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Lou Dobbs Moneyline
Dow Falls 126.96 to 9,791.09; Nasdaq Slips 64.64 to 1,720.36; Unemployment Numbers for March Rattle Investors; PG&E Files for Bankruptcy
Aired April 06, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WILLOW BAY, CNN ANCHOR: A major mood swing for Wall Street: After a day of exuberance, the bears came back.
It's Friday April 6, 2001.
Wall Street caps off a wild week with a Friday smack down: stocks undercut by more bad news on profits and the worst jobs report in nearly a decade. A California utility cracks under the pressure of a power crisis: Pacific Gas & Electric files for bankruptcy. Will the lights stay on in California? A stinging defeat for the president's tax plan: the Senate passes a $1.27 trillion tax cut, not as much as the White House had in mind. Plus, call it a mixture of "Survivor" and "Who Wants to be a Millionaire."
(BEGIN VIDEO CLIP)
ANNE ROBINSON, HOST, "THE WEAKEST LINK": You are the weakest link, goodbye.
(END VIDEO CLIP)
BAY: Why NBC is betting a cutthroat game show will score big- time ratings.
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York: Willow Bay.
BAY: Welcome to MONEYLINE.
We begin tonight with the downturn on Wall Street. Investors bailed out of stocks today, turning their backs on yesterday's record- setting rally. Behind the mood change: more signs of weak corporate profits and an unsettling jobs report. The Dow got hit from the outset, closing down nearly 127 points at 9,791: volume, more than 1.2 billion shares. An even worse showing for the Nasdaq. After gaining nearly 9 percent on Thursday, the index dropped 64 points, or more than 3.5 percent, to 1,720. Over 1.8 billion shares changed hands. In the broader market, the S&P 500 lost 23 to 1,128.
It was a wild week overall. In the end, the Dow lost less than 1 percent and the S&P gave back nearly 3 percent, but posted another huge loss, slumping 6.5 percent. Allan Chernoff kept track of all the market moves today, and he joins us with the details on this Friday sell-off -- Allan.
ALLAN CHERNOFF, CNN CORRESPONDENT: Thank you, Willow. Yesterday's big rally was based partly on hope that earnings would soon improve. That hope faded fast today. Wiping out the optimism: a pile of new earnings warnings and evidence that the economy is slowing.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): Bear market psychology regained its grip on the market as investors read the weak employment report as evidence that the economy is in a serious slowdown which is damaging corporate profits.
TONY DWYER, KIRLIN HOLDINGS: Right now the psychology is that earnings are never going to recover, and of course, that's ridiculous. Ultimately, the Fed should be able to improve the economic prospects. But right now the focus is on the current earnings, and they're not good.
CHERNOFF: The parade of earnings warnings hitting the market featured technology companies including Extreme Networks, Remedy Corporation, Radio Shack, Sycamore Networks, Tellabs and Trimble Navigation.
As corporate America warns, Wall Street analysts cut their estimates of future earnings.
CHUCK HILL, THOMSON FINANCIAL/FIRST CALL: Tech earnings are still in freefall. Earnings were up -- Sterling 42 percent in the third quarter last year fell off to only up 3 percent in the fourth quarter, and expectations are -- for the first quarter are that they'll be down 36 percent.
CHERNOFF: The latest earnings estimate cuts now have Wall Street expecting four consecutive quarters of declining profits. Compared to last year, these are the consensus numbers for the 83 tech companies in the S&P 500.
BERNADETTE MURPHY, KIMELMAN & BAIRD: Comparisons are very difficult for companies, and it's something that we're going to have to adjust to. The -- I think the crux is when investors can look past these comparisons to the future and to next year, and that's what will turn the market.
CHERNOFF: But for now investors are bracing themselves for more bad news.
Motorola stock crumbled $3.45 to $11.50 on nearly six times its average daily volume as the company denied rumors it's facing liquidity problems. Motorola, which had issued two profit warnings for the first quarter, is scheduled to be the first major tech company to report earnings after the closing bell next Tuesday.
(END VIDEOTAPE)
CHERNOFF: Next week first quarter earnings season will get underway in earnest. Investors already know the numbers will not be pretty compared to the same period last year. The key to the market's future lies with the guidance that companies provide about future earnings. Optimistic comments could trigger another rally, while more gloomy predictions would likely keep a cloud over the stock market -- Willow.
BAY: Allan, bottom line is investors are anxiously awaiting news of what lies ahead -- thanks.
CHERNOFF: That's certainly true.
BAY: Much of the problem of the markets today started this morning, when the Labor Department unveiled the March jobs report. The jobless rate, as expected, edged up to 4.3 percent, the highest level since mid-1999. The big surprise was payrolls: they declined by 86,000 -- the sharpest drop since 1991, around the time of the last recession.
Fred Katayama reports on what today's numbers say about the economy.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): U.S. businesses slashed their payrolls at the most aggressive pace in nearly a decade. Manufacturers cut another 81,000 jobs in March and, for the first time in months, even the service sector trimmed payrolls. Labor demand, clearly, is weakening.
ELAINE CHAO, LABOR SECRETARY: I think there's a lot of concern about these new numbers. You know, the economy is kind of like a Pillsbury doughboy at this point -- it continues to soften.
KATAYAMA: Temporary staffing firms swung the biggest axe, shedding 83,000 jobs. Retailers and restaurants also cut back. One sign of strength: wages. Americans are earning more. The average hourly wage rose a stronger-than-expected 4/10 percent to $14.17 cents in March. But with the job market weakening, that trend is not expected to continue.
The big question now: Does today's report spell recession? Economists are divided.
JARED BERNSTEIN, ECONOMIC POLICY INSTITUTE: Today's numbers do underscore that we may be in a recession, and here's why: The overall decline in jobs -- 86,000 -- was of a magnitude we haven't seen since the last recession.
ANTHONY CHAN, BANC ONE INVESTMENT ADVISORS: A lot of people have been saying we're going into a recession, but going into this number, the three-month moving average of payrolls was above 130,000. And typically, if you look at the last nine recessions, the average has been a little bit less than 30,000. So we, essentially, are creating more jobs.
(END VIDEOTAPE)
(AUDIO GAP)
BAY: I'm sorry, we appear to have an audio problem with Fred Katayama there. Thanks, Fred.
Also unsettling investors today, and certainly the residents of California: The state's biggest utility filed for bankruptcy. Pacific Gas & Electric, a unit of PG&E, seeking Chapter 11 to help it reorganize its mountain of debt. PG&E shares were slammed, as the utility accounts for roughly 80 percent of the parent company's revenue. It plunged more than four, or 37 percent. Edison International, which said it had no plans to file for bankruptcy, fell sharply on the news as well, off more than four to 8 1/4.
Casey Wian has the latest developments from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): While Pacific Gas & Electric's bankruptcy has been a possibility for months, the filing still sent shockwaves throughout California. The state's largest utility covers 70,000 square miles of northern and central California, with more than 12 million customers, or about 5 percent of the nation's population.
The company says it took the step because the court now offers the best chance to restructure its debts.
BARRY ABRAMSON, USB WARBURG: It was a big surprise that Pacific Gas & Electric filed for bankruptcy today because it seemed that the governor was making some progress in resolving some of the big issues that had caused the financial crisis for the state's utilities. And we thought PG&E would have waited a little bit longer to see how things could play out.
WIAN: But Pacific Gas & Electric says state inaction has left it with debts growing by $300 million a month. The bankruptcy filing lists the utility's 20 largest creditors: banks, the state power grid and power suppliers. Together, they're owed more than $8 billion. Pacific Gas & Electric says it eventually expects to pay all those debts in full. It also says customers will not be affected by the bankruptcy process. It's now likely, though, the utility will seek additional rate hikes in court to cover its debts.
PG&E executives made no secret of who they blame for the situation: California Governor Gray Davis. Davis and state lawmakers had been working on plans to rescue utilities from bankruptcy.
GOV. GRAY DAVIS (D), CALIFORNIA: PG put itself into bankruptcy, it was not pushed. It is our hope that we can resolve an issue as to what PG&E will look like going forward by advising the bankruptcy court as to the proper course of action it should take. That, of course, is a decision the bankruptcy court will make. But believe me, we have moved heaven and earth to try to fix a scheme that was inherently flawed.
WIAN: But according to PG&E, there have been no negotiations with the governor's office in more than three weeks. Also critical of Davis: energy supplier Enron, one of Pacific Gas & Electric's creditors. Enron said: "It's unfortunate the state's largest utility was forced to turn to the courts. Solutions to the energy crisis have been available for months. However, Governor Davis and the legislature lacked the bold leadership to take swift, decisive action."
(END VIDEOTAPE)
WIAN: The state's other big financially troubled utility, Southern California Edison says it has no plans, as you mentioned, Willow, for now to follow Pacific Gas & Electric into bankruptcy. It will continue to negotiate with Governor Davis.
BAY: Casey, what will this mean about the availability of power for consumers in the state?
WIAN: Short term, it probably won't have much impact. Longer term, it depends on the bankruptcy court process. If creditors, namely power producers, feel like they're getting a raw deal, they may be less likely to do business with the California utilities and build power plants here in the state in the future -- Willow.
BAY: OK, Casey, thank you.
Still to come on MONEYLINE: the president loses a battle over the budget as the Senate approves a scaled-back tax cut. We'll get reaction from the White House. And the crew of a U.S. spy plane detained in China is said to be in good shape. We'll get the latest on talks to win their release. Plus, one of the hottest stocks on the street from an old-line manufacturer, Alcoa, making money in a slowing economy. We will check out "The Bottom Line."
(COMMERCIAL BREAK)
BAY: In a setback to the White House, the Senate today voted to cut taxes by $1.27 trillion, about 20 percent less than the White House had wanted. The move is a major blow the to the heart of the president's economic agenda. Jonathan Karl has been following the action from Capitol Hill, and he joins us now -- Jonathan.
OK, we appear to be having an audio problem with Washington. Again, we apologize for that.
It was a rough day over at the Nasdaq. Let's head over there now. With tonight's "Tech Watch," here is John Metaxas -- John.
JOHN METAXAS, CNN CORRESPONDENT: Willow, a volatile weekended ended with a thud here today at the Nasdaq. The Nasdaq gave back -- or took back 64 points, finishing at the 1,720 level, failing to follow through on yesterday's very powerful 9 percent rally.
Networking and fiber-optic stocks: the biggest losers on a series of earnings warnings today. Tellabs down 17 percent on the day. The telecom and optical equipment maker lowered their estimates for the first quarter. They're blaming deferred spending by telecom carriers.
Sycamore Networks down 20 percent on the day. They expect a third quarter loss now versus the gain that had been expected. Others in the group are down as well. JDS Uniphase, a big looser as well.
Cisco Systems, the most active stock on the day, down 8.8 percent on some negative analyst comments. Networking index, as a group, was down 7 percent.
The chips were weak as well, including Intel, which had an 8 percent loss. Analysts are chagrined that the chip sector broke down this week technically, and has not been able to stage a recovery.
The European Union confirmed it is looking into Intel's business practices, charging that they abused their dominant position. Intel is cooperating with the European Union. At this point, things are very preliminary. Salomon Smith Barney also coming out, saying they see indications that Intel's non-microprocessor business is coming in weaker than expected.
Finally, one non-technology loser on the day: Starbucks down 9 percent on the day. Their same-store sales were up 5 percent, the Street has been looking for a 6-percent gain, disappointed with the results.
Now, analysts would have like to have seen more follow through today to yesterday's rally. We did not get it, but they're willing to concede that this market may have turned a corner yesterday. It's just going to take a lot of time and more down days like today to work our way out of this thing -- Willow.
BAY: Yeah, John, after a 6 1/2 percent decline, this is a week we're happy to say goodbye to. What's -- let's look ahead to next week. What numbers should we be looking for next week's -- next week in terms of earnings?
METAXAS: Well, you know, the earning numbers will be important, and more particularly, the commentary going forward. But there's a growing belief that the turnaround may not come in this current second quarter, in which we are currently in right now. And if that is the case, we may have to wait until the end of the second quarter and the outlook for the second half of the year to see a true recovery in the Nasdaq, if the business indeed does start turning around.
BAY: OK, John. John Metaxas at the Nasdaq marketsite, thanks.
MONEYLINE will be back right after this.
(COMMERCIAL BREAK)
BAY: Well, we're going to try this again, we're going to go back to Jonathan Karl on Capitol Hill so that he can give us an update on all that happened today in the Senate -- Jon. JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Well, Willow, the vote on that budget outline was 65 to 35, with all 50 Republicans and 15 Democrats signing on for a budget outline that includes a $1.2 trillion tax cut over 10 years, plus an additional $85 billion this year. It's about $300 billion short of what the president wanted, but the Republicans here not seeing this as a complete defeat. They believe they still got a tax cut they're calling the biggest tax cut that the Senate has passed since 1981, with the passage of Ronald Reagan's first tax cut.
(BEGIN VIDEO CLIP)
SEN. PETE DOMENICI (R), NEW MEXICO: Those who have been waiting for a stimulus, waiting for a permanent marginal rate cut, help is really on the way, because we can't avoid it now. Nobody can filibuster it, nobody can delay it.
(END VIDEO CLIP)
KARL: But if there was a clear victor here on Capitol Hill with this vote it was moderate Democrats and moderate Republicans who proved to be the balance of power here, especially John Breaux, the moderate Democrat of Louisiana, who two days ago, first started pushing for this -- pushing in earnest for this compromise, the compromise almost exactly what the Senate ended up passing today. John Breaux talked about that immediately after the vote.
(BEGIN VIDEO CLIP)
SEN. JOHN BREAUX (D), LOUISIANA: I think that what we have shown today that it is, in fact, possible to change the political culture of Washington. A vote of 65 to 35 for a budget is a significant change from the way business has been done in the past, and I think it does represent a new day of cooperation between both parties to reach a common goal and a common good.
KARL: But this was only a first step. This was a budget outline that includes room for a $1.2 trillion tax cut. There's more to come. The Senate and the House has to work out the details of exactly what this tax cut would look like, and meanwhile, the House of Representatives has passed a full $1.6 trillion tax cut, exactly what the White House wanted. Now negotiators from the House and the Senate are going to have to get together, come to some kind of a compromise between those two numbers, and that compromise will have to be voted on again here in the U.S. Senate -- Willow.
BAY: Jonathan Karl, so good to hear from you finally this evening.
The Senate vote is a blow to President Bush's tax plans, but the president was not sounding defeated today. Senior White House correspondent John King has the administration's reaction -- John.
JOHN KING, SENIOR WHITE HOUSE CORRESPONDENT: Willow, the administration preferring to take the long view. The White House making the case that just last year, as far as most Democrats would go on tax cuts, it was around 200 to $250 billion. Now, 15 Democrats on record in the Senate for a nearly $1.3 trillion 10-year tax cut.
Still, the president hopes to do a little bit better. As Jon Karl mentioned, this now goes to a committee where the House and the Senate will have to work out their differences. When that's all over, the president is hoping the final number is a little bit close to his first offering.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Now the House and Senate will work to find common ground between these two budget plans. And the result will be the largest tax relief in decades. The fact that both Houses of Congress have committed to provide significant relief is good for the American people, and is good four our economy.
(END VIDEO CLIP)
KING: Still, officials acknowledge here that the president said so many times that $1.6 trillion was the right amount for a tax cut, that he will suffer a little bit of a political heat here, but again, they think that they have changed fundamentally the debate over tax cuts here in Washington, and they say this fight is not over just yet.
BAY: John, changing gears somewhat. Can you give us an update on the standoff with China? Any movement to report there?
KING: Quite a sense of optimism tonight, Willow, that this dispute, that six-day old standoff now, will be over by the weekend. The Chinese ambassador to the United States was back at the State Department tonight. They had a very brief meeting. No read out from top administration officials yet, but that session followed talks in Beijing that went on into the early morning hours. Administration officials telling CNN both sides now exchanging drafts of a joint agreement to end this standoff that president publicly today -- quite optimistic.
(BEGIN VIDEO CLIP)
BUSH: We're working hard to bring them home through intense discussions with the Chinese government. And we think we're making progress.
(END VIDEO CLIP)
KING: Again, some expectation this will all be over by the weekend. Some hang-ups in those conversations: the Chinese asking the United States to agree to have no more surveillance flights of this type. United States won't go along with that. Diplomats hoping to work this out, though, in conversation in both Washington and Beijing that are now lasting night and day -- Willow.
BAY: John King at the White House tonight, thank you.
Coming up on MONEYLINE: one market watcher who says the bottom may still be a long way away. I'll talk with Bernie Schaeffer next. (COMMERCIAL BREAK)
BAY: Some corporate heavyweights are expected to release their quarterly results next week, and they face a market increasingly skittish about profits. On the docket: GE, Honeywell, Motorola and Yahoo!.
Our next guest is not too upbeat about the outlook for the market in general. He's Bernie Schaeffer of Schaeffer Investment Research. Bernie, welcome.
BERNIE SCHAEFFER, SCHAEFFER INVESTMENT RESEARCH: Good to be here.
BAY: When the earning news comes out next week, what do you think we'll see? How much of the bad news is already out there?
SCHAEFFER: Well, technology -- I mean, that has obviously been the focus. I actually feel that we're at a real infliction point here, as far as the non-tech area is concerned.
BAY: Meaning what?
SCHAEFFER: As far as sectors like the banks. I think that's very important. The banks tend to report fairly early in the earnings reporting season. The bank stocks, from a technical standpoint, are kind of hanging on by their thumbs here, they've gotten hit hard. They got hit hard today with a little bit of that PG&E bankruptcy news, contributing to the decline.
But banks have exposure to tech loans. Banks are certainly exposed to a weakening economy, and it's going to be very important what they come out with earnings-wise, and how the market reacts to it.
BAY: And you think they will give us a sign of what's to come?
SCHAEFFER: Correct. I think that's really the bellwether for the non-tech area of the economy.
BAY: Can you read the tea leaves on the market today? Why did they take the news -- the labor numbers the way they did?
SCHAEFFER: Well, I guess I'll give you the conventional explanation, which would be the market is focusing more on wanting signs of a strengthening economy, as opposed to the backside of the employment report, being the Fed is more likely to lower rates.
The other problem, though, is simply from a technical standpoint, the market has been in a steady downtrend, and it has sharp and short rallies, rallies back up to the downtrend line, which it did yesterday, and then, boom, as soon as it does, it pulls back -- bear market behavior.
BAY: And you don't think we're near a bottom?
SCHAEFFER: I don't feel we're near a bottom, sentiment-wise, technical-wise, fundamentals-wise.
BAY: We got a little ways to go.
SCHAEFFER: Right.
BAY: Bernie Schaeffer, thanks.
Coming up in the next half-hour of MONEYLINE: more on the market slide. We'll recap a wild week, and we'll check out whether we can expect better days ahead.
And a Wall Street darling from the old school is giving corporate America a lesson in how to make money in a slowing economy, the bottom line at Alcoa.
Plus...
(BEGIN VIDEO CLIP, "THE WEAKEST LINK")
UNIDENTIFIED FEMALE: Welcome to "The Weakest Link!"
(END VIDEO CLIP)
BAY: No mercy in prime time. Will the newest game show be a winner in the battle over ratings?
(COMMERCIAL BREAK)
BAY: In tonight's headlines, stocks stumble over a pile of problems: A weak jobs report, more profit warnings, and a credit trouble for California's largest utility. That company, Pacific Gas & Electric, filed for bankruptcy after months of struggling under a mountain of debt. We'll talk to the company's chairman Robert Glynn.
And a political blow for President Bush. The Senate approves a budget plan with $1.2 trillion in tax cuts, much smaller than the President's $1.6 trillion plan.
But first, more on the disappointing day on Wall Street. Neither the Dow now the Nasdaq managed to climb out of negative territory during the entire session. The jobs report and profit warnings sending stocks spiraling into the red the moment the markets opened. But the Dow did close off its lows, down 126 points to finish the day at 9,791.
Some of the biggest losers on the Dow: Citigroup, J.P. Morgan, Hewlett Packard, Honeywell, and United Technologies all finishing sharply lower,
The Nasdaq spent the day in negative territory, unable to get out from under profit warnings from the likes of Sycamore Networks and Tellabs. The index closed down more than 3.5 percent or 64 points, at 1,720. The broader market also suffered on the session, closing down 23 points at 1,128.
Today's downturn caps off a wild week on Wall Street. Kitty Pilgrim brings us the highlights.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Monday: Wall Street kicks off a new quarter with some buying, despite a profit warning from American Express.
UNIDENTIFIED MALE: We got close up to 10,000 and people started to get nervous.
PILGRIM: Nervous indeed. Investors turned a 100-point rally on the Dow into a loss after President Bush's tough talk on China.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our priorities are the prompt and safe return of the crew.
PILGRIM: The Dow closes down 100 points, the Nasdaq down 57.
Tuesday: a debacle. Earnings slams from Ariba, Inktomi send tech stocks plunging. Even defensive stocks are hit. And rising tensions with China don't help matters.
MICHAEL KURTZ, IDEA GLOBAL: One of the reasons why this is such a key market focus at the moment is that we are still at the point in the Bush Administration where the market is trying to asses just how confident the administration is.
PILGRIM: The day ends down 292 for the Dow, 110 for the Nasdaq.
Wednesday the selling lets up, and stocks search for direction. The Dow ending with a modest gain, but the Nasdaq falls another 2 percent to a fresh two and a half year low.
Thursday the skies clear over Wall Street. Good news from Dell, Alcoa and Yahoo! send the markets soaring. Still, analysts urge caution about the durability of rally.
UNIDENTIFIED MALE: The fact that, you know, Dell now says that they're not going to disappoint becomes a catalyst for everybody, but they say it with the caveat that says, "Listen, there's still four weeks left in the quarter."
PILGRIM: It's the third biggest gain ever for the Nasdaq, and the Dow shoots up more than 400 points.
Friday: A weak jobs report makes for a hard dose of reality. Several economists say the data points to recession.
UNIDENTIFIED MALE: I think the labor market report is,you know, around or slightly worse than what was expected, and you know, I think, until we get two days in a row of good news, we're not going to get a sustained rally.
PILGRIM: The Dow drops 126, and the Nasdaq falls 64. (on camera): Despite the strong rally on Thursday, the markets did not end the week ahead. The Dow declined only fractionally, but the Nasdaq lost a sharp 6.5 percent of its value.
Kitty Pilgrim, CNN Financial News, New York.
(END VIDEOTAPE)
BAY: Today's weak employment data stunned economists, bruised stocks, and roused fresh fears that the U.S. is staring down recession. Will the report shock the Fed into cutting interest rates immediately? To try to answer that question I'm joined by Kathleen Stephansen, director of economics for Credit Suisse First Boston. Kathleen, welcome.
KATHLEEN STEPHANSEN, CREDIT SUISSE FIRST BOSTON: Thank you.
BAY: How surprised were you by the numbers?
STEPHANSEN: Quite surprised. I mean it was a very weak report and it shows that the labor market is really adjusting to the slowdown in demand. And particularly the slowdown that evolved with this inventory adjustment, and that is really the key issue for these first six months of the year.
BAY: Now, do the numbers suggest to you that we are heading into a recession, or that we are already there?
STEPHANSEN: No. I mean, you know, if recession, by that, you mean two negative quarters, no, we're not seeing that at all. The fact of the matter is that the economy is weak, is weak in the first quarter and will continue to be weak in the second quarter. But there are signs of stabilization, particularly in the old economy, quote, unquote, that leads me to believe that we are going to see a recovery.
BAY: For example, some of those signs would be?
STEPHANSEN: Well, for example, earlier this week we had the NAPM report, and there the new orders, which is a very good leading indicator, does suggest that, indeed, there is possibility of troughing within the next three to four months, in the old economy, again.
BAY: What does this suggest to you about the Fed? Does it indicate that they'll be more likely to cut rates before the next meeting, as of course, many on Wall Street would like to see happen?
STEPHANSEN: Yes, I do believe that this report definitely puts the notion of an inter meeting move on the table again.
BAY: Do you think that would be a good idea?
STEPHANSEN: I think it would be an excellent idea. And in fact, if you look back at the statement of the March FOMC meeting, it did say that the Fed is monitoring the situation very closely, and that the events are evolving very quickly. This is precisely the situation. One ought not to -- the Fed ought not to sit idly and watch this deterioration in the labor markets.
BAY: So you think there is a good chance that we will and we should get an interim rate cut?
STEPHANSEN: Yes, I think the 50-basis-point cut in April is definitely on the table.
BAY: Fifty basis points in April?
STEPHANSEN: Yes.
BAY: OK. Kathleen Stephansen, thank you.
STEPHANSEN: Thank you.
BAY: Coming up on MONEYLINE, "Survivor" meets "Millionaire," the latest on-air nexus of entertainment and reality hit NBC. Will it be a ratings winner, or the weakest link?
But first, what finally sent California's biggest utility over the edge? We'll talk with Pacific Gas & Electric CEO, Robert Glynn. That's next.
(COMMERCIAL BREAK)
BAY: The California energy crisis is our sector focus tonight. As we've been reporting, Pacific Gas & Electric finally filed for chapter 11 today. The utility promises bankruptcy will not affect its 12 million customers, but its impact on shareholders is another thing altogether.
Looking at investor reaction today, PG&E, the parent of Pacific Gas & Electric, plunged more than 4, or 37 percent, on the news. Edison fell more than 4 to 8 1/4. Joining us now from San Francisco, chairman of Pacific Gas & Electric, Robert Glynn.
Bob, welcome back.
ROBERT GLYNN, CEO, PACIFIC GAS & ELECTRIC: Nice to see you, Willow.
BAY: I know you've been considering this for a while. But why now? Why file for chapter 11 now?
GLYNN: Willow, several reasons made this decision the right one for our company. First of all, although the state has said otherwise, they have left us responsible for continuing to buy a large amount wholesale power that has not been covered in rates on a current and ongoing basis. And that amount is about 300 million per month or more. It's an absolutely unsustainable amount.
Second, the California Public Utilities Commission has issued a number of orders which very seriously deposition us financially. Some of those orders are illegal, and some of them constitute a preference of one class of creditors over another class of suppliers. And finally, the negotiations that we've had under way with the governor and his representatives since last November are simply going nowhere. In the last month, we've had a three-week period with no face-to-face meetings whatsoever.
BAY: Bob, why is that?
GLYNN: Say again?
BAY: Why is that there have been three weeks without any face- to-face meeting?
GLYNN: Well, the state representatives -- and frankly, the governor -- have been unable to stick to agreements that we have reached with them earlier. A month ago, I shook hands with the governor's senior negotiator on a deal that included every one of the four points that the governor included in his speech last night. And of course, it also included very important deal points for our company. On Tuesday night, we were handed a document that contained all of the state's points and pulled back seriously on very major deal points: in fact, deal-breakers that were critical to us.
That's why it's going nowhere.
BAY: You mentioned on your list of issues the issue of cost. Now, the California PUC just approved rate increases. Wouldn't that have helped you?
GLYNN: The California PUC just enacted a very large rate increase and they assigned all of it to help the state pay off the power that it has begun to buy since our company became a non- investment grade and non-credit worthy, and didn't allow any of it to come to our company to pay the very high costs we're experiencing now, let alone any of the high costs we were not able to recover last year. So rates went up, but it didn't improve our situation one iota.
BAY: I see. Now, will your filing for bankruptcy affect the power situation in California this summer?
GLYNN: Well, I can't speak to the behavior of any other suppliers or participants. In terms of our part of the business, we operate a number of power plants, and we expect to continue to operate them safely and reliably, and to deliver that energy to customers. And we're responsible for delivery of gas and electricity to about 13 million Californians and we intend to continue doing that safely and responsibly.
BAY: So their service will not be interrupted, but should consumers brace themselves for even more rate hikes?
GLYNN: Well, there -- I want to correct one thing. Regardless of the chapter 11 filing that Pacific Gas & Electric Company made, this is going to be a very rough summer in California and the West. And I think that many consumers are in for a lot of service interruptions or rotating blackouts. I think that's something consumers should know. This filing doesn't make it any better or any worse.
BAY: Bob Glynn, thanks for coming in tonight and walking us -- walking us through this plan. We appreciate it.
GLYNN: Thank you, Willow.
BAY: Coming up on MONEYLINE, an old economy company that is bucking the trend with growing profits and a strong stock. The bottom line on Alcoa, when MONEYLINE returns.
(COMMERCIAL BREAK)
BAY: Now some legal news to report. American Home Products has lost another court battle over the Fen-Phen diet drug. A Texas jury awarded $56 1/2 million to a cafeteria worker who took the drug cocktail for about 4 months. Fen-Phen is a combination of two weight- loss drugs found to cause serious heart damage.
AHP has already settled with tens of thousands of former Fen-Phen users and set aside more than $12 billion for compensation. AHP said it would appeal the Texas verdict. Its stock fell fractionally today.
In tonight's "MONEYLINE Movers," Radioshack plunged more than 10 after a profit warning. The electronics retailer blames aggressive markdowns on PCs and cell phones for the shortfall.
Telecom-equipment maker Tellabs slashed profit and sales targets for the second time in a month, sending its shares down 7, or more than 20 percent. Agilent fell nearly 3, closing at its lowest level in its short history. Late yesterday, Agilent lowered revenue forecasts and said it's temporarily docking employee pay by 10 percent.
Hewlett-Packard, which spun off Agilent in 1999 and still owns a significant chunk, also fell more than 2 on the news.
And Motorola sank almost 3 1/2, to its lowest level in eight years. The troubled chip company denied reports that it's facing "serious" liquidity problems. So far this year, Motorola has announced 22,000 layoffs, and its stock is off 76 percent.
In tonight's "MONEYLINE Focus," Alcoa. The aluminum maker has managed to outperform the market during the recent economic downturn, even though its fortunes are closely tied to the overall economy: a point made clear this week when the company reported healthy quarterly results and helped spark Thursday's huge rally on Wall Street.
Peter Viles has "The Bottom Line."
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): This is about as old economy as it gets, aluminum production, a process pioneered over 100 years ago. And with economies weakening from Detroit to Tokyo, the outlook for aluminum demand this year is shaky at best. Prices have been slipping for most of the past five years.
So how is it that Alcoa, the Pittsburgh icon once called the Aluminum Company of America, has become a Wall Street favorite, with a stock that has outperformed the Nasdaq over the past five years by 2- 1, gaining 130 percent to the Nasdaq's 62 percent. The answer lies in old-fashioned earnings growth, averaging 19 percent over the past five years.
ANTHONY RIZZUTO, BEAR STEARNS: This is a company that has achieved a track record of growing the top-line, earnings and operating cash flow by 15 to 20 percent in a flat metal-price environment.
VILES: First quarter earnings announced earlier this week did slip, but only by a penny a share, a performance Wall Street applauded.
ALBERTO ARIAS, GOLDMAN SACHS: It's very interesting to see that the results of the company were very solid in a very weak economic environment. We think that Alcoa has demonstrated that they are able to in a way offset some of these weakness in volumes through their cost reduction programs.
VILES: Wall Street credits former Alcoa chief, Paul O'Neill, now treasury secretary, for cutting costs and streamlining management. Under O'Neill's successor, Alain Belda, Alcoa has been on an acquisition binge that somewhat insulates it from aluminum price swings.
SCOTT MORRISON, CREDIT SUISSE FIRST BOSTON: If you look at the degree of cyclicality that Alcoa currently enjoys, it's much reduced from where they were five years ago or 10 years ago, and it's much, much more muted relative to virtually any other -- any other metals companies.
VILES: Analysts also believe Alcoa is close to a scientific breakthrough in aluminum production that could result in a cheaper and cleaner smelting process with potentially huge impact on prices and margins.
MORRISON: Our estimate is, is that it could mean as much as a 20 or 25 percent reduction in their operating costs per pound to produce aluminum.
VILES: One risk to Alcoa, however, is rising energy costs, which cut into margins. For now Alcoa has hedged that problem by idling some plants in the Northwest and reselling the excess power at a profit.
(END VIDEOTAPE)
VILES: Another short-term risk is O'Neill's plans to sell off roughly $100 million worth of Alcoa's stock over the next six to eight weeks. But unlike some of his colleagues in the Bush administration who've had to sell stock into this bear market, the treasury secretary is not selling at a loss. Alcoa shares are up 8 1/2 percent year to date -- Willow.
BAY: So, Pete, will those sales affect the market?
VILES: They shouldn't really. The amount he owns is equal to about the amount that trades in one day, and he's planning to unload it over 30 to 40 trading days. So it shouldn't have a big impact on the stock.
BAY: And as you pointed out, at a profit. Peter Viles, thanks.
We should let you know that we'll be speaking to the former head of Alcoa, Treasury Secretary Paul O'Neill, Monday on MONEYLINE.
Next on MONEYLINE, after a stomach-churning week on Wall Street, will next week be any better? We will get the forecast from Bernie Schaeffer and our own Myron Kandel.
Stay with us.
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BAY: Another losing week on Wall Street. Well, what can we hope for next week? Joining us now, CNN's financial editor Myron Kandel and Bernie Schaeffer, chairman of Schaeffer's Investment Research. Welcome back, Bernie.
Myron, after today's numbers, do you think the Fed will cut between meetings?
MYRON KANDEL, CNN FINANCIAL EDITOR: I'm not sure it will, but it certainly should, Willow. You know, the Fed's main object is to fight inflation, but they also have to keep in mind that this nation consists of people, and more and more Americans are being out of work because of the slumping economy.
I think the Fed, which was behind the curve, has to get ahead of the curve, and it cannot wait until May 15th to cut again. Therefore, I'm looking for an intra-meeting cut by the Fed, another 50 basis point, 1/2 point.
BAY: And you actually think that that's critical to a market turnaround?
KANDEL: I think that won't be the only reason, but it will definitely help the market and the economy, and they're now intertwined. Now there is no difference between Main Street and Wall Street, as there used to be.
BAY: Bernie, what do you think? Will that be the ticket, will that will help?
SCHAEFFER: I agree the Fed is behind the curve, they are probably 100 basis points behind the curve. Unfortunately, I think the message in today's market is: we don't care, we are much more concerned about the uncertainty and some of the weakness that is being manifest in the economy. So I think the risk is more earnings coming and disappointing in the old-economy stocks, than whatever the Fed does.
BAY: You think there is more downside to come? You don't.
KANDEL: Right. We hit bottom two weeks ago.
BAY: And we will see. Gentlemen, thank you.
Up next: NBC scrambles to join the reality TV craze. Plus, "Ahead of the Curve." Stay with us.
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BAY: Taking a look at some of what could make headlines on Wall Street next week on the economic front: watch for the producer price index and import/export prices, both for March. Plus, quarterly profits from Dow components General Electric and Honeywell, as well as Motorola, Yahoo! and Juniper Networks.
And beginning Monday, all stocks on the Nasdaq will trade in decimals. Tune into MONEYLINE's weekend edition with Terry Keenan for a wrap-up of this week's Wall Street action and a preview of what's ahead.
And finally tonight: the British are coming to bail out NBC. The peacock network has been behind the curve in exploiting reality TV and big money game shows. But in about one week, NBC may no longer be the weakest link in the latest programming craze. Steve Young reports.
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STEVE YOUNG, CNN CORRESPONDENT (voice-over): The peacock network is not very proud that ABC blew the feathers off the bird with a game show.
(BEGIN VIDEO CLIP, "WHO WANTS TO BE A MILLIONAIRE?")
REGIS PHILBIN, HOST: Let's play.
(END VIDEO CLIP)
YOUNG: Or that CBS scared the living daylights out of NBC with reality TV.
ROBERT WRIGHT, PRESIDENT & CEO, NBC: We were just slow to get off the dime, and we have a show coming up within the next couple of weeks, which I think fits that bill rather nicely.
YOUNG: NBC hopes to kill two networks and both genres with an American version of the surprise British hit, "The Weakest Link," borrowing the host Anne Robinson. She delights in humiliating game show contestants who perform badly.
(BEGIN VIDEO CLIP, "THE WEAKEST LINK")
ANNE ROBINSON, HOST: You are the weakest link. Goodbye.
(END VIDEO CLIP)
YOUNG: NBC is betting that 2,500 British pounds, or $3,500, won't fly in the U.S. The surviving American contestant can win up to $1 million.
WRIGHT: It's a very different show and exciting, and it is a kind of combination of "Survivor" and "Millionaire," and I think that may be exactly what we're looking for.
YOUNG: "The Weakest Link" is doing wonders in a dozen countries, including France, Australia and Holland.
(on camera): One newspaper reviewer said the ingredients for success are simple: ridicule, humiliation, money, and a dominatrix dressed in black.
SCOTT COLLINS, INSIDE.COM: Coming, especially from a British host, somebody who has a British accent and is quite obviously British, and is putting down these American contestants -- I don't know, it will be very interesting to see how Americans respond to that.
YOUNG (voice-over): For NBC, the stakes are a lot higher than the million dollar game. The network has slid from No. 1 to 3. NBC will be taping three of 13 shows in Burbank Sunday. In a week or so, Ms. Robinson will be done with her California assignment, and she'll swoop back across the Atlantic to torment more of her own countrymen.
Steve Young, CNN Financial News, New York.
(END VIDEOTAPE)
BAY: That's MONEYLINE for this Friday. I'm Willow Bay, good night from New York. "CROSSFIRE" is next.
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