Opening Bell: 5.18.06

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Stagflation (Econbrowser)
It's simply too horrendous a word for the media to utter, so at the moment all you see are articles proclaiming that the markets are getting slammed on inflation worries. But let's be honest; a lot of this inflation we're seeing is nothing new. The real devilish specter is stagflation. If the 70's are indeed back, it's a logical component of the potential economic malaise. The housing story, which everyone had forgotten about, is getting play again, and of course the headlines aren't as rosy on the backslope. The declines in starts and prices (in some markets) are real, as is the decline in consumer sentiment (which might be related). So start saying it baby, stagflation.
Mittal set to launch bid for Arcelor on Thursday (Reuters)
Game on. Mittal steel formally launched their bid for Arcelor after several months of pre-game interviews and activities. The company has received regulatory clearance from the relevant nations. The offer values Arcelor at $24.5 billion, and could have strong ramifications across the industry. Steel is one of the more fragmented of the industrial materials industries. There are just a couple of suppliers to their industry (BHP Billiton, Rio Tinto) and not a whole lot of buyers (car companies being some of the biggest); meanwhile there's thousands of steel companies, hundreds in China alone. The deal could be more important than ever, if there's an industry downturn and a possibility of overcapacity.
Hedge-Fund Manager Arrested (WSJ)
An Atlanta hedge-fund manager whose clients' funds mysteriously disappeared has been arrested in Miami. This is gonna be an interesting story, and we can only hope it gets turned into a TV movie. The manager, Kirk S. Wright, had a lot of money that had belonged to football players. At one point, they tried to hunt the man down at his home, when they realized that their money was missing. Also, at some point, he was able to deliver 30,000 to a Brooklyn ex wife, for alimony payments. Any suggest of wrongdoing is, of course, alleged. But if he did do something wrong, and it appears from all the evidence that something weird was going on (you know, being on the lam in Miami and all), it could be like one of those movies, where someone makes a bad decision and gets themselves into a world of trouble. Or maybe someone kidnapped his wife and demanded $100 million, and the attackers surgically implanted a microphone into the Wright's throat, so he couldn't talk to the police, and so he had to embezzle the money -- something like that. Hopefully, the story is more interesting than regular crime.
Stopping the Sprawl (BusinessWeek)
Check out the picture of HP CEO Mark Hurd at BusinessWeek. He must be quite the visionary with looks like that. Right now HP is doing everything that Wall St. likes; they're increasing sales, gaining share, shutting down factories and moving to China. The company announced that it plans to slash $1 billion in costs, which is the kind of announcement one expects after bad earnings. When it comes after good earnings, that's a major bonus. But right now, HP is simply playing it by the book, playing the outsourcing game, etc. which is fine. But Dell is still keenly focused on their strengths, manufacturing excellence, and they may rumble back to life yet.


GM on defensive again with loss of 2 top accountants (Detroit Free Press)
Just when you thought GM was totally in the clear, the company loses two of its top accountants. But, really, this hardly seems like a bad thing. Aren't these the same accountants who had to restate years of earnings? Then again, they're the same accountants who spread pixie dust on last quarter's earnings and magically turned it into a profitable one. They're hiring a firm which specializes in accounting for bankrupt or otherwise troubled firms who need help with their accounting controls. Seems like a good idea.
Enron Predictions (The Conglomerate)
So, it may be your last opportunity to profit from Enron. If you got burned on the stock, then it all comes down to the prediction markets, where trading in Enron verdict futures is fast and furious. Right now the market is pricing in a high probability of a guilty verdict, so the big money is on the contrarian not-guilty side. This is where we need those jury experts. They're good about knowing what a long deliberation means, though the markets are likely to react accordingly as the deliberation draws out. Our initial hunch would be that if they deliberate for a long time, it's good news for Lay & Skilling.
Expensive gasoline= Consumer belt-tightening (CNN Money)
This has got to be the most common type of article over the past two years. The difference is that this time (for some reason) people are convinced that the consumers are going to go out to movies less and by fewer cars because gas prices are high. First of all, is that a bad thing? It's probably a good sign that people are going to cut back on movies, TVs, driving, and dining out. That is, unless you're a restaurateur, movie producer, automaker, and electronics manufacturer. I'm none of those. So should I be worried? Not sure. Second, are people actually capable of making a budget and sticking to it? There's a big difference between saying you'll cut back on spending in a survey and actually doing it. The only good prediction is that articles of this nature won't cease for some time.
Hong Kongers Line Up to Buy Stock in Bank (AP)
Back before it was easy to trade wirelessly, it seemed like it would have been cool if there were true retail stock outlets, like if someone could just walk into a Schwab branch office, swipe their Visa, and buy $2,000 worth GM. That would have given new meaning to retail investing. Ultimately, retail investing assumed the meaning it had today. This is not exactly what's going on in Hong Kong, but people are standing in long lines to get copies of the prospectus and information about the forthcoming Bank of China IPO. There seems to be a must-buy mentality with this one, as people feel compelled to invest in the company. Could be an interesting story to watch.
Open Letter on Immigration (Marginal Revolution)
So who are you going to stand with on the immigration question, which has been inexplicably thrust on the country in the last few months? Why again?! There's the Tom Tancredos, who really just want to see a fence. It's not even about laws; if they could raise the money and buy all the land on the border and build the fence on the border, they would. Or are you going to side with some of the top economists in the country and who support freer immigration. Alex Tabarrok has published an open letter, which many are signing and which you ought to at least read: Immigrants do not take American jobs. The American economy can create as many jobs as there are workers willing to work so long as labor markets remain free, flexible and open to all workers on an equal basis. Immigration in recent decades of low-skilled workers may have lowered the wages of domestic low-skilled workers, but the effect is likely to be small, with estimates of wage reductions for high-school dropouts ranging from eight percent to as little as zero percent. While a small percentage of native-born Americans may be harmed by immigration, vastly more Americans benefit from the contributions that immigrants make to our economy, including lower consumer prices. As with trade in goods and services, the gains from immigration outweigh the losses. The effect of all immigration on low-skilled workers is very likely positive as many immigrants bring skills, capital and entrepreneurship to the American economy.

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