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Where Trade Winds Are Blowing


It was a busy week for bargainers. In Mar del Plata, Argentina, at the Nov. 4-5 Summit of the Americas, most of the region's largest economies cold-shouldered the Free Trade Area of the Americas, an idea first proposed 11 years ago. Their main beef: the U.S. refusal to eliminate farm subsidies and barriers to agricultural products. The pact is probably dead for now. But on Nov. 8, Washington and Beijing wrapped up a deal that will limit growth of cheap Chinese textile imports. That helps George W. Bush pay a big debt he owes a half-dozen GOP House members from the textile belt who enraged their constituents last July by giving the President the votes he needed to pass the Central America Free Trade Agreement.

Meanwhile, negotiators gathered in London and Geneva in a bid to unsnarl the Doha Round of World Trade Organization talks before the Dec. 13-18 meeting of all 148 members in Hong Kong. With rich nations leery of cutting ag subsidies deeply, and poor nations insisting they will make no further concessions on opening their economies until they get the farm deal they want, the trade mavens on Nov. 8 conceded that they were hopelessly stumped and couldn't even agree on an agenda for Hong Kong.

There's nothing Street professionals value more than, well, money. So this year their holiday seasons should be happy since many will get bigger bonuses. On average, managing directors will take home $1.2 million in bonuses, up from $1.05 million last year, estimates compensation consultant Johnson Associates. Commodities traders could ride roaring markets to bonuses 30% higher than last year, says consultant Options Group. All hail, merger mania: Investment bankers may get pleasant hikes of 20% more, as will advisers to rapidly multiplying hedge funds. Pity poor stock and bond traders, whose bonuses will stay flat -- or rise perhaps 5%. Still, what more can they expect given that the markets have gone nowhere?

They say nobody rings a bell at the top of a market, but luxury homebuilder Toll Brothers (TOL) came close on Nov. 8 when it warned investors of "some softening of demand in a number of markets" and said that "it appears we may be entering a period of more moderate home price increases." The statement knocked down share prices across the sector, which was already on edge because of higher mortgage rates. Over the past year the average 30-year fixed-rate home loan has risen to about 6.3% from 5.7%. Economist Ian Shepherdson of High-Frequency Economics in Valhalla, N.Y., argues that a jump to around 7% could cause a "meltdown."

See "Housing: Red Alert, or a Wake-Up Call?"

Suing your former fianc? to drag him back to the altar may not seem like the smartest way to contract marriage -- unless you're marrying for money. Jilted at the church door, Guidant (GDT) took Johnson & Johnson (JNJ) to federal court on Nov. 7 to force it to complete its $25.4 billion takeover at the $76-a-share price they settled on last December. But Guidant may be better off looking for a new beau. J&J broke off its original deal contending that Guidant's recalls of defective pacemakers and defibrillators had made the Indianapolis company much less desirable. Guidant has said it'll bounce back soon. Its third-quarter report, revealing a 57% plunge in earnings as well as an investigation by 34 state attorneys general, showed why J&J got cold feet. Guidant stock has wasted away by 10% since Nov. 2.

Signs of the new zeitgeist: Within several hours on Nov. 7, TiVo (TIVO) and Yahoo! (YHOO) launched a service allowing TiVo users to program their digital video recorders remotely using Yahoo's TV info Web sites; NBC Universal announced a new video-on-demand deal with DirecTV; (DTV) and Comcast (CMCSA) said it would offer CBS's hit prime-time shows on demand just hours after they air, some for 99 cents a pop. Ready for all Channel You, all the time?

While the CEOs of Big Oil were being hauled before the Senate on Nov. 9 to explain why energy costs so much, the news outside the Beltway wasn't rising prices but falling ones. A gallon of regular gas has slid nearly 70 cents from its average high of $3.07 a gallon just after Hurricane Katrina, reaching $2.38 on Nov. 7. In the futures market, wholesale natural gas and heating oil are down nearly 20% from their Katrina highs. Behind the slippage? The same market forces that appeared so mysterious to questioners on Capitol Hill. High prices spurred conservation while giving the industry a powerful profit motive to import more gasoline and restart refineries in a hurry.

See "Why Energy Prices Are Losing Steam"

Want to slice your corporate taxes by, say, a few hundred million a year? Think Ireland. That's what Microsoft and other tech titans such as Google (GOOG) and Oracle (ORCL) are doing, reported The Wall Street Journal on Nov. 7. The combination of friendly laws and a skilled workforce allows Bill Gates & Co. to transfer intellectual property to an Irish unit, Round Island One, that rang up $9 billion in profits last year, mostly on licensing fees, largely shielding that income from EU or U.S. tax collectors. The Internal Revenue Service is giving such arrangements the gimlet eye, but the Redmond (Wash.) company says it complies with all tax statutes.

Along with cars and buildings, what's going up in smoke in hundreds of French cities and towns is Europe's welfare state economic model. The violence, which led Prime Minister Dominique de Villepin to impose a state of emergency on Nov. 8, certainly flares from the second-class citizenship to which millions of immigrants, mostly North African Muslims, have long been condemned. But it also has roots in a society that tolerates slow growth and astonishing levels of unemployment -- 21.7% of 15-to-24-year-olds in September -- in return for a comfy, costly social safety net and job protections. France now faces a choice between real reform, palliative moves, and a repressive backlash. Its EU neighbors, many suffering similar stagnation, are watching nervously to see how far the fires spread.

See "France Burns for Its Sins" and "The Economics Fueling the French Riots"

In John Malone's world, the deal is king. Little wonder then that he recruited outgoing Oracle co-chief Gregory Maffei, once a dealmaking CFO at Microsoft, as CEO of Liberty Media. Malone has been maneuvering for months, spinning off foreign cable holdings and a 50% stake in the Discovery Channel into separately traded companies. The 45 year-old Maffei will help create a new tracking stock for Liberty's holdings in TV-shopping company QVC, travel site Expedia, and Barry Diller's online retailer IAC (IACID). But more deals are coming. Malone wants to buy pieces of other online retailers. Maffei's big score would be to help Malone swap assets with Rupert Murdoch's News Corp., in which Liberty holds an 18% stake. For that, Malone could use all the dealmaking mojo he can muster.

See "Gregory Maffei's Marching Orders"

Score one for Old Media. On Nov. 7 once hot file-sharing service Grokster settled its case with the film and recording industries. Grokster will unplug its Web site, cease offering download software until it comes up with a way to compensate copyright holders, and pay the plaintiffs $50 million (though sources familiar with the agreement say Grokster won't actually pay, since it has almost no money). Don't play a dirge for file-sharing, though. A small fraction of all file-swappers use Grokster, and current versions of its software will continue to operate as before. And while some file-sharing services like eDonkey are scrambling for legitimate partners, StreamCast Networks, the other defendant in the case, is still open for business and has no plans to settle.

See "File-Sharing Sites' New Tune"

Just what the doctor ordered: On Nov. 3rd an Atlantic City jury found that Merck (MRK) had properly warned about the risks of its painkiller Vioxx in a case involving the plaintiff's 2001 heart attack. The drugmaker has now won one and lost one on Vioxx, and the decision reinforced its pledge not to strike a massive settlement. About 6,400 cases have been filed so far. Even if this one gives plaintiffs' lawyers pause, Merck faces other major health risks. Over the next seven years four multibillion-dollar drugs, including $4.3 billion cholesterol zapper Zocor, lose patent protection. So what's CEO Richard Clark's revival plan? At a meeting with analysts, Clark said Merck could diversify into diagnostics or devices. That's a sure sign Merck's old regimen isn't doing the trick.

See "A Weak Tonic for Merck"

Be careful who your playmates are. That's the lesson Mattel (MAT) -- and other companies -- may draw from the kerfuffle swirling around its American Girl unit, which makes wholesome poppets dressed in historical costumes. The company gave $50,000 to and has helped raise money for Girls Inc., a 141-year-old nonprofit formerly known as Girls Clubs of America. The funds backed three programs that promote such goals as building math skills. But Girls Inc. also supports abortion rights, so Pro-Life Action League, a group best known for picketing abortion clinics with graphic fetus photos, has called for a boycott of Mattel products, and schools have canceled American Girl fashion shows. Now, Pro-Life is organizing two protests outside American Girl's Chicago store on Nov. 25 and Dec. 3. "We have no position [on abortion]," says American Girl spokesperson Julie Parks. "We're the political ping-pong ball." Both Girls Inc. and Pro-Life Action League claim donations have risen since the tempest in a dollhouse began.


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