Return to Transcripts main page
Lou Dobbs Moneyline
Dow Rockets 163.37 to 10,898.34; Nasdaq Climbs 52.00 to 2,168.24; Congress and Bush Administration Reach Budget Agreement
Aired May 01, 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: Republicans make a deal. Are tax cuts finally on the way?
This is MONEYLINE for May 1, 2001.
The president applauds Capitol Hill Republicans for backing the biggest tax cut in decades.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: This is a great day for the American people and the American taxpayer.
(END VIDEO CLIP)
BAY: Will Democrats go along?
On Wall Street, the bulls charge ahead. The Dow soars to its highest level in months. The Nasdaq surges for the third straight session.
The clock ticks closer to a critical deadline for Hollywood writers, but there's hope that this drama won't end with a crippling strike.
And are teens turning away from the heroes of sports? What would that mean for the companies that built their brands on star athletes?
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.
BAY: Welcome to MONEYLINE. We begin tonight with a tax deal on Capitol Hill. Republicans in the Senate and the House today agreeing to a budget which includes a $1.35 trillion tax cut spread out over 11 years. It would be the most aggressive tax cut in decades, but it is smaller than the plan Bush had been proposing.
We have complete coverage tonight with Jonathan Karl on Capitol Hill and John King at the White House. We begin with Jonathan -- Jonathan.
JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Well, Willow, Republicans up here are noting that, of course, this tax deal, this deal that is tentative still, falls about $350 billion short of what the president wanted. But even so, they're calling this a significant step towards passing the most -- biggest tax cut in a generation.
But more importantly the moderate Democrats, who here in a 50/50 Senate can really be the balance of power, are also saying that they like what they hear in this deal.
(BEGIN VIDEO CLIP)
SEN. MAX BAUCUS (D), MONTANA: I think it's encouraging news. From what I hear, the amount is very similar to what we passed in the Senate. Instead of $1.2 roughly over 10, it's $1.35 over 11 years and that's very much in the ballpark. That's encouraging. I haven't seen the fine print, none of us have. There's no definite agreement yet, but it's in the ballpark, and my guess is that a significant number of Democrats will support it.
(END VIDEO CLIP)
KARL: Now the deal makes room for a tax cut that's about $500 billion bigger than the tax cut that had been proposed by Democratic leaders. But even so, the top Democrat in the Senate, Tom Daschle, also praised the deal, although he said he, in the end, would vote against it. He said it was at least a step in the right direction.
(BEGIN VIDEO CLIP)
SEN. TOM DASCHLE (D-SD), MINORITY LEADER: This represents a 22 percent reduction in the president's initial proposal. So, we're moving in the right direction and obviously now we have to see what kind of tax package this will include.
(END VIDEO CLIP)
KARL: Now, Willow, this is not finalized yet. As a matter of fact, House and Senate negotiators are with White House negotiators right now trying to come to an agreement on this budget outline. What they have not agreed to is exactly how much spending would increase over the next 10 years.
The House passed spending increases significantly larger than the House -- the Senate increases were significantly larger than the House, so that's being worked out. And then even once that is finally done, the negotiators up here are going to have to get back to work and figure out exactly what the composition of this tax cut will be. Of course, they will have to squeeze the $1.6 trillion worth of tax cuts the president proposed into a smaller package of about $1.35 trillion -- Willow.
BAY: So progress, Jonathan, but clearly more work ahead?
KARL: Absolutely.
BAY: Thank you. President Bush was quick to welcome the news. We go now to senior White House correspondent John King. So, John, is it a victory for the president? JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: The White House certainly believes so, Willow. Certainly, the president did not get everything he wanted, but with a tax cut of more than $1.3 trillion over the next 11 years, the president believes he can make the case to the American people that in his early days in office, he is getting things done and getting things done that are consistent with his major campaign promise.
The president came into the rose garden here at the White House to celebrate this agreement today, and he said not only is it a great day for the American taxpayer, but in the president's view, a recipe for things to come.
(BEGIN VIDEO CLIP)
BUSH: Today's agreement has a larger message as well. By finding common ground on an issue that divided the two parties throughout last year's campaign, Republicans and Democrats have today proven we can work together to do what is right for the American people. Achieving the agreement on significant tax relief can help pave the way for consensus on other vital issues, including reforming our public schools, strengthening Social Security and Medicare, and transforming our national defense.
(END VIDEO CLIP)
KING: Now in reality, very few Democrats actually involved in these negotiation, as Jonathan Karl noted. Both of the Democratic leaders, in the House and the Senate, opposed this tax cut deal in the end, but the president hoping here by working with that small group of moderate Democrats, especially in the Senate, he has found a formula, as the debates continue, for negotiations on spending under way. Other major debates yet to come, including an announcement tomorrow morning here for the new Social security commission -- Willow.
BAY: So John, are you suggesting that this was not quite as bipartisan as the president wants American taxpayers to think?
KING: Well, it depends on how you define bipartisanship. The Democratic leaders says bipartisanship means cutting deals with Dick Gephardt and Tom Daschle, the Democratic leaders of the House and Senate. The White House says bipartisanship means getting enough votes to secure a victory. And in this case, tax cuts, they went to the moderate Democrats: John Breaux or Louisiana, Max Baucus of Montana.
So, it depends on your definition. Welcome to the world of Washington politics.
BAY: Exactly. John King, thank you. Coming up on MONEYLINE, much more on the tax cutting plan with one of the most powerful Republicans on Capitol Hill, House Majority Leader Dick Armey. He'll be our guest.
On Wall Street today word, of the tax cut seemed to give investors a shot of adrenaline, as did Procter & Gamble beating expectations with quarterly profits. That drove a big rally on the Dow, jumping 166 points to end at 10,898, its highest close since mid- February. The Nasdaq surged 52 point, gaining ground for the third straight session. Since last Thursday, the index has gained 6 1/2 percent. The S&P gained nearly 17, ending at 1266.
Taking a look at some of the Dow winners, P&G soared on that profit news. Also advancing, retailers Home Depot, Wal-Mart, Coca- Cola and tech giant, IBM.
Another factor fueling optimism today, hope that the worst may be over for a pivotal part of the economy, manufacturing. The sector has been gripped in a recession for months, and the latest snapshot of factory activity shows that conditions are improving. But is it enough to say that manufacturing has turned the corner?
Lisa Leiter reports.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT (voice-over): Sparks aren't exactly flying in the factory floor these days, but after one of the worst manufacturing downturns ever, business is looking better for companies like Goodman Equipment, a maker of underground trains for mine and tunnels.
CALVIN TINK CAMPBELL, GOODMAN EQUIPMENT: What we're looking at now, from a standpoint of orders received as well as prospects, they're up this year versus last year.
LEITER: Nationwide, a key gauge in manufacturer sector rose slightly in April, for the third straight month. The index still shows factory business is declining, but at a slower pace.
ART STEINMETZ, OPPENHEIMER FUNDS: The inventory correction is continuing, but the new orders number did pick up rather nicely. So, there are some signs that despite the fact that businesses do have more inventory to work off, that things are looking a little bit brighter for the future, here.
LEITER: While some say this marks the beginning of recovery, others are not so sure. The survey of the nation purchasing managers found that more than half expected decline in new equipment spending, more than half can not pass along their higher wage and commodity cost, and 38 percent are worried or pessimistic about the economy, the highest number recorded since the survey began 40 years ago.
And because business can't pass along those higher cost, they are laying workers at an aggressive pace. Factories slashed a half million jobs since last July.
DAVID LITTMAN, COMERICA: The only way to do that and keep any profits at all to satisfy Wall Street or international community is to layoff the marginal workers, and that will continue all of the rest of this year.
LEITER: But Goodman Equipment has actually hired a few new people, hoping for a rebound.
CAMPBELL: I'm upbeat on the economy. I think business investment is going to go on.
(END VIDEOTAPE)
LEITER: Overall, manufacturers do seem split on whether the worst is over. Fifty-six percent of those surveyed said they do expect business will be better in the second half of the year, and those four interest rate cuts by the Federal Reserve so far will certainly help -- Willow.
BAY: Lisa, did today's report change expectation about what's ahead in terms of rate cuts?
LEITER: It did, Willow. Actually, the bond market increased the chances for more rate cuts by the Fed. They are now fully pricing in in the bond pits another half percentage point worth of rate cuts between now and the end of June, and we'll see if they come in quarter point increments or one big half-point cut at that May meeting.
BAY: We will, indeed. Lisa Leiter in Chicago. Thanks.
Manufacturers showed some improvement last month, but auto- makers, in particular, did not. Business for the top companies was hit by a sharp decline in consumer confidence, which matched a 4 1/2 year low in April. GM, Ford and DaimlerChrysler all suffered double- digit declines in U.S. sales during the month.A mixed reaction on Wall Street: Ford fell, while GM and DaimlerChrysler gained just fractionally on an up day for the markets.
Next on MONEYLINE, a missile defense plan for a post-Cold War world: The president's controversial blueprint.
Is this the picture of a dot-com survivor? On top analyst says yes. Will Priceline and some other net names make it through the storm.
And later, will companies connected to sports take a hit if teams turn their focus away from big-time athletics? A special look.
(COMMERCIAL BREAK)
BAY: May Day protests in London today: the 1st of May, celebrated as Labor Day around the globe, was marked by demonstrations against issues ranging from capitalism to globalization to military armaments.
Also far from U.S. shores, a team of U.S. technicians arrived in Hainan, China today, on a mission to survey a Navy EP-3 surveillance plane involved in a collision last month. The team, from Lockheed Martin, the EP-3's contractor, will get a chance to inspect the plane tomorrow. This to determine whether the plane can still be flown, or must be sent back to the United States in pieces. China, as you know, freed the plane's crew after 11 days in detention. Another issue likely to complicate U.S.-China relations made headlines today when President Bush unveiled a framework for a missile defense system. The president called for the scrapping of a 1972 treaty with Russia on anti-ballistic missiles, which served as one of the major arms control treaties of the Cold War.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We must move beyond the constraints of the 30-year-old ABM treaty. This treaty does not recognize the present or point us to the future. It enshrines the past.
No treaty that prevents us from addressing today's threats, that prohibits us from pursuing promising technology to defend ourselves, our friends and our allies is in our interests, or in the interests of world peace.
(END VIDEO CLIP)
BAY: Bush also said he called Russian President Vladimir Putin to assure him that the U.S. rivalry with Moscow was a thing of the past.
To put the missile defense plan and its international implications in context, we're joined by Lawrence Korb, director of national security studies at the Council on Foreign Relations. Welcome to MONEYLINE.
LAWRENCE KORB, COUNCIL ON FOREIGN RELATIONS: Nice to be with you.
BAY: The president made it clear he announced his plans for a global missile defense system, pushing aside the 30-year ABM treaty. Can talk of the 21st century arms race be far behind, even if it is so-called defensive arms?
KORB: The problem is not so much with the Russians right now, because they don't have the money, really, to start an arms race. The problem is much more with China. They have the money.
They have a very small missile force, they only have about 20 missiles that could reach the United States, and they're liable to have to expand that if we go ahead with the missile defense. If they do that, India is liable to try and match China, and Pakistan, India.
That's the real danger to stability. We could end of spending a lot of money and be a lot less safe at the end.
BAY: How much support will this get from American taxpayers if, as you suggest, they will be faced with the plan to spend enormous sums of money on questionable, at best, technology?
KORB: If you put it in today's dollars, we spend over $100 billion trying to develop a defense against ballistic missiles; we haven't done this yet. I think if you have a for few more failures, like we've had in the last couple of years, taxpayers are bound to rebel, particularly since Bush wants to add another $25 billion a year to defense over and above where it is now.
BAY: And the most compelling argument, if President Bush is to sell this to American taxpayers for it, is what?
KORB: Well, it is that we are threatened by the so-called rogue nations and we need to have a defense against that, because if one of these nuclear weapons should get through, the damage could be catastrophic.
BAY: What is the likely sales pitch, as President Bush announced today, he will send his teams to meet with our allies to lay out this proposal?
KORB: Well, I think what he'll say is that you too could be threatened if you're an ally of the United States and we will work with you, possibly share the technology, maybe at a low cost for you to be able to defend yourself.
BAY: What is the likely reaction to be, first of all, let's start with Europe?
KORB: Well, I think the Europeans will be very concerned if the Russians decide to withdraw from a lot of other treaties, if with abrogate the anti-ballistic treaty. We have the Nonproliferation Treaty, we have the Missile Technology Control Regime, and they may start selling weapons to other countries.
Europeans think we're way overreacting to threat to the so-called rogue nations, but since they want to keep on the good side of the United States, they will probably go along somewhat reluctantly.
BAY: What about Russia?
KORB: Russia is liable to see this as another slap in the face, because we've expanded NATO, we haven't give them the money they thought at the end of the Cold War, and to abrogate this would be psychologically to say, well, you're not important anymore, we don't have to pay attention to you.
BAY: We got a preliminary look today at the Defense Department's spending plan. Is it clear from that first glimpse of that anti- missile defense system is a spending priority?
KORB: Very definitely, because they are talking about adding $9 billion over the next couple of years to the program, which is already costing close to $30 billion.
BAY: The president -- excuse me -- Department of Defense announced or at least release its plan to ask for increase spending, an increase of 42 percent or $25 billion. Does our Defense Department need it?
KORB: I don't think so. That would put us over what we spend on average during the Cold War, which is really ridiculous. If you take a look around, certainly, the world is not a completely safe place, but we don't face anywhere near the threat we did during the Cold War when the Soviet Union...
BAY: And we don't need it to modernize?
KORB: Well, sure, we need to modernize. But you don't need to spend nearly a $100 billion to modernize; you could easily do it for $50, if you buy the right weapons.
BAY: Larry Korb, thanks for joining us tonight.
Coming up, the comeback of a dotcom debacle, how Priceline is fighting its way out of the doghouse.
Plus later in the program: Hollywood counts down as studios and writers try to make a deal.
(COMMERCIAL BREAK)
BAY: In tonight's tech watch, late breaking news from Priceline- dot-com. The famously troubled Web site, delivered a nice surprise after the bell, posting a narrower than expected loss after of 3 cents a share. The company also confirmed second quarter targets, and says cost cutting plans are ahead of schedule. In after hours trading, the stock up 76 cents to $7.35, that after gaining nearly 40 percent in the regular session.
Priceline's enormous rally was prompted by an upgrade from Goldman Sachs analyst Anthony Noto. Noto's outlook is more bullish than most, but some investors are betting on his forecast that Priceline may be one of the few dot-coms to survive and thrive in the future. And Priceline may not be alone. Steve Young has the story.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): Since the bubble burst lots of Internet companies been on life support of have left planet Earth, But one of them -- Priceline -- just got a welcome shot of adrenaline in the form of an analyst upgrade, to "market outperform."
It's losing less money and might be even be profitable this quarter according to Goldman Sachs analyst Anthony Noto. He says management has right-sized the business, improved customer service, stabilized growth, and the stock should show solid appreciation. After a year of carnage, April was kind to Priceline and some other companies that followed a strategy espoused by CEO Jeff Bezos to get big fast.
Amazon itself nearly doubled in price last month. Priceline also nearly doubled from its life support level, and eBay was a strong gainer in April too. But all of them are still far below their high- water marks.
MARK ROWAN, PRUDENTIAL SECURITIES: Most of the Internet stocks did very well. eBay performed well. Amazon performed quite well even though we're not recommending it. It had a very nice run in April. I think as Nasdaq began to pull back from -- or bounce up from its lows, a lot of these Internet stocks pulled up even further.
YOUNG: But April was also cruel to many Internet companies scrambling to become profitable before they run out of money. According to one survey 55 dot-com went out of business during the month, up from 44 in March, but down from 58 the month before.
TIM MILLER, WEBMERGERS.COM: I hope it stops soon. And I think the killing will stop, the death rate will slow down. And could be this marks the peak month, but, you know, I've learned not to predict. You can't predict.
(END VIDEOTAPE)
YOUNG: It's a different kind of survival reality game. You could call is dot-com Darwinism.
BAY: Is it too soon to call this a turn around for Priceline?
YOUNG: I think it is too soon.
BAY: Is it too soon to write off the entire Internet?
YOUNG: I think it is.
BAY: OK, fair enough. Steve Young, thanks.
Still to come, job cuts continue to mount, but one company tries a different way to cut costs.
Plus: We'll hear from one of the men behind the tax cut deal in Congress, House Majority Leader Dick Armey.
(COMMERCIAL BREAK)
BAY: We have some breaking news for you now. There is a verdict in that Birmingham church bombing case. We're going to go now to Brian Cabell standing by -- Brian.
(INTERRUPTED BY BREAKING NEWS)
BAY: Companies across corporate America continue to slash their payrolls. Dow Chemical today said it's letting go of 4,500 employees, or about 8 percent of its work force as part of its merger with Union Carbide. That's twice as many layoffs as originally planned. Nextel also cutting back, slashing 850 jobs, or 5 percent of its work force. The news comes as Nextel missed already lowered expectations this morning, posting a loss of 56 cents a share.
And Loudcloud is cutting 19 percent of its employees. Loudcloud, which went public in March, has had a rocky start, and is barely trading above its IPO price of $6 a share.
One company not resorting to layoffs, Adobe. It's opting for the Sun Microsystems solution, shutting down for the week of July fourth. That will save the software maker a grand total of $4 million. But any savings at this point may help. Adobe today withheld guidance for the rest of the year, warning there is no change in the U.S. economic environment and the slowdown is spreading to Europe. Checking investor reaction: Dow Chemical gained fractionally. Nextel up almost 2.5, Loudcloud up about 1/2. Only Adobe lost ground.
Still to come in the next half hour of MONEYLINE: More on a winning day for the markets as investors usher in May on a high note. And the last minute drama to head off a shutdown in Hollywood, the latest on efforts to keep the writers writing.
Plus, looming trouble in Nike-Town and Planet Reebok. Is the next generation of teenagers turning off big time sports?
(COMMERCIAL BREAK)
BAY: In tonight's headlines, a big day for President Bush. Congressional Republicans agreed on a tentative $1.35 trillion tax cut plan.
And in Hollywood, the 11th hour draws near for contract negotiations between writers and studios.
Plus, are American teens losing interest in sports? We'll take a special look.
But first: the bulls charge into May, lifting the Dow to its highest level in two-and-a-half months. Fueling the blue chip rally, a strong earnings report from Dow component Procter & Gamble, and news from Washington on a tentative tax cut agreement among congressional Republicans.
Despite a brief dip into the red this morning, the Dow spent the day on an upward climb. Only three Dow components out of 30 closed down on the session. The index finished up 163 points, or 1.5 percent, at 10,898. A nearly 2.5 percent jump on the Nasdaq, thanks to strength from software, Internet and chip stocks. The Nasdaq finished up 52 points, at 2,186.
And a 1 percent jump on the broader market. The S&P 500 gained nearly 17 points, to finish at 1,266.
The Dow has now climbed four out of five sessions. But despite the recent rally, the index could soon be facing an important challenge. Allan Chernoff reports.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): There's no great mystery behind the Dow's move. The majority of Dow stocks are cyclical, reliant on the economy, and a growing number of investors appear to believe a turn is coming for the economy. Latest evidence of a bottoming: today's National Association of Purchasing Management report.
But now, the Dow is facing a hurdle it has been unable to jump since last August, the 1,100 barrier. Repeatedly during the past six months, in late October, in mid-November, in January and again in February, the Dow climbed up against 11,000, and then fell back -- resistance, in Wall Street terms.
PHIL ROTH, MORGAN STANLEY DEAN WITTER: A resistance level, technically, is a point in an up-trend, where supply temporarily offsets demand, and prices stop going up.
CHERNOFF: Now yet again, the Dow is staring at 11,000, only about 100 points away. If the Dow can jump the barrier convincingly, analysts say it would be a very bullish sign.
Some technical analysts say it could be tough, arguing volume in many Dow stocks has been moderate recently, indicating a lack of conviction. And some key Dow stocks themselves are facing resistance: ExxonMobil has climbed back to the resistance level established at the beginning of the year, at 89. Boeing is close to its resistance point at 65. And Intel is nearing the resistance level it hit in early March and the middle of last month -- 33.
JOHN HUGHES, SHIELDS & COMPANY: The components of the Dow themselves, a lot of them are meeting their own resistance, and that's what's creating resistance in the index itself.
CHERNOFF: Technical analysts say these are levels where many investors bought shares only to see them decline. And once the stocks return to break-even, investors are often ready to bail out.
(END VIDEOTAPE)
CHERNOFF: There's no rule that says those Dow stocks and the industrials themselves can't top their resistance levels. In fact, during an up-trend, that's exactly what does happen, which is why the market is about to face a major test of its recent rally -- Willow.
BAY: Allan Chernoff, investors will be prepared after that. Thank you.
After the bell today, General Motors said it had approved further talks to combine its Hughes Electronics, which owns satellite television provider DirecTV, with the satellite network of media mogul Rupert Murdoch. This was the first time GM confirmed it was talking to Murdoch's News Corp about a deal. Late last month, Murdoch reportedly made a formal proposal to GM's board, but talks were said to have stalled over issues of price and control over the company.
Checking how those stocks performed: General Motors, Hughes Electronics and News Corp all up less than $1 today.
For more of the after-hours news, we head to the Instinet trading floor where Jen Rogers is tracking the latest -- Jen.
JEN ROGERS, CNN CORRESPONDENT: Willow, Internet names really in the spotlight here after hours. Let's start with Priceline.com. The company coming out and posting a narrower-than-expected loss for the first quarter. Now, the stock moved up 76 cents, to $7.35. They said they are still a turnaround story, but they're sticking to their guidance for profitability in the next quarter. From opening bell to the right now, the stock is up 51 percent today, so a very big percentage move for that stock.
Also giving legs to other Internet names: we saw Amazon.com up 21 cents here, at $17.10. It was up more than $1 in the regular session, so some more gains here after hours. E-Bay and Yahoo! also to the upside.
Now, one Internet name that was not able to get into the green: CNET Networks, this stock down more than $1, at $11.50. The online content provider, coming out with a wider-than-expected loss on already lowered estimates. The company also warned the Street for the next quarter and for the rest of the year.
Now, Cisco Systems was the most active issue here after the bell. It usually is, but we saw some very healthy volume pumping through here after 4:00, three-quarters of million shares changing hands, and the stock moving up 30 cents -- Willow.
BAY: Jen, sounds like a busy night. Jen Rogers, thanks.
Our next guest says despite the recent market rally, the Nasdaq could still retest its lows, and investors might want to brace themselves for some significant dips.
Joining us now, Vince Farrell, chairman of Victory SBSF Capital Management. Vince, nice to have you back.
VINCE FARRELL, VICTORY SBSF CAPITAL MANAGEMENT: Hi, Willow.
BAY: So, what are we in for here?
FARRELL: I think we're in for good stuff net-net, but I never seen a gap that didn't get filled, and I can't imagine a bubble like we had recently get deflated in 11 months. Bubbles usually take a couple of years to really unwind themselves.
The better the market acts, the longer we continue this wonderful action, the more convinced I am that we did set the lows. But I suspect we're going to continue to get bad news in the second and third quarter on earnings, and just I think market is going to have its bad days, like it has its good days.
BAY: OK. So, you do -- you do seem clear that we've seen the bottom here?
FARRELL: I believe so.
BAY: Are we going to get close to seeing it again? Is that what you're saying?
FARRELL: Yes, I think we'll be close to seeing it again.
BAY: How much of a correction, or how much of a dip should investors really be prepared for?
FARRELL: I think on the Nasdaq, probably, before you're through, going to have a dip of a couple of hundred points. I believe that this gives you the opportunity to continue to accumulate good stocks, but the volatility is so severe, and the stocks are still so very rich that if the rally were to continue, I'd say, on the margins, sell into it a little bit. And then, as the decline comes at you, on the margin buy into it a little bit.
We started buying tech stocks for the first time in a couple of years at the beginning of this year, we were early. But if the discipline is I buy a little bit now, a little bit later, and a little bit still later again, I think you are going to wind up with very good companies at very good positions, because good companies are being given to you. But the volatility is such that you should not chase them, they will probably come back down to you.
Like I said, I believe you're going to get poor earnings in the second and third quarter. I don't think they'll be below expectation, but they will be poor, and you'll say, gosh, you know, OK, they're in line with expectations, but we're still trading these things too richly for what the prospects are.
BAY: So, when you look at the economic backdrop, what do you think? What -- put the market in that context, when will we see some signs of improvement?
FARRELL: My best guess is that it takes 12 months for interest rates to work their way through the economy. I'd like it to be quicker, but it isn't quicker. So, that means to me at the beginning of next year, we'll see impact of the Fed having cut rates in January of this year.
Stocks being a discounting mechanism, tend to do well about six months before the economy improves, or before the economy turns down. So, I think the second half of this year will be a good environment for stocks, but not until the second half. We really have to get from here to there.
I'm thrilled with the action of the market. I want to be wrong. We're 92 percent invested, but we're cautious about how we have the portfolio invested. I just think we're going to get another chance to buy these things.
BAY: OK, so when you say you're cautious, what does that mean?
FARRELL: Well, that means I would emphasize financials, because financial stocks tend to do very well in declining rates environments.
BAY: Do you have a favorite on there?
FARRELL: A couple. I think...
BAY: You know, you should like Fannie Mae, and...
FARRELL: Fannie Mae has done very well, we're still buying it, but I think in relative value J.P. Morgan Chase and Washington Mutual offer more value right now.
I think a year from now, we'll realize that California was not a one-off situation in the energy crisis, that we have a crisis, so I still want to be in the energy stocks. I like particularly a driller in the Gulf of Mexico called Rowan Drilling.
And we are buying tech stocks. The core, we have EDS and IBM, but I think Tellabs looks very well-positioned right now, and there are several others you and I have talked about in the past few months, ADC Telecom and Sanmina among them.
But we're buying one-third positions in these, because the volatility leads me to believe that we'll be able to fill out the position later.
BAY: So, tread carefully for the next couple of months?
FARRELL: I think tread very carefully for the next couple months, do not get caught up in this near-term euphoria, as wonderful as it is.
BAY: Vince Farrell, as always, nice to see you.
FARRELL: Thanks, Willow.
BAY: Coming up: a big day on Capitol Hill, as congressional Republicans take a giant step toward a tax cut plan. We'll speak to House Majority Leader Dick Armey. That's next on MONEYLINE.
(COMMERCIAL BREAK)
BAY: Coming up, a big day on Capitol Hill, as Congressional Republicans take a giant step toward a tax cut plan. We'll speak to House Majority Leader, Dick Armey. That's next, on MONEYLINE.
(COMMERCIAL BREAK)
BAY: As we said, Congress took a major step toward a possible plan when House and Senate Republicans agreed on a $1.35 trillion tax cut plan over the next 11 years. Under the agreement, $100 billion would be distributed immediately over this year and next. What's the likelihood of the plan passing?
Joining us now from the House gallery, House Majority Leader, Dick Armey. Congressman, welcome.
REP. DICK ARMEY (R-TX), MAJORITY LEADER: Thank you, Willow. Yes, it is an agreement that's made in the Senate, and the House has to evaluate whether it, too, would pass that kind of a tax package.
BAY: What kind of a fight is it facing?
ARMEY: I think one of the things you'll see in the House is an acute understanding that there's a relationship between this tax reduction, which is smaller than most of us think we ought to have -- I might remind you that I, for example, even argued that 1.6 billion was smaller than what we really ought to be shooting for.
BAY: You did, actually, and I'm...
(CROSSTALK)
BAY: OK, I'm curious -- before you explain this -- I'm curious, because you did push for a plan that was larger than the 1.6 trillion that the president was proposing. What is your reaction to a tax cut of this size?
ARMEY: Well, the first thing you realize in this business is you always take what you can get. It does no good for me to have the perfect plan at 1.7 or 1.85 pass the House and not be able to pass the Senate. By the same token, if the Senate thinks their plan is the perfect plan now at this 1.35, that's fine for them, but it's got to pass the House, too.
And the acid test on that is: they cannot use this reduction of the tax from the president's number as an excuse to inflate the spending. The House will be very sensitive to what the spending levels will be as they determine whether or not they will find this tax reduction acceptable.
If we find that it is an acceptable level of spending and, therefore, an acceptable level of taxes: One, we can do the first most important thing we must do in a tax package, and we should be able to do it fairly quickly. And that is the across-the-board rate reduction to give a growth influence in the economy.
BAY: Will you walk us through, if you can, the immediate tax relief, that 100 billion over the next -- as I understand it -- two years. That sounds like a bigger number than the 60 billion that had been discussed earlier. Is it? How will it get broken down? What do you know at this point?
ARMEY: It is, in fact, larger. The 60 billion was 60 billion in one year, so if you take 100 billion and say it's for two years, you could be talking about a comparable level of tax reduction. It could either come in the form of a direct tax rebate, as a rebate of the taxes we've just filed and paid. Or it could come as an increased retroactivity, adding better structure in retroactivity and more growth influence out of the overall reduction in tax rate.
BAY: Which would you prefer?
ARMEY: I think I would prefer the second. You always get a better stimulus effect from things that people perceive as being a permanent change in the law. It's something that could prompt them to make what would be more or less permanent changes in their work habits, their business decisions, and so forth. So, it's always better to have real tax reduction in the form of the rates than a simple rebate.
BAY: House Majority Leader Dick Armey, I know you have a lot of work ahead; thank you for your time this evening.
ARMEY: Thanks for having me.
BAY: Now, some breaking news.
As we told you earlier in the program, Thomas Blanton, a former member of the Ku Klux Klan was convicted in a 1963 church bombing that killed four girls.
We go now to a press conference being held by John Robbins, the attorney who represented Thomas Blanton.
(AUDIO GAP)
BAY: We will have more on that story in just a bit. MONEYLINE will continue right after this commercial break.
(COMMERCIAL BREAK)
BAY: We're going to go back to the press conference where the attorney for Thomas Blanton, who was just convicted in that case, is speaking.
(JOINED IN PROGRESS)
JOHN ROBBINS, ATTORNEY FOR THOMAS BLANTON: All my issues that are going to be addressed on a motion for a new trial. If you want to check with me in a couple of days, I'll probably have a better answer for you.
But there are certain things that we know we're going to raise, will go on appeal.
QUESTION: (OFF-MIKE)
ROBBINS: I haven't had a chance to say two words to him. He was taken out of the courtroom quickly. And I -- I'm sure he's stunned, but I'm going to have to go over to county jail and speak with him.
QUESTION: Was he braced for it?
ROBBINS: Was he braced for it? I told him to be braced for it. I told him a quick verdict was not -- a quick verdict was not a good verdict.
QUESTION: (OFF-MIKE)
ROBBINS: No, that wasn't a good sign.
QUESTION: (OFF-MIKE)
ROBBINS: I thought they were less effective, but I guess I was wrong on that.
BAY: Back to business news.
In our sector report tonight: consumer products. Today, sector giant Procter & Gamble outpaced expectations by 2 cents a share, while sales slumped nearly 3 percent, hurt by declining market share and strong competition.
Those results exclude more than 100 million in restructuring charges. In fact, some analysts find troubling. P&G has been booking so-called one time restructuring charges for the past eight quarters, and expects to continue doing so for another three years.
So far this year, that massive restructuring has called for more than 17,000 layoffs, and the planned sale of Proctor's Jif peanut butter and Crisco brand. Today P&G gained more than four. Other consumer products stocks, including Unilever, Estee Lauder, Avon and Colgate Palmolive, higher as well.
Coming up on MONEYLINE, Hollywood scrambles to work out a deal with its writers, as the clock ticks down to the end of a contract.
(COMMERCIAL BREAK)
BAY: In just hours, Hollywood's contract with the writers union will expire. The two sides are still talking, trying to work out a deal at the 11th hour. And as Casey Wian reports, there are new and compelling factors suggesting that this cliffhanger won't lead to a strike.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): Earlier this year, twin strikes by Hollywood writers and actors seemed inevitable. Studios began stockpiling films and television shows, and speeding up production in preparation for an industry-wide shutdown. But now, at least for writers, a strike appears unlikely because conditions in the industry have changed. First, signs of an economic slowdown mean enduring a strike would be more painful for bottom-line oriented entertainment conglomerates.
JACK MYERS, CHAIRMAN, MYERS GROUP: A week ago, there didn't seem to be any chance of a settlement, but over the last week, the testosterone levels in Hollywood seemed to have declined exponentially.
WIAN: Second, the decision by the Teamsters Union that its drivers and other members would not support a writers strike has weakened the writers bargaining position. Finally, there's been persistent public pressure from Los Angeles Mayor Richard Riordan. He's held a barrage of press conferences and exchanged e-mails with negotiators warning of dire economic consequences and urging both sides to settle.
There have also been changes within the Writers Guild and Producers Alliance. The writers are led by John Wells, himself a TV executive producer of "ER" and "The West Wing."
PETER BART, EDITOR IN CHIEF, "VARIETY": In the old days, you had a bunch of great old lefties who were talking about the rights of labor and so forth -- they represented the guild. Today, you have very bright young kids who went to the Harvard Business School, many of them with law degrees, and they went into the writing business because it's a great business.
WIAN: Taking the lead in the cast of producers, Dreamworks co- founder Jeffrey Katzenberg. While his company is an independent movie studio, his colleagues represent media giants such as Disney and AOL Time Warner, parent of this network. Their diverse agendas, and lack of a clear leader, complicate negotiations and are in stark contrast to the days when a single man, former MCA studio chief Lou Wasserman, all but called the shots on labor negotiations.
(END VIDEOTAPE)
WIAN: But as one studio executive put it, an agreement without a strike is likely because no one on either side of the bargaining table wants to be blamed for basically killing the Los Angeles economy -- Willow.
BAY: Casey Wian reporting from Los Angeles, thanks, Casey. Up next, "Ahead of the Curve." Stay with us.
(COMMERCIAL BREAK)
BAY: Taking a look at some of what could move the markets tomorrow, on the economic front, watch for factory orders to show a gain for March. Also tomorrow, the Fed's Beige Book, and quarterly results from Cigna, Humana, Pacificare Health, plus Martha Stewart Living and Wendy's.
That's MONEYLINE for this Tuesday. I'm Willow Bay in 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
