world when it came to oil, steel, appliances, automobiles and many agricultural products. It can not be overstated how much wealth this brought Americans and this served to keep wages and corporate profits relatively high even through the difficult 70's. (2)Next we have the 80's and 90's which saw America's big lead in the technology of integrated circuits (courtesy of the billions the US pumped in NASA) blossum into a big lead in personal computers and the software which operated them. Once again wages climbed and many tech companies made great profits. Foreign investors poored money into US stocks and and the dollar soared. There seems to be no great technological advance coming in the US in the next 10 years. Indeed it generally takes decades between technological advances which bring great productivity changes along with the jobs and wage increases which accompany them. (3)For about 25-30 of those 40 years we had very cheap energy. The poor market years including rising interest rates during the early 70's through the early 80's coincided with high energy costs. Conservation (including government mandated auto fuel efficiency milestones), Alaska pipeline completion, North Sea oil, and higher production levels out of the Middle East all served to give us very cheap energy for about 20 years. Whether you believe we have reached peak oil production worldwide or will soon or not, we can not deny that growing demand by mega economies like China and India along with a continued falling dollar will gradually cause the price of energy to rise during the next decade. (4)Demand for raw materials is rising and with it so are the prices. Again a falling dollar plays a role. (5)Items (3) and (4) subtract from S&P corporate profits, lead to inflation, higher interest rates and subtract from consumer discretionary spending. (6)This one may be the most important issue effecting the performance of investing in US markets over the next 10 years. We have just gone through the largest and longest stock market boom in history. In all previous cases of large market booms during the last 200 years (the NYSE was founded in 1792), big booms have always been followed by big busts where investors have mostly exited the markets completely with what they had left. In many cases they ride it all the way to the bottom before exiting. These generations of losing investors never return to the markets in their lifetimes. Just as the boom overshoots on the way up it overshoots on the way down - the reasons for this exist not in the math of John Bogle, but in the electrical impulses and chemical reactions of the human brain. (7)Don't get me started on the housing market. Robert Shiller does a better job. John Bogle might be a genius but he is so narrowly focused on his mathmatical analysis of the S&P over the last 40 years that he doesn't see the proverbial forest for the trees.

Subject: Re: Just one problem From: Dorian To: Pete Weis Date Posted: Wed, Feb 09, 2005 at 07:19:29 (EST) Email Address: Not Provided Message: Thanks Pete for your reference to Shiller on the housing market. I did a search on Google and found his article on the subject in Money Magazine. I haven't read it yet but I admire Shiller and intend to read it now. I thought others might want to read the article so I've posted a portion of it with a link to the full article. Dorian Remember the stock bubble? Yale economist Robert Shiller, says we're just as mad for real estate. NEW YORK (MONEY Magazine) - Yale University economist Robert Shiller made one of the great calls in stock market history. His book 'Irrational Exuberance' hit the shelves in March 2000, the same month the tech-stock bubble struck a sharp pin. Timing helped turn 'Irrational Exuberance' into a bestseller, but Shiller had been predicting for several years that excessive speculation would prove a disaster for many investors. A few days before Alan Greenspan famously used the phrase 'irrational exuberance' in a December 1996 speech, Shiller had been at lunch with the Fed chairman, arguing that the stock market was irrational and suggesting that Greenspan might have something to say about how overvalued it had become. Shiller's first tome focused exclusively on the stock market. A substantially revised edition of 'Irrational Exuberance', to be published in April, includes a new chapter on what Shiller believes is the bubble in residential real estate. The housing-price boom that is taking place in big metropolitan areas in the United States and around the world, he maintains, has no basis in economic fundamentals or precedent in real estate history. Even if you don't buy Shiller's argument, you'll want to know what he's thinking -- and not just because he was right once. Shiller knows this subject. He and Wellesley College professor Karl Case are principals in Fiserv CSW, a respected real estate analysis and forecasting firm. Below is a MONEY exclusive: excerpts from the new edition of Irrational Exuberance, in which Shiller aims to pop the conventional wisdom about the causes and sustainability of the current boom, and about the real return of investing in homes. http://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/

Subject: Re: Just one problem From: Jennfier To: Dorian Date Posted: Wed, Feb 09, 2005 at 11:42:19 (EST) Email Address: Not Provided Message: Thanks Pete and Dorian. Worries on worries :)

Subject: No need to worry..... From: Pete Weis To: Jennfier Date Posted: Wed, Feb 09, 2005 at 21:53:25 (EST) Email Address: Not Provided Message: if it is going to be a 'hard landing' just make sure it's a soft one for yourself. When the hard landing does come there will be plenty of opportunity to invest in assets which have become very bargain priced. In the coming years, I believe there will be many who will suffer a hard landing and for any of us who are fortunate enough not to suffer as much, there will be friends and family members who may need a helping hand. It's ironic, but wealth and the bickering that often surrounds it causes families to break apart. Yet hard times often bring families and friends closer together. We feed emotionally and spiritually off the support we give each other - perhaps I will be the one needing the most help - I don't know. Maybe this sounds like doom and gloom and perhaps it's because my parents lived through some of the hardest of times that it seems closer and more real to me, but this is the glimmer of light I see in the storm clouds ahead.

Subject: stocks and gambling From: John Trester To: All Date Posted: Tues, Feb 08, 2005 at 17:32:20 (EST) Email Address: johntrester@yahoo.com Message: Hi. I would like to see Paul say something about gambling and the stock market. When riverboat gambling was being allowed in on the Mississippi, they tried to make it 'family safe' by installing a five dollar limit. This just guantees that the house will take all your money, because you make money at the tables by betting large on short odds. Now I see Bush is telling us that we will only be able to put our SS money into 'safe' low-yeild stocks and bonds, so that we will be able to lose it slowly. Like having emphisema(?).

Subject: Morgan Stanley From: Emma To: All Date Posted: Tues, Feb 08, 2005 at 16:58:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/08/business/08place.html?pagewanted=all&position= Some Boos From the Morgan Stanley Bench By LANDON THOMAS Jr. Last month, hundreds of top current and retired Morgan Stanley executives gathered at a memorial service for Richard B. Fisher, the former chairman, who masterminded the 1997 merger of his old firm and Dean Witter. In the front row at Riverside Church sat Philip J. Purcell, the current chief executive and Mr. Fisher's partner in designing a deal that was seen then as a template for the diversified global investment bank. Yet later at the reception, even amid the fond remembrances for Mr. Fisher, who died in December, there ran a vein of discontent about the company's direction. Bankers complained how the underperforming businesses from Mr. Purcell's old Dean Witter, like the brokerage and credit card units, were creating a drag on the steamrolling profits being generated by the banking and trading divisions that Mr. Fisher had made the envy of Wall Street. A result has been a flagging stock price that has badly trailed that of Morgan Stanley's peers. Of course, grumbling among ambitious Wall Street executives is not unusual, especially after a merger. But in this case, the merger occurred eight years ago, time enough for warring factions to unify. What makes Morgan Stanley's case different is that the divisions between the white-shoe Morgan Stanley bankers and the more Main Street Dean Witter bankers have become wider in recent years, highlighting a widening culture gap as well as a disparity in profits as Morgan Stanley's core banking business has thrived while the Dean Witter units have not. At the same time, American Express and Citigroup - companies that once defined the concept of the financial supermarket that has long been dear to Mr. Purcell's heart - have spun off and sold their lagging business units in an attempt to get the market to attach a higher valuation to their faster-growing core operations. Now, the disclosure that Mr. Purcell was awarded $22 million in total compensation last year highlights questions about his strategy and performance. 'There is an issue of real franchise decay,' said Scott Sipprelle, a hedge fund investor and former Morgan Stanley employee, who wrote a letter to the Morgan Stanley board this month proposing that the firm sell or spin off its lagging units. 'I think there is a lot of disenchantment with the strategic direction of the firm.' Yesterday, he criticized Mr. Purcell's compensation. 'Morgan Stanley's stock declined 4 percent in value last year and yet the C.E.O.'s pay was increased by 57 percent,' he said in a statement. 'In the context of this decision, this board has abjectly failed to implement a compensation policy that is performance-based, shareholder-aligned or fair.' Mr. Purcell's compensation was less than the $29.6 million and $31 million that his peers, Henry M. Paulson Jr. at Goldman Sachs and E. Stanley O'Neal at Merrill Lynch, made last year. The chairman of Copper Arch Capital, Mr. Sipprelle's brother Dwight, also worked at the firm as a top high-yield bond executive. He left the firm in 2000, after a shake-up in the high-yield division. Morgan Stanley's stock is down 27 percent over the last four years, compared with a 4 percent gain for Goldman Sachs, an 18 percent gain for Lehman Brothers and an 11 percent decline for Merrill Lynch. It closed yesterday at $58.07. By all accounts, Mr. Purcell, a former McKinsey executive who is more comfortable discussing strategy with advisers than with pitching deals to corporate clients or meeting with investors, has taken an active role recently to address the issues. In recent weeks he has met individually with the firm's top institutional shareholders, like Fidelity, Alliance, Putnam and Wellington, making the case that his model of a diversified firm, providing credit cards, brokerage services, mutual funds and core banking and trading activities, is not an outdated one. This month, Mr. Purcell made a similar pitch at a meeting of Morgan's advisory directors, a group of 30 or so senior executives who no longer have an operational function at the firm. He brought up Mr. Sipprelle's letter, arguing that Morgan Stanley was bent on improving the lagging businesses and persuading a skeptical market that the firm was undervalued. Directors who were there gave Mr. Purcell credit for taking up the issue with vigor, but wondered if the time to make the case had passed. 'Phil just didn't make the sale,' said one advisory director who insisted on not being identified. Morgan acknowledges that its stock should be a better performer. 'There is more value at the firm than we get credit for,' said Vikram S. Pandit, president of the firm's institutional securities business. 'This firm has had an equity bent in the past years. And I would hope that momentum in the equity markets will allow the full value of the firm to shine through.' He added that he felt that the firm currently had the right business mix to push the stock's recovery. Mr. Pandit's business contributes about 60 percent of the firm's profits, driven by its top-ranked investment banking, trading and hedge fund businesses. The businesses that have lagged include retail brokerage, run by John H. Schaefer, a longtime associate of Mr. Purcell, and Discover. Asset management, which has struggled in recent years, has had better days of late. While Mr. Sipprelle's campaign has caused a stir, concentrating as it does on a festering issue within the firm, his prescription that Morgan sell or spin off all divisions except its institutional securities business strikes others as unrealistic. 'They are definitely going to keep the parts together and concentrate on revenues,' said Richard X. Bove, an analyst at Punk Ziegel. 'In the short run, that is better for shareholders, but the question is the long run.' The long run could well depend on how Mr. Purcell makes his case to the board as well as to shareholders. It is a board with close ties to the new Morgan Stanley and to Mr. Purcell (no current Morgan directors attended Mr. Fisher's memorial service). Two directors, C. Robert Kidder, the former chief executive of Borden Chemical, and Miles L. Marsh, who once ran the Fort James Corporation, are former McKinsey consultants, as was Mr. Purcell. And Edward A. Brennan, the former chief executive of Sears who tapped Mr. Purcell to run Dean Witter, rejoined the board in December, after having left in 2003 when he became executive chairman of AMR, the parent of American Airlines. Mr. Brennan no longer holds that position although he remains a director there along with Mr. Purcell. And while the directors backed Mr. Purcell over John J. Mack, the former president who left the firm in 2001 during a period of increased scrutiny of director responsibility to shareholders, analysts expect that their patience will not be infinite if Morgan Stanley's stock continues to lag the pack.

Subject: Duration in Bond Funds From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 12:07:33 (EST) Email Address: Not Provided Message: Vanguard bond funds have durations that are fairly constant. The GNMA bond fund tends to change the most. Duration is the relation between interest rate change and price change. A 1 year duration bond fund will change in price by about 1 percent when interest rates change by 1 percent. But, knowing this relationship should build investment confidence. A Vanguard short term bond fund will have a duration of 2 years. So, a 1 percent change in interest rates will change the fund price by 2 percent. This means that if I am in the Vanguard Short Term Bond Index and rates were to rise this day by 1 percent, share price would fall by 2 percent. But, the fund yield would rise by 1 percent and in 2 years I would make the interest rate I had started with for the fund would have adjusted to the initial change. Bonds funds run this way will always give superior returns to money market funds, if an investor is patient.

Subject: Duration in Bond Funds [cont.] From: Terri To: Terri Date Posted: Tues, Feb 08, 2005 at 12:37:37 (EST) Email Address: Not Provided Message: The only question for me in bond investing has been whether to opt for the long term or intermediate term or short term bond index. Long term has a duration of about 10 years, intermediate term about 5, and short 2. Staying long term has actually been the right choice since 1981, but 1989 or 1995 or 2000 were fine starting points as well. The problem is this bull market in bonds really will come to an end so we may opt for the intermediate or short term bond index.

Subject: Dangerous Wall Street? From: Emma To: All Date Posted: Tues, Feb 08, 2005 at 10:05:43 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/08/opinion/08shiller.html How Wall Street Learns to Look the Other Way By ROBERT J. SHILLER New Haven THE New York Stock Exchange's report on the pay package given to its former chairman, Dick Grasso, made clear the excessiveness of the compensation and the ineffectiveness of the safety controls that failed to stop it. What the report didn't provide, however, was an answer to an obvious question: Why did nobody on the exchange's board look at that astronomical sum and feel some personal responsibility to find out what was happening? I can't read minds, but I think it's fair to say that to some extent the players in this drama - as well as those in the ones now being played out in courtrooms and starring former executives of Tyco, WorldCom and HealthSouth - have been shaped by the broader business culture they have worked in for so long. And, as with any situation in which we are puzzled by how a group of people can think in a seemingly odd way, it helps to look back to how they were educated. Education molds not just individuals but also common assumptions and conventional wisdom. And when it comes to the business world, our universities - and especially their graduate business schools - are powerful shapers of the culture. That said, the view of the world that one gets in a modern business curriculum can lead to an ethical disconnect. The courses often encourage a view of human nature that does not inspire high-mindedness. Consider financial theory, the cornerstone of modern business education. The mathematical theory that has developed over the decades has proved extremely valuable in general. But when it comes to individuals, the theory runs into some problems. In effect, it portrays people as nothing more than 'maximizers' of their own 'expected utility.' This means that people are expected to be totally selfish, constantly calculating their own advantage, with no thought of others. If the premise is that everyone would steal the silverware if he knew he could get away with it, and if we spend the entire semester developing the implications of this assumption, then it is hard to know where to begin to talk about ethics. At the notorious Aug. 7, 2003, board meeting in which Mr. Grasso was given the right to pocket $139.5 million, questions of whether the compensation was too high were aired but got nowhere. Maybe it is not too surprising that they were ignored: executive compensation has been soaring in recent years, and to people today, it may well seem that these increases must be entirely the result of respectable 'market forces.' Modern business education often encourages excessive respect for anything that can be considered a result of the free market. For example, the leading corporate finance textbook, 'Principles of Corporate Finance' by Richard A. Brealey and Stewart C. Myers, lists the efficient markets theory ('security prices accurately reflect available information and respond rapidly to new information as soon as it becomes available') as one of the seven most important ideas in finance. The other six are even less personal, models of perfect markets that only mathematicians can fully appreciate. It should not be surprising that those who were trained by books like these would not consider the possibility that there could be a bubble in executive compensation. The book does not have anything kind to say about regulators like the Securities and Exchange Commission, the regulatory agency that strives to make sure that we can trust the securities we buy. The commission is rarely mentioned, and then only as a source of a few bothersome rules that must be followed, without giving any clue as to the reasons for the rules. (It is worth noting that it was the commission that asked the stock exchange's board to disclose Mr. Grasso's pay package; otherwise, the controversy might never have come to light.) Yes, some business school curriculums have been improving over the years. Many schools now offer a course in business ethics, and some even try to integrate business ethics into their other courses. But nowhere is ethics seen as a centerpiece or even integral part of the curriculum. And even when business students do take an ethics course, the theoretical framework of the core courses tends to be so devoid of moral content that the discussions of ethics must seem like a side order of some overcooked vegetable. I like to assign my finance students 'Take On the Street,' an account by Arthur Levitt of his efforts, as chairman of the S.E.C. in the 1990's, to clean up the sleazy side of Wall Street. I wish more professors assigned it. But most of my colleagues tell me they do not have time for it; too many formulas to cover. Ultimately, the problem at the university level is a tendency toward overspecialization. Each professor gains expertise in a certain kind of research skill; that is how subject matter is defined. The specialty of financial theory has largely come to be defined by skills manipulating a narrow class of mathematical models of purely selfish behavior. Business ethics is just another academic specialty, and can seem as remote as microbiology to those studying financial theory. Whatever happens with Mr. Grasso - and with Dennis Kozlowski of Tyco and the other avatars of corporate misconduct in the headlines these days - we should be reminded that ethical behavior for many business people must involve overcoming their learned biases. Perhaps these scandals would be a little less likely, and the rationalizations for them a little less tenable, if more of us professors integrated business education into a broader historical and psychological context. Would our students really fail to understand the economic models if we treated the subject matter not as an arcane specialty, but as part of a larger liberal arts education? Robert J. Shiller, the author of 'Irrational Exuberance,' has taught Economics 252, Financial Markets, at Yale College since 1985.

Subject: Corrupt Wall Street From: Pete Weis To: Emma Date Posted: Tues, Feb 08, 2005 at 15:11:02 (EST) Email Address: Not Provided Message: Today we learn that the the CEO at Morgan-Stanley got a 57% pay hike, including $22 million in 'compensation'. Morgan-Stanley's stock lost 4% in 2004. Why anyone would own stock in Morgan-Stanley or many of America's largest corporations and banking institutions bewilders me. The greed, unethical conduct and corruption is rampant and little has been done to change it. But then again, how a president who himself has, as an insider, sold out shareholders while at Harkin and who has presided over a huge loss of wealth among all but the wealthiest, and who has us locked up in a nasty occupation which will end up at best in yet another intolerant Islamist state, gets reelected is also beyond understanding.

Subject: Amen From: David E.. To: Pete Weis Date Posted: Tues, Feb 08, 2005 at 20:11:51 (EST) Email Address: Not Provided Message: Eliot Spitzer with a tiny crew has no trouble finding billion dollar problems on a moment's notice. Capitalism is broken, and has been broken since Harvard came up with the MBA in the early sixties. Professional managers were intended to replace retiring entrepeneurs. So far, I have been unimpressed with the professional management of MBA's. Their loyalty and fealty has not been to the stockholders. This unease with management is why my stock allocation is 30%. And most of that 30% is there not for growth, but for inflation protection.

Subject: Dangerous Chinese Banking From: Emma To: All Date Posted: Tues, Feb 08, 2005 at 09:58:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/08/business/worldbusiness/08yuan.html Lax Management at China's Banks Remains a Concern of Regulators and Investors By CHRIS BUCKLEY BEIJING - China's top regulator laid out proposals on Monday to cut bad loans and bank fraud, but also had harsh words for a state-owned bank that acknowledged recently that a manager had embezzled $102 million. The proposals came in response to the admission last month by the Bank of China, which plans to go public this year, that a branch manager in northeastern China had embezzled 840 million yuan from several bank accounts before fleeing the country. This latest scandal barely stands out in China, where cases of bank corruption involving hundreds of millions of dollars seem to pop up regularly. But it comes at an especially tense moment for China's state-owned commercial banks as the Bank of China and the China Construction Bank prepare to become the first banks here to sell stock in their domestic operations. Investors have been scrutinizing the banks' preparedness for their stock market debut, and the recent case of theft does not help, analysts said. 'It may be small compared to the bank's size, but it raises major concerns about whether the Bank of China has proper internal controls,' said Ivan Chung, managing director of Xinhua Far East China Credit Ratings in Shanghai. 'At this stage, so close to the I.P.O., it's still a shock to the market.' On its Web site Monday, the China Banking Regulatory Commission proposed rules that, if approved, would require the nonperforming loans of individual banks to make up no more than 5 percent of total lending - a sizable cut from official levels of 16 percent for most banks - and to maintain a return on assets of at least 11 percent. The commission also published an account of a meeting on Saturday at which regulators strongly criticized China's state-owned banks for recent fraud and mismanagement. 'These cases involve massive sums, egregious circumstances and quite serious losses,' the commission told officials from China's 'Big Four' state banks attending the meeting. 'They've exposed problems with lax internal management, nonenforcement of rules, noninvestigation of violations and light punishments in some commercial banks.' The banks were also warned that managers who failed to investigate and report fraud would be punished. 'The government had to do something to assure the market it's serious about reforms,' Mr. Chung said, 'and the only way to do that was to chastise the Bank of China.' International investors have long been aware of mismanagement at Chinese banks, and the stock offerings are unlikely to be derailed. But the case has highlighted the need for the banks to meet international management standards as they go to market. Investor anxieties may be magnified by fears that China's recent credit boom could be followed by a bust if the economy flags. 'We're going to have the same problem as last time,' said Stephen Green, an economist for Standard Chartered Bank in Shanghai, referring to China's last flush of bad loans in the mid-1990's. 'It's a question how serious the problem will be.' In the recent case at the Bank of China, Gao Shan, the manager of a branch in the northeast Chinese city of Harbin, siphoned money from the account of the Northeast Expressway Company, which is listed on Shanghai's stock exchange, and several other accounts over several years. Mr. Gao, his family and many of his accomplices fled abroad late last year, possibly to the United States, Canada or South Korea; two others suspected in the embezzlement committed suicide, according to Chinese press reports. The gravity of this latest scandal lay not in the sums involved, but in what it revealed about internal controls at China's banks. China's state-owned commercial banks, which control the vast bulk of the country's loans, have made progress in instituting internal checks on fraud and abuses, said Ryan Tsang, director of financial services for Standard & Poor's in Hong Kong. In recent years they have invested heavily in new technology and instituted management practices to centralize loan approvals and money transfers and collect credit information about borrowers. The Bank of China case, however, shows those changes have not flowed throughout the banking system, he said. 'It's a difficult thing to do in a fast-growing economy like China,' Mr. Tsang said of China's process of strengthening credit checks and controls. 'Many companies don't have transparent financial records.' Bank officials say the number of bad loans has fallen, but the Harbin case showed that deeper, lasting changes have yet to take root at many local branches, said Mr. Chung, the analyst at Xinhua Far East China Credit Ratings. He said that the investor emphasis had been on nonperforming loans, 'but for the banks to remain healthy they must also have good internal checks and balances.' The Bank of China case 'may be a good thing in disguise, because it shows how far we are from that,' he said. The Harbin branch embezzlement is only the latest in a string of theft and mismanagement cases at the Bank of China. In 2001, two managers of the Bank of China fled abroad after taking more than $500 million from a branch in southern China. In 2003, Liu Jinbao, the head of the Bank of China's operations in Hong Kong, which trades separately on Hong Kong's stock exchange, was accused of illegally lending $260 million to a Shanghai real estate developer, amid accusations of bribery and graft. Last year, a former manager in the Bank of China's branch in New York was indicted with two others on charges of embezzling $25 million. The governor of China's central bank, Zhou Xiaochuan, acknowledged that the most recent scandal might rattle some potential investors in the Bank of China and the China Construction Bank. 'After all, something bad has happened,' said Mr. Zhou, according to a Bloomberg report. 'It's impossible to say there won't be repercussions.'

Subject: America's last ownership society From: Pete Weis To: All Date Posted: Tues, Feb 08, 2005 at 09:58:20 (EST) Email Address: Not Provided Message: From AZcentral online business journal: America's last attempt at 'ownership society' crashed big Feb. 6, 2005 12:00 AM At 82, Bill Walsh of Phoenix is among the diminishing number of Americans who remember life before Social Security, its survivor's benefits and other reforms of the New Deal. His father died in 1936 after four years with no job. 'My mom got nothing,' he said, 'but a $45-a-month widow's pension from the county . . . I remember my mother sitting at the table crying. There was nothing in the house to eat.' America had an 'ownership society' once before, in the 1920s. Taxes were cut and regulations left over from World War I were eliminated. Record numbers of people bought homes and invested in the stock market. Stock speculation in personal accounts became a mania for the middle class. Government was minimal and closely allied with business, as exemplified by Treasury Secretary Andrew Mellon, one of the richest men in the country and one long lionized by today's conservatives. Businessmen were the unquestioned leaders of the age. Americans saw them not only as wise and shrewd, but high-minded, having moved beyond the rapaciousness of the Gilded Age. Herbert Hoover was, in the evocative phrase of historian Arthur Schlesinger Jr., the 'prophet of the new era.' A brilliant engineer and self-made business success, Hoover had also distinguished himself with relief efforts in Europe after World War I. In 1928, he was elected president. This America appeared to transcend the old conflicts of industrialization, where big business was all-powerful and often malign. At the turn of the 20th century, this had given rise to the Progressive movement, trust buster Theodore Roosevelt and dangerous radical movements. Now, it appeared, enlightened businessmen could create sustained prosperity for all, with every American an owner. And, for awhile, the economy boomed. Yet trouble lurked. Wealth was heavily concentrated among a few families, while millions lived in poverty. Among this latter group were many older Americans. The only safety net came from some local governments, private charities, and the remnants of a traditional society built around families, small towns and farms. In October 1929, the stock market crashed, wiping out many investors. Broad corruption, conflicts of interest and structural problems, which had been concealed by the bubble, emerged. In the Great Depression that followed, one out of four Americans was unemployed. Leading industrialists and economists were dumbfounded. Although Hoover moved aggressively to help business, he refused government help to individuals, fearful of destroying self-reliance. So out of touch was Hoover that he would later write, 'Many persons left their jobs for the more profitable ones of selling apples.' Yet the economy only got sicker, and suffering spread. Eventually, radicalism and discontent became so serious that Washington was protected by machine-gun nests. The great age of business lay in wreckage. The new president, Franklin Roosevelt, moved ahead with historic measures to ensure the safety of banking, regulate the stock market, and provide unemployment insurance and Social Security. Conservatives denounced them as 'the lash of the dictator,' 'ultimate socialistic control of life and industry' and measures 'stifling individual responsibility.' History, as we know, turned out differently.

Subject: Re: America's last ownership society From: Terri To: Pete Weis Date Posted: Tues, Feb 08, 2005 at 16:33:29 (EST) Email Address: Not Provided Message: Darn darn darn darn darn.

Subject: The Need for Bond Fund Income From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 06:18:22 (EST) Email Address: Not Provided Message: Investors are facing a significant immediate problem with this bond market. While older households should be moving assets to bond funds, there has been a 22 year bull market in bonds that has left interest rates at 40 year lows. Where is income to come from for bond fund investors? Of course for long term bond fund investors these last 5 years there should have been wonderful capital gains, but what of income from here. What do new bond fund investors do?

Subject: What Recourse? From: Jennifer To: Terri Date Posted: Tues, Feb 08, 2005 at 07:23:16 (EST) Email Address: Not Provided Message: We should give a thought to the recourse of American investors who wish to use bond funds as a portfolio balance. Many thoughts actually.

Subject: The great conumdrum. nm From: Pete Weis To: Jennifer Date Posted: Tues, Feb 08, 2005 at 10:01:57 (EST) Email Address: Not Provided Message:

Subject: Re: The great conumdrum. nm From: Pete Weis To: Pete Weis Date Posted: Tues, Feb 08, 2005 at 10:15:09 (EST) Email Address: Not Provided Message: Bill Gross advice: 1. Own some inflation protection. For his bond funds, Bill has been buying TIPS, which are inflation protected Treasury bonds. 2. Stay with short-maturity bonds. While long-dated bonds can fluctuate wildly in price, short-term investments like bank CDs won't. You won't make much, but you won't lose anything either. 3. Be choosy about WHERE you invest. Invest in bonds in countries like Britain, which are vigilant about inflation, stable, and pay higher yields (5% ) than U.S. bonds.

Subject: Alternative Minimum Tax From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 05:48:21 (EST) Email Address: Not Provided Message: There has been no provision for setting aside the Alternative Minimum Tax in the budget proposal and projection, but the AMT will have to be set aside or there will be quite a new Congress in 2 to 4 years. The budget numbers with the AMT set aside will be more of a problem, but the tax will do increasing damage to the middle class and must be set aside.

Subject: Revenue Problem From: Terri To: Terri Date Posted: Tues, Feb 08, 2005 at 05:54:58 (EST) Email Address: Not Provided Message: The budget problem is a revenue problem, but there is no real possibility of a near term change in the revenue stream. So we go on.

Subject: Asian Bond Market Support From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 05:35:16 (EST) Email Address: Not Provided Message: The support for the American bond market from abroad from Japan and China and India and the smaller Asian economies has been a wonderful asset builder for American households. How long this support continues we can not know, but America should be grateful. There will be no serious movement in Congress to halt this support fropm China. Proposals for penalties on Chinese traders will have no success.

Subject: Bond and Stocks From: Terri To: All Date Posted: Tues, Feb 08, 2005 at 05:27:49 (EST) Email Address: Not Provided Message: Though there is one fearsome article after another on the bond market, the interest rate on the long term Treasury note has declined to 4.05%. Long term bonds continue an astonishing bull market and low interest rates must be a support for the stock market for there is less volatility in the stock market than I can recall.

Subject: Re: Bond and Stocks From: jimsum To: Terri Date Posted: Tues, Feb 08, 2005 at 11:28:22 (EST) Email Address: jim.summers@rogers.com Message: Long bonds paying 4% put an interesting slant on privatizing Social Security. People with personal accounts will essentially be charged a real interest rate of 3%; supposedly what the Social Security trust fund earns. But, if long-term bonds are 4% and inflation is 3.3% (and rising), the current real rate for long bonds is less than 1%. Right now, it looks a lot more likely that payroll tax revenues, which (usually) grow with GDP, are going to return more than long bonds. At current interest rates, it's better to invest in a share of future tax revenue (i.e. a pay-as-you-go pension) than bonds. When long bonds start paying 6% or more, maybe private pensions will be worth considering.

Subject: Re: Bond and Stocks From: Terri To: jimsum Date Posted: Tues, Feb 08, 2005 at 12:10:40 (EST) Email Address: Not Provided Message: Clever analysis indeed. Better now to invest in future payroll tax revenue, ineed.

Subject: Economic Hit Man From: johnny5 To: All Date Posted: Mon, Feb 07, 2005 at 18:45:23 (EST) Email Address: johnny5@yahoo.com Message: How can people like Terri and Pete make good business decisions at the individual level with such powerful forces doing clandestine activity? A hit man comes clean on economy By ROBERT TRIGAUX, Times Business Columnist Published February 7, 2005 Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. . . . I should know; I was an EHM. - John Perkins, author of Confessions of an Economic Hit Man Floridian John Perkins led a comfortable life as a former international economist and energy entrepreneur. He planned to spend his retirement years writing New Age books and promoting organizations devoted to the environment and helping Amazon tribes. Then came the terrorist attacks of Sept. 11, 2001. To Perkins, now 60, who spent years smack dab in the middle of the U.S. international development game across the globe - 9/11 was a wake-up call. A call to confess. Hence his recently published book, Confessions of an Economic Hit Man. It tells how the United States in the past 40-plus years has relied on economic manipulation and political coercion to extend its power and control over other nations. Perkins' book is on a dozen bestseller lists and ranked No. 10 on Sunday's list of nonfiction bestsellers in the New York Times. It is already in its seventh printing. Perkins apparently has hit a nerve with readers anxious to understand better why so many parts of the developing world have such deep-seeded suspicions of the United States. The book sheds new light on decades of economic maneuvers in the Middle East that contributed to today's U.S. involvement in Iraq. The book even offers some context for the current tensions between the energy-hungry United States and one of its major oil providers, Venezuela, as detailed by St. Petersburg Times Latin America correspondent David Adams on this business page. 'What economic hit men do is not illegal, but it should be illegal,' Perkins said in a recent interview. If a banker persuaded someone to take out a loan that was too big to repay, but then demanded some favor to satisfy the loan, it would be criminal, he argues. 'This is done on such an international and big scale, that is it not criminal,' he said. To be sure, Perkins' 'confession' does not break entirely new ground. Books on antiglobalism and U.S. imperialism are abundant. I am reminded of Chalmers Johnson's book published in 2000, Blowback. That is a CIA term describing the unintended consequences of events that were kept secret from the American public. When the 9/11 attacks happened and Americans asked, 'Why do they hate us?,' most of the world knew full well, Johnson wrote at the time. But most Americans had no idea. Perkins' book offers a similar theme. But his story is bolstered by the author's firsthand experiences in Saudi Arabia, Iran, Indonesia, Panama and Columbia. In our interview, Perkins recalled how discouraged he was at the rising anti-Americanism he encountered last year on a trip to Nepal and Tibet. 'Our people seem unaware,' he said of Americans. 'They believe that foreign aid is used altruistically. But it is often not used that way, and our own citizens do not understand that.' As a younger man in 1971, Perkins' business card identified him as an economist for Charles T. Main. The elite Boston consulting firm advised the World Bank, International Monetary Fund and other multinational development agencies whether they should lend billions to developing countries to build such mega-projects as hydroelectric dams, roads and power plants. In reality, said Perkins, he had been recruited as an 'economic hit man.' He had interviewed years before with the National Security Agency, but took a detour by working for the Peace Corps. While in Ecuador, he was approached by a Charles T. Main executive named Einar Greve, a U.S. Army Reserve colonel who told Perkins he also acted as an NSA liaison. When Perkins' stint with the Peace Corp was over, Greve hired Perkins at Main. The malleable Perkins then met company consultant Claudine Martin. As described in the book, she introduced him to his secret role and to the phrase 'economic hit man' or EHM. Sound a bit too cloak and dagger? Greve, now retired as president of Tucson, Ariz., Electric Power Co., told the Tucson Citizen last month said Perkins' story is 'basically true.' Perkins' job was to travel the globe and purposely inflate the economic growth estimates in developing countries. Those bloated estimates were then used to justify funneling billions of international aid dollars and bank loans into poor countries. The money would largely end up in the hands of giant U.S. engineering and construction firms like Bechtel and Halliburton, contracted to build the dams and power plants. Any funds left over often disappeared into the hands of dictators and a few politically powerful families. It was a sweet, self-serving and corrupt set-up, Perkins acknowledged, one the young economist happily went along with to enjoy the big pay and perks that come with living in developing countries. The real beauty was that Perkins did not work for an NSA or CIA. He was employed by a private company. It was part of a system that initially, after World War II, was intended to exert U.S. influence and discourage the spread of communism in Third World countries. Now that same system helps extend the U.S. global empire and, increasingly, the reach and influence of large U.S. corporations, Perkins argues. Billions of federal taxpayer dollars simply recycled into the hands of big U.S. corporations. The debt incurred by the developing countries - based on Perkins' own rigged analyses of the countries' economies - would eventually overwhelm them. When that happened, the United States gained more influence over the indebted country. 'It was like what the hit men in the Mafia do,' Perkins explained. 'We arranged for someone to get a gift from the 'Don' that they can never really repay. Then the 'Don' wants something, possibly illegal, and asks for repayment.' And what favors did the United States request? 'Control over United Nations votes, the installation of military bases or access to precious resources such as oil,' Perkins said. Thanks to the role of economic hit men in the 1970s, Perkins said, Saudi Arabia cut a deal with the United States to provide ample oil, even in hard times, in exchange for U.S. military protection. The first Iraqi war in the early 1990s and the current involvement in Iraq, Perkins suggests, are the result of past failures of economic hit men to make Iraq under Saddam Hussein more beholden to this country. Americans don't like to hear it - and it is unfortunate, Perkins said - but decades of U.S. meddling in the Middle East contributed to the rise and 'Robin Hood' status of Osama Bin Ladin in certain parts of the world. He hopes his speaking up will make things better for the next generation, including daughter Jessica, a 22-year-old FSU graduate now working in Tampa. Last month, Perkins left his Florida home near Palm Beach Gardens for Brazil. There he told his well-received tale as an economic hit man to thousands of people attending the six-day World Social Forum. The event is held each year to protest the simultaneous World Economic Forum in Switzerland attended by government leaders, multinational executives and, lately, Hollywood celebrities. Now Perkins is traveling this country to tell his story, with scheduled speaking engagements across the Midwest, and at such northeastern schools as Princeton, the University of Pennsylvania and Brown. Some confessions take a lot longer than others. Robert Trigaux can be reached at 727 893-8405 or trigaux@sptimes.com Economic Hit Man www.stpetetimes.com/2005/02/07/Columns/A_hit_man_comes_clean.shtml

Subject: Re: Economic Hit Man From: Terri To: johnny5 Date Posted: Mon, Feb 07, 2005 at 20:44:06 (EST) Email Address: Not Provided Message: Interesting article, as usual.

Subject: A Debate on Environmentalism From: Emma To: All Date Posted: Mon, Feb 07, 2005 at 18:43:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/06/national/06enviro.html?ei=5070&en=2bb350d7af4c71d7&ex=1107925200&pagewanted=all&position= Paper Sets Off a Debate on Environmentalism's Future By FELICITY BARRINGER MIDDLEBURY, Vt. - The leaders of the environmental movement were livid last fall when Michael Shellenberger and Ted Nordhaus, two little-known, earnest environmentalists in their 30's, presented a 12,000-word thesis arguing that environmentalism was dead. It did not help that the pair first distributed their paper, 'The Death of Environmentalism,' at the annual meeting of deep-pocketed foundation executives who underwrite the environmental establishment. But few outside the movement's inner councils paid much attention at first. Then came the November election, into which groups like the Sierra Club and the League of Conservation Voters poured at least $15 million, much of it to defeat President Bush, whose support for oil drilling and logging, and opposition to regulating greenhouse gases have made him anathema to environmental groups. Instead, Mr. Bush and Congressional champions of his agenda cemented their control in Washington at a time when battles loom over clean air and oil drilling in the Arctic National Wildlife Refuge. Now a debate about the future of environmentalism is ricocheting around the Internet about the authors' notion of, in Mr. Shellenberger's words, 'abolishing the category' of environmentalism and embracing a wider spectrum of liberal issues to 'release the power of progressivism.' Carl Pope, executive director of the Sierra Club, began things in the fall with a bristling 6,000-word denunciation of Mr. Shellenberger's and Mr. Nordhaus's paper. An online magazine, Grist.org, has started a forum to debate their ideas and their assertions that environmentalism has become 'just another special interest.' One writer called the paper 'ridiculous and self-serving.' Another wrote simply, 'I'm not dead.' Others have embraced the paper. 'The article articulates exactly my feelings about the environmental movement,' one enthusiast wrote. Mr. Nordhaus, 38, is a pollster, and Mr. Shellenberger, 33, is a strategist and the executive director of the Breakthrough Institute, a new organization that advocates putting progressive values to work to solve problems. They are receiving an increasing number of speaking invitations like the one that brought them here to Middlebury College in central Vermont recently, where they spoke at a conference on rethinking the politics of climate. The election results may not have been the only reason they have struck a nerve. Other nagging concerns abound, like worries about the effect of repeated defeats on morale and concerns about image; a recent survey conducted for the Nature Conservancy suggested that the group use the term 'conservationist' rather than 'environmentalist.' 'To a large extent, most of us in the environmental movement think most people agree with us,' said Bill McKibben, a scholar in residence at Middlebury College and the author of 'The End of Nature,' a 1989 book on global warming. But Mr. McKibben, who called Mr. Shellenberger and Mr. Nordhaus 'the bad boys of American environmentalism,' said their data showed that the kind of political support the movement had in the late 1970's had come and gone. 'The political ecosystem is as real as the physical ecosystem so we might as well deal with it,' he said. Their paper asserts that the movement's senior leadership was blinded by its early successes and has become short-sighted and 'just another special interest.' Its gloomy warnings and geeky, technocentric policy prescriptions are profoundly out of step with the electorate, Mr. Shellenberger and Mr. Nordhaus say. 'We have become convinced that modern environmentalism, with all of its unexamined assumptions, outdated concepts and exhausted strategies, must die so that something new can live,' they wrote. As proof, they cite the debate on global warming and the largely unsuccessful push for federal regulation of industrial and automobile emissions. They avoided making tactical prescriptions, but they did chide the movement for its limited efforts to find common ground with other groups, like labor and urged their compatriots to tap into the country's optimism. Mr. Nordhaus, who works at Evans/McDonough, an opinion research company, told the student-dominated conference at Middlebury College that environmentalists 'have spent the last 25 or 30 years telling people what they cannot aspire to.' Given the can-do spirit of the country, 'that isn't going to get you very far,' he said. The authors' arguments are based partly on data from a Canadian polling company, Environics, that show American voters edging away from the environmentalists and some of their allies. For example, the percentage of the 2,500 people in the poll who agree that pollution is necessary to preserve jobs rose from 17 percent in 1992 to 29 percent in 2004. The paper - based largely on interviews with 25 environmental leaders - has exposed latent fault lines in the often-fractious world of groups who battle for strategies to preserve wetlands, save endangered species and the wilderness, and eliminate toxic pollutants in the air and water. The observations have rippled through the environmental movement to the anger of some of its leaders and foundation executives and to the applause of a scattering of younger or less visible environmentalists. John Passacantando, the executive director of Greenpeace USA, was the only national environmental leader who chose to come to Vermont to hear the pair when they appeared at the conference. 'These guys laid out some fascinating data,' Mr. Passacantando said, 'but they put it in this over-the-top language and did it in this in-your-face way.' The movement has always been able to count on overwhelming expressions of support for its goals; polls consistently show approval of 70 percent to 80 percent or more. And memberships have been rising steadily at organizations like the Sierra Club, which reported an increase in membership from about 642,000 in 2000 to 750,000 last year. That helps those who dismiss Mr. Shellenberger and Mr. Nordhaus as upstarts. 'The environmental movement is probably the strongest social movement we have in this country,' said Joshua Reichert, director of the environment division of the Pew Charitable Trusts, a major source of financing for environmental causes. Mr. Reichart added: 'It reflects the values and aspirations of a huge majority of the country - but it simply can't compete with war and terrorism, nor should we expect it to.' Mr. Reichert, his counterparts at the William and Flora Hewlett Foundation and scores of other foundation members who support organized environmental activity were the intended audience of the paper. It was underwritten by Peter Teague, the environment director of the Nathan Cummings Foundation. Perhaps the most scathing response came from Mr. Pope of the Sierra Club, who said the paper mischaracterized both the interviews with him and the state of the environmental movement. Phil Clapp, the president of the National Environmental Trust, who pushed for new tactics in his own day, said the authors fundamentally misunderstood both history and politics. 'There's some great fantasy out there that the nation's great environmental laws were passed in some national wave of unanimity with millions of people assaulting the barricades demanding environmental protection,' Mr. Clapp said. 'In reality it was the result of 10 years' hard work - grass-roots organizing, careful and skillful lobbying of members of Congress and careful policy analysis.' Deb Callahan, president of the League of Conservation Voters, said that the movement had been changing even before the paper was written. 'I think what we are looking at is the rebirth of environmentalism, examining constituencies, messages and focus and going beyond what we've been comfortable with,' Ms. Callahan said. But she agreed that success was not at hand as she and her colleagues confront 'the most hostile federal government we've seen in the history of the environmental movement,' she said. The decision by Mr. Shellenberger and Mr. Nordhaus to pick global warming as Exhibit A of their argument, Mr. Pope said, was unfair. 'Since global warming is our hardest problem, and we brought to bear our weakest tool, expertise, it's hardly surprising that we are getting our worst results,' he said. Mr. Pope also took a dig at his adversaries' motives. 'Given that the chosen audience of the paper was the funders,' he wrote, 'it will be hard for many readers to avoid the suspicion that the not-so-hidden message was, 'Fund us instead.' ' In the trenches of the movement, the reviews were more positive. In San Francisco last year, Adam Werbach, who in his early 20's was the national president of the Sierra Club, joined the chorus with a speech that echoed the tone of the Shellenberger-Nordhaus paper and that began, 'I am here to perform an autopsy.' And in an e-mail message to Mr. Pope, Gerald Winegrad, a Sierra Club member and a board member of the Maryland League of Conservation voters, wrote, 'We are failing now, I would suggest very badly, in accomplishing our goals.'

Subject: Trim Deficit? Only With Magic From: Emma To: All Date Posted: Mon, Feb 07, 2005 at 10:56:51 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/07/business/07fiscal.html?pagewanted=all&position= Trim Deficit? Only if Bush Uses Magic By EDMUND L. ANDREWS WASHINGTON - The economy is growing. Tax revenues are climbing. But can these factors rescue President Bush from a federal deficit that seems stuck above $400 billion? The answer, unfortunately, is almost certainly no, analysts say. For all the programs that Mr. Bush is expected to slash in his budget proposal on Monday - from health care and housing aid to Amtrak - the cuts would total less than $15 billion next year and barely dent the deficit. By far the biggest parts of the budget - Medicare, Social Security and military spending - would be immune from cuts and are expected to grow rapidly for years to come. On top of that, Mr. Bush's plan to replace part of Social Security with private savings accounts could require additional trillions of dollars in borrowing over the next several decades. The cornerstone of Mr. Bush's budget strategy is a belief that vigorous economic growth, spurred by supply-side tax cuts that were designed to provide incentives for upper-income Americans to produce more wealth, will generate big jumps in tax revenue that gradually reduce the deficit. At first glance, he would seem to have grounds for optimism. After all, surging tax revenue did come to Washington's rescue during the economic boom of the 1990's, pushing the budget from the red to the black. Republican and Democratic budget analysts, however, say that such an event is much less likely this time around. The contrasts are stark: ¶Through most of the 1990's, government spending grew at a snail's pace. But government spending soared during President Bush's first term and is expected to keep growing rapidly as the nation's baby boomers start to claim old-age benefits. ¶In the 1990's, the biggest jump in revenues came from high-income taxpayers who made enormous profits in the stock market bubble that ended in 2000. But Mr. Bush's tax cuts of 2001 and 2003 reduced rates on the wealthiest taxpayers and cut in half the taxes on dividends and capital gains, making it all but impossible for revenues to rise at a substantially faster pace than economic growth. ¶Mr. Bush's own projections leave out the cost of rolling back the alternative minimum tax, a parallel tax that is expected to ensnare tens of millions of middle-income households as incomes rise with inflation. Republicans and Democrats both want to prevent such a trap, but a fix would cost roughly $500 billion over the next 10 years. 'I don't think we are likely to see a repeat of the 1990's,' said Douglas Holtz-Eakin, the Republican-appointed director of the Congressional Budget Office. 'We can't grow our way out of this.' When Mr. Bush unveils his budget plan on Monday, White House officials hope to focus public attention on his proposals to cut scores of domestic programs: Medicaid, housing programs and Amtrak subsidies, among others. But while many of those cuts would be severe, their impact on the deficit would be small. Administration officials have proposed changes they say would reduce Medicaid spending by $60 billion over 10 years, or about $6 billion a year. Mr. Bush would cut spending on community development programs, consolidating 18 programs into 2 and reducing annual outlays from $5.6 billion to $3.7 billion. Eliminating operating subsidies for Amtrak, which would face intense opposition in Congress, would save about $1.2 billion a year. In all, Mr. Bush has vowed to cut or eliminate 150 government programs. But Republican Congressional analysts predicted on Friday that those cuts would be unlikely to save more than $15 billion. And even those savings may not materialize. Last year, Mr. Bush called for cutting or eliminating 65 programs, for a total projected saving of $4.8 billion. But Congress agreed to eliminate only four of those programs, for a savings of less than $200 million. The other side of Mr. Bush's equation - higher tax revenues that result from faster growth - is unlikely to fill the gap. Despite strong economic growth and soaring corporate profits last year, federal tax revenues amounted to only 16.3 percent of the total economy, comparable with levels in the 1950's and far below the level of 21 percent reached during the stock market bubble in 2000. 'What's unrealistic is that they are trying to fund a government with today's demands on a 1950's stream of revenue,' said Robert Bixby, executive director of the Concord Coalition, a research group that advocates fiscal discipline by the government. Tax revenues soared far beyond expectations during the economic boom and stock market bubble of the late 1990's, but budget analysts say there is little likelihood of repeating that feat in this decade. One reason is that Mr. Bush's tax cuts of 2001 and 2003 went largely to the nation's wealthiest taxpayers, the same people who accounted for the unexpected flood of tax revenue last time around. White House officials are already counting on tax revenues to surge by at least $200 billion this year, an increase of about 10 percent, and to climb more gradually after that. But even Mr. Bush's conservative allies have warned that those inflows will not be enough to cover the continued growth in overall government spending. Brian Riedl, budget analyst at the Heritage Foundation, a conservative research group here, estimated that deficits would remain around $400 billion through 2009 if current spending trends on Iraq and major benefit programs continued. For Mr. Bush to fulfill his promise of cutting the deficit in half by 2009, Mr. Riedl said, the president would have to cut $200 billion from domestic programs that now cost less than $500 billion a year. 'There is no way you can reach that goal by cutting only discretionary spending,' Mr. Riedl said. 'You have to go after entitlements as well.' About two-thirds of the $2.3 trillion federal budget now goes to entitlement programs. The Congressional Budget Office estimates that costs for Medicare will rise $55 billion in 2005, to $380 billion. Social Security outlays are expected to rise to $540 billion, from $517 billion. But Mr. Bush has focused almost all of his budget cuts on discretionary domestic programs costing a total of $466 billion last year. Freezing spending at current levels on the vast array of programs Washington supports - thus allowing them to grow simply at the rate of inflation - would save about $10 billion next year, according to the Congressional Budget Office; a politically difficult reduction of 1 percent would save about $15 billion. Senator Judd Gregg, Republican of New Hampshire and chairman of the Senate Budget Committee, said neither Mr. Bush's spending cuts nor his hope of strong economic growth would be enough to close the gap. 'You can't get there from here unless you look at entitlements,' Mr. Gregg said last Thursday. 'It's for the same reason that Willy Sutton said he robbed banks: Because that's where the money is.' Chad Kolton, a spokesman for the White House Office of Management and Budget, said Mr. Bush was on track to cut the deficit by half over the next five years. 'We have a two-pillar approach for getting the budget deficit down by half,' Mr. Kolton said, 'by restraining the growth in government spending and encouraging greater economic growth that leads to higher tax revenues.' But even if rising tax revenues do help reduce the deficit over the next five years, the subsequent five years are likely to be far more difficult. For starters, Mr. Bush wants to permanently extend his tax cuts rather than allow them to expire by 2011. That would cost about $1.8 trillion over the next decade, and most of the cost would occur after 2009. If Congress prevents an expansion of the alternative minimum tax, which Mr. Bush has said he wants, the cost would be $500 billion over the next decade and well over half of those costs would in the second five years. Those blows would be hitting the budget at the same time that the costs of the new Medicare prescription drug programs approach $100 billion a year and as the flood of baby boomers start to claim Social Security and Medicare entitlements. By that time, however, Mr. Bush will no longer be in office.

Subject: The change in course of money... From: Pete Weis To: All Date Posted: Mon, Feb 07, 2005 at 10:24:59 (EST) Email Address: Not Provided Message: as it flows through the US economy. From the International Herald Tribune: Floyd Norris: They build houses, don't they? Off the Charts International Herald Tribune Saturday, February 5, 2005 The American building boom helped to carry the economy in 2004, and even saw the first increase in six years in spending on manufacturing facilities. Figures released by the U.S. Commerce Department this week showed that Americans spent $998 billion on the construction of everything from homes to factories in 2004. That was a record high, with spending up 9 percent, the fastest rate of increase since 1996, when the gain was 10.6 percent. The figures are the government's estimates of actual dollars spent, and are not adjusted for inflation. With construction spending growing more rapidly than other sectors, it equaled 8.5 percent of the gross domestic product, up from 8.3 percent in 2003. The gain was fueled by the booming housing market, with private spending on residential construction climbing 14 percent from 2003 to a record $543 billion. It was the fastest gain since 1993. There were gains in construction spending in almost every sector of the economy, but in areas outside of housing, the economy remained less robust than it was before the technology bubble burst and sent the economy into recession in 2001. Overall, nonresidential private spending - that is, spending by other than governments - rose an anemic 3.9 percent. That gain came after three years of declining spending and did little to bring spending back to prerecession levels. For example, spending on office buildings rose 5.8 percent in 2004. But it remains 38.6 percent below the level of 2000, when nonresidential construction spending peaked. Commercial construction, largely for stores, rose 6 percent but remains 4.5 percent below the 2000 level. Money spent on lodging construction - hotels and motels - rose 18.5 percent in 2004, a gain even larger than that of residential construction. But lodging spending remained 27.7 percent below the peak it reached in 2000. No area of the economy did better in 1999 than spending on communications facilities, which rose 47.6 percent that year. Last year, it rose 4.9 percent, but spending remained 30.8 percent below the 2000 level. Overall, private spending on nonresidential construction in 2004 came to $222 billion, 17.1 percent below the 2000 figure. But the $543 billion spent on residential building was up 44.9 percent from the 2000 level. In 1997, $43 of every $100 spent by the private sector on construction went for something other than housing. By 2004 that share was down to $29. Another indication of the changing American economy came in relative spending on manufacturing facilities and those for health care, including hospitals and offices for physicians. Private spending on manufacturing construction edged up 2.2 percent to $14.6 billion in 2004, while that for heath care facilities rose 9.7 percent to $25.9 billion. That is a continuation of a trend. In 1996, the private sector spent $2.47 on manufacturing facilities for every dollar it put into health care facilities. By 2004, it was spending just 56 cents on manufacturing facilities for each dollar spent on health care facilities.

Subject: Adaptability From: Terri To: Pete Weis Date Posted: Mon, Feb 07, 2005 at 10:42:34 (EST) Email Address: Not Provided Message: These changes with growth continuing nicely may be just the right example of what Alan Greenspan is thinking about when talking of the adaptability of the American economy. Excellent article.

Subject: 'Pixie Dust' From: Pete Weis To: Terri Date Posted: Mon, Feb 07, 2005 at 15:17:18 (EST) Email Address: Not Provided Message: The latest from Morgan-Stanley's Stephen Roach: At long last, Federal Reserve Chairman Alan Greenspan has owned up to the central role he has played in sparking unprecedented global imbalances. His confession came in the form of a speech innocuously entitled, “Current Account” that was given in London at the Advancing Enterprise 2005 Conference on the eve of the 5 February G-7 meeting. In the narrow world of econo-speak, his prepared text contains the functional equivalent of a “smoking gun.” Greenspan’s admission came when he finally made the connection between the excesses of America’s property market and its gaping current account deficit. To the best of my knowledge, this was the first time he ventured into this realm of the debate with such clarity. He starts by conceding “…the growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the United States from almost 6 percent in 1993 to its current level of 1 percent.” He then goes on to admit that the rapid growth in home mortgage debt over the past five years has been “driven largely by equity extraction” -- jargon for the withdrawal of asset appreciation from the consumer’s largest portfolio holding, the home. In addition, the Chairman cites survey data suggesting, “Approximately half of equity extraction shows up in additional household expenditures, reducing savings commensurately and thereby presumably contributing to the current account deficit.” In other words, he concedes that a debt-induced consumption boom has led to a massive current account deficit. That says it all, in my view. The obvious and most important point is that rapid growth of US mortgage debt did not come out of thin air. It was, of course, a direct outgrowth of the Fed’s hyper-accommodation of the post-bubble era -- namely, short-term interest rates that have been negative in real terms for longer than at any point since the 1970s. As Greenspan’s dryly notes, “The fall in US interest rates since the early 1980s has supported home price increases.” That’s putting it mildly. Suffice it to say, were it not for the Fed’s aggressive monetary accommodation -- especially the post-bubble easing of some 550 bps in 2001-03 -- the home mortgage refinancing cycle would have been in a very different state. But it wasn’t just lower borrowing costs that spurred equity extraction. It was also the rapid rate of house price appreciation -- an outgrowth of what Greenspan notes has been the “unprecedented rate of existing home turnover” that he also attributes to sharply lower interest rates. Equity extraction has been the pixie dust of America’s post-bubble recovery -- the newfound purchasing power that has fostered the biggest consumption binge in post-World War II history. Were it not for this wealth effect, consumers would have been constrained by an anemic pace of labor income generation -- long the most decisive variable in the macro consumption equation. Lacking in job creation and real wage growth, private sector real wage and salary disbursements have increased a mere 4% over the first 37 months of this recovery -- fully ten percentage points short of the average gains of more than 14% that occurred over the five preceding cyclical upturns. Yet consumers didn’t flinch in the face of what in the past would have been a major impediment to spending. Spurred on by home equity extraction and Bush Administration tax cuts, income-short households pushed the consumption share of US GDP up to a record 71.1% in early 2003 (and still 70.7% in 4Q04) -- an unprecedented breakout from the 67% norm that had prevailed over the 1975 to 2000 period. These are the telltale footprints of what I have called the Asset Economy (see my 21 June 2004 dispatch, “The Asset Economy”). It’s a story that began in the latter half of the 1990s with the equity bubble. And it’s a story that involved the Federal Reserve as a key player at every subsequent twist and turn. Its role can be traced back to December 1996 with Alan Greenspan’s famous “irrational exuberance” speech -- his first and only warning of the bubble-related perils to come. Unfortunately, the Chairman was quick to become a convert to the very excesses he warned of -- embracing the New Paradigm of rapid productivity growth as justification for why the central bank would be willing to stand by and tolerate faster than normal growth. That acquiescence -- putting the Fed Chairman in the dangerous role of a cheerleader insofar as the financial markets were concerned -- gave a green light to investors and speculators all the way to NASDAQ 5000. Then when that bubble popped, the Fed went into its well-rehearsed “Japan drill” -- unleashing the aggressive easing that gave rise to the excesses of the home mortgage equity extraction cycle. This is the grand continuum of the Asset Economy -- wealth effects that morphed seamlessly from the stock market into the property market. Aided and abetted by the conscious policy tactics of the Fed, Alan Greenspan can hardly profess innocence in assessing the current state of global imbalances. By warmly embracing asset appreciation and the debt binge it fostered, the central bank has encouraged consumers to all but abandon traditional income-based saving strategies. Instead asset-based saving has become the “new new” thing of the Asset Economy -- as has the debt-induced equity extraction that has driven US consumption to unprecedented excess. This shortfall of income-based personal saving, in conjunction with outsize government budget deficits, has created the very shortfall of national saving that makes ever-widening current-account deficits unavoidable. And that, of course, puts extraordinary pressure on the rest of the world to fund America’s profligate ways. At long last, Chairman Greenspan owns up to the central role he and his colleagues at the Federal Reserve have played in fostering these developments.

Subject: Possibly From: Terri To: Pete Weis Date Posted: Mon, Feb 07, 2005 at 18:19:39 (EST) Email Address: Not Provided Message: Here we are setting the housing boom in a different light, noting that building housing debt accounts for the decline of household saving. We must think carefully about this. I will read Alan Greenspan's entire comments, then all of Stephen Roach.

Subject: Return of the 30's? From: Pete Weis To: All Date Posted: Sun, Feb 06, 2005 at 14:19:16 (EST) Email Address: Not Provided Message: The 30's were marked by a build-up of huge debt (today it's greater as a ratio to GDP), overall wealth redistributed to the upper 1% (or so) with a loss in middle-class wealth, Wall Street corruption, stock market crash, and tariff wars. Here come the tariffs. Large scale financial institution failures would probably complete the deal. What happens to Fannie-Mae, Freddi-Mac, JP Morgan and Citigroup who all are locked up in many trillions of dollars in interest rate swap, derivative contracts (remember Buffet's 'weapons of mass financial destruction'?) if interest rates jumped because a bond market panic ensues after China doesn't show up for a treasury auction? China holds the ace-in-the-hole in this dispute, but if they misjudge and get carried away with firing a retaliatory shot they could blow too big a hole in our economy for any quick repairs to be made. And would Congress after having made this mistake be quick to fold their tales between their legs and put up a white flag - rescinding the tariffs in time? IMO, they wouldn't. Will congressional representatives who realize the dangers in placing 27% tariffs on Chinese goods, be willing to vote this bill down, knowing that most of their constituents believe China is stealing American jobs? I certainly hope so - but we shall see. As big an issue as privatizing social security is - this is, IMO, much bigger. From the Asia Times: US Bill threatens punitive tariff on China over yuan 27.5% tariff on all manufactured imports if yuan is not revalued within 6 months By JEAN CHUA (SINGAPORE) China has a six-month deadline to revalue its currency under a Bill to be introduced in the US Senate, or face a 27.5 per cent tariff on all manufactured goods entering the United States. At least a dozen senators from President George Bush's Republican Party and the Democratic Party have agreed to co-sponsor the Bill, amid charges that the renminbi is wreaking havoc on the US economy. 'It will be introduced hopefully tomorrow or in the coming days and would require China to abide by international trade agreements and stop manipulating the value of its currency,' Israel Klein, spokesman for New York Democrat Senator Charles Schumer, told AFP. Mr Schumer is spearheading the proposed legislation. Mr Klein said the legislation would give China 'a window of 180 days' to revalue its currency or face a tariff on its exports to the US. Responding to the latest development, China hit back at the proposed US Bill, saying yesterday that it should be allowed to make the decision on its own. The threat of tariffs 'is not the right way', said Foreign Ministry spokesman Kong Quan. 'We believe the currency issue in the final analysis should be conducive to the economic development of a country. We believe China's stable, sustained and rapid development is not only conducive to China itself but is also mutually beneficial to trade cooperation between China and Asia and all countries in the world.' The Bush administration has often complained that the renminbi, which is fixed at 8.27 to the US dollar, is grossly undervalued and thus keeping China's exports artificially cheap, undermining US exports and putting many Americans out of work. The US trade deficit with China is ballooning and may have hit US$150 billion last year, or one quarter of the US deficit with all countries, analysts say. The US Treasury's Under-Secretary for International Affairs John Taylor acknowledged on Tuesday that China has taken steps 'consistent with the move towards a flexible exchange rate', including participation in the Group of Seven meeting of finance chiefs in London from today. 'But setting time lines or indicating any other dates is not what we're hearing. The important thing is that we are seeing steps, and we urge them to move in that direction.' The G-7 industrialised countries have discussed with China the possibility of pegging the yuan to a basket of world currencies - rather than just the US dollar - at their last four meetings, Italy's Economy Minister, Domenico Siniscalco, said on Wednesday. Chinese finance officials are preparing to face demands to ease controls on the renminbi at the G-7 meeting. They have maintained that China will eventually let the renminbi trade freely but say that to do so now would cause financial chaos and endanger the country's frail banking industry. Central bank governor Zhou Xiaochuan and Finance Minister Jin Renqing plan to explain China's position to the US and other G-7 members. Jun Ma, an economist with Deutsche Bank in Hong Kong, said: 'I don't think the proposed legislation put forward by a few senators representing certain interest groups will find support from the majority of Congress, and certainly not from the Bush administration. China will retaliate if trade sanctions are imposed.' - AFP, Bloomberg, Reuters

Subject: Re: Return of the 30's? From: Terri To: Pete Weis Date Posted: Sun, Feb 06, 2005 at 20:42:21 (EST) Email Address: Not Provided Message: Interesting article. The long term bond market will tell us when there is need to be concerned, and lately the bond market is responding to a slowing in economic growth and long term interest rates are remarkably low. There is just no worry about inflation or the currency or debt in long term bond prices. Not yet, not yet, not yet.

Subject: Re: Return of the 30's? From: johnny5 To: Pete Weis Date Posted: Sun, Feb 06, 2005 at 20:35:14 (EST) Email Address: johnny5@yahoo.com Message: Good post Pete - trade sanctions hurt us all in the end long term - but this Sr Senator from new york seems to be very pro labor. Democrat Senator Charles Schumer http://www.nationalreview.com/dunphy/dunphy200311030758.asp The American Conservative Union keeps tabs on voting records in both the House and Senate, scoring each legislator according to his adherence to conservative principles. By the ACU's standard, Schumer has earned a lifetime score of six (out of 100) based on his record as a senator and as a member of the House of Representatives. Even Hillary Clinton, perhaps to her embarrassment, managed an eleven. http://www.issues2000.org/Senate/Charles_Schumer.htm You can see from his voting record his stance on china and trade issues. Voted YES on killing a bill for trade sanctions if China sells weapons. (Sep 2000) Remove import restrictions on Canadian beef. (Dec 2003) Pressure Canadian government to avoid their milk subsidies. (Jun 2003) Voted YES on establishing a free trade agreement between US & Singapore. (Jul 2003) Voted YES on establishing a free trade agreement between the US and Chile. (Jul 2003) Voted NO on extending free trade to Andean nations. (May 2002) Voted YES on granting normal trade relations status to Vietnam. (Oct 2001) Voted YES on removing common goods from national security export rules. (Sep 2001) Voted YES on permanent normal trade relations with China. (Sep 2000) Voted YES on expanding trade to the third world. (May 2000) Rated 25% by CATO, indicating a pro-fair trade voting record. (Dec 2002) Charles Schumer on Jobs Voted NO on repealing Clinton's ergonomic rules on repetitive stress. (Mar 2001) Voted NO on killing an increase in the minimum wage. (Nov 1999) Protect overtime pay protections. (Jun 2003) Rated 85% by the AFL-CIO, indicating a pro-labor voting record. (Dec 2003) Plans to be a good senator, but may not serve a full term. (Oct 2004) Religious affiliation: Jewish. (Nov 2000) Profiled in 'Jews in American Politics'. (Jan 2001) Is this someone you think the faith based bush repub's want to get into bed with? Pro labor and strong dem from NY? http://www.issues2000.org/VoteMatch/q19.asp Strongly Opposes topic 14: Link human rights to trade with China (10 points on Social scale) YES on killing a bill for trade sanctions if China sells weapons: Opposes topic 14 YES on permanent normal trade relations with China: Strongly Opposes topic 14 YES on granting normal trade relations status to Vietnam: Opposes topic 14 He opposses to strongly opposses sanctions in his past.

Subject: Re: Return of the 30's? From: Pete Weis To: johnny5 Date Posted: Mon, Feb 07, 2005 at 15:07:33 (EST) Email Address: Not Provided Message: This tariff bill is finding bipartisan support. Just not sure how extensive the support is. Just wonder - once this bill is introduced how many senators and house reps will want to go against it? The Chinese I believe will get very inflexible if this bill makes it through. I believe they are less likely to float their currency if it means yielding to public threats - it will become a battle of political ego's on both sides. Here's more from the Asian press: China blasts threatened US deadline on yuan as wrong way to handle issue By : Date : 03 February 2005 1913 hrs (SST) URL : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/130647/1/.html BEIJING : China said a threatened US bill giving it six months to revalue its currency, the yuan, would be the wrong way to handle the sensitive issue. 'We believe this is not a way to resolve differences,' foreign ministry spokesman Kong Quan told a regular briefing. 'Every country's economic and financial policy are implemented and established based on the country's specific situation,' he said. A least a dozen US senators are said to have agreed to co-sponsor the bill which would give China 'a window of 180 days' to revalue the yuan or face a 27.5 percent tariff on all Chinese manufactured goods entering the United States. It is expected to be introduced into the US Senate as early as Friday. A ranking state-employed economist said the government was unlikely to be intimidated by such a move. 'China doesn't have to change the yuan exchange rate under pressure from the outside,' said Zhu Baoliang, a researcher at the State Information Center, an elite Beijing think tank. 'If the Chinese government wants to change its policy, it should be at a time when it's required by domestic needs,' he told AFP. 'Personally I agree the yuan should change at a proper time but in accordance with the domestic economic situation, not because of international pressure,' Zhu said. The yuan, now fixed at 8.28 to the dollar, is kept in a narrow band by the People's Bank of China, the central bank. This level is considered too weak by many financial observers and made worse by recent weakening of the dollar. The United States trade deficit with China is ballooning and may have hit 150 billion dollars last year or one-fourth the US deficit with all countries, analysts say. 'Ensuring and maintaining the rapid, healthy and stable development of China's economy helps not only China but also the mutually beneficial economic and trade cooperation with Asia and other countries in the world,' Kong said. China will send two senior officials to the G7 meeting in London this week but it is unlikely Beijing will make any major announcement on its fixed currency system, analysts say.

Subject: Re: Return of the 30's? From: johnny5 To: johnny5 Date Posted: Sun, Feb 06, 2005 at 20:42:35 (EST) Email Address: johnny5@yahoo.com Message: http://www.issues2000.org/VoteMatch/q19.asp VoteMatch Link Human Rights and Trade in China POSITIONS Strongly Support means you believe: Buy American and impose import tariffs against China. Take a hard-line on the immorality of the Chinese government: No WTO, no MFN, no PNTR. Support means you believe: Pressure for human rights improvements, and strict sanctions against future human rights violations, should be tied inherently to all trade negotiations with China. An annual review of Chinese improvement is a good idea. Oppose means you believe: Maintain open trade with China as a tool to move China towards democracy. We should conduct open trade with China because it's good for the US economy - we will end up with cheaper prices and more export-related jobs. We can pressure China better if they rely on us as trade partners. Strongly Oppose means you believe: We should conduct open trade with China because the US government should not be involved with foreign government's affairs. If we want to sanction China for human rights violations, we should do so by private-based boycotts. This question is looking for your views on dealing with the world's largest remaining Communist power. However you answer the above question would be similar to your response to these statements: Block China's entry into the WTO. Do not grant China MFN. The Cox Report indicates that China is our real enemy. Formally recognize Taiwan. Human rights rules should apply to Cuba, Vietnam, and other potential human rights violators. How do you decide between 'Support' and 'Strongly Support' when you agree with both the descriptions above? (Or between 'Oppose' and 'Strongly Oppose'). The strong positions are generally based on matters of PRINCIPLES where the regular support and oppose positions are based on PRACTICAL matters. If you answer 'No Opinion,' this question is not counted in the VoteMatch answers for any candidate. So it's more important to give a general answer of support versus oppose, than to get the strength of your answer exactly refined, or to think too hard about the exact wording of the question. Strongly Support means you believe in the principle that the Beijing government is evil -- the Evil Empire in Russia has been replaced by the ChiComms. Support means you believe that for practical reasons, pressure via tade restrictions will improve human rights in China. Oppose means you believe that for practical reasons, influence within the WTO will better improve human rights in China. Strongly Oppose means you believe in the principle of free trade supercedes huma rights improvements. BACKGROUND ‘One China’ Policy The US, the ROC, and the PRC agreed in 1972 to the ‘One China’ policy, under which all parties abide by the fiction that China is one country currently under two governments but awaiting eventual reunification. China is formally known as ‘The People’s Republic of China’, or ‘PRC.’ The PRC is home to nearly a billion and a half people, over 20% of the world’s population. The PRC has been ruled by the Chinese Communist Party since 1949. Taiwan is known as ‘The Republic of China’ or ‘ROC.’ Taiwan is an island off the coast of the PRC, and has a democratically elected government. Taiwan is home to 21 million people, but its economy is comparable in size to the PRC. Taiwan split from the PRC during the Communist Revolution, when the former government was driven off the mainland by the Communists. The US has promised to defend Taiwan against an invasion from China. China has promised to invade if Taiwan declares independence, most recently in July 1999 when Taiwan's President declared the ‘One China’ policy a fiction. The current US policy is called ‘strategic ambiguity’: we are intentionally unclear on what would provoke US intervention, so that neither China nor Taiwan will act rashly. President Bush removed some of the ambiguity in April 2001, by declarnig that the US would unambiguously defend Taiwan with military force in the case of a Chinese invasion. The Cox Report A House of Representatives Committee chaired by Rep. Christopher Cox released a National Security report in May 1999 known as the ‘Cox Report.’ The report detailed how the Chinese government spied on US nuclear facilities over the last two decades and as a result was able to improve their nuclear capabilities. A secret version of the report was released to President Clinton in January 1999. The candidates’ views on the Cox Report focus on what should be done to prevent further Chinese spying, and on what the government should do about past Chinese spying. MFN ‘MFN’ means that China is treated in our trade relations in the same manner as we treat our ‘Most Favored Nations’ as trading partners. Granting China MFN status means that we have open trade with them. Congress reviews MFN status annually to decide if China should be granted MFN status for the next year. Granting MFN status in recent years has been tied to the improvement of China’s human rights record. Talks are held between the US and the PRC to decide which human rights violations will be addressed, and then MFN status is granted. The term ‘MFN’ has been replaced this year by ‘Normal Trading Relations’, abbreviated ‘NTR’, which means the same thing. The US House of Representatives voted in May 2000 to grant China ‘Permanent NTR’ status, ending the annual debate. WTO The World Trade Organization is the international agency which defines the rules of global trade between nations. Its purpose is to ensure free trade. Its 135 member nations, including the US and most other large economies, agree to keep import tariffs below specified levels when applied to other WTO members. China is seeking membership in the WTO because that would ensure China of free trade with other WTO members. If granted WTO membership, China would no longer be subject to its annual MFN review. But China would also have to abide by the WTO trade rules themselves, which would mean lowering their import tariffs against US goods. The Senate overwhelmingly (83-15) voted for PNTR for China in September 2000 and President Clinton signed it into law. This law included the US's agreement for China's entry into the WTO. China Buzzwords ‘Defend Taiwan’ by increasing military aid, or by reducing US strategic ambiguity, or by disavowing the ‘One China’ policy, is a buzzword that implies an anti-China stance. Mentioning ‘Tibet’, ‘Xinjiang’, ‘Tiananmen’, when discussing China implies that one would restrict trade with China on human rights grounds. ‘Tibet’ is the Buddhist province (bordering Nepal and India), home of the exiled Dalai Lama, where the Chinese invaded in 1959, and have been putting down Buddhist uprisings since. ‘Xinjiang’ is the Islamic province in the west of China (bordering Pakistan, Afghanistan, and the Islamic former Soviet republics), known to Muslims as Uighurstan or East Turkestan, where the Chinese have been putting down uprisings even more severley and secretively than in Tibet. ‘Tiananmen’ refers to the massacre in Tiananmen Square (central Beijing) on June 4, 1989, where thousands of protestors demanding democracy and an open society were killed by the Chinese army. ‘Being tough’ on China implies a desire to limit trade with China. ‘Being tough’ on China takes different forms each year: in 1999, one would say ‘Heed the Cox Report’; in 2000, ‘Crack down on Chinese spies’; in 2001, ‘Demand our spy plane back.’ Often, trade with Vietnam is a proxy for one's views on trade with China. One usually supports or opposes open trade with Vietnam on the same grounds that one does so with China, except without the geopolitical underpinning.

Subject: Dargon for Trade Eagle for Safety From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 14:02:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/06/weekinreview/06brook.html?pagewanted=all&position= The Dragon for Trade, the Eagle for Safety By JAMES BROOKE TOKYO — In the eyes of Shintaro Ishihara and others here, Japan used to be too meek and mild, allowing an overbearing United States to push it around. Mr. Ishihara was one of the authors of the best seller 'The Japan That Can Say No,' a call for national spine-stiffening that framed the foreign policy debate here in the 1990's. One of Japan's responses was to build a thriving relationship with China, whether Washington liked it or not. Now Mr. Ishihara and Japanese nationalists like him are at it again, but in reverse. It's an overbearing China that needs to be told no, they say; the alliance with America should be nurtured. The latest rallying point involves the economic rights to a large swath of the Pacific Ocean around an uninhabited Japanese atoll 1,100 miles southwest of Tokyo. Mr. Ishihara, now the governor of Tokyo, briefed Prime Minister Junichiro Koizumi last week on a plan to cement Japan's claim to the ocean rights by building a power plant near Okinotori Island and encouraging commercial fishing. 'We will conduct economic activities there,' the governor said. 'We will not let China say anything about it.' That kind of talk breaks with the stereotype of modern Japan's make-no-waves foreign policy and is all the more remarkable considering the huge economic stake Japan has in China. Long the leading destination for Japanese foreign investment, China last week displaced the United States as Japan's biggest single trading partner. But China's 'peaceful rise' makes Japan nervous. It has reacted by building up its lukewarm partnership with the United States into a rock-solid alliance. One major step was to send troops to help the American-led coalition in Iraq, overcoming deep qualms about overseas deployment. 'The Japanese government has been greatly emboldened by the perceived success of the alliance with the United States in the last few years,' said Takashi Inoguchi, a Tokyo University professor of international politics. There is little love lost between Asia's two economic titans. Japan lobbies Europe and Russia not to sell advanced weapons to China's military; China opposes Japan's aspirations to a seat on the United Nations Security Council. China fumes at Japan's friendly relations with Taiwan; Japan wonders why it is giving aid to a nation that has a program to put a man on the moon.

Subject: Dargon for Trade Eagle for Safety - 1 From: Emma To: Emma Date Posted: Sun, Feb 06, 2005 at 14:02:59 (EST) Email Address: Not Provided Message: For years, Japan reflexively smoothed over any frictions with China. But its patience may be spent. Last November, Japanese destroyers chased a Chinese submarine from the waters around Japan's southernmost islands; in December, Japan formally identified China as a potential military threat. Ignoring Chinese objections, Japan welcomed Lee Teng-hui, a former president of Taiwan, on a visit last month, and the Dalai Lama is expected in April. Over the last 25 years, Japan has provided China with nearly $30 billion in development loans, a fact rarely mentioned in China's press. During his four years in office, Mr. Koizumi has cut development aid to China in half, and he is now considering halting it entirely: 'I think it's graduation time,' he told reporters recently. Behind Japan's new attitude is a new postwar generation of politicians, led by Mr. Koizumi and Shinzo Abe, currently his most likely successor. They believe World War II should no longer haunt Japan's relations with its neighbors. But they see in China a growing unwillingness to let it go. The 1989 Tiananmen Square crackdown and its aftermath led many Japanese to conclude that China's leadership intends to hold on to power by replacing Communism with a distinctly anti-Japanese nationalism. Surveys of Chinese teenagers and young adults find them much more anti-Japanese than their parents and grandparents. Those attitudes and China's bias in favor of sons, which by 2020 may produce a population with 40 million more young men than young women, could be a combustible mixture. A taste of the danger came at a China-Japan soccer match last August in Beijing. Chinese fans screamed, 'little Japan, petty Japan' at television cameras and then rioted after the game, burning Japanese flags and spitting at Japanese fans. Many Japanese suspect that the Chinese authorities allow such incidents as a way to let off steam in a politically closed society. 'The masses sense they can pretty much get away with anything when Japan is the target,' wrote Yoichi Funabashi, Japan's leading foreign affairs columnist. Ma Licheng, an independent Chinese academic, wrote in Japan Echo magazine: 'The fact is that China has nothing to fear from Japan today; indeed, it is the Japanese who regard China with trepidation. The doctrine of the 'Chinese threat' is gradually taking hold in Japan.' Japanese leaders increasingly talk of the relationship with the United States as overridingly important. 'The future of Asia will be decided by the two-way balance between China and the U.S.-Japan alliance, not a trilateral balance among the three countries,' Hisahiko Okazaki, a retired Japanese diplomat, said in an interview. 'What is Japan's China policy in the future? Strengthen the U.S.-Japan alliance. What do to about North Korea? Strengthen the U.S.-Japan alliance.' The emerging dynamic with China is often described here as 'cold politics, hot economics.' Some 18,000 Japanese companies have operations in China now, about twice as many as a decade ago. Matsushita Electric Industrial, parent of Panasonic, expects to hire more Chinese college graduates this year than Japanese graduates. But Japanese business leaders worry that frosty political relations and street-level hostility are undermining Japan's economic appeal in China. Beyond sporadic calls for boycotts of Japanese goods, they see a threat to big contracts. Last fall, an order for high-speed trains was cut to $1 billion, half the expected amount, after a lightning Internet campaign protested Japan's 'involvement in China's railway industry.' Unnerved officials in Beijing ordered the protest Web site shut down. Over the long term, the economic trajectories of the two countries are clear. Barring catastrophes, 'China will become the sole leader in Asia, with Japan as an important subordinate,' Toyoo Gyohten, a Japanese business leader, warned in a speech last fall. Mr. Gyohten questioned the wisdom of antagonizing China out of pique over Chinese harping on World War II. 'Many Japanese believe they have already apologized,' he said. 'But I, for one, believe that we should apologize as many times as possible.' But for Mr. Koizumi, Mr. Ishihara and their generation, there is a statute of limitations on contrition. As Jeffrey Kingston, director of Asian Studies at Temple University Japan, said in an interview: 'This is a Japan that doesn't flinch any more.'

Subject: Jared Diamond on Ernst Mayr From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 12:59:27 (EST) Email Address: Not Provided Message: http://www.edge.org/3rd_culture/mayr/mayr_index.html October 2001 What Evolution Is: An Introduction By Jared Diamond: When the first bird survey of the Cyclops Mountains was carried out. I found it hard to imagine how anyone could have survived the difficulties of that first survey of 1928, considering the already-severe difficulties of my second survey in 1990. That 1928 survey was carried out by the then-23-year-old Ernst Mayr, who had just pulled off the remarkable achievement of completing his Ph.D. thesis in zoology while simultaneously completing his pre-clinical studies at medical school. Like Darwin, Ernst had been passionately devoted to outdoor natural history as a boy, and he had thereby come to the attention of Erwin Stresemann, a famous ornithologist at Berlin's Zoological Museum. In 1928 Erwin Stresemann, together with ornithologists at the American Museum of Natural History in New York and at Lord Rothschild's Museum near London, came up with a bold scheme to 'clean up' the outstanding remaining ornithological mysteries of New Guinea, by tracking down all of the perplexing birds of paradise known only from specimens collected by natives and not yet traced to their home grounds by European collectors. Ernst, who had never been outside Europe, was the person selected for this daunting research program. Ernst's 'clean-up' consisted of thorough bird surveys of New Guinea's five most important north coastal mountains, a task whose difficulties are impossible to conceive today in these days when bird explorers and their field assistants are at least not at acute risk of being ambushed by the natives. Ernst managed to befriend the local tribes, was officially but incorrectly reported to have been killed by them, survived severe attacks of malaria and dengue and dysentery and other tropical diseases plus a forced descent down a waterfall and a near-drowning in an overturned canoe, succeeded in reaching the summits of all five mountains, and amassed large collections of birds with many new species and subspecies. Despite the thoroughness of his collections, they proved to contain not a single one of the mysterious 'missing' birds of paradise. That astonishing negative discovery provided Stresemann with the decisive clue to the mystery's solution: all of those missing birds were hybrids between known species of birds of paradise, hence their rarity. From New Guinea, Ernst went on to the Solomon Islands in the Southwest Pacific, where as a member of the Whitney South Sea Expedition he participated in bird surveys of several islands, including the notorious Malaita (even more dangerous in those days than was New Guinea). A telegram then invited him to come in 1930 to the American Museum of Natural History in New York to identify the tens of thousands of bird specimens collected by the Whitney Expedition on dozens of Pacific Islands. Just as Darwin's 'explorations,' sitting at home, of collections of barnacles were as important to Darwin in forming his insights as was his visit to the Galapagos Islands, so too Ernst Mayr's 'explorations' of bird specimens in museums were as important as his fieldwork in New Guinea and the Solomons in forming his own insights into geographic variation and evolution. In 1953 Ernst moved from New York to Harvard University's Museum of Comparative Zoology, where even today he continues to work at the age of 97, still writing a new book every year or two. For scholars studying evolution and the history and philosophy of biology, Ernst's hundreds of technical articles and dozens of technical books have been for a long time the standard reference works. But in addition to gaining insights from his own fieldwork in the Pacific and from his own studies of museum bird specimens, Ernst has collaborated with many other scientists to extract insights from other species, ranging from flies and flowering plants to snails and people. One of those collaborations transformed my own life, just as the meeting with Erwin Stresemann transformed Ernst's life. While I was a teenaged schoolboy, my father, a physician studying human blood groups, collaborated with Ernst in the first study proving that human blood groups evolve subject to natural selection. I thereby met Ernst at dinner at my parents' house, was later instructed by him in the identification of Pacific island birds, began in 1964 the first of 19 ornithological expeditions of my own to New Guinea and the Solomons, and in 1971 began to collaborate with Ernst on a massive book about Solomon and Bismarck birds that we completed only this year, after 30 years of work. My career, like that of so many other scientists today, thus exemplifies how Ernst Mayr has shaped the lives of 20th-century scientists: through his ideas, his writings, his collaborations, his example, his lifelong warm friendships, and his encouragement.

Subject: The Science of Biology From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 11:14:27 (EST) Email Address: Not Provided Message: http://www.edge.org/3rd_culture/mayr/mayr_index.html ERNST MAYR: WHAT EVOLUTION IS EDGE: To what extent has the study of evolutionary biology been the study of ideas about evolutionary biology? Is evolution the evolution of ideas, or is it a fact? ERNST MAYR: That's a very good question. Because of the historically entrenched resistance to the thought of evolution, documented by modern-day creationism, evolutionists have been forced into defending evolution and trying to prove that it is a fact and not a theory. Certainly the explanation of evolution and the search for its underlying ideas has been somewhat neglected, and my new book, the title of which is What Evolution Is, is precisely attempting to rectify that situation. It attempts to explain evolution. As I say in the first section of the book, I don't need to prove it again, evolution is so clearly a fact that you need to be committed to something like a belief in the supernatural if you are at all in disagreement with evolution. It is a fact and we don't need to prove it anymore. Nonetheless we must explain why it happened and how it happens. One of the surprising things that I discovered in my work on the philosophy of biology is that when it comes to the physical sciences, any new theory is based on a law, on a natural law. Yet as several leading philosophers have stated, and I agree with them, there are no laws in biology like those of physics. Biologists often use the word law, but for something to be a law, it has to have no exceptions. A law must be beyond space and time, and therefore it cannot be specific. Every general truth in biology though is specific. Biological 'laws' are restricted to certain parts of the living world, or certain localized situations, and they are restricted in time. So we can say that their are no laws in biology, except in functional biology which, as I claim, is much closer to the physical sciences, than the historical science of evolution. EDGE: Let's call this Mayr's Law. MAYR: Well in that case, I've produced a number of them. Anyhow the question is, if scientific theories are based on laws and there aren't any laws in biology, well then how can you say you have theories, and how do you know that your theories are any good? That's a perfectly legitimate question. Of course our theories are based on something solid, which are concepts. If you go through the theories of evolutionary biology you find that they are all based on concepts such as natural selection, competition, the struggle for existence, female choice, male dominance, etc. There are hundreds of such concepts. In fact, ecology consists almost entirely of such basic concepts. Once again you can ask, how do you know they're true? The answer is that you can know this only provisionally by continuous testing and you have to go back to historical narratives and other non-physicalist methods to determine whether your concept and the consequences that arise from it can be confirmed. EDGE: Is biology a narrative based of our times and how we look at the world? MAYR: It depends entirely on when in the given age of the intellectual world you ask these questions. For instance when Darwin published The Origin of Species, the leading Cambridge University geologist was Sedgwick, and Sedgwick wrote a critique of Darwin's Origin that asked how Darwin could be so unscientific as to use chance in some of his arguments, when everyone knew that God controlled the world? Now who was more scientific, Darwin or Sedgwick? This was in 1860 and now, 140 years later, we recognize how much this critique was colored by the beliefs of that time. The choice of historical narratives is also very time-bound. Once you recognize this, you cease to question their usefulness. There are a number of such narratives that are as ordinary as proverbs and yet still work.

Subject: Re: The Science of Biology From: Emma To: Emma Date Posted: Sun, Feb 06, 2005 at 11:15:15 (EST) Email Address: Not Provided Message: Ernst Mayr's interview 'What Evolution Is' was given October 2001, at 97, in time for the publication of the book :)

Subject: Seeking to Cut Subsidies to Farmers From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 09:58:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/06/politics/06budget.html?ei=5070&en=ab624c863b165b99&ex=1107838800&pagewanted=all&position= Bush Is Said to Seek Sharp Cuts in Subsidy Payments to Farmers By ROBERT PEAR WASHINGTON - President Bush will seek deep cuts in farm and commodity programs in his new budget and in a major policy shift will propose overall limits on subsidy payments to farmers, administration officials said Saturday. Such limits would help reduce the federal budget deficit and would inject market forces into the farm economy, the officials said. The proposal puts Mr. Bush at odds with some of his most ardent supporters in the rural South, including cotton and rice growers in Alabama, Arkansas, Georgia, Louisiana and Mississippi. The new chairman of the Senate Appropriations Committee, Thad Cochran of Mississippi, and more than 100 farm groups are gearing up to fight the White House proposal. The administration's willingness to push the proposal, despite such protests, suggests how tight the new budget will be. Most of the subsidies are paid to large farm operators growing cotton and rice and, to a lesser degree, corn, soybeans and wheat. Mr. Bush would set a firm overall limit of $250,000 on subsidies that can now exceed $1 million in some cases. The proposal comes as the administration is seeking significant changes in other programs long considered sacrosanct, including a proposed revamping of Social Security to allow personal investment accounts and a move to shake up the Civil Service system. Mr. Bush's farm proposal found support from some people who frequently criticize his policies. Kenneth Cook, president of the Environmental Working Group, a research and advocacy group, said the proposal would reduce payments to big agribusiness operations. The savings, he said, would ease pressure on Congress to cut conservation programs financed in the same legislation. 'This proposal is a very big deal,' Mr. Cook said. 'I am stunned and impressed. The Bush administration is opening the door to reform on the most contested issue in agriculture policy today. Taxpayers will no longer have to subsidize every bushel of grain or bale of cotton. They will no longer have to subsidize the demise of the family farm.' In the past, when Congress considered limits on payments, Mr. Cook said, the administration took no position. The Senate approved a $275,000 limit in 2002 but dropped it in negotiations with the House. Agriculture Department officials said Mr. Bush's proposals would cut federal payments to farmers by $587 million, or about 5 percent, next year and would save $5.7 billion in the coming decade. The officials spoke on condition of anonymity because they did not want to upstage the release of the president's budget, scheduled for Monday. The budget includes other proposals intended to produce large savings in farm programs, the officials said, but they refused to give details. In theory, the maximum payment to a farmer, through multiple entities, is now $360,000 a year. But Keith J. Collins, chief economist at the Agriculture Department, said that growers had found many legal ways to get around the limit and that some growers received several times that amount. One type of aid, which involves marketing assistance loans, is not subject to any limit, he said. In setting a firm overall limit of $250,000, the president's plan would tighten requirements for the recipients of such payments to be 'actively engaged' in agriculture, and it would generally prevent farmers from claiming additional payments through multiple entities. Farm subsidies have been a major issue in global trade talks, as poor farmers in the developing world demand that the United States and other wealthy countries cut back subsidies for their domestic producers. Efforts to cap farm payments have produced odd alliances. Fiscal conservatives like the Heritage Foundation have joined some environmental groups and family farmers in the Midwest in supporting stricter limits. Opponents include the American Farm Bureau Federation, the nation's largest farm organization, as well as many commodity groups and politicians of both parties from rice and cotton states. Mr. Cochran, the former chairman of the Senate Agriculture Committee, said he would 'work as hard as I can to oppose any changes' in current payment limits, set by Congress three years ago. Speaking this week to the National Cotton Council, a trade group, Mr. Cochran said he knew that some people wanted to reduce farm program payments. 'We always know there is a threat to lower levels of payments to producers from some in the Congress,' he said. But, he added, the payments are economically important to rural communities, and 'the risk caused by changing payment limits far outweighs the benefits.' In a letter to Mike Johanns, the new secretary of agriculture, a coalition of more than 100 farm groups said they too would resist such cuts. 'With prices for many major commodities falling sharply from last year, reductions to farm programs would come at precisely the time that these supports are most needed in rural America,' the coalition said. The White House proposal is a vindication of sorts for Senator Charles E. Grassley, Republican of Iowa, who has advocated 'reasonable payment limits' for three decades. 'When 10 percent of the nation's farmers receive 60 percent of the payments, it erodes public confidence in federal farm programs,' said Mr. Grassley, who describes himself as the only family farmer in the Senate. 'Unlimited farm payments have placed upward pressure on land prices and contributed to overproduction and lower commodity prices, driving many family farmers off the farm.' Mr. Collins, the Agriculture Department economist, said, 'When the government subsidizes every bushel and every acre, it encourages large farm operations to grow larger.' The issue did not figure prominently in last year's presidential campaign. Senator John Kerry, Democrat of Massachusetts, voted with supporters of stricter payment limits when the question was before the Senate in 2002. President Bush signed the 2002 farm bill, which significantly increased payments to farmers, reversing six years of Republican efforts to limit subsidies. Subsidy payments take several forms and are computed according to complex formulas . In some cases, the government makes direct payments to farmers. In others, it lends money to farmers and assures them, in effect, that they can receive more than the market price for their crops, if that price declines. In a report last year, the Government Accountability Office, an investigative arm of Congress, said farmers used many 'schemes or devices' to circumvent existing payment limits. Under federal law, payments are supposed to go only to people who are 'actively engaged in farming,' but, the report said, many people not involved in farm operations have received large subsidies. Moreover, it said, individuals who on their own could receive no more than $180,000 for a farming operation sometimes set up a partnership of three partners, each receiving $180,000 in subsidies, thus tripling the total amount of payments to the farming operation. An exhaustive study by the Agriculture Department found that 'government payments increase with farm size and sales,' so 'payments tend to be concentrated among the larger farms.' In 2001, it said, '59 percent of government payments went to producers on farms with a net worth of $600,000 or more.' Senator Blanche Lincoln, Democrat of Arkansas, said payment limits would be particularly unfair to rice and cotton farmers because production costs were higher for those crops than for others. Mrs. Lincoln, the daughter of a rice farmer, said some farmers would have difficulty surviving under stringent payment limits. But Brian M. Riedl, an economist at the Heritage Foundation, said stricter payment limits were needed because farm subsidies had become 'America's largest corporate welfare program.'

Subject: If Profits Grow, How Can Market Sink? From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 09:49:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/06/business/yourmoney/06stra.html If Profits Grow, How Can the Market Sink? By MARK HULBERT THE faster corporate earnings grow, the better the stock market performs. That is a tenet of Wall Street, but like so much other conventional wisdom, it turns out to be false. In fact, since 1927, according to data from Ned Davis Research of Atlanta, the market has performed best during quarters when earnings are as much as 25 percent below year-earlier levels. When earnings are growing strongly, as many expect them to do this year, the market has tended to have below-average performance. Of course, these findings for the overall market run counter to the experience of specific companies. For many of them, the relationship of earnings growth and stock price is often positive - especially when a company exceeds profit expectations. But according to a recent study, it makes sound economic sense that what sometimes prevails for one company does not apply to the overall market. The study, 'Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance,' by S. P. Kothari, an accounting professor at the Massachusetts Institute of Technology; Jonathan W. Lewellen, an M.I.T. finance professor; and Jerold B. Warner, a finance professor at the University of Rochester, has been circulating as an academic paper since last year. A copy is at http://papers.ssrn.com /abstract=380127. The reason that the overall market usually fails to react more favorably to rapidly rising earnings is not that earnings growth is bearish itself. The problem, the professors say, is that such growth usually leads to higher interest rates. When rates rise, the net present value of future earnings, cash flow and dividends automatically falls, and this generally causes the market to decline. The professors say the Federal Reserve is unlikely to feel pressure to raise rates when just one company reports better-than-expected earnings. So the company's profit growth can be expected to translate into a higher stock price. But the Fed will certainly feel that pressure when aggregate market earnings rise quickly. To be sure, the professors' findings are based on a long-term average, and exceptions are inevitable. One occurred in the last couple of years, when earnings grew at a double-digit rate and the overall market performed well, too. But Professor Lewellen says that this recent experience is 'the exception that proves the rule,' because the Fed kept interest rates artificially low over much of this period. That prevented the fast growth of marketwide earnings from having usual negative consequences. The powerful role of interest rates in the stock market's valuation also explains why the market tends to perform best when aggregate corporate earnings are falling. Ned Davis Research says that since 1927, the Standard & Poor's 500-stock index has risen at a 28 percent annualized rate - nearly triple its historical average - during quarters in which earnings were 10 to 25 percent lower than where they were in the periods a year earlier. This bullish effect vanishes, however, when earnings are falling too much. Ned Davis Research found that during those few quarters since 1927 when earnings were more than 25 percent below their year-earlier levels, the S.& P. 500 declined at a rate of 28 percent, annualized. Professor Lewellen says that this is consistent with the results of his research. 'The positive effects of lower interest rates, though strong enough to overcome the negative consequences of more modest declines,' he said, 'are unable to overcome them when earnings are falling by a huge amount.' An implication of the professors' study is that the market's performance is likely to be below average this year, because of the consensus expectation for double-digit profit growth accompanied by rising interest rates. S.& P. estimates that per-share operating earnings of the S.& P. 500 companies in the first quarter will be 14 percent higher than in the year-earlier period. Earnings for all of 2005 are projected to grow 12 percent. In quarters since 1927 when profit growth has been in the neighborhood of what S.& P. is projecting this year, according to Ned Davis Research, the S.& P. 500 has appreciated at an annualized pace of 5.8 percent. That is about half the market's long-term average rate. The pattern discerned by the professors could create buying opportunities down the road. That is because investors tend to drive market valuations way down when interest rates rise over a sustained period. A diversified stock portfolio bought at a time of depressed valuations can be expected to appreciate when interest rates fall. But if the pattern holds this time, it's way too early for the market to start going much higher.

Subject: Biology of Race and Concept of Equality From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 07:34:38 (EST) Email Address: Not Provided Message: http://www.goodrumj.com/Mayr.html The Biology of Race and the Concept of Equality Ernst Mayr, 2002 There are words in our language that seem to lead inevitably to controversy. This is surely true for the words 'equality' and 'race.' And yet among well informed people, there is little disagreement as to what these words should mean, in part because various advances in biological science have produced a better understanding of the human condition. Let me begin with race. There is a widespread feeling that the word 'race' indicates something undesirable and that it should be left out of all discussions. This leads to such statements as 'there are no human races.' Those who subscribe to this opinion are obviously ignorant of modern biology. Races are not something specifically human; races occur in a large percentage of species of animals. You can read in every textbook on evolution that geographic races of animals, when isolated from other races of their species, may in due time become new species. The terms 'subspecies' and 'geographic race' are used interchangeably in this taxonomic literature. This at once raises a question: are there races in the human species? After all, the characteristics of most animal races are strictly genetic, while human races have been marked by nongenetic, cultural attributes that have very much affected their overt characteristics. Performance in human activities is influenced not only by the genotype but also by culturally acquired attitudes. What would be ideal, therefore, would be to partition the phenotype of every human individual into genetic and cultural components. Alas, so far we have not yet found any reliable technique to do this. What we can do is acknowledge that any recorded differences between human races are probably composed of cultural as well as genetic elements. Indeed, the cause of many important group differences may turn out to be entirely cultural, without any genetic component at all. Still, if I introduce you to an Eskimo and a Kalahari Bushman I won't have much trouble convincing you that they belong to different races. In a recent textbook of taxonomy, I defined a 'geographic race' or subspecies as 'an aggregate of phenotypically similar populations of a species inhabiting a geographic subdivision of the range of that species and differing taxonomically from other populations of that species.' A subspecies is a geographic race that is sufficiently different taxonomically to be worthy of a separate name. What is characteristic of a geographic race is, first, that it is restricted to a geographic subdivision of the range of a species, and second, that in spite of certain diagnostic differences, it is part of a larger species. No matter what the cause of the racial difference might be, the fact that species of organisms may have geographic races has been demonstrated so frequently that it can no longer be denied. And the geographic races of the human species - established before the voyages of European discovery and subsequent rise of a global economy - agree in most characteristics with the geographic races of animals. Recognizing races is only recognizing a biological fact. Still, the biological fact by itself does not foreclose giving various answers to the question, What is race? In particular, adherence to different political and moral philosophies, as we shall see, permits rather different answers. But I believe it is useful at the outset to bracket the cultural factors and explore some of the implications of a strictly biological approach. The evolutionary literature explains why there are geographic races. Every local population of a species has its own gene pool with its own mutations and errors of sampling. And every population is subject to selection by the local environment. There is now a large literature on the environmental factors that may influence the geographic variation of a species. For example, populations of warm-blooded vertebrates (mammals and birds) in the colder part of their geographical range tend to larger size (Bergmann's rule). Darwin wondered whether these climatic factors were sufficient to account for the differences between geographic races in the human species. He finally concluded that sexual selection, the preference of women for certain types of men, might be another factor leading to differences between geographic races. This kind of biological analysis is necessary but not sufficient. By itself, biology cannot explain the vehemence of the modern controversy over race. Historically, the word 'race' has had very different meanings for different people holding different political philosophies. Furthermore, in the last two hundred years there has been a change in the dominant philosophy of race. In the eighteenth century, when America's Constitution was written, all our concepts were dominated by the thinking of the physical sciences. Classes of entities were conceived in terms of Platonic essentialism. Each class (eidos) corresponded to a definite type that was constant and invariant. Variation never entered into discussions because it was considered to be 'accidental' and hence irrelevant. A different race was considered a different type. A white European was a different type from a black African. This went so far that certain authors considered the human races to be different species. It was the great, and far too little appreciated, achievement of Charles Darwin to have replaced this typological approach by what we now call population thinking. In this new thinking, the biological uniqueness of every individual is recognized, and the inhabitants of a certain geographic region are considered a biopopulation. In such a biopopulation, no two individuals are the same, and this is true even for the six billion humans now on Earth. And, most important, each biopopulation is highly variable, and its individuals greatly differ from each other, thanks to the unique genetic combinations that result from this variability. Let me illustrate the implications of individual differences by analyzing the outcome of the 2001 Boston marathon. Kenyans are a population famous for producing long-distance runners. Three Kenyans had entered the race, and it was predicted that they would end the race as numbers one, two, and three. However, to everybody's great surprise, the winner was a Korean, and, even more surprisingly, number two was an Ecuadorian from a population that had never been credited with long-distance running abilities. It was a clear refutation of a typological - or essentialist - approach to thinking about race. In a Darwinian population, there is great variation around a mean value. This variation has reality, while the mean value is simply an abstraction. One must treat each individual on the basis of his or her own unique abilities, and not on the basis of the group's mean value....

Subject: Re: Biology of Race and Concept of Equality From: Emma To: Emma Date Posted: Sun, Feb 06, 2005 at 07:36:56 (EST) Email Address: Not Provided Message: Imagine writing such an article at the age of 98. Imagine a time when we may be afraid to teach of the work of an Ernst Mayr.

Subject: Ernst Mayr From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 06:54:16 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/05/science/05mayr.html?pagewanted=all&position= Ernst Mayr, Pioneer in Tracing Geography's Role in the Origin of Species, Dies at 100 By CAROL KAESUK YOON Dr. Ernst Mayr, the leading evolutionary biologist of the 20th century, died on Thursday in Bedford, Mass. He was 100. Dr. Mayr's death, in a retirement community where he had lived since 1997, was announced by his family and Harvard, whose faculty he joined in 1953. He was known as an architect of the evolutionary or modern synthesis, an intellectual watershed when modern evolutionary biology was born. The synthesis, which was described by Dr. Stephen Jay Gould of Harvard as 'one of the half-dozen major scientific achievements in our century,' reconciled Darwin's theories of evolution with new findings in laboratory genetics and in fieldwork on animal populations and diversity. One of Dr. Mayr's most significant contributions was his persuasive argument for the role of geography in the origin of new species, an idea that has won virtually universal acceptance among evolutionary theorists. He also established a philosophy of biology and founded the field of the history of biology. 'He was the Darwin of the 20th century, the defender of the faith,' said Dr. Vassiliki Betty Smocovitis, a historian of science at the University of Florida. In a career spanning nine decades, Dr. Mayr, a professor emeritus of zoology at Harvard, exerted a broad and powerful influence over the field of evolutionary biology. His most recent book, 'What Makes Biology Unique?: Considerations on the Autonomy of a Scientific Discipline' (Cambridge University Press), was published in August, one month after his 100th birthday. Prolific, opinionated, provocative and dynamic, Dr. Mayr had been a major figure and intellectual leader since the 1940's. Setting much of the conceptual agenda for the field, he put the focus just where Charles Darwin first placed it, on the question of how new species originate. Though Dr. Mayr will be best remembered as a synthesizer and promoter of evolutionary ideas, he was also an accomplished ornithologist. In fact, it was with the sighting of a pair of unusual birds that Dr. Mayr's long career in biology began in 1923 at age 19. Dr. Mayr was born in Kempten, Germany, in 1904. While still a boy, he was instructed in natural history by his father, Otto, a judge. He quickly became a skilled birdwatcher and naturalist. Intending to become a medical doctor like others in his family, Dr. Mayr was about to leave for medical school when he spotted a pair of red-crested pochards, a species of duck that had not been seen in Europe for 77 years. Though he took detailed notes, he could not get anyone to believe his sighting. Finally, he met Dr. Erwin Stresemann, then the leading German ornithologist, who was at the Berlin Zoological Museum and who recognized his talents and invited him to work at the museum during school holidays. After two years of medical studies at the University of Greifswald (chosen because it was in the most interesting German region for birdwatching), Dr. Mayr, like Darwin before him, opted for natural history. He completed his Ph.D. at the University of Berlin in just 16 months. Dr. Mayr went on to fulfill what he called 'the greatest ambition of my youth,' heading off to the tropics. In the South Pacific, principally New Guinea and the Solomon Islands, Dr. Mayr collected more than 3,000 birds from 1928 to 1930. (He had to live off the land, and every bird, after being skinned for study, went into the pot. As a result, he is said to have eaten more birds of paradise than any other modern biologist.) The South Seas experience, he once said, 'had an impact on my thinking that cannot be exaggerated.' For it was his detailed observations of the differences among geographically isolated populations that contributed to his conviction that geography played a crucial role in the origin of species. Though Darwin titled his book 'The Origin of Species,' little in the book, in fact, addresses the question of how new species arise. Dr. Mayr determined that when populations of a single species are separated from one another, they slowly accumulate differences until they can no longer interbreed. Dr. Mayr called this allopatric speciation and detailed his arguments in his seminal book 'Systematics and the Origin of Species,' published in 1942. Today allopatric speciation ('allo,' from the Greek for 'other,' and 'patric,' from the Greek for 'fatherland') is accepted as the most common way in which new species arise. 'Organic diversity had at last received a convincing explanation,' Dr. Jerry A. Coyne, an evolutionary biologist at the University of Chicago, wrote of Dr. Mayr's arguments. Dr. Coyne called the book 'one of the greatest achievements of evolutionary biology.' Similarly, the most commonly held view of what constitutes a species remains the one that Dr. Mayr promoted more than 50 years ago, known as the biological species concept. First explicitly defined by Dr. Theodosius Dobzhansky, it states that populations that can successfully interbreed are the same species and those that cannot are different species. While numerous other species concepts have been proposed and debated, this one continues to reign supreme....

Subject: Teaching From: Emma To: Emma Date Posted: Sun, Feb 06, 2005 at 06:57:23 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/01/science/01evo.html Evolution Takes a Back Seat in U.S. Classes By CORNELIA DEAN Dr. John Frandsen, a retired zoologist, was at a dinner for teachers in Birmingham, Ala., recently when he met a young woman who had just begun work as a biology teacher in a small school district in the state. Their conversation turned to evolution. 'She confided that she simply ignored evolution because she knew she'd get in trouble with the principal if word got about that she was teaching it,' he recalled. 'She told me other teachers were doing the same thing.' Though the teaching of evolution makes the news when officials propose, as they did in Georgia, that evolution disclaimers be affixed to science textbooks, or that creationism be taught along with evolution in biology classes, stories like the one Dr. Frandsen tells are more common. In districts around the country, even when evolution is in the curriculum it may not be in the classroom, according to researchers who follow the issue. Teaching guides and textbooks may meet the approval of biologists, but superintendents or principals discourage teachers from discussing it. Or teachers themselves avoid the topic, fearing protests from fundamentalists in their communities. 'The most common remark I've heard from teachers was that the chapter on evolution was assigned as reading but that virtually no discussion in class was taken,' said Dr. John R. Christy, a climatologist at the University of Alabama at Huntsville, an evangelical Christian and a member of Alabama's curriculum review board who advocates the teaching of evolution. Teachers are afraid to raise the issue, he said in an e-mail message, and they are afraid to discuss the issue in public....

Subject: Example From: Emma To: All Date Posted: Sun, Feb 06, 2005 at 06:02:59 (EST) Email Address: Not Provided Message: Paul Krugman: Suppose you invested $1000 a year (constant dollars) in a fund that pays 3 percent real interest. Then after 40 years you would have about $77,000. Suppose that your life expectancy is 20 years at retirement, and that you can buy an annuity with present value equal to that lump sum. Then you would get about $5,000 annually. The Bush plan, as far as we can tell, is that if you elect to take the private account, your conventional benefits are cut by $5,000 per year. So investing in bonds gets you right back where you started. If you buy risky assets, and do better than 3 percent, you may end up with, say, $7,000 per year; in that case you have a net gain of $2,000. But if you do worse, and end up with a lump sum only large enough to buy, say, a $3,000 annuity, your benefits are still cut by $5,000, and you're $2,000 a year worse off. So what's really happening with the private accounts is that people will be encouraged to take a mortgage on their Social Security benefits, and to speculate in the stock market. And, of course, all of this has zero bearing, at best, on long-term government finances. In practice, whoever is running America in 2050 will probably end up bailing out the unlucky, so it's a major net negative.

Subject: It's Maybe a Selective Bubble From: Emma To: All Date Posted: Sat, Feb 05, 2005 at 17:13:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/03/technology/03internet.html It's Maybe a Bubble, but a Selective One By GARY RIVLIN SAN FRANCISCO - Is the Internet bubble half empty or half full? With Google's stock on a roll, rising more than 7 percent yesterday to close at $205.96 and prompting some analysts to predict it will hit $290 or more in the coming months, it can seem like the late 1990's again on Wall Street. Shares in Google have been trading for less than six months, but they have risen 142 percent and the company has a market value of $56.2 billion, equal to that of Starbucks, Nike and Southwest Airlines - combined. Shares in another Internet star, Yahoo, are up 73 percent in the last 52 weeks. But try convincing the chief executives of eBay and Amazon.com, two undisputed kings of the Internet era, that investors have had a relapse of irrational exuberance. Even though eBay's profits for all of 2004 were up 76 percent from a year earlier, the share price is down by a third since the start of January, primarily because the fourth-quarter results reported last month fell a penny short of analysts' forecasts. And when Amazon.com reported growth in profits and revenue on Wednesday after the market closed, investors sent its stock tumbling as much as 15 percent in after-hours trading because those results, too, fell short of analysts' expectations. The company's stock, trading below $36 a share in the aftermarket, was down 33 percent from its high of $54.70 in mid-2004. The tale of two trajectories among Internet leaders has prompted a debate. 'Of course we're in a bubble again,' said Fred Hickey, editor of The High-Tech Strategist newsletter in Nashua, N.H., and a longtime technology stock analyst. But others say that Internet investors have learned to draw distinctions that many failed to make during the dot-com craze. 'The good news here is that investors are certainly proving themselves more selective,' said David M. Garrity, an analyst at Caris & Company in New York. 'It's not like we're seeing Internet stocks go up wildly across the board. This isn't the 1990's when all a company had to do is put out a barrage of press releases and see the price go up.' John Tinker, an analyst at ThinkEquity Partners, an investment bank in San Francisco, agreed that investors so far were proving themselves far more discriminating than in the late 1990's - even if he detected over-reactions in both directions. 'This is a market that is over-rewarding for strong performance and over-penalizing when a company falls short of expectations,' he said. Google's latest stock surge came on the strength of the company's announcement, after the close of the market Tuesday, that its sales and profits grew much faster than expected in the fourth quarter. Profit for the period was up sevenfold compared with the final three months of 2003. And revenue for the first time broke the billion-dollar mark for a quarter, more than twice the level in the fourth quarter of 2003. Mr. Tinker says such performance justifies Google's current share price - and then some. 'Sure, the share price of Google is high, but we're talking about a company with a revenue growth rate that is accelerating, not decelerating,' Mr. Tinker said. 'These aren't a couple of guys right out of college talking about how they'll make money down the road.' The company's results seemed to have touched off a bit of one-upmanship among analysts on Wednesday to see who could be the most upbeat about Google, which has now surpassed eBay as the Internet stock with the greatest market value. Among analysts who revised their forecasts, Mr. Tinker projected that Google stock would hit $290 a share within the next 12 months, while Mr. Garrity predicted a price of $300 share 'or better.' The company sold shares for $85 each in its initial public offering in August. But while Google's stock price has soared, Internet stocks generally have remained relatively flat. Shares in the Morgan Stanley Internet index have risen 20 percent during the period. Even while others perceive investors' drawing distinctions, Mr. Hickey still sees signs of giddiness. Mr. Hickey provides any number of examples to make his point. Volume in the penny stock world has doubled in recent months, he said, and he points to the 'wildly inflated valuation' that the market has assigned to Travelzoo Inc., which conducts online marketing for the travel industry. Shares in Travelzoo have soared nearly sevenfold since the start of 2004, though the company reported net income of less than $2 million in the third quarter of 2004, its most recent numbers. Travelzoo's stock closed at $57.83 Wednesday, putting the company's market value just below $1 billion. Yet it is Google that raises Mr. Hickey's voice an octave or two. The crucial number for those analysts in awe of Google was its advertising revenue, up 122 percent from the previous year's fourth quarter. The bulk of that is from Google's AdWords program, in which it lets advertisers bid on key words - 'asbestos' for lawyers, say - with the highest bidders having their ads appear whenever someone performs Web searches using those words. The bidding can run from 5 cents to $100 a click, according to Google. 'Basically what we're seeing is a temporary land rush going on where legal firms are paying something like $35 a click for words they see as valuable,' Mr. Hickey said. 'Whether that's economical or not, we don't know. But I suspect it's not because I hear lawyers say it's not worth it at that price. 'What happens when Microsoft is ready to really push its search engine?' Mr. Hickey asked. 'It's basic supply and demand. When supply increases, prices fall.' To Mr. Hickey, the result will be 1999 all over again. 'Everyone was crazy over banner ads,' he said. 'Banner ads, banner ads, banner ads. But guess what? It turns out banner ads weren't worth as much as people thought, and the result was that companies like Yahoo saw their share prices fall by 70 or 80 percent.'

Subject: Vanguard Returns From: Terri To: All Date Posted: Sat, Feb 05, 2005 at 14:39:59 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 2/0404 S&P Index is -0.6 Large Cap Growth Index is -1.6 Large Cap Value Index is 0.4 Mid Cap Index is -0.4 Small Cap Index is -1.3 Small Cap Value Index is -1.6 Europe Index is -0.6 Pacific Index is -2.0 Energy is 5.3 Health Care is -0.8 REIT Index is -5.3 High Yield Corporate Bond Fund is 0.4 Long Term Corporate Bond Fund is 3.9

Subject: Sector Indexes From: Terri To: Terri Date Posted: Sat, Feb 05, 2005 at 17:23:53 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsVIPERByName Sector Indexes 12/31/04 - 2/04/05 Energy 8.0 Financials -1.1 Health Care -1.2 Info Tech -4.3 Materials -0.5 REITs -5.3 Telecoms -2.1 Utilities 4.1

Subject: Carnival in Brazil: Work and Play From: Emma To: All Date Posted: Sat, Feb 05, 2005 at 11:04:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/05/business/worldbusiness/05carnival.html Frivolity Is Hard Work at Carnival Time in Brazil By TODD BENSON SĂO PAULO, Brazil - For big corporations, Brazil's famed Carnival is an annual magnet for millions of dollars in sponsorships, just as the Super Bowl is in the United States. And it, too, has been criticized as an orgy of crude commercialism. But for thousands of smaller businesses, the pre-Lenten party, which begins this weekend, is a make-or-break proposition. From travel agents to confetti manufacturers and costume retailers, companies large and small have spent the last few months ringing up sales at a frenetic pace, while just about everyone else in Brazil was leisurely enjoying summer vacation. 'Carnival is a lot more than just fun - it's big business,' said an exhausted Elias Ayoub, who owns a department store chain in Săo Paulo called Palácio das Plumas, or the Palace of Feathers, which stocks more than 15,000 items associated with Carnival. 'But for me, Carnival is already over,' he said. 'I just supply the whole circus and let everyone else do all the partying.' Since mid-October, Mr. Ayoub's stores have been running on all cylinders, selling everything from beads and exotic feathers to glitter and cloth to Carnival connoisseurs countrywide. Though Mr. Ayoub, like the owners of most privately held concerns in Brazil, will not divulge sales figures, he says he gets about half of his annual revenue in the four months leading up to the festival. Much of that, he adds, comes from bulk sales to the groups known as samba schools, which spend the equivalent of millions of dollars annually on lavish costumes and flashy Carnival floats. Many of Mr. Ayoub's biggest customers come from Rio de Janeiro. The parade there, with its scantily clad dancers and thunderous drum beats, is the global face of Carnival, even though it is celebrated throughout Brazil. Over two nights, the top 14 samba schools in Rio will compete for bragging rights in front of 70,000 fans in the Sambadrome, a stadium specially built for the parade, with millions more watching on television. Flush with cash from corporate sponsors, each group spends an average of about 4 million reais, or about $1.53 million, a year on paraphernalia for the event, according to the Independent League of Samba Schools. And, according to a recent study by the Social Democracia Sindical, a national association of labor unions, many Rio samba schools buy most of their parade material in Săo Paulo, Brazil's premier city in just about every category but Carnival. 'It may sound funny, but Săo Paulo is one of the places that benefits the most from our Carnival,' said Fernando Horta, the president of Unidos da Tijuca, one of Rio's elite samba schools. 'That's where the industry is.' To be sure, Rio also makes its share of money from Carnival. The city is expecting more than 770,000 visitors from around the world for this year's party, bringing in an estimated $557 million in tourism revenue, according to Riotur, the municipal tourism agency. The flood of visitors, many of them arriving well ahead of Carnival to soak up the sun on the beach, is good news for retailers like Jorge Francisco. A former director of the Mocidade samba school, Mr. Francisco opened a Carnival paraphernalia store called Babado da Folia in downtown Rio 15 years ago in hopes of turning his hobby into a living. Though he struggles in the off-season, Mr. Francisco says he can barely keep up in the months before Carnival, which account for about 80 percent of his annual sales. 'I'm open all year round, but I probably only end up really working about five months out of the year,' Mr. Francisco said. 'It's not a good way to get rich, but it pays the bills.' For some companies, like Aergi Indústria e Comércio de Papel, a paper manufacturer in Săo Paulo State, Carnival is a chance to bolster sales at a time of year when its core business is slow. Aergi started out making packaging materials for industrial use, but over the years it branched out into the confetti business to make some extra cash during Carnival season. It now sells about 2,000 tons of confetti a year, almost all of it in the months preceding Carnival. 'In our market, the beginning of the year is always very slow,' said Roberto Toledo, the company's administrative manager. 'But the confetti sales more than make up for that. It's not our core business, but it is a big part of our business.' T-shirt manufacturers also carve out a niche during Carnival. This is especially true in the northeastern city of Salvador, Brazil's third-largest city, where Carnival is still an old-fashioned street party. To be allowed to dance behind the ear-splitting electric trios that play atop trucks cruising the city streets, revelers must first buy an abadá, a kind of snug-fitting, polyester T-shirt bearing the group's logo. Loygus Camisetas, a small T-shirt manufacturer in Salvador, started making abadás a few years ago, and sales have climbed steadily since, said José Loyola Neto, the company's owner. Loygus increases its work force by about 60 percent during Carnival season, he said, raising its monthly output to about 70,000 garments from 20,000 in the off-season. This year, the company's factory has been working round the clock to keep up with the last-minute rush of orders. 'This is a crazy time of year,' Mr. Loyola said. 'But my revenue from December, January and February combined is almost as much as I make during the rest of the year, so it's certainly worth it.'

Subject: Bearish or Bullish? From: Terri To: All Date Posted: Sat, Feb 05, 2005 at 10:37:43 (EST) Email Address: Not Provided Message: All that needs to be done to make my projection bearish is to assume that a price earning ratio for the S&P of 20 can not be sustained. A return to an historical p/e of 15 is a 25% difference. Does a p/e of 20 reflect low long term interest rates, less stock market volatility, greater ease of trading, a more flexible and adaptable economy as Alan Greenspan posits? You are most thoughtful, and I would like to argue about what valuations we might expect, because I am not convinced. I lean to Alan Greenspan's explanation.

Subject: Bearish or Bullish? [cont.] From: Terri To: Terri Date Posted: Sat, Feb 05, 2005 at 10:39:26 (EST) Email Address: Not Provided Message: Remember, we are passing through a remarkable period. For the last 5 years, the S&P has a -1.9% annual return while the Vanguard Long Term Bond Index has a 10.9% annual return. This is a startling difference. The 10 year returns are 11.4% for the S&P and 9.7% for the Long Term Bond Index. Stocks can underperform bonds for a long time, and are doing so now. My sense however is that there is little need for stock market valuations to retun to historical norms, for the economy is more adaptable and the market less volatile. So I am moderately bullish for the long term. A counter to my bullishness however is our problem with fiscal policy.

Subject: S&P PE eventually below 10 From: Pete Weis To: Terri Date Posted: Sat, Feb 05, 2005 at 12:51:02 (EST) Email Address: Not Provided Message: We can always come up with reasons why PE's should remain above certain levels - 'adaptability' is a very vague reason. But the history of the investing public and the markets in which they invest has always alternated between love and hate. We have just gone through a period (of some 20 years) where the love had gone through the stratosphere. Now the the love is still there but on the wane and, as in the past, eventually it will turn to hate. Besides, the present economic environment will enhance the hate.

Subject: Long Term Returns are Comforting From: Terri To: Pete Weis Date Posted: Sat, Feb 05, 2005 at 14:43:45 (EST) Email Address: Not Provided Message: There is no question we may not find violent swings in the stock market, but I find it interesting and comforting to know the Vanguard S&P Index 10 year annual return is 11.43% even through a 3 year severe bear market.

Subject: Projecting Stock Market Returns From: Terri To: All Date Posted: Sat, Feb 05, 2005 at 10:19:55 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000288.html#comments Brad DeLong's example does not make a case for a severe bear market or for not investing in stock in our current retirement or taxable accounts. Actually the example gives us reason to be confident about long term stock market returns. The example simply suggests that if long term economic growth is about 1.9% as the Council of Economic Advisors projects, we should not expect nominal stock market returns of 9.5% [6.5% real returns]. We are assuming the p/e ratio stays a constant. Growth is assumed to be 1.9%. Then growth in earnings can be 0.9% and stock buybacks can be 1.0% which gives 1.9% stock returns. Add in current dividends which are 1.6% for the S&P Index after Vanguard costs. That gives us 3.5% real stock returns [6.5% nominal returns]. But, the Council of Economic Advisors assumes real stock returns can be 6.5%. There is a gulf between 3.5% and 6.5% that can only be made up if stocks fall in price raising the dividend or if the current p/e actually rises to remarkable levels or if economic growth is faster than 1.9%. A 6.5% nominal long term return for the S&P Index would still make for a better return than long term bonds. This is a bullish argument for stocks, just not as bullish as the Council of Economic Advisors argument. What I did that was different than Brad DeLong is to add the current S&P dividend of 1.6% to the projected return. Should long term economic growth be more than 1.9%, stock market returns can be more than 6.5% with a constant price earning ratio of 20. But, then there is no reason to borrow massively to set aside Social Security for private accounts. Social Security is fine and we may hope the economy grows at least 1.9% over the years so that the stock market will give a reasonable return in our other investments.

Subject: Re: Projecting Stock Market Returns From: Pete Weis To: Terri Date Posted: Sat, Feb 05, 2005 at 13:06:03 (EST) Email Address: Not Provided Message: No economist has been able to project future stock returns regardless of the methods he used. Brad DeLong, I suspect, is attempting to come up with what he believes are 'reasonable' expectations. I bet he would be the first to say he has no real clue as to how the markets will perform over, say, the next ten years. 'Long term' what's that? - 30 years? - 50 years? I don't know about others, but I'm concerned about how my investments will do in the next 1 to 5 years - after that maybe things change, maybe they don't. I believe everyone should be looking at the immediate situation. Long term? - who can really predict long term?

Subject: Re: Projecting Stock Market Returns From: Terri To: Pete Weis Date Posted: Sat, Feb 05, 2005 at 14:20:54 (EST) Email Address: Not Provided Message: Brad DeLong is not trying to project stock long term market returns. The argument was with the Council of Economic Advisors trying to do so in defense of forming private Social Security accounts. What makes the model interesting is that if we can guess at economic growth we have a sense of the potential for stock market growth. If economic growth is 1.9% at the CEA projects, we can not reasonably expect more than 6.5% nominal stock market growth.

Subject: Greenspan Says Trade Gap May Narrow From: Emma To: All Date Posted: Sat, Feb 05, 2005 at 10:06:08 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/05/business/05greenspan.html?pagewanted=all&position= Greenspan Says Trade Gap May Narrow By ALAN COWELL LONDON - Alan Greenspan, the chairman of the Federal Reserve, said on Friday that America's record trade deficit might be poised to stabilize and even fall because of market pressures and belt-tightening by the Bush administration. Mr. Greenspan was speaking at a gathering coinciding with a scheduled meeting of the finance ministers and central bank governors from the Group of 7, the leading industrialized nations. His remarks inspired a strengthening of the dollar, which had fallen because of a weak jobs report in the United States. Although Mr. Greenspan acknowledged that America's expanding trade deficits and foreign indebtedness had reached record levels, he sounded more sanguine than he was several months ago. In November, Mr. Greenspan predicted to international bankers that foreign investors would show a 'diminished appetite' for financing American debt, leading to a sell-off of the dollar. In contrast, on Friday, Mr. Greenspan shifted emphasis to the relentless expansion of global investment flows. 'Deregulation and technological innovation have driven the globalization process by tearing down the barriers that have separated economic agents,' Mr. Greenspan said, reprising a favorite theme. 'The effect of these developments has been to markedly increase the willingness and ability of financial market participants to reach beyond national borders.' Though Mr. Greenspan has made similar arguments before, he seemed more intent on easing international anxieties and describing the country's indebtedness as a result of broadly positive trends in globalization and strong American growth. The G-7 talks, which end on Saturday, are likely to devote much attention to the federal budget in the United States, trade deficits, the weakness of the dollar and the linkage of China's currency to the dollar. But, according to remarks by participants on Friday, the discussions seemed unlikely to make substantial progress on persuading China to adopt more flexible exchange rates. Indeed, Zhou Xiaochuan, governor of China's central bank, said that his government was not ready to lift its current peg against the dollar. But Chinese officials have hinted that the country may move to a system of flexible exchange rates at some point. Much of the focus Friday was on a speech by Mr. Greenspan that analysts examined for clues as to the most likely way that the United States trade and budget deficits could be reduced. Reflecting the concern of the global financial community, Mervyn King, the governor of the Bank of England, said the international monetary system could be threatened by persistent deficits in the United States and the accumulation of vast dollar assets by Asian central banks. The United States trade gap could narrow by a reduction in imports into the country or by a rise in American exports. Mr. Greenspan said a reason the trade gap would narrow was that foreign exporters selling goods to the United States might no longer be prepared to reduce their profits in the interests of preserving a share of American markets. 'We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins,' Mr. Greenspan said. That would mean a reduction in the volume of imports but 'leave the resulting value of imports uncertain.' Mr. Greenspan said American exporters' profit margins - bolstered by the weak dollar, which makes United States goods more attractive to foreign buyers - 'appear to be increasing, which bodes well for future U.S. exports and the adjustment process.' 'Besides market pressures, which appear poised to stabilize and over the long run possibly to decrease the U.S. current account deficit and its attendant financing requirements, some forces in the domestic U.S. economy seem about to head in the same direction,' he said. 'The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume,' he said, referring to promises by the Bush administration to restrain the spending that has led to the large budget deficit. Mr. Greenspan and others have said that the trade gap, estimated at nearly 6 percent of the nation's wealth, cannot be sustained at that level. 'I have argued elsewhere that the U.S. current-account deficit cannot widen forever but that, fortunately, the increased flexibility of the American economy will likely facilitate any adjustment without significant consequences to aggregate economic activity,' Mr. Greenspan said. Mr. Greenspan also noted that Chinese exporters had not labored under the same difficulties as European exporters, whose businesses have become progressively more expensive or less profitable in the United States because of the weak dollar. Mr. Greenspan also referred to the 'effect of Asian official purchases of dollars in support of their currencies.' 'Such intervention may be supporting the dollar and U.S. Treasury bond prices somewhat, but the effect is difficult to pin down.' John B. Taylor, a United States Treasury under secretary, met on Friday with Mr. Zhou, the governor of the Chinese central bank, and Jin Renqing, the finance minister 'We know they are taking steps toward a more flexible exchange rate,' Mr. Taylor said. Mr. Taylor is representing the United States. The Treasury secretary, John W. Snow, who was ill, did not attend the meeting. Chinese officials gave no clues for a timetable toward a flexible rate. China's undervalued currency has propelled an expansion in exports fueling rapid growth in China and a ballooning deficit in the United States, where Chinese imports accounted for more than 25 percent of the trade gap in December. The G-7 ministers represent the United States, Britain, Canada, France, Germany, Italy and Japan. This time, the group also invited representatives of China, India, South Africa and Brazil as guests. The British hosts had hoped the gathering would lead to a breakthrough on financing poverty-relief efforts in Africa and elsewhere. But those ambitions collided Friday with American objections to British proposals to raise funds for the third world by tapping international capital markets and revaluing the gold reserves of the International Monetary Fund.

Subject: Alan Greenspan From: Terri To: All Date Posted: Fri, Feb 04, 2005 at 19:10:57 (EST) Email Address: Not Provided Message: What Alan Greenspan argued earlier and today is that from 1980 the American economy had become flexible enough that shocks to the system tended to be accounted for quickly with little change in national economic activity. The stock market shock of 1987 was used as an example, as was 2001. The international currency shock of 1998, and the break in the NASDAQ from 2000 to 2002 could be used as examples. This adjustment thesis gives Alan Greenspan confidence, and such confidence may be shared in the markets.

Subject: Re: Alan Greenspan From: Pete Weis To: Terri Date Posted: Fri, Feb 04, 2005 at 21:03:15 (EST) Email Address: Not Provided Message: The 'flexibility' comes from the fact that we have a fiat money system and Mr Greenspan has added stimulus by lowering rates which added liquidity to the economy when ever he felt it necessary. He has been well trained - whenever he has lowered rates he has gotten a big pat on the back by Wall Street folks and politicians alike. Whenever he has raised rates, even if they were small in nature and of a brief duration, he has gotten roundly flogged. He has taken to this training like a golden lab takes to his master's whistle. The resulting course of this money into assets such as stocks and real estate and onto the ledgers of credit card issuers and mortgage securities holders, has trained most of the rest of us to walk the same plank. There will come a point - at the end of the plank - where much higher interest rates and much tighter lending requirements will give us all a very cold drop in the drink indeed. I'm getting my bathing suit and a good supply of towels out right now.

Subject: Monetary and Fiscal Policy From: Terri To: Pete Weis Date Posted: Sat, Feb 05, 2005 at 07:17:46 (EST) Email Address: Not Provided Message: When the term 'fiat money system' is used, I am puzzled. There is low inflation and remarkably low long term interests rate in America. I think we have had reasonable to fine monetary policy from Paul Volker to Alan Greenspan these 25 years. I have a number of criticisms of Alan Greenspan in regard to recommendations on tax cutting, but causing inflation is not my criticsm. We gained wonderfully from low interest rates during the 1990s, but those rates were allowed by the sound fiscal policy we had. Now the problem is fiscal policy.

Subject: Re: Monetary and Fiscal Policy From: Pete Weis To: Terri Date Posted: Sat, Feb 05, 2005 at 12:26:02 (EST) Email Address: Not Provided Message: You are very correct about present fiscal policy being a problem. Also I'm not necessarily against fiat money systems. But I remember an appearance before Congress by Greenspan where he said something like the following - 'since the advent of fiat money we thought we could avoid deflation, but Japan has proved us wrong'. This was in the summer of 2003 I believe, and it was in response to a Congressman's question - 'can't we at last put these rumors about deflation to rest?'. I searched for the exact words on the internet but couldn't find them quickly so I decided to just paraphrase them. Anyway, as I have said in other posts - all this additional liquidity due to artificially low interest rates hasn't resulted in enough extra capital expenditure to do the heavy lifting for aggregate wages here in the US. And it is only with an increase in US aggregate wages that middle-class consumers will be able to continue servicing their record personal debt and continue consuming to keep our economy from heading back into what could be a prolongued recession like Japan (which now seems to be taking a turn for the worse once again). Certainly the lowering of interest rates here in the US has resulted in more jobs and increased wages in India and China. But spending habits in these two countries and others like them does not seem to be picking up enough with regard to US goods and our manufacturing base continues to shrink from its already low level. So in the absence of a significant rise in 'good' paying jobs here in the US, we have become totally dependent on low interest rates and the willingness of Asian central banks to keep lending to us. Unfortunately, our twin deficits are causing the dollar to fall quite steeply and this is threatening this relationship with our creditors. At some point down the road, as Paul Krugman and others point out, there will likely come a breaking point. With record personal debt as a backdrop, poor aggregate wage increases and shrinking buying power of the dollar will gradually shrink US consumption. If Japan and China decrease their purchasing of US debt and interest rates rise we will get a much steeper drop in consumption. If the stock markets and housing markets begin to drop together, with or without higher interest rates, we will get a steeper drop in consumption. If we get the first 'if' we will definitely get the second 'if'. We obviously need to reduce our budget deficit through much better fiscal policies. We need to go after our current account deficit with, among other things (not sure what those other things are), instituting an aggressive energy policy of conservation to reduce our imports of fossil fuels and effectively lowering world market prices of these fuels. US energy imports have helped to balloon the current account. Furthermore high energy costs are creating a real drag on our economy. Unfortunately none of this is likely to happen during the next four years. So we have to ask ourselves can the US economy survive for four more years?

Subject: Re: Monetary and Fiscal Policy From: Terri To: Pete Weis Date Posted: Sat, Feb 05, 2005 at 14:45:12 (EST) Email Address: Not Provided Message: What an excellent argument. I will keep this passage, for the analysis is sound and well presented.

Subject: Stocks and Bonds From: Terri To: All Date Posted: Fri, Feb 04, 2005 at 14:47:22 (EST) Email Address: Not Provided Message: Well, both the stock and bond markets are responding positively to the employment report. International stock markets are generally positive in domestic currencies for the year, while negative in terms of the dollar which has been rising. America's stock market is a little negative but in a rising trend. The long term bond market however continues the astonishing cyclical bull run that began in January 2000. The secular bull market in bonds began in December 1981.

Subject: California and Enron and Energy From: Emma To: All Date Posted: Fri, Feb 04, 2005 at 11:52:51 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/04/national/04energy.html Tapes Show Enron Arranged Plant Shutdown By TIMOTHY EGAN EVERETT, Wash. - In the midst of the California energy troubles in early 2001, when power plants were under a federal order to deliver a full output of electricity, the Enron Corporation arranged to take a plant off-line on the same day that California was hit by rolling blackouts, according to audiotapes of company traders released here on Thursday. The tapes and memorandums were made public by a small public utility north of Seattle that is fighting Enron over a power contract. They also showed that Enron, as early as 1998, was creating artificial energy shortages and running up prices in Canada in advance of California's larger experiment with deregulation. The tapes provide new details of market manipulation during the California energy crisis that produced blackouts and billions of dollars of surcharges to homes and businesses on the West Coast in 2000 and 2001. In one January 2001 telephone tape of an Enron trader the public utility identified as Bill Williams and a Las Vegas energy official identified only as Rich, an agreement was made to shut down a power plant providing energy to California. The shutdown was set for an afternoon of peak energy demand. 'This is going to be a word-of-mouth kind of thing,' Mr. Williams says on the tape. 'We want you guys to get a little creative and come up with a reason to go down.' After agreeing to take the plant down, the Nevada official questioned the reason. 'O.K., so we're just coming down for some maintenance, like a forced outage type of thing?' Rich asks. 'And that's cool?' 'Hopefully,' Mr. Williams says, before both men laugh. The next day, Jan. 17, 2001, as the plant was taken out of service, the State of California called a power emergency, and rolling blackouts hit up to a half-million consumers, according to daily logs of the western power grid. Officials with the Snohomish County Public Utility District in Washington State, which released the tapes, said they believed Enron officials had taken similar measures with other power plants. This tape, they said, was proof of what was going on. At the time, power plants in the greater West Coast grid were under a federal emergency order to keep their plants running. A spokeswoman for Enron, Jennifer Lowney, would not comment on the tapes, citing a blanket policy of the energy trading company, which is operating under bankruptcy protection and facing multiple criminal and civil proceedings. 'We continue to cooperate with all ongoing investigations,' she said. Conversations between energy traders and power plants were routinely recorded to give a record of transactions. The tapes were part of a large seizure of evidence by the F.B.I. The Snohomish County utility, which is in a court battle with Enron, obtained them through a legal action. Previous tapes released by the district last summer showed Enron officials joking about how they were 'stealing' more than a $1 million a day from California and fleecing 'Grandma Millie' while bringing Enron record profits. Other tapes released on Thursday showed Enron executives discussing their fear of going to jail for manipulating power markets in Canada and the United States. And memos showed that Enron practiced as early as 1998 to create artificial shortages and run up prices and extend the market manipulation to Canada. Three former Enron traders have pleaded guilty to federal criminal charges of fraudulently manipulating the West Coast energy market. Enron's former chairman, Kenneth L. Lay, and former president, Jeffrey K. Skilling, are under federal indictment for fraud. In cooperating with federal officials, West Coast traders have told how they devised schemes named 'Death Star' and 'Get Shorty' to make billions of dollars out of California's disastrous experiment with energy deregulation. But until the tapes were released on Thursday, there had been few public details of how Enron set in motion the phony power shortages. Company officials had long denied that they illegally shut down plants to create artificial shortages. In March 2001 - two months after the recording showed how the Nevada plant was shut down- Mr. Lay called any claims of market manipulation 'conspiracy theories.' Memos uncovered by Snohomish County also show that Enron rewarded midlevel executives based on their performance in manipulating the West Coast market. The tapes and memos were filed this week with the Federal Energy Regulatory Commission, as part of a broad investigation into how much money was lost by Enron market manipulation. Snohomish County is seeking to void a $122 million lawsuit by Enron over an energy contract the utility said was based on fraud.

Subject: And Paul Krugman From: Emma To: Emma Date Posted: Fri, Feb 04, 2005 at 12:02:09 (EST) Email Address: Not Provided Message: Paul Krugman argued early on that the California energy crisis, was no crisis at all. As usual PK knew where to turn and was right. May 27, 2002 Paul Krugman: We're approaching the first anniversary of the sudden, unexpected end of California's energy crisis. I went way out on a limb, at least by journalistic standards, by saying that market manipulation was a key feature of that crisis. I have since been vindicated: arguments that people called leftist nonsense a year ago are now conventional wisdom. But of course I wasn't a brilliant investigative reporter; I just knew enough to talk to the right people, and to understand what they were saying. Paul Joskow and Severin Borenstein were very helpful. But my most helpful source of all was Frank Wolak, the Stanford professor who also heads the CAISO market surveillance committee. (CAISO is the 'system operator').

Subject: Lucky to Have PK From: Jennifer To: Emma Date Posted: Fri, Feb 04, 2005 at 17:43:33 (EST) Email Address: Not Provided Message: http://www.wws.princeton.edu/~pkrugman/wolak.html FRANK (WOLAK) THOUGHTS ON THE CALIFORNIA CRISIS By Paul Krugman Repeatedly Paul Krugman is mocked for the New York Times columns and repeatedly he is shown to be stunningly right. We are so lucky to have PK.

Subject: California and Enron and Energy From: Emma To: All Date Posted: Fri, Feb 04, 2005 at 11:52:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/04/national/04energy.html Tapes Show Enron Arranged Plant Shutdown By TIMOTHY EGAN EVERETT, Wash. - In the midst of the California energy troubles in early 2001, when power plants were under a federal order to deliver a full output of electricity, the Enron Corporation arranged to take a plant off-line on the same day that California was hit by rolling blackouts, according to audiotapes of company traders released here on Thursday. The tapes and memorandums were made public by a small public utility north of Seattle that is fighting Enron over a power contract. They also showed that Enron, as early as 1998, was creating artificial energy shortages and running up prices in Canada in advance of California's larger experiment with deregulation. The tapes provide new details of market manipulation during the California energy crisis that produced blackouts and billions of dollars of surcharges to homes and businesses on the West Coast in 2000 and 2001. In one January 2001 telephone tape of an Enron trader the public utility identified as Bill Williams and a Las Vegas energy official identified only as Rich, an agreement was made to shut down a power plant providing energy to California. The shutdown was set for an afternoon of peak energy demand. 'This is going to be a word-of-mouth kind of thing,' Mr. Williams says on the tape. 'We want you guys to get a little creative and come up with a reason to go down.' After agreeing to take the plant down, the Nevada official questioned the reason. 'O.K., so we're just coming down for some maintenance, like a forced outage type of thing?' Rich asks. 'And that's cool?' 'Hopefully,' Mr. Williams says, before both men laugh. The next day, Jan. 17, 2001, as the plant was taken out of service, the State of California called a power emergency, and rolling blackouts hit up to a half-million consumers, according to daily logs of the western power grid. Officials with the Snohomish County Public Utility District in Washington State, which released the tapes, said they believed Enron officials had taken similar measures with other power plants. This tape, they said, was proof of what was going on. At the time, power plants in the greater West Coast grid were under a federal emergency order to keep their plants running. A spokeswoman for Enron, Jennifer Lowney, would not comment on the tapes, citing a blanket policy of the energy trading company, which is operating under bankruptcy protection and facing multiple criminal and civil proceedings. 'We continue to cooperate with all ongoing investigations,' she said. Conversations between energy traders and power plants were routinely recorded to give a record of transactions. The tapes were part of a large seizure of evidence by the F.B.I. The Snohomish County utility, which is in a court battle with Enron, obtained them through a legal action. Previous tapes released by the district last summer showed Enron officials joking about how they were 'stealing' more than a $1 million a day from California and fleecing 'Grandma Millie' while bringing Enron record profits. Other tapes released on Thursday showed Enron executives discussing their fear of going to jail for manipulating power markets in Canada and the United States. And memos showed that Enron practiced as early as 1998 to create artificial shortages and run up prices and extend the market manipulation to Canada. Three former Enron traders have pleaded guilty to federal criminal charges of fraudulently manipulating the West Coast energy market. Enron's former chairman, Kenneth L. Lay, and former president, Jeffrey K. Skilling, are under federal indictment for fraud. In cooperating with federal officials, West Coast traders have told how they devised schemes named 'Death Star' and 'Get Shorty' to make billions of dollars out of California's disastrous experiment with energy deregulation. But until the tapes were released on Thursday, there had been few public details of how Enron set in motion the phony power shortages. Company officials had long denied that they illegally shut down plants to create artificial shortages. In March 2001 - two months after the recording showed how the Nevada plant was shut down- Mr. Lay called any claims of market manipulation 'conspiracy theories.' Memos uncovered by Snohomish County also show that Enron rewarded midlevel executives based on their performance in manipulating the West Coast market. The tapes and memos were filed this week with the Federal Energy Regulatory Commission, as part of a broad investigation into how much money was lost by Enron market manipulation. Snohomish County is seeking to void a $122 million lawsuit by Enron over an energy contract the utility said was based on fraud.

Subject: and remove duplicate post From: Rlease excuse To: Emma Date Posted: Fri, Feb 04, 2005 at 12:03:47 (EST) Email Address: Not Provided Message: Please excuse and remove duplicate post. Emma

Subject: Jobs Jobs Jobs From: Terri To: All Date Posted: Fri, Feb 04, 2005 at 10:16:07 (EST) Email Address: Not Provided Message: We do have a demand and growth and job creation problem. The data are discouraging. I would add that the interest rate on the long term Treasury has fallen to 4.08%. Imagine a long term Treasury rate that has fallen thorugh 6 rate hikes by the Federal Reserve. We have not seen this before. We have now finished 2 years in which wage increases have trailed productivity growth as well as prices. Though we are slowing, growth is still reasonable but potential growth is considerably higher. We are shedding workers, and need to grow faster, but there is no stimulus in sight.

Subject: Attacking Iran is not on the Agenda From: Mik To: All Date Posted: Fri, Feb 04, 2005 at 09:41:01 (EST) Email Address: Not Provided Message: According to 'Ms Rice' attacking Iran is not on the Agenda. For starters the US can't afford it BUT just the mere discussion should make the Iranians nervous. What message are the Iranians receiving?: 1. We should stop our nuclear development as we could face a strike? 2. We'd better hurry up and finish developing our nuclear arsenal as the Americans will strike one way or the other and we need a deterrent? Comments?

Subject: Adding to the Government Deficit From: Terri To: All Date Posted: Fri, Feb 04, 2005 at 07:22:35 (EST) Email Address: Not Provided Message: This plan is to phase away Social Security. We have a fierce government debt that will continue to grow because of the lack of tax revenue. When the baby boomers are beginning to retire, in 2009, the plan is to add massively to the government debt with this impossible privatization plan. Social Security is in surplus, thanks to our parents, and the program will continue in surplus until this privatization plan begins. Just when we must be most concerned with government debt for the sake of our parents, we create a massive amount of additional debt. Absurd.

Subject: Setting Aside the New Deal From: Terri To: Terri Date Posted: Fri, Feb 04, 2005 at 07:23:33 (EST) Email Address: Not Provided Message: The Social Security plan is absurdly obscure, but the points that we can understand are that privatization will add massively to our debt while Social Security benefits are cut. The plan is meant to wear away the legacy of the New Deal that served to build middle class America.

Subject: Black Migration, Slave and Free From: Emma To: All Date Posted: Thurs, Feb 03, 2005 at 20:36:29 (EST) Email Address: Not Provided Message: http://www.nypl.org/research/sc/sc.html http://www.nytimes.com/2005/02/02/arts/design/02migr.html?ex=1107579600&en=b331f8ed02ab396c&ei=5070 Black Migration, Both Slave and Free By FELICIA R. LEE The extraordinary range of African-American migrations - from the earliest Africans who arrived to the recent movement of blacks back to the South - is the focus of a new Web site and an exhibition of recent research that could redefine African-American history, said scholars involved with the project, which was announced yesterday at the Schomburg Center for Research in Black Culture in Harlem. 'In Motion: The African-American Migration Experience,' a three-year project that cost $2.4 million, is probably the largest single documentation of the migrations of all people of African ancestry in North America, said Howard Dodson, director of the center, part of the New York Public Library. The exhibition at the Schomburg Center's Exhibition Hall, which opened yesterday, showcases many of the images, maps and music assembled for the project. But the project's 16,500 pages of essays, books, articles and manuscripts, as well as 8,300 illustrations and 60 maps are also available on the center's Web site (schomburgcenter.org) and could encourage a national conversation on the very definition of African-American, Mr. Dodson, a historian, said in an interview. 'This is a huge story,' Mr. Dodson said. 'This will serve as a catalyst for the continued re-thinking of who the African-American community is. For the first time, here's a project that explores the extraordinary diversity of the African-American community. This is organized around 13 migrations, 2 of them involuntary: the domestic slave trade and the trans-Atlantic slave trade.' Broadening the examination of migration beyond the slave trade means 'you come away with some very different perspectives,' Mr. Dodson said. Twice as many sub-Saharan Africans - about one million - have migrated to the United States in the last 30 years as during the entire era of the trans-Atlantic slave trade, project organizers said. The project is chock full of illuminating facts. It shows that in recent years, twice as many African-Americans have moved from the North to the South as from the South to other regions. From 1995 to 2000 approximately 680,000 African-Americans moved to the South and 330,000 left, for a net gain of 350,000. And for the first time, all the elements of the African diaspora - natives of Africa, Americans whose ancestors were enslaved Africans, Afro-Caribbeans, Central and South Americans of African descent, as well as Europeans with African or Afro-Caribbean roots - can be found in the United States. This has happened in only the last 15 years and is prompting a far broader view of the term African-American, said Sylviane Diouf, a historian who served as the content manager for the project. In addition to the Web site and the exhibition, the project includes a book, 'In Motion: The African-American Migration Experience,' released by National Geographic last month, and a Black History Month education kit, with lesson plans and a bibliography. 'It's really a new interpretation of African-American history,' Ms. Diouf said. 'We're seeing the centrality of migration in the African-American experience. What we're seeing now with the new immigration from Haiti, the Caribbean and Africa is a new diversity, people coming with their languages, their culture, their food.' Beyond that, he said, most people know only bits and pieces of the story of the African diaspora. Now they can make the connections. 'The central theme of finding political freedom and economic opportunity was as strong for those who ventured to Los Angeles from central Mexico in 1750, as for those who came to New York from Jamaica or the South in 1950,' Mr. Taylor said in an e-mail message. The project's scholars represent a range of mostly American universities, including the University of Chicago, Columbia and the University of Delaware. They were commissioned by the Schomburg, and most expanded on research that had already yielded scholarly material. The money for the project, Mr. Dodson said, came in part from a grant from the Institute of Museum and Library Services, a federal agency, through the efforts of the Congressional Black Caucus and Representative Charles B. Rangel, Democrat of New York. The research topics included the movements of blacks out of the United States to places like Liberia, Trinidad, Canada, Haiti and Mexico; the 19th-century migration north of both free and enslaved blacks; the migration of blacks in the West and even the journeys of runaway slaves. Some said their findings were surprising or at least tweaked conventional theories. Loren Schweninger, a professor of history at the University of North Carolina at Greensboro, said his research on runaways showed that many more fled to other parts of the South than made it North. Of the 50,000 or more slaves who ran away each year, perhaps only 2,000 made it North; it was just too difficult, for one reason. 'And that tells you a lot about slavery,' he said. James O. Horton, a professor of American studies and history at George Washington University who explored migration to the North in the 19th century, found that inner cities were once far more racially integrated than now. Lacking public transportation, people in the same industries lived in the same areas and many blacks lived near their white employers, even wealthy ones. Harry Belafonte, whose parents immigrated from Jamaica, said at a news conference at the Schomburg yesterday that the project would dispel myths. 'I was born colored, after that Negro, then black and now we've settled on African-American,' the 77-year-old singer said. 'No other group has taken a century just to learn what to call ourselves and what others should call us. We will use this Web site not only to be more prideful, but to allow the rest of the world to understand what they've done to us and what they've done with us.'

Subject: America's Economic Growth Rate? From: Terri To: All Date Posted: Thurs, Feb 03, 2005 at 18:46:42 (EST) Email Address: Not Provided Message: The reason Paul Krugman and Dean Baker chose a domestic growth rate of 2% for the coming 40 to 50 years, is that the Social Security administration projected growth rate for the economy is 1.6%. Paul Krugman was being generous. All of the projections that tell us the Social Security trust fund will only last till 2052 are based on the 1.6% economic growth figure that Social Security projects. Paul Krugman is being generous.

Subject: Condo Fever From: Emma To: All Date Posted: Thurs, Feb 03, 2005 at 14:31:42 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/03/garden/03turf.html Condo Fever Turns Buyers Into Early Birds By MOTOKO RICH ANGELINA UMANSKY, a 39-year-old spa owner from San Francisco, was visiting a friend in Miami two weeks ago when she heard about a new condo development downtown. Hoping to find a vacation home, but worried that others were interested, too, Ms. Umansky arrived at the sales office at 8 a.m. the day after seeing some model units. About 50 other buyers were already in line. Two hours later, a sales agent summoned her and said she had four minutes to decide which unit to buy. She acted fast, offering $350,000 for a two-bedroom, two-bathroom unit. Ms. Umansky thinks she got a bargain; when she called on behalf of a friend less than eight hours later, she was told the asking price on a unit like hers had climbed to $380,000, a nearly 9 percent price increase. Just when it seemed as if the real estate market couldn't get any barmier, it has. With inventories lagging behind demand and prices for new homes rising seemingly by the hour in destination cities like New York and second-home markets like Miami and Orlando, home buyers are camping out overnight in front of sales offices, pestering brokers and developers and scooping up multiple units in the real estate version of scalping.'This is a perfect storm for a frenzied housing market,' said Susan Wachter, a professor of real estate at the Wharton School of the University of Pennsylvania. 'The economy is strengthening, the restrictions on development are increasing and long-term mortgage rates are still historically low.' Ms. Wachter added that as interest rates start to creep up, more buyers tend to pile into the market, trying to lock in good rates. Across the country, according to the National Association of Home Builders, the number of new condos sold jumped 32 percent to an estimated 115,000 in 2004 compared with a year earlier. And in New York the number of condo sales in the three months through December 2004 increased 8.2 percent over the same period a year earlier, and average condo prices were up 11.1 percent to $1.29 million, according to Miller Samuel, a New York real estate appraiser. The gold rush mentality has some economists concerned. Some buyers of new condos and houses are behaving like day-traders before the dot-com crash, said John Vogel Jr., a real estate professor at the Tuck School of Business at Dartmouth College. In some cases, developers are actually creating the frenzy. In central Florida, Transeastern Homes, which builds subdivisions, asks prospective buyers to put down a refundable deposit of $500 to $5,000 to reserve a time slot to buy a house that has yet to be built, sometimes without knowing more than the general location of the subdivision and a price range. Buyers review floor plans and maps first at a Web site or in a brochure. When they arrive at the sales 'event,' typically at a hotel or a convention center, they spend five minutes looking at a map and choosing a home before the next buyer moves to the front of the line. Price increases - up to 16 a day- are announced over loudspeakers. 'People get excited and get caught up in it,' said Joel Lazar, a Transeastern vice president. 'Even if they weren't planning on buying a home, they convince themselves to buy a home.'

Subject: Condo Fever - 2 From: Emma To: Emma Date Posted: Thurs, Feb 03, 2005 at 14:32:07 (EST) Email Address: Not Provided Message: Last Sunday, Jeanette Gomez, a banquet server at a resort hotel, drove her mother, Maria Gomez, to her 11:12 a.m. appointment at a hotel in west Orlando. Although the senior Ms. Gomez wasn't planning to buy, she ended up making an $18,500 down payment on a two-bedroom town house. 'I pushed her,' her daughter said. 'I said 'Just do it.' I think it's a good buy because the sales agent told us the price already went up $20,000 since yesterday.' What's lost in the giddiness is a sense of history. 'People have a belief that's not true: that you can't lose money in real estate,' said Joseph Gyourko, a real estate professor at Wharton. 'We know from the late 80's and early 90's that you can.' In New York, for example, median sales prices - the exact middle of all sales prices - peaked at $375,000 in 1987 before plunging 45 percent to a low of $205,000 in 1995. Median prices did not climb back up to their 1980's levels again until 2000, according to Miller Samuel. In the Northeast, the National Association of Realtors said median sales prices fell 11 percent from 1988 to 1989, and did not return to 1988 levels until 2001. That doesn't stop some buyers from making impulsive down payments on condos that don't yet exist. In October, AnneMarie Alexander, then a broker with Prudential Douglas Elliman, took some brochures and parked her BMW 740 in front of a hole in the ground on 17th Street in Chelsea. She proceeded to sell five luxury condos - at prices above $1 million each - from the back seat of her car. 'I showed them the site through a hole in the fence,' Ms. Alexander said. Last summer, arguments erupted when 50 prospective buyers spent the night in front of a 16-unit building in Park Slope, Brooklyn, before an open house. As a result, the Corcoran Group, which marketed the property, now sells new condos only by appointment, said Jay Schippers, head of new development for Corcoran in Brooklyn. Now buyers and their brokers are quarreling over viewing dates. Security guards at 56 Pine Street, a 90-unit condo in Manhattan, called the police to escort two brokers out of a sales office last month. 'They said they were not leaving until they got an appointment,' said Andy Gerringer, a managing director of Prudential Douglas Elliman, which is helping to sell the condos. If all else fails, some buyers try bribery. When 3,600 people showed up for a party showcasing a 419-unit condo project in Arlington, Va., last September, the developers booked appointments through the end of January. Afterward, those who had missed out were 'offering us lunch and tickets to baseball games,' said David Klimas, a broker with McWilliams/Ballard, which was marketing the development. (Mr. Klimas said the buyers' tactics did not work.) Hoping to beat out the crowds vying last fall for apartments in the Toy Factory Lofts, a new condominium in downtown Brooklyn, Jason Lynn showed up at 11 p.m. - 14 hours before the sales office opened. He was carrying a fold-up chair, his iPod, some tennis balls (for pick-up handball) and a book. Before long there were enough other early birds to start a card game. Mr. Lynn says he was happy to stay up all night. He landed a 700-square-foot loft for $314,000 - 15 percent more than he would have paid at an open house two days earlier. 'There is always a frenzy at the beginning of a development because the prices are lower,' said David Behin, an executive vice president at the Developers Group, which handled sales at the Toy Factory. Some excited buyers aim to get a jump on property before it is advertised. Kenneth Horn, president of Alchemy Properties, which is developing a 67-unit condo on 19th Street in Chelsea, said he already has more than 200 individuals and more than 300 brokers on a waiting list for the development, which has yet to receive approval from the attorney general's office, which regulates new real estate. Brokers field calls from people poised to sign a contract the minute one is available. Some check in three times a day, said Michael Klein, an agent with Liberty Realty in Hoboken, N.J. A couple of times last year, he said, he called clients at 11 p.m. to share floor plans fresh from the printer. The buyers signed deals the same night. Hoping to manage the crush, the developers of Maxwell Place, a luxury condominium project in a renovated coffee plant on the Hoboken waterfront, told interested buyers in November that they would need appointments, available only to 77 people and only by calling an 800 number at exactly 1 p.m. on a Tuesday. Within an hour, all 77 appointments were taken. Mr. Vogel, the real estate professor, said the sales hysteria has troubling parallels. 'We've now moved past the stage of people saying we've got to get in before it's too late,' said Mr. Vogel. 'Now we're at the speculator stage.' Indeed, Harold Gallo, director for marketing of the Related Group, a developer in Miami with a 1,000-unit condo that sold out in 36 hours last spring, said that about 50 percent of the buyers were investors - in other words, people who will never live in the apartments and often sell them before anyone moves in. Mr. Vogel said that the frantic buying was characteristic of the tech bubble before it collapsed, adding, 'It speeded up.' The biggest threat to the housing boom is a sharp increase in mortgage rates. 'That will quickly knock the wind out of these housing markets and the psychology will reverse as quickly as it appeared,' said Mark Zandi, the chief economist at Economy.com, a private research group. For now, interest rates are expected to rise modestly throughout the year. None of the naysaying bothers Kathleen Gillman, an interior designer, and her son Patrick, a real estate agent, who bought a $200,000 town house in Orlando at a Transeastern sales event last Saturday. Four months ago Mr. Gillman bought another house nearby, his mother said, adding that it is now worth $50,000 more. 'It is interesting how many different viewpoints are out there about whether it's going to level off now, go on for 10 more years or one more year,' she said. 'Right now we're going to take the viewpoint that it's certainly not over yet.'

Subject: German Joblessness Rises From: Emma To: All Date Posted: Thurs, Feb 03, 2005 at 11:21:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/03/business/worldbusiness/03euro.html German Joblessness Rises as Benefits Are Reduced By MARK LANDLER FRANKFURT - As the European Union kicked off its latest campaign to rejuvenate the Continent's creaking economy, Germany supplied fresh evidence of how deep-seated the problems are. The number of unemployed people in Germany rose to five million last month, the most in the post-World War II period, as the government transferred some longtime welfare recipients to the jobless rolls. That change in classification grew out of new labor market regulations adopted in January. These rules, known as the Hartz reforms, will also put more pressure on the unemployed to find jobs. Despite the unhappy symbolism of five million out of work - opposition leaders drew comparisons to the Weimar Republic of the 1920's that preceded the Nazi rise to power - some analysts found a silver lining in the numbers. Germany, they said, was at last confronting the weakest link in its economy, the labor market. 'We're bringing the part of the iceberg that was under the waterline, above the water,' said Thomas Mayer, the chief European economist at Deutsche Bank in London. 'Now we can take steps to melt it.' Under the new rules, Germans can no longer draw open-ended unemployment compensation, which can be up to 60 percent of a recipient's original salary. After 12 months, they are eligible only for smaller welfare payments. They can also be prodded to accept public-sector jobs. The dislocation from the rules is likely to drive up the jobless rate even further, German officials said, before the economy begins to generate new jobs, bringing down the unemployment rate from its current level of 11.4 percent. Wolfgang Clement, the minister for economics and labor, told reporters in Berlin that the report provided 'five million reasons for labor market reform.' He dismissed references to the Weimar-era depression, saying, 'quite apart from these hysterical and sometimes absurd comparisons, the figures reflect what has been reality in the Federal Republic for years.' Indeed, high unemployment remains a chronic problem in much of the European Union - a fact that was acknowledged by the president of the European Commission, José Manuel Barroso, when he laid out a new economic program for the Continent in Brussels on Wednesday. Mr. Barroso, a former Portuguese prime minister who was appointed to head the commission last summer, said Europe needed to focus more intensely on restoring economic growth and creating jobs by reducing bureaucracy and increasing investment in research and development. 'We have to get our economy moving, if more people are to find a job they want and if we hope to preserve and develop our unique model of society,' he said in a speech to the European Parliament. Critics said the commission's business-friendly stance would shortchange social issues and environmental protection - areas where Europe has historically been a leader. Mr. Barroso, however, chose to focus on areas where Europe has in recent years become a laggard. Last year, the average economic growth in the European Union was 2.2 percent, in contrast to 4.3 percent in the United States and 4.4 percent in Japan. The unemployment rate was 8.9 percent, contrasted to 5.4 percent in the United States and 4.4 percent in Japan. Among the casualties of the commission's new focus is an ambitious statement known as the Lisbon agenda, which was issued in 2000 and which pledged to make Europe the 'most competitive and dynamic knowledge-based economy in the world' by the end of the decade. 'Lisbon has been blown off course by a combination of economic conditions, international uncertainty, slow progress in the member states and a gradual loss of political focus,' the commission said. The shelving of the Lisbon agenda, economists said, merely confirms the limits of a united Europe. Economic change cannot be dictated from Brussels in the form of a 10-year plan, they said, but must be developed by national governments, which then have to sell it to the people and the corporate sector. 'I'm skeptical that the E.U. can achieve a lot in this area,' said Daniel Gros, the director of the Center for European Policy Studies in Brussels. 'Nobody wants to say that the emperor is basically naked.' Germany is starting to overhaul its economy, Mr. Gros said, but not in response to any directive from Brussels. Facing competition from the new European Union member states, and lacking much latitude to loosen its fiscal or monetary policies, the German government has little choice but to go to work on its underlying rigidities, including the labor market. Chancellor Gerhard Schröder is pushing his own 10-year plan, known as Agenda 2010, with the Hartz reforms part of that. Mr. Mayer, the Deutsche Bank economist, said the plan was driven mostly by a fear of German companies moving factories and jobs outside the country. 'The politicians are now forced to own up to the problems,' he said. 'It's sort of like a cleansing process.' The twist, for those who follow German politics, is that Mr. Schröder's popularity has risen, not dropped, during this difficult period. In a recent opinion poll conducted by Stern magazine and RTL television, Mr. Schröder's coalition government beat the conservative opposition by a percentage point, even after the adoption of often painful measures. 'His comeback shows that these reforms pay off, contrary to what many people say,' Mr. Gros said.

Subject: Social Security From: Mona Smith To: All Date Posted: Thurs, Feb 03, 2005 at 11:16:29 (EST) Email Address: k31h35@yahoo.com Message: Question: I realize that this might sound a little ignorant and I am no economist, but wouldn't a 1 percent increase across the board in the social security tax for a set period of time make up any shortfall from the baby boomers? When I look at the choice of an indivigual account vs 1 percent more of my pay going into a proven retirement fund I would give up that 1 percent gladly. for me at approx. 50,000 per year it would only be 500 dollors that I am spending on a cup of joe anyway.

Subject: Re: Social Security From: Emma To: Mona Smith Date Posted: Thurs, Feb 03, 2005 at 11:25:55 (EST) Email Address: Not Provided Message: Fine question. The answer is 'easily.' Social Security is in surplus and will be so until 2020 by the latest figures. The trust fund will be able to pay full benefits to 2052. But, this assumes a rate of growth for the economy of 1.6% which is very low. If growth is 2%, there will be no problem this century. So, a small payroll tax increase would easily insure the system but this may well not be needed.

Subject: Re: Social Security From: Mona Smith To: Emma Date Posted: Thurs, Feb 03, 2005 at 16:02:15 (EST) Email Address: k31h35@yahoo.com Message: Fine question. The answer is 'easily.' Social Security is in surplus and will be so until 2020 by the latest figures. The trust fund will be able to pay full benefits to 2052. But, this assumes a rate of growth for the economy of 1.6% which is very low. If growth is 2%, there will be no problem this century. So, a small payroll tax increase would easily insure the system but this may well not be needed. --- So, why the scare tactics with the administration? There are so many things for which Bush could claim a 'legacy' for example: finding a way to make health care more affordable for everyone. That would save millions that could be put into investments or even savings.

Subject: Re: Social Security From: Nat To: Mona Smith Date Posted: Thurs, Feb 03, 2005 at 19:47:49 (EST) Email Address: Not Provided Message: Mr. Bush has no interest in making health care more affordable for anyone. He is, however, very interested in making health insurance more profitable for insurers. Have you ever tried to 'negotiate' an individual health insurance policy? This will be the net effect of the Bush proposal to eliminate group policies negotiated by corporations for their employees. Nor is he interested in the financial well being of most elderly Americans, hence the profoundly deceptive BS masquerading as 'saving social security.' He would like to see a nation of corporate victims for the sake of some sort of twisted sense of fairness. Track down the wit and wisdom of Grover Norquist to better understand the direction America is lurching.

Subject: Drug Costs From: Terri To: Nat Date Posted: Thurs, Feb 03, 2005 at 20:10:51 (EST) Email Address: Not Provided Message: The Veterans' Administration is able to bargain for durg prices, but not so Medicare under the new law. Simply allowing Medicare to bargain for drug prices would lower costs significantly.

Subject: Re: Social Security From: Jennifer To: Mona Smith Date Posted: Thurs, Feb 03, 2005 at 17:31:38 (EST) Email Address: Not Provided Message: Conservative ideas leave no room for a social benefit system which we began to set in place during the New Deal and extended through the administration of Richard Nixon. From a progressive income tax to Social Security and Medicaid and Medicare, the wish is to make each of us solely responsible for our well-being. The ideas may even seem enticing, till they begin to be worked through.

Subject: How to Measure Poverty From: Emma To: All Date Posted: Thurs, Feb 03, 2005 at 11:11:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/03/business/worldbusiness/03scenes.html?pagewanted=all&position= U.N. Aims to Cut Poverty in Half as Experts Wonder How to Measure It By ALAN B. KRUEGER ONE of the United Nations' top goals is to cut in half the proportion of people living in extreme poverty by 2015, compared with 1990. The World Bank is responsible for keeping track. Accurately monitoring poverty is essential for knowing whether the goal is achieved and whether antipoverty strategies are working. But measuring poverty is difficult for a particular country, let alone the world. The movie star Angelina Jolie challenged celebrities at the World Economic Forum in Davos, Switzerland, last week to know 'absolutely what they're talking about' when it comes to poverty, yet even experts would have trouble meeting her standard. Knowing the extent of the rise or fall of worldwide poverty is difficult because poverty is not easy to define or measure. First, establishing a poverty line - or level of consumption below which one is considered impoverished - involves an element of arbitrariness. For many poor families, not having enough money amounts to not having enough food. But there is no particular threshold level of income or expenditures above which people automatically become fully functioning, nourished members of society. 'Poverty lines are as much political as scientific constructions,' said Angus Deaton, a Princeton economist and expert on economic development. In such places as different as the United States and India, the poverty line was initially set with reference to minimum standards of food consumption. Yet over time, Professor Deaton noted, the poverty lines in both countries were adjusted to keep pace with overall price inflation, not the price of food or the share of food in the average family's budget. Despite straying from its original conception, the poverty line survived because of its political and administrative usefulness. The U.N. has set the line for extreme poverty at living on less than $1 a day. This threshold has obvious rhetorical appeal and surely qualifies as extreme poverty by any standard in developed countries; it is also not far off the poverty line used by many of the poorest countries themselves. Once an international poverty line is set, it must be converted to local currencies. This is trickier than it sounds. Currency exchange rates are inappropriate because most of the items that the poor consume are not traded on world markets. Living expenses are much lower in rural India than in New York, but this fact is not fully captured if prices are converted with currency exchange rates. To convert the $1 poverty line into foreign currencies, the World Bank uses indexes of 'purchasing power parity.' Simply put, these indexes reflect the cost of buying a standard bundle of goods in each country. Although it is desirable to use purchasing indexes, they are not available for all countries and are skewed toward representing the purchases of the wealthiest households, not the poorest, when they are available. Another problem is that the bundle of goods that poor families actually buy varies from country to country because of differences in tastes and availability. Thus, the $1 poverty line is best viewed as an approximation. Once the poverty line is set in local currency, the consumption of a representative sample of households must be compared with the line to determine the percent of people getting by on less than $1 a day. (Each household's consumption is spread equally among its members, another leap of faith.) Again, this is harder than it sounds. The World Bank typically relies on whatever government surveys that countries routinely produce. But there is no uniform standard in the way countries collect and process their data, which is important because the poverty rate is sensitive to how consumption is measured. Consider India, home to 33 percent of the world's poor - or 20 percent, depending on how the data are collected. India was a pioneer in social surveys and has one of the best government statistical agencies in the world. Still, uncertainty shrouds the level of poverty in India. In one experiment, India's national survey organization asked half of the households it surveyed to report their spending on certain items over a 30-day period and half over a seven-day period. Households reported 30 percent higher food consumption per day in the shorter interval, enough to cut the poverty rate in half. It is not certain which measure is more accurate, although follow-up work points toward the longer interval. Perhaps the best one can hope for is consistency of measurement within countries to detect changes in poverty over time. But continuing past practices can prolong the use of misleading poverty counts that are not comparable across countries. Clearly, there is a need for Latin American countries, which usually measure poverty by income rather than consumption, to collect reliable household consumption data because consumption is a better measure of living standards. The herculean measurement problems aside, careful research by Shaohua Chen and Martin Ravallion of the World Bank indicates that much progress has been made toward the goal of halving poverty in China and India. But, they found, little progress has occurred in Latin America and Africa, and the former Soviet states are slipping into deeper poverty. Because China and India accounted for 60 percent of the world's poor in 1990, the goal of halving poverty may be achieved a decade from now, even while many regions see no progress. Despite the progress in China and India, 18 percent of the world's population still somehow survives on less than $1 a day. The United Nations has recently held a number of brainstorming sessions to gather proposals for the secretary general's report to the General Assembly on achieving the development goals, which will be delivered next month. An essential prerequisite is to improve poverty statistics and ensure their integrity. Although the process of setting a poverty line is necessarily political, the task of measuring poverty should be insulated from political influences. The World Bank, however, is an inherently political institution. Yet no other international body currently has the expertise or resources to monitor worldwide poverty, so it is important for the next president of the World Bank to value and protect the impartiality of the statistical and research staff. The U.N. could also help by working with statistical agencies around the world to develop uniform standards for poverty surveys and then to ensure that their data are adequately documented and publicly archived. To this end, the U.N. could restart its Household Survey Capability Program, which supported statistical offices in developing countries in the 1980's. This may not be a cause that celebrities are ready to line up for, but improving poverty data will put the world in a better position to monitor progress and evaluate poverty reduction strategies by the time the poverty line is moved up to $2 a day. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University.

Subject: China to Cut Taxes on Farmers From: Emma To: All Date Posted: Thurs, Feb 03, 2005 at 10:53:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/03/international/asia/03china.html?pagewanted=all&position= China to Cut Taxes on Farmers and Raise Their Subsidies By JOSEPH KAHN BEIJING - Chinese officials are promising to reduce taxes on peasants and increase farm subsidies to improve the lot of 800 million rural residents left behind in the fast-growing economy. The measures, announced in a government publication called the '2005 No. 1 Document' and described by policy officials this week, are intended to slow the surging wealth gap between urban and rural residents, a major source of social discontent and perhaps the greatest challenge for the governing Communist Party. China's rapid economic growth has generated widespread prosperity and lifted average per capita incomes past $1,000 a year, pulling the country out of the ranks of the world's poorest developing countries in a single generation. But the benefits of that wealth have fallen disproportionately on urban residents, a point of severe stress for a society that once preached egalitarianism. Last year average urban income was 3.2 times as much as average rural income, one of the biggest urban-rural divides in the world, statistics released in January show. China keeps its rural and urban populations distinct through population controls, classifying most rural residents as peasants even when they migrate to cities to find work. The gap in living standards is actually greater than the income figures suggest, because urban governments and companies often offer health, housing, education and retirement benefits that are not widely available in the countryside. Many developing countries experience rising inequality in the early stages of industrialization. But China's transition has proven especially volatile, because the authoritarian government has injected hundreds of billions of dollars into developing urban coastal areas while maintaining tight controls over farmland and peasants to ensure steady supplies of grain and surplus labor.

Subject: China to Cut Taxes on Farmers - 2 From: Emma To: Emma Date Posted: Thurs, Feb 03, 2005 at 10:54:23 (EST) Email Address: Not Provided Message: Local corruption, unpaid wages for migrant workers and forced requisitioning of farmland for development are among the biggest causes of popular protests and even riots in some areas, police statistics show. The new agricultural policy marks the second straight year that Prime Minister Wen Jiabao devoted his first major initiative of the year to addressing rural problems. Officials say the measures have proven effective in increasing rural incomes. But analysts said the government's policies had tended to emphasize short-term steps to subsidize grain production and cut taxes while avoiding more fundamental changes like giving peasants greater control over their land. Chen Xiwen, the government's top rural policy official, said this week that by the end of this year, 24 of China's 31 provinces and metropolitan regions would eliminate the basic agricultural tax imposed on all rural families since collective farms were dismantled in favor of private farms in the early 1980's. The rest of the country will phase out that tax over the next several years, faster than the five-year schedule announced last year, Mr. Chen said. Experiments in reducing or abolishing other taxes assessed on farmers, like those for nongrain commercial crops and livestock, are also being accelerated, he said. Canceling the agricultural tax should put about $4 billion back into the pockets of the 800 million people who are considered peasants under China's population control system, or roughly $5 per farmer annually. That does not amount to a windfall for farmers, who had an average income of $353 last year. But it would address one of the most conspicuous inequalities in Chinese society by ending broad mandatory taxation on the nation's rural majority. Urban residents do not pay taxes unless they earn more than $1,200 a year. Mr. Chen said early rounds of tax reduction, a new grain-planting subsidy and big increases in market prices for wheat, corn and rice increased farm incomes last year at the fastest pace since at least 1997. 'If we continue to have policies that raise farmers' incomes, they will have greater incentives and their outlook on life will become much better,' he said at a news conference. Adjusted for inflation, income for rural residents grew by 6.8 percent in 2004, the State Statistics Bureau reported. Still, that fell short of the 7.7 percent increase in urban incomes, meaning that the urban-rural income gap continued to widen. Mr. Chen said the government planned to protect farmers' land use rights and invest more in irrigation and infrastructure to further improve the farm economy. But he acknowledged that it would be difficult to maintain the pace of growth in rural incomes achieved in 2004, because the market prices of grain were not likely to increase rapidly for a second straight year. Outside experts said the government had not yet shown a willingness to level the playing field between urban and rural residents through bolder policy changes. 'The measures they have taken are all good things to reduce the disparity,' said Li Ping, China representative for the Seattle-based Rural Development Institute. 'But the government cannot indefinitely increase subsidies or allow the grain price to keep rising, so these measures are not really sustainable.' Mr. Li and other experts say one potential key lies in creating a market for farmland that resembles the one for urban land. That way, they say, some farmers could profit from selling land rights while others could acquire more efficient farms. Urban Chinese can buy and sell property. But rural land is distributed based on 30-year contracts and remains firmly under the control of local authorities, who can requisition it or redistribute it largely at will. Late last year, the government adopted a new policy that aims to protect farmland and to ensure that farmers get more compensation if their land is seized. But local governments still exercise far more control over land than they do in countries that recognize property rights. Selling land has become the most important source of revenue for local governments, Mr. Li said. 'The central government realizes that secure land use rights are the most important tool in boosting the rural economy,' he said. 'But they still have a long way to go to address the underlying problems.'

Subject: Nothing has changed From: Pete Weis To: All Date Posted: Wed, Feb 02, 2005 at 21:26:36 (EST) Email Address: Not Provided Message: Not long ago, two of America's largest financial institutions, Citigroup and Chase-Manhattan-JP Morgan, found themselves at the center of Enron's accounting fraud. They engineered a way for Enron to hide debt with the use of 'special entites' which amounted to sham off-shore companies through which they funneled loans to Enron while making them look like profits from energy trades. To date, I know of no investigation or legal action taken by US enforcement or regulatory agencies against executives or employees at these two institutions for assisting Enron and possibly other companies in fraudulent accounting practices. When you think about the lost life savings of so many Enron employees as well as the lost investments of thousands of stock holders who were not employees and juxtapose it against the many millions paid out to Citigroup and JP Morgan executives in stock options, you begin to get a feel for the corruption that presently permiates the top levels of both corporate and governmental leadership in America. I doubt that the Europeans will be so forgiving. From the Financial Times: Citigroup bond trading memo revealed >By Päivi Munter >Published: January 31 2005 22:06 | Last updated: February 1 2005 10:17 >> Citigroup's huge trades in the eurozone government bond market last August - which were later described as “knuckle-headed” by Chuck Prince, its chief executive - came shortly after an internal memorandum spelt out how the US investment bank could “very profitably” destabilise the market. The memo, obtained by the Financial Times, outlines a strategy to shake up the eurozone market, where trading margins have contracted because of transparency and stiff competition. The document dated July 20, two weeks before the trades were conducted says Citigroup wanted to “turn the European Government bond market into one that more closely resembles” the less transparent US Treasury bond market, which is dominated by a much smaller number of investment banks. “Over time, this may help to kill off some of the smaller dealers,” the memo adds. On Tuesday, Gianluca Garbi, chief executive of EuroMTS, the company that runs electronic trading in European government bonds, said he was “astonished” in response to the FT’s report about the memo. “As a regulated market, we are obliged to get hold of this type of information and I will be writing to Citigroup today,” Mr Garbi told Dow Jones newswires. A Citigroup spokesman said on Monday night: “As this is the subject of regulatory enquiry, we are unable to comment other than to say this memo is filled with in-appropriate and unrealistic statements. It was not seen by, nor does it represent the views of, the supervisors who approved the trade, nor of the firm.” The memo is likely to fuel the indignation of eurozone governments, many of which have made great strides in lowering their borrowing costs since the euro's launch six years ago. It may also weigh against Citigroup in regulatory investigations of the trades, being led by Bafin of Germany and the UK's Financial Services Authority. Entitled “Challenging the dominance of Eurex futures”, the Citigroup document outlines a plan to take advantage of liquidity differentials between the German government bond [Bund] futures and cash bonds traded on the EuroMTS electronic system. “We should be able to exploit this situation in a very profitable way,” the memo says. Eurex, the Frankfurt-based derivatives exchange, is the most important trading venue for eurozone government bonds, because its German government bond futures are used to price all eurozone government debt. While trading activity on Eurex fluctuates because of seasonal factors and economic conditions, liquidity on MTS is much more constant because the platform obliges its dealers to provide continuous price quotes. “When there is a liquidity imbalance . . . we drive up the Bund future [and] then hit out all the cash [bids] on MTS,” says the memo. On August 2, Citigroup stunned the eurozone bond market by selling €11bn (Ł7.6bn) of cash bonds in less than two minutes. About 30 minutes later, the bank bought back €4bn of the bonds at lower prices, making a profit of about €17m. The explicit intention to destabilise Eurex futures is likely to strengthen the hand of German prosecutors, who last week launched a criminal probe into possible market manipulation. The memo, apparently written by Simon Wivell of Citigroup's European government bond trading desk in London, is addressed to Daniel Leadbetter, another member of the same team.

Subject: Re: Nothing has changed From: Terri To: Pete Weis Date Posted: Thurs, Feb 03, 2005 at 21:28:18 (EST) Email Address: Not Provided Message: This bears watching.

Subject: The Bull Market in Long Term Bonds From: Terri To: All Date Posted: Wed, Feb 02, 2005 at 18:20:38 (EST) Email Address: Not Provided Message: While the Vanguard Long Term Bond Index is up about 2.7% this year, the TIPS fund is slightly negative. The 5 annual return for the S&P through January 31, is -1.9% while the Long Term Bond Index is up 10.9%. This has really been quite a bull market in bonds.

Subject: International Stock Markets From: Terri To: Terri Date Posted: Wed, Feb 02, 2005 at 19:55:41 (EST) Email Address: Not Provided Message: Almost every stock market in the world is positive in local currency, but slightly negative in dollar terms sicn the dollar has been strengthening.

Subject: Medicaid Limits Asked From: Emma To: All Date Posted: Wed, Feb 02, 2005 at 13:47:08 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/02/national/02health.html February 2, 2005 Health Secretary Calls for Medicaid Changes By ROBERT PEAR WASHINGTON - Michael O. Leavitt, the secretary of health and human services, called Tuesday for sweeping changes in Medicaid that would cut payments for prescription drugs and give states new power to reduce or reconfigure benefits for millions of low-income people. In his first speech as secretary, Mr. Leavitt also said it should be more difficult for elderly people to qualify for Medicaid by transferring assets to their children. 'Medicaid must not become an inheritance protection plan,' Mr. Leavitt said at a convention of health care executives here. 'Right now, many older Americans take advantage of Medicaid loopholes to become eligible for Medicaid by giving away assets to their children. There is a whole industry that actually helps people shift costs to the taxpayer.' Medicaid helps pay the bills for two-thirds of the 1.6 million people in nursing homes in the United States. Mr. Leavitt said President Bush wanted to join Congress in an effort to rein in the cost of Medicaid, the nation's largest health insurance program. Medicaid spending has shot up 63 percent in the last five years. Federal and state outlays now total more than $300 billion a year. Anticipating the proposals by the Bush administration, many governors have banded together in a bipartisan effort to stave off restrictions on federal Medicaid spending. In a letter to Congress in December, the National Governors Association said it was unacceptable to shift federal costs to the states as part of a deficit-reduction strategy. Meanwhile, some governors, including George E. Pataki of New York, have turned to Medicaid in trying to address their own budget pressures. Some states have dropped recipients, set strict limits on spending and reduced benefits. One of the biggest changes Mr. Leavitt suggested Tuesday was to provide a more 'flexible package of benefits' to women and children in many low-income families. States already have a large degree of discretion, but the basic package of benefits required under Medicaid is more comprehensive than that of most private plans. The Medicaid package is also more extensive than the benefits required under the Children's Health Insurance Program, which is less likely to cover mental health services, vision care and dental treatments. 'Medicaid is not meeting its potential,' Mr. Leavitt said. 'It is rigidly inflexible and inefficient. And, worst of all, it is not financially sustainable.' Mr. Leavitt, a former three-term governor of Utah, laid out several options that he said could save Medicaid more than $50 billion in the coming decade. Even with these changes, he said, Medicaid spending will probably grow more than 7 percent a year. The Congressional Budget Office said last week that under current law, with no changes, Medicaid would grow an average 7.8 percent a year in the coming decade, compared with an average 7.9 percent a year in the prior decade. Mr. Leavitt said the federal government could save $15 billion in the next 10 years if it stopped 'overpaying for prescription drugs.' George M. Reeb, assistant inspector general at the Department of Health and Human Services, told Congress in December that most states paid for drugs based on the 'average wholesale price,' a list price that bears little resemblance to the prices actually paid by retail pharmacies serving Medicaid recipients. Patrick J. O'Connell, an assistant attorney general of Texas, testified at the same hearing that some pharmacies had received 'windfall profits' and that some manufacturers had 'purposely reported false and inflated prices to Texas Medicaid.' Mr. Leavitt said Tuesday that Medicaid could save $4.5 billion over the next 10 years if it restricted the ability of elderly people to gain Medicaid coverage of long-term care by transferring assets to their children. Finally, he said, the federal government could save $40 billion in the next decade if it cracked down on 'accounting gimmicks' that he said were used by states to shift costs to the federal treasury. The Government Accountability Office, an investigative arm of Congress, said last week that such moves by the states 'generate excessive federal matching payments' and 'cost the federal government several billions of dollars each year.' In 2003, Mr. Bush proposed giving states a fixed amount of federal money for people the states had voluntarily decided to cover under Medicaid. Democrats and advocates for the poor denounced this as a block grant. Under such an arrangement, they said, Medicaid would be less responsive to changes in the economy and to increases in poverty and medical costs.

Subject: Poor Old Ireland Rich New Ireland? From: Emma To: All Date Posted: Wed, Feb 02, 2005 at 11:37:52 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/02/international/europe/02letter.html Suddenly Rich, Poor Old Ireland Seems Bewildered By LIZETTE ALVAREZ DUBLIN - Between sips of caffe latte and laments about the staggering cost of property here, the Irish are beginning to ask themselves a 21st-century question: Who do we want to be, as a country, now that we have all this money? 'We are certainly in new territory,' said Joseph O'Connor, a best-selling Irish novelist who recently wrote 'Star of the Sea.' 'We haven't been here before.' It was not so long ago, even less than a generation, that Ireland was a threadbare nation, barely relevant in European affairs. Finding a job meant hopping an airplane out of the country. People counted their pennies, not their commuter miles, and poverty, for many, was a stubborn component of Irish life. But Ireland's jump into the European Union, along with aggressively pro-business economic policies, changed all that. In a little more than a decade, the so-called Celtic Tiger was transformed from one of the poorest countries in Western Europe to one of the richest in the world. Its gross domestic product per person, not quite 70 percent of the European Union average in 1987, sprang to 136 percent of the union's average by 2003, while the unemployment rate sank to 4 percent from 17 percent. The transformation was not complete, though, without one additional element. As the economy has flourished, the Roman Catholic Church, arguably the country's mightiest institution, has been wounded by a pedophile scandal. Taken together, the impact has been profound. 'There are some of us who worship Versace the way our grandmothers worshiped the Virgin Mary,' Mr. O'Connor said. In November, The Economist, in its yearly Intelligence Unit report, cemented Ireland's powerhouse reputation by declaring it the country with the best quality of life in the world. But that new status is bringing with it an identity crisis, one that is forcing the country, and its government, to grapple with the flip side of wealth and the obligations that money imposes. While few people argue that Ireland was better off 20 years ago, some are beginning to point out that national wealth alone, without introspection, does not necessarily bring happiness. It can, in fact, bring new problems. How, for example, should a country once known for sending legions of people abroad deal with its own crop of immigrants? What does it mean to be Irish, given that so much of the national psyche is tied up in centuries of poverty? Irish newspapers have been filled with accounts of the pitfalls of growth, secularization and wealth, some of them trivial, a few of them serious: suicide is at record levels, divorce is increasingly common, property prices are soaring, traffic is horrendous, personal debt is spiraling up, faceless commuter suburbs are sprouting and teenagers are taking too many drugs and buying too many things. Even the high cost of a cup of coffee has become a lightning rod, prompting people here to label the country Rip-Off Ireland. A survey released last week by a market research group, Mintel Ireland, showed that most people did not feel their lifestyle had improved in recent years, primarily because the cost of living had exploded. Dubliners are the most dissatisfied. Another study pointed out that stress levels everywhere in Ireland are ballooning. Emily O'Reilly, the government's ombudsman and information commissioner, fanned the debate over Ireland's new identity in a November speech bemoaning the country's misplaced values in the wake of its economic success and flourishing secularization. 'Many of us recoil at the vulgar fest that is much of modern Ireland,' Ms. O'Reilly began, before going on to cite its plunge into materialism, foul language, random violence, moral poverty and the culture of immediate gratification. 'Divorce was meant to be for the deeply unhappy, not the mildly bored,' she said. 'Sunday shopping was supposed to be a convenience for the harassed worker, not a new religion. 'Released from the handcuff of mass religious obedience, we are Dionysian in our revelry, in our testing of what we call freedom,' she continued. 'Hence the staggering drink consumption, the childlike showing off of helicopters and four-wheel drives and private cinemas, the fetishizing of handbags and high heels.' The speech drew both applause and derision, with many saying that Ms. O'Reilly was succumbing to the Irish penchant for gloom. Few, however, disagree that Ireland needs to do more to care for its poor, and to spend more on health care and schools. 'A lot of people here don't even know what the Celtic Tiger is,' said Chris McCarthy, who lives in Teresa's Gardens, a poor enclave of Dublin, and works in its community center. 'The Celtic Tiger has just passed us by.' Indeed, as the Rev. Sean J. Healy, director of the justice commission of the Conference of Religious of Ireland, an influential group here, noted, the average wage is still only about $40,000. The government, he says, needs to strike a 'balance between the social and the economic.' 'We have enough money now for the first time to tackle poverty, inequality and a poor infrastructure,' he added. Eradicating poverty, everyone agrees, is a worthwhile goal. But Ireland was so poor for so long, and its poverty was so ingrained in its identity, that some wonder whether Irish culture and character - its keen sense of community, its sharp humor in the face of hardship - will be steamrolled by the rollicking economy. Mr. O'Connor, the writer, said a degree of reflection and self-criticism was welcome, but not if it spoiled the party altogether. The arts community, for example, is flourishing; there are more writers, painters, poets and musicians than ever before. Comedians and comedy abound, he notes, more so than in the past. 'Yes, people are commuting long distances now,' he said. 'But not nearly so long as the commute to, say, Australia, which is where many people had to go to find jobs a generation ago.' If anything, all the hyperventilating about Dublin's dazzling transformation seems to have confounded people, who are asking, basically, is this as good as it gets? 'If Ireland is the best place to live,' Mr. O'Connor said, good-naturedly, 'God help us.'

Subject: Re: Poor Old Ireland Rich New Ireland? From: Setanta To: Emma Date Posted: Thurs, Feb 03, 2005 at 04:52:51 (EST) Email Address: Not Provided Message: brilliant article!!! it is quite accurate in its presentation of the perceptions in ireland of this new found wealth. i'm probably not the most objective of commentators, having just forked out Eur580k for a house (an amazing house in an excellent (read exclusive) area) and having to pay Eur34k in Stamp Duty on the purchase. being 27 i suppose i'm overstretching a little but 5 years down the line i hope its worth it. (i am terrified of this impending increase in interest rates by the way!!!) Sean Healy is a regular contributor to the national press and is seen as a Luddite or at least a fully paid up member of the Flavian Society! as part of the 'poverty industry' it is his job to constantly depict ireland as a deeply unequal society with, i think i'm quoting him directly, 20% of our children living in poverty. this is preposterous!!! he also claims that 10% of our population is functionally illiterate! this is disingenous too! i deal with legal documents almost every day and find them hard to read, technically this makes me functionally illiterate too...its a makey-up and wishy-washy term that makes a good headline but actually means nothing. similarly, i'm not surprised that '20%' of children live in poverty (relative poverty not absolute poverty!). productive as our young population may be, its a little too much to ask for an 8-12 year old to earn within 15% of the average wage!!!! if he was to be asked how much children live in absolute poverty, with poor food, clothing, shelter, schooling and health i'm sure there would be a completely different answer. a child should not be classified as living in poverty because they do not have a pair of nike airs or the latest playstation game. but this answer will not make a good headline! the obsession with designer hadbags and other frivolities is spot on! my girlfriend is looking for a new bag (never mind the 10 or so she has at the moment) and will only look at Gucci, Prada, Mulberry, Louis Vuiton, Hermes and the rest of that ilk! (she has been looking for a donation but i'm holding out so far!!!) i look at the prices of these things and think of the 'fools and their money' expression. i'm sure my (more substantial) purchase can be treated in the same way, but my logic is that the money i'm putting into it is not going down the drain, unlike the Eur500-1000 for a bit of leather and a trendy logo. anyway, this post is getting more discursive by the minute (todays Websters word of the day (join-WordoftheDay@lists.lexico.com)) and i was not going to finish the day without including it in a sentence!

Subject: Mortgage Rate? From: Terri To: Setanta Date Posted: Thurs, Feb 03, 2005 at 20:07:34 (EST) Email Address: Not Provided Message: The Euro strength, and weakness in employment in Germany and eastern Europe may keep the European central bank from raising interest rates for quite a while. I think you noted this before, but how variable is your mortgage rate?

Subject: Re: Mortgage Rate? From: Setanta To: Terri Date Posted: Fri, Feb 04, 2005 at 04:54:42 (EST) Email Address: Not Provided Message: my mortgage rate is the Euro Tracker which is at 3.05%, it is guaranteed to have a margin of 1.05% above the ECB rate. Not a bad deal for the moment, and my margin of safety is about 1.5% more.

Subject: Re: Mortgage Rate? From: Emma To: Setanta Date Posted: Fri, Feb 04, 2005 at 11:44:34 (EST) Email Address: Not Provided Message: Interesting to compare the European and American mortgage and real estate markets. Notice that Europe and Japan have begun to allow REIT formation and public share sales should rapidly increase.

Subject: Re: Mortgage Rate? From: Terri To: Setanta Date Posted: Fri, Feb 04, 2005 at 07:27:46 (EST) Email Address: Not Provided Message: We need to discuss these general mortgage conditions which are common through Europe and increasing common in America.

Subject: Re: Poor Old Ireland Rich New Ireland? From: Terri To: Setanta Date Posted: Thurs, Feb 03, 2005 at 10:02:13 (EST) Email Address: Not Provided Message: Brilliant response, that teaches us how to more accurately read the article. Thanks, Setanta.

Subject: Re: Poor Old Ireland Rich New Ireland? From: Emma To: Terri Date Posted: Thurs, Feb 03, 2005 at 11:08:09 (EST) Email Address: Not Provided Message: Nice, Setanta. Ireland, beyond the traditions, is an important country to attend to. Tiger, indeed.

Subject: Oil Industry Mergers? From: Emma To: All Date Posted: Wed, Feb 02, 2005 at 11:11:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/02/business/02place.html Hints of Oil Industry Mergers to Come By JAD MOUAWAD After a lull since a wave of mega-mergers in the late 1990's - when Exxon bought Mobil, BP acquired Amoco and Chevron merged with Texaco - the time for large-scale takeovers in the oil industry may again be on the horizon. While high oil prices would make acquisitions more expensive than in the 1990's, when prices were low, oil companies are reporting huge profits. Yet they are also finding it hard to discover new sources of oil. So, the thinking goes, why not spend more money now to buy oil and gas reserves? 'You'll see deals,' said Frederick P. Leuffer, senior energy analyst for Bear, Stearns in New York. Talking about the need to add reserves, he said, 'In that sense it's a very simple business: either you find them or you buy them.' According to a study by John S. Herold Inc., an independent research firm based in Norwalk, Conn., global oil companies pumped more than 10 billion barrels on average a year in the last five years, but recorded only about 7 billion barrels of reserves. A potential candidate for a takeover is Unocal of El Segundo, Calif. The company - which is most prominent in the Western states - has substantial reserves of both oil and gas, a portfolio of global assets that promises strong growth, and a reputation for underperformance that has discouraged potential investors. That could change. Early in January, the China National Offshore Oil Corporation, or Cnooc, was reported to be contemplating a $13 billion bid for Unocal. While many analysts view such an offer as unlikely, the speculation could rekindle interest in the sector. 'Whether it's Cnooc or someone else is not relevant to me,' said Rahan Rashid, an analyst at Friedman, Billings, Ramsey. 'What the attention does is let investors reassess the value of Unocal.' Unocal's shares have gained nearly 16 percent since Jan. 6, when the Web site of The Financial Times reported the possibility of a Cnooc offer. The stock closed yesterday at $47.76, up 19 cents, and is trading around its highest level in more than 25 years. That is still inexpensive, according to Mr. Rashid, who estimated that Unocal's net asset value - what the company would be worth if it were broken up and sold - would approach $66 a share. Mr. Leuffer of Bear, Stearns puts that value above $50 a share. 'The market isn't assigning a better valuation to Unocal,' Mr. Rashid said, 'because they haven't delivered on execution in the past. That's left a negative taste in people's mouths.' Last year, Unocal reduced its goals for production growth twice, citing a slowdown in output in some Indonesian fields and unsuccessful exploration in the Gulf of Mexico. Unocal also had its share of controversies over its operations in Asia. In 1998, the company shelved plans to build a gas pipeline through Afghanistan, then under the control of the Taliban, after United States aircraft bombed Afghan targets, seeking terrorist training camps of Osama bin Laden. More recently, it contested and then agreed to settle lawsuits accusing it in human rights abuses committed by the army of Myanmar, formerly Burma, during construction of a pipeline there in the 1990's. What makes Unocal attractive are a handful of fields in Azerbaijan, Bangladesh, Thailand and Indonesia, as well as in the Gulf of Mexico, which are all expected to start producing this year. These projects, if successful, could increase the company's production as much as 10 percent a year through 2010. 'That's possibly the best performance among Unocal's peer group,' Mr. Rashid said. For oil companies that are struggling to produce growth of 2 percent or 3 percent, that is a strong incentive to take a serious look at Unocal. There have recently been modest signs of a pickup in mergers and acquisitions in the oil industry. Last week, Cimarex Energy, an oil and gas producer based in Denver, agreed to buy Magnum Hunter Resources for $2.1 billion to double its production and, more significantly, triple its reserves. Other recent transactions include Kerr-McGee's agreement to buy Westport Resources for $2.5 billion and the $2.7 billion acquisition of Tom Brown by EnCana of Calgary, Alberta. But none of these came close to the $80 billion Exxon paid for Mobil, the $48 billion BP paid for Amoco and the $27 billion it paid for Atlantic Richfield, or Total's nearly $49 billion purchase of Elf Aquitaine. Despite such lofty numbers, acquisitions are more expensive than in the past, and that is holding potential buyers back. The Standard & Poor's 500 energy index gained 29 percent last year, compared with a 9 percent gain for the broad S.& P. 500. (Cimarex shares fell 10 percent after the company announced its deal because investors considered the price too steep.) Unocal has refocused its attention on exploration and production, particularly in North America and Asia, after selling its marketing and refining businesses in the United States. Yesterday, it reported that its fourth-quarter earnings rose almost 50 percent. Income increased to $268 million, or $1 a share, from $180 million, or 68 cents a share, in the period a year earlier. Sales rose 48 percent to $2.35 billion. Unocal's output for the quarter increased almost 2 percent compared with output in the 2003 quarter. The company produces about 155,000 barrels of oil a day and 1.5 billion cubic feet of natural gas, the equivalent of 272,000 barrels of oil. It has reserves of 1.8 billion barrels of oil and its equivalents, with 62 percent of that natural gas and 38 percent crude oil. 'When Unocal was asked about the prospect of a merger in the past,' Mr. Leuffer of Bear, Stearns said, 'they didn't appear as a willing bride. Today, I think they would entertain a fair offer.' The list of potential bidders includes ConocoPhillips, Shell and ChevronTexaco, which have all said that they want to grow in the North American gas and Asian oil markets, Mr. Leuffer said. 'That's talking about Unocal without naming it,' he said. 'If Cnooc, or ENI or Total made a bid, I think other companies would express interest and maybe get a bidding war going.'

Subject: Accents of Africa: Outsourcing From: Emma To: All Date Posted: Wed, Feb 02, 2005 at 10:41:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/02/business/worldbusiness/02outsource.html?pagewanted=all&position= Accents of Africa: A New Outsourcing Frontier By MARC LACEY NAIROBI, Kenya - Susan Mina, a Kenyan who has never stepped foot out of Africa, speaks English like the haughtiest of Britons. She can also put on a fair imitation of an American accent by swallowing all her words. Still, every once in a while, some Swahili slips out of her and that is not at all helpful as she tries to enhance Africa's role in the global explosion of outsourcing. It happened the other day when she was trying to get a British man to sign up for a new cellular telephone service. He was in his home, minding his own business. She sat near the Nairobi airport, doing her business as a sales agent for KenCall, Kenya's first international call center. The man's accent - she pegged it as Irish - was unintelligible to her. 'Pole sana?' she blurted out, which is what one says in Swahili instead of 'Huh?' Controlling one's Swahili is just one of the challenges that Kenyans are facing as they play catch-up in an industry that India and other countries have turned into major job generators. Kenya's regular phone lines are so abysmal that the founders of KenCall had to go through the cumbersome process of getting government approval to use a costly satellite hookup. Even more dollars were burned on an elaborate generator system aimed at keeping KenCall's computer screens running during Nairobi's frequent power failures. 'Africa needs to raise its game,' said Russell Southwood, who publishes an online newsletter on telecommunications in Africa at balancingact-africa.com. 'It needs to show the world that it can do more than pick minerals out of the ground and grow fruits and vegetables.' KenCall is now up and running, and eager to lure business from Western companies that want cheap labor - but educated cheap labor like Ms. Mina, who has a university degree but earns less than $5,000 a year, not as much as a fast-food cashier would make in the United States. Although just a tiny entrant in the call-center market, KenCall has enough clients to keep 200 telephone operators busy. Some of the Kenyan sales agents dial up Britons and urge them to save money on their cellular phones. Others dial up Americans and ask if they are interested in refinancing their home mortgages. Without knowing it, some Americans even dial up Kenya, responding to advertisements offering low-income grants or job assistance. After looking on for years as Asia cashed in on the outsourcing boom, Africa is now aggressively seeking its piece of the action. Datamonitor, a consulting firm that follows outsourcing, estimates that there are 54,000 call-center jobs in the most advanced countries in Africa, out of a total of 6 million such jobs worldwide. But the 54,000 figure only includes South Africa and the countries of North Africa, not emerging call centers in places like Ghana and Kenya. 'There's a lot of potential in Africa,' said Peter Ryan, an analyst at Datamonitor. 'India, the Philippines and Canada are relatively mature, and that means wages and real estate are higher. So companies are asking, 'Are there other locations?' ' South Africa is far ahead of the rest of the continent, with an estimated 500 call centers employing about 31,000 people. South Africa boasts that the accents of its workers are neutral enough to fool English speakers everywhere. It also has the same time zones as parts of Europe, making doing business easier. Ghana, which makes similar claims about its population's understandable English, has lured Affiliated Computer Services Inc., an outsourcing company based in Dallas that employs about 2,000 Ghanaians to process health forms for Aetna and other insurers.

Subject: Accents of Africa: Outsourcing - 2 From: Emma To: Emma Date Posted: Wed, Feb 02, 2005 at 10:42:43 (EST) Email Address: Not Provided Message: With vast populations of French speakers, Africa is working to claim that part of the market as well. French-language call centers are operating in Morocco, Senegal, Tunisia and Madagascar, all of them dialing up Parisians and pretending to be just down the 'rue.' 'They say, 'You have a charming accent,' ' Fanta Diop, a supervisor at a call center in Dakar, the Senegalese capital, told Reuters recently. 'They never guess it's black Africa.' Much of the outsourcing in Africa is focused on telemarketing, which is less profitable than processing medical forms or acting as the customer service department of an overseas corporation. But making cold calls is considered an entree to the highly competitive industry. 'The market for this is huge,' said Nicholas A. Nesbitt, the chief executive of KenCall, which he founded with his younger brother, Eric, and his brother-in-law, Steve Liggins, a retired banker. 'It's not possible to put a figure on it. Any job that is being done that doesn't require face-to-face contact can be outsourced. And why not to Kenya?' Kenya's political transition in December 2002 prompted KenCall's founders to return from overseas and invest in the country. The new government has had a rocky start in fighting corruption and creating new jobs - its two main campaign promises. But Mr. Nesbitt said he was able to set up the call center without doling out any bribes - 'not even so much as a cup of coffee,' he said. Not only does the country offer an advantage that stems from its tepid economic growth over the years, its people have what Mr. Nesbitt calls a 'pleasant Anglicized accent.' Many of its college graduates are unemployed or underemployed, and are eager to dial around the world for a paycheck that would be considered meager in the United States - about $4,500 a year, including performance bonuses. That income is well above that of the average person in Kenya, where subsistence farming is the most popular job. Still, it only provides for a rather no-frills life in the costly capital. Ms. Mina, one of KenCall's top sellers, graduated from a local university in 2002 but searched in vain for a job. 'I have so many friends who did not go to university and they are driving big cars,' she said. 'It's been so frustrating.' One of her colleagues, Brian Mawanda, became so used to rejection in his job search that he believes the experience is helping him deal with all those people he calls who are not interested in what he is selling. 'I've had so many doors slammed in my face,' said Mr. Mawanda, who graduated from college in 2001 with degrees in business administration and communications. 'Now, the worst someone can do is insult me and hang up.' Some of KenCall's agents must change their names on the job, trading Wanjira for Wendy, for instance. And they receive nonstop feedback from supervisors on their accents, their sales pitches and their ability to think on their feet. One frequent issue is the Kenyan habit of letting out a little grunt when someone else is talking, which is supposed to reassure speakers that their words are being heard. Some agents grow alarmed if the person on the other end of the line is quiet and ask with alarm: 'Hello? Hello? Are you there?' Some call-center workers have traveled the world, picking up their accents in the process. For others, KenCall is their virtual travel. Ms. Mina, for instance, visualizes herself sitting in the living rooms of the foreigners she is talking to on the phone. And even without leaving Nairobi, she and other agents are learning about cultural differences. Britons, the agents say, are far more likely to chat extensively with a telemarketer even if they have no interest in the product. Americans are a different story. They are abrupt, the Kenyans say. All the dialers, even those who have honed their accents to perfection, are inevitably asked where they are calling from. Usually, the agents say no more than that they are calling on behalf of a company based in, say, York. But that does not fool some people, who often receive calls from India and other parts of the world. When KenCall's agents do fess up that they are in Africa, there is inevitably a pause at the other end of the line. And then the reaction comes. It could be an anti-African slur. It could be just silence and the slamming down of the phone. But every once in a while, there are prospective buyers who have vacationed in Kenya and a rehash begins of the wonderful time they had. That is when Ms. Mina's heart starts beating fast. She plays along, does a bit of tourism promotion for her country and then, ever so gently, steers the conversation back to the product at hand. 'I still remember when one man who I talked to for so long finally said, 'Sign me up,' ' she said with a smile.

Subject: China and Russia and Oil From: Emma To: All Date Posted: Wed, Feb 02, 2005 at 10:25:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/02/business/worldbusiness/02yukos.html China Helped Oil Company in Russia Buy Yukos Unit By ERIN E. ARVEDLUND MOSCOW - China lent Russia $6 billion late last year to enable Rosneft, which is owned by the Russian government, to buy Yukos's biggest oil-producing unit, Kremlin officials said Tuesday. Through a complex financing chain, Chinese banks lent $6 billion to Russia via Vneshekonombank, a government-owned bank that had already credited Rosneft some of the money to pay for Yuganskneftegas, the Yukos production unit. Yuganskneftegas, the most important of Yukos's three production divisions, pumps a million barrels of oil a day. It was auctioned by the government in December for $9.35 billion to help defray a $14 billion tax claim against Yukos. The $6 billion loan was backed by Rosneft's promise of oil deliveries over the next few years to China, underscoring just how willing China is to strike creative deals to meet its energy needs....

Subject: China and Russia and Oil - 2 From: Emma To: Emma Date Posted: Wed, Feb 02, 2005 at 11:07:10 (EST) Email Address: Not Provided Message: Aleksei Kudrin, Russia's finance minister, told news agencies Tuesday that Vneshekonombank 'borrowed $6 billion from Chinese banks to credit Rosneft,' clearing up the mystery of how Rosneft came up with the $9.35 billion price tag. Export-Import Bank of China and other Chinese banks lent the money to Vneshekonombank, he added. A Rosneft spokesman declined to comment on the financing. The terms of Rosneft's oil pledges were not clear, and the deal as described by Mr. Kudrin was slightly different from the one described by Sergei Oganesian, the head of the Federal Energy Agency in Russia. Mr. Oganesian, who sits on the board of Rosneft, told a news conference on Tuesday that Rosneft had obtained a $6 billion loan from the government-owned China National Petroleum Corporation, which was guaranteed by future crude oil deliveries. 'The two companies have agreed on the prepayment for long-term oil deliveries,' Mr. Oganesian said. 'There is nothing unusual that the prepayment is for five to six years.' In any case, 'the Chinese are paying money up front for a lot of years of oil,' said Alasdair Breach, a strategist at Brunswick UBS, a brokerage firm. In addition, the deal may insulate the Russian government from legal action in the United States, where Yukos has filed for bankruptcy in Houston. Some also say that China may have won a pipeline concession as part of this deal. Late last year, Russia chose to plan a pipeline ending in a port in the Far East, giving Russia's oil access to Japan and other markets, instead of building a shorter pipeline only to China. But Simon M. Vainshtock, president of Transneft, the pipeline monopoly, said last week that the company had started to design a pipeline with a spur to send oil to China. Yukos was the first Russian oil company to sell crude oil to China. Its founder, the billionaire Mikhail B. Khodorkovsky, had pushed for a privately financed pipeline to China - a move that reportedly infuriated Russia's president, Vladimir V. Putin. Mr. Khodorkovsky was arrested in October 2003 and is on trial for fraud, embezzlement and tax evasion. In March 2004, Yukos signed a two-year deal with the Chinese to supply 6.4 million tons of oil in 2004, 8.5 million tons in 2005 and 15 million tons in 2006, at market prices and by rail delivery. Steven M. Theede, chief executive of Yukos, said in an interview from London that companies buying oil from Yuganskneftegas 'should be concerned about future liabilities; they should be concerned of buying stolen property.' Mr. Theede said he thought that a court hearing on Feb. 16 in Houston to establish jurisdiction would be decided in Yukos's favor, and permit the trial to proceed in the United States. Mr. Theede and about 20 other managers now live in London and the United States.

Subject: Of musical chairs & hot potatoes From: Pete Weis To: All Date Posted: Wed, Feb 02, 2005 at 10:23:48 (EST) Email Address: Not Provided Message: From Nouriel Roubini's economics blog: The FT on BW2 free-riding and capital losses on holdings of dollar reserves: A 'Hot Rotten Potatoes' Musical Chair Game... The FT has published yesterday an interesting editorial on the incentives of the small countries in the the Bretton Woods 2 periphery to free ride on the center (China/Japan) and on the potential large capital losses on holdings of dollar reserves once these Asian and other currencies were to move. Brad and I have repeatedly fleshed out these points in our blogs ( here and here) and papers over the last few months. And similar points have been picked up before in the press. One comment on the good FT editorial: it is clear to all that if a large country such as China and/or Japan were to diversify (say towards Euros), both their currency value relative to the US dollar would sharply change and also the cross rate between the US $ and the Euro. The question is what happens when a small country at the periphery of BW2 diversifies say into Euros or Yen. Is the US $ exchange rate relative to the Euro or Yen affected and is the exchange rate of this country relative to the US $ affected? The FT correctly argues that a small country that diversifies may not affect its currency value relative to the US $. The FT also suggest that such diversification may instead affect the $ /euro or the $/ yen exchange rate. A few caveats on that point: 1. If the amounts sold by these small central banks are modest, relative to the size of the $/euro and $/yen fx markets, then this free riding could have little effect on those cross currency values. Thatis the entire point of bein small and free riding. 2. Of course if many BW2 periphery small countries free ride, that would affect the $/euro and $/yen rates as their joint behavior becomes large. 3. In that case, over time, even their bilateral exchange rate relative to the US $ may move as you cannot have a whole bunch of countries pegging to the dollar and dumping dollars without effects on their bilateral rate relative to the US $. Korea experienced that, in part, when last fall it tried to get out of BW2, it stopped intervening for a while and saw an excessive movement of the won relative to the US $ and was thus forced to start intervening and buying dollars again. 3. Suppose that a number of small BW2 periphery countries diversify out of US dollars into yen and euros and that leads to a weaker $ relative to Euro and yen. Then, the BOJ may start intervening again and the ECB may start to intervene altogether to avoid excessive appreciation. Then, the BW2 periphery would free ride on the ECB and BOJ: they would be able to dump their undesired $ assets and acquite Euros and Yen provided by the BOJ and ECB intervention at no cost to these free riders as the $ cross rate relative to euro and yen would be unaffected if such intervention occurs and at not cost in terms of bilateral currency value relative to the US $ as someone is absorbing the undesired hot potato of dollar assets. This way ECB and BOJ get the hot potatos of $ assets that small countries do not want and give Euros and Yens to the free riders in exchange. So, ECB and BOJ end up taking more of the risk of a $ fall. Would this intervention save BW2? No, as in addition to the stock of existing hot potatoes of dollar assets that the various central banks are trying to dump into each other, from BW2 periphery into Japan, Europe and China, someone has on net to hold the extra new $700 billion of new hot potatoes (by now rotten potatoes) deriving from the US current account deficit. So, the hot rotten potato musical chairs game becomes unstable over time as the US supply of lousy potatoes increaes by $700 billion dollars a year while no one want to increase its net ingestion of such a lousy and increasingly rotten meal. So, the end game becomes a hard landing for the US dollar and the US bond market, i.e. a nasty end game to this unsustainable attempt by the US to free ride on the world. For details see my new paper with Brad coming up next week.... And here is the interesting FT editorial: Dollar dilemma Published: January 25 2005 02:00 | Last updated: January 25 2005 02:00 The fate of the dollar rests in the hands of a handful of central bankers in Asia. We have known this for some time. Since the foreign private sector shows insufficient appetite for US assets, the US relies on central bank purchases to fund its current account deficit and the acquisition of foreign assets by US residents. By absorbing the excess supply of dollars these central banks stop their own currencies appreciating against it. This Faustian bargain underpins today's currency prices and trade patterns and sustains global imbalances. Any suggestion that foreign central banks may be losing their hunger for dollars is highly significant. A new survey suggests that central bankers are beginning to ponder whether it is in their interest to carry on buying dollars. This does not signal a rush for the exits. Much of the rise in the share of reserves held in euros is a valuation effect. Two-thirds say they want to keep the proportion in dollars unchanged this year. Neither Japan nor China - which together hold 40 per cent of the world's reserves - took part in the survey. Yet one-third of those polled did indicate a desire to increase the share of reserves held in euros. Eurozone capital markets are seen as liquid. Not a single respondent wants to hold a greater share in dollars. It would be surprising if central bankers were not thinking very carefully about what they should be doing. The fall in the dollar has already resulted in big capital losses for those holding large dollar reserves. They risk far bigger losses if the so-far steady decline turns into a rout. The importance of capital loss increases as reserves rise relative to gross domestic product. For example, Malaysia's reserves are now equal to 54 per cent of GDP, up from 34 per cent two years ago. Could a country with a de facto dollar peg diversify its reserves without appreciating against the dollar? Many assume not. In fact the answer, as so often in international economics, depends on whether the country in question is 'small' or 'large' in this context. A 'small country' with medium-sized reserves, such as Thailand, Malaysia or even India, could continue to absorb surplus dollars on the bilateral currency market, but sell its stock of dollars for euros. The effect would mainly be to push the euro up against the dollar. The central bank's own currency could remain pegged. A 'large country' - Japan or China - could also embark on the same strategy. But the scale of the dollar sales would probably cause a generalised dollar collapse, with private buying disappearing altogether, demanding still greater central bank purchases. The central bank would lose control over domestic money supply, resulting in soaring inflation that would in turn push up the real exchange rate. In practical terms, Japan and China probably cannot diversify to a meaningful extent without letting their currencies rise. So keep an eye on the other Asians. Who will break ranks first?

Subject: Re: Of musical chairs & hot potatoes From: Terri To: Pete Weis Date Posted: Wed, Feb 02, 2005 at 15:02:44 (EST) Email Address: Not Provided Message: These are important comments, but the bond market is not moved and I am paying attention to bonds. I am still bullish and pleased by the calmness in world stock markets. Nice setting for a rise from here?

Subject: Stocks for the Long Run From: Terri To: All Date Posted: Wed, Feb 02, 2005 at 06:31:30 (EST) Email Address: Not Provided Message: The current p/e ratio for the S&P is about 20. So the e/p ratio is 5. Corporations have generally given over 60% of the earnings to price ratio as dividends and stock buybacks. The return is 3 so far, or 60% times 5. Assume 2% economic growth, and capital gains can be 2%. A 5% real return on stocks could be sustained at the current valuations levels. This still makes stocks a helpful long term investment for our accounts other than Social Security.

Subject: Re: Stocks for the Long Run From: Pete Weis To: Terri Date Posted: Wed, Feb 02, 2005 at 10:28:35 (EST) Email Address: Not Provided Message: Our present markets are driven by human emotion. What's your take on the direction of fear and greed in the next couple of years? Is there some way to put a number on it?

Subject: Re: Stocks for the Long Run From: Terri To: Pete Weis Date Posted: Wed, Feb 02, 2005 at 11:44:23 (EST) Email Address: Not Provided Message: Market psychology is an interesting question, that would take keeping a diary and trying gauge sentiment every so often. But, anticipating sentiment more than in the near term strikes me as more a matter chance than study. My sense is that the market turned from moderate fear in October to confidence in November and December to moderate fear in January. We are still in the bull market that began in October 2003.

Subject: You are my gauge From: Pete Weis To: Terri Date Posted: Wed, Feb 02, 2005 at 15:23:04 (EST) Email Address: Not Provided Message: Terri. You are my gauge. If your sentiment turns south then this stock market is in trouble!

Subject: The Gauge Gauges From: Terri To: Pete Weis Date Posted: Wed, Feb 02, 2005 at 17:40:40 (EST) Email Address: Not Provided Message: Good grief :) What a gauge am I. This gauge however is looking for returns to run 7% to 8%, and that is if long term interest rates stay low.

Subject: Re: The Gauge Gauges From: Pete Weis To: Terri Date Posted: Wed, Feb 02, 2005 at 19:25:49 (EST) Email Address: Not Provided Message: Terri. IMO you are a good gauge of sentiment because - 1)you are pretty knowledgeable about investing and obviously keep track of your investments on a regular basis; 2) you listen to and read a lot of opinions; and 3)while you are not outrageously bullish, I think it's fair to say that you are steadfastly optimistic about investing in the markets. So I view yourself and folks like yourself as the dike between the flood waters outside and the stock market inside. In other words, there might be others who would panic early who lack the steadfastness - but until you, and others like you, begin to seriously question staying in this market, the dike will hold or atleast erode away at a slow rate. But if and when you say 'no mas' - it's time to head for higher ground.

Subject: Re: Stocks for the Long Run From: ? To: Terri Date Posted: Wed, Feb 02, 2005 at 07:26:28 (EST) Email Address: Not Provided Message: 'The current p/e ratio for the S&P is about 20. So the e/p ratio is 5' the reciprical of 20 is 1/20, not 5. Not sure how you came up with the e/p. And where did you come up with the 60% of earnings are given out as dividends or stock buybacks?

Subject: Paul Krugman's Return on Stocks From: Terri To: ? Date Posted: Wed, Feb 02, 2005 at 10:35:12 (EST) Email Address: Not Provided Message: 'Right now, if dividends and buybacks were the whole story, the rate of return on stocks would be only 3 percent.' - Paul Krugman To get to 3%: The current p/e ratio for the S&P is about 20. So the e/p ratio is 5%, the reciprical or 1/20. About 60% of the earnings/price ratio has long been returned to shareholders as dividends or stock buybacks. So, 60% of 5% means 3% which is Paul Krugman's rate of return on stocks. The rest is capital gains.

Subject: Productivity and Social Security From: Terri To: All Date Posted: Wed, Feb 02, 2005 at 05:22:25 (EST) Email Address: Not Provided Message: Productivity increases add to potential economic growth, but what are the increases? The increases are the value that a given number of workers add to production. There are fewer workers in proportion to retirees now than in 1935 and 1955 and 1975, but these workers are more productive and easily support retirees. Remember, there is a surplus in Social Security till 2020. The surplus can last far longer if productivity and economic growth continue at the rate of the last decade or last half century.

Subject: South Africa Earses a Racial Barrier From: Emma To: All Date Posted: Tues, Feb 01, 2005 at 17:15:29 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/01/international/africa/01yachtsman.html?pagewanted=all&position= In South Africa, Yachting Erases a Racial Barrier By MICHAEL WINES CAPE TOWN - Long before Marcello Burricks was born, South Africa's apartheid police swept his mother and her family from their home in Simon's Town, a period-piece village on the Cape of Good Hope, and dispatched them to an impoverished ghetto called Slangkop, or Snakehead. Their sin was being of mixed race in a place reserved for whites. Slangkop is where Marcello grew up, where his parents separated and where he hung with gangs and watched men die on the streets. When he was 8 a classmate stabbed him. When he was 14 he was arrested for beating a high-school teacher. Today, 19-year-old Marcello Burricks helps trim the mainsail on a 25meter racing yacht in this city's stunning Table Bay. The only people he wants to beat are Larry Ellison, Ernesto Bertarelli and a host of other billionaires in the next America's Cup. 'I've got the opportunity now,' he said. 'And I am taking it in both my hands.' Sports is a mighty engine of inspirational tales. Here's another: an iconoclastic shipping tycoon mounts Africa's first challenge in the 153-year-old America's Cup series. Lacking deep-pocketed sponsors, he buys a secondhand yacht that finished out of the money two Cups ago. He recruits a motley crew capped, improbably, by a group of black and mixed-race young men, some of them from South Africa's toughest townships, some of whom were hardly shaving when they climbed into their first boats. The pros write off the South Africans' outmoded tub and their diverse crew. And then, more improbably still, they begin to finish races ahead of some of the best yachtsmen on earth. Nobody expects that Team Shosholoza, as the South Africans call themselves, will pull off a miracle and win the next America's Cup, scheduled for 2007 in Valencia, Spain. But their accomplishments are pretty miraculous already. They have shattered the image of yachting as the preserve of hyper-rich C.E.O.'s and lily-white sailing crews. They have raised the delicious prospect, however remote, that billionaires who lavish $100 million and more on America's Cup challenges can be humbled by a rival with one-quarter the budget and a 19-year-old sailor with scars from old knife fights. They have attracted a corporate sponsor, a huge German company that pumped some $17 million into Team Shosholoza this month just as money was running out. Then there is the biggest accomplishment of all: taking a handful of young men with cloudy futures and showing them that they, too, can take on the world's best. 'It's not an obligation, but everyone should do something for these kids, for these people,' said Salvatore Sarno, the shipping company executive who is the driving force behind Shosholoza, which takes its name from an old African workers' song about striving together toward a common goal. 'They've been robbed for a hundred years, even of the right to call themselves men. And now we must give.' Mr. Sarno, a Durbanite with a melodious Italian accent, is the first to say that Team Shosholoza is giving its nonwhite crewmen a chance, and nothing more. Like the whites on the crew, each sailor must prove himself worthy of contesting an America's Cup or be bumped aside by someone better. 'Sometimes people ask me, 'You're taking black crew on for political reasons?' ' he said. 'Ridiculous. Not true.' Ian Ainslie, a veteran sailor in three Olympics who is a crewman as well as the team strategist, said the black crewmen had earned their stripes. 'I think a lot of people on the team were completely skeptical and said that we can try them for a while and they won't make the cut,' he said. 'And obviously that hasn't happened. They've risen to the occasion.' That is unsurprising; sailing skill is unrelated to skin color. But yachting, a sport that gobbles money and leisure time, has not been receptive to nonwhites, who often have little of either. In a century and a half, precious few America's Cup squads have been anything other than white; the last nonwhites on a winning crew sailed 13 years ago, on America3. Never has nearly a third of a crew been nonwhite. That Team Shosholoza has seven on its 24-man sailing crew is due largely to a remarkable alliance between Mr. Sarno and Mr. Ainslie, his friend and fellow sailor for 15 years. On returning from the Atlanta Olympics in 1996, Mr. Ainslie wanted a diversion, and found it in a job teaching geography, math and maritime studies at the local high school in Simon's Town. There he met Golden Mgedeza and Solomon Dipeere, two black 15-year-olds from Kwa Thema township in suburban Johannesburg whose grades had earned them scholarships to study at Simon's Town. The two had been naval cadets at Eureka High School in Kwa Thema. Their maritime experience consisted of rowing a shell on Murray Park Lake southeast of the city. Under Mr. Ainslie's tutelage in Simon's Town, they began sailing in earnest and wheedling sailors at the local yacht club to let them work as crewmen during weekend races. Mr. Ainslie, meanwhile, began leavening his training for the 2000 Sydney Olympics by giving free sailing classes to poor black youths from the townships around Simon's Town - 'for fun,' he said, 'one day a week.' Word of mouth soon left him mobbed with youngsters eager for a day on a boat. Marcello Burricks lived across the peninsula from Simon's Town, but word reached him, too. 'My father was a fisherman and my grandfather used to be a whaler,' he said, 'so we were always close to the sea.' At age 12 he had inveigled his way into a sailing class meant for 15-year-olds. 'Marcello came to our school and became the most enthusiastic guy,' Mr. Ainslie said. 'We had to try to encourage him to do some schoolwork as well or he'd have been sailing the whole time.' Enter Mr. Sarno, the shipping magnate, who shared Mr. Ainslie's interest in helping disadvantaged children. As a founder of Geneva-based Mediterranean Shipping Company, the world's second-largest container carrier, he sponsored annual regattas in Durban at which hundreds of young sailors, bused in and housed free, competed for honors. Among them were Mr. Ainslie's protégés, young Golden, Solomon and Marcello, as well as two more teenagers, Ashton Sampson and Sieraj Jacobs, more experienced nonwhite sailors from the Cape Town area. Mr. Sarno adopted the five, making them crew members on his own boat in the Durban regattas. Mr. Ainslie urged them on and sailed with them too. In 2002, Golden Mgedeza became the first black crewman to win South Africa's most coveted sailboat race, the Lipton Cup, and was chosen as yachtsman of the year by South Africa's Sailing Magazine. They raced off Mozambique; from Cape Town to Rio; in Newport, R.I., and elsewhere. Mr. Sarno began talking of mounting an America's Cup bid. Mr. Ainslie said he judged him 'quite mad.' 'I said: 'No way. We don't have that kind of money in this country,' Mr. Ainslie said. 'We need to try a project that's more modest.' ' Mr. Sarno, undeterred, summoned his black crewmen for a meeting. 'I promise you only one thing,' he says he told them. 'You will regret 100 times if you leave and come with me. You will not be rich, because we don't have money. But in 2007 we go to Valencia, we will fight, and one day President Mbeki will look in your eye, shake your hand and say, 'South Africa is proud of you.' 'Everybody stood up, came to me, shook my hand, and then we hugged. It was fantastic. That was Shosholoza.' Marcello Burricks arises in his Snakehead flat at 4 a.m. each day, rides a minivan taxi, a train and another taxi to Cape Town harbor, and sails and exercises all day before making the same trip in reverse, getting home about 7 p.m. He has been moved from his old job as a grinder, which requires immense strength, because he is losing weight. 'Sometimes you're so tired after traveling that you don't have the appetite to eat,' he said. But he does not give up. 'We've all been told that there's no guarantee that we're going to be on the boat,' he said. 'That's why we have to push ourselves to the extreme.' Of eight contenders for the Cup, Team Shosholoza is currently seventh, ahead of an Italian team, after three regattas. But that is deceptive: others are racing state-of-the-art boats, while the Shosholoza yacht is two generations old. In some individual races the South Africans have finished as high as fourth. Thanks in part to the $17 million infusion from T-Systems, a German information technology giant, two new and markedly faster Shosholozas will be launched before Valencia, the first of them in April. And the crew is improving. 'It's hard to quantify,' said Paul Standbridge, the transplanted Briton and veteran Cup sailor who manages the squad. 'But I'd put us at 60 percent of other teams. I think we'll get easily to 75 percent.' Too low, said Mr. Burricks, who uses his own yearning for a spot on Shosholoza as an example. 'One of the things they tried to teach us at sailing school is that if you work hard and do things, you can achieve,' he said. 'It's one of the few times I felt like I'd done something, and worked hard, and it really paid off.'

Subject: Emma take alook at this From: Mik To: Emma Date Posted: Thurs, Feb 03, 2005 at 14:23:00 (EST) Email Address: Not Provided Message: Thanks for the cool post Emma. Enough reading about the people take a look at what they look like and the pictures of them in action http://www.rcyc.co.za/am-cup-crew.html http://www.rcyc.co.za/am-cup-pictures.html This will be the stuff dreams and movies are made of. A rusty bunch of nobodies taking on the best of the best in the world.

Subject: Re: Emma take alook at this From: Emma To: Mik Date Posted: Thurs, Feb 03, 2005 at 16:25:34 (EST) Email Address: Not Provided Message: Terrific pictures. Wow!

Subject: Privatization From: Jim To: All Date Posted: Tues, Feb 01, 2005 at 16:28:25 (EST) Email Address: CPRroth@optonline.net Message: In all of the stuff I've heard and read about the personal savings/privatization accounts, I've always heard it described as diverting some (1% to 3%) of SS contribution (okay, tax) to some kind of personal account. However, every personal $ of SS contribution is matched my the employer (2:1, I think). So, do the employers get out of the matching contribution -- and do the calculations on the expected return (which are of course compared to the expected 'return' of social security) include the 'lost' matching contribution?

Subject: Tsk Tsk Tsk, That's personalization !!! From: Erica To: Jim Date Posted: Wed, Feb 02, 2005 at 12:52:40 (EST) Email Address: Not Provided Message: Except it's not 1 to 3 percent it's really about 16 percent of contributions. That 4 percent that is being slung around it not accurate. And we are being told by our government that we are no longer allowed to use the word privitization. The word we are allowed to use today is personalization. For example, we may call it Social Security Personalization or personal savings accounts, not private savings accounts. Just as the Media is doing, we must all comply to their wishes or be destroyed or reprogrammed.

Subject: Re: Privatization From: Ari To: Jim Date Posted: Tues, Feb 01, 2005 at 21:29:36 (EST) Email Address: Not Provided Message: There is no suggestion that employer contributions to Social Security will be cut as far as I know.

Subject: Hitting the Tax-Break Jackpot From: Emma To: All Date Posted: Tues, Feb 01, 2005 at 13:02:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/02/01/business/01windfall.html?pagewanted=all&position= Hitting the Tax-Break Jackpot By EDMUND L. ANDREWS WASHINGTON - When Congress passed a one-time tax break on foreign profits last fall, lawmakers said their main purpose was to encourage American companies to build new operations and hire more workers at home. But as corporations are gearing up to bring tens of billions of dollars back to the United States this year, adding jobs is far from their highest priority. Indeed, some companies say they might end up cutting their work forces. Hewlett-Packard, for example, which has accumulated $14 billion in foreign profits and lobbied intensively for the tax break, announced on Jan. 10 that it would continue to reduce its work force this year. That would come on top of more than 25,000 jobs that it eliminated during the previous three years. Hewlett, like several other companies expecting to benefit from the tax break, said it had not made any final decisions about what to do with the money. Kellogg, the cereal manufacturer, announced on Monday that it would use the new tax break to bring back about $1 billion in foreign profits. Among other things, Kellogg said it would use the money to 'look at close-in acquisitions' of other companies. And Procter & Gamble announced that it had about $10.7 billion in foreign profits that could be brought back at a fraction of the normal corporate tax rates. Though P.&G. said it had made no decisions, it would be eligible under the law to use that money to help finance its planned $57 billion takeover of Gillette. When the law was being debated, Senator John Ensign, a Republican of Nevada and a leading sponsor of the tax provision, predicted that it would prompt a surge of new investment in the United States and lead to hundreds of thousands of new jobs. 'There is not a lot of incentive for U.S. companies to bring the money back from overseas now because of the high tax penalty,' Mr. Ensign said last year. 'This legislation is exactly the extra boost our economy needs.' Even if it does not lead to many new jobs, supporters of the legislation say, anything that allows American companies to allocate their funds more rationally should produce economic benefits. By far the biggest tax windfalls will go to pharmaceutical companies. Pfizer, whose products include Viagra and the cholesterol-lowering drug Lipitor, said it might bring back as much as $38 billion in foreign profits. Four other pharmaceutical companies - Eli Lilly, Bristol-Myers Squibb, Johnson & Johnson and Schering Plough - announced plans in the last week to bring back as much as $37 billion among them. But many industry analysts are skeptical that drug companies will use the money for either further expansion beyond what they were already planning or for additional hiring. 'The pharma companies are cash-rich to begin with, and they don't need any additional cash to expand their operations,' said Hemant K. Shah, an industry analyst in Warren, N.J. Far more likely, Wall Street analysts said, is that the companies will use their tax windfall to license drugs from others, take over other companies or simply shore up their balance sheets. The tax break was part of the American Jobs Creation Act, a huge corporate tax bill that Congress passed last fall in response to pressure from the European Union to resolve a long-running trade dispute. As part of that measure, a 'homeland reinvestment' provision allowed companies to bring foreign profits into the United States at a much lower tax rate. To qualify for the one-time tax break, which essentially allows companies to pay 5.25 percent rather than 35 percent on the foreign profits, a company has to submit a 'domestic reinvestment plan' that shows how it would invest the money in the United States. Wall Street analysts estimate that American companies have piled up at least $400 billion in profits outside the United States, deferring American corporate taxes on those profits as long as they were kept abroad. But the law and guidelines issued by the Treasury Department give companies a wide berth in defining their investment plans. The Treasury Department said companies could use the money to acquire other companies, pay down debt, buy up patents, cover the costs of litigation or simply finance the costs of sales and marketing. In a disappointment to some investors, however, officials ruled that companies cannot use their repatriated foreign profits to pay dividends or support stock repurchase plans. But analysts said many companies might well use the money to indirectly finance share buybacks. 'If you use repatriated capital for something that you might have used other capital for,' asked Richard Evan, a pharmaceutical analyst at Bernstein Research, 'can you then use that other capital to buy back shares or pay dividends?' Robert S. McIntyre, director of Citizens for Tax Justice, a labor-backed research group that scrutinizes corporate tax practices, argued that nothing in the law required companies to do what Congress intended. 'Money is fungible,' he said. 'You take it from one pot, and you put it in another.' Eli Lilly, whose products include Prozac, the antidepressant, said earlier this month that it might bring back as much as $8 billion in profits that have accumulated overseas. Terra Fox, a spokeswoman for Lilly, said the company expected to spend about $2 billion this year on worldwide capital expenditures, up from $1.9 billion last year, and that the United States would take up a higher share of the worldwide total this year. But Lilly also indicated that it might use the money to finance much of its standard operating expenses. 'Repatriating the cash allows us to make continued significant improvements in physical assets and people without incurring additional debt,' Ms. Fox said. 'These actions will ultimately contribute to job creation and retention.' Many industry analysts are hoping that the big pharmaceutical companies actually avoid big new investments. 'Their costs structures right now, quite frankly, are fairly bloated,' said Tony Butler, a phamaceutial analyst at Lehman Brothers. 'Adding head count right now doesn't make sense to me.' Hewlett, the computer and printer manufacturer, was one of the most vocal champions of the tax break on foreign profits and has accumulated about $14.5 billion that could be eligible for repatriation. Company executives suggested last year that they wanted to use some of their foreign profits to pay down debt, which ballooned after Hewlett bought Compaq several years ago. The Oracle Corporation, the leading maker of database software for running major businesses, has about $3 billion in foreign profits that could be brought back to the United States at a low tax rate. Analysts expect Oracle to use that money to help pay off its recent takeover of PeopleSoft, which also makes business application software, for $10.3 billion. In the meantime, Oracle plans to consolidate the two companies, reducing its combined work force by 5,000 people, to 50,000. Larry Ellison, Oracle's chairman, told analysts last week that the takeover of PeopleSoft would make his company a much stronger competitor against its biggest rival, SAP of Germany. 'I think we're going to have a much firmer foundation to build out applications than they will,' Mr. Ellison said, 'because we will have a much larger base.'

Subject: Bush's Crash Test Dummies From: Pancho Villa(in) To: All Date Posted: Tues, Feb 01, 2005 at 07:28:29 (EST) Email Address: nma@hotmail.com Message: http://www.project-syndicate.org/commentaries/commentary_text.php4?id=1830&lang=1&m=series Bush’s Crash Test Economics by J. Bradford DeLong Fifteen years ago, the United States was in the midst of what you could call its “Age of Diminished Expectations.” Productivity gains had stalled, energy prices were high, the backlog of potential technologies that originated in the Great Depression had been exhausted, and waning benefits from economies of scale led nearly every economist to project that economic growth would be slower in the future than it had been in the past. With productivity growth stagnating for almost two decades, it made sense back then to argue that the US government’s social-insurance commitments (Social Security, Medicare, and Medicaid) were excessive and so had to be scaled back. That was then, this is now. The intervening years have seen an explosion of technological innovation that has carried America’s general productivity growth back up to its pre-slowdown levels. Indeed, today the US economy is standing on the brink of biotechnological and, perhaps, nanotechnological revolutions of vast scale and scope. Yet the same calls to scale back America’s social commitments are heard. Social Security’s actuaries may not have fully recognized the impact of today’s technological revolutions, but they have markedly boosted the scale of the system that the US government can afford. Fifteen years ago, the consensus was that America's Social Security System was in huge trouble, that it needed the equivalent of an engine rebuild. Today its problems look, as the Brookings Institution economist Peter Orszag says, much more like the equivalent of a slow tire leak: you have to fix it eventually, but it isn’t very hard to do and repair it isn’t terribly urgent. So why is the Bush administration spending time and energy proposing radical changes to the Social Security System as its signature domestic policy initiative – indeed, as virtually its only policy initiative? Everyone who worries about America’s weak fiscal position puts Social Security’s relatively small funding imbalance far down the list of priorities. The highest priority problem is the overall budget’s medium-run outlook, as the Bush tax cuts have opened Reagan-size deficits that threaten to cripple US economic growth. The second highest priority problem is figuring out what to do in the long term with Medicare and Medicaid. America must decide the size of its public health programs and how to finance them. In reality, this is more of an opportunity than a problem: if we did not expect that doctors and nurses will be able to do marvelous things in a generation or two that they cannot do now, we would not be projecting serious fiscal deficits arising from the health programs. The third most serious problem is to put the US government’s General Fund budget on a sustainable basis, so that the non-Social Security government can finance itself and meet its commitments after the date – around 2020 – when it can no longer borrow from the Social Security Trust Fund. The bottom line is that Social Security’s long-term funding difficulty, while real, is projected to be much smaller and much further in the future than any of the nearer, larger, and more significant fiscal problems currently facing the US government. If Social Security is a slow tire leak, then the post-2020 General Fund is an urgent brake job, Medicare and Medicaid are a melted transmission, and the budget deficit is the equivalent of having just crashed into a tree. What kind of driver, owning a car that has just crashed into a tree, has a burned-out transmission, and needs a brake job, says, “The most important thing is to fix this slow leak in the right rear tire?” George W. Bush is that type of driver. There are three theories as to why the Bush administration is focusing on Social Security. The first is simple incompetence: Bush and his inner circle simply do not understand the magnitude and importance of the federal government’s other fiscal problems. The second is ideology. For some reason Bush and his people think it is important to undermine the successes of the New Deal institutions established under Franklin Roosevelt. The third reason is bureaucratic capture: just as the principal aim of Bush’s Medicare Drug Benefit bill of 2003 was to boost pharmaceutical company profits, so the Bush administration’s Social Security proposal will most likely be tailored to the interests of Wall Street. I don’t see any other, more pressing, reforms – such as raising income taxes to pay for national security – gaining any traction in the Bush regime. If I had to bet on a cause, I would put my money on sheer incompetence. After all, that seems to be the common denominator of every policy controlled by his White House.

Subject: Re: Bush's Crash Test Dummies From: Setanta To: Pancho Villa(in) Date Posted: Tues, Feb 01, 2005 at 12:35:00 (EST) Email Address: Not Provided Message: great post. maybe its just the fact i come from a former subject nation but why would someone want to drown their own government? whereever i see 'ownership society' i read feudalism. anyone who wishes to see how an true 'ownership' society can develop they need look no further than Northern Ireland in the 1960's where only owners of property could vote and the more property one had the more votes one had. If you were a catholic at that time, it was a strong probability that you had no property and therefore no vote. i hope its not Reason 1, its scares me to think that someone who is incompetent is commander-in-chief of the worlds most powerful military machine. also i would hope that the average american would have more sense than to vote twice for someone who was incompetent! ironically, i also hope it's reason no. 3. croneyism at least i can understand. and there is no permanent damage as public outrage usually corrects the situation and brings the culprits to justice. reason no. 2 scares me. i cannot understand how someone would dismantle a support structure for citizens purely because they: a) hated the party, b) hated the person who implemented the structure c) hated the idea of a publically funded social safety net.

Subject: Good quesiton Mr. Delong From: Erica To: Pancho Villa(in) Date Posted: Tues, Feb 01, 2005 at 09:43:04 (EST) Email Address: Not Provided Message: Great article. Thanks for posting. Mr. DeLong asks: So why is the Bush administration spending time and energy proposing radical changes to the Social Security System as its signature domestic policy initiative – indeed, as virtually its only policy initiative? That is exactly the discussion Americans need to be having. Not whether Social Security is in crisis. Too many reputable economists including Mr. Krugman and Mr. Delong say it's not. Too many irreputable economist including Donald Luskin say it is. So case closed: Social Security is not in crisis and we shouldn't even debate people on the issue. When someone starts down that road, we should simply say, Social Security is not in crisis, the more important issue here is why this administration wants to destroy Social Security. So why do they? Mr. Delong gives us 3 possible scenarios. I happen to believe that the first one, incompetence, is probably not right. They are incompetent, but this has more to do with Grover Norquist's remarks about shrinking government down to a manageable size so you can drown it in the bathroom. I believe it is a combination of 2 and 3, ideology and giving some windfall to an industry that gives them contributions. But mostly, (and this is my theory) THEY HATE SOCIAL SECURITY. The hate the program, they hate the President that started the program and they hate Democratic social safety nets. THEY HATE HATE HATE. The added boom to doing away with a program they hate is that the financial industry is going to make out like bandits when they collect all those fees from our privatized accounts. But the main thing we need to get people to understand is their hatred. It is what feeds them, it is what keeps them going in spite of the fact that they know that without social security, old people and disabled people would be homeless, hungry, and sick. They don't care. Because their hatred has made them blind. IT IS the only explaination that makes sense.

Subject: Re: Good quesiton Mr. Delong From: Erica To: Erica Date Posted: Tues, Feb 01, 2005 at 10:02:15 (EST) Email Address: Not Provided Message: To shore up my argument that hatred is the driving force behind the Bush Administrations plan to dismantle Social Security, I would like to add, there are only a few reasons why people do crazy things that are diametrically opposed to their well being. LOVE HATE OR INSANITY. I am not ruling out that the Bush Admistration is suffering from group insanity, but I know they don't love social security, so all that's left is hate. Unless someone else can think of another reason people act a fool. (Bad judgement can be lumped in with insanity, I already thought of it, and that would also fit with Mr. Delong's incompetence theory but like I said before, they would have to be really moronic and I don't buy it) I would welcome that discussion though. Also, here's another question, if Social Security is in good shape for another 40 years or so (Delong's slow leak) and since the Bush Administration hates the program so thoroughly, why don't they just let the next president or the president after that fix it? Why don't they allow someone who doesn't despise it with every fiber of their being to fix it? Why would WE want someone who hates it to fix it? Why would someone who hates it WANT to fix it?? Just wondering.

Subject: Re: Good quesiton Mr. Delong From: jimsum To: Erica Date Posted: Tues, Feb 01, 2005 at 17:47:24 (EST) Email Address: jim,summers@rogers.com Message: I think an additional factor is that the Social Security debate is a distraction. Government finances are a mess and the administration apparently has no interest in fixing them. So when a critic asks why the administration isn't doing anything about the financial problems, they can point to Social Security reform and say 'see, we're doing something'. If a critic complains that SS isn't the most important problem, they sound pretty weak. As PK has pointed out many times; this administration keeps using the same methods because they work. Saddam Hussein was a problem, just not a very pressing one. But the administration focussed the debate (and still does) on whether the Iraq war was justified, not on whether invading Iraq was the best action to take in the War on Terror. This administration never admits there is any choice about what they do. Talking about Social Security reform serves two purposes; it makes Republicans happy that a socialist welfare program is being ended (and replaced with a ready source of fee income); and it prevents any discussion of the real budget issues.

Subject: Chile's Stock Market From: Terri To: All Date Posted: Mon, Jan 31, 2005 at 18:18:26 (EST) Email Address: Not Provided Message: Chile is used as an example of successful privatizing of Social Security, but there should be many doubts whether that is so. Interestingly Chile's stock market has underperformed the Latin American index for the last 17 years, and especially underperformed the the last 10 years. The records I found begin on December 31, 1987: 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. 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. The Chilean stock market index went from 100 to 1,084 from December 31, 1987 to December 31, 1993. Then, the index fluctuated about 1,100 till April 30, 2003. From 1,107 on April 30, 2003, the index climbed to 2,180 by December 31, 2005.

Subject: Re: Chile's Stock Market From: Jennifer To: Terri Date Posted: Tues, Feb 01, 2005 at 07:20:40 (EST) Email Address: Not Provided Message: There is no reason to believe that retirees are better off for the Chilean private pension system than retirees in Brazil. Costs appear to have severely limited returns to investors through the years. Costs are critical.

Subject: Re: OT, Jennifer From: Pancho Villa To: Jennifer Date Posted: Tues, Feb 01, 2005 at 07:31:59 (EST) Email Address: nma@hotmail.com Message: OT :'How can a French worker – whose wife also works, and who together earn about 15000 francs, who in the hallway near his housing estate sees a family with a father, three or four wives, about twenty children, with an income of about 50000 francs a month of national insurance benefits/welfare allowance without working – react?'

Subject: Questions From: Civil To: Pancho Villa Date Posted: Wed, Feb 02, 2005 at 10:56:25 (EST) Email Address: Not Provided Message: Please ask civil questions.

Subject: A New Direction for Unions? From: Emma To: All Date Posted: Mon, Jan 31, 2005 at 17:28:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/magazine/30STERN.html?ei=5070&en=d563c2a15bec2e5e&ex=1107320400&pagewanted=all&position= The New Boss By MATT BAI Purple is the color of Andrew Stern's life. He wears, almost exclusively, purple shirts, purple jackets and purple caps. He carries a purple duffel bag and drinks bottled water with a purple label, emblazoned with the purple logo of the Service Employees International Union, of which Stern is president. There are union halls in America where a man could get himself hurt wearing a lilac shirt, but the S.E.I.U. is a different kind of union, rooted in the new service economy. Its members aren't truck drivers or assembly-line workers but janitors and nurses and home health care aides, roughly a third of whom are black, Asian or Latino. While the old-line industrial unions have been shrinking every year, Stern's union has been organizing low-wage workers, many of whom have never belonged to a union, at a torrid pace, to the point where the S.E.I.U. is now the largest and fastest-growing trade union in North America. Once a movement of rust brown and steel gray, Big Labor is increasingly represented, at rallies and political conventions, by a rising sea of purple. All of this makes Andy Stern -- a charismatic 54-year-old former social-service worker -- a very powerful man in labor, and also in Democratic politics. The job of running a union in America, even the biggest union around, isn't what it once was. The age of automation and globalization, with its ''race to the bottom'' among companies searching for lower wages overseas, has savaged organized labor. Fifty years ago, a third of workers in the United States carried union cards in their wallets; now it's barely one in 10. An estimated 21 million service-industry workers have never belonged to a union, and between most employers' antipathy to unions and federal laws that discourage workers from demanding one, chances are that the vast majority of them never will. Over the years, union bosses have grown comfortable blaming everyone else -- timid politicians, corrupt C.E.O.'s, greedy shareholders -- for their inexorable decline. But last year, Andy Stern did something heretical: he started pointing the finger back at his fellow union leaders. Of course workers had been punished by forces outside their control, Stern said. But what had big labor done to adapt? Union bosses, Stern scolded, had been too busy flying around with senators and riding around in chauffeur-driven cars to figure out how to counter the effects of globalization, which have cost millions of Americans their jobs and their pensions. Faced with declining union rolls, the bosses made things worse by raiding one another's industries, which only diluted the power of their workers. The nation's flight attendants, for instance, are now divided among several different unions, making it difficult, if not impossible, for them to wield any leverage over an entire industry. Stern put the union movement's eroding stature in business terms: if any other $6.5 billion corporation had insisted on clinging to the same decades-old business plan despite losing customers every year, its executives would have been fired long ago. ''Our movement is going out of existence, and yet too many labor leaders go and shake their heads and say they'll do something, and then they go back and do the same thing the next day,'' Stern told me recently. He is a lean, compact man with thinning white hair, and when he reclines in the purple chair in his Washington office and crosses one leg over the other, he could easily pass for a psychiatrist or a math professor. He added, ''I don't have a lot of time to mince words, because I don't think workers in our country have a lot of time left if we don't change.'' A week after the election in November, Stern delivered a proposal to the A.F.L.-C.I.O. that sounded more like an ultimatum. He demanded that the federation, the umbrella organization of the labor movement, embrace a top-to-bottom reform, beginning with a plan to merge its 58 unions into 20, for the purpose of consolidating power. If the other bosses wouldn't budge, Stern threatened to take his 1.8 million members and bolt the federation -- effectively blowing up the A.F.L.-C.I.O. on the eve of its 50th anniversary. Stern's critics say all of this is simply an excuse to grab power. ''What Andy's doing now with his compadres is what Vladimir Putin is trying to do to the former Communist bloc countries,'' says Tom Buffenbarger, president of the union that represents machinists and aerospace workers. ''He's trying to implement dictatorial rule.'' Stern says he is done caring what the other bosses think. ''If I don't have the courage to do what my members put me here to do, then how do I ask a janitor or a child-care worker to go in and see a private-sector employer and say, 'We want to have a union in this place'?'' Stern asks. ''What's my risk? That some people won't like me? Their risk is that they lose their jobs.'' The implications of Stern's crusade stretch well beyond the narrow world of organized labor and into the heart of the nation's politics. The stale and paralyzed political dialogue in Washington right now is a direct result of the deterioration of industrial America, followed by the rise of the Wal-Mart economy. Lacking any real solutions to the growing anxiety of working-class families, the two parties have instead become entrenched in a cynical battle over who or what is at fault. Republicans have made an art form of blaming the declining fortunes of the middle class on taxes and social programs; if government would simply get out of the way, they suggest, businesses would magically provide all the well-paying jobs we need. Democrats, meanwhile, cling to the mythology of the factory age, blaming Republican greed and ''Benedict Arnold C.E.O.'s'' -- to use John Kerry's phrase -- for the historical shift toward globalization; if only Washington would close a few tax loopholes, they seem to be saying, the American worker could again live happily in 1950. About the last place you might expect to find a more thoughtful and compelling vision for the global age is in the fossilized, dogmatic leadership of organized labor. But Andy Stern is a different kind of labor chief. He intends to create a new, more dynamic kind of movement around the workers of the 21st century. And if some old friends in labor and the Democratic Party get their feelings hurt in the process, that's all right with him.

Subject: A New Direction for Unions? - 2 From: Emma To: Emma Date Posted: Mon, Jan 31, 2005 at 17:45:27 (EST) Email Address: Not Provided Message: The Old Boss Earlier this month, Tom Buffenbarger invited me down to the machinists' union's training facility on the Patuxent River in southern Maryland, about a 90-minute drive from Washington. The little campus features 87 hotel rooms, a library, a theater and a dockside dining room. There was no training going on that week, and as I wandered the empty halls, I peered into glass cases containing some of the products made by the heavy-machine operators and plant workers who make up much of the union's rank and file: a parking meter, aluminum soda cans, a Winchester rifle, a box of animal crackers. There were black-and-white photos of the union's past presidents with Harry Truman, Hubert Humphrey and Ted Kennedy. I glimpsed an exhibit meant to celebrate what the machinists apparently considered a triumphant moment: the Eastern Airlines strike that began in 1989 and ended, two years later, with the destruction of the company. It was as if I had wandered into the industrial economy's version of Jurassic Park: ''Welcome to Laborland, U.S.A., and please be careful -- there are actual union leaders wandering around.'' At its zenith, in 1969, the machinists' union was about a million strong, but that was before robots supplanted assembly-line workers and Chinese factories began replacing a lot of American plants. The union now has some 380,000 active, dues-paying members. Buffenbarger told me that the union had lost more than 100,000 members in the last four years alone -- members whose jobs were eliminated or moved overseas -- for which he placed the blame squarely on free-trade deals and the Bush administration. Buffenbarger looks like what you would probably imagine a union boss to look like. He is a big, fleshy man with a bald crown and ursine hands. He began his career, decades ago, as a tool-and-dye apprentice. Now he flies around in the union's very own Lear jet. ''We couldn't do what we do without it,'' he explained unapologetically. Buffenbarger said that Andy Stern is wrong in his central point about the labor movement: in fact, unions have as much power as ever. The problem, as Buffenbarger sees it, is one of public relations and messaging. All the unions need to do to reverse their fortunes, Buffenbarger said, is to speak up louder. To that end, Buffenbarger has proposed that the A.F.L.-C.I.O. spend $188 million to create, among other things, a Labor News Network on cable TV. ''There is no bigger organization than the collective labor movement,'' he told me. ''Even the N.R.A. doesn't have 13 million members. But they act like they do, and I think that's where we fall down. We need to act like we do.'' In a speech earlier that morning, Buffenbarger took on Stern, portraying him as an arrogant usurper and comparing him to ''a rather small peacock.'' Buffenbarger, of course, stands to lose clout if the A.F.L.-C.I.O. meets Stern's demands, since the machinists might well be forced to merge with other unions, some of whom might not see the need for a private jet. But I sensed a reason for his resentment that went beyond simple self-interest; underneath his rhetoric, you could detect the fault line between an industrial economy and a service economy, between old labor and new. Buffenbarger sneered at Stern's Ivy League education -- Stern got his degree from the University of Pennsylvania, where he spent his freshman year studying business -- and mocked him for setting up a blog. What Buffenbarger didn't like about Stern is that he looked and sounded so much like management. ''He's trying to corporatize the labor movement,'' Buffenbarger said. ''When you listen to him talk, it's all about market share. It's about loss and gain. It's about producers and consumers.'' He wrinkled his face when he said this, as if the words themselves tasted sour in his mouth. ''I think he's enamored of all the glitz and hype of the Wall Street types. He must be a fan of Donald Trump. I think he wants his own TV show.''

Subject: A New Direction for Unions? - 3 From: Emma To: Emma Date Posted: Mon, Jan 31, 2005 at 17:46:03 (EST) Email Address: Not Provided Message: Re-engineering the Union Stern, it's true, is about as far from a tool-and-dye man as you can get. His father built a profitable legal practice in northern New Jersey by catering to small Jewish businesses, helping their owners make the jump from corner store to full-service retailer. After college, where, by his own account, he mostly avoided thinking about classes or the future, an aimless Stern took a job with the Pennsylvania welfare department, compiling case histories for aid recipients. The department's social-service workers had just won the right to collective bargaining, and a group of young idealists, Stern included, seized control of the local union. Nothing in Stern's prototypically suburban background made him a natural candidate for organized labor -- for many affluent college kids of his generation, the notion of unions brought to mind images of dank social halls and cigar-chewing thugs -- but this was the early 1970's, and when you had a genuine chance to scream truth to power, you took it. Soon he went to work full time for the union. Stern and his cadre got the pay increases and better benefits they demanded -- and went on strike anyway. ''Most of us were just playing union,'' he says now, laughing. ''We'd watched enough movies so we could figure it out.'' Unlike most union bosses, who rise up through the administrative ranks, ploddingly building alliances and dispatching their enemies, Stern spent most of his career as an organizer in the field, taking on recalcitrant employers and bargaining contracts. In 1984, John Sweeney, then the president of the S.E.I.U., summoned Stern to Washington to coordinate a national organizing drive. When Sweeney ran for president of the entire A.F.L.-C.I.O. in 1995, Stern helped run his campaign; after Sweeney won, the brash and ambitious Stern maneuvered to replace him as head of the S.E.I.U. The ensuing drama was a classic of labor politics. Before an election could be held, Sweeney left the union in the hands of a top lieutenant, who wasted no time in firing Stern and having him escorted from the building. As Stern tells the story, he vowed that he wouldn't set foot back in the L Street headquarters unless he was moving into the president's fifth-floor office. Six weeks later, his reform-minded allies in the locals helped get him elected, and he became, at 45, the youngest president in the union's history. Having grown up around his father's small-business clients, and having spent much of his adult life at bargaining tables, Stern had learned a few things about the way business works. He came to embrace a philosophy that ran counter to the most basic assumptions of the besieged labor movement: the popular image of greedy corporations that want to treat their workers like slaves, Stern believed, was in most cases just wrong. The truth was that companies in the global age, under intense pressure to lower costs, were simply doing what they thought they had to do to survive, and if you wanted them to behave better, you had to make good behavior viable for them. Stern's favorite example concerns the more than 10,000 janitors who clean the office buildings in the cities and suburbs of northern New Jersey. Five years ago, only a fraction of them were unionized, and they were making $10 less per hour than their counterparts across the river in Manhattan. Stern and his team say they were convinced from talking to employers in the fast-growing area that the employers didn't like the low wages and poor benefits much more than the union did. Cleaning companies complained that they had trouble retaining workers, and the workers they did keep were less productive. The problem was that for any one company to offer better wages would have been tantamount to an army unilaterally disarming in the middle of a war; cheaper competitors would immediately overrun its business. The traditional way for a union to attack this problem would be to pick the most vulnerable employer in the market, pressure it to accept a union and then try to expand from there. Instead, Stern set out to organize the entire market at once, which he did by promising employers that the union contract wouldn't kick in unless more than half of them signed it. (Getting the first companies to enter into the agreement took some old-fashioned organizing tactics, including picket lines.) The S.E.I.U. ended up representing close to 70 percent of the janitors in the area, doubling their pay in many cases, from minimum wage to more than $11 an hour. Stern found that by bringing all of the main employers in an industry to the table at one time, rather than one after the other, he was able to effectively regulate an entire market. Stern talks about giving ''added value'' to employers, some of whom have come to view him, warily, as a partner. At about the time Stern took over the union, his locals in several states were at war with Beverly Health and Rehabilitation Services, an Arkansas-based nursing-home chain. The company complained that cuts in state aid were making it all but impossible to pay workers more while operating their facilities at a profit. Stern and his team proposed an unusual alliance: if Beverly would allow its workers to organize, the S.E.I.U.'s members would use their political clout in state legislatures to deliver more money. It worked. ''I do believe Andy's a stand-up guy,'' says Beverly Health's C.O.O., Dave Devereaux. At the same time Stern was employing inventive labor tactics to work with business, he was also using new-age business theory to remake the culture of his union. When Stern came into power, the S.E.I.U. represented a disparate coalition of local unions that identified themselves by different names and maintained separate identities. This was the way it had always been, which was fine in an era when employers and unions were confined to individual markets. To Stern, however, this was now a problem. If his members were going to go up against national and global companies, they were going to have to convey the size and stature of a national union. ''You know your employer is powerful, so you want to believe you're part of something powerful as well'' is the way he explained it to me. Stern hired a corporate consulting firm versed in the jargon of the new economy and undertook a campaign to ''rebrand'' the union. He used financial incentives to get all the local branches of the union to begin using the S.E.I.U. name, its new logo and, of course, its new color. In some respects, the S.E.I.U. now feels very much like a Fortune 500 company. In the lobby of its headquarters, a flat-screen TV plays an endless video of smiling members along with inspirational quotes from Stern, as if he were Jack Welch or Bill Gates. The union sold more than $1 million worth of purple merchandise through its gift catalog last year, including watches, sports bras, temporary tattoos and its very own line of jeans. (The catalog itself features poetry from members and their children paying tribute to the union, along with recipes like Andy Stern's Chocolate Cake With Peanut-Butter Frosting.) In all of this, Stern's critics in other unions see a strange little cult of personality. Another way to look at it, though, is that Stern understands the psychology of a movement; workers in the union want to feel as if someone is looking out for them. When he and I walked into the S.E.I.U. campaign office in Miami shortly before the presidential election, the union's activists greeted him with hugs or shy smiles. Stern took a moment to chat with each member. ''I got to have my picture taken with you once before, you know,'' one man told him proudly. ''You mean I got have my picture taken with you,'' Stern replied with the timing of a politician. As the S.E.I.U. was soaring in membership and strength during the late 90's, much of big labor was seeing its influence further erode. And there were those who thought the S.E.I.U. wasn't doing enough for the movement as a whole. Cecil Roberts, president of the mineworkers, personally challenged Stern to follow the example of the mineworkers' legendary leader John L. Lewis, who helped build up the entire labor movement in the 1930's. But Stern demurred. Just running the union was taking all of his time, and what was left he wanted to spend with his son, Matt, and his daughter, Cassie. There would be time later, when his children were older, to think about reshaping the future of American labor. Then, all at once, Stern's personal world collapsed. A little more than two years ago, Cassie, 14, who was born unusually small and with poor muscle tone, became ill after returning home from a routine operation, stopped breathing in her father's arms and died. In the aftermath, Stern's 23-year marriage to Jane Perkins, a liberal advocate, unraveled. He rented an apartment in northwest Washington and shed most of his furniture, hurling himself into his work at the union. He is very close to his 18-year-old son, but his son splits his time between his parents' homes. On weeks when Stern is alone, he told me, he looks forward to stopping by the Dancing Crab, a local bar, to eat dinner alone and read the paper. ''I'm in a very transitional moment of life,'' he says. Often, when Stern talks about his daughter, he wanders off, without really meaning to, into a story about a union member he has met somewhere who reminds him of Cassie, or whose own daughter -- ''someone else's Cassie'' -- is stuck in a failing school. The recollections bring him to the brink of tears. It is as if he can't help conflating the fate of workers with the fate of his daughter. Time has become a paradox for him; on one hand, he has more of it than ever before, and yet, he can't escape the panicky feeling that time is running out. ''When Cassie died,'' Stern said, ''it was like: 'I'm 52 years old. How many more years am I really going to do this? Why am I so scared to say what I really think?' '' If he were a religious man, Stern told me, he might think that it was not a coincidence that he was given, through his loss, so much free time and clarity at the very moment when organized labor was in crisis. He says it would be comforting to believe he has been chosen for a mission. It is clear, from the way he says this, that part of him believes it anyway.

Subject: A New Direction for Unions? - 4 From: Emma To: Emma Date Posted: Mon, Jan 31, 2005 at 21:43:24 (EST) Email Address: Not Provided Message: Big Labor's Big Brawl Stern's plan to rescue the American worker begins with restructuring the A.F.L.-C.I.O. Since the 1960's, a lot of struggling unions have chosen to merge rather than perish, to the point where there are half as many unions in the federation today as there were at its height. Stern argues that this Darwinian process, so lamented by labor leaders, is in fact healthy, and hasn't gone far enough. Unions, he says, work best when they're large enough to organize new workers at the same time as they fight battles on behalf of old ones, and when they represent a large concentration of the workers in any one industry. Smaller unions lack the muscle to organize entire markets the way that the S.E.I.U. has been able to do with janitors and home health care workers. At the same time, some unions have desperately scrambled to maintain or increase their memberships -- and thus their revenue -- by signing up workers well outside their core areas. So the United Auto Workers ends up representing graduate students, and the machinists represent park rangers. This is self-defeating, Stern argues; all it does is divide labor's strength. Stern's 10-point plan would essentially tear down the industrial-age framework of the House of Labor and rebuild it. The A.F.L.-C.I.O., he says, would consist of 20 large unions, and each union would be devoted to a single sector of the 21st-century economy, like health care or airlines. Ever the apostle of field organizing, Stern wants these restructured unions to put more time and resources into recruiting new members in fast-growing exurban areas -- in the South and the West especially -- where a new generation of workers has never belonged to a union. His plan would slash the amount that each union pays in dues to the A.F.L.-C.I.O. by half, provided that those unions put some of the money back into local organizing. This is not a small idea; it would, essentially, take resources away from the federation's headquarters, which uses it for policy studies and training programs, and give it back to the guys who set up picket lines and rallies. The basic strategy is to take the same principles Stern demonstrated organizing New Jersey's janitors and make them the model for the entire American labor movement. If only two or three large unions represented all the nation's health care workers, they could go into a growing market -- Reno, say, or Albuquerque -- and bargain with all the hospitals at the same time. Labor would be able to focus on setting standards for entire industries, as opposed to battling one employer at a time. Stern's plan has incited fury within a lot of smaller unions, whose members don't seem to think the movement needs a self-appointed savior. The proposed reorganization would sweep away a lot of small unions as if they were debris on the factory floor. ''Andy is impatient, and he sprang this on his peers without any discussion,'' says John Sweeney, Stern's former mentor. ''I think he needs to stand still for a minute and listen to what other people think, and learn from other experiences as well.'' You would imagine, given how often Stern's critics have called him arrogant, that he'd be used to it by now, but clearly the word still stings him. He is a man who prides himself on his emotional connection with janitors and nursing aides, and he almost cannot bear the suggestion that he thinks he's smarter than everyone else. Stern prefers to see himself as a man who gets along with all kinds of people, whether they drive the limousine or ride in the back. (''I actually was the most popular person in my high-school class,'' he once told me.) During an airport layover, I saw him open his laptop and peruse the Unite to Win blog. (Stern actually contributes from time to time to three separate blogs, including Purpleocean.org, an S.E.I.U. site designed for like-minded people who aren't even in a union.) Stern established the online forum so that everyone in the labor movement -- whether supportive of his plan or opposed to it -- could tell him exactly what they thought of his ideas. They haven't held back. ''Sometimes I really hate this,'' he said in the airport lounge, wincing slightly. ''I don't like seeing my name there and people calling me an arrogant idiot.'' Even Stern's allies admit that his ultimatum to big labor is a little high-handed. John Wilhelm, co-president of the union that represents hotel, restaurant and garment workers, is supportive of Stern, and Wilhelm is said to be considering a challenge to Sweeney when he runs for another term as A.F.L.-C.I.O. president this year. But he said he disagrees with Stern's idea of merging unions against their will. Because Stern's union is so powerful, Wilhelm told me, Stern doesn't always feel the need to tread as softly as he might. ''Frankly, he doesn't have to be as diplomatic as others do,'' Wilhelm said. ''There's a thin and perhaps indiscernible line between a person who comes across as arrogant and a person who tries to tell the truth even when it's unpleasant. And the truth about our labor movement is unpleasant.'' When I first started talking to Stern about his controversial plan last summer, he seemed to regard it more as a provocation to big labor than as a proposal that might actually be adopted. He talked as if he were resigned to the idea that the S.E.I.U. would ultimately break from the federation. But as the next meeting of the A.F.L.-C.I.O. executive board in March draws near, there seems to be in union headquarters around the nation the faintest stirrings of a revolt. Stern's ideas have become the basis for an entirely new debate about the future of labor, and now several unions have offered their own, more modest versions of a reform plan in response. The biggest surprise came in December, when James P. Hoffa, president of the famously old-school Teamsters, weighed in with a set of recommendations quite similar to Stern's. Increasingly, the question for Stern is not whether he is prepared to leave the A.F.L.-C.I.O., but how much of his plan has to be enacted in order for the S.E.I.U. to stay. It is a question he evades. ''What I won't do,'' he said, ''is pretend we made change. It's not worth having this fight or discussion if, in the end, you can't look people in the eye and say we really have taken a big step forward.''

Subject: A New Direction for Unions? - 5 From: Emma To: Emma Date Posted: Mon, Jan 31, 2005 at 21:44:11 (EST) Email Address: Not Provided Message: Workers of the World, Globalize? Even if big labor eventually does come to be made up of bigger unions, Stern sees a larger challenge: can you build a multinational labor movement to counter the leverage of multinational giants whose tentacles reach across oceans and continents? The emblem of this new kind of behemoth, of course, is Wal-Mart, the nation's largest employer. Wal-Mart has, in a sense, turned the American retail model inside out. It used to be that a manufacturer made, say, a clock radio, determined its price and the wages of the employees who made it and then sold the radio to a retail outlet at a profit. Wal-Mart's power is such that the process now works in reverse: in practice, Wal-Mart sets the price for that clock radio, and the manufacturer, very likely located overseas, figures out how low wages will have to be in order to make it profitable to produce it. In this way, Wal-Mart not only resists unions in its stores with unwavering ferocity but also drives down the wages of its manufacturers -- all in the service of bringing consumers the lowest possible price. ''What was good for G.M. ended up being good for the country,'' Stern says. ''What's good for Wal-Mart ends up being good for five families'' -- the heirs to the Walton fortune. Stern's reform plan for the A.F.L.-C.I.O. includes a $25 million fund to organize Wal-Mart's workers. But as a retail outlet, Wal-Mart doesn't really fall within the S.E.I.U.'s purview. What Stern says he is deeply worried about is what he sees as the next generation of Wal-Marts, which are on his turf: French, British and Scandinavian companies whose entry into the American market threatens to drive down wages in service industries, which are often less visible than retail. ''While we were invading Iraq, the Europeans invaded us,'' Stern says. Most of these companies have no objection to unionizing in Europe, where organized labor is the norm. But when they come to the United States, they immediately follow the Wal-Mart model, undercutting their competitors by shutting out unions and squeezing paychecks. Take, for instance, the case of Sodexho, a French company that provides all the services necessary to operate corporate buildings, from catering the food to guarding the lobby. In Europe, Sodexho is considered a responsible employer that works with unions and compensates its employees fairly. In the United States and Canada, where the company employs more than 100,000 workers, Sodexho's policy is to discourage its employees from joining unions. As a maneuver to get Sodexho to the bargaining table, last year the S.E.I.U. resorted to taking out ads in French newspapers, shaming the company's executives in their own country, where the idea of scorning unions is considerably less chic. Stern says Sodexho has started negotiating. Stern's big idea for coping with this new kind of multinational nemesis is to build a federation of unions, similar to the A.F.L.-C.I.O. except that its member unions would come from all over the world. As Stern explained it, a French company might not be so brazen about bullying American workers if it had to worry about a French union protesting back home. The point, he said, is to force companies like Sodexho to adhere to the same business standards in New York and Chicago as it does in Paris, by building a labor alliance that is every bit as global as modern capital. At first, this global vision sounded a little dreamy to me, as if Stern might have been watching too many ''Superfriends'' reruns. Then he invited me, just before Christmas, on a one-day trip to Birmingham, England. The occasion was a meeting of Britain's reform-minded transportation union. Tony Woodley, the union's general secretary, flashed a broad smile and threw his arm around Stern when Stern arrived, after flying all night, to give the keynote address. Two S.E.I.U. employees were already on hand; it turned out that Stern had dispatched them to London temporarily to help Woodley set up an organizing program. As we drank coffee backstage, Stern and Woodley told me about the case of First Student, a company that in the last few years had become the largest, most aggressive private school-bus company in the United States. The company had become a target of S.E.I.U. locals in several cities because it wouldn't let its drivers unionize. ''We keep seeing these things about them in the union newsletter,'' Stern said. ''And it starts nibbling at your brain. I said: 'Who are these people, First Student? What's going on here?' And then we do a little research, and we find out what idiots we are. This is a major multinational company. They're 80 percent unionized in the United Kingdom. So we write a letter to the union here, and we say, 'Can you help us?' '' Woodley sent British bus drivers to Chicago to meet with their American counterparts. Then the American bus drivers went to London, and lobbyists for the British union took them to see members of Parliament. They also held a joint demonstration outside the company's annual meeting. Woodley told me that First Student -- known as First Group in Britain -- was now making a bid for rail contracts there, and his union intended to lobby against it unless the company sat down with its American counterparts in Florida and Illinois. I asked Woodley, who looks like Rudy Giuliani with more hair, why he would use his own union's political capital to help the S.E.I.U. He nodded quickly, in a way that suggested that there were a lot of people who didn't yet understand this. He explained that it worked both ways; his union was suffering at the hands of multinationals, too, and Stern would be able to return the favor by pressuring American companies doing business in Britain. Moreover, Woodley went on to say, if European companies get used to operating without unions in America, it might be only a matter of time before they tried to export that same mentality back to Europe. ''I don't expect miracles,'' Woodley said. ''I don't expect international solidarity to bring huge companies to their knees overnight. But we've got to do a damn sight more than we're doing.'' Stern invited the top executives of about a dozen unions from Europe and Australia to a meeting in London this April, which will be the maiden gathering of what he says he hopes will become a formalized global federation. He recently met with union leaders in Beijing too. Most labor experts assume that the Chinese unions are tools of the business-friendly government, but Stern says he came away believing that they are as jolted by the global economy as workers in America. ''You have to understand, they're just seeing something new,'' he says. ''These are public unions that are used to health benefits and real discussions, and suddenly they're meeting these huge corporations -- like Wal-Mart -- that, because the executives can make a phone call to someone in the local government, won't even talk to them. It's all new.'' There are, however, painful questions inherent in globalizing the labor movement. At a recent meeting with his executive board, Stern mused out loud about the possibility of conducting a fact-finding mission to India, along with executives from one of the companies outsourcing its jobs there. Perhaps that could be a first step, he thought, toward raising the pay of Indian workers who have inherited American jobs. Then Stern stopped himself and considered a problem. Sure, there was an obvious logic to unionizing foreign phone operators or machinists: American workers won't be able to compete fairly for jobs until companies have to pay higher wages in countries like China and India. But how would it look to workers in America? How would you avoid the appearance that you were more worried about the guy answering the phone in Bangalore than you were about the guy he replaced in Iowa? John Kerry and other Democrats had been railing against the C.E.O.'s who outsourced American jobs -- and here was Andy Stern, considering joining forces with those very same C.E.O.'s to make sure their Indian workers were making enough money. ''The truth is that as the living standard in China goes up, the living standard in Ohio goes down,'' Stern said. ''What do you do about that? Are we a global union or an American union? This is a hard question for me to answer. Because I'm not comfortable with the living standard here going down. This is a question I think we need to think about going forward, but I don't think that means we should be scared.'' The idea of a global union isn't entirely new. But the concept has never been translated into a formal alliance, and experts who study labor think Stern may be onto something important. I realized during our brief time in Birmingham why Stern seemed ambivalent about whether the A.F.L.-C.I.O. approved his reform plan, or whether his union even stayed in the federation. In a sense, no matter how the conversation is resolved, it is bound to lag a full generation behind the reality of the problem; it is as if the unions are arguing against upgrading from LP's to compact discs while the rest of the world has moved on to digital downloads. Even if the leaders of big labor do kill off half their unions and reorganize the rest, all they will have done, at long last, is create a truly national labor movement -- at exactly the moment that capital has become a more sprawling and more obstinate force than any one nation could hope to contain.

Subject: Federal Reserve to Raise Interest Rates From: Emma To: All Date Posted: Mon, Jan 31, 2005 at 15:47:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/31/business/31fed.html Federal Reserve Is Expected to Continue Raising Rates By EDMUND L. ANDREWS WASHINGTON - Notwithstanding new evidence released on Friday that economic growth has slowed in recent months, the Federal Reserve appears poised to continue raising interest rates for most if not all of this year. Analysts almost unanimously predict that the Fed will increase rates on Wednesday by another quarter-point, to 2.5 percent, and most expect the central bank to repeat past statements about raising rates at a 'measured' pace. A variety of economic trends suggests that policy makers have no reason to slow or accelerate the rate increases anytime soon. Inflation, though still subdued by most measures, is running higher than a year ago. Strong oil prices and a weaker dollar both push up the cost of imports, and many analysts have predicted that the soaring trade deficit will cause the dollar to fall even further over the next year. But in a series of recent speeches and public comments, Fed officials have placed more emphasis on their view that growth will probably remain fairly strong this year and the economy does not need to be stimulated. On Friday, the Commerce Department estimated that the economy grew at an annual rate of 3.1 percent from September through December, much slower than in the previous quarter and less than most forecasters had predicted. Still, other indicators point to steady if not spectacular growth of about 3.5 percent this year, which would be the fourth consecutive year of an expansion. One significant reason for the Fed to keep lifting short-term rates, analysts said, is that cheap money is almost as plentiful now as it was before the Fed started the process six months ago. Although short-term interest rates have been nudged up five times since last June, to 2.25 percent from 1 percent, the cost of home mortgages and long-term corporate financing has actually declined. Rates on 10-year Treasury bonds, which directly affect home mortgage rates, were near 4.13 percent on Friday. That was lower than they were last June, before the central bank first raised the federal funds rate on overnight loans between banks. The persistence of low long-term rates has kept the nation's housing market hotter than most forecasters had expected, and it has also made it easy for companies to raise money at low cost for either expansion or acquisitions. Analysts said a pickup in big mergers and acquisitions, like Procter & Gamble's plan to acquire Gillette for $54 billion, points to a greater confidence among companies, illustrated by their willingness to take risks. 'Monetary tightening has not yet had an effect on the economy,' said David Hale, an independent economist in Chicago. 'Credit spreads are tight, mortgage rates are low.' The Federal Reserve caused shivers among investors and analysts earlier this month when it released notes from its December policy meeting in which some officials were said to worry about 'speculative excesses' and inflationary pressures. But a number of Fed officials have publicly played down those concerns. 'I disagree with the view that low interest rates promote a sort of moral hazard in financial markets,' said Ben S. Bernanke, a Fed governor, on Jan. 19. Janet Yellen, president of the Federal Reserve Bank of San Francisco, expressed a similar skepticism about the risks of excess speculation, as have at least four other senior officials. Mr. Greenspan's next broad policy message will probably not come until Feb. 16 or Feb. 17, when he is to testify before House and Senate committees about the economy and monetary policy. Many analysts say they believe that if Mr. Greenspan wants to signal any change in emphasis, he will probably wait until he speaks more expansively to lawmakers. Minutes from previous Fed meetings have made it clear that a minority of officials on the Federal Open Market Committee, which sets the federal funds rate, would like to abandon the implied pledge to raise rates at a 'pace that is likely to be measured.' Critics of the reference to a measured pace contend that it locks the central bank into future decisions. But the Fed is expected to keep the phrase for at least another month, as well as its assessment that the upside and downside risks of inflation and growth are balanced. Even at 2.5 percent, the funds rate would be higher than the core rate of inflation, which excludes the costs of energy and food. But it would still be lower than last year's overall increase in consumer prices. 'There is definitely a recognition that we need to get to a different setting, and the only question is how fast to go,' said Robert DiClemente, a senior economist at Citigroup. 'The inflation outlook is manageable, as long as we keep moving.' Based on the prices of federal-funds futures contracts, which are bets on the outlook for the funds rate, investors almost unanimously expect overnight rates to climb to about 3.5 percent by year-end. But many analysts said the Fed would probably raise rates at every policy meeting this year, which could push the overnight rate up to 4 percent. 'I think the market is low-balling what the Fed is likely to do,' said Lyle Gramley, a former Fed governor and now an adviser to the Washington Research Group. Mr. Gramley said investors had focused on the likelihood of slower economic growth in 2005 and were betting that the central bank would feel less need to cool down an overheated economy. But he said it was possible to have slower growth and inflationary pressures at the same time. 'This will be Greenspan's last year,' Mr. Gramley said, noting that Mr. Greenspan's term as a governor ends next January and cannot be renewed. 'He's going to be thinking about his legacy, and he doesn't want that legacy to be higher inflation.'

Subject: Re: Federal Reserve to Raise Interest Rates From: Jennifer To: Emma Date Posted: Tues, Feb 01, 2005 at 07:24:54 (EST) Email Address: Not Provided Message: Still, long term interest rates do not budge though we know the Fed will keep on raising rates. Amazing.

Subject: US Tax Amnesty and the Dollar From: Terri To: All Date Posted: Mon, Jan 31, 2005 at 12:56:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/financialtimes/business/FT20050130_6538_607092.html Janaurd 30, 2005 US Tax Amnesty Could Rake in $100bn By FT.COM A tax amnesty for multinationals is expected to bring approximately $100bn of foreign exchange earnings into the US over the next few months after a stronger-than-expected take-up by companies last week. The flow of money, triggered by tax breaks in the controversial American Jobs Creation Act, is so large that many currency strategists expect it to give noticeable support to the dollar. Last week, four pharmaceuticals companies Johnson & Johnson, Eli Lilly, Schering-Plough and Bristol-Myers Squibb committed themselves to repatriating $37.4bn. Pfizer said it hoped to bring back a further $37.6bn held offshore. This represents more half of the $135bn in overseas earnings officials estimated would be repatriated across the US economy when the legislation was passed in October. Companies are keen to take advantage of the amnesty because it allows them to make full use of money currently stranded in lower-tax jurisdictions. They will pay a reduced tax rate of 5.25 per cent to the US government, rather than the more normal 20-25 per cent, for bringing these funds into the US. More than $700bn is believed to have been accumulated in offshore bank accounts and investments, often in a strategy to keep tax rates low. Analysts predict up to half of this will be repatriated this year. A survey of clients by JPMorgan predicts that about one third of an estimated $300bn in repatriations will need to be converted into dollars from other currencies. ABN Amro also predicts about $100bn in conversions. Greg Anderson, a currency strategist at ABN Amro in Chicago, said: 'All else being equal, $100bn is equivalent to a 5 per cent rise in the dollar's trade-weighted index. The US trade deficit is probably $600bn in 2005, so this flow will be financing a sixth of the deficit all by itself.' Nevertheless, the 5.25 per cent charge will depress quarterly earnings in many sectors. The four drug companies reporting last week saw profits drop 83 per cent as a result.

Subject: Employer Subsidies Lower Benefits From: Emma To: All Date Posted: Mon, Jan 31, 2005 at 11:44:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/31/politics/31drug.html Employers Can Get Medicare Subsidies for Lower Benefits By ROBERT PEAR WASHINGTON - The Bush administration has touched off a furious debate with new rules allowing employers to collect billions of dollars in federal subsidies for prescription drug benefits less generous than what many retirees were expecting under the new Medicare law. In theory, those retiree benefits should be at least equal in value to the new Medicare drug benefit. But that will not always be the case, according to Medicare officials, labor unions and specialists in employee benefits. In comparing retiree benefits with Medicare, the administration said, many employers will be able to ignore Medicare's catastrophic coverage, which helps people with high drug costs and accounts for about one-fourth of the annual value of the standard Medicare drug benefit, $300 out of $1,220. Final rules for the new program were published Friday in the Federal Register. The new drug benefit becomes available next January. In issuing the rules, Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, said the federal subsidies would reverse the erosion of retiree health benefits and enable employers to 'offer high-quality retiree coverage at a much lower cost.' To qualify, Dr. McClellan said, employers must provide coverage 'as good as or better than' the standard Medicare drug benefit. But JoAnn C. Volk, a health policy analyst at the A.F.L.-C.I.O., said, 'The rules allow an employer to get the subsidy for a benefit that is less valuable to retirees than what they would receive if they signed up for the Medicare drug benefit and the employer dropped coverage altogether.' Retirees can sign up for Medicare drug coverage if they think it is better than an employer's plan. Employers get no subsidy for such retirees. But it may be difficult for beneficiaries to compare the options available to them, which are likely to have different premiums and co-payments and to cover different medicines. In the final rules, the administration said it had tried to balance two 'potentially competing objectives': maximizing the number of employers who qualify for subsidies and 'providing greater protection to beneficiaries.' The new Medicare drug benefit represents the largest expansion of Medicare since the program was created in 1965. Employers are now the largest source of drug coverage for retirees, and Congress wanted to encourage them to continue providing drug benefits, in part because their contributions save money for Medicare. Accordingly, Congress authorized subsidies for employers who provide a retiree drug benefit at least as generous as Medicare's. But the value of the standard Medicare benefit, especially the catastrophic coverage, for people with very high drug costs and multiple chronic conditions, is subject to different interpretation. The Congressional Budget Office estimates that Medicare will spend $71 billion on employer subsidies from 2006 to 2013. The maximum subsidy in 2006 will be $1,330 per retiree. Medicare officials say the average subsidy payment will be $668 per retiree. The future of retiree health benefits is a huge issue. For more than a decade, employers have been cutting retiree health benefits. Since Medicare already covers doctors' services and hospital care, prescription drugs account for a sizable share of the current cost of retiree health plans, 40 percent to 60 percent, by some estimates. Congress hoped the new subsidies would give employers an incentive to continue providing retiree drug benefits. Two recent surveys found that many employers intended to do so, at least in 2006. Also at issue are the standards for use of subsidies and the pivotal role that actuaries will play. Congress defined the standard Medicare drug benefit. But not wanting to dictate the details, lawmakers will let employers and insurers offer different benefits if an actuary certifies that their value is at least equal to that of the standard coverage. Under the law, Medicare officials said, they have broad discretion to specify how the value of drug benefits will be measured. Medicare is defining 'equivalence' in a way that differs from what many retirees had expected, based on a layman's understanding of the term. Dr. McClellan said that in many cases it would not be a close call, because employers had better drug benefits than Medicare, and in any event, he added, retirees would be better off because the subsidies would enable employers to continue providing coverage. The Congressional Budget Office estimates that the average cost of providing the Medicare drug benefit will be $1,640 for each person who signs up in 2006. Beneficiaries will pay about one-fourth of the cost in premiums, expected to average $35 a month or $420 a year, and the government will pay the remainder, $1,220. Kathryn L. Bakich, vice president of the Segal Company, an employee benefits consulting firm, said, 'The government share of the Medicare drug benefit is approximately $1,200 a year, but under the new rules, some employers can qualify for the subsidy if they provide a retiree drug benefit worth $900 to $1,000.' About 11.4 million retirees have drug coverage from former employers. In issuing rules for the new subsidy, administration officials said, they wanted to encourage employers to continue providing coverage without allowing them to obtain a windfall at taxpayers' expense. Under the rules, employers cannot shift all costs to retirees. But Ms. Volk said employers could reduce retiree coverage so it would, in some cases, be less attractive than the Medicare benefit. Paul W. Dennett, vice president of the American Benefits Council, a trade group for large employers, said the rules gave employers what they wanted: 'a lot of flexibility in structuring retiree health benefits.' As a result, Mr. Dennett said, 'companies will be more likely to continue providing coverage.' Under the new law, the federal government will pay a tax-free subsidy to employers who provide retirees with drug benefits that meet federal standards. The subsidy payable to an employer will be 28 percent of a retiree's drug costs from $250 to $5,000 in 2006. To qualify for the subsidy, an employer must meet two criteria: the overall value of its retiree drug coverage - the expected amount of claims paid - must be at least equal to that of the standard Medicare drug coverage. In addition, the net value of retiree drug coverage, after subtracting premiums, must equal or exceed the net value of the standard Medicare drug benefit. In making these calculations, the government said, many employers can 'disregard the value of catastrophic coverage' that will be provided by Medicare. The catastrophic coverage kicks in after beneficiaries have spent $3,600 of their own money. Costs covered by a former employer do not count toward that limit. Under the rules, many employers can assume that retirees have supplemental coverage. Such coverage lowers out-of-pocket costs, reducing the retirees' reliance on Medicare. If, for example, an employer had a $3,000 limit on out-of-pocket costs, retirees would not have to use Medicare's catastrophic coverage, so the Medicare benefit would be worth less to them. The administration said this 'innovative approach' to analyzing the value of the standard Medicare drug benefit was recommended by several business groups that commented on an earlier version of the rules. The test adopted by the Bush administration is almost identical to one proposed by the American Benefits Council and the United States Chamber of Commerce. Medicare officials, acknowledging that these calculations could be enormously complicated, said they would issue guidelines to help employers and actuaries understand the 'actuarial equivalence test.'

Subject: China Starts to Give Girls Their Due From: Emma To: All Date Posted: Mon, Jan 31, 2005 at 10:45:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/31/international/asia/31china.html?pagewanted=all&position= Fearing Future, China Starts to Give Girls Their Due By JIM YARDLEY ANXI, China - For farming families in the lush mountains of coastal Fujian Province, the famous crop is oolong tea and the favorite source of labor is sons. The leafy bushes of tea fill the hillsides the same way young boys fill the village streets. There is such a glut of boys here - roughly 134 are born for every 100 girls - that the imbalance has forced an unlikely response from the Chinese government. To persuade more families to have girls, it has decided in some cases to pay families that already have daughters. The Communist Party is often vilified for its so-called one-child policy. The government credits the policy for sharply slowing China's population growth, but critics say it is a major reason many families now use prenatal scans and selective abortions to make certain that their child is a boy. Today, China has one of the world's worst cases of 'missing' girls. Until recent years, the government largely ignored or denied the problem. Last March, President Hu Jintao declared it must be solved by 2010. Government officials now have declared that selective sex abortions will become a criminal offense. Such abortions were already banned, but doctors often accepted bribes from parents who wanted to guarantee a boy. Government officials are hardly backing away from population control. But the government is examining various possible changes. Last year, the State Council, China's cabinet, appointed a research group of 250 demographers and other experts to examine issues like imbalance between the sexes, dropping fertility rates and ways to prepare for China's rapidly aging population. It may also address whether and when China should move to a nationwide two-child policy to prevent a looming baby bust. 'In the future, I think we have to consider this issue,' said Hao Linna, spokeswoman for the National Population and Family Planning Commission. 'As for what time, when and how we need to research these issues. We need to study how to shift, in what form and what method.' Yet government officials agree that reversing the birth imbalance between boys and girls cannot be postponed. Experts debate to what extent China's population policy should be blamed for the problem, noting that the problem predates the one-child policy. Other Asian countries like India and South Korea without such policies also have lopsided birth rates. But statistics show that China's imbalance has widened since population controls began in the late 1970's. In early January, the government announced that the nationwide ratio had reached 119 boys for every 100 girls. Studies show that the average rate for the rest of the world is about 105 boys for every 100 girls. Demographers predict that in a few decades China could have up to 40 million bachelors unable to find mates. On a recent afternoon here in southeastern China, hundreds of students in the dirt courtyard of Lanxi Middle School held a parade rehearsal. The school goes through 12th grade, and about 60 percent of students in the higher grades are male. The marchers, mostly boys, waved flags and kicked dust in the air beside a billboard promoting the latest propaganda campaign: Respect Girls. Local officials brought a visiting reporter here because Lanxi Middle School is participating in a Care for Girls pilot program. Female students from poor families are getting free tuition, as are students from families with two girls. The principal, Hu Hongbin, happily shows off an exhibition room where posters show girls in the program. Mr. Hu said the exhibition room was supposed to build the self-esteem of girls, though it also seemed intended to impress visiting officials. Still, he said that young women were now eligible for college scholarships and that the number of recent female graduates attending college jumped to 271 in 2004 from 149 in 2003. Lin Lingling, 18, a plucky senior who has hopes for college, is one of the stars of the program. 'They say boys are good at logical things, so when they enter into high school, they say some of them are a lot better,' said Ms. Lin, a top student. 'But we are the same.' Still, most Chinese parents, particularly in rural areas, prefer sons. Li Shengming, an official with the Anxi Family Planning Commission, said this preference dated back centuries and was largely rooted in practical concerns. Farm families want sons for their labor, while all parents, worried about their old age, know that Chinese tradition holds that a son must care for his parents. A daughter, on the other hand, marries into her husband's family. In the countryside, where there is no real social safety net, a son is considered the equivalent of a pension. 'It used to be that if you only had girls, you were looked down upon,' Mr. Li said. In response, the government has introduced a test program under which about 300,000 rural elderly people are receiving annual pensions of $180, a good amount in the countryside, if they had only one child or if they had daughters. Mr. Li said these fiscal incentives were intended to give monetary value to girls, and by doing so, reduce the incentive to abort them. Even so, the limited scope of the program has reduced its impact. Ms. Hao, the Beijing official, said Anxi was one of only 24 cities where girls were getting financial aid, and the budget is not expected to increase greatly. China's population policy long ago ceased to be a true one-child rule. In broad terms, urban families, with exceptions, are usually limited to one child while rural families are allowed a second child if the first is a girl. Minority families, meanwhile, are sometimes allowed three or more children to keep their populations from declining. In the rural Fujian Mountains, the pressure on families to have a boy as a second child is enormous. On what should have been one of the happiest days of her life, the birth of her second child, Liao Yanqing said she instead contemplated suicide because the baby was another girl. 'I felt I couldn't hold up my head walking in the village,' she recalled. Her family is now one of a handful that has gotten government grants for having two girls, money the Liaos have used to buy a new house and a small restaurant. Both girls now go to school for free. 'It has been quite a dramatic change,' she said. Even so, attitudes will be hard to change in male-dominated China. Officials used the recent birth of the country's 1.3 billionth citizen as a propaganda vehicle to laud government efforts to slow population growth to a more sustainable level. Without the policy, officials say, China would have 300 million more people. The eight-pound baby, born in early January and still unnamed, turned out to be a boy. His first bath was nationally televised. Asked about the honor of his son's having such an auspicious birth, Zhang Tong, the father, could have been describing the different parental attitudes toward sons and daughters. 'I am the happiest guy in the world,' Mr. Zhang told the state news media, 'and my boy will be blessed all his life.'

Subject: International REITs From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 15:53:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/business/yourmoney/30real.html?pagewanted=all&position= U.S. Property Prices Too High? Some Funds Look Abroad By J. ALEX TARQUINIO INVESTORS who worry that the American property market may be peaking have another option: putting money into real estate abroad. Such moves have become more attractive, thanks to the export of an American form of real estate ownership, the real estate investment trust. REIT's, which generally own commercial properties like office towers, shopping malls or apartment buildings, are required to distribute most of their profits as dividends each year. Within the last four years, France, Japan and Hong Kong have allowed real estate companies to operate like American REIT's, and lawmakers in Britain and Germany are taking steps in that direction. The spread of this ownership structure has contributed to a flood of dollars into three American mutual funds that specialize in foreign real estate. Investors put $79.3 million into the two largest, Alpine International Real Estate and ING Global Real Estate, from July 1, 2004, through Wednesday, compared with a net inflow of $4.1 million to both funds in the first half of 2004, according to AMG Data Services. 'Investors are aware that real estate prices have moved up a lot in the U.S.,' said Samuel A. Lieber, manager of the Alpine fund. 'There's too much money trying to chase property. Smart investors are saying, 'Let's go abroad.' ' Real estate fund managers say that higher American property prices are not the only reason for investing overseas. Real estate priced in euros or Japanese yen, they say, may benefit from any further decline in the dollar. And owning foreign real estate is a good way to diversify a portfolio in general, because real estate markets around the world are not as closely linked as stock and bond markets. 'All things being equal, I would rather invest in a REIT,' said Steve Burton, co-manager of the ING fund, noting that REIT's are generally taxed at lower rates and tend to have higher dividends. The Alpine and ING funds are the only large foreign real estate funds that are marketed to individual investors, and have been open at least a year. Alpine International Real Estate had a total return of 31.2 percent over the 12 months through Thursday; while ING Global Real Estate returned 22.9 percent, according to Morningstar Inc. Fidelity has joined the fray, too. The rising number of publicly traded property companies around the world and the adoption of REIT's in particular was one reason that its executives decided to start the Fidelity International Real Estate fund last year, said Steve Buller, the fund's manager. It opened on Sept. 15 and accrued $123 million in assets by Dec. 31. Mr. Buller says he does not hedge currencies and has no plans to do so. Lately, that approach has helped the fund's performance. The fund returned more than 17 percent in its four months, and Mr. Buller attributes more than a third of that to the decline of the dollar. But if investors own shares for several years, currency movements should cancel one another out, he said. The ING fund has a 5.75 percent front-end load, or sales charge, while the other two funds are no-load. The ING portfolio also differs from the other two in that about half of its assets are usually invested in the United States; the other funds generally invest most of their assets abroad. Lately, the ING fund managers have not been hedging currencies, either, because ING research indicates that the dollar has more room to decline, Mr. Burton said. They may hedge in the future, he said, if they think the dollar is poised to rise. Mr. Burton said he favored the Hong Kong real estate market because he thought it would benefit from economic growth in China. One of the fund's largest holdings is Sun Hung Kai, based in Hong Kong. The company owns a wide range of office, retail and residential properties, including a majority stake in IFC 2, a towering office building that opened on Hong Kong's waterfront a couple of years ago. Mr. Burton said that he expected Sun Hung Kai's earnings and cash flow to grow faster than those of most American property companies over the next few years; he also said that he thought the stock was trading at a 10 percent discount to the value of the properties owned by the company. Mr. Lieber also favors the Hong Kong real estate market. 'Real estate cycles are tied to economic cycles, and there's also a supply and demand issue,' he said. 'If a market is very tight, you'll see prices jump, like they have in Hong Kong last year.' He has invested 12 percent of the Alpine fund in Hong Kong, making it the second-largest market in the portfolio. The Hong Kong real estate market faltered after 1997, Mr. Lieber said, because of investor uncertainty about the British handover to China and the Asian currency crisis of 1997 and 1998. That market has since recovered to roughly the level it reached by the mid-1990's; but as the gateway to China, he said, Hong Kong still has strong growth prospects. Mr. Lieber has not hedged currencies in the fund in the last two years, and he has no plans to do so again for a long while. French companies account for 20 percent of the Alpine fund's holdings. Unibail, a French property company that was transformed into a real estate trust in 2003, is one of its largest. Shares of Unibail rose 56 percent in 2004, partly because of a company announcement in October that it intended to make a special distribution of 23 euros a share, or about $30, which it paid on Jan. 7. The distribution was generated, in part, by a large office tower, called the Coeur Défense, which Unibail opened in Paris in 2001 and completed leasing last summer. 'Unibail took a 60's-style building down to its skin, gutted it, modernized it, and added tremendous value,' Mr. Lieber said. Club Med, which trades on the Paris exchange, is another French company that Mr. Lieber likes, though he said it would be more accurate to describe it as a global company because it owns resorts around the world. Executives are working to change Club Med's image, he said, emphasizing family getaways rather than the singles lifestyle. BUT the recent flow of new money into foreign real estate funds gives pause to Dan McNeela, a Morningstar fund analyst. He said he was concerned that investors might be focusing too much on the gains these funds made during the fall - gains that were partly fueled by the sharp decline in the dollar. 'These funds might not continue to have the same wind at their backs,' he said. While Mr. McNeela said foreign real estate funds were a viable way to diversify, he advised investors not to put more than 10 percent of their portfolios in real estate funds of all kinds, including those that invest in the United States. But with that caveat, he added, 'I think foreign real estate funds might be the final step for investors building a well-rounded portfolio.'

Subject: Venezuela Land Reform From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 10:44:23 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/international/americas/30venez.html?pagewanted=all&position= Venezuela Land Reform Looks to Seize Idle Farmland By JUAN FORERO EL CHARCOTE, Venezuela - There may be no more explosive issue in Latin American politics than land reform, or how to address the problem of too much land in the hands of so few people. In Latin America land reform has been met with mostly dire results in recent decades - failure and widespread violence in Colombia and Brazil, coups and revolutions in Nicaragua, El Salvador and Guatemala. In Africa, President Robert G. Mugabe has all but plunged Zimbabwe's economy into ruin in the effort to redistribute vast - and vastly unequal - colonial-era holdings. Now comes President Hugo Chávez, Venezuela's left-leaning populist, who has promised to end what his government calls 'latifundios,' estates of at least 5,000 hectares, or about 12,350 acres, that remain idle, as part of a fast-moving land reform that is being closely watched across the region and in Washington, where Mr. Chávez is no favorite of the Bush administration. Initially, the effort, which began with a land-reform law passed in 2001, was met with few complaints as the government redistributed some five million acres of public land to peasants. But now, as Mr. Chávez's government trains its sights on 6.6 million acres of private holdings, farmers are increasingly worried that it will recklessly seize private property. So far, disputes over the distribution of public land have been relatively rare, with farmers making complaints in about 5 percent of the cases that land they held title to was taken away. But violence is not unheard of, and about 80 peasant land invaders have been killed by landowners, most of them during Mr. Chávez's six years in office. Critics say Mr. Chávez's often super-heated language is encouraging land invasions in several regions, including here on El Charcote, a 32,000-acre spread in Venezuela's northern plains that has been occupied by squatters and has become a test case in what Mr. Chávez calls 'a peaceful revolution.' With the government ignoring demands to dislodge them, the number of squatters has grown from a few dozen four years ago to hundreds today. They have built houses, and planted crops that include yucca, corn and sesame seeds. The vast and verdant expanse of what was once grazing land that they have taken over is one where the Vestey Group of Britain had for years operated what company officials say was one of Venezuela's most efficient, productive ranches, producing three million pounds of beef a year. The ranch, one of 14 Vestey properties in Venezuela, had been a vital part of a century-old empire famous for its string of international ranches in Argentina, Brazil and Venezuela, a shipping line and the chain of butcher shops in Britain. But government officials say they believe that much of El Charcote lies unnecessarily idle and that the Vestey Group lacks proper title to the land, something Vestey contests. On Jan. 8, the governor of Cojedes State, Jhonny Yánez, a Chávez supporter, sent 200 troops to the farm and announced that El Charcote would be 'intervened,' with Vestey's legal status and productivity to be determined by April. 'We are here to do justice,' Mr. Yánez said during the inspection. El Charcote continues to raise cattle, but if the government rules against Vestey, swaths of the ranch could be expropriated and redistributed to poor farmers, including some of those who have already occupied much of the farm. Mr. Chávez and peasant farmers across Venezuela say such steps are needed because a small minority of landowners control a vast majority of arable lands, leaving most of the peasantry landless and impoverished and Venezuela importing most of its food. 'Any self-respecting revolution cannot permit such a situation,' Mr. Chávez said earlier this month as he signed a decree forming a national commission that will evaluate farms' productivity and the legitimacy of their ownership. Mr. Chávez's government says its priority is not to expropriate, but rather to tax farms into productivity, by levying stiff penalties against land that is not being put to use. The plan gives farmers with idle fields two years to make them productive. 'We are trying to make a country where agriculture was abandoned into one where it is revived,' said Marisol Plaza, Venezuela's solicitor general. The only lands to be seized, the government says, are those that were illegally obtained. Other, unproductive lands will be expropriated with compensation. 'Those lands that are not productive, we rescue,' said Eliezer Otaiza, a former army captain and secret police chief who now heads the government's National Land Institute. 'If they're private, we'll level a tax. Or we can expropriate.' Marino Alvarado, a lawyer who studies land issues for the human rights group Provea, says Venezuela has been in dire need of agrarian reform since a 1960's-era program fell short. But he says the government's plans are hampered because the authorities do not have a registry of land ownership or even know how much arable land Venezuela has. The other serious problem, one even the president's supporters acknowledge, is that credits and technical help for poor farmers who have received land has not been quickly forthcoming. 'They have already carried out a great land distribution,' Mr. Alvarado said. 'What they need to make sure of now is that the land does become productive.' Some of the squatters at El Charcote are plowing over fields with tractors bought with government credit. Though they technically have no right to farm before the government determines the legality of the Vestey Group's title, they seem mostly at ease, playing boccie when the sun is too bright to work and hunting for rabbits at night. 'I will not abandon this land,' said Félix Rodríguez, 41, as a group of squatter farmers nodded in agreement. 'We have been working the land here. We are not robbing.' Those activities make Anthony Richards, the British-born manager of El Charcote, shake his head in frustration. 'It's obviously extremely difficult to work under these conditions,' Mr. Richards said. Mr. Richards, who has been working on Vestey properties in Venezuela for 18 years, says the presence of squatters has forced the farm to cut the size of its herd to a little more than 6,000 from 13,500 in 1999. Instead of producing 3.3 million pounds of meat a year, the farm now produces about a third of that amount, and the work force has fallen to 30 full-time employees, down from 70. Mr. Richards said that the company had provided the authorities with the paperwork necessary to prove the farm was productive, and that Vestey's ownership was authentic. 'It's like that,' Mr. Richards said of the ownership papers, holding his hands about two feet apart for effect. 'It's that big. It's a book.' But the Vestey Group's opponents are equally adamant that the British firm has few rights when it comes to the farm. 'They are the invaders,' José Pimentel, a leader of peasants here, said of the British company. Indeed, Mr. Pimentel carries a briefcase full of government documents challenging Vestey's claims. 'They are on land that is not theirs.' The sentiment has emboldened people like Rosendo Moreno, 46. He has been here with his wife and five children for four years, has built a small house and plows with a battered tractor purchased on government credit. 'There are many latifundios with lots of land that isn't used,' he said. 'They do not use it at all. What Chávez wants is to recuperate those fields.'

Subject: China's Fear of Ghosts From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 10:06:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/international/asia/30zhao.html China's Fear of Ghosts: Balancing Stability and Dissent By JOSEPH KAHN BEIJING - Deng Xiaoping, China's late paramount leader, famously declared after he consolidated power in the early 1980's that his predecessor, Mao Zedong, was 70 percent good and 30 percent bad. With that numerical coda, the Communist Party closed a historical debate that had threatened to tear it apart. Hu Jintao, general secretary of the Communist Party and China's top leader, assigned no precise ratio to assess his late predecessor, Zhao Ziyang. But Mr. Hu clearly struggled to find the right balance in managing the politically explosive death of Mr. Zhao, who was officially memorialized and cremated on Saturday. The test of whether Mr. Hu succeeded may be less the event itself, conducted with martial discipline, than whether society and the Communist Party ultimately accept the verdict on Mr. Zhao, political analysts said. Mr. Zhao, an architect of China's economic reforms in the 1980's, openly defied the party he once led when he opposed the use of force against democracy protesters in 1989. Although he was never charged with a crime, Mr. Zhao was purged and spent his remaining years under house arrest, becoming an unlikely hero for China's scattered opposition. The skies were crystal clear and the air was frigid as 2,000 mourners filed past Mr. Zhao's body in a funeral service at the elite Babaoshan Cemetery in western Beijing early Saturday morning. An overwhelming police presence and careful vetting of the guest list prevented open expressions of dissent. Yet the tightly restricted event - scores of opposition figures were kept under guard and barred from attending - underscored how much the party lives in fear of its own historical ghosts. 'The party keeps insisting that social stability has to come before everything else,' said Pu Zhiqiang, an outspoken lawyer who was ordered not to attend the funeral. 'They can achieve that stability on the surface, but people's anger keeps building and festering underneath,' he said. Even within the party's ranks, Mr. Zhao's death required a delicate balancing act. Officials initially suppressed nearly all information about Mr. Zhao and left it to the late leader's daughter and sons to arrange a memorial service, which they held at the classical courtyard home in central Beijing where Mr. Zhao lived after his ouster. But several retired Politburo members and party elders said they expressed a wish to pay their last respects to Mr. Zhao, forcing the party to organize a public funeral. Mr. Zhao's family also took a tough line, demanding a burial service appropriate for a state leader and declining to endorse a eulogy that recited the party's condemnation of Mr. Zhao as a 'splittist' who made 'grave errors.' 'There was enormous pressure within the party to allow mourners a chance to express themselves and to recognize Zhao's achievements,' said Wu Jiaxiang, a former senior party official who was denied an invitation to the event. 'The party leadership wanted to dismiss him, but it had to retreat.' In the end, there was no eulogy and the family remained deeply unhappy about the arrangements, friends said. Mr. Zhao's relatives are still feuding with party leaders over the burial site for his ashes. Yet concessions, however modest, were clearly evident. Not only was Mr. Zhao honored at Babaoshan, China's equivalent of Arlington National Cemetery, but the ban on news coverage about him was eased. The New China News Agency issued a traditional shengping, or life assessment, that noted Mr. Zhao's contributions to 'the party and the people' to soften the longstanding condemnation of his 'grave errors,' which the life assessment reiterated. The dispatch noted that a delegation of senior officials, led by Jia Qinglin, a member of the Politburo Standing Committee, attended the funeral and 'paid condolences to Zhao's family.' State, party and provincial organs were recorded as having sent flower wreaths to decorate the funeral hall. For the first time since Mr. Zhao died on Jan. 17, China Central Television broadcast a report on his death. The lingering sensitivity within the party hierarchy was also on display, people who attended said. Surrounding the dais that held Mr. Zhao's body, which was covered to the neck by the party's red hammer-and-sickle banner, were wreaths and banners from prominent civilian and military leaders who had worked with him. Among them were Qiao Shi and Hu Qili, who were both members of the Politburo Standing Committee at the time Mr. Zhao held China's top political posts. Mr. Wu said he felt officials might have backed down enough to defuse intraparty resentment. At the same time, he said Mr. Hu, the party leader, did not go so far as to signal that he would be amenable to rehabilitating Mr. Zhao posthumously, which might have set off new protests. 'No one is fully satisfied, but there is also no opposition that the party cannot control,' Mr. Wu said. 'In that sense, the issue was managed successfully.' Yet there are signs that Mr. Zhao's name also resonates deeply among some people outside the party, who might prove as difficult to manage in the long term as urban intellectuals and retired officials. One of Mr. Zhao's mourners was Liu Hua, a peasant woman who traveled from Liaoning Province in China's northeast. She is fighting what she called the illegal expropriation of her land by local officials to make way for a development project. Bundled in multiple layers of clothing against the icy cold, she tried to gain entry to the cemetery only to be rejected by the police. Ms. Liu praised Mr. Zhao's role in carrying out China's land redistribution program in the early 1980's, when socialist collectives were dismantled and farmers were allowed to lease land and farm it on their own. The program strengthened the rural economy for much of the 1980's, making Mr. Zhao popular among peasants, still a majority of the population. 'Zhao Ziyang gave us our land back,' Ms. Liu said. 'The leaders today, who are very corrupt, confiscated it from us.'

Subject: China's Martyr Complex From: Emma To: Emma Date Posted: Sun, Jan 30, 2005 at 10:27:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/opinion/26spence.html?pagewanted=print&position= 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: Davos: The Enigma of China From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 09:54:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/international/europe/30forum.html At Forum, Leaders Confront Annual Enigma of China By MARK LANDLER DAVOS, Switzerland - In almost every panel discussion at the annual meeting of the World Economic Forum here, there comes a moment when somebody mentions China. A hush typically ensues, as panelists draw their breath, gather their thoughts and struggle to put the bewildering vastness of the topic into a few words. 'China is going to be the change agent for the next 20 years,' said Bill Gates, the chairman of Microsoft, when asked about the country's future by the television interview host Charlie Rose. China's staggering potential, coupled with the steep language barrier and cultural discomfort of many Chinese who come to this conference, has made it Davos's annual enigma. After three days of outsiders' dissecting its motives and prospects, China finally took the stage on Saturday, with a speech by its executive vice prime minister, Huang Ju. 'China's development will by no means pose a threat to other countries,' Mr. Huang declared cheerfully, as if to soothe people here who spent the week fretting about China's lengthening shadow. Mr. Huang, however, said little on the two issues of overriding importance to the investors and business people here: whether China would allow its currency to rise against the dollar, and whether the Chinese would crack down on the rampant theft of intellectual property. 'We have to maintain the exchange rate at a reasonable level,' said Mr. Huang, who directs China's finance policy and was billed by the organizers as Beijing's chief operating officer. Some here interpreted that comment as a signal that China would not allow its currency, the yuan, to rise against the dollar this year, as some Europeans and Americans have demanded. But Michael S. Dell, the chairman of Dell Inc., who had breakfast with Mr. Huang, said he did not draw any conclusions. Mr. Huang also did little to ease investors' concerns about China's regard for intellectual property rights, saying only that through new laws and tougher enforcement, China was trying to achieve in a dozen years what it had taken the Western world a century to do. At a dinner with the theme of investing in China, several foreign executives said they discerned little progress on the issue. The only way to avoid having their proprietary technology pilfered by Chinese competitors, they said, was to keep most research and development activities at home, and to use China for simple manufacturing. For the Chinese who trek to this Alpine ski resort, the problem is less one of legal tradition than cultural disconnect. Except for a handful of fluent English speakers with long experience with foreigners, most keep to themselves - shying away from the high-octane networking that is the fuel of Davos. 'Davos's history is as a European and American conference,' said Chen Feng, the chairman of Hainan Airlines Company. 'People come here to relax and ski. China's culture is not about skiing.' Mr. Chen, an irrepressible entrepreneur who worked the hallways like a Davos regular, is one of only four chief executives of major Chinese companies at this year's conference. He said more of his peers had come to previous meetings, but had found the experience uncomfortable. Zhao Jianfei, an editor at The Observer, a Shanghai-based magazine, said, 'In China, the basic idea is to watch Davos, not take part in it.' People have other theories for why the Chinese do not turn out in droves. 'China is not exactly soliciting investment,' said Stephan F. Newhouse, the president of Morgan Stanley. 'They're turning it away.' Mr. Huang dramatized China's potential with forecasts. Its economic output will grow to $4 trillion by 2020, from $1.6 trillion today, he said, and its output per capita - a more accurate measure of wealth - will triple to $3,000 per person. For its part, the World Economic Forum says the Chinese turnout this year has been noteworthy, mostly because of the attendance of Mr. Huang, a member of the Politburo's powerful standing committee. The deputy governor of the People's Bank of China also came. The conference organizers have gone to considerable lengths to make this a congenial place for China. There are no sessions on Taiwan - a topic sure to drive away Chinese officials. Mr. Huang did not take questions from the audience. 'It's understood that some things about China don't come up in polite conversation at Davos,' said Orville Schell, the dean of the Graduate School of Journalism at the University of California, Berkeley. Politesse did break down occasionally. At a lunch held by Mr. Schell, several non-Chinese participants confronted the handful of Chinese guests about how Beijing could justify not allowing the Taiwanese people to vote on whether they wanted to be an independent nation. After an awkward silence, a few Chinese spoke about the passionate feelings in China regarding Taiwan's status. Yuan Ming, the director of the Institute of American Studies at Beijing University, alluded to the frustration that outsiders might have in seeking to understand China. 'The world needs China to play some roles,' Ms. Yuan said in a polite yet weary tone. 'But it's too early to rank ourselves among world nations. We do need some time to develop ourselves.'

Subject: Age Bias at Work From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 09:44:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/30/business/yourmoney/30bias.html When Gray Heads Roll, Is Age Bias at Work? By NORM ALSTER SEVERAL weeks after being laid off last spring by Best Buy, the consumer electronics retailer, Lynette M. Steuck, a software project manager, showed up for a résumé-polishing 'outplacement session' of the sort commonly offered to employees recently shoved out the door. As Ms. Steuck, 51, a divorced mother, surveyed the sparely furnished conference room, she said she was struck by something. 'It was shocking,' she recalled recently. 'There were probably 25 to 30 people in the session. And there were only three or four people under the age of 40.' By the end of December, when Ms. Steuck and 45 other laid-off Best Buy workers sued the company in federal court, accusing it of age discrimination, she and her lawyer had concluded that almost two-thirds of recently terminated employees - 82 out of 126 - were at least 40 years old. The plaintiffs contend that this was out of proportion with the ages of Best Buy's work force over all, citing a newspaper interview in which the woman who leads the company's work-life programs said the average age of its 5,000 employees was 29. The risk of being laid off from Best Buy rose with age, said Stephen J. Snyder, the lawyer representing the former employees. 'The people in their 30's were at greater risk of termination than those in their 20's, the 40's more than the 30's, the 50's more than the 40's,' said Mr. Snyder, a partner at Gray, Plant, Mooty, Mooty & Bennett, a Minneapolis law firm. 'And the people in their 60's and up were at the greatest risk of all.' Best Buy denies that age was a factor in the layoffs. 'We really believe the claims are wholly without merit,' said Elliot S. Kaplan, a partner at the law firm of Robins, Kaplan, Miller & Ciresi in Minneapolis and the lead attorney for Best Buy. He declined to address specific accusations made by plaintiffs. Age bias in employment is becoming a larger issue as the American work force grows older and companies come under greater pressure to be more efficient. In recent months, age-discrimination accusations have also been filed against companies like Sprint and 3M. Michael C. Harper, a professor of law at the Boston University School of Law, said that the 'smoking guns' needed to prove deliberate age discrimination are generally hard to find. Rarely do plaintiffs find corporate memos mandating that gray heads roll, so their lawyers try to make their cases with statistics and anecdotal evidence. Federal courts are split on whether deliberate bias must be proved in order for a plaintiff to win. In some of them, and in some state courts, plaintiffs are required to show only that a seemingly neutral corporate policy on hiring, training or termination ends up hurting older workers more than others. These are called arguments based on disparate impact. Within days or weeks, the United States Supreme Court may make the federal definition clearer. The court is expected to rule in Smith v. Jackson, a case in which older police officers in Jackson, Miss., contend that a new wage policy left them with smaller pay raises than those for younger colleagues. Should the court rule against the older officers, others who say they are bias victims 'will have to prove employers discriminated on purpose,' said Thomas C. Goldstein, the lawyer who argued the police officers' case before the court. People who accuse employers of age discrimination win their lawsuits less than one-third of the time, according to Howard C. Eglit, a law professor at the Chicago-Kent School of Law of the Illinois Institute of Technology and the author of several books on age bias. But even if the Supreme Court tightens the burden of proof for plaintiffs, lawsuits against employers are likely to proliferate, Professor Eglit said, partly because the work force is aging. By 2010, more than half of all workers will be over 40, the Bureau of Labor Statistics has projected. Another reason, he said, is that there is often an economic incentive for companies to shed older workers. Those workers tend to earn more and have higher health costs, and their family ties can make them less flexible about work hours, business travel and relocations. Dennis E. Egan, a partner at the Popham Law Firm in Kansas City, Mo., said, 'Left unchecked, we know that most corporations will choose the younger of two applicants to hire, the younger to promote and the younger to keep in a reduction of force.' Mr. Egan is the lead attorney for the plaintiffs suing Sprint; the company has denied discriminating against its employees and is fighting the suit in court. The economic incentive for dismissing a worker with a high salary and expensive health care can help a company defend itself against bias, lawyers and others said. 'It's not the blatant: 'Jones, you're too old. We're firing you,' ' said Tom Osborne, a senior attorney at AARP and a co-counsel for plaintiffs in the Sprint case. Instead, he said, companies might adopt new employee-valuation systems that happen to reverse the career-long high performance rankings of older employees. But the lawyers who are bringing the cases against Sprint, Best Buy and 3M say they have designed their cases to survive even if the Supreme Court disallows cases based chiefly on disparate impact. The 3M case, for example, was filed in a state court in Minnesota, which has age-bias laws that are stricter than federal law. And lawyers for former workers who have sued Best Buy and Sprint said they were confident they could prove that the dismissals were a result of intentional bias - defined by Mr. Snyder as 'holding older employees to a higher standard than younger employees and therefore terminating them at a higher rate.' One Best Buy plaintiff, a database designer named Hugh F. Juergens, said he was let go by Best Buy in October 2003 even though the company had given him a rating of 4.1 out of 5 in a 2002 performance review. Best Buy defines a grade of 4 as 'exceeds expectations.' In that review, his most recent before termination, Mr. Juergens's manager wrote: 'Hugh is an exemplary associate who goes beyond what is expected of his role.' Yet when he asked why he was fired, the company replied in a letter: 'Your employment was terminated due to your failure to meet the expectations of your position.' Arbitrary management decisions are also a central assertion in the lawsuit against 3M. 'We are alleging that older people are more likely to be put into the lower-ranking groups' when evaluated by managers, said Susan M. Coler of Sprenger & Lang, a law firm in Minneapolis, who represents the 3M plaintiffs. The suit also contends that younger workers were more likely than their older colleagues to receive training that led to promotions and raises. A 3M spokesman said, 'We believe the claims are without merit,' but he declined to discuss specific accusations in the suit. IN the Sprint case, 2,300 people who were laid off from late 2001 to early 2003 contend that a subjective and arbitrary new ranking system was used to weed out older workers. Known as 'forced ranking,' the system requires individual departments to apply bell-curve ratings in which 30 percent of workers must be classified as subpar. 'We can show statistically that when it came to rankings, those over 40 did worse than those under 40,' said Mr. Egan, the lead attorney for the Sprint plaintiffs. One of the people let go, Sharon L. Louk, who was fired days shy of her 53rd birthday, contended in an affidavit that her boss said at one point, 'We need to get young people.' Another former Sprint employee, Bonnie L. Hoopes, 49, said that several months before she was let go, she received an e-mail message from her new supervisor describing the ideal worker as having, among other qualities, 'lots of runway ahead of them.' A company spokeswoman, Debra D. Peterson, said, 'Sprint does not engage in age discrimination.' The company's forced-ranking system, she added, was only 'one of many factors' in evaluating employees. While employers have every right to rate workers on their performance and rank them against their peers, lawyers and law professors said, they are generally forbidden to prejudge individuals based on their sex, race or age. 'The law requires that an individual be treated on their own personal merits, not on some profile of the group they belong to,' said Mr. Snyder, the lawyer for the Best Buy plaintiffs. Mr. Harper, the Boston University law professor, said the Supreme Court could decide to allow disparate-impact cases but grant an important concession to employers: the right to cite 'reasonable' factors like cost-cutting to justify practices that might penalize older workers. Such a ruling would raise the burden of proof for plaintiffs who contend that they are victims of age bias. But it could also precipitate political fallout. 'I think there'd be some kind of backlash,' said Mr. Osborne, the AARP lawyer, suggesting that Congress might then move to amend the Age Discrimination in Employment Act of 1967, to explicitly allow lawsuits contending disparate impact. 'AARP would lobby for this type of amendment,' he said.

Subject: Changing Neighborhoods With Homes From: Emma To: All Date Posted: Sun, Jan 30, 2005 at 09:29:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/29/nyregion/29housing.html Where Crack Once Ruled, Construction Now Booms By JENNIFER STEINHAUER From central Brooklyn to the South Bronx to the farthest corners of Staten Island, new homes in the city are being built in numbers not seen in a generation. In 2004, the city approved the construction of 25,208 housing units in New York City, more than in any year since 1972, according to newly released census figures. By comparison, in the last boom year of 1985, reflecting a successful housing program under the Koch administration, about 20,300 units were permitted; in 1994, however, there were 4,010. This rapid growth, like most economic development trends in New York, stems in part from the policies of city government, but more importantly from the confidence of the private market, which is building and financing homes in neighborhoods best known 10 years ago for their brisk crack trade and overwhelming economic misery. 'There has been development activity in places that would have been inconceivable 10 years ago,' said Carol Abrams, the spokeswoman for the Department of Housing Preservation and Development, which works with developers to rehabilitate and develop housing. 'There has been the absolute transformation of the boroughs,' Ms. Abrams said. 'New immigrants or longtime residents now want to plunk down their life savings for a place in Mott Haven or East New York.' The building spurt reflects a confluence of factors, including the city's rising population - fueled in large part by immigrants who are willing to take a chance on underdeveloped areas that are no longer riddled with crime - as well as the city's continual housing shortage and protracted low mortgage rates. 'The thing that is amazing is that everyone thinks of the real estate community in New York as Manhattan,' said Shaun Donovan, the commissioner of the housing preservation department. 'And yet Manhattan is fourth out of the five boroughs in permits.' Driving this trend, Mr. Donovan said, is the tide of new immigrants and middle-class New Yorkers who are making a go in newly safe neighborhoods. 'During the 1990's, New York City added more people than live in entire cities in the United States,' he said. 'Clearly the really unprecedented boom in immigration is driving a large part of the increase. But also people are staying who once might otherwise have moved out.' According to United States Census Bureau statistics released yesterday, Queens County leads the housing boom, with permits issued last year for 6,853 units. Brooklyn was just behind, at 6,825 permits. Even Staten Island, which has been fighting development in many neighborhoods, had 2,051 permits for homes, which will probably be developed over the next few years. In 2002, Mayor Michael R. Bloomberg announced a $3 billion plan to create tens of thousands of low- and middle-income housing units in New York City over five years, through both the repair and preservation of 38,000 units of existing housing and by building 27,000 new units in all five boroughs. His plan called for a complex financing deal in which the city's Housing Development Corporation would borrow against that agency's mortgage equity. As of this year, 26,000 units have come under development, and his administration is offering a loan program in cooperation with four commercial banks to develop thousands more abandoned or decaying properties in the city. At the same time, developers around the city have found that there is a market for housing in many neighborhoods considered anathema a decade ago. 'There has been a concerted effort on government's part to help finance housing,' said Jason Bram, a regional economist with the Federal Reserve Bank of New York. 'This is mostly true in poor neighborhoods, where they go in and other developers say, 'Aha, now there is an anchor!' and now the whole neighborhood improves.' Perhaps unsurprisingly, Bloomberg administration officials credit the mayor with much of the boom. 'This mayor is responsible for the single largest housing boom this city has ever seen,' said John Crotty, executive vice president of the Housing Development Corporation. 'The market is so hot right now there is no area that is bad for development. Developers have made investments in places where no private money would ever go into.' Last year the housing agency issued $1.1 billion in bonds to create and preserve new housing, the largest amount since the federal tax reform act of 1986, Mr. Crotty said.

Subject: Real estate prices From: Dorian To: All Date Posted: Sun, Jan 30, 2005 at 06:45:20 (EST) Email Address: Not Provided Message: Assuming that the dollar continues to decline over time, interests rates rise and inflation increases, what can we expect regarding real estate prices? Interest rates should deflate housing prices, but in an inflationary climate people will want to hold real property, which should have some counterveiling effect, shouldn't it? Of course in the already very inflated markets prices would no doubt drop, but I am wondering about in the low end real estate market. People have to live somewhere, and at least with less expensive real estate it is still possible to obtain a positive cash flow, particularly if you are able to fix up the rental properties yourself. And if the economy takes a serious dive, then inexpensive rentals should become comparatively attractive and in demand. This is my latest thinking for asset preservation as neither stocks nor bonds look appealing. And then there is deflation. I know little about it and have only seen inflation in my lifetime. But with the huge accumulation of debt - personal, governmental, and in the US the current accounts deficit - and the possibilities of s 'liquidity crisis', would that make deflation a real possibility? Everyone would have to find money to pay off their debts and all they would find is debt or IOU's. Dorian

Subject: Re: Real estate prices From: Jennifer To: Dorian Date Posted: Mon, Jan 31, 2005 at 08:45:46 (EST) Email Address: Not Provided Message: Interesting argument, for it shows real estate prices pulling either up or down. Will interest rates be most important or protection against inflation should it occur? But, so far we have not seen high interest rates of inflation.

Subject: real estate goes bust ..... From: Pete Weis To: Jennifer Date Posted: Tues, Feb 01, 2005 at 12:06:24 (EST) Email Address: Not Provided Message: in either case. With deflation it drops as it did in the thirties (perhaps not as much - I couldn't predict). With inflation and resulting higher interest rates high housing prices in many urban areas around the country would find fewer qualified buyers. Real estate becomes a much better investment after the bust for anyone with cash and there will likely be a long period after the real estate market reaches bottom to buy in. Sorry if this sounds vulture-like, but no one person created this mess. It's occurred repeatedly in our past (now with some new twists) and has more to do with human behaviour.

Subject: Treasury Buying by Private Investors From: Terri To: All Date Posted: Sat, Jan 29, 2005 at 19:37:44 (EST) Email Address: Not Provided Message: Through November, slightly less than 200 billion dollars in Treasury debt was added to the holdings of private international investors in 2004. The domestic long term bond market has been astonishing. There is a 5 year cyclical bull market bonds, while the secular bull market that begin in 1981 continues. The Vanguard S&P Index is down -2.4% a year since December 31, 1999, while the Long Term Bond Index is up 10.5% a year. So far the Fed tightenings have not led to any sell off of long term bonds, nor has the dollar weakness. International investors may be content to hold Treasury debt simply because there is little inflation in America and the debt can be used in the American economy.

Subject: Bonds From: Terri To: Terri Date Posted: Sat, Jan 29, 2005 at 20:02:58 (EST) Email Address: Not Provided Message: The bond market is just not paying attention to inflation warnings. My sense is that TIPS are too expensive, but who agrees though the market is favoring corporate and agency debt?

Subject: Corporate Savings From: Terri To: Terri Date Posted: Sat, Jan 29, 2005 at 20:16:07 (EST) Email Address: Not Provided Message: Though there is a federal government deficit and low household savings, savings are near records for both American and European corporations. There is an awful lot of corporate liquidity about. Well, why not buy Gillette? AT&T?

Subject: Unemployment Rate From: Ed To: All Date Posted: Sat, Jan 29, 2005 at 11:37:38 (EST) Email Address: eigonzalez@aol.com Message: In reading 'The Vision Thing' in 'The Great Unraveling,' I came across the statement: 'The overall unemployment rate also doesn't reflect the rapidly growing number of people who are truly desperate, because they have been out of work for six months or more.' This implies that people out of work for 6 or more months are not including in the rate. However, I looked for definitions of unemployment and unemployment rate and was not able to find anything about 6 months or more in the definitions. I would like to be able to use this 'fact' in discussions with right-wingers but don't want to say something that is incorrect. Is there a source for this statement? Thanks in advance.

Subject: Re: Unemployment Rate From: Terri To: Ed Date Posted: Sat, Jan 29, 2005 at 13:47:53 (EST) Email Address: Not Provided Message: People who are actively seeking work may be unemployment for an indefinite period, but they will be counted by the Labor Department. What Paul Krugman is referring to is a given rate of unemployment does not reflect the length of time people may have been unemployed or the difficulty those people are having. Unemployment benefits run out, more quickly now that the recession is ended, and savings run out and the long term unemployed hurt.

Subject: Re: Unemployment Rate From: Ed To: Terri Date Posted: Sat, Jan 29, 2005 at 16:32:49 (EST) Email Address: eigonzalez@aol.com Message: Thanks Terri. It now makes sense!

Subject: Re: Unemployment Rate From: Terri To: Ed Date Posted: Sat, Jan 29, 2005 at 17:20:58 (EST) Email Address: Not Provided Message: There is a puzzle about the unemployment percentage. The work force is declining, in that large numbers of people are not looking for work. What this means is not clear though it is worrisome, for I am convinced there would be a considerable flow to work if job creation was more robust.

Subject: Congratulations From: Emma To: All Date Posted: Sat, Jan 29, 2005 at 11:26:30 (EST) Email Address: Not Provided Message: Congratulations, and 'Happy New Year' again and again.

Subject: Congratulations and Gift From: Jennifer To: Emma Date Posted: Sat, Jan 29, 2005 at 16:12:00 (EST) Email Address: Not Provided Message: http://store1.yimg.com/I/palemale-store_1831_26691505 A Central Park gift for Bobby and Alicia: Long-Earned Owl.

Subject: Re: Congratulations and Gift From: Bobby To: Jennifer Date Posted: Sat, Jan 29, 2005 at 23:26:16 (EST) Email Address: robert@pkarchive.org Message: Thank you both, Emma and Jennifer. It would have to be a homecoming (or homewarming?) gift since Alicia and I have been married since 2000.

Subject: A Merger in Search of a Home. Yours. From: Emma To: All Date Posted: Sat, Jan 29, 2005 at 10:07:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/29/business/29deal.html?pagewanted=all&position= A Merger in Search of a Home. Yours. By ERIC DASH Procter & Gamble and Gillette almost walked away from the $57 billion deal that could give them a lock on the average American household's laundry room, medicine cabinet and cosmetic drawer. James M. Kilts, 56, Gillette's chairman and chief executive, approached Alan G. Lafley, 57, his counterpart at Procter, in November with the idea of a merger that would combine his company, the world's biggest marketer of products to men, with an industry giant that understands women. The deal made sense, both sides agreed. It would allow them to more quickly pursue developing markets like India and China, which would propel future sales growth. It would also strengthen their hand against global retail giants like Wal-Mart and the pricing pressure of private-label brands. The executives called their corporate staffs to negotiate. But despite several phone calls and meetings, the two sides reached an impasse on several issues, including the exchange ratio for the deal's stock swap. The talks fell apart and the proposal to merge the companies seemed destined to join an earlier one, five years ago, as an idea whose time had not yet come. But Mr. Lafley said the offer became more 'acceptable and motivating' after taking some time to think about its potential, and he told Mr. Kilts a couple of weeks ago that he wanted to reconsider. 'What changed was that we didn't want to walk away,' said Clayton Dailey, Procter's chief financial officer. 'We didn't want to let this opportunity slip.' 'In the end,' he added, 'these things are all in the negotiations.' Those negotiations became public early yesterday when Procter announced that it would buy Gillette for about $57 billion in stock, an 18 percent premium to the price of Gillette's shares at the close of the market on Thursday. They rose $5.92, or 13 percent, to $51.60 yesterday, while Procter fell $1.17, or 2 percent, to $54.15. The deal will combine Procter's myriad of products, like Tide detergent, Crest toothpaste and Pringles potato chips, with Gillette's flagship razor blades, Oral-B toothbrushes and Duracell battery brands to create a consumer products powerhouse. For Gillette, whose stock already rose more than 26 percent over the year before the merger was announced, the immediate benefits of a substantial stock price premium are fairly easy to see. It also resolves the company's long-term need to grow. But the merger is also a reflection of the enormous challenges facing what many analysts suggest are now two of the best-managed companies in the industry. 'The combination of these two recognizes the pressures from strengthening retail customers, variety-seeking consumers and the investment necessary to build scale in the developing market,' said Ann Gillin-Lefever, an equity analyst for Lehman Brothers who follows both Procter and Gillette. It is also the next chapter in turnaround stories for both companies, which, after several years of disappointing investors, now have the distribution channels and innovation pipelines in place for growth. Less than five years ago, Procter, so often referred to as an 'iron man' for its steady and predictable profits, seemed rusty. Many of its core brands were losing market share, and during a single day in March 2000, its share price fell nearly 31 percent, eliminating $36 billion in market value, after the company said it would not meet earnings estimates. Gillette's top brands were also sagging and its stock performance was in decline. Both Mr. Lafley and Mr. Kilts moved firmly to put their companies back on track. At a new conference yesterday, the two executives were upbeat about the merger. 'I am a great believer in scale,' said Mr. Kilts, suggesting it might be a harbinger for the industry. 'I'd rather lead that consolidation for the long-term health of our employees and businesses than get stuck with the leftovers.' The companies project that the merger will generate $14 billion to $16 billion in shareholder value, and Mr. Lafley expects it to add to Procter's earnings by July 2007. As much as $11 billion will come from cost reductions, like eliminating overlapping management and improving efficiency in media buying and other support operations through size. Much of that money, Mr. Lafley and Mr. Kilts said, would be reinvested in developing and marketing new products that, in turn, will fuel the company's growth. Still, the merger will result in the layoffs of about 6,000 employees, or about 4 percent of the combined company's work force. Executives declined to identify where the cuts would be. 'We want to field the best team from the combined talent pool,' Mr. Lafley said. Procter's headquarters will remain in Cincinnati, but new company will retain a strong presence in Boston, where Gillette is based. Some Gillette's business units, like batteries and razors, are likely to remain free-standing. The merger is also projected to create $4 billion to $5 billion from additional sales growth. Some of that growth will come from Procter's ability to bring products to market faster, applying new technologies and more sophisticated marketing techniques to existing Gillette brands. The combined company also stands to benefit from more rapid expansion into emerging markets, where annual sales are growing in the midteens on a percentage basis. Gillette has developed strong relationships with retailers in India and Brazil. Procter, on the other hand, already has a strong foothold in Mexico, Japan and China. 'For Gillette, it allows them to piggyback on Procter's infrastructure,' Ms. Gillin-Lefever said. 'For Procter, it allows them to leverage their existing infrastructure.' Mr. Lafley denied that the merger was influenced by the growing power of retail giants like Wal-Mart in the United States and Aldi and Carrefours worldwide. Nonetheless, scale does give Procter an advantage when dealing with its largest customers. 'The more power brands that consumers are coming to shop for, the better hand you have,' said Allen P. Adamson, a managing director of Landor Associates, a brand consulting firm. 'This just gives them blue-chip power brands and gives them the stronger hand to sit down at the table with, look Wal-Mart in the eye and negotiate. Instead of having three of a kind, they now have a full house.' But the deal's real value may be in shifting Procter's portfolio of brands to more personal care products, which can command high premiums over private-label brands. 'With Wal-Mart's own sales volume base going down and its own private-label sales going up, Wal-Mart has the size, the skill, and the scale to develop many No. 1 products in key categories,' said Burt P. Flickinger, the managing director of the Strategic Resources Group, a retail consulting firm. 'There is a greater degree of difficulty in turning personal care into private label.' Wall Street analysts and investors appear to like the Gillette acquisition, but some are questioning whether Procter paid too much. 'The facts are, they overpaid for the Gillette they bought,' said Gary Stibel, chief executive of the New England Consulting Group in Westwood, Conn. 'But they underpaid for the Gillette they will build.' Still, integrating the two companies will be challenging. Procter's culture, which encourages promotion from within, will clearly be tested as Gillette executives come aboard. Mr. Kilts, who will oversee the integration effort, will hold the title of vice chairman and vowed to stay for at least another year. Mr. Kilts, who has not sold a single share of Gillette stock since he became chief executive in 2001, also promised not to sell his converted stock and options for two years. Mr. Lafley, who rose through Procter's management ranks before taking over in 2000, will remain chairman and chief executive. The combined company will also face the scrutiny of antitrust regulators. At the presentation yesterday, Mr. Lafley said the Justice Department would review the acquisition and that there might be 'some issues' in categories where the companies now compete, like oral and personal care. But he thought those issues could be resolved. 'We are confident that we will retain as many of the businesses as possible,' Mr. Lafley said. Even so, both Mr. Kilts and Mr. Lafley got started early yesterday. Mr. Kilts headed to Boston to meet with Gillette employees; Mr. Lafley also spent some time meeting with his corporate staff. 'We have a lot of work to do in the next six to nine months ahead before the deal is complete,' Mr. Lafley said.

Subject: A Merger in Search of a Home. Yours. - 2 From: Emma To: Emma Date Posted: Sat, Jan 29, 2005 at 11:22:43 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/29/business/29compete.html Deal Can Only Raise the Level of Competition, From the Boardroom to Aisle 5 By CLAUDIA H. DEUTSCH Procter & Gamble has long been the 800-pound gorilla in household products. So will it be more formidable with the added muscle of Gillette? The anxiety level is certainly up in the suites of competitors. Procter & Gamble is already outspending its rivals in both marketing and product research, and Gillette has been more aggressive on those fronts as well. Together, they could be a marketing and innovation juggernaut. Academics, analysts and marketing consultants say that even before the merger, the competition in household products had grown fierce. For the last few years, the companies shored up their bottom lines by cutting costs. Now, they have to go back to basics: creating products, persuading consumers that they want them and getting retail behemoths like Wal-Mart to carry them. 'The companies have to really offer innovation to keep their brands ahead of the curve,' said Alison Kerivan, a managing director at the investment firm David L. Babson Company, which owns shares in both companies. But, combining the two may not necessarily bring about spicier products or sexier ad campaigns. Even separately, Procter& Gamble and Gillette were ahead of the pack. Their respective chiefs - Alan G. Lafley at Procter & Gamble and James M. Kilts at Gillette - had already turned their companies into marketing powerhouses. Nor is the merger catching rivals unprepared. 'They've all been setting strategy at the macro level, setting up systems to gather information and get their infrastructure and retail relationships in line,' said Pradeep K. Chintagunta, a professor of marketing at the University of Chicago Graduate School of Business. 'Now they are focusing on tactics, on how to fine-tune prices, tailor products and advertising to different geographies and ages.' All the companies - and that means Procter & Gamble and Gillette as well as Colgate-Palmolive, Unilever and others that have missed their profit targets recently - are feeling pressure on costs. But they have already depleted the store of profit-enhancing tools that are traditional in corporate arsenals. They have spent the last few years streamlining their manufacturing, renegotiating contracts with suppliers and retailers, cutting jobs and plants, cleaning up sloppy accounting, and otherwise getting their internal shops in order. 'All of them have extracted most of the possible production and efficiency gains and the best terms possible from the retailers,' said William P. Putsis Jr., a professor of marketing at the Kenan-Flagler Business School at the University of North Carolina. 'Now, they are forced to really concentrate on product attributes and customer needs.'' Getting new products into stores will not be easy. Retailers like Wal-Mart in the United States or Aldi in Germany have grown large and powerful enough to keep the companies from demanding more shelf space for products that are just marginally different, or from forcing through price increases. 'Consumers realize that the quality of private-label and national brands has become very similar over the past decade, and they don't want to pay more for an advertised brand in a prettier package,' Ms. Kerivan said. As the search for product innovation heats up, formerly fierce rivals are joining forces. Procter & Gamble and Clorox have become partners in selling a new trash bag, while Gillette is using Kimberly-Clark paper technology in a product for wiping teeth clean. But in general, competition still trumps cooperation. Most of the companies are competing in mature markets, so have little choice but to woo each other's customers rather than expand the total pie. They are walking a tightrope. Too few products hitched to an established brand name, and an opportunity is lost. Too many, and the brand is diluted. Changing packages and package sizes carries less risk. Increasingly the companies are working with retailers and distributors to tailor package sizes to the local population- say, making sure markets in the suburbs carry 12-roll packages of toilet tissue, stores in urban areas populated by single people stock smaller packages. 'The companies are all carving their potential markets into finer and finer segments, and tailoring their distribution to those segments,' said John A. Quelch, a marketing professor at the Harvard Business School. They are also concentrating heavily on determining what people in those segments want. More than ever before, they are interviewing consumers, enticing them to fill out Web-based surveys, and trying to ferret out whatever unmet needs might exist, and what bells and whistles on old products could meet them. The research is still more art than science. Sometimes, the surprises are welcome. Clorox, for one, learned that consumers wanted an easy way to clean grout between bathroom tiles, and introduced a bleaching pen. The product was even more successful than it had expected - because children and teenagers saw it as a great way to mark up their jeans. But the proliferation of products brings its own problems, like getting the message across to consumers. The proliferation of television channels has diluted the number of people any commercial can reach - and consumers are as likely to tape shows and zap past ads as to view them. Companies are trying product placements on shows, or sponsorships of sporting events, but experts say it is almost impossible to judge their effectiveness. Increasingly, companies are going the interactive route, using promotions, downloadable coupons and contests to get consumers to visit their Web pages. And, they also are aligning their products with causes of interest to their target audiences. But the margin for error has grown razor thin. Gone are the days when companies could float new products onto the marketplace, then quietly pull them off the market if they do not sell well. Today, a disliked product is likely to generate a spate of negative chat on the Internet. 'In this transparent information environment,' Professor Quelch warned, 'you can't get away with a bad new product without your name being tarnished.'

Subject: A Merger in Search of a Home. Yours. - 3 From: Emma To: Emma Date Posted: Sat, Jan 29, 2005 at 14:53:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/29/business/29rivals.html For Unilever, Rough Spell Starts to Look Even Rougher By HEATHER TIMMONS Unilever, with headquarters in London and Rotterdam, is a wounded giant. It is still saddled with debt from its acquisition of Bestfoods in 2000 for more than $20 billion. Its management is riddled with duplication, and its plan in 1999 to deal with the redundancies and slim its product line has not worked as well as the company had hoped. As a result, analysts say, it will have a tough time responding nimbly to the expected $57 billion merger of its biggest rival, Procter & Gamble, with Gillette. 'Unilever has its hands full right now,' said Alison Kerivan, managing director of Babson Capital Management, a money management firm in Cambridge, Mass. 'They've faltered over the past several years with a bloated cost structure, too much bureaucracy.' Unilever, the maker of products as diverse as Hellmann's mayonnaise, Dove soap and Ben & Jerry's ice cream, could go on its own buying spree, said Johan van den Hooven, an analyst at Bank Oyens & van Eeghen in Amsterdam. But he agreed that 'Unilever has to fix some things internally before they figure out how to take on the Procter & Gamble problem.' Even before the Procter & Gamble announcement, consumer product companies were feeling pressure from many directions. Retail giants like Wal-Mart Stores and Royal Ahold, the Dutch food conglomerate, have been pushing for lower prices. At the same time, those retailers are carrying their own competing, cheaper house brands. Making matters worse, the rising costs of fuel, packaging and raw materials like paper have pushed up the costs of producing consumer goods while competition is causing companies to spend more on marketing. 'Until now, the only weapon of defense for Unilever was to reduce prices,' said Oscar Poos, a retail analyst with Fortis Bank in Amsterdam. 'To continuously reduce prices is not a solution for an industry or even one company. They really need to do more research and development on new products and new product introductions.' Although Procter & Gamble was already a colossus in the consumer products business, the merger with Gillette is expected to widen its influence and deepen its pockets. The money it saves in the merger - by streamlining management and its product supply chain - can be put back into the development of new products. That puts Unilever, with its complicated corporate structure and extensive work force, at a disadvantage, particularly since it has struggled in recent years to get new products on store shelves. John A. Quelch, a marketing professor at Harvard Business School, said the company 'has a pretty good track record of innovation in its laboratories.' On the other hand, he said, Unilever has 'perhaps less of a good track record in terms of consistently translating the laboratory insight into commercially successful products.' Some analysts did see a sliver of hope for Unilever in the Procter & Gamble deal, saying the newly merged company will not be very agile at first. 'The new company will be more and more inward-looking,' Mr. Poos said. 'So they are busy themselves integrating the whole thing. Obviously, they will be less fast, less alert and may miss some market opportunities.' But, he added, 'that is just for a short period of time.'

Subject: Paul Krugman's Column Note From: Emma To: All Date Posted: Sat, Jan 29, 2005 at 09:22:47 (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. Paul Krugman

Subject: Re: Paul Krugman's Column Note From: Bobby To: Emma Date Posted: Sat, Jan 29, 2005 at 10:41:37 (EST) Email Address: robet@pkarchive.org Message: I posted this at the bottom of Krugman's 1.28.05 article last night and there's a link to that on the Updates page.

Subject: Market Patterns From: Terri To: All Date Posted: Sat, Jan 29, 2005 at 07:21:35 (EST) Email Address: Not Provided Message: January is finishing with a stock market that is down and a bond market that is up. Stocks are down across the board here and internationally. Large cap stocks are faring better than mid or small cap. Large value is performing a little better than large growth here and internationally. Since real estate investment trusts have been notably weak, small value stocks lag small growth stocks by a little. Consumer staples are faring well, along with energy stocks. Health care is performing better than the S&P. Technology is weaker. Long term bonds are still in a bull market after 5 recent years, and 24 years in all. The dollar has recently strengthened against the Euro.

Subject: Message Board Cleaning From: Bobby To: All Date Posted: Sat, Jan 29, 2005 at 02:07:09 (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. Also, this time I updated the message board archive immediately, instead of allowing that lag that occurred last time, so everything can be found there right now. Message Board Archive www.pkarchive.org/MBArchive.html

Subject: Re: Message Board Cleaning From: Emma To: Bobby Date Posted: Sat, Jan 29, 2005 at 05:37:17 (EST) Email Address: Not Provided Message: Dear Bobby, Thanks so much for all your ideas and efforts. The entire archive is a treasure. When the comments are archived, by the way, can they be archived as you once chose, in paragraph form? This may be too difficult, but it would make the archive easier to read or refer to articles from. Only if this is a simple matter. Thanking you again.

Subject: Re: Message Board Cleaning From: Bobby To: Ari Date Posted: Sun, Feb 06, 2005 at 19:48:58 (EST) Email Address: robert@pkarchive.org Message: Hi Ari, I'm not sure what messages you are referring to. If there is a message on either the Haloscan Boards or the Hotboards message board for the site that you think is spam, detracts from the conversation, etc., you are welcome to bring it to my attention and I'll make a decision on whether to erase it and give you a reply. I unfortunately don't have time to monitor everything, so readers' help is much appreciated. In general, I try not to erase things or tamper with this board, because, as things are now, I believe the discussion on this board is very high-minded as it is, especially in comparison to the alternative discussion on the boards at Air America, Eschaton or Kos (I'm not bashing them -- I just think the posts here are higher quality). So I won't erase something unless it is unambiguously spam or is really really offensive, and, even if it is, unfortunately, it often boils down to my own arbitrariness. One big problem is the guestbook. I don't have any password or anything for it, so I can't control the spam or offensive content there unless I take the whole guestbook down and get a new guestbook -- and I don't want to replace a guestbook that has been around since even before I got to this site. To make a long message short, please tell me what you find objectionable, and I'll take a look.