The wonderfully esoteric consumer confidence index showed an 83.5 rating today for the month of June, better than the expected number of 82.4.

"... Expectations for the next six months are up," said the Conference Board's Lynn Franco. "In fact, consumers have grown increasingly optimistic over the last three months. The recent turnaround in the stock market and an easing in unemployment claims should keep consumer expectations at current levels and may signal more favorable economic times ahead."

Stocks pretty much yawned at the news today, however, finishing the day largely unchanged.

In today's Motley Fool Take:

Do Rate Cuts Help?

Will it be 25 or 50 basis points? That's the question most of the financial media is hovering over in anticipation of tomorrow's policy announcement from the Federal Reserve Open Market Committee. So far, Fed watchers are torn over which outcome is more likely.

The more important question, however, is this: How long will the financial markets hang their hopes on yet another rate cut? We've already had 12 cuts since January 2001, and the federal fund rates is at a measly 1.25%. Short-term interest rates are already lower than anytime since 1958. Let's face it, the rate-cut lighter fluid just isn't stoking any economic flames.

The problem isn't a lack of credit, but too much credit. Easy and abundant credit has caused the economic logs to be inexorably soaked with excess capacity. You can see this in the capacity utilization figures, which recently have been stuck at a 20-year low of less than 75% (where anything below 80% prevents new investment). There's no amount of easy money that can inspire businesses to build what's already been over-built.

What the economy really needs is a reduction in capacity via bankruptcies of marginal companies. Obviously, such a notion is politically unspeakable, but it's the destructive side of capitalism that frees resources to fuel the business cycle's next constructive phase. As it stands now, though, marginal players can't go out of business because so much easy money is sloshing around.

Everyday, we hear about companies "strengthening their balance sheets" through lower-rate financing, as if that's supposed to be good. It's good to a point, but not when it allows companies that should go bankrupt to stay alive. When less-efficient companies stay alive, their more-efficient competitors get less business. For any given industry where this dynamic is at play, the result is less efficient, overall average production. Extended economy-wide, inefficient production leads to below-potential output, or subpar economic growth.

Nevertheless, the Fed is committed to its course of trying to stimulate demand rather than allow supply to contract. One can only hope that the Fed's easy-money policies begin to work before zero-interest rate scenarios come into play. If interest rates go to zero, the Fed won't have any traditional arrows left in its quiver. And the last thing anyone should hope for is the use of unconventional (that's a kind word) policies such as those recently explored by the Dallas Fed.

Quote of Note

"What would life be if we had no courage to attempt anything?" -- Vincent Van Gogh

Stop Blaming SARS

Advanced Micro Devices (NYSE: AMD) warned today that second-quarter sales would fall nearly 15% below its previous forecast. But if the SARS outbreak is truly to blame as the company says it is, there should be nothing but good times ahead for the world's No. 2 maker of microprocessors.

Robert Rivet, AMD's chief financial officer, attributes the shortfall to "the decline in personal computer and handset sell-through in China and other Asian markets, largely related to the SARS epidemic."

That information comes the same day the World Health Organization lifted its Beijing travel warning and USA Today is running an article titled, "Economy in post-SARS China taking off 'like a rocket'."

China's economic activity is so hot, in fact, that "some economists now worry crucial sectors are at risk of overheating." After growing nearly 10% in the first quarter, the world's most populous country is expected to post 7% first-half growth despite the SARS outbreak. USA Today points to a surge in exports; investments in factories, machinery and equipment; and electricity demand as indicators of China's strength.

Yes, SARS had a negative impact on many industries. But with such a rosy Asian growth forecast now, it would be reasonable to expect AMD and other companies that have blamed the outbreak for subpar performances -- Texas Instruments(NYSE: TXN), Nokia(NYSE: NOK), Motorola(NYSE: MOT), American Airlines(NYSE: AMR), United Airlines, and Novellus(Nasdaq: NVLS), just to name several -- to reverse course and predict better times ahead.

Just don't hold your breath.

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Feds Sue Merck

There's nothing like being probed and sued by the Feds to bring you down.

Merck's (NYSE: MRK) pharmacy benefit company, Medco Health Solutions, has long faced lawsuits, but today the federal government joined the brigade, accusing Medco of providing misleading information to the government in order to sell more Merck drugs.

Medco is the country's largest manager of prescription drug programs. It serves more than 1,000 company health-care plans with the promise of lower drug prices through bulk purchasing. The inherent conflict of interest isn't surprising. Lawsuits claim that Medco unnecessarily switched patients from non-Merck drugs to Merck drugs, usually costing patients more money.

The federal suit also claims that Medco fabricated records and didn't explain prescription changes to doctors. This may sound ominous, but the reaction from Merck's stock is benign. Why? Because Medco's problems emerged long ago and Merck has been looking to dump the subsidiary.

A Medco initial public offering planned for July was aborted after revelations of $12 billion in misstated revenue at the division. Now the plan is to spin off Medco to Merck shareholders.

Also today, shares of Pediatrix MedicalGroup(NYSE: PDX), a network of physician practices, weren't so lucky, getting slammed about 20% on word that federal prosecutors are investigating the company's nationwide Medicaid billing practices.

Pediatrix joins a slew of health-care-related firms recently under investigative pressure, including King Pharmaceuticals(NYSE: KG), Tenet Healthcare(NYSE: THC), AstraZeneca(NYSE: AZN), and Bristol-Myers Squibb(NYSE: BMY).

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Quick Takes

Sony Ericsson, a joint venture of Japan-based Sony(NYSE: SNE) and Sweden-based Ericsson(Nasdaq: ERICY), announced it would stop producing cell phones for North American using CDMA technology, concentrate on building those using GSM technology, and lay off 500 employees. The joint venture will continue producing CDMA phones for Japan. Qualcomm(Nasdaq: QCOM) pioneered CDMA technology and earns money when other companies either license its technology or buy its CDMA chips.

Rep. Richard Baker (R-La.) introduced legislation that would abolish housing finance quasi-governmental entities Freddie Mac(NYSE: FRE) and Fannie Mae(NYSE: FNM) and move their roles to the Treasury Department. Both have been hit with Congressional and investor concerns over accounting for how they hedge against interest rate and other risks.

Groups led by Edgar Bronfman, Jr. and Marvin Davis, as well as Liberty Media(NYSE: L) and Metro-Goldwyn-Mayer(NYSE: MGM), have bid for Vivendi Universal(NYSE: V) entertainment assets. The first two each offered about $15 billion, while the latter two reportedly submitted offers of over $10 billion. The assets for sale include Universal film studios and the USA Network cable channel.

A former Microsoft(Nasdaq: MSFT) employee has been indicted for allegedly buying over $17 million in software via the company's internal purchasing system while employed there and then selling it for profit.

And Finally...

Today on

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