How to figure out which way stocks are going


ARE STOCKS headed up or down? Here's a danger signal that worries Wall Street veterans.

As the S&P; 500-stock yield sank to a record low last week, historians noted that when stock yields (3.2 percent) dip far below T-bill rates (5.2 percent), stocks become dangerously overvalued.

Reason: People dump low-yielding stocks to buy higher-yielding T-bills, CDs, bond funds, etc. Are they right? Read on.

FLIP SIDE: "Because the Dow Jones average will hit 5,000 by year-end, investors most certainly don't want to sell stocks now." (Byron Wien, managing director, Morgan Stanley.)

MONEY MISTAKE: "Many employees over 40 who leave their companies use lump-sum 401(k) distribution checks to pay bills. But if you're under age 59 1/2 , you'll be taxed and penalized as much as 50 percent.

"It's better to transfer the lump sum into an IRA rollover or a new 401(k). If you need money, take out a home-equity or a 401(k) loan, or use non-tax-deferred retirement savings." (The Lump Sum Handbook, by Anthony Gallea, $14.95.)

HOPEFULLY HELPFUL: "Some health insurers trick members into paying unnecessary hospital bills. It works this way: Although your insurer should pay, say, 80 percent, some insurers receive discounts from hospitals -- and don't pass savings to you.

"Defend yourself by paying the bill, then ask your insurer what it paid. If your share is over 20 percent, your insurer probably owes you the money." (Consumer Federation of America.)

MONEY-SAVER: Black Enterprise, Oct., runs a helpful story, "Tax-Free Saving: Annuity Contracts May Cushion Retirement." Excerpts:

"Annuities usually have neat life insurance policies tacked on. Primary benefit is tax deferral. You pay taxes only on amounts paid to you. Don't buy them if your tax bracket is below 28 percent. Before buying, do your homework, ask lots of questions."

TAX-SAVER: "Residence trusts let you move your primary or second home -- or both -- out of your estate, transferring the current value to designated family members at some predetermined future date, free of gift or estate taxes," says Worth magazine, October. The story adds, "And until the transfer date, you continue to live in the property, rent free." See your lawyer and/or estate planner.

COMPUTER CORNER: "Fool me once, shame on you. Fool me twice, shame on me. Too many times I've fallen head over heels in love with software that seemed -- at the time -- to be incredibly good. Software that promised improved productivity.

"As it happened, these products were never upgraded and never caught on. A year or two later, this 'incredible' software was history. Lotus and Microsoft are responsible for a lot of dead-end software.

"Moral? Beware! The next great software package might lead you down a dead-end street." (PC Magazine, Oct. 10.)

AUTUMN LEAVES: "For privacy on a wide-body plane, request an aisle seat in the center section. Those middle seats are the least desirable, so they're last to be assigned." (Consumer Reports.)

"Call hotels and motels directly instead of using toll-free numbers. You'll get lower rates if business is poor. Also, they often give corporate rates even if you're not with a corporation. Ask for it." (Tightwad Gazette, Oct.)

This week's Barron's (Oct. 9) runs a worthwhile story, "How High is High?" ("By some measures stocks look reasonably priced, yet a unique earnings cycle gauge suggests the market is toppy.")

MARYLAND MEMOS: "People won't buy gold shares until gold reaches $500 an ounce or more." (Charles Allmon, Chevy Chase newsletter writer.)

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