Issue 12- February 3, 2004


Market Outlook for 2004

The surprisingly robust returns of 2003 restored a large measure of faith and wealth to the investing public. A lower U.S. dollar and historically low U.S. interest rates teamed up to provide an extremely favorable equity environment. We must, however, remain mindful of the higher equity valuations that 2003 created. Further market performance will necessarily come predominately from earnings growth rather than multiple expansions. Current high levels of productivity and a stable to improving employment picture provide a positive investing climate. The outsized returns of 2003 were largely attributable to lower-grade and more speculative investments; we would expect the bulk of the returns in 2004 to be provided by higher-grade companies. It will be difficult if not impossible for many of last year’s stars to fully deliver on the valuations they now command. Sources of portfolio income will continue to be problematic for the near-term, as interest rates have remained stubbornly down at their modern day lows. However, the Federal Reserve has stated that it is committed to re-inflating the U.S. economy. A small change in their stated policy of leaving short-term rates low for as long as necessary could well be the event which would drive rates up to a level commensurate with an economy growing well above trend.

Cell Phones
To Switch or Not to Switch?

With the recent law allowing customers to keep their cell phone number while switching to another carrier, true competition is finally coming to the cell phone market. Cell phone companies are offering better plans, services, and phones to attract clients away from competitors. But before you run out to buy that new camera phone with instant messaging and Bluetooth, read these quick facts on the different systems.


These two terms are thrown around quite a bit. The first thing to know is that these are two of several digital technologies that operate in the digital cell bandwidth. TDMA (Time Division Multiple Access ) the foundation of the more modern GSM was widely used in the United States as an easy way for analog cell companies to jump into digital services. Many of these networks are now being upgraded to GSM. Other technologies on the horizon are EDGE (Enhanced Data Rates for Global Evolution), W-CDMA, CDMA200 1xRTT, 1xEV-DO, and 1xEV-DV. All of these technologies are just now coming into service or will arrive shortly under the third generation (3G) banner and offer video conferencing, high speed data transfer and several other advancements.

For our purposes we will just discuss the two major systems available currently, GSM and CDMA. While both are digital technologies they differ in the way they use the spectrum and therefore offer advantages and disadvantages over the other.

GSM (Global System for Mobile Communications) used by AT&T Wireless, T-mobile, Cingular, and several smaller regional providers in the United States is the most widely used system in the world. At the end of December 2003, GSM accounted for 80% of worldwide digital cellular users and was in use in Europe, Asia, and North America.

GSM systems, like its predecessor TDMA, break the bandwidth into time slots and then share it among its users. An example would be caller 1 and caller 2 both making calls on the same channel “x”. They cannot use the channel at the same time so the system allows a word from caller 1 then one word from caller 2. This method allows several callers to fit within a single channel. A bonus is since the phone is not constantly communicating, battery power is conserved.

The alternative to GSM is CDMA used by both Verizon wireless and Sprint PCS. With CDMA the system takes the signal from caller 1 and caller 2, breaks them apart and spreads them over a wide channel. The system them reassembles the pieces at the other end. This is done simultaneously unlike the time slot method used by GSM.

The two systems also differ in the way they switch from tower to tower as you travel down the Interstate or through town. In CDMA the network monitors the phone and the signal strength to the tower(s) and will have several nearby towers listen to the call simultaneously as the signal to the primary tower weakens. The phone can then choose which tower to jump to since these towers are already prepared to handle the call. This method is called a “soft handoff”.

In GSM the system relies on the network to decide when there is a “hard handoff”. The phone constantly communicates with the network information on the signal strength and allows the network to decide when to hop to a new tower.

Is there an advantage to one or the other?

Each system has advantages and disadvantages. Let’s look at the “hand off” techniques that we just covered. The “soft handoff” in CDMA has the advantage of having less dropped calls since two or more towers are listening to the same call.

In contrast, the “hard handoff” of GSM can end up with dropped calls if the tower that the network decided to transfer to has no available space on the channel. But there is also a down side to CDMA. If a CDMA phone finds itself in range of several towers where no tower dominates, the signal can degrade quickly because the phone cannot decided which tower it should use. GSM phones do exhibit this issue to a lesser extent, especially on higher hills where several towers are available, but to a lesser degree since the network decides what tower is best.

Capacity is another issue that can affect both systems. In GSM a tower or channel will only accept x amount of calls. Once this maximum number is reached a caller will not be able to place a call even if there is full signal strength. CDMA users face another issue with capacity. Instead of restricting the number of users, the system will continue to allow users onto the system impacting the usability for all users.

This situation is often found inside a building. Both GSM and CDMA systems have difficulties in buildings for a number of reasons including building design and materials used in its construction, and location of the nearest tower. But CDMA users can often find that their phone quality diminishes as more people in the building use the system. This is why a call from the office can be full of static during the week but clear on the weekend when you are the only one there.

Which One is Right for Me?

This question depends on your normal usage day to day. Either system will allow you to make calls in urban environments. World travelers that find themselves in Europe or Asia might find the ability to use their GSM phones (the phone must be able to work on the frequencies of those countries) the deciding factor. Also if you stay primarily in large cities, or travel along the major Interstates you will find GSM service is adequate.

Users that live just outside the city, travel to smaller towns, or find that they pass multiple cell towers in their daily activities will find the CDMA systems are better for their calling patterns.

Lastly, the best way to find a phone and plan that fits your needs is to talk to friends and family. Find out what provider they are using, their coverage issues, daily calling patterns, and model of phone. Many Web sites such as and Consumer Reports provide reviews of new phones and service plans in order to help you make the right choice.


In this Edition

  • Market Outlook
  • Cell Phones

Huntington Steele

925 4th Avenue
Suite 3700
Seattle, WA 98104



Past Issues
11 - 12.16.03

Auctions - eBay, US Treasury, IPOs

10- 12.02.03
Recent Economic Data
Market Implications

9- 11.14.03
Importance of Housing
Rising Debt and Equity

8- 10.31.03
3rd Quarter GDP

7- 10.15.03
Private Equity

6- 10.02.03
Stimulus/Bear's Last
"At Bat"

5- 09.15.03
Hedge Funds

4- 09.03.03
Econ Highlights/Bluetooth

3- 08.15.03
Tirade on Bonds/ Modern Portfolio Theory

2- 08.01.03
Econ Data/Asset Allocation

1- 07.15.03
Economy/Rates & Currencies


Market Highlights

  1/30/04 12/31/03 12/31/02
DJIA US 10488.1 10453.9 8341.63
S&P 500 US 1131.13 1111.92 879.82
Nasdaq US 2066.15 2003.39 1335.51
EAFE Int'l Equity 1306.43 1288.77 952.65
5 Yr Treasury 3.149 3.231 2.74
5 Yr AAA Muni 2.39 2.45 2.59
10 Yr Treasury 4.158 4.225 3.82
10 Yr AAA Muni 3.53 3.6 3.72
30 Yr Treasury 4.906 5.01 4.77
30 Yr AAA Muni 4.49 4.54 4.69
EUR Currency 1.2404 1.2612 1.0488
JPY Currency 105.68 106.92 118.69
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