SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?


To: Neeka who wrote (124206)9/26/2002 6:28:15 PM
From: Jon Koplik  Read Replies (2) | Respond to of 152472
 
9/25/02 WSJ "commentary" -- The Market's P/E Is Low, Not High

September 25, 2002

The Market's P/E Is Low, Not High

By MARC A. MILES

Bargain hunters remain glued to the sidelines by the
mantra that the market's price-to-earnings ratio is too
high. But bystanders beware -- today's P/E is already
very low. If you wait longer, you just might miss the
bull market.

Certainly, conventional measures of P/E look scary.
The Standard & Poor's 500 today, when compared to
trailing fourth-quarter, reported profits, appears
historically very high, indicating that the stock market is
overvalued. But this measure of value is flawed.
Markets price current and future, not past, earnings.
S&P 500 reported earnings are inferior to the
Commerce Department's after-tax economic profits.
And lastly, the market's P/E should fluctuate inversely
with interest rates.

Furthermore, the trailing fourth-quarter includes Sept. 11. Unless one expects that horrific economic shock to
be repeated again this year, those earnings numbers are inappropriate for comparing to current levels of the
S&P.

Unlike reported S&P profits, after-tax profits use actual corporate earnings reported to the IRS, not numbers
released to impress analysts, and companies do not overstate profits to the IRS. IRS reported earnings are then
adjusted to reflect true costs and to eliminate windfalls. Published after-tax economic profits have been
adjusted using replacement cost basis for sales from inventories and capital consumption. Furthermore,
stock-option costs are counted as they are exercised, and capital gains/losses in pension-fund assets are netted
out. The result: Numbers that are readily comparable over time and reflect true economics.

The third adjustment is to account for the substantial rise in interest rates in the late 1970s, and the equally
substantial decline since. The value of earnings moves opposite to interest rates. Given the choice between
stocks and bonds, as the 10-year rate falls a given level of earnings should be associated with higher stock
prices. P/E rises. This adjustment is accomplished by dividing P/Es by the inverse of the 10-year Treasury
yield. In high interest-rate periods, when P/Es are expected to be low, the adjustment will be relatively small. In
low-rate periods, however, when P/Es are expected to be high, the adjustment is large. Thus the P/Es are
"normalized" for the height of interest rates.

My properly adjusted numbers suggest that the current P/E is low by historical standards. In fact, at
yesterday's closing S&P of 819 and 10-year yield of 3.64%, the market's P/E is the lowest in the entire
33-year period examined. Even at an S&P of 900 and a 10-year yield of 4%, the ratio is at the lowest level
since 1978, in the middle of Jimmy Carter's economically disastrous presidency.

Hence, there is no historical barrier for a significant market rally. In fact, it would be logical that it would rally
from such a low P/E.

Equally important, today's seemingly high P/E calculated from trailing, reported S&P earnings should begin to
appear more "normal," even as stocks rally. If economic conditions did not change, profits would be expected
to rise by 30% to 40%. Moving forward in time, simple arithmetic dictates that past quarters of unusually low
reported earnings will be replaced by earnings at current or higher levels. The fourth-quarter trailing average of
earnings goes up and P/E falls. Furthermore, many of the accounting rules which contributed to such low
levels of recent reported earnings will now work in the opposite direction; e.g., bad debt expenses will decline,
while the rising stock market increases the value of pension plans, both effects boosting the bottom line of
report profits.

In other words, get ready for a rally. Those paralyzing high P/Es are just a mirage.

Mr. Miles is executive vice president of Laffer Associates.

Updated September 25, 2002

Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.



To: Neeka who wrote (124206)9/26/2002 6:51:12 PM
From: Jon Koplik  Read Replies (1) | Respond to of 152472
 
Interesting (and scary) NYT piece on Iraq / Saddam Hussein.

[My only problem with things like this is that us "mere mortals" out here have no way on knowing if we are being told the truth ...]

********************************************

September 26, 2002

Why Iraq Can't Be Deterred

By KENNETH M. POLLACK

WASHINGTON - As the United States moves closer to war with
Iraq, some have suggested relying instead on deterrence to
deal with the threat Saddam Hussein poses. Those who favor
deterrence acknowledge that the containment regime that
constrained Iraq during the 1990's has frayed beyond
repair, but argue that Mr. Hussein can still be kept in
check by American threats to respond to any new Iraqi
aggression with force - including nuclear bombardment, if
necessary.

Certainly war should be a last resort, and deterrence is a
seemingly reasonable alternative; after all, it worked with
the Soviet Union for 45 years. Unfortunately, however,
those who seek to apply it to Iraq base their views on a
dangerous misreading of Mr. Hussein, and so fail to
recognize how risky such a course is likely to be.

Proponents of deterrence argue that Mr. Hussein will not
engage in new aggression, even after he has acquired
nuclear weapons, because he is not deliberately suicidal
and so would not risk an American nuclear response.

But what they overlook is that Mr. Hussein is often
unintentionally suicidal - that is, he miscalculates his
odds of success and frequently ignores the likelihood of
catastrophic failure. Mr. Hussein is a risk-taker who plays
dangerous games without realizing how dangerous they truly
are. He is deeply ignorant of the outside world and
surrounded by sycophants who tell him what he wants to
hear.

When Yevgeny M. Primakov, a Soviet envoy, went to Baghdad
in 1991 to try to warn Mr. Hussein to withdraw, he was
amazed to find out how cut off from reality Mr. Hussein
was. "I realized that it was possible Saddam did not have
complete information," he later wrote. "He gave priority to
positive reports . . . and as for bad news, the bearer
could pay a high price." These factors make Mr. Hussein
difficult to deter, because his calculations are based on
ideas that do not necessarily correspond to reality and are
often impervious to outside influences.

In 1974, for example, he attacked the Kurds even though
Iran had been arming and supporting them (with American and
Israeli support). He believed, for reasons unknown, that
Iran would do nothing to help its proxies. The shah
responded decisively, sending troops into Iraqi Kurdistan,
mobilizing his army and provoking clashes along the border.
To stave off an Iranian invasion that he feared would end
his regime, Mr. Hussein was forced to sign the humiliating
Algiers accord, which gave Iran everything it wanted from
Iraq, including contested territory.

This pattern has been repeated many times since, and it is
fair to say that Mr. Hussein's continued survival is far
more attributable to luck than it is to any prudence on his
part. Thus in 1980 he attacked Iran under the misguided
assumption that the new Islamic Republic was so unpopular
that it would collapse after one good shove. In so doing,
he embroiled Iraq in a war that nearly destroyed his own
regime.

In 1991, rather than withdrawing from Kuwait and heading
off a war, he convinced himself that the American-led
coalition would not attack and that even if it did, his
army would emerge victorious. By confidently pursuing this
path he again nearly destroyed himself and his regime.

The best evidence that Mr. Hussein can be deterred comes
from the Persian Gulf war, when he refrained from using
weapons of mass destruction because of American and Israeli
threats of nuclear retaliation. But a closer look at the
evidence provides more ominous lessons.

When Secretary of State James Baker met with Tariq Aziz in
Geneva on the eve of the war, the letter he presented from
President Bush to Mr. Hussein threatened the "severest
consequences" if Iraq took any of three actions: use of
weapons of mass destruction, destruction of the Kuwaiti oil
fields or terrorist action against the United States.

The first point to make is that this did not stop Mr.
Hussein from destroying the oil fields or dispatching hit
squads to the United States, so the notion that he is
easily deterred is dubious. Mr. Hussein did not use
chemical munitions against coalition ground forces because
he initially believed that he did not need them to prevail.
Nevertheless, he did keep stockpiles farther back from the
front, suggesting he planned to use them if the battle did
not go as he expected. Whether he would have used these
weapons is an open question, because the coalition ground
advance was so rapid that Iraq's forces never had a chance
to deploy them.

A better case can be made that Mr. Hussein was deterred
from launching Scud missiles tipped with chemical or
biological agents at Israel for fear that the Israelis
would retaliate with nuclear weapons, but even here the
evidence is hardly perfect. After the war, United Nations
weapons inspectors reported that the Iraqi engineers knew
that their warheads were awful and probably would have done
little damage. For this reason, Mr. Hussein might have
considered the conventionally armed Scuds to be the most
potent arrows in his quiver.

After the gulf war, moreover, United Nations inspectors and
Iraqi defectors revealed a set of secret plans and orders,
issued by Mr. Hussein, that are disturbing at best. First,
he had set up a special Scud unit with both chemical and
biological warheads that was ordered to launch its missiles
against Israel in the event of a nuclear attack or a
coalition march on Baghdad. Since no one outside Iraq knew
at the time about this unit and its orders, it was clearly
intended not as a deterrent but simply as a force for
revenge.

Second, in August 1990 - after he realized that the United
States might challenge the invasion of Kuwait - Mr. Hussein
ordered a crash program to build one nuclear weapon, which
came close to succeeding. (It failed only because the
Iraqis could not enrich enough uranium in time.) His former
chief bombmaker has said that Mr. Hussein intended to
launch the bomb as a revenge weapon at Tel Aviv if his
regime started to collapse. His former chief of
intelligence has said that he believes that Mr. Hussein
wanted to build a nuclear weapon in order to deter the
United States from launching Desert Storm.

Third, Iraqi defectors and other sources report that Mr.
Hussein told aides after the war that his greatest mistake
was to invade Kuwait before he had a nuclear weapon,
because then the United States would never have dared to
oppose him.

What all this suggests is that if Saddam Hussein is able to
acquire nuclear weapons, he will see them as tools to
achieve his goals - to dominate the Arab world, destroy
Israel and punish America. He might not launch such weapons
immediately in pursuit of these aims, but that is cold
comfort. There is every reason to believe that he would
brandish them to deter the United States from interfering
in his efforts to conquer or blackmail neighboring
countries.

With 1990's-style containment fading quickly and unlikely
to be revived, both of the remaining Iraq policy options -
invasion and deterrence - carry serious costs and risks.
But a well-planned invasion, one that mustered overwhelming
force and the support of key allies, could keep those risks
to a minimum.

On the other hand, staking our hopes on a policy of
deterrence would cost little now (except a loss of face),
but it would run the much greater risk of postponing the
day of reckoning to a time of Iraq's choosing. Given Mr.
Hussein's history of catastrophic miscalculations and his
faith that nuclear weapons can deter not him but us, there
is every reason to believe that the question is not one of
war or no war, but rather war now or war later - a war
without nuclear weapons or a war with them.

Kenneth M. Pollack, a former C.I.A. analyst of the Iraqi
military, is director of research at the Saban Center for
Middle East Policy. He is author of "The Threatening Storm:
The Case for Invading Iraq."

Copyright 2002 The New York Times Company.



To: Neeka who wrote (124206)9/26/2002 7:46:20 PM
From: Jon Koplik  Read Replies (2) | Respond to of 152472
 
NYT on people who shop around for extra time on SAT exam.

[If I ever end up possibly bleeding to death in a hospital, I sure hope that my doctor is not someone who needed twice as much time on their SAT (and MCAT) exams.]

***********************************************

September 26, 2002

Paying for a Disability Diagnosis to Gain Time on College Boards

By JANE GROSS

WHITE PLAINS, Sept. 25 - Dr. Dana Luck and Dr. Steven
Mattis work in a modest suite of offices here, in the
shadow of Westchester County's fanciest mall. The sign on
their door reads "Center for Neuropsychological Services."
These days, for the two educational psychologists, that
often means the diagnosis and treatment of learning
disabilities.

Clients pay $2,400 for a battery of tests and an
evaluation, $200 an hour for psychotherapy and $250 an hour
more if Dr. Luck or Dr. Mattis visit a high school or the
Educational Testing Service to lobby for a
learning-disabled student who is not getting the special
services the law requires.

Lately, Drs. Luck and Mattis are seeing many parents and
college-bound teenagers who want only one thing: a
diagnosis that will entitle the youngster to additional
time to take the Scholastic Assessment Tests. They assume
this has something to do with a recent decision by the
College Board to remove the asterisk flagging the scores of
disabled students who take the exam under various special
conditions.

"More and more people are asking legitimately," Dr. Luck
said. "But more and more are also asking because, why not
ask? It's part of our culture that every point matters, so
they're looking for any kind of edge," including time and a
half or double time on the stressful three-hour exam.

In Westchester County, which is typical of many wealthy,
highly competitive communities, a dozen educational
psychologists acknowledged this kind of diagnosis-shopping
in the wake of the College Board's announcement that it
would unflag scores of learning-disabled students.

Dr. Jeanne Dietrich, a psychologist in White Plains, said
she had five such requests this summer, more than ever
before in that slow season. Each parent reported that "a
child had bombed the SAT" and wanted a quick diagnosis
because the application deadline was nearing for the next
round of tests. Four agreed to a thorough evaluation and
one hung up, Dr. Dietrich said.

The asterisk indicating that extended time and other
accommodations were made to the test-takers will disappear
from student records a year from now and will be removed
retroactively from tests taken previously. That means
30,000 students, or 2 percent of the 1.3 million high
school seniors who sit for the College Boards each year,
will submit scores to colleges as if they had been tested
under the same conditions as everyone else.

This change, part of the settlement of a 1999 lawsuit, has
been hailed by disability rights groups and many educators
who see unflagged, extended-time testing as a way to level
the playing field for those with learning disorders.

"Everybody has heard stories of rejections," said Dr.
Richard F. Heath, a psychologist who runs the support
program for learning-disabled students at St. Thomas
Aquinas College in Rockland County. "That anxiety will be
completely alleviated without the asterisk."

But others worry that the unflagging of scores will be an
invitation for accelerated abuse among some well-to-do
families who have already been diagnosis-shopping and thus
cheapen the claims of the truly disabled while widening the
gap between the haves and the have-nots.

"This further privileges the privileged," said Jane Brown,
the vice president who oversees admissions at Mount Holyoke
College in South Hadley, Mass., which is in the second year
of a five-year research project on the effect of making the
tests optional. "You have to be able to afford a
diagnosis."

Dr. Alan Wachtel, a New York City psychiatrist with a
specialty in attention deficit disorder, said it was
"regrettably true" that some parents bid for the services
of "hired guns." Their behavior contributed to an
adversarial attitude in certain schools, he said, where he
is sometimes asked, "What are the parents paying you to say
this?"

Judith Hirschhorn, director of secondary school special
education in Armonk, said she had received several
suspicious requests from 11th and 12th graders who had
never sought services before, some on the suggestion of
their private College Board tutors.

Jerry Wishner, chairman of the Committee on Special
Education in Chappaqua, said that he had "never been
approached only for the SAT," but added, "I can't say it's
not done" by families elsewhere - or by those in his school
who are seeking private evaluations in growing numbers.
"That's their right," Dr. Wishner said, regretfully.

The ability of rich families, however small their numbers,
essentially to buy the right to extended time on the
College Boards highlights the most common criticisms of a
test under siege. Detractors say that it is a proxy for
affluence, not intelligence. They say scores are polluted
by advantages such as $400-an-hour private tutoring and are
therefore not meaningful measures.

Many educators, and the officials of the College Board, say
that the small risk of abuse pales beside the unfairness of
stigmatizing, or perhaps discriminating against, disabled
test-takers. But to lessen that risk, the College Board,
which owns the tests, recently beefed up its compliance
department to audit and discipline high schools that seem
to be granting an unreasonable number of accommodations.

College Board officials do not dispute that there is an
unintended class bias in the granting of accommodations,
although they say it is no worse than other inequities in
the education system, be it outdated textbooks or
overburdened guidance counselors.

"That's true wherever you look," said Chiara Coletti, the
board's spokesman, who once held the comparable position
for the New York City schools chancellor. The College Board
also says it widely promotes test accommodations in
handouts and on its Web site and wishes more inner-city
schools used them but has no power to force the issue.

The College Board has no data on the demographic breakdown
of requests for extended-time testing. But a study by the
California state auditor several years ago showed one in
four accommodations went to private school students.

The board does track the direct correlation between average
family income and College Board scores: In 2002, those
students whose families earned less than $10,000 a year
scored 859 out of a possible 1600, while those earning more
than $100,000 scored 1123.

Large inner-city high schools have neither resources nor
time for sophisticated diagnosis and services. One
psychologist in private practice who used to work in a
Bronx public school guessed that half of the students there
might have qualified for remediation but said that "the
city would have gone broke." Ms. Hirschhorn, in Armonk,
said that an underprivileged youngster was "not going to
look like a child with a disability in a sea of children
not doing well, and that's a heartbreak."

Government statistics show that 2.9 million children in
public elementary and secondary schools are learning
disabled, or 6 percent of the total. More than a quarter
drop out. Of those who succeed in graduating from high
school, 13 percent go on to a four-year college. But only 2
percent seek test accommodations. Once in college, 11
percent seek extra help. Access to extra help in college
and a true appreciation for a disabled child's efforts
could be adversely affected by the unflagging of test
scores, some educators say, even as they applaud the
anti-discriminatory sentiment behind the move.

Without the asterisk on College Board scores, nothing on a
standard college application - including a transcript of
courses and grades - would alert admissions officials to a
diagnosis of a learning disability.

"If you use the information in a positive way, it creates a
context," said Ms. Brown of Mount Holyoke. "You want to
understand all the threads, the whole story, and position a
student's accomplishments in light of the difficulties
they've faced. And you want to know if you have adequate
services for a student you've admitted."

Others worry that a school that admits a student not
knowing about a disability might not even have the
necessary services. "It's one thing to get in," said Frank
Liana, one of New York City's leading private college
counselors. "It's another thing to get what you need to
succeed. Why do you even want them at a school that is
biased against them and doesn't feel equipped to help?"

Drs. Luck and Mattis are less concerned with whether scores
are flagged than they are with a test that they say
consumes and distorts the last years of high school and
inspires desperate requests. "It's not `Can you help us
understand what's wrong with our child?' " Dr. Luck said.
"It's `Can you help us document the need for more time on
this test?' Students are anxious. Parents are anxious. The
environment is anxious. But we would much rather debunk the
myth of the SAT than help people work the loopholes."

Dr. Luck and Dr. Mattis say they gently explain to such
families that they do not churn out diagnoses for anyone
who can pay. Yes, they will fight for a child who they
believe has been unfairly denied services at school or
handle an appeal with the testing service. But only after
an evaluation documents a real problem. "We give them our
data and sometimes they will not hear it," Dr. Luck said.
"So they get angry and go to someone else until they get
what they want."

Copyright 2002 The New York Times Company.