Today, members of the Federal Open Market Committee (FOMC) broke out the Doritos and Fritos, margaritas, and maybe a six pack of Bud just for good measure. It was a party as Alan Greenspan and Co. got to raise interest rates yet again. They pushed the federal funds rate to 1.5% from 1.25%.
Fed watchers hung on every motion Greenspan made but could not determine whether his licking orange Cheeto dust off his fingers was a sign of further rate increases or an indication that the FOMC would stand pat the next time it meets.
Some economists surmised the Fed may have been surprised by July's weak jobs growth (only 32,000 non-farm jobs were added) but felt the Fed's statement was upbeat and projected a positive economic outlook.
For perspective, interest rates are still near historical lows. In 2000, the Fed's overnight interest rate target was between 6% and 7%.
Stocks seemed to like the move. All the major indexes surged forward this afternoon, gaining over 1%, with the Nasdaq picking up 1.6%.
In today's Motley Fool Take:
- Donald, You're Fired
- Shameless Plug: Motley Fool Inside Value
- Tasty July for McDonald's
- Discussion Board of the Day: Apple
- Chevy Wants a Revolution
- Quote of Note
- 480,000 Fewer Screams
- More on Fool.com Today
Donald, You're Fired
With the resurgence of Vegas and the newfound popularity of poker, you'd think that just about any resort that spreads a card game is bound to be raking in the bucks. And after all the publicity it received in General Electric's
The plan, which involves ceding control of Trump Hotels to DLJ Merchant Banking, a private equity subsidiary of Credit Suisse
I admire Trump's ability to pull off this deal. As Fool colleague Bill Mann reported, his job effectively meant convincing investors that defaulting on his company's existing obligations wasn't all that bad. Talk about selling ice to Eskimos.
Still, Trump has proven to be little more than a chump with a passable comb-over in the casino business overall. Even the best makeup artist can't disguise the fact that as CEO, he has destroyed hundreds of millions in shareholder value over the past decade. And, finally, he's paying the price.
No, no one has actually fired Trump, but published reports say he will remain on Trump Hotels' board as chairman, with his equity stake reduced to roughly 25%. Currently, he is chairman, CEO, and president, and it was expected that he'd retain the CEO title following the recapitalization. Although not exactly an embarrassing televised taxi confessional through downtown Manhattan, it's a chink in The Donald's once-invulnerable armor, and probably a good thing for long-suffering investors.
For more Fool coverage of Trump Hotels:
- Jeff Hwang reports that Trump Hotels is nearly out of options.
- Seth Jayson says that many of The Donald's business lessons are financial folly.
- W.D. Crotty finds Trump Hotels' annual report to be a frightening read.
- Bill Mann shows that the recapitalization deal might only be a short-term fix to a long-term problem.
Fool contributor Tim Beyers aspires to see the inside of Trump's Taj Mahal poker room someday. That is, if its debt problems don't sink the casino first. Tim owns no interest in any of the companies mentioned, and you can view his Fool profile here.
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Tasty July for McDonald's
Global same-store sales increased 6.4%, with the United States coming in with an increase of 7.8%. Europe was weak, yielding only a 2.1% gain; CEO Charlie Bell intimated in the release that this geographical segment needs work.
This is an improvement over June in terms of same-store sales, when the Arches saw global sales increase only 5.6%. U.S. comps were up 6.6%, while Europe lagged again at 3.6%.
I like the general picture these results paint. If I were a long-term investor with a stake in McDonald's, I'd be pleased. It's a strong brand that will certainly stand the test of time. Sales increases may have been a bit more robust in the recent past, as Alyce Lomax noted, but current revenue levels are quite satisfactory. (For an excellent analysis by Fool contributor Cass Bielski, I urge you to read McDonald's: Bland No More.)
Here's what concerns me in the short term, and granted, this is probably debatable: Will the cost of energy have an impact on the number of times a consumer heads to the local McDonald's? Gas prices can affect all sectors of retail, whether it be a Target
However, I believe there is an ace up the sleeve of this sector in terms of keeping sales steady and growing, something I mentioned last week while discussing Wendy's comps: the acceptance of credit cards by these eateries. McDonald's will definitely benefit from this paradigm shift, as Selena Maranjian articulated in her explanation of the relationship between expanded credit card acceptance and increased sales.
Fool contributor Steven Mallas owns none of the companies mentioned.
Discussion Board of the Day: Apple
Does Napster stand a chance against Apple's successful iTunes Music Store? What will it take to win back the tens of millions of fans who once roamed the digital playground with Napster? How about those iPods? All this and more in the Apple discussion board. Only on Fool.com.
Chevy Wants a Revolution
It's been well more than a decade since General Motors'
Call me a reactionary Fool, but I don't like it. Not one bit. When I think "Chevy," I think "trucks." Big honkin' trucks with long, straight lines. Steel trucks with bright chrome bumpers. But when I think "revolution," I think futuristic spaceship-mobiles such as the Honda
I know, I know, "you can't stop the revolution." Change is everywhere, and Chevy has decided that its old tagline has worn out its usefulness and needs to give way to the new one (which had its first trial balloon late last year). It fits better in the era of automobiles outfitted like NATO command tanks, loaded with every gadget from DVD players to GPS to OnStar. Still, in a sea of shifting automobiles, it used to be you could rely on Chevy as the constant, the proverbial rock -- why, Chevy said so itself. Its trucks were dependable, reasonably affordable, and profitable to their maker to boot.
But this Friday, Chevy's rocklike identity gets dropped in the river, and for that, this Fool will grieve. Chevy will become a whiz-bang revolutionary, symbolized most illustratively in its Chevrolet SSR -- a beautiful machine, admittedly, but one that seems caught in a post-revolutionary crisis of identity, unsure whether it is a convertible, an SUV, or a pickup -- selling in the low $40,000s.
You want to give us a revolution, Chevy? How about stripping out the fanny-hugging leather bucket seats, the 5-CD changer, the XM Satellite Radio
Fool contributor Rich Smith owns no shares in any company mentioned in this article. He drives a 1998 Chevy S-10 stick shift with chrome bumpers and still mourns the passage of his '69 GMC Custom full-size.
Quote of Note
"Every moment of one's existence one is growing into more or retreating into less." -- Norman Mailer
480,000 Fewer Screams
Scream! It's OK. The scary, mostly downhill ride for regional theme-park operator Six Flags
The latest earnings report fuels speculation that the downhill ride has not bottomed. Attendance fell 4%. That's 480,000 fewer people.
The good news, if it can be called that, was the smaller net loss. The other good news (ready?) was the company reduced its debt by downsizing from 39 to 31 theme parks. Debt is still approximately two times sales -- that's scary.
There were bright spots. Destination parks did well. This strength might bode well for Disney's
After a thrill-ride plunge in capital spending from $334 million in 2000 to $130 million in 2003, the company spent only $75 million in 2004. Guess what? Where new rides were installed, attendance was up. (Who would have guessed that'd happen?)
So, debt-heavy Six Flags plans to increase attendance in 2005 by ramping up capital spending to $125 million. Ah, was that a bottoming out? Are operating results ready to bottom out, too?
Consider that Six Flags is not Anheuser-Busch
The reality at Six Flags, besides there being no clear view of 2006, is that debt is holding it hostage. A terrorist attack, a gas shortage, or a significant economic downturn would significantly hurt this company, especially if it happened during the third quarter, when the company makes money. Learning that there were 480,000 fewer screamers was bad news. When your interest payment is $73.8 million for a quarter, bad news is not what you can afford.
Fool contributor W.D. Crotty owns stock in Disney.
Tom Gardner's 10-Bagger Magic explains how to succeed in small-cap investing despite the inevitable losers.... Has the down market got you down? In Strategies for Troubled Times, Shannon Zimmerman offers some options.... In Dad's Six-Figure Debt, Dayana Yochim offers advice to a very concerned son whose dad is paying $20,000 in interest each year.... In Matt Logan's To Hold Cash or Not?, Columbia University's Bruce Greenwald says you shouldn't always hold cash if you can't find a bargain.... Brian Gorman's Biotech Cost Control asks: Will the high cost of therapies slow sales in the sector?
In other news:
For a list of all our stories from today, see our Today's Headlines page.