Return to Transcripts main page

Lou Dobbs Moneyline

Dow Declines 100.37 to 10,504.22; Nasdaq Climbs 16.03 to 2,050.87; Home Foreclosures Rose in First Quarter

Aired June 25, 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 Dow stands at a two-month low after tumbling for a second straight session. The Wall Street sell-off comes a day before the Fed meets to decide whether to cut interest rates for the sixth time in six months.

A slowing economy cutting into business travel. Airlines and hotels are suffering as companies slash travel budgets.

Tonight, I'll be talking with Mike Holland about the market. And Henry Kissinger on why the treaty he wrote decades ago should be scrapped.

Good evening.

We begin tonight on Wall Street, where the Dow Jones Industrials fell 100 points. The Dow today tumbled for a second straight session and is now at a two-month low. The Nasdaq managed to gain 16 points. But volume was light. Investors awaiting the Fed's decision on interest rates.

The Fed begins its two-day meeting tomorrow deciding whether to slash rates for the sixth time this year. Jennifer Westhoven reports from Wall Street.

(BEGIN VIDEOTAPE)

JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Investors pulled out of old economy stocks, pushing the Dow Jones industrial average down again, although tech stocks managed to eke out small gains. The focus: How deeply the Fed might cut rates at their upcoming meeting.

RICHARD MCCABE, MERRILL LYNCH: I think, at this point, 25 basis points would be a disappointment. I think people or the market is now beginning to look for a 50 basis point cut. That might be helpful. I think a key thing will be what the Fed indicates about their bias going forward.

WESTHOVEN: After drifting early in the session, the Dow headed south, plunging more than 130 points before paring some of the losses, to close down 100 points at 10,504.

Old economy stocks that helped drag down the Dow: Caterpillar, Eastman Kodak, General Electric and Home Depot. Coca-Cola was one of the Dow's few winners after Goldman Sachs said investors have been too tough on the stock, and that firm's market strategist, Abby Joseph Cohen, said she is sticking to her targets which assume a big turnaround.

ABBY JOSEPH COHEN, GOLDMAN SACHS: Among the key factors we're focusing on is the idea that personal income continues to grow, and while there clearly is duress in some sectors, especially manufacturing and some areas of technology. We think the overall economy will be looking much better in 2002.

WESTHOVEN: That optimism didn't help investors today. The Nasdaq closing up 16 points at 2050. Chips stocks rallied slightly. One of the few sectors to end the day with solid gains.

(END VIDEOTAPE)

WESTHOVEN: But even the small rally in some tech stocks could be in jeopardy. Applied Micro Circuits warned after the bell, another sign things are not getting any better in the bloodied tech sector. Traders say weeks of these profit bombshells mean investors may be too frazzled to commit to stocks until companies start delivering good news -- Lou?

DOBBS: Thank you very much, Jennifer. Jennifer Westhoven from the New York Exchange.

The Federal Reserve a year ago this week decided to leave interest rates unchanged. Policy makers noted in their statement at that time concerns about "heightened inflationary pressures" and the unusually tight labor market. Now a year later, Alan Greenspan is in the midst of the most aggressive campaign of his career, trying to avoid a recession. Tim O'Brien looks at the bets on what the Fed will do or won't do going into tomorrow's meeting.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): After five-straight cuts of 50 basis points each, many economists believed a cut this week would not exceed 25 basis points, reducing the target interest rate to 3.75 percent. Then, starting last week, more depressed earnings reports leading an increasing number of Fed watchers to predict yet another 50 basis-point cut, blaming the failure of past cuts to ignite the economy.

DAVID JONES, AUBREY G. LANSTON: We should be seeing something. There is virtually nothing there. What we can say is the best the Fed has done is given us protection on the downside of the economy, perhaps kept us out of a recession, although just barely.

O'BRIEN: But some economists say once the effects of previous rate cuts kick in, another 50 basis-point cut Wednesday could ultimately overheat the economy.

JAMES SMITH, UNC CHAPEL HILL: We get it moving and then we get it moving too quickly and then we really have to react to slow things down, and that could well lead us into a recession a year from now.

O'BRIEN: Smith says he wouldn't cut interest rates at all, nor would Bank Of America's Mickey Levy, who attributes the sluggish economy to factors the Fed has little power to fix.

MICKEY LEVY, BANK OF AMERICA: The economy is being hurt by higher energy prices and the unwinding of the earlier boom in business investment in the Nasdaq, and those factors the Fed can't do anything to offset in the short run.

O'BRIEN: Still, Levy predicts the Fed will cut rates one-quarter percentage point, or 25 basis points.

(END VIDEOTAPE)

O'BRIEN: Whatever the open market committee decides, it is expected to include the now customary advisory that members continue to regard the risk of the weakening economy is outweighing the risk of inflation. Translation: Regardless of what happens Wednesday, Lou, there could be still more rate cuts down the road.

DOBBS: Tim, thank you very much. Tim O'Brien from Washington.

A report out today shows continued strength in the housing sector. Sales of existing homes rose nearly 3 percent last month. That, despite a modest gain in mortgage interest rates. Economists were expecting home sales to be flat. The median price, interestingly enough, for a single family home hit $145,000 in May. That is a record high.

On Wall Street today, investors focused on the economy and deal making. The biggest deal of the day: A multibillion-dollar takeover in the banking business. Washington Mutual confirmed the speculation last week, saying it will buy Dime Bancorp for $5.2 billion in cash and stock. That's an 11 percent premium over Friday's closing price for Dime. Dime will give the company a stronger position in the Northeast.

Checking Wall Street's reaction: Washington Mutual down almost $2 a share. Dime Bancorp up over $1 on the day.

Also, Canadian mining company, Barrick Gold, agreed to buy Homestake Mining in a $2.3 billion all-stock deal. That offer represents a 31 percent premium to Homestake's closing price Friday. The combined company would be the world's No. 2 gold producer with a market cap of $9 billion.

Wall Street's reaction, Barrick Gold down 75 cents. Homestake Mining, up $1.40. The price of gold today by the way gaining more than $1. While silver and platinum edged slightly lower.

The tally of corporate layoffs continues to grow, International Paper after the market closed announced it's slashing 3,000 jobs, about 10 percent of its work force. The Dow component saying the changes will help cut costs and allow it to focus its resources on its core businesses of paper, packaging and of course forest products. Ahead on MONEYLINE, one of the first expenses to go as companies rush to cut costs is business travel. We'll take a look at the impact on airlines and hotels. And it is severe.

The secretary of state addresses the United Nations on the AIDS catastrophe in Africa.

Also, the former secretary of state who says the antiballistic missile treaty is a relic that should be scrapped. He showed know; he wrote it.

(COMMERCIAL BREAK)

DOBBS: Washington tonight is promising continued help in the global battle against AIDS. Secretary of State Colin Powell today addressed a special U.N. general assembly session on fighting the epidemic. He said the United States is contributing millions to a new U.N. fund for combating AIDS and other diseases.

(BEGIN VIDEO CLIP)

COLIN POWELL, SECRETARY OF STATE: Last month President Bush announced a pledge of $200 million to jump start the Global Fund, a bold new public/private partnership to combat HIV/AIDS, tuberculosis, and malaria.

We hope this seed money will help generate billions more from donors all over the world and more will come from the United States, as we learn where our support can be most effective.

(END VIDEO CLIP)

DOBBS: Secretary Powell is dismissing a warning from Moscow. Russian President Vladimir Putin says he will increase his country's strategic nuclear arsenal if Washington decides to go ahead with a missile defense program. The secretary of State says he doubts Putin will go ahead with that once he sees the price tag.

Well, NATO allies have criticized President Bush on his recent European tour for promoting missile defense. They argue that it would violate the Antiballistic Missile Treaty of 1972.

My guest tonight says the ABM treaty is antiquated, it should be shelved. His perspective on the treaty is especially compelling, because he wrote it, former Secretary of State Henry Kissinger. Henry, good to have you with us.

HENRY KISSINGER, FORMER SECRETARY OF STATE: Pleasure to be here.

DOBBS: The criticism, I suppose, is not entirely unexpected, but what is intriguing is Bush administration seeking the approval of what were once rivals and if not outright enemies of the United States, i.e. the Russian president. Do you think the United States would go ahead if the Russians protest vigorously?

KISSINGER: I think the president has made it clear that he will go ahead, and I think it should go ahead. The Russians ought to be given an opportunity to come to some understanding about limits, about the kind of system that should be deployed, but they should not be given a veto, because I don't see how any American president can say I believe the American people totally vulnerable when missiles are spreading around the world, nuclear weapons are proliferating against every level of attack, that would be utterly irresponsible.

DOBBS: You wrote a book "Nuclear Weapons and Foreign Policy" 44 years ago. That was the fundamental work of geopolitical strategy, particularly obviously, for this country. Herman Kahn, "Thinking about the Unthinkable" in 1962 or 1963. What is the essence of the change over the course of those four decades that makes the ABM treaty no longer relevant, that makes missile defense the appropriate strategy?

KISSINGER: In the '60s there were two nuclear powers, and there was a strategy which was called mutual nuclear destruction, that is in which you try to avoid war by threatening to kill tens of millions on the other side. Now, that's basically a nihilistic strategy, on which you cannot rely forever.

But whatever you could do in the '60s, now there are many nuclear countries, many irresponsible countries, and every American president, almost every American president of either party who's looked at the problem of missile defense has decided that we have to have it, from President Johnson through President Clinton, to President Bush.

DOBBS: But in terms of the new missile defense...

KISSINGER: I think the agreement is no longer relevant, because it applied to a different technology, it applied to a different world when there were only two nuclear countries. And frankly, it was not our first choice. We wanted -- President Nixon wanted a to build a missile defense in the '70s, and was stopped by the Congress.

DOBBS: This president seems, as you suggest, absolutely committed to going ahead with it. In practical terms -- and I know that technology is not your specialty -- but in your best judgment, how quickly could it be undertaken and be available as an effective strategy?

KISSINGER: Well, my understanding is that a rudimentary system could begin to be deployed as early as next year. But it would take three or four years to put an effective system into place.

DOBBS: And the criticism the Bush administration has received particularly from France, from Germany on missile defense, and the issues that have arisen recently, particularly in the case of the General Electric-Honeywell deal, is there a rising, noticeable change in the relationship, the traditional relationship between Europe and the United States here?

KISSINGER: Well, Europe is trying to build the European Union for the 25 states. And they have the problem of how to give it an identity. What unites, say, Slovenia with Scotland? And there is a great temptation to try to seek that identity in opposition to the United States, and that's a very dangerous cause, because it will get us back to the rivalries that were the problem in the Western civilization and lad to two world wars. We're not going to have a war with Europe, but it's hard to understand why the Europeans think that a totally vulnerable United States is a better ally and a better protection for them than someone that has some missile defense.

DOBBS: And in terms of China, that relationship continues to follow a course of twists and turns, and most recently in the spy plane standoff, for...

KISSINGER: I believe that friendly relations with China are important, and that we should not select China as our principal enemy, unless it seriously challenges us.

DOBBS: Do you see them seriously challenging us?

KISSINGER: Except for the Taiwan issue, there is not a serious challenge from China at this moment.

DOBBS: How long do you think before one could possibly emerge?

KISSINGER: Fifteen, 20 years. Their military budget is 12 billion a year, ours is 320. It will take a long time before they can challenge us.

DOBBS: Henry Kissinger, as always, great to see you. Thanks for being with us.

KISSINGER: Good to see you.

DOBBS: Thank you.

Well, coming up next here on MONEYLINE, we'll have the latest cost cuts at Compaq Computer, and we will be telling you about plans to save hundreds of millions of dollars by teaming up with Intel.

And Walter Winnitzki from J.P. Morgan, he will join me with his outlook for the PC business. It is not a rosy scenario. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Tonight's "Tech Watch": Compaq Computer. As part of its ongoing effort to cut costs, Compaq today saying it will discontinue the development of a key microchip. Compaq will phase out its Alpha line of processors in favor of ones made by Intel. Bruce Francis reports.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Compaq is finally giving up on its Alpha chip, which it acquired as part of its purchase of Digital Equipment Corporation in 1998. The chip served as a valuable hedge against delays with Intel's Itanium, but development costs are huge. Soon, those costs will be on Intel's balance sheet, and off Compaq's.

MICHAEL CAPELLAS, CHAIRMAN AND CEO, COMPAQ COMPUTERS: This is a very significant move, so this is looking in the range of hundreds of millions of dollars.

FRANCIS: And that's per year. Compaq and Intel are not disclosing specifics, but initially hundreds of Compaq employees will be transferred to Intel's books. Compaq is now planning to put Intel's Itanium chip, not the Alpha, in its highest-end computers by 2004. Those machines perform large complex tasks with little room for downtime, like running stock exchanges.

Intel not only gains a customer, but also vanquishes a competitor in a single deal. CEO Craig Barrett says he doesn't see any problems with antitrust authorities.

CRAIG BARRETT, PRESIDENT AND CEO, INTEL: And the products that come out of this are non-exclusive. We'll sell them to Compaq, we'll sell them to any other computer OEM. So, I don't see any challenge from the authorities on this issue, totally a non-exclusive relationship.

FRANCIS: Analysts like Compaq's savings and strategy.

BRETT MILLER, A.G. EDWARDS: I think it will save them money, and I think it will actually give them a faster time to market, and it will also help both customers and application developers to have a clear story out there on where Compaq's going.

(END VIDEOTAPE)

FRANCIS: CEO Michael Capellas wouldn't comment on the current quarter, which ends on Friday. And while Capellas says he sees more growth in the services business, Compaq's CFO said that contrary to published reports, there is no restructuring -- Lou?

DOBBS: Bruce, thank you. Bruce Francis.

The latest change in tactics by Compaq are part of an industry- wide effort to improve profitably in a tough business climate. Walter Winnitzki is senior PC analyst, J.P. Morgan. He cut his forecast for the entire industry, for the third time this year.

And let me ask you, how bad is it going to get?

WALTER WINNITZKI, J.P. MORGAN: Well, Lou, I think we're probably in the most difficult part of the computer -- of the PC industry since it start 20 years ago. My sense is, it will probably get a little more worse before it gets better. There's hope for next year, but we'll have to get through the next couple of quarters, could be challenging.

DOBBS: More challenges than these PC makers have already seen?

WINNITZKI: I think the demand is the issue here. That's what everyone is really fighting for.

DOBBS: Let's talk about the Compaq decision today, going into the server business, backing out of the processor business, these do not at first -- Blush, at least -- appear to be great bold lightning strokes of vision? What's your take?

WINNITZKI: From an industry perspective, the Compaq statement they're making is Intel -- where it will be heading in the next couple of years is ready for prime-time, to play in the enterprise, not just on desktop PCs, to take on some of the most challenging applications.

If that happens, that's going to be good for users because it will begin to commoditize the industry. But you need a different cost structure to compete there.

DOBBS: I'm sure that's what everyone at Dell and IBM and certainly Compaq wanted to hear and see the server business will be commoditized. What does that mean for margins over the course of the next couple of years?

WINNITZKI: Well, that means it will be more challenging. That some of the companies that enjoy pretty rich product margins -- they will go down. The companies that have low cost will be the winners if in fact this transition happens very forcefully.

DOBBS: You're in the business of picking winners and separating the winners from the losers. Who do you see is the top three winners here?

WINNITZKI: Clearly, in this transition, those companies that have very large install base, have a very low cost structure, will benefit by this. Dell has done a very good job of being at the forefront of lowering its cost and riding these waves, Compaq with this announcement is saying, we're ready to be competitive as well. So I think both of these companies are going to do very well as this industry commoditizes on the high end.

DOBBS: I asked for three. Is there a third?

WINNITZKI: Well, there's always an opportunity for another one of the big companies to come in and to get competitive.

DOBBS: Would you be a buyer of these stocks right now at these levels?

WINNITZKI: Right now, I think I'd like to keep my powder dry a little bit. I think there's going to be a little bit more challenges here in the near term and some of the stocks you can get at better prices. They'll bounce around a little bit. The only stock we have a recommendation on is Compaq, and that's purely on a value basis, and for someone who is willing to sit and hold that for 6 or 12 months.

DOBBS: That is a relatively, I think one could say safely, gloomy outlook for the industry, an industry as you point out, has had its share of challenges for some time.

Walter, good to have you with us.

WINNITZKI: Pleasure to be here.

DOBBS: Thank you.

Coming up: We'll take a look at the dogfight over a giant defense contract. Aircraft makers take to the skies, they're gunning for a lucrative fighter-jet deal.

Plus: The debate over nuclear waste, and how to dispose of it. We'll tell you how the White House wants to deal with the problem, and why critics say that solution is too dangerous.

(COMMERCIAL BREAK)

DOBBS: A Supreme Court defeat today for the publishing business. The high court ruled that publishers must have permission from free- lance authors before re-packaging their work for use on the Web. Media companies had argued that electronic versions of work already published were mere revisions for which authors had already been paid.

But the court by a 7-2 vote, sided with authors who argued that they should be able to control how their work is used. A group of free-lancers had sued the "New York Times", "Newsday", and "TIME" Magazine. "TIME" is owned of course by the parent company of CNN, AOL Time Warner.

Now, the battle between two up to the minute fighter jets for a massive defense contract. Lockheed-Martin this weekend showed off its contender for the joint strike fighter contract. The X-35B.

It launches, as you can see there, vertically, and remains stationary in midair. Boeing fought back with its short takeoff and vertical landing aircraft, which hovered this weekend for eight minutes. The companies making those demonstrations as part of a competition for a deal to build 3,000 joint strike fighters for the Pentagon and the British Ministry of Defense. Each plane will cost between $28 and $38 million. The Defense Department will announce the winner in October.

The American Red Cross is tonight preparing a special earthquake relief mission to Peru. Saturday's 7.9 magnitude quake left at least 78 people dead, more than one thousand injured, and some 1,200 homeless. In one town south of Lima, 80 percent of the buildings were damaged or destroyed.

A proposal tonight from the White House on how to handle nuclear waste. The Bush administration says it wants to take a fresh look from recycling used fuel from nuclear plants, arguing that it's more efficient than current methods. Five previous administrations turned down recycling as too dangerous and too costly. Steve Young reports.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): Used but still treacherously dangerous uranium reactor rods are piling up in spent fuel pools in nuclear power plants around the nation. Five previous administrations shell programs to reprocess and reuse atomic fuel. Now the Bush White House and Republican supporters want to give it another whirl.

SEN. PETE DOMENICI (R), NEW MEXICO: Surely we ought to leave it as one of the options because it will permit us to use nuclear power plants which are clean, which will not cause any global warming, and the reprocessing itself will produce a very clean byproduct.

YOUNG: But reprocesses produces plutonium and that's triggering an outcry.

PAUL LEVENTHAL, NUCLEAR CONTROL INSTITUTE: Plutonium is an atom bomb material, and when you put that into separated form, you have to protect it like it is an atomic bomb. Beyond that, it is highly uneconomical.

YOUNG: Critics say if the Bush proposal is fully implemented, millions of pounds of plutonium will be created each year. A terrorist could turn less than 18 pounds of plutonium into a weapon like the force of the bomb dropped on Japan.

Reprocessing alone wouldn't make a significant dent in the nation's nuclear garbage pile. It would take advanced pyro and transmutational techniques.

And the Department of Energy says the cost would be a mindboggling $300 billion, based on a construction schedule of 117 years. Historically 500 percent Energy Department cost overruns aren't unusual. So the price tag could turn out to be $1.5 trillion or even more.

Then, there are the operational costs.

ARJUN MAKHIJANI, INSTITUTE FOR ENERGY AND ENVIRONMENTAL RESEARCH: The French do processing more than anyone else. They take the spent fuel, extract plutonium from it, and then recycle it as nuclear fuel. It's called MOX fuel, mixed oxide fuel, made out of plutonium. MOX fuel is five times more costly than uranium fuel.

YOUNG: It would help greenhouse gasses, and help reduce global warming, but it hardly produce electricity too cheap to meter, which was the original promise of the Atomic Age.

Steve Young, CNN Financial News, New York

(END VIDEOTAPE)

DOBBS: Still ahead: the war in the air, for the shrinking business travel market.

Also, a California judge delivers an ultimatum in a legal fight over electricity charges.

Also ahead, a complete wrap-up of the day's action on Wall Street. And we'll be talking with fund manager Michael Holland about whether it's time to hold or bail. Stay with us.

(COMMERCIAL BREAK)

DOBBS: The Dow hits a two-month low on weak volume, the Nasdaq closes higher for the second session in a row. The focus on Wall Street: tomorrow's Federal Reserve meeting on interest rates. The debate: whether the Fed will cut 25 or 50 basis points.

And shares of Applied Micro Circuits dropping more than $1 in after-hours trading, the chip maker warning it will post a loss next quarter because of a slowing economy and excess inventory.

The rate cut debate cast a shadow over Wall Street today. Both the Dow and Nasdaq experiencing light volume, as many investors chose to hold off trading ahead of the Fed's decision. Strength in gold and oil was not enough to combat a slump in biotech, retail and financial issues. The Dow finished down 100, the Nasdaq managed to finish slightly higher, after spending much of the afternoon lower. Strength in chip and Internet stocks, had a difficult time shaking weakness in software. The index finished up 16 points. And on the Big Board, declining issues beat out advancers by three-to-two margin.

Topping tonight's "MONEYLINE Movers": Biogen tumbling nearly $5.5 a share, slapped with downgrades from Lehman Brothers and Merrill. The brokerages citing concerns about its psoriasis and multiple sclerosis drugs, Merrill describing Biogen's pipeline as virtually empty.

Sunquest today surged nearly $9 a share, up more than 60 percent on the day. U.K. software company Mysis, buying the computer systems developer, paying more than $400 million in cash.

Walgreens falling nearly $4 a share. The largest drugstore chain reporting third quarter earnings up 10 percent from a year ago, but still missing Wall Street estimates by a penny and being severely punished, Walgreens citing weak nonprescription sales and heavy store expansion. Despite today's losses, shares of Walgreens have gained more than 30 percent on the year.

Well, my next guest now says we are in recession. He also says the Fed will be cutting interest rates by 50 basis points. Joining me now, Michael Holland of Holland & Company.

Mike, good to have you with us.

MICHAEL HOLLAND, HOLLAND & COMPANY: Good to be here, Lou.

DOBBS: You say we're in a recession. Why?

HOLLAND: It doesn't really matter what I say. I listen to the CEOs...

DOBBS: Well, that concludes this interview!

HOLLAND: I listen to the CEOs you interview every night here, and the first time I heard a CEO use the word "recession" was last October, Jack Welch and he has a good view of it. And night after night, you have people come on the show, they talk about hitting the wall several months ago. So, October, November, December, and on, and on, we're eight months into this thing.

Interestingly, back in 1990-'91, it was eight month recession then. The Federal Reserve announced -- the government, the NBER, officially announced a recession that occurred one month after it actually had ended.

DOBBS: The National Bureau of Economic Research.

HOLLAND: Economic Research, yeah, who came out today and said we're still not in a recession.

DOBBS: Well -- but you still maintain we are?

HOLLAND: I'm just listening to business people. I think in the real world out there, most of the people, with few exception -- as in housing -- most people out there say we're in a recession. Things are at least at the worst -- at best slow. At the worst, we're in a depression in some industries.

DOBBS: Well, the Dow today dropping 100 points, the Nasdaq managing to post a gain of 16, not the first time certainly in recent days that we've seen mixed market performance, and it's very hard to understand some days exactly why one is moving higher, while the other lower. Explain that to us.

HOLLAND: I think, my guess is, the Nasdaq is acting extremely well and that is in part due to the fact that it has come down so much. You talked a little while ago, people who own houses are now experiencing one of the best investment climates in the homes they own. It's up 6 percent year-over-year.

The people who own Nasdaq, now it's over 50 percent of the American population, they're down a lot. I think those people who were going to sell, who have sold that $2 trillion in money market funds, my guess is that a lot of Nasdaq stocks have seen their bottoms -- not that the economy is good, as you were saying, I think the -- I'm just reflecting what people are saying out there who run companies -- business is lousy.

DOBBS: Business is lousy. You feel we're in a recession, based on your taking the temperature of business people. This market, what do you think will happen?

HOLLAND: I think we're way too late to sell stocks. I think that if anything, stocks can be accumulated here because they reflect the recession we're in. Stocks led on the downside, led by the Nasdaq, led by the technology, just as they led on the upside. They were precursors of what happened, in part a cause of what happened, because as people began to feel kind of crummy about their own stocks, they stopped buying things on the margin.

DOBBS: Do you think that we're going to -- well, the last time you and I talked, which was a little over a month ago, you were very high on J.P. Morgan. It was $47 a share, then it's now about 45. You were high on Microsoft, about $67 when we talked, it's still about in that range. You were also high on Merck, and we saw that warning and obviously, the result, the fall-off in price. What are you -- are you still comfortable with Merck?

HOLLAND: Absolutely. Companies like Merck, and I remember, you know, this type when they talk about is Johnson & Johnson. Johnson & Johnson had its problems years ago. The stock tumbled. These great companies, when they are under pressure like that, it's when I accumulate. IBM -- Lou Gerstner was here years ago, talked about how this troubled company was going to be a winner. I think Merck is going to be a winner. It will continue to be a winner. I think that it's in the pipeline for it to continue to make big money. It's really cheaply priced.

DOBBS: So, you're staying with Merck, you're staying with J.P. Morgan, you're staying with Microsoft. Do you want to add anything to the list as we follow you through the year?

HOLLAND: I would stick IBM in there, I would stick Merrill Lynch in there. I would stop there.

DOBBS: You would stop there. All right. We'll be, as always, following that, and asking you to join us often.

HOLLAND: Thank you, Lou.

DOBBS: To defend yourself. All right, Michael Holland, always good to see you.

HOLLAND: Great to see you.

DOBBS: Well, as we reported to you earlier, sales of previously- owned homes shot up last month. But while home sales are rising, so are foreclosures, and economists expect foreclosures and loan delinquencies to rise further. Fred Katayama has our report.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The slowing economy is making it tougher for people to pay their mortgage bills on time, and now they are increasingly forfeiting their dream homes. The research firm Mortgage Information says the number of home mortgages in foreclosure shot up almost 9 percent in the first quarter of this year, to 142,100. That amounts to nearly 1/2 percent of the 29 million loans in its database.

Foreclosure were highest in cities with a manufacturing base -- Atlanta, Detroit, Philadelphia and Chicago. The numbers shot up as lenders aggressively pushed home ownership to an all-time high, partly by extending money to the riskiest so-called sub-prime borrowers, whose delinquencies tripled over the last two years. Layoffs and high energy prices made it difficult for many of them to pay their bills.

JAMES SMITH, UNC CHAPEL HILL BUSINESS SCHOOL: Some people have been helped into home ownership by zero down, or even slightly negative down payment mortgage deals, and when one or both spouses loses a job or one gets sick or there's a divorce, it can be very difficult for some people that are that marginal to make their house payment.

KATAYAMA: Figures from the Mortgage Bankers Association also show foreclosures on the rise. But many economists say not to worry. Interest rates remain low, and housing prices continue to rise, allowing many to skirt foreclosure.

DOUG DUNCAN, MORTGAGE BANKERS ASSOCIATION OF AMERICA: If house prices are firm and holding up, and sales are good in a market, that will allow the lender to work with the borrower to sell the property prior to going into foreclosure, so that the borrower gets to retain the equity that they've built up in that property, to help them transition into something they can afford.

KATAYAMA: Economists predict delinquencies and foreclosures will rise as the jobless rate increases, but the unemployment rate is expected to rise to just 4.8 percent by year-end, still a historically low level -- Lou?

DOBBS: Fred, thank you very much -- just about what it was two years ago.

Coming up next on MONEYLINE, a California judge has pushed power generators and the state to make a deal, and he means business.

And the airline industry suffers a horrible month at the hands of corporate America. We'll have that story for you when MONEYLINE continues.

(COMMERCIAL BREAK)

DOBBS: Another legal blow today to the controversial song- swapping service, Napster -- a federal appeals court upholding its February decision that Napster infringes on copyrights and must remove protected music from its service, rejecting Napster's request for a rehearing. Napster's only remaining legal option now: an appeal to the Supreme Court.

U.S. Gypsum filing for bankruptcy protection to manage spiraling asbestos litigation costs, expected to top a quarter of a billion dollars this year. The building-materials maker becoming the eighth company in the past year and a half forced to go into bankruptcy. USG's major domestic subsidiaries also filing for chapter 11 because of the asbestos lawsuits.

In tonight's "Powering America": a California judge wants electricity generators and the state to quickly reach a settlement. California claims it was overcharged by as much as $9 billion for wholesale power purchases over the past year. The judge says if the two sides cannot reach an agreement in 15 days, he will make his own recommendation to the Federal Energy Regulatory Commission, which would make the final decision. The settlement talks involve dozens of companies and state officials. But California is getting a break in another energy market: natural gas. That fuel, used to power the state's electrical generators, its prices are plunging. Today natural gas fell to the lowest level in more than 13 months.

Allan Chernoff tells us how the energy market has turned in favor of the consumer.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Relief for California consumers is coming from New York. Natural gas prices are plunging at the New York Mercantile Exchange, down 65 percent from the high late last year. That translates into a huge savings for California, because natural gas powers most of the state's electrical generators. The electricity rate for consumers is 1/3 what it was at the beginning of the year, according to PG&E. The utility says its average residential bill this month is $26.

Cooler-than-usual weather and the sluggish economy are partly responsible for the drop in demand and prices for natural gas.

RAY NILES, SALOMON SMITH BARNEY: Power consumption is correlated with economic growth. We've had a somewhat slowing economy that's definitely slowed the demand for power.

CHERNOFF: Other energy markets have also turned consumer friendly, as energy producers have been building up inventories, now well above last year's levels. Crude oil now trades just above $27 a barrel, nearly $10 below its peak last September.

JOHN KILDUFF, ENERGY ANALYST, FIMAT: Breaking $27 was significant for the market. It has the potential to go much lower, if we could just get a break, meaning no significant storms in the Gulf and tensions easing in the Middle East.

CHERNOFF: As refineries have been cranking out gasoline and consumers have been driving a bit less than usual, gasoline futures prices have dropped by a third since late May. At the pump, it has meant a decline of 13 cents a gallon this month alone. The average price now at $1.63 a gallon.

(END VIDEOTAPE)

CHERNOFF: If consumers are spending less on energy, that should free up money that can be spent elsewhere, which could give a boost to the economy -- Lou.

DOBBS: Allan, and the projections are for even lower gasoline prices through the summer, right?

CHERNOFF: That's right. They could keep on going lower because those inventories are very strong right now.

DOBBS: Well, it may not be good news for investors in those stocks, but it's great to see those lines going down for the consumer. CHERNOFF: Yes. The stocks have been very bad performers in the past month.

DOBBS: Well, they've got a little to make up for. Allan, thanks. Allan Chernoff.

Coming up next here: light at the end of the tunnel, as they say. Internet stocks, well, they're getting a lift as optimism rises for a recovery in on-line advertising.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Sectors Report": Internet stocks.

Positive analyst comments giving Yahoo! a boost today. Piper Jaffray expecting Yahoo! to meet or beat earnings estimates, saying its advertising market hit a bottom in April.

Also, America Online today saying the number of subscribers to its service has now topped 30 million, beating many analysts' forecast. Henry Blodget at Merrill Lynch saying the rise in membership is good news. In light of AOL's recent price hike. AOL, the parent of CNN, falling fractionally today.

Yahoo!, EBay, DoubleClick and CNET all higher. Over the past year, the sector down, however, more than 70 percent.

Next here on MONEYLINE, one of the worst hit sectors in the slowing economy: business travel.

(COMMERCIAL BREAK)

DOBBS: This late development in the dispute between American Airlines and flight attendants. President Bush saying he will intervene to block any effort by attendants to strike if they fail to reach a new contract agreement.

The White House saying that Mr. Bush will appoint a mediation board if the parties are unable to reach settlement by the end of the cooling-off period, that period ends this Sunday.

A surge in leisure travel will not be enough to help the airline industry avoid the worst quarter in more than a decade. That's because business travel, which accounts for two-thirds of the industry's revenues, is in a steep decline. But cutbacks in corporate travel are also hurting another industry. Peter Viles has our report.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): It's a nightmare for major airlines: many of their best customers, the big spending business travelers, are either grounded or suddenly shopping around for cheap fares.

JULIUS MALDUTIS, CIBC WORLD MARKETS: With the corporate restructurings going across America, and on a global basis, companies found the easiest cost to cut was the air travel budget to cut. Second, and perhaps more importantly, business travelers began to discover that they were paying five times more than the leisure traveler, and consequently have used the Internet to get their hands on some lower fares.

VILES: It's a first-class problem: in the first quarter, first class bookings dropped to 2 percent of all corporate bookings, down from 3 percent a year ago. Full coach bookings dropped from 7 percent from 12 percent, while discount bookings rose from 84 percent to 91 percent of all corporate bookings.

And the squeeze appears to be worsening into summer. Industry revenue fell 11 percent in May, the worst monthly performance in 20 years. The hotel industry has been hit hard as well. Business demand for rooms in big cities started dropping in March, and the slump appears to be accelerating. Analyst Jason Ader says the second quarter will be the industry's worst in fifteen years.

JASON ADER, BEAR STEARNS: Large Fortune 500 companies and small businesses across the board are sending fewer people away. Video conferencing is becoming more prevalent, and I think, to some extent, you'll see that continue into the third and fourth quarters as well.

VILES: Major hotel stocks, however, are showing gains for the year, partly because of something unusual that happened in the 1990s. Despite that long period of economic expansion, the industry did not go on a building binge. As a result, analysts right now are not particularly worried about oversupply.

Peter Viles, CNN Financial News, New York

(END VIDEOTAPE)

DOBBS: Still ahead, your e-mails.

Plus, "Ahead of the Curve." Stay with us.

(COMMERCIAL BREAK)

DOBBS: Investors will have number of economic reports to digest tomorrow, ahead of the much anticipated Fed policy meeting. Another check of the housing market: new home sales for the month of May, goods, and consumer confidence will also be reported.

Alan Greenspan and Fed policy makers get off their two-day meeting to determine the direction of interest rates. The Federal will decide whether to slash interest rates for the sixth time in as many months.

Now for your comments: "Regarding the market index charts you show every night, do you agree that daily volume shares traded on the indexes is almost as important as the daily point movement?"

No, I don't agree. Prices are always the more important than volume. But, it is an important element to understand volume and the state of the markets and price increases and declines. Another viewer had a comment about California's energy crisis: "There's delicious irony in the fact that the smug state, which lectured the other 49 of self-sufficiency through conservation and alternate sources of energy does not have enough power to recharge those electric cars."

Well, the markets are working and that is soon going to be fixed. Finally, while much of Wall Street is debating whether the Federal Reserve will cut interest rates, one viewers sees things a bit differently: "Mr. Greenspan should not cut rates at the next meeting. A lot of people will think I'm crazy, probably in the short term this will be bad for the markets, but once investors realize the recovery phase is on, the market will start to move higher."

Now that is an interesting forecast. E-mail us at: moneyline@cnn.com.

For tonight that's MONEYLINE. We thank you for joining us. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" is coming up next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com