Return to Transcripts main page
Lou Dobbs Moneyline
Dow Climbs 65.38 to 10,241.02; Nasdaq Advances 9.25 to 1,972.04; Microsoft Says Its Revenues Will Beat Fourth-Quarter Forecasts
Aired July 11, 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.
JAN HOPKINS, CNN ANCHOR: In tonight's headlines, stunning news from Microsoft tonight, the software maker declaring a nearly $4 billion charge, but raising sales forecasts. We'll delve into a mixed bag of numbers.
The Dow pushes higher, investors searching out blue chip names in the face of tech worries.
After-the-bell quarterly results from Motorola. We'll go over the numbers from the wireless bellwether.
A wild West battle over water rights. Oregon farmers take on federal efforts to protect wildlife in a conflict pitting irrigation against conservation.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Sitting in tonight, Jan Hopkins.
HOPKINS: We begin tonight with major news from Microsoft, on the balance sheet and on the policy front. Microsoft saying that fourth- quarter revenue will be stronger than forecast, but the company also unveiling a huge charge. This, on a day that Microsoft issued a dramatic shift in policy, changing how it does business with PC makers.
Bruce Francis joins us on what all of this means -- Bruce.
BRUCE FRANCIS, CNN CORRESPONDENT: Obviously, Jan, a lot of investors think it means very good news, because its stocks is up sharply in after-hours trading. Microsoft is saying that business is good but its investments have not been so good. Microsoft is increasing its revenue forecast, saying that it will be 6.5 to $6.6 billion. Previously they were forecasting 6.3 to 6.5 billion. The Street, expecting about 6.4 billion right now.
But they will take a massive $3.9 billion non-cash charge, most of that for impaired assets. Now, that's Wall Street talk for lot of investments that did not work out. Microsoft says most of them are in the telecommunications business. Earlier we spoke to Greg Vogel of Bank of America Securities, and he's focusing on that upside surprise on revenues.
(BEGIN VIDEO CLIP)
GREG VOGEL, BANK OF AMERICA: I think it is very positive. Revenue -- that's revenue growth, that's really the future driver for earnings for the company. The company Microsoft has made significant investments in cable and some of the media companies. I think the impairment charge here was not unexpected, and is not an operating charge, so not particularly concerned about that.
(END VIDEO CLIP)
FRANCIS: You'd think that'd be news enough for Microsoft, but there is more. Microsoft also changing the way it licenses Windows XP, its operating system coming up. The company says that the move is in response to the recent ruling by the U.S. Court of Appeals that it abused its monopoly in PC operating systems. Under the new licensing agreements, PC makers will get more leeway in the icons they want to place in the Windows Desktop and Start Menu. Good news for developers of non-Microsoft software, and a boon for PC makers who get to sell this valuable real estate.
Consumers will be able to remove components of the Internet Explorer browser. Microsoft had maintained that the browser and the operating system were one product and couldn't be separated. Microsoft maintains now that Windows XP, the next version of the operating system, will be ready to ship on October 25th as scheduled. And the company says that this announcement does not take place at any discussions that it will or could hold with the government.
So, basically, very good news in after-hours trading for Microsoft. Investors, Jan, taking a lot of positive signals from this. Some could even see this as an olive branch to the government, saying, hey, we do want to negotiate in good faith. Look at what we're doing.
HOPKINS: And more sales, and this write-off is not going to worry investors?
FRANCIS: It shouldn't, because this is a non-cash charge for a lot of investments, investments it has largely made with its stock. Certainly, it matters, but investors are going to be much more focused on that better-than-expected revenue.
HOPKINS: They're going to look forward rather than back.
FRANCIS: Let's see if they do.
HOPKINS: Thanks, Bruce.
We also have after-the-bell results from Motorola. It posted its second losing quarter in a row. The wireless phone maker lost a whopping $232 million, 11 cents a share. That loss was slightly narrower than market forecasts. Motorola had been hoping to swing back to profitability by September, its third quarter. Now that's in question.
Steve Young has the story. (BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): After posting its first loss in 15 years, Motorola warned analysts should expect a bigger second-quarter loss. And today there was little upside surprise. Its cell phone sales were up a bit, but not in the most profitable segments and not in chips. And as a result, the quarterly loss widened from nine to 11 cents, a penny better than analysts were looking for.
But, excluding certain items that made the number look better, the loss was 35 cents. Following its custom, the Schaumburg, Illinois company won't talk with analysts about the results until Thursday morning, but in a news release, Motorola emphasized it's strengthening its balance sheet.
UNIDENTIFIED MALE: The semiconductor margins were extremely light. They did like negative-30 percent pre-tax margins. We were looking for 15. On the flip side, their hand set margins were a bit strong. We were looking for -- I think, negative 14 percent. They did negative 10 percent.
YOUNG: To cope with softening demand, which has been spreading from the United States to other regions, Motorola already has laid of more than 25,000 employees. The man on the spot, CEO Christopher Galvin, has been comparing the current crunch to boom-and-bust tech cycles of the mid-1970s and 1980s.
Motorola had been forecasting a return to profitability by the second half of the year, but some analysts now doubt that.
JEFFREY SCHLESINGER, UBS WARBURG: Certainly, the macro environment, particularly in the mobile business, has deteriorated from when they gave that guidance. And our numbers do not reflect them getting to a profitable situation until really the fourth quarter, so the back end of the second half.
(END VIDEOTAPE)
YOUNG: Analysts say Motorola managed to sell some of its growing inventory, but they're worried about the company's statements that sales were down very significantly in Europe and orders were significantly lower, too -- Jan?
HOPKINS: Is this a Motorola problem or a wireless problem?
YOUNG: It's both. Nokia warned just last week. They're No. 1, but Motorola trails in products that are hot and that people want.
HOPKINS: Let's talk a little bit about Microsoft, Steve and Bruce. We have two heads, better than one.
Steve, what's your take on this huge write-off, but sales improving and also a change in the way Microsoft does business?
YOUNG: Well, let me focus on that latter because I've been spending the last hour or so talking to one of the state attorney generals, Dick Bloomenthal, who says, you know, this is only a gesture on the browser, the browser war is over. It's like trying to close the barn door after the horse is out. In fact, he says the horse is shot.
Ed Black of the Communications Industry Association says they're just talking about changing icons, they're not talking about changing code, so even if you are allowing OEMs, the manufacturers, to put icons in the desktop, it's still going to be a product that's jam full of Microsoft products, and is going to disadvantage everybody else.
And finally, antitrust lawyer Kevin Arquett says: "I wouldn't consider it much of a concession. What they're doing is the bare minimum the Court of Appeals decision would require."
HOPKINS: What have you heard, the same kind of thing, or not?
FRANCIS: I think that this is -- let's focus on what it means for PC makers. They get to sell this valuable real estate. That's very good news for them. Microsoft had been kind of restrictive about what they were going to allow you to do on Windows XP. Those restrictions are rolled way back now. It's also good for third party software developers who have a channel to get in on that desktop that doesn't have to go through Microsoft. So it's good news for them.
HOPKINS: Thanks very much. Bruce Francis and Steve Young.
Another tech report out after hours, Yahoo!, the Internet company, reporting earning a penny a share. That topped estimates.
Casey Wian has the story from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): Yahoo!'s second- quarter financial results were slightly better than analysts expected, but not by enough to prevent the company's first quarterly loss in three years. The continuing slowdown in advertising spending slashed Yahoo!'s revenue by a third to $182 million. While pro forma results showed a profit of a penny a share, including restructuring and acquisition costs, Yahoo! lost 9 cents a share, or nearly $49 million.
DEREK BROWN, W.R. HAMBRECHT: First of all, their core customers, the dot-com clients which fed them so well early on, have been absolutely decimated. You layer on top of that a global economic slowdown that's impacting more or less every company in the economy in some way, shape or form, and that is also having a ripple effect by trailing, cutting off some of the ad dollars that might be flowing to Yahoo! and making it more difficult for Yahoo! to penetrate traditional accounts. So it really is a double whammy happening right now.
WIAN: Chairman and CEO Terry Semel, on the job just two months and still assembling his management team, expressed optimism in an investor conference call. TERRY SEMEL, CEO, YAHOO!: The challenge and opportunity that lies before us is tapping the great but as yet unrealized potential of our vast global consumer base. As the changes we will implement unfold, I believe that Yahoo! has the assets to build a long term sustainable business."
WIAN: Yahoo!'s strengths include $1.7 billion in cash an 200 million customers as of June, 30 percent above a year ago. While Yahoo! will remain mostly ad-driven, Semel plans to expand premium, or fee-based services. Analysts say that's difficult, because much of what Yahoo! is trying to charge customers for is available elsewhere on the Internet for free.
Semel says Yahoo! also will pursue more partnerships with major corporations and acquisitions.
(END VIDEOTAPE)
WIAN: One example of how Yahoo! is trying to expand into new areas is an agreement announced this week with the watch company, Timex. The deal involves Yahoo! delivering Internet content to wristwatches. The device sounds right out of Dick Tracy, and, Jan, it may take a detective with his skills to figure out when Yahoo!'s profit picture will turn around.
HOPKINS: Very interesting, thanks. Casey Wian in Los Angeles.
Wall Street played host to a mild turnaround today. Blue chip stocks were bounding as investors scrambled for safe havens against a slew of uncertainty, both at home and abroad.
Jennifer Westhoven has the details from the New York Stock Exchange.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): The stock market showed small gains by the closing bell, but they masked a day of tight nerves and turbulent trading. More earnings disappointments made headlines and worries about the global economy are rising.
SAM GINZBURG, GRUNTAL & CO.: The mood of the market overall is absolute nervousness. The mood of the traders is absolute frustration. When you have your hands on the keyboard, you're ready to buy or sell something, everybody's second guessing themselves.
WESTHOVEN: Take a look at the action in the Dow Jones industrial average. An early rally evaporated into losses before the average climbed higher in afternoon trading. It closed up 65 at 10,241. The gains come in a few big-name stocks, like General Motors, IBM, Microsoft and Intel -- which helped the Nasdaq. It rose nine points, closing at 1,972.
But another worrying trend: More stocks fell than rose on the New York Stock Exchange, and on the Nasdaq. Emerson Electronics warned of lower profits, winning a spot on Prudential's "sell" list and hurting rival Tyco International. Comverse Technology, an Israeli telecom software company, also warned, and the selling hit Amdocs, a rival and an institutional favorite, although Amdocs made reassuring comments just before the closing bell.
Financials Citigroup and J.P. Morgan dragged on the Dow, hard hit on fears Argentina could default on its debt to world banks. Banking analysts said they didn't think Argentina should have had such a big impact, but traders said the losses were another symptom of investor anxiety after a rough month. The broad Standard & Poor's 500 index is down 6.6 percent in just the past month.
MARK DONAHOE, U.S. BANCORP PIPER JAFFRAY: We are very oversold, and we are due for a bounce, even in the midst of some very, very bad news.
(END VIDEOTAPE)
WESTHOVEN: The problem is, when will the bounce come? The small ones we've seen so far have faded, used as a chance to sell, and it's the opposite of the buy on the dip rule and just shows you how much investor confidence has been lost -- Jan?
HOPKINS: Thanks, Jen.
An update on the hottest potential deal to hit Wall Street this week, Comcast's $58 billion bid to buy AT&T's cable assets. AT&T's boss, Michael Armstrong, today saying he will give -- quote -- "serious consideration" to the Comcast bid, but Armstrong hinted the offer may not be high enough. John Malone, one of AT&T's biggest shareholders who stepped down from the board yesterday, today was quoted by Bloomberg "Business News" as saying the deal would -- quote -- "make a lot of sense," end quote.
Motorola and Yahoo! officially kicking off earnings season tonight. Microsoft saying fourth quarter sales will be stronger than expected. But it's also taking a record $2.6 billion charge against some bad investments. Those stocks all trading lower, actually, all trading higher in after hours. Joining me now with a closer look at the outlook for technology in light of tonight's numbers, we have funds manager Mark Herskovitz of Dreyfus.
Thanks mark. And what do you think? Are the numbers that we heard after the bell enough to ignite a rally tomorrow?
MARK HERSKOVITZ, DREYFUS PREMIER: Yes. I think particularly -- with regard to Microsoft. When was the last time investors heard a tech bellwether announce that revenue is going to be better than expected? I think it's very positive.
HOPKINS: And the Yahoo! and Motorola earnings are not enough to take the market down further?
HERSKOVITZ: I don't think so. I don't think people have looked at Motorola for quite a long time as a bellwether. The company has been struggling, both on the communications side and on the semiconductor side, so I don't think people are going to focus on that.
Yahoo!'s quarter was better than expected, but was still a weak quarter.
HOPKINS: We heard about so much nervousness in the market today, yesterday, the last few days. I mean, is the mood about to break? Does that happen?
HERSKOVITZ: Well, eventually it happens, and we won't know for certain until we can look back and say that's what caused it. But certainly, a company like a Microsoft, as huge as it is, saying that revenue was going to be better, sales are going to be better than expected, will be seen, I believe, as very positive news.
HOPKINS: So are you looking to buy stocks, or have you been buying as the market has been falling?
HERSKOVITZ: Well, we -- our style is to be investors. We want to own what we think are the best companies over the long term, so we buy whenever we find companies that are attractive, not specifically because of news like this.
HOPKINS: And so what are your biggest holdings at this point? Do you like Microsoft, for example?
HERSKOVITZ: Yes, Microsoft is in our top 10. Our largest position, oddly enough, is Verizon, a regional bell operating company. We like those companies very much.
HOPKINS: And any other ones that maybe we haven't been focusing on?
HERSKOVITZ: Well, yes, there's a whole lot of companies. We think that the semiconductor capital equipment stocks will do well. That up cycle should be very, very strong. But this should be very good as far as Microsoft is concerned.
HOPKINS: Thanks. Mark Herskovitz.
And coming up next on MONEYLINE, we'll tell you about a killer wildfire so dangerous that it forced hundreds of firefighters to back off.
Plus, the water dispute that's driving farmers in the Northwest to challenge the power of Washington.
And as the House prepares to hash out campaign finance reform, find out how the results could affect business.
(COMMERCIAL BREAK)
HOPKINS: A cautious prognosis on the economy today from the president's point man on economic issues. White House adviser Larry Lindsey saying economic growth would be near zero in the second quarter, likely remain sluggish through the third quarter, that's the one we're in. He added that unemployment would likely rise above 5 percent, from the current level of 4.5 percent as companies slash jobs to keep pace with the slowing economy. Lindsey's outlook was more pessimistic than the so-called blue chip economic forecast which was released yesterday.
A showdown tomorrow on Capitol Hill over campaign finance reform. The House is set to begin debate on the controversial Shays-Meehan bill. It would raise the amount individuals can contribute to candidates from $1,000 to $2,000. But it would also block some of the biggest donations of all, the ones from large corporate donors.
Tim O'Brien has more.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): This fund raiser in Washington last month raised an estimated $20 million for the Republican Party, a record for a single event. The timing may had had something to do with it -- get it now before Congress passes campaign finance reform. The House tomorrow considers a bill that would put an end to the unlimited donations that corporations, unions and individuals can make to political parties, the so-called soft money that critics claim has tarnished the political system.
Donations have been soaring, from $83 million in the 1991, '92 election cycle to six times that amount in the last election cycle.
And for what?
BOB RUSBULDT, INDEPENDENT INSURANCE AGENTS: If you look at what CEOs ultimately want, it's access to members of Congress, it's recognition of what their concerns are in business world or the labor world. And the big money gets you recognized. There's no doubt about it.
O'BRIEN: But recognition does not translate into votes. Some corporations contribute generously to both Democrats and Republicans because they feel they have to. And how would CEOs around the country react if Congress were to put an end to that?
HARRY FREEMAN, COMMITTEE FOR ECONOMIC DEVELOPMENT: They will say, privately, thank god somebody has come along and lifted this burden off of my shoulders. We're going to save a million or $2 million right away off the bottom line.
O'BRIEN: Some believe campaign finance reform may change how business is perceived in Washington, more than how business is actually done.
BILL MILLER, CHAMBER OF COMMERCE: Lobbying will not change because of campaign finance reform. I believe that the best lobbying is done by organizations, corporations, that are able to influence members of Congress because of issues that are in the congressman or congresswoman's best interest.
O'BRIEN: The House is sharply divided in campaign finance reform and the vote here is expected to be quite close. But the Senate has already approved similar legislation. And if Shays-Meehan can now make it through, President Bush has indicated he will sign it into law -- Jan.
HOPKINS: It will be interesting. Thanks. Tim O'Brien in Washington. Also tomorrow, President Bush is set to unveil his proposals for Medicare reform. Aides say his ideas will be similar to ones he's put forward during the presidential campaign. Among them: prescription drug discount cards for seniors. But Mr. Bush had other changes in mind today. The first president with an MBA told the heads of government agencies to name a corporate-style chief operating officer. The COOs will be expected to make their agencies more responsive to needs of citizens.
And a threshold crossed in the controversial field of stem cell research. Eastern Virginia Medical School today says it has created human embryos specifically as a source for stem cells. The school is apparently the first research facility to do so. In the past, researchers harvested cells from unused embryos at fertility centers.
The medical school says creating its own embryos makes donor consent very clear and guarantees cells at a valuable early state of development. President Bush today met with advisers to discuss whether stem cell researchers should receive federal funding.
Hundreds of firefighters tonight are preparing to resume their battle against a deadly wildfire in Washington state. The fire has surged across at least 2,500 acres, killing four firefighters and leaving six people injured. Officials say it probably started when a campfire was left unattended. Gusting winds and dry conditions helped the flames spread quickly. Fire chiefs pulled their crews out of the area last night, and say they won't send them back in until it's safe.
The Pacific Northwest is in the grip of its worst drought in decades. And that's fueling not just fires, but a battle over water use in Southern Oregon and Northern California. On one side: Federal officials who want to protect endangered fish. On the other: Hundreds of farmers who say the government is cutting off a resource they can't do without.
Katharine Barrett reports.
(BEGIN VIDEOTAPE)
KATHARINE BARRETT, CNN CORRESPONDENT (voice-over): Water is what transformed the Klamath Basin, straddling the Oregon/California border, from sagebrush and salt grass into productive farmland. But this planting season, the century's worst drought, and the water needs of endangered fish species, led the government to block irrigation to 1,400 farmers.
JEFF MCCRACKEN, BUREAU OF RECLAMATION: We've been part of this community since about 1907. We built the project, we have grown up with the city of Klamath Falls. And this irrigation water has really been the backbone of the economy for the last 97 years practically, and what happened this year is a tragic situation for this community.
BARRETT: Brothers John and Rob Crawford have spent all their lives building up more than a thousand acres of potatoes, onions, and barley. With no federal irrigation water, just what they've scrambled to find in wells, they are down to just 200 acres. The rest running to weeds or worse.
UNIDENTIFIED MALE: This is one of my best pieces of ground -- not this year.
ROB CRAWFORD, FAMILY FARMER: It's set us back years. Our goal now is to survive this year. And if there aren't drastic changes, there won't be a next year. The Burns' family has ranched here for a hundred years. Now their pastures may not provide enough to feed their thousand head of beef cattle.
MIKE BURNS, CATTLE RANCHER: This is a travesty. This is -- the food that they have in the summer in the fields around we usually grow the food for the winter, we're really apprehensive that we may have to sell some of our heard because we don't have enough food.
BARRETT: Across the parched valley, $10,000 sprinklers sit idle. Farm equipment and fertilizer sales have collapsed. Klamath County estimates the economic blow at more than $200 million.
ROB GASSER, BASIN FERTILIZER & CHEMICAL CO.: Oh, there's no farming. People aren't planting so, the people that do have water are cutting their expenses in half just to try to survive this year. So nobody's spending any money. Because they're trying to keep food on the table for their kids.
BARRETT: And all this because biologists believe the sucker fish that live here in Klamath Lake and struggling salmon populations down stream need the water more.
STEVE LEWIS, KLAMATH FALLS PROJECT LEADER, U.S. FISH AND WILDLIFE SERVICE: The Sucker has more value than being just a trash fish. For the Klamath tribe located here in the basin, the Suckers were historically a value, they were cultural, they were spiritual, they were subsistence. And they even represented commercial economic benefit to the tribes early on.
BARRETT: Farm families who homesteaded these scrub lands after World War II, at the invitation of the government, were promised water rights, they thought forever. An entire community feels betrayed.
JOHN CRAWFORD, FAMILY FARMER: I don't think I was ever more confused in my life than on the 4th of July. I'm a veteran. I'm a life member of Veterans of Foreign Wars, and that flag is very meaningful to me. But that flag had a more confusing meaning this last 4th of July than at any other time in my life. I think that the agencies of the government whose flag flies before me have done me a terrible injustice here.
BARRETT: It was around Independence Day that desperate farmers three times, chainsawed their way through the gates keeping water back. Local law enforcement stood aside, but has handed the investigation over to the FBI.
But even if water flowed this year, it is too late. Farmers want politicians back East to change the Endangered Species Act.
(END VIDEOTAPE)
BARRETT: And they say they are fighting for nothing less than their way of life. They are meeting with lawyers to consider a multibillion-dollar lawsuit against the government and there are more protests planned for this Friday. As one rancher told me, we're survivors we are going to play as hard as we can until we can't play any more -- Jan.
HOPKINS: Thanks, Katharine Barrett.
Still ahead on MONEYLINE, today's market results after a rock and roll session on Wall street. Among the hardest hit stocks, Polaroid will have the latest development in company's fight to survive. Plus, a financial crisis threatens Argentina. We'll ask a top global strategist whether trouble on Buenos Aires could spread around the globe.
And Hyundai moves into high gear in its race for a bigger steak in the U.S. market.
(COMMERCIAL BREAK)
HOPKINS: In tonight's MONEYLINE headlines, Microsoft raises its fourth quarter revenue forecast, but at the same time says it will take a charge of nearly $4 billion. Two major tech firms out with quarterly results after the bell. Yahoo! beating street estimates by a penny; Motorola posts a loss of 11 cents, but that was narrower than Wall Street expected. And a warning from White House economic adviser Larry Lindsey, looking for sluggish growth in the economy in the second and third quarters.
It was a rocky session on Wall Street. Both the Dow and the Nasdaq traded between positive and negative territory several times throughout the day. They both closed on the upside, though. Investors struggling with another round of profit warnings, the majority from the tech arena. The Dow managed to climb more than 65 points. It finished at 10,241. Some of the strongest components on the day, General Motors, Microsoft and IBM.
Chip stocks showed the most strength on the Nasdaq, helping to offset weakness in the Internets and cable issues. The index finished up more than 9 points, at 1,972.
One stock particularly hard hit today was Polaroid. The company's stock plummeted to a new 12-month low after press reports said the company was considering voluntary bankruptcy protection. But it seems the company has other ideas. After the bell the instant camera maker said its considering several different options.
Fred Katayama has the latest.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Polaroid's image among shareholders just got a lot uglier. The instant camera maker said after the markets closed, it will miss its deadline for $27 million interest payments due over the next 60 days and will try to reschedule those debts.
What's more, it will consider merging or selling the company, unloading its assets, or partnering with another company. Earlier today, its beleaguered stock, among the lowest rated on Wall Street, plunged 31 percent to a new 52-week low after published reports said Polaroid is considering a voluntary bankruptcy filing, which, if it happens, could shorten the time spent in Chapter 11 and save money.
WILLIAM ROCHELLE III, FULBRIGHT & JAWORSKI: The creditors, who are probably going to end up being equity owners down the line, know that Chapter 11 hurts a company. And so therefore they want the company to sustain as little damage as possible.
KATAYAMA: Polaroid said it obtained a waiver of its U.S. loan covenants with J.P. Morgan Chase and other lenders, leading the way toward an extension of its credit line. But analysts say Chairman Gary DiCamillo still faces a challenge in selling Polaroid's assets. While the books show they're worth double the outstanding bank debt, they may be worth much less today.
JOHN MOORE, MOODY'S INVESTORS SERVICE: What the bankers are likely to be examining right now is what is the true value of those assets. How liquid are they? Particularly when there's a moving target for the value of instant camera assets in an age of digital photography?
KATAYAMA: Polaroid's problem: Many instant camera users are switching to digital cameras, which also cuts into sales of its profitable films.
(END VIDEOTAPE)
Polaroid still faces huge hurdles. it has more than half a billion dollars of debt coming due within the next six months. And analysts say the company's core businesses aren't generating any cash -- Jan.
HOPKINS: Thanks, Fred.
Warnings have piled up on Wall Street ahead of the earnings season. And my next guest believes the slowdown in Corporate profits will keep pressure on the markets through till much of the year. Joining me now is Susan Byrne. She is the president of Westwood Management. Susan, you were just saying to me about Polaroid, a while ago was one of the nifty 50s, it was...
SUSAN BYRNE, WESTWOOD MANAGEMENT: Well, it was a little while ago, Jan.
(LAUGHTER) BYRNE: It was almost when I came to the business 30 years ago, whether it was a Polaroid or a Xerox, these were the nifty fifty, the Microsoft/Ciscos of their day and it is still kind of shocking to see -- for them to even consider being a junk bond or a status of possible bankruptcy.
But I think it's an important lesson for people to think about. The news that Microsoft had tonight was really, really exciting and we should get a nice relief rally, but there's a difference between a relief rally and whether things are going well later on. And I think that technology telecommunications could still stay under pressure.
HOPKINS: We have had the bad news and we've been so depressed that we're likely to see some lift in the market at this point as we get good news, like the Microsoft news, is that right?
BYRNE: The Microsoft news is the first good news you've seen in tech. But today you had Whirlpool say that they were going to do better. You had CSX, a railroad company say that they were going to do better. General Motors was up today. So, I think if you've been in the market in the last ten years, your he tendency is to think that that's the market. But there's a lot of good things happening away from that and good values.
HOPKINS: And you in fact are a value investor so you're looking at some of the stocks, right? You've liked energy stocks in the past. We have a chart of your picks from your last appearance which was in May, and how they've done so far.
BYRNE: Yes, and aren't you kind to ask me back after that performance.
HOPKINS: Anadarko, you would think with rising energy prices although we went through a period where energy prices fell, right?
BYRNE: Well, I think you have to think about -- these were big performers. They are still up on the year, and they're up over the last 18 months. So I think you have to think about are -- is this an improvement in the industry over a period of time, which is what I believe, in which case you'd be committing your money to it, or is this just a blip, is it a cyclical?
And I would say the technology is going back to its cyclical roots which it was in the '70s and '80s. It wasn't in the '90s, but energy and steel and infrastructure is becoming more of secular grower.
HOPKINS: Thanks very much, Susan Byrne.
Still to come on MONEYLINE, a brand that looked like it was being run off the road, stages a remarkable comeback. And up next, as the U.S. looks for a long awaited turnaround in Asia, the region could be on course for another crisis. We'll tell you why.
And in Latin America, it could be this country's last ditch effort to try and pay back a crushing amount of public debt. (COMMERCIAL BREAK)
HOPKINS: In tonight's "Sectors Report": overseas markets. Singapore today saying its economy is in recession. This may be the first of several countries in Asia to make similar announcements.
The United States is watching Asia struggle with yet another serious economic crisis. Economies in Hong Kong, Taiwan, Korea, and Japan are looking to the United States to lead a recovery.
Kitty Pilgrim has the story.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Asian economies were high on the list as President Bush met with Hong Kong's Chief Executive Tung Chi Hwa. Asia is watching the United States for signs of growth. The United States worries Asia is in the middle of yet another economic crisis.
MYRON BRILLIANT, U.S. CHAMBER OF COMMERCE: I still think a lot of Asia depends on the U.S. economy and on the Japanese economy. And if our economy recovers in the second half of this year or in the fourth quarter, you should see some returns in the region as well.
PILGRIM: All across Asia, the hope for recovery rests on the recovery of the first and second largest economies in the world, the United States and Japan. Japanese officials Wednesday said their economy has "deteriorated" because of the slowdown of technology exports.
Senior IMF official Stanley Fischer also saying this week, the crisis in Japan is more important than most people realize, worrying aloud if reform policies set by the new Japanese prime minister, Junichiro Koizumi, could undermine growth in Japan and efforts of the region to recover from the last crisis of 1997-'98.
Tokyo's Nikkei is down more than 17 percent from the peak set in May. Hong Kong's Hang Seng Index has fallen off a cliff in the last year. The market in Taiwan, heavily dependent on computer chip sales, is approaching a six year low. As dire as that is, analysts say this Asian downturn packs less punch to world economies than the last one did.
JOYCE CHANG, JP MORGAN: Asia is quite a lot different than it was in the 1997 crisis. First of all, there's much less short term debt. There's much more leverage in the system, so there is a sharp slowdown, but there isn't a debt crisis.
PILGRIM (on camera): Even though not as severe as the last crisis it is still a global worry. Any sign of an economic pickup in the United States will be watched more closely than ever and applauded around the world.
Kitty Pilgrim, CNN Financial News, New York.
(END VIDEOTAPE)
HOPKINS: Asia is not the only region struggling to put its fiscal house in order. Argentina is trying to reduce a crushing amount of public debt by slashing spending. The effort may be the country's last chance to avoid defaulting on debt.
Joining me now to take a look at the situation and how it may have a negative effect on international markets, Nick Sargen, from JP Morgan Private Bank.
Nick, could Argentina be another Russia or Asia like in '97 and '98, have this really tremendous effect around the world?
NICK SARGEN, J.P. MORGAN: Yes. I don't think so. Certainly there are some parallels, as you've indicated. You have a country that's been in recession for three years, too much debt, and now basically, people who bought their government paper are now saying, we're not so sure you could make it, you have to cut your budget deficit.
The good news is the finance minister (UNINTELLIGIBLE) is saying, we'll do that. But the big question is -- does he have the authority to do so on his own government, and secondly, they have elections down the road: will the electorate want to see this?
HOPKINS: So does this affect other parts of Latin America?
SARGEN: Oh, definitely. It -- the biggest country that has been affected is the largest trading partner, Brazil. Now, Brazil is in a different situation. They don't peg their exchange rate to the U.S. dollar, they let it flow. The Brazilian dollar has depreciated very significantly this year. So we are seeing some spillover.
But I think the biggest difference is that Russia caught people by surprise, Argentina, people have been aware of the problem for some time.
HOPKINS: Will it affect our markets? That's really the question, Today banks sold off, in part, concern about debts to Argentina.
SARGEN: And I think that was an issue, it's a normal kneejerk response. If you really look at the situation, who is providing to the funding to Argentina, it's really more the private sector buying their paper, it's not so much banks.
The other thing is that the banks that have the biggest exposure are really the European banks, the Spanish banks that are now involved in Latin America. So I think that's more of a kneejerk reaction.
HOPKINS: You're a global strategist. Kitty was talking about what's going on in Asia, a slowdown, Europe is slowing down, Latin America is slowing down, where do investors invest?
SARGEN: I think the answer has to be, where do you expect a recovery to occur? And the answer is in the United States. Right now I think it's darkest at dawn. But three of the factors that contributed to the weakness, monetary tightening: We now have the fiscal stimulus, oil prices are coming down. So I would be anticipating a U.S.-led recovery. But the rest of the lags.
HOPKINS: Thanks very much, Nick Sargen.
Next on MONEYLINE, an automaker that was once the butt of countless jokes, looks to be having the last laugh.
(COMMERCIAL BREAK)
HOPKINS: U.S. automakers are set to post a sharp drop decline in profits for the current quarter. One of the reasons: stiff competition from cars outside the U.S. One of them is Hyundai. It wasn't always that way; Hyundai is a brand that once appeared to be sinking fast. It's now making a remarkable turnaround.
Peter Viles has the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): The brand-new, $6 million Planet Hyundai in Las Vegas, the latest chapter in a comeback story that is the talk of the auto industry.
JOHN CASESSA, MERRILL LYNCH: They've retooled the product. It looks better, it rides better, it is better.
VILES: And it is selling. June was a record month at this Long Island dealership.
TROY CALBRESE, ATLANTIC HYUNDAI: It's been a long haul from years ago, but Hyundai is finally on top of everything. Volume is increasing, and people love driving a Hyundai.
VILES: After busting into the American market with rock-bottom prices in the late '80s, Hyundai sales went into a tailspin. The problem was poor quality that made Hyundai the butt of countless jokes, and turned the brand into a status symbol -- in reverse.
(BEGIN VIDEO CLIP, "GLENGARY GLENROSS")
ALEC BALDWIN, ACTOR: You know why, Mister? Because you drove a Hyundai to get here tonight, and I drove an $80,000 BMW. That's my name.
You see this watch? That watch costs more than your car.
(END VIDEO CLIP)
VILES: The man who rescued this Korean company in America is an Irish immigrant named Finbarr O'Neill, who rebuilt trust with a single promise: a 10-year, 100,000 mile warranty.
FINBARR O'NEILL, PRESIDENT & CEO, HYUNDAI MOTOR AMERICA: We had a problem, people weren't coming into our showrooms. We knew that our quality had gotten considerably better, we knew that the styling was good. But how to attract people to come down to the stores? Well, we thought that a warranty would tell them that we were confident in the quality of the product, and they'd put us on the shopping list -- just come down and take a look.
VILES: They're more than looking. Sales have tripled, from $90,000 in 1998, to a pace of $300,000 this year.
(on camera): Even after this incredible comeback, Hyundai has only 2 percent market share in the United States, but that doesn't begin to measure the headaches it's causing in Detroit, because Hyundai competes so aggressively on price.
(voice-over): Take Hyundai's new SUV, the Santa Fe: base price, just over $20,000, cheaper than the Toyota RAV4, the Mazda Tribute, and the Ford Escape. And in a slowing economy, price matters.
UNIDENTIFIED MALE: I'll be honest with you, I got a few laughs when I told my friends I was looking at a Hyundai, but I feel the last couple of years, I think they really did a 360, and it seems like they are really ready to please the public.
VILES: There is some fine print in this comeback story, and it's the warranty. It will be several years before it's clear how much it will cost Hyundai to honor that promise.
Peter Viles, CNN financial news, West Islip, New York.
(END VIDEOTAPE)
HOPKINS: Up next, your e-mails. Plus, "Ahead of the Curve."
(COMMERCIAL BREAK)
(AUDIO GAP)
HOPKINS: ...all three stocks trading higher after hours. Expect quarterly reports from Abbott Labs and Enron. Tech companies Micro Devices, Juniper Networks and Rambus.
Our story tonight on the standoff between the government and farmers in Klamath Falls, Oregon is prompting a big response.
Jennifer asks: "Are we going to let a fish rule our land? How is the fish going to pay taxes and help the economy? Environmentalists start here but where will they go from Klamath?"
Jan says: "We have the best country in the world but we don't take care of the people. Animals, birds, and yes, even fish take priority. There are people in this country starving. Thank you for reporting the problem in Oregon on MONEYLINE."
Teresa in Seattle sympathizes with the community, but says: "If it's a decision between the folks in Klamath Falls and the extinction of species, then there's no decision. Those folks in Klamath can move on. It would be an outrage for the government to back down on the issue."
And Susan who lived in the area says: "The who lived in Klamath Falls, who disagreed with the government's decision broke the law. This behavior negates any complaints they may have."
Onto the markets and the Merrill Lynch's new conflict of interest policy, Jim says: Instead of barring analysts from buying stocks they cover, "why doesn't Merrill make the analysts buy the stock they recommend? How long would an analyst hold a declining stock with a buy or hold rating, if they lost their own money?"
And if you would like to send us your comments, e-mail us at moneyline@cnn.com.
And that is MONEYLINE for this Wednesday evening. Thanks for joining us.
I'm Jan Hopkins sitting in for Lou Dobbs. Good night from New York. "CROSSFIRE" is next.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
