Opening Bell: 6.21.06

Publish date:

Coca-Cola Closes MyCokeMusic Site in UK (Paidcontent)
There's a school of thought that says that the great brands shouldn't think of themselves in terms of their product, but should instead see themselves as media companies. Starbucks, for a long time, has tried to "leverage" its locations to be an editor of culture -- promoting CDs, Movies, in-store music downloads, etc. For the most part, it's all been a failure as it all comes back to coffee. It's the same with Coca-Cola, which for some time has tried to position itself as something more than just a sugarwater company. If you go to Coke's website, you'd probably be hard pressed to see much about the drink, and instead are probably treated to some music videos, the latest ads, or maybe that really dumb documentary about people going around finding kids who are "doing something with their life". In most cases "doing something with their life" just meant snowboarding down a rail, or throwing a rave in a barn. So, it's nice to see that Coca-Cola is getting out of the retail music business in the UK. That never made any sense at all. A few more failures like this, and companies might get the message that they're not nearly as cool as they think they are. Stop looking in the mirror; sell more sugarwater.
Brand-name drug prices up 4% in 1st quarter: AARP (Chicago Tribune)
Oh the unholy pricing cycle. So the congress passes a massive boondoggle of a prescription drug program, more money is thrown at pills by people with little concern for pricing, and then (get this) prices rise. Now, it wouldn't be unreasonable to cite some cause and effect going on, but that might be too subtle for the AARP. Instead, the government has to do more to insulate seniors from rising drug prices. In other words, more subsidies are needed. Let's wait a year and see if the cycle gets worse, shall we? This kind of mis-thinking happens all the time. Our local media star/voice of the under-30 generation, Anya Kamenetz, argues that the way to deal with rising tuition costs is to increase subsidies for student loans. In the words of Radley Balko: Huh?
Taking a Gamble (Investment Dealers Digest) (via Dealbook
It's often been said about Goldman Sachs and other banks that while it may look like they're on a hot streak at the casino, they're really 'the house'. People will come up with all kinds of lovely metaphors when they're trying to explain how an investment just can't possibly lose. Of course, Donald Trump's Atlantic City casino was 'the house' too, but look how that wound up. But, in one way, some banks are literally becoming casinos as they've made investments in online casinos. Those companies, usually listed on the LSE, and based in Malta, are of dubious legality in the US, and the Congress may soon move to clarify that they are in fact illegal. Washington State has already made gambling online a felony, and in fact is even cracking down on people writing about or advertising online gambling. There's some question, even, whether under existing law such investments constitute a crime. The Wire Act, which regulates this stuff, may in fact apply to investments. But hey, the house never loses.
The looming China crisis (Simon World)
Folks have been calling for the end of the China boom for some time now. Notably, Andy Xie at Morgan Stanley, back in 2004, said that the Chinese economy was sinking, and that it would bring the price of oil down with it. Like his colleague Stephen Roach, we'll worry when he says that the Chinese have it under control. But, he's not the only Cassandra out there. A growing chorus is worrying about the company's socio-political problems that threaten to destabilize the whole economy. These issues, when combined with some very bad long term financial moves (too much money, widespread irrationality) could bring the China boom down fast, which would be bad for the world as a whole. Definitely worth a read.

Ratings Cut on G.M. Debt in Response to Loan Plan (NYT)
Just as the vaunted G.M. turnaround is underway, the company's debt has been downgraded to junk status by the major ratings agencies. Remember, the company's turnaround was spurred by an accounting trick, whereby they realized they could expense health care differently, and thus make a profit in their last quarter. The whole thing seemed a little shady, but at this point an investigation just seemed like piling on. The latest ratings cut was prompted by a GM plan to offer collateral on a loan, a first in the company's history. This isn't necessarily a bad move -- as we've said before, if they're going to be around in 5 years, they have to be around in 1 year first.
The Blip: Housing Starts Up, Building Permitting (Matrix)
So there was some ripples of optimism yesterday when housing data showed a surprise bump up in housing starts. Of course, that was tempered by fear that any good economic news would be followed by another fed rate hike, so at this point we still can't win for winning. But then again, there really wasn't any good news. True, starts were up, but the forward indicator, permits, were down sharply again. All the data means is that inventory is building in the face of slack demand. Sounds like a recipe for more weakness. But at least nothing to worry about on the fed front!
Disaster Recovery (Mahalanobis)
Every financial institution would like to portray itself as having good contingency planning in the vent of an unexpected collapse (oh aren't they all) in the market. But most of the time, this kind of work is more about appeasing those on the outside than it is guiding the strategy on the inside. One problem is that those doing the work don't really have the ear of those in charge. Another problem is that they all calculate various scenarios that have happened in the past, not the unexpected ones, like the Asian market weakness that led to the collapse of LTCM. There's a bunch of reasons why it's all bunk -- suffice to say, if trouble hits, don't think your firm will withstand better than any others.
World's wealthy total at new peak (BBC)
Good news; the ranks of the world's millionaire have swelled, as there are now a total of 8.7 million people who can claim to be millionaires. Another 85,000 people have assets valued at over $30 million. Big gains were maid in Korea and the Middle East, while the rate of millionaire creation slowed in the US. India and Russia also did pretty well.
French see merging EADS, Airbus possible-report (Reuters)
We're still in the throes of pick-on-EADS week, as you know, so allow us to make a simple point. It's got to be a real pain dealing with the French government when trying to restructure and save a company. All those allegations about how Airbus was in violation of WTO anti-subsidy rules are really coming home to roost, as any plan must happen via negotiations with the French finance minister. Doesn't sound fun or easy.