Salon.com > Steve Bodow

No relief

Tue, 25 Jul 2000 19:00:00 +0000

Hey, revisionist history buffs, guess what?! Pre-abolition America -- where the rich were rich and the poor were chattel -- was an Eden of social equality. When the 106th Congress voted to abolish the federal estate tax last week, they returned us to that ancient paradise.

That's just one of the howlers right-wing think tanks have devised in their shockingly successful attempt to sell the country on a tax cut that benefits the wealthiest 2 percent of the population.

Granted, some tax relief is in order. The federal budget surplus keeps climbing and the economy seems to be cooling: the perfect time for a cut. The just-passed end to the so-called "marriage penalty," for example, is a decent proposal that (though slanted to favor wealthier couples and destined for a veto) would give a break to a broad cross section of people.

But after a decade of unprecedented economic gains for the nation's wealthiest, you'd think a gift-wrapped $850 billion (the Treasury Department's estimate of what the repeal would cost over the next two decades) targeted mainly at millionaires would be election-year poison. After all, people only pay estate tax on property worth more than $675,000; family-owned businesses are exempt from paying the taxman a dime until they're worth over $1.3 million. In 1997, the last year for which the IRS provides figures, only a few thousand families had to pay any estate tax at all. It seems only President Clinton, who has vowed to veto the bill, understands the identity of the true beneficiaries.

The Street comes clean

Tue, 18 Jul 2000 19:00:00 +0000

Yahoo proved worthy of its exclamation point last week, when the Web bellwether reported second-quarter income 20 percent better than Wall Street's official expectations. That triggered a tech-stock surge that sent the NASDAQ to levels not seen since antediluvian April. The Yahoo hoopla also set the stage for the coming two weeks, when a flood of companies will open their books for investor scrutiny in the latest quarterly earnings season. With the Fed's next interest-rate chitchat still five weeks off, the market will focus -- at least momentarily -- on the numbers that should matter most: profit performance.

Quarterly earnings reporting tends to create volatile times on the stock market, with seemingly small departures from anticipated results causing steep, swift swings in share prices. ("Black October" came about partly because that's when traditionally lackluster third-quarter results arrive.) To get a read on the market, it's critically important to know what the Street's fortune tellers expect from the most-watched companies.

Everybody invest in us!

Tue, 11 Jul 2000 19:00:00 +0000

I'll make a bet the short-sleeve stretch shirts now available for $38 in rainbow colors at your local Gap will hit the sale rack by early August.

I'm working on a tip. Gap Inc. announced last week that it would fall short of its expected second-quarter earnings, largely because it had to mark down an unusually high number of its more-fashionable clothes. More surprisingly, budget-bonanza Old Navy -- seen as an essential growth engine for the roughly $13 billion-a-year company -- stalled; its same-store sales dropped 9 percent. Despite Banana Republic's solid results, dire reports of the Gap's demise were not exaggerated.

Two ironies here. The first has to do with how the Gap got into this pickle. After all, it did just what Wall Street wanted it to do.

“Don’t worry, be delirious”

Wed, 05 Jul 2000 19:00:00 +0000

The 200 or so soldiers at the Silicon Alley Reporter's annual Rising Tide Summit -- a New York Web establishment confab -- had just weathered what should have been the spring of their discontent. Since mid-March, the Internet industry has experienced its greatest thrashing ever, with most Net stocks sinking by at least 50 percent. Amid company closings, fire-sale share prices and Wall Street profit warnings (non-profit warnings, really), new media no longer looks like a sure thing. And many a paper fortune in attendance at last year's gathering had vaporized.

But rather than commiserating in wound-licking mutual consolation, the crowd seemed utterly relaxed: almost perversely confident in their industry's future, and by extension, their own destiny. The Alley's first-generation true believers pride themselves on having gotten into the business before the money flooded in. And now that the tidal surf appears to be at least temporarily receding, many of them are glad to have their turf back to themselves.

The new power players

Tue, 27 Jun 2000 19:01:00 +0000

To locate blame for our nation's petroleum addition, we might want to start with our $35,000 Explorer addictions. Nevermind that inflation-adjusted pump prices aren't even high enough to merit whining: The current freakout over gas prices is less about economics than psychology.

OPEC, which has only been behaving like a good capitalist, drew fire last week after its token production boost did little to lower crude oil prices. Meanwhile, the GOP demonizes too-strict environmental laws, while Dems vilify oil barons. Any of these straw-man targets sure beats talking about the real problem, which is that when it comes to oil, we're a nation of brats. We don't like to be told we can't have cheap gas. The last time someone tried, we promptly shipped him back to Plains, Ga., like he was a defective product.

But one thing has changed since the Carter era. Two decades ago, most alternative energy technologies were little more than pipeline dreams. Now, many are much closer to reality, and within reach by mid-decade. Vice President Al Gore today is expected to call for billions in tax breaks, low-interest loans and other federal subsidies to encourage consumers to buy clean-energy products, such as alternative-fuel cars, to reduce the country's dependence on foreign oil.

Mutual denigration

Tue, 20 Jun 2000 19:00:00 +0000

Buy a can of soup and you'll know every last ingredient. Buy a typical mutual fund and you may never discover exactly what you own.

Most funds disclose their holdings just twice a year. Few tell anyone how often they trade, which can seriously impact after-tax returns. The result: Mutual fund investors get left in the dark, says Don Luskin, an investment industry veteran of more than 15 years and co-founder of a company called MetaMarkets.

But slowly, fund companies have begun to crack open their books.

MetaMarkets' OpenFund (which trades under the symbol OPENX) lives up to its name. This maverick operation makes its entire portfolio open for inspection.

No other fund flirts with so much disclosure, though others have started moving in the same direction. Montgomery Funds markets its brand-new Stock Solutions portfolios to "today's savvy investor" who wants good returns and a little insight into its manager's investment decisions. Other smaller funds, including Munder NetNet and Firsthand Funds, also offer Web updates of their holdings.

The great mutual fund rip-off

Tue, 13 Jun 2000 19:00:00 +0000

These should be jubilant times for mutual fund managers. With more than $7 trillion in their hands courtesy of 83 million Americans, you'd think they'd be tremendously popular -- the homecoming kings and queens of personal finance.

But the fund clique has encountered rebellion. The Securities and Exchange Commission has cracked down on mutual fund ads, already punishing such firms as Van Kampen and Dreyfus for enticing consumers with misleading come-ons. Actively managed funds, where high-salaried pros pick stocks, have consistently trailed auto-pilot index funds. And even industry guru John Bogle, the founder of the Vanguard Group and the father of low-cost investing, has publicly stated that most fund managers no longer serve clients like they should.

The primary reason for the industry's fall from favor: costs. They're too high and too confusing. Despite the economies of scale one would expect from managing ballooning assets, annual fund expenses have risen from 1.45 percent to 1.55 percent in the last decade, according to Morningstar. That may not sound like much, but left to compound for many years, fractions turn into big bucks. Worse, part of these costs go toward giving raises to fund runners, even if they don't deserve it.

Bull market for market bull

Tue, 06 Jun 2000 18:50:00 +0000

If you've seen "M:i-2," you already know which screenplay moment was my favorite. No, not the umpteenth rubber face-mask gag. I'm talking about the scene where the evil movie villain details his ransom for the fate of humanity.

Does Scottish bio-terrorist Sean Ambrose simply call for a prodigious pile of cash? Of course not -- how old-school 007-boring that would be. After Dr. Evil's inept demand for "$1 million," no self-respecting spy-flick heavy would crave mere currency. Mr. Bad Guy 2000 insists on something much more darkly powerful: He requires stock options.

It makes for an unintentionally hilarious beat. In money-mad Manhattan, crowds laughed at (not with) the wicked Ambrose's revelation that the real object of his maniacal lusts is a package of equity derivatives. Sure, he'll take a few million bucks in a Swiss account -- but only as a way of paying for Biocyte options, whose value will skyrocket once he tells the markets about A) a deadly new virus and B) the Biocyte drug that will cure it.

The urge to merge

Tue, 30 May 2000 19:00:00 +0000

Here at NASDAQ 3000, shareholders are having a fire sale on a heap of New Economy stocks. Start-ups with depleting cash flows feel the tightest squeeze. Fresh V.C. money still is trickling in, but not like the geyser of a year ago. Companies that refused to even consider getting hitched a few months ago have developed a sudden interest in marrying for money. And what could be more charming that a spate of summer weddings -- even if they're of the shotgun variety?

Amazon.com (current market capitalization: $16.8 billion)/eToys.com ($690 million)

The Web toy business doesn't look much fun for start-ups these days. Nickelodeon-backed RedRocket.com and Disney's Toysmart.com both folded in the past few weeks, and KBKids.com announced a heavy layoff. Despite a rocky online start, Toysrus.com now has more traffic than former IPO wunderkind eToys, although the latter site still has the technical edge. Worse, eToys' cash is going fast and its stock has sunk 93 percent from its 52-week high.

Pay no more

Mon, 22 May 2000 21:24:00 +0000

Imagine free local calls, zero long-distance charges, complimentary
unlimited cellphone time and no more Web access bills. If you're still
forking over hundreds of dollars a month for these services, the thought of
completely free communications might appear radical.

It could happen sooner than you think.

Some Internet service providers in both this country and Europe are already
making money exclusively through advertising and e-commerce deals. And
wireless companies -- even your local Baby Bell -- will soon join them. For
them, charging you for their services will be like Wal-Mart sticking
customers for admission. "We're going to be happy if you just look at
content and shop," says Bill Keenan, Alta Vista's director of access.

Keenan may be right. Last week we saw the first sign of things to come in
the $12.5 billion marriage between Spanish Internet service provider Terra Networks and Lycos, the
Massachusetts-based Web portal and site network.

Free stock trading, anyone?

Thu, 18 May 2000 16:00:00 +0000

Given the Web's fondness for freeness, it's remarkable that a major online brokerage didn't dangle free trading before the masses a long time ago.

So when Ameritrade launched Freetrade.com last month, allowing customers to buy and sell stocks at market prices without commission charges, you might have expected them to trumpet the move.

Instead, there's been a concerted absence of fanfare. Ameritrade has no marketing budget for its low-profile experiment, and few expectations.

Naturally, the industry is keeping an eye on Freetrade. If its give-it-away model takes off, it will force competitors into a price war, eroding revenues and many an e-brokerage's chance of survival. But there are good reasons that won't happen.

It comes down to getting what you pay for. At Freetrade, your zero dollars gets you simple buy or sell market orders, period. This is strictly no-frills trading, 100 percent virtual, with no phone support, no research, no fancy quote feeds, nada -- the People's Express of stock brokers.

Put 'em up

Mon, 15 May 2000 16:00:00 +0000

Everyone in the money business wants to know one thing this week: What will Alan Greenspan do?

This Tuesday, the Fed chairman meets with the Federal Open Markets Committee to set interest rates. Financial handicappers almost unanimously predict that, with inflation having undeniably reared its ugly head, the Fed will take a more hawkish stance and raise rates a half point.

That bump is pretty well priced into the stock market. But I'm hoping for a surprise. An on-the-brink situation like the one the economy faces calls for decisive action. The Fed should order a three-quarter-point hike immediately.

Greenspan's need to balance concerns of too-little-too-late vs. too-much-too-soon reminds me of another '90s visionary. I'm speaking of the "pain management" specialist who visited me periodically during my post-surgery hospital stay a few years ago. The crucial thing, she explained, was to stay one step ahead of the pain. Once it started coming on, it would be far more difficult to stop. She encouraged me to ask freely for medication if I felt any discomfort, a suggestion I was happy to comply with. Yet somehow I was never dosed into oblivion, just the pleasant edge of lucidity.

Is it time to buy Microsoft?

Fri, 28 Apr 2000 16:00:00 +0000

There's a grand old saying on Wall Street: People who make ill-timed stock calls are never wrong -- they're just early. Case in point: Michael Lewis, whose much-discussed "Buy Microsoft" editorial in the April 7 Wall Street Journal ran just after Judge Thomas Penfield Jackson found the company to be a predatory monopoly. (Not that there's anything wrong with that.) Microsoft closed at 89 1/16 that day.

Since then, of course, the company's problems have compounded. It announced a slightly crummy first quarter and reduced expectations for later this year; the stock has fallen $20 to $25 as a result. Having already weathered a similar drop because of the lawsuit, Microsoft closed Thursday at 69 13/16, off more than 40 percent from its March high. If Lewis was right, he was certainly ahead of his time.

What was it about these two unrelated events -- the court's findings of law and the warning of slower growth -- that Wall Street so despised? It has to do with the fact that what investors like most, more even than they like profits, is a Sure Thing. And they hate the sure thing's opposite just as passionately: uncertainty. They hate it even more than big, bruisey losses.