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Opening Bell: 8.31.06

California Pact Would Place Cap On Emissions (WSJ)
Back in college, in a class on local politics, a professor once explained that as goes California, so goes the country. In other words, many state and local governments took their cues from California, when it came to passing and writing legislation. The state just has a knack for being ahead of the curve, when it comes to new laws. It's hard to say whether they should be proud of this or not, but either way, that's the reality. So, it's worth noting that the state has voluntarily and unilaterally decided to reduce its greenhouse gas emissions back to 1990 levels. There are certain to be all kinds of loopholes, and the goal seems unlikely to happen (or make much of a difference), but as California is one of the world's biggest economies, it's a big win for the Kyoto crowd. And should the California example prove ok (wait a few years for the studies showing much of an economic boon it's been. seriously, they'll come), it may inspire other governments to try something similar.
Judge calls for new trial in Vioxx case (AP)
When it comes to reporting on the Vioxx case, the media has a 24-hour memory. After Merck wins a case, experts praise the company's strategy of fighting each trial in court, on an individual basis. After Merck loses a case, they all question whether the strategy was a disastrous move, and whether Merck should have just offered a broad settlement. And so, it's only fitting, that the day after a judge issues a mixed ruling that the pundit should, well, find stuff to like and dislike in Merck's strategy. Such is the case today, as a judge has upheld a guilty verdict for the company, but rejected a jury's high compensation award.
Australia's Telstra buys 51 pct stake in China's SouFun (AFX)
Looking to tap into China's raging housing market, Australia's Telstra bought a website. No, it makes sense; the site is all about real estate. That's certainly one way to play into a housing market. Meanwhile, we're going to launch a blog dedicated solely to the sale of Stuyvesant Town. Certainly that's a big enough deal that it can support a derivative economy consisting of a few dedicated blogs. And Paul Kedrosky throws out some ideas about ways to play the housing burst, in the US. Sure you could go right into Robert Shiller's pet real estate futures, but those aren't available from E*Trade, so fat chance you're gonna do that. You could always short the homebuilders, but that's a pretty tired story. Besides, Barron's just announced that those were looking cheap. Kedrosky throws out the idea of shorting E.W. Scripps? Wha? Yup, the company is at a 5-year high, and owns HGTV, the DIY Network, and the Food Network, which are all derivative products of our house and home-obsessed culture. It's all about the housing derivatives.
Costco Cuts Quarterly Profit Forecast (NYT)
Cue ominous music. As everyone knows, Costco is the rich man's discount store. Did you think that title belonged to Target? Nope, that's the hipster's discount store; get it right. Costco is for the cost-conscious wealthy, which is why, from time to time, you'll find them selling fine art next to their oversized bags of Crispix. The company is now the latest retailer to put out disappointing quarterly numbers. And you have to credit them for an utter lack of excuses. They didn't cite weather, or any major event that disrupted the quarter. They simply said their customers cut back on big purchases, like furniture. Still, we appreciate the candor and all, but the market probably won't give them any extra points for it.

Alcatel CEO says 'not possible' to alter Lucent merger terms (AFX)
Would it be wrong to have a sense of impending doom when it comes to the Lucent-Alcatel merger? In the last, the chorus of concerns about a merger between to sickly birds has grown much louder as critics on both sides of the Atlantic have chimed in to attack the deal. The CEO of Alcatel now says that the terms are impossible to change, which is not the argument you want to be making at this stage of the game. How are the hedge funds playing this one?
The LBO Gang Storms the Valley (BusinessWeek)
The adultification of Silicon Valley continues in full force. There have already been several signs of its growing maturity. First there was the slowing growth. Then Microsoft announced an enormous one-time dividend, which has been followed by massive buybacks. In the meantime, Oracle took out debt to pay for its spree of acquisitions. Slowly, the world of old finance was making its way to the left coast. Now a new have has hit the surfers, the LBO. Instead of going into venture capital, ex-techies have been wooed into the world of taking companies private, and doing nasty, unmentionable things to them behind closed doors. When they came out, they're vaguely leaner and meaner, but for the most part bear little resemblance to their former selves. And just how cocky are these new barbarians at the Valley? A couple weeks ago there was talk about launching an attack on Microsoft.
Video Music Mania (Forbes)
Apparently the MTV's Video Music Awards is a pretty damn big franchise. Advertisers have dubbed it (lamely) the Super Bowl for the youth market. They could probably come up with something better than that, but the point is that advertisers spend a lot of money to get their brands in front of MTV's viewers during the show. So who are going to be the cutting edge brands that break out this year? Well, none other than Pepsi, GM, and J&J. In fact, GM is going to use the show to promote.... ethanol. Perhaps if they were going to put forth a new vision of 'Iowa Sexy' then it might work, but all they came up with is the line "Yellow is the new Black". And frankly ".... is the new black" barely registers a 'heh' anymore. So, we predict spectacular flameouts this year, and much less hype next year.
House prices jump sharply (Reuters)
... in the UK that is. It's been said that the UK housing market has consistently been 12-18 months of our own, in terms of the cycle. When ours was peaking, there's was already well in a slump. And now that the media has officially declared the housing bubble 'burst', we look across the pond to find sharp gains in UK prices. So far all you owners of pre-built condos who already find yourselves with negative equity, have no fear. In the UK, housing prices are up. Just wait it out.
Discretionary Spending (and my mother) (Truth on the Market)
It's as good an indicator as any; Elizabeth Nowicki throws out the Victoria's Secret indicator of economic health. If people are still waiting in lines to buy $30 bras from the store, then there's still money jangling around in the discretionary spending pot. Our question: are bras included in the CPI? And if so, have they made hedonic adjustments over time to account for advances in bra technology?