International -- Readers Report
Household Wealth Isn't What It Used to Be
So everybody is moving money out of stocks ("Cash is king these days," European Business, Aug. 5-12). But how can they be? For every seller, there must be a buyer, so the net flow is zero. Nevertheless, the article is directionally right. In recent weeks, more people wanted to sell stocks than buy them, so prices fell. And there is less wealth now held in stocks because valuations have changed. Overall, U.S. households have seen their wealth (net of debt) fall from a peak of 6 times income in 2000 to about 4.8 times today. When wealth was last at this level, 10 years ago, the household savings rate was 8%, vs. only 3% now. Unless the stock market bounces back smartly, we should expect households to boost their savings in coming years, slowing the economic recovery.
John Calverley
Chief Economist
American Express Bank
London
Accounting for Telecom Stock Losses
In "Inside the telecom game" (Special Report, Aug. 5-12), the "headline" figure of $2 trillion for investors' losses in telecom shares is cited three or more times without any explanation. If that is the product of multiplying the value of all telecom industry shares at the peak by the 95% decline in share prices that you cite at the outset of the article, it is spurious. Only a small percentage of the total shareholdings in the telecom industry changed hands at the peak.
A. Edward Gottesman
London
Don't Discount U.S. Health-Care Spending
"Britain can't afford big government" (European Business, Aug. 5-12) was fair insofar as it went, but I cannot help thinking that you have missed part of the equation. You compare the current share of gross domestic product of the spending by Britain and America as 39.2% and 30%, respectively. This is true, but I seem to recall that America also spends close to 15% of GDP on health care, while Britain only spends an extra 3% on private health care. I would contend that both tax and health are nondiscretionary and need to be considered together when looking at how a country runs its economy. On this basis, America actually spends 45% of its GDP on tax plus health, while Britain only spends 42.2%. Therefore, the forecast of 45% means Britain will just reach the levels of spending in America.
John Kitchen
Barton Seagrave, Britain
Amazon: Pro Forma Numbers Are a Help, Not a Hindrance
As the largest outside shareholder of Amazon.com Inc., we have the most to lose from reporting practices that undermine the company's credibility. Your story, "Amazon is all grown up, except for its accounting" (Information Technology, Aug. 5-12) implies there is some issue with its accounting. There is not. Timothy J. Mullaney calls for Amazon to drop pro forma disclosures, but this would be a mistake. The aim is to supplement, not replace, reports required by generally accepted accounting principles (GAAP).
Like every other company, Amazon.com reports its results under GAAP. It provides additional disclosures that it believes will help investors to understand the reality that the accounting conventions are trying to capture. It was the first to provide a full reconciliation of pro forma results with GAAP, just as it was the first technology-driven company to announce it would expense stock options--both in keeping with best practices.
Investors are free to ignore the disclosures if they so choose. We think more disclosure, not less, is better. There is nothing about the use of pro forma numbers that by itself does or should damage credibility. Perhaps the first company to make extensive pro forma disclosures was Warren Buffett's Berkshire Hathaway Inc. No credibility problem there!
We think Amazon.com, a leader in online retailing, is establishing itself as a leader in honest reporting and responsiveness to shareholders. Perhaps that's why its stock is up 25% this year, while the Nasdaq is down 35%.
Bill Miller, CEO
Legg Mason Funds Management Inc.
Baltimore
China Makes Progress against Counterfeiting
"Clear sailing for pirates" (Asian News, July 8) quoted me as saying Chinese regulatory bodies are reluctant to pass counterfeiting cases to police because they lose money, and then offered the "translation" that the bureaucrats would not be able to extract bribes from counterfeiters. I don't recall making the statement as quoted. If I had, the reference would have been to losing revenue from levying administrative fines, not to corruption.
The Quality Brands Protection Committee is greatly encouraged by the strong determination of the Chinese government to eradicate counterfeiting and its recent efforts in revising related laws and regulations. We all agree there is much to be done. QBPC intends to work closely with the Chinese government, state and local, to ensure our common goals are reached.
John Yam, Chairman
Quality Brands Protection Committee
Hong Kong
Microsoft: What's in a Name?
In "The best global brands" (Special Report, Aug. 5-12) Interbrand Corp.'s methodology seems to have underestimated the value of certain intangibles. As a certified public accountant, I was taught that value is what a willing buyer would pay a willing seller. PepsiCo Inc. would undoubtedly buy the Coke brand name for $70 billion if the government would let them. But how about Microsoft Corp.? They could start calling themselves Bill's Software Hut tomorrow without missing a beat. Consumers and businesses would immediately transfer their loyalty to the new name, because their true brand value is vested in their quality, innovation, and market power. How much would the name be worth then?
Daniel P. Mayer
Camarillo, Calif.
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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