Financial crisis could have happy ending

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By Andy Serwer,CNN Money.

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NEW YORK (Fortune) — I was thinking about the financial mess the other day and I came up with this theory. I’m wary of it because it’s comforting, even uplifting, and by definition any economic supposition that has a happy ending is suspect. So with that caveat here goes:

I remember talking to a wise man at the end of the last decade who was pointing out to me how much the market had gone up during the 1990s and how stocks couldn’t possibly continue to go up at that rate. The market’s historical annual mean gain is about 8%, and yet between 1990 and 2000 the market had climbed some 15% per annum.

There is only one way to revert to the mean, the wise man pointed out, and that is for the market to go up less than that for quite some time. So we were looking at low single digit gains – or worse – for years.

But how could that be, I asked? Remember, the world looked pretty damn good back then. Sure tech stock prices were ridiculous, but other than that, what could possibly make the market tank? I have no idea, the wise man said, it’s just very likely to happen.

And of course it did happen. First tech stocks crashed – and for sure, a few people saw that coming. But who envisioned the horror of 9/11 and its fallout? Who saw Enron, Worldcom and the wave of corporate scandals? Who saw Hurricane Katrina? And who saw this current financial meltdown. No one did. Back then our big concern was Y2K.

At the end of 1999 the Dow was around 11,400. Today the Dow is at 8,400, which means the index has fallen some 26%, a decline of almost 3% per year. With just one year left in this decade – even if 2009 is a humdinger – it is increasingly likely that first 10 years of this century will be one big washout for investors. A lost decade. (Just fyi, if the Dow had climbed up 8% a year from 11,400, the index would be over 22,000 now.) As for the Dow since 1990 – the entire 19-year period – the market has climbed on average some 6% per year.

The next big thing: Green tech?

So what does this mean for us going forward? Well, we don’t really know, but we can make assumptions. First, at some point the carnage will end. The government and the markets will somehow figure a way out of this mess. Stabilization and confidence will return, and the economy will recover.

Second, at some point stock price returns will revert back up to the mean. In fact, to revert to the mean, stocks will at some point have to exceed the mean, in other words go up more than 8%. I know it could be years off, but you see my logic. It’s just math.

And there’s the rub. I believe that in order for the market to achieve a sustainable advance that is above the mean, we are due for some unforeseen positive event or events. Think about it. In the 1990s stocks went way up because of an unanticipated revolution in technology, i.e., networking and the Internet. In this decade we had a slew of unexpected negative events – bookended by 9/11 and this current meltdown. At some point, and it may be a few years from now, we will likely be subjected to an unforeseen positive.

What will it be? Of course no one knows. If we did, it would be priced in. But you could see how something like this might work. Take, for example, the discovery of a sustainable energy source or sources. You can see the incredible boost this would be to our economy and our markets. Imagine the geopolitical benefits. (And how it might defang our enemies.) Imagine the boost to our national psyche. And on and on.

I know you might think this is wishful thinking. And, of course, it is. Right now we are in for the toughest slog we’ve had in decades. We are going to have sacrifice in unimaginable ways. It’s probably even true that George Soros is right and that we are at the end of the era of American dominance. (That’s okay. Who wants to dominate anyway?)

The bigger point is this: Somewhere over the horizon is an unrealized economic benefit that will lift us up in a way that right now, in the gloom, we can’t even imagine. We have much work to do in the meantime, but some day it will come.

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Reference:http://money.cnn.com/

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Why it’s time to buy stocks

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By Shawn Tully.

You didn’t hear this uttered very often, but over the past decade and a half, through bull and bear market alike, the value proposition for stocks could be stated succinctly: There’s nothing to buy.

The fact is that equities were over-valued for years, making them vulnerable to the kind of brutal, sudden sell-off we’ve just witnessed. But now that the S&P has declined 40% in 12 months, the question is whether equities are at long last a bargain. The answer is a qualified yes: Stocks aren’t exactly cheap, but for the first time in years you can expect decent returns, provided you’re patient.

“If you buy now and wake up in 10 years, you’ll probably get a return around the historic average,” said Yale economist Robert Shiller. In the near term, however, Shiller – who correctly predicted the implosion of the stock-market and real-estate bubbles – is more cautious. “There is a substantial risk that with all this economic turmoil, stocks will fall far lower,” he warned.

But make no mistake, stocks are now at levels where buying makes sense.

The best measure of stock valuation is Shiller’s own index of price-earnings multiples. Shiller uses a 10-year average of inflation-adjusted earnings to calculate an adjusted P/E. The advantage to the Shiller method is that it smoothes out the peaks and valleys in profits.

Example: In the 2003 to 2006 period, earnings soared to historic heights, jumping from a normal 9% of gross domestic product to an extraordinary 12%. The profit bubble made P/Es look artificially low, handing the stock jockeys a logical-sounding reason to claim that equities were a buy, when in fact they were overpriced. Both the “P” and the “E” were in a bubble – the “P” even more than the “E.” When the “E” collapsed in the face of the current downturn, the outrageous valuations were rudely exposed.

To see how out of whack P/Es had gotten, let’s take a look back. From 1890 to the early 90s, the average Shiller P/E stood at 14.6. It dropped as low at 6 in the early 80s, and never went over 24. Then, in the late 90s, P/Es regularly stood at over 30, and at their peak in 2000 hit 44.

In the bear market that followed, P/Es dropped – but only into the low-20s. Then they took off again, averaging 25 to 28 from 2003 to the beginning of this year. Now they’re at 15.7, not far from their pre-bubble average. That decline is tonic for investors. Research by economist and hedge fund manager Cliff Asness shows that buying in at a high Shiller P/E usually leads to poor returns, while grabbing stocks at a low Shiller P/E is a reliable route to riches.

From today’s levels, what can we expect? Stocks’ future return is closely related to the inverse of the P/E, also known as the earnings yield. So at a P/E of less than 16, investors should obtain real, or inflation-adjusted, gains of around 6.5%, which is about what Asness found in his research. Add 2.5 points for inflation, and the nominal return comes to a respectable 9%. That’s about a point below stocks’ long-run return, but it’s far better than anything investors could expect for a decade and a half.

The rub is that getting even that 9% return won’t be easy. Assuming no escalation of P/Es, stock returns come from a combination of earnings growth and dividend income. Earnings per share grow only at about 2% a year after inflation. (Total earnings grow faster than that, but new issues of stock dilute that growth.) So add in our 2.5% inflation rate to 2% real growth, and you still need a dividend yield of 4.5% to get to that 9% goal. The yield on the S&P 500 is now around 3.3%, versus around 2% earlier this decade. That’s better, but not enough.

So simply buying “the market” at today’s decent valuations isn’t enough. You also need to choose stocks that pay higher-than-average dividends to reach the 9% threshold. Fortunately, that’s not too difficult to do now. Lots of stocks with predictable, reliable earnings streams now offer yields between 4% and 6%, including Consolidated Edison (ED, Fortune 500), Kraft Foods (KFT, Fortune 500), Duke Energy (DUK, Fortune 500), and Merck (MRK, Fortune 500).

You’ll also want to avoid most tech issues. Companies such as Oracle, Google (GOOG, Fortune 500), Symantec, and Research in Motion (RIMM) pay no dividends at all, and sell at pricey multiples between 16 and 23.

Finally, remember this: Shiller points out that stocks were cheap in the early 1930s, and investors who bought then eventually made good money. But it took them many years to get there. So if you buy now, stick with strong dividend-paying stocks, and fasten your seatbelts. It will be a bumpy ride.

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Reference:http://money.cnn.com/

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Microsoft and yahoo’s shotgun marriage

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©Robert Holmgren. email@robertholmgren.com

Jerry Yang, The Co-founder, CEO and Chief Yahoo! of Yahoo! Inc.

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ANALYSIS
By Tim Weber
Business editor, BBC website

Is this Bill Gates’ last big throw?

Microsoft’s proposal to buy internet veteran Yahoo for a whopping $44.6bn (£22.4bn) certainly grabs the attention.

But does it make business sense?

In a way this won’t be the Microsoft founder’s problem. This summer Mr Gates will leave the company to work full-time on fighting global poverty and diseases like Aids, Malaria and TB.

But the Microsoft managers who have to make it work will be asked whether this is a case of one failing giant trying to prop up another.

The Google factor

Yahoo has been on the ropes for a long time.

Once the top dog of the internet, the company has been haemorrhaging users and money. With advertising income not anywhere near where it should be, Yahoo’s share price is stuck in the doldrums.

Last June Yahoo’s board chucked out chief executive Terry Semel and brought back co-founder Jerry Yang to recapture the firm’s dominance – to little avail.

One word explains all of Yahoo’s troubles: Google. While Yahoo invested in content to lure its audience, the search engine rival simply focused on delivering what users really wanted: good search results.

Fighting over the mobile web

Microsoft has watched Yahoo’s struggle closely, and seen the writing on the wall.

As Google has grown into a billion dollar business, it has increasingly strayed into Microsoft’s territory, competing not just for advertising revenue but rivalling core Microsoft products like email and word processing.

That alone would not be enough to persuade Microsoft to make this unsolicited offer.

Don’t forget, despite its many challenges Microsoft is still in rude health. It has one of the world’s largest research and development budgets, and key software products like Windows and Office are still licences to print money.

But Microsoft also knows that its stronghold, the PC business, is getting less and less important.

The future of today’s IT industry is the rapidly growing mobile internet space, and Google has made no secret that it is prepared to spend a lot of money to conquer this market.

Ultimately, Google and Microsoft pursue the same market, although they approach it from two different directions.

Google wants to enable its customers to organise and find the whole of human knowledge, and is providing the tools to do so.

Microsoft is a provider of tools that just happen to help users to process and use information.

Now both firms are meeting in the middle and fight for market space.

Shotgun marriage

If Yahoo agrees to the deal with Microsoft, it will be a shotgun marriage, but it will be Google holding the shotgun.

If Yahoo’s management says “yes, I do”, it will be an admission that its attempts to turn around the company have failed.

Yahoo shareholders, in turn, will not be able to believe their luck. Microsoft was probably the only company with pockets deep enough to bail them out.

For Microsoft, however, this is the deal that could break it.

Making the offer is an admission that Microsoft’s management has been scared by the success of Google.

The bid is also an acknowledgement that its numerous attempts to become a dominant internet content provider have failed.

But to make it pay, Microsoft will have to demonstrate that the combined company can offer a superior business model.

The big bet

Microsoft is promising that together with Yahoo it can offer “a competitive choice” that offers “more value… to advertisers, publishers and consumers”.

That holds true only if the combined Microsoft and Yahoo can do what they did not achieve as separate companies, namely develop search algorithms that rival those of Google.

Anything short of that would result in one of the biggest destructions of shareholder value since the disastrous merger of AOL and Time Warner at the height of the dotcom boom.

If Microsoft succeeds, it will be able to extend its hold on the PC world to all aspects of our lives.

Bill Gates and his top managers are betting an awfully large part of the company in the hope of making it a success.

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References:
http://news.bbc.co.uk/2/hi/business/7222199.stm

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As gas prices go up, auto deaths drop

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By JOAN LOWY, Associated Press of Yahoo! Health News .

WASHINGTON – High gas prices could turn out to be a lifesaver for some drivers. The authors of a new study say gas prices are causing driving declines that could result in a third fewer auto deaths annually, with the most dramatic drop likely to be among teen drivers.

Professors Michael Morrisey of the University of Alabama at Birmingham and David Grabowski of Harvard Medical School said they found that for every 10 percent increase in gas prices there was a 2.3 percent decline in auto deaths. For drivers ages 15 to 17, the decline was 6 percent, and for ages 18 to 21, it was 3.2 percent.

Their study looked at fatalities from 1985 to 2006, when gas prices reached about $2.50 a gallon. With gas now averaging more than $4 a gallon, Morrisey said he expects to see much greater drop — about 1,000 deaths a month.

With annual auto deaths typically ranging from about 38,000 to 40,000 a year, a drop of 12,000 deaths would cut the total by nearly a third, Morrisey said in an interview with The Associated Press.

“I think there is some silver lining here in higher gas prices in that we will see a public health gain,” Grabowski said. But he cautioned that their estimate of a decline of 1,000 deaths a month could be offset somewhat by the shift under way to smaller, lighter, more fuel-efficient cars and the increase in motorcycle and scooter driving.

Morrisey said the study also found the “same kind of symmetry” between gas prices and auto deaths when prices go down.

“When that happens we drive more, we drive bigger cars, we drive faster and fatalities are higher,” he said.

Morrisey and Grabowski found a nearly identical relationship between gas prices and auto deaths in an earlier study that covered 1983 to 2000. The studies used auto deaths tabulated by the National Highway Traffic Safety Administration, which hasn’t yet released figures for 2007.

Clarence Ditlow, executive director of the nonprofit Center for Auto Safety, said it makes sense that auto deaths would decline as driving decreases in response to rising gas prices.

“There are a whole bunch of factors that are influenced by higher gasoline prices — teenagers don’t have as much money, so you have the most risky drivers driving less; people are switching out of the bigger, older more dangerous vehicles, and people also know if they drive slower they’re going to save gasoline,” Ditlow said. “So, from a societal viewpoint, higher gasoline prices have a great number of benefits, and one of the most important benefits is fewer traffic fatalities.”

But Ditlow said he would be “delighted and amazed” to see deaths drop by a third. He said the declines in driving, while record-setting, still aren’t great enough to suggest such a dramatic drop is likely.

The Department of Transportation said last month that Americans drove 1.4 billion fewer highway miles in April, the sixth month in a row that driving was down and a historic turnaround after decades of annual increases in driving.

“We’re out there on a limb a little bit,” Morrisey acknowledged, “but given that we get such consistent stories across the two time periods (in both studies) with somewhat different methodology, they seem to be pretty robust estimates.”

Morrisey and Grabowski presented their findings to a meeting of the American Society of Health Economists in Raleigh-Durham, N.C., last month. The study was funded by the Robert Wood Johnson Foundation.

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Reference:
http://news.yahoo.com/s/ap/20080711/ap_on_he_me/auto_deaths_gas_prices

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How to become a successful businessman ?

It is a question of conditionality. No one word answer can make a complete solution and it varies depends on each one. Any how, the simple short cut to become a successful business man is to adopt a winning business strategy. But, a good business strategy cannot become a winning formula, if the entrepreneur does not posses the basic business skills. Hence, evaluate yourself critically, before you leap into the business.

Business is an entrepreneurship, run by you. To run the business, you must have the attitude to win. Life is not a bed of roses, but, business is worse, it is full of thorns. The setbacks in the business are most unexpected. Hence, you must be mentally prepared to overcome the hassles that come in the journey. The lives of the famous business people show that these hardships were actually the motivating factor behind their success. Hence, the motto of successful business men must be ‘failure is a stepping stone of success’.

Apart from the infrastructure, business is built up on the interpersonal relationships. You must be a good communicator, who can gain confidence of others. The communicational intelligence is the basis of the interpersonal relations and the building up of a good rapport between you and your employees, is essential to lay a strong business foundation. Also, be conscious while the selection of the employees since they are the back bone of the business. The success to attain the assurance of the employees is an indication of your success in the future.

More than all these factors, discipline is the most important quality that a business man has to posses. Discipline implies both self discipline and financial discipline. The past stories prove that the lack of the discipline is the triggering factor behind the failure of most of the establishments. Financial discipline is inevitable since business is the rolling of the money. The finance strategy is based on the mode of the business.

To start up the business, the basic idea must be attractive. In the world of globalization, the competition is high and a substantial idea can only withstand. As the freshness of the idea increases, the chance to succeed also increases. Any how, the idea must be practically viable. “Well begun is half done”. You can seek the help of some consultancies to help you to plan well before you launch. In addition to a catchy idea, potential marketing strategies are also essential to succeed in the business. You must essentially know what the target customers require and also be thorough with the latest developments and trends in the field since customers are always seeking the latest.

Level of service and quality of your work will be the main deciding factors for your success in the business. The customers expect pleasing behavior from you and if you could succeed to satisfy them. But, it does not mean that you have to show unrestricted lenience. Efficient staff can assist you to grab the confidence of the customers. However, your direct supervision is inevitable to coordinate it. Keep in mind to look over every unit of the department since the perfect functioning of all the departments is equally important to mold your business.

To add on, the spirit to excel is the necessary prerequisite to become a successful business man. Wise people used to compare an upcoming business man to a spider. As you know, spider does not give up its job to make the net, till it succeeds. Like that the business man also has to work till he succeeds. Remember, no business empire was built in a day; you have to wait for a little time to establish. The perseverance to win will help you to become a successful businessman one day.

Saying says that ‘Dream for the sky, then, at least a handful will be yours’. But, to become a successful businessman, your attitude must be to ‘dream the sky and ensure that you are at sky’. Try and try, till you succeed.