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Lou Dobbs Moneyline
Honeywell International Leads Dow Descent
Aired June 14, 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 biggest deal of Jack Welch's legendary career is in danger of collapsing. GE and Honeywell say they won't bow to European demands.
Honeywell's stock plunges, the Dow suffers its largest loss in more than two months. And the Nasdaq tumbles for a fifth session.
The man who's vowed to "stop the bleeding" at a legendary automaker: Chrysler Chief Executive Officer Dieter Zetsche.
ANNOUNCER: Live from the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening. The stock market today fell again, the Dow posting its worst loss in two months, the Nasdaq down almost 4 percent on the day. Wall Street analysts are under congressional scrutiny. A congressional inquiry began today into the sell side of Wall Street and the conduct of its analysts. We'll have a full report for you.
And President Bush is in Sweden, meeting with European Union leaders, pressing his call for missile defense, cooperation and compromise on global warming policy.
We begin tonight with a deal that appears all but dead: General Electric's $42 billion acquisition of Honeywell. GE CEO Jack Welch today submitted a final package of concessions to European regulators in Brussels. He is seeking approval of the biggest deal of his career. But Welch now says their proposals will not satisfy what he called the "extraordinary demands" of the Europeans.
The developments in Brussels caused an enormous reaction on Wall Street. Honeywell's stock plunged more than $5 a share, down 12 percent on the day, on 15 times its normal volume. It was the biggest volume day in Honeywell's history. And GE shared gained more $1, on more than twice its normal volume.
Welch was clearly blindsided by the fierce opposition by the European Union. He said today: "You are never too old to get surprised." Allan Chernoff has the report.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): As GE announced what it termed a final package, the company implied its fight for Honeywell is finished, saying, "the proposed divestitures are far short of the European Commission's demands." GE and Honeywell offered to divest Honeywell aerospace businesses, with $2.2 billion in revenue, including its so-called regional jet engines for smaller aircraft, air turbine starters and avionics products, including collision avoidance systems.
GE also offered to set up GE Capital Aviation Services as a separate entity, to deal at arm's length with Honeywell avionics.
MATT COLLINS, EDWARD JONES: What the European Commission is really concerned about is GE's aircraft leasing business, the power that they would have to get customers to buy planes with GE and Honeywell electronics.
CHERNOFF: The European Union says it will continue to review the merger, but a U.S. government official says the EU remains concerned that a GE-Honeywell combination would hold an unfair advantage in selling avionics equipment and jet engines, a business where Rolls Royce is struggling to compete with GE.
STEVEN BUFFONE, GIBSON, DUNN & CRUTCHER: The European Commission applies a longer term view of -- in their analysis with respect to anti-competitive effects, whereas the U.S. regulatory authorities tend to look at immediate effects on consumers and prices.
CHERNOFF: The apparent impasse comes after extraordinary lobbying by GE and the U.S. government, including a visit to Europe by a Justice Department antitrust official who favored the deal.
(END VIDEOTAPE)
CHERNOFF: For Honeywell, the apparent failure of the deal is quite blow, the takeover premium disappearing from the stock today. GE, on the other hand, still has plenty of fans on Wall Street. Even in the face of a sinking market, GE's stock scored a 2 percent gain today -- Lou.
DOBBS: Thank you.
Well, Jack Welch has, of course, been called the ultimate manager, generating nearly $500 billion in value for GE shareholder over two decades. When he named Jeffrey Immelt his successor last fall, Welch assured investors that he would stay another year to oversee this merger. Now the biggest deal of his career may be dead, a stinging blow to this legendary executive.
Peter Viles reports.
(BEGIN VIDEOTAPE)
PETER VILES, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): This is not the script Jack Welch had in mind last October when he rushed together the biggest industrial marriage in history and said he would postpone his own retirement to close the deal.
JACK WELCH, CEO, GENERAL ELECTRIC: When the right deal at the right time comes along, you got to do it.
VILES: On that Monday in October, Welch was a picture of confidence.
WELCH: Because I believe this deal will be done at the end of February.
VILES: When a reporter had the temerity to suggest antitrust issues might be a problem, Welch bristled.
UNIDENTIFIED MALE: There is overlap in small aircraft engines, turbines, fuel cells.
WELCH: Who are the people who are speculating on that? Some -- that "some thing" is the silliest thing. Give me a person that thinks that, and I'll answer the question.
VILES: Here's one person, European trustbuster Mario Monti, who may now be rewriting the last chapter of Welch's $7-million memoirs. And perhaps, adding a dose of failure to Welch's otherwise sparkling legacy.
JANET LOWE, AUTHOR, "WELCH: AN AMERICAN ICON": He shook the company up at the beginning. He began -- kept stirring the pot all the way through his tenure, and I think he wanted to go out, you know, with a great big fireworks show, and you know, the failure of the merger would kind of take a little glitter off the fireworks, but I still think he has a respectable record.
VILES: A record that has hit some bumps since October. In November, there was a reminder of environmental headaches. GE, which years ago polluted the Hudson River, went to court to have parts of the Superfund law thrown out. Welch's delayed retirement also overshadowed his carefully planned choice of Jeffrey Immelt as his successor. But Welch himself, always mindful of his legacy, knew he was taking a risk with a hurried marriage to Honeywell.
WELCH: Think about legacies, think about press, think about all that. I could hit the silk just as planned, and go out with a band. No troubles, no anything, great record. So I'm the one that's putting my neck on the line.
(END VIDEOTAPE)
VILES: If this deal does fall apart, it is not clear how much longer Jack Welch will work for General Electric. He was to retire this past April, and stayed on the job in order to get this deal done and get the two companies integrated. No comment tonight from GE on how long he might stay if the deal does, in fact, fall apart -- Lou.
DOBBS: Perhaps long enough to make it a even $500 billion in shareholder value.
VILES: Twenty-five billion more.
DOBBS: You got it. Thank you very much. Well, the GE-Honeywell merger is not the first deal between U.S. companies to face European problems. The Sprint-Worldcom deal collapsed last summer after the European Union said it would not approve the deal. Since the companies called off their merger, Sprint's stock has plunged 58 percent, Worldcom stock down 66 percent.
Honeywell's decline accounted for nearly 20 percent of the Dow's 181-point tumble today. But the Nasdaq plunged as well, investors hit with more profit warnings. Today's broad sell-off wiped out $250 billion in market value. Both the Dow and Nasdaq stand at their lowest levels since late April, and the Dow is once again lower for the year. Jan Hopkins reports from Wall Street.
(BEGIN VIDEOTAPE)
JAN HOPKINS, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): The potential collapse of the GE-Honeywell merger, two of the 30 Dow stocks, sent the markets reeling. Add negative guidance from a handful of companies, and the result was another gloomy day on Wall Street.
DOUGLAS ALTABEF, MATRIX ASSET ADVISORS: On any given day, the market has been reacting to specific company news. It's really an indication of how little conviction there is in the markets today.
HOPKINS: Economic reports were fairly mild. The producer price index rose less than expected. Jobless claims fell and business inventories remained unchanged, but investors shrugged off much of the economic news, paying more attention to the negative news from companies.
United Technologies, under pressure from the shaky GE-Honeywell deal -- United Technologies bid first for Honeywell. American express fell on earnings warnings, followed by Corning, Alcoa and Silicon Storage. The Dow spent most of the day down triple digits, and closed down 181 points at 10,690. The Dow is now below where it started the year.
Contributing to the Dow Jones Industrial slide, Boeing, International Paper, 3M, and technology heavyweights Intel and Microsoft. The Nasdaq fell for the fifth straight session, closing down more than 3.5 percent, at 2,044. Indexes tracking software, networking and semiconductors, all down more than 5 percent.
JON BURNHAM, BURNHAM SECURITIES: We're probably bouncing around the bottom, or we may even be not at the bottom yet in terms of the economy, but I'd rather think we're bouncing around the bottom. And so, people are concerned that the recovery isn't going to come so much in the second half.
(END VIDEOTAPE)
HOPKINS: Friday is triple witching, which tends to increase swings in the markets. And with warnings continuing after the bell, analysts are afraid that the market is being set up for another bad session -- Lou. DOBBS: That's what makes Fridays so interesting. Jan, thanks a lot.
HOPKINS: That's right.
DOBBS: Jan Hopkins from the New York Exchange.
More warnings after the closing: JDS Uniphase, the world's largest supplier of fiber-optic components, cut estimates for the fourth quarter, citing weakness in telecommunications. The company slashing its revenue forecast, and JDS Uniphase will also take an inventory write-down about $250,000. The company also expects a fourth-quarter loss.
A gain of five cents had been expected, and instead, a five-to- eight-cent loss. After hours, JDS Uniphase down more than $1, hitting new 52-week lows.
We'll have more, of course, for you on the markets and the big sell-off today. We will be talking with mutual fund manager David Alger, that's later here on MONEYLINE.
Coming up next: the Senate giving overwhelming opposition -- and support, rather, to a massive education bill. We'll be going live to Capitol Hill.
Plus...
(BEGIN VIDEO CLIP)
REP. RICHARD BAKER (R), LOUISIANA: I am deeply troubled by the evidence of the apparent erosion by Wall Street of the bedrock of ethical conduct.
(END VIDEO CLIP)
DOBBS: Congress takes aim squarely at Wall Street analysts, asking whether the brokerage business has any credibility.
And President Bush squares off with European leaders, and he stands squarely by his opposition to a global warming treaty. Tonight we'll be talking to the former Defense Secretary William Cohen.
(COMMERCIAL BREAK)
DOBBS: Late today the Senate overwhelming approved an education bill. The final vote: 91 to eight, coming after some weeks of debate.
Kate Snow is standing by live now on Capitol Hill, and has the latest for us -- Kate.
KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT: Lou, if there's one thing that legislators all agree on, it is the need for good schools. And they've proven that they all wanted education reform through that vote, as you mentioned, an overwhelming vote, with 91 senators voting in favor of this bill. It is a $42 billion measure. That means that above and beyond what the current U.S. expenditures are on federal education spending, it adds $17 billion for next year. The bill required several things: It requires schools to give annual reading and math tests for grades three through eight; it also allows school -- students in failing schools to switch to another public school within the same district after three years; and it also provides money for teacher training grants.
Now, what is not included in the bill, Lou, is money for any kind of vouchers for private schools. You'll remember that's something Republicans and the president had urged. Democrats succeeded in knocking that provision down. But they gave on some other areas they had to give in. And both sides saying that this is really an example, truly, of compromise.
(BEGIN VIDEO CLIP)
SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: Education is the No. 1 priority in this country today. And by -- evidenced today, again, with the overwhelming vote, 91 to eight, we showed that we can come together on an issue of this import.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
SEN. TRENT LOTT (R-MS), MINORITY LEADER: This does allow, at least, choice in public schools. If you're going to a public school that is drug-infested, violent and failing and you're just not getting what you need for your child, then you will have the option to go to another public school.
(END VIDEO CLIP)
SNOW: The bill isn't done yet, because the Senate has passed it today. They'll no have to reconcile differences between the Senate version and the House bill that was passed last month.
Education Secretary Rod Paige saying he would encourage the members of Congress to go to summer school and get this bill reconciled and to the president before the start of the next school year -- Lou.
DOBBS: Intriguing idea, Kate, thanks. Kate Snow from Washington.
The president in Sweden, attending his first summit with European Union leaders. The relationship increasingly tense, with the White House parting ways with the EU over the Kyoto accord on global warming, plans for a missile defense shield and efforts to stop what the Bush administration calls "steel dumping" in this country.
Outside that meeting, several thousand protesters marching. Those demonstrations, which have followed the president throughout his trip, organized by antiglobalization and environmental groups. Joining me now, a man who has seen many facets of the U.S. relationship with Europe: former Defense Secretary William Cohen.
Bill, good to have you with us.
WILLIAM COHEN, FORMER U.S. DEFENSE SECRETARY: Lou, great to be here.
DOBBS: Let's begin, if we may, with, first, this trip. How do you think the president's doing?
COHEN: So far I think he's doing quite well. He started off in Spain, obviously a more receptive visit there, with the slightly right-of-center government. Spain is an important NATO ally, European ally, and so I think it was a good start for him.
Moving on to the summit itself, the meeting with the other European nations, I think he got a much cooler reception, even though they were trying to be somewhat gentle in their rejection of his statements concerning national defense, and certainly the Kyoto treaty.
DOBBS: The Kyoto treaty, in nearly every case, nearly everyone it seems, particularly those reporting on it, neglect to point out that the Senate rejected the Kyoto treaty by 95 to nothing.
COHEN: Exactly. This is a treaty that was going nowhere, basically. But the president raised is to a level -- a presidential level by declaring it dead. And probably an unnecessary thing for him to do, and it created the kind of adverse reaction we're now seeing.
DOBBS: And, in terms of the big news out of Europe, if anybody could overwhelm President Bush in the headlines, it would be Jack Welch. In this case, Mario Monti rejecting the GE -- apparently rejecting the proposals from GE for the Honeywell acquisition. Do you think this deal is dead?
COHEN: Well, I think the case of -- paraphrase Roberta Flack, killing us softly with their song. And their song is one that they're concerned about concentration of power, and also what they call the consideration about so-called bundling.
The difficulty with all of this is that the EU doesn't seem to be quite as concerned about the practice on the part of the European countries, in term of insisting that they buy European products. And so they've got to do more about their concerns about monopolistic practices and anticompetitive practices in their own shop, so to speak, and looking at the United States.
But I think this deal appears to be dead. It could be revived. We had a similar situation back when Boeing wanted to acquire -- merge with McDonnell Douglas. It was rejected by the EU. Finally, after U.S. persistence, it was overcome.
DOBBS: Now, Jack Welch has tremendous personal as well as corporate influence in the political community and in government here. If, indeed, this is dead, will there be, likely, some repercussions?
COHEN: Well, he enlisted the support from the White House. He obviously would call -- like to call upon members of Congress, also, to support his effort. Their could be a backlash, both from the White House and the Congress and, perhaps, even from GE itself. One can never tell, in terms of what its policies will be in terms of the acquisition of its aircraft and leasing them, what the policies might be. That's, of course, a corporate decision.
But there are all sorts of potential complications from this, or consequences. One thing the EU has to be concerned about is they not send the signal that it's an unfriendly environment for American companies to invest. They're having their own difficulties right now, and that might be a signal they'll come to regret.
DOBBS: Bill, thanks very.
COHEN: No problem.
DOBBS: William Cohen.
Well, coming up next, here: an airline strike may be near an end, Comair pilots reaching a tentative deal. And a wireless pioneer has fallen on lean times: Motorola is in a tailspin. We'll tell you what it may mean for the man at the top.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Tech Watch": Xerox moving out of SOHO -- that's its Small Office Home Office business. No longer selling products such as inkjet printers. Xerox says the SOHO business lost at $80 million in the first quarter, and isn't a major revenue generator. One would assume so. The move expected to save the struggling copier company more than $100 million and help it return to profitability. Xerox shares slipping a fraction today, however. Over the past year, the stock is down more than 2/3.
Coming up: Wall Street under fire. Lawmakers asking whether brokers are straight with the investing public. We'll be talking about the sell side of the business.
(COMMERCIAL BREAK)
DOBBS: On Capitol Hill today, Wall Street on the defensive. A House panel held hearings on whether analysts are offering investors unbiased research or simply acting as promoters. Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Stock market investors loss trillions of dollars in the last year and a half by following advice to all but buy everything, sell nothing. On Capitol Hill today, lawmakers and witnesses took aim at Wall Street, whose very structure, some said, is riddled with conflict of interest. DAMON SILVERS, AFL-CIO: There is substantial statistical evidence that analysts' decisions, whether or not to recommend that investors buy a stock, are influenced by whether their firm is an underwriter for that issuer, or considering becoming one.
O'BRIEN: According to First Call, just before the market began its slide, there were 100 "buy" ratings for every "sell" rating.
REP. MICHAEL OXLEY (R), OHIO: It's no wonder there is public outcry about analyst independence when the statistics are so stark.
(CROSSTALK)
REP. PAUL KANIORSKI, (D), PENNSYLVANIA: ... don't you have transparency and enforcement and penalties that are just like the bar association, You have a bad lawyer, you disbar him and throw him out.
O'BRIEN: An industry spokesman said the bi-recommendations, although perhaps incorrect, were justified by the unprecedented decade-long bull market and the huge profits it brought.
MARK LACKRITZ, SECURITIES INDUSTRY ASSN.: Critics of analysts were much less vocal then.
O'BRIEN: And one lawmakers suggested his colleagues were simply looking for a scapegoat.
REP. RON PAUL (R), TEXAS: If we had not had a stock market crash, we wouldn't be here!
O'BRIEN: The 14 largest investment banks have agreed to a voluntary code of ethics that would, among other things, prohibit linking analyst pay to the lucrative investment banking deals they bring in, and a ban on analysts trading against their own recommendations.
But lawmakers were skeptical.
(END VIDEOTAPE)
O'BRIEN: The rosy but often misleading predictions reinforced a growing sense of a changing Wall Street vocabulary: that a recommendation to hold really means sell, and a recommendation to sell really means, "We sure are sorry. You should have sold a long time ago." Lou.
(LAUGHTER)
DOBBS: Tim, thank you. Tim O'Brien from Washington.
Joining me now, a longtime critic of the Wall Street practice who testified today, he is David Tice. And joining me here in New York, Jonathan Cohen. As a Merrill Lynch analyst, he issued a high-profile warning on Amazon's stock before Henry Blodget replaced him in 1999 and issued a somewhat different perspective. Gentlemen, good to have you with us. Let me begin if I may, David, with you, and ask you, at this point, if we did not have a falling market, would this be an issue at all?
DAVID TICE, PRUDENT BEAR FUND: Well, we believe that it really is an issue. I do believe that Congress might not be talking about it if the market hadn't declined, but it's been an issue for the last five years, in our opinion.
DOBBS: And how did that Chinese wall break down? What happened? Pure profit motive?
TICE: Well, frankly, there really hasn't been much of a Chinese wall for some time. But it's true that the dollars are just too great. We're talking about billions and billions of dollars from investment banking, and frankly, investment banking is now making up about 60 percent of these firms' revenue, where it used to be about 16 percent. So it's just too big of an item for them.
DOBBS: Jon, let me turn to you. You famously decided while you were at Merrill Lynch that technology, and specifically, Amazon.com, were not quite the terrific stocks that your successor, Henry Blodget, did. If you had been more bullish, would you still be at Merrill Lynch?
JONATHAN COHEN, TECH RESEARCH ANALYST: No, I don't think so. The reasons for my leaving Merrill didn't really have anything to do with the Amazon.com call, or even the overall position...
DOBBS: Or your view of technology?
COHEN: No, I mean, Merrill was a very evenly, evenhanded shop, and they were actually very supportive of the negative recommendation that we wrote and issued on Amazon at the time.
DOBBS: Well, let me ask you this. One of the overwhelming statistics are the number of buys versus hold or sell, on the part of analysts.
COHEN: Right.
DOBBS: How can that be justified?
COHEN: Well, I don't think it can rationally be justified. I think that the statistic in and of itself speaks to an imbalance in the marketplace. And I think that the notion that there should be more sell recommendations, fewer buy recommendations -- that analysts overall should be much more willing to look at stocks, both in the downside and on the upside, is an absolutely legitimate point.
DOBBS: Is it possible, David?
TICE: It's really a problem. There are analysts out there today, and here's a couple quotes -- "Analysts are simply brokers -- are simply investment bankers who write reports." There is a big problem with the investment banking conflict of interest. I don't think they can fix it.
DOBBS: How about you, Jonathan? Do you think it can be fixed?
COHEN: I absolutely believe that it can be fixed. I mean, I've worked on the sell side in research departments for about 14 years. I've worked in some great research departments, where the role of the analyst was absolutely honored and respected, and where analysts were encouraged to write great research and to dig deep. The Lehman brothers, in the late '80s, Smith Barney in the early, mid-'90s, run by a great research director by the name of Jack Rifkin (ph). Those were departments and those were efforts where analysts were encouraged to honor the primary goal of sell-side research, which is to make money for their clients.
DOBBS: Right. Make money for their clients, make money for the firm as well -- all part of the service that they provide. And let me say as we sit here, and this may annoy some of our viewers, but the fact of the matter is that most analysts are on television because they represent a tremendous resource to those in the media -- whether we be in print, or whether we be in television, whatever the medium. And the fact is the relationship between analysts, the media, the sell side, the buy side, investment banking, is a difficult relationship to just simply say, you know, these are bad people, because we all know for a fact there are lots of good people.
David, how do you get to that relationship?
TICE: Well, there are certainly good people out there, but the problem is the conflicts if interest are just so large, and there's so much money to be made on the investment banking side. And unfortunately, the structure, the compensation schemes are all geared towards helping the company rather than the investor. Part the problems, as far as performance-wise, Investars.com came out and analyzed stock recommendations from 1997 to the year 2001 through May, found that only four of 19 of the major firms had positive results, which is just pathetic.
DOBBS: Right. And Jonathan, your final thoughts?
COHEN: Well, my final thought is that Wall Street research is an enormous resource, and it's a resource for investors, both institutional and retail, and that it ought not to be just simply discarded or pushed away, or even regulated to such an extent that it can't go about the business of conducting its work. I think it's a cultural issue more than anything else, and I think that it begins with the senior management of a firm, and with the research director and the research department. And if there's a culture of performance and picking great stocks and doing great work for the end client, then everything else falls into line.
DOBBS: And on the part of the investor, it's the same as for the buyer: investor and buyer beware. And on this broadcast, we're going to follow analyst recommendations and let our viewers know precisely how they're doing.
So, gentlemen, thank you very much for being with us, and we appreciate it.
COHEN: Pleasure.
TICE: Thanks.
DOBBS: Coming up next: we'll be talking with the chief executive officer of Chrysler about how he's turning around an automotive icon with a sufficient number of challenges for any mortal.
Stock prices today are hammered. Another round of profit concerns hitting the market, and the apparent breakdown of that GE acquisition of Honeywell. We'll take a look at where the market goes from here. I'll talk with funds manager David Alger, he manages more than $20 billion.
And Motorola boss Christopher Galvin is in the hot seat tonight, after the first losing quarter in 15 years. He's on the edge.
(COMMERCIAL BREAK)
DOBBS: In tonight's headlines, stocks tumble on Wall Street, hit by more profit concerns, the Dow sinks 181 points, the Nasdaq off 77 points. European regulators throw up obstacles to a major merger, the GE-Honeywell deal is on the rocks tonight, and Honeywell stock down more than $5 on the day.
Also, JDS Uniphase becomes the latest firm to warn. The fiber optics maker forecasting a sales shortfall. It had expected to turn a profit in the fourth quarter -- instead, it will post a loss.
Taking a closer look at the market action, both the Dow and Nasdaq spent the entire session in negative territory. Several factors weighed on the markets, of course, and among those factors, a handful of quarterly warnings, and mounting doubts that the GE- Honeywell deal will pass European scrutiny.
That alone sent shares of Dow component Honeywell plummeting, accounting for nearly 35 points of the Dow's loss, 20 percent of the Dow's loss on the day. The Dow Jones Industrials down 181. The Nasdaq took the brunt of the day's selling, however, dropping almost 4 percent on the day.
On the Big Board, decliners beat advancers by a ratio of 7 to 3. With today's sell-off, the Dow has now wiped out all of its gains it had posted for the year. The Nasdaq 100: down nearly 27 percent year to date.
The S&P 500 has now fallen more than 7 percent on the year, while the Russell 2000 has gained nearly 2.5 percent. A bright spot today, prices at the wholesale level up just .1 percent in May, smaller than Wall Street estimates, confirming that inflation does remain in check.
And jobless claims for the week ending Saturday, fell by 12,000, but the four-week moving average rose again. It's now at the highest level since August of 1992. Topping tonight's MONEYLINE movers, Kraft Foods losing more than 3.5 percent, a day after its market debut. The second biggest IPO in history closed below its offering price of $31 a share.
Gentex down more than $4. The maker of rearview mirrors with automatic dimmers warned second quarter profits would come in 10 to 15 percent below target. Gentex citing weak product demand and higher research and development costs.
And Micromuse tumbling another 11 points, following yesterday's eight-point plunge. The software maker said business conditions were difficult, but it didn't offer any earnings guidance.
That prompted nearly half a dozen brokerages to cut their ratings on the stock. Shares of Micromuse have now fallen 60 percent so far this year.
Despite today's sell-off on Wall Street, my guest is bullish about the future, particularly the third quarter. Joining me now is David Alger, of Fred Alger Management, running about $20 billion, and it's great to have you with us.
DAVID ALGER, FRED ALGER MANAGEMENT: Great to be here.
DOBBS: The -- -- this is starting to look like a very tough confession season, if you will. Are we going to have an even worse time of it than in the first quarter?
ALGER: No, I think it's exactly the same. I think it's a replay of March, basically, you will notice all the same companies that really had terrible preannouncements in March are having terrible announcements. JDS Uniphase, no surprise.
The only surprise is that it keeps going on and it never getting better. I think though, that by the time we get into the third and fourth quarter, for some technology stocks, we will see a decided pick up, and I think that is going to turn the market.
DOBBS: Which stocks in the third quarter? Because this looks like there isn't a technology stock in the world that's going to have a bright future.
ALGER: I think that's true, but I think the ones that are really doing poorly now are the telecommunications space: Nokia, JDS Uniphase, these are companies which are doing poorly.
But I think that by the third and fourth quarter, you are going to start to see a pickup in software stocks, you're going to start to see a pickup in things like maybe home computers, PCs, servers, I think those are going to be the first to go. Because they are really driven by enterprise demand, which I think will start to free up a little bit as the economy improves.
DOBBS: You think corporate America is ready to open it those IT budgets. ALGER: I think they are going to have to. Basically, they will have gone almost a whole year without doing so, and as you see the economy stabilize, I think that, at the CEO level, they will come back to the realization that they are going to have to increase their budgets.
DOBBS: In terms of the remainder this year, do you expect the Dow and the Nasdaq and the S&P 500 all to be higher? And if so, how much higher?
ALGER: I think the Dow will go to an all-time, I think it will break through 11,700, and maybe 12,000 by the end of the year. I think the Nasdaq has a good shot of rallying to 3,000 by the end of the year. It is going to take a few years to get back to 5,000, though.
DOBBS: Right -- I would think. We are sitting here, a little distance from where we have been.
ALGER: A little distance, exactly.
DOBBS: Which stocks do you like, as we wrap up here?
ALGER: Well, I like all of the sort of big, mainstream growth technology companies, the ones that are core holdings: EMC, Microsoft, Sun, because they dominate their markets, and once the business turns, they are going to really do well.
DOBBS: Stock prices are down significantly, to say the least.
ALGER: Tremendously. And I like other growth stocks, I mean, Calpine is a great story. Ebay is of course my favorite stock, and it's done extremely well.
DOBBS: David, it's good to have you with us. Thank you very much.
ALGER: Nice to be here.
DOBBS: Coming up next, CEOs on the edge, a look at Chris Galvin of Motorola, embarking on his second restructuring, as he battles to move his company ahead and keep his job.
We'll talk with the CEO of a company fighting a soft economy,intense competition, and a rocky merger.
(COMMERCIAL BREAK)
DOBBS: An end may be near for a protracted labor dispute. regional airline Comair reaching a tentative agreement with its striking pilot's union. This would end the two-and-a-half month long strike that shut down the airline. That airline is owned by Delta. The deal came after three days of intense talks with federal mediators.
Daimler-Chrysler is facing some tough times, of course, dealing with weakening market share, falling profits, and slowing sales. The company's Chrysler unit is, this year, expected to post a loss of $2.5 billion. The company is also faced with an $8 billion lawsuit filed in November by one of it's very favorite shareholders, Kirk Kerkorian, once the third largest shareholder.
Kerkorian claims he approved the deal between Daimler and Chrysler on the grounds it was a merger of equals, something he says has proven untrue. Over the past 52 weeks, Daimler-Chrysler shares have fallen 22 percent.
Joining me now, Dieter Zetsche, president and CEO of the Chrysler Group, joining us from Auburn, Michigan tonight. Dieter, good to have you with us.
DIETER ZETSCHE, PRES & CEO, CHRYSLER GROUP: Hi, Lou. Thank you for having me.
DOBBS: Let me ask you first in terms of sales, we are seeing some unexpected strength, really, in the auto market. The consumer is staying in this obviously weaker economy, much better than many people had hoped, right?
ZETSCHE: There is no doubt. Nobody of us forecasted a 7 1/2 million analyzed sales level for first quarter or the 7 million we were enjoying the months of April and May. And this might indicate not only good news for us, but that the consumers might pull whole economy through this dump.
DOBBS: Well, Dieter, you are the, if you will, the hired gun, the man brought into town to fix whatever is wrong with Chrysler. At this point in the restructuring are you satisfied with the cost savings that you're introducing and effecting?
ZETSCHE: I clearly think we are executing what we were announcing at the end of February. And we are making good progress. On the cost side we are clearly achieving targets, and at some areas we are overachieving what we intended to do. This good news.
To be quite frank, on the revenue side, in the last two months we did not meet totally what we intended to meet market share wise. We got some tailwinds, as we already said, by the total market volume, which was good for us. But there are still some risks out there in a very, very competitive marketplace with high volumes, but fierce competition which has its impact on the pricing, obviously.
DOBBS: And in terms of your projected loss of 2 1/2 billion on the year, 1.3 billion through the first quarter, that means you've got to pick up the pace through these next three quarters because you are obviously back end based on that projection. Are you comfortable still, with that?
ZETSCHE: That is quite obvious that the performance in the quarters to come has to be considerably better than the first quarter where we met our target but this target was pretty low. So, yes, I am comfortable with that and we are very sure that this quarter we will do considerably better, obviously, than the first quarter, and we will meet our target as you mentioned of about 2.5 billion negative, max, at end of the year.
DOBBS: I'm sure no one gets more tired than you of discussing Chrysler's problems. At this juncture let's turn to some positives -- I hope they are positives. What's going to lead to you on the top line growth through the remainder of year, what products?
ZETSCHE: Well there is no question that the cost saving and cost cutting is one piece of it. You can't save your way to prosperity, so the revenues and thereby the product is key for any automotive company, for Chrysler being renown for great products especially, and it is extremely pleasing to see how the early launch of the Liberty is doing, internally, quality, production, everything is doing very fine.
We are 5,000 a week ahead of our plan, with 25,000 a week is being produced and the reception by the media, and by the customers is just overwhelming. It looks like we are having a real home run here.
DOBBS: Well, Dieter, thanks a lot for joining us. And we wish you success through the remainder of the year. Thank you.
ZETSCHE: Thank you very much for having me.
DOBBS: Coning up next here a beleaguered sector struggling to get back on its feet -- hit again.
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DOBBS: In tonight's "Sectors Report": fiber optics. After the bell, earnings warning from JDS Uniphase, just the latest factor weighing on this sector. Merrill Lynch, cutting its rating on the world's largest maker of fiber optic equipment, Corning. Merrill says the company's high margin fiber business continues to unravel.
Analyst Steven Fox said it could be facing what he called, a nuclear winter. Sales continuing to slow. That ominous warning pushing shares of the main fiber stocks lower on the day. Corning at a two-year low, JDS Uniphase losing again in after hours trading, dropping to $12 a share.
Coming up next, a CEO under fire: Motorola's Christopher Galvin presiding over a disastrous downturn for a wireless icon.
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DOBBS: Our special segment: CEO's on the edge. Tonight we focus on Christopher Galvin, the chief executive officer at Motorola. A series of missteps causing Motorola to post its first loss in more than a decade. Now the man at the helm of this mobile phone pioneer is trying to turn the company around, and hold onto his job.
Fred Katayama now, on Chris Galvin, a CEO on the edge.
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FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Chris Galvin took over the corner office at Motorola at a stormy time, 1997. Sales were slipping and the following year the company lost its leading position in the cell phone market to Nokia. Galvin cut thousands of workers in a massive restructuring. The new skipper soon looked like a savior. Motorola's stock more than doubled.
But now, Galvin's walking a dangerous path again. And this time, analysts say, he has himself to blame.
JEFFREY SCHLESINGER, UBS WARBURG: The first sin, if you will, of management since the '98 restructuring was to put back many of the 20,000 people that were let go in that '98 restructuring effort way too quickly. And therefore, when industry cycles turned against the company, such as the semiconductor industry or the handset industry, the company was not at a cost structure that was really appropriate for the business.
KATAYAMA: Last month, Moody's and Standard & Poor's lowered Motorola's debt rating. In April, Motorola posted its first quarterly loss in 15 years and cut its forecasts for the second quarter. Demand is slowing for both its chips and mobile phones, which together make up half of sales. What's more, Motorola had pushed Internet-enabled phones at a time when consumers wanted something cheap and simple. Now Nokia has more than double Motorola's share. The stock has fallen 65 percent from its 52-week high last summer.
So, Galvin is restructuring again. He is cutting 26,000 workers, slashing the number of phone models, closing plants and hiring outside manufacturers to cut costs. Some on Wall Street say Motorola should cut Galvin himself.
DAVID HEGER, A.G. EDWARDS: As far as a catalyst -- we were talking about Christopher Galvin. I think it would be a positive catalyst for the shares if the company were to decide to bring in a new CEO.
KATAYAMA: This shareholder says Galvin is under greater pressure now that his father, former chairman Robert Galvin, has left the board.
DAVID KATZ, MATRIX ASSET ADVISORS: It would have been much more difficult with his father on the board to change CEOs. Without him being there as an advocate, we think Galvin is more vulnerable, unless he produces.
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KATAYAMA: Galvin is paying for his missteps. Last year, Motorola's board cut his bonus by 34% percent. It did not boost his salary of 1.3 million, and it did not award him new stock options -- Lou.
DOBBS: Tough times. Fred, thank you very much.
And now, news from Oklahoma that warms the hearts of those of us of a certain age group. The leader tonight in the U.S. Open golf tournament is not 25-year-old Tiger Woods, nor is it the 21-year-old phenom Sergio Garcia. I think you may know where we're going with this. Your leader tonight of the U.S. Open is 56-year-old Hale Erwin. Hale shot a three-under par 67, to lead the field at Southern Hills, and gave a fair number of us preparing for some weekend activity a little inspiration.
Next, some final thoughts and "Ahead of the Curve."
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DOBBS: Tomorrow brings another round of economic reports. The Labor Department is releasing another key gauge of inflation at the consumer level, the consumer price index. Economists are expecting a rise of .3 percent, but they were wrong about their expectations on producer price index. Also due out tomorrow, the Federal Reserve's report on industrial production and the University of Michigan's reading on consumer sentiment.
Also, keep an eye on shares of JDS Uniphase, the company warning it would post a fourth quarter loss instead of an expected profit.
Stocks to watch tomorrow include as well GE and also Honeywell.
It's easy to lump the European Union's objections to this deal in with their knee-jerk recalcitrance about Mr. Bush's missile defense proposals, and the United States' position on the Kyoto treaty, and also the steel dumping dispute, which the Bush administration is obviously taking very seriously.
But we should look beyond politics perhaps on this one, and also look at the market. The stocks of both GE and Honeywell reacted to news that their deal is all but dead. Honeywell down sharply, its losses accounting in fact for nearly 20 percent of the Dow's 180-point loss, and GE stock up 2 percent on the day. The market expressing less than full support for this deal as a result, although no one doubts Jack Welch could make it a success. But the market is clearly satisfied that for General Electric, the Honeywell deal isn't critical, and it's ready to move on.
Now we will find out whether or not Jack Welch is ready to move on, or whether he wants to make it even more political.
Now for a look at some of your comments. On the issue on analysts and conflict of interest: "How about letting investors decide who to trust? The mechanism would be a wildly available analyst report card, tracking analysts' recommendations against actual stock movements over given periods of time."
We are going to try to do something very similar to that here at MONEYLINE.
And the California power crisis continues to generate a lot of heat. "As a California resident, we are bombarded daily by the media about the need to impose federal price controls on California electricity suppliers. Since the state of California is basically the only buyer of electricity for the state, why doesn't Governor Davis just order his subordinates to pay no more than a fixed amount for electricity? Why doesn't he do it? Is he afraid of being blamed for the consequences?"
Well, we talked with a spokesperson for the governor who said the governor has considered the idea, but says the potential consequences are too great to risk, meaning the generators could cut off the power altogether. And his spokesperson said: "Never underestimate the ability of the generators to be heartless. They already have demonstrated the willingness to get every last cent out of California residents and have shown no mercy." We haven't got time for the generator response.
And finally: "I'm surprised that a program like MONEYLINE still uses the title 'chairman' for Tina Brown, instead of 'chairperson' or 'chairwoman' of 'Talk' magazine."
Well, Ms. Brown uses the title "chairman" herself, and we always accommodate our guests' requests, particularly about titles.
So let us hear from you at moneyline@cnn.com.
And that's MONEYLINE for this Thursday evening. We thank you for being with us. I'm Lou Dobbs. Good night from New York. CROSSFIRE is coming up next.
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