The Rumor Market: A Follow-Up

Earlier this month I took a quick look at the way rumors, even when strenuously denied by a company, can affect the price of its stock. The company I looked at was Halliburton, the oil services firm. As it happens, a new round of rumors surfaced at the very end of the week—and briefly lifted HAL shares.

The bad rumor, which dated back to December, was that Halliburton’s exposure to asbestos-related litigation was about to push the company into bankruptcy. The company of course denied this, but in a period of weeks its stock fell from $20 to $10 or so. The good rumor was that George W. Bush will advocate caps for asbestos litigation-related losses in his State of the Union address tonight. This came up in a wire story that apparently moved on Friday morning. It’s unclear where the rumor came from, since the most authoritative source in the story is a hedge-fund manager who has this to say: “There are rumors that the president is going to discuss asbestos and talk about liability limitations.” That’s it. Nevertheless, HAL, already having recovered a bit from its lows, rose 6.8 percent, or almost $1, to close Friday at $14.34.

As of midday today it has basically given that gain up, trading near $13.50. Has the market simply concluded that Bush rumor is false? Possibly. I haven’t seen any echoes of the asbestos-liability cap theory published anywhere (although of course I may have just missed them). It’s also possible that even if the rumor is true, the market is just more interested in other factors (the outlook for the sector, the company’s most recent quarterly results, its debt rating, etc.) that obviously have also had an impact on the stock, both positively and negatively .

Anyway, I’ll be interested to see if there turns out to be any truth to the Bush-on-asbestos speculation. I tend to doubt it. The quoted hedge-fund manager, Seth Tobias of Circle T Partners, was also quoted saying that almost 40 percent of the Dow “has asbestos exposure” and that liability caps are needed “or we’re not going to have corporate America anymore.” (So, we certainly know where he stands.) But if Bush says something like this, Halliburton will be the first firm most people think of—after all, it’s the firm that his vice president used to run. And on the subject of advocating policies that benefit Texas oil-and-energy companies, Bush probably has enough rumors to deal with it as it is.