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http://www.talks.com. The full text of this week's columns follows.
Titles for this week:
SHAKING THE MONEY TREE: American Pad and Paper: Stationery Isn't in the
Waste Basket Yet
American Pad sells Staples, Wal-Mart, et. al. with paper innovations.
Morgan Stanley found the stock cheap at 20. It eased to 18-1/2 later.
ROBERT METZ, winner of the John Hancock Award and Gerald Loeb Award for
financial journalism, pioneered the "Market Place" column for the New York
Times. His column, "Shaking the Money Tree," provides individual investors
with insights on the equities market.
THE ECONOMY AND YOU: The Market and the Fed: Convoluted Thinking
The unreliability of market sentiment at any given point in time.
LEIF OLSEN covered the economy for the Wall Street Journal and the New
York Times, prior to working for Citibank, where he became the bank's chief
economist. Olsen's column, "The Economy and You," helps investors understand
the complex relationship between the economy and the markets.
MISSING LINK: Cybersegments: Seeing the Net in Pieces
The internet isn't a single industry, but a complex web of segments and
subsegments. Understanding how all the components fit together is the key to
comprehending the big picture.
ROB GEBELOFF: formerly of the Milwaukee Journal and the Saginaw News,
this technology reporter for the Bergen Record comments on trends and
developments in the world of interactive technologies, with an emphasis on the
Internet. His column, "The Missing Link," answers readers' questions in user-
friendly terms.
THE BUCK STARTS HERE: Etiquette and Money: The Old Empty Pocket Gambit
What to do if you pal never pays for 1) taxis 2) link fees 3) movies
4) restaurants... you get the point. Auntie Spender's tips for hanging onto
both your money and your friends.
NANCY DUNNAN, New York-based financial advisor and securities analyst,
is the award-winning author of several books, including "The Dun & Bradstreet
Guide to Your Investments," an annual publication. Nancy uses the pseudonym
"Auntie Spender." Her column, "The Buck Starts Here," offers valuable advice
on managing personal finances.
EMPORIUM: Shoplifting Grows; Watch Out for International Gangs
Defying the axiom that it wanes in good economic times, shoplifting grows,
affecting retailers' balance sheets and inventories. European and the Far
Eastern shoplifters, have descended on U.S. stores, adding to the thefts by
American juveniles. Retailers struggle to cope.
ISADORE BARMASH covered the retailing industry during a celebrated
career with the New York Times, where he was nominated for a Pulitzer Prize.
His column, "The Emporium," is a detailed look at investment opportunities and
pitfalls in the retail industry.
PORTFOLIO: Stop the Market, I Want to Get Off
More money went into funds that buy real estate investment trusts in the
first six weeks of this year than any other category of funds. Reasons: less
volatility of general market; independent of it and special tax breaks.
JOHN TOMPKINS -- has been a reporter and editor at many prominent
publications, including the Wall Street Journal, the New York Times, Business
Week, Barron's, Time and Newsweek. His column, "The Portfolio," covers the
mutual fund industry.
SHAKING THE MONEY TREE
American Pad and Paper: Stationery Isn't in the Waste Basket Yet
by Robert Metz
American Pad and Paper (NYSE: AGP) still cracks like a whip and in fact
harks back to the horse and buggy era. Founded in 1888, American Pad hasn't
lost its snap but thrives on envelopes and other office supplies in this
computer era, as it did ages ago in putting lines on yellow paper to invent
the legal pad. Philip L. Carret, the hundred-year-old director of The Pioneer
Group and an active money manager, still uses legal pads to write his reports.
Carret is not an investor in American Pad, but he does own shares in an
oldie, Greis Brothers, which Warren Buffett's stockbroker father told him
of decades ago. Carret bought the barrel stave/cardboard box maker as an
asset play. Greis has hundreds of thousands of acres of trees acquired for
"next to nothing." These "hidden assets" and fine managers then and now
impress Carret. He still holds the stock, though he's less enthusiastic now.
He must have vowed not to sell it if he lived to be a hundred. The capital
gains taxes could kill him.
The only people who have owned American Pad from way back are family.
American didn't go public until last year. The initial public offering, or
IPO, was priced at 15 in July 1996. A recent Morgan Stanley report from
analyst Bruce Missett says the ability of AGP to create innovative products
helps it rack up sales to some dazzling American companies, like Wal-Mart
Stores (NYSE: WMT), Staples (Nasdaq: SPLS), and its merger partner, Federal
Trade Commission willing, Office Depot (NYSE: ODP).
Mr. Missett specifically mentions peel and seal envelopes, which will bore
the sock off a computer nerd, while barely getting a rise out of a snail mail
freak. But the lick-free envelopes may well enhance gross margins. Missett
didn't tick off the other innovative items. A public relations aide at
American Pad's home base in Dallas wasn't free to add to this list of one.
Morgan Stanley's analyst states that American Pad continues to see
stronger growth from new (higher margin) products than AGP's overall
average. He writes that sales of products internally developed since 1992
accounted for $179 million of 1996 revenues, up from $70 million in 1995.
That is impressive. American Pad is no buggy whip gathering dusk in a
turn-of-the-century barn. AGP is sharing the fruits of a shift in consumer
preference for office product superstores. As Missett notes, AGP's core
customer base accounted for 49% of total revenues in 1996, up from 45% in
1995. (Total net sales in calendar 1996 were $580.9 million.)
Total sales to 11 key customers rose 25% in 1996 while unit growth was
33%: "Revenue growth from several key customers, such as Staples and Wal-Mart,
was considerably higher than 25%."
American Pad is what I call a tagalong company since its fortunes are tied
to a handful of customers enjoying fast growth. The downside is that if AGP
were to lose one of those key customers, sales would suffer.
This is what happened to ITI Technologies (Nasdaq: ITII), a builder of
wireless alarm systems that are designed to keep burglars out by setting off
alarms before they can break in. In November I wrote that ITI's 15 biggest
clients accounted for 60% of sales, while ADT, the largest electronic security
concern in North America, accounted for more than one-third of revenues.
ADT reduced buys from ITI right after I wrote about it. The stock fell
out of bed. This chagrined two regional brokerage firms that had recently
recommended it. I, too, was aghast, though I had warned strongly of this
risk. (Click here for the ITI Technologies discussion and follow up.)
But ITI was a one trick pony in home security systems. Stationery
suppliers sell a wide variety of products, and, in AGP's case, some of its
items are unique. An overall cut back by a key client would seem less
likely.
Why then have AGP shares been on the road to nowhere? Morgan's report
was published on March 4, when the stock was at 20 having fallen from 27.
That was clearly a buying opportunity in Missett's eyes. He was insisting
the concern's business momentum was still strong. Thus, he rated the
shares a Strong Buy. However, share price has retreated further still.
AGP closed a day before Good Friday (my deadline) at 16, down 1-7/8.
There was no one in Bruce Missett's office to discuss the changes. I
left word with an aide on Thursday. Neither the analyst nor his assistant
called back when the meetings they were attending ended. So I was not
able to ask key questions: was Morgan Stanley involved in the IPO or has
Morgan Stanley an investment banking relationship with American Pad?
Missett acknowledges that in February, he cut his earnings estimate to
$1.30 for 1997 and $1.70 for 1998, down from $1.42 and $1.81. He based
this on a higher tax-rate estimate, revised sales expectations for a
recent acquisition, Shade-Allied, and a lower revenue base in 1996 than
forecast. In this nervous market, that is just the sort of news that sends
stocks lower.
Missett he did not change his forecast of 12 to 14% internal revenue
growth and "25% earnings growth in the next 3-5 years."
Curiously, Missett cites American Pad's high-cost debt ($130 million
at 13%) as offering "opportunities to improve the balance sheet."
Missett acknowledges that AGP's aggressive acquisition program can cause
"temporary disruption of AGP's core business," and, I would assume, could
lead to further adjustments in AGP's earnings forecasts. But Missett's
ambitious 12 to 18 month target for AGP of $30 a share. Note this: that
calls for a near double from the stock's current reduced estate.
###
THE ECONOMY AND YOU
The Market and the Fed: Convoluted Thinking
By Leif Olsen
After nine months of guessing "will they or won't they," Fed officials
finally raised the federal funds rate .25%. It was the first increase since
1994. That year the Fed began tightening when the rate was at 3% and kept
moving it up until it reached 6%. The 30-year Treasury bond yield climbed from
under 6% to over 8% in that year and the stock market simply stalled.
Despite all the fear promotion by some analysts, similar events will not
take place in 1997. The yield on the long Treasury bond at about 7% is very
close to its peak and the stock market will end the year higher than it began
although the ride may be a bit bumpy and the increase for the year will
probably be at best in the 10% to 15% range.
After the Fed increased the federal funds rate last week, the securities
markets embarked on a new division of opinion that seemed to contradict the
opinion that was expressed a few days earlier. The day before the Fed acted,
stock and bond prices rose smartly. The stock market climbed over 100 points.
The explanation was that now the Fed would tighten finally and clear the air.
The markets were expressing a sigh of relief at the removal of the
uncertainty.
On Thursday, the end the market for the week, bond prices dropped a full
point as yields on the 30-year Treasury bond climbed 10 basis points. The
stock market closed down 140 points after having been down over 200 points at
one point in the day. What happened to that sigh of relief used to explain
the rise in securities prices the day before the Fed tightened policy?
Here is the answer. The market divided into two camps right after the Fed
raised the federal funds rate.
One camp said this is the first of several steps that would raise short-
term rates at least another 75 basis points and long-term bond rates by
perhaps 50 basis points. This camp said the Fed should have raised the rate
by 50 basis points last week rather than the 25 basis-point increase that was
taken.
The other camp claimed that economic growth was not as strong as in 1994,
the last time the Fed tightened. It stopped when the federal funds rate
reached 6%. Then in 1995, as economic growth slowed down to a walk, it began
reversing policy cutting rates back to 5.25% where it was until last week's
move. This camp also argued that the Fed was confirming its inflation
fighting credentials which has not failed to succeed in reducing inflation
once it set about to do so.
Last Thursday a data-event took place that boosted the credibility of
those who believe the Fed will be forced to raise rates several times over a
longer time period. Existing home sales -- some call them currently occupied
homes -- climbed 9% in February and initial claims for unemployment benefits
fell by 4,000.
John Youngdahl, a money market economist at Goldman Sachs, speaking to a
Wall Street Journal reporter, said, "The Fed has only just begun tightening."
Youngdahl went on to volunteer a further opinion that this means for the
foreseeable future, "the news on the Fed front will be bad and the economy may
be even strengthening. So the market has very little to look forward to in
the short-to-medium term, and that generates selling."
Youngdahl is representative of the first camp. Moreover, he is wrong.
The Fed may tighten one more time, only because they have in the past
exercised policy by moving the federal funds rate in increments of 50 basis
points. But the news on the Fed front will not be all bad and the economy may
not be strengthening. There will be a significant rally in the long end of
the bond market in the next four to six weeks.
Economic growth does not move in a straight line, even in the best of
times. During the two years prior to the Fed's tightening in 1994, the
federal funds rate was held at 3% and money supply grew at double digit rates.
That stimulus lifted real economic growth from 2.3% in 1993 to 3.5% in 1994.
The tightening up to a 6% federal funds rate in 1994 slowed economic growth to
2% in 1995. Last year on a year-over-year average, it grew real terms by 2.4%
and from the fourth quarter of 1995 to the fourth quarter of 1996, it grew by
3.2%. Nominal economic growth, which includes inflation, and which monetary
policy influences directly, was 4.9% in 1993, 5.8% in 1994 after several years
of strong stimulus, back to a moderate 4.6% in 1995 and finally in 1996 to
only 4.4% because inflation slowed down further.
Looking at that track record, why should there be any reason for nominal
economic growth to suddenly break out of a range of 4% to 4.5% that has
prevailed for the past two years, especially with the Fed reversing policy and
tightening? Most people, including some economists, do not think in terms of
moving averages when they look at a couple of seemingly strong numbers for the
latest month. Some strong numbers for a few months showed up in those years
of moderate economic growth.
For example, last year the economy grew at a relatively moderate 2% in
the first quarter, a fast 4.7% in the second, a moderate 2.1% in the third and
a fast 3.8% in the fourth. Now the first quarter might be another quarter of
more than moderate growth, say 3% to 3.5%. It is easy to see that average
economic growth for 1996 was well below the strong quarters and well above the
moderate ones. The likelihood that the second quarter of 1997 will see a
speedup in growth is at odds with the way economic growth proceeds. We will
definitely see some moderate economic performance numbers in the next four to
six weeks.
Any suggestion that the Fed will be forced to tighten as many times or
even half as many times as in 1994, does not recognize the vast difference
between the large and protracted amount of monetary stimulus that preceded
1994 and the very moderate stimulus that took place in the past year. Average
economic growth over time is driven by monetary policy. In the short run,
seasonal variations and leads and lags in economic activity moves economic
growth above and below the average.
Let us turn to the specific data that made the market so ugly on Thursday
before Good Friday. Sales of existing homes are subject to significant
seasonal adjustments. February was undoubtedly a month in which the Commerce
Department added "statistical" sales, i.e., not actual sales of existing homes
but numbers intended to eliminate the influence of weather, which normally
makes sales in February less than those in, say, June.
Markets are at times easily spooked, populated as they are by people and
even economists who do not understand economic data and do not understand
monetary policy and monetary theory.
For at least the last nine months, the drum beat of fear that economic
growth would cause inflation to accelerate has been heard regularly in the
market. Both stock and bond prices have periodically dropped when such fear
was promoted as stronger economic numbers came out. However, here we are and
inflation has not accelerated. The lack of pricing power on the part of
vendors of goods -- such as automobiles -- and services remains conspicuously
absent in this economy. If there is no pricing power, just how strong can
this economy be? Not very, is our answer.
A month ago in this web site, I wrote that "Captain Greenspan Prepares to
Slow the Air Speed of the Economy." I was anticipating the Fed's increase in
the federal funds rate on March 5. At the time we recommended that bonds were
a good buy. Now that the Fed has tightened we would reinforce that
recommendation. We include in our recommendations long-term zero coupon bonds
which provide the opportunity to leverage the investment without borrowing
money. The Fed is working to enhance the value of long-term bonds. It is
only a matter of time before that becomes evident.
###
MISSING LINK
Cybersegments: Seeing the Net in Pieces
by Rob Gebeloff
Trying to pick stocks is scary enough. But imagine you're trying to learn
everything there is to know about a company, and you bump into an executive
who's rah-rah talk includes one of these:
"Our best-of-class multiservice switch platform provides a safe, cost-
effective ATM migration path for enterprise network managers and service
providers."
No, this doesn't make me want to call my broker either. "Yeah, get me a
lot in that company that's doing the multiservice switch platform thing."
But such is the life of an Internet investor. It can be like endeavoring
to scout out a foreign company, and finding the prospectus is in Chinese only.
The above quote is real - even I couldn't make up something that obtuse --
and originally appeared in Fortune magazine as part of an ad for Cascade
Communications (Nasdaq: CSCC). Well, if you somehow managed to crack the
code, and if you then were able to verify the ad's message -- that Cascade saw
itself as a leader in an advanced technology that manages traffic over
computer networks -- you might have been prepared for the big news Sunday
night. Ascend Communications (Nasdaq: ASND), a top company in selling devices
that give people access to computer networks, decided to buy Cascade for 3.7
billion, a move that will enable Ascend to provide end-to-end networking
systems. (Some people apparently must have noticed the ad - Cascade was
among the top gainers last week in the Hambrecht & Quist Tech Stock Index.)
I must confess that the takeover is really a coincidence. The Fortune
quote is cited in a great book I recently discovered, "Cyberstocks: An
Investor's Guide to Internet Companies."
The book, which came out late last year, was edited by Alan Chai and
published by Hoover's Business Press, the same people who bring us the
Hoover's Handbook, a reference book that profiles the top publicly traded
companies.
What I like about the book so much, besides the fact that it's a handy
reference to 100 important technology companies, is the way it attempts to
show its readers the big picture of the Internet by breaking the online
business into pieces. Sure, you could sit down with a tech dictionary and
eventually figure out that Cascade is claiming dominance in the wide-area
network hardware business. But Cyberstocks shows you how that particular
industry fits into the greater market of Cyberspace.
Using Chai's structure as a guide, let me spell out for you the seven
major components that make up the Internet business (there are also sub-
segments within these components, which I'll try to point out as I go along)
I'll start with three now and explain the other four next week:
o Infrastructure
This is the wires and glue that make it all work. It's also, to me, the
hardest part of the business for mere mortals to understand, since there's so
many engineering issues involved.
What's important to realize here is that the Internet is really a
continuum of the evolving field of computer networking, and as such, is
naturally related to the building of local and wide-area computer networks.
After all, the Internet is really just a network of computer networks, and the
popularity of the Net has encouraged the advent of new networks and inspired
existing networks to expand.
A local network, or LAN, is what you might find in the typical office,
where a series of computers are linked to each other through a technology
called Ethernet. Ethernet requires each computer to have special hardware
that you wouldn't find on a free-standing computer, such as a "network
interface card." Another important piece of equipment is the "hub," which is
a device that directs traffic between computers. A wide-area network, or WAN,
is essentially the same as a LAN, except the network is spread over a long
distance - say a main office in Boston and a sales office in Chicago. This
requires the use of long-distance phone lines that are set aside for carrying
the traffic, and a spate of technologies to manage the traffic.
With both LANs and WANs, the issue at hand is speed -- both in the wires
that connect computers and the hubs that manage the traffic. If you look at
companies in this industry, such as Cisco Systems (Nasdaq: CSCO), 3Com
(Nasdaq: COMS) and Cascade, you'll hear a lot of talk about a technology
called ATM. It's not automated teller machine, but Asynchronous Transfer
Mode, a relatively new technology that makes networks more efficient by
breaking up data into small packages, routing each little package to its
destination on the fastest possible path between the two computers, and then
reassembling the packets into a whole at the receiver's end. What the
Cascade ad, then, was boasting about was that the company makes it easier for
its clients to upgrade from an Ethernet-based network to ATM.
Another important trip down lingo lane is the small "i" internet word.
Lowercase, the word refers to the generic connection of network to network.
Uppercase, it means the actual Internet, the world's largest network or
networks. The investor doesn't care much about grammar, but is definitely
interested in knowing that every such connection requires a device called
a router, another big market for Cisco and 3Com.
Another big trend in this segment seems to be consolidation. Many of
the players specialize in a component of network infrastructure, but see the
need to offer customers an all-in-one package, like the big guys, Cisco and
3Com. You even see 3Com branching out into the next segment -- external
access to networks -- with its recently announced proposed merger with modem
giant U.S. Robotics.
Believe me, I am not one to get all excited about a bunch of boxes and
wires. I'm more interested in content, a segment I'll discuss next week. But
it seems to me that this market, as a whole, carries the least risk, since
almost everyone agrees that computer networking has nowhere to go but up.
o Computers and Modems
Actually, it would be more precise to call this "Internet Appliances and
Modems," since the world already has its first device that surfs the Web
without a computer, WebTV. But generally, this segment includes companies
that make hardware that customers use to connect to the Net.
While the PC boom began a decade before the Internet stampede, it's
important to realize that PC sales have always been beholden to the "killer
app" - a functionality that compels consumers to buy a computer in the first
place. The Internet, WebTV not withstanding, could be considered one of the
best killer apps to come along, so it's not surprising to see hardware
companies such as Intel (Nasdaq: INTC), the chip giant, so up front in
promoting the Net.
The term modem, in it's original meaning, literally referred to the
modulation and demodulation of signals between the digital form a computer
likes and the sound-based screech a phone line likes. The future promises
various technologies to replace this process -- such as cable TV connectivity
and an advanced phone system called ADSL. But each of these still requires
some device that patches your computer into the infrastructure, and it seems
the industry is going to continue calling these devices "modems." So in this
segment, the smart money is that which figures out the next form of
connectivity and invests in the company that makes the modem. If you believe
that the current analog technology will stick around a while, then you might
look at a company like Boca Research (Nasdaq: BOCI), a leading modem
manufacturer. If you think cable modems will catch on, then you look at
General Instrument (NYSE: GIC) and Scientific-Atlanta (NYSE: SFA).
o Application Software
Here you'll find your browser war. The software industry has been around
as long as the computer industry, since software is what makes the computer
useful to people. The Internet, being a new way for people to use computers,
has its own software branch.
Much has been made over the "browser" people use to navigate the Internet,
and the competition between Microsoft (Nasdaq: MSFT) and Netscape (Nasdaq:
NSCP) to lead this market. On March 11, I wrote about the evolution of this
industry segment, with both companies developing browsers that did more. (You
can read it by clicking here). Microsoft, in fact, is levering its dominance
in other software - operating systems, word processing - by making a browser
that integrates completely with these other products.
Keep in mind, however, that Internet software goes beyond the browser.
All of the computers that work behind the scenes on the Internet -- the
machines that manage your connection to the network, give you your e-mail,
etc. -- need software too. This "server software," as it's called since these
machines are there to serve up the Net to your "client" machine, projects
to be a market 10 times the size of the browser market, according to Forrester
Research.
So investors looking to make a software play based on projected Internet
growth might consider not just what their neighbors use on their home
computer, but what their Internet service company uses on their machines.
Companies such as Open Market (Nasdaq: OMKT) aren't well known to consumers
because they don't make successful browsers, but Open Market is a potential
force on the server side, since it makes software that enables Web sites to
offer "secure" financial transactions.
Also keep in mind that Web pages aren't the only files being sent across
the Net. As infrastructure improves and the Net gets faster, software that
serves up sound and video files will also be in demand. This is where some of
the companies I mentioned in last week's piece about Web video (click here)
could break out.
Keep in mind again that I'm not a stock picker, and the companies I've
mentioned here are used as examples, not as investment recommendations. Next
week, I'll run down the rest of the Chai chart, talking about services that
operate on the Net, Internet content, Internet access and services that serve
the Internet industry.
###
THE BUCK STARTS HERE
Etiquette & Money: The Old Empty Pocket Routine
by Nancy Dunnan
Last week, Auntie Spender was sharing a taxi with someone who lives in
her neighborhood, going from downtown Manhattan on the east side to
Lincoln Center -- way up town on the west side. It turned out to be a $12
cab ride -- before the tip! The gridlock was so serious that night that
it was featured on the evening news.
You know, Auntie Spender isn't about to part easily with $12; but
sharing the ride made it seem a lot better -- after all, $6 is definitely
less than $12.
But as we pulled in front of the Metropolitan Opera House, Auntie
Spender's friend, who was going to a nearby restaurant and not to the
Opera, leaped out of the taxi with a speed akin to that of Michael Jordan,
shouting, "Thanks so much dear. I'll see you soon." And with a wave, she
and her fur coat disappeared into the crowd.
I'm sure it's happened to you, too. Maybe not in a taxi, but
elsewhere -- the pal who never coughs up his share of the greens fee or
buys his round of drinks in the club house. The old high school buddy who
arrives in town and expects to be treated like royalty (who incidentally,
never carry cash). The couple that go out to dinner with you and your
friend or spouse and somehow get away with saying:
"Our treat next time."
And you wonder, oh yeah, when will that be. Or, next time turns out to be
at a much cheaper restaurant.
There are plenty of people out there who never seem to have cash on hand,
who say they'll pay you back and don't, who tuned out in kindergarten when
mother said, "Be nice dear and share with all the other children."
Sometimes it's okay -- my father stopped carrying more than $2 and a
bus token when he turned 90. But we thought that was cute. And it was.
When he died at 96, my mother and I found exactly $2 in his wallet, along
with pictures of both of us.
But it's not cute if you wind up always getting stuck with the bill.
A SOLUTION IS A SOLUTION IS A SOLUTION
There is no perfect solution to an awkward social situation, but these
scenarios will serve to heighten your awareness of money matters among
friends and colleagues.
Keep in mind that you work hard for your money (or, if you inherited
it, someone else worked hard for it) and you're entitled to be careful
with it.
In other words, never feel apologetic if you're annoyed when someone
else takes advantage of your money supply.
On the other hand, money enables us to enjoy life with other people,
going to dinner with them, to movies, concerts, ballgames, even on joint
vacations.. so, we shouldn't continually worry about a few lost pennies
here and there.
As William Somerset Maugham, the English writer and author of the
novel, "Of Human Bondage," said, "Money is like a sixth sense; you can't
enjoy the other five without it." In case you've forgotten what they are,
the five senses are: sight, hearing, smell, taste and touch.
WHO PAYS THE RESTAURANT BILL?
o If you invite someone to lunch or dinner at a restaurant, you can
sidestep a lot of problems by phrasing your invitation so it's perfectly
clear, well in advance, that you are either sharing the bill or that
you're treating.
"I'd like to take you to dinner next Friday."
"Can you have dinner with me next Friday? My treat this time."
"Are you free to go out for a dutch treat dinner next Friday?"
o When couples dine at a restaurant together, the easiest solution is
to divide the bill equally. This, too, should be mentioned by the
person(s) making the initial arrangements. After a while, sharing the
bill becomes standard operating procedure among friends who do things
together.
o Don't get out your calculator and fuss over small amounts -- about
who had the $9.95 pasta primavera and who had the $10.50 free range
chicken special. This is a social situation and tiny differences should
definitely be ignored.
If you can't stand this, then maybe you should stay home and eat Lean
Cuisine all by yourself.
o But what about the guy who orders a $22 lobster while you're having
lasagna for $11; or the person who drinks a lot more than everyone else or
who orders an outrageously expensive bottle of wine without consulting with
the group?
If you really love filet mignon or Mouton Cadet...then you're certainly
entitled to order both. But it falls upon you to assume financial
responsibility for doing so.
Some guidelines for protecting your money supply...
** The person or couple that spends much more than others in the party,
should loudly and clearly offer to even out the difference by saying something
such as:
"Hey, guys, we'll take care of the tip because we had the filet
mignon."
Or, "I'm paying for the wine because I insisted on the Pouilly Fuisse
instead of the house."
** If your big-spending friends don't make such an offer, you have to
swallow the situation (so to speak) at the time. Rather than make a fuss
in the restaurant and ruin the evening for everyone, call your friend the
next day and say something like:
"We love getting together with you and your wife, but if you don't
mind, we'd like to make it less pricey next time. We're putting aside our
pennies for the new house/ the new baby/ my graduate degree."
** If you know your friends can't enjoy dinner without a $50 bottle of
wine, then suggest that next time you each pay for what you order. Then, ask
the waiter for separate checks to make division easy and instant.
o If some in the group are married or living together and others are
single, carve up the bill along lines that is proportionately equal for
everyone. In other words, don't expect a single person to pay the
equivalent of two.
o If you're single and everyone else is married...
One of Auntie Spender's friends, whose husband died several years ago,
dines regularly with two married couples. When this woman's husband was
alive, all six of them went out for dinner together, once a week for years.
For a while, after she was widowed, the other couples paid for my
friend's dinner. Eventually she felt uncomfortable. Now, each of the
couples gives the waiter a credit card and my friend pays her share to
each couple, again dividing what she owes between the two couples.
IF YOU DON'T DRINK
When drinkers and non-drinkers dine out, it's not a 50/50
proposition. Unless you're some place where diet Coke and a glass of
Merlot cost the same, non-drinkers should not be expected to pay the same
amount for liquid refreshments as drinkers.
If you're a non-drinker, let your friends know up front that you'd
love to join them, but that you don't drink booze. Telling them should be
sufficient ... but if they don't catch on, you'll have to explain it until
they do. If they refuse to catch on, then the question is, "Are they
really your friends or just looking for someone to help pay their liquor
bills?"
If you do drink...
When you and your pals are sharing rounds at a bar after work, be sure
you ante up when it's your turn. Don't manage to be in the restroom just
as your round comes around.
And, when one of your friends has had one round too many and is
offering to treat the entire place to champagne, it's time to head home.
Put your friend on a bus or in a taxi -- never let anyone who wants to
buy everyone a drink, also drive.
NO CASH-IN-THE-POCKET CHARLIE
John F. Kennedy, according to some sources, apparently never carried much
money when he went out on the town...Jackie, it is said, paid for the movie
tickets on one of their early dates.
He could get away with it...Presidents are seldom called upon to find
change at a toll booth or to tip the coatcheck person.
But you are.
If you've got a friend who never has money for the locker room attendant,
a round of bowling, or a tank of gas for the car pool, sooner or later it
becomes more than irritating, it becomes outrageous and can ruin a perfectly
good friendship. The same is true with friends or colleagues who borrow money
and never pay it back.
A friend of Auntie Spender's came up with a pretty good solution. He
took his tennis partner out for lunch after a weekend match and said he
was worried about him. He wanted to know if he was having a problem --
was his health okay? His job? His family? His financial situation?
The man said, no, everything was fine and why was he asking all these
questions.
My friend answered, "Well, you never seem to have any money and I thought
you might be in financial trouble. And if you are, I'm here to help."
The guy looked shocked. So my friend then said, "If there isn't a
problem, and you want to keep on with our weekly game, things have got to
change."
The fellow caught on. He not only changed, he started carrying plenty
of change everywhere he went. If he hadn't, my friend was prepared to end
the weekend game. But had there been a problem, by raising the possibility,
my friend provided an opening, a way for his tennis buddy to discuss his
situation with someone who cared.
SHARING AMONG BUSINESS ASSOCIATES
In a business situation, the rules shift slightly.
In the world of work, the person doing the asking typically pays the bill.
If two colleagues dine together, the senior one usually pays, unless it was
agreed upon ahead of time that they would share the bill.
Even so, it's a nice gesture, if you're the person being treated, to
offer to pay anyway; it will long be remembered. And when you're the guest,
always, write, fax or e-mail a note of thanks to your host. Never take being
treated for granted.
And now...
Back to Auntie Spender's taxi story. She decided not to mention being
taken for a ride the next time she saw her fur-covered friend. However,
should she ask to share a ride with Auntie Spender again, Auntie Spender
will read her the definition of the word "share" from the dictionary, as an
off-beat way of getting the message across:
"SHARE...a part of a whole allotted or assigned to a member of a
group."
Next week...
Hanging out with people who have a lot more money than you or a lot
less and...how to deal with the person who brags about money and asks too
many questions about financial matters.
Send Auntie Spender your own situations and suggestions, by clicking
on HERE...We'd like to keep this an ongoing dialogue with answers to pet
money peeves.
###
EMPORIUM
As Shoplifting Grows, Watch Out for International Gangs
by Isadore Barmash
A few years ago, a New York woman was horrified when someone in a Hong
Kong apparel store slashed her handbag and stole her wallet and travelers'
checks. "I understand how you feel," she was told by the sympathetic young
police inspector. "The same thing happened to my girl friend. Hong Kong is
an international crossroads and it draws lots of these packs from all over."
The world evidently has gotten smaller since then. In North America,
especially the United States, international shoplifting gangs from many
countries have been operating with relish and profit. In a report on these
professional gangs presented at a National Retail Federation loss prevention
conference, the following profile was given:
o Thousands of professional shoplifters are at work in North America on a
daily basis. One fence who was caught admitted that she did business with 300
organized groups in the U.S.
o The majority of these shoplifters come from South American countries,
such as Colombia, Peru, Ecuador, and Chile and are known as the South American
Theft Groups. Other pro thieves, largely gypsies, come from Eastern European
countries like Poland and Yugoslavia. Others are from Asia.
o They operate in groups of 3 to 6 individuals and hit the stores hardest
on weekends.
o They use foil-lined bags to defeat security systems, booster boxes,
booster aprons and other professional electronic systems.
o They take large quantities at one time and when apprehended are often
in possession of $50,000 in merchandise. Six men apprehended in Alexandria,
Va. had $150,000 in merchandise stored in their hotel room ready to be shipped
to a fence.
o Merchandise sold to the fences gets between 1/10th and 1/3 of the
normal ticket price. Fence locations are in the large, American cities where
the goods are then sold to the local population.
o These fence locations operate like a regular business. They have
merchandise racks, cash registers, fitting rooms, security cameras and signs
which announce that one should not steal merchandise and that packages will be
inspected when leaving. All sales are final.
So how important is the incidence of shoplifting on American retailing?
Before that can be easily answered, it must be explained that it is part of
the overall inventory shrinkage which also includes internal theft and
administrative errors. In 1995, shrinkage of goods among retailers
participating in the then-latest national survey accounted for 1.87 percent of
total retail sales, up slightly from 1.83 percent in 1994. That's roughly
half of their net profits, but most big chains put aside an annual reserve
equal to the dollar amount of losses they expect in the year ahead.
That point, by the way, is in the nature of being a big secret and no
retail firm will cough it up unless pushed to the wall. Why is that? Well,
because that reserve is made up partly from expected profits and expected
sales. No red-blooded shareholder would like that.
But here's another surprise. Over the years, I must have written from
seven to ten times in various publications about that but never did any
shareholder call to say he or she was aroused by the disclosure of a reserve
fund. I have concluded after covering this story various times that the
existence of a reserve fund could also be seen by either independent or
involved people as a cop-out for top management. In other words, with a
cushion roughly half the size of net profits, why should senior management
knock itself on the problem of shrinkage?
In the meantime, there's little doubt that America's stores, whether big
or little, are a feeding trough for shoplifters who prefer it to working for a
living. And besides the advent of international packs, it is a changing
trend.
The percentage of male shoplifters rose to 55 percent last year, up from
50 percent in 1993. Also, the percentage of juvenile perpetrators also rose
to 38 percent in 1996 from 25 percent in 1993. In the 1996 Retail Theft Trend
Report compiled by Read Hayes for the Loss Prevention Specialists, Winter
Park, Fla., and sponsored by the Sensormatic Corp., Deerfield Beach, Fla., the
five types of stores most filched and the merchandise taken were:
Auto Parts Stores Auto accessories
Consumer Electronics Compact Discs
Department Stores Clothing
Discount Stores Clothing, undergarments, Compact discs
Drug/Pharmacy Cigarettes, batteries
What can the retailer do about this irritating, costly trend? Some
suggestions by the National Retail Security Survey zeroed in on human resource
issues and shrinkage.
Firms that paid people well had less shrinkage than those that didn't.
Below-average employee and management turnover was correlated with lower
shrinkage. And fewer part-time employees appeared to result in lower
shrinkage.
But that involves internal theft, rather than shoplifting. For better or
worse, here are some tips to be very aware of if you want to foil the
shoplifter, domestic or foreign, based on a "Shoplifting Manual" seized from a
gang arrested in Southern California.
"As long as no one can see you, don't worry about other people around
you. Often, they shield you from both sides.... The only thing you have to
worry about is observation windows and three-sided mirrors. Most of the time,
there is no one behind those observation windows. You can tell by standing
directly under them... If, God forbid, you do get caught, don't panic because
you'll be out in several hours. Don't tell security and police your name or
anything ... "
Is it really all that easy? The confident tone of this manual makes it
sound so.
###
PORTFOLIO
Stop the Market, I Wanna Get Off!
by John Tompkins
The hottest growth funds report negative returns, solid stocks dive on the
tiniest hint of bad news, index funds swing wildly up and down, and everyone
waits for Chairman Greenspan to drop kick the market with his other shoe. If
all this makes you wonder what to do with your money you're not alone. Fact
is a sizable number of worried investors have taken action by bailing out of
equity and index funds into the safety and stability of real estate. They're
not buying land or bricks and mortar; they've put their money into funds that
own portfolios of property: real estate investment trusts -- REITs for short.
In the first six weeks of this year -- before Greenspan mugged the market
-- more money reportedly flowed into REIT funds than into any other fund
category. This was a surprise to those of us who assumed that money funds
would be the favorite shelter from the threatening bear market storm. REITs
were invented in 19th century Boston as a way for the rich to invest in real
estate. Congress rediscovered them in 1960 as a device for small investors to
own real estate without the bother and risk of actually buying property. But
they offer unique advantages: much less volatility than the general market,
earnings stability, and special tax breaks. Some 203 REITs are publicly
traded, three fourths of them on the New York Stock Exchange.
Last year REIT stocks returned a total of 35.75% (dividend yield plus
price appreciation) which easily outpaced the 22.95% return on the S&P 500.
Mutual funds that invest in REITs reflect this performance. According to
Morningstar Grandview Realty Growth returned 17.26% in the three months ended
Feb. 28 and a remarkable 45.59% in the 12-month period. How long has this
been going on? For 20 years REITs have outpaced the overall stock market with
a total return of 15.85%. So, why isn't every portfolio in the country
stuffed with REIT stocks?
That's a long story, but the group developed a bad rep in earlier days
when most REITs held mortgages and management was passive and often
preoccupied with outside real estate investments. The mortgage REITs tanked
in 1974 as the real estate market crashed. A second boom in REITs began in
1985, but collapsed after years of indiscriminate building, buying, and
lending by savings and loans, insurance companies, banks, and tax shelter
partnerships. Investors lost billions, the taxpayers got socked for an
estimated $1 trillion and REIT became a dirty word. What's different now is
that most REITs are integrated real estate companies with active professional
managers who have a personal investment in the business. It's taken awhile
for the REITs to be seen in a positive light, but a significant signal is the
pension fund money now being invested in them. Real estate has always been
attractive to institutions but it's not liquid. REITs offer the liquidity of
the stock market and some institutions have swapped actual properties for REIT
shares.
REITs are not corporations and do not pay corporate income taxes so they
can invest in income producing real estate without the double taxation for
dividends paid that punishes investors in corporations. To keep this status
REITs must adhere to certain IRS restrictions: be in the real estate business
with long term objectives, be broadly held, and pass 95% of their income
through to shareholders.
There's enough variety in types of REITs for a fund portfolio manager to
switch holdings when some segments of the real estate market begin to soar or
fall behind the pack. For example, the top 10 holdings of Cohen & Steers
Realty Shares, a $2.4 billion REIT fund, are Highwood Properties (NYSE: HIW)
with a portfolio of office buildings; Public Storage (NYSE: PSA), which owns
self-storage buildings; Speiker Properties (NYSE: SPK), mixed properties;
Cali Realty (NYSE: CLI), offices; CarrAmerica Realty (NYSE: CRE), office
space; Rouse (NYSE: RSE), mixed properties; Crescent Real Estate Equities
(NYSE: CEI), offices; Vornado Realty Trust (NYSE: VNO), strip shopping
centers; Beacon Properties (NYSE: BCN), offices; and Avalon Properties
(NYSE: AVN), apartment buildings.
The most popular REITs among the funds now are those invested in apartment
houses, offices, and industrial properties. Lower down the scale are retail
REITs with strip centers, regional shopping malls, and factory outlet centers.
Residential REITs include conventional apartments, hotels and manufactured
homes, formerly known as mobile homes or trailers. Other types are mixed or
diversified, health care, race track, and golf course REITs. Besides buying
market segments that are fast growing, managers also try to buy good
locations, REITs in parts of the country that are booming.
REIT fund managers radiate the kind of optimism about the future that's
rare in any other kind of fund these days. The reason: REITs march to a
different drummer than the stock market. As industrial and high-tech fund
managers fret about a flattening of the economy, the REIT people enthuse that
the real estate business will continue to grow at an 8% to 15% rate. Robert
Benson, portfolio manager of Pioneer Real Estate Shares, believes that in real
estate "a vast emerging market that's right here in the United States is
on the upswing." If Benson seems a bit too passionate consider the words
of a top analyst in a conservative investment banking firm. "The REIT industry
is very immature and we're only in the second inning of a huge recovery." We
were told this off-the-record because the boss discouraged optimistic
statements in public.
The top 10 stocks in Pioneer's portfolio include Equity Residential
Property Trust (NYSE: EQR), apartments; Patriot American Hospitality
(NYSE: PAH), hotels; Host Marriot Corp. (NYSE: HMT), hotels; Liberty
Property Trust (NYSE: LRY) industrial/office; AMLI Residential Properties
(NYSE: AML) apartments, Trizec Hahn (NYSE: TZH), gold mining/oil refining;
Catellus Development (NYSE: CDX), development; FelCor Suite Hotels (NYSE:
FCH), hotels; Cali Realty (NYSE: CLI), offices; and Beacon Properties (NYSE
BCN), mixed. How do the two compare? Cohen & Steers one year return was
38.41%; Pioneer Real Estate, 36%.
Not only is Bob Benson more interested in hotels than the managers at
Cohen & Steers, he also has a top holding -- Trizec Hahn -- that's not in
the real estate business. This isn't all that common, but some REITs do
permit themselves to go afield if a deal is especially promising. Longleaf
Partners Realty, for example, lists Rayonier (NYSE: RYN) timber and wood
products, and Knight-Ridder (NYSE: KRI) newspaper publishing among its largest
investments. The IRS insists that there be some connection to the real estate
business.
The REIT industry is in the midst of great consolidation. Hardly a week
passes without the announcement of a merger or two. Size offers more important
advantages in a REIT than in a manufacturing company. A REIT that owns a
number of apartment buildings in a particular geographic area, for example,
enjoys economy of scale when buying refrigerators, carpet, paint, light
fixtures and other things that go into upgrading buildings so that rents can
be raised. If you're managing 10,000 units of apartments, the marginal
additional cost of running 5,000 more in the same city is insignificant.
What could spoil this loverly picture? Chairman Greenspan perhaps? Well,
maybe, but cool heads in the REIT business point out that rising rates
clobbered the industry in the 1980s because portfolios were passive and unable
to respond. Today's REITs are able to increase profits in a rising interest
rate environment because they can manage, lease, acquire, and develop real
estate. This doesn't mean that REITs are totally shielded from a Federal
Reserve squeeze; but it does mean that they're less sensitive to higher rates
than the overall stock market.
Pioneer's manager Benson is particularly bullish about office, hotel, and
industrial REITs this year saying there's very little evidence of any
overbuilding in those sectors. REIT Watch, the monthly report by the
industry's trade association, says that year-to-date returns for hotel REITs
led the pack by being up 4.07% while office buildings were up 2.87%. Outlet
centers were the worst with a negative 11.49% return and self storage
buildings were close behind with a negative 7.31%. Things change quickly in
the business: for all last year self storage chalked up a neat 41.97% return.
The 1977 Landauer Real Estate Market Forecast says that investors are
flocking to office building properties, betting that the office building will
continue to be the primary location for core U.S. business. Noting that the
smart players were prepared for the decline in retail real estate, the report
says values are vulnerable to further declines. Landauer predicts that hotels
will enjoy another year of gains, though most of the big profits have been
made. REITs have madly acquired hotel and motel chains one after the other
but only an estimated 2% to 3% of the lodging industry is REIT-owned
suggesting there's plenty of room for growth.
What about the rest of this year for REITs? Pioneer's Bob Benson is
cheerfully upbeat. "Real estate typically runs in a long cycle of about five
to 10 years," he notes. "We think we still have a long way to go."
The Landauer Forecast isn't so sure: "This recovery still has some life in
it, but it is not a boom and it should not be taken for granted."
###
SOURCE: PR Newswire
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