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Five Spending Patterns in the Market

Jason Stipp

Jason Stipp: I am Jason Stipp for Morningstar, and welcome to the Friday Five.

This week on the Friday Five, we are talking about spending patterns. Who is spending, how are they spending and how might that change?

Here with me to offer the details is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: Jason, glad to be here.

Stipp: So, what do you have for the Friday Five this week?

Glaser: Well, this week, we're going to take a look at The New York Times, FedEx, the Federal Reserve, Warren Buffett, and finally, we'll take a look back at Tax Week.

Stipp: So, there is going to be a certain amount of spending for people who look at The New York Times; maybe they are not used to that. How is that going to play out for them?

Glaser: It looks like online news connoisseur spending habits are going to be changing pretty soon. Starting March 28, The New York Times is going to start charging for access to its content, over 20 articles a month. This is a big change for them. I think they've in the past tried to monetize some of their content online, not particularly successfully, and this is a real drawing a line in the sand and saying, we are going to need to pay for this content in order to stay as a business, in order to make money going forward.

Are people going to be willing to spend the money, or are they going to just go to other sites to get news or try to find links from blogs and through other search engines where The New York Times content will still be available freely? Nobody really knows.

They are charging a pretty penny, $15 for online and smartphone, and up to $35 when accessed across all of your devices, including the tablet. That's pretty steep. It's going to be free for current subscribers. Trying to convince people to spend that much money for what's quality content might be somewhat of a challenge for them, but I think really the future of a lot of the newspaper companies is going to depend on if this trial is successful.

Stipp: It will be certainly something that we'll be watching very closely.

The second one, Jeremy, we heard from FedEx this week. They are often seen as somewhat of a proxy for how the economy is doing, how people are spending out there in the world. What did they tell us to get a handle on what the situation with spending is?

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Glaser: Well, they told us they didn't have a great quarter, mainly due to some weather-related issues that really added a lot of expenses that they weren't expecting, but management is still seeing a lot of global growth, especially for the kind of small and lighter, high-value products that FedEx really is a specialist in and really spends a lot of time delivering across the entire world.

They see robust growth in the developed economies and developing economies, and they really are very bullish on the global outlook. I think that a lot of investors were happy to hear that from them, and we'll see if their predictions come true.

Stipp: We also heard from Fed this week. The Fed has spent a lot of money over the last few years. Are they going to be able to keep up that spending?

Glaser: They'd sure like to. I don't think that Chairman Bernanke and the Federal Reserve as a whole wants to pull back its monetary easing anytime soon. They said they want to keep these low rates there for an extended period of time; QE2 is still going on. But it seems like they're going to have some inflationary pressures to deal with.

The CPI numbers that came out this week showed a 0.5% increase in February for all products, including energy and food. You take that out, it's a 0.2% increase, but still it's faster than we've seen before, and I think people are really starting to see it at the gas pump and see at the grocery store--these higher prices. As people's inflation expectations tick up, there's going to be a lot more pressure on the Fed to maybe raise rates a little bit sooner than they were planning to or would want to. I think it's going to be a really fine line that they are going to have to tow, and I think we'll have to see all of Bernanke's skill if he can pull this off.

Stipp: Warren Buffett did some spending this week. This is the kind of spending that gets a lot of people's attention. What was the story there and is he going to keep spending?

Glaser: He spent about $9 billion on ... Lubrizol, and I think that he really was just trying to get some of the cash off his balance sheet. He's probably going to have another $10 billion come back from some of the warrants that he wrote to companies like General Electric and Goldman Sachs at the height of the crisis, and certainly he has to put this money to work.

With $40 billion, that's a big cash drag, and he's not going to just go out and buy anything. He's not going to pay ridiculous prices, but I think he's certainly said that his elephant gun is loaded and that he wants to go out and find big acquisitions. I think this is the first in many. I think if he finds a good value, if it's something that he understands, something that he likes, he's going to go for it. He's definitely going to get better returns than he is with the 0% on his cash right now.

Stipp: Lastly, Jeremy, it was Tax Relief Week on this week. Taxes are obviously not most people's favorite way to spend money. Are we going to see differences on how people might be spending on taxes in the future? How much they are going to have to allocate to that expense?

Glaser: One of the things that struck me about Tax Relief Week this year was that there weren't a ton of changes in the strategies that we recommend, that other experts recommended, for really keeping your taxes in check, but I think you are absolutely right that if you look forward three, four, five years, there could be some really significant changes to the tax code.

The current code is basically in place for one more tax year after Congress passed that deal, but after that, there is a lot of proposals that could radically change the way the deductions work, what the top rates would look like, exactly how people are going to have to allocate in order to make those tax decisions work and to keep their tax bill down.

And I think it just goes to a lot of what Christine Benz has talked about and other people have talked about, that tax diversification is really important. Instead of having an all-in bet, saying, "tax rates are definitely going to rise or definitely going to fall," having diversification across taxable and tax-exempt accounts and making sure that you are thinking about these issues so that when the changes do come down the pike, you'll be able to adjust and be able to keep your bill hopefully somewhat manageable.

Stipp: Well, Jeremy, time with you on the Friday Five is always well spent. Thanks for joining me this week.

Glaser: You're welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.