Money Matters

Technical focus United States

by Richard T. MeCabe
written by Richard T. MeCabe

• The stock market’s major averages rose by 4% to 8% for the July-August

period, but the advance appears to be maturing. A fall correction

may be more severe in the technology sector than in the

market as a whole. We continue to favor accumulating issues in

the value areas of the market during an expected fall setback.

• Whether the market’s recent upswing is the start of a durable

advance from the major averages’ spring lows or merely an

interim recovery from those lows that will be followed by

renewed weakness may depend on the sector of the market to

which one is referring. In the case of the technology sector, we

continue to believe that its summer performance sequence was

an interim recovery, or B-wave, that will likely be followed by

a second phase of weakness, or C-wave decline.

• The non-technology/growth rest of the market consists primarily

of a wide array of mid-to-small cap value stocks,

although many large-cap basic-industry/capital-goods issues

could also be included. Those stocks, in general, have been out

of favor or correcting for the past two to three years, but now

appear to be stabilizing or recovering on a gradual or national

basis. The improvement in that wide array of stocks has

lifted the NYSE’s 25-week advance-decline ratio to its highest

level (1.27) since April 1998 and raised the percentage of NYSE

common stocks trading above their 200-day moving averages

to 63%, also the highest level since early 1998. Akey difference

between now and then: In 1998, those figures were

declining from higher preceding levels; now they are rising from

lower levels and showing improving momentum. Although a

market reaction during the next couple of months would certainly

have some effect on those stocks, it would be part of a

major uptrend rather than a reversal of it.

• Meanwhile, the recent catch-up in the previously laggard technology

sector may be the latest indication that the market’s

spring-summer recovery trend is in a mature stage. Moreover, if

that were to be followed by signs of a faltering in the recent leaders

(financial, energy, utility stocks), it would increase the evidence

that a fall pullback or corrective phase was unfolding.

• Against that background, we continue to recommend that trading

accounts raise cash reserves in coming weeks and that

longer-term investors buy on a price scale-down basis.

0 comments
0 FacebookTwitterPinterestEmail
Executive Living

Cool karate

by Natacha Tohme
written by Natacha Tohme

A t the outset karate was a martial art – that is,

-unarmed techniques of self-defense aimed at

killing in combat. It originated on the island of Okinawa,

where the techniques were kept secret until 1922, when

Master Gichin Funakoshi, the founder of modern-day

karate, was invited to give a demonstration in mainland Japan.

Thereafter he developed it into a sport that has amassed a huge

international following. Lebanon is no exception.

Why the enthusiasm? Karate is an exciting sport and its

techniques improve physical skills like coordination, balance

and timing. Additionally, karate embraces philosophies

that govern practitioners’ personal conduct. “Karate is a discipline

– it’s a way of life,” says Fadi Aoun, a third degree

black belt instructor.

Karate practitioners adhere to five basic principles:

seek perfection of character, be faithful,

endeavor, respect others and refrain from violent

behavior. If the last sounds contradictory, Aoun,

a lawyer by profession, explains that the ultimate

aim of karate is to be self-confident. “And whenever

you’ re in control of your mind and body,

you’ re not afraid, so you don’t need to be violent,”

he says. “Violence stems from fear.” If one must

resort to fighting, he should do so with composure.

Karate literally means emptying the hand and soul

of violence and preconceived ideas. Fighting

with a calm mind allows one to discern an opponent’s

psychological and physical moves,

enabling shrewd reactions.

Building a strong character is achieved through

discipline, concentration, self-respect and respect

for others. It is for these reasons that three years ago

Hala Zoghby wanted her

daughter to learn karate. “I

was told that it would help

her concentration span,”

says Zoghby, who started

taking lessons herself.

Today Zoghby is a first

degree black belt and a committee member of I.S.K.F. Lebanon, the local arm of the

International Shotokan Karate Federation. I.S.K.F. Lebanon

offers classes for kids,juniors and seniors. Most clubs let kids

start from as early as four, and no age limit is imposed.

The Korean kick

There are a few legends about the origins of tae kwon do, an ancient Korean martial

art. According to one, when Japan invaded Korea the conquerors severed the arms

of all Korean male newborns, so that in adulthood they couldn’t use swords against the

Japanese. As a result, the Koreans developed a martial art based entirely on kicks. Another

legend has it that the impoverished Koreans, to knock Japanese soldiers off their horses,

would leap high and strike them with powerful kicks.

Like karate, today tae kwon do is a sport, and while it now includes some hand action,

“it’s still mainly leg technique,” says Gaby Abousleiman, a fourth-degree black belt.

Abousleiman is a lawyer by profession and teaches tae kwon do on evenings at The Racquet

Club. He explains that while the differences between the various martial arts are

technique-related, their philosophies are fundamentally the same. “Discipline, concentration,

self-respect, humility, generosity … these principles are taught in all martial

arts. Tae kwon do is a way of life,” says Abousleiman.

Participants learn “forms” – or hand and leg techniques representing imaginary fights.

Sessions also include free fighting, self-defense motions as well as kicking pads and

wooden planks. The latter should break on impact.

Worldwide only 10% of practitioners get into competing at tournaments, according to

Nabil Abou Zaraa, a seventh-degree black belt and international referee. Yet he

becomes animated talking about the competition aspect and the entrance of

tae

kwon do at the Olympic Games this year.

0 comments
0 FacebookTwitterPinterestEmail
Life

The Great Outdoors

by Natacha Tohme & Marwan Naaman
written by Natacha Tohme & Marwan Naaman

Too much time spent in Beirut can leave the impression

that Lebanon, which prides itself as the

region’s greenest country, is a vast and unsightly

concrete jungle. Well, not yet, anyway. Head to either of the

country’s two nature camps, La Reserve in Mnaitra or

Sharewood Camp in Al Khalleh, and be reassured that

breathtaking landscapes still remain. The camps’ purpose is

to encourage appreciation of Lebanon’s unspoiled nature by

way of outdoor activities, such as mountain climbing, caving,

trekking, mountain biking, rappelling, archery and

horseback riding.

“Adventure travel is what we do here,” says Paul Ariss,

proprietor of La Reserve, which was established five years

ago. At an altitude of 1,400 meters, La Reserve has access

to 40 million m2 of impressive mountainous terrain. Sharewood,

which started operating last June, is at an altitude of

1,000 meters and has ample wilderness at its disposal. “We

want people to know how important nature is,” says owner

Rania Gholam.

Sports are an exciting way to explore the areas – and you

don’t have to be an athlete to participate. Excursions are categorized

according to aptitude. And activities are designed

for kids as well as adults, so sporting equipment, such as

bikes, is available in all sizes.

Entry is free, while fees are charged per activity. At La

Reserve each activity costs either $5 or $10 per person. The

one exception is horseback riding, which costs $20 an

hour. At Sharewood the price per activity ranges from $2 to

$10. AU rates include equipment, insurance and instructors.

Adventurers-cum-nature lovers usually choose to make

the most of it by partaking in a number of activities. In this

case the camps suggest package deals. La Reserve offers a

challenging two-day trail called Sports, Culture and

Nature at $55 per person, including meals and insurance.

It incorporates hiking across the Akoura heights, caving in

the Roueiss and Afqa grottos, camping and visiting the

 val1ey of Adonis and the temples of Ashtarout and Yanouh.

Guides explain the history and geography of the areas

explored. Sharewood has a two-day all-inclusive package

costing $40 for adults and $20 for kids.

Both outfits are equipped with tents for overnight stays.

They are readied with air mattresses, but participants are

asked to bring bedding, with sleeping bags recommended.

The use of tents cost $IO a night per person.

Visitors can enjoy the night sky at Sharewood ‘s observatory,

equipped with ten telescopes that offer a close-up

view of galactic wonders. There is also a STARLAB – a

mobile and inflatable planetarium for three-dimensional

astronomy presentations that is mostly used as an educational

tool for kids.

While the camps operate full swing in summer, things simmer

down in winter. Winter activities are gaining popularity,

however. Last winter La Reserve offered adventure

camping, which combines snow shoeing, rappelling, hiking,

caving and camping in igloo tents.

The two-day all-inclusive

package costs $50 per person. This winter will be

Sharewood’s first, but it’s already planning two-day survival

camps. Participants will be taught skills like map and compass

reading, starting campfires and cooking outdoors.

Adventure buffs take note – Sharewood organizes weekend

expeditions led by its X-Treme Team (not to be confused

with Mansour Mansour’s popular scuba diving club of the

same name). Activities include diving to discover archeological

sites, an event during which divers can learn underwater

photography and videography. The cost per person is

about $25 a day.

The non-athletic shouldn’t be deterred from visiting the

camps because participating in activities isn’t mandatory. The

camps offer refuge for those simply seeking to get away from

the hustle and bustle of city life. The Club House at La

Reserve offers Lebanese cuisine, with meals costing about $20

per person. On Sundays an elaborate buffet lunch is served.

The camps open daily from May to September, weekends only

in October and November. Reservations are required.

Camps for kids and incentive programs for companies are

available (see box).

Contact Lil Reserve (www.lareserve.comlb) at O l/498-774/5/6

or 03/727-484 and Sharewood Camp at 03/294-298.

By Natacha Tohme

A conquering of culinary palettes is coming from the Far East

A taste of Asia

The Asian cuisine craze that swept much of the

Western world has landed on Beirut’s Mediterranean

shores. Over the past few years, a number of

Asian restaurants have sprouted throughout the city,

promising to turn Beirut into the future culinary capital of

the Middle East.

The newest and trendiest of Beirut’s Asian restaurants is

undoubtedly Indochine. Conceived by hotshot Chinese American

designer Tony Chi, who was inspired by Vietnam’s

French colonial era, the restaurant is a visual feast of

soft ivory, pistachio and peach colors amidst a profusion of

verdant tropical plants. Princess Minh Kim, who manages

the restaurant, set her sights on Beirut after two successful

restaurant ventures in Paris and Brussels. Although

Indochine offers Vietnamese cuisine, the dishes – all based

on Princess Minh Kim’s secret recipes – are unique to the

restaurant. The most popular items include fondue of beef

with vinegar, shrimp fried on sugarcane sticks, banana flower salad and grille<!

seabass with turmeric.

Compared to other

Beirut restaurants, Indochine

is reasonably

priced. There are two

prix-fixe menus that

cost LL35,000 and

LL41,000 each, or the

slightly more costly a la

carte options. lndochine

also offers three-course

business lunches including

a glass of wine for

$25 per person.

The Blue Elephant

specializes in sophisticated

Thai cuisine.

Accessible via a wooden

staircase, and bathed in

appealing dark wood, the

restaurant is divided into

cozy alcoves best suited

for intimate conversation

or a romantic dinner for

two. Favorite dishes here

include spicy prawn

soup and a delectable

chicken curry. Make sure to save room for the Star of Siam,

a decadent blend of Thai sweets with mango, papaya and

other tropical fruit. Like Indochine, Blue Elephant offers a

three-course lunch for businesspeople that costs between $25

and $35. Dinner is a bit pricier at $35 to $45 per person. Tuesday

is Ladies’ Night, which means that each male-female couple

gets a 50% discount off their bill.

If Vietnamese and Thai are not your forte, try Jardins de

Chine. The six-year-old institution, owned and managed by

Fadi Abou Jaoude, continues to entice diners with its

exquisite Chinese cuisine. Open for dinner only, Jardins de

Chine offers mouthwatering

specials such as

beef with black pepper,

crispy chicken with yellow

bean sauce and even

dim sum (steamed or

fried dumplings). The

toffee cheese and banana

served with ice cream is a

perennial dessert

favorite. The prix-fixe

menu, which costs

LL45,000, offers eight

varied dishes and dessert.

There are also less costly

a la carte options.

0 comments
0 FacebookTwitterPinterestEmail
Advertising

Shall We Cry ‘Forward’?

by Executive Editors
written by Executive Editors

” If you cry ‘Forward!’, you must be sure to

make clear the direction in “‘Which to go,”

exclaimed Anton Chekhov. Timeless

advice, particularly appropriate for

today’s Information Age businesses.

Lebanese companies, from start-ups to

established multinationals, are beginning

to treat information as a chief asset.

Success of external communication with

clients, suppliers, and allied partners – as

well as internal communication among

managers and employees – depends on

the ability to create and use systematic

principles in organizing corporate

information.

In many cases, however, Lebanese

companies distribute information in print

or over the Internet with little regard for

whether its organization and content

make sense to target audiences. Even

worse, many corporate communications

are altogether disconnected from

business strategy.

The Emerging 21•1 Century Profession

The overriding goat of information

architecture, sometimes referred to as

information design, is to promote clarity

and human understanding. Quite

naturally, its origins have expanded from

architecture to integrated corporate

communications and marketing.

Professionals now realize that

systematically ordered information

reinforces and extends a company’s

image, vision, and goats. At the same

time, target readers readily find the

information most important to their

needs.

Examine the most basic corporate

information, your showcased corporate

mission statement. A simple, though

extreme, example of an actual case

demonstrates how one company reveals

nothing – albeit verbosely – about its

services:

“X Company provides a wide range of

fully-functional solutions to a broad

spectrum of forward -looking

organizations, to allow them to integrate

today’s dazzling opportunities with their

situational paradigms, while addressing

the needs of informed consumers

worldwide. “

This company could benefit from the

advice of Joseph Pulitzer, well quoted as

saying, “Put it before them briefly so they

will read it, clearly so they will appreciate

it, picturesquely so they will remember it

and, above all, accurately so they will be

guided by its light.”

Even so, it is not that simple. The

constant development of new

technologies enables Lebanese

companies to increasingly reach the

global market as easily as the local. The

process of designing information

architectures interrelates closely with –

and oftentimes exposes gaps in – basic

business strategy.

“Designing an information architecture –

defining what an organization is, what it

wants to communicate and to whom … is

ultimately about strategy,” writes expert

Lou Rosenfeld. Lasting competitive edge

is not found in the superficiality of

glamorous brochures or highly-animated

web sites but in content welt targeted to

users in specific contexts.

Business Strategy and

Internet (Non)Sense

The Internet is a relatively new business

context for corporate and marketing

communicators. International companies

have quickly taken advantage of the

borderless electronic marketplace to

extend business strategy in ways they

could not have foreseen. Opportunities

abound for creating innovative business

alliances, marketing and selling products

and services, and generating online

business-to-business and other

communities with attractive spending

capacities.

Fewer Lebanese companies today are

jumping on the Internet bandwagon with

the sole motivation of making an

impression. Further, the days of providing

web design agencies with disconnected

pieces of corporate information and

focusing solely on high-tech graphics and

animation are dwindling.

Through pain and considerable expense,

local companies which have paid recently

for massive redesigns of their sites have

learned a lesson of the age. A web site

can play an important role in defining a

company’s relationships with clients,

investors, and suppliers.

Justifying Your Internet Investment

In the process of redesign, companies are

forced to confront difficult questions they

likely avoided the first time:

“What is our purpose? What are our

short and long-term site goals? Who

are our audiences, and why will they

come to our site? What are our

competitors doing?”

“What categories of content must we

include in the site? And how do they

relate to functional requirements?”

“What is the best structure to

communicate these categories and

functionalities? What type(s) of

navigation systems will allow our

visitors to quickly access information

or online services?”

In asking these questions, the interactive

– symbiotic – relationship between

information architects and business

strategists emerges. Each influences the

other through .debate and healthy

feedback.

Perhaps more convincing to management

is an information architect’s long-term

savings of time and money. With properly

developed information · architecture

documents, managers can literally grasp

the foundation of their investment.

Information Architecture Workshop

Eyelearn’s Information Architecture Workshop refines the talents and capabilities of

marketing and public relations specialists, copywriters, and graphic designers

responsible for developing corporate communications.

This workshop focuses on the initial step of development or redesign of a corporate

web site: documenting the site’s strategic foundation through detailed specification

and design documents. The skills gained in this workshop can also be used to develop

offline corporate communications.

Corporate Web Site Specification Document

ESTABLISH SITE GOALS

DEFINE THE USER EXPERIENCE

• DEFINE CONTENT CATEGORIES

DEFINE FUNCTIONAL REQUIREMENTS

Corporate Web Site Document

rporate Web Design DocumenCorporate Web Design Document

SET OUT THE SITE STRUCTURE

FINALIZE SITE TEXT

GENERATE ALTERNATIVE NAVIGATION

SCHEMES

CREATE BASIC LAYOUT GRIDS

Sponsored By: EYELEARN

Abou Jaoudeh Street

200 Feghali Center

Bauchrieh, Beirut, Lebanon

Phone/ Fax: +961.1.879530

E-mail: [email protected]

Written By: The Write Choice

[email protected]

0 comments
0 FacebookTwitterPinterestEmail
Tech Knowledge

The world wide web is watching you

by Carl Gebeily
written by Carl Gebeily

Tell people that you’re going to

track their every move on a website,

store that information in files and

analyze it later, associating it with personal

data received earlier, and the response

might be, “Back off, Big Brother!”

But that is not a paranoid, Orwellian

vision of personal-data piracy. It’s simply

what happens when, as you browse the

Web, you (or your browser, without your

knowledge) accept a “cookie” – a short bit

of text that a website can store on a user’s

machine (see box: The way the cookie

crumbles). In other words, it happens every

day, millions and millions of times over.

In the West, fledgling Internet companies

take turns detailing for an eager audience

of electronic commerce executives

and venture capitalist technologies that

could more efficiently capture

information about people on line – making

their presentations without once mentioning

the infringement on privacy. For example,

online advertising companies DoubleClick

and Engage Technologies employ tracking

devices – electronic sniffer-dogs with a

particular nose for cookies – to follow Web

surfers from one site to another. By tracking

users’ movements, advertisers can personalize

advertisements to increase their efficiency.

Such events underscore the contention of

some that the main threat to privacy does not

arise from an Orwellian totalitarian state, but

rather from commercial interests. “Market

research has been transformed from almost

parochial telemarketing

models of the ’80s

and early ’90s to a

worldwide phenomenon with a

global reach,” says Najib Korban,

managing director and chief IT consultant of

Netcom Systems. “Tracking people’s surfing

and online shopping habits has, in

recent years, been equated to being

Internet-Savvy.”

The disturbing equation of advancing technology

and diminishing privacy is hardly

new. While most people consider privacy to be

a fundamental right, they willingly forego

small bits of it as a trade-off for small but

important conveniences – such as the use of

credit cards or automated teller machines.

And a growing number of people willingly

spend an increasing part of their lives connected

to the Internet, the most voracious

vacuum of personal data in history.

our privacy or anything else,” says

Korban. “It’s the people using this technology

and the policies they carry out that

create the violations.”

Others disagree. “By its very nature, technology

is intrusive,” says Georges Hindi of

Business Engineering Studies and

Technology (BEST), adding Pragmatically:

“But in this new and braver global village, all

concept of the private world has to disappear.

In the grand scheme of the Internet era, the

great benefits brought on by the electronic

revolution substantially outweighs the marginal

loss in people’s privacy.”

Jacques Hakimian of Dialog concurs.

“The true issue of privacy is not spamming,

which is harmless enough, but rather

security systems that need to be secure

beyond reproach in order to foster good

B2B and B2C transactions.”

However, much of the concern over privacy

springs from a new capability to correlate

previously anonymous information

with an individual’s email and street

addresses, which are sometimes reused or

even sold to third parties. This can simply

result in unwanted email messages or junk

mail. But more disturbing is the possible disclosure

of sensitive information.

A company with a banner ad on a Web

page might send an identifying cookie to

your browser, and it would be able to track

that browser if it

called up pages at other websites carrying

the company’s

ads. The advertiser

can, through an

agreement with a

commercial site, also

get a copy of personal

information you

gave to the shopping

site when making a

purchase and be able

to associate that

information with

your browser. Hindi

believes that the privacy policies posted on many, especially American, websites are

worthwhile and a conscious attempt to

appease the surfing community.

Korban takes a more pessimistic view:

“These policies are vague and often incomprehensible

and always subject to change.”

If you insist on perusing the policies, he

adds, watch for seals from business monitoring

groups that attest to the companies’

adherence to consumer privacy standards.

“The Internet is the only two-way media that

most people consume, and it’s very powerful.

You buy a TV, and no one knows what

you watch. You buy the newspaper, and

no one knows what section you read first.

Your computer, on the other hand, is telling

your secrets without your knowledge.”

Is it possible to browse without surveillance?

No, not completely, but it is possible

to move about the Internet in stealth mode.

“Some methods are in the hands of Web

users themselves,” says Korban, “others in

the growing number of companies that sell

privacy as part of their packages.”

In the West, there are hundreds of so-called

remailers. These intermediaries will remove

all revealing information, like your name or

email address, from your email messages

before sending them on to their destinations.

In the absence of a proper privacy

debate in Lebanon, the best information

may be gleaned from the US government’s

Electronic Privacy Information

Center (www.epic.org), which maintains a

list of reliable remailers, and if you follow

the links on its website to “privacy tools,”

it offers worthwhile

tips. There are also encryption programs

like Zero Knowledge Systems.

In addition you can

help safeguard your

own privacy. “One

of the most important

ways is to disclose

as little personal

information as

possible,” advises

Korban. “Don’t give

your identity online,

or, at the very least, minimize the sites at

which you register.”

And, one way to deal with the tell-tale

cookies is to say, “No thanks, no dessert for

me,” when a server offers your browser a cookie.

All the current versions of Web browsing software offer options in

their security preferences, or in a specific cookie-

setting panel, for automatically refusing

all cookies or for accepting them on a

case-by-case basis (see box: How to erase

your cookies).

Korban also advises consumers to maintain

separate email accounts: one for personal

messages, one for business and one for

ordering information or products. The last

is easiest to abandon if junk email messages

become intolerable.

The future promises more exotic inventions

with the potential to impinge on privacy.

In the meantime, though, there are

many steps that consumers can take to protect

themselves. Many of these measures

will prove useful to Internet shoppers even

if consumer privacy laws eventually do

become a reality. And if Internet sites were

ever to find that they were losing visitors

because of snooping cookies, the entire

business of Internet advertising might be

forced to change.

Korban argues that it is possible to stop,

or at least control, the policies that enable

abuses of the technology. Doing so

requires that we change our thinking and

laws to prevent a technologically induced

brave new world from turning into an

Orwellian nightmare.

The way the cookie crumbles

Computer scientists have used the term cookie for a long

time, but its origin is murky. According to Netscape,

cookies are a “general mechanism that server side connections

can use to both store and retrieve information on the client side

of the connection.” In English, that means cookies are small

data files written to your hard drive by some websites when you

view them in your browser. These data files – no more than

4,096 characters long but often as short as ten or 20 characters

contain information the site can use to track such

things as passwords, lists of pages visited, the date when a certain

page was last visited as well as any personal information disclosed during a website visit.

Cookies are not always bad. Benign ones make web-

sites run efficiently and help operate features like online shopping carts.

They let users avoid tediously typing in user names and passwords at sites that require them.

They are ubiquitous precisely

because they smooth the

unending stream of transactions

between Web browsers and Web servers that make up the constant

electronic chatter of the Internet.

When a user types in a Web address or clicks on a link, the Web

browser like Netscape Navigator or Internet Explorer sends a

request for the Web page to a Web server, another computer

with specialized software that receives and processes

requests for ‘{web pages, graphics, sounds and other elements.

 If no cookie is involved, each request for a document or

graphic is handled the same way each time. If a cookie is

involved, the site knows you’ve been there before and may know

your preferences. On a site that issues cookies, the software that

handles requests from browsers for pages and images can issue

a unique identifying number the first time a browser makes a

request for pages. That identifying number is sent to the

browser, which stores it as a cookie on the user’s hard drive.

The next time the user wants to go to the same site the brows-

er sends the identifying number as part of the request. That helps

the company that runs the Web server track the number of

different visitors to its site. It also means that a record can be kept

of all visits by that browser to the site. Virtually all major ecommerce

sites use cookies to send a browser a session identifier

that allows a user to drop items in a shopping basket and return

within hours or even days without losing any of those selections.

t may sound spooky, but it’s important to recognize cookies

limits. They’re not active spying programs, just plain text.

A cookie can’t suck information from a user’s machine and secretly

transmit it to a Web server.

Many discussions of cookies revolve around credit card

numbers. Because of security concerns, these are rarely

stored as cookies. A cookie might contain a credit card

number, but only if the user provided it as part of a transaction

 and the website was irresponsible enough to send it back

as a cookie. Any responsible site stores in a cookie only information,

like a name and password, that a user knows is going

into the cookie. And if a cookie is used by the website to call

up a database file with personal information, that information

stored at the website, not in the cookie.

The only information in a cookie is

what the user provides. If you

don’t give information about

yourself, a site has little or no

way to connect you, as an individual, with your surfing

expedition through its pages. This is not

entirely foolproof because a Web surfer can pick up cookies without realizing it from some advertising

companies (see box:

Look who’s watching).

Many people and

organizations in the

West, including the

Federal Trade Com-

mission, are voicing

concerns about what

websites might do

with the information

collected through cookies and are advocating

that sites adopt privacy

policies. In the mean-

time, wise surfers

should treat cookies

as they would a bar of

chocolate that’s been

left out in the midday

sun. Verify first, and eat later

An outbreak of media envy

0nline news is not the exclusive territory

of major daily newspapers anymore.

In the last year, local portals and

ISPs have been setting up websites and

getting into the online news business.

While many just sample the waters by

putting up a simple Web page with a few

local stories and a wirefeed from an international

news agency, others – such as

Cyberia – have hired extra staff members,

put display advertising online and set up

large community news operations.

Not wishing to be outdone by the new

whiz kids on the media-block, traditional

Lebanese newspapers are devising strategies

to capitalize on the booming demand for

accessing information from anywhere.

Both An-Nahar (www.annaharonline.com)

and L’Orient-Le Jour (www.lorientlejour.

com) have announced plans to consolidate

their content into Internet portals that

will blend news with entertainment listings

and other local information.

The media companies are forging ahead

despite mixed success by predecessors that

have tried to extend their print operations to

the Web. Still, industry observers say

newspapers must develop an Internet presence

or risk· losing readership to online

rivals. For their part, the newspapers tend to

agree that they need to do more online.

“We have to stop viewing ourselves as a

newspaper company and view ourselves as

an information company,” says a

spokesman for L’Orient-Le Jour.

But to be truly successful, say analysts,

newspapers will have to do much more.

For example, adding e-commerce

features and tailoring their content for

online readers will be essential. And

only then will that great divide –

between the once-a-day multicourse

meal of original material served up by

newspapers and the quickly changing

menus of original fare on the Web –

begin to narrow.

First fruits of Tuesday

It seems that everybody these days

across the Middle East wants to be a

start-up incubator. First Tuesday Beirut

(www.ftbeirut.com) was launched in

September with the stated aim of providing

“a platform for local Internet entrepreneurs

offering networking, resources and capital.”

Modeled after the UK-based First

Tuesday – so named because they meet on

the first Tuesday of every month – the

group gathers entrepreneurs and

investors under one roof to discuss business

plans and IT opportunities.

The potential partners meet like singles at

a bar: investors wear red dots; entrepreneurs

wear green dots. “We are a business

accelerator, focusing on speeding up

Internet companies on their path from idea

to full-fledged business,” says Antoine

Elhage, partner of the IT consultants,

Phoenicia Valley, which co-sponsors the

monthly event.

Fancy names aside, First Tuesday is in the

business of offering to a would-be Internet

entrepreneur one or all of the things

required to get started, from help in hiring

qualified employees or shaping a business

plan to so-called seed money – the first

investment that goes into the company.

Until earlier this year the level of entrepreneurial

activity in Lebanon ranged from

very low to non-existent. And while the

industry is not exactly shifting into overdrive

– September’s First Tuesday meet brought

little in terms of concrete deals – there have

never been quite so many would-be entrepreneurs

with bright ideas for an inventive

Web a-la-Leb. Perhaps that will help tum the

tide and have venture capital gushing rather

than dribbling into the local market.

Portal dominance

I ntenet business

models mutate

faster than a flu

virus. A case in

point: the “portal,”

a scheme whereby a

handful of mostly

money-losing enterprises

band together

to form a mega website

that combines searching, content, email, chat and

other services.

AiwaGulf.com, launched in March

2000, has reported a 120% increase in

number of unique hits from 9,000 to

20,000 a month. ”The growth opportunities

we have in the Middle East are stronger than

anywhere,” says Faisal e.1-Issa, founder and

managing director of AiwaGulf.

The company wants to battle to the top

of the Arabic-speaking Internet market,

with its stated goal to become the Yahoo!

of the Middle East. However, AiwaGulf is

still intrinsically a GCC portal and will

have to go some way to shed its khaleej

coat for a pan-Arab skin to prove that it has

the most momentum in region and can

beat off such rivals as Lebanon’s Yalla!

and California-based PlanetArabia.

Gradually, with trips and stumbles, the

Internet is coming of age in the Arab

world. And with that, the battle for

cyberspace supremacy has begun.

Beyond simply creating a hip, oriental

version of America Online, the idea

should be to make the portal site so enticing

that World Wide Web users will

make it their first stop, and so seductive

that they will not want to stray elsewhere.

Easier said than done.

0 comments
0 FacebookTwitterPinterestEmail
Technology

Dead but not buried

by Carl Gebeily
written by Carl Gebeily

I n computers, being safe can sometimes

lead to being sorry, as Oliver L. North

discovered in the Iran-contra

investigation during the Reagan

administration, when incriminating

files he thought had been deleted

were later resurrected from network

backup tapes. One of the ways investigators

can peer into the private lives of

their subjects is to peer into their computers.

What they are able to find, and the ease with

which they can find it, may prompt computer

users to re-evaluate their practices.

Word processing software, Web browsing

software and email have become integral to

communication, both professional and personal.

As a result, many people have files on

their hard disks that they wish to keep private,

like love letters, confidential business

documents or financial data.

Moreover, many have sensitive, confidential

and potentially embarrassing files in

their computers that they don’t even know

are there, either because they think the files

have been erased or are unaware that certain

common programs automatically keep a

log of what the user does.

“Recovering files that were deleted from

a computer directory is almost a trivial

process,” says Mihran Boudromian, computer

analyst with Expervision. A related

issue is the computer’s creation of sensitive

files that

the user often didn’t

know were there in the first place, according

to Boudromian. “The user’s Web

browser will create files, without the

knowledge of the user, that record all their

interactions,” he says. “Many people today

know about cookie files, but the browser

creates a history file as well that keeps a

record of the websites the user visits. And

then there’s a cache file that sometimes

keeps copies of the pictures that have been

downloaded.”

More obscure are the temporary files created

by word processors, for example, and

the so-called swap files that an operating

system creates as a way to manage computer

memory. These files often remain readable

even if the original files are erased.

Computer users in Lebanon have little

reason to believe that their computer files will

be scrutinized by law-enforcement agents,

corporate and government spies or even

special investigators.

But what about unscrupulous

co-workers? And what confidential

information resides on the hard disk of the

computer that was donated to a neighbor, or

sold to make way for an upgrade?

The rise in the number of computer thefts

and the increased sharing of computers in

the home are confronting consumers with

security issues that in the past were issues

only for big corporations, banks, the military

and government agencies. So how

does one keep confidential information

private? And when the information is no

longer needed, how does one make sure that

it is completely erased? “Both questions

involve a combination of good computer

security policies and good security software,”

advises Boudromian.

The software is the easy part. Creating and

sticking with good security habits is the

hard part. “Technology exists today to protect

individual privacy for as long as the

individual chooses to keep the information

private,” says Georges Hajj, of

Compudata. Computer users today have

access to inexpensive software tools that can

encrypt the contents of a fife, an email

message or even the entire contents of a

computer so that it can’t be read by someone

else. Other programs can shred

unwanted files so completely that no one

can recover them. But very few people use

such security tools. y

Computers are good at keeping· secrets.

Too good, in fact. The secrets can reside on

a computer, and on a computer network,

long after the user deletes them. The files are

forgotten, but not gone. Deleting a file

does not really delete the file. It merely

hides it from view so it no longer shows up

in a directory of files. “It’s like getting an

unlisted telephone number,” says

Boudromian. ‘The listing may not appear in

the phone directory, but the phone can still

ring if someone knows the right number.”

When a user deletes a file, the computer

stops listing it in the file directory and

marks the disk space as available for

reuse. Another file may eventually be

written atop the same space, obliterating

any traces of the original. But as hard

disk capacities swell into the gigabytes,

the space may not be

overwritten for a very long

time.

In that limbo period

when the deleted

file is undead,

any moderately

skilled

computer

user can

locate, restore and read the deleted file by

using such commands as “undelete” or

“unerase,” which are common features of

many software utilities.

The computer’s ability to remember

deleted files is most often a good thing,

especially when important files have been

deleted by accident. Every day, computer

technicians get frantic calls from people

who have inadvertently erased the big presentation

due the next morning, or whose

children have erased those boring ETRADE

folders to make room on the disk

for games. At times like these, being able to

resurrect the files from the dead is a lifesaver.

There are a number of utility programs

available that have an “unerase” capability,

 to be used both in emergencies and as a

precaution against accidents. An example is

Norton Utilities which, for $75, performs a

variety of password-protected security

functions. It can be set to blank the screen

and lock the computer if the user steps

away for a minute or to prevent unauthorized

users from booting the machine. But as

with most tools, “unerase” programs can be

dangerous in the wrong hands. To truly

erase a file and prevent it from being recovered,

one must write over it, or wipe it.

There are several utility programs available

that enable the user to overwrite a single

file or the entire disk, or anything in

between. Such programs typically have

apocalyptic names, such as Shredder,

Flame File and Burn. Similar disk-wiping

tools are often included in PC utility programs

and encryption programs, but others

are available for downloading without

charge from the Internet. These programs

typically hash over the designated disk

space with meaningless patterns of ones and

zeroes, instead of the meaningful patterns of

ones and zeroes that represent the original

information. That process renders the

deleted file unreadable in most cases.

The key phrase is “in most cases.” Just as

with encryption and writers of virus programs,

there are people working just as

hard to recover wiped files as there are

people working to wipe them. (These days,

spies have developed ways to reverse a

simple, one-pass wipe with ones and

zeroes and retrieve the original file.) It is

therefore, smart practice to wipe sensitive

files many times with random characters,

which, in theory, obliterates the original

file and makes it unrecoverable. Unless, of

course, the file has already been copied

onto backup tapes. In the digital world, the

original file may be shredded, while one or

more perfect copies can exist elsewhere.

An even more bulletproof way to render

files unreadable is to encrypt them.

Encryption scrambles a disk or file, including

pictures (or a telephone conversation, or

a credit card sent over the Internet), so it can

be opened and read only by the person

holding the proper key, or password. The

strength of the encryption is often measured

by the length of the key, which is in

tum measured in bits. In general, each

additional bit of key length doubles the

amount of effort needed for unauthorized

users to break the key.

Even weak encryption (with a 40-bit key

length, for example) is sufficient to deter

most casual snoops. Breaking a 56-bit key

requires computing resources that are beyond

the reach of all but the most determined code

breakers, and even then it can require days of

sustained attacks by a supercomputer just to

crack one email message. Some encryption

programs use 128-bit keys, which, according

to Jacques Hakimian, IT consultant at

Dialog, are “infinitely unbreakable, at least in

our lifetimes, even taking into consideration

the predictable advances in computing

power.” In other words, it is more secure than

the strongest physical vault ever built.

And then there is email. People type all

sorts of embarrassing, confidential or

intemperate words in email in the mistaken

belief that such messages are private. In reality,

messages sent by email are less secure

than messages scribbled on a postcard. The

way the Internet mail system works, an

email message passes through several

exchange points, or nodes, on its way to the

recipient’s computer. The system administrator

at each hand-off point can in theory

read the message, copy it, reroute it or tamper

with il. If the message originates or

terminates in a corporate computer system,

chances are high that a copy will persist

in the company’s backup tapes or disk

for days, at least.

In the end, there are only two ways to

keep information confidential in the digital

age. One is to use strong encryption.

0 comments
0 FacebookTwitterPinterestEmail
Real estate

THE GOVERNMENT’S SHARE

by Michael Dunn
written by Michael Dunn

Taxation is at the heart of an economy. It cannot be seen

just as an “add on” that scoops revenue for the government.

Worldwide experience has shown that taxation policy

can either help the economy – or harm it. We all need government

investment in infrastructure from roads to telecommunications.

But if too high, taxation can be an impediment to

the private sector, especially during a recession when companies

are experiencing liquidity problems.

By international standards, property taxes in Lebanon are

high. This harms not just the real estate market, but all those sectors

that need to rent or buy property. The purchase tax, for example,

is 6.5%, or 16% in the case of foreigners. This compares to

the UK where the rate is l % for property valued under

$350,000, rising to 3% for properties valued above $700,000. In

Kuwait, it is just 0.5%.

This means that anyone buying a property in Lebanon at $1.0

million will face an immediate tax bill of $650,000. A foreigner

will face a whopping $1.6 million, a major disincentive to

investment and the reason why so many foreign investors go to

elaborate, time-consuming lengths to establish holding companies

to minimize their tax liability.

The high purchase tax is one reason why people delay reporting

their purchases to the land registry or seek a sworn expert

(khabeer muhallaf) willing to underestimate the price paid.

This encourages malpractice within the market and contributes

to the existing lack of transparency.

The tax on rental income in Lebanon is up to 17%, lower than

the British rate, which begins at 25%. But there is more than just

one tax on rental income. The built property tax, levied by the ministry

of finance, ranges between 4%, for rentals less than $13,300

in value, and 17%, for rentals valued above $120,000.

But there is also a stamp

duty, paid- usually

by the

owner – at 0.3%

the value of the

contract when it

is registered.

There is the

municipal tax,

paid annually by

the tenant. This

varies according

to the municipality,

but is generally between 5% and LO% of the rent. In

Beirut it is currently 6.5% on residential and 8.5% on commercial

leases. For property companies, the situation is even worse.

In addition to the taxes on rental incomes, they must pay an additional

15% on any profits earned from property owned, meaning

that they are effectively being taxed twice. This is a major

impediment to the development of property companies in

Lebanon, which is unfortunate. They could be a valuable way of

attracting foreign investors who would generally be put off by the

restrictions placed on the foreign ownership of land: specifically

the 5,000m’ cap for land owned outside Beirut and the

3,000m’ cap for land owned within Beirut.

A Lebanese colleague has demonstrated to me that on a rent

transaction, the fiscal and municipal authorities may gobble up

as much as 39. 7% (or 38.2% in Beirut) of the total amount. It’s

a worst-case example, but staggering nonetheless. This does not

include other costs, such as time away from work, that may be

involved in registering the rent contract with the municipality and

the ministry of finance. This is very high for a supposedly low tax,

free-market country.

Michael Dunn is the Beirut general manager of Healey & Baker, international real estate consultants.

The large hole being dug just down

from Sassine square, Ashrafieh

reflects the size of the ambitions of ABC which

 plans a substantial shopping development

there. Phase one, to be completed

by 2002, will be an 8,000m2 ABC department

store. The 1,500 car spaces at surface

and underground levels will serve both the

ABC store and whatever retail is included

in the subsequent phases.

ABC has not yet released plans for

anchor tenants (other than themselves) or its

target prices, or whether the development

will include a supermarket. The 20,000m’

plot should: allow at least 35,000m’ of

retail floorspace.

With the project worth upwards of $40

million, the company has carried out

detailed feasibility studies during the five

years since it began investigating such a

development in Beirut. It has commissioned

as architects the British company,

Building Design Partnership, whose credits

include the world’s largest Marks &

Spencer in Manchester, England, and

NikeTown in Oxford Circus, London.

Accessibility is a key issue in any large

shopping development, says an ABC

insider: “The roads in the Sassine area

have improved dramatically, especially

with the new link past Hotel Dieu hospital

to Abraj and Hazmieh. You can also be in

Hamra or downtown in five minutes.”

With many schemes under study or at the

planning stage for large-scale retail developments

in Beirut and its surroundings,

ABC wants to stay at the forefront.

The Dbayeh store opened in the

1980s when few would risk the

investment involved in a large

department store. ABC has eight

stores in Lebanon and will soon

reopen its flagship store on Idriss

street downtown.

At 35,000m’ the Sassine mall

would not fall too far short of the

49,000m’ Agora development

scheduled to open in Furn el

Chebak next year. It would be a

sizeable step forward for ABC,

whose Dbayeh store is l 4,000m2

,

including units let to big-name

retailers like Next and Starbucks.

Real estate rising?

Good news at last. The total number of

real estate transactions recorded in

July by the Land Registry was 9,609, up

29% from 7,419 in July 1999. The number

of sales reached 3,710, up 35% from 2,747

in July 1999.

The value of the transactions, too, seems

to have risen. The yield from property

taxes for July was LL18.4 billion, 25.7% up

on July 1999, and also an increase on

LL14.5 billion in June 2000.

Economist Marwan lskandar advises

caution before rushing to celebrate the end

of recession. ”This may reflect Arab visitors

buying during the summer and the

improved expectations following the

Israeli withdrawal,” he says.

The wider record remains bleak. The first seven months of 2000 saw total

property taxes at LL 110.2 billion, a

decline of 11.8% on the LL125 billion

in the first seven months of

I 999. Figures from the Order of

Engineers show that new permits

covered 3.21 1nillion m2 in the first

eight months of 2000, down 32% on

the same period last year (the fall

was a massive 60% in Beirut).

Cement deliveries for the first eight

months of the year totaled 1.6 million

tons, down 17% from the same

period in 1999. All this means we

have to wait and see. “Much will depend on the policies of the new government,”

notes lskandar.

Good news too for Solidere with

Transmed, the Middle East agents for

Proctor & Gamble, buying a new headquarters

downtown. The company has paid

around $5 .5 million for a renovated 2,500m2

building on the east side of Foch Street at Azmi

Bey street. The previous owner was a company

owned by Abdul Hafiz Itani, the chairman

of Lebanon and Gulf Bank, and the

property has substantial ground-floor retail

that Transmed would have the option of leasing

as shops. The price of $2,200 perm’ (for

a whole building) is a little below Solidere’s

target prices, of $2,500 perm’ for office and

$5,000 for retail, which many experts have

criticized as too high. ”Things are starting to

move,” says a Solidere official.

Up for grabs

The move of the Italian embassy to the

prestigious Assicurazione Generali

building in Place de l’Etoile has left their old

building at Rome and Rbaiz streets on the

market. There is surely room for negotiation

on an asking price for the 1,000m’ two storey

property of $3 million, especially

as the suggested annual rental is $150,000.

“It could be used for either residential or

offices,” says broker Abdo Salem.

But even the rental figure -$150 perm’

per year – would put the building at the top

end of the Hamra office market, which can

go as low as $50 per m2 a year. The residential

value would be lower, especially as

the building is at a busy interchange.

0 comments
0 FacebookTwitterPinterestEmail
Real Estate

Style matters

by Gareth Smith
written by Gareth Smith

Take a stroll down Mar Antonios street in Gemmayzeh,

Ashrafieh, and you feel the flavor of old Beirut – red sandstone

buildings, trailing plants, wooden shutters and a lazy fug

hanging in the air. People live here not just in an apartment but in a

street, in a quarter, and that’s what has attracted Karim Bassil, general

manager of La Constructa, to build two new apartment blocks in

the old architectural style. “I want to create something beautiful of this

small street,” says Bassil, “and I want others to follow my example.”

Cynics might say that Bassil is another idealist about to be

trampled by brute economic reality, but he has pre-sold six of seven

apartments in one building, way ahead of handover at the end of

the year, and nine of 15 in a second, which will not be ready until

the end of 2002. With high interest rates, low liquidity and estimates

higher than 100,000 for empty apartments in Beirut, Bassil is one

developer giving people want they want at an affordable price.

The seeds of the project were planted when he and his wife were looking

for an old house to live in and renovate. “We thought about sharing

with friends,” he said, “and found many people liked the idea

because they were fed up with modem designs.” Renovating old buildings

is expensive and can produce prices beyond market demand – a

major reason why developers opt for importing standard designs

that maximize built-up area

(BUA) and offer modem facilities

like parking. Building anew

in the old style is sometimes

cheaper than renovating.

Bassil has plans for Mar

Antonios street as a whole, but

has begun with two buildings

opposite each other. The first is

seven stories and the second

eight stories. The designs, by

the architects Dagher, include

wooden shutters, small balconies

and high ceilings.

Margins are tight. The base

sale price for the first building was $1,000 perm’, rising by $50 a floor.

The second building begins at $1,075, rising by $75 a floor: a 346 m’

apartment on the fourth floor, for example, is for sale at $449,800.

Bassil paid “well over$ I ,000” per m’ for both plots of land, and estimates

the land at $500/$600 perm’ of BUA: With construction costs

at $600 perm’, sale at $1,525-$ 1,450 allows little room for error

As his own contractor, Bassil is able to keep costs down. La

Constructa, formed in 1994, are builders. Its original link with Byblos

Bank (whose chairman Francois Bassil is Karim’s father) has now

reduced to around 30% of business. Contracts include work on the

new French Embassy, St. Charles Hospital and Chateau Kefraya.

The Gemmayzeh development is partly a way of keeping La

Constructa – which had a turnover of $15 million last year –

going as a building contractor. “As a real estate operation, there’s

no real profit in our Mar Antonios street development,” Bassil says.

“As the contractor we have a l0% margin on construction for profits

and overheads. This helps me keep the construction business

going when a lot of others are struggling with no work.” A second

factor that keeps costs down is that clients pay relatively early. For

the first building, buyers paid 50% up front and the rest on completion.

For the second, the payment scheme is more flexible, and

up to 70% of costs can be through bank payment of up to 15 years.

Bassil bought the first plot only when he had firm offers for 70% of

the apartments, 50% on the second. “This means I reduce my own risk,”

he says, “but it only works if the clients trust me. And that applies to

the whole project. I’m just starting out in my career, so I can’t afford

to make mistakes or break promises.” This is a matter of personal relationship.

Bassil goes over the plans face-to-face with potential residents.

The location of Mar Antonios street – just five minutes’ walk from

downtown – tempts comparison with Solidere’s Saifi project, a second

example of new build in the old style. Solidere’s prices are

around $700 perm’ higher, a difference which, for the buyer, could

mean an extra $250,000 on a large apartment.

Solidere has rebuilt Saifi village – as a mixture of renovated old

buildings and new build in a traditional style – because of the land use

requirement of the downtown master plan, and not for strictly

commercial reasons. Before the war, Saifi was part of a wider

residential community from which it is now divided by the Ring

and Georges Haddad Street. Despite the recession, Solidere

claims to have found takers for more than half of the 136 apartments

ahead of completion. “We’re going well,” says Naaman Atallah,

real estate sales and leasing manager, “with things picking up once

again because of the possibility of a change of government.”

The Saifi project, which comprises four blocks of 16 buildings

with a maximum height of 24 meters, is undeniably an attractive

design. The facades have been designed by the architect Francois

Spoerry, best known for Port Grimaud near St. Tropez, whose style

has been called ‘gentle architecture.’ Some of the restored buildings

in Saifi have been entirely refashioned from a shell, with stunning

craftsmanship throughout. The mix at Saifi has a high number

of one-bedroom apartments-38 against 71 two-bedroom apartments,

29 three-bedroom apartments and one four-bedroom apartment.

This is presumably designed to appeal to foreign executives

or Lebanese businessmen seeking a pied a terre, which is why the

typical one bedroom is fully 165m’ and has a maid’s quarters.

Solidere’s basic sale price of $1750- rising by $50 per floor and

individual apartment attributes – has proved high for the market.

In Gemmayzeh unmodernized property is available at $500 perm’

or less, and in Sursock top-end luxury sells for around $1600 per

m’ . Hence Solidere’s emphasis on rental. At just $85 to $110 per

m’, the yearly rental is 5% of sale price, not the I 0% usual in Beirut.

These prices are designed to be competitive with comparable

areas; Solidere acknowledged dropping its rental prices last year.

A two-bedroom apartment will cost $16,389 a year ($1,365 a

month) in rent; and a three-bedroom apartment $22,410 a year ($1868

a month). To buy, a second-floor one-bedroom, 165m’ apartment costs

$305,000, a two-bedroom 217m’ apartment $401,000, and a three-bedroom

325m’ apartment $601,000. It’s no wonder, then, that the bulk

of Solidere’s success with Saifi has not been in sales. “Lease-with-option

to-buy makes up half the total [ of apartments spoken for),” says

Atallah. “Sale is 30% and straight rental 20%.”

Solidere has held its sale price presumably because it believes

buyers will eventually be found. The profit/loss figures

are notional, because Solidere is not really buying

its own land, but the target sale price suggests

a low margin. Solidere quotes the price of land in

downtown at $1050 perm’ of BUA. Construction

costs of $600 perm’ would put the cost of Saifi residential

at around $1650 perm’, just$ 100 short of

the base sale price.

The long-term prices of residential are even less

predictable than office prices. Supply will increase,

a5 42% of BCD’s total 4.6 million m’ is zoned as residential,

but if the march of standard, imported

design of new build continues, the appeal of older

designs – even if built anew – may rise.

Karim Bassil and Naaman Atallah know each

other. Each argues his own project is the better

value. Bassil’s higher level of sales in percent

seems to provide the answer. But there’s another,

more interesting question: Why is nobody else

building new in the style of the old?

0 comments
0 FacebookTwitterPinterestEmail
Money Matters

Global research

by Executive Editors
written by Executive Editors

Highlights

Economic focus

United States

• As the presidential campaign heats up, both candidates have

released broad outlines of their fiscal plans, which would

drastically reduce the federal debt during the next decade. The

question is, would either candidate blow the surplus? Probably

not. Even assuming that federal spending rises faster than

the candidates expect, their fiscal goals could still largely be

achieved because the economy will probably perform better

than they expect.

• Both Bush and Gore use the budget baseline developed by the

Congressional Budget Office (CBO) to cost out their respective

plans. On that basis, accumulated surpluses over the next

decade would total nearly $4.6 trillion, more than enough to pay

off the existing $3 .5 trillion federal debt. Roughly half of that

sum, $2.4 trillion, reflects the Social Security surplus.

• Looking at the candidates’ figures, Gore’s proposals would

pay down about $2.8 trillion of federal debt by 2010, eliminating

80% of the currently existing debt by that time. Bush’s proposals

would pay down about $1.4 trillion of debt, eliminating 40%

of the existing total, plus accumulating about $1 trillion in self

directed Social Security accounts.

• Of course, candidates are traditionally unduly optimistic

about budget effects, and both Gore and Bush have undoubtedly

underestimated the cost of their spending programs. For

example, more than half of the extra spending in both plans is for

healthcare, an area of notorious cost overruns.

• Beyond the specifics of their policy proposals, both Bush and

Gore use a CBO baseline that assumes that real discretionary

spending will be flat for the next ten years, an assumption that

we think is too optimistic. The CBO also assumes that GDP

growth will average 2.75% during the net decade; the Fed now

appears to believe that the economy’s non-inflationary growth

potential is 4% a year. We think it’s even faster.

• If growth were to average 3.5% a year-still less than the Fed’s

estimate of potential, leaving room for a recession to occur –

federal revenues would be roughly $1.5 trillion more than

assumed in the CBO baseline. That means that higher revenues

from stronger economic growth would likely offset even sizeable

cost overruns in the candidates’ spending plans. In short,

the fiscal goals of Bush and Gore may actually be achievable,

at least over the ten-year period used in their budget planning.

• In our view, the net economic stimulus of either plan would

be too small to worry the Federal Reserve very much. Indeed,

if the new President were to carry out his tax and spending plans,

fiscal policy would actually become increasingly restrictive during

the next decade because federal spending as a share of GDP

would continuously shrink. We doubt that spending would be

quite that restrictive.

Bruce Steinberg, chief economist

Global view

• It stands to reason that economic growth is the ultimate

source of profits growth. It is also logical to think that investors

will probably see stronger growth in corporate earnings and

stronger equity-market trends in countries where economic

growth potential is high rather than low.

• With that in mind, we recently conducted a study – our Global

Ranking Systems (ORS) – that ranks 35 countries by their

economic growth potential. The goal is to help investors recognize

profitable opportunities in countries that might not

look particularly attractive today.

• What method did we follow? We identified five categories of

variables that help to gauge a country’s economic growth

potential. They are capital supply (which measures savings rates

and the performances of capital markets), people (the supply

and quality of human resources), technology (scientific and technological

capacity), government policy and social structure (the

growth orientation of government policy; social cohesion) and

risks (potential sources of economic instability). Each category

has five variables; for each variable, we ranked each country

from most-favorable to least-favorable, assiging an equal

weight to all variables.

• What did we find? Sweden had the highest total score. Singapore,

Australia and the US were in a virtual tie for second

place. At the other end of the spectrum, Russia beat Indonesia

and Pakistan or last place. OECD members accounted for ten

of the top 12 spots on the list; the lowest-scoring countries represent

a di verse collection of economies in Latin America, South

Asia and Eastern Europe • Not surprisingly, we found that the technology category had

the strongest effect on a country’s ranking because it displayed

the greatest variation among the economies we examined. The

people category displayed the least variation, primarily

because high scores on some variables tended to be associated

with low scores on others (for example, countries with poorly

educated and comparatively unhealthy populations generally had

rapid labor-force growth rates and low labor costs).

• The GRS would be of no use if it did not have a strong correlation

with GDP growth and equity-price increases. Our back testing

indicates that the GRS does a good job of explaining potential

growth over time. The correlation between country total

scores and GDP growth is very strong, after controlling for initial

per-capita GDP. Looking at equity-market performance, the

situation is similar: countries with high total scores showed higher

growth in equity prices.

•Fora full discussion of this topic, see our August 30 report, GRS:

Ranking the World’s Fast-Track Economies.

Michael Hartnett, senior international economist

Matthew Higgins, international economist

Strategy fOCUS

United States

• Style often equals substance, at least when it comes to investing

in stocks. That’s one of the messages that the market has

been sending during the past few years, when investment

style decisions have been among the most important influences

on performance.

• One style that investors always seem to keep in mind is small cap

investing. Right now, the small-cap sector seems to have

reached a kind of noisy equilibrium. The unusually wide performance

gaps between opposing investment styles have recently

moved closer to their normal relationships. We tend to think that

dramatic divergences in performance are probably a thing of the

past, but in the case of small-cap issues, valuations alone are unlikely

to trigger a sustained period of outperformance. In our view, a

new bull market in small-cap shares is in a state of arrested development;

whether and when it blossoms probably depends on factors

that go beyond matters of valuation or profits.

• A look at the past may provide some insight into the future.

On a long-term basis, returns on small-cap stocks showed an

enormous acceleration from 1973 to about 1983, and they have

generally underperformed since then. What accounted for the

surge? In a nutshell, investors in the 1970s and early 1980s had

only two obvious choices: watch their savings erode, or withdraw

their savings from low-return regulated accounts and participate

in the then-prevailing inflationary trends by owning

small-cap energy and mining shares. The choice was fairly clear,

and investors quickly rotated into the few areas of the economy

that prospered from the structural inflation that was building

up at the time.

• What’s going on now? If inflation were to reappear at some

point, investors have many more alternatives than they did 25

years ago. As a result, we doubt that another period of outsized

small-cap relative returns is likely now that the menu of financial

choices is much broader than it used to be.

• With the exception of the great run-up of 1973-83, small-cap

bull markets were cyclical affairs. We think that that is the kind

of revival that will eventually develop in the sector.

• History shows that most small-cap bull markets emerge in the

aftermath of a recession or painful soft economic landing.

Recessions often create the mix of factors needed to encourage

rotation back into small-company shares, including deep-discount

relative valuations (as investors rotate first into safer large cap

companies), easier monetary policy (creating upward

pressure on multiples and confidence in an earnings revival) and

easy comparison as the profits cycle finally turns.

• Monetary policy is an especially-important element in the outlook

for small-cap stocks for the rest of 200 and 200 I, in our

view, particularly because investors appear to think that profits

are peaking. An extended decline in interest rates has usually

been a prerequisite for a period of sustained outperformance

by small-cap benchmarks. For that reason, a buoyant economy

may deal a major revival in the small-cap sector of the market.

Another consideration is this: the weakness in technology

stocks has been much more pronounced in the leading small cap

indexes than in the S&P 500, and the same holds true for

financials. Those two areas must do better before small-cap

measures can outpace the S&P 500.

• Other factors may also contribute to delays in a small-cap

revival. One is that size may indeed matter, even within the

small-cap universe: a look at the Russell 2000 shows that the

fundamentally stronger companies appear to be bigger ones in

terms of market cap. In addition, the IPO market and, more

broadly, IPOs, secondaries and shares coming out of lock-up

translate into supply; that could also be a key element in the performance

of the small-cap indexes in the months ahead. As

usual, the underwriting calendar slowed down for the September

Labor Day weekend. The pipeline for the rest of the third quarter

and the fourth appears to be fairly heavy.

• On balance, our view of the small-cap sector’s prospects is this:

a major small-cap bull market will likely be delayed into next

year, but we think that the current low valuations of many stocks

offer attractive entry points for patient investors. In the climate

that we foresee, careful stock and sector selection will probably

become the main driver of returns for small-cap portfolios.

Christine A. Callies, chief US investment strategist

Technical focus

United States”

• The stocks market’s major averages rose by 4% to 8% for the

July-August period, but the advance appears to be maturing. A

fall correction may be more severe in the technology sector than

in the technology sector than in the market as a whole. We continue

to favor accumulating issues in the value areas of the market

during an expected fall setback.

• Whether the market’s recent upswing is the start of a durable

advance from the major averages’ spring lows or merely an

interim recovery from those lows that will be followed by

renewed weakness may depend on the sector of the market to

which one is referring. In the case of the technology sector, we

continue to believe that its summer performance sequence was

an interim recovery, or “B-wave,” that will likely be followed

by a second phase of weakness, or ”C-wave” decline, in coming

months before the entire correction is complete.

• The non-technology/growth “rest of the market” consists primarily

of a wide array of mid-to-small cap value stocks,

although many large-cap basic-industry/capital-goods issues

could also be included. Those stocks, in general, have been out

of favor or correcting for the past two to three years, but now

appear to be stabilizing or recovering on a gradual or nation- al basis.

 The improvement in that wide array of stocks has lifted

the NYSE’s 25-week advance-decline ratio to its highest

level (1.27) since April 1998 and raised the percentage of NYSE

common stocks trading above their 200-day moving averages

to 63%, also the highest level since early 1998. A key difference

between now and then: in 1998, those figures were

declining from higher preceding levels; now they are rising from

lower levels and showing improving momentum. Although a

market reaction during the next couple of months would certainly

have some effect on those stocks, it would be part of an

emerging major uptrend rather than a reversal of it.

• Meanwhile, the recent catch-up in the previously laggard technology

sector may be the latest indication that the market’s

spring-summer recovery trend is in a mature stage. Moreover, if

that were to be followed by signs of a faltering in the recent leaders

(financial, energy, utility stocks), it would increase the evidence

that a fall pullback or corrective phase was unfolding.

• Against that background, we continue to recommend that trading

accounts raise cash reserves in coming weeks and that

longer-term investors buy on a price scale-down basis.

0 comments
0 FacebookTwitterPinterestEmail