Benefit Briefs
9-28-99
The Supreme Court has agreed to hear a case deciding if ERISA can be used to sue HMOs
whose cost-cutting measures hurt patients. The particular case involves a Bloomington,
Illinois woman who claims that tests that could have diagnosed her appendicitis, which
ultimately ruptured, were delayed (by 8 days) in order to save money. The woman has
already been awarded $35,000 under state law. The court will hear arguments in January,
with a decision expected by the end of June.
EBRI’s 1999 Health Confidence Survey finds that 34% of Americans "strongly
favor" adding a prescription drug benefit to Medicare – even if it results in
higher premiums or taxes. 37% somewhat favor the addition, while 26% oppose the idea.
83% of Americans agree that generic drugs are good, since they are generally as
safe/effective as brand-name drugs, and cost less according to a Merck-Medco survey. Those
that have actually used generics feel even better about their use. Still, generic drugs
made up just 41% of 1998 prescription drug sales, and just 8% of the total amount spent on
prescription drugs.
Buyer’s Market
Deloitte & Touche has introduced BeneFIT, a new program designed to help plan
fiduciaries manage certain risks associated with outsourced benefit services, as well as
offering a means of monitoring their outsourcing vendors.
Economic Events
The Conference Board reported that consumer confidence dipped for the third month
in a row in September, and by a larger amount than had been expected (but still at
historically positive levels). That COULD signal a slowing of consumer spending.
Market Mirror
Major US indexes clambered back at the last minute yesterday, averting what started
out to be a rough day. The Dow closed down for the 5-th time in 6 sessions, and rose 200
points in the last 2 hours to close down just 27.86 points, at 10,275.53. The S&P 500
ended the day down just 1.11 points, at 1,282.20, while the NASDAQ closed at 2,756.27,
down 5.48 points. The Russell 2000 fell harder, losing 3.37 points to close at 418.49.
Losers outpaced gainers 8-to-7 on the NYSE, where some 877 million shares changed
hands.
Meanwhile, gold was golden (over $300/oz), commodities were strong and inflation fears
and that brought investors from bonds, taking the 30-year Treasury down ¾ of a point, and
the yield back up to 6.07%.
Yesterday’s (really) Incredible Public Offering was Foundry (they make Internet
switching gear), which rose 525% in its first day of trading – the second best IPO
debut ever, on a % basis. And the largest first day value ($8.7 billion) EVER for a
"true" start-up IPO (versus a spin-off).
Metropolitan Life plans to go public next year, reportedly by the end of the first
quarter.
On-Line
The US Department of Commerce has agreed to allow Network Solutions to become an
"accredited registrar" of Internet domain names, though November 2004, with an
indefinite renewal option. They will also retain the .com, .net and .org database through
2003. Competitors who sell names with those extensions will pay Network $6/name annually.
A Forrester Research survey expects US online retail sales to hit $20.2 billion this
year, helped by 7 million rookie online shoppers (17 million online shoppers all told).
Approximately 49 million US households are expected to spend $184 billion online by 2004.
A separate survey by Greenfield Online indicates that 70% of Internet users plan to do
some, or all, of their holiday shopping online this year.
Financial Sense
Miami’s TransAtlantic Bank has opened 75 new "Access Accounts" in
just 10 days. The accounts offer fee internet access, free email and web banking.
Yesterday the Federal Reserve cautioned that "credit is being extended to some
borrowers based largely on the expectation that the current strong financial performance
of these borrowers will continue indefinitely, and with potentially undue reliance on
aggressive or optimistic views of their future prospects." And while things are
"currently sound at the vast majority of banks", lenders need to keep a watchful
eye.
Chase Manhattan will buy Hambrecht & Quist for $1.35 billion, after more than a
year of speculation that they would merge with Merrill or Morgan Stanley Dean Witter.
Chase will pay $50/share, 22% over Monday’s close. H&Q’s shares rose 19% on
the day, while Chase’s dropped slightly. Hambrecht & Quist has underwritten the
first stock offerings for Netscape and Amazon.com, among others. The chairman/CEO of
Hambrecht, Daniel H. Case III is the older brother of Steve Case, CEO of AOL.
After the market closed, Wells Fargo announced that it will acquire Seattle-based
full-service brokerage Ragen MacKenzie for about $242 million. Ragen MacKenzie manages
over $11 billion for 68,000 clients.
The Feeling’s Mutual
Fidelity Investments Charitable Gift Fund has launched a one-stop site that allows
donors to manage all their charitable giving on the Internet (including online
grant-making) at http://www.charitablegift.org.
Also featured on the site is the CyberDonor Center and a new Donor Resource Center.
The World At Large
An international investment group (organized by US equity firm Ripplewood Holdings)
has received the approval of the Financial Reconstruction Commission to acquire Long-Term
Credit Bank of Japan for about 1 billion yen ($9.43 million). They hope to reach a final
deal for LTCB by the end of November. If successful, it will be the first foreign
acquisition of a major Japanese bank.
In Asia, South Korea’s Composite slid 3.54% on rumors that the Bank of Korea would
shift its policy to a tightening basis (raising interest rates). B of K denied the rumors.
The dollar continued to (re)gain ground against the yen, but the Nikkei slipped .25%. The
Hang Seng lost .1% in listless trading.
Rules & Regulators
Economists at Goldman Sachs, Invesco, Morgan Stanley Dean Witter and JP Morgan
predict that the investment of the Social Security Trust Fund in the US stock market would
probably only produce modest gains – with a small impact on the US financial markets
and economy – and wouldn’t avert the projected deficit (though it might defer it
4 – 14 years). Under most scenarios, the article suggests that equity investment
might defer the deficit anywhere from 4 to 14 years, but under a 20-30% market correction,
it would actually accelerate the fund’s bankruptcy. The results were published in an
EBRI article.
Bugged By Y2K
Yesterday First Lady Hillary Rodham Clinton unveiled plans for Washington's
three-day, $12.5 million "America's Millennium" party to be held on the mall
that connects the Capitol, the Washington Monument and the Lincoln Memorial. Party-goers
will get to view "The Unfinished Journey," an 18-minute film by Steven Spielberg
covering highlights of the 20-th century (music by John "Star Wars" Williams).
Small Talk
Several astute readers inquired how a Y2K gambler who took the 1,000,000 to 1 odds
on the world ending on January 1 would collect if they were correct. We suspect the
"house" isn’t worrying about that one.
Wednesday Wisdom: "There's nothing more dangerous than an idea if its the only one
you have." - - Mark Twain
"China is a big country, inhabited by many Chinese." - - Former French
President Charles De Gaulle
WHAT’S YOUR E-PINION?
On-line brokers, longer trading hours, electronic communication networks, seems
like the trading will never stop. Is this a good thing? Why or why not? Tell us what YOUR
E-pinion is by noon today (via return email) – and find out what is on everyone’s
mind tomorrow.
Economic Events
9-27-99
Yesterday, Fed Chairman Greenspan told participants at a seminar sponsored by the World
Bank and the IMF that while Japan has made great strides – they might not be enough.
He also said that they have relied too much on banks for capital, and once the banks began
having trouble, the resulting credit "crunch" had far-reaching impact. Noting
that "East Asia had no spare tires" during the recent struggles, he pointed to
the importance of alternate sources of financing. However, he stayed away from comments
about US interest rates or stock prices.
The National Association For Business Economics said in its quarterly report that its
37 members expect US GDP in 2000 will grow 2.7%, the CPI will rise 2.3% and unemployment
will rise a bit to 4.4%. They still expect 1999 GDP to come in at 3.8%, unemployment to
hover at 4.3% and the CPI to register at 2.1%.
Back-to-back-in-the black. As the US government winds toward the end of its fiscal year
(09/30), President Clinton reported that the country will end up with a projected surplus
of $115 billion. Following last year’s $69 billion surplus, it will be the first time
for back-to-back surpluses since 1956-57.
Market Mirror
Pinnacle West Capital (parent of Arizona Public Service) will replace Pioneer
Hi-Bred Int'l. (which is being acquired by DuPont) in the S&P 500 Index after the
close of trading this Friday.
Major US stock indexes made a slight comeback Monday, inspired by some bargain-hunting,
a stronger dollar and some good news in tech stocks. The Dow ended the day up 24.06 points
at 10,303.39, though it had been up nearly 130 points earlier in the day. The S&P 500
closed at 1,283.31, up 5.95 points, while the NASDAQ rose 21.34 points, ending the session
at 2,761.75. The Russell 2000 gained 4.77 points, closing at 421.86.
8 stocks gained ground for every 7 that slipped on the NYSE, where 776 million shares
changed hands.
The 30-year U.S. Treasury was down 20/32, pushing the yield up to 6.02%.
IBM has expanded its relationship with Dell, joining in a 7-year, $6 billion agreement
to provide technical support (installation and onsite warranty) for Dell Computer
customers.
A strong earnings report from Internet holding company CMGI (and a lack of
"insight" from Chairman Greenspan) could boost tech stocks today.
On-Line
Fidelity will begin touting its Internet brokerage services as Powerstreet,
complete with financial planning/trading tools, and a My View custom start page (supported
by Lycos).
Citigroup has launched Bizzed.com (at http://www.bizzed.com),
an Internet portal for entrepreneurs and small businesses, offering e-commerce
capabilities, as well as payroll, electronic banking, credit card processing, postal
services, marketing and advertising support, as well as retirement plans.
AOL Europe is cutting user phone fees from about $16.40/month to 1.16 cents/minute in
the UK (most of the "free" internet access costs up to 4 times that minute
rate). AOL says its UK users spend about 17 minutes/day online, about a quarter of the
rate of usage in America.
Financial Sense
Chase Manhattan is reportedly close to acquiring Hambrecht & Quist Group for
about $1.5 billion, according to the WSJ. The deal would (finally) give Chase an
equity-underwriting capability.
Virtual credit? Citigroup will unveil "Click Credit", an Internet credit
card, in mid-October. They will not, however, issue a PHYSICAL card.
The Feeling’s Mutual
General Electric has launched the GE e-Fund, a $50 million fund that will invest in
European-based Internet-related companies seeking "early stage" (first or second
round) financing. The e-Fund is underwritten entirely by GE and managed by GE Equity.
Fidelity increased its managed assets in Japan about 10% in August, taking it to the #2
slot past Alliance Capital, and challenging Goldman Sachs (who LOST 8% in assets during
that period). Goldman still manages about twice as much as Fidelity, though (1.2 trillion
yen versus 501 billion yen). Fidelity has been pushing stocks, while Goldman traditionally
relies on bonds.
The World At Large
A new survey indicates that institutional investors are (re)gaining confidence in
emerging market investments. The BankBoston poll of 150 commercial and investment bankers,
fund managers and insurers indicates that, compared to a year ago, 48% are more confident
about the prospects in Latin America (28% are less so). 72% have more confidence in Asia
than a year ago, with only 12% less confident. Not surprisingly, investors were primarily
concerned about monetary stability and increased fiscal discipline in Latin America, while
improved bank supervision and monetary stability topped the list of Asian-based concerns.
In Asia, a weaker yen (despite no BOJ action) and a stronger Wall Street lifted the
Nikkei to a 3% gain on Tuesday. The Hang Seng took its cue from the Nikkei, closing up
.66%. South Korea’s Composite slipped .34%, on continued concerns about rising oil
prices – and a rate hike by the US Fed.
Rules & Regulators
For those of you who thought "day-trading" was tricky enough, the SEC is
taking a closer look at MINUTE trading, supposedly a variation on an old practice called
"pump and dump". They’re concerned that Web site owners could promote a
stock, then sell it, profiting from the run-up their recommendation inspired.
A little bit later. Major US exchanges have agreed to keep their pricing systems open
until 6:35 p.m. ET, perhaps as soon as next week, according to the WSJ (pending SEC
approval). The move effectively keeps the exchanges open until that time, though they will
continue to "close" at their regular times (the NYSE has closed at 4 p.m. since
1974, by the way). Currently pricing data on trades is gathered until 5:15 p.m. by the
NYSE and NASDAQ. The move COULD prove problematic for newspapers, mutual funds – and
those who derive prices based on those sources.
Bugged By Y2K
63% of 272 CFOs surveyed by the Financial Executives Institute and Duke University
think the Y2K rollover will be a non-event (37% expect SOME problems). But 14% still
expect a market-wide sell-off if there are problems. 6% expect their companies to be sued
due to problems (including 13% of banking/finance firms).
About 13% of insurance companies and HMOs are not (yet) ready for Y2K, according to
Weiss Ratings, Inc.
Small Talk
Wired reports that Costa Rica-based NASA International (no, not THAT NASA) is
taking online wagers on a number of Y2K "events". Some of the "odds":
30-1 that the Dow will drop more than 200 points on 01/03, 300-1 that a commercial
airliner will "suffer", 1,000-1 that the Federal Reserve will shut down for 24
hours or more, 700-1 that Citibank, USB, or Dresdner Bank will be shuttered for a day or
longer, 100,000-1 that aliens will land in Washington on January 1, or 1,000,000-1 that
the world will end on that day (perhaps after the aliens land).
Sony will begin selling the "Memory Stick Walkman" in Japan on December 21
(no word on overseas distribution) – that fits in your hand and downloads music from
the Web – but still protects copyrights. It will cost $430 and need a computer with
Windows 98 to transfer the music. It will NOT be able to download songs from free Web
sites.
"White Lightning" has broken the national land record for an electric car,
registering 239.533 mph at the Bonneville Salt Flats. The previous record of 213.084 mph
was set in 1997. The car is 25 feet long and 26 INCHES wide (not exactly a family-sized
vehicle).
Tuesday Trivia: The name Jeep came from the abbreviation used in the army for the
"General Purpose" vehicle, or G.P.