5 Dumbest Things on Wall Street: June 19


Grinders Gone Wild

Somebody hand the folks at Starbucks (Stock Quote: SBUX) a grande espresso. They could seriously use a pick-me-up about now.

The Seattle-based coffee company announced Tuesday it was recalling about 530,000 coffee grinders because they either switch on unexpectedly or fail to turn off. Operating a malfunctioning piece of machinery clearly poses a great danger to consumers, especially those sleepy-eyed worker-bees desperately seeking their first cup of coffee.

Starbucks said it had received 176 reports involving the defective bean-crushers, including three reports of hand lacerations because the grinders turned on unexpectedly during cleaning. The Starbucks Barista Blade Grinders and Seattle's Best Coffee Blade Grinders that are being recalled were manufactured in China and sold in Starbucks and Seattle's Best Coffee stores between March 2002 and March 2009.

Sensibly, Starbucks is telling customers to stop using the faulty grinders forthwith and to contact the company for a free replacement. Customers also can visit their local Starbucks in person if they prefer to sacrifice their paychecks instead of their pinkies.

To be perfectly candid, the Five Dumbest would have given Starbucks a pass on this recall had it been an isolated case of grinders gone wild. But just last week the java giant made headlines for inadvertently double-charging one million customers over Memorial Day weekend.

Starbucks eventually resolved that problem which occurred at about 7,800 company-owned stores in the U.S. and Canada. But the combined episodes make us think that the company should focus more on quality control outside the brewing process.

And just maybe switch to decaf before somebody gets hurt.

Dumb-o-meter score: 95 -- Time for Starbucks to wake up and smell the venti mocha cappuccino with a twist.

EMC's Bad Rap

The East Coast versus West Coast rivalry did not die with gangster rap. It's very much alive, and the center of the new battle is
Data Domain.

When the West Coast's NetApp agreed to buy Data Domain for $1.9 billion, or $30 a share in cash and stock, the East Coast's EMC swooped in with a $30 per share all-cash offer for the data backup trailblazer.

Unfazed by a signed agreement between NetApp and Data Domain, Hopkinton, Mass.-based EMC is muscling in old-school style with CEO Joe Tucci making his case directly to Data Domain shareholders to select his bid over his Sunnyvale, Calif. rival's.

"We believe that EMC's $30 all-cash offer is superior and delivers to Data Domain price certainty and price protection as well as the ability to close promptly," Tucci said in a Monday statement.

In other words: Check out our bling, Data Domain shareholders. You know you want it.

Meanwhile, out in California, the board of Data Domain told shareholders Monday to tune out Tucci and go with NetApp. The company said in a statement that EMC's unsolicited $30-per-share cash offer "is not in the best interests of our stockholders at this time."

Dan Warmenhoven, chairman and CEO of NetApp, praised Data Domain's support saying "we believe employees will benefit from cultural compatibility and the ability to accelerate productivity and innovation given the existence of complementary products and a larger base of resources."

Translation: West Coast homies stick together, so back off you East Coast hustlers.

Warmenhoven is playing the culture card because he really has no other card to play. EMC has $7.25 billion in cold hard cash, more than double NetApp's stash. And should EMC raise its all-cash offer to $33 or $35 a share, as most analysts think it might, then it would most likely be game over for NetApp.

So whether or not EMC is getting a bad rap for its East Coast crib is irrelevant. In the end, it's all about the Benjamins.

Dumb-o-meter score: 90 -- Tucci and Warmenhoven are no substitute for Tupac and Biggie.

FDA Zaps Zicam

Something about the situation over at Matrixx Initiatives fails to pass the Five Dumbest smell test.

The Food and Drug Administration cautioned consumers to stop using Matrixx's Zicam Cold Remedy nasal gel and related products Tuesday because they can permanently damage the sense of smell. The FDA's scientists say the over-the-counter products contain zinc which may damage nerves in the nose needed for smell. Because Zicam is an herbal remedy, it did not go through the rigorous testing the FDA normally applies to pharmaceuticals and other medical therapies.

Investors deemed Matrixx stock malodorous following the FDA's warning, sending shares of the company down 70% to $5.78 from $19.12. Zicam-related products accounted for about 40% of the company's $111.6 million in sales last year.

About 130 consumers have reported a loss of smell after using Zicam products since 1999, according to the FDA. The agency, which does not have the authority to mandate a recall, asked Matrixx to stop marketing the products until they get the agency's approval.

In a Securities and Exchange Commission filing Wednesday morning, Matrixx strongly defended Zicam, even as it said it was making the "business decision" to pull the products from retail shelves.

Sure smells fishy to us, but it's not our olfactory sense that's being offended. It's our common sense.

It turns out that Matrixx has settled hundreds of lawsuits connected with Zicam in recent years, but boasts on its Web site: "No plaintiff has ever won a court case, because there is no known causal link between the use of Zicam Cold Remedy nasal gel and impairment of smell."

Government scientists, on the other hand, say there is also no data to support Zicam's labeling, which claims the drug reduces cold symptoms, including "sore throat, stuffy nose, sneezing, coughing, congestion."

Our view is that the foul aroma surrounding this case has lingered long enough. The FDA needs to take a real stand on Zicam.

And as for Matrixx, well, they better keep their noses clean until this mess gets resolved.

Dumb-o-meter score: 85 -- There's more to this story than meets the nostril. .

Marine One Madness

Congrats to Defense Secretary Robert Gates for peacefully bringing old foes together. Too bad the battle is over a presidential helicopter nobody wants.

Helicopter maker Sikorsky said it is willing to partner with competitor Lockheed Martin to bring back a recently scrapped program to supply high-tech helicopters to the White House. Sikorsky President Jeff Pino said Sunday he wrote to Gates earlier this month about supplying Lockheed with helicopters as a potential option to reduce costs.

The presidential-helicopter contract was held by Lockheed until early June when it was canceled over a price tag that was set to more than double to $13 billion for 28 helicopters. Lockheed, which doesn't manufacture its own helicopters, beat out United Technologies subsidiary Sikorsky in 2005 for the program using a design from Italian conglomerate Finmeccanica S.p.A.

At the Paris Air Show this week, Pino discussed his letter to Gates, saying he would team with Lockheed "in a heartbeat." Presumably, Pino believes lawmakers will revive the project if two American companies are involved, especially if the status quo is designed by a foreigner. (Unless, of course, that foreigner is Fiat).

Pino's heart, however, is not the one we are worried about should the program get resuscitated. It's Sen. John McCain's (R., Ariz.) ticker that has us concerned, and he's not the type of guy you want to tick off.

The Arizona Senator and former presidential candidate singled out the helicopter upgrade as an example of wasteful military spending during President Obama's Congressional press conference in February. At the time, Obama accommodated his former rival saying "the helicopter I have now seems perfectly adequate to me."

Meanwhile, Lockheed said in a statement that it is complying with the government's termination plans and supports the Pentagon's "directions on next steps for the program." So despite Pino's best efforts, it looks like his copter gambit won't get off the ground.

Even so, all this fence-mending has us thinking that we should bring back the U.S.S. Sequoia. If a repurposed attack helicopter can bring about so much harmony, imagine what the presidential yacht would do?

Dumb-o-meter score: 75 -- Sikorsky's new slogan: Bury the hatchet. Buy a Black Hawk.

That California 70's Show

We can already see the headline in the Los Angeles Times: "Obama To Arnold: Drop Dead".

In a move eerily reminiscent of President Ford's 1975 refusal to send emergency funds to a bankrupt New York City, the Obama administration is rejecting pleas to rescue the state of California, according to a Washington Post report Tuesday. The paper says top state officials have been spotted around Washington begging all the President's men to bail California out of its estimated $24 billion budget shortfall.

Yes, it's deja vu all over again and the state of California has bell-bottomed out.

Treasury Secretary Timothy F. Geithner, Lawrence Summers and other senior White House economic advisors have apparently decided that California should get its budget in order rather than count on a federal bailout, says the Post. And while the Obama administration remains worried about the Golden State's rapidly eroding fiscal condition, it is more troubled by the precedent it would set by coming to California's aid.

California's GDP may rank in the top 10 among the world's industrialized nations, but it's still just one of 50 states. And the last thing the president needs extending across the East Wing is a line of governors looking to balance their own bleeding budgets.

California lawmakers, on the other hand, view the Golden State more like Citigroup (Stock Quote: C) or Bank of America (Stock Quote: BAC) than Alaska or Alabama -- as in too big to fail.

"This matters for the U.S., not just for California," said Zoe Lofgren (D., Calif.), who chairs the state's Democratic congressional delegation. And State Treasurer Bill Lockyer sent a letter to Geithner in mid-May, telling him that "a fiscal meltdown by California or any other large state or municipality would surely destabilize the U.S., if not worldwide, financial markets."

California has the capability to raise taxes to keep from running out of cash, so there is no real panic that the state will default on its debts. Nevertheless, Governor Arnold Schwarzenegger, who came to power after the recall of Gov. Gray Davis over California's last budget crisis, and leaders of the legislature's Democratic majority have chosen instead to cut programs and fire state employees to balance the books.

If the cuts run too deep, however, then rising unemployment could force Obama's hand. The threat of massive job losses in Michigan not a desire to preserve the Buick caused the president to pump money into GM (Stock Quote: GM). California's unemployment rate hit 11% in April, and is expected to eclipse 12% by the end of 2009.

Luckily for Obama, he does have precedent for changing his tune. A month after rebuffing New York leaders, President Ford extended the city a $2.3 billion line of credit to avoid catastrophe.

So while Obama may go down as the president that saved GM, right now he's acting more like a Ford.

Dumb-o-meter score: 70 -- Arnold Schwarzenneger: bodybuilder, movie star, governator, modern-day Abe Beame.

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