All Business

THE YEAR IN RUMOURS

Bay Street’s gossip mill worked overtime in 2004, and mostly got it wrong

STEVE MAICH January 10 2005
All Business

THE YEAR IN RUMOURS

Bay Street’s gossip mill worked overtime in 2004, and mostly got it wrong

STEVE MAICH January 10 2005

THE YEAR IN RUMOURS

All Business

Bay Street’s gossip mill worked overtime in 2004, and mostly got it wrong

STEVE MAICH

RUMOURS ARE MORE FUN than reality is. Oh sure, stodgy old facts have the advantage of reliability and accuracy, if that’s what you’re into. But they don’t have the seductive power of whispered theories passed in confidential phone calls and over boozy lunches. And while proven figures may ultimately decide the course of events, it’s rumour and innuendo that provide the scenery. That’s why 2004 was such a fun year in the world of business: it may not have been a time of momentous change, but the gossips sure made it feel

like a lot was happening behind the scenes.

Still, it’s hard not to be disappointed looking back at the big news of 2004. Many of the hottest stories ultimately didn’t pan out.

Take Target Corp.’s bold entry into the Canadian market, for example. The Gbbe and Mail revealed in August that the Minnesotabased retail chain was in advanced talks to acquire Hudson’s Bay Co. The gossips said the deal was as good as done, but shoppers with visions of Target-exclusive Michael Graves toaster ovens under the tree were stuck with the same old Hudson’s Bay blanket instead. The story triggered a jump in HBC’s share price, but investors hoping for a takeover-propelled payoff have come away with nothing.

Maybe Target was getting ready to buy HBC, but something killed the deal. Maybe it will end up buying HBC yet.

Who knows? Who cares? The investment bankers and brokers, who profit any time they can stir up speculative trading, got the headlines they were looking for.

Besides, we all quickly move on to the next juicy bit of gossip.

Investors never seem to tire of rumours, even stale and familiar ones like the suggestion that Cisco Systems might buy Nortel Networks (NationalPost, June 18). Some come up so regularly they could be compiled into a “greatest hits” collection of business scuttlebutt. Speculation about the health of U.S. Federal Reserve chairman Alan Greenspan, for instance, never gets boring. Last spring, Internet bulletin boards spread word that the 78-year-old central banker had suffered a heart attack, which forced the Fed to release a statement saying the chairman just had a cold (AP, March 31).

Still, it’s takeovers that provide the most fertile ground for business buzz. We’re always ready to devour a hint that, say, fibre-optics equipment maker Alcatel may be ready to buy rival JDS Uniphase (Reuters, Jan. 21), or that Barrick Gold is on “high alert” for a hostile takeover by Newmont Mining (Sunday Telegraph, March 28)—both of which were quickly shot down. While such rumours’ lifespan is typically short, few have expired more quickly than the recent suggestion a Chinese oil firm was in talks to take over Calgary-based Husky Energy (Globe and Mail, Nov. 26). It took just a few days for China’s largest refiner to dismiss the story as “pure rumour,” sending Husky’s stock down five per cent in a day.

And where would Canada’s rumour mill be without its star attraction, Gerry Schwartz?

He is this country’s favourite corporate collector, and whenever a company is for sale or in bankruptcy protection, somebody will tell you firmly that Schwartz is going to buy it. So it came as no surprise when, on April 9, the Toronto Star reported that the financier was “kicking the tires” at Air Canada, preparing a bid for the then-insolvent airline. Alas, within days, Schwartz said he had no plans to join the Air Canada fray.

But of all the wildly inaccurate stories floating around Bay Street’s finer establishments last year, few were as far off the mark as those concerning Manitoba Telecom. The

MANY OF the hottest stories didn’t pan out. Those hoping for a Target-exclusive Michael Graves toaster oven under the tree got the same old Hudson’s Bay blanket.

company was expected to convert into an income trust—a suggestion stoked by a handful of hedge-fund managers who thought such a move would send the stock soaring. Instead, Manitoba Tel bought Allstream, another telco, for $1.7 billion to compete head-on against Bell Canada. For the rumour mongers, this wasn’t just a slight miscalculation. They completely misread the company’s direction, and the stock tumbled.

So why do we listen to rumours? Because everyone thirsts for a glimpse behind the scenes. But the sad truth is, a lot of what gets tossed around during those confidential phone calls and boozy lunches is selfserving malarkey. Traders and investment bankers need to create buzz to spark trading volume and drive deals forward. Reporters need it to satisfy editors and give readers the sense of being plugged in. It’s a symbiotic relationship in which market players agree to speculate and reporters agree to take their speculations seriously.

Seasoned market pros have a highly developed bullshit detector, but many average investors make the mistake of believing the

chatter. They don’t realize that, at some point during the advent of 24-hour news channels, nonstop talk radio and online bulletin boards, the financial news business changed. In today’s media environment, getting it wrong is unfortunate, but letting your

competitor get it first is unacceptable. As a result, news sources opt to simply reflect the chaotic marketplace of ideas and theories—constantly spinning, throwing it all out there for you to sort through.

You’ll want to remember this next time you dig into the latest market tidbit: the rumour mongers are good at blowing smoke, but not so hot at sniffing it out. And if you thought 2004 was fun, hold on, because rumour has it 2005 could be even better, lifl

Read Steve Maich’s weblog, “All Business,” at www.macleans.ca/allbusiness