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Lou Dobbs Moneyline
President Bush and Governor Davis Disagree on Energy
Aired May 29, 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.
LOU DOBBS, CNN ANCHOR: Tonight, the president squares off with California's governor as the political uproar over the power crisis intensifies.
On Wall Street, the Nasdaq tumbles and the trouble doesn't end with the closing bell. Sun Microsystems has issued a late profit warning.
Talks have collapsed between Lucent and France's Alcatel: what caused the disconnect?
And tonight, I'll talk with a former Wall Street star, now leading Bank One, CEO Jamie Dimon. And the foremost expert on energy, Pulitzer prize-winning author Daniel Yergin.
ANNOUNCER: From the heart of New York City, this is Lou Dobbs' MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening. Our top story tonight: President Bush confronts the California power crisis and what has become a political adversary. The president just finished his meeting with California Governor Gray Davis, and the governor just talked about that meeting. He said he has a -- quote -- "fundamental disagreement with the White House over the power crisis."
This is the president's first trip to the state, by the way, today, described by the "Financial Times" today as "his third foreign visit." That headline capturing the tension and outright hostility that has erupted between the White House and the California governor.
The governor, in those brief minutes in which he has been talking about the meeting that has just broken up, that meeting between the president and the governor going on for quite sometime, also announcing that he indeed, and the state, will be suing for price relief, suing the Energy Regulatory Commission for that relief.
Now, senior White House correspondent John King has been traveling with the president and is there now, and has the report for us -- John.
JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: Well, Lou, tough words and a dramatic escalation. This has been a policy fight over energy between the president and the governor of California, a political battle over energy between these two leaders. And as you just noted, now apparently about to become a legal battle.
California Governor Gray Davis coming out of his 40-minute meeting with President Bush quite disappointed. He said they agreed on things like conservation, agreed that perhaps more had to be done to build more power plants in the future, but on their big difference -- the governor wants price caps on wholesale electricity costs now -- the president looked the governor in the eye, said no. The governor says he is quite disappointed.
(BEGIN VIDEO CLIP)
GOV. GRAY DAVIS (D), CALIFORNIA: While the president and I have a fundamental disagreement on whether or not California is entitled to price relief, I believe there is no doubt we are entitled to it as a matter of law, and the appropriate federal agency has already made the necessary finding to trigger that relief.
(END VIDEO CLIP)
KING: So now California going to court. Earlier in a speech here, some hecklers stood up in the audience and heckled President Bush, as he made clear that he opposed price caps. Mr. Bush saying he does not see price caps on wholesale electricity as part of the solution. Indeed, the president saying in the past they have proven to complicate the problem.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We will not take any action that makes California's problems worse, and that's why I oppose price caps. Price caps...
(APPLAUSE)
Price caps do nothing to reduce demand, and they do nothing to increase supply.
(END VIDEO CLIP)
KING: Now, this is the president's first trip to California since taking office, obvious political implications there, and Governor Davis, even as he said he would file suit, also looking forward to the new political environment in Washington. He has been disappointed with the response from President Bush. He says he is looking for help, once the Senate is run by the Democrats -- Lou.
DOBBS: John, thank you very much, John King.
Well, the rhetoric from California Democrats has become increasingly livid and bitter, and that is no accident. The governor has hired two of the toughest political guns in Democratic politics. They have a clear, mission to paint the White House as indifferent to California's problems. Casey Wian has our report.
(BEGIN VIDEOTAPE) CASEY WIAN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Democratic Party-organized protesters greeted President Bush during his first official visit to California with harsh criticism of his energy policies. It's an example of how Democrats, particularly California Governor Gray Davis, are turning up the heat on the president.
BUSH: This is no time for harsh rhetoric. It's certainly no time for name-calling. It's time for leadership. It's time for results.
WIAN: Davis took off the gloves earlier this month when he hired two former Clinton-Gore political operatives as communications consultants. Chris Lehane and Mark Fabiani will earn $30,000 a month for six months. Despite Davis' $30 million re-election campaign war chest, California taxpayers will pay their bill.
GARRY SOUTH, DAVIS POLITICAL ADVISER: I notice some of the same Republicans that are complaining about this hire didn't say a word when President Bush brought his campaign consultant and campaign manager, Karl Rove, into the White House and gave him a West Wing office and a pretty healthy salary. This is -- governors, presidents are political offices. They hire political people. There's nothing unusual about that.
WIAN: As Al Gore's campaign spokesman, Lehane compared Florida Secretary of State Katherine Harris to a Soviet commissar. Fabiani headed the Clinton White House crisis response team, known as the Masters of Disaster. Fabiani also works for Southern California Edison, the utility Davis has been trying to save from bankruptcy.
Republican counter-attacks include e-mails to contributors, urging them to send pre-written letters to the editor and to call talk radio shows in support of the president's energy plan.
(on camera): Polls show that neither President Bush nor Governor Davis score very well among Californians in their handling of the electricity crisis. The difference is, the president may not need California's support to win re-election.
Casey Wian, CNN Financial News, Los Angeles.
(END VIDEOTAPE)
DOBBS: California is not the only state bracing for trouble this summer. The White House has identified several regions in the country that face price pressures and what it calls "reliability problems." Aside from California, those potential problem areas include Long Island, the southern part of New England, the Great Lakes and some parts of the Southeast. The arrows you see there on the map indicate the location and the direction of the transmission bottlenecks.
Oil prices today rose, that after Iraq once again threatened to withhold supply. Baghdad vowed to cut off oil trade with any nation that accepts new sanctions being proposed within the United Nations. Iraq exports more than two million barrels a day now. Light sweet crude gained 28 cents, settling at $28.66 a barrel. Light sweet crude has risen about 7 percent, and prices so far this year have been generally stable. So what is behind our nation's energy problems? Joining me now, an expert on the energy industry, Daniel Yergin. He's the chairman of Cambridge Energy Research Associates. Dan, good to see you.
DANIEL YERGIN, CAMBRIDGE ENERGY RESEARCH ASSOCIATES: Good to be here, thanks.
DOBBS: Let's start, first, if I may, Dan, with the Iraq situation. This is not the first time we have heard Saddam Hussein say he is going to withhold oil. This is, as a matter of a fact, a bit of a tired game, isn't it?
YERGIN: Yes, it is. This always happens when the U.N. reaches the time for a new sanction system, and this happens to coincide with the next OPEC meeting that's coming up in the next few days. And so, Iraq's threats definitely rattled the market.
DOBBS: And with this move up in oil prices we saw today -- since November prices have been fairly stable on the world markets. What is your outlook?
YERGIN: We see oil prices a little over $27 this year, West Texas Intermediate, which is about $3 lower than last year, but it is going to be vulnerable, A, to what OPEC does in terms of increasing supply -- and we need more supply in the market -- and, B, if there is a prolonged problem with Iraq, we'll also see that reflected in prices. And then we get prices higher.
DOBBS: Now, let's move to the existing problem in this country, and that is, first, refining capacity, and the prospect of higher prices for certain -- specifically, gasoline. What is your outlook for gasoline prices in this country?
YERGIN: Gasoline prices right now are over $1.70 a gallon on average. We think that this reflects sort of the early part of the summer, that reflects, of course, higher crude prices, it reflects other prices being higher and the loss of flexibility in the system.
But if we were betting, we'd say, expect -- unless there are some real problems in the refinery systems -- that, as the summer progresses, these prices are going to be coming down.
DOBBS: And we have just shown our viewers on the map what the White House sees as potential problems this year. The president obviously today in California, in an extended meeting with Governor Gray Davis, the two men are squaring off rather bitterly over the problems in California. What in your judgment in California is the basic problem, and how can it be resolved?
YERGIN: Lou, the basic problem is not enough supply. It is about 10 percent short. And what we need in the short term, of course, is to increase supply, and also more conservation, which means passing some price signals through to consumers rather than having them suffer from blackouts.
And I think this very vitriolic language that we are getting that we have just seen some examples of is not going to encourage anybody to come to this state and invest in new power capacity. It is going to drive them away, because people are afraid of being nationalized.
DOBBS: Governor Davis has out-and-out accused several members of the energy industry of price gouging. A report out today says there is no sign of that whatsoever. What is your take?
YERGIN: I think that this is a very -- this is a market with a bad shortage, and if people like the governor and others had focused on it a year, 15 months ago, and gotten together with people to try and solve the problem, we would be in lot better shape than the state is in today.
DOBBS: Both President Bush and a number of the energy company executives I have talked with say there is no short term solution, but there has to be a short term bridge of some sort here. What is it? Tell us, Dan, real quickly.
YERGIN: Well, I don't think it is price caps. It is some sort of portfolio buying. Price caps would make the situation -- would make it worse.
DOBBS: OK, Daniel Yergin, as always, good...
YERGIN: And conservation.
DOBBS: Conservation, as always.
YERGIN: Right.
DOBBS: Dan, thank you.
Well, in Houston today a multibillion-dollar deal out of Conoco. The fifth biggest oil company in this country agreed to by Gulf Canada paying $4.3 billion assuming about $2 billion in debt. That values Gulf Canada at roughly $8 a share, a 34 percent premium over the closing price in Toronto yesterday. Conoco's stock barely moved during today's session. And Gulf Canada's shares up just shy of $2 to $7.91 in New York trading.
Still to come here: Technology stocks slammed on the first day of this day of this holiday-shortened trading weed, hit by a gloomy forecast for two technology bellwethers. Also, more problems for technology and technology and telecommunications: Lucent has broken out of a deal with Alcatel.
And the real world impact of the high-technology slide: empty office space across this the country. Stay with us.
(COMMERCIAL BREAK)
DOBBS: On Wall Street today technology stocks tumble for the third session out of four. Two pieces of bad news: after the bell, the collapse of merger talks between Lucent and Alcatel. And a profit warning from the company that used to bill itself "putting the dot in dot com": Sun Microsystems. But even before those developments, investors found plenty of reasons to sell techs and telecom. Kitty Pilgrim has the report.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The first day back after the long weekend had all the feel of a lackluster Monday a day late. Volume was low and trading generally negative. The Nasdaq composite fell 70 points to close at 2,180. The Dow dipped below the 11,000 level, but then recovered slightly. Traders said the low volume told the story of a market without conviction.
ANGEL MATA, LEGG MASON: I don't think we're going to see any kind of dramatic pullback, but I think we'll see a period here over the next couple weeks of consolidation, and to me, that's a healthy sign in the market.
PILGRIM: One cause of pessimism, Goldman Sachs cut 2002 estimates for Sun Microsystems and EMC, saying slow growth in the U.S. and Europe could hurt earnings. That generated worries that technology may not stand up to the anticipated bad news in the preannouncement season, which will come in about two weeks.
Techs such as Cisco, Dell, Applied Materials, IBM and Intel all traded lower. The stock of workstation maker Sun Microsystems is down nearly $2 and has been slumping for months. EMC, the No. 1 one data storage provider follows a similar pattern, and announced it is cutting more than 1,000 jobs. Yet Goldman is keeping both on its recommended list. The analysts who made the call, was not overly pessimistic.
LINDA CONIGLIARO, GOLDMAN SACHS: Maybe there's a little backtracking in both, but certainly I would not expect by any means to have these companies retest their lows.
(END VIDEOTAPE)
PILGRIM: Despite the decline in the market economic data on the economy painted a good picture. Consumer spending had its biggest increase since January, and consumer confidence bounced back in April -- Lou.
DOBBS: Kitty, thank you. Well more bad news late today. Sun Microsystems issuing a profit warning over results for its fiscal fourth quarter, saying both earnings and sales will be short of forecasts. In after hours trading activity, Sun down more than $1 a share. Bruce Francis will be here later in the program and has more for us on the Sun warning.
Also late today late today, merger talks between Alcatel and Lucent ended abruptly. Investors don't seem disappointed. Shares of both companies are slightly higher in after hours trading. Fred Katayama has the report.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The talks that would have created a $23 billion marriage broke down at the 11th hour before the two sides even got to the altar. Lucent and Alcatel said in a statement, "These discussions have not resulted in any agreements, and have been terminated." The companies would not comment any further.
A source close to the talks said that the negotiations ended after it became clear the deal would not be construed as a merger of equals, which is what Lucent had wanted. One sign Lucent was committed to a merger but not an acquisition: It was willing to do a deal without a premium. Another thorn for Lucent: The source said Alcatel would not agree to split the board of the combined company 50- 50. Investors of both companies cheered the news, sending shares of Lucent and Alcatel up in after-hours trading.
LAWRENCE HARRIS, JOSEPHTRAL & CO: I think a number of Alcatel shareholders were concerned about the potential dilution that would be associated with acquiring Lucent, which, at least in the near term, would continue to generate significant operating losses. From the Lucent shareholder perspective, they were concerned that there was an absence of a premium associated with the Alcatel offer.
KATAYAMA: Some analysts believe Lucent will now try to go it alone. But it'll have to find a successor to interim chairman Henry Schacht. Others say there aren't many companies interested in pulling off such a deal, given Lucent's weak financial condition.
(END VIDEOTAPE)
The two sides initially began talking after Alcatel had expressed interest in buying Lucent's fiber optics business. Analysts say Lucent will still have to try to sell that business because it needs the cash. And they say, don't rule out Alcatel as a possible buyer of that business -- Lou.
DOBBS: Fred, thank you very much,
Coming here next, the nation's fifth largest bank in the midst of a turnaround.
(COMMERCIAL BREAK)
DOBBS: Jamie Dimon took over Bank One in March of 2000 and he had his work cut out for him. The stock had dropped by more than half in less than a year, and some on Wall Street believed the bank was a prime takeover target. Dimon, a Citigroup veteran, initiated a major cost-cutting plan, cut the stock dividend in half, and cleaned up the bank's balance sheet.
The stock has climbed 36 percent since Dimon joined Bank One. It is currently trading at $38 and change. Joining me now from Chicago, Jamie Dimon, the chairman and CEO of Bank One.
Jamie, good to see you. JAMIE DIMON, BANK ONE: Lou, great to be back.
DOBBS: I know this has been a tough year for you, you have had to lay off almost 5,000 people. You have had to institute some very tough cost-cutting measures. Is it your judgment, that you have the bank stabilized and where you want it, in terms of its operations?
DIMON: Yeah, well, we definitely have the bank stabilized, because we earned about -- almost $700 million in the first quarter. And sometime later this year, we are going to convert from defense to offense, and we're building a platform and a balance sheet to do that.
DOBBS: Now, also a part of that strategy is your purchase of Wachovia's $8 billion in credit card business. You have said you think it's a very important part of your strategy going forward. Now we have the situation with Wachovia defending itself against a hostile bid from Sun Trust and trying to wrap up a deal with First Union. Where does that leave Bank One and your plans for its credit card business?
DIMON: Right, I think a couple important things: I think it's a shareholder of Bank One -- no one should be worried -- lose any sleep over any of the potential outcomes, but I think our desire to grow the credit card business -- we are very big in it, we're getting very good at it.
And at least it shows our intent, our desire, and at least our self perceived capability, so we hope it goes through, and we will see.
DOBBS: At this juncture, the Sun Trust bid, does that raise any particular issues for your desire to acquire the credit card business?
DIMON: You know, Lou, it definitely raises a bunch of issues, and we will be working it out with Wachovia hopefully in the next couple weeks.
DOBBS: OK, in terms of your business going forward, obviously, the economic conditions are deteriorating somewhat. We are seeing some increase in delinquencies, we are seeing some slowdown in credit, give us your judgment of the business conditions, that Bank One is now operating in?
DIMON: I think since I got here a year ago, I have seen nothing but deterioration in credit, which continues to this day. There is a small sign of hope, that if the economy either stabilizes or recovers, I think you can see credit, start to improve somewhat in the third or fourth quarter this year, not just for Bank One but I'm talking about for the economy in general.
DOBBS: And, at this point, you're talking about moving to offense, as I understood you, in the final part of the year, the end of the third quarter, fourth quarter -- what will the offense look like?
DIMON: Yeah, I think if you have a management team in place, you have a strong balance sheet, earnings which are believed and the capability to execute conversions which we have a few to do this year, I think that we will start to think about how we can grow our company, possibly acquire things, add products and services, and we've got some great people working real hard to get us out of boot camp.
DOBBS: And as you talk about adding services and products, would that also include another banking institution?
DIMON: No, I think, again, talking generically, it probably makes sense down the road, that there will be more banking acquisitions and mergers, not just us, and it may as soon as something we will want to be able to play in if we so desire, but we are not quite ready yet. But we will be ready for the next couple quarters.
DOBBS: Jamie, I know you want to take Bank One a lot further, but, congratulations on what has been a tough and a significant year of accomplishment for you, good to see you.
DIMON: Lou, I appreciate it. Thank you very much.
DOBBS: Jamie Dimon.
Coming up: opening weekend for "Pearl Harbor." We'll get the box office numbers from the first salvos of the summer movie season. And we'll be talking to media analyst Chris Dixon. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Verdicts today in the trial of four men charged with the bombings of two U.S. embassies in Africa three years ago.
A federal jury in Manhattan convicted the four on all charges, including conspiracy and murder. The 1998 blasts in Kenya and Tanzania killed 224 people, including 12 Americans, and injured more than 4,000 others. The jury took 12 days to deliberate over the 302 charges against the defendants, who allegedly acted at the behest of suspected terrorist mastermind Osama bin Laden. Prosecutors expressed their satisfaction with the verdict.
(BEGIN VIDEO CLIP)
MARY JO WHITE, U.S. ATTORNEY: Today's guilty verdicts are a triumph for world justice and for world unity in combating international terrorism. They are also a tribute to the brave and women and their families, who work abroad for the State Department, U.S. military, and in our embassies around the world.
(END VIDEO CLIP)
DOBBS: Two of the convicted now may face the death penalty, the penalty phase of the trial begins in a Manhattan courtroom tomorrow.
Coming up on MONEYLINE, a warning sends shares of Sun Microsystems tumbling in after hours trading.
And later, is the commercial real estate boom, going bust? Office space emptying out at a record rate, and that's creating concern about many sectors beyond commercial real estate. We'll have a full report.
MONEYLINE will be right back.
(COMMERCIAL BREAK)
DOBBS: Welcome back to MONEYLINE. We want to update you on the day's top stories. Less than an hour ago, President Bush wrapped up his long-awaited meeting with California Governor Gray Davis. The governor said Mr. Bush rejected his calls for price caps to help ease the power crisis in California. In response, the governor said he will sue the federal government to impose price relief.
On Wall Street, technology and telecommunication dominating, and the Nasdaq tumbles 3 percent. After the bell, some saying both profits and sales will disappoint Wall Street, and Lucent has just announced its merger talks with Alcatel have broken off. Those stocks are rallying in after-hours trading.
We begin now with that warning from Sun Micro and Bruce Francis.
BRUCE FRANCIS, CNN FINANCIAL NEWS CORRESPONDENT: Lou, certainly, more bad news for technology here, although not a shocker. Sun Microsystems is warning that its earnings will fall short of Wall Street expectations, slashing analysts' estimates by as much as two- thirds for the fourth or current quarter. Sun now expects earnings to be in a range of two to four cents a share, down from the current average of six cents a share.
On a regularly scheduled conference call with analysts, Sun blamed weaker demand in Europe and Asia for the shortfall. Sun also says its sales to telecommunication companies continue to slow down. The good news, and only good by comparison, Sun says that its U.S. business has stabilized. Sun says it will provide more guidance when the reports results on July 19.
Sun fell in the regular session today, as investors anticipated the news. And in after-hours, it's another $1.12 lower as well, so investors were clearly anticipating this, that the notion that it's spreading to Europe is certainly something that's going to be troubling to tech investors.
DOBBS: And the technology sector just doesn't seem to be able to get away from the bad news.
FRANCIS: No. It can't, Lou. Not at all.
DOBBS: Bruce, thank you.
Well, aside from technology news, investors were assessing the latest round of economic news, which show continued resilience among consumers in particular. Consumer confidence has jumped so far this month. The conference board found that while most were concerned about the job market, they weren't pulling back on spending. The latest look at income and spending also showing a resilient consumer, spending rising solidly during the months of April, even though income rose at its slowest pace in months.
But not all the reports so comforting. A nationwide survey released today shows a sharp spike in commercial real estate vacancies. Total occupied office space actually fell in the first quarter. That's the first time that's happened in two decades. Peter Viles reports.
(BEGIN VIDEOTAPE)
PETER VILES, CNN FINANCIAL CORRESPONDENT: It sure was a heck of a party, but now that dot-com and high tech hangover so familiar to investors is spreading to commercial real estate, or as they say in Boston at the consulting firm Torto Wheaton.
RAYMOND TORTO, TORTO WHEATON RESEARCH: You party hard, you pay for it.
VILES: For the first time in 20 years of research, Torto Wheaton reports that total occupied office space fell by 17 million square feet in the first quarter, in large part because big firms, many of them technology companies, decided to give back, or sublease, 20 million square feet.
TORTO: Companies giving back space are really the household names that you know of, from Intel to Cisco. And it is in those marketplaces that you've been reading about, from San Francisco to San Jose to Tyson's Corner to Boston to Seattle to Austin, Texas.
VILES: Nationally, the office vacancy rate shot from 8.3 to 9.5 percent in the first quarter. In downtown Boston, the rate doubled to 4.6 percent. In Austin, it spiked to 6.2 percent, and it doubled to 6.6 percent in San Francisco.
But all of those rates are relatively low. National vacancy rates were close to 20 percent 10 years ago. In other words, this hangover isn't as bad as the last one.
ROSS SMOTRICH, BEAR STEARNS: What's notable, however, in this environment, in our minds, is that supply has remained relatively disciplined. And as such, the supply and demand dynamic remains relatively healthy.
(END VIDEOTAPE)
VILES: Ten years ago, the problem in commercial real estate was overbuilding and oversupply. This time, analysts are struck by the very sudden and very sharp decline in demand -- Lou.
DOBBS: We may likely find out just whether or not that discipline, the supply is adequate.
VILES: This will test that discipline, yes.
DOBBS: Thanks.
Well, there is concern among some economists that demand is falling not just in commercial real estate but in a number of other sectors in our economy, including basic commodities.
Lisa Leiter reports from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Factory output has dropped for seven straight months, and that means weak demand and rock-bottom prices for raw goods like copper and cotton. The key CRB index of commodity prices has dropped more than 7 percent this year. That drop does not compare to the frenetic sell- off of 1998, during the global economic crisis, but it does signal that inflation is well under control.
BRIAN WESBURY, GRIFFIN, KUBIK, STEPHENS & THOMPSON: Commodity prices are a great signal of whether inflation is a problem. And right now, other than energy, those commodity prices are signaling that inflation is not a problem at all, in fact, doesn't exist today in our world.
LEITER: Gasoline prices have spiked this year, but most other commodities are trading at or near their lowest levels in at least a decade. Cotton, down 34 percent this year. Corn, down 18 percent. Sugar, off 13 percent, and soy beans down 10 percent in 2001.
WILLIAM O'NEILL, MERRILL LYNCH: Demand levels are considerably below the levels they were last year, and even at the end of the previous year. So, until we get that next kick of demand, which I anticipate will probably be in the first quarter of next year, prices I think will remain, at best even, and likely slightly lower than even the low levels that we are at now.
LEITER: Analysts also say industrial production must pick up for commodity prices to recover.
(END VIDEOTAPE)
LEITER: Some economists are putting their faith in the Federal Reserve, hoping that this year's aggressive rate cutting will increase consumer demand and ultimately stabilize prices -- Lou.
DOBBS: Lisa, thank you.
Well, on Wall Street, it's no secret that market performance has been bifurcated along old and new economy lines. But a recent report provides startling new numbers, saying that without those volatile technology and telecommunication issues, the broader market is almost even with year-ago levels.
Seventy-five percent of the market, therefore, is close to hitting an all-time high. In fact, just 25 stocks account for 80 percent of the $3 trillion lost since early last year on the Nasdaq. Among them: Cisco, Intel, Lucent, Microsoft and Nortel.
Joining me now is Jim Bianco, who is the author of this report. Jim, good to have you with us.
JIM BIANCO, PRESIDENT, BIANCORESEARCH.COM: Thanks for having me, Lou.
DOBBS: Jim, this is a rather startling report. The first conclusion one would make is that all is well except in technology and big cap telecommunications. Is that all there is to it?
BIANCO: No, but it's not too far from the truth. It's not that all is well, except for technology communication, it is that all is not as bad as we would make it out to be, once we take technology and communications out of the equation.
It's not doing great, but it's not doing nearly as bad as everybody makes it out to be, needing constant resuscitation from the Federal Reserve as we have seen this year, kind of muddling along.
DOBBS: In terms of technology and telecommunications, we are looking at straightforward a demand recession, if you will, at least for that sector, would you not agree?
BIANCO: Oh, absolutely. That sector is in deep trouble right now. The stocks are reflecting it. As your story about real estate suggested, we are seeing it on all broad areas of the technology and in the telecom area, that there is weakness and there is more trouble ahead for that sector.
DOBBS: And that sector right now faced, as you said, with recession in terms of demand overcapacity, we are seeing the fallout, for example, in corporate office space. What's your best guess as to the next impact on the economy as a result of the problems of those two sectors, telecommunications and technology?
BIANCO: Well, I don't think they are out of the woods yet. I think that the over investment in technology, the capital expenditures that most companies have done, have been to a point where we are going to have to take more time before we see ourselves work it through.
Fortunately, the capital expenditures has not been in something like real estate that takes a long time to work through, but in more high-tech equipment which gets obsolete a lot faster. But the bottom is not yet there, but there is definitely signs of improvement in everything but technology and telecommunication.
DOBBS: In this -- and because this is a demand recession within technology and telecommunications, the Fed interest rate cuts, five of them, 250 basis points in less than five months, perhaps that is also problematic for the rest of the economy? Represented by those stocks and companies, X technology, X telecommunications.
BIANCO: Yeah, the X technology, telecommunications section of the economy, 75 percent of the economy is very sensitive to interest rates. Its all-time high was June 1999, right when the Fed started to cut rates. The fear here is that with the Fed aggressively cutting rates -- and I know your last story talked about that there is no inflation -- but that is not the way the bond market is reading it right now.
They are getting worried that the Fed might be on the stage of overdoing it, and that is one of the reasons why long-term interest rates are not coming down with all these rate cuts. And if they don't, and long-term rates continue to go up, it could really be a big damper on the ex-technology/telecommunication sector.
DOBBS: Well, it's always fascinating to watch the bond market try to discern what's going on, as you know. Jim Bianco, thanks for being with us.
BIANCO: Thank you.
DOBBS: Just ahead, Microsoft is looking for an appellate reversal of a judges's breakup order. We'll tell you why its legal challenges certainly will not end there. Stay with us.
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DOBBS: In other corporate news tonight, General Electric on the defensive. European commission started a two-day hearing to decide whether the deal with Honeywell would give GE an unfair advantage over its competitors. The commission has until July 12 to make a decision on the deal. The Justice Department gave its approval earlier this year. Shares of GE and Honeywell both lower today.
And a decade in the making and two years later than planned, Intel has unveiled its titanium chip. Co-developed with Hewlett- Packard, the new design is built to handle major amounts of data and memory. The company hopes the new design will enable it to move away from the PC industry to corporate networks. But investors seemed less than enthusiastic. The stock down a dollar and a quarter on the day, but it was a bad day overall for technology.
In other technology news tonight, Microsoft taking aim at the empire of AOL TIME WARNER, CNN's parent company. Microsoft's launching a $50 million advertising campaign meant to win over AOL subscribers in the wake of last week's AOL price increase. The campaign says, "Why pay more for the same old service?" And promises three months of MSN, free. Checking those stocks, Microsoft off 57 cents a share, AOL-TIME WARNER down just about $2.50 a share.
It's been three months since the court of appeals heard arguments in the Microsoft case about whether a judge's order to breakup the company should be upheld. The appellate panel is expected to rule any day now. And ahead of that decision MONEYLINE has learned the states are planning to press the attack against the software powerhouse, full throttle. Steve Young has covered the Microsoft case from the outset, and joins us now with the latest -- Steve.
STEVE YOUNG, CNN CORRESPONDENT: Lou, that is right. In advance of a court of appeals decision we have learned that the states that sued Microsoft are preparing for the worst and putting pressure on the White House.
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(voice-over): MONEYLINE has learned that 19 states and the District of Columbia have decided to appeal any setback in the Microsoft case to the Supreme Court. In fact, the planning already has begun. Many antitrust experts think the appeals court will uphold a lower courts finding that Microsoft broke the law in how it maintained its windows monopoly, but they expect the court to overturn the district court decision that Microsoft illegally bundled or tied its Web browser in windows.
They expect the appeals court to say a lower court judge committed errors, and the case should be sent to another judge for testimony on what restraints to impose on Microsoft. They also expect a breakup will be ruled out. The states have urged tougher punishment for the company than the Justice Department thought necessary. They will appeal, even if the Bush Administration backs off.
RICHARD BLUMENTHAL, CONNECTICUT ATTORNEY GENERAL: We are planning for both the worst, and the best case scenarios by talking to experts who might be witnesses, if the case is remanded back for new hearings and trial before the district court. We can prepare by thinking about testimony, legal theories, proof that might be mustered to meet the problems that the court of appeal hypothetically might address.
YOUNG: Antitrust experts say whatever the outcome, a Supreme Court review would be welcome.
STEPHEN AXINN, AXINN, VELTROP & HARKRIDER: We are talking about a really basic and fundamental issue about how the Sherman Act, and the antitrust laws generally should be applied to fast changing high- tech business conditions.
YOUNG: The states have not consulted with federal government because Charles James, the Bush Administration's nominee to be antitrust chief of the Justice Department still hasn't been confirmed by the Senate.
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Connecticut's attorney general says he expects to have all or most of the states that sued Microsoft stand behind a Supreme Court appeal -- Lou.
DOBBS: Steve, thank you. well, you may not have realized this, but Microsoft's stock today slipped slightly, but the stock is up 75 percent -- 75 percent, Steve -- from its high set back in January. I wonder how many technology companies out there are hoping that the U.S. Justice Department will sue them?
YOUNG: It is a powerhouse.
DOBBS: Thanks, Steve,
Well a grim prognosis for data storage stocks. We'll have the grim details, next. Stay with us.
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DOBBS: Data storage stocks in our sector, as we told you, Sun warning after the bell tonight. That only adding furor to the fire. Earlier today, EMC announced 1,100 job cuts, about 4 percent of its workforce, part of an aggressive push for 20 percent revenue growth this year. But Goldman Sachs says EMC won't even come close to that number. Goldman today cutting sales and profit forecasts for both EMC and Sun, saying there is no noticeable sign of improvement in the economy, and that the slowdown is, in fact spreading to Europe and Asia.
Also, Goldman saying ongoing price wars will continue to hurt the bottom line of those companies. Storage issues stumbling today. EMC down more than $3, Sun off almost $2, and falling in after hours trading as well. Network Appliance down over $3 a share.
Straight ahead, how much does one movie matter? And do movie critics matter at all? Stay with us.
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DOBBS: Disney's "Pearl Harbor" topped the box office this weekend, earning about $75 million in its debut. That is the second best Memorial Day opening ever. The record set in 1997 by "The Lost World: Jurassic Park."
Not bad for a film that critics uniformly and universally panned -- "awful," "terrible," some of the more pleasant words they used. Taking a look at Disney stock today, down fractionally. Other media issues were down less than -- more than fractionally.
Joining me now is Chris Dixon of UBS Warburg. Good to see you.
CHRIS DIXON, UBS WARBURG: This movie, a blockbuster opening by any standard. It's sort of amusing to me, a number of people said it was a disappointing earnings...
DIXON: Any movie that does $75 million in its first weekend has got to be great. I think the thing is that this movie this weekend was a great weekend -- $176 million. We saw "Shrek" from Dreamworks, which was actually up, something that movies don't do in their second week. So this is really good news for the movie industry in general.
DOBBS: With a lot of blockbusters to come.
DIXON: We've got a lot.
DOBBS: All of this said -- and I know that investors love to buy when they see a great movie -- is this going to have a significant impact on Disney's earnings?
DIXON: Not really. The real focus in fact is we think that Snow White re-released from DVD will probably generate more money than "Pearl Harbor." But the real story is that these companies are now, much larger media conglomerates. There is a lot of issues going on.
We have actually gone out, been a little bit more cautious, we're very concerned, as to what's going to happen in the second half of this year with advertising, and that is the big story. DOBBS: Advertising up front began today, officially, it actually has been under way for sometime, but officially beginning today, how bad is this slump? How will it affect the major media companies?
DIXON: I think the up front market is down almost 18 percent.
DOBBS: Wow.
DIXON: And the reason for that is really because last year we had a lot of people who wanted to advertise early on in the year and get those commitments. This year they are going to wait until later. So we think the big issue is going to be when we see some earnings coming from Ford, earnings coming from Anheuser-Busch, companies like Procter & Gamble. If they do well in June, then we probably have a fine advertising world, but if those companies come under pressure, it's going to be really tough.
DOBBS: So, those are your leading indicators for the media market, the advertising market going into the second half?
DIXON: Now, the good news is that the consumer looks to be coming back. And so we will come back and look at that and really see some strength coming into the beginning of next year.
DOBBS: And what are you looking for -- are you buying here, and if so, what are you buying?
DIXON: We are being cautious. We are being very selective on stocks. If I see Disney trade around the $30 level, we'll get very aggressive. Similarly, if we AOL-Time Warner trade 10 percent down from here, Viacom 10 percent down, we get very aggressive, because long term fundamentals are intact.
DOBBS: Great. Chris Dixon, good to see you,as always. Chris Dixon, UBS Warburg.
Up next, "Ahead Of The Curve." Stay with us.
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DOBBS: Keep an eye on several stocks tomorrow, shares of Lucent and Alcatel moving higher in active trading, after hours, after announcing merger talks fell through. And Sun Microsystems is moving still lower in late trading after warning its fourth quarter results will disappoint Wall Street.
Finally tonight, the highest court in the land weighs in on one golfer's crusade.
Professional golfer Casey Martin today won the Supreme Court's case. The court giving its blessing to use a golf cart, rather than walk that course, during tournaments. The court today ruled seven to two that the Americans With Disabilities Act prevents the PGA from requiring him to walk.
Martin suffers from a circulatory disease that prevents him from walking long distances. The PGA said that despite that ruling, it will keep the walking requirement in its rule book for all other golfers.
Justice John Paul Stevens, himself an avid golfer, writing for the majority, said, "there is nothing in rules of golf that either forbids the use of carts or penalizes a player for using cart," and said, "from early on, the essence of the game has been shot making."
And any golfer will tell you that.
That's MONEYLINE for this Tuesday. I'm Lou Dobbs. "CROSSFIRE" is coming next.
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