Money & Business
Money Watch: One Strike Already for HP's New Chief
Wall Street applauded when Hewlett-Packard tapped NCR chief executive Mark Hurd last week to replace the ousted Carly Fiorina. "Just what the doctor ordered: a turnaround specialist," proclaimed analysts at J. P. Morgan. Investors wholeheartedly agreed, boosting the company's shares 10 percent on the news--and on a day when the Dow slid about 80 points. But investors would be wise to proceed with caution. Yes, it's true Hurd engineered a remarkable turnaround at NCR, a computer equipment firm. During his two-year stint as CEO, for example, NCR shares soared more than 300 percent. But he faces a much more difficult task at HP. Hurd, who spent 25 years at NCR, has little familiarity with the troubled technology giant, a company more than 12 times NCR's size. While so-called white knights get considerable limelight at the start (think Al Dunlap at Sunbeam or Fiorina herself at HP back in 1999), outsider CEOs are typically less triumphant than insiders when it comes to generating returns for shareholders, according to a study last year by the consulting firm Booz Allen Hamilton. No wonder Fortune 1000 companies consistently choose head honchos from their own shops over new blood by 2 to 1.
Money Watch: Second-guessing the Nation's Most Renowned Investor
Warren Buffett's reputation is being tested in more ways than one. While regulators are exploring the Berkshire Hathaway CEO's knowledge of a troublesome deal with insurance behemoth AIG, investors are wondering: Was Buffett's ultimate sin overselling in 1998 the merits of his acquisition of General Re, the company at the center of the controversy? "It's a fair question," says Jim Huguet, president of Great Companies LLC, an institutional money management firm that recently reduced its Berkshire Hathaway holdings. Known as a shrewd buyer of businesses, Buffett has somehow suffered through one headache after another with General Re, which he has described as a "problem child." In the past, he has bemoaned disappointing underwriting losses as well as the firm's poor risk management. "And now there's the regulatory issue to contend with," says Gary Ransom, an analyst with Fox-Pitt, Kelton. "If you look at it in its totality, I don't think it's been that good of an investment." Indeed, seven years after Berkshire paid $22 billion for the reinsurer, "the value of General Re today is still somewhere around that range," says Edward Jones analyst Kevin Lampo.
Money Watch: A Lingering Loan Gathers No Discount
College students, welcome to the real world. You know those historically low interest rates you've been paying on your student loans--2.77 percent on Stafford loans, for example? They're about to end. Rates are recalculated every year. And since short-term rates have spiked since the last reset, that could translate to a 2 percentage-point bounce after July 1. That gives students, recent grads, and parents only a short time to consolidate their loans at this year's low rate. Wait too long, and the variable rates on your existing loans will shoot higher, says Mark Brenner, president of College Loan Corp.
The Week Ahead: Let's Hear It for Layoffs
Last month, the nation created 110,000 new jobs, half the number economists were expecting. But the news wasn't all bad for Wall Street, which just closed the books on a disappointing quarter in which stocks lost ground on inflation fears. In a week that saw Goldman Sachs predict oil prices could eventually double to $105 a barrel, the modest jobs report was at least one sign that inflation might not be an immediate threat. "It's kind of like a Goldilocks scenario where job creation isn't too hot and isn't too cold," says Zachary Karabell, senior economic analyst for Fred Alger Management. Any jump in jobs is likely to spark anxiety about rising wages, another inflation factor. So on Tuesday, when the outplacement firm Challenger, Gray & Christmas tallies March layoffs, expect Wall Street again to be rooting against the job market.
The Week Ahead: A National Credit Spree
With interest rates climbing, economists worry that mounting mortgage, credit, and other monthly debt payments could swamp some consumers. That's why experts will be paying close attention to the Federal Reserve this week when it details the latest household borrowing trends.
Owe as you go
Amount of outstanding consumer debt (in trillions)
[Chart data are incomplete.]
Feb. 2004 $2.038 tril.
Jan. 2005 $2.121 tril.
[chart labels]
0 2.00 2.02 2.04 2.06 2.08 2.10 $2.12
Source: Federal Reserve
Graphic by Stephen Rountree-- USN&WR
This story appears in the April 11, 2005 print edition of U.S. News & World Report.