Table On-Topic Summary - 26-Aug-2002
A compilation of this board's financial/economic posts From 41043 to 41125

Post  41043  by  Briguy       Reply
Even though the Federal Reserve decided not to cut interest rates this month, it doesn't mean Alan Greenspan will sit idle if the economy weakens.

The Fed could - and probably will - start making massive repurchases of government securities. This is where the real Fed power lies.

As I said before, Greenspan has pretty much used up the benefits of lower interest rates after 11 cuts in two years. The Fed is virtually powerless in compelling people and companies to borrow money if they don't want to borrow.

Wall Street thinks more rate cuts will come later this year, perhaps as early as September - or even in between policy meetings.

Maybe yes, maybe no. But any further moves to reduce rates would be irrelevant and perhaps even counterproductive.

So instead, the Fed's next move could very well be to further liquefy the banking system. This is delicate stuff, because the financial markets here and abroad could be bothered if Greenspan looks as if he is not even paying lip service to inflation.

And with the Fed's pool of money already growing at a strong 8 percent a year, letting the presses at the mint run overtime is a problem.

The Fed repurchases government securities all the time as part of its regular operations. What the pros will be looking for are repurchases over and above those needed to keep interest rates where the Fed wants them.

-from NY POST

Post  41044  by  pmcw       Reply
Bri, I think you might be overlooking the importance of the aggregate savings component of the M3 increasing. This is important because it increases the supply of money available to loan and it does so in a way that is much more healthy than a Fed rate cut. Regards, pmcw

Post  41045  by  pmcw       Reply
sr, BTW, if you own any multi-tenant commercial units or even just straight commercial real estate, I think I have an idea as to how you can increase your cash flow, lock in resale prices and minimize taxes. If your interested, you're welcome to write me at Regards, pmcw

Post  41046  by  lkorrow       Reply
Pace, welcome back, hope you had a good vacation! Clo, Pace, have you ever heard this before, that the Middle East feels we use too much oil?

Post  41047  by  lkorrow       Reply
Pace, This IS interesting. Is it possible there could be good an d bad deflation? I am not versed in economics, but I was thinking that the bad deflation is that which is the result of a lack of buying, i. e., price cutting to get sales moving. Good deflation seems to be cheaper goods. While this would not bode well for U. S. based competitors, it would free up discretionary monies for other purchase. I know you feel deflationary pricing from China is disasterous, but what do you think of this thesis?

Post  41048  by  Briguy       Reply
Oil prices are going up because of speculation over how much oil Middle East petroleum producing countries will release. If Iraq initiates an embargo, there will be little affect on our market; if Iraq and Iran join the embargo, oil will be at $45 a barrel; and if Saudi Arabia joins the embargo, it will be catastrophic and oil will reach $100 a barrel. My gut tells me oil will be higher still.

One must understand, there is a link between the stock market's decline and oil price increases, but this would probably have happened anyway, whether the market went up or down. Supplies are running low following last year's economic slowdown. The reduction in prices and the associated pulling back of exploration and drilling programs has also had an impact.

Consumers cannot afford an embargo! Yet unless we start drilling for oil ourselves, we will always be a hostage to the middle east which may just lead to an embargo with disasterous results. Mark my words, we do NOT want to be a hostage to the middle east.

Extremist Daschle, mr. anti-ANWAR, anti-big oil, continues to fool everyone by succumbing to the wishes of the environmental wacko's by saying he is against drilling for oil, yet in his energy bill he is supporting $20-$40 BILLION dollars worth of subsidies to pipeline companies- which will benefit big oil- to keep ANWAR off the table for vote!

What a fricken hypocrite this clown is! How can the American public- particular Democrats who support this guy- be so stupid and naive to believe anything this guys says? He gives the appearance of being anti-drilling, anti-ANWAR, anti-big oil, yet is ready to funnel up to $40 billion to big oil- the same big oil that environmental wacko's hate.

I know this bugs many of you, but this country's economy runs on energy! I'm all for conservation and lowering energy consumption that is reasonable, but eliminating oil and fossil fuel is NOT the answer, unless you want to dramatically reduce the standard of living in this country. The answer is looking for alternative sources and INCREASING supply of existing sources. This includes digging in Alaska, where there are huge reserves.

I find it interesting that the VAST MAJORITY of the people who LIVE in Alaska support Bush's plan to explore for more oil. And it's not like they don't have the experience to do so. 25% of this country's oil ALREADY COMES FROM ALASKA!

Few people understand this, but environmentalists kill more animals than big oil does. They go out in the natural habitat and tag animals, walk in their breeding areas, take them out of their natural habitat to zoo's and such, all of which disrupts the natural pattern and growth cycles of nature. Hypocrites! If they truly gave a damn about a rat and such, they would lead by example and STAY OUT! Furthermore, they would quit driving their cars, vans and trucks. They would stop mowing their grass. They would stop using hot water in their homes. They would stop washing and drying their clothes.

Mark my words, an energy crisis is all but on the way! Natural gas will easily shoot past $10 per (about $3 today) and oil could easily hit $50/barrel which will hurt us bad people, real bad!

So, with that being said, I would be looking to INVEST HEAVILY into energy! Dynegy, Reliant, Xcel, El Paso etc etc have all gotten the tar beat out of them because of Enron. This has provided a WONDERFUL opportunity for investors to buy in cheap. When the crisis comes (Mexico's President just said over the week-end that a crisis looms large for his country), you will want to be in energy stocks.

Post  41049  by  Briguy       Reply
pmcw, re: rate cut

I have already conceded that a rate cut is now all but worthless. Your right, it will do little now. If anything, rates are very low. If the economy can't recover from here, then we will all be in trouble.

Post  41050  by  Briguy       Reply
Interesting statistics on the Nasdaq...

Please note, the structure of the NASDAQ is so concentrated (capitalization weighted) that it is highly undesirable as a measure of "market" performance. So take this for what it is worth...

-There are 3,799 stocks in the index and 1,740 currently trade below $5/share!

-One out of seven of these equities (actually 532) trade at $1/share, or less. Obviously, many of these "companies for the next 100 years" probably had no business ever going public in the first place.

-Microsoft, itself, accounts for about 13% of the NASDAQ and the largest 20 positions (mostly tech issues) represent 44% of the composite results. Before this index reaches its final bottom, you better believe there is going to be significant restructuring!

Still see the Nasdaq hitting 600-700 and the Dow hitting 6000. If you haven't guessed, I'm becoming increasingly BEARISH.

Post  41051  by  lkorrow       Reply
motordavid, I'm glad you posted this. I fully agree, ethanol is a "fix in search of a problem." It is also a fix attempting to intensify a problem.

I have written before of the water shortage facing the U. S. below our farmlands, the draining of the aquifers below the wheat belt and California farmlands. This acute drainage is threatening our very food supply. It will, within perhaps 40 years, create a new industry, that of desalinization and water pipelines; or, some sort of genetic engineering of food plants such that they don're require groundwater. Ethanol would be ludicrous if it were not so life threatening. We can not afford to use water to produce fuel or, for that matter, tobacco.

If anyone would like to read more about this, the current issue of National Geographic has a spread on the world's water problem. They say the periphery of the aquifer is showing significant depletion. One third of the Algallala aquifer, which extends across the wheat belt beneath the farmlands of Texas are all but dried up. This is why there are battles with Mexico over the freeing of waters of the Rio Grande, which today hardly helps the farmers of Texas.

This is with today's population, not tomorrow's . . .

Post  41052  by  Decomposed       OT: Table ON TOPIC SUMMARY Aug 25, 2002
Post  41053  by  oldCADuser       OT: Didn't they just make a movie about this same

Post  41054  by  pmcw       Reply
Bri, That really wasn't the issue I was trying to drive home. Since you're in the deck biz, let me use an analogy close to home.

A Fed rate cut is kind of like a "kicker" and the aggregate savings is kind of like the support post. The kicker is fine and dandy to use while you are building the deck and getting the post ready. However, it's not what you want holding up the deck for the long haul.

Money is just like anything else; subject to the laws of supply and demand. From one perspective, the Fed is a shock absorber. The can adjust interest that would normally be adjusted by supply or demand changes in an effort to bring the economy through a "situation". For the reasons discussed about the minimal affect of a cut plus because the aggregate savings in M3 are increasing (available money to lend is increasing) a cut isn't the way to go. At level interest rates actually have come down since the last Fed meeting. I believe this is due to the increase in supply and to some degree, a very slight up-tick in the optimism factor.

Regards, pmcw

Post  41055  by  jcl22192       Reply

OPEC Sees 02 World Oil Demand Down 46.7% At 76.16 Million B/D

OPEC has cut its forecast for oil demand growth in 2002 by 47% in its monthly oil market report Monday. OPEC is now forecasting that oil consumption will rise by 0.16 million barrels a day in 2002 to 76.16 million b/d. This latest figure translates into a downward revision of 0.14 million b/d, from the group's previous growth estimate. OPEC says oil demand for the first half of 2002 was weaker than projected in its previous oil market report. Although OPEC expects some recovery for oil demand in the second half of 2002, it says that this will be "compounded" by forecasts for a downward revision in economic growth, especially in the U.S. Due to a downward revision in world economic growth, OPEC has revised down its preliminary oil demand forecasts for 2003 by 0.15 million b/d to 76.95 million b/d. But it says this still translates into a growth rate of 0.79 million b/d for 2003 from 2002. Based on secondary source estimates, OPEC's latest oil market report shows OPEC's total crude oil output rose 520,000 b/d in July to 25.251 million b/d. For June, secondary source estimates put the group's oil output at 24.731 million b/d.

For 2003, non-OPEC supply is expected to rise by another 0.92 million b/d from 2002 to 48.80 million b/d, OPEC says. It says major contributors to this projected increase will be the former Soviet Union and North America. OPEC's forecast for net oil exports from the FSU for 2002, have been revised up by 30,000 b/d from the previous report to 5.33 million b/d. There has also been an upward revision to the 2003 forecast for oil exports from the FSU of 40, 000 b/d to 5.69 million b/d. OPEC has revised down its forecast for its "call" on OPEC crude oil in 2002 to 24.70 million b/d. In its previous report OPEC put the call on OPEC crude for 2002 at 24.85 million b/d. For 2003, the call on OPEC crude is now seen at 24.55 million b/d compared to the group's previous forecasts of 24.84 million b/d The call on OPEC crude is the difference between oil supply and demand. In July crude oil commercial stocks in the U.S. fell by an unseasonable 6.1 million barrels to 1.025 billion barrels, OPEC says. The report says that such a fall warrants close attention in coming weeks.

Post  41056  by  pmcw       Reply
The Institute of Policy Studies and United for a Fair Economy released the results of their study designed to improve corporate accountability and fix unfair CEO pay packages. Before we examine their findings, please consider CEO pay has dropped, by their measure, roughly 20% while corporate profits have dropped only about 12% since the economy soured. During this same time frame, what they term as "worker pay" is up approximately 5%. Please don't take this as a defense for CEO's; it's not. However, it a fact that should also be considered.

Their nine points and my comments follow:

1) Adopt an accounting standard that requires that stock options be expensed. Hopefully, those who have read maniati's and my posts on this topic see this is wholly illogical. They are expensed to the shareholder under the current system. The real crux of this argument, judging by the legislation on the floor of both Houses, is to blackmail corporations to end the tax deductibility of option expenses. It is a stupid suggestion and there are many other ways to accomplish the goals those in support of a change say they support.

2) Toughen tax laws to where a corporation can only deduct the amount of an executive pay package up to the limit that it is 25 times that of the lowest paid employee in the corporation. Let's see, that means any corporation that hires a minimum wage worker can only deduct CEO pay up to $128.75 per hour. This equates to $265,740 per year. At a time where professional athletes make over 50 times this amount (over 1,250 times minimum wage) this is even dumber than their first idea.

3) Ban executive perks such as use of corporate aircraft for leisure travel and payment of country club fees. I'm with them on this issue, but I feel their suggestion is not well thought out. Simply tax the executive on these matters and include the implied pay in their pay package. In other words, show regular income equal to what it would cost to charter a private jet or belong to a country club. Further, have the board vote on the total limit for "luxury compensation" through the use of corporate sponsored resources.

4) Write, in plain English, disclosures about executive pay in official corporate filings. To the extent of what is currently considered executive pay (including stock options) most companies do. BKA is one notable exception. I'm all for this being a law, but don't look for Warren Buffett, the self proclaimed champion of the little guy, to support this one or he would already do as many voluntarily do today.

5) Get shareholder approval for executive severance packages to the extent it is better than similar packages for other employees. I'm with them in spirit on this one, but I think if the boards were cleaned up and we just required a unanimous vote on executive pay it would be logistically easier. I also think the other employees statement needs to be refined.

6) Require executives to make disclosures before selling any of their company stock. Finally, a point of total agreement. Obviously, "before" needs to be defined, but the spirit is there.

7) Broaden corporate boards beyond requiring that a majority of board members have no direct financial interest in the company and require more members not be fellow CEO's. Well, they're back to stupid. I know what they're trying to fix, but they're going about it in the wrong way. I want to change board compensation to where the ONLY pay, beyond reasonable expense reimbursement, is in stock options. I want the board to live and die with the company. I also don't want to limit the field of selection. However, I also want to broaden the field from which the stockholder can select. I feel any stockholder who can get the signatures of 1% of the shares should be able to nominate a board member to be listed on the proxy. I also feel that two board members should be elected by only "retail shareholders" (institutional votes are not counted). Institutions vote with the executive staff. This is because this staff gives them access and decides who will get investment banking deals. This is a clear conflict of interest. Most majority of most large companies are owned by institutions and this places all the power in the hands of a very few. It's not just the executive connection to the board that is a concern it is the indirect institutional connection that also needs to be fixed.

8) Require mutual funds and pension plans to tell shareholders how they vote on proxies. I'm with them on this one.

9) Federalize corporate charters. Most are chartered in Delaware for several reasons. The most important reason for large corporations is that Delaware law is the most generous when it comes to issues of executive and board liability. We need one Federal statute on officer and director liability.

Regards, pmcw

Post  41057  by  Culmus       Reply
Test, eom.

Post  41058  by  clo       Reply
pmcw, CEO's Vs employee's: have you read this info?

Regards, clo

Press Release
Embargoed for Release until 12:01 a.m., August 26, 2002
Contact: Betsy Leondar-Wright
(617) 423-2148 x13Labor Day Report: CEOs Who Cook the Books Earn More

Accounting Scandals Hurt Workers, Shareholders, TaxpayersDownload Executive Excess 2002 (PDF, 748K)

Embargoed for Release until 12:01 a.m., August 26, 2002
CEOs of companies under investigation for accounting irregularities earned 70% more from 1999 to 2001 than the average CEO at large companies, according to a new report, "Executive Excess 2002: CEOs Cook the Books, Skewer the Rest of Us."The CEOs of 23 large companies under investigation earned an average of $62 million from 1999 to 2001, compared with an average of $36 million for all CEOs in the annual Business Week executive pay survey.

The report looked at companies which are under investigation by the SEC, Department of Justice, and other agencies and which have had market capitalizations over $1 billion sometime since January 2001: Adelphia, AOL Time Warner, Bristol Myers Squibb, CMS Energy, Duke Energy, Dynegy, El Paso, Enron, Global Crossing, Halliburton, Hanover Compressor, Homestore, Kmart, Lucent Technologies, Mirant, Network Associates, Peregrine Systems, PNC Financial Services, Reliant Energy, Qwest, Tyco, WorldCom, and Xerox.Collectively, the CEOs at firms under investigation pocketed $1.4 billion from 1999 to 2001.

While these executives are cushioned by the vast wealth they have accumulated, their shareholders and employees are dealing with massive losses. Between January 1, 2000, and July 21, 2002, the value of shares at these firms plunged by $530 billion, about 73 percent of their total value.Employees of the 23 companies have suffered a total of 162,000 layoffs since January 2001. Tyco, for example, has laid off 18,400 workers in that time. The company paid CEO Dennis Kozlowski $331 million from 1999 to 2001 and gave him over $135 million for luxury living. Kozlowski has since resigned in disgrace.

Taxpayers shoulder the burden when corporations show different books to shareholders and the government. A recent IRS study shows that hocus-pocus accounting techniques allowed companies to report profits to shareholders that were 24% higher than the profits reported to the IRS.
Profits reported to shareholders rose from $753 billion in 1996 to $817 billion in 1998, while corporate profits reported to the government declined over the same period from $660 billion to $658 billion.
Stock option accounting explains a major portion of this discrepancy, especially in the high tech sector. Merrill Lynch estimated that if stock options were treated as expenses, earnings for the S&P 500 would have been 21% lower in 2001 and an estimated 10% lower in 2002.
When Congress reconvenes after Labor Day, legislation to require the same option accounting for shareholders and the government will be debated. High-tech companies lobbying to preserve the status quo on stock options have a great deal to lose. TechNet, a high-powered group of high tech executives, is leading the lobbying effort.
If the companies run by TechNet Executive Board members had been forced to expense options in 2001, their reported earnings per share would have declined between 14 percent and 100 percent.
CEO pay remains stubbornly high, despite a slight drop in CEO pay from 2000 to 2001. The CEO-worker pay gap of 411-to-1 is nearly ten times as high as the 1982 ratio of 42-to-1.
Worker pay is again stagnating:
the Commerce Department reports lower wages and salaries in August 2002 than in December 2000. If worker pay had grown as fast as CEO pay since 1990, production workers would have averaged $101,156 in 2001 instead of $25,467.
If the minimum wage had grown as fast as CEO pay, it would have been $21.41 an hour in 2001 instead of $5.15.

The explosion of corporate scandals has helped stoke a growing backlash against excessive executive compensation. The report offers a 9-course menu of remedies, including expensing options, ending taxpayer subsidies for excessive pay, banning special perks to executives, and improving transparency and corporate accountability.The report, authored by Scott Klinger, Sarah Anderson, Chris Hartman, John Cavanagh and Holly Sklar, is the ninth annual CEO pay study by the Institute for Policy Studies and United for a Fair Economy.The Institute for Policy Studies is an independent center for progressive research and education in Washington, DC. United for a Fair Economy is a national organization based in Boston that spotlights growing economic inequality.

Post  41059  by  Arkural       Reply
Hlit-crossed 3.44 by a whisker, against the indices.

Post  41060  by  pmcw       Reply
clo, I had not read that particular article before. It is just one of many making broad and general statements. However, I wouldn't be surprised if the CEO's of the companies under investigation were paid more than CEO's in general of peer companies. Why? Easy, if they are corrupt in one fashion, they are probably lacking conscience in others.

The article loses credibility when it states the following:

"Profits reported to shareholders rose from $753 billion in 1996 to $817 billion in 1998, while corporate profits reported to the government declined over the same period from $660 billion to $658 billion."

Options are an expense at the corporate level when reporting taxes and an expense at the shareholder level when reporting earnings to the shareholder. In other words, what was the difference in percentage numbers to the shareholder and in percentage numbers to the corporation? If compared as they do it is clearly apples to oranges.

clo, why don't you get out a paper and pen and just work through the math on this. It is really very clear. I'll be glad to work through any equation you can find from any person who has a real proposal as to how to expense stock options. Work through the above example and assume that the total shares expanded by 8.6% and tell me options aren't already expensed with perfect clarity (except in cases where diluted shares aren't shown when a company is losing money which is a case I've mentioned needs work). This expensing, as they like to call it, does nothing to curb abuse by executives. This latter issue is what irks me and I feel I've outlined some very easy proposals as to how to fix this problem. Some in previous posts and some in my last. BTW, what do you think about the nine points I outlined in my previous post.

Regards, pmcw

Post  41061  by  lkorrow       Reply
pmcw, wouldn't the value of a rate cut, on the order of .75 to 1, be in the refinancing of personal and corporate debt at a lower rate, since it increases free cash flow for purchases, saving, and faster debt reduction? It seems like critics are missing that point as they focus on lending, unless I'm missing something.

Post  41062  by  lkorrow       Reply
Briguy, I believe what you've expressed on oil is a real risk. I saw on TV or read somewhere that the Saudi's agreed to maintain oil flow to the U. S. if we go into Iraq. That, at least, is a good thing. For today.

Post  41063  by  clo       Reply
pmcw, CEO's Vs employees & your 9 points.

First let me say I punched "Institute of Policy Studies and United for a Fair Economy" into my search to find see the stats you used. That is where I found the info I posted.
But I didn't find your stats. Maybe you could help me & post the site?

#1 "stock options?"
I'm not firm on this issue, yet. I will give maniati & you the benefit of my doubt. Maniati has a MUCH better grasp on this than me & I know you have put time into this study ;))
#2 "toughen tax laws for corps."
If a corp can afford exorbitant salaries for CEO's they can absorb their taxes as part of the package.
#3 Ban executive perks:
"have the board vote on the total limit for "luxury compensation" through the use of corporate sponsored resources.",/em>
I like this one pmcw. Set a limit and let them live within it.
#4 "Write, in plain English, disclosures about executive pay in official corporate filings.",/em>
I'm in favor of this one also.
#5"Get shareholder approval for executive severance packages to the extent it is better than similar packages for other employees."
I'm in favor of this one also.
#6 "Require executives to make disclosures before selling any of their company stock."
I would add, let us know in realtime when they sell.
#7"I want to change board compensation to where the ONLY pay, beyond reasonable expense reimbursement, is in stock options."
This is where they could pump the stock to improve the options.
But I see your point.
#8 "Require mutual funds and pension plans to tell shareholders how they vote on proxies. I'm with them on this one."
Me too!
#9"Federalize corporate charters. Most are chartered in Delaware for several reasons. The most important reason for large corporations is that Delaware law is the most generous when it comes to issues of executive and board liability. We need one Federal statute on officer and director liability."
Wouldn't this step on State autonomy?

As you see, I agree with most of your points ;))
Regards, clo

Post  41064  by  pmcw       Reply
lk, I guess you could say your just not seeing the whole picture. However, from your view, your statements do make sense.

A cut of that magnitude would be very dangerous from many respects. Right now we simply need to see the natural ingredients of the economy (supply and demand) take their toll in regards to interest rates. The real price for credit is still dropping even though the Fed didn't make a cut. This is good and a sign that increased aggregate savings in M3 is working.

Beyond this, the thing we need to see now, outside natural market forces, is action that increases demand (supply it there). This can only be accomplished (hurried) by legislative actions to provide a stimulus package that targets capital investment. I feel it is crucial that this is "hurried" so that the stability we've seen thus far don't slip away.

What the Fed has done is essentially prop up industries that produce durable goods and they have made it cheaper for corporations to continue operations. If the economy moves forward, as it could if cap/ex spending increases, we'll see not only increased capital investment, but also consumer spending increases in non-durable goods. Only when we see solid improvement in these two categories will it be a clear sign that we are moving away from recession.

Regards, pmcw

Post  41065  by  pmcw       Reply
clo, I pulled the points from my local newspaper so I don't have a site. However, I did represent the comments with great care for accuracy.

The point on limiting the deductibility of CEO pay to around $250K a year I don't see as realistic. The current cap is $1M. I have no problem with a CEO who commonly has to work 80+ hours a week making 10% or less than a baseball player. Watching a good one at work is no less enjoyable - at least for me.

Now, here's one for you to chew on. The largest tax subsidy on the books benefits the entertainment and advertising industries. (Entertainment is paid for with advertising dollars.) I say cap the deductible expense for advertising at $1M per company (I would even go to $100K). This would automatically cap how much a sit-com actor, ball player, etc., etc. makes. We are subsidizing these folks making $10's of millions. Think about this the next time you see an expensive Bud commercial.

In regards to the point on state autonomy, I understand and respect this issue. However, a public corporation is a national entity more than a state entity. Therefore I suggest that all public corporations we chartered by the Fed.

BTW, what did you think of my proposal that two board members be elected only by non-institutional owners and that certain things required a unanimous board vote?

Regards, pmcw

Post  41066  by  lkorrow       Reply
Thanks, pmcw, good food for thought. Why do you say consumer spending in non-durable goods is important, vs durable?

Post  41067  by  lkorrow       Reply
MSNBC Breaking News

New home sales soar

New U.S. home sales leap by 6.7 percent in July to the highest monthly level on record.

Post  41068  by  lkorrow       Reply
"AOL Time Warner's executives came to a realization this summer: The only way to persuade AT&T and Comcast to distribute the cyberspace service over their cable lines was to package America Online as if it were a premium movie channel."

Full story:

Post  41069  by  wilful10       OT: ocd - That configuration of the interior

Post  41070  by  clo       Reply
pmcw: 9 points, extra:

I apologize for the mess I made of my previous post! While trying to map it out clearly, I made it a blurrrr... Not enough sleep ;(

"Think about this the next time you see an expensive Bud commercial."
pmcw, I am visualizing Super Bowl without the gala ad campaign! haha, usually the most entertaining part of the night!
You know the best games are the ones leading up to the SB.

"In regards to the point on state autonomy, I understand and respect this issue. However, a public corporation is a national entity more than a state entity. Therefore I suggest that all public corporations we chartered by the Fed."

This would also make corporations in Bermuda a larger issue/problem.
I would need to see how they would propose this before committing my opinion.
IMO, the corporations that have been based out of the states should be allowed to continue.
Now, if they want to change the rules, let them apply to those "New Corps." That would be the only fair way, IMO.

"BTW, what did you think of my proposal that two board members be elected only by non-institutional owners and that certain things required a unanimous board vote? "

I'm mixed with this one pmcw. The boards should be based on their abilities to govern. I don't like hamstringing them. But I see your point with merit & should be considered.

Regards, clo

Post  41071  by  pmcw       Reply
Several reasons:

1) As the name implies, durable goods are durable - they last a while after they are bought. This means they are bought in cycles.

2) Durable goods represents a sector (actually several) of our economy. Non-durable goods represents another (again, actually several when it is sliced up). All sectors must be firing, just like cylinders in an engine, for the economy to run well.

3) Non-durable spending signals that people feel secure. The top end of this spending indicates that people are spending discretionary money with greater abandon.

4) When working out of a recession (much due to points mentioned above) seeing a traditional ratio between durable and non-durable goods is a sign that recovery is on the horizon.

Regards, pmcw

PS: Please note that all three spending trends are important. My point is that the ratio today favors durable and that cap/ex and non-durable are important indicators too. Durable keeps a sector working and spending, cap/ex brings in another sector and feeds into non-durable spending which, in turn, brings in the third sector. Once all three are hitting we work our way through an up cycle until something breaks and then we start all over again.

Post  41072  by  Briguy       Reply
pmcw, the M3 (or is it the M2?)- the nations money supply has been growing at over 8 percent this year. This means more money to borrow- just like you said. However, I'm still confused at what you are saying. Are you saying because the money supply is increasing at a fast clip that it is a bad idea to lower rates?

Post  41073  by  Arkural       Reply
Re: Quicken customers will need to perform one of the actions listed below before August 26, 2002. Intuit will be updating thÿ

Post  41074  by  Arkural       Reply
Re: Quicken customers will need to perform one of the actions listed below before August 26, 2002. Intuit will be updating the certificate on its branding server, and you may receive an error message (OL-202, OL-248, OL-249, or OL-297) and may not be able to connect to initiate transaction downloads with Quicken.

Quicken Windows Users -- One Step Update
1) Choose "One Step Update" from the Quicken "Finance" menu ("Online" menu in Quicken 99).
2) Remove all the checkmarks and then click "Update Now".
3) Important! At the completion of the One Step Update process, exit and then restart Quicken.

If this update does not allow you to download your transactions, refer to the instructions for Quicken 2001 on Windows XP users.

Quicken for Macintosh Users
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Post  41075  by  Arkural       Reply
Lu, hmmmm trailing up some. eom

Post  41076  by  maniati       Reply
Ark: HLIT: That was a truly nice piece of work!! Hope you don't mind, but I piggy-backed on your instincts (based on your post last week), and set a sell target that captured most of that gain. This was even better than my MCIT play a while back. Again, kudos, kudos, kudos. :-)

Post  41077  by  Culmus       Reply
pmcw, re CEO pay

I can't help but get the impression that you are a little biased pro CEOs with you selective information releases. You are referring to a one year event of dropping CEO pay of about 20% when the long run picture looks like this:

Then I think if corporate profits only had fallen by 12% (by which measure? what source?) since the economy soured then the stock market would not be in such a mess. According to Standard & Poor's, S&P 500 corporate earnings last year were down 31% and we are talking about listed companies since we are talking stock options as well, right?

From the study's findings:

2. Book Cookers Burn Shareholders

Collectively, the CEOs at firms under investigation pocketed $1.4 billion in the past three years. While these executives are cushioned by the vast wealth they have accumulated, their shareholders are dealing with massive losses. Between January 1, 2001 and July 31, 2002, the value of shares at these firms plunged by $530 billion, about 73 percent of their total value.

I take it then that you think it was perfectly right for them to pocket that amount of money even though they did a lousy job?

Some comments about your comments:

1) If I understood him correctly, maniati objected to the expensing of options simply based on formal grounds not because he thought they weren't an expense in strict terms. As you yourself stated, stock options are expensed to shareholders, where is the logic for this? These people work for the company, why should the shareholder pay the salaries? Again, and I would be interested in maniati's opinion about this, there is no double expensing of options at present. This is because there are two elements to option grants: a.) The employee pays the strike price to the company and gets deeply discounted shares in return. The resulting dilution therefore is not part of the expense to the company since it gets money in return, and be it only peanuts. Something the employee pays for cannot be part of compensation, if that is not clear I can't help any further. b.) Compensation is only the difference between the strike price of the option and the market value of the share. Here I can follow maniati's arguments and this problem needs to be fixed. Shifting the expense of a benefit to employees in return for their work over to the shareholder can't be the solution and it can't be right IMO. There also can be no question that this practice shows corporate profits higher than they actually are, since it takes out cost from the P & L that normally should be there (in one form or another).

It also confuses me that companies are happy to deduct the taxes on stock options which in and of itself is an acknowledgement that they have to do with their business but refuse to expense the options themselves. This simply doesn't fit.

2) No comment.

3)There can only be one limit to "luxury compensation", zero. They are overpaid enough, if they want luxury they can easily afford it with their outrageous pay packages. Why in the world should there be any corporate sponsored luxury? What about this family of crooks that had a golf court built with corporate money (for $ 23 million!!!)? Just tax them? Abuse can only be stopped if it is punished (with jail time), not taxed.

4) Please point me to some companies that fully disclose executive pay!

5) There is no basis for Golden Handshakes for failed executives, none at all.

6) Agreed.

7) Admittedly this is a difficult point. On one hand you want experience and industry knowledge on the board which these CEOs usually have, on the other hand it is unrealistic to expect them to cut down on excessive executive pay because it would come back and hurt themselves. Compensation by options only would again be the perfect incentive to cook the books if they want to be sure to make some money, I'm not so sure about that point.

8) and 9) Agreed.

The full document for those interested:



Post  41078  by  pmcw       Bri, Not at all. I think the point is that the Fe

Post  41079  by  Arkural       Reply
maniati-you brightened my day! :0) I'm working on another tgt update.

Post  41080  by  wilful10       Reply
pmcw - Was this suggestion

[I say cap the deductible expense for advertising at $1M per company (I would even go to $100K). This would automatically cap how much a sit-com actor, ball player, etc., etc. makes.]

a "throw out", off-hand kinda proposal - or, were you serious?


P.S. An answer here can give your brain some coasting time, as you are working on your response to Culmus's latest. ;-)

Post  41081  by  lkorrow       Reply
Thanks pmcw, I thought durable goods should be included. Hopefully all three trends keep on trucking uphill!

Briguy, I found the reference to oil I mentioned earlier, hopefully oil stabilizes lower (p. s. gold and HLIT, wow!):

Saudis set to fill oil gap

Report says while OPEC won't up output, Saudis will fill gap caused by any U.S. war with Iraq.

August 26, 2002: 6:25 AM EDT

NEW YORK (CNN/Money) - A published report says that while OPEC is not likely to formally raise production at its Sept. 19 meeting, that key members including Saudi Arabia are promising to fill in any shortfall in oil due to any possible fighting in Iraq.

The Wall Street Journal reported Monday that Saudi officials have sought to reassure the markets and U.S. officials that they have enough spare capacity and intend to step in and replace the flow of oil from Iraq is interrupted. Saudi ambassador Prince Bandar bin Sultan is set to meet President Bush at his Texas ranch Tuesday.

Concerns about possible U.S. action in Iraq have helped drive up the price of oil this summer. A barrel of light crude for October delivery closed at $28.63 in trading Friday, although that's down from the 18-month high it hit earlier in the week when it crossed the benchmark $30 a barrel level. If the Journal quoted economists who worried that if price were to stay above a $30 level, it would increase the risk of another recession in the U.S. economy.

The paper said that OPEC is signaling it is unwilling to increase production due to fears it could lead to sharply lower prices, but that it felt that concerns about war with Iraq, not market fundamentals, are responsible for the current price level.

In other oil news, five large oil companies agreed to help develop Venezuela's natural gas reserves, the clearest sign yet that the leftist government of President Hugo Chavez is interested in greater foreign investment.

The Journal said that the agreements with Britain's BP PLC and BG Group PLC, US-based ChevronTexaco Corp., Norway's Statoil ASA and France's TotalFinaELF SA are expected to bring $4 billion in investment in the next six years. ExxonMobil is considering bidding for one remaining blocks of offshore land that is most difficult to develop, the Journal reported.

Post  41082  by  pmcw       Reply
Culmus, I'm in absolutely no way pro-ceo. I'm pro-capitalism, pro-freedom and pro-pay for work rendered. I feel strongly that many CEO's efforts and rewards deserve more than the proposed cap of $267.8K. Do you see that as a fair cap?

The survey that I mentioned also provided a graph of CEO pay, worker pay, corporate earnings (they never said it was public companies), the S&P500 and inflation. Take up your rant with them.

I've posted many times about taking away the P&L equation from corporate crime. I've clearly suggested a new law called "bunking with bubba". This needs to be a profit and freedom equation that leaves little room for temptation. So I don't see the validity of arguing that point with me.

Stock options. I'm amazed you've not taken pen and paper to see you are dead wrong on this issue. Shareholders pay everyone in the corporation - we own the corporation so we pay all salaries and benefits including stock options. On the top line they are expensed when taxes are filed and on the bottom line when profits are "distributed" they are expensed through dilution. They are not now double expensed, but if evidently if you have your way they would be. Not only would a company like CSCO show no profits neither would LLTC. Do you begrudge Bob, Clive, Dobbi and the rest of the crew the millions they've made? I don't.

Again, on stock options. When they are issued they are issued at either the current market price or higher. Do you understand - they can't just pick a price!

In America we have what is called Section 139 in our tax code. This allows for all employees to have some tax favored perks. When we're talking about the corporate jet flying executives on vacation we're not talking about LLTC or the typical silicon valley company. We're talking about the GE's of the world. Some have justifications for owning such jets some don't. All I say is that the executive package awarded by the board should include limits. I didn't say what they should be, just that there should be limits and that the value of using corporate stuff should be taxed (included in pay) at retail. OK, you think the limits should be zero. That's your opinion. I think there's room for negotiation.

Executive pay in the 10K. I just received my COMS 10K and it is on page 10. In my previous post I listed others.

Golden handshakes. There is always a negotiation when an executive joins a company and part of it is a severance package. This is how hiring is done. I think the suggestion I made about board composition and compensation requiring unanimous vote covers the issue.

Cooking the books by directors. I want my management team compensated based on performance. Evidently, due to the tone with which you started your post, you agree. Compensate on results and throw them in jail if they break the law.

To respond to clo on her tax haven issue. Simply change the tax laws so real US companies are not penalized for foreign sales and the motive to pay off a third world theme park is eliminated. Then we can Federalize charters.

Regards, pmcw

Post  41083  by  pmcw       Reply
wil, I know the logic is somewhat circular (the actor, ball player, etc. pays tax), but I feel the tax code encourages in inefficient distribution of wealth. Therefore I am in favor of limiting the amount a company can deduct for advertising. Of course, if we do away with corporate taxes all together, another consideration worth evaluating, the point is moot.

Regards, pmcw

Post  41084  by  jeffbas       Reply
sr, as pmcw noted some links did not open. What is "R" in P/R?

Post  41085  by  wilful10       Reply
ikorrow - Keep posting your warnings

about the deteriorating condition of our water supplies.

Being one who has spent much time in, and presently lives on the edge of - a desert - I know whereof you speak, and appreciate your efforts.

Perhaps a climate change shall occur and the ensuing decades of rainfall shall replenish the aquifers thruout the U.S. No question that God and Nature do move in mysterious ways, but none of our weather experts are backing such a change.

Whenever crude bumps around 30,, the dribbling of salivation from the ethanol advocates does little to replenish the diminished water tables,,, but their politician endorsed practice does gain support and usually garners them more federal favours and public acceptance - while ultimately, only serving to further deplete our precious resource.


btw - It's the Ogallala Aquifer. With an "O". :-)

Post  41086  by  jeffbas       Reply
lkorrow, I agree. (That was exactly my earlier point about the price of a house really being the monthly payment, very importantly affected by the interest rate.)

Post  41087  by  lkorrow       Reply
Culmus, also from the site you posted:


CIA Cites Inequality, Crumbling Infrastructure as Key U.S. Economic Problems

"Since 1975, practically all the gains in household income have gone to the top 20% of households . . . Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical costs of an aging population, sizable trade deficits, and stagnation of family income in the lower economic groups."

– 2001 CIA World Factbook Profile for the U.S.

Post  41088  by  lkorrow       Reply
Thanks, wilful, for the spelling slip too. A copy of my email to the author (includes an interesting link):

Great story. The debate on ethanol has not been going on long enough! Few people understand the severity of the water situation in the U. S. In a nutshell, the aquifers beneath the wheat belt and that below the farmlands of California are drying up at an alarming rate. National Geographic's current issue has a spread on the water woes of our planet and gives mention to the fact that 1/3 of the water below our Texas farmlands has all but dried up. This is a telling measure, it is the periphery of the aquifer. We
can not afford to waste water growing corn for fuel. Or for tobacco. Or, for that matter, George Bush's pressuring foreign nations to buy our food is ill advised.

At current rates, with no population growth, the aquifer will be drained in 40 years or so, if I remember correctly. Those numbers are old, there may be new estimates. Meanwhile, the aquifer under Long Island is suffering from
chemical and nuclear (Brookhaven Labs, possible covered up cause of breast cancer there too) intrusions as well as saltwater infusions on the North shore (this is rather alarming, since the water level on the north shore is
much deeper than the south; again, the periphery drying up). Even so, some have proposed a water pipeline from LI to the "mainland" to supply other states!

Clearly, we can not afford ethanol and other misuses of our water supply. Thus far, there has been no progress on reducing the water requirements of our crops and one wonders if there has been any work going on with genetically engineered crops that use little or no groundwater.

According to the attached, the rate of decline of the Ogallala aquifer is 1.9 million acres per year. It is pure folly to abuse water use unless there is some plan to replenish the aquifers.
This thought does make me wonder if there's a way to insert a pipeline into the earth to do so from some desalinization plant!

I hope you will press on with this key issue to a sustainable and healthy future. It seems to have gone virtually unreported. Some things are sacred, fresh water is one! I think you'll agree there are many dimensions to this story, including the spurring of new and expensive industries to supply us with fresh water in the not too distant future.

Post  41089  by  pacemakernj       OT: Linda, never. But, imo, it's all about who con
Post  41090  by  oldCADuser       OT: To bring a smile to our faces:

Post  41091  by  pacemakernj       Reply
Linda, good or bad inflation? The bad deflation is what we are experiencing in the manufacturing sector now. Too much capacity (supply) chasing too little demand. Believe me AG WANTS some inflation now. Inspite of massive monetary stimulus we are seeing year over year price declines. This is not good. It forces everyone to seek the lowest cost wages in the world. As wages account for 2/3 of overall costs. This is why so many companies are rushing to open plants in China. At .35/hr who can compete with that. Good deflation caused by rising productivity can be beneficial to the consumer only. For example, when was the last time you paid sticker price for any piece of clothing? Ultimately, deflation is much harder to cure than inflation which is why AG is far more concerned about it. That's why it made no sense to me that he did not drop rates last month. We have to get to negative real rates, imo. The sooner the better. I just do not see GDP coming anywhere near the 3% target for this quarter. JMO. Pace

Post  41092  by  Arkural       Reply
Hype-hip-hop, Barton Biggs was on Cnbc today, did you know that? You say so what! Hey.....
I say, why do you, Cnbc/Ge want to keep putting this fence straddler on t.v.? You evidently feel his opinion is worth something valuable otherwise you would not have him on, correct? I just question, valuable to whom??? Alright don't answer that. Let me just tell you Cnbc, this nut you value, has a track record running right along side these other jokers....if you bought in when they said to, following their lead, over the previous 12 or 18 months, you lost!!! But somehow I get the feeling they won, I wonder why I have those feelings? It's too bad the wee folk do not see this unwavering dis-credibility. Tell you what, before you put these hi-drama (not to be confused with High-Lamas) idiots on t.v. WHY don't you print their track records, for all the public viewers? C'mon, honey, grease the other wheel and post their 'calls'. . .and while you're at it, have them fess up to the calls they made, if they can keep from bamblin' like a loose banjo string under water!

Besides, over the weekend I just finished reading a 10pg transcription (aug2 ,02) from an MS pump and dump gathering to its shareholders and this clown was spouting off dumb stuff there too. Ya know they are all very bullish the mkt and felt it was 20% under valued......funny that we've made that up just recently, eh.

Post  41093  by  Arkural       Reply
error-Aug 7, 02. eom

Post  41094  by  pmcw       Reply
Lucent chairman bought 1 mln shares - SEC filing

Money and mouth in sync!

WASHINGTON, Aug 26 (Reuters) - Lucent Technologies Inc. (NYSE:LU - News) Chairman Henry Schacht bought 1 million shares of stock in the telecommunications equipment maker earlier this month, a Securities and Exchange Commission filing on Monday showed.

A separate SEC filing showed that the husband of Lucent Chief Executive Patricia Russo bought 350,000 shares for $1.42 and $1.43 a share.

Schacht bought the shares for $1.43 apiece, according to the SEC filing.

Each bought the shares in "open market" purchases on Aug.16, the filings showed.

Post  41095  by  SkippyWalker       Reply
pmcw - lsi
I remember you liked Ccube as a stand alone company, but LSI didn't make your short list of preferred stocks. Does something in LSI diminish your enthusiasm for CUBE? LSI is up in Aug with the rest of the general trend and may have lost some of its attractiveness now. Even following Q2 announcement in late July it was 6 and change then and is now 8 and change. TIA

Post  41096  by  pmcw       Reply
Hi Skippy, In markets like we face today, I think it's best to narrow one's focus. I picked the companies by the following criteria:

1) They would do well even if the economy turns back down.

2) I knew the companies VERY well

3) They have generally simple business models and controllable fixed costs.

I did round up my LSI holdings because I had an odd number of shares after the CUBE acquisition, but that didn't take much dry powder. I do like LSI's position in consumer and set-top technologies. However, their position in storage is somewhat tenuous. They also have pretty high fixed costs of operation and they're much harder to get my arms around than my focus list.

This aside, it is worth while to note Wilf Corrigan (CEO and Chairman) bought 100K shares in the open market at a much higher cost than my "round up".

Bottom Line: I feel good about LSI and many other semi / tech stocks I follow. However, with limited resources (resources are always limited) in a very uncertain market, my goals dictated that the best strategy for me was to look for my favorite three. So far, it has proven to be a very profitable strategy.

Regards, pmcw

Post  41097  by  Arkural       Reply
maniati-Hlit-Try again?, tgt 3.54/.63. But lack the confidence of my previuous Hlit call right now, so, fwiw.
The stk appears to be topping out some as I see it, but then again this is Hlit and anyone who knows this stk from it's historical track record of recent yrs, knows it can be very volatile, heck, the stk could go to 3.72 or even 4.94 in a flash. So far, no, sell-the-news, that's a pt. in its favour.
So, who knows........?...........maybe your hair dresser.

Post  41098  by  tinljhtkh       OT: Where I live,

Post  41099  by  pmcw       Reply
Mind if I join the HLIT high five party? I still have four buys that I made under $2, four under $3 (all IRA buys) and three more under $4. I did sell one very early for a double, but I'm, as it stands today, holding the rest at least until my next lowest buy triples at $4.05. Regards, pmcw

Post  41100  by  tinljhtkh       OT: Sorry about the spelling errors in that post!

Post  41101  by  SkippyWalker       Reply
thx pmcw
dry powder and strategy: interesting concept.
another HLIT satisfied investor here too.

Post  41102  by  tinljhtkh       Reply
I've been thinking

about what I could do to remember those who died on September 11th by sacrificing something that I enjoy doing in their honor! I remember Doonesbury and its creator Gary Trudeau locking up Duke for the duration of the hostage crisis in 1980, making him another hostage in addition those who were captive in their honor!

I will not post again until September 11th in respect for the silence that comes from ground zero!


Post  41103  by  Arkural       Reply
pmcw-:-), hee haw....eom.

Post  41104  by  Arkural       Reply
Lu-hmmmm, guesss Lu~cy likes to two-step, as in the 2.12 sort. Prove it Lu~ cy, prove it. We're waiting....

Post  41105  by  Culmus       Reply
Of course CEOs doing an outstanding job should be able to make much more than 268K, I have no problem with multi million pay packages for achievers. I take issue with that kind of pay package also for losers and at the time of hiring them you simply don't know yet. To the contrary, you think they are outstanding business managers otherwise you wouldn't put them in the driver's seat, right? Then they fail, lose a lot of (corporate) money AND cause large losses to the company's shareholders. That they should not be rewarded for with outsized severance packages IMVHO!

There appears little hope we ever reach at a finite conclusion about this. By the look of things the options issue requires a return to absolute basics:

Shareholders do not pay everyone in the corporation, the company does. The company is not the shareholders, these are two different legal entities. The shareholder owns a stake in the company but s/he is not the company. Ideally the company was set up by shareholders putting money in and then lives on its own, earning the profits that are needed to grow the business, and pay wages and salaries. Sometimes there is a secondary issue necessary (and sometimes several, which means you put money in a hole).

You are right, shareholders own the company, but they do not pay the wages and salaries. If I had to pay the wages and salaries of the employees of the company I own a stake in why should I want to own a stake at all? The intent of owning a stake in a company is to see the value of that stake increase as the (profitable) company re-invests retained earnings and the subsequent increase in future earnings power leads to an increase of the value of the stake I own. Then it is my choice to either keep holding that stake or else sell it at a higher price if/when that increased earnings power has translated into a higher share price.

What do you think a non-listed company does? Calculate wages and salaries and send a bill to the owner of that company? I'm short on time but now it appears I have to go back to that basic post of maniati about the stock option issue which I wanted to respond to earlier (as my final thoughts on that topic):

I assume that is one of maniati's posts that you take as confirmation of your view.

With his uncanny ability to separate the noise from the issue maniati distinguished between the "positive" and "normative" aspects of the issue. The question is "how it is" and "how it should be".

How it is:

All companies cite the necessity to offer options to key employees as an incentive to stay with the company or prevent them from joining the competition, to motivate them etc... There is nothing wrong with that. We know that employees at LLTC are the most important asset of the company as the value of the product is in the programming and good programmers are scarce, they have to be kept with the company. The same goes with CSCO employees if you will. I don't want this to get down to a LLTC via CSCO argument, it isn't.

maniati continued to say that a stock option is not a business expense, it just isn't. In my last post I agreed to that as I said that the employee pays the strike price to the company and hence this (part of options) can't be an expense. More so, there are two types of expense, cash and non-cash expenses (such as depreciation for instance). Since stock options are neither (again strictly taken or in the "positive" sense mentioned by maniati) they can't be an expense.

Still under the heading of "how it is", what are stock options then? They are a mechanism for managers and employees to buy stock in the company at huge discounts.

I am in disagreement with maniati on stock options having no wealth effect on the business. Once exercized the options lead to money coming into the company (the strike price) so there is an increase in the absolute wealth of the business, usually very little as the stike price tends to be low, but an increase. The resulting dilution on the other hand leads to a decrease in the wealth per share which I interpret as the "cost" to the other shareholders.

I am in strong disagreement with the following satement by maniati:

pmcw is right when he says that expensing options is "double-counting" the effect of the option. The effect is counted once when the shares are diluted, and then it's counted again when the book value of the company is reduced by the amount of the options. These are not two separate issues, it is cause and effect of one and the same issue.

I repeat once more, the managers/employees pay the strike price just as any other shareholder would pay a price in a secondary offering and the resulting dilution is a necessary result as there are more shares outstanding now. There is nothing wrong with that dilution other than the company is giving away stock at firesale prices at the cost of the other shareholders. There is no "double-counting" of expenses as the increased number of outstanding shares is rightful as a result of that transaction.

But there is an additional economic advantage to these managers and employees that currently is not being expensed by the company. In the "positive" sense, again, there is no expense at all. There is undoubtedly an increase in the wealth of the managers and employees that comes from the decline of the value per share to the other shareholders. The transfer of company ownership from shareholders to employees that I mentioned before. The difference between the strike price and the market value is not being expensed by anyone, nonetheless it is a real value, just created out of air. The value is there but it is difficult to calculate because no one is laying out money for it, there is no bill for it. What it ultimately gives the managers/employees only becomes apparent after the option is exercized and the stock is sold. No one will deny that these are sizeable amounts at occasion.

So we agree that stock options are not an expense, neither in the "positive" sense nor in real terms.

What remains is the fact that these managers and employees are working for the company and the company has little "real" expense for that in the P & L. A lot less in expenses than the company would have if it had to pay these people cash, which undeniably would be a business expense. This in turn means that the profit is shown a lot higher than it otherwise would be. So, this way of doing business does not show the real profitability of the companies and this explains the desire of many (me included) to somehow account for the economic effect of stock options to reach at a true profit picture for these companies.

How it should be:

These managers and employees are working for the company and it is the company that should pay them, not shareholders. In effect shareholders are paying at the moment, this is not rightful and this is why something has to be done about it.

There is no basis for transferring ownership in the company to employees away from shareholders. Heck, we own the company, right? If they want to own part of their company they are welcome to buy stock in the open market just as anyone else. Not out of our pockets but out of their own pockets.

If pmcw is right (FYI, CSCO went public at a split adjusted 8 Cents, never traded below that and there are still options outstanding with a strike price of 1 Cent which someone has yet to explain to me, after all that is a discount of almost 90% to the lowest ever stock price) that strike prices in general are identical to or higher than the stock price at the date of grant then I still wonder how there can be a shift in corporate ownership to insiders to the tune of 10, 15 and 20% over a 10 or 20 year time frame. Something ought to be running incredibly in favor of insiders there, and against shareholders interests.

I will tell you what: It is the time period that these options are valid and the fact that they are repriced at lower strike prices anytime a stock tanks heavily. Insiders only have upside this way while ordinary shareholders are holding the bag.

Aside of that, how can the "expensing question" be solved? Since options are not an expense there appears to be no way to expense options. That means stock options to insiders do not have any "raison d'être" at all from an accounting standpoint as a form of compensation. That is why I earlier said I see room for class-action lawsuits, shareholders are being ripped off for nothing.

Still, there also appears to be no way around stock options. They are widely used and not offering options would lead to employee defections, unless all companies stop the practice.

That would make the employees of listed companies simple employees just as all others are as well, instead of prospective nouveau riches. And if some of them really do an outstanding job, ok, pay them a couple of millions in cash bonus as they deserve.

Voilà, the expense problem solved.



FYI, Executive PayWatch :-) Database:

Post  41106  by  wilful10       Reply
More on water, air, environment....

As I was doing a copy and paste for this piece - CNBC ran a commercial for "cleaner, better" ethanol!

Moving On From 'Sustainablity'

by James K. Glassman,
Reason Foundation Board Member

The aims of the World Summit on Sustainable Development are laudable. Cleaner air and water, better stewardship of global resources, the eradication of poverty and disease no one can argue with such objectives. The question is how to get there from here.

Let me offer a prescription for sustainable development that begins with a simple and powerful idea - an idea which, unfortunately, will often be at odds with what delegates, journalists and other observers hear in Johannesburg. The idea is that economic growth leads to levels of wealth and income that, in turn, inevitably produce societies that are cleaner, healthier and more stable and that use global resources more efficiently.

It is an idea that has been validated in academic studies and by centuries of history, an idea that is especially important at this time and in this place. Since developing nations will improve their environments as they grow richer, the major thrust of a global conferences like Johannesburg should be to help them grow richer not to place restrictions upon them (and on other countries) that will ultimately thwart their growth.

The idea of economic growth stands opposed to the idea of impending scarcity, a notion that is gaining currency again today, just as it did more than 200 years ago with the writings of the Rev. Thomas Malthus and 30 years ago with the success of The Club of Rome's book, "Limits to Growth." Malthusianism is a repudiated concept that will not die. It creeps on.

The latest manifestation is a pre-conference report by the World Wildife Fund which, in the words of British publication The Observer, "warns that the human race is plundering the planet at a pace that outstrips the capacity to support life." If current consumption levels continue, says the WWF report, two extra planets the size of Earth will be "required by the year 2050 as existing resources are exhausted."

This bit of sensational hokum is grounded in the theory that, as population grows, the natural resources of Earth will be exhausted and we will starve or be forced into other deprivations. In fact, the ways and means to sustain and enhance life are increasing, rather than decreasing, and the environment for the vast majority of people is getting better.

Why? "Human beings are not just more mouths to feed, but are productive and inventive minds that help find creative solutions to man's problems, thus leaving us better off in the long run." That's a quotation from the late Julian Simon, the University of Maryland economist who was the most articulate opponent of Malthusianism. In 1980, Simon made a famous $1,000 bet with scientist Paul Ehrlich that five resources (of Ehrlich's choosing) would be cheaper in 10 years - the best evidence that their supply had not declined. Simon won; each of the resource prices had declined, by an average of 40 percent.

Still, in many circles, pessimism reigns. We are told how humans are despoiling the planet and how global assets are severely limited. We hear how the human "footprint" is growing - an idea that neglects the effects of innovation, efficiency and productivity (or doing more with less, a principle of all productive societies). Gloomy views, unfortunately, will dominate Johannesburg and may prevent real progress on relieving poverty and improving the environment. While Matlhusianism is seductive, it is also ahistorical. It has been flat-out wrong.

Why are doom and gloom so seductive? My colleagues, Steven F. Hayward and Christopher DeMuth of the American Enterprise Institute, draw a disinction between two kinds of environmentalism - practical and romantic. It is the practical sort that has produced the environmental successes we enjoy today - specifically, cleaner air and water. But romantic environmentalism will almost certainly be the prevailing ethos at Johannesburg.

Hayward and DeMuth write, "Romantic environmentalism is a strong and uncompromising environmentalism that holds that environmental values should always or almost always trump other values, especially those associated with economic development and growth. The movement has strong roots in American intellectual and political history and many accomplishments to its credit (without John Muir the Yosemite Valley might today be known as the San Francisco Reservoir). Romantic environmentalism now consists largely in denying or confusing the realities of practical environmentalism. Its modus operandi is the dramatic claim of impending catastrophe and the moralistic attack on anyone who makes a compromise in the pursuit of environmental progress, [and it] prefers government bans and commands over markets and private property, and it demands centralized government and national or even global regulation rather than state and local regulation."

Today, some 300 years after the Enlightenment, the appeal of Romanticism remains powerful. It is undeniable and not completely unwelcome, but, if it dominates world conferences on environmentalism - as it has since Rio - the romantic impulse will crowd practical and ideas solutions out and, in the end, arrest progress.

The most practical of all practical environmental ideas is the one with which I began: that economic growth is the foundation stone on which a clean, healthy environment must be built.

This idea may sound unremarkable, but it is at the root of all attempts to improve the lot of people on the planet and to make the planet itself a better place to live. While they mean well, sweeping programs meant to preserve, conserve, freeze and even "sustain" global assets often have the opposite effect. Because they deter economic growth, such programs can actually make the Earth less clean and less healthy - and certainly less free of poverty. Virginia Postrel calls such an approach "stasis," and, unchecked, it will likely lead us back to the conditions described by the political philosopher Thomas Hobbes in the 17th century: a world where lives are "solitary, poor, nasty brutish and short." Dynamism - the result of policies that encourage economic growth - will literally and figuratively enrich the planet.

The danger at Johannesburg is a conference carried away by vague, romantic aspiration - without practical guiding principles to inform decision-making. Among the principles that need to be enshrined by such an important convocation are an unswerving belief in sound science and rationalism, a strict weighing of costs against benefits for any policy on the table and, finally, an understanding that the people of the world grow richer, they also grow healthier, live longer, can protect themselves against calamity more effectively and, almost certainly, find it easier to pursue the spiritual goals that make life satisfying and productive.

Let's apply this idea of economic growth to one of the most contentious environmental matters: the use of energy. I contend that cheap, abundant energy leads to a better environment.

There is a direct, close and logical correlation between economic prosperity and an improved environment. You can see this through simple observation: few, if any, rich countries have environments as poor as the poorest countries. The U.S., Canada, Australia, Europe and Japan have the cleanest environments; nations like Haiti, China and India have the worst. Thirteen of the 15 most polluted cities in the world are in developing Asia. Academic studies have found, not simply that wealth makes environmental health, but more specifically that pollution rises in poorer countries until their inhabitants acieve an average per-capita income of about $5,000. Then, pollution begins falling rapidly. If we plotted pollution vs. income on a graph, the resulting line would be called a Kuznets Curve, a bell-shaped curve. It makes sense for public policy to be directed toward getting nations over the $5,000 hump and onto the downslope of the this curve.

An important new paper in the Journal of Economic Perspectives called "Confronting the Environmental Kuznets Curve," by Susmita Dasgupta of the World Bank and three other researchers, demonstrates the link among economic growth, rising living standards and environmental health. And the distinguished climate scientist, Jack M. Hollander of the Lawrence Berkeley Laboratories, will elaborate on the theme in a book to be published in January, "The Real Environmental Crisis: Why Poverty, Not Affluence, Is the Environment's Number One Enemy" (University of California Press).

With prosperity comes a desire to improve one's air and water - and, in addition, a greater moral awareness of the dangers and evils of pollution. Think of clean air and water as goods that a society can purchase - but only after it has satisfied its basic needs for food, shelter and rudimentary income. It is unfair for developed countries to deny developing countries the tools with which to improve the lives of their citizens. Those tools sometimes pollute - temporarily. But pollution per unit of production drops sharply once citizens receive a comfortable income. Advances in recent years - thanks to technology, greater wealth and education - have produced spectacular reductions in air and water pollution in richer, and even in poorer, nations. For example, lead emissions have dropped 95 percent in the U.S. in the past two decades. New Delhi and Beijing today are less polluted than London in the 1930s and 1940s. SO2 and smoke levels in London today are below those in the 16th century. None of this should be surprising because of the link I noted at the outset: Poverty has been relieved more in the past 50 years than in the preceding 500.

In fact, economic growth is a relatively new phenomenon - only about 200 years old. Before the early 19th century, economists estimate that global growth was about two-tenths of one percent a year. In a typical span of 200 years before 1800, wealth barely doubled. But over the past 200 years, global growth has averaged about 2 percent annually, and wealth has risen about 60-fold. So far, economic growth has been inextricably tied to environmental progress. There is no reason to believe that this connection will not continue.

The essential element in economic growth has been energy. By themselves, individual humans generate very little energy - roughly the power to light a 100-watt bulb. But by using non-human sources of energy, the typical person in a developed nation has the power of 200 to 250 light bulbs at his or her disposal. By contrast, a resident of India can harness the power to light just 15 bulbs. Energy also has extreme leverage. A little of goes a long way. Energy consumption represents just 2 percent of Gross Domestic Product in a country like the United States, yet, without it, no modern economy could exist. The leverage works down as well as up. Restrict energy use, and you cripple economies - especially poor economies.

The source of nearly nine-tenths of the energy we use today is almost miraculous. It comes from the waste products of vegetable matter, decaying in the Earth over millions of years - that is, fossil fuels: coal, gas and oil. These fuels are surprisingly abundant and inexpensive. The inflation-adjusted price of gasoline has fallen by half over the past 20 years, and it is lower today than it was in 1973, when the modern era of OPEC-led price increases began.

But, then again, the prices of nearly all raw materials have fallen over the past century - in reproach to those who claimed that the Earth was "running out" of resources. When anything grows scarce, its price rises, but a commodity prce index, developed by The Economist magazine, has fallen 80 percent since it was launched in 1845.

Will we run out of copper or oil someday? Almost certainly - but that day is far into the future, long after we have replaced these resources through the natural process of innovation. The Stone Age did not end because we ran out of stones, and the Oil Age will not end because we run out of oil. It will end when some other source - wind, sun, nuclear energy - outperforms oil in its low price, efficient distribution, safety, or other factors that consumers desire.

We need to be honest and practical. In 2000, the world used about 400 quadrillion BTUs of energy. By 2020, that figure will grow to about 600 quads - an increase of 50 percent. Overall, in North America, Europe and industrialized Asia, the growth will be far lower - about 25 percent. But in developing Asia, Central and South America, Africa and the Mideast, it will be about 100 percent. It is wrong to deny countries like Bangladesh and Honduras the means to do what the U.S. and France have done - that is, to use energy to boost economic growth.

The bulk of the increase in energy use will occur in China and India, which will account for about one-quarter of all such use by 2020. These countries have no choice today. They can't erect tens of millions of windmills. They need to use fossil fuels now. Practical environmentalists understand these facts of life and see an obvious area of mitigation - transfers of clean-coal technology and other technical improvements that will make energy use more efficient and clean in the short term and that will also speed China and India toward the kind of wealth that will dramatically improve environmental health in the long term.

The Kyoto Protocol, which the U.S. Senate rejected even before it was signed in 1997 and which President Bush turned down as "fatally flawed" in March 2001, has become a fierce battleground for practical and romantic environmentalists. Kyoto proposed that, since a warming planet poses health and environmental risks and since there is evidence that human activity has contributed to warming, an international regime must reduce emissions of greenhouse gases, mainly carbon dioxide. At this stage in history, reducing CO2 means, very simply, reducing energy use. And reducing energy use means slowing economic growth. Objective studies, including one by the Clinton Administration's own Energy Department, show that the cost, in terms of Gross Domestic Product, is huge - about $300 billion to $400 billion annually in the United States alone. And, while Kyoto exempts developing nations from its strictures (even though such nations will be the venue for the greatest increases in emission rates over the next 20 years), falling growth in the U.S. and other rich countries will have damaging consequences for poor countries - since developed nations provide customers and markets for goods from developing nations and since developed nations are the main investors in developed nations.

My own view from reading the literature is that the science of global warming remains unsettled. The role of anthropogenic forcing is unclear, and it may be dwarfed by the effects of clouds, solar cycles and other elements still unknown. Also, the drastic and swift reductions in energy use necessary to meet Kyoto targets will, if climate models are correct (a big "if"), reduce temperatures only marginally a century from now.

But even if one accepts the premise of Kyoto - human-induced climate change - the best antidote is resilience, and resilience can come only through economic growth. Whether the Earth gets warmer or cooler (as scientists warned it would in the 1970s) and whether changes are non-human or human, richer countries will be better able to withstand the difficulties, and perhaps even turn them to advantage. Again, the aim should be to adopt policies to spread prosperity to developing countries - not to cripple their economies through no-growth or anti-growth constraints.

Does economic resilience work in the face of natural disasters? Here is clear evidence that it does: So far this year, according to the Center for Research of the Epidemiology of Disaster (CRED), more than 17,000 people have been killed by natural disasters.

Another 44,000 have been injured and 100,000 have been made homeless. My colleague Nick Schulz of recently wrote: "These numbers are tragic, but what's truly distressing is to look at where the people are who have been severely affected. Of the 30 biggest natural disasters this year in terms of fatalities, almost half occurred in Africa. Another nine occurred in South Asia (India, Afghanistan, Iran, etc.), but not one of the 30 most fatal took place in North America or Europe.

"Why the disparity? It's not that developed countries don't have destructive weather, floods, fires, hurricanes, or other natural calamities. CRED lists 17 natural disasters in the U.S. alone this year (including a sizeable earthquake) - more than double the number of disasters in any other country."

But, as Schulz points out, "the worst of the natural disasters in the United States killed two dozen people" while disasters in India and Burkina Faso killed thousands. Again, why the difference? Africa and other developing areas of the world lack the adaptive capacity, the resilence, that comes with wealth. The U.S. has terrible hurricanes, but it also has the wealth and technology to build stronger buildings and better dikes, the communications capability to spread word of impending high winds and floods, and the facilities to evacuate those in the storm's path. Where does adaptive capacity come from? Simply, from wealth, which in turn comes from economic growth.

In the last 10 years, reports the Red Cross, poor countries "have accounted for just one-fifth the total number of disasters, but over half of all disaster fatalities. On average, 13 times more people die per reported disaster in [poor] countries than in [wealthy] countries."

Romantic environmental regimes like Kyoto will keep poor countries poor longer, exposing them to natural catastrophe and, ironically, damaging, not improving their environments.

This is where Johannesburg should focus: on improving the economies of developing nations. This means not simply building roads and encouraging technology transfers and business investment. It also means making water safe to drink and eradicating a disease like malaria, which, studies say, has reduced Africa's GDP by one-third. And it means promoting democracy and the free exchange of goods and services throughout the world.

I will admit that the word "sustainable" bothers me. While imprecise, it carries connotations of constraint, of limits to growth. The best way to improve the well-being of the people of the world and to improve the environment of the world is to eliminate constraints - especially on the human achievement and imagination. A goal of sustainable development sells the world short. We can do much better. My hope is that Johannesburg is remembered as the environmental conference where, at long last, dynamism and confidence triumph over stasis and fear.

Reason Public Policy Institute is a public policy think tank promoting choice, competition, and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process, seeking strategies that emphasize cooperation, flexibility, local knowledge, and results. Through practical and innovative approaches to complex problems, Reason seeks to change the way people think about issues, and promote policies that allow and encourage individuals and voluntary institutions to flourish.

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Post  41107  by  oldCADuser       OT: Speaking of Vivendi...

Post  41108  by  jeffbas       Reply
pmcw, I have felt for a while that LU was a good option on the telecom industry, with no expiration date - much better than any other option you could buy.

Post  41109  by  clo       OT: Oh Tin!

Post  41110  by  lkorrow       Reply
Thanks Pace, I think they were talking close to half that on GDP . . .

p. s. what a day for gold! And CALVF in top three at +11%.

Post  41111  by  abveldeh       Reply
wilful10 ever heard of driving a smaller car preferably on hydrogen. America is the biggest user of energy and materials and also the biggest waster. BTW BUSH thinks the rest of the world is unimportent enough and cannot be bothered going to Johannesburg or he is too busy chasing cameldrivers.

It is a bit hypocryt to point your finger at India and China and let them do the dirty work with a trade deficit.

(Voluntary Disclosure: Position- No Position)

Post  41112  by  pmcw       Reply
Culmus, Again, read the CSCO 10K and then call IR. There are no options with a strike price of one penny. There are a number of options with a strike price of between $0.01 and some dollars. On a 10K they show a range and the easy way to project a bottom end is use a penny. Now, please keep in mind that there are cases where there could be options priced under any price at which a company traded since going public. These would be options priced prior to the company going public. It is not uncommon for VC's to get warrants along with stock. Round one VC shares of ALTR are currently at a cost basis of roughly one penny.

You keep saying options are priced at give-away values. This simply isn't true. They are priced at or above the price of the stock on the day or their award. They can also price based on certain formulas that take into account trading data over a specific period of time, but this is seldom to the benefit of the grantee.

The other point of radical disagreement involves who pays for everything at a corporation. Let's start with a basic illustration. If a corporation was liquidated (all the equipment sold everyone fired) who would receive the net proceeds? The shareholders, of course. It is us shareholders who decide the corporation should stay in business and that it is worth more as a going concern than it is if it was liquidated (this might be a questionable decision for COMS based on the fact that it has traded under net tangible asset value).

In reality, rather than "us" actually saying who gets paid what and how the corporation spends it's money, we hire a board of directors who speak for us in most matters. We vote to retain or fire this board every year. They in turn, hire an executive staff who have certain authorities. However, when the biggest decisions come down (those legally requiring the owners to vote) we get our say. The smaller the decision the greater the delegation. These decisions range from buying paper clips and to electing directors.

Now, let's slowly step through corporate crap 101.

Let's say you and I start a American C corporation. We are the only shareholders. As we work our tails off and build the company we have to pay employees, buy equipment, etc. Who pays for this stuff? We do because we own the company. The only reason we decided to incorporate is so that we could create a legal wall between us and the company's liability and also be able to raise capital through potentially selling shares.

Time goes by and we do very well. We decide we need more money and therefore go public. We sell 1,000,000 treasury shares for $10 net each and keep 4.0M each for ourselves (there are 20M authorized shares). We now pull that $10M into our treasury and use it to expand. At the same time, we each receive stock 500K options that mature in five years (I'm keeping this simple so we'll pretend they vest all at once). The strike price on the options is exactly the price the stock is trading on the day they are issued. Therefore, from my perspective, there is no expense to the corporation. However, since it will dilute earnings by 10% per share there is an expense to the owners that is reflected in the diluted share count.

Our first 10K shows that we had $10M in profit which equates to $1 per diluted share (we'll assume the stock is trading above the strike price of $10) or $1.11 per outstanding share. Five years passes. The stock is now selling for $50 per share and earnings are $50M. The profit is now $5 per diluted share and $5.56 per outstanding share, but the P:E ratio and the ratio of outstanding share to diluted share profits are exactly the same. At this point we both elect to exercise our options. The profit for us is $40 x 1M shares or $40M.

The corporation issues treasury new treasury shares. These are the same shares the corporation sold in the IPO for $10. We also pay $10 for out option shares. The corporation therefore receives $10M in cash and since no other options were issued or are outstanding, the next report will show the same figures for outstanding and diluted per share earnings. Remember, the number analysts track and I hope you do to is diluted earnings. If this dilution didn't happen, it is easy to assumable that the company, valued at the same per share metrics, would be worth exactly $55.55 per share or 11.11% more than it is after dilution. Therefore, if a shareholder were to sell, they would receive 10% less than they would have otherwise. This is the expense. However, if all the shareholders were to sell, it wouldn't matter because the number of shares has nothing to due with the value of the corporation as a whole.

The net result, from the day the options were included in the diluted share count, was an expense to the owners (you and me mostly) that equals 11.11% of earnings . Simple and easy. However, since we were not receiving a dividend that was then reduced (the corporation was retaining earnings for growth) the expense was not taxable to the owners. This is where you have to understand the taxable and legal division between a corporation and it's owners. We were not taxed, but our earnings were reduced thereby we endured the expense of the options.

Now, since the corporation is in fact taxed prior to declaring earnings it needs to account for the expense in a non-per-share fashion. The IRS doesn't really care about per share data until profits on the shares are realized. This is exactly the real rub inside the walls of Congress - they want the tax dollars currently offset by the deduction I'll now describe. Look at pending legislation if you don't believe me.

Since the corporation needs to take a deduction on behalf of the owners who have been hit with a 11.11% reduction in the value of their shares it deducts $40M from profits in the year of the exercise. This doesn't show on the shareholder income statement because it is an expense already represented by dilution. It is shown on the IRS filing that is done on behalf of the owners who have hired directors who hired executives to accomplish these jobs on our behalf.

Today you are seeing one class of companies jump on the expense bandwagon. Option expenses to this class are relatively small. These are big companies that are in relatively slow growth industries (slow growth when compared to the tech industry).

Expensing options on the income statement disfavors mostly small companies - not just high growth tech companies. Small companies need to hire experienced managers willing to work 100 hour weeks. They don't have the capital to attract these managers and, even if they did, why would a top notch manager like Lou DiNardo leave LLTC to go with a startup like XICO? The risk is huge. The reason is they get options that, if they are successful, will be worth a huge amount of money.

Lou got 600K options when the total outstanding share count was just over 20M. That amounted to about 3% of the outstanding shares. Guess what, the shareholders cheered the deal. In reality, Lou took a huge risk. Just to break even with the option package he left behind at LLTC, Lou has to drive XICO to nearly $40 per share by the close of 2004. Would have XICO been able to attract someone capable of doing what Lou has done without using equity ownership? No Way! Would it be feasible if options were really viewed as an expense on an income statement - get serious.

I tell you what is going to happen is options find their way to the income statement - GAAP will be even more useless than it is today. The elimination of pooling of assets in 1998 was simply stupid and FASB only starts to correct this monument to morons. Why do you think most analysts are tracking pro forma today. They know GAAP sucks and doesn't represent an accurate picture. Sure, pro forma invites crooks and manipulation, but since FASB can't come up with guidelines that are realistic, there is little choice.

Like the story of Atlas Shrugged - when the laws are written so that they can't be followed, everyone will be a lawbreaker. Have you ever flown in the US with prescription medicine that is not in the original container? If you have you have committed a felony.

Now, culmus, if you still feel that options need to be an expense listed on the income statement, please provide a formula and then apply that formula to LLTC and explain exactly how they have returned so much net wealth to their balance sheet and shareholders.

Regards, pmcw

PS: For the record, in my very first post on this topic I suggested five or six ideas that would make the situation more equitable and less susceptible to abuse. One of these was to eliminate options as we know them today and substitute synthetic options. With a synthetic option there would be no stock issued, but the employee would receive the same benefit of the stock's appreciation. However, a smart corporation would buy some shares on the open market at the strike price and then sell them when the option was exercised. The profit would cover the cost of the option so there would be no income expense and the result would be dilution. There's always a way around it. ;o)

Post  41113  by  danking_70       OT: Stockman re: "The differences in respons
Post  41114  by  oldCADuser       OT: For anyone who loves a good mystery:

Post  41115  by  spirare       Reply
August 26, 2002, Spot gold in New York settled higher at $330.50 an ounce, up $3.30 from Friday?s

Gold and silver stocks rallied Monday as traders bid up futures prices in light of a decline in the
broader U.S. markets.
"Increasing political uncertainty, Asian central banks increasing gold reserves and investors flocking
to gold are all moving gold stocks to new highs," said Kevin Kerr, a financial analyst at Weiss
Research in Fla.
"We still expect gold to continue on its way higher since we persist to believe that the other markets
remain volatile and tensions in different world regions continue to be a concern," said Frederic
Panizzutti of GoldAvenue.
In the short- and medium-term, gold's role "shall continue to grow and this shall be reflected in a
higher price," he added.
Silver gained as well today.
Leonard Kaplan, president of Prospector Asset Management, said in his
report Monday that when silver prices where last this low in February, gold was $25 cheaper than it is
"The gold/silver ratio is now near or at 70 to 1, historically extremely high.
Such a ratio would scream that either silver is just stupid cheap at these prices or that gold will soon
fall in value quickly," he wrote.
"I greatly favor the first explanation."

In Zurich, gold traded at $308.95 per troy ounce, up from $306.00.
London was closed for an extended weekend.
Earlier gold closed at U.S. $307.15 an ounce on Monday in Hong Kong, up 90 cents from Friday's
close of $306.25.
Spot gold edged higher Monday in Asia in listless trade, and is likely to remain range-bound until
liquidity returns, traders said.
Prices traded slightly lower for most of the Asian session, pressured by light selling by Japanese
participants in the physical market triggered by a stronger U.S. dollar against the yen, said a Hong
Kong-based trader.
Gold was also hit by light profit taking from some long-position holders, as the current prices are
slightly higher than those quoted Friday, said a European bank trader.
"I think gold will be in the US$304-US$308 an ounce range, at least for the first half of this week, until
all the London boys are back," he said.

As discussed here in these pages previously, gold production is at risk of falling due to the lack of
exploration by the gold producers.
In Australia the world?s third largest gold producer, gold production has fallen off by 8% this year in
spite of higher gold prices.
"Gold production has continued to fall from its peak of 318 tonnes in 1997-98," Surbiton managing
director Dr Sandra Close said.
"The drop in exploration expenditure over the last five years has been a key factor in this downward
"Some of our biggest, long-life mines such as Boddington, Kidston and Mt Leyshon have closed in the
last year," she said.
"At the same time some of the older, medium-sized producers have also reached the end of their life."

The latest closure was the United States-based Viceroy Resource Corp's Bounty gold mine in
Western Australia which had its last pour this week.
Meanwhile many gold producers have been high-grading their ore deposits to squeak out a profit.
There was a slight increase in production in the June quarter.
"This (increase) was due to a combination of higher tonnage of ore treated and higher ore grades," she

Other news from Australia is that gold producers are systematically reducing hedges as they take on
a more bullish posture toward gold prices going forward. Australia's gold miners have made a
concerted effort to sustain bullion prices above the crucial $US300 an ounce barrier, closing out $1
billion in hedging contracts during the June quarter.

According to Australian Gold Council data released at the weekend, hedging by Australian gold
miners fell by 1.75 million ounces to 22.6 million ounces in the quarter, a fall of nearly 8 per cent over
the March period, representing the sixth consecutive quarterly reduction in hedging.
It was also the ninth reduction in local hedging out of the past 10 quarters.
Gold Council chief executive Tamara Stevens said Australian producers' continued willingness to
unwind hedging indicated that producer confidence in the future was on the rise. "Hedge reduction . . .
has helped fuel investor interest in the gold industry and is tipped to continue on the back of industry
consolidation and reduced exploration expenditure," she said.

Saudi bankers met with other Arab bankers yesterday.
The report stated:
?The director of "Bekheit " center for the Saudi financial consultation said in statements issued on
Sunday by the Saudi daily al-Watan that the acceptance of the American courts of the filed lawsuits
asking for compensations estimated at 1 trillion dollars to the families of the American victims of the
attacks of September 11, will push all Saudi investors in particular and the Arab investors in general to
get their sums out of the American banks, so as to avoid risks of these trial cases.
The Saudi Arab monetary fund establishment "Mu'assat al-Naqd al-Arabi al-Saudi" is to reconsider
investments of the retirement and social insurance establishments in the USA, and to invest them in
local or European markets which are more secure.
The chairman of the Saudi-German company, Suleiman al-Sayarri, stressed the need of withdrawing
all Saudi investments because of the fact that the US markets have lost transparency, and because of
the fears in the Saudi investor, besides the change in the position of foreign investors in the world
towards the American stances which are not attractive to international investors?.

Officials at the Al Rajhi Banking and Investment Corp. and the Muslim World League, both of which
are listed in the $1 trillion lawsuit filed by relatives of Sept. 11 victims, slammed the action as "part of
a Zionist conspiracy against Saudi economy and Islam."
The Riyadh-based corporation is one of the largest joint-stock companies in the oil-rich kingdom, with
paid-up capital of 2.2 billion riyals ($600 million), according to its official Web site.
"The American-Zionist scheme against the Saudi economy ... became more clear with this baseless
lawsuit," Abdel Rahman al-Rajhi, vice president of Al Rajhi Banking and Investment Corp., told The
Associated Press.
Those listed include Prince Mohammed al-Faisal, former intelligence chief Prince Turki al-Faisal,
Saudi Defense Minister Prince Sultan, Khalid bin Salim bin Mahfouz of the National Commercial Bank
and the Faisal Islamic Bank.
The lawsuit also listed several charities, including the Muslim World League, the International Islamic
Relief Organization and Al-Haramain Islamic Foundation.
Abdalla al-Turki, head of the Muslim World League, a nongovernmental organization founded in 1962,
described the lawsuit as a "campaign led by Zionists against Islam and the Muslims."


Arab investment in the United States could end abruptly at anytime.

This would have a devastating effect on the U.S. equities and real estate markets.

We learned over the weekend that the U.S. government is in possession of documents that clearly
point to Saudi support for al-Qaeda.

The documents allege that the Saudi royals contributed as much as $300 million to al-Qaeda through
direct donations and through several Arab based ?charities?.

This week Saudi ambassador Prince Bandar will be visiting with President George Bush at his ranch
in Crawford, Texas.

It is rumored that the lawsuit filed on behalf of the families of the American victims of the attacks of
September 11 will be the focus of the discussion.

The prince may be sent to ask the president to have the lawsuit dismissed, possibly in return for
Saudi support for an attack on Iraq.

Failing that, it is almost a certainty that Arabs will withdraw their investments from the United States
in on giant ?fire sale?.

It is also expected that the United States courts would freeze all Arab assets until the case is

In that case it is certain that the Saudis as owners of 25% of the world?s oil could deploy the ?Oil

Other Arab (and Asian Islamic) investors are certain to ?get the point? and they too will likely consider
withdrawing investments from the United States.

It is growing more likely that there are only three possible outcomes here.

One, the lawsuit will go forward and the Arab investors will close out any investments they may have
in the United States.

Second, President George W. Bush will have the lawsuit set aside in ?interest of national security?.

Or three, the lawsuit will proceed while Arab assets are frozen, precipitating a rapid rise in oil prices
and reduction of oil supply as ?punishment? for America ?arrogance?.

Nether possible outcome is desirable.

Either possibility would result in a massive repatriation of Arab funds.

They certainly would not feel disposed to investing in American based investments or America

Much of those funds could certainly find a home in precious metals.

The combination of a resultant weakening U.S dollar, weakening equities markets and massive
precious metals buying could launch a precious metals bull market that will slaughter the shorts and
launch further precious metals buying.

The weakness of several bullion banks could be exposed as those short precious metals such as
hedge funds, investment banks, and hedged miners declare ?force majeure? as they are unable to

Gold, silver, platinum, and palladium all rose in contrast to a generally weak stock market and a
slightly weaker U.S. dollar at the close of trading in the precious metals pits in New York.

The stock markets rose in late trading on extremely light volume.

Housing starts rocketed higher by 6.7% last month for new homes and 4.5% higher on existing
homes, as the inflating real estate bubble still apparently has momentum.

***Prudential and Merrill Lynch have released positive comments on gold, helping give precious metals
a lift in today?s trading.***

***Petroleum prices finished strongly on Middle East geopolitical concerns and grain prices moved
strongly higher as the continuing drought burns up the breadbasket of the western hemisphere adding
potential inflation fears in coming months.***

Gold Stocks Update, editor

Caledonia Mining Corporation

CALVF Risning from oversold conditions - bullish

Current Price of Gold

Interview With: S.E. Hayden
President and CEO
Dated 07/02/2002
Click here if you don't hear audio...

Imo. TIA. Pass It Along>>>>>>>>>>>

(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)

Post  41116  by  spirare       Reply
NASHVILLE, Tenn. (Reuters) - Vice President Dick
Cheney on Monday laid out the White House's
case for a pre-emptive strike on Iraq, citing mortal
danger to the United States and labeling critics as
guilty of "willful blindness."

Cheney used a gathering of the Veterans of Foreign
Wars to reject fears, expressed publicly by some
senior members of his own Republican Party and
others, that pre-emptive military action would
undermine the global U.S. war on terrorism and
mark a radical new departure for American foreign

Citing what he said was the danger that Iraqi weapons of mass destruction could fall into the hands of
terrorists, Cheney said America could not afford to sit by idly. It would, if necessary, fight a war of
liberation, not of conquest.

"The risk of inaction is far greater than the risk of action," he said, in remarks clearly designed to win
over public opinion at home and address skepticism abroad over military action to oust Iraqi leader
Saddam Hussein.

"And the entire world must know that we will take whatever action is necessary to defend our freedom
and our security."

The vice president, who served as secretary of defense during the 1991 Gulf War, said Iraq's
development of advanced weaponry, its refusal to allow U.N. inspectors to monitor its weapons programs
and its general hostility had produced "an imperative for pre-emptive action."


"What we must not do is in the face of a mortal threat is to give in to wishful thinking or willful blindness.
We will not simply look away, hope for the best and leave the matter for some future administration to

Cheney's remarks, a strong rebuke to recent words of caution several Republican Party luminaries in
recent weeks, came as the administration asserted its legal authority to attack Iraq without advance
approval from Congress.

Spokesman Ari Fleischer said White House lawyers had concluded President Bush had authority under
the Constitution and subsequent acts of Congress to take military action against Iraq, without special
congressional approval.

But he held out the possibility the president would consult Congress all the same. "The president, aware
of this determination, if he makes a decision about the use of force, will make the decision about a
congressional vote on more than legal factors alone," Fleischer said.

Officials have stressed Bush has made no decisions regarding a possible attack on Iraq, and that he
would consult with Congress regarding future steps. The White House has also chastised the media for
creating what Defense Secretary Donald Rumsfeld called "a frenzy" over a possible Iraq campaign.


Yet, senior administration figures have not been shy about their public demands for "regime change" in
Baghdad. Bush, whose father was president during the war with Iraq, himself has talked about it at
almost every public appearance.

Spokesman Fleischer, with the president at his ranch in Crawford, Texas, made it clear Cheney's tough
talk reflected Bush administration policy.

Cheney said: "I am familiar with the arguments against taking action in the case of Saddam Hussein.
Some concede that Saddam is evil, power hungry and a menace, but that until he crosses the threshold
of actually possessing nuclear weapons we should rule out any preemptive action.

"That logic seems to me to be deeply flawed. The argument comes down to this: 'Yes, Saddam is as
dangerous as we say he is, we just need to let him get stronger before we do anything about it,"' he

"Yet if we did wait until that moment, Saddam would simply be emboldened and it would become even
harder for us to gather friends and allies to oppose him."

In Afghanistan, he said, "the world has seen that America acts not to conquer, but to liberate ... We
would act in that same spirit after a regime change in Iraq.

"With our help, a liberated Iraq can be a great nation once again," he said.

Post  41117  by  pacemakernj       Reply
Linda, gold did have a good day. That said I think the day of reckoning is coming soon. Either gold stocks will break out of their trading range and head higher or breakdown and drop further. I don't know yet but the charts do look interesting. Pace.

Post  41118  by  maniati       OT: danking: Yeah, you're catching on. But, it's a

Post  41119  by  srudek       Reply
jeffbas: R in P/R

P/R is the ratio of the price to business resources (R). R is calculated by adding the retained earnings (in constant dollars) for each year on a representative index (like the S&P500 index and its precursors) to R for the previous year. R is assumed equal to real index value for the initial year. For example, R in fall 1999 for the S&P500 was $950. Of this value, $880 represents accumulated retained earnings (all expressed in 1999 dollars) from 1871 to 1999. The other $70 represents the initial value of the index (in today's money) in 1871.

The index price is also converted to constant dollars. The quotient of the index value and R gives P/R. At the end of 1999, the S&P500 had reached a monthly average of about 1420, and P/R had reached a value of 1.47. Examination of Figure 2 shows that previous secular bull markets, with one exception, ended at P/R in the range of 1.2-1.35. The exception was in 1966, when the post war secular bull market ended unusually early at a P/R of only 1.08. The average P/R at the end of the six previous secular bull markets was 1.25± 0.09. At 1.47, P/R at the end of 1999 was 2.4 standard deviations above the level it had reached at the ends of previous secular bull markets. It certainly appeared that the secular bull market could not continue on much longer.

Post  41120  by  uponroof       Reply
Soros: Circular Reflexivity and moral degeneration

....and a pointed response to Mr. Soros's financial philosophies:


I couldn't help but laugh as I read the latest from George Soros, "Why the Markets can't fix themselves" . The irony of a billionaire lecturing the world about the evils of self-interest run amok was too much for me. I wondered, briefly, if Mr. Soros was aware of the term, "solipsism", the belief that the self is the only thing in existence, when I remembered that he was a student of the Philosopher, Karl Popper, at the London School of Economics.

While I find Soros' musings on Reflexivity quite enlightening in the context of financial market analysis, they seem to me but a specific recasting of Popper's more general view of Scientific Falsification, the idea that science advances by unjustified, exaggerated guesses followed by unstinting criticism. Going back further, Popper's view seems to me a recasting of the Biblical ideas of one true God and the evils of worshipping false Gods. Why the history lesson? you ask. I find the notion expressed in Ecclesiastes 1:9 , "there is nothing new under the sun", quite helpful when contemplating popular views as it strips away the deceptive shine. Soros' views, while treated with reverence in certain media circles, are not new at all.

His current view, that markets can't fix themselves due to the acceptance of "market fundamentalism" with the required fix a combination of new legislation and a decline in pursuit of self-interest seems to miss the point entirely. If I had a chance to speak directly to him I would remind him of the view of his mentor, Popper, that the key to human progress is the debunking of falsehoods. One such falsehood, to my mind, central to the financial whirlwinds of which he warns, is the erroneous faith in a better society founded on an unanchored medium of exchange. Layering more rules onto a flawed system recalls the herculean efforts required to make geocentric models of the solar system predictive. Indeed, Mr. Soros, it is the flood of fiat money which gives room for the "reflexive" impulse in man to run. Honest weights, honest measures and honest money seem to me far better ideas than more legislation. As our third President was fond of saying, "It is error alone which needs the support of government, Truth, can stand by itself."

Dave Lewis

Post  41121  by  lkorrow       Reply
OCU, Doesn't look like any flowers I've ever seen!

Post  41122  by  lkorrow       Reply
Pace, have you looked tonight? Straight up again! Maybe it was Dich Cheney's comments today. I see the chart, but looks like it's started another leg up . . .

Post  41123  by  nvrgivup       OT: A few months ago PMCW wrote of "money sha

Post  41124  by  Arkural       Reply
Cien-Might want to watch this. Eom

Post  41125  by  srudek       Reply
maniati: accounting for options

After reading your essay, I realized that you are right; stock options are not a business expense. But you are also wrong; there IS an appropriate way to represent stock options on the financial statements. They are business income. Fully taxable business income when exercised. Some of the income comes from the exercising employee and the balance comes from the company owners.

Let's do a thought experiment. Lets say WizBang Inc. decides it doesn't have the money to pay its employees properly so it steals money from a neighbor (or anyone else) and gives that money to the employees.

That makes the employees happy -- you agree they are receiving something of value. Obviously if the neighbor finds out, he won't be happy, but supposing he doesn't find out -- or he finds out but can't do anything about it? How should Wizbang Inc. properly account for the confiscated equity? Accounting rules are pretty clear: the stolen money should be accounted for as INCOME -- in the interest of full disclosure, the income should probably have its own account: "Extraordinary Income from Theft" or something. IRS precedent is pretty clear, I think, that you must disclose and pay income tax on illicit income; failure to do so has sent many a person to jail.

If you aren't comfortable with my suggestion, perhaps you shouldn't be. But the proper accounting treatment, it seems to me, is clear and straightforward: debit equity and credit Extraordinary Income from Conversion.

Stock options are not a business expense....
Why? Because issuing a stock option does not result in a decrease in the wealth of the business. Issuing the option has no economic effect on the business at all.

Sure, it affects the wealth of the shareholders, but the shareholders, as I said, are not the business. They own the business, but they are not the business. This is a critical distinction. The "business" is an entity unto itself, and it is distinct from the people who own it, the people who run it, and the people who work there. Tax law recognizes this distinction

Of course, the company owners' should be notified by Wizbang Inc. of the conversion and I believe they should be able to take a casualty loss on their personal taxes. To make the situation clearer to them, they should probably just be notified that X number of their shares have been confiscated so they can be transferred to the President. This business of "diluting" equity by secretly issuing more shares is clearly wrong. Maybe give the owners the option of voting for or against the transfer; if they vote for it they, obviously, can't take the tax writeoff. Imagine how popular stock options would be with owners when they were told to surrender actual shares for transfer to their employees!

You don't need to reply to this; I think my logic is pretty unassailable, personally -- even if you don't. As The Queen said to Alice: "You may call this nonsense, but I'VE seen nonsense compared to which this is as sensible as a dictionary!"

And that's the point I've been trying to get folks to realize for some time. Stock options are nonsense -- they pervert everything they touch: accounting records, company employees, congressmen, whole stock markets. Pending the government simply outlawing them along with heroin, shareholders should be required to approve any stock options plans or other Officer/Boardmember extraordinary compensation. Officers/Boardmembers who hold shares cannot participate in the vote as that would be conflict of interest.

No need to respond; thanks for your many enlightening posts!