Stories by Allan Sloan

  • A Lot Of Trust, But No Funds

    One of Washington's biggest industries is producing documents that nobody reads, for good reason. But showing that every rule has its exception, the presidential Social Security commission last week produced a two-page gem: an explanation, buried in its 30-page preliminary draft, of why almost everything that almost everybody thinks about the Social Security trust fund is wrong. Tune out the predictable partisan noise--the Bushies and their fee-hungry Wall Street allies praised the draft, many Democrats and member-hungry advocacy groups hated it--and turn to pages 16 and 17. You find a wonderfully clear discussion of why the trillion-dollar Social Security trust fund doesn't help solve the system's long-term financial problems. And why letting the fund grow to $5 trillion, as currently planned, won't help either. (You can find the report at http://www.washingtonpost.com/wpsrv/onpolitics/transcripts/ssreport071901.pdf)I know it sounds silly to say that a trillion-dollar trust fund is...
  • The 40% Social Security Cut

    If you listened to the noises emanating from the White House, you would think that letting workers put part of their Social Security taxes into individual stock-market accounts will painlessly solve Social Security's problems. "Individually controlled, voluntary personal retirement accounts... will augment the Social Security safety net," President George W. Bush wrote in the executive order setting up the President's Commission to Strengthen Social Security. Sounds real good, doesn't it? But what Bush isn't saying is that the safety net is going to develop a lot of holes. And Bush also isn't saying that, regardless of how well individual accounts might perform, future beneficiaries are going to wind up with substantially lower Social Security benefits than are called for under current law. Here's why. Social Security is facing long-term problems that will start in about 15 years, when baby boomers will be retiring en masse. If you want to divert money into private accounts and also...
  • Breaking Up Is (Still) Hard To Do

    The best way to make money off AT&T since it announced its first breakup in 1982 may be to have won its printing contract rather than owning its stock. The company has sacrificed entire forests to produce the hundreds of pages of legalese that it mailed millions of shareholders in connection with its 1984 breakup, its 1996 breakup and its just-concluded offer to swap AT&T Wireless shares for AT&T shares. And soon, coming to a mailbox near you will be 400 pages or so more, describing the company's newest proposed split, into three pieces: AT&T Broadband, AT&T Business and AT&T Consumer.The more I look at the preliminary version of the breakup plan that AT&T has filed with the Securities & Exchange Commission, the more convinced I become that if I owned AT&T stock, I'd vote no. AT&T says the breakup will liberate each business, eliminate internal conflicts over capital and end squabbles over the prices AT&T's disparate parts charge each...
  • Profiting From The Darkness

    When it comes to football, "piling on" a player who's already been tackled is a major penalty that can set your team back a long way. But when it comes to markets, piling on by taking advantage of the weak is called "opportunism," and it can get you a big bonus. ...
  • A Bad Case Of 'Mad Dow' Disease

    The stock-market drop is finally getting nasty. The contagion, which had been confined to the Nasdaq market and its high-priced technology stocks, leaped the species barrier last week and infected blue-chip financial and manufacturing issues. Think of it as Mad Dow disease. Mad Dow, like its namesake, bovine spongiform encephalopathy, has its own version of BSE: Brokers Selling Everything. It eats holes in your portfolio and makes you lose your mind. Here are the symptoms. Until last week, the Dow Jones industrial average was down only ...
  • Aol's 'Transforming Transaction'

    When business historians look back at the financial foibles of the late 20th century and ask the inevitable question--"What were they thinking?"--last week's birth of AOL Time Warner will be seen as a watershed event. If there was ever an example of how a market mania--in this case, the fleeting frenzy for Internet stocks--could affect the real world, it's AOL Time Warner. Or just plain AOL, as I suspect the company will be called in a few years. After all, the company's stock symbol is AOL--America Online's old symbol. Time Warner's symbol, TWX, has vanished. And when the deal was conceived last year, with Net nuttiness in full swing, it called for arriviste AOL to issue new shares to acquire traditional Time Warner. So this isn't a merger. It's a takeover by the incredibly prescient--or incredibly lucky--people at America Online. In return for shares that, absent this deal, would probably be trading at roughly the level of whale droppings, AOL gets to own some of the most valuable...
  • Firing The First Shot

    Ever since owning stock became America's fastest-growing indoor sport, Federal Reserve Board chairman Alan Greenspan has been treated like a star athlete instead of a faceless central banker. He has a cheering and a jeering section, a host of spectators searching for hidden meaning in his most mundane acts and now, with the economy threatening to go into a funk, he's got endless second-guessers. A year ago, when the economy was booming, he was a superstar. Now he's starting to get treated like a player who's lost his game.Which brings us to last week's surprising rate cut, which set off huge cheers in the two main hotbeds of Greenspan mania: Wall Street and Washington. A cut that, in my humble opinion, was widely misunderstood in both places, because people thought there had to be something more than the Fed's explanation about wanting to bolster the economy. The unwise conventional wisdom in Wall Street and Washington--that Greenspan was riding to the rescue of the stock market and...
  • Stop Your Whining, It's Only Money

    OK, all of you stock investors, repeat after me: "The year is finally over." And for the battered and bleeding among you, as well as the whiners, please feel free to add, "Thank God."This wasn't exactly the kind of year that market touts expected, or that many investors were prepared for, given the fabulous 1995-99 run. Here, in simple terms, is what went wrong. Until March this was a Tinker Bell market. So many investors clapped their hands and believed in stocks so intensely that lots of sky-high issues kept on flying even though many people, me among them, considered their valuation insane.The downside of stocks' trading on the basis of belief rather than on assets or profits is that when the belief shatters, Tink has a long way to fall. Belief was shattered this spring. Pick your reason: an influential Barron's article projecting that many Internet companies would soon run out of cash, Microsoft getting clobbered in its antitrust trial, phases of the moon. It doesn't matter. Hot...
  • The Market's Crystal Ball Is Cloudy

    If you're feeling unsettled about the state of your life and your portfolio, don't worry. You're not alone. This is, after all, an unsettling season. Year-end holidays are looming, and you're supposed to be jolly. But for many of us the holidays are unsettling, if only because year-end is a time of summing up. And as for the stock market, if you're not unsettled you must be unconscious. Given the market's stomach-churning gyrations--such as the Nasdaq's posting some of its biggest one-day percentage gains ever while falling 42 percent since March--it's harder than ever to summon up a vision of the Market Yet to Come.But let's try to sort through the confusion and see what we've got. For starters, let's discard the idea that months of falling stock prices--the Dow industrials peaked in January, the Nasdaq in March, the Standard & Poor's 500 in April--necessarily presage a recession. Why can I dismiss that notion so blithely? Because even though the market is considered a leading...
  • Ford's Fancy Financial Puzzle

    You might think that the auto business is about getting people from here to there. But what it's really about these days is getting money from here to there. As witness the convoluted transaction in which Ford Motor is trying to move $10 billion in surplus cash from its treasury to its shareholders to make Wall Street happy while minimizing the taxman's take.To tax mavens and deal buffs, the Ford transaction is a classic: a financial Jaguar E-type, as it were. "This is one of the best-thought-out pieces of perfectly legitimate tax planning I've ever seen," says Lehman Brothers tax expert Robert Willens. Some big holders are opposed to the plan, claiming it benefits the Ford family unduly. But it will go through regardless, thanks to the family's 40 percent voting stake. "I'm really excited," says chairman William Clay Ford Jr. "It gives every shareholder choice, and it's tax-efficient." The plan calls for holders to choose among getting cash, stock or a combination. The Fords are...
  • The Hedgies' Tide Rolls Out

    It's summer, that glorious season when many of us get warm fuzzies about beaches and water. But in parts of Wall Street this year--especially among the hedge-fund crowd--"beach" and "water" have a double meaning. That's because some of the world's best-known hedge-fund managers have put themselves on the beach--in other words, quit--because the market has pounded their portfolios into sand. And because a major--but usually unspoken--reason for the much-publicized departures of top-drawer hedgies like Tiger Management's Julian Robertson and most of the heavy hitters at Soros Fund Management involves water. Or, to be precise, high-water marks.Let me explain. Like almost everything involving hedge funds, we're talking about money. Hedge funds are largely unregulated investment pools consisting of money from wealthy clients, be they individuals or institutions, such as pension funds or college endowments. Think of hedge funds as mutual funds on steroids. They're free to do all sorts of...
  • The Social Security Crack Up

    Almost everything about Social Security is an accident. Even something as fundamental as where the program is headquartered is a historical fluke. Social Security, the country's biggest domestic program, is in Baltimore rather than Washington because when the Social Security Act was passed in 1935, federal bureaucrats couldn't find big enough digs in D.C. to hold the tons of paper and armies of file cabinets needed to track the lifetime wage history of every American worker. But a former Coca-Cola bottling plant in downtown Baltimore was available. So Social Security set up its massive operations center there. Plans to move the whole show to Washington fell through in 1939 when its spanking-new headquarters building was commandeered by the War Department as part of the World War II buildup. So Social Security never left Baltimore, even though computers have long since superseded the filing cabinets.Why should you care about this historical quirk? Because it typifies the hit-or-miss...
  • Can't Anyone Here Play This Game?

    When Casey Stengel uttered the deathless words, "Can't anybody here play this game?" he was talking about the most wretched major league baseball team ever, the 1962 New York Mets. If Casey were still alive and managed businesses rather than ball teams, he'd be asking the same question about AT &T and the Federal Communications Commission. In a comedy of errors last week, both institutions made the '62 Mets, who lost a record 120 games, look positively competent.The FCC, which seeks favorable publicity the way Mark McGwire lusts for belt-high fastballs, started the week by overhyping savings that customers would get from regulatory changes that cut the charges long-distance carriers like AT &T pay to local phone companies. The FCC presented the potential savings --which amount to maybe 3 percent --as a World Series triumph for consumers. Enter the clowns. The very same day the FCC took victory laps for phone rates' going down, AT &T quietly raised its basic rates, which...
  • That Old Social Security Magic

    If last week's sparring over Social Security is an example, Al Gore and George W. Bush shouldn't be competing for the job of chief executive of the United States. Instead, they should be competing for chief magician. Or chief anesthesiologist. Because they're both using sleight of hand to "solve" the Social Security problem without inflicting any pain on anyone. A neat trick, considering that the traditional prescription for solving the problem of paying for baby boomers' retirement without busting the federal budget involves pain: reducing the growth of payments to future retirees in various ways, raising Social Security taxes or both. The very kind of program proposed by the Greenspan Commission in 1983 and adopted by Congress to fix Social Security's problems the last time around. But you don't get elected by preaching pain --or at least, Bush and Gore don't think you do. Bush's magic solution to the Social Security problem is to set up individual accounts for younger workers,...
  • The Geeks Microsoft Cares About

    What's the only power on earth that seems capable of bending Microsoft to its will? It's certainly not the Justice Department's antitrust division, to which Microsoft isn't giving an inch. Or Judge Thomas Penfield Jackson, whose ruling that Microsoft is a vicious monopolist hasn't exactly excited bouts of introspection in Redmond. Or even the cybervandals who last week transformed Microsoft Outlook from an e-mail program into a virus vector. So what mighty force can master Microsoft? Give up? It's the accounting geeks at the Financial Accounting Standards Board. Microsoft recently gave away about $1.4 billion of value to its employees to stay on the right side of an FASB rule that would otherwise have devastated Microsoft's re-ported profits.Let me explain. In late April, with bad news multiplying like last week's "I Love You" virus, Microsoft gave about 70 million new stock options to its employees to make up for the stock's decline since July, when it had awarded its customary...
  • The $2.1 Trillion Market Tumble

    That's How Much Value U.S. Stocks Lost Last Week. In A Brutal Awakening, Investors Learned That The Old Rules Still Apply In The New Economy.
  • A Tale Of Two Papers

    At first glance, last week's sale of Times Mirror to the Tribune Co. looks like your garden-variety multibillion-dollar media deal, with the happy buyer and the ostensibly happy seller babbling about "synergies" and such. But offstage, Times Mirror's soon-to-be-former chief executive, Mark Willes, is playing a "who lost Times Mirror?" blame game with the controlling Chandler family. And the whole messy affair provides an object lesson about the perils of managing a company for Wall Street--and how moves that look great today can cost you your job tomorrow.In other words, this isn't your normal $8 billion transaction. It involves two of the most prominent media companies in the land, which have taken different paths en route to this once unthinkable mating. Times Mirror, owner of the Los Angeles Times, the Baltimore Sun and Long Island, N.Y.'s Newsday, has been selling or closing properties, using the proceeds to buy back stock and shrinking, a time-honored technique for jacking up...
  • Between Net And Debt

    To Internet investors, amazon.com is considered a Net blue-chip company, one of the biggest, most-established and best-known companies in the Web world. But to hard-boiled Old Economy types who analyze corporate-debt offerings, Amazon is a junk credit. And a pretty junky one at that.Welcome to the disjunction between debt and Net. Debt analysts worry about whether a borrower will have the cash to make interest payments and to repay principal when it comes due. Internet-stock players couldn't care less. They value issues based on buzz and perceived potential and name recognition and a lot of measures (including intangibles like "stickiness," meaning the amount of time an average visitor spends on a Web site) that are related to profit only vaguely. In fact, taking in more money than you spend--the definition of a profit--is almost a sin in some quarters, because it means you're not "building your brand" as much as you could.Last month the worlds of debt and Net collided. Amazon.com...
  • An Embarrassment Of Indexes

    Want to know why the stock market has been acting so bad the past few weeks? Forget all that talk about Alan Greenspan, interest rates, rising energy prices and inflation. The real reason is that four business publications got so carried away by the bull market that they decided it was time to license their names for investment products and get in on the fun. Why not? They could make a few bucks in licensing fees and get some free publicity, and the journalists who fancy themselves investment geniuses can find out if they're right without risking their own money.I'm only kidding about the publications' causing the market swoon. At least I think I'm kidding. But the fact that for two years publications have thought that it's fine to morph from drama critic to playwright symbolizes the market euphoria that may now be going away.The most recent example of publications-as-investments came last week when Fortune magazine announced that it was licensing the venerable Fortune 500 list and...
  • How Limited Are Pimco's Partners?

    To anyone who cares about bonds, bill gross, the chief investment officer of Pimco Advisors, is a living god. Gross, 55, runs the biggest bond fund in the country, Pimco Total Return, and his uncanny knack for calling twists and turns in the bond market has attracted tons of private-account-bond money, as well. Gross's reputation has made Pimco the biggest bond manager in the United States. "He's the king of bond funds," says Ed Rosenbaum, research director at Lipper Inc., the fund-analysis firm.But despite Gross's high bondwidth profile, Pimco Advisors has had almost no profile at all. Which is fine with those of us who realized that you could buy a piece of this very profitable outfit on the New York Stock Exchange. But rather than buying shares in a corporation, you're buying units in a limited partnership. Owning Pimco units gives you a piece of Gross's action without having to invest in bonds. Pretty nice.But our happy little unit-holder world got kicked over recently when...
  • Behind The Phone Frenzy

    The telecom world is getting stranger every day. The rates it advertises for long-distance calls are getting smaller and smaller, but the prices that telecommunications companies are paying to buy each other keep getting bigger and bigger. First Sprint, the nation's third largest long-distance company, advertises nickel nights, setting off a round of price cuts. Then last week, MCI WorldCom, the No. 2 long-distance company, turns around and agrees to buy Sprint in the biggest takeover in history: $115 billion. Or, if you prefer, 2.3 trillion minutes of nickel calls. If all goes as planned, the deal will trigger the biggest single management payday in history, with Sprint chairman William Esrey picking up about 13.5 billion nickels, or $673 million for his stock and options (box).Meanwhile, your bill for local phone service is getting as long as your phone book, filling up with incomprehensible, ever-rising fees--including two little jewels known to bill mavens as Pixies and Slicks-...
  • Dow 36,000--Fun With Numbers

    One of the maxims of investing is that if something sounds too good to be true, it probably is too good to be true. Which brings us to one of the hottest business books around, "Dow 36,000" (Times Books, $25) by James Glassman and Kevin Hassett. I don't normally review books, but "Dow 36,000" has lots of buzz, as we say in the trendsurfing business. With good reason. Hassett is a former senior economist with the Federal Reserve Board, Glassman is a smart writer who for the past six years produced a fine business column for The Washington Post. More than that, Glassman and Hassett have a head-turning thesis: that over the long term, U.S. stocks are no riskier than your grandmother's boring Treasury bonds and that the Dow, far from being overvalued, should be around 36,000. So you see why the book is buzzworthy. It's also schizophrenic. It has wonderfully clear explanations of financial theory, excellent advice on general investing approaches. But it's also got seriously flawed parts,...
  • The Tax-Avoidance Tango

    One of the stock market's underlying principles is that all shareholders are supposed to be treated alike. Then there's the way that Times Mirror Co., the owner of the Los Angeles Times, deals with its controlling shareholders, the Chandler family. At least three times in the past five years, the Chandlers have gotten sweet deals from Times Mirror that weren't available to regular shareholders. The most recent touch of honey is a convoluted Sept. 3 transaction in which the Chandlers in effect sold more than half their Times Mirror stake to the company while keeping majority voting control and ducking every penny of capital-gains taxes on an indicated profit of almost $1 billion. The problem with this deal, which neither Times Mirror nor the Chandlers would discuss, isn't that it's illegal--it's not. The problem is that dodging taxes once or twice is fine, but dodging them all the time is unseemly. And, the Chandlers get terms not available to anyone else. If a regular shareholder...
  • A Long Season Of Wall Street Weirdness

    If you're feeling grumpy these days, don't feel guilty about it. After all, this is a grumpy time of year, what with Labor Day marking the unofficial end of summer. Bye-bye, vacation. Hello, work or school. Yechh! And if you've tried to make sense of the day-to-day moves of this summer's market, you're probably feeling a little grumpy about that, too. As you can see from the accompanying chart, stocks have lurched sharply up and down for three months, winding up a couple of percent above where they were on Memorial Day. Things could be a lot worse--despite the decline from the market's Aug. 25 peak, the broad stock indexes are still close to record levels. If you took the summer off and drifted with the market, you did fine. If you took the short-term view and obsessed over every 100-point Dow move, you worked yourself into a frenzy, largely for nothing.One of the reasons stocks have been so erratic is Federal Reserve chairman Alan Greenspan's attempt to cool off the market by...
  • Masters Of Their Own Universe?

    One of the insights you get from watching Wall Street is that there are two kinds of money in the world--Other People's Money, known as OPM, and Your Personal Money, which is the kind that really matters. When Wall Street traders or hedge-fund managers hit a bad patch and drop a few million or a few billion dollars, they're losing Other People's Money. But if you're a day trader who hits the skids, you're generally losing your own money. That's vastly harder on the pocketbook--and the ego--than losing OPM.Which brings us to the difference between your typical Wall Street trading floor and the growing hordes of day traders speculating in the market for their own accounts. And, possibly, to an insight or two into Mark Barton, the man who gunned down nine people at two day-trading firms' offices in Atlanta last week after first killing his wife and kids.To be sure, the typical big trading floor looks like a white-collar madhouse. It's filled with traders, mostly men, looking at screens...
  • Media's Week Of Wampum

    Making wampum is turning into one of corporate America's fastest-growing businesses. No, companies like General Electric, Disney and Time Warner haven't taken to carving beads out of seashells, the way East Coast American Indians once did. Rather, they're creating their own Internet currencies, known as "wampum" in the Net biz. Last week was Wampum World's biggest ever, involving no fewer than four of the world's best-known companies. Disney announced plans to create a new "tracking stock" called Go.com based on Infoseek and various Disney Internet assets; Time Warner and Sony agreed to trade their jointly owned Columbia House business for 74 percent of struggling CDNow, on which they will bestow promotional services and a spiffy new, yet-to-be-chosen name, and GE filed plans to create a new, 49.9 percent-owned Net company called NBCi, whose assets will include Xoom.com, Snap.com and a 10 percent stake in CNBC.com. Meanwhile, Microsoft stock soared Friday on speculation that the...
  • Leaping Through The Loopholes

    What does Neiman Marcus, the fancy department-store chain, have in common with the Gartner Group consulting outfit? No, the answer isn't that they both get to charge high prices because they have such upscale images. Rather, it's that both companies are using fancy financial footwork to declare independence from their parent companies--and from the tax collector, too. Which seems especially appropriate for the Fourth of July season.Let me explain. The games involving Neiman and Gartner are part of one of America's more interesting indoor sports: the eternal battle between corporate loophole users and loophole closers. It's not as much fun as the pro-basketball playoffs or the Fourth of July, but it has its moments. In this case, Neiman, Gartner and their controlling stockholders--Harcourt General and IMS Health, respectively--are squeezing through a loophole that seems likely to shut on July 16, when the tax-writing House Ways and Means Committee is scheduled to introduce this year...
  • Bell Of The Brawl

    AT&T's $60 billion purchase of cable-TV giant MediaOne isn't your typical boring megabuck takeover. Rather, it's a corporate soap opera, with big money, intrigue, tax-avoidance games and double- and triple-dealing. All that's missing is sex. Here's the plot outline: Boy 1, Comcast, woos and wins MediaOne. Boy 2, AT&T, flashes a bigger wallet. Money talks. MediaOne ditches Boy 1, but keeps making eyes at him, hoping he'll come back with bigger bucks to rebuy her affections. Instead, Boy 1 and Boy 2, afraid of being played for suckers, agree to sublimate their lust and split up MediaOne.Meanwhile, Boy 3, Microsoft, which is richer than God, talks to both sides and also makes its own pass at MediaOne, but decides it would rather be buds with Boys 1 and 2 than fight them. So it buys a $5 billion piece of AT&T, which agrees to seed part of the cable world with Microsoft software. And all three players get in bed together to cooperate against their common enemy: the tax man....
  • How High The Moon?

    FOR THE PAST FIVE YEARS, DELL Computer has coined more money than the U.S. Mint. Making even Microsoft look like a low-flier, Dell's stock-market value has risen from less than $1 billion in February 1994 to more than $100 billion. Chairman Michael Dell, who's all of 34 years old, has become one of the dozen richest people in the United States. And there are plenty of Dellionaires keeping Michael company. Anyone lucky or farsighted enough to have plunked down $2,100 for 100 shares of Dell on Feb. 18, 1994, now owns 3,200 shares, worth around $256,000 at last Friday's closing price. A 120-to-1 return in five years. Not too shabby. ...
  • Washington's Math Problem

    IF YOU LISTENED TO PRESIDENT CLINTON'S State of the Union Message last week, you might have wondered why ""saving'' Social Security and Medicare sounded so easy. After all, we've heard for years that Social Security and Medicare would soon start running out of money, and would require benefit cuts, tax increases or massive borrowing to stay afloat. Yet here was the president promising to make these programs even more generous without raising taxes. In addition, he proposed a trillion dollars of other goodies. How did he do it? With Beltway budget math. ...