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Wall Street’s Bears Come Back in Style
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TERRY KEENAN, CNN ANCHOR: On Wall Street, you have the bulls and you have the bears. Today, we have both, and we’ll debate where the market is headed next.
DARYN KAGAN, CNN ANCHOR: The big fight over a little boy. Elian Gonzalez’s father pleads for help. The attorney general now focuses on how to make a reunion take place.
KEENAN: Tech stocks, that have been risky and profitable. If you’re retiring soon, we’ll tell you what mutual funds you should be putting your money in.
KAGAN: There are millions of dollars sitting in accounts all around the U.S. Some of those dollars could be yours. We’ll tell you how to find missing money.
ANNOUNCER: From CNN and CNNfn, this is IN THE MONEY with Terry Keenan, Bill Tucker and Daryn Kagan.
KEENAN: Hello everyone and welcome to IN THE MONEY. My partner, Bill Tucker, has the day off, as does Wall Street, which is closed for Good Friday.
Stocks, however, wrapped up a four-day week yesterday with a mixed performance as the Dow rallied 169 points, and the Nasdaq lost 63. For the week stocks, posted an impressive rebound, however, right across the board with the Dow gaining 5.2 percent, the Nasdaq was up 10.5 percent.
However, we could be setting the stage for a tough Monday morning. Late yesterday. Microsoft warned that its earnings and sales growth will slow, and overnight in Tokyo stocks plunged by four percent hurt by a sell-off in the banking stocks.
On now to our top business story this morning, and that is the bottom line at Microsoft. Late yesterday, the software giant said that it earned 43 cents a share in its third quarter, and that did beat the Wall Street estimates by two cents. But it reported what analysts see as disappointing revenue growth. And as a result, the stock slid sharply in after-hours trading. It was off about $3, although it did gain 25 cents in regular Nasdaq action.
IN THE MONEY’s Steve Young has been crunching all these Microsoft numbers. He was on the conference call last night.
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And Steve, give us an update, what’s the real problem here?
STEVE YOUNG, CNN CORRESPONDENT: Well, the real problem is that corporations have been slow to adopt Windows 2000. They take more time in the commercial world to decide whether to use the product. In addition, there was a shortage of the high end of Intel’s Pentium III chips. That was cited by the CFO John Conners (ph) in a call that some analysts thought had more cautionary notes than usual. But I’ll tell you, we canvassed three analysts yesterday, and the tie-breaker sort of said, well, it was Microsoft cautious as usual.
But that said, the top line was disappointing even to Rick Sherlund (ph), the Goldman Sachs analyst who last week tanked the stock and the market by forecasting about a $200 million shortfall on top line. His forecast model turned out to be even wrong by about another $20 million.
The company, in addition, said that the sequential outlook was not good. It forecast a flat outlook for the next quarter, although they said that they also want to look at the numbers. And, on the positive side, they said that demand did pick up in the last part of this quarter. They also said that they have sold more than 1 1/2 million copies of Windows 2000 to the consumer market, which was better than they forecast for a relatively short amount of time.
KEENAN: And when you say “top line,” you mean sales because that is the top line on the income statement that is where that term comes from.
KEENAN: The question, though, is what’s going on with PC demand, and, how much is that influencing Microsoft’s slowdown? and will it impact other companies as well?
YOUNG: And other stocks on Monday. Well, you know, AMD did well, which correlates directly to demand for PCs. So did Intel, and in fact the CFO of Microsoft said that that may be because Intel deals with a broader market, including consumer wares. Microsoft, in this new product cycle, the Windows 2000, is mostly focused on the corporate market.
But there are some other issues as well. Microsoft, as a matter of fact, is now having problems with one of its insurers in terms of liability for antitrust, and, this is kind of a rich situation because the insurer is saying that it did not pay to cover bad doing by Microsoft and, you know, anticompetitive monopolistic behavior by Microsoft, which is now in a countersuit.
KEENAN: When it rains it pours I guess.
YOUNG: That is right.
KEENAN: OK, we’ll be taking a close look at Microsoft come Monday morning. Thanks a lot Steve, Steve Young. Well, as we mentioned at the beginning of the program, both the Dow and the Nasdaq had rather sharp rallies this week, but neither index made up for the ground that it lost last Friday, and that means the Nasdaq is 1400 points, or 27 percent, below the highs set in early March, and that of course is one reason why many analysts believe that the bull market may have ended.
Peter Viles looks at the debate between the bulls and the bears.
PETER VILES, CNN CORRESPONDENT (voice-over): The bull that has ruled Wall Street since the early ’80s has hit one of those trouble spots that make people ask, who’s really calling the shots, the bulls or the bears?
The bearish case is in the numbers: the Dow industrials are down 5.7 percent this year; the Nasdaq is down 10.5 percent, And meeting one definition of a bear market, the Nasdaq is down nearly 28 percent from its peak. And technology stocks are still expensive, according to historical benchmarks. Cisco Systems, for example, trades at 146 times earnings.
Another negative: the Fed’s war on inflation is driving up interest rates and threatening to slowdown the economy.
Most analysts do agree the recent plunge in the Nasdaq marks the end of at least one phase of the bull market in which momentum investors drove up the value of unproven technology companies.
RICHARD MCCABE, MERRILL LYNCH: We have to look at maybe a shifting of trends, where the bull market in the new-economy stocks is faltering. It may be over for a while, but the bear market that existed earlier in the old-economy stocks is changing, they’re bottoming out, and they are starting a new bull market.
VILES: The bullish case is in the fundamentals. Despite the Fed’s recent moves, interest rates are at historically low levels. The economy is growing steadily, and so are corporate profits, and technology spending continues to drive the economy.
AL GOLDMAN, A.G. EDWARDS: There is only one reason to buy stocks and that is to participate in a company’s growth of earnings, and I don’t know any sector of the economy that offers superior growth prospects, looking out two three, four, five, years, than technology and selected Internet stocks. So, you bet, it has been working for 10 years now, and I am not going to buck a trend like that.
VILES: One measure of the underlying optimism in the market, even after the recent unpleasantness, is that a lot of people who say they are bearish really will confine their bearish argument to technology stocks. They will say, as for the overall market, stocks other than technology may continue to trend higher — Terry. KEENAN: So, Peter, what’s the definition of a bear market, that is, because it is kind of complex and different people have different definitions.
VILES: One benchmark is if you decline 20 percent from your highs, which the Nasdaq has, but the Dow and the S&P have not. There are a lot of numerical arguments you can make. One simple argument, just to think of in your mind is, a bear market is a time when it is not smart to buy stocks because the prices are falling, and if you wait, you will get them cheaper. That is a simple definition.
KEENAN: All right, thanks for making it simple, Peter Viles.
OK, so, where do we go from here? For some answers we turn to two Wall Street analysts that have very different views on this market. On the bear side, we have David Tice, he is a portfolio manager of the Prudent Bear Fund. His fund was one of the best performing stocks during last week’s sell-off, and he joins us from Dallas, Texas. And representing the bulls, on the right there, we have Scott Bleier, investment strategist with Prime Charter. And he joins us from Boston.
And gentlemen, welcome to IN THE MONEY.
David, let me start with you, are we in a bear market in your opinion?
DAVID TICE, PORTFOLIO MANAGER, THE PRUDENT BEAR: Well, we think we are in a bear market at least for Nasdaq, Terry. We believe this market has a lot further to fall. I would like to make four quick points about why we think so: one, this market is more than 50 to 100 percent more overvalued than any American stock market in history; the second point is, the stock market and the economy have been the beneficiary of a huge debt binge that both consumers and businesses have been on for the last several years; thirdly, we are not the only people saying this, people like Bob Rubin, ex-treasury secretary, Alan Greenspan has cautioned about bubble, Paul Volcker, ex-Fed chairman, and a number of others including John Templeton are very worried; and the fourth thing is that you can’t look at economy, the economy is strong, stock markets lead the economy, everything is wonderful, but as John Templeton has said, bull markets begin in a period of maximum pessimism, bear markets begin in a period of maximum optimism, and we are close to maximum optimism now.
KEENAN: Scott, defend the bulls here.
SCOTT BLEIER, INVESTMENT STRATEGIST, PRIME CHARTER: It is not too difficult to defend the bulls right now, though David makes some very valid points. But let’s make a couple of differentiations between bull market, bear market, and a pause, so to speak.
You know, technology stocks have gotten way ahead of themselves before this most recent kind of pressure valve correction that the market has gone through. A lot of the stocks that momentum carried higher with little or no fundamentals behind them have really crashed. And that precludes, for example, what happened to Japan in 1989. And Japan suffered through a 10-year recession, and bear market.
But in essence, I don’t think that is going to happen with our market because, again, it is earnings that are important, and you have to judge a company by its earnings and a discounted cash flow model. And the bottom line is, technology stocks, from the very biggest to the second- and third-tier, many of these companies which are fueling the productivity gains in our economy that we have all heard of, are going to earn oodles of money down the road. And the bottom line is, we have pressure-valved the market, we have let off a lot of the excess, and technology stocks tend to be more expensive than the overall market, because it’s been an area of tremendous growth, and it will continue to be so.
KEENAN: David, do you trust some of these earnings numbers? I know that you have crunched a lot of them, including, of course, the Tyco numbers. And we made a famous call on that company. But you — we’ve seen some earnings disappointments this week from the tech sector and from the — some of the most outstanding tech stocks of the last decade, IBM and Microsoft, to be specific.
TICE: Right, as Scott said, earnings are important. But the problem is, a number of these companies are dependent upon companies that don’t have enough money, have to continue to go back to the credit market in order to get money. That’s the big problem with Cisco. We’ve seen a slowdown with Microsoft and IBM already.
Going back to your question, Terry, about quality of earnings, chairman of the SEC has said we may be witnessing erosion in the quality of earnings. Managing may be giving way to manipulation. Too many corporate managers, auditors and analysts are participants in a game of nods and winks. So, unfortunately, a lot of the earnings are coming from these big companies selling off their holdings and venture capital holdings of other Internet stocks. After last week, that may be about to stop.
KEENAN: David, let me ask you quickly about Cisco because I don’t know a bear out there that doesn’t think that stock is overvalued. And then I want to ask Scott for the bullish case because I don’t know a bull that doesn’t love the stock.
TICE: Well, Cisco is a great company. However, they’ve been a beneficiary of all these dot.coms, every telecommunications company, railroad, pipeline, utility that is trying to build this fiber infrastructure across country. And we don’t think that’s going to be supported. We’re going to have dramatic overcapacity. When that comes up, Cisco is not going to have as many orders and the stock will decline dramatically, unfortunately.
BLEIER: Unfortunately, you know, that is one opinion. And the bottom line with Cisco is, they have executed brilliantly, not just in building out the Internet, which is going on now, but — you know, we think this build-out will not produce overcapacity because, for the next two to five years, there isn’t going to be enough capacity if we continue to build at full speed. And I think that our world is changing and Cisco is behind that.
Now, is the stock historically expensive? Yes. It’s a leadership stock. It has a tendency to be expensive. And, you know, accounting issues aside, there are lots of questions. And if the generally accepted accounting principles are going to change, well then maybe David — some of David’s arguments are going to hold true. But as of right now, for example, with Tyco that you mentioned, a couple of quarters have passed and we haven’t seen any accounting irregularities come to the fore. So maybe, you know, it’s the boy who cried “wolf,” so to speak.
The bottom line is here: I am going to continue to bet that certain select companies will do extremely well, and rigor, rigor is what has been missing, and the valuation of risk. All of those things have come back to the fore here and that is going to be what’s going to help the right companies do the right thing going forward, and the market to do well.
KEENAN: OK, we’re almost out of time. David, quick take of the market from you: What do we do next week? We had a 10 percent rebound in the Nasdaq this week.
TICE: We think the warning bells are going off, Terry. The Nasdaq declined 23 percent or so. People ought to reduce risk. They ought to cut exposure. They’ve made a lot of money in the market, just take some money off the table. Think about preserving principal rather than greed.
KEENAN: Scott, quickly, what do you think the market’s going to do next week?
BLEIER: Well, I think the market does have more work to do, and that certainly is expected after the kind of drop we’ve seen following the kind of rally we’ve seen, just to put it all into perspective. Again, I think the market needs to do work, but long-term investors continue to put money into the their 401(k)s, and month after month, they buy stocks.
KEENAN: OK, you have the last word, Scott.
Thanks, gentlemen. Have a good weekend.
KEENAN: Scott Bleier and David Tice joining us from Dallas over at the Prudent Bear Fund.
Coming up next on IN THE MONEY: What’s next in the Elian Gonzalez case? Is the government about to make its next move? We’re going to go live to Miami. And did last week’s roller coaster ride scare away mutual fund investors? We will find out. Plus, we’ll ask Morningstar which funds it recommends when it comes to retirement.
KEENAN: The Dallas Cowboys are going vintage. You no longer need to go to a game or a sports shop to get Cowboy merchandise. If you want to wear quarterback Troy Aikman’s used shoes, socks, or jersey, you can go on-line. But the price isn’t cheap, his socks are going for $20 a pair, while his shoes are going for even more green, $2,000 a pair.
Well, leading our news summary this hour: There are indications federal authorities may be preparing to make a move in the Elian Gonzalez case.
For that and other headlines, we go now to Daryn in Atlanta for the latest.
Hello again, Daryn.
KAGAN: Terry, good morning to you.
Sources are telling CNN that Attorney General Janet Reno has been meeting with her top aides, as well as INS Commissioner Doris Meissner, discussing the government’s options in the Elian Gonzalez case.
One of those options: removing the Cuban boy, by force if need be, from the home of his Miami relatives.
Our Susan Candiotti joins us from outside that home, she is once again in Miami’s Little Havana.
Susan, good morning again.
SUSAN CANDIOTTI, CNN CORRESPONDENT: Hello, Daryn.
As officials in Washington continue to prepare and plan for the possible use of law enforcement to reunite father and son, 6-year-old Elian Gonzalez continues to talk to his father on the telephone from time to time. Juan Miguel Gonzalez says he is not always able to reach his son, but he did last night, and they talked for about 25 minutes.
The youngster, who in a controversial home video made just last week; said he did not want to go back to Cuba, blew about seven kisses into the phone at the end of the call while he sat in a toy car. A family spokesman contends the father makes him blow those kisses.
Meantime, on this Good Friday, demonstrators carried crosses and prayed for the child, near the home here. They prayed, they said, that whatever happens, that God will take care of him.
As for news that federal agents have been adding personnel into the South Florida area, and continue to move forward with plans to come to the home, a family spokesman said he hopes that doesn’t happen. He says that the family is still holding onto the possibility that a federal mediator might be involved — might become involved. However, Juan Miguel Gonzalez so far has said that he has no plans to engage a federal mediator,
Susan Candiotti, CNN, reporting live in Miami. KAGAN: Susan, thank you.
Now we want to show some live pictures as millions of Christians around the world are celebrating Good Friday today, looking at some live pictures of the celebration of Mass at St. Peter’s Basilica in Vatican City.
Some of you may have extra money coming and it may only be a point and click away. More on that, how to find your missing money, a bit later.
For now, back to Terry.
KEENAN: OK we’ll see you then for that.
Thank you, Daryn.
Coming up next on IN THE MONEY: Technology funds are going to take the spotlight in today’s “Mutual Fundamentals,” as last week’s market turmoil cuts into some of these high-flying funds. We’re going to tell you which ones were the hardest hit and where you should put your money, when we return.
KEENAN: Last week’s unnerving stock market swoons didn’t seem to spook many mutual fund investors. According to Trim Tabs, an industry research firm, equity mutual funds only had $2.5 billion in outflows on Monday. A day later, investors were piling back in to the tune of an additional $5.5 billion.
Kitty Pilgrim takes a closer look in today’s “Mutual Fundamentals.”
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Is the infatuation with aggressive growth funds waning? Aggressive growth funds typically invest heavily in red-hot technology issues. Since October, return-hungry investors have funneled $141 billion into these funds, an average of around $20 billion a month. But investors are on track to invest only half that amount into these funds this month. That’s according to Mutual Fund Trim Tabs, which follow mutual fund money flows.
BRIDGET HUGHES, FUND ANALYST, MORNINGSTAR: What we saw, of course, through 1999, is that most of the funds that did exceptionally well were heavily invested in technology, and we continue to see that trend in the early parts of 2000. But when the market became extremely volatile, most of the technology funds ended up at the bottom of the list.
PILGRIM: Last week alone, technology funds lost an average of 28 percent: the large-cap growth category lost an average of 15 percent; mid-cap growth down 22 percent; small-cap growth 21 percent. Leveraged Nasdaq funds and Internet funds were hit especially hard, suffering dizzying losses after months of highly speculative activity.
RYAN JACOB, JACOB INTERNET FUND: We were down, at one point, over 50 percent for the year, which is a pretty steep decline. We’ve recovered somewhat. Now we’re down probably around 35 percent, and we hope, as this recovery takes hold over the next three to six months, that we can recoup a lot of those losses.
PILGRIM: After years of neglect, investors are favoring so- called “bear funds,” which sell stocks short and profit when the market falls. Top performing short funds in the last month include ProFunds UltraShort OTC, Potomac OTC and the Prudent Bear.
But, despite the bloodshed earlier this month, it appears the majority of small investors did not panic, and once the markets settled this week, bargain hunters snapped into action.
UNIDENTIFIED MALE: I’ve actually invested more since the stock market dropped.
UNIDENTIFIED MALE: I lost some money, but I got it all back Tuesday, plus more, because I came in Monday and put in some more money.
PILGRIM: Many tech fund managers said money kept coming in, even while the Nasdaq suffered its biggest losses last week.
UNIDENTIFIED MALE: My computer was kicking off dozens of buy areas in stocks that we like, and literally, we would just walk over to the trading desk and say, buy as much as you can of these 10 stocks right now, and for us it was great.
PILGRIM: And the latest figures show that the buying binge is slowing as the markets recover. Investors added $9 billion to U.S. equity funds this week, down from $13 billion the prior week.
Kitty Pilgrim, CNN Financial News. New York.
KEENAN: Well, many Americans who have their retirement money invested in 401(k) plans were watching the markets very closely the last couple of weeks. Our next guest says that this might be a good time to take a second look at the mutual funds in your 401(k) portfolio.
Joining us now from Chicago is John Rekenthaler, he is the director of research at Morningstar.com.
And John, welcome, nice to have you with us.
JOHN RECKENTHALER, DIRECTOR OF RESEARCH, MORNINGSTAR: Pleasure, Terry. KEENAN: You heard in that previous story, and it is something I have been hearing from fund managers that, generally, they have been seeing net inflows, seeing money come in to their mutual funds, even despite the huge sell-off, the 25 percent sell-off in the Nasdaq last week. Are you surprised?
REKENTHALER: No, not really, 401(k) habits have become quite ingrained, and we have been in an 18-year bull market for stocks where consistently people have been rewarded for putting money back into the market after short-term declines. So really, people have been trained to do this.
KEENAN: Yet some of the most popular funds have had their worst year in recent memory as far as I can tell. Some of these popular funds down 40 or 50 percent, including the Von Wagner (ph) emerging growth fund, the PBHG fund. How many people do you think have their mutual fund — their 401(k) money, that is, invested in these funds? and what should they do if they are looking at declines like that?
REKENTHALER: That is a good point, Terry. An increasing amount of money has moved exactly into the kinds of funds that were down 50 percent over the past six weeks, the Janus Ventures, and PBH New Opportunities and the like, the funds that are heavy in technology, and performed very well in 1999.
I think many people are overloaded in those — in the new-economy stocks, and they should really regard what’s happened in the last six weeks as a warning shot being fired across their bows, take a look at their portfolio, and get back to basics in their portfolio.
In Morningstar Clear Future, which is a new Internet-based advice service that we offer to 401(k) participants, we build portfolios that have no more than 30 percent in technology, for example. So we try to constrain and control for risk. Thirty percent is still a large exposure to technology to the new economy.
KEENAN: And it is about a market weighting in terms of tech stocks’ proportion to the rest of the stock market; correct?
REKENTHALER: That is right, the stock market is now 30 percent in technology, and even a lot of the old-economy companies increasingly are attempting to become technology companies, adding Internet and business-to-business capabilities. So it is pretty hard to avoid technology exposure, and you can get a lot of technology exposure without resorting to aggressive growth funds. They should just be a small proportion of the portfolio.
KEENAN: Well, you folks comb through thousands and thousands of mutual funds, and you’ve come up with a list of where you think people should be putting their 401(k) money in this environment. So let’s take a look at that list, and some of the funds that you like. One of them is the Fidelity Growth and Income fund. Why do you have like that fund in particular?
REKENTHALER: Fidelity Growth and Income fund has posted an excellent record. It is about 15 percent in technology. All the funds on list are funds that have had — these are large funds that are widely available in retirement plans that have light exposure in technology. They are a good counterbalance for the aggressive kind of material that people have been adding to their portfolios, and that have performed so poorly recently. Fidelity Growth and Income is about 15 percent in technology, as I said.
KEENAN: I notice.
REKENTHALER: . and the others are actually a little lighter.
KEENAN: And I noticed word “income” in three out of the four of funds, and I’m curious, are they invested in stocks that have high dividends?
REKENTHALER: Well, relatively high. You know, these days there are not a whole lot of seven percent yielding stocks out there. But relatively speaking, they’re investing in companies that do pay dividends, have a history of dividends, and are a lot steadier — and more stable rides than the new-economy stocks that are, you know, being funneled on venture capital money and some hopes.
KEENAN: All right. Thanks, John. We appreciate it. Thanks for the ideas.
REKENTHALER: Thank you, Terry.
KEENAN: John Rekenthaler of Morningstar joining us from Chicago.
You can find out more about Morningstar’s mutual funds on our Web site. Check out cnnfn.com where you’ll also find other tools for planning for your retirement. Simply scroll down to retirement and click on the mutual funds segment there.
And one more Internet note: A federal law taking effect today requires Web site operators to get parents’ permission before they collect any personal information from children. Government agents will begin monitoring thousands of Web sites. Now, officials say violations could bring fines up to $11,000 for Web site operators.
Coming up next on IN THE MONEY: What funds will add the best value to your 401(k)? “SmartMoney”‘s Vera Gibbons will join us with that. Plus, are you looking for a little extra money? You may have some out there that you don’t even know about. We’re going to tell you how to find it. And “Fortune”‘s Andy Serwer is here.
Andy, what’s on tap today?
ANDY SERWER, EDITOR-AT-LARGE, “FORTUNE” MAGAZINE: Terry, absolutely free online trading. Plus, an Easter basket of stocks. Stay tuned.
KEENAN: Hello everyone, and welcome back to IN THE MONEY. I’m Terry Keenan. Bill Tucker has the day off.
Let’s get you caught up on some of the stories making business headlines this morning.
Technology bellwether Microsoft beat earnings expectations after the close of trading yesterday, but it wasn’t all good news. The software giant also reported lower-than-expected revenue growth. The stock was down about $3 in after-hours trading. There is no trading on Wall Street today because of the Good Friday holiday.
Another stock to watch when trading resumes on Monday, Exodus Communications. The company that helps manage Internet sites for more than 2,000 customers said that its first-quarter loss widened. Exodus shares were down 4 1/2 on Thursday.
And stocks in Tokyo ended their worst week in almost a decade. The Nikkei average sank almost 4 percent Friday as investors sold out of the 30 stocks which will be removed from the Nikkei index on Monday in its biggest reshuffling ever.
401(k)s give investors an opportunity to save for their future, but they often have some limited investment options. This week, SBC Communications, the telecom giant, was accused by former and current employees of improperly selling stock in the workers’ 401(k) that they claim cheated them out of more than $1 billion.
Steve Young explores the choices investors have in their 401(k) plans.
YOUNG (voice-over): SBC, the nation’s largest “baby Bell” was sued by some of its former and current California employees on behalf of 40,000 workers over the management of the investments within their 401(k) plan. The employees allege that the company has cost both employees and retirees more than one $1 billion in lost profits by eliminating from their 401(k) plan shares of a company that competes with SBC. The company says it doesn’t believe the lawsuit has any merit, and like any company, “SBC has the right to change the design of its employee savings plans, including the right to eliminate plan investment options.”
The case raises issues about 401(k)s and how much control employees can or should have over how they’re invested.
LESLIE KRAMERICH, DEPARTMENT OF LABOR: We think it’s absolutely important that they follow what’s going on, that they ask questions of their employers if there are changes that they’re concerned about.
YOUNG: SBC is an isolated case. And for most workers, the biggest problem with their 401(k) is what kind of stocks and bond funds should be in it. Experts suggest leaving savings in your 401(k) because it’s basically the only way employees can have tax-deferred savings. IRAs and Roth IRA’s have a $2,000 cap, and most 401(k) plans don’t allow you to roll your 401(k) savings over into an IRA without leaving the company.
Experts also advise diversifying your investments so even if your company’s 401(k) pulls out of a stock you personally favor, you can enjoy the benefits of its success.
Steve Young, CNN Financial News, New York.
KEENAN: Well, of course, not all 401(k) plans are created equal. Investors should take a closer look at their company’s 401(k) options to see if their money is being put in the right fund.
Next month’s issue of “SmartMoney” magazine checks out what steps investors should take when it comes to their companies’ 401(k)s.
Vera Gibbons of “SmartMoney” joins me today with some advice on how to differentiate between the best and worst of those funds.
And, Vera, welcome. Nice to have you with us.
VERA GIBBONS, “SMARTMONEY”: Thanks for having me.
KEENAN: And I know a lot of companies, including ours, have more than 300 choices, so.
GIBBONS: Yes, it’s very confusing. They sort of say, pick what you want and get back to us in a couple of days when you’ve decide. What you really need to do is take a look at the five-year annualized returns, the three-month rolling returns, and also just see how they’ve done against their peers. Or you can just read “SmartMoney.” We did it for you in the issue.
KEENAN: You went through how many different funds in this issue?
GIBBONS: We went over 5,000 funds. And what we did was we took some of the more popular 401(k) funds. We looked at 10 money management firms that have the most 401(k) assets. We did a series of screens with the help of Morningstar, looked how they did against their peers, studied their five-year annualized returns, also looked at their three-month rolling returns to get — to see how volatile they were.
KEENAN: Yes, and also, should you look at, perhaps, a year or two-year return, and maybe pick a fund that hasn’t done so well and be a contrarian.
GIBBONS: You could. It’s a little risky. It’s a little risky doing that. You want something that has a solid background, a decent fund manager, and is, you know, returning over 30, 35 percent.
KEENAN: You looked at some of the fund families with the most 401(k) assets under their umbrella.
GIBBONS: Yes, right.
KEENAN: That includes Vanguard, Fidelity and Janus?
GIBBONS: Ten of the major ones. You can’t go wrong with any of the Janus funds. They’re all terrific. Enterprise is a great fund. Mercury is also a very good one.
Now, they are volatile. If you want something that’s not as volatile, you want to go with something like Janus 20 which is a great fund even though Tom Mercer (ph) is no longer running it. Fidelity also has a number of great funds. OTC is good. Growth Fund is excellent. They’re both up over 35 percent. Again, they are pretty volatile, but they are doing quite well. Growth Company, if you want something a little less volatile, you could go with something like that. That’s got a three-year record of over 50 percent. So that’s something to take a look at.
Vanguard, also. You might want to go with one of the Equity Index funds, like the 500 Index, second largest fund in the country. Or the Institutional Index is also very good, has one of the lowest expense ratios anywhere, and it’s big in the S&P returns.
KEENAN: All right, thanks. Some good ideas.
GIBBONS: Thank you.
KEENAN: Vera Gibbons of “SmartMoney.”
And still to come on IN THE MONEY: peace in the Middle East. Is it still possible? We’ll have a live report from the White House on the progress of the latest talks. Plus, did you ever wish your long- lost relatives had left you money? Well, they may have and you might not even know it. We’re going to tell you how to find it.
And here’s a look at how some of the stocks in our IN THE MONEY portfolio finished out the week.
KEENAN: Time now to check some other stories making news today.
And for that we go back to Daryn for the latest — Daryn.
KAGAN: Terry, good morning once again.
The Clinton administration will take a more direct role in the Israeli/Palestinian peace process. That word coming after talks between President Clinton and Palestinian leader Yasser Arafat.
For more on that, here’s our White House correspondent, Kelly Wallace, joining us from the White House.
Kelly, good morning again.
KELLY WALLACE, CNN CORRESPONDENT: Well, good morning, Daryn.
When Israeli and Palestinian negotiating teams resume their talks later this month in the Middle East on the toughest issues, such as the status of Jerusalem, and the make-up of a Palestinian state, senior U.S. officials will be at the table. News of the United States’ more intensified role came after Mr. Clinton and Palestinian leader Yasser Arafat met at the White House last night for nearly three hours.
But the White House and the chief Palestinian negotiator cautioned that even though the U.S. is getting more involved, the hard compromises need to be made by both sides in order to get a real peace deal.
(BEGIN VIDEO CLIP)
SAEB ERAKAT, CHIEF PALESTINIAN NEGOTIATOR: This all does not and will not mean that the Americans will negotiate for us or make decisions for us, or for the Israelis for that matter. We welcome their observation, but the real decisions and real negotiations will take place between Palestinians and Israelis.
WALLACE: The two sides have set a deadline of May 13 for an outline for a final peace agreement and hope to reach a final peace deal by September — Daryn.
KAGAN: Kelly, thank you very much.
And now to Russia, where the lower house of parliament has ratified a worldwide ban on nuclear weapons tests. The Comprehensive Nuclear Test Ban Treaty now goes to Russia’s upper house, where approval is expected there as well. More than 150 countries have signed the document, but only about 50 have ratified it so far.
The U.S. Senate rejected the treaty last year. Opponents said it would undermine the country’s weapons program.
In other news today, the Census Bureau is catching some heat for a program that is aimed at getting people to return their census forms. The bureau gave about 15,000 randomly selected households free telephone calling cards if they returned their forms. Each card was good for $20 worth of long-distance calls. An aide to Republican Representative Dan Miller of Florida says Americans should not be paid to do their civic duty. The Census Bureau says, the phone cards were part of a number of test programs that it routinely uses in census years.
So who wants to be a millionaire? Just about everyone you know. But your odds of winning a lottery or going on television with Regis are pretty slim. You have to face up to that. Still, there could be unclaimed cash out there that has your name on it. A quick Internet search may be all it needs — all you need to find it.
KAGAN (voice-over): One out of eight people owns assets that he or she doesn’t know about: long forgotten bank accounts, final paychecks, security deposits, tax refunds and more, some gathering dust at interest for more than 200 years. Web sites like MissingMoney.com are making it easier to track down your family’s unclaimed property.
MIKE MERITON, PRES., MISSINGMONEY.COM: For a few months, we have had over $30 million returned to over 100,000 Americans.
KAGAN: MissingMoney.com has been working with the National Association of Unclaimed Property Administrators. Together they are compiling a national database of all lost assets held by individual states. Twenty-four states are now signed up, more are on the way.
PETER DEVRIES, PRESIDENT, NAUPA: Those states that are not participating in MissingMoney.com also have Web sites of their own, and all 50 states and the District of Columbia have offices that you can find in the phone book and contact them to find out if you have unclaimed property that they have in your name.
KAGAN: States hold about $16 billion in unclaimed property, but they’re not alone. Federal holdings, corporations, private retirement accounts and group life insurance policies add up to an estimated $1 trillion in unclaimed funds.
The typical claim is about $1,000, and if you are one of the lucky ones, claiming your money is the next step.
MERITON: Many of the states, through MissingMoney.com, offer an electronic claiming process, others offer the ability for you to print the forms directly off your printer at home and put in the claim.
KAGAN: So, how do you get started looking for a hidden windfall? Earlier, I spoke to asset hunter, David Folsom. His book is called “Assets Unknown: How to Find Money You Didn’t Know You Had,” it guides you through the process. You could also visit his Web site, Assetsunknown.com. He says the number-one thing you have to do is to get organized and make a family tree.
DAVID FOLSOM, ASSET HUNTER: Most of the time the hidden money is not in the name of the person who is looking. It is usually a deceased relative, somebody that has had an accident, somebody that has gotten divorced and remarried and moved several times during their life.
KAGAN: Once you have your list of your relatives, how do you start searching? where do you know to look first?
FOLSOM: Well, the MissingMoney.com is a good beginning, but generally speaking, that’s only about two or three percent of the lost money in the country. We claim there is a trillion dollars lost in the economy, and if it was easily found, just the snap on of a database would get it, but that’s not how it works.
KAGAN: Which is why, on your list, you also say: be persistent. How do you know when you should give up and when you shouldn’t give up?
FOLSOM: Well, a lot of times if you get a hold of a government person, a bureaucrat, they may have had a bad day and just hang up, dial the number again and maybe you will get somebody that’s more pleasant, that will work with you, take the extra effort to look in a database or to look through a card file to find your account.
KAGAN: Which is another point in your book, you say, don’t assume that all the names of you and your relatives are spelled correctly. Why not in all of those records?
FOLSOM: Well, for example, as I was looking for yours, in your family, I found 149 Kagans in the state of California, and about 54 Kagans in Los Angeles, where I understand your family lived. But I found five of those misspelled.
KAGAN: Absolutely, and in fact, in my own family of Kagans, there are Kagans we are related to that spelled Kagan differently. So that’s a good point.
You also say to request certified copies of records. Why is that important?
FOLSOM: Well, you would want to know that you had the proper records. For example, in my case, when I wrote the book, I had a cousin who died in California, who lived most of his life in Pittsburgh, and in order for my brother and my sister and myself to receive the money that he had left we had to have certified copies of all of the documents, my grandmother and grandfather’s marriage license, my father’s birth certificate, my birth certificate, all of those have to be certified. If you send those forms in with a photocopy or a fax, they won’t recognize those.
KAGAN: And how much money have you found for you and your relatives?
FOLSOM: Well, over time, it’s been — well, initially, it was $16,000, and we found some smaller accounts since then, but that was done very rapidly, and then the reason I wrote the book and took two and a half years is that people that get serious about looking for money in their families, and we think one in four family members have lost money in the entire country, we thought every American needed to understand the rules and how to search for the money.
KAGAN: A lot of folks are going to want to go to Internet, what are some top Web sites, besides your own, that they can look at?
FOLSOM: MissingMoney.com is the most significant one, there is three or four others, there is FoundMoney.com. The person needs to be very careful what they look for and where they look. Some of the people are not as reputable as others, there will be other Web sites that will come up soon that will be much more significant. FoundMoney is out of Canada, it is not a company in this country.
But the most important thing for people to realize is they need to realize that the money will not be in these database sometimes for as long as two years after it is lost.
KAGAN: David Folsom, thanks for joining us today.
FOLSOM: Thank you.
KAGAN: And David Folsom’s book, once again, is called “Assets Unknown.”
Terry, he helped me get started in searching for my own relatives’ money, missing money. So far, I’ve tracked down a whopping about $74 that my dad has that he doesn’t know he has coming to him.
KEENAN: And how long did it take you to find that $74?
KAGAN: Well, that wasn’t that hard, that was just clicking on to one Web site, but now the extra work goes in. He had also found some accounts that he thinks belonged to my grandfather, who has been dead for a number of years, and I haven’t been able to found those yet. So the work is still ahead of me.
KEENAN; OK, good luck. Thanks, Daryn.
Coming up next on IN THE MONEY, “Fortune”‘s Andy Serwer is here, and he is cooking up a holiday storm — Andy.
SERWER: Terry, are there any ways to play the Easter holiday? Also, some people saw this coming, absolutely free on-line trading, stay tuned.
KEENAN: They said it had to come sooner or later, and apparently it is here, free trades on-line. Our Andy Serwer is here to tell us how we can get it. Absolutely 100 percent, free trading?
SERWER: Absolutely, 100 percent free, Terry. Zero dollars for market trades, I think there is $5 for limited orders and stuff like that. And we were just talking about this before we came on air that people were talking about this a year or so ago. I didn’t believe it. I think Dave Pottruck, the co-CEO of Charles Schwab, told me that someday there would be free trading.
How does it work? It is Freetrade.com. Go ahead and go there and check it out if you want. They are not going to advertise, that’s one way they are going to save money. How are they going to make money?
KEENAN: That is the question.
SERWER: That’s the question. Terry. OK, four ways this company is going to make money, they say. Number one is lending you money, margin accounts, and we all know how dicey that is over the past week, so that is number one. Number two, it says, market makers and specialists may pay us for order flow. Now they admit that that probably will dry up soon, so that’s a little dicey, if you ask me. Number three, of course, they are going to be selling advertising on their Web site, that you kind of could figure. And number four, they are going to be accepting payments for market information, in other words, they will sell their order flow information, they hope, to market makers and the like.
So, you know, who knows if this model will work? Very interestingly, it is actually owned or a subsidiary of Ameritrade. So you talk about cannibalizing your own business, I guess it is eat your own lunch before your competitors do. And you know, thanks to Andy Butte (ph) of Bear Stearns for pointing this one out to me, and where there is one I bet you we are going to see another one of these babies, too, crop up, right?
KEENAN: Incredible. It is here. Before we leave you, you also have a couple of Easter stocks for our stock basket.
SERWER: Easter stocks, yes, we are seeing that Schering-Plough announced yesterday, and the numbers were OK. Earnings were up about 17 percent. I did notice that over-the-counter product sales were down about 26 percent in the quarter, and I found out the reason why, because they sold their Paws (ph) egg dyeing kits. You know those egg-dyeing kits that your kids use, and you put the little tablets in the vinegar and mix it all up and buy eggs, and your fingers get — they used to own that business. They sold it last year, so the numbers are down for the quarter. So that is Schering-Plough, used to be an Easter play, is not anymore.
But the Easter plays you want to take a look at are Cadbury- Schweppes, of course, Cadbury chocolate, Hershey’s is there, and Nestle’s of course is another one.
So there are some Easter stocks out there. Schering-Plough got out of the business. But they do make sun Ban de Sole sun block, so maybe they will be a good play as the weather warms up.
KEENAN: And a late Easter this year, and I was just hearing from my producer about Manashevitz because we checking the maker of matza. And it is it public or is not public, Leora (ph)? It is not public.
SERWER: It is not public, so you can’t buy that one.
KEENAN: No Passover play there. Happy holidays, Andy.
SERWER: Thank you, Terry.
KEENAN: Have a good weekend as well.
That is going to do it for today’s holiday edition of IN THE MONEY. All of the markets will be open for trading Monday morning, including most overseas markets as well.
Have a good weekend, everyone. For Bill Tucker, Daryn Kagan and myself, I’m Terry Keenan.
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