Rick Newman
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This Is What Happens When Free Markets Fail
Continue reading… 5 CommentsIt'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
Continue reading… 0 CommentsSave 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
Continue reading… 1 CommentIf 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
Continue reading… 1 CommentIf 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
Continue reading… 18 CommentsBoy, are we optimistic. The economy has been losing jobs for 22 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
Continue reading… 42 CommentsYou 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
Continue reading… 15 CommentsAs 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
Continue reading… 48 CommentsIt 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
Continue reading… 45 CommentsFord 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
Continue reading… 0 CommentsA 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.
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Get Used To a Bipolar Economy
Continue reading… 6 CommentsJust a few months ago, we were gloomy all the time. It was easier that way.
Now we’re enduring frequent mood swings as the economy teases us with recovery, then smacks down our hopes. There was a bout of euphoria when we learned that the economy grew 3.5 percent in the third quarter, the first period in more than a year when GDP didn’t shrink. Growth was greater than expected, even on par with what you’d see in a normal, healthy economy. Yay! Life is good!
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Why More Competition Won’t Fix Healthcare
Continue reading… 12 CommentsVigorous competition. It's the go-to cure for free-market ailments. When the consumer's getting the shaft, just open up the market, bring in more providers, and watch prices fall.
A lot of the time, it works. Car buyers get terrific deals and great quality because a dozen automakers compete ruthlessly to offer the best value. Electronics consistently get cheaper, while features improve, thanks to the proliferation of low-cost Chinese manufacturers. And the Internet has allowed anybody with an eBay account to compete with the biggest retailers, lowering prices on thousands of products.
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Stuff We Spend More On In A Recession
Continue reading… 0 CommentsFox Business recently invited me onto its noontime Web show to discuss my recent story on 10 products that boomed during the recession. Here's the video:
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9 Signs of America in Decline
Continue reading… 286 CommentsThe sky isn't falling, exactly. America isn't on a fast track to irrelevance. Even in a state of total neglect, we could probably shamble along as a disheveled superpower for a few more decades.
But all empires end, and the warning signs of American decline seem to be blinking more consistently. In the latest annual "prosperity index" published by the Legatum Institute, a London-based research firm, the United States ranks as the ninth most prosperous country in the world. That's five notches lower than last year, when America ranked No. 4. The drop might seem inconsequential, especially in the midst of a grueling recession—except that most of the world has endured the same recession, and other countries are bouncing back faster.
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How Gary Vaynerchuk Crushes It
Continue reading… 4 CommentsI had a lively sit-down chat recently with Gary Vaynerchuk, founder of WineLibraryTV.com and author of the new bestseller Crush It: Why Now Is The Time To Cash In On Your Passion. Vaynerchuk is one of the most energetic folks I've ever met, and he has some compelling ideas about how to use the Web to indulge your avocations. Check out this video of the interview on Hulu:
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The Last of the Wall Street Pay Cuts
Continue reading… 8 CommentsThe Obama administration is finally getting tough—on corporate invalids.
The government's "pay czar," Kenneth Feinberg, is coming down hard on the seven firms under his jurisdiction, ordering steep pay cuts for about 175 top executives. The brass at AIG, Citigroup, Bank of America, GMAC, General Motors, Chrysler, and Chrysler Financial will have to live without the nine-digit paychecks Wall Street's titans have become accustomed to. Some won't even make eight figures. And the majority of their pay will come in the form of stock that can be cashed in only after the companies have met long-term performance targets. Until that happens, the impoverished execs might have to get by on meager salaries that might not even reach $1 million.
[See 10 gaffes by doomed CEOs.]
So hyperventilate about the government meddling in the private sector, and then consider that every one of these firms would have been vaporized if not for government intervention. American taxpayers effectively own AIG and General Motors, with major stakes in the other firms. Together, all seven firms have devoured nearly $300 billion worth of bailout funds. They've gobbled up the majority of the TARP money in the government's corporate rehab program. None of these firms have said when they will pay back those bailout funds, and some may never pay it back.
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The Healthcare-Reform Hypocrisy Sweepstakes
Continue reading… 26 CommentsMost people with a stake in the U.S. healthcare system agree there are deep problems that must be fixed. As long as somebody else pays for it.
Virtually all of the problems reformers are struggling to solve—relatively poor health outcomes, medical bankruptcies, nearly 50 million uninsured—derive from one überproblem: Healthcare in America costs too much. So as Congress finally gets close to producing actual reform legislation that could become law, just about every interest group with a Washington lobbyist is fighting intensely to make sure it doesn't get stuck with the bill.
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10 Products That Boomed During the Recession
Continue reading… 27 CommentsBehold the damage the recession has wrought on the consumer economy: Retailers and automakers have gone bankrupt, restaurants have closed, and malls have become ghost towns. Most businesses dependent on consumer spending, from clothing to computers to appliances, have felt the pinch.
[Slide Show: 10 Products That Boomed During the Recession.]
But some consumer-product companies have benefited from the recession, usually because they sell the kind of stuff that helps people save money. Other companies have capitalized on timely technology or latched on to powerful trends that defy the recession. To identify some of these recession winners, I analyzed data provided by financial research firm Capital IQ, a unit of Standard & Poor's, to see which consumer-products firms have gained revenue and market share since the recession began near the end of 2007. Then I researched earnings reports and other sources to see which products have fueled each company's growth.
For many of these companies, any increase in revenue over the past two years is a nifty accomplishment, since overall sales of household goods have fallen by more than 30 percent, according to Capital IQ. And sales of supposedly recessionproof "staple" items like food, beverages, and personal products have barely risen. So firms that have significantly outpaced the rest of their industry deserve special attention.
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Why Stocks Are Surging as Jobs Disappear
Continue reading… 56 CommentsStocks are up. Jobs are down. So if you're an investor you're enjoying a vibrant recovery and if you're a worker it still feels like a grinding recession.
Since bottoming out in March, the stock market has soared by about 60 percent, one of the most awesome rallies in market history. The Dow Jones Industrial Average cracking 10,000 may not be strategically significant, but it's a psychological breakthrough that's worth cheering after the demoralizing crash that preceded it.
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7 Ways to Survive the Jobless Recovery
Continue reading… 46 CommentsMaybe the pessimists are wrong. Maybe the so-called economic recovery will gather steam and turn out to be robust. Maybe prosperity is about to leap from its hiding place and shout, "Hey! I'm back!"
But planning your future around maybes leaves little margin for error, and it looks as if the Great Recession is morphing into the Great Hangover. Even though economists believe the recession is technically over, the unemployment rate is likely to hover near 10 percent or higher well into 2010. Businesses have slashed costs, but with sales still weak, they're in no mood to start hiring. The Congressional Budget Office predicts that the unemployment rate will stay above average until 2014 at least. Allen Sinai, an economist at Decision Economics, foresees a "difficult, probably crisis situation in the U.S. labor market that goes beyond the recession and any fledgling recovery."
