Money & Business
Money Watch: When Blockbuster Meets Wal-Mart
When Wal-Mart enters a market, it's usually good news for penny-pinching consumers. But the 800-pound gorilla's exit from the DVD rental business may prove to be the real boon for movie buffs. Soon after Wal-Mart said it was pulling out--and entering into an alliance with rival Netflix--Blockbuster got down to business. Hoping to more than double online subscribers to 2 million by early 2006, the nation's biggest bricks-and-mortar rental chain is offering Wal-Mart and Netflix defectors two free months of rentals along with a free DVD. Even better deals may follow. The Netflix/Wal-Mart agreement--which calls for Netflix to promote DVD sales at Wal-Mart and for Wal-Mart to push its rental customers to Netflix--may end up hurting movie sales at Amazon.com. Analysts at Wedbush Morgan Securities expect Amazon to forge a similar joint-marketing alliance with Blockbuster. Should the two sides go to war, DVD renters and buyers stand to benefit.
Money Watch: Don't Write This Tax Off Yet
In criticizing the alternative minimum tax, Montana Democratic Sen. Max Baucus compared the dreaded AMT--enacted in 1969 to make sure the wealthy don't get away with too many deductions--to Darth Vader: "Both [Anakin] Skywalker and the AMT started off with good intentions, but eventually they went astray." He's right. Because the AMT was never indexed for inflation, millions of upper-middle-income earners are now getting hit with the tax. But Baucus, who along with a bipartisan group introduced a bill last week to repeal the AMT, will soon discover that the force behind this universally hated tax is strong--perhaps too strong to defeat this year. "The chances of any movement this year on the AMT are virtually nil," says Greg Valliere, chief strategist for the Stanford Washington Research Group. The Treasury Department wants any repeal to be revenue neutral. Over the next decade, the AMT should bring in more than $600 billion. And in the face of big budget deficits, that may be too great a force for even a bipartisan coalition to overcome.
Money Watch: Scratching Heads Over Greenspan
Alan Greenspan can't understand why the bond market is so fixated on the slowing economy and not on inflation. But as the latest Federal Reserve Board minutes show, the real mystery is why he is so hung up on inflation. The Fed thinks the effects of higher energy costs should fade over time and that officials expect "inflation to remain contained" even though consumer prices are rising. Meanwhile, the board believes there is still some slack in the labor market, also suggesting little inflation pressure. Still, the risks of inflation appear to be "skewed somewhat to the upside." Huh?
The Week Ahead: Dollar Days
After losing value against the euro for the past couple of years, the dollar has been quietly gaining strength. One reason: Since last summer, the Federal Reserve Board has raised a key short-term interest rate eight straight times, driving the federal funds rate up from 1 percent to 3 percent. At the same time, the European Central Bank has kept short-term rates in Europe stuck at 2 percent. This week, the ECB meets again, and many expect it to stand pat--especially since the economy there is slowing while inflation remains relatively tame. "If they hold again and the U.S. continues to raise rates, it will definitely strengthen the dollar more," says David Kotok, chief investment officer for Cumberland Advisors. That's good news for European exporters. But it could be a challenge for U.S. manufacturers and investors.
The Week Ahead: Jobs Aplenty
In fits and starts, the job market is finally getting going. Though economists don't think May was a gangbuster month for job creation, they still believe the Labor Department will report that around 175,000 new positions were added to nonfarm payrolls last month.
Now Hiring
Monthly job creation
[Chart data are incomplete.]
May '05 175,000*
[Chart labels]
June '04
Nov. '04
May '05
0 50,000 100,000 150,000 200,000 250,000 300,000
*Estimate
Source: Department of Labor
Chart by USN&WR
This story appears in the June 6, 2005 print edition of U.S. News & World Report.
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