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Show Sunday, April 23, 2006 DAILY HERALD ead banal HE WALL ST ET JOURNAL 5 NDAY. The Weekly Guide to Managing Your Money ©2006 Dow Jones & Company, Inc.All Rights Reserved. WSJ.com/Sunday Dow Shrugs Off $75 Oil to Hit 6-Year High Brokers Vary On Exit Fees By Craic KARMIN fter a week in which the stock market showed renewed signsoflife, investors are wondering if the good year. While an unusually warm winter mitigated heatingbills, the new high in oil is spilling: over to higher prices at the gas pump. Climbing Back The Dow Jones Industrial Average teached. a six-year high last week and is now just 3.2% below its all-time high of January 14, 2000. times. will continue. In recent months, U.S.stock returns have lagged behind those of That hits consumers’ wallets directly, at a time when people borrowing money are feeling pinched aaa) close pega 2001 rae 92 because “interest rates are no eae “ff shares in most other parts of the world, from Europe to Japan to emerging nations, and they have longerfalling,” Ms. Sonders says. Indeed, interest rates are rising. The yield on the 10-year Treasury note has climbed above 5%, its highestlevelin four years. That Ny beenleft in the dust by alternative holdings such as commodities. But last week, the Dow Jones Industrial Average climbed 1.9%, 2004 2002 2005 would seemto suggest otherwise. But Mr. Koesterich at Barclays «06 Source: WS) Market Data Group believe that the American con- week's rallyisn’t finished. “I think there's more to go,” says Jim Paulsen, chief investment strategist for Wells Capital Managementin Minneapolis. “I expect to see a newhigh for the sumeris getting winded. “The stock market needs a new catalyst to go higher,” says Russ Koesterich, senior fund manager for Barclays Global Investors. He doesn't see “ne right now. By most accounts, the current Strong Earnings Help bull marketin U.S. stocks began in October 2002. The Dow industrials Driving stocks higher last week was a combination of generally good earnings and upbeat forecasts from bellwether companies such as drug maker Merck (MRK) and Internet search engine Google have jumped 56% since then. But muchof that return was chalked up early on. Last year the index was down 0.6%. For more thanhalf of that fouryear period, the Fed has beenrais- (GOOG). Commentsfrom the Fed- ing short-term interest rates, and eral Reserve suggesting that interest-rate increases may soon be ending further fueled the optimism. many analysts think that is one reason the stock market was sluggish last year. Janet Yellen, president of the rally as possibly the aging bull market's last gasp before stock prices head into reverse. They point to surging oil prices, which Federal Reserve Bankof San Francisco, said Tuesday that current rates are “close to a neutral than $75 a barrel Friday. That trendis stokinginflation and could cause the Fed to continue raising of rate boosts is almost over. The stance.” This Fedspeak was interpreted as meaningthat the series release of minutes that same day from the last meeting of the Fed's rate-setting committee offered further evidence that Fed governors were leaning toward at least a INVESTOR'S CALENDAR THIS WEEK Attention, Online Shoppers: Web auctioneer eBay this week launches eBay Express, a more conventional shopping service thatlets consumers choose amongfixed prices for items from multiple sellers. Meanwhile, eBayis talking to both Yahoo and Microsoft aboutan alliance in which eBay would boost ad spend- ing with its chosen partner and share some consumerdata. grappling with high energybills. 0° OIL PRICES ware giant also faces threatened fines of as much as $2.5 million a day forfailing to provide adequate guidance to othertechnology firms. Earnings Outlook: Xeroxwill report quarterly earnings tomorrow, followed by AT&T Tuesday, Boeing Wednesday and Microsoft Thursday. Panama's Plans: Tomorrow, Panama will announce project to ex: pand the canaland sharply boost its capacity for cargo shipping. Telephone: (0) 520-4000 email: sunday03@wxicom 4300 Route U North South Brunswick. No 08852 Vier Puesinest, Species, Epsrioss (212) 416-4023, billcasey@dowjones.com John R. Campbell Auverrisine Directo (203) 966-7001 joho.campbell@doxjones.com ConronesTe: He xbg eres 200 Liberty Street New York, Nx. 10281 Pons resi aa Sewer nM and, in many cases, offered more positive guidance for their businesses going forward than analysts expected. The quarter is expected to mark the 11th consecutive one in which companies averaged double-digit earnings growth. Google, for instance, reported a 60% profit jump on strong advertising business, leading analysts to raise price targets and year-end earnings expectations. Even sharesof beleaguered General Motors (GM) surged 10%on Thursday after the auto maker reported a narrower-than-expected loss. have blown through their cash re- Looking Downright Youthful Mr. Paulsen thinks all the talk serves. But right now, employment appears to be growing and many companies are still flush with cash. N 4ot 2005 2006 Source: Reuters via WS) Market Data Group Economic Update: The government Friday will give its “advance” estimate of gross domestic product for the first quarter. Most analysts think GDP grew at a 5% rate, up from 1.7% the quarterbefore. LAST WEEK @ Little Progress: Chinese PresiGent Hu Jintao offered cooperation on issues from trade to nuclear proliferation during a long-awaited visit to the White House. He pointedly declined to give President Bush concrete promises on key economic andforeign-policy disputes. Deal Watch: Bear Stearns and China Construction Bank are in early talks that could lead to the Chinese bank paying as much as $4billion for a minority stake in the Wall Street firm. Also, Aztar, the ‘ownerof the Tropicana casino propfrom Ameristar Casinos for $1.61 billion, or $45 a share, which outpacesPinnacle Entertainment's earlier bid of $43 a share. s Briefs: Ford Motor had a $1.19 billion loss in the first quarter, as salesfell and the comPany started a costly North American restructuring effort...General Motors reported a net loss of $323 million for the first quarter, narrower than a year earlier but hit by chargesrelated to a health-care settlement...Intel posted a 38% profit drop andpredicted continued weak chip demand this quarter...Apple’s earnings climbed 41% and rev- enue jumped 34% on strong iPod Sales...Yahoo’s profit fell 22% amid changesin its accounting for stock options, but sales jumped 30% on online-advertising growth. and $25 to transfer part of an ac- count. Charles Schwab charges $95to transfer a full account and pauseafter the rate boost expected in May, he adds, that shouldn't mean stockswill rally, unless longterm Treasury yields start tofall. With recordoil prices, Mr. Koesterich expects those yields to stay at current levels or even move higher. $50 for partial account transfers, although a spokeswoman says the firm plansto reduce those fees to $50 and $25. respectively, in a few months. Merrill Lynch charges $95 to transfer a full brokerage account, butnothing for a parual transfer. Here's another option: If you don't have many holdings. you might considerselling your securities and withdrawing cash. That strategy would avoid feesat Schwab and E*Trade.but not at Merrill, But that’s not always the wisest move since you may pay sales commissions or incur tax on capital gains You may be tempted to try dodging closing fees by leaving a few bucks in your old account, so you're notofficially closing it. How ever, this could backfire: some brokerages chargeinactivity fees or charge customers with small bal- While some two-thirds of the “I'd sayin manyways, this bull market doesn't look very old at he companiesthat havereported first- quarter earnings sofar have sur- . He believes a gen- prised on the upside, other recent eral nervousness in the marketis ‘indicators suggest the long bull market is winding down. For in- holding back share prices. “But maybeif the Dowhits a newhigh, stance, the ratio of companies hit- that would attract attention and ting new highs compared to those bring sentiment around.” gist at Charles Schwab, a brightening of investor mood would.be a hitting newlows peakedlast summer and has been falling. Moreover, while blue-chip stocks have been edging higher, sometechnologystocks have gone reason to sell. “If bullish sentiment comesbackin earnest, we're daq Composite Index rose just In contrast, for Liz Ann Sonders, chief inyestment strate. of an aging bull isn’t borne out by the facts. He points out that stock pricesstart to look more and more expensive as a bull market nears its end. But with corporate earn- probablydue for a correction,” she ings rising faster than stock prices. Crude oil is up 23% this in the opposite direction, The Nas- 0.7" last week despite Google’s hot earnings. Disappointing outlooks Despite a healthyearningspicture and reasonable stock pric she's concerned about energy from eBay (EBAY) andJuniper Networks (JNPR) soured the mood. ances extra fees. Email: forumsunday03@ws).com By Kelly K. Spors Getting Going / By Jonathan Clements ae Series I Bonds at 2%: What Happened? ing period: Soon, you will have tosay goodbye to that handsome eries savings-bond investors are in for a nastysurprise next week. On May1, Uncle Samwill an- 73% blethe 0.5% six-month inflation rate and a small return adjustment. By mycalculation, that will give you a 2.01% annual rate that will be used to adjust the value of bonds boughtin earlieroffering periods. Andalot of folks will be sorely disappointed. Howdisappointed? How does a 2% yield sound? yield—and you'll earn half that rate over the ensuing six months. Buying Bonds Getting Real The Treasury Department's Bureau of the Public Debt sells two types of savings bonds, Se- ries EE and Series I. You can learn more at www.treasurydlrect.gov, the government Web site devoted to Treasury bonds andsavings bonds. As youwill discover at the Website, Series EE bonds are straightforward, paying a fixed interest rate. For bonds bought in the currentsix-month offering period, which runs through the end of April, that fixed rate is 3.2% a year. Series I savings bonds are more complicated. Holders get the inflation .rate, plus a sma'l amount of additional interest. ling Series I bonds become. And thereinlies therub. Since Series I savings bonds werefirst sold in 1998, the amountof additional interest offered has varied enor: mously, For. instance, in the six months through October 2000, the government sold Series I bonds that pay 3.6 percentage points a year aboveinflation. In- Sound appealing? Unfortunately, since mid-2000, the real yield offered on newly issued I Chasing Yield tional amountofinterestis often bonds that are being sold in the current offering period, which ings bonds, you lock in the currentoffering period's real yield for the 30-yearlife of your bonds. In other words, no matter what happens with inflation in the years that follow, you know precisely how much you will earn over and above the inflation Tate. Clearly, the higher the real yield offered, the more compel- yield, Treasury doubles the six- fered by I bonds. Instead, what matters is the real yield. And cre rate of return. That bringsmeto the sugges- To understand what's at stake, consider the Series 1 tion. When you buy Series I sav- don’t kid yourself: Earning 1% a year above inflation is a medio- tion I made in my March19 column. If you really want aninfla- will be paid to new buyers of Series I savings bonds. This addi- referred to as the “real” yield, because it represents your true gain, once you subtract out the loss of purchasing powerto infla- a year. Toturn all this into an annual But if you buy an inflationlinked investment, you shouldn't be focused on the nominal return, like the « currentlyof- month inflation rate, tacks on to adjust the valueofall Series I ment also announces the additional amountofinterest, over and abovetheinflation rate, that vestment. In fact, I amabig fan of inflation-linked bonds. the1% real yield and then makes a small return adjusiment. Result: You have yourself an initial annual yield of 6.73%. Folks who buyin the current offering period will get half that yield over the first six months that they own their bonds. Why just half? The6. is an annual yield, but buyers get that yield for just six months. So what hap- the emails I receive are any guide, manybuyers are oblivious to this shrinking real yield. Butstarting May1, the truth will becomepainfully clear. At the sametime, the govern- ended Sept. 30, 2005. As it happens, inflation was quite rapid during that period, with prices climbing 2. Ontop of that rate, the Treasury’s Bureau of the Public Debt is offering today’s buyers a tiny real yield of one percentage point bondswill collect that handsome rate of return for the life of their bonds. bondshasfallen sharply. Yet, if nds. What's the lesson here? No, I am not arguing that Series I savings bonds are always a bad in- vestor who bought those Series I Every Nov. 1 and May1, the Bu- reau of the Public Debt announces the inflation rate used annual yield. After your first six months are up, your newannual yield will be a combination of the 1% real yield, dou- will be sold over the next six months, as well as theinflation erties, got a revised buyout offer ‘THE WALL STREETJOURNAL 10 '1..° Laverenee Rout David Crook Eitan rk Ty Auer Diner News Enron reported first-quarter earnings adds, job growth typically shows signs of stalling and companies on Series I-savings bonds that stock offering, expected by May. $600 million this week. The soft- ago. At the endofa bull market, he Amongother firms, E*TradeFi: Even if the central bank does nounce the initial interest rate ‘o New York Stock Exchangeandits 1 Microsoft's Appeal: Microsoft will appeal a European Union court's 2004antitrust ruling that orderedit to pay a record fine of more than At the sametime,investors are breathinga bit easierafter a week in which more than 100 companies A GUSHER:Prices on crude-oil futures hit record highslast week, bad newsfor consumers who've been bankers will meet with potential in- Lay Testifies: Former Enron Chairman Kenneth Lay is expected to take the witness stand early this week. He and former president Jeffrey Skilling, whofinished testifying last week, face a combined 34 counts of conspiracy and fraud. prices, shares are actually cheapertodayrelative to earnings than they were a couple of years Ui NYSE Road Show:Officials of the vestors in the exchange’s follow-up pausefrom raising rates. The Dow leapt 1.8% that dayin oneofits biggest one-daygainsof the year. Wk Pere than expected, The bears also envision earnings growth slowing and nancial charges $60to transfer a full account to anotherinstitution threat. some investors who believe last short-term interest rates longer fooled by the Fed before. In Janu: ary and again in March, there were hints that the Fed was done. inflation is becoming more of a stock markets this year, there are also reached a record level—more notes that investors have been you aren't TIP OF dinged with an —————_ unwelcome THE WEEK surprise on the way out. “They're anotherfee that inves: tors have to worry about” in picking a brokeragefirm, says David Warner, a registered investmentad viser in Kitty Hawk, N.C. Firms that currently have no exit fees on their brokerage accountsinclude Scot trade,Fidelity Investments and Vanguard Group. The Interest-Rate Question The Fed's commentsindicating an end to interest-rate increases The Dowindustrials are ahead 5.9% in 2006. While that figure still trails the performance of overseas But bearish investors see this fees before opening accounts so is a sign to some investors that to its highest level in six years. The blue-chip index is only 375.53 points from theall-time high established in January 2000. Dow.” pening @ brokerage account usually is free. But closing the account can get expensive. Many securities firms charge account “closing” or “transfer” fees that range from $50 to $100.It's @ goodidea to inquire about these runs from Nov. 1, 2005, to April 30, 2006. As I mentioned in my March 19 column, I have received dozensof emails claiming there’s no better investment. And, at first blush, the bonds certainly seem compelling, offering a 6.73%, annual yield. But before you rush to buy, pens whenthosefirst six months are over? Welcometo the nasty surprise. Losing Interest are much betteroff buying inflation-indexed Treasury bonds in- side a retirement account. Like Series | savings bonds, inflation-indexed Treasurys in a retirement accountwill growtax- deferred. But inflation-indexed Treasurys should give you a much higher -return. Lately, 1-year inflation-indexed Treasury notes have been yielding around 24 percentage points above inflation. You can purchase newlyis- That surprise will come on sued inflation-indexed Treasury May 1, when the Bureau of the Public Debt will announce the bondsatoneof the periodic gov- real yield offered to buyers of newSeries I savings bonds, plus declaring theinflation rate used to adjust the value of both these newbonds and bonds sold in earlier periods. We don't yet know what, the new real yield will be. We do, remember that the return on I however, know theinflation rate bonds is made up of two components, the inflation rate plus the real yield. For the current six- that’s going to be used. Accord- month period, the inflation adjustment is based on the inflation rate for the six months tion-linked bond investment. you ing to the Bureauof Labor Statistics, inflation climbed 0.5% over the six months ended March 31. Now,let's assumeyou bought I bonds during the currentoffer- ernmentauctions (see www.trea‘surydirect.gov for details) or you can buy existing individual bondsthrough a discount or full- service broker. Alternatively, you might purchase an inflation- indexed bond fund, such as Fidet ity _Inflation-Protected Bond (FINPX) or Vanguard InfiationProtected Securities (VIPSX). Jonathan Clements also writes the “Getting Going” column that appears Wednesdays in The Wall Street Journal. Write to him at: Jonathan.clements@wsj.com |