Chrysler's Marriage Hits a Rocky Patch; Markets Pucker Up After Bernanke's Inflation Valentine; Home's Where the Heart Is, Not Where the Money I
Chrysler's Marriage Hits a Rocky Patch
Though Germany's DaimlerChrysler announced last week that it is considering ending its troubled union with U.S.-based automaker Chrysler, don't expect splitsville anytime soon. With Chrysler yet to resolve how to pay for its legacy costs, such as retiree benefits, it's hard to imagine a potential buyer taking on these long-term obligations. "Daimler is probably stuck with Chrysler" for a while, says UBS Investment Research. So why even bring up divorce? It's a not-so-subtle attempt to pressure the United Auto Workers Union to make nice with the Germans as they try to restructure their U.S. division. The company said last week it would cut 13,000 jobs at Chrysler. DaimlerChrysler's troubles offer investors an important lesson. While the economy is going global, globalization in no way guarantees the success of cross-border mergers, especially since firms have to meld both corporate and national cultures for a deal to bear fruit.
Markets Pucker Up After Bernanke's Inflation Valentine
Goldilocks is alive and well, and his name is Ben Bernanke. Last week, the Federal Reserve Board chairman told Congress the economy is neither too hot nor too cold. While stopping short of declaring "mission accomplished," Bernanke signaled that the central bank's war on inflation was going just right. This sent both the stock and bond markets rallying last week, with the Dow Jones industrial average hitting another record high. Bernanke's assertion that "inflation pressures are beginning to diminish" was clearly supported by economic data. The Labor Department reported Friday that wholesale prices actually fell 0.6 percent last month, as energy prices plummeted. Now, Wall Street awaits further confirmation that inflation is in check, with the consumer price index report due Wednesday.
Home's Where the Heart Is, Not Where the Money Is
Home prices soared earlier this decade, so it's easy to see why so many Americans are banking on their houses to finance retirement. But a study shows that residential real estate is "not likely to be the silver bullet," says Guy Patton, executive director of the Fidelity Research Institute. First, home prices generally appreciate much more modestly than other assets do-just 5.9 percent a year on average since 1963. What's more, because investments in houses are leveraged through mortgage loans, severe drops in home values could translate into even bigger losses in home equity. And those losses could cripple your retirement plan if they come just as you're about to leave the workforce.
Warming Trend; Investor Sentiment
Warming Trend
This week, the Conference Board is scheduled to release the latest results of its index of leading economic indicators. But market watchers on Wall Street already have a good idea of what's in store for the economy. Or at least they think they do. Last year, investors feared that the current economic expansion was showing its age and that a recession was just around the corner. But a recent survey of money managers by Merrill Lynch now shows that most believe the economy will either stay as strong as it is now or grow even stronger in the next 12 months. And only 2 percent of fund managers consider recession a strong possibility. Most are forecasting that interest rates will be higher a year from now, which is a sure sign of increased economic activity.
Investor Sentiment
Wall Street mavens are hard to please. They hate it when investors get too bullish, and they don't like it when sentiment grows too bearish. The good news: The mood of the market appears to be just right-sanguine but stable-according to recent investor confidence surveys by State Street.
This story appears in the February 26, 2007 print edition of U.S. News & World Report.
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