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OCTOBER 9, 2006
Edited by Harry Maurer Running Bulls Let the good times roll: Stocks are soaring on hopes of strong profit growth, and bond investors are betting that inflation is under control and the Fed will stop cranking up interest rates. The Dow on Sept. 27 settled at 11,689, just 34 points shy of its 2000 record. Bonds are partying, too: The 10-year Treasury note's yield, which falls when prices rise, closed on Sept. 27 at 4.60%, down from 5.25% in June. Bond guru William Gross, managing director of Pacific Investment Management, told clients on Sept. 25 that the bull market in bonds "remains in its infancy." But some experts think yields this low make sense only if the economy is going cold (which, by the way, would hurt stocks). The bond market could also tumble if oil prices keep slipping and fewer petrodollars are recycled into Treasuries. Oops, More Smoke So much for Big Tobacco's winning streak in court. On Sept. 25, U.S. District Judge Jack Weinstein agreed to allow a class action alleging that Philip Morris ((MO) ), Reynolds American ((RAI) ), and others misled smokers of so-called light cigarettes. With the suit potentially covering tens of millions of people, lead plaintiffs' lawyer Michael Hausfeld says damages could run as high as $200 billion. The companies plan to appeal to the more conservative Second Circuit Court of Appeals in New York. See "Big Tobacco, Back in Legal Limbo"   The HP Way Out Hewlett-Packard's ((HPQ) ) self-inflicted wounds claimed more victims as the company said on Sept. 22 that Chairwoman Patricia Dunn was stepping down, and news reports said two other executives implicated in the snooping scandal would soon leave. Bloomberg News noted that the FBI is involved in the inquiry, one of 486 investigations of corporate fraud the agency has undertaken so far this fiscal year, up from 423 in 2005. That's on top of 1,160 securities fraud cases, up from 1,139 last year. A $4 Rx If anyone can bring down drug prices, it may be Wal-Mart ((WMT) ), which is seizing the opportunity to polish its image and possibly stoke traffic. On Sept. 22 the Bentonville (Ark.) behemoth launched a plan to offer $4 generic drugs, starting with its 65 stores in the Tampa market. It will expand the program, covering 291 drugs, to other Wal-Marts and Sam's Clubs in Florida by yearend and start adding states next year. Stocks of traditional drugstore chains, such as Walgreen, took a hit for the potential loss of cash-paying customers. Target ((TGT) )and Costco ((COST) )plan to match Wal-Mart. See "Wal-Mart's Generics Hit Pharma Stocks" Hoosegow Watch On Sept. 26, Andrew Fastow, the financial whiz whose misdeeds played a central role in Enron's meltdown, was sentenced to six years of jail and two years of community service. He was led off to prison immediately -- on the same day that Bernard Ebbers, ex-CEO of WorldCom, reported to begin serving his 25-year sentence for conspiracy and fraud. Fastow's testimony helped convict the late former Enron Chairman Kenneth Lay and ex-CEO Jeffrey Skilling; Ebbers is still appealing his conviction. Angry J&J Even now it isn't over. Eight months after losing what seemed like the world's longest takeover battle, Johnson & Johnson ((JWJ) ) on Sept. 25 sued the winners, Boston Scientific ((BSX) )and Abbott ((ABT) ), for at least $5.5 billion in damages. The suit says the two induced medical device maker Guidant to breach a merger deal it had signed with J&J, then snatched Guidant away with a higher bid. Guidant already paid J&J $705 million for breaking off the engagement. Does GM Want A Dowry? The road to the altar can be bumpy, perhaps especially for prideful auto giants. As talks between GM ((GM) ) and Renault-Nissan come down to the wire, execs on both sides have been whispering that the American company is cool to a relationship. On Sept. 27, GM Chairman Richard Wagoner Jr. and Renault-Nissan CEO Carlos Ghosn met. The Wall Street Journal said GM wants a multibillion-dollar "equalizing contribution" on top of the skimpy $3.5 billion Renault would pay for a 20% stake in GM. If minds don't meet by Oct. 15, Ghosn is expected to turn to Ford ((F) ). See "Will Wagoner Walk Away?" The Mother Of All IPOs Looks as if China is about to set another record. Its largest lender, Industrial & Commercial Bank of China, filed papers on Sept. 22 setting it up to raise $19 billion in a dual IPO in Hong Kong and Shanghai on Oct. 27. Economic historians take note: This is likely to be the biggest IPO ever. Global investors have swarmed over share offerings by China Construction Bank, Bank of China, and others over the past year, figuring big mainland banks are a nice proxy play to buy into China's hypergrowth story. See "China's ICBC: The World's Largest IPO Ever" A Spiffier System At The SEC Watch out, would-be lawbreakers: The SEC is modernizing its EDGAR electronic corporate database, and the new one will be interactive, making it easier for analysts, investors, and investigators to find and compare data. On Sept. 22, SEC Chairman Christopher Cox said he would cut filing fees by 37% in anticipation of a $54 million overhaul. Look for the upgrade to be done by early 2008. Kobi Cornered You can run, but you can't hide. And no matter where you go, sometimes you can't avoid extradition. Or so discovered Jacob "Kobi" Alexander, the former CEO of Comverse Technology, who went on the lam in August before being charged with crimes related to options grants. G-men tracked him down in Namibia -- which before Sept. 27 did not allow extradition to the U.S. But presto change-o, that morning the law was altered, and Alexander was picked up. Justice Dept. officials expect him on U.S. soil soon. The same day, a 32-count indictment was unsealed in Brooklyn charging Alexander with conspiracy, securities fraud, and money laundering. Good Deed Of The Week Richard Branson has made a bundle from fuel-guzzling planes, but now the Virgin Group founder is going green. On Sept. 21 he kicked off the Clinton Global Initiative in New York, pledging to invest all future profits from Virgin's four airlines and two train companies -- an estimated $3 billion over the next decade -- in renewable energy initiatives to combat global warming. It's a publicity coup but also could end up earning him money. First up: brewing new biofuels from plants, the mission of just-created Virgin Fuels. And the 57-year-old British billionaire's energy ambitions don't end there. He's looking at everything from cellulosic fuel made from crop waste to wind farms to trains capable of running on cleaner, more efficient biodiesel. Branson's space tourism venture, Virgin Galactic, may be his most environment-friendly business yet, starring fuel-efficient carbon composite spaceships that generate virtually no pollution. Star Trek's Mr. Spock would have smiled and said: "Live long and prosper."
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