LOU DOBBS MONEYLINE
Dow Declines 31.74 to 10,472.48; Nasdaq Advances 13.75 to 2,064.62; Merrill Announces Q2 Profits Will Miss Expectations, Cuts Outlook for Q3
Aired June 26, 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 worst single day for Merrill Lynch stocks since the Asian financial crisis. The markets react quickly and dramatically to that warning, but the markets finish mixed.
Investors are looking ahead to the Fed. We'll look at strong economic reports out today and talk with an economist who says a big interest rate cut is on the way.
Computer Associates Chairman Charles Wang joins us. He is in a fight for control of the company he founded.
And Ellen Hancock, one of the few women CEOs in the country is fighting for her job and her company.
Good evening.
We begin tonight with a shocking profit warning from Merrill Lynch. The world's No. 1 brokerage announced that second-quarter profits will miss expectations by as much as 37 percent with trading revenue slowing sharply. Merrill also saying third-quarter revenue may be weak as well. The reaction on Wall Street as you might expect severe: Merrill's stocks suffered its single-worst performance in four years today.
Allan Chernoff has the report.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Merrill Lynch laid the blame on the sluggish stock market, saying lower trading volume was a prime culprit in the profit decline. The new forecast: Revenues for the second quarter will be down 15 percent from the first quarter, earnings per share, between 52 and 57 cents a share, and as much as 35 cents below the consensus estimate.
On a conference call Merrill CEO David Komansky said business went from bad to worse during the quarter.
DAVID KOMANSKY, CEO, MERRILL LYNCH: While the market environment has been difficult for some, it has weakened further as the second quarter progressed, with the end of May through June period, being the most difficult of the quarter.
CHERNOFF: The slowdown in institutional stock trading hits Merrill especially hard, since it handles more big trades, known as blocks, than any other firm on the Street. The recent decline in market volatility has meant fewer big profit opportunities for trading firms like Merrill, and the fact that stocks now trade in pennies means there is less profit potential for Merrill's Nasdaq market makers.
The firm's investment banking business is down as well. During the first half of last year Merrill had a role in 38 percent of all U.S. mergers and acquisitions. So far this year it's been a player in only one fifth of all deals. And the value of those deals is less than half what it was last year. But analysts say much of the blame for the profit plunge lies with Merrill Lynch management.
HENRY MCVEY, MORGAN STANLEY: What really surprised us was on the cost side. The cost didn't move in line with the revenue decrease, and I think that's really what led to the surprise this morning.
(END VIDEOTAPE)
CHERNOFF: Analysts say Merrill's compensation expenses are the highest in the industry, 54 percent of revenues. Merrill is trying to bring that number down: it has already cut 3,300 jobs this year, about 5 percent of the work force, and unless the markets improve, it is likely to keep on cutting -- Lou.
DOBBS: Any indication, Allan, as to how soon we can expect those cuts?
CHERNOFF: They are continuous. They have been coming since the beginning of the year and they are gradually coming along and along. Unless we see a turn, they need to keep cutting these expenses.
DOBBS: Allan, thank you. Allan Chernoff. Taking a look at how Merrill ended the session today. The stock down more than $7.50 a share, wiping out about $6 million in market value. Others broadly lower today, as you would expect, including Goldman Sachs, JP Morgan, and Lehman Brothers, and Bear Stearns.
Merrill's warning hit the markets hard early in the session today. But the Nasdaq reversed its losses by the closing bell. And the Dow ended modestly lower. Investors appeared more optimistic that the Fed will deliver a half point cut in interest rates tomorrow, completing the meeting that began today. That optimism grew despite economic reports out today that were surprisingly strong.
Jennifer Westhoven reports from Wall Street.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Merrill Lynch's warning did the most damage in the early going, but other shocks came from Applied Micro Circuits, manufacturer Eaton, temporary staffing services firm Robert Half and Cheap Tickets. Some turned around their losses as stocks picked up steam halfway through the trading day.
PATRICK BOYLE, CREDIT SUISSE FIRST BOSTON: Obviously Merrill stealing the show this morning with the pre-announcement, put a little pressure on the overall market, but we've seen a decent rally back. I think it's mostly short covering.
WESTHOVEN: Several traders echoed that, saying people who bet that stocks would go down had to hedge their bets, because there can be sharp and sudden moves following a Fed decision. The Dow fell 109 points at its session low before making a comeback to close down 31 points at 10,472.
But despite the Dow's problems, a rally in small cap stocks and another day of gains for chips helped the Nasdaq muster a gain for the second session. The technology heavy index closed up 13 points at 2,064.
But with the focus on the Fed, traders said it wasn't surprising that by the closing bell, the averages made only modest moves.
TRACY EICHLER, UBS PAINEWEBBER: I think because nobody is quite sure, is it 25 or 50 basis points? If that news came out today and it was negative, we'd be assured we'd get 50 basis points. Now with positive news in front of Mr. Greenspan, does this mean we get just 25 basis points?
(END VIDEOTAPE)
WESTHOVEN: Wall Street already has a tough task forecasting what stocks will do after the Fed's decision, but with the Street so sharply divided, many traders won't even take a guess about tomorrow's reaction to any of the possible Fed scenarios -- Lou.
DOBBS: Could that be, Jennifer, because they don't want to think what would happen if the Fed disappoints investors?
WESTHOVEN: It certainly is. In fact, there's a lot of concern about disappointment no matter what the Fed does.
DOBBS: OK, Jennifer Westhoven, thank you.
Quarterly results after the bell today from 3Com and its spin-off Palm. 3Com last quarter lost more than a half billion dollars. When you take out one time items the so-called pro forma loss, it was 61 cents a share. That was wider than expected. 3Com's CEO also warning he does not see a turnaround anytime soon.
And handheld device maker Palm losing 6 cents a share during the same period. That beat already lowered expectations. Revenue plunged more than 50 percent from a year ago. 3Com down 19 cents in after- hours trading. Palm of course is higher, up 87 cents.
As we mentioned, the economic reports out today, surprisingly strong. The numbers once again sending conflicting signals to economists and policy makers at the Federal: Continued strength in consumer demand and housing, weakness in the job market, manufacturing and corporate profits.
Peter Viles reports now on an economy that at the very least is difficult to read.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): It's a riddle not even Alan Greenspan can answer today: Is corporate America, with its cost-cutting and job-cutting, dragging the economy into recession? Or is the American consumer capable of carrying the economy until business confidence improves?
The numbers don't always help. Three reports Tuesday pointed to strength or at least stability. Orders for durable goods jumped a stronger-than-expected 2.9 percent in May. New home sales rose a solid 0.8 percent in May, and consumer confidence climbed to its highest level of the year.
BRUCE STEINBERG, MERRILL LYNCH: The most important indicator we saw today was probably the consumer confidence numbers remaining relatively robust, actually moving up a little bit. That's very important, because that has been the only part of the economy that has actually had any growth in it.
VILES: Even as consumers continue to buy new houses, the job market is deteriorating. First time jobless claims are running at an eight-year high, the economy lost 201,000 jobs in April and May. Manufacturing employment is in a free-fall: 470,000 jobs gone this year. And the pressure to cut jobs continues, corporate earnings are expected to decline 17 percent in the second quarter.
LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: This is really the tip of the iceberg, where we're going to continue to see a deterioration of the job market, and that is really where confidence is firmly rooted. In the end, if you're going to have consumer confidence stable, you have to have jobs.
(END VIDEOTAPE)
VILES: A couple of positive numbers will factor into all of this very soon. Tomorrow, investors believe, the Federal Reserve is very likely to cut interest rates. And in three and a half weeks, the federal government will start mailing out checks, $38 billion in all, in taxpayer rebates coming up soon -- Lou.
DOBBS: It's already here. Thank you, very much. Peter Viles.
The strong economic reports out today sent bonds sharply lower. The 10-year fell: 21 ticks, its biggest loss in a month. The yield up to 5.2 percent. The 30-year bond down almost a point, the yield at 5.65 percent.
Back on Wall Street a management shift at Bear Stearns. CEO James Cayne will take over the chairmanship after his legendary mentor, Ace Greenberg steps down. Greenberg, one of Wall Street's most colorful executives, joined Bear Stearns in 1949. Cayne has been with Bear Stearns for the past 32 years, serving as CEO since 1993.
Ahead on MONEYLINE, the battle for control of Computer Associates. I'll talk with chairman Charles Wang defending his leadership as a renegade investor, fights for control.
And celebrities fighting for more research dollars to combat diabetes.
And drug makers are competing for a piece of an exploding business.
And, we'll talk about the proposal to boost Pentagon spending as well, with a man who certainly knows the subject.
(COMMERCIAL BREAK)
DOBBS: President Bush today held back-to-back summit meetings at the White House. First: South African President Mbeki, in Washington to promote an economic recovery plan for the continent. He asked Mr. Bush to support Africa in its fight to cope with violence, poverty and disease.
Then, the president encouraged Israeli Prime Minister Ariel Sharon to take steps to restart peace talks. Mr. Bush says progress is being made in the Middle East, but Sharon refuses to begin a cooling-off period while the Palestinians continue attacks.
(BEGIN VIDEO CLIP)
ARIEL SHARON, ISRAELI PRIME MINISTER: Israel will not negotiate under fire, and under terror. If we will do that, we will never reach peace. That is the point.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We are gaining by inches, I recognize. Progress is in inches, not in miles, but nevertheless an inch is better than nothing. And so therefore, this administration is committed to working with the parties. We urge -- we urge people -- we urge people in the region to stop the violence.
(END VIDEO CLIP)
DOBBS: Secretary of State Colin Powell heads for the Middle East tomorrow.
A verdict today in the trial of the highest-ranking U.S. military officer ever accused of espionage. A federal jury in Tampa, Florida has found retired Army Colonel George Trofimoff guilty of spying for the Soviet Union. He sold thousands of secret documents to the Soviets during his 25 years at an Army interrogation center in Germany. Sentencing for the 74-year-old is scheduled for September. He could be sent to prison for life. Defense Secretary Donald Rumsfeld testifies on Capitol Hill tomorrow about his plans for military spending. He's now carrying out a massive review of defense strategy, and the budget numbers are already climbing.
Joining us now to take a look at military spending priorities is former Secretary of Defense William Cohen, who is now chairman and CEO of the Cohen Group. Good to have you with us.
WILLIAM COHEN, FORMER DEFENSE SECRETARY: Good to be here.
DOBBS: The budget issue, first of all. Is this a climate, given the Senate in which you have also spent considerable time, is this a climate in which we will see the defense budget climb?
COHEN: Defense is going to go up. I think the Office of Management and Budget will approve some 329 billion, that's up from 310. That's a good down payment in terms of medical needs, pay, housing, some of the other things -- depot maintenance and so fourth. And about 4 billion is in there for the beginning of transformation for national missile defense and others. But more is going to have to be spent over the coming years.
DOBBS: For what reason?
COHEN: Well, because we have to modernize our forces. This is simply a short-term get-well budget. But we are going to have to wait for the QDR, the quadrennial defense review and next year's budget before we see the real needs.
DOBBS: Didn't the previous defense secretary take care of business while he was there?
COHEN: We reversed the trends. As a matter of fact, they were cut systematically over the years since the end of the Cold War. We started the trend back up, went from 43 billion up to 60 billion in procurement, and went from 250 to 310. So, we started the curve up; Secretary Rumsfeld and President Bush are going to continue it.
DOBBS: It seems clear that they're intent on raising that budget. In terms of the missile defense systems that the president has proposed, seeking support from both our allies and from Russia. Vladimir Putin saying if the ABM treaty is scrapped, he is going to put multiple warheads on their new ICBMs.
COHEN: Well, first of all, if the United States unilaterally takes action -- we are not proposing taking unilateral action, that's the reason President Bush went to meet with President Putin to begin with.
But secondly, you also have to watch what they say and what they do, and versus what is said publicly and privately. I met with President Putin last year at about this time, and he indicated he agreed that the threat was growing as far as the proliferation of missile technology. We've also had Mr. Ivanov and others who have indicated privately that there needs to be some means of addressing this, maybe even offered to cooperate at some level about a post -- or a boost-phase intercept.
So, we have to watch what they're saying. They're certainly going to try to tactically divide the United States from the European allies. So, we have to be careful in terms of what they are saying and what they're doing.
DOBBS: And that task might be somewhat easier given all of the rancor and rhetoric surrounding trade right now between the United States and Europe. We have just about 15, 20 seconds here, Bill. What's your judgment? Is there a trade war looming? Is there really a prospect of it?
COHEN: I don't think it's necessary. I think that there are steps that can be taken, for example, in the GE-Honeywell deal, it depends what happens, but ultimately if there are other companies who come along and try to put a deal together, that may soften the blow and prevent any kind of reciprocal action being taken for the United States versus that in the EU.
DOBBS: Bill, as always, a pleasure to have you with us. Bill Cohen.
Still ahead here: as the Fed meets to decide the direction of interest rates, economist William Dudley of Goldman Sachs -- his reasons on why the Fed needs to keep cutting and keep cutting strongly.
Later here on MONEYLINE, some less talked about economic indicators that could provide clues -- and we need clues -- about the health of the economy.
Also, tonight's "CEOs on the Edge": an Internet firm clinging to life as the stock price is crushed.
ANNOUNCER: Coming up, Lou speaks with Exodus Communications CEO Ellen Hancock.
(COMMERCIAL BREAK)
DOBBS: In tonight's "CEOs on the Edge": Exodus Communications. Exodus has recently made headlines after a top Wall Street analyst admitted he has misjudged the company's outlook and lowered his rating on the firm. Shortly after, Exodus warned it will miss second quarter estimates, saying its revenues would be down 13 percent from its previous targets.
Now, some Wall Street analysts are questioning whether Exodus will be able to remain on its own. Joining me now from Mountain View, California, the chief executive officer of Exodus, Ellen Hancock.
Ellen, good to have you with us.
ELLEN HANCOCK, CEO, EXODUS: Hi, Lou. How are you?
DOBBS: I know these have to be -- this is an extraordinarily difficult time for you. In terms of your revenues, just a couple of months ago, you were fairly optimistic. Give us your mood reading right now.
HANCOCK: Well, I would say I still remain on the optimistic side for the company. We had a revenue stream of 818 million last year, and we now project in a more conservative fashion that we'll be at $1.35 billion on this year. So we're still showing revenue growth.
What we are seeing, though, in the economy is that there is still some of the dot-com influence, although for us that appears to have peaked in March, which is good, and then second, that many of the customers are being more cautious. What makes us optimistic about our company is that outsourcing, in fact, is a very good vehicle in these critical times and we're still seeing very good enterprise wins.
DOBBS: And in terms of the enterprise portion of your business, what percentage of your business will that be?
HANCOCK: As of last quarter, it was 68 percent of our business, and I think it would be fair to say that of our bookings that we've been doing recently, over 60, 70 percent of those bookings, in fact, come from the enterprise.
DOBBS: And several analysts that we've talked with, who we've talked with suggest that it is very difficult right now for them, the experts if you will, to read just exactly how Exodus is doing. Is there any way in which, with all of the new (UNINTELLIGIBLE), with all of the constraints, if you will -- or perhaps others would say liberation -- that you can give greater guidance in terms of the direction of the company.
HANCOCK: I'd like to see those who think this is liberating.
(LAUGHTER)
I agree with the restraint piece. So let me just comment in a couple of areas where in fact we might have a slightly different view than some of the analysts, because we're looking at our internal numbers.
One is there's a concern about too much -- too many data centers in the market. And yet, just last month we opened a data center in Dallas, in Amsterdam and Paris. Because these data centers must address a particular market, you can't just aggregate data center space. And I think there's that confusion.
Some people felt because of that our prices were going to decline. In fact, we raised the prices in January. That took effect in March, and we are bidding with those new prices.
And then finally, relative to the enterprise, we're seeing more of the movement from business to consumer to business to business and now business to employees.
DOBBS: Give some guidance, if you will, in terms of -- and we've got about 30 seconds here, Ellen. Your bonds have crashed right along with your stock price. Any -- would you like to give us some guidance there in terms of your debts, some $3 billion of it? HANCOCK: Yes. I would say relative to funding I think it's important to note that we are fully funded throughout this period as well as into 3Q of 2002. And in that quarter, we turn EPS cash- positive and we can fund all our business going forward. That's an important statement for those bonds and for our stock.
DOBBS: Well, Ellen, I know, as I say, very tough times, challenging times for you, and we wish you a lot of luck.
HANCOCK: Thank you very much.
DOBBS: Ellen Hancock, Exodus Communications.
Still ahead here, we'll tell you how new research into a growing health problem is helping patients and boosting prospects for some pharmaceutical companies. Also tonight, we'll hear from Computer Associates founder Charles Wang about the fight to control the company he founded. And California takes out a loan to -- what else? -- pay the power bill.
(COMMERCIAL BREAK)
DOBBS: One of America's fastest-growing health problems is diabetes. According to the Centers for Disease Control, nearly 16 million Americans are now diabetic, and the numbers are rising and rising dramatically. Up 33 percent in the past eight years.
Ailments -- such as cancer, AIDS, heart disease -- all have drawn heavy research funding for decades. But diabetes is only now becoming a focus for pharmaceutical companies, and the result is benefiting both patients and drug-makers.
Tim O'Brien has the report.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): From 1950 through 1995, diabetes research languished. For almost 50 years, no new diabetes drugs were introduced. But beginning about six years ago, the picture began changing dramatically.
DR. JOHN BUSE, AMERICAN DIABETES NETWORK: There are new kinds of insulins. There's new delivery systems. There's new meters that work much better. It's remarkable. It's a night-and-day difference, the therapy of diabetes today versus just six years ago.
O'BRIEN: For example, researchers have developed an experimental oral spray they say can successfully deliver insulin into the bloodstream, promising news for the 150 million patients around the world who may be spared painful daily injections.
According to IMS Health, diabetes drugs alone have become a huge $8 billion-a-year retail industry, growing by 19 percent last year. Eli Lilly's diabetes business has also sustained double-digit growth for several years. The company says the victims of diabetes have been the greatest beneficiaries. VINCE MIHALIK, ELI LILLY: With today's technology, you don't -- you can plan your meals around your lifestyle rather than planning your lifestyle around your meal.
O'BRIEN: GlaxoSmithKline's drug, Avandia, helps the body process naturally produced insulin. Sales last year doubled to over $700 million, alleviating the disease and its debilitating side effects.
DR. MARTIN FREED, GLAXOSMITHKLINE: You're talking about cardiovascular disease. You're talking about (UNINTELLIGIBLE). So it's an enormous, enormous marketplace with enormous potential for R&D.
O'BRIEN: And the markets are only getting larger. Diabetes is on the increase in the U.S. and abroad for a variety of reasons, including lifestyles and diet.
(on camera): New technology makes diabetes much easier to diagnose. Even so, of the estimated 16 million people in the U.S. who have it, roughly a third are unaware of their disease.
Tim O'Brien, CNN Financial News, Washington.
(END VIDEOTAPE)
DOBBS: Coming up next, Fed economists may be looking at some unusual indicators as they decide whether to slash rates. Lisa Leiter is in Chicago.
LISA LEITER, CNN CORRESPONDENT: Lou, put aside those employment and inflation reports for now. I'll tell you why boxes and trucks may be one of the best ways to track the economy -- Lou.
DOBBS: Lisa, thank you.
Also tonight, William Dudley of Goldman Sachs: He's out with the Bond Market Association's economic report. We'll find out why he says the economy is ready for a power surge.
And we'll also hear tonight from Charles Wang of Computer Associates, on the duel for control of the company he founded.
(COMMERCIAL BREAK)
DOBBS: In tonight's headlines, Democrats voting -- winning key votes on their version of a patients' bill of rights. The Senate rejected a proposal that would have given employers full immunity from health care lawsuits by employees.
On Wall Street today, Merrill Lynch shocked investors. Merrill warning it will miss second quarter estimates by as much as 37 percent. And on the eve of the Fed's decision on interest rates, a positive snapshot of the economy. Three reports showing signs of healthy growth: Consumer confidence, new home sales, durable goods all higher. Now, the markets: A mixed day on Wall Street. That severe warning from Merrill Lynch offset by hopes for a half percent interest rate cut by the Fed. The Dow spent most of the day below break-even. Banks and brokerages weighing heavily on the index. Just a handful of sectors today showed strength, among them, oil drillers and paper stocks.
The Dow finished the session down 31 lower. It was a better day for technology. Software and chip stocks up on the session, but not enough to have a major impact. The index finished only 13 points higher and on the big board advancing issues did beat out decliners by a 3:2 margin in light trading volume.
Shares of GE today dropping nearly a dollar and a half. "The Financial Times" tonight is reporting that GE and Honeywell have resumed talks to try to tailor another deal for the European Union's approval. General Electric tells MONEYLINE the two sides have never stopped talking.
Shares of Earthlink today up $1.56. The Internet service provider said it will raise the price of its monthly service by 2 dollars. And Alliance Gaming shares up $2.32, that after the Las Vegas gaming company said it will top first-call estimates by 5 cents. Its' been an amazing year for Alliance. The company is trading 2,500 percent above its 52-week low.
And in tonight's Tech Watch: The battle for control of Computer Associates. Texas billionaire Sam Wyly today stepped up his proxy fight, telling shareholders their day of liberation is near. Wyly is also promising CA stock will double in the next three years under his leadership. He again blasted the software company for abusing its customers.
The latest war of words following a full page newspaper ad that Wyly bought. That ad criticizes CA's board and management. The ad asking, "Why are these men smiling?" Referring to CA's leadership. Wyly's answer is, "Because they're the only ones who made money on Computer Associates stock over the past five years."
A short time ago Sam Wyly said he's going to settle for nothing less than the complete ouster of the CA board.
(BEGIN VIDEO CLIP)
SAM WYLY, RANGER GOVERNANCE: People are outraged at these huge CEO pay, particularly when it's huge pay without performance. They have had horrible performance and these three top managers have written themselves stock of a billion dollars while this so-called independent board has just sat by meekly and done whatever Wang told them to do. This is awful, this is bad stuff and it's got to change.
(END VIDEO CLIP)
DOBBS: Wyly also telling us tonight he has enough shareholders behind him to match the voting power of CA insiders. Well, I'm now joined by one of those insiders: The founder and chairman of Computer Associates, Charles Wang.
Charles, it's good to have you with us.
Thank you, Lou. It's my pleasure to be here.
DOBBS: Mr. Wyly is after you in no uncertain terms. And at this point saying he has the support of enough shareholders to get the job done. What do you think?
CHARLES WANG, CHAIRMAN, COMPUTER ASSOCIATES: I don't think so. I think people who understand Computer Associates have seen what we've done in 25 years since we started the company, know what we're made of, and know we have the right foundation for today and for the future.
DOBBS: Wyly points out the stock is off significantly, off more than 40 percent. It is also been accused, as you well know, of excessive compensation, both for you and some of your other officers, and he's certainly not alone in that criticism. How do you respond to that?
WANG: I think it's in one sense, it's unfair when you look at it. You can pick at any point and say, OK, if you bought in December last year and you looked at it today, your up 70 percent. If you put 100 dollars in from when we started Computer Associates, today you would be a millionaire. So you can look at any scale and pick any little snip.
DOBBS: Well, Wyly takes $110 million in stock that he started with and says it's 55 million today and he's upset.
WANG: Well, I think so and I think if you look at the long term he will be very happy and we're positive of that because again of the foundation that we put together for the company.
DOBBS: He says he can double the stock price in three years. Why don't we have a bid tonight? What can you do in three years?
(LAUGHTER)
WANG: I think in the proxy rules you can not be soliciting votes with statements like that I believe. And I wouldn't be the one, because you don't know. The stock market is a strange thing as we all know.
DOBBS: Absolutely, and some days it's getting it seems stranger and stranger. But the fact is insiders at CA hold just about roughly 10 percent of the outstanding shares. Walter Haefner has 21 percent. So you're -- call it roughly 31 percent.
WANG: Right.
DOBBS: Where do you see your weakness in terms of a proxy fight?
WANG: I don't see the weakness. I think more so (UNINTELLIGIBLE) this is a wonderful opportunity for us, for people to understand what we're about. We have a company with the best people in the industry. We have the best products and we have great customers. Put them together and we can really do something for our shareholders.
DOBBS: Well, Sam Wyly's already had an impact, hasn't he, because this morning you appointed Linus Chung to the board, also Lew Ranieri to the board. Direct response to Sam Wyly?
WANG: No, not at all. As a matter of fact, Walter Haefner, in his first letter to Sam, had told him we're adding people to the board and Walter knew about the people and told Sam, no, I'm not interested in supporting your bid.
DOBBS: And at this juncture, do you think you are going to be adding more people to the board beyond these two?
WANG: We always are on the lookout for good people for our board. When we had at one point, two or three years ago, we added two people. We became a nine member board. One of our board members unfortunately passed away. We're adding two more. There has been talk about and we've been working on it for many, many months now.
DOBBS: The analysts we talked with, Charles, say, without deciding which way they want to vote on this issue, they say whatever happens it's good for the company because this is going to invigorate management. Is that what has happened here?
WANG: I think as any good fight it will invigorate us, but we are dedicated and committed to present back to the shareholders, value. We've got a great new business model, we've got the best people, we've got the best products and we know the software industry.
DOBBS: And a battle on your hands.
WANG: Yes, we do.
DOBBS: Charles Wang, as always, good to see you.
WANG: Thank you. My pleasure.
DOBBS: Coming up next here, you can learn about the state of the economy by studying pictures such as these. Its not as crazy as it might sound. That story is coming up. And signs of strength for the second half of this year. Goldman Sachs economist William Dudley will join me and tell us exactly what he sees.
(COMMERCIAL BREAK)
DOBBS: The latest housing and consumer confidence figures will no doubt be on the table at the Fed's meeting today and tomorrow. But economists are also looking at some unusual economic indicators. Lisa Leiter has that story for us from Chicago.
(BEGIN VIDEOTAPE)
LEITER (voice-over): There's an old saying in the cardboard box business, "as go boxes, so goes the economy." And as demand for almost everything has dried up this year, box makers like Gaylord Container have a lot of cardboard stacked up, waiting to be assembled.
RAY OSMUS, GAYLORD CONTAINER: If manufacturing is off, food sales are off, light manufacturing is off, they are not using as many boxes, and therefore, we're not shipping as many boxes.
LEITER: Industry-wide, box shipments are dropping sharply so far this year, down 6.3 percent. Last year's shipments fell for the first time since 1995. Another leading box maker, Smurfit-Stone, says the current downturn is among the worst it's seen in the past two decades.
Trucking is another reliable economic indicator. All those boxes are loaded onto trucks at some point, for at least part of their journey. Bob Stranczek's family has owned Cresco Lines for 40 years. He says the trucking business has never been this bad.
BOB STRANCZEK, PRESIDENT, CRESCO LINES: With the fuel going up, the insurance going up, the driver wages going up, equipment prices coming down, you know, we're getting hammered on all corners now, and we've never seen that before. Always, it was one, maybe, you know, a second one a little bit. Now, all four of those factors are hitting us hard at the same time.
LEITER: All of that on top of the economic slowdown. Truck freight volume has plunged over the past years. Drivers like Marvin Edwards don't need charts and graphs to tell the story, they hear it on the road.
MARVIN EDWARDS, TRUCK DRIVER: Quite a few of them have gone out of business, and because of they are just not making no money.
LEITER: That's why three dozen repossessed trucks are lined up in Bob Stranczek's parking lot. He's helping a financing company sell them at rock-bottom prices.
(END VIDEOTAPE)
LEITER: What boxes and trucks cannot track, however, are services, which account for 60 percent of the economy -- Lou.
DOBBS: OK. Lisa, thank you for those unusual indicators. Lisa Leiter from Chicago tonight.
The Bond Market Association's Economic Advisory Committee released its report on the economy today. And among their findings: the economy will pick up speed in the second half of the year, the Fed will keep cutting rates beyond tomorrow, inflation will remain in check as energy prices recede, and the unemployment rate, however, it will continue to rise, averaging 5 percent next year.
Joining me now, William Dudley, the chairman of the committee and an economist at Goldman Sachs. Bill, good to have you with us.
WILLIAM DUDLEY, GOLDMAN SACHS: Great to be here.
DOBBS: In relative terms, I would to have call this outlook optimistic and positive.
DUDLEY: Well, it's certainly more positive than where we've been recently. It's an economic recovery. It's a moderate one, that's not worst thing, though. That will allow the economy to work through some of these imbalances that have developed over the last few years.
DOBBS: And how do you respond to, let's say, the -- in the Lisa Leiter report, corrugated boxes, the lowest level in 20 years, trucking hard hit. What do you make of those indicators?
DUDLEY: Well, the factory sector is clearly contracting very, very sharply. The factory sector is in a recession. The good news, though, that has not spread to the rest of the economy. The consumer is still spending, and the housing sector is holding up pretty well.
So, it looks like the economy is just barely holding its head above water. The good news, though, is that relief is on the way. The Fed is going to continue to cut interest rates, and we're getting tax cuts coming, the checks are starting to go out right now, and that will help support the economy in the third quarter.
DOBBS: $38 billion worth, and as you point out, the Fed cutting rates, and tomorrow you are absolutely convinced they will cut by 50 basis points?
DUDLEY: Certainly not absolutely convinced. But I think -- my view is that the thing that the Fed has to prevent is the kind of breaking of consumer confidence, and the best to try to prevent that from happening is to err on the side of doing too much, rather than erring on the side of too little.
DOBBS: And what makes you so sure that they will continue to cut beyond tomorrow? Because that sounds like sort of a -- it sounds sort of inconsistent, Bill, as I'm sure you appreciate, because if we're going to see a pickup here, why would they keep on cutting rates?
DUDLEY: Well, I think the pickup is going to materialize relatively slowly. We're not talking about 3 or 4 percent growth in the second half of the year. We're talking about something quite a bit weaker than that.
The unemployment rate is going to keep rising, and so I think the Fed will take out a little bit more insurance at their next policy meeting, which is in August, and after that, that might be it. Then the Fed may be done.
DOBBS: OK. Bill, we thank you very much for being with us and we hope your forecast is right on the mark. Bill Dudley.
Coming up next here: stock prices hit by an economic slowdown and battling to find a middle ground for a patients' bill of rights. Those stories are next.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Sectors Report": basic materials. The world's second biggest producer of copper, Phelps Dodge, today saying it will lose much more than expected in the second quarter, blaming weak demand and depressed copper prices, which have slumped more than 20 percent in the past year.
But traders bid up the price today after an unexpected rise in durable goods orders and new home sales for May. Those figures a positive sign, of course, of demand, and that helped stocks in the sector close higher after initial weakness. Another copper producer, Olin, cutting its profit target, however, for the year, in half, and it's also cutting jobs.
Ahead here: the search for a compromise in Washington over the patients' bill of rights.
And a high-tech solution to the complaint "I don't do windows."
(COMMERCIAL BREAK)
DOBBS: Corporate news tonight from two of the country's biggest airlines. American Airlines first. The Justice Department saying it will appeal a federal court decision that threw out a predatory pricing case against American. The department alleges that American tried to monopolize air traffic at its Dallas-Fort Worth hub. And United Airlines saying it would discontinue its nonstop flight between New York's JFK and Hong Kong at the end of August. The move comes less than a year after United began those flights. United saying booking levels have been disappointing.
In tonight's "Powering America" California today closed on a $4 billion loan to cover ongoing power and natural gas purchases. Last week Governor Gray Davis authorized his treasurer to seek that loan, until the state can issue revenue bonds of some $13.5 billion, that's scheduled for later this summer. California Republicans and even the governor's own controller criticized his move, saying it further threatens California's financial health.
In Washington today, the contentious debate over the patients' bill of rights. Senate Democrats defeated a measure that would have protected employers from worker lawsuits. Kate Snow now takes a look at the issue that has businesses big and small worried about liability.
(BEGIN VIDEOTAPE)
KATE SNOW, CNN CORRESPONDENT (voice-over): Lynn Martins has 16 full-time employees at her family-owned restaurant just outside Washington. She pays for most of their health insurance, but worries that could change if a patients' bill of rights becomes law.
LYNN MARTINS, RESTAURANT OWNER: My greatest fear, other than being sued, is that my employees, I will not be able to provide my employees with health insurance.
SNOW: Her words echo a Republican argument, one she's made herself on Capitol Hill, that exposing employers to potential lawsuits will increase the cost of insurance, making it even harder to provide that benefit.
SEN. PHIL GRAMM (R), TEXAS: All over America small businesses are going to call in their employees and say, I want to provide these benefits but I cannot put my business that my father, my mother, my family have invested their heart and soul in, and, therefore, I'm going to have to cancel your health insurance.
SNOW: Republican Phil Gramm brought the argument to the Senate floor, offering an amendment to protect employers from all lawsuits, but Democrats defeated the measure after arguing it would backfire.
SEN. TED KENNEDY (D), MASSACHUSETTS: It gives the worst employers an economic incentive to cut corners on employee health care and frees them from all accountability when they do so.
SNOW: The Kennedy-McCain-Edwards bill, being debated, would allow lawsuits against an employer only if there was "direct participation by the employer" in the decision that caused a worker's problem with an HMO. But that language could still change.
Both Democrats and Republicans have indicated they're willing to compromise on the issue of employer liability.
(on camera): President Bush and Republican leaders hope to use that compromise as a starting point to make broader changes on other contentious issues in the bill. The president calling several moderate senators, urging them to craft a compromise that he can sign into law.
Kate Snow, CNN, Capitol Hill
(END VIDEOTAPE)
DOBBS: Up next here, your e-mails. Plus, "Ahead Of The Curve."
(COMMERCIAL BREAK)
DOBBS: These developments to watch tomorrow. Will the Fed cut interest rates for the sixth time this year? We'll find out at 2:15 Eastern time whether they've made that decision. And of course watch shares of 3Com and its spin-off, Palm. After today's closing bell, Palm beat the Street's forecast. 3Com missed earnings and is trading lower in after hours.
Just released in the United States, a window glass that practically cleans itself. It's called (UNINTELLIGIBLE), and it uses what is known as a photocatalytic effect to slowly dissolve organic dirt. Ultraviolet rays from the sun help power that process. What's more, the panes have less surface tension than average windows, so water cleans them more effectively. This hard-working glass comes from the North American arm of a British company.
Now for your comments. Don Shundman says "The consumer borrowing costs have not declined at all compared to the drop in rates. Credit card spreads have increased for the institutions." It is true, interest rates are set by market forces, of course, and not the Fed. And those paying fixed rates, either on your mortgage or your credit card, are not benefiting and even some variable rate cards are now setting rate floors to counter Fed cuts. The bank will only lower your card level to a certain level under those circumstances.
Craig Turner had a question regarding alternative energy sources, asking: "Would any of our current legislators support some sort of legislation for a 100 percent tax credit for using alternative energy systems."
Well, the Senate Energy and Natural Resources Committee tells us there is currently no legislation under consideration, by anyone that would result in a 100 percent tax credit. After all, we are talking about the government here. They have to get something. However, partial deductions and credits of up to $2,000 are under consideration.
We enjoy hearing from you. Our address: moneyline@cnn.com.
That's MONEYLINE for this Tuesday evening. Thanks for being with us. I'm Lou Dobbs. Good night from New York.
"CROSSFIRE" is coming up next.
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