Welcome to hard times. Oh, wait, that was a couple of weeks ago. This week, we're looking for diamonds as big as the Ritz, because the Employment Cost Index came in below expectations, which means that there's no wage pressure in the economy, making it a good time for capital. Of course, the infinite regression loop was in full effect today, although no one was following it too far out. See, if the ECI was right, then that means that inflation is pretty well under control, which helped lower interest rates and spur a lot of buying in the stock market. But that makes most sense if the low ECI is enough to keep the Federal Reserve from raising interest rates in November. If it's not, even if inflation is low, the stock market could be burned. So were we judging the ECI's impact on inflation, or on the Fed's feelings about inflation?
I have no idea. All I know is that when I woke up this morning, switched on CNBC, and saw the stock market was up big, I knew without being told that the ECI was lower than expected. (That's not a sentence that four years ago I could even have thought of, let alone imagined writing.) And so everything's good again. Until the next big number comes out. On, then, to this week's Cocktail Chat.
1. "The major U.S. oil companies reported earnings this week, and although, the Wall Street Journal reported, their bottom lines were helped by higher oil prices, they were hurt by gasoline prices, which didn't rise as fast. I know there is a logic in there somewhere, but if you're selling oil and gasoline, then aren't you buying from yourself? And if you're buying from yourself, how can higher oil prices help you?"
2. "Shares in Amazon.com were pummeled Thursday after the company said it was going to be spending very heavily on marketing in the next quarter and that its losses could continue to grow. A number of brokerage houses downgraded the company to 'near-term accumulate' or 'hold', although most retained their 'long-term buy' ratings. That's always a good one. If you're not supposed to buy it in the short term, how can you own it for the long term? It's like Zeno's Paradox for investing."
3. "Offering a more investor-congenial outlook for the future was Priceline.com, which said it did better than $150 million in revenue in the latest quarter. Of course, Priceline has the curious habit of reporting as revenue the total value of the tickets and hotel rooms that it 'sells' on its site, even though the vast majority of that revenue goes to the airlines and companies supplying the seats and rooms. So Priceline's actual revenue for the quarter was, oh, $18 million. It's a powerhouse, I tell you."
4. "The Brazilian government announced that MCI WorldCom would be responsible for $550 million in back taxes owed by a former state-owned telephone company that MCI WorldCom bought last year. Brazil admitted that MCI WorldCom had been assured, in writing, that it would not be responsible for the back taxes but said tax authorities had re-evaluated the situation. I guess the original evaluation went something like this: 'If we lie, they buy the company. If we tell the truth, we're stuck with it. I say we lie.' "
5. "Excite@Home spent almost $1 billion to acquire Bluemountain.com, an Internet greeting-card company started by former hippies--does 'hippies' always have to have 'former' attached to it? Blue Mountain has next to no revenue (again, it was started by former hippies), but lots of visitors. At this rate, pretty soon you're not even going to be able to say to someone 'you look like a billion bucks' without insulting him."
6. "After news broke that Coca-Cola is contemplating selling its drinks in a temperature-sensitive vending machine, which will be able to raise prices as it gets hotter outside, a Pepsi spokesman said that Coke's plans would 'exploit consumers who live in warm climates.' Yeah, what's up with that whole supply-and-demand thing, anyway? Let's get a Five Year Plan on soda pricing, please."
7. "The Employment Cost Index for the most recent quarter came in at just 0.8 percent, below expectations, easing investor concerns about possible inflation. This is the happy situation in which we find ourselves: the less everyone makes, the better. Well, the better for stockholders, at least."