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JUNE 26, 2006
Edited by Harry Maurer Bourses Tremble Hawkish central bankers are scaring the daylights out of investors. Markets from Turkey to Hong Kong tumbled on June 13, extending a month of losses. One-day declines ranged from 1% on the S&P 500 to 2.5% in Australia to 9% in Russia. Investors think the Fed will prove its anti-inflation mettle by raising its benchmark rate to 5.25% on June 29 and may tighten again in August. And rate hikes are likely in Europe and Japan. The worry? That the cure for inflation -- high rates -- will be worse than the disease. Washington said on June 13 that U.S. consumer prices, excluding food and energy, rose 0.3% in May. But in a sign that inflation isn't investors' No. 1 bugaboo, gold fell $42 an ounce, to $562.50. See "The Real Threat to the Global Economy" 
Options Watch Monster Worldwide (MNST ). Macrovision (MVSN ). Meade Instruments (MEAD ). Cyberonics (CYBX ). The list of companies facing Justice Dept. or SEC inquiries in the options-timing scandal grew still longer this week and now stands at roughly 40. Most of the investigations involve possible backdating, but the Cyberonics case raises a new issue: Whether companies spring-loaded options by lavishing them on execs just before the release of news that would goose the stock.   China Sets A New Record Riddle: What's really big and keeps getting bigger despite everyone's efforts to do something about it? China's trade surplus, that's what. On June 12, Beijing said it had set a record, $13 billion, in May, topping the previous mark of just over $12 billion last October. The May number is also up 44% from a year earlier. China has answered cries of dismay from the U.S. and other trading partners by letting the yuan inch up, but it's highly unlikely to let it leap by the 20%-plus that would be needed to tame the trade surplus. Is Arcelor Hedging? Luxembourg titan Arcelor turned its back on Mittal Steel's latest $32.6 billion bid on June 12 and said it would go ahead and buy Russia's Severstal. But there are signs Arcelor is keeping its options open. Directors said they "mandated the group management board to meet" with Mittal to discuss terms, and talks are under way. A source close to Arcelor says it's now up to Mittal founder and CEO Lakshmi Mittal to pony up more money. A Downdraft For Airbus The world's largest passenger jet is turning into a megaproblem for Airbus and its parent, European Aeronautic Defence & Space. On June 14, EADS shares plunged 26% after the company said A380 production setbacks would trim operating profits by $2.5 billion from 2007-10. The delays mean that some airlines will have to wait about a year longer than expected to get their planes, and they may cancel or scale back orders for the 555-seat superjumbo. See "Airbus's Behemoth Hits Turbulence" Sic Transit Trans Fat? Everyone knows a fast-food diet isn't good for you. But it shouldn't have to be so bad, contends the Center for Science in the Public Interest. The self-appointed watchdog sued Yum! Brands' (YUM ) KFC unit on June 13 to force the fried-chicken chain to stop using oils that contain trans fats, which boost so-called bad cholesterol and increase chances of heart disease. KFC calls the suit "frivolous" and explains that it hasn't found a substitute for trans fats that gives its chicken the same flavor. Wendy's, (WEN ) in contrast, said on June 8 that starting in August, its fries and chicken will be virtually free of trans fats. Tribune Tribulations Will 2006 go down as the year the newspaper industry cracked up? On June 14 the Chandler family, which in 2000 sold its Times Mirror to Tribune Co. (TRB ) and controls 12% of Tribune's stock, said the company's strategy had "failed" and demanded "prompt and meaningful strategic action." The family wants to split Tribune's newspaper and TV businesses and explore selling off some or all of its newspapers. Earlier this year, Knight-Ridder (KRI ) was sold to McClatchy (MNI ) in the wake of similar investor demands. Suddenly, it's possible Tribune could be in play before long. Shelling Out In Detroit... GM (GM ) has found a solution to some of its union woes: Just keep cutting checks. The carmaker, the UAW, and bankrupt parts maker Delphi (DPHIQ ), a former GM unit, agreed on June 9 to severance payments of up to $140,000 for Delphi workers. That should help Delphi shed 6,000 more of its 30,000 high-wage union employees. The three sides had already crafted a deal in March in which GM would buy out 30,000 of its workers and some at Delphi. Meanwhile, UAW President Ron Gettelfinger on June 13 released a grim report hinting that more pain lies ahead for a union that has already made previously unthinkable concessions to Ford (F ) and GM. Not helping union relations was a June 14 report in The Oakland Press in Pontiac, Mich., that Ford plans to pour $9.2 billion into Mexico, creating up to 150,000 jobs over the next decade. ...And In Germany Who'll win this game of no-limit hold 'em? Volkswagen brand chief Wolfgang Bernhard announced on June 12 that the company must scrap its uncompetitive 28.8-hour workweek and go back to a 35- hour week for the same pay. That could save VW up to $1.3 billion a year, analysts say. Germany's powerful IG Metall union scoffed at the idea. Management says that if unions don't go along, the next VW Golf won't be produced in Wolfsburg. But labor has good hole cards, too: VW signed a deal in 2004 that prevents forced layoffs until 2011. VW is already offering buyouts, and the ante is sure to go up. Gardasil Gets The O.K. If you had to pick a Holy Grail for Big Pharma, a vaccine that prevents cancer would be a strong candidate, right? Well, here comes Gardasil. The FDA on June 8 approved the Merck (MRK ) drug, which protects against the sexually transmitted human papillomavirus (HPV) that causes cervical cancer. Worldwide, cervical cancer kills about 233,000 women a year, 4,000 of them in the U.S. Demand for the vaccine should be huge. Analysts figure Gardasil could bring in $2 billion to $4 billion a year. Exit Of The Week The man who came to define corporate blogging is walking away from his soapbox. Robert Scoble, a technical evangelist at Microsoft (MSFT ), revealed on June 10 that he's leaving for a job with PodTech.Network, a Silicon Valley startup. His Microsoft blog, called Scobleizer, started in 2000 and became must reading for investors, competitors, colleagues, media -- just about anyone interested in learning about the behemoth of Redmond, Wash. He won fans by penning unvarnished opinions about products and policy, sometimes biting the hand that fed him. But rather than tarnish his employer, the blog seemed to humanize it. Scoble even became an author along the way, co-writing Naked Conversations: How Blogs Are Changing the Way Businesses Talk With Customers with Shel Israel. PodTech produces and distributes podcasts, which are audio and video programs that computer users can download to their PCs or portable media players. There, Scoble will help dream up programming. And fear not: He'll keep on bloggin'.
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