CREF Stock, 5 years ending 30Mar2005
The Contrarian's View s published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. My own material in this publication may be freely quoted provided proper attribution is given to its source; quotes from other people are subject to fair-use copyright restrictions. Subscription rate: Selections are free on the Internet. Using your favorite Web-browsing program, open URL http://onashi.org. Mailed paper subscriptions, one year for $39 to The Contrarian's View, 132 Moreland Street, Worcester, Massachusetts 01609. There is a limit of 50 paid subscribers at one time; please check for availability before sending any money. Sorry, Visa and Mastercard are not available. Overseas subscription rate, U.S. $54. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! ISSN 1536-4429 Phone: (508) 757-2881
As predictions go, that one wasn't too bad. The cellphone companies are today providing flat
monthly-fee nationwide phone calling, and "voice-over-Internet protocol" (VOIP) phone
service is now doing the same for international phone calling (as well as further decimating
the landline long-distance phone business). Even AT&T as a separate company is about to
disappear. (My father, who virtually worshipped AT&T stock as a great wealth-builder,
would be horrified if he were still alive.)
Less successful was my "prediction" for the future of cell"phones", which I dubbed the
"Palmphone" (a combination of the Palm Pilot and cellphone):
"In five to eight years, what I see is: You pull out your Palmphone with its glorious full-color screen and press a button to connect to the web (your cellular provider is also your ISP). A quick check, no new e-mail messages. You call up your portfolios to see how they're doing for the day, and look at the graphs of the indexes. In your reminders, you see that you should call to schedule the dog's rabies shot; a single button-press fetches the vet's number from the phone book and places the call.
"At work, you put the Palmphone into its cradle to connect it to a keyboard, mouse and large flat-panel display. While you're there, you're wirelessly connected to the organizational network, at no cost to you, of course. (No need to 'connect to the computer'.... your Palmphone is the computer.) When you're not at work, you can call or connect to the Internet anywhere, all for a flat monthly fee....
"I see fierce competition ahead, rapidly declining cost to the consumer and slim profit
margins in the business of providing high-speed data access. I think the hefty profits will be
made by the people who create the Palmphones - or maybe the software for the Palmphones -
just as previously, obscene profits were garnished by the makers of computer equipment and
software. There will be a built-in one- to three-year cycle of technological obsolescence for
these gadgets, particularly when it's something you have with you all the time, it's become
very personal. With so many new features constantly being added, people are going to want to
keep upgrading their Palmphones to the latest thing."
As far as that last sentence is concerned, perhaps it applies to the majority of cellphone users,
but not to me. What prompted this revisit to the "Palmphone" is that early this month the
antenna on my Samsung 8500 phone snapped in half, and the battery (the second one for this
phone) clearly needed to be replaced. Rather than spend about $135 to rehabilitate a four-year
old phone, it made sense to me to spend less than twice that (after rebates) for the latest thing,
and sign on to some of the new features.
Normally, I would research the available devices on the Internet for the combination of features I wanted before buying; but with my wife spurring me on (as she is prone to do after I mention a need.... it has to be taken care of right away) we visited our local Sprint store without my first doing an Internet check. I was leaning toward a Treo-type phone (which comes closest to my idea of a Palmphone).
But I am not a woman with a 40-pound purse who lugs around a card-packed wallet, compact, lipstick, calendar, comb, perfume, pill boxes, tissues, pads, crackers, notepaper, pens, multiple sets of keys, and God-knows-what.... oh, and of course, a cellphone. Nor am I a student sporting a backpack which serves the equivalent purpose. I am a retired male with limited pocket and wallet space.
This thus eliminated the Treo-style and Blackberry-style devices with their exposed alphanumeric keyboards. I needed a small clamshell (closed-cover) phone that would easily slip into my pants pocket. My choice was sealed when one of the twenty-something salespersons (who, incidentally, was also one of my wife's former students) whipped out his phone and, I figured, with the discounts Sprint offers to employees he was likely to have picked for himself the best of the possible choices Sprint offers.
Thus did I purchase the Samsung MM-A700, partly because I was happy with my previous Samsung phone and familiar with its layout, and partly because it had the largest color screen of the clamshell phones. It met my "must-have" requirement, which was that it be able to browse any web site, not just those which are canned for phones.... I entered in "onashi.org", and it worked just fine (the onashi.org default page is deliberately very simple).
It seems the MM-A700 is also the first cellphone (with Sprint service) to provide TV images. (MM=multimedia.) Now you, my regular readers, know the low esteem in which I hold television. I really have no use for it at home, so I doubly have no use for it on my cellphone. But it was fun to try out the "TV station" trials, which might better be described as "radio with Powerpoint slides". However, I was impressed with the free movie-trailer ad for "Robots", which was true 15-frame-per-second video, comparable to the video images you see on a computer with a broadband connection to the Internet.
The little gadget also takes pictures (and video). They are medium-resolution (1-megapixel) images, but the lens is not great and the pictures are out-of-focus in the corners. A camera replacement it's not, but it's handy to have if you want to snap a picture and you don't have your digital camera with you. Though the phone holds only about a dozen pictures, you can immediately upload them to your space on the Sprint pictures server over the "3G" cell network connection, about 250 kilobytes per second, the same connection the phone's web browser uses.... so picture storage capacity is not really a problem.
For my older Samsung phone (the 8500) I had bought a data cable and the Sprint "wireless Web" service, which allowed me to use the phone as a modem connected to my (older) Macintosh computer for true Internet access. But as the years went by and web pages became more complicated (and ad-saturated) the "wireless Web" service got more and more sluggish and eventually became unusable. Data cables are available for my new phone (to allow my Macs to manipulate their data), but Sprint tells me the phone can't be used as a modem, and so far I haven't found any information in my Internet searching that contradicts this. But as long as I can view most any website on the phone itself, I'm not too concerned about not being able to use the cellphone as a modem connection to the Internet.
But I do think that Sprint, in a desire to tie its customers to its online services (rather than serving as a conduit to the Internet), is missing the boat here. Since we're about halfway toward my 2009 prediction for the "Palmphone", and we seem to be more-or-less on target, let me take another stab at peering into the future:
We're about a year, or maybe a little more, away from seeing tiny 10-gigabyte or larger disk drives imbedded in cellphones. Once that occurs, it will dramatically revolutionize cellphone use, much as the iPod and its knockoffs revolutionized portable music. With decent storage, the cell"phone" will become a computer, and it will solve one of the more vexing problems of modern computer usage.... synchronizing calendars, contacts, e-mail and databases between work, home and the road. You won't need to synchronize because you'll always have your computer with you.
Currently there are three major ways people can get the Internet in their homes: 1. DSL service on land phone lines; 2. Cable modem; 3. "3G" service on newer cellphones. (Internet via satellite is a fourth, expensive, option for rural areas where the other three are not available.) Well, let's see, landline phone service, $35 per month plus $30 for the DSL; cable modem, $35 plus the cost of the worthless TV signal, which here in Worcester, the financial backwater of America, is $60 per month, though it may be cheaper in your area; "3G" cellphone data service, $15 per month plus the cost of the phone service, maybe about $50 total. If you're like us, you have all 3 feeds coming into the house (with a choice of either DSL or cable modem for Internet access on your home network).
This is expensive and duplicative. Our monthly "communication" bill for all of this is about $180 per month; maybe yours is similar. It will also be totally unnecessary when, four years from now, you'll be carrying a device which is your computer and phone (and maybe your TV!) around in your pocket, with "keyboard and viewing adapters" at work and home.
Don't think that the cable and phone companies haven't already figured this out; they have. That's why there are so many mergers in the industry, with each megasurvivor striving to become "the" provider of communications services to your home.
I think the cellphone companies have the edge here, especially with the rollout next year (2006) of "4G" data service, with speeds roughly comparable to those of cable modems. The main reason is that they will be able to seamlessly make the wireless connection of the computer in your pocket to the rest of the world, whether you're on the road ("4G" network), at work (wireless, or wired network via adapter) or at home (usually wireless). If the cell companies can wirelessly get TV into your home, too (for the Cyclops-addicted), they'll have it all sewn up.
So what do I see in 2009? The "Palmphone" in your pocket will be able to make calls almost anywhere for a flat fee (most of them over the Internet). It will take pictures and video, and show TV. It will be your primary computer, always connected to the Internet one way or another, and you can plug it into (or Bluetooth it to) adapters for desktop use at home and at work.
There will, of course, be a downside to this wonderful wireless world. 95% of the world will be running Windows CP (for "cellphone") on its pocketPCphones; and every time you turn on the phone you will have to wait 40 seconds for the latest virus updates to install, then reboot, before you can even make a lousy phone call. I, on the other hand, will be among the 5% of users with a Palmphone running PUNIX (for "phone UNIX"),and probably having a MacOS-like graphical interface, for which no hackers will bother to write viruses. Have fun, suckers.
OK, seriously, you probably want to know how you can successfully invest in this. I don't see any obvious winners. Cellphones today are pretty much commodity items, and when they transmogrify into computers, are likely to remain commodity items. The first cellphone manufacturer to sell a phone with a disk drive is likely to have an edge for a short while, but since several of the cellphone makers are developing this technology, I don't expect whoever is first to have a long-term advantage of the kind Apple developed with the iPod.
Since the phone/cable companies are fiercely competing in a deregulated communications world, I don't see any one of them becoming the Microsoft of the cellphone world (except possibly by merger). What you certainly can do, however, is avoid the obvious losers.
Top among these are the landline phone companies. Long-distance hardwired lines are obsolete. They were useful to have around for the first 120 or so years, but.... they are obsolete. Expensive to maintain and with limited carrying capacity. They have been supplanted by the Internet.
Next are the cable-company conglomerates, because most of them are (at the local level) monopolies, and they force you to buy many channels of TV programming you don't want (along with the few you might want) at exorbitant prices. Once the cellphone companies can offer wireless broadband access to your home, all they have to do is sell you only the programming you want in tailored packages, and the local cable TV monopolies will be busted.
Five years out, the communications winners will be the cellphone companies, who will be able to offer you the best combination of service and price for the single "pipeline" into your home that you need. That is, assuming they are bright enough to catch on. Listen up, Sprint, disabling computer Internet access using the cellphone as a conduit is not the way to go. You want to win this battle, you'd better recognize that the future of your service is its Internet access.
Oh yes, one more word of advice from a retired systems manager: Don't forget to back up.
When you're carrying your life around in your pocket.... and a cellphone is a very easy thing
to misplace.... you want to have frequent backups of your primary computer.
If one U.S. company or a few move offshore, their profits improve and consumer prices are lower. However, when work in general moves offshore, American lose the incomes associated with the production of the goods they consume. Domestic production is turned into imports, with the result that America draws down its accumulated wealth in order to pay for the imports on which it is dependent. The dollar's value and status as reserve currency cannot forever stand the trade and budget deficits that are now part and parcel of America's economic policy. Unless there are major changes soon, America's economic future is a Third World workforce with a banana democracy's worthless currency. - Paul Craig Roberts
What is different -- and far more dangerous -- about the real-estate mania than the stock market mania is that anyone with a pulse can get 100%-plus financing for housing.... It has been cheap and easy financing that has enabled the mania, in turn promoting even looser lending standards as the whole process has fed on itself. However, as is the case with all bubbles, this will pop of exhaustion (if it hasn't already).... the number of new single-family homes for sale in the United States is now greater than at any time since recordkeeping began in 1963. In addition, the ratio of homes-for-sale to houses-sold has crept back to levels not seen since mid-2000. And, when the housing bubble does pop, folks will find out about the downside of leverage. The fact that our financial system is so larded up with bank assets (in the form of loans collateralized by real estate) means that the implosion will impact the economy. Then, as soon as lenders start taking hits on real estate, they will tighten up lending standards, exacerbating the problem. I think it's safe to say that this mania in real estate cannot get too much crazier. Yet, it's not possible to say how much longer it will last. What is 100% knowable: Given all the speculation financed by borrowed money, this will end in tears, and the ramifications will be far-reaching. - Bill Fleckenstein
Be afraid, be very afraid. It's actually quite simple: Normal people are absolutely, totally priced out... of Manhattan and virtually all the surrounding bedroom communities. Those who can or choose to buy in this very dangerous environment are taking interest-only loans because this is the only way they can buy at these alarming prices.... Interest-only loans are the scams of the century. They allow the borrower to increase his purchasing power by lowering the INITIAL monthly payment. These are adjustable-rate loans so they will increase dramatically over a relatively short period of time. Then as housing prices plummet--and they will plummet--these hapless home/apartment owners will have.... negative equity.... Then when the recession hits, they will lose their jobs, the banks will foreclose and once that starts it will affect housing prices for everyone.... even interest-only loans will not be enough to hold up the middle of the market, which is no longer a middle market when shitty apartments are priced at well over $1 million.... Most of the speculative hysteria is being driven by college educated people who were wiped out in the Nasdaq bubble and seem not to have learned. Greenspan has done his job so very well, he's snookered them again! - "I sell real estate in Manhattan", relayed by Robert Folsom
What if property values were to decline in the U.S., triggering a severe recession and leaving a substantial fraction of the nation's homeowners underwater on their mortgages? ....Now that the bankruptcy bill has become law, those who are merely decimated by the coming credit collapse may find themselves in far worse shape than profligate borrowers who literally went for broke. Pennilessness might be a ticket to financial freedom, but those barely scraping by will be on the hook for as long as they continue to work. If.... millions of mortgagees are reduced to subsistence living, lynch mobs will be demanding the repeal of these new laws five years from now. Until then, the lenders, having legally hedged their bets, will probably think they're sitting pretty if the economy should implode. Any comfort they might take in this belief is delusional, however; for there can be no winners or losers in a deflationary collapse, only survivors. - Rick Ackerman
In real terms, $56 oil represents more than a quadrupling from the lows of late 1998 -- putting this price spike very much on a par with those devastating blows of the 1970s. The apologists will tell you not to worry -- that the real price of oil is still below record levels hit in the late 1970s. That is poor macro, to say the least. Impacts to economic growth are not about levels -- but about changes. The sharp run-up of oil prices in these past few years is the functional equivalent of a tax on household purchasing power that only puts further pressure on an already over-extended American consumer. - Stephen Roach
Americans are getting poorer. They don't realize it. No newspaper tells them. No politician dares even to whisper the truth. No Fed economist proposes a remedy. Still, real wages are less today than they were a year ago...and no higher than they were at the bottom of the recession in November 2001. Worse, unmentioned in the "real" calculation is the cost of housing. Depending on where you live, a house today could cost twice as much as it did in November of 2001. This, of course, is taken as good news to most people. But it is only good news if you are ready to leave the country or die. Otherwise, you are going to need some place to live. And it will cost you a lot more than it did a few years ago. - Bill Bonner
It is a matter of record that America's economic recovery over the last four years has been little more than a statistical hoax. Although real GDP supposedly has grown by 10.4 percent over that time, ....gains would be no higher than 4 percent if honest numbers were used. Instead, the government's spinmeisters continue to grossly understate the rate of inflation while using hedonic adjustments to turbo-charge reported gains in productivity.... Each of us knows, through personal experience and anecdote, that the cost of living is rising much faster than the government would have us believe, and that good jobs are as hard to come by as they are to keep. But if the average American is working harder than ever merely to stay afloat, it is not clear how such feeble economic growth as we've experienced in recent years will enable said worker to extricate himself from a financial pillory, much less improve his lot. - Rick Ackerman
The chickens are coming home to roost and even the inflated stock market is having a hard time avoiding the flurry of feathers. The deficits DO matter. The weak dollar DOES matter. Near-record lows in national savings don't lay the groundwork for a healthy economic expansion. Sure the numbers might look better but the devil continues to reside in his favorite place: the details. We're creating some jobs but they're low-paying service industry jobs. Wages aren't increasing. Of course that's spun bullishly as well. The feds call it "a lack of wage inflation pressures." You and I call it "not making ends meet." - Mark M. Rostenko
The outsourcing of manufacturing, design and innovation has dire consequences for U.S. higher education. The advantages of a college degree are erased when the only source of employment is domestic nontradable services.... the percentage of college graduates among the long-term chronically unemployed has risen sharply in the 21st century. The U.S. Department of Labor reported in March that 373,000 discouraged college graduates dropped out of the labor force in February -- a far higher number than the number of new jobs created. - Paul Craig Roberts
Fiat currencies are a function of faith. There is nothing backing them other than faith. To create and use fiat money, each one must believe to give paper money value. That is what gives value to worthless pieces of paper. As long as the holders of money wealth believe in its value, the inflation game will continue. As long as inflating assets values are looked upon as a bull market, as long as the trade deficit is seen as benign, the paper wealth game can continue. It is all part of a confidence game to convince individuals that paper money has value. It is only when that belief or confidence is lost that real problems surface. That is when the general public wakes up to the fact that they have been duped. - Jim Puplava
The Master Planners continue to throw fresh dollars at every economic risk. Just print more money. Just add liquidity to the system. Just devalue the dollar. Our research indicates that whenever M-3 rises for more than a month, equities rise; and whenever M-3 plateaus or declines for more than a month, equities decline. So, on the surface, more M-3 should be positive for equities. However, at some point the dollar will devaluate to the point where foreign investors have had enough, dump U.S. financial holdings, and add so much selling pressure that US markets collapse. "When" is the question. - Robert McHugh
Consumers are now so soggy with debt they desperately need more credit just to continue to slosh around money. They're counting on inflation to dry up their debts...and more credit to slake their thirst and allow them to continue to spend. We doubt that will happen. The consumer will not be resurrected by inflation without first being crucified by deflation, is our guess. - Bill Bonner
It ought to be realized that a rise in long-term rates by only 1-2 percentage points would rapidly play havoc with all existing asset bubbles - bonds, stocks, housing - and in consequence, with economic growth. Within a matter of months, there would be deep recession. - Kurt Richebächer
The kind of maniacal behavior that we saw then toward stocks and which we are seeing now in real estate tends to come at the end of a speculative mania. It is almost always coincident with rising supply, which helps to satiate the inflated demand. As I have pointed out, the true danger in the real-estate bubble is that folks are often speculating with more than 100% leverage. When it all ends (and though we don't have a timeline for exactly when that will be), the banking system and other financial entities will be left with the bad assets, which will severely impact the economy. - Bill Fleckenstein
Alan Greenspan and his berserk fiat monetary regime: Blame him for reckless policy or not, the Fed is now, and has been for some time, giving signals you should be listening to. Tightening. The Fed is raising rates in an effort to reign in the bond market, stabilize the dollar and show the rest of the world that the US hasn't totally lost its mind. Meanwhile, certain Fed governors are out sooth-saying and trying to manage this tightening cycle to keep things calm. But you should keep your eye on what they are doing, and what they are doing is withdrawing liquidity little by little. - Gary Tanashian
To hear Greenspan tell it in 1999, post-bubble damage control was as simple as cutting interest rates. He passed lightly over the possible consequences of the rates he cut. The list so far includes a bubble-like housing market (geographically localized but ferocious), an overheated debt market (this one spans the globe) and a steady depreciation in the foreign exchange value of the dollar. - James Grant
The US had no overall inflation from 1800 to 1929; if anything, a modest deflation, making the $US more valuable over that period. The gold standard worked. Modern economists view it as quaint, but the record of fiat money is simply appalling. The US had higher growth from 1800 to 1929 than since. The dollar has dropped 25x in value since taken over by the Fed. A 40x drop in the third century led to the Roman Empire being replaced by a theocracy; a 40x drop in the 16th century led to the fall of the Spanish Empire and the rise of Britain and Holland as global powers.... The Dow did not recover to 1929 heights until the 1950s under the nominal Dow, and not until 1965 under the Constant Dollar Dow, and even then the peak was short-lived. It was not until the mid-1990s that the Dow sustainably exceeded the 1929 peak - 65 years later - and that is considered in part due to a mania, not a sustainable accrual of value. Hence much of the increase in the Dow over the last 75 years is illusion. - Duncan Davidson
There's a moral dimension to Social Security that few have the guts to address. What moral
principle, consistent with liberty, justifies forcing a person to set aside a certain portion of his
weekly earnings for retirement and jailing him if he fails to comply? Retirement isn't the only
important item for which we should budget. How about a congressional mandate that we set
aside a certain portion of our weekly earnings for housing, food, entertainment or our
children's education? Were Congress to propose a measure that would require each American to set aside a portion of his weekly earnings for these items, most of us would see it as
tyranny. - Walter E. Williams
CREF Stock, 5 years ending 30Mar2005
CREF Equity-Index, 5 years ending 30Mar2005
CREF I-I Bond, 5 years ending 30Mar2005
TIAA Real Estate, 5 years ending 30Mar2005
In an environment of rising interest rates, stocks may not immediately roll over, but they're not likely to make much headway, either. Barring some sort of external shock, such as a dollar collapse or derivatives failure.... which could happen any day, but the timing is not predictable.... stocks are likely to continue doing what they've done so far this year; that is, be sluggish with a downward bias. If you're in stocks, I hope you enjoy collecting your meager dividend income, because that's all you're going to get.
I do see the possibility of a secondary peak (similar to early March's) in May, before the downtrend in stocks sets in for real in anticipation of the 2006-07 housing-bubble-popping-induced recession. No guarantee here - but possible.
Sometimes when we're driving along in the car, my wife will notice the stock market news
report on the radio (usually when stocks are plunging) and she'll say, "Your retirement
money isn't in that, is it?" And I reassure her it's not. It's mostly in TIAA guaranteed-interest
stuff, with a little bit in TIAA Real Estate (which I watch very carefully) and with an occasional quickie in-and-out foray into the bond market. So far, I'm doing okay.
A. "Professors' Investment Group (PIG)" - investment club portfolio.
SUMMARY - "PIG":
Original cost: $10,699.00
Present value: $17,604.53
Increase: $ 6,905.53 [+64.54%]
COMMENT on "PIG": There is no change from the last issue.
TIAA/CREF 403(b) retirement plan; I switch between indexed stock/bond/money funds:
(No transactions since June 30, 2004 due to my retired status. Update soon, I hope!)
Values, 30Mar2005: stock, 188.29; equity-index, 76.37; MM, 22.13; bond, 74.10; inflation-indexed
bond, 44.83; real estate, 213.43; TIAA current yield in SRA, about 5.2%. Current money-market
yield is 2.27%.
Gain, 1988: 18.91%; 1989: 14.48%; 1990: 8.28%; 1991: 27.93%; 1992: 10.20%; 1993:
3.08%; 1994: 4.07%; 1995: 4.80%; 1996: 5.28%; 1997: 5.38%; 1998: 5.72%; 1999: 5.12%;
2000: 9.99%; 2001: 1.11%
Gain, January 1 through March 31, 2002: 0.97% (3.86% annual rate of return)
Total gain since January 1, 1988 (14.25 years): 223.43%
Compound annual rate of return: 8.59%
Gain shown excludes the impact of additional monthly cash contributions.
(Please note that I have not had the time to calculate my rate of return beyond March 2002, and
may not get the time until 2005)
Buying CREF stock on January 1, 1988 and holding it gained 422.38%, for a compound annual rate of
return of 11.46%.
COMMENT on NYSE "Timer's Trend": We are currently on a SELL signal of March 16,
2005.
COMMENT on NASDAQ "Timer's Trend": We're currently on a SELL signal given February 17, 2005.
NEXT ISSUE - will appear near the end of April.