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This Is What Happens When Free Markets Fail
Tweet Share on Facebook November 23, 2009 Comment (41)It's an agonizing time to be a laissez-faire capitalist.
Many folks who fancy themselves free marketeers are aghast as they watch the Obama administration taking the wheel at failed automakers, drafting a sweeping overhaul of healthcare, dictating salaries at bailed-out banks, and preparing stringent new rules for the whole financial sector. The U.S. Chamber of Commerce is mounting an ad campaign touting the virtues of free enterprise, as if it's a foreign concept. Fox News frets daily about a socialist takeover of the economy. Some Americans who begged for government relief a year ago, when the economy was in free-fall, have buyer's remorse now as they watch the public sector swell.
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How to Tell If You're Saving Enough
Tweet Share on Facebook November 19, 2009 Comment (66)Save or spend? That will be the question that bedevils consumers over the next several years as they replenish their rainy-day funds, rebalance their debt, and limp toward retirement.
It's no secret that Americans spent too much and saved too little over the last decade. For 40 years after World War II, Americans typically saved somewhere between 6 and 10 percent of their after-tax income. The savings rate began to drift down in 1985, and for most of the last five years it's been less than 3 percent. It even dipped below zero in 2005. With frightened consumers now starting to hoard cash (if they have any), the savings rate has inched back up to about 4 percent. But many economists feel that's not high enough.
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Why Wall Street Is Bullish on Healthcare Reform
Tweet Share on Facebook November 17, 2009 Comment (3)If reforms out of Washington are poised to wreck the healthcare industry, somebody forgot to tell the stock market—including hundreds of professional investors who own healthcare stocks and get paid to assess their prospects.
Many opponents of healthcare reform fret that deeper government involvement in the healthcare system will strangle free enterprise. The biggest worry is a possible federal healthcare plan—the "public option"—that might outcompete private plans, thanks to unfair advantages that come from government power. It's certainly true that stronger regulation, usually intended to correct abuses, tends to depress the profits of the firms being regulated. But if stock prices are any indication, investors are less concerned about healthcare reform than critics rallying to the cause of free enterprise.
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10 Companies Missing the Earnings Boom
Tweet Share on Facebook November 12, 2009 Comment (2)If there's any good news about the economy, it's the startling surge in corporate earnings. In the most recent quarter, about 80 percent of S&P 500 firms reported profits greater than Wall Street analysts expected, according to Thomson Reuters. That's the highest proportion of upside surprises since Thomson Reuters started tracking the data in 1994.
[Slide Show: 10 Companies Missing the Earnings Boom.]
One obvious reason for the overperformance is that the computer models analysts use to predict earnings have been thrown out of whack by the turbulent economy. Investors have also underestimated companies' ability to cut costs and streamline, one reason profits have risen at many companies even as overall sales have fallen. As Wall Street adjusts and raises its expectations, future earnings will probably be more predictable. Still, the latest numbers are a sign that many companies are healthy, which is essential for hiring to pick up and a real recovery to take root.
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Why Unemployment Will Hit 11 Percent
Tweet Share on Facebook November 10, 2009 Comment (29)Boy, are we optimistic. The economy has been losing jobs for 23 months, and it's still not clear when that gruesome trend will turn around. Yet the stock market is skyrocketing, and investors are telling themselves that stocks are a "leading indicator," so a vigorous recovery must be right around the corner.
That corner keeps slipping further into the future. Economists have been heralding a turnaround for six months, largely because key measures like home prices, retail sales, bank losses, and job cuts have been deteriorating more slowly than they used to. But there's a big difference between a slowing rate of decline and actual improvement, and the economy remains in worse shape today than many prognosticators ever foresaw. Back in the spring, for instance, the Federal Reserve predicted that, in the worst possible case, unemployment would average 8.9 percent for 2009. We soared past that level in April, and it's been worse than the Fed's worst case ever since.
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How the Government Is Swallowing the Economy
Tweet Share on Facebook November 9, 2009 Comment (290)You know about the bailouts, the stimulus plan, cash for clunkers, and moola for mansions. But for all the anxiety they've caused, those government giveaways are just a tiny part of a mushrooming problem.
By one measure, the government already plays an outsize role in our so-called free-market economy—and it has little to do with the recession. Economist Gary Shilling has calculated that 58 percent of the population is dependent on the government for "major parts of their income," including teachers, soldiers, bureaucrats, and other government employees; welfare and Social Security recipients; government pensioners; public housing beneficiaries; and people who work for government contractors. By 2018, Shilling estimates, an astounding 67 percent of Americans could be dependent on the government for their livelihood. The implications aren't comforting.
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15 Cars Fueling the Auto Recovery
Tweet Share on Facebook November 5, 2009 Comment (26)As comebacks go, it's an awfully weak one. Annual car sales in 2009 are likely to end up at the lowest level in years, down more than 40 percent from their peak in 2005. The worst months came in the spring, punctuated by the bankruptcy filings of General Motors and Chrysler. The cash-for-clunkers program provided a nice summer boost, but that was followed by a steep dropoff once the giveaway ended and doubts that the subsidies would lead to any net gain at all.
[Slide Show: 15 Cars Fueling the Auto Recovery.]
But sales finally seem to have stabilized, with forecasting firms like CSM Worldwide predicting steady improvement through the end of the year into 2010. And a few models have already started to take off. Data from J.D. Power & Associates shows that cars offering strong value, with a good reputation for quality and a generous set of standard features, have performed well despite the dismal downturn. Buyers continue to shun big vehicles in favor of those getting good mileage. And excitement still sells, with some hot new sports cars sprinting out of the gate. Here are 15 cars that have been hot in a cold market:
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Restaurants on a Roll
Tweet Share on Facebook November 4, 2009 Comment (54)It might not be good for America's waistline, but froufrou dining off petite plates is out. The recession has made us hungry for family-size piles of comfort food, skyscraping burgers, and all-you-can-eat fries.
Like other segments of the retail economy, the restaurant industry has struggled over the past two years as unemployment has soared and consumers have curtailed spending. The National Restaurant Association's performance index shows that the industry has been shrinking for 23 months in a row. High-end bistros have fared the worst, with sales at fancy restaurants like Ruth's Chris and Morton's Steakhouse off by 20 percent or more, as corporate customers pare expenses and other diners trade down. Casual- and family-dining places have suffered too, as people eat out less, order more takeout, or cook at home. Even fast-food chains like McDonald's and Burger King have lost business, despite dollar meals and other deals meant to keep the fryers sizzling.
[Slide Show: Restaurants On a Roll.]
Still, as in other whipsawed industries, a few survivors stand to benefit from the widespread pain. To figure out who they are, I analyzed data provided by financial research firm Capital IQ, a unit of Standard & Poor's, to see which publicly owned restaurant companies with at least $250 million in annual sales have gained revenue and market share since the recession began near the end of 2007. Then I researched earnings reports and other sources to separate firms with strong inherent growth from those benefiting from mergers, accounting anomalies, or one-time events.
Of 41 firms on Capital IQ's initial list, only eight made the final cut. All emphasize value, whether it's huge portions or quality for less. And all of these companies are financially healthy, with reasonable debt and the wherewithal to keep expanding despite a credit crunch. Here are the restaurants with the right recipe for lean times:
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How the Auto Bailout Is Punishing Ford
Tweet Share on Facebook November 2, 2009 Comment (67)Ford Motor Co.’s latest earnings report doesn’t mention General Motors or Chrysler, its crosstown rivals. But those competitors have a lot to do with Ford’s surprising $1 billion profit in the third quarter.
Ford attributes its better-than-expected performance—its first quarterly profit since 2005—to aggressive cost-cutting, popular new products like the Taurus sedan and Fusion hybrid, a cash-for-clunkers bump, and improvements at its financing arm. But Ford also is a clear beneficiary of the woes at GM and Chrysler, both trying to recover after bankruptcy filings earlier this year. Ford cited a market share gain of 2.2 percentage points compared with 2008, which helped offset a shrinking market. For a mature industry like the car business, that’s a huge gain in a short period of time. And there’s little doubt that many of Ford’s new customers bailed on the other two domestic automakers as they shambled toward bankruptcy and wolfed down billions in taxpayers bailouts.
[See what GM’s recent progress report fails to mention.]
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The Private Sector Gets Another Chance
Tweet Share on Facebook November 2, 2009 CommentA lot of economic indicators go hot and cold these days, but here's one that's been consistently getting better: The government has been steadily withdrawing its extraordinary support for the ravaged economy.
It might not seem that way. Lender GMAC is lined up for another bailout of $3 billion to $6 billion from the Treasury Department. Federal pay czar Ken Feinberg recently elbowed aside the boards of directors at seven big bailout recipients by dictating the pay of their top executives. Congress is devising new regulations to police Wall Street, rein in risky practices, protect consumers from corporate predators, and get the government more involved in the private sector than it has been in 70 years.
