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Cypen & Cypen
JANUARY 13, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Moody’s global speculative-grade issuer-weighted default rate fell by 58% during the past year, to a level of 2.2% for the month of December. The global speculative-grade issuer-weighted default rate is down from 5.2% at the start of the year. The default rate also fell from November, when it stood at 2.4%. The current global default rate is approximately 80% beneath its peak of 10.9%, which occurred in January, 2002. Since then, the default rate has fallen 28 of the past 35 months. While Moody’s forecasting model predicts that the default rate will rise modestly to 2.7% by the end of 2005, it should continue to ease slightly in the near term to 1.8% near to the beginning of this year’s second quarter. So, are we all going to run out and buy junk bonds? I don’t think so.


Harry Domash, of MSN Money, counted 23 different learning experiences that he prefers not to learn again in 2005. Here they are

" I will not try to predict direction of the market.

" I will not invest based on my prediction of oil prices, interest rates, etc.

" I will not place a limit order when I am buying or selling.

" I will not check on stock prices during market hours.

" I will not check after-hours trading prices on my stocks.

" I will not make decisions based on how much I have made or lost on a stock.

" I will not buy a stock based on a guru tip.

" I will not buy a stock based on a tip I hear at the gym.

" I will not buy a stock because most analysts are rating it a “strong buy.”

" I will ignore market predictions from gurus who predicted the last market crash, start of the last bull market, etc.

" I will only buy stocks trading above their 50- and 200-day moving averages.

" I will not buy just because a stock has gone up a lot.

" I will not average down.

" I will not buy stocks making new lows.

" I will not place sell stops.
" I will only buy stocks with real sales, earnings and cash flow.

" I will always sell when management significantly reduces sales or earnings forecasts.

" I will not buy stocks with price/sales ratio greater than 14.

" I will only buy stocks if I understand what they do for a living.

" I will sell any stock when a competitor says business is tough.

" I will diversify my portfolio between industries and sectors.

" I will sell any retail or restaurant stock when it reports negative same-store sales growth.

" I will not make a buy or sell decision based on a stock’s “fair value.”

Domash says that investing success is more about discipline than fancy analysis. Start with his rules, but change them if they do not work for you. The key is following rules that you keep improving over time.


The Committee on Investment of Employee Benefit Assets recently conducted a study of corporate sponsors of large defined benefit pensions, which was reported Results show that in 2003 defined benefit contributions of $44 Billion represented more than double the $21 Billion contributed in 2002 -- and four times the average contribution for the previous four years! For defined contribution plans, employer and employee contributions for active employee increased for the ninth consecutive year, in 2003: $7,047.00 compared to $6,600.00 in 2002. Meanwhile, both DB and DC plan assets increased from beginning year levels, respectively, by 20% and 22%.


Employee Benefit Research Institute has released some background information about State/Local pensions and how they compare to their private-sector counterparts. According to Census Bureau data, for Americans over age 50, the average public-sector pension and annuity payment is significantly more than that of the private sector. Specifically, for 1993, the average annual income for individuals over age 50 from public-sector pensions annuities was $20,167.00 compared with $11,059.00 for the private sector. Census Bureau data also show that salaries are higher in the public sector. According to the 2004 Annual Social and Economic Supplement of the Census Bureau’s Current Population Survey, the average annual salary for State and Local Government workers was $35,771.00, compared with $34,603.00 for private-sector, nonagricultural workers. (For Federal workers, the average salary was $49,095.00.) As of March, 2002, overall total compensation costs were 44% higher among State and Local Government employers ($31.29 per hour worked) than among private-sector employers ($21.71). Total compensation costs consist of two major categories: wages/salaries and employee benefits. For both categories, State and Local Government employers’ costs were higher than those of private-sector employers -- 40% higher for wages/salaries and 50% higher for employee benefits. Founded in 1978, EBRI’s mission is to contribute to, to encourage and to enhance the development of sound employee benefit programs and sound public policies through objective research and education.


The 2002 Health Confidence Survey, cosponsored by Employee Benefit Research Institute, was conducted within the United States between April 18, 2002 and May 19, 2002. The survey finds that Americans’ confidence in and satisfaction with the health care system in the United States remain remarkably stable. The 2002 HCS represents the fifth round of an annual survey to assess attitudes of the American people regarding health care in the United States. Although there have been changes to the questionnaire during the five years to examine topical issues, certain key questions have tracked trends in health confidence and satisfaction with the health care Americans receive for much of this time, and those questions have found little change over time. Almost half of Americans continue to be extremely or very satisfied with the health care they receive in general, and more than half continue to be extremely or very satisfied with the quality of the medical care they receive. More than half are confident that they are able to get needed treatments today, but confidence wanes, like in past years, as they look toward their ability to get needed treatments in the future. Confidence in employment-based health insurance remains consistent as well, but half of those receiving coverage through an employment-based plan reporting being extremely or very satisfied with their health plan and nearly four in ten being somewhat satisfied. Nevertheless, some noteworthy changes have occurred that indicate health care is becoming a growing concern. For example, Americans are more likely than they were in 1998 to identify health care as a critical issue for the nation. And more are dissatisfied now than in 1998 with both cost of their health insurance and cost of health care not covered by insurance. More detailed findings in the 2002 HCS are available at


Initial Public Offerings, among all security sales, are the most lucrative for investment banks, which charge fees that are typically at least 25% higher than rates paid to underwrite other securities. (The average disclosed fee is somewhere north of 4%.) Last year was the busiest for IPOs since 2000, with $132 Billion of stock sold, more than double the $52 Billion in 2003. (Let’s see, 4% times $132 Billion...oh, you do the math.) The increase was buoyed by a second year of rising equity prices, as the Morgan Stanley Capital International World Index, a benchmark for global stock markets, gained 13%. Just in the United States, $44.6 Billion of IPOs were sold last year, more than three times the amount sold in 2003. Nice work if you can get it.


Bloomberg News reports that Wall Street analysts suffered the biggest pay cuts in securities industry history during 2004 after U.S. Regulators barred them from issuing research that was slanted to help win investment-banking assignments. (Gee, what a shame.) Average annual pay for a senior analyst last year dropped about 50% from $1.5 Million in 1999. Combined research budgets at the seven largest U.S. securities firms fell 40% to $1.5 Billion in 2003 from 2000, as companies fired analysts and cut their compensation. Since a settlement in which two large firms agreed to pay $1.4 Billion in penalties after being accused of using biased research to gain lucrative underwriting and merger assignments, analysts have been transformed from a revenue source into an unsustainable cost. (Remember that Citigroup’s Jack Grubman testified to Congress that he made over $20 Million a year!)


As ranked by job growth, wages and high-tech production, the following cities were the best-performing metropolitan areas in 2004:

1. Fort Myers-Cape Coral, FL

2. Las Vegas, NV

3. Phoenix-Mesa, AZ

4. West Palm Beach-Boca Raton, FL

5. Daytona Beach, FL

6. Sarasota-Bradenton, FL

7. Fayetteville, AR

8. Riverside, CA

9. Fort Lauderdale, FL

10. Monmouth, NJ

Five out of ten -- not bad.



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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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