Opening Bell: 4.27.06

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China Central Bank Raises Benchmark Interest Rate (Bloomberg)

The Chinese interest rate/exchange rate puzzle always perplexes, and trying to figure out which direction things will go is a thankless task. Presumably, a higher interest rate for lending Yuan will crimp Yuan borrowers. The stock market is punishing shares of mining companies, who need to borrow a lot. At the same time, a higher interest rate on the Yuan should also boost demand for the currency -- whose exchange rate is fixed. Won't this simply require the company to print more Yuan, in order to sop up the demand, and won't this counteract the desire to make borrowing more expensive. Perhaps (surely) there's something we're leaving out in our analysis, but the more we think these things trough, the more we align with the central banks have no effect thesis. Put it this way, if central bankers really did have the power that everyone thinks they have, wouldn't we see a lot more crashes and depressions?
No sign of an end to mergers boom, says Goldman chief (Times of London)
Good news! Analysts expect that companies have no plans to stop merging, and even more importantly, companies will keep going private. Going private is truly the new IPO. Everybody wants in on it, and investors just wait around for word that private money is gonna come take them out. Also driving M&A is greater international integration (EU), and new wealth in different parts of the world (Middle East).
CBS CEO says considering sale of some radio stations (Marketwatch)
Whatever you think about the future of big media gloms, it's harder to be optimistic about their local TV & radio affiliates. New modes of distribution (satellite, internet) threaten to, eh, disintermediate them, to use a buzzword. So it's no surprise that companies continually will look for opportunities to dump the local guys. This isn't to say that they might not be good values, or offer some compelling cash flow opportunities -- but they're certainly not growing.
A Stunning Display of Pricing Power by Guess Who? (Bloomberg)
While many mergers turn out to be a colossal waste of shareholder money, some actually seem to pay off. The railroads, which have seen a good amount of consolidation over the years, are exhibiting great pricing pressure in the face of sky-high energy costs. Not only have their numbers been reduced, but it's really hard to start a railroad. It's comparatively easy to lease a few planes, hire an out-of-work pilot, rent a gate, and start an airline. That doesn't explain why there hasn't been more consolidation in the industry. One of the big culprits is pilot pay structure. It's all based on seniority, and when you merge two lists of pilots, the whole thing gets messed up. It's more evidence that labor inflexibility is a serious impediment to the economy.


Communist Vietnam Lunges for Capitalism's Brass Ring (NYT)
While we tend to bash and tear down our well to dos, here's a country that has the right perspective on things. As the country is doing the China dance, slouching towards Wall St., Microsoft's Bill Gates is apparently a huge star in the country. People held his picture up in large gatherings, where people climbed trees to get a glimpse of the man. Here, someone would probably throw a pie at the guy.
Protesters target health coverage (Houston Chronicle)
Activists protesting at a Wal-Mart normally wouldn't be a big deal, except that they seem to be gaining traction of late. Not only has the company been making concessions, but state governments (most recently Maryland) seem ready to impose sanctions on the company. The very fact that cash-strapped governments would want to punish Wal-Mart for not providing healthcare employees belies the true flaw of their argument. If politicians and activists want there to be a greater number of insured employees, that's fine -- but why arbitrarily decide that the responsibility lies with Wal-Mart shareholders? If universal coverage, or near universal coverage, is their goal, then it's a lot more equitable to fund it, you know, universally.
Republicans Sag in New Poll, Gas Prices Blamed (WSJ)
It's never been any secret that voters have one-track minds. Any anyone who thinks that they care about stuff like Iraq or Jack Abramoff is giving them way too much credit. It's about gas prices, and gas prices only. No wonder Republicans have become indistinguishable from Democrats on the gas price issue.
Second Thoughts in Congress on Oil Tax Breaks (NYT)
Now here's some evidence that politicians can't keep their heads on straight when they're thinking about oil prices. The issue du jour is a series of recent tax cuts for the energy companies. Now, in light of $3.25 gasoline, and record industry profits, many are regretting the moves. But wouldn't raising taxes on oil companies simply raise their costs of doing business -- and eventually raise gas prices? Shouldn't an industry that we hope will find and pump more oil be encouraged to keep all their money, and spend it on new development? That being said, here's a quick economic pointer to bust out anytime you see some Fox News talking head grousing about the federal government's gas tax. Gas taxes don't affect the price of gasoline. The price of gasoline is set by supply & demand, i.e. if gas is selling at $3.25/gallon then $3.25 is the price at which supply and demand are in equilibrium. The fact that $0.20, or whatever, comes from taxes, doesn't change much. If this tax were cut, the price would soon rise back to $3.25, equilibrium.
Penthouse Outbids Rivals for Adult Film Library (Dealbook)
Penthouse has beat out Playboy and other rivals in winning the archive of a bankrupt adult film company. Now, they won 400 films in the auction, so how much do you think it went for? Take a minute to guess... Yes a whopping $1.76 million. So that's like $4,000/movie... for a movie. Now everyone knows that the adult business churns out far more films than Hollywood, we're talking orders of magnitude, but apparently they're not worth the film they're filmed on. The problem is the low barriers to entry. All you need is someone's house, a couple of people, a computer-generated script, and you're ready to roll. So if you're wondering why Hollywood seems addicted to blockbusters, remember, it's all about barriers to entry.

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