Silicon Investor (SI) -- The First Internet Community

STOCKTALK

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.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (211551)	12/27/2002 9:43:17 AM
From: JHP	Respond to of 436258

Lumps of Coal By PAUL KRUGMAN erry Christmas? No no no. Retailers found lumps of coal in their stockings this Christmas; the holiday shopping season was disappointing. So where's the economy heading? Put it this way: It's getting harder to tell a tale with a happy ending. Here's the story so far: In 2000 the bubble finally burst. As investors and businesses rediscovered the law of gravity, business investment plunged, and the economy slumped. Then the situation stabilized, more or less. Repeated interest rate cuts encouraged families to buy new houses and refinance their mortgages, putting cash in their pockets; yes, the tax cut also made a marginal contribution. Strong housing demand and consumer spending partly offset the lack of business investment. And so the economy began growing again. But it has been a jobless, joyless recovery. Payrolls have continued to shrink. The number of people who have been unemployed for more than six months — an indicator of families facing severe distress — has risen 55 percent over the past year. And thanks to inaction by Congress and the administration, 800,000 of those long-term unemployed will lose their benefits tomorrow. Falling stocks have also taken their toll; many older workers whose 401(k)'s have imploded can no longer afford retirement. Even as overall employment has fallen, the number of working Americans over 55 has increased 8 percent. This dreary picture will change — but in which direction? Will it brighten, as businesses finally start spending? Or will it darken even further as worried, heavily indebted consumers pull back? Most business commentators have been cheerily predicting a recovery in business investment, week after week, for the past year — brushing aside businessmen who say that they have no plans to invest anytime soon. But it keeps not happening. On the other hand, a small minority of pessimists — sometimes including me, depending on what I had for breakfast — have been insistently predicting a collapse in consumer spending, which also hasn't happened. Which will it be? Let me throw some disheartening ingredients into the mix. First, the Fed has almost run out of room to cut interest rates. It has other tools at its disposal — but it will be reluctant to try exotic, untested policies unless the economy is clearly facing deflation. So don't expect Uncle Alan to bail us out anytime soon. Then there are the dogs of war. Oil futures are already above $32 per barrel. Donald Rumsfeld assures us that we can fight two wars at once, but nobody seems to have thought about the state of oil markets if there is simultaneous turmoil in the Persian Gulf and Venezuela. Also, gold prices have been soaring; this doesn't affect the real economy, but it's an indicator of nervousness. What about help from Washington? I'll talk about the administration's "stimulus" plans in another column, but one thing that's clear is that the apparent centerpiece — lower taxes on dividends — has nothing to do with stimulus. The administration clearly still believes that problems aren't challenges to be met, they're opportunities to push a pre-existing agenda. Finally, there's the desperate plight of the states. New estimates by the Center on Budget and Policy Priorities show that state governments are facing their worst fiscal crisis since the 1930's. Since Washington shows no interest in helping, states will be forced into desperate expedients. Taxes, mainly taxes that fall most heavily on the poor and the middle class, will go up. Spending on education and, especially, health care will be slashed, with the heaviest toll falling on struggling low-wage workers and their children. (Leave no child behind!) Aside from the resulting suffering, the efforts of states to balance their budgets will be a significant drag on the economy, probably several times larger than the boost from the administration's so-called stimulus program. Are there any possible sources of good news? Yes, a few. A walkover victory in Iraq could lead to sharply lower oil prices. Technology marches on, so businesses could finally decide that it's time to replace aging equipment, even though they still have plenty of spare capacity. Inventories are low; someday businesses will restock, and in so doing give the economy a boost. Are you enthused? I'm not. I hope I'm wrong, but this doesn't look like a happy new year.

To: Knighty Tin who wrote (211551)	12/27/2002 9:47:10 AM
From: JHP	Read Replies (2) \| Respond to of 436258

MARKET WATCH It Still Pays to See Who Did the Research By GRETCHEN MORGENSON HE nation's securities regulators, in their settlement with the biggest Wall Street firms, have finally come up with a series of rules that they think will keep research by brokerage firms honest, fair and independent. But investors should remember that relying on what looks like independent research can still be dangerous. Advertisement Consider the case of Prepaid Legal Services, a company that sells legal-services plans to consumers. The company, whose shares are up 22 percent this year, is the subject of a heated battle between short-sellers, who think its business model is flawed, and true believers who own its stock. Last month, Gotham Partners, a hedge fund in New York and a Prepaid believer, jumped into the fray when David Berkowitz, a Gotham principal, completed an extensive analysis of Prepaid. He concluded that the company has a fair value between $32 and $67 a share. The shares closed on Friday at $26.80. Mr. Berkowitz published the report, "A Recommendation for Prepaid Legal Services," on Gotham's Web site on Nov. 20; two days later, a summary appeared on the Business Wire, which disseminates information to news organizations. The report said Gotham owns "over a million shares" of Prepaid. Much of the report tries to refute the case against Prepaid that has been made publicly by short-sellers. It filled a research void because only one analyst, at a small brokerage firm in Boston, follows the company. The stock rose 14.8 percent in the week after the report came out. Mr. Berkowitz said that Gotham has owned Prepaid shares for over a year and that he began his report in September after becoming frustrated with negative coverage of the company on TheStreet.com, a financial news Web site. Mr. Berkowitz decided to write his upbeat views on Prepaid for posting on his own site as well as TheStreet.com after talking to an executive there. He said he called Prepaid executives to see if they thought a report from Gotham "would be a good idea." They did, and he took up his pencil. The stock was trading near $17, he said, but by the time he completed his report, it had risen to around $25. The week before the report's release, intriguing trading patterns emerged in Prepaid call options, securities bought by investors who think the underlying stock will rise. Options with a strike price of $22.50 that were due to expire on Nov. 15 jumped from 10 cents per contract on Nov. 11 to $2.20 four days later. Volume surged from 398 contracts during the week ending Nov. 8 to 2,759 contracts the week the options expired. By Dec. 4, two weeks after the Gotham report appeared, Prepaid's stock had risen to $28. That day, Randy Harp, Prepaid's chief operating officer, announced that he was selling 55,000 shares of company stock to repay $1.3 million in personal loans, most of which were from the company and backed by Prepaid shares. Some of Mr. Harp's loan was used to buy Prepaid stock last April, through an option exercise. He has 26,000 shares left. Did Mr. Berkowitz know at the time he was writing his report that Mr. Harp was set to sell a big Prepaid stake? He said that he did not, but that the sale did not worry him. Prepaid's shares have drifted lower since Mr. Harp sold. And even though the Gotham report, suggesting the value of $32 to $67 a share, remains on its Web site, the hedge fund has been selling, too. In the past two weeks, Gotham has sold more than 200,000 shares, almost one-quarter of its stake, at prices between $27 and $30. Mr. Berkowitz would not confirm or deny that Gotham was selling Prepaid shares. But when asked whether it was fair to investors to be selling stock even as his "recommendation" remained in the public domain, he said he felt no obligation to note his sales publicly. Some things never change.