Rick Newman
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How to Invest Smarter After the Recession
Continue reading… 21 CommentsJohn Bogle opens his seventh book by recalling a 2005 poem by Kurt Vonnegut called "Joe Heller." Vonnegut writes of an exchange with his friend, the Catch-22 author, at a party tossed by a billionaire. Vonnegut observes that the host made more money in one day than Heller made from Catch-22 since it was published in 1961. "I've got something he can never have," Heller replies. "The knowledge that I've got enough."
Many of us don't, apparently, which compelled Bogle, founder of the Vanguard mutual-fund firm, to write Enough: True Measures of Money, Business, and Life. Bogleheads, as fans of the financial pioneer are known, will recognize some familiar themes: Most money managers charge exorbitant fees that severely cut into returns for the average investor, for example. But Bogle also shows prescience in describing the housing bubble and other problems that sank the economy, in a book written mostly before Lehman Brothers failed in 2008, igniting a financial rout. I spoke recently with Bogle about how the recession and other factors will change the way we spend money and plan our financial lives. Excerpts:
How are the recession and the financial meltdown changing the way people need to think about their financial future? What happened in the '80s and '90s is a completely nonrecurring phenomenon. Two 17 percent-return decades in a row. That's without precedent. PEs [price-to-earning ratios] went from 8 to 16 to 32. For those returns to continue, PEs would have to go to 128. That may happen someday, but I don't want to be around to see it.
[See why a housing rebound could take 20 years.]
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The Case for Postal-Style Healthcare
Continue reading… 146 CommentsYou've heard the refrain: If the government ran healthcare, it would be just like the U.S. Postal Service. And nobody wants that.
Or do we? The USPS, an independent government agency, is the convenient butt of jokes regarding poor service, rude employees, and occasional government mangling of personal property. It routinely borrows from the government to cover operating losses and endures disruptive political meddling in basic management decisions.
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6 Confirmation Questions For Ben Bernanke
Continue reading… 3 CommentsIt’s not surprising that Ben Bernanke is getting a second round as chairman of the Federal Reserve. Had President Obama bounced Bernanke after one four-year term, it would have sent an unsettling message just as the economy appears to be turning the corner. And history may show that Bernanke’s aggressive intervention in the economy over the last 18 months has been much more prudent than the hands-off approach his detractors would have preferred.
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Why Health Insurers Make Lousy Villains
Continue reading… 128 CommentsOne of the fresh spectacles we're likely to enjoy this fall is moral outrage—real or feigned—over health insurance companies that may or may not be rapacious.
President Obama has already singled out insurers as the villains responsible for exorbitant healthcare costs that are bankrupting families and businesses and making care unattainable for millions. Rep. Henry Waxman, chair of the House Energy and Commerce Committee, has asked 52 insurance providers for detailed data on pay and perks for executives, junkets for employees, and other ways they spend the money that comes from premiums paid by policyholders.
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How Your Car Compares to the Chevy Volt
Continue reading… 17 CommentsGeneral Motors has delivered some momentous news this year. There was that inconvenient bankruptcy filing on June 1, and the taxpayer bailout that now totals $51 billion. To get our minds off that, GM recently announced that the Chevrolet Volt, which is now basically a taxpayer-funded science project, will get the equivalent of 230 miles per gallon in city driving. Whoa. In overall driving, GM assures us the Volt will shatter the mythical 100-mpg mark.
There's reason to be skeptical, since GM has overpromised many times before. And if GM ever needed some favorable press, it's now.
But so far the Volt is standing up to scrutiny, and the closer we get to the scheduled launch late next year, the more innovative the Volt appears. Even though most Americans won't buy one, the Volt could create one of the first meaningful alternatives to gas-powered cars. It could also change the way we think about fuel economy—and reinvigorate beleaguered GM.
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Could Your Health Insurer Run “Cash For Clunkers?”
Continue reading… 4 CommentsPeople opposed to healthcare reform have a new mantra: If the government can’t run the “cash for clunkers” program, do you really want them managing your healthcare?
Catchy. Timely. And probably as misleading as “death panels” and “euthanasia.”
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How to Avoid the ‘Cash for Clunkers’ Snarl
Continue reading… 13 CommentsWhen car dealers start doing business with the federal government, whaddya expect? Perfect harmony?
Of course not. Several weeks into the "cash for clunkers" program it turns out that delivering a couple of billion dollars worth of rebates to hundreds of thousands of car buyers can generate a few flat tires. The Department of Transportation's latest update on the Car Allowance Rebate System shows that the government has received applications for about 412,000 rebates totaling $1.7 billion. But so far, the feds have approved only a fraction of those, leaving dealers furious.
[See which carmakers have been hurt most and helped most by the recession.]
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Why a Housing Rebound Could Take 20 Years
Continue reading… 44 CommentsYou know where the housing market has been. You may not want to know where it's headed.
There are tentative signs the depressed housing market may finally be close to bottoming out. That might sound like good news, but hitting bottom doesn't mean an upward rebound will follow anytime soon. Economist Celia Chen of Moody's Economy.com has published a forecast suggesting that residential real estate could take 10 years to recover in most states—and 20 years in Florida and California.
[See 10 cities facing the next real estate bust.]
Chen predicts that house prices will stop falling by the second quarter of 2010, which is consistent with what the Federal Reserve and many other forecasters have said. But her longer-term outlook helps explain why many economists are gloomy about the nation's economic prospects for the next several years. Some of Chen's predictions:
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How the Chevy Volt Will Transform Fuel Economy
Continue reading… 85 CommentsIt’s an eye-popping number: 230 miles per gallon. General Motors says that’s the mileage its new plug-in car, the Chevrolet Volt, will get in city driving, assuming it goes on sale as planned in late 2010.
It’s also misleading. The Volt will get astounding “gas” mileage because it won’t exactly be powered by gas. At least a lot of the time it won’t, if drivers use the car the way GM envisions. That’s the whole point of an electric car: To propel a vehicle with something other than petroleum. If the Volt were powered mostly by a windmill or a nuclear reactor, it would also get great gas mileage, since the fuel would be coming from some other source.
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10 Cities Facing the Next Real Estate Bust
Continue reading… 9 CommentsThe worst of the housing bust might finally be over, but another real estate tsunami is about to swamp many American cities. This time, it will be office buildings and retail space going vacant and facing foreclosure.
Like housing, commercial real estate goes through booms and busts, and the coming wipeout is likely to be a doozy. Commercial developers went on their own spending spree earlier this decade, racing to cash in on the hot economy with new office towers, hotel complexes, and retail projects. Banks supplied hundreds of billions of dollars in loans, often assuming that rents paid by tenants would keep going up. "The assumption was that the good times would go on forever," says Victor Calanog, director of research for REIS, a real-estate-research firm.
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10 Cities Primed for a Real Estate Recovery
Continue reading… 5 CommentsA stutter-step economic recovery seems to be underway, with signs that the housing bust and employment wipeout may finally be moderating. But economists still have a lot of major worries.
One of the biggest is an unfolding bust in commercial real estate that may mirror the housing meltdown. Earlier in this decade, when credit flowed easily and the economy was booming, commercial developers behaved much the same as overeager homeowners. Figuring business would keep growing and rents rising, they borrowed heavily to build office towers, hotel complexes, and retail projects. Banks obliged, funneling the cash. Now, with a surge in bankruptcies, cutbacks, and layoffs, office and retail vacancy rates are near record levels. Over the next three years, many cities will struggle with a new real estate bust as banks foreclose on commercial real estate loans and developers battle to stay in business.
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5 Downsides to 'Cash for Clunkers'
Continue reading… 131 CommentsEureka! Stimulus works! The first $1 billion allocated to "cash for clunkers" rebates apparently helped boost car sales by more than 250,000 vehicles, bringing some much-needed cheer to depressed auto showrooms. So Congress added $2 billion to the program, which by extrapolation could increase sales by more than 750,000 units overall. Carmakers are gleeful. And the Obama administration finally has some concrete evidence that extravagant government spending occasionally moves the needle.
But the buying spree, fueled by government rebates of up to $4,500, may not be quite the economic boost it appears to be on the surface. And there will probably be some of those pesky unintended consequences. Here are a few reasons that cash for clunkers is likely to look a lot less successful when seen in the rearview mirror:
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Industries Hurt Most by Soaring Health Costs
Continue reading… 40 CommentsIt started as a dull throb in the economy, with the pain growing sharper. Now there's finally a diagnosis: Runaway healthcare costs are directly harming businesses and their employees.
As just about everybody knows, the cost of healthcare is rising much faster than wages, profits, and most other things in the economy. Healthcare spending accounted for about 11 percent of GDP in 1987; today it's more than 16 percent, and by 2017 it's very likely to be almost 20 percent. We spend more than $2 trillion a year on healthcare—roughly the same amount we spend on housing—and the cost is rising about five times faster than wages or overall inflation. Exorbitant cost is the main reason 47 million Americans have no health insurance—and why President Obama's ambitious plan to expand coverage and overhaul the entire system is in jeopardy.
[Read about the trouble with healthcare reform, in numbers.]
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Why 'Cash for Clunkers' Will Keep on Rolling
Continue reading… 24 CommentsHeh heh heh. Those jokers in the Senate really have a sense of humor.
In case the savage recession has disarmed your funny bone, here's the joke: Congress has come up with $700 billion to rescue rich bankers on Wall Street and nearly $800 billion in dubious "stimulus" spending. Bailing out Chrysler and General Motors alone has cost $80 billion. Compared with all that, the "cash for clunkers" program is an afterthought, a tiny $1 billion program meant to goose car sales and get a few rattletraps off the road.
[See 9 firms that are least likely to pay back their bailout money.]
While we wait to see if the megabailouts work, however, cash for clunkers has turned out to be the first rescue program with demonstrable, real-time results. In less than a week after the program kicked off, C4C, as it's known, helped boost car sales by about 250,000, transforming July from another depressed month for the automakers into something to cheer about. Government giveaways don't represent a healthy economy, and some of those sales were to people who would have bought a car later this year anyway, without the rebate. But C4C has been so popular that buyers have already claimed $1 billion worth of rebates, exhausting funds that were supposed to last until November. The White House has now asked Congress for $2 billion more to continue the program.
