MONEY WATCH.

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Author: Lim, Paul J.

Timing hasn't been Time Warner's strong suit. In January 2000, the media conglomerate agreed to merge with Internet pioneer America Online for about $160 billion in stock. That was just weeks before the Internet bubble burst, watering down the value of AOL's currency. Five years later, the merger is considered among the worst in history, and AOL is among Time Warner's weakest businesses. While Chairman Richard Parsons has indicated his commitment to fixing AOL's problems, he told Fortune (owned by Time Warner) that the company might spin off at least a portion of AOL if the latest effort to revive the unit fails. But some are questioning why Time Warner is talking about a potential castaway now. "The timing would seem to be pretty poor," says Morningstar equity analyst Thomas Forte, given the current boom in Web advertising. Indeed, Time Warner reported that its online ad sales jumped 45 percent in the first quarter.

Americans are up to their necks in ARMs--adjustable-rate mortgages. In the latter half of 2004, ARMS and so-called interest-only loans accounted for nearly two thirds of all new mortgages. It's not surprising, as these products allow families to purchase more-expensive homes for smaller initial monthly payments than do fixed-rate loans. The problem: ARMs are affected by the federal funds rate, which the Federal Reserve Board has been raising for nearly a year (with more increases to come). Meanwhile, long-term treasury bond yields, which influence 30-year fixed-rate mortgages, have been coming down dramatically. Last week, yields on 10-year treasuries sank as low as 4.05 percent. That makes ARM s less of a bargain relative to fixed-rate loans. "Having an ARM worked out for the past couple of years," said Keith Gumbinger, mortgage analyst with HSH Associates. "But that period appears to be coming to a close." For those with adjustable-rate mortgages, the dip in fixed-rate mortgages--the average 30-year rate fell from 6.04 percent in March to 5.71 percent last week--is yet another opportunity to lock in low rates long term by converting to a 30-year fixed-rate loan.

The last installment of George Lucas's Star Wars franchise, which opened to a record box office last Thursday, is sure to be a major force in the retail economy, given the film's unprecedented merchandising. But as Obi-Wan Kenobi taught young Luke Skywalker in Episode IV, there is a dark side to the force. The outplacement firm Challenger Gray & Christmas estimates that more than half of Americans who attended the film's opening days were full-time workers, many playing hooky, costing the economy nearly $627 million in lost productivity. That's enough to drive the Jedi Council crazy.

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By Paul J. Lim