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Lou Dobbs Moneyline
Dow Rises 54.06 to 9,845.15; Nasdaq Climbs 25.35 to 1,745.71; Investors Brace for Earnings Season
Aired April 09, 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: The eve of the most important earnings season in years. This is MONEYLINE for April 9, 2001.
Investors brace for earnings news from across corporate America, in what could be the worst quarter for profits in a decade. But Amazon stuns the markets with good news, sales better than expected. Are profits on the horizon?
In Washington: the president unveils his budget blueprint, right after the Senate passes a very different plan. Is the Bush tax cut DOA? We'll ask Treasury Secretary Paul O'Neill.
And Redmond out to take Hollywood by storm: Microsoft, going from the desktop to the silver screen.
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York: Willow Bay.
BAY: Hello, everyone, and welcome to MONEYLINE.
We begin tonight with Wall Street anxiously awaiting profit results from the critical first quarter. Stocks today managed to pull off a late-day rally, but trading was very quiet, as dozens of corporate giants get ready to issue reports this week, on what may be the worst quarter since the last recession.
Taking a look at the overall numbers: the Dow gained 54 to end at 9,845, a modest rally after Friday's sell-off. A better performance on the Nasdaq, which jumped 25, or about 1 1/2 percent, closing at 1,745. And the S&P rose 9 to end at 1,137.
So, how will the rest of the week play out? Well, the answer may well hinge on results out this week from some of America's biggest and most powerful companies. Susan Lisovicz reports.
(BEGIN VIDEOTAPE)
SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Investors have had ample warning that the first quarter will be one to forget. This week, they'll get a detailed look to see how bad it really was. Motorola, GE, Yahoo!, just a few of the giants set to release results this week, in what some fear will be the worse quarter for corporate profits in a decade. JOHN MANLEY, SALOMON SMITH BARNEY: Expectations are that expectations won't be met, just like a year ago, expectation were that expectations will be exceeded. A year ago, people were right for a while, but now look what has happened.
LISOVICZ: Expectations have been dealt a brutal blow in recent weeks. First Call says 816 companies issued profit warnings through the first trading session of this week. That's 37 percent increase over the previous quarter, which was a record. And it's 423 percent increase over the same quarter a year ago.
And while technology companies have issued more than a quarter of the profit warnings, analysts say they're seeing widespread weakness.
CHUCK HILL, THOMPSON FINANCIAL, FIRST CALL: We're seeing numbers coming down significantly in the transports, in basic materials and capitol goods. Now, the one bright spot is that the consumer cyclicals have slowed somewhat over the past month or so, in terms of negative pre-announcements and downward revisions, but there's no signs of any slowing in the technology sector.
LISOVICZ: Which is weighing on the overall estimates for the quarter. First Call is expecting first quarter profits to decline about 8 1/2 percent from a year earlier, the worst drop since the summer of 1991, and second quarter profits to drop nearly 7 percent.
But there may be hope for the second half of the year, First Call seeing a gain of 1 percent in the third quarter and a jump of more than 12 percent in the last quarter.
(END VIDEOTAPE)
LISOVICZ: So, will that optimism for a second half rebound remain after earnings season? Just last October, First Call had forecast profit growth on average of 14 percent for the quarter ending March, but steadily revised its numbers downward with a stream of warnings and disappointments. Likewise, First Call says it may bring its numbers down for the second half of the year, depending on what it hears over the next several weeks -- Willow.
BAY: So, it's not just those quarterly earnings numbers that investors are going to be looking out for?
LISOVICZ: No question about it. Every quarter, the analysts want to hear guidance going forward, and this time, it will be more critical than ever.
BAY: Susan Lisovicz, thanks.
One likely winner in the upcoming parade of corporate results: Amazon.com. The on-line retailer surprised the market today with a rosy outlook, helping Amazon stock post its largest one-day percent gain ever. Amazon shares soared nearly $3, rising more than 33 percent to $11.18. But as Bruce Francis reports, Amazon still has its skeptics.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It was just a little bit of good news, but it did a lot for Amazon's stock. The on- line retailer said it will post revenues of greater than $695 million, the high end of what it projected back in January, and much more than First Call's estimate. The bottom line: a loss of just 22 cents a share, narrower than the 31 cents analysts were expecting.
To some analysts, the goal of pro-forma profits by the end of the year looks more likely.
JEFFREY FIELER, BEAR STEARNS: I think the credibility behind the statement that they can achieve operational profitability in Q4 of this year gained a lot of credence today, and that is something that we're looking for.
FRANCIS: Fueling the strength: revenues for electronics, and international sales were particularly robust. But some analysts are troubled that books and music, on which the company actually makes a profit, showed weak growth.
LAUREN COOKS LEVITAN, ROBERTSON STEPHENS: We still are pretty concerned about what looks like fairly anemic growth in the core categories, and an increased reliance in the categories where they are still losing a lot of money, which are the consumer electronics and international businesses.
FRANCIS: Analysts are pressing the on-line retailer for more details on its financials, like its potential need for cash and its relationships with partners. A narrower loss is unlikely to make those questions go away.
LEVITAN: I think the company, again, from its very inception, has been under a considerable amount of pressure to lift its veil. And so far, they have made some pretty decent strides in terms of giving us additional information, but there are still many things that we would like to understand better.
FRANCIS: While the stock surged on the news, it's still down more than 80 percent from a year ago.
FIELER: They need to continue to improve the efficiencies, but having done so for five quarters gives us confidence that that will continue, and yeah, we think it's worth the nail-biting.
(END VIDEOTAPE)
FRANCIS: Amazon says it still expects to have about $900 million in cash and securities on hand at the end of the year. One of Amazon's biggest critics, convertible bond analyst Ravi Suria, isn't around to cheer of jeer. He recently left his post at Lehman Brothers -- Willow.
BAY: All right, Bruce, thanks for bringing us a little bright spot today.
Well, with that good news, Amazon's stock enjoyed a blazing rally today in what was, overall, a lackluster session.
Let's go to Terry Keenan at the New York Stock Exchange with a look at all the action. So, Terry, the market wasn't able to sustain its early rally. Why not?
TERRY KEENAN, CNN CORRESPONDENT: No, it wasn't, and a lot of disappoint here. You remember last week, we had that 400-point rally on Thursday, absolutely no follow-through on Friday.
We started things out well here. The Dow was up 145 points, but the momentum couldn't be sustained. It's something we've been seeing since September.
Semiconductor stocks are the big problem here. We had two major downgrades, from Dan Niles and Jonathan Joseph at Salomon Smith Barney, each of them taking down their numbers on Intel for the first quarter. Intel, of course, is a Dow component that helped to pull the Dow lower as did some of the other tech components.
We did see some buying, Willow, though, in 3M, Boeing and United Technologies. All of those stocks, by the way, have been attracting money from the big growth stock funds, including the Janus fund. And that, apparently, is where some of the buying in those stocks was coming from today.
BAY: Terry, some buying in the Internet sector today, those stocks took off. Was that all due to Amazon?
KEENAN: You know, a lot of skepticism about that. As Bruce Francis just reported, the revenue numbers looked a bit stronger for Amazon, but sales only increased by 5 percent, and as we saw, the stock was up 34 percent today.
One factor may have been a lot of short-covering, people betting on the stock to go even lower. The short interest in Amazon was at a three-year high for the latest numbers that were available. Those were numbers for the month of March. So, that may have been a big factor in today's explosive push to the upside -- Willow.
BAY: All right, Terry, we'll check back in with you in the next half-hour. Thanks.
Next on MONEYLINE: the first detailed look at President's Bush budget. Where would he cut, where would he spend more, and just how would he slash taxes. The inside perspective on all of that, the economy and much more, with Treasury Secretary Paul O'Neill. He joins us next.
(COMMERCIAL BREAK)
BAY: The White House today unveiled the details of a $1.9 trillion budget.
Peter Viles reports from Washington.
(BEGIN VIDEOTAPE) PETER VILES, CNN CORRESPONDENT (voice-over): As advertised, the president's first budget is a lean one: spending increases for education and the military, but cuts in energy conservation, training for doctors at children's hospitals, and the program president Clinton championed to put more police on city streets. The budget also came with a warning to Congress to keep out the pork.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Washington is known for its pork. This budget funds our needs without the fat. It also represents a new way of doing business in Washington, and a new way of thinking. The budget puts the taxpayers first.
VILES: But the president's budget has already hit a road block in the Senate, where Republicans last week failed to hold the line on spending.
STAN COLLENDER, FLEISHMAN HILLARD: The big thing we learned last week is the president cannot simply command the Republicans to do his bidding, that he's dealing with a lot of very independent members who look at his mandate as being weak at best, and taking a look at the election results and saying: "This is every man, or every women, for themselves."
VILES: The president proposed a 4 percent increase in discretionary spending, 1.6 trillion over the next 10 years in tax cuts, but no tax cut in the current fiscal year. The Senate, with no appetite for reining in spending, last week added hundreds of billions in new spending, putting the rate of spending growth somewhere between 6 and 8 percent; cut back the 10-year tax cut to $1.2 trillion, but added 85 billion in retroactive tax cuts this year.
STEPHEN MOORE, CLUB FOR GROWTH: If you look at this budget, and you look at Republican priorities in Congress, there is a real conflict here, because Republicans in Congress want to spend a lot more than George W. Bush does.
VILES: Over the weekend, Vice President Dick Cheney said the president will use his veto power on the budget if necessary.
(END VIDEOTAPE)
VILES: Now it is early yet in the budget process, but talk of a veto does bring up an unusual image in this town. The spectacle of a president vetoing a budget that had been written and passed by his own party --Willow.
BAY: Peter Viles reporting. Thanks, Pete.
Joining us now for more on the budget, the outlook for tax cuts, and the economy, is Treasury Secretary Paul O'Neill.
Sir, welcome back to MONEYLINE.
PAUL O'NEILL, TREASURY SECRETARY: Nice to be here.
BAY: We just heard Peter Viles report that the Senate has already passed its own budget resolution where tax cuts are smaller and spending is larger than the president's plan. Is at least part of the president's plan dead on arrival?
(LAUGHTER)
O'NEILL: Absolutely not. The House of Representatives has also passed budget recommendations which are basically right in line with what the president recommended to them. And what happens now, Willow, is the House budget resolution and the Senate budget resolution will go to a conference committee and they will decide between them what the proper amounts are. And with the House being right on the president's numbers, the Senate being little bit off, the prospects are we're going to end up pretty close to what the president recommended in the first place.
BAY: Now, the Senate, as you well know, supports a trimmed-down 1.27 trillion in tax cuts over 10 years. Is that -- President Bush called it meaningful, but is that a number he could live with?
O'NEILL: Well, it's not enough, and I don't think we're going to have to live with that as a final number, because, as I said, the House and the Senate are going to compromise, and they're going to work out an agreement someplace between the president's number of 1.6 trillion and Senate number of 1.27 trillion. And so we'll end up something close to the president, I think.
BAY: Somewhere in between. Would you -- the Senate, of course, has approved quick tax relief. Is that something that you would support?
O'NEILL: Yes, indeed. The president has said that we would look forward to working with the Congress to provide meaningful stimulus money this year, retroactive to the beginning of the year. And so we're looking forward to working the details between the House and the Senate.
BAY: And do you have a preference for how that money is essentially returned to taxpayers, given back to them?
O'NEILL: For the moment, to be selfish, I have to tell you as the one who's going to have to have to oversee the administration, I'm hoping we can work out something that we can administer. But, yes, we'll have some preferences.
BAY: But what would -- what would that be, something you could administer, because, obviously that's a practical notion. What would that look like?
O'NEILL: Well, the most desirable notion is an extension of the marginal rate cuts that the president recommended, which would affect every income taxpayer, and made retroactive to the beginning of this year or maybe even to the beginning of the year 2000, so that we can take effect against the tax returns which will all be filed by the end of next week.
So we're looking forward to working out the details on how we put stimulus out there right away.
BAY: I'd like to get your take on the economy that you're trying to put some stimulus into. Last week's job's reports raised some troubling notions. Do you think that that number indicates that we are headed for a recession, or in fact, are in a recession?
O'NEILL: I don't think, and I've been saying now for the last three months, I don't think we're in a recession. I think we have a low, a moderate level of real growth. But when I hear the comments about the unemployment numbers and the shrill characterization of what this is, it's 4.3 percent.
And I think it's worth reminding people if you had asked 90 percent of the economists, not just in the U.S., but in the world, was it achievable to have a lasting unemployment below 5 percent with no inflation, 90 percent would have said, "Absolutely impossible." We've had it for five years. And it's not to say that we shouldn't each hurt and feel a sense of compassion for every single job that gets taken out of the economy, but 4.3 percent unemployment is a remarkable rate. The rate in France is twice that, and they think they're doing wonderfully well.
BAY: We keep hearing that we're in something called a profits recession. Do you think that's the case?
O'NEILL: Well, I don't know. Again, I'm paying attention to the numbers as they come rolling out now, as they're in the earnings season. And some of the early earnings numbers have been quite good.
There is a phenomenon going on with the new FCC reporting rules, I think, that requires complete disclosure as companies make changes in what they believe they can do in any particular time period. I think the FCC has really made a point with companies and they're no longer having a quiet conversation with the analyst community. When it looks like there's going to be any change in what was forecast, they dump it into the market. And I think that's different than where we've been, and it's not clear to me that in fact the earnings are different, but the process of announcing earnings seem to be different because of the SEC process.
BAY: Corporate executives, a role you know quite well, are clamoring for the Fed to do more. They're hurting and they want more action. What would you say to them?
O'NEILL: I'd say talk to Mr. Greenspan. He's in charge of monetary policy, and I'm not.
BAY: OK. I'd like to get your assessment, changing topics, if I may, of the situation with China. At what point does this standoff hurt our trade relations with them, or has it already?
O'NEILL: You know, I've had enough experience with working outside of my portfolio, and I think I'm going to leave foreign policy considerations, especially in this delicate time, to Colin Powell and the president and Condoleezza Rice. I'll come back again sometime and talk to you about trade in China, but I don't think this would be the appropriate time for me to do it, thank you.
BAY: Mr. Secretary, thank you very much for joining us tonight. We appreciate your time, and we do hope that you'll come back and talk to us another time on trade with China and any number of other issues. Thanks.
O'NEILL: I'd be happy to do it. Thank you very much.
BAY: Straight ahead on MONEYLINE, the outlook for chip stocks. I will talk with one bearish analyst, the influential Dan Niles. That's next.
(COMMERCIAL BREAK)
BAY: In tonight's tech watch: a bleak outlook for chip stocks. Influential analyst Dan Niles of Lehman Brothers came out with a stinging report today, saying 2001 could be the worst year ever for chip companies. He also slashed profit estimates for Intel, Texas Instruments, and Cypress. But the stocks, already beaten down, held up pretty well today despite the moves. Dan Niles joins us now to talk about why he's so negative on chips.
Dan, welcome back to MONEYLINE.
DAN NILES, FINANCIAL ANALYST: Thanks. Good to be back.
BAY: Why is this year going to be the worst one ever for chip stocks?
NILES: Because you have a whole bunch of different factors going on at once. If you contrast to 1996 when we had a sharp downturn in the industry, the PC market was the only bad end market, wireless and networking were doing well. And the U.S. economy was accelerating from 2 percent growth at the end of '95 to 4 percent growth at the end of '96.
You still had a problem if you compare that to today, obviously, the U.S. economy is decelerating. Wireless, networking, and PCs are all bad and there's some sign the weakness could be spreading overseas. So, you put it all together, and you're in a pretty rough environment right now.
BAY: So, could you rate the factors? How much, how much is it the economy and how much is it more industry specific issues?
NILES: Well, I honestly think that a good portion is this is more industry specific. Everybody wants to blame the economy, but if you go back and actually look at it, we were only really talking about weakness in the U.S. economy late in Q4.
The wireless industry was slashing their forecast in the early part of 2000. The networking sector -- Lucent and Nortel -- had problems in the March and September quarters before we're even thinking about recession. And PC stocks blew up during Thanksgiving. So, I don't think you can go and put this on economy's doorstep. A lot of this was happening way ahead of that. BAY: When do you see a bottom in this process? How far out do you have to look?
NILES: Well, the good news I'm hoping, a bottom is sometime towards the end of this year. The bad news is you might hit the bottom and sort of stay there for a while in what I call sort of a U or bathtub shaped recovery, not this V shaped recovery that everybody is looking for.
So, to some extent, similar to the mid '80s where you kind of hit bottom but then you stayed at those levels for a couple of years.
BAY: What should investors do at this point? If, for example, let's start if their holding to Intel or Texas Instruments or Cypress?
NILES: Well, I think what they should do is sit back and say, you know, how much do I have invested in the market? How much do I have in tech in particular? And If fundamentals continue to get worse, is go ahead and diversify a little bit. Treasury bills aren't bad.
BAY: Are you suggesting that they sell those stocks?
NILES: I mean, I think a lot of investors are still way overweight. I get calls all the time, you know, it's down so much; how much longer can it go? And I remind them what happened to the Internet space or with the Cisco Systems, in a different area.
BAY: So, when folks say Intel; it's looking pretty cheap around 23. Hey, it's already down 60 percent, you say...
NILES: Well, why do you think it's cheap? Just because it's at 23, it's trading close to five times sales. The old low, it was close to three times sales. So, it's actually pretty expensive, relative to where it was trading in 1996. So, I just give them the facts.
BAY: All right. Thanks for giving us the facts. Dan Niles, as always, good to have you with us.
NILES: Thanks, Willow.
BAY: Coming up, the White House and Beijing at logger heads over that detained flight crew in China. We'll get the latest on efforts to win their release.
Plus, the financial fallout from the standoff, we'll check out what the impasse may mean for high tech exports.
(COMMERCIAL BREAK)
BAY: Coming up in the next half hour of MONEYLINE, trillions of dollars lost in the market rout on Wall Street, but what about those stock options that are now worthless? Terry Keenan goes behind the numbers on a fortune lost.
And one of the oldest names in aviation is flying off into history. TWA is officially bought out by American Airlines.
Plus, the biggest name in software wants a piece of the action in Hollywood. What Microsoft may mean for the movie business.
(COMMERCIAL BREAK)
BAY: In tonight's headlines, a critical earnings season kicked off this week. Could Wall Street be heading into even rougher waters?
And a big step in the California power crisis: Governor Gray Davis says Edison International will sell its transmission lines to the state to prevent bankruptcy.
And as the China standoff continues, we'll look at the possible impact on America's high-tech exports to world's most populous nation.
But first: an up day on Wall Street, but getting there was not all smooth. For the Nasdaq it was a tug-of-war between the dot-coms and the chips stocks. Internet shares were propped up by positive news from Amazon.com, but semiconductors got hit on negative comments. It seems the Internet stocks won; the Nasdaq finished up 25 points, or 1 1/2 percent at 1,745.
The Dow managed to spend most of the day in the plus column, on strength of the likes of Alcoa, Dupont and General Electric. The index closed up 54 points, at 9,845.
The broader market also posted gains on the session, the S&P climbing 9 points at 1,136. Some of the biggest movers on the day: 3M, Merck, UTX, Ciena and Cisco, all heading higher.
Despite today's gains, the Nasdaq is down about 65 percent from the highs it set 13 months ago, spurring talk about the negative impact of that lost wealth on household worth and on consumer confidence. But investment losses aren't the only factor: for millions of Americans, the value of their stock options has also vanished. Terry Keenan take a look behind the numbers. Terry, what did you discover?
KEENAN: Well, Willow, much has been made of more than $4 trillion in paper wealth that has disappeared since the Nasdaq began its swoon last spring. That numbers is only part of the story.
In addition to those investment losses, millions of Americans have lost hundreds of billions of dollars in potential gains in the stocks that they probably know the most about, that's the stocks in their own companies.
During the bull market of the 1990s, options grants rose 10-fold from just one million employees in 1992 to 10 million employees at the height of last year's bull market. Many of those employees became paper millionaires. Although there is no official figure on the value of those options when stock prices peaked, experts estimate that at least 40 percent of employee options in technology companies are now under water, that is worthless. And the loss in paper wealth is substantial, perhaps as much as $500 trillion. (BEGIN VIDEO CLIP)
CLAUDE JOHNSTON, PEARL MEYER & PARTNERS: I think in the senior executive pay today, probably the biggest issue we faced in the last year has been groups, and teams, and teams of executives who have seen their options go under water. What had been enormous profits are now totally under water.
(END VIDEO CLIP)
KEENAN: In fact, the reverse wealth effect of that worthless stock investments and the stock options had had a big impact on household wealth. All told, household wealth and stocks, that includes exercise stock options, shrunk by 2.3 trillion in the fourth quarter of last year, according to the latest figures from the Federal Reserve. Losses in 2001 could be even more substantial.
Some companies, including Amazon.com, Inktomi and AMD, have already tried to soften the blow to keep their employees happy by repricing those options at much lower price. But such moves are very unpopular with shareholders, and they certainly won't be enough to reverse the economic impact that the options meltdown is having on consumer sentiment, not to mention employee moral -- Willow.
BAY: Terry, I hate to pile on the problems, but then you add to that possible tax implication, right?
KEENAN: That's right. Adding insult to injury, a lot of people exercised their options early last year, but held on to the stock so that they would have better tax consequences and be taxed as short- term gain, not a long-term gain -- excuse me, as a long-term gain and a short-term gain. And so, therefore, those people are facing a big tax bill, even though their options are worthless. So, a big mess for those employees who got a bit too greedy last year.
BAY: All right, Terry Keenan, thanks. Terry Keenan at the Big Board.
A negative wealth effect, a bear market and a tough quarter for corporate profits. Our next guest says investors better be prepared. Joining us now is Frank Gannon, portfolio manager at SunAmerica Asset Management.
Frank, welcome.
FRANCIS GANNON, SUNAMERICA ASSET MANAGEMENT: Good to be here.
BAY: All right, better be prepared. How bad is it going to be? What should investors be prepared for?
GANNON: Well, I think expectations continue to come down almost daily now, weekly. We have seen them continue to come down, in terms of at least the first quarter. But I think by the same token, you have to understand that there have already been a lot of bad news already announced or pre-announced to the market place.
BAY: So, what does that mean in terms of bad news, how much of the bad news is priced into these stocks already?
GANNON: Well, it's going to be sector by sector and stock by stock, so it's going to be difficult to tell. Most importantly, it's going to be interesting to see if companies not only make their numbers, but more importantly is going to be their guidance going forward, and I think that's going to be the key for the market's direction in the next couple of weeks.
BAY: We keep saying over and over and over again, it's not the numbers, it's the visibility going forward that we're really going to have to struggle with?
GANNON: Visibility has become the biggest cliche on Wall Street of late.
BAY: A cliche but...
GANNON: But it's true. I mean, you have to look at it from the standpoint -- I think in its most simplistic form, you have to try to look at it from the standpoint in that people's investment horizons have to change. At the end of 1999, the beginning of 2000, we were investing for five years, because it was the only way we could justify the multiples on the stocks.
Today, we're investing for two days, perhaps a morning or an afternoon. And I think you will see over the next couple of months people's investment horizons will kind of expand. And if that happens, you think the economy will be better in a year from now, which I think it will, because you've monetary and fiscal policy working for you. And by the same token, I think the visibility, the cliche right now, will be much better, and multiples should be higher at that point.
BAY: So, you're saying look at year-out?
GANNON: I'm saying look six to 12 months. If you believe the economy is going to be better in that timeframe, which I think it will, because you've got a tax break of some kind coming -- still being worked out -- and the Fed on our side, I think the tug-of-war between a more accommodative Federal Reserve and falling corporate profits will be won by the Federal Reserve.
BAY: What should investors do? Would you suggest investors put money in the market at this point?
GANNON: I think you have to put money in on a consistent basis. Cost averaging right now, dollar/cost average, as everybody says...
BAY: Where?
GANNON: That's a good question. That's what we're trying to figure out ourselves right now. What are the sectors that are going to outperform on the way up? People keep saying that it's -- same old leaders aren't going be the new leaders in this marketplace right now. So, we're trying to find companies that have reasonable valuations, with growth rates that we think we'll be better than the overall market.
BAY: Couple of names?
GANNON: I like Johnson & Johnson at these levels. I think it's come down, and it would be opportunistic for us. I also like Calpine, another stock that has come down last week because of some of the energy problems in California, and I'd even be buying Honeywell as a cheap way to be buying General Electric at current levels.
BAY: OK, Frank, you're going to stick around and join us at the end of the show.
GANNON: Yeah.
BAY: Thanks, Frank Gannon.
Some late news to tell you about on the California power crunch. Governor Gray Davis and Southern California Edison reached a deal late today for the state to buy the transmission lines from the cash- strapped utility. Under the agreement, California will pay $2.7 billion for SoCal's power grid, and the utility will drop its lawsuit against California over electricity rates.
The deal is intended to keep SoCal solvent, after Friday's announcement by California's largest utility, Pacific Gas & Electric, to declare Chapter 11 bankruptcy. Stock in Edison International, the parent of SoCal Edison was up more than $2 in after-hours trading, before it was halted.
Coming up on MONEYLINE: the China standoff drags on. Could trade relations and tech exports soon take a major hit? And as the PC market struggles, Microsoft look beyond your computer to the big screen, when MONEYLINE returns.
(COMMERCIAL BREAK)
BAY: Little sign today of a quick resolution to the spy plane standoff, but diplomatic efforts are ongoing. Major Garrett has the latest from the White House. Major, what can you tell us?
MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT: Good evening, Willow. Well, the president of the United States has been carefully calibrating all of his public utterances about the standoff with China. He's also carefully calibrating the words of the administration in private.
U.S. officials tell CNN that a third drafted letter to the Chinese government that might end this standoff has been returned by the Chinese government. A fourth is in the re-drafting stages. So diplomatic challenges remain open, communication remains open between the two sides to find precisely the right language, at least privately, at this point, to end the standoff.
Publicly, the president today joined a chorus of senior administration official who spoke out yesterday, all with the same message to the Chinese government, that the longer this standoff drags on, the more damage could be inflicted on the U.S.-Chinese relationship.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Every day that goes by increases the potential that our relations with China could be damaged. And our hope is that this matter gets resolved quickly.
(END VIDEO CLIP)
GARRETT: Couple of interesting developments also, today, Willow. The president's envoy, or representative from the military on Hainan Island, got to see the 24 crew members, all of them today. U.S. officials describe that as a positive development. And also, some new information about the aircraft itself when the midair collision occurred. Officials say that it was flying in autopilot and made no swift or radical movements in the air, undermining the Chinese allegation that it was the U.S. spy plane that caused the collision -- Willow.
BAY: Major, is the White House hearing from the business community about the China standoff?
GARRETT: I can tell you this, Willow. They were expecting to have heard from the business community by now, that it was concerned that this standoff could cause a swift and rapid deterioration in U.S. relations with China on the question of trade. But so far, senior administration officials tell CNN the business community has remained calm about the situation.
They believe that's a reflection that the business community is following the president's lead in stressing the importance of taking this on a diplomatic tact, and not moving to remove any of the legal relationship between the United States government and China on trade. But they also acknowledge that the business community will not remain relaxed forever, and that the sooner this is resolved, the better off, not only for the White House, but the business community -- Willow.
BAY: Major Garrett reporting tonight from the White House. Thank you.
As the China standoff continues, some fear that those critical trade relations between the two countries will be seriously damaged. And there is one sector that was the center of controversy well before the spy plane collision: sensitive high-tech exports from the U.S.
Allan Dodds Frank looks at whether the White House will be forced to crack down in tonight's MONEYLINE focus.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): China has long sought American technology to boost its military might. But the current spy plane standoff may push the Bush administration to slow down the export of American-made high-tech equipment to China.
STEPHEN BRYEN, FORMER DEFENSE DEPARTMENT OFFICIAL: We're entering a confrontational period with China, whether we like it or not, that affects out interest in the Pacific. And a lot of the technology that has been transferred over the past eight years is quite sensitive technology; super computers, GPS systems, fiber optics -- which is one of the things that gives the Chinese the ability to hide their military communications from us.
FRANK: The new administration's appointees who will handle China trade are not all in place yet. But some arm's control advocates want to crack down on licensing technology called dual use, which can be used for civilian and military purposes.
GARY MILHOLLIN, DIRECTOR, WISCONSIN PROJECT ON NUCLEAR ARMS CONTROL: We're going to start with high-tech trade, because that's what China needs from us. China is selling us Christmas tree ornaments and importing supercomputers. The net result is that China is boosting its infrastructure, and what we're doing is saving money on things that we can buy from, say, Singapore.
FRANK: U.S. companies exported more than $16 billion worth of goods to China last year. Top U.S. companies doing business with China, among them, Motorola, IBM, Intel, and Sun Microsystems, want the spy plane episode to end soon, before momentum mounts for trade restrictions.
DAVID MCCUROY, PRESIDENT, ELECTRONIC INDUSTRIES ALLIANCE: In the semi-conductor area, and in the chips and the computer area, that has such a major impact across the board. That's what we're extremely concerned about.
FRANK (on camera): Wall Street is waiting to see just how Congress will approach the issue of trade with China if the spy plane situation is not resolved quickly.
Allan Dodds Frank, CNN Financial News, New York.
(END VIDEOTAPE)
BAY: Coming up on MONEYLINE, American and TWA toast a done deal. We'll bring you the latest news from the skies next.
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BAY: In tonight's sector focus: airlines. After some last- minute holdups, AMR closed its $742 million buyout of TWA. American now reigns as the world's largest airline, a title it will hold just briefly, until UAL completes its purchase of US Airways. Today's closing was a bittersweet moment for TWA employees.
(BEGIN VIDEO CLIP)
NEDRA ROSEN, FORMER TWA FLIGHT ATTENDANT: For those of us who were with TWA for so many years, it's sad, it's very nostalgic. But for the majority of all of the employees that are currently at TWA, and because of all the very difficult years that TWA's had, recently and in the past decade or so, I am so happy for the majority of those that they will be employed by American. (END VIDEO CLIP)
BAY: Also today, news from Northwest Airlines, the company reaching a deal with its mechanics early this morning. The move marks an end to four years of stalled negotiations. President Bush intervened to stop a mechanics' strike at Northwest just last month.
And optimism for a labor deal at Delta. Pilots saying they believe a contract can be reached in time to avert a strike. Delta pilots can legally walk out on April 29th, but their peers at Comair, Delta's regional airline, have already been on strike for two weeks.
Checking these stocks today: AMR edged lower, while Northwest and Delta both finished higher.
Coming up on MONEYLINE, Microsoft going Hollywood to boost its bottom line. Beyond the PC business, when MONEYLINE returns.
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BAY: In today's corporate headlines, Bank One is building up its credit card business, buying an $8 billion portfolio from rival, Wachovia. Bank One already owns First USA, the nation's largest issuer of Visa cards, and will gain another 2.8 million credit card customers through the Wachovia deal. Exact terms were not disclosed, but both stocks did gain fractionally on the news.
And NBC is buying out its troubled Internet division, NBCi. NBC, the broadcasting unit of General Electric, will pay $86 million, or $2.19 a share, for the piece of NBCi it does not already own. Now, that's a 48 percent premium over Friday's close, but a far cry from NBCi's golden days.
Since January 2000, NBCi has fallen 98 percent from its high of more than $100 a share.
In our "MONEYLINE Movers," Level 3 Communications added 1 1/4 after winning a key contract to deliver digital content for Yahoo!. Although exact terms were not disclosed, Level 3 says it is a "multiyear, multimillion dollar deal."
Triton Energy gained more than 2. Merrill Lynch upgraded the oil exploration company on news it has found new oil fields off the coast of West Africa.
And Home Depot fell more than 1 1/2 on concerns that a cold and rainy spring is hurting do-it-yourself sales. Home Depot also issued another $500 million in debt today. The stock is off nearly 40 percent over the past year.
A look now at a new venue for Microsoft, software to help deliver movies digitally. The company along with many of its high-tech partners is struggling to cope with slower growth in the PC business. That's a key reason why Microsoft is looking elsewhere for growth opportunities. In this case, it's looking to Hollywood.
Steve Young reports.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): With the PC market maturing, Microsoft hopes the silver screen can be a silver lining and it's trying to hitch its star to Hollywood, or more precisely, to hook the movie capital on its Windows Media Video 8.
The software offers studios strong copyright protection as part of a system that can pump digital movies straight to the cinema: no more having to cart around all those cans of film.
DAVID FESTER, MICROSOFT: Today, it actually takes quite a bit of time, so this makes it immediately possible that you can distribute films out to theaters. And more importantly, the quality of the film never "degradates." Right? It always stays really high quality.
YOUNG: It could also boost Hollywood's bottom line. The studios release about 150 major feature films a year and make 2,000 prints of each at a cost of around $10,000 a copy, 3 billion bucks. Tinseltown would find it lucrative to light up the screen without lugging around film, but that would give Microsoft power over the movie business.
It tried and failed to become a singularly powerful player in cable TV. The industry vowed never to let Microsoft, or any one company, dominate set-top box software. But analysts say look to history and you'll see Hollywood just might green light Microsoft's technology.
CHRISTOPHER DIXON, UBS WARBURG: Not only did we see Western Electric become the dominant provider of sound with Warner Brothers back in the early '30s, but as recently as 15 years ago, Blockbuster was able to become the dominant provider of renting home movies because the movie industry really wasn't willing to take on the risk of carrying the inventories of all those cassettes.
(END VIDEOTAPE)
YOUNG: Of course, Microsoft Windows isn't the only way to do digital distribution. Hollywood could just print DVDs and ship them by Federal Express -- Willow.
BAY: There you go, Steve. That's an idea. Steve Young reporting, thank you.
BAY: Technology, of course, is just one of the issues facing Hollywood these days. Labor troubles are taking center stage. But there may be hope in averting a strike, at least a writers strike.
Late today, the Writers Guild said it will resume talks with the Alliance of Motion Picture and Television Producers next Tuesday. Their contract is set to expire May 1. Talks had broken off last month.
Up next, is all the bad profit news already priced into the market? We'll ask Myron Kandel. 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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BAY: Tomorrow on MONEYLINE, an after-the-bell report from a critical Big Board stock. Motorola, out with quarterly results. We'll look at how it's weathering the economic slump. Tomorrow on MONEYLINE.
Taking a look at some of what could move the markets tomorrow, keep an eye on shares of Edison International, up in late trading before they were halted: that after California reached a deal to buy transmission lines from the cash-strapped utility.
Earnings season begins with reports from Motorola, online broker E*Trade and Harley Davidson.
And to stay a step ahead of the markets, tune in to "AHEAD OF THE CURVE" tomorrow at 5:00 a.m. Eastern right here on CNN.
As we just noted, the critical earnings season kicks off this week on Wall Street. So just what should investors be prepared for? Our financial editor Myron Kandel joins us and Frank Gannon of Sun America is back with us as well.
So what should investors be prepared for this week?
MYRON KANDEL, CNN FINANCIAL EDITOR: Well, we got off to a good -- it's a four-day week because of the Good Friday. We got off to a good start and we're going to probably get off to a good end looking ahead on Thursday.
BAY: A good end you're saying.
KANDEL: A good end to the week.
BAY: And why is that, Myron?
KANDEL: Because the day before Good Friday, when it falls in April, is traditionally a strong day. And I checked these figures with Yale Hirsch, who publishes "The Stock Trader's Almanac." Six of the last eight days before Good Friday in April were up days for the Dow. Not only that, the last...
BAY: Six of the eight of those Thursdays the market closed positively?
KANDEL: Yes. And...
BAY: How much?
KANDEL: The last three years, they averaged 100-point gain each day. So, that's a good sign for the rest of this week.
BAY: So, Frank, should we expect some April showers to rain on Myron's forecast?
GANNON: I hope not. I'd love to see that happen. To be perfectly honest with you, that would be great.
A couple of things that I (UNINTELLIGIBLE) in the market today was volume was extremely light. You know, we had a very interesting day with very light volume. I think it could be a relatively quiet week.
There were expectations in the market today that people were talking about the Federal Reserve might be doing an intermeeting easing based upon the number we saw last Friday.
And the other big thing that Thursday is going to bring this market is retail sales for the month of March, which could be disappointing for a lot of people as well.
So there's going to be a lot of mixed bags of information this week that we have to watch in terms of from an economic standpoint as well as a stock standpoint with earnings...
BAY: Now, Myron, is sort of hoping, counting perhaps, on an interim rate cut by the Fed to give a little boost to the markets. Are you?
GANNON: Yeah, I'd love to see that, to be perfectly honest with you. And it goes back to what I was kind of alluding to before, that we've been in this tug-of-war between the Federal Reserve and falling corporate profits. And I think that if we get more good news from the Fed...
BAY: That would be a tug in the right direction?
GANNON: A tug in the right direction.
KANDEL: Frank and I, by the way, both expecting an intermeeting cut.
BAY: Save that for tomorrow.
KANDEL: OK.
BAY: As usual, Myron Kandel, Frank Gannon, thank you.
That is MONEYLINE for this Monday. I'm Willow Bay. Good night from New York. "CROSSFIRE" is next.
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