June 2001 Newsletter
Issue Six, Volume Two

THERE'S SOMETHING ABOUT ALAN

By Mike Gasior

Every now and then I sit down at this computer and writing the monthly newsletter is nearly effortless. I will admit that this month I put an awful lot of time into doing some research, but since I tried to focus completely on facts with very little of my opinion, putting the words together came quite easily.

If you are a regular reader of these issues, you know I can be opinionated to an extreme margin at times, but I'm also often correct about some of the things I foresee. Sometimes it can drive me nuts when people don't seem to see things the same way that I do, even when we might all be looking at the same exact facts and figures. I'll wonder why things seem so obvious to me, yet are lost on so many others. More than once before, I've told you how I sometimes feel like that kid in The Sixth Sense when he admitted, "I see dead people". Why can't anyone else see what I see so clearly? This month I plan to FORCE you to look at the things I see hoping that you'll begin to wonder how anyone ever missed these signs. Truthfully speaking, I don't actually think I'm all that bright. Just observant. So observe with me.

THERE'S SOMETHING ABOUT ALAN

Needless to say, that headline is a complete rip-off of "There's Something About Mary" and that I am referencing Alan Greenspan. If that's what you already figured then you are exactly correct.

The Federal Reserve dropped rates for the sixth time this year, bringing the Fed Funds rate down to 3.75 percent, and are trying their best to stimulate this economy. You need to make perfectly clear in your own mind how amazing and unprecedented these interest rate drops have been. NEVER in my entire professional career (nor my amateur days either), which span in excess of 20 years has the Federal Reserve EVER taken such drastic measures to move rates lower. EVER. You need to understand that our friend Mr. Greenspan and his colleagues at the Fed must think that the U.S. economy is in a 90-degree nosedive and are scared "you-know-whatless" of the future. Perhaps it's a good thing that the average U.S. consumer doesn't have a very clear understanding of what the heck the Fed does anyway, or they might be scared too. Maybe even scared enough to stop the drunken spending spree they have been on for the last three and a half years in which they amassed the highest level of consumer debt EVER. As of last month Americans were paying 14% of their take-home pay to service installment debt. An all-time record.

And the individuals are hardly alone. Moodys announced that the number of companies moving from investment grade to junk bond status will reach the highest level since the first-quarter of 1990. There will also be many more to come. Even worse, when a company does ultimately file Chapter 11, the bondholders are receiving 16.5 cents on the dollar compared to 50 to 70 cents a few years ago.

When the Asian crisis hit in 1998 and Europe was slumping a bit, the U.S. economy was the engine that helped to pull the entire world out of the ditch it had fallen into. Sadly, with the U.S. economy beginning to sink into a ditch of it's own, the rest of the world seems to be offering no hand to help pull us out. Europe is currently slowing down faster than we are, and Asia continues in their prolonged slump. This may evolve into a troubling turn of events for all concerned.

I mentioned keeping my opinions to a minimum this month, and I will begin right now. For a change I'll focus on keeping this a NEWS-letter.

I ask you to please review the following news headlines and remember one very, very simple thing; These items were all in the news THIS WEEK. I am writing this on Friday evening, June 29th. Also ask yourself what industries or countries were left out. I doubt you'll find many. I must also warn you that you might be feeling a little queasy by the end, so you might want to pop a Dramamine before starting. So here goes.

THE WEEK'S HEADLINES

--Lucent announced they would reduce their workforce by another 10,000 people in addition to the 12,000 already announced.

--Merrill Lynch announced their earning will fall short of expectations and they will reduce their workforce more than the 3,300 people already let go.

--Citigroup has already reduced its workforce by 1,200 and is now going to be reducing it further.

--Nokia will lay off as many as 1,000 people from its mobile network systems unit.

--FedEx had a drop of 54% in their second quarter earnings and will cut at least 9,000 jobs.

--360networks filed for bankruptcy protection.

--PMC-Sierra said that second-quarter revenue will miss forecasts and they will post a loss.

--Ingersoll-Rand will miss second-quarter profit forecasts by 25% to 30% and won't even predict when sales might increase.

--Scotts Company, the fertilizer people announced profits and revenues will fall short of expectations.

--Helix Technology said their second-quarter loss will be much more than expected.

--Liberate's fiscal fourth-quarter loss is now going to be wider than expected.

--ConAgra Foods, who is the second-largest U.S. food company, said fiscal fourth-quarter profit would be 38% lower because of higher energy and marketing costs and inventory reductions by grocers.

--WWF's fiscal fourth quarter earnings will be 2.9% lower than last year.

--Frontier Airlines reduced its first quarter earnings expectations.

--Macromedia said it will have a fiscal first- quarter loss because of a decline in demand.

--International Multifoods, the biggest distributor of vending-machine food in the United States, said fiscal first-quarter profit fell 56 percent because of expansion costs.

--Redback said its second-quarter loss will be wider than estimates because of dwindling sales.

--Coca-Cola, the world's largest soft-drink maker, said this year's earnings may be reduced another 2 cents a share by the declining value of the Euro and other currencies against the dollar.

--Casella Waste Systems Inc., a regional waste-services company, took a fiscal fourth-quarter charge of $112 million and said its chief financial officer will resign.

--Sitel Corp., the second largest provider of customer-management services in the U.S., will eliminate 350 workers and close an undisclosed number of customer contact centers to increase profitability.

--Adaptec Inc., who makes circuit cards that accelerate computer connections, announced it will fire 325 workers, a 15 percent reduction and the second staff cut in three months, to reduce costs as sales slow.

--UBS Warburg cut their 2001 earnings expectations of US Airways Group, UAL Corp., Southwest Airlines, Northwest Airlines, Delta Air Lines, Continental Airlines, Alaska Air Group, America West and AMR Corp.

--Merrill Lynch cut their 2001 earnings expectations of Host Marriott, Starwood Hotels, Marriott International, Hilton Hotels and Four Season Hotels.

--Associated Weavers International said it lost 198.49 million Belgian francs for the six months ended May 31, 2001, compared with a loss of 38.68 million Belgian francs in the same period a year earlier. Revenue was 4.79 billion Belgian francs, compared with 4.15 billion Belgian francs.

--AOT NV, the second-largest market specialist on the Amsterdam stock exchange, said it expects second-quarter profit to be "sharply lower" than in the year-ago period as market conditions deteriorated.

--Trinity Mirror Plc, the U.K.'s largest local-newspaper company, said it will take unspecified cost-cutting measures to offset slowing advertising revenue growth. The company's shares fell 6.1 percent.

--European Telecom Plc shares fell 28 percent after the mobile phone distributor predicted a fiscal full-year pretax loss after failing to increase sales.

--Macromedia Inc., the maker of Web site-design software Dreamweaver, Fireworks and Flash said it will suffer a first-quarter loss because of a decline in demand.

--Proxim Inc., a maker of wireless local-area networks used for real-time data collection announced that second- quarter profits will miss estimates because customers placed fewer orders.

--Bridgestone Corp., Asia's largest tire maker slashed its 2001 earnings forecast on recall-related costs that will wipe out most of its profit for a second straight year.

--Altera Corp., the second-biggest maker of programmable semiconductors, will let go 152 workers and take a $105 million after-tax charge this quarter for the job cuts and excess inventory as sales fall.

--Reptron Electronics Inc., a distributor of semiconductors and other electronic components, will cut over 20 percent of its workforce because of declining demand.

--Herman Miller Inc., the second-largest U.S. office furniture maker, announced fourth- quarter earnings will fall 17 percent from a year earlier as sales and orders dropped.

--EXFO Electro-Optical Engineering Inc. plans to cut 15 percent of its workforce and delay building a new facility to cut costs because it expects demand for telecommunications gear to slow.

--CVS Corp.'s second-quarter profit will rise less than forecast after shoppers bought fewer beach chairs, fans and other seasonal goods and sales growth at pharmacies slowed. Shares of the second-biggest U.S. drugstore chain fell 17 percent, a record drop.

--Pennzoil-Quaker State Co.'s shares fell 27 percent after the company said it will take a $50 million restructuring charge and cut its dividend as second- quarter earnings slipped to half of analysts' forecasts.

--Topps Co., which makes baseball trading cards and Bazooka bubble gum, said first-quarter profit fell 60 percent as Pokemon candy and card sales dropped.

--Delta & Pine Land Co. shares fell 14.7 percent after the biggest U.S. producer of cotton seed reported quarterly earnings fell short of expectations and said fiscal 2001 profit will decline.

--SciQuest Inc., a software maker whose shares have fallen more than 85 percent in a year, will cut almost half of its workforce and exceed analysts' second-quarter earnings expectations.

--Dean Foods Co., the dairy-products maker that agreed to be bought by Suiza Foods Corp., said fiscal fourth-quarter profit fell 93 percent as the company spent more on energy and commodities and on advertising refrigerated products such as ready-made dips.

--Xtra Corp., which leases truck trailers and cargo containers, said fiscal third-quarter earnings will fall as much as 57 percent because of lower freight demand and increased costs.

--VA Linux will exit the hardware business and cut staff by 35%, saying that it will quit making computers based on the Linux operating system at the end of the year.

--NUI Corp., the owner of natural-gas utilities in the eastern U.S., cut its fiscal 2001 earnings estimate for a second time and is eliminating 60 percent of the workforce at its money-losing TIC Enterprises unit.

--Advanced Medien AG, the German film licensing company that almost went bust last year, said it posted a first-quarter loss of 3 million Euros ($2.6 million USD) after a profit in the same period a year ago.

--Teather & Greenwood Holdings Plc shares fell 7.9 percent after the U.K. stockbroker said full-year profit plunged by more than a third because of the slumping financial markets.

--3Com Corp.'s fiscal fourth-quarter loss widened to $517.7 million as revenue fell 39 percent at the maker of computer-networking equipment.

--Palm Inc., the largest maker of PDAs, said it had a fiscal fourth-quarter loss as sales fell 53 percent.

--Supervalu Inc., the largest distributor of groceries to U.S. supermarkets, said fiscal first-quarter profit fell less than forecast as the company cut jobs and had better-than-expected sales at stores open at least a year.

--Vitesse Semiconductor Corp., a chipmaker that reduced its workforce and trimmed executive salaries this year, lowered its fiscal third- quarter revenue forecast because of weaker demand.

--Fedders Corp., the leading North American maker of room air conditioners, plans to cut 800 jobs, close a Maryland plant and move some production to Asia.

--U.S. Bank loan loss reserves decline to an 8-year low as bad loans rise. The amount U.S. banks are setting aside to cover bad loans has declined to the lowest level since 1993, the Office of the Comptroller of the Currency said.

--Phelps Dodge Corp., the second-largest copper producer, said it expected to report a wider loss in the second quarter than it predicted in April, mostly because of falling copper prices.

--Eaton Corp., the No. 2 maker of hydraulic equipment, said second-quarter profit will be as much as 30 percent less than analysts forecasts and it doesn't expect a rebound in North American markets this year.

--On Command Corp., the largest U.S. provider of pay movies to hotel rooms, reduced its workforce by 16 percent and said its revenue for the year will fall because of a decline in business travel.

--SCI Systems Inc., an electronics manufacturer, is considering closing more plants and said its multimedia business has decreased.

--Carpenter Technology Corp., a specialty metals maker, will cut 100 salaried jobs and take a $20 million charge in the fiscal fourth quarter to reduce costs because of a drop in stainless-steel shipments.

--The shares of Cheap Tickets Inc. fell 22 percent after the seller of discount airline tickets and hotel rooms said second-quarter profit will miss estimates because of problems on its Web site and increased price competition from airlines.

--Bayer AG shares fell for ninth straight day on concerns that Germany's second-biggest chemical company will join market leader BASF AG in telling investors it won't reach its earnings targets.

--Buhrmann NV, the largest office supplies distributor in the Netherlands, said second-quarter profit will fall at least 30 percent as a drop in U.S. demand spreads to Europe.

--Banco Santander Central Hispano SA, Spain's biggest bank, will close one-fifth of its Spanish branches, sell real estate and force senior executives to retire to maintain profit growth of more than 20 percent.

--Mobilezone Holding AG, the Swiss mobile-phone retailer that combined with Tege SA to obtain a Swiss listing, expects operating profit to fall this year because it signed up more prepaid customers.

--Robert Half International Inc., a provider of permanent and temporary staffing services, expects lower second-quarter and full-year earnings as customer demand for the company's services declined.

--Tecumseh Products Co., which makes compressors for air conditioners and refrigerators and small engines for lawn mowers, said second- quarter profit will be less than it had forecast because of weak sales in lawn and garden products.

--Walt Disney Co. has had fewer customers at its Florida theme parks this quarter and, if the economy stays sluggish, expects similar declines in July through September, parks unit chief Paul Pressler said.

--Club Mediterranee SA (Club Med), Europe's largest resort operator, will probably report a 46 percent decline in profit for its fiscal first half, as sales slowed in the U.S. and labor costs rose in France.

--Applied Micro Circuits Corp., a maker of chips for fiber-optic networking gear, reduced its fiscal first-quarter revenue forecast as much as 53 percent and predicted a loss after customer demand collapsed. The shares fell as much as 14 percent.

--Outback Steakhouse Inc., which operates about 800 restaurants in the U.S., said its second-quarter earnings will trail analysts' expectations because of slower growth and higher costs of dairy products and pork.

--New Horizons Worldwide Inc., the No. 1 independent computer training company, will lay off about 100 employees, 7 percent of its staff, as businesses spend less to train workers amid the slower economy.

--IMC Global Inc., one of the largest fertilizer companies, will miss its second-quarter earnings forecast and likely report full-year profits less than half its target because of sagging demand.

--J.P. Morgan cut their earnings estimates for 2001 for Gateway Inc., Dell Computer, Compaq Computer and Apple Computer.

SOMETHING I HAD NO IDEA ABOUT

Imagine if there was a company about which all the following things were true:

--That literally every time you surfed the Internet you landed on one of their servers. --If your website has ever crashed or been hacked into, they probably knew it had happened before you did. --If you have any domain name that ends in .com, .org or .net, they probably sold it to you. --Whenever you buy anything on-line, they are probably the ones who made certain that is was a "secure" transaction. --After you actually make the purchase, this company was responsible for putting bunches of payments together and getting them to the correct banks and payment processors. --This company handles 2 billion domain name searches...a day. --This company protects $360 BILLION in Internet commerce every year. --This company handles $500 million in credit cards transactions every quarter. --Whenever you search for a Net address that ends in .com, .net or .org which is about 30,000,000 addresses total, those addresses are on this companies computers. And this is by government contract. --This company gets $6 every year for ALL of those addresses. --It owns the code for literally every secure credit card transaction over a Netscape OR Explorer browser. That little padlock thing that appears at the bottom of your browser when you make your purchase is theirs. --Companies like an Amazon.com and others pay this company up to $900 for every one of their servers, which uses their software. --They currently have $542,000,000 in the bank in non-refundable cash that was paid to them in advance for services yet-to-be rendered.

I could go on, but this damn newsletter is already too long this month.

The company that all these things are true of is called Verisign. They have put themselves into a position to collect a fee on nearly everything that happens on the Internet from now on. They have no actual competition, and even Microsoft is talking about partnerships and not competition. A Mr. Sanjay Parthasarathy who is Microsoft's VP of business development said, "I don't think we could duplicate what Verisign has put together."

This is by no means an endorsement to go buy this stock. But it does certainly sound as though they are well positioned to keep that cash register ringing for many years to come. Much like I told you the Microsoft story several months ago.

ONE OPINION BEFORE I GO

I can't help myself from wanting to make at least one prediction about something before I end this edition:

Casual days are about to end. It's over.

That's it. There are a few rumors floating around to this effect, but as I travel from one corporate environment to another and it seems like a lock to me. I was never all that keen on the idea from a management point of view since it only seemed to give me one more headache and thing to "manage". As usual, you can't leave this to people's common sense since many people don't seem to have any. That means we have to make lists of what kind of "casual" is acceptable and what I intend to do to you if you don't wear the right thing. Do I send you home to change? Dock your pay? Ground you for a week and not let you hang out with your friends? The whole thing seemed like a nightmare to me from the start.

I understand that the "old economy" companies were trying to compete with the upstart tech companies for talent and didn't want to seem stodgy so they acquiesced and let "casual Friday" spread to the entire workweek. You should see some of the sights I've been exposed to in some of these casual atmospheres. Mind you, I like spandex as much as the next guy, but not at work. I'd better not see any belly buttons, men in shorts, or mini skirts in any office I run. This ain't no holiday picnic we're running. There is an entire generation of workers out there right now who have never owned a suit in their professional career. It's actually pretty amazing. The only advice I can give, is that when you younger guys are looking at the dress shirts in the store; the first number is how many inches the neck is, and the second number is how many inches long the sleeves are. And oh yeah......you'll need to learn how to tie a tie. It's going to be a brave new world.

GRAND CAYMAN AND BERMUDA

I'm heading to Grand Cayman in three weeks to teach my weeklong series of programs. Seats are still available for many of the sessions so please call my office for more details. The number is (860) 347-6568.

The weeklong programs in Grand Cayman in July and Bermuda in November will be hosted by me. Each day will be a seminar on a specific topic relating to the financial markets. This translates into 10 completely different days of training, which all qualify for significant professional education credits.

The Cayman programs will be held at the terrific Hyatt Regency Grand Cayman Resort and the Bermuda week will be held at Fairmont Southampton Princess Hotel. Both are excellent resorts and have wonderful conference facilities.

For details please click the following links:

For Grand Cayman: http://www.afs-seminars.com/cayman.html

For Bermuda: http://www.afs-seminars.com/bermuda.html

http://www.afs-seminars.com

Copyright 2001, Michael Gasior. All Rights Reserved

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