Program summary
It's one of those moments when everything seems to be about one thing, and that's the economy, co-anchor Geoff Colvin said at the start of the program.
President George W. Bush's new economic program is getting swatted around Congress, and the markets can't decide what to do because of uncertainty over how war might affect the economy, Geoff said. Three critical events could provide a clearer direction: Hans Blix reports to the U.N. on Iraqi arms inspections; the President gives his State of the Union speech; and we learn whether the economy grew or shrank in the fourth quarter.
In the Forgotten-But-Not-Gone-Department, Harvey Pitt's resignation as SEC chairman was front-page news in November - yet he's still there, because his successor hasn't been confirmed. This week Pitt pushed through significant new rules, including one requiring mutual funds to disclose how they vote their shares on corporate issues, a change widely praised by shareholder advocates.
And McDonald's made a bit of history, reporting the first quarterly loss in its 38 years as a public company. But it also got some good news. A couple of teenagers were apparently shocked to find that eating fast food made them fat, and sued McDonald's. This week a judge threw out that suit. The plaintiffs say they'll amend it and file it again.
Karen's market insight
Eleven years ago the mantra was "It's the economy, stupid." We may not be stupid, but it's still the economy, and it's not looking all that robust. A recent poll shows that 53 percent of Americans disapprove of the way the President is handling the economy. In an effort to stimulate the economy, Bush proposed a tax-cut plan that is facing skepticism at best, tough criticism at worst. Sixty-one percent of those polled think the plan favors the rich.
Why all this uncertainty? Metropolitan areas in the United States lost 646,000 jobs in 2002, prompting the nation's mayors to come up with their own economic plan.
The jobless recovery and concerns over war with Iraq are taking their toll on the dollar and the stock market. The Dow Jones Industrial Average is now just over 8,100, having lost a whopping 456 points over the week and erasing all of its January gains. The Nasdaq Composite Indx slipped 34 points, while the S&P 500 lost 4 ½ points.
Economy roundtable
Karen talked to a trio of economic experts about economic proposals being discussed in Washington, D.C.
Most economists who attended a recent meeting with Bush support the President's desire to eliminate taxes that investors pay on dividends, said Brian Wesbury, chief economist for Griffin, Kubik, Stephens and Thompson. "The people that were in that room at the White House with the President, I think for the most part, near unanimity, were behind the President with this tax plan," Wesbury said. "We all believe that the economy does need some stimulus at this point and believe that this tax bill will do that."
Wesbury believes Bush will get almost everything he's asking for in the tax bill. Cutting dividend taxes will help boost investment, which is what is needed to create jobs, said economic and financial writer Jim Glassman, a resident fellow at the American Enterprise Institute.
Economist Larry Mishel, of the Economic Policy Institute, disagreed.
"The thing is with this plan -- I mean it's not just that it's dramatically unfair, it's that it just won't do the job," Mishel said. "I don't think it really is a growth plan. … This plan fails because it's not going to create jobs in the short run nor growth in the long run."
Bush's real goal is with his plan is not creating jobs, but cutting taxes on capital and forcing deep cuts in government spending, said Mishel, who believes the best way to create jobs is to give money to consumers, provide states budget relief and renovate schools.
"We don't have to do anything that affects the tax structure in 2004, 2005, 2006, 2007 if you want jobs in 2003," he said.
However, consumers aren't doing badly, Glassman and Wesbury said. Individuals' spending has been relatively strong throughout the bear market, they noted.
"This economy is not in the dumps, and I think it's a mistake to keep saying this over and over again," Glassman said. "We are recovering. We will recover. … This is the most robust economy in the world and it will continue to be."
It will continue to be a jobless economic recovery unless companies get customers, said Mishel, who believes the best way to do that is by boosting consumer spending. But giving people checks from the government doesn't help the economy in the long run, Glassman said.
Super Bowl ads
If Sunday's Super Bowl is like many past ones, the ads may be a lot more entertaining than the game, Geoff said. In fact, a new poll says 14 percent of viewers will be watching mainly for the ads.
But if history is any guide, investors would be better off betting on the final score than investing in the companies that place the most expensive commercials on TV. The average cost of a 30-second ad is back above $2 million this year, a level not seen since those prices, like the Dow, peaked in January 2000.
With help from researchers at the Leuthold Group, Wall $treet Week with FORTUNE created a Super Bowl index, to track a portfolio of sponsors' stocks.
Each company weighted by how much advertising it bought -- the more Super Bowl ad minutes, the larger its proportion of the overall index for that year. And if you had invested in that index for the past five years and adjusted the portfolio every January for a new crop of Super Bowl advertisers, you would have lost almost 27 percent annually, on average. That's much worse than the S&P 500, which lost only about 9 percent.
Read more about the Super Bowl index here
Home Depot vs. Lowe's
Geoff sat down with analyst Barbara Allen and FORTUNE writer Patricia Sellers to talk about the retail war between Home Depot and Lowe's.
Home Depot's stock has been falling for the past few years for three reasons, said Allen, of Natexis Bleichroeder: 1) Previous management didn't invest in the distribution centers or the right information technology; 2) Current management has had trouble figuring out what's wrong and making changes; 3) Lowe's has done very well.
Lowe's has a "really good strategy" and "superb execution," Allen said. "They just do it right," she said. "And they have continued to put pressure on Home Depot as they expand across the country ... and so I think what we're seeing here is an increasing distancing of Lowe's away from Home Depot."
The current CEO of Home Depot, Bob Nardelli, is finally doing the right things, but it will take time, Sellers said. "It's like right now he is trying to renovate a house and it's kind of a mess, and he's asking the customers to continue coming in while the house is under renovation," Sellers said. "And it's not easy to keep them coming in in a situation like that."
Fears of market saturation as Home Depot and Lowe's expand rapidly are unfounded, Allen said. "There's plenty of room for both of them to grow, but right now as an investor we need to be looking at who has the best strategy, the lowest valuation relative to growth, and the best execution," said Allen. "And I say that's Lowe's."
Viewer mail
For this week's viewer mail segment, St. Louis resident Bryan Haffer from St.Louis asked:
"I have $150,000 to put into a short term investment of 6 months while I'm waiting for a house to be built. What kind of stable, interest-bearing investment would you suggest? A CD, money market or something else?"
Savings vehicles come in every flavor but very few are paying more than a simple savings account, Karen said. Money market accounts, savings accounts or money market mutual funds are popular for short term investments. They have relatively low yields because of low risk, but offer high liquidity. Money market mutual funds are averaging 0.83 percent but unlike a bank savings account, they're not insured. Online banks offer a better deal than bricks and mortar banks. CD's or certificates of deposits offer a guaranteed rate for a set period, but you can't withdraw that money until the term is up, Karen said. Currently a 6-month CD averages 1.29 percent.
Whatever Haffer does, he should check with bankrate.com for the best rates in his area, and move quickly, Karen said. With the Federal Open Market Committee meeting next week, the danger for Haffer is that they could lower short term rates, offering him even less of a return than he could get today.
Next week: Economy and war
|
