One of America's most important entrepreneurs recently gave a remarkable speech at a summit meeting of our nation's governors. Bill Gates minced no words. "American high schools are obsolete," he told the governors. "By obsolete, I don't just mean that our high schools are broken, flawed and underfunded. ... By obsolete, I mean that our high schools - even when they are working exactly as designed - cannot teach our kids what they need to know today. "Training the work force of tomorrow with the high schools of today is like trying to teach kids about today's computers on a 50-year-old mainframe. ... Our high schools were designed 50 years ago to meet the needs of another age. Until we design them to meet the needs of the 21st century, we will keep limiting - even ruining - the lives of millions of Americans every year." Let me translate Mr. Gates's words: "If we don't fix American education, I will not be able to hire your kids."
DEPARTMENTS
Dr. Vlado sees Mortgage Scandal brewing
Yesterday's Late night conference call with Dr. Vlado yielded some interesting facts for readers not written about in the journal or harped by the no-nothing's of the financial channels. According to findings on the web and else, here is the report;
1) Many new loans used to purchase real property have some form of fraud attached to them. Many loan officers move NOO (non-owner occupied properties) to owner occupied rates to possibly create more margin or commission for themselves. A co-worker experienced this with an out of state bank and property, when the Loan officer suggested "not to worry." NOO have a different rate because they do carry more inherent risk for a lender.
2) Non-recourse and forbearance laws are different in many states. With the new BK law being implemented, banks may have a new scenario when try to remediate themselves from a bad loan. Some indications also suggest that up to 80% of new loans for purchase may be 100% financing or more. Many 80/20 products leave lenders with peculiar issues when trying to short sale or move the non-performing asset from their main books.
3) The Non-conforming market may be experience up to a 14.5% ratio of 60 day lates (arrears=90) on portfolios. This can be hidden however from possible scrutiny when its move to a "ASSET Management Company." These hybrid entities are experts at loan workout scenario's. This makes sense to do when one realizes that there is an over collarterization occurring in the secondary market of up to 20%. 14.5% FITS within the confines of the 20% percent. Some homeowners are literally living a perpetual 60+ late cycle which still makes the portfolio seem like its performing to the institutional buyer. This new form of credit enhancement goes beyond the traditional MI tactics of charging 30 bips to a client. But is this safer in a mass default scenario.
4) Fannie/Freddie are now servicing and warehousing non A paper. But I suppose with a Fannie seal of approval, the YIELD YEARNING institutional money doesn't really care. If you closely look at the CMO traunches within some of these portfolios it seems that indirectly Fannie IS holding 100% LTV paper, even though they are only "BOOKING" the 80% of an 80/20.
Home Appraisal Fraud??
While many U.S. households have benefited from the recent rise in real estate prices, homeowners who have bought at record high prices are vulnerable to a fall in property values that could leave them owing more on their mortgage than their home is worth. This risk is aggravated by the fact that many Americans have reduced the equity in their home to pay off credit card debts and cover day-to day-expenses. More troubling still is evidence that many appraisers fraudulently inflate property values during the buying or refinancing of homes.
A reader advised us of a popular website/blog for appraisers. I won’t mention the URL since it is not something one can casually log onto and read. Your participation has to be approved and this is not an instant process. I was, however, able to spend considerable time there today. The various blogs are filled with complaints and tales about pressure from lenders and real estate agents to inflate values, revise appraisals, or promise to hit a predetermined price. And these posts were from all over the country.
Healthcare costs hurting GM
GM Tuesday posted a first-quarter net loss of $1.10 billion, its worst result since the industrial icon skirted bankruptcy in 1992, due to weaker U.S. sales and growing costs for employee health care and raw materials to build cars.
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The world's largest automaker, which alarmed the markets last month when it slashed its outlook, said its automotive operations lost $1.98 billion in the quarter, with a loss in North America alone of $1.56 billion.
Should GM continue to burn cash, the automaker could withdraw up to $6 billion in cash over the next 18 months from a $20 billion fund set up to provide health care for retired U.S. union workers and their dependents, Chief Financial Officer John Devine told reporters and analysts on a conference call.
GM is the largest private provider of health-care coverage for workers in the United States, paying benefits to more than 1 million workers, retirees and their families.
Also hurting GM has been falling U.S. market share to about 25 percent in the first quarter this year, down from about 34 percent in 1992.
GM's March earnings warning spurred debt ratings agencies to warn that they could downgrade GM's bond ratings to "junk" status at any time. That has already increased the cost of borrowing in the unsecured corporate bond market for a company that had about $300 billion in outstanding debt at the end of last year.
Spreads on GM's finance unit GMAC bonds due 2014 with a 6.75 percent coupon on Tuesday were 0.06 percentage point tighter to yield 5.75 percentage point more than comparable Treasuries.
Ford Motor Co. (NYSE:F - news), scheduled to release its quarterly results on Wednesday, chopped its 2005 earnings forecast earlier in April. It was the second time in less than a month that the third-largest automaker, whose bottom line has also been hit by market share losses to profitable foreign rivals led by Toyota Motor Corp. (7203.T), revised its outlook.
Homes and apartment construction fell by 17.6%, biggest decline in 14 years.
The Commerce Department reported Tuesday that builders started construction on new homes and apartments at a seasonally adjusted annual rate of 1.84 million units in March, down from 2.23 million units in February.
While analysts had been expecting a decline in housing, the steepness of the drop, the biggest plunge since January 1991, caught them by surprise.
Fannie and Freddie won't change
In a boost to Fannie Mae and Freddie Mac, two large housing groups told Congress in prepared testimony Tuesday they oppose limiting the amounts of mortgage loans the government-sponsored companies may hold. Doesn't surprise me at all
James Bianco: Macro Analyst weighs in
Instead of focusing on specific securities in the equities and fixed-income markets, Bianco concentrates on the macroeconomic forces that move entire sectors. His latest analysis of these big-picture trends, including the flattening yield curve, weakening dollar, rising oil prices and the machinations of hedge funds, have led him to be bullish on energy and bearish on health care.
We are looking at the fixed-income market. Regardless of what you think rates are going to do, what is the strongest and most undeniable trend in fixed income is that the yield curve continues to flatten. In the long term, it continues to hover around 4.4% to 4.5%, which produces a flat yield curve. In 2001, 40% of all corporate profits were generated by financial companies. That number was 18% in 1998, and 4% in 1982.
When everybody talks about corporate profitability and S&P earnings, they're talking about financial earnings, because that's the largest sector. What largely drives financial-company profitability is the yield curve. You will see the yield curve continue to flatten, and financial companies continue to get squeezed. Long-term and short-term rates will continue to converge with each other, and will make it harder for those companies to make money.
Here's what the Fed's doing: Greenspan's leaving in nine months. He doesn't want to hand the reins to a new Fed chief out of line of a neutral policy, a "measured pace" is what they always say. So when he hands the reins over to the new guy he won't have to do something immediately. That's why I find it surprising, when people ask why are bonds going down? They're trying to reposition themselves at neutral so Greenspan can exit gracefully. They're not trying to slow anything down. They're not trying to stop something. Until they do I think you shouldn't be surprised that the market's been reacting the way it has to the funds rate.
Why is it that the bond market has been able to meander sideways in the last couple of years? It hasn't really gone down or gone up. I think the answer is, who is the buyer of Treasury securities? It is not somebody who has an opinion about the economy or inflation. It is a foreign central bank, or hedge fund, which is an alpha buyer — somebody long and short at the same time. They do not care about inflation, or the economy.
The effect is that they've been holding interest rates largely at these levels despite what people think they should be doing. People think interest rates should be higher. None of that stuff — Fed policy, the economy — is moving interest rates. What is moving interest rates is the dollar, the shape of the yield curve, hedge-fund strategies, the state of credit markets. It's not about inflation, growth or deficit. That has had no effect on interest rates because those are not the issues that matter. Everybody talks about them because they're easy to talk about.
Well, what does it mean to be a hedge fund? If you're a mutual fund, you're a beta manager. If you're a hedge fund, you're an alpha manager. It's critical to understand this. When you're a beta manager, what is going to determine your returns is the volatility of the market. If the stock market is up 28% for the year, if you're a good manager, you're up 30%; if you're a bad manager, you're up 18%. You're up big either way.
What largely determines your return is the state of the market. An alpha manager says, I have a strategy — it might be playing the shape of yield curve, etc. — and I can return to you 6% every year, guaranteed. We can have war, pestilence, locusts, doesn't matter. If you can give me 6%, and the fed-funds rate is 3.25%, of course I'll give you my money. Hedge funds don't buy anything. They buy and sell at the same time; they try to exploit those efficiencies. Those strategies have been largely leading to net purchases of the market. They're not doing it because they have an opinion about the market. And as a byproduct, they're holding down interest rates.
We are looking at the fixed-income market. Regardless of what you think rates are going to do, what is the strongest and most undeniable trend in fixed income is that the yield curve continues to flatten. In the long term, it continues to hover around 4.4% to 4.5%, which produces a flat yield curve. In 2001, 40% of all corporate profits were generated by financial companies. That number was 18% in 1998, and 4% in 1982.
When everybody talks about corporate profitability and S&P earnings, they're talking about financial earnings, because that's the largest sector. What largely drives financial-company profitability is the yield curve. You will see the yield curve continue to flatten, and financial companies continue to get squeezed. Long-term and short-term rates will continue to converge with each other, and will make it harder for those companies to make money.
Here's what the Fed's doing: Greenspan's leaving in nine months. He doesn't want to hand the reins to a new Fed chief out of line of a neutral policy, a "measured pace" is what they always say. So when he hands the reins over to the new guy he won't have to do something immediately. That's why I find it surprising, when people ask why are bonds going down? They're trying to reposition themselves at neutral so Greenspan can exit gracefully. They're not trying to slow anything down. They're not trying to stop something. Until they do I think you shouldn't be surprised that the market's been reacting the way it has to the funds rate.
Why is it that the bond market has been able to meander sideways in the last couple of years? It hasn't really gone down or gone up. I think the answer is, who is the buyer of Treasury securities? It is not somebody who has an opinion about the economy or inflation. It is a foreign central bank, or hedge fund, which is an alpha buyer — somebody long and short at the same time. They do not care about inflation, or the economy.
The effect is that they've been holding interest rates largely at these levels despite what people think they should be doing. People think interest rates should be higher. None of that stuff — Fed policy, the economy — is moving interest rates. What is moving interest rates is the dollar, the shape of the yield curve, hedge-fund strategies, the state of credit markets. It's not about inflation, growth or deficit. That has had no effect on interest rates because those are not the issues that matter. Everybody talks about them because they're easy to talk about.
Well, what does it mean to be a hedge fund? If you're a mutual fund, you're a beta manager. If you're a hedge fund, you're an alpha manager. It's critical to understand this. When you're a beta manager, what is going to determine your returns is the volatility of the market. If the stock market is up 28% for the year, if you're a good manager, you're up 30%; if you're a bad manager, you're up 18%. You're up big either way.
What largely determines your return is the state of the market. An alpha manager says, I have a strategy — it might be playing the shape of yield curve, etc. — and I can return to you 6% every year, guaranteed. We can have war, pestilence, locusts, doesn't matter. If you can give me 6%, and the fed-funds rate is 3.25%, of course I'll give you my money. Hedge funds don't buy anything. They buy and sell at the same time; they try to exploit those efficiencies. Those strategies have been largely leading to net purchases of the market. They're not doing it because they have an opinion about the market. And as a byproduct, they're holding down interest rates.
TIME to BUY: Donald Luskin of TrendMacro.com
Fred Goodman, who publishes the best technical analysis of the stock market I've ever seen (find it on my Web site), confirms it. He tells me the American Association of Individual Investors sentiment poll now shows its members about as bearish as they were back in February 2003, just before the panic bottom in March that gave birth to the current bull market.
What's so unique about this moment of fear, though, is that it's hardly reflected at all in the CBOE Volatility Index, the so-called "fear index" that tracks the premiums in listed index options. It's moved up a bit in the past couple of days, but for months it's been stuck at historically low levels. You can see it in the amazingly narrow trading range in which stocks have been confined for the last six months. So moods may be swinging, but stock prices really aren't.
We are near a short term bottom, but the market is going to start testing further support in the interim quarters - Oscar
Short sellers extend winning streak
Hedge funds that bet against the future of a company by selling its stock short extended their winning streak for a third straight month as investors worried about rising interest rates and slower growth.
Short sellers, who borrow stocks to sell in the hope of buying them back later for less and pocketing the difference, returned 3.46 percent in March after returning 3.40 percent in February, according to the Credit Suisse First Boston Tremont Index LLC released on Friday
Also so-called long/short equity funds, which can play both sides of the market, lost 1.14 percent in March as the market turned against them.
Short sellers, who borrow stocks to sell in the hope of buying them back later for less and pocketing the difference, returned 3.46 percent in March after returning 3.40 percent in February, according to the Credit Suisse First Boston Tremont Index LLC released on Friday
Also so-called long/short equity funds, which can play both sides of the market, lost 1.14 percent in March as the market turned against them.
Greenberg Transferred $2 Billion in AIG Shares to Wife
Former head of American International Group Inc., Maurice '"Hank'' Greenberg gave his wife 41.4 million of his shares in the insurance company, according to a regulatory filing.
AIG's board forced Greenberg, 79, to relinquish his posts as president and CEO on March 14, and he retired as the company's chairman two weeks later. Greenberg transferred the shares to his wife, Corinne P. Greenberg, on March 11, according to his filing Tuesday with the Securities and Exchange Commission. The shares are worth $2.2 billion, based on AIG's current stock price.
At Tuesday's deposition, Greenberg invoked his Fifth Amendment rights against self-incrimination in response to all questions during the 45 minute session, according to a person who attended the meeting but asked not to be identified by name.
"All the alarms are going off, and red flags are waving, when he makes such a huge transfer at the exact same time that he's under civil lawsuit scrutiny and criminal scrutiny,'' Ajamie said. "This large of a transfer, even in isolation, would garner regulatory scrutiny, but in the context of the criminal and civil issues, the warning bells are waking up people from here to China.''
In the transaction at the center of the probe, AIG purchased reinsurance from General Reinsurance Corp. in the fourth quarter of 2000 and first quarter of 2001. Investigators have said that AIG used the deals to pump up its reserves when markets were uneasy about the company's outstanding liabilities.
AIG's board forced Greenberg, 79, to relinquish his posts as president and CEO on March 14, and he retired as the company's chairman two weeks later. Greenberg transferred the shares to his wife, Corinne P. Greenberg, on March 11, according to his filing Tuesday with the Securities and Exchange Commission. The shares are worth $2.2 billion, based on AIG's current stock price.
At Tuesday's deposition, Greenberg invoked his Fifth Amendment rights against self-incrimination in response to all questions during the 45 minute session, according to a person who attended the meeting but asked not to be identified by name.
"All the alarms are going off, and red flags are waving, when he makes such a huge transfer at the exact same time that he's under civil lawsuit scrutiny and criminal scrutiny,'' Ajamie said. "This large of a transfer, even in isolation, would garner regulatory scrutiny, but in the context of the criminal and civil issues, the warning bells are waking up people from here to China.''
In the transaction at the center of the probe, AIG purchased reinsurance from General Reinsurance Corp. in the fourth quarter of 2000 and first quarter of 2001. Investigators have said that AIG used the deals to pump up its reserves when markets were uneasy about the company's outstanding liabilities.
Dow Jones Breaks my support level
The 10400 Dow region is critical to hold. The bearish sentiment is HERE.
"It's follow-through from yesterday," said Jim Paulsen, chief investment officer at Wells Capital Management. "Yesterday's retail sales numbers have garnished massive media coverage on an (economic) slowdown."
And fear of an economic slowdown is affecting the way investors look at the latest earnings reports. "Any negative earnings report gets massive coverage; any good report just slips by," said Paulsen
And fear of an economic slowdown is affecting the way investors look at the latest earnings reports. "Any negative earnings report gets massive coverage; any good report just slips by," said Paulsen
U.S. businesses added 0.5% to their inventories in February, while their sales fell 0.4%, the Commerce Department said. The drop in sales was the largest since April 2003.
WallStreet Earnings Farce??
The gap between net income computed using generally accepted accounting principles, known as GAAP earnings, and the earnings numbers relayed in company earnings statements, known by a variety of misleading euphemisms, is widening.
In fact, the GAAP gap, after improving for two consecutive years, is now close to 15%, worse than it was during the height of the stock market bubble.
"Although stock valuations are not as stretched as they were in March 2000, the quality of earnings is actually worse," wrote Richard Bernstein, chief U.S. strategist for Merrill Lynch, in a note accompanying the report.
Those bottom-line numbers, which excluded charges for depreciation, amortization and restructuring related to the acquisitions, were used by Wall Street analysts as the basis for their earnings estimates and to calculate price-to-earnings ratios in published reports.
Not surprisingly, a survey of analyst reports by Thomson Financial reveals that Wall Street now expects Oracle this year to earn 65 cents a share -- Katz's "non-GAAP" number -- even though they know Oracle's net income will be significantly less than that, thanks to ongoing charges related to the PeopleSoft transaction.
With tech earnings season kicking off this week, investors who want to know how companies are truly performing may want to keep their eyes on net income figures.
Otherwise, the horror show may be back for a second run.
Mexico Billionaire Crushes Qwest offer
Determined to crush Qwest's drive for MCI, Verizon over the weekend agreed to buy a 13.4% stake in MCI from Mexican financier Carlos Slim Helu for $1.1 billion in cash. The New York-based giant left open the possibility that it might be willing to work out arrangements with other big investors, but it was unclear if those deals would be as generous. Slim is MCI's largest shareholder, making his position unique, Verizon said.
Slim is getting $25.72 in cash, upfront, for each of his 43.4 million shares. Verizon also agreed to give him a lump-sum payment for any run-up in MCI's stock price over the next year. Verizon said it would probably take a few weeks to close the deal. Verizon then will be MCI's largest individual shareholder.
Verizon is paying Slim $2.62 a share more than it has agreed to pay for the rest of the company. In a statement, Verizon CEO Ivan Seidenberg acknowledged the difference. But he said that the circumstances were ''unique.'' He added that his company would ''continue to assess the situation'' in the weeks ahead, leaving open the possibility that Verizon might sweeten its overall offer for MCI.
Slim is getting $25.72 in cash, upfront, for each of his 43.4 million shares. Verizon also agreed to give him a lump-sum payment for any run-up in MCI's stock price over the next year. Verizon said it would probably take a few weeks to close the deal. Verizon then will be MCI's largest individual shareholder.
Verizon is paying Slim $2.62 a share more than it has agreed to pay for the rest of the company. In a statement, Verizon CEO Ivan Seidenberg acknowledged the difference. But he said that the circumstances were ''unique.'' He added that his company would ''continue to assess the situation'' in the weeks ahead, leaving open the possibility that Verizon might sweeten its overall offer for MCI.
ILL-GOTTEN PROFITS @ NYSE?
The individuals named in the criminal and civil actions are former or current employees of Spear Leeds, a unit of Goldman Sachs Group Inc. (NYSE:GS - news); Van der Moolen Specialists, part of Netherlands-based Van der Moolen Holding (VDMN.AS) ; Fleet Specialist, a unit of Bank of America Corp. (NYSE:BAC - news); Bear Wagner Specialists, a unit of Bear Stearns Cos. Inc. (NYSE:BSC - news); and LaBranche & Co. (NYSE:LAB - news).
The SEC also took enforcement action against 20 former NYSE specialists accused of fraudulent trading, including two former chief executives of Spear Leeds & Kellogg Specialists and four former members of Van der Moolen Specialists management committee. Federal prosecutors charged 15 former and current New York Stock Exchange traders with securities fraud, accusing them of costing investors $19 million by putting their firms' interests ahead of the interest of investors
The SEC also took enforcement action against 20 former NYSE specialists accused of fraudulent trading, including two former chief executives of Spear Leeds & Kellogg Specialists and four former members of Van der Moolen Specialists management committee. Federal prosecutors charged 15 former and current New York Stock Exchange traders with securities fraud, accusing them of costing investors $19 million by putting their firms' interests ahead of the interest of investors
AARP: Drug Costs Jump 7.1 Percent in 2004
The 7.1 percent hike, slightly higher than 2003's 7.0 percent jump, continues a trend of increasing drug prices. Since the end of 1999, prices of more than 150 popular name-brand drugs have risen an average 35.1 percent, nearly three times the 13.5 percent inflation rate over that period, the report said. In 2004, inflation was 2.7 percent in 2004. By contrast, the price for 75 popular generic drugs hardly budged in 2004, rising 0.5 percent. In 2003, manufacturers' prices for generic drugs went up an average 13.3 percent.
Interest-only' loans. Borrowed time??
In California, the traditional fixed-rate loan is in danger of becoming extinct. According to recent LoanPerformance data, the percentage of new loans that are adjustable in Santa Cruz and San Diego was 85%; in Oakland 84%; in Santa Rosa 81%; in Los Angeles 74%.
In 2001, as the current housing boom got underway, fewer than 2% of California homes were bought with interest-only loans, according to an analysis done for The Times by LoanPerformance, a San Francisco mortgage research firm.
Confronted with soaring home prices, Californians are adopting a "buy now, pay later" strategy on a massive scale. The boom in interest-only loans — nearly half the state's home buyers used them last year, up from virtually none in 2001— is the engine behind California's surging home prices.
When the price of houses in California soared 17% in 2003 and 22% in 2004, a curious thing happened: Instead of home ownership decreasing because fewer people could afford houses, it rose to record levels.
The Federal Reserve regularly queries banks about whether they're tightening or loosening
credit standards for home mortgages. In four of the last five quarters, standards were loosened. The combined drop was the biggest in more than a decade.
Meanwhile, the range of home mortgage products keeps expanding. Some lenders offer mortgages that are spread over four decades rather than three. Others extend the interest-only period to 10 or 15 years, or offer programs allowing those who have what is called "difficult to document" incomes to put only 5% down.
"A few years ago, you would have had to go to an infomercial to get the kind of deals we're offering now," Wells Fargo home mortgage consultant Jimmy Kang told a group of new real estate agents last week.
Dr. Vlado concurs with this article and believes the bubble will burst within the next two years and cause havoc in the US Financial System. I believe the great danger actually lies within the year 2012....
In 2001, as the current housing boom got underway, fewer than 2% of California homes were bought with interest-only loans, according to an analysis done for The Times by LoanPerformance, a San Francisco mortgage research firm.
Confronted with soaring home prices, Californians are adopting a "buy now, pay later" strategy on a massive scale. The boom in interest-only loans — nearly half the state's home buyers used them last year, up from virtually none in 2001— is the engine behind California's surging home prices.
When the price of houses in California soared 17% in 2003 and 22% in 2004, a curious thing happened: Instead of home ownership decreasing because fewer people could afford houses, it rose to record levels.
The Federal Reserve regularly queries banks about whether they're tightening or loosening
credit standards for home mortgages. In four of the last five quarters, standards were loosened. The combined drop was the biggest in more than a decade.
Meanwhile, the range of home mortgage products keeps expanding. Some lenders offer mortgages that are spread over four decades rather than three. Others extend the interest-only period to 10 or 15 years, or offer programs allowing those who have what is called "difficult to document" incomes to put only 5% down.
"A few years ago, you would have had to go to an infomercial to get the kind of deals we're offering now," Wells Fargo home mortgage consultant Jimmy Kang told a group of new real estate agents last week.
Dr. Vlado concurs with this article and believes the bubble will burst within the next two years and cause havoc in the US Financial System. I believe the great danger actually lies within the year 2012....
Mortgage Lender Fraud Abounds
In the four years ending last September, The Federal Bureau of Investigation's "Operation Continued Action" identified more than 245 subjects in 158 investigations of financial institution fraud. These investigations resulted in 11,466 indictments, 11,362 convictions, and $8.1 billion in restitution orders. While many of the instances of fraud against lenders are small in scope, financial institution fraud is a very big deal. The FBI recently tallied the results of some of the fraud it is investigating.
India and China can together reshape the world order
India and China agreed Monday to form a "strategic partnership," creating a diplomatic bond between Asia's two emerging powers that would tie together nearly one-third of the world's population. "The leaders of the two countries have therefore agreed to establish an India-China strategic and cooperative partnership for peace and prosperity," the statement said. The partnership would promote diplomatic relations, economic ties and contribute to the two nations "jointly addressing global challenges and threats," it said.
China, which is one of five members of the 15-nation U.N. Security Council with veto power, also signaled its support for India's quest for a seat in an expanded version of the powerful body. Both countries have been seeking to expand their influence as their economic power has grown. But Beijing, in particular, has been on a diplomatic initiative.
In the last week, Wen signed a cooperation treaty with Pakistan promising to help it resolve disputes with India. China is already Pakistan's main trading partner and a major military backer.
A day later, Wen was in Bangladesh, signing accords to help the poverty-ridden country. From there he flew to Colombo, offering to help Sri Lanka rebuild harbors, roads and other infrastructure destroyed by the December tsunami.
The diplomatic offensive is rooted in two things China desperately wants abroad: resources and tranquility.
China, which is one of five members of the 15-nation U.N. Security Council with veto power, also signaled its support for India's quest for a seat in an expanded version of the powerful body. Both countries have been seeking to expand their influence as their economic power has grown. But Beijing, in particular, has been on a diplomatic initiative.
In the last week, Wen signed a cooperation treaty with Pakistan promising to help it resolve disputes with India. China is already Pakistan's main trading partner and a major military backer.
A day later, Wen was in Bangladesh, signing accords to help the poverty-ridden country. From there he flew to Colombo, offering to help Sri Lanka rebuild harbors, roads and other infrastructure destroyed by the December tsunami.
The diplomatic offensive is rooted in two things China desperately wants abroad: resources and tranquility.
Cheap money in CHINA Risky?
In China, low interest rates have led to an explosion of Chinese hard-currency assets: Reserves grew by $210 billion in 2004 to $610 billion, giving the country the world's second-largest foreign currency reserve after Japan. But that still hasn't kept China's money supply from growing by 14% in the 12 months ending February 2005. That's an improvement from the 18.4% in the 12 months ended in February 2004.Nor is China an isolated case. In India, money supply grew at an annualized rate of 12.8% in the period that ended on March 4. The cheap-money cycle has had powerful positive effects on global economies. For example, India's GDP grew by 7% in the fiscal year that ended in March 2005, after recording 8.5% growth in fiscal 2004. China's State Information Center projects that its economy will grow at an annualized 8.8% in the first quarter of 2005, after growing by 9.5% in the fourth quarter of 2004. By comparison, the U.S. economy grew at an annualized 3.8% in the fourth quarter of 2004.
So what's the problem? Well, companies and individuals loaded up on goods because money was so cheap, and they will be hard-pressed to make payments when interest rates climb. The less developed a country's financial markets are, the larger the damage is likely to be in any shift from a cheap-money cycle to a less-cheap-money cycle.
In the U.S., where credit-card companies, banks and credit bureaus run sophisticated data collection and crunching operations, the turn is likely to produce a bump up in consumer defaults that will catch some badly run financial institutions by surprise. If the transition from one cycle to the other is abrupt enough, the result can even be the kind of massive default among financial institutions that characterized the savings-and-loan crisis of the late 1980s and early 1990s. That debacle cost U.S. taxpayers somewhere north of $300 billion.
The damage has the potential to be much worse in a country such as China, where the financial markets are still very much works in progress. Consider this example: According to the official Xinhua News Agency, China's local governments owe $50 billion (at official exchange rates), or about 15% of the country's total fiscal revenue in 2004. That figure is likely to be low, an official audit has concluded, but even that total exceeds the repayment capabilities of China's local governments. How did local governments get in such a fix when Chinese law prevents local governments from borrowing from banks? They evaded the law by borrowing from intermediaries set up specifically to secure bank loans for investments in local infrastructure.
Nobody knows exactly how big the bad loan problem is. Nonperforming loans (a very subjective category in China) at Chinese banks total at least $200 billion. I say "at least" because a company owned by the People's Bank of China, the Chinese central bank, has injected $45 billion in capital into just two of the country's biggest banks, China Construction Bank and Bank of China, to clean up bad loans in preparation for an initial public offering and overseas stock-market listing for the two banks.Hey, sign me up for those two deals.And finally this: Despite sometimes rudimentary risk-control systems, China's financial institutions are up to date in one area -- they're willing to play in the derivatives market with the big boys of Wall Street. Last November, China Aviation Oil, a jet-fuel importer listed on the Singapore market but backed by the Chinese government, sought protection from creditors after it ran up $500 million in losses in derivatives after betting that oil prices would fall. In China, just as in the U.S., nobody really knows the details of any financial institution's exposure to the derivatives market. In China, however, due to the immaturity of the financial system, it is much more difficult than in the U.S. to figure out where the risk in any derivative trade will actually come home to roost.
The more abrupt the transition from a cheap-money to a less-cheap-money cycle -- and the faster interest rates rise -- the slower global economic growth in general. And, also, the higher the risk of a country-specific financial crisis in the financial markets of these key countries in the developing world.
Bank of Ford
Ford saw its net income rise seven-fold to $3.48 billion in 2004 from $495 million in the previous year. But about 85 percent of its earnings came from the finance division. Ford's core auto operations made a profit only during the first quarter of 2004.
Chairman and Chief Executive Officer Bill Ford Jr. received about $22 million in compensation for 2004, up 52 percent from what he collected in 2003.
NICE
Dollar Repatriation Could Occur
Francois Bourguignon told the Les Echos newspaper it was too early to talk of a speculative bubble but that the United States had to cut its deficits to head off a crisis. Accumulation of dollar reserves by some Asian countries could spark a systemic foreign exchange crisis, the chief economist of the World Bank said in an interview to be published on Thursday. "For the moment I would not speak of a speculative bubble but of the danger of a systemic crisis linked to the accumulation of foreign exchange reserves," Bourguignon told the paper. "Today, the danger is that some dealers are starting to think they must change the rules of the game, play dollar depreciation and move toward the yen and the euro. That would confront us with a real systemic risk." Cutting the U.S. deficit was key, Bourguignon said. The World Bank foresaw an orderly adjustment with the United States announcing a progressive reduction in its budget deficit accompanied by interest rate rises.
OK so the US won't cut Budgets and continue running def.'s for the next 8 years, They can only raise interest rates higher. Britain stands at 4+%. We need to get into that range to alleviate this issue that is being talking about. As such, it will happen. Just my thoughts...
Greenspan: Irrational Exuberance 2
Fannie and Freddie buy mortgages from originators and repackage them for sale to investors as securities. But they also keep some of the loans and securities in their portfolios, which total some $1.5 trillion.
The size of those portfolios sits at the center of the debate over any overhaul of the federal regulator, with many in Congress now in agreement on other issues disputed last year.
While Greenspan was explicit in his criticism and warnings of financial crisis absent portfolio limits, investors took heart in his comments urging a phased-in reduction of Fannie's and Freddie's portfolios, rather than a quick, deep cut.
Greenspan, appearing before the Senate Banking Committee, said regulation without specific growth restraints could actually worsen the dangers the companies pose.
"World-class regulation, by itself, may not be sufficient and, indeed, might even worsen the potential for systemic risk if market participants inferred from such regulation that the government would be more likely to back GSE debt in the event of financial stress," Greenspan said.
But Greenspan's push to place a specific limit of $200 billion on the profit-driving mortgage portfolios held by Fannie and Freddie has already been rejected by a key Republican in the U.S. House of Representatives who was widely expected to propose the most restrictions and toughest on the two companies.
The portfolios together total some $1.5 trillion. (Can anyone say 13% coverage?? Or Keating 5?)
China "doesn't" want to unpeg currency, seems
Senior Chinese officials have said they will not attend spring meetings of the International Monetary Fund and World Bank at the end of next week. A decision by Beijing to send deputies from the central bank and finance ministry means top Chinese officials won't be on hand to meet Group of Seven finance ministers for talks on the sideline that might have centered on China's currency policy and on other thorny trade matters.
Other nations, including the United States, complain that China's pegged currency
The G7 includes the United States, Britain, Canada, France, Germany, Italy and Japan. It has been speculated that China, with its growing economic might, will one day be invited to join, but Beijing has indicated no rush on its part to do so.
"We have no immediate plans to join the G7," Finance Minister Jin Renqing said after last fall's meeting. The G7 finance chiefs issue a communique after their gatherings that summarizes their assessment of global economic conditions and can commit them to specific economic policy directions.
As I have stated in my forums, China is not interested in meeting or unpegging. They are just going to try to KEEP growing whilst they "cannibalize" the rest of the world.
Roth 401K coming in 2006
Early indications suggest that plan sponsors are indeed interested in adding a Roth 401(k) option to their traditional 401(k) plan.
"From a selling standpoint, this is what is new and fresh coming up next year," Mr. Graff said. "Ultimately, the decision makers and plan sponsors are going to really want this, so you've got to be prepared to sell it."
Unlike a traditional 401(k), which is funded with pretax dollars, the Roth 401(k) will be funded with after-tax dollars from the employee only. Like a Roth individual retirement account, the gains are tax free, whereas the gains in a traditional 401(k) are taxed as ordinary income.
As evidence of the anticipated demand, Marcy Supovitz, principal with Boulay Donnelly & Supovitz Consulting Group Inc. of Worcester, Mass., cited during the presentation a survey of large employers last year by Hewitt Associates LLC of Lincolnshire, Ill. More than one in three employers, or 35%, said they may add a Roth 401(k) account to their defined contribution plan next year, the survey found.
Ms. Supovitz was "very surprised" that the percentage was so high, considering that at the end of last year, many employers probably hadn't fully explored the option.
Because the Internal Revenue Service this month released the proposed rules governing the Roth 401(k), Ms. Supovitz - who joined Mr. Graff on the panel - said she thinks "we are going to see that percentage increase quite a bit."
The Roth 401(k), she noted in her talk, benefits especially higher-income earners who may exceed the income limits to invest in a Roth IRA. In particular, Ms. Supovitz thinks the Roth 401(k) will be popular for sole proprietors with an individual 401(k) plan, otherwise known as the solo 401(k).
"From a selling standpoint, this is what is new and fresh coming up next year," Mr. Graff said. "Ultimately, the decision makers and plan sponsors are going to really want this, so you've got to be prepared to sell it."
Unlike a traditional 401(k), which is funded with pretax dollars, the Roth 401(k) will be funded with after-tax dollars from the employee only. Like a Roth individual retirement account, the gains are tax free, whereas the gains in a traditional 401(k) are taxed as ordinary income.
As evidence of the anticipated demand, Marcy Supovitz, principal with Boulay Donnelly & Supovitz Consulting Group Inc. of Worcester, Mass., cited during the presentation a survey of large employers last year by Hewitt Associates LLC of Lincolnshire, Ill. More than one in three employers, or 35%, said they may add a Roth 401(k) account to their defined contribution plan next year, the survey found.
Ms. Supovitz was "very surprised" that the percentage was so high, considering that at the end of last year, many employers probably hadn't fully explored the option.
Because the Internal Revenue Service this month released the proposed rules governing the Roth 401(k), Ms. Supovitz - who joined Mr. Graff on the panel - said she thinks "we are going to see that percentage increase quite a bit."
The Roth 401(k), she noted in her talk, benefits especially higher-income earners who may exceed the income limits to invest in a Roth IRA. In particular, Ms. Supovitz thinks the Roth 401(k) will be popular for sole proprietors with an individual 401(k) plan, otherwise known as the solo 401(k).
Hispanic/Latino Investors coming of age?
The survey found that a significant portion of the Hispanic population uses checking accounts (82% of those born in the United States and 64% elsewhere), home mortgages (58%; 22%) and investments (44%; 10%). However, CDs (23%; 11%), IRAs (25%; 8%) and MMAs (16%; 8%) have yet to catch on.
Hispanic purchasing power has more than tripled in the past 15 years, while U.S. buying power has gained at half that rate. It is expected to grow 89% to $926 billion from $491 billion between 2000 and 2007, according to The Selig Center for Economic Growth at the University of Georgia, which has projected that growth rate despite lower usage of banking services among this segment compared with the general population.
"Financial services have to target this market segment very specifically and very cautiously," said William McCracken, chief executive of SYNERGISTICS. "They can't expect to capture this market the same way they capture the general population."
The survey found that cultural characteristics and specialized needs must be addressed when working with this market segment. For example, many Hispanics use check-cashing centers and Hispanic banking institutions to fulfill their financial needs. Its time for some "Habla Espanol"
Hispanic purchasing power has more than tripled in the past 15 years, while U.S. buying power has gained at half that rate. It is expected to grow 89% to $926 billion from $491 billion between 2000 and 2007, according to The Selig Center for Economic Growth at the University of Georgia, which has projected that growth rate despite lower usage of banking services among this segment compared with the general population.
"Financial services have to target this market segment very specifically and very cautiously," said William McCracken, chief executive of SYNERGISTICS. "They can't expect to capture this market the same way they capture the general population."
The survey found that cultural characteristics and specialized needs must be addressed when working with this market segment. For example, many Hispanics use check-cashing centers and Hispanic banking institutions to fulfill their financial needs. Its time for some "Habla Espanol"
Ben Grahm would shed a tear.
In general the results show the massive superiority of being a ‘bargain hunter'. Ben Graham's concept of a margin of safety is still sound today. Buying cheap stocks offers significant protection against any potential bad news.
James Montier's study of bargain hunting vs. growth stock investing shows some startling results. buying cheap stocks did indeed outperform. Simply buying an equal weighted basket (assuming equal distribution of stocks across portfolios) of the lowest 20% of PEs within the MSCI World index generated significant outperformance (9.7% p.a. on average). Such a strategy would have only resulted in absolute losses in only five out of the thirty years in our sample.
That is to say growth investors shouldn't ignore value. The cheaper the stocks they buy, the better the performance achieved. Indeed the two lowest PE bands provide over 50% of the total outperformance of the perfect foresight growth premium.
James Montier's study of bargain hunting vs. growth stock investing shows some startling results. buying cheap stocks did indeed outperform. Simply buying an equal weighted basket (assuming equal distribution of stocks across portfolios) of the lowest 20% of PEs within the MSCI World index generated significant outperformance (9.7% p.a. on average). Such a strategy would have only resulted in absolute losses in only five out of the thirty years in our sample.
That is to say growth investors shouldn't ignore value. The cheaper the stocks they buy, the better the performance achieved. Indeed the two lowest PE bands provide over 50% of the total outperformance of the perfect foresight growth premium.
Aging folk could crush Mutual Fund Industry
The absolute worst thing you can do now, my friend, is let the Bush Social Security Plan lull you into a false sense of security.
Here's why:
The private social security retirement accounts that Bush wants you to have will never solve the biggest problem you face: 76 million retiring baby boomers cashing out of their growth investments and funneling their 401K, IRA, and pension money into income investments.
And the fallout is set to turn the mutual fund industry upside down, and a lot of unwitting investors will get hurt. This projection moves into the next 5-7 scenario I entailed in a previous posting "Oscar vs. Dr. Vlado"
Here's why:
The private social security retirement accounts that Bush wants you to have will never solve the biggest problem you face: 76 million retiring baby boomers cashing out of their growth investments and funneling their 401K, IRA, and pension money into income investments.
And the fallout is set to turn the mutual fund industry upside down, and a lot of unwitting investors will get hurt. This projection moves into the next 5-7 scenario I entailed in a previous posting "Oscar vs. Dr. Vlado"
John Buckingham believes we hit support in equities
Did the market hit bottom on Tuesday? After a dismal first 88 days of the first quarter, equities staged a major rally yesterday as oil prices sank and a report from the Commerce Department saying that pretax profits of private and public companies were 13.5% greater in the fourth quarter than in the third quarter helped send share prices sharply higher. Happily, market breadth (advancing stocks compared to declining stocks) was favorable and volume was fairly strong.
Obviously, one day does not a trend make and many remain unconvinced that we have seen the lows. Sadly, I must confess that my Magic 8 Ball has not confirmed that we won't suffer any more setbacks, though I think that the start of first quarter corporate earnings reporting season next month will be a positive catalyst. MORE::
Dow 10,400 stands as my near term support.
Obviously, one day does not a trend make and many remain unconvinced that we have seen the lows. Sadly, I must confess that my Magic 8 Ball has not confirmed that we won't suffer any more setbacks, though I think that the start of first quarter corporate earnings reporting season next month will be a positive catalyst. MORE::
Dow 10,400 stands as my near term support.
Can the Pyramids make you money??
Fibonacci, Elliot wave, cycles and Phi all correlate. Leonardo Fibonacci was a 13th century accountant who worked for the royal families of Italy. In 1242 he published a paper entitled "liber abaci." The basis of the work came from a two-year study of the pyramids at Gizeh.
Fibonacci found that the dimensions of the pyramid were almost exactly the same as the golden mean or (.618).
The Fibonacci Summation Series takes 0 and adds 1. Succeeding numbers in the series adds the previous two numbers and thus we have 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. At the eighth series, by dividing 55 by 89, you have the golden mean: .618. If you divide 89 by 55 you have 1.618.
Do you see the pattern? 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13.....
These ratios, and several others derived from them, appear in nature everywhere, and in the financial markets they often indicate levels at which strong resistance and support will be found. They are easily seen in nature (seashell spirals, flower petals, structure of tree branches, etc.), art, geometry, architecture and music.
Why are they important to the financial markets? Because the markets tend to reverse right at levels that coincide with the Fibonacci ratios.
Elliot Wave Patterns, in short, are usually a three or five wave series of advances, or declines, that define a trend. They are the result of crowd psychology, and thus are usually more reliable when found in broader based indices, such as the S&P 500 Index, Nasdaq Composite Index, etc.
Typically, if the S&P 500 Index moves higher in a 5 wave pattern, and then falls below the top of wave 3, it signals the start of a retracement that normally consists of 3 waves.
In a bear market it works the other way. A five wave pattern defining a declining trend, which is then reversed by a 3 wave rally, which eventually reverses and another five wave pattern begins to the downside.
Finding a wave pattern that completes at a strong Fibonacci support or resistance level can be a very reliable indicator of a change in trend.
By having an Elliott Wave pattern complete right "at" a Fibonacci support or resistance level, you in essence have increased the probabilities of being correct.
An excellent book on such patterns is, "Profitable Patterns for Stock Trading" by Larry Pesavento. Larry is an authority on trading patterns, and I studied with him at his home in Arizona some years ago.
Although both Fibonacci support and resistance levels and Elliott Wave theory are good tools, they fail too many times to be used for market timing. Many would disagree with this statement, but research shows that over the years they will give accurate forecasts only about 50% of the time.
Fibonacci found that the dimensions of the pyramid were almost exactly the same as the golden mean or (.618).
The Fibonacci Summation Series takes 0 and adds 1. Succeeding numbers in the series adds the previous two numbers and thus we have 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. At the eighth series, by dividing 55 by 89, you have the golden mean: .618. If you divide 89 by 55 you have 1.618.
Do you see the pattern? 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13.....
These ratios, and several others derived from them, appear in nature everywhere, and in the financial markets they often indicate levels at which strong resistance and support will be found. They are easily seen in nature (seashell spirals, flower petals, structure of tree branches, etc.), art, geometry, architecture and music.
Why are they important to the financial markets? Because the markets tend to reverse right at levels that coincide with the Fibonacci ratios.
Elliot Wave Patterns, in short, are usually a three or five wave series of advances, or declines, that define a trend. They are the result of crowd psychology, and thus are usually more reliable when found in broader based indices, such as the S&P 500 Index, Nasdaq Composite Index, etc.
Typically, if the S&P 500 Index moves higher in a 5 wave pattern, and then falls below the top of wave 3, it signals the start of a retracement that normally consists of 3 waves.
In a bear market it works the other way. A five wave pattern defining a declining trend, which is then reversed by a 3 wave rally, which eventually reverses and another five wave pattern begins to the downside.
Finding a wave pattern that completes at a strong Fibonacci support or resistance level can be a very reliable indicator of a change in trend.
By having an Elliott Wave pattern complete right "at" a Fibonacci support or resistance level, you in essence have increased the probabilities of being correct.
An excellent book on such patterns is, "Profitable Patterns for Stock Trading" by Larry Pesavento. Larry is an authority on trading patterns, and I studied with him at his home in Arizona some years ago.
Although both Fibonacci support and resistance levels and Elliott Wave theory are good tools, they fail too many times to be used for market timing. Many would disagree with this statement, but research shows that over the years they will give accurate forecasts only about 50% of the time.
China's Hunger for Energy
The Center for Strategic and International Studies recent speech by James Dorian Ph.D. posses some possibilities and issues for the world in China's emergence in the new world order.
Average Latino/Hispanic targeted as consumer
America's 39 million Latinos spent nearly $700 billion last year and are the fastest-growing consumer group in the country. By 2008, Hispanic consumer spending is expected to top $1 trillion, according to the University of Georgia's Selig Center for Economic Growth. Faced with these astounding figures, the U.S. business community has made unprecedented overtures toward Latinos since 2000, changing the way the mainstream United States sees its largest minority—and itself—in the process
What i keep asking myself is, where are the investment dollars and savings rates associated with traditional emerging markets??
What i keep asking myself is, where are the investment dollars and savings rates associated with traditional emerging markets??
9 Retirement planning Pitfalls
1. You can never start saving too soon
2. Don't underestimate expenses in retirement.
3. Don't make your retirement plan contingent on employer or government programs that may not be around.
4. Don't assume health-care costs will be the same as they are in your working years.
5. Consider tax diversification.
6. Understand your retirement plan distribution options.
7. Avoid retiree tax blunders.
8. Take your retirement distributions in the right order.
9. Don't let the courts or the government make life or death decisions for you.
You can't have missed the sad case of Terri Schiavo. She left no instructions on what to do if she was on life support, and you can see what a tragic outcome this has had for her family.
2. Don't underestimate expenses in retirement.
3. Don't make your retirement plan contingent on employer or government programs that may not be around.
4. Don't assume health-care costs will be the same as they are in your working years.
5. Consider tax diversification.
6. Understand your retirement plan distribution options.
7. Avoid retiree tax blunders.
8. Take your retirement distributions in the right order.
9. Don't let the courts or the government make life or death decisions for you.
You can't have missed the sad case of Terri Schiavo. She left no instructions on what to do if she was on life support, and you can see what a tragic outcome this has had for her family.
PIcking Stocks like Bershire's Buffett
In Berkshire Hathaway's (nyse: BRK.A - news - people ) 2002 annual report, Warren E. Buffett and Charles T. Munger list several of their "acquisition criteria." Among them: more than $50 million in pretax earnings, consistent earnings power, good return on equity and low debt, good management and simple businesses. "If there's lots of technology," the two write, "we won't understand it."
Though you won't find it on Buffett and Munger's list of acquisition criteria, another item to keep an eye on is the enterprise multiple. Similar to but more complex than a price-to-earnings ratio, it is calculated by dividing enterprise value by operating income.
Enterprise value is a company's interest-bearing debt plus market value of stock, minus cash on hand. It represents the minimum amount a hypothetical acquirer would have to pay to make a deal. The denominator, "operating income," is defined here as earnings before interest, taxes, depreciation and amortization (EBITDA).
The enterprise multiple has an advantage over the plain old price-to-earnings ratio in that it gives a sense of a company's valuation relative to its entire capital structure, including debt. In our bargain hunting, we looked for enterprise multiples below industry averages.
Though you won't find it on Buffett and Munger's list of acquisition criteria, another item to keep an eye on is the enterprise multiple. Similar to but more complex than a price-to-earnings ratio, it is calculated by dividing enterprise value by operating income.
Enterprise value is a company's interest-bearing debt plus market value of stock, minus cash on hand. It represents the minimum amount a hypothetical acquirer would have to pay to make a deal. The denominator, "operating income," is defined here as earnings before interest, taxes, depreciation and amortization (EBITDA).
The enterprise multiple has an advantage over the plain old price-to-earnings ratio in that it gives a sense of a company's valuation relative to its entire capital structure, including debt. In our bargain hunting, we looked for enterprise multiples below industry averages.
US has Half Billionaire population
The U.S., also thrived, adding 69 new billionaires. The U.S. is now home to an astonishing 341 billionaires, just shy of half the world's billionaire population. Strong stock markets fueled much of this growth: Since the end of January 2003, the S&P 500 is up 38%, and the Nasdaq has gained 56%.
In just the last two years, we have added an astonishing 215 new names to the ranks of the world's billionaires. In 2003 we found 476 billionaires. Today it's a record 691. Their aggregate net worth has grown from $1.4 trillion to $2.2 trillion. The average net worth has also jumped, from $2.9 billion to $3.2 billion. To what do the billionaires owe their good fortunes?
Obviously, many non-U.S. billionaires have seen their dollar-denominated fortunes grow because of the weakness of the dollar. For instance, a billionaire whose fortune is based in euros could have done absolutely nothing in the past two years and still be 20% richer on our U.S.-dollar-based list. A Canadian-dollar fortune would be worth 25% more. And the Aussies picked up more than 30% gains. (Click here to read more about the currency effect.)
Five years ago, technology and the Internet fueled much of the new wealth. Not so these past two years, as a number of industries thrived. Finance created 27 fortunes in the past two years; real estate was the source of 16; and food and beverages created 12. Gaming created two new fortunes and boosted American casino titan Sheldon Adelson's net worth by $14 billion.
Of course, commodities have begun their own bull run of late. A barrel of crude oil cost just $20 in early 2002. Today a barrel costs north of $50. Driven in large measure by demand from China, steel prices are up 60% this year alone. Iron ore, steel and copper have also realized similar surges in price per ton. As a result, mineral-rich nations like Ukraine and Kazakhstan now have their first billionaires.
In just the last two years, we have added an astonishing 215 new names to the ranks of the world's billionaires. In 2003 we found 476 billionaires. Today it's a record 691. Their aggregate net worth has grown from $1.4 trillion to $2.2 trillion. The average net worth has also jumped, from $2.9 billion to $3.2 billion. To what do the billionaires owe their good fortunes?
Obviously, many non-U.S. billionaires have seen their dollar-denominated fortunes grow because of the weakness of the dollar. For instance, a billionaire whose fortune is based in euros could have done absolutely nothing in the past two years and still be 20% richer on our U.S.-dollar-based list. A Canadian-dollar fortune would be worth 25% more. And the Aussies picked up more than 30% gains. (Click here to read more about the currency effect.)
Five years ago, technology and the Internet fueled much of the new wealth. Not so these past two years, as a number of industries thrived. Finance created 27 fortunes in the past two years; real estate was the source of 16; and food and beverages created 12. Gaming created two new fortunes and boosted American casino titan Sheldon Adelson's net worth by $14 billion.
Of course, commodities have begun their own bull run of late. A barrel of crude oil cost just $20 in early 2002. Today a barrel costs north of $50. Driven in large measure by demand from China, steel prices are up 60% this year alone. Iron ore, steel and copper have also realized similar surges in price per ton. As a result, mineral-rich nations like Ukraine and Kazakhstan now have their first billionaires.
Computers Smarter than YOU
Hawkins, who will continue to work as chief technical officer of Treo maker palmOne (nasdaq: PLMO - news - people ), already has his own research lab to study the neocortex, a massive part of the brain thought to hold such higher level functions as language, learning, memory and complex thought.
Hawkins believes that the several levels of the neocortex are an organizational hierarchy of sensory inputs. This hierarchy has multiple interconnections among levels that enable us to sort things in space and time and associate them with previously encountered things, be they faces, phone numbers or typing skills--whatever our memory holds. Traveling down from the top of the hierarchy to the base sensations, he figures, the neocortex functions as a prediction machine, anticipating what we will see next, where the ball is headed or how an experiment might turn out. In effect, prediction is akin to "remembering" the future. This is the essence of investing profitably and the heart of technical analysis.
Jeff Hawkins and Donna Dubinsky, creators of the Palm and Handspring personal digital assistants and the Treo smartphone, have formed a software company built around a powerful and unorthodox vision of how the human brain works. In its early stages, they hope to create predictive machines useful for things like weather forecasting and oil exploration. Further out--much further, says Hawkins--they plan to lay the basis for cosmologically attuned robots that conceive and reflect on the universe itself.
This company is privately held
Hawkins believes that the several levels of the neocortex are an organizational hierarchy of sensory inputs. This hierarchy has multiple interconnections among levels that enable us to sort things in space and time and associate them with previously encountered things, be they faces, phone numbers or typing skills--whatever our memory holds. Traveling down from the top of the hierarchy to the base sensations, he figures, the neocortex functions as a prediction machine, anticipating what we will see next, where the ball is headed or how an experiment might turn out. In effect, prediction is akin to "remembering" the future. This is the essence of investing profitably and the heart of technical analysis.
Jeff Hawkins and Donna Dubinsky, creators of the Palm and Handspring personal digital assistants and the Treo smartphone, have formed a software company built around a powerful and unorthodox vision of how the human brain works. In its early stages, they hope to create predictive machines useful for things like weather forecasting and oil exploration. Further out--much further, says Hawkins--they plan to lay the basis for cosmologically attuned robots that conceive and reflect on the universe itself.
This company is privately held
Pope John Paul 2; His passing leaves what message?
Watching the recent media coverage on Pope John Paul has made me rediscover what we have lost as a planet. Tirelessly listening to the stories of his travels, his accomplishments and even his controversies left me in awe of the worlds love and appreciation of the Polish Pontif. His life of servitude leadership re-kindles the neo spirituality even in myself, and in digging I found a great article that coincides with this time of loss and morning for Christians and humans worldwide: (of course this deals with the economic importance of servitude and responsibility)
Purpose. Every young person needs to know that he was created for a purpose. There is, of course, the spiritual purpose Dr. Rick Warren writes about--to please God--but this is not a spiritual column, so I won't go there. I would, however, argue that there is also an economic purpose to our lives. It is to discover our gifts, make them productive and find outlets for their best contribution. Does any school teach this?
Priorities. The best single piece of advice from Peter Drucker: Stop thinking about what you can achieve; think about what you can contribute (to your company, your customers, your marriage, your community). This is how you will achieve. Enron had an achievement-first culture; it just achieved the wrong things. Dell has a contribution-first culture; it has achieved hugely and is on the road to greatness.
Preparation. Lest you think I'm urging young people down a Mother Teresa-like path of self-sacrifice, I'm not. The task is to fit purpose and contribution into a capitalistic world. There is a crying need for prepared young people who can thrive in a realm of free-market capitalism. This great system works magnificently, but it doesn't work anything like the way it's taught in most universities. In the real world, greed is bad (because it takes your eye off customers), but profits are very good. Profits allow you to invest in the future.
Partner. If I were teaching students about entrepreneurship, I'd point out that many of the great startups of the last 30 years began as teams of two.
Purpose. Every young person needs to know that he was created for a purpose. There is, of course, the spiritual purpose Dr. Rick Warren writes about--to please God--but this is not a spiritual column, so I won't go there. I would, however, argue that there is also an economic purpose to our lives. It is to discover our gifts, make them productive and find outlets for their best contribution. Does any school teach this?
Priorities. The best single piece of advice from Peter Drucker: Stop thinking about what you can achieve; think about what you can contribute (to your company, your customers, your marriage, your community). This is how you will achieve. Enron had an achievement-first culture; it just achieved the wrong things. Dell has a contribution-first culture; it has achieved hugely and is on the road to greatness.
Preparation. Lest you think I'm urging young people down a Mother Teresa-like path of self-sacrifice, I'm not. The task is to fit purpose and contribution into a capitalistic world. There is a crying need for prepared young people who can thrive in a realm of free-market capitalism. This great system works magnificently, but it doesn't work anything like the way it's taught in most universities. In the real world, greed is bad (because it takes your eye off customers), but profits are very good. Profits allow you to invest in the future.
Partner. If I were teaching students about entrepreneurship, I'd point out that many of the great startups of the last 30 years began as teams of two.
• Steve Jobs and Steve Wozniak (Apple)
• Bob Miner and Larry Ellison (Oracle)
• Len Bosack and Sandra Lerner (Cisco)
• David Filo and Jerry Yang (Yahoo)
• Larry Page and Sergey Brin (Google)
Behind this phenomenon is a principle: Build on your strengths. To mitigate your weaknesses--and we all have them--partner up! Find your complement.
Perseverance. Young people are smarter and more sophisticated today. It's not even close. My own generation's SAT scores look like they came out of baseball's dead-ball era. But apart from the blue-collar kids who are fighting in Iraq, most American kids today are soft. That's a harsh statement, isn't it? But cultural anecdotes back it up. Kids weigh too much. Fitness is dropping. Three American high schoolers ran the mile in under four minutes in the 1960s. It's been done by one person since. Parents sue coaches when Johnny is cut from the team. Students sue for time extensions on tests. New college dorms resemble luxury hotels. College grads, unable to face the world, move back in with their parents and stay for years. Does this sound like a work force you'd send into combat against the Chinese? I don't know the answer here. But the trend is bad, and we can do better. For our kids we must do better. And this relates to the Pope how?? Well in many ways. The Popes is a generation that has gone by and is leaving us like some endangered species. His is the generation that endemically possesed these sighted rights of passage.
Easy money is GOING away...
The cycle of cheap money that has fueled the booming financial markets of the last 20 to 25 years is coming to an end.
Are you and your portfolio ready?
From January 1980 to January 2005, M1, the Federal Reserve's most conservative measure of the money supply in the United States, grew by 252%. M3, a measure that captures some of the money created by Wall Street's institutions, grew 420%. At the same time as the money supply was growing, the cost of tapping into that river of cash was falling: The Fed funds rate, the cost for a bank to borrow overnight from the Federal Reserve, fell from 13.8% in January 1980 to 1% in January 2004.
But now, that cheap-money cycle is over. After hitting a low of just 1% in the first half of 2004, the Fed has hiked its target for the Fed Funds rate to 2.75%. Reading between the lines of the Fed's press releases, I think it likely intends to take its target up to 4% to 4.5% by year end. That's the level economists see as "neutral," meaning interest rates are neither so low that they stimulate the economy nor so high they put the brakes on growth.Need a broker?
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And growth in the money supply has started to taper off, too. After growing by 11% from 2001 to 2002, growth in M3 dropped to 7% in 2002, and then to 4% in 2003, before kicking up again slightly to 6% in 2004. For the three months from November 2004 to February 2005, the annualized rate of growth has dropped further to 4.2%. That's a level near the growth rate for the economy during the last quarter of 2004 (and therefore roughly "neutral," since the growth in the amount of money in the economy is approximately equal to the growth in the size of the economy as a whole).
So what happens now?
The bulls believe the Fed will be able to engineer a gentle transition from the cheap-money economy to a "neutral"-money economy. In this scenario, short-term interest rates will rise gently -- just enough to keep inflation under control -- to somewhere around 5.5% in 2006. The economy will grow at 3% to 3.5%, a level some economists call its natural rate of growth based on U.S. population growth and U.S. productivity improvements. Corporate earnings will climb 7% to 10% a year, thanks to improved cost controls in the new, leaner U.S. corporations. And all that combined will keep the stock market chugging along with annual returns in the neighborhood of 8%, give or take two percentage points or so.
The bears believe the bulls are hallucinating. You can't grow the money supply at rates like these -- 77% growth in M3 for 1980-1985, for example, as the Fed tried to boost the economy out of the dumps -- without creating serious structural problems in the economy and financial markets. Cheap money has inflated the value of assets -- stocks, bonds and houses -- and the end of cheap money will result in the collapse of those prices. At the same time, all that money chasing a limited supply of goods and services must result in inflation, they argue. The Fed, they believe, has seriously miscalculated by waiting too long to begin to raise interest rates and then compounded that error by raising rates too slowly.
What do you think will happen?
Are you and your portfolio ready?
From January 1980 to January 2005, M1, the Federal Reserve's most conservative measure of the money supply in the United States, grew by 252%. M3, a measure that captures some of the money created by Wall Street's institutions, grew 420%. At the same time as the money supply was growing, the cost of tapping into that river of cash was falling: The Fed funds rate, the cost for a bank to borrow overnight from the Federal Reserve, fell from 13.8% in January 1980 to 1% in January 2004.
But now, that cheap-money cycle is over. After hitting a low of just 1% in the first half of 2004, the Fed has hiked its target for the Fed Funds rate to 2.75%. Reading between the lines of the Fed's press releases, I think it likely intends to take its target up to 4% to 4.5% by year end. That's the level economists see as "neutral," meaning interest rates are neither so low that they stimulate the economy nor so high they put the brakes on growth.Need a broker?
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And growth in the money supply has started to taper off, too. After growing by 11% from 2001 to 2002, growth in M3 dropped to 7% in 2002, and then to 4% in 2003, before kicking up again slightly to 6% in 2004. For the three months from November 2004 to February 2005, the annualized rate of growth has dropped further to 4.2%. That's a level near the growth rate for the economy during the last quarter of 2004 (and therefore roughly "neutral," since the growth in the amount of money in the economy is approximately equal to the growth in the size of the economy as a whole).
So what happens now?
The bulls believe the Fed will be able to engineer a gentle transition from the cheap-money economy to a "neutral"-money economy. In this scenario, short-term interest rates will rise gently -- just enough to keep inflation under control -- to somewhere around 5.5% in 2006. The economy will grow at 3% to 3.5%, a level some economists call its natural rate of growth based on U.S. population growth and U.S. productivity improvements. Corporate earnings will climb 7% to 10% a year, thanks to improved cost controls in the new, leaner U.S. corporations. And all that combined will keep the stock market chugging along with annual returns in the neighborhood of 8%, give or take two percentage points or so.
The bears believe the bulls are hallucinating. You can't grow the money supply at rates like these -- 77% growth in M3 for 1980-1985, for example, as the Fed tried to boost the economy out of the dumps -- without creating serious structural problems in the economy and financial markets. Cheap money has inflated the value of assets -- stocks, bonds and houses -- and the end of cheap money will result in the collapse of those prices. At the same time, all that money chasing a limited supply of goods and services must result in inflation, they argue. The Fed, they believe, has seriously miscalculated by waiting too long to begin to raise interest rates and then compounded that error by raising rates too slowly.
What do you think will happen?
US Economy Sluggish - Inflation UP!
Supply Management survey's indication of accelerating inflation sparked a rapid reversal in the dollar's fortunes, switching the market's attention to inflation and away from economic and jobs weakness, according to Brian Dolan, head of currency research at Gain Capital.
The March ISM factory index slipped to 55.2% from 55.3% in February. The consensus forecast of estimates collected by MarketWatch was for the index to slip to 55%.
However, currency markets were more taken with the prices-paid component, which shot up to 73% from 65.5% in March, according to Dolan.
Remarks from Chicago Federal Reserve President Michael Moskow reinforced currency traders' impression that the Federal Reserve has grown more concerned about the pace of inflation, according to Dolan. During the afternoon Boston Federal Reserve Chief Cathy Minehan said recent events, including the rise in crude futures prices, have modestly raised the risk of higher inflation.
However, currency markets were more taken with the prices-paid component, which shot up to 73% from 65.5% in March, according to Dolan.
Remarks from Chicago Federal Reserve President Michael Moskow reinforced currency traders' impression that the Federal Reserve has grown more concerned about the pace of inflation, according to Dolan. During the afternoon Boston Federal Reserve Chief Cathy Minehan said recent events, including the rise in crude futures prices, have modestly raised the risk of higher inflation.
Only 110,000 jobs were added in March, less than half of the forecast for a 221,000 increase set by economists surveyed by MarketWatch.
Goldman Sees Crude Climbing to $105.00
Top energy derivatives trader Goldman Sachs (GS) said in a report on Thursday the oil markets might have entered a "super-spike" period, which could eventually drive prices toward $105.
"In a very interesting report, Goldman talked about how we might see a longer cycle and a higher cycle than we have seen in a very long time," said Deborah White, senior economist at SG Commodities.
"That was a pretty big call by them and the market is just assessing where supply and demand really sits," said David de Garis, senior economist at ANZ Investment Bank in Melbourne.
U.S. light crude rose $2.40 to $57.70 a barrel, breaking the previous peak of $57.60 hit March 17. London's Brent crude climbed $2.22 to $56.51.
U.S. gasoline futures for May hit a record $1.7360 a gallon on worries that a national stockpile surplus could dwindle ahead of driving season, while heating oil futures struck a peak of $1.6750 a gallon.
U.S. gasoline futures for May hit a record $1.7360 a gallon on worries that a national stockpile surplus could dwindle ahead of driving season, while heating oil futures struck a peak of $1.6750 a gallon.
Prices have climbed around 30 percent this year, with big-money speculative funds buying heavily on signs that rapid demand growth in Asia's emerging economies and the United States would strain world supply.
For the past month, U.S. gasoline demand has been 2 percent higher than the same time a year ago, despite record pump prices.
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