Today's Column
8:30 AM Wednesday June 30, 2004:
The Fed will raise rates this afternoon by 25-basis points. The last time Greenspan raised rates was on May 16, 2000. If it was Greenspan's intention to pop the Internet bubble of the late '90s, he was late, but did hit his mark. The Nasdaq was 3,717 on May 16, 2000. It had already dropped from 5,132 two months earlier. It finally bottomed in October 2002 near 1,100.

The Nasdaq 1,100-area is significant because that's where the Nasdaq was back in 1995 when Netscape IPOed and there are many that credit (blame?) Netscape for the ensuing run-up (bubble?) to over 5,000. The Nasdaq has now nearly doubled off its bottom and interest rates sit at 45-year lows. There are many who credit the rate drops with "saving" the economy from the Tech Wreck of 2000-2002 and the loss of two million jobs. Certainly, housing has benefited, in fact boomed.

But, to my mind, The Big Boost to the economy and The Big Force behind what's driving inflation at present is today's large Federal Government budget deficit. We're simply spending too much money, with Iraq the major inflation driver. This is not a political stance. But if you're trying to predict the future of interest rates, the logic is simple:

1. The Fed raises interest rates to offset inflation. Inflation is its Big enemy.
2. Inflation comes from one source -- too little "factory" capacity -- "factory" being anything and everything that makes things that we want to buy.
3. If we want more than we can make, there'll be inflation. Last year, the Defense Department bought an entire month's U.S. production of plywood and shipped it to Iraq. That was a major reason for the big leap in the price of wood. Now you know why it costs more to add a room to your house or build your new deck.

My worst nightmare: I sign up for Google's AdSense. They approve me. I now get a piece of the ad action if you click on one of the ads on the left. So who pops up among the first ads -- my old "friend" Ken Fisher and his Fisher Investments. Now I'm seriously conflicted. If you click through to his site, I'll get money. On the other hand, if you do, I'll throw up. The good news is that he won't appear all the time. With AdSense, Google picks the ads it drops onto my page and varies them. I get megabucks if you find something so fascinating you click through. I'm justifying this blatant conflict of interest with the thought that Google picks the ads to run on my site. I don't know what they are. I have no idea if they're good or bad. I'm guessing Google vets them. Since I don't know which ad will pop up from one moment to the next, I can't be motivated to say something nice about the advertisers -- though I did notice (with pleasure) that some of the advertisers included fine companies like The Wall Street Journal, Morningstar and Fed Hager's newsletter.

There are two lessons with Google:
1. You must advertise your business on Google. My wife's 87-year old father has just started advertising his industrial boiler business on Google and says it's the best advertising medium he's ever found. He's given up on the phone company's yellow pages -- his old standby.
2. If you run a web site, Google's AdSense seems to make huge sense. I'm hoping my Google checks will be huge. I know they won't. But I'm willing to be pleasantly surprised. So click away.
Read more what I wrote about AdSense in an earlier column, click here. Read what Google itself says about AdSense, Click here.

I love muni bonds, but buying them is a black art: Muni bonds don't trade like stocks -- like every few seconds. Muni bonds trade by invitation. When you buy (or sell) one, the price is quoted including commission/markup. A good broker will shop around for the best price. He will run a mini-auction on your bonds.
He'll put them out to bid when selling. A bad broker will simply buy your chosen bonds wherever suits him the most, perhaps his own firm's inventory. It is thus with great interest I read today's Wall Street Journal, "NASD Settles Overcharge Claims.

The National Association of Securities Dealers settled cases with eight Wall Street firms over allegations the companies overcharged investors who bought and sold municipal bonds. Merrill Lynch & Co., Charles Schwab Corp., Edward Jones, Morgan Stanley, Prudential Equity Group, UBS AG's UBS Financial Services Inc. unit, Wachovia Corp.'s Wachovia Securities LLC unit and First Trust Portfolios LP, all agreed to pay fines and restitutions without admitting or denying allegations.

The total financial penalties added up to about $610,000, with $200,666 being paid by UBS, $118,680 by First Trust Portfolios, $109,527 by Merrill and $60,869 by Schwab. Other firms paid smaller amounts.

While the penalties are small compared with other regulatory fines in recent years, the matter represents one of the largest cases to date that regulators have brought about pricing discrepancies in the $23 trillion bond market. Bonds, unlike many stocks, are traded over the counter between dealer firms that take proprietary positions and make money by collecting a spread between their buying and selling prices instead of collecting a commission.

The cases also come several months before more up-to-the-minute pricing information is due to be made available to bond investors. The bond market has grown in recent years as nervous stock investors have shifted cash to bonds, just as Americans growing older allocated a larger portion of their investments to bonds.

The $2 trillion municipal-bond market is a haven for individual investors, mostly because of the tax benefits they provide. But in recent years, the market has come under scrutiny from regulators who said it isn't transparent enough. These critics said prices investors paid when buying and selling bonds differed widely on the same day, even when there was no major news or market activity.

The NASD investigated bond-trading activity and found problems in the way municipal bonds were priced. The NASD didn't find that dealers took "unfair profits" in dealing with customers, but said firms also failed to take reasonable steps to get fair prices for customers. The NASD identified about 60 trades in an arbitrarily selected period in 2002 and 2003 in which investors sold bonds at below market prices. The bonds were later resold by dealers hours or days later at prices from 6% to more than 100% greater than where investors had sold them.

In one trade at UBS, an investor received about $81,250 for Beaver County, Pa., industrial-developments bonds with a par value of $200,000. NASD alleged that other trades after the initial sell order established the true market value of the bonds at $155,820, nearly $75,000 more than the investor received for them.

The investigation now turns to the interdealer brokers who participated in many of the trades. NASD officials declined to comment on this phase of the investigation, but said that they had other cases they were working on with interdealer brokers as well as brokerage firms that sold both municipal and corporate bonds.

"This is an area we're very much focused on," said Barry Goldsmith, head of enforcement at NASD, the main regulatory body for brokerage firms.

Schwab released a statement saying it supports "efforts to enhance the municipal market's efficiency related to retail customer pricing." UBS said it had changed its procedures and reimbursed investors involved in the case. Prudential, which is paying penalties of $17,306, said it has also paid restitution to the investors involved in the transactions. Spokesmen for Merrill and Morgan Stanley declined to comment, as did representatives of Edward Jones and Wachovia Securities, which are paying penalties of $25,181 and $39,486 respectively. Representatives for First Trust couldn't be reached for comment.

The settlement comes as lawmakers and regulators increase their scrutiny of the bond market, especially in corporate and municipal bonds. The Securities and Exchange Commission recently opened an investigation into conduct of auctions in the $200 billion auction-rate debt market. ..."

This will never die: Yes there is a Sumdum Glacier in Alaska, 50 miles southeast of Juneau. Apparently it got its name from the Tlingit Indians. In their language, it represents the booming sound of the icebergs as they break off from the glacier. Sumdum Glacier is on the left of the ship.

Talking about Sum Dumb Company: AT&T (T) has been fined $400,000 for overbilling customers. It will pay $400,000 in penalties and issue refunds to as many as 311,000 New York residents who were billed for long-distance telephone service that they neither requested nor used. The settlement, announced Tuesday on New York Attorney General Eliot Spitzer's Web site, caps a six-month investigation of AT&T's billing practices.

Mr. Spitzer found that AT&T was improperly charging some of its subscribers a monthly $7.72 long-distance fee, even though they didn't have long-distance service through AT&T. When they brought the error to AT&T's attention, customers "endured long waiting periods, were often given inaccurate information and were subjected to aggressive sales tactics," according to Mr. Spitzer's office. Some customers who were told the problem was fixed continued to be billed or received past-due notices. Customers have 45 days to request reimbursement from AT&T. Good luck.

The drugs. Oh, the drugs.
Irving was just coming out of anesthesia after a series of tests in the hospital, and his wife, Sarah, was sitting at his bedside. His eyes fluttered open, and he murmured, "You're beautiful."

Flattered, Sarah continued her vigil while he drifted back to sleep. Later he woke up and said, "You're cute."

"What happened to 'beautiful'?" Sarah asked.

"I guess the drugs must be wearing off," he sighed.

Harry Newton

I make my daily column (Monday through Friday) freely available for three reasons: First, writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I'm hoping some of you will send me your investing ideas and concerns. To email me, . You can't click on my email address and send me an email. You have to re-type it . I did this deliberately, to protect myself from software scanning the net for email addresses to spam.
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