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Lou Dobbs Moneyline

Warnings Fuel Fears and Stocks Tumble

Aired July 06, 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 hammered across Wall Street, slammed by profit warnings. A big drop in the labor market as the manufacturing sector sheds jobs at an alarming rate. Weakening employment stirs fear of recession. Wall Street's top economist Maria Ramirez will give us her forecast.

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 dramatic drop in stock prices on Wall Street. A flood of selling swept over the Street, investors shaken by a new round of earnings concerns and a weak jobs' report.

Jennifer Westhoven has the story from New York Exchange.

(BEGIN VIDEOTAPE)

JENNIFER WESTHOVEN, CNN FINANCIAL NEWS CORRESPONDENT (voice- over): It was an ugly day on Wall Street. Warnings from two tech companies knocked down hopes for a market turnaround.

Database firm EMC raised fears that companies around the world are putting off technology purchases and demanding lower prices. EMC dropped 28 percent, the most heavily-traded stock on the NYSE. Another warning from chip maker AMD drove home fears that price wars in the tech sector are having a devastating effect on profits.

MARK BOUTOTE, DIRECT BROKERAGE: That was a big shock. I expect -- I didn't expect that it would affect the Dow the way it did, like IBM and Microsoft, the way they are getting hit pretty hard.

WESTHOVEN: Both hit the Dow, which headed lower right after the opening bell. It closed down 227 for the session, and it was the seventh straight week of losses for the blue chip average. The Nasdaq closed down more than 3 percent, falling 75 to 2,004.

One of software's top analysts, Goldman Sachs' Laura Conigliaro, added to the selling pressure saying: "Signs of stabilization have only been sporadic for enterprise systems firms. There are big negatives out there: weakness in Europe, the strong dollar and low prices." She cut profits forecasts for some industry players.

Traders reading charts worry that the Dow's latest drop could signal a rotten summer for the bulls.

LINDA JAY, LABRANCHE & CO.: The sellers remain aggressive, but we should have held 10-4, that was a big level on the Dow, we blew right through that.

WESTHOVEN: And that took out retail stocks, pounded for the second straight day, and one of the worst performers behind technology.

(END VIDEOTAPE)

WESTHOVEN: The one trend that the bulls were focusing on was a very weak volume. Traders say that they hope that means today was just a temporary blip. And a bout of selling that got worse because there weren't as many players during a shortened holiday week -- Lou.

DOBBS: Jennifer, were they theorizing with conviction, or just hope?

WESTHOVEN: Just hope. Although, I mean, the volume really is, it's just over a billion shares here at the New York Stock Exchange. So, it's hard to know if it got worse because of today, or if it is going to be even worse when everybody gets back to the trading desk come Monday morning.

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

The series of earnings warnings not the only issue troubling Wall Street and investors today, they also had to contend with a sign of problems in labor, the Labor Department unveiling another steep decline in manufacturing jobs in the month of June. Tim O'Brien has the report from Washington.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Analysts had expected unemployment to go up in June, and it did, marginally, .1 of a percentage point, to 4 1/2 percent. The biggest surprise was in non-farm payroll jobs, down 114,000.

While some sectors were up slightly, such as government and retail trade jobs, factory jobs tumbled 113,000. Since last July, some 785,000 factory jobs have disappeared, three-fourth of them since the end of 2000.

Leading the decline in manufacturing: electronic equipment, down 31,000 jobs, and industrial machinery down 22, 000.

MICHELLE GIRARD, PRUDENTIAL SECURITIES: It certainly underscores the ongoing weakness in the manufacturing sector that doesn't appear to be abating. Also suggests some deterioration in the service sector. The service sector numbers were soft, and of course that is what we are watching so closely.

O'BRIEN: Service jobs were flat, but since reaching its peak last September, the sector has lost almost 380,000 jobs. Because people out of work don't spend as much money, today's numbers may fuel the growing fears of a recession and speculation of yet another rate cut by the Federal Reserve.

CHARLES LIEBERMAN, ADVISORS FINANCIAL: The Federal Reserve is expecting the economy to improve in the second half, and that really requires job gains. We still don't see those. And that is reason to think that they may go back to easing policy by more than 25 basis points.

O'BRIEN: The advance tax rebate checks are either in the mail or will be soon, and the effects of six months of previous interest rate cuts could begin to take hold. But is it enough?

MAUREEN ALLYN, ZURICH SCUDDER INVESTMENTS: They've got all sorts of latitude here. There is no wage pressure to speak of, they've got all the weakness they would want if they want to ease. Our guess is they are going to wait until August.

(END VIDEOTAPE)

O'BRIEN: The unemployment numbers form a key economic indicator, but it is also a lagging indicator, reflecting more where the economy has been than where it is going. Add to the mix the current flood of profit warnings, and it should come as no surprise that many economists see the unemployment rate getting worse, possibly above 5 percent, before it gets any better -- Lou.

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

Well, while the unemployment rate remains historically low, at 4 1/2 percent, the level of job losses over the past three months alone paints a somewhat different picture. Peter Viles has been studying the pattern of past economic downturns and has this report.

(BEGIN VIDEOTAPE)

PETER VILES, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Not since the summer of 1990, halfway through the first Bush administration, has the economy lost this many jobs in a 90-day period -- 271,000 jobs gone in three months.

But by historical standards, that is still not a big number. In the 1980 economic crisis that helped drive Jimmy Carter from office, 1.3 million jobs disappeared in just four months. In the second half of that double dip downturn, in '81 and '82, 2.1 million jobs were lost in 16 months. Then the 1990 slump, 1.7 million jobs lost in 20 months. All three of those downturns turned into recessions.

And economist Wayne Angell is pessimistic about the current slide.

WAYNE ANGELL, BEAR STEARNS: I think it is important to note that we really are in a recession. We are in a goods production and employment recession. VILES: But in some ways it doesn't feel like a recession, partly because unemployment is just 4 1/2 percent. At the beginning of the 1980 downturn, the jobless rate was 6.9 percent. In 1981, it was 7.4. And in 1990, it was 5.5.

WILLIAM DUDLEY, GOLDMAN SACHS: Even though the job market has deteriorated, the labor market still is absolutely in pretty good shape. If you had told me five years ago we would be worrying about being at 4 1/2 percent unemployment rate, I would have been very surprised by that observation, because that would have been considered a terrific place to end up.

VILES: There have been so-called low unemployment recessions in the past, twice during the peace and prosperity era of Dwight Eisenhower. When the 1953 recession began, the jobless rate was just 2.6 percent. When the 1957 recession started, it was 4.1. And the 1969 recession, which ended a record-setting eight-year expansion, began when unemployment was just 3 1/2 percent.

(END VIDEOTAPE)

VILES: The low jobless rate is important this time around, because it is one of the factors underlying the relative strength of the consumer sector, which in turn appears to be the economy's best defense right now against a recession -- Lou.

DOBBS: Pete, that's a fascinating report. Have there been occasions in which we have had three months of these kinds of job losses in which a recession has not followed?

VILES: That is the pessimistic look here. There has never been three months where job losses were this deep where a recession did not follow.

We should add, though, we have never had the Fed easing rates this aggressively, we've got a tax cut on the way, and inflation is at bay, and energy costs were down this week. So, history is before us and not behind us -- Lou.

DOBBS: OK, Peter Viles, thanks very much.

So, exactly how weak or how strong is this economy? Well, our guest this week won "The Wall Street Journal" semiannual poll of economists, her predictions for a sluggish first half growth without actual recession helping boost her position. Maria Ramirez runs her own economic consulting and money management firm, based right here in New York City.

Maria, first, congratulations.

MARIA RAMIREZ, INTERNATIONAL ECONOMIST, MARIA FIORINI RAMIREZ: Thank you.

DOBBS: Good to have you with us.

RAMIREZ: Thank you, Lou, it's great. DOBBS: Well, let's talk -- we just heard Wayne Angell say that we are in a recession, as a number of people have -- a number of other people have suggested. What's your view?

RAMIREZ: We are not in a recession. I think we have consumer spending that is still positive, and I think it stills going to remain positive. I think the tax rebates are going to help.

But I think we are in a technology when it comes to -- we are in a recession when it comes to technology, when it comes to the goods- producing sector, but I think it's really coming after a period where there was a huge amount of spending and a huge amount of growth. Going into last year, I mean, the money that was spent by businesses in adding capacity was tremendous. We can't see that again for a few more years.

DOBBS: Business investment backing off in the last quarter and the first quarter of this year, do you see business investment rising at any point during the remainder of this year?

RAMIREZ: I doubt it very much. I think that business investment is going to continue to be sluggish, but I don't think it's going to be as negative as it has been in the last six months. I think that the bad news is sort of out already. I think that the best what we could hope for is some leveling off some point in early part of next year.

DOBBS: Peter Viles just reporting that we are seeing 271,000 jobs lost over course of the past three months. That's never happened before in which a recession did not follow. Give us your analysis as to why you don't think one will follow this time?

RAMIREZ: Well, actually, in addition to what Peter said, if you look at the announcements by companies, and there is the Challenger survey, so far this year, the announced layoffs about 800,000. The employment numbers are really a lagging indicator. I think in the next few months, the numbers will continue to be negative. And the reason why I think I am a little bit more optimistic is the fact that there is this injection of cash going into the economy.

I think we're also -- the decline in jobs is not as broad-based as maybe it was in the previous cycle. It's really hitting more the higher income.

DOBBS: Higher income, and also manufacturing.

RAMIREZ: Exactly.

DOBBS: Manufacturing in this country continues to dwindle and to erode and to be diminished. How concerned should we be?

RAMIREZ: Well, I think we should be concerned. On the other hand, it gives the opportunity for some of the lower-cost countries to take on more of that market share in manufacturing goods, like China, in sending them to U.S., and I think that's what's been going on for the last 10 years, and what will take place even more so in the next 10 years.

DOBBS: Europe, Asia, both showing considerable signs of weakness now. How concerned are you about what they may do to influence the direction of U.S. economy?

RAMIREZ: Well, I was in Europe early part of last week, and basically, I think the bad news in Europe is just starting to seep through.

DOBBS: Right.

RAMIREZ: I think that basically, about a year behind the U.S., in terms of economic slowdown. So I do think that there is room for interest rates to come down there.

But no matter where I go -- I was in South America also in the last few days -- people want dollar assets. They want dollars and they want euros, and to that extent, I think it's going to help the dollar, regardless of what we would like the dollar to be, especially from...

DOBBS: It may help the dollar, but it may hurt U.S. exports considerably.

RAMIREZ: Exactly. And I think in Asia, really, the last few years, their growth was very much export-oriented outside of China, and I think without exports to the U.S., it's going to be very hard for them.

DOBBS: Your view, in terms of the equity markets for the rest of the year?

RAMIREZ: Well, I don't think earnings are going to be a pretty picture in next two quarters, which means that the equity market is going to stay in a narrow trading range. Between now and year-end, they're probably not up much.

DOBBS: OK, Maria Ramirez...

RAMIREZ: Thank you.

DOBBS: Good to have you with us. Thank you.

RAMIREZ: Thank you.

DOBBS: Still ahead here on MONEYLINE, a tech CEO "on the edge." One of the biggest tech CEOs, Intel's Craig Barrett, gambling on a rebound in chip spending and making that bet with investors' money.

And the Nasdaq sinks 7 percent. This week, another series of tech firms cutting forecasts. We'll ask technology analyst, Ashok Kumar, how much pain is ahead for the sector that once drove Wall Street's bull run.

(COMMERCIAL BREAK) DOBBS: Today's selloff in technology shouldn't come as a surprise to investors. After all, the price-to-earnings ratios of these stocks is still higher than the overall market. Right now, the S&P 500 trading at 23 times earnings. That is almost double historical valuations.

But technology stocks are trading at 29 times earnings, even higher for software and semiconductors. Joining me now, technology analyst Ashok Kumar.

Good to have you with us.

ASHOK KUMAR, U.S. BANCORP PIPER JAFFRAY: Thank you.

DOBBS: These valuations -- as we look at them, before we turn to the market today and going forward -- these valuations are obviously troubling to investors. Are you troubled by them still?

KUMAR: Most definitely. While the price in the price-earnings ratio has come down, the earnings have fallen faster, so while the stocks are retesting their April lows, our devaluations are not.

DOBBS: Ashok, I hope you can see these numbers. I'd like to see those if we could put those up, please, again, thank you. Communication equipment sector -- these are the P-E ratios for these sectors of technology -- 55. Computer hardware, still 43. Computer peripherals, still 45. Software, 43, against an S&P 500 of 23, despite what has been a 60 percent rundown on the broader market and the Nasdaq. This is astounding, isn't it?

KUMAR: Most definitely, and, you know, these stocks continue to trade at inflated earnings valuation multiple on uncertain calendar '02 estimates, so there is still downside risk for most of these stocks.

DOBBS: And in terms of the downside for '02, while we're living this year for a while, we keep having greater earnings warnings. They keep piling up. Tell us when the light at the end of the tunnel becomes a bright horizon.

KUMAR: I think so far we are seeing very few signs of a real recovery in the domestic market for technology companies. We continue to see softness in both Europe and Japan, and compounding the fundamental weakness is the currency issue, the strength of the dollar against the euro, the pound and the yen.

So the bottom line is, you know, once we establish the flow for earnings estimate for this year, it's likely that we will have to go in and trim estimates for next year. And the backdrop being over 20 percent of the IT spending over the last five years was in excess of demand, so we would need to go through this structural adjustment period before we embark upon a secular growth rate.

DOBBS: Did you say 20 percent?

KUMAR: Exactly. About 20 percent, which amounts to about $40 billion.

DOBBS: Whoo. That's a lot of work-off. At this juncture, how long do you think that adjustment will require?

KUMAR: Today, if you look at capacity utilization among the back and infrastructure markets, such as storage, which was a pre- indication of the EMC announcement, utilization levels are as low as 40 percent. If you look at the inventory position in the IT infrastructure market, we have to measure it in quarters, not weeks, so the burn-off period could last through the end of this year before we see sell-through equal to end demand.

DOBBS: Well, I almost hesitate to ask this question, but is there anything that you think an investor should get excited about within the broad technology sector?

KUMAR: I think the overall IT spending environment remains uncertain, so we are unlikely to see any recovery in the second half of this year. So we essentially are looking at calendar '02 in terms of earnings recovery.

And in terms of the subsector, we remain positive on short term, is the PC market. Given that the PC market was the leading sector in going into the downturn, we expect that sector to lead us out of the downturn as well, followed by wireless and IT infrastructure. So we remain positive, initially, on the PC sector, followed by wireless and IT infrastructure companies.

DOBBS: But I sort of get the idea, Ashok, you prefer cash at this juncture.

KUMAR: Most definitely.

DOBBS: OK, Ashok Kumar, thank you very much for being with us.

KUMAR: Thank you.

DOBBS: Still coming up here, President Bush, well, he was permitted to mix a little business with pleasure on this, his 55th birthday.

Also, we'll take a look at Intel's prospects following the profit warning yesterday from Advanced Micro Devices. Craig Barrett is our focus in tonight's "CEO on the edge."

(COMMERCIAL BREAK)

DOBBS: In tonight's "CEO on the edge," Craig Barrett of Intel. Barrett is sticking to a multibillion dollar budget for new plants and equipment. He believes that tech spending will bounce back, and soon. But investors are now worried about Intel's prospects, and whether the chip giant can meet its own relatively sunny forecast.

Bruce Francis has the report.

(BEGIN VIDEOTAPE) BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It's like waiting for the other chip to fall. Advanced Micro Devices warns that revenues and earnings will miss expectations by a wide margin. Some analysts think Intel is next.

PAUL LEMING, ABM AMRO: We've seen a lot of data points, all of which seem to indicate -- would seem to indicate that Intel is not going to make their numbers for the quarter when results are announced in about 10 days.

FRANCIS: It didn't help that Intel has left the bar fairly high. Back on June 7th, Intel said that second-quarter revenues would be within the range previously set, or slightly below $6.5 billion. In a season of devastating warnings, Intel stands out, especially in light of AMD's revelation. But some investors are wary.

DAVE NADIG, OPENFUND: I think Intel -- their last time they spoke at their mid-quarter update, really whitewashed things. They said things were going great, but one of these companies hasn't been telling the truth, and I think AMD is the one playing straight.

FRANCIS: Intel declined to comment, citing its quiet period prior to its earnings release on July 17th.

Despite gloom and doom, CEO Craig Barrett has maintained an aggressive $7.5 billion budget for new plants and equipment, a huge bet that tech spending will come back, and soon.

Barrett remembers how the company mistakenly cut spending during the Asian crisis, only to be left with too little capacity when demand roared back in 1999.

KUMAR: I think they're using this downturn to better position themselves, coming out of the downturn, from a cost-competitive position.

FRANCIS: After sticking with those bold spending plans for so long, Intel might not have a choice but to spend, even when its customers are not.

LEMING: They have absolutely been alone this year in not cutting back capital spending. I think management's painted themselves into a bit of a corner now.

FRANCIS: As for stock, it's been painted into a tight trading range for several months, and it's down more than 60 percent from its all-time high. The company is calling for a better second half of this year, but that's not saying much. Beyond that, Intel's biggest bets are on Itanium chip, which recently won a key endorsement from Compaq. But as with any new Intel chip, early versions aren't converting many users from competitors like IBM and Sun.

NATHAN BROOKWOOD, INSIGHT 64: From my perspective, what Intel needs more than anything else right now is time for its strategies to play out.

(END VIDEOTAPE)

FRANCIS: And right now, it's not clear if battle-weary investors have that kind of patience. And the battle got a little more intense today, Lou.

DOBBS: In terms of the philosophy of capital investment during a downturn, that is -- well, at least, a time-proven strategy that works. To move a lot of money into the slow period, take advantage of your competitive position, where Intel is obviously the world's largest chip maker.

FRANCIS: Intel has to, because chips do not stand still. They thrive on innovation. But they are really out there alone in terms of the industry and not cutting back. Let's see if that pays off.

DOBBS: That CEO job, a lonely one, as Craig Barrett knows very well, Thanks, Bruce.

Coming up next, the president, on a very big day, returns to very familiar grounds. We'll tell you all about it.

And an admitted spy has cut a deal with the United States government.

(COMMERCIAL BREAK)

DOBBS: President Bush today, visiting his longtime family vacation spot, Kennebunkport, Maine. He's celebrating his 55th birthday. He played an early round of golf with his father, Former President Bush, their baseball caps marked with numbers 41 and 43, reflecting their order as president.

The current president also taking care of some business, fielding a call from Russian President Vladimir Putin. President Bush pledged to send a cabinet level team to Russia later this month.

Former FBI agent Robert Hanssen today pleaded guilty to 15 counts of spying for Moscow, the guilty plea sparing him the death penalty. Under the deal, Hanssen will provide the government a detailed account of the information he passed to the Soviet Union, and later, Russia. He will receive a sentence of life in prison without possibility of parole.

A U.S. serviceman has been arrested in Japan on suspicion of rape involving a Japanese woman in Okinawa. U.S. officials agreed to turn over Air Force Staff Sergeant Timothy Woodland after receiving assurances he would have the same legal rights as in the United States. And CNN has learned that at least one Marine who saw the alleged incident said the woman appeared to be struggling. Woodland denied he raped the woman.

Well, just when we thought the EP-3 spy plane saga with China was over, a bill has been delivered. China sent the State Department that bill for $1 million. Chinese officials say that should cover items such as personnel cost associated with the return of the aircraft, but that charge is not likely to shoot to the top of the federal government's "to do" list. And speaking of the bill, a U.S. official said -- quote -- "It is nice to know they have a sense of humor."

And it is expected the United States will return the favor with a bill of their own.

Coming up in the next half-hour of MONEYLINE, the rapid rise and swift decline of an Asian Internet empire. We'll look at the Web business to Richard Li.

And a commodity hits its lowest level in nearly a decade. We'll check what is happening to coffee prices.

Also, another rough week for stock prices. We'll have a read on the market from one of the best in the business, the man who predicted last year's tumble.

(COMMERCIAL BREAK)

DOBBS: In tonight's headlines, stocks' prices plunge on Wall Street. The Dow drops more than 2 percent on the session, the Nasdaq dropping more than 3.5 percent. A mix of profit warnings and a weak June unemployment report weighing on the markets. The economy lost 114,000 jobs last month. That's just about double what most economists had expected. And the first Dow component releasing quarterly results. Alcoa topping Wall Street estimates by 4 cents a share.

Well, taking a look at the activity on Wall Street today, both the Dow and Nasdaq falling at the open. They continued to fall throughout the session. Kicking off the day: the June jobs report indicating the economy continues to struggle. Add profit warnings from EMC and Advanced Micro Devices, and the idea of a summer rally is being just a bit delayed, at least for now.

The Dow dropping 227 points, IBM the biggest loser on the day, down more than $5.50. Chip and software stocks leading the technology decline, the Nasdaq dropping nearly 76 points finishing just above 2,000. On the Big Board, declining issues beating out advancers by a crushing 2-to-1 margin. Where the first week of the third quarter, both the Dow and the Nasdaq finished lower. The Dow down nearly 2.5 percent on the week, the Nasdaq for the week down more than 7 percent.

In tonight's "MONEYLINE Movers," Interstate Bakeries surging more than $3.25 a share. The maker of Hostess Twinkies and Wonder Bread reporting a 94 percent rise in fourth quarter profits, earnings doubling estimates.

BSquare dropping more than half its value on 10 times its average volume. The software company skidding after warnings sales will be weak because of an expired deal with Microsoft. And Starbucks today down nearly $1.50, after reporting disappointing same stores sales. Merrill Lynch and J.P. Morgan also downgrading the stock. The stock has fallen 20 percent from its 52-week high. Sales at Starbucks may have inched higher, but wholesale prices of coffee are dropping to eight-year lows because of strong supplies from the world's largest coffee producer, Brazil. Brazil is expected to reap nearly 20 percent more than previous estimates of the crop. That, coupled with a weak Brazilian currency, pushing prices sharply lower. Wholesale prices may have fallen, and there is little sign of lower prices at the counters of Starbucks and other retailers.

The price of oil climbing for the third straight session on the prospect of rising demand. Earlier this week, OPEC decided to leave production levels unchanged and to possibly cut production later this year. Light sweet crude adding $1.19 today.

My next guest has an impressive track record. Skeptical of technology when it was booming, he now points out the markets historically bottom five months ahead of the economy. If the markets have hit their lows in March and April, the economy should start to pick up by September and October.

Jeremy Siegel, professor of finance at Wharton, good to have you back with us.

JEREMY SIEGEL, WHARTON SCHOOL OF BUSINESS: Good evening, Lou.

DOBBS: This is a -- well, it is a very consoling and warming idea that we are near the turnaround in terms of the economy based on your studies -- yet today we have a lot of problems in this market. What do you think is going to happen here over next couple months?

SIEGEL: You are right. The historical studies do show a five- month lag, and that is pretty tight. Eight of the nine recessions four to six months after the stock market has bottomed, we have seen the bottom of the economy. So basically, what I say is the stock market is telling us the economy is going to hit its low at the end of the third quarter, and start rising in the fourth quarter. If it does not do that, then there is still some disappointment that certainly going to be felt in the market.

DOBBS: Then we have go back create a new forecast, right, Jeremy?

SIEGEL: Absolutely.

DOBBS: Let me show you, as we have showed these price multiples to our viewers earlier in the broadcast, but I want to go through these in terms of the technology sector -- communication equipment, still, after this huge selloff, unprecedented selloff in the Nasdaq, we still have a multiple of 55 for communication equipment. Forty- three for computer hardware, peripherals, 45, software, 43, the S&P 500 right now at 23.

We have a little more work to do in this market, don't we, to work out some excess?

SIEGEL: It is interesting, because a year ago in March when I warned about the valuations in technology stocks, they were at 70 times earnings.

DOBBS: Right.

SIEGEL: And what has happened is that the stocks have gone down around 70 percent, that has been the fall in Nasdaq, and their earnings have dropped about 70 percent. So we still have 70 times current earnings.

The only thing that is consoling, Lou, is the fact that these are clearly depressed earnings, and in fact, Wall Street is expecting 2002 to -- on the technology issues, to have earnings more than double what we have this year. But certainly, if you don't think that there is going to be a dramatic improvement in tech earnings, these stocks have a lot of downside left.

DOBBS: Well, let me ask you, professor, do they have a lot of upside? Should we be betting on leading earnings? Should we be projecting these earnings out at the end of 2002 and working a multiple from there, or should we be scared?

SIEGEL: Well, I would -- I would still be very cautious. Because even on the basis of 2002 earnings estimates in the technology sector, and I've just reviewed that this afternoon, they are still selling at 30, 35 times earnings. Now, certainly that is much more reasonable than it was last March, but that is not cheap, from a historical perspective.

DOBBS: So give your judgment, Jeremy. What kind adjustment do we have to see? What percentage from here in terms, right now, primarily in technology?

SIEGEL: Well, certainly it is always very hard to call on the short run on the market. I think that the March lows that we saw are going to hold certainly for the Nasdaq. Certain sectors we see in the networking stocks have actually broken down below their lows.

I think they are going -- I think they are going to hold, but I do not see any robust recovery in those stocks, and I am strongly advising anyone from overweighting the technology sector in their portfolio.

DOBBS: We've got about 15 seconds here, Jeremy, your best counsel to investors right now in this market with your view of what lies ahead.

SIEGEL: Got to be patient. I don't think it's going to be great year for returns. Don't jump into any sector that seems cheap. Keep well diversified. I think that is going to be the safest bet.

DOBBS: Jeremy, thanks for being with us. Good to see you.

SIEGEL: Thank you very much, Lou.

DOBBS: The technology turmoil stretches well beyond this country. We will be checking out hard times as well for one of Asia's high-profile entrepreneurs. Also, today's market plunge: We'll have a roundtable discussion on what lies ahead for stock prices.

(COMMERCIAL BREAK)

DOBBS: In tonight's "Powering America," independent electricity producer, Calpine, reaching a deal with Pacific Gas & Electric for debt repayment. Bankrupt PG&E owes Calpine more than $250 million. That deal requires PG&E to repay Calpine ahead of other creditors, meaning Calpine should receive a lump sum payment as soon as PG&E finishes its reorganization. Shares of Calpine soaring on the news today, up $5.26 a share.

In other corporate news, General Motors today recalled about 10,000 model year 2001 trucks to repair a seat belt problem. No injuries have been reported. GM is notifying owners.

The NCAA has signed a $200 million deal with cable sports channel ESPN: an 11 year contract covering television rights for women's college basketball. That deal a far cry from the $6 billion, however, that CBS paid two years ago for the men's tournament.

Most technology investors are familiar with a dramatic slump in fortune, but the bleeding is certainly not limited to U.S. markets. One of the world's most high profile investors, Hong Kong billionaire Richard Li has seen his brainchild Pacific Century Cyberworks hemorrhage money, and lots and lots of it. But the announcement restructuring this week has caused a flurry of interest in the stock.

Kitty Pilgrim has that story.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Richard Li, the 34-year-old son of the most powerful businessman in Hong Kong, Li Ka Shing, seduced the financial world. His company, Pacific Century Cyberworks, which started as an Internet company based in Hong Kong, made some brilliant moves, including the acquisition of cable and wireless Hong Kong telecom.

It was also listed on the New York Stock Exchange. But with the tech selloff, it lost more than 80 percent of its value in Hong Kong, and ADRs of the company trading in New York have followed suit. Yet analysts are still optimistic.

DAVID HALE, CHMN., CHINA ONLINE: The company will be a survivor. And if there is steady growth in the telecom business in Hong Kong, then this company could eventually have a gradual recovery in the share price, and we also should not rule out the potential for him of eventually developing the Internet business.

PILGRIM: Moves this week reinforced investor optimism. This week, Pacific Century Cyberworks announced a major restructuring, scaling back its satellite delivered entertainment information network, Network Of The World, or NOW. The company reported an $886 million loss in March. So this week Li announced plans to cut spending from $1.5 billion to $100 million, laying off 40 percent of the Internet workforce and refocusing operations in Hong Kong, rather than moving ahead with expansion plans.

LARRY WAN, THE YANKEE GROUP: There have been always ups and downs about this company. The people's (UNINTELLIGIBLE) money machines and the people just go crazy for the (UNINTELLIGIBLE) Chinese.

But his only problem is he's (UNINTELLIGIBLE) to understand more about the industry about the Internet.

(END VIDEOTAPE)

PILGRIM: Now the verdict is still out on the company, but there are no end of rumors and one is PCCW has hired a head hunter to find a new chief executive with telecom experience. But there are no signs yet that Mr. Li may step down -- Lou.

DOBBS: Mr. Li getting his money from his father it's been quite an expensive tutorial for Richard Li.

PILGRIM: Part of the whole equation is the deep pockets behind this company.

DOBBS: Terrific. Kitty, thanks very much. Kitty Pilgrim.

Coming up next here on MONEYLINE, high rollers taking a big bite out of casino profits

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DOBBS: Casino, gaming stocks tumbling today following a warning from Harrah's Entertainment. Harrah's saying profits will be below expectations as the slowdown hitting the hotel industry has spread to casinos. Harrah's blames a lower than expected take at gaming tables as well.

The biggest drag on profits at its Rio casino in Las Vegas where some high rollers apparently won very big. Harrah's telling us it takes a lot of $2 players to make up for someone walking away with $2.5 million. Harrah's falling more than $6 a share today. The rest of the sector also sharply lower.

Just ahead here, a dramatic day in the markets following the June employment report, another round of profit warnings. We'll be talking with our very best about what we can expect. Stay with us.

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DOBBS: Disappointing earnings news, a weak employment report pushing the Dow to its lowest level since April. Now to talk more about today's selloff and what we are likely to expect, we are rejoined by Ashok Kumar of U.S. Bancorp Piper Jaffray, Maria Ramirez, international economist, and our own Jennifer Westhoven from the New York Exchange and Peter Viles, right here from business news central in New York.

Let me start with you, Maria. At this juncture, what do you think this market is going to do? Have we just witnessed a holiday sort of malaise and we are going to pick things up Monday? You never been asked for this short a forecast, have you?

RAMIREZ: I always have an answer, Lou. I do think that the earnings are going to be scrutinized very closely, and I think in recent weeks we are finally getting some truth out of, you know, the corporate world in terms of how bleak the picture looks for the quarter that we started also, so I do think that investors are going to pay, you know, much more attention to what's happening in the next couple weeks on the earnings side.

DOBBS: Visibility is improving, we just may not enjoy the view, is that it?

RAMIREZ: We may not like the results, that's unfortunate.

DOBBS: Jennifer, let me turn to you: what was the mood there as we wrapped up the day and week amongst the specialists and the traders there?

WESTHOVEN: Generally, they were talking about the fact that they were glad that there wasn't any panic in the air today, and they were also really trying to stress the fact that they thought it was institutional investors not selling today, that today was really all about retail, investors, and that's the big players were keeping their hands on their hips and they weren't out there selling heavily today.

DOBBS: Ashok Kumar, should we be -- should we be enthused by that view?

KUMAR: I think the earnings preannouncements were not necessarily a surprise, it's just the magnitude of the shortfall. I think overall the economy is treading a tightrope between slow growth and recession. The U.S. consumer market has held up fairly well. However, with the deteriorating labor market, the spending growth outlook remains uncertain.

DOBBS: Uncertain -- Peter, after watching your report, if history is prologue, we have some problems here?

VILES: Certainly do have some problems, but we always should remember we're coming from a position of great strength in this economy. Talking to Maria earlier, over the past 18 years, two quarters of negative growth. We have never had that kind of a situation.

So there is a great deal of strength here. We know this economy can perform better than it is. Now, whether it heads into a recession or not, it is capable of much better growth. But there is a lot of strength underlying this economy, a lot of problems that we don't have to worry about right now that we have had to worry about in the past.

DOBBS: Is that enough, Maria, to enthuse investors? The sort of strength, or lack of panic, as Jennifer pointed out, all of the negatives that Ashok was talking about in terms of technology sector, everything is balanced, is there any enthusiasm building anywhere here?

RAMIREZ: Well, I think that the good side is that investors throughout this decline that we have seen in the last year have been, you know, relatively patient. There has not been really a sellout, any panic. I do think that the money coming into the marketplace certainly has been going more toward fixed income, cash and preservation of principle, and I think that's cautious and I think that's probably the best thing to do in the next few months.

DOBBS: Ashok, at this point, give us your view on what we can expect over the weeks and months ahead in terms of the overall market? I'm going to ask you to step beyond just technology, give us your total view.

KUMAR: I think the conventional view at the beginning of the year was, once the Fed cuts rates, the economy would rally and the earnings would pick up. The Fed has been more accommodating than anybody has expected. However, thus far it seems to be pushing on a wet string.

So, the outlook continues to remain, you know, uncertain, and earnings visibility remains key for stocks selection within the technology sector, and thus far, you know, we do not have any earnings visibility.

DOBBS: Any better view down there at the New York Exchange, Jennifer?

WESTHOVEN: Well, next week there is a lot of earnings, but a lot of them are coming from technology companies like Motorola, Yahoo! and Juniper. Also, we are not going to get any reassuring signals in terms of economic signals until later, because there is not any numbers until Friday when we get some consumer data out there.

DOBBS: Peter, you get the final word.

VILES: I think when the last Fed rate cut came, we thought that maybe this would be the last for a while, now there is discussion it will not be the last for a while, maybe more after the next one.

DOBBS: Thank you very much, thank you all.

And coming up next here on MONEYLINE, we're going to take a look at your e-mails as well as "Ahead of the Curve."

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DOBBS: Looking ahead to next week: Expect earnings reports from Motorola, Yahoo!, General Electric, Juniper Networks and Redback, among others. More economic reports will be released at the end of the week. The producer price index for June will be released, Friday, retail sales, and we will have a preliminary read on the University of Michigan's consumer sentiment for the month of July.

Now let's take a look at your comments. Congressman Bernie Sanders' appearance here last night on the World Trade Organization prompted a lot of viewer comment. Overwhelmingly they supported his view against China being admitted into the WTO and his belief that the United States should not have permanent normal trade relations with China yet.

Jeannie from Ohio wrote: "Congressman Bernie Sanders is the only person who has told the truth about this mess."

Viewer Steve Louscher: "I strongly agree with the congressman. There should be no favored nation status with China."

Brad from Georgia: "I completely agree with Bernie Sanders' description of a sympathetic media aiding in disseminating biased information to the American people."

But of course, there were those who disagreed with the congressman. For example, Alex from New York: "I was appalled by the narrow-minded view of U.S.-China relations displayed by Bernie Sanders on your show."

The WTO is expected to vote on China's entry this November at a conference in Qatar. We would love to hear from you. E-mail us at moneyline@cnn.com.

And that is MONEYLINE for this Friday evening and this week. We thank you for joining us. Have a very pleasant weekend. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" is coming up next.

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