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| COURSE CONNECTOR |
| ARTICLE SUMMARIES AND QUESTIONS |
"Now What?" pp. 40-52: To hear the news these days, you'd think the American economy has never suffered a downturn before. Stories of doom and threats of an imminent recession are in the headlines daily. No doubt these turbulent times are a little frightening, but shrewd investors understand that bear markets are all part of the natural volatility of the stock market. In fact, without the unpredictability of bear markets, stocks wouldn't offer the big returns they do in the long term. While Wall Street rewards courage, investors still need to exercise caution during rocky markets. Picking investments that are genuinely cheap, not just less expensive than they were a year ago, is a smart move. There are plenty of genuine bargains, chiefly in beaten-down sectors that have already gone through the equivalent of a steep recession — banking, pharmaceutical, and homebuilding stocks, for example. Investing in foreign stocks is another wise choice, as is buying big-dividend-paying companies, which offer fatter yields as their stock prices fall. Investors also have to watch out for high fees that tend to decrease a fund's overall performance, and bonds, which aren't paying enough to compensate for inflation. It takes guts to be daring when the markets are melting down, but that's the quality that makes great investors.
Students examine the challenges and opportunities that investors face in today's volatile economy, and strategies for making profits despite market instability.
Discussion Questions:- Define recession. Compare and contrast Lawrence Summers' comments about the potential for a recession with John Neff's. Who do you find more convincing? Do you believe the country is hurtling inevitably toward recession? Explain.
- How is Washington addressing the economic crisis? In what ways will these actions improve the situation? What long-term negative effects are possible?
- Famed investor Warren Buffett has said, "Be fearful when others are greedy and greedy when others are fearful." What does this statement mean? How would you interpret his advice given the current state of the economy?
"Recession Road Trip," pp. 64-75: The power brokers in Washington and on Wall Street seem to have reached the conclusion that the economy is on the brink of recession, but the news hasn't reached Main Street, U.S.A. At least not yet. Sure, times are tight — foreclosures and unemployment are up in some areas, and folks everywhere are dealing with rising prices. But for the most part, American small business owners from coast to coast remain stubbornly optimistic. Some, like commercial real estate developer John Dewberry, of Charleston, S.C., and clothier Larry Ashford of Cincinnati, believe the worst is behind us, and business is already starting to pick up. Others, like Maynard Haddad, a coffee shop owner in El Paso, Victor J. Bloomquist II, a tattoo artist in Phoenix, Ore., and Stephanie Wollman, a Sioux Falls, S.D.-based entrepreneur, never saw their businesses slow down to begin with. The picture isn't all rosy, of course. Business is definitely down in Phoenix, where Harjit Sodhi runs an Indian restaurant, and in Portland, Maine, where Stuart Norton's mail-order lobster business is struggling a bit. The prevailing attitude, however, appears to be that slowdowns are just part of the cycle. As Glen Cooper, owner of Maine Business Brokers in Portland, puts it, "America will prosper, the economy will grow."
This article reveals the real-life impact of the economic crisis on small business owners across the nation.
Discussion Questions:
- According to residents of Medford, Ore., how has their community been affected financially by the war in Iraq? What are some of the potential remedies for the community's loss of revenue? How are they likely to affect local businesses and taxpayers?
- How has immigration affected some of the regions and business owners profiled in this article? What does this suggest to you about the efficacy of immigration policy?
- Cincinnati-based jewelry wholesaler John Youkilis' fears that the social contract has been breached by those who have accumulated vast amounts of wealth while others are struggling to make ends meet. Do you agree? Why or why not?
"From Scandal to Stardom: How Merck Healed Itself," pp. 94-98: The comeback of Merck stands as a shining example of the power of effective management to all companies facing challenges. Merck had its hands full of them just a few years ago. The company had missed three quarterly earnings targets and had been forced to cancel two late-stage research programs for promising drugs. Moreover, the company's stock was slumping as it faced a barrage of lawsuits over Vioxx, one of its most profitable drugs, which was pulled from the market after studies linked the painkiller to heart attacks and strokes. Ouch. So how did the company that was once America's Most Admired for seven years running restore its former glory? Through the strategic workings of a trifecta of capable managers. CEO Richard Clark sought to unite Merck operationally and to encourage a more integrated approach to business. Chief scientist Peter Kim transformed Merck's haughty, insular research culture to an open-minded, collaborative one. Former legal counsel (and now vice president and president of global human health) Ken Frazier made the risky call to take the Vioxx cases to court in order to weed out the frivolous lawsuits from the legitimate claims. The company's strategy has worked on all three fronts, and Merck is once again enjoying good health.
Students take a closer look at how Merck recovered from a series of setbacks through capable management, product innovation, and a bit of luck.
Discussion Questions:
- Former Merck CEO Ray Gilmartin was pushed into early retirement in 2005 because of the company's troubles. Looking back, do you think the decision was a fair one? Why or why not?
- How did Richard Clark, Peter Kim, and Ken Frazier each do their own part to restore morale at Merck following the Vioxx recall? What was the upshot of these measures? Would you have handled things differently? Explain.
- What problems does Merck still face? What impact has there been on the company's stock? Why is Wall Street generally confident about Merck's prospects now as opposed to a few years ago?
"Paradise Lost," pp. 108-120: Tim Blixseth may not be a household name, but he sure lives like one. The self-made billionaire and founder of the Yellowstone Club, a private golf and ski resort in the Montana wilderness frequented by heavy-hitters from the worlds of business, sports, entertainment, politics, and media, owns pricey real estate around the world, numerous luxury cars, three yachts, and a private jet. Sounds like the good life, right? It was. Blixseth is on the verge of losing the Yellowstone Club, thanks to a one-two financial punch — a contentious divorce from his second wife, Edra, that threatens to chop his $1.3 billion fortune in half, and a lawsuit filed by three-time Tour de France champ Greg LeMond, an original investor in the club, that has charged Blixseth with 30 counts of malfeasance, ranging from breach of contract to "actual malice." To settle his financial entanglements, Blixseth has little choice but to sell his beloved Yellowstone Club. The sale to Sam Byrne of CrossHarbor Capital Partners is expected to close this month, leaving Blixseth with $79 million and an honorary title of “chairman emeritus.” No, he won’t be hurting — not by a long shot — but he will likely miss being the lord of the manor at Yellowstone.
In this article, students read about how the skills that took Tim Blixseth from a hardscrabble boyhood to unimaginable wealth are now tearing his empire apart.
Discussion Questions:
- One of Greg LeMond's attorneys, James Goetz, has said that "Mr. Blixseth
thinks he's king up there [at the Yellowstone Club] and can do what
he wants." Do you agree with this assessment? Why or why not?
- How did Blixseth make his money? In your opinion, was it ethical? How has he been able to manipulate the government to suit his own means?
- Why are many Yellowstone Club members now supporting Sam Byrne? In your opinion, how can Byrne better manage the Yellowstone Club than Blixseth has? What can he learn from Blixseth's missteps?
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