News Corp: a Collection of Creative, Energetic Executives.

Q&A with Jane Friedman, the President and CEO of HarperCollins Publishers (a subsidiary of News Corporation), and Lachlan Murdoch, News Corp.’s Deputy Chief Operating Officer (aka Rupert’s son) on how gutsy decision-making keeps News Corp. one step ahead of the game.

RUPERT MURDOCH, LOUIS V. GERSTNER JR. AND JANE FRIEDMAN at an A-list reception for IBM Chairman, Louis V. Gerstner Jr., for his book WHO SAYS ELEPHANTS CAN’T DANCE? Inside IBM’s Historic Turnaround

hile all eyes are on Comcast/Disney acquisition, it was News Corp. that created the end to end game everyone wants to be in these days: creating content (books, television shows and films) for distribution on company-owned media (networks, newspapers, and satellite television), with access to high speed Internet connection.

Jane Friedman is powerful, well-respected, well-liked and effective. Last year, the New York Post named her one of New York’s 50 Most Powerful Women. Entertainment Weekly pegged her as #41 of 101 Most Powerful People in Entertainment. Since Jane joined HarperCollins, in November 1997, HarperCollins has increased profits by nearly 1,000%. Wonder how she did it? We call her visionary. Lachlan calls Jane creative and energetic. Jane, while she admits that she has a taste for trends, calls it luck.

iSophia—Dan Halpern, the editorial director of HarperCollins’ Ecco imprint, told us that HarperCollins has been so successful because you, Jane, have made people feel good about what they do, about the company and about the people who are running it. Not only that, but, since you’ve been at HarperCollins, you’ve posted some pretty impressive profitability numbers. What’s your secret?

Jane Friedman—In 1996, the company was in very poor shape. It had been through a series of managers and management, who didn’t do justice to a company that was 104 years old and had a wonderful backlist. The interim CEO, Anthea Disney, made drastic but necessary moves. We watched this from across town, saying, "She has a lot of guts." She cancelled lots of contracts. She brought in consultants. She eliminated lots of people. She did what had to be done when the company was losing money. I came into a clean house in November 1997. The entire company had to be re-established. Everyone was afraid for his or her job. It was crisis mentality.

Lachlan Murdoch--Anthea Disney did a fantastic job of making the tough decisions that had to be done. She had to cut back a large part of the list. You don’t win friends doing that sort of thing. That allowed Jane a clean sheet of paper, a good foundation to apply her magic. She’s a natural publisher and a natural marketer. We’re happy with her results.

Jane, what was your first move?

Jane-- I knew how to publish books and market books. I took the quality paperback imprint, and said, "Let’s do a Perennial Classics line." We refurbished, rejacketed and repromoted those great titles. Before we knew it, we were up 30% in that line alone. Then we had a very big piece of luck. We published the tie-in to the Titanic, which was a big Fox movie. (iSophia note: Titanic is the BIGGEST movie of all time, with global sales in excess of $1.8 billion.) I looked at this big, beautiful book, and I thought it really had potential. The person who was in charge of Harper’s supply chain said, "I want to print 40,000 copies of this book." I said, "I want to print 400,000." This person looked at me like I was crazy. The book went on to sell a million copies. It was a #1 bestseller, the only picture book movie tie-in to ever be a #1 bestseller. This publication began our turnaround.

iSophia note: The book is James Cameron's Titanic by James Cameron and Ed Marsh, a worthy addition to your coffee table collection. Go to: http://www.barnesandnoble.com to order from Barnes & Noble.

Lachlan, right out of the box, Jane chose to print almost half a million copies of the Titanic tie-in picture books BEFORE the movie came out. Did you have any idea her talents could create such dramatic milestones?

Lachlan—It was Anthea who introduced Jane to us. I was immediately impressed with her energy and creativity. In all of our businesses, for any media executive, the first criteria that we look for is a combination of those two things.

It’s hard to call that stroke of genius--ordering half a million copies of the Titanic picture book BEFORE the movie came out--luck. Jane, you called that one! It was gutsy, but it paid off. What other bold moves did you make early on?

Jane-- The kind of success that we saw with the Titanic tie-in and The Perfect Storm can only come with risk-taking. It also had to do with luck, timing, being in the right place at the right time. [When] we were about to publish The Perfect Storm, I saw it in the catalog as a quality paperback. I said, "Why are we not doing this as mass market?" Everyone said, "You can’t do non-fiction mass market." I had had no experience publishing in mass market, but I did have general publishing experience and I have very good instincts. It was a gutsy call, as it was early in my tenure here. My goal was to become the top publishing company in America. We weren’t thinking around the world yet. The company had not been thought of as a single entity – as a global company -- until I got here.

You are HarperCollins’ CEO and worldwide president. Victoria Barnsley is HarperCollins UK’s CEO. Cathy Hemming and Susan Katz head your General Books and Children’s Book divisions in the U.S. Fox TV’s President is Dana Walden. MaryAnn Johnson, who has worked for Fox Film Corp. since 1987 became the first African American woman to be given the title of music director four years ago. These are pretty high gender percentages, considering that, statistically, though women make up 49% of the work force, only 16% are in senior level positions, and only 13% sit on boards (according to the Director’s Council). Is News Corp. proactive about putting women in positions of power?

Jane—I believe in having the right person in the right job – male or female. I’m certain that Rupert Murdoch feels the same way.

Lachlan--I do have a policy that is pro-diversity, but in all the cases you raise, you have the best people for those jobs. Jane is a great executive whether she’s a woman or a man. Our policy is to really not discriminate one way or another, but to have the best executives in place.

Another thing that separates News Corp. from other media giant corporations is that News Corp. trimmed losses very early in the U.S. economic downturn, which put the company in a very good position to make the DirecTV acquisition. Clean up efforts also paved the way for Jane to lead HarperCollins’ current success.

Lachlan--We identified the downturn and pulled out our cash costs very early on. We were fairly pessimistic. [Our profitability] is a combination of discipline and of seeing upturn in DVD revenue. You’re seeing huge increases in DVD revenue, without having any big losses in any major films. And the economy continues to grow, slightly. It’s certainly growing.

Another notable News Corp. policy is that both of you promote from within the ranks, instead of wiping the slate clean when you buy a new company. For example, Daniel Halpern stayed on when HarperCollins bought the Ecco Press.

Lachlan--It’s not just one company taking over another. It’s a case of two plus two equals five. If there are great executives there, keep them. At the end of the day, these are your people. You don’t want to throw the baby out with the bathwater.

Enough about management style; back to product! Jane, you took some very risky, gutsy moves early on, especially for an established company. You chose to mass market a non-fiction title. You chose to increase the initial printing of the Titanic book by a factor of ten. Had those calls gone the other way…

Jane—Publishing is built a lot on luck. We’re the only industry that produces a huge quantity of products. Can you imagine if there were 150,000 different kinds of toothpaste every year? That’s what we do! You do have to have a very strong publishing gut and a nose that separates you from the pack. I’m a CEO who came up through publishing; most have come up through finance or sales. Although I had a lot of experience with sales and finance at Knopf and Random House, I also care about how the marketing campaigns are put together, how the jackets look, how the authors articulate. Some of the staff remained; others I brought in. I’m extremely proud of my staff. We’re profitable. We have record margins in the business. I don’t think Mr. Murdoch thought he’d have a publishing company with double-digit margins, but we’re doing it.

In 2003, you established an internal mass merchandise sales force, which increased sales by 17%. Your children’s book division had ten out of ten titles on the New York Time’s Children’s Chapter Book bestseller list on 4.13.03. Your authors are receiving high accolades. Samantha Powers won a Pulitzer for General Nonfiction AND the National Book Critics Circle Award. Respected adult authors, like Isabel Allende and Joyce Carol Oates, have been enlisted to write children’s books. How are you motivating so many divisions to perform at such an outstanding level?

Jane--I don’t really know how to answer this. I do things based on what I think. I don’t necessarily do things based on research. I’m not impulsive, but certain things just seem logical to me. For example, adult authors might be interested in writing children’s books. Or, if you look around, you see that this world likes destination shopping. Everyone is so busy all the time. If you can go to one store and buy everything, that’s great! I hope we can get the Price Clubs and other mass merchants to increase their selections of books, and not just feature the top 10. All these things seem natural to me. Sometimes it takes the world a long time to catch up to what I think is natural! Perhaps what makes HarperCollins different is that we push the envelope. We’re not afraid to take a risk, like starting a new sales force to go into a new channel. If we publish the right books for that channel, we’ll be successful. And that is what has happened.

You’re not afraid to take risks, but you also have an incredible talent for predicting hot trends.

Jane--In 1985 I created the audio books business for Random House. Prior to that, a Mom and Pop shop called Books On Tape would pay advances of $100, use stock actors and actresses and produce the books on tape. I thought, why not start our own company? It struck me that if you were in your car, maybe you just didn’t want to listen to music all the time. I liked the tradition of reading aloud. So, Random House Audio Publishing was born. Audio Publishing is now a multi-billion dollar business. We’re now going into the downloadable audio business. That’s the next arena.

How do you "smell" these trends?

Jane--I’m a very curious person. My partner is a very curious guy who is very in touch with pop culture. We have four sons. They also bring into my life this kind of curiosity. I’m fortunate because in publishing a lot of my curiosity can be satisfied. I know a little something about everything.

Let’s talk about some of the misses, most notably Harry Potter. Dan Halpern said that J.K. Rowling was turned down by everyone. The Harry Potter book was too long. It was too complicated. It was too violent. Yet this was a book that OUTSOLD MOVIES on a weekend, which had never been done before. What do you tell your staff to look for? How do you identify the Harry Potters from the millions of submissions you get each year?

Jane-- You can’t predict trends. If you look for the next Harry Potter, you’ll never find it. There will be lots of imitations. Probably none will work. Something happens in the culture that makes a book sell like that. We have a book called The Purpose-Driven Life. We have sold more than 12 million copies to date, and that doesn’t include the Spanish edition or ancillary products. This is a 40-day program to better your life. It is a Christian book, but it has been a #1 bestseller on the New York Times Advice Bestseller List for many, many weeks. This year, it could sell more than has been sold to date. Sam’s Club has sold over a million copies. We’re embarking on a huge marketing campaign this spring. This is a phenomenon. The only thing I can compare The Purpose Driven Life to is Stephen Covey’s Seven Habits of Highly Effective People. That was a crossover from the Christian to the secular market as well.

So what are you looking for?

Jane--What I like better are books that make you think. Right now there is a little book about punctuation that has soared in the UK and has become a #1 bestseller. (Eats, Shoots and Leaves: The Zero Tolerance Guide to Punctuation) We allow our editors to have the freedom to buy the quirky books, to buy the books that are not necessarily written by the brand names, the books that have a potential that, with a little bit of luck, catches on.

That certainly explains The Professor and The Madman. Whoever thought that a book on the making of the Oxford English Dictionary could be a bestseller!

Jane—When I heard the book presented at a marketing meeting, I said, "This "smells" like a book that can work." A lot of people looked at me like I was crazy. It had that feel to me, as did the Divine Secrets of the Ya Ya Sisterhood. You want creative editors. They do the acquiring. It’s the editors who see the potential from, say, a proposal or a paragraph. Dan Halpern recently bought the book Lucky Girls after reading one story by a 23-year old writer, which was published in a magazine. You need the editors to be open-minded and very in touch with what is going on in the world.

According to Publishers Weekly, HarperCollins participated in the profits of Harry Potter and the Order of the Phoenix by providing back-office functions for Scholastic. I’m sure that helped the bottom line. Did this relationship in turn fuel HarperCollins’ 40% increase in revenue and 52% increase in earnings in the 3^rd party distribution unit?

Jane--Yes, we do distribution for Scholastic. Just back office, not selling. Our deal launched with the first shipment of Harry Potter.

Now, that is just lucky!

Jane--I knew you’d come around to luck! That was a confluence of things. Cathy Hemming, President and Publisher of the HarperCollins General Books Group, was friendly with the then publisher of Scholastic. We knew that the contract with their previous distributor was up. I was at HarperCollins only two years, and I wasn’t sure that I wanted to be in the distribution business. Yet it all worked out, like it does when you have people who are veterans in the industry who work together well. I knew the President and the CEO of Scholastic through some charitable endeavors. It’s one of those nice confluences.

So beneath all of your strokes of luck, there are core business fundamentals— partnerships, networking, a great team. Outside of outlandish advances, what is your pitch to bring in the name authors? What does HarperCollins offer that they cannot get elsewhere? You are famous now for wooing Michael Crichton away from Random House.

Jane-- I had worked with Michael for 30 years and had published all of his books except Timeline, which was published after I had left Random House/Knopf. His contract was up, and he wanted to be published by me. I believe in longevity and loyalty, but the truth is that sometimes it is time for a change. Really what [Michael] saw was that HarperCollins is a global publisher. We were able to take his sales to heights in England, Australia and Canada that hadn’t been achieved before. We are very marketing savvy at HarperCollins. We do very creative marketing over a long period of time. Also, we have a relationship with Fox, albeit arms-length. I was eager to see if Michael was interested in talking to Fox about a movie. Prey is going to be done as a Fox movie. For some authors, it is just dollars. Money does talk. But we will not go after an author whom we don’t think still has room to grow. In my opinion, some of the brand name authors have reached the top and are going in the wrong direction. It’s more exciting, I feel, to have a Dennis Lehane who was selling thousands and now has sold a million in paperback on his most recent book. We have just acquired Elizabeth George. I think she has real upside. We’ve signed Janet Evanovich who sells a huge number of copies. With creative marketing, particularly online, we feel we can increase her sales. I think that for the most part, when you talk about brand names, like Steel, Grisham, Higgins Clark, those authors are very expensive and they have long-term relationships with their publishers.

How significant is it to have 13 #1 bestsellers and 111 titles on the New York Times bestseller list in 2003? Can we liken it to something people can relate to? Is it like Titanic winning eleven Academy Awards? ? (Prey by Michael Crichton, Stupid White Men by Michael Moore, The Perricone Prescription by Nicholas Perricone, The Purpose Driven Life by Rick Warren, Dr. Atkins New Diet Revolution by Dr. Robert Atkins, The Divine Secrets of the Ya Ya Sisterhood by Rebecca Wells, The Bad Beginning and the Carnivorous Carnival by Lemony Snicket, I’m Gonna Like Me by Jamie Lee Curtis and Laura Cornell, etc.)

Jane--I can say on one hand that certainly the more bestsellers you have the more visible you are, therefore you look like you are leading the pack. However, you can have an extremely profitable business without having a lot of bestsellers, when you have paid reasonable advances and the books sell very well. Last year our children’s list absolutely reigned supreme. We had more children’s bestsellers than all of the publishers in America. That says HarperCollins has a strong business, but bestsellers are not the only barometer of success. We own the children’s, and the health and fitness categories. Do I want to own hardcover nonfiction? Yes, and we might. It’s a balancing act. The most important thing is to continue to publish good books well and to publish them profitably. Do I love having bestsellers? Sure.

Is there a film planned for Lemony Snicket?

Jane—Yes, with Paramount and Nickelodeon. Jude Law is Lemony Snicket. Meryl Streep is in it. Jim Carrey is Count Olaf. It’s going to be released Christmas 2004.

Reports have you paying Michael Crichton $30-$40 million for two books? Prey sold a million worldwide. Do these numbers add up, and which amount was the true advance?

Jane--We don’t talk numbers, but Michael Crichton has contributed a lot of money to our bottom line.

What are your plans to keep the book world fresh and to keep book sales up? You mentioned online…

Jane-- Online marketing and selling is high on my list. Online marketing costs are low. Direct access is high. I’m bullish on using online for selling by linking to online bookstores. I think that the goal for all publishers is to have fresh new product. There’s always going to be the next new genre. Every January, Diet and Health go through the roof. Every spring, audio books sell better because people are in their cars. We’re part of an entertainment world.

Harry Potter made reading cool. What else has contributed to keeping books popular and bookstores in business, at a time when Tower Records is entering bankruptcy?

The Barnes and Noble superstores made bookstores destination shops. My children used to say, "I’m going to Barnes & Noble to study." Oprah did the most incredible thing. She told people it was okay to read. Then, Amazon.com.

Let’s talk numbers. On August 14, 2003, you said that HarperCollins’ profits increased by 1000% over the last six years. Fiscal year 2003 ended with revenues up 8% and profits up 13%, with an industry leading operating margin of 11.4%.

Jane-- It has not been easy. Can we grow it a little bit? Yes. Moving forward, our revenue growth may be slower than profit growth, but what I’m really interested in growing is the bottom line.

With more cost cutting? Where and how?

Jane--I’m not talking about Draconian cost savings. Marketing costs can get out of hand. But online marketing can be so cost effective, as I’ve already said. That helps the cost. I think we will improve our revenues, but I’m much more eager to keep our profits in line and growing.

Let’s talk about how HarperCollins fits into the News Corp. picture. The sum total of the management and acquisition style of News Corp. and HarperCollins is that News Corp. beat quarterly earnings this quarter by 2 cents/share and increased revenue by 19%, to $5.6 billion, from $4.7 billion a year ago. Reuters reports that News Corp.’s success is due to Fox News ratings, improved conditions at the London newspapers, and outstanding performance from 20^th Century Fox film studios and the DirecTV.

Lachlan--That was a good quarter for us. The television stations were down due to non-recurrent political spending, but that was to be expected. We saw the end of the price war in London, and the strength of the Australian dollar. Everything was pretty strong all around.

Jane, last quarter, News Corp. reported strong 1Q results (for the period ended 9.30.03), revenue growth of 22%, at $4.6 billion versus $3.8 billion in 2002. Meanwhile HarperCollins’ operating income for the fiscal year (ending 6.30.03) fell to $4 million, from $13 million in 4Q 2002. What kind of heat do you take when the numbers fall?

Jane--We are an important part of News Corp. The Murdoch team is very admiring of what we’ve done with their book business. They see us as being real content providers. I’m always astonished and pleased by what Lachlan and Rupert Murdoch know about our business. We’ll keep doing what we’re doing, building our business, increasing our profits. It will continue to remain a happy relationship.

In fact, HarperCollins reported operating income of $59 million during the 1Q 2004 quarter versus $58 million in the same period a year ago. You’re back!

We’ve just finished our half. I can’t talk specific numbers, but I’m very happy.

One last question. Do investors who are interested in investing in News Corp. have to worry about currency fluctuations between the American and Australian dollars? Is there, in your opinion, any real downside to owning an Australian ADR?

Lachlan--I don’t think currency fluctuations are of great concern. We are based all around the world. We have risks and opportunities everywhere. This year’s results were helped, however, with the Australian dollar’s strength.

Thanks!

Jane Friedman is the President and Chief Executive Officer of HarperCollins Publishers, a subsidiary of News Corporation, and an honored businesswomen with many awards and credits to her name. In the last year, HarperCollins benefited from blockbuster sales of Prey by Michael Crichton, the ongoing success of J.R.R. Tolkien’s Lord of the Rings trilogy and Lemony Snicket’s A Series of Unfortunate Events, as well as the breakout success of Zondervan’s The Purpose Driven Life by Rick Warren.

HarperCollins is one of the leading English-language publishers in the world and is a subsidiary of News Corporation (NYSE: NWS, NWS.A; ASX: NCP, NCPDP). Headquartered in New York, the company has publishing groups in the U.S., Canada, the U.K. and Australia. Its publishing groups include the HarperCollins General Books Group, HarperCollins Children’s Books Group, Zondervan, HarperCollins UK, HarperCollins Canada, HarperCollins Australia/New Zealand and HarperCollins India. You can visit HarperCollins Publishers on the Internet at http://www.harpercollins.com.

Lachlan Murdoch is the Deputy Chief Operating Officer of News Corp. You can visit News Corp. online at www.NewsCorp.com.

News Corp: the all-Star performer in the Entertainment Universe.

Seven reasons why News Corp. (Fox) is just plain better than Comcast/Disney, at least for investors.

by Natalie Pace, CEO, NataliePace.com

© Copyright 2003, 20th Century Fox. All rights reserved.

Still News Corp. is the brightest star in Hollywood and the entertainment galaxy! (And no, it’s not because, as some people think, they own the airwaves, the skies and, possibly, our brainwaves!) In fact, our in-depth interview with HarperCollins CEO, Jane Friedman, a News Corp. company, would indicate that the Murdoch family actually values creative, independent thinkers. Be sure to read the interview in this ezine!

7 Reasons Why News Corp. Stock Rocks

1. Visionary business leaders always ONE STEP AHEAD. All eyes are on Disney/Comcast while the Silent Giant, News Corp. (Fox, DirecTV), who figured out the content/distribution/ high-speed Internet relationship two years ago, maintains the lead. How did they do it?
   
   
   1. Identified downturn early, and were in a position to offer $6.6 billion for a 34% stake in DirecTV in April 2003, when investment bankers and venture capitalists were still hiding under their desks.
   2. AOL Time Warner lost $44.06 billion in 2002; Vivendi Universal -$12.12 billion. News Corp went from -$5.78B income in 2002 to +$1.36B last year.
   3. Launching satellite high-speed Internet access this year to compete with cable’s broadband offering. (Ads on Jet Blue’s DirecTV service already)
      
      
2. Great beginning-to-end business model with top-performing divisions. How? By identifying "creative, energetic leaders," according to Lachlan Murdoch, News Corp.’s Deputy Chief Operating Officer, who oversees the operations of Fox and HarperCollins.
   
   
   1. Top-notch content from world-renowned writers (HarperCollins’ has Michael Crichton) feeds into television programming (ER) and film (Prey), feeds into television networks, distributed by DirecTV.
   2. Top film company (Fox holds worldwide highest revenue spot with Titanic).
   3. Executives even manage to get a piece of other’s good fortune: HarperCollins distributes Harry Potter books for Scholastic.
      
      
3. Cheap Entertainment. Consumers carried the day in the downturn, but are preparing to pay the piper, according to economists. Lower-cost entertainment fares well when consumers get squeezed in rising interest rate, high consumer debt load economy. Economists are predicting rising interest rates and inflation as early as 2005.
   
   
   1. "The near-term great productivity gains will hold prices low in 2004. Money supply exceeding the growth potential in the economy always precedes inflation, not in the near term, but in 2005 and 2006. In 2005, we’re going to have a serious problem with inflation and rising interest rates. I’m not worried about it in 2004, but I’m critically worried about it in 2005 and 2006." David Littman, Comerica Bank, speaking on Kudlow & Cramer, 12.30.03.
      
      
4. Room for growth.
   1. Lowest P/E in the entertainment sector
   2. Highest Earnings/share (by 42%)
   3. Mid-range debt/equity ratio for the sector (Disney and Time-Warner are highest at .45 and .46; NWS is at .39)

Entertainment Companies — Looking in the Books

• Data gathered off of www.MoneyCentral.msn.com

5. Strong balance sheets. Consistently strong income compared to competition. AOL Time Warner and Vivendi Universal imploded in the downturn. News Corp. was cash rich enough to buy DirecTV in 2002.
   
   
6. Lowest market capitalization. Comcast/ Disney hoopla may inspire investors to figure out who is best positioned and still the best bargain in the entertainment sector—News Corp.
   
   
7. Australia, New Zealand, UK and the US are leading the way for worldwide economic recovery (behind China, of course). News Corp. beat quarterly earnings this quarter by 2 cents/share and increased revenue by 19%, to $5.6 billion, from $4.7 billion a year ago. This performance was helped by the strength of the Australian dollar. News Corp. is based in Australia. Fox Film Corp. is based in the US. News Corp. has satellite television and newspaper holdings in the UK. (Before investing in Europe, you should look into the weaker Euro and the many European Union corporations that have struggled of late under weaker earnings and very liberal labor policies. Unfortunately, European bankruptcies are stealing headlines worldwide today, just as 2002 was a tale of bankruptcy, corruption and greed in corporate America. Think Vivendi Universal and Parmalat.)

NataliePace.com’s team of writers, financial pros and money managers are long on News Corp. based on News Corp.’s consistent lead in a popular sector—entertainment--and on reading the tea leaves that, this year, some of the safe money, the trillions in savings and bonds, will flee from the low interest rates in the bond markets and, seduced by stellar 2003 market returns, will flock to stable corporations with reliable earnings over last year’s small and micro cap outperformance. As media fever around Comcast/Disney grows, News Corp. may emerge as the undervalued outperformer of the sector. Management style has proven to be reliable and effective in the past, through good times and hard times. DVD sales provide continued growth, as does the potential for the DirecTV and satellite high-speed Internet services. While piracy took down the music business, book and DVD sales remain strong. News Corp. has proven to be a reliable outperforming entertainment company. If you don’t already own News Corp., look for a buying opportunity at a slightly cheaper rate. News Corp. (NYSE: NWS) traded at $37.55 on 2.26.04, with a 52-week high of $39.74 and a low of $22.41.

Click Here to go to a Stock Report Card on the Entertainment Giants.

Nothing but JetBlue Skies!

Jet Blue, Frontier and Southwest Airlines are expanding into new markets, ordering new planes and flying in the blue, while the major American carriers are still drowning in red ink.

by iSophia CEO, Natalie Wynne Pace

Email this Jet Blue postcard to a friend

Note: This article is updated from an earlier version that appeared in NataliePace.com’s ezine, issue 38, dated September 2003. We have included key new financial data, provided from the Bureau of Transportation Statistics.

Jet Blue is still one of NataliePace.com’s favorite stocks. Here’s why:

-- Highest operating margins

-- Healthy balance sheet in a diseased industry

-- Cost controls spell continued dominance: one airplane to maintain and service, no food, low labor costs.

FLYING BELLY UP
US Airways emerged from bankruptcy, but is still losing money. United Airlines is still in bankruptcy restructuring and just began, barely, making money, for the first time in four years. American Airlines has been working hard all year to AVOID bankruptcy, and is still losing money. According to a report released by the Bureau of Transportation Statistics (BTS), "Regional carriers reported a domestic operating profit of 15.4 percent for the third quarter, above the margin of 11.2 percent reported by seven selected low-cost air carriers (including Jet Blue, Frontier and Southwest) and the 1.6 percent loss reported by seven selected network carriers. (www.bts.gov 12.23.03) Many of the network carriers have narrowed their losses, but only a few are flying blue skies in the black.

Network Carriers Operating Profit/Loss in 3Q 2003

Low Cost Carriers Operating Profit/Loss in 3Q 2003

• Bureau of Transportation Statistics (BTS), www.bts.gov

Why are the low-cost carriers gaining market share, while the giants of the industry still teeter on the edge of bankruptcy?
Even before the tragic events of September 11, 2001, the big carriers were in trouble, as the economy weakened and business travelers (the former mainstay of most of the big airlines) were squeezed out of those comfy seats and gourmet meals into flying coach and eating peanuts (and now blue chips). That’s the past, but what’s the future? As companies increase their capital spending, have business travelers returned to their bigger seats in the blue skies? According to the Bureau of Transportation Statistics, October 2003 saw a 2.4% increase in passengers, 5.4% in miles and 3.6% in load factor over the same period in 2002. Business travel is back, but that doesn’t mean that it’s saving the industry. (www.bts.gov 2.12.2004)

Business travel is back, but not at full rate.
Peter Greenberg, a respected travel contributor on CNBC, reports that business travelers are acting like flea market buyers, and going online for the cheapest fares. There may be suits in the business class section of the plane, but they are paying coach fares, which doesn’t help the bottom line, as reflected by the above losses on the major domestic carriers. Further, unfortunately, the glee of marginally improved load factors on the major domestic carriers is severely offset with fattening fuel prices, increased security costs and a highly competitive marketplace.

Even with improved revenue and more business travel, the larger airlines have cost burdens that continue to prevent profitability. Less revenue from business travel. Price wars. Rigorous and expensive security procedures. Rocketing fuel costs. Decreased insurance coverage for terrorist attacks at significantly increased prices. High labor and pension costs. Fuel is the 2^nd largest cost behind labor, and the biggest problem with rising fuel prices is that the cost cannot be passed onto the consumer, while the markets remain so competitive. Recent analyst upgrades for American Airlines have sparked a mini rally in the sector, but investor beware: business travel will have to exceed what it was in the boom days to offset the increased costs that are associated with airline travel today (fuel, insurance and security). April should be a very active month in trading, when American files their annual report with the SEC, and investors learn that, despite analyst upgrades and a hefty trimming of their expenses, losses continue to prevail.

Gary Chase of Lehman Brothers upgraded American Airlines from "underweight" to "equalweight" in September 2003, prompting a rise in American’s share price to $14.76 (off of $1.25 lows), but in the fine print, Mr. Chase went on to advise investors to focus on the low-fare carriers, due to cheap business travel, crushing debt loads and low-fare carrier growth. Certainly, based upon the 3^rd quarter domestic operating profit statistics, American is in much better fiscal shape than Delta and Continental Airlines, but, as noted by the Bureau of Transportation statistics, low cost airlines and regional airlines are the only groups consisting reporting domestic operating profits these days. Jim Awad, of Awad Asset Management, diagnosed the disease, saying, "The business model is impossible for full service old airlines. They can’t compete with young, lean companies like Jet Blue. It’s almost like having cancer. The only question is how much worse can it get."

CAN THE GIANTS ACT SMALL?
The low-cost airlines are characterized by simple business models, great customer service, easy-to-use frequent flyer plans, on-time performance and low operational costs, while the big airlines have multiple planes, multiple markets (including cargo) and work out of many worldwide markets. To its credit and bottom line, the low cost carrier America West is a strong performer for American Airlines. Jet Blue services one model of brand new jet and has almost no food related costs. "Ted," United’s attempt to compete with Southwest and Jet Blue is off and flying. Meanwhile, Song, Delta’s low-cost carrier, which has been in the race for the peanuts for almost a year, is pulling out of some markets. Delta, the #1 airline in October 2003 by number of passengers, posted the worst operating loss of all the airlines in the third quarter 2003, at -$175.2 million (Bureau of Transportation).

Airline ranking by domestic passengers, October 2003

• Bureau of Transportation Statistics 2.12.2004 www.bts.gov

NASDAQ's STAR: Opsware.

8 Reasons why Marc Andreessen’s ADC (automated data center) software company will dazzle the technology galaxy.

By Natalie Pace, CEO, NataliePace.com

psware, NataliePace.com’s Company of the Year in 2004, is still one of NataliePace.com’s favorite stocks. Here’s why:

1. Invisible but mighty! Opsware is the #1 in automated data center software. Kept Fox Sports up during Super Bowl, when website demand more than doubled (think Janet and Justin’s Booby Trap). Opsware software (operating then as LoudCloud) kept FoxNews up on 9.11.01 when website demand increased by a power of ten. Opsware receives high ratings from Gartner & "leader" classification from Forrester.
   

   FoxSports Super Bowl Web Site Ramp-up

   
   
2. Virus and Worm Killer! Internet security attacks doubled in 2003 and continue. CERT Coordination Center and BusinessWeek calculate that the U.S. security incidents went from 82,094 in 2002 to 152,000 last year. EDS used Opsware to automate the deployment of a patch to keep EDS’ clients up when the Microsoft SQL Slammer worm took down even Microsoft’s systems. Rather than patching each server manually, EDS used Opsware automation to patch numerous servers simultaneously.
3. Genius executives with proven track record. Not only did Marc Andreessen invent the Web browser (at the age of 23), but he also capitalized upon his invention, making his shareholders very rich in the bargain. Netscape was a $10 billion company when Marc sold it.
4. Growing market capitalization and share price is based upon real revenue. New guidance for this year calls for 100% revenue growth, from $18 million to $35-37 million, with 85% of the contracts already booked. This new guidance was reported on February 11^th, when Marc gave the keynote address at a Merrill Lynch conference. The new guidance may get more publicity when the company announces its complete financial results for the quarter and year ended January 31, 2004 on March 4, 2004. American Technology Research is projecting revenue of $66.8 million (another 80% leap forward) in Fiscal Year 2006.
5. Russell 2000 and 3000 indices. Because the company is listed on the Russell 2000 and Russell 3000 indices, Opsware has the ability to attract serious institutional investment dollars as word of Opsware beating estimates again in 4Q and full year gets out. March 4, 2004 may be the beginning of an active trading period. No guarantees, however, March is not known to be a standout month in the markets and election years tend to be turbulent.
6. Marquee Customer Base. Opsware’s Fortune 1000 base is expanding, and Opsware’s revenue base is diversifying worldwide rapidly. Customers include: Electronic Data Systems (NYSE: EDS), Northrop Grumman (NYSE: NOC), Hewlett Packard (NYSE: HPQ), the Defense Department and the UK government, to name a few. NEC (Japan), Electronic Data Systems, Microsoft and Hewlett-Packard provide enormous channels for increased distribution. Revenue from EDS last year accounted for 83%. Next year, EDS revenue will make up 55-65%. Fiscal year 2005 (this year) the revenue distribution is worldwide: 56% US, 44% International (large presence in Japan: NEC).
7. Saves Major Corporations Millions of Dollars. American Technology Research estimates that Opsware saves large corporations $20.5 million per year, largely by reducing the number of administrators required to maintain servers from 1:25 to 1:125 or even 1:200. When you combine increased efficiency with COST SAVINGS, corporations tend to come calling.
8. Cash flow positive. Opsware, as a young company, is forced by GAAP standards to recognize revenue over the term of the maintenance contract. As the company gains credibility and experience, a different accounting rule applies. As it stands now, Opsware is "throwing off cash," and buying companies. In December 2003, they acquired Tangram Enterprise Solutions, picking up great, compatible software and a few more Fortune 1000 customers in the bargain.

Though iSophia is not a broker and does not boast to have an analyst’s eye for target prices, since we were forced to do this for the Forbes on Fox appearance (2.28.2004), we’ve gone out on a limb and put Opsware at $14 by January 2005. This is based on the pop appeal premise—that worms and viruses, Opsware’s earnings growth, Opsware’s efficacy, corporate IT savings and Marc Andreessen’s star appeal will capture headlines and institutional investor interest in 2004 and 2005. Barring unforeseen snags, the true story of Opsware should extend well beyond 2004, however, at least into yearend 2005.

To peek at Marc Andreessen’s keynote address and Power Point presentation for Merrill Lynch on February 11, 2004, go to:

http://investor.opsware.com/

To review NataliePace.com’s article on Opsware, published on 1.1.2004, click here:

http://www.NataliePace.com/newsletters/members/44/44bottom.html#article01

Greenspan at a Glance.

Ten fast Greenspan facts on real estate, consumer debt, federal debt, Fannie Mae and Freddie Mac, and a summary of his most recent testimony to Congress.

1. Households own more than $14 trillion in real estate assets, almost twice the amount they own in mutual funds and directly hold in stocks.
2. Consumer spending accounts for more than two-thirds of gross domestic product.
3. Residential investment--the construction of new homes--makes up another 4 percent or so of GDP.
4. Annual mortgage debt growth has exceeded 12 percent a year over the past two years.
5. Newer homeowners who make smaller down payments tend to bring with them higher levels of nonmortgage debt and, in particular, credit card debt.
6. There has been an increase in bankruptcy rates during the past several years to an "unusually high level."
7. Unlike many well-capitalized savings and loans and commercial banks, Fannie Mae* and Freddie Mac* (both are Government Sponsored Enterprises or GSEs) practice leveraging, carry high debt loads and less capital.
8. Greenspan is advocating that Congress create a GSE regulator, set capital standards, and establish a clear process for placing a GSE in receivership*.
9. The U.S. budget deficit was $375 billion in fiscal year 2003.
10. Baby Boomers begin retiring just four years from now—in 2008!

*Fannie Mae and Freddie Mac have been under serious scrutiny for the past year for carrying an extremely high proportion of debt to their capital. Financial experts have said that both institutions would be very vulnerable to rising interest rates. The debt/equity ratios for Fannie Mae and Freddie Mac are 35.73 and 22.34 respectively (MoneyCentral.msn.com 2.26.04).According to a Fannie Mae spokesperson, Fannie Mae’s short and long term debt is currently $693.719B. Seriously scary numbers. Enough to get the chairman of the Federal Reserve Board to ask for a swift government action plan on what to do if the entities fail.

Alan Greenspan, appearing before the Committee on the Budget, U.S. House of Representatives on February 25, 2004, discussed the economy, the ballooning federal deficit and immediate steps that might be taken. While he was upbeat on the near-term growth of the American economy, Greenspan foresees serious risks related to $375 billion deficit, especially as we enter the Baby Boomer retirement years, which begin just four years from now—in 2008!

In his opening remarks to the Committee, Mr. Greenspan was optimistic, saying, "The U.S. economy appears to have made the transition from a period of subpar growth to one of more vigorous expansion." Indicators he cited include:

1. Rapid rise in real gross domestic product in the second half of last year
2. Increase in household spending
3. Increase in capital spending
4. Rebound in exports
5. Surging productivity
6. Stable prices
7. Improved financial conditions

One area which hasn’t yet come around? Jobs… No surprise there, however, that wasn’t the biggest thing on Greenspan’s mind. His gravest concern was the ballooning federal deficit. Greenspan testified, saying, "The unified deficit swelled to $375 billion in fiscal 2003 and appears to be continuing to widen in the current fiscal year. According to the latest projections from the Administration and the Congressional Budget Office (CBO), if current policies remain in place, the budget will stay in deficit for some time."

Sure, deficits happen in downturns, but Greenspan pointed to specific policies that could stall a robust economy, namely:

1. significant step-up in spending on defense
2. higher outlays for homeland security
3. many other "nondefense discretionary programs"
4. Tax reductions

Tax reductions? Wasn’t that good for the economy? Didn’t the consumer keep America going when business found their wallets missing? Yes, Greenspan explains, but while tax cuts stimulated the economy, they also "contributed to the deterioration of the fiscal balance."

So, won’t an economic rebound save us, as it did under President Clinton? Remember Ross Perot’s charts of the unacceptable, devastating national debt when he sought to win a seat in the Oval Office, back in 1992? Won’t work so easily this time, according to Greenspan. "Favorable productivity developments, of course, can help to alleviate the impending budgetary strains, but no one should expect productivity growth to be sufficient to bail us out. Indeed, productivity would have to grow at a rate far above its historical average to fully resolve the long-term financing problems of Social Security and Medicare."

So what does Greenspan recommend?

1. Replacing the cost of living measure with a chained consumer price index (CPI). According to Greenspan, this alone would have reduced the federal debt by $200 billion. (We don’t have a lay explanation on this one. It’s a federal accounting tool. You’ll need an advanced degree to dissect it.)
2. Changing the age of eligibility for Social Security and Medicare, so that there will be fewer years in retirement, in relation to years worked. (Sounds like a carefully worded phrase for making people work right up to their death. The age of eligibility is now 67.)
3. Don’t monkey with taxes! Increased taxes run a risk of stalling economic growth, according to Greenspan.

To look at the complete text of Federal Reserve Chairman Alan Greenspan’s comments to Congress, CLICK HERE!

http://www.federalreserve.gov/boarddocs/testimony/2004/20040225/default.htm

Winning and Losing: Living in the Real World of Risk & Returns.

Maximizing your gains means not only taking your profits, but also limiting your exposure to losses! No investment, outside of cash, is 100% safe. Paul Woods outlines historic returns and risks for REITs, stocks and bonds.

By Paul Woods
President & CEO of Odyssey Advisors, LLC
310.568.4710
pwoods@OdysseyAdvisors.com

Risk
One of the things the investment community seems to do pretty well is to obfuscate relatively simple ideas. The concept of risk is a perfect example. In the real world, everyone knows what risk means. If you’re thinking about making an investment, you’d like to know what the chances are of losing money.

Academics, however, occasionally seem to live in some sort of parallel universe. Decades ago, they scratched their beards and pondered risk and came up with a definition that proved that none of them had ever invested in the stock market. Risk, they explained, was volatility. Volatility is the standard deviation of historic returns for a particular investment. In English, this means that greater fluctuations in price and returns equal greater risk.

Rather than trying to burn off the fog left by academics on this topic, the investment community embraced this definition. Industry marketing materials now convey the impression that risk is enormously complicated and only trained investment professionals have the depth of understanding to properly understand and evaluate it. The only small problem is that, as a real-world definition of risk, volatility is incomplete and inaccurate.

Probability tables are available to calculate a definition of risk that provides investors with a good estimation of the likelihood of losing money on an investment. Students of probability know that there are actually two components of investment risk. Volatility is one. However, average returns are the missing link that makes the academic definition of risk misleading.

To demonstrate the fatal flaw in the academic view of risk, consider two potential investments. Assume that both have about the same volatility, so most in the investment industry would consider the risks to be equivalent. However, one produces only a small return over time while the other produces a much higher return. The investment with the higher average return will move the overall range of probabilities farther away from negative territory, making it the less risky of the two investments.

Let’s say that you’re considering an investment in an S&P 500 Index fund. You’re curious about the risk. An investment advisor fresh out of academia tells you that the standard deviation of historic annual returns for the S&P 500 Index is 0.2032. Someone that understands probabilities tells you that you can expect to take a hit slightly more often than every 4 years. It’s pretty obvious which one was the more useful answer.

In this context, let’s lift the fog and obfuscation and start living in the real world. We have returns from 1926 that break the universe of stocks into large companies (S&P 500 Index) medium sized companies (midcap index) and small companies. We also have returns for long-term (20 year) and intermediate (5 year) Treasury bonds for the same period. Using these returns, we can calculate the following probabilities of a decline in value:

In other words, on a historic basis…

A 5 Year Treasury Bond declines in value about every 6 years.

A 20 Year Treasury Bond declines in value about every 3.7 years.

The S&P 500 declines in value about every 3.7 years.

Midcap Stocks decline in value about every 3.6 years.

Small Company Stocks decline in value about every 3.4 years.

We also have historic returns from 1970 that enable us to calculate the likelihood of a negative return for foreign stocks (Morgan Stanley EAFE Index) and returns from 1972 that allow us to make the same calculation for real estate investment trusts (NAREIT Index). The huge caveat here is that this was a period of increasing valuations in stock prices, so returns are probably inflated. As a result, it’s likely that this understates the likelihood of a negative return by 15-20%. Nonetheless, here are the probabilities of a negative return, derived from a much shorter time period (32-34 years):

In addition to providing a definition of risk that’s more comprehensible, this measure of risk is also more dynamic. Bonds are a perfect example. As bond yields change, the likelihood of a negative return will change also. Bond yields are currently close to record lows and the chances of a negative return from this point are much higher as a result. Using the current yields available coupled with historic volatility, we calculate the following probabilities of a negative return:

In other words, the current probability of a negative return on either 5-year or 20-year Treasury bonds is a bit greater than 1 in 3. At this point, the chances of a decline in value appear to be greater in bonds than stocks.

Returns
If we again look at the period from 1926-2003, we get the following compound returns:

Compound returns from 1970s (which are probably inflated) show the following:

Most investment decisions come down to a tradeoff between risk and return with a goal of getting the most return for the least risk. If we use the probability of a negative return as our measure of risk, and then calculate the historic returns per unit of risk, we get the following:

( Returns per unit of Risk )

*The above calculation gives the return on REITs and foreign stocks from the 1970s a 20% haircut to try to make the numbers comparable with the longer returns for the other equity categories.

**If we used current yields instead of historic returns, the returns per unit of risk for bonds would be significantly lower.

Conclusion
With the usual caveats about a shorter time period and what are probably inflated returns, real estate investment trusts still appear to be a very attractive investment. REITs offer a good combination of high current yields, good overall returns, and reasonable risk.

Risk is higher in small and midcap stocks, but investors appear to be sufficiently compensated with higher overall returns. Along with REITs, these should probably form the core of long-term equity investment portfolios.

The ‘blue chip’ segment of the stock market is problematic. While the overall risk is moderate, long-term returns are fairly low and don’t appear to adequately compensate investors. At best, these stocks should probably be used selectively.

Looking at the data, it’s difficult to find a compelling reason to invest in foreign stocks. Although returns have been helped by the recent decline in the dollar, this is still an asset class with unexciting returns and very high risk over time.

Finally, when bond yields rise and make bonds a less risky investment than stocks, historic returns and volatility show that the highest risk-adjusted returns (by a wide margin) can be found in bond portfolios with an average maturity of about 5 years.

[1] iSophia note: Many experts on the iSophia real estate advisory team would disagree that REITs are a good risk to jump into right now, with inflated land values and rising interest rates on the horizon.

[2] iSophia note: More on foreign stocks in an upcoming issue. Please note, however, that there is a HUGE difference between countries! For instance, investing in a Beijing-based company is considered to be a LOT MORE RISKY than investing in a Hong Kong or Taiwan-based company, where Western standards of accounting have been the norm for decades. Countries like Canada and Australia, which are leading the world’s economic rebound with the U.S. are a lot safer bets than Germany and France (think Vivendi Universal and Paramalat.)

Give Peace a Chance:

Business Leaders Come Together to Promote Cultural Understanding.

by Marilyn Tam

Call to Action! Essay Contest on Diversity and Sustainability. This Forum essay contest is open to college and graduate students with the goal of inviting American youth to participate in solving the cultural divide and sustainability challenges we face today. Read on for details on how to enter and win a trip to BARCELONA in 2004!

nti-American sentiment and misperceptions about American culture have escalated in every region of the world, and this has threatened the business of multinational corporations. Further, there is a widespread need for more awareness, appreciation and sensitivity to other cultures in the domestic US market. A private sector task force, Business for Diplomatic Action, was recently formed to address this challenge, comprised of communications, marketing, political science, global development and media professionals. This task force is being led by Keith Reinhard, Chairman of DDB Worldwide, the second largest advertising agency in the world, with a vision of developing, sharing and warehousing ideas, insights, and guidance on communication and perception issues that US business are uniquely positioned to address.

On February 23, 2004, the Business for Diplomatic Action announced their mission to the world with a panel discussion at Yale University’s School of Management in New Haven, CT. It was an impressive discussion lead by the chiefs of two of the largest global advertising agency networks: Keith Reinhard, Chairman of DDB Worldwide and Tim Love, Vice Chairman of Saatchi & Saatchi. Jeffrey Garten, Dean of the Yale University’s School of Management, and two distinguished professors from the Yale School of Management were also on the panel.

The topic was Global Brands and Public Diplomacy, a report and call for action from people who are in the forefront of the impact of the growing global anti-American sentiment. The Business for Diplomatic Action envisions a new brand of diplomacy, one spearheaded, guided and resourced by business in a sustained, coordinated effort that focuses on shared values, building dialogues, bridging cultures and supporting investment in local communities around the world. By operating globally and employing local nationals, multinationals are credible messengers and have the resources to make a difference in changing misperceptions and resentments everywhere they operate.

Here’s how the global business environment has changed dramatically in the last 20 years. A Roper study commissioned by this task force found that American brands are particularly regarded as harmful because of the perception that:

1. American brands have a corrupting influence in changing their culture through aggressive marketing and advertising of non-local traditions and a push for hyper consumerism.
2. The receiving country’s unfavorable perception of American values
3. The receiving country’s impressions of America’s low regard for their country and their values: of American insensitivities and arrogance
4. The perception that they are being exploited and persecuted for profit

Globalization of business is already a fact. Trade, communication and travel have reduced the barriers to isolation of cultures and values. We are now living in a global society and what each individual, company and country does impacts the whole world. Tim Love quoted Martin Luther King saying that people must feel that they belong to something to support it, otherwise consciously or unconsciously they seek to destroy it. Yet, today only 18% of Americans have passports, and Americans have limited and often unfavorable understanding of other cultures. In the age of a global economy, it is economically unsound, dangerous and unhealthy to have little understanding and appreciation for our neighbors.

The Business for Diplomatic Action task force encourages corporations to share best practices, listen to the host countries’ values and act in a manner that honors their cultures. It is the way for globalization to be a force for good, to increase social capital and to build lasting, enriching partnerships with local communities around the world.

To communicate the message and to engage the youth, the Business for Diplomatic Action is partnering with the North American Marketing and Promotions arm of the Universal Forum of Cultures Barcelona 2004 to sponsor an essay contest on two key issues: Diversity and Sustainability. This Forum essay contest is open to college and graduate students with the goal of inviting American youth to participate in solving the cultural divide and sustainability challenges we face today.

The winner in each category of the essay contest will be flown to Barcelona, Spain to the relevant dialogue at the Universal Forum of Cultures this summer to present their essays there. The top 100 essays will be printed into a book of useful ideas on Sustainability and Diversity, so that they can be shared.

There is much to be done to shift the cultural and sustainability concerns today and both Universal Forum of Cultures Barcelona 2004 and Business for Diplomatic Action are answering the call. If you are moved to help please do!

For more information about the Business for Diplomatic Action, and to join the effort, please email cari.eggspuehler@sf.ddb.com

For the Universal Forum of Cultures Barcelona 2004 www.barcealona2004us.org and the essay contest please email info@barcelona2004us.org

The Universal Forum of Cultures Barcelona 2004 is a project of the United Nations, the Spanish government, the Catalan government, and the city of Barcelona, Spain. The Forum’s mission is to gather people from all societies to participate in creating a better planet based on the principles of cultural diversity and economic and environmental sustainability. The first world event will be held in Barcelona May 9^th through September 26^th, 2004 with expected attendance of five million people. The Forum will feature forty-five Dialogues and hundreds of entertainment and cultural events. Through worldwide television broadcasts, web casts, and ongoing interactive web sites, at least 500 million people will participate in this world event as it offers a powerful ongoing means of global cross-cultural communication and action. For more information, go to: www.barcelona2004us.org

Marilyn Tam is an influential corporate leader, speaker, consultant, author, respected philanthropist and social activist. Her book, How to Use What You’ve Got to Get What You Want, receives an average 5-star rating from Amazon.com customers. In her book, Ms. Tam talks about how to discover your own inner North Star, and how to use it to navigate your efforts to achieve maximum personal success. The hardcover is just $14.00 on Amazon.com. Check it out! Click here.

Gas Prices and the Presidential Election:

The economy in a minute. Sound bytes on what the experts are saying.

1. Gas prices. Think things are expensive now? CNN reports that summer gasoline prices are expected to top last year’s record. What gives? Increased demand in an expanding economy. OPEC’s decision to limit supply. More strict environmental requirements.
2. Lawrence Lindsey, Ph.D., former economic advisor to President George Bush, Sr., on President George W. Bush’s re-election campaign. "President Reagan’s landslide re-election came about because he turned around what had been falling per income capita to rising. The real disposable income has been doing well under this president, in large part because of the tax cuts. Based simply on that factor, I would think the president would be in a good position. In 2000, we had a falling quarter before the election. People were not feeling that good at the time, which may have impacted Gore’s campaign."

Get Rich AND Lose Weight:

an interview with financial/spiritual advisor, Audrey Reed.
http://www.moneytoolboxforwomen.com/

"Much like watching the Yo-Yo syndrome of dieting, millionaires who do not know how to manage their assets and money often do the Yo-Yo Dance as well--rich one year and poor the next....The real crisis occurs for them when they reach their twilight years and have little or no reserves. They have lived the good life early to live in poverty later." Audrey Reed

iSophia – What we find particularly fascinating is that you have a doctoral degree in spiritual science, yet your business is all about temporal things….

Audrey-- One of the things that I know we need to learn to do is to balance ourselves in the world—the spiritual world and the world of manifestation. I was Sr. Vice President of a $100 Million a year corporation and have owned several successful businesses in the past 30 years. Works in Progress, my consulting business for expanding entrepreneurial companies, is still an important focus. I take my ministry with me. I was called to have a more spiritual aspect to my life and bring it to others through my work.

Was it major life trauma that led you to spiritualism?

Audrey--There were the bumps in life. A daughter to raise. A divorce. Some physical illnesses, but nothing that was a traumatizing moment that said, "Go here child and do this ministry." Being the mercurial, curious person that I am, I studied a lot of different genre before I found what I was looking for: The Spiritual Laws of the universe working through the line of The Divine Mother. We are seeing a lot of interest around this type of spirituality with the Da Vinci Code.

What is one thing that every person should do right now to start on the path to financial freedom.

Audrey-- They need to track their spending, to know how much they are spending and know where their money goes. That includes credit card spending. We do something called the Clarity Keeper. Keep the balance on the back of the credit card. Every time you use the credit card, write down what you use it for, so you can see what you are buying. Then you will know how much you owe, what you are spending and when you want to stop spending for that credit card period. It clarifies whether you need, want or have to have something as it measures against your true ability to pay for what you are spending money on.

So it’s not enough just to scan the monthly statement for errors before sending off the payment?

Audrey--It’s like getting a great surprise envelope in the mail every month. You open it up and you go, "Where did this come from! I didn’t realize I spent this much money this month." And if you don’t know where you spend your money, then you won’t know when you have spent too much money.

Sounds time intensive. Who has the bandwidth?

Audrey--If you do it in microscopic steps, five minutes every day, you can start to look at what you are doing. My book, Money Tool Box for Women, is written in six page "tools." Don’t use all the tools at once! If someone gave you a nail polish kit, you wouldn’t use all of the colors at the same time.

So which tool do you use to escape the Not Enough Money to Pay Your Bills rut? A magic wand?

Audrey—The first step is to know where you spend your money, and that leads to you being able to see the holes in your money basket.

Aha! So the spending leakage could be sinking the boat? All those caramel frappaccinos?

Audrey--The things that we don’t even know we’re spending money on because its unconscious spending. Like when you add up how much you spend for out of the house coffee, teas, bottled water – all those caramel frappaccinos!

No way. Surely that’s nothing?

Audrey--Let’s do the leakage math. $2/day for a cup of coffee! If you only have it once a day, it’s $60 month. If you do it more than once a day, double that. Do we eat our lunches out when we’re in a financial crunch, or do we bring our lunch? One of the women in my prosperity class was $20,000 in credit card debt. She’s now $8,000 in debt, but $12,000 out of debt. Her leakage came from lunches, dinners and breakfast on the run. It was all of the fast-food motion in her life. She’s also 10 pounds lighter than she was when she started all of this.

Get rich AND lose weight? Sounds like a top seller to me! Top 10 things you wish you’d known and done 10 years ago?

Audrey--AHH!!! (Big Groan!!). I wish that I’d known to save more.

We all do. That piggy bank thing was a good idea, but the pennies never found their way into the pig’s belly.

Audrey—When the piggy bank is full, put it in the bank. Once it’s in the bank or someplace where it is growing--gaining more interest, it’s like it doesn’t even exist until its time to invest it differently. Then it’s about how to invest it to make more money, not about how I’m going to spend it. I do recommend that everyone have a celebration jar. So that you have money as "splurge" fund, to spend however and whenever you want to celebrate. Use the celebration jar at least once a month.

How long should it take for a person to get out of debt?

Audrey--How long did it take you to get into debt? You didn’t get into debt overnight, and you won’t get out overnight. It will take time to do, and you will have to have discipline and rigor to get out of debt.

Many people think they need to get out of debt before they can start saving or investing. How do you answer that?

Audrey--Look at the rate of interest on the credit card debt, compared to the rate of interest on savings accounts. Pay off as much of the credit card debt every month, and save a bit every month as well. Saving is a habit, just like spending is a habit. That is one of those microscopic steps. Even if it’s just 1%, even just a dollar, I’m looking for the behaviors to change.

What is the biggest financial challenge for entrepreneurs?

Audrey--Paying themselves first! Do it! This is the place where we forget to nurture ourselves. We end up working to pay off bills instead of working to make sure that our lives are working for us. I’m not saying don’t take care of those vendors that you’ve already made promises to, but part of that paycheck needs to go to you, the individual who earned the paycheck, to save, to invest, to develop your behaviors around, as part of a new skill set.

How does a spiritual scientist view money, and is there a way to "tap into" help through, say, visualizations, prayers, meditation, mantra or other means?

Audrey--Money is energy, and energy comes from the eternal source of the universe. Therefore, if we’re looking to manifest things in our lives differently and we’re not working the circle of the energy current, which is giving and receiving, the universe will test us about our readiness to receive more. Part of the universe’s way is to see how we give out. 10% of the overflow, is the way it’s written. We should give 10% of the overflow, more than what you need, back to the universe. If you say, I’m running on broke here, give, even if it’s a dollar, or give your time, give back to the universe in service, for all that it has provided you.

Any last words?

Audrey--(Long, pensive pause). Celebrating the spirit of abundance allows us to live in balance, loving our own lives so that we can share that love and joy in the world.

So, money is a good thing?

Audrey--Money is a blessing!

To learn more about Audrey Reed or to order Audrey’s Book, Money Toolbox for Women, go to: www.MoneyToolboxForWomen.com, call 888.853.6564 or fax 310.394.7047. It’s just $16! It’s an easy-to-manage, page-a-day book that is designed to help you change your life.

Readers Ask NataliePace.com:

How do I Know When NataliePace.com is Hot On a Stock? iSophia staff answers your questions!

Hello,
I am a subscriber. When I read issue #45, I didn’t see any stock that you are actually giving a hearty recommendation for. And I don't understand, for example, which one, if any, is being "featured." So, my question is, "How do your recommendations appear?"

Wendy

NataliePace.com responds:

Hi Wendy,

You’re right, issue #45 doesn’t have a company featured in a lead article, like we normally do. There are a few reasons for this, which we’ll outline below.

Everyone was talking about AT&T Wireless (it was acquired last month by Cingular), and we figured that would tempt people to buy stock in their cellular provider. In the stock report card, we did pick the one company in that sector which appears to be poised to lead—BellSouth.  Another company that gets reasonably favorable mention is China Mobile. In each stock report card, we mention the company (or companies) that appears, in our view, to be a standout in the sector, based upon it being poised to beat the competition, having a reasonable valuation and, hopefully, a strong management team with a great product.   Having said that, "big, dumb phone companies," as one of our money managers calls the telecommunications industry, are not our favorite sector. (For more information on last month’s stock report card, read the article in the archived edition.)

Almost all of the companies that we "featured" last year (Opsware, Bennett Environmental, Taser Intentional, Gold Corp, Overstock), were written up in the headline article, accompanied by a feature interview with the CEO, CFO or other senior executive of the company. Some of the standout performers (like Genentech) were the companies that we highlighted as the industry leader in the report cards. Occasionally, we’ll also mention trading tips on specific companies in the Companies in the News section.   (Check out the blurb on Bristol-Myer Squibb in issue 45’s Companies in the News section as an example. FYI: Erbitux was approved on 2.12.04. BMY traded at $28.58 on 2.25.04.)

In particular, we feature a lead article and interview on a company if we feel that company is in a position at the moment of publication to be a standout performer and has the "good guys" management team to accomplish the task in an ethical way.  Last month, being February (not our favorite time for buying in), many of the companies that we are quite fond of have already posted pretty decent gains. Additionally, while last year we were bullish on letting it ride, this year is not predicted to be the great year of gains that 2003 was. The markets were undervalued in 2002, and the President had every reason to get the economy rolling for a good re-election platform. Election years tend to be very rocky, and many of the smart economists whom we glean our information from are predicting that the 2004 year-end will post only modest gains in the market. This year in NataliePace.com pages, you will see a lot of articles about portfolio diversification, profit taking, real estate and other strategies that allow you to participate in potential investment gains, while not being over-exposed in the event of a downturn.

Having said that, a past feature, Jet Blue, is trading at a bargain due to weakness in the sector (the airline industry) and increased competition aimed directly at Jet Blue.   (Be sure to check out the article in this month’s ezine!)

Here are a few of the most recent companies that we’ve featured in interviews or mentioned as leaders of their sectors. Don’t chase money that has already been made! For instance, Taser was a great buy at $4.00. The company is likely overvalued at $125! It pays do to your math.

Issue 44 – Opsware (OPSW)

Issue 43 – Sony (SNE)

Issue 42 – Medicis (MRX)

Issue 41 – Reebok (RBK)

Issue 40 – GoldCorp (GG)

Issue 39 – AuOptronics (AUO)

Issue 38 – Jet Blue (JBLU)

Issue 37 – NetGear (NTGR)

Issue 36 – Bristol-Myers Squibb (BMY). BMY is a short-term strategy based upon their investment in the cancer drug, Erbitux. BMY’s accounting problems with the SEC make a long-term hold on this company an iffy bet. Buy low; sell high. Have a realistic sell strategy for this one. (Know the tax ramifications of the short gain sell.)

Issue 35 – Real Networks (RNWK)

Hope this helps.  We’re not a broker. Our goal is to put the information, education, numbers, detailed reporting, etc. at your fingertips, so that you can make wiser investment decisions.

Yours in health, joy and abundance,
iSophia’s team of writers, money managers and financial wizards

Calendar:

Galas, networking, benefits, seminars, the Opera! and special opportunities! Check out what’s happening online at the Calendar section of the web site.

A Opera: Madame Butterfly, playing now through March 14, 2004. Placido Domingo, LA Opera's executive director, has made the Los Angeles Opera a world-class affair, and director Robert Wilson’s stylistic, minimalist interpretation of Puccini’s masterpiece Madama Butterfly is the talk of all art-lovers in Los Angeles. At least you must say that you saw Madama Butterfly this year, for her 100^th birthday! Go to: www.LosAngelesOpera.com to purchase tickets. Whether you love or hate what Mr. Wilson has done with the actors and the sets, the music of Madama Butterfly is unmatched. It is truly a production where, as Robert Wilson puts it, "All of the elements are equally important—technicians, wardrobe, light, stage, set, costumes and cast." DO NOT LET ANYONE CONVINCE YOU TO LEAVE DURING INTERMISSION! The 2^nd act is compelling. You don’t want to miss the extraordinary debut of the young dancer, James Prival, as Butterfly’s son, Trouble.

VISION: To build a global community of investors through seminars, a world-wide web-site and, ultimately, television.
GOAL: Working change: To promote successful investing and ethics in business.
MISSION: To build a global investment community by providing easy access to important financial news, by promoting a dialogue between members and industry professionals and by promoting ethical business practices, products and services.
PHILOSOPHY: The W.I.N. philosophy centers around five principles: Ongoing Education, Monthly Commitment, Diversified Portfolio, Ethical Business Practices, Pooled Resources.
For more information on W.I.N. contact us at info@NataliePace.com

NOTICE: The NataliePace.com is NOT a stock brokerage service, and does not operate or act as one.