Magazine

Attack, Counterattack


As Israel battled Palestinians in Gaza, Lebanese Hezbollah guerrillas captured two Israeli soldiers in a cross-border raid on July 12, setting off the worst Arab-Israeli violence in years. As of July 19, more than 300 Lebanese and 29 Israelis have been killed. Lebanon's economy is in tatters after Israeli air raids inflicted at least $2 billion in damage. But the bigger danger is that the conflict will spread. At press time, that looked unlikely. But if Syria were to be drawn into the conflict, Iran could come to its ally's defense with a cut in oil production. That could boost the price of crude to $100 per barrel or higher. McDonald's (MCD) loves soccer and Johnny Depp. The No. 1 burgers-and-fries chain said its second-quarter earnings rose 60% to $835 million from a year earlier thanks largely to tie-ins to two big global hits: the World Cup tournament and Disney's (DIS) Pirates of the Caribbean. The chain got another extra large order of cash -- $125 million -- from the spin-off of its Chipotle Mexican Grill (CMG) unit and more help from the booming breakfast biz, perked up by a new line of premium coffee.

Fed Chief Ben Bernanke has a bad habit of roiling markets. But this time he managed to avoid the accidental fireworks his comments have tended to set off. At his semiannual testimony before Congress on July 19, Bernanke said the central bank is forecasting slightly lower economic growth and higher inflation than earlier estimates. But he later added that he did not see a recession "as very likely." The Dow rose by 212 points and bond yields fell as investors bet on a pause in rate hikes.

See "Bernanke Smoothly Cheers the Street"

Brokerage stocks surged on a boffo earnings report from JPMorgan Chase (JPM), up 37% for the second quarter, and optimism over Bernanke's upbeat comments to Congress. It was in marked contrast to how the week started off -- with traders selling shares of Merrill Lynch (MER) after spotting bearish tea leaves amid a 44% earnings gain, and Citigroup (C), whose 4% profit gain failed to make Street projections.

Can Airbus pull out of its nose dive? Conceding a "serious problem" in customer relations, the company announced on July 17 that it will build a new, more efficient widebody jet. The plane, which Airbus is calling the A350 XWB -- short for extra-widebody -- replaces an earlier design that had never gone into production and had sold poorly against Boeing's (BA) 787 Dreamliner. Airbus will offer the new plane in three sizes in hopes of competing not only against the 250-seat Dreamliner but also against Boeing's larger 777 jets, which are grabbing market share from Airbus' A340 model. Problem is the Dreamliner is set to enter service in 2008, four years before the first A350 XWB, and the 777 is already on sale. Airbus also needs to iron out production problems on its A380 megajet, due to enter service next year.

See "Airbus Eats Humble Pie at Farnborough"

Destroying life or curing horrible diseases. Those are the far sides of the emotional debate over human stem cell research. Now the battle is intensifying. On July 18 stem cell proponents won a victory when the Senate passed a bill allowing federal support for research using cells from unused embryos at fertility clinics. Even though President Bush quickly vetoed the measure, the Senate vote signals that proponents are gaining momentum.

See "The Stem Cell Wars: A Partial Victory"

Give GM (GM) CEO Rick Wagoner a little credit. Rather than get into a spat with Kirk Kerkorian, the 10% GM stakeholder who wants the company to join in an alliance with Renault-Nissan (NSANY), Wagoner sat down on July 14 with Renault-Nissan Chief Carlos Ghosn. The two talked freely about how they might work together. That's a far cry from the fight everyone expected with Kerkorian back on June 30 when the billionaire investor first floated the idea of bringing the two companies together. For now Wagoner has succeeded in defusing tensions, but stay tuned. Here we go again. A heat wave, and the Northeast power grid is pushed to the max. Three years after the huge blackout, has anything really changed? Well, yes. Investor-owned utilities have nearly doubled their annual investment in power transmission capacity since the low of the late 1990s. And last year Congress passed the first mandatory reliability standards for the industry. But power lines are still heavily loaded -- and another big blackout is still a real possibility.

Wouldn't it be cool to download movies to your PC, burn DVDs, and then play them on your TV? Now you can. CinemaNow, backed by Microsoft (MSFT) and independent film studio Lionsgate, is starting with 100 not-quite-recent flicks like MGM's Barbershop and Sony's (SNE) Charlie's Angels: Full Throttle. CEO Curt Marvis says more studios will sign on soon. Another service, Movielink, which is owned by five major studios, including Warner Bros. and Paramount, says it will use Sonic Solutions' (SNIC) Roxio Cineplayer to burn DVDs. The bet: burning DVDs will boost film revenues at a time when DVD store sales are slowing.

See "Coming Soon to a TV Near You?"

The big guns have come to the rescue of the flagging Doha Round of trade talks. On July 17 trade representatives from around the globe flew to Geneva at the urging of world leaders at the Group of Eight summit in St. Petersburg, Russia. The persistent sticking point: agricultural subsidies and industrial tariffs. No miracle breakthroughs are likely, but at least the talks are still alive.

David Carruthers bet big -- and lost. On July 16 federal agents nabbed the CEO of BetonSports.com in Dallas while he was changing planes en route to Costa Rica from London. The Feds are charging him with racketeering, conspiracy, and fraud. A day later a Fort Worth judge ordered the British-based site to stop accepting bets from the U.S. and to turn over a list of financial institutions it does business with. Carruthers has taunted the feds for years, making frequent trips to the U.S. to lobby for legalized online gambling. Still, the Justice Dept.'s main target is most likely Gary Kaplan, who launched BetonSports in the late '90s as a New York-based sports book. After his arrest in 1993 on New York gambling charges, Kaplan moved the operation overseas. By 2004, BetonSports was legit in Britain, trading on the London exchange, and Kaplan was forced to cede control of the company, though he still owns a 15% stake. Justice has a warrant for his arrest, but Kaplan is living in Costa Rica.

See "Justice Gambles on Net Crackdown"


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