Biz Watch

CURRENCY RATES
What Happened to the Strong Dollar?
For some reason Paul O'Neill looks cooler when he's hanging out with Bono than when he's talking about monetary policy. But what the U.S. Treasury Secretary suggests about the dollar matters a lot, because it affects all those things — trade, aid, the economy — that his trip with Bono to Africa is about. As the dollar hit five-month lows against the yen and slouched to around 92¢ to the euro, it became clear that O'Neill had abandoned the Clinton Administration's strong-dollar policy to let the markets rule. A strong dollar makes it cheaper for America to buy imports and expensive for others to buy American goods, which is why U.S. manufacturers have lobbied for months to weaken the currency. It's also why Japan, desperate to keep goods flowing to America, acted repeatedly last week to stop the slide. It didn't really work.

As Deutsche Bank economist Michael Lewis notes, "this looks like a fundamental structural decline." With the U.S. market overvalued, foreign investors are taking their money elsewhere. That makes it tougher for the U.S. to finance its foreign account deficit, which could reach $460 billion this year. And it makes further falls in the dollar likely. European exporters might not like it, but at least a weak dollar could keep European interest rates low. And it is better that the dollar eases to a sustainable level now rather than crashing later. If the market works like O'Neill thinks, the economic band may play on. But if things move too slow or fast, he may be caught between a rocker and a hard place.

UNITED KINGDOM
Fasten Your Seatbelts
Britain's National Air Traffic Services (NATS) is in for a bumpy ride. Privatization was meant to modernize and bring new funding to the country's air-traffic-control system, which could then serve as the nucleus of a leaner network for all of Europe's skies. Instead, the new control center at Swanwick was five years late and $234 million over budget; the main word used to describe it now is chaos. Multiple breakdowns and last week's revelation that controllers are struggling to read the tiny text on their monitors have stoked public concern. As passengers fret about safety, NATS claims to need $363 million more funding. But Britain's Civil Aviation Authority rejected a request to raise airline fees by 5%, noting that NATS' costs were already 40% more expensive than some European rivals'. But the rest of Europe can't gloat. Fragmented and underfunded, its networks are ailing too. And if Italy's airport-crippling walkouts are an indicator, European controllers are gearing up for their traditional summer strikes. Looks like more turbulence ahead.

T H E B O U R S E
The Samsung Swing
H Compared to last year, global mobile-phone sales fell 3.8% in the first quarter, but don't tell Samsung. Its sales jumped 49%, making it the world's third-largest phone maker.

Taming The Bucking Bull H Merrill Lynch will pay a $100 million penalty and make its analysts more independent, ending the New York attorney general's probe. The firm still faces lawsuits from investors.

High-Stakes games
H Microsoft is backing up its belief that video games are the wave of the future by pledging $2 billion to develop an online game network and the Xbox.

Family Corrections
H A judge ordered the return of a $1 billion stake in Gazprom that former managers sold to their relatives' firm for a mere $2.5 million. The state will now have a 55.6% share in Russia's biggest company.

I N D I C A T O R S
The Cup Of Gold
Even economists want a piece of the World Cup action. A new report sees correlation between GDP and FIFA rank (with the notable exceptions of the U.S. and Argentina). And although Japan may lose, its flagging economy should win: from 1954 to 1998, GDP growth for host nations averaged 3.3%.

Low Blow For High Tech n Resourceful nerds and music lovers cracked Sony's much-vaunted — and more maligned — compact-disc copy protection. Users overrode the high-tech, anti-piracy CDs by coloring the discs' edges with a decidedly low-tech magic marker.

Prodi Gets Direct
n European Commission President Romano Prodi surprised friends and foes alike by calling for direct E.U. taxation. The proposal has already met resistance in France, Britain and Germany.

Subcontinental Drift
n Bombay's stock market tumbled to a year's low as India and Pakistan ramped up their war threats. When this happened in 1999 the index quickly rebounded to gain 26%, but a fragile world economy may prevent such optimism this time around.

B O T T O M L I N E S
"Politics at a certain level is pop. You have to get your record on the radio for people to pay attention." ? Bono, U2 frontman, on his tour of Africa with U.S. Treasury Secretary Paul O'Neill

"I've used the term breakthrough three times in my career. This is one of them." ? Larry Norton, doctor at the Memorial Sloan-Kettering Center, on Novartis' Gleevec

"What are they going to attack next, the mute button?" ? Ken Potashner, CEO of SONICblue, on efforts to stop digital video recorders from skipping commercials