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Lou Dobbs Moneyline
Investors Face Tough News
Aired July 10, 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, HOST: Tonight on MONEYLINE, stock prices sink on Wall Street, a triple digit loss for the Dow, while the Nasdaq tumbles below 2000, to its lowest close since April.
More tough news for investors: Corning and Xerox eliminate their dividends, dealing a serious blow to the wealth of shareholders.
A desperate company taking desperate steps. We'll look at Lucent's latest restructuring plan, and what it means to those who own the stock.
Also, AT&T loses one of its largest shareholders. John Malone leaves the company's board of directors after Comcast bids for AT&T's cable business.
Good evening. We begin tonight with a flood of red across Wall Street, investors turning their back on yesterday's rally to sell stocks today, driving the markets, in fact, to their lowest levels in nearly three months.
Jennifer Westhoven has the story from the New York Exchange.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): A sharp sell-off on Wall Street on news of more disappointments and further job cuts. The losses wiped out Monday's rally and put fear back into investors.
PATRICK MURPHY, SPEAR, LEEDS & KELLOGG: Today what we saw on the floor is hedge funds coming back to the market, shorting with full guns, selling stocks short to hedge against market drops. And we saw that in big caps and even in small cap stocks today.
WESTHOVEN: Bad news from Xerox and Corning, dismissed at first, turned into stumbling blocks. Xerox and Corning said they would rather hold onto their cash than give it out as dividends. And Corning withdrew its forecasts for the next year and a half. It said the industry slowdown could plague it for another year to 18 months. Corning will close three plants and cut another 1,000 jobs.
And more companies are cutting costs by sending workers onto unemployment lines, raising fears about the economy. Nearly all the reassuring news today was countered by something unnerving. Word of a $2.7 billion merger of oil drillers started a rally in that sector that fell apart by the closing bell.
And positive comments from an analyst on Home Depot weren't enough to help retailers, which were hit by a warning from Linens & Things. Chips and financial stocks also fell. Technology was hit hardest, with the Nasdaq falling more than 3 percent, down 63 points to 1962. The index's break below 2,000 is very worrying to analysts who follow chart patterns. They say it could signal a breakdown back down to the lows.
The Dow Industrials also fell, raising worries it could be headed back to 10,000. The average dropped 123 points to 10,175.
LINDA JAY, LABRANCHE & CO.: A lot of people saying that we need a positive catalyst to get this thing off and running. Perhaps we'll get that in some earnings, perhaps tomorrow. I mean, so far, there's just not a lot of good stuff going on.
(END VIDEOTAPE)
WESTHOVEN: Tech companies Yahoo! and Motorola are due to report results tomorrow, but both are in the weak tech sector. You're hearing the words "summer rally" thrown around a lot less on the trading floors -- Lou?
DOBBS: Jennifer, what was the sentiment at the end of the session today amongst the specialists, the traders?
WESTHOVEN: Most of them said they were just disgusted, they were throwing words around like that. They were using words that I probably wouldn't want to say on a family channel. Just really unhappy with the markets being down.
The one thing they're looking for is that light volume, but that's been going on for so long now, they're not saying that's much of a savior at this point.
DOBBS: Jennifer, thank you very much. Jennifer Westhoven from the New York Exchange.
Some late news after the closing bell from Compaq Computer, the PC maker, warning it sees lower revenue than originally forecast, but Compaq said it still plans to meet its earnings estimates of 4 cents a share. The company also announcing it was raising its total of job cuts this year to 8,500. It has already laid off 3,500 people so far this year. Compaq saying it would take nearly a $500 million charge, primarily related to those cuts and restructuring. In after hours trading ,Compaq has actually moved up a little, up 34 cents.
Investors found red all across Wall Street today, but most of the losses on a percentage basis were on the Nasdaq. The Nasdaq dropped below 2000 for the first time in three weeks today. Greg Clarkin brings us up to date from the Nasdaq marketsite.
GREG CLARKIN, CNN CORRESPONDENT: And, Lou, it was a nasty combination for investors in the Nasdaq. You had the profit warnings, you had the big setback in the biotechnology area. And then on top of that, you had what traders call just an overwhelming lack of positive news in a marketplace, anything to spur buyers on.
So what we saw today was the Nasdaq losing 63 points on the day, now close today at 1962. That's the lowest closing level since April 17th. The losses were widespread today, let's take a look at some of the sectors that felt some of the selling pressure.
The Amex Biotechnology Index down 5.6 percent, Goldman Sachs down 5.2 percent, Goldman's Hardware Index down 4.9, Networking stocks, as measured by the Amex Networking Index, down 4.7 percent.
Let's take a look back here at the wall at some of the specific issues today -- give you some idea of what the damage was.
Let's start with the biotechnology sector, this was (UNINTELLIGIBLE). This company was developing an asthma drug along with Genentech and Novartis. The FDA dealt it a setback today. Take a look at the stock, off 44 percent. That company was expected to see revenue from this drug sometime in 2002. That will not be the case now. And that stock almost halved on the day.
Apple Computer down almost 7 percent. Juniper Networks we saw a widespread selling in anything related to the fiber optic business, the networking business overall. And Juniper among those stocks that was hit hard, down 10.3 percent.
Semiconductor stocks also weak. PMC Sierra down 10.4 percent. So Lou, today basically, all the sectors were down. We saw widespread selling, and things really weakened about mid point in the afternoon. Around 1:30, 2:00, we saw the volume spike up a little bit, and the selling kick in and driving the Nasdaq to those lowest closing levels since April 17th -- Lou.
DOBBS: Genentech and the biotechs really driving this market lower today, Greg?
CLARKIN: Exactly. That setback from the FDA affected not only those three companies involved, but also some other companies that were developing similar types of drugs, and also analysts say, you can mix in a little profit taking in the biotechs, and that really made for a nasty mix.
DOBBS: We're right out of support level at 1960. What's your best judgment?
CLARKIN: Exactly, a lot of analysts said 1960 to 1975, was the key support level. If it drops any further below that, they say in the high 1860s is the next support level. And the based that on kind of intraday lows that were set back in April.
DOBBS: Greg, thanks. Greg Clarkin from the Nasdaq marketsite.
Well, Corning and Xerox, the latest companies to join what is a growing trend that is certainly not popular with investors. The trend concerns dividend and their elimination. Allan Chernoff on the corporate accounting change that has world impact on investors.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): In the rush to conserve corporate cash, corporate America is slashing dividend payments at the fastest pace since World War II. S&P 500 companies chopped dividend payments by 7.1 percent during the first half of the year compared to the same period last year. So far this year, 42 public companies have entirely wiped out their dividends. Sixty companies did it last year.
ARNOLD KAUFMAN, S&P OUTLOOK: Dividends seem to be vanishing. Fewer and fewer companies are paying dividends these days. Many of those that do pay dividends have been cutting them or omitting them more recently.
CHERNOFF: The trend has been in the works for more than a decade. Since companies like Microsoft and Oracle, which have never paid dividends, became stars of the Nasdaq. In 1990 S&P 500 companies paid out 57 percent of their earnings per share in dividends. By 1995 it was down to 41 percent. And, last year S&P 500 firms paid out only one-third of their profit as dividends.
That has pushed the dividend yield on the S&P 500 steadily lower. 1987 was the last time the yield was over 5 percent. Today the S&P 500 yield stands at only 1.28 percent
NAVIN CHOPRA, NYU STERN SCHOOL OF BUSINESS: They just can't afford to pay dividends. The earnings aren't there. It's the reason why the dividends are low that's important, not the dividends per se.
CHERNOFF: While Corning and Xerox saw their shares fall Tuesday, some companies that have slashed dividends have seen their stocks rise. Insurance firm Safeco chopped its dividend in half on February 7th, conserving $95 million a year. Since then the stock is up 14 percent.
(END VIDEOTAPE)
CHERNOFF: Keep in mind dividends are taxed at regular income tax rates, as opposed to the lower capital gains rates. But, dividends are not completely out of style. After the bell Procter & Gamble said it is raising its quarterly dividend by 3 cents a share to 38 cents a share -- Lou.
DOBBS: Good for P&G. Allan Chernoff, thanks, Allan.
Another widely held company taking drastic measures today. Investors have seen Lucent technologies decimated over the past year, today Lucent today unveiled another new plan, this one designed to streamline its faltering business. Fred Katayama has the report.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): While many employees at Lucent faced a deadline Tuesday of deciding whether to voluntarily retire, their employer took another big restructuring step. Lucent says it'll cut 30 percent of its top managers. That's about a hundred jobs.
And it's streamlining five business units into two: Wireline and Wireless. Its optical networking, data networking, switching systems and software businesses will become the Integrated Network Solutions Group. It'll serve Wireline businesses such as long-distance carriers and baby bells. Its Wireless business will become Mobility Solutions.
Lucent says it is reorganizing its businesses to match the way its customers buy equipment, given that the likes of Verizon and AT&T now run their wireless divisions separately.
Analyst Steve Levy says the move will help Lucent focus on product development.
STEVE LEVY, LEHMAN BROTHERS: One of the criticisms that we've had at Lucent in the past is that Bell Labs can invent things but, for some reason, Lucent has a business process that doesn't do a good job of commercializing those inventions. I think when you have a more focussed management team, that commercialization process should go better.
KATAYAMA: Since Lucent announced its restructuring program in January, it has spun off its chip business, and has begun cutting 10,000 workers with plans to shift another 6,000 to contract manufacturers.
ARI BENSINGER, S&P EQUITY: Lucent has a tremendous cost structure, and it has a difficulty of restructuring during a weak telecom environment, an environment that will probably be down mid- teens, carrier spending, in this year. And that is really the difficulty at looking at Lucent's turnaround story, is executing during this difficult environment.
KATAYAMA: Analysts note that Lucent has focussed on restructuring after acquisitions talks collapsed between Lucent and France's Alcatel in May.
(END VIDEOTAPE)
KATAYAMA: And analysts say Lucent needs to sell its fiber-optics business and some plants to raise cash, and find a replacement for Chairman Henry Schacht, who has been in the corner office since last October -- Lou.
DOBBS: An office he tried to escape. They also need, Fred, to find a way to drive that stock above $6, right?
KATAYAMA: Right. That stock has really been at a very low level. One of the other problems, Lou, is, as you know, their debt. It got $5.4 billion as of March 31, they got to lower that.
DOBBS: Absolutely. Fred, thanks. Fred Katayama.
A merger today in the energy business: Amerada Hess agreeing to buy Triton Energy, paying 2.7 billion in cash, $45 a share. This as Amerada moves to boost its exploration and production business. Both companies' boards have approved the transaction, it's expected to be completed in the third quarter. The market reaction: Amerada Hess losing just over $2 a share, while Triton gained $14.5 on the day, gaining powerfully on that merger news.
In tonight's "Powering America": a mixed picture when it comes to electricity and natural gas utilities. As energy stocks find favor with investors, state regulators are investigating price gauging. Here now to talk about how all of these issues are affecting his company and the industry is Chuck Watson, he is the chairman and chief executive officer of Dynegy. Good to have you with us.
CHUCK WATSON, CHAIRMAN & CEO, DYNEGY: Thank you, Lou. Good to be here.
DOBBS: Chuck, you -- let's start with California, where the crisis, where it is a crisis, a political crisis, an energy crisis. You're accused, your company and others, of as much as $15 billion in overcharges. What's your reaction to that?
WATSON: Well, first of all, Lou, I think for the last several months, we've been working very hard with California and trying to find a solution to the issue of shortage of supply, poor infrastructure development and hopefully a mitigation of demand. I think the latest noise about price-gouging and all these claims, big numbers thrown around, we didn't believe they had any justification for them -- and guess what happened.
As you know, today at the settlement conference, the judge comes out and says, it's not only not 15, it's probably not even one. And that has not surprised us, that's in the industry news. Some of these numbers didn't have any basis of fact anyway.
DOBBS: At this juncture, there is so much toxicity, so much poison in the air between the generators, the power companies, and the state of California. Will you ever get to business as usual?
WATSON: You know, I think we already are. I mean, yes, there's lot of noise out there, but I want to say, I think the companies and the state are working very hard to try to fix this problem in a genuine interest.
I think unfortunately, there's a lot of politicizing of the event and for whatever gain that might get anybody, but I really think that the industry in the state and the utilities out there are working real hard to make sure that we don't have any more problems in California.
DOBBS: Are the problems resolved? Has the market worked?
WATSON: You don't go 15 years without building supply and creating that kind of a supply-demand imbalance and fix it in a few months. I do think, though, there is clear evidence that some price -- the price increase that's been implied in the West and much less in California, you know, combined with other conservation measures, you know, the demand in May to May and June to June is down some 11, 12 percent.
So, the market was already working, and it is working. Prices have come down some 66 percent in gas and about 50 percent in power.
DOBBS: And the implication for your company, Chuck?
WATSON: Well, the implication for our company, Lou -- from the very beginning, we said it really doesn't have a tremendous impact on our financial earnings. You know, Dynegy's business is about 4 percent in California.
So, most of our focus has been outside the state of California and trying to grow that business. We've done a pretty good job of that in the last 15, 16 years. We are up some 35 percent annual growth rate. We are up about...
(CROSSTALK)
DOBBS: ... that figures -- that figures out to be a pretty good rate?
WATSON: That's a pretty good rate, I'll take that. And last year was a little over 200 percent. This year, we're looking at 35 again. So, the company has got a tremendous capability and the network that we're continuing to expand and grow.
DOBBS: Your acquisition strategy, or you're going to continue to be aggressive?
WATSON: Yes, we will. We see some tremendous internal organic growth opportunities, but we also see some areas that can logically fit with us and take us to another level as well.
DOBBS: Chuck, thanks for being here. Chuck Watson.
WATSON: Appreciate it. Thank you.
DOBBS: Thank you.
Well, the satellite business under review now on Capitol Hill. Tomorrow, a Senate subcommittee plans to take a look at a 1998 decision by Congress that shifted power to licensed satellite sales away from the Commerce Department over to the State Department. That decision affects thousands of jobs, billions of dollars, and some believe U.S. national security.
Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Historically, the Chinese were pretty good at sending up rockets. Satellites, however, turned out to be another matter. Two U.S. companies, Hughes Space and Communications, now owned by Boeing, and Loral Space and Communications tried to help, giving advice that some believed could also help the Chinese launch long-range ballistic missiles.
Critics bitterly attacked the Clinton administration, charging its export policies had placed the U.S. in peril. Without much debate, an angry Congress transferred authority over satellite sales from the business-minded Commerce Department to the more cautious, national security-minded State Department.
The satellite industry says it has been crippled by the resulting drag on international sales.
JOHN DOUGLAS, AEROSPACE INDUSTRY ASSOCIATION: Our market share dropped from about 75 percent of the commercial communication satellite market globally to about 45 percent.
O'BRIEN: That translates into thousands of jobs and nearly $20 billion a year in lost revenue.
REP. HOWARD BERMAN (D), CALIFORNIA: Congress made a mistake. We reacted too quickly to the news of the day and we did something that essentially harmed our infrastructure and our economic strength.
O'BRIEN: The news of the day was all about Wen Ho Lee, the Los Alamos scientist once suspected of passing on top secrets to the Chinese. Lee was later cleared. Congressman Berman is urging the licensing authority for the sale of satellites now be transferred back to the Commerce Department and away from State Department red tape. That might get the industry back on track, but there is opposition.
SEN. RICHARD SHELBY (R), ALABAMA: I would be very careful. I think we ought to study any issue that has national security ramifications and remember that everything shouldn't be sold just as a commodity.
(END VIDEOTAPE)
O'BRIEN: Under the legislation being introduced by Congressman Berman, both the State Department and the Defense Department would have the right to review and repeal to the National Security Agency any satellite sale it doesn't like. And Lou, in picking up votes here, that could make a big difference.
DOBBS: OK, Tim, thank you very much. Tim O'Brien from Washington.
Still ahead here on MONEYLINE: find out why a legendary bond trader is back in the pits and loving it, after a slight detour into the new economy. Also, the street battle that's threatening to shake up Jamaica's lucrative tourist industry. And we'll hear from former Defense Secretary William Cohen, as the debate over military spending begins to rage on Capitol Hill.
(COMMERCIAL BREAK)
DOBBS: President Bush today announced plans to nominate former Minnesota banker Mark Olson to the Federal Reserve. If confirmed by the Senate, Olson would fill one the two vacancies on that board. Olson most recently served as staff director of the Senate Banking Committee Security Subcommittee. He was also president of the American Bankers Association. This is the president's second nomination to fill a Fed vacancy. Last month, he named Tennessee banker Susan Schmidt to -- Susan Schmidt Bies to the board.
President Bush today visiting New York City for the first time since he took office. Mr. Bush stopped at Ellis Island. He led 29 new Americans in the Pledge of Allegiance. He promised to push for an extra 500 million to improve service at the INS, as well as a six- month limit for officials considering immigration requests.
And later, the president went on to St. Patrick's Cathedral, where he awarded the Congressional Gold Medal to Cardinal John O'Connor, who died last year.
Marine Corps investigators today are looking into a helicopter crash that killed three and injured two others. The Chinook 46 transport helicopter went down last night in a North Carolina River during a training exercise. The crew was trying to land on the simulated deck of an amphibious ship. The Marines want to replace the Vietnam-era helicopter with the new tilt-rotor MV-22 Osprey. But problems have plagued the $40 billion Osprey program, including two fatal crashes last year.
Concern tonight about Jamaica's billion-dollar tourist industry after a travel warning from Washington. Government troops in Jamaica today moved into the Tivoli Gardens in the Jamaican capital of Kingston: 21 people have died there in clashes between police and gangs backing opposition politicians.
This new U.S. travel advisory warns tourists to stay out of downtown and western Kingston. So far, there have been no reports of tourists leaving Jamaica and only isolated demonstrations in the resort towns of Montego Bay and Ocho Rios.
The Pentagon reportedly gearing up to ask Congress for money to build a missile defense test area in Alaska. "The New York Times" reporting the site could become a command center for an anti-missile system by 2004.
Joining us now to talk about that and a few other issues, former Defense Secretary William Cohen, who is CEO of the Cohen Group, a strategic consulting firm.
Bill, good to have you with us.
WILLIAM COHEN, FORMER SECRETARY OF DEFENSE: Great to be here, Lou.
DOBBS: Now, I want to say something to our viewers. Bill Cohen, if I may -- I'm going -- is here tonight four days after hip replacement surgery, and he walked over to the set. I find that amazing.
COHEN: Well, it is amazing. I have Dr. Paul (UNINTELLIGIBLE) of the New York Hospital for Special Surgery to thank for that, their staff and all the support. It has been an incredible experience. But it tells you something about the state of the art and why it's important that we continue to invest as much as we can into medical research. We see amazing things taking place, but...
DOBBS: Well, let's talk about that for a minute. And Bill, again, I'm amazed -- four days after this. Rather than -- let's talk about medical research first before going over to some of these national security issues. Medical research right now -- and one of the hottest issues right now is stem cell research, and it has polarized political parties, churches, various interest groups.
What is -- what is your position on it?
COHEN: Well, first of all, dealing with stem cell research, President Bush has a tough decision to make, because it's not black or white, it's not liberal or conservative, it's not Republican or Democratic. But in this particular case, you have strong conservatives who have been right-to-life advocates, such as Orrin Hatch, such as Senator Connie Mack and others, who favor this research because of the impact it can have upon Parkinson's, diabetes, Alzheimer's. So millions of people could be helped by this research.
President Bush is being pulled in different directions because of the ethical issues involved, the religious objections on the part of some.
I hope he comes down in favor of devoting more research, more money for federal research into this area.
DOBBS: Has -- and I can tell you that a lot of our viewers here as well, some of the most poignant messages we've received from viewers have been from people with spinal injuries, with serious diseases, asking for help, because for them it is the difference between recovery, life and death, and the prospects of one day an improvement.
COHEN: You have to think of how far we've come with medical science, and of course, we always want to make sure that we're in charge of science and science not in charge of us. But if you think about what's been taking place just in the past few days: artificial hearts now being developed, an arm being sewn back on to a boy attacked by a shark. So many developments taking place by investing in the science and technology of medical research, including this case where one day after I had a total hip replacement I was able to walk without crutches or a cane.
DOBBS: But you're so young, one would expect you...
(LAUGHTER)
DOBBS: ... to be right up...
COHEN: Well, it's true.
(LAUGHTER)
DOBBS: Well, let's turn to this proposal for more defense spending. As you know, the Defense Department, the Bush administration seeking 329 billion of the current budget, seeking more money for missile defense, for the test sites in Alaska. Give us your judgment on that.
COHEN: It's going to be hard for the administration to prevail to get more money. The 329 billion included about 4 billion for transformation of our military plus national missile defense. There's not much leftover for additional funds, and they've said there will be no supplemental.
So Congress is going to be very judicious in terms of the allocation of that money. My guess is they'll want to put more into the human resources -- pay, housing, medical and so forth -- and wait until there's more testing done on the national missile defense program.
DOBBS: Bill, good to have you with us. Again, terrific. My compliments to your doctor and to you.
COHEN: (UNINTELLIGIBLE) name, Dr. Paul (UNINTELLIGIBLE)...
(LAUGHTER)
DOBBS: Yeah, Bill, thanks a lot. Bill Cohen.
Coming up next, the Chicago legend who bailed out of a new job in the Internet stocks to return to the roar of the bond pits. We'll have that poignant story. Also, we'll tell you who the analysts are watching as speculation grows about a new bid for AT&T Broadband and its cable business.
And a Wall Street sharpshooter will tell us where the smart money's going as earnings season is upon us.
(COMMERCIAL BREAK)
DOBBS: In tonight's MONEYLINE headlines, a triple-digit loss for the Dow, a more than 3 percent drop on the Nasdaq, both indexes hitting 12-week lows. A revenue warning tonight from Compaq for the second quarter, Compaq blaming an industry-wide slowdown and intense price competition. Also, Compaq announcing additional job cuts for a total of 8,500 this year.
Amerada Hess taking an aggressive step toward the profitable areas of exploration and production. The oil and gas company offering to buy Triton Energy for 2.7 billion in cash.
More now on the activity on Wall Street, and it was all sell-off. Both the Dow and Nasdaq suffering substantial losses on the day. Corning's warning after yesterday's closing bell set investors on edge this morning, igniting fears that were sustained throughout the session. The corporate earnings may not rebound anytime soon.
A steady decline for the Dow, that index losing more than a percent on the session. Some of the hardest hit components: 3M, IBM, Citigroup. A rough day for chip stocks and software issues as well. Heavy selling in those sectors, weighing heavily on the Nasdaq, the index dropping more than 3 percent on the day. And on the broader market, declining issues leading advancers 3 to 2.
Shares of AT&T up for a second straight day, after Comcast's $58 billion hostile bid for the company's cable assets. Comcast's interest appears to have sparked interest from several other companies, and prompted some on Wall Street to speculate about possible competing bids. Several companies topping the list of potential suitors, and they do cover several industries, among them: media, cable, software firms, and even Baby Bells.
Steve Young has the report.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): Speculation about a possible joint bid for AT&T broadband was fueled today by the month early departure of John Malone from AT&T's board of directors. Malone, chairman of Liberty Media, scheduled to be spun off by AT&T next month, faxed a letter to AT&T CEO Michael Armstrong. According to someone familiar with the letter, it said Comcast's offer for the TCI and MediaOne cable systems, now owned by AT&T, is insufficient.
Some analysts now wonder if Malone might try to trump Comcast's bid by lining up Liberty partners.
TOM WOLZIEN, SANFORD C. BERNSTEIN: Comcast opened up the doors for other bidders, if they're out there. There's been speculation that John Malone, who used to run TCI before he sold it off to AT&T and wound up on the AT&T board, that he would put together a consortium to come and bid for broadband.
YOUNG: Analysts say the most likely partners would be smaller cable systems such as Charter and Adelphia. There's also speculation about bids by Viacom, Disney and Microsoft.
Most analysts say AOL Time Warner would like to own AT&T broadband, but probably has too much on its plate already. And besides, regulators would almost certainly block that deal.
And U.S. authorities would also likely raise high hurdles for potential foreign acquirers. Many have spent so much on spectrum auctions, they probably lack the financial wherewithal. AT&T's board is expected to consider the Comcast bid for several weeks, but if another bid doesn't emerge, the board might decide to just say no.
FLOYD GREENWOOD, PRUDENTIAL SECURITIES: It's looking for a way to save face. After all, AT&T paid over 100 billion for what Comcast is now offering 58 billion. It doesn't give AT&T the control it would prefer, and it probably doesn't give AT&T the premium for the asset that it would prefer.
(END VIDEOTAPE)
YOUNG: Viacom shed its cable assets about five years ago, and some analysts say it's not likely to want to buy a system now. Disney doesn't have the management to run one. So the betting is the successful bidder for AT&T broadband will be Comcast at a higher price, a consortium, or AT&T's planned broadband IPO could even stay on track -- Lou.
DOBBS: Even its tracking stock could occur at this point, Steve?
YOUNG: That's right.
DOBBS: OK. Steve Young.
Well, taking a look at tonight's MONEYLINE movers, Factory 2-U stores falling more than 35 percent. The clothing retailer issuing a warning for its second quarter, saying it could -- it would scale back on new store openings this year as a result.
Shares of TiVo today gaining nearly 36 percent. The provider of personal television services soaring after TiVo hinted it would meet Wall Street expectations.
And Getty Images, which provides film archives to businesses, saying it's laying off 300 people and that second quarter results will fall below expectations. Getty Images has lost 31 percent of its value over the past year.
A tough day on Wall Street, as we said, investors preparing for another earnings season. And this one will most certainly be difficult. My guest tonight will help focus what investors should be watching and watching for and watching out for. Joining me, Ron Hill, director of research, Brown Brothers Harriman, and Walter Winnitzki, who is technology analyst at J.P. Morgan.
Gentlemen, good to have you with us. This is shaping up like a very, very ugly couple of weeks.
RONALD HILL, BROWN BROTHERS HARRIMAN: Indeed it is, but let's remember that the first quarter we had lots of negative announcements and the stock prices hit their low in late March, early April. And then after that, the earnings reports were actually better than expected and we had a nice rally in stocks. You may see more of that in this quarter as well.
DOBBS: So your managing expectations now, Russ?
HILL: Expectations, we've managed them pretty well, so I think maybe we can have a little surprise on the upside.
(LAUGHTER)
DOBBS: Walter, your view?
WALTER WINNITZKI, J.P. MORGAN: Well, I think we're also seeing the IT slowdown now become global. Compaq's announcement was clear evidence of that. So this is a new layer of softness, and we've got to get through that. We'll see that in the earnings reports as they come out. DOBBS: This is just what investors needed, another new layer of softness. You were on Compaq call. Give us your best interpretation of what the implications are for investors.
WINNITZKI: Well, clearly, it wasn't as bad as we all were bracing for some pretty bad news. The fact that you make your earnings in this environment is really good news. From an industry perspective, though, you take away two points. One, as I mentioned, the IT slowdown is now global, and most large companies operate globally, so we're seeing that.
And second is, this is a much more cyclical industry, and we're on the downside of that right now.
DOBBS: You've been bearish for some time. Are you more bearish now than, say, three months ago?
WINNITZKI: Well, I would say that right now, we're beginning expectations are -- have factored a lot of this stuff in. In fact, my gut tells me is that Compaq stock will probably open up a little higher because we were all bracing for a lot worse news.
DOBBS: Which you've been recommending for some time.
WINNITZKI: Correct, but I think right now, as Ron points out, expectations are -- you've got to look at where they are. But does that mean that we're going to have a quick fix? Probably not.
DOBBS: And are you recommending an aggressive buy on Compaq right now?
WINNITZKI: Well, we've always said that if you've got a 12 -- a 6 to 12 month window, this is a stock that has good value. Right now...
DOBBS: Investors now have time, if not money, certainly.
Ron, let's take a look at some of your recommendations here lately. Walter has been so bearish, he doesn't have many. If we could take a look at those -- there they are. We're looking at Applied Materials -- can you could see them there, Ron, as well?
HILL: Yes, exactly.
DOBBS: Those first two were off -- let's say 12 percent on average. Loews, you're doing very, very well. On Kohl's, down just about 7 percent. And tell us about that last stock?
HILL: BJ's wholesale club, another one of these sort of, you know, low-cost retailers, little bit like a Costco, slightly smaller. It's had nice earnings growth. We like the retail -- the consumer discretionary area in general. And just a sign of volatility, actually, until July 6th, I was actually winning on the KLA Tencor. Just the last few days have been pretty painful on that one.
DOBBS: Are you sticking with these recommendations? HILL: Absolutely. And just to (UNINTELLIGIBLE) KLA Tencor, Applied Materials, here, I think the first turn in technology will be a look for at the bottom of the food chain, and that's the semiconductor equipment makers. That's why I think you focus on that.
DOBBS: Semiconductor -- you like the semiconductors but you don't like the PC makers -- why?
HILL: I think it just comes later in the whole process. I think the first thing to get orders is going to be the equipment makers. They'll get orders when the semiconductor guys feel better, and then feed it up.
DOBBS: All right. A lot of talk about the second half -- recovery in the economy, the market moves. Tell us exactly, is this market going to move in the second half, and if so, how much? And in what direction?
HILL: We think it's going to move up, Lou, because essentially what the Fed has done is it's provided a tremendous amount of fuel and we're all sitting, waiting for somebody to ignite the engine. But the fuel is there. I mean, money has been growing two to three times faster than the overall. You have over $2 trillion in cash sitting in these money market funds.
I think you'll see 1450 by year-end on the S&P 500, which would be a nice gain from here.
DOBBS: I think everybody wants to sign up for that. Walter, your view?
WINNITZKI: Well, I would say I think there's still another layer of softness that we have to get through relative to earnings expectations in the second half of the year. Now, the industry is more cyclical and there are some elements that could mean an improvement next year. That's what investors are looking for.
DOBBS: You're talking about the technology industry?
WINNITZKI: In the technology industry.
DOBBS: Summer is not a particularly good time for technology.
WINNITZKI: Right now, yes. It's not the best time. But there is still some hope for next year.
DOBBS: We will look forward to that forecast coming true, perhaps even sooner. Walter, thanks a lot. Ron, good to have you with us, gentlemen.
There's a lot more coming right up on MONEYLINE. We'll be telling you about the FDA rulings that sent shares in three biotech firms that we were just discussing tumbling today.
And we'll find out why a bond pit icon who lit out for the world of Internet stocks is right back at the beginning. (COMMERCIAL BREAK)
DOBBS: In tonight's "Sectors Report," we take a look at biotechnology. The Food and Drug Administration today set off quite a reaction on Wall Street, today rejecting a new drug to treat asthma. The FDA saying that more testing is required to make sure that the drug called Xolair is safe.
An estimated 17 million Americans suffer from asthma. It's also the leading cause of chronic illness among children. Analysts estimate the market for Xolair to be almost $1 billion a year. That drug is a joint venture between Novartis and Genentech, both of those stocks were hit hard today, closing lower.
And Tanox and Protein Design Labs sharply lower on that news as well. Also hit by an FDA ruling today: Guidant. Guidant's shares have fallen to a new two-year low, in fact -- that after failing to win approval for a new pacemaker.
Today's actions by the FDA, the latest in a series of recent rejections and delays. Analysts say that the FDA is being very cautious, perhaps overly cautious, this as the FDA has lacked a permanent leader since January. The FDA tells us that its policies on approving drugs and devices have not changed at all.
Coming up next here on MONEYLINE: Find out why a bond-trading icon left the pits behind, but couldn't stay away.
(COMMERCIAL BREAK)
DOBBS: In other corporate news tonight: Sears ended its agreement with Avon to carry a new line of beauty products. The No. 4 retailer decided to exit the cosmetics business altogether. Avon says it will proceed with plans to launch its new line in J.C. Penney stores. This is Avon's first retailing venture in its 115-year history.
Limited agreeing to sell its Lane Bryant clothing chain to Charming Shoppes for $335 million in cash and stock. Once that deal is completed, Charming Shoppes will have more than $2.5 billion in annual sales.
And it looks like many Americans are turning to conservation to fight the power crunch. Home Depot says sales of insulation products, energy-efficient lighting and insulated windows are running 25 percent higher than a year ago.
Richard Walker says he is stepping down after three years as the top cop for the Securities and Exchange Commission. Walker has spent a total of 10 years at the SEC. During that time, he led several fraud cases against companies including Cendant and Sunbeam. As the head of enforcement, he focused on Internet stock scams and accounting fraud. Also today, President Bush formally nominated Washington attorney Harvey Pitt to take over as chairman of the SEC, a move that had been widely expected, of course. Last year, we reported to you about a legendary bond trader Tom Baldwin. He left the Chicago pits for the lure of the new economy. A lot has changed since then, and now Baldwin and other big-name bond traders, well, they've had a change of heart and location.
Lisa Leiter has our story from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): He's back. Tom Baldwin, the legendary trader, left the shouting and the shoving of the bond pit last summer to trade Internet stocks. Then came the dot-com crash.
TOM BALDWIN, BOND FUTURES TRADER: I was bored with what I was doing.
LEITER: So he traded again. This time, trading the silence of the computer screen for the roar of the floor, and the 30-year bond for the new benchmark, the 10-year note.
BALDWIN: Inflation in the interest rate complex is the greatest trade in the world. I mean, we haven't had it really for years. And I think just if it did happen to come back or the possibility of it, even that makes for a great volume and volatility, and so I wanted to do it.
LEITER: Another big trader, Chip Kenyon, also left the bond pit last summer, frustrated by the lack of action once the Treasury started using the budget surplus to buy back long-term debt. He tried computer trading, but rejoined the rough-and-tumble of the bond pit just eight months later.
UNIDENTIFIED MALE: The thrill factor was missing. It was kind of a stagnant trade for me. This is more reading the pit, following the big order flow, a lot more personality involved.
LEITER (on camera): Their return is seen as a psychological boost for the Chicago Board of Trade, whose open outcry pits have been threatened by the growth in electronic trading.
(voice-over): Indeed, electronic trading has accounted for 17 percent of the Board of Trade's volume so far this year, up from just 4 percent last year.
HAROLD LAVENDER, FORMER CBOT DIRECTOR: It's great that they are coming back because they provide the kind of liquidity that they do. These are big market makers and big traders and people who are willing to buy and sell virtually at any price.
LEITER: Some say that risk-taking may keep the open outcry pits alive for longer than anyone expects. But will traders like Tom Baldwin and Chip Kenyon be the last ones standing?
UNIDENTIFIED MALE: I don't know. I don't think that far ahead.
UNIDENTIFIED MALE: I am sticking around until they kick me out, OK?
LEITER: Lisa Leiter, CNN financial news, Chicago.
(END VIDEOTAPE)
DOBBS: Coming up next, we'll take a look at your e-mails and "Ahead of the Curve."
(COMMERCIAL BREAK)
DOBBS: Tomorrow, keep an eye on shares of Compaq Computer, as we reported to you after today's closing bill. The company warning it will miss its revenue estimates and take a charge of nearly half a billion dollars.
Watch for quarterly results from tech bellwethers such as Yahoo!, Redback and Motorola. Genentech and Harley-Davidson also reporting. Tomorrow results from Motorola and Yahoo! will face tough scrutiny, they are the first tech companies to report this quarter and they follow a flood of tech warnings over the past several weeks.
Bruce Francis is here now and has a preview of what we might expect -- Bruce?
BRUCE FRANCIS, CNN CORRESPONDENT: You're right. It seems that earnings season has begun, but that was just warning season -- get ready for the real thing now. Yahoo!'s earnings report used to start the season off with a bang, but this time around, investors are expecting more of a whimper. Right now, analysts are expecting Yahoo! to break even. That verses a profit of 12 cents a year ago.
The tepid advertising climate is holding Yahoo! back, new CEO Terry Semel has been in the corner office for a quarter now, but so far we haven't seen a big shift in focus in the company. Earlier, I spoke with Goldman Sachs analyst Anthony Noto, who told us what he'll be watching for.
(BEGIN VIDEO CLIP)
ANTHONY NOTO, GOLDMAN SACHS: I think first, we'll look at deferred revenue on the balance sheet. As that's a good indicator of future performance in the top line.
The second thing that we'll look for is what's the growth in advertising from traditional advertisers, as the company migrates from dot-com advertisers to more stable revenue streams to traditional advertisers. And then of course we want to see what they add in terms of quarter portal relationships, and what type of tracks they make in other new business area, which is the premium paper service area.
(END VIDEO CLIP)
FRANCIS: Now the other major report tomorrow is cell phone giant Motorola. The company has already embraced investors with another quarterly loss, but this, as estimates in April fell into the red for the first time in 15 years. Consensus now, loss of 12 cents a share versus a profit of 23 cents this time last year.
Investors will be watching for signs of the beleaguered hand set business is recovering, but the news from that sector hasn't been good with lackluster growth in the U.S. spreading overseas, particularly in Europe. Troubled company -- Lou.
DOBBS: Of course, that performance by Motorola, if that comes in as expected, is that enough to keep (UNINTELLIGIBLE) on the job?
FRANCIS: Hard to tell. There's a lot of criticism of his management style, this company's problems started before the downturn we're seeing in the industry right now.
DOBBS: Bruce, thanks a lot. Bruce Francis.
Time now to look at your comments. Katherine writing to us about the government's efforts to save an endangered sucker fish in Oregon and the government cut off water to farmers, she writes:
"I live in Klamath County, Oregon. We are all suffering due to this restriction. All our farmers have had to stop farming. No jobs. No money from schools. No money from local businesses. Hints, we are dying."
Katherine, we want to share your story of course with the rest of our viewers and we've got a team on the ground in Klamath County, Oregon, Katharine Barrett and her team are in your community. They are taking a look at the community, they will be reporting tomorrow night. This story of that sucker fish, government regulation and the devastation it has brought to your community. We hope you'll be watching tomorrow night on MONEYLINE.
On to a question from John in Florida, who writes:
"Why is it in this high paced technological age when time is of the essence, the public companies still report their earnings quarterly instead of monthly?"
John, the main reason is they don't have to do it more frequently or otherwise, because the Securities and Exchange Commission says public companies must file three-quarter reports and one annual report.
Another reason, the cost: paying those accountants to put together all those numbers and certify them. Of course, in the thirst for monthly information, the government does give us a lot of other things to digest, as we take a look at industries.
Finally, a story last night about Merrill Lynch's downgrade of Homestore.com prompted this comment from Junior in Canada.
"I'm in absolute disbelief. Henry Blodget has finally said an Internet stock is overvalued. I think the fat lady has sung."
Don't forget to include your name and location when writing us at moneyline@cnn.com. And that is MONEYLINE for this Tuesday evening. Thanks for joining us.
I'm Lou Dobbs. Good night from New York. CROSSFIRE is next.
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