Opening Bell: 7.10.06

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A fringe benefit from over-paid CEOs (RGE Monitor)
You could argue that the only kind of revenue that some liberals really love is tax revenue. Maybe that's too much of a sweeping generalization, but those who do feel this way should consider one of the major benefits of highly-paid CEOs: more tax revenue. Considering that there's no higher marginal rates than those imposed on CEOs (people in that highest tax bracket), and that this tax is higher than shareholders' capital gains, this is a major boon for the government. Besides, whom would these opponents of CEO pay rather the money go to, shareholders or those on the government dole. And from a broader perspective, this money train is a contributor to the lower than expected deficit and the state and federal levels. Hmm, wonder if politicians will show restraint and not assume they'll have the same amount of money to spend from her to eternity.
Ghosn's real motivation could be Toyota (Bloomberg)
We all can think of reasons why GM might want to hook up with Nissan and Carlos Ghosn. The company could use the infusion of cash, Ghosn is a known turnaround specialist, and Nissan remains one of the hotter car companies out there, so they're not a bad global partner. But, turning things around, what interest would Ghosn & co. have in an ailing turkey like GM? Part of it may be paranoia, the good kind. As good as Nissan is doing, they're still no Toyota, whose fortunes aren't slowing at all. Partnering with GM could bring several benefits, such as access to GM's spare production capacity (which is growing all the time), splitting the costs of developing new technologies (fuel cells) and generally giving it greater muscle to go toe to toe with Toyota. Of course there are risks, and we can think 3.3 billion of 'em. There's also the matter of splitting up Ghosn -- can he really have a positive influence at three companies at once? For those without a stake in this affair, it should be fun to watch.
Wolfowitz plea ahead of G8 summit (BBC)
It never ceases to amuse that when push comes to shove, it's the developed G8 economies that can't fully commit to free trade. It's like we've stood at the precipice, touched the void and had second thoughts about our parachute. It probably doesn't help that Lou Dobbs has convinced a good number of people (including politicians) that we might as well be in a depression right now, as foreigners here and abroad have fleeced the American dream. So while the WTO rounds go on forever, it's not because of Latin American populists, or American street protesters that nothing ever gets done. It's because the G8 can't give up their precious, vote-winning farm subsidies, which make capitalism an impossible dream for farmers in the developing world. And there's no question that it has to get done, that's why they continue these rounds ad infinitum. And if there is any progress, it will surely be marginal, drawn-out cuts in subsidies, as opposed to anything significant.


Virgin says not to sell its air traffic stake (Reuters)
Here's that investment theme again. The major international banks have been snapping up anything that resembles a natural monopoly such as airports, toll roads, ports, electrical grids, etc. So somehow this seems like it could be a hot auction -- as several British airlines want to sell their stakes in the National Air Traffic Services, AKA the air-traffic control. It's hard to imagine a more natural monopoly, unless some Austrian economists can think of an ingenious solution involving multiple towers at each airport competing for the right to safely land an incoming plane. Perhaps in the final moments of flight, the two towers could start an electronic auction, with each trying to offer each plane lower prices and service. As part of the landing ritual, pilots would go over each proposal, each time, to see which service is offering the better deal. But fortunately for the bidders, such a radical scheme is unlikely to come to pass anytime soon.
Airbus Won 117 Orders in 1st Half, Trailing Boeing (Bloomberg)
The annual order tally fight between Boeing and Airbus is one of the great pissing contests in modern commerce. As if revenue and profits didn't matter, both sides fight desperately to win in the volume category. What's funny is that while Boeing would seem to have been dominating the industry over the last few years, Airbus has a reputation for sneaking off with the title. In turn, Boeing accuses Airbus of cooking the books in some way, or counting orders that shouldn't technically be counted for whatever reason. Of course, the media isn't inclined to look at the subtleties of this battle, so they generally report that Airbus won. But this year could be different, per Airbus' well-known troubles, and the fact that at this point, Boeing is utterly thrashing Airbus in volume. Things could always change, and Airbus may yet "discover" some unbooked sales, but at the moment the score stands at 480 to 117, favoring Boeing. Boo-ya. So, based on early polling, Dealbreaker is projecting that Boeing takes the crown in '06.
As Hurricane Season Begins, Disaster Insurance Runs Short (WSJ)
Those who aren't familiar with the insurance industry may not understand that in many situations, the ability to write policies is tied to available inventory. Well, after a rough season of natural disasters, there may be a disaster insurance shortage for customers in hurricane-prone areas. There are two ways to look at this. This could either be a sign that markets are functioning well, and that there should be less investment and building in dangerous areas, or you could see this as a crisis, and an argument for more federally subsidized insurance. In the past, such as after the Sept. 11th attacks, insurers benefited from an environment in which rates soared. But after Katrina, insurers have found it hard to buy re-insurance, as capital hasn't flown back into the markets. And, interestingly, while Warren Buffett may be evil in some respects, he should be praised for taking a contrarian stance on re-insurance. Sensing an opportunity, Berkshire Hathaway has made largee bets on re-insurance in hopes of capitalizing on the lack of competition and desperate buyers.
Freescale Unveils Magnetic Memory Chip (AP)
MRAM has been called the holy grail of memory technology, as it combines fast read/write times, non-volatility, with the ability to store data without power. Several companies have been working towards the technology for the better part of a decade, but Freescale claims to the first one with a product that it can bring to market; it already has been producing the chips for two months at an Arizona foundry, so that has inventory. Of course, there have been several false starts with the technology, and often things that are described as holy grails tend to be perennial disapointments, but the potential disruptiveness of the technology makes any announcements a big deal. Of course, there are a lot of companies that claim patents related to the technology, so if one company does crack the nut, expect the lawsuits to fly.
Open Source Takes on Telecom (BusinessWeek)
When one thinks of gearmakers such as Cisco, they're usually perceived to be just that: gearmakers. But a look at their gross margins reveal that their numbers are more in line with software companies In other words, they are software companies, as their various routers and telephone systems are loaded up with a bunch of proprietary software, which they aren't giving away for free. So while companies like Microsoft are seen as being vulnerable to the open source movement, these fears tend not to enter in when it comes to companies like Cisco and Avaya. Maybe it should. More and more, companies are using open source telephony software, which goes over commodity parts. So far, it's not obvious that open source software leads to major cost savings for companies, but the threat is one worth considering.

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