TCS Daily


Cheney, Halliburton and the Stock Market

By James Ringo - October 4, 2004 12:00 AM

A Google search for "Dick Cheney" and "Halliburton" produces about 123,000 web pages updated in the last year. The heat that topic generates is suggested by the fact that a similar search for "Michael Jackson" and "abuse" only produces 97,000 pages.

The interest, of course, is in the accusation that Vice President Cheney is corruptly using his influence to make a lot of money for Halliburton, a company of which he was CEO. These attacks, from Bush Administration opponents, have flown thick and fast since 2000. "Dick Cheney's Slimy Business Trail" is how the web'zine Salon.com titled its attack in 2002. Democratic presidential nominee John Kerry, during the current campaign, puts the idea in a more nuanced way: "Dick Cheney's old company, Halliburton, has profited from the mess in Iraq at the expense of American troops and taxpayers."

There is a lot of smoke here. Is there fire? The stock market, actually, has provided an answer. Since economists say the stock market reflects available information, we can turn that around and read information out of stock prices. So, if Cheney's position as Vice President were a benefit to Halliburton, the investors in Halliburton would welcome that fact and bid up the stock price.

There are a number of time points which can be examined for such an effect. These are the times at which the chances of Cheney becoming VP changed dramatically. Three stand out: 1, Bush's selection of Cheney as the Republican nominee for VP, 2, the November 7 election and 3, the United States Supreme Court's final ruling deciding the 2000 Florida election controversy.

According to a CNN story of July 25, 2000, "Cheney emerged as the front-runner for the position quite suddenly last Friday, when it was learned that he changed his voter registration from Dallas, where he served as CEO of the oil field services firm Halliburton Co., back to Wyoming -- which would eliminate a constitutional barrier to his serving as vice president." The Friday in question was July 21, 2000. Halliburton's closing price before that sudden emergence was 45.1 (close, July 20, 2000). Halliburton closed lower the day of the news, July 21, at 42.3. The stock actually lost ground despite the news that its former CEO had a significant chance of becoming Vice President.

The election results immediately after the November 7 vote were certainly less definitive than usual; however they did provide some new information. That information didn't move the Halliburton stock price much. On November 7 Halliburton closed on the New York Stock Exchange, at 38.0. On November 8 it closed at 38.5.

The election result was made definitive by the United States Supreme Court ruling delivered the evening of December 12, 2000. Halliburton's price? At the close of trading on December 12 (before the ruling was available) it was 38.1. The close on December 13 was 37.6. Again, changes in the probability of Cheney being Vice President didn't affect the stock price.

What can be learned from these stock price movements? Investors didn't think Dick Cheney's becoming Vice President would mean higher profits for Halliburton. If they did, they would have bid the price up. And perhaps not incidentally, Halliburton today trades in the low 30s. The investors have spoken. All of this doesn't mean that Mr. Cheney isn't corrupt, just that if he is, the market doesn't think he is very good at it.

James Ringo teaches at the University of Rochester.


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