Opening Bell: 6.22.06

Author:
Publish date:

The penny's unlikely backer: Britney's hubby (CNNMoney)
What the... ? At an event sponsored by Virgin Mobile, Kevin Federline has made it official that he stands against any future law that might eliminate the penny. Is Kevin Federline a moron? Doesn't he realize that rising copper prices (though they've eased) is dramatically limiting the seignorage on the minting of $.01 pieces? Does he really want the economy to be shackled by such an inefficient currency unit going forward? What an outrage. Maybe we should start a petition to protest K-Fed's screwy views on the monetary system. That would show him.
An Insider Trading Policy a Monkey Would Love (Truth On The Market)
Nobody ever likes when we write about this, but we can't resist a chance to discuss the legalization of fraud. Certainly there are some of you who might directly be affected by this, right? There's a phenomenon whereby you can convince someone that the legalization of insider trading would make the market more efficient, prove a cheap compensation mechanism for executives, and help price doubt into the market, and they'll agree with you. But when it comes to down to putting theory into practice, they'll hesitate and say "but it's just not fair". And despite the fact that this isn't communist Russia (Ok, China), the fairness argument gets embedded into the law. Even former SEC commish Arthur Leavitt wrote that if the system isn't "fair" then nobody will feel comfortable investing in the markets. But this ignores the fact that there have been periods of less insider-trading restrictions (and the fact that it still happens today) and the markets have always functioned. Besides, if a move to legalize the activity prompts a mass exodus from the market, so be it -- sounds like buying time.
Lehman Uncommon Values Portfolio (Ticker Sense)
Per annual tradition Lehman has released its famous 10 Uncommon Values Portfolio -- a list of stocks they think will outperform the market over the 12 months. The firm claims that the portfolio significantly outperforms the S&P, though that's unclear. Last year it lagged the S&P 500 by over 7%. This year, of the ten stocks, only one is a carry over from last year, despite the fact that the stocks sagged. You'd think that these uncommon values would be even more uncommon after a down year, but apparently not. Also, if you're looking for a trip, check out the portfolio from 2000. Uncommon indeed.
Optimisation of cliché synergies (The Age)
Wall Street loves its obfuscatory language, jargon and cant. It's not just because that's what you learn when you get in MBA; no, it's because people have something to hide according to a study. By quantifying the readability of annual reports, researchers identified a correlation between poor stock returns and the amount of linguistic rubbish. Everybody has their favorite bit of jargon, and we could go on forever citing it. Just to keep it simple, we really like the word "leverage". It sounds unassuming enough, and it's used so often that you'd think it was being used the right way, but it's not. Leverage doesn't mean "use". It's a phenomenon that occurs when a little bit of pressure or force can have dramatic effects -- and in real English it's barely used as a verb. If you speak English, and haven't been totally steeped in executive BS, it should sound absurd to say, "we're going to leverage our global workforce". Ok, rant over.


BA admits it is at centre of price-fixing probe (Scotsman.com)
A price-fixing witch hunt is on, as UK and US regulators are exploring allegations against British Airways and other airlines. It's possible that BA is drawing suspicion by committing the crime of turning an unexpected profit during a period of weakness for the industry. Generally, the industry remains quite unprofitable, so if there is widespread price fixing, it doesn't seem to be working. And of course, if BA were charging less than the competition, somebody, somewhere, would accuse them of gouging.
SEC may target preferences ‘time bomb’ (Financial Times)
There's always a scandal out there, waiting to be found if you look hard enough. Even though the SEC must be swamped by the options backdating scandal, which certainly has spiraled into the millions of dollars, it has time to break open a new issue, this time it's on hedge funds' use of so-called Side Letters. Side Letters allow some clients to receive some form of preferential treatment, whether it's more information, or better pricing. Of course, they're not illegal per se, but that's not going to stop a potential investigation. If they're being used in a way that could be damaging to other shareholders (and somehow we think this will be a tough question to prove in either direction) then the hammer of justice could come down.
Aw, shucks, no cussin'. Peace has broken out at Love Field (Airline Business)
Quietly, this last week, the multi-decade drama over the use of Dallas' Love Field seems to have been resolved amicably by Southwest and American Airlines. A lot of people know about the Wright Amendment, and how it limits Southwest's ability to do direct flights out of their home base. It worked out good for their bloated cross-town rival American Airlines, which operates out of DFW. It wasn't great for the people of Dallas. Basically, the parties have reached a compromise, whereby Southwest will have many restrictions lifted over the next few years, though not all, and some parts of the airport's operations will still be closely monitored. Southwest Chairman Herb Kelleher had a great quote on the historic agreement: "I have been involved in litigation, legislative struggles, and cuss fights over Love Field since 1972 - a period of 34 years. The fact that Southwest Airlines stands here today - stands here with Fort Worth, D/FW Airport, American Airlines and the City of Dallas - indicates, I believe, that there must be hope for world peace."

For Ford, 2008 is Suddenly a Lot Closer (BusinessWeek)

The tone of this BusinessWeek is absolutely baffling, as it conveys a sense of wide-eyed shock that maybe Ford won't be returning to profitability any time soon. The company has stated that they'll be in the black by 2008... but maybe they wont'! In fact, if you noticed, the automakers are actually facing a good deal of trouble these days as both Ford and GM have seen their stocks and bonds sag dramatically over the past several years (the recent GM "turnaround" not withstanding). So, yeah, they face a lot of trouble, and any executive promise to be profitable in a given year should probably be ignored at all cost.
Chrysler to offer 'Employee Pricing' in July (Reuters)
We've been waiting for this for a year. Last year, the automakers had great summers (from a volume perspective) by offering 'employee pricing' a great marketing gimmick that moved a lot of inventory, though at a per-unit loss. Oddly, they all ditched the employee pricing scheme, but never really cut out the incentives. Sometimes it's been free gas, or super-low interest, or major cashback, but none of these really captured the imagination the way employee pricing did. So considering that they're still not profiting on cars, why not just bring back employee pricing, and quite it with all the other ineffective promotions? It seems that Chrysler has got the message and is bringing it back, just in time for the 'summer car-buying season'®. Expect the others to follow suit.

Related