Features

It's a jungle out there

National | Amazon.com searches for profit, stock pundits strike out, and California's energy crisis eases

Issue: "Balancing act," Sept. 8, 2001

Still searching
Amazon.com continues casting about in cyberspace for a profitable business model. In time for Christmas, Circuit City will sell its consumer electronics products via the online retail giant, according to Cambridge, Mass.-based Forrester Research. Customers will be able to pick up their purchases in Circuit City's brick-and-mortar stores. But analysts say Amazon may be getting the short end of the digital stick. When the online retailer starts sending customers to Circuit City stores, the electronics seller will get an enormous boost in its Internet presence, a cheap source of additional business from Amazon's heavily-trafficked site, and potential add-on sales. Meanwhile, Amazon will get a percentage of each original Internet sale; but it may lose more fiscal ground as it continues selling its own consumer electronics side-by-side with Circuit City on the same site but with different pricing. To save itself, Amazon already has tacked on a legion of cyber-affiliates, as well as revenue-sharing partners such as Toys R Us (the toy-seller holds and ships inventory purchased on Amazon). The Circuit City move comes on the heels of staggering losses in several Amazon lines of business: In the first six months of 2001, the firm lost $87 million on revenues of $227 million in U.S. sales of electronics, kitchen goods, and tools. Pundit scorecard
With the books already closed on two fiscal quarters and the third quarter well underway, "batting averages" among the nation's top financial pundits might well be described as "hit or miss." SmartMoney.com tabulated the track records of 12 oft-quoted financial analysts who throughout 2001 have predicted market trends, and on whose words investors have bought or sold. Only two-Abby Cohen of Goldman Sachs and Edward Kerschner of UBS Warburg-even approached being right two-thirds of the time. Morgan Stanley's chief U.S. equity strategist Byron Wien accurately projected spikes and dips about six in ten tries. But the rest of the top 12-arguably among the country's most informed financial analysts-were right only about half the time. SmartMoney.com, a joint publishing venture of Dow Jones & Company and Hearst Communications, has tracked pundit accuracy since January 1995. The company compares analysts' predictions with the actual performance of key market indicators such as the Dow-Jones Industrial and S&P 500 stock indices, Federal Reserve actions and interest rates, as well as some individual stocks and sectors. "Batting averages" published today include predictions pundits have made over the past six years. Abby Cohen made news in 1998 when she advised her clients to hang tough in sagging equities markets while other analysts advised their clients to sell. Three consecutive Federal Reserve rate-cuts later, the stock market-and Cohen-managed equities portfolios-soared. Ms. Cohen then took some heat as the bottom dropped out from tech stocks in 2000 and 2001. As market numbers persist in their dip-recover-dip-again mode, many on Wall Street may be hoping Ms. Cohen will be right again: Her recent prediction is that the economy in the first half of 2001 was "unsustainably bad," and will soon improve. Black-ins?
With the California energy crisis came dire predictions for summer: Silicon Valley engineers working by candlelight, seniors sweltering in air-conditionless homes, and at least 260 hours of statewide rolling blackouts. But as of August 30, lights in the Golden State haven't so much as flickered and the state's seniors are still staying cool. Why? Democrats say it's because Governor Gray Davis rescued the state from its energy problems, jumpstarting power plant construction, restarting alternative-energy source plants, and nursing an $850 million conservation effort. But fiscal conservatives say Mr. Davis would not have had to bail out California if he hadn't nursed the power crisis the summer before, waffling in 2000 over new plant construction. And to "rescue" the state, the Democratic governor this year negotiated long-term contracts for electricity at a cost of $43 billion. Analysts predict those deals will keep California consumers paying until 2020 for energy burned this year. And the "conservation" effort? With residential electricity bills hovering between $250 and $400 per month, conservation was a matter of financial survival for many, critics say-prices, not a government-brokered cutback effort, ruled.

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