US Videos

What Were They Thinking?

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five.

We have a head-scratching Friday Five this week. Five stories where you have to sit back and say, "What were they thinking?"

Joining me with the details is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're very welcome, Jason.

Stipp: So, what do you have for the Friday Five this week?

Glaser: This week, we're going to take a look at a buyout offer for AMR, at Berkshire Hathaway, at Irish banks, at Congress, and finally at Google.

Stipp: So, Jeremy, I think you could legitimately ask, "What were you thinking?" for any offer for an airline, but we saw a really questionable one this week. What was the story there?

Glaser: Sterling Global, which the buyout fund that no one has ever heard of and I don't think anyone will ever hear of again, put out a press release saying that they had made an offer to buy AMR, which is the parent company of American Airlines.

American Airlines have never heard of this company, didn't think it was a real offer. Most people didn't really think it was a real offer, but somehow the stock did manage to trade up a little bit. So if their goal was to try to get a short pop out of the stock, maybe they got it with this press release, but certainly you have to question someone who is coming up with these fake buyout offers and the fact that a large percentage of the market, or at least some percentage of the market, bought into it.

Stipp: So Jeremy, on Wednesday this week, we got, I guess you'd called it, some shocking news out of Berkshire Hathaway. What's your take on that situation?

Read Full Transcript

Glaser: It was really surprising to hear that David Sokol has resigned from Berkshire Hathaway. This is a man who has run a lot of very prominent Berkshire businesses and was really seen as the heir-apparent to Warren Buffett himself.

Now, the other thing that kind of complicates the situation is that he also had bought a 100,000 shares of Lubrizol, which is a company that Warren Buffett and Berkshire is going to acquire very soon, before the deal was announced and before he even brought the deal to Warren Buffett's attention.

Certainly, that raises a lot of questions about what's happening at Berkshire Hathaway in terms of ethics. This is a company that really stands on its own in a lot of ways, in talking about how ethical they are, how much the reputation matters, how they would never do anything to hurt shareholders, they would never do anything that even seem to have the appearance of, wrongdoing. And this really has that appearance.

And certainly, there probably isn't anything illegal here, but it just doesn't look good. It really makes you question that judgment, and it opens up a lot of questions about now who is going to succeed Warren Buffett after he moves on. It really, as you said, raises a lot of questions. Raises a lot of questions about judgment at Berkshire.

Stipp: Certainly not a good week for Berkshire Hathaway.

Also, not a great week for the Irish banks either. If you were the parent of an Irish bank and they brought their stress test report card home to you, you might say, "What were you thinking?" What were they thinking, Jeremy?

Glaser: You definitely would, but you'd probably get used to seeing so many F's that it wouldn't faze you anymore.

The Irish banks have been in trouble for a while, and you do have to wonder what they were thinking during the boom and even afterwards to just get so many bad loans onto their books. The banks have been essentially nationalized for a while.

The Irish government basically had to step in and say, "we're going to backstop all these liabilities to keep just complete economic Armageddon from hitting the nation."

But now they're going to have to put another $34 billion of capital in. It's not clear if that's even going to be the last payment that they're going to need to make. They've had to tap the EU bailout funds in order to get that money, because as a country they are broke, because of all the other money that they threw into the banks. You really have to wonder where this is going to end and when the Irish banks will finally be strong enough at least to just exist, not even grow or to really promote the economy.

Stipp: Money problems are afflicting not only the Irish banks, but also local governments; the federal government facing some issues coming up. What are they thinking in trying to fix this, Jeremy?

Glaser: I don't know what they're thinking, and I wish I did.

Congress is really having problems coming up with the budget that will stave off a government shutdown. The Republicans and Democrats both agree that they want a decent size chunk of cuts, but they can't agree on where those cut should come from. Instead of really putting their heads together and trying to work out a deal that will get some of what some people want, some of what other people want, and we'll stave off the shutdown--they really just seem to be grandstanding and seem to not necessarily want to come up with the best solution.

I think that's dangerous. I think government shutdown is not going to be good for economic growth. I think it adds a lot of uncertainty. You don't know how long it's going to go, not having those paychecks go out to federal employees certainly could be a drag on consumer spending. Hopefully, they will be able to work it out, but you really have to wonder why they're taking this last minute, when they both generally agreed that you are going to need some big cuts.

Stipp: In tech, Jeremy, Google making a foray, I guess you could call it, into social media. What were they thinking with that? Is it a good idea?

Glaser: Google has for a while tried to come up with different ways to get social media to work with Google as they see Facebook's growth and they see that that's really something that people are excited about.

So, they launched something this week called +1, which is basically if you see a search link that you say, "oh, this is a good result for this," you click a +1 button and then when your friends who are in your Google contacts log on, and do the same search, they could see, "oh look, Jason has recommended that this particular link is great."

This is really not a particularly novel service. I don't think it's one that's going to be very useful. Social news aggregators have been our there for a while. Things like Digg and Reddit have been there and have been very successful, but this is a very closed group of just your friends, who are looking at just the same things you are searching for. The chance of this being of any particular utility to anyone is almost zero, and it just shows that Google has a lot of money to spend in engineering projects, but that money is not always well spent.

Stipp: Well, Jeremy I don't know what you're thinking, but I'm thinking this was a pretty good Friday Five.

Glaser: Thanks, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.