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Lou Dobbs Moneyline
Dow Falls 63.81 to 10,502.40; Nasdaq Climbs 35.08 to 2,160.54; GDP Growth in First Quarter Revised Down to 1.6 Percent
Aired June 29, 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 Nasdaq stays open an hour late, after suffering a technical breakdown.
An extraordinary rift between GE and Honeywell: Bonsignore and Welch in a public spat over how to salvage their deal.
A "CEO on the Edge" tonight: Linda Wachner of Warnaco, once praised for her hard-charging style, now blamed for driving the company into bankruptcy.
And "A.I." fiction.
(BEGIN VIDEO CLIP, "A.I.")
HALEY JOEL OSMENT, ACTOR: I'm a boy.
(END VIDEO CLIP)
DOBBS: Versus fact. A reality check on the business of artificial intelligence.
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 an economy that continues to surprise and defy economists. The government today reported that gross domestic product grew 1.2 percent during the first three months of 2001. The original report was 2 percent. White House economic adviser Lawrence Lindsey today forecast second-quarter growth of just 0.6 percent. He said the chances of recession are very small.
Today's GDP report illustrates the push and pull in the economy: corporate profits taking the biggest plunge in three years, but consumer spending strong, and consumer sentiment continues to improve. The University of Michigan index rose in month of June, the second- straight month in which it has done so.
On Wall Street today, traders were hit, by the way, with their second big technical breakdown in three weeks. The Nasdaq took an extraordinary move, extending trading until 5:00 p.m. Eastern time, that after computer problems halted regular trading for hours, and those problems continued into the extra hour. On June 8, a software glitch shut down the New York Stock Exchange for 80 minutes. Greg Clarkin joins us now from the Nasdaq marketsite, and he tells us just what's going on there -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: Well, Lou, we saw a very messy end to the trading day today. In essence, what happened here, was about 2:30 this afternoon the Nasdaq became aware of some technical difficulties -- they termed it a network problem -- and what they did was suspend trading in two of their electronic trading systems. Now, one is designed for small retail investors, the other is for much larger orders. They suspended both of those, again, at 2:30, and they expected to bring them back online at about 4:00.
Well, at 4:00 all things didn't go well, and the Nasdaq was not able to bring back on those systems, and now being at that time was only the larger system, at about 4:30. So by 4:30, you had the big system up and running, but what we saw for much of the afternoon was a composite that was virtually at a standstill. Now, about two-thirds of the trading was under way, but still it was sporadic and light, and we didn't see the composite really budge for much of the afternoon hours.
So, the Nasdaq expended trading until 5:00, and they say that they hope to have everything lined up and in order by Monday morning. And by the way, Lou, this problem was traced to a technician at Worldcom, which services the communications backbone of the Nasdaq. He or she was running a diagnostic test which basically shut down the network and those electronic trading systems -- Lou.
DOBBS: Now, was that problem related to the one as well yesterday, which shut down the system for about 20 minutes?
CLARKIN: No, Lou, Wick Simmons, the CEO of the Nasdaq, tells us that these are two separate problems, actually yesterday with Microsoft coming back on trading at about 3:00, they were hit with a tremendous surge in volume. That was a separate issue. Today what they had was an entirely another issue with the network, but he assures us that these things -- that all systems should be go by Monday morning at least.
DOBBS: Well, it's what they say, everybody can make a mistake, just don't make the same one twice. The Nasdaq found a way not to. All right, Greg Clarkin, thanks.
When trading did conclude at 5:00, the Nasdaq composite had gained more than 1.5 percent on the day, the eighth winning session of the past nine. The Dow higher for most of the session as well, but it slipped in the final half-hour of trading. Jennifer Westhoven brings us up to date from Wall Street.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): The last hour of trading turned into two hours of mayhem after Nasdaq shut down its trading systems. The disruption didn't stop tech-stock buying, with the Nasdaq rallying 34 points, to 2,159. It gained every day this week, rising more than 6 percent. Stock analysts said they were worried techs may be jumping too early. Chips rallied, including PMC-Sierra, even after it warned of disappointing results.
BRIAN BELSKI, U.S. BANCORP PIPER JAFFRAY: Right now, we feel very good about tech stocks, because tech stocks have led in the second quarter. Microsoft's up, the Nasdaq's been up the last couple of days, and I think it's kind of a false sense of reality.
WESTHOVEN: The Dow had a tamer day. It stayed in a tight range before heading near a session low at the closing bell. The average closed down 63, at 10,502. With Friday's losses, that made it sixth straight week of losses.
The selling has come despite some positive recent signals for U.S. economic growth. But it was really the final two hours of trading that had Wall Street talking. Even early in the day, traders said rumors were flying that volume at the closing bell could be Homeric.
NED RILEY, STATE STREET GLOBAL ADVISORS: End of the quarter, end of the month. I mean, this wasn't a good timing for this one at all before the 4th of July weekend.
The implications are that if they didn't get all the trades off, there are a lot of mutual funds out there that will be very upset that transactions didn't take place. It would really goof up the pricing of the mutual funds.
(END VIDEOTAPE)
WESTHOVEN: Keep in mind, it was also the last trading session before big changes are made to the index of 2,000 small-cap stocks, the Russell 2000. That sounds harmless, but investors have been quietly building up massive bets on which stocks will join and be bumped out of that index. And keep in mind too, the Russell has beaten the Dow, the Nasdaq and the S&P 500 so far this year. It's gained more than 5 percent -- Lou.
DOBBS: Pretty good. Now, volume was Homeric, did you say, Jennifer?
WESTHOVEN: Those are the words of Arthur Cashin, the PaineWebber floor trader, and really he said that this morning even before the opening bell.
DOBBS: I love it when the humanities come into play on Wall Street. Thanks.
Well, aside from the technical breakdown at the Nasdaq today, investors watched a very different drama unfold. The chief executive officers of General Electric and Honeywell engaging in a public spat over how to save their deal. Once they were fighting European regulators, now they seem to be fighting one another. It's a development few would have expected or predicted eight months ago when Jack Welch and Michael Bonsignore announced their deal with smiles and big handshakes. Allan Chernoff has the story.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): In an unusual exchange of public letters between merger partners, General Electric's Jack Welch on left, and Honeywell's Michael Bonsignore, leading to a split.
BILL FIALA, EDWARD JONES: This one of the strangest merger stories I have ever seen.
CHERNOFF: In a "Dear Jack" letter this morning, Bonsignore wrote: "We owe it to each other and to our respective shareholders and other constituencies to make a last-minute best effort to ensure approval and consummation of this important transaction."
The plan: cut Honeywell's price tag by about $1.8 billion, to just under 40 billion, in return for GE agreeing to spin off nearly 20 percent of GE Capital Aviation Services, which leases aircraft to airlines, as well as divest more than $2 billion of assets from the combined company -- terms that Honeywell believed would be acceptable to the European Commission.
GE's Jack Welch shot back in a "Dear Michael" letter: "What the commission is seeking cuts the heart out of the strategic rationale of our deal. The new deal you propose in response to the commission makes no sense for our share owners, for the same strategic reasons."
Honeywell said it was disappointed.
STEVEN COHEN, KELLNER, DILEO & CO: Honeywell may very well have been looking at making a record for itself, that it expected GE to do everything that it was required to do under the merger agreement.
CHERNOFF: In fact, Honeywell executives have been under tremendous pressure to push the deal through from shareholders who have been counting on a buyout.
KENT NEWCOMB, AG EDWARDS: It may be a case where they are looking to -- you know, to cover themselves from a legal standpoint, and prove that they have done everything they can.
(END VIDEOTAPE)
CHERNOFF: The European Commission still has to formally vote on the merger plans, scheduled for next Tuesday. But at this point, with the partners disagreeing on concessions, it does appear that this deal is truly finished -- Lou.
DOBBS: Allan, I can't remember of a time in which we've ever seen this kind of development in this stage of a negotiation.
CHERNOFF: Exactly, and no one on Wall Street could today as well.
DOBBS: No one has an explanation for this? Because, I mean, the Welch -- the Jack Welch letter is about as strong as one CEO would write a letter to another, especially who is going to be partner.
CHERNOFF: And Lou, what makes it even stranger is that the two CEOs did talk yesterday, and they bid -- they both talked together with the EU commissioner, Mr. Monti, as well, so they knew what the other was thinking.
DOBBS: Well, they certainly understand one another better today. Thank you, Allan.
General Electric's stock today up fractionally, Honeywell down strongly, down $3 a share.
And the maneuvering continued today as well in a different corporate battle, this one for control of Computer Associates. Texas billionaire Sam Wyly added two candidates to a slate he has proposed as an alternative to the company's current board. Wyly also said today that Computer Associates officials filed suit Monday to try to stop him from installing that board.
Today marked the end of the second quarter, and the picture is considerably brighter on Wall Street than at the close of the first quarter, the worst in more than a decade, by the way. The Dow gained more than 6 percent over this quarter, and the Nasdaq surged nearly 18 percent, the first quarterly gain since the beginning of last year. Peter Viles has the good news.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): They had too wait an extra hour to say it, but tonight, for the first time in 15 months, investors can say that the Nasdaq just finished a solid quarter. The composite gaining 17 1/2 percent, after suffering four straight quarterly declines, including losses of 32 percent in the fourth quarter of 2000 and 25 percent in the first asking of this year.
The quarter was full of disastrous corporate news, Lucent and Nortel come to mind, but investors also heard hints of a recovery, even in technology.
ART HOGAN, JEFFERIES & COMPANY: If you had to pick any date pick, pick Intel or Cisco or Oracle coming out, and saying, yeah, we're going to miss our numbers, but we've built down -- we've got our inventory levels down to normal levels, our capacity is back to normal, and our customer base is re-engaging us, we're seeing new demand.
VILES: Other positive turns in the quarter, three more interest rate cuts from the Fed, a huge tax cut now on the way, a market- friendly ruling in the Microsoft case, and a decline in energy prices.
BRIAN WESBURY, GRIFFEY, KUBICK, STEPHENS & THOMPSON: When you combine all of those things together, they were all negative for the market last year. Now they've all turned positive, and that's why I would say that the tone is really changed in just the last couple of days. VILES: Among the best-performing industries: computer software, helped by Microsoft, up 31 percent in the quarter; trash haulers; specialty retail, because consumers have held their ground; and money center banks, boosted by those interest rate cuts. Communications equipment continued to suffer, down 19 percent, and energy stocks pulled back sharply. Power producers, natural gas companies, and oil and gas drilling and equipment companies all posting double-digit losses.
(END VIDEOTAPE)
VILES: Economists say it is very likely this market will be tested in the coming weeks and months by continued evidence, however sporadic, of economic weakness: the consensus forming in the market, however, is that the economy and corporate profits will be recovering, if not in the third quarter than by the fourth quarter -- Lou.
DOBBS: Peter, I don't know that we should ignore the fact that these same economists are the ones who said that this revision that came this morning would probably see us well below 1 percent or even flat. This has been...
VILES: The first-quarter performance is much better than the economists predicted. Now you're hearing predictions that the second- quarter performance will be weaker, that from the White House today, and it could be the economy will surprise us all and not go into the weakness that is already priced in, in the second and third quarters.
DOBBS: This economy -- I don't know how you feel about it, Allan -- but this economy, it seems to me, continues to defy all of the projections of nearly every economist.
CHERNOFF: Certainly have been a lot of worries about the possibility of recession, and sectors of the economy, like manufacturing and tech, are in recession. But other portions have held up.
VILES: The consumer, the American consumer has not done what the economists kept saying he and she would do, which is pull back a bit. The consumer has really held in there.
DOBBS: Go, consumers, all right. Thanks, Pete. Thank you, Allan.
Coming up next, "A.I." on the big screen, and in reality: the actual business of artificial intelligence. Microsoft savoring victory in one court, but the legal saga appears to be far from ended. I'll be talking with one man who played a key role in that saga, Netscape co-founder Marc Andreessen.
(COMMERCIAL BREAK)
DOBBS: The appellate court decision yesterday, of course, a big victory for Microsoft, dismissing the breakup order. But the court did find the company broke the law with some of its business practices and that may open the door to private lawsuits on behalf of competitors and consumers.
Allan Dodds Frank brings us the possibilities.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Microsoft is an inviting target for plaintiffs' lawyers. The company has nearly $30 billion of cash on hand and is facing a unanimous ruling that it engaged in illegal monopoly practices. Already, there are 100 class- action lawsuits against Microsoft seeking triple damages. The court ruling, which found co-mingling of computer code by Microsoft illegal, may be cited by lawyers seeking an injunction to stop Microsoft's rollout of Windows XP this fall.
MICHAEL HAUSFELD, COHEN, MILSTEIN, HAUSFELD & TOLL: One of the things that we asked for in this civil suit is for injunctive relief to prevent the continuation of the unlawful conduct. The unlawful conduct doesn't have to continue with the same product. You can have the same unlawful conduct but with a different product.
FRANK: Despite bluster from the plaintiffs' bar, Microsoft defenders believe that the appeals court decision may provide some protection.
C. BOYDEN GRAY, FORMER LEGAL COUNSEL, ASSOCIATION FOR COMPETITIVE TECHNOLOGIES: For a private plaintiff to get damages over and above an injunction to stop has to show that he or she was injured, and there just isn't any evidence in the trial court findings nor in appellate court ruling of damage either to the consumers or to the industry.
FRANK: Companies named by the court as being harmed illegally by Microsoft, so far, are not suing.
KEN WASCH, SOFTWARE & INFORMATION INDUSTRY ASSOCIATION: Individual companies are going to be very reluctant to go after Microsoft, because with very few exceptions virtually every company is dependent upon Microsoft in one form or another.
FRANK (on camera): Still, the decision has strengthened the hand of Microsoft's opponents, and it has prompted Microsoft to intensify settlement talks with the Justice Department, the states and the plaintiffs' bar.
Allan Dodds Frank, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Well, my guest tonight played a key supporting role in the Microsoft legal saga over the years. My guest, Marc Andreessen, co-founder of Netscape. The government accused Microsoft of trying to crush Netscape in a bid to promote its own browser. Now Andreessen is chairman of the Internet services company LoudCloud.
Marc, good to have you with us.
MARC ANDREESSEN, CHAIRMAN, LOUDCLOUD: Thanks, good to be here.
DOBBS: This is -- well, let me -- let's start with some history.
ANDREESSEN: Sure.
DOBBS: In terms of Netscape competing against them and ultimately, obviously, Microsoft prevailing, what are your emotions as you watch the company be declared, Microsoft, a monopoly, but in effect no remedy?
ANDREESSEN: Well, you know, in this case, the story for me ended about two years ago when we sold Netscape, ironically, to AOL-Time Warner. So a different set of people get to deal with these issues now.
My new company, LoudCloud, is actually a very close partner of Microsoft, and I can tell you it is a relief to not be competing with Microsoft at this point.
DOBBS: Once a vocal critic of Microsoft and now a partner.
ANDREESSEN: Absolutely.
DOBBS: And this is really, I suppose, it's -- it's straightforwardly a metaphor for a rapidly changing technology sector and industry.
ANDREESSEN: Well, it's like they say in "The Godfather": It's business, not personal. And I think that's true of most of these things. And in this case, the industry has changed so fast at the company we're at now it makes a lot of sense to partner with Microsoft, which we do.
DOBBS: And in terms of it's not personal, it's business, a lot of tough challenges for your company. You have been hammered in the market. Tell us where you are.
ANDREESSEN: Sure, yeah, we think we're doing really well. We've been signing a lot of really good customers. We have customers like Ford, News Corporation, Viacom, and Fannie Mae. We have $200 million of cash in the bank. We have an unleveraged balance sheet, not very much debt. So we view ourselves as having a lot of staying power in what's a tough market environment, but a very large market in the long run. And I think there's a good chance we might be one of the only companies left in this market in a year or two. And that to me looks pretty good.
DOBBS: Well, that's rather a bold forecast for a company that has seen its stock decline into single digits on the Nasdaq. What makes you so confident? When do you turn profitable?
ANDREESSEN: Sure. We turn profitable, you know, at some point over the next, say, two years. We're an infrastructure business, and so we're building out an infrastructure for companies like Ford and News Corporation, and then we're filling...
DOBBS: What's your differentiator?
ANDREESSEN: Our differentiator is we are very, very good at running the very high end kinds of Web sites and e-commerce systems and Internet systems that companies like that run. We do a really good job of it. We know a lot about the technology, and you know, our customers continue to order, our existing customers continue to order new services and new applications from us. And so they seem -- they seem to like that.
DOBBS: What's your forecast for revenue growth over the next -- next year?
ANDREESSEN: We actually are not really forecasting revenue growth that much. We lowered our guidance some for the rest of the year. So we're forecasting between 53 and 57 million of revenue this year.
The other thing is we're a recurring revenue business, and so we get paid over a two-year period by our customers on a monthly basis. And so it works a little different than a software company.
DOBBS: And you're having fun?
ANDREESSEN: Absolutely.
DOBBS: Marc, thanks for being with us. Marc Andreessen, LoudCloud.
ANDREESSEN: Thank you.
DOBBS: Well, coming up next here on MONEYLINE, artificial intelligence: It's not just the stuff of big-screen glitz. We'll be talking about the business of artificial intelligence, and we'll also be talking about God and business, talking with the "Fortune" reporter who says workers are breaching the last taboo in corporate America.
(COMMERCIAL BREAK)
DOBBS: Steven Spielberg's new film, "A.I.: Artificial Intelligence," debuts tonight. It's riding a wave of heavy duty marketing and high expectations, as it opens in more than 3,000 theaters. The science fiction plot challenges -- challenges us to imagine a robot with the power to love, but in the world of real-life artificial intelligence, the focus is not certainly on the heart, but rather the brain. Fred Katayama has the report.
(BEGIN VIDEOTAPE)
(BEGIN VIDEO CLIP, "A.I.")
WILLIAM HURT, ACTOR: I propose that we build a robot child who can love.
(END VIDEO CLIP)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): In the Hollywood world of "A.I.," the boy-robot David, played by Haley Joel Osment.
(BEGIN VIDEO CLIP, "A.I.")
HALEY JOEL OSMENT, ACTOR: I'm a boy.
(END VIDEO CLIP)
KATAYAMA: Is programmed to love his human mother just like a real child. A great story, researchers say, but pure science fiction. While robots are starting to look and act more like people, or even pets, no lifelike emotional robots exist.
RAJ REDDY, COMPUTER SCIENCE PROFESSOR, CARNEGIE MELLON UNIVERSITY: Emotional behavior, emotions, expression of emotions has always been hardest of the tasks A.I. has looked at. In particular, can a computer laugh or can a computer express sorrow.
KATAYAMA: The reality, the biggest progress in artificial intelligence is where we can't see it, in software. The milestone...
UNIDENTIFIED MALE: Deep Blue will have two pawns for the queen.
KATAYAMA: IBM super computer Deep Blue defeating Gary Kasparov in chess, although that took 40 years longer than expected. A.I. is so embedded in our daily lives, we don't realize it. Software robots comb for the lowest prices on the Web, suggest books that might suit our tastes, translate text and check for credit worthiness.
Researchers on the hardware front face a big frontier, making robots learn. These soccer-playing robots at Carnegie Mellon University can block or score, but can't discover new things.
At MIT, Kismet can display sadness or surprise, but can't feel emotion. And robots can be humbled by a kid much younger than David.
ROD BROOKS, DIRECTOR, MIT AI LAB: We still don't have a computer vision program that can reliably, in all circumstances, tell a difference between a cup and a pen. Any 2-year-old can do this. So we are humbled by how hard some things are and surprised by how easy some other things are.
KATAYAMA (on camera): Some researchers say that by 2030, the desktop computer will possess 100 times more capacity than the human brain. The pure power doesn't necessarily translate into robots that can think, act and feel just like humans.
Fred Katayama, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Still ahead: doctors call for a closer look at the vice president's heart. We'll tell you about the vice president's condition next.
The Senate's long battle over health insurance reform enters its final hours. And the hard-charging boss of a company in ruins. Warnaco's Linda Wachner, tonight's "CEO on the Edge."
(COMMERCIAL BREAK)
DOBBS: Vice President Cheney heading back to the hospital tomorrow for another heart test. The vice president today announced that he'll undergo the procedure. It's expected to show whether the vice president needs an implant to correct an occasional irregular heartbeat.
(BEGIN VIDEO CLIP)
DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: That I'm going to undergo a test tomorrow at George Washington University hospital. It's called an electrophysiology study. And it's specifically is performed for the purposes of determining the prospective risk for me going forward in terms of abnormal heart rhythms.
(END VIDEO CLIP)
DOBBS: If the 60-year-old vice president does need an implant, doctors plan to perform the operation tomorrow. Mr. Cheney says the risk of the procedure is small, and won't affect his ability to do his job.
The Senate tonight is set to pass broad new legislation on patients' rights. Majority leader Tom Daschle says the senators will work tonight until they finish. The legislation offers guarantees, including the right to emergency room care and access to specialists. If it passes the Senate tonight, the bill moves onto the House. Republican leaders there hope to replace it with a less expensive measure. The president has threatened to veto the Senate version of the bill.
Former Yugoslav President Slobodan Milosevic is tonight awaiting trial, charged with crimes against humanity. Milosevic arrived at The Hague today, two years after his indictment by the U.N. War Crimes Tribunal there.
Also today, donor nations and lenders pledging more than $1 billion in reconstruction aid to Yugoslavia. They threatened to withhold that money unless Milosevic was extradited to face trial in The Netherlands.
Still ahead: a "CEO on the Edge" and a company on the brink: Linda Wachner of Warnaco.
Also, the top obstacles to a deal, as Hollywood actors approach a looming strike deadline.
And as the second quarter goes, we'll look back and we'll look ahead.
(COMMERCIAL BREAK) DOBBS: In tonight's MONEYLINE headlines, technology problems forcing the Nasdaq marketsite to halt trading for the second day in a row. Trading is extended for an hour as a result today. And the closing bell on wall Street marks the half-year point. Year to date, the Dow is off more than 2.5 percent, the Nasdaq, down 11 percent.
Plus, the proposed General Electric-Honeywell deal has hit another problem. Now the CEOs of both companies are publicly spatting over the latest idea trying to save the deal.
But more on the trading session today, a rough day for the Dow Jones Industrials led by a more than $3 drop in the shares of Honeywell. That index traded in a tight range before slipping steadily for the final half hour of trading. The Dow down 64 points.
A rally for the tech issues led by strength in chip stocks, but it was the technical glitches at the Nasdaq that gained all of the attention. The stock exchange extended trading for an hour, but problems continued with trading, light and sporadic as you might expect. The index gaining 34 points on the day. On the Big Board advancing issues beat decliners by a 5 to 3 margin.
Well, the first half of this year -- volatile. The Nasdaq a hit a two and a half-year low in April but has since rebounded almost 33 percent. And the Dow fell to a two-year low in March, but is now trading 12 percent higher. With his take on the first half of 2001, and a look ahead to the second half, Vince Farrell, chairman of Victory SBSF Capital Management. It's good to have you with us.
VINCE FARRELL, VICTORY SBSF CAPITAL: Thanks, Lou.
DOBBS: The first half, a little rough, but this last quarter has been pretty good.
FARRELL: Yes, we went down so far, so fast. Remember last year from the peak and the Nasdaq was off 50 percent from the top to the end of the year. And then you had another precipitous decline, so you are due for a pretty good quarter. Very good you had it because it maybe puts in place the bottom which I think we have seen. Now we have to wait for the economy to recover. I'm not quite as optimistic as others about that. But it is ahead of us, it is going to come because the Fed has cut crates significantly.
DOBBS: Well, the first quarter apparently if we rely upon these final numbers on GDP, but stronger than most economists had certainly expected, expecting a significant reduction. We have seen home sales hold up, we have seen the consumer remain strongly in this economy.
FARRELL: The consumer's carrying us but you are not going to get a capital investment cycle in the second half or beginning of next year. We have too much capacity. Rates are low, but you and I as good business people are not going build plant equipment. We don't need plant equipment. We've got that.
So the consumers is going to have to continue to carry us. I think the debate over whether we have a recession or not is really not worth the time. Because a recession officially is a significant slowdown in economic activity is defined by the Bureau of Labor Statistics.
I always think of it as two down quarters of GDP, but that is not exactly correct. So I would say declare defeat. Say we're in a recession, it's no big deal because the Fed do is doing what you are supposed to do in a recession and that is cut rates. My best guess is the recovery will be somewhat sluggish because you will not get the investment side kicking in until you fill up the capacity that you have.
DOBBS: So, should we just step back and stay away from this market?
FARRELL: You never stay away because values are created. You pointed out earlier that volatility is present. In that volatility is opportunity.
DOBBS: Let me show you some volatility. If we have -- the last time you and I talked, just about a month ago, do we have those stocks that Vince had -- we do not, I'm told. We are going to...
FARRELL: Well, I'll tell you what they were.
DOBBS: We'll give you a break.
FARRELL: Oh, you'll give me a big break.
(LAUGHTER)
FARRELL: We talked last time about core-tech for us was IBM, EDS, NCR, all of which have done very well this year. But the fallen angels were ADCT, San Nina and Tellabs, which have gotten absolutely obliterated. But, what I did suggest at the time is that you buy maybe a third of what your total position would finally be because you don't know where the bottom is.
DOBBS: Sure.
FARRELL: Buy very good companies. Don't expect to pick the bottom but continue to buy them, on a periodic basis.
I'm so glad you don't have those charts -- thank you, Lou.
(LAUGHTER)
DOBBS: Well, actually it's not me you can thank. The fact of the matter is, I was sort of looking forward to it, Vince. I've got to tell you about the dark side of my nature here.
The fact, and I also, in all fairness, I should point out that Vince was not recommending that you buy these stocks based on what you might expect in performance over 30 days, either. Is that a fair statement?
FARRELL: Thank you, God. (LAUGHTER)
DOBBS: Vince we thank you very much. You have a great weekend, and I hope you do better on the golf course over the weekend.
FARRELL: I came away uninjured today. That's the most important thing.
DOBBS: Very good! Thanks. Vince Farrell.
Coming up next here, tonight's "CEO On The Edge," the controversial head of Warnaco, Linda Wachner.
And later, contract negotiations continue in the struggle to head off a Hollywood actor's strike.
(COMMERCIAL BREAK)
DOBBS: In our continuing, our look at CEO's on the edge: Linda Wachner of Warnaco. Wachner heads up the largest bra-maker in the United States. Ever since she engineered a hostile buyout in 1986. Fierce competition, strategic mistakes, and Wachner's abrasive personality are just a few of the factors blamed in the collapse of Warnaco, and it's filing for Chapter 11.
Susan Lisovicz recaps the dramatic turn of events for the executive once called the most successful businesswoman in the country.
LINDA WACHNER, CEO, WARNACO: We're just going to just have great year, and move beyond all these things, into a great 2001, 2002 and beyond.
SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Critics say Linda Wachner had little to be optimistic even after she and her most important partner, Calvin Klein, settled a nasty feud out of court in January.
Warnaco, the behemoth clothing company that owns such labels as Warner Bras, Speedo Swimwear, and Calvin Klein Jeans was teetering under $3 billion of debt, a consequence of Wachner's penchant for acquisition and a stock buy-back program.
But critics say Wachner's fatal area was her failure to recognize the most important growth segment of retail in 90s, discounting. And when Warnaco did get in, Wachner infuriated department stores and designers alike, by selling high end brands for less. All this led to a catastrophic discount of Warnaco stock, which became nearly worthless by the time the company filed for bankruptcy on June 11.
HOWARD DAVIDOWITZ, DAVIDOWITZ & ASSOCIATES: She has to take full and complete ownership for this debacle, for the loss of billions of dollars of shareholder wealth. The stock was $44 a share, it is worthless today. It will be worthless. The equity holders will walk out with zero. LISOVICZ: And Wachner herself an executive who was paid lavishly will be among Warnaco's many casualties, because she had more than a 20 percent stake in the company. At one point Wachner was paid $10 million, more than General Electric Jack Welch, frequently cited as the best corporate manager in the world.
RICHARD HASTINGS, GLOBAL CREDIT SERVICES: I think CEOs unfortunately have turned into entertainers and celebrities. And the salaries compensations that they are getting sound a little bit more like what celebrities, and big athletes, superstar athletes are making.
LISOVICZ (on camera): That compensation included a huge golden parachute, reportedly worth up to 5 times Wachner's highest annual income, which is now in jeopardy as is the future of Warnaco. Observers say there are few prospective buyers with the resources to buy Warnaco, and they may only want to buy pieces of the company.
Susan Lisovicz, New York.
(END VIDEOTAPE)
DOBBS: Now a look at an intriguing development in the workplace. Hitting the newsstands Monday, "Fortune" magazine features an article on God, and business. How believers are breaching the last taboo in corporate America.
Joining me now, the author of that article, Marc Gunther.
Marc, good to have you with us.
MARC GUNTHER, "FORTUNE" MAGAZINE: Good evening Lou.
DOBBS: This is really extraordinary, the idea that religion is, in minds of, some would say, encroaching into the workplace. What is the reason for it? And I should point out others would say, being welcomed into the workplace.
GUNTHER: I think it's hard to know what the reason really is. I think it's generational more than anything else. I think it has to do with the baby boomers hitting a certain age and saying, what is life all about? They want more than a paycheck out of their jobs, their expectations are rising; and I think the goal is really to close what's traditional been called the Sunday-Monday gap between church and work, and integrate one's life with what you do.
DOBBS: I have to tell you, my first reaction was -- I had just a quick image of, this is a more effective way to drive your business, raise productivity, everybody hold hands we're going to pray about, you know, making more widgets much faster and cheaper. But it's really not that at all, is it?
GUNTHER: No, it really isn't. This is something that has sprung up from individuals who are strong believers of one kind or another. It's not about proselytizing in the workplace, and it's also not about productivity. It really is about individual businesspeople at all levels trying to do a better job of aligning who they are and what they believe with what they do when they come to work every day. And that has to do with how you treat people, how you pay people, the kinds of products you make, how you deal with the environment. It's kind of business ethics to Nth degree; going beyond doing the legal thing to really doing the right thing.
DOBBS: And how broad would you say the movement is in corporate America?
GUNTHER: It's hard to measure. I spent months working on the story and found all kinds of groups around the country. And since it just hit the Web the other day on the "Fortune" Web site I've gotten mail and e-mail saying, you didn't hear about this group, you didn't hear about this CEO.
So I have a sense that the story really is a tip-of-the-iceberg thing; that there is a lot going out there, but it's quiet -- or going on out there, but it's quiet.
DOBBS: In case of corporate America, typically what is the reaction of top management?
GUNTHER: Well, in some cases it's being led by top management at some companies. But I think it's still very difficult for people in business to come out and say, you know, I don't think we should do this because it contradicts what I believe or what I think is right.
Someone called me the other day and said he was going out with some clients to -- and someone suggested, let's go to a strip bar. And he said, I didn't know what to do. I didn't know whether to object or to come up with an excuse or to go along. And in the end he said he just came up with an excuse.
But those are the moments where you say, what do I stand up for? What do I believe in?
DOBBS: Well, a fascinating article. Looking forward to seeing the reaction to it in the weeks ahead.
Marc Gunther, thank you very much for being with us.
GUNTHER: Thank you very much Lou.
DOBBS: Coming up next, a boost for oil stocks; we will tell you all about it in our "Sectors Report." And, a strike deadline looming for Hollywood actors -- it is drawing nearer and nearer. We'll take a look at the possibilities for a deal before time runs out.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Sectors Report": oil. Shares of oil companies rising as crude oil and gasoline prices jump; traders weighing the possibility that OPEC may again cut production when the oil cartel meets next week. Goldman Sachs also raising earnings estimates for oil companies, putting Chevron and Texaco on its recommended list. The sector trading higher, as a group, today.
Coming up next, a possible actors' strike looms as a Saturday night contract deadline is staring actors in the face. That story next.
(COMMERCIAL BREAK)
DOBBS: The labor contract for two unions representing actors expires at midnight Saturday. Talks on a new deal are continuing under a news blackout. While a strike isn't expected, negotiators are facing plenty of tough issues.
Casey Wian has the story from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): It's the latest Hollywood sequel, and this one is true. Two months after film and television writers failed to reach a deal with producers before their contract expired -- they made a deal four days later -- actors appear to be following the same script.
Talks between the two actors' unions and producers are intensifying before their contract runs out at midnight Saturday.
MARTY GROVE, HOLLYWOODREPORTER.COM: I think the clock is going to be ticking down to the last hour, then they're going to either stop the clock or just extend the talks. They're going to go a few more days, maybe as much as a week. They're going to appear to really not be giving in on either side, but they are going to make a settlement.
WIAN: Actors say their main goals are to increase minimum pay and residual payments for cable TV to benefit performers who aren't stars.
JOE PANTOLIANO, ACTOR: The whole contract is really about the studios taking care of the middle-class actor; you know, the supporting actor that does anywhere from two -- you know, one to five scenes in a movie.
WIAN: By most accounts, the Screen Actors Guild is in a weak bargaining position. Twenty months after the election of a more militant president, William Daniels, dissension within SAG persists.
The union is still smarting financially from last year's commercial actors strike, and there is grumbling about SAG leaders signing a $56 million lease on a new Manhattan headquarters without informing union members. Those factors, plus the slowing economy seem to make a strike unlikely. But pressure to reach a deal is mounting.
(on camera): The head of the union representing behind-the- scenes Film and TV workers said production work is likely to remain slow until the contract is resolved. Studios are reluctant to begin work on big-budget productions while there's even a remote possibility of a strike.
Casey Wian, CNN Financial News, Los Angeles.
(END VIDEOTAPE)
DOBBS: A retired supermarket clerk has stepped forward to claim California's $140 million lottery jackpot. 66-year-old Alcario Castellano picked up his check today. It is California's single- richest prize. Castellano chose a lump-sum payment, so he will receive a mere $71 million before taxes instead of a staggered 25-year pay-out.
That lump sum, by the way, is equal to the amount the lottery would need to invest to generate the $141 million. That's a rate of return of just 2.8 percent per year. Perhaps lottery officials should take a look at the stock market which, over the past 25 years, judging by the S&P 500, gave investors an annual return of almost 13 percent. At that rate, $71 million would balloon to nearly $1.5 billion, all that without even reinvesting the dividends.
So, Mr. Castellano, there are plenty of people on Wall Street, I'm sure, who would like to talk with you.
Up next, we'll close out this quarter with a roundtable of our reporters. Also, we'll take a look at you e-mails, and "Ahead of the Curve."
(COMMERCIAL BREAK)
DOBBS: An important report on the economy due next Friday, the employment report for June. Leading up to that, we'll have the National Association of Purchasing Management Report, as well as construction spending, factory orders, personal income, spending as well as auto sales.
And a look at your comments. Nancy in Dayton, Ohio, writing: "With a new ruling for Microsoft, it looks like the market's going to be exciting once again."
Well, of course, nearly everyone welcomes less government interference in the market. That's what a free market is all about. A dissenting voice from Arthur in Arizona, who says I -- referring to me -- was not at my best last night when I "apologized for having Paul Krugman on the broadcast."
I wasn't apologizing for having him here. I was just explaining that "Mister Krugman is one of the brightest and most objective guests," just like you said. And "he's hardly a conspiracy theorist." And while I don't agree with everything Paul Krugman has to say, we intend to have him here as often as possible to share his perspective.
Joseph asked us why anyone to listen analysts again, particularly after the rotten technology stocks. "Worse yet, media, including CNN, keep interviewing and quoting these people without one peep about their track record." Well, on MONEYLINE we have a policy of disclosing the track record of our guests, just like we tried to do earlier with Vince Farrell, but because of some technical problems, we weren't able to do so. We will keep you up to date, I assure you, so that you can always make a more informed judgment about who we are talking with and about what you should be doing.
Also, on subject of analysts, Rohid asked: "Has Henry Blodget every been right on any of his recommendations?"
Well, we did an investigative look at Henry's portfolio and noticed he has a long-term buy on the Internet stock eBay. EBay is in fact one of the best-performing Internet stocks for the past year, more than doubling in price. So way to go, Henry!
We want to hear from you. E-mail us at moneyline@cnn.com and don't forget to tell us where you're writing from if you would like us to use your comments.
Well, as we close out this quarter, we thought it was time to gather some of the MONEYLINE team for a look back, a look ahead and to give their perspectives. Jan Hopkins, Jennifer Westhoven, Greg Clarkin and Peter Viles. If I may, Jan, start with you. This quarter, particularly a very good quarter.
JAN HOPKINS, CNN CORRESPONDENT: It was, and, you know, the little guy, I think, won out. I think that basically there's a lot of optimism out there, a lot of people who want to buy stock, but then you hear from these company officials who talk very negatively, and so you have this -- tug, pull-and-push going on with stock prices.
DOBBS: Well, sometimes they can't even get traded, can they?
Greg, you think the Nasdaq's got it all figured out now?
CLARKIN: You know, Lou, at this point they're very hopeful, and one thing we can add on this trading glitch today is that it was traced to human error, actually, at Worldcom. A Worldcom individual...
DOBBS: Worldcom loves you right now, Greg. That's what they want to hear.
CLARKIN: Well, you know, all throughout the afternoon, the Nasdaq officials are telling us, listen, we're not ruling anything out. Everybody assumed it was a technical problem, but apparently it was somebody who did something they shouldn't have done.
DOBBS: Human error in the midst of a market.
CLARKIN: Exactly.
DOBBS: At this point, Jennifer, the mood, as we wrapped up quarter, the week, the month at the New York Stock Exchange.
WESTHOVEN: It really didn't seem like it was much improved. There's a lot of talk about dull summer trading, concern that volumes are going to stay low and that today just kind of turned out to be a freak high volume day, because it was the end of the quarter, end of the month, plus you had this whole Russell thing going on and just the whole madness because of Nasdaq closing down.
I will say there were some chuckles down on the floor, too, because you may remember, about three weeks ago the NYSE had these problems, and Dick Grasso was joking, the chairman of the NYSE, saying, well, it's my turn in the barrel on that day, so it looks like its Nasdaq's turn in the barrel these couple of days.
DOBBS: You're not saying Dick Grasso had a big smile on his face today?
(LAUGHTER)
WESTHOVEN: Well, you know, a lot of people were laughing.
DOBBS: He was so somber on June 8th.
(LAUGHTER)
DOBBS: Pete, what do you think? What have we got to look forward to in this upcoming quarter?
VILES: Well, I think the theme in the economy was similar to what Jan talked about with the stock market, this tug-of-war between individual investors and institutions. You have the same tug-of-war in the economy. The consumer is still keeping the faith. Consumer, for the most part, still employed, still optimistic. Consumer confidence appears to stabilized corporate confidence, if you will.
Corporate spending has not stabilized, still dropping there. And will the businesses finally find something to be confident about before consumers lose confidence? I think that's the key to watch in the economy.
DOBBS: In talking with CEOs, basically, you can almost hear each of them saying, just get us through this next quarter and then we can start a recovery. But as you've all pointed out, the consumer right now is carrying this economy, and we can just start hoping for the best.
HOPKINS: Tax cuts coming up.
DOBBS: Tax cuts coming up, we've got six interest rate cuts, we've got a weekend and a holiday next week. Everybody should brighten up and have some fun. Things are better than a lot of people think. Witness the GDP revision today, right?
You get last word.
HOPKINS: Which was down.
DOBBS: Yes, but so much higher than what most economists had expected.
HOPKINS: But I think that you still have to deal with an economy that could get weaker. And you know, the question is...
DOBBS: Oh, I'm not going to give you the last word, Jan. You're being too negative.
HOPKINS: Sorry about that.
DOBBS: Think positive. Thank you very much.
HOPKINS: But lower rates are going to bring a higher market.
DOBBS: Now she gets positive, all right.
VILES: And two tax cuts coming, Lou. Not just $300 rebates, but withholding levels go down on July 1st. Some people will get that in the next paycheck.
DOBBS: Jennifer, Greg, any final words?
CLARKIN: I tell you, Lou, you mentioned CEO's, the tough decisions they have to make. The CEO of the Nasdaq today saying that he chose not to shut down the system, like Dick Grasso did back in early...
(LAUGHTER)
CLARKIN: I don't know if he regrets it or not, but he said that was the call at the time.
DOBBS: We're going to have to get you out of there. You're starting to line up pretty closely with those Nasdaq folks.
Jennifer, last thought.
WESTHOVEN: Let's just make some squirrel jokes for Greg, because I think that was what brought down the Nasdaq a little while ago
DOBBS: You got it. Thank you very much, everybody, and thank you for being with us.
That is MONEYLINE for this Friday evening. We hope you have a very pleasant weekend. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" coming up next.
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