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Moneyline News Hour

Dow Rises 135.70 to 9,959.11; Nasdaq Climbs 60.27 to 1,951.18; Investors Await Fed Action

Aired March 19, 2001 - 6:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WILLOW BAY, CNN ANCHOR: A late day surge on Wall Street. Investors hoping Greenspan tomorrow will do what he's never done before: slash interest rates by more than a half point.

ALLAN CHERNOFF, CNN ANCHOR: What is Greenspan's good friend at Treasury doing to calm world markets? Critics of Paul O'Neill say not much.

BAY: The California energy crisis flaring up again: rolling blackouts ordered for the first time in months. And, we kick off a special series, "Oscars Inc." with a look at the movie marketing blitz, studios pulling out all the stops to grab those coveted trophies.

Welcome to MONEYLINE. I'm Willow Bay in Los Angeles.

CHERNOFF: And I'm Allan Chernoff in New York. We'll have complete coverage of a late session buying binge on Wall Street with Terry Keenan and John Metaxas. And we'll get the expert opinion on what Alan Greenspan might do tomorrow with a man who knows the Fed inside and out, David Jones.

BAY: But we begin here in California with an escalation in the state's power crisis. The first rolling blackouts ordered in months and the first to affect southern California as well as northern. Casey Wian joins us now with the very latest -- Casey.

CASEY WIAN, CNN CORRESPONDENT: Willow, blackouts weren't supposed to happen in California until this summer, but today power was cut off to hundreds of thousands of customers up and down the state. Traffic lights in some neighborhoods were out, businesses, including a Sun Microsystems plant, had to shut down temporarily. Even one fire station was operating on backup generators.

Power grid officials say several things went wrong at once. First, more than a third of the state's power generating capacity was down for scheduled maintenance or malfunctioning equipment. Then a fire knocked out a plant in southern California. Also several small, so-called green power plants have stopped running because they haven't been paid by the state's nearly bankrupt investor-owned utilities. Finally, temperatures in some places approached 90 degrees, that means air conditioners and more electricity demand. President Bush issued this warning. (BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There are no short term fixes, that the solution for our energy shortage requires long-term thinking and a plan that will implement that will take time to bring to fruition.

(END VIDEO CLIP)

WIAN: Governor Gray Davis has been struggling to manage the power crisis. He has part of a rescue plan in place, but a deal to rescue utilities from bankruptcy is still in the works. Even if that succeeds, California, and some say the rest of the nation, should be prepared for more blackouts in the months ahead.

BAY: So who else? What other places are vulnerable?

WIAN: According to Energy Secretary Spencer Abraham, New York for one.

BAY: Casey, thanks.

Speaking of New York, on Wall Street, stocks took a late day bounce ahead of the Fed's decision on interest rates. For most of the session today it seemed like investors were stuck in a Fed limbo as the suspense continued to build going into tomorrow's meeting. But stocks snapped out of the funk in the last two hours of trading; the Dow and the Nasdaq enjoying a much-needed rebound. We begin our market coverage with Terry Keenan at the New York Stock Exchange -- Terry.

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, with the market on full Fed alert, many traders didn't expect much action here today. So they were pleasantly surprised at the nice snap back rally that we had after last week's 800-point drubbing of the Dow Industrials.

The Federal Reserve has never cut interest rates by as much as 3/4 of a point in one fell-swoop, but that was what many were betting on today, at least in the afternoon. This morning, the Dow did sell off, briefly trading as low as 9,800 before mounting an almost 200- point turnaround by the close -- pretty impressive there.

The S&P 500 closed up just over 20 points. Leading the way in the Dow: Hewlett Packard, by far the Dow's biggest winner up 8 percent, IBM also rebounding from Friday's $9 swoon; also to the upside today, Corning, the stock bucking a warning from the fiber optic company that it will miss its numbers for the year. Lucent also having a great day after it signed a $5 billion deal with Verizon wireless, and Merrill Lynch reflected the positive sentiment on Wall Street today; Lehman Brothers saying it sees value in the brokers. All in all, a positive day, but one that sets the stage for the Fed to disappoint. Now lets go to the Nasdaq where the party was even a little bit more rowdy than here at the Big Board -- John.

JOHN METAXAS, CNN CORRESPONDENT: Whether you call it bargain- hunting or short covering, the Nasdaq managed a nice snap back, 3 percent rally. In the morning, we hit new session lows, as you can see from the intra day chart, and the market hugged the flatline for much of the day before rallying in the final two hours for that 2 percent gain of 60 points back above the 1900 levels.

Intel was actually down on the day; concerns about the PC market contracting this year for the first time ever and the analyst in the U.S. Bank Corp says he sees no sustainable recovery until the second half of next year. But the chips rallied, despite Intel. There was bargain-hunting in many of the beaten down big caps, including Oracle, which was up 10 percent on the day.

PSI Net trading pennies on the dollar now; down 73 percent on the day and it may soon be worthless. The stock, according to the company, they've asked Wasserstein to restructure their debt. The hope is for 75 basis points in cuts tomorrow. Said one analyst, echoing the view on Wall Street, that it will be the right thing to do -- Allan.

CHERNOFF: John, thanks very much.

The hot debate on Wall Street today revolves around one question: just how aggressive will Fed policy makers be in cutting interest rates? It is a debate over fractions, but fractions that have a crucial importance to the nation's economy which some say is already in recession.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): Fed Chairman Alan Greenspan will preside over the meeting where central bank policy-makers are almost certain to provide medicine for the economy. But how much? A MONEYLINE survey of 23 economists finds 70 percent predicting the Fed will cut the Fed funds rate by 50 basis points, which is 1/2 percent; 30 percent are looking for an unprecedented 75 basis-point cut. That's a 3/4 of a percent in the rate that banks borrow money from each other overnight. But some economists say the risk is that the Fed will appear to be panicking if it takes the more aggressive step.

STEPHEN SLIFER, LEHMAN BROTHERS: They have been sounding fairly upbeat about the economy, so if you do 75 then you must be worried about something, so either you weren't being truthful and you were more worried about the economy then what you were letting on or, B, you are really concerned about the stock market and you don't really want to create that impression of being concerned about the stock market particularly.

CHERNOFF: But Fed watchers point out the central bank needs to take strong action. Japan's economic turmoil is presenting a threat as America's economy and corporate profits are slowing. And the sinking stock market has eliminated more than $3 trillion of investor wealth, which could squeeze consumer spending.

BRUCE STEINBERG, MERRILL LYNCH: These relentless declines in the stock market threaten the health of the economy. They are beginning to feed on consumer confidence and business confidence, and they've created a tremendous negative wealth effect potentially. The Fed has to stem the decline in the market at this point.

CHERNOFF: The Central Bank raised the Fed funds rate six times beginning in June of 1999, all the way to 6 1/2 percent in an effort to slow the economy. Some argue it went too far. And in January the Fed cut the rate twice to 5 1/2 percent in an effort to revive the economy.

(END VIDEOTAPE)

CHERNOFF: Joining us right now are two top economists you agree on what the Fed will do tomorrow, but disagree on what's ahead for the struggling economy and who's to blame. Diane Swonk, chief economist at Bank One, joins us from Chicago. And David Jones, chief economist, at Aubrey G. Lanston is here in New York.

David, let's start with you. First of all, let's imagine we're behind those huge wooden doors in conference room right next to Alan Greenspan's office. What's the key issue that will dominate tomorrow morning's debate?

DAVID JONES, AUBREY G. LANSTON: The key issue is the economy. I think they'll be a lot of opinion that will say, look, the economy held up a bit better than we thought in the first part of the year. We're not in a recession; a major slowdown to be sure, but not in recession and thus the right rate cut should be a half percentage point or 50 basis points. Those who want to listen to the market will be the other side of the debate and they'll say we have to do more. It's true we never cut rates by 75 basis points or 3/4 in one fell- swoop but the markets are demanding it. That's the essence of the debate.

CHERNOFF: Diane, what's the Fed going to be listening to, the economy, the markets? What do you say?

DIANE SWONK, BANK ONE: I think the economy will be weighing in the strongest; I agree with David on that. The issue on the markets will be really highly debated in terms of the last time when they did the inter-meeting move on January 3, they were really disappointed at how the markets reacted with the panic; some people thought the Fed was in then.

I think 75 basis points will send two wrong messages. One, either the Fed is panicking or, two, they pandering to financial markets, that are throwing a temper tantrum. I don't think those messages are ones the Fed wants to sound right now; the Fed doesn't believe we're in recession, We're hedging against recession. And given that, they're willing to do whatever necessary so this boat doesn't sink and their verbiage will reflect that after tomorrow's release of a 50 basis point cut.

But also, I think it's important to know, if they're hedging risks -- if the risk of recession is say only 20 percent, 80 percent of the time will be wrong and overshooting.

CHERNOFF: David, has the stock markets decline really damaged the economy very much thus far, is there a negative wealth effect? JONES: There will be. But I think the key that the Fed will note is look, confidence is down. The stock market is down and yet at least in January and February to some degree in early March, consumer spending is not as weak as some would have thought. And indeed, it's strong enough to keep the economy at least in the first quarter out of recession; I think that will be the Fed's judgment.

The problem is, if psychology in the markets starts to feed on itself and starts to feed on consumer confidence as well, there could be trouble ahead. So the Fed, I think, will cut a half a point and the wording of their announcement will be very important. They'll say the risks still are weighted toward an economy that could weaken further and may even say like they said last December that they will be especially vigilant with the regard to the economy. That could give you a possibility of a cut between meetings.

CHERNOFF: Diane, is there trouble ahead? Are we going to remain in a dark tunnel or do you see light at the end of the tunnel?

SWONK: I see light at the end of the tunnel. That doesn't mean the Fed won't stop hedging its risks every session. And I agree completely with David that the Fed will remain vigilant; yet, I see already -- here I am in the middle of the economic malaise in the Midwest and auto production schedules for the second quarter are simply stunning.

We've gone through the vehicle cycle in terms of inventories; as soon as April we're going to see big increases in vehicle production. Frankly, I haven't factor them all to my forecast because I just don't believe they can ramp up that quickly again. They've been so low. It's a major turnaround in vehicle production. But that's one of the largest swing factors; it will take a lot out of growth this quarter but add right back in the second quarter, as long as vehicle sales settle down from recent highs, but not fall in cliff, you have got a nice setup for finally the auto industry driving growth again, rather than dragging it down.

That doesn't cure the high-tech problems out there but that, combined with the recent, sort of, rebound -- albeit mild rebound in consumer sentiment -- that points to good news going forward. We've got mortgage refinancing picking up again and all that money coming back in the economy with utility bills going away, it will be a much stronger second half and second quarter than many people think.

CHERNOFF: So, in one sentence, Diane, has Alan Greenspan blown it or not.

SWONK: I don't think he blew it at all. He's hedging risks here. When you hedge risks, you overshoot. I think it's appropriate for him to hedge risks. I don't think he blew it on the upside either.

CHERNOFF: David, what's your opinion?

JONES: I think the surprise here it's corporate recession not a consume recession, profits down two consecutive quarters, over investment which means that companies will cut back in investment spending. That could leave us in a very slow growth mode, maybe for the first three quarters of this year, and a very weak recovery after that.

CHERNOFF: David Jones and Diane Swonk, thanks so much.

Ahead on MONEYLINE, late breaking news on the inquiry of a U.S. submarine and a Japanese fishing boat. A live report from Hawaii. Plus:

More on the markets from a bullish voice in a sea of bears; we'll ask fund manager David Alger while he's forecasting a market turnaround.

(COMMERCIAL BREAK)

BAY: No matter what size rate cut we get from the Fed tomorrow, our next guest says get ready for a market turnaround. Here to talk about why, when, and what perhaps to buy, David Alger of Alger Funds.

David, welcome back to MONEYLINE.

DAVID ALGER, ALGER FUNDS: Wonderful to be here.

BAY: Not much good news out there; why are we poised for a market turnaround?

ALGER: I think several reasons. The earnings yield for the S&P -- every time it gets to 90 percent as a yield on a long bond, in every case in the last 20 years, there's been a tremendous rally. There's other tech indicators as well. For example, last week the technology stocks outperformed the safe stocks. And as far as I'm concerned that signals a reentry to the more speculative sectors of the market.

BAY: So, while some folks were looking at that and saying oh, my gosh, look how terrible it is, even as safe stocks got hit, you're saying, hey, look at the tech stocks?

ALGER: Exactly. Some of them are holding up very well. Dell hasn't gone down in a long time. Look at Corning today; they say that earnings are going to be disappointing and the stock bounces two points. I think there's clear evidence that money is moving back to the direction in the tech sector which is very positive for the market as a whole.

BAY: Now I know you say there's another bit of good news; ironically, in covers like "Time" Magazine this week with a great big bear on it. Why do you think that's a positive sign?

ALGER: Well, actually, this is the second one. In the "New York Times" last week, there's a great big bear, too. And once the media recognizes that bear market is underway and they publicize it, it's sort of like the famous death of equities "Business Week" cover a number of years ago. Once they publicize it, it is really time to start buying into the market. Everybody knows the story and it's time for the market to reverse.

BAY: Right. Of course, the flip side of that is Jeff Bezos being "Time's" Man of the Year. Look what happened there. So, what do you think investors should do at this point? Clearly, you don't think they should sell?

ALGER: I don't think they should sell. I think they should cautiously move back to the market. If they're conservative, if not, if they're aggressive investors like myself, I would move money swiftly back into the market, because once this thing turns around and runs, it will run very fast.

BAY: Give us some names of things you like. You think tech names are a good idea. What are they?

ALGER: I love Ebay. it's my favorite stock, as everybody knows by now. Cisco is a great buy under 20. I think they're numerous others, Pfizer is a good one.

BAY: What about Oracle; bargain hunters were snapping that up today?

ALGER: Well, that's true. I'm not as convinced about Oracle. I like it but I want to see the results farther up. Their earnings seem to be a little worse than I'd expected. That doesn't mean you should sell it. I think it's too late to sell, but I'd be a little bit more cautious about going into it.

BAY: David Alger, thanks for your perspective on this; we appreciate it.

ALGER: You're very welcome.

BAY: Next on MONEYLINE, Lucent scores a victory amidst its recent financial struggles. And now it faces an even bigger challenge, launching one of the biggest IPO's in history.

(COMMERCIAL BREAK)

BAY: In corporate headlines, health care rivals AmeriSource and Bergen Brunswig merging in a $2.4 billion stock swap. The deal creates the nation's number one drug distributor, but analysts expect it to face major scrutiny by antitrust regulators. Both stocks ended lower in today's trading.

Advertising powerhouse Interpublic will pay $2.1 billion in stock to buy ad agency True North. The merged company will be the world's biggest ad concern, with mega-accounts like Coca-Cola, Microsoft, and Johnson & Johnson. Today, both stocks ended off more than a dollar.

And speaking of advertising, RJR Reynolds faces a lawsuit by five states, including California, for violating a 1998 settlement that contained strict restrictions on outdoor advertising and sponsorships. At issue, RJR cigarette ads at car race tracks and in selected magazines. CHERNOFF: In tonight's "Tech Watch," troubled telecom giant Lucent finally scored a big win in the form of a $5 billion contract with Verizon Wireless. Lucent gained nearly $2 on the news, but the stock, it's turned in a dismal performance over the past year, off more than 80 percent.

So, how long can today's euphoria last? We may get an answer this week, with the much-anticipated IPO of Agere, Lucent's optical networking unit.

Steve Young has the story.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): In the first bit of good news for Lucent in months, the company has nailed a three-year, $5 billion contract with Verizon to become its biggest provider of next generation mobile phone transmission gear. It's Lucent's biggest wireless deal ever, and means the company will be supplying almost two-thirds of Verizon's network.

The win follows numerous profit warnings, an earnings restatement, management shake-up and a former sales executive's whistle-blower suit. The contract news isn't expected to help Lucent's planned public offering this week of Agere, its optical network equipment unit. Market conditions are still awful. Everyone's waiting for the Fed to act Tuesday on interest rates, and the projected IPO price has already fallen twice.

STEVEN LEVY, LEHMAN BROTHERS: One thing that is absolutely unique about the Agere IPO is, at least in my experience of almost 15 years, I've never seen a technology IPO where you've had estimates coming down during the road show twice. Not just the price of the deal, but the forecast for the company.

YOUNG: There's a widespread feeling that even at $12 to $14 a share, the last indicated price, there'd be few takers.

PATRICK COMACK, GUZMAN & CO.: The bottom line is that, yes, I think that they're going to have to cut the pricing of this deal in order to get investors interested in this, and I think this deal is being done prematurely, and I think this stock is worth $5 a share.

YOUNG: Comack says the deal's premature because Agere's made it clear its March quarter will look like a train wreck.

(on camera): Still, the guessing is that the deal won't be pulled, but will be repriced a third time and the IPO will be offered Wednesday. After all, Lucent wants $2.5 billion in debt off its books, and the lead underwriter, Morgan Stanley, wants the lion's share of $250 million in underwriting fees.

Steve Young, CNN Financial News, New York.

(END VIDEOTAPE) CHERNOFF: Coming up, the very latest on the Navy inquiry in Hawaii. Why a U.S. sub struck a Japanese fishing boat and who's to blame.

(COMMERCIAL BREAK)

BAY: We have late-breaking news tonight on the investigation involving the fatal collision of the USS Greeneville with a Japanese trawler. So, let's go right to Martin Savidge in Honolulu. Martin, what can you tell us?

MARTIN SAVIDGE, CNN CORRESPONDENT: Willow, there's been a lot of activity in and around the Navy's court of inquiry today. Just a short while ago, it was announced that the request by Commander Scott Waddle, the captain of the USS Greeneville, for testimonial immunity has now been denied. It has been turned down, apparently at the recommendation of the court inquiry itself.

The Navy apparently feeling that the commander's testimony is not essential in trying to figure out exactly what went wrong. Commander Waddle's attorney had stated that if he was not granted the immunity, that Commander Waddle would not be taking the witness stand.

Immediately after that was announced in court, then one of the other officers that is under investigation by the in court or inquiry, that is the officer of the deck, Michael Coen, issued an unsworn written statement which he read allowed in the courtroom.

He started out by saying, I want to make it absolutely clear that I receive or take on full responsibility as officer of the deck for the tragedy. I am ready and willing to accept the consequences, he said. He then turned his head in the direction of the family members of the Japanese crew, and said he offered to them, my humblest apologies. You are in my thoughts and prayers and will be for the rest of the my life.

Immediately after that, there was a request for an adjournment by Commander Waddle's attorney, and they have asked for 30 minutes while they try to organize what comes next. It is a dramatic ending to this proceeding -- Willow.

BAY: It certainly is. Martin Savidge reporting tonight from Honolulu. Thanks, Martin.

Ahead on MONEYLINE: President Bush gets a visitor from Tokyo, an embattled prime minister tells the president about the economic crisis in Japan.

Plus, less than a week until we know who the big Oscar winners are. We'll check out who stands to cash in after the Oscar gold has been handed out.

(COMMERCIAL BREAK)

ANNOUNCER: This is MONEYLINE. BAY: In tonight's headlines, Wall Street waits nervously for tomorrow's Federal Reserve meeting, hoping Alan Greenspan will bail out the markets with a dramatic cut in interest rates.

And California's power crisis, it is back with a vengeance. Officials order rolling blackouts to ease strain on the electrical grid.

Plus, six days before Oscar night, we'll check out the studios' high stakes pitches to bring home the gold.

CHERNOFF: But first, the markets started the week on the upside, cutting into last week's brutal losses, as investors bet the Fed tomorrow will slash interest rates. The Dow slipped briefly about midday, but then turned higher, building steadily to close up 135 points to 9959. Volume was more than a billion shares.

An even stronger showing for the Nasdaq. The index jumped 60 points, that's more than 3 percent, to 1951. More than 1.7 billion shares changed hands. In the broader market, the S&P 500 rose 20 points on the day.

Greg Clarkin takes a closer look.

(BEGIN VIDEOTAPE)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): At least for a few hours, all was right with Wall Street. Tech stocks were rallying, financials and cyclicals were rising, even beaten-down Lucent was seeing a nice pop. Much of the rally was spurred by the expectations of a cut in interest rates tomorrow. But analysts say the markets may still have trouble launching a long term run-up.

BRYAN PISKOROWSKI, PRUDENTIAL SECURITIES: That's the problem with the market, the current standpoint, is that there's no magic bullet in order to make everything OK. The market is going to be bottoming in its own right, in its own sense, in its own time frame, and I think, by and large, you are starting to see that.

CLARKIN: But for a day, at least, there were more up arrows than down on Wall Street. Even optical company Corning rose despite saying full year earnings would be below estimates. Merrill Lynch and other financial stocks rose on the prospects of lower interest rates. IBM and Motorola jumped, as did Lucent, which won a $5 billion contract from Verizon.

But analysts are already looking past tomorrow's spent expected rate cut for signs of a more sustained rebound.

JEFF DAVIS, STATE STREET GLOBAL: The market will probably have a fairly negative reaction if it's only 50 basis points, but not disastrous. And the next thing they're going to have to look for, and I think that will come in the next couple of months, is signs that tech spending hasn't dried up completely, and that companies are going to have to spend money on technology and other capital expenditures to compete in the global marketplace. CLARKIN (on camera): Even with a triple-digit gain on the Dow and a 3 percent jump on the Nasdaq, analysts are cautious. They say investors remain shell-shocked and the markets are still groping for a bottom. But they'll take any relief they can get from the Fed, even if it's short term.

Greg Clarkin, CNN Financial News, New York.

(END VIDEOTAPE)

CHERNOFF: As Wall Street sits in bear market territory, some market mavens are turning their wrath on Alan Greenspan. They're questioning the conventional wisdom about interest rates, debt and the economy.

Terry Keenan has a look right behind the numbers -- Terry.

KEENAN: Well, Allan, for months now, many economists have been wondering why Alan Greenspan seemed so blindsided by the sharp slowdown in the economy. Well now, an unlikely culprit has emerged, the much-heralded budget surplus. Yes, the surplus.

While federal budget deficits can put a drag on the economy by raising interest rates, they can also stimulate through deficit spending. But with the economy swinging sharply from deficit to surplus in the last few years, some economists now say Greenspan may have underestimated the contractionary impact of the surplus. In other words, how much the surplus subtracts from individual purchasing power.

(BEGIN VIDEO CLIP)

ROBERT GOODMAN, PUTNAM INVESTMENTS: Alan Greenspan made a calculated error about two years ago. He didn't account for the fact that the surplus is a natural drag on the economy, just as a deficit is a natural stimulus. He tried to slow the economy down by raising interest rates not accounting for the fact that the surplus ultimately would weigh the economy down as well.

(END VIDEO CLIP)

KEENAN: In fact, Goodman and others say that's one reason why Greenspan flip-flopped on tax cuts late last year, giving his limited endorsement. In fact, in terms of the size of the economy, the surplus is not inconsequential. At $200 to $300 billion, the estimate for this year, it is equal to 2 to 3 percent of GDP.

Of course, surpluses aren't necessarily bad at all. They have had a positive effect on lowering market interest rates in recent years. But like anything, you can have too much of a good thing, and the concern among some economists is that too big a surplus could kill the economy that created it in the first place -- Willow.

BAY: Terry, we will add that to our growing list of concerns. Terry Keenan at the Big Board. Thank you.

Coming up, bumps in the road for Paul O'Neill. Why Wall Street may not be so hot on the treasury secretary.

And more trouble for one of this country's biggest trading partners. How Japan's financial crunch may wash onto U.S. shores.

(COMMERCIAL BREAK)

BAY: In tonight's MONEYLINE "Focus," the new boss at the Treasury Department, Paul O'Neill. In Washington today, O'Neill commented briefly on the stock market. But he also warned he is unlikely to do so in the future. O'Neill has taken a different tack from the model left by Robert Rubin, a Clinton administration treasury boss who, of course, was wildly popular on Wall Street.

Peter Viles has the early reaction to Mr. O'Neill's first months in office.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): Amid the melt-down on Wall Street last week, online columnist Jim Cramer wrote: "Today is one of those days where I wish Bob Rubin were running treasury." It's a strong theme in early market reaction to Treasury Secretary Paul O'Neill. He's no Bob Rubin.

Rubin was famous for calming markets. This was October 1997, on a day when the Dow had fallen 554 points.

(BEGIN VIDEO CLIP)

ROBERT RUBIN, CLINTON TREASURY SECRETARY: It is important to remember that the fundamentals of the United States economy are strong.

(END VIDEO CLIP)

VILES: O'Neill, so far, has expressed little interest in soothing markets. He was asked about that Monday.

PAUL O'NEILL, TREASURY SECRETARY: I want to say something about the markets. You know, I think the markets go up and the markets go down, and if you've been watching them as long as I have you know that, and you anticipate that. And it's not clear to me that there's some high utility in me noticing every day what's going on.

VILES: Like Lloyd Bentsen, President Clinton's first treasury secretary, O'Neill stumbled in his first attempt to speak the delicate language of the dollar.

ANDY BUSCH, BANK OF MONTREAL: He is making rookie mistakes. I mean, during his interview with Congress, they asked him flat-out what he thought -- if the tax cuts would help generate a boom in the United States and he said, I wouldn't pass if for that reason. Then he had to back-track the next week.

VILES: Defenders, though, describe him as intellectually curious and candid; and smart enough to learn to stick to the script. JERRY JASINOWSKI, NATIONAL ASSOCIATION OF MANUFACTURERS: Paul wants to give more information, engage in more of a dialogue. That's fine in private meetings, but when he's out there with the public, he is going to have to follow a script.

(END VIDEOTAPE)

VILES: In fairness to O'Neill, one of the reasons that Bob Rubin was so popular on Wall Street was that times were so good. The market simply marched higher throughout his tenure. O'Neill, on the other hand, has inherited a shaky market and a slowing economy -- Allan.

CHERNOFF: Peter Viles, thanks much.

Another challenge for the treasury secretary comes from across the Pacific, financial trouble in Japan. Japan's prime minister was in Washington today to brief President Bush on the slide in his country's markets.

Kitty Pilgrim has that story.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The fact that the meeting was between a lame duck Japanese prime minister and a new president did not diminish the importance. It was critical, and a sharp contrast to the Clinton era, which had focused its strategic sights on China.

BUSH: When you combine our economies, we represent about 40 percent of the gross domestic products of all the nations added up and that's very important.

PILGRIM: Corporations in Japan close their books for the year on March 31st. Tokyo's stock market Nikkei Index has already lost 36 percent this year, and stands near 16-year lows. That could continue.

DAVID LINEHAN, US TRUST: We may go through -- what the market least likes is a period of volatility here until we get through the election time frame in Japan. We could go through a lot of volatility here.

PILGRIM: Global investors are worried that any continued drop in share prices will force Japanese banks to founder. Loan write-offs are mounting. Last week, debt rating agency Fitch warned about 19 Japanese banks, causing world markets to indulge in a spasm of selling.

SEAN CALLOW, IDEAGLOBAL: There's been a reluctance for the governments and the financial service authority is going to press too hard on it for fear that the economy is not in the sort of position for it. It's just too fragile that it could introduce a new wave of deflation and sap confidence and send unemployment further.

PILGRIM (on camera): That problem was addressed. President Bush said Mori was unusually explicit about the nonperforming loan problem and was told Japan intended to take steps to address it.

Kitty Pilgrim, CNN Financial News, New York.

(END VIDEOTAPE)

CHERNOFF: Just ahead, AIDS in Africa: a crisis of global importance. We'll hear from renowned economist Jeffrey Sachs about paying the price of a humanitarian tragedy.

(COMMERCIAL BREAK)

BAY: In tonight's "Sectors Report," pharmaceutical stocks after a major change in the price of lifesaving AIDS drugs. The drug sector, led by Bristol-Myers Squibb, was on the rebound today. In recent weeks, several drugmakers announced big reductions in the prices of AIDS treatments sold to developing countries. But the pharmaceutical industry is also suing South Africa over a law that allows the importing of generic versions of patented AIDS drugs.

Our next guest, Harvard professor Jeffrey Sachs, in a "New York Times" editorial last month called on developed countries to spend big, 5 to 10 billion dollars a year, to address the crisis of AIDS in Africa.

You may know his name from a different area of economics. Professor Sachs was the architect of market liberalization in Russia and other countries. And he joins us now from Boston.

Professor Sachs, welcome.

JEFFREY SACHS, ECONOMIST, HARVARD UNIVERSITY: How are you?

BAY: Clearly, this is an important humanitarian issue, but you also believe that it's an economic issue. Why?

SACHS: Basically you have a pandemic, an epidemic of AIDS which is the worst disease pandemic in modern history, taking millions of lives every year, threatening tens of millions of lives. And yet the countries that are hit are utterly impoverished. They can only afford a couple of dollars usually per person per year in their whole health spending.

So how can we help these countries? It seems to me the drug companies have stepped forward and said they'll provide the drugs at production costs for these countries. Now I think it's important for the world community to say, yes, we won't turn our backs. For a few cents for every hundred dollars that we make each yore, we could save millions of lives. And I think we're going to come around to do that.

BAY: You are calling for spending 5 to 10 billion dollars a year. Make your case. First of all, why that amount and how would you spend it?

SACHS: Right now, there are millions of people that are dying because they lack access to the basic drugs that in the United States are routine for people that are infected with this otherwise fatal virus. And so the key thing is to get the drugs right now to the millions of people that need it.

The drug companies have cut their prices sharply, and that makes it possible now at quite modest levels to save, as I've said, millions of lives.

Now why $5 billion? Well, it's estimated by the United Nations organization in charge of AIDS control that we need a couple of billion dollars just to stop the epidemic from going on through preventive means. But we also need at a rising base, starting perhaps at a billion dollars a year and going up to 3 or 4 billion dollars a year, money to help get real treatment, because now it's available.

BAY: Let's just assume that the world hears your call and that does happen. That kind of money over what time period are you thinking and how much progress will we make after spending that kind of money, should it happen, in wiping out AIDS on that continent?

SACHS: It's possible right now given the technologies and what we've learned to probably get within a year or two say a million people in Africa that otherwise would die on to lifesaving treatment. Over time, that number would tend to rise, probably 3 or 4 or 5 million people a year onto lifesaving treatment.

The drugs themselves are now costing at this reduced or discounted price about $500 per patient per year. So the drug costs for even 5 million people whose lives would be saved will be about $2 1/2 billion.

Now, I'm not saying the U.S. should do it by itself by any means. This is really, I believe, a case for all the rich countries of the world that have a billion people in them to be making this contribution. And that means that if we're spending 5 billion a year, that's $5 per person per year in the rich countries. That's something that could be afforded pretty readily to save millions of lives.

BAY: An impassioned plea and a compelling argument. Professor Sachs, thanks for joining us.

SACHS: Thank you.

BAY: Allan.

CHERNOFF: Coming up, we'll ask our financial editor, Myron Kandel, just how low he thinks the Fed will go.

(COMMERCIAL BREAK)

CHERNOFF: Joining us right now, our financial editor Myron Kandel and economist David Jones is back -- Myron.

MYRON KANDEL, CNNFN FINANCIAL EDITOR: Well, I think the Fed will probably cut half the percentage point. I think I wouldn't fall down dead if it were three-quarters of a point. In fact, I would prefer three-quarters of a point. I think the Fed fell behind he curve. It has to catch up.

CHERNOFF: And how low are we going to go?

KANDEL: I think it will be at least -- at least another total of a full percentage point before the Fed is done, and it might even be more.

What do you think, Dave?

JONES: I think we will go to at least 4 1/2 percent perhaps by that June policy meeting, and depending on whether or not we have a tax cut retroactive to January, there could be even some more, maybe to four.

CHERNOFF: So behind these arguments is the idea that the Fed cuts don't help the economy right away?

JONES: Exactly. The Fed essentially buys time, maybe damage control in terms of rate cuts. That's going to be the surprise for the markets. They're going to help us protect the economy on the downside, but it will take a while before this economy responds to lower rates.

KANDEL: After all, the Fed just started cutting in January. That's less than three months away. So it's no surprise that it hasn't kicked into the economy yet.

But it needs a cut, and that's why I think three-quarters of a point would be desirable, despite what David says.

CHERNOFF: Now, economists argue that it takes at least six months to really impact the economy. However, we do have some immediate benefits for mortgage rates and home equity loans as well, do we not?

JONES: Indeed. And we can't forget they came down a full percentage point, the Fed, in January. That's more than Greenspan has ever moved in a month. It's going to be more in terms of 50 basis points, a half a percentage point at the March meeting, and more to come.

CHERNOFF: OK, David Jones, Myron Kandel, thank you so much.

Ahead, the biggest Hollywood awards show is getting to be big business. We'll tell you why. Plus "Ahead of the Curve": some of what you need to know tonight ahead of tomorrow's trading. Stay with us.

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CHERNOFF: Taking a look at some of what could move the markets tomorrow: The Fed's policy-making committee does meet in Washington. A decision on rate cuts is expected about 2:15 Eastern Time. Also out tomorrow, international trade numbers for January. Plus watch for quarterly earnings from Nike and Goldman Sachs.

And to stay a step ahead of the markets, tune in to "AHEAD OF THE CURVE" at 5:00 a.m. on CNN. BAY: And finally tonight, the start of our week-long series, "Oscars Inc.: The Business of Hollywood." Tonight, a look at what an Oscar means to the bottom line and what studios will do to grab those trophies.

Next Sunday's, 73rd annual Academy Awards is expected to climax with one of the closest races in years for best picture. Studios are held to strict rules about the kinds of promotional materials and even the packaging that they can send to the 5,685 people who actually vote for Academy Awards. But as Susan Lisovicz reports, the studios still have other tricks up their sleeve.

(BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP, "GLADIATOR")

RUSSELL CROWE, ACTOR: My name is gladiator.

(END VIDEO CLIP)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): The ancient Roman epic "Gladiator" and the modern David versus Goliath tale "Erin Brockovich" had been available for home viewing for months when their studios, Dreamworks and Universal, re-released them for the big screen late last year.

(BEGIN VIDEO CLIP, "CHOCOLAT")

JUDI DENCH, ACTRESS: If I were 20 years younger, your virtue would be in danger.

(END VIDEO CLIP)

LISOVICZ: The French fable "Chocolat" was still playing in theaters when its studio, Miramax, dramatically ramped up its advertising, which started just prior to the nominating process for the Academy Awards. These advertising campaigns are seen by millions, but intended for an audience of less than 6,000. Studios want to make sure Academy voters actually see their pictures.

Just ask "Chocolat" producer David Brown, the veteran behind such classics as "Jaws," "Cocoon" and "Driving Miss Daisy."

DAVID BROWN, PRODUCER, "CHOCOLAT": You can't buy an Oscar vote and you can't manipulate an Oscar voter. I've been an Oscar voter for 50 years. When we get our secret ballot, we indicate whether we like the movie or not. The purpose of marketing is to get people to see the movie and then think for themselves.

(END VIDEO CLIP)

LISOVICZ: 242 feature films were eligible for Academy Awards this year. Only 33 films received nominations. Animator John Dilworth, an Oscar nominee in 1995, says some production companies can't afford to send voters VHS tapes or DVDs, which means voters must attend select screenings. JOHN DILWORTH, ACADEMY VOTER/STRETCH FILMS: Let me see: "Luminaria." "Luminarias" -- I don't know. I haven't seen that film. It will never get nominated for anything, because who put it out? Who has the money to send that stuff out? "Lost Souls" had some interesting people in there. Never got it. "Little Nickie," never got it. "Love & Basketball."

LISOVICZ: So many voters, like Dilworth, choose to view movies at home that some industry observers say it has changed the type of films that are nominated and win Academy Awards.

MICHAEL CIEPLY, WEST COAST EDITORIAL DIRECTOR, "INSIDE": You perhaps begin to see advantage creeping up for some of the very, very tiny pictures that are character-driven that might not play as well on a big screen, but play great when you're sitting at home. I think particularly of Hilary Swank and "Boys Don't Cry" as an example of a picture and a specific Academy Award that might not have occurred before this habit of marketing through video for home viewing occurred.

LISOVICZ (on camera): But one thing that hasn't changed is Oscar's importance to the film industry. One nine-year study calculated that on average non-nominated films stayed on "Variety's" top 50 chart for 11 weeks. Nominated films lasted more than twice as long.

(voice-over): The box office for "Crouching Tiger, Hidden Dragon" jumped more than 60 percent in less than a week after it was nominated for best picture.

(BEGIN VIDEO CLIP, "TRAFFIC")

UNIDENTIFIED ACTRESS: Get out of the car and shoot him in the head.

(END VIDEO CLIP)

LISOVICZ: "Traffic" saw its box-office traffic increase nearly 50 percent over the same time period. And to win a major category also translates into better sales of VHS and DVDs, and overseas demand.

Industry experts like "Variety" editor in chief Peter Bart say Oscar's value has not been diluted despite a rash of film awards that precedes the Oscars.

PETER BART, EDITOR IN CHIEF, "VARIETY": They're vital. The Oscars are really now and forever at the center of the film business, and their standing has held up very well over the years. It's still -- in a sea of awards, the Oscar is the one that matters.

LISOVICZ: And that's why the studios consider the millions spent in Oscar advertising money well-spent.

Susan Lisovicz, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: And tomorrow on MONEYLINE, one of the most powerful men in Hollywood. He is back in the movie business with an Oscar contender on his hands: "Traffic." We'll hear from media legend Barry Diller as our special series, "Oscars Inc.," continues.

And for much more on the business of Oscar, check out cnnfn.com, which is featuring a special report leading right up to the awards.

That is MONEYLINE for this Monday. I'm Willow Bay in Los Angeles.

CHERNOFF: And I'm Allan Chernoff. Good night from New York. "CROSSFIRE" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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