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Opening Bell: 5.24.06

Fed Chief Swears Off Improvising (NYT)
Ben Bernanke regrets his bon mots with Maria Bartiromo and he intends to avoid loose lips from now on. But if history is any guide, this won't be the last time he's misunderstood. In fact, as long as the legacy of Greenspan remains intact, and the fed chief is expected to be cryptic, there will be plenty of misunderstandings. Of course, it can be debated whether there was ever any misunderstanding in the first place. Didn't Maria's original warning to the market prove prescient? Shouldn't investors appreciate the whole situation for helping to tempter gains that eventually melted away? And really, what's a Fed Chief without improvisation. Keep it cool man; play jazz.
The dollar is still a currency you run to … (RGE Monitor)
Well, some people do. Emerging markets seem to be getting schooled in the concept of the market for lemons. Among the hot emerging markets, investors know that X number of them are lemons, but in times like these they don't know which ones. So selling becomes indiscriminate, without any concern for quality. Inflation-prone Turkey is getting whacked, as is surplus-running resource-rich Brazil. And a lot of investors still don't seem to be able to answer a key question in the dollar debate. If not the USD, then what else? But then, why the US? Economist Brad Setser notes the irony of fleeing a country with a surplus, like Brazil for a country with a deficit, such as US. Also of note is that it's not the whole world seeking safe haven, but mainly speculating Americans, who are closing positions and returning to their home currency.
H-P Lost Faith in Fiorina, But Not in Merger (WSJ)
So with HP's resurgence, have Carly and the Compaq merger been vindicated? It's an interesting question, and a testament to the company that anyone, today, is even having this discussion. The company's CFO recently performed an internal study on merger, and by the broadest measures of profitability and market share gains it would appear that all of the goals from the merger have been satisfied. But does that really vindicate the merger? Or are backdating, or retrospectively writing history. In other words, does today's success necessarily stem from the merger, or are they two separate things that can be nicely tied in a bow. Not an easy question, though it's dazzling how often conventional business wisdom seems to be turned on its head.
GM offers $1.99 gas in Florida, Californian (Reuters)
Remember last summer when GM was offering steep discounts on cars and at least for a few months, their market share started to spike, causing Ford to do the same thing? It was great from a volume perspective, in terms of clearing out inventory, but it wasn't so good for the bottom line. Everyone, including the company itself, agreed that it had to wean itself off of incentives and start selling cars for full price. So, they eventually ended the discount program (goodbye market share). But since then they've just replaced it with one cockamamie scheme after another, including this one to sell subsidized gas for SUV buyers. But as long as they're going to keep up the incentives, why not just cut the price of the car, which actually worked really well? Any backdoor incentive will still lose money, while not being as affective at moving units. Seems like someone needs to work on their marketing strategy.

The importance of poetry for economics (Marginal Revolution)
Memo to Bernanke: no need to chill on linguistic flare. A new study demonstrates that econ papers that contain rhetorical flourishes and clever titles tend to be cited more often than others. So if we can apply this to Fed Chiefs (yes, we're reaching) then all that impenetrable congressional testimony that got reprinted in places like Esquire and the New Yorker with headlines like 'Say what!?!' was a brilliant way to get the message heard by everyone. Vindication once again.
A Tale of Two Auto Plants (WSJ)
We like to joke about Toyota's continuing to build factories and manufacture in the United States, as if they're total fools. Of course, they're not total fools -- they're the best manufacturers in the world, and the fools are the companies that write off the US as a place where manufacturing can be done. The Journal has a fascinating look at two auto plants in Texas. One is GM's most profitable and efficient SUV factory, where Suburbans are turned out in Arlington, TX. The other is Toyota's plant currently being built outside of San Antonio. Though GM's plant is an efficient, it is seriously constrained compared to Toyota's. For one thing, it's built in the suburbs, which mean it can't expand. Toyota built on undeveloped land, with lots of stretching room. Labor savings for Toyota, and other efficiency gains means the company will start off with a $1,000/car cost advantage over GM. The picture we get GM it seems is that they know what their problems are (good), but they don't have much control over them (not so good).
Vonage IPO raises $531M (Reuters)
Despite all of the worries, Vonage didn't seem to have any problem pricing their shares last night. The shares priced at $17 last night, allowing the company take home a $531 million haul. Everyone in the media has been taking shots at the company lately, complaining about the quality, the earnings, the business model, the ARPU, the customer acquisition costs, etc. But now the market speaks, and though it may very well say the same thing, at least it doesn't gloat. Should be interesting to see how the retail investors react. Have they been swayed by the negative drumbeat, or will they buy out of fear of missing the next Google?
Warren Buffett on Newspapers (Bankstocks)
Ouch, that's gotta sting when the Oracle from Omaha starts sounding like some 2.0 techno-utopian. According those present at Berkshire's recent annual pow-wow, Buffett lowered the boom on old media companies. He simply stated what other people have attempted to explain in entire books and blogs, that the monopoly is gone. That advertisers have such a proliferation of channels that the old advantages afforded to TV and the newspapers is withering, and withering away rapidly. He notes that even his beloved World Book has a hard time competing with the internet, for all of the obvious reasons. Then again, when Warren starts getting internet religion, perhaps it's time to run away from all of your internet investments, as it must be a huge contrarian point.
Intel Strikes Back (BusinessWeek)
Intel has pulled the curtain on several news tests, which claim that they've surpassed AMD in terms of performance. Something about "believing when seeing" and "the white's of Intel's eyes" would seem to be appropriate at the moment.