Opening Bell: 6.5.06

Publish date:

Airlines May Post $3 Billion of Losses on Fuel Costs (Bloomberg)
There's that old joke about the best way to become a millionaire: become a billionaire and then start an airline. According to the industry, if you owned all of the world's airlines in 2006, you'd end up $3 billion poorer by the end of the year. The industry cites fuel prices, unmatched by sales and productivity gains, as being the chief culprit. But it should be noted that both the Asian and European aviation industries will actually turn in a solid profit, with the US' carriers losing over $5 billion, which suggests that organizational dysfunction is a large part of the problem as well. Furthermore, the industry has lost a total of $42 billion since 2001, so 2006 is pretty good from the perspective of recent history (odd since fuel prices have never been higher).
New Drugs for Cancer Could Soon Flood Market (NYT)
Big pharma, which is desperate for some fresh product, may finally be getting into a groove when it comes to cancer drugs. Formerly the domain of biotechs, Wyeth, Pfizer and GlaxoSmithKline have been getting attention, while the industry as a whole has 400 such drugs in clinical trials. Oddly, the Times bemoans the inevitability of "me too" drugs, but then notes that the increased competition could reduce prices, cause in increased focus on reducing side effects, and generally give the patient a greater likelihood of finding one that works well. Sounds like a good deal.
Murakami admits insider trading (Times Online UK)
The man who would be Japan's Carl Icahn has admitted to insider trading, in violation of the country's insider trading laws. Yoshiaki Murakami, an activist shareholder, targets companies that have failed to maximize shareholder value, but whose holdings (cash, real estate, etc.) can be unlocked. The specific incident, to which he admitted wrongdoing, stems from his buying more shares of a company, once he learned of a buyout offer for it. Though his career may be done, he'll probably end up ok. After doing a short amount of prison time (three years max, it seems), he'll have a fine roughly akin to $28,000 bucks, not too bad. This is Japan's second major financial scandal of late, the former concerning the CEO of internet company Livedoor, and each time, it's really shaken the confidence of the resurgent Japanese market.
Adobe Vs. Microsoft (Tech Liberation Front)
Here's an example of consumers and industry paying the price of the government traipsing into anti-trust law. In the upcoming version of Office, Microsoft had planned to include software that would allow for users to read and save .pdf files, which as you know currently requires Adobe software. Well, that's not totally true; there are a few other companies that make .pdf software, but none of them would be nearly the kind of threat to Adobe that Microsoft would be, were they allowed to include that functionality in their own software. So as Office was coming near, Adobe decided that since Microsoft was a convicted monopolist, they could play the anti-trust card in court, claiming that it would be uncompetitive for the company to include .pdf support. Of course by un-competitive what they really meant was very competitive, since it would bust up Adobe's stranglehold over the format, leading people to spend hundreds of dollars on Adobe's authoring software. Microsoft, which is still in the European hot seat, relented to Adobe's threats, not wanting to deal with the legal hassle. The big losers, of course, are the consumers who will keep having to shell out.

As at Google, Yahoo cuts pay of chief to $1 (IHT)
Can you say "Race to the bottom"? It's becoming uncool in Silicon Valley to make more than a $1/year if you're a CEO. Pretty soon even that'll be too high, and they'll be paying CEOs $.01 -- and even then the chief will be contractually compelled to donate it to charity. First of all, even if every tech CEO started doing this, you can be sure that Larry Ellison would never follow suit in this tomfoolery. Second, they're not really working for free. Terry Semel was doled out a new slice of steaming hot stock options, while the Google guys already have a fair amount invested in the company. Third, why does this not violate minimum wage laws?
Two narratives of the Lay conviction (Ideoblog)
Sorry, just because the Lay/Skilling trial is over doesn't mean you get off the hook and stop having to read about it. Hey, as long as the New York Times is still covering it, so can we. Actually, this account of the trial is particularly worth reading as Larry Ribstein basically summarizes a New York Times recap of the trial. As it's depicted, the prosecutors were tireless heroes who knew they had to get Lay in jail, and get justice for all of the shareholders and employees who lost out. In their quest to find the most compelling prosecutorial strategy, they jumped from one them to the next, until they had an argument that would be most devastating to the defense. But a close reading of the same story, will demonstrate the prosecution's real situation, that each argument they developed on why Lay (committed fraud, engaged in insider trading, etc.) had some major holes, which is why they had to keep jumping around. The evolution of the strategy appeared to be out of inherent weakness, as much as it was a desire for justice.
Tradable Gasoline Rights (WSJ)
Martin Feldstein, an econ prof at Harvard, argues for so-called tradable gasoline rights. Basically, it would cap the total amount of gasoline consumed by the country in a year. Based on some criteria, every driver in the United States would receive something akin to a debit-card, which allowed they to buy up to a certain amount gas each month. The individual would still have to pay for the gas, while the card would merely verify that they were eligible to buy the amount of gas that they wanted. Consumers would then have an incentive to find alternative modes of transportation, which would allow them to sell their gas rights to heavy drivers. One nice advantage of this system, which Feldstein points out, is that this money would go directly to individuals, as opposed to a taxing scheme, which would inevitably get squandered by the government. The system is basically a rationing system, which legalized and institutionalizes the black market that would normally occur. Sounds interesting, though the costs and organizational complexities of institution such a plan would almost certainly kill the proposal.
Oil Rises as Iran Says U.S. Action May Disrupt Gulf Shipments (Bloomberg)
We enjoy pointing out those articles about oil rising due to some random comment by a Saudi Cleric, or a strike in Nigeria, so it's amusing that the Iranians are turning the tables, claiming that US saber rattling, and any follow-on action is likely to be disruptive to oil and cause gas to rise. Perhaps it's true; if politicians had to pay back the market consequences of their actions, they'd probably be a lot more restrained.
Dollar backtracks as Fed pause seen more likely (Reuters)
The much-anticipated Fed pause (we've been talking about it for two years now) continues to take its toll on the dollar, as investors flee a currency that won't continue to offer them successively higher value. Dollar buyers also exited the stage as the G7 once again made appeals to China to let their currency strengthen, though again this is such old news, that it seems like an intrepid Reuters reporter may simply be doing Tarot Cards on Forex traders, as opposed to know what's going on.