Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.
1. Edge of darkness
Bank of America's (NYSE: BAC ) Merrill Lynch is getting into the cutthroat online discount brokerage business.
This week's launch of Merrill Edge may be a good way for the full-service brokerage to woo young investors with dirt cheap trading and toothpick-plucked samples of its research, but the financial-services giant is diving into the discounting niche at the worst possible time.
A price war's afoot, as brokers compete by slashing their commission schedules, offer free access to select exchange-traded funds, and take subsidized hits on their money market funds in this low-rate environment. It's no surprise that all of the leading profitable discount brokers are expected to earn less this year than they did a year ago.
If Merrill Edge wanted to throw its hat into this ring, the smartest thing would have been to just buy out one of its key players. Creating a discount brokerage from scratch in 2010 is such bad timing that it should make prospective clients wonder about the depth of its research.
2. Pedal to the metal
CarMax (NYSE: KMX ) was already rolling along nicely on Wednesday, with its stock popping 9% higher after posting spectacular earnings and being tapped to fill a vacancy in the S&P 500.
A day later, UBS chimes in with an analyst upgrade.
UBS hit all of the salient points in its positive revision. Used-car sales at the haggle-free showrooms have been strong. Auto-financing deals are coming around. However, the reason that UBS' upgrade makes it to the "dumb" list is that we all know that the analyst is simply trying to get in ahead of the official S&P induction that takes place after the market closes today.
Between today and Monday, index funds that ape the popular S&P 500 will have to buy into CarMax. Sure, it's great to see the fundamentals rocking, but UBS is trying to sneak in before the institutional investors do. That's 100% legal, of course, but where was the upgrade on Tuesday, before the stock pressed down on the accelerator?
3. Pfizer feels the pain
The FDA is making Pfizer (NYSE: PFE ) feel achy over its once-promising pain treatment, tanezumab. It's requesting a "clinical hold" after a small number of the osteoarthritis patients taking the medication during a trial began getting worse.
Pfizer is a big enough company to withstand a hit like this, but it's also one of the many mature pharmaceutical giants that have been struggling to prime their pipelines with blockbusters to replace their older treatments that are going off patent.
4. A new chapter for e-books
There's a price war for bookworms. Barnes & Noble (NYSE: BKS ) shaved $60 off its Nook on Monday, pricing the e-book reader at $199. It also introduced a cheaper model that can only download content through Wi-Fi for $149.
A few hours later, Amazon.com (Nasdaq: AMZN ) decided to see the superstore chain's bet and raise it -- or, more accurately, lower it -- by dropping the price of its industry-defining Kindle by $70 to $189.
There's nothing wrong with deliberate price cuts, but it seems as if Barnes & Noble forced Amazon's hand. Investors don't know whether Amazon was making a profit on $259 Kindles, but it doesn't seem likely that the company will at the $189 price point. Either way, margins will take a hit. Price cuts often widen audiences, but Amazon already has the diehard bibliophiles. New buyers are unlikely to make up the difference by ordering even more e-books than the early adopters.
5. Dishing it out
DISH Network (Nasdaq: DISH ) continues to make enemies. Disney (NYSE: DIS ) pulled four of its HD channels from DISH's satellite-television network on Tuesday, 60 days after a judge ruled that DISH owed $65 million to Disney for high-def programming fees.
Yes, DISH strives to be the low-price leader in satellite television, but it's not generally a good idea to upset the content providers that one relies on. DISH has also spent the past couple of years in a digital-video-recorder patent dispute.
I guess if it ever loses truTV, the channel formerly known as Court TV, it can just strap on a webcam and lifestream its own legal challenges around the clock.
Which of these five moves do you think is the dumbest? Share your thoughts in the comments box below.
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