MCAD Industry View - A May 2006 Update
Meanwhile, Richard Scrushy was handed felony convictions today in a state bribery scheme linked to his days as chief executive of HealthSouth Corporation. Acquitted last year of directing the HealthSouth fraud, Scrushy remains a defendant in major civil cases involving allegations of a $2.7 billion accounting scam at the rehabilitation chain he once ran.
A bevy of studies was released today that reveal the state of retirement across America as bleak in the best case and depressing in the worst case. For examples: more than 43% of Americans are not saving at all, and only a third of Americans are saving enough to maintain their standards of living in retirement; 28% of current workers and 12% of retirees are not confident about having enough money in retirement even to pay for their medical expenses; a vast majority of US employers are planning to curtail their retiree medical plans for current and future retirees in the next five years; regardless of their ages, genders, household incomes and education, 38% of surveyed Americans say they expect their retirement to be "financially difficult."
Things are not as bleak for most CEO's, such as Pfizer CEO Hank McKinnell for example. Since taking over Pfizer in 2001, he has been paid $79 million in salary and also paid pension benefits worth an estimated $83 million. Yet the drug giant's stock has fallen by more than 40%. "Corporate compensation in America is now offending a lot of people needlessly and it ought to be fixed," Berkshire Hathaway Vice Chairman Charles Munger said recently. "CEOs and boards should be a lot more sensitive to the current [economic] environment, and not have the wretched excesses of executive compensation hitting the headlines at the same time they are laying off 50,000 people."
As if the overwhelming oil oligarchy is not enough: Water is "the first and last great commodity," said Phil Flynn, a senior analyst at Alaron Trading in Chicago. Water still doesn't have a publicly-traded market -- nothing similar to the oil futures which help dictate market prices. But with the US population headed for the 300 million mark later this year, and the world figure above 6.5 billion, "people theorize that the next great competition over supplies will be for fresh water," said Flynn, adding that the supply of drinkable water is becoming tighter and tighter. At some point, "it's going to be the oil market of the future," he said.
General Motors' largest shareholder is pressing the troubled American auto giant to speed up its turnaround effort by forming an alliance with two foreign car companies, Nissan and Renault, which would pay $3 billion for a 20% stake in GM. On its own, GM is in the midst of closing all or part of a dozen plants and cutting 30,000 jobs as part of its restructuring effort.
The Commerce Department said spending on construction projects fell 0.4% in May, marking the biggest decline since September 2004. The drop was unexpected; economists had forecast a 0.2% gain in construction spending. April outlays were also revised lower to a 0.2% drop from the 0.1% decrease previously estimated. Also, the Institute for Supply Management's June survey showed that the index fell to 53.8% in June from 54.4% in May.
Enron founder Ken Lay passed away today, while vacationing in Aspen. He was 64. Facing decades in prison, Lay had displayed no signs of ill health throughout his four-month fraud trial. Just before Enron became a scandal-tainted punchline, the company was the single largest contributor to President Bush, who nicknamed Lay "Kenny Boy." But White House press secretary Tony Snow said today that he hadn't discussed Lay's death with the president. "The president has described Ken Lay as an acquaintance", said Snow. Some legal experts said that Lay's death may render the government's criminal victory null. Regardless, his estate apparently remains the subject of civil lawsuits by the Securities and Exchange Commission and former investors and Enron employees, which could still proceed. Unless, of course, someone issues a posthumous pardon.
Dow Closes Down 76, Nasdaq Closes Down 37 -- Concerns over North Korea's nuclear ambitions and a new record for oil prices ($75.19 per barrel) sent stocks lower today and added to Wall Street's ongoing worries about the economy and interest rates. North Korea defied .stern warnings. from the US to launch seven missiles on July 4, including a long-range Taepodong-2. Since January 2001, this US administration has consistently refused to conduct 1:1 talks with North Korea. Gasoline futures also jumped 6 cents on July 5 to settle at $2.28 a gallon. With refiners fetching the equivalent of $95 a barrel or more for gasoline, "A refiner doesn't have to be disciplined in the buying of crude," explained Tom Kloza, an oil analyst at Oil Price Information Service in Wall, NJ.
July 7, 2006
US employers increased payrolls by a tepid 121,000 in June, providing ongoing evidence that companies are reluctant to bulk up their work forces in the face of high energy prices and slowing economic growth. The count of new US jobs added in June fell well short of economists' forecasts for an increase of around 175,000 new positions. "When you only have 121,000 jobs being added, that sounds pretty puny," said Ken Mayland, economist at ClearView Economics. "On the face of it, this is somewhat disappointing; the job picture is consistent with other barometers that suggest economic growth is slowing," he said.
Stocks plunged for a second straight session today as Wall Street battled a storm of negative factors - soaring oil prices, interest rate jitters and the slowing US economy. The Dow Jones industrial average dropped almost 167 points, bringing its two-day loss to 288. The Nasdaq Composite finished the day at a nine-month low.
Escalating violence in the Middle East carried oil to near $77 a barrel, a new record high, following a fresh escalation in Middle East tensions. US gasoline prices are also setting new records. Bogged down in Iraq and having neglected the Middle East peace process for five and a half years, the current US administration appears powerless to help ameliorate the situation there. The same may be said of increasing belligerence by Iran and North Korea.
Surging oil prices pulled stocks sharply lower for a third straight session today, with bland corporate earnings and weak consumer data further dampening the economic outlook. The Dow Jones industrial average shed 396 points in the past three days. The Dow tumbled 107, or 1% today, to 10,739. The blue-chip index fell more than 121 points July 12 and lost almost 167 points July 13, and after today is just 21 points from turning negative for the entire year-to-date 2006.
The Nasdaq composite index declined another 17 points today to 2,037, down 4.35% for the week, and now stands at a 14-month low.
Crude oil futures reached an intraday record of $78.40 a barrel today as Israel intensified its attacks on Lebanon, further raising concerns about potential supply disruptions throughout the Middle East. Crude eventually settled at $77.03 a barrel, up 33 cents, another record close.
Retail sales fell in June, as did consumer confidence for July. Moreover, investors are increasingly concerned that the recent spate of corporate Q2 profit warnings is still another indication that the US economy is headed for a downturn.
Posting a loss for the third straight week, the tech-laden Nasdaq dropped 19 points to 2,020 today after plunging over 41 points on July 20. The 2,020 level was the lowest finish for the Nasdaq since May 17, 2005, when it closed at 2,004.
Dell Computer Corporation stock tumbled $2.19 today, or 10%, to $19.91 after it said aggressive price cuts in the personal computer market would cause the company to miss forecasts. Dell has approximately 26,000 employees in the US these days; over the last three years, Dell has created nearly 40,000 offshore jobs.