Skip to main content

Opening Bell: 5.30.06

Oil Prices Rise As U.S. Enters Summer (AP)
Inappropriate determinations of causation are rife in AP articles on the economy, but these are our absolute favorites. Memorial Day weekend is the start of something called, get this, the 'Summer Driving Season'. Apparently people's cars, which go dormant in the winter, get taken out of mothballs, get a new coat of wax, and people finally start driving them. Most importantly, as soon as Memorial Day comes along, traders realize they should buy some oil to take advantage of all this driving. Now, you'd think that traders, having experienced several Memorial Days and seen this bizarre ritual known as 'Summer Driving Season' would know in advance that it was coming along. Some might even be so devilish to buy gas, oh, the week before, to get a jump on their fellow traders. You know, having seen the pattern so many times. But apparently they're all much to honorable to exploit ineffincies such as this. And so each year, they pretend to be surprised that Memorial Day is upon them and they then decide to buy gas. Who knew it was so easy? Lest you think we're being sarcastic, check out this cherry quote from an analyst: Many traders believe gasoline demand will increase in the United States as Americans are more likely to take domestic vacations due to a weakening U.S. dollar and rising airline ticket prices, Shum said.
Scrushy's lawyer says Lay strategy was wrong (USA Today)
After Ken Lay was convicted, he spoke on the courthouse steps and claimed to be a lucky man for having a loving and Christian family. Jeff Matthews skewered this moment brilliantly over the weekend. But more amusing is that Donald Watkins, the lawyer for HealthSouth's Richard Scrushy (who got off), claims that the Lay defense team should have gone with a different strategy. Scrushy, if you'll recall, basically positioned himself as Jesus himself. He became a born again and hosted his own Christian family radio show in Birmingham (which, you know, plays pretty well there). According to Watkins, the Lay defense team shouldn't have concerned themselves so much with the, you know, facts of the case. In other words, don't save the Jesus stuff for post-conviction -- make it central to the defense. Hmm, wonder if it would've worked for Martha.
Wal-Mart and the Buck (Big Picture)
Don't look now but gas prices may be having an effect on consumer spending. Yes, they've been warning about this for years now, and it really hasn't materialized, just as they've been warning that if real estate started to soften, people's homes could no longer be the equity ATMs they once were. But new evidence from Wal-Mart suggests that the first part of the scenario may get fulfilled. Same store sales at the behemoth from Bentonville are expected to be weak, as low-end shoppers get pinched by higher gas prices. As further evidence that the spending patterns of the lower-end shopper are changing, some have noticed a change in purchase timing. Instead of seeing purchases smoothly throughout the month, consumers are concentrating their purchases around the 1st and 15th of the month -- so they're living paycheck to paycheck, with little in between. So if this part of the prophecy comes to pass, will the one about real estate-as-ATM happen as well? Time will tell.
Google Hates The Troops (Outside The Beltway)
Uh-oh, Google may have inadvertantly alienated a large chunk of the population by forgetting to change the logo at in honor of Memorial Day. The company likes to change their logo for all sorts of things, like Arthur Conan Doyle's birthday, most recently. This is one of those things that could go away and be forgotten, or we might see conservative bloggers urging their readers to switch to for their search queries (Michelle Malkin enter stage right), in which case they could suffer some unnecessary hits to their reputation. Already this meme is getting spread around conservative circles (apparently they're the only ones who care about Memorial Day).

AMD to quadruple chip-making capacity (The Register)
The company with the hot chips has decided to quadruple down. AMD is going to spend a cool $2.5 bln on upgrading and expanding their Dresden, Germany production facility. Despite the company's recent string of success against their larger rival, the company is still constrained by smaller capacity, and size in general. Not only might it cap their sales, but it makes business riskier as a stumble becomes more costly and harder to recover from. Either way, it's quite a show of confidence from the company and shouldn't make Intel feel very good.
A Sweet Deal for Virgin Mobile? (BusinessWeek)
Historically, plans that involved giving away products in exchange for watching ads have been failures. Remember in the 90's some companies experimented with free computers that had an ad bar at the bottom? Other companies have offered free internet access for the same. Now, Virgin Mobile is offering a plan to the youth (of course) allowing customers to get extra minutes in exchange for watching a commercial on their cell. So will it fail like all the rest? Well, the obvious problem is that the person may click the button to play a commercial and then put the phone on the table and wait for it to be over for extra minutes. But, the marginal cost of a few extra cell phone minutes is next to nil. So, depending on what they actually charge advertisers, it may work out. Furthermore, it could be a good gimick to get people on the plan, so it shouldn't be dismissed out of hand. Perhaps an interesting move.
Manufacturers' Profits Outpace Broader Economy (WSJ)
One suspects this is a complicated story that the Journal isn't fully delving into, but it appears from the surface that the US manufacturing sector is on the rise. At a minimum, they're still experiencing a strong rebound from the harrowing declines of the last recession. Though the companies have had a hard time raising prices, they've been aggressively cutting costs and increasing volume through increased exports. So are we really starting to export manufactured goods again? It's really hard to tell what's going on, again, partly because the Journal doesn't give us a whole lot. But, it's becoming increasingly clear with all of the insourcing that's going on from Japan, etc. that US manufacturers should be able to compete -- that there are few (if any) intrinsic reasons why building something on US soil should be more expensive or difficult than same on foreign lands.
Microsoft Takes Manhattan (Forbes)
How bad have things gotten for Old Softy? Steve Ballmer will deign to come over to the right coast and get his chill on with Wall St.'s finest. Typically, the company has had little use for analyst love as their own earnings did the talking. But with weak earnings and an uncertain outlook, the company now needs to actually make the case for itself, a position it's really not used to. Last week, Bill Gates and Intel's Paul Otellini co-penned an op-ed in The Journal, which has to be rather humiliating. So now Ballmer will be traipsing around our city, probably shouting "Microsoft! Microsoft! Microsoft!" as he's known to do. If anyone has any pictures or citizen reporting from the festivities, please send it along.
A study in CEO greed (Fortune)
The emerging options backdating scandal couldn't have happened at a better time for the folks who view CEOs as greedy as a class. Against the backdrop of a crumbling market, it's not going to be a challenge at all to vilify corporate America once again as a group of cheaters and con artists. Also, despite the fact that there had been some momentum in favor of dramatically revising the onerous Sarbanes-Oxley regulations, we can expect calls for even more SarbOx-like laws. The key, of course, is that we must "protect" shareholders, which is ironic considering how much more damage an investigation can do than high executive pay. Perhaps the regulate at all costs crowd should use the options backdating scandal as an opportunity to revise their tactics and not simply try stomping out the problem with brute force, which only moves it elsewhere. Just a thought.