Love him or hate him, you have to hand it to Texas Tech basketball coach Bobby Knight for consistently doing things his way. Yesterday, Knight announced he wouldn't accept his $250,000 coaching salary because he and his team underperformed this year.
We think that's a fine precedent to set, and only wish the head honchos in corporate America would follow Knight's lead.
In today's Motley Fool Take:
- State Deficits Reach Post-WWII High
- American Airlines Flying Low
- Shameless Plug: Crack the Code
- Pay for Performance?
- Big Mac, Side of Email
- Quote of Note
- Oil's Slick Producers Profit
- Discussion Board of the Day: Living Below Your Means
- Quick Takes: Schering-Plough, ImClone Systems, Nokia, more
- And Finally...
On the not-so-good-but-important news front, we're beginning to see how economic woes can beget further economic woes.
First, we had ailing corporate profits and rising unemployment, part and parcel with a struggling economy. Now, our nation's reduced economic activity has translated into lower corporate and personal tax revenue, resulting in the largest U.S. state budget deficits since World War II, according to Bloomberg.
The backlash of these deficits will be a combination of reduced government spending at the state level and higher state taxes -- both of which are a drag on the economy. In case you're wondering, most state constitutions disallow running budget deficits, so that's not an option. Economists cited by Bloomberg predict that the total economic impact of states' efforts to right-size their budgets could total $80 billion to $100 billion. That's enough to effectively offset President Bush's economic stimulus package.
Read on about the implications for investors.
If you want to know how a business is really doing, ask the employees on the front line. Their intuition is usually better than most, and their collective information (by the time they share what they know with each other) is often comprehensive.
Flight attendants at American Airlines, run by parent company AMR Corporation
The numbers aren't encouraging. CEO Donald J. Carty has said for a long time that American must cut $4 billion in operating costs annually in order to avoid financial meltdown. Management suggests $2 billion could be saved by changing routes and flight schedules, cutting salaries, and through additional streamlining (redistributing half-eaten snack bags, perhaps?), but the other $2 billion must come from unions.
The stock is tumbling because the writing is almost on the wall: Either the unions concede to nearly $2 billion in wage and benefit concessions (which they have been reluctant to do), or AMR has little recourse but to seek bankruptcy protection. The company lost $3.5 billion in 2002, and is burning about $140 million a month, giving its available cash balance about 12 months to last.
Management remains hopeful it can avoid bankruptcy through union negotiation, but if AMR does file, it will join major carriers United Airlines
Everything might get even more difficult. Today, the Air Transport Association warned that U.S. airliners could cut 70,000 jobs and lose up to $4 billion quarterly if war starts with Iraq and the government doesn't offer more industry aid. Airlines are already struggling with higher fuel prices, new taxes, and lower traffic loads.
To end on a positive note, some profitable airlines remain, including Southwest
It's a skill every investor needs, but reading financial statements doesn't have to be like unlocking the mysteries of the universe. We have a self-paced online seminar that will help you develop your analytical skills one step at a time. Don't underestimate the dividends that knowledge can pay!
A study published in the Academy of Management Journal shows no correlation between a company's performance and the amount of stock or options owned by its corporate executives.
The research, led by four professors from Indiana University and Texas A&M, looked back over 229 similar studies from 1971 to 2001. They found that compensation designed to motivate executives had no effect on such things as return on assets or stock price performance.
While the researchers did not mention specific companies, USA Today did when reporting on the study. The paper ran its own analysis of Fortune 1,000 companies in search of a connection between insider stock holdings and return on equity (ROE, a common measure of a business' performance), and found little or no correlation. Instead, dozens of companies underperformed the competition "despite their CEOs being laden with stock and options."
Want free, in-store wireless access with that? That's the question some McDonald's
In a move set to coincide with tomorrow's unveiling of Intel's
The McDonald's offering is a unique one, though. By ordering an Extra Value Meal, customers can get one hour of wireless access right there in the store. Use up the hour and want more? Simply order another combo, or pay $3 for another hour.
McDonald's will first roll out the program in 10 Manhattan locations, and then in 300 locations in New York City, Chicago, and an unannounced California city. (Who will be the lucky one? San Francisco? Los Angeles?)
Will customers bite? Coffee shops and bookstores are logical fits for laptop users and wireless access. Students, for example, already spend time there, tapping away on essays and research papers. But a fast-food restaurant? Bellying up to your laptop while juggling greasy fries and a dripping burger sounds less than appealing, but maybe people are so time-pressed that they'll go for it.
Then there's the question of demographics. Does the average Mickey D's customer own and carry around a laptop? If not, will wireless access draw new customers? McDonald's, in need of novel ways to drive store traffic, certainly hopes so. Plus, the demographics are likely more selective at the "chosen" locations.
It will be interesting to watch how the program unfolds. McDonald's may yet become a cool hangout for laptop and Big Mac lovers. Or customers may find that greasy fingertips and computer keyboards, combined with too many Extra Value Meals, give them indigestion, thereby disconnecting from McDonald's.
"Public and private food in America has become eatable, here and there extremely good. Only the fried potatoes go unchanged, as deadly as before." -- Luigi Barzini, O America, 1977
At some point, who hasn't dreamed of being an oil sheik? They control much of the world's most sought-after commodity, next to money itself. You could buy an island and blanket it with private jets and swimming pools, just because.
Today, members of the Organization of Petroleum Exporting Countries (OPEC) suggested that oil output is adequate, and it will not support suspending output quotas. What OPEC didn't admit is that quotas are partly being ignored anyway, as countries "pump up the volume" in order to take advantage of today's crude oil prices before the spring thaw.
At $37 per barrel, oil is near the $41 record high reached during the 1990-1991 Gulf War. But war drums aren't the only problem. From December to February, oil production in Venezuela tumbled from 3.1 million barrels per day to 1.4 million in politically motivated work stoppages. A war in Iraq might add to the decline in production.
The world consumes 77 million barrels of oil daily, and OPEC supplies 24.5 million, or 32%. Iraq supplies 1.7 million barrels per day. Oil fields in Kuwait producing 700,000 barrels daily would be closed in the event of war, meaning between Iraq and Kuwait, 2.4 million barrels per day would be lost. Whether this shortfall can be replaced by OPEC is hotly debated.
Despite Herman Miller's earnings miss, even our Living Below Your Means discussion board thinks Aeron chairs are worth it. That's right, we Fools can be a thrifty lot at times -- spend less than you take in. Want more bargain-hunting tips? Check out the Living Below Your Means discussion board. Only on Fool.com.
Shares of drug maker King Pharmaceuticals
Former ImClone Systems
St. Louis Federal Reserve President Bill Poole warned that Fannie Mae
Finland-based telecom equipment maker Nokia
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Dayana Yochim finds out what women really want. Hint: Gwyneth's long legs and a cushy retirement fund are on the list.
- Tom Jacobs values an online retailer on the road to success.
- Despite lower guidance, Herman Miller's still a stand-up company in the sit-down business.
- In Fool's School, decoding the balance sheet.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim