Table On-Topic Summary - 03-Sep-2002
A compilation of this board's financial/economic posts From 41342 to 41368

Post  41342  by  pmcw       Reply
Culmus, It appears that you have a problem with options as a form of compensation and therefore want to treat them in a punitive way in hopes of ending their use. As maniati and I have clearly said, this is a separate issue from properly accounting for options. In addition, maniati went to great lengths in a recent post to sr detailing as to why punitive actions won't work and are a very bad way to attack any problem one might have with options. Although your post is very confusing to read, I take it from your statements that you now agree that options should not be listed as an expense on the income statement. Am I correct in assuming this to be true? If not, why?

Starting in my very first post on this topic, I was very straight forward in expressing my belief that options can and are abused. I also provided a list of various ideas as to how option laws / rules could be changed. However, I drew a clear distinction between these issues and accounting.

Now, if we were to assume that options will not be expensed, I would welcome the following modifications be made as requirements for filing 10-K and 10-Q reports:

1) In the case of a company showing a profit, we already clearly see exactly the dilution of per share earnings due to options and all other forms of dilution. However, we don't know what portion of this dilution is due to options. I would like to see dilution defined in detail to where it is abundantly clear as to how much of the dilution is due to options. Furthermore, I would like to see executive, board and employee options listed as separate line items before we see total dilution.

2) In cases where companies are not showing a profit, diluted shares are not shown in the income statement. This is because it would be "anti-dilutive". In other words, if a larger share count were shown the loss per share would actually be less. I feel there are a variety of ways where the pending dilution could and should be shown so that it is not a "surprise" to see it when the company starts making a profit.

Moving on to new issues you've opened in your recent post:

I went to the trouble to post "Corporate Crap 101" because it wasn't clear to me where your knowledge of American corporations started and stopped. You've made several comments regarding corporations issuing options at any price they wish, the rights of shareholders, corporations being able to reset option prices at will, etc. that lead me to believe that there was much you were missing. I felt you would find at least something in my post that would clarify some of these points that you appear to find confusing.

I made it perfectly clear that, in the US, a corporation and the owners (shareholders) are two separate legal entities. This is one of two primary reasons for people to set up corporations - to limit their personal liability to that money they invest in the corporation. However, this in no way, means that they don't own and control the corporation. The shareholders of a corporation, as I said, vote every year on the board of directors. This board, in turn, sets executive compensation policy and in fact hires, and can fire, the CEO. The CEO can, in turn, hire, fire and set compensation at other levels. In other words, the shareholders have the first and last word; they can invest more money in the form of rights offerings and they can share their ownership in the form of stock options.

I feel it is patently absurd for you to say, when referring to CSCO, DELL or ORCL that the majority of the shares don't understand how options are used. In all these cases, the majority of the shares are owned by institutions and I feel pretty comfortable that they know how options work.

In the post you referenced as an example that you understand how options can't be issued for less than the price a company trades for on the day of issue (actually companies can issue options for as low as 85% of this price, but CSCO does not), you said:

"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 explained several times that the public company CSCO has never issued a single option share at $0.01. I even invited you to contact their IR department to confirm my claim. They can't just pick a price out of thin air for their options and there are no $0.01 options. I also suggested you take a second look at their 7/28/2001 proxy statement to see they show a range for the price of their options. The lowest range expressed is $0.01 to $8.29. This does not mean there are any options existing for $0.01. There are a total of 226M options in this price range and the average exercise price is $4.97.

I guess you have a grip on this issue now, but you've opened a new can of worms in your current post. Please substantiate the following statement - both the quantity and that these options are reserved for "directors and executives".

"I still can't believe it, with 7.3 billion shares outstanding the elected directors and executives have reserved themselves options on 2 billion shares at Cisco!"

Again, according to their 7/28/2001 proxy statement, there are a total of 1.06B options outstanding. This is a far cry from the 2B you are trying to cram down our throat. Not only this, you say that these 2B options are reserved for directors and executives; failing to include that most are for employees not fitting either description.

Now, let's take a look at the truth about the CSCO options. I'll rely on their aforementioned proxy filing for my data:

There are fewer than 450M options of CSCO stock for ALL employees and directors that are at or in the money. 450M is actually a very conservative number - my guess would be less than 350M, but I've not taken the time to fully document these options. 100% of these options "in the money options" were issued at or above the price CSCO was trading at on the day the options were issued. In other words, the ONLY reason these options have any value whatsoever is because these executives, employees and directors have driven CSCO to where the market says CSCO is worth more than it was the day the options were issued.

The balance of the 1.06B options (most likely 600M shares or so) have exercise prices that are currently out of the money. As a matter of a fact, 579M of these options have an average weighted exercise price of $37.45 or HIGHER. 27M option shares have an average weighted exercise price of $69.35! If taken in total, the 1.06B options have an weighted-average exercise price of $29.41 - more than twice the closing price of CSCO last Friday. I feel CSCO shareholders would love to see every single one of these options exercised since it would mean they would see the value of their CSCO shares increase by roughly 125%!

Also, in your most current post, you make a very weak attempt to position yourself as not "bashing CSCO". I'm calling it weak because CSCO has been a frequent target for your ire in the past. Please note, there are many things I don't like about CSCO, but you cannot make a valid point that they have not delivered value to their shareholders. Those who bought the IPO at a split adjusted price of $0.08 are up roughly 17,000%!

Bottom Line for CSCO options: If the stock price more than doubles, there is a potential of 14.5% dilution based on the current options on the books. If the stock price remains where it is, the potential dilution is probably closer to 5%.

Let's compare this bottom line with a company you love: LLTC. LLTC has over 13% built in dilution in outstanding options. 100% of these options have a weighted-average exercise price of just over $21. In other words, LLTC could go down by 20% and still see dilution 160% greater than CSCO is CSCO held even.

In your most recent post you brought up two new targets: DELL and ORCL

I have no idea as to why you complain that insiders of both companies have enjoyed the profit from options. In your last post you provided examples as follows:

"A person called Ronald A. Wohl exercised options on Oracle shares on April 19th at a strike price of 49 Cents! Again, I now take as fact that in general the strike price at least equals the stock price on the day of grant or exceeds it. So this person had options with a strike price of 49 Cents, the last time ORCL stock traded that low (split adjusted) was in September 1992:"

In other words, you're point is that ORCL has gone from $0.49 in 1992 to just under $10 in September 2002. That's over 1,900% for shareholders who bought in the stock in the open market when those options were issued. Assumably, the Mr. Wohl played some part in ORCL's success and therefore a part in the success of the shareholders. That's the duty of the board hired by the shareholders to oversee. BTW, since Ellison owns over half of all ORCL stock and is not in the habit of giving his money away, I trust he had a hand in this decision and felt Mr. Wohl had value.

Next you attack DELL:

"On the 6th of March a person called Michael H. Jordan exercised options on DELL shares at exercise prices of between 29.2 and 53.5 Cents (!), the last time DELL stock traded at that price was in August 1994:"

Again, the same point is valid. DELL has provided shareholders who bought on the day it traded for $0.292 with over 9,000% profit. Do you have a problem with this or are you simply jealous of a person DELL recruited for their board when they were a nothing company? You should know that DELL has created so many millionaires (yep, average Joe's and Jane's) that there is a slang expression in Autin, TX called DELLionaires. For the record, the last I checked, Michael Dell owns some 300M shares of his company and has been buying shares recently. I guess he's not too concerned about one of the Directors who helped him guide a small dormitory business to be one of the great American success stories making some money from the options he got when DELL was trading for $0.29.

In a recent post I also explained as to why options are of great value to the shareholders of a small corporation. I used XICO as an example. Let me try once again by shrinking this down a bit more. Excuse my if I use our small public company that I started in Corporate Crap 101.

As we left our company, we had gone public, had a great first five years and diluted the stock by granting and exercising options for ourselves. Since those shareholders suffering from our selfish dilution still enjoyed a 400% gain in five years, they weren't too mad.

During the sixth year, we invented a new method for switching networks using what we call "packet protocol". In our research we determine that this had far reaching potential for growth beyond anything we felt we could manage or properly exploit. Due to this, we initiated a search for a new CEO and several new board members. We knew our window of opportunity was limited and we must act quickly to secure an industry leader capable of taking our little $500M market cap company to what we feel should be $100B+.

In our search, we find a guy by the name of Chambers who fits our CEO slot well. However, Mr. Chambers is currently making about $10M in salary and enjoys other forms of compensation that bring his typical annual compensation to $25M. Realizing this is half our annual profits, we are stumped. We would have to pay him 60% of our current earnings to get him to move and, even if we thought that feasible, it wouldn't leave enough to entice new directors, other executives, engineers, miscellaneous managers plus provide capital for expansion. However, that night we reconsider our ownership and the potential value to us (90% shareholders) if we can drive our company to $100B+ in market cap.

As it stands today, we are both worth $225M when our company is valued in the market at $500M. If we could drive our company to a value of $100B we could each own as little as 0.0225% and have the same net worth. In other words, if our targeted valuation of $100B is correct, we could afford to use virtually all of our stock ownership to fund the company's growth.

Since our goal is not to break even we start to run some numbers. We remember that we have only issued half the authorized shares of our company and still hold the other half in the treasury. Based on this, we decide to dedicate 20% of these shares (10% of the total authorized quantity) to options for key executives, new engineers, managers and directors - the folks we feel we'll need to realize our $100B dream. In other words, we're perfectly ready to increase our outstanding share count from 10M (of which we own 9M or 90%) to 12M (of which we'll still own 9M, but only 75%).

We strike a deal with Mr. Chambers where he'll get 500K shares of options at today's price that vest over the next ten years and we use the other 1.5M shares for all the others we mentioned. In our opinion, Chambers is the key and the only way we'll attract the talent we need in the board and other key positions.

Ten years passes and Chambers drives our little company to a market cap of $150B - even better than we thought. We ended up giving out all the options we planned and now own 75% rather than 90% (we didn't get any of these options because we decided to totally step aside and not even take director's slots). The value of our joint ownership has jumped from $450M to $113B (a profit of nearly 25,000%) through giving away a piece of our company. Mr. Chambers chunk of our company is now worth $6.3B. Needless to say, we're all happy. One question for you and all the other stockholders:

Do you begrudge Mr. Chambers for "earning" $6.3B for the ten years he served as CEO? If so, why? Let's say that we had to dilute our ownership from 90% down to 10% and our joint share of the company after ten years with Mr. Chambers at the helm was worth only $15B (only 3,300% profit); would you be mad then?

Bottom Line: Options and guns can both be misused, but it doesn't mean they always are.

Regards, pmcw

Post  41343  by  Decomposed       OT: Table ON TOPIC SUMMARY Sep 2, 2002

Post  41344  by  maldinero       Reply
maniati – My expression of thanks to Culmus was intended more as an "Amen" from the congregation after a well-delivered sermon, not as a challenge to debate theology with the church elders. You're probably assuming (rightfully so, as anyone can glean from my member profile page) that my complete lack of credentials in economics and business would render my side of the dialogue as feeble as any attempt to join Lennox Lewis in the boxing ring. Therefore, I won't waste space on this board with an amateurish dissection of posts by Culmus, pmcw, jefbas, srudek or you on this matter.

I will say that I have enjoyed reading everyone's contributions to this thread, including those I may not have mentioned. I agree with many points made by you and the others, but found Culmus' last post most comprehensible, while some made my eyes glaze over. To begin with, as a maintenance man, most of the financial terminology does not translate well. For me, [M1,M2,M3,…etc.] represent motor starters in a machine electrical schematic, while "options" usually come down to choosing the big hammer, the prybar or the torch, because "stock" is what the company is always out of when we need repair parts.

By my simple reckoning, here's how I understand expensing options. When a company offers options as compensation, they are basically offering to sell something (new shares in this case) at a huge discount from the going rate or expected future price, to selected employees. Assuming the issuing of new shares is a negligible cost to the company, there is no expense and should be no tax deduction for the company.

I may be wrong, but aren't most options deducted as employee compensation already? That would make sense to me if the company were to offer a gift of, or employee discount on some product or service that actually cost the company money, but (we're still assuming) the printing of new shares does not.

For the sake of purely hypothetical entertainment, let's revisit my previous analogy. Imagine a scrawny, ugly, middle-age guy was actually scheduled to fight Lennox Lewis. Obviously it would be a lopsided competition, but the spectacle of a 4-second dogfight between a Chihuahua and a Pit Bull may appeal to enough psychos for Don King to take up the cause. At first, Don decides to sell 1000 tickets at $100 each. Instant sell-out, 1000 happy customers because there won't be a bad seat in the house (some cheap outdoor venue), and a quick $100k for Don. Surprised by the popularity of the event and the outrageous prices being paid to scalpers, he decides to add another 10,000 seats on the lawn @ $10 ea. These sell easily, and Don is up another $100k (minus the tiny percentage paid to Lewis and the opponent's surviving widow). Unfortunately, ALL the tickets sold are on the lawn, and festival seating is observed, so those original ticketholders are very lucky too view the bout at all without being crushed by the humanity at ringside. The truly fortunate (most likely Don's insider friends) sold their seats to a bigger sucker before the promoter's announcement.

I don't really know what the moral of the preceding scenario was, but at least Don King made enough money to hire Christophe, Bill Clinton's infamous hairstylist. It also sorta goes to show you that factory workers might do well to withhold commentary on matters of accounting and securities. All I really know is that middle-income taxpayers and retail investors usually pay to get screwed by political and corporate insiders. What Culmus suggested seemed liked a better way to eliminate the shell-game than all the rest of the tangled-web weaving I had laboriously read through.

That's my 2¢. I'll try to restrain my comments from the peanut gallery 8-])

Post  41345  by  spirare       Reply
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Post  41346  by  srudek       Reply
maniati: not one of your finer posts.

In response to someone writing "it seems those who argue against you are busy engaged in lawyer-like recitation of arguments that bolster a point of view supporting their own values. i guess that's true of you too.

but lost in the debate here is the public policy purpose of financial statements in the first place, no?"

you respond with: " you can't read, and you're a coward. You're a coward, because you resort to innuendo, rather than saying what you really think."?

The only way independentvoice can trump that is with: "Sticks and stones may break my bones . . . nah, nah, nah, nah, nah!" However, I hope he exercises restraint.

I can understand how your debate on the options issue struck independentvoice as a "lawyer-like recitation of values" and, no, I'm not insulting you.

In my opinion, Culmus, myself, and others have been trying to discuss a real problem with options in the real world. On the other hand, you seem to be stuck on winning a debate equivalent to 'how many angels can dance on the head of a pin' with your "yellow is not red" (or whatever). If your "concern [was] simply that the rules of accounting reflect the economic reality" then you would simply be against options because, according to your own argument, stock options DESTROY the ability of the accounting system to do its best job of recording and reflecting the economic reality of the business.

It seems clear that you and pmcw feel the availability of stock options is more important that the integrity of the double-entry financial system. You have a right to that opinion. If you'd stipulate that, maybe the discussion could move forward?

Post  41347  by  pmcw       Reply
maldi, The entertainment value of your post was high, but Culmus obviously has you terribly confused when it comes to options.

You said:

"By my simple reckoning, here's how I understand expensing options. When a company offers options as compensation, they are basically offering to sell something (new shares in this case) at a huge discount from the going rate or expected future price, to selected employees. Assuming the issuing of new shares is a negligible cost to the company, there is no expense and should be no tax deduction for the company."

1) They are never granted at a discount from "the going rate". NEVER, NEVER, NEVER - We even finally convinced Culmus of this fact.

2) There is NO COST to the company. Actually, the company gets money (the option exercise price times the number of shares). However, since there is a cost to the shareholders that is reflected in the diluted income per share, the company has been able to take a tax deduction. This is probably inappropriate and is the center of the REAL debate in Congress. This is rationalized by the fact that the company could have sold the shares in the open market on the exercise day for a higher price than the exercise price.

Other than when they feel they can make political hay with the issue, Congress couldn't give a rats rear about showing options as an expense on an income statement. Their concern, beyond using the platform to trash opponents smart enough to see expensing options is BS, is to force companies to choose between reporting options as they should (as dilution) and losing the tax deduction or reporting them as an expense and keeping the tax deduction.

I hope this additional explanation helps straighten out these two central points to the issue and explains why manaiti was confused by your "amen" to Culmus' recent rant.

Regards, pcmw

Post  41348  by  clo       Reply
Prudential puts a "sell" on Citigroup, from a hold..
Japan hit a low it hasn't seen since 1983... clo

Post  41349  by  pmcw       Reply

If you want to learn a bit about HLIT, you'll have an opportunity to do so tomorrow.

Harmonic Announces Audio Webcast of Kaufman Brothers' 5th Annual Communications Conference Presentation
Tuesday September 3, 9:20 am ET

SUNNYVALE, Calif.--(BUSINESS WIRE)--Sept. 3, 2002--Harmonic Inc. (Nasdaq:HLIT - News) today announced its presentation at the Kaufman Brothers' 5th Annual Communications Conference on September 4, 2002, at 2:45 p.m. (Eastern Time). The live audio webcast of Harmonic's presentation will be available from Harmonic's website,, under the Investor Relations Events section. The replay will be available 24 hours after the live presentation through close of business on September 11, 2002, at the same Web address.
About Harmonic

Harmonic Inc. is a leading provider of digital video, broadband optical networking and IP delivery systems to cable, satellite, telecom and broadcast network operators. Harmonic's open standards-based solutions for the headend through the last mile enable customers to develop new revenue sources and a competitive advantage by offering powerful interactive video, voice and data services such as video-on-demand, high definition digital television, telephony and Internet access.

Harmonic (Nasdaq:HLIT - News) is headquartered in Sunnyvale, Calif., with R&D, sales and system integration centers worldwide. The Company's customers, including many of world's largest communications providers, deliver services in virtually every country. Visit for more information.

Note to Editors: Product and company names used here are trademarks or registered trademarks of their respective companies.

Post  41350  by  pdowd       OT: clo ---- you are "Little Miss Suzy Sun
Post  41351  by  clo       OT: pdowd, just wanted you to have your helmet on!

Post  41352  by  pmcw       Reply
sr, I think the point maniati was trying to make was that iv's post was intellectually dishonest. Maniati has gone to great lengths to explain, in the simplest term possible, the distinction between the accounting issues involving options (this was the original topic of discussion) and all other topics related to options. To say that he has used "lawyer-like recitation of arguments that bolster a point of view supporting their (his) own values" is patently false. I also feel it is hypocritical of iv to critique maniati's simple explanations in this fashion and, at the same time, litter a post with twenty-five cent words. When someone takes a position such as this, uses a technique he falsely accuses others of employing and then fails to address the issues I feel the post at least lacks integrity if not courage.

The point manaiti made was that the argument needs to be focused on the true issues and not hidden behind a veil of "stock options are bad and they steal from shareholders". That is clearly false when taken at face value. They aren't always bad and they don't always steal from shareholders. In some cases, they are the best available tool for optimizing shareholder value.

This is not to say there are not problems with stock options. There are many problems with stock options, but they are not hidden as some would like us to believe. They could certainly be made more clear and I've provided several realistic alternatives as to how this could be realized. However, in the mean time, I suggest that anyone who knows how to read a income statement is easily smart enough to see the dilutive nature of options.

The root of the problem with stock options is centered in the lack of independence and the shirking of fiduciary duty by a company's board of directors. This is a distinctly separate issue from the accounting of options or even from the valor of using options as a form of compensation. To say options are simply bad is tantamount to saying steel is bad because it can be used to make guns and guns kill people. In other words, it is a step beyond the guns are bad argument.

In maniati's separation of the issues, he has repeatedly said that his posts are not about the valor of options as a form of compensation, but are focused on the honest accounting of options. This has been my primary focus as well, but I've broadened my scope repeatedly to acknowledge their abuse, provide methods by which the abuse can be minimized and provide examples as to how they can be a significant value for small companies and companies in high growth industries. Two of my many ideas to limit the abusive use of options include laws limiting their availability to senior executives and board members and board composition. For the most part, what has been offered by the "I hate options" camp are punitive measures that would make using options distasteful. This is basically what Congress is trying to do to blackmail companies for forgo using exercised options as a tax deduction. These ploys are little more than weak straw-man arguments when we could attack the issues at the core. Regards, pmcw

Post  41353  by  clo       Reply
KUWAIT CITY, Kuwait, Sep 3, 2002 /PRNewswire-FirstCall via COMTEX/
-- Mobile Telecommunications Company (MTC), the leading GSM
network operator in Kuwait, has announced the introduction of
nationwide General Packet Radio Service (GPRS) high-speed mobile
data services over a Motorola (NYSE: MOT) network. MTC is the
first company in Kuwait to introduce GPRS and currently has soft-
launched the service for a small number of its customers. Complete
commercial service is scheduled for September 2002.

The GPRS network infrastructure contract with Motorola's Global
Telecom Solutions Sector (GTSS), valued at an estimated $4.6
million, was signed in June 2002.
It will provide for the
countrywide implementation of Motorola's GPRS Core network
solution that includes the Service GPRS Support Node (SGSN) and
OMC-G supplied by Motorola Computer Group and the Gateway GPRS
Support Node (GGSN) from Cisco Systems, Inc. The announcement
reflects the continuing strong relationship between Motorola and
MTC, which began in 1994 when Motorola began supplying MTC with
Global System for Mobile (GSM) communications networks.

"MTC prides itself in continuously enhancing its GSM network and
this latest contract with Motorola is proof of this dedication,"
comments Ahmad Mohammad Al Nassar, chairman and managing director,
MTC. "Our strong and close relationship with Motorola ensures that
our network can evolve at the same pace as new technical
developments, always delivering a superb quality of service to our
customers every time."

"As the enabler behind MTC's deployment of its new GPRS network,
we've helped MTC open the door to a new world of wireless data
services and Internet-based content via a mobile terminal for
their customers," said Jeff Cherif, general manager for the Middle
East and Africa region for Motorola's GTSS. "We've also helped
them protect their investment since the Motorola GPRS radio
network is implemented over an existing GSM network with a
software load and packet control unit addition."

The launch of GPRS service in Kuwait is indicative of the strong
and growing demand for wireless services in the Middle East, and
further strengthens Motorola's position as a leading supplier of
GPRS networks and wireless data solutions in this key growth

About MTC

MTC has a long and proud history as the pioneers of mobile
communications in the Kuwait, from the building of infrastructure
to setting the standards and verity of services. For more
information, please visit:

About Motorola

Motorola, Inc. (NYSE: MOT) is a global leader in providing
integrated communications solutions and embedded electronics
solutions. Sales in 2001 were $30 billion. For more information,
please visit

MOTOROLA and the Stylized M Logo are registered in the US Patent &
Trademark Office. All other product or service names are the
property of their respective owners.

SOURCE Motorola Global Telecom Solutions Sector

CONTACT: Kathi Haas, Motorola Global Telecom Solutions Sector, +1-
480-732-2835 (office), or +1-602-793-4947 (mobile), or; or John Falchetto of Memac Ogilvy Public
Relations, +971-4-282-5414 (office), or
for MTC


(Voluntary Disclosure: Position- Long)

Post  41354  by  pmcw       Reply
Semiconductor Growth Seen at 7-9 Percent
Tuesday September 3, 8:46 am ET

SAN JOSE, Calif. (Reuters) - The global computer chip production industry is on track for 7 percent to 9 percent sequential growth in sales for the third quarter over the second quarter, a U.S. trade group predicted on Tuesday.

The Silicon Valley-based Semiconductor Industry Association made the forecast as it released World Semiconductor Trade Statistics figures that showed a global sales increase of 2.9 percent to $11.7 billion in July over June.

"The July data, and the year-on-year increase, confirm that a moderate but sustainable recovery continues, putting us on track for 7-9 percent sequential growth in the third quarter," SIA President George Scalise said in a statement.

A summary of the WSTS statistics was released on Friday by the European Electronic Component Manufacturers Association (EECA), a European counterpart to the U.S.-centered SIA trade group.

Global semiconductor sales grew 5.8 percent during the second quarter, according to the Semiconductor Industry Association.

The U.S. trade group said that for 2002 overall, worldwide chip sales are expected to exceed depressed 2001 levels by 3 percent. It said the industry continues to expect a return to higher growth rates over 20 percent in 2003 and 2004.


But UBS Warburg analyst Tom Thornhill said in a note to investors on Tuesday that he believes major chip suppliers will continue to moderate their growth expectations for the rest of 2002 in mid-quarter financial updates set to be unveiled over the next week, including one from Intel Corp. (NasdaqNM:INTC - News).

Thornhill, who said that unit shipments fell again during July, noted that average selling prices for computer chips have returned to 10-year lows hit earlier this spring.

pmcw comment: This means that the volume of chips being shipped is up substantially more than revenue. Add to this the delay in fab upgrades and it would appear that when ASP rises we will see a very sharp and prolonged semi recovery. As they say, price follows volume and the inability to increase supply (minimal fab equipment being bought) will hold prices up.

Thornhill recently reduced his 2002 industry sales forecast to a range of flat performance to contraction of 2 percent -- down from the zero to 5 percent growth he had predicted. He also had cut his 2003 sales growth estimate to a range of 9 percent to 13 percent from a range of 15 percent to 20 percent.

Scalise said that the July figures reflected robust growth in sales of consumer electronics such as digital video, video games and digital cameras. Demand for communications chips in wireless phones and network equipment also rose, with the latter reflecting a burn-off of in excess inventory more than fundamental market demand in the depressed telecoms market.

The personal computer remained weak, reflecting recent trends, the trade group said.

Thornhill said the only standout sector was dynamic random access memory (DRAM) chips, sales of which grew 4.6 percent in July over June, while other major sectors such as microprocessors and digital signal processors (DSPs) fell sharply.

Major makers of memory chips include Micron Technology Inc. (NYSE:MU - News) of the United States, South Korea's Samsung Electronics Co. Ltd. (KSE:05930.KS - News), Germany's Infineon Technologies AG (NYSE:IFX - News) and other makers in Japan, South Korea and Taiwan.

Chip sales by American and European producers were essentially flat during July, reflecting weak PC demand in both markets and continued outsourcing of production to the Asia-Pacific region.

By contrast, sales of Japanese producers, which is focused on digital consumer electronics production, grew 8.5 percent, while sales of Asia-Pacific producers outside Japan grew 2.3 percent, the SIA said.

Post  41355  by  pdowd       OT: clo-- the news is a little dreary today------I

Post  41356  by  maniati       Reply
Culmus: I'll skip over the parts of your post that appear to be directed just at pmcw.

I have read your post many times over, trying to separate out what was directed to pmcw and what was directed to me, and trying very hard to understand your position.

I have come to the conclusion that we are in agreement on the single issue that I originally had tried to raise: whether stock options should be treated as an expense.

It appears that you agree that they are not an expense. If so, then that really concludes that part of the discussion. No point belaboring something that we agree on.

But, the caveat is that you still have made a few comments that suggest that maybe you do not agree. (I'll get to those in a minute.) So, it sounds to me like you are torn on the matter. It sounds like you wish compensation options could be expensed, even though you realize that they really are not an economic expense.

Well, there's more than one way to skin a cat. Your concern, after all, is with the availability of options as compensation in the first place. I have said repeatedly that there are other ways of addressing that than by trying to call them something that they are not. So, it's hardly the case that all is lost just because you agree with me that options should not be expensed.

In fact, if you agree with me, then you are better-equipped to fight the real battle. As I said, the issue of expensing options distracts attention from more important issues. And, yes, in answer to your question, by "more important issues," I am talking about issues of executive compensation. I do think it is out of hand.

But, corporate America is trying to sell everyone on the issue of expensing options. Just ask yourself, who is it that has been pushing that idea in the first place? It's corporate America. They have jumped onto this issue, one company after another.

It's a smoke screen. Don't be fooled. Here's why: Corporate America knows that expensing options will not hurt valuations!! Why is that? That's because, by definition, that would be a non-cash expense. And when analysts value the company, corporate America figures that they will just add back those non-cash expenses, like depreciation, amortization, stock option compensation, etc.

Therefore, we will be right back to where we started: the only effect will be dilution, and they will continue to issue stock options, only now they will be expensed. We've accomplished nothing!!

So, they are hoping to dupe people into thinking that expensing options is the Holy Grail. First, they get people to think that that is the one true answer. Then, they give us that, and that will make the masses happy. Then, they just continue on with their option plans, as usual.

Your posts have really proven my point, in spades, over and over. Same with srudek. Your real beef with options is not that they need to be expensed; your problem with them is that they exist (as a form of compensation) in the first place.

So, don't be fooled by people who tell you that you need to treat them as an expense. That's a non-sequitur. It's like a magician's misdirection. It keeps you distracted from the issue of executive compensation. And it accomplishes nothing, other than creating a lot of confusion, for the reasons that I explained in my very first post. And it certainly doesn't solve the problems that you care about. Far from it.

It sounds like you are beginning to see this.

So, actually, you folks who hate options should be thanking me. By explaining why it is senseless to expense options, I am helping you to stay focused on the issues that you really care about.

Ok, let's take care of a few loose ends....

You said, I am in total agreement with you that a transaction involving options only affects ownership of the company and has nothing to do with the income statement whatsoever, just the balance sheet. On the other hand, these options are a form of compensation and hence there must be an expense for that compensation. As I said before, these options are nothing else but a mechanism for employees to buy stock at grossly discounted prices. If they can't be expensed in order to account for the fact that they are intended to represent compensation (which is the case) then options can't be at all, that's what I say. Since we mutually agree that options can't be expensed there is no legal basis for granting them IMO and the expense must be by way of other means, other than options. My suggestion: cash.

Your first sentence indicates that we are in substantial agreement. But, don't forget that options do not bypass the income statement entirely: they show up as dilution in the EPS numbers.

Your second sentence is an example of what I mean when I say you sound "torn," (or perhaps mistaken). Just because options are compensation does not mean they must necessarily be an expense. That's the whole point. That's not true in this case. It is usually true that compensation results in an expense, because, usually, when a company gives something of value to an employee, it is coming from the company. That loss of value to the company is treated as an expense. But, in the case of options, the thing of value is not coming from the company; it's coming from the shareholders. So, this is a situation where there is compensation, but there is no expense to the company.

Now, you say several times that there is no legal basis for having options. That is very definitely not true. Options are perfectly legal. I think it's fair to say that you wish it were the case that options (as compensation) were illegal. However, they are, in fact, quite legal. That is the reality. The authority to grant them has been properly vested in the BoD's and the managers of the company. The shareholders have delegated that authority. That's the way it is, and it's legal.

If you are saying that they should be made illegal, then that's a policy argument. But, to make that argument, you have to begin by recognizing that, right now, they are perfectly legal. So, you need to develop an argument, based on policy, that explains why the law should be changed. If you start by saying that they already are illegal, you're assuming the conclusion.

As to double-counting, I have to admit I just don't understand your logic. I have explained that, if you expense options, then that results in double-counting the effect of the options. Obviously, right now, there is no double-counting because options are not expensed. There is only the one effect of dilution. But, if you expense them, then you have both the dilution and the expense. That's counting them twice, and that's wrong.

Finally, you say, You and pmcw make it sound as if these options were "no big deal" when you emphasize that the strike price equals the stock price at the day of grant.

I never said it was "no big deal." Where in the world do you get that? In a previous discussion, there was a debate between you and pmcw as to whether options are in-the-money or out when they are granted. So, I weighed in by explaining why it is that they are usually out-of-the-money. So now you know. But I didn't say it was "good" or "bad"; I was just trying to tell you what is, and then you can decide for yourself whether it's good or bad.

That's as good an example as any of what I mean by "positive vs. normative." A discussion about how and why options are usually issued out-of-the-money is "positive." A discussion about whether that is "good" or "bad" is "normative." I made a positive statement, and you were reading something normative into it.

Well, I don't blame you in a way, because I have witnessed people try to use positive economic analysis to further normative agendas, and I find it intellectually dishonest. But, as for me, my sole purpose in all these posts has been to make one single positive (i.e. not normative) point, by simply trying to get people to see that stock options are not an expense.

What you, or anybody else, choose to do with that knowledge is up to you. If you want to ban options, you are better-equipped to do it than you were a few weeks ago, because, by now, you should not be deluded by the corporate world into thinking that expensing options is going to help your cause.

I'm just trying to explain how the hammer works. I'm not telling you what to build with it.

Post  41357  by  maniati       OT: srudek: It appears to me that you have that 18

Post  41358  by  srudek       Reply
S.Roach on consumer debt, etc. ARTICLE/link -

IMO, Roach has proven to have the best forcasting record on the post bubble economy of all economists with a large public following. He forecast the first recession when almost nobody else would. He has stuck to his position that a second "dip" into recession was most likely after the first -- once again, almost alone -- and, based on today's manufacturing numbers -- I think we are likely now there.

This article speaks a little to the question of "what's wrong with more debt as long as payments don't go up?" which Jeffbas raised some time back (hope I'm stating his position/question correctly). If people had responded to the lower interest rates by LOWERING their payments so they could save the balance and pay down debt, lower interest rates would have been -- on the whole -- very good. But, predictably, most people just took it as an opportunity to "double down" on debt.

Since I'm on that topic, another problem with increasing debt at low interest is apparent to me, although I haven't heard anyone else raise the issue. While some debt is fixed rate (e.g., most FHA loans) quite a bit is actually variable (sorry, I don't know the percentage -- does anyone else?). Nearly all commercial real estate loans, for example, are variable as are many homeowner loans. So, if people make "investment" decisions based on cash flows from artificially abnormal base interest rates, they are setting up for a fall, possibly from considerable height. This isn't just an "if"; I know people who ARE making decisions involving variable rate loans who ARE counting on rates remaining low.

I also suspect that a LOT of the "fixed rate" loans are actually funded with the underlying party borrowing a lower variable interest rates and "insuring" themselves against the rate going up via derivatives. I haven't heard much discussion of this possibility and maybe my concerns are unfounded . . . I just have a funny feeling they are not.

Anyway, here is Roach:

I guess that’s the basic point -- reckless abandon. With the benefit of hindsight, I would now argue that the post-shock response of the American consumer puts the endgame into even sharper focus. This spending binge has come at a real cost -- more debt, depressed saving, big federal budget deficits, and an increasingly voracious appetite to extract purchasing power from asset appreciation. Household sector debt now stands in excess of 75% of US GDP -- an all-time record and fully ten percentage points above the debt load of a decade ago. Debt-service-to-income ratios are within a tick of their all-time highs -- all the more astounding since short-term market interest rates are at 40-year lows. The personal saving rate was up a bit -- at least for a while. But this was mainly traceable to massive tax cuts, which had the effect of shifting saving from the public sector (i.e., budget surpluses) to the private sector. My estimates suggest that excluding the impacts of the recent tax cut, the personal saving rate would have risen only to about 2% -- half the published 3.9% rate in 2Q02 (see my 7 August dispatch, "Rearranging the Deck Chairs"). Meanwhile, courtesy of July’s spending binge, the personal saving rate plunged to 3.4%, its lowest reading of the year.

It is this type of behavior that I still believe "seals the fate" of the over-extended American consumer. The counter argument is that consumers are nimble enough to draw freely from the windfall gains of another spectacular home mortgage refinancing cycle. The presumption is that consumers can forever augment their wage-based purchasing power by relying on the combination of asset appreciation and tax cuts. It overlooks the legacy of those actions -- a massive build-up of public and private sector debt that is required to extract purchasing power from over-valued assets. Consumers played that game during the equity bubble of the late 1990s and are now being encouraged to go down this same route with the housing bubble. Maybe Americans are more fatalistic in the aftermath of 9-11 -- willing to do whatever it takes to keep on spending. However, just because consumption has surprised on the upside, doesn’t mean it will continue to do so indefinitely. I’ve never had much sympathy for the momentum approach to macro. In the face of adverse fundamentals, I worry more about a deep sense of denial that continues to pervade the psyche of the American consumer. These are the excesses that can only end in tears.

Post  41359  by  ferociousD       clo-

Post  41360  by  clo       Reply
ferociousD, did he happen to mention Ford? Thanks for the info. clo

RESEARCH ALERT-UBS cuts Ford to 'reduce' from 'hold'

NEW YORK, Sept 3 (Reuters) - UBS Securities said it cut its
investment rating Tuesday on Ford Motor Co. to "reduce"
from "hold" and cut its price target to $9.50 from $12 a share.
Analyst Saul Rubin, in a research note, cited a "potent"
mixture of noncompetitive operations and weakness in Ford's
pension fund that will cause cash outflows for years to come.
"While solvency is not an issue (strong gross cash of $23
billion), we nonetheless see further, perhaps prolonged,
weakness before recovery," he wrote. "With a GM (General Motors
Corp. ) 'one-two-punch' product-and-price offensive, on
top of ever-present competitive pressure from non-U.S. brands,
market share losses are likely to persist in coming years."
Rubin predicted Ford will eventually need a more
far-reaching restructuring and greater layoffs, a prospect he
thinks remains slim, before it gets back on the path to
Ford shares closed Friday at $11.77, near the 52-week low
of $10.65.
((Karen Padley, Chicago Equities News, 312-408-8130,
*** end of story ***

Post  41361  by  oldCADuser       OT: Just to help put all into perspective this mor

Post  41362  by  Warstud       Reply

I think you were right to get out when you did, but then again you never know when the rally is out of steam. Probably best to just place stops near a reasonable gain and adjust up if it continues in that direction.

Going SHORT soon!

Post  41363  by  pacemakernj       Reply
Roof, did you see the Nikkei today. We broke to new lows. But did you hear why. The city of Tokyo threatened to pull their $14 billion out of the banks they do business with and put it in Citibank. They are worried about the April 1 '03 deadline approaching and their solvency. They asked these banks for specific answers to their financial status. If they don't get those answers or if they do and don't like what they see there gone. I'm telling you this is the ticking time bomb. It might seem unthinkable that the second largest economy in the world could go bust but this, imo, will hang over world financial markets like an anchor. The Nikkei must saty above the 10k mark. This is not good news for world markets but very good news for gold. We'll see time will tell. Pace.

Post  41364  by  uponroof       Reply
pace... down 150 as we speak

Thanks for the heads up. I had a subscription to Nikkei Net interactive but it has expired.....just as the news gets hot! Keep me posted buddy. Thanks!

Post  41365  by  uponroof       Reply
pace...MIDAS letter 9/3/02
Some intersting tidbits in tonights letter:

US manufacturing orders declined in August, 1st time in 9 months
Consolidated Freight (3rd largest in nation) Chapter 11...
7 Billion in mutual funds withdrawn in August...and the markets rallyed.....hummmmm


September 3 - Gold $313.60 up $1.60 - Silver $4.45 unchanged

Gold Cartel Brings Out Monopoly Board: Gold, Do Not Pass Go ($315)

Rumor has it that The Gold Cartel was parading around the Comex pit with a Gold, Do Not Pass Go ($315) sign hoisted in the air. After a few laps, representatives of the various bullion banks in the cabal sat down to play Monopoly with bored Comex traders.

The rigging of the price of gold could not be more obvious than today (the high in the cash market was $315 offered). Factors supposedly friendly for the price of gold were glaringly super positive, starting with the dollar:

New York, Sept. 3 (Bloomberg) -- The dollar had its biggest drop in eight weeks against the euro on concern tumbling global stocks and signs of slowing U.S. economic growth will curb the flow of money into the U.S.
The dollar suffered, even as stocks slid in Europe and Japan, because of the record U.S. current-account deficit, analysts said. The shortfall needs to be offset by an infusion of money into dollar-denominated assets for the currency to retain its value. –END-

Then, there was the spectacle of tanking stock markets around the world led by Japan:

Tokyo, Sept. 3 (Bloomberg) -- Japanese stocks fell, sending the Nikkei 225 Stock Average to its lowest in almost 19 years. Exporters such as Matsushita Electric Industrial Co. dropped on concern a U.S. industry report due later today will show factory orders and production slowed in August. – END-

Japanese investors in for the long haul are being clobbered, which brings me to a gripe I have about the Wall Street/financial planners that continue to advise the public to invest for the long haul. This past weekend the financial talk shows on the airways were full of them. I did not hear ONE suggest to pull out of the markets for the time being. That is what the same advisors/pundits have said for the last two years. The gripe is that these types do not explain that if the economy tanks from here on in, so will the stock market. It is exactly during a time when the economy really tanks that people suddenly need cash, money they have put away. People lose jobs, business is lousy, etc. It is also the time when they will be most fearful of losing most of what they put in the market and will envision their retirement money disappearing. Many will finally believe they have no choice in times like these but to flee the stock market for good. By then, the public will listen to none of these people. THAT will be he wrong time to get out.

It is going to be dreadful!

Interest rates in the U.S. dropped precipitously, which is also very gold friendly:

New York, Sept. 3 (Bloomberg) -- U.S. Treasuries had their biggest gain in two weeks after an industry report showed manufacturing stalled in August, heightening speculation that the Federal Reserve will cut interest rates.
The yield on the benchmark 10-year note fell below 4 percent, within 1 basis point of a 39-year low reached last month as a tumble in stocks fueled demand for debt's fixed payments. –END-

Last week I mentioned that volatility was gold’s friend. Today, there was none as The Gold Cartel sat there to take on all bids. The gold friendly news meant nothing, not today anyway.

It is very difficult for me not to have extreme contempt for:

*Gold market commentators that are hung up on the Not Invented Here Syndrome, so they refuse to deal with the obvious manipulation of the gold price.

*Senior gold producer executives that bend over year after year and let The Gold Cartel walk all over them, refusing to bring this issue to their shareholder’s attention.

*The deadbeat CFTC, which is a sham of a regulatory body.

*The Gold Cartel crooks themselves, who continue to steal the public’s money in violation of the anti-trust laws.

*President Bush and Treasury Secretary O’Neill, who are using their secretive 40 billion ESF Fund to hold the price of gold down and make a mockery of the notion that America financial markets are "free markets."

*Supposed gold industry institutions that have adopted a see no evil, hear no evil, and speak no evil attitude/policy towards their own oppressors.

*Timid U.S. politicians who have done nothing with the evidence handed them about the manipulation of the price of gold.

*The arrogant New York/Washington financial press that has made a mockery of the notion that we have a free press in America. After 40 months, the Wall Street Journal, New York Times and Washington Post have refused to even mention the world GATA and present our findings.

The tragic aspect of the suppression of the gold scandal story is that if it were brought to light, the gold manipulation game would end to the benefit of gold investors, the gold producers and the poor gold producing countries. As Jim Sinclair says, the cabal cannot pull off their dirty deeds without secrecy. As Midas says, Dracula cannot stand the light of day.

The following question was put to Jim Sinclair today. His answer says it all:

" ..I know of no better way to vault gold to a new recovery high...".
Why would exposing the secret have that effect? I
If you are referring to an issue of supply coming from the Central banks, why would that stop them - after all the Federal Reserve is a privately owned institution-- are foreign central banks government institutions?-- who is going to care about the big secret?

There is a good possibility that the amount of central bank leased gold, so exceeds the estimates I made in my article, as to be shocking. I used the gold leased 5200 tons estimate that actually came from central bank sources. Some private but quite knowledgeable sources estimates are twice to four times that amount. I usually stay conservative so that the opposition, when reading me, is not shut off.
If it became clear that a HUGE AMOUNT OF GOLD WAS GONE THAT LEAVES LESS Gold TO OPPOSE THE RISE. It would clearly label the Central Banks as only one more of the amoral liars that populate the instant gratification economic world and motivate the Asian/Islamic interest to take on the Central Banks face to face.
Central Banks succeed when they threaten and act in secret.
Secret gone = strength gone.
Believe me, I

am right on this one.
Most of the GATA camp believe the central bank gold loans to be between 11,000 tonnes to 17,000 tonnes, with 14,000 tonnes our average. That is now more than 3 times what the official gold industry number is. One reason for the discrepancy is that the gold industry does not include gold swaps, which is ludicrous. Gold loans AND swaps both represent gold that has left the coffers of the central bank.

The John Brimelow Report

Indian ex duty premiums: AM ($) 0.96c, PM $2.28, with world gold at $312.90 and $313.25. The latter is ample for legal imports, which in Bombay (the traditional basis) needs about $1.87 above parity. Considering other Indian prices this morning, the AM report seems rather anomalous. Reuters carries another jeremiad from Indian bullion dealers moaning about the drought, repeating import quantities estimates first offered some weeks ago since when the monsoon has improved. (See )

Indian dealers, of course, always prefer lower prices since they make their money on volume. In fact, the monsoon faltering is mixed and the aggregate crop out look is mediocre rather than poor. The strengthening Indian rupee (which hit another 7 month high yesterday) is contributing to bolstering local demand. See .

Tokyo continued uninspired, with volume only equal to 14,480 Comex contracts, and open interest edging up 112 contracts. (NY on Friday traded 14,215 lots and open interest slipped 562.) The active contract fell 7 yen. There is discussion in Tokyo to the effect that traders have been seduced away by the more volatile hydrocarbon contracts: the fact is that the yen strengthened almost a yen in Tokyo, which seems always to discourage Tocom interest. Dow Jones actually reports Japanese buying – today is the first time Tocom open interest has not declined in several days.

"If the LBMA thought declining turnover a problem, wait till the CIA comes a-knocking on bullion banks doors trying to track down the Mid East connections." exults a noted bullion dealer reporting on a Washington Post article on dark administration-inspired muttering about the role of gold in Al Qaeda funding. This is not the first time such a balloon has been floated: for the first time one wonders if this yet another American freedom to be sacrificed to the "War on Terror".


Excerpts from the Washington Post story:
Al Qaeda Gold Moved to Sudan
Iran, U.A.E. Used as Transit Points

By Douglas Farah
Washington Post Staff Writer
Tuesday, September 3, 2002

Financial officers of al Qaeda and the Taliban have quietly shipped large quantities of gold out of Pakistan to Sudan in recent weeks, transiting through the United Arab Emirates and Iran, according to European, Pakistani and U.S. investigators.
The sources said several shipments of boxes of gold, usually disguised as other products, were taken by small boat from the Pakistani port of Karachi to either Iran or Dubai, and from there mixed with other goods and flown by chartered airplanes to Khartoum, the Sudanese capital.



The cabal must be reeling. Murphy’s Law is going to do them in, as advertised in Midas for a long time now.

The DOW fell 355 to 8308, while the DOG submarined to 1264, down 51. If the NASDOG repeats the same performance tomorrow it will close in multi-year new low ground.

Perhaps the most ominous development of all for The Gold Cartel was the tanking of the banking index, which dropped 43 points to 744. Technically, it is in terrible shape as the stochastics are JUST rolling over to the downside from high-level overbought territory.

Bullion banker Citigroup led the way down, closing at $29.39, down $3.36.

New York, Sept. 3 (Bloomberg) -- Citigroup Inc. tumbled as much as 9.8 percent after Prudential Securities analyst Michael Mayo told investors to sell the stock, citing Enron Corp.-related lawsuits and potential Latin American and consumer loan losses.
Mayo dropped his rating on the biggest financial services company, assigning it the only ``sell'' among 21 analysts who cover the stock, according to Bloomberg data. Seventeen analysts rate Citigroup ``buy'' and three rate it ``hold.''
The stock fell $3.21 to $29.53 in New York Stock Exchange composite trading at 3:05 p.m. and is down 37 percent this year, the worst among banks in the Philadelphia KBW banks index. Chief Executive Sanford Weill's personal holdings declined about $103 million today.
``The firm has not adjusted its hardball management style for the nature of its current problems,'' wrote Mayo in a report. ``More substantive changes seem needed in our view.''
Citigroup earnings may be hurt by lawsuits alleging it helped bankrupt energy trader Enron hide debt, Mayo wrote. The company this month faces a ruling on whether legal claims of as much as $50 billion may go ahead. Citigroup may pay `` a higher percentage if guilty'' than other banks, he said.
The New York company may also lose money on $11 billion in loans and other commitments in Brazil, where the leading presidential candidate has suggested he may not honor debt agreements, Mayo wrote. Fewer fees from stock trading and consumer loan defaults also may damage earnings, he said.


Don’t forget J.P. Morgan Chase, which closed at $24.75, down $1.65. Mike Bolser and I received a letter today from a Morgan senior VP. Fairly innocuous, which may be their problem when gold blows up on them. If I can get the letter type set, I will put it up at The Café.

Investors back from a long Labor Day weekend were greeted with lousy economic news:

Washington, Sept. 3 (Bloomberg) -- U.S. manufacturing stalled in August, as orders declined for the first time in nine months and production slowed, indicating the economy's recovery may be faltering.
The drop in new orders ``signals a warning,'' said Norbert Ore, head of the Institute for Supply Management's survey of manufacturers and director of purchasing at Georgia-Pacific Corp. ``We've lost a lot of momentum.''
The group's factory index held at 50.5 last month, less than expected and below the average 53.8 for the first seven months of this year. Stocks and the dollar fell and Treasury securities rose.

VANCOUVER, Wash. (Reuters) - Freight hauler Consolidated Freightways Corp. CFWYE.O said on Monday it plans to discontinue some operations and file for Chapter 11 bankruptcy protection for some of its businesses…. –END-

We are talking about the 3rd largest freight hauler in the U.S.

This afternoon it was announced that the public withdrew another 7 billion out of mutual funds in August. The CNBC crowd seemed confused as to why the stock market rallied as much as it did. The Midas crowd has the answer. It was not the public moving back in, it was the Working Group on Financial Markets trying to prop the market up via buying by certain banks.

From David Lewis on the big picture:

I note quite a few cross country comparisons of the current US situation with Japan in the 90s, or even cross temporal comparisons as the US economy of the 30s or 70s is compared with today. I think, though, that while this analysis offers some insights, a fuller picture can be obtained from a more global perspective. As an example, a study of the 20s boom and 30s bust in the US seems incomplete without an examination of British economic policies during the same period. An even fuller picture can be obtained by fitting in the Austrian experience of the 20s and the trials caused by other nations re-entering the Gold exchange standard system.

A history lesson of this depth is beyond my ability to type in a few short words but may I recommend Rothbard's America's Great Depression and Friedman and Schwartz's A Monetary History of the US (I, unfortunately haven't found an e-text of this work) as starting points I found utile. Using the lessons of the past, I find an eerie similarity between the British-US relationship in the 20s and 30s and our relationship with Japan over the past decade. In the 20s it was Britain which was consuming more than it produced and losing Gold in the process. In the 20s it was the US which sought to sterilize the Gold inflow from Britain by keeping rates low. In the past decade, it is the US which is consuming more than it produces and Japan which is trying to keep its currency from rising by keeping rates low. In the 20s the US was a creditor nation, now Japan is a creditor nation. In the early 30s Britain was forced to give up even the pretense of a Gold standard without first purging the embedded excesses in the financial superstructure, will the US follow the same path today?


Dave Lewis
Chuck checks in:

Well, it appears that all of the players have returned. Not a perky omen to have such a relentless selloff. That is why I have felt that it was dangerous if you are a bear to try to play the rally, and if you are a gold bull to be out of the market. The worst is yet to come and it should come soon. The action in the financials in spite of near record interest rates is very scary.

We should soon hear of the avalanche of law suits soon. I'm sure that the lawyers are working the midnight oil preparing their cases. I would not wish to be a banker, a broker, an investment banker, a partner in a Wall Street related business, a CEO, an analyst or even a worker for CNBC. The unreal complacency and smug confidence which has been the hallmark of this market for so many years is about to turn to fear and then despair.

When the interest rates suddenly turn up, we will be in a frightening time. A historic deflationary collapse is nigh. Best, Chuck

From Laurie McGuirk in Sydney, Australia on a Wednesday morning downunder:
Gold stocks all up whether hedged or not. Dow smashed and looks crook. Call for the Doctor....terminal....sorry. Still worried we see lower gold stock prices on fund redemption and liquidation as per late July. Have calls to cover if my analysis flawed. Dow 8000 puts, for sept, rose 125% on the day and up nearly 160% since last Thursday. Still very wary of "dummy" rallies that are still sucking in the "new-economy hopefuls" .... People have to realise that "HOPE" is not an fundamental investment criteria.

Heard Wayne Murdy,Chief of Newmont, on Bberg Friday night(it has been a long w/e so not long ago)... said.."gold is the only currency that isn't someone elses debt"... he's listening! He also said that .... "gold is a natural resource, it's finite". LM comment --- Unlike Greenspan's printing presses running overtime, this currency is limited and unable to be counterfeited....



Dear Bill,

I saw GOLD in right eye and SILVER in left

Nobody can change destiny. What I am predicting is already written in destiny of GOLD. "LAXMI" money (MAHAMAYA) in the KALYUGA (current world) is controlling every thing and everybody except a few.

Gold has always been there even before 5000 years. "Gold" is part of LAXMI. Makes her more beautiful and attractive.

Until now many people have done study of gold and its trend in the world market. I am also one of the few doing this study in different a way because I feel that in some ways I have a great hidden relationship with gold.

I have been writing about gold for the last one year but my statement today means a lot as a "Karma-yogi" in this "Kalayuga".

From 3rd September 2002 gold will enter a young age. From today or tomorrow I clearly see Gold having an uptrend continuously without major setback. "What a great cycle starting!" Those who hold gold will be happy but those who sold gold (hoping it will go down) will have started their worrying time. My generous advice for a "short seller" in gold is that they should cover a short position now because I do not like anybody losing their life savings (individual) or those who hold people’s money (big fund, institute or bank).

During this month slowly many individuals, banks and financial institutions will get into problems with those in short positions in GOLD as well as SILVER. This will create havoc in the financial market and it will make gold to go up to $760 to $880 within a very short period. And in the next 18 months I see very clearly big institutions closing down because of high-rise in GOLD prices.

If my prophecy come true for month of September (I know I this will happen because Shiva says) then my vision for gold in twenty-three (23) months will touch $900 to $1200 per ounce.

During this month of September gold will rise strongly and many positive news will come for gold. Great exciting period for gold investor is coming within twenty-four (24) days after waiting for the whole of last century for a continuous up-trend. Wednesday 4th September (My birthday) and 5th September we will see real fireworks in Gold (Shiva says because Jupiter will hug Moon).

For silver great news is also coming within twenty-seven (27) days. "What a great rise I see!" For the next thirteen (13) months. Great period is coming from 3rd September for silver to rise by 10% to 20% in a day. This rise will be very common for next 13 months because big positions will be taken by few known people personalities (very soon we will come to know these renowned names).

I am giving an advance invitation for "Mahayagna" which I will do on the day gold touches $500 and silver $8.00 an ounce. We are around the corner not very far from this day.

Those people reading this article must close their eyes once and think about me and in advance say thanks "Shiva", thanks Mahendra.

There will be gold in their right hand and silver in the left hand.

I clearly see yellow light in my right eye and white in my left. I also see yellow metal in my right hand and white in my left.

Ashrivaad –

God bless
Mahendra Sharma…3rd September 2002, 6.30am

Love to everybody---Mahendra Sharma

Catherine Austin Fitts is cruising into Dallas tonight for dinner. It is always fun to get together will her.

The gold share sector was one of the few to rise. They ain't seen nothin' yet.

There will be more coming via one of the Tables by tomorrow.



Good Luck


Post  41366  by  uponroof       Reply
Major World Indices...lotsa red

Post  41367  by  wilful10       Reply
More on bubbles:

The perils of ignoring bubbles
By Stephen Cecchetti
Published: September 3 2002 20:28 | Last Updated: September 3 2002 20:28

Central bankers keep inflation low, real growth high and the financial systems operating smoothly by using a combination of data and their own instincts to move before things get bad. Pre-emptive action, based on hunches and suspicions rather than hard facts, is in monetary policymakers' blood. So why do Alan Greenspan and his colleagues at the Federal Reserve remain steadfast in their view that trying to head off asset price bubbles, with their obviously disastrous consequences, is not in their department?

Recent Japanese and American experiences have taught us important lessons about the way asset price bubbles distort economic and financial decisions. The costs are enormous.

Take the US case. America's internet bubble led to over investment in high- technology companies and affected tax policy, pension investment decisions and even the measurement of output. We all know about the misallocation of investment resources and the huge rise and fall in stock market wealth. It is the other results that have come to light more recently that may have more lasting effects.

As stock prices rose, capital gains taxes filled the coffers of local and federal governments in America. With all the extra money, politicians could increase spending while cutting taxes. And they did it as if the revenue growth were permanent.

Now that the bubble has burst and tax collection has collapsed, legislators are stuck with unpopular alternatives. Do they raise taxes, cut spending or increase debt? With the economy sputtering along, the first two options look pretty bad. But borrowing is unavailable to almost everyone bar the federal government in Washington - and even there it is unclear how wise it is. The internet bubble created these problems and they surely involve hundreds of billions of dollars.

Underfunding of Social Security, the US public pension system, has been a problem for years. And now we learn that the stock market boom and bust has created trouble for the private system. When high stock returns drive the accumulations in these private funds above the level that actuaries say they need, the sponsoring companies are allowed to make withdrawals. These "negative" pension contributions increase company profits, driving stock prices even higher.

Needless to say, a lot of this went on during the late 1990s. With the stock market falling, these pensions have become underfunded and so companies are now forced to put the money back in - money that, if it had not been for the bubble, would never have been withdrawn in the first place. Today, some say the size of the problem is about $100bn.

In a more subtle way, the bubble drove up measured gross domestic product growth. Much of the over- investment in the US economy has been in computer equipment. Companies purchased and installed more machines than they needed. And these essentially worthless computers, representing extremely fast productivity growth, made up an ever- increasing portion of output. Part of America's new economy miracle, with its growth rates of 4 per cent and above, now looks as if it was partially a statistical mirage: US potential growth is 3 per cent, more than a full percentage point below the level people hoped for just two years ago. That affects both public and private decisions at all levels.

Add all of this together and the cost is several per cent of US GDP and still counting. When faced with the potential for output losses of this size, central bankers usually work fast to try to minimise the damage. So why, when faced with strong evidence of a bubble, do they react so differently, claiming that there is nothing they can do? The response is surprising.

Policymakers are usually not shy about intervening in the economy when faced with hard problems. These are the people who raised interest rates in the winter of 1994 when they had deep suspicions that inflation was going to go up, and lowered them in the autumn of 1998 when they thought that the financial system was teetering on the edge of a cliff. From today's vantage point, these decisions continue to look like the right ones.

Central bankers make two arguments for ignoring asset price bubbles. They say that there is no way to be sure that there is a bubble out there - and even if there is, they say, there is nothing they can do about it.

The first argument rings hollow. Just because something is hard to measure, that does not mean you can ignore it. For example, it is impossible to avoid forecasting inflation and growth, activities that are certainly not for the statistically squeamish. Beyond that, it is important to realise that buried in the bowels of the forecasts are implicit or explicit estimates of the asset prices, the implied equity premium and any potential bubble. These are necessary inputs into any forecast of consumption, investment, overall growth and aggregate inflation. Why not just admit that you take a position on future asset prices and be done with it?

What about the second argument? The most common line of reasoning is that the best monetary policy can do is to react to changes in inflation forecasts. But, to the extent that those forecasts are correct, they will show inflation falling after the bubble bursts and the result is perverse.

Taking explicit account of the bubble by tightening is a sound alternative. To the extent that bubbles arise from unrealistic expectations of future economic growth, interest-rate increases that moderate current levels of growth can put a brake on them.

I believe we are now paying the price for the Fed's failure to contemplate such action in the spring of 1997. If it had raised interest rates even only slightly - 0.5-0.75 of a percentage point, say - it would have put a modest brake on growth, reduced reported corporate profits and lowered estimates of future revenue growth. With a slower growth forecast, the stock price bubble might have been less extreme.

I cannot claim this would have worked and did not push for it at the time - but I certainly should have.

The writer is professor of economics at Ohio State University, and research associate at the National Bureau of Economic Research. He was director of research of the Federal Reserve Bank of New York between 1997 and 1999

Post  41368  by  ferociousD       Clo, no mention of Ford-