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Thursday, Mar 28, 2024

Personal Finance—The Information Highway Pileup Approaches

If telecom stock prices are any indication, the information highway will have to be completed by the WPA, the Depression-era agency that built the Hoover Dam and other great public works. As recently as Nov. 16, a list of 102 domestic and international telecommunications companies on the Morningstar.com Web site showed only seven issues that had positive returns so far this year. All the others 95 of them showed losses that ranged from disturbing to devastating. Ma Bell was off 59 percent, WorldCom was down nearly 71 percent, and its thwarted merger mate (Sprint) was down 64 percent. Losses were about as bad among the snazzy fiber-optic network companies, with Global Crossing down 64 percent, Level 3 Communications down 56 percent, and Metromedia Fiber Network down 24 percent. Nor was the damage limited to domestic telephone companies. Nippon Telephone and Telegraph ADR was down 50 percent, Deutsche Telekom ADR was down 53 percent, France Telcom ADR was down 30 percent, and British Telecommunications ADR was down 56 percent. Big or small, domestic or international, old line or new economy, virtually everything in telecom has been hit and hit hard. Among domestic companies with market capitalization of at least $1 billion, only SBC Communications and BellSouth, up 20 percent and 4 percent respectively, look as unbreakable as Bruce Willis. The telecommunications index, as a whole, was off a whopping 26.5 percent. This is not a minor event. Telecommunications stocks loom large in every major index around the world. Mario Gabelli once joked that in many countries the combination of the phone company, the electric company and the largest brewery was the national index and there wasn’t much else. The ghoulish can easily find areas of the market that have suffered greater percentage losses: online retailing, off 64 percent; home-supply stores, off 43 percent; semiconductor equipment and online information, both off 35 percent. But telecommunications is different. The decline in telecom stocks is worrisome because of their importance to the world economy and, nearly as important, because of the amount of global wealth that has been lost. Only four online retailers have market capitalization greater than $1 billion, only eight semiconductor equipment manufacturers and only three home-supply stores. In telecommunications, more than 60 companies are worth more than $1 billion, and 11 are worth more than $50 billion even after this year’s drubbing. We’re talking about wealth losses that are staggering. About $136 billion at Nippon Telephone, more than $100 billion at Deutsche Telekom, more than $110 billion at AT & T;, more than $100 billion at WorldCom and more than $30 billion at Sprint. What does it all mean? There are two major concerns that we can read into these figures: Worldwide, we’ve aced the innovation test, but we’re failing the profitability test. Visit Best Buy and check out the new electronic products: We’re in one of those cornucopia periods in which new possibilities arise faster than anyone can absorb them. We are truly beginning to suffer from what sociologist Alvin Toffler called “Future Shock.” The Internet revolution is real, but few have figured out how to make any money on it. But when push comes to shove, stock prices are driven by rising profits. We could be facing a market-induced wealth recession. After the market crash in 1987, when the S & P; ended the year with a total return of 5.27 percent after a vicious drop in October, many analysts predicted a “wealth recession” induced by the decline in stock market values. In fact, that was a silly idea because most Americans had far more money invested in their homes. Fixed-income investments still loomed large in personal portfolios. Today, things are different: About 70 percent of all 401(k) money is in equities, technology stocks dominate many mutual fund portfolios, and most of the individual accounts started in recent years have been committed to the highly speculative sectors that have fared so badly this year. Bottom line: Corporate profitability and consumer spending are what to watch as we head into 2001. Not a Budget, a Spending Plan Question: My wife and I consistently disagree over the household budget. I work; she takes care of the home. We have three kids in school. She pays the bills from a household account that I fund bimonthly. I save for emergencies and long-term investments. There is never enough money, so I don’t save what I should. Whenever I mention setting up a budget, she complains that I don’t appreciate what things cost. Help me take the emotion out of this issue. Can you suggest a simple process for us to set up and live with a budget? , H.B., by e-mail Answer: First, call it a spending plan. It sounds better, and it feels better to talk about your plans for how you will spend your money. It’s also accurate since most income is spent, not saved. Even aggressive savers spend more than they save. Second, don’t be too hard on yourselves. The period of our lives when we are raising children is the greatest period of financial stress that most of us ever face. This happens for a very specific reason: The cost of supporting a family, without any inflation, rises at about 6 percent to 7 percent a year. Few families have their real earning power increase at that rate. That’s also why so many families have two earners. Now let’s get down to the hard stuff. As long as one spouse tries to dictate what will be spent, you are doomed to living in Controlville. It does not matter that you have the best intentions. What matters is that one person is in control and the other isn’t. Many primary earners believe that they can, and should, determine how all money is spent. It seems logical, but marriages don’t work on logic. They work on sharing, doing the hard work of setting goals, and on partnering to reach those goals. My suggestion: Find out where the money has been going. This means going through your checkbook register and your credit card statements and assigning expenditures to categories. The easiest way to do this is with a computer program like Quicken or Microsoft Money. Then talk about where the money is going and whether you could spend less in some areas, so you could spend more in others. With a little luck, one area where you’ll agree to “spend more” is on your savings. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at)scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.

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