A look ahead to the 2005 economy

By Marshall Loeb, CBS.MarketWatch.com
Last Update: 5:00 AM ET Dec. 25, 2004

NEW YORK (CBS.MW) -- If you're looking for a formula for your asset allocation as the new year begins, you probably could do worse than follow the advice of Standard & Poor's Investment Policy Committee.

For a typical balanced investor, it recommends an asset allocation of 45 percent in U.S. equities, 15 percent in foreign stocks, 25 percent short-term bonds and 15 percent cash. Previously, S&P had a somewhat more defensive allocation.

Naturally, if you're younger, more confident about the future and willing to take some chances, you would put relatively more of your assets into stocks. If you're older and more conservative, you would invest relatively more in bonds and cash.

This allocation reflects S&P's forecast for the economy and for the markets in general. It tends to be close to the standard forecast of investment professionals.

The S&P forecast is that real GDP will advance in 2005 by a healthy 3.6 percent, on top of the quite strong 4.4 percent rise in 2004. That would make 2005 a good year, though not a great one.

This forecast also calls for the Consumer Price Index to rise by a noninflationary 2.3 percent. Meanwhile, the yield on the 10-year Treasury note would go up from 4.2 percent to 5 percent, the dollar would continue sliding and oil prices would slip from $45 a barrel now to $39 at next year's end.

Global economic growth rates are projected by S&P to rise 1.8 percent in Japan and 1.9 percent in Europe, 6.2 percent in non-Japan Asia, including a 7 percent advance in China.

A number of astute financial professionals generally agree with this prognosis, or at least major parts of it.

Joe Williams, senior vice president and director of equities of Commerce Trust Co. in Kansas City, is one of those who has a slightly more bullish attitude toward stocks, though he expects the economy's growth to slow to 2.5 to 3 percent.

He notes that the consensus is that 10-year interest rates will go up. "But we've been surprised before," he says. Williams believes that those 10-year rates may remain stable.

"And it may be," says Williams, "that profits will be better than the 6 to 10 percent now forecast. They may come in closer to 10 to 16 percent." Falling oil prices and the reduction of labor costs due to outsourcing may help lift profits.

In any event, he believes that there may be a change in the leadership of the stock market. For the last three or four years, small-cap stocks have performed best, midcap stocks have been somewhere in the middle and large-cap stocks have underperformed. But now, he reckons, large-cap stocks may do remarkably well. That's because their price/earnings ratios, at 18 or 19 times earnings, are roughly equivalent to the p/e ratios of small- and midcap stocks. It is one of those rare times, say Williams, that large-cap stocks are relative bargains.

Meanwhile, Robert Hormats, vice chairman of Goldman Sachs (International), sees a fairly healthy growth rate in most parts of the world. It will be strong enough to enable the Federal Reserve Board to continue to raise interest rates. It will also contribute to modestly higher inflation.

"That means," says Hormats, "that equities are likely to do reasonably well, and bonds are likely to be under pressure in the earlier and middle part of next year."

Hormats admits that there are many risks to this forecast.

One wild card is the dollar. If the dollar declines precipitously, it would push up U.S. inflation and have a very negative effect on the bond market.

Another wild card is oil prices. The odds are that they will stabilize, but there's always the risk that they won't. An actual disruption in oil supplies could be very harmful to the economy.

Hormats believes that "there's a long-term structural bull market in oil, given that there has been an underinvestment in the infrastructure of the industry relative to the [strong] demand we're seeing now."

If he is right, then oil prices are destined to go up, if not next year then sometime in the future.

Email dynamics

Email is fast becoming an important and possibly the only universal advertisement portal except the search engine. and considering that my dad still finds using google too unweildy i think email is the only way to get him to buy a play station for example. And the readers of forbes.com being in the spedning segment the following survey clearly shows yahoo's 57% market share of it:

http://www.forbes.com/technology/2004/12/21/cx_js_1221polldujour.html

and hotmail is lost immense ground and is a distant third.

2004: China's coming out party

2004: China's coming out party
Analysis
Mary Hennock
BBC News business reporter

For years, specialist China-watchers have been predicting that the wider world would one day wake up to the country's global economic influence and superpower potential.

2004 was the year when it happened.

The world focused on China's new-found economic strength as never before.

Its thirst for oil, outpouring of cheap exports and status as the world's most energetic economy - with growth topping 9% - all grabbed attention.

China has moved into the mainstream this year, no longer seen as a remote place, but the next big thing.

A sub-titled Mandarin movie - Zhang Yimou's 'Hero' - grossed $49m (£25m) at US box offices in its opening month. And Shanghai hosted its first Grand Prix on a circuit that stunned even the glamorous world of Formula One.

Meanwhile Britain's Silverstone nearly dropped quietly out of F1, too strapped for cash to stay a contender. Events like these confirmed China's arrival on the contemporary cultural stage.

Information industry

One growth industry springing up as a result of China's rip-roaring economy is China forecasting. Economists are churning out China research as never before. Demand is overwhelming.


These days I feel I have to read the business news, and then I turn and read the Chinese business news
Justin Urquhart Stewart, Seven Investment Management

"Everywhere we went, we found that our customers had questions about China," says Carl Weinberg, chief economist at High Frequency Economics in New York.

"Some even suggested that we drop Australia from our research and substitute China."

As a result, Mr Weinberg, who has never been to China, launched into a year of hard study, and began issuing a weekly research bulletin in 2004.

"Bond traders, banks, fund-managers - all sides of the financial community are interested," he says.

His experience is not an isolated one. Justin Urquhart Stewart is a director of Seven Investment Management, a London-based firm advising wealthy private clients.

"These days I feel I have to read the business news, and then I turn and read the Chinese business news," he says.

"I would say almost every discussion I have with a client includes some discussion of China," agrees Bob Parker, vice-chairman of Credit Suisse Asset Management. CAM operates a clutch of China-related investment funds.

Exports and oil

When and how did China move from marginal to mainstream in conversations on Wall Street and in the City of London?

The US presidential election campaign got the ball rolling, as the Bush Administration launched a high-profile assault on China's fixed exchange rate, accusing Chinese factories of undercutting US manufacturing jobs.

Meetings of the IMF and G7 in late 2003 endorsed US complaints.

But perhaps the biggest contributor to pumping up China's profile has been the rising price of oil.

Crude oil prices repeatedly broke records, ending 2004 about 35% higher.

China's appetite for oil raised its imports by more than 100 million tonnes - 34% - over 2003 levels. Other factors pushed up crude prices too - instability in Iraq, hurricanes in the Caribbean and politics in Russia all played a part.

But rising oil prices struck home with Western consumers.

Prices of other raw materials also climbed, such as minerals, cement and steel.

In Mozambique, for instance, sugar farmers complained that China's demand for transport was pushing up shipping costs and hurting their exports.

There was no single moment that made China an essential topic for economists. Rather, they say awareness has snowballed over the last couple of years as China's impact keeps surfacing.

Mr Weinberg's own moment of revelation came at a conference of the North Carolina World Trade Association in 2002.

"I thought I'd find two dozen hog farmers frustrated at trying to sell pork bellies to euro land," he admits.

Instead, China's growing domination of world textile markets brought together an audience of 2000 people "all with an interest in China".

"People from the ports in Norfolk, Virginia, all the way down around the Florida panhandle...wanted to be the gateway city" for imports of Chinese textiles, he says.

Stocks Shanghai-ed

But anyone who thought the world's fastest growing economy was a good place to make a fast buck on the stock market this year was wrong.

China's financial markets have not roared ahead in tandem with its economy.

The Shanghai Composite Index dropped 12% in 2004. In a ranking of 60 stock indexes, only Thailand did worse.

Investors could have got a better return on Cairo's CASE 30, which rose 116%, or Peru's Lima General Index - up 44% - or even in Indonesia, so often viewed as an Asian giant woefully under-fulfilling its potential.

The year's solid performers were Eastern European stocks and funds, bolstered by EU enlargement. Stock markets in Prague and Budapest gained roughly 50%.

"Emerging markets have outperformed developed markets by a very large margin, but Asia has underperformed and China has underperformed," says Mr Parker.

"There's a disconnect between the hype and the reality."

Even stocks in industries stretched by China's growth did not produce gains.

Shares in the giant Baoshan Iron & Steel Co did poorly, while the Shanghai Composite's best performing stock was a liquor company, Kweichou Moutai, from the poverty-stricken Guizhou region.

China's markets have been depressed by worries about whether Beijing could engineer a soft-landing for the overheating economy, and more attractive prospects in Shanghai's property sector.

Some investment analysts argue that the smart money lies in avoiding direct investment in Chinese stocks, in favour of the commodity producers feeding China's economic juggernaut.

Others - like CAM - predict that China-linked funds will do better next year. But despite China's poor return on equity investment, plenty are watching closely, feeling they should be there.

"One feature of world capital markets is the amount of money sitting on the sidelines", says Mr Parker. Much of it, he thinks, is earmarked for China.

And that does nothing to harm the market for China research.

"The quality of research has slowly improved, which is logical because people are putting more resources in," says Mr Parker, a regular visitor to China for more than a decade.

In his view, even the disappointments of 2004 have been "a bit of a wake-up call for investors" by forcing China-watchers to be less gung-ho and more specific.

The Technological Rise Of China Was Just the Beginning

The Technological Rise Of China Was Speedy --
And Just the Beginning

--- THE WALL STREET JOURNAL
December 20, 2004; Page B1

XIAMEN, China -- At first blush, the sale of International Business Machines Corp.'s PC unit to China's biggest PC maker, Lenovo Group, this month seemed quite shocking. After all, Lenovo is a Chinese company -- majority government-owned even -- and it's gobbling up a storied asset of the bluest American blue chip.

But the deal shouldn't have come as such a surprise. Lenovo is one of a handful of Chinese companies with the size, management skills and financial strength to attempt such a coup. And the deal helps IBM in China and means it won't have to hand off its baby to a U.S. competitor.

There's good reason, though, to pay attention to the deal and what it means about China. First, China is more advanced in the use of technology than many people know. It passed Japan this year to become the second biggest consumer of PCs after the U.S. It's closing in on 100 million Internet users, placing it second in that area, though it still has only half as many users as the U.S. And 15 million Chinese subscribe to broadband DSL service. That's more than in the U.S., though many Americans get their high-speed connections from a cable company.

In cellphones, China's 250 million users far surpass those of any other country. (Official statistics claim more than 325 million subscriptions, but they overcount business travelers, who get more than one subscription to avoid high roaming fees.) What's more, those 250 million users are still only about one-fifth of China's population.

The second big reason to pay attention to China's technological rise is that it's happening faster here than it did elsewhere in Asia. The transfer of marginal businesses from the U.S. and Europe to lower-cost operators in Asia has been going on for more than a generation, starting with Japan, then South Korea and Taiwan. China's government, companies, partners and investors learned lessons from the country's neighbors. They're also all moving faster because the tools of the trade -- manufacturing equipment, logistics systems and the like -- are all better than ever.

Even the everyday use of e-mail and videoconferencing sets the Chinese apart. Earlier this year, after a rocky first three months together, product managers at Huawei-3Com Co., a data-network-equipment joint venture of China's Huawei Technologies and the U.S.'s 3Com, developed a routine of e-mail, conference calls and face-to-face meetings. "By the second quarter, we adjusted our communication mechanism and we could prioritize items," says Rose Chen, president of international sales. Last week, the venture shipped its first products.

Already in China it's possible to detect regional technology centers and competition for workers, similar to the rivalry between Silicon Valley, Boston and Seattle in the U.S.

Southern China's Guangdong province, dominated by the cities of Guangzhou and Shenzhen, is the center of most TV, stereo and computer assembly. Meanwhile, the city of Suzhou, not far from Shanghai, is home to a lot of notebook PC production, notably many of the operations of Taiwan's giant contract manufacturers.

A group of telecom-equipment makers is based in Hangzhou, which is also along the central coast near Shanghai. The country's biggest homegrown chip maker, Semiconductor Manufacturing International, is farther north in Tianjin, near Beijing, in facilities originally built by Motorola. Meanwhile, both Motorola and Intel are way out in the western city of Chengdu. They're taking advantage of access to engineering universities that for years offered support to the country's military contractors, located there by the government in the belief they would be insulated from attack.

Finally, China's size means that its technological gains could have longer-lasting consequences. For instance, China passed the U.S. in unit consumption of TV sets two years ago as household penetration of TVs passed 90%, closing in on the near ubiquity of TVs in developed countries. If population trends hold, China is unlikely to be challenged as the world's largest market for TVs until the middle of the century, when India is expected to become the most populous country.

And when final figures emerge shortly, we're likely to learn that China passed the U.S. this year as the world's top PC maker, another change unlikely to be challenged for years to come.

A recent study by University of California-Irvine researchers found that most of China's recent PC-industry growth was driven by outside companies, led by the Taiwan-based contract manufacturers. But it's not just them. This year the output from Dell's China factory here in Xiamen, from which the company supplies Japan as well as China, will match production at pre-IBM Lenovo.

Still, Lenovo is China's first company to tackle the complexity of a high-profile, international deal. In the process, it plans to move its headquarters from Beijing to a suburb of New York City and take an IBMer as its CEO. More than 70% of its sales will come from outside China, while 70% of its workers will be inside China.

And the cherry on top: Lenovo's largest shareholder will continue to be an unlisted holding company controlled by the Chinese government.

India "shines" again as new coalition settles down

NEW DELHI (Reuters) - When a communist-backed government took power in India in May, the question on everybody's lips was: has India's shine dulled?

Markets tumbled after the Congress-led coalition took power and anxiety gripped investors as its communist allies called for the scrapping of a successful privatisation drive.

The government inherited a large budget deficit, but still plans to increase some spending.

Further, a poor monsoon saw growth forecasts cut.

Despite those worries, economic indicators are robust. Stock prices are rallying and foreigners remain keen investors.

"The investment-led recovery that began 18-24 months ago is continuing to gain momentum, services are buoyant and the manufacturing sector will grow strongly for at least three to four years," said Prasenjit Basu, managing director, Robust Economic Analysis.

"The corporate sector has restructured and is profitable. So there is much to be happy about."

"India shining" was the re-election slogan of the Hindu nationalist-led government. It was derided after that government's unexpected defeat in May, and in view of the serious problems facing many people in the agriculture-dependent country.

But the economy seems to have found a solid footing under Prime Minister Manmohan Singh, architect of India's reform drive 14 years ago, reflected in the main Bombay stock exchange index which hit a new high last week.

A government review said on Monday prospects for the year to March remain "reasonably bright", even after the poor monsoon.

Economists see GDP growth of about 6 percent in the year ended March 2005, which is lower than pre-monsoon forecasts of 7.0-8.0 percent and below last year's 8.2 percent.

While the monsoon hurt growth, other indicators are strong. Industrial output rose 10.1 percent in October, its best since 1997, and exports are up 24 percent so far this fiscal year.

"Sentiment continues to improve toward Prime Minister Manmohan Singh's government, after an intensely volatile period," Rajeev Malik, economist with JP Morgan, said in a report.

"Barring an unexpected political shock, India's favourable economic trends in 2005 will probably continue to attract investors' attention, despite the coalition dynamics," he said.

REFORMS DRIVE

Initial concerns about communist influence on policy in the coalition seems to have been overdone.

The coalition has raised the foreign investment limit in private airlines.

Despite strong communist opposition, it also raised freight rates, which had been flat for three years, and petroleum product prices. The government aims to raise investment caps for insurance and telecoms next year.

But Singh faces challenges, particularly a huge fiscal deficit which will widen if the government goes ahead with plans to tap foreign exchange reserves to pay for infrastructure improvements and guarantee jobs for every poor rural family.

"Even this year keeping the deficit at the budgeted level is a challenge, and the challenge will mount next year given the two plans," said Sanjeet Singh, economist with ICICI Securities.

Policy makers have signalled the government plans state pension reforms, cuts to unwieldy subsidies, tax and duty restructuring, and infrastructure improvements in its 2005/2006 budget, which will be released in February.

As for investors, they remain keen on India. Foreign funds have invested almost $8 billion in Indian shares this year, a record since India was opened to foreign investment a decade ago.

Foreign direct investment was $2.38 billion between April and October, up 68 percent from a year earlier, though still less than half of what China gets in a month.

"In the last three to four years, China has been the topic of discussion in global boardrooms," said Kenneth C. Borda, chief executive officer, Asia-Pacific, at Deutsche Bank.

"Discussions now very much focus on India as well."

The biggest challange for Microsoft, Apple, Sony, Yahoo and Amazon is yet to come: Embedded Shopping

The biggest challange for Microsoft, Apple, Sony, Yahoo and Amazon is yet to come: Embedded Shopping


The battle: The media center. The price: “Embedded Shopping”.

Imagine you watch a film on your TV and after it is finished, not the usual ad with the newest upgrade in washing powder shows up, but the TV, yes the TV, will ask you for your rating of the film. You simply push 9 on your remote and that’s it.

Because your rating was high, your TV will then ask you whether you would like to buy the DVD or the CD with the sound track. You click the green button on your remote and the DVD will be send to you the next day.

This is only a simple example of things to come. Once the convergence of PC, Broadband and TV is truly on its way, there will be very few limits in how and where we will get access to and experience photo, audio, video and how we buy it.

The natural platform for this convergence to take place is the media center. As a result the media center will become the key hub in our “converged” experience.

When we come home and flip on the PC or the TV the first screen will most of the time no longer be the desktop or the last channel we’ve watched but the media center. The Dell Media Experience, a simple scaled down but solid clone of the Microsoft Media Center Edition, has in total only about 15 different setting and one of them is whether the desktop or the media center should show at start-up of the computer.

It will then ask what we want to do through a simple menu of choices. Watch a movie, play a game, listen do music, watch a TV series, surfing or use the desktop. When you choose to watch a movie, it shows all the possible sources: DVD, recorded movie from TiVo or PVR, download, stream or rent one from Netflix, or see what movies have just started or are about to start on television.

You can both browse what is available or search you hard drive, TV listings and DVD collection and your video retailer will make an offer as well. Simply click on the green button on your remote. A mouse will still work as well.

This kind of shopping is not limited to media itself. For instance, when people show a slideshow with photos of their kids, again a simple push on the green button will trigger the photo to be printed and sent. Or when James Bond has new sunglasses, they can be ordered instantly at the end of the film from Amazon or a query on eBay can be started. You can also order it during the the film because the media center can pause the TV, DVD or download for you.

Or when watching an advertisement for new washing powder, again a simple click on the green button can be enough to get it with your groceries.

The buying process will change dramatically over traditional (on-line) shopping. In the traditional model the trigger to buy something and the actual buying process are not connected. This often leads to not buying at all or buying much later from a random supplier.

In the media center driven model, the trigger to buy and the buying process are directly coupled. Also the option to buy from are limited to those offered through the media center. The buying process and options are integrated in the media experience hence the name “Embedded Shopping”. It does not need any explanation why embedded shopping is such a powerful way of selling products, media or non-media.


The battlefield and the contenders.

With embedded shopping such an attractive price to win, the media center will become a tough battlefield with a lot of complexity and players.

Key to its success is to make sure it stays a 1 or 2 button/click process. If this is not the case selling opportunities will go lost. However more importantly the convenience element will otherwise not be high enough for consumer to give up the possibility to shop around and look for alternative preferred or cheaper providers.

This requires a high level of integration between the media center and the multiple sellers/providers.

A linking mechanism between media content and potential product offerings needs to be established. The “owner” of the media center will probably handle all the billing functions. This way a user does not have to register with every partner of the “owner” or every time he or she buys an item

Currently there are lots of players in the market. Some see the full potential but some are in it just to protect their existing business and probably not even aware of the opportunity and the related battlefield ahead.

Microsoft with Windows XP Media Center Edition probably sees it as a way to justify higher prices and another reason for users of Windows to upgrade. It also helps in the fight again Apple that has a reputation in handling media well from a user point of view. Obviously Microsoft also is going to integrate with its online music business and at some time its online video business.

PC Manufactures like Dell and HP see it as a way to support sales of higher spec machines that can handle media well. It also seems that Dell doesn’t like the idea of becoming too dependent on Microsoft with regard to media centers. They probably do not realize it is more then a tool for managing and showing the media available on a PC.

Gateway is selling an interesting line of products that combine TV and PC in one devise and therefore also has developed a media center. A pity Apple hasn’t gone that route with the new iMac G5. All it needed to do was to add a TV tuner and a remote.

Apple does not really have a media center solution but might argue that its complete OS is working like a media center. A nice claim but TV is missing. I think that Apple will soon come out with some sort of media center add-on if only to enable access from a TV with remote control.

Going further, I think that at some point Apple will come with a very integrated wireless streaming concept for TV, computer, on-line video store pulled together by a media center. A sort of iPod / iTunes solution but then for video and integrated with the TV.

Talking about wireless streaming, Philips Electronics is also in this market. Realizing that in order to sell TVs and radios in the future, integration with PCs will become an important buying criteria Philips has developed its line of Streamium products. The idea is that all components can work seamlessly together with no wires and with no set-up issues. To support this they have developed a media center.

Interestingly they partnered with Yahoo to deliver streaming video content (video clips) at the tough of a button. A sign of things to come.

Just as interesting is the fact that Philips recently started selling PCs again. These PCs are also Streamium products of which Philips claim that they work seamlessly with their TVs, radios and MPs players. True or not, their intend is clear. Convergence requires simple and easy solutions.

This is a general trend that they have recognized and that is also supported by their new Sense and Simplicity campaign. Others have already played well to this trend, TiVo and Apple with iPod / iTunes.

Sony has been a laggard so far but probably will come up with something soon. This will suddenly put Apple, Sony and Philips in one ring. Of course each with their own image and following but there will be an audience that generally likes well designed, easy to use, high quality, higher priced branded products that will be looking at all three.

For hardware companies not having a successful media center solution can seriously damage the sales of both TVs and PCs of these manufacturers. They therefore might also choose to partner with companies like Microsoft and give up their change of embedded shopping just to protect their existing business.

Then there are a number of smaller players like Showshifter and Snapstream that have developed media center software including TiVo like features. There are even free solutions available like TVOON all providing more or less the same as Microsoft’s Media Center Edition and even offer integration to P2P networks and add blocking.

Companies like TiVo and Netflix obviously also want to part of this market place. TiVo is on the cutting edge of embedded business. They soon will start showing their own ads while users rewind or forward and have embedded type features to add shows to the recording list with one click. They also automatically start recording programs based on your past behavior. Add Netflix as they plan to do and you have embedded shopping for DVD rentals.

The problem for these small companies is that the technology is not that hard to copy and despite a loyal following their penetration of the total potential market is still low allowing big hitters to catch up quickly.

Big on-line retailers like Amazon and Walmart.com of Wal-Mart will want to partner with those players that have the most interesting media center audience. The media center providers can also enhance the user experience by partnering with the best on-line retailers.

Companies like Yahoo will also want to join in somehow just to keep a high share of the attention to their site.

Cable and satellite companies will also want to join the party as well as the big film studios to assure their products get first rank shelf space on the media center.

And finally maybe even Google can join in with an integrated Google Media search function.


All together in interesting group of contenders in a complex and largely unknown battlefield called media center were for some the price is the media center itself but for the big ones it is the embedded shopping that it enables.

Forbes 2000 The World's Leading Companies

2004

The Forbes 2000 is our new comprehensive ranking of the world's biggest companies, measured by a composite of sales, profits, assets and market value. The list spans 51 countries and 27 industries. Collectively, the Forbes 2000 account for a healthy chunk of global business: Aggregate sales are $19 trillion; profits, $760 billion; assets, $68 trillion; market value, $24 trillion; and worldwide employees, 64 million.

http://www.forbes.com/lists/2004/03/24/04f2000land.html

Google ripe for a fall

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BD62F9BF0%2DD012%2D4E7A%2D8E12%2DDA25FA07B282%7D


NEW YORK (CBS.MW) -- Once buying stops working, selling usually starts.

It's been less than four months, and the initial public offering of Web search engine Google has recaptured the imagination of those who have been searching for the lost Internet boom.

The $200-plus price targets some analysts have slapped on the stock has reminded many of the $400 price target Merrill Lynch had put on Amazon.com and the $1,000 target the former PaineWebber placed on Qualcomm back in the good ol' days. See Upgrades/Downgrades.

Google shares (GOOG: news, chart, profile) actually made it above $200 in intraday trading (Nov. 3 high of $201.60), but could never actually close above that mark (the high close was $196.03 on Nov. 1). While the stock has pulled back since and still trades above most analysts' price targets, there are some technical indicators that suggest investors are using the dip as an opportunity to buy the stock.

However, there are even more signs that suggest that the buying won't work in the near-term, and that an ever deeper pullback is imminent.

Google's technical storm

Google's stochastics indicator -- a two-line "mathematical" technical indicator that compares the stock's closes relative to its intraday highs and lows -- has been putting in a pattern of higher highs and lows since the stock first pulled back from the $200 level. Read more about mathematical indicators.

After bottoming out at just above 7 on Nov. 8, the slow stochastics ran up to 80 on Nov. 15, fell back to just above 14 on Nov. 22 before climbing to a high of nearly 94 on Nov. 30. See interactive java chart and change a lower indicator to "slow stochastics."

By itself, it might appear bullish since it indicates the stock has been consistently able to close near its intraday highs on up days, a behavior which usually suggests underlying strength by the bulls.

But you also have to see what the stock has actually been doing over the same time period to put the indicator's moves in perspective.

And over the same time, the stock has established a pattern of lower highs and lower lows, which together are necessary and sufficient components of a downtrend.

The stock had bottomed at $165.27 on Nov. 9 before rallying to a high of $189.80 on Nov. 12 (the stochastics reached a high of 80 a day after). It then fell back to a low of $161.31 on Nov. 21 before reaching a high of $183 on Nov. 30 (the stochastics reached 94).

The divergence between the stochastics and the actual stock price is considered bearish, because it suggests the stock is becoming "overbought" and progressively lower levels.

Buyers keep buying, but the stock isn't going up.

There is another technical indicator that is also pointing to weakness.

The relative strength index (RSI), an oscillating indicator that compares up days and down days over a specified time period, has been declining along with the stock price. It reached just over 62 on Nov. 15, but couldn't quite make it to 60 when it topped out on Nov. 30.

Also, the inability of the RSI to get above 60 is also bearish (the RSI isn't considered overbought until it rises to the 75 to 80 level). Prior to Google reaching its high, 60 had been support for the RSI while it made several probes above the 80 level.

This suggests that it has been taking a lot more energy to move to the stock higher than it has to move it lower.

On Friday, the stock closed up $1 at $180.40, but had been down as much as $1.80 at a low of $177.60 in intraday trading. While the bounce might suggest strength, the intraday slide, coupled with weak technical readings, suggests the stock has become vulnerable to a quick strike by the bears.

Finally, Friday's intraday high of $181.06 was below Thursday's high of $181.51. How much longer will bulls be willing to fight without getting anything to show for it?

'Gaps' should cushion any slide

If the stock were to begin to slide, there should be decent support at the opening in the chart between the Nov. 24 low ($172.51) and the Nov. 23 high ($170.83).

These types of upside "gaps," which serve as launching points on the way up, usually provide a cushion when revisited as anyone that sold ahead of them, and were abandoned by the stock's surprise leap higher, may be tempted to cover their open positions when given the chance to escape mostly unscathed.

There should be even stronger support at the gap between the Oct. 22 low ($164.08) and the Oct. 21 high ($150.13). This was the "gap" that changed the stock from one moving steadily higher to one that charged aggressively towards the $200 mark.

Given the recent pattern of lower lows, however, the support at the latter gap is the better bet to become the target for bears.

It would take a close above $183 -- that would break the pattern of lower highs -- as well as a rise in the RSI above 60, to neutralize the short-term outlook.

IBM Makes a Power Play -- A new strategy in a mature market

http://story.news.yahoo.com/news?tmpl=story&cid=75&ncid=738&e=11&u=/nf/20041202/tc_nf/28777

IBM Makes a Power Play'

IBM (NYSE: IBM - news) has established a new global organization to push the company's Power processor platform, with an emphasis on establishing a foothold in the potentially lucrative Chinese I.T. market.

Power.org comprises 15 companies that will focus on chips and systems based on Big Blue's Power Architecture technology. They include Cadence Design Systems, Chartered Semiconductor Manufacturing, Culturecom, Novell (Nasdaq: NOVL - news), Red Hat (Nasdaq: RHAT - news) and Sony (NYSE: SNE - news) -- along with a selection of Chinese chip makers.

Collaboration is Key

Power chips are earmarked for products ranging from video game systems and telematics to supercomputers. Power.org's efforts are aimed primarily at speeding the development and introduction of such hardware by combining the technological expertise of the partners.

"This is IBM's next logical step in opening up the Power architecture," Illuminata analyst Gordan Haff told NewsFactor. "Letting developers and partners see the architectural steps is one thing, but to really follow the open source software model, you have to set up an organization and governance model to allow collaborative development."

Open Standards Critical

Mike McGinnis, IBM's program director for PowerPC licensing, told NewsFactor that open standards are critical to the Power strategy because customers want to refocus investment on the differentiators of their products.

"Proprietary standards for electronics and systems can be expensive for the manufacturers," he said. "They limit the community of innovation suppliers, reusability of features across broad product applications, and the ability to create and maintain differentiating features."

Among the applications being examined by Power.org for the new chips are code blocks to speed 3D video, MPEG decoders, and decoding of MP3 digital music files.

"Community innovation could address these types of features and allow for sharing and reuse across companies designing with Power technologies," McGinnis said.

Many Applications

Haff pointed out that Power technology has a broad array of applications, such as the high-performance POWER5 chip and the PowerPC chip found in low-end servers like IBM blades, and the Apple (Nasdaq: AAPL - news) Xserve and Mac computers, as well as game consoles.

"IBM has had success in working with partners who can adapt the core Power technology to their particular needs. For these types of applications, you need solid basic technology, but how you work with OEM partners is just as important," said Haff.

Eyeing China

To that end, IBM is emphasizing greater cooperation with vendors in China. Shanghai Belling, the country's largest semiconductor company, will license Power technology, while Culturecom has introduced a kiosk-like tax organizer system now being tested in several Chinese villages.

Sony's inclusion in Power.org is logical given that the Japanese electronics giant helped develop the next-generation Power-based Cell chip, with IBM and Toshiba designed for digital media applications, including the forthcoming PlayStation 3, as well as high-definition TVs.

Products based on Cell are expected to begin appearing on shelves early next year.

"How to Get Hired" for MBA grads

We asked recruiters what M.B.A. graduates are doing wrong. Ignore their advice at your peril.

By RONALD ALSOP
Staff Reporter of THE WALL STREET JOURNAL
September 22, 2004; Page R8

What do recruiters really want?

More M.B.A.s who can compose a cohesive memo or letter would make investment banker Darren Whissen of Ladera Ranch, Calif., happy. "I have found that many seemingly qualified candidates are unable to write even the simplest of arguments," says Mr. Whissen, who is director of research at Waveland LLC. "No matter how strong one's financial model is, if one cannot write a logical, compelling story, then investors are going to look elsewhere. And in my business, that means death."

Like Mr. Whissen, many recruiters fret about the inferior "soft skills" of so many M.B.A. students, in particular abysmal writing and public speaking. In this year's Wall Street Journal/Harris Interactive business-school survey, we asked recruiters to tell us how M.B.A. graduates could improve their odds of being hired. Not surprisingly, the recruiters had plenty to say. Many passionately sounded off in the survey and in follow-up interviews about the shortcomings they find all too often in M.B.A. grads.

Besides students who can't write or speak clearly, recruiters' pet peeves include graduates who can't relate to lower-level employees, interviewees who are clueless about the company they are interviewing with, and job candidates short on specialized knowledge and experience. In short, recruiters want more polish, more focus and less attitude.

Far to Go

Given the buyer's market for M.B.A. talent, business schools and students would be well advised to listen up. Every recruiter has his or her own M.B.A. wish list, and students who can satisfy those desires are the ones most likely to succeed in this still challenging job market.

Mr. Whissen's comments suggest there is a lot of work to be done. As part of the interview process for M.B.A. students, he provides an executive summary of a fictitious company and asks them to write about 500 words recommending whether or not to invest in the business. At worst, he receives "sub-seventh-grade-level" responses replete with spelling and grammar errors. "More often than not," he says, "I find M.B.A. writing samples have a casual tone suitable for e-mails between friends but lacking the professionalism necessary to communicate with sophisticated investors."

Elizabeth Vandeveer, vice president for strategy delivery at BOC Gases, a supplier of specialty gases based in Murray Hill, N.J., finds herself interviewing more students of late for whom English isn't their native language. "It is harder for these students to excel in written communication without additional coaching and training," she says. "We would like to see this happen at the b-school rather than on the job."

Some schools are taking communication skills more seriously. The Kenan-Flagler Business School at the University of North Carolina is so committed to turning out more literate, polished graduates that this fall it will split its M.B.A. class into groups of just 10 students. That way they can receive more individual attention in the school's required management communication class. Professors had found that students didn't master written and oral skills well enough in groups of 30 to 60.

But some school administrators concede that they find it hard to convince M.B.A.s that it's as important to write clearly as to crunch numbers well. Seth Christensen, manager of strategic planning and financial analysis at Palco, a forest-products company in Scotia, Calif., says he is sympathetic to the schools because only now does he appreciate the training in communication and teamwork he received as an M.B.A. student at the University of Oregon.

Mr. Christensen remembers many of his fellow students grumbling about role-playing exercises at a teamwork seminar when they would rather have been figuring out how to value the multibillion-dollar merger they had to present to their finance class. He says he'll never forget the time his finance professor marked down his team's first case study because even though the technical answer was correct, the tone of the paper was so arrogant that the chances were nil that a real management team would ever implement the recommendations.

"You can't just know the right answer," Mr. Christensen says. "You also must have the tool set to persuade those who do not have your same perspective or level of education."

Getting Along

The kind of arrogance Mr. Christensen's team was penalized for is M.B.A. graduates' biggest sin by far in the eyes of recruiters -- not just in communication but also in personal interactions. "Gentler and kinder" and "more humility" have become the recruiters' annual refrain in the Journal survey. Some of the most prestigious schools clearly suffer in the ranking because their elitism rubs off on some of their students.

"I suggest that they learn what they can in business school and then check their egos at the door when they start work," says Elizabeth Bock, an information-technology manager at Hartford Financial Services Group Inc., in Connecticut. "While some M.B.A.s have expectations that their careers will skyrocket, the reality is that it takes time to build a knowledge base, garner experience and earn a reputation."

Beyond being personally offended by snobbish behavior, recruiters say students who can't relate well to other employees are a liability to their businesses. John Krotzer, a marketing manager for Colfax Corp., a Richmond, Va., maker of industrial pumps and power-transmission products, complains that many M.B.A.s can't interact effectively with lower-level manufacturing employees.

"I have seen too often," Mr. Krotzer says, "graduates coming out on the shop floor and talking down to blue-collar employees, getting upset because they don't stay late to finish things important to the M.B.A., and getting frustrated in general that the priorities of the shop-floor employee are quite different than those of the M.B.A."

He believes business schools need to help students learn to appreciate and work well with blue-collar and clerical employees, just as they already emphasize the importance of interacting with people of different races and nationalities. He finds that schools like Northwestern University and Dartmouth College produce more open-minded graduates because of their collegial cultures and teamwork focus.

"An M.B.A. doesn't need to become a beer drinker, Nascar fan or deer hunter to interact on the shop floor," Mr. Krotzer says, "but he or she needs to appreciate the different things that drive lower-level employees, and work within those differences. The fact is that factory-shop workers and back-office administrative staff play an incredibly important role in the success of the business and are smarter than they may appear."

Focus on Ethics

Closely related to empathy and respect for others is integrity. And in the wake of so many corporate scandals, recruiters are looking more closely at M.B.A. graduates' personal values. Among the 20 attributes in the Wall Street Journal survey, ethics and integrity rank third on the priority list -- behind only communication and interpersonal skills and the ability to work well in teams -- with 85% of respondents saying they are "very important" today.

Although many M.B.A. programs have been focusing more on business ethics, some recruiters believe schools still aren't emphasizing integrity enough and aren't taking enough responsibility for having turned out so many "win-at-any-cost" graduates. They wonder whether schools are scrutinizing applicants thoroughly enough and acting often enough to publicly condemn alumni involved in high-profile cases of business fraud.

"Ethics has been, until all too recently, left out of the b-school curricula, and the pendulum needs to swing back -- and swing hard," says Kathleen Minette, vice president, human resources, at Pearson Educational Measurement, an Iowa City, Iowa, processor of student assessment tests and college entrance exams.

On a more practical level, while many M.B.A. students aspire to be generalists, with their eyes on the top layer of executive positions, they are increasingly out of step with what recruiters are seeking for entry-level management jobs. What companies really crave are specialists who can get down to work on day one with little on-the-job training.

"Today's business world is becoming more and more complex and specialized," says Yin Luo, director of quantitative equity strategy at CIBC World Markets, an investment-banking firm in Toronto. "If a b-school wants to be a leader in the next decade, it will have to redesign its curriculum and make it more career-oriented by incorporating a lot more specialized courses."

For example, he says, students interested in derivatives trading or quantitative research need more courses in computational finance, and those hoping to specialize in consulting or private equity for the health-care industry should be taking more classes and getting more practical experience in the health fields.

Some schools, including the University of Michigan, Carnegie Mellon University and Northwestern, are listening to such recruiters and permitting greater specialization earlier in the M.B.A. program. Indiana University's Kelley School of Business, for example, has condensed its core curriculum into one semester and requires students to enroll in one of its "academies" to specialize in accounting, marketing, sports and entertainment, or another major. About three-quarters of Indiana's M.B.A. students are career switchers, from high-school teachers going into corporate finance, to marketing managers aiming to be investment bankers. They face a long learning curve, so the school requires immersion in an academic area through coursework, alumni networking, guest speakers and field trips to places like Wall Street.

Interview Faults

Recruiters can clearly afford to be choosy these days about students' soft skills and specialized knowledge. They also have little patience for M.B.A.s who are shopping for the highest salary regardless of whether they and the company make for a good match. Such students cause a recruiter to question not only whether they are a good fit for the company, but also whether they possess sound decision-making skills.

"Students sometimes get caught up in the interview game and try to win the interview by becoming what they think the recruiter wants them to be," says Stephanie Souchak May, a product manager at Hewlett-Packard Co., the Palo Alto, Calif., computer maker. "I have interviewed a few students who were very skilled, aggressive candidates, but I felt they would not fit in well with the culture at H-P and that they'd be better off at a company that offers a more competitive environment where individual results are valued over the results of the team."

Even worse are the students who show up for interviews with scant knowledge of the company. They spoil their chances for a job offer and give their schools a black eye, as well.

Ken Bayne, assistant treasurer at Guidant Corp., an Indianapolis-based maker of medical devices for heart-disease patients, tells this "war story" from his recruiting trips to the Sloan School of Management at the Massachusetts Institute of Technology: During one visit, he grew increasingly frustrated as the majority of his morning interviewees seemed to be just using their Guidant interviews to practice for consulting and investment-banking interviews later in the day. (Both McKinsey & Co. and Goldman Sachs Group Inc. recruiters also happened to be at Sloan the same day.)

So during lunch, Mr. Bayne assembled a short list of questions about Guidant that students couldn't bluff their way through, but that could be answered by anyone who had browsed the corporate Web page for as little as five minutes. When he asked his afternoon interviewees the questions, followed by the query "So why do you want to work for Guidant?" he received a lot of "deer in the headlights" looks.

"We didn't invite anyone back for second-round interviews," Mr. Bayne says, "but hopefully we made an impression about the importance of taking interviews seriously."

Letting the Flaws Show

Recruiters also are dissatisfied with the responses they get when they tell students to describe how they have coped with ambiguity, adversity and conflict.

Chris Aisenbrey, director of university relations for Whirlpool Corp., the Benton Harbor, Mich., maker of home appliances, often asks students how they handled a messy conflict, and finds that they invariably relate an anecdote with a happy ending. But his recruiter's antenna goes up when he hears how the problems were easily resolved and the team members remain friends to this day. The stories simply don't ring true.

Mr. Aisenbrey urges students to be more honest about how they dealt with trials in their lives, and business schools to highlight examples of business executives who continued to prosper in their companies even after things didn't go well. "M.B.A.s should be more willing to show flaws," he says. "When students are asked about difficult situations, things always turn out great, or how they wanted them to turn out. That cannot always be the case and certainly isn't in real life."
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RANKING THE ATTRIBUTES
Recruiters in The Wall Street Journal/Harris Interactive survey rated each business school on these student and school attributes. Here is the percentage of recruiters who said each attribute is "very important."

89% Communication and interpersonal skills
87 Ability to work well within a team
85 Personal ethics and integrity
84 Analytical and problem-solving skills
74 Success with past hires
73 Leadership potential
72 Fit with the corporate culture
68 Strategic thinking
64 Likelihood of recruiting "stars"
54 Well-rounded
50 Willingness of the school's students to relocate
45 Student "chemistry"
36 Students' years of work experience
34 Content of the core curriculum
33 Overall value for the money invested in the recruiting effort
31 School "chemistry"
25 Faculty expertise
23 Career-services office
21 Awareness of corporate-citizenship issues
19 Students' international knowledge and experience