Opening Bell: 5.9.06

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Dell Lowers Forecast for Quarter (NYT)
Once again, Dell is upsetting investors, warning on earnings for their recent quarter. The weakness is seen as resulting from price cuts intended to staunch marketshare losses. It's been quite a rough couple of years for the boxmaker. Two years ago, they had twice the mark cap. of HP, now they're two-thirds as big. But are we to believe that HP is really the stronger company? Seems hard to believe. Maybe things aren't so bad. There's a lot of demand for boxes, coming out of big companies looking to build giant server farms, and the company is still growing. But maybe the problem is the un-commoditization of the PC. HP's ad campaigns have focused on their machine, and the unique features they have to offer. Apple, which has gone to Intel (and Microsoft, in a sense), also puts out unique machines. So maybe the computer business is not just about logistics, as the Dellionaires have argued so long.
Newspaper circulation falling faster (Chicago Tribune)
On the day that print newspapers finally seek circulation, will they have an obituary of themselves? We only ask, because while a lot of people are probably starting to write them up, the death of the newspapers doesn't seem as inevitable (or at least as soon) as everyone thinks. Though the circulation drops are getting a lot of press (newspapers are as self-referential as blogs apparently), the drops weren't really all that huge. A couple percentage points in circulation was about average -- in same cases the drops probably came from strategic decisions not serve certain areas. If the papers could develop a coherent internet strategy, the sky might not fall so soon.
Exxon's Pile of Cash Keeps Growing, Adding Fuel to the Ire Over Oil Prices (WSJ)
Let's take a moment to discuss how great high oil prices are to the US economy. For one thing, energy has fueled the rise in the S&P over the recent years, creating hundreds of billions of wealth. Exxon's cash pile may grow larger than Microsoft's (whoa, that's weird -- two of the companies with the biggest cash piles face regular legal scrutiny, is that a coincidence?). Meanwhile, the Middle Eastern stock markets -- the countries that are supposed to be benefiting from the oil boom -- are cratering. It makes us more intrigued by the Andy Kessler thesis, that while most money flows out, the profit remains here, with stock market growth balancing the two.
George Gilder: So THAT explains it (The Big Picture)
Barry Ritholtz takes a moment to reflect on George Gilder, noting the sheer absurdity of an investment newsletter writer who didn't take into account price. It shouldn't require any explanation as to why you can't ignore price, but Barry Ritholtz thinks he has the Gilder nut cracked, discovering some of his other beliefs, such as his staunch advocacy of intelligent design, and skepticism towards women's rights. Interestingly, Gilder now regrets not doing more rigorous financial analysis in his investment newsletter, but he's hardly the only one on Wall St. who doesn't "do price". The Street's Marketwatch's Herb Greenberg has also, from time to time, said that he ignores price when he's bashing a company or its stock. Doesn't make sense in either direction.


Ken Lay's Final Lesson (Forbes)
Throughout the corporate trial of the 21st century, there's been one constant: almost none of the journalism would focus on the facts of the case. So as trial is starting to wrap up, it doesn't make sense that anyone would start talking facts now. But it's always easy to drum up a piece about how Lay and Skilling were conceited jerks who have now been humbled -- thanks for reminding us.
Work For A Big Firm, Write A Study, Get Coverage, Earn The Wrath Of The Rational Masses (Matrix)
Local real estate analyst extraordinaire Jonathan Miller takes the latest BusinessWeek to task for it's latest feature on why the housing bubble won't burst. Basically, he argues, the piece is naive and uses various trailing indicators that are never used when analyzing the housing market. We tend to agree, but we have to give some credit to the optimists, who have gone a lot longer than many thought they would without embarrassing themselves. Perhaps the end of the housing boom has something to do with attention, it's too early to say we've taken our eye off the ball (hence the BusinessWeek article), but it doesn't seem to be the national fixation it was last summer. A lot of people seem to have accepted the soft landing scenario, which could mean we're in for trouble.
Australia to Slash Personal Taxation (AP)
Though this technically isn't Wall St. related, it's a nice segue into the fact that although people like to talk about the "Bush Tax Cuts" there actually has yet to be any. As J. Bradford DeLong put it recently: The second problem is deeper. Let me try an analogy. I, full professor Brad DeLong, am having lunch with lecturer Dariush Zahedi today. After lunch, I presume Dariush will say we should split the bill--$10 each. Suppose I say: "That isn't fair. Berkeley pays you less (a lot less: what we do to our lecturers is shameful) than it pays me. I should lay out more cash for this lunch. How about this: I put down $5 cash, you put down $0, and we put the balance on your credit card. That would be fairer, wouldn't it?" Because there's been no equivalent cut in spending, all we've done is transfer the bill to our credit card. Doesn't really sound like a tax cut.
GM Gets Approval To Revise Results; Profit Now Shown (WSJ)
If it hasn't been obvious so far, GM is the new Enron. Let's see, the company reports a large loss, then it calls up the SEC asking if they could do their accounting different. The SEC deliberates for a couple days, plays some cards, shakes their 8-ball, calls back and says "yeah, sure whatevs". And now the company is reporting a first-quarter profit of $455 million. Wow, a profitable GM? Just like that? Does anyone believe it? Does anyone think there's any relationship between stated profits and economic profits -- the actual ability of the company to create wealth as opposed to merely bleeding it? Is it even remotely possible to get a handle on this company? I guess the difference is that GM execs don't have that Enron "hubris".

Tech Shares May Take Hit on Dell's Outlook (AP)

One day we're going to write a book compiling all of our least favorite AP finance articles. They all fall into a few categories, with our favorite being the "explanation". Examples of that include titles like "Stocks fell today on news that Hu Jintao would postpone his visit to Moscow" or "Investors big up tech shares on strong earnings from Google" or this chestnut "Stocks rise on optimism over rate cuts". Really, we'd hate to be the person whose job it is to look over 10,000 stocks and try to figure out why - on average mind you -- they moved in a certain direction. But ever more, it'd be worse to be the guy whose job it is to write what the market is going to do that day "Stocks will remain rangebound", "Stocks will drop on Dell's outlook", "stocks are expected to slide on oil". Can someone please do a study of how often the AP guy gets it right, when saying what direction stocks are going to go in, and then get him a job on a major trading desk? Such powers of prognostication clairvoyance are certainly being wasted as a journalist.

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