Subject: Investing From: Terri To: All Date Posted: Sat, Dec 18, 2004 at 20:09:15 (EST) Email Address: Not Provided Message: Well, when assets seem expensive and there is no clear direction, stay the course. The year has again been favorable for value, but growth still seems relatively expensive, so I will lean to the Value Index. Also, Mid Cap Index still seems attractive. International Value. Energy and Health Care. REIT Index is so darn expensive. Precious Metals and Mining is also quite expensive. As for bonds, Intermediate Index seems more attractive than Long Term and there may be reason in a while to move to Short Term. High Yield Corporate is awfully expensive.

Subject: Vanguard Index Returns From: Terri To: All Date Posted: Sat, Dec 18, 2004 at 17:13:59 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/17/04 S&P is up 9.1% Growth Index is 5.5 Value Index is 13.5 Mid Cap Index is 18.4% Small Cap Index is 17.9% Small Cap Value is 21.6 Europe Index is 16.9 Pacific Index is 13.2 Energy is 34.3 Health Care is 7.7 REIT Index is 29.0 High Yield Corporate Bond Fund is 8.2 Long Term Corporate Bond Fund is 8.5

Subject: National Index Returns From: Terri To: Terri Date Posted: Sat, Dec 18, 2004 at 17:14:37 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/17/04 Australia 25.2 Canada 17.5 Denmark 25.2 France 13.9 Germany 11.9 Hong Kong 22.4 Ireland 38.8 Japan 10.1 Norway 48.1 Sweden 32.2 Switzerland 11.4 UK 17.5

Subject: Prospects For Job Creation From: Emma To: All Date Posted: Sat, Dec 18, 2004 at 16:36:08 (EST) Email Address: Not Provided Message: There should be no surprise. Employment growth was about 1.6% this year; the same could be guessed for next. Little in the way of a fiscal stimulus can be expected. Short term interest rates are likely to be increased several times by the Federal Reserve, while the effects of rate increases this year will mildly slow growth in months to come as long as long term rates remain low. The American dollar has fallen against the Euro and Canadian and Australian dollars, which should begin to raise our exports and provide a little employment boost. Since the dollar has been supported by a number of prime trading partners however, the employment effect will indeed be little. Further trade liberalization and work shifting abroad will cost some jobs. So, there is every reason to expect the coming year to be much as this year in terms of job creation.

Subject: What is a Reasonable Return on Stocks? From: Jennifer To: All Date Posted: Sat, Dec 18, 2004 at 11:34:02 (EST) Email Address: Not Provided Message: 'A reasonable prediction for the real rate of return on personal accounts in the U.S. is 4 percent or less.' Why is 4% or less a reasonable real rate of return for private stock accounts? With inflation the return would be about 6.5%. Please take us through the steps to reach this number.

Subject: The Drug Industry in Ailing From: Emma To: All Date Posted: Sat, Dec 18, 2004 at 10:35:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/18/business/18assess.html?pagewanted=all&position= Pricey Drug Trials Turn Up Few New Blockbusters By ALEX BERENSON The worldwide drug industry is ailing. Three major drug companies - Pfizer, AstraZeneca and Eli Lilly - each disclosed serious problems with important medicines yesterday, throwing a spotlight on the fact that the $500 billion drug industry is stumbling badly in its core business of finding new medicines. The decline in drug research and development has been an open secret among analysts and scientists for years. But drug company executives have insisted that their industry is fundamentally healthy and their expensive research efforts will pay off. They have tried, meanwhile, to offset their weakness in creating profitable new drugs by pursuing aggressive campaigns to market existing drugs to doctors and patients, impose big price increases and make efforts to extend patents on existing medicines. Those tactics have protected their profits but irritated consumers and governments that pay for drugs, causing a political reaction in the United States and Europe. After yesterday's news, the intensity of that reaction seems likely to increase. In less than 12 hours, Pfizer said that it had found increased risk of heart problems for people taking Celebrex, a painkiller that is one of the world's best-selling medicines. AstraZeneca reported that a trial of Iressa, a lung cancer drug approved in the United States last year, showed that the drug did not prolong lives. And Eli Lilly warned doctors that Strattera, its drug to treat attention deficit disorder, usually in children, had caused severe liver injury in at least two patients. Investors punished all three companies, sending Pfizer stock down 11.2 percent, AstraZeneca down 7.7 percent and Eli Lilly down 2.4 percent. Collectively, the declines reduced the market value of the three companies by more than $30 billion, worsening the industry's weak performance this year. The sequence of events is a sign that the companies must confront their difficulties in finding new drugs, said Richard T. Evans, an analyst at Sanford C. Bernstein, a Wall Street research firm. 'Their R.&D. productivity is just terrible,' he said. No major drug company is exempt from the problem. The number of new drugs approved by the Food and Drug Administration has declined sharply since the mid-1990's, falling from 53 in 1996 to 21 in 2003, even as the industry has nearly doubled its annual spending on drug development, to about $33 billion. Complicating the process, many drugs already on the market do a reasonably good job, so the bar that new therapies must cross is high, especially because most are expensive. If companies cannot reverse the trend, investors will almost certainly demand that they cut their research spending. Meanwhile, governments, faced with growing drug costs for publicly financed programs like Medicare and Medicaid, may well alter regulations on drug marketing or force the companies to cut prices, Mr. Evans said. A result in the long run may be an industry that is less profitable and less able to produce new drugs for patients. Still, experts note that progress comes in fits and starts and the flood of newly discovered biomedical information could lead to many new drugs. But traditional drug companies have not yet had much luck with biotechnology, though they have licensed some drugs from biotechnology companies. While they struggle with new technologies, the companies are facing a steady stream of patent expirations on their most profitable drugs. To combat that, Pfizer and some other companies have used mergers or acquisitions to grow. But those deals do nothing to increase their overall ability to produce new medicines, critics say, and may even hurt the industry as merging companies struggle to integrate their laboratories. Dr. Jerry Avorn, professor of medicine at Harvard Medical School and author of 'Powerful Medicines: The Benefits, Risks and Costs of Prescription Drugs' (Knopf, 2004), said the absence of new drugs had caused companies to try to stoke demand for their existing medicines by marketing them directly to consumers. 'If you don't have a lot of breakthrough drugs in your pipeline, and you're a company, you need to market the hell out of the drugs that you do have,' Dr. Avorn said. As a result, many people are taking drugs that have only a moderate benefit for them, or no benefit at all, he said. At the same time, companies are not closely monitoring the side effects of the medicines that they already sell, because they fear that information about side effects will discourage patients from using new medicines, Dr. Avorn said.

Subject: The Drug Industry in Ailing - 2 From: Emma To: Emma Date Posted: Sat, Dec 18, 2004 at 10:36:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/18/business/18assess.html?pagewanted=all&position= On the surface, the industry seems relatively healthy. Sales are rising strongly both in the United States and worldwide, with revenue up about 9 percent in 2003, to more than $490 billion, according to IMS Health, which tracks drug sales. And the industry is highly profitable. Excluding one-time charges, Pfizer is expected to earn more than $14 billion this year on sales of $51 billion, a profit margin among the highest of any big company. Pfizer did get some good news yesterday. Federal regulators approved Macugen, developed by Eyetech Pharmaceuticals Inc. and Pfizer to treat macular degeneration, which causes blindness in the elderly. Major drug companies have increased research spending. Pfizer spends $7 billion a year on research, according to its filings. That level of research spending justifies the high prices of many medicines, drug company executives say. Any effort to cap prices, they say, may compromise the discovery of new drugs. In the 1990's, the companies were able to bring several major new categories of drugs to market. But in this decade, companies have had few major breakthroughs. Until this year, Wall Street had been relatively patient with the industry, viewing it as a profitable and stable place to invest. But in the last few months, investors have begun to turn away from the sector. A broad index of pharmaceutical stocks has fallen 7.4 percent this year, while the Standard & Poor's 500-stock index has risen 7.4 percent. The companies that made yesterday's announcements have been among the worst performers this year, with Pfizer shares down 30 percent, AstraZeneca off 22 percent, and Eli Lilly down 20 percent. There is no simple way to make drug research more productive, said Dr. K. Arnold Chan, a professor at the Harvard School of Public Health. The amount of basic biomedical knowledge has vastly increased in the last few years, but scientists have not yet been able to translate that information into new medicines. 'There's a gap between basic science and clinical science,' he said. Dr. Chan said he hoped the problems were merely a dry spell in a long period of advances. 'If we take 30 years, you could see a lot of progress,' Dr. Chan said. 'We saw a lot of promise in the 1990's. But the last couple of years have been pretty pathetic.'

Subject: Investing Ideas? From: Terri To: All Date Posted: Sat, Dec 18, 2004 at 07:10:45 (EST) Email Address: Not Provided Message: Then, where are we now to look for conservative investments? The core is always Vanguard stock and bond indexes, but even this leaves lots of possible choices. The Federal Reserve tightened short term credit for the 5th time, and essentially promised more to come. The S&P is up about 8.5% for the year, while middle and small cap stocks are much stronger. Value stocks are much stronger than growth. Energy and real estate investment trusts are having terrific years, while health care stocks are having a moderate year but are close to catching the S&P. International stocks are up more strongly than the S&P with few few countries as exceptions. Again, international value leads growth. As for bonds, the bull market in long term bonds surprisingly continues. Quite a fine investing year.

Subject: Vanguard Work-Sheet From: Jennifer To: All Date Posted: Sat, Dec 18, 2004 at 06:51:54 (EST) Email Address: Not Provided Message: Vanguard Work-Sheet Total Stock Market Index - Add Value Index - Hold Growth Index - Not Sure Mid Cap Index - Add Small Cap Value - Hold Strategic Equity - Not Sure Prime Cap Core - Not Sure Windsor II - Not Sure Health Care - Add Energy - Hold REIT - Hold International Value - Add Europe Index - Hold Pacific Index - Not Sure High Yield Tax Free - Hold Intermediate Corporate Bond Index - Hold Limited Tax Free Bond - Hold Short Corporate Bond Index - Hold Precious Metals - Not Sure

Subject: l larouche From: dan brown To: All Date Posted: Sat, Dec 18, 2004 at 00:15:50 (EST) Email Address: b24664950@yahoo.com Message: its a sad fact that lyndom has been a big downer for us. back in the 60's he piped-with real pipes-into the big maddog maxist. he broke up the SDS into the weathermen and the rest. at a time when the SDS could have saved us from what we are now. then he went to the far right and ran a big time creat card scam, that the FBI of the would not look into. after years the AG's of some 'liberal' state started in on him. The FBI then moved in and feded the case, the evendence and put him into a fed. jail. but never looked for the millions he made off with. maybe it went into the 'right right wing banks.

Subject: Thinking of Markets, 2005 From: Terri To: All Date Posted: Fri, Dec 17, 2004 at 21:53:35 (EST) Email Address: Not Provided Message: Nice time for some forward thinking. Any investment ideas?

Subject: Re: Thinking of Markets, 2005 From: Mike To: Terri Date Posted: Sat, Dec 18, 2004 at 01:06:44 (EST) Email Address: unlawflcombatnt@aol.com Message: Nice time for some forward thinking. Any investment ideas? --- How about gold? LaymanEconomist www.unlawflcombatnt.blogspot.com/

Subject: Gold? From: Pete Weis To: Mike Date Posted: Sat, Dec 18, 2004 at 12:39:08 (EST) Email Address: Not Provided Message: Mike. Clearly this is an investment to hedge a falling dollar. Buffet likes silver and not gold. But gold is more of a pyschological/emotional investment for those who distrust paper/electronic money. Are you a buy and hold (for a period) when it comes to the gold markets or do you regularly trade the ups & downs? In otherwords, do you sell at points where you believe gold markets are overbought and the dollar is oversold and buy at points where you believe the opposite is true or would you buy into, say, the gold ETF, gold funds, and/or a smattering of gold miners which you have researched? It's certainly a rocky road for an investor and not for the 'faint-of-heart'.

Subject: Re: Gold? From: Terri To: Pete Weis Date Posted: Sat, Dec 18, 2004 at 20:12:15 (EST) Email Address: Not Provided Message: Vanguard Precious Metals and Mining is tame for such a fund, but unless we really do seem headed for economic trouble I am content to wait.

Subject: Vanguard Work-Sheet From: Jennifer To: Mike Date Posted: Sat, Dec 18, 2004 at 06:49:55 (EST) Email Address: Not Provided Message: Vanguard Work-Sheet Total Stock Market Index - Add Value Index - Hold Growth Index - Not Sure Mid Cap Index - Add Small Cap Value - Hold Strategic Equity - Not Sure Prime Cap Core - Not Sure Windsor II - Not Sure Health Care - Add Energy - Hold REIT - Hold International Value - Add Europe Index - Hold Pacific Index - Not Sure High Yield Tax Free - Hold Intermediate Corporate Bond Index - Hold Limited Tax Free Bond - Hold Short Corporate Bond Index - Hold Precious Metals - Not Sure

Subject: Bernanke? From: Pete Weis To: All Date Posted: Fri, Dec 17, 2004 at 21:00:50 (EST) Email Address: Not Provided Message: Not sure if this is a good development or a bad one. It's good because it would possibly mean that Bernanke will not become Fed Chairman, although there may be someone equally as bad (or worse) waiting in the wings. It's bad because he will have a close advisory role. Bernanke came out with the infamous 'printing press' statement and any influence he has with this administration means more trouble for the dollar and will definitely not reassure foreign creditors and investors. washingtonpost.com White House May Pick Bernanke Fed Governor Would Chair President's Economic Council By Nell Henderson Washington Post Staff Writer Friday, December 17, 2004; Page A08 The White House, seeking a strong economic team to craft and sell key features of its second-term agenda, is considering appointing Federal Reserve Board member Ben S. Bernanke to be chairman of the president's Council of Economic Advisers, officials confirmed yesterday. Bernanke, 51, former chairman of Princeton University's economics department, would succeed N. Gregory Mankiw, who is on leave from Harvard University and expected to return there early next year. One administration aide, who spoke on the condition of anonymity, cautioned that the process is at an early stage. The Fed and Bernanke declined to comment on the possibility, which was reported in the Wall Street Journal on Monday. A White House spokeswoman also declined to comment on speculation about Mankiw's successor, noting that he has not yet resigned. Bush appointed Bernanke to the Fed two years ago. The highly regarded economist has focused most of his research on monetary policy -- adjusting the money supply through the availability of credit, which in turn affects the rates of inflation and economic growth. His speeches and research since joining the Fed also have addressed primarily the topics of monetary policy and the economy in general. They have not touched the politically controversial subjects of changing the tax code and Social Security, the issues that are Bush's second-term focal points. If appointed, Bernanke would be one of the top officials involved in explaining and selling the president's economic policies to Congress, Wall Street and the media. Bernanke has developed a reputation at the Fed as a good communicator of the central bank's thinking and policy, an analyst said. On Wall Street, Bernanke would 'be viewed as a very credible person to take on the role of one of the administration's chief economic spokesmen,' said William Dudley, chief economist at Goldman Sachs U.S. Economics Research. The job of CEA chairman has varied in influence over the decades, depending on the nature of the White House and the economist in the job. R. Glenn Hubbard, the first CEA chairman under Bush, was perceived as having significant influence on the president's tax cut proposals. But Mankiw has served in a position that appeared somewhat sidelined over the past two years. Bernanke is largely untried in the political arena. Fed officials do not hold news conferences. And aside from Fed Chairman Alan Greenspan, who is regularly questioned by Congress on a variety of topics, Fed policymakers generally speak on the topics they choose in front of the audiences they select. If successful in the CEA role, some observers speculated, Bernanke could boost his chances of succeeding Greenspan, who has indicated he will step down when his board term expires Jan. 31, 2006. Two of the top contenders for Greenspan's job are former CEA chairmen: Hubbard and Harvard University economist Martin Feldstein, who held the job under President Ronald Reagan. Greenspan was CEA chairman under President Gerald R. Ford.

Subject: Bernanke For Fed Chair From: Terri To: Pete Weis Date Posted: Fri, Dec 17, 2004 at 21:21:31 (EST) Email Address: Not Provided Message: Apart from the fiscal polict statements by Alan Greenspan that supported tax reductions that would turn suplus to deficit with far too little employment to show, I think monetary policy has been effective for many years and Ben Bernanke would like make a fine Fed chair and continue the prudently flexible administration we have had at the Fed. I am open to argument, however. After all, we are not going to get Robert Rubin.

Subject: A Puzzle About Japan From: Terri To: All Date Posted: Fri, Dec 17, 2004 at 19:39:45 (EST) Email Address: Not Provided Message: There is a puzzle about Japan. The Nikkei Stock Index was 38,900 in December 1989. In December 2004, the index is 11,070. Imagine a market decline of such dimension for so long, yet there is an evident health about middle class Japan. There is almost no investment income to be had in Japan, but saving is high and there is middle class health. Of course, I know that in a deflationary environment saving makes sense even if interest rates are 1 or 2%. Still, the evident health of Japan puzzles my Japanese friends as well as me.

Subject: France, Above the Clouds From: Emma To: All Date Posted: Fri, Dec 17, 2004 at 19:08:20 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/17/international/europe/17bridge.html Above the Clouds, the French Glimpse the Old Grandeur By ELAINE SCIOLINO MILLAU, France - Higher than the Eiffel Tower, longer than the Champs-Élysées, the Millau bridge is a triumph of engineering, imagination and will. For President Jacques Chirac, the soaring butterfly of steel and concrete that spans the Tarn Valley is nothing less than an 'audacious' work of art and a symbol of 'a modern and conquering France.' No matter that the man who designed the bridge, the world's highest, is Norman Foster, a 69-year-old British lord and perhaps Britain's most famous modernist architect. The engineers were French. And in a country yearning to recapture some of its historic grandeur, its official opening on Thursday brought a spirit of giddy celebration to this remote region of southern France. Construction workers on the project whistled and waved their hard hats in a sign of welcome to maiden voyagers. Drivers waved back, honking their horns long and loud. Tourists and truck drivers got out of their vehicles to take pictures, oblivious to the security guards who ordered them to move along. 'This is a work of art that touches all of us,' said Thomas Ercker, a foreman who worked on the project for more than two years. 'There is only one time in your life you can do something like this. I am convinced that we've created a jewel. I have goose bumps all over.' Patrice Ficheux, the head of a road security company from Lyon, drove four hours with his wife in their 1959 vintage Jaguar to be among the first to cross. 'I wanted to give my car an adventure in the mountains,' he said after making the brief crossing. 'I had this wonderful feeing of security, as if someone were holding an arm around my shoulder.' Slender, graceful, even fragile-looking, the gently-curving bridge was built in only three years, the product of computer design technology, global satellite positioning and lighter, high-tech materials that shortened the timetable and cut costs. The deck for the four-lane road is made from a new high grade of steel instead of concrete. Transparent aerodynamic windscreens protect vehicles from high winds and let travelers savor the rugged landscape. The deck for the four-lane road is made from a new high grade of steel instead of concrete. Transparent aerodynamic windscreens protect vehicles from high winds and let travelers savor the rugged landscape. The pale color of the construction allows it to blend with the sky, giving it a transparent feel. At its highest point - 1,125 feet from the bottom of the valley to the top of the pylon atop the tallest pillar - the bridge is more than 50 feet higher than the Eiffel Tower. 'It had to be very light, very delicate, but immensely strong,' said Lord Foster by telephone from London. 'The driving experience is close to flying. The trip across the valley is like that of a bird.'

Subject: France, Below the Clouds From: Emma To: Emma Date Posted: Fri, Dec 17, 2004 at 19:08:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/16/arts/design/16hall.html In Paris, a Cautious New Vision for Les Halles By ALAN RIDING PARIS - The 'belly of Paris,' as the old market district of Les Halles was long known, has had many looks in its eight centuries. Everyone agreed, however, that its last makeover in the 1970's was a disaster. Now, after months of deliberation, the mayor of Paris has chosen a French architect, David Mangin, to oversee a fresh attempt to rescue the 15-acre zone.

Subject: Investing Costs From: Terri To: All Date Posted: Fri, Dec 17, 2004 at 15:39:30 (EST) Email Address: Not Provided Message: A friend showed me a money management account with Bank America. For quite a sizable account there is a 2% Bank America management fee each year. The mutual funds that the adviser has chosen also charge an average of 2% for expenses each year. What does 4% in expenses do to investment returns? Since it opened 28 years ago, the Vanguard S&P Index has returned 12.3%. So, almost 1/3 of the gains of the S&P over a terrific investing period would be lost by adding a money management fee and investing in mutual funds with 'standard' fees. Add in the turnover or transaction costs that managed mutual funds bear, and you can understand how difficult a problem costs are in money management.

Subject: Valuing REITs From: Terri To: All Date Posted: Fri, Dec 17, 2004 at 14:13:01 (EST) Email Address: Not Provided Message: http://flagship2.vanguard.com/VGApp/hnw/FundsHoldings?FundId=0123&FundIntExt=INT Notice that the earnings growth rate for the Vanguard REIT Index is negative. This is a 3 year growth rate to the current month, and shows that REIT earnings have actually declined in 3 years. REIT's are have another superb year, but the increase in share price is not being driven by earnings. Rather, we have REITs being bid up in expectation of rising property prices and because the yields are higher than for other categories of stock. The earnings growth rate is -2.7%, while the p/e ratio for the index is 34.4.

Subject: Re: Valuing REITs From: David E.. To: Terri Date Posted: Fri, Dec 17, 2004 at 19:53:46 (EST) Email Address: Not Provided Message: My favorite REIT - ASN, newly minted member of the S&P500 is in my mind a good buy. Yes, using FFO things don't look so good. But by owning ASN I own real estate in the best areas of the best cities in the country. Areas where the properties can not be easily duplicated. To buy properties outright in these areas I would be feeding the alligator because cash flow would be negative for years to come. I feel this REIT asset class gives me better inflation protection than regular stock. A lot of the value of most of the S&P is intangibles, the value of a going concern, the value of a customer list, the value of experienced employees. In a recession these intangibles can lose value quickly. Residential real estate can and probably will suffer also. But real estate in the best areas will be affected the least. Plus, ASN has can and does turn apartments into condos. Moving from a rent based evaluation to a homeowner based evaluation is very profitable. I am happy with my position, I wont predict how high people will bid REITS up in the search for inflation protection. I do know that Vanguard's TIPS portfolio is bid up to yield a 1.25% real return. And that seems very high to me because I bought TIPS at a 3.25% yield. People want inflation protection and are willing to pay high prices for it.

Subject: Re: Valuing REITs From: Terri To: David E.. Date Posted: Fri, Dec 17, 2004 at 21:51:01 (EST) Email Address: Not Provided Message: Interesting argument. Sam Zell of Equity Properties would agree with you, and did in the New York Times a week ago. As for me, I am not chasing yield and will watch before buying more Vanguard REIT Index shares. The index has had stunning returns, and I do not have to worry about knowing more than I really can with any single REIT. But, your rationale for a REIT that focuses on core unban residential properties makes sense. I would also lean more to a REIT that was focused on a given area, than a national focus.

Subject: Re: Valuing REITs From: Pete Weis To: Terri Date Posted: Fri, Dec 17, 2004 at 15:07:07 (EST) Email Address: Not Provided Message: Good observations Terri. REIT's are very high risk IMO.

Subject: Earnings Growth? From: Terri To: Pete Weis Date Posted: Fri, Dec 17, 2004 at 16:17:32 (EST) Email Address: Not Provided Message: We must think about what a negative earnings growth rate means over 3 years. The earnings growth rate has been negative for more than a year.

Subject: Mexico's New Homeowners From: Emma To: All Date Posted: Fri, Dec 17, 2004 at 12:05:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/17/business/worldbusiness/17housing.html?pagewanted=all&position= Mexico's Working Poor Become Homeowners By ELISABETH MALKIN TECÁMAC, Mexico - José David Zacarias and his wife, Alma Delia de Jesús, said they thought that when they applied for a government mortgage they would face a year of bureaucratic hurdles before they could move out of their rented two-room apartment. Instead, 18 days after walking into the sales office at Los Héroes, a huge, low-income housing development here in this gritty distant suburb of Mexico City, they were holding the keys to a $25,000, 668.5-square-foot house, giddy at the ease of it all. The couple had been unable to think about moving into their own place until Mr. Zacarias, a sales agent at a snack company owned by Pepsico, recently won a promotion. With a salary of about $900 a month, he qualified for a 30-year loan from a government housing fund at an interest rate of nine percentage points over the inflation rate, which is now almost 13 percent. While rates on conventional bank loans are only a couple of percentage points above inflation, Mr. Zacarias's income is too low to qualify. Moreover, banks require a deposit of up to 40 percent, which the Zacariases could not amass. Developments like Los Héroes are rising all over Mexico, part of President Vicente Fox's ambitious plan to provide low-income housing in a country where many newlyweds start out living in a concrete-block room attached to their parents' house. At the beginning of his term, Mr. Fox said he wanted to increase the number of mortgages granted each year of his administration to 750,000 in 2006, up from 350,000 in 2000. The vast majority of those will come from government-backed plans intended for working-class Mexicans. Loans from banks and specialized mortgage companies are mostly going to the significantly smaller middle-class market. Unlike Mr. Fox's failed plans for dramatic overhauls in Mexico's tax structure and its state-owned energy industry, which have been strangled in an opposition-controlled legislature, his housing program is on track to reach its goal. 'I have never seen a housing plan such as the one in Mexico,' said Marcelo Telles, a construction analyst at Credit Suisse First Boston in Mexico City. 'It's a unique model that has been extremely successful.' As the plan's different pieces - both private and public - have coalesced, the program has flourished, buttressed by a stable economy with declining inflation and interest rates. 'Somehow, governments have to balance the interests between social demand and financial sustainability,' said Anna Wellenstein, a World Bank official who has been following the program. 'They are getting that balance.' A new director at the main government housing agency, Infonavit, pushed a decade-long modernization drive into high gear to speed up lending and reach more working-class families. In Congress, political parties have put aside their wrangling to agree on measures to encourage housing construction and finance. In the financial markets, Infonavit and private lenders have sold about $400 million in mortgage-backed securities, pools of loans packaged into a long-term bond. Although these instruments, which allow lenders to sell loans and grant new ones with the money they raise, are common in the United States, the first in Mexico was not packaged and sold until late in 2003. . The vigor in the industry is finally attracting commercial banks, which abandoned the mortgage business in 1995 after the peso collapsed and now lend mostly to the wealthy. Specialized mortgage lenders had stepped into the breach, working with government funds. Now, as the banks look for a way to expand from their tiny sliver of the market, they are buying these lenders - along with their expertise in administering loans to middle- and working-class customers - and signing on to co-financing programs with Infonavit. BBVA Bancomer, Mexico's largest bank and a unit of BBVA of Spain, spent $375 million in September for the country's largest finance company, Hipotecaria Nacional. Scotiabank of Canada is buying 80 percent of another big mortgage lender, Casa y Crédito, for an undisclosed amount. The goal of 750,000 mortgages barely keeps up with the number of new households formed each year, according to government figures. And it does not even come close to the estimated four million homes needed for families who now live in shanties. Manuel Campos, the chief financial officer of Su Casita, a mortgage finance company that has been among the most innovative in tapping the markets for financing, wants to speed up the pace further and reach more poor families. 'We should be granting a million mortgages a year, not half a million and that's the next challenge,' he said. 'The loans we are giving today are the easy loans.' Still, the housing plan is already making an enduring mark on the country's landscape, in rows upon rows of small, pastel-colored, two-story row houses with four rooms each on the far-flung outskirts of Mexico's cities. These giant developments are the creation of half a dozen large homebuilding companies that take charge from the time they acquire the land and qualify to sell their houses with government loans to the moment they hand over the keys. 'We are laying the groundwork for a new middle class,' said Selene Avalos, the chief financial officer at Urbi, a homebuilder based in the border city of Mexicali. 'We are creating communities that will be here for the next 50 years.' The homebuilders even smooth the mortgage application process, said Enrique Vainer, the chief executive of Grupo Sadasi, which is building Los Héroes. 'We handle all the paperwork so the worker doesn't lose time and have to take days off work.'

Subject: Mexico's New Homeowners - 2 From: Emma To: Emma Date Posted: Fri, Dec 17, 2004 at 12:07:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/17/business/worldbusiness/17housing.html?pagewanted=all&position= After two years of construction, all but a few hundred of Los Héroes' 18,600 houses are finished. The development is dotted with three dozen neighborhood parks and as many sports areas. There are 15 schools, a police station, two day care centers, a clinic, and an indoor gym. At one edge sits a discount supermarket owned by the Mexican subsidiary of Wal-Mart Stores. But the realities of working-class Mexico, where everybody needs to make extra cash, quickly intrude on the development's showpiece streets. Informal home businesses are prohibited, but houses on almost every street sport signs: hair salon, shoe repair, tamales. At many corners, a blue tarpaulin over a driveway shades a makeshift grill and some plastic chairs: the ubiquitous Mexican quesadilla stand. Most of the families in Los Héroes have bought their houses with a mortgage from Infonavit. In 2000, Mr. Fox appointed Víctor Manuel Borrás, a former banker, to head the agency, once a black hole of political patronage. Mr. Borrás arrived 10 years into a slow-motion overhaul. 'We had problems of bad loans and financial solvency,' Mr. Borrás said. 'We needed to gain the confidence of the financial system.' The goal is to grant two million mortgages during the six years of Mr. Fox's administration. So far, 1.3 million loans have been made. Infonavit is financed by a 5 percent payroll tax employers pay into a special account for each worker along with collections on 2.1 million loans. Mr. Borrás cut the rate of bad loans to 9.8 percent from 23 percent, and collections on loans rose from to 52 percent of the agency's income from 40 percent. Infonavit sold two mortgage-backed securities this year adding up to about $180 million. Mr. Borrás has also tried to be creative in lending to reach above and below the agency's traditional working-class customers. A new program, for example, allows workers who earn most of their income in tips to qualify for a mortgage. That allowed Grupo Sadasi to sell one of its houses in Cancún in November to the doorman of the beachside Ritz-Carlton Hotel. For lower-middle-class workers, those who earn $850 to $1,200 a month, Mr. Borrás is enlisting the banks' help in programs for co-financing to top off the size of the mortgage beyond Infonavit's levels. With Infonavit, mortgage payments are deducted from a worker's paycheck, and the bank piggybacks onto that. One of Mr. Borrás's hardest tasks will be to find a way to give mortgages to poorer workers. The majority of workers with Infonavit accounts earn less than $550 a month and cannot afford more than a $14,000 mortgage. 'We have convinced the developers that this is good business,' said Mr. Borrás, who is working with state governments to apply anti-poverty funds to subsidized mortgages. He hopes to end 2004 with 90,000 mortgages for poorer workers like supermarket employees and assembly line workers. The four-year-old Federal Mortgage Society, meanwhile, is creating a system of guarantees to stimulate the nascent market in mortgage-backed securities. 'Our mission is to make a private mortgage market,' said Guillermo Babatz, the agency's director. 'It is much more solid if the private sector does it.' Unlike Fannie Mae, which buys mortgages from lenders and issues its own mortgage-backed securities, the agency offers insurance to mortgage lenders and design guarantees for mortgage-backed securities. 'A year and a half ago we were having discussions about whether it could be done,' said Mr. Campos of Su Casita, which has issued two mortgage-backed securities. 'The questions have been answered.'

Subject: Losing faith? From: Pete Weis To: All Date Posted: Fri, Dec 17, 2004 at 10:23:20 (EST) Email Address: Not Provided Message: Remember Buffet's references to 'weapons of mass financial destruction'? Faith In Fannie Dan Ackman, 12.16.04, 9:30 AM ET Yesterday's order by the staff of the Securities and Exchange Commission that Fannie Mae, the largest buyer of mortgages in the U.S., restate its earnings for the last four years because of accounting rule violations has ignited yawns. But the mortgage-finance giant will now have to recognize an estimated $9 billion of losses on derivatives used to hedge interest-rate risks--more yawns. It all involves the interpretation of Financial Accounting Standards 133 and 91, and it could signal a management shake-up. The restatement could cause Fannie to dip below minimum capital requirements! So it really is a very vital--no, it's yawns all the way down. Fannie Mae (nyse: FNM - news - people ), for its part, seemed to react with barely a nod. 'We appreciate the comprehensive and expeditious review of these accounting issues,' a Fannie Mae spokesman said in a statement. 'We will take the steps necessary to comply fully with the SEC's determination. Fannie Mae is committed to operating in a safe and sound manner.' The company uses derivatives to hedge its exposure to mortgage payment defaults, and its accounting for the rise and fall of the value of these derivatives is at the heart of the SEC matter. It's not that FAS accounting rules for derivatives are even more mind-numbing than derivatives. The main reason for the potential scandal is that investors, to the extent that they think about these issues at all, are essentially convinced that nothing very bad will ever happen to Fannie Mae. If they think deeper and realize that something bad just might happen to Fannie Mae--then they still don't care. The eye-glazing situation goes back to September when regulators in the Office of Federal Housing Enterprise Oversight cited the Washington-based company for serious accounting problems and accused the company of earnings manipulation. The regulators had ordered Fannie Mae to complete massive recalculations. This in turn fueled speculation about whether the company would have to restate earnings, which now it appears it will have to do, despite the defenses of CEO Franklin Raines and CFO Timothy Howard. Last month, Fannie Mae missed an SEC deadline for filing its third-quarter financial results after its independent auditor KPMG refused to sign off on the report. The company also acknowledged that some of its accounting practices don not comply with some of the more arcane aspects of generally accepted accounting principles. Yesterday, the company said it would comply with the SEC staff decision. The fate of Raines and Howard remains in some doubt. There has been no real suggestion that Fannie was deliberately manipulative in its bookkeeping. But the real reason that the travails of Fannie Mae--along with its rival Freddie Mac (nyse: FRE - news - people )--have touched off such widespread apathy is that Fannie and Freddie, despite being companies with shares traded on the New York Stock Exchange, were chartered by Congress to permit added liquidity in the housing market. They both buy mortgages from banks and other lenders. They hold some and trade some to investors who trade them with other investors. So long as the people at the bottom keep paying their mortgages in more-or-less expected ways, there is no serious problem. But if there was a serious problem, investors believe that Fannie and Freddie would be among the last to face it as they believe (or at least it is believed that they believe) that the federal government would bail out the companies. This is despite the fact that Federal Reserve officials have tried to tell investors they would do no such thing. Fannie Mae and Freddie Mac own or guarantee almost half the $7.6 trillion mortgage market and have about $1.7 trillion in combined debt, according to Bloomberg News. Only the government has more debt. As with the government, much of the debt is owed to foreign central banks and other overseas investors. They have had faith in Fannie the same way they have faith in the U.S. Treasury. If that faith is lost, either because of a serious rise in defaults by mortgage payers or doubts about the dollar (and there are rumblings along these fault lines) there could be major disruptions. But FAS 133 and 91 would not be the reason.

Subject: Little help with Options From: Setanta To: All Date Posted: Fri, Dec 17, 2004 at 10:07:33 (EST) Email Address: Not Provided Message: i need a reference source for description of various type of options: bermuda barrier asian compound binary lookback forward start and chooser. if possible it may have details on profit curves for various options and introductory valuation techniques (black scholes, binomial tree and greeks in particular) thanks

Subject: Financial Derivatives From: Jennifer To: Setanta Date Posted: Fri, Dec 17, 2004 at 12:54:56 (EST) Email Address: Not Provided Message: http://www.mathworks.com/access/helpdesk/help/toolbox/finderiv/finderiv.html

Subject: Remembering those less fortunate From: Setanta To: All Date Posted: Fri, Dec 17, 2004 at 04:01:31 (EST) Email Address: Not Provided Message: if there are any other Irish or UK readers, please have a look at this and remember what Christmas is really about. thanks. www.oxfamirelandunwrapped.com

Subject: Burden Growing on Pension Group From: Emma To: All Date Posted: Thurs, Dec 16, 2004 at 18:59:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/16/business/16scene.html Burden Growing on Pension Group By HAL R. VARIAN LAST week, I.B.M. announced that it was closing its traditional defined-benefit pension plan to new employees and instead would offer new workers a 401(k) plan. This is just the most recent of many such announcements by major companies. In the mid-1980's, 40 percent of workers were covered by defined-benefit plans. But those plans have become less popular in recent years, and now only 20 percent of workers are covered by such plans. As the name implies, a defined-benefit plan bases its pension payment on a formula involving years of service, final salary and other considerations. The employer effectively promises workers that it will pay them some predetermined amount when they retire. But pension plans and companies sometimes become insolvent. Who back ups these promises? The Pension Benefit Guaranty Corporation was set up by the federal government 30 years ago to provide insurance for traditional pension plans. If an employer cannot pay the promised benefits, the pension agency steps in to cover the difference. In exchange for this insurance, the companies that offer traditional pension plans have to pay a fee to the agency. Zvi Bodie, a professor of economics and finance at Boston University, discusses some of the problems the agency faces in an article entitled 'Straight Talk about Government Pension Insurance,' which will appear in the next issue of The Milken Institute Review. The agency's biggest problem is that it faces significant potential liabilities. In 2000, it showed a net balance of assets over liabilities of $10 billion. By 2004, its financial position had deteriorated to a $23.5 billion deficit. If we add in other companies covered by the agency that face significant bankruptcy risk, the deficit could reach $96 billion. The problem, according to Mr. Bodie, is a mismatch between the assets and liabilities of the pension plans that the agency guarantees. In a defined-benefit plan, companies promise to pay a fixed amount of money to workers when they retire. A company could be sure of having enough money available by investing in secure assets like high-grade corporate bonds. But bonds pay relatively low rates of interest, meaning that companies would have to set aside a substantial amount of money to meet their pension obligations. They find it much more attractive to invest in assets like stocks that have a higher expected rate of return. But high expected returns go hand-in-hand with high risk, increasing the chance of a shortfall. In 2003, General Motors' net pension expense was $2.6 billion. Their financial statements assumed a 9 percent rate of return on investments, which were primarily in stocks and other risky assets. If these funds were invested in bonds yielding about 6.75 percent, G.M. would have had to put away $4.2 billion that year, making its pension plan much more expensive. So what is wrong with assuming a 9 percent rate of return? That is a reasonable figure for the average return on the stock market - but it is only an average. Given the historical fluctuations in the stock market, there is a reasonable chance that a stock market investment may not actually pay off enough to cover the liabilities. That is where the pension guaranty agency comes in. Even if the stock market drops, the workers' pensions will be covered. This means that G.M. has every incentive to invest in stocks rather than bonds: it is heads they win, tails the pension agency loses. As Mr. Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true. Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate. But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems. The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run. To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000. To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise. How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502. So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option. The problem is that the pension agency has a difficult time charging the actuarially fair price for the insurance it offers. Companies that are close to bankruptcy cannot pay, and healthy companies find it more attractive to opt out of the program entirely and offer 401(k) plans instead. So the financial position of the pension agency continues to deteriorate. Sooner or later, Congress will probably have to step in to fix it. The sooner it can put the program on a sound financial footing, the less it will cost the taxpayers in the long run. Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.

Subject: Re: Burden Growing on Pension Group From: jimsum To: Emma Date Posted: Fri, Dec 17, 2004 at 13:51:10 (EST) Email Address: jim.summers@rogers.com Message: There is a mistake in this column. Since the stock market is assumed to pay 9% rather than the 5% of bonds, the company does not have to invest $377 a year, but an amount significantly smaller. It could even be more than $125 less, thus reducing the total cost, including the option. Aside from that, this column describes another example of the 'talk is cheap' school of ignoring unsustainable situations. When the number of retirees was low, the cost of running a pay-as-you-go pension system was extremely low and companies were eager to award a relatively cheap benefit to employees. In fact, I'll bet more than a few unions accepted lower wages in return for enhanced pension benefits. Of course, these unfunded pension liabilities are now very expensive, so we can now find out just how much faith we can put in the promises of companies. For example, it really bugs me when I read about the supposed disadvantage of American car companies that must pay $1500 per worker for retirement benefits that their foreign competitors don't have to pay. Well, if these companies had fully funded their pensions, they wouldn't have those costs now. They had their cake a decade ago and stiffed their pension plans to boost profits. Now they want to eat the cake too by refusing to honour their promises, using bankruptcy to foist the costs of their pension promises onto the government. We really must listen to PK and others on this subject. Companies may be able to walk away from their pension obligations by declaring bankruptcy, or they can switch to defined contribution plans which shifts all the risks to the pension holders. Unfortunately the government can't shift these risks away; pension holders who do not earn enough are not going to be left to starve. The government runs on a pay-as-you-go basis; there is no surplus providing interest income to reduce the costs of government programs, quite the opposite. Switching to a 'privatized' system only works if new money is saved; if social security taxes are lowered to offset the new savings, tax money has to come from somewhere else to pay the current retirees. Everyone needs to save more for retirement, and that includes the government; accounting tricks where the government borrows money to replace taxes that people will now invest just moves the money around. If selling bonds to buy riskier investments is really the best solution to the pension crisis, then the government should do it all itself. A company might benefit from shifting the risk to individuals, but the government can't really shift the risk, and will ultimately have to make up for any losses. Introducing private pension accounts would make sense if individuals typically made better investments than large pension funds; but in reality, large professionally-run pension plans have lower costs and better results.

Subject: Re: Burden Growing on Pension Group From: Terri To: jimsum Date Posted: Fri, Dec 17, 2004 at 14:16:01 (EST) Email Address: Not Provided Message: Interesting and important post, as always. Agreed!

Subject: Re: Burden Growing on Pension Group From: Terri To: Emma Date Posted: Thurs, Dec 16, 2004 at 19:45:34 (EST) Email Address: Not Provided Message: Important article!

Subject: Options Will be Deducated From Profits From: Terri To: All Date Posted: Thurs, Dec 16, 2004 at 18:12:02 (EST) Email Address: Not Provided Message: The Financial Accounting Standards Board has just ruled that companies must begin to deduct options expense from profits beginning with reports issued in July 2005. This is a most important accounting rule change, and will effect the profits of technology companies especially. As companies begin to expense options, we are going to find a lot of technology companies are far more expensive than we realized. Lots less profits, folks. Careful.

Subject: Re: Options Will be Deducated From Profits From: unlawflcombatnt To: Terri Date Posted: Thurs, Dec 16, 2004 at 20:54:31 (EST) Email Address: unlawflcombatnt@aol.com Message: The Financial Accounting Standards Board has just ruled that companies must begin to deduct options expense from profits beginning with reports issued in July 2005. This is a most important accounting rule change, and will effect the profits of technology companies especially. As companies begin to expense options, we are going to find a lot of technology companies are far more expensive than we realized. Lots less profits, folks. Careful. --- That's certainly good news. That will reduce mistaken investment in companies that are not doing well. Maybe now we can count on a company's statement of earnings as being close to their ACTUAL earnings. It should reduce the overall valuation of the stock market. And increase the relative valuation of honest companies that have accurately stated their profits in the past. http://www.unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Economic Strength and the Dollar From: Terri To: All Date Posted: Thurs, Dec 16, 2004 at 14:20:17 (EST) Email Address: Not Provided Message: The value of a currency in time will reflect the well-being or strength of an economy. Robert Rubin would repeat 'a strong dollar is in America's interest,' but he meant a strong dollar will reflect sound fiscal and monetary policy and a strong economy. We have strong corporate saving, though we would prefer that much of this saving be invested in America. We have almost no household saving, and we have a large and growing government deficit. Since we spend more than our income, there is a growing trade imbalance. To support our trade imbalnce we obviously must borrow, and borrow we do from abroad. This consistent and growing need to borrow from abroad will tend to put pressure on the dollar. Care to bolster the dollar, then adopt a sounder domestic economic course. Now, I am not alarmed about a selectively weakening dollar at present. But we are in ample danger of seriously weakening ourselves in time, and it is not for the Europeans of Japanese or rapidly developing states like China and India and Brazil to correct our domestic economic policy and strengthen us in time again.

Subject: Economic Strength and the Dollar... From: Terri To: Terri Date Posted: Thurs, Dec 16, 2004 at 16:21:31 (EST) Email Address: Not Provided Message: But when Robert Rubin tells us that a strong currency reflects the strength of an economy, what are we to make of Japan since 1990 or Europe since 2000? I have no ready answers.

Subject: Economic Strengths in Europe and Japan From: Terri To: Terri Date Posted: Thurs, Dec 16, 2004 at 18:39:27 (EST) Email Address: Not Provided Message: Strengths in Europe and Japan? We know the weakness in Europe is slower economic growth than is needed, and in Japan the weakness is much slower growth. But, Europe is highly productive and Japan is selectively highly productive. There are most competitive industries Siemans to Toyota. Saving is high and Europe and higher in Japan. And, and, there are fine social safety nets.

Subject: A Slow Change From: Terri To: All Date Posted: Thurs, Dec 16, 2004 at 13:00:52 (EST) Email Address: Not Provided Message: No, things do not simply look all right. There is much to worry about, especially lack of a significant enough level of job creation to generate healthy gains in wages and benefit levels and what again has to be a continually growing inequality of income and wealth. But, we are a wealthy productive economy and such problems are only slowly commonly realised. The time has not come and will likely not come quickly.

Subject: Re: A Slow Change From: Mike To: Terri Date Posted: Thurs, Dec 16, 2004 at 21:16:15 (EST) Email Address: unlawflcombatnt@aol.com/ Message: No, things do not simply look all right. There is much to worry about, especially lack of a significant enough level of job creation to generate healthy gains in wages and benefit levels and what again has to be a continually growing inequality of income and wealth. But, we are a wealthy productive economy and such problems are only slowly commonly realised. The time has not come and will likely not come quickly. --- Terri, You are so right. How to create jobs is apparently a subject of debate. My opinion is that the redistribution of wealth is part of the problem. As wealth is redistribute upward, it favors investment and savings. The affluent can only increase their spending a small amount. This redistribution will do little to increase DEMAND for goods and services. It will do little to increase consumer spending. If an equivalent amount of wealth could be redistributed downward, a higher fraction of it would go towards consumer spending. That would increase DEMAND for g/s and increase DEMAND for workers to produce the g/s. According to the Wall Street Journal in October, 'the market is glutted with capital.' Investment capital appears to be more plentiful than wage income to support consumer spending. Many economists believe that the tax cuts should have been aimed at the lower and middle income groups. It would have increased consumer spending. Profits from that increased consumer spending would also go towards investment capital. If consumers were doing well enough, they could buy more with money from their wage income, as opposed to credit and loans. Consumer savings would also increase, making more money available at a lower rate for business investment loans. Consumer spending would appear to be nearing its maximum, considering the high rate of household debt and the slow decrease in real average wages. If consumer spending starts declining, we're not going to be creating many jobs. http://www.unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Re: A Slow Change From: Mike To: Mike Date Posted: Thurs, Dec 16, 2004 at 21:50:54 (EST) Email Address: unlawflcombatnt@aol.com/ Message: Terri, I wanted to supplement my previous letter. Below is my opinion of what is wrong with the economy. It is a critique of Bush economic policy. If you disagree with this assessment, please let me know. I would prefer specific criticisms more than vague, general criticisms, however. I CAN handle criticism. Especially when I freely admit to my amateurish-status as an economic critic. _________________ Bush economic policy is unsound. Careful review of US Labor Dept. statistics and US Commerce Dept statistics reveal the true source of our economic problems. That problem is flat or decreasing CONSUMER SPENDING. Consumer spending accounts for 2/3 of US economic activity. Consumer spending=Consumer DEMAND [in dollars]. (Demand will be measured in dollar-value throughout this letter. Typically, economists refer to demand as quantity of goods and services. Here, DEMAND will mean the total dollar value that U.S. consumers are willing to spend. Total or aggregate consumer income refers to the sum total of all income by U.S. consumers. Defining these terms in this manner shows that there are obvious limitations to consumer spending.) ____________________________________________________________________ Without an increase in consumer spending/demand, our economy will decline. Median weekly wages have decreased over the last year. Consumer spending comes from these weekly wages. Aggregate consumer spending is limited by aggregate consumer income. Thus, this aggregate decrease in wages and consumer spending will not support job growth. Companies will not hire more workers to produce goods that consumers won't buy. _____________________________________________________________________ Tax cuts for the rich do little to stimulate consumer spending. The rich are generally consuming as much as they desire. Further tax cuts for the affluent will not increase their 'consumer' spending. In fact, the rationale behind tax cuts for the rich is entirely different. These tax benefits are supposed to stimulate INVESTMENT (or savings). So what is the benefit to increasing investment? In general, it is a supply-side benefit. To put more precisely, it is supposed to increase the SUPPLY of goods and services. The result would be an increase in supply of goods available for purchase by consumers. What benefit will this increased supply of goods have on our economy, given decreasing consumer demand? Can consumers spend MORE money to buy this increased supply when they have LESS money to spend? _____________________________________________________________________ Consumer spending won't increase until there is an increase in aggregate consumer income. Tax cuts designed to increase the SUPPLY of goods and services provide NO benefit for our current economic situation. None whatsoever. Companies do not make money by producing goods and services. They make money by SELLING goods and services. If they can't sell more product, they won't make more money. So they are NOT going to invest in hiring more workers to produce goods and services they can't sell. If they've already made too much product, they will lay off workers. Which will further decrease aggregate consumer income. Which will further decrease DEMAND for products. _____________________________________________________________________ Tax cuts for lower and middle income taxpayers would increase take home pay to CONSUMERS. This would have increased CONSUMER SPENDING. This would increase DEMAND for goods and services. This would stimulate hiring of more workers to produce those goods and services. And our economy would improve. Most economists agree that lower and middle income tax cuts would have provided much more economic stimulus. _____________________________________________________________________ Bush economic policy is counterproductive for the above reasons. The Bush administration appears to ignore the publicly available information from the US Bureau of Labor Statistics. Continuation of current economic policy will result in continuing deterioration of the U.S. economy. Without a complete change in course, the economy WILL worsen. And probably soon. __________________________________________________________________ http://www.unlawflcombatnt.blogspot.com/ LaymanEconomist www.unlawflcombatnt.blogspot.com/

Subject: Re: A Slow Change From: Setanta To: Mike Date Posted: Fri, Dec 17, 2004 at 05:17:41 (EST) Email Address: Not Provided Message: 'Tax cuts for the rich do little to stimulate consumer spending. The rich are generally consuming as much as they desire. Further tax cuts for the affluent will not increase their 'consumer' spending. In fact, the rationale behind tax cuts for the rich is entirely different. These tax benefits are supposed to stimulate INVESTMENT (or savings). So what is the benefit to increasing investment? In general, it is a supply-side benefit. To put more precisely, it is supposed to increase the SUPPLY of goods and services. The result would be an increase in supply of goods available for purchase by consumers. What benefit will this increased supply of goods have on our economy, given decreasing consumer demand? Can consumers spend MORE money to buy this increased supply when they have LESS money to spend? _____________________________________________________________________ Consumer spending won't increase until there is an increase in aggregate consumer income. Tax cuts designed to increase the SUPPLY of goods and services provide NO benefit for our current economic situation. None whatsoever. Companies do not make money by producing goods and services. They make money by SELLING goods and services. If they can't sell more product, they won't make more money. So they are NOT going to invest in hiring more workers to produce goods and services they can't sell. If they've already made too much product, they will lay off workers. Which will further decrease aggregate consumer income. Which will further decrease DEMAND for products. _____________________________________________________________________ Tax cuts for lower and middle income taxpayers would increase take home pay to CONSUMERS. This would have increased CONSUMER SPENDING. This would increase DEMAND for goods and services. This would stimulate hiring of more workers to produce those goods and services. And our economy would improve. Most economists agree that lower and middle income tax cuts would have provided much more economic stimulus. ' Mike, i see no flaw in your argument. a very interesting thing is happening over here in ireland at the moment. we just had our budget for 2004 published. among the main points were the following: reduced stamp duty (duty on the purchase of houses) for first time buyers. increase in the tax free bands increase in tax credits the government's aim was to ensure that most of the reduction in taxes for the lower paid. ireland has a comprehensive social welfare system, however we recognised that there is no incentive for the people at the margin to work when they may be worse off than availing of the social welfare payments. as a result, in a masterstroke by a centre right political party, they took the people at the margins off the tax system. the reasoning was flawless. 1 its better they are working than as a burden on other tax payers. 2 working is a skill that has to be learnt so you need to incentivise those at the margins to avail of it. 3 let them enter the tax system slowly, as they become better workers tthey'll be better paid and so help other people at the margins. the result is almost full employment, the lowest unemployment rate in europe, one of the highest GDP and GNP per capita. considering in the 1980's we were one of the poorest countries in the EEC, the distance we have come has baffled even the best of economists! it was also discovered that our top millionaires paid between 0%-5% tax per year, they had tax advisers that minimised their exposure by availing of tax shelters. naturally this caused an uproar, as the salaried worker saw this a unjust. most of these tax shelters are only available to the wealthy. indeed, hotel building exemptions or car park construction exemptions are not a viable option to reduce tax for the average worker! so the same political party announced a policy to introduce a law stating that exemptions can only be availed of to reduce the level of tax to 15% of taxable income. while we may lose a few millionaires to the likes of monaco or the channel islands, the principle behind the change is equitable.

Subject: Re: A Slow Change From: Mike To: Setanta Date Posted: Fri, Dec 17, 2004 at 15:29:10 (EST) Email Address: unlawflcombatnt@aol.com/ Message: 'Tax cuts for the rich do little to stimulate consumer spending. The rich are generally consuming as much as they desire. Further tax cuts for the affluent will not increase their 'consumer' spending. In fact, the rationale behind tax cuts for the rich is entirely different. These tax benefits are supposed to stimulate INVESTMENT (or savings). So what is the benefit to increasing investment? In general, it is a supply-side benefit. To put more precisely, it is supposed to increase the SUPPLY of goods and services. The result would be an increase in supply of goods available for purchase by consumers. What benefit will this increased supply of goods have on our economy, given decreasing consumer demand? Can consumers spend MORE money to buy this increased supply when they have LESS money to spend? _____________________________________________________________________ Consumer spending won't increase until there is an increase in aggregate consumer income. Tax cuts designed to increase the SUPPLY of goods and services provide NO benefit for our current economic situation. None whatsoever. Companies do not make money by producing goods and services. They make money by SELLING goods and services. If they can't sell more product, they won't make more money. So they are NOT going to invest in hiring more workers to produce goods and services they can't sell. If they've already made too much product, they will lay off workers. Which will further decrease aggregate consumer income. Which will further decrease DEMAND for products. _____________________________________________________________________ Tax cuts for lower and middle income taxpayers would increase take home pay to CONSUMERS. This would have increased CONSUMER SPENDING. This would increase DEMAND for goods and services. This would stimulate hiring of more workers to produce those goods and services. And our economy would improve. Most economists agree that lower and middle income tax cuts would have provided much more economic stimulus. ' Mike, i see no flaw in your argument. a very interesting thing is happening over here in ireland at the moment. we just had our budget for 2004 published. among the main points were the following: reduced stamp duty (duty on the purchase of houses) for first time buyers. increase in the tax free bands increase in tax credits the government's aim was to ensure that most of the reduction in taxes for the lower paid. ireland has a comprehensive social welfare system, however we recognised that there is no incentive for the people at the margin to work when they may be worse off than availing of the social welfare payments. as a result, in a masterstroke by a centre right political party, they took the people at the margins off the tax system. the reasoning was flawless. 1 its better they are working than as a burden on other tax payers. 2 working is a skill that has to be learnt so you need to incentivise those at the margins to avail of it. 3 let them enter the tax system slowly, as they become better workers tthey'll be better paid and so help other people at the margins. the result is almost full employment, the lowest unemployment rate in europe, one of the highest GDP and GNP per capita. considering in the 1980's we were one of the poorest countries in the EEC, the distance we have come has baffled even the best of economists! it was also discovered that our top millionaires paid between 0%-5% tax per year, they had tax advisers that minimised their exposure by availing of tax shelters. naturally this caused an uproar, as the salaried worker saw this a unjust. most of these tax shelters are only available to the wealthy. indeed, hotel building exemptions or car park construction exemptions are not a viable option to reduce tax for the average worker! so the same political party announced a policy to introduce a law stating that exemptions can only be availed of to reduce the level of tax to 15% of taxable income. while we may lose a few millionaires to the likes of monaco or the channel islands, the principle behind the change is equitable. --- Setanta, Thank you for your feedback. I really appreciate it. I'm not an economist, so my non-professional statements need to be viewed with that in mind. However, my statements make sense to me, at least. They're all based on a very simple and basic understanding of supply and demand. And a lot of logical(?) deductions. --- Thank you for the illustration about Ireland. I'll have to re-read it. http://www.unlawflcombatnt.blogspot.com/ LaymanEconomist www.unlawflcombatnt.blogspot.com/

Subject: Re: A Slow Change From: Mike To: Mike Date Posted: Sat, Dec 18, 2004 at 02:16:13 (EST) Email Address: unlawflcombant@aol.com Message: Setanta, Taking the lower income out of the tax system sounds like an excellent idea. In the U.S., the federal income tax rate is quite low for the lower income payers. But the payroll tax is still significant. The payroll tax is at a fixed rate up until about $87,000. Then the rate is capped. So that would be the tax to reduce to produce the kind of effect of which you spoke. In order to reduce the real, effective marginal tax, we'd have to reduce the payroll tax rate on the lower income payers. If we removed the cap we might come closer to being able to afford it. Otherwise, it would reduce even further the total contributions to social security. There's already a huge debate about privatizing social security, which would reduce its current funding. I think a politician who suggested further funding reductions would be committing political suicide. As far as taxes for the wealthiest here, they have been reduced with recent tax cuts. This theoretically increases investment. But it does little to increase consumer spending. Many think the US economy is hurting more from lack of consumer spending than from lack of investment. There still needs to be a market for goods and services. Producing more goods and services does no good if they can't be sold. There needs to be DEMAND. Most of the American consumer market is created by the bottom 98% of the taxpayers. If their income drops, so does consumer spending and consumer demand. Investment capital is supposed to increase the production of goods and services. However, if consumer spending is stagnant or dwindling, there is no benefit to producing more goods and services. So, overall, re-investment of tax cuts in companies that cannot sell an increased amount g/s makes little sense. If the market is glutted with capital, as the Wall Street Journal states, investing the money seems unwise. Some would-be investors are holding on to their money or putting it in the bank. I'm going to re-invest my IRA retirement money in gold. I think the US economy is going to slump. I think it's just a matter of time. I hope I'm wrong, but I don't see anything to be optimistic about with the American economy. In spite of a drop in median weekly earnings, consumer spending has not dropped much. However, the current rate of consumer spending has been propped up by borrowing. I don't think it can be sustained much longer on borrowing. And I see no reason to think consumer income is going to increase. We're losing jobs to competition from imports. And we're slowly leaking jobs to foreign coutries that can provide cheaper labor. Aggregate consumer income leaks to those countries along with the jobs. LaymanEconomist www.unlawflcombatnt.blogspot.com/

Subject: Chinese Workers Want Wal-Mart Union From: Emma To: All Date Posted: Thurs, Dec 16, 2004 at 12:09:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/16/international/asia/16china.html Workers Demand Union at Wal-Mart Supplier in China By HOWARD W. FRENCH SHENZHEN, China - The scene on the street did not look like much, just the comings and goings of small groups of women from their factory dormitory, with a few lingering here and there in knots to discuss their situation. Since Friday, though, work has stopped inside the Uniden factory's walls here, where 12,000 workers, mostly young women from China's poor interior provinces, make wireless phones, which the Japanese manufacturer supplies in large number to the giant American retailer Wal-Mart. China's laws tightly proscribe public demonstrations, so the women found another way to vent their anger over their wages, and what they said were many other abusive work conditions. They met secretly to draw up a list of demands, and then walked off the job. Wal-Mart has been much in the news recently in China, with the government insisting that the retailer do what it refuses to do in the United States: allow all its workers to join unions. But what the scene at the Uniden plant here in Shenzhen, the very heartland of China's export-led resurgence, reveals is a situation much more typical in this country's booming new economy, where the government has been reluctant to enforce laws that would oblige foreign companies to allow unions, for fear of losing overseas investment. The hordes of young women employed here say they are required to work 11-hour days, including three hours of mandatory overtime, to earn a basic monthly salary of 484 yuan, or about $58. The women say they must spend nearly half their wage on the drab company dormitories where, as migrants, they must live. They laughed ruefully when asked if they were able to save any money, or send money back to their families. 'No, I haven't been able to save any money,' said Liu Shuangyan, outside the factory gates. 'You have to eat. You buy a few clothes, and then there's nothing left.' 'If you get sick,' added Ms. Liu, a native of Hunan Province, 'they won't give you leave unless it is very serious.' A friend and fellow worker from Hunan, Wang Lifang, then spoke up to say, 'They have a small clinic, but you have to pay, and the medicines they give you are much more expensive than outside.' Other young women said that many minors were employed in the plant, and that most of the employees had been forced to pay 200 yuan under the table as a job-finder's fee in order to be hired. Some women said they had little idea what a union was, but yearned for some kind of representation that could serve as their advocate. Others said with certainty that no union existed, and ascribed their plight in large part to this fact. 'If there were a union, things would be fairer for us,' said one 32-year-old woman from Henan Province. 'Right now, one person says one thing, another complains about another, and the boss doesn't listen to anything.' Workers said the strike began when a senior Japanese manager was overheard saying to a Chinese supervisor that the employees would be foolish to accept the terms of a new contract being offered them. Others said it was caused by abusive dismissals of workers with seniority to make way for cheaper, more pliable replacements. Japanese officials at the company, reached by telephone, refused to comment, passing the phone to a Chinese manager. The manager, who declined to identify himself, said, 'A group of workers' contracts have reached termination, and the company, in conformance with labor laws, did not offer them a new contract.' Believing the questions were coming from a caller in New York, the Chinese manager said the strike had ended, early in the afternoon, and the situation had returned to normal. 'If you could get into a spaceship right now and come over, you'd see for yourself,' he said, laughing. Meanwhile, plainclothes security agents milled outside of the plant. As soon as a foreigner began taking photographs of the continuing work stoppage, they called the police. Analysts of China's labor scene say strikes like this are becoming far more common as younger migrant workers exposed to the wealth of China's relatively rich eastern cities grow increasingly angry over what many see as their exploitation. Although few are unionized, communication and coordination among them is growing, often through the sending of coded messages to each other by cellphone. 'The migrant workers have learned to protest with their feet, they are more capable of negotiating, and they can choose not to work,' said Liu Kaiming, who studies conditions of migrant workers in Guangdong Province. 'That has especially been true recently, with a lot of the migrant workers who were born in the 1980's entering the workforce. They've had a better education, they're young and emotional, and they've been emboldened by media reports about their conditions to demand their rights.' All the women interviewed seemed determined to press their demands, the most important of which, they said, were shorter work hours and enforcement of minimum-wage laws. Asked if they were afraid of losing their jobs, they scoffed at the idea, saying workers were in short supply in Shenzhen's vast manufacturing zone. 'If we were men, there would have been a strike a long time ago,' one woman said. 'Women are easier to bully, but we have hearts of steel.'

Subject: United States of Europe From: Setanta To: All Date Posted: Thurs, Dec 16, 2004 at 06:29:03 (EST) Email Address: Not Provided Message: Nudging America Awake as a United Europe Takes the Stage By ROGER COHEN Published: December 16, 2004 (NY Times) Sometimes major events take place quietly, their import obscured by the hubbub of more arresting happenings. Only with time is the shift perceptible; it becomes clear that the world has changed not because another terrorist has struck but because a nameless bureaucrat has accomplished a thankless task. Such is the case, it seems, with the emergence of what T. R. Reid somewhat provocatively calls 'the United States of Europe.' Mr. Reid, a correspondent for The Washington Post, is by no means the first to use that term. In 1946, Winston Churchill urged Europeans to 'build a kind of United States of Europe' to transform the Continent from 'a breeding ground for pestilence and hate.' Since then, through successive treaties and much haggling, Europe has inched toward the 'ever closer union' prescribed by the founding fathers of integration. Mr. Reid's thesis is that the United States of Europe is no longer an objective; it is a reality. This is a bold view. Mr. Reid's book, 'The United States of Europe: The New Superpower and the End of American Supremacy,' sometimes stretches to make the argument that the 25-nation European Union has marched into a central place on the world stage while America slept. The chronic failings of the union are glossed over. High unemployment, slow growth, often acute internal divisions (as over the war in Iraq) and the lack of the sort of military power needed to make diplomatic initiatives persuasive are issues on which Mr. Reid chooses not to dwell. Rather, his focus is on Europe's achievements and the ways in which the union has emerged as a counterweight to an American power that is overwhelming in military terms, but less persuasive in others. This approach is timely. For behind all the trans-Atlantic ugliness over Iraq lurk divisions that will no doubt prove enduring. A united Europe has emerged as the embodiment of an approach to world affairs that stands in contrast to that of the United States. It is one based on pooled sovereignty, the primacy of international institutions and law, the exaltation of peace, an inviolable secularism, a shared currency (the euro), and a value system equating the death penalty with barbarism and free health care with civilization. 'Europe,' Mr. Reid writes, 'is at a point in its history where making aggressive war is considered passé, an outdated relic along the lines of burning at the stake or a medieval joust.' That is an overstatement; European troops are deployed, and dying, in Afghanistan. But in this fluid book, written with verve, marked by the cool distillation of complex issues, Mr. Reid's central point is a critical one: the European Union, 15 years after the end of the cold war, has achieved a heft insufficiently acknowledged on this side of the Atlantic. This unity was inspired by America's federal model and achieved under the protection of American troops, but is now often characterized by opposition to America. Soon, under its draft constitution, the European Union will have what amount to a president and a foreign minister. Mr. Reid argues that these leaders will head a 'borderless federal union that is not exactly a single country, but is much more than just another international organization or trading bloc,' one 'determined to challenge American claims to global supremacy.' In fact, several members of the European Union, especially new ones like Poland, remain attached to a strong American presence in Europe, because they see it as the ultimate guarantor of their security. Views of the United States vary: British Atlanticism and French anti-Americanism coexist, with Germany hovering between them. But it is indisputable that the ideal of European unity has assumed a kind of global resonance - one that inspires democratic reformers in Ukraine today - and done so in contradistinction to American power. The importance of Mr. Reid's book lies in its evocative framing of this shift. His approach is journalistic, using portraits of European entrepreneurs and his family's personal experience during their years in London to compile a picture of a fast-changing continent. The vignettes are framed with enough history to give them context but not so much as to weigh down a book of polemical energy. Among the best chapters is that devoted to the travails of General Electric's former chief executive, John F. Welch Jr., whose plans in 2000 for a merger with Honeywell ran afoul of the European Union's Directorate-General for Competition. What's that? It is, as Mr. Welch discovers to his discomfort, where European antitrust law is enforced. Forget national governments; they have no more say in such matters. 'We have to do business with Europe, so we have no choice but to respect their law,' Mr. Welch says when his merger is squelched. 'That really is just the way the world works now.' In his chapter on the European social model, Mr. Reid explores one aspect of the 'basic differences of worldview on the opposite sides of the Atlantic.' He compares the Continent's safety net to 'falling into a large, soft bed with a down comforter.' There is, of course, a price for all the benefits: a lack of initiative. But Mr. Reid feels this can be overstated; look at how Nokia grabbed a bigger market share than Motorola or how Airbus took on Boeing. And his experience of Britain's National Health Service leads him to a stark view: 'As an American, I would rather see my country move in the European direction on health care than vice versa.' It is hard, given spiraling American health costs, to argue with that conclusion. Mr. Reid's portrait of the euro's rise and America's vulnerability to its deficits is equally persuasive. But his general bullishness on European industry seems overblown, and the book suffers from a few odd slips, among them a reference to Zoran Djindjic as 'prime minister of Serbia' that fails to note that he was assassinated in 2003. The book's notes - seven entries - leave much to be desired. But these are quibbles. Mr. Reid has performed a valuable service. The tendency in the United States is still to laugh at European Union rules governing 'the maximum permitted curvature of cucumbers,' or invoke Henry Kissinger's line about Europe's missing phone number. These are tired habits. It is now more important to ask how the United States should respond to the growing 'soft power' and independence of the European Union. In recent years, under the Bush administration, the tendency has been to ignore it or try to divide it. Mr. Reid proposes another approach: 'The United States of America has to show respect for the United States of Europe.' Roger Cohen writes the Globalist column in The International Herald Tribune

Subject: Re: United States of Europe From: Jennifer To: Setanta Date Posted: Thurs, Dec 16, 2004 at 11:21:08 (EST) Email Address: Not Provided Message: Useful review to think about. I am contented with holding the European Index. Ireland and Sweden, we have seen, are having terrific years, even without oil like Norway.

Subject: Many of Us Feel Secure From: Jennifer To: All Date Posted: Thurs, Dec 16, 2004 at 05:47:36 (EST) Email Address: Not Provided Message: We are having a splendid investment year again. The bears have been wrong this year as last. What I find about me is a lot of contentment even in a time when there is concern and discussion and argument about where we are heading. Why should my friends and I stop consuming, since we feel reasonably secure? My portfolio is balanced well, and is showing gains in every account for another year. Vanguard funds have been splendidly safe and productive. Now, I am thinking of the year to come but still feeling secure.

Subject: Re: Many of Us Feel Secure From: Pete Weis To: Jennifer Date Posted: Thurs, Dec 16, 2004 at 10:13:43 (EST) Email Address: Not Provided Message: My father grew up in Brooklyn and lived through the Great Depression. Perhaps that is why I am so skeptical of our present good times. This unrelenting buildup of debt smells bad to me. I'm certain I have inherited some of his distrust of the 'system'. Many things have changed over the years - technological advancement, economic theory, etc. A couple of things which I believe are different and we face in earnest for the first time are huge deficits which threaten the dollar like never before and our main sources of energy (oil & natural gas) are rapidly closing on a point, for the first time, where they will not meet the demands of all who consume them. In the past we were able to switch from one energy source to the next without a serious depletion of the previous source. So water power-to-steam power with coal-to-electric power with oil came with some short term disruptions or little disruption at all. But the next switch involves a depletion of the previous source before we have fully developed the next - a difference from the past. The one thing which has not changed is human behaviour and this involves our 'irrational exuberance', fear, greed and slowness to garner the social and political will necessary to deal with problems before they blow up into real crises.

Subject: Re: Many of Us Feel Secure From: Terri To: Jennifer Date Posted: Thurs, Dec 16, 2004 at 07:22:46 (EST) Email Address: Not Provided Message: Possibly most important for us is to avoid debt and save save save.

Subject: I'm with Pete on this one . . . From: Paul G. Brown To: Terri Date Posted: Thurs, Dec 16, 2004 at 11:54:43 (EST) Email Address: Not Provided Message: Even a superficial reading of history suggests that abrupt reversals of economic fortunes are part and parcel of the process. Shit happens. Sometimes, it happens to a lot of people, all at once. Somewhere I even read an economist (or historian) who suggested that, in the absence of a state that actively re-distributes wealth, such collapses are inevitable, because they are the only way capital gets freed up. (See: Paradox of thrift. If we're all saving, and no one's spending, then there is no reason to take that saved capital and invest it anywhere. It's not until we're all *forced* to spend those savings that the money flow kicks off again.) This ain't prophecy. But it does say something about the nature of economic security. Read 19th century literature and you're struck by the nonchalant way the characters accept financial ruin, or the prospect of it. They care more about their reputation; whether they're seen as being truthful, courageous, trustworthy, and so on.

Subject: Re: I'm with Pete on this one . . . From: Setanta To: Paul G. Brown Date Posted: Fri, Dec 17, 2004 at 04:31:18 (EST) Email Address: Not Provided Message: Great post. seems to be a cogent argument in favour of limited state interventionism. instinctively, i always saw the need for the New Deal and similar policies. free market forces, in theory, are efficient. however, add human nature and an unequal distribution of resources and you do not end up with an efficient market or equitable society. you end up with 17th & 18th century misery and a gap between the 'aristocracy' and 'rentier' class. don't get me wrong, i believe in the free movement of capital and labour and am not left wing. however, i do believe that the state should intervene at times. at present it intervenes to end anti-competitive practices and to secure the financial system. why not to smooth the economic cycle as well? explain to me why the government is taking away the economic stabilisers, how can an unstable economy be beneficial to business (the sector Mr. Bush purports to be the friend of)???

Subject: Re: I'm with Pete on this one . . . From: Paul G. Brown To: Setanta Date Posted: Fri, Dec 17, 2004 at 12:57:29 (EST) Email Address: Not Provided Message: 'explain to me why the government is taking away the economic stabilisers, how can an unstable economy be beneficial to business (the sector Mr. Bush purports to be the friend of)??? ' Helpful phrase: Reality based community.

Subject: Re: I'm with Pete on this one . . . From: Terri To: Paul G. Brown Date Posted: Thurs, Dec 16, 2004 at 12:36:34 (EST) Email Address: Not Provided Message: Interesting comments. Who is the economist or historian you read on ocassion? I will join with you in the reading. I always take Pete seriously, but I look to broad and personal answers to the concerns raised.

Subject: Re: I'm with Pete on this one . . . From: Paul G. Brown To: Terri Date Posted: Thurs, Dec 16, 2004 at 16:24:46 (EST) Email Address: Not Provided Message: I read a lot of 'em. Sometimes I remember what they said well enough to be able to provide a citation. Not this time.

Subject: Re: I'm with Pete on this one . . . From: Terri To: Terri Date Posted: Thurs, Dec 16, 2004 at 16:05:13 (EST) Email Address: Not Provided Message: I can too spell 'occasion' :)

Subject: Modulus of economic elasticity? From: Pete Weis To: All Date Posted: Wed, Dec 15, 2004 at 22:36:44 (EST) Email Address: Not Provided Message: We have gone back and forth on this board regarding our relative bearishness or bullishness, but this person named Randy Buss makes some interesting observations about the psychology involved. Will the strain of debt finally cause enough psychological stress to cause structural economic failure or is there enough elasticity in this modulus to weather the strain? Maybe I'm getting carried away with this, but Randy Buss does a better job with the following: Official Insanity Der Invest Informant Randy Buss 15 December 2004 No matter what we do, we are doomed. No matter what we don't do, we are doomed. These seem to be the two current camps of thought at the present time. I'm not sure if my 'radar' is in perfect functioning order, but it seems the world is increasingly becoming 'out of whack.' Exactly what 'out of whack' means is basically relative to the person whom it affects. This can either be positive or negative. To people like Stephen Roach, the world is precariously imbalanced and needs these macro imbalances to be resolved or the risk of a 'meltdown' grows nearer. To a certain degree he is totally correct. On the other hand, to a Chinese official, the world is probably looking pretty good -- albeit out of whack as compared to his former life in a grey factory -- with increased world-wide exports, increased quality of life and the consumption of luxury goods... and quietly he grins inward and is joyous at the 'nasty westerners' being dependent on his people's exports. Macro economics scenarios likely play no large and forefront role in his world. I have read recently, going back to my indexed 'pile of papers' on the floor, an article written in 1980. It was written by an American grandfather to his grandchildren and he lamented about the entire economic decay and the lack of fiscal 'backbone' of the politicians and how the entire debt (at that time) would bury the US Dollar in the coming few years - he urged his grandchildren to buy gold. Obviously he had been through the !930s Depression. Was he right in 1980? On a certain level, yes. But, also no. Again it is all subjective. I am going to go out on a rather unorthodox limb and try to explain all this economic 'stuff' which we seem to be caught up in. For every article where I read 'white' from an experienced market person or intellect or guru, I then read an article 'black' which states entirely the opposite, and with an equally intellectual and seemingly strong base of information to support his/her viewpoint. I currently believe the explanation lies simply in human psychology. In mechanical systems, transitional states which lead to a break down usually occur along fixed physical and known quantities or levels. The stress or fracture point of material, the temperature swings a material can withstand, etc. The fracturing or breaking occurs along these known parameters, usually. The human being is much more resilient. But equally, the human is much more subject to perceptional aspects and thus any fractural stressing points are not fixed and known. They are likely more adhering to the chaos theory. I currently believe we are in such a period of complexity where the human psychology in the West will determine the marketplace. Of course this does not occur in a vacuum - the macro economic parameters must also accommodate the raw numbers. On paper, the Roach's of this world grind numbers and look at GDP and percentage of debt and compare it to historical data, etc. etc. In their eyes, the US and other western States are treading dangerously high debt loads along with gross trade imbalances and savings next to nothing. Indeed, this is a 'cocktail of doom' on a pure numbers basis. But the consumer, being a complex and usually rather irrational animal, would not know a GDP from a MPG from a QED. You know, it's just numbers, it will be alright. We've always made it through. This is exactly my point. The psychological 'tipping point' has not been reached yet. The chaos principle has not yet kicked in. From a purely rational and logical point of view, the State could curb outgoing costs, could have raised interest rates long ago to curb consumption and increase savings, etc. It was not done. The consumer could have simply stopped buying on credit, paid down existing debt, etc. Alas, we are human and lazy and think the good times will last forever. And that is maybe the key word - 'think' - so long as people think that things will work out, maybe they will. But as soon as the mass psychology tips too far to the 'What have we done? This is not sustainable and is pure insanity' will the markets react, and likely also too far to the other side. Currently we just don't know 'how far to the other side' things might tip and it is exactly that fear which drove that grandfather to write about gold as in investment. I think that is also why gold and silver are coming back in vogue. I believe people intuitively feel that things are 'out of whack' and not sustainable at their current pace respectively imbalance. I also believe that western government officials know this current state of fiscal affairs is currently VERY precarious. They are trying to macro-manage and massage the data to keep the masses from not tipping over into mass hysteria on the down side. I truly believe they are deathly afraid of this scenario. But strangely, they show little desire to truly tackle the logical issues which would deflate this potential tipping point. It sort of reminds me of a sanatorium where all are insane but nevertheless the people inside expect one of them to stand up and lead them out. It will likely not happen. Which reminds me: What is the definition of insanity? Doing the same thing over and over again while expecting different results. Our fiscal and monetary officials are now classified as insane, to my way of thinking. Whenever the tipping point does come, then I believe the final rush will be into commodities and not more printed paper, commonly referred to as 'money' and electronic debt. By that time, 'money' will be referred to as toilet paper and DEBT will be the nastiest of four letter words. People will be looking for and asking for and demanding tangible assets. 12 December, 2004 Randolph Buss http://www.dinl.net

Subject: A Well Balanced Portfolio From: Jennifer To: Pete Weis Date Posted: Thurs, Dec 16, 2004 at 06:08:21 (EST) Email Address: Not Provided Message: There is every reason to be bearish, but we need to be intelligent bears as we need to be intelligent bulls. There is a large investment world before us, and all sorts of ways to be balanced and conservative. How can anyone know the future, but we can be intelligently invested in stocks and bonds and a home. We can invest in America and abroad. I am optimistic because I think about how to be balanced in investing. I read all the literature I get from Vanguard, and I read Paul Krugman and this board and make cautious portfolio decisions.

Subject: Re: A Well Balanced Portfolio From: Pancho Villa To: Jennifer Date Posted: Thurs, Dec 16, 2004 at 10:28:48 (EST) Email Address: nma@hotmail.com Message: I'll buy Fannie Mae shares

Subject: Re: A Well Balanced Portfolio From: Jennifer To: Pancho Villa Date Posted: Thurs, Dec 16, 2004 at 11:16:02 (EST) Email Address: Not Provided Message: Well, I hold Vanguard Value Index, among other holdings, and I am having a fine year following on a terrific year. Fannie Mae is a holding in the Value Index, but the beauty of indexing is it really matters little even when a powerful company struggles. Fannie Mae could make for an attractive long term but at current share prices. Investors have been anticipating the accounting adjustments. There were lots of reasons to take profits on Fannie Mae on the way up, as Warren Buffett did with Freddie Mac.

Subject: You add to the elasticity! From: Pete Weis To: Jennifer Date Posted: Thurs, Dec 16, 2004 at 09:31:47 (EST) Email Address: Not Provided Message:

Subject: Please Explain From: Terri To: Pete Weis Date Posted: Thurs, Dec 16, 2004 at 10:29:51 (EST) Email Address: Not Provided Message: Your message was lost, Pete.

Subject: A disappearing act From: Pete Weis To: All Date Posted: Wed, Dec 15, 2004 at 22:10:57 (EST) Email Address: Not Provided Message: The disappearing dollar Dec 2nd 2004 From The Economist print edition How long can it remain the world's most important reserve currency? THE dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world's reserve currency, a privilege which is now at risk, allows America to borrow cheaply, and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care, and may come to regret it. The cost of neglect The dollar is not what it used to be. Over the past three years it has fallen by 35% against the euro and by 24% against the yen. But its latest slide is merely a symptom of a worse malaise: the global financial system is under great strain. America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes a dollar devaluation inevitable, not least because it becomes a seemingly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody want to invest in a currency that will almost certainly depreciate? A second disturbing feature of the global financial system is that it has become a giant money press as America's easy-money policy has spilled beyond its borders. Total global liquidity is growing faster in real terms than ever before. Emerging economies that try to fix their currencies against the dollar, notably in Asia, have been forced to amplify the Fed's super-loose monetary policy: when central banks buy dollars to hold down their currencies, they print local money to do so. This gush of global liquidity has not pushed up inflation. Instead it has flowed into share prices and houses around the world, inflating a series of asset-price bubbles. America's current-account deficit is at the heart of these global concerns. The OECD's latest Economic Outlook predicts that the deficit will rise to $825 billion by 2006 (6.4% of America's GDP) assuming unchanged exchange rates. Optimists argue that foreigners will keep financing the deficit because American assets offer high returns and a haven from risk. In fact, private investors have already turned away from dollar assets: the returns on investments in America have recently been lower than in Europe or Japan (see article). And can a currency that has been sliding against the world's next two biggest currencies for 30 years be regarded as “safe”? In a free market, without the massive support of Asian central banks, the dollar would be far weaker. In any case, such support has its limits, and the dollar now seems likely to fall further. How harmful will the economic consequences be? Will it really undermine the dollar's reserve-currency status? Periods of dollar decline have often been unhappy for the world economy. The breakdown of Bretton Woods that led to a weaker dollar in the early 1970s was painful for all, contributing to rising inflation and recession. In the late 1980s, the falling dollar had few ill-effects on America's economy, but it played a big role in inflating a bubble in Japan by forcing Japanese authorities to slash interest rates. This time round, it is a bad sign that everybody is trying to point the finger of blame at somebody else. America says its external deficit is mainly due to sluggish growth in Europe and Japan, and to the fact that China is pegging its exchange rate too low. Europe, alarmed at the “brutal” rise in the euro, says that America's high public borrowing and low household saving are the real culprits. There is something to both these claims. China and other Asian economies should indeed let their currencies rise, relieving pressure on the euro. It is also true that Asia is partly to blame for America's consumer binge: its central banks' large purchases of Treasury bonds have depressed bond yields, encouraging households in the United States to take out bigger mortgages and spend the cash. And Europe needs to accept, as it is unwilling to, that a weaker dollar will be a good thing if it helps to shrink America's deficit and curb the risk of a future crisis. At the same time, Europe is also right: most of the blame for America's deficit lies at home. America needs to cut its budget deficit. It is not a question of either do this or do that: a cheaper dollar and higher American saving are both needed if a crunch is to be avoided. Simple but harsh Many American policymakers talk as though it is better to rely entirely on a falling dollar to solve, somehow, all their problems. Conceivably, it could happen—but such a one-sided remedy would most likely be far more painful than they imagine. America's challenge is not just to reduce its current-account deficit to a level which foreigners are happy to finance by buying more dollar assets, but also to persuade existing foreign creditors to hang on to their vast stock of dollar assets, estimated at almost $11 trillion. A fall in the dollar sufficient to close the current-account deficit might destroy its safe-haven status. If the dollar falls by another 30%, as some predict, it would amount to the biggest default in history: not a conventional default on debt service, but default by stealth, wiping trillions off the value of foreigners' dollar assets. The dollar's loss of reserve-currency status would lead America's creditors to start cashing those cheques—and what an awful lot of cheques there are to cash. As that process gathered pace, the dollar could tumble further and further. American bond yields (long-term interest rates) would soar, quite likely causing a deep recession. Americans who favour a weak dollar should be careful what they wish for. Cutting the budget deficit looks cheap at the price.

Subject: Vanguard Returns From: Terri To: All Date Posted: Wed, Dec 15, 2004 at 19:16:58 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/15/04 S&P is up 10.1% Growth Index is 6.6 Value Index is 14.3 Mid Cap Index is 18.9% Small Cap Index is 18.8% Small Cap Value is 22.5 Europe Index is 18.9 Pacific Index is 12.7 Energy is 35.1 Health Care is 8.3 REIT Index is 29.2 High Yield Corporate Bond Fund is 8.3 Long Term Corporate Bond Fund is 10.1

Subject: National Index Returns From: Terri To: Terri Date Posted: Wed, Dec 15, 2004 at 19:35:20 (EST) Email Address: Not Provided Message: National Index Returns 12/31/03 - 12/15/04 Australia 24.8 Canada 18.0 Denmark 28.0 France 16.9 Germany 14.1 Hong Kong 22.5 Ireland 40.5 Japan 9.4 Norway 50.3 Sweden 34.9 Switzerland 14.1 UK 18.7

Subject: The Dollar is Valuable From: Terri To: All Date Posted: Wed, Dec 15, 2004 at 18:32:42 (EST) Email Address: Not Provided Message: Ah, but in America there is much to buy and invest in. Dollars are not such a problem when the holder wishes to buy in America as friends from Japan and Hong Kong have done recently. China's dollars are being used for foreign aid projects, for international investing, for resource purchases. And if we are focused on Japan and China as supporting the dollar, there are other central banks. Brazil may be on the development path of China, and Brazil is buying dollars. A stable dollar is important to developed Japan, but is an important source of stability for emerging economies. Brazil has become an agricultural market basket for the world, but a currency that becomes too expensive relativ to the dollar could limit growth severely. So, there is much Brazil can do with dollars.

Subject: The Dollar is Valuable - Brazil From: Terri To: Terri Date Posted: Wed, Dec 15, 2004 at 18:35:32 (EST) Email Address: Not Provided Message: For Brazil's Economy, the Doctor Is In By TODD BENSON BRASÍLIA - Antonio Palocci is a fast learner. Mr. Palocci, a doctor from the heartland of Brazil's farm belt and a former Trotskyite, is the first to admit that he knew little about the intricacies of fiscal policy when he became the country's finance minister in January last year. Now, after a crash course of talking to Wall Street and academic economists and almost two years into the job, he finds himself presiding over Brazil's most robust economic expansion in a decade. Thanks to a boom in exports, the country is on track to post a trade surplus this year of almost $33 billion, the largest on record. The economy, meanwhile, expanded 6.1 percent in the third quarter from a year ago, the fastest growth rate in eight years. That put Brazil's economy, South America's largest, on course to grow more than 5.3 percent this year, its best performance since 1994. And thanks to the economy's glow, the leftward mix of figures in the government has slowly consolidated around the pragmatic position of Mr. Palocci. Over time, Mr. Palocci has drifted toward the center from his days in a Trotskyite student group, now defunct, called Liberdade e Luta, or Freedom and Struggle. The wave of economic good news has solidified Mr. Palocci's reputation as the most influential member of President Luiz Inácio Lula da Silva's cabinet. That position was previously occupied by José Dirceu, the president's tough-talking chief of staff, who has clashed with Mr. Palocci over economic policy. Mr. Dirceu's influence has diminished since one of his closest aides, Waldomiro Diniz, was incriminated in a graft scandal last February. In a recent editorial, the daily Folha de São Paulo said that Mr. Palocci had 'definitively' replaced Mr. Dirceu as the government's 'strong man,' adding that Mr. Dirceu was 'no longer even a shadow of the 'superminister' that he once seemed to be.' Mr. Palocci, an affable 44-year-old, plays down the talk of his rising power within the government. 'What's strengthening in the government and in the country is the conviction that good fiscal behavior brings positive results for the economy,' he said. 'Whether or not I'm gaining influence isn't very important.' And Mr. da Silva himself has sought to bolster his finance minister's standing, warning a group of his own Workers' Party stalwarts in a recent speech that he was 'in tune' with Mr. Palocci and his policies like 'Beethoven's Fifth Symphony.' And in another sign of Mr. Palocci's growing clout, last month the president fired Carlos Lessa, the outspoken head of Brazil's national development bank, who had repeatedly railed in public against the government's conservative economic policies. While much of Brazil's rebound has been fueled by the global economy and a surge in prices for commodities like soybeans and iron ore, Mr. Palocci says the government is also doing its part to lay the foundation for long-term growth. 'The external environment certainly helped, but the main factor driving the recovery is the fact that this government decided to attack the economy's most vulnerable points,' Mr. Palocci said in an interview here. 'If we hadn't decided that a firm hand was needed to bring inflation under control and to reduce the public debt, we would probably be dealing with an economic disaster right now.' By sticking to austere fiscal and monetary policies in the face of fierce political opposition from members of the Workers' Party, Mr. Palocci has made significant strides in cleaning up Brazil's notoriously shaky public finances. That, in turn, has helped banish fears on Wall Street that the country might default on its $345 billion public-sector debt, and it has also earned Brazil's left-leaning government the trust of financial markets. 'For someone who's not even an economist, he's done an admirable job overseeing the economy,' said Bolívar Lamounier, a political scientist and government critic who runs a São Paulo consulting firm called Augurium. 'He has managed to maintain a pragmatic and realistic stance despite being surrounded by sharks.' Mr. Palocci was thrust into the national spotlight in tragic circumstances, taking over as Mr. da Silva's campaign manager in January 2002 after the murder of Celso Daniel, a senior Workers' Party official who had handled Mr. da Silva's run for the presidency until then. Mr. Palocci, who cut his political teeth as mayor of Ribeirão Preto, a medium-size city in the interior of São Paulo State, rapidly emerged as an even-keeled pragmatist and was instrumental in steering Mr. da Silva's campaign platform to the center. Today, Mr. Palocci and his team of technocrats are widely viewed as one of the few unmitigated successes of Mr. da Silva's administration, which has also scored some big victories in trade disputes. While most social initiatives, like a high-profile antihunger program, have been bogged down by poor planning and bureaucracy, the government, with Mr. da Silva's personal influence, has managed to push a good part of Mr. Palocci's economic agenda through a feisty Congress, including measures overhauling Brazil's debt-ridden social security system and its Byzantine tax code. In addition, Mr. Palocci's belt-tightening policies are also starting to reduce government debt, which is expected to fall to 53 percent of gross domestic product this year, from 58 percent at the end of 2003. The drop is the first in a decade. Critics on both sides of the political spectrum say that Mr. Palocci is administering an even harsher dose of austerity than his long-serving predecessor, Pedro Malan, a conservative economist who was a favorite target of the Workers' Party while sitting in opposition. Whereas the previous government agreed with the International Monetary Fund to run a primary budget surplus - which excludes debt-servicing costs - equal to 3.75 percent of G.D.P., Mr. Palocci has already raised the surplus target twice, most recently to 4.5 percent of G.D.P., which the government is on track to meet. In a country with one of the most skewed income gaps in the world, critics say that money would be better spent on much-needed social programs aimed at reducing poverty and improving Brazil's poor education system. Infrastructure is another area in desperate need of extra cash, as bottlenecks threaten to put the brakes on economic growth in the next few years. 'The government doesn't have a development policy; it has a stabilization policy,' said Paulo Nogueira Batista Jr., an economist at the Getúlio Vargas Foundation, a business school in São Paulo. 'There has been an overdose of fiscal and monetary austerity that can end up damaging the country's chances for long-term development.' Mr. Palocci shrugs off the criticism, arguing that Brazil's vast social disparities cannot be tackled if the government's finances are not in order. 'Our history shows that if you don't implement serious fiscal policies, the first victim will be the social side,' he said. 'If we had opted for a more modest adjustment process, then we would be accepting a more modest economic recovery. I prefer a more intense adjustment so that the country can over time enjoy a more lasting recovery.'

Subject: The Dollar is Valuable - Brazil 2 From: Terri To: Terri Date Posted: Wed, Dec 15, 2004 at 21:19:40 (EST) Email Address: Not Provided Message: With the economy back on track, Mr. Palocci says he is now pushing for changes aimed at improving Brazil's business climate and lowering the cost of credit. These include revamping the country's bankruptcy law to make it easier for lenders to seize collateral and dismantling the mind-boggling bureaucratic hurdles that entrepreneurs are forced to overcome to set up a business here. Still, Brazil is not out of the woods just yet. One recent issue of concern, voiced by a growing number of business leaders and even President da Silva, is that a rally in the Brazilian currency, the real, could slow export growth and put a damper on the country's economic recovery. Against that backdrop, the central bank has begun buying dollars on the foreign exchange market again, helping to knock the real off its perch. Echoing central bank officials, Mr. Palocci said the government was not aiming at any exchange rate and was instead taking advantage of favorable market conditions to 'rebuild our net foreign reserves.' Some economists say serendipity has played a large part in Mr. Palocci's success. The global economic surge, coupled with the huge pull of resources to China, have been a boon to Brazil's commodity exports. It remains to be seen, they say, whether Mr. Palocci could steer the country through heavier surf. 'Palocci has yet to be stress-tested,' said Arturo Porzecanski, head of emerging markets economic and debt strateg y at ABN Amro in New York. 'The wind isn't going to be with them forever, so now they have to take advantage of the window of opportunity they have left to get things done.'

Subject: The Dollar is Valuable to Brazil From: Terri To: Terri Date Posted: Wed, Dec 15, 2004 at 18:37:40 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/14/business/worldbusiness/14palocci.html?pagewanted=all&position= Citation...

Subject: Stocks and Bonds From: Terri To: All Date Posted: Wed, Dec 15, 2004 at 17:15:50 (EST) Email Address: Not Provided Message: The Federal Reserve tioghtened short term credit for the 5th time, and promised more to come. The result in the markets was a moderate positive day for stocks and a strong day for long term bonds. The S&P is up 10% for the year, while middle and small cap stocks are much stronger. Value stocks are stronger than growth. Energy and real estate investment trusts are having terrific years, while health care stocks are having a moderate year but are close to catching the S&P. International stocks are up more strongly than the S&P with few few countries as exceptions. Again, international value leads growth. As for bonds, the bull market in long term bonds continues. Quite a fine investing year.

Subject: Re: Stocks and Bonds From: Terri To: Terri Date Posted: Wed, Dec 15, 2004 at 17:26:59 (EST) Email Address: Not Provided Message: Imagine the long term Treasury note at 4.08%.

Subject: On Merck From: Emma To: All Date Posted: Wed, Dec 15, 2004 at 15:33:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/15/business/15merck.html?pagewanted=all&position= Not Everybody Loves Raymond By ALEX BERENSON WHITEHOUSE STATION, N.J. - Finding people who like Raymond V. Gilmartin is easy. Finding people who like the way he has run Merck, the giant drug maker, is much harder. Mr. Gilmartin has been chairman of Merck since November 1994. When he took over, Merck was close to introducing several new medicines and was one of the most respected companies in the United States. It competed fiercely with Pfizer to be the world's most important drug maker. Now, after a decade of Mr. Gilmartin's leadership, Merck is in crisis. The company, which on Tuesday held its annual briefing for Wall Street analysts at its headquarters in western New Jersey, has only one new drug anywhere near federal approval - a diabetes medicine that it licensed from Bristol-Myers Squibb earlier this year to jointly promote. Merck faces a criminal investigation, a raft of plaintiff suits and severe damage to its reputation over its arthritis drug Vioxx, which Merck abruptly stopped selling in September after acknowledging Vioxx caused heart attacks. To cut costs, the company said yesterday that it would eliminate 5,100 jobs by year-end, 700 more job cuts than it had previously planned. Merck currently has about 60,000 employees. In three of the last four years, Merck's performance has fallen short of Mr. Gilmartin's promises to Wall Street, and its stock has fallen almost 70 percent since 2000. Adding insult to injury, Pfizer is now much larger than Merck. But Mr. Gilmartin appears undaunted. Merck's board still supports him, and he said in an interview Monday that he planned to remain Merck's chairman until he reached the company's mandatory retirement age of 65 in March 2006 - an assurance he repeated yesterday. Friends and business associates who have seen him privately say his calm, relaxed demeanor has not changed recently. Last week, he attended a regular meeting of the Microsoft board, where he is a director. 'He was very comfortable with himself,' said Ann McLaughlin Korologos, another Microsoft director and the chairman of Rand, the research institute based in Washington. By all accounts, Mr. Gilmartin is a likeable chief executive, a calm and quiet man who has helped make H.I.V. medicines more accessible to millions of poor people around the world. Even when Merck's fortunes peaked in the late 1990's, Mr. Gilmartin largely avoided the magazine covers that other executives craved, and his pay has been relatively modest by the standards of corporate America, averaging close to $3 million a year since 1999. Mr. Gilmartin's friends and associates say he would not have allowed Merck to sell Vioxx if he believed the drug was unsafe. 'I have no doubt of Ray's genuineness and decency,' said Robert B. Zoellick, the United States trade representative, who worked with Mr. Gilmartin when drug makers came under pressure for pricing medicines at levels that poorer countries could not afford. 'Ray has time and time again tried to be helpful in a way that met public policy needs,' Mr. Zoellick said. But while Mr. Gilmartin's personal ethics may be impeccable, Merck is not the first company that he has run to be accused of putting profits ahead of safety. Mr. Gilmartin was chief executive of Becton-Dickinson, a medical supplies company and major supplier of needles, between 1989 and 1994, a period when the problem of H.I.V. and hepatitis infections from accidental needle sticks became a public health concern. But Becton-Dickinson declined to invest in making needles that would reduce the risk of accidental infection, said Bill Borwegen, the health and safety director for the Service Employees International Union, which represents hospital workers. The San Francisco Chronicle made similar claims about Becton-Dickinson in articles in 1998. 'We were trying to get them to make safer needles,' Mr. Borwegen said. 'They spent a lot of time trying to make their needles sharper, and they did very little to make their needles safer.' Mr. Gilmartin denied that allegation, saying Becton-Dickinson had invested in new product development. Sharper needles were very important to patients because they reduced the pain when they were inserted, he said. 'There was a great deal of effort in ways that seemed small but were huge as far as patients were concerned,' he said. Mr. Gilmartin said he has been committed to patient safety at both Merck and Becton-Dickinson. Merck's problems are temporary, resulting mainly from the unpredictable pace of new drug discovery, and Merck will be in strong shape when he retires, he said. 'We've got significant opportunities going forward,' he said. That view is not widely shared. Barbara Ryan, an industry analyst at Deutsche Bank who rates Merck as a hold, said Mr. Gilmartin had failed in both strategy and execution. 'It's pretty plain to see that Merck has had a strategy or a lack thereof for the last five years that hasn't been working in its shareholders' favor,' Ms. Ryan said. She said that other drug companies, like Pfizer, recognized the risk of depending too heavily on their laboratories for new medicines and looked outside for young start-ups with promising research. In contrast, she added, Merck bet almost solely on its own scientists and pressed forward on some drugs even after early research results were less than spectacular.

Subject: On Merck - 2 From: Emma To: Emma Date Posted: Wed, Dec 15, 2004 at 20:12:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/15/business/15merck.html?pagewanted=all&position= As a result, the company was forced to discontinue research on five important drugs in 2003, including two that had reached Phase III clinical trials - the final stage before drugs are submitted to the Food and Drug Administration for approval. Ms. Ryan said that Mr. Gilmartin was also misguided in his insistence that Merck remain independent. By merging and cutting costs, Merck could have shown profit growth even without new medicines, thus satisfying investors and buying time for its research to succeed. Mr. Gilmartin said he stood behind Merck's stand-alone strategy. Mergers may provide short-term profit growth but do not help research productivity, the ultimate determinant of a drug company's success, he said. 'Research has the first call on every dollar in this company,' he said. At yesterday's meeting, Dr. Peter S. Kim, Merck's director of research, told analysts that the company had several promising new compounds in development. Last year, 12 new drugs entered Phase II trials, where drugs are tested in groups of 100 or so patients for safety and effectiveness, he said. An additional 18 medicines entered Phase I trials, the first phase of human testing, in which promising compounds are tested in small groups of patients for safety. Those results are a significant improvement from Merck's 2003 pipeline, though only a fraction of Phase I and II drugs are ever approved for sale. Yet Merck actually has a smaller research budget relative to its size than most other major drug companies. In 2003, Merck had $22.5 billion in sales and spent $3.2 billion on research, or about 14 percent of sales, compared with an average of 18 percent for the industry. Merck said yesterday that it planned to hold research spending steady in 2005 even though its profits would decline slightly because of the Vioxx recall. Mr. Gilmartin said he believed that Merck had spent appropriately on research. 'We have always fully funded research,' he said. 'In good times, and bad, we continue to increase our research opportunities.' But investors are evidently tired of waiting for Merck's research to pay off. After peaking at almost $90 in late 2000, the company's stock now trades below $30. Yesterday, Merck rose 57 cents, or 2 percent, to $29.62, on optimism about its pipeline. Since Mr. Gilmartin became chairman, Merck shares have risen less than 60 percent, while Pfizer's have more than quadrupled and the Standard & Poor's 500-stock index has risen 160 percent. The Vioxx crisis is the latest and most serious blow to the company. Researchers estimate that more than 25,000 people may have suffered heart attacks and strokes from Vioxx, and more than 1,000 people have already filed claims. While controversy about Vioxx's effects on the heart swirled for years before the recall, Mr. Gilmartin insists that he moved quickly once decisive evidence of Vioxx's risks became available. And people who know Mr. Gilmartin say they trust that explanation. Perhaps he made the wrong decision, but he did not do so for the wrong reasons, they say. 'When Ray says he pulled the drug purely because they thought it was the right thing to do, I believe him,' said John Hartnett, the rector of St. Elizabeth's Episcopal Church, in Ridgewood, N.J., who has known Mr. Gilmartin since 1993. 'My sense with Ray is that what you see is what you get.'

Subject: Hedonics From: Pete Weis To: All Date Posted: Wed, Dec 15, 2004 at 10:24:15 (EST) Email Address: Not Provided Message: This is more of what Bill Gross was talking about a couple of months ago. We have talked about how many companies have overstated earnings. Do we have overstated GDP numbers (since CPI subtracts out of GDP)? HOW THE GOVERNMENT PULLS THE WOOL OVER YOUR EYES By JOHN CRUDELE December 14, 2004 -- CONSUMERS can be forgiven if they haven't noticed that today's clothes dryers offer more bang for the buck than they did a few years ago. They'll still dry your towels, but the government thinks you are enjoying the machines more. Same for refrigerators, as well as college textbooks, microwave ovens and audio equipment. In fact, over the next few years the government promises to keep track of hundreds of other everyday items to determine how technological changes — or, more often, just the elimination of older models — affects the price. But this isn't just some arcane project aimed at keeping government statisticians busy until they can gently slide into retirement. In fact, this is the Bureau of Labor Statistics' 'hedonic quality adjustment' project and it is crucial to Washington's efforts to keep you and me from realizing just how much more we are paying for stuff. This all began in the 1990s when some Washington economists — most notable was Michael Boskin of the elder Bush's administration as well as Alan Greenspan — decided that they were pretty sure the Consumer Price Index that was released by the government each month overstated inflation. The CPI also happens to be the gauge used by the government to determine how much of an increase Social Security recipients and others will receive each year, so there were some very real benefits if Washington could prove this point. With that as the end goal, the big thinkers went into overdrive (another quality adjustment, I suppose) to prove their point. Soon the economic theory of hedonics was adopted, taking its name from the Greek word 'hedonism' which I guess can be roughly translated into 'oh, that new clothes dryer sure does make me feel good.' In my last column I explained how the BLS manages to turn huge jumps in housing prices into modest ones. Today's column, the fourth in this series, will show you some other nifty tricks of the trade. 'As seen in both Democratic and Republican administrations there has been a concerted effort to lower the reported level of the CPI,' says John Williams, author of a newsletter called Behind The Government's Numbers. 'Given the original intent of the CPI — which was to measure a fixed basket of goods — this is nearly criminal.' The irony is this: Even as the government is working hard to keep the reported inflation down, Fed chief Greenspan has been raising rates because he says he is worried about rising costs. There's more to rate hikes — another of which may come today — than that. They are also an attempt to prop up the value of the dollar. But on the surface, the Fed's position on inflation is extremely contradictory. Which brings us to the big question. While we were busy worrying about the cost of living, did the government suddenly pull a fast one by changing the rules by making it measure of the cost of pleasure? Now, take this to the most ridiculous extreme: One day you walk into a supermarket and can afford to buy nothing. As you leave with your empty shopping cart, you really haven't experienced any price rise. You'll starve, but inflation — as far as the government views it — is under control. Next, consider something the government calls 'intervention analysis.' The best my sources and I can figure is that intervention analysis has something to do with removing the blips in the prices of certain goods from the calculations, although we still can't figure out how it is done or when. Did Washington statistically intervene to make the recent rise in the price of gasoline go away? I'll have to leave that for another episode.

Subject: Re: Hedonics From: jimsum To: Pete Weis Date Posted: Wed, Dec 15, 2004 at 17:52:15 (EST) Email Address: jim.summers@rogers.com Message: These hedonic reductions may not be that unreasonable. The composition of goods sold has changed, but the composition of consumers has changed too. Haven't the rich gotten richer in the last decade or so? Since the rich are doing most of the buying, it is mostly the fancy stuff that is going to sell. Borrowing money cheaply also seems to encourage consumers to splurge. Take car leasing for example. Consumers didn't lease the same cars and save money; they kept payments the same and bought fancier cars. This makes the situation somewhat hard to figure out; prices are higher because the consumers that can buy stuff want the fancy models. When the easy money stops flowing, consumers will start buying at Wal-Mart rather than Nordstrom's and Toyota rather than Lexus, and I'm sure this effective deflation will also be hedonically adjusted :-)

Subject: Re: Hedonics From: Pete Weis To: jimsum Date Posted: Wed, Dec 15, 2004 at 21:51:04 (EST) Email Address: Not Provided Message: Bill Gross talked about how consumers who were buying the bottom line refrigerator, micro-wave, whatever appliance, were paying more but it wasn't showing up in the CPI since the basic appliance or good now had more features and this subtracted from the actual higher price being payed. Therefore the higher price payed by the consumer is not factored into CPI. All items which are compared in price from one year to the next must be of a comparable level - in other words this year's bottom line Toyota vs last year's bottom line Toyota or this year's top of the line Lexus vs last year's top of the line Lexus. Even if this year's car is literally cheaper than last year's comparable car, it is further deflated through hedonics, thereby adding additional deflation weighted data to overall CPI. Bill Gross' point was that even if the consumer was trying to make the more modest purchase by buying the cheapest Toyota, GE appliance, etc. he was paying more this year than last and the increase was not being factored into CPI and therefore GDP (or even if he was paying less, how much less was being exagerated). Now maybe this would be OK if this was the way CPI and GDP had been calculated for many decades past, but this certainly makes it very difficult to compare today's CPI and GDP with that of 20 to 30 years ago. So we are in some sought of 'no man's land' of untraveled territory with this. Now this doesn't get into 'substitution' which is used to factor out higher prices on food which is another part of this new 'Geometric Mean Formula'. Energy and housing are two other areas which are not fully factored. Basically, the Geometric Mean Formula for figuring CPI is so subjective that almost any CPI number could be reported depending on the whims of those doing the substitution and hedonic factoring. Although Nordstroms and Nieman-Marcus are doing better because the rich have been doing much better while 'wage earners' are not keeping up, the vast amount of consumption is done by the 'wage earners'. So I don't believe the 'composition' of consumers has changed all that much. But you are right - it's the continued heavy borrowing which has held up the wage earners thus far.

Subject: Re: Hedonics From: Terri To: jimsum Date Posted: Wed, Dec 15, 2004 at 20:10:30 (EST) Email Address: Not Provided Message: Still the bond market is telling us there is little risk of long term inflation.

Subject: Bonds From: Pete Weis To: Terri Date Posted: Wed, Dec 15, 2004 at 22:03:52 (EST) Email Address: Not Provided Message: Terri. The bond market is telling me that the Asian central banks are still willing to buy our treasuries even at these lousy rates if they can continue to float the US consumer who is still buying Asian products one after the other. But at some point, common sense would seem to suggest that the US consumer will begin sinking below the waves of debt unless increasing jobs and wages come to the rescue.

Subject: Foreign Investment From: Pete Weis To: All Date Posted: Wed, Dec 15, 2004 at 10:13:20 (EST) Email Address: Not Provided Message: Foreigners Bought Net $48.1 Billion in U.S. Assets in October Dec. 15 (Bloomberg) -- International investors increased their holdings of U.S. assets in October by $48.1 billion, the smallest gain in a year, the Treasury Department said in Washington. Combined purchases of Treasury notes, corporate bonds, stocks, and other financial assets had risen by $67.5 billion in September, more than previously reported. Higher demand in October for U.S. Treasuries, corporate bonds and stocks was offset by net sales of foreign assets held in the U.S. The last time holdings grew less was in October 2003, when they rose by $27.5 billion. International investors and central banks complain that an unprecedented trade deficit, combined with a record budget shortfall, is making American assets less attractive and pushing the dollar to a succession of record lows against the euro. Japan's government and investors cut their holdings of U.S. Treasuries for a second consecutive month, and demand from China slowed to $300 million in net purchases. ``There is a worry that the pace of foreign inflows into the U.S. won't keep up with the swelling trade deficit,'' Ashraf Laidi, chief currency strategist at MG Financial Group in New York, said before the report. ``The trend is for diminishing demand.'' The overall net figure in today's report comprises Treasury notes and bonds, debt of so-called agencies such as Fannie Mae and Freddie Mac, corporate bonds and stocks, and the stocks and bonds of foreign companies bought from U.S. investors. Treasury Secretary John Snow said in an interview today he was ``not concerned'' that foreign demand for U.S. assets would fade and promised to halve the budget deficit within four years. ``We have the deepest, most liquid and best capital markets in the world and we're going to keep them like that.'' Details Total purchases of domestic securities were $1.22 trillion in October, while total sales were $1.16 trillion. Purchases of Treasury holdings rose by $18.3 billion. Demand for U.S. corporate bonds rose by $19.2 billion. Foreigners also had net sales of $3.2 billion in foreign bonds traded in the U.S. and net sales of $12 billion in foreign stocks traded in the U.S. Demand for U.S. agency holdings rose by $22 billion. Investors abroad held $1.9 trillion of the $3.8 trillion in marketable U.S. Treasury securities outstanding during that month, according to Treasury figures. Private investment of long-term domestic securities rose a net $49.1 billion in October. Central banks and other agencies accounted for the rest. Concern Over Deficits Concern is growing in financial markets that trade, current account and budget shortfalls mean the U.S. is living beyond its means and that international demand for dollar-denominated assets may soon sour, said C. Fred Bergsten, director of the Institute for International Economics, a Washington-based research group. On Dec. 7, the U.S. currency fell to a record $1.3470 per euro. ``This gradual and orderly decline in the dollar may accelerate, turning into a freefall, and create a hard landing,'' Bergsten said yesterday. He predicted the dollar needed to fall another 15 percent to halve the trade gap. The U.S. current account hasn't been in balance or posted a surplus since the second quarter of 1991. The shortfall grew to a record $166.2 billion in the second quarter as higher oil prices contributed to a wider trade gap. A report tomorrow from the Commerce Department is likely to show a further widening, to $171 billion, in the third quarter, according to the median forecast in a survey of economists. At an annual rate, the current account deficit was equivalent to 5.7 percent of the $11.6 trillion economy in the April-June period, up from 5.1 percent in the first quarter. The deficit in goods and services trade grew to an all-time high of $55.9 billion in October, and the U.S. budget deficit reached an unprecedented $412.3 billion in the fiscal year that ended Sept. 30, reports this month showed. Euro Holdings The Zurich-based Bank for International Settlements, which provides banking services for 120 financial institutions and central banks, said Dec. 6 that Asian central banks and members of the Organization of Petroleum Exporting Countries may be increasing their holdings of euros and selling dollars. Should that trend continue, the U.S. will struggle to compensate for the trade shortfall, the bank said. Alan Greenspan, the chairman of the Federal Reserve, told the European Banking Congress in Frankfurt on Nov. 19 that foreign investors may tire of funding the trade gap and channel money into other currencies. Central bankers in Indonesia and Russia have said they may do just that should the U.S currency extend its drop. Japan, the largest foreign holder of government securities, sold a net $5.1 billion in October, the second straight decline. That follows a net sale of $1.9 billion in September, which was the first drop since October 2002. Japan accounts for $715.2 billion of Treasuries held by overseas investors, followed by China with $174.6 billion and the U.K. with $140.9 billion. Until March, Japan bought Treasuries with proceeds from yen sales it undertook to hold down the value of its currency as a way of helping its exporters. Japan hasn't sold yen since exchanging $290 billion worth of its currency for dollars in the first three months of 2004. China buys dollars to ensure its currency, the yuan, stays at about 8.3 to the dollar, where it has been fixed for nine years. The Chinese net purchases of $300 million were the smallest a decline in February. Net purchases in September were $2.1 billion. The U.S. is encouraging China to let its currency be set instead in free markets. Caribbean holdings, which analysts link to hedge funds located in the region, fell by $3.2 billion. They have climbed to $85.2 billion in October from $55.2 billion in January. The Caribbean is the fourth biggest buyer of U.S. Treasuries. Richard Waugh, a managing director at Principal Global Investors in Des Moines, Iowa, said hedge funds have fickle tastes and ``the risk is that if they suddenly decided to sell their Treasuries, we could be flooded with securities.'' The Treasury Department said it will release on Dec. 17 revisions to the benchmarks for the report. They were last revised in 2001.

Subject: Re: Foreign Investment From: Terri To: Pete Weis Date Posted: Wed, Dec 15, 2004 at 20:56:36 (EST) Email Address: Not Provided Message: Judging by interest rates on Treasury bonds, foreign central banks are buying dollars again. The continued bull market in bonds is most healthy.

Subject: 2.25 % From: Pancho Villa To: All Date Posted: Tues, Dec 14, 2004 at 17:02:35 (EST) Email Address: nma@hotmail.com Message: WSJ.com - Federal Reserve Increases Funds-Rate Target to 2.25%: The Federal Reserve raised its key interest-rate target for the fifth time this year, and gave no signal it would either speed up or slow down the pace of rate changes next year. In a widely expected move, it raised its target for the federal-funds rate to 2.25% from 2%. It was the fifth consecutive policy meeting at which the central bank raised the target a quarter of a percentage point...

Subject: There is More Coming From: Terri To: Pancho Villa Date Posted: Tues, Dec 14, 2004 at 17:24:26 (EST) Email Address: Not Provided Message: Evidently we are headed at least to a Federal Runds Rate of 3%. What will be especially interesting and important is whether long term interest rates continue to stay so low. I know of no other Fed tightening sequence where there has been a decline in long term rates from the initial Fed tightening and steadiness thereafter.

Subject: Re: There is More Coming From: Pancho Villa To: Terri Date Posted: Tues, Dec 14, 2004 at 21:27:27 (EST) Email Address: nma@hotmail.com Message: 'critical mass: The size at which a business or market undergoes a fundamental change in regard to operations. An example of such a change is a company's achievement of increasing returns to scale.'

Subject: Short and Long Bonds From: Terri To: All Date Posted: Tues, Dec 14, 2004 at 16:07:33 (EST) Email Address: Not Provided Message: Notice that the Federal Reserve rates the Funds rate to 2.25%, with no warning being given of inflation. As a result the interest rate on the long term Treasury bond fell to 4.13%. The bull market in bonds continues through 22 years.

Subject: Bangladesh Is Surviving to Export From: Emma To: All Date Posted: Tues, Dec 14, 2004 at 13:56:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/14/business/worldbusiness/14bangla.html?pagewanted=all&position= Bangladesh Is Surviving to Export Another Day By KEITH BRADSHER DHAKA, Bangladesh - Not long ago, garment makers in the world's poorest countries were in utter dismay, fearing that the long-planned abolition of global trade quotas for textiles and apparel next month would wipe out their factories and send millions of jobs to more competitive operations in China. The International Monetary Fund warned that a quarter of Bangladesh's exports and 2.3 million jobs here could evaporate next year, shaking the entire economy. So why, then, is Abu Taher tripling his work force, adding five floors to his cotton trousers factory here? And why is Annisul Huq, just down the road, hiring 2,000 more workers and building two new factories - adding to the eight he already has - to churn out more shirts and sweaters for Calvin Klein, Van Heusen and others? It turns out that the outlook for the textile and apparel makers here and elsewhere is not as bleak as many experts had thought, at least for the bigger, more up-to-date factories in developing countries, especially those like Bangladesh and Pakistan with large, low-wage work forces. 'Retailers are asking for better factories, more volume,' said Mr. Huq, who got a master's degree in economics and did a stint in television before he started his apparel-making business. 'I do not foresee immediately an earthquake in 2005.' [In an additional nod to countries like Bangladesh, China said on Sunday that it would tax clothing exports to stem excessive growth next year. And if that is not enough, the Bush administration is prepared to further limit Chinese imports. Page C1.] Still, the end to decades of textile and clothing quotas on Jan. 1 is beginning to spin the economics of the developing world around and around. The expiration of the quotas is intended to allow for free-flowing trade in garment making. It used to be that by guaranteeing a certain level of clothing production from nearly every poor country in the world, quotas became a classic engine for just about every less-developed country with cheap labor and low skills to connect effectively with the global economy. But now, without quotas to ensure access, quality and modernity will count as much, if not more, than low wages. Poor countries will have to compete on the scale and skill of their factories and on the efficiency of their roads, ports and electrical grids. Most of the cost of clothing lies not in the labor but in the logistics of moving it to stores for sale, so low manufacturing wages by themselves are not enough. Of the typical $48 to $54 for delivering a dozen long-sleeve men's shirts to Bangladesh's main port, for example, most goes for the fabric, often imported from China. Just $5 goes to the foreman, technicians and assembly workers, who earn as little as 70 cents a day. Yet, the savings on labor costs here and in some other developing countries are enough to keep retailers from switching suppliers for now. 'Our policy is to take a conservative position; we will continue to source from where we have been sourcing,' Andrew Tsuei, Wal-Mart's vice president for global purchasing, said in an interview before the Chinese announcement. 'Bangladesh is very competitive because the labor cost in Bangladesh is only half of what China is, and maybe less than that.' But in the longer run, the survival of the garment industry in Bangladesh and other developing countries depends upon how well governments respond to the demands of the global market. That will be affected, in part, by how much they invest in roads, ports and electricity grids; in the past, such infrastructure has been starved of investment here and elsewhere. Small factories and their workers are the most vulnerable. Less than two miles from Mr. Huq's main factory, Shirin Akhter sat recently on a low wooden sleeping platform in her dirt-floored shack in one of this city's worst slums. She lost her $15-a-month, full-time job in a pants factory a year ago and has been unable to find similar work. That wage, tiny as it was, was still significant in a country where workers rent shacks for $6.75 a month. She now juggles two jobs as a housemaid while her husband searches for temporary work at construction sites. 'I can barely live here, sometimes I cannot eat regularly,' she said, cradling her 2-year-old son, Rifat. The garment industry has drawn literally millions of women out of villages into large cities in poor countries around the world. For deeply traditional countries like Bangladesh, where girls who leave their villages are seldom welcomed back, the globalization of trade in apparel and textiles has helped transform a way of life unchanged for generations. 'It is a silent revolution that has taken place in our country,' said Morshed Khan, the foreign minister of Bangladesh, one of the few democracies in the Muslim world. 'For the first time in a Muslim country, hundreds of thousands of women in their late teens and early 20's are wearing cosmetics, carrying handbags and walking to work every day. 'There is no way in Bangladesh' he added, 'that this government or any other government can send them back to the kitchen.' Just a few months ago, it seemed unlikely that Bangladesh could avoid that fate. But now the future seems a little brighter.

Subject: Bangladesh Is Surviving to Export - 2 From: Emma To: Emma Date Posted: Tues, Dec 14, 2004 at 13:58:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/14/business/worldbusiness/14bangla.html?pagewanted=all&position= Here in Dhaka, Mr. Huq became a clothing magnate in much the same way Bangladesh became an international power in the garment industry: largely by luck. The son of a senior civil servant, he earned a master's degree in economics, only to find himself jobless for two years. It was the late 1970's, and the country was struggling to recover from a devastating war of independence from Pakistan and the subsequent nationalization of many industries across Bangladesh. 'I was an unemployed man,' he said, 'and there are millions of unemployed men in this country.' Mr. Huq became the host of a variety show, and stumbled into some luck when he opened a door too quickly and hit a stranger who turned out to be Noorul Quader. Mr. Quader was a civil servant who had just negotiated agreements that allowed desperately poor Bangladesh to start exporting garments without facing any serious quotas. Mr. Quader had started a garment manufacturing business himself, and Mr. Huq went to work for him for $200 a month. A year later, Mr. Huq left and started his own business with two friends and $1,700 that he borrowed from his father. As Bangladesh's garment exports grew from $32 million to $5.9 billion in the last two decades, his business grew, too. He now lives in a three-story, impeccably decorated post-modern mansion and is chauffeured through Bangladesh's polluted, congested streets in a black BMW X5 sport utility vehicle. Mr. Huq's spacious, well-ventilated and well-lighted factories are designed to appeal to multinationals concerned about protecting their image from criticisms that they are exploiting workers in poor countries. The factories are fully booked with orders from brands like Calvin Klein and Van Heusen through next August, so he is building two more. Yet Mr. Huq still worries. His workers earn $15 to $85 a month, sometimes more, based on output. That gives him an advantage over Chinese factories that pay their workers $50 a month and up and also cover housing and food costs. But balancing the lower wages here are formidable disadvantages. One problem lies in the hartals, national strikes called by political factions at short notice that can shut down almost all activity for one to three days. There have been 20 hartals in the last year, and even that is a decrease from recent years. The biggest problem for Mr. Huq and other clothing makers here is Bangladesh's state-owned port in Chittagong. Studies have ranked it last or close to last in the world in turnaround time for big container ships. The ships must anchor in deep water offshore and then be unloaded and loaded by ancient, state-owned feeder vessels with shallow drafts. Yet Mr. Huq's large factories have overcome these obstacles, sometimes even operating on Friday, the Islamic holy day, to meet deadlines. 'There are some concerns which need to be cured - you cannot change a bureaucracy overnight,' Mr. Huq said. 'We work overnight, we work Fridays, we work holidays, we ship the goods.' But if Bangladesh does not move quickly to raise the country's competitiveness, it will soon wind up with more unemployed workers living hand-to-mouth in slums like Banshtola. Ms. Akhter moved here from her village four years ago, finding work as a 'helper' in a small factory making short pants for men and boys. She used to clip stray threads after a more skilled worker sewed the pants. But she lost the job a year ago when her employer ran low on orders. She has been unable to find new work, while her husband has cast about, unsuccessfully, for construction work. They rely on occasional profits from selling vegetables. Banshtola is filled with tiny shacks, with corrugated steel roofs and walls that are simple bamboo mats, often riddled with holes. The monthly rent is $6.75, there is no running water, and the toilet is a hole in the ground at the end of one of the dirt alleys, which turn to mud during the rainy season. Workers are often plagued by disease and malnutrition. And in the last two years, mosquitoes have brought an epidemic of dengue fever, which is sometimes fatal. Ms. Akhter is resigned to her difficulties. But she looks on with a touch of jealousy at the new class of money-earners, women like Muhamad Zulekha, 27, a sweater factory worker whose nimble fingers allow her to earn $85 a month. She says that her husband now listens to her more because she can work outside the home and earn real money. Until the infrastructure improves greatly, the burden still falls on cheap workers like Ms. Zulekha - and even Ms. Akhter when she was working - to give an edge to Bangladesh's factories, particularly if the country wants to keep a toehold as the quota system disappears. Indeed, big international buyers and manufacturers have proved leery of relying too heavily on a single country like China, seeing greater security in diversity. Top Form, a Hong Kong company that is the world's largest bra manufacturer, has decided to make no change to its longstanding policy of keeping 55 percent of its production in China and 45 percent in Thailand and the Philippines. 'Unless we see a more strengthened trade relationship between China and the United States,' Willie Fung, the chairman of Top Form, said, 'we would not want to put all our eggs in one basket,' Fearful governments in other developing countries are showing rare bursts of energy, addressing long-festering problems in the hope of saving their clothing makers. Bangladesh plans to train 40,000 garment workers next year to improve their skills in conjunction with BRAC, a local nonprofit group formerly known as the Bangladesh Rural Advancement Committee, and is eliminating taxes on electricity and other utilities used by garment factories. But smaller or less populous developing countries like Brunei and Mongolia, and small factories practically everywhere, may still face serious losses. Executives at Wal-Mart, the world's largest retailer, say that they are likely to cut purchases from Fiji, Brunei, Turkmenistan and Macedonia, but plan to keep buying from the rest, and will actually increase their purchases next year from Bangladesh, their biggest single supplier of clothing, exceeding even China. Bangladesh and other very poor countries have been lobbying Washington to grant them duty-free access to the American market. The $1.7 billion a year in apparel exports from Bangladesh to the United States currently face an average levy of 16 percent, or nearly $300 million a year, a burden that dwarfs the less than $70 million a year that the United States gives Bangladesh in foreign aid. Women here have few alternatives to the garment industry if anything goes wrong. A slump in orders during the American economic slowdown in 2001 produced a surge in prostitution and a surge in the illegal trafficking of women to overseas brothels. Bangladesh officials fear what could happen if their country cannot stay competitive. 'If we try to take the women workers back to the home, back to the kitchen,' Mr. Khan said, 'that will be a bigger bombshell than any terrorist attack.'

Subject: U.S. Quiet on China Trade Tax From: Emma To: Emma Date Posted: Tues, Dec 14, 2004 at 14:21:51 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/14/business/worldbusiness/14trade.html U.S. Quiet on China Trade Tax By ELIZABETH BECKER ASHINGTON, Dec. 13 - China's promise to impose new taxes on some textile exports will do little to sway the administration as it debates whether to limit the expected flood of Chinese goods next year, trade groups on both sides of the argument said yesterday. The European Union, however, welcomed the Chinese announcement and reaffirmed that it would lift its textile quotas without limits. 'We're clear on this. We made our commitments back in 1994 and we will be delivering on those commitments,' said Anthony Gooch, a spokesman for the European Union in Washington. 'As of January 2005, we will be lifting those quotas.' But a spokeswoman at the Commerce Department, Mary Brown Brewer, resisted making a judgment about the new Chinese proposal because critical details about the plan were missing, including the size of the tax. Instead, Ms. Brewer repeated the administration's pledge to oversee an orderly transition in the United States after the global quotas are lifted and 'to promote the competitiveness of U.S. industry and level the playing field for American workers.' The United States is expected to make its final decision about limiting Chinese imports beginning in February. Members of the World Trade Organization agreed a decade ago to lift all trade quotas on textiles and apparel on Jan. 1, 2005, to permit the free flow of goods around the globe. But as the date nears, manufacturers in the United States and other textile-producing countries have been scrambling to protect their industries. Analysts have predicted that China could capture as much as 70 percent of the American market over the next two years. At a summit with China last week, European officials said they were concerned about the effect on developing countries like Bangladesh and Cambodia that fear that their textile industries could collapse when forced to compete head on with China. The Chinese government's announcement on Sunday seemed aimed at calming developing countries that worry that they will lose millions of jobs when all global tariffs on textiles and apparel are lifted. But adding to the sense of crisis, the administration on Monday imposed embargoes of at least one month on an array of imported clothing and fabrics from a number of countries because the countries' shipments had exceeded their quotas. American retail apparel and textile groups called the administration's decision mean-spirited, one that could hurt businesses that had bought the goods to sell during the holidays. American retail groups that will profit from greater access to Chinese apparel and textile goods said Monday that the Chinese proposal would do little to ease the mounting pressure from American manufacturers to protect the industry and tens of thousands of jobs. The United States has been pushing China to come up with voluntary restraints once the global quota system ends and the $495 billion international textile and apparel industry is up for grabs. In addition, the administration agreed Monday to consider another petition from the American textile and apparel industry to restrict the import of knit fabric from China, adding to a large variety of goods that could be limited. China said prospective safeguards were illegal under W.T.O. rules, and the country had rejected the idea of voluntarily capping the amount of goods it exports to the United States. Instead, it offered its own proposal on Sunday. It included new tariffs on the quantity of goods exported, as well as other measures to encourage Chinese investment in textile and apparel enterprises abroad and greater production for the domestic market.

Subject: North Carolina Textiles From: Emma To: Emma Date Posted: Tues, Dec 14, 2004 at 15:16:36 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/02/business/02textile.html Textile Quotas to End, Punishing Carolina Towns By ELIZABETH BECKER KANNAPOLIS, N.C. - Leann Harrington's experience losing her job has an all-too-familiar ring, one that is soon likely to be heard with even greater frequency. The textile plant where she was employed shut down last year, a victim of fierce foreign competition. After scrambling, she was lucky to land a job as manager and waitress at the Towel City Junction Cafe, earning $3 an hour plus tips, a fraction of her factory wages. For many years, textile and clothing factories in the mill towns of the Carolinas - originally drawn from New York and New England decades ago by the prospect of inexpensive nonunion workers - have been closing one after another as the industry migrated abroad in search of ever-cheaper labor. Now, this gradual loss may be about to turn into a rout. On Jan. 1, the global system of country-by-country quotas regulating the $495 billion international trade in textiles and apparel is scheduled to be eliminated. That will transform the vast business in ways that were barely glimpsed a decade ago, when the newly created World Trade Organization went along with the demands of developing countries and agreed to phase out the quotas imposed by advanced nations to protect their own industries. Today, though, poor countries at the bottom of the economic ladder, like Cambodia and Bangladesh, have a new fear: China. It is the colossus in the field, home to a seemingly endless supply of workers available to feed vast numbers of suppliers operating with high efficiency and low costs in ways that threaten to overwhelm competition from developing countries except India, Pakistan and Brazil. For China and other big developing nations with expanding apparel industries, the end of the quotas will mean tens of millions of new factory jobs for people without work or barely scraping out a living. But for dozens of even poorer Asian and African countries now relying on their clothing exports to gain a foothold in the global economy, it could be still another bitter pill to swallow. The quotas they fought so hard to eliminate had ensured that their products would have at least a narrow opening in American and European markets. Without rules, though, restricting how much fabric or how many garments they can buy from any country, name brands and merchants like Tommy Hilfiger, Ralph Lauren, J. C. Penney and the Gap will buy most of what they want from five or six countries, not the 50-plus countries that are now part of their networks. Meanwhile, here in the slowly beating heart of the remaining American textile industry, workers and owners of factories still operating along a stretch of Interstate 85 from Charlotte to Greensboro see the dawning of 2005 as a death sentence. More companies, they fear, will go bankrupt. More communities will wither like Kannapolis, and thousands more workers will be desperate for training, employment and health insurance.

Subject: North Carolina Textiles - 2 From: Emma To: Emma Date Posted: Tues, Dec 14, 2004 at 15:19:04 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/02/business/02textile.html ...And lost in the swirl of anxiety are the benefits that the change will bring to tens of millions of consumers. Americans alone are expected to save an estimated $6 billion in lower-cost goods once the quotas are gone, allowing clothing makers and designers from New York to Milan the freedom to choose factories based on cost and quality rather than a complicated system of 1,300 categories for every nation. But that is little consolation to this Carolina community of 36,000, which was reduced to an economic ghost town in little more than a year once Pillowtex, Ms. Harrington's former employer, fell into bankruptcy. The residents have remained, but the factories are being dismantled and the stores and shops shuttered on Main Street after this one-industry town lost its industry. 'I think the middle class is pretty much gone here,' Ms. Harrington said as she cleared tables in the classic cafe of black-and-white-tile floor and red leather booths. 'In one year our receipts in the cafe have been cut in half. People are starting to lose their unemployment benefits, and then there will be nothing left.' She had to compete for a job against more than 4,000 other workers who lost work when the mills that once made Cannon towels and sheets closed in July 2003. While American consumers' household budgets will benefit from lower prices for blouses and pillowcases, the shock to the affected workers and communities will be immediate and gut-wrenching. 'The end of the textile quotas will act like the tipping point on trade,' said Robert D. Hormats, vice chairman of Goldman Sachs International in New York. 'If we want to continue to enjoy public support toward moving toward more open trade, we have to do a lot more to help people dislocated by trade.' Dislocation is an understatement for what has happened to the people in this town. 'For generations, everyone worked in textiles - your mama or your daddy or your granddaddy,' said Audrey Beaver, whose mother worked at the old Cannon mills until the bitter end. Kannapolis grew up around the mills built in 1906 by James William Cannon. Identical row houses line the streets radiating from the empty factories that once employed 20,000. The cold smokestacks still rise above the town, but teams of machines and men in hard hats are tearing down the mills, with the machinery, scrap wood and metal being sold to the highest bidders. Despite the grim employment picture, families have refused to move away from aging parents or new grandchildren. So fathers and mothers are searching for jobs in Charlotte and Greensboro, growing white-collar cities with service industries, and accepting long commuting times. The United States, unlike other wealthy nations, provides little support for companies and workers who lose out in the global marketplace. Current trade adjustment assistance, largely aimed at training workers for new jobs, was denounced by factory owners and union officials in this region as too little and too difficult. 'The high-tech jobs never came to our town,' said Delores Gambrell, 52, who is a former union organizer at the mill, 'and the only good jobs are going to young people under 45 years of age. We've had to refinance our home. We're penny-pinching as much as we can, and I still don't know if we'll make it.' Her family's savings are gone and so, too, are the college plans of her youngest son, who was the first in the family to win acceptance at the University of North Carolina.

Subject: Re: North Carolina Textiles - 2 From: Pancho Villa To: Emma Date Posted: Tues, Dec 14, 2004 at 19:29:59 (EST) Email Address: nma@hotmail.com Message: Emma, you're too technical

Subject: 'The Paradox of Trade' From: Pete Weis To: All Date Posted: Tues, Dec 14, 2004 at 09:25:53 (EST) Email Address: Not Provided Message: Global: The Paradox of Trade Stephen Roach (New York) The dollar is topic du jour in world financial markets. While there was a sharp reversal in the US currency last week after an unrelenting bout of selling since early October, the case for a weaker dollar remains very much intact, in my view. It is central to what I have called global rebalancing -- the shift in relative prices that an unbalanced global economy needs in order to establish a more sustainable equilibrium. I have stressed from the start, however, that dollar depreciation can’t do the job alone. That point bears further elaboration. The United States has a serious and worrisome current-account deficit problem -- an imbalance that hit a record 5.7% of GDP in mid-2004 and that, by our reckoning, seems likely to widen further to at least 6.5% over the next year. Fully 92% of America’s current account deficit shows up in the form of a trade gap on goods and services -- a shortfall that also hit a record of $623 billion (annualized) in the third quarter of this year. Currency fluctuations can have an important impact in shaping a nation’s competitive position. For that reason alone, many believe that a weaker dollar will boost US exports and inhibit imports -- thereby resulting in a sharp narrowing of America’s trade and current account deficits. This conclusion has also formed the basis of the belief that a weaker dollar will spur an important shift in the mix of US growth -- bringing output and jobs back home in a fashion that will establish a more solid base for domestic income generation. These conclusions may be wishful thinking. Trade is the glue of globalization. And there can be no mistaking the explosive growth of global trade since the late 1980s. The ratio of global trade to world GDP rose from 17% in 1986 to a record 27% in 2004, according to IMF estimates. Over that 18-year period, growth in world trade volumes averaged 6.3% per annum, well in excess of the 3.5% average pace of world GDP growth. Not surprisingly, this surge in trade has provided a disproportionate benefit to low-cost manufacturers in the developing world. This has come at the expense of the high-cost developed world. While the US remains the world’s largest exporter with an 11.1% share of total global exports of goods and services in 2003, its portion has been declining over the past several years. In fact, in 2004, America’s average share of exports and imports, combined, fell to 13.2% -- down sharply from nearly 16% in 2000 and the lowest such portion since 1982. With America’s share in global trade on the wane, it would certainly be an uphill battle for the US to trade its way out of its current-account conundrum. The arithmetic of America’s trade imbalance makes a currency-induced turnaround all the more daunting. The main reason is that US imports are currently 53% larger than exports. That means export growth has to be roughly 50% faster than import growth just to hold the trade deficit constant. Or putting it another way, if export growth was to surge and hold at double the pace of import growth, it would take about 10 years for the US trade deficit to be eliminated. Two conclusions follow from such calculations: First, the United States is unlikely to export its way out of its trade quagmire by a currency-induced improvement in competitiveness; with globalization pushing the US share of global trade down to the low end of historical experience, such an export-led resurgence seems highly unlikely. Second, the only real hope for meaningful improvement on the trade front over the next several years is on the import side of the equation; given the secular shift of rising import penetration into the US, that would undoubtedly require a protracted slowing of US domestic demand growth. More about that later. But there is another important twist to this story. To the extent that output can be brought back home by a narrowing of the US trade deficit, job creation and income generation would potentially get a new assist. Such impacts could then spread to the economy at large through classic “multiplier effects” -- in effect, broadening the base of domestic demand support. This would be welcome news for a saving-short US economy that has turned increasingly in recent years to asset-based saving as a new means to support private consumption. It would also be an encouraging development for US businesses and investors -- potentially boosting market share at home and abroad and sparking related improvements in corporate profitability and equity prices. Such a transformation may be a real stretch. In large part, that’s because of the secular erosion of the US manufacturing base -- suggesting that today’s US macro economy is likely to get a much smaller bang for its export buck than was the case 20 years ago. The evidence is compelling in this regard: At present, the manufacturing sector employs only 13% of all private sector workers in the US (10.9% if the government is included); that’s far short of the 22.4% share of private industry payrolls prevailing in February 1985 -- the last time the US embraced a conscious policy of dollar depreciation. At the same time, the manufacturing sector of total wage and salary disbursements has plunged to just 14.1% in October 2004 -- down sharply from the 23.6% reading of February 1985. To some extent this is a productivity story -- US companies getting more out of less; indeed, manufacturing productivity growth has surged at an average 3.5% annual rate since 1987. But it also reflects, most importantly, a secular decline of factory sector output as a share of aggregate economic activity; in 2003, manufacturing value-added stood at just 13.6% of total value added for the US -- down sharply from the 18.9% share of 1985. The macro conclusions from these trends are inescapable: A sharply diminished US industrial base places major constraints on the potential upside of any trade-induced multiplier effects that may arise from a depreciation of the dollar. There is nothing new to this erosion -- it has been a constant trend evident over most of the post-World War II era. But it is particularly important to scale the size of the US manufacturing base relative to that of the mid-1980s -- a point in time when the major countries of the world endorsed the so-called Plaza Accord, which was aimed at pushing the dollar sharply lower. Back then, the ensuing currency adjustment did provide some unmistakable benefits to the US -- namely, a marked pick-up in export growth and a related narrowing of the trade and current account deficits. US exports increased at an 11% average annual rate over the 1986 to 1990 period and the trade deficit narrowed enough to push the current account actually into surplus briefly in 1991. But, today, with America’s manufacturing base about 40% smaller than it was in the mid-1980s -- measured both by jobs and labor income generation -- its potential for sparking a revival in aggregate economic activity is likely to be commensurately smaller. Consequently, a weaker dollar is hardly the final answer to America’s macro conundrum. It does, however, have the potential to be an important trigger for a series of related adjustments that would go a long way in addressing the basic problems of a saving-short US economy. The key is the link between the dollar and interest rates -- and the likelihood that dollar depreciation triggers a rise in real US interest rates. That, in fact, is a time-honored characteristic of a classic current account adjustment. In my opinion, it’s especially likely in the present climate, as America’s creditors -- heavily overweight dollars -- ultimately demand compensation for taking sustained currency risk. In the end, higher real interest rates may well be the only means to restrain the excesses of US domestic demand. But that’s exactly what it will take to bring all the pieces of the US rebalancing puzzle into play -- reduced imports, a narrowing of gaping trade- and current-account deficits, and an improvement in domestic saving. There is a certain irony in the adjustments that now lie ahead for the United Sates. The excess consumption of the Asset Economy is heavily dependent on the interest-rate subsidy provided by America’s foreign creditors. Dollar depreciation challenges the sustainability of that subsidy. It also puts pressure on the underpinnings of asset markets that are so heavily dependent on interest rates. However, a weaker dollar is unlikely to spur a trade-induced renaissance of US industrial activity that might otherwise compensate for a shortfall in domestic demand. Therein lies the ultimate paradox of trade: Courtesy of a strong dollar and cut-rate foreign financing, America has been living beyond its means for almost a decade. As the dollar now weakens, that movie is about to run in reverse.

Subject: Explaining 'The Paradox of Trade' From: Pete Weis To: Pete Weis Date Posted: Tues, Dec 14, 2004 at 17:26:39 (EST) Email Address: Not Provided Message: Stephen Roach is saying we won't get the benefit in increased trade in goods that we have in the past from a weaker dollar because our manufacturing job base is so much smaller than in the past (approx. 11% of all jobs). He is saying that we have for some time been living well beyond our means - having to borrow heavily to make up for the current account deficit (which Buffet likens to 'exporting our wealth overseas' as we import goods for which we do not have enough income to pay). He is saying what every economist is saying - that a continued current account deficit (92% of which is the deficit in the dollar value of traded goods) will inevitably weaken the dollar over time. He is also saying that the difference in the cost of manufacturing between developing economies such as China and developed economies such as the US is so great that it will take a long time, 10 years or more, before the dollar will fall far enough for a 'rebalancing' of trade to take place. He's also saying that any long term or sudden, steep short term fall in the dollar will inevitably lead to higher interest rates which will threaten assets which have benefited from low rates (the stock markets and housing). If you read the entire letter, these are the obvious points Stephen Roach is making. What he is implying is that eventually consumers bolstered by low rates around the world, especially in developed countries like the US, where their wages will not keep up with inflation will reach a point where they will not be able to service anymore debt. In fact they may begin to have trouble servicing the debt they already have as interest rates rise and a weakening dollar buys less and less at the local grocery. In other words, it should be obvious that we can't go on like this (taking on greater and greater debt) and that recession you worry about is inevitably somewhere down the road. It's only a question of how severe and prolongued it will be.

Subject: OOPS! From: Pete Weis To: Pete Weis Date Posted: Tues, Dec 14, 2004 at 09:28:01 (EST) Email Address: Not Provided Message: Terri already posted this. That away to go Terri!

Subject: Barro and U.S. budget deficit... From: Yann To: All Date Posted: Tues, Dec 14, 2004 at 07:33:19 (EST) Email Address: Not Provided Message: http://post.economics.harvard.edu/faculty/barro/bw/bw04_1213.pdf

Subject: The Price/Earning Ratio From: Terri To: All Date Posted: Tues, Dec 14, 2004 at 05:31:55 (EST) Email Address: Not Provided Message: Since the price/earning ratio has climbed over 25 years to produce the high returns we have had, what can we look for in S&P index returns if the p/e ratio stays constant from here? The p/e ratio climbed from about 10 to 20 these past 25 years. Barra.com shows p/e ratios from 1976 to the present.

Subject: Go, get it, read it... From: Pancho Villa alias El Gringo To: All Date Posted: Tues, Dec 14, 2004 at 01:33:29 (EST) Email Address: nma@hotmail.com Message: The Economics of Innocent Fraud : Truth For Our Time by John Kenneth Galbraith

Subject: Re: Go, get it, read it... From: Yann To: Pancho Villa alias El Gringo Date Posted: Tues, Dec 14, 2004 at 07:52:40 (EST) Email Address: Not Provided Message: I read the French translation of this little book (only half of it). Is Galbraith a demagogue? The consumer remains sovereign if you look at all these everyday bankruptcies, no? Yes my job is well paid but I left school at, say, 27 years old, no? Could we really say that shareholders have no power over the boards of directors and that these directors choose the level of their salaries?

Subject: Re: Go, get it, read it... From: Pancho Villa To: Yann Date Posted: Tues, Dec 14, 2004 at 16:23:35 (EST) Email Address: nma@hotmail.com Message: ...and learn? http://www.nouvelobs.com/articles/p2018/a206205.html

Subject: Re: Go, get it, read it... From: Paul G. Brown To: Yann Date Posted: Tues, Dec 14, 2004 at 11:30:30 (EST) Email Address: Not Provided Message: Is Galbraith a demagogue? No. For many, John Kenneth Galbraith is as close to a saint as it gets in economics. Some of his stuff hasn't aged well: he wrote a very provocative book advocating the use of state price control as a means of fighting inflation. Other stuff -- like his idea that it is market failure in the sense of incorrect pricing that really enables growth and that in a perfectly priced market none of the participants would be able to afford investment in innovation -- has held up rather better. He's thought of as a saint because, in all of his writing, you get the sense that he never forgets that there are real people underneath the economic statistics. That changes in inflation, growth and unemployment bear directly on the living standards, expectations and aspirations of millions of flesh and blood men and women. You might read 'The Affluent Society' and 'The New Industrial Estate', which are both very provocative -- nah! radical -- books in their way. Sounds like the latest tome recycles some of those ideas. 'Could we really say that shareholders have no power over the boards of directors and that these directors choose the level of their salaries?' Look at the evidence. Look at the proportion of corporate earnings that has moved to compensating the top handful (say, top ten or top five) executives at large companies. Although its true that companies with relatively highly paid executives do better on average it isn't clear that the extra pay is entirely justified.

Subject: Re: Go, get it, read it... From: Emma To: Paul G. Brown Date Posted: Tues, Dec 14, 2004 at 21:28:22 (EST) Email Address: Not Provided Message: John Kenneth Galbraith has been a wonder through the years. Read also 'The Great Crash.'

Subject: Re: Go, get it, read it... From: Yann To: Emma Date Posted: Wed, Dec 15, 2004 at 03:44:19 (EST) Email Address: Not Provided Message: Thank you very much for all your replies. Yet I am not totally convinced!

Subject: Re: Go, get it, read it... From: Terri To: Yann Date Posted: Tues, Dec 14, 2004 at 11:25:39 (EST) Email Address: Not Provided Message: 'Could we really say that shareholders have no power over the boards of directors and that these directors choose the level of their salaries?' Absolutely so. Read Emma's post below 'Options and Options.' There is nothing wrong at all with being paid quite well, but being paid so much that an otherwise healthy corporation is threatened is a severe problem.

Subject: Vanguard Returns From: Terri To: All Date Posted: Mon, Dec 13, 2004 at 20:58:56 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/13/04 S&P is up 9.5% Growth Index is 5.9 Value Index is 13.6 Mid Cap Index is 17.4% Small Cap Index is 16.9% Small Cap Value is 20.6 Europe Index is 17.7 Pacific Index is 10.5 Energy is 33.4 Health Care is 7.5 REIT Index is 28.8 High Yield Corporate Bond Fund is 8.1 Long Term Corporate Bond Fund is 8.4

Subject: And Tips From: David E... To: Terri Date Posted: Mon, Dec 13, 2004 at 21:27:53 (EST) Email Address: Not Provided Message: have 7.6% returns ytd. Good returns with little risk, duration is only 6.2 and credit quality is good.

Subject: Re: And Tips From: Terri To: David E... Date Posted: Mon, Dec 13, 2004 at 21:51:16 (EST) Email Address: Not Provided Message: No question. TIPS have been a fine success from the time they were issued. We can thank Robert Rubin and Lawrence Summers. The Vanguard fund is keeping a moderate duration. Inflation is enough of a worry that moderate duration TIPS should continue to fare reasonably well. But, short term interest will almost certainly keep on begin raised by the Federal Reserve.

Subject: National Index Returns From: Terri To: All Date Posted: Mon, Dec 13, 2004 at 20:42:56 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/13/04 Australia 22.4 Canada 16.5 Denmark 27.6 France 15.9 Germany 13.2 Hong Kong 20.9 Ireland 38.4 Japan 7.2 Norway 47.9 Sweden 34.3 Switzerland 12.4 UK 17.5

Subject: The Paradox of Trade From: Terri To: All Date Posted: Mon, Dec 13, 2004 at 20:32:56 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html The Paradox of Trade Stephen Roach (New York) The dollar is topic du jour in world financial markets. While there was a sharp reversal in the US currency last week after an unrelenting bout of selling since early October, the case for a weaker dollar remains very much intact, in my view. It is central to what I have called global rebalancing -- the shift in relative prices that an unbalanced global economy needs in order to establish a more sustainable equilibrium. I have stressed from the start, however, that dollar depreciation can’t do the job alone. That point bears further elaboration. ...A weaker dollar is hardly the final answer to America’s macro conundrum. It does, however, have the potential to be an important trigger for a series of related adjustments that would go a long way in addressing the basic problems of a saving-short US economy. The key is the link between the dollar and interest rates -- and the likelihood that dollar depreciation triggers a rise in real US interest rates. That, in fact, is a time-honored characteristic of a classic current account adjustment. In my opinion, it’s especially likely in the present climate, as America’s creditors -- heavily overweight dollars -- ultimately demand compensation for taking sustained currency risk. In the end, higher real interest rates may well be the only means to restrain the excesses of US domestic demand. But that’s exactly what it will take to bring all the pieces of the US rebalancing puzzle into play -- reduced imports, a narrowing of gaping trade- and current-account deficits, and an improvement in domestic saving. There is a certain irony in the adjustments that now lie ahead for the United Sates. The excess consumption of the Asset Economy is heavily dependent on the interest-rate subsidy provided by America’s foreign creditors. Dollar depreciation challenges the sustainability of that subsidy. It also puts pressure on the underpinnings of asset markets that are so heavily dependent on interest rates. However, a weaker dollar is unlikely to spur a trade-induced renaissance of US industrial activity that might otherwise compensate for a shortfall in domestic demand. Therein lies the ultimate paradox of trade: Courtesy of a strong dollar and cut-rate foreign financing, America has been living beyond its means for almost a decade. As the dollar now weakens, that movie is about to run in reverse.

Subject: Re: The Paradox of Trade From: unlawflcombatnt To: Terri Date Posted: Tues, Dec 14, 2004 at 07:37:13 (EST) Email Address: unlawflcombatnt@aol.com Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html The Paradox of Trade Stephen Roach (New York) The dollar is topic du jour in world financial markets. While there was a sharp reversal in the US currency last week after an unrelenting bout of selling since early October, the case for a weaker dollar remains very much intact, in my view. It is central to what I have called global rebalancing -- the shift in relative prices that an unbalanced global economy needs in order to establish a more sustainable equilibrium. I have stressed from the start, however, that dollar depreciation can’t do the job alone. That point bears further elaboration. ...A weaker dollar is hardly the final answer to America’s macro conundrum. It does, however, have the potential to be an important trigger for a series of related adjustments that would go a long way in addressing the basic problems of a saving-short US economy. The key is the link between the dollar and interest rates -- and the likelihood that dollar depreciation triggers a rise in real US interest rates. That, in fact, is a time-honored characteristic of a classic current account adjustment. In my opinion, it’s especially likely in the present climate, as America’s creditors -- heavily overweight dollars -- ultimately demand compensation for taking sustained currency risk. In the end, higher real interest rates may well be the only means to restrain the excesses of US domestic demand. But that’s exactly what it will take to bring all the pieces of the US rebalancing puzzle into play -- reduced imports, a narrowing of gaping trade- and current-account deficits, and an improvement in domestic saving. There is a certain irony in the adjustments that now lie ahead for the United Sates. The excess consumption of the Asset Economy is heavily dependent on the interest-rate subsidy provided by America’s foreign creditors. Dollar depreciation challenges the sustainability of that subsidy. It also puts pressure on the underpinnings of asset markets that are so heavily dependent on interest rates. However, a weaker dollar is unlikely to spur a trade-induced renaissance of US industrial activity that might otherwise compensate for a shortfall in domestic demand. Therein lies the ultimate paradox of trade: Courtesy of a strong dollar and cut-rate foreign financing, America has been living beyond its means for almost a decade. As the dollar now weakens, that movie is about to run in reverse. --- When you stated in your letter that there is excess consumption, do you mean that consumer spending is excessive? Or are you talking about something else? We certainly don't want consumer spending to go down. That'll reduce demand for goods and services and worsen the employment situation. We need to increase the demand for labor, not reduce it. http://www.unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Paradox of Trade? From: Terri To: Terri Date Posted: Mon, Dec 13, 2004 at 20:33:33 (EST) Email Address: Not Provided Message: What is the point Stephen Roach is repeatedly making? Do we have to repeat the last recession, this time without help from the Federal Reserve, to rid ourselves of consumption and excesses of the 1990s?

Subject: Day of Reckoning From: Pete Weis To: Terri Date Posted: Tues, Dec 14, 2004 at 10:22:02 (EST) Email Address: Not Provided Message: Stephen Roach is saying we won't get the benefit in increased trade in goods that we have in the past from a weaker dollar because our manufacturing job base is so much smaller than in the past (approx. 11% of all jobs). He is saying that we have for some time been living well beyond our means - having to borrow heavily to make up for the current account deficit (which Buffet likens to 'exporting our wealth overseas' as we import goods for which we do not have enough income to pay). He is saying what every economist is saying - that a continued current account deficit (92% of which is the deficit in the dollar value of traded goods) will inevitably weaken the dollar over time. He is also saying that the difference in the cost of manufacturing between developing economies such as China and developed economies such as the US is so great that it will take a long time, 10 years or more, before the dollar will fall far enough for a 'rebalancing' of trade to take place. He's also saying that any long term or sudden, steep short term fall in the dollar will inevitably lead to higher interest rates which will threaten assets which have benefited from low rates (the stock markets and housing). If you read the entire letter, these are the obvious points Stephen Roach is making. What he is implying is that eventually consumers bolstered by low rates around the world, especially in developed countries like the US, where their wages will not keep up with inflation will reach a point where they will not be able to service anymore debt. In fact they may begin to have trouble servicing the debt they already have as interest rates rise and a weakening dollar buys less and less at the local grocery. In other words, it should be obvious that we can't go on like this (taking on greater and greater debt) and that recession you worry about is inevitably somewhere down the road. It's only a question of how severe and prolongued it will be.

Subject: Re: Day of Reckoning From: Pancho Villa To: Pete Weis Date Posted: Tues, Dec 14, 2004 at 10:43:04 (EST) Email Address: nma@hotmail.com Message: 'America's trade deficit swelled to an all-time high of $55.5 billion in October as imports — including those from China — surged to the loftiest levels on record. Skyrocketing crude-oil prices also contributed to the yawning trade gap.'

Subject: Re: Day of Reckoning From: Terri To: Pancho Villa Date Posted: Tues, Dec 14, 2004 at 11:20:16 (EST) Email Address: Not Provided Message: Yes, yes. I understand and grow more worried. We are not accumulating foregin assets that will provide a needed income stream in future.

Subject: Re: Day of Reckoning From: jimsum To: Terri Date Posted: Tues, Dec 14, 2004 at 16:52:43 (EST) Email Address: jim.summers@rogers.com Message: Actually, we are not accumulating enough assets, foreign or otherwise. The population is aging and it will only get more expensive to provide the government services we currently enjoy (while only paying 80% of the cost). Prudence dictates that you save when times are good to make it easier when times are bad; but Americans are doing the opposite, and it will make it that much uglier in a decade or so. I think the ultimate cause of the U.S. current account deficit is that foreigners want to save more than Americans. Americans value current consumption more than future consumption; and foreigners, possibly worried about retirement, would rather save now and spend in the future. I'd say that foreigners are being more prudent, but given what is happening to the value of the dollar and that Americans show no sign of paying down their debts, foreigners shouldn't expect much of a return from their American loans.

Subject: Re: Day of Reckoning From: Terri To: jimsum Date Posted: Tues, Dec 14, 2004 at 17:36:48 (EST) Email Address: Not Provided Message: Remember that foreign investors can and do use dollars to buy American assets that hold value well against low to moderate inflation, or a rise in interest rates, or a decline in the value of the dollar.

Subject: Re: Paradox of Trade? From: unlawflcombatnt To: Terri Date Posted: Tues, Dec 14, 2004 at 07:41:59 (EST) Email Address: unlawflcombatnt@aol.com Message: What is the point Stephen Roach is repeatedly making? Do we have to repeat the last recession, this time without help from the Federal Reserve, to rid ourselves of consumption and excesses of the 1990s? --- What consumption are you referring to? http://unlawflcombatnt.blogspot.com/ unlawflcombatnt.blogspot.com/

Subject: Social Security Lessons From Sweden From: Emma To: All Date Posted: Mon, Dec 13, 2004 at 15:28:01 (EST) Email Address: Not Provided Message: February 5, 2004 Some lessons from Sweden on the pros and cons of privatizing Social Security. By Alan B. Krueger - New York Times YOUNGER workers,' President Bush said in his State of the Union address, 'should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account.' According to former Treasury Secretary Paul H. O'Neill, the president believes that the reason he was elected was his bold -- some would say risky -- stance on replacing part of Social Security with personal accounts. If the president holds onto office in November and his party continues to hold Congress, the creation of some sort of personal retirement accounts as part of Social Security seems likely. Although it is impossible to know what form such accounts might take, in 2000 Sweden instituted a system of personal accounts that holds many lessons for any country seeking to reform its retirement system. Sweden now has a blended system, an approach Mr. Bush apparently favors. Employers and employees contribute a combined 16 percent of payroll toward a 'pay as you go' retirement system like Social Security, and an additional 2.5 percent toward individual retirement accounts. Those born after 1954 are fully in the new system, while older workers are phased in. The reform process began in 1991, when a center-right coalition came to power. At the time, Sweden's generous retirement system was expected to exhaust its 'buffer' funds in about 20 years, a more dire situation than what now confronts the United States; Social Security will not exhaust its trust fund until 2042, according to the latest projections. To address its problems, Sweden set up a committee with representatives from all parties in Parliament. Because the reforms were expected to last for decades, there was pressure to devise a plan with broad support, said Annika Sunden, an expert on pensions at Stockholm University. There was agreement back in 1994 that reform would include individual accounts, so beginning in 1995 the government began tucking away 2.5 percent of payroll for employees to invest once the system was set up. Personal investment accounts were not established until 2000, with a bewildering array of funds to choose from. Some 456 funds participated initially, and the number has since grown to around 600. Most funds invested in stocks, with a quarter primarily in Swedish stocks. Workers could choose up to five funds. Anyone who did not choose a fund was automatically assigned to the default fund, which was set up by the government. The default fund must invest 80 to 90 percent of its assets in stocks. A central pension agency records all the accounts and fund values. The agency also ran an ad campaign to discourage people from going into the default fund. Nonetheless, a new study by Henrik Cronqvist and Richard Thaler of the University of Chicago finds that a third of Swedish workers did not make an active choice when the system started in 2000, and were therefore assigned to the default fund. Since 2000, fully 92 percent of new enrollees have not made a choice and have been added to the default fund. Apparently, the large number of funds to chose from paralyzed many individuals from making a choice. This has also been the experience of many 401(k) plans that have a default option in the United States: the default option, whatever it may be, is chosen by a high proportion of investors. People are also reluctant to switch once they are in a fund, a tendency that the economists William Samuelson and Richard Zeckhauser have called status quo bias. Another bias that Mr. Cronqvist and Mr. Thaler documented is home bias, a tendency to pick funds composed of Swedish companies, as opposed to a diversified portfolio of companies from around the world. Nearly half the money actively invested was in Swedish stocks. The default fund, by contrast, was better diversified: only 17 percent was in Swedish stocks. They also found that people tended to pick funds in sectors that had done well recently, and to pick funds with low fees. The average fee for active choosers was 77 basis points, or 0.77 percent of the funds invested. For the default fund it was just 16 basis points. Chile's mandatory savings plan provides another point of comparison. Fund management fees were much lower in Sweden than administrative costs in Chile's plan, probably because the central pension agency orchestrated rebates and advertised the fee rates. How did the funds do? Sweden had bad timing. The stock market tumbled just after the program started. It turns out, however, that the default fund lost less money than the aggregate portfolio of selected funds. The average selected fund fell by 40 percent in the first three years of the program, while the default fell 30 percent. Although three years is a short period, there is no evidence that the active choosers made better choices than those assigned to the default fund. For the United States, the main lesson from the Swedish experience, Ms. Sunden said, is that the default fund should be constructed very carefully, because it will attract many investors. (Ditto for 401(k) plans.) She also highlighted that more use should be made of generation funds, which move money into less risky assets as workers approach retirement, and that converting funds into annuities should be mandatory for retired workers. The consequences of making a bad investment decision in Sweden are much less severe than they would be in the United States if Mr. Bush gets his way and allows workers to divert part of the 12.4 percent of their paycheck that goes to Social Security -- half from the employee, half from the employer -- into personal accounts. Sweden devotes 16 percent of payroll to an earnings-linked pension system, creating a strong safety net beneath individual accounts. Sweden also established a 'guaranteed pension' that provides a minimum pension amount, in excess of the poverty line, to anyone with little or no pension income. All this leads one to wonder if it is possible to design a system that diverts some Social Security contributions into personal accounts yet still provides adequate insurance against bad luck and bad investment decisions. Moreover, the current American system is not beyond repair. In their new book, 'Saving Social Security: A Balanced Approach' (Brookings Institution Press), for example, Peter A. Diamond of M.I.T. and Peter R. Orszag of the Brookings Institution outline a plan to preserve the best elements of Social Security by making politically difficult but sensible reforms, like indexing benefits to rising life expectancy and collecting some payroll taxes above the earnings cap. Sometimes, a little status quo bias is not such a bad thing. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University and a co-editor of The Journal of the European Economic Association. E-mail: akrueger@princeton.edu.

Subject: Re: Social Security Lessons From Sweden From: unlawflcombatnt To: Emma Date Posted: Tues, Dec 14, 2004 at 07:54:38 (EST) Email Address: unlawflcombatnt@aol.com Message: February 5, 2004 Some lessons from Sweden on the pros and cons of privatizing Social Security. By Alan B. Krueger - New York Times YOUNGER workers,' President Bush said in his State of the Union address, 'should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account.' According to former Treasury Secretary Paul H. O'Neill, the president believes that the reason he was elected was his bold -- some would say risky -- stance on replacing part of Social Security with personal accounts. If the president holds onto office in November and his party continues to hold Congress, the creation of some sort of personal retirement accounts as part of Social Security seems likely. Although it is impossible to know what form such accounts might take, in 2000 Sweden instituted a system of personal accounts that holds many lessons for any country seeking to reform its retirement system. Sweden now has a blended system, an approach Mr. Bush apparently favors. Employers and employees contribute a combined 16 percent of payroll toward a 'pay as you go' retirement system like Social Security, and an additional 2.5 percent toward individual retirement accounts. Those born after 1954 are fully in the new system, while older workers are phased in. The reform process began in 1991, when a center-right coalition came to power. At the time, Sweden's generous retirement system was expected to exhaust its 'buffer' funds in about 20 years, a more dire situation than what now confronts the United States; Social Security will not exhaust its trust fund until 2042, according to the latest projections. To address its problems, Sweden set up a committee with representatives from all parties in Parliament. Because the reforms were expected to last for decades, there was pressure to devise a plan with broad support, said Annika Sunden, an expert on pensions at Stockholm University. There was agreement back in 1994 that reform would include individual accounts, so beginning in 1995 the government began tucking away 2.5 percent of payroll for employees to invest once the system was set up. Personal investment accounts were not established until 2000, with a bewildering array of funds to choose from. Some 456 funds participated initially, and the number has since grown to around 600. Most funds invested in stocks, with a quarter primarily in Swedish stocks. Workers could choose up to five funds. Anyone who did not choose a fund was automatically assigned to the default fund, which was set up by the government. The default fund must invest 80 to 90 percent of its assets in stocks. A central pension agency records all the accounts and fund values. The agency also ran an ad campaign to discourage people from going into the default fund. Nonetheless, a new study by Henrik Cronqvist and Richard Thaler of the University of Chicago finds that a third of Swedish workers did not make an active choice when the system started in 2000, and were therefore assigned to the default fund. Since 2000, fully 92 percent of new enrollees have not made a choice and have been added to the default fund. Apparently, the large number of funds to chose from paralyzed many individuals from making a choice. This has also been the experience of many 401(k) plans that have a default option in the United States: the default option, whatever it may be, is chosen by a high proportion of investors. People are also reluctant to switch once they are in a fund, a tendency that the economists William Samuelson and Richard Zeckhauser have called status quo bias. Another bias that Mr. Cronqvist and Mr. Thaler documented is home bias, a tendency to pick funds composed of Swedish companies, as opposed to a diversified portfolio of companies from around the world. Nearly half the money actively invested was in Swedish stocks. The default fund, by contrast, was better diversified: only 17 percent was in Swedish stocks. They also found that people tended to pick funds in sectors that had done well recently, and to pick funds with low fees. The average fee for active choosers was 77 basis points, or 0.77 percent of the funds invested. For the default fund it was just 16 basis points. Chile's mandatory savings plan provides another point of comparison. Fund management fees were much lower in Sweden than administrative costs in Chile's plan, probably because the central pension agency orchestrated rebates and advertised the fee rates. How did the funds do? Sweden had bad timing. The stock market tumbled just after the program started. It turns out, however, that the default fund lost less money than the aggregate portfolio of selected funds. The average selected fund fell by 40 percent in the first three years of the program, while the default fell 30 percent. Although three years is a short period, there is no evidence that the active choosers made better choices than those assigned to the default fund. For the United States, the main lesson from the Swedish experience, Ms. Sunden said, is that the default fund should be constructed very carefully, because it will attract many investors. (Ditto for 401(k) plans.) She also highlighted that more use should be made of generation funds, which move money into less risky assets as workers approach retirement, and that converting funds into annuities should be mandatory for retired workers. The consequences of making a bad investment decision in Sweden are much less severe than they would be in the United States if Mr. Bush gets his way and allows workers to divert part of the 12.4 percent of their paycheck that goes to Social Security -- half from the employee, half from the employer -- into personal accounts. Sweden devotes 16 percent of payroll to an earnings-linked pension system, creating a strong safety net beneath individual accounts. Sweden also established a 'guaranteed pension' that provides a minimum pension amount, in excess of the poverty line, to anyone with little or no pension income. All this leads one to wonder if it is possible to design a system that diverts some Social Security contributions into personal accounts yet still provides adequate insurance against bad luck and bad investment decisions. Moreover, the current American system is not beyond repair. In their new book, 'Saving Social Security: A Balanced Approach' (Brookings Institution Press), for example, Peter A. Diamond of M.I.T. and Peter R. Orszag of the Brookings Institution outline a plan to preserve the best elements of Social Security by making politically difficult but sensible reforms, like indexing benefits to rising life expectancy and collecting some payroll taxes above the earnings cap. Sometimes, a little status quo bias is not such a bad thing. Alan B. Krueger is the Bendheim professor of economics and public affairs at Princeton University and a co-editor of The Journal of the European Economic Association. E-mail: akrueger@princeton.edu. --- Collecting payroll taxes above the cap sounds like the place to start. The decrease in median wage during the Bush presidency has reduced the taxable amount being put in to the social security fund. In contrast, increased income of the higher income taxpayers contributes little extra, due to the cap. Raising or removing the cap seems like the first step in maintaining solvency. http://www.unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Future Stock Market Returns From: Ari To: All Date Posted: Mon, Dec 13, 2004 at 12:35:37 (EST) Email Address: Not Provided Message: Several prominent economists, along with Paul Krugman, appear to believe future stock market returns will lag those of the past, but I do not know why this should be so. Can anyone explain?

Subject: Re: Future Stock Market Returns From: jimsum To: Ari Date Posted: Tues, Dec 14, 2004 at 16:05:26 (EST) Email Address: jim.summers@rogers.com Message: It depends what you think determines the value of stocks. There is general acceptance that stock prices should be based on the profits a company makes; that't the price/earnings (P/E) ratio. If the P/E ratio doesn't change, then stock prices can't rise at a faster rate than profits; and profits typically can't grow any faster than the economy. There are a lot of assumptions here. What's the 'correct' P/E ratio? If the P/E ratio goes up (i.e. investors accept a lower return on investment) then stock prices can rise faster than profits. Companies are also taking a larger portion of GDP as profit; if companies can increase that share (at the expense of workers and consumers), then stock prices can rise faster than GDP. You can also consider tax changes which may be boosting the demand for stock. However, if you think there is no reason for profits or P/E ratios to diverge from their long-term averages, it will take quite a bit of GDP growth to catch up to current stock prices. It comes down to whether you think there has been a fundamental change in the economy that makes the historical values of stock irrelevant. If there hasn't been a fundamental change, then stocks are expensive and are unlikely to rise much in the future.

Subject: Re: Future Stock Market Returns From: Terri To: jimsum Date Posted: Tues, Dec 14, 2004 at 19:42:39 (EST) Email Address: Not Provided Message: Fine answer. We can continue. I am reading John Bogle to get a sense of how we might make long term projections.

Subject: Re: Future Stock Market Returns From: Pancho Villa To: jimsum Date Posted: Tues, Dec 14, 2004 at 16:53:44 (EST) Email Address: nma@hotmail.com Message: '...that stock prices should be based on the profits a company thinks to make;...'

Subject: Re: Future Stock Market Returns From: http://www.unlawflcombatnt.blogspot.com/ To: Ari Date Posted: Tues, Dec 14, 2004 at 08:07:32 (EST) Email Address: unlawflcombatnt@aol.comcom/ Message: Several prominent economists, along with Paul Krugman, appear to believe future stock market returns will lag those of the past, but I do not know why this should be so. Can anyone explain? --- I think I may have a simplistic answer about the stocks. Consumer spending is flat. Median wages have decreased over the last year. It appears that trend will continue. The earnings from the stock market are at least partially related to the sale of the product the company produces. If aggregate American consumer income goes down, consumer spending will soon follow. So many of the companies on the stock market won't be able to sell as much of their product. That should reduce their earnings. That may not be the reason, but it seems likely to me. I'm not investing any more in the stock market because of this. http://unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Re: Future Stock Market Returns From: Paul G. Brown To: Ari Date Posted: Mon, Dec 13, 2004 at 15:01:25 (EST) Email Address: Not Provided Message: Hey Ari! Just found what I *think* is your cite: the column of 12/10/2004. 'We can argue at length about whether the high stock returns such schemes assume are realistic (they aren't)' I'm not sure that the case PK needs to make here is that 'future stock market returns will lag those of the past'. I think all he needs to show is that the projections being bandied about by proponents of the Bush plan are unrealistic. I can offer one technical explaination. It has to do with volatility. When you're looking at an investment, you need to look at the 'risk', as well as the 'return'. Now, the stock market has had higher returns than other investment vehicles (though quite why it has been as high as it has been remains a puzzle - Google 'Equity Premium') but it has also been more 'variable' in its returns than bonds (though not as variable as, say real estate, or a weekend in Vegas). To get a really bad outcome, there is no reason to do anything more than assume that the volatility in equity returns remains about the same. 1/3 of the time, the market declines. Let's look at a 20 year projection. How many down years can you expect 9 or more 'down years'? The answer is about 1/10. And what about 8 or more (which implies no increase)? About 1/5. In other words, the social security fix the Bushies are proposing has a 1/5 chance of making no difference at all or even making the problem worse If social security bankruptcy really is looming, is takin' it to Vegas really the best option?

Subject: Re: Future Stock Market Returns From: Ari To: Paul G. Brown Date Posted: Mon, Dec 13, 2004 at 15:18:35 (EST) Email Address: Not Provided Message: This is most helpful. The problem for individuals relying on the stock market for Social Security would be the volatility of returns. A person retiring in the bear market of 2002 would be a lot worse off than a person retiring in the bull market of 1999. What about the Social Security system investing in stock indexes, as a typical conservative pension fund might? The volatility is there, but the system itself will outlast a bear market.

Subject: Re: Future Stock Market Returns From: Paul G. Brown To: Ari Date Posted: Mon, Dec 13, 2004 at 15:50:18 (EST) Email Address: Not Provided Message: I'm not sure that the story is all that much different for SS as a whole. Remember - that 1/3 number is about total market returns. Let's say the SS trust fund invests in a total market index fund. There is *still* a 1/5 chance that it will emerge after 20 years with just its initial capital, or some amount less than its initial capital. 'Conservative' funds invest in a mix of fixed incomes assets *and* equities. Essentially, social secutiry is a maximally risk averse mutual fund. It only invests in the safest possible paper: T-Bills. Equiping it to 'outlast a bear market' would involve allowing it to take on debt.

Subject: Useful site From: Paul G. Brown To: Paul G. Brown Date Posted: Mon, Dec 13, 2004 at 15:02:33 (EST) Email Address: Not Provided Message: You can play with the outcomes here: http://128.32.135.2/~stark/Java/BinHist.htm

Subject: All Was Useful From: Ari To: Paul G. Brown Date Posted: Mon, Dec 13, 2004 at 16:05:10 (EST) Email Address: Not Provided Message: Useful and thank you for the clear explanations. Social Security needs to take on minimal risk, but I am left wondering how a pension fund such as for California or New York State employees handles the risk of an extensive poor stock market.

Subject: Re: All Was Useful From: Paul G. Brown To: Ari Date Posted: Mon, Dec 13, 2004 at 17:44:52 (EST) Email Address: Not Provided Message: The large retirement funds can afford to take on more risk precisely because assume that they have Social Security underpinning them!

Subject: Re: All Was Useful From: Ari To: Paul G. Brown Date Posted: Mon, Dec 13, 2004 at 18:46:53 (EST) Email Address: Not Provided Message: Actually, I just realized that a state defined benefit pension plan is backed by the state government which can borrow and tax. Then the state pension plans can conservatively take on stock market risk.

Subject: Re: All Was Useful From: Terri To: Ari Date Posted: Mon, Dec 13, 2004 at 16:38:48 (EST) Email Address: Not Provided Message: Berkshire Hathaway is primarily an insurance company, and much of the insurance sold is catastrophe insurance. But, the corporation is well protected enough to withstand great shocks to earnings. On the same principle, can the Social Security plan invest in the stock market with long term safety enough to weather any bear market? Would there need to be a government borrowing provision as insurance?

Subject: Re: Future Stock Market Returns From: Paul G. Brown To: Ari Date Posted: Mon, Dec 13, 2004 at 13:41:33 (EST) Email Address: Not Provided Message: Just my lil' ol' BS detector going off again. What *exactly* did he say/write, and where did he write it? I ain't sayin' you're wrong. Jus' that I'd like to see what he said.

Subject: Re: Future Stock Market Returns From: Ari To: Paul G. Brown Date Posted: Mon, Dec 13, 2004 at 14:45:47 (EST) Email Address: Not Provided Message: Though I may be wrong, Paul Krugman appears to be questioning whether past stock market returns can be expected in future. I agree that there is no crisis in Social Security and that creating private accounts by borrowing will create a crisis, but I wonder whether there is reason to invest part of Social Security revenue in stocks? Paul Krugman 12/10/04 'How, then, can privatizers claim that they could secure the future of Social Security without raising taxes or reducing the incomes of future retirees? By assuming that workers would invest most of their accounts in stocks, that these investments would make a lot of money and that, in effect, the government, not the workers, would reap most of those gains, because as personal accounts grew, the government could cut benefits. 'We can argue at length about whether the high stock returns such schemes assume are realistic (they aren't), but let's cut to the chase: in essence, such schemes involve having the government borrow heavily and put the money in the stock market.'

Subject: China and I.B.M. From: Emma To: All Date Posted: Mon, Dec 13, 2004 at 11:58:15 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/13/technology/13ibm.html?pagewanted=all&position= I.B.M. Sought a China Partnership, Not Just a Sale By STEVE LOHR In July 2003, Samuel J. Palmisano, the chief executive of I.B.M., traveled to Beijing to explore the sale of the company's personal computer business. But he did not start by making the usual visit with executives of I.B.M.'s preferred partner, Lenovo, China's largest personal computer maker. Instead, Mr. Palmisano first engaged in a bit of old-fashioned courtship. Before formally approaching Lenovo, he sought permission from the parents, by meeting privately with a senior Chinese government official in charge of economic and technology policy. I.B.M. was not merely looking to sell its PC business, Mr. Palmisano told the official, but had bigger aspirations of creating a global enterprise, with I.B.M. contributing technology, management, marketing and distribution. The idea, Mr. Palmisano explained, would be to build a modern and truly international Chinese-owned corporation. The move, he added, would demonstrate China's desire to take that next step toward economic maturity by investing abroad instead of merely serving as a manufacturing hub for the rest of the world. The senior Chinese government official, Mr. Palmisano recalled, responded, 'That is the future model for where we see China headed.' Permission was granted. Inside I.B.M., the issue of whether to stay in the personal computer business has been debated for a decade. But the road to the Lenovo deal, according to I.B.M. executives, began in 2000, shortly after Mr. Palmisano became the company's president and chief operating officer. He ordered an extensive review of the PC business and decided to stop selling I.B.M. PC's through retail stores. At about that time, I.B.M. approached Lenovo for the first time, according to a person close to Lenovo, seeking to sell its PC business for $3 billion to $4 billion. At the time, I.B.M. had let its investment bankers know that if an attractive offer came up for the PC business, it would certainly consider a sale. But I.B.M. executives say that any discussion in 2000 was probably a prospecting overture by an outside adviser representing the company. In May 2002, Mr. Palmisano directed John Joyce, then I.B.M.'s chief financial officer, to meet with Lenovo's senior management to sound out the company's interest in establishing a business relationship. Lenovo, according to I.B.M. executives, was intrigued and had long been exploring ways to increase its international presence. More than a year later, at the meeting in Beijing, the government official told Mr. Palmisano that a few years earlier the Chinese authorities would have been involved in such talks. But times had changed, the official said, and Lenovo and I.B.M. could negotiate by themselves. By October 2003, I.B.M. resumed discussions with Lenovo. In March 2004, Mr. Palmisano went to Beijing to meet with Lenovo's founder, Liu Chuanzhi, as well as its president, Yang Yuanqing, and the chief financial officer, Mary Ma. That was when Mr. Palmisano fully described what he had in mind. 'I put it all on the table,' he said. Lenovo was definitely interested, though any such deal would be complicated. Many of the essential elements of the deal were hammered out over eight days in June, in a hotel near Raleigh, N.C., where I.B.M.'s PC business is based. The principal negotiators included Mr. Joyce, who now heads I.B.M.'s services business, Stephen M. Ward Jr., an I.B.M. executive who will become chief executive of the Lenovo PC business, and Mr. Yang. There were other interested bidders, including one from an American buyout firm whose offer remained on the table until the end. And the Lenovo deal could have fallen apart. But apparently the Chinese option was the only one seriously pursued by I.B.M. 'There were simpler transactions we could have done,' Mr. Palmisano said, adding, 'What we wanted was not a divestiture, but this strategic relationship with Lenovo and China.' The sale of I.B.M.'s personal computer business to Lenovo for $1.75 billion, announced last Tuesday, is 'a three-dimensional deal,' according to Mr. Palmisano. The sale provides I.B.M. with a path to leave a business that is large but not profitable. It is also the latest step in I.B.M.'s shift toward services, software and specialized hardware technology from mainframes to microprocessors for computer game consoles, all of which promise higher profits than the fiercely competitive PC business. Yet the most intriguing, and potentially most important, dimension of the deal for the company is that it is I.B.M.'s China card. The new Lenovo, folding in the I.B.M. personal computer business, will be China's fifth-largest company, with $12.5 billion in sales in 2003, and the Chinese government will remain a big shareholder. I.B.M. is eager to help China with its industrial policy of moving up the economic ladder, by building the high-technology engine rooms to power modern corporations and government institutions with I.B.M. services and software. The deal is not expected to face any regulatory hurdles. Although there is a requirement, dating back to the era of the cold war, for review of possible national security implications, officials in Washington told I.B.M. executives in advance of the announcement that clearing it would not be a problem. The pact could give I.B.M. 'an extremely important leg up in China,' Laura Conigliaro, an analyst with Goldman, Sachs, whose investment banking arm advised Lenovo, wrote in a report last week. 'Ultimately, this is the single most valuable benefit to I.B.M. from this transaction.' The payoff for I.B.M., if any, will come gradually. The Lenovo deal, in which I.B.M. will take an 18.9 percent stake in the Chinese company, is a sign of I.B.M.'s commitment to China. I.B.M. is placing 10,000 of its employees, its brand for five years and some its prestige in Lenovo's hands. There is a lot more at stake than the $1.25 billion in cash and stock Lenovo is paying, and $500 million in debt obligations it will assume. In China, I.B.M. is using a variation of the globalization formula that has worked well for it in Japan, Europe and elsewhere. I.B.M. patiently nurtures close ties with the government and becomes a premier employer and a stellar corporate citizen - so much so that it is eventually regarded more like a local company than an outsider. 'We don't have any special deal with the Chinese government or any other government really,' Mr. Palmisano explained last week over lunch at I.B.M. headquarters. 'It's a much more subtle, more sophisticated approach. It is that if you become ingrained in their agenda and become truly local and help them advance, then your opportunities are enlarged. 'You become part of their strategy,' he added.

Subject: The ominous housing bubble From: Pancho Villa To: All Date Posted: Mon, Dec 13, 2004 at 04:34:51 (EST) Email Address: nma@hotmail.com Message: Stephen Roach America's ominous housing bubble Nearly five years after the bursting of the equity bubble, America has doine it again. This time, it is the housing bubble. But this speculative excess may be the cruellest bubble of all - and has already led to a sharp compression of national savings, a record current account deficit and an ominous overhang of personal indebtness. The US was fortunate in avoiding the perils of a post-bubble carnage in 2000-2001. It may not be so lucky this time. The debate over a US housing bubble is now over. The recent US house prices report for the third quarter was a shocker - an 18.5 per cent annualised surge from the second quarter and a 13 per cent increase from year-earlier levels, according to the Office of Federal Housing Enterprise Oversight (OFHEO). That represents a stunning acceleration from 9.8 per cent year-on-year increase of the second quarter and pushes nationwide house price appreciation to a 25-year high. Housing analysts and central bankers are typically reluctant to draw macro conclusions from a highly fragmented US property market. The risk is they focus on the trees and miss the forest. The latest OFHEO tally shows house price inflation has run at double-digit rates over the past year in 25 of 50 US states plus the District of Columbia. Housing is an asset class just as prone to excess as stocks, bonds, currencies and commodities. If it feels like a bubble and acts like a bubble, it probably is one. There is related and equally disconcerting news on the savings side of the equation: the US personal saving rate fell to 0.2 per cent of disposable income in October. The profligate US consumer is not the only source of the saving shortfall. America's net national saving rate, stripping out depreciation and reflecting the combined saving households, businesses and the dissaving of the public sector, fell to just 1.2 per cent of GNP in the third quarter - down 0.9 of a percentage point from the second quarter in the 2003 first quarter. The rest of the story is all too familiar: Lacking domestic savings, the US must then import surplus savings from abroad in order to grow - and then run massive current account and trade deficits to attract the capital. These seemingly disparate trends are a perfectly logical outgrowth of the asset economy. Through this lens, 'rational' consumers take their income-based saving rates to zero only if asset-based saving provides an offset. As long as asset markets keep rising, that makes sense. However, when asset markets correct, this decision can backfire, as was the case when the equity bubble popped in 2000. It could well be the case after today's US housing bubble bursts. Complicating the picture, income-short US consumers are playing this latest bubble for all it is worth - enjoying the psychological benefits of the so-called wealth effect and utilising refinancing and second mortagages to extract purchasing power from overvalued property and ultimately depleting income-based saving-rates. The resulting shortfall of national savings has helped push America's current account deficit into uncharted territory, raising the risks of a sharp correction of the dollar and a related back-up in longer-term interest-rates. The last thing America's housing bubble needs is an interest rate shock. That is a recipe for a sharp decline in US housing prices - and a disastrous outcome for overly-indebted consumers. That makes the downside of this bubble potentially far worse than that of the equity bubble, especially as household property holdings of some $14,000bn (E10,500bn) currently are almost double the aggregate size of equity portfolios. Not surprisingly, these circumstances put the FED in a particularly difficult position - in part, because the US central bank has long suffered from bubble-denial syndrome, unwilling or unable to address speculative excess in asset markets until it is too late. But there are also risks because the US monetary authority depleted most of its policy arsenal in order to contain the damage from the equity bubble. In doing so, the FED kept interest rates at extraordinary low levels for far too long ('A failure to do so ... is a recipe for a never-ending outbreak of asset bubbles. Largely for that reason, I have urged the Fed to raise the federal funds rate immediately to 3 percent.' S. Roach, March 2004) - setting the stage for the housing bubble. The risk all along is that the FED had just a single bubble-damage containment strategy - leaving itself with little ammunition in the event of another serious problem. While it is only a few years since the bursting of the equity bubble, memories of that speculative excess have already dimmed. Yet in retrospect, that may have been only the warm-up for the main event. Bubbles have a way of feeding each other - ultimately leading to an even more treacherous shakeout. That is certainly the lesson from Japan and could well be the case in the US, America, so short of savings, will not be spared - especially if it must now come to grips with the biggest asset bubble of them all.

Subject: The almighty dollar ... From: Pancho Villa To: All Date Posted: Mon, Dec 13, 2004 at 03:01:09 (EST) Email Address: nma@hotmail.com Message: The almighty dollar looks mighty vulnerable Roger Cohen Saturday, December 11, 2004 NEW YORK I asked Benn Steil, a smart economist, how vulnerable the United States is to economic attack. His response, offered without hesitation, was 'very.' Steil is the senior fellow in international economics at the Council on Foreign Relations in New York, so he should know. Even I know that the American economy now resembles an addict dependent on a huge fix of foreign capital every day. That injection of imported funds is running at about $2 billion daily, and rising. The great power to end all great powers is awash in debt. This flow of foreign money is needed because America is importing far more than it is exporting and its government, under President George W. Bush, is spending far more than it has. The current account deficit, at well over $600 billion, accounts for about 5.7 percent of gross national product. The budget deficit reached $412 billion in the last fiscal year. Such numbers would consign many countries to economic oblivion, but of course the United States benefits from holding the global reserve currency and running the world's most dynamic economy. People throughout the world have tended to believe that a dollar today will be a dollar tomorrow because monetary and fiscal policy would be sound. They have put trillions of dollars into American assets including U.S. Treasury bonds, corporate bonds, stocks and property. As a result, the American party could go on. But the world is changing. In the space of a few years, the euro has emerged as a strong alternative to the dollar; the value of euro-denominated bonds has soared. Middle Eastern countries have cut their dollar holdings. From the outset, the political significance of the euro was underscored by several European officials, including Romano Prodi, then the European Commission president, who said in 2001: 'The historical significance of the euro is to construct a bipolar economy in the world. The two poles are the dollar and the euro.' He added that, in political terms, the euro was 'just an antipasto.' Many American sages scoffed. But now that the euro has risen about 35 percent against the dollar since 2000, they have gone quiet. Central bankers are not without a herd instinct. In the 1990s, they made a substantial move from gold to dollars. It is not inconceivable that one day they might make a move of similar scope from dollars to euros. That could be devastating to the American economy. Of course, the Chinese and Japanese central bankers holding hundreds of billions of dollar-denominated assets have no desire to see those assets plunge or the U.S. economy in a tailspin. The trick for them is finding a way to diversify without undermining what they have. No sudden moves are likely. But as long as America's deficits keep growing, so does its economic vulnerability. These economic developments are occurring in a world unhappy with the United States. The benign gaze of much of the globe toward America has, in many instances, turned baleful. There are many who would like to see the United States get its comeuppance for its perceived swaggering. American military dominance is overwhelming, but its economic situation is far more delicate. You do not have to be Tom Clancy to imagine that a few dark minds may have turned to the question of how, in the long run, to exploit this weakness. Of all this, Bush seems oblivious. He did not veto a single spending bill during his first term. He is proposing a reform of Social Security that could increase the federal deficit by at least an additional $100 billion. The war in Iraq is not going to get any cheaper, especially if some of the vehicles that U.S. soldiers are dying in get some armor applied. Bush has reappointed John Snow as Treasury secretary, a man who seems unalarmed by America's economic direction. Above all, the president has made no statement that suggests he will be more stringent on government spending in his second term. No wonder the dollar has been heading south. Economists reckon that each $100 added to the budget deficit adds $25 to the trade deficit. If the government is not going to tighten its belt, why should anyone else? 'What astonishes me,' Steil said, 'is that the administration is not reacting. A great power with a feeble currency is not convincing.' Even Alan Greenspan, the chairman of the Federal Reserve, seems to have become more concerned by the current account deficit. In a recent speech in Berlin, he said, 'The situation suggests that international investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher dollar returns to offset concentration risk, elevating the cost of financing the U.S. current account deficit and rendering it increasingly less tenable.' In effect, Greenspan was saying that the United States may have to offer much higher interest rates or a much lower exchange rate to go on importing capital. David Hale, a Chicago-based economist, concluded that the dollar could be 'in a very major bear market that might run for two or three years and put the euro at $1.50 or even $1.60.' 'This will be seen as a sign of American weakness,' Hale said. Bush does not like to show weakness. But he seems ready to be the commander in chief of a weak dollar. Of course, the currency could rally. Europeans are already worried about their exports; Jean-Claude Trichet, the president of the European Central Bank, has called the euro's appreciation 'brutal and unwelcome.' But there are no signs of coordinated intervention. Neither Bush nor Vice President Dick Cheney like foreign travel. So perhaps they've not noticed the dollar's plunge. A buck is still a buck in their home states, Texas for Bush and Wyoming for Cheney. Stocks are cheap for foreigners and the market has rallied. Manufacturers in Ohio like the cheap dollar. Hey, why worry? I don't know. Perhaps the president and his No. 2 will only take note if oil transactions are switched from dollars to euros. That was a move once suggested by Saddam Hussein.

Subject: 'The Big Picture' From: Pete Weis To: All Date Posted: Sun, Dec 12, 2004 at 19:17:06 (EST) Email Address: Not Provided Message: Comstock Partners, Inc. The Big Picture December 09, 2004 In our view the early 2000 peak in the stocks marked an end to the extraordinary 18-year secular bull market than began in 1982. Now, four and a half years later, the market remains well below its highs, lending support to our belief that this is indeed a secular bear market that will produce below average or negative returns in the years ahead. The sharp upward move since October 2002 is most likely a cyclical bull market that will end soon at levels far below the previous high. After the bursting of the massive economic and financial bubble of the late 1990s, the monetary and fiscal authorities took historically extreme measures to avoid the type of deep deflationary recession that occurred in the U.S. after 1929 and Japan after 1989. The Fed lowered the funds rate by 550 basis points to one percent along with the promise that the rate would remain at that unusually low level for an indefinite period with the hope that long rates—and therefore mortgage rates—would stay low as well. This policy was also accompanied by two major tax cuts that put more money in the hands of consumers. Essentially, in the absence of adequate employment and wage growth, the Fed used soaring asset values (stocks, bonds and houses) to create a wealth effect that got the economy going. Various estimates indicate that cash-outs from mortgage refinancing (REFIs) alone put hundreds of billions of dollars into the hands of consumers. These measures kept the recession relatively mild and allowed the consumer to continue to increase spending throughout the downturn. This was the first recession in which consumer spending never turned negative on a year-to-year basis for even a single quarter. Instead of cutting back, consumers were able to maintain their standard of living through a drastic cutback in the savings rate, refunds from the tax reductions, a huge rise in debt and the cash-outs from REFIs. As a result, however, the massive structural imbalances created by the bubble have not been corrected, and have actually been exacerbated. These include a record trade imbalance, an all-time low consumer savings rate, soaring consumer debt, and a major budget deficit. As can be seen in the increasing concern about the weakness of the dollar, these chickens are now coming home to roost and are creating strong headwinds against sustainable economic growth at a time when the Fed is tightening, the tax refunds are played out, and REFIs are down 75 percent from the peak. Unlike past economic recoveries, the current expansion was fueled by extreme monetary and fiscal ease leading to bubbling asset values, rather than the rapid rise in employment and wages that leads to more sustainable growth. For example non-farm payroll employment in the current recovery is up only a paltry 0.9 percent since the official recession bottom in November 2001, an average of only 32,000 per month. This compares to an average increase of about 7.5 percent in other post-war recessions. If employment in the present expansion had risen by that amount there would be about 8.6 million more jobs than there are today, and the average monthly gain would have been about 273,000. Instead, this number has been surpassed in only three of the past 36 months, and as a result, the growth of wages and salaries has been far under the increases posted in the past. The strains are evident in the current economic numbers, which are decidedly mixed. Retail sales look tepid with store traffic slow and sales sluggish. Auto sales drop off markedly whenever incentives are lowered, and GM and Ford have announced substantial cuts in upcoming production. Durable goods orders other than defense and aircraft also look lackluster, while the Conference Board leading indicators have been down for five straight months. At the same time the Fed is tightening and promises to continue doing so, albeit at the so-called measured pace. Nevertheless, despite the conventional wisdom that rates are still too low to impact the economy, past periods of low interest rate levels indicates that direction counts, and that a series of rate increases, even from low levels, leads to sub-par growth or recession. This seems particularly true when the recovery has been below average and heavily dependent on asset value inflation rather than rising employment and wages. It also appears significant that the market is back on one of its speculative binges. Internet stocks are once again in vogue and the leading Nasdaq stocks are selling a huge P/E ratios. We are seeing late-1990s types of craziness in stocks such as Google, Taser, Travelzoo, Research in Motion and scores of others. We now even have the big conceptual merger between Sears and K-Mart, bringing back memories of the Time Warner AOL deal near the 2000 peak. Overall stock market valuations remain extremely high, whether measured by P/E ratios, price-to-sales, dividend yield, or price-to-book. In sum, given the continuing high valuations, the uncorrected economic and financial structural imbalances, and the lack of further fiscal and monetary options, we believe that the market is in a secular decline that will resume shortly. During the previous secular bear market (1966-1982) presidential post-election day rallies petered out between mid-December and mid-January, followed by major declines that extended into the next year. If the pattern holds this time, as we think it will, time is running out.

Subject: 'market in secular decline' From: Paul G. Brown To: Pete Weis Date Posted: Tues, Dec 14, 2004 at 11:38:50 (EST) Email Address: Not Provided Message: I thought they needed to look that word, 'secular' up. To quote the immortal Inego Montoya, 'I donna think it means what you think it means.' However, Websters agrees with 'em. 3 a : occurring once in an age or a century b : existing or continuing through ages or centuries c : of or relating to a long term of indefinite duration There you are. They're sayin' it's bears all the way down.

Subject: Re: 'The Big Picture' From: unlawflcombatnt To: Pete Weis Date Posted: Tues, Dec 14, 2004 at 08:21:45 (EST) Email Address: unlawflcombatnt@aol.com Message: Comstock Partners, Inc. The Big Picture December 09, 2004 In our view the early 2000 peak in the stocks marked an end to the extraordinary 18-year secular bull market than began in 1982. Now, four and a half years later, the market remains well below its highs, lending support to our belief that this is indeed a secular bear market that will produce below average or negative returns in the years ahead. The sharp upward move since October 2002 is most likely a cyclical bull market that will end soon at levels far below the previous high. After the bursting of the massive economic and financial bubble of the late 1990s, the monetary and fiscal authorities took historically extreme measures to avoid the type of deep deflationary recession that occurred in the U.S. after 1929 and Japan after 1989. The Fed lowered the funds rate by 550 basis points to one percent along with the promise that the rate would remain at that unusually low level for an indefinite period with the hope that long rates—and therefore mortgage rates—would stay low as well. This policy was also accompanied by two major tax cuts that put more money in the hands of consumers. Essentially, in the absence of adequate employment and wage growth, the Fed used soaring asset values (stocks, bonds and houses) to create a wealth effect that got the economy going. Various estimates indicate that cash-outs from mortgage refinancing (REFIs) alone put hundreds of billions of dollars into the hands of consumers. These measures kept the recession relatively mild and allowed the consumer to continue to increase spending throughout the downturn. This was the first recession in which consumer spending never turned negative on a year-to-year basis for even a single quarter. Instead of cutting back, consumers were able to maintain their standard of living through a drastic cutback in the savings rate, refunds from the tax reductions, a huge rise in debt and the cash-outs from REFIs. As a result, however, the massive structural imbalances created by the bubble have not been corrected, and have actually been exacerbated. These include a record trade imbalance, an all-time low consumer savings rate, soaring consumer debt, and a major budget deficit. As can be seen in the increasing concern about the weakness of the dollar, these chickens are now coming home to roost and are creating strong headwinds against sustainable economic growth at a time when the Fed is tightening, the tax refunds are played out, and REFIs are down 75 percent from the peak. Unlike past economic recoveries, the current expansion was fueled by extreme monetary and fiscal ease leading to bubbling asset values, rather than the rapid rise in employment and wages that leads to more sustainable growth. For example non-farm payroll employment in the current recovery is up only a paltry 0.9 percent since the official recession bottom in November 2001, an average of only 32,000 per month. This compares to an average increase of about 7.5 percent in other post-war recessions. If employment in the present expansion had risen by that amount there would be about 8.6 million more jobs than there are today, and the average monthly gain would have been about 273,000. Instead, this number has been surpassed in only three of the past 36 months, and as a result, the growth of wages and salaries has been far under the increases posted in the past. The strains are evident in the current economic numbers, which are decidedly mixed. Retail sales look tepid with store traffic slow and sales sluggish. Auto sales drop off markedly whenever incentives are lowered, and GM and Ford have announced substantial cuts in upcoming production. Durable goods orders other than defense and aircraft also look lackluster, while the Conference Board leading indicators have been down for five straight months. At the same time the Fed is tightening and promises to continue doing so, albeit at the so-called measured pace. Nevertheless, despite the conventional wisdom that rates are still too low to impact the economy, past periods of low interest rate levels indicates that direction counts, and that a series of rate increases, even from low levels, leads to sub-par growth or recession. This seems particularly true when the recovery has been below average and heavily dependent on asset value inflation rather than rising employment and wages. It also appears significant that the market is back on one of its speculative binges. Internet stocks are once again in vogue and the leading Nasdaq stocks are selling a huge P/E ratios. We are seeing late-1990s types of craziness in stocks such as Google, Taser, Travelzoo, Research in Motion and scores of others. We now even have the big conceptual merger between Sears and K-Mart, bringing back memories of the Time Warner AOL deal near the 2000 peak. Overall stock market valuations remain extremely high, whether measured by P/E ratios, price-to-sales, dividend yield, or price-to-book. In sum, given the continuing high valuations, the uncorrected economic and financial structural imbalances, and the lack of further fiscal and monetary options, we believe that the market is in a secular decline that will resume shortly. During the previous secular bear market (1966-1982) presidential post-election day rallies petered out between mid-December and mid-January, followed by major declines that extended into the next year. If the pattern holds this time, as we think it will, time is running out. --- Many economists think job growth would have been much better if tax cuts had been aimed at the lower and middle income taxpayers. Their tax cuts would have stimulated consumer spending more. That would have increased hiring more than high-end tax cuts designed to increase investment. Consumer spending may not have dropped, but it still remains tenuous. http://www.unlawflcombatnt.blogspot.com/ www.unlawflcombatnt.blogspot.com/

Subject: Re: 'The Big Picture' From: Terri To: Pete Weis Date Posted: Sun, Dec 12, 2004 at 20:12:02 (EST) Email Address: Not Provided Message: This post is interesting, and the post on the Bank of England raising interest rates to stem the climb in home prices was most important. I had not known the Bank of England was raising rates for this reason, but I know now.

Subject: Options and Options From: Emma To: All Date Posted: Sun, Dec 12, 2004 at 18:55:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/12/business/yourmoney/12watch.html GRETCHEN MORGENSON Are Options Seducing Directors, Too? TRYING to extricate company directors from their chief executives' pockets has been at the heart of many changes in corporate governance during these dizzying scandal years. Indeed, the most commonly cited cure-all for what ails corporate America is director independence. But all the independent directors in the world cannot seem to fix perhaps the biggest problem facing shareholders: egregiously high and ever-rising executive pay. Even though members of companies' compensation committees now must be independent, executive pay just keeps on rocketing. A new study by academics at Baruch College, part of the City University of New York, offers a possible explanation of why this may be. You may not be shocked to learn that - once again - it's about money. Donal Byard and Ying Li, both assistant professors of accountancy at Baruch, analyzed stock option grants given to chief executives at United States companies from 1992 to 2002. The sample was large - almost 18,000 grants - and the study confirmed other academic research showing that options are very often granted to executives just before good news about the company is disclosed or directly after bad news. No companies were identified in the study. The study also found that the practice of bestowing well-timed option grants - which the professors called 'timing opportunism' - has become more prevalent in recent years. Puzzled by this, the professors said they decided to dig further. So they looked at how directors were paid and found that timing opportunism was more pronounced when directors on the compensation committee received a larger proportion of stock options in their pay package. As a result, the professors said, a heavier reliance on stock options in the pay of independent directors more effectively aligns their interests not with the shareholders to whom they have a duty, but with top management. 'Since outside directors frequently receive options at the same time as C.E.O.s,' the study noted, 'these directors also benefit from any timing opportunism. We argue that when outside directors receive a lower proportion of their compensation from stock options, they are more likely to limit C.E.O.s' timing opportunism.'

Subject: Options and Options - 2 From: Emma To: Emma Date Posted: Sun, Dec 12, 2004 at 20:17:11 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/12/business/yourmoney/12watch.html The trouble, at least from a shareholder's perspective, is that stock options are growing as a percentage of the compensation that outside directors receive for serving on a board. During the first half of the study's 10 years, for example, the professors found that option grants averaged 16 percent of directors' pay. During the second half of the period, option grants averaged 46 percent of the pay to directors. In the technology sector, the percentages can be far higher. In some cases, stock options make up 100 percent of directors' pay. For example, the most recent proxy filing from Siebel Systems, a company that makes software for managing customer relationships and for other purposes, noted that none of its outside directors received cash for their services beyond reimbursement for expenses they incur. Instead, they get options. New directors at Siebel, for example, receive options on 80,000 shares; each year thereafter they get 20,000 options for their board service. 'We believe that these option grant guidelines will motivate and reward our nonemployee directors for their service in a manner that is consistent with good corporate practice and the independence requirements of the Nasdaq National Market applicable to members of boards of directors and compensation committees,' the filing said. Options are also big at eBay, the online auction company. Outside directors receive options on 15,000 shares at each annual meeting; new directors who are not employees of eBay also receive $150,000 worth of what the company calls deferred stock units. One-quarter of these units vest on the first anniversary of the grant, while the rest vest monthly. Outside directors at eBay also receive $50,000 in cash plus $2,000 in fees for each meeting attended. EBay's proxy filing from last June also noted that in 1998, before it became a public company, it had granted an option to a director to buy 1.8 million shares of its stock at an exercise price of $0.78 each. The company's shares closed Friday at $114.41.

Subject: A corrupted system From: Pete Weis To: Emma Date Posted: Sun, Dec 12, 2004 at 19:37:43 (EST) Email Address: Not Provided Message: This is why I don't trust reported earnings. Anyone investing in today's US stock markets is merely speculating on how long the speculators will continue to speculate. I personally have no idea but I don't want to be in the US markets when the bottom falls out once again!

Subject: Re: A corrupted system From: Terri To: Pete Weis Date Posted: Mon, Dec 13, 2004 at 20:46:26 (EST) Email Address: Not Provided Message: This is why I have been leaning heavily to value, but I do not wish to lose another year of fine returns.

Subject: Hedge Your Home's Paper Profit From: Emma To: All Date Posted: Sun, Dec 12, 2004 at 14:48:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/12/business/yourmoney/12real.html?pagewanted=all&position= A New Way to Hedge Your Home's Paper Profit By CONRAD DE AENLLE IF you have owned a home for several years, you may be sitting on a sizable increase in equity. And if you are worried that the run-up in housing prices can't last much longer, you may think the only choice is to call a broker, rent a moving van and head for the (less expensive) hills. But through an increasing number of new investments, you may be able to limit future erosion of your home's value. Macro Securities Research, a company affiliated with Robert J. Shiller, the Yale economist, has reached an agreement with the Chicago Mercantile Exchange to list pairs of derivative instruments that are essentially index funds linked to home prices in certain markets. One instrument in each pair will rise as its market index rises; the other will rise as the same index falls. That will let investors bet on the direction of housing prices. Similar, but less sensitive, vehicles are being offered by HedgeStreet, a firm in San Mateo, Calif., that offers small-scale derivatives speculation online. For homeowners looking for alternatives to the risks and complications of derivatives trading, there are also insurance policies that pay out if home prices fall, but they are only available in certain areas, and the conditions for collecting are highly restrictive. In fact, none of these approaches are likely to provide anything close to a perfect hedge, eliminating all risk of loss. And while the options available to nervous homeowners are growing in number and sophistication, some advisers warn that they may provide minimal protection from the vicissitudes of the real estate market. But other, simpler strategies may help you prepare for a softening of the market, they add. One is to avoid variable-rate mortgages before any serious increase in interest rates - an event regarded as a possible trigger for a reversal in home prices. Macro Securities hopes to list its instruments in Chicago before such a reversal, but the exchange's announcement this month was short on details, like a starting date. Mr. Shiller, the company's chief economist, said that his securities would track home price indexes in cities yet to be chosen, although strong candidates include New York, Los Angeles and Las Vegas, he said. The minimum investment for the securities and the amount of leverage built into them are also not yet known. A one-percentage-point move in the index, he said, may produce a change of two percent or three percent in the value of the securities. An important feature of the Macro securities, he said, is that they will come in twos - one moving in tandem with the index and the other in the opposite direction. Having a single index fund would require a hedger to sell short, raising the theoretical prospect of an infinite loss. (That could happen only if housing prices rose to infinity - not a far-fetched idea to many people who are looking to buy a co-op in Manhattan.) Another set of derivative products linked to home prices was introduced in October by HedgeStreet, which specializes in online trading of pint-sized contracts it calls 'hedgelets.' Each is a yes-or-no wager that a housing index will be in a certain range on a given date within three months. After that period, the contracts expire, and losing bets are worthless. There are three residential property bets, representing percentage moves in an index whose level may be higher, lower or even with the recent trend in home price movements, for each of six cities: New York, Miami, Chicago, Los Angeles, San Francisco and San Diego. But the value of each contract is a paltry $10, and they are infrequently traded, at best, so unless you live in a matchbox, it would be difficult - and very expensive - to buy enough of them to provide a practical hedge. Russell Andersson, a vice president of HedgeStreet, said that the products were new and were still seeking an audience. He conceded that their three-month life span was too fleeting for use by many homeowners and said that HedgeStreet was planning to introduce vehicles that would trade much like futures contracts and last for one and three years. 'With a combination of these two products, you can hedge out very aggressive short-term movements as well as longer-term movements,' Mr. Andersson said. Mr. Shiller says his approach to defending against price declines is meant to be useful even for people with modest incomes. 'We're looking for a vehicle with widespread acceptance,' he said. The device of two separate funds is one way to gain it, in his opinion. 'It means there is no loss beyond the initial outlay, no margin calls,' he said. That may not be true if leverage is built into the instruments, as Mr. Shiller envisions. But homeowners looking for further protection may consider borrowing against their equity, knowing that it will rise enough to make up any decrease in the fund's value, he said. Should home prices fall, the value of the fund that is inversely correlated to the housing market will rise, mitigating the loss. 'Volatile markets are increasingly becoming a part of our lives,' Mr. Shiller added. 'The home market itself is becoming more volatile. We're in the biggest real estate bubble in history, I believe. 'We haven't seen a swing down yet, but it could be coming,' he warned. 'There are people with big houses and big mortgages who are going to feel the pinch.' Jonathan Golub, a strategist at J. P. Morgan Fleming Asset Management in New York, agreed. The culprit in a downturn, he believes, will be big mortgages, more than big houses. Variable-rate mortgages, in particular, could be a problem. When interest rates are low, buyers can afford more house for the same monthly payment, said Mr. Golub, who himself is a renter in Manhattan. He said that any holder of a variable-rate mortgage must understand that 'if interest rates drop, the house is worth more to me, and vice versa; if rates rise, I'm toast.' Burned on both sides, too, because the higher mortgage payments tend to depress home prices. 'You get hit with a double whammy,' he said. 'The cost of carrying goes up and the value goes down.' NATIONWIDE, he noted, home prices rose 7 percent a year, on average, from 1999 to 2003, roughly double the rate for rental prices. Over the previous 15 years, the two rose more or less in tandem, with one outpacing the other for a while before the pattern reversed. Mr. Golub says he expects home prices to hold up until mortgage rates rise further, so there is time for homeowners to prepare. His advice is to 'lock down that fixed-rate mortgage.' As for the hedging vehicles being offered, he has doubts about their utility for most current and prospective homeowners. 'The adviser who would sell them won't be able to understand them,' he said. 'They're the kind of thing you see pushed at the top of a market.' For someone considering buying a home now, 'the smart thing to do is rent,' he said. 'It probably does not make sense for someone who owns a home and plans to stay there to sell it and rent it back,' he added. 'But what probably makes sense is for that first-time homebuyer or guy planning to retire to Florida to rent instead of buy.'

Subject: Hedge Your Home? No. From: Emma To: Emma Date Posted: Sun, Dec 12, 2004 at 19:07:02 (EST) Email Address: Not Provided Message: Hedging your house? Heck fix your mortgage, hedging your house with Robert Shiller strikes me as absurd. But, this shows how extensive the fear of price declines has or may become.

Subject: Re: Hedge Your Home? No. From: jimsum To: Emma Date Posted: Tues, Dec 14, 2004 at 15:09:22 (EST) Email Address: jim.summers@rogers.com Message: Investors speculate in real estate all the time; in fact isn't that what is causing the 'bubble', everyone is buying a house because they are only getting more expensive? Hedging the value of your house removes the investment aspect (i.e. price moves good or bad) from ownership, thus simplifying the decision about whether to own or rent. However, I think the major market for these instruments is loan companies. It sure would be nice if you could hedge the value of the house in case of default on the mortgages. Companies make little enough money with interest rates so low, reducing the cost of default might be worth the cost of hedging. Also, if you want to speculate on real estate, these instruments would be easier to buy than actual real estate. Presumably you could invest much less than the down payment on a house, you'd avoid interest rate risk on the mortgage you typically need to invest in real estate, and you wouldn't have to know anything about how to judge if a building is in good shape or in a good neighbourhood.

Subject: South American Agriculture From: Emma To: All Date Posted: Sun, Dec 12, 2004 at 10:21:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/12/international/americas/12brazil.html?pagewanted=all&position= South America Seeks to Fill the World's Table By LARRY ROHTER LUCAS DO RIO VERDE, Brazil - Almost overnight, South America has driven a historic global shift in food production that is turning the largely untapped frontier heartland of the continent into the world's new breadbasket. One of the last places on earth where large tracts are still available for agriculture, the region, led by Brazil, has had an explosion of farm exports over the past decade. The growth has been fueled by a combination of market-friendly economic policies and advances in agronomy that have brought formerly unusable tropical lands into production and increased productivity levels beyond those in the United States and Europe, challenging their traditional dominance of the global farm trade. Sometime over the next decade or so, Brazil, which Secretary of State Colin L. Powell described as 'an agricultural superpower' during a visit in October, hopes to pass the United States as the world's largest agricultural producer. But the trend is far broader and can be felt also in parts of Argentina, Bolivia, Paraguay and Uruguay, with a deep impact on the region's economy and environment. And it has spurred a debate that has mainly focused on expansion into areas where the Amazon rainforest is thought to be jeopardized. 'There has been a silent revolution in the countryside' since the 1990's, Brazil's minister of agriculture, Roberto Rodrigues, said in an interview in the capital, Brasília. The past four or five years in particular, he said, have been 'characterized by spectacular growth and a huge increase in demand' abroad for foodstuffs, which has given Brazil 'the capacity to compete with anyone.' The global effect has been powerful. In June, the United States imported more in farm products than it sold abroad, further evidence of its eroding position. Alert to the challenge, the Iowa Farm Bureau Federation even has a presentation for its members called 'Should Brazil Give You Heartburn?' The answer is a not-so-qualified yes. The competition is personified in producers like Otaviano Pivetta, 45, and Helmute Lawisch, 39. Less than 20 years ago, the two friends took turns driving 1,500 miles over mostly bone-jarring roads from their homes in Brazil's southernmost state to stake their claim in this region, which was mostly jungle then, with little in the way of electricity, sanitation or other public services. In retrospect, it is clear that they were in the vanguard of a fundamental transformation of global agriculture. Today, farmland stretches to the horizon. With a climate that varies little the year round, it is not unusual to have two or even three harvests a year and to see combines clearing fields with planters sowing another crop in their wake. The two men are now among the most successful producers in the region, and Mr. Pivetta has twice been elected mayor of Lucas do Rio Verde. Each now cultivates more than 100,000 acres, sending soybeans, cotton and pork to markets as distant as China, Russia and Pakistan. With the Southern Hemisphere's spring planting season now complete, the two farmers and scores of others like them here in Mato Grosso state are looking forward to another year of bumper crops. 'With the great climate and fertile soil we have here, I can't imagine any other place that gets the kind of productivity that we do,' said Mr. Pivetta, whose family now runs a half-dozen farms here. 'Not in Brazil or anywhere else are you going to find two crops a year yielding three tons of grain an acre.' Brazil's 'Green Anchor' Agriculture is now a $150-billion-a-year business in Brazil, accounting for more than 40 percent of the country's exports and creating what Brazilians call the 'green anchor' of their economy. Already the world's biggest exporter of chickens, orange juice, sugar, coffee and tobacco, according to Agriculture Ministry statistics, Brazil soon hopes to add soybeans to the list, depending on what happens in that volatile market. With a grass-fed herd of 175 million cattle that is the world's largest, it passed the United States as the world's largest exporter of beef last year. During the first nine months of 2004, sales of Brazilian beef abroad rose 77 percent over the same period last year, leading the government to predict $2.5 billion in earnings from beef exports this year. Over all, the agricultural bonanza, aided in part by mad cow disease in Europe and avian flu in Asia, is likely to give Brazil a record trade surplus of over $30 billion. Brazil's advantages start with the availability of large amounts of cheap land, especially here in this region of well-drained tropical savanna known as the cerrado. Larger than the American grain belt but dismissed as useless for farming until barely a quarter of a century ago, the cerrado cuts across the heart of Brazil, and its vastness permits economies of scale that are the envy of producers elsewhere. 'What's really driving this revolution is that the Brazilians discovered how to use tropical and savanna soils that had always been considered poor,' said G. Edward Schuh, director of the Center for International Economic Policy at the University of Minnesota. 'They learned that with modest applications of lime and phosphorus they can quadruple and quintuple their yields, not just with soybeans but also with maize, cotton and other commodities.' The discovery of how to enrich the soil and make it highly productive came in research at the Brazilian Enterprise for Agricultural and Livestock Research, a government agency known by the Portuguese-language acronym Embrapa. The agency's biggest successes, however, have been in modifying crops to grow in those altered soils. Until recently, for example, soybeans were not thought to flourish in tropical soils and climates. But researchers at Embrapa and similar private or state institutes have developed more than 40 varieties of soy specially adapted for the cerrado. Soybeans now account for nearly half of Brazil's farm exports and are the main crop in this region. Embrapa researchers have also developed breeds of cattle for the tropics, using a variety originally from India, as well as a 'tropical hog' that is lower in fat and cholesterol than its American counterpart and that has a higher ham and loin yield. Perhaps most surprisingly, the Brazilians are also working on varieties of tropical wheat. 'One of the main reasons we believe that Brazil has a greater chance to prosper even further is that they have a very solid scientific foundation,' said Daniel Lederman, an economist at the World Bank who specializes in agriculture. 'The concept of tropical technology is very attractive and we are learning a lot by studying Embrapa, which is at the forefront of applied agricultural research.'

Subject: South American Agriculture - 2 From: Emma To: Emma Date Posted: Sun, Dec 12, 2004 at 10:22:56 (EST) Email Address: Not Provided Message: Government's Helping Hand Changes in economic policies have also spurred the boom here. At the beginning of the 1990's, for example, Brazil lifted longtime restrictions on imports, leading to a surge in purchases of tractors, combines, fertilizers, pesticides and seeds. A leap in exports came in 1999, when the government devalued the currency and allowed the real, which had been trading at near par with the dollar, to float on the currency exchange market. Today, the real trades at almost three to the dollar, which means incomes for agricultural producers have nearly tripled. The Brazilian bonanza has been eagerly welcomed by the main international agricultural trading companies, which have been quick to seize new opportunities. In this town of 30,000, Archer Daniels Midland, Bunge and Cargill not only have built huge warehouses and silos along the main highway, but have also provided credit to farmers on a scale far beyond the means of the Brazilian government. 'It's good business for them, but we have to admit we owe a lot to the trading companies,' said Mr. Lawisch, whose family, modest stakeholders in their home state of Rio Grande do Sul, has moved here. 'When we needed them, they supported us, and now that we are prospering, our commercial relationship continues to expand every year.' To counter the South American advances, the United States and Europe have increased subsidies to their own beleaguered farmers. But in a pair of landmark decisions, the World Trade Organization recently ruled that such subsidies for cotton and sugar are illegal and must be phased out. The Bush administration is appealing the cotton ruling, but it is widely expected to lose, and many economists say the principle could be applied to other crops. All of this clearly will have an increasing impact on agriculture in the United States. Experts say some areas that are not competitive with South America may have to move from one crop to another, while others will face pressure to shift out of agriculture altogether. Some American and European farmers already have, and are starting to buy farmland here. Wolfgang Hudepohl, a real estate agent in Cuiabá, Mato Grosso's state capital, estimates that he has sold 60 farms to foreigners over the past few years. 'Foreigners like not only the cheap prices, but also the low production costs and the fact they are not tied down by regulations,' he said. At the edges of the agricultural frontier, in states like Maranhão and Piauí hundreds of miles east of here, land is still remarkably cheap, as little as $20 an acre in some remote areas. But in places where the boom is already going full blast, like here, land prices are rising rapidly. 'Seven years ago, I bought 6,175 acres, and paid $125,000,' said Jose Luiz Lorenzi, a farmer and manager of the John Deere agency here, which is the busiest in Brazil. 'Just recently I got an offer of $1.5 million for the same land. But I'm not selling. I want to buy more property myself because there is no better investment in the world than buying land in Mato Grosso.' The Costs of the Boom The real estate boom has not been without social tensions and other costs, particularly to the environment, as the expansion of farm and grazing lands has accelerated Amazon deforestation. Typically, jungle is razed for conversion first into cattle pasture and then, as the agricultural frontier advances, into fields for soybeans and other crops. But producers in the cerrado, which is more than 1,000 miles from the coast, say they are more concerned about the lack of reliable highways, railways and barge routes, which adds to the cost of doing business. That situation, farmers say, is gradually improving, as is Brazil's ability to weather the ups and downs of agricultural markets. After nearly a decade of rising prices and record profits, soybean prices, for instance, have sharply dropped this year, the result in large part of a decision to curb imports and to cancel existing contracts by China, where a huge new market has emerged to satisfy the changing diet of a growing middle class. In the past, when Brazilian agriculture was dependent on a single crop, that would have spelled certain disaster. But Brazil has made a successful effort to diversify its exports, and has reduced its vulnerability to sudden price fluctuations for any single crop. In the 1960's, for example, coffee was responsible for 60 percent of Brazil's exports. Today, coffee is seventh on the list. As a result, the watchword today for Brazilian farm producers is to diversify even further. 'We're entering a phase in which we're not going just to be growing things, but processing them too, turning them into finished products,' said Eledir Pedro Techio, manager of the local credit cooperative and a soybean and corn farmer. It is also clear that further gains in production are still to come, thanks both to expansion of the agricultural frontier and higher yields. Government officials estimate that an additional 50 million acres, much of it as potentially fertile as the land being tilled here now, are likely to be put into production over the next decade. 'There's no way you can go wrong here,' Mr. Lawisch said. 'We're champions of production already, but we think we can do even better. We aim to feed not just Brazil, but the world.'

Subject: Sketch of plan derail Republican SS 'reform' From: Bobby To: All Date Posted: Sun, Dec 12, 2004 at 02:40:59 (EST) Email Address: robert@pkarchive.org Message: I actually think the Democrats should reframe the debate by coming up with their own plan to raise enough revenue to make Social Security fully funded (or maybe just 'partially funded,' if you will but I don't think the media would know the difference). No, it's not going to be put into law in the current political environment. And it will not come at too much political cost if the Democrats can make the plan super-progressive and sell it as such. They must sell it as a PRECONDITION for any 'reform' that Bush or anyone else may want to do. This must be done in order to reframe the debate. The core of the policy debate here is that Social Security is *pay-as-you-go*. Today's payroll taxes are mostly used to pay the benefits of today's retirees, and the rest of it -- that is, the present excess of payroll taxes over benefits -- is the so-called Social Security Surplus. In a few years, current benefit payouts will begin to exceed current payroll tax revenues. Today's Social Security surpluses (and additional revenues from elsewhere) are needed to cover that coming shortfall. By diverting today's payroll taxes into private accounts for the future retirements *of current payroll tax payers* and away from benefits *for current retirees*, the Republicans exacerbate this coming shortfall. That is, they are making this excess of benefit payouts to current retirees over current payroll taxes even worse, by reducing the amount of payroll taxes available for those payouts. The only way to avoid this shortfall is to cut benefits or raise taxes. Democrats must promote the latter, but only a very progressive tax increase would do politically and they must sell it as progressive first and foremost (maybe even decreasing the tax burden at the bottom while increasing revenues as a whole by raising it a lot at the top). Democrats must put such a tax increase under the label of 'FULLY FUNDING' Social Security and never use the word 'tax' or 'tax increase.' They must always repeat that 'Unless you want to cut benefits, you can't have any social security reform -- ie. private accounts -- without fully funding Social Security.' If asked whether 'Fully funding' isn't just a tax increase, Democrats must say no and frame it in terms of its progressivity -- that is, the rich bear most or all of the burden while it is lessened or kept the same for the manty. Democrats should find a religious way of stating this and use 'values' rhetoric in order to sell this policy to social conservatives, many of whom are economically populist. The Republicans want people to believe erroneously that Social Security is already fully funded. They were even able to fool David Brooks, who I thought was better informed. By fooling people into believing this fallacy, they trick them into thinking falsely that it's a debate of 'markets vs. government.' In summary, the Democrats must create a plan to 'fully fund' Social Security and call it that, selling it as the *necessary precondition* for so-called reforms, unless Republicans plan to cut benefits. It is important that this buzz word enter our social vocabulary. I think it would be easy to spread since press people will feel wonkish and sophisticated saying it, much in the same way that they give so much coverage to the Ukraine election since that too makes them feel sophisticated. If we can infect the public vocabulary with a virus-like buzzword like 'fully funding,' this could refocus attention away from the fake stock market debate and towards the hard budget math that must be considered when evaluating Dubya's plans for Social Security. If the media can be made to focus on the budget math -- even on a superficial level -- just by people on TV repeating the words 'well it's gotta be fully funded' without quite knowing what that means, this could derail the Republicans' plans.

Subject: Masking the Social Security Debate From: Emma To: Bobby Date Posted: Sun, Dec 12, 2004 at 10:48:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/11/opinion/11brooks.html Real Reform for Social Security By DAVID BROOKS Before we get lost in the policy details, let's be clear about what this Social Security reform debate is really about. It's about the market. People who instinctively trust the markets support the Bush reform ideas, and people who are suspicious oppose them.

Subject: Re: Masking the Social Security Debate From: Paul G. Brown To: Emma Date Posted: Sun, Dec 12, 2004 at 18:12:21 (EST) Email Address: Not Provided Message: Yech. It's precisely because I have a deep respect for 'the market' that I distrust the privatization as George W. Bush is proposing it. Simple plan: increase employer contributions through payroll tax and invest that additional money in the stock market. Oh. And means test benefits. But that *still* doesn't solve the medicare/medicaide deficit and on-rushing fiscal crisis.

Subject: Re: Masking the Social Security Debate From: Terri To: Paul G. Brown Date Posted: Sun, Dec 12, 2004 at 19:44:07 (EST) Email Address: Not Provided Message: Increasing the cap on payroll taxes from the current 87,000 dollars, would add a meaningful revenue stream and a progressive revenue stream. This might be worth a proposal by Democrats. Democrats must however insist on the integrity of Social Security system, for there has been a surplus revenue stream from 1982 and the is a surplus now. As for means testing? I feel it would finish Social Security. We must all feel part of the system, for we all contribute. This is social insurance for us all.

Subject: Strong Dollar, Weak Dollar From: Terri To: All Date Posted: Sat, Dec 11, 2004 at 16:45:59 (EST) Email Address: Not Provided Message: When Robert Rubin was at Treasury and the dollar continually strengthened there were many industrial complaints, especially so in small manufacturing as for machine tools. Now European smaller manufacturers have reason to complain. A helpful aspect of a strong currency, is that corporations are forced to become more productive to hold profits. But, becoming more productive can mean contiunual work force shifts and dislocations. The political costs can be severe. I have wondered how much of an election edge the strong dollar policy lost the Democrats. Of course job creation was most strong through the time Rubin and Larry Summers were at Treasury, but could we have taken dislocations too lightly even during this high growth period? What then of Europe and Japan and the weakened dollar?

Subject: Power to the People of Portland From: Emma To: All Date Posted: Sat, Dec 11, 2004 at 11:06:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/11/business/11utility.html?pagewanted=all&position= Variations on Power to the People By DAVID CAY JOHNSTON PORTLAND, Ore. - In the long-running Enron bankruptcy tale, one of the more intriguing sideshows involves the fate of Portland General Electric, Oregon's largest utility and the only energy-producing asset Enron actually owned. The electric utility has become the object of a tug of war in which many in the city's business elite have aligned themselves with their natural adversaries, consumer groups, to fight a proposed sale to the Texas Pacific Group. The deal is so disliked by the economic powers here that some prefer that the city government buy Portland G.E. The opponents fear that Texas Pacific, a $13 billion private investment firm based in Fort Worth, would be too Enron-like: an absentee owner interested more in a quick profit than in delivering electricity at reasonable prices. They contend that customers will pay too much for electricity and that the utility will make too much profit for a regulated monopoly. They further contend that the government will not receive the taxes included in the rates paid by customers, as happened under Enron. The Oregon Public Utility Commission is scheduled to hear final arguments on the Texas Pacific plan on Dec. 13. The panel has 60 days to decide whether to accept or reject the application, or add conditions. Texas Pacific representatives, who would not speak for attribution, insisted in a lengthy interview that none of these concerns were valid. Owen Blicksilver, a Texas Pacific public-relations consultant, said the firm believed that the opposition was a negotiating ploy by other companies hoping to win concessions. Mr. Blicksilver could identify only two business supporters of the purchase. One is a small newspaper, The Business Journal of Portland. The other is The Oregonian, a Newhouse newspaper that published an editorial favoring the deal. Texas Pacific, whose co-founder and managing partner is David Bonderman, has a track record of buying troubled companies, notably Continental Airlines, J. Crew and Burger King, and turning them around. Industrial Customers of Northwest Utilities, which represents 32 major employers, including Intel; the Building Owners and Managers Association, an organization of major landlords; and several consumer groups have filed petitions asking the Oregon Public Utility Commission to reject Texas Pacific. The industrial users are especially worried that Texas Pacific will not invest the necessary funds to upgrade Portland G.E.'s transmission facilities, and that service will become unreliable. Reliability is an especially crucial issue for Intel, the computer chip maker that is the area's largest employer and pays Portland G.E. $51 million annually for electricity. 'The more our members hear about this deal from Texas Pacific, the less they like it,' said Ken Canon, executive director of the industrial users group. Mr. Canon adds that some of his biggest members would favor city ownership of the utility - an unusual position for business leaders to adopt - if that is what it takes to stop Texas Pacific. Because Portland G.E. is a legal monopoly, the rates it charges, and how much profit it can earn, are regulated. The commission has said the profit target should be 10.5 percent of equity, but public documents suggest Texas Pacific may be able to earn more than 20 percent. According to Ann L. Fisher, the lawyer for the Building Owners and Managers Association and a former Portland G.E. lawyer, Texas Pacific could make as much as a 50 percent return on its investment. Texas Pacific representatives dismissed talk of a 50 percent return as absurd, but would not reveal what they expected to earn, saying this was a private matter between the investment firm and its investors. The Public Utility Commission, at the request of Texas Pacific, has required lawyers for the opposing groups to sign confidentiality agreements before looking at financial documents that, in most utility rate proceedings, would be public record. Among them are documents explaining what rate of return the parent company expects the utility to achieve.

Subject: Diverging Fortunes, Tied to the Dollar From: Emma To: All Date Posted: Sat, Dec 11, 2004 at 10:36:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/11/business/worldbusiness/11dollar.html Diverging Fortunes, Tied to the Dollar By MARK LANDLER and SIMON ROMERO COLOGNE, Germany - They sit on opposite sides of the Atlantic, but the Alfred H. Schütte Company and the Markel Corporation could well be neighbors. Both are small family-owned outfits making industrial products used by automakers. Both are union shops, with loyal employees who have taken the lumps of an unforgiving global economy. Schütte and Markel share another bond: their fates are closely tied to the value of the dollar, and these days, it is proving decisive. With the dollar sinking to record lows against the euro, Markel, of Plymouth Meeting, Pa., is a big winner, while Schütte, of Cologne, is losing ground. At Markel's red-brick factory near Philadelphia, Kim Reynolds, the owner, is scrambling to fill orders from Germany, Portugal and the Czech Republic, where the fall of the dollar - which has slumped by 9.3 percent just since late August so that 1 euro now buys about $1.32 - has allowed him to price his products, insulated wire and tubing for cars, more competitively. On the banks of the Rhine, where Schütte's turn-of-the-century factory churns out advanced lathes and tool grinders, a different story is unfolding. There, the surging euro has made German exports more expensive for buyers outside Europe, and Carl Martin Welcker, the owner, is losing orders for his million-dollar machines. 'If the euro goes to $1.40 and stays there for several years, it will cost us a lot of money,' said Mr. Welcker, a lean, gray-haired 44-year-old who is the great-grandson of the company's founder. 'The danger is that someone will get into our niche and take the business away from us.' Such warnings are echoing across Europe these days, as the Continent comes to grips with the likelihood that the Bush administration will tolerate a prolonged period of weakness in the dollar. Europe fears its exports will be choked off, which could strangle its fragile economic recovery. In the United States, manufacturers, who have been sapped by the exodus of production and jobs to cheaper markets overseas in recent years, are rejoicing at the dollar's decline. For American exporters, the currency is a lubricant, greasing the way for their products. 'This is the perfect time for currencies to move back to sanity,' said Franklin J. Vargo, a lobbyist with the National Association of Manufacturers. 'The United States lost over three million manufacturing jobs from 2000 to 2003, and it's about time we put an end to that outflow.' In a global economy, one country's gain can be another's loss. For now, Europe, with its freely traded euro, is bearing the brunt of the swooning dollar. The Chinese government pegs the value of its currency to the dollar, while Japan and other Asian countries have intervened heavily in foreign currency markets to stem the rise of their currencies. The full impact of the dollar's downward adjustment has probably not been felt yet. For one thing, it would need to fall much further to make a meaningful dent in the United States' $620 billion current-account deficit, unless there was a significant appreciation in the Asian currencies as well as a sea change in fiscal policy to close the federal budget gap, which would ease Washington's dependence on overseas borrowing. These days, Europeans are losing out not just to the Americans, but to the Japanese, Chinese, South Koreans and others. That is rankling leaders like Chancellor Gerhard Schröder of Germany, who remarked on a trip to Tokyo this week that Europe could learn from the interventionist Bank of Japan. The diverging fortunes of Markel and Schütte illustrate how fluctuating exchange rates can play havoc with a company's competitiveness, multiplying or erasing its cost advantages, often with dizzying speed. Indeed, Deutsche Bank estimates that a 10 percent decline in the dollar against the euro would reduce the cash flow of European companies by an average of 5.3 percent. The pain does not fall evenly. Automobile and auto parts companies would lose 18 percent of their cash flow, according to the bank study, while media and travel companies would be scarcely affected. Optimists say the muscular euro will force European companies to become more efficient and increase their productivity. But exporters like Schütte, which are unwilling to cut their prices to hold on to customers, will lose market share, and end up with reduced profits - or even losses. 'There is a trade-off here,' said Paul de Grauwe, a professor of economics at the Catholic University of Leuven in Belgium. 'Those who survive will be fit and lean, but many companies will be destroyed.' In the case of Markel, which has 140 employees and about $25 million in sales, the weaker dollar enabled Mr. Reynolds to increase exports to 40 percent of revenue from 5 percent five years ago. That helped restore the company to profitability after years of job cuts and other austerity measures. Markel is part of a highly specialized niche industry that pits it against nimble producers of wire and tubing in Europe and Asia. For decades, it prospered in what was known as Pennsylvania's 'fertile crescent of Teflon,' a nod to local companies that use synthetic compounds like Teflon, developed by DuPont in nearby Delaware. By the mid-1990's, however, Markel's traditional product line and over-reliance on the domestic market had left it with deep losses. Mr. Reynolds, a 55-year-old graduate of the Harvard Business School who acquired the company with his family in the early 1980's, began focusing on Europe while the dollar was still strong, seeking to position Markel as a highly skilled manufacturer that could compete on the quality of its products. This year, Markel will reap almost $1 million in currency-related gains. It could have made more, but Mr. Reynolds locked the company into currency contracts in 2004 that market its auto parts at $1.20 to the euro, compared with the record high of $1.34 it reached this week. Sales in Europe are so strong that Markel has booked nearly its entire production in the region for 2005, locking in futures contracts at about $1.27 to the euro. It is also starting to close deals for the first quarter of 2006 - a prospect that seems to surprise Mr. Reynolds. 'We can't let ourselves get too excited,' said Mr. Reynolds. 'At least we know what we're getting in case a day of reckoning arrives.' With his fatter profits, Mr. Reynolds is giving his salaried employees a Christmas bonus this year of cash and deposits into their retirement accounts. Bonuses are also going to hourly workers, many of them members of the International Brotherhood of Electrical Workers. Some of them have been Markel employees for several decades. On the factory floor, talk of the dollar is linked to concerns about job security. 'I know when the euro's up, it's good for us,' said Tom Crowder, 48, an assistant supervisor who has been at the company 27 years. 'It means we're busier filling orders. It means I'm not in danger of getting laid off.' Mr. Reynolds is even more vigilant than his employees in tracking currency movements. Each morning, he checks the value of the dollar against the euro and the yen. He also looks warily at China's currency, the yuan, which is pegged to the dollar at a rate of 8.2. 'Our gains in Europe are not large enough to make up for our losses in Asia,' Mr. Reynolds said ruefully. For Schütte, the machine-tool maker, China is one of a host of trouble spots on the map. Mr. Welcker, the great-grandson of the founder, expects to book 10 percent fewer orders next year in the United States, 5 percent fewer in Japan and 15 percent fewer in China. 'Some customers say, 'We like what you do, but we can buy it 20 percent cheaper,' ' he said. For Schütte, a 124-year-old firm that prides itself on state-of-the-art engineering and fine workmanship, having to compete on price is a humbling exercise. The company pioneered a design for a lathe machine more than 50 years ago, and it has since become the industry standard. Schütte's most sophisticated machines - multispindle lathes that cost nearly $2 million at today's exchange rates - are largely unaffected by the dollar. With few competitors and eager customers in the United States, China and Japan, the company has pricing power. But Schütte is more affected in its tool-grinding machines, which are a staple of the industry. In some cases, the shift in exchange rates is so swift that it can unravel a deal from the time Mr. Welcker shakes hands with a customer to when he secures bank financing to build the machine. Unlike Markel, Schütte does not hedge its currency risk by buying futures. Mr. Welcker said his family, which owns 100 percent of the company, was not keen to dabble in what he views as speculation. Schütte is, in every respect, a family firm. Mr. Welcker's father still shows up at work occasionally with his dog, a bouvier des Flandres, whom he said, 'also belongs to the company.' Portraits of the founder, Alfred Heinrich Schütte, peer down from various walls. Mr. Schutte began as an importer of American machine tools, before World War I forced him to start producing his own machines. Mr. Welcker is confident that Schütte will make money this year, after losing 7 million euros ($9.2 million) last year, on sales of 55 million euros ($72.7 million). After all, Europe, where Schütte generates 65 percent of its sales, is still promising. And taking another step back, Mr. Welcker recalled that Schütte's factory was 80 percent destroyed in Allied bombing raids during World War II. It fell to his grandfather to pick up the pieces. 'To rebuild the place, to save the company, was probably tougher than anything I've had to do,' he said.

Subject: Markets From: Terri To: All Date Posted: Sat, Dec 11, 2004 at 06:56:11 (EST) Email Address: Not Provided Message: We are closing the year with a moderately strong to quite strong American stock and bond market. Large cap stocks are lagging middle and small caps. Value stocks are leading growth at every level. The bull market that began in October 2002 continues. Energy and REITs are especially strong, while health care is lagging. Short term bond funds have been moderately weak, since interest rates are so low and the Federal Reserve has raised rates 4 times and will soon raise again. Middle term bonds funds are doing moderately well, while long term funds are strong. For long term bond funds the 22 years bull market has continued. Foreign stock markets have weakened recently but are a little stronger than the American stock market. Growth is slowing in Europe and Japan, the dollar has strengthened, so foreign stock returns have weakened. Europe is stronger than the Pacific because the Euro is stronger than Asian currencies. Australia and Canada have strong economic growth and currencies and stock markets.

Subject: Re: Markets From: jason To: Terri Date Posted: Sat, Dec 11, 2004 at 09:57:24 (EST) Email Address: Not Provided Message: http://www.ebloggy.com/

Subject: Brazilian Corporations Expand Abriad From: Emma To: All Date Posted: Fri, Dec 10, 2004 at 15:34:59 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/10/business/worldbusiness/10brazil.html Corporations in Brazil Shed Stay-at-Home Tradition By TODD BENSON SÃO PAULO, Brazil - When Brazil began opening its economy in the early 1990's, companies worried that they would end up being pummeled on their own turf by deep-pocketed foreign rivals. It appears that those fears were overblown. Not only are many of Brazil's biggest companies riding high at home by deftly using their knowledge of the nation's huge domestic market to fend off competition from abroad, they are also increasingly flexing their muscles on the international stage. Many of them are buying assets and building factories in foreign countries that just a decade ago seemed out of reach to many in Brazil's traditionally inward-looking corporate sector. Perhaps nowhere is this latter trend more apparent than in North America, where a growing number of Brazilian businesses are setting up shop and selling everything from cement and steel to airplanes and orange juice. For some of these companies, expanding into big consumer markets like Canada and the United States is crucial to continued growth, since they already have a dominant position at home. For some, it is a way to increase their revenue in dollars while also skirting trade barriers, like import tariffs and quotas. And for all these companies, expanding abroad offers access to cheap credit - a scarcity in Brazil, where interest rates are among the world's highest. 'If you compare a good Brazilian company to a company that is located in the U.S. or Europe, doing the same thing with the same operations and the same production facilities, then the Brazilian side probably has the advantage of having lower labor costs and maybe energy costs,' said Peter Badura, general manager of Banco WestLB do Brasil, the Brazilian unit of the German bank WestLB. 'But on the other side, the capital cost is killing them.' By buying assets in more developed economies like the United States, Mr. Badura added, Brazilian businesses are essentially 'selling themselves as a non-Brazilian company, as a company that is generating cash flow that is not sensitive to the Brazilian government, to the Brazilian legal system or the Brazilian currency.' The need for affordable credit was cited last month by Grupo Votorantim, Brazil's largest diversified industrial conglomerate, when it announced it would buy two cement plants in the United States from Cemex of Mexico for $400 million. The acquisition will be the latest of several purchases by Votorantim's cement unit, Votorantim Cimentos, which has said it is actively pursuing new opportunities in 'mature and stable markets like the United States' with hopes of doubling its operations outside Brazil by 2007. Votorantim made its first foray into North America in 2001, buying the Toronto-based St. Mary's Cement Inc. for $680 million. Last year, it acquired a 50 percent stake in a Florida company, Suwannee American Cement. Over all, Votorantim Cimentos has 25 plants and more than 8,000 employees in Brazil and North America. One of the first Brazilian companies to set its sights on the North American market was Grupo Gerdau, a family-run steel maker based in the country's southernmost state of Rio Grande do Sul. Gerdau, which got its start as a nail manufacturer in 1901 and is now Brazil's No. 1 producer of long-rolled steel, made its debut in the Northern Hemisphere in 1989, when it bought Courtice Steel of Ontario. A decade later, the group pushed into the United States, acquiring Ameristeel, a financially distressed steel company based in Florida. Gerdau has recently moved aggressively to bolster its United States presence. Last month it completed the acquisition of the Minnesota-based North Star Steel, which it bought from Cargill Inc. for $266 million, adding four long-steel minimills and three wire rod processing plants, in five states. And in late October it announced plans to buy Gate City Steel and RJ Rebar, which are based in Indianapolis and together have seven concrete reinforcing steel operations in Alabama, Illinois, Indiana and Ohio. In all, the Toronto-based Gerdau Ameristeel Corporation now has 14 mills in Canada and the United States, and is North America's fourth-largest steel producer. For Gerdau, which also has units in Argentina, Chile and Uruguay, expanding outside Brazil was a way to keep growing while also dancing around trade restrictions on steel imports, especially in the United States. 'We've always been big exporters here in Brazil,' said Jorge Gerdau Johannpeter, the group's president. 'But the American market had restrictions.' 'So to achieve our objective of becoming a big player in the global steel industry,' he added, 'we decided we had to focus more on the United States.' Companhia Siderúrgica Nacional, a flat-steel producer based in Rio de Janeiro, has also taken aim at the North American steel market, buying Heartland Steel of Terre Haute, Ind., in 2001. And Companhia Vale do Rio Doce, the Brazilian mining giant known widely as C.V.R.D., has a 50 percent stake in California Steel Industries, the leading producer of flat-rolled steel in the western United States. Last month, C.V.R.D., the world's largest producer and exporter of iron ore, a crucial ingredient in steel, was busy denying reports that it was in talks over Noranda, a big diversified mining group based in Toronto that has been on the block for some time. Such speculation died down while the Canadians negotiated exclusively with the China Minmetals Corporation, but resurfaced after Noranda said in mid-November that it was open to new bids. C.V.R.D., however, has made no secret of its desire to keep expanding overseas. 'Having operations abroad is an absolute necessity for our business,' said Fábio Barbosa, C.V.R.D.'s chief financial officer, adding that 'if there are opportunities out there that fit into our growth strategy and generate value for our shareholders, we will pursue them.' Trade barriers have encouraged some of Brazil's biggest orange juice companies to buy processing plants in the United States, a move that allows them to sidestep steep import duties on foreign orange juice. In 1996, Sucocítrico Cutrale, Brazil's largest citrus grower and juice processor, acquired a plant in Auburndale, Fla., from Coca-Cola's Minute Maid division. A year later, another Brazilian juice company, Citrosuco Paulista, bought a plant in Lake Wales, Fla. These companies now control enough of Florida's processing industry to influence prices for bulk juice from concentrate.

Subject: just kidding From: nobody To: All Date Posted: Fri, Dec 10, 2004 at 15:25:23 (EST) Email Address: Not Provided Message: Hmmm... another lib bitch board.

Subject: Trees for Democracy From: Emma To: All Date Posted: Fri, Dec 10, 2004 at 12:43:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/10/opinion/10maathai.html Trees for Democracy By WANGARI MAATHAI Nairobi, Kenya WHEN I was growing up in Nyeri in central Kenya, there was no word for desert in my mother tongue, Kikuyu. Our land was fertile and forested. But today in Nyeri, as in much of Africa and the developing world, water sources have dried up, the soil is parched and unsuitable for growing food, and conflicts over land are common. So it should come as no surprise that I was inspired to plant trees to help meet the basic needs of rural women. As a member of the National Council of Women of Kenya in the early 1970's, I listened as women related what they wanted but did not have enough of: energy, clean drinking water and nutritious food. My response was to begin planting trees with them, to help heal the land and break the cycle of poverty. Trees stop soil erosion, leading to water conservation and increased rainfall. Trees provide fuel, material for building and fencing, fruits, fodder, shade and beauty. As household managers in rural and urban areas of the developing world, women are the first to encounter the effects of ecological stress. It forces them to walk farther to get wood for cooking and heating, to search for clean water and to find new sources of food as old ones disappear. My idea evolved into the Green Belt Movement, made up of thousands of groups, primarily of women, who have planted 30 million trees across Kenya. The women are paid a small amount for each seedling they grow, giving them an income as well as improving their environment. The movement has spread to countries in East and Central Africa. Through this work, I came to see that environmental degradation by poor communities was both a source of their problems and a symptom. Growing crops on steep mountain slopes leads to loss of topsoil and land deterioration. Similarly, deforestation causes rivers to dry up and rainfall patterns to shift, which, in turn, result in much lower crop yields and less land for grazing. In the 1970's and 1980's, as I was encouraging farmers to plant trees on their land, I also discovered that corrupt government agents were responsible for much of the deforestation by illegally selling off land and trees to well-connected developers. In the early 1990's, the livelihoods, the rights and even the lives of many Kenyans in the Rift Valley were lost when elements of President Daniel arap Moi's government encouraged ethnic communities to attack one another over land. Supporters of the ruling party got the land, while those in the pro-democracy movement were displaced. This was one of the government's ways of retaining power; if communities were kept busy fighting over land, they would have less opportunity to demand democracy. Land issues in Kenya are complex and easily exploited by politicians. Communities needed to understand and be sensitized about the history of land ownership and distribution in Kenya and Africa. We held seminars on human rights, governing and reducing conflict. In time, the Green Belt Movement became a leading advocate of reintroducing multiparty democracy and free and fair elections in Kenya. Through public education, political advocacy and protests, we also sought to protect open spaces and forests from unscrupulous developers, who were often working hand in hand with politicians, through public education, political advocacy and protests. Mr. Moi's government strongly opposed advocates for democracy and environmental rights; harassment, beatings, death threats and jail time followed, for me and for many others. Fortunately, in 2002, Kenyans realized their dream and elected a democratic government. What we've learned in Kenya - the symbiotic relationship between the sustainable management of natural resources and democratic governance - is also relevant globally. Indeed, many local and international wars, like those in West and Central Africa and the Middle East, continue to be fought over resources. In the process, human rights, democracy and democratic space are denied. I believe the Nobel Committee recognized the links between the environment, democracy and peace and sought to bring them to worldwide attention with the Peace Prize that I am accepting today. The committee, I believe, is seeking to encourage community efforts to restore the earth at a time when we face the ecological crises of deforestation, desertification, water scarcity and a lack of biological diversity. Unless we properly manage resources like forests, water, land, minerals and oil, we will not win the fight against poverty. And there will not be peace. Old conflicts will rage on and new resource wars will erupt unless we change the path we are on. To celebrate this award, and the work it recognizes of those around the world, let me recall the words of Gandhi: My life is my message. Also, plant a tree. Wangari Maathai, the 2004 winner of the Nobel Peace Prize, is Kenya's assistant minister for environment and natural resources and the founder of the Green Belt Movement.

Subject: Home Prices From: Terri To: All Date Posted: Fri, Dec 10, 2004 at 11:10:25 (EST) Email Address: Not Provided Message: There is constant urging for the Federal Reserve to target asset prices in forming interest rate policy, but that is not part of the Fed charter. No, it is not for central banks to regulate asset prices. This will not be done in America, nor Ireland, nor England. Home prices may rise or fall, but not because they are the targets of monetary policy. The last thing the Fed would do is try to bring home prices down, the result would be as in Japan. Calling for asset price control issetting aside the efficiency of markets, and this should not be done by central banks in healthy economies.

Subject: 'Recognizing a bubble while inside a bubble' From: Pete Weis To: Terri Date Posted: Sat, Dec 11, 2004 at 19:43:46 (EST) Email Address: Not Provided Message: The original purpose of the federal reserve was to smooth out the boom and busts of the business cycle which plagued the 19th century and 1st decade of the 20th century. Modern economic theory (Friedmanomics) places a large emphasis on controlling the money supply. The fed rate has a big role in this. Shouldn't it be a 2-way control system? In other words, when the economy is teetering on recession the fed lowers rates to increase liquidity. But when the economy is overheating and 'irrational exuberance' is creating asset bubbles (overheated stock market) then the fed raises rates to reduce liquidity and dampen exuberance? The Brits have been recently raising rates to get their housing bubble under control - a very tricky highwire act to be sure. Our problem here in the US, is our dependency on our housing market to keep our economy afloat. How did we let it get to this point?

Subject: There May be No Bubble From: Terri To: Pete Weis Date Posted: Sun, Dec 12, 2004 at 15:10:49 (EST) Email Address: Not Provided Message: 'The Brits have been recently raising rates to get their housing bubble under control - a very tricky highwire act to be sure.' There is no reason to believe interest rates in England are being raised because of recent increases in home prices.

Subject: Brits raise rates to... From: Pete Weis To: Terri Date Posted: Sun, Dec 12, 2004 at 19:26:38 (EST) Email Address: Not Provided Message: 'cool.. rage for property.' This article in BUSINESS WEEK recently, is one of a number of articles in various economic and business publications about this subject. Bubble, Bubble, Housing Trouble In Britain The BOE is steadily raising rates in an attempt to cool Britons' rage for property Like many britons, Katherine Golby, a 32-year-old local government official, has done very nicely in property. She bought a house seven years ago for $91,000 and just sold it for $255,000 -- which she plowed right back into a bigger $309,000 house for herself in Bedfordshire, within commuting distance north of London. Her new purchase saddles her with a $1,457 monthly mortgage payment -- a hefty 40% of her aftertax income. 'It does worry me,' she says. 'I could move to a cheaper property if things got really bad.' Advertisement That's exactly the question: Are British homeowners, especially those buying now, saddled with a depreciating asset? True, the British appetite for property seems insatiable. The boom started in London in the mid-1990s. While prices there have leveled off in the past couple of years, they've been rising fast in the rest of the country. From March through June, home prices in the north of England and Wales grew more than 30%, and Scotland 24%, over the previous year. Overall, the national house-price index of the Nationwide Building Society, a big mortgage lender, has doubled in the past five years. Yet analysts are split on whether Britain has blown itself a housing bubble. Yes, the ratio of housing prices to income is at a 50-year high of nearly 6 -- about 55% over the average. And initial mortgage payments as a percentage of income are high at about 29%. Moreover, the mortgage-payment burden is going up, with each quarter-point rise in interest rates adding about $25 a month to a typical payment. Optimists counter that historically low rates and a robust jobs picture mitigate the risk. Mervyn King, Governor of the Bank of England, and his associates on the rate-setting Monetary Policy Committee are taking no chances. They don't want to relive Britain's last boom-bust cycle, when a runup in housing prices in the late '80s was followed by a crash, a long recession, and a spike in unemployment in the early '90s. So the BOE has moved ahead of the rest of the industrialized world and raised rates four times since November, to 4.5%. 'We cannot, and do not, ignore the influence of soaring house prices,' Deputy Governor Rachel Lomax declared July 1. NO ALTERNATIVES Britain could avoid a crash if the jobs picture stays strong. Unemployment is 4.8% -- the lowest among industrialized countries -- and continues to drop. Incomes are rising at an annual clip of 5%. That means Britons can afford more expensive houses. 'This time is different,' says Jim Carrington, area sales director of Bradshaws, a real estate agency in Bedfordshire. 'In the early 1990s people were getting laid off. Now trying to find people to work for you is bloody difficult.' Other analysts point out that mortgage rates, now around 5%, are historically cheap, and that at the end of 2003 the percentage of mortgages in default was the lowest in a quarter-century. Moreover, stagnant bond and stock markets don't offer investors much of an alternative. 'There are too many people wanting to buy property for prices to slump,' insists Lyndon Le Boutillier, managing director of Hearnes Estate Agents in Dorset, in southwestern England. For the worriers, the rate increases and King's jawboning appear to be having the desired effect. Real estate agents report that home buying is slowing and prices are leveling off. Yet while economists expect interest rates to top out at around 5.25%, some fear they could rise as high as 6% if inflation becomes a threat. 'Buyers assuming that 5% to 10% annual house-price growth will be the norm in the coming years are very likely to be disappointed,' says Alex Bannister, Nationwide's group economist. Britons can take a little disappointment. It's an outright crash they want to avoid.

Subject: Re: Brits raise rates to... From: Terri To: Pete Weis Date Posted: Sun, Dec 12, 2004 at 20:09:17 (EST) Email Address: Not Provided Message: Pete, you are wonderful. I was quite wrong and you are right. So, the Bank of England does target asset prices and by doing this hopes to avoid a severe housing price decline. We will learn much from the attempt. Thanks. 'We cannot, and do not, ignore the influence of soaring house prices,' Deputy Governor Rachel Lomax declared July 1.

Subject: Re: Brits raise rates to... From: jimsum To: Terri Date Posted: Sun, Dec 12, 2004 at 21:10:13 (EST) Email Address: jim.summers@rogers.com Message: It is easier to call it a bubble when house prices double in 5 years. Maybe the U.K. is objective proof that U.S. prices can keep going up with no immediate problems. But, after U.S. prices have doubled, the Fed will be forced to act like the BOE and raise interest rates. If the increase is inevitable, why not do it now rather than risking a bubble?

Subject: Who wrote this - From: David E.. To: jimsum Date Posted: Mon, Dec 13, 2004 at 01:15:15 (EST) Email Address: Not Provided Message: 'The excess credit which the Fed pumped into the economy spilled over into the stock market --- triggering a fantastic speculative boom.' Our own inflation fighting hero - Alan Greenspan in 1966. He knows what he is doing - creating bubbles. Link

Subject: Re: Home Prices From: Setanta To: Terri Date Posted: Fri, Dec 10, 2004 at 11:43:55 (EST) Email Address: Not Provided Message: i agree on certain points, no-one should target asset prices but asset prices are a function of availability of credit and interest rates. over here there are prudent regulations for mortgage lending: a mortgage should be less than (approx) 4 times the annual salary of the applicant. any more and the bank could end up carrying significant risk on its loan book. if its loan book starts doing badly it is almost impossible to stave off a run on the bank. in my opinion, a run on a bank is the worst financial disaster an economy could experience (well, hyperinflation comes very close). over here, the rules which are designed to protect banks and individuals are not so much being bent as shattered by banks struggling to maintain the profits of the 90's. its in no-ones interests to encourage a situation like the property crash in london in the 1980's. wages fell and inflation rose, owners couldn't maintain their payments, banks forclosed and sold quickly to minimise the bad debt, this pushed house prices down, those able to maintain their payments ended up paying a mortgage on a house only worth 60-70% of the amount they were paying back, result: negative equity. was the savings and loans crises in the US similar to this? central banks can prevent this happening by allowing interest rates to rise when they need to and enforcing the lending regulations that are in place.

Subject: Re: Home Prices From: Terri To: Setanta Date Posted: Fri, Dec 10, 2004 at 12:59:22 (EST) Email Address: Not Provided Message: Agreed. Credit standards can be and should be carefully monitored. But, interest rate policy must target consumer product price inflation and employment and not asset prices.

Subject: Social Contracts & Social Responsibility From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 08:38:47 (EST) Email Address: Not Provided Message: not too sure if this would take off, though it should attract some interesting comments!!! Let's institute baptism by state A few years ago a mate told of a brilliant christening he had been to in Fermanagh. The grandad had had a few too many and was a bit out of sorts in the church. An old-style Northern priest bamboozled the punters. Eyeing the locals, he demanded: 'Do you renounce the Devil?' The congregation,taken aback a bit by the hectoring from the pulpit retorted sheepishly: 'We do.' The priest came back with 'Doyou renounce the Devil, and all his works?' 'Oh, we do.' Grandad was getting fidgety, convinced the priest was fixing on him. 'Do you reject Satan and all his words and deeds?' 'Oh we do, we do,' bayed the punters. Grandad was freaking out. His mind was racing, filled with guilty images of himself up at the bar with old Ned - necking a small one - while the cloven one kissed the innocent child before him. 'Do you reject Satan, his works, his words and all his temptations?' growled the priest. Before anyone could respond, up jumped Grandad in the front row and bellowed, 'I do, I do, I hate the fucker, so I do'. The nave cracked up, shoulders going, the priest didn't know where to look, and Granny was mortified. With the passing of religion, it is sometimes easy to forget what baptism is about, and what a logical and brilliant idea it is. All Christian baptism involves the man of the cloth saying welcome, here are the rules, abide by them and we will be here for you. In all other faiths celebration of a new member of the club is also seen as absolutely essential for the individual, the parents, the extended families and the club itself. Membership of the club is conditional on the rules, and the contract is explicit: you obey the rules and we will look after you. Arguably, there has been wholesale corruption of these original ideas (the strategic aim of growing market share can be dodgy for the integrity of any brand), but the basic idea of a contract between the members and the club is fundamental. Looking at the emergence of an alienated underclass in Ireland, is it time to examine an alternative to our present worldview? Is there a role for a state baptism where the parents are given a contract? The contract between the parents and the state could entail obligations on both parties. For example, help from the state might be conditional on the parents abiding by the contract, but the help, when it comes, will be absolutely effective.The more the parents abide by the rules for their family and their children, the more help they will get. Thus, we link good citizenship to good behaviour via a conditional welfare system. The aim here is to get as many citizens as possible to buy into the state project. This could start with a proper state baptism.When a child is born, instead of the mother coming home alone, maybe only to her own mother and family, should we not try to make her feel part of something bigger? Could we have a state baptism, so instead of a rushed registration of the child by the parents with the state,we could replicate church baptisms with state baptisms. So from the start we are clear. The quid pro quo of a kind, generous and helpful state is a set of rules based on acceptable behaviour. Let us examine closely the idea of a contract between the state and the citizens, based on a set of rules. When this has been suggested before, many commentators and politicians fly off the handle, saying that conditional welfare is some monstrous way the rich would subjugate the poor.This reaction perplexes me. When you rent a flat, the landlord takes a deposit and the tenancy is conditional on certain behaviour, such as not trashing the place. If you get an overdraft from a bank, terms and conditions, as they say, apply. All contracts are dependent on acceptable behaviour. If we did not do this there would be chaos, wholesale theft and commercial breakdown. In most aspects of life, contracts govern relationships and force responsibility on individuals.That is how our system works. It seems logical to look at our society the same way. So why not start at the bottom? (For the sake of fairness, we obviously have clear and explicit tax penalties for rich people who do not obey the rules.) However, let us not be deflected by ideology, the aim of a society should be to get as many of us as possible to look after ourselves and our neighbours responsibly without the intervention of a third force such as the state - whether the Garda or the welfare officer. Our problem in Ireland is that we are allowing an underclass to flourish with very modest education and very little sense of civic responsibility.This leads initially to low-level antisocial behaviour, leading to fear, especially among older people. When a young lad hassles a pensioner, we are all on a slippery slope. When a couple of lads burn down a youth club or break the posts on a football pitch we begin the unravelling process. The issue is where we set the bar for acceptable behaviour. If we introduced a contract of citizenship, with obligations on both parents and the state, we could use the state positively to change behaviour at home. From the state's side, there would be a code of the benefits available and the rights enshrined to all citizens below certain income levels to avail of these benefits. There would be an obligation on the state to deliver these in a timely and efficient fashion. Society's part of the bargain would entail such things as the right to information, courteous service and the right to appeal against decisions. The contract forms the basis of the exchange where the rights of the claimant are enshrined. The other side of the contract would spell out for the first time the duties that society expects in return for these rights.These duties would involve general aspirations such as treating your fellow citizens as you would like to be treated yourself. It might also include specifics such as school attendance. If you want to avail of child benefit, for example, your child must miss fewer than five days a year in school. The conse-quences of breaking the contract would be spelled out clearly. This would send a signal to everyone that you are not on your own.The state cares about you and is prepared to shoulder the burden of good citizenship.This would help teachers, social workers and the like, because for years they have felt they are isolated as the last line between the state and chaos. By spelling out the rules to the young and their parents, the position of those charged with enforcing the rules will be strengthened immeasurably. Most important, citizenship based on a contract would make the deal clear to all sides.The state would know what it has to deliver and citizens would know what duties we all have to fulfil to avail of these services. If we don't get the services it would be because of our personal behaviour and individual choice.Contract-based citizenship could galvanise the nation, create buy-in across the board and reinforce muscularly the idea that we are not a bunch of individuals, but a functioning, interdependent ecosystem, commonly known as a society.

Subject: Religion and Economic Choice From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 08:24:02 (EST) Email Address: Not Provided Message: Religion and economic choice Christmas gives us an opportunity to assess the role of religion in economics. Despite the best efforts of many in academia, economics is not just about remote concepts such as money supply, elasticity and current accounts. It is crucially about deep culture. The economy of a country - how it performs, where it invests and how it works - sheds much more light on the culture than many realise. Just as a huge part of culture and self-identification is about religion, economics is also about religion. Which religions perform best economically? Why did Catholic countries fall behind financially in the 17th century? Why did Protestant countries go into relative decline in the second half of the 20th century? Why have Europe's traditionally laggard Catholic states been economic dynamos in the last decade? In Ireland, is it merely a coincidence that the economy took off in the 1990s - at the same time as the Catholic Church fell from grace? How can we explain the enduring relative poverty of Muslim countries? These questions are fundamental, yet rarely find their way into business pages or the financial press in general. Possibly the best place to start is with the great man, Galileo. He was no saint and was partial to a fair bit of carousing. But he was the father of experimental science, the sharpest thinker of his time, a great debater and a dismissive polemicist. In 1663 he was condemned by the Vatican for heresy. The Vatican's charge against Galileo read: 'The opinion that the Sun is at the centre of the world and immobile is absurd, false in philosophy and formally heretical because it is expressly contrary to the Holy Scripture.'Galileo was lucky compared to a poor creature called Bruno, a former Dominican,who was burned for less in 1660. By taking on such heretics, the Church signalled its intention to take on science, creativity and imagination and lease them to theVatican for an indefinite period. I was always intrigued why the Church chose to draw the heretical line at geocentricism, but there you go. Ironically, the Church did not seem that interested in promoting its own dogma as an alternative to the likes of Galileo.The point of the exercise was to denounce the heretic, make him recant and re-establish the primacy of the Church's teaching. (Commentators have subsequently linked the obsession with deconstructing heretical ideas to the inability of many moder n education systems to teach open thinking. The argument is that the Church taught us for ages to negatively deconstruct positive arguments, rather than support them. Therefore, much of our education system and learning is based on proving already known and verified theories.) Galileo's big mistake was not so much taking on the Vatican, rather how he did it. By 1660 theVatican had become a type of Byzantium on the Tiber - fused with intrigue, scandal, spin, slander and political treachery. The reason was simple: there were as many courtiers with a vested interest in a Pope's demise as in his prosperity. A new Pope changed his hierarchy and middlemen. So a new Pope was a job opportunity for many. Against this background, Galileo made a fatal error by publishing his heretical views in Italian rather than Latin. At a stroke, he put his views beyond the Church and disseminated them to the public. Popularising heresy rather than the heresy itself was the greater sin as it could do greater damage to the reputation of the sitting Pope. Ultimately Galileo retracted, but was heard to say at the end 'Eppure si mouve' ('Say what you want, it moves'). The vilification of Galileo sparked a massive migration of cosmologists, scientists and mathematicians to the north - if not physically then at least spiritually. In 1670 a French priest visiting Amsterdam wrote of Galileo's paradigm: 'They are all for it here.' From then, the die was cast. In general, Protestant countries embraced scientific discovery, allowed refugees to mingle among their own, encouraged trade and discourse and, more than anything else, fostered individualism. Thus, it was fine to embrace Newtonian physics and be a good dissenter. This tolerance (as opposed to encouragement) of irreverence, questioning and enquiry allowed innovation to flourish. Innovation made the Protestant merchants rich and this permeated through the society. A French count concluded: 'The English are rich because they make things, not for the rich but for the people.' Throughout the Protestant world, trade surged. In contrast,the Catholic world went backwards. The Church's obsession with control and fear of scientific enquiry,plus its alliances withthe gentry, meant that the system of land-based (rather than trade-based) wealth endured. The stronger the central control, the less likely that tradesmen would innovate and the more likely that a corrupt system of licence-based trade and clientelism would emerge. Nowhere is this more evident than in the economic history of America. Obviously there were huge differences to begin with when the first Spaniards and the first Puritans arrived in South and North America. In 1600, Spanish Catholic Mexico was ten times richer than Massachusetts. By 1800 it was twice as poor. By 1900 it had fallen back much further. The gap in economic performance can be explained by the different cultural and religious approaches to trade, innovation, enquiry and finance. Starting from a much lower base and a much harsher environment, the Protestant settlers outthought, out-traded and eventually overwhelmed the conquistadors of Mexico,Texas and California. Weber wrote about the Protestant work ethic in the 1930s, and although it had historical resonance then, as a forecasting model it has not stood the test of time very well. This is because the economic history of Europe and Asia since 1945 is one of the collapse of a Protestant economic hegemony in the face of resurgent Catholic wealth in Europe - most evident in France, Italy and Catholic south-west Germany from 1945 to 1985. Traditional Protestant powers such as Holland and, especially, Britain fared badly. On the global stage, it is the emergence of Confucian capitalism in South-East Asia in the 1980s and 1990s and Japan's lasting dominance in trade which knocked Weber's theories on the head. Back home, the difference between the performance of the Republic versus the North made a mockery of Weber, while the stellar growth rates of Catholic Spain and Portugal reinforce the emergence of Catholic nations as economic models. Maybe the crux of the theocratic dilemma is that Catholic nations have achieved economic vibrancy by becoming more `Protestant', in the traditional trading sense. By opening up to ideas, trade and immigration, we have not only taken off but overtaken the traditional Protestant European powers. Some would go as far as to say that in Ireland at least, the Catholic South now looks more like the tolerant, mercantile, reformed Holland of the 18th century than the Protestant North, which is a dead ringer for the atavistic, protectionist, unenlightened, suspicious Vatican of Galileo's day. Rome Rule how are you? Happy Christmas!

Subject: An unusual economic indicator!!! From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 08:10:10 (EST) Email Address: Not Provided Message: A pint of plain is your only economic indicator A friend of mine will not employ Irish builders on his sites. He claims Monday is usually a write-off and they don't start work properly till Tuesday. He believes that in comparison to the Estonians, Romanians