THREAD CLOSED!!! Ask Rande 5000+: USE NEW THREAD

Top 102. Mar 27, 2000 8:41 AM

» matttheduck - wendell's capital gains

would it be possible to have wendell's brokerage firm withhold federal income taxes from his sale? that could save him the hassle of having to figure out how much in quarterlies to make and eliminate the concerns over penalty/interest on underwithholding.

-- posted by matttheduck

Top 103. Mar 27, 2000 8:48 AM

» Rande - matttheduck,

matttheduck,

Not sure if the broker would be willing and/or able to do such a thing. The calculation would need to include cost basis and holding period, not just the amount of proceeds as reported on the 1099B. Also, there is a time value of money issue. Depending on when the sale occurs (early in the quarter/year vs. later, whether safe harbor applies, etc.), the ES payment might not be due for some time and could at least be earning money market interest as opposed to an interest-free pre-payment to the government. Lots of issues. Some just look at the ES penalty as a low cost, non-deductible unsecured loan and don't care (not my style -- especially at 9%), while others seek to fine tune the withholding and ES payments so as to pay in as little as possible ahead of time to avoid penalties. Still others prefer to overpay and get a refund later on (really not my style). If the numbers are big enough, planning makes sense. If the numbers are small, might not be that big a deal. Of course, "big" and "small" are relative and mean something different to different individuals.

-- posted by Rande

Top 104. Mar 27, 2000 9:06 AM

» Kirk - ES???

sorry, but I don't know what that means.
"Estimated Slave-Tax" is my only guess as I think we are a slave to the demospenders taking our capital gains that should not be taxed.

-- posted by Kirk

Top 105. Mar 27, 2000 9:53 AM

» Wendell - ES

I just started having state tax withheld from my govt retirement. This past year I got a 700 dollar refund from the feds and owed about 500 dollars to Ca. State. This is my second yr into retirement and this was never a problem when I had sufficient taxes withheld from my paycheck. It now seems I may have most of this covered now that I have started state tax withholding. Maybe the best way for me to forego all the hassle is just file my taxes in the standard way and pay any penalties due. Being such a small potato, this would not amount to a great deal over and beyond what is withheld. Thanks again big guy for all your help.

-- posted by Wendell

Top 106. Mar 27, 2000 10:25 AM

» cfb - Time

Morning Rande,

You certainly do start early!

What is considered long term? Is 5 to 7 yrs long term?

Thanks.

-- posted by cfb

Top 107. Mar 27, 2000 11:07 AM

» Rande - cfb,

cfb,

No hard and fast rule on the "long term" for planning purposes, but I would consider anything less than three years short term and anything over 3-5 years as longer term. Certainly, any needs or objectives within a twelve-month period are short term in the extreme. Wouldn't want to be taking too much risk with money I might need in the next 3 years. Anything over 5 years is long enough to warrant some level of risk for most. Again, will depend on individual facts and circumstances.

-- posted by Rande

Eye on the Needle: What Catalyst Can Deflate Stocks, Reveal End?

Top 108. Mar 27, 2000 12:04 PM

» JenL_2 - What Catalyst Can Deflate Stocks?

This from 3/27 WSJ:

History Shows Culprit Isn't Spotted Until After the Market Has Tumbled

By GREG IP

How will you know the end is near?

Alan Greenspan may try, but he hasn't been able to control the stock-market bull.

<img src="http://www.geocities.com/jeninvestor/bul..." width=272 height=220>

Assume for now that the craze for technology stocks is indeed a bubble. The urgent task for investors is obvious: Spot the pin that pricks it, then sell.

If only it were that simple.

A look through recent stock-market history reveals many manias that drove stocks well beyond reasonable valuations, from conglomerates in the late 1960s to biotech in the early 1990s.

Sometimes broad economic factors, such as interest rates, brought down the curtain, sometimes bad news from one of the market's favorite companies, sometimes both.

Unfortunately, both bubble and pin are usually apparent only after the fact.

Many leading market watchers argue that there is no bubble in the market. Technology companies' extraordinary valuations are justified by their unprecedented growth and the rush of technological advance, they argue.

Bears thought the tech-dominated Nasdaq Composite Index had received its comeuppance many times in the past three years, most recently the heart-stopping 12% plunge between its record close of 5048.62 two weeks ago Monday and intraday low six days later. False alarm: The Nasdaq has already retraced much of those losses, to stand at 4963.03.

"We're all looking for the catalyst," says Merrill Lynch senior investment adviser Robert Farrell, who has been analyzing market behavior since the 1960s. "Most of the time we only recognize it by hindsight, except for some very brilliant people. You only know that the market eventually gets itself susceptible to change when it gets extremely extended in one direction."

Consider the landscape in 1973. To some, it looked as if a bear market had begun as the Federal Reserve raised rates and the Dow Jones Industrial Average slid 19% between January and August. Yet many of the "Nifty Fifty" stocks whose heady valuations had long defied skeptics like Mr. Farrell continued to hold up. And further defying skeptics, the Dow roared back and by early October was just 7% from its January high. Then, war broke out in the Middle East. It would, Mr. Farrell wrote to clients, give "the market its first test since the high volume advance began three weeks ago. Uncertainty such as the Arab-Israeli conflict cannot be ignored but neither should it be an important determinant of the underlying trends."

In hindsight, the October war in the Middle East and resulting Arab oil embargo were key catalysts of what remains the deepest bear market since the 1930s, ultimately taking the Dow down 45%. The leaders of the Nifty Fifty, like Polaroid and Avon Products, suffered far more, ultimately losing more than 80% of their peak values.

Mr. Farrell sees many warning signs today, in particular the rush of money into a narrowing selection of market leaders, in this case companies such as Cisco Systems and Sun Microsystems, while the average stock slumps. In 1973, "the oil embargo ... was the defining event that put the Nifty Fifty out of the game, but most stocks had been declining since 1968 or 1969."

Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School and author of "Stocks for the Long Run," says by definition no one agrees on the signals that bring a boom to an end, or the signals wouldn't work. But both boom and bust result from the market environment itself, and when the environment is right, almost anything can start the process. One example was the seemingly innocuous announcement by President Clinton and British Prime Minister Tony Blair on March 14 that gene data should be free. Biotechnology stocks, already under pressure because of some company-specific disappointments, plunged 13% that day.

"Two months ago, Clinton speaking about biotech wouldn't have had any effect at all because everyone was so optimistic," says Prof. Siegel. "The truth is a lot of big moves aren't accompanied by a big reason. If the market is in the mood for correcting, you can blame it on any news event."

Robert Shiller, a Yale economics professor, in his new book "Irrational Exuberance," offers a laundry list of things that could interrupt the blissful backdrop now driving stocks higher. They range from a resurgent labor movement or an oil crisis to class-action lawsuits or an unstoppable computer virus. "The list can never be complete," he notes.

<img src="http://www.geocities.com/jeninvestor/wsj..." width=350 height=240>

Prof. Shiller's book owes its title to Federal Reserve Chairman Alan Greenspan's famous warning about stock values in late 1996. The Fed chairman has remained worried as stocks sailed higher since then, but his warnings and rate rises have done little to shake confidence.

Edward Kerschner, chief investment strategist of PaineWebber, thinks the overall market, including most of the biggest tech stocks, are reasonably valued. But he thinks the craze for profitless Internet infrastructure and business-to-business companies, like Akamai Technologies and Ariba, resembles previous periods when investors concluded traditional valuation doesn't matter -- to their regret.

For example, Mr. Kerschner says, leveraged buyouts in the 1980s began as a sensible way to restructure companies whose private, breakup value exceeded their stock-market value. But by July 1987, everything seemed in play, from Texaco and American Express to Gillette, and many poor candidates were being bought out at sky-high prices. The craze survived and even grew after the October 1987 crash.

The real end came in 1989. Peter J. Solomon, then head of mergers and acquisitions at Lehman Brothers and now head of his own investment banking advisory firm, says the curtain began to drop with the leveraged buyout of Ohio Mattress Co. (now Sealy Corp.). The company that took it private in March failed five months later to refinance a bridge loan by selling junk bonds, one of the first victims of the collapsing junk-bond market. "It was a disaster," he recalls.

The coup de grace was the failed attempt to buy out UAL Corp., which spurred the 6.9% "minicrash" in the Dow industrials on Oct. 13, 1989. From its peak, UAL fell 70%, notes Mr. Kerschner.

In the 1960s, Wall Street was in love with conglomerates as a new generation of business managers convinced investors they could put unrelated businesses together and create a more profitable, synergistic enterprise. Burton Malkiel, author of "A Random Walk Down Wall Street," says most of the supposed benefits were in fact accounting legerdemain. The beginning of the end, he writes, came on Jan. 19, 1968, when Litton Industries announced profit would be much less than expected. Conglomerate stocks quickly fell 40%. At their 1969 lows, Litton's stock was off 54% from its 1967 high, Teledyne's 60% and A-T-O's 85%.

The 1970s ended with a mania for energy stocks as experts predicted oil would top $80 a barrel. After that mania broke, energy-service stars Schlumberger fell 64% and Halliburton 75%.

While a disappointment from a leading company is often the catalyst for a bursting bubble, the problem for investors is knowing which one. The 1991-92 biotech bubble came crashing to a halt in early 1992 with some spectacular stock drops, most notably that of market darling Centocor, which fell 82% in early 1992 amid regulatory obstacles to some of its drugs. But there had already been false alarms. In November, Immune Response was sliced in half, taking much of the sector with it as well as the Nasdaq composite, after encountering a setback to the AIDS vaccine it was developing. The sector bounced back to make new highs later that year.

Internet stocks have already had numerous high-profile slides since the boom began with Netscape's initial public offering in 1995, including a plunge for Netscape itself. Investors have rotated through browsers, Internet-service providers, portals, and business-to-consumer companies, only to move on to a new sector, often leaving broken stocks in their wake. Along the way bellwether America Online (which eventually bought Netscape) has lost half or close to half its value on at least three separate occasions; it returned to new highs after the first two, and may do so again. Indeed, this may be proof that Internet stocks have staying power, and aren't simply a bubble.

The surge in rapid-fire trading by individual investors, often using borrowed money, has produced wild swings in stocks and could make the end to the boom-should it come-faster and more steep. On the other hand, investors' ingrained habit of buying every dip suggests any such sell-off could unfold gradually, over several years.

A Merrill Lynch survey of 251 global mutual-fund managers two weeks ago found that most have a greater-than-market weighting of technology, media and telecom stocks, most think they are overvalued, and most are looking for a company-specific event as the signal to sell. But Merrill strategist Trevor Greetham warns that the stocks "did not rise on a company-by-company basis. They rose en masse. We think macroeconomic factors will drive the reversal when it comes."

Mr. Kerschner says, "Don't look for when it starts to fall apart. The right reason to get out is when there's no fundamental reason to own the stocks."

Subscribe to WSJ online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

Baz

<img src=http://www.internetcount.com/1867857677.cgif width=5 height=5>

Top 109. Mar 27, 2000 12:42 PM

» Rande - Jen,

Jen,

Good piece by Ip (nice graphics too). Here's a couple of good ones from CBSM --

Battapaglia ups S&P 500 earnings estimates:

Going to Bat

Bazdarich on the Fed:

-- posted by Rande

http://www.spglobal.com/earnings.html

Top 110. Mar 27, 2000 1:40 PM

» SteveT - Rande and the rest

I looked in my records and saw S&P global had EPS at $59.92 and $66.49 now the lowered them to $58.45 and $65.77.

Seems short term rates had something to do with the lower estimates. Looks like Bat split the difference between the two for this year. Next year is so far away, much can change before it gets here. The good news is all agree earnings will continue to grow.

-- posted by SteveT