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Lou Dobbs Moneyline

Middle East Terrorist Threat Shakes Wall Street

Aired June 22, 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: U.S. forces in the Persian Gulf tonight are on the highest state of alert after a terrorist threat. That news rattles an already struggling market. The Dow Jones Industrials tumble more than 100 points, the Nasdaq lower on the day as well.

By far the Dow's biggest loser: Merck, its worst session in years after issuing a profit warning.

And one movie studio is warning audiences: don't do this at home!

ANNOUNCER: Live from the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.

DOBBS: Good evening. We begin tonight with a threat of a terrorist attack against U.S. interests in the Persian Gulf and the Middle East. The U.S. military has placed all forces in the region on the highest state of alert, known as Threat Condition Delta. That news reverberated from the Middle East to Washington to Wall Street, where stocks turned sharply lower as details emerged.

We begin our coverage tonight with CNN military affairs correspondent Jamie McIntyre at the Pentagon -- Jamie.

JAMIE MCINTYRE, CNN MILITARY AFFAIRS CORRESPONDENT: Well, Lou, tonight U.S. forces, military forces in the Persian Gulf and the Middle East on the highest state of alert. These include practically all the countries in the region where the U.S. has military forces. Of course, that includes Saudi Arabia, Bahrain, Qatar, Oman. There are very few forces left in Yemen, but also Jordan, where U.S. Marines were engaged in an exercise.

This as a result of intelligence that people linked to accused terrorist Osama bin Laden were planning a possible terrorist attack against U.S. interests in the region. Although Pentagon sources and U.S. officials say there was no specific target, but a official said there was a timeframe for the attack, but would not disclose that. U.S. officials said that U.S. intelligence had indications from two separate sources that an attack was planned, and had monitored the movement of known bin Laden operatives.

One official said that the attack appeared to have been planned prior to Thursday's announcement of U.S. indictments against 14 suspects in the June 1996 bombing of the Khobar Towers housing complex in Saudi Arabia, because of the complexity of what was -- what appeared to be the plan. Of course, the five-year anniversary of that attack, which was on June 25, 1996, is coming up on Monday. Nineteen U.S. airmen were killed in that.

Meanwhile, Pentagon sources say that ships of the U.S. 5th Fleet have been ordered to sea as a precautionary measure. Navy officials say that most of those ships are already at sea, but Pentagon sources say that some minesweepers did have to leave from Bahrain, which is the headquarters of the U.S. 5th Fleet, and as I said, U.S. Marines who were taking part in an exercise in Jordan were ordered back to their ships as a precautionary measure, as the U.S. waits out this high terrorist alert -- Lou.

DOBBS: This alert, with the memory of the terrorist attack against the USS Cole, is this a response to what we learned in the instance of the USS Cole?

MCINTYRE: Well, in the wake of the Cole, the U.S. has been more -- instituting a higher state of alert in the region, and it's part of the standard procedure now. Whenever they are at the highest state of alert, U.S. ships are ordered to sea, because they are considered to be most vulnerable in the ports. But as I said, most of those ships were already at sea, where they are less vulnerable to attack.

DOBBS: Jamie, do we have any word yet as to the precise nature of the threat?

MCINTYRE: No, except that there was no specific targets, so they don't know where the attack was planned. But what made it credible was that it came from two separate sources, who said that an attack was about to happen. That's what rung the alarm bells, according to one official here at the Pentagon.

DOBBS: Jamie, thank you very much. Jamie McIntyre, reporting from the Pentagon.

Word of that terrorist threat shook investors on Wall Street, who were already contending with a profit warning from drug maker Merck. Shortly after 2:30 this afternoon Eastern time, the news broke that the U.S. military had placed its forces on highest alert. The reaction was dramatic. As you can see, the Dow fell sharply, down more than 140 points before rebounding somewhat by the close.

Jennifer Westhoven has our report.

(BEGIN VIDEOTAPE)

JENNIFER WESTHOVEN, CNN FINANCIAL NEWS CORRESPONDENT (voice- over): News that the U.S. military was on its highest state of alert in the Persian Gulf jolted a stock market already straining under a new batch of earnings warnings.

The tone for the day was set by drug stocks. First, Merck warned of disappointing earnings, then Schering-Plough said U.S. regulators found manufacturing problems at some plants, which could delay the launch of new products. Shares of both plummeted on the day, followed by Pfizer, Pharmacia and Eli Lilly. The sector took a further blow when Merrill Lynch warned a strong U.S. dollar could undermine American drug sales overseas. Merck shares accounted for 40 percent of blue chip losses, driving the average down 110 points and leaving the Dow flat for the week.

LOUISE YAMADA, SALOMON SMITH BARNEY: Although you don't anticipate an enormous point drop all at once, there has been a slow erosion that has kept us concerned. In other words, the rallies failed to take it to new highs. And under the surface, slowly, the price starts to come down, and maybe it just needed the catalyst or the trigger of a poor report.

WESTHOVEN: Poor reports tugged down the Nasdaq, which closed down 23 points, and like the Dow was virtually unchanged for the week. Shares of Symantec and Concorde Camera dropped after both posted profit warnings.

But there was broader weakness as well. Microsoft, Oracle and Worldcom declined.

MIKE MURPHY, FIRST UNION SECURITIES: What investors want to see is a some sort of show of strength in the economy in general. I mean, we continue go to the Fed for good news, we continue to go back to the Fed for good news, but what we need to do is see a real -- a real sense that the economy is recovering.

(END VIDEOTAPE)

WESTHOVEN: And traders say until there are more definitive signs of a rebound in U.S. economy, the stock market is going to have a hard time breaking out of the trading range. The big question as we head into next week, how deeply will the Fed cut? But beyond that, when will these cuts finally lend a hand to the U.S. economy and corporate America? -- Lou.

DOBBS: Jennifer, a tough end to a tough week. Thank you very much, Jennifer Westhoven from the New York Exchange tonight.

Today, the worst session for Merck stocks since August of 1998, during the Russian financial crisis. Merck this morning warned that both second-quarter and full-year profits will be short of Wall Street's expectations. Merck blames slower sales of its arthritis drug Vioxx, and the effect of a strong dollar on profits generated overseas. By the closing bell, Merck had lost more than $15 billion of market value.

Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Vioxx is one of the superstars in the Merck product lineup. Relatively new, it treats arthritis patients with fewer side effects than the older class of drugs. Still, Merck Friday said earnings for the second quarter will be below expectations because of lower-than- anticipated sales of Vioxx. BOB KIRBY, EDWARD JONES: There is an older class of drugs that are out there to treat arthritis, and Vioxx is not made as big of an inroad into that market as originally expected, but there is still plenty room to grow in that market, and Merck is just going to have to do a better job of marketing that product.

PILGRIM: Vioxx and four other drugs make up the core of Merck's business. Zocor, for cholesterol, generated $6.2 billion in sales, Fosamax for osteoporosis, Cozaar for hypertension, and Singulair for asthma. And Merck is working on a smaller dose of this for children aged 2 to 5 years.

The stock tumbled nearly 9 percent in very heavy trading on Friday. Merck trades at a 15 percent discount to the rest of the drug group, a sector that has climbed as investors have looked for safe havens and defensive plays in the market.

JORDAN KIMMEL, CONCORD EQUITY GROUP: Drug stocks have been a really safe place to hide for a while. Maybe the valuations got a little bit carried away, so maybe there is a short-term pullback in store, but if you are really long-term, if you're looking for quality, Merck is about as highest level as you get.

(END VIDEOTAPE)

PILGRIM: Merck also said that its overseas sales results were less than expected due to the strong dollar, an issue that may not be exclusively Merck's problem, as more and more multinationals come forward with their quarterly results -- Lou.

DOBBS: That is a difficult period when Merck has to warn.

PILGRIM: Right.

DOBBS: A countercyclical, supposedly. Kitty, thank you very much.

We just want to make one programming note. We have been advised that Andrea Yates, the woman charged in the death of her five young children in Houston, has been visited by her family and her attorney in Houston, and we will be going live to Houston as soon as they emerge from the jail there and begin to talk to the news media. And that will be upcoming probably within the next half hour.

Boeing stock today -- it has risen more than 40 percent this year, but it has been a very tough week for Boeing stock, a punishing week for the world's biggest aircraft manufacturer and America's biggest exporter. Shares of Boeing today fell again, its shares under pressure as rival Airbus announces order after order following the Paris air show. Casey Wian has our report.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Airbus Industries says it made history at this year's Paris air show, with an $8.7 billion order for 111 of its planes from International Lease Finance. It's Airbus' largest single customer order ever. Altogether, the European aircraft giant announced 155 firm orders, worth more than $13 billion at the show.

Among the orders were 20 A-380 superjumbo jets. Airbus remains well short of the number it needs to make the project profitable, but it's been helped by archrival Boeing's decision to abandon its superjumbo in favor of developing a smaller, faster plane called the Sonic Cruiser.

NOEL FORGEARD, CEO, AIRBUS INDUSTRIES: I think we go both ways. One will not kill the other. So, the fact that our competitor have an initiative on the smaller planes is very welcome.

WIAN: Airbus now says it will pass Boeing in aircraft deliveries for the first time in 2003.

Not so fast, says Boeing. While Boeing only announced orders for three planes worth one-half billion dollars at Paris, the company accuses Airbus of sandbagging for maximum publicity. Some orders Airbus claimed during the show had already been announced by customers.

ALAN MULALLY PRESIDENT & CEO, BOEING COMMERCIAL AIRCRAFT: We're really pleased with the orders this year and, of course, the orders over the long term. It's a tough environment right now for our customers, with the slowing economy, and they're really thinking about what they need for the long term.

WIAN: Boeing also disputes Airbus' prediction that it will soon be No. 1 in deliveries. This year Boeing is expected to deliver 530 planes -- 200 more than Airbus.

Still, investors have punished Boeing for its failure to announce new orders at Paris. The stock has lost 14 percent during the show.

(on camera): Boeing and Airbus both predict commercial jetliner orders will fall by about 30 percent this year. That's because airlines ordered so many planes last year, and because airline profits are down this year.

Casey Wian, CNN Financial News, Los Angeles.

(END VIDEOTAPE)

DOBBS: Coming up next on MONEYLINE, one factor hurting corporate profits: the strong dollar. Now companies are pushing the treasury secretary to shift strategy. A First Amendment fight over tobacco advertising, the Supreme Court about to issue its decision.

And:

(BEGIN VIDEO CLIP, "THE FAST AND THE FURIOUS")

UNIDENTIFIED ACTOR: On green, I'm going for it.

(END VIDEO CLIP) DOBBS: A cinematic thrill ride that has one movie studio issuing an unusual warning: audience beware.

(COMMERCIAL BREAK)

DOBBS: The European Union Advisory Committee Monday will consider General Electric's proposed deal to buy Honeywell, and the chairman of the Senate Commerce Committee today joined the list of politicians warning the EU to think twice before blocking that deal. Senator Ernest Hollings has sent a letter to European Trade Commissioner Pascal Lamy.

The senator said: "Denial of a merger already approved by U.S. authorities would undermine an already strained European Union-United States trade relationship. I urge," the senator said, "the EU to consider their actions very carefully."

A final decision from the European Union is expected July 12.

Another closely watched decision, this time involving tobacco, also expected next week. The U.S. Supreme Court wrapping up its current term, and it's due to rule on a contentious case, pitting the health of children against the free speech rights of business.

Tim O'Brien has the story from Washington.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): The tobacco industry's argument is simple: because cigarettes are legal and the billboard advertising for them is truthful, any law against those billboards violates free speech.

MARK BERLIND, PHILIP MORRIS ATTORNEY: We've got truthful speech here. In addition, this is a restriction that singles out tobacco advertising. It is discriminatory in that way.

O'BRIEN: Massachusetts prohibits outdoor advertising like these for cigarettes within 1,000 feet of schools, parks and playgrounds. State officials say their interested in protect children from the adverse effects of tobacco outweighs the tobacco industry's right to free speech.

THOMAS REILLY, MASSACHUSETTS ATTORNEY GENERAL: The tobacco companies are doing all that they can to keep that window open so they can get our kids hooked on tobacco. We are doing everything within our power to close that window to protect our children.

O'BRIEN: Attorney General Reilly says the power of the government to regulate business includes at least a limited right to regulate its advertising.

(on camera): Just how much First Amendment protection should a tobacco company, or any company, get in advertising its products? Over the years, the Supreme Court has been giving confusing and contradictory answers. (voice-over): In a case involving casino gambling in 1986, for example, the court said, because states have the right to outlaw gambling, they have the right to take the lesser step of banning any advertising for it.

But the court refused to apply that principle to liquor advertising in Rhode Island 10 years later, even though states can clearly prohibit the sale of alcohol. The billboard advertisers are asking the court to clear up the ambiguity by ruling for the first time that commercial speech has the same high protection as political speech.

FLOYD ABRAMS, INFINITY OUTDOOR ATTORNEY: We ought to deal with bad speech in the commercial area, generally, the way we deal with it in the political area, which is to assume, hope, believe that good speech will drive out bad speech.

O'BRIEN: Although perhaps not a majority, several justices are known to agree. The court could sidestep the First Amendment issues by finding that the state law is in conflict with higher federal law, which the tobacco companies also argue.

But the court's decision, due next week, has the clear potential for a landmark ruling on free speech as it applies to business.

Tim O'Brien CNN Financial News, Washington.

(END VIDEOTAPE)

DOBBS: Coming up next on MONEYLINE tonight, "CEOs on the Edge": Bausch & Lomb, a company in turmoil, a boss in the hot seat.

Also, expect a fourth-quarter recovery, that according to Invesco tech fund manager Bill Keithler. He's next.

(COMMERCIAL BREAK)

DOBBS: A huge number of companies out with earnings warnings so far this quarter. In fact, according to "First Call," 571 companies have already warned. That compares with just 131 companies warning this time a year ago. But things may be looking up, my guest predicting the worst is behind us. He sees a fourth-quarter recovery on the way.

Joining me now from Denver, Colorado Invesco technology fund manager Bill Keithler.

Bill, good to have you with us.

BILL KEITHLER, INVESCO TECHNOLOGY FUND: Thanks, Lou, good to be here.

DOBBS: We're getting, obviously, in technology a lot of mixed signals, Larry Ellison saying things are looking up for his company, nearly everyone else saying, not so fast. What -- why do you see a fourth-quarter recovery? KEITHLER: Well, we don't actually see it yet, but we're anticipating that by the fourth quarter we're going to have worked through a lot of the excesses that have been created over the last few years with one or another of the bubbles.

And we also see the Fed ease really kicking in. So we're looking for an enterprise-led recovery in the tech sector. We do think that's...

DOBBS: Now, what does that mean, an "enterprise-led recovery"?

KEITHLER: Well, basically, corporate America, and kind of the non-telecommunications side of the world. We think that telecom space is further away from being in recovery mode, I guess you'd say, and being able to drive more tech spending. So we think that companies are going to be releasing budgets and spending on projects that have been on hold and we are going to see that continuing to roll out through the year.

DOBBS: And at this juncture, what do you like in the way of stocks that you are buying?

KEITHLER: Well, we are pretty broad-based, but we are trying to focus on those companies that are more enterprise driven, as opposed to relying on an improvement in telecommunications equipment. So that would mean software. And that is about a good 25 percent of our portfolio right now.

DOBBS: Give us some examples of the software that you like.

KEITHLER: Well, Veritas software, which is the leader in the storage area.

DOBBS: Just got...

KEITHLER: BEA Systems -- sorry.

DOBBS: Verity just got hammered.

KEITHLER: Veritas, not Verity.

DOBBS: Oh, I thought you said -- I misunderstood you.

KEITHLER: BEA systems, which is really a software infrastructure play and applications servers, I2 technologies in the supply chain area. But I would hasten to point out that these stocks are not especially cheap.

DOBBS: Right.

KEITHLER: So we are not alone in our thinking.

DOBBS: In terms of "cheap" and not being alone in your thinking, after what we have gone through over the course of the past year, 15 months, why do we see some of these multiples still so high? Because it is pretty clear that there has been an adjustment across the sector.

KEITHLER: Well, I think hope dies hard. I think we are in a multi year kind of reversion, to mean, in terms of valuations. We expect technology spending, at least until telecom comes back, and you see a resumption in network build. And in wireless, we think tech spending is going to be along the lines of the growth rates we saw in the early '90s. And, adjusting for interest rates, and inflation we would expect valuations to go there too.

DOBBS: OK. Bill Keithler, thanks for being with us here.

KEITHLER: Thank you.

DOBBS: Coming up next, the arbiter of recessions says this economy may be in one already. We will ask economist David Horner for his view. Also, a former Army officer launches his defense in an historic espionage trial. Those details, coming up next.

(COMMERCIAL BREAK)

DOBBS: A nearly $20 billion boost tonight for the Pentagon. That word from a top Defense Department official who insists on remaining anonymous. He tells us that the Bush Administration military budget for 2002 is $329 billion. That's more than $18 billion more than the outgoing Clinton Administration had recommended. That budget includes more than 7 billion for the development of missile defense programs, a top White House priority.

The highest-ranking U.S. Military officer ever accused of spying today took the stand in his own defense. George Trofimoff is on trial in Florida. The former Army reserve colonel allegedly spied for the Soviet Union while serving with Army intelligence in Germany.

The prosecution rested its case this week after testimony from several former intelligence officers, including one from the KGB. Allan Dodds Frank has the story.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): This videotape, made by an FBI undercover agent, was shown in the espionage trial of George Trofimoff, now in its third week in Tampa, Florida. On tape, the former Army reserve colonel brags about spying for the Soviet Union to a man he believes is a KGB agent. Trofimoff, speaking in Russian, telling the undercover agent of earning a quarter million dollars while spying for Russia.

JAMES BAMFORD, AUTHOR, "BODY OF SECRETS": Using this particular agent is an indicator of the importance of the case ,because they use him on really top cases. And from what I understand, he was taken out of retirement to do this.

FRANK: Now 74 years old now, Trofimoff is highest ranking U.S. military officer ever accused of espionage. He was chief of the U.S. Army's office at the allied forces joint interrogation center in Nuremberg, Germany for 25 years. He is accused of copying more than 50,000 classified documents during a quarter century of spying for the Soviet Union.

Using his top secret clearance, Trofimoff allegedly photographed and passed on to the KGB U.S. intelligence on Soviet and Warsaw Pact forces, classified reports on Soviet defectors, and U.S. intelligence objectives.

LT. GEN. WILLIAM ODOM, U.S. ARMY (RET.): Had a war broken out at any time, this information could have been terribly valuable. In other words, while information was flowing over there, in the 1950's and 60s, it put a lot of U.S. military persons at risk. It put the success of some of our war plans at risk.

FRANK: Trofimoff is now testifying in his own defense. He is arguing that his revelations of espionage are simply stories made up by an old man desperate for money.

Alan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

DOBBS: Coming up, a new Hollywood twist: A movie with a disclaimer. Also ahead: Bausch & Lomb Ceo William Carpenter, fighting to hang on as his company's performance dives.

Also, we will wrap up the day's Wall Street action, and we will Ask David Horner of Merrill Lynch about whether Washington should rethink a strong dollar policy.

(COMMERCIAL BREAK)

DOBBS: In tonight's headlines, U.S. military forces tonight in the Persian Gulf are on highest state of alert. That, after threats of a terrorist attack. That news and a warning from Merck sent shares on Wall Street slumping. The company blames that warning in part on slowing sales of its arthritis drug, and on a strong dollar.

And another sign of a slowing economy, Delta Airlines says it will lower certain ticket fares to combat a rapid decline in business travel. Taking a closer look, now, at Wall Street, that warning for Merck sent drug stocks plunging, pulling the rest of the market along with them. And then, news that U.S. military was moving to its highest alert status sent investors and stock prices scattering and lower.

Investors will now be looking to next week, when Fed policy makers meet to determine interest rate policy. Increasingly, economists are predicting another 50 basis point cut. That would be the sixth rate cut this year. The Dow briefly traded in positive territory earlier in the day, but spent the majority of the session in the red. The index finished near session lows, down 110 points.

The software sector weighing heavily on the Nasdaq, the index losing nearly 24 points on the day, finishing at 2,034. Today's sell- off leaves both the Dow and Nasdaq virtually unchanged on the week. On the big board, declining issues beat out advancers by a 3 to 2 margin. Topping tonight's "Moneyline Movers," General Motors losing nearly $2 a share today. Bank of America cut its rating, saying the run-up in the stock recently shows investors a little too optimistic about GM's current condition. The biggest loser on the Nasdaq today, Symantec, plunging 30 percent, warning profits will fall short of Wall Street estimates because of poor sales of its antivirus and Internet security software.

Another software maker, Manugistics, falling more than $10 a share. It met targets, but says the sluggish economy is forcing it to reduce profit goals in the future.

And AstroPower, up more than $3 a share. It won a contract from Lennar, one of the largest home builders in the country. That Lennar contract, to supply solar power systems to 1,000 homes. When completed, the community will be the biggest of its kind in the world. AstroPower stock up 37 percent so far this year.

The Dow's biggest loser today: Merck. Merck, warning profits will disappoint, in part because of the strong dollar. The dollar's continued strength, combined with a slowing economy, hurting corporate America. And manufacturers are now lobbying the White House for help, calling the situation a disaster.

Peter Viles has our report.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): It's a problem for Merck, for McDonald's and for Detroit -- the strong dollar, it puts U.S. manufacturers and multinationals at a competitive disadvantage.

JERRY JASINOWSKI, PRESIDENT, NAT'L ASSN. OF MANUFACTURERS: It's a disaster. It probably is the single most important negative impact on jobs and earnings for most large, global business firms today.

VILES: It's hurting Detroit because it gives Japanese and Korean car makers a big cost advantage. Merrill Lynch estimates the dollar's strength has robbed the big three of 1 percent of the U.S. market this year. That's 160,000 vehicles, $3 billion in lost revenue, about 3,000 lost jobs.

But Washington is not rushing to Detroit's rescue.

JOHN CASESA, MERRILL LYNCH: The main reason is that 70 percent of the Japanese cars sold here are made here today. And even though there's some yen content in those vehicles, they employ a lot of Americans, especially down South. So a lot of congressmen and senators are on the side of Honda, Toyota, Nissan.

VILES: Still, manufacturers are lobbying the Bush administration to back down from the strong dollar policy, championed by Bob Rubin in the Clinton years, which has helped send the dollar ever higher since the mid-'90s. Treasury Secretary Paul O'Neill is not budging. In a statement to MONEYLINE, treasury said -- quote -- "Our dollar policy is unchanged. We continue to support a policy of a strong dollar. The secretary believes that American businesses can compete in that environment."

The case for the strong dollar is that its better than the alternative, even for some manufacturers.

MARC CHANDLER, CHIEF CURRENCY STRATEGIST, HSBC: You have to be careful what you wish for, because a weak dollar, especially if it's coupled with less demand for foreign bonds and stocks, means higher U.S. interest rates, lower stock markets, slower growth, less demand for their goods.

(END VIDEOTAPE)

VILES: The National Bureau of Economic Research confirmed this week that manufacturing is the weakest link in the U.S. economy. The Bureau is the official arbiter of business cycles, and it also said this week it is now possible -- possible that a recession has begun in the United States -- Lou.

DOBBS: Peter, it was only a couple of months ago they were saying they saw no sign of it. What's going on?

VILES: Well, the job losses in the last two months, now adding up to 200,000 job losses, which is one of the things that the Bureau looks for in a recession, and also the weakness in manufacturing.

DOBBS: Terrific. Pete, thanks. Peter Viles.

Joining us now with more on how the dollar is affecting corporate America, and to tell us precisely what's going on with this economy, David Horner. He's senior financial strategist and economist and currency expert at Merrill Lynch.

Good to have you with us.

DAVID HORNER, MERRILL LYNCH: Thank you.

DOBBS: Let's start with the last element of what Peter Viles was reporting, the National Bureau of Economic Research, saying we may be already in recession. Again, "maybe." What do you think?

HORNER: Well, I think it certainly feels like it. We're probably just barely growing, maybe a half percent, maybe a percent. But since our potential to grow is at least 3 1/2 percent, we're layering off workers, businesses are struggling to get more productive, the strong dollar is one of the things that's hurting corporate profits. I mean, certainly, Chairman Greenspan is very worried about the lack of profits, so it's not unreasonable that manufacturers would be screaming at this point.

DOBBS: Well, Jerry Jasinowski, talking about not -- for the first time, certainly, that dollar and the problems it's creating, particularly for manufacturers and the large multinationals. But at this point, we've seen a 250 basis points. We are -- cuts, we're likely to see by next Wednesday, 300 basis points in cuts, yet we still have a strong dollar. Does that surprise you? HORNER: I am a little surprised that we didn't have more weakness as we lowered rates. But the problem is, they're getting weak overseas. Japan's in recession.

DOBBS: Right.

HORNER: In my opinion, the ECB has been far too slow to lower rates. They're more worried about inflation than their own slowdown.

DOBBS: The European Central Bank.

HORNER: The European Central Bank, that's correct. And yet our -- I believe because we have good policy here, that's one of the reasons why the dollar is strong. I think Greenspan has been correct to lower rates rapidly. He's been correct to worry about profits. As a result of that, I think one of the reasons the dollar is strong is people feel that when we get beyond this, say, in six months, nine months, the U.S. will be back at potential growth and Europe will be sluggish. And that's a case for a strong dollar.

DOBBS: So you believe that we should maintain the dollar policy, the strong dollar policy, as the treasury secretary today reaffirmed.

HORNER: Well, I believe that the dollar should weaken a little bit here.

DOBBS: Now, when you say "weaken," do you mean weaken as a matter of market influence, or as a matter of policy?

HORNER: Well, I think both.

(LAUGHTER)

HORNER: But I think O'Neill's problem -- here's O'Neill's problem, is that be careful what you wish for. When Lloyd Benson pursued a little bit weaker dollar for the same reasons in 19 -- I believe it was 1993, the dollar fell out of bed. And if you start a policy where you're not supporting the dollar, you run the risk of losing control of that policy.

DOBBS: And Paul O'Neill, in Italy, at the very beginning of his terms of five months ago, was chastened rather quickly when leaving ambiguous words on the table about the U.S. position on the strong dollar.

HORNER: Absolutely. There is a solution, however.

DOBBS: Well, let's hear it. That's great.

HORNER: I think the solution is that the U.S. should support the Euro. The U.S. should basically agree, as we come to this G-7 summit, to add some support to the Euro. Don't make it look like you're trying to weaken the dollar. Support a beleaguered Euro, in my opinion. That's kind of the way to do it, a back door way.

DOBBS: That's a nice term of art. HORNER: It would be, and you have to be very careful, and I think that's why he hasn't come out and responded to manufacturers yet, because he has to be very careful. It is true that it's hurting the manufacturers.

DOBBS: And of course, a stronger euro would give the ECB the latitude, despite some problems in those economies, to say the least, to lower rates.

HORNER: My thoughts exactly. Then that would take away some of the inflationary pressures of the lower euro makes on the European economy. I think the European Central Bank will lower rates by 50 to 75 basis points between now and the end of year. I think they should have done it already.

Certainly, if we cooperate with them to support the euro, I think that it would be mutually beneficial to both sides.

DOBBS: And if you do see this kind of slowing in the economy, the dollar, let's assume that Secretary O'Neill listens carefully to you, where do you see this economy going through the next two quarters?

HORNER: We're still going to remain sluggish, despite the 300 basis points easing we'll have by, probably, next Wednesday, and despite the tax cuts. Those will both help. We think, by the middle next year the economy will be back at potential growth. But the cumulative effect of rising unemployment is still going to leave us sluggish for a while.

DOBBS: OK, David Horner. Thanks for being with us.

HORNER: You're welcome.

DOBBS: Coming up next: tonight's "CEO on the Edge." William Carpenter of Bausch & Lomb, struggling to keep his company competitive.

And Delta Airlines, aggressively courting the increasingly elusive and absent business traveler.

(COMMERCIAL BREAK)

DOBBS: In tonight's "CEOs on the Edge," William Carpenter of Bausch & Lomb. After more than five years at the helm, his company has slowly slipped from the top spot in the contact lens market to No. 3. Bausch & Lomb has missed earnings estimates several quarters in a row, and during his tenure, a steady stream of top executives have left the company. Some on Wall Street may be calling for Carpenter to do the same.

Fred Katayama with the story.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Bausch & Lomb boasts one of the strongest brand names in contact lenses, but it has earned a black eye on Wall Street under the leadership of Chairman William Carpenter. It has disappointed four quarters in a row and has issued six downward revisions since last July. And its stock has fallen more than 50 percent since then. Money manager David Katz sold off 40 percent of his shares in the company three weeks ago.

DAVID KATZ, MATRIX ASSET ADVISORS: We think a four or five-year stint for a CEO who is not producing is really too long. He gets paid a lot of money. We think they have got to bring someone else in.

KATAYAMA: Carpenter has initially turned the company around after he took the helm in 1995. He restored the credibility the firm had lost when it got embroiled in an accounting scandal. He turned the company into a one-stop shop for eye care, selling off non-core brands like Rayban Sunglasses.

But in doing so, he took his eye off the business that makes up more than half of its sales: contact lenses and solutions. Those businesses, along with refractive surgery, are struggling. The company that once dominated the lens business was second in market share to Johnson & Johnson last year. And this year, it has slipped to third behind Ciba Vision. It was late to the market with disposable lenses, and what's more, it's being outmarketed by its rivals.

DHULSINI DE ZOYSA, SALOMON SMITH BARNEY: Competitors have turned up the heat in the contact lens business, and Bausch has been slow to respond. The real difference is the competitive landscape. We've got a combination of Ciba and Wesley Jessen, and we also have Johnson & Johnson's Vistakon division competing more aggressively with their Acuvue line.

KATAYAMA: Under Carpenter's reign, at least seven major executives, including the chief operating officer, have left the company since last summer.

DAVID GRUBER, LEHMAN BROTHERS: Clearly, that's a company that has undergone five restructurings over the last year, actually since December of 1999, and you know, clearly, a consistent management, or at least a stable management would have helped in the turnaround.

(END VIDEOTAPE)

KATAYAMA: An industry source says Carpenter has created a culture that does not tolerate bad news from his lieutenants. The source says the chairman is wearing, in his words, "rose-colored glasses" -- Lou.

DOBBS: Fred, thank you very much,

Well, in other corporate news tonight, Sara Lee pleading guilty to a misdemeanor charge of producing and distributing contaminated hot dogs and deli meats linked to more than a dozen deaths. As part of that plea arrangement, Sara Lee was fined $200,000 and must pay $1.2 million to the government and $3 million must be donated to fund food safety research.

Dime Bancorp confirming it's in merger talks with a larger financial institution, but stresses there is no guarantee that an agreement would be reached. That statement follows a report in "The Wall Street Journal," stating Washington Mutual may bid five billion for the company. Shares of Dime today finishing down $1.20.

And Delta Air Lines is saying it will lower certain fares, trying to attract business customers and vacationers in a weakening market. A sharp slowdown in travel has cut deeply into revenue for the airline industry. And we want to remind you to join us Monday evening here on MONEYLINE when we take a closer look at the dramatic falloff in business travel and its impact on airlines and hotels.

United Airlines tonight is struggling with a different problem, scrambling to bring service back to full capacity, that after a severe hailstorm damaged dozens of its jetliners. Hail stones the size of golf balls yesterday hammered planes at the Denver Airport, a hub for United Airlines. That storm damaged 32 United aircraft. Some of them are expected to be out of action for at least a month. From Denver, that hailstorm headed south, ice balls shattered windows, brought down power lines and punched through the metal skin of mobile homes

Well, next here on MONEYLINE, investors trample the retail sector today, following a warning from a leading designer.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Sectors Report": apparel retailers. A warning from Kenneth Cole and analyst downgrades hit those stocks today. Kenneth Cole saying problems for retailers could continue until the end of this year. Robertson Stephens also cutting its rating on several stocks in the group, citing continued weakness in the economy.

Kenneth Cole falling more than $4 a share. It's at a two-year low now. Gap closing down more than $1 a share. It's also cutting back on expansion plans. And also lower today, Ralph Lauren, Ann Taylor and Men's Wearhouse. Despite the poor outlook for retailers, the sector is up 5 percent on the year, outpacing the broader market.

Coming up next: a drive to make sure movie stunts don't leave the screen. We'll tell you why one studio is slapping a warning on its new chase picture.

(COMMERCIAL BREAK)

DOBBS: A Hollywood action movie tonight debuts with an unusual warning attached. The movie is "The Fast and the Furious," and it contains some of the wildest driving ever seen on screen. And Universal, which made that film, is telling viewers not to mimic what they watch.

That warning comes at a time when there are calls for new legislation to rein Hollywood in.

Susan Lisovicz with the story.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): They flip in the air, squeeze under trucks and never wear seat belts. "The Fast and the Furious" is Hollywood's latest homage to drag racing -- a subject that has fascinated filmmakers since the fifties classic, "Rebel Without A Cause."

What's new is this advisory on the film's Web site, stating the stunts were performed in a staged environment by professionals, and this warning by one of the film's stars, Vin Diesel.

(BEGIN VIDEO CLIP)

VIN DIESEL, ACTOR: Be smart, drive safe, and stay legal.

(END VIDEO CLIP)

LISOVICZ: The release of the PG-13 movie comes the same week as bills introduced in the House and Senate giving Washington the authority to fine Hollywood when age-restricted entertainment is marketed to kids. But some lawyers say Universal is protected by the First Amendment and the film would have to incite lawlessness to have grounds for any kind of suit.

ROBERT SCHWARTZ, O'MELVENY & MYERS: There's a lot of scrutiny on the industry, so it's possible this film, even though it may not be culpable in any way, would draw litigation, whereas a few years ago it might not have.

LISOVICZ: But another lawyer, who has filed suit against the producers of the film, "The Basketball Diaries," in the wake of a deadly school shooting, says what Universal really needs is an R rating.

JACK THOMPSON, LAWYER: All of the warnings in the world are not going to protect them from a lawsuit which would possibly be successful if some kid somewhere, building upon what he sees in this movie, goes out and drag races with his friends and kills himself or the other racer or innocent third parties.

LISOVICZ (on camera): The producer of "The Fast and the Furious" says the world of illegal street racing exists, whether there's a movie or not. The disclaimers by Universal are aimed at preventing any increase in that dangerous activity.

Susan Lisovicz, CNN Financial News, New York.

(END VIDEOTAPE)

DOBBS: California Governor Gray Davis has finally experienced a blackout he can smile about. Jay Leno killed the lights on "The Tonight Show" last night for appearance by the governor. Candles and flashlights stood in for studio lights, in a play on California's energy crisis. The governor offered some tips on how he conserves energy.

(BEGIN VIDEO CLIP, "THE TONIGHT SHOW")

GOV. GRAY DAVIS (D), CALIFORNIA: First, I get a really long extension cord and I plug it into a socket in Texas!

(LAUGHTER)

No. 2, at all my speeches, we turn lights down really low, because we don't want to wake anyone up.

(LAUGHTER)

(END VIDEO CLIP)

DOBBS: The governor also made fun of his less than charismatic image. He joked the energy crisis marks the first time the words "Gray Davis" and "electricity" have appeared in the same sentence.

Up next, your e-mails and "Ahead of the Curve."

(COMMERCIAL BREAK)

DOBBS: Next week, important news for all of us out of Washington: Alan Greenspan and Fed policy makers gather for their two- day meeting. They will determine the direction of interest rates. A decision on whether to cut is expected around 2:15 Wednesday. We'll also next week see reports on Gross Domestic Product, new and existing home sales, durable goods, and the University of Michigan Consumer Sentiment Report. Also, quarterly reports from Nike, 3COM, Palm, and Cabletron Systems, all adding up to an interesting week.

Monday here on MONEYLINE we will be joined by Former Secretary Of State Henry Kissinger. His view on the security threat to U.S. interests in the Middle East, and the prospects of a trade war with the European Union. Please join us Monday evening, right here for MONEYLINE.

And now for your thoughts, one viewer -- last night's interview with Sam Wyly -- that viewer commenting on Mr. Wyly, who has a $55 million stake in Computer Associates, and trying to replace the company's board. He says, "I saw Sam Wyly on MONEYLINE. He's right -- Computer Associates is one of the most hated companies in the world."

Another viewer questions whether there is a so-called energy stock bubble, suggesting we -- quote -- "take a look at Global Marine. The company hit a high of 36 in October of '97. Today it's trading at $20 a share with second quarter earnings growth of over 112 percent. Why do we Americans now like energy companies?"

And finally, a comment that represents many viewers who are not happy with the Fed chairman. "Why not talk about Greenspan? His premature rate hikes were the cause of the current rate crisis. The rate cuts have not had a significant effect and may not." Maybe. Let us hear from you. E-mail us at moneyline@cnn.com.

And that's MONEYLINE for this Friday evening. We thank you for joining us. Have a very pleasant weekend. I'm Lou Dobbs. Good night from New York.

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