Skip to main content

Opening Bell: 9.6.06

Intrigue in High Places (Newsweek)
As corporate governance stories go, this one pretty much takes it. Forget about backdating, spring-loaded options, outside board members, CEO pay, the buyback scandal, the buyout scandal, poison pills, silver parachutes, bankruptcy compensation, and all the rest. How about a damn chairwoman of the board spying on the company's own directors? Earlier this year, after CNET ran an article with a leak that could have only come from the board, HP's chairwoman, Patricia Dunn, authorized investigators to spy on all of the board members until the leaker was found. When this came to light, famed VC Tom Perkins promptly resigned, and has been pushing to get the reasons to light. The SEC may release documents describing the incident today, but either way, this is a big story, and heads may roll.
Party may be over for investment banks (CNNMoney)
If this outlook is true, that's a bad sign for us in Dealbreakerland, seeing as we rely on the investment banking party to continue ad infinitum. But, apparently analysts really are turning cautious on banks, citing a slowdown in both trading activity and M&A. It's true that many of the local teams have been the picture of perfection over the last few years, and an unending wave of megadeals, a strong stock market, and an enormous investor appetite for unusual investment vehicles have fueled great profits. But does it really have to end? Can't some companies exist in a bubble, immune to market forces, margin compression and the business cycle? That being said, many of the negative comments are coming from lesser, smaller banks that are no doubt jealous of the guys at the top. Take their word with a grain of salt.
Oil Falls to Three-Month Low as Iran, Hurricane Concerns Ease (Bloomberg)
At least for a while, we may get a respite on all of our worst fears. This summer was about two stories, really: Iran and the Weather. It started off with the heat wave, which burned Starbucks, but in the end, it wasn't that big of a deal. Arguably, it beat this rainy nonsense. At least we could go to the beach. The other half of the weather story was hurricane season. Everybody expected it to be a bad one, and it hasn't been. We can only imagine that perhaps people were biased by recent event, i.e. last summer. Turns out that there are flukes and some flukes are just random. As for Iran, we thought the world was going to end on August 22nd. Turns out, they just delivered a letter, so we had to go into work the next day. The oil markets, perversely, think that whatever the UN does now to sanction Iran for continuing its nuclear program will be ineffective. This is bad news from a security standpoint, but good news from an oil standpoint -- it's gonna keep flowing. As for Iran's nuclear program? We'll deal with that in 5 years when they have the bomb.
Next hot commodity? Arabica coffee beans (Seattle Post-Intelligencer)
Here's some bad news for anyone who has to wake up early and then be at their desk writing just five minutes later. Analysts expect the price of Arabica coffee beans to surge in the coming months, perhaps by as much as 20%. Already, there's been a surge in Arabica's cheaper cousin, Robusto, which is primarily used in instant coffee, and stuff like that. This should also prove to be a major test for Starbucks, one of the largest buyers of Arabica coffee beans in the world. Will they be able to pass on the prices to their customers or will they get squeezed. And does Starbucks have a coffee trading division? Do they have hedges in place? If not, they really should.

Mortgages Grow Riskier, and Investors Are Attracted (NYT)
Last week, BusinessWeek and the BoingBoing blog sounded the alarm bells about evil mortgages which like a serpent suffocated the borrower until they foreclosed on their home. These mortgages start out innocently enough, pointing the way to a delightful apple tree. But who are you going to believe, BoingBoing or all of the investors still buying mortgage backed securities backed by these risky loans? Granted, BoingBoing may prove correct, and they've correctly called 5 out of the last 6 bear markets, but when the people with their money in the game are still buying, that might be a sign that fears are overblown. Then again, it's not like investors haven't messed up before.
Struggling Atari Appoints New CEO (
Well look here, Atari is struggling. This is a story that could have been written at any time in the history of videogames. Of course, the Atari today has very little to do with the Atari you played when you were younger. The name has been passed around from one company to another, all hoping they could make a go of it with such a recognizable name and logo. But, there's a branding lesson here. People don't buy videogames because of a name and logo. What people do buy are t-shirts and hats with the Atari logo. It seems to have died down, but a few years ago, the biggest beneficiary of Atari was retailer Urban Outfitters, which has to have sold a million lime green t-shirts bearing the distinctive icon. We said back then that the company should ditch videogames completely and go into fashion -- something to capture the moment. But they didn't, and now it's paying the price.
Big Banks On Campus (WSJ)
The Journal has a wild scoop this morning. Apparently credit card issuers are hawking their cards directly to students by setting up chop on or around college campuses ($250 credit limit, baby!!). And they don't just try pitching them on the low-low rates (14% introductory!), or the picture of the campus quad on the card. In fact, they often dangle other swag, like free t-shirts or even iPods. Of course, some are worried about credit card debt, and whether students are able to take on such financial responsibility at a young age. Earth to them: this has been going on forever, or for at least as long as young people would do stupid stuff for free shit -- i.e. forever.
Home Prices Rising After 2Q Slowdown (AP)
May all bubbles burst like this. There was a sharp reaction to the news that homes appreciated at the slowest level in over thirty years, in their most recent quarter. But note that homes still appreciated in price; they still went up. So for all the homeowners out there with their crazy devil mortgages that are specifically designed to make them foreclose -- maybe they should get out while they still can.
Boeing taps low-key leader (Chicago Tribune)
Another round of shakeups Airbus has been followed by news that rival Boeing has lost a key executive to Ford. And you know what we can't believe? That we found an article that didn't describe the situation as "turbulent". Boeing's commercial airlines unit has had a pretty great run under Alan Mulally, who has now gone to Ford to take on the turnaround challenge of a lifetime. The company now turns to Scott Carson, to lead the division. Carson is seen as an unassuming, low-key, finance guy. We'll see how that works out. For a little more discussion about executive turnover, read here.