POCATELLO’S ELECTRONIC NEWSLETTER

December 1997

Volume 1 * Issue 12

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WELCOME to the twelfth edition of POCATELLO’S ELECTRONIC NEWSLETTER.

This FREE newsletter is provided to you FREE by

Michael James Johnston, the editor.

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OUR CONTRIBUTORS:

Economic Summary (Investments, Stocks & Bonds)- Lynn Baldwin

Weather History- Steve Cannon

Real Estate- Jim Johnston

Public Schools (School District #25)- Chris Williams

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This month's LINKS:

This month's POCATELLO LINKS:

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PUBLIC SCHOOLS

by Chris Williams, Public Information Officer

School District #25

Phone: (208)235-3257

DISTRICT TO PARTICIPATE IN SCHOOL IMPROVEMENT PROJECT

School District No. 25 educators looking for ways to improve education will be able to sit at the feet of one of the country's most respected leaders for educational change.

That opportunity comes as a result of the District being selected to participate in a year-long "Management of Change" school improvement project by the J.A. & Kathryn Albertson Foundation, the Center for School Improvement at Boise State University's College of Education and the International Center for Leadership in Education.

The project, focusing on involving staff, parents and the community in creating educational programs with more rigor, relevance and real-world application of learning, is headed by Dr. Willard R. Daggett, director of the International Center for Leadership in Education.

Daggett is known worldwide for his efforts to move education systems towards more rigorous and relevant skills and knowledge for all students, especially in mathematics, science, language arts and school-to-work programs. Before joining the International Center, Daggett served in various management positions at the New York State Education Department, where he spearheaded a series of restructuring initiatives to focus the state's education system on the skills and knowledge students need in today's technological, information-based society.

The District is one of 34 Idaho districts and individual schools selected to participate.

The project is similar to an effort School District No. 25 began a few years ago with its "Creating the Future" project in which District representatives, patrons and community leaders developed the district's mission statement, vision statement and student learning goals.

School District No. 25 Superintendent Dr. David Peck said the "Management of Change" project will take the district's "Creating the Future" effort one step further.

"Whether it's going to result in massive kinds of changes, I don't think anyone really knows," Peck said. "But if we didn't have some expectations of doing things differently, we shouldn't be in it. The hope is that there will be improvement. So we ought to be in a frame of mind that we will be looking towards changing some things.

"And we are partners in this," he said, "so the changes that will come about will be generated by our own work, by our own thinking. And by our own, I mean within our community, not just school people. It should be a result of the conversation that takes place between us, as a school system, and the community. So what develops will be our own product."

As a participant, a 15-member School District No. 25 Leadership Team will not only be trained by Daggett, but have all training and related expenses paid by the Albertson Foundation, which also plans to send a District group to Atlanta next year to learn what other schools and districts have accomplished since being involved in Daggett's "Management of Change" project.

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REAL ESTATE

by W. James "Jim" Johnston, Associate Broker, GRI, CRS, CRB, ABR

Coldwell Banker Landmark

Phone: (208)232-9010

Here are some statistics that you might find interesting about single family homes in the Pocatello area as of November 28, 1997:

Currently there are 342 "active" single family homes on the market.

Within the past two weeks:

Average sales price for single family homes: $100,307

Average days a home is on the market: 89

The percentage of list price to sales price: 96.8%

Total sold volume: $1,404,300

Within the past month:

Average sales price for single family homes: $94,225

Average days a home is on the market: 117

The percentage of list price to sales price: 96.7%

Total sold volume: $10,082,070

Within the past year:

Average sales price for single family homes: $92,022

Average days a home is on the market: 102

The percentage of list price to sales price: 97.5%

Total sold volume: $72,145,565

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WEATHER & CLIMATE SUMMARY

by Steve Cannon, weatherman

KIDK TV 3

Phone: (208)522-5100

This month marks the end of 1997, and the beginning of the winter season. It feels like winter, too, when temperatures fall into the 30's for highs and teens for overnight lows. The December figures include an average high temperature of 35.3… down over ten degrees from the November average high of 45.6. Overnight, temperatures dip to a December average of 17.9 degrees, compared to a November average low temperature of 24.8 degrees. Precipitation, however, stays pretty much the same for the two contrasting months… a November monthly precipitation average of .91'', and a December monthly precipitation average of .96''.

Extremes for the month of December include a fairly mild high temperature extreme of 63 degrees, occurring on December 10^th, 1939. The extreme low temperature for the month happened on December 23^rd, 1990, when the temperature dropped to a bone-chilling -29 degrees! The wettest December on record goes back to 1983, when 3.39'' of precipitation was recorded in Pocatello… that translated into a record snowfall total of 33.7''. The highest daily snowfall total for the month of December came on a December day in 1919 (the exact day has been lost to history!), when 12'' fell. Contrast that heavy snow to 1917 and 1962… when only 1/2 '' of snow fell on Pocatello for the entire month of December… so much for a 'white Christmas.'

The season changes from fall to winter in December… on the 21^st to be specific… and at 1:07 pm to be still more specific! The Christmas star may be evident on the night of the 25^th, but star and heaven watchers will be treated to a rare event in December, as nearly all the planets in the solar system will be bunched together. Mercury hangs low in the southwestern sky… near the horizon a half hour after sunset. Higher in the sky, and slightly to the left is a dim Mars, but a dazzling Venus. Still further to the left, a brilliant Jupiter sits about 30 degrees above the southern horizon. Saturn then stands out as a bright 'star' in the southeast. If you have a powerful pair of binoculars, or a telescope, you can see the naked-eye invisible Uranus and Neptune as well!

December, besides the obvious celebrations of Christmas and Chanukah, marks several other events of note… the birthday of Walt Disney, on December 5^th, the anniversary of the Japanese attack on Pearl Harbor on December 7^th; the anniversary of a rare snowfall in Phoenix, Arizona on December 11, and the 59^th anniversary of the first performance of Boogie-Woogie music in New Yorks Carnegie Hall… on December 23^rd.

MERRY CHRISTMAS!

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ECONOMIC SUMMARY- STOCKS & BONDS- INVESTMENTS

By Lynn Baldwin

Manager & Regional Trust Officer

U.S. Bank of Idaho

120 N. Arthur * Pocatello, Idaho 83204

Phone: (208) 234-5544

SUMMARY

Although the economy is currently healthy, it is overshadowed by the Pacific Rim financial crisis which could erode both our exports and our balance of trade.

The events in Southeast Asia seem to ensure that inflation will remain at low levels.

Bonds have performed better than stocks lately, but bonds already have a large price move behind them at this point. Bond yields are unlikely to decline significantly in the short-term.

Our valuation model shows that the current market level, after a significant rebound, is at 19% overvaluation on estimated earnings.

There has been an increase in the uncertainty about the future earnings stream for US corporations. In a slowing economic environment, earnings disappointments are more likely, and the U.S. stock market has lost momentum.

ECONOMY

The last few weeks have been a period of turbulence in US and foreign financial markets. Despite this increased volatility, the US economy continues to generate solid growth with little inflation.

The Leading Economic Indicators, Industrial Production, and Capacity Utilization reports all indicate healthy economic activity. Third quarter Gross Domestic Product (GDP) came in at the expected 3.5% annualized growth rate. Personal consumption, one of the larger components of GDP, increased by 5%, which compares to a 2.5% increase experienced in the second quarter. The third quarter would have been more robust had the economy not experienced a major inventory reduction. However, this inventory reduction should be a positive for future economic growth as inventories will have to be rebuilt.

Despite the moderately strong economy, inflation for the year is running at an annualized rate of only 1.5% as measured by the Producer Price Index (PPI) and by 2% as measured by the Consumer Price Index (CPI). This is well below the 2.5% to 3% that one would normally expect at this advanced stage of the business cycle.

Looking forward, employment gains were widespread in October. Personal income trends continue to be positive as more are employed, but the volatility of the financial markets throughout the world could affect consumer confidence as we enter the holiday buying season. Although the economy is currently healthy, it is overshadowed by the Pacific Rim financial crisis which could erode both our exports and our balance of trade.

The Southeast Asia turmoil is now spreading to the Latin American countries, particularly Brazil. Japan’s economy is also weakening and is vulnerable to further slowdowns in Southeast Asia. The International Monetary Fund, backed heavily by the US, has provided financial support to the Asian nations. We would expect these countries to maintain a restrictive monetary policy to defend their currencies, which will likely slow their growth further. Although the European nations continue to have inconsistent growth rates, they and the US should feel less effect of a global slowdown. However, we do expect that fourth quarter GDP will slow to a 2% to 3% annualized growth rate.

There is a silver lining in this cloud of Asian turmoil. A surplus of industrial capacity exists worldwide capable of producing a tremendous amount of goods. With lower demand expected overseas, the US may be receiving imports that are discounted in our dollars because foreign currencies have been greatly devalued. This will create a more competitive pricing of products, bringing bargains to US shoppers and keeping inflation at a fairly low level. This, in fact, may be the reason Alan Greenspan needs to postpone any further tightening on the part of the Federal Reserve to preempt wage pressures. The events in Southeast Asia seem to ensure that inflation will remain at low levels. A growing number of economists are more concerned about potential deflation (falling asset prices) rather than inflation.

FIXED INCOME

With the Asian and Latin American turmoil, there has been a "flight to quality," drawing foreign dollars to the stronger US currency by investing in US Treasuries. As a result, the yield curve has flattened considerably. This can be seen in the yield difference between the 3-month Treasury bills and 30-year Treasury bonds which, over the past year, has narrowed from 1.5% to 1.0%. A flat yield curve will likely continue as long as the Federal Reserve holds the Fed funds (short term) rates steady and money continues to flow into Treasury issues as a haven for safety of principal. An inverted yield curve, where short-term rates exceed long-term yields, is not out of the question if the economy continues to slow and the Federal Reserve resists easing.

The chief risk to the US inflation rate has been the pressure economists anticipate on US wages. Currently, that risk has been lessened with the expected slower economic growth worldwide. As a result, we would not be surprised to see long-term interest rates decline near term with a corresponding upward move in bond prices. We are now close to the low yields reached in 1996 on the 30-year Treasury bond of 5.95%, and not that far from the October 1993 low of 5.75%. Bonds have performed better than stocks lately, but bonds already have a large price move behind them at this point. Bond yields are unlikely to decline significantly in the short-term.

EQUITIES

We have maintained that the Standard & Poors 500 stock index has been overvalued by at least 20% based on our valuation model (on a price-to-earnings level relative to long-term interest rates). The financial market turmoil that occurred on October 27th actually moved the stock market to an attractive valuation for a brief moment as bonds dropped in yield and stocks dropped in price. Our valuation model shows that the current market level, after a significant rebound, is at a 25% overvaluation on current earnings. Our calculations are based on S&P 500 earnings of $44.50 for 1997 and $46.50 for 1998 (which would equate to a 19% overvaluation on estimated earnings). Note that this is only a 4.5% year-over-year earnings growth rate.

There has been an increase in the uncertainty about the future earnings stream for US corporations. We are concerned that corporate profits could be pressured as overseas sales of US based multi-national firms continue to slow. A more competitive pricing environment could squeeze profit margins. Some of the larger global companies may have as much as 20% exposure to the Southeast Asia market, but this region represents only about 5% of overall profits for US companies. However, we are concerned that the "Asian Flu" could spread to other areas of the world. Fear of global economic weakness could cause consumers to reduce their spending.

In a slowing economic environment, earnings disappointments are more likely, and the U.S. stock market has lost momentum. The stock market will likely be less resilient, more volatile, and vulnerable to further correction. As a result, we find ourselves in a fairly conservative mode. We are being very disciplined in buying stocks which we believe are undervalued, while aggressively eliminating expensive stocks from our portfolios. We believe that small company stocks offer superior value relative to large capitalization stocks at this point.

Over the last several years when investors have bought on dips, they have always found it rewarding, but this has not always been true historically. We have all learned lessons from the 1987, 1990, and 1994 declines which brings us back to the reality that the stock market is not a one-way street of profitability. There are times when the market takes a needed rest.

Over the long-term, investors have had a 90% chance of making money in the market and a 10% chance of losing. Although those are attractive odds, and stocks generally have provided positive rates of return over periods of 3 years or longer, there is risk in the short-term. It is also important to note that a major contributor to the stock market rally that began in the Summer of 1982, was the dramatic decline in Treasury yields from 16% to 6% during the next 10 years. Declining inflation and interest rates helped drive stock prices upward. Over this same period, the Dow Jones Industrial Average increased more than 10 fold, from 770 to 8,000. It is always difficult to forecast interest rate moves, but we don’t see them making a similar move during the next 15 years from the current 6.2% level. We may need to readjust our expectations as we look ahead, but we still believe that stocks will out perform the total returns obtained from bonds over the next 10-15 years.

This may be a good time to review your investment goals and discuss with your portfolio manager or trust officer, the appropriate asset allocation positioning. It is particularly important if you need liquidity in the near future. The stock market is not the place to invest short-term money.

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