December, 2000Stephen H. Cypen, Esq., Editor
1. LONGSTANDING PROBLEMS IN SSA'S LETTERS TO PUBLIC NEED TO BE FIXED: A United States General Accounting Office publication discloses problems in millions of letters the Social Security Administration sends each year to notify applicants and recipients about eligibility for or changes in benefits. These letters have excluded essential details needed to understand its decisions, presented information in an illogical order and required complex analyses to reconstruct benefit payments. Specifically, one or more of the following key points were missing: (1) the reason why SSA sent the letter, (2) the basis for its decision, (3) the financial effect of the decision on recipient or (4) the recourse available to the person. For many of these problems, SSA has not taken any corrective action and has repeatedly rescheduled plans to make comprehension changes. In September 1999, a federal court ordered SSA to develop and implement a plan to improve its Supplemental Security Income letters, prompting SSA to begin a major, multi-year initiative to improve its letters. You can read the entire 36 page report on GAO's website, http://www.gao.gov (GAO/HEHS-00-179). And while you are there, you can also read the testimony before Congress, summarizing the report (GAO/T-HEHS-00-205).
"Don't use a big word where a diminutive one will suffice."
2. THREE FLORIDA CITIES AMONG TOPS IN INTERNET ACCESS: According to Nielsen/NetRatings, three Florida cities are in the top 35 local markets for household access to the Internet: Orlando (No. 9), with 56% of households wired; Tampa (No. 21), with 50% and Miami (No. 34), with 43%. The top five U.S. cities are San Francisco (66%), Seattle (64%), San Diego (62%), Portland (60%) and Washington, D.C. (59%). However, a recent U.S. Department of Commerce report indicates that the digital divide remains, particularly for African-Americans and Hispanics. As of August 2000, 23% of African-American households in the U.S. had access to the Internet, up significantly from 11.2% in December 1998, but still far behind the 41.5% national average. Hispanics also lag in access to the Internet, although there has been progress: nationwide, 23.6% of Hispanic households are wired, up from 12.6% two years ago. This item is from a brief report in Florida Trend.
3. DEFINING THE "ULTRA-MIDDLE-CLASS": Ultra-Middle-Class income begins at 3.5 times the median, which roughly corresponds to the top 5% of U.S. households. Based on 1999 Census Bureau figures, that means an average household income of at least $142,000.00. However. since regional economies affect income and the cost of living in the real world, national medians may not reflect the earning power or the lifestyle that you can afford in your home state. To account for these differences, Money Magazine calculated the minimum Ultra-Middle-Class household income for each state by multiplying its median income by 3.5. As a result, Ultra-Middle-Class incomes range from $103,000.00 (West Virginia) to just above $180,000.00 (Alaska and Maryland). Florida comes in at about $126,000.00.
4. GREENSPAN HEADS LIST OF MOST INFLUENTIAL PEOPLE IN THE WORLD OF INVESTING: Federal Reserve Board Chairman Alan Greenspan heads SmartMoney Magazine's list of the thirty most powerful people in investing -- obviously no surprise here. The balance of the top ten are Edward C. Johnson, III (Fidelity Investments), David Pottruck (Charles Schwab), David Komansky (Merrill Lynch), Abby Joseph Cohen (Goldman Sachs), John Brennan (Vanguard Group), David Blitzer (Standard & Poor's), Sanford Weill (CitiGroup), William Gross (Pimco) and John Chambers (Cisco). Another no-surprise: Warren Buffett (Berkshire Hathaway), all the way "down" at Number 27.
"Half of the people in the world are below average."
5. BROAD INDEXES PAINT MISLEADING PICTURE OF TYPICAL STOCK'S WORTH: James Lebherz, a regular contributor to the Miami Daily Business Review, writes that Moody's Investors Service has shed light on two facts that have probably escaped attention. First, outside of technology stocks, stock price gains were limited in both 1998 and 1999. Moody's believes the latest slide in equity prices has more to do with their earlier overvaluation than a possible collapse of the U.S. economy, and stock prices more in line with realistic earnings projections are arguably better for the economy than when valuations are too high. In fact, most stocks have been falling for three years: market-weighted averages, like Nasdaq and S&P 500 Index, mask the performance of the typical individual stock because the averages heavily overweight the technology sector. For a more realistic picture, Moody's looks to the un-weighted Value Line as a better barometer. In 1998, the Value Line Index fell 3.8% while the Nasdaq and S&P 500 rose 39.6% and 26.7%,respectively. Last year, Value Line declined 1.4% compared to an 85.6% rise in the Nasdaq and a 19.5% rise in the S&P 500. Through November, Value Line shows a 7.9% decline, while the Nasdaq has fallen 27.1%, suggesting a simple correction to overvalued technology shares. Second, corporate bond yield spreads have tracked performance of the average stock better than the weighted equity indexes. The corporate yield spread over Treasuries began to widen at the end of 1997. In October of that year, the average long-term investment-grade industrial bond yield spread over Treasuries stood at 82 basis points. By mid-October of this year, the spread peaked at 220 basis points. The widening coincided with the sell-off in equities this year, as companies became alarmed over lower earnings and an economic slowdown. Clearly, lower earnings affect bonds as well as stocks.
Keeping track of your teenager has become easier than keeping track of your investments.
No matter what stock you buy, your spouse thinks it's a bad decision.
No matter what stock your spouse buys, you think it's a bad decision.
Your method of tax planning is crossing your fingers before seeing your accountant.
Asset allocation is something you've only read about.
At last count, you owned more mutual funds than shoes.
You think estate planning is part of your landscaper's job.
You can plot by memory the daily closes of the DJIA and the Nasdaq Composite Index for the last six months, but don't have a clue what the tax-adjusted performance of your portfolio is.
Investing may be the new national pastime, but you'd rather be golfing.
And, the Number 1 sign that you need a professional Money Manager:
You can only guess at your net worth!
Attributed to Neuberger Berman, the list was reproduced in a Westwood Newsletter.
7. ECONOMIC EVENTS; A SERIOUS TOP TEN LIST: According to an Associated Press survey of editors, the top ten business stories of 2000 were (1) stocks dive, (2) dot-com shakeout, (3) tire recall, (4) oil soars, (5) Microsoft split ordered, (6) AOL/Time Warner merger announcement, (7) interest rates, (8) record low unemployment, (9) Florida smokers' verdict and (10) airline passenger woes.
"If anything just cannot go wrong, it will anyway."
8. HOW TO BEAT THE DEVELOPING BEAR MARKET: A bear market is commonly defined as a drop of 20% from highs of three major market averages -- Nasdaq, Dow Jones Industrial Average and Standard & Poor's 500. Although Nasdaq and the Dow meet this criterion, as of November 30, 2000 the S & P 500 is down "only" about 15% from its March peak of 1,552.87. Nevertheless, leading bear Steve Leuthold believes we have been in a bear market since Nasdaq peaked at 5,048 on March 10. In a bear market, it is best to invest defensively until there is clear evidence that the market has hit bottom. Leuthold expects that bottom to come in the second half of 2001. Bear markets typically have three downward legs. The first leg began in March and ended in May. It was triggered by the unsustainably high valuations of technology stocks, ending with the summer's short-lived rally. The second downward leg, where Leuthold believes we are now, was fueled by the slowing global economy, which has depressed profit growing for tech companies. Thanks to high interest rates and energy prices, the U.S. economy is slowing as well. Once there is a substantial rally, the third down leg will begin, probably ending by second quarter next year. As the stock market bottoms, Leuthold says there will be plenty of buying opportunities. Until then, however, he is urging his clients to allocate 30% to stocks, 50% to bonds and 20% to cash or money market funds. As for bonds, an expected drop in the high-quality corporate yield from 8% to 6.75% a year from now should result in a 20% gain. As for stocks, consider stocks from recession-proof sectors like aerospace/defense, pharmaceuticals, food and oil companies.
"I'd be a pessimist, but it wouldn't work anyway."
9. ARE YOU MAKING WHAT YOU'RE WORTH?: We just discovered an interesting site at http://www.salary.com. Using the "Salary Wizard" you can select a job category, location and job description to create a salary report. We "created" the following salary reports for the Miami area and for the United States:
Police Patrol Officer
The data are as of December, 2000, indicating that the site is kept current.
10. SEC LIBERALIZES INSIDER TRADING RULES: The Securities and Exchange Commission has issued final rules liberalizing insider trading restrictions and creating fair disclosure requirements under the Federal Securities Acts. The new SEC rules make it possible for insiders who purchase or sell company stock pursuant to a pre-established arrangement to avoid insider trading liability, even where an insider becomes aware of material nonpublic information prior to the transaction. Effective October 23, 2000, Regulation FD (Fair Disclosure) addresses three issues: selective disclosure by issuers of material nonpublic information; when insider trading liability arises in connection with a trader's "use" or "knowing possession" of material nonpublic information; and when the breach of a family or other non-business relationship may give rise to liability under the misappropriation theory of insider trading. The rules are designed to promote the full and fair disclosure of information by issuers, and to clarify and enhance existing prohibitions against insider trading. The full text of the final rule is available at http://www.sec.gov/rules/final/33-7881.htm.
"Following the rules will not get the job done."
11. SEC CHAIRMAN ARTHUR LEVITT TO STEP DOWN BEFORE MID-FEBRUARY, 2001: Speaking of the Securities and Exchange Commission, Chairman Arthur Levitt announced that after seven and one-half years he will step down as Chairman before Mid-February, 2001. Levitt, the SEC's longest-serving Chairman, made the announcement to the Commission staff in the SEC's William O. Douglas Room. He did not indicate his future plans. First appointed by President Clinton in July, 1993, Levitt is the 25th Chairman of the SEC. He was reappointed to a second five-year term in May, 1998. Levitt's conclusion: "No political tide, no flaws of ambition will sidetrack the patriots of this agency from a noble duty fashioned and nurtured for 66 years. The stakes are high and the payoff enormous. If we stand by and for investors, above all else, we protect the vitality of our markets, the richness of our heritage, the weight of our political independence and the high ideals of our country." A job well done.
12. OUR WEBSITE GETS NEW LOOK: After almost three years without a major change in our website (http://www.cypen.com), we have made substantial "renovations" this month. Let us know -- via e-mail, snail mail or telephone -- what you think of the new look. If nothing else, you might enjoy the fabulous pics of the Downtown Miami Skyline at dusk and South Beach.
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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.