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Lou Dobbs Moneyline

Dow Tumbles 91.25 to 10,479.86; Nasdaq Declines 60.69 to 2,080.11; Profit Warnings Drive Tech Stocks Lower

Aired July 05, 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 on MONEYLINE, stock prices sink on Wall Street, as profit warnings shake up the retail and telecom sectors.

Corporate layoffs, Wall Street often celebrates cost-cutting as good business, but is it really?

And a new report on power plants being built: from energy crisis to power glut.

Also, the end of an era, with the passing of a man who made a sport for the professional accessible to millions. The life work of Ely Callaway.

ANNOUNCER: From the heart of New York City, this is Lou Dobbs' MONEYLINE. Here now, Lou Dobbs.

DOBBS: Good evening. We begin tonight with a down day for stocks, investors rattled by another round of profit warnings. Wall Street returned from the 4th of July holiday to face an earnings chill from companies as diverse as telecom equipment maker Marconi and Federated Department Stores.

Jennifer Westhoven reports from Wall Street.

(BEGIN VIDEOTAPE)

JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): If quarterly earnings are like report cards, more companies say they'll be coming home with lousy grades.

ART CASHIN, UBS PAINEWEBBER: Now I think these guys are trying to write off the kitchen sink. They are talking about getting expelled from school and hoping that when they come in with some less- than-stunning results, people will already have discounted that.

WESTHOVEN: Warnings came from telecoms, chip makers and retailers, but the bad news didn't just hit the newsmakers, it spread. The Dow dropped into the red right after the opening bell. News that nonmanufacturing companies put in their best showing in six months started a rally, but it quickly disintegrated. The Dow Industrials fell 91, to 10,479. More warnings came from tech stocks, making things worse for the Nasdaq. It fell 60 points to 2,080, and it was the lightest volume for a full session this year. Britain's Marconi was the warning heard around the world, resurrecting worries that telecom companies are struggling under the weight of too much debt.

The Philadelphia Semiconductor Index dropped more than 3 percent. Equipment maker ASM Lithography warned. And retailers were hit after several disappointments, including Federated Department Stores.

Analysts are split on if the market is already braced for the bad report cards coming for the second and third quarters. Bulls are arguing, though, that soon, the disappointments will be over.

JIM WAGGONER, CEO, SANDS BROTHERS ASSET MANAGEMENT: Will there be a company or a group of companies that is bold enough to look forward and say, my third quarter comparisons might be a little tough, but my fourth quarter comparisons are going to be really easy, so I can afford to be a bit more optimistic.

(END VIDEOTAPE)

WESTHOVEN: So, the summer rally talk is starting out on the trading floors, but it's all about when the markets will focus on strong economic stats and fourth quarter forecast instead of the earnings warnings, which just keep piling up -- Lou.

DOBBS: Jennifer, all of that talk is just that right now, talk. They're looking for some action.

WESTHOVEN: And action -- there was not that much action today. We were mentioning that light Nasdaq volume, also really light here on the New York, not even a billion shares.

DOBBS: Well, we can forgive investors just getting over the holiday. Jennifer, thanks very much. Jennifer Westhoven from the New York Exchange.

The grim news just kept coming after the closing bell. Chip maker Advanced Micro Devices reported a 17 percent decline in second- quarter sales and it warns profits will also disappoint, the company blaming tough competition in the chip business. And data storage firm EMC warning that revenue would come out far lower than forecast, taking a big chunk, of course, out of earnings. The company linked the shortfall to the global slowdown in technology spending.

Checking after-hours action: AMD down more than $4.5 a share, EMC losing more than $4 a share.

Today's warning from Marconi was just the latest bad news from the telecom sector. The sector and the market sell-off left investors wondering whether the industry is anywhere near bottom. Steve Young has the report.

(BEGIN VIDEOTAPE) STEVE YOUNG, CNN CORRESPONDENT (voice-over): The wipeout by Marconi, Britain's biggest telecom equipment maker, shows the slowdown that began in the United States at the start of the year is now deepening in Europe, too.

RICHARD WINDSOR, NOMURA INTERNATIONAL: Europe has a much greater amount of telecom infrastructure in the more regional access areas rather than a core backbone network, which you have more of in the United States. And there has been greater sustainability of spending in that area, which means that was the last to be hit.

YOUNG: Just weeks after forecasting an industry uptick, the company said its 2001 operating profits will fall by half, and it will cut another 4,000 jobs. The news vaporized about $5 billion of the company's market value, and there are calls for the resignation of Chief Executive George Simpson and his deputy. Analysts say the telecom industry has suffered a sort of a perfect storm with everything going wrong at once.

SCOTT CLELAND, PRECURSOR GROUP: You had the Internet/e-commerce bubble burst, you had the competitive telecom bubble burst, the data networking bubble burst, and then you had the 3G problems overseas, and that bubble burst.

YOUNG: Given all the problems, the advice to telecom equipment investors is: don't expect a bounce back for quite a while.

DAVID HEGER, A.G. EDWARDS: I'm not sure that we're really going to see the overall level of demand return to a more normalized pattern until perhaps 2003, you know, after what had been really an unprecedented amount of growth in demand and in capital spending.

(END VIDEOTAPE)

YOUNG: Marconi's embattled CEO stripped away the defense business of what had been a conglomerate to focus on telecom. Now that looks to many like the wrong decision, or at the very least, the wrong timing -- Lou.

DOBBS: Steve, thanks very much. Steve Young.

Well, the market's gyrations and volatility have caused deep pain to a large number of investors. We're now joined by a man who rode the technology bull run to stunning heights, and he has seen his holdings decline sharply as well over the past year and a half. We're now joined by Alberto Vilar, who manages about $2 billion through his Amerindo Investment Advisers. Good to have you with us, Alberto.

ALBERTO VILAR, AMERINDO INVESTMENT ADVISORS: Thank you.

DOBBS: This is -- painful probably doesn't entirely describe the situation. This has been an extraordinarily decline, we're talking about over 60 percent loss on the Nasdaq over the past year and a half. Is it over?

VILAR: I think you've seen your lows, the April lows. I think what's not in the price of the market is the market is going to have a technical bounce far ahead of the fundamentals. A lot of people are looking for the last company to start telling you the news has turned around. Our view is that over the next couple of months you could see the market go through 3,000.

DOBBS: Three thousand? And what would drive that?

VILAR: Well, basically, the down side momentum has stopped. The worst is probably over. Things are bottoming, companies are taking a lot of corrective action now. You're seeing inventories written off, people laid off. You've had some macro stimulation to the economy, and the worst is probably behind us.

DOBBS: The macro stimulation, the consumer has stayed in this market, the investor, point of fact, has stayed in the market and has been hit hard. At this juncture, in terms of technology, what's going to drive technology, because with those high multiples for the sector as a whole, it just doesn't seem that attractive?

VILAR: Well, you're going through one the biggest shifts in 30 or 40 years, you are really going from the dominant technology in the last 15 years, which is client server, to scalable Internet technology. Same thing with telco. You're going from the old telephone lines to this optical, global networking system.

And both of these things are going to run for five or 10 years, so you really got a major inflection point. So, the granddaddies of the last decade, the Ciscos and the Intels and what not, they are not going to lead the parade. So, you're really seeing a lot of investor disappointment in these fabulous companies of the '90s. They clearly are slowing down, because you're in a technology shift to this new Internet technology.

DOBBS: Which companies will lead then within technology?

VILAR: Well, I think you have -- in consumer area, you have the eBays, which are really creating extraordinary franchise. In the real estate, you have Home Stores. You have Brocade, you have Siebel. You have a good number of companies. I mean, this is the first time in my long career where stocks actually decline 80 to 90 percent.

So, we do have a new set of companies, and they certainly went up too far, came down too far -- and now, sooner or later, the market is going to look at those stocks that can really perform.

DOBBS: Now, as we look at your portfolio, some of your leading holdings: amongst them, Ariba, Commerce One as well, both down 80, 90 percent over the past year. Once they were held up to be the B-to-B solution that would capture the marketplace and the imagination for years to come. They're getting killed. Are they going to come back?

VILAR: I think both of them will come back, because the sector will come back. They -- because of price reduction, they are not our principal holdings now, but I think those two shots -- those two companies have a reasonable shot to come back. DOBBS: And in terms of the next new thing, technology for years coming up with something new, whether it was B-to-C, B-to-B, interesting new plays, including Ariba, Commerce One. There doesn't seem to be that exciting new innovation to drive investor interest, is there?

VILAR: Oh, sure there is. When you hear somebody like Jack Welch from GE tell you that this is the biggest change in 40 years, and he wants his company to become Internet-enabled overnight, you know that you've just started. You're probably in the second inning of this move for companies to move from client/server to the Internet. This is going to run for five to 10 years easily.

DOBBS: When does it kick in, the turnaround?

VILAR: Well, I think you're probably going to see a big market move on the upside now, and probably by the end of the year you're going to start to see on a stock-by-stock basis those companies that really can deliver the new technology and go to the next leg.

DOBBS: Well, Alberto, I know we have a lot investors watching who are certainly hoping you're right. Alberto, thanks. Good to see you again. Alberto Vilar.

Well, coming up next here, the financial reality of job cuts: Do those job cuts really benefit corporate America as much as Wall Street thinks?

And trouble in the shopping aisles. How a spending slump is being felt certainly now by the nation's retailers. Also, a different kind of spending on the rise: new power plants. Will they turn an energy shortage into a power glut? Those stories coming up.

(COMMERCIAL BREAK)

DOBBS: Not exactly what we needed, but more evidence today of a softening job market. Layoff announcements by U.S. firms in June shot up a stunning 600 percent from the same period a year ago. That according to the outplacement firm Challenger, Gray & Christmas. From May to June, the company says, job cut announcements rose by more than 50 percent. Also on the rise, weekly jobless claims. The number of Americans filing new jobless claims last week jumping by 7,000. That's the first increase in the past four weeks. And it comes a day before June's employment report. Well, the latest wave of layoffs suggests companies are struggling to survive in a economic downturn, Peter Viles takes a look at whether cutting jobs is really the answer to reviving a company.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT: From Dell Computer to Daimler Chrysler, the job cuts just keep coming. Companies announced 777,000 job cuts in the first half of this year, That's more than double the previous record set two years ago. But as a strategy, what do layoffs really accomplish? JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: Layoffs are effective at cutting costs, and many of these companies are under the gun from Wall Street, but in terms of long-term value to the company, they're almost always a negative.

VILES: The rap on layoffs is that they're bad for morale, damage institutional memory and customer service, and not always cost effective. They leave companies stuck with costs of rehiring and retraining workers if conditions improve.

DARRELL RIGBY, DIRECTOR, BAIN & CO: There are a number of costs with layoffs, in addition to the obvious ones, the severance costs, the outplacement costs. There's also a loss of trust in the management team, and a loss of innovation as employees grow more risk averse and afraid to stick their necks out.

VILES: Clearly though, job-cutting has worked for some companies. Jack Welch cut so many jobs at General Electric he was once called Neutron Jack. Larry Bossidy used cost-cutting to revive Allied Signal. Even Alan Greenspan has cited labor market flexibility as a strength of the American economy.

But layoffs are not always the answer. Take Eastman Kodak: In 1997, then CEO George Fisher announced plans to cut 10,000 jobs. A month later Kodak said it would cut 6,000 jobs on top of that. The stock did respond, but eventually slumped and has lost 27 percent since the first round of cuts was announced. And Kodak is still cutting jobs. It just announced plans to cut up to 3,500 more.

A study by Bain and Company, comparing companies that announced big layoffs during the last recession to those that did not, found that, on average, layoffs did not improve stock performance over the next three years. Companies that laid off more than 15 percent of their workers tended to underperform, and those that announced repeated layoffs did even worse.

(END VIDEOTAPE)

That study did find that some kinds of layoffs do tend to reap dividends, specifically, those resulting from mergers or acquisitions, and those resulting from strategic change of direction, often the decision to shut down an entire underperforming unit and lay off the employees -- Lou.

DOBBS: That's very interesting. There also, it seems to me, arises the question: once a company is laying people off, that may be rather systematic than a cause, people are being laid off because their business problems as well as business condition problems, wouldn't you expect there to be issues on their stock prices going forward?

VILES: Sure you are looking at a group of companies that are probably in trouble or have problems. And to expect them to do better than companies that are not laying off is somewhat irrational. We are looking at troubled companies.

DOBBS: Pete, thanks and maybe some of the troubles will end soon. Peter Viles.

Retailers delivering a lot of bad news today. Federated Department Stores and Guess, both companies issuing profit warnings. Neiman Marcus reporting weak sales numbers and retail spending is so bleak, that many stores are now postponing their big holiday orders, hoping for signs of improvement. Susan Lisovicz reports.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): David Wolf has one of the hardest jobs in the world right now. He advises big stores what they should buy months in advance, and right now consumers aren't buying much. Retail spending is so dismal lately that some buyers are postponing their holiday orders to see if consumer psychology improves before they commit. DAVID WOLFE, THE DONEGER GROUP: People are looking for new and exciting novelty items, fun impulse gifts. They are not looking for high priced investment kind of things. So that means it's going to be much more fun to shop, but more dangerous for the stores because if they bet on the wrong item they're out of business.

LISOVICZ: And some of the biggest names in the business, the parent company of Macy's and Bloomingdale's and Guess are already warning that their projections for the latter half of the year were too optimistic.

Neiman Marcus reported meanwhile, reported that sales at its stores open at least a year fell nearly 5 1/2 percent in June from a year earlier. Yet retail analysts say six successive interest rate cuts are only one reason why the worst may soon be over for retailers.

STEVE KERNKRAUT, BEAR STEARNS: There's a lot of powerful medicine in that 275 basis point cut. There's a lot of powerful medicine in the oil prices or gasoline prices going down, there's powerful medicine in the tax rebates as well as the lowered withholding taxes.

LISOVICZ: And while consumers aren't buying retail, investors are. Specialty, department, building supplies, discount, specialty apparel and general merchandise all outperformed the S&P 500 over the last 52 weeks, which declined 15 percent.

(END VIDEOTAPE)

But even optimists agree the next few months are going to be tough for retailers across the board. Some analysts say they expect heavy clearance activity over the summer, which will cut into profits. And Standard & Poor's says there is a good chance credit ratings for many retailers will decline, which would make it costlier to raise cash and for some troubled retailers to stay afloat -- Lou.

DOBBS: Susan, the consumer stayed in this economy, so at this juncture these numbers are looking pretty good on at least a comparative basis, aren't they? LISOVICZ: They are, but there are some sectors certainly that are really hurting. For instance, some analysts are calling the electronics and consumers division a downright depression. I think the real -- the real catch, I think, for retailers to get an indication of how good consumers are feeling is back to school. Because that's where kids are growing. Seriously, it's increased quite a bit in terms of its importance and because kids want new things and you'll see if consumers come to buy.

DOBBS: The reason I reacted, I was just thinking of my two daughters reacting with horror at the very thought of returning to school.

LISOVICZ: And with old with old clothes. They want new things.

DOBBS: I certainly would guess that would be correct. Susan, thanks a lot. Susan Lisovicz.

Coming up next here on MONEYLINE, we will have the sharpest view yet of the red planet.

And Congressman Bernard Sanders is spearheading an effort to push for the repeal of permanent normal trade relations with China. He'll be here discuss that and membership in the World Trade Organization for China.

(COMMERCIAL BREAK)

DOBBS: Well, spectacular new pictures of Mars, and the Red Planet never looked quite so orange. NASA and the Space Telescope Science Institute today released this still photo of Mars, this photo they say is the sharpest ever taken by an Earth-based telescope.

The white patches that you may be able to see there on the planet are actually ice clouds, and the orange swirls are massive dust storms. This photograph was taken by the Hubble space telescope on June 26, when Mars and Earth were only 43 million miles apart, their closest proximity in 13 years. The two planets will be even closer in August of 2003, when Mars will move to within 35 million miles of planet Earth. That distance won't be matched again until the year 2287.

Coming up next here on MONEYLINE: a new man to run the FBI. He is charged with leading the agency out of series of scandals and embarrassments.

Also, a new look for a special aircraft: the spy plane of the future.

(COMMERCIAL BREAK)

DOBBS: President Bush today selected federal prosecutor Robert Mueller to run the Federal Bureau of Investigation. The 56-year-old Mueller is currently the U.S. attorney in San Francisco. Earlier this year, he served as acting deputy attorney general. If confirmed by the Senate, Mueller will take over an FBI that's been racked by recent embarrassments, including the Robert Hanssen spy scandal and the mishandling of documents in the Oklahoma City bombing. Mueller would replace Louis Freeh, who announced his resignation in May.

The final pieces of that EP-3 spy plane damaged off the coast of China made the last leg of their journey home today. The aircraft parts arrived in Georgia aboard a Russian-built cargo aircraft. Pentagon officials say the EP-3 will be reassembled and then re- equipped with upgraded electronics at the Lockheed Martin plant located at that base. The plane was stranded on China's Hainan Island for three months after colliding with a Chinese jet fighter. China had also detained the plane's crew, but then released them after 11 days.

And a preview of the future spy plane: it looks very different from that EP-3. This is the Global Hawk. It not only has a different shape, there is no one on board the aircraft. It is made by Northrop Grumman. It can fly for 24 hours at a time. It flies as high as 65,000 feet, 6,000 miles from its base, collecting pictures that the Bush administration has decided to more than double that budget for that aircraft. Funds for the Air Force to buy Global Hawks will be raised to over $300 million. That comes out to four a year beginning in two years. Quite an aircraft.

Well, an update on the first self-contained artificial heart implant. The patient was placed back on a ventilator in Louisville, Kentucky today, one day after being removed from the breathing machine. Doctors, however, do not consider this a setback. They said they are pleased with progress of the patient, who had been given an 80 percent chance of dying within one month before the procedure. His doctors now say that the titanium and plastic device, made by Abiomed, could enable him to live well beyond the period of time that has been cited as the goal of the surgery, 60 days, and perhaps return to an active life.

Coming up in the next half hour of this broadcast: the answer to the country's power problems. What is now an electricity crunch may soon turn into a power glut.

Also, it was a down day on Wall Street, we'll have the latest round of earnings warnings for you, and we'll tell you about a result on stock prices, not a favorable result, I assure you. We'll ask the veteran of many bull and bear cycles whether we can hope and plan for a summer rally.

ANNOUNCER: After the break, Lou speaks with stock strategist Hugh Johnson.

(COMMERCIAL BREAK)

DOBBS: In tonight's MONEYLINE headlines: profit warnings taking a toll on Wall Street, sending both the Dow and Nasdaq lower. And two more warnings after the bell: Advanced Micro Devices and EMC, both companies warning that they will miss second quarter estimates, both firms off more than $4 a share in after-hours trading.

A gloomy snapshot on the job market as well: a new report finding layoffs have skyrocketed, more than 600 percent from a year ago.

More now on the session on Wall Street today: profit warnings this morning began with Marconi and Federated Department Stores. The pre-announcement from Macy's parent company weighed heavily on the entire retailing sector. Marconi's warning raised fresh concerns that its rivals in the telecom equipment sector may also warn soon. Technology as a whole took the brunt of the day's sell-off. The Nasdaq down nearly 3 percent. Chips, software stocks weighed heavily on the index.

All but three Dow components finished lower today, so the blue chips aren't doing well either. Microsoft, the biggest loser, down nearly $3 a share. The index off 91 points. On the Big Board, decliners beating advancers by only a slight margin. It was a day of very light trading on both markets.

Topping tonight's "MONEYLINE Movers": Amazon.com adding more than $1 a share, following bullish comments from Bear Stearns. The brokerage expects Amazon's second quarter results to beat Wall Street estimates. Parametric today losing nearly $2 1/4, the software company warning of a significant profit and revenue shortfall. Federated Department Stores down more than $2 a share. As we've reported to you, the operator of Macy's and Bloomingdale's slashing its second quarter earning estimates, the company blaming continued weak sales. Despite today's losses, the stock has climbed 12 percent so far this year.

My next guest now is bullish. He is predicting a turnaround in September. By then, he says, the markets will finally benefit from the Fed's aggressive rate cuts. Hugh Johnson joins us now. He is chief investment officer of First Albany Securities. He advises investors to buy now ahead of that late summer rally. Hugh, good to have you with us.

HUGH JOHNSON, FIRST ALBANY SECURITIES: Nice to be with you, Lou.

DOBBS: Now, that summer rally -- we're hearing a lot of mixed and seeing a lot of mixed results here. What makes you think that rally is going to kick in in September?

JOHNSON: Well, I think in September you're going to still hear companies tell you that their earnings, Lou, are still pretty dismal, on a year-over-year basis even negative. But I think what you're going to start to hear is a slightly different message, and that is even though the earnings on a year-over-year basis aren't that good and still kind of dismal, they're not as dismal as the second quarter.

In other words, we're starting to see some light at the end of the tunnel. And believe me, the big issue now is we have a profits recession, when is it going to end -- and I think in September you'll start to see signs that the end is in sight.

DOBBS: And where do you think that end will be first and most visible?

JOHNSON: Well, it -- the place you look most importantly is the technology sector. I don't think you're going to see any signs at the communications equipment manufacturers are doing very well, but you'll start to see some stability from computers, software and semiconductors, and I am seeing some signs of that now.

Remember, we've had some companies, like Oracle, tell us that they think things are stabilizing, and then the actual profits will start to turn on a year-over-year positive I think about the first quarter of next year. So, again, we're talking about between now and then, and the market will discount that with a little bit of a rise. Not a great rise, but a little bit of a move on the upside.

DOBBS: And Hugh, when we hear someone like Larry Ellison running the second largest software company, you feel like, you know, extending plaudits, because everybody else is talking about a lack of visibility, and he's talking about things looking very, very good. How confident should we be in those outlooks?

JOHNSON: Well, you can't be too confident, particularly when you hear the comments made by EMC and AMD after the close that business is pretty miserable.

And believe me, I wouldn't say that at this point in time you have any sign of the end of the profits recession, but my hope is that when you start to see the Federal Reserve stimulus kick in, tax cuts of course kicking in, the decline in energy prices kicking in -- by the third quarter, you should start to see at least signs of stability, and that should come out in some of the statements made by chief executives about what business is really like.

DOBBS: We're going to take a quick look at your recommendations the last time you were with us, if we can have those. Texas Instruments, it's off 17.5 percent, United Technologies, Home Depot holding up fairly well, as well as Tyco, General Electric up about 1 percent. Are you staying with those stocks?

JOHNSON: Yeah, I sure am. I still have them in the portfolio. In my portfolios, I'm still underweighting technology and telecommunications, and of course, Texas Instruments falls in there. But generally speaking, we're staying somewhat on the positive side. Again, it's important to keep in mind: don't bet the ranch, but I am positive.

DOBBS: OK, I'm going to keep the ranch out of it, I guarantee you. Thanks, Hugh Johnson. Good to have you with us.

Coming up next here: Iraq's oil is back on the world market, we'll have that story in tonight's "Sectors Report."

And later: trade relations with China. We'll hear from one congressman who says the United States should pull back from Beijing.

(COMMERCIAL BREAK)

DOBBS: Iraq today agreed to resume crude oil exports under a new United Nation's oil-for-food deal, accepting a U.N. resolution that extends the program by five months. Iraq stopped exporting oil a month ago, in protest of efforts by the United States and Britain to overhaul the decade-old sanctions. Iraq's exports account for about 5 percent of global exports.

Light sweet crude oil today rose 78 cents, traders playing catch- up, we're told, with a rally in world oil markets during the 4th of July holiday. Oil stocks mostly higher as well. Shares of ExxonMobil, however, down a fraction.

Next here on MONEYLINE: from famine to feast. After an energy crunch, we'll tell you why there's talk of an energy surplus.

Also, China's entry into the World Trade Organization. We'll hear from one member of Congress who says it's a bad idea.

And later, the golfing world loses a pioneer and a remarkable entrepreneur.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Powering America," a different look at the energy crisis. While many Americans are concerned about possible power outages, and states worry about strained power grids, there are some who now say relief is on the way thanks to a record number of power plants being built. Brooks Jackson has the latest on the battle for energy.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): What power shortage? An average of one or two new power plants are scheduled to come online in the U.S. every day this month.

CHRIS SEIPLE, RDI CONSULTING: The amount of capacity being added this year is more capacity than has ever been added in any year in the history of the United States.

JACKSON: California Governor Gray Davis recently threw the switch on the state's first new power plant in a decade.

GOV. GRAY DAVIS (D), CALIFORNIA: We're moving stuff online as quick as we can.

JACKSON: And days later, the second. But that's nothing to what's going on nationally. This gas-fired plant in Delaware is going online this summer, part of an unprecedented national boom in power plant construction.

Construction stagnated in the late '90s just as economic growth was increasing demand, creating a squeeze. But last year, more new electric capacity was added than in any year since 1994, nearly 24,000 megawatts, with lots more to come.

SEIPLE: We expect about 46,000 megawatts of capacity will be added this year, and we expect a similar amount will come online next year, and perhaps even more in 2003, the year after that. JACKSON: The amount of power generation now under construction, or on the drawing boards, has doubled in the last 12 months, according to the electric power supply association.

LYNNE CHURCH, ELECTRIC POWER SUPPLY ASSN.: Competitive power supplies in the United States are trying to build as much as 370,000 megawatts of new generation throughout the country, and that's the equivalent of over 600 new medium to large-size power plants.

JACKSON: That's equivalent to an increase in total U.S. generating capacity of 45 percent. Practically all of the new construction, like this plant going up in Roopville, Georgia, is being done not by electric utilities, but by a new breed of private companies specializing in power generation.

CHURCH: These companies are investing their own money and they're taking the risk that they're going to be able to compete and to sell their power.

JACKSON: The competition should help hold down prices to consumers. In fact, several analysts on Wall Street and in Washington are saying the industry is overbuilding.

JERRY TAYLOR, CATO INSTITUTE: The high energy prices we've experienced over the past years have unleashed a flood of new investment in production, and most analysts expect that as a result, about a year or two down the road, we're going to move from scarcity to glut in pretty quick order.

JACKSON: The new plants are efficient. Nearly all are gas-fired turbines using designs that get more electricity out of the fuel than older turbines, and the new plants are far less polluting than many of the old plants, some of which are likely to be retired.

(on camera): Nobody expects all the projects on the drawing boards to be completed; some may be blocked, others abandoned. But the big boom in new construction shows market forces are responding powerfully.

Brooks Jackson, CNN, Washington.

(END VIDEOTAPE)

DOBBS: Finances ministers from the world seven most prosperous nations gather in Rome this Saturday. Their mission to hash out a way to reignite the sluggish global economy.

Tim O'Brien has the report from Washington.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Hours before boarding a commercial flight to Rome, Treasury Secretary Paul O'Neill told reporters, the United States has been playing what he called a locomotive role in helping the world economy through slow growth and that Europe and Japan must do the same. O'Neill spoke shortly after European Central Bank announced it was not cutting interest rates as the Federal Reserve has aggressively done this year.

CLAUDE BARFIELD, AMERICAN ENTERPRISE INSTITUTE: I'm not so sure publicly the United States will comment on what the bank has done. But I think privately the United States will be urging them to do what Mr. Greenspan has done.

O'BRIEN: While some economists have concluded the U.S. is already in a recession, Secretary O'Neill referred to current downturn as only a correction and offered this upbeat appraisal.

PAUL O'NEILL, U.S. TREASURY SECRETARY: Automobile sales running in June at 17 million rate, it's really wonderful. Housing is still doing a really quite well. We still have real strength in our economy and while it's true we're bouncing around in a narrow positive territory, this is not so bad.

O'BRIEN: Economist Douglass Lee says a number of factors justify O'Neill's optimism.

DOUGLAS LEE, ECONOMICS FROM WASHINGTON: The tax rebate is one, the effect of monetary policy, the interest rate cuts that occurred early in the year should be having a greater effect in the second half, that's a second thing.

O'BRIEN: And says Lee, falling inventories are sure to spur production later in the year.

(on camera): Secretary O'Neill for his part says cooperation is the key and the European Commission's failure to cooperate in the Ge- Honeywell merger is certainly to be at least informally chatted about, even if only around the dinner table.

Tim O'Brien, CNN Financial News, Washington.

(END VIDEOTAPE)

DOBBS: Another global policy issue has dominated past G7 meetings. China's entry into the World Trade Organization. China may be coming closer to joining the WTO, but it's entry still faces some opposition here in the United States.

Today, Congressman Bernard Sanders, along with 15 other congressmen, submitted a letter to the House, urging a vote to revoke China's permanent normal trade relations. Here now, from Burlington, Vermont, Congressman Sanders. Good to have you with us.

REP. BERNIE SANDERS (I), VERMONT: Nice to be with you, Lou.

DOBBS: What is at the heart of your objection to China's entry to the WTO?

SANDERS: Lou our trade relationship with China has been an absolute failure. We have a trade deficit today of $84 billion which is almost $30 billion more than two years ago. It's resulted, our trade relationship has resulted in the loss of hundreds of thousands of decent paying jobs and the lowering of wages for millions of Americans.

The question is why would anyone want to continue such a failed policy?

DOBBS: I suppose in terms of market forces, CEOs and their -- these companies are making those decisions on investment. In terms of the jobs loss, we're looking at historically just a remarkably low unemployment in this country. You really feel that there is an issue with China in the issue?

SANDERS: We have lost hundreds and hundreds of thousands of decent paying jobs in the manufacturing sector. Young high school workers who now go out into entry level jobs are making close to 30 percent less than was the case 30 years ago. So, I think if you look at it from the point of view of the middle class and working families, the trade relationship with China is a disaster.

Now the reason that we have passed it in Congress is that corporate America and a whole lot of monied interests like the idea. They think it's great that American workers have to compete against people who make 20 to 25 cent an hour. It's good for them. They are investing tens of billions of dollars in China. They are not making those investments in Vermont or in the United States. So I think it's high time for Congress to stand up for the American workers and the middle class rather than just the multinational corporations.

DOBBS: No one knows better than you that there is tremendous support whether as a result of the lobbying that you cite or not, that tremendous support particularly political support and in Washington for China's entry into the WTO. With a vote scheduled to come...

SANDERS: Lou, could I respectfully disagree with you? I think among the people of this country you do a poll today, I think they'll say no, despite a sympathetic media, despite all of the money that has gone into trying to push this. Congress says yes but the American people are not sympathetic to that trade agreement.

DOBBS: Congressman, you just inspired me. We'll do a poll and see how it comes out here in the next couple of weeks. But in terms of the political support for China in its entry to the WTO, and that vote that's scheduled, what would you say your odds are of prevailing at least here in the short term?

SANDERS: This is what I think. I think the fact that -- the reality that we've opened up our market to China -- the fact that China treated our American service people so shabbily, that when you open your market and you have a most-favored-nation status, you would expect both countries to be friends, to be allies. China forced down an American plane, resulting almost within a few second of the death of 24 service people.

They were held, essentially they were imprisoned for 11 days. I think a lot of members of Congress and certainly a whole lot of people in this country are saying, wait a second, we opened up our market, we give them most-favored-nation status and yet the government continues to treat our country as if they were an enemy. DOBBS: At this point, those who suggest that there is a form of constructive engagement, if you will, in having China a member in the WTO, how do you respond to that?

SANDERS: I would say a -- if you look -- that is the argument, you're right, Lou, but if you look at the reality, I think what you find is that on all of the key issues such as human rights, and environmental protection, what you're finding is the situation in many ways has deteriorated.

What the State Department Is telling us today is that human rights in China are worse than they were before we passed PNTR. You are looking at Catholic Bishops being arrested, you are looking at millions and millions of people in jail for what is their crime? Because they wanted to form a trade union, because they wanted to speak out for Democratic rights.

I think any objective assessment would suggest that we have not succeeded in opening up China for democratic rights.

DOBBS: Congressman, thanks for being with us. Congressman Bernard Sanders.

SANDERS: Thanks for having me, Lou.

DOBBS: Coming up next here on MONEYLINE: the end of an era. The golf world loses one of its most successful figures, a great enterpreneur.

(COMMERCIAL BREAK)

DOBBS: Ely Callaway, the man who brought his passion for golf to the masses, died today from pancreatic cancer. He was 82 years old. His Callaway clubs have become the platinum standard that have helped millions of golfers play better.

Allan Dodds Frank has our story.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Ely Callaway built his company on the premise that average golfers, even presidents, should have more fun. Arnold Palmer, a Callaway golfer, said "His whole idea was to help all those people who struggled to play the game to enjoy golf a little bit more."

Callaway popularized large metal head clubs, and named one driver Big Bertha, after the World War I cannon.

HAYLEY KISSEL, MERRILL LYNCH: Big Bertha and all the subsequent clubs really revolutionized the golf industry. The ball that lands in the fairway, it goes a little bit further and it makes people enjoy the game more, and that's Ely's legacy to the game of golf.

FRANK: But more than a golfer, the Georgia-born Callaway was a master marketer, innovator and businessman who had three careers. First, textiles. He was president of Burlington Industries for five years. But passed over in 1973 for the chairmanship, he retired to southern California. There, he opened his namesake winery and vineyards, which nine years later, he sold for $14 million.

In 1982 he founded Callaway Golf, now the world's largest golf company, with 2,500 employees and annual sales approaching $800 million. After discovering last May that he had pancreatic cancer, the 82-year-old hand-picked his successor.

RON DRAPEAU, PRESIDENT & CEO, CALLAWAY GOLF: He had an ability, whether it be in golf or in the industries that he was in before golf, to be able to see an opportunity when others might just see the difficulty in it. I think Big Bertha was a good example of that.

FRANK (on camera): The company says it will continue Callaway's fight with the U.S. Golf Association about banning his latest clubs, the ERCs, as too powerful. Until the end, Callaway argued the new clubs are necessary to attract a new generation of golfers.

Allan Dodds Frank, CNN Financial News, New York.

DOBBS: Ely Callaway, a terrific guy as well.

Coming up next, we'll take a look at your e-mails. Also, "Ahead of the Curve." Stay with us.

(COMMERCIAL BREAK)

DOBBS: We'll have a report on the labor market tomorrow. The unemployment report for June, the job base expected to lose 44,000 jobs and the unemployment rate is expected to rise to 4.6 percent.

In corporate news, second quarter earnings will come out kicking off the season. Alcoa, the Street, expecting 45 cents a share. That would be down slightly from a year ago.

Time now for a look at some of your comments. Nels in Dillingham, Alaska: "Would you please make sure your reports on energy and electricity costs include Alaska. Our gas costs $2.58 a gallon. We hear about everyone else in the United States squawking about $1.60 and we laugh."

Gas prices in Alaska are amongst the highest in the nation, but also spare a thought for Hawaii as well. According to AAA, on average those states pay even more for gasoline.

On the subject of stock dividends, Sandy writes: "I am retired and depend on dividends. I would like to get a raise once in a while. When will those making good profits get back to the days of once a year decent dividend increases?

Well, Sandy, we don't have much good news for you tonight. This year will be one of the steepest dividend drops on record. In a report titled "A Dismal Dividend Year," Standard & Poor's Arnie Kaufman says payments plunged 17 percent compared to last year. And we had a big response to our interview with boxing promoter Don King. Michael in Cooper City, Florida, says: "When I heard that Lou Dobbs would have Don King as a guest on the best financial program on the air, I was appalled. After watching, enjoying, smiling and laughing, all I can say is great show!"

And I don't think anyone has any doubt about why he's called "promoter." Well, if you want to send us your comments, we'd love to hear from you. E-mail us at moneyline@cnn.com.

That's MONEYLINE for this Thursday evening. Thanks for being with us. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" coming next.

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