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 and Lithuanians, Paddy is a lazy, expensive drunk. Last Wednesday night I got a glimpse of what he meant. I went missing in the 'M50 triangle' - which, for those of you not familiar with Dublin's half-built motorway, is a rutted maze of traffic cones, badly-lit flyovers, abandoned JCBs, potholes and muck that lies between the infamous Carrickmines 'Castle' and the foothills of the Dublin mountains. I was looking for a football pitch, and popped into the local pub to ask for directions. At the bar were six stocious roadbuilders. It was 7.30pm. The lads had knocked off at six, and they were so jarred that when asked a question, each had to move his entire head to focus. No wonder the bloody M50 is overdue, over-budget and undersized. A few years back, in the early 1990s, it was so different. Back then, when Irish workers were making fortunes in Russia building the new runway at Sheremetyevo Airport in Moscow, Russian workers were being punished for drinking too much by Gorbachev's 1988 ban on vodka production. One night in the dreary Soviet International Hotel on Karl Marx Square, surrounded by Russians, I heard the unmistakable sound of Limerick accents. A few Limerick lads were building the airport runway, making good money and sending it home. One of them was saving up this cash to open an Irish pub in Moscow, and everyone at the table thought he was mad. A few years later I found myself in Kitty O'Shea's in Kiev with a bit of a dilemma. I was working for a Swiss investment bank and was charged with explaining to clients and the bank's senior management what was going on in Russia and the Ukraine. Having met the IMF, World Bank and EU delegations, along with consultants and other bottom-feeders, it struck me that these rarefied bureaucrats hadn't a rashers what was going on in the place. They were typical economists: removed, distant and naive - decent lads, but you wouldn't give them a post office account to open back home, let alone ask them how to make money in the Wild West that was Eastern Europe in the 1990s. One of the barman in Kitty's was a different kettle of fish - a rogue and a bit of a chancer who had been around and was not exactly welcome in some of the cities he had visited. On the run? No. Avoiding people? Definitely. We got talking about Irish pubs and opening them in Eastern and Central Europe. He knew the market, the demographics,who had money in Kiev and the ratio of expats to locals. He explained how to bribe the local officials, how to get import licences and how to weed out crooked `drifter' Irish barmen. He knew how to defer tax payments, how to spot a good site and a decent landlord. He knew where to source furniture locally, how to deal with local tradesmen, who to pay first, how to `incentivise' officials. Sean outlined his marketing strategy and which local movers and shakers to target as regulars. He advised about avoiding the Mafia. He emphasised the importance of the brand, the importance of the local aspirations. This barman was a mine of information. Sean was obsessed with dissecting his market into expats and locals. For expats, the key was to feel at home; for local bigwigs, the opposite prevailed - it was crucial they felt as far away from Ukraine as possible. He offered advice on pricing strategies, and had worked out precisely where the 'sweet point' was - where he could maximise his profits, while at the same time increasing his revenue. Finally, Sean had figured out how to borrow in pounds, hedge his local currency risk and stay on good terms with the bank - quite an achievement. That night he offered a blueprint. Sean outlined the basics of running a business in a foreign country. He outlined the rationale for the Irish Pub Index of economic development (which has since been used by hedge funds all over the world). After a few pints, it struck me that the opening of an Irish pub in a developing city could tell you more about what exactly was going on in the economy than any economic report. The opening of an Irish pub tells you more about who is investing where,why and at what price than any statistic about inflation, budget deficits or trade deficits could. With that in mind, the Irish Pub Index was born.The general theory is that wherever you see an Irish pub it reveals economic vibrancy, particularly in developing economies where official statistics tell you nothing. So the more Irish pubs per head of population,the easier it is to do business. The easier it is to do business, the richer the city is likely to be. Therefore, if you want to get a snapshot of how a place is doing economically, forget reports by IMF, the World Bank, the large consultancies or the EU, check out the bars. Ultimately, the more Irish bars the place has the richer it should be. That at least was the drunken 'theory' I left Kitty O Shea's with. I decided that I would calculate this Index and present it in Zurich to the bank's top brass as our 'in-depth' research for central and eastern European economic development. Next morning, Guinness in Dublin provided the info on the Irish bars around Europe, and the Irish Pub Index of Economic Development emerged. Amazingly, in practice it was even more accurate than in theory.The foreign cities with the most Irish bars per head were indeed the richest in Europe. Luxembourg had the most Irish bars per head, and it was also the richest city in Europe. The cities with the most Irish bars in descending order matched almost exactly the richest cities in the European income league as published by the EU Commission. Even more valuable was the fact that unlike all the stuff published by the EU, the IMF and the like, the Irish Pub Index is predictive.The EU and the 'traditional' economics that goes with it will tell you what income was two years ago (which if you are in business you will know already). The Pub Index will tell you what income is going to be in two years, and reveals fascinating on-the-ground insights into who is spending, what brands are rocking, where investment is being made and what parts of the town are up-and-coming. In short, it tells us in advance what economic statistics will only pick up in hindsight. Over the past few years, the Irish Pub Index has proved to be a much more accurate indicator of GDP five quarters ahead of time,than any complicated IMF,World Bank or Central Bank econometric model. In economics as well as life, 'the pint of plain is your only man'. www.davidmcwilliams.ie

Subject: Jury out on 'super' Europe From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 07:36:24 (EST) Email Address: Not Provided Message: Jury out on 'super' Europe What does the future hold for Europe? Will it be a great, democratic, vibrant continent providing security and prosperity for all its citizens? Or will enlargement do for Europe what reunification did to Germany? This is a huge question that is not being addressed at all this weekend as the great multilingual jamboree kicks off in Dublin.Will the east be a blooming or a blighted landscape? Will it be denuded of its best and brightest? Will we be paying for four-lane motorways in and out of Bratislava before a dual-carriageway links Dublin and Cork? Culturally, what difference will 40 million Slavs make to Europe's view of the world? Let us analyse this on three levels: economics, philosophy and politics. Economically, there are numerous blueprints for enlargement, ranging from Ireland's accession in 1973 to the disastrous reunification of Germany in 1990. It is worth reflecting on the unfortunate East German example, because it combined the overwhelming popular expectations with underwhelming economic fundamentals. Ultimately, this led to a bitter experience both in the east and in the west. The former laboured under double-digit unemployment, while the latter was burdened by ongoing transfers of subsidies to keep the political lid on the former Communist statelet. Productivity was the main economic problem for East Germany in the 1990s, just as it is for the rest of the accession countries today. Productivity measures output per worker, and is a function of a variety of things such as skills, technology, knowhow, systems and perspiration as well as inspiration. Productivity holds the key. For an investor, productivity determines the return on equity. The h igher the productivity in a country, the higher its profit margin. Investment will flow to the country, region, industry or company with the highest productivity. Productivity is also crucial for the worker, because it sets the wage rate that can be paid in that country. Again, the higher the productivity, the higher the wage payable. For the economy in general, the level of productivity determines where the exchange rate can be, the level of interest rates and the trade balance. Put simply, productivity measures the amount you make, and so the amount you consume (if prudent) should also be determined by productivity. If you consume more than you make, you will have to borrow the cash.This is a crucial issue for these developing countries, because they must get their productivity levels up if they want to compete. If their productivity levels remain low, they will be condemned to selling off their prize assets for a song. At present, the gap between the west and the east is startling. For example, in the EU today, the average worker produces €57,000 of stuff per year. In Poland, the corresponding figure is €17,000. So the average Polish worker is more than three times less productive. It will take a long time for this gap to narrow. In the meantime,the accession states, all of which have floating currencies, will be subject to repeated currency crises. Why? Because, they will spend more than they earn in the next few years, and this will cause their trade deficits to rise. The bigger the trade and current account deficit, the bigger the risk that their currencies might have to devalue to make their companies competitive. The problem with this is that their interest rates will have to rise to protect the currency. The higher the domestic interest rates, the slower the growth rate, and the slower the growth rate, the more the currencies look overvalued. Don't take my word for it, listen to George Soros, the Hungarian financier whothis week warnedof repeated speculative attacks on currencies. In fact, Hungary is a good example of what is likely to happen elsewhere. The average Hungarian worker produces €17,000 worth of stuff every year, but buys over €19,000 worth. So Hungary has a current account problem. The country needs to borrow to pay for this profligacy. Not surprisingly, Hungarian interest rates are 12 per cent. At 12 per cent no one is investing enough (apart from the Paddies buying property). A large fall in the currency is highly likely in the next few quarters as currency speculators bet that the government cannot rule with such high interest rates. The speculators reckon that the only way to force interest rates down is a much cheaper currency that will boost exports and rein in some of Istvan's more conspicuous consumption. Once the Hungarian forint goes, the markets will turn on the currencies of better-run economies like Poland and the Czech and Slovak Republics. Quite apart from the currency dilemmas, the ongoing migration of the best and brightest will hollow out the productive capacity of the accession countries. If you want to get an idea of what the accession countries might look like in their first 20 years of EU membership, look no further than Ireland from 1973 to 1993. In hindsight, it is hard to believe we screwed things up so badly. But despite, or maybe because of, European handouts we embarked on what can only be described as an economic suicide pact leading to stagnation and emigration. The source of our economic dilemma was a search for a quick fix for our productivity problems. In 1973, our productivity relative to Germany was similar to that pertaining today in the accession countries. Low productivity meant low levels of wages and employment. Taken together with the freedom to move, this meant high levels of emigration. In an effort to rectify this, governments tried all classes of policy tricks to shortcut the way to higher productivity. Nothing worked, and we spent two decades taking one step forward and two steps back. Expect something broadly similar in the accession countries. Therefore, for cyclical and structural reasons, the euro will have to weaken before and after these countries join full EMU to take into account the productivity deficit of Eastern Europe. Meanwhile, as expectations are high, it is highly likely that fiscal transfers from us to them will become the norm. It will not be as bad as East Germany, because the transition has been going on for some time now and will continue to proceed at a gradual pace. But it is hard to see the blooming landscapes envisaged by some. Quite apart from economics, there is very good reason to worry about the schizophrenic philosophical disposition of the new Europe. Let us take a bit of altitude here. Ireland can be reasonably accurately described as having European international politics and American economics. Most are against the war in Iraq, but vote in favour of lower taxes. New Europe has the opposite outlook.They support the Americans in international politics, but vote for higher state spending and higher taxes. This will inform Europe's view of the world, and will also solidify the high-tax, statist bias in Europe's economic policy. Until the Eastern countries get over their understandable fear of Russia, and historical mistrust of France and Germany, a pro-American international view will prevail. The Baltic countries in particular will use the corporate tax system to attract capital, so we should expect intensive Irish-style beggar-my-neighbour tax competition for inward capital. An even bigger question surrounds whether big intra-country blocs such as the EU are the way of the future. In the past 10 years the English-speaking countries, along with small independent states, have all experienced growth rates far in excess of those in continental Europe. There is a body of opinion that suggests that due to technology and communication networks, we do not need large blocs to advance our economic interests. The future, this school believes, will belong to small, nimble trading states - similar to medieval city-states - like Ireland, Singapore and Hong Kong. This would imply a move away from pooling sovereignty. Small states like the Baltic countries might just be joining the EU at the wrong time, because their latitude to manoeuvre will be limited. So the future for Europe is far from clear. Behind all the razzmatazz of this weekend lie some very serious questions that have yet to be addressed fully. Eastern Europe in 2009 - a blooming landscape or a barren wasteland? The jury is still definitely out.

Subject: Interesting piece From: Pete Weis To: Setanta Date Posted: Sun, Dec 12, 2004 at 20:22:38 (EST) Email Address: Not Provided Message: While I was reading it questions came to mind about the effects of a weaker Euro in Europe. Will European central banks weaken the Euro? If they are forced to counter Asian and US currency drops by taking actions to weaken the Euro, how would this effect less productive European workers? Are their wages closer to subsistence levels? Would their paychecks in weaker Euro's make them a very unhappy lot? If European central banks agree to lower rates will the added liquidity find its way into European paychecks in a way which hasn't happened in the US?

Subject: Power of the soft economy From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 07:26:14 (EST) Email Address: Not Provided Message: Power of the soft economy No gaudy election posters blight theTuscan landscape; no inane or bewildered grins on faces beaming from every lamp post. No one-off houses scar the hilltops and valleys. Small towns ban cars from their narrow streets and the architectural heritage is safeguarded like a vulnerable child. Even the local farmers are in on the act; replicating perfect pastoral scenes for the benefit of visitors by growing meadows, rolling old-fashioned bales of hay and scattering them among the cypress trees. Tuscany, in short, offers the tourist a centrefold straight out of a lifestyle magazine, all taste, refinement and truffle oil. In return, tourists plough millions of euro back intoTuscany each day.They spread the word every week. Millions of foreigners leaveTuscany laden down with expensive souvenirs, posh wines and cookery books, deposits paid for next year's fortnight. By unashamedly positioning itself at the upper end of the tourist game, Tuscany has ensured that it will keep its mediaeval private banks in business for a few years yet. Incidentally,Tuscans do not scalp tourists.The food is exquisite and although expensive by Italian standards, eating and carousing inTuscany is much cheaper than in Courtown, Roscarberry, Kinsale or Clifden. So, as they say, everyone's a winner: the Italians are kept wealthy and the tourists go home feeling travelled, cultured and, crucially, a genteel cut above their Marbella-bound neighbours. Tuscany excels at what we might call soft economic power.This is the economic power and prowess that is not captured by the hard and increasingly inappropriate language of mainstream economics. The crude dialect of competitiveness, wage rates, productivity and exchange rates does not translate readily into soft economic power.Yet soft economic power will be crucial to Ireland's well-being in the future and we ought to get a handle on it very quickly. What is soft economic power? How is it different to hard economic power? And why is it so crucial for the future? To tease out the difference between soft and hard economic power it is helpful to think of geopolitical power. In international relations it has become fashionable to divide America's power into hard and soft power. We all know that America is pre-eminent in the area of hard power. It has more guns, bombs and bullets than any other country. It spends more on armaments than the next top ten spenders combined and it can blow the brains out of any adversary. It is the capo dI tutti capi of hard power. But America also has soft power. This is diplomatic power, financial power and moral power. It is the power of alliances and it is the authority America derived since the second World War by operating (with some exceptions) a relatively benign foreign policy which, for many, put the US on a morally superior plateau to that of the Soviet Union during the Cold War. Soft power also refers to America's domination in branding, music and the movie industry, all of which creates an impression of a strong America, quite distinct from that embodied in the 82nd Airborne Division. Many are convinced that the twin exercising of soft power by persuasion, cajoling and economic or financial argument, together with the ultimate threat of hard power in extremis, has been the key to America's pre-eminence. Over the past three years seasoned foreign policy observers have lamented GeorgeW Bush's decision to resort to hard power and reject soft power. Indeed there is a very credible view that suggests that by relying exclusively on hard power America has punctured the very mystique of the superpower.This mystique allows a superpower to get what it wants without fighting for it. It is the minimal risk, maximum return dictum adopted by previous US administrations.This week, by going back to the UN Security Council on Iraq, the US has once more acknowledged the clout of soft power. With that in mind, let's now look at economic power in the 21st century. Hard power is nuts and bolts power. It is the economic prestige that derives from the manufacturing industry. It is measured by league-tables of output, by comparative GDP figures and by productivity measurements published each week in the back of the Economist. Hard power is gauged by multinational investment records and figures explaining repatriated profits. Over the past 15 years Ireland has been extraordinarily successful in this sphere, but now, in tandem with this hard power,we will have to cultivate soft economic power. Soft economic power can be seen as anything that results in enhancing the well-being and bargaining position of Irish people over and above the wages we earn today. So, for example, last week I was lucky to interview Daniel Libeskind, the award winning architect who has just been commissioned to rebuild theTwin Towers.This is probably the most prestigious architectural project in the world and for New Yorkers the final structure will be far more than just a building, it will be a statement. In a similar vein, Libeskind was commissioned by the reunited Germany to build the Holocaust Museum in the centre of Berlin. If ever a building was a statement, this was it. Libeskind's Holocaust Museum is now the most visited building in Germany, generating huge financial returns. Libeskind explained that in his view all cities were in competition with each other.The battleground is soft power areas such as architecture, theatre, festivals,public infrastructure, sports,the vibe and how we use amenities such as the mountains and the sea. Acity's prowess is measured in the experience of the place. Would I like to live there?Who else lives there? Could I bring upmy children there? Could I find the most creative people there? These are the types of soft competitive questions that Europe's big cities have to answer.An acid test of soft power is the degree of openness of the city to influences and the simplest acid test of this is immigration. Those cities with the most soft power are also the most cosmopolitan (incidentally, they rarely have referendums on citizenship). History says it was ever thus. Athens was in direct competition with Sparta, Venice with Dubrovnik, Florence with Siena, London withYork, Berlin with Breslau, and Barcelona with Madrid.The one crucial factor is that people flock to the cities that offer the best package. Manufacturing jobsmight migrate to deepest darkest Slovakia, but service jobs will flow into the cities that offer the best overall living experience. Architecture helpsmake statements about the way a city sees itself.For exam- ple,what is the most photographed place in Australia? The Sydney OperaHouse. In recent years, London has seen an architectural revolution putting parts of its skyline on a par with NewYork's, boosting the city's prestige.Another example of 'soft' economic power is the rapid increase inweekend tourism to the regional Basque capital of Bilbao as a result of its newGuggenheimMuseum. Soft economic power goes hand in hand with hard power.Soft power is often overlookedwhen making economic decisions. For example, following the decision in favour ofone-off-housing,what is the likelihood that rural Ireland will again offer uninterrupted views? When a combination of Polish and Argentinian farmers finally buries Irish farming, will we have anything left to sell in the countryside? We will have a once wild landscape blighted by ugly houses. This is an example of short-term expedient politics literally bulldozing soft economic prestige that could stand to us for decades and centuries. In our cities, if we do not build buildings of ambition,why will anyone cometo our capital for anything other than a piss-up? Today,we are punching above our weight with more than three million visitors to the capital.Now it is time to build some attractions with serious ambition. Take our universities.What is the point of the state now reducing funding, forcing departments tomerge and undermining academiawhen all research tells us that intellectual prowess is the ultimate in soft power? Another acid test for whether a city has soft power or not is in its tolerance of gays.A recent article in theAtlanticMa- gazine published a gay map of the USA. It revealed that the cities where gay men tended to live were also the richest in the US.This can be interpreted in many ways, however there is no getting away fromthe economic correlation between tolerance, soft power and affluence. Incidentally, Bloomsday to be celebrated onWednesday, is a great example of soft economic power. Whatever your viewof Joyce, no other city can truly celebrate Bloomsday. It is uniquely Irish, uniquelyDublin and is an ultimate ex- pression of soft economic power. It will generate millions for traders in the city and it cannot relocate toMumbai or Bratislava. It will not feature on the IDA's list of economic successes this year, but it has far more potential than many of our trumpeted industries.Rightly, Bloomsday,Dublin's unique expression of soft power celebrating the ultimate immi- grant, Leopold Bloom, son of a Hungarian Jewish father, will be presided over by Joycean and gay rights activist David Norris.Here's to soft power, here's to outing the economy.

Subject: New Status Symbol From: Setanta To: All Date Posted: Fri, Dec 10, 2004 at 07:16:50 (EST) Email Address: Not Provided Message: The new status symbol: Children Why do French villages shut down at 9pm? Have you ever tried to get a drink in rural France after dark? This is one of the problems with going on your holliers in France: the place is such a bore. Beautiful it may be, but it's dead boring. So why are so many Irish people buying second houses in deepest France? Why are the French selling them? And why are they so cheap? The reason is demographic. Sometime around the 1970s, the French stopped having babies and replaced them with dogs. So France is being progressively denuded of humans. Despite all the talk about peasant culture being at the heart of France, the peasants who are left in the countryside are getting older and will die out by around 2020 leaving vast tracts of the French countryside empty. A similar process is happening all over Europe. The opposite is happening here. We are bucking the European trend and are experiencing our second baby boom since the 1970s. Our post-war baby boom peaked in June 1980 - nine months to the day after the Pope kissed the tarmac at Dublin Airport in late September 1979. Cause and effect, anyone? The first Irish baby-boomers might be called the `Pope's Children' and we are now seeing their demographic echo. All the little John Pauls are now having babies and, as a result, the Irish population is back above four million for the first time since 1871, according to Central Statistics Office (CSO) figures released this week. However, it is immigration which is changing our complexion rapidly. Others are replacing John Pauls; for example, already 2 per cent of people in Ireland are Chinese. This is quite an extraordinary figure and the process is ongoing. Last year, 9 per cent of all immigrants came from China. The population increased by 65,000 in the year to April 2004. Some 33,000 of these were new babies, but 50,000 were immigrants who came last year. Had 18,000 Irish people not emigrated, the population would have gone up by even more. So is this baby boom normal? Well, by European standards, it is a perversity. In all other European countries, populations have declined in tandem with the rise in wealth. The rule on the continent appears to be that the richer the country, the fewer babies are born. It is as if at a certain level of take-home pay, a car or a second house or a holiday replaces a baby in couples' aspirations. In Ireland, the opposite has occurred. Our least fertile period in recent decades coincided with relative poverty. The most dramatic fall in our birth rate occurred between 1981 and 1988 when we were getting progressively poorer and the place was a basket case. The emigration of thousands of young people contributed, but those who stayed had fewer and fewer kids. Once we started making a few euros we started having babies again. This is a trend first evidenced in the US in the 1990s when progressively affluent Americans started having babies. This trend, together with car ownership patterns, suburbanisation, credit growth, house price inflation and an aversion to personal taxation, suggests we are much closer to the Americans at a fundamental, day-to-day level than might otherwise be revealed by political straw polls and the like. The sort of people who are having large families in the US and Ireland are very similar. In the US and here, it is mostly the very rich and the very poor who are still having big families. This class pattern is also evident in England, where I was always amazed at the size of very posh families - there always seemed to be loads of little Hectors, Philippas and Crispins. In the Ireland of 2004, like in the US, the other groups having large families are immigrants, although this may be explained by cultural factors that would not be tolerated here generally, such as the lack of female emancipation. However, the really fascinating question is why are the new Irish rich having so many kids? The mere fact of having lots of children is itself a sign of wealth (because only the very rich can pay for childcare or buy houses large enough). There is also the idea that kids are the ultimate possession, a precious commodity that make a serious statement about who you are. For example, have you noticed the large families among high-flying, well-educated and highly cultured barristers? Why is this? Maybe it is simply old-fashioned tribal behaviour. The new Irish elite needs to brand itself with something exclusive - not simply the size of one's wad. In a world where money is plentiful, cash and credit are easy to get, there has to be something that can distinguish the truly genteel from the merely rich. Anyone can own a fancy car or a fancy house, but to be really posh, something more must be evident. So such distinguishing factors have to be very subtle and cannot simply be the result of something so crass as a purchase, but must be worthy, meaningful and most of all must require hard work. For this theory to hold any water, Irish women should be having more children older. This is indeed the case. Many professional women who have proved themselves in the corporate world in their 20s are taking to the fertility game with the same competitive gusto and are popping out four in a row beginning in their 30s. This would have been unheard of in their mother's generation or in the 1980s when large families were seen by many women to epitomise the type of ``pregnant, bare-foot and chained to the kitchen sink'' life they were desperate to avoid. But today, when professionals are told they can have it all, what better expression of perfection than lovely and plentiful sprogs and a successful career? This puts you in a different league. It allows you to use buzzwords like community, values, tradition and that awful expression a ``sense of place'' with real conviction that could never be understood by the childless. But above all else, for children to be the ultimate expression of achievement, they must be hard work. They will be the gynaecological equivalent of 40-year-old Dad running the marathon. It wouldn't be worth it if it wasn't hard work - it reveals stamina and, crucially, discipline. The psychological virtue of six kids, hair-tied back, messy car, empathetically rolling your eyes in face of other genteel parents - these are the signs and secret codes of the new posh as opposed to the new rich. The economic implications of the new posh having big rather than small families are enormous and will be initially felt in the children's services game. This column has written before of the bouncy-castleisation of Irish suburbs during the summer months, where parents try to out-bouncy castle their neighbours. No bouncy castle is too big for little Finn. This type of behaviour will extend into the exuberantly fertile genteel, resulting in an explosion in demand for pre-teen notes of recognition. Expect redundant violin teachers to make hay, while children's cookery classes will be a winner. Such cookery classes will enable the genteel family to hit two birds with one stone: health and hard work. When they have finished their cookery classes, the multitude of kids can come home and descend, through the very tastefully appointed Victorian house, into the huge ultra-modern kitchen that is now a feature of all properly civilised homes. In the past, the rich never saw food being prepared, now nothing more defines a swanky family as its kitchen with its ``work triangles'', its condiments and its recipes. This also explains the explosion in demand for huge, walk-in fridges, which are now de rigueur in every self-respecting home, complete with instant icemaker. Bilingual creches with optional Pilates on a Thursday will be upon us before we know it, while the price of private schooling will continue to rise. If you can, you should put a child's name down and pay monthly instalments now because by 2012 fees will be exorbitant. The present baby-boom is profoundly different to the Pope's one because of who is being born, where and to whom. The Pope's Kids of 1979 and 1980 were born to families of six children typically living in lower middle class suburban estates. These families have now completely disappeared. Following earlier trends in the US, only the very rich are having more than four or five kids. In place of the families of the Pope's Kids, is the large family of the aspiring immigrant. Taken together, these massive changes in our society which are captured in this week's CSO figures, suggest that, unlike rural France, the Ireland of the future will be full of children of all backgrounds, races and languages and will never be boring. In fact, many of the kids of genteel Irish families will decamp to empty rural France for the summer where their rich parents have bought a traditional stone farmhouse. The farmhouse will be tasteful, functional and rustic, never flash, tacky or vulgar and, above all, every holiday will involve some achievement, like redirecting the stream at the bottom of the orangerie, because to be really posh it must involve at least some hard work.

Subject: Re: New Status Symbol From: Terri To: Setanta Date Posted: Fri, Dec 10, 2004 at 15:29:09 (EST) Email Address: Not Provided Message: Demographics is all important. We must pay more attention.

Subject: DeLong after Bush's victory From: Yann To: All Date Posted: Fri, Dec 10, 2004 at 03:25:28 (EST) Email Address: Not Provided Message: Taming Voodoo Economics (J. Bradford DeLong) Americans have once again finished a presidential campaign season in which the quality of the debate over economic policy was abysmal. On the Republican side, hacks, spin masters, and many people who ought to have known better suddenly developed an extraordinary appreciation for something called the 'CPS Household Survey of Employment' as a supposed guide to month-to-month changes in the labor market. The CPS survey was never designed to do this, but it offered the most favorable gloss on the Bush administration's dreadful record on employment. On the Democratic side, the same sorts of hacks and PR men focused like a laser beam on the bad employment news of the George W. Bush years, ignoring the good news about output and productivity. And, again, Republicans responded tendentiously, by focusing on the unemployment rate rather than on the job numbers - as if it were a good thing that the lousy labor market since 2001 has artificially depressed the number of people looking for work. Similarly, Republicans glibly touted the Bush tax cuts - the equivalent of which President Bush's father, President George H. W. Bush, two decades ago called 'voodoo economics' - as the acme of economic wisdom. They paid no heed to the large drag that Bush's unbalancing of America's public finances will impose on the US economy over the next several decades. Democrats, for their part, pretended that the tax cuts had already harmed the economy, when they ought to know that the greatest damage is still to come. The Republicans magnified their economic quackery by frantically trying to minimize public perceptions of the long-run fiscal problems of America's social-insurance system, largely to deflect attention from the fact that Bush threw away the budget surpluses President Clinton had bequeathed him - and with them what may have been the country's last best chance to fix things in this regard short of some form of disaster. These same Republicans also argued for government spending restraint while blocking the institutional changes to Congressional procedures needed to make spending restraint possible. All of this economic legerdemain was magnified by television, print, and Internet journalists. Aside from a small number of good stories in the business press, it is difficult to argue that anyone who read or listened to English-language media coverage of the campaign could have learned anything interesting or relevant to the question of whose economic policy was likely to be better for America. The economics profession bears part of the blame for this. Nobel Prize winners such as Edward Prescott have no business talking about the benefits of tax cuts without pointing out that a tax cut accompanied by spending increases is not a tax cut at all, but rather a tax shift onto the future - and a tax shift that raises risk and discourages accumulation. But much of the problem stems from an under-briefed, undereducated, and uncurious press corps. Indeed, the tendency towards superficiality in coverage of economic issues may have led campaign managers to believe that the press will so distort their message that they dare not even try to set out what they regard as the true rationales for their economic policies. At this point, I as a pundit am supposed to come up with my magic plan, my clever scheme for fixing things and putting the world to rights. I don't have one. But there is one glimmer of hope. The past two generations have witnessed the rise of independent central banks whose monetary policy, largely insulated from partisan politics, aims for the maximum possible employment and purchasing power consistent with price stability. Monetary policy in the industrial core has been far from perfect in this age of independent central banks, but it has been much better than what came before, representing a victory for technocracy. The American political system, at least, appears incapable of setting out the central fiscal policy issues in ways that give voters a chance to make informed judgments and distinguish between candidates-even between candidates whose programs are serious and those whose programs are mathematically impossible jokes. It may well be time for another technocratic push: a Fiscal Stabilization Board that would take its place beside the Federal Reserve Board. Just as the Federal Reserve exists to ensure that monetary policy is not inconsistent with price stability, the Fiscal Stabilization Board would guarantee that spending authority remains in line with the legislated level of taxes. Let the debate begin. Copyright: Project Syndicate, November 2004.

Subject: Re: DeLong after Bush's victory From: Jennifer To: Yann Date Posted: Fri, Dec 10, 2004 at 05:34:45 (EST) Email Address: Not Provided Message: Brad DeLong is a fine economist and writer, but I have no idea what to make of such an essay. Nothing is taught here, and I do not understand where the complaints are. Congress sets tax law and spending levels, and no independent board can do what Congress must do under our Constitution. I am always glad to read Brad DeLong, but I am disappointed in such a directionless essay.

Subject: Re: DeLong after Bush's victory From: Dorian To: Jennifer Date Posted: Fri, Dec 10, 2004 at 22:26:12 (EST) Email Address: DorianLS@aol.com Message: Isn't Brad's point quite clear, i.e., that although Congress may sex tax law and spending levels, it has been doing so in a reckless manner, following the Executive's direction in lockstep because the Republicans are very disciplined and operate in tandem with very little dissent allowed. And because the public is not given enough understanding of economics by the press, and even the Democrats don't dare do so (who would dare suggest that we cannot have a war, huge deficits and more tax cuts? No one dared make an issue of it during the last campaign, as similarly, neither side dared talk about a draft). So Brad is suggesting a non-political Board which would at the least make economic issues clear in a non-partison manner. As you say, Congress would be ultimately responsible for setting tax and spending policy and it is not clear how much clout a Fiscal Stabilization Board would have, but at the very least it would offer a touchstone of truth in an area which has gone of the rails in terms of reality. As he states: 'The American political system, at least, appears incapable of setting out the central fiscal policy issues in ways that give voters a chance to make informed judgments and distinguish between candidates-even between candidates whose programs are serious and those whose programs are mathematically impossible jokes.' Of course we will never get such a board with the current administration as they want loyalists and above all, they don't want anyone or anything which will show up their fiscal policy as what it is 'Mathematically impossible jokes'.

Subject: Japan Near a Standstill From: Emma To: All Date Posted: Thurs, Dec 09, 2004 at 17:16:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/09/business/worldbusiness/09yen.html?oref=login Japan's Once-Booming Recovery Near a Standstill By TODD ZAUN TOKYO - Japan's once-robust recovery slowed to a near standstill in the third quarter as consumer spending weakened more than expected, according to revised figures released Wednesday. Adopting a new method of calculating output, the government revised third-quarter growth to an annual 0.2 percent from a previous 0.3 percent. The new method is intended to eliminate distortions caused by rapidly falling prices of high-technology items, like cellphones and computers. Using the new calculation, the government also said that the economy shrank in the second quarter, declining an annual 0.6 percent instead of rising 1.1 percent as previously reported. The revised figures were weaker than economists expected and well off the 6 percent pace of the first quarter. The data sent the yen sharply lower, hitting a low of 104.99, from 102.97 on Tuesday. But later in New York, the yen appeared to have recovered, trading at 102.89. The revised numbers were consistent with a string of recent economic figures showing Japan's recovery has lost momentum, dogged by slowing export growth and weak consumption. 'We haven't seen any evidence of things turning around yet,' said Peter Morgan, an economist at HSBC Securities (Japan) Ltd. Although strength in technology stocks this year suggests investors are optimistic on the prospects of Japan's all-important electronics industry, there are other, more worrying signs, he said. 'I've basically focused on exports as the lead indicator for the economy, and so far we don't see exports picking up,' he said. The biggest reason for the slower growth announced Wednesday were large revisions to consumer spending. The government said Wednesday that private consumption grew at an annual rate of just 0.9 percent - compared with an initial estimate of 3.7 percent. Other recent data has shown that the incomes of most workers were unchanged or have fallen slightly compared with last year, while employment conditions have deteriorated. Despite the new numbers, Japanese policy makers said that the recovery would continue, if at a slower pace than earlier in the year. 'The economy is going through a small adjustment while staying on an expansionary trend, and we won't change the view with today's numbers,' Heizo Takenaka, economic and fiscal policy minister, told reporters, according to Bloomberg News. Japan's economic data has been notoriously prone to corrections. It is not unusual for the government to reverse itself on positive growth figures and later say that the economy shrank. Aiming to eliminate those surprises, the government changed the way it measures economic growth and adopted a calculation, similar to one used in the United States, that more accurately gauges the impact of large price falls in things like electronic gadgets. Those items have consistently dropped in price in recent years. Although there is no doubt that prices over all have been falling for years in Japan, the old G.D.P. calculation tended to overstate the pace of the decline. The growth figure that economists and investors focus on is so-called real G.D.P., or growth after accounting for changes in the prices of goods and services. Normally, the rate of inflation is subtracted from nominal growth to get real growth. But when prices are falling, deflation is added to nominal growth to come up with real growth. Therefore, under Japan's old method which overstated deflation, real G.D.P. also tended to be overstated. Although many economists say the new calculation should produce more accurate figures, the frequent revisions to past figures have cast doubt on the latest figures. 'The revisions have become a joke,' Richard Jerram, an economist for Macquarie Securities wrote in a note to clients. 'The release does not help to resolve the question of how much growth has slowed. Japanese G.D.P. is such a rapidly moving target it is hard to make a sensible comment on the latest version of history, as it is likely to change repeatedly in the future.'

Subject: Are Home Prices the Next 'Bubble'? From: Terri To: All Date Posted: Thurs, Dec 09, 2004 at 16:40:20 (EST) Email Address: Not Provided Message: http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.html Are Home Prices the Next 'Bubble'? Authors: Jonathan McCarthy, Richard W. Peach - New York Federal Reserve Bank The strong rise in home prices since the mid-1990s has raised concerns over a possible bubble in the housing market and the effect of a sharp price decline on the U.S. economy. This article assesses two measures frequently cited to support a bubble—the rising price-to-income ratio and the declining rent-to-price ratio—and finds the measures to be flawed and the conclusions drawn from them unpersuasive. In particular, the measures do not fully account for the effects of declining nominal mortgage interest rates and fail to use appropriate home price indexes. The authors also estimate a structural model of the housing market and find that aggregate prices are not inconsistent with long-run demand fundamentals. Accordingly, they conclude that market fundamentals are strong enough to explain the recent path of home prices and that no bubble exists. Nevertheless, weakening fundamentals could have an impact on home values on the east and west coasts, where the new housing supply appears to be relatively inelastic. However, prices in these regions have typically been volatile, and previous declines have not had a sizable negative effect on the overall economy.

Subject: Re: Are Home Prices the Next 'Bubble'? From: Setanta To: Terri Date Posted: Fri, Dec 10, 2004 at 07:42:14 (EST) Email Address: Not Provided Message: they look like they are, but hopefully they're not!!! the house price inflation in ireland and the US are very similar. it is derived from cheap credit. good economic management dictates that the punchbowl is taken away when the party livens up. the problem is that this party is being charged to visa. i fear a horrendous hangover and a massive bill on the way. thats not even accounting for the spectre of negative equity.

Subject: Re: Are Home Prices the Next 'Bubble'? From: Terri To: Setanta Date Posted: Fri, Dec 10, 2004 at 11:01:01 (EST) Email Address: Not Provided Message: 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.

Subject: Re: Are Home Prices the Next 'Bubble'? From: Setanta To: Terri Date Posted: Fri, Dec 10, 2004 at 11:37:42 (EST) Email Address: Not Provided Message: i agree, its not asset prices that should be regulated but the availability of credit. over here there are prudent regulations for mortgage lending, a mortgage should be less than 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? 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: The revolution will be Tesco-ised From: Setanta To: All Date Posted: Thurs, Dec 09, 2004 at 12:05:45 (EST) Email Address: Not Provided Message: The revolution will be Tesco-ised What is the cheapest petrol station in Ireland? Texaco, Esso, Maxol or Statoil? What shop was the biggest seller of computers in the past six weeks in the country? PC World, Compustore or Dixons? What bank provides the lowest interest rate for credit cards? AIB, Bank of Ireland, Ulster Bank or NIB? What insurance company sells the cheapest life assurance? Irish Life, Hibernian or New Ireland? What bank provides the best value in fixed interest personal loans? AIB, Bank of Scotland, ACC or PermanentTSB? Wrong on all counts. The answer to all five questions is Tesco. The supermarket, famed for its fruit and veg, sells the cheapest petrol, the most computers and the best value finance in the country. Clearly, there is a revolution going on in retailing and Tesco is leading the charge. In the past, a garage sold petrol, a computer shop sold computers and a bank sold money. Not anymore. Everything is turned on its head and when this revolution is complete, Irish main streets from Kilkenny (the irish hamptons!) to Kilibegs (rural village) will look very different. It is impossible to tell who will eventually emerge as the winners but present trends suggest that both the large multiples like Tesco and the small convenience stores like Spar are now ahead of the pack. Last Tuesday, Tesco UK, the parent company, released spectacular profit forecasts. These numbers (which include its Irish operations) reveal an extraordinary insight into the way we shop these days. First, Tesco is so far ahead of its rivals that the game appears over. It will make close to e3 billion this year thanks, in part, to selling truckloads of school uniforms, DVDs, newspapers and magazines. Tesco appears to have hit the retailing G-spot and managed to convince its fruit and veg buyers to also buy computers, petrol and credit cards as well. Its share price has risen in tandem and while some of its competitors languish, it is powering ahead. Why is this happening? Tesco has tapped into a profound structural change in our society. The way we shop reveals much about who we are. The growth of Tesco can be directly related to the demands of its new consumers and the laziness of its competitors. In the past few years, ``convenience'' has become the watchword for Irish shoppers. We have seen the explosion of Spars and Centras and the emergence of the Tescos of this world. The main losers have been small semi-urban or suburban supermarkets. Once again, this can be explained by demographics. Ireland is undergoing an enormous social change, unparalleled in any European country since the Industrial Revolution, which saw 30 per cent of the population moving from the land to the factory with enormous social and political consequences. In Britain, this occurred over sixty years between 1800 and 1860.Between 1990 and 2001 - a period of just eleven years - the percentage of Irish women working increased from 30 per cent to 48 per cent. This is an enormous change: the number of women working increased by close to 60 per cent in little more than a decade. It is mainly women under the age of 40 who have switched from the kitchen to the office. So we have experienced an industrial revolution style demographic shift in less than one fifth of the time and Irishwomen are swapping kitchen for office at a rate quicker than anywhere else in Europe with profound ramifications. Let's focus on the Tesco-isation of the suburbs (which is but one manifestation among many others). Despite the social revolution, Irish women (rather than men) still make all the pivotal decisions about who eats what at home and the missus continues to do the shopping. The difference today is that the missus has also put in a 50-hour week outside the home and - due to our mini population boom evidenced in the last census - she is probably picking up two kids from the creche on the way home. Of the 250,000 or so women who have joined the workforce since 1990, there are roughly two types: the singletons that live in apartments in our cities and towns and those young mothers who have migrated to the suburbs. While the twentysomethings are opting for convenience stores like Spars and Centras, the ``Tesco Thirtysomethings'' are fast becoming the dominant force in retailing. The retailer who understands the desires of the ``Spar Generation'' and the ``Tesco Thirtysomethings'' will be the big winner in the next few years. Tesco has been very smart in cultivating its thirtysomethings. The company has gradually extended its brand into computers and bank loans. In Britain, Tesco has an online legal store selling DIY Separation and Divorce Kits, special offer at €7.49, House Buying, Selling and Conveyancing Kits for €11.95 and ``triple club-card points'' with its €9.99 Last Will and Testament Kits. Pick up a bottle of wine; draft a power of attorney. It is likely to continue selling other goods such as mobile phones and maybe ultimately cars for the same reason it sells petrol. It has a captive audience and this audience already has her hand in her purse when she arrives at Tesco, so why not max out on the credit card a bit more? The question for many is where will this end and what will our cities and our suburbs look like in 2014. A few years ago Alan Greenspan stated that because of its impact on general inflation, the low prices of Wal-Mart accounted for 1 per cent of total US productivity. This may be great news for economists, but the colonisation of our suburbs by Wal-Mart fills many with dread. The government has already said that it's against granting planning permission to out-of-town hyperstores (one wonders is this because so many local councillors are also shopkeepers) but many are rightly sceptical. The pattern of our population growth, particularly in Leinster, makes a mockery of this idea that the state wants to see small family run shops in provincial towns protected from hyperstores. If this were the case why preside over the suburbanisation of the entire east coast from Gorey to Drogheda? You cannot create urban sprawl with its car dependent consumers and pretend to be the friend of the small family-run supermarket in the local town. It doesn't work like that. Ultimately, the hyperstores will get their way. Ironically, the one fact that might retard this development is the brand loyalty of Irish consumers. In your average British supermarket, 50 per cent of the goods are own brand. For example, Tesco orange juice or Marks and Spencer's knickers and bras. In Ireland, we are reticent to embrace ``own brand'' goods and, despite their best efforts, the large multiples can only get us to spend 35 per cent of our income on own brand stuff. If Tesco can provide the best value in banking, insurance, petrol, computers and school uniforms and is prepared to open 24 hours a day, what is to stop it selling cars, mobiles and kitchens? The retail revolution has begun and the battleground is for the purses of the Tesco thirtysomethings. By the time they are panicking over the caterers at their 40th birthday party (which is incidentally the new 21st), it will be interesting to see where they will buy their champagne - the local wine shop or Tesco? Viva la revolucion!

Subject: Re: The revolution will be Tesco-ised From: Emma To: Setanta Date Posted: Thurs, Dec 09, 2004 at 15:43:23 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06walbritain.html Britain: Success With a Supercenter, But the Encores May Be Limited By HEATHER TIMMONS LONDON, Britain Wal-Mart's operations in Britain have been one of the company's most rousing international success stories, but the options for growth here are shrinking. Wal-Mart bought the British supermarket chain Asda in 1999 and quickly began outperforming the competition by applying more efficient supply-chain economics and by stripping costs out of the stores. Profits doubled in three years, and continue to rise. Last year, sales grew 9.8 percent, to £13.1 billion ($25.5 billion at the current exchange rates). But expansion options are limited in some cases by Britain's tough Competition Commission. Last year, Wal-Mart tried to buy the British supermarket chain Safeway, but was rebuffed by regulators who argued that the company already controlled enough of the market. Building stores is more difficult in Britain - as in most of Europe - than in the United States, because of more stringent zoning and planning regulations. Still, there is room to grow in the nonfood area. Last year, Asda opened its first Asda Wal-Mart Supercentre, which sells food, clothing and home products, much like the Wal-Mart supercenters in the United States. The company reconfigured a Wal-Mart site by adding a mezzanine. Sales have been so good that the company plans to open six more of the stores in Britain. 'The first store is very, very impressive,' said Bryan Roberts, an analyst at M&M Planet Retail in London. 'Performance is ahead of expectations.' Wal-Mart has also opened six stand-alone George shops, which sell the company's low-price George clothing line. But if Britain, where Wal-Mart has 272 stores, is the company's success story, Germany, where it has 92 stores, remains its Achilles' heel. The company promises that the German business will break even this year, but, Mr. Roberts said, 'They've said they were going to break even every year for the past five, and haven't.' The wrong acquisitions, stringent union demands and government-regulated shopping hours have held down the company sales in Germany. Disappointments there have taught Wal-Mart valuable lessons, Mr. Roberts said, including the importance of 'having local management, and keeping Wal-Mart behind the scenes.' Wal-Mart has made little secret of its desire to expand into the rest of Europe, particularly into France or Italy, but has so far been unable to cement a deal.

Subject: Re: The revolution will be Tesco-ised From: Terri To: Emma Date Posted: Thurs, Dec 09, 2004 at 19:37:12 (EST) Email Address: Not Provided Message: Setanta The posts are each worth reading several times. How nice to have a perspective much beyond our own. You are a gem.

Subject: Hedge Funds and Us - a From: Emma To: All Date Posted: Thurs, Dec 09, 2004 at 11:43:17 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/09/business/09scene.html?pagewanted=all&position= Hedge Funds Better at Managing Data Than Managing Money By ALAN B. KRUEGER HEDGE funds have grown at supersonic speed. In 1990, about $50 billion was invested in hedge funds; today, the amount is estimated at $1 trillion. Does superior performance explain the rapid growth? No, says Burton G. Malkiel, a professor of economics at Princeton University, and Atanu Saha, a managing principal at the Analysis Group, a consulting firm. The researchers recently completed a study that challenges the often-made claim that hedge funds, in general, produce lofty returns. Hedge funds are a diverse set of investment funds that typically cater to wealthy clients and institutions. The funds pursue various strategies, like holding both long and short positions, and often employ substantial leverage. Their fees are usually much higher than those charged by mutual funds or other financial assets. Data on the performance of hedge funds comes from indexes like the CSFB/Tremont Index or the Van Hedge Fund Index. Those indexes are generated by companies that advise investors and operate funds. 'Hedge funds in aggregate,' Van Hedge Fund Advisors boasts on its Web site, 'in most multiyear periods, have provided both superior returns and lower statistical risk than the S.& P. 500 or mutual funds.' The catch, according to Professor Malkiel, is that the information on performance is voluntarily provided to the organizations who track the funds. Because a good record helps attract investors, funds have a tendency to start reporting results only after they have achieved some success. Funds that are losers right out of the gate may never be represented in the database. Furthermore, when funds start reporting, they have the option of 'backfilling' their data, or providing information on returns for previous months. If a fund was successful in preceding months, it has an incentive to backfill its data to increase its attractiveness to investors. This process creates a 'backfill bias,' because better results are overrepresented in the database. It is as if the Boston Red Sox waited until 2004 to report their World Series success, while the Yankees started in 1923; both franchises would look like smashing successes.

Subject: Hedge Funds and Us - b From: Emma To: Emma Date Posted: Thurs, Dec 09, 2004 at 11:43:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/09/business/09scene.html?pagewanted=all&position= By analyzing statistics from TASS Research, which is owned by Tremont Capital and has perhaps the most comprehensive data on returns, Mr. Malkiel and Mr. Saha have shown that the backfill bias is substantial. The returns that were backfilled for a given year were 5.8 percentage points higher than the returns of other funds whose results were contemporaneously reported for that year. 'I think there are a lot of people in the financial community who have a vested interest in showing only those pieces of data that help them sell products,' said Professor Malkiel, who is also a director for the Vanguard Group. Another problem he noted, called survivor bias, is a tendency for funds to stop reporting their monthly returns when they suffer losses and are on the verge of closing. Long-Term Capital Management, for example, did not report its losses to any of the database services from October 1997 to October 1998, a period when it lost 92 percent of its capital. (Long-Term Capital never reported to the TASS database.) Looking only at the past returns of hedge funds that are in existence today - that is, the surviving funds - it does appear as if hedge funds do produce generous returns. But this is tantamount to judging the success of a war by ignoring all the casualties. Mr. Malkiel and Mr. Saha have found that the funds that cease reporting their data, so-called dead funds, tend to have weak returns in the months before they cease reporting. The average annual return for dead funds was 7.4 percentage points less than that of surviving funds for the same years. And hedge funds have a tendency to die - more than 10 percent stop reporting to the database each year. Although it is possible that some of these funds withdrew because they were so successful that they no longer desired further investors, the researchers found that smaller and underperforming funds were the most likely to cease reporting - not a profile of successful funds that were turning away business. Using data from 1996 to 2003, Mr. Malkiel and Mr. Saha found that correcting for backfill and survivor biases reduced the average annual return on hedge funds, after deducting fees, from 13.5 percent to, at most, 9.7 percent, which is almost three percentage points less than the return on the Standard & Poor's 500-stock index for that time period. The lower return could be justified if hedge funds helped to diversify portfolios by providing an investment that did not move in lock step with other investments, and the researchers did find that hedge funds do not move closely with the stock market over time. Yet they also found that choosing a particular hedge fund entailed considerable risk because the funds exhibited enormous variability in performance in any given year. The best funds perform extraordinarily well, but the worst ones perform extremely poorly, with the spread between the best and worst greatly exceeding the spread between the best and worst equity or bond funds in a typical year. 'Clearly, there is a risk in investing in hedge funds that is far greater than the risk of investing in the other asset classes,' the researchers said. Even the so-called fund of funds hedge funds, which try to diversify risks by investing in other hedge funds, display nearly as much variability in performance across funds in a given year as is exhibited across the entire universe of mutual funds. Moreover, from 1995 to 2003, the average fund of funds yielded only a 7 percent annual rate of return after deducting fees, well below that of the average mutual fund. Picking a good fund is also dicey because there is little persistence in performance from one year to the next. The chance that a hedge fund that performed in the top half of the universe of funds in one year would do so again the following year is no better than 50-50, which raises the question of how the funds can command such high fees. Most hedge funds will be required to register and provide data to the Securities and Exchange Commission beginning in February 2006. While some people have argued that the S.E.C. already has too much to do, it would seem that collecting and disclosing information on performance is a small burden for the commission, and a great potential benefit to investors. 'As a free market person, I think markets work better when there is fuller and more accurate information,' Mr. Malkiel said.

Subject: Investing Ideas? From: Jennifer To: All Date Posted: Thurs, Dec 09, 2004 at 07:14:49 (EST) Email Address: Not Provided Message: We are about to begin a new year. What sort of plans might be made about investing? This year has been quite successful, but there is much concern about our economic soundness. What ideas are there for investing and protecting our retirement portfolios in these circumstances?

Subject: Re: Investing Ideas? From: Institutional Investor To: Jennifer Date Posted: Thurs, Dec 09, 2004 at 11:21:57 (EST) Email Address: Not Provided Message: First recommendation would be to rebalance your portfolio to your target asset allocation. If you don't have a target allocation, determine what an appropriate one would be, or seek a financial planner to help determine one. My main advice is to not try and time the market and guess what is going to perform the best over the next year. Maybe the following quotes will give you reassurance not to guess what to invest in. Peter Lynch: “My single-most important piece of investment advice is to ignore the short-term fluctuations of the market. From one year to the next, the stock market is a coin flip. It can go up or down. The real money in stocks is made in the third, fourth and fifth year of your investments, because you are participating in a company’s earnings which grow over time.” Warren Buffet: “I do not have, never had, and never will have an opinion where the stock market will be a year from now.” Sir John Templeton: “Ignore fluctuations. Do not try to out-guess the stock market. Buy a quality portfolio and invest for the long-term.”

Subject: Re: Investing Ideas? From: Terri To: Institutional Investor Date Posted: Thurs, Dec 09, 2004 at 16:21:26 (EST) Email Address: Not Provided Message: Worth-the-while advice, and I am content with what I own but always look to what is attractively priced for new purchases even though you are leary of such timing. Health care interests me just now, for instance.

Subject: Re: Investing Ideas? From: jimsum To: Terri Date Posted: Thurs, Dec 09, 2004 at 22:01:26 (EST) Email Address: jim.summers@rogers.com Message: I try to out-think the market too, but I only fool around with a small portion of my portfolio. It's a thrill, just like gambling, when you guess right; it's the only fun I'm going to have with that money until I spend it in retirement.

Subject: Gold in them there streets From: Setanta To: All Date Posted: Thurs, Dec 09, 2004 at 06:10:40 (EST) Email Address: Not Provided Message: Gold in them there streets The demise of Bewley's illustrates the influence that land is having on business culture in Ireland. You may have read elsewhere that the first gold was discovered in California in 1848, but the big gold rush didn't happen until 1849. The rush was triggered by President James Polk mentioning the discovery in an off hand way during his State of the Union address. The prospectors (and, years later, San Francisco's NFL team) came to be known as the 49ers rather than the 48ers,whichwould have been technically more correct. The long delay between the first discovery at Sutter's farm in January 1848 and the State of the Union address in 1849 was the main impetus behind the world's first telecommunications revolution. In 1849, the Western Union Company was founded and, within a decade, most of the US was wired for telegraphy, driven by greed for immediate news of the next big gold discovery. It is estimated that 15,000 Irishmen who arrived by famine ship made their way across the US in the winter of 18481849 to prospect for gold. By 1853, the Irish had been joined by over 100,000 others, including 25,000 French and 10,000 Chinese. The entire structure of San Francisco changed dramatically, and so was born theAmerican Dream,where anyone can strike gold. (A modern version of the same dream was repackaged and successfully sold to the American electorate by George W Bush last week.) However, the story of the original Mr Sutter, whose discovery of gold in the Klondike River sparked off the whole gold rush, is an interesting and cautionary one. Johann Sutter was born in Switzerland in 1803. He was a decent enough fellow, but with a weakness for bad debts. Hounded by creditors he headed off to the US in 1834. After moving from place to place, he finally bought land in the SacramentoValley in 1838. He named his domain New Helvetia, and formalised his plot by becoming a Mexican citizen. He managed New Helvetia as a small empire with impeccably dressed servants. By 1846, there were 60 buildings inNewHelvetia, including a bakery, barracks, tanning factory, 10,000 sheep and land producing 40, 000 bushels of wheat. In his memoirs, Sutter laments that 'my best days were before the gold''. In 1847, Sutter decided to build a sawmill so that he could log the surrounding wooded valleys and sell on the timber to Yerba Buena, as San Francisco was still known at the time. On January 24, 1848, his mechanic on the sawmill project - aman namedMarshall - came to his office and told himto close the door. Marshall emptied two ounces of gold from his pockets. Sutter, realising what would happen, told his workmen tokeep it a secret until the sawmill and another flourmill he was building were finished. They managed to keep the lid on things for a few months but then, on May 4, the secret was out in San Francisco.Within weeks, the surrounding area went bonkers. The recently-opened school in San Francisco had to shut because its teachers and pupils alike headed straight for the mines. Here iswhat Sutter himself had to say: 'All my plans came to naught.One after another, all my people left for the gold mines. Only the sick and crippled were left.' The mill was never finished as all other productive business got trampled in the face of the gold rush. Fast-forward to Ireland in 2004, and it is clear that we are in the grip of a frenzy much like a gold rush.Land has replaced gold, but as Led Zeppelin would put it, the song remains the same. Quite apart from the social dislocation arising from astronomical land prices, a real problem for our society is that somuch ofour cash and debts are being funnelled into this most unproductive and speculationprone of assets. The dilemma for a society that allows itself to be swept up in speculation fever is the pernicious impact that 'frenzy greed'' has on all other business. Instead of building a long-term business with customers, branding, employees and cashflow, the lure of the easy money in land or gold speculation is far too attractive. In Ireland,we are experiencing the dilemma faced by Sutter in California. In 1849, all the best brains, brawn and capital got sucked into prospecting as thousands chased the jackpot dream, while real enterprises such as New Helvetia - with bakeries, tanneries and mills - got elbowed out. This is because those real businesses were judged, not against benchmarks such as profitability, robustness and market share, but rather against the absurd capital gain promised in gold.The subtext really was that if you weren't into gold in some way,you were a bit of an eejit. Similarly, in modern Ireland the same type of mentality applies: if you are in businesses other than land, many regard you as a bit of a simpleton. Land is, after all, where the action is. Take Bewley's last week. Bewley's is a premier brand. It is a name that immediately says something to all of us, yet it is now no more.Why? The experts tell me that there are a number of trends it was slow to pick up, such as coffee-to-go. Moreover, the cafe market is one of the most competitive areas around. But it was land that really killed Bewley's.The crucial transaction that sank Bewley's had nothing to do with coffee, tea, sticky buns or lunches served.The core of the Bewley's problem was a sale and leaseback agreement reached between the owners and a land developer. The developer bought the freehold Grafton Street building from the owner for a huge sum, and the owner, in return, entered into a leaseback arrangement with the developer at an astronomical rent. It was rent, not bad coffee, that torpedoed Bewley's. So what is going on here? The owners of Bewley's got caught up in land fever. They knew they were sitting on a goldmine, and the sale and leaseback arrangement seemed to be a way of cashing in on this goldmine,while at the same time retaining their business. In this deal, the dominant influences were land, the re-rating of the land, and the urge to cash in. It had nothing to do with running the business of selling coffee. In the process, the owner of Bewley's changed frombeing a caterer intobeing a land prospector. Commonplace speculative land windfalls are dominating business thinking, to the detriment of real, lasting business. Last year, the Killiney Court Hotel was demolished for apartments, not because it couldn't hack it as a hotel, but because itmademore financial sense for the owners to sell the land to a developer. Like Bewley's, another Dublin landmark has gone. Obviously, in both cases, no one can blame the owners for doing what they did, in the same way as no one could blame the 49er teachers in San Francisco's schools for swapping basic maths for basic mining.However, the collective consequences of these individual actions are disturbing. In societal terms, what does this lead to? First, aweird balance of wealth in society where there has been a massive transfer of wealth fromworkers, employees and entrepreneurs to landlords. Secondly, we will have a banking system totally overexposed to one asset: land. Thirdly,only projects backed by land will get financed. So entrepreneurial ideas that have nothing to do with this new gold will be starved of seed capital. Also, like the oil lobby inTexas or the gold lobby in South Africa, the landlord lobby will become even more influential in politics. After the gold rush of 1849, at least the States was left with an impressive telegraph system, the name of a gridiron team and the enduring myth of the American dream. After the Irish land rush,what will we be left with?

Subject: Re: Gold in them there streets From: Jennifer To: Setanta Date Posted: Thurs, Dec 09, 2004 at 07:17:05 (EST) Email Address: Not Provided Message: Nice. What conservative investing thoughts do you have for the new year? Irish land :) What else?

Subject: Re: Gold in them there streets From: Se To: Jennifer Date Posted: Thurs, Dec 09, 2004 at 07:26:12 (EST) Email Address: Not Provided Message:

Subject: Re: Gold in them there streets From: Setanta To: Se Date Posted: Thurs, Dec 09, 2004 at 07:39:16 (EST) Email Address: Not Provided Message: Oops, co-ordination not so great today!!!! Jennifer, i put in a bid for a house for Eur550k, on one level i think the price is good for the area, size and condition and on the other hand the thought 'what the hell am i thinking, half a million euros for a house??????? closer to Eur600k when you factor in legal fees, stamp duty and putting furniture in!!!!' as i mentioned in an earlier post, there is a culture of owning your own house in ireland, even in the dublin city where property is expensive. it dates back to when ireland was in the british empire and there was a ban on irish catholics owning land. since then we've been buying land like there will be none tomorrow! i heard an interesting remark in a rugby lockerroom on monday about how the irish are among the biggest buyers and investers in property in the UK and the continent, one lad turned to an english player on the team and said 'sure we built the country (UK), isn't it right that we own half of it now!!!'

Subject: Re: Gold in them there streets From: Jennifer To: Setanta Date Posted: Thurs, Dec 09, 2004 at 10:47:30 (EST) Email Address: Not Provided Message: Buying a house makes perfect sense to me, buying real property makes sense as long as there is an expectation that the mortgage can be covered. Time bears out the value of property investing, with any eye to location. What you are teaching us about Ireland is increasingly interesting. I have always loved Irish literature, and it is time to learn much more.

Subject: Arab world seeks past glory From: Setanta To: All Date Posted: Thurs, Dec 09, 2004 at 05:12:30 (EST) Email Address: Not Provided Message: Arab world seeks past glory Among all the many splendours of Andalucia, the finest has to be the Alhambra in Granada. Sultan Muhammad V built the palace in 1350, when the Islamic state in southern Spain was at its height. The intricate carvings demonstrate superb craftsmanship. The gardens, with their extraordinary variety of plants, added to the use of light and space in the palace itself, point to an advanced understanding of botany and architecture. In the 14th century, this was the most advanced civilisation on the European continent, and by far the most prominent intellectual centre of learning. The Caliphate of Cordoba presided over the third most powerful area in the Arab world, after Baghdad and Istanbul. Al-Andalus, as the Arabs called the region, boasted an amazing array of economic, technological, astrological and scientific achievements. Its cartographers devised the maps that allowed Columbus to cross the Atlantic, while its astronomers were the pioneers whose understanding of tides, winds and navigation, made the Portuguese discoveries of the early 15th century possible. Yet by 1500, this civilisation, which had flourished for six hundred years, had disappeared, its intellectuals tortured on the racks of Torquemada's inquisition and its armies pushed back to north Africa. However, its legacy remains in our language. In mathematics, algebra comes from the Arabic al-Jahr and algorithm from al-Khawarizmi. Modern alchemy stems from the Islamic al-kimiya and alcohol from the original al-kohl. Many astronomical terms and star names are directly derived from Arabic, while the modern concept of risk and hazard comes from the original Arabic name for dice: al-zahr. Along with many foods that were introduced to our culture by the Arabs - such as sugar, rice and coffee - many engineering terms, such as cable (from the Arabic, habl) have their origins in the great infrastructure projects undertaken by the Arabs at a time when most Europeans were still living in hovels or dank, dark castles. During the Dark Ages, Islam was Europe's teacher. So what happened to the Arabs? From being Europe's most advanced and commercially rich civilisation, the Arab world appears to have gone into sharp reverse, both financially and otherwise. In recent years, things have got substantially worse. For example, in the 1990s, the Arab region grew at only half the rate of other developing countries. Its share of global trade shrank from3 per cent in 1990 to 1 per cent in 2000.Today, 37 per cent of all Arabs are illiterate, and, despite having the world's second-fastest population growth per year (the fastest growth is in sub-Saharan Africa),most Arab states give cash incentives and awards for women to have many children. In Saudi Arabia, women are not even allowed to drive, and can only leave the country with the expressed permission of their closest male relative. Female unemployment in that country is running at 95 per cent. Such economic suppression of women is an extraordinary waste of economic resources. This is having a clear negative impact on economic growth. Without growth, unemployment rises across the board and today young male unemployment is running above 30 per cent. This decline can be explained by two things: religion and oil. In contrast to Christianity, which shifted away from dogma during the Middle Ages, culminating in the Reformation, the split between the religious and the secular did not occur in Islam. Theocracy became the political model of choice in Arab countries. History, in Ireland and elsewhere, shows that theocracy - where the religious dominates the secular - is among the most economically regressive forms of government. Without questioning, irreverence and scepticism, there can be no experiment, discovery or progress. Hundreds of years of theocracy have stultified Arab economies, whether under the Ottoman Empire or since independence. The inability of independence to stop the rot appears to have compounded Islamic frustration. This long, inexorable economic decline occurred while the memory of the Islamic 'golden age'' remained in the arts, literature and architecture, aggravating the disappointment many Arabs feel today towards their own system and against the West. So when someone such as Osama bin Laden invokes the 'golden age'' and speaks of an Arabic Iberia, he is tapping deep into the Arab psyche, Arab history and stoking a sense of Arab indignation. Added to the deleterious impact of theocracy is the oil factor. It may seem somewhat counterintuitive to argue that the Arabs would have been better off without oil, but it might well be the case. Today, expensive oil (at $53 a barrel), far from being the Arabs' source of wealth, is the source of their poverty. One of the worst things that ever happened to the Arab world was for it to be situated on top of the globe's biggest oil well. Time and again, economic history links the discovery of vast mineral resources to weakening the political, economic and social structure of a country, destabilising the political system and corrupting the economy. Conventional theories argue that a country finds oil, extracts it and the revenue flows into the country's coffers. These revenues are then spent on improving the education and wealth of the people, benefiting everyone. In reality (with perhaps a few exceptions, such as Norway), oil discoveries have led most countries to a litany of woes. There are two main reasons for this. First, the discovery of oil occurs in many countries lacking strong institutions of state, and a fragile state finds itself corrupted by oil wealth rather than profiting from it. We have innumerable examples of this, from Saudi Arabia and Nigeria to Venezuela, Indonesia and Russia. Second, oil wealth attracts unwanted attention from big powers such as the US, France and Britain, leading to governments being supported just to keep the oil in private hands, or nationalised, or whatever the vogue of the master happens to be. Take Saudi Arabia - a family business masquerading as a country. It only exists because of oil. Everyone owes his position to the black gold: the sheikhs of the al-Saud family, their cronies, the trumped-up bullying army and the gloriously grandiose courtiers have all rigged the system to get their hands on mineral wealth. If it is not the wealth itself, it is the licence to extract the wealth. Everything, down to the smallest detail, is corrupted by the existence of mineral wealth and greed. The entire fabric of the economy - and many of those economies around it - is jaundiced by the desire to get close to the easy money just beneath the ground. Instead of oil making the country rich, it actually makes the country poor. Corruption is rife. The government skews all activity and laws towards the oil industry. The productive marrow of the country is hollowed out by the desperate gold rush. Nobody is anybody unless they are touched by the oil. More insidiously, hard work and trade are typically replaced by the lure of the quick buck. This, more than anything else, cripples the country. Trade, innovation, saving and hard work are the things that make countries rich. Political irreverence (as opposed to sycophancy) helps, as does being surrounded by reasonably civilised neighbours - one of the most important lessons from economic history is to avoid war at all costs. But the existence of oil or gas makes this orderly advance to general prosperity less likely. The middle classes tend to grab the asset, forge alliances and keep others away from the stuff. They then sit on their laurels and learn to spend, rather than save. How else do we explain the ongoing current account deficits in Saudi Arabia? Hard work is replaced by rent-seeking, which is a bit like a large game of beggar-thy neighbour that one section of a society plays with others. With so much economic power vested in those who have the oil, we traditionally see the emergence of a class of political yes-men whose economic fortunes are dependent on ass-kissing and political subservience to the boss. The existence of the oil renders the entire system unstable, because someone is always trying to get their grubby hands on the stuff, whether through coups, invasions, or arbitrary changes to property rights and laws. Hitting a gusher implies that, sooner rather than later, a country will stop thinking, stifling innovation to the detriment of most of the citizens. Given the existence of enormously wealthy elites ruling millions of semi-literate, unemployed subjects, it is not surprising that income disparities are huge. A political vacuum is emerging, and fundamentalism is filling it. For Arabs to prosper and recapture the glory of the Alhambra, they need a reformation in Islam and the wells to run dry. On both counts, don't hold your breath. www.davidmcwilliams.ie

Subject: Re: Arab world seeks past glory From: Raf To: Setanta Date Posted: Thurs, Dec 09, 2004 at 12:45:53 (EST) Email Address: rafiq1010@hotmail.com Message: Fantastic article!! Raf

Subject: The truth behind the Irish boom From: Setanta To: All Date Posted: Thurs, Dec 09, 2004 at 04:51:49 (EST) Email Address: Not Provided Message: Truth about the Celtic Tiger Over the years, many Irish politicians, industrialists and public servants have tried, under various guises, to take credit for the Celtic Tiger. They argued that, without their unique impact, we would still be in the economic dark ages. But the person who is really responsible doesn't even speak English. Dieter Niemann is in his late 30s.He lives in Cottbus in the province of Brandenburg, in what was once the German Democratic Republic. He has found it difficult to keep a steady job in recent years, which means his wife, Hannelore, has to go to Berlin to work so that Dieter junior is provided for. But 15 years ago last Thursday, Niemann opened the Berlin Wall. As a 23-year-old conscript border guard, he misheard an order and, instead of looking for passes, lifted the barrier and more or less said to his fellow countrymen: 'Off you go.' Ireland's economic renaissance began that night. While Helmut Kohl was talking about blooming landscapes in the east, about 1,000 miles to the west, the real beneficiaries looked on bemused. We knew it was a momentous night, but we had no idea it would presage a huge windfall for Ireland. Indeed, all the comment at the time suggested that Germany and everything to the east would be the winners. It didn't quite work out like that. When the Berlin Wall fell, so too did the post-war balance in Europe. The status quo had been based on a prosperous but divided Germany, anchored diplomatically to France via an intricate web of treaties and agreements. This relationship was at the core of the EEC, the EC and then the EU. The arrangement saw Germany, 'an economic giant but apolitical pygmy'' (to borrow Willy Brandt's phrase),wedded to France, with the French wielding most of the political power. As a consequence, most big European initiatives had a French 'grand project' feel about them. The French recognised the ramifications of German unification first and, faced with the risk that a unified Germany would do its own thing, immediately sought to tether the new united Germany to Europe. The euro was the French mechanism. The French reckoned that if they could anchor the Germans into the French sphere of influence by depriving them of their currency, they would have fewer explicit monetary ambitions in the east. The Germans obliged. Unknown to us, this was the first in a series of victories for the Irish. Since 1979,we tried to pretend the punt was as good as a German mark and tied ourselves to the German currency via the European Monetary System. However, nobody believed the claim and the resulting risk premium ensured Irish interest rates were always 5 or 6 per cent above German rates. This meant any borrowing in Ireland would be at crippling interest rates and, unsurprisingly, private investment in Ireland from1979 to 1989 was never enough to curb the rise in unemployment. Although the euro was conceived by Jacques Delors in 1989, it did not take off properly until 1995. In the interim, the Germans handed us another victory. In 1990, the German economy performed as if it were on steroids, growing rapidly and spending enormously in an effort to integrate the former communist regime. Despite this, Irish policymakers continued in the make-believe world that the punt should appreciate with the German mark. The sensible thing to do would have been to devalue against the Germans. But we couldn't entertain that, not with the presidency of the EU in 1990 - a devaluation would be neither sporting nor patriotic. The thinly-disguised monetary machismo of trying to keep up with the mark led us to follow the German currency on the rollercoaster ride that followed reunification. As the mark soared, we tried to hang onto its coat-tails. Worse still, when the British moved sterling into the European Monetary System, we were like a jockey trying to ride two horses: sterling - where we did most of our trade - and the mark, which paid most of our bills. After sterling fell out of bed in autumn 1992, the markets focused on the punt. Within days, the Irish rate of interest was up to 100 per cent. Instead of managing a dilemma, we found ourselves futilely firefighting a crisis. The Central Bank blew the country's foreign reserves and threw in the towel in January 1993. Although it was seen in official circles as a national humiliation, the 1993 devaluation was a godsend. The devalued exchange rate allowed Irish exporters to compete for the first time in years and exports began to soar. Interest rates fell from100 per cent to 9 per cent in four weeks and domestic investment started to stir. As the 1990s progressed, things in Germany were not going according to plan. Eastern Germany remained comatose and the west - so long the watchword for all economic miracles - began to look fallible. Unemployment and taxes rose to pay for the wasteland in the east. In response, Germany cut its interest rates rapidly, but the heavily-indebted unified state, the shell-shocked easterners and the wealthy but old West Germans failed to respond. So in the late 1990s,Germany was left with billions of cheap euros looking for a home. Who would borrow all this cash? Paddy obliged. Ireland, so long a country with too many people and not enough money, became, almost overnight, a country with far too much money and not enough people. Money and immigrants flowed in. This magic combination pushed the economy forward like never before. The money came from Germany. Old German savers continue to lend money to young Irish consumers. The greatest irony of all this is that there are more BMWs per head in Dublin than in Munich, the home of the car giant. So the European Monetary Union allows Gunther to lend money to Paddy, so that Paddy can buy the cars Gunther made in the first place. Quite a good deal for Gunther, don't you think? Low interest rates alone would not have sparked the economy. There had to be something else - people. The fall of the Berlin Wall opened up huge emigration opportunities for eastern Europeans and they have come to Ireland in their thousands. Immigration has driven the productivity of this economy in every sector from software and restaurants to construction and farming. Without these people, the economy would have stalled and prices would be even higher than they are now. There may be a cautionary immigration lesson here, also courtesy of Germany. In the late 1960s, West Germany ran out of workers and decided to fuel the economy further with cheap labour from Turkey. Over two million Turks arrived and, although welcomed for economic reasons at the time, economists forgot that Germany once asked for workers and what it got was people - very different people. It is highly likely that this experience will be repeated in Ireland in 20 years but, for the moment, the immigrants are a huge boost. So the man who started all this was Niemann. And as he sits, unemployed, in his soulless flat in rundown Brandenburg, possibly lamenting the falling of the Berlin Wall 15 years ago, we should raise a glass to him. For it was his actions, not those of Irish politicians, that first stirred the Tiger all those years ago.

Subject: Re: The truth behind the Irish boom From: jimsum To: Setanta Date Posted: Thurs, Dec 09, 2004 at 21:53:59 (EST) Email Address: jim.summers@rogers.com Message: How is it that Gunther came out ahead? Gunther built a car and gave it Paddy, who will pay Gunther back slowly for the work he has done upfront. Maybe Gunther will come out ahead in the end due to interest, but Paddy probably hasn't even covered the cost of materials with his payments so far. Why do we always get it from the companies' perspective, where jobs and profits are how benefits are counted? What about lower prices and cheaper credit, the consumer's benefits? This author is blind to the benefit Paddy is gaining in having a car immediately, rather than having to save for it; and blind to the cost to Gunther of doing the work upfront in exchange for an uncertain payment.

Subject: Re: The truth behind the Irish boom From: Terri To: Setanta Date Posted: Thurs, Dec 09, 2004 at 16:23:53 (EST) Email Address: Not Provided Message: Terrific perspective.

Subject: Vanguard Returns From: Terri To: All Date Posted: Wed, Dec 08, 2004 at 19:05:16 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/08/04 S&P is up 8.0% Growth Index is 4.7 Value Index is 11.7 Mid Cap Index is 15.5% Small Cap Index is 15.4% Small Cap Value is 19.2 Europe Index is 17.0 Pacific Index is 11.3 Energy is 31.7 Health Care is 6.3 REIT Index is 27.2 High Yield Corporate Bond Fund is 7.8 Long Term Corporate Bond Fund is 9.0

Subject: Chinese Rural Property Rights From: Emma To: All Date Posted: Wed, Dec 08, 2004 at 14:36:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/08/international/asia/08land.html A Chinese History of Dispossession and Exploitation By JIM YARDLEY Even today, farmers in China have few property rights. Twenty-five years ago, Deng Xiaoping unleashed the second big Chinese revolution by dissolving the communes and allowing farming households to keep the profits from anything they produced beyond state-set quotas. Farmers were granted leases, not ownership, to the land they worked. But the shift to household-based farming brought an immediate rise in rural incomes. At the time, it meant farmers were the first beneficiaries of economic reform in China. By the 1990's, land reform focused on urban areas and granted city dwellers greater rights than farmers. Technically, the government maintained ownership of urban land as well. But a private real estate market was created for nearly everything built on that land. This set off a development boom that has raised fears of a bubble but made home ownership an essential investment for many urban residents. Farmers have been excluded, unable to own their own land or to buy in cities. Urban expansion has made outlying farmland an inviting target for city governments. Cities like Shanghai, Beijing and Guangzhou have grown by annexing huge swaths of land. Smaller cities in every corner of the country have done the same. In some cases, particularly in wealthier coastal provinces, farming villages have managed to negotiate fair compensation for confiscated land. Some have even transformed themselves into 'urban villages' that rent land for profit. But more often, farmers have been exploited and even terrorized. In October, Prime Minister Wen Jiabao announced administrative reforms to insure fairer compensation for farmers who lose land and to also make local governments more accountable to Beijing on land transactions. This year, the central government is already paying farmers direct subsidies to expand grain production. And Mr. Wen has ordered a gradual elimination of farm taxes. But the long-term effectiveness of these changes is unclear. The new land policy replaces earlier reforms that were also supposed to reduce illegal land seizures. A temporary freeze on economic development zones was lifted in November and already it appears that local governments are pushing forward with land grabs. More significantly, the new reforms do not address the fundamental issue of rural land ownership. The elimination of farm taxes is putting pressure on local governments to find other sources of revenue. One response has been to seize rural land for development projects that generate fees and taxes. One study found that governments now take in more than 10 times as much from land transaction fees as from taxes on farmers. Farmers, then, are starting to pay fewer taxes. But millions of them are losing their land in the process.

Subject: Circling the drain From: Setanta To: All Date Posted: Wed, Dec 08, 2004 at 12:15:34 (EST) Email Address: Not Provided Message: Japan narrowly escapes recession Japan's economy teetered on the brink of a technical recession in the three months to September, figures show. Revised figures indicated growth of just 0.1% - and a similar-sized contraction in the previous quarter. On an annual basis, the data suggests annual growth of just 0.2%, suggesting a much more hesitant recovery than had previously been thought. A common technical definition of a recession is two successive quarters of negative growth. The government was keen to play down the worrying implications of the data. 'I maintain the view that Japan's economy remains in a minor adjustment phase in an upward climb, and we will monitor developments carefully,' said economy minister Heizo Takenaka. But in the face of the strengthening yen making exports less competitive and indications of weakening economic conditions ahead, observers were less sanguine. 'It's painting a picture of a recovery... much patchier than previously thought,' said Paul Sheard, economist at Lehman Brothers in Tokyo. Improvements in the job market apparently have yet to feed through to domestic demand, with private consumption up just 0.2% in the third quarter.

Subject: Re: Circling the drain From: Terri To: Setanta Date Posted: Wed, Dec 08, 2004 at 14:28:32 (EST) Email Address: Not Provided Message: Setanta, Wonderful posts. What a gem you are.

Subject: Re: Circling the drain From: Setanta To: Terri Date Posted: Thurs, Dec 09, 2004 at 04:41:55 (EST) Email Address: Not Provided Message: Thank you emma, i find your posts on china very interesting. a fine place for an investor but not, it seems, for a farmer. where did the cultural revolution take a right turn? i was at a christmas party last night. i feel like s#@$ rolled over, twice!!! my posts, if any, may be a little affected by last nights festivities!

Subject: Blair hails NI talks progress From: Setanta To: All Date Posted: Wed, Dec 08, 2004 at 12:02:47 (EST) Email Address: Not Provided Message: Just a few minutes ago the talks in Northern Ireland failed. Its not altogether surprising as you would have had anti-catholic firebrand Rev. Ian Paisley as First Minister and (alleged) former Deputy Commander of the IRA Gerry Adams as Deputy First Minister. The IRA refuse to provide proof of decommisioning (not an unreasonable demand to make before allowing them to take power) and the DUP (rarely do i agree with them, but about 95% of the population of this island do, on this issue). I find it astounding that Blair and Ahern will try to put a positive spin on this. I know we cannot be too downheartened by the setback but its really a sign of the times when political leaders cannot say 'back to the drawingboard' and always have to spin, spin and spin. Blair hails NI talks progress BBC.com Progress to restore Northern Ireland devolution has been 'remarkable but is not yet complete', Tony Blair has said. Hopes for a deal were dashed after Ian Paisley's DUP said it was not signing up, because the IRA was refusing photographs of decommissioning. The prime minister was in Belfast with Bertie Ahern to publish joint government proposals for power-sharing. He said if a deal had been reached there was agreement to complete IRA decommissioning by Christmas. Northern Ireland's political institutions have been suspended since October 2002 amid claims of IRA intelligence-gathering at the Northern Ireland Office. Tony Blair and Bertie Ahern's news conference cames just hours after Mr Paisley confirmed a deal to restore devolution would not be signed. Mr Blair said: 'I think there is an inevitability about this process which is locked in. I can't see this process going backward but I do know that it's going to require extra effort to finish the journey. 'This is a transformed landscape in which we operate today but it won't be properly transformed until we have the devolved institutions back up and working again.' Irish Prime Minister Bertie Ahern said the governments had worked on the proposals throughout 2004. 'Today is truly different - I don't think it, I know it. We had obviously wished to be able to present the proposals in the context of full agreement before we came here - but that is not possible. 'We are not quite at that point of total success. Our work must therefore continue to secure agreement and closure and what - by any standards - is a huge, impressive, indeed a landmark package.' He added: 'We believe at this point, after many months of negotiation, our efforts will benefit from wider public appraisal and that is why we are publishing our proposals.' Earlier on Wednesday, Mr Paisley said: 'It is quite clear that the IRA are not going to decommission. Nothing on decommissioning was agreed with them. 'Not only photographs, but nothing was discussed or settled about the independent witnesses, inventory and all the things that we were interested in. 'The situation is this: that the IRA are dead set on keeping their arms and going on with IRA/Sinn Fein's twofold policy of democracy and terrorism.' Mr Paisley said they wanted the IRA to supply not one photograph but 'a complete, total, clear survey in photographs' of decommissioning. Meanwhile, it has emerged that an IRA statement the governments hoped would have been released as part of a new deal would have said: 'All IRA volunteers have been given specific instructions not to engage in any activity which might thereby endanger the new agreement.' There have been intensive negotiations between the two governments and the political parties over the past few weeks. The main issues which have been highlighted in the latest round of intense talks include decommissioning, demilitarisation, policing and future devolved institutions. The negotiations have been conducted through a series of British and Irish Government intermediaries because the DUP refused to hold face-to-face talks with Sinn Fein.

Subject: Re: Blair hails NI talks progress From: Emma To: Setanta Date Posted: Wed, Dec 08, 2004 at 14:37:58 (EST) Email Address: Not Provided Message: Should we hope for more such progress or less?

Subject: Re: Blair hails NI talks progress From: Terri To: Setanta Date Posted: Wed, Dec 08, 2004 at 14:26:26 (EST) Email Address: Not Provided Message: I have been paying close attention, and feared the talks would falter. How sad, how much promise there is in peace but a culture of intimidation has persisted long enough to be as if institutionalized. Oh dear.

Subject: The Great Divide in China From: Emma To: All Date Posted: Wed, Dec 08, 2004 at 11:32:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/08/international/asia/08china.html?hp=&pagewanted=all&position= Farmers Being Moved Aside by China's Real Estate Boom By JIM YARDLEY SANCHAWAN, China - For five months, Gao Lading and other angry farmers had occupied the walled compound of the Communist Party's village office. They had pitched tents, eaten rice and sweet potatoes, and waited. It was a sit-in born of desperation. Officials from the nearby city of Yulin had seized land that had been part of the village since imperial times. The farmers had protested for nearly two years before finally seizing the village government's seat of power. Early on Oct. 4, the government struck back. Witnesses say truckloads of paramilitary police surrounded the sleeping village. Hundreds of people inside the office compound were injured as the police fired tear gas and rubber bullets. Women were attacked with cattle prods. Farmers sleeping nearby were beaten in their beds. 'They pinned them to the bed, put handcuffs on them and dragged them away,' said a woman whose husband was among the 29 people arrested. In real estate terms, the crackdown amounted to closing day. Like other land transactions in rural China, negotiations had been one-sided: Yulin officials, citing an obscure legal clause, ordered farmers to leave and offered them $60 per parcel of land. The farmers had screamed robbery. But farmers in China cannot be robbed of land because they are not allowed to own it. The same economic reforms that have made China the world's fastest growing economy have created a two-tiered property system that favors city dwellers while handicapping the farmers once at the core of this society. One result is that a booming, private real estate market has emerged in cities, where residents can now buy and sell apartments or suburban villas as investments toward joining the fledgling urban middle class. Farmers still fall under a village collective system that forbids them to own, buy or sell the land they till - and that often leaves them powerless to keep it. The Sanchawan case is one example among thousands in which city officials pushing lucrative development projects have confiscated rural land by guile, fiat or force. Experts estimate that as many as 70 million farmers have lost their land in the past decade - a number expected to rise above 100 million. 'If the government wants to take land, it can take it more or less at will,' said Qin Hui, a history professor at Qinghua University in Beijing and a leading authority on rural China. He added, 'Farmers often not only haven't benefited from the process of urbanization, they are losing out because of it.' Urban residents have not been immune to land seizures. Older sections of Shanghai, Beijing and other cities have fallen to wrecking balls to make way for new development. Residents are often poorly compensated and relocated to less convenient apartments. But displaced farmers often lose their very livelihood. They have little chance of finding other land and face daunting obstacles to creating a stable new life in cities. Losing their land also deprives them of a social safety net in a country without one. A farmer with land can at least eat. Riots and protests over land seizures and inadequate compensation have erupted across China for much of this year. Land seizures became so rampant that central government officials became alarmed that the loss of arable land threatened China's ability to feed itself. They ordered a temporary freeze on the economic development zones chewing up farmland and promised to reform the land system. Here in the badlands of northern Shaanxi Province, the arid, desolate landscape holds a mythic place in Communist Party lore and has long been fertile ground for peasant anger and revolt. This is the bleak terrain where Mao Zedong found refuge from pursuing Nationalist troops in the 1930's, rebuilt his Red Army for eventual victory, and instituted a crucial political promise of his revolution - redistributing land from landlords to peasants. The Oct. 4 clash here, which Chinese news media have been banned from reporting, clearly terrified villagers. During three visits in October and November, the village remained under tight watch by officials and undercover police officers. Most of the more than 30 villagers interviewed for this article were willing to be identified only by their surnames. It was a stark change for a village that had been defiant, even brazen, in confronting the government. Interviews, government documents and petitions from the jailed protesters show that a core group of farmers repeatedly protested and staged sit-ins. Some, like Gao Lading, a hot-tempered leader, traveled to Beijing seeking help. They were fighting for 1,670 acres of sandy, desolate soil. 'For thousands of years, the relationship between farmers and their land has been a thick as blood,' villagers wrote in one petition to Beijing officials, 'as close fitting as lips and teeth.'

Subject: The Great Divide in China 2 From: Emma To: Emma Date Posted: Wed, Dec 08, 2004 at 11:35:56 (EST) Email Address: Not Provided Message: A Seduction of Riches For years, Sanchawan prospered from its position on the banks of the Yuxi River, less than 10 miles from the produce markets in Yulin. But then discoveries of natural gas, coal and oil prompted local boosters to begin describing Yulin as 'China's Kuwait.' Yulin became a hub in a major pipeline project moving natural gas from western China to Shanghai. In March 2002, former President Jiang Zemin visited to urge faster development. City officials were already ahead of him. They were planning a new economic development zone on the high bluffs across the river from Sanchawan. Generations of villagers had worked the land, known locally as Xisha, or western sand. Some farmers irrigated the land and grew corn or cabbage. But most planted saplings as a buffer to protect their fields across the river from the nearby Gobi desert. 'We've been taking care of that land for decades,' said Gao Qinglai, a elderly woman in the village. 'Planting trees there provides a bit of firewood, but it also stops the sand from blowing down the gully and covering the river and the fields below.' Since the early years of Communist rule, farmers said, the Xisha land was under the collective control of the village and had attracted little interest from Yulin officials. But once plans for the development zone were drawn up, villagers said officials cited an obscure 1951 clause in the country's murky property statutes and laid claim to the land. The compensation offer of $60 per mu, or about one-sixth of an acre, infuriated farmers when they learned that the land was being leased to developers for 50 times that amount, or more. 'Officials took the land for development and have been pocketing all the money for themselves,' said an old farmer surnamed Zhou who was tilling a field outside the village. The brazenness of this kind of land grab is not uncommon in rural China. In one village in wealthy Zhejiang Province, farmers were given $3,040 per mu, only to watch city officials lease the same plots to developers for $122,000 each. And experts say farmers often get only a fraction of the compensation they are promised because village officials siphon off the rest. In Sanchawan, the village head, Gao Guoqing, initially opposed the seizure but then switched his support to Yulin officials. Villagers say he is now a construction boss at the development zone and a member of one of its oversight boards. 'Scams are commonplace,' said Sally Sargeson, a senior lecturer at the University of Nottingham who specializes in Chinese property rights. 'In most cases, farmers don't get what they deserve.' The Sanchawan farmers decided their only recourse was to protest. In December 2002, nearly 800 people blocked construction on the Xisha land, according to interviews and petitions. Villagers organized 16 teams of protesters that alternated sit-ins. The protests continued into the spring of 2003, often led by elderly women because the men needed to work. By April 27, Yulin officials had lost patience. The protests were causing work delays on the development zone. So, villagers say, police officers and more than 300 construction workers surrounded the women as a district official harangued them through a megaphone. 'You're crazy!' shouted the official, Ji Shengrong, according to an account later drafted by villagers. 'Your heads are filled with sand.' One woman threatened to complain to higher authorities in Beijing. 'So you dirt-poor trash think you can oppose the city government?' Mr. Ji scoffed. 'You don't have a chance in hell.' The police then began dragging protesters to jail. When relatives from Sanchawan tried to come to their aid, the police blocked roads and bridges leading to the site. Officials in the Yulin mayor's office and other city agencies refused interview requests and said they would not discuss the land confiscation. One official who declined to be identified said villagers were generously compensated. Zhang Baohua might disagree. Mr. Zhang, 40, was not at the Xisha site during the protest but was later picked up by the police at the village. He later wrote an affidavit describing four days of interrogations in which he was repeatedly beaten and kicked. Pressured to identify the protest leaders, he repeated that he knew nothing and did not understand why he was being detained. 'Even if you beat me to death today, I still wouldn't know anything,' Mr. Zhang said after a third day of beatings, according to his affidavit. He was finally released and spent the next four weeks recovering in bed. 'I'm an innocent member of the masses,' he wrote. 'Why did Public Security want to torture me like this? I want justice.' So did his fellow villagers in Sanchawan. But they needed someone willing to fight for them. They found him in a cave.

Subject: The Great Divide in China 3 From: Emma To: Emma Date Posted: Wed, Dec 08, 2004 at 11:36:53 (EST) Email Address: Not Provided Message: Petitioning the Government Liu Zhandou, 57, is an old unreconstructed Maoist whose fervor led him to change his name during the Cultural Revolution in the 1960's. He took the given name Zhandou, which means struggle. He lives about four hours east of Yulin, in a traditional cave dwelling. He and his wife stack potatoes inside for winter and share a heated brick bed, called a kang. They have a small, battered television with an antenna that they keep protected inside a red velour cover. Mr. Liu, a farmer, grows dates that he sells once a year in the provincial capital, Xian. He earned a populist reputation across northern Shaanxi Province after leading a tax revolt in the late 1990's against local officials. He even won a seat in his township's people's congress, without the endorsement of the Communist Party. In June 2003, Mr. Liu met with Sanchawan farmers and took up their cause. He has no legal training, though his high school education puts him above most farmers. He still wears a Mao button on his jacket and says local governments that seize land are no different from the corrupt landlords and officials of the Nationalist government in the pre-Communist era. 'It was so flagrant,' he said of the seizure of the Xisha land. 'They bought the land so cheaply and sold out for such a high price. They also violated the lawful rights of the farmers.' Mr. Liu told the farmers they had no chance in Yulin. They needed to go to Beijing. It is the path followed by hundreds of thousands of desperate peasants every year. They carry receipts, legal rulings or medical records - any paper trail to prove they were wronged. Mr. Liu went twice with small groups of Sanchawan farmers, first in October 2003 to visit government petition offices. The petition system traces its roots to China's imperial past, when it held out the promise of an audience with the central bureaucracy. Now it is the main official channel for popular dissent in China's authoritarian political system. Mr. Liu helped the farmers assemble documents and draft petitions. Most of the older farmers had no more than a few years of schooling. Some signed official papers with thumbprints. One resourceful farmer narrated a CD-ROM that was presented with the petitions. The October trip felt like a success at first. Petition officials promised that the case was being reviewed. But not in Beijing, it turned out. 'They sent it back to the local officials and nothing happened,' Mr. Liu said. 'Local officials claimed nothing was wrong.' It had been an exercise in paper shuffling. The Sanchawan farmers had learned what other petitioners eventually learn: Beijing officials usually turn over grievances to the same local officials who are the cause of them. A recent study found that only 0.2 percent of petitioners receive any redress. Even so, Mr. Liu returned to Beijing in December, this time with Gao Lading. Mr. Gao, 63, had been a Communist Party member for decades. A lifelong farmer, he had enemies in Sanchawan because of his quick temper. But his brash nature made him a natural protester. 'He just couldn't stand seeing the officials taking advantage of farmers,' Mr. Liu said of Mr. Gao. 'He says what's on his mind.' Mr. Gao's impatience was evident in a petition he helped write for the trip. 'The villagers are now as anxious as ants on a hot stove,' the petition read. 'Our suffering is too great. If the central leadership doesn't solve our problems after this visit to Beijing, more than 1,000 villagers will come to Beijing.' Mr. Liu and Mr. Gao went to the Ministry of Land Resources in the hope of presenting the petition directly to the minister. But a guard instructed them to send it by express mail. A bit naïvely, the farmers believed that might work. At the post office, they had what they considered a stroke of luck. A clerk who had once worked in Shaanxi Province recognized their accents and offered to hand their petition to a friend at one of Beijing's biggest petitions offices. Mr. Liu and Mr. Gao left Beijing. Like peasants for centuries, they had come seeking an official audience. They had gotten a postal clerk. Eventually a letter arrived from the clerk. He wrote that his friend could not help but had suggested that the farmers give gifts to Yulin officials or buy them expensive dinners. This was the best way to get anything done in China, he said. Mr. Liu last saw the farmers in February. In Yulin, he met with two Sanchawan villagers who worried that their efforts had been futile. Trying to buck up their spirits, he bought them copies of 'An Investigation of China's Farmers,' a best-selling exposé of poverty and exploitation in the countryside. (Weeks later, the book would be banned.) 'I told them they should both read it, because if farmers want to solve their problems, they need to speak out for themselves.'

Subject: The Great Divide in China 4 From: Emma To: Emma Date Posted: Wed, Dec 08, 2004 at 11:37:19 (EST) Email Address: Not Provided Message: A Protest Is Broken March is planting season for the villages along the Yuxi River. But early this year, development zone officials annexed more land from Sanchawan, this time a strip of prime cropland. Farmers decided to protest by leaving their remaining fields untilled. They would survive by eating from the village grain reserves. The refusal to plant was provocative. Officials are held responsible for local production and Beijing had declared grain output a priority this year. Villagers also began a new wave of sit-ins to disrupt construction on the work site. 'They said they wouldn't leave or begin farming until the provincial governor came to hear their complaint,' said one woman whose husband participated in the protests. 'But that didn't happen. Instead, officials began arresting people.' Furious at the arrests, hundreds of villagers occupied the village government office in April. At first, the protesters barred village officials from entering. But soon they allowed them back in as the sit-in continued. Relatives would come and go, bringing food and supplies, but protesters like Gao Lading remained inside. By now, Mr. Gao had emerged as the outspoken leader. At one point in April, villagers say police officers tried to storm the compound and arrest him. Other farmers warded them off. The compound became his safe house. 'We knew the police were trying to arrest him,' said a woman surnamed Yang who took part in the sit-in. 'We went to the compound to protect each other from arrest, in particular to protect him.' Villagers say Yulin officials initially tried to negotiate an end to the sit-in. They gave the farmers $120 each. Villagers, considering it a bribe, took the money but refused to leave. After five months, on the morning of Oct. 4, the paramilitary police surrounded the village. Villagers counted as many as 2,000 officers. The attack was fierce. One man struck by a tear gas canister lost an eye. Hundreds of people were hospitalized, scores with serious injuries from the rubber bullets. Mrs. Yang has a long scar on her leg where she was hit. Leaders like Mr. Gao were arrested. The assault broke the protests. Mr. Gao and others remain in jail on charges of obstructing public affairs. Officials ordered workers to paint slogans on village walls telling farmers to obey the government. Farmers also were ordered to begin preparing their fields for next spring's planting. 'Nobody will dare protest now,' one woman said. 'Everybody is afraid.' At the development zone here in November, construction crews were busy. Landscapers had begun planting bushes. Yulin officials are marketing the zone as a new city. An October article in a state-controlled magazine, The Chinese Times, described plans for chemical and energy plants, a new school and new apartments - though with price tags too high for Sanchawan's farmers. Jiang Guozhang, director of the authority that oversees the development zone, promised potential investors that the Yulin zone would be 'an industrial pearl.' He even quoted the zone's motto: 'You invest, I service,' Mr. Jiang said. 'You get rich, I develop.'

Subject: Moving the Finnish line at work From: Setanta To: All Date Posted: Wed, Dec 08, 2004 at 10:48:55 (EST) Email Address: Not Provided Message: By Christine Jeavans BBC News, Finland Finland has one of the most rapidly ageing populations in Europe, easily outstripping the UK. Until recently this was coupled with a low level of employment of older workers meaning the country was heading for a severe labour shortage. That was until the advent of a new concept called 'work ability' which has had dramatic results and seen governments from Europe to Australia wanting to know more. The small industrial town of Valkeakoski in western Finland gives no outward indication that it is at the leading edge of a social revolution. Nestling among forests of birch and pine 145 km (90 miles) outside Helsinki, the town is dominated by the paper industry whose water-hungry factories line its three lakes. But inside the biggest of those mills, UPM-Kymmene's Tervasaari plant, a quiet but steady change is taking place. Almost 40% of the workforce here is over 50 but rather than winding down for retirement, they are being encouraged to stay at work. They are given extra training, moved to more appropriate jobs where possible and treated as the wise elders of the company. 'The main target is to keep people longer in working life and to create such health conditions that they can stay longer to get additional training and support,' says Personnel Manager Turkka Heinelo. He gives the example of a 60-year-old male worker who was doing one of the most prestigious jobs on the shop floor: operating the vast paper milling machine which runs 24 hours a day. He started to find the job too much to handle so he was allowed to move to day shifts and stayed in the same unit as a reserve man. This way, his vast experience of how to do the job was not lost - and he retained his status and self esteem too. Work ability concept Workers are given special reviews at ages 53 and 59 where they are asked if they need any more training, given the opportunity to talk about problems with working life, and advised on retirement issues. The first of several initiatives at Tervasaari began in 2000 and has already borne fruit: within three years the average retirement age at UPM has risen from 57 to 59. The company has been held up as a model of 'work ability' a complex holistic concept that the Finnish government has been promoting since 1998. Work ability looks at the interplay between all the factors that enable a person to function well in a job. It aims to balance the personal factors such as health, skills and motivation, with the job itself: how it is managed, what the working environment is like and what the role actually entails. Evidence based Naturally you do decline physically but a lot of cognitive functions improve with advancing age,' said Professor Juhani Ilmarinen from the Finnish Institute of Occupational Health, a key player in the work ability programme. If employers do not understand that their workers are changing as they age and change the work accordingly, he said, then all they see is decline in productivity. 'We have been blaming the wrong source - the human beings - saying 'you are poor' although really it's the job that is poor.' Instead, the work ability programme aims to convince employers to tailor their work to individuals as they age - and also to improve those individuals' health and skills or knowledge needed for the job. Crucially, the programme is evidence-based so companies and organisations can see how they are losing by not implementing it. 'Sickness and absence costs per person per year is something like 3,500 euros if work ability is poor,' said Prof Ilmarinen. 'But if the level is excellent it is only 200 euros per person, so you can easily work out how much you can gain from this promotion.' Demographic shift Finland launched its work ability programme in 1998 after a long trend of early retirement, funded by generous state hand-outs and intensified by the laying-off of older workers during the recession of the early 1990s. But by the mid 1990s the government realised that it could no longer afford to pay for people to leave the workforce in their early 50s. Also a labour shortage was looming as the population was ageing much faster than the EU average. By 2030, Finland is projected to have 26% of its population over 65 - a figure the UK is not due to reach until 2051. As well as implementing the work ability scheme, the Finnish government has reformed pensions. Workers are now given the carrot of a 4.5% increase in their pensions for every year they stay in work after the age of 63 until they reach 68. Finland's demographic shift is evident at UPM Tervasaari where 200 of the 830-strong workforce are due to retire in the next five years, taking with them a wealth of experience. In addition to work ability promotion, the management has set up a parallel scheme to garner this so-called 'tacit knowledge' and ensure it can be passed on to younger workers. Those 200 workers must know 'millions of pieces of information,' says Turkka Heinelo. 'So there must be a vast amount of tacit knowledge leaving the mill unless you do something.' The Tervasaari factory has set about recording every aspect of every job and encouraging older workers to pass on their skills to the younger ones. Shop steward Ari Reinikainen said the ageing workers programme at the factory had been drawn up with full co-operation from the trades unions because everyone realised the importance of the issues at stake. Positive trend 'We used to have the illusion in this society that we were so rich that we had money to let people to go in early retirement. But now the whole society is more realistic.' Since work ability was introduced, the employment rate of Finns aged 55-64 has jumped more than 13% compared to the EU average rise of 5.1%. 'Of course no-one can say that's only because of the programme,' said Professor Ilmarinen. 'But this is the only country where you see the long term effects in the retirement age going up. 'It's still far away from the optimum but I think this trend seems to be a sustainable positive trend.'

Subject: Re: Moving the Finnish line at work From: Emma To: Setanta Date Posted: Wed, Dec 08, 2004 at 16:51:49 (EST) Email Address: Not Provided Message: Wonderful article.

Subject: Re: Moving the Finnish line at work From: Terri To: Setanta Date Posted: Wed, Dec 08, 2004 at 10:51:27 (EST) Email Address: Not Provided Message: Wonderful post. I hope we will become increasingly open to borrowing ideas from Europe.

Subject: Re: Moving the Finnish line at work From: Setanta To: Terri Date Posted: Thurs, Dec 09, 2004 at 06:33:32 (EST) Email Address: Not Provided Message: terri, as can us Europeans borrow ideas from the US. its amazing to see how US and European economies manage their economies. The US believe that the state has a role in macroeconomics, but no role in microeconomics. This means that it is not the role of the state to take responsibility for your economic actions. The European economy works in the opposite way. The economies are micromanaged so you have little financial responsibility for what you do; yet the state does not take a macroeconomic view of demand, exchange or interest rates and react accordingly. i wonder if someone could start a string on this, there should be some interesting views and results!

Subject: Re: Moving the Finnish line at work From: Jennifer To: Setanta Date Posted: Thurs, Dec 09, 2004 at 10:51:09 (EST) Email Address: Not Provided Message: Another interesting insight, and of course it makes all the sense when you compare the macro and micro economic management in America and Europe. I must think where Japan fits.

Subject: Fiscal Prudence is a global lession From: Setanta To: All Date Posted: Wed, Dec 08, 2004 at 09:14:56 (EST) Email Address: Not Provided Message: Like ancient Rome, we're in a sea of borrowing Cleopatra was born in September 68 BC. The same year, Pompey (who was eventually to be murdered in Cleopatra's kingdom of Egypt) finally conquered all of Spain. The Romans conquered Iberia for its mineral wealth. Within years,100,000 slaves would be toiling away in labyrinthine tunnels extracting enormous quantities of silver. With Spain vanquished, Pompey the Great turned his attention to Asia. By 63 BC, he was sacking Jerusalem, having conquered all of ancient Syria. His armies were on the Euphrates in the east, the Black Sea in the north and the Red Sea in the south. The world was his and Rome's, and this meant that gold - huge quantities of it - flowed into Italy at a rate never seen before. Naples was ancient Rome's number one port, dominated by Mount Vesuvius. The volcano acted as a marker for ancient sailors, who trained their bows on its flat-topped silhouette for guidance. As the bullion flowed in, it was melted down into gold coins adorned with the letters SPQR (Senatus Populusque Romanus - the Senate and People of Rome). SPQR reiterated to everyone, citizens and subjects alike – who was in charge - the Senate and the Roman people. Back then, coins had two functions. As well as money, coins served as a branding exercise for the empire. Money was political. As gold flowed in, more coins were minted. In Italy, every conquest led to an increase in the money in circulation. The transfer of wealth from the conquered provinces to Italy (and Rome in particular) was staggering. But all this cash cascading into the country pushed up the price of everything. Despite living in the fastest-growing, richest country in the world, ordinary Romans began to complain about not being able to afford anything. Cicero tells of stories making their way back to Rome about the good value available in Athens, never mind Jerusalem. Even Alexandria – the new York City of the ancient world – made Rome look expensive. Fearing unrest, the Senate passed a series of grain laws, making subsidised grain available to the plebeian slum-dwellers of Rome. Indeed, from about AD 60 onwards, a series of populist senators and tribunes consistently tried to get laws passed that would make grain free in Rome, to curry favour with the masses. (And there was I thinking that the 2004 budget was unique.) The flip side of the gold bullion boom was very evident in house prices. Property prices soared. Nowhere was this rise more stratospheric than in the swanky resort of Tusculum just outside Naples - the Sandy Lane of its day. Pompous merchants and returning generals tried to outdo each other by building more and more ostentatious villas. In the years after the fall of Asia to Pompey, house prices in Rome quadrupled. Sound familiar? All the while, traditionalists in Rome – those who stood for the old Roman values of the gods: virtue, honour and the image of the Roman as an erect citizen of impeccable standards - were aghast. The decadence, opulence and rampant consumerism could not be good; they contended that all this gold was not making anyone happy. Even cosmopolitan commentators such as Cicero (who had championed the liberation of empire) began to urge their compatriots to “tiptoe'‘ back to Rome's traditional values. However, nothing more disgusted the traditionalists than the Nigella Lawsons of the day. The most conspicuous character to emerge in boom-time Rome was the celebrity chef. By 60 BC, Rome had become obsessed with cooking, restaurants, exotic delights from the East and the elevation of certain celebrity chefs to instant fame. The great Roman scribe Livy noted that the chef “began to be prized, and what once had been a mere function came to be regarded as high art'‘. In a city with no previous experience of money or big spending, food snobbery took off. Anyone could have a couple of slaves recently snatched from Spain, Syria or north Africa, but to be really posh, one had to display taste – and what better indicator of taste than food? All classes of exotic chefs, spices and foods began turning up in Rome. Within months, the millionaires and noted luminaries joined their cooks in the kitchens, sampling and cooking dishes of their own, inventing their own recipes and swapping tips with other foodies. Among the favoured food fads in Rome at the time were “fatted hares, scallops and the vulvas of sows'‘, according to Rubicon: the Triumph and Tragedy of the Roman Republic by Tom Holland. The oddest fad at the time was for fish. Rich Romans were enthralled by their fish. Initially, the new rich built massive saltwater fish tanks at home - at enormous expense - so that they could catch their own fish. This made way for ‘fish collections', and the rich tried to out-fish each other with increasingly bizarre creatures scooped from the deep and installed in the saltwater fish tanks of Rome's glitterati - perhaps the Hermes Birkin handbag of its day. Fast-forward to today and we see broadly similar trends in Ireland. The most important economic publication this week was not the budget, but the publication the day before of our borrowing figures for October. This is where the real action is, and this is why Ireland is behaving like ancient Rome. Like the Romans, we are drowning in other people's money. We are getting into debt six times faster than our EU neighbours. Total borrowing increased by 25 per cent in October. This is a phenomenal figure. Bathing in a sea of other people's money, like the Romans, we are spending it on increasingly faddish and meaningless stuff. This spending and the related cravings will be evident in the next three weeks as the annual Christmas splurge begins. Faced with rising prices, a soaring cost of living and restless voters, the government - like the Roman Senate giving away grain - introduced a budget last week to give the impression that it cares. But this doesn't cut the mustard, because the root cause of the voters' anxiety is the rising cost of living, which is being driven by excessive borrowing. The Central Bank pointed out that the last time borrowing was this high was back in 2000,when the economy was growing at 10 per cent. By alluding to this, the Central Bank was posing the simple question: where is all the money going? How come an economy can be growing by only 4 per cent while our borrowing is up by 25 per cent? More importantly, when wages are rising at around 4 per cent, how could we pay all these debts if interest rates were to rise? In Roman times, wars caused rates to rise, allowing Caesar to buy assets in 50 BC for half nothing. Wars might not necessarily be Ireland's greatest fear, but shocks do occur in the modern world. In the meantime, we'll be content to borrow, eat, swap recipes and sit back and watch Nigella's Christmas special, which promises to be absolutely fabulous, darling. www.davidmcwilliams.ie

Subject: Re: Fiscal Prudence is a global lession From: Emma To: Setanta Date Posted: Wed, Dec 08, 2004 at 14:38:54 (EST) Email Address: Not Provided Message: Surely you are a fine fine auditor.

Subject: Michael O'Leary, Ryanair CEO From: Setanta To: All Date Posted: Wed, Dec 08, 2004 at 04:31:31 (EST) Email Address: Not Provided Message: For any of you who do not know him, he's personally responsible for creating the Walmart of the skies. 10 years ago it cost £200 to fly from Dublin to London (the busiest air route in the world allegedly!). MO'L was placed in charge of a small airline with 5-10 turbo-prop engined planes. he has turned it into the fastest growing fleet in the world and most airlines are scared of him. it now costs Eur30-40 to fly return to london (cheaper than a train from dublin to galway) you can fly on specials to the likes of france, belgium and other EU countries for 1 cent each way (excluding taxes)!!! his use of colourful language and stunts ensures that he recieves lots of (free) coverage. one stunt involved driving a bunch of tanks to heathrow, unsurprisingly, he wasn't let in but the press corps went wild! Straight-talking Michael O'Leary FT -- One of the best things about reading the Financial Times is the occasional interview, letter or advertorial by Michael O'Leary from Ryanair. The British papers and Irish press cover O'Leary verbatim--something a stateside news outlet couldn't afford because O'Leary is a salty dog. This week, FT asked O'Leary what Ryanair was doing about the demands the Belgian authorities have made for the return of €3.5m in subsidies received by the airline. 'We have written back to say fuck off.' O'Leary's longest interviews appear in weekend editions where they double as personality shorts and business impressions. Graham Bowley cornered O'Leary in the City Club in London last year and ran the piece in the Financial Times Weekend section. On the right to fly: 'For years flying has been the preserve of rich fuckers. Now everyone can afford to fly.' On travel agents: 'Screw the travel agent. Take the fuckers out and shoot them. What have they done for passengers over the years?' On Ryanair's strict no-refund policy is the source of most complaints: 'We don't fall all over ourselves if they... say my granny fell ill. What part of no refund don't you understand? You are not getting a refund so fuck off.' On Jurgen Weber, Lufthansa's chief executive: 'Weber says Germans don't like low fares. How the fuck does he know? He's never offered them any. The Germans will crawl bollock-naked over broken glass to get them.' On co-existence with British Airways: 'There is too much: 'we really admire our competitors'. All bollocks. Everyone wants to kick the shit out of everyone else. We want to beat the crap out of BA. They mean to kick the crap out of us.' On being happy: 'They don't call us the fighting Irish for nothing. We have been the travel innovators of Europe! We built the roads and laid the rails. Now it's the airlines!' On the ultimate goal: 'Free tickets. In a decade or so, airlines will pay travellers to distribute people around Europe. The airline industry is Tesco, is Ikea, is network TV in the way viewers watch for free and advertisers pay for access to them, is the internet in the same way that websites earn money for delivering click-through traffic to other sites.' Wired magazine lists Michael O'Leary's Ryanair as one of the 'top 40 companies driving the global economy.' The magazine praises Ryanair.com, the site that handles 95% of all the sales.

Subject: Re: Michael O'Leary, Ryanair CEO From: Emma To: Setanta Date Posted: Wed, Dec 08, 2004 at 06:15:14 (EST) Email Address: Not Provided Message: Interesting; thanks.

Subject: Innovation and Disruption From: Emma To: All Date Posted: Tues, Dec 07, 2004 at 19:56:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06compete.html?pagewanted=all&position= Innovation and Disruption Still Going Hand in Hand By EDUARDO PORTER IN his own small way, Mark Whitman is proof that the 'new economy' did not disappear with the collapse of the technology bubble. When his father bought a small typesetting firm 34 years ago, the trade still had much of its ancient patina, with employees assembling chunks of text and art and manually pasting them together on a backlit table. Today, Mr. Whitman's former family firm is part of an emerging business model that is driving a turbulent new period of economic change. Typesetters are known as publishing services companies. They do their cutting and pasting on a computer. Instead of working with photographic plates and negatives, they receive documents over the Internet that can be transmitted directly to digital printers. And in 1999, Mr. Whitman sold the family firm to a rival, Techbooks, which has moved most of the cutting and pasting to its facilities in India. 'We were very successful for 25 to 30 years,' said Mr. Whitman, who now works as Techbooks' head of marketing. 'But it was difficult for us to compete with an offshore model.' The technology-driven dislocation that has transformed Mr. Whitman's business is spreading throughout the economy, many economists say, as more businesses discover how to harness new technological tools and fuel a surge in productivity growth. Cable is taking audiences from the television networks. Telephone giants are losing business to the Internet. Wal-Mart has forced Toys 'R' Us to consider exiting the toy business. From the goliaths of industry to the smallest of niche firms, American companies seem to be in the grip of unprecedented industrial upheaval. 'We've always had a lot of turbulence in technology, but now turbulence is going beyond technology companies,' said Adrian Slywotzky, a managing director of Mercer Management consulting. 'In the next few years we will see more of that.' Indeed, technology is changing what a book is. New digital techniques to layer meta-information onto texts have created Internet-based interactive books, a potentially revolutionary breakthrough for fields like high school education. And the Internet permits many of these tasks to be done cheaply in faraway places. 'The business model is completely changing,' said Rakesh Gupta, founder and chairman of Techbooks. The company makes everything from American high school textbooks to specialty journals like Kidney International, with most of the work done in New Delhi. With annual revenue of $50 million, Techbooks, based in Fairfax, Va., is now one of the larger companies in its market, having bought up several rivals to gain customers. According to Mr. Gupta, it is growing at about 20 percent a year. The actual new economy might not look quite like the utopian arrangement envisaged by the stubbled gurus of the dot-com period- where everything brilliant was done online by 22-year-olds. But from the global outsourcing of business processes via the Internet to Wal-Mart's sophisticated logistics management systems (which have been crucial in allowing it to drive down prices and achieve its gargantuan scale), information technology is reshaping businesses and markets. The corporate landscape is littered with ailing former giants struggling to come to terms with the new realities. For instance, the big four television networks have lost 16 percent to half of their prime-time viewers to cable channels in the past decade. They could soon lose much of their revenue, too, as new gadgets like digital video recorders ( TiVo, for one) allow people to strip commercials out of their favorite shows. In the last year, the camera-film giant Eastman Kodak - once one of the five biggest companies on the New York Stock Exchange - has been struggling to retool itself to survive in the new filmless digital world. The gale of innovation and industrial reorganization is a product of two major forces. The computer and its more recent application, the Internet, are seeping into every nook and cranny of the economy, and are being used by companies across the board for an expanding array of purposes. And even as this technological breakthrough has ignited a rush of investment and innovation, deregulation that started some 25 years ago has opened formerly protected sectors like airlines, telephone companies and electric utilities to competition. Together, the effect of these transformations has been a significant lift to productivity, which over the last eight years has grown at an annual rate of over 3 percent, nearly double the pace of the preceding 30 years. Several economists have argued that the productivity burst is a consequence of big investments in information technology since the 1980's, delayed because companies took time to understand and apply the technology they were buying. Some economists say the current industrial turmoil is not unique - that it just seems more intense because it is affecting high-profile brand-name companies. 'It's been happening for 200 years now,' said Joel Mokyr, an economic historian at Northwestern University. By some measures, the current corporate turmoil looks rather run of the mill. Of the 50 largest companies on the New York Stock Exchange in 1964, only 6 were still on the list last year. And the churn has been more or less constant over the last 40 years, with 13 to 14 companies dropping out of the top 50 every five years. The last half-century is littered with corporate has-beens. The once- mighty RCA was swallowed by General Electric, and Warner-Lambert by Pfizer. Bethlehem Steel ceased to exist this year. Mr. Mokyr pointed to other bouts of technological and industrial transformation of similar relevance over the last century, including the replacement of the rail-based transportation system with roads and the revolution in communications brought about by the telephone, television and satellites. 'The technologically induced structural change is probably not worse now than it used to be,' Mr. Mokyr said. 'It's just happening in different places.' Robert Gordon, an economist at Northwestern, argues that the innovations that will flow from information technology from now on will be entertaining -like the Palm Pilot and the iPod- but hardly revolutionary. 'The Web could only be invented once,' he wrote in a paper this year. Information technology's fleeting boost to productivity, he argues, is likely to be over. The footprint left by information technology on the economy is large, however, and it is still growing. Information technology has changed how companies sell everything from books to airline tickets to equities. The increase in computing power is opening up whole new fields of endeavor, like genetic sequencing and biotechnology. Many businesses are just now learning to deploy technology usefully. Perhaps most significant for corporate America, the Internet has enabled a new wave of global outsourcing, allowing once nation-bound companies in the service sector - the biggest part of the American economy- to dispatch parts of their business to cheap labor markets on the other side of the world.

Subject: Social Security From: Franak To: All Date Posted: Tues, Dec 07, 2004 at 17:36:05 (EST) Email Address: khorshid_45@hotmail.com Message: I read Krugman's article in today's NY Times (12/07/04), which made me furious. When I run counter to folks on the left it is over Social Security, because they usually don't get as far as thinking of it in class terms. Even when Krugman mentions this, it is in a backhanded way. He is as dishonest about this issue as those he calls the privatizers. The privatizers make that self-contradicting argument, to be sure, and they do come to bury it, not save it. But Krugman would rather explode the privatizer argument than take an honest look at the trust fund as meaningless argument. He tries to have it both ways just as he accuses them of doing. They, according to Krugman, say the trust fund is not really an independent entity, but in the next breath they attribute independence to it to invent a future crisis. Krugman commits the same offense in reverse. It is an independent entity until it gets in trouble, then, magically, fiscal packages that would secure the retirement program can save it. If they can't have it both ways neither can he, if honesty is our goal. Either it is part of the big picture or it is independent. I recently read an article in Oklahoma Business Bulletin and I recommend to all of you to read it. It's eye opener and explains what is the Social Security real problem. Here is the link: http://price.ou.edu/cemr/cemr_body/pdf/cemr_bulletins/JULYOBB.2003.pdf

Subject: Re: Social Security From: Paul G. Brown To: Franak Date Posted: Tues, Dec 07, 2004 at 19:04:20 (EST) Email Address: Not Provided Message: Umm. . . Lots of things are 'independent entitis' until they 'get into trouble'. Retail banks (FDIC) are a good example. It (the SS trust fund) is part of the bigger picture, but in terms of a 'looming crisis' it is a much smaller part of the bigger picture than, oh, medicare/medicaid costs, or the general fund deficit. Krugman's point is that the SS trust fund is independent of the general fund until it it gets into trouble, and that a relatively modest change to the payroll tax would practically guarantee that it would remain independent of the general fund forever. I'm confused about what got you furious. What policy or position are you advocating?

Subject: Re: Social Security From: Ari To: Paul G. Brown Date Posted: Tues, Dec 07, 2004 at 20:26:19 (EST) Email Address: Not Provided Message: What is the objection? The trust fund is surely not meaningless, because payroll taxes provide a nice surplus above the amount needed for Social Security benefits. The surplus has been there since 1982. Social Security is secure if we wish to keep it secure. I surely do.

Subject: Confidence or the lack of it...... From: Pete Weis To: All Date Posted: Tues, Dec 07, 2004 at 12:12:23 (EST) Email Address: Not Provided Message: may have more effect on our economic future than stimulus policies - whether we are talking about confidence in the consumer, confidence in the dollar, or confidence in our government's fiscal policies. This demonstrates the limits of the power of the federal reserve - it can add liqudity but it can not control where that liquidity ends up. A year after the greatest economic stimulus package has mostly run its course, we should begin to get a read on which way this economy is headed in 2005. From the New York Times: December 5, 2004 ECONOMIC VIEW Long on Cash, Short on Ideas By ANNA BERNASEK MONEY affects people in different ways - it emboldens some but makes others cautious. Right now, healthy profits seem to have made corporate leaders meek. Business investment seems to be losing steam. And growth in jobs and the overall economy could soon sputter, too. What's holding companies back? Can anything be done to rev up their investment spending? After the 2001 recession, economists looked in vain for an expected rebound in spending by companies. The long-awaited recovery showed up in the second half of 2003, but it has slowed sharply in the third quarter of this year. According to recent government figures, gross private investment grew at a mere 3 percent annual rate in the third quarter after expanding at a double-digit pace for the previous four quarters. The upshot is that corporate America's contribution to overall growth was cut by two-thirds during the last quarter, to 12 percent from an average of 40 percent in the previous four quarters. There's no mystery about what has changed. The main force behind the investment recovery - spending on technology - grew at a 13 percent pace in the second quarter, then just 7 percent in the third quarter. 'I think capital spending has done its thing for this recovery,' said Nariman Behravesh, chief economist at Global Insight, an economic forecasting firm. 'While I don't expect it to fall out of bed, it will slow down.' Mr. Behravesh is in good company. Most economists are forecasting weaker business spending next year. But hang on. It's not supposed to be like this. By this point in the economic cycle, strong profits would be expected to translate into pretty spectacular investment spending, spurring dynamic growth in jobs and in the overall economy. Ideally, that should create a self-sustaining cycle of ever higher profits, investment and economic growth. But instead of investing, corporate America has been accumulating cash - big piles of it. According to the most recent figures from the Federal Reserve Board, nonfinancial corporations increased their liquid assets by 20 percent, to a record $1.3 trillion, from the start of 2003 to June 2004. Think about all that money for a minute. It's about 10 percent of the total economy, and much of it is virtually stuffed into a mattress. It's not the normal state of affairs. In a recent speech, a Fed governor, Roger W. Ferguson Jr., highlighted the unusual trend. Historically, capital spending has almost always been larger than a company's cash flow, according to Mr. Ferguson. That is because corporate leaders usually have a lot more ideas about how to generate future profits than they have cash on hand to do it. Today, it's the opposite. Companies seem to have more cash than ideas. So what's going on in all those thick-carpeted boardrooms? Have managers really run out of good ideas? One can only speculate. Mr. Ferguson said the cash buildup was a troubling sign of weak confidence. 'Given the current low interest rates, the preference for holding financial assets over expanding operations suggests that businesses lack confidence in the future profitability of their potential ventures,' he said. Factors like high oil prices, international tension, immense budget deficits, high consumer debt and stretched consumer budgets could be weighing on decision makers. But there are other considerations. Consider all the investment opportunities out there. Is it possible that corporate leaders just can't find enough acceptable opportunities to expand their operations - at least not at home? Or perhaps it's a question of expectations. Executives who became accustomed to rich returns during the bubble years may not have adjusted their expectations to the current climate. They could be holding on, waiting for the home run that seems never to happen. Whatever the reason for holding back, there remains a huge untapped potential for the economy. But that potential may never be fully realized. Investors recognize the problem, which is sometimes called the bladder principle. Uncomfortably large cash reserves build pressure for managers to spend. At a certain point, they may seek relief without due consideration of the wisdom of their spending. Ultimately, the fear of wasting hard-earned dollars leads companies to sit on their hands or, as Microsoft chose so dramatically, to return the hoard to shareholders rather than invest it. With so much potential sitting idle, can anything be done to encourage wise business investment? One popular recent approach has been to allow businesses to accelerate the depreciation of their investments, a tax incentive that encouraged buying of certain items. Legislation allowing this went into effect in 2002 and will expire at the end of this year. But so far, evidence suggests that the policy's economic impact has been modest. Two economists at the University of Michigan, Christopher L. House and Matthew D. Shapiro, recently studied the policy and found that while the accelerated depreciation rates did bolster spending on long-life assets, the effect on the overall economy was not large. THEY calculated that the policy might have increased output by 0.1 percent over all and resulted in 100,000 more jobs. As the policy expires at the end of this year, those gains could shrink. In any case, government incentives have their limits. 'A firm isn't going to want to install capital, even if it's cheap, if it can't use it in the future,' Professor Shapiro said. 'If people come to expect we'll have a relatively strong economy over the next few years, that will be more important than any of these tax changes.' That insight may be crucial to understanding the problem. The best path forward may not be paved with a clever government fix but rather with a steady diet of fiscal responsibility, wise international diplomacy and price stability. And for individual businesses, the task may be refocusing on the difficult and expensive path of investing steadily and courageously in their long-term strategies. Subtracting a bit from those cash piles could add nicely to the economy.

Subject: Re: Confidence or the lack of it...... From: Terri To: Pete Weis Date Posted: Tues, Dec 07, 2004 at 17:10:53 (EST) Email Address: Not Provided Message: The problem with lack of enough corporate investment could in time be slowing productivity growth rates. This might still be a result of the capacity that was build during the investment explosion after 1994, or possibly foreign investment is more enticing and foreign profits are easily tapped for such investment.

Subject: estrategia perdedora From: fedra areiza To: All Date Posted: Tues, Dec 07, 2004 at 07:26:52 (EST) Email Address: fareiza@unalmed.edu.co Message: Pido a la comunidad entendida, informaciòn acerca de la estrategia perdedora de Paul Krugman Agradezco su colaboraciòn, FEDRA AREIZA

Subject: It's my birthday today and... From: Yann To: All Date Posted: Tues, Dec 07, 2004 at 03:42:27 (EST) Email Address: Not Provided Message: ... Paul has a new NYT column out today. Thank you, Paul!

Subject: Re: It's my birthday today and... From: El Gringo To: Yann Date Posted: Tues, Dec 07, 2004 at 12:30:29 (EST) Email Address: nma@hotmail.com Message: Well, happy birthday Yann

Subject: Re: It's my birthday today and... From: Terri To: El Gringo Date Posted: Tues, Dec 07, 2004 at 12:58:54 (EST) Email Address: Not Provided Message: Happy birthday to Yann.

Subject: Re: It's my birthday today and... From: Yann To: Terri Date Posted: Wed, Dec 08, 2004 at 03:37:43 (EST) Email Address: Not Provided Message: Thanks.

Subject: Re: It's my birthday today and... From: Ari To: Yann Date Posted: Wed, Dec 08, 2004 at 14:43:21 (EST) Email Address: Not Provided Message: Happy birthday, a bit late for how was I to know!

Subject: Re: It's my birthday today and... From: Jennifer To: Yann Date Posted: Wed, Dec 08, 2004 at 10:52:59 (EST) Email Address: Not Provided Message: Say Hay, Jann.

Subject: Re: It's my birthday today and... From: Emma To: Yann Date Posted: Wed, Dec 08, 2004 at 06:13:09 (EST) Email Address: Not Provided Message: Dear Yann, Happy birthday.

Subject: Re: It's my birthday today and... From: Yann To: Emma Date Posted: Thurs, Dec 09, 2004 at 03:50:38 (EST) Email Address: Not Provided Message: Thanks again!

Subject: Venture Capital Flocks to China From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 21:29:11 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06venture.html?pagewanted=all&position= Talk of a Bubble as Venture Capitalists Flock to China By GARY RIVLIN SAN FRANCISCO LATELY, a joke has been making the rounds among Silicon Valley venture capitalists: these days, you're far more likely to run into a colleague at a hotel bar in Beijing or Shanghai than at a local haunt in Northern California. The joke has the ring of truth. These days, venture investors say, it is hardly possible to step into the business-class cabin of a flight from San Francisco to China without running into at least a couple of competitors. Gerard H. Langeler, a partner in the Portland, Ore., office of the OVP venture partnership, confesses that he is frightened when he contemplates all those trips to China. 'It's a scary thing because you worry the bubble phenomenon is moving five years later to a different locale,' he said. Venture capitalists are focusing on China partly because they are sitting on more money than they could possibly invest in American-based start-ups. Collectively, venture firms in the United States have on hand $64 billion, according to the research firm VentureOne, yet they are investing only about $5 billion a quarter. Investors, who are focusing on semiconductor, telecommunications and Internet start-ups, also want to tap China's potential to provide outsourcing services to the companies already in their portfolios. But mainly, venture capitalists are hauling themselves across 16 time zones because of successes like 51job Inc. The company, a Shanghai-based provider of integrated human resource services in China, went public on the Nasdaq on Sept. 30. Doll Capital Management, based in Menlo Park, Calif., invested $14 million in 51job in early 2000. Today that investment is worth more than $260 million and represents the largest return in the firm's history, said David Chao, a Doll Capital founding partner. Doll Capital was among the first American-based venture firms to invest in China-based start-ups. 'Statistically speaking, it's still better to invest in the U.S., no question,' said Mr. Chao, who figures that he travels to China an average of every six weeks. 'But if you have access to good deal flow in China, and if you have the right experience, the rewards are large.' At the same time, many unhappy endings may lie ahead. Mr. Chao wonders whether the newcomers will demonstrate patience - a trait not normally associated with venture capitalists - or impetuously pursue the next 51job. In the process, they may learn the hard way that China is a very different from anywhere else on earth as a place to do business. 'I think of China as the wild, wild West,' said Mr. Chao, an ethnic Chinese who was reared in Japan. 'Business law has only been in practice for the last 10 years. There are all these fundamental issues that have yet to be resolved. What rights does a shareholder have in China? There's also this significant cultural gap.' Mr. Chao is convinced that in time, many venture capitalists will wish they had remained closer to home. 'There's definitely a bit of a lemming effect going on here,' he said. 'A lot of these guys will end up getting burned.' Jing Huang, managing director of the Softbank Asia Infrastructure fund, is inclined to agree. Mr. Huang was born and reared in China, and earned his B.A. in Beijing. He earned an M.A. from Stanford University and an M.B.A. from Harvard. He distinguishes between venture capitalists like himself who are based in China, though they are investing foreign dollars, and those he calls the 'traveling V.C.'s,' whose offices are thousands of miles away. (A third category, the local venture capitalist investing local money, is almost nonexistent, Mr. Huang and others said.) 'You can hear the difference between the two groups,' Mr. Huang said. 'The traveling V.C. whose interest is only recent sees the positive side of things a lot more than we do. They tend to underestimate some of the difficulties of doing business here. They look at Nasdaq and see 51job and decide they should invest.' The traveling venture capitalist is also inclined to pay American prices for an ownership stake in a Chinese start-up, despite the difficulties of doing business in a country where intellectual property laws are still a work in progress, where private banks are still rare and where regulatory requirements are far more onerous than in the United States. 'In recent months, we've needed to walk away from some deals because the traveling V.C.'s are getting involved, and they are willing to pay too much,' Mr. Huang said. That is especially true, he added, when a start-up is led by a Chinese national who has spent time in the United States. 'They know how to do a very good presentation for the traveling V.C.'s,' Mr. Huang said. Not everyone is inclined to think the worst of the new jet-setting investors. Chang Sun, a venture capitalist at Warburg Pincus Asia in Hong Kong and founder of the China Venture Capital Association, said that most of the venture capitalists who have recently discovered China are 'sort of window-shopping - people are still mainly looking and talking.' Unlike Mr. Huang, who is based in Beijing, Mr. Sun, who is based in Hong Kong, has not seen a spike in the price that venture capitalists apply to local start-ups. 'Chinese companies are holding out for higher valuations,' Mr. Sun said, 'but so far we're not seeing actual deals done in such a way that we're seeing inflated, crazy prices. Not yet at least.' Yet venture capitalists are likely to be encouraged by their American investors, called limited partners or L.P.'s, to start making deals. 'China is the hot place to invest now, and I'm sure there's all this pressure from L.P.'s for some of the funds to start investing in China,' said Michael J. Scown, the regional counsel for Intel Capital's Asian operations. The newcomers are trying to strike a balance between excitement and caution. 'We're learning,' said John Zagula, a venture capitalist with Ignition Partners in Bellevue, Wash., who made his first trip to China this summer. 'We think China is a giant market, and we feel it's our responsibility to learn more. But our general approach is to think hard, be deliberate.' Apparently that is the message that Chinese authorities are trying to communicate when venture capitalists visit their country. Terry Garnett, a founding partner at Garnett & Helfrich Capital, a venture firm based in Menlo Park, Calif., was part of a Silicon Valley Bank contingent that met with local officials and corporate leaders in Beijing and Shanghai in June. Mr. Garnett said: 'The message we all got was: 'Look, we want you to do business here, we need you, you bring capital and technical expertise and management experience and all these things. But be patient. Learn to work with us over the next few years.' ' Yet even patience cannot overcome some problems, starting with geography. The venture capitalist who visits a portfolio company once a week is likely to sense when something is wrong. But how can you tell if a start-up is suffering serious problems when your office is half a globe away? 'The problem with the traveling V.C. is they come here for only one or two weeks and then they leave,' Mr. Huang said. 'That style of investing doesn't work in the U.S. or in European countries, so I'm not sure why people think China is supposed to be the exception.' Still, Larry Chang, a venture capitalist at Battery Ventures in Wellesley, Mass., said he believed that the sudden interest in China would be a boon for American venture capitalists no matter what the fate of those who have only recently discovered this great new frontier. 'There's a massive overhang of capital raised but not yet deployed in the U.S.,' said Mr. Chang, a Chinese-American who has visited China as a venture capitalist once a year since 2001, but has not yet invested there. 'If money is deployed in China, whether people make money on China or whether they don't, it takes pressure off the investment environment here and gives us another path for some of that overhang to be spent down.'

Subject: Gradual Dollar Adjustment From: Terri To: All Date Posted: Mon, Dec 06, 2004 at 21:16:54 (EST) Email Address: Not Provided Message: Stephen Roach is becoming increasingly hopeful about the gradual resolution of our trade problem. The dollar decline so far has been quite orderly and is allowing time for adjustment. I am hopeful. Another year and all might be smooth. Then the problem will be taking care of the government deficit, but that may be lots tougher.

Subject: Dubya's No-Pain Diet From: El Dude To: All Date Posted: Mon, Dec 06, 2004 at 19:43:53 (EST) Email Address: nma@hotmail.com Message: The President's No-Pain Diet by John S. Irons December 3, 2004 According to the president's budget director, you can have your cake and eat it too. To top it off, Joshua Bolton says you can lose weight at the same time. In a recent op-ed in the Wall Street Journal, the head of the president's Office of Management and Budget praised the completion of the 2005 budget process by saying that Congress 'stayed within budget limits and met key priorities,' that they are making progress on budget deficits, and that they are doing this by 'eliminating wasteful spending.' Is the Congress really meeting key priorities? They cut the National Science Foundation budget by over $100 million in the recently passed omnibus appropriations bill that the budget director praised. Low-income energy assistance is '$164 million short of what is needed to cover the anticipated 24 percent increase in home heating costs' according to the Center on Budget and Policy Priorities. These are but two examples, and come next February, there will be dozens – if not hundreds – of additional cuts in the president's 2006 budget. Are we making progress on deficits? The deficit was $413 billion for fiscal year 2004 – an increase over the prior year's deficit of $375 billion. Both of these deficits are at the bad end of an embarrassingly rapid swing away from the record surpluses of the late 1990s. The so-called improvement comes from a bit of accounting fiction – the deficit was lower than an inflated White House prediction from early 2004 – and is a 'trust us, we're projecting improvement' kind of thing. Can we solve the problem by eliminating waste? The budget director claims that this no-pain diet can be sustained by eliminating waste – in part through the president's 'management agenda.' Eliminating waste is of course a good idea, but the deficit is currently about the same size as the entire $388 billion omnibus bill that was just passed. If you look out beyond the next 10 years or so, there will be virtually no money for anything other than national defense, Social Security, Medicare and interest payments. So, unless you think that national parks are a waste, that we don't need interstate highways, that student loans should be eliminated, that we should shut down the Department of Education, and close NASA, there will indeed be some pain. And this pain will show up in our nation's economic performance as our national human and physical infrastructure goes into decline. But budget discipline requires sacrifice, right? If the administration ever takes off their rosy glasses, we will likely be told that we need to make 'tough choices' with the budget. However, the choices they offer will certainly not include any revenue increases – and thus not everyone will be asked to sacrifice equally. To make their choices explicit, it's OK to cut research funding for the National Science Foundation, while just a couple months ago Congress managed to find over $100 billion worth of new tax breaks for corporations. We're being told to sacrifice student loans, and we do not have money for low-income heating assistance, but we can still phase in tax cuts that favor multimillionaires. And somehow we're expected to buy the line that we now need to sacrifice, that we now need to exert some budget discipline? What budget discipline should mean The current budget and deficit situation did not occur accidentally. Tax changes that provided cuts for the wealthy and little to nothing for everyone else have caused revenue to decline and the deficit to explode. At just 16.2 percent of gross domestic product, federal revenue is at its lowest level since the 1950s. If there are sacrifices that need to be made, let us share them together – not increase the tax giveaways for some while asking the rest of us to pick up the slack. Already, those at the very top of the income distribution got the bulk of benefit from recent tax changes – do they really need more? Budget discipline means discipline on all sides, on spending and on taxes – not partisan politics using 'discipline' as an excuse to roll back society's gains. Real discipline means living up to the responsibility to fund vital domestic priorities – everything from education to environmental protection, from health insurance to child nutrition. By failing to provide adequate financial support for our needs, we weaken our nation. The 1990s saw real budget discipline, with balanced budget rules and historic surpluses. We know it can be done. It's time to tell the truth about our nation's finances – the president's policies do not cut the deficit in half. The president's proposals do not maintain current levels of services, let alone meet expanding needs. The president's tax ideas disproportionally benefit a select few. Congress, by following the current destructive policy path, is abandoning all pretenses of fiscal responsibility and budget discipline. The budget director calls for 'political courage' to cut spending even more. Congress should have the political courage to say no to the president's budget, and instead demand real fiscal responsibility.

Subject: We Pledge Allegiance to the Mall From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 17:57:06 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06global.html?pagewanted=all&position= We Pledge Allegiance to the Mall By LOUIS UCHITELLE The United States is now engaged in its greatest age of consumer spending - longer and more intense than the splurge after World War II, when Americans rushed to acquire all the merchandise denied to them during the Depression and the war. That postwar surge in consumption, a pent-up response to years of unemployment, then rationing, subsided in the early 1950's. Not until the late-1980's did the nation - encouraged by market bubbles - once again devote three-quarters of its national income to consumer spending. But this time, the pent-up demand has intensified rather than dissipated, and the global economy trembles from the stress. The sequence is intricate. As consumption has risen in America, absorbing 80 percent of national income now, the production of goods and services has migrated overseas. That is the polar opposite of the post-World War II experience. Then, Americans consumed what they also produced; income from production paid for consumption. Today, in contrast, 21 percent of what consumers purchase comes from abroad, and the figure has risen by a percentage point every two years since 1990, according to Commerce Department data. The figures do not include gasoline or fuel oil. The imports are purchased on credit - consumer credit - and therein lies the stress. 'We outsource everything except consumption, and that is not sustainable much longer,' said Stephen S. Roach, chief economist for Morgan Stanley, arguing that the indebtedness involved in America's obsessive spending will soon disrupt exchange rates, damaging economies. Foreigners are helping to make the indebtedness possible by subsidizing consumer credit through more than $600 billion a year in loans to the United States. Without that injection of borrowed money, the United States would be hard-pressed to fund both consumer credit and its huge budget deficit. Interest rates would rise, making consumption more expensive. By all the rules of international economics, Mr. Roach's prognosis of impending crisis is accurate. Americans cannot endlessly purchase more than they can pay for, while the producing countries, particularly China, provide endless credit to cover the shortfall. That willingness to lend props up the dollar's value - until the day comes that Chinese consumers purchase more of their own country's output, and the pressure to export and to finance the exports declines. Many experts agree with Mr. Roach that America's mounting deficit in its overseas transactions and its growing indebtedness to foreigners cannot be sustained. But much more than in the past, this way of thinking is hotly disputed. The reason is that something novel is happening to the global economy. The age-old concept of comparative advantage has taken a wry 21st-century twist. Nations still trade the goods and services that each produces most efficiently. That is the traditional definition of comparative advantage and, to take just one example, no country is more adept at exporting the fruits of biotechnology than the United States. But as other countries acquire the skills and efficiencies that were once this country's strengths, a new comparative advantage flourishes in the United States that no other nation has come close to matching. That advantage is America's miraculous mechanism for magnifying consumption. The nations feeding this mechanism are mainly China, Japan, most of the rest of Asia, Canada and the European Union. Their output of goods and services exceeds the purchasing power of their own populations, so they sell the excess in the bottomless United States marketplace. That gives these other nations a stake in maintaining the new set of comparative advantages. If consumption drops in America, production falls overseas, pulling down other economies. Rising unemployment adds to the already huge number of people without work, especially in China. But consumption in America has not fallen, not even in the 2001 recession. For the first time, it rose in the United States during a recession. 'With some relatively minor adjustments, we can maintain this system of us consuming and them producing for a long time,' said Martin Regalia, chief economist at the United States Chamber of Commerce. For him and others in his camp, a mild dollar devaluation, gradually increasing the cost of imports, is enough of an adjustment, for now, to take the edge off consumption. The dollar has indeed declined in recent weeks - significantly against the euro, but less against the currencies of the Asian countries, although even against them the pace has accelerated. The big holdout is China, whose currency is pegged to the dollar. The resistance to devaluation draws no protest from the chamber. While Mr. Regalia calls for minor adjustments, the chamber itself espouses neither a stronger nor a weaker dollar. That is partly because one-quarter of the chamber's three million members are retailers who benefit from America's high level of consumption, much of it imported on credit. The pressure from American manufacturers for dollar devaluation is also diluted. The rising efficiency of low-wage Asian workers draws manufacturing operations relentlessly overseas - so much so that manufacturing's share of the gross domestic product fell to 12.7 percent last year, from 15.4 percent in 1998. The cost of the new global alignment is evident in the Commerce Department's reports and in other government data. The current account deficit, the balance sheet for all of the nation's international transactions, is approaching an astronomical $630 billion this year, most of it a result of the imbalance in merchandise trade. Indebtedness to foreigners, mainly to pay for this imbalance, was $4.5 trillion in the third quarter, double what it was less than six years ago. The debt is rising most quickly in Asia, where the Chinese government, for example, takes the dollars that Americans spend on imports from China and lends them back to the United States so consumer spending can continue, on credit. The dollar's reputation as a particularly safe reserve currency only adds to the willingness of other countries to lend to Americans. THE recycling comes mainly through the purchase of Treasury securities. These purchases in turn help fund the Bush administration's budget deficit, and the influx of cash is enough to hold down American interest rates. The lower rates keep down the cost of consumer credit and encourage the raising of cash through mortgage refinancing - a type of consumer credit that is rare elsewhere in the world. This borrowing sustains the spending binge, even as incomes have stagnated since the 2001 recession and jobs have disappeared. No other nation possesses the same huge network of retail outlets, whose productivity is rising faster than any other sector of the economy, according to the Bureau of Labor Statistics. No other people are as drenched in advertising and product promotion. No other country maintains so sophisticated a warehouse and distribution system, linked to consumers not only through malls but through the Internet and call centers. 'Once you get into a mall, you are confronted with a huge array of inexpensive goods, and you have driven to the mall, so you can bring a lot home in the car,' said Stephen Brobeck, the Consumer Federation's executive director. 'In European cities you walk to a mall, if there is one nearby, and walking, you can't carry as much home. We have more cars per capita than Japan or Europe.' What may in the end undo the new form of comparative advantage is not current account deficits or misaligned currencies, but social forces. Tens of millions of Asians could insist on higher wages so they could consume more, too. Or, American consumers could succumb to an overload of debt and stagnant incomes. Mr. Roach, the Morgan Stanley economist, sees the former happening first. 'We are assuming that Asians, in particular, are willing to put aside their aspirations as consumers,' he said, 'and continue indefinitely as low-wage producers unable to consume what they produce.'

Subject: Anxiety for an American Family From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 16:00:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06textile.html Anxiety for an American Family By ARIEL HART ADAIRSVILLE, GA. Twenty years ago, Carolyn Richard of Adairsville, Ga., walked into Shaw Industries in nearby Cartersville and asked for a job application. She needed to leave high school to support her two toddlers, and she had a cousin who worked at Shaw, which is based in Dalton, Ga., and is owned by Berkshire Hathaway Inc. 'I was just looking for a job,' said the soft-spoken Ms. Richard, now 39, who still laughs in disbelief at getting her first and only job. 'They called me like in the next week. I couldn't believe it.' Now, she makes $14.39 an hour, after starting at $4.98 an hour, and works 8 a.m. to 4 p.m., Monday through Friday. She is trained in various carpet making tasks: creeling, where she makes sure the yarn stays spooled; operating the carpet-making machines; and mending. Those toddlers are now grown women, and one of them, Katrina, 22, also works in a textile mill. A third daughter, Shondrecka, is 16 and a junior in high school. Ms. Richard reared them all in Adairsville, population 2,542, where five years ago she bought a modestly furnished trailer home. She lives there with her husband, William Ingram, 40, who is unemployed. They have a 1997 Mitsubishi Galant. Their desktop computer, where children in her extended family play Internet games, has a pink mouse with a transparent tip. Pictures of her children and framed poems line the walls. She has been thinking of taking computer classes nearby, but it would be hard to leave town for a computer job elsewhere, even to move an hour south to Atlanta. As she steps out her door, she points across the street and the lush grass to the trailers of several relatives and to her wooden childhood home, just a stone's throw away, where her mother still lives. On a recent Sunday afternoon, she sat at her kitchen table watching her daughters Melindy, 23, and Shondrecka lounge on puffy couches in her living room, playing with a cousin's 2-year-old daughter. Her son-in-law stopped by. He left work in the mills for better pay in heating and air-conditioning, but her sister, brother-in-law and several cousins still work in textiles. Just as Ms. Richard's parents wished that she had gone to college instead of the textile mills, Ms. Richard wishes Katrina, her middle daughter, had gone to college. 'She would have done better,' she said. Still, the family 'has come a long way,' she said. Ms. Richard's mother was a hotel maid, and her father had a variety of manual labor jobs; neither went to high school. Her grandparents farmed nearby. Ms. Richard has a G.E.D. thanks to Shaw, which arranged for free classes at the plant, and gave the graduates gowns, class rings and a ceremony. The company also provides medical, dental and vision insurance, and a 401(k) retirement plan. 'They care,' Ms. Richard said. If she studied computer programming, the company might subsidize the training if it led to work there, she said. After 20 years of manual labor, she said working with computers would be a welcome change. 'I got a little too old to be in textiles,' she said. 'It's a lot of hard work.' What is more, a pall falls over her and her co-workers when they hear of plant closings that have cost the state 1,000 textile jobs in the last year. Jobs in Georgia's textile and apparel industries have fallen to 84,000 from 149,000 in 1994, the Georgia Department of Labor said. 'Sometimes we get worried and think maybe they're going to close us down,' Ms. Richard said. 'A lot of places have been closing and moving to another country.'

Subject: From a Poor Village to Job Security From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 15:46:15 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06chinaworker.html?oref=login&hp From a Poor Village to Job Security By DAVID BARBOZA ZHANGJIAGANG, CHINA The world's factory floors are now populated with people like Yun Liu, a 23-year-old woman from the countryside who shares a cramped house with her sister and eight other women who work in a factory. All the women are from her hometown, Siyang, about four hours north of here. 'This is my room,' Ms. Yun says shyly, as she steps into a room that is about 10 feet by 10 feet and furnished only with a bed, two small tables and a tiny dresser. 'There's not much here, but it's comfortable.' Four years ago, Ms. Yun came here to work in this bustling factory town about two hours north of Shanghai at one of China's largest textile mills, the Huafang Cotton Weaving Company. Huafang's 30,000 employees are mostly young women who were lured here from small villages in the Chinese countryside. Like most of the women at Huafang, Ms. Yun came here right after high school, intending to work a few years and save money, before returning home to get married. She has already stayed longer than most. 'I'm going to get married late,' she says matter of factly. 'I want to work a few more years. Then we'll see what happens.' Ms. Yun, who earns about $130 a month, works the morning shift in a factory that operates around the clock. She works at station No. 13, operating a group of machines that spin raw cotton into thinner and thinner threads that eventually end up on a spool that is destined for clothing makers. She swabs the machines with a brush, cleans cotton out of the gears, patches up strands of cotton and pushes wheelbarrows of spun cotton to their next destination in the spinning process. Here in Huafang's new, 30,000 square meter plant, the floors hum with the sound of hundreds of whirring machines. Fine pieces of cotton float through the air, landing on the faces, brows and hair of the young women who dominate the floor. After work, Ms. Yun walks just a few hundred yards to the house she shares. The women cook outside in the courtyard, in a makeshift kitchen constructed of cardboard and metal. They wash their clothes by hand, in a small pail. Each has a small room. And they share cleaning duties. But no one here seems to mind. Indeed, the women giggle and say they enjoy being here, as if they were away at college. 'I feel comfortable here,' says Ms. Yun, who pays $18 a month in rent. 'And I know a lot of girls from my hometown, so my parents don't worry about me.' This attitude is one reason that companies have moved their manufacturing operations to China. Millions of poor men and women like Ms. Yun and her friends have been willing to migrate to factory cities like this one, where starting salaries are little more than $4 a day. No one knows how long the migration will last, but many of China's 1.3 billion people seem willing to live such an existence. Many of the 20,000 young women at Huafang, almost all outsiders to Zhangjiagang, live in company dormitories. They can be seen filing in and out of the dorms every eight hours, heading to their jobs, spinning and weaving the world's wear. The women's dorms have a 9 p.m. curfew. No men are allowed in after that. There are televisions in the cafeteria. All housing, water and electricity costs are paid for by the company. The workers tend to buy only food and clothing. 'I like the environment here,' Ms. Yun says, of her job. 'The salary is stable, and they always pay us on time.'

Subject: The Two Faces of China From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 10:50:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06main.html?pagewanted=all&position= The Two Faces of China By KEITH BRADSHER GUANGZHOU, China FEW business executives watch the growth of the Chinese economy as closely as Michael R. P. Smith, the chief executive of the Hongkong and Shanghai Banking Corporation. Yet even Mr. Smith was startled when his staff recently projected that in 2034, bank assets in China would surpass those in the United States. 'When I saw that, I said, 'That can't be right,' and I went back to the economics guys,' who confirmed the projection, Mr. Smith recalled. Much the same surprise is cropping up in industry after industry and in country after country. From steel to oil to cars to credit cards, China is poised to become the world's biggest producer and market for many goods and services. Along the way, China has come to terrify many foreign business executives and attract others - and sometimes both at the same time, depending on whether they see the country as a competitor, a cheap source of supply, a market, or all three. Companies across many industries are facing enormous pressure to match prices that are available in China or lose their customers. That can mean deep price cuts of 25 to 50 percent, leading in some cases to job losses, cutbacks and even closings. At the same time, American and European companies are taking advantage of China's vast and inexpensive labor force by moving some of their operations there - and by offering their products to a country whose role as a consumer continues to grow. China is already the largest user of steel and cement and is poised to overtake the United States in consumption of everything from copper to soybeans. These goods are needed in a fast-growing economy with many highways, factories and office towers to build - and with 1.3 billion mouths to feed. China has become the world's largest market for cellphones, and it is catching up with Germany and Japan as a market for cars, although it considerably trails the United States in its appetite for new vehicles. Businesses reaping the biggest rewards include companies that supply China's need for infrastructure, like the General Electric Company, which sells large turbines and aircraft engines. G.E. currently ships roughly $3.5 billion worth of goods each year to China from other countries, mainly the United States, while exporting $2 billion of merchandise from China, mainly to the United States. But companies like G.E. are the exception. American imports from China exceed exports by more than five to one, as retailers like Wal-Mart Stores buy immense and growing quantities of goods from China. With as many people as the entire industrialized world combined, China has tens of millions of unskilled workers willing to work for less than $100 a month. During the Democratic primaries this year, Senator John Kerry repeatedly denounced 'Benedict Arnold C.E.O.'s' who moved jobs overseas. Those statements drew strong objections from the business community, including Democratic business leaders, and Mr. Kerry's comments about trade were relatively tame during the general election campaign. YET many corporate executives wonder how much longer a big American trade deficit and the moving of jobs overseas can persist without becoming the subject of strong protests by Americans who say that foreign workers are taking away their jobs 'China kind of got a pass in this campaign; that may not always be the case,' said Benjamin W. Heineman Jr., G.E.'s senior vice president for law and public affairs. Even trickier could be the Chinese relationship with the European Union, another big market for exports. Powerful European labor unions could force limits on Chinese exports, much as they forced tighter restrictions on Japanese automobile exports in the 1980's and 1990's. 'I'm quite gloomy about Europe - the big industrial countries like Germany, Italy and France,' said Frank-Jürgen Richter, the president of Horasis, a consulting company in Geneva. 'How do you keep growth in these countries if everything is moving to China?' Like Japan from the 1950's through the 1980's, China has shown that a country can sustain high growth rates for many years by combining hard work with a closed financial system that channels very high household savings into countless industrial projects and other ventures selected partly by government bureaucrats. Japan's stagnation since the early 1990's suggests that such policies may have limitations. Predicting when China might hit such a wall has become something of a cottage industry. This has been particularly true in the last year, as Beijing has imposed fairly strict controls on bank lending. The government has raised bank reserve requirements three times and increased the benchmark interest rates for bank loans and deposits once, in response to evidence that the economy may be overheating. Climbing prices for industrial commodities like steel, bid up around the world mainly because of China's rapid growth, have alarmed manufacturers across China. Xin Yumei, an export manager at Yangquan Metals and Minerals in China's north central Shanxi Province, said the price of steel for the company's scissors and pocketknives had jumped close to 20 percent in the last year. 'The price is going up, and I have to raise our prices soon,' she said. Overhanging every assessment is the question of how much more competitive China can become globally if its domestic economy slows, freeing even more goods for export at ever cheaper prices while trimming China's demand for imports. Most executives say they see no sign of this yet, but they are still cautious. 'We don't see the danger of a huge collapse that would cause them to export huge tonnage,' said Nicholas Tolerico, the president of ThyssenKrupp Steel Services, the trading and distribution arm of the German giant. Still, he warned, 'If there were even a slight downturn, probably the first thing that would be adjusted is the amount they import.' Worries that the recent boom in the Chinese economy might be followed by a sharp bust have receded considerably since last spring, when ships were waiting up to a month to unload at clogged Chinese ports, and many Western economists were predicting that Beijing would have to impose draconian measures to prevent an inflationary spiral. But some experts point out that the biggest imbalance in China's economy - the fact that most of its growth depends on often-speculative construction spending - may not be sustainable. Morris Goldstein and Nicholas R. Lardy, two experts at the International Institute for International Economics, contend in a new paper that instead of a 'hard landing' or a 'soft landing,' China may be due for a 'long landing' of slower economic growth that could last for years, as few additional apartment buildings and office towers are built until recently erected ones are fully occupied. China experienced slower growth in the mid-1990's, as it struggled with the effects of a frenzy of construction that reached its peak in 1993. But China did fully recover from that episode. Optimists point to a flourishing of entrepreneurial energy that has long been part of the culture of overseas Chinese communities and has now emerged with full force in mainland China, with productivity improvements that are still being felt.

Subject: Health Care for All From: Emma To: All Date Posted: Mon, Dec 06, 2004 at 10:32:42 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/06/business/businessspecial2/06universal.html?pagewanted=all&position= The Disparate Consensus on Health Care for All By STEVE LOHR IN Washington, the phrase 'universal coverage' is rarely mentioned as the way to provide health insurance for the 45 million uninsured Americans. It evokes memories of the Clinton administration's sobering failure to forge a national health care plan. Yet among health care experts there is a surprising consensus that the United States must inevitably adopt some kind of universal coverage. 'Politically, it's like the electrified third rail on the subway - no one wants to touch it,' said Margaret O'Kane, president of the National Committee on Quality Assurance, an independent group that seeks to improve the quality of health care. But health care experts contend that the issue must be addressed. Their policy proposals vary widely, and the proponents of universal coverage are as different as Dr. William W. McGuire, chief executive of one of the nation's largest health insurers, and Dr. David Himmelstein of the Harvard Medical School, who recommends eliminating big insurers like Dr. McGuire's company, the UnitedHealth Group. Whatever their differences, they do agree that moving toward universal coverage would surely save lives and maybe dollars as well. A report this year by the Institute of Medicine of the National Academy of Sciences found that the uninsured are sick more often than the insured and likely to die younger, resulting in an estimated 18,000 additional deaths a year. The uninsured receive medical care, but often when it is most expensive - acute care at hospitals after emergencies instead of regular checkups and other preventive care. And the uninsured pay only 35 percent of their own medical bills, according to the Institute of Medicine report. Most of the rest is paid by taxpayers through subsidies to hospitals and clinics. Any plan for universal coverage must answer at least three basic questions: Will the move to national coverage follow an incremental, step-by-step path or require drastic change? What role will the government play? What should be covered under a universal system? Dr. Himmelstein, an associate professor at the Harvard Medical School, advocates a fairly sweeping overhaul of health care in America by moving to a single-payer system run by the government. The nation, he said, can no longer afford the costs of bureaucracy in the American system. Dr. Himmelstein was a co-author of a study last year, published in The New England Journal of Medicine, that found that administrative costs represented 31 percent of total health care spending in the United States, about double the proportion in Canada, which has a single-payer system. The culprits, in Dr. Himmelstein's view, are all the middlemen - chiefly insurers - tussling with doctors, hospitals and nursing homes over bills and reimbursements. 'Health care has become a spectator sport with this huge, costly bureaucracy watching over us,' he said. About one million of the workers in the system, Dr. Himmelstein said, are doing unneeded administrative work that could be eliminated. The savings from moving to a single-payer system, he estimated, would be roughly $375 billion a year. 'That allows you to cover everyone,' he said. The single payer, Dr. Himmelstein suggested, would be a pumped-up Medicare with greater buying power to bargain hard with suppliers like pharmaceutical makers, to control drug costs. Not surprisingly, Dr. McGuire of UnitedHealth opposes the single-payer formula. 'The key issue is not who is paying, but what you are paying for,' he said. 'I think we should have mandatory insurance. It should be based on the concept of an essential benefit. Guided by medical science, we should decide what is essential and provide it.' The essential package, Dr. McGuire said, should cover hospital care. It should also promote healthy lifestyles and cover preventive care so that people with high blood pressure or high cholesterol, for example, would be less likely to develop heart disease, which is not only debilitating for the patient but also costly to treat. Preventive care need not be expensive, Dr. McGuire said. For example, there are low-cost generic drugs that are equally effective in most cases - statins for lowering cholesterol and beta blockers for high blood pressure - that cost pennies per pill instead of the dollars charged for brand-name drugs still covered by patents. If a person is employed, his or her employer would have to pay for the essential benefit, according to Dr. Maguire. Self-employed people, or others who are financially able, would pay for their own insurance, and for everyone else, the obligation would fall to the federal government or the states. The thorny issue in an essential benefit program is what is covered and what is not. Shoulder surgery to ease the pain when swinging a golf club or impotence pills should not be considered essential, said Dr. Reed Tuckson, a senior vice president for medical care advancement at UnitedHealth. 'For this to be affordable to society, we need to make some hard decisions about what is essential,' Dr. Tuckson noted. Making health insurance affordable is crucial in any universal coverage plan. Eighty percent of the uninsured are members of working families. But either their employers do not offer health insurance or they find their share of the employers' plans too expensive. The Bush administration and conservatives say the way to cover the uninsured is to make insurance affordable mainly through tax subsidies for companies, especially small businesses, and encouraging them to offer high-deductible insurance plans that cost employers less. Individuals, under this approach, are encouraged to set up tax-free health savings accounts to pay for more of their own care.

Subject: Audit Process From: Setanta To: All Date Posted: Mon, Dec 06, 2004 at 04:41:40 (EST) Email Address: Not Provided Message: as part of my job (auditor) i had to contact a US bank about a confirmation letter sent several months ago. after being transferred and put on hold for almost 40 minutes i was told it was bank policy for the bank only to confirm balances that are specified on the confirm. this policy has a major flaw, directly related to several threads discussed here this month. if we can only confirm those accounts that the company tells us about, how on earth are we to catch all the 'off balance sheet financing', ie. complex derivativatives, off shore financing, even slush accounts??? it is standard practice here to list the name of the company and it's subsidiaries and then the bank gives us a list of accounts, trades and outstanding positions held at the period end. does anyone know if this is policy across the US?

Subject: Re: Audit Process From: Jennifer To: Setanta Date Posted: Mon, Dec 06, 2004 at 05:34:20 (EST) Email Address: Not Provided Message: 'after being transferred and put on hold for almost 40 minutes i was told it was bank policy for the bank only to confirm balances that are specified on the confirm.' Though I will ask a friend to be surer, my understanding is only the balance specified is confirmed.

Subject: Re: Audit Process From: Emma To: Jennifer Date Posted: Mon, Dec 06, 2004 at 10:35:02 (EST) Email Address: Not Provided Message: Only balances specified on the confirm are open.

Subject: Re: Audit Process From: Setanta To: Emma Date Posted: Mon, Dec 06, 2004 at 11:16:26 (EST) Email Address: Not Provided Message: perhaps i should explain it better. i send over a request to list all balances held in the client's name with the bank. they reply that they'll only confirm balances, so we should resubmit the request with the list of balances. this means we get the info from the client and the bank confirms that and only that. if a client omits a balance there is no way we'll know as the bank refuse to disclose any info about those accounts omitted. our exercise confirms what we know, but there may be any amount of deals or accounts that we don't and in the case of derivatives where there is no transfer of cash, there may be huge potential assets/liabilities that the management decide the owners of the company should not know about. bear in mind that the directors sign a release for the bank to supply all information requested. even still banks are not obliged to provide the information requested??

Subject: Re: Audit Process From: Emma To: Setanta Date Posted: Mon, Dec 06, 2004 at 12:13:56 (EST) Email Address: Not Provided Message: Oh, you did explain well, but that is my understanding of the bank procedure here. Only specified balances are confirmed, as opposed to having access to the set of a subject's accounts at a given bank.

Subject: Is the Low-Carb Boom Over? From: Emma To: All Date Posted: Sun, Dec 05, 2004 at 21:43:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/business/yourmoney/05atki.html?pagewanted=all&position= Is the Low-Carb Boom Over? By MELANIE WARNER LAST July, executives of the American Italian Pasta Company decamped at the Atkins Nutritionals office in midtown Manhattan, determined to cook up a new blockbuster product. They spent several days hammering out a deal to put the Atkins name on a line of low-carbohydrate, soy-based pasta. It was the latest food group to be Atkinized. The two companies seemed certain that soy pasta, with 5 to 10 grams per serving of what manufacturers call 'net carbs,' would be a hit. Regular pasta contains up to 45 grams of carbohydrates, so the new product would offer a great way for people on Atkins and other low-carb regiments to indulge - free of guilt - in fettuccine Alfredo and baked ziti. Atkins allotted $15 million for a campaign to announce the introduction. Today, boxes of the stuff are gathering dust in warehouses in Excelsior Springs, Mo. Evidently, consumers never quite cottoned to the unusually chewy pasta. 'Low-carb pasta is an oxymoron,' said Marion Nestle, a professor of nutrition at New York University. Atkins and American Italian, the largest maker of dry pasta in North America, have been forced to admit defeat. A month ago, American Italian said that it didn't ship any soy pasta in the previous quarter and that sales of its own line of reduced-carbohydrate pasta were 50 percent below projections. The company's stock plunged 23 percent on the news. The story of soy pasta reflects a general malaise that is overtaking what was once the hottest - and still the most controversial - trend in the food business. Last year, practically every major food company was busy re-engineering its high-carb goodies into newfangled low-carb versions. Some 3,737 products, including new flavors and varieties of existing foods, were introduced with low-carb marketing in the last two years alone, according to ProductScan Online, a service that tracks new products. Over the last several months, however, manufacturers have begun to wonder what to do with all of this food. In a conference call in July, Carlos Gutierrez, the chief executive of Kellogg (and now President Bush's nominee to be the next commerce secretary) told investors: 'There's a bit of a glut of low-carb products. Inventories are extremely high.' Although it may be premature to declare the death of low-carb foods, many food industry analysts say that the movement is at least deeply wounded. 'The bloom is off the rose,' said Tom Vierhile, executive editor at ProductScan Online. Paul Gannon, chief marketing officer at Albertsons, the grocery chain, said he expects to be selling far fewer low-carb offerings six months from now. 'I think there's a small percentage that will survive,' he said, 'and the rest will go away.' Certainly, many brands of low-carb cookies, cereals and frozen dinners aren't flying off the shelves the way they once did. According to ACNielsen LabelTrends, total sales for products marketed as low-carb grew 6 percent for the 13 weeks that ended Sept. 25, versus double-digit and triple-digit gains in such periods late in 2003 and in the first half of this year. Some analysts say that it is a case of supply vastly outstripping demand. While many dieters have grown disillusioned with low-carb dieting - either because they lost weight quickly then gained it back or because they missed eating traditional ice cream and pasta - companies are still churning out new products. Consumers may also have been scared by some doctors' warnings that low-carb plans encourage dieters to consume too many calories and too much saturated fat, which may contribute to heart disease. According to the NPD Group, a research firm, the percentage of Americans who followed low-carb diets like Atkins, South Beach or the Zone fell to 4.6 percent in September from 9 percent in January. Over the same period, the number of products in the low-carb category doubled.

Subject: Re: Is the Low-Carb Boom Over? From: Setanta To: Emma Date Posted: Mon, Dec 06, 2004 at 04:31:10 (EST) Email Address: Not Provided Message: thank god!!!! i'm still waiting for the rash of lawsuits to break out. atkins actively encouraged eating fried 'heart attack' food. they forgot about: 1) fibre 2) vitamins 3) common sense 4) the 'an apple a day' adage

Subject: Re: Is the Low-Carb Boom Over? From: Jennifer To: Setanta Date Posted: Mon, Dec 06, 2004 at 05:30:22 (EST) Email Address: Not Provided Message: Suddenly my friends would not even drink orange juice because they were afraid of the carbohydrates. Now, I hear nothing about the low carb from them. How absurd we are. Americans can not get enough of fad diets, and Americans get fatter. The low carb diet was even being pitched by a doctor on Public Broadcasting System to help raise funds. All fat, all the time. Bacon and eggs, hold the orange juice. Duh.

Subject: Labour...and Financial Capitalism From: El Gringo To: All Date Posted: Sun, Dec 05, 2004 at 14:49:55 (EST) Email Address: nma@hotmail.com Message: Labor in a World of Financial Capitalism by Robert J. Shiller The traditional hostility between labor unions and the world of finance should not obscure their common interest in using financial tools in an expansive and creative way. We live in an age of financial capitalism, and the only intelligent way forward – for unions and other workers’ associations – is for these bodies to help their members make increasingly sophisticated use of the tools of risk management. The traditional boundaries between labor and capital are becoming blurred. For example, companies increasingly augment standard wage packages with stock options, even for rank-and-file employees. In the United States, the Labor Department reports that in 2003, 14% of US workers in firms with 100 or more employees were offered stock options. Expect more such packages in the future. The problem is, most employees do not fully understand options or stocks and do not know how to evaluate them. A recent paper by MIT Professors Nittai Bergman and Derk Jenter suggests that management tends to award employee options when employees are excessively optimistic about the outlook for company stock – thereby in effect opportunistically substituting overpriced options for full pay. Unions and workers associations are the natural vehicles to monitor such behavior, but they must invest in the expertise to do so effectively. They should not stand in the way of compensation that includes stock options, or that otherwise create financial risks for their employees. But they should make sure that such programs are administered in employees’ interest, because companies that encourage their employees to hold options or to invest directly in the company’s stock are asking them to take on some of the company’s risks. To be sure, sharing ownership can help employee morale. But it also creates an unhealthy concentration of risks: not only the employee’s job, but also his assets now depend on the company’s fate. The scandal at Enron, in its final days, was that management prevented employees from selling their Enron shares while executives unloaded their own shares. Obviously, unions need to be alert to such bad behavior. More generally, they must examine employee ownership programs both sympathetically and analytically, in order to suggest ways to hedge the risks they create. The same is true of other financial tools. Labor unions have long pointed with satisfaction at hard-won contracts that specified a defined-benefit pension for their members. But these unions were often without the financial sophistication to judge whether the firm set aside sufficient capital to meet its commitments decades later. In the US, union failure to represent members’ interests adequately contributed to a major pension default at the Studebaker Corporation in 1963. The AFL-CIO, the United Auto Workers and the United Steel Workers then petitioned Congress – against strong opposition from business interests – to establish the Pension Benefit Guaranty Corporation in 1974 to insure private pensions against companies’ failure to honor them. Gradually, many countries, with prodding from their trade unions, now have some form of benefit protection plan for private pensions. The latest example is the United Kingdom, where trade unions have spurred the creation of the Pension Protection Fund, which will begin operating next year. But it is not clear that these plans will succeed fully. Declining stock markets and low interest rates, have left private pensions around the world more vulnerable than was expected. Moreover, the risks to pension funds may correlate with risks to other economic factors affecting specific groups of workers. This means that unions should not leave the complex financial problems of designing pensions entirely to governments. Local unions need to be involved, for the issues involved are specific to companies and workers, and cannot be resolved by governments alone. Indeed, the essence of labor unions is that they know the unique problems of a distinct group of workers, bring focused expertise on these problems, and thus intelligently represent their interests. In today’s complex financial economies, representing workers’ interests is not so simple as battling with management for a bigger share of the pie. Unions should instead negotiate with management the same way top executives do with their boards of directors when their complex compensation packages are worked out. Unfortunately, instead of learning how to think in financially sophisticated ways, we still see labor unions in Europe and elsewhere dwelling too much on job security for working people. But making it difficult for firms to lay off workers provides only an illusory benefit for workers, for it compromises companies’ ability to compete, and weakens their incentive to create jobs. The alignment of incentives lies at the heart of modern financial theory. Labor unions should negotiate with management about providing appropriate risk management to their employees in financial forms: the right kinds of insurance, options, and other investments to protect them realistically without guaranteeing their employment and without jeopardizing the productivity of the firm. Complex financial capitalism is here to stay, and we all have to learn to live with it. Union leaders must study finance rather than condemn it as evil. They must develop a cadre of professionals with a sophisticated understanding of risk management, and must work to educate their members in the financial subtleties of their specific circumstances.

Subject: Re: Labour...and Financial Capitalism From: El Gringo To: El Gringo Date Posted: Sun, Dec 05, 2004 at 21:10:10 (EST) Email Address: nma@hotmail.com Message: Human psychology and human creativity are two extremely powerful actors in the process of modern economic development, and they can no longer be ignored.

Subject: Working the system From: Pete Weis To: El Gringo Date Posted: Mon, Dec 06, 2004 at 11:49:04 (EST) Email Address: Not Provided Message: December 5, 2004 GRETCHEN MORGENSON In the Timing of Options, Many, Um, Coincidences VER notice how huge stock option awards are often given to executives just ahead of bullish company news? The Securities and Exchange Commission apparently has. Last Tuesday, Analog Devices, a maker of integrated circuits, disclosed that the S.E.C. had requested information about the timing of option grants given to company executives and directors during the last five years. In its disclosure, the company noted that its grants in some years 'occurred shortly before our issuance of favorable annual financial results.' The company added that it believed other companies had received similar inquiries from the regulator. The S.E.C., as is its custom, declined to comment on the inquiry. As executives have binged on stock options in recent years, academic studies have detailed the opportunities for fatter pay that well-timed option grants represent. By analyzing stock price behavior after option awards, these studies concluded that corporate managers systematically receive options at prices that do not reflect favorable nonpublic information. Options typically carry a strike price - the level at which they can be converted into common shares - equal to the prevailing market price of the underlying stock on the day of the grant. Any increase in the underlying stock, therefore, means a potential gain for the option holder. Because stock options are typically exercisable for 10 years, they are extremely valuable. Many companies dispense options at preset times during the year, limiting the opportunity for timing mischief. But 40 percent of grants were issued whenever a board chose to do so, according to an academic study published in 2000. Directors on a company's compensation committee typically approve option grants, but chief executives wield significant power among directors in these matters. Even though most grants can be exercised only in fractional increments over time, academics have also found that gains in share prices immediately after a grant usually hold up over the long haul. In an article in the North Carolina Law Review last March, Iman Anabtawi, acting professor at the School of Law at the University of California, Los Angeles, called favorably timed option grants 'secret compensation.' Grant timing is hard to detect and rarely analyzed, she said, so shareholders are not aware of the consequences. 'Allowing a company to time option grants around inside information,' Ms. Anabtawi said, 'is substantively equivalent to allowing a company to engage in insider trading in the open market and then secretly pay its executives with the profits.' KENNETH F. BROAD, a portfolio manager at Transamerica Investment Management, says he is distressed by these practices because they put the interests of executives squarely against those of their stockholders. He, like Ms. Anabtawi, likens the practice to insider trading. 'Even if technically it's not illegal, shareholders who own stock in a company that does this should think long and hard about the management they are dealing with,' Mr. Broad said. 'Every dollar lower on the strike price is at the shareholders' expense.' Analog Devices is a heavy user of options. A recent analysis by Adam Parker, an analyst at Sanford Bernstein noted that in each of the last five years, the company has handed out options representing about 3.5 percent of the company's shares outstanding. One option grant that the S.E.C. may be scrutinizing occurred on Nov. 10, 2000, and covered 920,000 shares given to the company's top five executives. The strike price was $44.50 a share, just $2.25 above the stock's low for all of 2000. Three days later, Analog Devices reported that Siemens A.G., the German electronics maker, had decided to use two of the chip maker's products in its new wireless phones and devices; the stock rose 8.3 percent on the news. The next day, the company announced that its fourth-quarter profit had more than doubled. The shares jumped to $55.50. Within a week of the grant, shares of Analog Devices had risen, up 34.3 percent. Maria C. Tagliaferro, a spokeswoman for Analog Devices, said the company was considering how to grant options without creating the perception of executive opportunism. She said the options from 2000 could start being exercised only last year and that at recent prices - $38.66 as of Friday's close - the options were now underwater. Still, from October 2003 to July 2004, Analog Devices' shares were above the options' strike price, meaning that they could have been cashed in at a profit. Another example of a spectacularly timed options grant is the one received last year by Erik C. Blachford, a founder and former chief executive of Expedia, the online travel retailer. Mr. Blachford had been named Expedia's chief executive in February 2003, when the company was partially owned by USA Interactive, the online conglomerate overseen by Barry Diller that is now called InterActiveCorp. On March 17, 2003, Mr. Blachford received options to buy 253,000 shares of Expedia at $39.38 each. Two days later, USA Interactive announced that it would acquire in a stock-for-stock deal the Expedia shares it did not already own. The offer, at a premium of more than 34 percent to the prevailing market price, resulted in an immediate increase in the value of Mr. Blachford's option grant. Deborah Roth, an InterActiveCorp spokeswoman, said Mr. Blachford had received the options as 'a bonus incentive for accepting his new position as president and C.E.O. of Expedia, a standard practice we employ with many employees in connection with their promotions.' She declined to comment when asked why the company did not wait to give Mr. Blachford his options until its offer to buy all of Expedia's shares was made public. Alan G. Spoon, a partner at Polaris Venture Partners in Waltham, Mass., is chairman of InterActiveCorp's compensation committee of the board. He did not return a phone call seeking comment about the grant's timing. In August 2003, when InterActiveCorp completed the Expedia buyout, Mr. Blachford's 253,000 options became 490,503 InterActiveCorp options with a strike price of $20.31 a share. InterActiveCorp shares now trade at $25.01. Last month, Mr. Blachford retired from the company. Ms. Roth said that he was on vacation and not available for comment. RECENT option grants at Cypress Semiconductor have also generated quick value on positive news. On April 11, 2003, for example, the company granted options on 540,000 shares to four of its top executives at a strike price of $7.56. Less than three weeks later, Cypress said its revenue in that quarter would be higher than analysts had been expecting. On May 2, 2003, the stock closed at $10.60. As of Friday, Cypress's shares were at $10.29; the options granted in April 2003 have been in the money since they were awarded. They started vesting immediately in monthly increments of about 1.7 percent of the grant. Joseph McCarthy, Cypress's spokesman, said, 'There is no incentive for opportunistic behavior' relating to the grant because the gains did not represent a windfall. Managers in corporate America may argue that handing out options that almost immediately rise in value generates goodwill among employees, especially those holding options dispensed during the mania of the late 1990's that are now underwater. But most options still go to top managers, so well-timed grants only make the obscenely rich even richer. Making option grants subject to blackout periods around the dissemination of market-moving news, as some pay experts have suggested, would reduce the opportunities for executive enrichment associated with the grants. In any case, because options handed out just before good news are essentially given at a discount, the extra value attached to them should be disclosed to investors as compensation. Sunlight is needed here. And if the S.E.C. finds that well-timed option grants are deplorably common in corporate America, shareholders should revolt. They should vote against compensation committee members who approve such awards or sell their shares outright. Corporate insiders, alas, can be expected to put their own interests first these days. But shame on the shareholders who let them get away with it.

Subject: Psychology and Creativity From: Emma To: El Gringo Date Posted: Sun, Dec 05, 2004 at 21:27:23 (EST) Email Address: Not Provided Message: 'Human psychology and human creativity are two extremely powerful actors in the process of modern economic development, and they can no longer be ignored.' Wonderful comment. I do agree.

Subject: Re: Labour...and Financial Capitalism From: Jennifer To: El Gringo Date Posted: Sun, Dec 05, 2004 at 16:40:42 (EST) Email Address: Not Provided Message: An important essay.

Subject: Saving and Income From: Terri To: All Date Posted: Sun, Dec 05, 2004 at 14:18:24 (EST) Email Address: Not Provided Message: Raising household saving by the way is not a simple matter when wages and benefits are barely keeping up with inflation, and surely we are not to to induce a recession to generate more saving.

Subject: Re: Saving and Income From: Pete Weis To: Terri Date Posted: Mon, Dec 06, 2004 at 12:18:14 (EST) Email Address: Not Provided Message: Terri. When do you expect wages will begin to exceed inflation, especially if the dollar must fall considerably more to extinguish the current account deficit? And if personal debt must continue increasing to fill in the gap between wages and inflation, at what point does personal debt reach maximum sustainability - beyond which no more added debt can be serviced? Would not a prolonged fall in the dollar with the inevitable inflation it would bring about, added to a growing budget deficit, force interest rates higher? If we stay on this road of higher and higher personal and governmental debt, won't the higher rates ahead make the day of reckoning a steeper and deeper recession regardless?

Subject: Re: Saving and Income From: Terri To: Pete Weis Date Posted: Mon, Dec 06, 2004 at 17:47:28 (EST) Email Address: Not Provided Message: Perfect questions, to which I do not have perfect answers. But, I will try to answer in coming posts bit by bit. My hope is that we are too much focused on household debt in a low interest rate enviornment. Given low interest rates, households have acceptable if not desirable debt levels. At least this is what the Federal Reserve governors have concluded. I at least find no reason we are at a breaking point, so feel we can continue a grow level of 3 to 4% for a considerable time. Job creation worries me most. I am thinking.

Subject: Employment and Interest Rates From: terri To: All Date Posted: Sun, Dec 05, 2004 at 14:17:33 (EST) Email Address: Not Provided Message: Notice the continuing weakness in the labor market, 3 years after the end of the recession. This is surely not a time when we would wish to have a sharp increase in long term interest rates. We must take seriously the problems that might be caused China were the Yuan allowed to increase in value, for China's loss could well be ours in terms of higher interest rates.

Subject: Spending and Taxes From: Terri To: All Date Posted: Sun, Dec 05, 2004 at 14:15:56 (EST) Email Address: Not Provided Message: The problem we will come against is an inability to cut government spending enough to make a different in the structural government deficit. We need to gain more tax revenue, but the promise has been no tax increases. Indeed, there will be further tax cuts. After all, we really do need government :) Not that Congress is going to forget about the rewards of state and local government largess. So, little possibility of cutting spending and less possibility of raising taxes.

Subject: Glamour Lives, in Chinese Films From: Emma To: All Date Posted: Sun, Dec 05, 2004 at 13:22:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/movies/05darg.html?hp=&pagewanted=all&position= Glamour Lives, in Chinese Films By MANOHLA DARGIS ONCE upon a time in Hollywood, the stars shone with a radiant glamour; in Chinese film they still do. In movies from Beijing to Hong Kong, actresses like Zhang Ziyi and actors like Tony Leung Chiu-wai fill the screen with heart-skipping beauty and charm. In May at the Cannes Film Festival, audiences swooned for Wong Kar-wai's romantic drama '2046' and Zhang Yimou's latest swordsman epic, 'House of Flying Daggers.' Although they couldn't be more different in story, sensibility and visual pleasures, what the films share in addition to Ms. Zhang is an extraordinary glamour born from the tension between release and repression. These days no one does glamour better than Chinese filmmakers. In American film, where violence invariably trumps sex, glamour tends to surface in period stories like 'L.A. Confidential,' where the director Curtis Hanson explored the distance between gleaming false fronts and hard-boiled reality. David Lynch wields glamour to similar if more disturbing effect in films like 'Mulholland Drive,' while Steven Soderbergh likes to put an old-studio polish on bagatelles like 'Ocean's Twelve.' Meanwhile, in the major Chinese cinemas - those of mainland China, Hong Kong and, to an extent, Taiwan - glamour is serious business. Much as it was in old Hollywood, glamour in contemporary Chinese film is a device and a disguise, but it's also a luminous end in itself. American screens are now awash in interchangeable blonds with hungry mouths and empty eyes, but in the 1930's and 1940's movie stars were divine, agleam with enchantment. By the end of the 1950's, glamour was as eroded as the studio system. No-holds-barred rock 'n' roll and foreign-language cinema did their part to kill glamour, as did Dr. Kinsey, by taking the mystery out of sex and leaving less and less to the imagination. By the time Marilyn Monroe laid down her peroxide head for good in 1962, glamour was a goner. Monroe wore it like a mink stole, tossing it aside when it no longer fit. She had searched for another, truer self, but in the end it wasn't the Actors Studio student in glasses who became immortal. To an extent it was an ideal perfected by glamour photographers, who created the shimmering images that sold the stars and their movies to the public. It's no coincidence that the zenith of glamour photography came at the height of the classic studio system, after the institution of studio self-censorship. With sex banished from the screen, it was left to these photographers to manufacture desire, to turn mortals into deities. In their lustrous images of modern-day Venuses swathed in furs and Achilles in a brilliantine helmet of hair, photographers like George Hurrell sold a suggestion of carnality, a patina of eroticism. Often photographed against dark backdrops, faces surrounded by a nimbus of light and erased of imperfection, Hollywood stars looked like gods because, to us, they were. There are images of Ms. Zhang in 'Flying Daggers' that look as if they could have been shot by Hurrell. With her alabaster skin and dark pooling eyes, her body adorned in rich brocades, and bathing alfresco while discreetly veiled by green woodland, Ms. Zhang doesn't just look bewitchingly lovely; she looks like an MGM pinup. If she were still on watch, Madame Mao would have had a fit and then probably had someone executed. The future Gang of Four member known as Jiang Qing was a Shanghai movie actress during the 1930's, when she was called Lan Ping. From 1966 to 1976, the dark years of the Cultural Revolution, Madame Mao denounced films that didn't conform to her vision of the Communist ideal, including movies that, like so many recent mainland features, explore individualism and personal longing. Film production in China was put on hold for several years during the Cultural Revolution, and the Beijing Film Academy ceased normal operations. Two years after the arrest of the Gang of Four in 1976, the academy began accepting undergraduates again. Among the students in that first class were Mr. Zhang, Chen Kaige ('Farewell My Concubine') and Mr. Kaige's childhood friend, Tian Zhuangzhuang ('The Blue Kite'). Among the first films made by this group, known as the Fifth Generation because it was the academy's fifth graduating class, were social-issue stories set in the countryside where all three filmmakers were sent as teenagers during the Cultural Revolution. Following the Tiananmen Square demonstrations and facing tough restrictions at home, the filmmakers ventured into more commercial terrain with stories that could travel around the world and often did. Since he began directing, much of the appeal of Mr. Zhang's films has rested in their bold visuals and his equally bold women. Mr. Zhang helped return sex, or at least its suggestion, to mainland cinema and, greatly aided by his longtime star and lover, Gong Li, a burgeoning glamour. In early 90's films like 'Ju Dou' and 'Raise the Red Lantern,' the color red is inexorably connected with the central female characters. It is a crimson that announces a radically different world - that of pleasure, individual freedom and beauty for beauty's sake - from that represented by Mao's Little Red Book. Given this, it's no wonder that 'Ju Dou' and 'Red Lantern' were initially banned. (Mainland audiences, meanwhile, would catch banned films on pirated video copies.)

Subject: Latina's Families From: Emma To: All Date Posted: Sun, Dec 05, 2004 at 11:11:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/national/05latina.html?hp=&pagewanted=all&position= For Younger Latinas, a Shift to Smaller Families By MIREYA NAVARRO Rocío Yñiguez grew up in a family of seven children in Jalisco, Mexico. She remembers how friends of her parents proudly displayed a clock in their living room with a picture of each of their 12 children, a son or daughter for every hour. Ms. Yñiguez, 35, a department store cashier who now lives in Redwood City in the San Francisco Bay area, said she could not imagine having more than the three children she has, not if she wants to educate them and ferry them to soccer games, dance lessons and play dates. And she does not want to diverge from the goal that brought her to this country. 'You need to work to get ahead, and with children it's too hard,' she said. Her decision to stop at three has made her part of a trend that is catching some demographers by surprise. Latina women are choosing to have smaller families, in some cases resisting the social pressures that shaped the Hispanic tradition of big families. Latinos became the country's largest minority partly because they had the highest fertility rate among the major ethnic groups. But that fertility rate is on the decline as more women work at a younger age, achieve higher levels of education and postpone marriage, all of which affects when they will give birth and how often, sociologists who study Hispanic trends say. In California, with the largest Hispanic population, state demographers recently scaled back their population projections for 2040 by nearly seven million people, citing as one major reason the continuing drop in the fertility rate of Latina women to 2.6 children per woman in 2003, from 2.8 in 1997 and 3.4 in 1990. Nationally the fertility rates for Latinas dropped to 2.7 children in 2002 from 2.9 in the early 90's (although the rate has risen in some states with newer immigrant populations, like Georgia and North Carolina). Demographers say the decline is significant because of the size of the Latino population - about 40 million - and the implications for long-term needs tied to population growth. In California, for example, the increase in the school-age population will not be as striking as was anticipated, some said. 'It means Latinos, men and women, are increasing their options of what kind of life they're going to have,' said William Frey, a demographer with the Brookings Institution in Washington who studies race and ethnic change. Family may still come first, Mr. Frey said, but compromises may be necessary. Now, he said, 'they're like everybody else.' Assimilation into the American lifestyle is certainly fueling the trend. Studies by the Public Policy Institute of California, a research organization in San Francisco, show that American-born Latinas have a much lower fertility rate (2.2) than that of immigrant Latinas (3.1) in the state. But the studies also show that the rate for immigrant women has dropped 30 percent over the last decade, reflecting birth trends in home countries like Mexico. Isis Moran, a 19-year-old from Santa Ana in Orange County, said she planned to have two or three children, even though her Mexican-born mother, Viviana Abalo de Moran, 42, warns her she might regret having that few. At her daughter's age Mrs. Moran was already married and pregnant with the first of her five girls. She is one of 11 siblings, all of whom, she said, had to work in the fields in Mexico and most of whom did not get past elementary school. 'I asked my mom, 'Why so many children?' ' said Viviana Moran, who by 14 had left for California. 'It was ignorance. They didn't know how to take care of themselves in those days. My mother started taking the pill after the 11th child.' Mrs. Moran, a nurse assistant, said she had five daughters while trying for a baby boy to please her husband. But she likes the idea of a full dinner table at Thanksgiving and Christmas, she said, and warns her daughters to think 'how you'll feel with a table with just two children.' Her daughter, a sophomore at Cornell University who hopes to pursue a career in politics, said she would feel just fine. 'It's not that the family is not a priority,' Ms. Moran said. 'It's just that there's other things involved. If I'm going to have the profession I'm looking into, it would be rough on a big family.'

Subject: Latina's Families 2 From: Emma To: Emma Date Posted: Sun, Dec 05, 2004 at 11:14:45 (EST) Email Address: Not Provided Message: The resolve to limit their families has led some women to an extreme choice. Digna Campos said she would have been happy with only one child, her 9-year-old daughter. But when her contraceptive - the patch - failed, she found herself pregnant with her second baby. Last month Ms. Campos, 35, joined seven other Hispanic women attending a class on female sterilization at Kaiser Permanente Los Angeles Medical Center. The women watched a graphic video in Spanish that showed the actual surgery and a dramatization of its pros and cons. 'It's like saying goodbye to a part of myself,' a woman in the video said in the melodramatic style of a telenovela. There was not a wet eye in the room. Afterward the women, including Ms. Campos, signed the form consenting to a tubal sterilization after her second child is born. 'You want the best for your children, and I can give everything to two,' explained Ms. Campos, a lobby attendant at a Los Angeles hotel, who emigrated from El Salvador in 1988. 'More than two would be too difficult.' In their quest for smaller families, Latina women say, quality of life is paramount for those who came from big families themselves and felt crowded and neglected. Latinas still have higher fertility rates than non-Hispanic white and black women and other groups, and outreach workers say many women still contend with machismo and social and religious pressures to procreate. Some agencies said that Latina women must still contend with poor access to health care because of the lack of health insurance or bilingual services. 'Latinas don't see health care providers as often as other women of color,' said Silvia Enriquez, the director of the National Latina Institute for Reproductive Health in New York. 'The structural barriers of not having health insurance and culturally appropriate health care are still there.' But the cultural and religious norms that once dictated larger families have also evolved. The Roman Catholic Church, for instance, opposes birth control, but few priests would press the issue from the pulpit or in the confessional, given the overwhelming rejection of such doctrine among Catholics, said the Rev. John Coleman, a sociologist and professor of social values at Loyola Marymount University in Los Angeles. 'Most Catholics practice birth control, and they don't see it as a stumbling block to being Catholics,' Father Coleman said. Organizations like Planned Parenthood note that Latinas today have more access to a wider variety of contraceptives, and they are using them. And while outreach workers for Planned Parenthood say they find Latinas who still believe that having children helps keep their men faithful, the men have become more receptive to family planning. On a cold Monday morning in November, two of the outreach workers, Maria Lam and Delmy Cetino, were at the Wilshire Union Day Laborer Center in Los Angeles, demonstrating the use of a condom to about 30 construction workers waiting for jobs. The men listened with a mixture of curiosity, amusement and embarrassment, but many said that they would have to limit the number of children they have. Luis A. Santos, 28, said his girlfriend wanted to be sterilized after her third child is born, in a few months, even though he wants more. But David Saenz, 27, said he and his girlfriend had agreed that they would have no children for now. Finding work is tough, he said, and 'it's O.K. for me to go hungry but not the children.' Even among the Latinas who have decided to limit the size of their families, some speak almost wistfully about the 'Brady Bunch' ideal, if they could afford it or if times were different. Isis Moran said she confirmed there was a good side to being part of a big family when she went off to college and moved across the country. For a whole summer she had a room of her own. But instead of enjoying it she felt lonely. She missed her sisters, who were her close friends. And she appreciated the 'pretty neat' experience of pitching in with the younger ones, changing their diapers, teaching them how to ride a bike. 'In being independent, I also learned how important my family really is to me,' she said.

Subject: A Long March From Maoism to Microsoft From: Emma To: All Date Posted: Sun, Dec 05, 2004 at 10:44:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/business/yourmoney/05mao.html?pagewanted=all&position= A Long March From Maoism to Microsoft By GARY RIVLIN FOX ISLAND, Wash. IN one sense, Sidney Rittenberg can be viewed as just another international business consultant scrambling to cash in on the China boom. He certainly appears to fit the mold, driving an expensive late-model BMW and serving as an adviser to a long list of companies that have included Microsoft, Intel, Prudential Insurance and Polaroid. But at 83, Mr. Rittenberg is a striking contrast with the new breed of self-proclaimed China experts setting up shop on either side of the Pacific, promoting themselves as corporate matchmakers. It's a safe bet, after all, that he is the only American business consultant who can claim to have been airbrushed out of a photograph appearing in the official Beijing Review. And certainly none of his competitors can say, as he did in his autobiography, 'Mao didn't really like me.' From 1945 until 1980, Mr. Rittenberg lived in China. He was a member of the Communist Party there and served as a midlevel party functionary - except for 16 years when he was locked away in solitary confinement, wrongly accused of being a spy. Though Mr. Rittenberg was born into a prominent family in Charleston, S.C., his compelling tale can perhaps best be understood as a story, writ small, of modern-day China itself. His metamorphosis from isolated expatriate to high-priced global go-between mirrors the country's own shift - from a closed-door Communist state to a freewheeling money-making society, with a new class of entrepreneurs who dream the same dreams that dance in the heads of people in places like Silicon Valley. These days, even as Mr. Rittenberg hopes to move toward semiretirement, demand for his services has never been greater. With hundreds of American companies considering their first moves into China, his long experience dealing with the country's leaders is a powerful draw. 'For a long while, Sidney was this very well-kept secret that only the top people in technology seemed to know about,' said Mark R. Anderson, publisher of The Strategic News Service, a weekly business intelligence digest that features Mr. Rittenberg's thoughts on China. 'But word has really started to get out over the past two years.' Mr. Rittenberg's writings are avidly followed now by the likes of Bill Gates, the chairman of Microsoft, and Michael S. Dell, who holds the same title at Dell Inc. Executives at Prudential, eager to sell insurance to the Chinese, recently sought him out for advice, as did InFocus, a maker of digital projectors. Last month, Mr. Rittenberg chaperoned Craig O. McCaw, a cellphone industry pioneer, on Mr. McCaw's first trip to China. 'What you get with Sidney is not only his contacts,' Mr. Anderson said, 'but also his understanding of the way these guys think and work, which is invaluable.' Mr. Rittenberg has started to do a brisk business among the venture capital set. In recent months, he said, several firms have beaten a trail to his remote home here, about 90 minutes southwest of Seattle, hoping that he will agree to take them on as clients. The reason is simple: everybody wants a piece of the red-hot Chinese economy. 'I'm telling my clients that if they own stock in any company that doesn't at least have a well-articulated strategy for getting into China, then they should sell immediately,' said Donald H. Straszheim, a former chief economist for Merrill Lynch who now runs his own consulting firm. John Zagula, a venture capitalist at Ignition Partners in Bellevue, Wash., hired Mr. Rittenberg a few days before traveling with a partner to China this summer. 'He was like a sensei,' Mr. Zagula said, 'whose advice kept me calm, centered and focused.'

Subject: Re: A Long March From Maoism to Microsoft From: Emma To: Emma Date Posted: Sun, Dec 05, 2004 at 10:45:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/business/yourmoney/05mao.html?pagewanted=all&position= MR. RITTENBERG was dispatched to China as an Army private in 1945. Shortly after the war - and his military stint - came to an end, he joined Mao's revolutionaries in the mountains. He did not set foot again in the United States until 1979, not long after he had been released from prison. Today, as a sage and a guide to the capitalist class, he lives with his Chinese-born wife of 48 years, Yulin, in relative splendor in Fox Island. Their home, on a three-acre site that includes an outdoor hot tub and a gazebo, affords them dreamy views of Puget Sound. 'For the longest time, it felt like we were visiting affluent friends rather than living in our own home,' said Mr. Rittenberg, who can't help but shake his head over the direction his life has taken in recent years as corporate interest in China has exploded. Mr. Rittenberg is a debonair man, short and active, with an etched face, thinning gray hair and brown eyes that in turn seem to dance playfully and, when a topic turns more serious, go dead with sadness. He affectionately calls his BMW 'Blackie,' and his second car is a four-door copper-colored Lexus, which still has that new-car smell. Mike Wallace and the Rev. Billy Graham are among those he counts as good friends. 'He's an enthusiastic, lovely, sensitive friend,' Mr. Wallace said. 'I trust this former Communist implicitly.' Indeed, Mr. Rittenberg has a gift for winning over those not generally expected to embrace a former Maoist, including William A. Owens, who was the vice chairman of the Joint Chiefs of Staff under President Bill Clinton. 'Sid Rittenberg,' said Mr. Owens, now the chief executive of Nortel Networks, 'is the most fascinating individual I've ever met.' It's no wonder, given a life story studded with tales of late-night card games with Mao, Zhou Enlai and other revolutionary leaders in the days before the Communists took power. 'With time, Mao came to not trust me,' Mr. Rittenberg said. 'The simple explanation is that he generally didn't trust foreigners. But ultimately I don't think he trusted anybody but peasants - the little people who were not threatening to him.' Mr. Rittenberg still has a high profile in China. Heng-Pin Kiang, who worked with him through much of the 1990's when McCaw Cellular was seeking to break into the Chinese mobile phone market, recalled how a Beijing cabdriver once refused payment for a ride upon learning that his passenger was 'the famous Li Dunbai,' Mr. Rittenberg's Chinese name. It's not surprising that Mr. Rittenberg's name is so familiar in China. 'We all had to read the writings of Mao growing up, and Sidney was mentioned in Chairman Mao's writings,' said Fengming Liu, who first met Mr. Rittenberg when both were working to help a telecommunications company, now defunct, get started in China in the mid-1990's. 'Anyone in the general age group of maybe 45 to 55 would know Sidney's name, or at least his Chinese name,' said Mr. Fengming, 48, who oversees all of Microsoft's China projects. 'And, obviously, a lot of people older than that would know his name because of the role he played in the revolution.' As an undergraduate in college, before he was drafted, Mr. Rittenberg belonged to the American Communist Party. He was 24 when World War II ended, an idealist who encountered Mao and his revolutionary band during a fact-finding mission in the Chinese hinterlands for a United Nations relief organization. Soon Mr. Rittenberg was working for the party's propaganda arm, translating news dispatches into English. The pedigree of his past serves him well as he travels to China - now six or so times a year - to help American corporations negotiate with the relevant party and government officials. 'We can see just about anybody we need to see in China because people are curious to meet me,' said Mr. Rittenberg, who described his 35-year China odyssey in 'The Man Who Stayed Behind' (Simon & Schuster, 1993), a book he wrote with the journalist Amanda Bennett. Mr. Rittenberg served the first of two prolonged stretches in prison starting in 1949, the same year the Communists took over China. Both times he was accused of spying for the United States - and both times the Chinese authorities ended up acknowledging that they had made a grave mistake. He believed so strongly in the utopian vision of a classless society that he devoted that first spell in solitary, which lasted six years, to scraping away the vestiges of his bourgeois past so he could be an even better Communist. He married his wife, Yulin, shortly after his release from prison in 1955; today they have four grown children and four grandchildren, all living in the United States. During his second prison stint, from 1967 to 1977, he first saw the potential for a new career in helping American corporations crack the Chinese market. The catalyst was an article he read in The People's Daily about President Richard M. Nixon's trip to China in 1971. 'I knew sooner or later that some tycoon would discover China,' Mr. Rittenberg said, 'and I figured if I ever got out of this place, I'd have my chance to play the role of someone who builds bridges.' Yet he would first have to wake up to the fact that his beloved Communist Party had grown corrupt and autocratic. As he described it, his disillusionment came only gradually, a long and painful process that was punctuated by a single moment when his 12-year-old son interrupted a conversation he was having with his wife several weeks after his release, while China's notorious Gang of Four was running the country. 'I was in the kitchen arguing with Yulin from my high political throne,' Mr. Rittenberg said. 'And this little kid said, 'Dad, you talk just like the Gang of Four.' And I thought, 'Wow.' ' In 1980, the Rittenbergs moved to Woodside, Queens, where they initially subsisted largely on the money they made as hosts of high-priced tours of China. 'He was lucky he came back in 1980,' when Jimmy Carter was still president and the country's legal policies were less restrictive, said Leon Wildes, senior partner at Wildes, Weinberg, Grunblatt & Wildes and a professor of immigration law at the Benjamin N. Cardozo School of Law. Mr. Rittenberg's big break came several years after his return, when the chief executive of Computerland asked him about helping to serve as a host for a delegation from China. Initially, he was bashful about charging clients for simply sharing his knowledge, but he would quickly shed that vestige of his indoctrination. Nowadays, when Mr. Rittenberg takes on new corporate clients, they generally commit to a one-year deal that pays him in the six figures. 'He may have been a card-carrying Communist, but he's also very much a capitalist,' said David Shrigley, a former Intel executive who worked with Mr. Rittenberg at the start of the 1990's, when the company was seeking to open a semiconductor plant in China. 'And he wasn't shy about sending you his bill.' Intel knew little about China then, Mr. Shrigley said, which made Mr. Rittenberg's contributions well worth his fees. Over time, Mr. Rittenberg has developed a set of guiding principles for doing business in China: Candor is paramount. Patience is essential. And figure on at least three hours of prep work for every hour you would dedicate to a deal in the states.

Subject: Re: A Long March From Maoism to Microsoft From: Emma To: Emma Date Posted: Sun, Dec 05, 2004 at 10:46:44 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/05/business/yourmoney/05mao.html?pagewanted=all&position= BUT you do not hire Mr. Rittenberg because he offers rules for dealing with the Chinese, Mr. Shrigley and other clients said. You hire him mainly to have a consigliere at your side as you negotiate the thickets of the vast Chinese bureaucracy. 'He understands what's really going on in a very nuanced way that proved tremendously valuable to us,' Mr. Shrigley said. 'He was very good at getting a read on how a proposal was being perceived - if it stands a chance, what the real issues are. He was also good at helping us get a read of people in meetings.' Today Mr. Rittenberg - like China itself - may feel entirely at home operating in the capitalist world of global commerce, but not all potential clients necessarily feel at ease with his Communist past. In June, he and Yulin met in Beijing with a delegation of top executives from a large New York-based financial services corporation that he declined to identify, shortly before a crucial meeting with a regulatory commission there. 'These suits from the headquarters in New York started giving the people we were with hell for retaining us,' he said. But even before the meeting officially started, the chairman of the Chinese commission interrupted the discussion to commend the company for hiring a couple he described as friends of China and its leadership. As Mr. Rittenberg told it, the commission chairman then added, 'If you succeed in China, I'm sure they'll be a factor in your success.' Recalling the incident, Mr. Rittenberg could not suppress a raucous laugh and a slap on the knee. 'Suddenly, I'm the all-wise consultant they can't possibly live without,' he said. Like the Chinese officials who were once his junior comrades, Mr. Rittenberg does not seem to waste much time wrestling with his conscience over his new role helping those who in the past he might have described as imperialist forces seeking to exploit China's vast resources and downtrodden masses for personal gain. 'I don't think a lot in ideological terms of capitalism versus socialism, and neither does the leadership in China,' he said. Even if he could, he said, he wouldn't want to undo his life, including those years he spent locked away in Chinese prisons. 'I am the person I am today in part because of that experience,' he said. Therein, perhaps, lies the root of Mr. Rittenberg's greatest gift as a business consultant: the perspective of someone who has lived a life that has been both arduous and rich. 'If he bears scars from his time in prison, those are scars that he somehow has turned to be positive for him,' said Mr. Zagula, the venture capitalist. 'He's vital. He's engaged. He has a BlackBerry. He's totally with it. He knows what's going on in the world.'

Subject: Who Needs Pensions Anyway? From: Emma To: All Date Posted: Sat, Dec 04, 2004 at 19:08:36 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/04/business/04calpers.html?pagewanted=all&position= One State Talks About Shifting Out of Pensions By MARY WILLIAMS WALSH Just days after the president of a huge California pension fund was ousted, some California officials are proposing that the state get out of the pension business and give state and municipal workers a 401(k) plan instead. Such a move would echo proposals by the Bush administration and some members of Congress to divert a portion of the Social Security payroll tax away from the federal trust fund and into individual savings accounts. Rather than paying retirees a pre-determined benefit based on a common formula, as Social Security now does, the administration is proposing to give workers the opportunity to manage some of their retirement money themselves. On Monday, Dr. Keith S. Richman, a Republican member of the California Legislature, plans to introduce a bill that would begin the process of closing California's giant public pension funds to new employees, and giving public workers the 401(k) type of benefit in the future. The bill is certain to run into resistance from the unions that represent various public employees in California and from Democratic politicians, who control both houses of the Legislature. Gov. Arnold Schwarzenegger declined, through a spokesman, to comment on the plan. Dr. Richman says he is getting support from a number of county and local officials around the state, who are running into serious trouble making their required pension contributions. 'He has a lot of support,' said Chris Norby, an Orange County supervisor and delegate to the California State Association of Counties. 'If it doesn't get through the Legislature, he can put it on the ballot' in a future ballot initiative. The push to change the way California provides state workers with retirement benefits follows the ouster this week of Sean Harrigan as president of the California Public Employees Retirement System, or Calpers, a $178 billion fund. Mr. Harrigan was removed amid complaints that he had used his position as a big institutional investor to advance causes favorable to organized labor. Mr. Harrigan, who is also a union official, was succeeded by Ron Alvarado, a Republican businessman, on the board of Calpers. Mr. Alvarado said Thursday that he did not yet have an opinion on the 401(k) proposal. 'It never hurts to look at new ideas,' he said, 'but I have not dug into it sufficiently to make any pronouncement about how I would vote on that.' The staff of Calpers, apparently seeking to throw cold water on such an idea, distributed data at a briefing yesterday that indicated that 401(k) plans were more profitable for the money managers who handle the accounts than pension funds are. A spokeswoman, Patricia K. Macht, also challenged what she called the 'myth' that the current system pays excessive pensions. The average Calpers beneficiary retires at age 60, after 22 years of service, with a pension of $1,860 a month, she said. She called traditional pensions an important recruiting tool for cities and the state, which are not able to compete with private-sector employers on the basis of salary. Thousands of companies in the private sector have replaced their traditional defined-benefit pension plans with 401(k) plans in the last two decades. The trend has drawn criticism from many actuaries and economists, who say pensions are a superior benefit, and from older workers, who tend to appreciate the advantages of pensions more keenly as they approach retirement. Traditional pensions shield retirees from investment risk and eliminate the possibility of outliving one's assets. California would not be the first state to consider such a change. The state of Nebraska offered public employees the chance to opt out of its pension plan and go into a plan similar to a 401(k) in 1964. Nebraska later found that from 1970 to 2000 - a period encompassing the longest bull market in history - the typical worker earned just 6 percent to 7 percent a year, on average. The pension plan, meanwhile, returned 11 percent a year. Nebraska is no longer letting new employees into the 401(k) plan because of the results.

Subject: Betting on Oil Prices From: Emma To: All Date Posted: Sat, Dec 04, 2004 at 18:13:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/04/business/worldbusiness/04losses.html?pagewanted=all&position= Failed China Fuel Supplier Waited Too Long for Help By WAYNE ARNOLD SINGAPORE - It was already too late when Chen Jiulin and other executives of China Aviation Oil of Singapore sent word on Sunday, Oct. 10, to their parent company in Beijing that they needed help. By then, the Singapore company had lost $180 million by betting that oil prices would go down, and creditors were lining up demanding repayment. Ten days later, the parent company, China Aviation Oil Holdings, sold a 15 percent stake in its subsidiary to institutional investors for $108 million, saying publicly that the money was for a strategic investment. In fact, Mr. Chen said in court papers filed this week, the money was quickly sent to the Singapore affiliate to help cover its losses. But, it turns out, even that cash infusion fell short. By Nov. 25, the Singapore company, which had a virtual monopoly on jet fuel imports into China, had lost $550 million. Last Monday, it filed for bankruptcy protection. On Wednesday, its chief executive, Mr. Chen, left Singapore and flew home to China, leaving in his wake angry shareholders, the start of numerous investigations and a scramble by China's airlines to secure alternative supplies of jet fuel. 'Someone kept mum about this,' said David Gerald, president of the Securities Association of Singapore, which represents 63,000 individual local investors and in 2002 named China Aviation Singapore one of the country's 'most transparent' companies. 'We want answers.' Referring to Mr. Chen's abrupt return to China, Mr. Gerald said, 'There's a moral obligation for Mr. Chen to stay behind.'

Subject: Raising the Bet From: Emma To: Emma Date Posted: Sat, Dec 04, 2004 at 18:30:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/04/business/worldbusiness/04losses.html?pagewanted=all&position= Parallels have already been drawn between China Aviation and a much larger derivatives disaster in Singapore: the British trader Nicholas W. Leeson and the $1.2 billion in losses he tried to cover up, only to end up sinking his employer, Barings bank, in 1995.... Just how the traders' division lost so much money remains the subject of conjecture. The best details of what went wrong have so far come from an affidavit filed in Singapore's High Court on Monday by Mr. Chen along with the company's petition for protection from creditors. In the second half of 2003, the document said, China Aviation's traders began trading derivatives with the simple aim of making profits, as opposed to hedging risks on physical purchases. While investors are now criticizing the company for making speculative trades outside its core business, analysts said the trading was well disclosed as part of the company's strategy to bolster its profile in the marketplace. According to Mr. Chen's affidavit, China Aviation's traders began trading in options, a derivative contract that gives a buyer the right to buy or sell a quantity of a security at a certain price before a specific date. Options give investors a highly leveraged means of betting on the direction of prices, since investors can earn profits from trading by putting down a fraction of the cost of the underlying security. If they are wrong, however, they lose 100 percent of the cost of the option. China Aviation was lucky in its first foray: it bought options on two million barrels of oil and, according to Mr. Chen, made money. To prevent large losses, China Aviation had established limits on how much any single trader could lose. 'In theory, if the risk management systems are in place the stop-loss is around $5 million,' said Chris Sanda, a transportation analyst at DBS Vickers, the brokerage arm of DBS Bank. 'If that's true, how did they end up losing $550 million?' According to Mr. Chen's affidavit, China Aviation's traders were initially left with $5.8 million in unrealized losses on their bet that the price of oil would fall. China Aviation Singapore's traders then made the same mistake Mr. Leeson and many gamblers do when they find themselves down: they raised their bet. But oil prices continued upward, and by the end of June, the affidavit said, the company faced paper losses of $30 million. The company's traders raised the stake again.

Subject: The Dollar's Fall and Asia From: Emma To: All Date Posted: Sat, Dec 04, 2004 at 10:39:09 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/04/business/worldbusiness/04banker.html?pagewanted=all&position= Dollar's Fall Tests Nerve of Asia's Central Bankers By JAMES BROOKE and KEITH BRADSHER OKYO, Dec. 3 - As Americans embark on another season of debt-supported holiday spending, they might want to give thanks that Masatsugu Asakawa is still buying in America, too. Mr. Asakawa, 46, is the top official at the Finance Ministry here responsible for managing the largest portfolio of United States government securities in the world, worth a staggering $720 billion. As the dollar has slumped this fall, many investors have started to worry that Mr. Asakawa and his counterparts elsewhere in Asia will be tempted to pare their holdings, perhaps causing the currency to plunge much further and setting off a round of interest rate increases in the United States that could send the global economy into a tailspin. But Mr. Asakawa, at least for now, says that he intends to keep right on adding American holdings to Tokyo's portfolio. 'We've heard the rumors in the last few days that the Chinese guys, the Indian guys, the South African guys are diverting from dollars,' Mr. Asakawa said. 'We have no plan at all to divert from our dollar-denominated assets.' Still, Mr. Asakawa admits that he has not been sleeping so well lately. 'This thing wakes me up; it is terrible,' Mr. Asakawa said in excellent American-accented English - he once studied at Princeton - as he toyed with a blue plastic portable currency monitor. After hours, the wireless device beeps by his bedside whenever the dollar strays beyond a set range. 'Fortunately,' he said, 'my wife is very understanding.' Mr. Asakawa has been waking up a lot more often because the long-running symbiotic relationship between Asia and the United States has started to fray. For years, manufacturers in Japan, China, South Korea and Taiwan have been selling far more to Americans than Asians have been buying from the United States. As a result, Asians have accumulated huge quantities of foreign exchange, which they have used mostly to buy American government securities. By doing so, they helped keep interest rates in the United States low and the dollar relatively strong. That allowed Americans to borrow cheaply and fill their shopping bags with yet another load of well-priced goods imported from Asia. Low interest rates also enabled Washington to readily finance the federal government's gaping budget deficit. But as borrowing by the United States from abroad has soared this year to $620 billion, a record 5.7 percent of overall economic activity, many foreigners have become reluctant to keep accumulating dollars at the same pace. That has left officials like Mr. Asakawa and others at central banks elsewhere in Asia holding America's purse strings. Japan's total stockpile of foreign currency, at $817 billion, is still the largest in the world, but China, which now owns about $600 billion, is catching up fast. Among countries that are accumulating dollars - especially China - grumbling is on the rise that Washington should do more to protect the value of their investments by cutting the budget deficit and adopting other policies to slow or reverse the dollar's decline. 'Shouldn't the relevant authorities be doing something about this?' asked Prime Minister Wen Jiabao of China at a conference in Laos last Sunday. In Beijing these days, one of the fastest-growing fortunes the world has ever seen is managed by fewer than two dozen traders, chosen for showing mathematical brilliance at China's top universities. Generally lacking any financial experience outside China, they sit at trading stations around a gold stand bearing a jeweled globe, two feet in diameter and with seas of lapis lazuli, in a rented room on the fourth floor of an insurance building. Most of the money in China's central bank coffers has accumulated in the last four years, the product of an investment torrent washing over China and the ever-expanding flood of goods pouring out of Chinese factories. As in Japan and China, small groups of civil servants in Taiwan and South Korea are struggling to invest sizable foreign currency reserves of $235 billion and $193 billion, respectively. For years, all four countries have held the bulk of their reserves in the Treasury bills, notes, and bonds that finance the federal budget deficit, leaving American consumers and companies free to spend more on other things and invest their spare cash in more promising ventures. Together, these Asian institutions are responsible for holding roughly 40 percent of the American government's public debt.

Subject: Dollar's Fall and Asia From: Emma To: Emma Date Posted: Sat, Dec 04, 2004 at 10:42:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/04/business/worldbusiness/04banker.html?pagewanted=all&position= In contrast to Japan, China's money managers, while selling little of their existing Treasury holding, have not been buying much more. China's foreign currency reserves rose by $111.3 billion in the first three quarters of the year, according to official Chinese data. But its Treasury holdings, American filings show, climbed by only $16.4 billion. Instead, officials at the State Administration of Foreign Exchange in Beijing have been seeking higher yields by plowing billions of dollars a month into bonds backed by mortgages on houses across the United States, according to bankers who help Beijing manage the money. By helping keep mortgage rates from rising, China has come to play an enormous and little-noticed role in sustaining the American housing boom. The proportion of China's hoard in Treasury securities has dropped to about 35 percent, they say, compared with the roughly 90 percent of Japan's foreign currency reserves still parked in Treasury securities. Some bankers and economists say that dollar-denominated securities over all represent a slowly declining share of China's recent purchases. But no figures are available on how quickly Beijing may be shifting to other currency holdings, so its effect on the underlying demand for dollars is unclear.

Subject: Our Low Mortgage Rates From: Terri To: Emma Date Posted: Sat, Dec 04, 2004 at 19:44:03 (EST) Email Address: Not Provided Message: So, amazingly, we can thank China for low home mortgage rates :) http://www.nytimes.com/2004/12/04/business/worldbusiness/04banker.html?pagewanted=all&position= In contrast to Japan, China's money managers, while selling little of their existing Treasury holding, have not been buying much more. China's foreign currency reserves rose by $111.3 billion in the first three quarters of the year, according to official Chinese data. But its Treasury holdings, American filings show, climbed by only $16.4 billion. Instead, officials at the State Administration of Foreign Exchange in Beijing have been seeking higher yields by plowing billions of dollars a month into bonds backed by mortgages on houses across the United States, according to bankers who help Beijing manage the money. By helping keep mortgage rates from rising, China has come to play an enormous and little-noticed role in sustaining the American housing boom.

Subject: National Index Returns From: Terri To: All Date Posted: Sat, Dec 04, 2004 at 09:51:25 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 12/03/04 Australia 26.7 Canada 19.8 Denmark 28.7 France 16.0 Germany 13.6 Hong Kong 22.9 Ireland 38.5 Japan 11.9 Norway 48.9 Sweden 36.5 Switzerland 12.4 UK 18.6

Subject: Vanguard Retruns From: Terri To: All Date Posted: Sat, Dec 04, 2004 at 09:50:42 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/03 to 12/03/04 S&P is up 8.7% Growth Index is 5.4 Value Index is 12.6 Mid Cap Index is 16.8% Small Cap Index is 17.3% Small Cap Value is 21.1 Europe Index is 18.2 Pacific Index is 14.9 Energy is 34.1 Health Care is 6.2 REIT Index is 28.1 High Yield Corporate Bond Fund is 7.6 Long Term Corporate Bond Fund is 7.0

Subject: Wages and Asset Prices From: Terri To: All Date Posted: Fri, Dec 03, 2004 at 18:31:52 (EST) Email Address: Not Provided Message: From 1995 to 2000, wage and benefit increases were robust, there was a rollicking stock market increase and a moderate bull market in bonds and moderate increases in home values. Since 2000, wages and benefits have barely kept up with inflation, there was a fierce bear market in stocks, and a fine bull market in bonds. But, home values have risen in dramatic fashion. We are largely living off the increases in home values now, and this dependency could be especially dangerous if interest rates were to rise sharply or the economy were to markedly slow. So far, investors are little attending to a either danger.

Subject: Employment Weakness From: Terri To: All Date Posted: Fri, Dec 03, 2004 at 15:59:31 (EST) Email Address: Not Provided Message: http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict_20041203 December 3, 2004 November's job growth much weaker than expected The nation's employers once again slowed their pace of hiring last month, adding only 112,000 jobs in November after adding over 300,000 in October. Average hours per week declined slightly and wage growth was flat in a report from the Bureau of Labor Statistics that paints a far less optimistic picture of the labor market than was reflected in last month's report. Economists were expecting a gain of closer to 200,000 jobs, coming off October's strong showing, but these hopes were dashed by November's numbers, which indicated the lowest monthly gain since July. Payroll gains from September and October were revised down by a total of 54,000. Through May this year, employers were adding 225,000 jobs per month, on average. Since June, job growth has averaged 152,000. While this level of growth confirms that the jobless recovery is safely behind us, it is insufficient to erase the jobs deficit and existing labor slack that remain a feature of our labor market.... Wage growth was essentially flat in November, with hourly wages up $0.01. In tandem with the one-tenth-of-an-hour decline in average weekly hours worked, this led to a $1.25 decline in weekly earnings. Compared to a year ago, hourly wages not adjusted for inflation have grown by 2.4%, an elevated pace compared to the 2.0% growth rate over the first half of this year. However, inflation has also picked up and was running over 3% in October. In fact, through October, hourly wages after adjusting for inflation were flat or falling in eight of the prior twelve months. November's weaker-than-expected job growth, in tandem with the decline in hours worked and flat wages, poses downside risk for the ongoing recovery (aggregate hours, an indicator of macroeconomic growth, fell by 0.2% in November). Given the reversal of monetary stimulus as the Fed continues to slowly raise interest rates, the fading of fiscal stimulus, and the high level of indebtedness among both households and the federal government, we are ever more dependent on a robust jobs recovery to fuel growth in household income and consumption. Despite a few good months, such a recovery simply has not yet occurred in the job market. In fact, at 5.4%, the unemployment rate is stuck at about the same level it was when this recovery began three years ago, in November 2001, when unemployment was 5.6%. Until the recovery more convincingly reaches the job market, it will be difficult for consumers and investors to build the confidence necessary to lift the economy to its full potential. By EPI senior economist Jared Bernstein with research assistance from Yulia Fungard.

Subject: Social Security? From: Emma To: All Date Posted: Fri, Dec 03, 2004 at 12:30:36 (EST) Email Address: Not Provided Message: Why am I not surprised? http://www.nytimes.com/2004/12/03/politics/03social.html From Bush Aide, Warning on Social Security By EDMUND L. ANDREWS WASHINGTON - Calling the current system of Social Security benefits unsustainable, a top economic adviser to President Bush on Thursday strongly implied that any overhaul of the system would have to include major cuts in guaranteed benefits for future retirees. 'Let me state clearly that there are no free lunches here,' said N. Gregory Mankiw, chairman of the Council of Economic Advisers, at a conference on tax policy here. 'The benefits now scheduled for future generations under current law are not sustainable given the projected path of payroll tax revenue,' he added. 'They are empty promises.' Mr. Mankiw's remarks suggested that President Bush's plan to let people put some of their Social Security taxes into 'personal savings accounts' would have to be accompanied by changes in the current system of benefits.

Subject: Re: Social Security? From: Terri To: Emma Date Posted: Fri, Dec 03, 2004 at 14:38:35 (EST) Email Address: Not Provided Message: The idea is to present Social Security as a program in crisis that must be changed radically if it is to survive. Well, there is no crisis. Social Security is funded for another 38 years, and simply changing the payroll tax cap or slightly raising the payroll tax will fund the program far longer. The question should be whether we wish to honor the promises made workers who have in turn supported the system or do we wish to convince workers the system is failing. Terri

Subject: Bubble Day From: Terri To: All Date Posted: Fri, Dec 03, 2004 at 11:34:44 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Bubble Day Stephen Roach (New York) December 1, 2004 could well go down in history as yet another important milestone for America’s bubble-prone economy. No, I am not referring to the 162-point surge in the Dow Jones Industrial average that occurred on that day. Instead, my focus is on two widely overlooked statistical reports put out by US government statisticians -- the latest tallies on home prices and personal income. Collectively, these reports paint a worrisome picture of an asset economy that has now truly gone to excess. As was the case in early 2000 when Nasdaq was lurching toward 5000, denial is deep over the potential downside of yet another post-bubble shakeout. That’s what worries me the most. The just-released report on US house prices for the third quarter of 2004 was a shocker -- an 18.5% annualized surge from the second quarter and a 13.0% increase from year-earlier levels, according to the tabulation of the Office of Federal Housing Enterprise Oversight (OFHEO). That represents a stunning acceleration from the 9.8% Y-o-Y increase of the second quarter and pushes nationwide house price appreciation to a 25-year high. It’s an even larger rise in real, or inflation-adjusted, terms. The surge over the past year is now running nearly five times the 2.7% annualized increase of the non-housing components of the CPI. Housing analysts and central bankers often chide those of us who draw macro conclusions from a highly fragmented US real estate market. In the housing business, where “location” matters, concerns over nationwide trends are often dismissed out of hand. In a recent speech, Federal Reserve Chairman Alan Greenspan noted while discussing housing prices, “Overall while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity” (see his October 19, 2004 speech, The Mortgage Market and Consumer Debt, at America’s Community Bankers Annual Convention, Washington DC). It’s a nice theory, but the risk is that it may now be wrong. According to the latest OFHEO tally, house-price inflation over the past year has run at double-digit rates in 25 out of 50 states plus the District of Columbia. In six states -- Nevada, Hawaii, California, Rhode Island, Maryland, and Florida --- home prices increased by 20%, or more, over the past year. Housing is an asset class that is just as prone to excess as are stocks, bonds, currencies, or commodities. If it feels like a bubble, acts like a bubble, and looks like a bubble, it probably is one. Meanwhile, also on December 1, the Bureau of Economic Analysis of the US Department of Commerce released its regular monthly update on personal income. The stock market loved the October numbers -- stronger-than expected gains in both income ( 0.6%) and consumption ( 0.7%) that were perceived as signs of ongoing resilience of the indefatigable American consumer. I found the report appalling. What caught my eye was a further reduction in the already sharply depressed personal saving rate -- down to 0.2% in October from 0.3% in September. The September numbers were widely thought to have been distorted by temporary hurricane-related losses to personal income. Most expected personal saving would rebound from this artificially-depressed reading. There was no such bounce in October. The consumer saving rate has now basically gone to zero.

Subject: Bubble Day... From: Terri To: Terri Date Posted: Fri, Dec 03, 2004 at 11:36:21 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html While it has only been four and a half years since the bursting of the equity bubble, memories have already dimmed of that extraordinary speculative excess. Yet in retrospect, that may have only been the warm-up for the main event. Bubbles have a way of feeding on each other -- ultimately compounding the problem and leading to an even more treacherous shakeout. That’s certainly the lesson from Japan and could well be the case in the United States. America’s housing bubble is now in the danger zone. So is its saving rate, current account deficit, and overhang of consumer indebtedness. It’s been a US-centric world for so long, that everyone takes it for granted. Yet global rebalancing poses challenges for all major countries in the world. Saving-short America will not be spared -- especially if it must now come to grips with the biggest asset bubble of them all.

Subject: British Insurers and Incentive Fees From: Emma To: All Date Posted: Fri, Dec 03, 2004 at 11:29:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/03/business/worldbusiness/03insure.html British Insurers in Turmoil Over Incentive Fees By HEATHER TIMMONS LONDON, Britain - The investigation of insurance practices by the New York attorney general, Eliot Spitzer, is causing wide ripples in the British market, the cradle of the industry. Already, several big brokers who do business in London - the Willis Group, Aon and Jardine Lloyd Thompson, among others - have pledged to stop accepting contingent commissions, or incentive fees, which have been criticized as among the most questionable practices in the industry. On Thursday, the world's biggest broker of commercial insurance, Marsh & McLennan of New York, said a review of its British unit found that brokers had often been pressed to steer business to a particular insurer who paid higher commissions. The investigation, conducted by the law firm of Freshfields Bruckhaus Deringer, did not find any evidence of rigging bids. (Marsh's American broker business was accused of bid rigging in a lawsuit brought by New York State in October.) The law firm did find that a significant part of Marsh's income in Britain was generated from such contingency commission payments, which Marsh has since stopped accepting. Such payments are widespread in London, Freshfields said. It did not find any evidence that Marsh's customers had been put at a disadvantage because Marsh brokers accepted these payments, but said that making such a determination was impractical during the review. The shift in Britain away from contingent commissions paid to brokers who bring in more business, or more profitable customers, is considered remarkable, given the absence of any legal or regulatory action against the practice here. Such payments have been a staple of the British insurance industry for many years, more than a dozen executives involved in the business say. Some of the change may be in anticipation of a new regulator for the industry.

Subject: It's the Jobs, Not the Dollar From: Terri To: All Date Posted: Fri, Dec 03, 2004 at 10:52:17 (EST) Email Address: Not Provided Message: Sadly, back to the norm. The economy is growing nicely, but so is productivity and there is simply not enough growth in consumer demand to generate steady job creation above 200,000 a month. Again, we did not create enough jobs to keep up with what should be natural labor force expansion. Say what you will about the dollar falling and about foreign central banks wishing to sell American debt and currency and so drive up interest rates, but interest rates are being kept low because there is sadly no labor cost pressure. The heck with the dollar, we have a growth problem.

Subject: It's Both From: Pete Weis To: Terri Date Posted: Sun, Dec 05, 2004 at 08:09:15 (EST) Email Address: Not Provided Message: Terri. The falling dollar means falling paycheck purchase power.

Subject: The buck From: Pete Weis To: All Date Posted: Fri, Dec 03, 2004 at 08:11:36 (EST) Email Address: Not Provided Message: The passing of the buck? Dec 2nd 2004 From The Economist print edition America's policies are putting at risk the dollar's role as the world's dominant international currency FORECASTING exchange rates is an inexact business. As Alan Greenspan, the chairman of America's Federal Reserve, once said, the activity “has a success rate no better than that of forecasting the outcome of a coin toss.” Recent years have borne this out: most currency forecasters would actually have done better if they had simply tossed a coin—at least they would have been half right. Yet over the next few years it seems an excellent bet that there will be a large drop in the dollar. Since mid-October the dollar has fallen by around 7% against the other main currencies, hitting a new all-time low against the euro and a five-year low against the yen. The dollar has lost a total of 35% against the euro since early 2002; but it has fallen by a more modest 17% against a broad basket of currencies, including the Chinese yuan, which is pegged to the greenback. The dollar wobbled badly this week, having fallen for five successive days after Mr Greenspan said that America's current-account deficit was unsustainable because foreigners would eventually lose their appetite for more dollar-denominated assets. Mr Greenspan may not be the only central banker to have become bearish on the dollar. Markets have been rattled by concerns that foreign central banks might reduce their holdings of American Treasury bonds. Last week, officials at the central banks of both Russia and Indonesia said that their banks were considering reducing the share of dollars in their reserves. Even more alarming were reports that China's central bank, the second-biggest holder (after Japan) of foreign-exchange reserves, may have trimmed its purchases of American Treasury bonds. This combination of events has led some economists to ponder the once unthinkable: might the dollar lose its reserve-currency status? Over the past 2,000 years, the leading international currency has changed many times, from the Roman denarius via the Byzantine solidus to the Dutch guilder and then to sterling. The dollar has been the dominant reserve currency for more than 60 years, delivering big economic benefits for America, which can pay for imports and borrow in domestic currency and at low interest costs. The dollar's share of global foreign-exchange reserves has already fallen from 80% in the mid-1970s to around 65% today. And yet does the dollar really risk losing its status as the world's main currency? The same question was asked in the early 1990s after the dollar's previous long slide, but the dollar's pre-eminence survived. Then, however, there was no alternative to the dollar. Today the euro exists, and could yet emerge as a rival to the greenback. The requirements of a reserve currency are a large economy, open and deep financial markets, low inflation and confidence in the value of the currency. At current exchange rates the euro area's economy is not that much smaller than America's; the euro area is also the world's biggest exporter; and since the creation of the single currency, European financial markets have become deeper and more liquid. It is true that the euro area has had slower real GDP growth than America. But in dollar terms the euro area's economic weight has actually grown relative to America's over the past five years. Where the dollar has failed is as a store of value. Since 1960 the dollar has fallen by around two-thirds against the euro (using Germany's currency as a proxy before 1999) and the yen (see chart 1). The euro area, unlike America, is a net creditor. Never before has the guardian of the world's main reserve currency been its biggest net debtor. And a debtor may be tempted to use devaluation to reduce its external deficit—hardly a desirable property for a reserve currency. Those bearish on the dollar are asking why investors will want to hold the assets of a country that has, by its own actions, jeopardised its reserve-currency position. And, they point out, without the intervention of central banks, which have been huge net buyers of dollars, the dollar would already be lower. If those same central banks were to begin to sell some of their $2.3 trillion dollar assets, then there would be a risk of a collapse in the dollar. However you look at it, America is likely to find it increasingly hard to finance its huge current-account deficit. The deficit is at the heart of this issue. Various economists have put forward at least four arguments why the deficit does not matter and the dollar's reserve status is safe. First, the deficit is a sign of America's economic might, not a symptom of weakness. Second, sluggish demand overseas is a big cause of the deficit, so it is reversible. Third, the deficit exists largely because of multinationals' overseas subsidiaries. And fourth, central-bank demand for dollars creates, in effect, a stable economic system. It is not difficult to demolish each argument in turn. Why the deficit matters Start with the first argument, which has been favoured by America's Treasury. Foreigners want to invest in America, it is claimed, because it offers higher returns than Europe or Japan; and if America runs a capital-account surplus, it must by definition run a current-account deficit. There may have been some truth to this argument in the late 1990s, when America enjoyed large net inflows of direct and equity investment, but over the past year or so, there has actually been a net outflow from America of such long-term investment. Moreover, in the past few years America has had lower returns on foreign direct investment, equities and bonds than Europe or Japan. The current-account deficit is now being financed by foreign central banks and short-term money. In the year to mid-2004, foreign central banks financed as much as three-fifths of America's deficit. The recent purchase of reserves by central banks is unprecedented. Global foreign-exchange reserves (65%, remember, are denominated in dollars) have risen by $1 trillion in just 18 months. The previous addition of $1 trillion to official reserves took a decade. These purchases of dollars have nothing to do with the prospective returns in America, but are aimed at holding down the currencies of the purchasing countries. Worse still, in recent years capital inflows into America have been financing not productive investment (which would boost future income) but a consumer-spending binge and a growing budget deficit. A current-account deficit that reflects a lack of saving is hardly a sign of strength. What about the second argument, that sluggish demand in the rest of the world is to blame for America's external deficit? If only Europe and Asia would save less, spend more and so import more from America, it is argued, the deficit would simply vanish. Martin Barnes, an economist at the Bank Credit Analyst, a Canadian investment-research firm, reckons that this is much exaggerated*. In 2001, when domestic demand did grow slightly faster in Europe and Japan than in America, America's deficit barely budged. The problem is that America's imports are 50% bigger than its exports, so if exports and imports simply grow at the same pace, the trade deficit automatically widens. If imports rise by, say 10%, then exports need to grow by 15% just to prevent the deficit from widening. This means that while stronger foreign demand would undoubtedly help, it would be virtually impossible for America to reduce its deficit significantly through stronger exports alone. Li Ruogu, the deputy governor of the People's Bank of China, said last week that America should put its own house in order—ie, save more—and stop blaming others for its problems. He was right. The third argument is that fretting about the current-account deficit is outmoded because a large slice of the deficit reflects transactions between American multinationals and their foreign subsidiaries. Thus, it is claimed, importing an IBM computer from China is not the same as importing a Toshiba from Japan. Outsourcing by American firms boosts their profits. The problem with this argument, as Mr Barnes points out, is that the total trade between multinationals and their foreign subsidiaries still creates a deficit even allowing for the return of profits and dividends, and this gap must still be financed by borrowing from abroad. Last, but not least, last summer's favourite explanation of why America's deficit is not a problem is the notion that the world now enjoys the equivalent of the Bretton Woods system (the system of fixed exchange rates after the second world war), in which Asian governments happily buy the Treasury bonds that finance America's deficit in order to maintain cheap currencies to support their own export-led growth. In turn, Asia's purchases of bonds hold down interest rates in America, and so support consumer spending and imports. This cycle, it has been argued, could last another decade. One big difference is that under the original Bretton Woods system America ran a current-account surplus and the value of the dollar was officially pegged to gold. No wonder, perhaps, that today's “system” is already starting to creak as some Asian central banks start to worry about the value of their dollar reserves. To sustain the current arrangement, they will have to keep buying more and more dollars as America's current-account deficit widens. Asian central banks are already exposed to enormous potential losses in local-currency terms should their currencies appreciate against the dollar. It would be prudent for them to diversify their reserves, but that could send the dollar tumbling. Larry Summers, a Treasury secretary under President Clinton, calls this the “balance of financial terror”: in effect, America relies on the costs to Asian central banks of not financing its deficit as assurance that financing will continue indefinitely. For almost two decades, economists have worried about America's current-account deficit and predicted a plunge in the dollar and a hard landing for the economy. The dollar did indeed fall sharply in the late 1980s, but with few ill effects on the economy. So why worry more now? One good reason is that the current-account deficit, currently running at close to 6% of GDP, is almost twice as big as at its peak in the late 1980s, and on current policies it will keep widening. Second, in the 1980s America was still a net foreign creditor. Today it has net foreign liabilities and these are expected to reach $3.3 trillion, or 28% of GDP, by the end of 2004 (see chart 2). Some economies, such as Australia and New Zealand, have built up bigger debt ratios without obvious adverse economic consequences, but they are small countries so their current-account deficits absorb only a tiny fraction of global saving. This year alone, America's new borrowing from abroad will mop up a massive 75% of the world's surplus saving. So far America's hefty debt has not been a burden on its economy, mainly because it has pulled off an extraordinary trick. Although it is a large net debtor, it does not have to make net payments of interest and dividends to the rest of the world. Instead, America still enjoys a net inflow of investment income because it earns a higher average return on its foreign assets than it pays on its liabilities. Returns on foreign direct investment and equities are higher abroad than at home, and America has benefited from unusually low interest rates on its borrowing in recent years. Unlike in previous periods of dollar decline, bond yields have remained low—largely thanks to those huge purchases by foreign central banks. But as interest rates rise in future and net foreign debt mounts, America's net investment income is likely to turn negative, probably next year. Not only will that swell its current-account deficit, but it will also exert an increasing drag on the economy. America has enjoyed another huge advantage in its ability to borrow in its own currency. A normal debtor country, such as Argentina, has to borrow in foreign currency, so while a devaluation will help to reduce its trade deficit, it will also increase the local currency value of its debt. In contrast, foreign creditors carry the currency risk on America's $11 trillion-worth of gross liabilities. Its net foreign investment position actually improves as the dollar declines, because this boosts the dollar value of overseas assets. This makes devaluation an attractive option for America. The dollar's position as the world's main reserve currency allows it to attract finance on exceptionally favourable terms. However, this is a mixed blessing. It encourages America to borrow excessively, which increases the eventual cost of adjustment. The issue is not whether America can afford to take on more debt, but whether the rising debt burden will make investors less willing to finance future deficits at current exchange and interest rates. A recent paper† by Nouriel Roubini, of New York University, and Brad Setser, of Oxford University, estimates that, if the real trade-weighted value of the dollar remains close to its average in 1990-2003 (slightly above current levels) and there is no change in domestic policy, America's current-account deficit would rise to 8% of GDP in 2008, and its net debt would increase to over 50% of GDP. In practice, such levels are unlikely to be reached because private investors would be unwilling to finance debts of that size without much higher interest rates and/or a lower dollar, both of which would help to shrink the current-account deficit. Despite its recent drop, the dollar is far from cheap. After adjusting for inflation differentials, the dollar's real trade-weighted value against a broad basket of currencies is close to its average level over the past 30 years. Although it has barely fallen against most emerging-market currencies, the greenback is already below most estimates of its “fair value” against the euro. But that should be no surprise. Typically, a currency needs to undershoot its fair value by a wide margin in order to reduce a country's large external deficit. The real broad trade-weighted dollar has so far fallen by only 15% since early 2002, compared with a drop of 34% from its peak in 1985 (see chart 3). Yet America's current-account deficit is much bigger today than in the 1980s, so the dollar is likely to fall more sharply. Some economists reckon that it needs to fall by at least another 30%. That would imply a rate of over $1.80 for one euro, compared with today's $1.33. The less the dollar falls against emerging-market currencies, such as the Chinese yuan, the more it is likely to drop against the euro. China accounts for one-quarter of America's total trade deficit. Speculation has mounted in recent weeks that the yuan will soon be revalued against the dollar. But Beijing has indicated that it will not be rushed into changing its exchange rate, especially if pressured by America. In any case, the current-account deficit cannot be corrected by a fall in the dollar alone: domestic saving also needs to rise. The best way would be for the government to cut its budget deficit. That would reduce America's need to borrow from abroad, and so mitigate the fall in the dollar and rise in bond yields that will otherwise be demanded by investors. If combined with stronger growth abroad, then the current-account deficit could slowly shrink. America's growth would be depressed by tax increases or spending cuts, but there would be no need for recession. If, on the other hand, the government fails to cut its budget deficit, the dollar will fall more sharply and bond yields will rise. America's housing bubble might then burst and consumer spending would certainly slow sharply. That combination would reduce the external deficit, but only at the cost of a deep recession. A history lesson In 1913, at the height of its empire, Britain was the world's biggest creditor. Within 40 years, after two costly world wars and economic mismanagement, it became a net debtor and the dollar usurped sterling's role. Dislodging an incumbent currency can take years. Sterling maintained a central international role for at least half a century after America's GDP overtook Britain's at the end of the 19th century. But it did eventually lose that status. If America continues on its current profligate path, the dollar is likely to suffer a similar fate. But in future no one currency, such as the euro, is likely to take over. Instead, the world might drift towards a multiple reserve-currency system shared among the dollar, the euro and the yen (or indeed the yuan at some time in the future). That still implies a big drop in the long-term share of dollar assets in central banks' vaults and private portfolios. A slow, steady shift out of dollars could perhaps be handled. But if America continues to show such neglect of its own currency, then a fast-falling dollar and rising American interest rates would result. It will be how far and how fast the dollar falls that determines the future for America's economy and the world's. Not even Mr Greenspan can forecast that

Subject: Re: The buck From: Emma To: Pete Weis Date Posted: Fri, Dec 03, 2004 at 21:48:12 (EST) Email Address: Not Provided Message: Useful article. Thanks so much.

Subject: Re: The buck From: Terri To: Pete Weis Date Posted: Fri, Dec 03, 2004 at 15:54:10 (EST) Email Address: Not Provided Message: Nicely argued.

Subject: Stocks and Bonds From: Terri To: All Date Posted: Fri, Dec 03, 2004 at 06:06:17 (EST) Email Address: Not Provided Message: Stocks and bonds are performing much as after the Plaza Accord to allow the dollar to weaken in value in fall 1985. Stocks are rising in country after country, while long term American bonds are slowly declining in price. The orderly process is encouraging. Possibly the biggest problem is Japan which could fall to recession if exports decline. The Japanese may soon be forced to buy dollars to protect the domestic economy.

Subject: Re: Stocks and Bonds From: Terri To: Terri Date Posted: Fri, Dec 03, 2004 at 07:11:36 (EST) Email Address: Not Provided Message: There is no room to reduce Japanese interest rates and a fiscal stimulus takes time to institute. Likely as a result of the export dependency the Japanese stock market, while positive for the year in Yen and strong in dollars, is still weaker than other Asian markets.

Subject: Re: Stocks and Bonds From: Terri To: Terri Date Posted: Fri, Dec 03, 2004 at 07:16:24 (EST) Email Address: Not Provided Message: The weakest stock markets in western Europe are the Netherlands and Switzerland. Switzerland's market is dominated be weaker drug and finance companies, while the Netherlands is dominated by companies that have had regulatory problems.

Subject: Who Needs Family Farms? From: Emma To: All Date Posted: Thurs, Dec 02, 2004 at 19:26:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/02/opinion/02thu3.html Fighting for Local Control Given the results of the election, voters' power should be strong and healthy in rural America. Perhaps it is when it comes to voting for statewide and national offices, but not when it comes to local environmental issues - especially concerning factory farms. The latest example is Minnesota. Unlike Iowa and Wisconsin, Minnesota still retains the principle of control at the township level. Local residents can, for instance, decide whether they want a large-scale hog-confinement operation next door. That has kept Minnesota relatively free of the mammoth factory farms that have polluted Iowa. But last year Gov. Tim Pawlenty convened a 14-member advisory group - a virtual cross section of industrial agriculture in the state - to find ways to increase the number of livestock in Minnesota. The task force released its report last June. Its principal recommendation is to weaken local control in order to remedy what the report calls 'the lack of predictability and uniformity' in the creation of factory farms. The report also advises exploring the possibility of raising the number of animals allowed on such farms before environmental reviews kick in and moving the approval process to the state capital. And it attacks Minnesota's Corporate Farm Law, which prohibits corporate farming. The report has caused an uproar, for good reason. It's a blueprint for the destruction of family farming in Minnesota. The way to aid animal agriculture isn't to sell out to corporate interests or make rural residents feel powerless. It's to increase the diversity of Minnesota farming, build new markets and preserve rural life. Massive feedlots and hog-confinement operations do none of that.

Subject: Who Is the Poorer? From: Terri To: All Date Posted: Thurs, Dec 02, 2004 at 16:19:08 (EST) Email Address: Not Provided Message: Who is the poorer? From the complaints in Europe and Japan, you would think that they are the poorer for strengthening currencies. But from the worries here about a weakening currency, you would think we are the poorer. When Robert Rubin was repeating 'a strong dollar is in America's interest,' many American exporters were claiming the reverse.

Subject: The Dollar and European Small Business From: Emma To: All Date Posted: Thurs, Dec 02, 2004 at 13:52:20 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/02/business/worldbusiness/02euro.html Dollar's Fall Drains Profit of European Small Business By MARK LANDLER FRANKFURT - To get a sense of how fast the falling dollar can ruin a European businessman's day, talk to Udo Pfeiffer, the chief executive of a small German machinery maker in the industrial Ruhr Valley. Mr. Pfeiffer's company, SMS Elotherm, builds machines that forge crankshafts for cars. He exports many to the United States and Mexico, selling them for dollars to manufacturers like DaimlerChrysler. In recent weeks, the euro has been rising so rapidly against the dollar that Mr. Pfeiffer lost $10,000 in profit in the three days between shaking hands on a $1.5 million deal for a machine and signing the contract. The profit on these machines, he said, will be no more than $30,000. As the euro and other currencies climb into rarefied territory - the euro reached another record on Wednesday, settling in New York at $1.3319, and the British pound rose to $1.9327, a 12-year high - exporters are expressing more and more fear about how it will affect their businesses. For every familiar name like Mercedes-Benz or Louis Vuitton, there are scores of much smaller enterprises, making everything from crankshafts to concert pianos, that are being buffeted as shifting currency values make their products more expensive in the American market. Some are even more dependent on the United States and other dollar-dominated markets than Daimler or LVMH of France. And they do not have the financial resources of these big companies to engage in complex currency hedging. The distress in European industry is increasing pressure on the European Central Bank to respond, either by intervening in the currency market to curb the rise of the euro or by lowering interest rates. The bank's governing board meets here Thursday, but it is expected to do neither. 'The dramatic fall of the last couple of months has really set off alarm bells,' said Karl Kadar, a vice president at the Standard Federal Bank in Troy, Mich., who advises German automotive suppliers in the American market. 'A lot of these are smaller, family-owned private companies.' Auto parts suppliers already had it rough. The price of steel, their basic raw material, has soared, largely as a result of demand from China. And their primary customers, the carmakers, have been squeezing them hard for price cuts as they struggle with their own weak sales.

Subject: Controlling the Market From: Emma To: All Date Posted: Thurs, Dec 02, 2004 at 13:47:41 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/02/business/02place.html Nothing Ventured, Everything Gained By ANDREW ROSS SORKIN A new trading tactic that could tip proxy fights and takeover battles has emerged from the shadows of the hedge fund industry, igniting outrage among some investors and corporate governance experts. The tactic is a complex hedging technique that allows an investor to buy a voting stake without actually holding an economic interest in the company. While Wall Street has long speculated about such a tactic, it was not until this week that the first signs of such a strategy were disclosed amid a takeover fight for King Pharmaceuticals, a generic drug maker, by its larger rival, Mylan Laboratories. The Perry Corporation, a New York-based hedge fund, owns seven million shares of King, hoping to profit from the spread between the price Mylan offered for King shares, $16.49, and King's actual share price, which closed yesterday at $12.42. If the deal is completed, Perry stands to make over $28 million, based on figures in a filing with the Securities and Exchange Commission on Tuesday. Perry appears to have set up a sophisticated swap trade with Bear Stearns and Goldman Sachs so that it now controls about 10 percent of Mylan's votes, with limited or no exposure to fluctuations in Mylan's share price. While the language in the filing is opaque, Perry seems to have accomplished this by buying 26.6 million shares of Mylan while having Bear Stearns and Goldman Sachs sell the same number of shares short, removing any risk for either side. The move, which leaves Perry as the largest, if indirect, shareholder of Mylan, could help ensure that Mylan receives enough shareholder votes to approve the deal for King at a time when the next-biggest shareholder of Mylan, Carl C. Icahn, is trying to block the merger. If other investors were to employ the same trading method, it could have far-reaching implications on corporate elections and shareholder votes because sophisticated investors could effectively buy shareholder votes without putting money at risk. There has been talk on Wall Street that similar tactics may have been used in the 2002 proxy fight over the $24 billion merger of Hewlett-Packard and Compaq Computer and the $1.5 billion acquisition of MONY by AXA of France this year. 'It's a little scary what is going on here,' said Nell Minow, editor of Corporate Library, an independent research firm specializing in corporate governance. 'You're allowing someone to manipulate the market. It undermines the whole concept of linking ownership and control. It is not illegal, but the question is, 'Should it be?' I say, 'Yes.' The vote should accompany some kind of underlying interest.' George Travers, director of compliance for Perry, declined to comment. Perry, with about $8 billion under management, is run by Richard C. Perry, a former banker at Goldman. Mr. Icahn is furious about the Perry trade, which would have the result of negating his own 10 percent stake in Mylan.

Subject: personal computers From: PC To: All Date Posted: Thurs, Dec 02, 2004 at 13:30:53 (EST) Email Address: pc@computers Message: Krugman has written that personal computers are not such a big deal and have mostly been a disappointment. Well yes, that's true, if you expected the predictions of '2001' to be accurate. But why does he have so much faith in science fiction writers? Personal computers are radically transforming our lives, business, and many of the sciences. Krugman should pay more attention to what's going on in areas other than economics. Science fiction has been very bad at predicting the course of artificial intelligence, and even computer scientists were often wrong. Computers are not good at acting like human beings, but they are amazingly good at other things.

Subject: Re: personal computers From: Jennifer To: PC Date Posted: Thurs, Dec 02, 2004 at 14:30:11 (EST) Email Address: Not Provided Message: 'Krugman has written that personal computers are not such a big deal and have mostly been a disappointment.' Where, where, where? I can find not such remark.

Subject: Our Pension Funds From: Emma To: All Date Posted: Thurs, Dec 02, 2004 at 10:58:19 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/02/business/02calpers.html?pagewanted=all&position= Calpers Ouster Puts Focus on How Funds Wield Power By MARY WILLIAMS WALSH The ouster of the president of California's public pension fund has raised questions about whether pension funds, endowments and other big activist investors will be able to keep wielding influence in corporate governance campaigns. The change at the top of America's largest pension fund also underscores a growing awareness of the political and economic power lying largely untapped in the nation's retirement money - roughly $6 trillion - and an escalating dispute over how that power should be used. The fund president, Sean Harrigan, was removed yesterday from the $178 billion California Public Employees Retirement System, known as Calpers, America's largest pension fund. He said his ouster was retaliation for the campaigns that he and others had been leading to change behavior at companies like Disney, Safeway, the New York Stock Exchange and Kohlberg Kravis Roberts. Even when the initiatives failed they often pitted Mr. Harrigan, a union official, against business groups. Mr. Harrigan, who had expected to lose his job, remained defiant. 'Removing one person will not reduce the strength, the commitment nor the resolve to fight for our members,' he said in a statement. But other activists saw a much broader effort under way to change the leadership of many pension funds, which in the last few years have struggled because of market losses and increasing obligations to retirees. Richard Ferlauto, director of pension investment for the American Federation of State, County and Municipal Employees, said Mr. Harrigan's ouster was an early success in a campaign to wrest control of pension money from a Calpers board now controlled by Democratic trustees and put it to work in projects more in keeping with Republican ideals. 'Clearly, we're seeing a Republican attack on public pension systems,' Mr. Ferlauto said. 'And California has been targeted in a very strong way.' The 13-member Calpers board has been dominated by Democrats in recent years. Mr. Ferlauto said he thought that if Republicans could regain control, they would seek to make two fundamental changes: put an end to the corporate activism of Calpers and reshape the traditional defined-benefit pension fund as something more akin to a 401(k) plan. 'There will be a legislative attempt this spring to mandate that all plans in California become defined-contribution plans,' he said. 'This mirrors what's happening nationally, around Social Security.' A spokeswoman for the California Republican Party, Karen Hanretty, said the party had no position on how the state pension fund ought to be structured, but that one Republican state legislator is planning to introduce a bill in 2005 that would make it more like a 401(k) plan. A spokesman for California's Republican governor, Arnold Schwarzenegger, declined to comment on the broader implications of the change. Calpers has long sought ways to use the power of its holdings to influence corporate behavior. Its trustees have argued that doing so is a crucial part of their fiduciary duty, because insisting on good corporate governance is likely to bring about more valuable shares. In addition to providing pensions for about 1.4 million current and future retired public workers in California, Calpers provides health insurance for the state's work force. Under Mr. Harrigan's leadership it has begun to challenge hospitals over the price of their services. It also promoted an unsuccessful ballot initiative in the last election to provide health insurance for the approximately 6.5 million Californians who do not receive coverage at their jobs.

Subject: Public Advocates in Danger From: Emma To: Emma Date Posted: Thurs, Dec 02, 2004 at 11:25:02 (EST) Email Address: Not Provided Message: Do not for a moment think the firing of the President of the California state pension fund is a small matter. We are continually setting back progressive or public protection measures. Public advocates are endangered as never since the New Deal.

Subject: a unique insight into ireland From: setanta To: All Date Posted: Thurs, Dec 02, 2004 at 09:42:41 (EST) Email Address: Not Provided Message: i know this is a serious forum with considerable gravitas but jennifer and el gringo were very obliging earlier. i hope this does not lead to all sorts of jokes being posted, so, if the administrator pulls this post, i totally understand. anyway, hope this brightens up you morning/afternoon. To mark the launch of a new edition of the Oxford Book Of Quotations, the publishers are running a poll in Britain to select the greatest quote of all time. So far, an initial haul of 400 gems has been narrowed down to a shortlist of 10, with Irish wordsmiths contributing three entries. WB Yeats makes the final cut with: 'Tread softly because you tread on my dreams.' Edmund Burke is there with: 'It is necessary only for the good man to do nothing for evil to triumph.' King of the quips, Oscar Wilde (strangely, he was a six foot three inch heavyweight boxing dandy!!!), is represented by: 'To lose one parent may be regarded as a misfortune; to lose two looks like carelessness.' Candidates for an exclusively Irish top 10 quotations might include many of the following memorable utterances. YES, PRIME MINISTER 'Whenever I wanted to know what the Irish people wanted, I only had to examine my own heart and it told me straight off what the Irish people wanted' - Eamon de Valera (one of the founders of the state and a US citizen), comfortable in the age of dictators. 'Fianna Fail (most popular centre/right political party) is a slightly constitutional party' - Sean Lemass. (Former Prime Minister) 'To be born in a stable does not make one a horse' - British PM and Duke of Wellington, Arthur Wellesley, when reminded of his Irish birth. 'I appeal to them [the Jews and Muslims] to settle their differences in accordance with Christian principles' - Taoiseach (Prime Minister) Liam Cosgrave's Irish solution to a faraway problem in the 1970s. 'We want to dehumanise the social-welfare system' - Albert Reynolds (Former Fianna Fail PM) trips over his tongue. FAMOUS CATCHPHRASES 'The country is banjaxed' - Gay Byrne (Legendary TV Chat Show host) in the 1980s. 'The whole worl's in a state o' chassis' - Sean O'Casey's 1920s. 'When life looks black as the hour of night, a pint of plain is your only man' - Flann O'Brien's blueprint for living. 'There is only one thing in the world worse than being talked about, and that is not being talked about' - Oscar Wilde. 'The money was only resting in my account' - Fr Ted Crilly. (Don't know if Father Ted is screened in the US) 'They [the IRA] haven't gone away you know' - Gerry Adams (Political Leader/Terrorist/Freedom Fighter) in 1993. 'There was no sex in Ireland before television' - Oliver J Flanagan, TD (even i have never heard of him!). 'Ulster says no' - Ian Paisley. (Scarily, could be the next First Minister of Northern Ireland in a fews days from now) CHARLES HAUGHEY'S IRELAND (Former Fianna Fail Leader/PM/Emperor now disgraced for corruption) 'I could instance a load of f**kers whose throats I'd cut and push over a cliff, but there's no percentage in that.' 'The best, the most skilful, the most devious and the most cunning' - CJ on Bertie Ahern (Sadly, our current Prime Minister!). 'As a community we are living way beyond our means . . . We will just have to reorganise government spending so that we can only undertake those things we can afford' - CJ plays a practical joke in 1980 (As leader he set the example by ordering £5,000 shirts from Paris for himself with tax payers money! it'd be funny if not so tragic). 'I couldn't be anywhere [but] Dublin for Christmas, meeting all my friends, having a drink with them, giving out presents, getting presents. I'm a sucker for Christmas' - CJ drops a hint in 1984. 'Deep down I'm a very shallow person.' IT'S A MAN'S WORLD '[Mary Robinson (doesn't have too many fans in the US as the UN High Commissioner for Human Rights)] has the new interest in her family, being a mother and all that kind of thing. But none of us who knew Mary Robinson very well in previous incarnations ever heard her claiming to be a great wife and mother' - Pee Flynn (yet another discraced, Fianna Fail politician!) decides the Presidency. 'Marriage is the triumph of imagination over intelligence. Second marriage is the triumph of hope over experience' - Oscar Wilde. 'I think the Irish woman was freed from slavery by bingo. They can go out now, dressed up, with their handbags and have a drink and play bingo. And they deserve it' - Feminist writer John B Keane. FOOD FOR THOUGHT 'He was a bold man that first eat an oyster' - Jonathan Swift. 'There is no love sincerer than the love of food' - George Bernard Shaw locates the heart through the stomach. 'Ireland is the old sow that eats her farrow' - James Joyce. GREAT POLITICAL THINKERS 'Catholics have been interfering in Ulster affairs since 1641' - Ian Paisley keeps a straight face. 'Like they said long ago in a story, something is wrong in the state of Holland' - Paschal Mooney quotes Hamlet something rotten to the Seanad (The Irish Senate). 'Uno duce, uno voce! In other words we are having no more nibbling at my leader's bum' - CJ Haughey press secretary PJ Mara mounts a rear-guard action. (...!!!!) 'A socialite is someone who thrives on constant socialism' - Boyzone's Mikey Graham. (Boyband member displays thorough knowledge of economic history) THE VISION THING 'When my country takes her place among the nations of the earth, then and not till then, let my epitaph be written' - Robert Emmet. 'Will anyone here object if, with a ballot box in one hand and an Armalite in this hand, we take power in Ireland?' - SF's Danny Morrison asks a rhetorical question in 1981. 'I looked up every tree in north Dublin' - Bertie Ahern pokes around for evidence of Ray Burke's graft in 1997, apparently with a white stick. (It turned out that every tree,rock and bush was the subject of corrupt planning involving envelopes of money!) 'A land whose countryside would be bright with cosy homesteads, whose fields and villages would be joyous with the sounds of industry, with the romping of sturdy children, the contests of athletic youths and the laughter of comely maidens, whose firesides would be the forums for the wisdom of serene old age' - Eamon de Valera plays fantasy league politics in 1943. TRUE CONFESSIONS 'When I go back to Ireland, there's a delight that someone they can claim as their own has made it on TV. But there is a slight feeling of 'does it have to be you?'' - Graham Norton. (Camp TV presenter in the UK) 'I never did drugs. That's the only thing I missed out on. I never even smoked - what do you call that oul' thing? - shit' - Charlie McCreevy. (Former Minister for Finance, departed to Brussels for an EU job after the Night of the Long Knives, sadly missed, was an economist's dream finance minister) 'I'm like a page out of the Census returns: broken down by age, sex and religion' - Historian Sean MacReamoinn. 'I'm a heavy saver' - George Redmond reveals how he amassed £660,000 on a public-servant's salary of €29,000. (Must have the one lifting the envelopes from the trees before Bertie Ahern got there) 'The big difference between sex for money and sex for free is that sex for money usually costs a lot less' - Brendan Behan. SPORTS ILLUSTRATED 'Good footballer, great footballer. I mean he was never a great footballer' - Eamon Dunphy (pundit) on Liam Brady (legend). 'We put 'em under pressure' - Jack Charlton (The subtle philosophy of the Irish Football Manager, who incidentally won the World Cup for England in 1966!) . 'I spent a lot of money on booze, birds and fast cars. The rest I just squandered' - George Best (Irish football legend, they don't make 'em like that anymore!). FAMOUS LAST WORDS . . . 'Duirt me leat go raibh me breoite [I told you I was ill]' - Inscribed on Spike Milligan's headstone. 'There is no such thing as bad publicity except your own obituary' - Brendan Behan. Uniquely Bertie (Again, our current illustrious Prime Minister, also known as the Teflon Taoiseach) 'With hindsight, we all have 50-50 vision.' 'I don't think it helps people to start throwing white elephants and red herrings at each other.' 'The world community must build on the road crash for peace in the Middle East.'

Subject: Re: a unique insight into ireland From: Terri To: setanta Date Posted: Sun, Dec 05, 2004 at 06:31:06 (EST) Email Address: Not Provided Message: This selection of Irish thought is wonderful.

Subject: Re: a unique insight into ireland From: El Gringo To: setanta Date Posted: Fri, Dec 03, 2004 at 02:32:38 (EST) Email Address: nma@hotmail.com Message: 'Drumcree did not happen by chance'...

Subject: Re: a unique insight into ireland From: setanta To: El Gringo Date Posted: Fri, Dec 03, 2004 at 09:47:53 (EST) Email Address: Not Provided Message: i usually am loath to comment on the north but the attempt by unionists to compare holy cross to drumcree made me very very angry. i can truly tell you that there were tears in my eyes upon seeing the images of terrified schoolgirls on their way to school. to see the poor little mites being escorted through the protest by members of the RUC in full riot gear was soul destroying. you cannot compare the rights of an organisation to march through unfriendly areas to the rights of 4-5 year old girls to go to school without being shouted and cursed at.

Subject: Re: a unique insight into ireland From: Jennifer To: setanta Date Posted: Thurs, Dec 02, 2004 at 13:31:30 (EST) Email Address: Not Provided Message: A nice people for a nice country.

Subject: Is There a Dollar Crisis? From: Terri To: All Date Posted: Thurs, Dec 02, 2004 at 06:26:56 (EST) Email Address: Not Provided Message: The dollar is slowly losing value against the Euro, Canadian and Australian dollars, the Japanese Yen, and several currencies of smaller economies. Interest rates have risen mildly, but are still low, and stock investors are noticing the change in currency values but not reacting by fleeing markets. There is a look so far of the dollar adjustment that we experienced during the 1980s. We may be cautiously hopeful.

Subject: Re: Is There a Dollar Crisis? From: Pete Weis To: Terri Date Posted: Fri, Dec 03, 2004 at 14:22:57 (EST) Email Address: Not Provided Message: Consumers could get caught under falling dollar Wall Street cheering, but currency shift carries risk for housing By Martin Wolk Chief economics correspondent MSNBC Updated: 9:38 a.m. ET Dec. 3, 2004 Is the dollar's latest dive anything to be afraid of? From Wall Street to Washington, the answer has been a resounding 'no.' Economists, traders and business leaders have been cheering loudly, saying a decline in the currency is long overdue, boosting the ability of U.S. producers to compete in a tough global environment. Few take seriously the Bush administration’s occasional pronouncements that it still favors a “strong dollar,' and even Fed Chairman Alan Greenspan gave a nod of approval to the trend in a high-profile speech in Europe last month. The dollar’s decline “is medicine needed to promote the healing of global imbalances,” said J.P. Morgan Chase senior economist Bruce Kasman in a commentary titled “Two Cheers for the Dollar Decline.” But for consumers, that medicine could be hard to swallow, especially if the dollar’s decline turns into a free fall. That could spark a run-up in inflation and force the Federal Reserve to raise rates aggressively, potentially bringing down the high-flying housing market. “A weaker dollar, generally speaking, is better for business and bad for consumers,” said Mark Zandi, chief economist of Economy.com, a forecasting firm. “If the dollar’s decline is orderly, then inflation will rise, but very modestly,” he said. “In a darker scenario, the process is not smooth, interest rates rise more and the pain we feel will be more significant, in large part because of problems in the housing market. The housing market will get crushed, and that will reverberate through the economy.” Dollar’s slide accelerates The dollar has been losing value steadily for nearly three years, but the slide has accelerated in recent weeks, with the currency passing fresh milestones almost daily against the euro, the Japanese yen and the British pound. Since late August the dollar has lost 9 percent against a basket of major currencies and has tumbled even further against the euro, which now costs about $1.33, compared with $1.20 three months ago. So far consumers have barely felt the impact — unless they have been to Paris lately and had to pay $5 for a cup of coffee. But Wal-Mart’s failed experiment with less aggressive discounting last month could be a hint of things to come, especially if China allows its currency to appreciate against the dollar, which could happen early next year. That will be a “seminal event,” Zandi said. “All retailers will have to rethink their pricing policies,” he said. “Given their already-thin margins, they will have to start raising prices aggressively.” Zandi is not the only one to express concern about the ripple effect of a falling dollar on the housing market. Paul Kasriel, economic research director for Northern Trust, has been outspoken in his fear of a housing “bubble” that cannot be sustained by the normal fundamentals of wage growth and household formation. “Housing has never been more leveraged than it is today,” he said. And millions of homeowners are badly exposed to rising interest rates through the explosion of variable-rate mortgages, he said. A dollar collapse could be just the thing to prick a housing bubble, Kasriel said. If that happens, “we could have some significant problems in the banking system,” he said. “Historically a weak banking system has coincided with a weak economy. That is kind of the doomsday scenario.” Rosier outlooks Most market economists dismiss such gloomy speculation. Don Straszheim of Straszheim Global Advisers noted that the core inflation rate is still a very reasonable 2 percent. “If we were at a 4 or 5 percent inflation rate and headed higher, this dollar decline would be far more troubling to a lot of people,” he said. He and others also largely dismiss concerns that the central banks in China and other Asian countries will stop purchasing Treasury bonds and other dollar assets the United States needs to sell to keep funding its massive current account deficit, now running at a rate of more than $650 billion a year. A recent article in the Economist magazine contended that the dollar is on the brink of losing its global hegemony because of U.S. finances that “look more like those of a banana republic than an economic superpower.” “You need an alternative,” said Joseph Quinlan, chief market strategist for Banc of America Capital Management. “I don’t think it is the euro. It’s not the yen or the yuan. By default the dollar is the world’s currency for now.”

Subject: Re: Is There a Dollar Crisis? From: David E... To: Terri Date Posted: Thurs, Dec 02, 2004 at 16:41:40 (EST) Email Address: Not Provided Message: Interesting thoughts, it does look like the mid 80's, through a mirror. The dollar was too strong then, too weak now. Brad De-long wrote about the strong hopes for a slow decline in the dollar. A slow decline will make the shifts from construction and services to export manufacturing easier to accomplish. Cheers

Subject: Re: Is There a Dollar Crisis? From: Terri To: David E... Date Posted: Thurs, Dec 02, 2004 at 18:36:58 (EST) Email Address: Not Provided Message: All that makes the dollar too weak now are the complaints of Europeans and Japanese. In 1985, the Europeans and Japanese agreed to allow the dollar to decline in value because we agree to a tax increase to lessen the growth of the federal budget deficit. Now, there is no chance of a tax increase and cutting what can be cut of federal spending will not stop the budget deficit from increasing.

Subject: Market Patterns From: Terri To: All Date Posted: Wed, Dec 01, 2004 at 20:05:19 (EST) Email Address: Not Provided Message: Bull markets are supposed to climb a wall of worry, and we are. This is an extremely broad bull market covering almost every country. Most sectors are gaining nicely. Energy and real estate investment trusts are notably strong sectors. Middle and small cap stocks are stronger than large cap, and value is stronger than growth. European and Pacific stocks are stronger in dollar terms than American stocks. Bonds have sold off these last days and are just earning the yields they began the year with.

Subject: Living Well in Japan From: Terri To: All Date Posted: Wed, Dec 01, 2004 at 15:52:28 (EST) Email Address: Not Provided Message: What is interesting about Japan, is that the economic slump goes on and on but the Japanese people fare decidedly well. Japanese middle class families have come through the stock market crash, a decade of declining real estate prices and a consumer product price deflation, with little dislocation. Employment stayed high, wages sufficed to support families, families had large savings cushions, families stayed together and helped. The is health care support and pensions are intact. Besides, the declining prices made Japanese wages and savings worth all that more more.

Subject: National Index Returns From: Terri To: All Date Posted: Wed, Dec 01, 2004 at 14:58:29 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/03 - 11/30/04 Australia 26.5 Canada 20.5 Denmark 26.8 France 14.5 Germany 10.7 Hong Kong 22.1 Ireland 34.0 Japan 10.3 Norway 53.4 Sweden 34.8 Switzerland 10.6 UK 15.8

Subject: Attending to Markets From: Terri To: Terri Date Posted: Wed, Dec 01, 2004 at 15:29:08 (EST) Email Address: Not Provided Message: What is interesting is that no matter the dire concerns of economists, with which I agree, we have finished 2 years of a world bull market in stocks. Investors simply are not worried about a near crisis. I have learned to pay attention to and respect markets, and there is no reason to stop attending now.

Subject: Art As an Investment From: Emma To: All Date Posted: Wed, Dec 01, 2004 at 14:15:10 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/01/arts/design/01pric.html?pagewanted=all&position= Economists Have Advice for Buyers as the Art Market Heats Up By EDUARDO PORTER Art prices are setting records again. In early November 'No. 6 (Yellow, White, Blue Over Yellow on Gray)' by Mark Rothko was auctioned at Sotheby's for a record $17.4 million, almost 50 percent above the top end of Sotheby's estimate. 'The Ninth Hour,' a room with a lifesize wax pope felled by a meteorite, by the Italian artist Maurizio Cattelan, fetched $3 million at auction at Phillips, de Pury & Company, also exceeding its top estimate by half. Not only are modern and contemporary artists being treated like pop stars, but earlier American masters are also soaring like late-1990's Internet stocks. Today Sotheby's is putting 'Group With Parasols (a Siesta),' by John Singer Sargent on the block with a top estimate of $12 million. This would be a record for the artist at auction. 'We have more collectors today willing to spend more money than we've ever had,' said Dara Mitchell, a director of the American paintings department for Sotheby's. These rates of return are now attracting the interest of financial investors. In Britain, there is the Fine Art Management Fund, which has been in the market since March. A former co-owner of Phillips, de Pury & Luxembourg established Artvest, an art investment company, in the spring. The New York-based Fernwood Art Investments plans to establish several funds next year to buy and manage art portfolios. And virtually every bank on Wall Street has an art advisory group to assist rich clients. The renewed appetite for art as an investment is rekindling interest in developing systematic ways to assess the value of art and is drawing attention to a small number of scholars who have been applying economics to this new asset class. Two pioneers are Michael Moses and Jianping Mei of the Stern School of Business at New York University. Mr. Moses and Mr. Mei developed an index of repeat sales of the same work of art, compiled from the prices of thousands of artworks sold at auction since 1875. They found that the compound annual rate of return of art from 1953 to 2003 was 12.1 percent, slightly higher than the Standard and Poor's 500 stock index. Mr. Mei and Mr. Moses also found that art prices have a low correlation with stocks, so art can enhance the performance of a portfolio of equities. Perhaps most interestingly, they found that the art-dealer maxim that masterpieces are the best investment is wrong. According to their index, masterpieces - usually meaning the most expensive works of art - tend, instead, to appreciate less, or depreciate more, than the art market as a whole. Economic analysis has also exposed some other peculiar behavior. Two economists from Oxford University have found that presale estimates by auction houses have some systematic biases. In contemporary art, for some reason, the most recently executed artworks are overvalued. For Impressionist and modern art, physically wider paintings may be underestimated. David Galenson, a professor of economics at the University of Chicago, has been using the prices of artworks at auction to study patterns of creativity. His findings include useful insights into what makes art valuable. For instance, collectors might think again before paying big prices for late pieces by Pop artists. Their most expensive and critically acclaimed work, according to Mr. Galenson's analysis, was done at the beginning of their careers, when the breakthrough idea that took them to the top - the mechanical reproduction of serial images, for example, or blowing up cartoon frames - was still fresh. The Abstract Expressionists, on the other hand, might be better bought old - once they have experimented enough. Mr. Galenson splits creativity into two camps, inductive and deductive. Inductive-minded artists - say, Claude Monet or Jackson Pollock - will experiment endlessly, with no precise endpoint in mind. Deductive conceptualists, on the other end, rely on the great revolutionary idea that springs forth fully formed - Marcel Duchamp's 1917 urinal, 'Fountain,' for instance, or 'Les Demoiselles d'Avignon,' which Picasso painted when he was 26. 'With conceptual artists you can usually express their real contribution in a sentence,' said Mr. Galenson. Mr. Galenson also picks out a broad shift in the market's taste over the last half century, as the appetite for innovation favored the quicker, deductive approach and thus tended to reward younger artists. In particular, he found that artists born before 1920 tended to do their most important work after the age of 40, while those born after 1920 peaked before hitting 40. 'A persistently high demand for artistic innovation has produced a regime in which conceptual approaches have predominated,' Mr. Galenson wrote in a paper. 'The art world has consequently been flooded by a series of new ideas, usually embodied in individual works, generally made by young artists who have failed to make more than one significant contribution in their careers.'

Subject: A Chinese Animation Industry? From: Emma To: All Date Posted: Wed, Dec 01, 2004 at 13:34:28 (EST) Email Address: Not Provided Message: China Hurries to Animate Its Film Industry By HOWARD W. FRENCH SHENZHEN, China - Seen from outside, there is nary a hint of the Magic Kingdom about this ambitious young animation studio nestled amid magnolias and palms on the campus of Shenzhen University. A glimpse inside one specially secured building, accessible only with a smart ID card that one swipes through a reader to gain entry and move about inside, soon gives up the game. The first clues are the Hollywood posters that hang from nearly every wall: 'Star Wars,' 'Godzilla,' 'The Lost World,' 'The Matrix,' 'End of Days.' Down one hallway, heavily air-conditioned computer rooms hum with the kind of processing power one might find in a high-tech laboratory. The giveaway is the army of artist-students slouched over their flat-screen monitors in one dimly lighted production room after another, drawing thousands of pictures for feature-length films. Early next year, Global Digital Creations Holdings, a fledgling animation studio that has mostly labored in anonymity, is aiming for the big time with the worldwide release of its first 3-D feature film, 'Thru the Moebius Strip,' a science-fiction adventure about a determined boy's time travel to another galaxy to rescue his stranded father. France's most famous comics artist, Jean Giraud, whose nom de plume is Moebius, came up with the story, which draws on elements of Jack and the Beanstalk and the breadth of science-fiction history from Jules Verne to 'The Matrix,' and joined with G.D.C. to develop it. Moebius, who broke new ground in comics art in the 70's with his magazine Métal Hurlant, the precursor to the American publication Heavy Metal, had worked on effects-heavy films like 'Tron,' 'Alien,' 'The Abyss' and 'The Fifth Element.' Frank Foster, former vice president for multimedia at Sony Pictures Imageworks, is also on board as one of the producers, and Glenn Chaika, who was an effects animator on 'The Little Mermaid' and directed 'Tom Thumb and Thumbelina,' is the director. Dazzling color, three-dimensional imagery and fast-paced drama were on display during a recent screening of several minutes of film at the studio here in what was a mere fishing village on the edge of Hong Kong as recently as 1979. It has since grown into one of China's biggest, richest and most modern cities, the hottest hot spot of Chinese capitalism. In manufacturing, this country already rules the textile world, the production of computer parts and countless other items that Americans all but take for granted. Now, with the sophisticated images coming out of this studio, China seems to be serving notice to the Disneys and Pixars of the world that its day is arriving in the lucrative business of 3-D computer animation. But G.D.C. executives, who have invested heavily in computer animation, a business notoriously difficult to crack, say that no matter how the global market treats their first feature-length foray into 3-D computer animation, commercial success is not the most important thing. 'This film is more of a calling card for us,' said Anthony Neoh, the Hong Kong-based chairman of the company. 'Our goal, within 5 to 10 years, is to be much less involved in the production side, and much more on the creative side, in order to really get this industry off the ground in China.' Low costs almost guarantee the Chinese a major impact. 'Thru the Moebius Strip,' for example, required a mere $20 million to make, according to Ellen Xu, a studio manager, and much of that cost included the creation of a studio from scratch. By comparison, she said, Pixar's films cost an average of $80 million to make, while 'Final Fantasy,' which was a major disappointment at the box office, cost a reported $120 million. China is far from alone among fast-developing nations eager to pursue a piece of the lucrative animated film business by marrying their mastery of advanced computer technology with low labor costs. Taiwan, South Korea and the Philippines have been ramping up animation production for several years, while many experts consider India to be the biggest recent comer in the field. 'I have no doubt that the technical skills in China are beginning to rival those of Hollywood or Europe,' said John Lent, a professor of communications at Temple University, the editor of the International Journal of Comic Art and the author of 'Animation in Asia and the Pacific.' But he added: 'One of the problems I hear coming out of China and many other places in the Far East is the storytelling. Zhang Yimou, the director of 'Hero' said himself that when they have a good story they want to make a motion picture out of it, not an animated film. Chinese investors in the new movie studios exude confidence about their chances, as the animation industry braces for its global takeoff. 'India has had continuous cultural development, while we, because of the Cultural Revolution, have had interrupted development, and are therefore much more open to what is happening in the world,' said Mr. Neoh, who shares senior managerial duties of G.D.C. with his brother, Raymond. 'If a film doesn't have song and dance, it isn't an Indian film,' he said. 'We are making films with international appeal. They may not have been very good so far, but very soon you'll be surprised.' Yet for all of the disruption of the Cultural Revolution, which plunged this country into severe political turmoil and international isolation from 1966 to 1976, China is not so much coming from way behind in the animation business as it is reviving a long vibrant tradition. Since the 1920's Shanghai has been the center of the country's animation business, and in a nod to that tradition, even G.D.C. is planning to relocate there. The industry was pioneered by the Wan brothers (Laiming and Guchan), followers of the Disney school, whose 1941 film, 'Tie Shan Gong Zhu' ('Princess Iron Fan' ) was reputedly the first feature-length animated movie made in Asia.

Subject: Re: A Chinese Animation Industry? From: Emma To: Emma Date Posted: Wed, Dec 01, 2004 at 13:44:00 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/01/movies/01anim.html Citation for article....

Subject: We Are Growing Nicely From: Terri To: All Date Posted: Wed, Dec 01, 2004 at 12:31:45 (EST) Email Address: Not Provided Message: The economy grew last quarter at 3.9%. This is a far more rapid growth rate than in the larger European economies or in Japan. The American economy continues to recover from the recession, and there seems to be time to deal with any economic problems as the Fed is doing by slowly raising interest rates. I wish the Fed were moving even more slowly, but growth continues nicely. The slowing in Japan however is alarming. We need to grow at least 4% as long as productivity is robust to build gains in the labor market. But, Europe and Japan must seriously look for ways to generate domestic demand. Why is Japan growing so weakly 14 years after the stock market bubble burst? Is a steady 4% growth rate impossible for Japan or Germany or France? How are these growth rates to be achieved? Are the demographics of Japan and Germany and France simply too difficult to allow for steady growth of 4%? Why should this be?

Subject: Whole Foods Market From: Emma To: All Date Posted: Wed, Dec 01, 2004 at 12:16:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/01/business/01grocer.html?pagewanted=all&position= A Big Crowd in the Specialty Niche By TRACIE ROZHON With $8,000 stainless steel stoves and $5,000 built-in refrigerators the rage, many more Americans are saying they want 'special' ingredients - things like rare mushrooms, hand-crafted cheeses, expensive tins of tea and 'heirloom' tomatoes. In New York, gourmet groceries are jockeying for that business, with an old standby, Balducci's, about to rise from the near-dead in the spring. Another well-known name, Dean & DeLuca, is expanding; investment bankers briefed on the company's plans say it has been put up for sale as a way to raise money for growth. The success of Whole Foods Market, an almost $4-billion-a-year organic-food specialist that landed in Manhattan several years ago and is only getting bigger nationally, has shown the potential for high-end niche foods. Now, some of New York's home-grown grocery chains are planning to test the market well beyond Manhattan. 'There is no reason why Balducci's couldn't expand significantly along the East Coast,' said Mark S. Ordan, a partner in Balducci's, along with Bear Stearns Merchant Banking, the controlling shareholder. At the moment, Balducci's, once in Greenwich Village, has its only Manhattan store tucked in a hidden corner behind Lincoln Center. ('The worst location in the world,' Mr. Ordan said with a laugh.) Along with their $10 million deal to buy that location about a year ago, the partners also bought Sutton Place Gourmet and Hay Day Country Market gourmet chains, renaming them all Balducci's. In May, the owners plan to open a 20,000-square-foot flagship store in a former bank building at the corner of 14th Street and Eighth Avenue in Manhattan, a landmark they have nicknamed 'the temple of food.' Dean & DeLuca has already expanded to Japan, among other places. The small chain is looking for a store in Los Angeles. The market for gourmet groceries is growing nationally; last year, it topped $22.8 billion, according to the National Association for the Specialty Food Trade. From 2001 to 2003, it grew more than 24.1 percent. For 2004, the trade group expects sales in dollars to increase another 10 to 12 percent. Ron Tanner, the editor of Specialty Food magazine, a trade publication put out by the association, pointed to other expansions by gourmet stores. In California, Oakville Grocery plans to open 25 stores in the next five years. Andronico's, a supermarket in the San Francisco Bay area that has 11 stores, has upgraded stores to include specialty goods. 'The success of Whole Foods and Trader Joe's has given excitement to an industry that was traditionally based on one- or two-store ownership,' he said. 'The industry never had a category-killer like Barnes & Noble or Home Depot before. Now, people have seen somebody do that. The more aggressive are saying, 'Hey, there's an idea with potential.' ' Monica Aggarwal, a Merrill Lynch analyst who covers food stocks, including Whole Foods, said she saw nothing wrong-headed about small private companies setting their sights - much like Whole Foods did - on a wider market. 'There is room for it,' she said. 'We expect the natural foods and more upscale markets to grow in the high single-digits over the next 5 to 10 years. At the same time, we expect the more traditional grocery stores to grow only 1 or 2 percent.' Much the same thing is happening in the clothing market: the high-end stores, like Neiman Marcus on one end, and the discounters, like Target on the other, are doing well, but midmarketers like Lord & Taylor, Dillard's and Proffitt's are being squeezed. While analysts and investment bankers say they expect a battle when Balducci's opens its downtown flagship, Dane J. Neller, chief executive of Dean & DeLuca, adopts a gentler tone. Dean & DeLuca, he said, will not start cutting prices. The competition is not so much between his store and Balducci's or other specialty groceries, he said, but between the high-end stores and the mass marketers like Wal-Mart Stores, each attacking the midmarket.

Subject: Pension Activist to be Ousted From: Emma To: All Date Posted: Wed, Dec 01, 2004 at 12:03:36 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/01/business/01calpers.html California Pension Activist Expects to Be Ousted By MARY WILLIAMS WALSH A prominent figure in the corporate governance movement, Sean Harrigan, the president of California's large public pension fund, said yesterday that he expected to be ousted today from the board in retribution for stands it had recently taken on topics like executive pay, boardroom cronyism and high health care costs. 'This is nothing more than an effort to assault the voice of Calpers,' Mr. Harrigan said yesterday in an e-mail message, using the abbreviated name of the California Public Employees Retirement System. Mr. Harrigan has been a trustee of Calpers since 1999 and president since 2003. A career labor union official, Mr. Harrigan arrived at Calpers after being appointed by Gov. Gray Davis, a Democrat, to a state board that handles personnel matters for the civil service. One duty of that panel, the State Personnel Board, is to elect a trustee to the 13-member board of Calpers. The five-member personnel board is scheduled to vote today on returning Mr. Harrigan to Calpers for another year. Mr. Harrigan's situation at Calpers became public this week after a group of union presidents and leaders of retiree and consumer groups wrote the State Personnel Board, saying they had learned that there was 'an attempt to remove Sean Harrigan' and urging the board to re-elect him when it votes today. The letter also expressed the belief that Mr. Harrigan was being opposed by the administration of Gov. Arnold Schwarzenegger and business groups because of Calpers's corporate activism. The governor and business groups say they have not interfered in Calpers's affairs. 'It would be unconscionable if the Schwarzenegger administration and a few narrow corporate interests - such as the Chamber of Commerce - who have opposed corporate reform efforts, were to use the S.P.B. as a pawn in their fight against shareholders and fundamental fairness in our nation's financial markets,' said the letter, which was first reported by The Los Angeles Times. Calpers has assets of $178 billion and is the largest pension fund in the country. As a giant institutional investor, it has long sought ways to use its large shareholdings to influence corporate behavior, arguing that well-run corporations are the most likely to build shareholder value, which would be in the interests of the retired civil servants. A spokesman for Mr. Schwarzenegger dismissed as 'paranoid musings and conspiracy theories' any assertion that the governor, a Republican, had interfered with the internal affairs of Calpers.

Subject: Japan's Recovery is Fading From: Emma To: All Date Posted: Wed, Dec 01, 2004 at 11:38:58 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/12/01/business/worldbusiness/01yen.html? Signs That Japan's Economic Recovery Is Fading By TODD ZAUN TOKYO - A string of disappointing economic reports released Tuesday, including one showing an unexpectedly steep decline in industrial output, heightened concerns that Japan's recovery may be fading fast. Industrial output fell 1.6 percent in October from September, the biggest decline in eight months. Economists had forecast a gain of 0.1 percent. The decline suggests that worries about high oil prices, a rising yen and slackening demand overseas are causing companies to curtail production more than anticipated, economists said. Separate figures released Tuesday showed that the jobless rate rose in October while household spending slowed. Those numbers, too, were worse than economists predicted. The data paints a picture of an economy that is losing two important drivers of growth as both industrial activity and consumption decline. Economists warned that the combination meant chances were increasing that Japan could slip back into recession after the longest stretch of expansion in years. 'A very cautious corporate attitude is damaging the Japanese economy,' said Mamoru Yamazaki, chief economist at Barclays Capital in Tokyo. 'Our main scenario is still optimistic but the risk of recession is not small.' Investors, too, were disheartened by the weak numbers. The yen fell against the dollar, and the benchmark Nikkei 225 stock average sank 78.64 points, or 0.72 percent, to close at 10,899.25. Doubts about the resilience of Japan's recovery have been increasing since earlier this month when the government reported that the economy grew at a surprisingly weak annual rate of 0.3 percent in the third quarter of the year. The unexpected slowdown came as exports and capital spending weakened, indicating that falling demand overseas was crimping Japan's all-important exporters. The decline in output in October stemmed largely from falling production of electronic devices, according to the report from the Ministry of Economy, Trade and Industry. In particular, companies curbed production of flat-panel televisions and mobile phones, products that sold well earlier this year, lifting profits for companies like Matsushita Electric, Canon and Sharp. Falling output of electronic gadgets is worrying because a robust technology sector has been a leading factor in keeping Japan's recovery alive. The economy has expanded for six consecutive months, the longest recovery since one that ended in the second quarter of 2001.

Subject: US gross external debt From: somedude To: All Date Posted: Wed, Dec 01, 2004 at 09:51:46 (EST) Email Address: Not Provided Message: Further to Krugman's 'Argentina-in-the-making' analysis, here's a link to little noticed quarterly data on what we owe foreign lenders, admittedly on a gross basis. Still, 'a trillion here, a trillion there,' as they say.... US Trsy data on external debt www.treas.gov/tic/external-debt.html

Subject: little help From: setanta To: All Date Posted: Wed, Dec 01, 2004 at 08:27:29 (EST) Email Address: Not Provided Message: i'm looking for a link to an article on bank mergers within the european market in last weeks economist entitled 'European Banks - Flirting'. if anyone has a copy, i'd be eternally grateful! Thanks

Subject: Re: little help From: El Gringo alias Ottanta To: setanta Date Posted: Wed, Dec 01, 2004 at 20:53:57 (EST) Email Address: nma@hotmail.com Message: European Banks - Flirting The trouble with cross-border mergers 'For many months, Pierre Richard, boss of Dexia, a Franco-Belgian bank, and Enrico Salza, his counterpart at Italy's Sanpaolo IMI, have been in secret talks about a merger. When the truth leaked out last week, shareholders of both banks were surprised and displeased. On November 22nd Dexia's three largest shareholders forced Mr Richard to suspend talks until board meeting on November 28th. Meanwhile, members of Sanpaolo's executive committee grilled Mr Salza in Turin, the bank's home city. A merger may still happen, creating the euro area's sixth-largest bank by market value (but inly the 12th-biggest in Europe as a whole - see chart on next page 82). It would also be a rare example of a crossborder European bank merger, following the recent purchase by Spain's top bank, Santander Central Hispano, of Britain's Abbey. Analysts and investors were sniffy about that deal, and they may be even sniffier about this one. Derek De Vries, an analyst at Merrill Lynch, estimates that merging Dexia and Sanpaolo would yield 317m euro ($242m) in cost savings: the all French takeover of Crédit Lyonnais by Crédit Agricole, an operation of comparable scope, threw up E720m. Dexia and Sanpaolo are not in great shape. Dexia's main business is lending to municipalities, a dull business with low growth. It is burdened by the acquisition of two Dutch banks, Banque Labouchère in 2000 and Kempen the following year. Sanpolo is essentially an Italian retail bank. It is weaker than its main rivals, UniCredito and Banca Intesa. Because Sanpaolo is still digesting the merger of a host of sparring regional banks its corporate governance is, in Mr Salza's words, a telenovela (soap opera); until recently the bank had three chief executives. Why then do Mr Richard and Mr Salza want to merge? Mr Richard does not want his bank to fall prey to BNP Paribas or Société Générale, two big, cash-rich French banks. Mr Salza too would rather link up with a bank of similar size than be swallowed by a bigger one. Emilio Botin, the chairman of Banco Santander, which owns 8.6% of Sanpaolo, recently hinted at an appetite for the entire bank. Mr Richard is still hoping to make his binational bank more European. However, economic nationalism remains a powerful obstacle to cross-border mergers. Dexia's three main shareholders, which together control 38% of its shares, want to keep the bank predominantly Belgian. France's Caisse de Dépots et Consignations, on the other hand owner of 7.9% of Dexia and 1.9% of Sanpaolo, is in favour of a merger. Mr Salza is not giving up either. On November 23rd Alfonso Iozzo, Mr Salza's right-hand man, visited Antonio Fazio, the governor of the bank of Italy, to win regulator's approval of the proposed deal. In the past Mr Fazio has blocked attemps by foreigners to buy more than 20% of an italian bank. A merger of Dexia and Sanpaolo would be unlikely to set off a wave of similar deals, although there may be surprises. Analysts at the Société Générale say Spain's Banco Bilbao Vizcaya Argentaria could buy Italy's BNL (Banca Nazionale del Lavoro) , a troubled bank currently selling E1.2 billion in new shares. UniCredito could join forces with Sabadell or Popular to enter the Sapnish market. But most countries, including Italy, there are still gains to be had from domestic consolidation. Alessandro Roccati of Fox-Pitt, Kelton, an investment bank, thinks next year could see some deals between italian banks. Cassa di Risparmio di Firenze, a Tuscan savings bank, is a takeover candidate. Capitalia, a Roman bank, and Banca Antonveneta, from the Veneto region, might join forces. For Dexia and Sanpaolo, much depends on Mr Richard's powers of persuasion this weekend. Mr Richard and Mr Salza may have to contend themselves with a looser alliance - or none at all. If no form of link materialises between the two banks, Mr Richard is unlikely to see out his contract, which expires in 2006. A redrawing of Europe's banking map still looks a long way off.'

Subject: Re: little help From: Jennifer To: setanta Date Posted: Wed, Dec 01, 2004 at 19:25:27 (EST) Email Address: Not Provided Message: The article is for subscribers only, so you must either get a copy from a library that subscribes to Economist Online or borrow a hard copy of the magazine.

Subject: Bank Mergers in Europe From: Jennifer To: Jennifer Date Posted: Wed, Dec 01, 2004 at 19:31:26 (EST) Email Address: Not Provided Message: November 29, 2004 Dexia May Seek Different Partner After Sanpaolo Talks (Bloomberg) -- Dexia SA, Belgium's second-largest financial-services company, may seek another European merger partner after ending talks with Italy's Sanpaolo IMI SpA. Dexia's 18-member board decided unanimously at a meeting in Brussels yesterday to terminate negotiations aimed at a combination with Sanpaolo, saying conditions ``are no longer right.'' ``The board will continue to pursue opportunities,'' said Sir Brian Unwin, a Dexia board member, as he left the bank's headquarters following yesterday's meeting. Dexia ``absolutely'' would be open to a cross-border merger, said Unwin, a former president of the European Investment Bank. The bank, based in Brussels and Paris, abandoned the discussions with Turin, Italy-based Sanpaolo after three of Dexia's biggest shareholders said last week that they opposed the plan. The company, whose main business is lending to local governments, has said it wants to expand in consumer banking outside Belgium. The failure of the talks with Sanpaolo may leave Dexia a target for a takeover, investors including Patrick Casselman at KBC Asset Management said. ``They could attract interest from one of the French banks, either Societe Generale SA or BNP Paribas SA,'' said Casselman, who manages the equivalent of $600 million in European stocks, including Dexia shares, at KBC in Brussels. ``I expect a deal to be completed during 2005.'' Societe Generale spokesman Jerome Fourre and BNP Paribas spokeswoman Michele Sicard declined to comment on whether the banks would be interested in closer ties with Dexia. Dexia and Sanpaolo said Nov. 18 they were in discussions about a possible combination. Dexia suspended those talks last week after shareholders Holding Communal, Arcofin and customer-owned insurer Ethias, who together control 38 percent of the bank, opposed the plan because of concerns about how profitable it would be for them. A combination of Dexia, which has a market value of 18.8 billion euros ($25 billion), and Sanpaolo, worth 19.2 billion euros, would have been Europe's largest cross-border banking deal. The transaction might have involved Sanpaolo buying Dexia through a share swap, analysts at Bank Degroof said in a note to clients. Dexia stock rose as much as 8.4 percent to a two-year high after the Sanpaolo talks became public. The shares fell 2 cents to 16.56 euros at 10:26 a.m. in Brussels today. Sanpaolo shares rose 3 cents to 10.48 euros in Milan. ``We are relieved by the news that the merger will not go ahead, as we failed to see the rationale behind it and disliked the idea from the start,'' Johan van der Lugt, an analyst at ING who recommends investors buy Dexia shares, said in a note today. ``Dexia will continue to look for other candidates.'' A spokesman for Sanpaolo IMI in Turin declined to comment on the Belgian lender's decision. Sanpaolo is holding its own board meeting today. Giorgio Spriano, head of corporate development, said last week his bank might seek a different partner were talks with Dexia to break down. A full takeover bid for Dexia from another bank would be more likely to include a premium for shareholders, KBC's Casselman said. Unwin said yesterday the Dexia board isn't worried about the bank becoming a target for a hostile takeover. Societe Generale and Dexia are already partners in French regional consumer bank Credit du Nord, in which Dexia holds 20 percent. Dexia Chief Executive Officer Pierre Richard, 63, said in March that there was ``no wedding in sight'' for the bank with Societe Generale, as it wouldn't produce sufficient cost savings. Dexia's board has ``confidence'' in Richard and in the company's growth prospects, the bank said in a four-paragraph e- mailed statement yesterday.

Subject: Re: Bank Mergers in Europe From: setanta To: Jennifer Date Posted: Thurs, Dec 02, 2004 at 04:31:06 (EST) Email Address: Not Provided Message: thanks jennifer and el gringo, i needed that in a rush and i owe you guys one!!! if there's ever anything you need me to do, just ask!

Subject: Re: Bank Mergers in Europe From: Jennifer To: setanta Date Posted: Thurs, Dec 02, 2004 at 08:20:38 (EST) Email Address: Not Provided Message: Tell us lots lots more more about Ireland and Europe.

Subject: Economic Growth From: Jennifer To: All Date Posted: Wed, Dec 01, 2004 at 05:51:51 (EST) Email Address: Not Provided Message: The economy grew last quarter at 3.9%. This is a far more rapid growth rate than in the larger European economies or in Japan. The American economy continues to recover from the recession, and there seems to be time to deal with any economic problems as the Fed is doing by slowly raising interest rates.

Subject: Re: Economic Growth From: Terri To: Jennifer Date Posted: Wed, Dec 01, 2004 at 07:08:49 (EST) Email Address: Not Provided Message: We need to grow at least 4% as long as productivity is robust to build gains in the labor market. But, Europe and Japan must seriously look for ways to generate domestic demand. Why is Japan growing so weakly 14 years after the stock market bubble burst? Is a steady 4% growth rate impossible for Japan or Germany or France? How are these growth rates to be achieved?

Subject: Unilateral 'values'? From: El Gringo alias Norm To: All Date Posted: Tues, Nov 30, 2004 at 21:52:25 (EST) Email Address: nma@hotmail.com Message: Getting Past the American Election by Joseph E. Stiglitz The pundits have now weighed in mightily in interpreting the American presidential election. Did the outcome - together with Republican gains in the Congress - represent an endorsement of Bush's positions? Has the American electorate swung to the right? Are Americans now more concerned about 'values?' Like price in economics, a single electoral choice compresses a lot of information. It is a summary of whether, taking everything into account, a citizen prefers one candidate to another. A host of surveys is required to figure out what it really means, for the United States - and for the world. This much is clear, however: there is little confidence in Bush's economic policies. The typical American family knows that it is worse off today than it was four years ago, and appears unconvinced that the tax cuts targeted at upper-income Americans brought the benefits heralded by the Bush administration. But while Bush was not held back four years ago by the lack of a popular mandate in pushing his agenda, he may be emboldened by the seeming ringing endorsement to push even harder - such as making the tax cuts permanent and partially privatizing social security. If adopted, these measures will further compound America's fiscal mess. To the rest of the world, these are America's problems. Yes, the soaring deficits may contribute somewhat to international financial instability. Real interest rates may rise, as America borrows more and more. If declining confidence in US fiscal policy leads to a weaker dollar, Europe and Asia may find it more difficult to export, and if the deficits prove a drag on the American economy, global growth may stall. But for much of the rest of the world, the real concern is American unilateralism. An interconnected world needs cooperation and collective action. Historically, the US has exercised enormous leadership in a world committed to the proposition that no state should dictate collective decisions. Unfortunately, over the past four years, America's president has lost the credibility necessary to exercise that leadership. Even if the 59 million votes cast for Bush represented a ringing endorsement of his Iraq policy, it would not restore America's international credibility. I believe most Americans reject Bush's unilateralism no less than his administration's economic policies. Before the invasion of Iraq, they wanted America to go to the UN, and today they recognize that America alone cannot maintain order in the Middle East. Even if Iraq is to bear more of the cost of its own reconstruction, there will have to be debt forgiveness, and this too requires international cooperation. Those who voted for Bush may not be as outraged by American involvement in torture, or the misleading information about Iraq's weapons of mass destruction and connections with Al Qaeda, as those abroad. But they do not want America alone to shoulder the burdens of international peace, and they are gradually coming to the realization that leadership and cooperation do not come automatically, simply because America is the only superpower. Some worry whether Bush will use his electoral mandate to engage in more ventures. As he himself put it, 'I earned capital in the campaign … and now I intend to spend it.' Had the Iraq venture been more successful, these worries would have been justified. There is little secret that there were discussions concerning Iran. But the doctrine of preemptive war has been badly tarnished, and I remain hopeful that Congress and the American people have learned a painful lesson. Peace will not quickly be restored to Iraq, and it is hard to conceive of opening up a major new front, when America can hardly manage what it has already undertaken. Others will, of course, have to continue to bear the costs of the mistaken and mismanaged adventure in Iraq. Instability in the Middle East will continue to limit oil supplies, discouraging the expansion of production. High oil prices will dampen global growth in the remainder of 2004 and into 2005. In the short run, the only response is more conservation, and America's allies should put pressure on America to conserve. (Another reason stems from recent reports concerning the rapid melting of the polar ice cap, which seem to reconfirm worries about global warming.) Presidents do make a difference, but every president operates within constraints. The good news is that the constraints that Bush and the American government will face in the next four years will almost surely limit the damage they will cause. The rhetoric and posturing, the lack of commitment to human rights or democratic processes, may be - and should be - upsetting, but there will be far more bark than bite. While America may continue on a path of unilateralism, other countries' stance will make a difference. Some suggest that the US constitution provided fewer constraints on the president in the conduct of foreign policy, because the requisite checks and balances were to be provided by the powers of the time - Britain and France. Today, with the US as the only superpower, it is even more important for countries to stand up and express their views - and to stick by them even when pressured. Some worry that this will worsen relations with the US. But long-term relationships are based on friendship and respect; coherent, well-argued positions will earn that respect. Today, many Americans, especially the young, feel far more respect for the countries that recognized the lack of evidence of Iraqi weapons of mass destruction than for those whose leaders repeated the American distortions. It may be unfortunate that Realpolitik is the order of the day, but it is, so others must learn to play the same game. Standing up for multilateralism and international rule of law may not only be the morally right thing to do; it is also in the interests of America's allies and, ultimately, America itself.

Subject: Re: Unilateral 'values'? From: Jennifer To: El Gringo alias Norm Date Posted: Wed, Dec 01, 2004 at 05:39:23 (EST) Email Address: Not Provided Message: 'The typical American family knows that it is worse off today than it was four years ago, and appears unconvinced that the tax cuts targeted at upper-income Americans brought the benefits heralded by the Bush administration.' How does Joseph Stiglitz know this about the typical American family, and if this is so why did Republicans receive such support in the election? As Paul Krugman offers, we need survey data to support these comments. I expect more data from Joseph Stiglitz. Thank you for the fine post.

Subject: Re: Unilateral 'values'? From: Jennifer To: Jennifer Date Posted: Wed, Dec 01, 2004 at 07:01:11 (EST) Email Address: Not Provided Message: Though I admire Joseph Stiglitz, I am disappointed that this essay does not examine a specific policy area. What are our economic problems? What are we to do in fiscal and monetary policy? Why? If we are having so many problems, why is our economic growth holding up so well?

Subject: Vanguard Returns From: Terri To: All Date Posted: Tues, Nov 30, 2004 at 20:29:52 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/30/04 S&P is up 7.1% Value Index is 11.4 Growth Index is 3.4 Mid Cap Index is 15.5% Small Cap Index is 15.7% Small Value is 19.9 Europe Index is 16.0 Pacific Index is 13.6 Energy is 38.6 REIT Index is 24.7 Health Care is 4.1 Long Term Corporate Bond Fund is 7.4 High Yield Corporate Bond Fund is 6.1

Subject: Re: Vanguard Returns From: Terri To: Terri Date Posted: Wed, Dec 01, 2004 at 15:01:07 (EST) Email Address: Not Provided Message: Vanguard returns data: http://flagship3.vanguard.com/VGApp/hnw/FundsByName

Subject: Japan and America From: Terri To: All Date Posted: Tues, Nov 30, 2004 at 19:16:54 (EST) Email Address: Not Provided Message: The Bank of Japan began to tighten interest rates at the beginning of 1990. Actually the stock market peak was December 31, 1989. The real estate market held up through 1992, while the stock market fell. Then, real estate began to lose value and though the Bank of Japan reversed policy and began to lower interest rates real estate prices fell for the rest of the decade. What has kept Japan growing, although too slowly, has been repeated Keynesian periods of government spending. America's Federal Reserve interest rates cuts from January 2001 were designed to avoid a Japanese manner of economic slowing that might last years even leading to deflation. The rise in real estate prices that was brought about with the Fed rate cuts was an enormous economic spur.

Subject: Re: Japan and America From: Pete Weis To: Terri Date Posted: Wed, Dec 01, 2004 at 10:18:46 (EST) Email Address: Not Provided Message: 'The Bank of Japan began to tighten interest rates at the beginning of 1990.' A lot of what you stated in your post is true except the above statement. The BOJ discount rate stood at 6% in August of 1990 and had been steadily reduced to 1% by 1995. Alan Greenspan and other economists have talked about the lack of economic traction that the easing of rates in Japan had rendered in the Japanese economy and wondered if the US economy would suffer a similar fate. Paul Krugman has talked about the similarities.

Subject: Japanese Interest Rates From: Terri To: Pete Weis Date Posted: Wed, Dec 01, 2004 at 11:17:26 (EST) Email Address: Not Provided Message: The Bank of Japan raised interest rates in 1990. The lowering of Japanese interest rates did not begin until 1992, well after a bear market in stocks had begun. Despite the lowering of interest rates the real estate market had stopped experiencing price increases in 1990, and by 1992 prices were falling and kept falling no matter how low interest rates were. The Japanese real estate boom occurred in the 1980s, and was not saved by the Bank of Japan lowering interest rates from 1992 on. Somehow Japan has never been able to grow at a reasonable and sustained rate since 1994. Japan is evidently faltering again. Was the Bank of Japan too slow to recgonize the early danger? I think so.

Subject: Japan is Slowing From: Terri To: All Date Posted: Tues, Nov 30, 2004 at 17:31:03 (EST) Email Address: Not Provided Message: There is increasing reason to believe Japan is slowing again. If so, I imagine the Japanese central bank again will be buying dollars. I imagine this will be soon, and I see no limit to purchases that can be made.

Subject: Pushing Japan or China From: Terii To: Terri Date Posted: Tues, Nov 30, 2004 at 17:33:00 (EST) Email Address: Not Provided Message: Also before we start thinking that America can push the Japanese or Chinese to policy positions they are no comfortable with, we might think again. Beyond economic relations, we have a strategic need for supportive relations with both China and Japan. We may grumble a bit, but we will not push either Japan or China too much in economic directions in which they do not care to go.

Subject: Outsourcing to Canada From: Emma To: All Date Posted: Tues, Nov 30, 2004 at 12:36:23 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/30/business/worldbusiness/30outsource.html?pagewanted=all&position= Canada, the Closer Country for Outsourcing Work By IAN AUSTEN OTTAWA - Like many software outsourcing companies, Keane often sends work to its employees in India. But at the same time, Keane, which is based in Boston, is expanding its base of software developers in its original, and much closer, outsourcing location: Canada. While the debate over software and call center outsourcing from the United States focuses mainly on India, the Philippines, Singapore and other distant points, its significant growth in Canada has attracted relatively little attention. Canada lags India in the number of people working in outsourcing businesses. But its stability, proximity and cultural similarity to the United States tend to attract higher-value, more sophisticated work. At the same time, outsourcing companies, including Keane, have started dividing jobs between operations in Canada and India. 'In some cases we use Canada as a front end to India,' said Alaisdar M. Graham, Keane's managing director for Canada. 'We find that this takes away the issues people have with India.' Canada is holding its own against India in high-end work. 'We do not have the same volume of people as India,' said Robert Scott, a partner at PricewaterhouseCoopers Canada, based in Toronto, and the co-author of a study on outsourcing. 'But Canada is generally competing at the leading edge of technology where close interaction between business users and developers is critical.' The lack of cultural differences between the countries has helped Canada also draw the call center part of the business. Mark Best, a call center industry analyst at Datamonitor, forecasts that the Canadian call center industry will grow 7.9 percent a year over the next three years, with the United States segment expanding more than 12 percent annually. Proximity and cultural overlap clearly help Canada in this business. 'We can honestly talk about last night's ballgame because we watched it,' Mr. Scott said. Because Canadians are more aware of American fashion trends than Indians, Mr. Best said Canada is a better choice for serving customers of mail-order fashion retailers in the United States. Canadian outsourcers and their customers realize the business is politically sensitive. In an attempt to distance themselves from India, many people in the Canadian industry refer to their business as 'near shore outsourcing.' Others prefer to call it 'remote contracting.' Mr. Graham said that in contrast to some of Keane's experiences with its Indian operations, few customers from the United States appear to have misgivings about moving work to Canada. 'They tend to view Canada as the next state,' he said. Mr. Best added: 'Companies are willing to pay a premium for a destination that is close to home. The customer on the end of the phone will be able to relate much better to a representative in Canada than one in the Philippines.' Mr. Best estimated that Canada had 26,300 call center 'agent positions,' or workstations, serving the United States. The actual number of workers is probably much higher, as each position is basically a phone line and a cubicle. At some call centers, three employees on separate shifts will work a single phone during each 24-hour period. The figure, however, looks almost insignificant when compared with the 2.85 million call agent jobs that remain in the United States. A recent study by PricewaterhouseCoopers Canada estimated that 15,000 to 20,000 Canadians develop software for foreign companies. The Canadian subsidiary of E.D.S. alone has about 1,400 workers developing software, though the company declined to say how much of that work is for customers outside Canada. Mr. Scott, the partner at Pricewaterhouse, said he believed that the amount of software work coming into Canada was being offset by work leaving the country. Canada's role as an outsourcer began in the late 1980's when the New Brunswick premier at the time, Frank McKenna, worked with the province's telephone company to upgrade its network before embarking on a worldwide sales campaign to lure business, sometimes sweetened with promises of government handouts. Like many provinces in Atlantic Canada, New Brunswick had an economy heavily dependent on resource industries like lumber and fishing that offered limited job opportunities.

Subject: Outsourcing to Canada 2 From: Emma To: Emma Date Posted: Tues, Nov 30, 2004 at 12:39:31 (EST) Email Address: Not Provided Message: New Brunswick's initial success soon spread to other parts of Canada with similar economic circumstances, like the rest of Atlantic Canada, rural British Columbia and the northern portions of Ontario. Even more affluent regions have attracted some work. Across the river from the Nortel Networks main research center in Ottawa, Hewlett-Packard provides technical support to American customers in Gatineau, Quebec. Similarly, the VAC Service Corporation of Middletown, N.Y., which administers warranties for appliance and electronics makers, operates a call center in suburban Ottawa that is integrated with two operations in the United States. Government grants play a minor role in bringing in companies. Cendant, for instance, received a grant of 1.8 million Canadian dollars ($1.5 million) for its operation, one that Mr. Best said was typical of the general pattern of call centers here. Rather than making outgoing sales calls, the center largely handles incoming calls for Budget Rent a Car system, the Avis Rent a Car system, Cendant's nine hotel chains and its time-share resort business. Mr. Best said that banks and other financial services companies as well as catalog retailers had moved some or all of their incoming-call work to Canada. Eddie Bauer now handles all of its catalog inquiries with about 600 workers in New Brunswick, while some Spiegel and Newport News catalog calls go to Nova Scotia and to Virginia. Keane first brought some of its software work to Canada in 1996 when it was looking for extra help to deal with Year 2000-related work. But when 2000 came and went without incident, Mr. Graham said the company was sold on the advantages of Nova Scotia and focused the Canadian operation on software development and, at a smaller level, system maintenance. Not only were there eight universities near Halifax feeding skilled employees into Keane, Mr. Graham said, but the company was quickly bombarded with résumés from highly skilled expatriate Canadians who wanted to return home. Mr. Graham said the company planned to add 100 employees to its Toronto operation. Lower costs were also a factor - even considering the 26 percent rise in the Canadian dollar since January 2002. Stephen E. Lund, president of Nova Scotia Business, a government-financed agency, estimates a skilled software worker who can command $80,000 to $90,000 a year in Boston is paid the equivalent of $60,000 to $70,000 a year in Halifax. Costs for a typical 110-employee software development group in Halifax, he said, are about 40 percent to 50 percent lower than Boston or New York.

Subject: China In Asian Trade Pact From: Emma To: All Date Posted: Tues, Nov 30, 2004 at 12:11:20 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/30/international/asia/30asean.html Chinese Premier Signs Trade Pact at Southeast Asian Summit By JANE PERLEZ VIENTIANE, Laos - China moved a step closer to cementing its economic and diplomatic relationships with Southeast Asia on Monday when Prime Minister Wen Jiabao signed a trade accord at a regional summit meeting that calls for eliminating tariffs on a range of agricultural and manufactured goods by 2010. He also signed a strategic declaration that commits China to good behavior in the Southeast Asian region, including the contentious area of the South China Sea. Mr. Wen's presence at the annual meeting of the Association of Southeast Asian Nations has come to dominate the event as the 10 member nations wrestle with how to adjust their varying and often heavily protected economies with a surging China. In his speech, Mr. Wen outlined his grand concept for an East Asian community that he said China wanted to play a leading role in developing. Deeper cooperation among the nations that would culminate in such a community is a 'strategic choice made in the interests of China's own development and in the common interests of the region,' he said. China is not a formal member of Asean, but in his speech, Mr. Wen was far bolder in his vision for an East Asian community that incorporated China than any of the Southeast Asian leaders, who have tended to tiptoe around the idea. China, along with Japan and South Korea, is invited to attend the annual meeting. India, eager to show that it is part of the wider community beyond South Asia, also attends. The new trade agreement was the first concrete step toward a China-Asean free trade area by 2010, an idea China broached two years ago. The strategic declaration highlighted the dramatic turnaround in relations that until several years ago were marked by fear, and in some instances, hostility. In the declaration, China reaffirmed its support for the treaty on a zone free of nuclear weapons that is a hallmark of Asean. China's weight was also evident in a decision by the summit leaders on Monday to push forward by three years, to 2007, the date when tariffs on intra-Asean trade would be abolished in 11 major groups of products, including textiles but excluding automobiles. M. C. Abad, the spokesman for the Asean secretary general, said the 11 groups constituted more than 50 percent of intra-Asean trade. In a more indirect way, China won a victory when the 10 leaders announced that in addition to their regular summit meeting next year, they would hold an East Asia summit meeting outside the formal auspices of Asean. That configuration would bring China closer into the eventual formation of an East Asia community, officials said Monday.

Subject: Interest Rates From: Terri To: All Date Posted: Tues, Nov 30, 2004 at 06:25:50 (EST) Email Address: Not Provided Message: There will soon be a fifth rise in short term interest rates in this cycle of Federal Reserve tightenings. Unless there is a slow holiday season, we are likely to have several more tightenings in coming months. Those who have wished the Fed to limit low cost credit availability are gaining their wish.

Subject: Thinking of China From: Jennifer To: All Date Posted: Mon, Nov 29, 2004 at 19:17:04 (EST) Email Address: Not Provided Message: The Coming of the Xianbei and Other Nomads http://www.metmuseum.org/special/China/s2_obj_5.L.asp http://www.metmuseum.org/special/China/section_02_intro.asp

Subject: The Dollar From: Terri To: All Date Posted: Mon, Nov 29, 2004 at 16:47:55 (EST) Email Address: Not Provided Message: When we assume that India or China or Japan will suffer huge losses in foreign cash or short term reserves or Treasury bonds from a loss in dollar value, we are putting out of mind the fact that dollars can be used for American purchases. A loss in value of the dollar does not mean a loss in buying power here for those abroad who hold dollars.

Subject: Re: The Dollar From: Dorian To: Terri Date Posted: Tues, Nov 30, 2004 at 03:13:04 (EST) Email Address: DorianLS@aol.com Message:

Subject: Re: The Dollar From: Jennifer To: Dorian Date Posted: Thurs, Dec 02, 2004 at 08:41:13 (EST) Email Address: Not Provided Message: We can well look to Vanguard international funds for ways to protect assets against a falling dollar value. Vanguard also has a brokerage division through which we can buy foreign stocks or bonds.

Subject: Australia? From: Emma To: Terri Date Posted: Mon, Nov 29, 2004 at 18:39:15 (EST) Email Address: Not Provided Message: http://www.institutional-economics.com/ Celebrating Two Centuries of Current Account Deficits: The further deterioration in Australia’s current account deficit in Q3 to test previous cyclical highs as a share of GDP has seen the usual doom-mongering, with predictions of a currency ‘crisis’ (the Australian dollar is in fact at historical highs on a trade-weighted basis) and claims foreigners will stop funding our supposedly excessive consumption. The fact that foreigners have been funding Australia’s economic growth in this way more or less continuously for 200 years perhaps makes predictions of this kind the single worst cumulative forecasting failure of any economic point of view, yet people never seem to tire of these predictions. Unlike in the US, the Australia government currently makes a positive contribution to national saving, so the current account deficit is entirely the work of consenting adults. Unless one can make a persuasive case for systemic failure in capital markets, then Australia’s current account deficit is an unambiguous sign of economic strength, not weakness. The sad thing is that much of the doom-mongering comes from economists who should know better.

Subject: Re: Australia? From: Dorian To: Emma Date Posted: Thurs, Dec 02, 2004 at 04:33:59 (EST) Email Address: DorianLS@aol.com Message: 'Unlike in the US, the Australia government currently makes a positive contribution to national saving, so the current account deficit is entirely the work of consenting adults' What the heck does this mean? No budget deficits, only current account deficits? How can you possibly run two centuries of current accunts deficits anyway?

Subject: Re: Australia? From: Emma To: Dorian Date Posted: Thurs, Dec 02, 2004 at 08:30:22 (EST) Email Address: Not Provided Message: What this means is that Australian households continually buy more abroad than they sell. The government evidently has a budget surplus, while households create the trade deficit. In Japan the government runs a deficit, but there is always a trade surplus because household saving is so high. Interesting. Look how strong the Australian dollar is, recall how strong the Australian dollar was during the 1998 Asian crisis. I can not explain this properly, and will think more about the matter.

Subject: Intel's Failed Hopes From: Emma To: All Date Posted: Mon, Nov 29, 2004 at 14:50:07 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/29/technology/29intel.html?pagewanted=all&position= The Disco Ball of Failed Hopes and Other Tales From Inside Intel By JOHN MARKOFF One sign that Intel is having trouble dancing to technology's current beat may be the world's most expensive disco ball. For a company holiday party next month, a handful of engineers assembled a disco ball - with hundreds of small reflective devices - to hang above the dance floor. The mirrors are leftover projection-television chips from Intel's planned effort to enter the digital television market - an effort the company recently abandoned only 10 months after a splashy introduction at the Consumer Electronics Show last January. The TV effort became yet another in a series of embarrassing stumbles for Intel. The company has publicly canceled a succession of high-profile projects, has replaced managers in money-losing ventures and has fallen behind its keen competitor Advanced Micro Devices in introducing technologies, like a feature that wards off viruses and worms, in markets that Intel has long dominated. A.M.D. has been so successful in stealing the spotlight from Intel lately that Kevin B. Rollins, the president of one of Intel's biggest customers, Dell Computer, said at a financial conference call this month that Dell was considering adding computers with A.M.D. chips to its product line. For two decades, Intel has been the most sure-footed of Silicon Valley companies. But lately, it seems to have lost its way. 'They have made many wrong decisions and now it's time for soul-searching and structural, not cosmetic, changes,' said Ashok Kumar, a financial analyst at Raymond James & Associates. This all portends an interesting inauguration for Intel's 50-year-old president, Paul S. Otellini, the longtime Intel marketing executive tapped by the board this month to become only the fourth chief executive in the company's history. Mr. Otellini does not officially take the job until May. But next week in one of his first official acts as the designated chief executive, he plans to present his strategy to Wall Street analysts. He may have a lot to answer for, including the 25 percent decline in Intel's stock price this year. Mr. Otellini will tell analysts that he plans to focus on four areas for growth: international markets for desktop personal computers, mobile and wireless applications, the digital home, as well as a new initiative aimed at large corporate computing markets that Intel is calling the Digital Office. The strategy is a significant shift - a 'right-hand turn,' as Mr. Otellini likes to say - from Intel's long-term obsession with making ever-faster computer chips. Instead, the company is now concentrating on what he calls platforms: complete systems aimed at both computing and consumer electronics markets. Mr. Otellini insists that the recent missteps, including the premature introduction he himself made of the digital project, are simply a result of over-optimistic marketing. 'What was wrong was that I made the decision to go public on it at the Consumer Electronics Show,' he said in a recent interview in Intel's Santa Clara headquarters. 'Error of judgment. Mea culpa. I learned a lesson.' The decision to preannounce an unproven technology was an uncharacteristic one for Intel, said G. Dan Hutcheson, president of VLSI Research Inc., and a longtime observer of the company. However, he said, it has been Mr. Otellini's ascendancy at the company that has changed the way it markets technology. 'As he came into power Intel tried to become a more aggressive marketing company,' he said. 'They never seemingly made mistakes before and that was simply because they didn't preannounce. This is the classic failure of a company where the marketing guys are pushing the manufacturing guys more than what's there.' Intel is still a technology giant, the global leader in semiconductors, with revenue last year of more than $30 billion. The company retains an unrivaled manufacturing capacity, control of a powerful desktop computing standard, and an enviable international growth rate which shows no sign of slowing anytime soon. But some of the company's marketing problems may become more acute before they are resolved. Until recently, selling Intel chips was easy: faster was better. Now, Mr. Otellini said, Intel intends to play the same game with the number of processor cores that can be embedded on a chip. The hope is that by breaking problems into parts that can be computed by separate cores simultaneously, chips will continue to offer better performance. The problem with the strategy is that so far Intel is trailing A.M.D., I.B.M. and Sun Microsystems, who all have their own aggressive multicore chip strategies. Yet Intel's challenge in entering new markets also runs deeper, according to an engineer who worked on the ill-fated digital television project and insisted on not being identified. The engineer said that the company's failure to perfect the technology, known as liquid crystal on silicon, or LCOS, came from its inability to think beyond its expertise in manufacturing digital circuits. The company's failure was that it did not search for outside expertise soon enough. The LCOS display technology has proved vexing to many other consumer electronics companies because it is so difficult to manufacture. However, Intel's top executives believed that by applying the same manufacturing process techniques that have gained it dominance in microprocessors, the company would succeed where others have failed. The engineer described sitting in meetings where the company's simulation models showed that 95 percent of the chips from each test wafer would be usable, while the actual yields were closer to 4 percent. High manufacturing yields are the holy grail of the chip-making industry but Intel has been unable to translate its traditional prowess to the new technology. That gap meant that Intel was unable to drive the cost of the chips down in the same way it has traditionally lowered the costs of its microprocessors.

Subject: Selective Price Changes From: Terri To: All Date Posted: Mon, Nov 29, 2004 at 14:16:56 (EST) Email Address: Not Provided Message: The beginning year of the bear market in stocks, 2000, saw a steady incready in the prices of drug and medical equipment company stocks. Energy stocks, real estate investment trusts, and many value stocks had fine to moderate gains in 2000. Though 2001 and 2002 were tougher years for stocks, there were still many issues that help up well through the bear market. The point is that there was a severe decline in price of severely inflated stocks, but many stocks were not. Stocks like Microsoft and Intel and Cisco easily distorted capitalization weighted indexes. Was there asset inflation in 2000? Selectively, yes. Similarly there is likely selective asset inflation now in real estate, and in bonds. But, that does not mean we must expect a broad selling of bonds or real estate if interest rates continue to rise gently.

Subject: Keeping Up Consumption From: Terri To: Terri Date Posted: Mon, Nov 29, 2004 at 14:48:23 (EST) Email Address: Not Provided Message: Wages are a function of productivity and the bargaining power of labor. Growth in productivity was fine during the Great Depression, but wage growth was not at all fine. Similarly productivity is growing nicely now, again not so for wages and benefits. Wages and benefits growth are important because the consumer is critical to keeping this recovery from recession and expansion going. Household saving is about as low as can be, home value increases have been used to increase consumption about as much as possible through this credit cycle, bond yields are low, and stock returns only moderate. There is little likelihood of a fiscal stimulus. Then, we had best hope workers are feeling comfortable with wages or spending is likely to slow.

Subject: America's Stock From: Pete Weis To: All Date Posted: Mon, Nov 29, 2004 at 10:20:03 (EST) Email Address: Not Provided Message: The dollar has often been refered to as America's stock. So it is reflective of America's economic condition and the world's confidence in its economic condition. Certainly it has had its ups and downs over the years but it has been, perhaps, the steadiest and strongest currency in the world for most of the 20th century. For the first time in US history there is a very serious chance there will be either a relatively long term 'meltdown' of the dollar (more desirable) or a panic selloff of the dollar (extremely undesirable). I call a longer term meltdown of the dollar as 'desirable' because there is very little chance that something other than these two scenario's will occur. Nearly every economist in existance agrees that our deficits (current account and budget) can not go on forever. Unless you think that America will suddenly begin making products which can only be produced here (at least for some relatively long period of time) and that the rest of the world, including Asia will buy these products in large quantities, then the only way for the current account to balance is for the US dollar to fall much further from where it is now. It must fall much further because, among other things, Asian labor is so much cheaper than US labor. With an almost 'limitless' supply of labor force yet to employ their wages are likely not to increase much over the next decade. Another way to reduce the current account would be to steeply reduce wages in America to make them more competitive with cheaper overseas labor, but of course this would be unacceptable for the Amercan worker/voter. So dropping the dollar steadily and considerably achieves the same result with workers more concerned with the nominal dollar value of their paychecks. It's much like that old metaphor of a frog sitting in water that is slowly coming to a boil - he doesn't realize what is happening until it's too late. Heck, investors are in the same situation if they are invested in US assets - they normally only look at their nominal gains and pay little attention to their real gains (which factor in the dropping dollar). Our present government contributes to the very real situation described by the frog metaphor by rigging the thermometer - as Bill Gross and others have pointed out, they use hedonics and substitution to subjectively lower the CPI number. So we get back to the two scenario's for the dollar - steep panic selloff or slow gradual meltdown. Which will it be? Our government and our fed are trying to engineer a slow meltdown. Unfortunately there is no way to engineer or control human emotion. If the world, as well as enough US investors, begin to believe the US economy is in real trouble with the current account deficit and our present government is likely to make our budget deficit worse not better, then a breaking point of confidence may be reached and the panic selloff ensues - the dollar begins to crash. This is why Stephen Roach says Alan Greenspan will be forced to act with the rather extreme measure of raising interest rates much more steeply than he would like. This is why Paul Volker says 75% of a financial crisis in the next five years. IMO, it all comes down to realizing that our present time and condition, when it comes to America's stock (the dollar), are very different from the past. If we think that there will be no serious dollar crisis because it has never happened to us in the past and it only happens to countries like Argentina, then we are grasping at false comfort and we have become the frog.

Subject: Re: America's Stock From: Terri To: Pete Weis Date Posted: Tues, Nov 30, 2004 at 07:21:28 (EST) Email Address: Not Provided Message: There were often times when economists were afraid of a debt crisis in Japan, but I remember Robert Rubin saying such a crisis was unthinkable. Japan had too many policy tools and was too strong an economy for a debt crisis. The serious problem for Japan was slow growth year after year. Japan has missed taking advantage of growth potential, but there has been ample time for Japan to mend. Will we learn from Japan? The Federal Reserve has tried to learn and acted rapidly to revive growth in 2001 and 2002 and 2003. Will we still experience years of growth below our potential? I wonder.

Subject: Re: America's Stock From: Pete Weis To: Terri Date Posted: Tues, Nov 30, 2004 at 14:31:40 (EST) Email Address: Not Provided Message: The major difference between Japan, of course, is that Japan has a current account surplus and the US a very large current account deficit. Personal debt is at much higher levels in the US than it is in Japan - this is inter-related with the US current account deficit. Japan took the same road ten years earlier - dropping their rates in the early 90's. It caused a real estate boom which has since gone bust and Japan hasn't yet been able to get their economy out of the duldrums.

Subject: Re: America's Stock From: Terri To: Pete Weis Date Posted: Tues, Nov 30, 2004 at 19:07:53 (EST) Email Address: Not Provided Message: 'Japan took the same road ten years earlier - dropping their rates in the early 90's. It caused a real estate boom which has since gone bust.' The Bank of Japan began to tighten interest rates at the beginning of 1990. Actually the stock market peak was December 31, 1989. The real estate market held up through 1992, while the stock market fell. Then, real estate began to lose value and though the Bank of Japan began to lower interest rates real estate prices fell for the rest of the decade.

Subject: Japanese interest rates From: Pete Weis To: Terri Date Posted: Wed, Dec 01, 2004 at 08:02:35 (EST) Email Address: Not Provided Message: The BOJ had the discount rate at 6% in August of 1990 and dropped the rate to 1% by 1995. They had been raising the rate through the late 80's to slow down an overheated economy and an overheated Japanese stock market.

Subject: Re: America's Stock From: Terri To: Pete Weis Date Posted: Tues, Nov 30, 2004 at 17:37:08 (EST) Email Address: Not Provided Message: With an exception, you are right. The Japanese real estate boom occured through the 1980s, before interest rates were lowered. Real estate and stocks in Japan became especially pricy after the Yen began to climb in value in 1985 with the Plaza Accord.

Subject: Rebalancing From: Terri To: Pete Weis Date Posted: Mon, Nov 29, 2004 at 16:41:29 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html The World's Biggest Excess Stephen Roach (New York) Global rebalancing has quickly turned into the global blame game. “It’s the other guy,” exclaim Asians, Europeans, and Americans, when the issue of responsibility comes up. America’s Bush Administration views the rest of the world as suffering from a growth deficiency, largely brought about by under-consumption and excess saving. Conversely, Asians and Europeans view the United States as suffering from a saving deficiency brought about by over-consumption and government budget deficits. Who’s got it right? The truth is, they probably all do.... Financial markets have an uncanny knack in restoring a sense of order to a dysfunctional world. The dollar is now center stage in this global wake-up call -- as well it should be, in my view. But dollar depreciation is not the endgame of global rebalancing. It is the means toward the end -- a potential trigger for a long overdue realignment in the mix of global saving and consumption. By failing to face up to the imperatives of rebalancing, the world has collectively created the ultimate moral hazard -- a US consumer that is now “too big to fail.” This is a serious warning sign. The key to a successful global rebalancing, in my view, hinges critically on facing up to the risks of the world’s most serious excesses. The over-extended American consumer is at the top of that list. And a weaker dollar could well be key in forcing the interest rate adjustments that might well temper the asset-driven excesses of US consumption. This is a shared responsibility that the world must now collectively redress. Long ago, I learned that most of the time it doesn’t pay to bet against the American consumer. There are rare occasions, however, when that rule doesn’t apply. That was the case in the early 1970s in the aftermath of the first oil shock. Back then, as a young staffer at the Federal Reserve Board, I was chastised by Fed Chairman Arthur Burns for being too negative on the US consumer. He argued that I didn’t appreciate the unflinching cyclical resilience of the US consumer -- a resilience that, ironically, was about to give way to America’s first consumer-led recession. A lot has changed in the ensuing 30 years. But for very different reasons, I now believe that another exception is in the offing. The American consumer is an accident waiting to happen. The sooner the world comes to grips with this problem, the better the chances of a successful rebalancing.

Subject: The Bull Market in Bonds May be Ending From: Terri To: All Date Posted: Sun, Nov 28, 2004 at 20:25:23 (EST) Email Address: Not Provided Message: We began the secular bull market in bonds in December 1981, and prices peaked in June 2003. The decline in prices since June 2003 has been decidedly mild, almost certainly because there has been ample demand for bonds by government institutions at prices that seem very high to any sensible private investor. If as seems likely the demand for bonds from public institutions falls, we can look forward to a continued increases in long term interest rates unless the economy were to markedly weaken. Even if the economy were to weaken long term interest rates might climb if food and energy price increases hold. So, I suppose the 21 year bull market in bonds is over.

Subject: The Bull Market in Bonds May Not be Ending From: Terri To: Terri Date Posted: Mon, Nov 29, 2004 at 11:38:23 (EST) Email Address: Not Provided Message: The only way round the argument that public institution purchases of Treasuries are supporting bond prices, is to believe that labor costs are going to rise at subdued rates for many years to come. Labor costs are the primary product component costs. Possibly globalization and the emergence of China and India as prime high value labor suppliers have limited and will limit labor costs increases for quite a while.

Subject: What Bond Funds Make Sense? From: Ari To: Terri Date Posted: Mon, Nov 29, 2004 at 06:02:45 (EST) Email Address: Not Provided Message: Then if the bull market in bonds is over, what sort of bond funds make sense in a portfolio? Do short term bond funds make the most sense as long as the Fed keeps raising rates? There is little to be gained in short term funds even now, for interest rates are still low and the Fed is raising short term rates, but longer duration funds have more risk.

Subject: Indexing or Managed Funds From: Terri To: All Date Posted: Sun, Nov 28, 2004 at 19:16:05 (EST) Email Address: Not Provided Message: http://www.thefinancialreview.org/Financial Review Preprints/FutureIssues/Malkiel.pdf Reflections on the Efficient Market Hypothesis: 30 Years Later Burton G. Malkiel - Princeton University I have been an advocate of the efficient market hypothesis for over 30 years. In my view, equity prices adjust to new information without delay and, as a result, no arbitrage opportunities exist that would allow investors to achieve above-average returns without accepting above-average risk. This hypothesis is associated with the view that stock market price movements approximate those of a random walk. If new information develops randomly, then so will market prices, making the stock market unpredictable apart from its long-run uptrend. I suggested, largely in jest, that a blindfolded chimpanzee throwing darts at the stock pages could select a portfolio that would do as well as the experts. In fact, the correct analogy is to throw a towel over the stock pages and simply buy an index fund, which buys and holds all the stocks making up a broad stock-market index.

Subject: Efficient Market Hypothesis From: Terri To: Terri Date Posted: Sun, Nov 28, 2004 at 21:54:03 (EST) Email Address: Not Provided Message: Although it is possible to cast doubt on the statistical robustness of many of the predictable patterns that have been suggested, my skepticism is based on somewhat different evidence. Surely, if market prices often failed to reflect rational estimates of the prospects of companies, and if markets consistently overreacted(or under-reacted) to underlying conditions, then professional investors, who are richly incentivized to outperform passive investors, should be able to produce excess returns. For me, the strongest evidence suggesting that markets are generally quite efficient is that professional investors do not beat the market. Indeed, the evidence accumulated over the past 30 plus years makes me more convinced than ever that our stock markets are remarkably efficient at adjusting correctly to new information. And I am increasingly convinced that the best investment advice for both individual and institutional equity investors is to buy a low-cost broad-based index fund that holds all the stocks comprising the market portfolio. If prices were often irrational and if market returns were as predictable as some critics of the efficient market hypothesis believe, than surely actively managed investment funds should easily be able to outdistance a passive index fund that simply buys and holds the market portfolio.

Subject: Re: Efficient Market Hypothesis From: Institutional Investor To: Terri Date Posted: Sun, Nov 28, 2004 at 22:39:37 (EST) Email Address: Not Provided Message: 'For me, the strongest evidence suggesting that markets are generally quite efficient is that professional investors do not beat the market' what evidence are you referring to?, which segments of the market are you specifically describing. Are you looking are retail or institutional investment managers? While one can easily argue that large cap market is efficient, there is ample evidence that small/mid cap and intl are not efficient markets. 'then professional investors, who are richly incentivized' i'm not sure you are making the correct argument, very few managers charge fees with performance incentives, most managers charge a flat fee regardless of performance.

Subject: Re: Efficient Market Hypothesis From: Ari To: Institutional Investor Date Posted: Mon, Nov 29, 2004 at 05:54:54 (EST) Email Address: Not Provided Message: http://www.thefinancialreview.org/Financial Review Preprints/FutureIssues/Malkiel.pdf Reflections on the Efficient Market Hypothesis: 30 Years Later Burton G. Malkiel - Princeton University The article is completely convincing. Indexing is simply a superior investment choice for retail investors. Thank you.

Subject: Re: Efficient Market Hypothesis From: Institutional Investor To: Ari Date Posted: Mon, Nov 29, 2004 at 09:48:54 (EST) Email Address: Not Provided Message: Well, the article focuses on large cap funds, which i said is for the most part efficient. The only thing that i don't like about the article is how the author choses to compare all large cap funds against the S&P. In my opinion thats not appropriate. If you have a manger whose benchmark is the Russell 1000 Value/Growth, you should be comparing it to the S&P 500. There are times when the market favors value, there are times that it will favor growth. Comparing those type of funds against a core benchmark just shows that the market doesn't always favor one particular style.

Subject: Re: Efficient Market Hypothesis From: Terri To: Institutional Investor Date Posted: Mon, Nov 29, 2004 at 11:10:04 (EST) Email Address: Not Provided Message: The firm guess is that if you were to compare the MSCI indexes from large growth to small value against managed funds that claim to be in the same class, you would find the the indexes best the average managed fund. Not that there are no superb fund managers. I have utmost respect for dedicated managers, but beating indexes over lengthy periods is tough for mutual fund managers especially for those who manage high cost funds.

Subject: Asia Should sell Treasuries Now From: Terri To: All Date Posted: Sun, Nov 28, 2004 at 18:32:44 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/20041123-tue.html Asia/Pacific: Asia Should Sell Treasuries Now Andy Xie (Hong Kong) - Morgan Stanley I believe Asian central banks should sell their holdings of the US treasuries now. A weakening currency should lead to higher bond yields. However, because Asian central banks hold significant amounts of US treasuries, US yields have not reflected US dollar policy. This lack of pain is encouraging the US to pursue its devaluation policy. If Asian central banks dumped their treasury holdings for short-term paper, the US government would have to balance between a weaker dollar and higher bond yields. The US has been binging beyond its means since 1999. In 1999 and 2000, the new economy hype sucked the rest of the world into buying US tech assets. Asian portfolio investors now hold worthless NASDAQ stocks and European MNCs own many US tech companies that have heavy debts but weakening revenues. After the tech burst, Mr. Greenspan cut interest rates aggressively, causing US treasury yields to fall to around 4% from 6%. The bond market rally sucked in foreign buyers, who supported US consumption and the dollar. As treasury yields have bottomed out, the US now wants to devalue the dollar (which would be to the cost of foreigners who hold trillions of dollars of US financial assets) to create jobs to sustain its consumption. I see the weak dollar policy as simply another way to get foreigners to subsidize US spending.

Subject: Commentary: US Fiscal Havoc From: Animesh To: All Date Posted: Sun, Nov 28, 2004 at 16:17:09 (EST) Email Address: abhattac@kent.edu Message: Another great commentary from PRI's Marketplace: http://marketplace.publicradio.org/shows/2004/11/12/PM200411123.html Marketplace (PRI) marketplace.publicradio.org/shows/2004/11/12/PM200411123.html marketplace.publicradio.org/standard/images/003/mainshowimage.jpg

Subject: NEW: Krugman Commentary (!!!) From: Animesh To: All Date Posted: Sun, Nov 28, 2004 at 16:00:38 (EST) Email Address: abhattac@kent.edu Message: Here's that commentary I posted a few days ago on the public radio program Marketplace: http://marketplace.publicradio.org/shows/2004/11/23/PM200411233.html Enjoy! Marketplace (PRI) marketplace.publicradio.org/shows/2004/11/23/PM200411233.html marketplace.publicradio.org/standard/images/003/mainshowimage.jpg

Subject: Re: NEW: Krugman Commentary (!!!) From: Jennifer To: Animesh Date Posted: Sun, Nov 28, 2004 at 16:10:11 (EST) Email Address: Not Provided Message: Thanks! The more PK, the better...

Subject: Lavumisa, Swaziland From: Emma To: All Date Posted: Sun, Nov 28, 2004 at 10:26:59 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/28/international/africa/28swazi.html?oref=login&pagewanted=all&position= Hut by Hut, AIDS Steals Life in a Southern Africa Town By MICHAEL WINES and SHARON LaFRANIERE LAVUMISA, Swaziland - Victim by victim, AIDS is steadily boring through the heart of this small town. It killed the mayor's daughter. It has killed a fifth of the 60 employees of the town's biggest businessman. It has claimed an estimated one in eight teachers, several health workers and 2 of 10 counselors who teach prostitutes about protected sex. One of the 13 municipal workers has died of AIDS. Another is about to. A third is H.I.V.-positive. By one hut-to-hut survey in 2003, one in four households on the town's poorer side lost someone to AIDS in the preceding year. One in three had a visibly ill member. That is just the dead and the dying. There is also the world they leave behind. AIDS has turned one in 10 Lavumisans into an orphan. It has spawned street children, prostitutes and dropouts. It has thrust grandparents and sisters and aunts into the unwanted roles of substitutes for dead fathers and mothers. It has bred destitution, hunger and desperation among the living. It has the appearance of a biblical cataclysm, a thousand-year flood of misery and death. In fact, it is all too ordinary. Tiny Lavumisa, population 2,000, is the template for a demographic plunge taking place in every corner of southern Africa. Across the region, AIDS has reduced life expectancy to levels not seen since the 1800's. In six sub-Saharan nations, the United Nations estimates, the average child born today will not live to 40. Here in Swaziland, a kingdom about the size of New Jersey with one million people tucked into South Africa's northeast corner, two in five adults are infected with H.I.V., the virus that causes AIDS. Life expectancy now averages 34.4 years, the fourth lowest on earth. Fifte en years ago, it stood at 55. By 2010, experts predict, it will be 30. Epidemics typically single out the aged and young - the weak, not those at society's core. So what happens to a society when its fulcrum - its mothers and fathers, teachers, nurses, farm workers, bookkeepers, cooks, clerks - die in their prime? Part of the answer lies in Lavumisa, where two visitors spent five weeks recently talking to more than 60 residents, following the terrible ripples that an unrestrained epidemic is sending through the community. Sickness leads to death, death leads to destitution, destitution worsens a host of social ills, from illiteracy to prostitution to abandoned babies. Multiply a single illness or death scores of times, and a town like Lavumisa begins to unravel. The average life expectancy here is 34 years, but there are fewer and fewer 34-year-olds - just the very young and the old, struggling to do a 34-year-old's job. Today, Lavumisa's schools are collapsing. Crime is climbing. Medical clinics are jammed. Family assets are sold to fend off hunger. The sick are dying, sometimes alone, because they are too many, and the caretakers are too few. Much of this is occurring because adults whose labors once fed children and paid school fees and sustained families are dead. Lavumisa's lost generation of adults has reached beyond the grave, robbing survivors of their aspirations, reducing promising lives to struggles for existence. Sixte en-year-old Nkuthula Madlopha wanted to be a police officer. Instead, next year she will till her grandparents' fields, filling in for her dead parents. Her brother will herd livestock. Their grandmother, Vayillina Madlopha, wanted a quiet old age. Instead, at 80, she is a new mother. 'I thought my daughters-in-law would be serving me food, washing for me and cleaning the yard,' she said. 'Now I must start afresh.' Eleven-year-old Ntokozo wanted to be a third grader. Instead, he lies on the floor of his one-room hut, his knees swollen like baseballs and his mouth pitted with sores. His mother, who died in May, infected him with H.I.V., either during her pregnancy or later as he helped tend her oozing sores. His sister, Nkululeko Masimula, 26, wanted a job. ' I wanted to have my own business; to be a hairdresser or a wholesaler,' she said. Instead, she tends her brother and their 61-year-old grandmother. She sells the family's chickens to raise money for food. Finding the $20 a month required to take her brother to the nearest antiretroviral drug site, 60 miles away, is a pipe dream. Dido Khosa, 9, wants his mother back. 'She used to cook food, wash my clothes, do things for me,' he said, sobbing. Instead, he describes a life of regular beatings by his father and his father's girlfriend and periodic escapes to the homes of neighbors. Delisile Nyandeli, slim and pretty, wanted her own home and family. Instead, she cares not only for her orphaned sisters and brothers, but also for the orphaned children of two sisters who died of AIDS and whose husbands fled. At age 20, she is a mother to nine other children besides her own boy. 'Today, when I was cleaning this house,' she said, 'I thought about it - if my mother were alive, she would be the one doing this. Because when my sisters don't have any pencils or other things they need for school, they come to me. 'And I can't help them.'

Subject: Lavumisa, Swaziland 2 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 10:27:37 (EST) Email Address: Not Provided Message: A Hard Life Made Harder Baked by drought, blessed with a single paved street, a gas station, two liquor stores, two bars and a wretched crafts stand for tourists speeding from the adjacent South Africa border post, Lavumisa clings to Swaziland's lower rungs. Life would be hard here, even without AIDS. A mostly rainless decade has discouraged most farmers from planting maize, the staple crop, much less the cotton that once underpinned the local economy. Many survive on homegrown chickens and pigs, donations from the World Food Program and the kindness of relatives who work across the border or in Swaziland's better-off cities. The town does not keep death statistics. Most people quietly bury relatives in their yards or nearby fields rather than buy a cemetery plot. But Mzweleni Dlamini, the acting chief for Lavumisa and the surrounding region, does not need a tally to tell him the toll is very high. Two years ago, he shifted his regular meeting with subordinates from weekends to Tuesdays because Saturdays and Sundays were consumed by funerals. Now he has given permission for weekday funerals because there are too many dead for the traditional weekend services alone. With the dead gone, it is the impoverished survivors' turn to suffer. At Lavumisa Primary School, a beige L-shaped building of concrete classrooms clumped around a red dirt yard, enrollment has fallen nearly 9 percent in five years, to 494 students, as children drop out to support families. One in three students has lost at least one parent. Nomfundo, a 15-year-old seventh grader, made the four-mile trek home from school one recent day with her brother, Ndabendele, 10. He carried his books in a torn plastic bag. She sported the shaved head customary for girls in mourning. Their 34-year-old mother, a domestic worker, died Aug. 29; their father died in 2003. Care of the children has fallen to their grandmother, Esther Simelane, 53, who has been jobless for 14 years. Since the illnesses began, she has sold four of the family's eight goats to raise money for food. 'Wheesh! Now I can feel the hardship,' Nomfundo said. 'Who is going to pay my school fees? Even the clothes. Where am I going to get them?' She tugged at her school uniform skirt, riddled with holes and hemmed several times to hide tears. 'I feel small,' she said. 'We used to have track suits. Now we no longer have track suits. Other kids say, 'Oh, now you don't have a track suit. Not even shoes! Now you are on the same level as us.' ' Actually, the two children are headed lower. Unbeknownst to them, their grandmother has tested positive for H.I.V., apparently contracting the virus while dressing her daughter's bleeding sores. Mrs. Simelane has kept the news from Nomfundo and her brother to spare them further trauma. Should Nomfundo manage to stay in school another year, she will move up to Ndabazezwe High School. Elphas Z. Shiba, the headmaster, keeps careful track of his 366 students in stacks of ledgers. Mr. Shiba can state that at the beginning of this year, Ndabazezwe High had 40 students who had lost at least one parent. Nine months later, there were 73, 20 of whom had lost both father and mother, nearly all of whom are desperately poor. A decade ago, Mr. Shiba said, the school had perhaps five orphans, none of them needy. Both the primary and the high school are staggering under the burden of feeding and educating a growing army of orphans who, by and large, cannot pay the school fees. The state has pledged to pay to educate orphans, but so far it has picked up but half the Lavumisa primary-school fees. Mr. Shiba said the high school was getting a mere $15 of the $100 a year it costs to educate each orphan. Ndabazezwe High School is now deeply in debt by Swazi standards. It owes $275 for electricity; $200 for water; $260 for books and hundreds more for office equipment. The security guards have not been paid in two months. Borrowed money bought the woodworking and home-economics materials needed for final exams. Even school lunches are hit-or-miss. Mr. Shiba and Stephen Nxumalo, the headmaster at Lavumisa Primary, reluctantly intend to carry out a resolution adopted in May by the nation's main teachers' organization. Starting in January, students who do not pay their fees - currently about 100 in the primary school, 258 in the high school - will be barred from classes. 'The number of those who don't pay keeps increasing,' Mr. Nxumalo said. 'It's because of the orphans. We are going to send them home, because we have no option.' Tibuthye, Sandile and Nkuthula Madlopha stand to be among the first to go. Their parents are buried on a hillside outside Lavumisa. Their father died in 1999 at 46; their mother three years later at 32. The father's parents, 80-year-old Vayillina Madlopha and her 82-year-old husband, Ellias, now raise three children, ages 10, 12 and 16, on Ellias's $75-a-month pension. For the old couple, the son's death was a double blow. Gone is the $30 a month that he gave them to supplement their meager income. Gone is the extra labor and money for diesel fuel that he provided during the planting season on their farm. Their fields of maize, pumpkin and beans now lie fallow. After school one day, Mrs. Madlopha bent over an open fire, teaching 10-year-old Tibuthye how to bake buns to sell at school for a few cents. 'I am old, I will die,' she said. 'They must learn how to work, so they will be able to do these things on their own.' Nkuthula, 16, has plans for after her graduation. 'I want to be a police,' she said in halting English. But the Madlophas cannot afford to fix their broken tractor, much less to educate three children. 'They need too many exercise books and school uniforms,' Mrs. Madlopha said. 'We can't afford all that. We are failing them.'

Subject: Lavumisa, Swaziland 3 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 18:16:42 (EST) Email Address: Not Provided Message: Grim Choices for Children What has befallen the Madlophas is happening across Lavumisa. When a family loses a parent to AIDS, public health experts here say, the household production of maize quickly falls by half; the number of livestock owned by nearly a third. It is the equivalent of draining the bank account. Unable to both feed and educate their children, impoverished single parents frequently farm them out to relatives, following an axiom of Swazi culture that one takes care of one's own blood, no matter the cost. One in six families has already has taken in a child left parentless by AIDS, according to the World Food Program. 'We Swazis don't believe there are orphans,' said Lavumisa's mayor, Victor Simelane, who is not related to Esther. 'But now the extended families cannot support the magnitude of the orphans.' Increasingly, such children face a grim choice: either seek shelter with whomever will take them in, or live on the streets. As he walked down Lavumisa's main drag, yards from the South African border gate one afternoon last month, the mayor spotted Thabiso Mavimbela, 12, darting across the macadam. 'You see,' he said, 'here is one of these street kids. They don't have extended families. They're loitering around the town.' Five years ago, he said, such kids did not exist. Thabiso's world is a fearful place. He spends much of his after-school time on Lavumisa's streets. After his mother died five years ago, his father abandoned him. He ended up in his great-grandmother's mud-and-stone hut, , its walls a checkerboard of holes and openings stuffed with rags, down a rutted dirt road from the primary school. The two sleep on grass mats on the dirt floor. Thabiso's uncle occupies the only foam mattress. Thabiso has no toothbrush, no washcloth, nothing except his tattered clothes. At night, he said, mice bite his feet. Those are the least of his problems. 'My uncle tells me: 'When your great-grandmother dies, I will kill you too,' ' he said. Panicky, he grinds his wet eyes into the cuff of his green-and-yellow school uniform. 'I know that when she dies, I have to be killed. I don't have any other place to go.' Thabiso's uncle says the boy is treated well. But in an interview in early September, his aunt, Thembi Simelane, said Thabiso sometimes sought refuge in her home, declaring that he would rather sleep on his mother's grave than in a hut with his uncle. Ms. Simelane once was Thabiso's lifeline. Despite losing her husband to AIDS three years ago and rearing her own five children, she supported the child with profits from clothes bought in South Africa and resold in Lavumisa. But she had to abandon that work last year when she, too, fell ill. Last January, she tested positive for H.I.V. 'My days are numbered,' she told a visitor in September. She showed a speechless Thobile Jele, a social worker at the mayor's office, a will scrawled in black crayon on school notebook paper. It bequeathed to Ms. Jele her five children. It did not mention Thabiso. At the end of October, Ms. Simelane died. Roaming Lavumisa's streets with Thabiso is Dido Khosa, 9, whose mother died in 2002 at age 28. His father and his new girlfriend now care for him, after a fashion. When a neighbor questioned him some weeks ago, Dido told her he had spent two days alone at home without food. Filching family money to buy bread, he said, brings a stiff penalty. Pulling down his dirty sweat pants, Dido displayed a two-inch scar on his thigh where, he said, his father had beaten him with a pipe. He worried an abscessed tooth with a stick. 'I eat when there is food at school,' he said. Asked who takes care of him, he replied, 'No one.' In August, Lavumisans noted a new sign of the growing stress on families: two abandoned babies, left on doorsteps days apart.

Subject: Lavumisa, Swaziland 4 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 18:17:41 (EST) Email Address: Not Provided Message: A Weakened Work Force In a way, one might not expect the hollowing out of Lavumisa's adult population to have much affected its minuscule economy. Unemployment in Swaziland averages 34 percent. There is no shortage of cheap labor to replace a fallen clerk or farm worker. But the death rate is transforming businesses and the work force, in ways not easily visible. Peter McIntyre, 66, is one of Lavumisa's real estate baron's and probably its biggest private employer, owner of a grocery store, a liquor store, the gas station and the Lavumisa Hotel. He has lost about a fifth of his 60 workers to AIDS; the latest, a yard worker named Julius, died Oct. 4. Another worker is dying, he said; she begs him daily to look after her five children when she is gone. Employees like the yard worker are easily replaced. Not so his accountant, who died of AIDS in 2001. Mr. McIntyre's relatives said it took three months to find and train a qualified replacement. His three sons, in their 30's and heirs to the empire, see a lesson in that. The South African government intends to buy the land beneath the grocery and hotel and build a new border crossing. The sons are not sure that they want to rebuild after the sale. 'My sons are very wary to open a new shop,' Mr. McIntyre said. 'They say you have so many hassles - people dying; you can't build a permanent staff. I don't know where it is going to end, what's going to happen to Swaziland.' Medical clinics are caught in a double squeeze, with mushrooming caseloads and a steadily sicker staff. Visits to Lavumisa's one-room medical clinic have jumped by nearly a fifth since 2000. At the regional health center in nearby Matsanjeni, home to the only doctor within at least 30 miles, outpatient visits have tripled since 1998. The Matsanjeni clinic is chronically short-staffed. On an average day, officials say, at least one of its 18 nurses is either sick or on leave for a funeral. The administrator suspects that the recent deaths of at least two clinic workers were caused by AIDS. Mothers-to-be suffer most; the prenatal clinic is closed much of the time. Only one segment of the economy is prospering. In the Lavumisa region, with 21,000 residents, reported crimes over a three-month period - largely burglaries, assaults and thefts of goats or cows - have increased 25 percent in two years. Prostitution is booming. On the broad dirt road that parallels the South Africa border sit the Lavumisa Hotel, the town's two bars and, each evening, a string of 18-wheelers parked for the night. More than 1,100 rigs cross this border every month, fueling a growing sex trade with local women. In 2000, a report for the United States Agency for International Development concluded that Lavumisa had five resident sex workers. On a recent Thursday night, perhaps a dozen worked the bars. Some are recent AIDS orphans. They are driven by their poverty: performing sex with a condom nets a woman about $4.50; without a condom, perhaps $9. An enterprising sex worker can make $50 a night. 'I used to stay with my mother and father, before they died of H.I.V. illness,' said Thebisa, 18, during a break at the Lavumisa Hotel bar. 'And then I couldn't afford to go to school. My father died in '98. The following year, it was my mother. I began working this way in 2000.' Her 19-year-old friend, Dabsile, another AIDS orphan, said: 'A lot of my friends are in this business. Some of us, it's because there's nobody to look after us. For some of us, it's because there's peer pressure.' Dabsile said she was terrified of getting AIDS, and in fact, AIDS warnings are plastered on storefronts and billboards in Lavumisa. Jars of free condoms sit on the border-crossing counters and on other counters across town. Counselors advise prostitutes and truckers alike about protected sex. Yet Dabsile has never worried enough to take an H.I.V. test or to insist on condoms with her boyfriend, who knew nothing of her truck-stop trade. They initially had protected sex, she said, 'but as time goes on, you don't as much.'

Subject: Lavumisa, Swaziland 5 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 18:18:33 (EST) Email Address: Not Provided Message: A Gathering Storm Lavumisa and other towns like it are windows into the crisis that has beset Swaziland. AIDS kills an estimated 50 people here and H.I.V. infects 55 more each day, erasing hard-won economic gains of the last 20 years, according to the United Nations and the World Health Organization. 'It is the most efficient impoverishing agent you can find; it just sucks out the resources,' said Dr. Derek von Wissell, who directs Swaziland's National Emergency Response Council on H.I.V./AIDS, the agency charged with stemming the epidemic. Until the late 1990's, when AIDS began to hit with force, Swaziland seemed a society on its way up, making strides in health care, education and income. No more. Economic growth and agricultural production have slowed. School enrollment is down. Poverty, malnutrition and infant mortality are up. By 2010, the United Nations forecasts, children who have lost one parent or both will account for up to 15 percent of Swaziland's one million people. The adult H.I.V. infection rate, 38.8 percent, now tops Botswana's as the world's highest. The death rate has doubled in just seven years. 'Swaziland is frankly beyond the threshold of what we thought could happen,' said Duncan Earle of the Global Fund to Fight AIDS, Tuberculosis and Malaria, who oversees $48 million in AIDS-related grants to the kingdom. 'Ten years ago, we thought the peak infection rate would be 20 to 25 percent. This stretches the imagination.' A long-promised flood of antiretroviral drugs financed by the Global Fund and other donors could help stem the carnage. But like the rest of sub-Saharan Africa, Swaziland is starting slowly. Only about 4,000 of the 26,000 who need drugs get them. Perhaps 8,000 will have them by the end of 2005. In 16 months, the Global Fund has disbursed $5.1 million in AIDS grants to Swaziland. Yet not until this month did the overwhelmed Health Ministry hire its first two doctors to work on H.I.V. programs. Some $2.8 million earmarked for orphans' education is locked in the Treasury, even as the government this year spent $600,000 on the king's 36th birthday party. To the United Nations envoy for AIDS in Africa, Stephen Lewis, it is hard to fathom the consequences awaiting a nation with a vanishing middle generation. 'I resist an apocalyptic scenario,' Mr. Lewis said. 'But I have to admit, in the middle of the night I ask myself: 'How are these societies going to survive?' ' Lavumisa's story is not entirely bleak. Two decades into the epidemic, Mayor Simelane said, people here are 'beginning to accept that they are being attacked by this monster' instead of linking AIDS to witchcraft or a white plot against blacks. The city allots 2 percent of its limited budget to anti-AIDS social work, and has a $2,000 emergency fund for burying the dead. Chief Dlamini, King Mswati III's representative to the area, has dedicated three acres to a garden for orphans. A free feeding center for orphans is under construction near the town butchery. The high school has started a garden to feed hungry students. A new mobile H.I.V. testing center is drawing customers on its weekly visits. One recent afternoon, two dozen people, mostly women, waited for it to open. At the Matsanjeni regional health center, seven miles away, a counselor said 350 to 400 people had visited since testing began last December. But for every resident who faces AIDS or steels himself for a test, another shies away, fearful of the outcome. Busisiwe Matse, a 44-year-old mother of six, went to the center in early October. Her husband, Boy, a former miner, is bedridden with symptoms of AIDS. She had been almost constantly ill for nearly a year. She was almost relieved, she said, when the counselor informed her that she was infected because now she can seek treatment. Boy Matse's other wife, Khanyisile, 27, refuses to check her own status. 'I'll do it later,' she said. Dr. von Wissell, the Swazi AIDS czar, has an ambitious agenda to reach families like the Matses. He plans to use Global Fund money to speed drugs, food and social support to towns hits by AIDS and to increase care for orphans. Despite a sluggish start, he said, the government is moving as quickly as the frail health infrastructure permits. Antiretroviral treatment could be available near Lavumisa in six months, he said, but that will not be enough to halt the epidemic. He does not know, he acknowledged, how much worse that epidemic will become. Virtually all the Swazis dying today were infected in the 1990's, when the infection rate was far lower than it is today. Those who are just now infected will not fall gravely ill until about 2012 - a tidal wave of illness and death that is still eight years away. How Lavumisa and other similar towns will cope with that is anyone's guess. 'Nobody has ever walked that road,' Dr. von Wissell said. 'Nobody.'

Subject: Borrowing For Social Security Changes From: Emma To: All Date Posted: Sun, Nov 28, 2004 at 09:51:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/28/politics/28secure.html? Vast Borrowing Seen in Altering Social Security By RICHARD W. STEVENSON WASHINGTON - The White House and Republicans in Congress are all but certain to embrace large-scale government borrowing to help finance President Bush's plan to create personal investment accounts in Social Security, according to administration officials, members of Congress and independent analysts. The White House says it has made no decisions about how to pay for establishing the accounts, and among Republicans on Capitol Hill there are divergent opinions about how much borrowing would be prudent at a time when the government is running large budget deficits. Many Democrats say that the costs associated with setting up personal accounts just make Social Security's financial problems worse, and that the United States can scarcely afford to add to its rapidly growing national debt. But proponents of Mr. Bush's effort to make investment accounts the centerpiece of an overhaul of the retirement system said there were no realistic alternatives to some increases in borrowing, a requirement the White House is beginning to acknowledge. 'The administration hasn't settled on any particular Social Security reform plan,' Joshua B. Bolten, the director of the White House's Office of Management and Budget, said in an e-mail message in response to questions about overhauling the system. 'The president does support personal accounts, which need not add over all to the cost of the program but could in the short run require additional borrowing to finance the transition,' Mr. Bolten said. 'I believe there's a strong case that this approach not only makes sense as a matter of savings policy, but is also fiscally prudent.' Proponents say the necessary amount of borrowing could vary widely, from hundreds of billions to trillions of dollars over a decade, depending on how much money people are permitted to contribute to the accounts and whether the changes to Social Security include benefit cuts and tax increases. Borrowing by the government could be necessary to establish the personal accounts because of the way Social Security pays for benefits. Under the current system, the payroll tax levied on workers goes to benefits for people who are already retired. Personal accounts would be paid for out of the same pool of money; they would allow workers to divert a portion of their payroll taxes into accounts invested in mutual funds or other investments. The money going into the accounts would therefore no longer be available to pay benefits to current retirees. The shortfall would have to be made up somehow to preserve benefits for people who are already retired during the transition from one system to the other, and by nearly all estimates there is no way to make it up without relying at least in part on government borrowing. Mr. Bush and Republicans in Congress have paid little political price in the last four years for the swing from budget surpluses to deficits. But some polls show that Americans consider reducing the deficit to be a higher priority than many other goals, including cutting taxes, and embracing a new round of borrowing could pose political as well as economic risks. A reasonable amount of borrowing now, the proponents say, would avert a much bigger financial obligation decades later. They say personal accounts would yield higher returns for individuals than the current system and could be a catalyst to broader changes that would bring the benefits promised by Social Security into line with what the system, which is also about to come under intense financial strain from the aging of the baby boom generation and the increase in life expectancies, can afford to pay. Mr. Bush has vowed to push hard to remake Social Security. Republicans in Congress say the White House has signaled to them that Mr. Bush will put the issue at the top of his domestic agenda in the coming year.

Subject: Borrowing For Social Security 2 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 10:16:37 (EST) Email Address: Not Provided Message: But the White House has never answered fundamental questions about Mr. Bush's plan. In particular, it has not explained how it would deal with the financial quandary created by its call for personal accounts. Some conservative analysts and Republicans in Congress say a portion of the temporary financial gap that would be created by personal accounts could be closed through measures like holding down the growth in overall government spending. But nearly everyone involved in the debate over Social Security agrees that some borrowing will be necessary. The main Republican players in Congress on the issue say they expect to endorse an increase in borrowing to finance the transition to a new system. But they remain split over whether to back plans that would include larger investment accounts and few painful trade-offs like benefit cuts and tax increases - and therefore require more borrowing - or to limit borrowing and include more steps that would be politically unpopular. 'Anybody who thinks borrowing money for the transition to personal accounts is going to solve the problem of the long-term solvency of Social Security doesn't understand the size of the problem,' said Senator Charles E. Grassley, Republican of Iowa, the chairman of the Senate Finance Committee, which has jurisdiction over the retirement system. Mr. Grassley said Congress would also have to put benefit reductions and tax increases on the table, in part to hold down the need for borrowing and in part to assure that any changes restore Social Security's long-term financial stability. Under current projections used by Social Security's trustees, the government will have to begin drawing on general tax revenue to pay benefits to retirees in 2018, the first year in which scheduled benefit payments will exceed revenues from the payroll tax dedicated to the retirement system. By 2042, the government will have exhausted the Social Security trust fund - its legal obligation to pay back to the retirement system the temporary surplus in payroll tax revenues it has borrowed over the last several decades to subsidize the rest of the budget - and after that Social Security would be able to pay only about three-quarters of promised benefits. Opponents of Mr. Bush's approach say that Social Security's financial problems can be dealt with more easily without the addition of personal accounts, and that any large-scale borrowing would erase the presumed economic advantage of establishing the accounts: spurring more national savings, a goal that nearly all economists agree is worthy and important. Any increase in private, individual savings, they say, would be partly or wholly offset by an increase in public debt. National savings are what is left after counting up everything the nation spends. This pool of money goes to investing in the expansion and modernization of business. It is a vital component of economic health. 'To the extent that the transition is debt-financed, the ostensible macroeconomic benefits from individual accounts are undermined,' said Peter Orszag, an economist at the Brookings Institution who has been critical of personal account plans. 'In particular, you do not get an increase in national savings. It's engaging effectively in accounting gimmicks to make it look as if you're doing something when you're not.'

Subject: Re: Borrowing For Social Security 2 From: Terri To: Emma Date Posted: Sun, Nov 28, 2004 at 13:03:59 (EST) Email Address: Not Provided Message: Important comment: 'To the extent that the transition is debt-financed, the ostensible macroeconomic benefits from individual accounts are undermined,' said Peter Orszag, an economist at the Brookings Institution who has been critical of personal account plans. 'In particular, you do not get an increase in national savings. It's engaging effectively in accounting gimmicks to make it look as if you're doing something when you're not.'

Subject: Re: Borrowing For Social Security 2 From: Emma To: Emma Date Posted: Sun, Nov 28, 2004 at 10:33:04 (EST) Email Address: Not Provided Message: There may even be a wish to emphasize the borrowing costs in moving to privatize Social Security. As some of the borrowing costs are made clear, there may be a rationale accepted for cutting benefits in some manner for workers not yet retired.

Subject: Shorting bonds From: Dorian To: All Date Posted: Sun, Nov 28, 2004 at 02:48:18 (EST) Email Address: DorianLS@aol.com Message: In one of PK's columns about a year ago he pointed out the incredible disconnect between the bond returns and risk. As Emma observed 'This bond market has puzzled me for months. Why would any investor buy a long term Treasury note at 4.1 or 4.2%?' Precisely. The risk on a 10 year bet on US Treasuries for such middling returns is absurd. Heck, the dollar has lost more in the past couple of weeks than a bond would return in a couple years (if my mathematics are correct). So the obvious practical question for me is: is there a way to short bonds? I assume there must be. Has anyone looked into this? Any advice would be appreciated. I asked this question a long time ago and received many useful replies, but I have forgotten where I put this information. I wonder where PK is putting his money? Dorian

Subject: Re: Shorting bonds From: Jennifer To: Dorian Date Posted: Wed, Dec 01, 2004 at 06:55:45 (EST) Email Address: Not Provided Message: Learn to use Vanguard. There is every investment and banking facility available, and the company has splendid conservative record.

Subject: Re: Shorting bonds From: David E... To: Dorian Date Posted: Sun, Nov 28, 2004 at 17:45:07 (EST) Email Address: Not Provided Message: The NY branch of the federal reserve has the same worries. An explanation that fits is that many bond trader's have not even felt 1994's bond mini-disaster. It is a huge bet that the federal reserve will be able to keep a lid on inflation. Trying to short bonds could put us in the grinder with very big players. Money is like a commodity and prices are often hard to understand. My play is to keep my bonds short and increase my international equity to 50% of equity. When the interest rates and terms are satisfactory I will go just a tiny bit longer. The international equity will not be harvested for 20 years so it is a long term investment. A lot of monetary changes will take place, but hopefully there will be growth and a return on my investment.

Subject: Hedging Hedging From: Terri To: David E... Date Posted: Sun, Nov 28, 2004 at 18:14:08 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2004/11/systemic_risk_c.html Systemic Risk Concerns: NY Fed vs. IMF. Is the Fund behind the Curve? By Nouriel Roubini Tim Geithner - NY Fed President and formerly Under Secretary for International Affairs at the US Treasury and head of the IMF's PDR department - has warned again this week about hedge funds and systemic risk. As his first speech as NY Fed Prez last March was on systemic risk, this is the third time since March that he has spoken on the subject. Would that be a veiled suggestion that he, the NY Fed and the Fed Board are concerned about the issue? One may infer - from the frequency with which he has publicly spoken about the subject - that the issue of systemic risk may be on his mind. As he was at Treasury when LTCM blew up and as he is a leading expert - and crisis manager - of financial crises in emerging markets, his concerns are well justified. Indeed, the NY Fed is the institutional guardian of the stability of the US, and possibly the world, financial system. So, his recent rebuke of financial instititutions for their lax standards in prime brokerage activities with hedge funds is timely and well appropriate. By coincidence, this is the week when the New York magazine devoted his cover story to the 'Filthy Stinking Rich' hedge fund masters of the universe.

Subject: Interest Rates From: Emma To: All Date Posted: Sat, Nov 27, 2004 at 22:17:03 (EST) Email Address: Not Provided Message: John Bogel of Vanguard sent investors a letter in the fall of 1993, telling them the bull market in bonds that began in 1990 was coming to an end. The Federal reserve had taken the funds rate to 3% and kept it there for more than a year to insure banks time to build back earnings. Now, bank earnings were excellent and it was obvious that the Fed would begin to raise rates. Vanguard investors had about 6 weeks to consider the warning before long bonds peaked in December. The Fed began to raise rates in February. Despite the obvious signs of a change in policy, despite John Bogel and Vanguard, the bond market sold off rather violently. there were derivative positions that had been marketed to institutional managers that resulted in large losses when losses should have been impossible for an intelligent investor. Heck, we knew what was coming. This bond market has puzzled me for months. Why would any investor buy a long term Treasury note at 4.1 or 4.2%?

Subject: Russia's Gas and Oil From: Terri To: All Date Posted: Sat, Nov 27, 2004 at 18:13:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/26/business/worldbusiness/26gazprom.html?pagewanted=all&position= Essentially, choice assets of Yukos will be auctioned off at a significant discount to a Russian government pleasing consortium. What is left of Yukos will come under another government pleasing consortium. Vladimir Putin is Peter the Great. Gazprom alone control 20% of the global natural gas supply. Then, there are the Yukos assets. Then there is Rosneft, which will soon be merging with Gazprom. And, all will controlled by Peter the Great. Never heard of Gazprom? You will. Think Russia folks. Oh well. Thanks to Brad DeLong....

Subject: Re: Russia's Gas and Oil From: Jerry To: Terri Date Posted: Sat, Nov 27, 2004 at 19:45:03 (EST) Email Address: astronutz1@yahoo.com Message: A couple of weeks ago Putin asked 'why don't we take euro's instead of dollers for oil?'. I beleieve if the dollar gets more than 1.35 for a euro then Russia and others may do the switch to the euro thus ending the dollar as the fiat currency. And we;ll all be in big trouble. Thanks George.

Subject: Re: Russia's Gas and Oil From: Terri To: Jerry Date Posted: Sat, Nov 27, 2004 at 20:39:10 (EST) Email Address: Not Provided Message: The guess is Russia is just making sure we pay serious attention to her. Announcing a change is the last thing you do, if you intend to change.

Subject: Greenspan in Denial From: Pete Weis To: All Date Posted: Sat, Nov 27, 2004 at 17:05:04 (EST) Email Address: Not Provided Message: From TheStreet.com: Dollar's Dip Shows Greenspan in Denial By Peter Eavis Senior Columnist 11/24/2004 7:12 AM EST Just about everyone is worrying about the tanking dollar and the enormous U.S. trade deficit. So it's high time for Alan Greenspan, the nation's central banker, to step in and tell us how we might deal with the wilting greenback. Instead, the Fed chairman has made a speech that will go down as the one of most flagrant pieces of self-serving tripe in financial history. The markets slumped after taking in the speech, because investors thought they detected real alarm and concern about America's deficits in Greenspan's comments. But a close reading of the text betrays something far more serious that will steadily eat away at investors' confidence in this country and its currency. The problem starts with easy credit and Greenspan's refusal to acknowledge its many side effects. The speech, given last Friday at the European Banking Congress in Frankfurt, clearly shows that Greenspan is refusing to deal with the root cause of the dollar's slide because his policies are the main reason for its decline. Now it very much appears that Greenspan will pull up short of doing what's necessary to fix the current account deficit, because it would mean admitting that he's created the mess that led to the blowout trade deficit. Free Money Since Greenspan almost never admits he's wrong, the Fed -- under him or one of his acolytes (he's likely to retire in early 2006) -- almost certainly isn't going to change course. This makes it increasingly likely that America will be laid low by the mother of all currency crises before long. It's incredible to think that in a governmental system known for its checks and balances, the pride of one man could cause the fall of the world's largest economy. But that's what we're looking at here, going by the central banker's Friday speech. Greenspan couldn't wait much longer to give this speech, with the dollar having fallen to all-time lows against the euro -- the European currency climbed to $1.31 Tuesday -- and with the current account deficit at a record 5.7% of GDP in the second quarter (the most recent number available). Clearly, the Fed chairman had to give the appearance of concern in this speech, or else the market would have reacted twice as badly as it did. And Greenspan's worry was what captured the headlines. Quoted just about everywhere were these words of his: 'Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position -- as is occurring in the United States -- raise more complex issues.' At first glance, that comes across as opaque central-bank speak, but it's Greenspan's way of saying that it is clearly a problem if America has to keep on borrowing larger and larger sums from foreigners to pay for the consumption and investment the U.S. hasn't got the savings to finance. But the rest of the speech was artful dissembling. To see why, we must recognize what has led us to the mess we're in. The current account deficit has grown to a grotesque size and become such a worry to the world because Americans are consuming beyond their means. They're doing that on easy credit. And the reason that credit has been so easy is that Greenspan has kept interest rates at artificially low rates. Haste Makes Waste Current account deficits are not so much to be feared when foreigners are pouring investment dollars into the U.S. After all, that helps make American companies more productive, which means in the future they'll have the means to pay back the foreign financing. That just isn't happening now. American companies have a small surplus of savings. But for the first time in decades, it is households that are in deficit, points out Paul Kasriel, chief economist at Northern Trust. (By deficit he means personal income minus expenditures on consumption and residential investment.) In addition, the government also has a deficit that has been mainly created by sharply higher defense, education and health care spending under Bush. As a result, America is borrowing from abroad to finance spending by individuals and the government. Spending by these two adds almost nothing to the productivity of the economy, and that means America is less likely to generate the extra returns needed to repay foreign financing. The large inflows of foreign capital should not be seen as a vote of confidence in the U.S. economy by foreign entrepreneurs. Nor should they be seen as evidence that foreigners are happy to finance the deficit. That's because foreign central banks have been doing a large portion of the buying, and they are only parking the dollars that have flooded into their reserves as America sucks in goods and services from abroad. In the 12 months ending Sept. 30, foreign nonprivate net purchases of U.S. Treasuries totaled $214 billion, compared with $78 billion in the same period ending Sept. 30, 2003. By contrast, private foreign purchases of Treasuries inched up to $167 billion from $162 billion over the same period. In his speech, Greenspan says this: 'Even considering heavy purchases by central banks of U.S. Treasury and agency issues, we see only limited indications that the large U.S. current account is meeting financing resistance.' But notice that Greenspan gives no numbers to make his case there. And it is absolutely the case that, without those central-bank purchases, the dollar would be a lot lower today. Christmas in July Greenspan did sort of acknowledge the two main causes of this problem: the fiscal and household deficits. He's been a fiscal conservative for a long time, so he's being consistent in his speech when he calls for a budget surplus. But when it comes to the unprecedented and deeply harmful household deficit, Greenspan merely tosses in this line: 'Significantly increasing private saving in the United States ... of course would also be helpful.' Absolutely no mention of the Fed's role in giving people an incentive to borrow like never before and run down the savings rate to current low levels. Greenspan then says that he has faith in the markets to restore a sustainable U.S. balance of payments without crisis, citing a Fed paper that supposedly shows this happening in many Western countries since 1980. Problem is, many of the Western countries included in that paper did go through wrenching economic slowdowns in order to cut their trade deficits. What's more, very few of them had the sort of debt levels America now has, and likely none of them had interest rates as low as they are now in the U.S. In other words, rates in the U.S. are going to have to go up in any adjustment -- and the impact on the debt mountain could be horrible. Indeed, during the last big current account adjustment in the U.S. rates rose sharply, prompting the 1987 stock market crash. Greenspan also argues that because the U.S. economy hasn't skidded badly since 2001 in face of many shocks, it is strong enough to withstand a current account adjustment. But the main reason the American economy muddled through is that Greenspan slashed rates and shored things up with cheap credit. But it is that cheap credit that has caused the current account deficit to balloon. Take it away, and the current account deficit will decline -- but the economy will also stop in its tracks and debt defaults will be rampant. In his speech, Greenspan asserts that 'inducing recession to suppress consumption' is not a long-term solution. But it looks like the only one left -- because of him.

Subject: Re: Greenspan in Denial From: Terri To: Pete Weis Date Posted: Sat, Nov 27, 2004 at 18:35:53 (EST) Email Address: Not Provided Message: To You a Lovely Thanksgiving! There will be no wrenching slowing of the economy. There will be no recession unless the Fed were to raise interest rates sharply in an austerity move to protect the dollar. This will not happen. We have to listen to Alan Greenspan, who has told us there will be no Fed tightening to suppress consumption. The dollar may fall, but there will be no recession because the Fed should not and will not tighten.

Subject: Assumptions From: Pete Weis To: Terri Date Posted: Sun, Nov 28, 2004 at 09:15:50 (EST) Email Address: Not Provided Message: Happy Thanksgiving to you Terri! Each of our points of view involve assumptions. Mine involves the assumption that at some point the falling dollar shrinks paychecks enough and rising personal debt subtracts from paychecks enough to substantially reduce consumption. This also assumes that overall wages will not rise enough along with the savings necessary to to make up the difference. This is a result of the very, very large current account deficit - causing wealth in America to bleed away. At some point I assume that our creditors will begin to lose enough faith in the US economy and the US consumer to trigger actions of self preservation. They will not want to go down with the ship. In other words, the line of waning US consumption will cross the line of rising fear that the US dollar is in desperate condition and we will reach a breaking point with our creditors. Perhaps some of our creditors look further down the road, see this coming and decide to reduce their risk early - before any real shrinkage of the US consumer actually takes place - and this causes a steeper decline in the dollar, starting a bit of a panic - I don't know. It really doesn't matter what Alan Greenspan says or wants, IMO. He simply does the same thing he has nearly always done - which is to react to conditions which force his hand. When you say 'there will be no recession' you must have some assumptions. What are they? Do you assume the shrinking dollar will have no or little effect on consumption? Do you assume overall wages will increase significantly and savings will increase significantly which Greenspan says must happen? Do you assume that personal debt can continue to increase substantially from its already lofty levels to hold up consumption in the absence of increasing overall wages? Do you assume that our creditors will lend indefinitely? What are your assumptions?

Subject: Re: Assumptions From: Terri To: Pete Weis Date Posted: Sun, Nov 28, 2004 at 10:08:17 (EST) Email Address: Not Provided Message: We do not depend on a strong dollar for a strong economy. We depend on sound monetary and fiscal policy. As Alan Greenspan has pointed out, the Fed does not have to react to a weakening of the dollar. I can not imagine that it will, for reacting by raising interest rates could cause a recession. As long as interest rates are kept moderate by the Fed and there is no tightening of fiscal policy, the economy will continue to grow and recover from the effects of the recession in 2001. There is ample time to fix the deficit after the dollar stabilizes. The Bank of Japan controls monetary policy in Japan, not here. Just so, the Fed controls monetary policy here and not in Japan.

Subject: Re: Assumptions From: jimsum To: Terri Date Posted: Mon, Nov 29, 2004 at 18:00:23 (EST) Email Address: jim.summers@rogers.com Message: Well I think that monetary and fiscal policy are not sound, and the exchange rate simply reflects that. What is the long term plan to pay any of the money that has been borrowed in the last few years (either by the government or citizens)? Everyone is having a great time spending borrowed money; the pain comes when it is time to repay the debt. As I see it, neither Bush nor Greenspan has spelled out exactly who is going to feel the pain from the borrowing. Some of the pain has already been felt by foreigners who bought investments with expensive U.S. dollar and will now be repaid with cheap (and getting cheaper) U.S. dollars. I don't think all the pain will be felt by foreigners, partly because they are likely to wise-up and partly because only about 25% of the debt is held by foreigners. I think the only hope for the dollar is that Bush and Greenspan start talking about they are going to deal with the deficit; which is the opposite of your assumption that the dollar will stabilize and then the deficit can be dealt with.

Subject: America's stock From: Pete Weis To: Terri Date Posted: Mon, Nov 29, 2004 at 10:11:45 (EST) Email Address: Not Provided Message: Terri. The dollar has often been refered to as America's stock. So it is more reflective of America's economic condition and the world's confidence in its economic condition. Certainly it has had its ups and downs over the years but it has been, perhaps, the steadiest and strongest currency in the world for most of the 20th century. For the first time in US history there is a very serious chance there will be either a relatively long term 'meltdown' of the dollar (more desirable) or a panic selloff of the dollar (extremely undesirable). I call a longer term meltdown of the dollar as 'desirable' because there is very little chance that something other than these two scenario's will occur. Nearly every economist in existance agrees that our deficits (current account and budget) can not go on forever. Unless you think that America will suddenly begin making products which can only be produced here (at least for some relatively long period of time) and that the rest of the world, including Asia will buy these products in large quantities, then the only way for the current account to balance is for the US dollar to fall much further from where it is now. It must fall much further because, among other things, Asian labor is so much cheaper than US labor. With an almost 'limitless' supply of labor force yet to employ their wages are likely not to increase much over the next decade. Another way to reduce the current account would be to steeply reduce wages in America to make them more competitive with cheaper overseas labor, but of course this would be unacceptable for the Amercan worker/voter. So dropping the dollar steadily and considerably achieves the same result with workers more concerned with the nominal dollar value of their paychecks. It's much like that old metaphor of a frog sitting in water that is slowly coming to a boil - he doesn't realize what is happening until it's too late. Heck, investors are in the same situation if they are invested in US assets - they normally only look at their nominal gains and pay little attention to their real gains (which factor in the dropping dollar). Our present government contributes to the very real situation described by the frog metaphor by rigging the thermometer - as Bill Gross and others have pointed out, they use hedonics and substitution to subjectively lower the CPI number. So we get back to the two scenario's for the dollar - steep panic selloff or slow gradual meltdown. Which will it be? Our government and our fed are trying to engineer a slow meltdown. Unfortunately there is no way to engineer or control human emotion. If the world, as well as enough US investors, begin to believe the US economy is in real trouble with the current account deficit and our present government is likely to make our budget deficit worse not better, then a breaking point of confidence may be reached and the panic selloff ensues - the dollar begins to crash. This is why Stephen Roach says Alan Greenspan will be forced to act with the rather extreme measure of raising interest rates much more steeply than he would like. This is why Paul Volker says 75% of a financial crisis in the next five years. IMO, it all comes down to realizing that our present time and condition, when it comes to America's stock (the dollar), are very different from the past. If we think that there will be no serious dollar crisis because it has never happened to us in the past and it only happens to countries like Argentina, then we are grasping at false comfort and we have become the frog.

Subject: Re: Greenspan in Denial From: David E... To: Terri Date Posted: Sat, Nov 27, 2004 at 19:00:22 (EST) Email Address: Not Provided Message: Hi Terri, you may be surprised to hear that Pimco says much the same thing as you just did. Pimco says you can have 1. An interest rate policy or 2. a currency policy. But you can not have both at the same time, so obviously Greenspan is going to stick with the interest rate policy. Both China and Japan have a lot to lose if their currencies rise. So its a case of irresistble force meets immovable object. I dont know when and who will relent. But I have a tiny portion of my portfolio covering Japan and China, just in case. LINK Terri, you are a perfect counterpoint to us bears. It is good to hear the bull's side, so thank you. (I am a bear, but my biggest bet is on america.)

Subject: Recent Bill Gross From: Pete Weis To: David E... Date Posted: Sun, Nov 28, 2004 at 09:25:55 (EST) Email Address: Not Provided Message: He suggests 'German bunds' and TIPS and says the following: 'To sum up this CATCH 22, a deteriorating balance of payments deficit may actually have a positive effect leading to lower interest rates until a large creditor turns tail. It’s another way of saying that U.S. yields depend upon the kindness of strangers and that the time to not own them is when the strangers become less kind. I suspect that is just around the corner but Beijing and Tokyo have the ball in their courts. Wherever that should occur, there’s no doubt that the dollar is on the run and that higher U.S. interest rates are the inevitable consequence. Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries. Investors don’t need necessarily “TOO MUCH” intelligence to do this trade. Rather, they may need lots of patience in order to turn it into a profitable, near slam dunk opportunity.' William H. Gross Managing Director

Subject: Re: Recent Bill Gross From: Terri To: Pete Weis Date Posted: Sun, Nov 28, 2004 at 13:53:34 (EST) Email Address: Not Provided Message: http://www.pimco.com/LeftNav/Late Breaking Commentary/IO/2004/IO December 2004.htm (The weak dollar – causes and consequences) - By Bill Gross .... My comment: Notice that the American dollar adjustment against the Euro and Canadian and Australian dollars is well along, but the dollar has moved little aginst the Yen and not at all against the Yuan. The dollar value imbalances against the Yen and Yuan have grown in proportion. But, whether that means it is useful to buy the Pacific Stock Index as a hedge against the dollar is not clear. The Pacific Index is highly risky, and dominated by Japan, and Japanese growth while improving for a quarter here or there is still anemic after a decade of economic struggle.

Subject: Re: Greenspan in Denial From: Terri To: David E... Date Posted: Sat, Nov 27, 2004 at 19:46:57 (EST) Email Address: Not Provided Message: David and Pete http://www.wingsparrotlets.com/Photos4.jpg I love your posts, for I need the argument. These are not times for smugness. I am also a worrier, for these are times to worry. The reason I am optimistic here, is that I felt strongly countries such as Singapore that allowed currencies to lose value during the Asian crisis of 1998 were better for the devaluation. Countries that opted for tightening monetary policy and austerity were seriously harmed. The problem is a devaluation will not be a route to fiscal soundness, and that is the far reaching problem.

Subject: Re: Greenspan in Denial From: Emma To: Terri Date Posted: Sat, Nov 27, 2004 at 20:27:19 (EST) Email Address: Not Provided Message: There are 3 critical points to be emphasized on the possibility of fiscal prudence. The Administration and Congress are committed to making permanent all of the tax cuts passed these last 4 years. This commitment will mean nothing unless the Alternative Minimum Tax is set aside. Social Security privatizing will entail massive borrowing. There is no way in which government spending can be cut enough to insure that the deficit grows only as fast as the economy given these critical points.

Subject: red/blue map From: Francesca Davis To: All Date Posted: Sat, Nov 27, 2004 at 16:22:13 (EST) Email Address: fmdavis@xtra.co.nz Message: Just reading the blog and again there is mention of red and blue states. Would someone put out a map with a shades of purple? The red and blue is important when it comes to electoral college results but it doesn't show what the real attitudes are.

Subject: Re: red/blue map From: David E... To: Francesca Davis Date Posted: Sat, Nov 27, 2004 at 19:41:31 (EST) Email Address: Not Provided Message: Most red states have blue counties.

Subject: Re: red/blue map From: Terri To: David E... Date Posted: Sat, Nov 27, 2004 at 19:48:12 (EST) Email Address: Not Provided Message: Blue cities can run to red suburbs.

Subject: Re: red/blue map From: El Gringo To: Terri Date Posted: Sat, Nov 27, 2004 at 21:01:36 (EST) Email Address: nma@hotmail.com Message: http://www.j-bradford-delong.net/movable_type/2003_archives/001870.html

Subject: A Tougher Majority From: Emma To: All Date Posted: Sat, Nov 27, 2004 at 11:40:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/27/opinion/27sat3.html Senator Frist Tightens the Screws Flexing their new muscles, Congressional Republicans seem intent on reigning as a dissent-smothering monolith. First, House G.O.P. members slavishly obeyed the maneuver by Tom DeLay, the majority leader, to render his control of the caucus ethics-proof by making it possible for a party leader to keep his post even if he is under indictment. His counterpart in the Senate, Bill Frist, was more discreet but no less ham-handed. He has engineered a rules change designed to cow the few Republican moderates who may still be willing to nip back at demands for party fealty. The rule undercuts members' independence by giving Dr. Frist the power to fill the first two vacancies on all committees. This hobbles seniority, which has been the traditional path to power. The leader now has a cudgel for shaping the 'world's greatest deliberative body' into a chorus line. Senator Olympia Snowe of Maine, chronic Republican maverick, got to the heart of the matter in skewering her leader's accomplishment: 'There is only one reason for that change, and it is to punish people.' Toadying, of course, would avoid punishment.

Subject: Foreign Central Banks and the Dollar From: Emma To: All Date Posted: Sat, Nov 27, 2004 at 10:28:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/27/business/27dollar.html Foreign Interest Appears to Flag as Dollar Falls By EDMUND L. ANDREWS WASHINGTON - Investors and market analysts are increasingly worried that the last big source of support for the American dollar - heavy buying by foreign central banks - is fading. The anxiety was on full display Friday, when the dollar abruptly slid to a record low against the euro after a report suggesting that the Chinese central bank might start to reduce its holdings in the American currency. Though Chinese officials later denied the report, and the dollar recovered, analysts say the broader trend is that foreign governments are becoming less willing to finance the growing debt of the United States government. On Tuesday, a top official with the Russian central bank said his government had become worried about the sinking value of the dollar and might switch some foreign reserves to euros. A day later, India's central bank hinted that it was worried about the same issue and might shift some reserves into other currencies. Japan and China, which together have amassed nearly $900 billion in United States Treasury securities, have both slowed their buying sharply from the frenetic pace in February and March. 'There is an emerging consensus that banks around the world are moving to expand their reserves of euros at the expense of dollars,' said Laidi Ashraf, chief currency analyst at MG Financial Group in New York. The Bush administration has essentially condoned the dollar's decline. At meetings with foreign ministers last week, the Treasury secretary, John W. Snow, repeated the American mantra of support for a 'strong dollar' but also for letting 'market forces' determine exchange rates. A continued decline of the dollar would be good for American manufacturers, because it would make exports cheaper in foreign markets and push up the cost of imports. But a diminished foreign appetite for dollars could push up interest rates. The Federal Reserve has already raised short-term rates four times this year, but the shift in the sentiment of foreign investors may soon seriously affect long-term rates that influence the cost of home mortgages. 'Sell U.S., buy Europe,' summed up Richard Berner, chief United States economist at Morgan Stanley, in a report last week. Mr. Berner noted that investors have begun demanding higher yields for 10-year Treasury securities than for comparable European bonds, and he predicted that the spread would widen. Recent data from the Treasury Department indicated that foreign governments had sharply slowed their purchases of Treasury securities. The question is whether those purchases will continue to slow or start to increase again as countries try to shore up the American currency to help maintain their own industries' competitiveness. Japanese purchases of Treasury securities, which ballooned by about $100 billion from October 2003 to March of this year, have slowed sharply and actually declined slightly in September. Largely as a result, the dollar has sunk to its lowest level against the Japanese yen, about 102.5 yen to the dollar on Friday, in four and a half years. Chinese purchases of Treasury securities slowed to a crawl, increasing just $2 billion in September, to $174 billion.

Subject: The Emperor's New Clothes From: Emma To: Emma Date Posted: Sat, Nov 27, 2004 at 16:08:57 (EST) Email Address: Not Provided Message: http://www.economist.com/agenda/PrinterFriendly.cfm?Story_ID=3421877 November 23, 2004 Is the dollar’s role as the world’s reserve currency drawing to a close? - The Economist WHO believes in a strong dollar? Robert Rubin, Bill Clinton’s treasury secretary, most certainly did. John Snow, his successor but two, says he does but nobody believes him—if only because he wants other countries’ currencies, in particular the Chinese yuan, to go up. Mr Snow’s boss, President George Bush, in one of his mercifully rare forays into economics last week, also said he wants a muscular currency: “My nation is committed to a strong dollar.” Again, it would be fair to say that this was not taken as a ringing endorsement. “Bush’s strong-dollar policy is, in practical terms, to maintain a pool of fools to buy it all the way down,” a fund manager was quoted by Bloomberg news agency as saying. It does not help when the chairman of your central bank, Alan Greenspan, whose utterances on the economy are taken rather more seriously than Mr Bush’s, has said the day before that the dollar seems likely to fall: “Given the size of the current-account deficit, a diminished appetite for adding to dollar balances must occur at some point,” were his exact words. The foreign-exchange market immediately decided that it was sated, and the dollar fell to another record low against the euro. Mr Greenspan’s words were of huge moment, and not just because he spoke clearly, unusual though this was, nor because the Federal Reserve rarely comments on foreign-exchange movements. No, Mr Greenspan’s words were significant because he was tacitly admitting what right-thinking economists the world over have long believed: that the emperor has no clothes. But Buttonwood suspects that the deeper significance of Mr Greenspan’s admission is that the game that has been played since the collapse of the Bretton Woods system in the early 1970s is drawing to a close. The dollar’s status as the world’s reserve currency—its preferred store of value, if you will—is gradually coming to an end. And, ironically, the fact that it has become so popular in recent years will only hasten its demise.

Subject: The Emperor's New Clothes 2 From: Emma To: Emma Date Posted: Sat, Nov 27, 2004 at 16:14:48 (EST) Email Address: Not Provided Message: The biggest risk, of course, is that lenders would lose pots of money were the dollar to fall. As the printer of the world’s reserve currency, America can pass on foreign-exchange risk to the lenders because, unlike other indebted countries, it can borrow in its own currency. Messrs Higgins and Klitgaard reckon that for Singapore, the most extreme example, a 10% appreciation against the dollar and other reserve currencies would lead to a currency capital loss of 10% of GDP. Though loading up with even more dollars might of course stop the dollar from falling for a while, it would increase the risk of still larger losses were it eventually to do so. America already needs almost $2 billion a day from abroad to finance its spending habits, and the situation deteriorates by the week because America imports more than it exports, which worsens the current-account deficit. The incentives to flee the Asian cartel (to give it its proper name) thus increase the bigger the game becomes. Why take the risk that another central bank will leave you carrying the can? Better to get out early. Because the game is thus so unstable it will come to an end, and probably a messy one. And what will then happen to the dollar? It is hard to imagine its hegemony remaining unchallenged when so many will have lost so much. And doubly so given that America has abused the dollar’s reserve-currency role so egregiously that its finances now look more like those of a banana republic than an economic superpower.

Subject: The breaking point From: Pete Weis To: Emma Date Posted: Sat, Nov 27, 2004 at 17:00:39 (EST) Email Address: Not Provided Message: There is a point out there where fear that the dollar is soon to collapse will start panic selling of US dollar denominated assets. The US government and federal reserve can stand by and watch the economy go down the drain with the dollar or the government can change its fiscal policies to get the budget deficit headed in the right direction towards reduction. The federal reserve will have to begin raising interest rates more sharply to support the dollar. This will tank the housing and stock markets, reduce consumption, and result in higher unemployment. But failure to do this will eventually bring in panic selling of the US dollar which will result in all of these nasty scenarios occuring anyway. Failure to take action soon will result in a much deeper hole to dig ourselves out of with a much, much longer recovery time. Our present federal reserve has shown itself to be reactive rather than proactive and not politically independent enough to be very effective. My own view is that both our present administration and federal reserve will continue their ineffective, reactive methods and the panic at some point will begin. The lie that the economy is on the path to strong recovery is now being exposed. You simply can not have a strong recovery without overall wage growth and strong employment while you are running massive deficits which have resulted in world record debt.

Subject: Re: The breaking point From: Terri To: Pete Weis Date Posted: Sat, Nov 27, 2004 at 19:51:21 (EST) Email Address: Not Provided Message: http://www.wingsparrotlets.com/boy green rump 2-1.jpg Happy Thanksgiving afterward...

Subject: Vehicles Made in Ontario From: Emma To: All Date Posted: Sat, Nov 27, 2004 at 10:05:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/27/business/worldbusiness/27ontario.html? This Year, Ontario May Pass Michigan in Making Vehicles By DANNY HAKIM DETROIT - Michigan has been the heart of the auto industry since Henry Ford started mass-producing the Model T a century ago, but the Midwestern state is poised to be surpassed by Ontario. The Canadian province is on course to pass Michigan this year and become the biggest auto-producing state or province in North America, according to Ward's Automotive, which tracks auto production data. The shift would be a further sign of the decay of Michigan's economy as the domestic auto industry has struggled to maintain its market share. The state is projected to finish the year having made about 2.6 million cars and trucks, down from 3.4 million a decade earlier, according to Ward's. Ontario is expected to make about 2.7 million vehicles, up from 2.1 million in 1994. In all, about 89,000 vehicles will separate the two regions this year, according to current production plans. 'For the history of the auto industry, it's been the top producer,' said Haig Stoddard, the manager of industry analysis at Ward's, referring to Michigan. Ontario, however, has benefited from a more diverse auto industry beyond the traditional Big Three domestic producers - General Motors, the Ford Motor Company and the Chrysler division of DaimlerChrysler. 'They have Honda and Toyota,' Mr. Stoddard said. Toyota has a plant in Cambridge, Ontario, that makes the Toyota Corolla, Matrix and the Lexus RX330 and is capable of making a quarter-million vehicles a year. The Honda plant in Alliston, Ontario, is able to make nearly 400,000 vehicles a year, including the Civic, the Odyssey minivan and the Honda Pilot sport utility vehicle. All of the Big Three also have plants in Ontario. Toyota in particular has been gaining new customers at a fast clip, while the traditional domestic industry's market share has dipped below 60 percent this year in the United States; in the 1950's, G.M. alone made up more than half the market. Few states have suffered job losses as steep as Michigan's, because of the exodus of manufacturing work. Auto suppliers have been hard hit by the industry's advancing globalization, which has driven small tool and die shops out of business and shifted work at big supply companies to Mexico and China, where labor costs are a fraction of those in the United States. Shrinking Big Three sales have led to plant closings, layoffs and shift reductions. And while most foreign automakers operate assembly plants in the United States, they favor the South, where labor is cheaper and sentiment runs against the Detroit-based United Automobile Workers union.

Subject: Vehicles Made in Ontario 2 From: Emma To: Emma Date Posted: Sat, Nov 27, 2004 at 10:08:46 (EST) Email Address: Not Provided Message: 'Most of the transplants got as far away as they could possibly get in the United States from Michigan and the U.A.W. and still be somewhere near an interstate,' said David B. Healy, an analyst at Burnham Securities. Canada is attractive, in part, because of its nationalized health care system, which negates perhaps the largest competitive burden faced by domestic manufacturers. G.M. spends roughly $1,400 a vehicle produced in the United States on health care, more than it spends on steel.

Subject: Re: Vehicles Made in Ontario 2 From: jimsum To: Emma Date Posted: Sat, Nov 27, 2004 at 13:57:07 (EST) Email Address: jim.summers@rogers.com Message: All is not that rosy in Ontario. Ontario may surpass Michigan, but that doesn't mean Ontario isn't losing auto jobs, just fewer than Michigan. Also, just about every auto job outside Ontario has disappeared; a lot of the Michigan jobs have just been moved to the South. The 25% rise in the value of the Canadian dollar over the last two years will probably put quite a dent in any future growth. I wouldn't bet on Ontario production remaining at its current level for long. It is amazing that U.S. comentators are only now realizing that health care savings can be had in Canada; before now, all the talk was about how corporate taxes were higher in Canada and benefit costs were ignored. Our higher taxes don't seem quite so bad when you factor in the heath insurance benefit that is also included.

Subject: Re: Vehicles Made in Ontario 2 From: Terri To: jimsum Date Posted: Sat, Nov 27, 2004 at 14:28:41 (EST) Email Address: Not Provided Message: An interesting turn. Could it be that the strong Canadian dollar will work against Canadian competitiveness? The strong dollar reflects the strength of the Canadian economy, and my guess is that there will be little job exporting for quite some while. Canadian taxes have certainly been a help in stemming job loss so far.

Subject: Re: Vehicles Made in Ontario 2 From: Terri To: Terri Date Posted: Sat, Nov 27, 2004 at 14:54:21 (EST) Email Address: Not Provided Message: Which is it then, a weak or strong currency? A strong currency is a reflection of a strong economy and has the benefit to Canadians of keeping prices and interest rates low and attracting foreign capital. Of course Americans complained when the currency was strong but I would prefer such a complaint.

Subject: Don Quixote From: Terri To: All Date Posted: Sat, Nov 27, 2004 at 08:23:18 (EST) Email Address: Not Provided Message: This, by the way, is the 400 year anniversary of the magical Don Quixote. Happy anniversary.

Subject: We Muddle Along From: Emma To: All Date Posted: Sat, Nov 27, 2004 at 07:04:09 (EST) Email Address: Not Provided Message: These 22 years there have been worries about too little household saving and too much government debt. Was there a quarter in 25 years when the balance of payments was positive? The dollar has ranged widely in value through these years. Still, we have grown with seldom a recession, interest rates have gradually fallen, there has been a bull market in stocks that was little dented in 1987 or 1990 or even from 2000 to 2003. We passed through a period of astonishing budget probity during the 1990s, and turned a structural government deficit to a surplus. Though household saving declined fairly steadily from 1982, there was promise that a chronic deficit fear could be set aside. No longer. We have a structural deficit that will not be fixed with limiting government spending or growing nicely. There is too much revenue loss from the set of tax cuts to hope for a government deficit that grows only as fast as the economy grows. We are weakening ourself economically, but we are strong and the weakening is gradual. There is no sense there will be a change in fiscal policy that will limit the growth of government debt. The budget just passed did not do this. So, there is no cause for optimism but there is no dire problem today. We are growing, interest rates are low, there is a bull stock market, indeed there is a world bull stock market. We muddle along, but we are weakening.

Subject: Legacy of a Weak Dollar From: Emma To: All Date Posted: Fri, Nov 26, 2004 at 19:31:07 (EST) Email Address: Not Provided Message: Comparing, the dollar is about the value against the French Franc or German Mark that it held in November 1994. The dollar gained in value against what would be the Euro through 2000, then reversed to the value near the end of 1994. Robert Rubin and Lawrence Summers maintained a strong dollar policy, but from 1985 till Rubin became Treasury Secretary there was little Administration concern about a weakening dollar. The current lack of concern may largely reflect the legacy from 1985.

Subject: Re: Legacy of a Weak Dollar From: Terri To: Emma Date Posted: Fri, Nov 26, 2004 at 20:30:11 (EST) Email Address: Not Provided Message: A strengthening currency should be reflective of a strengthening economy, and the combination should attract low cost foreign investment. Obviously, low household savings levels and high government deficits are weakening of the economy and currency. But, a resolution is not in the least clear.

Subject: National Index Returns From: Terri To: All Date Posted: Fri, Nov 26, 2004 at 17:07:10 (EST) Email Address: Not Provided Message: 12/31/03 - 11/25/04 Australia 28.5 Canada 21.7 Denmark 28.0 France 15.3 Germany 11.1 Hong Kong 21.2 Ireland 34.8 Japan 10.1 Norway 51.8 Sweden 34.7 Switzerland 12.2 UK 15.7

Subject: Indonesian Business Transformation From: Emma To: All Date Posted: Fri, Nov 26, 2004 at 13:00:07 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/26/business/worldbusiness/26noodle.html?pagewanted=all&position= Indonesian Food Giant Undergoes a Transformation as the Political Winds Shift By MICHAEL VATIKIOTIS JAKARTA, Indonesia - The company Anthony Salim heads, Indofood Sukses Makmur, might be the world's largest instant noodle manufacturer. But under Mr. Salim, the company and its parent, the powerful Salim Group, is much more. 'We are a major food company,' said Mr. Salim, one of Indonesia's most influential businessmen. 'There is no limit to how we can grow.' Mr. Salim is trying to effect a remarkable transformation of what was, until 1998, Indonesia's largest private company and one of Asia's most influential overseas Chinese operations, with fingers in almost every lucrative area of the economy. The story of Indofood and the Salim Group is one of survival and reinvention. In his heyday, Mr. Salim owned Indonesia's largest retail bank, its largest cement plant and one of the world's biggest flour mills. The Salim Group was also involved in car manufacturing, television broadcasting, petrochemicals, textiles, construction - the list goes on. But when the economic crisis hit Indonesia in 1997-98, Mr. Salim lost his shirt as well as his chief patron, President Suharto. Mr. Salim and his family, including the patriarch, Liem Sioe Liong, also known as Sudono Salim and now 91, fled to Singapore as angry mobs burned their property. When the storms settled, Anthony Salim set out to rebuild his shattered empire. But he lost valuable time: it has taken him nearly five years to restructure the group, shedding lucrative assets like Bank Central Asia and settling debts of 52 trillion rupiah (about $5.8 billion), with the Indonesian authorities. Perhaps more important, now that the political landscape has changed and Indonesia has opened to more competition, it is unclear whether the Salim Group's operations will regain their former size and scope. Still, there are some grounds for Mr. Salim's optimism. While the group has lost huge chunks of business in finance, cars and cement, it - and Indofood in particular - has survived. 'You look at other cronies in Indonesia, and they're basically gone,' said Manggi Habir, a senior analyst at Standard & Poor's in Singapore. 'Salim is still there, and he's a force to contend with.' In the last five years, as Mr. Salim laid low and focused on restructuring, he retained control of Indofood through the First Pacific Company, a Salim-controlled investment and management company listed in Hong Kong. And through these tough years, Indofood's business grew, even if profits were sluggish. Indofood's balance sheet, though encumbered with more than 7 trillion rupiah in debt, is reasonably healthy. 'The company has enough cash flow to secure the debt,' said Michael Chambers, head of research at Crédit Lyonnais Securities (Asia) in Jakarta. To help him piece the empire back together, Mr. Salim is seeking to shore up his reputation as a solid manager. In June, he won appointment as the chief executive of Indofood, replacing a high-profile professional, Eva Hutapea. But critics say Mr. Salim is gambling with the company. They fear that, as owner of nearly 400 companies under the Salim Group umbrella, he might not be able to devote enough time to Indofood. Mr. Salim insisted that it was important to put himself in the driver's seat to 'see if there was any problem for me at the helm of a public company.' What he meant was that after the public outcry over his political connections in the Suharto era, he needed to see if it was safe to swim again in Indonesia's corporate waters. So far, Indonesians seem largely to respect Mr. Salim's business acumen and see his return to Indofood as a plus. 'To most bankers, Salim Group's reputation is much better than other conglomerates', and they are willing to lend,' said Lim Chei Wei, an independent corporate analyst in Jakarta who has been strongly critical of some groups owned by Indonesian-Chinese. 'I have to admit that the Salims actually know how to build a business and create value.' But it is too early to say whether Mr. Salim can turn Indofood into an integrated regional food giant along the lines of the Charoen Pokphand Group in Thailand. Nor is it clear whether Indofood can reinvent itself as a new kind of business competing in the marketplace instead of relying on political patronage. For one thing, companies like the multinational giant Unilever and Wings, an Indonesian Chinese family-owned company new to the noodle market, are giving Indofood a run for its money as an increasingly open and competitive market takes hold in Indonesia. Already, Indofood's market share in instant noodles has slipped to 80 percent from about 90 percent in the last five years. Annual net sales rose 9 percent in 2003 after a 12 percent increase in 2002. In August, the company, which sells around nine billion packs of instant noodles annually under the Indomie brand, forecast revenue growth of only 5 percent in 2004. And last year, net income slid to 603.4 trillion rupiah from 802.6 trillion rupiah in 2002.

Subject: Pension in Europe: Demography From: Emma To: All Date Posted: Fri, Nov 26, 2004 at 11:30:14 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/26/international/europe/26pension.html?pagewanted=all&position= Demographic Time Bomb Threatens Pensions in Europe By ALAN COWELL BRIGHTON, England, - With his crisp gray suit, white shirt and a lapel poppy commemorating the end of the First World War, Chris Shergold does not exactly look like a vision of the future. But, for many in Europe, his story is slowly becoming theirs, reversing the assumptions that this old continent has finessed life's travails so well that its people might look forward to ever shortening working lives in ever greater comfort. In 1997, Mr. Shergold, now a 61-year-old former banker, was forced into early retirement by the merger of his employer with another bank. At the time, that seemed fine: he had a company pension, the likelihood of part-time office work and a nest egg of investments. It looked as if the combination would provide a generous retirement, with vacations in the sun and a good life at home. Then, in 2000, the stock market crashed. Now he has returned to work full time as a financial manager for a nonprofit organization, where he expects he will have to stay until he is 67 merely to return to the levels of prosperity he envisaged seven years ago. In other words, he said, he found 'that there's no sort of golden, shining cloud coming along at the end of the day.' Mr. Shergold's story goes far beyond the gravelly beaches and amusement pier of this southern English resort that has been his home since 1976. It represents a cautionary tale for the baby boom generation in many parts of Europe as aging societies from Sweden to Spain - and across eastern Europe as well - confront a demographic time bomb. With ever fewer young people to work and pay taxes, the cost of looking after growing numbers of older people with state pensions akin to American Social Security becomes ever more prohibitive. The dream of early retirement on a fat pension is receding with other comfortable visions of the future, like the pursuit of shorter working weeks and expanded leisure time that preoccupied many, particularly in continental Europe, in the 1990's. 'They got used to having that very cushy social system, and now they are slowly coming to grips with the fact that the cushy system doesn't hold any more,' said Katinka Barysch, an economist at the Center for European Reform, a private policy research organization in London. Or, as Mr. Shergold put it, 'the majority of people will just have to stay at work that much longer.' The alternatives seem dire. In Britain, which offers Europe's least generous old age pensions, Adair Turner, chairman of the government appointed Pensions Commission in London said, 'Our problem is that we are going to have a whole lot of very poor pensioners in 30 years time.' And in much of continental Europe, where years of social legislation have guaranteed pensions of as much as 70 percent of average retirement-age paychecks, Mr. Turner said, the continent 'is going to have reasonably well-off pensioners supported over a number of years that society cannot afford.' As a result, European generations after the baby boomers will have to save more, pay higher taxes and work longer to maintain the kind of retirement comforts they once considered their due. To be sure, this is not - for most Europeans - a drama of Dickensian deprivation. Consider the case of Marie Claude Hourcade, 55, who lives in Paris and retired last February from her job as an inspector in the French customs service. As a mother of three - a relatively large family by European standards - and a government employee, she fell into a small category of people whose retirement benefits left even her amazed. Her pension, she said, gives her the equivalent of about $3,000 a month which, added to the salary of her well-paid husband, offers an affluent life. 'The money enables me to have extras,' she said. 'I go to the theater a lot, I see exhibitions, we have a house in the countryside where we spend the summer.' Along with countries like the Netherlands, Sweden, Germany, Italy and Spain, France ranks among the most generous of state providers with retirees expecting their pensions to be some 70 percent of their country's average earnings. (The least generous is Britain, with just less than 37 percent, compared with 45 percent in the United States, figures from Britain's Pensions Commission show.) But it is precisely that level of generosity that will be challenged as Europe's population ages and ever fewer working people pay the taxes to finance the soaring numbers of baby boom pensioners.

Subject: Dollar Weakness As a Strength From: Emma To: All Date Posted: Fri, Nov 26, 2004 at 10:37:35 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/26/opinion/26roach.html When Weakness Is a Strength By STEPHEN S. ROACH Suddenly all eyes are on a weakening dollar. In recent days, the American currency has fallen against the euro, the yen and most other currencies around the world. The renminbi is a notable exception; China has kept its currency firmly pegged to the dollar for a decade. The fall of the dollar is not a surprise. It is the logical outgrowth of an unbalanced world economy, and America's gaping current account deficit - the difference between foreign trade and investment in the United States and American trade and investment abroad - is just the most visible manifestation of these imbalances. The deficit ran at a record annual rate of $665 billion, or 5.7 percent of gross domestic product, in the second quarter of 2004. While a decline in the dollar is not a cure-all for what ails the world, it should go a long way toward bringing about a sorely needed rebalancing. With a weaker dollar, economic and even political tensions among nations would be relieved, helping to promote more sustainable growth in the global economy. Still, a debate persists as to the wisdom of allowing the dollar to decline. The Bush administration seems to have given its tacit assent, and Alan Greenspan, chairman of the Federal Reserve, is finally on board. But outside the United States, where policymakers have long been vocal in their displeasure over America's deficits, officials are now objecting to America's cure. Europeans have referred to the dollar's recent decline as brutal. The Japanese have threatened to intervene again in foreign exchange markets. And Chinese officials have argued that global imbalances are 'made in America.' In this blame game, it's always the other guy. Yet global imbalances are a shared responsibility. America is guilty of excess consumption, whereas the rest of the world suffers from insufficient consumption. Consumer demand in the United States grew at an average of 3.9 percent (in real terms) from 1995 to 2003, nearly double the 2.2 percent average elsewhere in the industrial world. Meanwhile, Americans fail to save enough - whereas the rest of the world saves too much. American consumers have borrowed against the future by squandering their savings. The personal savings rate was just 0.2 percent of disposable personal income in September - down from 7.7 percent as recently as 1992. Moreover, large federal budget deficits mean the government's savings rate is negative. Lacking in domestic savings, the United States must import foreign savings to finance the growth of its economy. And it runs huge current-account and trade deficits to attract such capital from overseas. America's consumption binge has its mirror image in excess savings elsewhere in the world - especially in Asia and Europe. For now, America draws freely on this reservoir, absorbing about 80 percent of the world's surplus savings. Just as the United States has moved production and labor offshore in recent years, it is now outsourcing its savings. This is a dangerous arrangement. The day could come when foreign investors demand better terms for financing America's spending spree (and savings shortfall). That is the day the dollar will collapse, interest rates will soar and the stock market will plunge. In such a crisis, a United States recession would be a near certainty. And the rest of an America-centric world would be quick to follow. The only way to avoid this unhappy future is for the world's major central banks to carefully manage a gradual but significant depreciation of the dollar over the next several years. America, and the world, would gain in several ways.

Subject: The Deficit and the Dollar From: Terri To: Emma Date Posted: Fri, Nov 26, 2004 at 12:24:14 (EST) Email Address: Not Provided Message: Indeed part of the September 1985 Plaza Accord to allow a decline in the value of the dollar, was the agreement to raise taxes to limit the expansion of the government deficit. With no such change in fiscal policy a decline in dollar value can take some pressure off our balance of payments deficit, but only for a time. As the deficit continues to build there will be balance of payments pressure. We are imagining that economic growth will cut the government deficit, as tax revenue increases automatically, but we have a structural deficit that will be little limited by faster growth.

Subject: Re: The Deficit and the Dollar From: Terri To: Terri Date Posted: Fri, Nov 26, 2004 at 19:54:17 (EST) Email Address: Not Provided Message: What bothers me is that this pleased Stephen Roach is the same analyst who was last heard telling Boston money managers that there was a crisis coming. Which Stephen Roach are we to believe? Can the dollar adjustment be thoroughly benign?

Subject: whats with Krugman's op ed absence? From: mike To: All Date Posted: Thurs, Nov 25, 2004 at 18:27:53 (EST) Email Address: Not Provided Message: did he quit after his never surrender piece?

Subject: Re: whats with Krugman's op ed absence? From: Bobby To: mike Date Posted: Fri, Nov 26, 2004 at 09:26:15 (EST) Email Address: robert@pkarchive.org Message: No. He's on leave until January, since he has to work on the macro split of his introductory textbook. They were planning this well before John Kerry's defeat and regardless of who won the election. I myself learned about it well before the election from Krugman's publicist.

Subject: A Rush for Metals From: Emma To: All Date Posted: Thurs, Nov 25, 2004 at 13:22:00 (EST) Email Address: Not Provided Message: Australian Mine Shares Rise in Investors' Rush for Metals By HEATHER TIMMONS and WAYNE ARNOLD - New York Times Amid heated global demand for metals, investors are so sure the Australian mining company WMC Resources will become the prize in a global bidding war that they have pushed its stock price 13 percent higher than rival Xstrata's hostile offer for the company. And that enthusiasm is highlighting a debate within the industry: is the mining sector becoming overheated, as some say the froth in WMC shares proves, or will consolidation and stock prices only increase, spurred by an ever-growing demand for metals? The debate comes as mining stocks trade in the upper reaches of their traditional range, as compared to cash flow. Decades of history say there is not much room for them to move up - unless, of course, you believe that industrialization in China and elsewhere has permanently altered the world's demand for metals like nickel, copper and uranium. 'You're either a new paradigmer, who believes the China effect has fundamentally changed the industry's prospects for the better, or you think this is now close to the peak,' said Adrian Coates, head of the metals and mining group at HSBC. Executives from Xstrata and WMC certainly seem to be in the 'new paradigmer' camp. Xstrata's all-cash $5.8 billion offer for WMC, first made as a friendly offer last month, represents a 24 percent premium to the company's stock price before the deal became public. WMC claims the Xstrata bid undervalues the company. And the company offered evidence on Wednesday, when its chief executive, Andrew Michelmore, told Australia's stock exchange that new drilling tests indicated that the Olympic Dam mine held nearly 30 percent more copper, uranium and gold than the company previously knew about. The announcement failed, however, to move the stock price any higher. Whether the rest of the industry will be drawn remains to be seen. WMC has retained Citigroup and UBS to help defend it against the Xstrata offer, and most bankers expect the advisers to hold an auction to attract a higher price for WMC. There are only a handful of mining companies big enough to afford WMC: the global, diversified conglomerates known in the industry as the 'three ugly sisters,' BHP Billiton, Anglo American and Rio Tinto; Brazil's Companhia Vale do Rio Doce and a few smaller players like Phelps Dodge, the American copper producer, which may want to diversify like Xstrata.

Subject: Chinese Tourism From: Emma To: All Date Posted: Thurs, Nov 25, 2004 at 11:20:55 (EST) Email Address: Not Provided Message: November 25, 2004 China Sees Chances for Fun and Profit Offshore By JAMES BROOKE - New York Times SAIPAN, Northern Mariana Islands - Asian leaders flying home this week from a regional meeting with President Bush in Chile might have looked down over the widely scattered South Pacific islands and believed that they were flying over an American playground. But judging by the swelling flood of Chinese tourists to these sunbathed islands, the Pacific is rapidly becoming a destination for Chinese tourism, fishing and investment. In July, China Southern started flying here twice a week from Shanghai. In October, China gave the green light to mass tourism in the Northern Marianas, granting approved-destination status. On Jan. 2, direct flights are to start from Beijing. 'Almost every flight is full; tomorrow night's flight is overbooked; Friday's flight is overbooked,' said Tom Liu, the general manager of Tinian Dynasty Hotel and Casino, a $150 million Chinese-owned investment on Tinian, Saipan's next-door island. Speaking by phone from his hotel, which features Chinese dragon décor and a plush disco, Club de Macau, Mr. Liu said that since limited flights from Guangzhou began in April 2002 occupancy at his 412-room hotel has risen to 65 percent from 15 percent. With Chinese tourism doubling this year and expected to hit 50,000 visitors next year, he predicted confidently: 'China will definitely be our largest market.' Washed by warm Pacific breezes, these small volcanic islands have floated with the ebb and flow of world maritime powers: 350 years of Spanish rule, 15 years of German rule, 30 years of Japanese rule and now, 60 years of American rule. But now, with Chinese tourism worldwide forecast to hit 100 million in 2020 - a tenfold increase in two decades -Tinian is bet ting on China. Next year, the island hopes to have direct flights from China at a brand-new $23 million, 8,600-foot airstrip. Built by Americans, the runway is already being called 'the Chinese airport' by residents. China is emerging as an economic power in the Pacific, an area that covers one-third of the globe. Although populations are small, the mini-states of Oceania straddle crucial shipping lanes and valuable fishing grounds. The arrival of tourists, aid projects and investment signifies China's penetration of the Pacific. 'The Chinese will dwarf the Japanese in tourism and business,' said Dirk A. Ballendorf, an American who teaches Micronesia's history at the University of Guam. 'I recommend that all my students study Chinese.' This spring, China joined the South Pacific Tourism Organization - a move that came after granting preferential tourism status to the Cook Islands, Fiji, Tonga, Vanuatu and now the Northern Marianas, which are only a four-hour flight from Shanghai. With a Chinese airline considering direct flights to Fiji, China's ambassador to Fiji, Cai Jinbiao, has said that China will be a major contributor to Fiji's five-year target of turning tourism into a $1-billion-a-year industry. In Tahiti, the China Travel Service, which is China's biggest tour operator, recently announced that it would invest nearly $100 million in two hotels. French Polynesia wants to open tourism offices in Beijing and Shanghai and the local airline, Air Tahiti Nui, is studying starting flights to Shanghai. In Tonga, Chinese investors spent $4 million to renovate the International Dateline Hotel. Roughly 3,000 Chinese companies do business in the Pacific, with nearly $1 billion in hotels, plantations, garment factories, fishing and logging operations. China is building a 50-boat tuna fleet for Fiji - a reflection of China's interest in the huge fisheries of the Pacific.

Subject: Chinese Unions at Wal-Mart From: Emma To: Emma Date Posted: Thurs, Nov 25, 2004 at 11:33:37 (EST) Email Address: Not Provided Message: November 25, 2004 Wal-Mart Bows to Trade Unions at Stores in China By DAVID BARBOZA SHANGHAI - It may be a big step for Wal-Mart, but a tiny step for China. After years of opposing unions in the United States and around the world, Wal-Mart Stores said this week that it would allow a union at its operations in China. But the decision appears to reflect a bow to Chinese law more than a change in Wal-Mart's approach to unionization worldwide. And perhaps just as important, unions have a different role in China: they work in close concert with management - that is, when they are not the management itself - and traditionally with the Communist Party. Analysts were perplexed by the announcement, which read: 'Should associates request formation of a union, Wal-Mart China would respect their wishes.' Still, some said the move suggested that Wal-Mart might deal with worker issues somewhat differently than it had in the past. For years, the company has been harshly criticized for its labor practices. The company, the world's largest retailer with about 5,000 stores worldwide, has not acknowledged a single union within its operations in the United States, and has vigorously opposed the formation of unions within Wal-Mart. 'This is a watershed event,' said Eugene H. Fram, a professor of marketing at the Rochester Institute of Technology and a longtime observer of Wal-Mart's operations. 'This is the first time they've given acceptance without saying 'let's go to a union vote.' ' But many other analysts and union officials said it was unclear whether Wal-Mart, which has 40 stores and about 20,000 employees in China, intended to allow a real union to take shape here or whether a strong union could even be created, given the current status of labor organizations in China. Unions in China operate very differently from independent unions in the United States or elsewhere. Rarely, for instance, do unions in China oppose management or press for higher wages or better working conditions, special ists say. 'Setting up a union won't make much difference on workers' wages because in most cases the union in China acts as a subsidiary to the employer and rarely represents the workers and fights for higher wages,' said Fei Li, a retailing specialist at the School of Economics and Management at Tsinghua University in Beijing. There have been small signs of independent union activity in China, however, which could be a challenge to the government-run unions. Workers in Guangzhou recently went to court to fight their company's decision to appoint a high-level manager as the head of the union. And other labor groups have been pressing multinational companies to improve their working conditions.

Subject: China's Latin Business Trip From: Emma To: Emma Date Posted: Thurs, Nov 25, 2004 at 12:33:21 (EST) Email Address: Not Provided Message: November 25, 2004 China's Latin Business Trip Latin America has not gotten much sustained attention from Washington recently, but it has begun drawing remarkable high-level interest from Beijing. While President Bush managed only a four-hour stopover in Colombia on his way home from last weekend's Asia-Pacific summit meeting in Chile, China's president, Hu Jintao, has just completed a 12-day four-country trip in which he announced more than $30 billion in new Chinese investments in Latin America. Mr. Hu also signed a number of long-term supply contracts to fuel Beijing's torrid economic expansion for years to come. China's growing economic involvement is largely positive for Latin America. It brings much-needed capital for modernizing creaky infrastructure and expanding the production of raw materials from mining to agriculture. There will also be painful adjustments, however, as swelling volumes of new Chinese manufacturing exports displace less efficient Latin American competitors. For the United States, still the region's largest economic partner, China's increased presence poses no economic or strategic threat. It may, however, have the healthy side effect of spurring Washington to stop taking the region for granted and to begin paying more heed to its lagging development, dangerously uneven income distributions and deep misgivings about growing United States unilateralism in international affairs. Mr. Hu's travels took him to Brazil, Chile, Argentina and Cuba. China is now Brazil's second-largest trading partner, buying large amounts of iron ore, bauxite and soybeans. Last month it displaced the United States to become the leading purchaser of Chilean copper. In Argentina, Mr. Hu unveiled nearly $20 billion in new Chinese investments, much of it in railways and energy exploration. In Cuba, China's main interest is nickel. A similar trade dynamic is already well under way in Australia and Southeast Asia, where Mr. Hu made last year's Asia-Pacific summit meeting in Thailand the centerpiece of a regional economic and diplomatic sales tour. Historically, Latin America has suffered from the notorious volatility of international commodity markets. The promise of steadily increasing demand from the robust Chinese economy is clearly welcome.

Subject: Re: Chinese Unions at Wal-Mart From: Mik To: Emma Date Posted: Thurs, Nov 25, 2004 at 12:30:52 (EST) Email Address: Not Provided Message: In other words the term 'Union' is totally incorrect. Walmart has agreed to recognise a government organization that will 'disseminate' information to the staff. If the term 'Union' does not fit - then it should not be used.

Subject: Re: Chinese Unions at Wal-Mart From: Emma To: Mik Date Posted: Thurs, Nov 25, 2004 at 12:38:26 (EST) Email Address: Not Provided Message: Company worker organizations are a start for labor and there may be further movement from here to Wal-Mart in Europe and Canada and Mexico and America.

Subject: Can we trust the Chinese? From: Mik To: Emma Date Posted: Fri, Nov 26, 2004 at 15:20:25 (EST) Email Address: Not Provided Message: The problem I have from what I have learnt about 'company worker organizations' in China, the government has come up with a clever method of 'controlling the labour rates'. By creating this organization, the government seems to take over the 'Human Resource Dept' of Walmart. Instead of attending to the needs of the people, it becomes a method for Government to identify any 'problem makers', move in and beat them with a stick (so to speak). In this way prevent the workers from uplifting and increasing costs. This allows China to remain competitive well into the future. Then introducing the concept of 'Unions' is a pure disguise. What I can't believe is what I am now hearing about Walmart. Apparently Walmart employs people (in the US) at the minimum wage know that these people can't survive. Then Walmart has a full department dedicated to teaching these people how to get government assistance. In essence they purposely use government assistance to subsidise their labour force remuneration. You must pay taxes to support Walmart? Last year Walmart made a net profit (after taxes) of 9 Billion US$. When is more profit enough profit? Is it too much to ask that Walmart give their low paid staff a break?

Subject: Wal-Mart and China From: Terri To: Mik Date Posted: Fri, Nov 26, 2004 at 17:20:52 (EST) Email Address: Not Provided Message: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets/wmchina.html From the beginning, Sam Walton and Wal-Mart focused on buying goods as cheaply as possible, which often meant buying imports. Here is an examination of the history of Wal-Mart's procurement practices in Asia and China -- even through the its own 'Buy American' promotional campaign in the 1980s and 1990s -- and the prognosis for the future.

Subject: China's Poor and Religious Solace From: Emma To: Emma Date Posted: Thurs, Nov 25, 2004 at 11:22:12 (EST) Email Address: Not Provided Message: November 25, 2005 Violence Taints Religion's Solace for China's Poor By JOSEPH KAHN - New York Times HUAIDE, China - Kuang Yuexia and her husband, Cai Defu, considered themselves good Christians. They read the Bible every night before bed. When their children misbehaved, they dealt with them calmly. They did not curse or tell lies. But when Zhang Chengli, a neighbor, began hounding them last year to leave their underground religious sect and join his, it seemed like a test of satanic intensity. He scaled the wall of their garden, ambushed them in the fields and roused them after midnight with frantic calls to convert before Jesus arrived for his Second Coming and sent them to hell. Ms. Kuang poured dirty water on Mr. Zhang's head. Mr. Cai punched him. Yet Mr. Zhang persisted for months until the couple's sect intervened and stopped his proselytizing for good. Mr. Zhang's body - eyes, ears and nose ripped from his face - was found by a roadside 300 miles from this rural town in Jilin Province, in northeastern China. The police arrested Mr. Cai and fellow sect members. One of them died in police custody during what fellow inmates described as a torture session. China's growing material wealth has eluded the countryside, home to two-thirds of its population. But there is a bull market in sects and cults competing for souls. That has alarmed the authorities, who seem uncertain whether the spread of religion or its systematic repression does more to turn peasants against Communist rule. The demise of Communist ideology has left a void, and it is being filled by religion. The country today has more church-going Protestants than Europe, according to several foreign estimates. Buddhism has become popular among the social elite. Beijing college students wait hours for a pew during Christmas services in the capital's 100 packed churches. But it is the rural underclass that is most desperate for salvation. The rural economy has grown relatively slowly. Corruption and a collapse in state-sponsored medical care and social services are felt acutely. But government-sanctioned churches operate mainly in cities, where they can be closely monitored, and priests and ministers by law can preach only to those who come to them. The authorities do not ban religious activity in the countryside. But they have made it so difficult for established churches to operate there that many rural Chinese have turned to underground, often heterodox religious movements. Charismatic sect leaders denounce state-sanctioned churches. They promise healing in a part of the country where the state has all but abandoned responsibility for public health. They also promise deliverance from the coming apocalypse, and demand money, loyalty and strict secrecy from their members. Three Grades of Servants, a banned Christian sect that claims several million followers, made inroads in Huaide and other northern towns beginning nearly a decade ago. It lured peasants like Yu Xiaoping, as well as her neighbor, Ms. Kuang, away from state-authorized churches. Its underground network provided spiritual and social services to isolated villages. But it also attracted competition from Eastern Lightning, its archrival, which sought to convert Ms. Yu, Ms. Kuang and others. The two sects clashed violently. Both became targets of a police crackdown.

Subject: Huh? From: Mik To: Emma Date Posted: Thurs, Nov 25, 2004 at 12:34:57 (EST) Email Address: Not Provided Message: '..... there is a bull market in sects and cults competing for souls....??' Oyi vey. I know this is an economics related site, but really.

Subject: Re: Huh? From: Emma To: Mik Date Posted: Thurs, Nov 25, 2004 at 12:43:32 (EST) Email Address: Not Provided Message: The writer is an Asian economic specialist, but I thought this worth our while. There is much to understand about China :)

Subject: It Was the Economy After All From: Emma To: All Date Posted: Thurs, Nov 25, 2004 at 09:33:00 (EST) Email Address: Not Provided Message: November 25, 2004 It Was the Economy After All By JEFF MADRICK - New York Times DESPITE all the talk that the presidential election turned on the issue of moral values, it turns out that economics did indeed matter, and mattered a lot. Those households with incomes above $50,000 benefited most from President Bush's tax cuts, and they voted decisively for him. In fact, according to the surveys of voters leaving the polls, the higher the income, the more the support for Mr. Bush. And those households with incomes below $50,000 generally voted for Senator John Kerry. The poorer the household, the more likely its members voted Democratic. But the below-$50,000 group did not completely break Mr. Kerry's way. In particular, consider those households with incomes of $30,000 to $50,000 a year. In 1992 and 1996, Bill Clinton won this demographic slice. In 2000, Al Gore split it evenly with Mr. Bush, and that happened again with Mr. Kerry. Not counting minorities, Mr. Kerry probably lost the group by a substantial margin. Yet these are the households most hurt by a changing economy, and they were once consistently Democratic, counting on the party's social policies to help keep them afloat as their incomes shrank. In 1979, the average hourly wage for a male high school graduate was $16.32 in 2003 dollars, according to the latest edition of 'The State of Working America,' published every two years by the Economic Policy Institute. In 2003, the average wage was $15.07. Moreover, only about one of three recent high school graduates now looking for work will receive health insurance on the job. In 1979, two out of three entry-level jobs for high school graduates provided health insurance. Why couldn't Mr. Kerry capture more of these voters? Some political analysts say they may be lost to the Democratic Party. They turned against government and the Democrats in the late 1970's, when inflation was soaring under President Jimmy Carter. According to an analysis done in the early 1980's by Douglas A. Hibbs Jr., then a Harvard professor of government, nearly 80 percent of Americans had come to believe by April 1980 that government spending caused inflation. But if economic frustration is at least partly behind this change, then a presidential campaign that emphasized strong policies for economic growth and reviving wages might bring them back. Even if moral issues were the reason Mr. Kerry lost voters, economic frustration may well be behind the rise of some of these values. 'It should not be surprising at all,' said Richard Sennett, the New York University sociologist whose latest book is 'Respect in a World of Inequality' (Norton, 2003). 'When people are confronted with uncertain economic times, of course they would turn to cultural certainty.' Promising credible economic relief may have reduced anxieties about moral differences with the Democrats. But Mr. Kerry often diverted to other issues. There is another reason to think a good economic plan might have overcome the moral questions. Moral values have been an issue in several recent elections. As two specialists on public opinion polls, Robert J. Blendon and John M. Benson, both of Harvard University, point out, surveys of voters leaving the polls that are conducted by The Los Angeles Times have included a question about moral values since 1992. Voters have consistently ranked moral values as either the first or the second most important reason for making their decision. Yet a Democrat, Mr. Clinton, won in 1992 and 1996, and Mr. Gore won at least the popular vote in 2000. Mr. Kerry may not have had the same appeal on moral values, but Mr. Blendon and Mr. Benson say they also believe that a solid economic plan could have wooed more voters. What is the source of the Democrats' inability to connect convincingly with their old base? The answer requires a little economic perspective. Despite the Clinton economic boom of the late 1990's, America's economic growth has been at historically low levels since the early 1970's. Had this country grown at the rates that were normal in America beginning in the late 1800's, revenue from federal taxes levied on that income growth would have been much higher than they are today, as economists like Martin Baily and Paul Krugman pointed out years ago. A reasonable estimate is that the federal government would have had at least $300 billion more a year to spend, and probably more. With more revenue for social programs, Democrats could talk like real Democrats. Instead, they often try to offer social programs that appear costless, like Mr. Kerry's modest rules to limit the outsourcing of American jobs. Mr. Kerry's first mistake was making the deficit the linchpin of his economic plan. He, like President Bush, would have cut the federal deficit in half in five years on the way to balancing the budget in 10 years. Even the credibility of his interesting but complex health care plan was undermined because balancing the budget would leave little, if any, room for expanding social policies.

Subject: Re: It Was the Economy After All From: jimsum To: Emma Date Posted: Thurs, Nov 25, 2004 at 18:09:07 (EST) Email Address: jim.summers@rogers.com Message: I don't know what Kerry was supposed to do. The deficit is clearly unsustainable, any realistic economic policy must contain measures to reduce it. Unfortunately, Bushes plan is to do nothing; which is a very popular plan since it involves no tax increases or spending cuts. Kerry played the same game, except he would changed things a but to increase taxes on the rich and provide more healthcare for the poor; but since the deficit would stay the same, his plan was just as unrealistic as Bush's. In an ideal world, candidates would have to present realistic economic plans; but in this world, voters don't seem to care whether campaign promises are realistic. I guess Kerry should have promised more spending and an even bigger deficit than Bush.

Subject: Re: It Was the Economy After All From: Jennifer To: jimsum Date Posted: Fri, Nov 26, 2004 at 06:04:00 (EST) Email Address: Not Provided Message: Democrats have to stop running campaigns with raising taxes as a promise. Tax reform and fairness can be a promise but not tax increases, not at this time. After election hopefully the public can be gradually educated.

Subject: Re: It Was the Economy After All From: Jennifer To: Jennifer Date Posted: Fri, Nov 26, 2004 at 11:37:13 (EST) Email Address: Not Provided Message: There is little concern about the deficit among American voters. Then, either a candidate has to teach effectively or chhose to emphasize other issues.

Subject: Re: It Was the Economy After All From: jimsum To: Jennifer Date Posted: Sat, Nov 27, 2004 at 13:36:00 (EST) Email Address: jim.summers@rogers.com Message: The problem is that by ignoring the deficit, you are ignoring the cost of a policy. For example, everyone is happy they got a tax cut; sure the rich got a bigger one, but it's just class warfare to complain about that. If you ignore the cost of a tax break by pretending that the deficit never has to be repaid, then there is no cost to a tax break, and who could be against it? The argument against a tax cut that increases a deficit is precisely that it increases the deficit. To fairly evaluate Bush's tax cuts, you need to know the whole story; who is ultimately going to pay for it, when, and how much? If the middle-class ends up paying for the tax cuts with decreased social security payments and less Medicare; Bush's tax cut won't seem like such a good deal. It's too bad young people don't vote, or don't care what their future as taxpayers hold. The current baby boom generation has saved too little for retirement, and has also passed on a deficit of government benefits they received but did not pay for. The future looks very bleak for whatever generation of tax payers can't just pass the bill on to the next generation.

Subject: Re: It Was the Economy After All From: Jennifer To: jimsum Date Posted: Sat, Nov 27, 2004 at 14:37:43 (EST) Email Address: Not Provided Message: Tax cuts and a deficit mean that these are just delayed tax increases, for eventually taxes will have to be raised to pay for the cost of the deficit.

Subject: Being Bullish From: Terri To: All Date Posted: Wed, Nov 24, 2004 at 21:46:09 (EST) Email Address: Not Provided Message: There is a saying that a new bull market must climb a wall of worry. Well, the bull market that began 2 years ago can certainly be said to be climbing a wall of worry. When I am in a positive mood, I remember that the dollar lost 40% of its value from September 1985. There was a Latin American debt crisis early in 1987, and a stock market crisis in October 1987. There was a sharp Federal Reserve tightening in 1987. But, there was no recession and the American and European and Pacific stock markets made steady gains in spite of the problems. When I am in better moods, this seems to be 1985 or 1986.

Subject: Re: Being Bullish From: Emma To: Terri Date Posted: Thurs, Nov 25, 2004 at 07:23:24 (EST) Email Address: Not Provided Message: The American economy is flexible in many ways; there lies much of our strength. Even as the dollar has fallen in value since 2001, the micro-economic adjustment process has been in progress. We can hope realistically that as the dollar continues to fall in value there will be reasonably smooth adjustment with little inflation and moderate to low interest rates. Foreign earnings of American companies will increase in dollar terms, while demand will shift slowly to American domestic production. Japan, China, India and Korea wish a smooth dollar transition for the sake of their economies.

Subject: Re: Being Bullish From: Terri To: Emma Date Posted: Thurs, Nov 25, 2004 at 10:38:39 (EST) Email Address: Not Provided Message: What is helpful is having the Pacific and European indexes, along with country indexes, broken down by growth and value. Also, MSCI has small cap Pacific and European stock indexes as well as small cap indexes for each country.

Subject: Re: Being Bullish From: Terri To: Emma Date Posted: Thurs, Nov 25, 2004 at 10:08:23 (EST) Email Address: Not Provided Message: Investors can be wrong about economic outlook, as they were in 2000. But, in 1999 and 2000 the Federal Reserve was trying to slow economic growth and not paying attention to Fed policy is always a mistake. At present investors through the world are sanguine about economic prospects, even though debt and currency value changes are threatening issues. The Fed is trying to move with caution to guard against imbalances in asset allocation and a mild increase in inflation. Still investors here believe the Fed will be successful, while in Europe and Canada and Australia the effects of a strong currency are being accepted. Japan seems to be coping with a stronger Yen. A smooth correction in currency prices just may be possible.

Subject: China's Lost Generation Coddles Young From: Emma To: All Date Posted: Wed, Nov 24, 2004 at 21:13:41 (EST) Email Address: Not Provided Message: November 24, 2004 China's Lost Generation Coddles Its Young Teens Know Little Of Parents' Struggle By Edward Cody - Washington Post NANJING, China -- Duan Xingmei, a retired teacher, spent her teenage years discussing Mao Zedong and pulling a plow through the cornfields. With her comrades, she recited slogans, fought hunger and worked like a draft animal in the name of China's Great Cultural Revolution. Duan's daughter, Zhou Jie, spent her teens studying computer science and English, then finished off with some courses in fashion design. Tuition and expenses were footed by mom and dad. Her parents gave her a computer in her first year at college and a cell phone in her third year. She has never lacked for anything and knows almost nothing of the upheaval and want that her mother lived through during China's political frenzy of the late 1960s and early 1970s. 'She has told me very little, very little,' said Zhou, 24, who works in customer relations at a Nanjing clothing company that exports stylish jeans to Italy. 'She just says it was very hard.' As a growing economy produces new wealth and a spreading middle class in China, the epochal Cultural Revolution has receded to the distant past in just one generation. The millions of urban youths who were forced to abandon their books and live their teenage years with peasants have grown into indulgent middle-aged parents, eager to spare their children not only the deprivation, but even the knowledge of what happened during those tumultuous years. 'That special period of history ruined many parents' golden years,' Sun Xiaoyun, deputy director of the Youth and Children Research Center, said in a report on China's particular generation gap. 'Their dreams were blown away. So they tend to place all their hopes on the next generation.' Partly out of embarrassment that they played a role in a discredited political experiment, parents from what has been called the Lost Generation have turned their offspring into the Coddled Generation. In the process, whatever lessons were to be learned from the political madness that seized China then have largely been lost on today's students, who have grown up taking stability and economic well-being for granted. The Lost Generation's eagerness to forget the bitter past and concentrate on China's material achievements helps explain why the ruling Communist Party retains its monopoly on power. Parents are focused on bettering their children's lives and their children are living in a time of loosened controls and economic progress. 'Nowadays our life is so much better, so my mother doesn't like to talk about the past, because it was so terrible,' said Zhou, whose $200 MP3 music player dangled from her neck across a trendy high turtleneck and onto a stylishly tailored jacket. Duan, 54, said in an interview that she often tried to tell her daughter what she went through, but that it never sank in. 'She just doesn't seem to believe it,' Duan said, adding: 'Our generation was not very lucky.' Mao launched the Great Cultural Revolution in 1966 with the goal of renewing China's revolutionary spirit after several years of moderate economic policies. By the time order was restored, millions of families had been torn apart and the country had come to the brink of civil war between Mao's Red Guards and people they called Capitalist Roaders. Teenagers, particularly those from wealthy or intellectual families, were forced to leave cities and live with farmers, sharing their hard lives and, it was hoped, gaining new insight into the Maoist revolution. Red Guards, meanwhile, took over schools and universities, substituting political criteria for academic achievement. Millions of lives were smashed in the resulting chaos. Now that they are parents, those who were caught up in the turmoil have displayed unshakeable determination to see their children live more enjoyable lives by using the opportunities available since China opened to the world and adopted market reforms under Deng Xiaoping in the early 1980s. Tian Shi, 50, the son of a doctor and grandson of a landowner, was sent to a military camp just below the Russian border, where he spent his entire adolescence. Although far from rich, he recently forked over nearly $400 for a cell phone for his 14-year-old daughter, who spent her last vacation in Australia perfecting her English. Tian's older sister, Lu Jiang, 53, spent seven years on a flea-ridden farm planting crops and slopping pigs. Her son Ha Li, who graduated from Shandong University, all expenses paid, has gone on to graduate studies in computer science at the University of Paris, where he receives regular cash infusions from his parents. Lu Zhimin, 47, a Beijing lawyer, said his high school years were roiled by political unrest in the classroom, where students challenged teachers to prove they had the correct revolutionary credentials. He escaped going to the countryside by joining the army, he said, and went to work in a factory for $5 a month as soon as he was demobilized. Later, he taught himself enough to qualify as a lawyer. 'At that time, the students were called on to learn from workers, from farmers and from soldiers,' he recalled. But Lu's daughter, Lu Xu, 18, was called on to learn from her professors at a comfortable high school. She performed well enough to be admitted this fall to the prestigious Beijing University, where she is studying geography and astronomy, equipped with a monthly cash allowance from her mother and a bank card from her father. Lu Xu's only memory of going to a farm was the time she went to a Beijing suburb to use her new telescope for stargazing in the clear country air. Her idea of deprivation was the long wait for her MP3 player and the university rules that dictate lights out in her dorm after 11 p.m. 'As the only child in our family, my daughter lacks independence,' Lu said over a steaming bowl of sesame porridge. 'I wanted to develop her ability to earn money or support herself. So I asked her to work part time during the summer vacation in a drug store owned by my friend. She refused after she visited the store. She gave two reasons. One, it's too far away. Two, she had her own vacation plans.' Duan, the retired teacher in Nanjing, keeps two traditional photo albums in her bedroom. One shows her daughter at 20, posing in a variety of fashionable outfits to record her fresh beauty for posterity. The other shows Duan, carefully coiffed and made up, elegant but no longer fresh. Unable to take the coming-of-age photos at 20, during the Cultural Revolution, she hired a photographer and did it at 50. 'They don't even know,' said Duan, referring to the happy ignorance of her daughter's generation. 'We don't want to spend all our time talking about the past. It's no use talking with them about the past.' Duan said when she finished secondary school in 1968, she was assigned to Che Men village in Jiangsu province, where farmers mostly planted corn and nobody had time or money for taking photos. There was little discussion of not going, she said, because everybody knew what would happen if you refused. 'If you didn't go, your parents would lose their jobs,' she said. 'It was called voluntary, but it really wasn't.' On the farm, there was no rice, no meat and no fruit. The main diet was sweet potatoes and corn meal, Duan said. Life at the farm was a hardship her daughter does not comprehend, in large part because Duan has made sure nothing of it was ever repeated during her daughter's upbringing. 'They don't have the spirit of struggle like we did,' Duan said, looking back on the result. 'And if they do the same way with their own children as we did with ours, it will be very dangerous. They should understand that only a few people can have such a rich life.'

Subject: National Index Returns From: Terri To: All Date Posted: Wed, Nov 24, 2004 at 19:54:35 (EST) Email Address: Not Provided Message: 12/31/03 - 11/24/04 Australia 26.9 Canada 20.8 Denmark 27.2 France 13.6 Germany 9.5 Japan 9.3 Norway 49.2 Sweden 32.9 Switzerland 10.5 UK 14.4

Subject: Re: National Index Returns From: setanta To: Terri Date Posted: Thurs, Nov 25, 2004 at 10:10:38 (EST) Email Address: Not Provided Message: terri, what exactly to the above figures quantify? average returns of the national stock exchange?

Subject: Re: National Index Returns From: Terri To: setanta Date Posted: Thurs, Nov 25, 2004 at 10:33:43 (EST) Email Address: Not Provided Message: MSCI shows stock indexes for each country broken to dollar and local currency returns, and also for value and growth sectors. The index returns can be viewed for year to date or 1, 3, 5 and 10 years. So there is an index for the stock market in Switzerland or Ireland in local currency and dollars. What is striking is how robust current returns are from country to country.

Subject: National Returns From: Terri To: Terri Date Posted: Wed, Nov 24, 2004 at 20:46:12 (EST) Email Address: Not Provided Message: Hong Kong 21.3 Singapore 18.9

Subject: National Returns 2 From: Terri To: Terri Date Posted: Thurs, Nov 25, 2004 at 12:24:42 (EST) Email Address: Not Provided Message: Ireland 34.6

Subject: Re: National Returns 2 From: setanta To: Terri Date Posted: Fri, Nov 26, 2004 at 09:44:04 (EST) Email Address: Not Provided Message: 34.6??? interesting, i knew we weren't badly affected by the 2002 recession but that figure is way over what i thought. mind you, if you saw pictures of our stock exchange (www.ise.ie for those interested, can't find any pictures on it though) you'd probably laugh! it consists of about 30 tables in a circle and hasn't been updated since its beginnings in 1793!

Subject: European Recovery From: Terri To: setanta Date Posted: Fri, Nov 26, 2004 at 10:19:40 (EST) Email Address: Not Provided Message: In domestic currency terms, Europe has trailed the performance of the American stock market the last 10 years. Actually Ireland and other European economies were hurt by the difficult year, 2002. The recovery has differed from country to country, and been helped in dollar terms by the strong Euro. Norway has been especially strong, as we might expect, given the gains from the energy resource and equipment sectors.

Subject: Vanguard Returns From: Terri To: All Date Posted: Wed, Nov 24, 2004 at 19:18:56 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/24/04 S&P is up 7.8% Value Index is 11.8 Growth Index is 4.2 Mid Cap Index is 15.7% Small Cap Index is 15.4% Small Value is 19.4 Europe Index is 14.8 Pacific Index is 12.8 Energy is 37.8 REIT Index is 24.9 Health Care is 3.8 Long Term Corporate Bond Fund is 7.7 High Yield Corporate Bond Fund is 7.8

Subject: Re: Vanguard Returns From: Terri To: Terri Date Posted: Wed, Nov 24, 2004 at 19:23:01 (EST) Email Address: Not Provided Message: The pattern continues as we enter what is usually a fine season. Nice general stock and bond returns. Small stocks leading larger, value leading growth, foreign indexes stronger than the S&P. Energy and real estate investment trusts are having excellent years, while health care lags the S&P. Bonds are robust.

Subject: Amid the Worry From: Terri To: Terri Date Posted: Wed, Nov 24, 2004 at 19:26:45 (EST) Email Address: Not Provided Message: Amid all the worry, we are 2 years in a world bull market.

Subject: Preserve Assets as dollar falls From: Dorian To: All Date Posted: Wed, Nov 24, 2004 at 18:15:44 (EST) Email Address: DorianLS@aol.com Message: The financial crisis predicted by PK and so many other clear sited investors and analysts (e.g. Warren Buffett, George Soros, Paul Volker, etc.)has come closer. The dollar has fallen to record lows against foreign currencies and against gold. It would have been better to have diversified assets into foreign currencies and gold last year, but for those who haven't it is becoming urgent to do something now in advance of nearly inevitable worsening news in the coming year(s). So, from a practical personal standpoint, what are some of the best investments one might make in this falling dollar environment. I am concerned especially about my mother who has most of her savings in banks, so preservation of assets is more important than risker assets which hold the possibilities of higher returns. Here are some of my thoughts. I invite anyone who knows more about these things to comment: Re/ Gold: 1) I think some portion of savings should be in gold (perhaps 10%). However, most do not want to own gold outright. Are there mutual funds which own gold where a person can buy shares directly tied to the price of gold? Are these companies, assuming they exist, reliable, with track records or in some other way analysizable with regard to their trustworthyness? 2) What is the tax situation with regard to gold held in a mutual fund? Is income (assuming money is withdrawn) taxable as normal income (as it is in bank accounts or an annuity) or is it taxable as capitol gains (which has the advantage of lower rates). Are any sales taxes involved? Re/ Foreign currency and foreign currency denominated stocks: 1) Are their mutual funds which invest in a basket of foreign currencies, partularly a fund which chooses the currencies it invests in based upon their evaluation of the value of the currency and its tendency to appreciate against the dollar? Are any of these funds trustworthy? (i.e., long track record, transparent accounting records, trusted by big names in investment (e.g. Warren Buffett's judgement I would trust)? 2) Would income from an investment in a mutual fund which invests in foreign currencies be classed as ordinary income (like bank interest) or as capitol gains (a much lower tax rate)? 3) Would it be advisable to invest a successful mutual fund which is in turn invested in foreign stocks denominated in foreign currency? I know there are stocks known as 'ADR's' (or something like that) but I am not sure what that means. My idea is that there must be some fairly reliable mutual funds which invest in those foreign countries which promise the best returns and the best ability to withstand a serious decline in the value of the dollar. Also, are their reasonably priced American stocks which invest mostly in foreign countries and foreign currencies and which would benefit from a falling dollar? re/ Bonds: 1) And lastly,an idea from PK himself: Paul pointed out in a previous column just how out of whack the pricing of long term US bonds is. A 10 year or 30 year bond only pays between 4 and 5%. At the same time, the risk of holding a US bond over this time period involves enormous risks given our continuously growing balance of trade deficits and now our continuously growning budget deficit managed by a White House which has shown itself to be completely reckless when it comes to economic policity (let alone foreign policy). Considering the riskiness of holding 10 year or longer US bonds the premium that they pay is peanuts. Inevitably the value of these bonds will decrease dramatically. Is their some means of betting against the value of US bonds? Even better, is their a mutual fund which does this, so that one can benefit from more knowledgable fund manager's decisions whose judgement on what bonds to short, and at what terms, etc. is better than my own? Re/ real estate: 1) one of the benefits of real estate is that it is a real asset, so if the dollar goes down in value at least you have something 'real' instead of merely paper. I also consider the risk of another major terrorist attack in some large US city almost inevitable. An attack worse than 9/11 (e.g. chemical, biological or radiological attack) will undoubtedly lower property values in urban areas. So my thinking is that property in smaller cities and towns which have not yet over-appreciated (as property has in most large cities) might be a good investment. Are there any REIT's which do this? What do others think about this idea? I hope to hear other's ideas on these thoughts. Thank you! Dorian

Subject: Re: Preserve Assets as dollar falls From: Jennifer To: Dorian Date Posted: Sat, Nov 27, 2004 at 09:27:57 (EST) Email Address: Not Provided Message: A Vanguard GNMA or short term bond fund, and an American and international stock index fund, and all will be fine in time.

Subject: Re: Preserve Assets as dollar falls From: Jennifer To: Jennifer Date Posted: Sat, Nov 27, 2004 at 14:34:36 (EST) Email Address: Not Provided Message: While you learn, at least, be conservative, and Vanguard will allow you to be most conservative in bond and stock funds. Just set down on paper a ratio for American and international stock index funds and American bond index funds, then study.

Subject: Re: Preserve Assets as dollar falls From: David E... To: Dorian Date Posted: Thurs, Nov 25, 2004 at 22:54:15 (EST) Email Address: Not Provided Message: Hi Dorian, I know the problem you are talking about, in the late 60's my step-father's insurance was $50,000 which she put in S&L's. At that point $50,000 would have bought 20 Buicks. By the time of her death it would have bought 2 Buicks. The 70's was a period of runaway inflation, and the immediate future holds the possibility of a repeat episode. The difficulty is to design a mix of asset classes that will provide inflation protection plus still deliver growth and income. You will have to decide what mix of asset classes will deliver the appropriate mix of inflation protection, growth, and income. >1) Are their mutual funds which invest in a basket of foreign currencies, partularly a fund which chooses the currencies it invests in based upon their evaluation of the value of the currency and its tendency to appreciate against the dollar? Are any of these funds trustworthy? (i.e., long track record, transparent accounting records, trusted by big names in investment (e.g. Warren Buffett's judgement I would trust)? Yes, I know and trust Vanguard. A very successful method of investing is buying index funds with low costs. Vanguard offers a Europe fund that consists of about a 450 stock index fund that covers Europe in proportion to is market. England is the largest share, with of course France, Germany Switzerland, the Nordic countries included. There is a Pacific fund that is about 70% Japan, and the rest is Pacific rim countries like Austrailia & New Zealand. These two funds represent developed markets. Then Vanguard has an Emerging Market fund. These three index funds cover the developed and the emerging markets outside of the United States. If you wanted to allocate by market share, in other words have a portfolio that looks like the worlds markets, the allocation would be about 50% US and 50% the rest of the world. The index is designed and controlled by MSCI. Vanguard tracks this index. >2) Would income from an investment in a mutual fund which invests in foreign currencies be classed as ordinary income (like bank interest) or as capitol gains (a much lower tax rate)? Income would be classified as dividends or capital gains. Both have a more favorable treatment than interest. The problem is that 4-5% dividends are a thing of the past. 1-2% is all the dividends these indexes (and many mutual funds) pay. Capital gains depend on growth in market value. Respected financial seers feel that 3% above inflation is what equity will yield in the next 10 years or so. So you cant plan on equity to make anyone quickly rich. >3) Would it be advisable to invest a successful mutual fund which is in turn invested in foreign stocks denominated in foreign currency? I know there are stocks known as 'ADR's' (or something like that) but I am not sure what that means. My idea is that there must be some fairly reliable mutual funds which invest in those foreign countries which promise the best returns and the best ability to withstand a serious decline in the value of the dollar. Also, are their reasonably priced American stocks which invest mostly in foreign countries and foreign currencies and which would benefit from a falling dollar? Yes, the aboved named mutual funds will do the job. ADR's involve the purchase of individual stocks. Your mother should never buy individual stocks, individual stocks have too much risk. A basket of stocks(mutual funds), preferably an index basket is the best choice. It is difficult enough to accomplish what you want without the added burden of picking stocks. >1) And lastly,an idea from PK himself: Paul pointed out in a previous column just how out of whack the pricing of long term US bonds is. A 10 year or 30 year bond only pays between 4 and 5%. At the same time, the risk of holding a US bond over this time period involves enormous risks given our continuously growing balance of trade deficits and now our continuously growning budget deficit managed by a White House which has shown itself to be completely reckless when it comes to economic policity (let alone foreign policy). Considering the riskiness of holding 10 year or longer US bonds the premium that they pay is peanuts. Inevitably the value of these bonds will decrease dramatically. Is their some means of betting against the value of US bonds? Even better, is their a mutual fund which does this, so that one can benefit from more knowledgable fund manager's decisions whose judgement on what bonds to short, and at what terms, etc. is better than my own? I put my money is short term bonds, they pay about 3% now, which is better than banks and S&L's and just covers inflation. In other words treading water. But they give me flexibility, when rates go up, I will buy intermediate term bonds. >1) one of the benefits of real estate is that it is a real asset, so if the dollar goes down in value at least you have something 'real' instead of merely paper. I also consider the risk of another major terrorist attack in some large US city almost inevitable. An attack worse than 9/11 (e.g. chemical, biological or radiological attack) will undoubtedly lower property values in urban areas. So my thinking is that property in smaller cities and towns which have not yet over-appreciated (as property has in most large cities) might be a good investment. Are there any REIT's which do this? What do others think about this idea? Your plan reminds me of some folks who were planning to avoid World War II, so they picked a non-strategic unimportant place to move - Iwo Jima. I imagine the story is urban legend, but the point is that the best defense is to not have your eggs in one basket. (non-target areas are likely to be not profitable un-developed areas) Over 90% of your success in investing will be the asset classes you chose and how well you stick to your plan. There are three things you should do to decide which asset classes to buy and how much of each. Thing 1- Buy and read Frank Armstrong's 'The Intelligent Investor' Thing 2- Buy and read William Bernstein's 'The Four Pillars of investing' Thing 3- Hang out on the Vanguard Diehard Forum at Morningstar.com. Very intelligent investment advice is a common occurence every day there. (My posts concern asking for advice)

Subject: Re: Preserve Assets as dollar falls From: Ari To: David E... Date Posted: Fri, Nov 26, 2004 at 13:03:50 (EST) Email Address: Not Provided Message: Vanguard has a precious metals fund, which should be a hedge against the dollar weakening or rising inflation, but the fund as all such funds is risky. If you really want safety and returns that will stay ahead of inflation over time, then short or intermediate term bunds funds may be for you.

Subject: Re: Preserve Assets as dollar falls From: Paul To: Dorian Date Posted: Wed, Nov 24, 2004 at 19:00:52 (EST) Email Address: Not Provided Message: Since your mother has her assets in banking accounts, which are insured and completely secure, stay in bank accounts.

Subject: What Merck Knew From: Emma To: All Date Posted: Wed, Nov 24, 2004 at 15:41:26 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/24/business/24vioxx.html?pagewanted=all&position= Questions Are Seen on Merck's Stance on Vioxx By BARRY MEIER For all the risks associated with Merck's arthritis and pain drug Vioxx, the company has always pointed to one virtue: Vioxx was less likely to cause ulcers or stomach bleeding than cheaper over-the-counter medications like Advil or Aleve. But as far back as 2001, Merck officials had evidence, based on the company's own research, that this might not be true for potentially hundreds of thousands of Vioxx users - those, mostly middle-aged and older, who regularly took low doses of aspirin, not for pain, but to reduce their risk of heart attack or stroke. While the company noted that test finding in the drug's label in 2003, it did not follow up on its plan to pursue conclusive research on how significantly the combination of Vioxx and low-dose aspirin could reduce the drug's gastrointestinal benefits or whether it might eliminate them. It is not known how many of the two million or so people who were taking Vioxx when it was pulled off the market in late September for increased heart risks were also on an aspirin regimen. But officials of two other drug makers, which ran clinical trials of medicines similar to Vioxx, a class of drugs known as COX-2 inhibitors, said that those tests assumed that about one out of every five patients also used low-dose aspirin. That estimate, if applied to Vioxx, would mean that last year alone some 400,000 users would have been affected. The aspirin issue is emblematic of a broader question: whether many patients and their insurers are spending hundreds of millions of dollars annually on COX-2 drugs when they could get similar benefits from older, cheaper medicines. Two other top sellers in the class, Celebrex and Bextra, both made by Pfizer Inc., have not been proved to provide better protection for any class of patients against severe gastrointestinal problems like bleeding. Yet COX-2 drugs often cost more than $2.50 a pill, compared with pennies for older painkillers. Experts have said that COX-2's, because they were heavily advertised on television and in print, were prescribed for many patients who did not need them.

Subject: Perfect storm? From: Pete Weis To: All Date Posted: Wed, Nov 24, 2004 at 11:51:41 (EST) Email Address: Not Provided Message: Economic `Armageddon' predicted By Brett Arends/ On State Street Tuesday, November 23, 2004 Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish. But you should hear what he's saying in private. Roach met select groups of fund managers downtown last week, including a group at Fidelity. His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.'' Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.'' Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.'' The chance we'll get through OK: one in 10. Maybe. In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants. The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded. Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.'' Roach marshalled alarming facts to support his argument. To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day. That is an amazing 80 percent of the entire world's net savings. Sustainable? Hardly. Meanwhile, he notes that household debt is at record levels. Twenty years ago the total debt of U.S. households was equal to half the size of the economy. Today the figure is 85 percent. Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes. Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet. You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas. Roach's analysis isn't entirely new. But recent events give it extra force. The dollar is hitting fresh lows against currencies from the yen to the euro. Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention. It has farther to fall, especially against Asian currencies, analysts agree. The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday. Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ``spectacular wave of bankruptcies'' is possible. Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ``debt bubble'' of record proportions. But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms. Inflation of 7 percent a year halves ``real'' values in a decade. It may be the only way out of the trap. Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates. You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.

Subject: Re: Perfect storm? From: Terri To: Pete Weis Date Posted: Wed, Nov 24, 2004 at 18:26:36 (EST) Email Address: Not Provided Message: Suppose that inflation runs not at 7% but at 2.5% for several years, why would any investor buy a 10 year Treasury note at 4.2%? The persistence of low long term interest rates is puzzling since bond investors are predominantly institutions. What are the managers thinking?

Subject: Re: Perfect storm? From: El Gringo To: Pete Weis Date Posted: Wed, Nov 24, 2004 at 12:34:05 (EST) Email Address: nma@hotmail.com Message: 'In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.' Md = P*L(Y;R); condition P (f(inflation)) = const.;rising dollar: Md = down; Ms = up => condition L(Y;R) = down; for L(Y;R) = down with Y = const. => R = twice up at t1; from t1 to t2, Y = const. then at t2, Y = down

Subject: Re: Perfect storm? From: Terri To: El Gringo Date Posted: Wed, Nov 24, 2004 at 12:58:19 (EST) Email Address: Not Provided Message: Thank you for this post. I am annoyed, for Stephen Roach has become cheerier lately on the Morgan Stanley website. I do wish these analysts could be trusted. Beyond the trust issue with analysts, there is evidently a growing feeling among economists that the dollar adjustment is likely to be sooner than later and severe. The chance that the Federal Reserve will allow inflation to rise beyond 2.5 to 3%, is minimal. Not only would this betray bond investors who would experience serious asset value declines, but 2 decades of inflation fighting by the Fed would suddenly mean nothing. We would be many years in recovering a reputation for economic probity and honesty.

Subject: Re: Perfect storm? From: El Gringo To: Terri Date Posted: Wed, Nov 24, 2004 at 19:25:52 (EST) Email Address: nma@hotmail.com Message: '... but 2 decades of inflation fighting by the Fed would suddenly mean nothing. We would be many years in recovering a reputation for economic probity and honesty.' Terri: 'Honesty is such a lonely word...'

Subject: Re: Perfect storm? From: David E... To: Terri Date Posted: Wed, Nov 24, 2004 at 13:49:12 (EST) Email Address: Not Provided Message: You are right Terri, it will take years for our markets to recover. First, the shoddy accounting of Arthur Anderson, and now with 2004's disclosure of more significant shoddy accounting 1. Fannie Mae's smoothing of earnings. 2. Widespread use of insurance policies that move losses off the balance sheet (discovered by Spitzer not the SEC). So our problems are a solid front, both private sector and public sector are lacking in probity and honesty. Greenspan has zero believability with me, and inevitable events will convince more that he is not a hero. Starting in 1983 he sold a fix of SS, pay more now into a lockbox, so the baby boomers can get their SS from the lockbox. In 2001 he supported tax cuts early in the Bush administration jeopardizing the lock box. (The lock box only makes sense if the government doesnt intend to spend surplus SS payments) This year 2004, he disavows the lock box and says that SS is in trouble by 2012. He has pumped up our economy with excessive injections of money. Luckily because China has low prices, the cost of living didnt increase dramatically. But the price of real estate and stocks has jumped. Could it be that the CPI is an inadequate measure of excess money/inflation, I think so. This cheap money has distorted our investments and savings - there will be a price to pay. Payment of the price has already started. One year of increasing profits/GDP and what is the result in new investment? Almost nothing. The economic engine won't run without investment. Hi Terri, this little tirade was just a friendly reminder that not all of us are convinced the federal reserve has been working for our good.

Subject: Re: Perfect storm? From: Terri To: David E... Date Posted: Wed, Nov 24, 2004 at 15:55:18 (EST) Email Address: Not Provided Message: There is considerable concern about asset price inflation as opposed to consumer product inflation. When the Federal Reserve chose to lower short term interest rates severely to limit the effects of a recession and stock market decline, there was an increase in bond prices and real estate prices and eventually an increase in stock prices. This simply could not be avoided. The Fed gave us a short and shallow recession with its policy, and kept rates low long enough to insure an economic recovery. That asset prices increased was healthy for millions of households and the economy as a whole. Now, the Fed is reversing course and hopefully there will be a successful gentle slowing. I fault Alan Greenspan only as a fiscal policy adviser, but we will know in time. The point you argue are cogent.

Subject: Finite Insurance From: Emma To: All Date Posted: Wed, Nov 24, 2004 at 10:54:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/24/business/24finite.html Experts Say A.I.G. Case Is Tip of the Iceberg By LYNNLEY BROWNING A preliminary settlement between the American International Group and regulators will not be the last word on the use of finite risk insurance. Details about other questionable transactions may soon emerge, industry specialists say. 'The current regulatory and investigative environment, coupled with the speed of the settlement, indicate that greater transparency is on the horizon,' said Michael Walsh, a tax attorney in New York with the law firm of Boundas, Skarzynski, Walsh & Black. The transactions arranged by A.I.G. that came under scrutiny by the Securities and Exchange Commission and the Justice Department fall broadly under the umbrella of finite risk insurance and finite risk reinsurance. Such products have been a big source of growth in recent years for the many insurers and reinsurers who sell them. (Reinsurance is when an insurer seeks to lessen its own exposure to loss by transferring some of its risk to another insurer, known as a reinsurer.) Finite risk transactions are legitimate when they transfer an acceptable level of risk and are accounted for as insurance. But other finite risk transactions involve minimal or no transfer of risk by the insured to the insurer or reinsurer. Such transactions, which are typically spread out over several years, are intended to dress up near-term balance sheets and profit and loss statements, all by spreading out losses over time. Regulators said that was the case in the arrangement between A.I.G. and Brightpoint, a distributor of cellphones, in 1998. The Brightpoint transaction attempted to disguise a deposit as an insurance premium. Insurance premiums are tax deductible, but deposits or loans are taxable. Brightpoint took tax deductions for the deposits held by A.I.G., regulators contend. The Brightpoint case may be unusual. More typical, industry executives and analysts say, are the type of finite risk transaction sold by A.I.G. to the PNC Financial Services Group, Pennsylvania's largest bank. The PNC transaction, done in 2001, allowed the bank to shift $762 million in bad loans from its books to off-balance sheet entities designed by A.I.G., and thus to inflate its profits. While many companies that use finite risk transactions appear to account for them properly, the transactions themselves can make their users appear financially stronger to shareholders, regulators and analysts than they really are. That issue is of particular concern when it is insurers that purchase finite risk contracts, because unlike telecommunications firms or even banks, the core business of insurers is risk. 'The opportunity for insurance companies to use these transactions for earnings mismanagement is significant,' said Christopher Culp, an adjunct professor at the University of Chicago's Graduate School of Business, and an authority on finite risk transactions. 'It is alarming.' David Schiff, editor of Schiff's Insurance Observer, said yesterday that he had no idea how many companies had used finite risk transactions in recent years, but that they 'were very common.' Finite risk policies take many forms and are highly customized for their users. Unlike abusive tax shelters, they are not 'off-the-shelf' products that can easily be mass-marketed - or detected by regulators. A.I.G. has sought to present both the Brightpoint and the PNC cases as one-time transactions, not undertaken for other companies. Others in the industry are skeptical. 'They do repeatable-type products,' said a senior insurance industry executive who has been involved in finite risk transactions. 'There are more PNC's and Brightpoints out there.'

Subject: Re: Finite Insurance From: setanta To: Emma Date Posted: Thurs, Nov 25, 2004 at 09:51:41 (EST) Email Address: Not Provided Message: does anyone know if finite risk insurance affects a company's gearing? what i'm trying to get at is the following: over here in ireland (the same applies in the UK also) if there is no transfer of economic benefit, by way of ownership of the risks and rewards attributable to the asset/liability then the substance of the transaction has to be disclosed not the form of the transaction. a classic example is a sale and leaseback agreement whereby a company, in order to raise capital quickly, sells an asset (say a building, factory or piece of machinery) to a leasing agency and agrees to lease it back under a finance lease. the form of this transaction in the financial statements is one less asset and a lot of cash, clearly misleading. the substance of this transaction is a term loan. the company still uses the factory/machine and earns profit from it, the leasor has title of the property but the company has economic benefit it. the only thing that has changed is the leasing company has furnished the company with a lot of money at the interest rate set out in the lease agreement. the disclosure of this in the financial statements is as follows: the asset is kept on the books, a long term creditor is disclosed in the balance sheet and the annual charge is brought through the profit & loss account. in essence the same treatment as a loan. are there similar rules requiring the substance of transactions to be disclosed over in the US?

Subject: Re: Finite Insurance From: David E... To: setanta Date Posted: Thurs, Nov 25, 2004 at 11:11:21 (EST) Email Address: Not Provided Message: I like your explanation of how things work in Ireland. Reasoning used to be clear here. Now, as you can see, we have MBA's here whose primary skills are financial engineers. Their specialty is engineering complex transactions that have the effect of making problems disappear from the books. The steady stream of accounting revelations is astonishing. This insurance scam is just a variation of Enron's method, hide problems by offloading them to 3rd parties. Enron sold the problems to 3rd parties using sham sales. AIG, the latest is especially audacious because as a 3rd party, AIG marketed to people who wanted to hide problems. The problems were hid by covering them with sham insurance. These sham transactions are very distressing because they involve 3rd party collusion by banks and insurance companies. There is no problem evidently in finding professional people who will lie, cheat, and steal. The only bright ray of hope that we have is an attorney general of the state of New York. He with a small staff has uncovered more finanacial shenaigans than all of the federal enforcement agencies with their tremendous budgets. A ray of hope because at least there is one honest man willing to point out fraud. But distressing that the people officially charged with the duty find nothing. Also distressing is the usual end result is minor fines and no jail time.

Subject: Re: Finite Insurance From: Terri To: setanta Date Posted: Thurs, Nov 25, 2004 at 10:44:37 (EST) Email Address: Not Provided Message: Evidently the problem is identifying whether a finite policy is insurance or a loan, and clearly being able determine how a policy may affect earnings or asset statements. The insurance companies say, no problem. There may be significant problems beyond those that have surfaced. The market for finite insurance is 50 billion dollars a year. We must follow this matter closely.

Subject: Re: Finite Insurance From: Emma To: Terri Date Posted: Thurs, Nov 25, 2004 at 11:51:52 (EST) Email Address: Not Provided Message: This is an important matter, and it is encouraging to find the transparency with which finite policies are handled in Ireland. The ethics lapses of American insurers and insurance brokers are discouraging for the lapses can effect many industries. These problems must be corrected to trust reported business accountings.

Subject: Dollars for Euros From: Jennifer To: All Date Posted: Wed, Nov 24, 2004 at 06:38:47 (EST) Email Address: Not Provided Message: Will Russia begin to change oil revenue dollars for Euros?

Subject: New! Paul Krugman commentary! From: Animesh To: All Date Posted: Tues, Nov 23, 2004 at 18:53:21 (EST) Email Address: abhattac@kent.edu Message: Paul Krugman has just made another commmentary, this time on public radio's 'Marketplace' program. As soon as it is placed into the archive, check it out! Marketplace (PRI) marketplace.publicradio.org/ marketplace.publicradio.org/standard/images/003/logo_top.gif

Subject: Worldwide effects of sinking dollar From: El Gringo To: All Date Posted: Tues, Nov 23, 2004 at 17:02:18 (EST) Email Address: nma@hotmail.com Message: Worldwide effects of sinking dollar Its decline to a nine-year low is impacting everything from the price of goods at Wal-Mart to the vigor of Europe's economy. By David R. Francis | Staff writer of The Christian Science Monitor The sinking US dollar in recent weeks has raised what is suddenly a top concern from Washington to Berlin and Beijing: Is America's currency undergoing a benign adjustment or a precipitous plunge? So far, the dollar's slide to nine-year lows doesn't reflect panic. But some analysts say a run on the dollar is possible. And even an orderly drop could affect everything from mortgages to prices at Wal-Mart. The good news for Americans: It's getting easier for manufacturers to sell products overseas, and more likely that tourists from Germany will flock to US National Parks. But the downside could be significant. America, the world's leading importer of goods, is now buying them at higher prices. And if the dollar's dive makes foreign investors wary, US interest rates may have to rise to attract buyers of federal debt. More broadly, it's a shock to the global economy. Sunday in Germany, officials from the Group of 20 industrial and major developing countries called for the United States to cut its federal deficit, which is seen as a key factor in the dollar's fall. 'There's a lot of speculation,' says Michael Schubert, an economist at Commerzbank in Frankfurt. He sees some signs of a 'herd instinct' developing. The dollar is now down 50 percent against the euro since October 2000, and hit a its lowest level since 1995 against a basket of foreign currencies last week. While the shift isn't entirely new, it has accelerated since President Bush's reelection. Some observers say the timing reflects concern that Mr. Bush - with his emphasis on tax cuts - won't be able to rein in record budget deficits. 'The general perception was that under the Bush administration there would be less concentration on tackling the two deficits,' says Richard Reid, European economist for Citigroup, the world's largest financial institution. He was referring to the $412 billion budget deficit and the approximately $600 billion trade deficit the US ran in 2004. A trade deficit must be financed by other nations willing to hold US currency. And foreign investors have also been buyers of federal debt in recent years, helping to keep US interest rates low. But the trend in these deficits now looks unsustainable to many. If those investors sour, even somewhat, on holding US debt, the Treasury may need to offer higher interest on its bonds. The ripple effects, in turn, could dampen US economic growth. China, another key engine of the world economy, also faces new pressures. Chinese citizens were lining up outside the Bank of China in downtown Shanghai last week to exchange US dollars for their own currency, the yuan, according to The Wall Street Journal. They fear an official revaluation of the yuan, which if it happens would cut into the value of their dollar savings. Sunday's statement from the G-20 finance ministers called for more flexible exchange rates in Asia. Europeans, meanwhile, worry that the dollar's fall will harm their weak economic upturn by making their exports more expensive in the US or in other economies tied to the dollar. Federal Reserve Chairman Alan Greenspan warned Friday in Germany that foreign investors would eventually resist sending more money to the US. This could lead to a further decline in the dollar, and possibly higher interest rates in the US. 'We cannot become complacent,' he said. How far could the dollar fall? Some see another 20 percent as possible - a change they say could begin to reduce the huge trade deficit. The US continues to attract large amounts of foreign capital. In September, foreigners purchased $63.4 billion of US securities. But the dollar's recent fall suggests that the current flow is at least a little inadequate. Up to now, the White House has let the Treasury deal with the dipping dollar. In comments to the press in London, Treasury Secretary John Snow threw cold water on any move to join the Europeans in managing the dollar's fall. 'The history of efforts to impose nonmarket valuations on currencies is at best unrewarding and checkered,' he said. That view could change if an actual run on the dollar builds up, requiring higher interest rates in the US to attract foreign money. Decades ago, such an attitude was labeled 'benign neglect.' If the dollar continues to fall, though, the president may have to tackle the issue in coming months. If investors in bond markets see rising interest rates ahead to stem a dollar decline, prices of bonds could plunge. But to Thea Lea, an economist with the AFL-CIO, the dollar is 'egregiously overvalued,' thereby hurting exports and American workers. Lawrence Kudlow, a Wall Street economist, says the real problem with the dollar is that 'Old Europe has the monetary story wrong.' The European Central Bank isn't creating enough new euros to stimulate the economy. Much of Wall Street seems to expect the dollar to fall gradually - a 'Goldilocks' devaluation, says Kathleen Bostjancic of Merrill Lynch. The euro could rise from about $1.30 now to $1.37 by mid-2005, Merrill Lynch traders predict. At a certain point, the European Central Bank could intervene to support the dollar, warns Mr. Schubert of Commerzbank. But it hasn't yet.

Subject: Re: Worldwide effects of sinking dollar From: setanta To: El Gringo Date Posted: Wed, Nov 24, 2004 at 05:15:44 (EST) Email Address: Not Provided Message: On a personal note. Over the last month, a week dollar has suited me fine. I visited your country for the first time (although I'm half american!) two weeks ago. a lot of items are cheaper in the US than back home, i don't know whether its from serious mass production or that the US consumer does not tolerate high prices or maybe the market is more competitive. i don't care, i spent about $1200 on clothes and goods that would have cost me close to Eur2000 ($2600 approx). it was great and all my xmas presents are taken care of!!! i had a fantastic time, and if the dollar continues the way its going, you may get a reversal of the direction of the tourist trade as the US is marketed as a place where you can certainly get great value for money. on a futher note, as a result of the decline in the value of the dollar, the cost of oil, petrol and gas is lower than usual. in fact, the price of petrol in the forecourts of garages has fallen substantially over the last week or so. how much of this is due to the fall in the price of oil and how much due to the weakness of the dollar i wonder?

Subject: Re: Worldwide effects of sinking dollar From: Jennifer To: setanta Date Posted: Wed, Nov 24, 2004 at 06:14:24 (EST) Email Address: Not Provided Message: When I was in London and Paris at short while ago, I was surprised at how expensive investing is. Am I missing something? Other than Vanguard in Ireland, I could not find a source of low cost mutual funds.

Subject: Re: Worldwide effects of sinking dollar From: Terri To: El Gringo Date Posted: Tues, Nov 23, 2004 at 20:15:57 (EST) Email Address: Not Provided Message: Would currency traders hedge by using the Euro or Yen or Canadian or Australian dollar?

Subject: Re: Worldwide effects of sinking dollar From: Terri To: Terri Date Posted: Tues, Nov 23, 2004 at 21:32:17 (EST) Email Address: Not Provided Message: What Asian market index might make a moderately conservative hedge agaisnt the dollar? My choice is Australia.

Subject: Re: Worldwide effects of sinking dollar From: Ari To: Terri Date Posted: Wed, Nov 24, 2004 at 04:15:40 (EST) Email Address: Not Provided Message: Japan may have the most under-valued currency of all, but the Japanese stock market has been so dangerous for so long. Who can take the risk of investing in Japanese stocks?

Subject: A Strong Dollar in in America's Interest From: Terri To: All Date Posted: Tues, Nov 23, 2004 at 15:46:37 (EST) Email Address: Not Provided Message: Robert Rubin would repeat that a strong dollar is in America's interest. What was meant is that a strong dollar shows we have sound economic policy. Well, we do not have sound economic policy and the necessary fall in value of the dollar reflects a weakening economic base. The weakening base however is slow in being recognized, so does not readily show us a need for change, besides many investors will take advantage of the weakening dollar. Oh well.

Subject: Dredging for Trade From: Emma To: All Date Posted: Tues, Nov 23, 2004 at 15:30:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/23/nyregion/23port.html?pagewanted=all&position= Beneath the Harbor, It's Dig or Else By ERIC LIPTON It is nearly 3 a.m., and traffic on the Bayonne Bridge is so light that this link between New Jersey and Staten Island looks almost like some rural river crossing. Yet from down beneath the graceful steel-arch span, in a spot illuminated by the moonlight, comes an angry roar, followed by a tremendous rumble. The Beast of the Kill Van Kull is out feeding again tonight. This giant rock-eating machine, its long arm capped with steel teeth strong enough to shred a dump truck, is part of a fleet of equipment that has been working around the clock, seven days a week, for four years on one of the largest and most expensive harbor-dredging jobs in the nation's history. This public works project is as invisible as it is epic. Although the region's residents, commuters and airport users are footing the nearly $2.25 billion bill with help from the federal government, the dredging has proceeded far out of earshot and eyesight of millions of New Yorkers living just a few miles away. New York City's version of the Big Dig is motivated by a threat like those made by professional sports teams seeking a plush new stadium. Either dig a deeper harbor, the world's biggest ship lines and terminal operators have bluntly told the Port Authority of New York and New Jersey, or the $100 billion a year in goods that move through New York Harbor will start shifting to other, deeper ports in North America. New York's channels, they warn, are too shallow for the ever-bigger freighters that are plying the seas. A major milestone will be reached, and celebrated, within the next month when the dredging clears a depth of at least 45 feet in the Kill Van Kull, the narrow, four-mile-long tidal channel that connects Upper New York Bay to Elizabeth and Newark, the two busiest spots in the harbor. But the work had barely begun when the Port Authority and the Army Corps of Engineers, which are sharing the cost, realized that 45 feet would not be not deep enough for the newest generation of ships. So the dredging will continue, to a minimum of 50 feet, for much of the next decade. 'We have to go back and start over again,' said Steve Frey, one of the operators on the Dredge Tauracavor, the floating platform where the excavator nicknamed the Beast is mounted. What makes this task so hard - and requires supremely powerful devices like the Beast, instead of conventional clamshell-style dredging rigs - is that crews are not simply scooping up soft clay and silt. The depths required in the Kill Van Kull are so far beyond the harbor's natural bottom that contractors must blast and carve a new underwater canyon through as much as 10 feet of diabase, the same sort of bedrock that forms the Palisades cliffs that tower over the Hudson River. Further complicating the job, much of the muck being pulled from the harbor's bottom is contaminated with industrial poisons that have been carried in for centuries by the Hudson and Passaic Rivers. Simply finding a place to dump this material has been a huge effort. And all the blasting, excavating and hauling must be done without interrupting the vital flow of ships through the port. 'It is like building a highway with the cars still coming in,' said Harold J. Hawkins, who is helping manage the project for the Army Corps. From a distance, the dredge and its excavator resemble a long-necked dinosaur feeding in a primordial swamp. And the work out in the harbor's narrow straits proceeds like something from the early days of the Industrial Revolution: loud, violent and unrelenting for the men who carry it out. Controlling the Beast It is hard to imagine a lonelier spot in New York than the cab of the Beast during the 12-hour overnight shift, in the closet-like space where Mr. Frey and the other dredge operators started working in August 2000, when Bean Excavation of New Orleans arrived to begin digging in the Kill Van Kull. With a windshield three panes thick and a prisonlike steel cage to protect from ricocheting rock, this closet-size, sound-insulated compartment can be reached only by climbing up three grease-slicked ladders from the deck of the barge. The interior is a cross between a tractor-trailer cab and the cockpit of a 'Star Wars' X-wing fighter. It smells of stale cigarette smoke, and a battered FM radio blasts pop music. But just to the left of Mr. Frey's seat are two computer monitors that merge data from satellites tracking the barge's location with intricate sonar readings of the shape of the channel floor. They produce three-dimensional images like those in a video game, telling Mr. Frey exactly where his excavating bucket sits relative to the rock, even after the Beast's arm has reached out and disappeared into the muddy water. Mr. Frey's job now is to use this extraordinary computer imagery, and two joysticks fast in his grip, to slow the bucket as it approaches the rock, and to make sure that as he applies its 337,100 pounds of digging pressure to the bottom, it hits at just the right angle so that it rips the rock, instead of snapping off the bucket's metal teeth. Even without the video monitors, there would be no way to miss the moment he makes contact with bedrock. The entire barge shakes wildly. So jarring and constant are the vibrations that screws all over the cabin wiggle loose, and the air-conditioner and other appliances have to be replaced every few weeks. But as the hours pass, the Beast's assaults acquire a certain rhythm, and even grace. 'You can't just go down there and snatch and grab,' said Mr. Frey, 48, a big, burly man from Jacksboro, Tenn., whose uniform is ripped white overalls, a bandanna that keeps the sweat off his forehead and a necklace holding a shark's tooth he once dug up. 'You have to have a certain finesse.' The digging has become so ingrained in Mr. Frey's bones that about the only time he cannot sleep in the living quarters downstairs - where aluminum foil and cardboard cover the windows to keep daylight out - is when the Beast breaks down and the vibrations stop. 'It sounds crazy, but it kind of rocks you to sleep,' said Danny Aguado, 42, of Tampa, Fla., another operator on the Dredge Tauracavor. Ten men live on this barge for two weeks at a stretch, taking turns sleeping and operating the Beast. They are flown home for a week, then head back to the barge. The excavator can clear anywhere from 10,000 to 30,000 square feet a day, depending on the material, filling up as many as three scows, which then carry away the debris. But it is merely one of 81 pieces of dredging equipment that have been out on the harbor at various times over the last year. Just a few hundred yards away, a team of men work on a drilling and blasting barge, preparing an area before the excavator can move in and dig. Drilling 80 holes at a time, about 10 feet apart, these crews stuff each hole with a liquid explosive that has the consistency of pancake batter. Once a field of these charges is in place, and the drill boat and crew back away, the underwater fireworks begin. It sounds like one big explosion, muffled somewhat by the water. But in fact, an intricate series of individual blasts have taken place, creating a shock wave that shoves the rock, avalanche-style, down an underwater slope, or simply heaves the rock upward, so Mr. Frey and the others have an easier time grabbing it. Finding the best combination of blasting and digging, in some cases, took months of trial and error. In another part of the Kill Van Kull, Weeks Dredging and Contracting crews failed to scoop up the rock with a clamshell dredge, and even multiple jabs with a 20-ton spike could not break it up. By the time explosives were brought in, work had fallen more than six months behind schedule. In total, 1,324 blasts, sometimes three a day, have been set off over the last three years in the short stretch between the Bayonne Bridge and Port Elizabeth, rattling homes on Staten Island and in Bayonne, N.J. The clanging and scraping of the dredges fill the silence between them.

Subject: A Falling Dollar From: Terri To: All Date Posted: Tues, Nov 23, 2004 at 14:56:36 (EST) Email Address: Not Provided Message: What is clear is that the Treasury and Federal Reserve are not going to defend the dollar, so the question of further decline is a given. Remaining are an understanding of the reasons for a dollar decline and the effects, and a sense of whether the decline can be smooth. The balance of payments will deteriorate because we have little household saving and large and rapidly growing government debt. To spend more than we earn as a country, there must be borrowing abroad, hence a deficit. The deficit is also large and growing, and there is reason to believe that international investors will grow more wary of holding dollars because of the deficit. There will be bounces, but the direction for the dollar is down because we do not intend to significantly reduce our government deficit at this point.

Subject: A Falling Dollar 2 From: Terri To: Terri Date Posted: Tues, Nov 23, 2004 at 14:57:15 (EST) Email Address: Not Provided Message: To the extent that the dollar loses value, there may be some pressure on prices since imports will become more expensive. There may also be pressure on interest rates, for if the Federal Reserve does not compensate there is less cheap liquidity available. Of course, the Fed can ease monetary policy. Demand for American products will increase for our prices will be less internationally. So, if the slide of the dollar is gentle I do not see a significant short term problem. But, the slide may not be gentle. The bigger problem reflected by the weak dollar, is a weakening America.

Subject: Re: A Falling Dollar 3 From: Terri To: Terri Date Posted: Tues, Nov 23, 2004 at 14:58:00 (EST) Email Address: Not Provided Message: These coming months the dollar may rise or fall in value, for near term moves are difficult to project, but unless the government deficit is structurally reduced the dollar will fall in value in future. Since reducing the structural deficit means tax increases, and since we have a Republican Congress and resident, there will be no significant tax increases. Almost certainly there will be added tax reductions as previous cuts are renewed. Then, we have to protect ourselves in investing. We must have assets abroad. Holding American companies with large international operations is useful, for as the dollar loses value foreign earnings rise. But, holding assets abroad is useful. I have chosen the Europe Index, though I like International Value.

Subject: A Falling Dollar 4 From: Terri To: Terri Date Posted: Tues, Nov 23, 2004 at 15:11:38 (EST) Email Address: Not Provided Message: Timing is tricky, but there is considerable reason to believe the decline of the dollar will be pushed in the short term. Hedge funds have every reason to believe the Treasury will not intervene, and foreign central banks could not resist hedge fund selling unless there was a coordinated move. Japan, China and India are the decisive bankers to watch. If the American stock market holds, international stock markets will hold and be bolstered by currency gains.

Subject: Re: Deficit Attention Disorder... From: El Gringo To: Terri Date Posted: Tues, Nov 23, 2004 at 16:52:25 (EST) Email Address: nma@hotmail.com Message: http://www.pkarchive.org/column/32600.html

Subject: Re: Deficit Attention Disorder... From: Terri To: El Gringo Date Posted: Tues, Nov 23, 2004 at 17:52:11 (EST) Email Address: Not Provided Message: Paul Krugman - 3/26/00 A long time ago, in an economic universe far, far away, people cared about the trade balance. When the U.S. trade deficit passed $100 billion for the first time, there was much wailing and gnashing of teeth. Doomsayers warned of an imminent 'hard landing' in which a crashing dollar would precipitate economic crisis. Even calmer types regarded the unprecedented red ink as a warning sign. But a funny thing happened on the way to the 21st century: people lost interest in the trade balance. In January, the Commerce Department announced last week, the United States set a new world record: the biggest monthly trade deficit ever. (Is this a great country, or what?) Measured as a share of G.D.P., last year's current account deficit (the broadest measure of the trade gap) was wider than ever before. But the markets couldn't have cared less.... In some ways this lack of interest is a good thing. Obsession with trade balances has historically been a source of bad economic policies. It's probably for the best that state governments don't know whether their trade with other states is in surplus or deficit; their ignorance keeps them out of mischief. And not paying attention is almost as good as not knowing. Still, perhaps we shouldn't be quite so indifferent.... The most likely scenario is that the trade deficit will eventually be reined in by a decline in the foreign-exchange value of the dollar. The great dollar slide of 1985-87, precipitated by a trade deficit that was actually smaller compared with G.D.P. than the deficit today, reduced the value of a dollar by 40 percent in terms of German marks and Japanese yen. And there is no obvious reason why the same thing can't happen again. But if that is the way it will play out, at least some of the money we are now pulling in is being brought in under false pretenses. Right now foreign investors are willing to hold 10-year U.S. government bonds, even though they pay only a slightly higher interest rate than their European counterparts. Those investors seem to believe, in other words, that today's strong dollar will persist for another 10 years. But the size of our trade deficit makes that unlikely. So foreign investors, and therefore the value of the dollar, are arguably doing a Wile E. Coyote -- one of these days they will look down, realize that they have already walked over the edge of the cliff, and plunge. And when they do it will come as a rude shock not only to them, but also to American financial markets that have become accustomed to big inflows of foreign money. The trouble, you see, is that in economics, as in life, what you don't pay attention to can hurt you.

Subject: Re: Deficit Attention Disorder... From: jimsum To: Terri Date Posted: Wed, Nov 24, 2004 at 14:39:16 (EST) Email Address: jim.summers@rogers.com Message: Note the date on this: 3/26/00. It's more than 4 years later and dollar still hasn't collapsed. I believe the economic reasoning behind the worries; why don't the markets?

Subject: Re: Deficit Attention Disorder... From: Terri To: jimsum Date Posted: Wed, Nov 24, 2004 at 16:50:41 (EST) Email Address: Not Provided Message: This shows how hard macro-economic timing is, but moving to European value stocks at the time made perfect sense even with the bear market that was just beginning..

Subject: Re: Deficit Attention Disorder... From: Terri To: El Gringo Date Posted: Tues, Nov 23, 2004 at 17:45:10 (EST) Email Address: Not Provided Message: Dear, dear El Gringo, I wait your judgement of Rigoletto!

Subject: Re: Deficit Attention Disorder... From: El Gringo To: Terri Date Posted: Tues, Nov 23, 2004 at 18:16:55 (EST) Email Address: nma@hotmail.com Message: Well, dear terri I prefer Faith No More or Pearl Jam to Verdi's Rigoletto...

Subject: Oh well... From: Terri To: El Gringo Date Posted: Tues, Nov 23, 2004 at 20:10:25 (EST) Email Address: Not Provided Message: I still love you.

Subject: Re: Deficit Attention Disorder... From: El Gringo To: El Gringo Date Posted: Tues, Nov 23, 2004 at 18:34:13 (EST) Email Address: nma@hotmail.com Message: Or Hugo's new version of 'Le roi s'amuse','Paul Krugman s'amuse'

Subject: Overseas Flight From Wall Street From: Emma To: All Date Posted: Tues, Nov 23, 2004 at 12:40:52 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/23/business/23place.html Overseas Flight From Wall Street By JONATHAN FUERBRINGER ARE foreign investors souring on Wall Street? The data say yes. In September and August, foreign investors were net sellers of $5.9 billion of American stocks, according to the latest Treasury data available. These two monthly declines highlight a sharp slowdown in inflows from abroad since the beginning of the year, when the 12-month total through February was $58 billion. In September, the 12-month inflow had dropped to $18.7 billion. While there have not been negative consequences for the American stock market so far, a steeper decline in the dollar could increase the net outflows and make American equities less attractive. The net selling of American stocks by foreigners has probably continued since September, said Ian Scott, a global equity strategist with Lehman Brothers in London, 'because the dollar has continued to fall, and I think that is one of the motives behind the outflow.' He also said that Lehman's recent surveys showed that global investors were less interested in stocks generally and that those who were buying stocks were looking for value stocks, which are easy to find outside the United States. Bob Froehlich, chief investment strategist at Deutsche Asset Management, said that fear that the United States' current-account deficit would continue to grow, along with the belief abroad that the federal budget deficit will be difficult to reduce because of the war on terror and President Bush's promises to make his tax cuts permanent, 'has spooked some investors outside the United States.' Such fears have yet to have any impact on the recent performance of the United States stock market. Indeed, as William E. Rhodes, chief investment strategist of Rhodes Analytics in Boston, noted, 'It is an old rule of thumb that foreigners are the last in and the last out.' So it is possible that this outflow is a contrarian signal for the stock market. Foreign investors, for example, were pouring their money into American stocks at a 12-month rate of $153 billion in March of 2001, a year after the American stock market peaked at all-time highs. On the other hand, as the 1990's stock rally took off in 1995, foreign investors were selling American equities at a 12-month rate of $8.4 billion in March of that year. In fact, if the net outflow of foreign investors from the stock market did continue in October and November, domestic investors clearly did much more than pick up the slack. Since Oct. 25, the Standard & Poor's 500-stock index has jumped 7.5 percent and is now up 5.9 percent for the year. At its recent closing peak of 1,184.17, the S.& P. 500 index was at its highest level in more than three years.

Subject: Medicare Drug Benefit? From: Emma To: All Date Posted: Tues, Nov 23, 2004 at 12:38:03 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/23/politics/23medicare.html Study Finds Savings in Medicare Drug Benefit By ROBERT PEAR WASHINGTON - A new study confirms that the drug benefit being added to Medicare will provide significant help to elderly people with low incomes or very high drug costs. But, it says, one in four people who sign up for the benefit will have to spend more of their own money for prescription drugs. In other words, the study says, one-fourth of the people who enroll in the new program will have higher out-of-pocket costs than if the law had never been enacted. The study, issued Monday by the Kaiser Family Foundation, says that on average people who sign up for the benefit will see their out-of-pocket drug spending decline by $465, or 37 percent, from what it would otherwise have been in 2006, to $792 from $1,257. James W. Mays, vice president of the Actuarial Research Corporation of Annandale, Va., which did the calculations for Kaiser, estimated that 29 million of the 41 million Medicare beneficiaries would sign up for drug coverage when it becomes available in 2006. Of this group, Mr. Mays said, 65 percent, or 19 million people, are expected to spend less on prescription drugs, and 25 percent, or 7 million people, will spend more. About 10 percent of those who enroll, or 3 million people, will see no change in out-of-pocket costs. Now that the presidential election is over, Bush administration officials are no longer trying to win votes, but struggling to persuade millions of skeptical older Americans that they should sign up for the drug benefit, which has been criticized as inadequate by Democrats and by many advocates for the elderly. John C. Rother, policy director of AARP, the advocacy group for older Americans, said the Kaiser study showed that 'the new program is a terrific opportunity for lower-income seniors, and it will be helpful to millions of others, but not every single person.' Elderly people will enroll if they hear a consistent message about the value of the drug benefit, Mr. Rother said. But, he added, 'if there is continued fighting and controversy, many seniors will hang back.' Premiums for the new drug benefit will be heavily subsidized. Beneficiaries will pay about 25 percent of the total cost on average, and many with low incomes will pay no premium at all. For the 8.7 million people who receive low-income subsidies, Mr. Mays said, out-of-pocket drug spending will plunge an average of 83 percent. Patricia H. Neuman, vice president of the Kaiser Family Foundation, said, 'Low-income subsidies will clearly make an enormous difference for many seniors struggling to pay for their prescriptions, but, unfortunately, many are expected to go without this extra assistance.' Mr. Mays, like the Congressional Budget Office, assumed that 14.2 million people would be eligible for low-income subsidies in 2006, but that only 8.7 million people - 61 percent - would apply and receive them. The Kaiser study estimates that nearly one-fourth of the people who sign up for drug benefits - 6.9 million people - will reach the gap in coverage, the 'doughnut hole,' in which the beneficiary pays all drug costs and the government pays nothing. In addition, it says, slightly more than one-tenth of those who sign up will spend more than $3,600 out of pocket and will therefore qualify for 'catastrophic coverage.' At that point, the beneficiary pays about 5 percent of the cost of each prescription.

Subject: Medical Training in Africa From: Emma To: All Date Posted: Tues, Nov 23, 2004 at 12:14:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/23/international/africa/23ethiopia.html?pagewanted=all&position= Lacking Doctors, Africa Is Training Substitutes By CELIA W. DUGGER WONDO GENET, Ethiopia - Clothed in a white doctor's coat, Lulseged Tolla received patients on a recent day at the clinic in this dusty village along a rutted country road. He advised a middle-aged woman with abnormally heavy periods. He examined an anemic woman suffering from lethargy. As rain pattered on the roof, another woman walked in, a limp toddler draped on her shoulder. Mr. Tolla, 33, looked down the boy's throat and listened to his breathing through a stethoscope, muttering, 'He has pneumonia.' He prescribed antibiotics and ordered a blood test to rule out malaria. The mother thanked him respectfully, kissing her son's fevered forehead as she left. In rural clinics across this impoverished nation, people like Mr. Tolla are diagnosing and treating major killers: diarrhea, pneumonia and malaria. All of them have one thing in common: they are trained to do the work of doctors, but none is actually a physician. For that very reason, many international health specialists say these paraprofessionals offer a solution to one of the most vexing problems confronting African countries like Ethiopia: the brain drain of doctors to rich Western nations and more prosperous African countries. In Mozambique, such health workers are already the mainstay of operating rooms, performing tens of thousands of life-saving surgical procedures. In Malawi, they do emergency Caesarean sections. Ethiopia, Mozambique and Malawi, desperately poor countries with extreme doctor shortages, are virtually doubling the still small number of such workers they are training. While some raise concerns of whether the technicians' training is equal to the task, a few rigorous studies have found they provide decent care. In fact, international health experts say the trend must accelerate if Africa has any hope of grappling with its catastrophic epidemics of disease: these substitute doctors are cheaper to train and pay than licensed doctors; they are more willing to work in rural areas; and they generally do not leave the country for greener pastures. The Joint Learning Initiative, a network of more than 100 scholars and experts studying the staffing crisis in health care, estimates that Africa, which has 600,000 nurses and doctors, needs a million more. 'There's no way for these countries to succeed with traditional doctors and nurses,' said Lincoln Chen, a co-chairman of the initiative and director of the Global Equity Center at Harvard University. 'Paraprofessional systems will have to be built throughout the continent to address this health crisis.' Though these workers can help countries cope with the lack of doctors, they are not a panacea. Increasingly, they, too, are being lured away from public health by higher paying jobs in the private sector. And expanding their ranks will not be simple. Typically, they receive three to five years of training after high school, depending on their level of specialization. They are taught to tackle basic public health problems killing the most Africans. Such programs have often run into determined opposition from influential surgeons and obstetricians. The use of paraprofessionals in Africa is not new. In 1975, after Mozambique gained its independence from Portugal, there were only 2 surgeons, 4 obstetricians and 80 doctors in a country of 14 million people. The government put hundreds of high school graduates through three years of training and dispatched them to rural areas. Then, in the mid-1980's, it began giving some of them two extra years of training in surgery. Many women were dying in childbirth simply because there was no one to do emergency Caesarean sections, a simple operation easily mastered through repetition. In the past two decades, Mozambique has managed to produce only 60 surgical technicians, but they still do most of the surgical procedures in rural areas where most people live. Last year, the country began training 27 more. 'The majority of countries in Africa don't accept these kinds of workers,' said Fernando Vaz, the surgeon in charge of their education. 'They have doubts about their capacity. But this is a solution for Mozambique.'

Subject: Social Security and Us From: Jennifer To: All Date Posted: Tues, Nov 23, 2004 at 12:11:32 (EST) Email Address: Not Provided Message: We are thinking what should not be thinkable, what must not be thinkable. How could it be possible that America would not honor the integrity of it obligations, of it promises to ten of millions who have through their lives honored America? Social Security obligations must be honored. Treasury obligations must not be inflated or defaulted away. There are those who are busily at work trying to convince us that Social Security is destructive of the young and daying with the old. We are being told that Treasury bonds are worthless. Microsoft runs ads for Encarata, joking the Social Security will soon be no more; that Social Security obligations are a comically absurd fancy. What are we about?

Subject: Our Values From: Jennifer To: Jennifer Date Posted: Tues, Nov 23, 2004 at 12:12:11 (EST) Email Address: Not Provided Message: The point is values. Do we have an obligation to provide complete Social Security benefits for those who have been paying more than a generational share for decades? Do we care for those who will need Social Security? Do we care to honor those who work in faith for grandparents and parents?

Subject: Something to think about From: Pete Weis To: All Date Posted: Mon, Nov 22, 2004 at 21:39:20 (EST) Email Address: Not Provided Message: The U.S. Government's Bubble Blowing Machine by Robert Bell November 20, 2004 Paper presented 24 June 2004, at the conference “Towards a world without violence, Fundacio per la pau, Barcelona, for the session “Realitat I evolucio de la industria military”. This paper shows how Pentagon and other U.S. government contractors are rigging stock markets world wide through massive, coordinated, selective investments. These investments are hidden in plain sight, using U.S. government insured—risk free—money. In Spring of 2003 Ken Pedeleose, an analyst at the Pentagon department intended to control program costs at federal contractors, was startled to find that the overhead costs of virtually every airplane that Lockheed Martin sold the U.S. Air Force would soon be skyrocketing in price. Pedeleose had personally researched the massive cost increases on the C-130J transport, which would go up from $1.193 billion in 2003 to $8.352 billion by 2006. Documents widely circulated by others in the Pentagon showed that costs for the F-16 program would jump from $3.49 billion in 2004 to $6.66 billion in 2005 and then on to $14.84 billion the next year. The F/A-22, F-117, and many other programs showed similar vaults in costs. In a 23 June 2003 letter to the Chairman of the U.S. Senate Finance Committee, Charles Grassley, Pedeleose gave the reason: Lockheed Martin “has to make up hundreds of millions of dollars in their pension funds that were invested in the stock market.” Although Pedeleose wrote the Senator that “prudent investing may have offset some of this loss,” he had actually stumbled on something having nothing whatever to do with “prudent” investing. He discovered what may well be the major way the U.S. government selectively and discreetly funnels iceberg sized chunks of cash into U.S. and world stock markets. Those who actually place the money for the government—“invest” is perhaps not the right word—have little reason to complain; unlike all other stock market investors, who are at risk even if only as fund managers, the government contractors’ pension funds operate with a money back guarantee. Literally, gains are kept, losses are socialized. Most people undoubtedly believe that U.S. stock markets—the Nasdaq and the New York Stock Exchange—are essentially free markets operating under something approaching laissez faire. In fact, the Lockheed Martin evidence proves that there is a material amount of federal tax money selectively invested on a risk free basis. One can make the assumption that the fund managers who place this money, and who work for companies which by and large live or die from federal contracts, act with complete independence of possible federal pressure, and that they do not act for careerist reasons. Given the other widely publicized and spectacular abuses which have come to light with regard to mutual fund and pension fund managers (some of which are discussed below), this assumption seems unreasonably trusting. Otherwise, Pedeleose had found a major slice of the world’s biggest, continuing, stock market manipulation scheme—a legal one, hidden in plain sight. The Lockheed Martin matter came to light the same way unpleasant truth about business matters nearly always does—something went wrong and various officials felt obliged to put something in writing about it. In this case what went wrong was the long grinding slide in the stock markets beginning in March 2000. Many major companies, such as Lockheed Martin and General Motors, found that their pension funds had dropped below minimum requirements imposed by federal regulation. Most companies have had to solve the problems themselves, i.e., find the money to top up the funds. General Motors did so by issuing over $13 billion in corporate bonds in early June 2003, just as the interest rate on such bonds was at its lowest. Even though the company borrowed under extremely favorable terms, they did not get the money on terms as favorable as those given Lockheed Martin and other major federal contractors (including GM in its government sales). Lockheed Martin and other federal contractors literally operate under a law unto themselves, known as U.S. Government Cost Accounting Standards. Lockheed Martin itself described how this law, with its money back guarantee on bad pension fund investments, works. The disclosure is in its December 31, 2002 annual report: “The total funding requirement for our pension plans under U.S. Government Cost Accounting Standards (CAS) in 2002 was $87 million. CAS is a major factor in determining our funding requirements and governs the extent to which our pension costs are allocable to and recoverable under contracts with the U.S. Government. For 2003, we expect our funding requirements under CAS to increase substantially. This amount is recovered over time through the pricing of our products and services on U.S. Government contracts, and therefore is recognized in our net sales.” The last sentence is particularly interesting. It means if Lockheed Martin loses pension fund money on the stock market, the company ultimately increases the size of its revenue by adding the losses onto its prices to the federal government. Impressionable stock buyers could get the idea that the company is doing something right, rather than realizing that the company’s pension fund had simply done something very wrong in the stock market. Lockheed Martin overwhelmingly receives its revenue from one customer, the federal government. Thus it is a window into the pension fund activities of all the other federal contractors, such as Boeing and General Electric, the pension fund activities of which are obscured because they also have large slices of nongovernmental revenue. Major companies often have a number of different pension funds covering different categories of employees. The detailed data on these and other pension funds is usually impossible to obtain because in 1994, during the inflation of the last bubble, Congress passed a law establishing secrecy on individual pension plans.[i] Thus the pension liabilities of a company will usually be stated in one consolidated number in its annual report. However, some of the pension funds may be for divisions that do business exclusively or almost exclusively with the federal government and thus operate under the special law for federal contractors, CAS. And the other funds may be able to allocate a percentage of their losses to CAS reimbursement. Lockheed Martin was in 2002 the largest Pentagon contractor. It’s pension plan which received the risk free—to Lockheed Martin--money held $25.5 billion in 2001, of which $12.4 billion was in U.S. stock and $4 billion in foreign stocks. The latter figure is significant. It means that through these federally subsidized pension plans, U.S. taxpayer money is selectively invested in stock markets world wide. This raises interesting questions. On 29 July 2003, Le Monde published an article on foreign ownership of French companies traded on the Paris exchange. This had grown from 10% in 1985 to 43.7% in 2003. But specifically who were the foreign owners? That was generally impossible to determine. The exchange clearing houses such as Euroclear in Paris, which according to the article were the best sources for who owned what, would only give information on the location of the bank in which the title to the stocks was recorded. The head of investor relations at a major European military contractor, EADS, said, “I can’t know precisely who are our American stockholders, because many of them have entrusted their stock to European depositary banks.” U.S. government insured investments in foreign stock would help explain why foreign stock markets so often change direction and follow the U.S. markets after the opening of the U.S. markets each day. The same pension funds may be doing the buying at the same time on both sides of the Atlantic. Lockheed Martin is only one of hundreds of Pentagon contractors, nearly all of them operating entirely or in part under CAS. Add to this the contractors for NASA, the Departments of Energy; Homeland Security; Education; Health and Human Services; etc. and we are soon looking at numbers big enough—if used with options and at the right time of day--to act as catalysts, provoking rallies or turning around declines. There is clear evidence that some of the federal contractors have put their pension money into bubble stocks. For example, in June 2002, Northrop Grumman, which that year was the third largest Pentagon contractor in terms of value of Pentagon contracts awarded (the rankings vary a bit from year to year), put one of its pension fund managers, Pilgrim Baxter & Associates, on notice that their $212 million small-cap growth portfolio was not performing as well as they would have liked. At the time the Nasdaq bubble was hissing air, so a growth portfolio doing badly is hardly surprising. What is surprising, however, is that the pension fund kept pumping new money, or keeping old money, in the sagging fund. The Kansas Public Employees Retirement System had terminated the Pilgrim fund earlier in the year. As the Lockheed Martin evidence shows, pension funds sometimes hold mutual funds. Thus the performance of pension funds can depend on that of mutual funds. At the height of the Nasdaq bubble, $3.8 trillion was held in 8,482 U.S stock mutual funds. But a mere one hundred of these held over 40% of the total, $1.7 trillion.[ii] By January 2004, the industry had become so concentrated that the 100 largest stock funds held 47% of the stock fund assets.[iii] In March 2003, the Chairman of ICI, the fund industry trade group, testified to Congress that only 497 funds held nearly three quarters of the total assets in all stock mutual funds.[iv] These numbers are sufficiently small now, and were sufficiently small at the height of the bubble, to raise legitimate questions of coordinated buying. A small number of funds could have enough clout to spark up a rally, hoping to lure in outside small investors, or even other fund managers, who thought they were following the momentum. This blindingly obvious concentration is the essential point of U.S. stock markets. Although ignored by nearly every stock market commentator, it has been implicitly acknowledged by Claude Bebear, the PDG (CEO) of AXA, one of the biggest insurance companies on Earth. He wrote in his 2003 book Ils vont tuer le capitalisme (They are going to kill capitalism): “… today, shareholders are relegated to the role of quasi-spectators. The small shareholders that are now called ‘individual investors’ know that they have little weight. All together, they only represent a small percent of capital because the investments of households is more and more in the form of mutual funds, pension funds (fonds communs de placement) or life insurance funds. The shareholders today are thus the institutional investors.”[v] [1] Just in case someone misses the point, Bebear, in charge of one of the world’s biggest stock portfolios, says: “We are no more, in effect, in a world that one reads in the economic text books, with innumerable investors of various characterizations, choosing each in his own way the stocks that he’ll put in his portfolio; the results of their millions of decisions generating a sort of changing market equilibrium, but a stable one. The truth is that since several years, the reasoned investment on a stock has almost disappeared in favor of more and more mechanical behavior.”[vi] [2] Bebear discusses at some length the role of indexes such as the Nasdaq 100, concluding: “Today, programmed trading and index trading constitute the heart of the market.”[vii] [3] But index trading also makes market manipulation relatively easy. Market manipulators could buy index options directly, and in huge quantities. Even the indexes themselves are relatively easy to manipulate. To move the index one merely has to move a handful of stocks. In March 2003, just seven stocks made up 35% of the Nasdaq 100 index: Microsoft, Intel, Qualcomm, Amgen, Cisco Systems, Dell, and eBay. Move them and one moves the index. This is particularly significant considering the financial cartels at the heart of Wall Street. There are 23 firms that deal directly with the Federal Reserve, buying and selling U.S. Treasuries. A number of these firms are also simultaneously: investment banking firms, which launch stock onto the stock market; retail brokerage firms, which sell these same stocks to the investing public; mutual fund firms which invest in the stock market and in which small investors can invest; pension fund management firms which run the pension funds of major companies as well as those of public organizations and unions, (the cartel’s pension fund managers can then stuff the pension funds with their own cartel’s mutual funds as well as the stock of the companies for which they do investment banking); and market maker firms which support stocks by buying when no one else does. The same giant firm which is intimately tied to the Federal Reserve can launch a stock, sell it to the public, stuff it into mutual funds and pension funds and support the stock when it starts to fall. All of this has created vast conflicts of interest on the part of fund managers which Eliot Spitzer, the New York Attorney General, and others have detailed. On 1 July 2002, at the height of the Enron, WorldCom, Global Crossing, and other scandals, Spitzer, along with the New York State Comptroller, the California State Treasurer and the North Carolina Treasurer issued a joint statement concerning this conflict of interest. They also announced some reforms which they claimed would help to reduce conflicts of interest. These officials said: “Money management firms that handle investments for public pension funds also handle investments for corporate 401(k) plans. This creates a potential conflict of interest, because the money managers may feel pressured to add stocks of their corporate 401(k) clients into the pension fund portfolios, even if it is not in the best interest of the pension fund. Similarly, money manager research analysts may be reluctant to provide objective research advice, knowing that adverse recommendations may cause their firms to lose corporate clients. Other potential conflicts of interest exist with respect to those money management firms that are subsidiaries of investment banking firms.”[viii] California’s plan had lost $565 million on WorldCom alone. New York’s plan had lost $300 million.[ix] These were defined benefits plans, so the states were on the hook; they were legally obligated to pay out the specified pensions. State taxpayers had to make up the money. Bizarrely, most of these conflicts of interest don’t matter to the pension fund managers for federal contractors. They can simultaneously advance their personal careers and devastate the funds they manage; all material damage will be subsequently made-good by the federal government under CAS without anyone really noticing. But couldn’t these fund managers act as sirens for all others? That is precisely the problem. Wouldn’t these fund managers themselves need to be managed? Wouldn’t they need some system of coordination? Perhaps not, since they could simply keep an eye on each other, operating the same way as do the participants in an emergency telephone tree at a large organization. However, if a stock markets manager were required, and occasionally it might be, it does exist, at the highest level, reporting directly to the President of the United States. To prevent a rerun of the stock market crash of 19 October 1987, President Ronald Reagan signed, on 18 March 1988, Executive Order 12631. This established the President’s Working Group on Financial Markets, occasionally referred to, on the rare occasions it is discussed at all, in the business press as “The Plunge Protection Team.” It is composed of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission (SEC), the Chairman of the Commodities Futures Trading Commission, or the designees of each of the above. The Secretary of the Treasury, or his designee is the chairman. The current designee, Brian C. Roseboro, is a former options trader. Plunge Protection almost certainly intervened on 4 April 2000, when the Nasdaq 100, the index of the top 100 high tech companies on the Nasdaq, initially crashed, dropping to 3525.44. It then suddenly rebounded like someone at the end of a bungee jump line, shooting up 13% from the bottom to close at 4034.17. The net loss for the day was only about 1.4%. Someone paying little attention would have thought nothing happened, but many who watched the day closely may have suffered from cardiac arrest. According to market rumors, two major brokerage houses, Goldman Sachs and Merrill Lynch bought high priced futures options (“calls”). When market participants saw this massive buying of calls at high prices, they themselves turned around and started buying. The idea of acting in this way had first been proposed by Federal Reserve member Robert Heller in a 1989 Wall Street Journal article: “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.” Are there any other suspicious days? One is 15 July 2002, a day when the market fell dramatically, but then both the Dow Jones Industrial Average (Dow) and the Nasdaq composite mysteriously shot up at about 2:30. The time itself is not unusual since the markets are often mysteriously saved at around that time. The saves have become so common that a few commentators have talked about them, for example John Crudele of the New York Post, who appears to think the Plunge Protection team is responsible: “Washington is going to have to perfect its market rigging technique. Make it a little more subtle. Perhaps start at 2:15 p.m. in the trading day rather that always at 3 p.m.”[x] However, on 15 July 2002, President George W. Bush gave a speech intended to reassure the markets. Briefing.Com, whose Live Market coverage is on the Finance page of one of the most widely watched internet sites, YAHOO!, gave an account of what happened: “A wild session for the market averages that saw the Dow plunge roughly 440 points or 5% at its nadir this afternoon and then surge higher into the close. The very impressive turnaround off the low of nearly 4.8% even topped the intraday reversal seen the day that the index bottom[ed] last September…The market also took little positive out of the President’s midday speech. There did not appear to be a specific catalyst for the turnaround but the Dow did retest support at the closing low from last September 21….There was talk of heavy buying in the S&P futures related to re-balancing but clearly once the recovery began to take shape, market participants jumped on the momentum[4] bandwagan. [emphasis added]” All the elements were there—a crashing market, inexplicable recovery, heavy buying of future options which acted as a catalyst, even a direct Presidential interest in the turnaround. So, the staggering concentration of mutual funds, the cartel structure of the financial services industry, the concentrated power of index trading or of selective investments in a handful of stocks within the index—all combine to produce the utter impotence of the individual investor. Most important, these elements in combination give tremendous influence to federal contractor pension fund managers who receive risk free tax money to pump into stock markets worldwide. These fund managers can start pumping up bubbles, and can keep pumping them whenever they start to lose air. The actions of these federal contractor pension fund managers, and perhaps other giant fund managers, can then be managed, when necessary, by the Plunge Protection Team. Robert Bell, Ph.D., Chairman of the Economics Department, Brooklyn College, N.Y., is the author of seven books, including: Beursbedrog (The Stock Market Sting), De Arbeiderspers, Amsterdam, 2003; Les peches capitaux de la haute technologie (The Capital Sins of High Technology), Seuil, Paris, 1998; Impure Science, Wiley, N.Y., 1992

Subject: Re: Something to think about From: Jennifer To: Pete Weis Date Posted: Wed, Nov 24, 2004 at 06:42:16 (EST) Email Address: Not Provided Message: Pete Please add you insight here. I do not know that we should take such an article seriously, or even how to take this seriously. There are no similar articles that I could find, using a Google search.

Subject: Re: Something to think about From: Pete Weis To: Jennifer Date Posted: Wed, Nov 24, 2004 at 11:42:10 (EST) Email Address: Not Provided Message: A friend of mine kept telling me that the government was propping up the markets by pumping money into them. I kept telling him that was likely impossible because - (1) manipulating the markets by secretively pumping taxpayer money into them would be illegal and considered interfering with a free market system which was supposed to be 'fair' to all traders and (2) pumping the billions necessary into the markets on a regular basis would be impossible to hide. This article is written by the chairman of the economics department at Brooklyn College. Now I realize that Brooklyn College is not Princeton or Stanford, but it does give the ideas expressed a certain level of credibility (or does it?). Anyway, I entitled my post 'something to think about' since this article seemed to at least speak to my doubts about government manipulation of the markets and might be worth considering. It seemed to address a way that the government could get large sums of tax payer money almost directly into the markets which might be on the edge of being legal (maybe not if government officials had unwritten agreements with pension fund managers on how to specifically invest that money). Certainly it would also be illegal and quite a scandal if it was found that the goverment was purposely overspending taxpayer money for the products of large defense contractors for the express purpose of pumping the markets. But then again, few are listening to people like the writer of this article despite his economics credentials and to most he would probably be written off as a conspiracy theorist. So that speaks to my second doubt about how the government could pull off such a large undertaking without being discovered - no one is going to believe it anyway. Our government has become increasingly brazen about its ability to manipulate public opinion - approximately half of the US public still thinks that Sadam Hussein had something to do with 911. I still doubt that the government is manipulating the markets in this fashion - but I'm thinking about it.

Subject: Re: Something to think about From: Ari To: Pete Weis Date Posted: Wed, Nov 24, 2004 at 12:11:09 (EST) Email Address: Not Provided Message: I understand, but if this is happening it would not seem to be the government as much as the companies and pension plan managers. Were this happening government contracts would be abused, as well as attempts made to move the market. Managers look for any edge they can get in investing.

Subject: Re: Something to think about From: Pete Weis To: Ari Date Posted: Wed, Nov 24, 2004 at 13:53:56 (EST) Email Address: Not Provided Message: 'Managers look for any edge they can get in investing.' Managers mostly think about keeping their jobs and it doesn't always mean making the best investment decisions. This article seems to hint that their are or might be some kind of 'under-the-table' type of agreement between the government, the companies involved and the pension managers as to where in the markets the additional monies are to be directed (ie, key stocks which move the indexes). It's interesting but does sound, perhaps, too conspiratorial to be believed.

Subject: Re: Something to think about From: Jennifer To: Pete Weis Date Posted: Tues, Nov 23, 2004 at 06:50:48 (EST) Email Address: Not Provided Message: Please explain the significance of this article. I am not sure what this potentially means for us.

Subject: Re: Something to think about From: Ari To: Jennifer Date Posted: Tues, Nov 23, 2004 at 10:54:34 (EST) Email Address: Not Provided Message: I too do not understand this post.

Subject: Re: Something to think about From: jimsum To: Ari Date Posted: Tues, Nov 23, 2004 at 18:01:20 (EST) Email Address: jim.summers@rogers.com Message: I think the point is that military contractors apparently have a deal with the U.S. government that any shortfalls in their pension plans will be automatically tacked onto the price paid for the contracted military hardware. This lets the government bail out the pension plans and hide the expense in the military budget. Expect to hear a lot more about $600 toilet seats ($10 for the seat, $590 for the pension plan). I'm not sure why the author thinks this distorts the stock market. The stock of military contractors actually is worth more to the extent that they have shifted some their pension risk to the federal government. I think the real story here is yet another way that the true cost of providing pensions is being disguised. Companies are making unfunded promises they likely won't keep, and the government is pretending taxpayers won't end up holding the bag when the private pension funds collapse. This is just another indication of how little the U.S. government can afford to run a deficit, given the retirement disaster ready to happen in another decade or so.

Subject: Re: Something to think about From: Terri To: jimsum Date Posted: Tues, Nov 23, 2004 at 21:51:04 (EST) Email Address: Not Provided Message: Ah. I finally understand. What you are worried about is a series of defaults on defined benefit pension plans; defaults the government will be responsible for making up in part. Nice argument.

Subject: Re: Something to think about From: Terri To: jimsum Date Posted: Tues, Nov 23, 2004 at 21:28:44 (EST) Email Address: Not Provided Message: Please continue on why there will be a retirement disaster. I too am puzzled about this essay, but also about you final remark. The explanation is however interesting and helpful, but where does the stock market come in and why a retirement disaster? Is your worry about too little household saving? Interesting. Do go on.

Subject: The retirement disaster From: jimsum To: Terri Date Posted: Wed, Nov 24, 2004 at 14:27:19 (EST) Email Address: jim.summers@rogers.com Message: The problem is that pensions are being run on a pay-as-you-go basis. Right now, that makes pensions cheap because of the Baby Boom (lots more paying-in than taking-out); but in a decade or so, the Baby Boom will make pensions much more expensive. This isn't necessarily a problem; as long as companies (and the government) recognize that pensions are going to get more expensive. The government hasn't done too bad a job of preparing (assuming the social security surplus hasn't just evaporated), but companies have been much worse. I think most companies haven't set aside enough to pay for pensions. The government lets them assume unrealistic rates of return, like 10%; and when that rate is not achieved, there will be no money to pay pensions. It is also popular for bankrupt companies to dump their pension obligations on the government. Since the majority of companies do not have enough money set aside for pensions, I expect that most of these plans will fail, leaving the government to pick up the slack. I'd also add that the major 'pension' problem is really health care. The pension problem has been recognized for decades, and it is pretty easy for actuaries to figure out how much pensions are going to cost. It's much harder to predict how much it will cost to provide health care to pensioners in a decade; and I expect this is where the real costs will lie. Companies are already cutting health benefits for pensioners, and this trend is likely to continue. I think there is a problem that the government assumes that companies are going to pay a significant portion of the pension and health care needs of seniors; but if this turns out not to be the case, government expenses are going to rise faster than anyone expects. Maybe it will all work out in the end and companies will honour their pension promises; but I really have my doubts, given what I've seen in the bankruptcy proceedings of steel companies and airlines.

Subject: Plunge protection From: David E... To: Terri Date Posted: Wed, Nov 24, 2004 at 00:38:11 (EST) Email Address: Not Provided Message: For years I have heard rumors of plunge protection teams. People have been speculating that somehow the government ( or somebody) was protecting the market by buying huge amounts of stock at critical moments. But nobody had a good story on how the government(or whoever) could buy huge sums of stock. The government contractor pension funds are suggested as the bank for the plunge protection schemes. It was very interesting to hear that the plunge protection teams might possibly be working in Europe. It was strange to hear that the contractor pensions were underfunded. Working on a cost-plus basis government contractors have plenty of incentive to fully fund their pensions. A healthy dose of pension funding will be support for a healthy additional profit on costs. To hear that the funds were underfunded really got me thinking. Running plunge protection is expensive and bound to cause losses. That might be a reason for underfunded pensions. This is all conspiracy theory stuff. But, smart guys who try to sell short have been getting killed for years, and that is the basis for the plunge protection rumors. I need a lot more facts before I could say this was more than a 'foil hat' theory. This wont be a retirement disaster for the government contractors. The price of the airplanes has already gone up to cover the additional pension payments. Government contractor pensions are almost as safe a s government pensions, they are watered by the same well.

Subject: Re: Plunge protection From: Ari To: David E... Date Posted: Wed, Nov 24, 2004 at 04:11:13 (EST) Email Address: Not Provided Message: There needs to be some evidence that there is a problem here, but I can find no support. I still do not feel I understand the article properly. Why is there no follow-through from others? We have a saving problem, and we find pension plans that are filled with high costs and losses, but should we worry here?

Subject: National Index Returns From: Terri To: All Date Posted: Mon, Nov 22, 2004 at 20:24:01 (EST) Email Address: Not Provided Message: 12/31/03 - 11/22/04 Australia 24.5 Canada 20.6 Denmark 24.3 France 12.7 Germany 8.5 Japan 8.8 Norway 45.3 Sweden 30.8 Switzerland 10.5 UK 13.1

Subject: Competing Bankers From: Terri To: All Date Posted: Mon, Nov 22, 2004 at 20:02:46 (EST) Email Address: Not Provided Message: So, if any of the Asian central bank chiefs begins to shift reserves from dollars to Euros to further diversify bank assets, there is an immediate risk other central bankers will do the same. Now, this does not make for a gentle market.

Subject: The Importance of Asian Trade From: Emma To: All Date Posted: Mon, Nov 22, 2004 at 14:14:57 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/22/nyregion/22port.html?pagewanted=all&position= New York Port Hums Again, With Asian Trade By ERIC LIPTON The deck of the freighter Hyundai Glory was stacked so high with cargo - acres of containers packed with shoes, toys and living-room sets - that it was hard to see how the ship stayed afloat as it glided into New York Harbor after a 23-day trip from China. The arrival of the tremendous ship, nearly as long as the Chrysler Building is tall, drew almost no notice one recent day, except from some cruise passengers who waved excitedly. But it was a testament to something equally enormous, and perhaps as overlooked, happening in the Port of New York. The sprawling harbor, which transformed New York into a world commercial capital in the 1800's, fell into a humiliating slump in the second half of the 20th century as other North American seaports thrived, particularly on the West Coast and in the South. But the tide has reversed for New York, driven by the explosion of trade with China, which each year is manufacturing a larger share of goods for American stores. Trade through the port, which was shrinking or flat a decade ago, has grown faster in the last five years than at any point since just after World War II. The rate of that surge - a 65 percent increase in overall container traffic since 1998 - has been nearly twice the national average, and faster than that of any other major East Coast port except Savannah, Ga. Last year, $100 billion worth of wares moved through the port, up 12 percent in just a year. That new bustle signals a startling change in global shipping. Vessels like the Hyundai Glory, one of eight floating warehouses that form a weekly shuttle called the NYX or New York Express, are sailing directly from Asia, taking what used to be a prohibitively time-consuming route across the Pacific and through the Panama Canal to the Atlantic Coast. These so-called All Water Route services to New York have cut traveling times so drastically that many goods once unloaded in California and carried across the country by train are now shipped straight to New York; there are nearly 20 lines today, most of them started in the last five years. Having cut labor costs, New York is winning the confidence of ship lines, manufacturers and merchants, effectively becoming a satellite of the Pacific Rim. Last year, four centuries after being settled by the Dutch, a milestone was reached: New York became an Asian-dominated port instead of a European one. It is uncertain whether the Port Authority of New York and New Jersey, which was caught off-guard by the strength of the resurgence, can exploit or even handle all the trade headed its way. But it is straining to respond. The authority and the operators of ship terminals that lease its land have begun $1 billion worth of expansion projects, including towering new cranes, bigger railyards, and new and enlarged wharves, a waterfront investment that is financed in part every time a commuter uses a bridge, tunnel or regional airport. As the ships become larger, too, the Port Authority and the Army Corps of Engineers have embarked on one of the most extensive and expensive harbor-dredging projects in the nation's history to make way for a new generation of freighters that are even bigger than the Hyundai Glory, and cannot call on New York because the channels are too shallow. The $2.25 billion dig will continue, night and day, seven days a week, through the next decade. Far beyond the harbor, immense warehouses and distribution centers are under construction in New Jersey and Pennsylvania. Railyards are being expanded and barge links are being created to carry the cargo to distant markets. And all of this activity is stoking the region's economy. To move the goods pouring in, about 3,500 longshoremen have been hired in the last five years, and thousands of workers have been added to the more than 100,000 the port directly supports, including truck drivers, railroad workers, warehouse stockers and marine bankers. As the expansion enables the port to accept bigger ships, goods should get to New York and into the stores more quickly and cheaply, reducing prices for consumers and manufacturers in the region, according to an Army Corps study. New York is not the only seaport lifted by the tide of Asian imports. No one expects it to regain its status as the world's busiest container port - a title it held until 1985 - or the nation's. Today it is ranked 15th in the world, 3rd in the United States. But the port is at a pivotal moment that offers huge promise and a stiff challenge. Though the port will certainly continue growing, it is unclear whether it will make good on plans to recapture its historic role as the dominant hub for the Midwest and Canada, or slide back to what it was becoming two decades ago: a narrower gateway serving mostly the Northeast. 'The opening of the Erie Canal in 1825 effectively linked our coastal seaport to a rich and burgeoning interior market; that was absolutely a defining moment,' said Peter Stanford, founder of the South Street Seaport Museum. 'Today we again have an opportunity to capture and handle an overwhelming majority of trade coming to the East Coast. We can't afford to muff this.'

Subject: Importance of Asian Trade 2 From: Emma To: Emma Date Posted: Mon, Nov 22, 2004 at 21:34:38 (EST) Email Address: Not Provided Message: Indeed, some question whether the Port Authority, a lumbering giant of an agency that was slow to react to the port's decline in the 1970's, can keep up with the rising demands. Already, long lines of tractor-trailers form at the entrances to the ship terminals, waiting to pick up growing loads of containers. The port has physical limits - its open land and the narrowness of some of its most critical channels - and these will restrict just how much it can expand. Ultimately, the expansion projects are a costly gamble because the port's success or failure may hinge on forces beyond its control, from the competitive efforts of other East Coast ports to a narrow sluice of water 2,300 miles away in Panama. The Hyundai Glory squeezed through the canal recently with inches to spare, and the newest ships will not fit unless Panama decides to widen the waterway, a move that could become tangled in Central American politics. Port Authority officials say they are confident their investment will pay off. But first they must perform the equivalent of a U-turn for an ocean liner. Over its 83 years, the authority shifted most attention and resources from the waterfront to airports, bridges, tunnels and its grandest project, the World Trade Center. Now it has resolved to return to its original mission. 'We absolutely don't want to repeat the mistakes that have been made in the past by ignoring how important the ports are,' said Anthony R. Coscia, the Port Authority chairman. 'We're now at a point where we're executing on a commitment to not make that mistake again. History is going to judge us as to our ability to execute.' The Roots of Recovery: Costs Fall as Faster Ships Sail a Direct Route The first men to attack the Hyundai Glory were the lashers, scampering like an army of ants across its deck, after the harbor pilots and tugs had maneuvered this behemoth ever so gently from Upper New York Bay through the narrow tidal inlet to a wharf at the Howland Hook Marine Terminal on Staten Island. At a terminal where business was so scarce in the late 1980's that it shut down for a decade, the still night air began to echo with a clanging as the lashers feverishly unbuckled the steel anchors that tied down the containers, 2,087 of them, stacked 13 high from the bottom of the hull to the top of the deck, and then again 13 across. Matt Zuco, a crane operator, climbed into his glass-walled cab, 90 feet off the ground, and maneuvered his praying-mantis-like tower into place. Six cranes worked the Glory straight into the next afternoon. The longshoremen are thrilled at the surge in work, which pays an average wage of $85,000 a year. The inventory of several hundred idle longshoremen who were paid not to work a decade ago - part of a job guarantee that many seized when the port slumped - has shrunk to fewer than 40. In just the last two years, more than 1,000 new union members, mostly young men who had never worked on the waterfront before, have been hired, and the terminals have extended their hours. 'You can sense it, you can see it,' said Santo Lanza, a member of Mr. Zuco's gang. 'There is more work, more production. There is a future here.' But the boisterous dock scene immortalized in 'On the Waterfront' is long gone. The heart of the port has shifted west from the Hudson piers and Brooklyn to the Elizabeth-Port Authority Marine Terminal and Port Newark in New Jersey, where rail lines and highways link the terminals to the rest of the country. The goods come in huge containers rather than in smaller crates, and most of their handling is automated. Only about 5,500 longshoremen work on the wharves today, down from 39,000 in 1955. And the people in charge are not the union bosses and stevedores who once forced shippers and merchants to use the Hudson and Brooklyn piers. The real power brokers today are global importers like M. Richard Markovich, the director of international logistics at Michaels, a chain of 850 arts-and-crafts stores based in Irving, Tex. Last year, Michaels moved nearly 140,000 tons of imports to the United States, 99 percent of them from Asia. One-quarter of these goods came through New York. Five years ago, not a single shipment did. How and why Michaels shifted so many deliveries to New York explains, in large part, the port's new vigor. During the 1970's and 80's, when America's trade with Asia started to take off, the standard route was to ship containers to the West Coast, then double-stack them on rail cars that carried them across the country. By 1993, this route, nicknamed the 'mini land bridge,' turned Los Angeles and Long Beach, Calif., into the nation's two biggest container ports. The route became so popular that in 1990 the New York port handled fewer containers than in 1980, even as imports surged nationwide. By then, major ship lines had set up the first All Water Route lines, using the Suez Canal to serve Southeast Asia and then the Panama Canal to serve Northeast Asia, bringing cargo directly to New York and other Atlantic ports. The big retailers say they knew all along that the mini land bridge did not make complete sense; the Northeast, after all, is the nation's biggest consumer marketplace. 'You want to go where the people are,' Mr. Markovich said. But before the new water services could flourish, retailers had to build enormous East Coast distribution centers where imported products could be stored or processed before going to stores. The warehouse construction began in Southeastern ports like Savannah, which Wal-Mart has adopted as one of its most important import hubs. Now it is the New York region's turn. In 2002, Michaels opened a warehouse with 13 football fields' worth of floor space in Hazleton, Pa., handling deliveries that arrive in New York, destined for stores from Maryland to Maine and as far west as Ohio. Lowe's, the home improvement chain, has a new distribution center in nearby Pottsville, Pa., as does Big Lots, a 1,400-store discount retailer. Vast warehouses have also opened or are under construction in central New Jersey, where Home Depot and Williams-Sonoma have set up camp. Meanwhile, New York's reputation as a forbiddingly expensive port has been tempered by a 1990 agreement with longshoremen that allows lower salaries for newly hired workers; half of the workers are paid at this reduced rate, cutting labor costs by $46 million just last year. On the West Coast, an 11-day strike by dockworkers in 2002 had retail executives like Mr. Markovich demanding that the ship lines increase their services to the East Coast. Since then, the flow of Asian wares into West Coast ports has become a flood; at times, as many as 80 ships are waiting to unload. So to get merchandise to the East Coast, ship lines have invested in larger, faster ships with more powerful engines. Ships like the Hyundai Glory can move at 25 knots, instead of the 16 knots for a 1960's-vintage ship. As New York's popularity has grown, more ship lines have added direct service to the port, which might have been a ship's third or fourth American port of call. On a nonstop route, Michaels can move sewing kits or paintbrushes from China to New York in as little as 22 days, instead of the roughly 35 days the trip took five or so years ago. That is still about three days longer than the overland route, but it costs about $300 to $600 less per container, a significant savings for cost-conscious retailers. 'Three or four years ago, nobody wanted to listen to talk about All Water,' said Dave Akers, managing director of the Toy Shippers Association. 'The transit direct to the East Coast just would not put it in the stores in time. Now, it is fast enough in most cases to be competitive. It is a huge change.' New York consumers who buy Asian goods are still more likely to pick up a product that landed first in California; about 65 percent of the merchandise sent last year from Northeast Asia to the Atlantic Coast arrived first on the West Coast. But that was down from 86 percent in 1999, according to an analysis by the Panama Canal Authority. And so far, the mounting Asian trade has been largely a one-way affair. After unloading 1,120 containers from the Glory, the longshoremen reloaded the ship for the return trip. Of 667 containers to be sent back, 419 were empty, being returned to Asia to carry more goods back to the United States. Of the rest, most were stuffed with two of New York's biggest exports: wastepaper and scrap metal. This is just one manifestation of the enormous trade imbalance between China and the United States. Howland Hook itself, where the Glory landed, used to be home to a sprawling Ivory Soap manufacturing plant. What remained of the factory has been leveled to create what in effect is a giant import depot.

Subject: Importance of Asian Trade 3 From: Emma To: Emma Date Posted: Mon, Nov 22, 2004 at 21:35:10 (EST) Email Address: Not Provided Message: The Transformation: Agency Races to Meet the Growing Demand The piers seemed a world away as 17 executives assembled around a table on the 11th floor of a Midtown office building for the 8:30 a.m. weekly Port Authority staff meeting. Yet in the head seat, wearing a tie dotted with tiny red anchors, was a retired Coast Guard rear admiral, Richard M. Larrabee, whose leadership will determine, perhaps more than anything else, whether the port is in the midst of a historic and sustainable resurgence or a fumbled opportunity. Port officials have talked for years about investing more in the ship terminals. But the talk was based on predictions, as recently as 1999, that the number of containers passing through might start to grow by 3.5 to 4 percent a year. Now, after five years during which the average annual growth in container cargo has been 8.6 percent, those vague plans have become an urgent sprint to finish all expansion projects before the spike in traffic overwhelms the port. Mr. Larrabee knows that several Atlantic ports, from Savannah to Halifax, Nova Scotia, are poised to grab any business that New York cannot manage. 'It is absolutely critical,' said Mr. Larrabee, director of the authority's Port Commerce Department, interrupting a colleague who was describing the dredging of the channel that serves Howland Hook. If the ship terminal operator 'does not get deep water by the end of the year, he is going to have some of his customers looking elsewhere,' he said. On one wall, a mammoth map, labeled The Game, marked New York as the center of a bull's-eye with rings radiating out as far as Illinois and Canada, identifying the richest consumer market in the world, where 80 million people live within a 24-hour truck trip. Next to that, a timetable with more than 1,000 tiny boxes detailed tasks and deadlines to be met. The Port Authority has not been the most nimble agency. Mayor Rudolph W. Giuliani complained that it mismanaged the city's airports. Squabbling between New York and New Jersey over how to split the port's resources has stalled construction projects, and even held up the current expansion for more than a year. Security measures after the Sept. 11 terror attack added another level of planning and expense. But the work has begun. At Port Elizabeth, home to the authority's two busiest terminals, demand for space was so low in the 1970's and 80's that the authority leased valuable property for low-rent storage. Nearly 50 acres of those warehouses have been knocked down to make room for arriving ship containers, which are now stacked across the lots like loaves of bread at some out-of-control bakery. At Maher Terminal, new gates - a toll-booth-like complex where cameras automatically record identification numbers on trucks and containers - will allow 10,000 trucks to move in or out each day, nearly double the current capacity. Nearby, dozens of construction workers spent 11-hour days last summer building an 18-track express railyard to replace the existing 4 tracks, permitting as many as 750,000 containers a year to move through by rail by 2008, compared with 230,000 last year. Across a narrow inlet, at the Port Newark Container Terminal, the wharf has been rebuilt to handle heavier cranes and cargo. At Howland Hook, the summer brought something that would have seemed inconceivable just a decade ago: new wharves. Enough new dock space is being built to allow three large container ships to unload at the same time, and there are plans for another berthing area to handle four. Near the spot where the Hyundai Glory was unloaded, Peter Clerkin, a mechanical engineer from Ireland, is supervising a team installing four huge new cranes, costing $6.6 million apiece. Nearly as tall as the Statue of Liberty, the cranes can load and unload the new generation of ships that cannot fit through the Panama Canal. Harborwide, 19 of these cranes have been constructed or ordered in the last two years. 'We are changing the skyline of this area, for miles around,' Mr. Clerkin said. 'These are the port's new landmarks.' The most complicated project is re-establishing a freight-rail link between Staten Island and the rest of the country, at a cost of about $150 million. New York City bought and repaired the Arthur Kill Lift Bridge and a 15-mile spur of track a decade ago, but until now, the revival of this rail service, which should start at the end of 2005, has been no more than a dream. But the port can expand only by moving many more containers over the same terminal space. Although the Port Authority is considering opening a new container port in Bayonne, N.J., there is little other waterfront land available with easy access to railroads and highways. The quest for greater productivity makes the modernization complex and risky. The authority has set extremely high goals, predicting, for example, that by 2020 each acre will handle an average of 3,000 containers a year, twice as many as today. Trucks carry about 85 percent of all freight in and out of the port, so to keep from overloading the highways, the authority hopes to nearly double the use of rail by 2020. For Mr. Larrabee, the most delicate part of his Port Authority job is coordinating the teams of contractors, agencies and corporations, stretching from New Jersey to Korea, so they finish at the same time. Dredge a deeper harbor without rail access, build a longer wharf without new cranes, construct a new rail terminal without a bridge - miss any piece - and the plan could falter. 'There's a lot of variables,' he said. 'But at some point, you have to say to yourself, 'I'm willing to take the risk.' ' The Panama Canal: A Crucial Waterway Is Pushed to Its Limit The sun had not yet risen above the lush hills that slope gently to the Pacific Ocean at the entrance to the Panama Canal. But the Hanjin Los Angeles, another in the stream of container ships traveling nonstop from Asia to New York, was already waiting at the entrance, the 11th in line one morning for the 50-mile journey between the seas. New York was four sailing days away. Yet what was happening here, as the Panamanian pilot, Luis Prescod, climbed a ladder to board the Los Angeles, had clear implications for the future of New York's port. With the rise of China and Northeast Asia as leading manufacturing centers, the canal has suddenly become as important as the George Washington Bridge for freight headed to New York. But while the Port Authority owns the bridge, Mr. Larrabee and his team have no say over affairs in Panama, manager of the canal since 1999. For the moment, the canal link is working for New York, though just barely. The Hanjin Los Angeles, like the Hyundai Glory, is a Panamax-class vessel, which is just what it sounds like: a ship built to use the Panama Canal to its maximum. At 951 feet long and 105 feet wide, the Los Angeles, once the pilot steered it into the canal's Miraflores lock, had just two feet to spare on each side and 25 feet at each end. The Hanjin's bow bounced briefly against a bumper on the wall of the lock, prompting a 'stop engines' order from Mr. Prescod. But because he has been performing this kind of miracle for 15 years, the trip through the canal otherwise proceeded uneventfully. One day last year, 24 of these Panamax ships inched through, carrying nearly one million tons of cargo. The Panama Canal Authority heralded those record numbers as a sign of the canal's growing popularity. But they were also a warning that this water superhighway is closing in on its limits. Hanjin, the South Korean shipping company that owns the Hanjin Los Angeles, has 22 post-Panamax ships, and more on order. These ships are also just what they sound like: too big to squeeze through the locks. Over the next four years, the 227 post-Panamax container ships due to be built and delivered represent more than half of the total number of container ships on order, according to Drewry Shipping Consultants of London. One Port Authority consultant, Sir William Halcrow & Partners, estimated two years ago that by 2020, two-thirds of the nation's container imports would be aboard ships too big to navigate the canal. Their size is not the only concern. In the fiscal year that just ended, 267 million tons of goods passed through the canal, up 10 percent in one year, and closing in on the canal's capacity of 284 million tons. Traffic is so heavy that if a ship misses its crossing time, it must sometimes wait a day or longer before it can slip into the queue, delaying its arrival on the East Coast. 'The growth in traffic has exceeded all expectations,' said Rodolfo R. Sabonge, the director of corporate planning and marketing for the Panama Canal Authority. There is a plan to build a new canal lane, Panama's third, and a larger set of locks, a project that would cost billions and take at least a decade. The canal authority will most likely ask Panama this year to schedule a national referendum on the plan. Even if the canal is not widened, Port Authority officials say, there will be enough trade to justify an expanded New York port. It is also possible to reach New York from China through the Suez Canal, which can accommodate even the biggest ships, although the trip takes three or four days longer. For now, what is beyond debate is that the ships that cross the world have changed their course. That was evident on the bridge of the Hyundai Glory as it slowly pulled into New York, its crew in their bright orange uniforms standing alongside harbor pilots who sipped green tea. New York, once again in a big way, is at the top of the schedule. 'Stop engines,' Mike Schnepp, the pilot, called as the Glory drifted the final few feet into Howland Hook. K. J. Yoo, his hand on the thruster, called back, 'Stop engines, sir.'

Subject: More important question From: Pete Weis To: Emma Date Posted: Mon, Nov 22, 2004 at 20:56:45 (EST) Email Address: Not Provided Message: While the subject of this article has to do with good times for New York longshoreman and harbor workers, the much, much more important question is what goods are heading back to Asia on those ships? And what is their comparative dollar value?

Subject: Fine Questions From: Emma To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 21:36:40 (EST) Email Address: Not Provided Message: Fine questions. We must be pushing hard for fair trade with China.

Subject: Son't Say 'Poverty' From: Emma To: All Date Posted: Mon, Nov 22, 2004 at 10:47:55 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/22/opinion/22herbert.html?hp Shhh, Don't Say 'Poverty' By BOB HERBERT Former Senator Phil Gramm, a Republican from Texas who was known for his orneriness, once said, 'We're the only nation in the world where all our poor people are fat.' That particular example of compassionate conservatism came to mind as I looked over a report from the Department of Agriculture showing that more than 12 million American families continue to struggle, and not always successfully, to feed themselves. The 12 million families represent 11.2 percent of all U.S. households. 'At some time during the year,' the report said, 'these households were uncertain of having, or unable to acquire, enough food for all their members because they had insufficient money or other resources.' Of the 12 million families that worried about putting food on the table, 3.9 million had members who actually went hungry at some point last year. 'The other two-thirds ... obtained enough food to avoid hunger using a variety of coping strategies,' the report said, 'such as eating less varied diets, participating in federal food assistance programs, or getting emergency food from community food pantries or emergency kitchens.' These are dismal statistics for a country as well-to-do as the United States. But we don't hear much about them because hunger is associated with poverty, and poverty is not even close to becoming part of our national conversation. Swift boats, yes. Sex scenes on 'Monday Night Football,' most definitely. The struggle of millions of Americans to feed themselves? Oh no. Let's not go there. What does that tell you about American values? We are surrounded by poor and low-income people. (The definitions can be elastic and easily blurred, but essentially we're talking about individuals and families that don't have enough money to cover the essentials - food, shelter, clothing, transportation and so forth.) Many of them are full-time workers, and some have more than one job. A new study by the Center for an Urban Future, a nonprofit research group, found that more than 550,000 families in New York - a quarter of all working families in the state - had incomes that were too low to cover their basic needs. We just had a bitterly contested presidential election, but this very serious problem (it's hardly confined to New York) was not a major part of the debate. According to the study: 'Most low-income working families do not conform to the popular stereotype of the working poor as young, single, fast-food workers: 88 percent of low-income working families include a parent between 25 and 54 years old. Married couples head 53 percent of these families nationwide. Important jobs such as health aide, janitor and child care worker pay a poverty wage.' In its introduction, the study says, 'The implied bargain America offers its citizens is supposed to be that anyone who works hard and plays by the rules can support his or her family and move onward and upward.'

Subject: Broken bargain From: Pete Weis To: Emma Date Posted: Mon, Nov 22, 2004 at 20:50:00 (EST) Email Address: Not Provided Message: Excellent post Emma. 'The implied bargain America offers its citizens is supposed to be that anyone who works hard and plays by the rules can support his or her family and move onward and upward.' This also brought to mind the former Enron, Worldcom, Airlines employees, ex high tech employees, etc. who are 50 years of age and up and left without a pension or much of a 401K to support them in their 'golden' years. In contrast you have to wonder how top executives have gotten to the point of collecting salaries hundreds of times the level of the average corporate employee and often millions in stock options to boot.

Subject: Re: Broken bargain From: Terri To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 21:59:30 (EST) Email Address: Not Provided Message: There, I agree as well :) What fine posts these all are.

Subject: Don't Say 'Poverty' From: Emma To: Emma Date Posted: Mon, Nov 22, 2004 at 12:33:03 (EST) Email Address: Not Provided Message: Good grief! Don't say 'poverty.' Blame it on a dull computer screen, not on me. Ah...

Subject: Foreign central banks - stop digging? From: Pete Weis To: All Date Posted: Mon, Nov 22, 2004 at 08:42:28 (EST) Email Address: Not Provided Message: Reuters ANALYSIS: Dollar Fall Will Come at a Price for All Sunday November 21, 11:53 am ET By Mike Dolan, Economics Correspondent WASHINGTON (Reuters) - The United States is set to turn a blind eye to the sliding dollar and a deaf ear to protests about its fall, but experts smell trouble for all in what looks like an effective devaluation of the world's reserve currency. While a messy, uncontrolled slide in the dollar may help cut record U.S. trade and budget deficits, it transfers the pain to its creditors and could rebound on the United States by inflicting a longer-term dent on the dollar's prized reserve currency role. The risk that central banks around the world look to diversify their holdings away from dollars was highlighted by Federal Reserve Chairman Alan Greenspan on Friday. In a speech seen to accept the inevitability of a dollar decline to help ease U.S. deficits, Greenspan warned foreigners face an 'unacceptable amount of concentration risk.' With too many of their eggs already in one basket, he said, foreigners will be increasingly reluctant to bankroll rising U.S. trade and budget deficits with ever more purchases of its bonds, equity and other assets without much higher returns. In the absence of more concrete efforts to rein in the budget, economists said that Greenspan was explaining the logic that the dollar will take the heat. Many economists agree and say this should be a big concern for both U.S. policy-makers as well as U.S. creditors. 'Further substantial increases in the U.S. net debtor position would raise the prospect of a substantial U.S. dollar depreciation, with the associated capital losses inflicted on its creditors,' said Philip Lane, professor of international macroeconomics at Trinity College, Dublin. 'In turn, this may threaten the special status of the dollar, also in light of the emergence of the euro as an alternative reserve currency, and raise the rate of return required by foreign investors on dollar instruments.' SLIPPING HALO Despite the emergence of the euro five years ago, more than two-thirds of foreign reserves -- well in excess of $2 trillion -- are still banked in dollars and U.S. bonds. The decades-old reputation the dollar has as a liquid, long-term store of value means the United States has to date received cheap and risk-free foreign funding in its own currency from foreign governments seeking to bank their reserves safely. Foreign central banks, for example, are set to finance some 60 percent of the U.S. budget deficit for 2004. But this cheap financing has, in part, allowed the U.S. budget and trade deficits to blow out to unprecedented levels without any penalty on the U.S. government and has heaped pressure on the dollar to weaken to keep attracting investment. Resisting this dollar fall to keep exports competitive in the United States, many central banks in Asia and elsewhere have amassed even more dollars -- with just Japan and China now holding more than a trillion dollars in reserves to date. But this arrangement may be reaching a breaking point. 'The concentration risk that Greenspan highlights is the real problem for foreign central banks,' said Phil Suttle, international economist at JP Morgan in Washington. 'Greenspan is lecturing them on the risks they face from preventing a market-led dollar decline.' STOP DIGGING? For the central banks that have been financing the U.S. deficits and propping up the dollar, the issue is whether to stop now and take any dollar foreign exchange loss on the chin or wait longer and sustain even bigger losses down the road. Economists say there is no really elegant way out, but if you are in a hole, it may be advisable to stop digging. A further decline in the dollar, already more than 25 percent (^DXY - News) weaker since President Bush came to power, looks likely either way. Neither the U.S. Treasury nor the U.S. Federal Reserve looks willing to stand in its way. Nouriel Roubini, associate professor of economics at New York University's Stern Business School, said he felt the 'game' of foreign reserve accumulation was very fragile and could be undermined sooner than many think. Roubini, who was a White House and Treasury economic adviser between 1998 and 2001, said it takes only one or two smaller central banks -- like in India or Russia -- to start diversifying reserves to undermine the whole process. 'The central bank accumulation is a game but it is a game that can be played only if there is no free riding,' said Roubini, saying that the fear of a dollar slide would now be worrying for many developing countries. For example, he said, if China allowed the yuan to float freely and the dollar dropped 20 percent, it would incur a capital loss on its half trillion of reserves equivalent to about 8 percent of its annual gross domestic product.

Subject: Re: Foreign central banks - stop digging? From: Emma To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 11:24:57 (EST) Email Address: Not Provided Message: The decline in value of the dollar has so far been gradual, given this and the complacency of the Treasury Secretary and Federal Reserve Chair I am not sure how worrisome the trend is. Economists seem to be increasingly worried.

Subject: Re: Foreign central banks - stop digging? From: Terri To: Emma Date Posted: Mon, Nov 22, 2004 at 12:56:40 (EST) Email Address: Not Provided Message: Do we completely discount Alan Greenspan's sense that the dollar would continue to lose value, but the economy would adjust quickly and so with no need for a crises? I lean towards accepting the Fed chief's judgment. Changing the prices of currencies to ease trade imbalances, does not have to result in a crisis here or abroad. We have a flexible economic base that has adjusted to several severe economic problems since 1998.

Subject: Re: Foreign central banks - stop digging? From: Terri To: Terri Date Posted: Mon, Nov 22, 2004 at 17:09:50 (EST) Email Address: Not Provided Message: Notice how the American market is responding to Alan Greenspan's speech; stocks up and bonds up. Not that a day means anything, but I found Greenspan's speech profound and comforting. And I have all sorts of complaints about the Fed chief, but not about the speech.

Subject: Comfort From: Pete Weis To: Terri Date Posted: Mon, Nov 22, 2004 at 20:32:30 (EST) Email Address: Not Provided Message: Alan is not very comforting for me.

Subject: Comfort? From: Terri To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 21:11:50 (EST) Email Address: Not Provided Message: Well, I would trade Alan Greenspan for Robert Rubin in a flash. But, I am hoping the Fed can go to a 3% Federal Funds rate without much slowing of the economy. Has monetary policy been effective since 1998? I think so, but I will readily admit to you I was wrong if so it turns out. On tax policy Greenspan made an awful mistake.

Subject: Re: Et tu, Alan From: El Gringo To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 20:37:57 (EST) Email Address: nma@hotmail.com Message: http://www.pkarchive.org/column/12801.html

Subject: Re: Et tu, Alan From: Terri To: El Gringo Date Posted: Mon, Nov 22, 2004 at 21:15:29 (EST) Email Address: Not Provided Message: Paul Krugman - 1/28/01 Despite his legendary obscurity, what Alan Greenspan has to say is usually quite clear and intellectually coherent once translated into English. But his testimony last Thursday before the Senate Budget Committee was evasive and often inconsistent. It was hard to avoid the impression that Mr. Greenspan's intent was to give aid and comfort to the new administration, while retaining plausible deniability. True, Mr. Greenspan explicitly rejected the administration's argument that we must immediately cut taxes to prevent a recession. While conceding that the economy may grow little if at all this quarter, he suggested that a recovery would probably be under way before tax cuts could have any impact. By the way, new evidence suggests that manufacturing, which suffered a nasty downturn in the last few months, has already started to rebound. Nonetheless, the headlines were all about Mr. Greenspan's endorsement of tax cuts — something the Fed chairman must have known would happen. And when you look at the tortured logic by which Mr. Greenspan arrived at that endorsement, you have to wonder whether those headlines weren't exactly what he wanted. His argument went as follows: given its projected surpluses over the next decade, the federal government may not only pay off its debt, but actually find itself using surplus cash to buy private assets. This could cause problems, he suggested, because it would be 'difficult to insulate the government's investment decisions from political pressures.' So we should engage in 'pre-emptive smoothing of the glide path,' which turns out to mean cutting taxes enough so that the federal government never does pay off its debt, after all.

Subject: Re: Et tu, Alan From: Pete Weis To: El Gringo Date Posted: Mon, Nov 22, 2004 at 21:12:30 (EST) Email Address: Not Provided Message: 'When a man who is usually a clear thinker ties himself in intellectual knots in order to find a way to say exactly what the new president wants to hear, it's not hard to guess what's going on. But it's not a pretty sight.' Comfort for a very few and much discomfort for the masses.

Subject: Re: Et tu, Alan From: El Gringo To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 21:27:37 (EST) Email Address: nma@hotmail.com Message: Dear Pete, is the world flat?

Subject: Re: Et tu, Alan From: Pete Weis To: El Gringo Date Posted: Mon, Nov 22, 2004 at 21:34:22 (EST) Email Address: Not Provided Message: Dear El Gringo. No, it's a pyramid.

Subject: Re: Et tu, Alan From: El Gringo To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 21:45:10 (EST) Email Address: nma@hotmail.com Message: MALEDIZIONE! Respect dear Pete, respect!

Subject: 'Rigoletto' From: Terri To: El Gringo Date Posted: Tues, Nov 23, 2004 at 06:54:39 (EST) Email Address: Not Provided Message: MALEDIZIONE!

Subject: I'm actually a realist..... From: Pete Weis To: El Gringo Date Posted: Mon, Nov 22, 2004 at 23:08:59 (EST) Email Address: Not Provided Message: and despite my rants I don't expect this world to be a utopia of fairness and/or honesty. But I would like to see the slippery sides of this pyramid of a world have a more gradual slope.

Subject: Ha ha... From: Terri To: El Gringo Date Posted: Mon, Nov 22, 2004 at 21:53:36 (EST) Email Address: Not Provided Message: MALEDIZIONE! Name the opera that hinges on this word. My favorite, my favorite. No hints. The name is...?

Subject: Re: Ha ha... From: Terri To: Terri Date Posted: Mon, Nov 22, 2004 at 21:54:35 (EST) Email Address: Not Provided Message: You guys are terrific! What is my opera?

Subject: Re: Ha ha... From: El Gringo To: Terri Date Posted: Mon, Nov 22, 2004 at 22:03:03 (EST) Email Address: nma@hotmail.com Message: 'Porca le miseria e porca la guerra'?

Subject: Re: Sorry ... From: El Gringo To: El Gringo Date Posted: Mon, Nov 22, 2004 at 22:09:43 (EST) Email Address: nma@hotmail.com Message: May I apologize for this teeny tiny mistake: 'Porche le miserie e porca la guerra!'?

Subject: Markets From: Terri To: All Date Posted: Mon, Nov 22, 2004 at 01:27:56 (EST) Email Address: Not Provided Message: We will find out quickly how investors react to the speech by Alan Greenspan, for the Fed is rightfully not going to defend the dollar at the expense of the economy.

Subject: Future direction of oil pricing From: Pete Weis To: All Date Posted: Sun, Nov 21, 2004 at 20:57:02 (EST) Email Address: Not Provided Message: With a steadily shrinking dollar and growing demand by emerging economies such as China we will look back at $50 per barrel as a very fond memory. From the LA Times: China's growing thirst for oil seen driving its foreign policy By Don Lee Los Angeles Times SHANGHAI — About a three-hour drive south of Shanghai, along the East China Sea, workers are building 52 gigantic tanks, each capable of holding more than 25 million gallons of oil — enough to supply every driver in China with gasoline for a month. The storage tanks will help accommodate China's thirst for oil as it looks to fuel its booming economy. And it has plans to stockpile much, much more. China, the world's second-largest consumer of oil after the United States, has plenty of cash to secure sources of petroleum and natural gas. But as aggressively as any nation, it is also cutting deals and forging alliances to get the energy it needs. Long-range projects In South America and Africa, the Chinese government is helping build roads and ports in exchange for oil-supply contracts. Beijing pledged to support oil-rich Russia in its bid to join the World Trade Organization as the two countries agreed that Russia would boost its exports of crude by rail to China. And after a Chinese company's deal to develop an oil field in Iran, Beijing tacitly offered political support for Tehran's budding nuclear program. That put China in direct cross hairs of the Bush administration. The hunt for energy in the former Soviet Union and political hot spots such as Sudan is making China few friends in Washington. China is 'throwing around its economic muscle like crazy,' said David Lampton, head of China studies at Johns Hopkins University's School of Advanced International Studies. 'It's going to be a real topic of U.S.-China relations.' Some Chinese officials dismiss the threat of increased friction over energy. 'Although oil trade plays an important role in every field, it has a limited influence in Sino-American relations,' said Han Wenke, vice director of the energy institute affiliated with the National Development and Reform Commission, an important regulatory agency of the Chinese central government. Oil = stability Beijing's pursuit of energy is all about maintaining the nation's strong economic growth, which Communist Party leaders believe is the linchpin to social stability and ultimately their legitimacy. Oil and natural gas, and lots of both, are needed to keep factories running and to power all the new cars hitting freshly paved streets. Only a decade ago, China shipped out more crude than it imported. This year it has sharply reduced exports to meet domestic needs — and it is now the world's second-largest importer of oil after the U.S. Surging Chinese demand, which has helped drive up oil prices to record levels in the past year, is expected to rise by double-digit growth rates annually for the next 15 years. Although crude prices recently have settled back to less than $50 a barrel, China's rapid economic expansion is almost certain to add pricing pressure over the long haul. The country accounts for about 6 percent of world consumption; that's projected to rise to more than 9 percent in 2020, as Chinese oil fields dry up. (One-fifth of global oil demand comes from the United States.) A new pragmatism Wary of its increasing reliance on a few foreign oil suppliers, China has formulated a 'go-out' strategy to diversify and expand its energy capabilities. The plan involves cooperating with 27 countries for oil exploration. Beijing also is pouring money into developing its own pipelines and liquid-natural-gas terminals and launching an array of energy-conservation programs at home, including imposing fuel-economy standards on new cars. 'There is a rationale from Beijing that is very dominant: If you can supply oil and do business, we would like to sign a deal,' said Wenran Jiang, a political scientist at the University of Alberta in Canada. 'China is very nonideological in that sense. They will think about it, but they're not driven by the strategic interest in Washington.' Sudan is one example. Among China's African energy partners, which together provide about 20 percent of the country's oil and natural gas, the single largest is Sudan. Since the late '90s, Chinese oil companies have poured hundreds of millions of dollars into developing oil fields, a pipeline and a refinery. Despite long-running criticisms by the United States and international groups about human-rights abuses in Sudan, Chinese foreign officials have been quoted as saying simply that business is business. In Africa, China has also signed deals to buy oil from Nigeria, Gabon, Cameroon and Angola. Last year China extended a $2-billion loan to Angola in exchange for 10,000 barrels of crude oil a day. He Jun, a senior analyst at Beijing-based Anbound Strategic Consulting Co., doesn't think China will let itself become involved too heavily in sensitive African nations such as Sudan. 'China's main purpose is still to develop its economy under a peaceful circumstance,' he said. Others note that the U.S. and other big consumers of oil also have bought energy supplies from unsavory governments. For China, more promising are its efforts closer to home. In September, crews began constructing a 770-mile pipeline running from the oil-abundant Caspian Sea coast in Kazakstan to China's western border, connecting with another trunk line all the way to China's east coast. The pipeline's initial capacity would be about 10 million tons of crude a year, said Matthew Cairns of Economy.com in Sydney, Australia. Earlier, during a visit to Russia by Chinese Premier Wen Jiabao, the two countries reached the agreement about Russia exporting more crude to China. Cairns said it was no coincidence then that Wen promised to give Russia support for its WTO bid. 'It's a very cunning political maneuver,' Cairns said. In Russia, China also has sought a crude-oil pipeline from eastern Siberia to Daqing in northeast China, to have ready access to supplies. But Japan appears to have won its bid to have the pipeline routed to the Russian port city of Nakhodka on the Sea of Japan. Friction with Japan Japanese and Chinese companies have clashed more openly over exploration for natural gas in the East China Sea. Tokyo is worried that China would siphon gas from the Japanese side of the ocean bed, and has insisted that China provide details about the natural-gas field. Some political analysts say the competition for energy will severely test the relations of China and Japan in particular. But energy diplomacy also raises new challenges for the West, as the economic and political center in Asia shifts from the United States and Japan to China. Heightened geopolitical tensions over China's oil imports come as little surprise to Jeffrey Logan, China program manager at the Paris-based International Energy Agency. 'As China enters the world more and more, it's going to depend on the world's resources more and more,' he said.

Subject: Re: Future direction of oil pricing From: Terri To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 01:25:01 (EST) Email Address: Not Provided Message: The Vanguard Energy Fund has been the perfect hedge so far. I love this fund for the conservatism and international scope. Though I have no idea what the price of a barrel of oil may be in a year, I intend to hold this fund for many years to come.

Subject: Wall Street Corruption From: Pete Weis To: All Date Posted: Sun, Nov 21, 2004 at 12:51:25 (EST) Email Address: Not Provided Message: When the stock markets were dropping between 2000 and October 2002, it was like a lowering tide which revealed a considerable amount of corruption below the waves. The rising markets during the 90's served to hide what was really going on below the surface. Many companies were simply not making the earnings they were reporting and bankruptcy for many of them was held off by all the money flowing into their stocks. Then the fall in the markets stripped away much of the 'life preserver' cash which enabled them to hide the truth. We had large numbers of corporate bankruptcies during the 2000-2002 period and some like Enron and Worldcom set records well beyond anything experienced in history. Our largest banking institutions such as Citigroup and Chase-Manhattan-JPMorgan actively assisted companies like Enron to perpetrate a fraud. They created phony offshore companies to funnel loans to companies like Enron and make them look like profits from - in Enron's case - energy trading rather than debt which should be applied to the expense side of the ledger. E-mails by banking execs talked about these methods as a good way to hide from the investors the true nature of the balance sheets of these companies and for the need to market these techniques to more companies. Considering all the lost retirement savings by folks who worked for companies like Enron and Worldcom and all the lost investment funds by investors in general, you would have thought federal agencies would have done much more to go after the guilty. But to my knowledge no federal agency or department is going after the banking execs responsible for designing this terrible fraud. The 2003 rally in stocks along with the relative flat market of 2004 has given us a reprieve from large numbers of corporate bankruptcies. But you have to wonder what might be revealed if we have yet another market plunge in our future. Gretchen Morgenson has done a superb job of educating the public with her many fine articles on Wall Street misdeeds. The following is a piece from the NYT's: November 21, 2004 Next Up for Spitzer: Funny Numbers By GRETCHEN MORGENSON LIOT SPITZER, the New York attorney general, has already exposed insurance industry secrets like bid-rigging and hidden commissions. Now he is training his spotlight on an even murkier part of that universe: the buying and selling of insurance policies that artificially bolster companies' financial statements. The policies in question are known as finite insurance or financial reinsurance. They are sold as ordinary insurance policies, which allow companies that buy them to receive favorable accounting treatment - smoothing out losses on their books, for example. To critics, however, the policies are structured less like insurance and more like loans. At heart, they say, finite insurance is simply a form of financial engineering that masks the strength or weakness at the companies that buy them. As such, its use has probably had a much greater impact on investors and customers than other industry practices that Mr. Spitzer has singled out. The deals offer an especially rich vein for investigators to mine, industry analysts say. And last week, Mr. Spitzer sent out a flurry of subpoenas to insurers - including Ace Ltd., the St. Paul Travelers Companies and Zurich Financial Services - about policies they may have sold to help customers eliminate or offset losses that would have hurt their financial results. The Securities and Exchange Commission and the Justice Department are also scrutinizing financial engineering products sold by insurers. All three companies said they were cooperating, but they declined to comment further. By far the biggest customers for such policies are insurers themselves, so investigators will be looking at how these companies may have used these contracts to make their books look better. As regulators unravel these arrangements, industry analysts say, they are likely to discover a labyrinth of deals among insurance companies that are often routed through tax havens in Bermuda or the Caribbean. Given the complexity and secrecy of such deals - they are often not disclosed on insurers' financial statements and require a good bit of detective work to find - cases related to them may not come to light for some time. But industry analysts who have uncovered some of the arrangements on their own in recent years say that their use is widespread. No one knows for sure how large the market is for such policies. Robert Arvanitis, president of Risk Finance Advisors, a corporate finance advisory firm in Westport, Conn., that specializes in insurance, estimates that in any given year, $50 billion of all insurance premiums involve policies with some kind of finite element. Some of the policies have been sold to companies like Honeywell, the diversified technology giant, and Brightpoint Inc., a cellphone maker. But most of these deals are struck among insurance companies. The arrangements allow insurers to bolster their net worth or surplus, a figure that investors check when weighing an insurer's financial soundness. Indeed, some deals have masked declining financial positions at both life and property-casualty insurance companies that later failed or are now on the edge. Finite insurance benefits customers in several ways. For one thing, it allows a company to avoid having to record a loss as a lump-sum deduction from its books; instead, it can spread out the loss over a predetermined period. For another, the insurance premium that companies pay for the policy is tax deductible. And if the loss a company anticipates never materializes, policy holders even get back some of the premium they paid. FOR the companies that buy the policies, not having to report a loss means that their surplus - the crucial measure of their soundness and the figure that decides how much new business can be written - does not take a hit. This is why finite insurance often shows up on the books of weaker insurers. The trouble is that buyers of such coverage are mortgaging their future earnings power. In effect, they are giving up the investment income they would have earned on the money they used to pay the policy's premium. That is something investors in insurance stocks would clearly want to know about. The biggest risk in such a policy, however, emerges when a regulator or auditor decides that it is not really insurance, in which true risk is transferred from one party to another, but a financing arrangement in which the premium paid by the company buying the coverage is seen as a deposit or a loan. In such a case, the beneficial accounting treatment disappears. 'As users of financial statements, we believe that the volatility of an insurer's accounting results should reflect the volatility of the underlying economic results,' said Michael J. Barry, a managing director at Fitch Ratings, a ratings agency in New York that holds a negative view of these policies. 'But most finite insurance results in a disconnect between those two.' As a result, Fitch tries to discount the financial effect of such deals when it assesses insurers' financial positions. Finite insurance has been around since the 1960's, but the first company set up specifically to sell such policies, Centre Reinsurance, was started more than 20 years later. In 1988, Guy Carpenter, a reinsurance subsidiary of Marsh & McLennan, was instrumental in creating Centre Re. To some degree, the finite insurance products that Centre Re and others began to sell in the 1990's simply represented a way for the industry to formalize what insurers had been doing informally for decades. But it wasn't until the late 1990's that finite insurance took off. At that time, too many insurers were chasing too few customers, and premiums and profits were in decline. It was, in industry parlance, a soft insurance market. Hoping to increase the amount of premiums they took in, insurance companies became highly creative about the financial reinsurance products they were selling. At the time, financial services firms were acquiring insurance companies and integrating them into their operations. Perhaps inevitably, finance and insurance began to converge. In a June 2001 discussion about finite insurance that appeared on Guy Carpenter's Web site, Michele Fleckenstein, a managing director at the company and head of its Finite Specialty Initiative, said its finite programs were growing more than 25 percent annually in previous years. She explained why: 'Companies are facing escalating pressure, both internally and externally, to protect their business plans and achieve forecasted results. The need for these covers stems from the extreme pressure that companies face to make planned results and not have any surprises.' To be sure, all insurance is designed to ameliorate the effects of negative 'surprises' - say, fires or floods. But increasingly, the types of surprises that finite insurance was intended to mitigate were those that led to volatile company earnings or asset write-downs. In January 1999, Reliance Insurance introduced a product it called Enterprise Earnings Protection Insurance. Reliance executives said the policies were designed for midsize companies interested in protecting their earnings from situations like a disruption in the supply chain or a loss of important customers. It is not clear exactly how much of this insurance was sold. Reliance failed spectacularly in 2001, under a mountain of debt. The American International Group, one of the world's largest insurance companies, is often at the forefront of developing new insurance products. In 1997, it created a policy that combined traditional insurance with coverage of financial risks and sold it to Honeywell. A double-barreled policy, it covered both Honeywell's currency risk and its more traditional risks, like increased workers' compensation claims. The policy eliminated Honeywell's need to hedge its currency risks with derivative contracts that were costly and not tax deductible, the way insurance premiums are. Derivatives are financial instruments whose values are based on another asset. The policy, as described on an A.I.G. Web site, is called a Coin, for commodity embedded insurance. Among its benefits, according to the site, is the 'attractive tax and accounting treatment' that may be available in 'this blended insurance program.' It also 'protects earnings from unexpected or unintended losses,' the site says. But the coverage of possible currency losses by the policy resembled a derivative contract, as the Financial Accounting Standards Board said in 2001. It ruled that if the program involved little risk, it was not insurance and would have to be treated as a derivative contract and applied to its books. That would have eliminated the appeal of the policy. Accounting rule makers, however, leave it up to the company to determine whether and how much risk is involved. So companies using such blended products may have been encouraged to overstate the risk to achieve the desired accounting treatment. Joe Norton, an A.I.G. spokesman, said Honeywell was the only company to buy a Coin. The contract ran for two and a half years, he said, and had a significant risk transfer component. He said Coins had not been marketed since 1999, and that it was an oversight that its description had not been removed from the Web site. An official at Honeywell did not return a phone call seeking comment. A.I.G. also sold Brightpoint a different kind of finite insurance that helped that company hide $11.9 billion in losses in 1998, running afoul of the S.E.C. The insurer paid $10 million to settle the matter with the S.E.C., neither admitting nor denying wrongdoing. But when regulators announced the settlement of the case in September 2003, they said A.I.G. helped mislead investors by selling Brightpoint a 'new 'insurance' product that A.I.G. had developed and marketed for the specific purpose of helping issuers to report false financial information to the public.' This is the defining characteristic of finite insurance, according to Mr. Arvanitis at Risk Finance Advisors. 'Anything that ultimately reduces the loss borne but doesn't change the accounting, or when there is a disconnect between the accounting for risk and actual incidence of risk, that is finite,' he said. 'Essentially, you're saying you made money and you didn't.' As such, the most severe threat inherent in financial reinsurance is to investors who buy insurance stocks and to consumers who buy coverage from insurance companies. In both cases, finite insurance can mask problems at insurers. As the analysts at Fitch have noted, insurers who are in distress are often heavy users of finite insurance. For example, in 2001, the Kemper Insurance Companies executed two large finite transactions, known as retroactive policies, that covered losses already incurred. In a 2002 report, Fitch analysts noted that the effect of these transactions reduced Kemper's surplus by 15 percent. 'Without the aid of various financial engineering tools,' the report noted, Kemper's surplus would have declined to $1.12 billion at year-end 2001 from the $1.5 billion the company reported in its financial statements. After a failed expansion plan and severe downgrades by financial ratings agencies, Kemper began exiting the business in 2003. OF course, it is unclear what regulators will find as they delve more deeply into financial reinsurance. If companies misled auditors by claiming true risk transfer simply to get favorable insurance bookkeeping treatment, they could be subject to civil suits accusing them of accounting irregularities. David D. Brown IV, the head of investor protection in the New York attorney general's office, is in charge of the insurance investigation. But even if their accounting proves to have been accurate, that may not be the end of it. With finite insurance high on regulators' radar screens, it is now much more likely that some companies holding the policies will undo them to avoid attracting the attention of prosecutors, creating more problems for an industry that is already up to its neck in trouble, thanks to Mr. Spitzer. This month, Platinum Underwriters Holdings canceled a financial reinsurance transaction that it had struck with Berkshire Hathaway. Platinum's executives said that increased regulatory interest in finite insurance had compelled them to re-examine the deals they had made. It is also possible that new sales of these policies will simply sputter. Either way, the implications for buyers and sellers of the insurance would be huge. 'There is a sniff test here,' said Mr. Barry of Fitch Ratings. 'Are the buyers and sellers of the insurance exposing themselves to operational risk? Is there a regulator who will come in and say, 'I don't like this transaction, and you have to unwind it?' There are consequences.'

Subject: Re: Wall Street Corruption From: setanta To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 05:03:33 (EST) Email Address: Not Provided Message: i'd like to know where the auditors are in all this mess. in the UK and Ireland we have FRS 14 Earnings per Share disclosures designed to set in stone what can and can't be reflected in EPS. Obviously this only ensures that the income stream from equity investments are reported correctly and only has some influence in the capital appreciation return. but ut should go some way to avoiding the disasters in 2002.

Subject: Re: Wall Street Corruption From: Terri To: setanta Date Posted: Mon, Nov 22, 2004 at 05:34:05 (EST) Email Address: Not Provided Message: Do insurance companies in Europe issue or buy 'finite insurance?' What about companies in the UK and Ireland? http://www.nytimes.com/2004/11/21/business/yourmoney/21insure.html To critics, however, the policies are structured less like insurance and more like loans. At heart, they say, finite insurance is simply a form of financial engineering that masks the strength or weakness at the companies that buy them. As such, its use has probably had a much greater impact on investors and customers than other industry practices that Mr. Spitzer has singled out. The deals offer an especially rich vein for investigators to mine, industry analysts say. And last week, Mr. Spitzer sent out a flurry of subpoenas to insurers - including Ace Ltd., the St. Paul Travelers Companies and Zurich Financial Services - about policies they may have sold to help customers eliminate or offset losses that would have hurt their financial results. The Securities and Exchange Commission and the Justice Department are also scrutinizing financial engineering products sold by insurers. All three companies said they were cooperating, but they declined to comment further. By far the biggest customers for such policies are insurers themselves, so investigators will be looking at how these companies may have used these contracts to make their books look better. As regulators unravel these arrangements, industry analysts say, they are likely to discover a labyrinth of deals among insurance companies that are often routed through tax havens in Bermuda or the Caribbean. Given the complexity and secrecy of such deals - they are often not disclosed on insurers' financial statements and require a good bit of detective work to find - cases related to them may not come to light for some time. But industry analysts who have uncovered some of the arrangements on their own in recent years say that their use is widespread. No one knows for sure how large the market is for such policies. Robert Arvanitis, president of Risk Finance Advisors, a corporate finance advisory firm in Westport, Conn., that specializes in insurance, estimates that in any given year, $50 billion of all insurance premiums involve policies with some kind of finite element.

Subject: Re: Wall Street Corruption From: setanta To: Terri Date Posted: Mon, Nov 22, 2004 at 13:18:58 (EST) Email Address: Not Provided Message: Terri, yes, finite insurance has been bought and sold over here. it was mainly done for tax purposes. there is a scandal breaking over here about the large volume of money poured into tax shelters in Ireland. a big question hangs over the legality of the policies, from a tax point of view. from an accounting perspective, there is a Financial Reporting Standard, FRS 5 (titled 'Reporting the Substance of Transactions') which specifically addresses these kind of contracts (and more). the concept is 'substance over form' where entities have to disclose the effect and not the legal form of contracts. as far as i know, a similar concept does not exist within the US accounting system. a summary of the main points of the standard is posted below for those of you interested (the rest of you should escape now as its going to get technical!!!) in how we prevented the misuse of complex contracts from distorting an entities financial position: 'General (a) Financial Reporting Standard 5 'Reporting the Substance of Transactions' requires an entity's financial statements to report the substance of the transactions into which it has entered. The FRS sets out how to determine the substance of a transaction (including how to identify its effect on the assets and liabilities of the entity), whether any resulting assets and liabilities should be included in the balance sheet, and what disclosures are appropriate. The FRS also contains some provisions in respect of how transactions should be reported in the profit and loss account and the cash flow statement. (b) The FRS will not change the accounting treatment and disclosure of the vast majority of transactions. It will mainly affect those more complex transactions whose substance may not be readily apparent. The true commercial effect of such transactions may not be adequately expressed by their legal form and, where this is the case, it will not be sufficient to account for them merely by recording that form. (c) Transactions requiring particularly careful analysis will often include features such as- (i) the party that gains the principal benefits generated by an item is not the legal owner of the item, (ii) a transaction is linked with others in such a way that the commercial effect can be understood only by considering the series as a whole, or (iii) an option is included on terms that make its exercise highly likely. (d) The FRS sets out principles that will apply to all transactions. In addition, there are five Application Notes that describe the application of the FRS to transactions with certain features: consignment stock; sale and repurchase agreements; factoring; securitised assets; and loan transfers. The Application Notes need not be referred to in all cases. At the start of each Note there is a 'Features' section that may serve as a quick reference point to determine whether further study is required. In addition, each Note concludes with a table summarising its main provisions. Identification and recognition of the substance of transactions (e) A key step in determining the substance of any transaction is to identify whether it has given rise to new assets or liabilities for the entity and whether it has increased or decreased the entity's existing assets or liabilities. Assets are, broadly, rights or other access to future economic benefits controlled by an entity; liabilities are, broadly, an entity's obligations to transfer economic benefits. (f) The future economic benefits inherent in an asset are never completely certain in amount; there is always some risk that the benefits will turn out to be greater or less than expected. Whether the entity gains or suffers from such variations in benefits is evidence of whether it has an asset. (g) The definition of a liability requires an obligation to transfer benefits. Evidence that an entity has such an obligation is given if there is some circumstance in which the entity is unable to avoid an outflow of benefits. (h) Once identified, an asset or liability should be recognised (i.e. included) in the balance sheet, provided that there is sufficient evidence that an asset or liability exists, and the asset or liability can be measured at a monetary amount with sufficient reliability. (i) Following its recognition, an asset may be affected by a subsequent transaction. Where the transaction does not significantly alter the entity's rights to benefits or its exposure to risks, the entire asset should continue to be recognised. Conversely, where the transaction transfers to others all significant rights to benefits and all significant exposure to risks, the entity should cease to recognise the asset in its entirety. Finally, in other cases where not all significant benefits and risks have been transferred, it may be appropriate to amend the description or monetary amount of an asset and, where necessary, recognise a liability for any obligations it has assumed. Linked presentation for certain non-recourse finance arrangements (j) A special form of presentation, termed a 'linked presentation', should be used for certain non-recourse finance arrangements. This presentation shows, on the face of the balance sheet, the finance deducted from the gross amount of the item it finances. It should be used where, although the entity has significant rights to benefits and exposure to risks relating to a specific item, the item is financed in such a way that the maximum loss the entity can suffer is limited to a fixed monetary amount. For use of a linked presentation it is necessary that both - (i) the finance will be repaid only from proceeds generated by the specific item it finances (or by transfer of the item itself) and there is no possibility whatsoever of a claim on the entity being established other than against funds generated by that item (or the item itself), and (ii) there is no provision whatsoever whereby the entity may either keep the item on repayment of the finance or re-acquire it at any time. Disclosure of the substance of transactions (k) Adequate disclosure of a transaction is important to an understanding of its commercial effect. For most transactions, the disclosures currently required will be sufficient for the purpose. However, where the nature of any recognised asset or liability differs from that of items usually found under the relevant balance sheet heading, the differences should be explained. Furthermore, to the extent that a transaction has not resulted in the recognition of assets or liabilities, disclosure may nevertheless be required in order to give an understanding of its commercial effect. Quasi-subsidiaries (l) Sometimes assets and liabilities are placed in an entity (a 'vehicle') that is in effect controlled by the reporting entity but does not meet the legal definition of a subsidiary. Where the commercial effect for the reporting entity is no different from that which would result were the vehicle a subsidiary, the vehicle will be a 'quasi subsidiary'. (m) The FRS requires the assets, liabilities, profits, losses and cash flows of any quasi-subsidiary to be included in the consolidated financial statements of the group that controls it in the same way as if they were those of a subsidiary. However, where a quasi-subsidiary is used to finance a specific item in such a way that the provisions of paragraph j above are met from the point of view of the group, the assets and liabilities of the quasi subsidiary should be included in consolidated financial statements using the linked presentation described in paragraph j. (n) Disclosure is required, in summary form, of the financial statements of quasi-subsidiaries.

Subject: Re: Wall Street Corruption From: Terri To: setanta Date Posted: Mon, Nov 22, 2004 at 13:40:53 (EST) Email Address: Not Provided Message: Thank you Setanta, I will show your post to a friend who is an accountant, and ask the same question. Finite insurance for American companies appears to me to be used in masking periods of weakening earnings for corporations. Possibly I do not understand this clearly enough to make such a pronouncement, so I am asking and will reply.

Subject: Important Indeed From: Terri To: Pete Weis Date Posted: Mon, Nov 22, 2004 at 01:55:30 (EST) Email Address: Not Provided Message: The more I think of this article, the more important it seems and the more naive I feel. Can we ever learn anything that we can really trust from Wall Street analysts? Why did we not know of such a practice as issuing 'finite insurance?'

Subject: Re: Wall Street Corruption From: Terri To: Pete Weis Date Posted: Sun, Nov 21, 2004 at 17:33:17 (EST) Email Address: Not Provided Message: Important article. When Wall Street tells you to do your homework, what you are not told is that some homework is beyond you unless you are a forensic accountant.

Subject: Bankruptcy data From: Pete Weis To: Pete Weis Date Posted: Sun, Nov 21, 2004 at 15:02:42 (EST) Email Address: Not Provided Message: 13 out of the top 24 bankruptcies since 1980 occurred between 2001 and mid 2003 (just after the start of the 2003 stock rally). Either corporate earnings suddenly got much better or something else was going on. The top 24 corporate bankruptcies since 1980: Worldcom, Inc. 07/21/02 $103,914,000,000 NY-S Enron Corp.* 12/2/01 $63,392,000,000 NY-S Conseco, Inc. 12/18/02 $61,392,000,000 IL-N Texaco, Inc. 4/12/1987 $35,892,000,000 NY-S Financial Corp. of America 9/9/1988 $33,864,000,000 CA-C Global Crossing Ltd. 1/28/2002 $30,185,000,000 NY-S Pacific Gas and Electric Co. 4/6/2001 $29,770,000,000 CA-N UAL Corp. 12/9/2002 $25,197,000,000 IL-N Adelphia Communications 6/25/2002 $21,499,000,000 NY-S MCorp 3/31/1989 $20,228,000,000 TX-S Mirant Corporation 7/14/2003 $19,415,000,000 TX-N First Executive Corp. 5/13/1991 $15,193,000,000 CA-C Gibraltar Financial Corp. 2/8/1990 $15,011,000,000 CA-C Kmart Corp. 1/22/2002 $14,600,000,000 IL-N FINOVA Group, Inc., (The) 3/7/2001 $14,050,000,000 DE HomeFed Corp. 10/22/1992 $13,885,000,000 CA-S Southeast Banking Corporation 9/20/1991 $13,390,000,000 FL-S NTL, Inc. 5/8/2002 $13,003,000,000 NY-S Reliance Group Holdings, Inc. 6/12/2001 $12,598,000,000 NY-S Imperial Corp. of America 2/28/1990 $12,263,000,000 CA-S Federal-Mogul Corp. 10/1/2001 $10,150,000,000 DE First City Bancorp.of Texas 10/31/1992 $9,943,000,000 TX-N First Capital Holdings 5/30/1991 $9,675,000,000 CA-C Baldwin-United 9/26/1983 $9,383,000,000 OH-S

Subject: Re: Wall Street Corruption From: johnny5 To: Pete Weis Date Posted: Sun, Nov 21, 2004 at 14:40:28 (EST) Email Address: johnny5@yahoo.com Message: Great post Pete, truly when the famous quote was made about the rising tides lifting all the boats - they forgot how that let in a lot of new sharks swimming underneath all that new water and when we lower the tides back down again the sharks start floundering around exposed. Recently my mother in FLA received a light bill from the power company for someone that lived at her address over 4 years ago and is dead now and another person that lived there 2 years ago and is dead now. She has contacted them about this several times and told them to stop sending the bills and informed the mailman that those people are dead now. She asked her financial planner why they keep sending 4 year old bills to dead people and the financial planner said it allows the power company to keep reporting it on accounts receivable. Unfortunately in my mothers trailer park the turnover rate from people dying is fairly high and many of her neighbors in the park are also getting bills for people that have been dead for many years - light bills, credit card bills, water/sewage bills - etc. - I don't know about other areas of the nation - but when these REAL WORLD bills are reflected as the LOSS that they really are - how much will the accounts receivable section of this company lose? Hmmm.

Subject: Squeezing older folks From: Pete Weis To: johnny5 Date Posted: Sun, Nov 21, 2004 at 14:57:39 (EST) Email Address: Not Provided Message: Johnny5. A lot of older folks are overbilled and wrongly billed by companies taking advantage of their vulnerabilities (ie., fear of losing their home). It's pretty sad. Unfortunately many states have laws that link unpayed power and utilities bills to the property and not the actual person owing the bills. This sometimes puts the responsibilty of making sure there are no such oustanding bills on a piece of property before a prospective buyer signs paper on the property. If there are oustanding unpayed utility bills the new owner may find they have a lean filed against there property. Not sure if this is your mother's situation - they often attempt to squeeze the money out of people who have no obligation to pay but fear losing their home or ruining their credit.

Subject: Increasing Credit Card Pain From: Emma To: All Date Posted: Sun, Nov 21, 2004 at 06:35:15 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/21/business/21cards-web.html? Soaring Interest Compounds Credit Card Pain for Millions By PATRICK McGEEHAN When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Mr. Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics. Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA. 'I paid the bills the minute the envelope hit the desk,' said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. 'All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided.' Mr. Schwebel had stumbled into the new era of consumer credit, in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation. This year, credit card companies are changing the terms of their accounts at a historically high rate, said Michael Heller, an industry consultant. As those practices spread, they are creating a rift between the lenders and some of their more lucrative customers, according to cardholders, current and former bank consultants and regulators who were interviewed for a joint report by The New York Times and 'Frontline,' the PBS documentary program. People like Mr. Schwebel, who carry balances from month to month and pay finance charges regularly, feel they should be the favored customers of the credit card business, which is now the most lucrative segment of banking. They make up the profitable majority of the 144 million Americans who have general-purpose credit cards. To a degree, they subsidize the 40 percent of credit card customers who pay in full each month without incurring any fees or charges. But increasingly, they say, what should be a warm embrace has turned into a painful squeeze as lenders employ new tactics to extract more and bigger penalties for even the slightest financial transgressions. In the last few years, lenders have more frequently raised customers' rates because of slip-ups elsewhere, like late payment of a phone or utility bill, or simply because they felt a customer had taken on too much debt. The practice, called universal default, started after a rash of bankruptcy filings in the mid-to-late 1990's and has increasingly become standard in the industry. While MBNA declined to comment on any specific customer's account, its general counsel, Louis J. Freeh, the former F.B.I. director, said in a statement that it was being prudent by raising rates when it had reason to think the risk of not being repaid had increased. Edward L. Yingling, executive vice president of the American Bankers Association, said bankers must have the flexibility to change terms on short notice. The bankruptcy filings of the 90's - many by customers who had been paying their bills on time - caught banks off-guard, he said. Lenders decided they needed to watch for signs of trouble elsewhere, like missed car payments, he said. In those cases, he added, there are only two logical responses: 'We're not going to let you have this credit card loan anymore and we're going to say, 'Pay it off,' or we can say, 'You're now more risky; we're going to raise your rate.' ' Still, some critics say the severity of the punishment does not match the risk of default. The suddenness and perceived unfairness of the penalties have left many consumers feeling burned by lenders who relentlessly courted them with promises of low rates. To some cardholders and consumer advocates, credit card companies are acting like modern-day loan sharks, strong-arming their customers to pay more - with no legal limit on how much they can charge. In eight years, the major card companies have increased the fee charged to cardholders for being even an hour late with a payment to $39, from $10 or less. Unleashing an Industry Duncan MacDonald, who, as a lawyer for Citibank was involved in its successful case for deregulation of fees before the United States Supreme Court in 1996, now says he fears that he helped to unleash a monster. Until that ruling, most banks still charged an annual fee of about $25 for the use of a card and a single fixed rate to all borrowers, usually around 18 percent. Applicants either qualified for the privilege of carrying a card or they did not. 'I certainly didn't imagine that someday we might've ended up creating a Frankenstein,' said Mr. MacDonald, who predicted that the penalty fees could rise to $50 in another year. 'I look at that and I say to myself, 'Is $50 a fair fee, plus a 25 percent interest rate and all these other fees that are thrown on, for folks who are probably not that risky? Is that fair?' ' Mr. MacDonald said federal bank regulators should investigate the fairness of universal default and some of the banks' harsh penalties. But regulators and lawmakers have been reluctant to crack down on a popular consumer product that fuels America's economic engine. Consumer spending pulled the country through the last economic downturn, powered largely by purchases financed with debt, to the tune of $2 trillion. Few consumer products today are as cherished or reviled as credit cards. The typical household has eight cards with $7,500 on them. People like Mr. Schwebel are known as 'revolvers' in the industry because they roll balances over from month to month, never paying in full. Without the 85 million Americans who revolve, card issuers would be struggling to please their investors. But with them and the hefty finance charges they accrue from the moment cashiers swipe their cards, the industry is reaping record gains. Last year, card issuers made $2.5 billion a month in profit before taxes. 'I think it is generally understood that those that use the revolving part of the credit card are kind of the sweet spot,' said Mr. Yingling of the bankers' association, who spoke on behalf of several of the biggest issuers, including Citigroup, J. P. Morgan Chase and MBNA, all of which declined to make executives available for interviews.

Subject: Credit Card Pain From: Emma To: Emma Date Posted: Sun, Nov 21, 2004 at 16:56:25 (EST) Email Address: Not Provided Message: The case that opened up the industry came in 1978 when the Supreme Court decided that a bank could charge its cardholders any rate allowed in the bank's home state. Major banks swiftly moved their credit card operations to places like South Dakota and Delaware that had removed caps on interest rates. There is no federal limit on consumer credit rates. After that ruling on interest rates, credit cards, which until then had generally been an uncertain business, started to look potentially lucrative. Banks began to innovate and compete. They cut the required minimum monthly payment to 2 percent of the balance, from 5 percent, to encourage customers to borrow more and stretch out the repayment. They dropped annual fees and dangled offers of low interest, or none at all, to lure new customers. At the same time, legal teams crafted contracts of 12 or more single-spaced pages that gave the banks the leeway to change their terms whenever they wanted. A typical term sheet for a Visa card issued by Bank One, which was acquired this year by J. P. Morgan Chase, includes: 'We reserve the right to change the terms at any time for any reason.' John Gould has worked in and around the credit card business for 25 years, but he said he was shocked when his wife tried to make a last-minute payment over the phone and was charged an extra $15. 'What a rip,' he said. 'That does get me mad.' Fees like that are accounting for a greater share of the revenue that card companies garner from their customers. Last year, they collected $11.7 billion in penalty fees, more than half of the total $21.5 billion in fees they collected from cardholders, according to CardWeb, a research firm. Mr. Gould, a former executive of MasterCard International who conducts research for TowerGroup, a company owned by MasterCard, said he did not think that card companies were trying to trap people into financial distress. But he said it was 'absurd' that 44 percent of them tell their customers that they might be penalized for one or two late payments with maximum rates that now exceed 28 percent. This practice has gone on while the short-term interest rates set by the Federal Reserve Board have been unusually low, now at 2 percent, he noted, but the rates have been rising in recent months. 'What are they going to do if we have a spike in interest rates?' Mr. Gould said. 'What are they going to start charging people, 35 percent, 38 percent? If it comes to that, you might as well go to the loan sharks.' But Andrew Kahr, a financial services consultant who devised some widely used consumer-lending strategies, including the zero-percent teaser rates, said consumers should be able to recognize that the business is a 'game of chance.' Interest rates shooting past 25 percent may seem scandalous to some, Mr. Kahr said, but they are 'no less realistic' than the low introductory rates many cardholders receive. The lenders offer tantalizingly low initial rates because that is what it takes to lure customers from competitors, said Mr. Kahr, who was a founder and chief executive, until 1986, of the San Francisco lending company now known as Providian. After he left, Providian ran afoul of state and federal regulators for some of its credit card practices, and agreed to a $300 million settlement. But, he said that banks cannot earn an adequate return by lending for less than it costs them to borrow, so they look for ways to recoup losses on the low-rate chasers. 'They do better when they apply these price increases selectively to customers who statistically have become more risky, or to those who have violated the rules of the account,' Mr. Kahr said. Still, some cardholders complain that they did not know the rules until after they were punished for breaking them. Linda Sherry, editorial director for Consumer Action, an advocacy group, said 'the consumer really has no rights to find out anything, to demand, 'Why is this being done to me?' '

Subject: Re: Increasing Credit Card Pain From: Ari To: Emma Date Posted: Sun, Nov 21, 2004 at 07:07:16 (EST) Email Address: Not Provided Message: Lawrence Summers told us a few months ago that he considers household debt a most important problem. But several Federal Reserve Governors have been telling us recently that household balance sheets are in the best shape in many years, no doubt largely because of the rise in housing prices. Do we have a general problem of too little saving by households, or is this only a worry of chronic bears?

Subject: Corporate Saving is High From: Ari To: All Date Posted: Sun, Nov 21, 2004 at 05:12:05 (EST) Email Address: Not Provided Message: 'Corporate saving in the United States has risen to its highest rate in decades and is unlikely to increase materially.' Alan Greenspan noted this in his speech Europe. This is surely a prime indication of corporate financial health. What of economic health however? Is the level of corporate saving a result of fewer perceived investment opportunities since 2001? What should we make of the high level of corporate saving?

Subject: Re: Corporate Saving is High From: Ari To: Ari Date Posted: Sun, Nov 21, 2004 at 05:31:33 (EST) Email Address: Not Provided Message: From an investing perspective the high level of corporate saving is positive for stocks as well as for corporate bonds. Profits have been high for corporations for the last 2 years and balance sheets are healthy as a whole. This gives us ample investment protection even if growth slows.

Subject: John Templeton and the national debt From: David E... To: All Date Posted: Sat, Nov 20, 2004 at 20:25:43 (EST) Email Address: Not Provided Message: 'However, 45 years' service as an investment counselor enables me to answer your first question by pointing out that within a few years, the United States will be forced to find methods to have a balanced federal budget, and also a balance of import and export trade, and also a great reduction in citizens' expectations about government pensions as early as age 60 and about government subsidy for medical cost' LINK

Subject: Full Text-Templeton From: David To: David E... Date Posted: Sun, Nov 21, 2004 at 11:15:27 (EST) Email Address: Not Provided Message: Why not register - reading Scott Burn's weekly columns is extremely worthwhile. It is easy, use the same password & an alias. Then every time you do it, your browser will fill in the blanks for you. I clear out all of my cookies and use the browser to log in for almost everything. By SCOTT BURNS / The Dallas Morning News NASSAU, Bahamas – Sir John Templeton's quiet and elegant office in Lyford Cay is far from the T-shirt shops, cruise boats and diamond dealers of Nassau. It bears no resemblance to the famously glitzy Atlantis Resort and Casino on nearby Paradise Island. It's also a world apart from his birthplace in Winchester, Tenn., circa 1912. Sir John worked his way through Yale during the Depression, graduated at the top of his class and became a Rhodes scholar at Oxford. A naturalized British citizen, he was knighted by Queen Elizabeth II in 1987. He founded the first Templeton mutual fund in 1954 and built one of the early fund families. He sold the firm to Franklin Funds in 1992 for $440 million. Since then, he has devoted himself to philanthropy, giving about $40 million a year with a unique focus on the connection between science and religion. Although many feel that science and religion are almost mutually exclusive, Sir John has long espoused the opposite. He has advocated a humble approach to religion, noting that we know very little of God through scripture or current theology. Science, he observes, is a window on creation. His book, The Humble Approach: Scientists Discover God (Templeton Foundation Press, 1981), is the best book on religion and spirit that I have read in years. Sir John, who turns 92 on Nov. 29, still manages his investments and oversees the activities of his foundations. As you will see from his answers in this exclusive interview, the legendary global value investor is positive about the long-term future but very cautious about current valuation levels for stocks, bonds, the dollar and real estate. Question: Wall Street analysts appeared to be uneasy with the market implications of either a Bush re-election or an election win for Kerry. What will the winner have to do to restore confidence to the markets? Answer: Twelve years ago, I sold to a strong competitor the investment counsel organization I helped to build, including a listing on the London Exchange, so that I could devote seven days a week to help the top 1 percent of intellectual leaders in all nations to become enthusiastic about the benefits of devoting at least 1 percent of gross national product to methods of science for research and discovery, so that humans can benefit from over a hundredfold more understanding of spiritual realities. However, 45 years' service as an investment counselor enables me to answer your first question by pointing out that within a few years, the United States will be forced to find methods to have a balanced federal budget, and also a balance of import and export trade, and also a great reduction in citizens' expectations about government pensions as early as age 60 and about government subsidy for medical costs. Question: In the last year, you've expressed concern over U.S. housing prices. Why? Answer: Prices of houses in all nations for centuries have fluctuated above and below cost of reproduction. In the United States now, in most major cities, homes can be sold for far higher prices than reproduction costs. Several times in my lifetime, house prices have been far below reproduction costs, and such cycles are likely to continue. Question: In recent trading, the dollar has fallen significantly, and Europeans are less worried than usual, largely because a cheaper dollar means lower-price oil for Europe. Do you think the dollar will fall further? Answer: Throughout the world, prices of oil and gas have no relation to the exchange rate between the U.S. dollar and other currencies but instead depend on the fact that consumption continues to increase much greater than supply, which will eventually force humans to discover many different ways to reduce their consumption of oil and gas. Question: For a global value buyer, what markets look best? Which markets are least attractive? Answer: In the 92 years since I was born, investors could always find several nations where share prices were more reasonable, but recently, all over the world, share prices have been higher than the cost of creating similar corporations. Question: In light of current high equity valuations, you have suggested owning less in stocks. Would you put this in terms of a conventional pension fund? Would you suggest some alternatives to equities? Answer: Because both share prices and bond prices are high this year, many wise pension managers invest in open-end mutual funds who try to maintain short positions in stocks about equal to their long positions. In this way, a pension fund can benefit from a wise security analyst while waiting for the time when either stocks or bonds can be bought at bargain prices. Question: There is a school of thought that believes investors can no longer expect the historic 10 to 11 percent total return on equities. Do you agree? Answer: It is normal for voters to elect politicians who promise to spend too much. This increases the rate of inflation, and so, after adjusting for inflation, return on stocks over the next market cycle may average only 3 percent. Question: Junius Morgan once advised his son, J. Pierpont Morgan, that one could never go wrong being bullish about America. Given some of the current concerns, especially the idea that the West's historic advantages may be waning, do you agree with Junius today? Answer: Throughout history, all major nations have eventually had a weaker competitive position, and therefore the Morgan family was shortsighted in thinking that nations of Asia cannot become stronger competitors than the USA. Question: Economic historian Niall Ferguson has written that the West may soon see the threat of radical Islamic fundamentalism to be as large as the former threat of Soviet communism. Do you agree? Would you comment on the rise of Islamic fundamentalism as a trend? Answer: Islamic fundamentalism seems to be more backward-looking than progressive. Therefore, nations with the most free enterprise are likely to become more prosperous compared to nations controlled by communism or Mohammedanism. Question: Do you believe, as historian Samuel Huntington has written, that the period when the West eclipsed manufacturing in China and India is over? Answer: Nations of America and Europe in the latest two centuries have encouraged free competition and therefore enjoyed increasing prosperity, but this advantage will be smaller now that China and Russia have understood the limitations caused by communism. Question: The late futurist Herman Kahn once wrote that the broad world trend was toward an 'increasingly sensate' culture. Your life reflects very different beliefs and values. Do you see a countervailing power to the trend Kahn observed? Do you think Christian and Islamic fundamentalism might be that countervailing power? Answer: Future prosperity will expand more rapidly in those nations with the greatest thrift and free enterprise. Question: As I understand it, you have a spiritual view of the world that is beyond the walls of institutionalized religion, perhaps akin to the German philosopher Hegel or Jesuit priest Teilhard de Chardin. Have I interpreted it correctly, and if so, would you tell me how you came to it and how you observe it in your daily life? Answer: Intellectuals of human history were misled by very limited concepts of reality. Only in the latest century have some humans begun to understand that humans are only one species on one planet out of hundreds of millions of galaxies. I now work seven days a week to help intellectual leaders to welcome research and discoveries vastly greater than humans now comprehend. Question: Some have argued that America will win the war on terrorism because 'The Shah Always Falls' – that free societies always triumph over un-free societies, because un-free societies are intrinsically weaker. Others see it differently. They don't see a contest between societies. Instead, it is a contest between a free society and something that isn't a society. Answer: Future progress is helped by experimentation, competition and science. Therefore, education that looks backward is likely to be far less beneficial than diligence in planning for the future. Question: Can you suggest what the average American can do to prepare for a struggle with terrorism and/or fundamentalism that may go on for decades? Are there investment ramifications to this struggle? Answer: Throughout human history, the destructive force of terrorism has been far greater than now. Today we are blessed by the ability to enforce personal ownership of material assets and by the freedom to build spiritual wealth. It will be a blessing if everyone, including the poor, devotes at least 10 percent of their income toward increasing personal wealth and human wealth, both material and spiritual. Question: What is your view on the growth of hedge funds? Answer: There will be a scandal because the cost burden is so great. In mutual funds, it is unusual for a fund to be ahead more than 2 or 3 percent. The typical hedge fund is charging 2 to 3 percent, plus 5 percent to invest, and 20 to 25 percent of profits.

Subject: Re: Full Text-Templeton From: Ari To: David Date Posted: Sun, Nov 21, 2004 at 12:39:12 (EST) Email Address: Not Provided Message: Thank you David. I will try your trick in logging to sites with the browser. Templeton's sense of value then is replacement value. What you want are assets that cost not much more than the cost of replacement. Finding such assets is tough, according to Templeton.

Subject: Re: Full Text-Templeton From: David E... To: Ari Date Posted: Sun, Nov 21, 2004 at 19:23:56 (EST) Email Address: Not Provided Message: Thanks Ari, I am glad that you will. By limiting your login identities you reduce your dependence on cookies to get in. Then you can delete all your cookies and get rid of those very annyoying cookies that track and report what you do. Just a few of the spy cookies will slow down your internet experience. Wholesale copying of copywritten material will sooner or later reduce the value of the internet. The Dallas News is shorted on click counts and advertising revenue when its articles are copied. At some point, the Dallas News could decide to limit access to paid subscribers. Templeton is right in general about real estate and replacement value. I think he might be surprised about what replacement costs are. Just the government paperwork and approvals necessary to to build can run $150,000 for new developments in San Diego. So $150,000 for paperwork, $150,000 for lot, and $200,000 for construction means a new house is $500,000. The $150,000 for paperwork includes funding civic improvements required to obtain building permits. Las Vegas homeowners currently had the experience though of holding mortgages greater than new houses built next to them. As usual real estate is a location, location thing. But even though the replacement cost is high in San Diego I can imagine prices decling 20% easily. A decline of 20% happened only 12 years ago. And I had a mortgage of $190,000 and new houses with bigger lots were selling for $170,000.

Subject: Re: John Templeton and the national debt From: johnny5 To: David E... Date Posted: Sat, Nov 20, 2004 at 20:47:58 (EST) Email Address: johnny5@yahoo.com Message: In 1952 Colonel Sanders started with a $105 dollar social security check and built one of the most successful businesses in history - at that time a 14 piece bucket of chicken with the fixins was $3.50 - today my mom in Fla is receiving a $405 SS check and a 16 piece bucket of chicken with the fixins is $30. Social Security doesn't pay what it used too.

Subject: Re: John Templeton and the national debt From: Ari To: johnny5 Date Posted: Sat, Nov 20, 2004 at 20:53:29 (EST) Email Address: Not Provided Message: Social Security was not indexed to the Consumer Price Index until about 1972.

Subject: Re: John Templeton and the national debt From: johnny5 To: Ari Date Posted: Sat, Nov 20, 2004 at 21:23:28 (EST) Email Address: johnny5@yahoo.com Message: Ari respectfully if you think that the current CPI is honest please tell me why so many people are calling BS? Pete Weis posted how certain hedonic adjustments called for people to buy ICE CREAM in bulk to get certain pricing - well I do have a sam's close by but I can't by the 100 package ice cream sandwiches to get the value - I don't have the storage space in my refrigerator to store that much product - but REAL WORLD issues like this seem to never make it into the LA LA land CPI.

Subject: Please Post From: Ari To: David E... Date Posted: Sat, Nov 20, 2004 at 20:37:52 (EST) Email Address: Not Provided Message: David, Please post the article. I can not open this site.

Subject: Monetary Policy and Shocks From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 18:20:38 (EST) Email Address: Not Provided Message: Should I be reading Alan Greenspan correctly, the adjustment of our economy either to a shock or to monetary and fiscal policy changes has markedly increased after 1980. Greenspan may have thought of this when the dramatic stock market decline from August to October 1987, was stemmed and corrected by December with no ensuing recession. Subsequent responses to shocks in developed economies apparently strengthened the sense that flexibility was much enhanced. This tells us why Greenspan may be most reluctant to use Fed policy to effect asset prices, and why the Fed moves so decisively once a shock is perceived. We can expect the Fed to move to at least a 3% Federal Funds rate to be prepared for future possible need for pronounced monetary intervention.

Subject: Re: Monetary Policy and Shocks From: Emma To: Emma Date Posted: Sat, Nov 20, 2004 at 20:14:14 (EST) Email Address: Not Provided Message: Bond investors appear remarkably convinced there is no danger we will inflate away our debt. That would take a radical change in political climate, and even then the Fed learned a lesson about a monetary policy that is too politically accomodating. No inflating debt away for now. However, I think there is a danger of a rise in long term interest rates as international lenders decide they need more diversity in assets held.

Subject: Kmart and Sears = Real Estate From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 16:34:12 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/20/business/20shop.html In Kmart's Deal for Sears, a Bet That Real Estate Can Trump Retailing By CONSTANCE L. HAYS and TRACIE ROZHON The Kmart purchase of Sears, Roebuck may be the ultimate expression of that old saying in real estate: location, location, location. For Sears, location has long meant an address in a suburban or regional shopping mall. For Kmart, the best spots were free-standing stores in cities or not far from them. With malls attracting fewer shoppers, the chief executive of Sears, Alan J. Lacy, saw fit to buy 50 Kmart stores last spring as part of a plan to increase his company's presence outside of malls, closer to where people live. The talks involved in that sale, Mr. Lacy said on Wednesday, led to the $11 billion takeover of Sears by Kmart. But is the real estate underlying the deal really as valuable as investors seem to believe? If the plan to put the two fading retailers together fails to turn the new company, Sears Holdings, into a viable competitor to Wal-Mart, Target, Costco and others, it is not clear whether Edward S. Lampert, the billionaire financier behind the merger, will be able to capitalize on all the land and leases his company will own. 'I don't think any retailer should aspire to have its real estate be worth more than its operating business,' Mr. Lampert told a crowd of investors, analysts and reporters on Wednesday, promising a successful merchandising business for both chains. Given the glut of retailing space across most of the country, that is pretty good advice. In the last decade or so, said Paco Underhill, a consultant to the retail industry, too many stores have been added in response to pressure on publicly traded retailers to show higher sales every year. 'There's general agreement within the financial and real estate communities,' Mr. Underhill said, 'that we are no longer building stores to service new markets, but to steal somebody else's.' Cutting against any real estate strategy is the fact that many of the locations of Sears and Kmart stores are not particularly desirable. Moreover, there are signs that more retail real estate could be dumped on the market next year. Toys 'R' Us, for example, ran into trouble competing with discounters and is now for sale. Bidding for the chain has entered a second round; bankers say a significant part of its value lies in its real estate, much of it in suburban areas. And if the holiday shopping season proves disappointing, there is little doubt that other retailers will jettison some stores. To be sure, there are plenty of reasons to see Sears' real estate as potentially undervalued. Older chains often have low-cost space as a result of negotiating long-term leases decades ago. A report by Deutsche Bank found that Sears, which began building stores nearly 80 years ago, pays on average $2.06 a square foot for its stores, while Kohl's, a relative newcomer, pays $7.49 a square foot. Dillard's pays an average rent of $2.64, and May Department Stores pays $3.73. 'The big question is whether the companies are committed to realizing the value' of their real estate, said Louis W. Taylor, the senior real estate analyst for Deutsche Bank and a co-author of the report.

Subject: Fuel of the Future? Coal From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 16:18:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/20/business/20coal.html? Fuel of the Future? Some Say Coal By SIMON ROMERO GERLACH, Nev. - John and Rachel Bogard are used to living off the grid in this desert hamlet, generating their own electricity with solar panels. They have been doing so for nearly 30 years. But now the grid is rushing toward them, in the form of an electrical source even more futuristic than solar power. It is coal. Sure, coal sounds dirty and dated, the kind of energy source that went out of fashion with big Buicks and bell-bottom jeans. But a coal project here in northern Nevada is one of more than 100 coal-fueled plants that are vying for approval around the country - the largest increase in such projects since the 1970's. The reason for coal's resurgence is an intensifying fear in the United States that supplies will become scarce in electricity's other main fuel source, natural gas. And coal is a lot cheaper. Altogether, energy companies in the United States have announced plans to build more coal-fired power plants in the last 12 months than they did in the last 12 years. If all those projects get off the ground, utilities would invest more than $100 billion. The electricity industry's back-to-the-future approach to coal is soon expected to pit dozens of communities around the country against energy companies that are planning coal-based expansion strategies in their midst. The Bush administration has significantly shifted policy away from three decades of federal efforts to reduce the nation's dependence on coal, which is significantly cleaner than it once was, but still dirtier than natural gas. Now the administration is supporting the push for a new wave of coal-fueled energy, with the Energy Department investing $2 billion in ventures intended to make coal less polluting. But until coal-fired plants become even cleaner, clashes over their impact on air quality are expected to multiply. Because of restrictions elsewhere, many coal-fired power plants will be put in places with pristine air quality and relatively relaxed pollution restrictions. Gerlach's location near Nevada's border with California, an energy-hungry state where environmental standards make it nearly impossible to build coal-fired plants, is one attraction for the builder, Sempra Energy. Gerlach, which has fewer than 200 residents, is at the crossroads of rail lines that can haul coal from Montana strip mines and an electricity transmission line that can send the power southward to Los Angeles and San Diego. Gerlach has a 'combination of ideal factors,' said Marty Swartz, a director for project development at Sempra. As for Gerlach itself, he said, the project would generate about $30 million in tax revenue for Washoe County, which encompasses this tiny hamlet as well as Reno, a two-hour drive south. Prospects of new wealth for the town have done little to calm people's nerves here. 'If it's such a great deal, then let them build the thing in California,' Mr. Bogard, 56, the owner of a pottery business, said. 'I'm not sure if anyone involved with this realizes what a nightmare it is to have a plant spewing coal fumes go up in their backyard. This would simply destroy our life out here.' The tensions arising from Sempra's plan - known as the Granite Fox Power project - and from similar plans for other coal-fueled plants are an inevitable outcome of energy policies pursued in the 1990's. During that period, nearly every new electricity plant was built to be run on natural gas, which is cleaner-burning and was generally thought at the time to be in ample supply in North America. But in the last five years, natural gas prices have skyrocketed as imports from Canada slowed and domestic production failed to keep up with demand. Prices have shot up to more than $6 for each thousand cubic feet from just $2 in 1999. Coal, meanwhile, has remained relatively cheap, and the United States has the world's largest reserves. As a result, while it costs more to build a coal-fired plant than it does to build one to use natural gas, the running cost of a gas plant has soared in comparison with coal. A typical coal-fired power plant spends 2 cents per kilowatt-hour to fuel its operations, compared with 5 cents per kilowatt-hour for a plant fueled by natural gas. In the partly deregulated power-generating business, much of that electricity can be sold at prices reflecting the cost of the most expensive source. 'Running a coal-fired plant in these times is a gold mine,' said Robert McIlvaine, a coal industry consultant in Northfield, Ill., who does research on new power plants around the country.

Subject: Re: Fuel of the Future? Coal From: Pete Weis To: Emma Date Posted: Sat, Nov 20, 2004 at 17:07:06 (EST) Email Address: Not Provided Message: China: Environmental Issues Introduction China's gradual transition to a market economy, which has been proceeding for two decades, has put China among the world's fastest growing economies. While economic growth has increased incomes and improved health indicators, as well as reduced overall poverty levels, growth has not been totally benign. Environmental pollution from coal combustion is damaging human health, air and water quality, agriculture and ultimately the economy. New laws establishing comprehensive regulations have begun to curb this environmental damage. On the national level, policies are formulated by the State Environmental Protection Administration (SEPA) and approved by the State Council. The role of SEPA, which was established in 1998, is to disseminate national environmental policy and regulations, collect data and provide technological advice on both national and international environmental issues. Despite government efforts, however, concentrations of most pollutants remain high. In June 2002, China enacted the Cleaner Production Promotion Law, which established demonstration programs for pollution remediation in ten major Chinese cities, and designated several river valleys as priority areas. Air pollution A report released in 1998 by the World Health Organization (WHO) noted that of the ten most polluted cities in the world, seven can be found in China. Sulfur dioxide and soot caused by coal combustion are two major air pollutants, resulting in the formation of acid rain, which now falls on about 30% of China's total land area. Industrial boilers and furnaces consume almost half of China's coal and are the largest single point sources of urban air pollution. In an effort to reduce air pollution in Beijing, the municipal government in 1999 ordered city vehicles to convert to liquefied petroleum gas and natural gas. By 2002, Beijing had the largest fleet of natural gas buses in the world - a total of 1,630 vehicles. Subway and light rail systems in Beijing also are being expanded. China's national legislature, through its model of 'Cleaner Production' and other attempts to reduce air pollution, has significantly altered the Law on the Prevention and Control of Air Pollution, which was revised in 2002. Still, a report issued by SEPA in June 2003 said officials were 'still not optimistic' about the overall success of efforts to curb air pollution. Energy Use and Carbon Emissions Outside of Japan, energy consumption in East Asia is dominated by one sector in one country - the industrial sector in China. Overall, China's energy consumption accounts for approximately 53% of East Asia's (excluding Japan) total energy consumption. In 2001, China accounted for 9.8% of world energy consumption. By 2025, projections indicate that China will be responsible for approximately 14.2% of world energy consumption. Of the 39.7 quadrillion Btu of total primary energy consumed in China in 2001, 63.4% was coal, 25.8% was oil, 6.9% hydroelectricity, and 3.1% natural gas

Subject: Re: Fuel of the Future? Coal From: Jennifer To: Pete Weis Date Posted: Sat, Nov 20, 2004 at 19:06:40 (EST) Email Address: Not Provided Message: Interesting posts.

Subject: China and Latin America From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 14:53:59 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/20/international/asia/20china.html? China Widens Economic Role in Latin America By LARRY ROHTER ANTIAGO, Chile, Nov. 19 - The expected arrival here on Friday of President Bush, who personifies for Latin Americans the economic and political power of Washington, is being greeted with an uneasy mix of protests and hopes for greater growth. But while the United States may still regard the region as its backyard, its dominance is no longer unquestioned. Suddenly, the presence of China can be felt everywhere, from the backwaters of the Amazon to mining camps in the Andes. Driven by one the largest and most sustained economic expansions in history, and facing bottlenecks and shortages in Asia, China is increasingly turning to South America as a supplier. It is busy buying huge quantities of iron ore, bauxite, soybeans, timber, zinc and manganese in Brazil. It is vying for tin in Bolivia, oil in Venezuela and copper here in Chile, where last month it displaced the United States as the leading market for Chilean exports. While President Bush is spending the weekend here for the Asian-Pacific Economic Cooperation forum, President Hu Jintao of China is here in the midst of a two-week visit to Argentina, Brazil, Chile and Cuba. In the course of it, he has announced more than $30 billion in new investments and signed long-term contracts that will guarantee China supplies of the vital materials it needs for its factories. The United States, preoccupied with the worsening situation in Iraq, seems to have attached little importance to China's rising profile in the region. If anything, increased trade between Latin America and China has been welcomed as a means to reduce pressure on the United States to underwrite economic reforms, with geopolitical considerations pushed to the background. 'On the diplomatic side, the Chinese are quietly but persistently and effectively operating just under the U.S. radar screen,' said Richard Feinberg, who was the chief Latin America adviser at the National Security Council during the Clinton administration. 'South America is obviously drifting, and diplomatic flirtations with China would tend to underscore the potential for divergences with Washington.' Chinese investment and purchases are seen as vital for economies short on capital and struggling to emerge from a long slump. In Argentina earlier this week, for example, Mr. Hu announced nearly $20 billion in new investment in railways, oil and gas exploration, construction and communications satellites, a huge boost for a country whose economic vitality has been sapped since a financial collapse in December 2001. China is also increasingly willing to venture outside the economic realm. In March, for example, after Dominica, in the Caribbean, severed diplomatic relations with Taiwan, Beijing responded with a $112 million aid package, which includes $6 million in budget support this year and $1 million annually for six years. In Antigua, it has pledged $23 million toward the construction of a new soccer stadium. Political relations seem to be advancing most rapidly with Brazil, Latin America's most populous nation, where the left-leaning government has repeatedly floated the idea of a 'strategic alliance' with Beijing. The Brazilian government has made clear that it views closer ties with China as a card that can be played to offset American influence and trade dominance. While not suggesting that China could soon replace the United States as Brazil's main customer and partner, the aim is to force trade and other concessions from the United States and rich industrialized nations. 'We want a partnership that integrates our economies and serves as a paradigm for South-South cooperation,' President Luiz Inácio Lula da Silva said in May during a state visit to China during which he was accompanied by nearly 500 Brazilian business executives. 'We are two giants without historical, political or economic divergences, free to think only about the future.' Before his visit, Mr. da Silva even hinted at negotiating a free-trade agreement with China, a step that Chile this week announced it would take. But China's impact in Brazil is already felt so strongly that the idea was quickly shelved after São Paulo business groups expressed fears of being overwhelmed by state-owned Chinese companies in their own domestic market. In 2003 China became Brazil's second-largest individual trading partner, and in recent months the Chinese have been seeking joint ventures that would expand trade even further and give them a significant investment stake. Brazil is one of the few countries to enjoy a trade surplus with China, and last year alone exports to China nearly doubled, to $4.5 billion. 'Over the past three or four years, the growth in trade has been explosive,' said Renato Amorim, formerly a diplomat in Brazil's embassy in Beijing and now the executive director of the Brazil-China Business Council. 'China is trying to assure reliable sources of supply of raw materials to deal with the shortages it faces, and since there are no conflicts on the political agenda, Brazil fits the bill.' Many of the minerals come from a part of the Amazon known as Carajas, which has the largest, purest reserves of iron ore and other strategic minerals in the world. At a complex at the mouth of the Amazon near Belém that produces alumina, the white powder that is refined from bauxite to make aluminum, production may soon double, with most of it expected to go to China over the next decade.

Subject: Endangering Our Health From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 10:35:28 (EST) Email Address: Not Provided Message: About sadly cutting social benefit spending: http://www.nytimes.com/2004/11/20/national/20tennessee.html? Once a Model, a Health Plan Is Endangered By RICK LYMAN NASHVILLE - A decade after Tennessee inaugurated a health care plan for the state's most vulnerable residents that was hailed as a model for the nation, the program is once more being held up as a model - of failure in an era of soaring medical costs and voters' aversion to higher taxes. Today the plan, TennCare, which sought to improve health care for Medicaid recipients while covering those who fall through the federal program's cracks, is on the ropes. Gov. Phil Bredesen, a conservative Democrat and former health maintenance organization entrepreneur, has threatened the program with extinction, saying that rising costs and generous benefits - TennCare consumes nearly a third of the state's $25 billion budget - make it unaffordable unless it can be radically restructured to save money and limit benefits. In the coming year alone, the program faces a potential deficit of $650 million. After more than a week of tense negotiations between the governor and advocates for TennCare's 1.3 million users - nearly a quarter of the state's population, including an estimated 430,000 who would not be covered by Medicaid if TennCare disappeared - the two sides decided to 'step back from the brink,' as Mr. Bredesen put it. 'Before I go down the road of taking 430,000 people off the rolls - more specifically, before I can face even one of them, individually, and tell them that it is over, that I can no longer help - I need to be clear in my own heart that I've done everything that I know how to do to solve this,' the governor said. Rather than immediately kill TennCare, as he was poised to do, the governor agreed on Wednesday to one more round of talks after Thanksgiving, though he said saving the program was still a long shot. In the meantime, TennCare's precarious future leaves those who depend on the program in a state of vigilance and dread. 'In this country, rich as it is, people shouldn't have to choose whether their child will live or die,' said Angela Ray, the mother of a severely ill 12-year-old girl in Lawrenceburg. 'It's amazing to me that it's come down to this.' Her daughter, Jasmine, must take 20 extremely expensive medications every day to control the rare stew of chronic diseases, including Elephant Man Syndrome, that make it impossible for her to run and play. There are no doctors in Tennessee who can treat her, so her parents must frequently drive her to Birmingham, Ala., for care. Soon, she may lose that care - out-of-state trips are covered by TennCare, but not by Medicaid - and possibly, her life. Anita Hyche, 35, a suburban Nashville homemaker who suffers from a rare and agonizing disorder that causes her bone joints to dislocate easily, takes a battery of painkillers that make it possible for her to live a normal active life. Her disease makes her uninsurable, and she would not qualify for Medicaid, so if TennCare ends she will no longer receive $1,200 a month worth of pills. Ever since she heard that TennCare might be killed, Ms. Hyche said, she has been hoarding her medication - taking seven pills a day instead of a dozen or more - and she thinks she has squirreled away enough to last for several months. After that, she does not know what will happen 'The thing that scares me the most isn't thinking about coming up with the money, it's thinking about going back to the way my life was before I had this medicine,' she said. 'I don't want to feel that bad again.' The fate of TennCare has profound national as well as personal implications. Other governors, also under pressure to stem rising health insurance costs, are watching to see whether Tennessee will provide a model for how to trim their own programs. And there are fears that Republicans in Washington, flush with their recent election victories, will try to cut away at federal medical benefits, further squeezing the states.

Subject: We Have a Saving Problem From: Emma To: All Date Posted: Sat, Nov 20, 2004 at 10:20:36 (EST) Email Address: Not Provided Message: So, we have a saving problem. There is a large and growing government deficit that is adding to our balance of payments deficit at an alarming rate. Obviously we do not wish to add to cut consumption by inducing a recession, nor do we wish to cut investment, so we must cut the government deficit. Interestingly, we have in the past suggested that other nations use austerity plans to solve a balance of payments problem. But, inducing a recession should not be a viable policy. Then, we must ask how do we reduce the government deficit without inducing a recession? Will the Fed lower interest rates in return for a reduction in government spending or a tax increase? Now, a tax increase seems impossible for that is just what Republicans ran against and they would like to keep hold of Congress for more than another 2 years. There must then be a spending cut, and this will mean considerable pressure on any and every social benefit program. We have quite a problem.

Subject: Re: We Have a Saving Problem From: James To: Emma Date Posted: Sat, Nov 20, 2004 at 15:45:29 (EST) Email Address: Not Provided Message: There is one way to bail up from the deficit. STop the war in Iraq , It seems militray spending is a prime cause of deficit.

Subject: Alan Greenspan From: Ari To: All Date Posted: Sat, Nov 20, 2004 at 10:07:24 (EST) Email Address: Not Provided Message: Alan Greenspan: 'Reducing the federal budget deficit (or preferably moving it to surplus) appears to be the most effective action that could be taken to augment domestic saving.' 'Corporate saving in the United States has risen to its highest rate in decades and is unlikely to increase materially. Alternative approaches to reducing our current account imbalance by reducing domestic investment or inducing recession to suppress consumption obviously are not constructive long-term solutions.'

Subject: Productivity and Investment From: Ari To: Ari Date Posted: Sat, Nov 20, 2004 at 18:02:11 (EST) Email Address: Not Provided Message: Alan Greenspan: Through most of the postwar period up to the mid-1990s, the GDP-weighted correlation coefficient between domestic saving and domestic investment across countries accounting for four-fifths of world GDP hovered around 0.95. That bias, however, diminished rather dramatically over the past ten years, arguably in large measure because of the acceleration in productivity growth in the United States. The associated elevation of expected real rates of return relative to those available elsewhere increased investment opportunities in the United States. The correlation coefficient accordingly fell from 0.95 in 1993 to less than 0.8 by 2002. When one excludes the United States, the correlation coefficient's decline was even more pronounced. Preliminary estimates for a smaller sample of countries over the past two years indicate a continued decline on net.

Subject: Alan Greenspan... From: Emma To: Ari Date Posted: Sat, Nov 20, 2004 at 11:05:06 (EST) Email Address: Not Provided Message: http://www.federalreserve.gov/boarddocs/speeches/2004/20041119/default.htm Alan Greenspan: 'Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position--as is occurring in the United States--raise more complex issues. The U.S. current account deficit has risen to more than 5 percent of GDP. Because the deficit is essentially the change in net claims against U.S. residents, the U.S. net international investment position excluding valuation adjustments must also be declining in dollar terms at an annual pace equivalent to roughly 5 percent of U.S. GDP.'

Subject: Alan Greenspan - More From: Emma To: Emma Date Posted: Sat, Nov 20, 2004 at 11:21:04 (EST) Email Address: Not Provided Message: It is of course possible that U.S. policy initiatives directed at closing the gap between our domestic investment and domestic saving, and hence narrowing our current account deficit, may not suffice. But should such initiatives fall short, the marked increase in the economic flexibility of the American economy that has developed in recent years suggests that market forces should over time restore, without crises, a sustainable U.S. balance of payments. At least this is the experience of developed countries, which since 1980, have managed and eliminated large current account deficits, some in double digits, without major disruption.

Subject: Alan Greenspan - Again From: Emma To: Emma Date Posted: Sat, Nov 20, 2004 at 11:31:54 (EST) Email Address: Not Provided Message: Essentially, Alan Greenspan has a hedge against a failure of policy to close our blanace of payments deficit. The hedge is the sort of flexibility that has allowed for adjustments of trade imbalances between states and regions in America to be resolved. 'Although we have scant data on cross-border transactions among the separate states, anecdotal evidence suggests that over the decades significant apparent imbalances have been resolved without precipitating interstate balance-of-payments crises.'

Subject: An Interesting Speech From: Terri To: Emma Date Posted: Sat, Nov 20, 2004 at 14:52:12 (EST) Email Address: Not Provided Message: http://www.federalreserve.gov/boarddocs/speeches/2004/20041119/default.htm Alan Greenspan's brief apeech strikes me as most interesting, beyond agreement or disagreement. I do recommend reading the text through.

Subject: Interesting Speech From: Terri To: Terri Date Posted: Sat, Nov 20, 2004 at 16:16:33 (EST) Email Address: Not Provided Message: Alan Greenspan is arguing that there is a flexibility in price adjustment and resource allocation in developed nations that has been evidenced in the last quarter century. The flexibility is akin to that between our states, and offers less possibility of crises from imbalances than in past decades. This strikes me as a most interesting argument.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Nov 19, 2004 at 19:24:59 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/19/04 S&P is up 6.7% Value Index is 10.5 Growth Index is 3.2 Mid Cap Index is 13.3% Small Cap Index is 12.7% Small Value is 16.4 Europe Index is 14.4% Pacific Index is 12.7% Energy is 34.1% REIT Index is 21.1 Health Care is 3.9 Long Term Corporate Bond Fund is 7.4% High Yield Corporate Bond Fund is 7.6

Subject: Re: Vanguard Returns From: Jennifer To: Terri Date Posted: Sat, Nov 20, 2004 at 07:13:52 (EST) Email Address: Not Provided Message: These summaries are useful for gaining a sense of how the year has developed for investors. Who would have thought that bonds would have such a year when the Fed has raised short term interest rates 4 times? Has there ever been a time when long term bonds have gained in valued while the Fed has raised rates 4 times to begin a period of tightening?

Subject: Inflation and Interest Rates From: Terri To: All Date Posted: Fri, Nov 19, 2004 at 19:04:31 (EST) Email Address: Not Provided Message: Imports are simply not a large enough component of GNP to have more than a small effect on inflation, and as long as the Federal Reserve is determined to keep interest rates moderate to low a decline in the value of dollar will have a muted interest rate effect. As we have seen the effect of interest rates to date has been small. After all, we do not have to have a crisis.

Subject: Real Estate From: Emma To: All Date Posted: Fri, Nov 19, 2004 at 18:45:02 (EST) Email Address: Not Provided Message: Notice that as we wonder whether there is a real estate bubble, the Kmart takeover of Sears has everything to do with potentially undervalued real estate assets. Kmart was taken over from bankruptcy partly for the real estate. A large REIT bought a stake in Sears a few weeks ago largely for the real estate. And, Kmart bought Sears even after a run in the stock price knowing the real estate is a cushion.

Subject: Kmart and Sears and Real Estate From: Emma To: Emma Date Posted: Fri, Nov 19, 2004 at 18:45:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/18/business/18strategy.html The Architect Behind Kmart's Surprising Takeover of Sears By ANDREW ROSS SORKIN and RIVA D. ATLAS About 10 days ago, Edward S. Lampert placed a call to his newest hire, Aylwin B. Lewis, whom he had installed as the chief executive of Kmart only a week earlier. Then he dropped a bombshell: he planned to buy Sears. 'Oh my God,' Mr. Lewis said he replied. Mr. Lampert, known as Eddie, loves to surprise people. Indeed, he has made a career of it. Mr. Lampert, a 42-year-old hedge fund manager whose business idol is Warren E. Buffett, is the largest investor in Kmart, the chairman of its board and the architect of the bold takeover of Sears. After a tottering Kmart filed for bankruptcy protection in January 2002, Mr. Lampert began buying its bonds, making a contrarian bet that if he could take control, he could turn the company around. He also noticed something that most other investors did not: the value of Kmart's real estate might be worth more than the business itself. So, for slightly less than $1 billion, his investment company bought control of Kmart, a stake now worth about $2.5 billion. The Sears acquisition will be a gamble, but Mr. Lampert, who once worked at Goldman Sachs for one of Wall Street's greatest masters of risk, Robert E. Rubin, seems to love to roll the dice. 'I am comfortable with uncertainty,' he said yesterday with a sense of bring-it-on confidence during an interview in Midtown Manhattan. Having slowed Kmart's sales decline and returned the company to profitability by overhauling management and selling stores, he has upped the ante with another high-stakes gamble, this time on Sears. But, as with Kmart, the value of Sears's real estate should provide a financial safety cushion should the combined company continue to lose ground to rival Wal-Mart.

Subject: The Wrold Needs a Weaker Dollar From: Terri To: All Date Posted: Fri, Nov 19, 2004 at 15:51:51 (EST) Email Address: Not Provided Message: http://www.morganstanley.com/GEFdata/digests/latest-digest.html Why the World Needs a Weaker Dollar Stephen Roach (New York) A $40 trillion world economy is dangerously out of balance and seriously in need of a fix. A decline in the dollar is not a cure-all for all that ails the world, but it should go a long way in sparking a sorely needed rebalancing. That adjustment may now be under way. Global imbalances are a shared responsibility that requires a joint resolution. America is guilty of excess consumption, whereas the rest of the world suffers from under-consumption. Growth in US consumer demand averaged 4% annually (in real terms) over the 1995 to 2003 period, nearly double the 2.2% gains elsewhere in the industrial world. America’s consumption binge has not been supported by internally-generated income growth. Instead, US consumers have borrowed against the future by squeezing saving to rock-bottom levels. The personal saving rate stood at just 0.2% of disposable personal income in September 2004 — down from 7.7% as recently as 1992. Moreover, large federal budget deficits have taken the government’s saving rate sharply into negative territory — pushing the overall national saving rate of consumers, businesses, and the government sector to historical lows. America’s saving shortfall has major consequences for the rest of the world. Lacking in domestic saving, the US imports saving from abroad in order to fund the ongoing growth of its economy. And it must run massive current-account and trade deficits to attract such capital from overseas. The United States balance-of-payments deficit hit an annualized $665 billion in mid-2004, or a record 5.7% of GDP. The flip-side of America’s consumption binge is an overhang of excess saving elsewhere in the world.

Subject: The World Needs a Weak Dollar From: Terri To: Terri Date Posted: Fri, Nov 19, 2004 at 16:19:43 (EST) Email Address: Not Provided Message: First, it would trigger a gradual rise in US interest rates — in effect, sparking a price concession on bonds that is probably the only way that foreign investors can be enticed to keep sending capital to America.... Second, a weaker dollar, of course, means other currencies need to strengthen. So far, the euro has borne a disproportionate share of the adjustment. Asian currencies have barely budged — especially those of Japan and China.... Third, as the currencies of Asia and Europe strengthen in response to a weaker dollar, there will be downward pressure on exports in these two regions — the main drivers of their growth in recent years.... A fourth and final reason to welcome a weaker dollar is that it would be an especially potent force in defusing mounting global trade tensions.... Dollar depreciation has long been central to the global rebalancing framework that drives my view of the world economy. It’s not that a realignment of foreign exchange rates is the cure-all for a lopsided world. If anything, currency-related impacts on trade flows and inflation have actually diminished over the past decade. But, in my view, a shift in the world’s relative price structure is a powerful signaling mechanism that puts a number of other forces into play — economic as well as political — that are essential for the urgent rebalancing of an unbalanced world. Provided the currency shift doesn’t get out of hand, a sustained but managed weakening of the dollar is good news for the global economy and world financial markets.

Subject: With Defaults Down From: Emma To: All Date Posted: Fri, Nov 19, 2004 at 15:23:13 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/19/business/19norris.html With Defaults Down, Banks and Bond Markets Find Nothing to Fear By Frank Norris CALL it the ''What, me worry?'' market. The dollar may be quivering and economic recoveries in Europe and Japan may look shaky. But this is a time of confidence for those who lend money to corporations. That confidence is shown by an increasing willingness to lend money at low rates to even those with dubious credit. The fear of default seems to have almost vanished. The bond market has been exuding confidence for much of 2004, evidently assured that world growth would keep profits pouring in. But the trend has accelerated this month, as oil prices slipped and investors expect that business conditions will improve with President Bush and the Republicans in firm control in Washington. This week, the Federal Reserve released its quarterly survey of bank lending officers and found that banks said they were easing credit terms and getting less for their loans to corporate customers. And when they were asked if they were concerned that conditions might worsen over the next year, few saw this as likely while a larger number thought that things would continue getting better. The confidence is also reflected in the stock market. There, the underlying strength is obscured by the fact that some large stocks have not done as well as the overall market. This month's rally has left the Standard & Poor's 500-stock index up 6 percent for 2004, but more than 20 percent below the 2000 peak. Still, most stocks in the index are well above where they were when the market peaked. The S.& P. reflects that by measuring the index in an alternative way - one that assumes that an investor put an equal amount of money into each stock, rather than buying more shares in larger companies. On that equal-weighted basis, the index is up 11 percent this year - and is more than 20 percent above the 2000 peak. Why the confidence? Economies are generally performing well, and companies are making enough money that they do not need to borrow much. Default rates are down in the United States, and in Europe there have been no defaults on high-yield bonds in 2004. Investors, surprised that long-term interest rates have not risen, have reached for better yields by purchasing more speculative bonds. The dollar is weak, and the big story of 2005 may be efforts by Europe and the United States to force China and other Asian nations to allow their currencies to rise. In that atmosphere, one might expect foreigners to shy away from dollar-denominated corporate bonds, fearing that currency losses could more than offset interest income. But so far that has not been the case. The Treasury Department reported this week that foreigners bought $45 billion in American corporate bonds in September, by far the largest monthly total ever. In the last 12 months, almost $300 billion in foreign money has gone into such securities, 22 percent more than the year before. The money financing the trade deficit must go somewhere, and foreigners are dubious about American stocks. A lot goes into Treasuries, but their yields are even lower than corporate bonds'.

Subject: Watch the Federal Reserve From: Terri To: All Date Posted: Fri, Nov 19, 2004 at 14:39:48 (EST) Email Address: Not Provided Message: The Fed began a tightening sequence in 1999 that quickly slowed the rise in the stock market. The S&P began to decline to small gains for the year, while the NASDAQ stayed at bubble levels but stopped rising. Then, the Fed began to inject liquidity in the economy to guard against any Year 2000 problem. The S&P and NASDAQ took off. As the Fed began to absorb liquidity in 2000, and rate increases were resumed, the S&P and NASDAQ began to retreat. The final Fed rate increase was the 50 basis point move of May 2000. What is the Fed telling us now?

Subject: Alan Greenspan From: Terri To: Terri Date Posted: Fri, Nov 19, 2004 at 15:45:42 (EST) Email Address: Not Provided Message: http://www.federalreserve.gov/boarddocs/speeches/2004/20041119/default.htm Alan Greenspan The question now confronting us is how large a current account deficit in the United States can be financed before resistance to acquiring new claims against U.S. residents leads to adjustment. Even considering heavy purchases by central banks of U.S. Treasury and agency issues, we see only limited indications that the large U.S. current account deficit is meeting financing resistance. Yet, net claims against residents of the United States cannot continue to increase forever in international portfolios at their recent pace. Net debt service cost, though currently still modest, would eventually become burdensome. At some point, diversification considerations will slow and possibly limit the desire of investors to add dollar claims to their portfolios. Resistance to financing, however, is likely to emerge well before debt servicing becomes an issue, or before the economic return on assets invested in the United States or in dollars more generally starts to erode. Even if returns hold steady, a continued buildup of dollar assets increases concentration risk.

Subject: The FDA and Drug Safety From: Emma To: All Date Posted: Fri, Nov 19, 2004 at 13:09:29 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/19/business/19fda.html? F.D.A. Failing in Drug Safety, Official Asserts By GARDINER HARRIS WASHINGTON - Federal drug regulators are 'virtually incapable of protecting America' from unsafe drugs, a federal drug safety reviewer told a Congressional panel on Thursday, and he named five drugs now on the market whose safety needs 'to be seriously looked at.' In testimony before the Senate Finance Committee, Dr. David Graham, the reviewer in the Food and Drug Administration's Office of Drug Safety, used fiery language to denounce his agency as feckless and far too likely to surrender to demands of drug makers. 'We are faced with what may be the single greatest drug safety catastrophe in the history of this country or the history of the world,' Dr. Graham concluded. Dr. Steven Galson, the director of the F.D.A.'s Center for Drug Evaluation and Research and one of the agency's top civil servants, later said that Dr. Graham's new numbers 'constitute junk science' and were 'irresponsible.' Dr. Graham, with more than 20 years of service at the Food and Drug Administration, cited the anti-cholesterol drug Crestor, the pain pill Bextra, the obesity pill Meridia, the asthma drug Serevent and the acne drug Accutane. Makers of each drug defended the medicines as safe. Dr. Sandra Kweder, deputy director of the F.D.A.'s office of new drugs, told the panel that Dr. Graham was not describing 'the F.D.A. that I know' and that she did not see the five drugs he cited as 'more concerning than any others.' The clash was a rare public airing of tensions that have simmered in the agency for decades. It is a fight between those who focus on the potential of drugs to cure the sick and dying and those who see many medicines as high-priced commercial products with potentially risky side effects, between those who view pharmaceutical makers as beneficial partners and those who see the drug makers as antagonists needing to be curbed. 'My personal view is that our system works very well,' Dr. Kweder said. The exchange came during a hearing called by Senator Charles E. Grassley, a Republican of Iowa and the chairman of the Finance Committee. Using his broad authority over much of the government's budget, Senator Grassley and his staff have been investigating the F.D.A. for months after several controversies swept the agency this year. The hearing focused on the last of these controversies: Merck's decision in September to withdraw Vioxx, a pain pill that became a $2.5 billion seller and one of the most widely advertised drugs in the world. Merck withdrew Vioxx when a study it sponsored found that after 18 months of use the drug doubled the risk of heart attack or stroke. Critics of the F.D.A. have said that studies from as early as 1999 and 2000 showed that Vioxx was a risk to the heart, and many asked why the F.D.A. had not forced the drug's withdrawal earlier. The critics' case has been bolstered by many e-mail messages from Merck and by company documents disclosed in lawsuits by users of Vioxx. In many of the documents, Merck executives and scientists discussed the possible link between Vioxx and heart damage years before the company publicly admitted that the drug could cause harm.

Subject: Canadian Drugs From: Mik To: Emma Date Posted: Fri, Nov 19, 2004 at 14:24:12 (EST) Email Address: Not Provided Message: On this topic - I am a little confused. On the one hand the FDA does not allow for drugs to be imported from Canada because, 'They have not been cleared as safe.' A bit insulting when you realise that many of the Canadian drugs are being made by US companies and they are exactly the same as is available in the US. Bush seems to agree with the FDA. But the real confusing part is that when the US was/is faced with the Flu Vaccine crisis, Bush has stated that the US is looking to get assistance from Canada in providing the vaccine. Are Canada's pharmaceuticals safe or unsafe? And is they are unsafe, why haven't Canadians been told that they have unsafe pharmaceuticals?

Subject: Re: Canadian Drugs From: jimsum To: Mik Date Posted: Fri, Nov 19, 2004 at 15:42:24 (EST) Email Address: jim.summers@rogers.com Message: I thought the argument was that because you are ordering over the internet, you don't know where the drugs are coming from. You may think they are from Canada, but maybe it is some unspecified country where they sell pirate drugs that will kill you. The Canadian government also made a similar argument against websites. The obvious solution -- setup some sort of system that lets you verify the site is legitimate -- is being ignored in favour of scaring you into buying from a more-expensive local source. The other practical consideration is how can Canadian pharmacies accept American prescriptions? From what I gather, Canadian doctors just rewrite prescriptions without examining the patient. Our government is very concerned about this (I'm guessing after prodding by the U.S. government) and wants this 'dangerous' practice to stop. At any rate, since Canada has about 10% of the population of the U.S., it is hard to believe Canada will ever be a major source of drugs for Americans. If we supplied any appreciable fraction of the U.S. market, there would be huge shortages for Canadians. The real solution to this problem is that you Americans should study why we get such a good deal and negotiate accordingly; we get our drugs from pretty much the same companies as you do.

Subject: Re: Canadian Drugs From: Jennifer To: jimsum Date Posted: Fri, Nov 19, 2004 at 15:48:48 (EST) Email Address: Not Provided Message: At least, you folks have enough flu vaccine...

Subject: Re: Canadian Drugs From: jimsum To: Jennifer Date Posted: Fri, Nov 19, 2004 at 16:05:48 (EST) Email Address: jim.summers@rogers.com Message: True, but even in Ontario where it is free to get the flu vaccine, only about 40-45% of the population gets it. I think it is going to take a major flu outbreak to convince people of the value of flu shots.

Subject: Re: Canadian Drugs From: Jennifer To: jimsum Date Posted: Fri, Nov 19, 2004 at 16:24:05 (EST) Email Address: Not Provided Message: There is a certain protective aspect for the population at large when many people are vaccinated. Those vaccinated will not spread the illness. Many Americans gripe about the vaccine, but there may be close to 100 million shots given in a normal year.

Subject: Poor Canadians From: Emma To: Mik Date Posted: Fri, Nov 19, 2004 at 14:33:36 (EST) Email Address: Not Provided Message: Poor dear Canadians. Suffering from scads of bad drugs, except when it comes to flu vaccine or, as I recall, vaccine against anthrax. Whenever we are looking to criticize state health care, Canada is a convenient target. Canadians however, with all the bad drugs, have all sorts of health characteristics that are superior to those of Americans.

Subject: Why Buy Bonds? From: Ari To: All Date Posted: Fri, Nov 19, 2004 at 12:28:22 (EST) Email Address: Not Provided Message: What the heck is the bond market telling us? What are we missing? Who is buying and why and what? At these rates I am a seller. What is wrong with the buyers?

Subject: Re: Why Buy Bonds? From: jimsum To: Ari Date Posted: Fri, Nov 19, 2004 at 16:34:48 (EST) Email Address: jim.summers@rogers.com Message: And especially; what is wrong with foreigners? Whatever meager returns they are getting from bonds are being wiped out by the drop in the dollar.

Subject: Re: Why Buy Bonds? From: Ari To: jimsum Date Posted: Fri, Nov 19, 2004 at 16:56:51 (EST) Email Address: Not Provided Message: Why would any Canadian wish to hold American bonds? Even holding dollars is a problem for Canadians, but not bonds at this time. Puzzling.

Subject: Betting Against the Dollar From: Emma To: All Date Posted: Fri, Nov 19, 2004 at 11:46:55 (EST) Email Address: Not Provided Message: is further suggest there will be no significant currency market intervention by America to support the dollar. The Treasury Secretary has already told us this. Taking positions against the dollar then becomes increasingly less risky.

Subject: We Are in a Bull Market From: Terri To: All Date Posted: Fri, Nov 19, 2004 at 07:19:13 (EST) Email Address: Not Provided Message: We are now 2 full years into the stock market recovery. There will eventually be a market decline again, but there has been a world market recovery. Missing a bull market to wait for a bear market does not make sense to me. Caution makes sense, not waiting 2 years and more. The bull market in bonds is continuing through a fifth year. Bonds have been a sustaining force from 2000. There is reason to increasingly cautious as the bull market in stocks continues, but that is an easy response after 2 fine years.

Subject: Re: We Are in a Bull Market From: Pete Weis To: Terri Date Posted: Fri, Nov 19, 2004 at 09:51:03 (EST) Email Address: Not Provided Message: Terri. You must be right. We have folks once again coming out with 'the DOW is headed for 35000'. Mary Meeker is back on the gravy train. Jeremy Siegel is selling lots of books again. Boring old Berkshire Hathaway is losing money since so many small investors are piling into GOOGLE and other high flyers. Yup! We've got one humdinger of a BULL market - time to get back in quickly, so we don't lose out on all those big gains. CNBC is on a roll.

Subject: Re: We Are in a Bull Market From: Jennifer To: Pete Weis Date Posted: Sat, Nov 20, 2004 at 07:06:27 (EST) Email Address: Not Provided Message: Simply because some people go to excess, does not mean we have to go to excess. The truth of the matter is that we had almost 3 years of a bear market, but now we have had 2 years of recovery. The may be another bear market in the near future or there may not. We have to be prepared for down and up markets unless we think we can read the market day to day. The question is how can we be prepared? We can only an inflation protected bond fund, we can own regular bond funds of differing durations, we can own conservative stock funds here and abroad. We can not afford to be cynical. Why sneer at people who are seeking sensible secure ways to invest for their future? Surely it is foolish not to think there are safe ways to invest. We can buy shares of Berkshire Hathaway. I am secure holding Berkshire Hathaway shares for years. What do you suggest? Jeremy Siegel is a well respected academic from whom we can learn much even as we argue over ideas. Cynicism does not help us invest securely, but only frightens.

Subject: Healthy cynicism From: Pete Weis To: Jennifer Date Posted: Sat, Nov 20, 2004 at 10:16:40 (EST) Email Address: Not Provided Message: Jennifer. Obviously, I have a considerably different view. Nothing, in my view, has really changed since the late 90's-2000, with regard to the stock markets. IMO, there has been no real clean-up on Wall Street. I believe Wall Street has descended into a process of manipulating gullible small investors into buying stocks to support lucrative stock options which are then sold at the very time when the public is being told the company is making great profits and has a very bright outlook. I am not saying every company out there is doing this, but there are enough rotten apples out there to poison the whole basket. All the old timers who have the best reputations in the business (Buffet, Russell, Templeton, etc.) will tell you bear markets never end with the markets at a PE ratio over 20. The S&P has never really gotten below a PE of 20 during the last 4 years. In fact, if you look back, you will find that all major bear markets end with PE ratio's going well below 10x earnings. The bear market of the late 60's through the early 70's ran below 10x earnings and remained there for some time. The 1930's were the same way. As Buffet has pointed out 'unfortunately the bust will be equal to the boom'. All major bear markets have large retracements, as we had in 2003, before heading south once again. This last rally (called by some as the Bush rally) relates to the recent drop in oil prices and exuberance on Wall Street about Bush's re-election. But nothing has really change with regard to how the economy is doing - we still have an economy built on leverage and not rising overall wages. Oil prices are back to rising again, especially as the dollar continues its decline. The reality of our situation in Iraq is becoming more and more obvious. Airlines are having difficulties. There have been numerous articles about difficulties in the auto industry recently. 'Jeremy Siegel is a well respected academic from whom we can learn much' - I'd like to go into that in detail in a separate post. His views are in direct contrast to Robert Shiller. Robert Shiller turns out be be 'dead on' and Siegel proven to be full of 'irrational exuberance' and people still listen to this guy - maybe you can enlighten me.

Subject: Re: Healthy cynicism From: Jennifer To: Pete Weis Date Posted: Sat, Nov 20, 2004 at 10:29:32 (EST) Email Address: Not Provided Message: What a nice reply. Then let us agree that cynicism can be useful in paying attention to excess and deception. The list of suspect companies continues to be long, from Fannie Mae to Merck to AIG. In statistics before we can say for sure what a pattern amounts to, there must be enough data points. There are not enough data points to generalize about bear markets without caution. Jeremy Siegal and Bob Shiller went to Yale together and are best friends and have argued for years. I enjoy both. Thank you!

Subject: Interesting 1998 Brad DeLong comments From: Pete Weis To: Jennifer Date Posted: Sat, Nov 20, 2004 at 18:01:15 (EST) Email Address: Not Provided Message: Economic Consultants' Meeting J. Bradford DeLong My remarks at an economic consultants' meeting called by the Board of Governors of the Federal Reserve on June 15, 1998. Let me begin by saying that I am not sure that I disagree with what Jeremy Siegel has just said--and I certainly do not disagree with Joseph Lakonishok. But it seems to me that I would best advance the discussion if I were to lay out the set-theoretic complement to the arguments that have been expressed so far. It is very possible that the equity premium--the higher rate of return demanded on stocks than on bonds--has fallen. The high rates of return required on equities over the past century have puzzled generations of economists. It may really be the case that investors as a group have 'wised up'--have realized that they underpriced stocks, and that old valuation patterns made stocks an irresistible investment opportunity from any rational risk/return perspective. There is, however, reason to be skeptical. We don't see any signs of a reduced equity premium in Japan, or the rest of Asia, or Mexico, or Latin America. We don't see as much of a sign of a reduced equity premium in Europe. Other equity markets outside the U.S. are offering very attractive bargains if the equity premium has fallen. Yet U.S. investors do not seem to be moving in large numbers to take advantage of them. And investors who are sophisticated enough to recognize that they should requie a lower risk premium should also be abelt to recognize opportunities outside of the U.S. So I find myself thinking of who is in the market, of the ecology that produces market participants. I find myself thinking of Jeffrey Vinik of Fidelity, promoted to perhaps the best asset management job in the world--head of the Magellen Fund--only to lose the job rapidly because the market seemed high to him and he kept a considerable share of his portfolio out of equities. The lesson has been learned. If you are fully invested, and thus if your returns match those of your fully invested peers among asset managers, you probably keep your job. If you bet that the market is overvalued and are not proven right by a near-immediate decline in the stock market, you lose your job. Over the past five years the normal operation of turnover in asset managers had given us a stock market run by optimists--by those who have been fully invested and perhaps leveraged even though prices appear by standard measures to be relatively high. It has also created a broader climate of opinion in which stock market columnists for the Washington Post can complain that because people have been worrying about stock-market overvaluation for three years, in which 'the Dow has risen by 110 percent,' that 'warnings about the market being overvalued are, frankly, getting a little old.' Now we can dismiss such comments by the likes of a James Glassman as the not very well informed views of someone who doesn't understand the stock market: someone who is hopelessly confused about what a dividend yield is and how it differs from an earnings yield. But we can dismiss such stupid opinions only if they are not backed by a lot of stupid money--only if we are confident that there are enough rational risk/return investors to offset the purchases now (and sales later) of the Glassmans and those who listen to them. So what happens next? Three possibilities: First, nothing happens. Jeremy Siegel is right, and the equity premium has declined by a lot, and the market is now--roughly--fairly priced. Second, the optimists who now run our stock market are real optimists: they will keep on buying and holding stocks no matter what returns are because they always expect the best. In this case optimists will be disappointed as earnings growth fails to meet their expectations, but there will be no sharp break in prices--hence nothing to greatly concern the Federal Reserve. There will be the standard deadweight losses produced by overvaluation: the financial economy will be sending the wrong price signals to savers and investors. But the stock market channels a sufficiently small proportion of net investment that these losses cannot be very large. Third, our optimists who are our asset managers today may not be optimists but rather trend chasers: people who tend to buy what has risen, and sell what has fallen. In this case the future of the stock market contains a significant probability of a substantial and rapid decline, analogous to the decline in the Japanese stock market that started in the late 1980s. In this case... J. Bradford DeLong, 601 Evans Hall, #3880

Subject: Re: Interesting 1998 Brad DeLong comments From: Terri To: Pete Weis Date Posted: Sat, Nov 20, 2004 at 18:25:02 (EST) Email Address: Not Provided Message: Pete A much needed post. You are always terrific.

Subject: Thanks Pete From: Jennifer To: Terri Date Posted: Sat, Nov 20, 2004 at 18:33:45 (EST) Email Address: Not Provided Message: Thanks as always. Google search is the perfect tool.

Subject: Re: We Are in a Bull Market From: Jennifer To: Jennifer Date Posted: Sat, Nov 20, 2004 at 10:14:49 (EST) Email Address: Not Provided Message: We can own an inflation protected bond fund, we can own regular bond funds of differing durations, we can own conservative stock funds here and abroad. We can not afford to be cynical. We can 'own,' I meant to write.

Subject: I invest....... From: Pete Weis To: Jennifer Date Posted: Sat, Nov 20, 2004 at 10:18:35 (EST) Email Address: Not Provided Message: just not in the US stock markets.

Subject: Re: I invest....... From: Jennifer To: Pete Weis Date Posted: Sat, Nov 20, 2004 at 11:08:44 (EST) Email Address: Not Provided Message: Yeah, what else can we do? We always have Europe.

Subject: Re: We Are in a Bull Market From: Ari To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 13:48:32 (EST) Email Address: Not Provided Message: Though I understand the concern with excess, we have to invest for retirement. To avoid all stocks for 2 years because there is some excess will hurt us. There are robust markets through the world. Are stocks in Canada and Australia and Sweden and France and Britain to be held? America is not the only fine market, and with a weak dollar there is reason to be abroad. But, we must invest.

Subject: Re: We Are in a Bull Market From: Terri To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 11:24:19 (EST) Email Address: Not Provided Message: Pete. You are absolutely right, and I am a worrier and becoming increasingly cautious. Your warnings are always attended to, and they will become increasingly important if there is no fiscal reform. Notice that the Index of Leading Indicators has been down for 5 months running. Nonetheless I hope for a soft landing in China and about 3% growth here, and I pay attention. Never think when I argue, I do not attend :)

Subject: Interest Rates Stay Low? From: Terri To: All Date Posted: Thurs, Nov 18, 2004 at 20:26:50 (EST) Email Address: Not Provided Message: Notice that long term interest rates simply do not rise. The Fed tightens, producer and consumer prices spike, the dollar loses value, the government deficit grows and long term interest rates stay near 40 year lows. There are times I think I can explain this and times when I am lost, but bond investors simply do not expect a growth surge for the economy any time soon. Bond investors are telling us the economy will muddle along, and no more.

Subject: Re: Interest Rates Stay Low? From: jimsum To: Terri Date Posted: Fri, Nov 19, 2004 at 16:16:59 (EST) Email Address: jim.summers@rogers.com Message: Who knows, but markets are not always good at reflecting the economic situation. The tech-stock bubble lasted many long years; long enough that most people started to believe that it wasn't a bubble. I can't say the bond markets are similarly deluded in mistaking a bubble for a 'paradigm shift'; but I think a crash is coming. And I correctly predicted the tech-stock crash (3 years before it happened :-)

Subject: Hedging Against the Dollar From: Terri To: Terri Date Posted: Thurs, Nov 18, 2004 at 21:05:00 (EST) Email Address: Not Provided Message: Experience has not shown that stock prices decline in proportion to a rise in a country's currency value. This was especially not the case after September 1985.

Subject: Demand for US assets From: Pete Weis To: Terri Date Posted: Thurs, Nov 18, 2004 at 21:50:19 (EST) Email Address: Not Provided Message: In the late 80's through the 90's there was great demand for US assets by overseas investors. We were a booming economy fueled by the high tech phenomena. This caused the dollar to strengthen against other currencies. It's demand and supply with the dollar. Now private foreign investors have little to no appetite for US assets. It's only foreign central banks which keep it from literally collapsing and our interest rates skyrocketing. 1985 was a drastically different time!

Subject: Re: Demand for US assets From: Terri To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 05:56:49 (EST) Email Address: Not Provided Message: Interest rates and prices in the United States are marginally influenced by the value of the dollar. The dominant influence is the Fed and monetary policy. There will be no skyrocketing of interest rates unless the Fed were to begin an austerity program to defend the dollar. This will not happen. Britain quickly decided not to defend the Pound in 1991, rather than harm the economy. The Pound lost value, but there was no harm to Britain. As the dollar declines in value earnings for companies that trade will be higher, as was the case in Britain 12 years ago. Look at all the losses in value of the Pound since 1970, and we may conclude that domestic monetary and fiscal policy was what determined the health of the British economy and not currency value.

Subject: Re: Demand for US assets From: El Gaucho To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 02:07:35 (EST) Email Address: nma@hotmail.com Message: Pete, you're absolutely right, 1985 was a drastically different time!

Subject: Sweden My Sweden From: Jennifer To: All Date Posted: Thurs, Nov 18, 2004 at 19:05:53 (EST) Email Address: Not Provided Message: Just in case you imagine our peculiar American business business business approach is faring all that well in terms of stock prices, look to a welfare sate market such as Sweden. Sweden's market has long been among the most robust in the world. Robust without regard for any dollar weakness. A nice set of well run welfare state companies there :)

Subject: Re: Sweden My Sweden From: Ari To: Jennifer Date Posted: Thurs, Nov 18, 2004 at 19:42:14 (EST) Email Address: Not Provided Message: The Scandinavian countries have had nicely robust business climates. We would prefer not to admit that.

Subject: Re: Sweden My Sweden From: EZ To: Ari Date Posted: Fri, Nov 19, 2004 at 20:43:01 (EST) Email Address: Ejz23@yahoo.com Message: There are two books out one is called 'The United States of Europe' and the other is called the European dream. Both books basically state that Europe is quietly building a superpower to rival the United states, though not in military terms of course. Recently I read that Ford motors finds it less expensive to manufacture cars in Sweden then in the United states because they do not have to provide healthcare, pension, child care costs because Sweden provides this to every citizen.

Subject: Dwindling Germany From: Emma To: All Date Posted: Thurs, Nov 18, 2004 at 17:17:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/18/international/europe/18birth.html?position=&pagewanted=print&position= Empty Maternity Wards Imperil a Dwindling Germany By MARK LANDLER FRANKFURT - It is a typical night in the maternity ward of this city's second biggest hospital and the loneliest place is the nursery. Empty baby beds are lined up against a wall like rental cars in an airport parking lot. A colorful mobile hangs hopefully over the still room. With more than 1,000 beds, a team of doctors and midwives but only a few births a day, the Frankfurt-Höchst hospital has an abundance of everything except babies. Germany's falling birthrate, like that in much of Western Europe, is entering its second generation. This means not only that mothers continue to have one or at most two children - too few to reproduce the population - but also that the number of potential mothers has dwindled. The reunification with eastern Germany, where the birthrate is even lower than in the west, has made matters worse. Dresden, the capital of depopulated Saxony, closed 43 schools this summer because of a lack of children. Elsewhere in the country, there are too many hospitals and even too many roads. Germany, like several of its neighbors, is running out of the people it needs to sustain its advanced social systems and public infrastructure. 'There will be 10 million fewer young people in my lifetime,' observed Frank Schirrmacher, an editor at the daily Frankfurter Allgemeine Zeitung, who has written a best-selling book about population trends in Germany. 'Our whole infrastructure is designed for a bigger population.' Mr. Schirrmacher and other commentators conjure up a sort of reverse Malthusian nightmare: Germany as a land of predominantly geriatric towns and cities set in a deserted, creeping countryside. While such a bleak vision strikes some as far-fetched, the low birthrate is rippling through society in unlikely ways. The dearth of babies, for example, has ignited a fierce competition among Frankfurt's hospitals. The other evening, half a dozen German couples gathered over fresh fruit and sparkling water at the Höchst hospital to listen to the chief of the obstetrics and gynecology department, Dr. Volker Möbus, try to persuade them to deliver their babies there. He promoted the hospital's well-regarded neonatal intensive care unit and dangled extra services like acupuncture and massage therapy for the mothers. Höchst no longer resists performing Caesarean sections for nonmedical reasons. The number of deliveries at the hospital has been declining since 1995, when refugees from the war-torn Balkans swelled the numbers. This year, it will barely reach 1,800, or slightly less than five a day. By comparison, Mount Sinai Hospital in New York City, with only 119 more beds than Höchst, had 4,617 births in 2002.

Subject: To Get Ahead, Own the Store From: Emma To: All Date Posted: Thurs, Nov 18, 2004 at 16:14:20 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/18/business/18sbiz.html?pagewanted=all&position= To Get Ahead, Own the Store By REGAN MORRIS Hispanic women are opening businesses at a rate far higher than the national average, a new study shows. To Tina Cordova, a Hispanic entrepreneur, the reason is obvious: economic desperation. While white women in the work force make about 77 cents to every dollar earned by white men, according to data from the 2000 census, Hispanic women are paid 53 cents. With numbers like that, Ms. Cordova, 45, the president, majority shareholder and chief executive of Queston Construction Inc. in Albuquerque, said it was no wonder that so many Hispanic and other minority women take the plunge into entrepreneurship. When she started her company in 1990 with $5,000 in savings, Ms. Cordova figured she had nothing to lose. After all, she said, if she failed she could always go back to her previous jobs as a waitress and a restaurant manager. Many other minority women have made similar decisions to start businesses. Between 1997 and 2004, the number of firms owned by Hispanic women increased by nearly 64 percent, to 553,600, and their combined revenue climbed by more than 62 percent, to $44.4 billion, according to a study by the Center for Women's Business Research that was released Tuesday. The number of privately held firms that are 51 percent or more owned by minority women rose by 54.6 percent, compared with a 9 percent increase in the number of all privately held firms in the United States, the study said. The number of firms run by African-American women rose by 33 percent, to 414,472, the center said. Over all, an estimated 1.4 million companies are owned by minority women in the United States, generating nearly $147 billion in sales. Hispanics accounted for 39 percent of the companies, while African-Americans accounted for 29 percent. Asian-Americans and Pacific Islanders, who were grouped together, also accounted for 29 percent. Native Americans and Native Alaskans made up about 6 percent, the study said. (The numbers add up to more than 100 percent because some business owners were classified in more than one category.) Myra M. Hart, co-founder of Staples and a professor at Harvard Business School, attributed the surge in part to limits to professional advancement that many women still experience in the workplace. 'If you sit down and say: 'Well, what's the best alternative to starting this business?,' the alternatives don't look that attractive,' said Ms. Hart, who is chairwoman of the Center for Women's Business Research. Ms. Cordova started her business from her home and asked clients to pay half the cost of the projects up front, allowing her to buy materials and pay the two carpenters she had hired. In its first year, Queston's revenue was about $55,000. Last year, it was $2.5 million, down from a high of $3 million in 2002, though Ms. Cordova projects it will bounce back to $3 million next year because of the booming construction market in New Mexico. The company is profitable, but keeping it that way has been a struggle. Initially, the biggest challenge was getting financing. Now, it is coping with the soaring costs of materials, fuel, insurance and supplies. 'I think instead of having an estimator in our bid room, we really should have a psychic, because we really don't know what the cost of materials will be from one month to the next,' Ms. Cordova said. To cope, she said that she and Russ Steward, who is her companion as well as her business partner, pinch pennies in their business and private lives and stay out of debt. She said they had put off building their planned retirement home. Ms. Cordova, who had once dreamed of becoming a doctor, discovered her business skills at a restaurant franchise. She earned a master's degree in biology from New Mexico Highlands University, but she needed a job fast when she divorced and dropped out of medical school at the University of New Mexico. Despite her education, she couldn't find work in her field and ended up waiting tables at a Sizzler restaurant in Albuquerque. She asked her boss to let her work as his administrative assistant and help with his expansion plans. She discovered that she had a flair for business, and when she left the company about two years later she was operations supervisor, overseeing three restaurants.

Subject: Health Care Costs From: Emma To: All Date Posted: Thurs, Nov 18, 2004 at 15:54:15 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/18/business/18scene.html?pagewanted=all&position= Controlling Health Care Costs By HAL R. VARIAN HEALTH care just keeps getting more expensive. According to the Stanford economist Victor R. Fuchs, health care expenditures by the elderly are growing 2 to 3 percent more rapidly than their spending on other goods. If this trend continues, by 2020 health spending by or on behalf of the elderly will exceed their spending on all other goods and services. As the economist Herbert Stein cogently put it, 'If something cannot go on forever, it will stop.' What can be done to stop, or at least slow, the rapid growth in health care spending? It has been argued, with considerable justification, that a significant part of the increase in health care expense is a result of improved quality. The real issue is not simply reducing spending on health care, but reducing it while still maintaining an appropriate quality. Economists have two magic potions to control prices and improve quality: competition and incentives. How can these elixirs be best administered to the health care industry? This question has preoccupied the Stanford economist Alain C. Enthoven for decades. In a recent book that he edited with Laura A. Tollen, 'Toward a 21st Century Health System' (Jossey-Bass, 2004), he provides an outline of an answer. Start with competition. For better or worse, most Americans receive health care benefits through their employers. The problem is that employers do not have much incentive to offer their employees choice in health care plans. Offering three or four health care plans imposes administrative burdens on employers. A large employer might be able to handle these extra administrative costs, but small employers find it more economical to offer a single plan. In 1997, only 23 percent of insured employees were offered a choice of plans. But competition cannot be effective unless there is choice of competing providers. What policies could be used to offer more choice? What is needed is experimentation with, and competition among, different ways of delivering health care: prepaid group practices, health maintenance organizations, traditional preferred providers, and other ways not yet thought of. The key is to give consumers a choice among different delivery systems, not just minor variations on a single theme. Mr. Enthoven argues that the most promising solution is a health care 'exchange' like the California Public Employees' Retirement System, or Calpers. Calpers arranges coverage for over 1.3 million public employees, retirees and dependents for 2,400 different employers in California. Such exchanges standardize business rules, facilitate comparisons among plans, and expedite enrollment decisions, billings and payments. BENU Washington is a new exchange aimed at companies with 100 to 1,000 employees, allowing these relatively small companies to offer a much wider range of plans. Such exchanges could help businesses control the administrative costs of offering a number of health care plans. But there is still the issue of providing appropriate incentives to the individuals who must choose the plan most suited to their needs.

Subject: Beijing's Star Ascends in Asia From: Emma To: All Date Posted: Thurs, Nov 18, 2004 at 15:47:55 (EST) Email Address: Not Provided Message: August 28, 2004 Across Asia, Beijing's Star Is in Ascendance By JANE PERLEZ NEWMAN, Australia - Chris Dunbar watched as a front-end loader carved into a 60-foot wall of iron ore glinting in the red dirt of a vast open mine in the big sky country of northwestern Australia. 'This is as good as it gets,' said a satisfied Mr. Dunbar, 47, a manager with more than 20 years of experience. He was boasting about the richness of the blue-black ore at the Mount Whaleback mine, but he might as well have been bragging about the boom that has propelled economies across the Asia-Pacific region. These days, Australian engineers - like executives, merchants and manufacturers elsewhere in the region - cannot seem to work fast enough to satisfy the hunger of their biggest new customer: China. Not long ago Australia and China regarded each other with suspicion. But through newfound diplomatic finesse and the seemingly irresistible lure of its long economic expansion, Beijing has skillfully turned around relations with Australia, America's staunchest ally in the region. The turnabout is just one sign of the broad new influence Beijing has accumulated across the Asian Pacific with American friends and foes alike. From the mines of Newman - an outpost of 3,000 in a corner of the outback - to theforests of Myanmar, the former Burma, China's rapid growth is sucking up resources and pulling the region's varied economies in its wake. The effect is unlike anything since the rise of Japanese economic power after World War II. For now, China's presence mostly translates into money, and the doors it opens. But more and more, China is leveraging its economic clout to support its political preferences. Beijing is pushing for regional political and economic groupings it can dominate, like a proposed East Asia Community that would cut out the United States and create a global bloc to rival the European Union. It is dispersing aid and, in ways not seen before, pressing countries to fall in line on its top foreign policy priority: its claim over Taiwan. China's higher profile is all the more striking, analysts, executives and diplomats say, as Washington's preoccupation with Iraq and terrorism has left it seemingly disengaged from the region, which in turn has found the United States more off-putting and harder to penetrate after Sept. 11. American military supremacy remains unquestioned, regional officials say. But the United States appears to be on the losing side of trade patterns. China is now South Korea's biggest trade partner, and two years ago Japan's imports from China surpassed those from the United States. Current trends show China is likely to top American trade with Southeast Asia in just a few years. China's prime minister, Wen Jiabao, as much as threw down the gauntlet last year, saying he believed that China's trade with Southeast Asia would reach $100 billion by 2005, just shy of the $120 billion in trade the United States does with the region. Mr. Wen's claim was no idle boast. Almost no country has escaped the pull of China's enormous craving for trade and, above all, energy and other natural resources to fuel its still galloping expansion and growing consumer demand. Though the Chinese government's growth target for 2004 is 7 percent, compared with 9.1 percent for 2003, few are worried about a slowdown soon.

Subject: As the Dollar Falls From: Terri To: All Date Posted: Thurs, Nov 18, 2004 at 12:46:21 (EST) Email Address: Not Provided Message: James Baker engineered the Plaza Accord of September 1985. The dollar was allowed to fall 30 to 40% in value, with no quickly evident negative effects. Balance of payments problems were significantly eased over several years and interest rates did not begin to rise until the Federal Reserve began tightening in 1987. The Fed tightening was immediately reversed in October 1987, and the economy grew through the severe but short lived stock market decline. James Baker is still an important influence, and we may well be seeing policy designed to duplicate the Plaza Accord without the accord. We had better hope interest rates stay low.

Subject: Much different time From: Pete Weis To: Terri Date Posted: Thurs, Nov 18, 2004 at 21:37:15 (EST) Email Address: Not Provided Message: Terri. Remember that the 1985 through early 90's period was quite different from our present time. It was in the middle of the high tech boom with a US labor market expanding with overall wages soaring. Personal debt had not gotten to nearly the levels it has reached now. Interest rates were, as you point out, generally headed downward. Also energy was becoming cheaper. Now, despite the Fed raising short term rates the dollar is still dropping. Inflation in energy, food, housing, insurance, etc is subtracting from paychecks which are not keeping up with inflation. The job market is still weak with many part time and lower wage jobs replacing many of the high tech jobs going overseas. The current account deficit is, now, much bigger than it was in 1985. In summary, we have a much more leveraged economy now than we had in the late 80's. Interest rates from here out will likely edge higher over the coming years which will cause problems for a highly leveraged economy. Think of all those ARM's and interest only loans out there.

Subject: Re: Much different time From: jimsum To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 16:03:19 (EST) Email Address: jim.summers@rogers.com Message: There are plenty of signs that borrowing has gotten out of control for both the American government and its citizens. The trade deficit is a natural result of Americans being much more willing to borrow than anyone else in the world. Asians save more money than Americans, so naturally money flows from those who want to save to those who want to spend (or invest). The problem is that there is no voluntary domestic effort to increase saving. The government shows no sign of decreasing spending or increasing taxes; quite the opposite. Consumers are also being induced to borrow and spend, at better and better terms. Everyone is being told the current levels of borrowing are sustainable; and hey, there's no absolute proof it isn't. It looks like the only possible source of discipline is from outside the country. If the only way Americans will spend less and save more is a collapse in the dollar that forces inflation and interest rates up; then that's what is going to happen. It's too bad the American economy is not more trade dependent; with only 10% of the economy dependent on trade, it will take a mighty big drop in the exchange rate to force an increase in inflation.

Subject: Inflation & trade From: Pete Weis To: jimsum Date Posted: Fri, Nov 19, 2004 at 20:29:31 (EST) Email Address: Not Provided Message: Jim. I think we focus too much on a lower dollar with regard to its effects on trade. Generally there is at least a year's lag period before a lower dollar begins to rebalance trade. What is having an immediate inflationary effect is the portion of higher energy and raw material costs which relate to a shrinking dollar. It's begining to squeeze US corporations including auto manufacturers and appliance makers. It's also very definitely squeezing paychecks. I believe Bill Gross is right when he talks about a fudged CPI number. We are seeing it in our weekly food bills. The Chinese continue to tag their currency to the dollar and the Japanese keep pushing the yen lower, so I would expect any change in the trade deficit to be slow and higher imported oil, natural gas, and raw material costs will keep the current account deficit at high levels. But inflation will slow consumption at or near the point where consumers can no longer take on and service anymore debt, because increases in overall wages simply aren't there.

Subject: Re: Inflation & trade From: Terri To: Pete Weis Date Posted: Fri, Nov 19, 2004 at 22:00:52 (EST) Email Address: Not Provided Message: Where we have to be careful is in distinguishing consumer price increases with and without energy and food. Well, we all need energy and food and that is where the price increases have been a special problem lately. Inflation will cause the Fed to keep tightening if food and energy prices do not abate soon.

Subject: Re: Much different time From: Terri To: jimsum Date Posted: Fri, Nov 19, 2004 at 19:28:25 (EST) Email Address: Not Provided Message: Remember, there was a time not so long ago when Canada had a substantial deficit. Australia has a substantial deficit now, but both countries have strong economies and markets. There does not have to be a crisis just because we all fret :)

Subject: Chinese Move Eclipse US Asian Appeal From: Emma To: All Date Posted: Thurs, Nov 18, 2004 at 11:24:48 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/18/international/asia/18asia.html Chinese Move to Eclipse U.S. Appeal in South Asia By JANE PERLEZ CHIANG RAI, Thailand - In pagoda-style buildings donated by the Chinese government to the university here, Long Seaxiong, 19, stays up nights to master the intricacies of Mandarin. The sacrifice is worth it, he says, and the choice of studying Chinese was an easy one over perfecting his faltering English. China, not America, is the future, he insists, speaking for many of his generation in Asia. 'For a few years ahead, it will still be the United States as No. 1, but soon it will be China,' Mr. Long, the son of a Thai businessman, confidently predicted as he showed off the stone, tiles and willow trees imported from China to decorate the courtyard at the Sirindhorn Chinese Language and Culture Center, which opened a year ago. The center is part of China's expanding presence across Southeast Asia and the Pacific, where Beijing is making a big push to market itself and its language, similar to the way the United States promoted its culture and values during the cold war. It is not a hard sell, particularly to young Asians eager to cement cultural bonds as China deepens its economic and political interests in the region. Put off from visiting the United States by the difficulty of gaining visas after 9/11, more and more Southeast Asians are traveling to China as students and tourists. Likewise, Chinese tourists, less fearful than Americans of the threat of being targets of terrorism, are becoming the dominant tourist group in the region, outnumbering Americans in places like Thailand and fast catching up to the ubiquitous Japanese. As the new Chinese tourists from the rapidly expanding middle class travel, they carry with them an image of a vastly different and more inviting China than even just a few years ago, richer, more confident and more influential. 'Among some countries, China fever seems to be replacing China fear,' said Wang Gungwu, the director of the East Asian Institute at National University in Singapore. Over all, China's stepped up endeavors in cultural suasion remain modest compared with those of the United States, and American popular culture, from Hollywood movies to MTV, is still vastly more exportable and accessible, all agree. The United States also holds the balance of raw military power in the region. But the trend is clear, educators and diplomats here say: the Americans are losing influence. As China ramps up its cultural and language presence, Washington is ratcheting down, ceding territory that was virtually all its own when China was trapped in its hard Communist shell. 'The Chinese are actively expanding their public diplomacy while we are cutting back or just holding our own,' said Paul Blackburn, a former public affairs officer of the United States Information Service who served at four American embassies in Asia in the 1980's and 90's. China Radio International, with light fare and upbeat news and features, now broadcasts in English 24 hours a day, while Voice of America broadcasts 19 hours and will soon be cut back to 14 hours, he said. CCTV-9, China's flagship English-language television channel, which features suave news anchors and cultural and entertainment shows, is broadcast worldwide. America may have CNN International, but in the realm of public policy, the United States has 'nothing comparable,' Mr. Blackburn says. Across Southeast Asia, American centers run by the State Department's United States Information Service, which once offered English-language training and library services, were closed and staff was slashed as part of the worldwide cutbacks in the 1990's. The impact is still being felt.

Subject: Chinese Influence in Asia From: Emma To: Emma Date Posted: Thurs, Nov 18, 2004 at 11:28:18 (EST) Email Address: Not Provided Message: In Indonesia, the world's most populous Muslim country, the three United States information centers were shut. A new program, 'American Corners,' provides books, computers and databases for a handful of Indonesian university libraries, but it has less impact, American diplomats said. As Washington cuts back, China is providing concrete alternatives. The Chinese president and Communist Party chief, Hu Jintao, made clear the importance of China's cultural offensive to Beijing when he addressed the Australian Parliament last year. 'The Chinese culture belongs not only to the Chinese but also to the whole world,' he grandly offered. 'We stand ready to step up cultural exchanges with the rest of the world in a joint promotion of cultural prosperity.' The invitation is being accepted by growing numbers of Asian students who are taking advantage of proliferating opportunities for higher education in China. No longer are status-conscious Asian families mortified if their children fail to qualify for elite American universities, parents say. A berth in a Chinese university is seen as a pragmatic solution, even if the quality of the instruction falls short of the top American schools. In Malaysia, students of non-Chinese background are flocking to primary schools where Chinese is taught, a reversal of a more than three-decade trend, said N. C. Siew, the editor of the country's major Chinese-language newspaper, Sin Chew Daily. In Indonesia, the elite long favored American universities. The founding generation of government technocrats was called the 'Berkeley mafia' because so many were graduates from the Berkeley campus of the University of California. Today, the numbers tell a startling story, especially in Indonesia, an American ally where relations with China have been historically difficult. Last year, 2,563 Indonesian students received visas to go to China for study, according to the Chinese Embassy in Jakarta, a 51 percent increase over the previous year. By comparison, only 1,333 Indonesian students received visas for study in the United States in 2003, the United States consul general in Jakarta says. That was a precipitous drop from the 6,250 student visas the office said it issued in 2000 and part of a worldwide decline after 9/11. Although many educators in Southeast Asia welcome the new openness to China, even longtime friends of the United States say China's influence appears to be growing at America's expense.

Subject: Fixed or Unfixed Exchange Rates From: Terri To: All Date Posted: Thurs, Nov 18, 2004 at 10:51:00 (EST) Email Address: Not Provided Message: http://www.roubiniglobal.com/archives/2004/10/are_we_back_to.html October 8, 2004 BW2: Are we back to a new stable Bretton Woods regime of global fixed exchange rates? By Nouriel Roubini and Brad Setser The BW2 Hypothesis The BW2 argument goes as follows. The U.S. is currently running a large current account deficit while most of Asia is running a large current account surplus. After the Asian crisis, most Asian economies decided that a growth model based on financing investment via external capital (i.e. running current account deficits, as they had done in the early 1990s) was not desirable, given their vulnerability to a sudden reversal of capital flows. Immediately after the crisis, they needed to run current account surpluses to rebuild their reserves, but they then maintained large current account surpluses and continued to rely on export-led growth. In a world of floating exchange rates large current account surpluses (and in China’s case, large capital inflows, including large FDI inflows) would naturally tend to lead to currency appreciation. To avoid appreciation, many Asian economies, including those whose currencies are formally floating, started to intervene aggressively in the foreign exchange market. Some Asian currencies are formally pegged to the US dollar, mostly notably the Chinese renminbi ( also the Hong Kong dollar and the Malaysian ringitt). But many other countries intervene heavily, and thus are to effectively pegged to the U.S. dollar (and more importantly, to the Chinese renminbi. (India, Korea, Taiwan, Thailand, Indonesia and even Japan). This aggressive intervention manifest itself in the huge accumulation of foreign exchange reserves by Asian central banks. Summary of the BW2 Critique In summary, Asia’s desire to avoid dollar appreciation has created the kernel of a new Bretton Woods system of fixed exchange rates. But this regime is highly unstable, fragile and unsustainable and more likely to break apart than to expand and consolidate. The flow and stock imbalances associated with Bretton Woods Two are much larger than the imbalances created by the initial Bretton Woods regime. The scale of these imbalances and the difficulties sustaining a cooperative equilibrium in a game with strong incentives for free riding make it likely that the Asian dollar-renminbi standard will crash in years, not decades.

Subject: Re: Fixed or Unfixed Exchange Rates From: El Gaucho To: Terri Date Posted: Thurs, Nov 18, 2004 at 12:16:43 (EST) Email Address: nma@hotmail.com Message: Pages 12 and 13: 1.2. The capital account...

Subject: Starve the Beast (PK?) From: El Gaucho To: All Date Posted: Wed, Nov 17, 2004 at 22:10:22 (EST) Email Address: nma@hotmail.com Message: http://www.brook.edu/views/articles/20041115galeorszag.htm

Subject: Re: Starve the Beast (PK?) From: Emma To: El Gaucho Date Posted: Thurs, Nov 18, 2004 at 15:08:51 (EST) Email Address: Not Provided Message: http://www.brook.edu/views/articles/20041115galeorszag.htm Bush Administration Tax Policy: Starving the Beast? By William Gale and Peter Orszag It is at best unclear whether tax cuts are effective in restraining spending. The data appear more consistent with the view that once fiscal discipline erodes on one side of the budget, it tends to erode on the other side, too. Aiming to reduce spending does not justify regressive tax cuts. In fact, because most spending cuts would be regressive, a tax cut aimed at reducing spending could, on fairness grounds, be reasonably expected to compensate by being progressive. It is hard to believe that the tax cuts were effective in reducing spending, as spending has risen significantly in defense, nondefense, and entitlement categories. Regardless of the legitimacy of starving the beast as a justification for the original 2001 tax cuts, the theory does not apply to the case for making the tax cuts permanent because the government will face budget deficits in the medium and long term even in the absence of extending the tax cuts.

Subject: Plaza Accord (part II) ? From: El Gaucho To: All Date Posted: Wed, Nov 17, 2004 at 19:46:18 (EST) Email Address: nma@hotmail.com Message: Peter Bernstein The world needs another Plaza Accord The dollar is in trouble, but it has been in trouble before. Perhaps the past holds the solutions everyone seeks. On September 22 1985, the ministers of finance and governors of the central banks of France, Germany, Japan, the UK and the US signed an accord at the Plaza Hotel in New York. It stated that signatories “were of the view that recent shifts in fundamental economic conditions among their countries, together with policy commitments for the future, have not been reflected fully in exchange markets...In view of the present and prospective changes in the fundamentals, some further orderly appreciation of the main non-dollar currencies against the dollar is desirable. They stand ready to co-operate more closely to encourage this when to do so would be helpful.” Over the next two years, the dollar dropped by 30 per cent and America's deficit on current-account began shrinking. By 1991, the current account was just about in balance. A neat job, elegantly executed. Could we replay the Plaza Accord today? The case would be difficult to make. Aside from enormous differences in the magnitude of the economic problem, the political setting bears no resemblance to 1985. At that time, the ministers and governors who gathered at the Plaza were old pals, used to finding solutions to common problems. The western powers and Japan dominated the world, and everybody else genuflected before them. Today, the picture is far more complex. On the economic side, the scale of the problem is daunting. The rapidly expanding US current account deficit is now more than 5 per cent of GDP, as against only 2 per cent in 1985. Furthermore, the small surplus of 1991 was also the consequence of a recession in the US that curtailed the flow of imports even as exports kept rising – but the US slipped right back into the red as soon as recovery got under way. Helped by a 25 per cent appreciation in the dollar in 1991 and 2001, the current account deficit has been climbing ever since then. In 1985, foreign officials assets in the US were a fraction of what they are today; since the end of 2002, growth in official holdings has amounted to more than $450bn. In 1986, the price of oil dropped by 50 per cent; today, the concerns are just the opposite. In many countries, economic growth is excessively dependent on exports, which depend on a strong dollar. On the US side, the authorities welcome the willingness of exporting nations to finance America's appetite for imports, as their policy helps finance the government's bulging deficit. But, as Herb Stein, the late economist, put it: “If something can't go on forever, it won't.” Private capital inflows into the US are already shrinking. There is a point at which one other central bank will cry “Enough!” and the house of cards will fall in. Indeed, China has already begun diversifying its foreign exchange reserves into other currencies and investments. Protectionist pressures are developing within the US, which – to borrow the Plaza Accord's words - “if not resisted, could lead to mutually destructive retaliation with serious damage to the world economy”. At the same time, Americans are creating the means for foreign nations to blackmail them over unpopular US policies by threatening to cease accumulating dollars, thus prompting the dreaded crisis. There is, however, a vested interest around the world that firmly opposes “some further orderly appreciation of the main non-dollar currencies against the dollar”. Many countries are hooked on exports rather than domestic demand as the engine of growth. Accumulating US government securities in such copious amounts is not exactly comfortable, but appreciation of their currencies against the dollar would be even more uncomfortable, as it would deprive them of their main economic stimulant. The important exception is China, which appears to be laying the groundwork for an eventual appreciation of the renminbi against the dollar. Nevertheless, as Stein reminds us, the current account situation cannot go on forever. The worst solution would be to yield to protectionist pressures in the US, which would immediately invite retaliation abroad. The optimal solution is a replay of the Plaza Accord – an orderly appreciation of the main non-dollar currencies against the dollar, which is a more benign method of curtailing America's appetite for imports while spurring the development of domestic sources of growth in the rest of the world. Without such an accord, the outlook for an orderly dollar devaluation is dim. The writer is a New York-based economic consultant and author of Against the Gods: The Remarkable Story of Risk

Subject: Re: Plaza Accord (part II) ? From: Terri To: El Gaucho Date Posted: Wed, Nov 17, 2004 at 21:51:48 (EST) Email Address: Not Provided Message: There is no way Europe would agree to a 30% devaluation of the dollar. Now, the devaluation may well come, but not with a formal agreement. European exports would be set at risk. There may be some movement in Asia, but careful gradual movement. The problem is even as the dollar loses value, we have a deficit to contend with that makes for a worsening of our balance of payments, but we are not going to tighten fiscal policy anytime soon. Quite a catch.

Subject: Re: Plaza Accord (part II) ? From: Ari To: Terri Date Posted: Thurs, Nov 18, 2004 at 07:21:33 (EST) Email Address: Not Provided Message: There could be a severe loss for the dollar if hedge funds are willing to speculate on a continuing decline. Could the Fed keep interest rates from rising if there were to be a hedge fund run on the dollar? Wish we had PK to help with an answer.

Subject: Re: Plaza Accord (part III) ? From: El Gaucho To: Terri Date Posted: Wed, Nov 17, 2004 at 22:27:39 (EST) Email Address: nma@hotmail.com Message: Noun 1.Pridepride - a feeling of self-respect and personal worth Synonyms: pridefulness Antonyms: humbleness, humility - a humble feeling; 'he was filled with humility at the sight of the Pope' 2.pride - satisfaction with your (or another's) achievements; 'he takes pride in his son's success' 3.pride - the trait of being spurred on by a dislike of falling below your standards Antonyms: humility, humbleness - a disposition to be humble; a lack of false pride; 'not everyone regards humility as a virtue' 4.pride - a group of lions 5.pride - unreasonable and inordinate self-esteem (personified as one of the deadly sins) Synonyms: superbia Verb 1. pride - be proud of; 'He prides himself on making it into law school' Synonyms: plume, congratulate

Subject: Re: Plaza Accord (part III) ? From: Jennifer To: El Gaucho Date Posted: Thurs, Nov 18, 2004 at 13:47:16 (EST) Email Address: Not Provided Message: As in pride coming before a fall? Ha.

Subject: Foreign Direct Investment? From: Econ Student To: All Date Posted: Wed, Nov 17, 2004 at 18:58:11 (EST) Email Address: gfanon@hotmail.com Message: I'm trying to work on a paper on why neo-classical theories of economics have a hard time explaining foreign direct investment. I know I read something Krugman has done on this before, does anyone recall where it might be?

Subject: Re: Foreign Direct Investment? From: El Gaucho To: Econ Student Date Posted: Wed, Nov 17, 2004 at 21:19:20 (EST) Email Address: nma@hotmail.com Message: 'I'm trying to work on a paper on why neo-classical theories of economics...' Good Luck!

Subject: Vanguard Returns From: Terri To: All Date Posted: Wed, Nov 17, 2004 at 18:54:16 (EST) Email Address: Not Provided Message: Vanguard Returns 12/31/03 to 11/17/04 S&P is up 7.8% Value Index is 11.4 Growth Index is 4.4 Mid Cap Index is 14.1% Small Cap Index is 14.4% Small Value is 17.7 Europe Index is 15.0% Pacific Index is 13.1 Energy is 31.9% REIT Index is 22.7 Health Care is 5.5 Long Term Corporate Bond Fund is 7.0% High Yield Corporate Bond Fund is 7.4

Subject: Re: Vanguard Returns From: Terri To: Terri Date Posted: Wed, Nov 17, 2004 at 21:57:33 (EST) Email Address: Not Provided Message: The driver of stocks makets through the world right now appears to be low interest rates in America and Japan. We can hope for a continuation. Beyond China there is little reason to tighten monetary policy much.

Subject: At the Beijing Auto Show From: Emma To: All Date Posted: Wed, Nov 17, 2004 at 14:22:07 (EST) Email Address: Not Provided Message: October 27, 2004 At the Beijing Auto Show, Signs of a Behemoth to Come By KEITH BRADSHER - New York Times THE Beijing auto show is starting to look a lot like auto shows in Detroit or Frankfurt or Geneva, a sign of how China has become one of the world's great industrial powers. The idiosyncratic, locally built clunkers found in other developing countries, like the Ambassador cars of India, are nearly gone. In their place are sleek models made in China by practically all of the world's multinational automakers -- sedans from Honda, minivans from General Motors and sport utility vehicles from Toyota -- and a range of locally designed cars. Some of the local cars are cramped and underpowered, like the $4,000 ''minicars'' with minimal safety equipment or seat padding and engines that could belong in a motorcycle. Yet even these come with air bags now, thanks to the government's increasing concern about traffic deaths. Auto shows, and the cars they flaunt, are windows into countries' souls. On display here is a China where the rich desperately want to live Western styles of life, even if they have mixed views about Western governments. But it is also a China that is trying to become more self-sufficient, with homegrown manufacturers presenting their own designs as well as the cars of their multinational partners. ''They're putting a lot of money into it to come up with a new aesthetic,'' said Ed Wong, a contract auto designer in Shanghai who works for many Chinese automakers. ''Some countries, it took them 20 or 25 years; the Chinese want to compress that.'' Joint ventures between multinationals and Chinese automakers dominate the Chinese market, accounting for more than four-fifths of sales. (More than 120 Chinese automakers share the rest.) But the Shanghai Automotive Industry Corporation, First Automobile Works and the Dongfeng Motor Corporation are learning to put their global partners' knowledge into their own cars. Their auto-show offerings are less blockish and more sophisticated, making them harder to distinguish from the multinationals' products. One car, a cross between an S.U.V. and a minivan, created by the Chery Automotive Company, drew particular attention as a design as polished and sleek as the Chrysler Pacifica. ''If you look back two years ago, the lines were less resolved,'' said Paul Blokland, the director of Segment Y, an automotive consulting firm based in Bangalore, India. What is not clear is whether cars made by Chinese companies will become discernibly Chinese. Government regulations in most industrial countries now limit designers' options, restricting vehicle weight to improve fuel economy and requiring that front ends not be too sharp or too rigid to reduce injuries to pedestrians. China has adopted many of the same safety and environmental regulations, usually choosing the European version because Volkswagen remains the largest automaker here. It has chosen the American standard a few times, and in a couple of cases has drafted its own rules, notably for fuel economy. ''The legislation obviously plays a part in it,'' said Terry Spall, the general manager for Asia at the Motor Industry Research Association, a trade group in Nuneaton, England, that has helped a dozen Chinese automakers set up test tracks and other automotive research sites. The automaker that is building the most elaborate test facilities and design studios in China is General Motors. Its designers contend that Chinese customers will still have some special tastes, and they want to reflect these tastes in their cars. G.M. designers and stylists point out that a person's house is the center of Chinese life. The first character of the double Chinese character for a limousine is the same as the first character of the double character for a house. In choosing how to travel, Chinese buyers effectively want to ''bring a piece of house with them,'' said James Shyr, the design director for G.M. China. The first character of the double character for a sedan, a four-door car, is the same as the first character of the double character for a sedan chair, or palanquin. G.M. already tries to make the rear seats of its cars as much like two chairs as possible, as in a palanquin, on the theory that it should be possible for two adults to sit in comfort in the back. Back seats are just as likely to hold the car's owner as they are a bunch of children, because chauffeurs only cost a couple of hundred dollars a month and getting a driver's license is an extremely bureaucratic process.

Subject: Drug Dispute - American and Australia From: Emma To: All Date Posted: Wed, Nov 17, 2004 at 12:44:24 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/17/business/worldbusiness/17australia.html?pagewanted=all&position= Drug Dispute Snags U.S.-Australia Pact By ELIZABETH BECKER and ROBERT PEAR WASHINGTON - Nine months ago, the United States and Australia completed negotiations on a landmark trade agreement that won unusually broad bipartisan support in Congress. But a dispute over drugs, both prescription and generic, is threatening to delay the effective date of Jan. 1. Prime Minister John Howard of Australia has become one of Mr. Bush's strongest allies, one of the few who sent troops to Iraq, and the trade agreement is meant to draw the countries even closer together. American manufacturers of things from tractors to computers are eager for the agreement to take effect because it promises $2 billion a year in new industrial exports, which could create jobs. But it has been dogged by disputes over the ability of American pharmaceutical companies to challenge decisions about which drugs will be covered, and at what prices, under Australia's national health insurance program. The pharmaceutical industry insists that the trade agreement should not take effect until its concerns are addressed. In Australia, there has been a loud outcry that the pact could undermine the popular government program that makes prescription drugs available to all citizens at subsidized prices. In the United States, American drug companies have complained for years about their inability to understand or influence government decisions about coverage of drugs in Australia. Prices for new drugs in Australia are among the lowest in the developed world, officials of both countries say. In August, when the Australian Parliament approved legislation to carry out the trade agreement, Mr. Howard, then running for re-election, accepted amendments aimed at ensuring the availability of inexpensive generic drugs. The opposition Labor Party demanded those changes. Those amendments infuriated American pharmaceutical companies and helped force trade negotiators back to the table. Both countries say they are optimistic that they can find a solution, but the agreement will not take effect unless the United States accepts the Australian legislation or Australia agrees to change it. Frank Vargo, vice president of the National Association of Manufacturers, an American trade group, said: 'It's unfortunate that the Australian Parliament chose to change the terms after the agreement was signed. We are urging all parties to be as flexible as possible and to move as quickly as possible to resolve these issues.' An American senior trade official said that the United States had raised concerns with Australia about how its legislation affected American drug products. 'We are not happy with it,' said the official, who asked for anonymity because talks on the Australian legislation are continuing. The United States, she said, is concerned about copyright issues as well, but feels 'very confident we can work this out.' Mark E. Grayson, a spokesman for the Pharmaceutical Research and Manufacturers of America, which represents brand-name drug companies, said the Australian legislation made it more difficult for them to enforce their patent rights. Under Australian law, drug companies face fines of up to $7.6 million if they make spurious or 'vexatious' patent claims to delay the entry of cheaper generic drugs to the Australian market. A brand-name drug maker can ask an Australian court to block the marketing of a drug that infringes its patents. But before doing so, the manufacturer must certify that the proceedings are 'commenced in good faith and have reasonable prospects of success.' If the court finds no reasonable basis for the litigation, it can fine the brand-name drug maker. Critics of the trade agreement, like Peter Drahos, a law professor at the Australian National University, said the pact would undermine the government program that provides medicine to Australians. 'The large pharmaceutical industry has had the program in its sights for a long time,' Mr. Drahos said. For Mr. Drahos, the agreement poses a fundamental question: Can trade agreements trump the domestic laws that underpin a nation's social contract? He strongly opposed allowing trade pacts to threaten those social programs.

Subject: Interest Rates From: Terri To: All Date Posted: Wed, Nov 17, 2004 at 11:39:40 (EST) Email Address: Not Provided Message: Notice that the surge in producer prices has had no effect on long term bonds. Bond investors are convinced there is no danger of a long term increase in inflation. This is indeed good news.

Subject: Consumer Prices From: Terri To: Terri Date Posted: Wed, Nov 17, 2004 at 13:37:51 (EST) Email Address: Not Provided Message: Consumer prices showed significant stability at the core, and there is a fine bond rally that is carrying stocks. The long Treasury note is at 4.14%.

Subject: New lows of depravity by kidnappers in Iraq From: setanta To: All Date Posted: Wed, Nov 17, 2004 at 09:31:37 (EST) Email Address: Not Provided Message:

Subject: Re: New lows of depravity by kidnappers in Iraq From: setanta To: setanta Date Posted: Wed, Nov 17, 2004 at 09:32:49 (EST) Email Address: Not Provided Message: Apologies, should have put this in... SHE devoted 30 years to helping Iraq - opposing sanctions, campaigning against the war and working for the survival of the country's neediest when all other foreign aid workers had fled. But neither her dedication to her adopted country, nor even her conversion to Islam and marriage to an Iraqi, could save Margaret Hassan from the killer's bullet. The Irish aid worker was, however, spared the decapitation meted out to many victims. At some point in the past week a gunman blindfolded her, led her into a room and murdered her with a single shot. His accomplice filmed the killing in the hope that the act would be relayed around the world as another blow in the fight against the infidel. In life Mrs Hassan (59) was outspoken, tough and fearless. Despite her slim frame she could intimidate a large American soldier as easily as a petty Iraqi bureaucrat. But moments before her death, as she was paraded before the camera, she appeared frail and worn down by weeks in captivity and apparently resigned to her fate. Al-Jazeera, the Arabic news channel that was given the video and has aired the beheadings of several Western hostages, refused to broadcast what must rank as a new low even by the barbaric standards of Iraq's insurgency: a woman executed during the holy festival of Ramadan. Mrs Hassan's distraught husband, Tahsin, pleaded last night with the hostages to return her body so that he could at least say a final goodbye. 'I beg those people who took Margaret to tell me what they have done with her ... I need her. I need her back to rest in peace,' he said. 'Margaret lived with me in Iraq for 30 years. She dedicated her life to serving the Iraqi people. Please, now, please return her to me.' Mrs Hassan has a sister in Ireland and two sisters and a brother in England. They said her death was 'unforgiveable'.

Subject: Credit Boom in Asia From: Emma To: All Date Posted: Wed, Nov 17, 2004 at 05:27:52 (EST) Email Address: Not Provided Message: November 12, 2004 Boom Time for Credit in Southeast Asia By WAYNE ARNOLD - New York Times Chamikorn Buranananda has a vision of a Thailand where everyone, rich or poor, city dweller or rice farmer, is in debt - be it for a car loan, mortgage, a credit card or some other loan. 'You want an educated population that can manage debt,' said Mr. Chamikorn, who after helping General Electric start its own finance operations in Thailand has moved on to become managing director at Capital OK, a consumer finance start-up with ties to Prime Minister Thaksin Shinawatra. Capital OK is a newcomer in a market that has been gathering momentum in Thailand and throughout Southeast Asia for the last four years. As strengthening economies enable more consumers to emerge from poverty to the lower middle class, banks and finance companies are greeting them with financing options once limited to developed nations. 'It is booming,' said Supavud Saicheua, an economist at Phatra Securities in Bangkok. 'There are lots of finance companies and banks interested in expanding the business.' In Thailand, consumer credit grew 35 percent last year, according to Fitch Ratings, sending the average household's debts up to 52 percent of its income. That consumers will borrow and repay is a welcome switch for Southeast Asia's banks after the untrammeled corporate lending that devastated them in the Asian financial crisis of 1997 and 1998. But the region's banks are playing catch-up with aggressive foreign institutions like Citibank, G.E. and Aeon of Japan, which pioneered consumer finance in Southeast Asia after witnessing the markets take off in Japan, South Korea and Hong Kong. By offering the long-neglected Southeast Asian consumer convenient loans, economists say, these lenders are helping to stimulate domestic consumption that can offset the region's dependence on exports, which ebb and flow. This may seem to contradict conventional wisdom, which holds that Asians are prolific savers, averse to debt. Bankers say the growth of consumer finance is proving convention wrong. 'It's a myth,' said David Lum, regional head of banking at Daiwa Institute of Research in Singapore. During hard times, Southeast Asians used to turn to informal financing networks among relatives, their villages or loan sharks. At the time, the region's own banks neglected consumers to focus on channeling the public's savings into corporate manufacturing and roads, bridges, steel mills, refineries and the like. When the crisis hit, it left banks buried in bad debts. Finance companies like GE Capital were the only lenders left standing. 'There weren't really any competitors,' Mr. Chamikorn said. 'The only competitors were loan sharks.' A native Thai and naturalized American, Mr. Chamikorn came to GE Capital in 1996 after stints around Asia for Citibank and American Express. GE Capital had purchased a stake in an auto finance company before the crisis, and in 1998, Mr. Chamikorn helped negotiate the discounted purchase of a portfolio of personal loans from Thailand's debt restructuring agency. With so few rivals, interest rates for legitimate lenders went as high as 50 percent, and G.E.'s finance business in Thailand was so successful that the company's former chairman and chief executive, John F. Welch Jr., singled it out for praise in his autobiography, 'Jack: Straight From the Gut.' What GE Capital's executives from Thailand impressed on Mr. Welch was this: despite low incomes, Asian consumers are excellent credit risks, even with interest rates much higher than corporations pay. That is because even relatively small loans - for a car or motorcycle - represent critical personal investments.

Subject: Informal Lenders in China From: Emma To: All Date Posted: Wed, Nov 17, 2004 at 05:25:44 (EST) Email Address: Not Provided Message: November 9, 2004 Informal Lenders in China Pose Risks to Banking System By KEITH BRADSHER - New York Times WENZHOU, China - The Wenzhou 'stir-fry' is not a dish you eat. But it is giving indigestion to Chinese regulators and could prove troublesome to many investors worldwide - from New York money managers, Pennsylvania steel workers and Midwestern farmers to miners in Australia. Here in this freewheeling city at the forefront of capitalism in China, the dish is prepared when a group of wealthy friends pool millions of dollars worth of Chinese yuan and put it into a hot investment like Shanghai real estate, where it is stirred and flipped for a hefty profit. The friends often lend each other large amounts on the strength of a handshake and a handwritten i.o.u. Both sides then go to an automated teller machine or bank branch to transfer the money, which is then withdrawn from the bank. Or sometimes they do it the old-fashioned way: exchanging burlap sacks stuffed with cash. The worry for Chinese regulators is that everyone in China will start cooking the Wenzhou stir-fry and do it outside the banking system. In the last few months, borrowing and lending across the rest of China is looking more and more like Wenzhou's. The growth of this shadow banking system poses a stiff challenge to China's state-owned banks, already burdened with bad debt, and makes it harder for the nation's leaders to steer a fast-growing economy. The problem starts with China's low interest rates. More and more families with savings have been snubbing 2 percent interest on bank deposits for the double-digit returns from lending large amounts on their own. They lend to real estate speculators or to small businesses without the political connections to obtain loans from the banks. Not only is the informal lending rate higher, but the income from that lending, because it is semilegal at best, is not taxed. For fear of shame, ostracism and the occasional threat from thugs, borrowers are more likely to pay back these loans than those from the big banks.

Subject: Boom Time's Inflation in Ireland From: Emma To: All Date Posted: Tues, Nov 16, 2004 at 21:33:48 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/16/business/worldbusiness/16irishinflation.html?pagewanted=all&position= Boom Time's Inflation Proves Stubborn in Ireland By BRIAN LAVERY DUBLIN - Most people in Ireland realized it a while ago, and the government has finally acknowledged it: along with insufferable traffic jams and longer working hours, the Celtic Tiger boom of the 1990's left Ireland saddled with some of the highest prices in Europe. Inflation began climbing in 1998 and reached a peak of 7 percent in 2000, as the economy experienced double-digit growth. But now, officials in the Department of Finance proudly point to figures like those published last week, showing that inflation has fallen to a respectable 2.5 percent in the last year. But a recent report by a government-run research organization, the National Competitiveness Council - in one of its rare statements on a specific economic issue - found that Ireland was practically tied with Finland as the most expensive country in the euro currency zone, and that only Denmark, which does not use the euro, is more expensive. The change has been across the board, from groceries and clothing to services and utilities, and the price increases have caused a gradual series of social, as well as economic, effects. Housing prices are still rising quickly - up 14 percent in 2003, according to the Irish mortgage lender Irish Life and Permanent. Those high prices prevent young people from settling down in their own cities or cripple them with huge amounts of debt. By September, the rate of growth in housing prices had moderated slightly. But houses still averaged 252,431 euros ($324,636) nationwide and 330,603 euros ($425,169) in Dublin. Young couples furnishing new homes fly to Scotland on Ryanair, the low-budget airline, to shop at Ikea, because zoning laws prevent the company from opening its furniture warehouses in Ireland. In a weekly column, The Irish Times compares the prices of everyday goods, like microwave meals and electric toothbrushes, which range from 12.25 to 21.50 euros ($15.54 to $27.27). Travel agents say they book hundreds of Christmas shoppers each weekend on trips to New York. And consumers can be heard complaining about prices just about everywhere. 'You're spending 60 euros, where you used to spend 50 for the same amount of stuff,' said Brian Payne, a 40-year-old bookkeeper carrying two bags of groceries outside a Tesco supermarket in a central Dublin shopping mall. When he bought a television recently, Mr. Payne said, he sought out a discount electronics outlet because regular stores were too expensive, and then bought a generic model. 'I used to be able to get the name brand,' he said. And now that a pint of Guinness stout costs $5, and lagers like Heineken or Budweiser cost nearly $6, the Irish go out a lot less, and keg sales have fallen more than 5 percent in the last year, according to the Irish Brewers' Association. From 2000 to last year, the price of a pint rose 20 percent, or 70 cents, and has edged up further since. Beamish stout, Guinness's bitter rival, increased its sales by 140,000 pints last quarter when it promised to delay a price increase until next year, said Ruth Norton, marketing manager. The tourism industry, long a mainstay of the Irish economy, saw the warning signs first, because of feedback from international visitors, and the government cabinet minister for tourism has issued several stern warnings to hotels and restaurants that they would eventually price themselves out of the market. In a survey last year, 13 percent of visiting North Americans told the state agency Tourism Ireland that they were dissatisfied with 'value for money' on an Irish vacation, up from 4 percent in 2001. 'Consumers are definitely reacting,' said Jim Power, chief economist of Friends First Asset Management in Dublin. Growth in retail sales, which was 11 percent in 2001, tapered to around 2 percent this year, he said. Most analysts said that Ireland's period of runaway inflation was a result of some short-sighted government spending and some inevitable fiscal changes at the introduction of the euro, like rapid exchange rate fluctuations and ceding control of interest rates to the European Central Bank. But the analysts do not see high prices today as a problem. Inflation is a 'natural element' of Ireland's rapid economic growth, said Austin Hughes, an economist at IIB Bank, a mortgage lender with more than $9 billion in assets. 'It's a consequence rather than a leading indicator,' he said. And given the benefits of Ireland's economic growth in the last decade, 'it's probably a cost that we're willing to pay.' Businesses are also feeling the impact: energy costs are up more than 20 percent since 2000, and rents for retailers have almost doubled. But companies in the service sector keep margins high by passing price increases on to customers, said David Croughan, chief economist at the Irish Business and Employers' Confederation, an employers' lobby group.

Subject: Re: Boom Time's Inflation in Ireland From: setanta To: Emma Date Posted: Wed, Nov 17, 2004 at 08:57:40 (EST) Email Address: Not Provided Message: good post emma, being a native and worker in ireland i have had first hand experience of the inflation talked about in the article. it is true that houses are unbelievably expensive, indeed, i am in the market at the moment and expect to pay Eur400k for my first house!!! the reason is simply the law of supply and demand and the national taste for accommodation. there are more households out there than ever before. the irish population has reached its highest since just after the famine in 1847 and there is net immigration into the country for the first time since the normans invaded in the 13th century. the annual supply of housing has increased about 3 fold since the mid 90's but struggles to keep pace with ireland's baby boomers (born 20-35 years ago). furthermore, there is a tradition of home ownership in ireland that dates back to the days of British Rule and the time of a ban on Irish Catholics owning property. there simply isn't a rented accommodation sector here, except for student accommodation. this may not be the european or american norm but, being the congenital optimist that i am, i think its a healthy sign of a young population on the threshold of growing up. furthermore, the trend of declining alcohol consumption in pubs is another recent interesting development, this is ireland we're talking about here, drink is our national pastime!!! however, given the hedonistic party atmosphere in ireland from 1995-2002/3 (as illustrated by all the english stag and hen parties coming to dublin because of its reputation as being the party capital of europe) it is no bad thing to see moderation being shown by its younger inhabitants. and anyway, how are we going to afford our Eur400k houses if we're on the piss all the time???? i personally think its the ultimate form of consumer expression, for years we were packed into pubs drinking overpriced pints and now we're had enough, people are finding other ways to socialise other that a night of drink in the local. one point to be kept in mind when talking about irish inflation is that no matter how much prices have risen in the last few years, people have much more choice and disposable income than ever before. i hear the waiting lists are so long in garages these days it's almost impossible to get a mercedes in ireland!!! of greater concern is the inefficiency of our state health system. we increased our health budget from Eur3bn to Eur11bn with no tangible inprovement in health provision. i think its time to fire some administrators and hire more doctors and nurses.

Subject: Microsoft Expands in India From: Emma To: All Date Posted: Tues, Nov 16, 2004 at 20:24:49 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/16/business/worldbusiness/16india.html Microsoft Expands Operations in India By SARITHA RAI BANGALORE, India - The Microsoft Corporation announced on Monday that it was significantly expanding its software development operations in India as it opened a new campus near Hyderabad, its second-largest campus after its headquarters in Redmond, Wash. Microsoft's chief executive, Steven A. Ballmer, formally opened the 28-acre campus in the suburbs of Hyderabad, which is 250 miles north of Bangalore, a rival technology center. The campus thus far has only one building, with capacity for 1,600 workers. Besides Mr. Ballmer, the chief executive of the Intel Corporation, Craig R. Barrett, is to arrive in India this week, highlighting the country's growing role as a source of skilled technical labor as well as a sizable market. Mr. Barrett is scheduled to visit Bangalore and Delhi this week. The issue of outsourcing, the movement of work to cheaper labor markets like India, was an issue in this year's presidential elections in the United States. The Democratic contender, Senator John F. Kerry, had promised to get tough on companies that were moving jobs overseas. Even with the re-election of President Bush, corporations like Microsoft are still wary of being tarred as the cause of job losses. Mr. Ballmer said that his company would expand in India, but that this would not reduce job opportunities at its operations in the United States. 'The nature of our business is such that there is enough growth potential which allows us to hire both at our Redmond headquarters and here in India,' Mr. Ballmer said after the opening. Microsoft has nearly 450 programmers at its development center in Hyderabad. 'Since we are looking for very high levels of skills, we are looking to hire in the hundreds,' Mr. Ballmer said. Last year, Microsoft said that it expected its development center to have 500 employees by 2005, but Mr. Ballmer said the company would exceed that target. Microsoft is not alone. Global corporations like General Electric and American Express started by outsourcing low-end code-writing work to India, but taking advantage of India's pool of technical workers and lower labor costs, many multinational companies have recently stepped up outsourcing. Microsoft's own software development center in Hyderabad opened in 1998 with only 12 employees. Increasingly, though, these corporations are outsourcing high-end technology work to India. Microsoft, for instance, outsources work, from call centers to advanced embedded software development, to India. 'Many corporations have super-, hyperaggressive outsourcing plans to India to meet their growing needs while keeping costs under check,' said Chris Disher, the Chicago-based vice president and head of Booz Allen Hamilton's outsourcing advisory service. While Microsoft's hiring plans are not huge, Mr. Disher said, its moves do send 'an important signal about the competencies and innovation skills that are available in India.'

Subject: Re: Microsoft Expands in India From: Pete Weis To: Emma Date Posted: Tues, Nov 16, 2004 at 20:49:13 (EST) Email Address: Not Provided Message: I'm betting that Microsoft will eventually move most of its software development overseas (much of it to India) as will many other US and European software companies. Labor is by far the largest expense for software companies as well as engineering firms. A company can hire as many as 10 equally qualified Indian sortware developers for the wage they pay a US software developer. The US dollar can fall a very long way and not close the gap. The very large supply of labor in India and China will slow wage increases in those countries. The other factor leading Microsoft to get a very large and rapid foothold in India is the threat of rival companies rising in emerging economies such as India. Linux is a very popular software in India and Microsoft realizes this and wants to get the upper hand before it becomes the threat which it has not been in the US because of Microsoft's dominance here.

Subject: Re: Microsoft Expands in India From: Emma To: Pete Weis Date Posted: Wed, Nov 17, 2004 at 06:01:35 (EST) Email Address: Not Provided Message: Holding on to the American market, will mean that companies will keep much software development in America. Microsoft is an international company company, and needs to tailor development to different markets, but America is the prime market and has peculiar needs. Nokia is Finnish, but much work for done is done in America. The problem will be to keep growth high enough here to insure healthy levels of job creation. I am more concerned that the Fed keep interest rates low, and that we control the growth of government debt so that private investment is not crowded out by the need of government to market its debt. Oh well.

Subject: Growth not here in America From: Pete Weis To: Emma Date Posted: Wed, Nov 17, 2004 at 09:49:00 (EST) Email Address: Not Provided Message: America is not the growth market for Microsoft. Also Microsoft has squelched the competition here in America already. Headquarters will stay in Redmond but software development will mostly go offshore, IMO. Afterall America shops at Wallmart. Nearly all of our clothing, most electronics and most manufactured goods are now made overseas. Why not software? It's much easier than moving manufacturing plants overseas and the savings are greater. Seems like a 'no-brainer'. Sure Microsoft as well as other US and European software companies will be sensitive to public sentiment and will keep up some appearance of keeping some development in their home countries for awhile but eventually the economics of developing their products overseas will become overwhelming. Afterall they're looking for world market share and their is a much, much bigger growth market ouside US borders. Customers, ultimately, will always seek the best product for the least money.

Subject: Re: Growth not here in America From: Emma To: Pete Weis Date Posted: Wed, Nov 17, 2004 at 14:30:57 (EST) Email Address: Not Provided Message: Though I keep wanting to argue, I am a bit leery of traditional competitive advantage arguments. I am not worried about a dramatic shift in jobs from America, for with expansive monetary policy and trade there can be continual job creation. Still, I am not altogether content in such an argument.

Subject: Re: Growth not here in America From: Emma To: Emma Date Posted: Wed, Nov 17, 2004 at 14:46:44 (EST) Email Address: Not Provided Message: There is no reason to believe America will run out of jobs as Asia develops, for Asia is becoming and will continue to be a vibrant source of demand for distinctively American products. And yet...

Subject: Distinctively American products From: Pete Weis To: Emma Date Posted: Wed, Nov 17, 2004 at 23:36:44 (EST) Email Address: Not Provided Message: What American products in enough quantity and dollar value might the Chinese buy which would offset our overall deficit with them? I'm not saying there aren't any, but I'm just wondering what they might be. We are so much of a service economy, its difficult to come up with much.

Subject: Re: Microsoft Expands in India From: Emma To: Pete Weis Date Posted: Tues, Nov 16, 2004 at 21:02:23 (EST) Email Address: Not Provided Message: Remember that China is rapidly improving student skills in programming, and India is outsourcing work to China. Microsoft wants very much to sustain a broad based market through Asia. Bill Gates has been active in Asia for years.

Subject: Bobby's Idea From: Piranha To: All Date Posted: Tues, Nov 16, 2004 at 20:09:57 (EST) Email Address: freethinkingbangalee@hotmail.com Message: After a quick read of your post... I really like this idea. There is some serious potential here. However, the GOP would probably have a great time bashing the idea as 'a bunch of blue states getting together to raise taxes'. Thats the potential major flaw I saw, on thr first read. (aside from the issue of whether its consitutional of course). Should this plan materialize, we would surely see a lot less pork, more efficiency and more transparency.

Subject: Is the penalty clause enforcable? From: Auros To: Piranha Date Posted: Wed, Nov 17, 2004 at 13:23:14 (EST) Email Address: rmharman@auros.org Message: I see two big problems. The first is that a state that wants to make itself more attractive to businesses and residents, esp in metro areas where residents can live in any of several jurisdictions (NY/CT/NJ, DC/MD/VA) can simply raise its income tax X% as required, pay into the consortium as required, receive its greater-than-contributed share of revenue back, and thus lower its own income tax by slightly more than X% without losing any money. The donor state is just handing money to the recipient state for no benefit at all. This is silly. The second is that I don't think one state (or a group of states) gov't can constitutionally enforce a penalty against another state government. They can sue in federal court, and they might even win if all the contracts were written carefully, but they'd still need the federal executive branch to enforce any penalties imposed by the courts. I think the whole donor/recipient scheme is pretty much a non-starter. However, there's no reason why states couldn't enter into the kind of revenue-sharing agreements that California localities currently use. The typical example is: Wal-Mart wants to open a store in town A, B, or C. They go to each city council and say, If we open a store in your town, you'll get a whole bunch of sales tax revenue; but unless you give us a discount on sales tax, we'll go to town B instead. Then a race to the bottom ensues, with Wal-Mart being the big winner -- unless the city councils of A, B, and C get together and agree to split the sales tax revenue from the Wal-Mart evenly, regardless of where it locates. As an example at the state/interstate level, the port authorities from CA, OR, and WA could all get together and agree on a common scheme for fees and a formula for how to divide revenues, and use the money to fund an agreed-upon standard of security. The states with ports on the east coast, from MD up to ME, could do something similar.

Subject: Re: Is the penalty clause enforcable? From: Terri To: Auros Date Posted: Wed, Nov 17, 2004 at 16:32:08 (EST) Email Address: Not Provided Message: Interest post by Bobby, and fine responses. There is a terrific Front Line PBS report on Wal-Mart this week that speaks to the point made by Auros.

Subject: Producer Prices From: Terri To: All Date Posted: Tues, Nov 16, 2004 at 19:23:51 (EST) Email Address: Not Provided Message: Anyone care to guess about the consequences of the sharp rise in the Producer Price Index? More interest rate hikes for sure, yet the long Treasury note was little moved. Does the rise in producer prices show up in consumer prices? Hmmm.

Subject: Re: Producer Prices From: Ari To: Terri Date Posted: Tues, Nov 16, 2004 at 21:53:39 (EST) Email Address: Not Provided Message: That bonds did not fall in price given the 1.7% jump in producer prices for October was surprising. Are bond investors expecting the food and energy price increases in the index to be soon reversed, or just not to be passed along to consumers?

Subject: Re: Producer Prices From: Piranha To: Terri Date Posted: Tues, Nov 16, 2004 at 20:13:46 (EST) Email Address: Not Provided Message:

Subject: The Dollar is Down, So? From: Emma To: All Date Posted: Tues, Nov 16, 2004 at 18:56:45 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2004/11/16/business/16dollar.html?oref=login&pagewanted=all&position= The Dollar Is Down, but Should Anyone Care? By EDMUND L. ANDREWS WASHINGTON - It sounds eerily like the worst economic nightmare for President Bush's second term. Bogged down in a costly war that shows no sign of ending, the United States faces a gaping budget deficit and ballooning foreign indebtedness. The dollar plunges against other major currencies, while turmoil in the Middle East sends oil prices soaring. The rest of the decade is plagued by rising inflation, increased joblessness and sky-high interest rates. But the president under fire was Richard M. Nixon - not George W. Bush. The war was in Vietnam, not Iraq. And the dollar crash was in 1973 rather than 2005. Could it happen again? With the dollar down more than 40 percent against the euro since 2002, and hitting new lows since Mr. Bush's re-election, economists are debating whether America's foreign indebtedness could lead to a collapse in the dollar and a global financial crisis. The United States is spending nearly $600 billion more a year than it produces, almost 6 percent of its annual gross domestic product. Much of that spending has been financed by Asian governments, which bought more than $1 trillion in Treasury securities and other dollar assets in the last two years to help keep the dollar strong against Asian currencies. Many analysts expect the financing gap to widen and the dollar to decline further. But there are at least three schools of thought on whether a dollar collapse is likely and, if it happens, what it would mean. One group, which includes the Federal Reserve chairman, Alan Greenspan, contends that global financial markets are awash in so much money that the United States can borrow much more than seemed possible 20 years ago. The dollar may well decline in value, according to this view, but the decline would be gradual and would help reduce American trade imbalances by making exports cheaper and imports more expensive. The Bush administration goes one step further, arguing that America's huge foreign debt simply reflects the eagerness of others to invest here. 'Productivity has been remarkably high in the last few years,' John Taylor, deputy secretary of the Treasury, said at a recent conference. 'Foreigners want to invest in the United States. That's what that gap illustrates.' A second school of thought holds that foreign governments like China and Japan will continue to finance American borrowing and keep the dollar strong because they are determined to sustain their exports and create jobs. But a third school, which includes officials at the International Monetary Fund, worries about a collapse in the dollar that would send shock waves through the global economy. That group argues that the dollar needs to depreciate another 20 percent against the other major currencies but warns about a run on the dollar that could reduce its value by 40 percent. A collapse of that size would severely affect Europe and Asia, which have relied heavily on exports to the United States for their growth. A steep drop in the dollar could lead to higher interest rates for the federal government and American private borrowers, as foreign investors demanded higher returns to compensate for higher risk. And it could expose hidden weaknesses among financial institutions and hedge funds caught unprepared. 'There is a school of thought that the U.S. can keep borrowing forever,' said Kenneth S. Rogoff, professor of economics at Harvard University and a former chief economist at the I.M.F. 'But if you add up all the excess saving being thrown out by the surplus countries, from China to Germany, the United States is soaking up three-quarters of it right now.' For Mr. Rogoff and several other economists, the question is not whether the dollar declines - but how fast and how far the fall turns out to be. The United States current account deficit, which encompasses annual trade as well as the balance of financial flows, has gone from zero in 1990 to nearly $600 billion this year. The United States' accumulated debt to foreign investors is $2.6 trillion, or 23 percent of the annual output of the economy. But where foreign investors in the 1990's poured trillions of dollars into American stocks and corporate acquisitions, investment from abroad now comes mostly from foreign central banks and goes heavily to buying Treasury securities that finance the federal deficit. Catherine Mann, a senior economist at the Institute for International Economics in Washington, said today's financing gap could be expected to widen. Part of the problem lies with Europe and Japan, which grow more slowly than the United States and import less than they export. Higher costs of imported oil will aggravate the trade deficit even more, Ms. Mann said, and the federal government will be paying foreigners higher interest rates on its rapidly growing debt. 'You have a dynamic that links government deficits to current accounts deficits more than has been the case before,' Ms. Mann said. 'We are going to have a lot of government securities out there, and a very high share of those Treasuries are owned by foreign investors.' But where Mr. Rogoff predicts that the dollar will slide sharply over the next two years, Ms. Mann predicts that Asian countries will continue to subsidize American imbalances to keep their economies growing. A decline in the dollar may be likely, but not a panicky flight by foreign investors. The American dollar has been through several ups and downs in recent decades. In 1973, it fell sharply against Japanese and European currencies - the major industrialized countries had already abandoned the system of fixed exchange rates adopted at Bretton Woods after World War II. The dollar rebounded strongly in the early and mid-1980's in response to higher American interest rates, but then plunged 40 percent after leaders from the United States, Japan and Europe reached the so-called Plaza Accord in 1986 to nudge the dollar back down. The plunge after the Plaza Accord caused few disruptions for Americans, and foreign investors did not demand higher interest rates on securities. 'One theory is that investors were simply irrational,' said J. Bradford DeLong, a professor of economics at the University of California, Berkeley. 'Others said it was the result of what Charles DeGaulle called the 'exorbitant privilege' of being able to repay your debts in your own currency.'

Subject: Message Board Cleaning From: Bobby To: All Date Posted: Tues, Nov 16, 2004 at 17:46:24 (EST) Email Address: robert@pkarchive.org Message: I had to clean the message board since it reached the threshold of 700 messages, after which it would begin eating old messages. I'm sorry to interrupt the conversations everyone was having. You can find your old posts on the Message Board Archive. Again, sorry for the inconvenience. Message Board Archive www.pkarchive.org/MBArchive.html