« July 10, 2005 - July 16, 2005 | Main | July 24, 2005 - July 30, 2005 »
My latest in Slate, on how the nation's obesity crisis could -- could -- prove to be an economic competitive advantage.
Posted by dan at 10:14 AM
It's a cram-down, Silicon Valley style. Hewlett-Packard CEO Mark Hurd announced a restructuring (read: mass firing) today.
Among the components of the bold visionary plan: simplifying H-P's structure, cutting 14,500 jobs, and changing the company's retirement plans "to better match industry benchmarks."
Starting next January, "the company will freeze the pension and retiree medical-program benefits of current employees who do not meet defined criteria based on age and years of company service. Instead, HP will increase its matching contribution to most employees' 401(k) plans to 6 percent from 4 percent."
In other words, thanks for all your hard work, but H-P won't be contributing to that pension plan any more. Sure, they'll be boosting their contributions to 401(Ks). But the net result is a lot less money for retirements savings. How much less? H-P says $300 million less annually starting in fiscal 2007.
Posted by dan at 02:48 PM
In the end, it all comes back to the plane. The wires and CNBC were abuzz yesterday with news that Sandy Weill, the former CEO and current Chairman of Citigroup, was set to leave the company he had cobbled together and set up a $5 billion private equity fund. Such was the chatter, Citigroup felt compelled to issue a press release saying CNBC's report was wrong.
This morning, Monica Langley and Mitchell Pacelle provide some background in the Wall Street Journal. They report that Weill "has spent the past several days trying to get out of his contract in order to launch a private-equity fund." Alas, negotiations broke down. The sticking points: "a noncompete clause in Mr. Weill's contract and whether he could retain his bonus, pension and perks, including use of the corporate jet and car and driver." (My emphasis).
If Weill is still hondling Citigroup over a car and a plane -- and if such hondling could stand in the way of the formation of a $5 billion private equity fund -- then the genius is a bonehead.
Lets look at the numbers. According to Yahoo! Finance, Weill has 16.4 million shares of Citigroup. At $44 a share, they're worth $720 million. And they throw off about $28 million in dividends a year. So If he really wants to use a plane, he can sell about five percent of his shares, or use a year's worth of dividends and buy his own jet. And he'd still have plenty of change left to hire a car and driver.
An alternate scenario. A $5 billion private equity fund would throw off management fees of anywhere from $50 million to $75 million per year. Again, there's plenty of money here to find the necessary funds to charter jets, buy a Town Car, and hire a former cop to drive it.
Posted by dan at 03:57 PM
With apologies to Marginal Revolution, there really are markets in everything. The Financial Times observer obseves:
Nostalgia in the former East Germany has a heady aroma: that of the exhaust fumes of the Trabant car. An entrepreneur has tapped into communist tastes by canning the once ubiquitous outpouring of the iconic car and selling it on the internet. "The smell is something very special and scarce nowadays," said Thorsten Jahn, whose cans of "Trabi" exhaust sell online for €3.98 ($4.81). "I wanted to preserve the past in an original way," he said. Original indeed. Jahn's friend produced the cans by holding pieces of cotton wool over the exhaust pipe of his Trabi for four days to filter out dangerous particles.
Next up, the bottled sweat of retired secret police agents- Eau de Stasi.
Posted by dan at 10:36 AM
The indefatigable David Cay Johnston of the New York Times alerts us to an excellent Tax Notes article by John Buckley, a Democratic staffer on the House Ways and Means Committee.
The article argues that the pernicious Alternative Minimum Tax effectively claws back a big chunk of the dividend and capital gains tax cuts for plenty of plain old rich folk. It can be seen here.
So who precisely is getting the full benefit of the reductions in capital gains and dividend tax cuts? After all, all the assets held in tax-sheltered retirement accounts, health savings accounts, college savings programs, university endowments, corporate pensions and foundations don't have to pay any taxes on dividends and capital gains as it is. That probably adds up to about half of all the stock assets. Now, Buckley argues that, thanks to the AMT, people earning less than $382,000 per year may pay an effective rate of 22 pecent on dividends and capital gains. They own plenty of stock, too. In other words, only the 1 percent of Americans earning more than $382,000 are getting the full benefit of the cuts. And they get the full benefit only to the extent they hold the stocks and take their capital gains outside of tax-sheltered accounts.
Buckley charges--and I agree--that by slashing marginal rates and taxes on dividends and capital gains in 2001 and 2003, while doing nothing about the AMT, the Bush administration made a decision "to limite the benefits provided to middle-income and moderately wealthy taxpayers to provide the greatest benefits to the very wealthy."
The response from the adminstration was typically obtuse. Treasury spokesman Taylor Griffin told the Times that "the administration is as concerned as anyone about the growth of the A.M.T. and its effect on taxpayers."
Not. The administration hasn't proposed doing anything about it. And the usual partisan hack suspects--you know who you are--who love to lecture the world about the horrors of the tax code have remained largely silent about the inefficiency and absurdity of the AMT. And why would they rock the boat? As I've argued, the AMT as currently structured is largely a tax on Democrats.
Posted by dan at 10:32 AM
I missed this last week. The Federal Reserve’s latest report on consumer credit—for May—came out on July 8. The two-month trend of Americans paying down credit card debt was reversed, as revolving debt rose by $800 million. But Americans consuemrs also paid down some $3.8 billion in non-revolving debt in May. The net result: consumer borrowing fell at a 1.7 percent annual rate in May.
Posted by dan at 03:08 PM
Paul Krugman beat me to the punch with his column today on missing workers and low labor force participation in recent years. (I had been planning on writing on the topic for next Sunday's "Economic View.") The paper he references, by Katharine Bradbury at the Federal Reserve Bank of Boston, can be seen here.
Posted by dan at 09:59 AM
This week’s IPO calendar includes Hittite Microwave.
Although it's a technology company, its name is more Jezreel Valley than Silicon Valley.
The Hittites were an ancient near-eastern people who were may have invented iron and whose name pops up frequently in the Bible.
Coming up next week: Jebusite Semiconductor.
Posted by dan at 08:46 AM
This week's Fortune has an excellent oral history by Adam Lashinsky on the birth of the net. For good measure, Lashinsky also interviews Larry Ellison of Oracle and spotlights an important development at Intel in the same issue.
Posted by dan at 08:35 AM
My latest in Slate: on the hot new investment sector (shipping), and terrorism insurance.
Posted by dan at 08:25 AM