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Lou Dobbs Moneyline
Dow Declines 113.74 to 10,977.00; Nasdaq Tumbles 48.90 to 2,215.10; President Prepares for His First Overseas Trip
Aired June 08, 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 prepares for his first overseas trip, seeking support for his missile defense plan.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We must have the capacity to shoot that missile down.
(END VIDEO CLIP)
DOBBS: On Wall Street, not just one opening bell...
(BELL RINGING)
DOBBS: ... but two. The big board halts trading for more than an hour after a high-tech breakdown. The shutdown and warnings from high-tech companies combine to send stock prices tumbling.
And in Cuba, American business gathers, preparing for the lifting of the U.S. trade embargo. We'll go live to Havana.
ANNOUNCER: Live, from the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening.
A chaotic session on Wall Street -- a technical breakdown shuts the world's largest equities exchange for more than an hour. The New York Stock Exchange confusion rattled many investors already contending with quarterly warnings from big tech companies, including Juniper, 3Com, and Handspring. And prices ended the session sharply lower. We'll have much more on the market retreat and the big board breakdown.
But first, President Bush prepares for his first trip across the Atlantic as commander in chief. President Bush saying that he will use his European trip to press for a fundamental rethinking of western defense strategy in the Post-Cold War world.
(BEGIN VIDEO CLIP)
BUSH: Our United States and our allies ought to develop the capacity to address the true threats of the 21st century. The true threats are biological and informational warfare. The true threats are the fact that some rogue nations who can't stand America, our allies or our freedoms or our successes, will try to point a missile at us, and we must have the capacity to shoot that missile down.
DOBBS: And ahead of the president's trip, Defense Secretary Donald Rumsfeld met with NATO officials in Brussels, looking to sell that missile defense plan. Rumsfeld used satellite photos, videotape and other intelligence materials to argue that emerging threats from Libya, North Korea and other nations require abandoning the 29-year- old Anti-Ballistic Missile Treaty. It will be a tough sell, with some NATO officials concerned that the missile shield would set off a new arms race.
And Russian Defense Minister Sergei Ivanov, who also met with Rumsfeld today, said the alleged threat to the United States from long-range missiles is "entirely hypothetical." Tim O'Brien has more from Washington now on the challenges facing the president on his inaugural European trip.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): The trip is much more than merely an opportunity for President Bush to take the measure of his European counterparts. He'll be expected to have answers to difficult questions on a wide range of issues, like his proposed missile shield. Europeans are not persuaded it is needed, or that it would work, or that the time is right to walk away from the ABM Treaty the U.S. signed in 1972.
JONATHAN CLARKE, CATO INSTITUTE: So they'll be saying to the president, can have a few years before going to that next stage.
O'BRIEN (on camera): And what if the president says no?
CLARKE: Well, then there will be some blood on the floor.
O'BRIEN (voice-over): The president will have his first meeting with Russian President Putin, who has publicly taken issue with missile shield idea. With nearly $2 1/2 trillion going back and forth across the Atlantic each year, trade is also a huge issue, and the European Union also has differences with the United States.
FRANK VARGO, NATIONAL ASSOCIATION OF MANUFACTURERS: The United States wants to sell something, you say, "new, improved." In Europe that's not the way you sell things, so they're much more suspicious about genetically modified grains and things like this.
O'BRIEN: In the aftermath of Mad Cow Disease, Europeans are particularly suspicious of growth hormones in American beef. The president's efforts aimed at imposing new barriers on steel imports, although helpful to the ailing U.S. steel industry, are also certain to be challenged. Europeans are also angry over President Bush's rejection of the 1997 Kyoto protocol on global warming. The U.S., with only 5 percent of the world's population, is by some estimates, responsible for more than 25 percent of the pollution that leads to global warming. IVO DAADLER, BROOKINGS INSTITUTION: The president has now said that this is a problem. The Europeans are going to ask, OK, what are you going to do about it?
(END VIDEOTAPE)
O'BRIEN: Mr. Bush is all but certain to face stiff opposition to much of what he has come to represent. As the new American president tries to reassure and to persuade, the other 18 heads of state will also be taking the measure of the man -- Lou?
DOBBS: Tim, in terms of the national missile defense system, there is really very little that Putin or any of the other heads of state can do about it, should the United States want to move ahead. Is that not correct?
O'BRIEN: That is correct, and that's why there's a great deal of concern that the president negotiate with these foreign leaders. Right now the negotiations are there, the consultation is there, but there is still a great deal of concern that the president may still choose to act unilaterally.
DOBBS: And I think it might be good if pointed out on this as well, Tim, that the Senate also made it clear it would not ratify the Kyoto Treaty, even had Mr. Bush or for that matter, Mr. Clinton decided to support it.
O'BRIEN: There's a great deal of problems with the Kyoto Treaty and global warming. In fact, 25 percent of the pollution that leads to global warming, as we've seen, has been attributed to the United States. So there's a big issue there. What will the United States do about it? What is the president's answer? Right now, it's wait and see.
DOBBS: OK, Tim, thank you very much. Tim O'Brien reporting from the White House.
Well, another issue making headlines across the Atlantic tonight: the future of the British pound sterling, falling to 15-year lows against the dollar. That, after the Labour Party pulled off another landslide victory in the British election. The markets are betting that the Labour government will opt to join the Euro currency and peg the pound sterling to the Euro at a weaker exchange rate. The pound closed today at $1.38 in New York trading.
Back in Washington, the White House today announced plans to name Tennessee banker Susan Bies to fill one of the vacancies on the Federal Reserve board of governors. Bies is now an executive at First Tennessee National. She's worked there since 1979. She holds a doctorate in economics from Northwestern. She's taught economics at Wayne State University and once served as economist at the St. Louis Fed. She would be the only woman on the Fed board, as well as the only person with real-life banking experience. There are currently two vacancies on the Fed, and longtime Governor Edward Kelley recently announced his plans to retire. Coming up next on MONEYLINE, the New York Stock Exchange breaks down for the first time in years. We'll ask the chairman and the chief executive officer of the New York Stock Exchange what went wrong and why.
Dick Grasso joins us. An American business gathered in a nation where they're not allowed to do business. We'll have a live report from Havana, Cuba.
(COMMERCIAL BREAK)
DOBBS: Well, for more now on today's breakdown at the New York Stock Exchange, the trouble began at the opening bell. A botched software upgrade corrupted trading at about half the big board's more than 3,000 stocks, and it 10:10 a.m. Eastern, the New York Exchange decided to halt all trading. It's the first shutdown in nearly three years. Trading resumed at about 11:35, but some stocks didn't trade until late in the session.
Peter Viles has our report -- Pete.
PETER VILES, CNN CORRESPONDENT: Lou, an embarrassing day for the New York Stock Exchange. All 3,500 of the stocks that trade here -- all shut down, halted for more than an hour. And all because of a software problem, a computer problem that was self-inflicted.
(BEGIN VIDEOTAPE)
VILES (voice-over): An eerie scene -- trading halted at the New York Stock Exchange. The Exchange opened on schedule at 9:30 this morning, but hundreds of stocks did not. At 10:10, the Exchange shut down all trading, Twenty minutes later, Chairman Richard Grasso explained the decision.
RICHARD GRASSO, CHAIRMAN & CEO, NYSE: Half our floor was operating seamlessly and as smooth as any typical day. The other half of our floor was not receiving our electronic traffic, and we felt it was important for us to interrupt the entire market.
VILES: The glitch came from the overnight installation of new software, which caused problems at eight of the exchange's trading posts, and put traders in the dark.
UNIDENTIFIED MALE: We, effectively, were out of business on New York issues that we wanted to participate in.
UNIDENTIFIED MALE: There was basically no information, so a lot of upset traders. A lot of very upset traders.
VILES: After 85 minutes, trading resumed at 11:35, a rare second opening bell of the day. But even then, there were glitches. About 10 percent of the exchange's stocks did not trade until midafternoon.
GRASSO: We will spend the balance of this weekend, and well into next week, diagnosing, as my partner just said, what the problem was, where we, in our fault recovery processes, did not meet our zero- tolerance measure for uptime, and we will make the changes necessary.
(END VIDEOTAPE)
VILES: Among the traders we talked to today, a fair amount of sympathy for the exchange. Traders pointing out, as you did, Lou, that this has not happened in three years; there hasn't been a shutdown in three years, and the last one lasted only an hour. Traders also pointed out that if you work with large computer systems, and most of us do, you're aware that even the best computer systems occasionally do have a glitch and do go off-line, however briefly -- Lou.
DOBBS: And when you're handling the kind of volume as the Big Board is, it's really remarkable that it doesn't happen more often, I think.
Seven hundred and sixty million shares -- that obviously, Pete, affected volume today.
VILES: Sure, volume on average runs around 1 billion, 2, a day. In some issues, a very dramatic drop-off. IBM traded about 6 million shares yesterday, traded less than 3 million shares today -- Lou.
DOBBS: All right, Pete, thanks very much. Peter Viles from Wall Street.
Well, the Big Board promotes itself as an exchange keeping up with the digital world. The commercials they put out have a futuristic look, and mention the $2 billion dollars invested in technology. And they end with the tagline: "The world puts its stock in us." Today the claims of reliability and high-tech prowess put to the test.
Joining us from the New York Stock Exchange, it's chairman and chief executive officer Richard Grasso.
Dick, I know this has to be a tough day for you. This software that you put in, whose software was it?
GRASSO: Well, Lou, first thank you for inviting me.
The software really is self-engineered. The change that we made overnight, and I think it's important, Lou, for your viewers to understand that over the last three years we've had 1,000 systems releases into our network.
Last night we released a new program into half our systemic capacity, it failed. What also failed, unfortunately, is our ability to recover without having to interrupt the marketplace...
DOBBS: Were you...
GRASSO: ... the software though, Lou, I think it's fair to say, is basically the stock exchange's software. It's not any one vendor that's responsible for this. DOBBS: You had to shut down trading for roughly an hour and 20 minutes. You made that decision, as I understand it, because the retail side -- small investors, individual investors, would have been at a disadvantage. Is that correct?
GRASSO: That's correct, Lou. The network delivers, about 90 percent of our orders to the trading floor, and a very, very high percentage of those orders are small investor orders. It's important to remember that half our floor was operating, business as usual and, in fact, the other half, which was suffering under that faulty software release that we put in overnight could, indeed, have continued to trade with alternative delivery, but...
DOBBS: Dick, let me ask you -- I know your people are working over the weekend...
GRASSO: They are.
DOBBS: ... and into next week. You're highly confident that this problem is going to be solved by the opening of trading Monday?
GRASSO: Lou, the public customer comes first. We must protect their interests. The small order was not being delivered. We reverted back to the old system.
By the opening of trading on Monday, we will basically be back to the same reliable system that didn't have a minute's worth of down- time in the last three years.
DOBBS: Dick, thanks for joining us, Dick Grasso at the end of what has been a very tough day, particularly for the chairman of the Big Board. Thanks.
GRASSO: Thanks for having me Lou.
DOBBS: The Big Board breakdown buffeted investors on a day when they didn't need much turbulence. Several technology companies over the past 24 hours have reported warnings on sales, profits, or both, and that helped send the Nasdaq down today more than 2 percent. The Dow broadly lower; all but five of the Dow 30 ending lower.
Jan Hopkins has our report from the New York Stock Exchange.
(BEGIN VIDEOTAPE)
JAN HOPKINS, CNN CORRESPONDENT (voice-over): One trader said the computer glitch that paralyzed the New York Stock Exchange, quote, "took us all out of our game today," end quote.
Frustration pushed many other trading rooms to the sidelines, resulting in the lightest volume on the New York Stock Exchange so far this year.
MICHAEL MURPHY, FIRST UNION SECURITIES: We were here trading listed stocks, if need be. No one came and asked us to do so. And there are other places where, if people needed to get things done, they probably could, and I didn't see people trying to access those markets, so I think it was a quiet day, and there was no panicking out there, and just another reason for someone to go home early, I think.
HOPKINS: The Dow Industrials tumbled 113 points to close at 10,997, just 13 points below where the index began the week. Honeywell, JP Morgan Chase, Hewlett-Packard, United Technologies and Boeing led the decline.
The Nasdaq Composite slipped 48 points to 2,215 on the fourth- lightest volume of the year. But the Nasdaq ended the week with a 3 percent gain. Friday's warning from networking equipmentmaker Juniper Networks sent shivers through the tech sector, highlighting a tug-of- war that's been raging all week.
BILL BURKE, ROBERTSON STEPHENS: You have the bullish camp of people who think the worst is behind us -- doesn't mean that things are going to turn around over the next three to six months, but the worst might be behind. And then obviously you have deteriorating fundamentals, still, with certain stocks, and that's the bearish camp.
(END VIDEOTAPE)
HOPKINS: Investors looking for a more stable market may have to wait until we're finished with the earnings preannouncement period. Until then, analysts say, expect more choppiness ahead -- Lou.
DOBBS: Jan, this had to be quite a day down at the Big Board. How did people feel as they were walking out to begin their weekends after all of the down market and a closed market?
HOPKINS: Well, it was kind of a mixed picture. Some were sympathetic to the exchange's problems, and others were angry that business was really interrupted during the day -- Lou.
DOBBS: All right, Jan, thank you very much -- Jan Hopkins.
Will, just ahead, a cable TV kingpin parts ways with a software powerhouse: the story behind what scrambled the deal between AT&T and Microsoft. And a new challenge to making money providing service to the Internet: entrepreneurs who promise wireless Web access, and the price is zero. Also, cold weather in the Midwest has put farmers in a bind: the financial impact of unusually cold weather in the Midwest next.
(COMMERCIAL BREAK)
DOBBS: Just as the cable TV industry prepares for a major trade show in Chicago next week, a potential rift exposed between two big players. AT&T has decided not to deploy the next generation of software that Microsoft is scrambling to develop.
Bruce Francis has the story.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Microsoft's biggest cable customer is zapping the software giant's cable TV software. AT&T says it will now use an earlier version of interactive TV services based on existing cable boxes. That will indefinitely delay the deployment of software by Microsoft, which invested $5 billion in AT&T just over two years ago.
Microsoft's cable TV software has been plagued by delays, and a list of features.
RICHARD DOHERTY, THE ENVISIONEERING GROUP: It is a big blow to Microsoft's schedule, because they had been showing some wonderful features of Microsoft TV, that third parties are going to take advantage of, of TV commerce, of news links, of Web links, and all this developer efforts right now have go to a plan B, or a plan C.
FRANCIS: AT&T says consumer trials led them to choose the scaled-down system, but some experts believe tight capital played a role as well. In addition to standard cable TV, AT&T's upgraded system looks like this. Customers will be able to get a limited version of video on demand and e-mail and Web access via a phone connection.
But lightning fast connections to Web, via a cable modem and the next generation services that go with it will have to wait. That is a potential boon for Liberate, whose software is being used by AT&T in its successful trial.
TODD RAKER, CS FIRST BOSTON: I think that this is just kind of a public confirmation that the Microsoft solution has not worked, so I view this as a positive development for Liberate.
(END VIDEOTAPE)
FRANCIS: And it is not just cable infrastructure that is giving Microsoft a hard time. Lately, cable programming has been a challenge, too. CEO Steve Ballmer recently said that if he had to do it all over again, he would not have invested in cable channel MSNBC -- Lou.
DOBBS: That would have made a lot of lives simpler, wouldn't it?
FRANCIS: Certainly would have, sir.
DOBBS: Thanks, Bruce Francis.
Well, checking out how shares of each company traded today: shares of AT&T rose fractionally, while Microsoft lost about half- dollar.
Coming up next here: we go live to Havana, Cuba, for a remarkable business meeting, the latest from CNN's Lucia Newman in Havana -- Lucia.
LUCIA NEWMAN, CNN CORRESPONDENT: Good evening, Lou. Indeed, as you know, Cuba is still the forbidden fruit of the Caribbean for Americans. But today, several dozen American businessmen from some of the largest and smallest companies in the United States met here with Cuban officials to prepare themselves for the day when that changes. We'll have more of that in just a moment -- Lou.
DOBBS: Lucia, thanks.
Also ahead: Wall Street analysts under the gun. Lawmakers taking a hard look at potential conflicts of interest. And stocks prices hammered after a technical breakdown on the Big Board. We'll check out what's ahead with Wall Street veterans Ned Riley and Hugh Johnson. Stay with us.
(COMMERCIAL BREAK)
DOBBS: And this just in to CNN, a federal appeals court panel late today has overruled a lower court judge who had ordered the Justice Department to allow the videotaping of Timothy McVeigh's execution Monday. And if the appellate court's decision holds, there will be no videotaping of that execution.
Turning to business news. American capitalists and Cuban communists getting together today in an effort to bridge the gulf dividing the United States and Cuba. About 40 U.S. businessmen meeting with Cuban officials. They're exploring opportunities for trade and investment.
CNN's Lucia Newman has the story now from Havana of the fifth U.S.-Cuba business summit.
(BEGIN VIDEOTAPE)
NEWMAN (voice-over): They came for a business summit in the country with which Americans are not allowed to do business. A waste of time? Not so, say organizers of an event aimed at helping American companies prepare for the day they can do business here, a day many believe is now just around the corner.
KIRBY JONES, SUMMIT ORGANIZER: Things have changed a lot in the United States. The bill passed last year so that the sale of food and medicines is now the law of the land, we are waiting for regulations. The Democrats have taken over the Senate.
NEWMAN: American businesses are visiting Cuba in droves, and lobbying hard for a partial or total lifting of U.S. trade sanctions against Cuba. That would give them access to the Cuban market.
Sam Giancio, better known as one of the two fishermen who rescued Elian Gonzales at sea is in fact a roofer by trade.
SAM GIANCIO, ROOFER: I came here to educate myself, so when it does open up, you know, U.S.-Cuba relations open up, I'm hoping to be one of the first ones to be in the door here.
NEWMAN: Anyone hoping to sign a deal soon though will be disappointed. Cuba demands the entire U.S. economic embargo, not just small bits of it, be lifted, before it agrees to buy even a grain of rice.
RICARDO ALARCON, PRESIDENT, CUBAN NATIONAL ASSEMBLY: Any other country in the world will never accept to be treated as a second-class country. Under those terms, there will not be any trade between our two countries.
NEWMAN: American businesses, however, don't seem to be deterred.
(END VIDEOTAPE)
NEWMAN: In fact, they say it doesn't matter what Cuba is saying today, even if the embargo isn't lifted totally, they believe that if trade restrictions are at least eased substantially, Cuba will agree to play ball -- Lou.
DOBBS: Lucia, to listen to Alarcon talk about there wouldn't be any trade at all, yet Cuba is organizing and sponsoring and supporting these conferences. When we get away from all of the political rhetoric, Cubans very much want to do business with the United States, do they not?
NEWMAN: Yes, the Cuban people certainly do, and I think the Cuban government is interested as well, but only under certain conditions. They say that they want to be able to sell as well as buy, otherwise where are they going to get the money to purchase U.S. goods? They say they also like other people in other countries should be allowed to have credit made available to them, which is right now restricted under the embargo. So, they say they want to trade, but they want to trade on equal terms, just like everybody else, Lou.
DOBBS: OK. Lucia, as always, thank you. Lucia Newman, from Havana, Cuba tonight.
Coming up next: stocks take a pounding, hit by tech warnings and a shutdown of the exchange itself.
Also tonight, as California gears up for a long, hot summer of rolling blackouts, we'll hear from the man who buys power for the state of California.
And the new frontier in cyberspace, online from a wireless device without paying a dime.
(COMMERCIAL BREAK)
DOBBS: In tonight's headlines, tech troubles on Wall Street: a software breakdown at the New York Stock Exchange. Trading there halted for nearly an hour and a half this morning. And stocks close out the day lower. The Dow losing more than 1 percent on the day, the Nasdaq down more than 2 percent. And President Bush preparing for his first overseas trip as Commander in Chief. Topping his agenda: Gaining support for the national missile defense plan.
We begin tonight with one of the most controversial issues on Wall Street: conflict of interest. An analyst recommendation can have of course a big impact on a stock price. And even though the markets have buckled over the past year or so, it is rare to see an analyst recommend that investors sell a particular stock. Now some lawmakers and regulators are going to find out why. Their question: Whether analysts are trying to preserve business for their firms and misleading the public in the process. Fred Katayama has the report.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Wall Street's analysts are coming under more scrutiny than the companies they cover. The New York attorney generals office says it has begun an inquiry. A spokesman for Elliot Spitzer said, "We are always concerned that any conflicts that analysts may have are fully and fairly disclosed to investors and the public." Next Thursday, Congress will start hearings on that issue as well.
REP. RICHARD BAKER (R), LOUISIANA: This is a very big problem, it is a problem that can't be readily resolved with one political speech or one set of regulations, but it will be an examination process. And I think it will be beneficial for the markets.
KATAYAMA: Analysts hardly saw stock they didn't like during the big bull market. Last year sell ratings made up less than one percent of all recommendations. Critics say analysts do not want to upset the companies they cover or their underwriting clients on the investment banking side of the business. The head of this Web site that tracks analysts recommendations says those conflicts produced biased ratings.
KEITH FERRY, PRES., VALIDEA.COM: The general feeling is that is there a conflict of interest, and that analysts that are issuing buy recommendations or are covering a stock where they do have an investment banking relationship certainly do have an extra incentive to either promote the stock, or encourage investors to buy that stock.
KATAYAMA: Ferry feels that way because his firm's study found that one year after ratings were issued, stocks with buy recommendations from analysts who's firms do not have an underwriting relationship, returned on average more than 13 percent. By contrast, buys issued by underwriters produced a negative return of 5.3 percent.
(on camera): Research directors at Wall Street firms would not comment. The Securities Industry Association would only say that it is working on developing a code of best practices for analysts. And an executive of the association will testify before the Congressional hearings next week.
Fred Katayama CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: As I mentioned last night, the Nasdaq must more than double in order to reclaim its high of just over a year ago. Joining me now, two gentlemen who will explain how and exactly when this will happen. From Boston, Ned Riley of State Street Global Advisers, and from Albany, New York, HUGH JOHNSON, of First Albany Securities. Gentlemen, good to have you with us.
NED RILEY, STATE STREET GLOBAL ADVISERS: My pleasure. DOBBS: Let me begin, Ned, with you. What was the impact of this glitch? A big deal today for you?
RILEY: Well, Lou, we were actually lucky today because it was a quiet day in the marketplace. If this was a day in which the Federal Reserve was meeting, or clearly, if it was bad down day when it started, I think it would have been much more an event than it was.
But I am a little concerned that they did continue trading and I don't think everybody knew that these stocks were not trading for a period of time. And that does bother me somewhat. I'm glad that they shut down trading totally until they clarified the situation, but I was concerned about the communication that took place, and not all of us knew that this was happening.
DOBBS: How about you, Hugh?
HUGH JOHNSON, FIRST ALBANY SECURITIES: Financial market history tells us, Lou, that you don't want to have long interruptions. This brief interruption today that we had was a little bit unnerving to myself and to a lot of investors, but in the long run scheme of things I don't think it's really going to be a big deal. So I think we will be through it on Monday and we will be on to what really counts in these markets.
DOBBS: Well, what really counts right now is for many investors getting that Nasdaq more than double and reclaiming all of that lost ground. Hugh, give us your outlook for the market.
JOHNSON: Well, I'm pretty positive on things. I think that the bear market ended, Lou, on March 22, and I think we are in a bull market. Investors are taking more risk, taking more risk for good reason. The Fed has eased, money conditions are better, leading indicators for the economy are kind of telling me that the profits recession which has been big the problem all along, is going to end, say, end of the third quarter maybe fourth quarter. So I'm pretty optimistic about things.
DOBBS: And, Ned?
RILEY: Well, I guess I wouldn't point put the profits turn that quick, Lou, but what I would say is that is five out of my six indicators for the market have turned positive, and they clearly are positive right now. One, we have a Federal Reserve that is going to continue to ease. And I must emphasize that point. I don't think they're going to stop after the June 27 meeting. They've got enough economic evidence to show that this economy is not recovering quickly enough.
Two, I think inflation will recede. The inflation bugs out there, I think, don't have to worry right at the moment. Three, I think liquidity is going to be solid. I think the Federal Reserve is creating a lot of liquidity. I think valuation is in the marketplace right now, and it's going to stay there. The supply/demand relationships are pretty good. Profits are the only thing that is really, I think is going to create a problem through the end of this year.
DOBBS: Only profits.
RILEY: Well, that is a big point.
DOBBS: Let me ask you, Hugh, quickly give us two stocks that you like here and something we can -- will mark them down and track your progress.
JOHNSON: Well, what I think you have to do is recognize what goes well or does well in a bull market. Bull market stocks are consumer cyclicals, industrials and I hope in some time, technology. So, stocks like, you know, Home Depot, Mcgraw Hill Publishing, Tyco, General Electric, United Technologies and in the technology area, a company like Texas Instruments. There's a whole slug of them. I think they're all going to do well in this bull market.
DOBBS: Ned.
RILEY: Lou, I like the tech area and I still think that the leaders of the pack, the Ciscos, Microsoft, Dell, are all going to survive this period and actually be stronger when they come out other end. I love the liquidity they have in the balance sheets right now. They have virtually no debt and they have a tremendous amount of cash, and shareholders equity is big.
So I do like the tech area. I also like financials, Lou. I like Citigroup. I think it has been unduly depressed because of the concerns about the banking business, but I like financials as well, and I'd throw in also some of the health care stocks. A lot of change taking place. I like Merck, and I like Pfizer.
DOBBS: All right. You are an enthusiastic bull then, I think we can put you down as. Ned Riley, Hugh Johnson, gentlemen, thanks for being with us.
RILEY: My pleasure. Thank you, Lou.
DOBBS: Coming up next here it's cool and it's wet. A costly combination for Midwestern farmers. We'll take a look at the now uncertain outlook for their crops after a springtime freeze and unusually cold weather this summer.
California refineries winning high powered support in their bid to avoid rolling blackouts this summer, good news for California motorists. Stay with us.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Powering America" segment, the latest on the California energy crisis. It has been a good week for Californians. Just yesterday, we reported that electricity prices have dropped more than a third from their highs. And today, Governor Gray Davis asked state regulators rather to exempt oil refiners from rolling blackouts this summer, that after a number of oil companies warned that they would have to cut production if they were faced with those power outages.
Joining me now from Sacramento, California is Ray Hart. His title is deputy director of the California Department of Water Resources. But what he is, is in charge of buying wholesale power for the entire state.
Very good to have you with us.
RAY HART, CALIFORNIA DEPARTMENT OF WATER RESOURCES: Thank you.
DOBBS: This is good news that prices have dropped. The market is working?
HART: The market is working today, and there's -- four good reasons for that. Governor Davis' program that he put forth few months ago for us to go out and buy long-term contracts is finally having an effect. We've gotten nearly 50 percent of the on-peak energy needs met through our contracts that are fully executed now. We have a conservation program, the 20/20 program that Governor Gray Davis announced, that's starting to take effect, and we're seeing the conservation effects in the market now.
So what we have is 50 percent of our energy needs being met by our contracts. We see almost 20 percent or 11 percent of total usage being reduced as a result of conservation, people taking it to heart. And with those two things, it leaves us on the spot market for around 25 percent of our needs on a daily basis. That's compared to just 100 percent just a few weeks -- few months ago.
DOBBS: So, that is great news for Californians. Does it mean that Californians tonight can be reassured that there will be at least fewer, if not a total elimination of those rolling blackouts this summer?
HART: Well, unfortunately it doesn't quite mean that. As we get into the hotter days of summer, there will be times when we have those four or five days in a row of a 100-plus degree weather where the energy supplies will be very tight and prices will spike up.
The good news is that we've covered such a good portion of the net short that we don't have to buy as much energy on the spot market. But prices could increase tremendously high if we don't have any price caps.
DOBBS: And price caps, the president says there won't be any. So the market, which you say is working, is your best hope. What is your outlook for the market?
HART: Well, I think there will be periods of time when the weather is average or below average as it has been this week for the most part where the market will be very liquid and we'll be able to take advantage of the market forces in play. Unfortunately, when it gets hotter, the market forces drive it the other way and prices don't seem to have any ceiling in that respect.
DOBBS: Well, Ray Hart, we're going to, like everybody else, hope you have cooler and a beneficial weather there in California. Thanks for joining us.
HART: Thank you.
DOBBS: Ray Hart.
Well, it isn't power problems plaguing the Midwest: rather, weather problems. Northern Illinois today enjoyed a full day of sunshine, but it was the first day of sunshine since May 19th. The weather hasn't been this rainy and this cold during this time of year since 1928. As a result, farmers in the Midwest are dealing with suffering crops, a reality that is also affecting the futures pits at the Chicago Board of Trade.
Lisa Leiter reports from Romeoville, Illinois.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT (voice-over): Illinois' warmest April in more than a century pushed Floyd Schultz to plant his corn crop early. It was off to a good start until a few weeks ago when the sun stopped shining.
FLOYD SCHULTZ, FARMER: A farmer would call this field "having yellowing in it."
LEITER: The yellowing is the unhealthy result of plants not getting enough sunlight and heat to absorb nutrients they need.
(on camera): The weather in the area has been so unseasonably cool and damp for so long that many crops have stopped growing. This corn should be about knee-high by now.
(voice-over): Some newly sprouted soybeans are downright drowning.
SCHULTZ: The areas, some of them that are underwater, probably will die. On our farm farther south, 80 miles south of here, we're going to have to look as things start to dry out and make a determination. I think we probably will see some replant in that area down there.
LEITER: Concerns from the corn belt have been flooding the agweb.com Web site. One Illinois farmer said, "It's hard to be positive when the crop is fading before your eyes." And as this Iowa farmer put it, "It's 'code blue' for my crop."
Those fears have now worked their way into the corn futures pit at the Chicago Board of Trade. Corn prices shot higher in recent days after trading lower for much of this year.
STEVE BRUCE, MAN INTERNATIONAL: Minnesota, Wisconsin, even northern Illinois and Michigan -- and you know, that constitutes maybe 33 to 40 percent of the total corn production -- so if we lose 10 percent of the acres in those areas, if we lose 10 percent of the yield, we've got a story. LEITER: So far, the story of this year's corn crop is still a pretty good one. A report next week is expected to show the bad weather has hurt, but farmers' greatest fear is the weather will only get worse.
Lisa Leiter, CNN Financial News, Romeoville, Illinois.
(END VIDEOTAPE)
DOBBS: Coming up next, radio's answer to satellite television. We'll take a look at an upbeat assessment for satellite radio. And later, a new threat to Internet Service Providers, wireless Web access, and it's free of charge.
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DOBBS: In tonight's "Sectors Report," satellite radio: 100 channels of digital radio, everything from rock'n'roll to news talk, delivered by satellite, and the cost $10 a month. Today, Lehman Brothers began coverage of the only two players in the sector, Sirius and XM Satellite Radio. Lehman rating both a strong buy, putting a year-end price target of $40 a share on XM, $57 by the middle of next year for Sirius. Although both stocks rose today, they've fallen far from their highs: both stocks down more than 50 percent from their highs in fact.
They're satellites are up-and-running. Radios, however, to receive the signals aren't expected to be out there in the marketplace until the middle of next year. Still, Lehman is bullish on the business model, saying the concept will turn into a reality, helping a skeptical market become believers.
Coming up next here, renegades threatening (UNINTELLIGIBLE) Internet service providers offering free -- free! -- wireless Web access. That story, a lot more still ahead on MONEYLINE. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Some of today's biggest market movers, United Surgical Partners gaining about 30 percent in its market debut -- not bad -- raising $126 million. United Surgical managers out-patient care centers.
Callaway Golf down almost 20 percent: that after both a revenue and profit warning. Callaway blaming a golf club price war and dramatic slowdown in the sales of its ERC II, which was recently banned by the United States Golf Association.
The second-most active issue on the Nasdaq, Juniper Networks. It lost almost $9 a share. Juniper cutting quarterly sales forecasts by a third and slashing profit targets by 70 percent. Layoffs, of course, on the way. About 10 percent of Juniper employees will lose their jobs. Juniper shares off 70 percent so far this year.
In other corporate news tonight, the $14 billion merger between Pepsico and Quaker will not close until at least the next quarter. Both companies today said they need more time to iron out the details with the Federal Trade Commission.
IBM is breaking the law, Moore's law, that is. IBM saying it can now boost microprocessor speeds by as much as 35 percent. IBM claims the new technology rewrites that long axiom in the industry known as Moore's Law, which predicts chip speeds will double every 18 months. IBM today going beyond that, stretching the silicon on the chip, allowing electrons to flow faster, and not by adding more transistors.
And Procter & Gamble today agreed to pay $49 million to settle a lawsuit by a shareholder, the shareholder lawsuit claiming P&G misled investors about its financial heath just before an earnings warning last spring. The stock plunged after that warning, erasing more than $30 billion in market cap -- excuse me.
There's a new threat to Internet service providers: A group of technophiles giving away wireless service for free.
Steve Young has the story.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): With a wireless modem, you can surf the Web free at this Manhattan coffee shop, thanks to Terry Schmidt, who strung his cable modem connection from his apartment upstairs through the wall, down the alley and into a transmitter back in the store.
TERRY SCHMIDT, NYCWIRELESS.NET: I've got more bandwidth than I'm using, and I'm willing to share it for free. And there's a lot of corporations out there, you know, that have more bandwidth than they're using.
YOUNG: Setups like this are springing up all over the place, including San Francisco, Seattle and London, where it's taken on an aggressive anti-telecom tone.
Free wireless Web for the people using unlicensed radio spectrum and a new networking standard with the numbing name 802.11b, but known to its fans simply as Y-fi.
The Internet service companies have been slow in rolling out high-speed connections, and some customers are now taking matters into their own hands.
RUDY BACA, THE PRECURSOR GROUP: They can conduct guerrilla maneuvers. This does present, potentially, a very serious threat to the larger commercial providers of these services.
YOUNG: Some liken it to the early days of Napster, but the New York Wireless Group hates the analogy.
ANTHONY TOWNSEND, NYCWIRELESS.NET: Napster's become somewhat of a pariah in the online community. We're using equipment that we own, bandwidth that we've paid for, and we're sharing it with the community that we live in.
YOUNG (on camera): The pioneers of this technology say they hope to ruffle feathers and get the service companies to offer service in public places like train stations and parks.
Steve Young, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Coming up next, final thoughts on the day, and "Ahead of the Curve." Stay with us.
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DOBBS: Monday the president embarks on his first trip to Europe. Topping his agenda, attending the biannual U.S.-European Union Summit in Sweden. News on the economy next week -- the producer and consumer price index reports will be out. The Fed's beige book on the economic conditions around country, and the consumer sentiment report from the University of Michigan. Also, quarterly results from Heinz and Adobe Systems, to name but a few.
Well, this week has been one of stark contrast, a week that began with some analysts saying the worst was over in technology, and by end of the week investors, well, numb by another round of tech earnings warnings. And then, as if we needed a metaphor for the technology plunge on Wall Street, a technical breakdown at the New York Stock Exchange that shut down trading for almost an hour and half.
And California in crisis, not only facing power blackouts, but a shortage of water, and then the warnings that Californians -- refiners wouldn't be able to produce enough gasoline because Governor Davis wouldn't keep the refiners power going. But by end of the week, the governor decided that he didn't want both rolling blackouts and no rolling cars. He decided to give the refiners the power to keep those cars rolling. Power rates in California falling to a third of the levels they had been at.
Not, all in all, a bad week. The market's working -- working not perfectly, certainly, but working. Definitely not a bad week.
Now let's take a look at some of your comments.
Joanne from San Bernardino, California developing her own contingency plan in California to deal with those potential blackouts this summer. She says: "For the daytime, an eight-foot kiddie pool out back for when the power goes kaput, and at night, a flashlight with fresh batteries by the bed just in case." And if a real emergency crops up, she says she can take out her backup to her desktop PC, a Sears manual typewriter.
Andre wrote: "If I recall properly, with your presence at MONEYLINE, our economy experienced the longest bull market run in U.S. history."
Well, Andre, I appreciate the sentiment, but I have to, in all fairness, remind you that I was also here during the stock market crash, the Asian financial crisis, the Russian financial crisis, and two recessions. But thanks for the thought.
And finally, Kathleen says: "Lou, it's great to have you back. Our dinner conversations are much more interesting with you delivering our news."
Well, we thank you for inviting us.
And finally tonight, time running out for one prospective multimillionaire. The lucky winner of a $46 million New Jersey state lottery jackpot still has not come forward, and he has -- or she -- only until midnight tomorrow to do so. The unclaimed prize money is the largest in that state's history. But there is at least, no matter what happens, one clear winner: The agent who sold that ticket will receive $10,000 no matter what.
And for those of you who enjoy all sorts of strategies in picking out your lottery numbers, we should point out the winning ticket in this case is a quick-pick.
That's MONEYLINE for this Friday. We thank you for being with us. I'm Lou Dobbs. Good night from New York.
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