Apparently, there are some real stock market junkies at the Pentagon. According to CNN, the Department of Defense constructed a website -- essentially a simulated stock market game -- that would offer traders the chance to win money for correctly predicting terrorist attacks.

Yes, you read that correctly. Participants were to buy and sell futures contracts on terrorist plots, kind of like energy traders betting on future oil and gas prices.

Fortunately, the Senate Armed Services Committee stepped in this afternoon and put the kibosh on the whole project. Pentagon staffers had hoped the simulation would provide clues and scenarios to predict terrorist machinations.

Just has to make you wonder what else the Pentagon is doing that you know nothing about, doesn't it?

In today's Motley Fool Take:

U.S. Is Lovin' McDonald's

Big Mac daddy McDonald's(NYSE: MCD) reported soggy second-quarter earnings today, thanks to higher operating costs. A weak dollar boosted overall sales for the international giant, while its U.S.-based results showed that its new salads and other recent introductions are providing stateside strength.

Earnings dipped 5% to $470.9 million, or $0.37 a share. In the prior quarter, McDonald's earned $497.5 million, or $0.37 a share. As the company predicted earlier in the month, restructuring costs ate into earnings. It's part of the fast-food giant's moves to slow new-store build-out.

Revenues rose 11% to $4.28 billion, and systemwide sales (which include sales from franchises) jumped 10% to $11.47 billion. Accounting for the weak dollar drops sales growth to 5% and 4% for company and systemwide sales, respectively.

McDonald's made real progress in the U.S. during the quarter. Comparable sales increased 4.9%, the highest growth rate in five years, according to the company. Premium salads and McGriddle breakfast sandwiches are pulling 'em in here. McDonald's is also developing healthier alternatives that it hopes will drive sales.

From here, McDonald's needs to find a way to maintain its U.S. momentum, while also generating the same buzz overseas, to offset currency effects that will eventually turn against the company. To quote fellow Fool Bill Mann, "McDonald's bread is really buttered internationally these days, so the currency gains are important and should be noted."

McDonald's stock has run up from around $12 back in March to its current $22 level, signifying that investors believe the company's turnaround is for real and solidly under way. Chairman and CEO Jim Cantalupo won't concede success yet, though, with an eye towards 2005 as the date the company should be fully on track.

Quote of Note

"People rarely succeed unless they have fun in what they are doing." -- Andrew Carnegie, Scottish industrialist, 1835-1919

Berkshire's Billion

When it comes to money, Warren Buffett isn't one to monkey around. Well, maybe just this once. Pepsi's(NYSE: PEP) summer promotion has been a doozy. Through next month, the soft-drink company will single out a thousand lucky finalists in a contest that may land the winner a billion-dollar prize during a live two-hour television show.

With Yahoo!(Nasdaq: YHOO) manning the site for the Pepsi Billion Dollar Sweepstakes, the fact that a chimpanzee will ultimately decide the fate of the potential billionaire isn't as shocking as the company that will pay out the ransom under the rare event that the grand prize is doled out. Yes, it's Berkshire Hathaway(NYSE: BRK.A) that will be on the hook for the billion-dollar payday in back-ended disbursements (or a $250 million lump sum).

Irony runs soda syrup thick here because, of course, Berkshire Hathaway has been a longtime investor in Pepsi's rival Coca-Cola(NYSE: KO). But Berkshire investors don't need to be biting their nails when the Pepsi chimp dictates fortune or famine under the television studio spotlight in a few weeks.

Pepsi paid an undisclosed seven-figure sum for Berkshire to assume the risk of the show's final contestant winning it all. As an insurance giant, Berkshire Hathaway didn't need to study its actuary tables to realize that this was a good deal. The odds of someone walking away with the billion-dollar prize is a bleak million-to-one long shot. That's chimp chump change for Berkshire, which should emerge as the real winner here.

Berkshire will have to pay no more than 250 times what it is receiving from Pepsi and the chances of paying it out, to any of the thousand participants, are one in a thousand? Nice odds. Find a casino that pays out just 25% of the take? Even the state-run lotteries have better distribution chances. Berkshire looks to be the one that will have a Coke and a smile by the time it's all over.

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Low-Fare Atlantic Coast Air

Shares of Dulles, Va.-based Atlantic Coast Airline Holdings(Nasdaq: ACAI) went into a 24% tailspin Monday on news that its pact to provide commuter service for United Airlines will likely end when United emerges from bankruptcy, expected in the first quarter next year. Atlantic Coast said it would then move to a low-fare model to capitalize on its strong presence at metropolitan Washington, D.C.'s Dulles airport.

Atlantic's United Express service currently provides 85% of total revenues, the rest flying in on its Delta Connection operation with Delta Air Lines(NYSE: DAL). Chairman and CEO Kelly Skeen might simply be pressing United to sweeten its offer -- one he reportedly called "unpalatable" (like airline food?) -- but he is wise to consider a future where 85% of revenues is not tied to the fortunes of one partner.

Atlantic has produced consistent free cash flow outside of the slow first quarter, but as yesterday's market showed, shareholders will bail if the business is threatened. The demise of the United deal may serve as a catalyst for the new low-fare structure that Atlantic reportedly has considered for two years, but I suspect another force at work, too. It's called JetBlue(Nasdaq: JBLU).

This low-fare carrier and Whitney Tilson favorite currently flies from Atlantic's Dulles hub to California and Florida and could certainly expand. Skeen doesn't need that. By emphasizing that Atlantic has the most departures a day from Dulles and plans 275, plus up to an additional 50 with plans to buy 15 to 25 more planes by early 2004, he may be trying to keep JetBlue from weighing in further.

All of this is good news for the Baltimore-Washington area, where travelers must now drive to Baltimore-Washington International Airport for low fares, courtesy of Southwest(NYSE: LUV).

To be sure, Atlantic faces headwinds from JetBlue, Southwest, ATA(Nasdaq: ATAH), and AirTran(NYSE: AAI), and perhaps next year Virgin Airways, along with smaller aspirants Frontier(Nasdaq: FRNT) and Spirit. The company must control costs to compete, but has at least three reasons to be optimistic: 1) it may cost little to convert its United Express operations; 2) it will be able to fly planes two hours longer each day than it currently does with United; and 3) its balance sheet provides flexibility.

With about $189 million in cash and equivalents and only $53 million in total debt as of Mar. 31, 2003, Atlantic will get a running start. Whether it takes off is pure speculation.

Discussion Board of the Day: Disney

Did you catch Spy Kids 3D over the weekend or did the 3D gimmick keep you away? What about Pirates of the Caribbean? Was Disney's attraction-titled release a swashbuckling good time? And, hey, how about that Finding Nemo? All this and more -- in the Disney discussion board. Only on

Quick Takes

Tiny Immersion(Nasdaq: IMMR) jumped over 140% early today -- yes, you read right -- after it reached a litigation settlement with Microsoft(Nasdaq: MSFT) concerning Immersions' haptic (touch) technology. Under the agreement, Microsoft licenses Immersion's patents and pays $26 million, makes an equity investment, and buys Immersion convertible debentures.

Mobile phone distributor Brightpoint(Nasdaq: CELL) announced a return to profitability in Q2 and shares vaulted over 24%. We don't want to make you cry, but the stock has zoomed from a closing low of $1.19 about one year ago to over $24 today. You do the math.

Speculation in Chinese Internet media-related companies continues apace. Shares of NTES) jumped 17% on news that its Q2 profit surged despite a two-month government closure of Internet cafes to deal with the spread of the disease. Shares of Netease and other Chinese Web-related companies Sohu(Nasdaq: SOHU) and Sina(Nasdaq: SINA) have gone insane over the last year, up (we do the math) 2800%, 2678%, and 1800%, respectively. Holy moly!

The Conference Board reported that its index of U.S. consumer confidence fell from 83.5 in June to 76.6 in July. The index measures views of the economy six months from now. The index of current sentiment fell from 64.2 to 61.9

And Finally...

Today on

Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Kate Southerland, Dayana Yochim