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Lou Dobbs Moneyline

Dow Climbs 53.16 to 11,301.74; Nasdaq Advances 5.20 to 2,198.88; Rate Cuts by Fed Fuel Market Resurgence

Aired May 18, 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.
ANNOUNCER: Live from the heart of New York City, this is LOU DOBBS MONEYLINE for Friday, May 18th, 2001. Here now, Lou Dobbs.

LOU DOBBS, CNN ANCHOR: Good evening. We begin tonight on Wall Street where the blue chips finished a stunning week with a solid gain today. The Dow soared nearly 500 points on the week, advancing in four of the past five sessions, and tonight stands only a few hundred points from its all-time high. Investors clearly enthused by the Federal Reserve, which cut interest rates this week for the fifth time in less than five months.

Now, some investors are hoping Wall Street has shaken free from the grip of what some call a bear market.

Allan Chernoff has the report.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A week for Wall Street's bears to consider hibernation. The highlight: an explosive rally Wednesday, a day after the Federal Reserve cut interest rates for the fifth time this year.

JAMES AWAD, CHAIRMAN, AWAD ASSET MANAGEMENT: Investors are willing to bet at this point that the Fed is going to be successful in steering us through a slowdown while avoiding a recession.

CHERNOFF: Not only did the Dow Jones industrial average break through the 11,000 resistance level Wednesday, but it also followed through with gains Thursday and Friday, closing the week up 4.4 percent. A similar story for the Nasdaq composite, which has a four- day winning streak, up 4.3 percent on the week.

Traders say the psychology of the market is improving: investors focusing on expected benefits to come from Federal Reserve policy as well as tax cuts.

Strategists are talking up market history: 12 months after the fifth-consecutive rate cut, history shows the Dow higher, particularly impressive gains after interest rate cuts in 1986 and '82.

Among the strongest performers on the week, commodity-related stocks. Gold soared to a 10-month high, bringing a shine to mining stocks, and crude oil climbed back above $30 a barrel, fueling oil and gas stocks, which also benefited from the president's energy plan.

Money market mutual funds are bursting with cash. So, bulls say, individual investors could keep the rally going.

TOBIAS LEVKOVICH, SALOMON SMITH BARNEY: Money came out of equity mutual funds in March, and now they're kind of trying to get back in. So there's a lot of firepower still on the sidelines here that could continue to take us higher.

(END VIDEOTAPE)

CHERNOFF: The critical issue facing the market right now, will investors continue to focus on anticipated benefits of Federal Reserve policy, or will they get distracted by sluggish business conditions, which are still likely to punish corporate profits in the second and third quarters? -- Lou.

DOBBS: Allan, thank you very much. Allan Chernoff, reporting from Wall Street.

Taking a closer look at today's session, the markets spent most of the session underwater but recovered to cap off the week on the upside. The Dow mustered strength in the final hour of trading, ending up one half a percent. The Nasdaq eked out a small gain, picking up five points on the day.

The most actively traded stock on the Big Board, Lucent, active trading on "New York Times" reports that Lucent is in advanced talks with Alcatel, a French telecom equipment maker. But investors are clearly betting if there is a deal, there will be not much of a premium. Lucent's stock barely budged on the day while Alcatel's shares slumped nearly $2 in New York trading.

Bruce Francis has been looking into the possibilities of this linkup and whether such a deal makes great sense -- Bruce.

BRUCE FRANCIS, CNN CORRESPONDENT: Lou, not a big vote of confidence today from that market reaction.

Well, a merger with Alcatel could be an unexpected flameout for one of technology's biggest crash-and-burn stories. But for the merged Lucent and Alcatel, the drama would be just beginning.

(BEGIN VIDEOTAPE)

FRANCIS (voice-over): A merger of Lucent and Alcatel would form the world's largest telecommunications equipment company. The two firms are well-matched, with comparable numbers of employees, annual sales, and market valuations, potentially daunting to manage but a company with worldwide reach.

PAUL SAGAWA, SAMFORD BERNSTEIN: Lucent is a dominant player in North America. Alcatel is a leading player in Europe. Together they're both strong in Asia. I think it would give you the No. 1 player in all three of the major regions of the world. FRANCIS: But the birth of a global giant would also produce a world of headaches. Nearly 80 percent of the two companies' products overlap according to research firm Dell'Oro Group. While that could produce savings in the long run, paring that list down could confuse and alienate customers.

SHIN UMEDA, DELL'ORO GROUP: I think from their customers' standpoint, that's a pretty significant issue as to how they're going to be treated and how they're going to be serviced down the road.

FRANCIS: Lucent is still under investigation by the Securities and Exchange Commission for its overstatement of revenues, and then there's Bell Labs, the research organization that created modern miracles like the transistor and the laser. The U.S. government could consider it too sensitive to fall under the control of a foreign company. And some say Alcatel should instead acquire a more nimble innovator.

PAUL COOK: I don't know that you find that necessarily at Lucent. I think you've got to fish a little bit further down to see what's actually cutting edge.

(END VIDEOTAPE)

FRANCIS: Neither company would comment on the record to CNN, but Alcatel has already acknowledged that it is one of four companies interested in buying Lucent's fiber-optics business. Lou, no word yet if that deal is still going on.

DOBBS: Thank you, Bruce. Thank you very much, Bruce Francis.

Although merger activity overall remains in the doldrums, European takeovers of U.S. companies are a big and growing phenomenon. At the height of last year's merger frenzy, euro buyers accounted for an unprecedented 25 percent of U.S. acquisitions. In fact, if reports become reality, the Alcatel-Lucent deal would not even be nearly the biggest European buyout of a U.S. company. At $40 billion, it would rank a distant fifth behind the likes of Vodafone, Airtouch and DaimlerChrysler.

It's American consumers that have been the biggest buyers of late. Today, we learned the trade gap widened in March, powered by a record surge in imports. The March deficit hit $31 billion. That's a 16 percent increase from the previous month, and that's the largest increase since the Commerce Department began tracking the data a decade ago.

The bond market took that news in stride, however, and the 30- year barely budged on the day.

But it was the stock market that stole the show this week: the Dow Jones industrials breaking out of its trading range, moving above 11,000, and my first guest tonight has been dead on over the past few years: wisely skeptical about technology stocks. And while he's still skeptical on that sector, he's cautiously optimistic about the rest of the market. Jeremy Siegel is professor of finance at the Wharton School, and it's good to have you with us.

JEREMY SIEGEL, WHARTON SCHOOL OF BUSINESS: Good evening, Lou. Good to have you back.

DOBBS: Well, thank you very much. Let me ask you, if I may, straight out: Is this -- is the worst over? Is this the bottom? Happy days are here again?

SIEGEL: That's what everyone is singing. I think we can think of March and April as the bottom. Let me tell you why. With interest rates going down, I wonder where investors are really going to put their money. I think money funds are going to be about 3 percent by the end of the year. And even though earnings on stocks might not be very good, again there is not a lot of motivation to move.

DOBBS: Jeremy, you've got a terrific track record here. A lot of people are still describing much of the technology sector, as you know, as still well over -- overvalued and the multiples strain at least credulity by historical standards. That sector, does it give you considerable pause?

SIEGEL: It does. I mean, back in March and April I was saying, fine, technology looks like it's fairly priced. It's gone up an awful lot. It's forward-looking price/earnings ratios are 40, and certainly they're down dramatically from the hundred-plus that they were last year that I warned about. 40 is still a pretty high ratio for a sector that has no really proven record of steady earnings.

DOBBS: But of course, if we look at history as defined as '99 and early 2000 it looks rather modest, doesn't it?

SIEGEL: Yeah, in comparison, it looks good, but if you go back five or 10 years, it is expensive.

DOBBS: In terms of expense, the Federal Reserve has now made it cheaper for banks, of course, to borrow overnight funds, the five moves by the Fed over the course of less than five months. A number of people are, well, being frankly critical of the Fed for easing too quickly and too deeply. What's your judgment?

SIEGEL: No, I think that they actually should have eased faster than they did. I mean, we have a faster-moving economy. Greenspan has mentioned that. I think they should have brought the Fed funds rate down where it is right now back in January and February. I would still like it to go down another point. I would like to see 3 percent, just like '92-'93.

DOBBS: Wow!

SIEGEL: Yeah. Given the slowdown that we have, you really want to spark the economy -- I think you need to work some more magic there.

DOBBS: Well, you've got to be encouraged by the fact that the Fed put forward a decided bias toward the possibility of further rate cuts then.

SIEGEL: Yes, they did not foreclose that, and I think at first Wall Street looked at that and said, "Oh, is the Fed worried?" and they didn't react. But then, when they saw, hey, there could be more down the road, rates are really going down to 3, 4 percent, they're saying, you know, where else are you going to go but equities, and that pushed the money in.

DOBBS: So you feel we're at a bottom in terms of this market, you feel that the Fed has more room in which to cut, and the economy, if we take the market as a forecaster, you're suggesting that the economy is turning around as well?

SIEGEL: My studies have shown that there's about a five-month lag between the bottom of the market and the bottom of the economic cycle. So what the market is telling me is we're going to hit bottom in September. That -- it might not be quite that early. So I still think there's going to be earnings disappointments, but they're going to be offset by the fact that again with lower interest rates people are going to say, "Where else am I going to put my money?"

So I don't think this year is going to be a big surge year. I'm waiting for 2002, but it looks like those March-April levels will mark the lows.

DOBBS: All right. Jerry, good to have you with us, as always. Jeremy Siegel.

SIEGEL: Thank you.

DOBBS: Thanks.

Coming up next, a politician under siege and naming names: California's governor is targeting what he calls corporate villainy, and one power company is charging the governor right back. The president on a road trip and a mission: winning support for his sweeping energy strategy and the man who's gone where no tourist has gone before. I'll be talking with Dennis Tito. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The fight over who's to blame for the California energy crisis is growing increasingly bitter. Governor Gray Davis for months has been accusing energy companies of price gouging. But now the Democrat, by his own admission, has begun naming names, and top on his list Reliant Energy. And today, Reliant fired back, accusing Governor Davis of trying to demonize the Texas-based company for political gain.

Casey Wian has the report.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): California Governor Gray Davis may soon run out of fingers to point at those he holds responsible for the state's power crisis. Davis has taken turns blaming his predecessor, Pete Wilson, the Bush administration, federal regulators, Republican state lawmakers, and utilities. Now he's taking aim at out-of-state energy producers. Heading his enemies list, Houston-based Reliant Energy.

Last week, in an effort to avoid blackouts, California agreed to pay Reliant $1,900 per megawatt hour for electricity, more than 60 times the going rate two years ago, and six times the state's current average price.

GOV. GRAY DAVIS (D), CALIFORNIA: They have basically manipulated the system and extracted every dime they can out of California. They could care less if our businesses collapse, if our economy falters. They just want to suck every dime they can.

There's a massive transfer of wealth from ordinary Californians to rich energy companies, most of which are in Texas.

WIAN: Davis has threatened to use his emergency powers to seize the assets of companies like Reliant. It owns five power plants in California that supply enough electricity for nearly 3 million customers. Reliant bought them three years ago from Southern California Edison as part of the state's now-failed deregulation plan.

JOE BOB PERKINS, RELIANT ENERGY: Talk of windfall profits tax and talk of seizure of power plants does give me pause for California and the business environment that we need to solve its problems. That's not an environment where you'll be encouraging Reliant or companies like Reliant to spend millions and billions of dollars to put the necessary generation in place.

WIAN: Reliant does not break out profit by state, but its wholesale energy group earned $216 million in the first quarter versus a $22 million loss in the same period last year.

(on camera): Davis has called Reliant a big buddy of President Bush and Vice President Cheney. Reliant counters that its $1,900 sale was for a small amount of emergency power that it suspects that California officials agreed to pay the price so they could paint Reliant as the villain.

Casey Wian, CNN Financial News, Rancho Cucamonga, California.

(END VIDEOTAPE)

DOBBS: Reliant's stock has nearly doubled over the past year. In fact, it's just a few dollars from its 52-week high.

The California controversy did nothing to deter the president from pushing his energy proposal. The president, on the road, stopping at a hydroelectric plant in Pennsylvania, and Mr. Bush urged supporters to stand up and let the critics have it. Mr. Bush insisted there will be no delay in making the plan a reality.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm sure there were some folks that were watching the speech or heard about the speech probably saying, yeah, all we've got now is another report that's going to sit on a shelf in Washington just to gather a little dust.

I -- I can assure the American people that mine is an administration that's not interested in gathering dust. We're interested in acting.

(END VIDEO CLIP)

DOBBS: Well, the president acted in signing two executive orders. One would require all federal agencies to consider the implications of any (UNINTELLIGIBLE) regulation to see if it hurts energy supply or distribution. The other would streamline the permit process so projects don't get caught in the bureaucracy.

Reforming the bureaucracy is a lot easier than cleaning up the energy bottlenecks that we've been hearing about, but it's also vital to modernize how that supply is distributed. The nation's energy infrastructure -- pipelines, transmission lines and refineries -- have not kept pace with economic growth.

Peter Viles reports now from Linden, New Jersey.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): The nation's electrical grid: In theory, a huge system that moves power from one region to another. In truth, it does not exist. Four separate regional grids are barely linked and near capacity. The Bush energy report warns of price pressures and reliability problems this summer in California, Long Island, the Great Lakes, the Southeast, and New England.

CRAIG GOODMAN, NATIONAL ENERGY MARKETING ASSOCIATION: Right now, we are -- we have very, very localized grids. We are forming regional grids, which will be a big step forward, but we need to have a national grid, no question about it.

VILES: The president's recommendation: new government power to take land for new transmission lines and study the idea of creating a true national grid. Another bottleneck: oil and gas pipelines.

(on camera): The pipeline problem is the proliferation of so- called "boutique gasolines." This complex in northern New Jersey is served by a single pipeline that starts in Houston, and that one pipeline has to carry up to 30 different kinds of gasoline and up to 60 different petroleum products.

(voice-over): And that pipeline supplies 20 percent of the East Coast's petroleum products.

UNIDENTIFIED MALE: The heating oil season in the winter is a concern for us. Aviation kerosene to airports along the East Coast has been a focus for Colonial to increase our capacity. And then the gasoline during the driving season in the summertime. VILES: The Bush policy: Speed up the permitting process and push for natural gas pipelines from Canada and Alaska.

A third bottleneck, at the nation's refineries: No new refinery has been built in 25 years. Capacity lags peak summer demand. The Bush policy: Streamline permitting and environmental regulations.

The president today ordered federal agencies to expedite reviews of energy projects. Now, the fight against all these proposals boils down to the same four words: not in my backyard.

Peter Viles, CNN Financial News, New Jersey.

(END VIDEOTAPE)

DOBBS: Well, while politicians debate ways to raise supply, Saudi Arabia is moving ahead with an estimated $25 billion natural gas development plan. Today, the Saudis announced which companies won leadership roles on the projects, marking the first time in a quarter century that the kingdom has allowed Western investment. Among the big winners, ExxonMobil, Royal Dutch/Shell, BP, Enron, Phillips Petroleum: each of those gaining more than a dollar a share in trading today.

Checking the price of light-sweet crude, up a dollar to $29.91 a barrel.

Coming up, a new round of violence rattling the Middle East. We'll have the very latest for you.

(COMMERCIAL BREAK)

DOBBS: A suicide bombing and deadly retribution in the Middle East: A bomber from the militant group Hamas struck at a crowded mall in Israel. Police say at least six people have died, nearly a hundred more injured. The Israelis retaliated with air attacks on Palestinian targets in the West Bank and Gaza. At least nine killed, 60 pounded.

Secretary of State Colin Powell today talked with Israeli Prime Minister Ariel Sharon and sources tell us that the call left the secretary of state frustrated. In Washington today, the United States and Russia announced summit plans, that after Secretary of State Powell and the president met with Russian Foreign Minister Igor Ivanov. Mr. Bush will hold talks next month in Slovenia with Russian Prime Minister Vladimir Putin.

And honors today at the White House for the crew of that U.S. spy plane. President Bush praised the class and the dignity of the 24 fliers. Later, Defense Secretary Donald Rumsfeld awarded the crew heroism medals at a ceremony at Andrews Air Force Base. The aircraft's pilot, Lieutenant Shane Osborn, also awarded the Distinguished Flying Cross.

Coming up next, I'll be talking with a businessman who wants to turn the final frontier into the next big tourist destination, Dennis Tito next. (COMMERCIAL BREAK)

DOBBS: In 40 years of human space flight, we've taken off in the name of science, exploration, learning. Only one of us has gone into space as a tourist. Last month, Dennis Tito took off from Russia on a trip to the International Space Station. He was aloft for eight days, becoming the very first "space tourist." He touched down again early this month, and Dennis Tito joins me now.

Dennis, good to have you with us. Congratulations.

DENNIS TITO, SPACE TOURIST: Thank you.

DOBBS: To say that it was an exhilarating experience I would suspect is an understatement.

TITO: I -- I can't describe how great it was. It went well beyond my expectations. I thought it would be difficult. It turned out it was quite easy and the experience was unbelievable.

DOBBS: How many Gs did you experience in blasting off?

TITO: That was 3 1/2, which was nominal and not very difficult.

DOBBS: Just about a half G more than the shuttle itself, which is...

TITO: Right. It was on the descent that we had the higher G- load.

DOBBS: And what were those?

TITO: Well, normally, we have a 4 1/2 G-load, and during the descent I felt, gee, this seems to be a little stronger than we did in the centrifuge, and I felt like 5 1/2 Gs. And I said, well, it's probably because I'm used to weightlessness and maybe they ought to change the simulator. But it turned out it was a 5 1/2 Gs, because the profile was a little different than planned.

DOBBS: And would you do it again?

TITO: No. And not because I wouldn't want to, but I think it's time for other people to follow their dream and I'd like to work on that.

DOBBS: Well, in following your dream, watching those pictures of you up there with that grin on your face and absolutely enjoying yourself, the astronauts with whom I've had the pleasure and the privilege of talking have all talked to me, many of them, about, first of all, becoming physically ill. Did you experience that from the outset?

TITO: Actually, just a small point at the beginning of the flight while we were in the Soyuz. And I adapted right after that, and it wasn't being sick all the time. It was just feeling nauseous and then of course getting it over with. DOBBS: As you know, your -- your visit to Station Alpha was heartily opposed by NASA. How did that you feel? You're an American, you're training with your Russian cosmonauts. NASA is saying, we don't think this is a great idea, we think point in point of fact he may break some of the china. What was your reaction?

TITO: Well, I was a little surprised by it, because around January we were getting some feedback from NASA that was, you know, not strongly against, not greatly in favor of it. And Mr. Goldin was quoted actually in a couple of articles saying that the Russians could use the money and he'd be behind that. So it was surprising to me, because I knew that this flight would publicize the station and it would really be a good thing for NASA.

DOBBS: And the public reaction?

TITO: Amazing. Amazing. Not only in the U.S., but also in Russia. I was surprised to see such a very positive reaction.

DOBBS: And now, Dennis Tito's role, are you going to be promoting space flight and space tourism?

TITO: Well, I would like to. But at first, I want to find out is there really a market here.

DOBBS: Right.

TITO: And I want to look at it as a businessman and determine is there a business opportunity here. If there is, I want to put together a business plan, raise the capital and get the job done.

DOBBS: Terrific. I would guess that at some point to make this a very sustainable business the price point will have to drop somewhere below $20 million.

TITO: Definitely.

DOBBS: Dennis, it is great to have you with us. Congratulations again, and I wish you all the very best.

TITO: Thank you very much.

DOBBS: Dennis Tito.

Well, still ahead, as Warnaco shareholders gather for their annual meeting, can that beleaguered company pull itself back from the brink? We'll find out.

(COMMERCIAL BREAK)

DOBBS: Warnaco, the beleaguered clothing company, today facing some of its sharpest critics, its shareholders, who've watched the stock plummet to pennies a share. Most see little hope that the company can turn its fortunes around.

Kitty Pilgrim has the report. (BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): At a Manhattan hotel today, a confrontational Warnaco meeting, where behind closed doors the company's CEO, Linda Wachner, faced down disgruntled shareholders, who called the company's management "dead wood" and "wax dummies." Afterwards, Wachner ducked cameras through the delivery entrance, but angry shareholders were willing to vent.

ARTHUR FRIEDMAN, WARNACO SHAREHOLDER: Wall Street really has no confidence in any prognostication that they make, and they still keep her in office.

SUZANNE ENRIQUE, WARNACO SHAREHOLDER: I watched the stock plummet. I bought some more. I watched it plummet a little more. I bought some more, averaging, thinking that eventually it would go up.

PILGRIM: Warnaco's stock has dropped from more than $30 two years ago to 71 cents on Friday. The company is also troubled by lawsuits. Calvin Klein and Warnaco settled a trademark dispute in January, which cost Warnaco some $30 million in legal fees.

A shareholder lawsuit claims the company failed to report accurate financial information. Then Friday came news that Fruit of the Loom was also suing Warnaco for $2.3 million in back royalties to their 11-year-old licensing pact.

Warnaco is struggling with $1 1/2 billion in debt payments, some of which came due on Wednesday. The company managed to extend payments through June 15th. Still, analysts say the company that makes Speedo swimsuits, Calvin Klein jeans, and women's lingerie could survive.

RICHARD HASTINGS: It depends upon Warnaco's ability to get refinancing in June. They've got to be able to get a new bank credit agreement.

I think the core premium brands, whether they're owned or licensed, are very good.

(END VIDEOTAPE)

PILGRIM: DeLoitte and Touche, the company's auditors, say they doubt the company can keep operating. Analysts say only through debt restructuring or asset sales is any kind of future possible -- Lou.

DOBBS: That's a tough business story.

PILGRIM: It is.

DOBBS: Kitty, thank you very much -- Kitty Pilgrim.

Well, in tonight's "MONEYLINE Movers," two strong IPOs to report. The Nasdaq, Instinet, more than 20 percent in its first day of trading. The nation's largest electronic trading firm raised more than $450 million. Over on the big board, another hot energy offering, Global Power Equipment added 57 percent in its market debut, closing with a market value of $1.4 billion.

And the downside, Agilent down $2.75 a share. Two analysts downgraded the company after it posted a 42 percent decline in profits and then warned of big losses in this current. Agilent's shares are now off 34 percent for the year.

In tonight's technology watch, IBM, in our exclusive interview last night with CEO Lou Gerstner, who told us his succession plans for the world's largest technology company. There is no word yet on the exact date, but the leading candidate is Sam Palmisano, a longtime IBM exec, who currently serves as chief operating officer.

That news, broken here, was a help for IBM shares, up more than $2 on the day.

Coming up next, the partisan divide rips open over the Bush nominee for solicitor general. Ted Olson is the man in the limelight.

(COMMERCIAL BREAK)

DOBBS: When the president entered office, Mr. Bush said he hoped Washington would become a more civil place. But the nomination of Ted Olson to be solicitor general has made it clear that partisan acrimony is as intense now as during the Clinton era.

The Senate Judiciary Committee deadlocked on the Olson nomination and deadlocked along party lines. Some Democrats view Olson as part of a "vast right-wing conspiracy." You remember that expression. Defenders see Olson as a victim of political retribution.

For the story, we turn now to Tim O'Brien in Washington -- Tim.

TIM O'BRIEN, CNN CORRESPONDENT: Hi, Lou.

The solicitor general is the third highest-ranking official in the Justice Department and represents the United States and the administration in cases before the U.S. Supreme Court. Ted Olson has already argued several big cases there, getting generally good reviews.

(BEGIN VIDEOTAPE)

O'BRIEN (voice-over): He burst onto the national consciousness last fall with his successful representation of George Bush in the high court, effectively giving the presidency to Bush. Olson is also well-known in Washington legal circles for his forceful advocacy of conservative causes, causes shared by his TV commentator wife, Barbara Olson, who also wrote a scathing book about the former first lady.

Yesterday, all nine Democrats on the Judiciary Committee voted against Olson's nomination to be solicitor general. Payback? Not at all say the Democrats.

SEN. PATRICK LEAHY (D), VERMONT: I have become increasingly concerned that he's not shown a willingness or ability to be sufficiently candid and forthcoming with the Senate. O'BRIEN: Leahy and other Democrats on the committee have suggested that Olson tried to conceal his involvement in efforts by "The American Spectator" magazine to dig up dirt on President Clinton. Olson's law firm represented the magazine, and his friends were involved in the effort dubbed The Arkansas Project.

Although Olson is a pronounced conservative, his nomination has received support from some prominent liberals, like Lawrence Tribe, the Harvard law professor who argued against him in the Supreme Court. In a letter to Senator Leahy, Tribe said his former adversary "argued his case with intelligence, with insight and with integrity." "A plus, not a minus," said Tribe, "in considering Olson's fitness for the post."

Attorney Bob Bennett represented Bill Clinton in the PAULA JONES hand the Monica Lewinsky matters.

BOB BENNETT, FORMER CLINTON ATTORNEY: During all my years representing President Clinton, I never heard of anything that suggested to me that Ted crossed any ethical, ethical lines. And I've known him for a long time, and this is a man of skill and absolute integrity.

O'BRIEN: Today's "Washington Post," hardly a bastion of conservative legal theory, editorialized that "the Democrats would be wrong to block Mr. Olson," who it described as "one of Washington's most talented and successful appellate lawyers."

(END VIDEOTAPE)

O'BRIEN: Late today, Democrats and Republican leaders agreed to work more closely together and to lower their voices. Under new procedural rules, the nomination could still go to the full Senate without any recommendation from the Judiciary Committee and with Republicans confident they have the votes to win. But Lou, whatever the outcome, it may say less about Ted Olson's qualifications for the job than it says about power politics in an evenly divided Senate.

DOBBS: And Mister -- Senator Lott seems rather, well, sure of himself as he begins to lead this nomination forward, doesn't he?

O'BRIEN: He does. But the Democrats still have the votes for a filibuster if they want to go that route. Doesn't seem to be much momentum for it now, but that gives them leverage in any negotiations with the other side.

DOBBS: Just as we were certain that this process would be deborked, some disappointment may be at hand.

O'BRIEN: Not yet, not yet.

DOBBS: Tim O'Brien, thanks a lot.

Well, the divided Senate is set to debate and vote on that compromise tax cut package Monday. The $1.35 trillion proposal would be the most dramatic tax relief in decades. Joining me now, a passionate critic of the Bush tax cut and budget: economist Paul Krugman. He is a regular columnist for "The New York Times." He is the author of the new book, "Fuzzy Math: The Essential Guide to the Bush Tax Cuts."

Good to have you with us.

PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST/ECONOMIST: Good to be on.

DOBBS: What's wrong with getting a little money back in the private sector, Paul?

KRUGMAN: What's wrong is that -- what's wrong is that I and my generation are going to retire not too far away, I hope, if I can.

(LAUGHTER)

And basically, what this does, the tax cut is undermining any effort to make realistic provisions for that impending event.

DOBBS: May we put up a couple quotes from both your column and the book? The first one, if we could see that please. There it is.

"The White House has radically understated the cost of their plan while overstating the money available to pay that cost?"

What does that mean?

KRUGMAN: A couple things. One is that there are land mines sort of built in to this. The biggest is the alternative minimum tax. I personally know that I'm going to get no tax cut under this, because I'm going to run straight into this thing called the alternative minimum tax. But since they're going to be about 30 million other people like me, they're going to have to change that, and that right away adds 400 billion to this -- to the tax number.

The other thing is that surplus projections are really a joke. If you really start to look into them, you discover that there are hundreds of billions, quite possibly a trillion, of necessary expenditures, expenditures that everybody in both parties is going to want that there are not counted in. And...

DOBBS: Your next quote: "The White House has falsely sold the plan as an appropriate answer to the short-run economic slowdown when it is almost perfectly designed not to deal with that problem."

KRUGMAN: Most of the tax cut comes second half of the decade.

DOBBS: The backend loading thing.

KRUGMAN: That's right. And in fact, now there's a hundred billion, supposedly, of front end stuff, which the Republicans were dragged into kicking and screaming. As you may recall, there was an attempt a couple of weeks ago to welsh on the deal and take that hundred billion of immediate tax relief away so that you could keep the full tax cuts for the top marginal bracket. DOBBS: You know, with your criticism of this -- and I take your point, entirely -- it is -- it has to be stunning to you to see this move into law, because it was only three or four months ago that nearly, you know, every Democrat, some Republicans were saying, "Tax cuts?" and George W. Bush was in many places ridiculed in the campaign for even suggesting such a thing.

KRUGMAN: Well, you know, partly it's Alan Greenspan bears some responsibility, I have to say, as one of those people still a little bit riled. You know, we used to say the Fed stood above politics just like the Supreme Court, and now we're 0 for 2. But...

DOBBS: Was that some partisanship I heard slip in there, Paul?

KRUGMAN: Yeah, a little. But no, I mean, the real thing is this is -- the timing -- this is the sweet spot. Right now is exactly the moment when we have the delusion that there's lots of money for the tax cut.

DOBBS: Right.

KRUGMAN: Even one year from now, certainly two years from now, we're going to be looking back and saying, my god, what did we do? But right now, just given the peculiar way in which budgets are made, it looks like we can afford this. And George Bush is lucky and somebody -- maybe him -- is very smart.

DOBBS: Well, it was, was it not, a Democratic administration who did a projection 10 years out to $5 trillion out there? Wasn't that...

KRUGMAN: Well, that's right. But the...

(LAUGHTER)

DOBBS: Some responsibility has to (UNINTELLIGIBLE) surely for that rosy scenario.

KRUGMAN: The trick is the 10 years, which is, you know, it's the worst possible horizon. It's long enough so that it's all science fiction and short enough so that you don't get the retirement of the baby boomers in there. Perfect.

DOBBS: Well, the fact is this economy, do you believe, as we wrap this up, irrespective of tax cut, which is assured, irrespective of the budget condition, which are dependent upon economic conditions, do you believe that we're going into recession?

KRUGMAN: I think not, though if anybody -- anyone who's confident doesn't know what he's talking about, right? But looks as if we may be skating just above a technical recession.

DOBBS: Well, it's -- and you'd give how much credit to Alan Greenspan?

KRUGMAN: Oh, to the Fed in general? Lots, and Greenspan is certainly doing that job.

DOBBS: Forgiving him his partisan foray down into the...

KRUGMAN: That's right. He does his proper job very, very well.

(LAUGHTER)

DOBBS: Paul Krugman, good to see you.

KRUGMAN: Thanks.

DOBBS: Good to see you. Come back soon.

Straight ahead, ongoing trauma at Palm.

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DOBBS: Handheld computer makers in our "Sector Focus." Palm's latest warning is nothing short of colossal. Quarterly losses will double, the company says, and revenue may be only a quarter of original forecasts. To top it all off, Palm canceled its acquisition of Extended Systems, formally abandoning its effort to enter the massive corporate market.

Several analysts have downgraded the stock, many of them today, sending Palm and its competitor Handspring to all-time lows. Palm off nearly 30 percent.

But one company's trouble is another's opportunity. Upstart rival Research in Motion gained about $1.75 a share. The reason? Palm's failed foray into the corporate realm leaves RIM's Blackberry pager the undisputed No. 1.

Well, coming up next, the man in charge at this country's second- largest financial services firm. Stay with us.

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DOBBS: Well, my next guest helped unite two Wall Street landmarks into a financial powerhouse: J.P. Morgan Chase. The combined company boasts $715 billion in assets, a force in syndicated lending, debt underwriting, mergers and acquisitions. And since that merger was completed, the stock has moved up 6 percent in a very difficult market.

To tell us now what lies ahead, I'm joined by president and chief executive officer, Bill Harrison.

Bill, good to have you with us.

BILL HARRISON, PRESIDENT & CEO, J.P. MORGAN CHASE: Thank you, Lou. Great to be here.

DOBBS: This is a, I think we can agree, by any standard definition a very tough environment. HARRISON: It is a tough environment, but I'm -- I'm an optimist. I think we've experienced a very rapid economic decline, and that speed of that decline has created some concerns and a loss of confidence in certain sectors. But I think the fundamentals of the U.S. economy are still pretty strong, so when we look out for the rest of the year, I see, perhaps, a lot of the same that we saw in the first quarter, which is not terrible. It's not great either. And my most likely guess would be GDP growth in the range of 1 to 1 1/2 percent, maybe picking up at the end of the year, and I'm a little optimistic for the following year, because I think the fundamentals are still good.

DOBBS: And in terms of your business, the one you run, are you getting excited about the prospects or do you feel still challenged after the first quarter?

HARRISON: Well, our business in the financial sector tends to reflect the economic environment, so most of our competitors, including us, had weak quarters. We don't anticipate a dramatic turnaround. We anticipate a weak operating environment for the rest of the year.

What we're encouraged by, Lou, is that the power of the mergers that now represent J.P. Morgan Chase is creating a platform that's gaining market share in a weak environment. In a lot of ways, while we don't like revenue weak environments, it is good for us as we build out this platform, because we're gaining market share, and that's a good thing.

DOBBS: In terms of this economy, Paul Krugman just on talking about the Bush tax cut, and that is moving toward law beginning Monday. Is it your judgment it's a good thing?

HARRISON: Oh, I think it's definitely a good thing, for two reasons, I would say. First of all, if the productivity that we have experienced over the last four or five years in this country is sustainable at all -- and I think it is, and I think Chairman Greenspan also thinks it is -- then we will have large surpluses over the next 10 years. And if that's the case, we need to start dealing now with managing those surpluses in a thoughtful way, and a tax cut is certainly a very good way to do that.

Second reason is that it's good for the economy. No doubt. This will help a slow economy.

DOBBS: And in terms of interest rates, pretty dramatic five cuts, 50 basis points each time, less than five months. Do you think we need more?

HARRISON: I think we probably do need more, because I think the economy does need more boosting at this point, but my guess is we'll see another 50 basis point cut in June, and that might do it. I'm not sure. Maybe another 50 after that, but I think at least we'll see another 50.

DOBBS: In June? HARRISON: (UNINTELLIGIBLE) June.

DOBBS: That would get you into -- that would get you into forecasting, Bill, and a lot of people are certainly hoping you're right.

Bill Harrison, good to have you with us here.

HARRISON: Thank you, Lou. Great to be with you.

DOBBS: Thanks,

Well, coming up next, a front-row seat on the dot-com roller coaster, plus "Ahead of the Curve." Stay with us.

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DOBBS: A busy week next week. Economic reports due out, including revised GDP, new and existing home sales, durable goods orders, and the University of Michigan sentiment survey. Also, quarterly results from Computer Associates and a number of retailers, including Lowe's, Target, Saks Fifth Avenue, Polo Ralph Lauren, and Tommy Hilfiger.

Next Thursday, Alan Greenspan will talk with the Economic Club of New York about economic developments.

And finally tonight, we take a look at the dot-com craze through the rise and demise of a single company. That's the subject of "Startup.com," now playing at selected theaters. It's a new documentary that follows an Internet firm from its launch to what was the bitter end.

Steve Young has the report.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): Startup.com is a documentary view of the burst from inside the bubble.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I can't believe that you came in here just out of your goodwill and curiosity.

UNIDENTIFIED MALE: You're going to have to get to know me then.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: They're using our language. They're using our ideas.

(END VIDEO CLIP)

YOUNG: Govworks.com was showered with millions of bucks from venture capitalists. They thought linking people to municipalities to do things online, like paying parking tickets, was nifty.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: So, Kaleil, welcome to the team.

UNIDENTIFIED MALE: Thank you, Tom.

(END VIDEO CLIP)

YOUNG: A former Goldman Sachs arbitrage specialist and others let the camera follow them for 400 hours. Money wasn't a problem, but as things soured, management was.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: If we're co-CEOs, then we're co-CEOs.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: As they try and consolidate leadership I become more and more of a problem.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: This letter is a request for termination.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: He doesn't trust me.

(END VIDEO CLIP)

YOUNG: After a New York premiere, the movie started screening Friday in art houses on both coasts. Bill Clinton pops up in one clip. The filmmakers had followed him and his staff in their earlier movie about the 1992 political campaign, "The War Room."

DA PENNEBAKER, PRODUCER, "STARTUP.COM": It was sort of like the next step for the kids that we watched in "The War Room" coming in with Clinton who all knew about everything, you know.

CHRIS HEGEDUS, CO-DIRECTOR, "STARTUP.COM": I thought they were very brave. You know, I thought they were having an adventure of a lifetime.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The cash alone is a sum of money that I wouldn't know what to do with.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You got, I think, $15 million bucks from the Mayfield Fund. Are you looking for another round anytime soon?

(END VIDEO CLIP)

YOUNG (on camera): You may think the dot-com crowd was arrogant. The filmmakers thought they were wonderful.

Steve Young, CNN Financial News, New York.

(END VIDEOTAPE)

DOBBS: Well, the filmmakers were right.

That's MONEYLINE for this Friday. Thanks for being with us. Hope you have a great weekend. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" is next.

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