DFIN.COM Financial Archives With A Digital Bias
(Synopses of News that Impacts Finance in a Digital World)

The Digital Financier Update (DFIN.COM Update) provides a weekly commentary on important stories with significant financial, and or Internet implications. The purpose is to provide finance professionals and there staff with a timely brief synopses of recent and historic news events that best illustrates the changing digital economy.  The stories will eventually impact all of us.  Many of our stories may have received very little popular press coverage.  The weekly summary is e-mailed at no cost to participating subscribers for distribution to staff and co-workers.

This publication is designed to be a quick read and the archive is a good resource for financial history.

The most common sources for the DFIN.COM Update include UP, AP,  Fast Company, Business Week,The Economist, Forbes, Wired, Federal Reserve Bank Publications. The Wall Street Journal Interactive, MSNBC, L.A. Times, San Jose Mercury News. 

Week of January 24, 1999

There have been many speculative bubbles in financial history. In the early 1980's the S&L industry experienced a phenomenon in which FDIC charters were easily granted and marketed aggressively by consultants.  The free market is not the problem.  The industry explosion, especially in Texas and California can in one respect be described as the euphoria of the new owners having the capital to do every deal that they ever dreamed of.   The government guaranteed FDIC insured deposits fed the activities without the traditional check and balance of a lender or risk investor.  In the short run, accounting rules allowed the recording of profits that encouraged their behavior. Basic principles of banking were ignored.

Are we experiencing a similar problem today with the stock markets explosive growth, and in particular the internet stocks?  Last week, FRB Chairman Greenspan, told the House of Representatives Ways and Means Committee that the markets are "fragile". He further stated that "The level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late.''  SEC Chairman Arthur Levitt issued a similar warning to investors.

Reports indicate that the Interactive Week Internet index, which includes 50 Internet-related companies, increased by 17 percent since Jan. 1 while the Dow remained flat. The Mercury news reported "By contrast, the Interactive Week index had a price-to-earnings ratio of 2,863 at the end of Wednesday, the Nasdaq composite index's ratio was about 71, and the Dow's was 24."  Are Internet stocks worth that great a differential?  We have believed for years that the Internet is bigger than the industrial revolution, but we have some difficulty with some of the stock valuations.

The biggest star has been e-bay.   Ebay is a great company, my family buys and sells through ebay and speaks very highly of the system.  Looking at a few fundamentals, Ebay, had about 1,300,000 auctions in process when I last looked, it has a book value of about $15 million and a market capitalization of $12 Billion. It is a great company, but. . . there is little or no barrier to entry into the business,  and the technology can be replicated for less than $100,000.   Based upon the bigger fool theory, the stock is in the stratosphere.   However, would a capable buyer such as GE pay $12 Billion for this company? I think not.  How might a GE establish a new auction company that would attract the customer base of ebay?  We suggest one alternative would be that the company offer auction participants $500 each if they list at least 1 item per week on the new auction site over a 6 month period.  This would create the necessary product and traffic to establish the site.  The cost for the start up to create a viable marketplace would be about $500,000,000.  Would this new auction company be worth $6,000,000 which is 1/2 of ebay?  What  if Barnes and Noble offered to return 50% of purchase price for all books purchased over a 6 month period, conditioned upon the customers buying at least 1 book per month?  The point ? . . .  there are no barriers to entry and there are many ways to replicate a similar Internet business and buy the customers for much less that then the Internet market cap indicates.

FDIC Chief, ABA Lining Up Against 'Know-Your-Customer', American Banker, By Scott Barancik, January 27, 1999, WASHINGTON - Know your customer is one of the oldest banking principles.   It is appropriate for each bank to establish policies based upon their customer base and this is exactly what banks have been doing.  A regulatory mandated policy is another story, "Citing customer privacy concerns and potential burdens on small banks, Federal Deposit Insurance Corp. Chairman Donna A. Tanoue wants the proposed know your customer regulations to be scaled back."

"One option, Ms. Tanoue said, might be to rework the proposal so that it targets higher-risk operations like private banking, and to scale back the requirements for small banks. Another might be to issue a policy statement rather than a rule."  This regulation could impact Internet banking in its current form, hopefully the regulators will put the burden back to the banks where it belongs.

Electronic Billing Will Save Billions, (01/22/99), By Eileen Colkin, InformationWeek - Financial institutions should get ready for electronic bill presentment.  E-mail is the greatest use item on the net, electronic billing is a natural extension of this high volume product.  One study confirms this belief. "Companies that adopt electronic billing systems can expect to save up to $8 billion by 2001, according to a report released Thursday by research and consulting company Killen & Associates."

Electronic billing will save in all areas of billing, from paper to postage,

"The Killen report predicts the amount of bills being presented electronically by U.S. businesses will reach 8 percent in 2000 and increase to 34 percent by 2005. The fastest movement toward providing the service is being seen in the utilities industry, where larger players are looking to distinguish themselves before new competition enters their markets under deregulation."

Mutual Fund Industry Faces a Run for Its Money - Wall Street: Competition rises as account balances grow--and as more investors trade stocks on their own. By PAUL J. LIM, Times Staff Writer, January 29, 1999 -  The $5 Trillion stock mutual fund industry appears to be maturing. "For the first time in a decade, Americans' net new investment in stock funds declined significantly last year from the previous year, according to industry data released Thursday."

"On one front, more investors are opting to manage their own money rather than pay mutual funds to do it. The current mania for Internet-related stocks is one manifestation of that trend, experts say.
On another front, some investors' mutual fund accounts have grown so large that they are ripe targets for the fund industry's key competition, including full-service brokers and private money managers."

"Still, "we've gone from a high-growth industry to a rapidly maturing business," said Jeffrey Shames, chief executive of Boston-based MFS Investment Management, whose company created the first modern fund, Massachusetts Investment Trust, in 1924."

We have not had a sustained bear market since the 70's, the question is how will current day investors react to a bear market environment?

"Even in 1998, while net cash inflows to stock funds fell, investors hardly abandoned the industry. They poured $235 billion into short-term money market funds and $74 billion into bond funds."

"And for the fifth consecutive year, more than three-quarters of all so-called actively managed mutual funds in 1998 failed to beat the benchmark Standard & Poor's 500 stock index."

U.S. economy bounds ahead, Despite torrid growth, inflation remains tame, MSNBC from ASSOCIATED PRESS, WASHINGTON, Jan. 29 - The following is a direct quote from the MSNBC web site. "The U.S. economy grew at a breakneck 5.6 percent annual rate during the final three months of 1998, ending a year that saw U.S. prosperity undiminished in an economically troubled world. For all of 1998, the nation’s gross domestic product — the total of goods and services produced within U.S. borders - increased by 3.9 percent, the Commerce Department said Friday. THAT FOLLOWED AN identical increase in 1997 and a healthy 3.4 percent rise in 1996, making the three-year period the economy’s most robust run of growth since 1984-86."

All this was accomplished with negligible inflation. A price index tied to the GDP rose 1 percent last year. There hasn’t been a rate that low since 1959, also 1 percent, and it hasn’t been lower since 1950, 0.9 percent.

The U.S. trade deficit did deteriorate in 1998, with imports shooting 10.8 percent higher and exports growing only 1.5 percent, the weakest performance in 15 years.

But spending by American consumers on houses, cars and furniture and by businesses on computers saved the year.

Consumer spending rose 4.8 percent, the most in 14 years. Housing construction surged 10.4 percent, also the most in 14 years.

But, to maintain the frenzied pace, consumers reduced their savings rate - savings as a percentage of after-tax income — from 2.1 percent in 1997 to 0.5 percent in 1998, the lowest since 1933.  That’s not quite as dire as it seems; it reflects the fact that consumers are spending a fraction of their stock market gains and, those who refinanced mortgages at the lowest rates in three decades, a portion of their home equity.

Business investment in new equipment jumped 16.7 percent, the most in six years, offsetting a 0.7 percent decline in construction of commercial buildings. Equipment purchases were driven by computer sales, which rose 62 percent.

If not for the trade deterioration, overall growth for the year would have topped 5 percent.

World Bank warns poor countries on Y2K, Mercury News Online, January 27, 1999, WASHINGTON (AP) -  Time is running out for countries and their population to timely meet Y2K system changes.   The alternative for many of these poor countries may be to return to manual systems.

"In a report the bank said many of these nations are so unprepared they may experience difficulties in providing their citizens with food, health care and electricity. Sub-Saharan Africa heads a list of regions where lack of preparation is acute, but Asia, Latin America and countries in the former Soviet Union could be hard hit."

"In a survey of 139 countries' Y2K preparedness, the bank found that 54 had national policies in place but only 21 had taken concrete steps to reduce their exposure. Naming a national coordinator for the problem is not a measure of a country's preparedness, the bank said."

This is one more reason why the USA will increase in prominence throughout the world.

Supreme Court bars census technique, No adjustments allowed to fix anticipated undercounts, ASSOCIATED PRESS and MSNBC,  WASHINGTON, Jan. 25 - In another case of rich versus poor or Republican vs. democrat, In a divided ruling, which appears to be partisan politics, the Supreme Court ruled that "The 2000 census cannot be adjusted to make up for an expected undercount of minorities, the Supreme Court said Monday, ruling for taxpayers who challenged the Clinton administration’s plan." 

This divided ruling will effect on congressional apportionment and money that is given to the states. Rich states and rich cities seem to oppose such statistical sampling.  "Adjusting the census likely would have helped Democrats because minorities and inner-city residents, who tend to vote Democratic, made up a large share of the estimated 4 million people missed by the 1990 count."
       
"Census figures also are used to draw congressional, state and local voting districts, and to hand out $180 billion in federal funds each year."  For the banking community statistical sampling could have CRA implications as well.
       
"Last week, in his State of the Union address, President Clinton said, “Since every person in America counts, every American ought to be counted. We need a census that uses most modern scientific methods to do that.”"

SEC chief cautions investors, but share prices climb higher, BY JONATHAN RABINOVITZ, Mercury News Staff Writer, January 27, 1999 - "The drumbeat of warnings about the mania surrounding online trading and pricey Internet stocks grew ever louder Wednesday. But investors paid little attention, causing prices of Web-related companies to jump yet again."

"This jump occurred despite the latest voice of caution: The usually circumspect Securities and Exchange Commission Chairman Arthur Levitt issued a statement airing his concerns about the risks in electronic trading."

"Online investors should remember that it is just as easy, if not more, to lose money through the click of a button as it is to make it,'' he said."

"Levitt said he was ``very, very concerned'' by recent stories of investors who were using mortgages and student loans for day trading. Over the past year, the number of complaints about online trading have increased by 330 percent, and individuals need to be careful, he said."

"It's crazy,'' said Michael Murphy, editor of California Technology Stock Letter in Half Moon Bay, when asked about eBay's jump Wednesday."

"But most significantly, the ratio of eBay's stock price to projected earnings for 1999 -- a traditional way to value a company's stock -- was 1,377 after Wednesday's increase. That is at least 45 times the outer limits of what investors would accept in the past, and even that projection is based on questionable earning projections, Murphy said."

"The increases in Internet-related stocks have created ``the mother of all bubbles,'' said Murphy, whose publication's most recent issue warns that it is only a matter of time before it breaks."

Following is the full statement.

Washington, D.C., January 27, 1999 – Chairman Arthur Levitt today issued the following statement to investors:

Week of January 17, 1999

The digit is mightier than the pen! don't believe it ?  Ask the Chinese government. who sentenced a Chinese citizen for 2 years in prison for supplying e-mail addresses to US based dissidents.  Here at home, the  SEC is cracking down on how technology companies account for acquisitions, mega bank mergers raise the question on mega failures and for US companies thinking about expanding Internet company into Europe, a turn key solution is available.

Greenspan speaks, the Senate is judging the President of the United States and with the exception of Brazil the financial world is relatively quiet.

Megamerger Flood Prompts FDIC To Prep Quietly for a Megafailure, By Scott Barancik,  American Banker, Washington, January 22, 1999, WASHINGTON -  "Last year's string of record-breaking bank mergers has prompted the Federal Deposit Insurance Co. to mull the unthinkable: the failure of a colossal bank."

"An internal task force has been meeting quietly since July to discuss what the FDIC would do if, for instance, a $100 billion-asset bank were to fail."

"It's better to do this now than to wait until you're on the line staring a failure in the face, said Gail L. Patelunas, chairwoman of the megamerger committee and deputy director of the FDIC's division of resolutions and receiverships."

"The FDIC has formed what is known informally as the "megamerger committee." The group is debating every angle of a mega-receivership."

• "Under what circumstances should the government, to avoid systemic upheaval, pledge to refund uninsured deposits?

• Who is best qualified to manage a failed bank's derivatives portfolio until it can be auctioned off?

• How many hundreds -- or even thousands -- of temporary staff would a downsized FDIC need to hire if a big bank failed, and where would they find the staff on such short notice?

• Should the FDIC send employees overseas to monitor a failed bank's foreign branches?"

The following table illustrates the magnitude of the change in the banking industry.

Greenspan says economy ‘sparkling’ But Fed chief warns high-flying stock market could be headed for a tumble, MSNBC NEWS SERVICES,  The Associated Press and Reuters contributed to this report. Jan. 20 -  "Federal Reserve Chairman Alan Greenspan hailed the “sparkling” performance of the U.S. economy but warned that still-fragile financial markets and a drop in exports posed risks to the eight-year old expansion."

“WHILE THERE ARE risks going forward, to date domestic demand and hence employment and output in the United States certainly has remained vigorous,” he said on Wednesday. “Though the pace of economic expansion is widely expected to moderate as 1999 unfolds, signs of an appreciable slowdown as yet remain scant.”

"Greenspan said financial markets had reacted well to events in Brazil, which last week devalued its real currency in response to mounting investor pressure, but said sustained reform progress by the Brazilian government now was the key to avoid contagion in the region and bolster investor confidence."

"Greenspan went to some length to underline that “while asset values are very important to the economy and so must be carefully monitored and assessed by the Federal Reserve,” those equity prices “are not themselves a target of monetary policy."

" When Russia defaulted on its debt last fall, which was the psychological trigger that prompted a global financial meltdown, the Fed’s subsequent three rate cuts in the federal funds rate — now at 4.75 percent — were not an intent to “prop up equity prices,” he said. "“This has not been, and is not now, our policy or intent,” Greenspan repeated. “It is the performance of the entire economy that forms our objectives and shapes our actions.” "As he has in the past, Greenspan questioned whether the stock market’s recent ascent can last, since corporate profits have sagged in recent quarters."

“The recent behavior of profits also underlines the unusual nature of the rebound in equity prices and the possibility that the recent performance of the equity will have difficulty in being sustained,” he said. “The level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late.” " Greenspan warned a “flattening” of stock prices probably would slow consumer spending and a decline in stock prices, “especially a severe one, could lead to a considerable weakening of consumer demand.”"
       
China Orders 'Internet Bars' To Register Users With Police, WSJ Online, January 21, 1999 , Associated Press SHANGHAI, China -   This is an example of why it is important to protect free speech and keep the Internet free of censorship. The digit is mightier than the pen. "China has tightened restrictions on Internet use, ordering bars that offer online access to register users with the police, according to state media."

"The rules, issued this week, come amid a crackdown on Internet political activity that caused an outcry when a Shanghai man was imprisoned for giving e-mail addresses to dissidents abroad."

"Under the rules, bars that rent time to customers on Internet-linked computer terminals will have to be licensed by police, the Workers Daily newspaper said Thursday."

"Such bars and cafes, increasingly common in major Chinese cities, had been one of the few ways Chinese could receive e-mail or look at Web sites anonymously."

"Managers and customers of 'Internet bars' cannot be allowed to endanger national security," the newspaper said."

"The China News Service said public morals and stability already were under threat."

Does the following sound familiar? "Some managers offer gambling and computer games with lewd content," the service said in a report Tuesday. "Officials believe this already has endangered social stability and the mental and physical health of young people."

"The government has encouraged the rapid spread of Internet use in China, but closely monitors its 1.5 million registered users. Internet-service providers are required to register customers with the authorities, and barriers have been installed to block access to sites deemed subversive or pornographic."

"On Wednesday -- in China's first conviction for Internet-related political offenses -- Shanghai software entrepreneur Lin Hai was sentenced to two years in prison on subversion charges. Mr. Lin, 30 years old, was arrested last year after he gave e-mail addresses of 30,000 Chinese computer users to a pro-democracy journal published on the Web by dissidents abroad."

Japan key industries prepared for Y2K bug,  January 22, 1999, Tokyo, Jan 22 (Reuters) - "Japan said on Friday that most companies in the nation's five key industries had modified their computers to deal with the so-called millennium bug."

"70 percent of companies in five key industries had completed modifying their computer programs to tackle the Year 2000 computer bug."

"The industries are finance, transport, energy, telecommunications and medicine".

"Government officials said, however, that a survey on the preparedness of other industries showed they were lagging behind".

Accounting probe dogs Network Associates, January 21, 1999, by Adam Lashinsky, Mercury News Staff Writer :  The government is cracking down on how technology companies account for acquisitions.   This effects many of the non-cash merger related accounting charges in mergers.   The excesses are generally in in-process research and development expenses.   Does a merger, allow the masking of some R & D expenses?

The SEC wants companies to amortize merger related "R&D" expenses over time instead of charging them off at the time of merger.  This amortization will cause future earning to be lower but will not impact cash flow.  "Accounting doesn't build value,'' Larson says. ``Astute (investors) are telling us that (the merger expenses) are not a big deal.''

"Last year the SEC began challenging technology companies it believes have been flaunting the accounting rules for mergers. By declaring a large portion of the value of an acquired company to be so-called in-process research and development, a purchaser could take a large upfront write-off, thus minimizing future amortization expenses that would be a drag on earnings."

The issue is future quality of earnings.   Investors must decide.

CNet, NBC to offer high-speed Internet portal, January 19, 1999, San Francisco (Reuters) - "Online news publisher CNet Inc. and General Electric Co.'s NBC television network said Tuesday they would create the first Internet portal service aimed at users with high-speed modem connections."

"The news comes just as high-speed, cable-based Internet service provider AtHome Corp. agreed to buy Excite Inc., a Web search engine and directory, for $6.7 billion. Together the announcements show how competition is shaping up for next-generation Web offerings."

Two views on how to spot Net stock `gorillas', BY ADAM LASHINSKY Mercury News Staff Writer, January 17, 1999 - 

"The challenge is that because the subject is the Internet, the cacophony of viewpoints has reached biblical proportions. So it is all the more worthwhile to ponder the words of two thinkers who cut through the Internet babel, as consultant Geoffrey A. Moore and analyst Henry M. Blodget did last week in separate missives."

"Moore, who runs the San Mateo consulting firm Chasm Group, is best known for the marketing tomes ``Crossing the Chasm'' and ``Inside the Tornado,'' which explain in clear prose -- and in Moore's equally lucid lectures -- the critical factors of success in the entrepreneurial racket. Last year Moore reached out to a broader audience with ``The Gorilla Game, an Investor's Guide to Picking Winners in High Technology.'' "

To boil down an involved thesis, Moore identified the characteristics of a ``gorilla'' technology company primarily by its ability to deliver a product architecture that effectively drives away all competitors. Microsoft Corp. (Nasdaq, MSFT), Cisco Systems Inc. (Nasdaq, CSCO) and Intel Corp. (Nasdaq, INTC), all are gorillas in Moore's zoo.

"I do not think (Internet stocks) can be called investments at this time,'' Moore wrote. ``An investment is something you would want to hold for 10 years, say. I don't think many people would be comfortable with eBay as the foundation of their retirement plan.'' "

"Moore tips his hat to AOL, Yahoo and Amazon for displaying gorilla-like characteristics, such as capturing large market shares, creating onerous switching costs for customers (or users), and building dominant brands."

"But these competitive advantages -- although alluring -- haven't been tested in the crucible of time, Moore suggests. Today's Internet leaders are more like ``kings'' than gorillas: dominant for now but eminently assailable by ``princes'' with similar strategies -- think Excite Inc. (Nasdaq, XCIT) or Infoseek Corp. (Nasdaq, SEEK) and Walt Disney Co.'s (NYSE, DIS) Go Network -- and ``serfs'' who can chip away at the monarch's power without ever winning control (example: no-name online book merchants)."

"Lastly, at current valuations, Internet leaders are ``uninvestable,'' Moore argues, and ``to simply buy and hold shares at this time is a gamble, not an investment.''"

"Blodget isn't nearly as well-known as Moore, but the New York-based analyst with CIBC Oppenheimer Corp. narrowed the chasm last year with his now-famous $400 price target on Amazon. The online retailer's (see how journalists quickly adopt a company's wishes not to be called a ``bookseller''?) stock closed Friday at $140.38, or $421.14 adjusted for splits that have occurred since Blodget's recommendation."

"Blodget believes the leading Internet stocks most certainly are investments, and he isn't deterred by the ``crazy'' run-ups the stocks have experienced."

"The Internet bubble is riding on rocketship fundamentals, perhaps stronger than any the market has ever seen,"

"Significantly, Blodget sees the gorilla-type companies as the way to play the Net -- despite their valuations. These include AOL, Yahoo, Amazon and one company that is a somewhat different species: Microsoft Corp."

"Blodget's analysis contains a lengthy comparison of the Internet mania with past bubbles. He concludes: ``This bubble is different than other bubbles -- the stocks are clearly worth something.''"

"Moore speaks to long-term investors looking for high-growth but long-term investments. As such, he's staying away from the Internet. Blodget is riding the hottest investment wave of our time. And he is embracing the Internet fully aware that one can get singed by the heat."

Your European Valet, Setting up shop is one thing when you know the lay of the land. But what if you don't?, The Industry Standard, By Lessley Anderson -

Larry Levy heads a young company, has great connections and provides a turn key package to expand your Internet company into European markets.

"Levy believes he's got the process of expansion down to a science, which he's been able to package neatly for customers. In exchange for cash or pre-IPO equity in the company, Protege provides its client companies with a ready-to-use office and office staff, a 70-page European business plan and even a general manager, who will have you up and doing business in a matter of a few relatively pain-free months. Plus, he promises clients that 15 to 25 percent of their sales will come from Europe within two years. Around the end of those two years, the company is on its own. Protege drops the affiliation and lets it run on its own."

"It's the little things that are so unglamorous that will just eat you up, whoever it is that's going there to do it," says Protege client, Kent Godfrey, CEO of San Francisco Net market research firm Andromedia. "It's so nice to just plug into an infrastructure. You can start right away, and all your attention is placed on selling and marketing and dealing with customers."

"The little things are the tedious, time-consuming tasks you thought were behind you once you launched the company initially: getting incorporated, setting up a bank account, finding a space, signing a lease and finding legal counsel who understands the Internet market - tasks that prove not just headache inducing, but financially draining for the unaided CEO. A Protege client, by contrast, has all of those difficulties taken care of at the beginning; office space is furnished, connected and ready to go and is located in London, where most of Protege's current roster of nine Net companies are headquartered. The books are set up by Protege's in-house accounting team. One of two Protege-employed PR agencies gets started immediately publicizing your expansion. And then there's the matter of your entree into the European markets: Where Protege's business plan leaves off, Levy's knowledge of European social customs takes over."

"When a company signs with Protege, and its expansion begins, the executive team is typically flown to London to officially kick off the sales efforts. For five days, the American team joins its European General Manger and is escorted around Europe by Levy, visiting Protege's satellite offices in Munich, Hamburg, Sydney, Paris and Stockholm to get to know the local markets and meet with key players."

Week of January 10, 1999

Central Bank resignations in Brazil put a damper on Wall Street. Early in the week many traders questioned if the predicted Internet stock and market collapse was upon us.  A late week devaluation of their currency, accomplished by allowing the currency to float,  made it all better - but it is not over. 

We also review the trend in outsourcing e-mail.  Outsourcing looks better all the time and many companies are catching on to the revival of this old tradition.  In an Internet beneficial case of price discrimination Delta Airlines will charge less for Internet booked flights. The week also saw the Senate e-mail system is overloaded and Mondex has a setback.

Brazil scraps currency supports, Bovespa soars 33.4 percent as real allowed to float freely, MSNBC, SAO PAULO, Jan. 15 —   "the embattled real rapidly devalued by a further 9 percent before stabilizing." "But the Bovespa stock market rejoiced, soaring 33.4 percent after the Central Bank said it had removed its trading band on the currency and that it would not intervene in the foreign exchange market — at least for Friday. However, the bank said it would set new foreign exchange rules on Monday."

"It was the first time the government allowed the real to trade freely since the currency was introduced in 1994 as the backbone of a plan to crush rampant inflation in Brazil — the world’s eighth largest economy."

"But the move failed to stem a wave of dollar flight that reached about $1.0 billion a day."
       
The IMF bailout appears to be on track, "If Brazil succeeds, it could bring interest rates, currently at around 29 percent a month, down to a reasonable level and avoid the recession thought likely as a result of Brazil’s promise to trim $23 billion from its budget in exchange for a $41.5 billion bailout package from the IMF."

Brazil will follow the lead of Mexico in 1994 and Russia in 1998, and allow the real to float.

E-mail boom boosts interest in `e-post offices', Wednesday, January 13, 1999, Mercury News, Reuters PALO ALTO -- Cost conscious CFOs take note, a new hot Internet concept that is attracting attention from venture funds is outsourced e-mail management.  Many  e-mail outsourcing companies have received significant venture funding. "The growing popularity of e-mail is raising the profile of some companies that function like e-post offices,' providing the technical support for group e-mail accounts so that individual businesses do not have to."  The idea behind these companies is to spare businesses that use e-mail the technical side of managing it.  This outsource solution will save significant costs and technical headaches for the companies. 

One of these new companies is Critical Path in San Francisco. "Critical Path, which has assumed the ambitious mission ``to handle the world's e-mail,'' already supports millions of electronic mail boxes. From two major data centers, it hosts the e-mail of 180 different corporate customers, including the e-mail offered on 15 Internet portals, such as E+Trade's."

Another such company is eGroups. "eGroups, which raised $5.1 million in its second round of funding, provides ways for small groups like businesses, extended families or universities to set up group e-mail addresses."

Delta adds surcharge to non-Net bookings, Mercury Center, Wednesday, January 13, 1999, ATLANTA (AP) -- In a very important pricing decision, "Saying it must offset rising costs for traditional booking methods, Delta Air Lines has added a $2 surcharge to domestic round-trip bookings, except those made at its Internet site."  This is what the Internet is all about, distribution systems, in our opinion, this is the first of many such actions by all industries. 

"The move was criticized Tuesday by the American Society of Travel Agents, which accused Atlanta-based Delta of ``blaming and punishing the traveling public for purchasing their tickets through (non-Internet) channels they clearly prefer."

Delta stated that "distribution costs have soared to more than $1 billion in 1998. It said fees it pays to computer reservations systems that provide booking services to agents have risen 280 percent since 1990, with more increases coming."

New Senate Banking Chief Aims To Move Reform Bill Next Month, By Dean Anason, American Banker,Wednesday, January 13, 1999 WASHINGTON - "Defying skeptics, Senate Banking Committee Chairman Phil Gramm unveiled a broad agenda Tuesday that includes sending long-sought financial reform legislation to the floor by the end of February."

"The No. 1 piece of unfinished business from the last Congress -- in fact, for the last 10 Congresses -- is financial services modernization," the Texas Republican said at a news conference. "I am determined to act, and act swiftly."

"Many industry officials were stunned by Sen. Gramm's aggressive timetable, because he was the lawmaker most responsible for killing financial reform three months ago."

"Are you serious?" said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, on hearing the news. "Frankly, it is moving much faster than I had anticipated."

"Boy, I am turned on," said David J. Pratt, senior vice president of federal affairs for the American Insurance Association. Even if the impeachment trial or other events slow action, Sen. Gramm has re-energized disappointed supporters by putting the legislation on the front burner, Mr. Pratt said."

Why all this action? "Sources said Sen. Gramm's turnaround on reform arises partly from political realities. Republican leaders are eager to move legislation early in the session to disprove President Clinton's claims that they are more interested in removing him from office than in accomplishing the public's business."

"Sen. Paul S. Sarbanes and other Democrats did not immediately react to Sen. Gramm's plans, but community groups objected."

"Sen. Gramm added that he supported letting commercial firms own thrifts because such diversified entities have proven economically resilient. But he said he would be willing to compromise, a nod to the fact that Sen. Sarbanes and House Banking Committee Chairman Jim Leach want to ban any mixing of banking and commerce"

Worldwide group urges less regulation of Net, Mercury Center, Friday, January 15, 1999 , NEW YORK (AP) - "Leading companies ranging from IBM to German publisher Bertelsmann have formed a global group to discourage governments from imposing Internet taxes and other measures that could hurt business over the Internet."

"The group, representing businesses in technology, media and finance, plans to present suggestions on policy to governments around the world as well as send a general message against government regulation of the exploding medium."

"The group's formation follows the success of U.S. firms in lobbying the U.S. government on issues important to the high-tech industry, which this year won a temporary ban on Internet taxes and new copyright protections."

Telecommuters are becoming more common, Tuesday, January 12, 1999, BY DIANE STAFFORD, Kansas City Star, KANSAS CITY, Mo. - "About 25 years ago, the story goes, a man named Jack Nilles was stuck in a Los Angeles traffic jam when -- shazaaaam -- a brainstorm hit. Then and there, we're told, he coined the word telecommuting, apparently conceiving the benefits of computer-linked work sites."

"Gil Gordon, an internationally recognized telecommuting expert, said telecommuting is growing 10 percent to 15 percent a year, a significant growth rate."

"Holding the numbers in check, Gordon said, is the reality that old habits die hard, and the tradition of going to the office is one of the oldest.''

"U.S. labor law hasn't yet evolved to cover issues that might arise with a remote-access work force. Experts say every organization with telecommuting workers should have written work policies and procedures for out-of-the-office work sites."

"Written statements should cover such things as: who pays for what equipment; what kind of insurance policies are held and who pays for them; how to measure work performance; whether the employer has the right to do work site inspections; how to keep time records; and setting limits on work hours."

"Those changes generally put more focus on the output of the work itself and less emphasis on the in-office politics and personality assessments that are traditional fare."

Senate buried in blizzard of e-mail,Impeachment debate boosts traffic by 600 percent, By Alan Boyle, MSNBC, Jan. 11 — Asymmetric communication takes democracy to a new high. "President Bill Clinton’s impeachment trial has whipped up another storm for the Senate: E-mail traffic has risen to seven times the norm, at times slowing the system to a crawl. A staff member says traffic to the Senate’s Web site also has risen by 200 percent, to as many as 800,000 hits a day."

Mondex USA Pulls Back as Smart Cards Lag Forecasts, American Banker, Monday, January 11, 1999, By Jeffrey Kutler -  A setback has occurred in the important financial service distribution tool of smart cards.  "Mondex USA has fallen victim to the slow start of smart cards in the United States."

"The U.S. franchise of the MasterCard-controlled venture that is selling an electronic substitute for cash is in the process of closing its San Francisco headquarters."

"But on the heels of other disappointments, notably the yearend demise of the 100,000-card New York City market trial that Chase and Mondex conducted jointly with Citibank and Visa U.S.A., the Mondex USA restructuring is perceived elsewhere as a setback."

"Disputing that momentum has been lost, Mr. Braco said Chase and other bank members are looking forward this year to running multiple applications -- not just stored value -- on the Multos operating system, which has been designed for more diversified purposes such as debit and credit, shopper loyalty points, medical information, and cardholder authentication."

"Around the late summer last year, we began deciding that we were ahead of the market," said Ms. Crane. "We started out expecting electronic cash would lead the smart card into the U.S. market, but now we see that the multiple-application operating system had to come first."

Week of January 3, 1999

Bank of England cuts interest rates, ASSOCIATED PRESS, LONDON, Jan. 7, 1999 — "Britain cut a key interest rate Thursday for the fourth time in as many months as it continued to try to ward off recession. The Bank of England voted to reduce its base lending rate for loans to commercial banks to 6 percent from 6.25 percent. The move followed cuts of a half percentage point in November and December, and a quarter percentage point cut in October."  There was a bit of disappointment in that a 1/2% cut was expected.   Will the USA follow?

U.S. Economy Sees Surprise Surge in '98, By JONATHAN PETERSON, LA Times Staff Writer WASHINGTON January 9, 1999 -  Not surprising for those of us who follow the monetary aggregates "The nation's economy surged forward at the end of 1998, capping workers' best year since the 1960s as it shattered most forecasts of job growth for December and pushed down the unemployment rate to an unusually low 4.3%."
     
"Still, analysts were struck by the U.S. economy's powerful, enduring performance in a year that featured withering recessions throughout Asia and financial mayhem in much of the world."

"The new statistics underscored that broad segments of the American public are benefiting from the economic expansion, although disparities continue. The unemployment rate in December was 3.8% overall for whites, 7.6% for Latinos and 7.9% for blacks."

Reform, Almost Passed in 1998, Seems a Longer Shot This Year,  By Dean Anason, January 8, 1999,WASHINGTON -  Financial reform continues to be a political hot potato. "Financial reform legislation faces an uphill battle in 1999 despite historic strides last year."

"A rocky forecast might seem surprising after Congress came closer than ever in 1998 to allowing common ownership of banks, securities firms, and insurance companies. The House approved landmark legislation by a single vote in May, and the Senate version was stalled in October by a handful of senators."

"Richard M. Kovacevich, president and chief executive of Wells Fargo & Co., said he is confident a bill can be enacted. The commercial banking industry, the investment banking industry, and the insurance companies are in basic agreement," he said. "I firmly believe we will get some form of a level playing field, financial modernization law, in 1999."

One of the sticking points is CRA legislation and "woofies" "the plan would extend the CRA to uninsured wholesale financial institutions, or "woofies." Sen. Gramm opposes that as expansion of government red tape to nonbanks. Rep. Leach said that little demand exists for woofies and he would consider eliminating them from the bill to solve that dispute."

DFIN.COM believes that 'woofies" will grow in importance as Internet distribution grows.

For rent, Economist Online, Jan 9-15 - Few firms would consider supplying their own electricity and water. So why do they struggle with computer equipment and software? 

The Digital Financier is a strong proponant of outsouring. In a world in which technology advances outpace a flys lifespan, why own?

"IN RECENT years the outsourcing of computer services has been a huge and fast-growing business. At a price, the likes of IBM and EDS will provide an “end-to-end” package of solutions for big companies who want to wish their technology worries away. But thanks to the Internet and improvements in communications technology, another type of outsourcing is now afoot. It is more like a utility that rents out data storage, processing capacity and applications. If end-to-end outsourcing is the computing equivalent of limousines with chauffeurs, the new version is a fleet of taxis—less luxurious, but much cheaper and for hire to businesses anywhere."

"The charge is being led by some of the software firms that provide “enterprise resource planning” (ERP), which big companies increasingly rely on for their main business processes. Working with hardware makers and Internet service providers (ISPs), they want to make the latest business software available on monthly subscription. Initially, their aim is to extend ERP to firms with revenues of less than $500m a year, including legal partnerships and even doctors’ surgeries."

"Many analysts are convinced that even large firms will eventually follow. Forrester Research, a consultancy, thinks that by 2002 the applications-rental market, currently almost non-existent, will be worth about $6 billion, and will be doubling every year (see chart)"

"The most determined firm is Oracle, which leads the market for corporate databases and is the number two ERP firm (after Germany’s SAP). Oracle Business OnLine has been running as a pilot since October, and early this year it will be launched commercially, first in America and some months later in Europe and Asia. All of its latest “Release 11” suite of applications—finance, distribution, manufacturing, front office and human resources—will be for rent. In time, Oracle will also include other firms’ software, providing what it calls “best of breed” solutions."

"According to Katherine Jones, an analyst with the Aberdeen Group, an IT consultancy, another attraction is that renting is much less risky: “It’s not a win-or-lose-all decision for businesses in the gut-wrenching way that most ERP decisions are.” If you are renting the wrong package, you can probably change it, or pull out."

Online Trading of Bonds Is Meeting With Resistance, By GREGORY ZUCKERMAN, Staff Reporter of THE WALL STREET JOURNAL, December 28, 1998 -   This is an important carryover from last week. "Old-fashioned bond traders, you have nothing to fear from electronic trading. At least not yet."

The asynchronous world on electronic trading has not reached the the type of volume that the online stock trading has achieved but DFIN.COM does not expect adoption to be far behind.  As soon as one major firm forsakes its sales force and implements a proper system,  the client will have little reason not to adopt the system. Then again,  the inefficiency of the broker market makes for superior profits for the brokerage firms. Cpud a small firm put pressure on the market makers?

"New entrants to the field of bond trading online are coming fast and furious. Just over a week ago, E*Trade Group Inc. introduced a system to allow investors to buy a wide range of bonds, including Treasurys and municipals, by accessing the inventories of 400 different firms. Others, including Discover Brokerage Direct, a division of Morgan Stanley Dean Witter & Co., also cater to individual investors."

"In fact, as many as 27 different firms either provide electronic bond trading or are planning to do so soon, according to Tower Group in Needham, Mass. The U.S. Treasury Department, meanwhile, has made Treasurys available online through its Treasury Direct program."

"Meanwhile, MuniAuction, Pittsburgh, has hosted online auctions of 25 new bond issues totaling $1.35 billion in 1998 and hopes to double its activity next year, skirting Wall Street dealers in the process. Intervest, another electronic pioneer, is also planning to host bond auctions."

"In time, however, electronic trading may prove a boon to investors, especially individuals who can't currently get accurate pricing information on most bonds. The Discover Brokerage system, for example, allows an investor to see the bid-ask spread on any bond -- information that is easy to come by in the stock market but unheard of for small investors in the bond market. The service also charges no markup on bond transactions. While Discover Brokerage Direct provides only bond pricing from Morgan Stanley, the TradeWeb system might lead the way toward development of a central system that collects the best pricing from many different firms and allows access to all investors."

What a novel idea, use the computer to keep track and distribute the bid ask spread of fixed income investments.

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