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Lou Dobbs Moneyline
Dow Climbs 60.07 to 10,539.06; Nasdaq Advances 9.05 to 2,084.79; IOC Selects Beijing to Host 2008 Games
Aired July 13, 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: Tonight, Wall Street builds on Thursday's stunning rally, investors keeping the faith in the market upswing. the clash on Wall Street over a popular investment option could turn into a life or death battle for the American Stock Exchange.
Recently investors have been bashing Wall Street, now Washington may join in to play the blame game.
Beijing pulls off an Olympic victory capturing the 2008 games. We will go live to China for the celebration, and have a look at what it means for business.
We begin tonight with a solid day for stock prices, the Dow and the Nasdaq both extending yesterday's powerful rally. Blue Chips posting their first weekly gain in nearly two months.
Jennifer Westhoven reports from the New York Stock Exchange.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): The stock market made just modest gains, but traders said more importantly, the market held on to Thursday's huge rally, a bullish sign. The Dow Jones Industrials ended up 60 at 10,539. For the week it rose 2.79 percent, finally breaking out of a slum that saw it slide for seven weeks in a row. After days of high tension, some traders are sounding confident again.
LINDA JAY, LABRANCHE & CO.: I still think that we'll get to 11,000 in a shot. If we can get through this without any catastrophes, we will be at 11,000 very very quickly because I really do think there is a lot of money on the sidelines.
WESTHOVEN: Many financials edged out gains, despite financial problems in Argentina. Biotechnology rebounded from 3 straight sessions of losses. And tech stocks overcame some bad news. The Nasdaq led the market in morning trading, but closed up just 9 at 2,084. For the week, it rose 4 percent.
Some networking stocks rose, Juniper Networks forecast a slight recovery in sales, though its stock fell. And semiconductors fell after Advanced Micro Devices forecast disappointing sales for this quarter. That could mean a surprise loss coupled with a brutal price war with Intel, analysts said margins are being hurt industry wide.
Traders are hoping most of the bad news is over. They will find out next week, when an onslaught of earnings hits the street.
MAUREEN MCCARTHY, ROBERTSON STEPHENS: Next week I think is going to be sparked by Intel on Tuesday and IBM on Wednesday. I think a lot of people are more focused on IBM than Intel, so hopefully we'll get some good news there.
(END VIDEOTAPE)
WESTHOVEN: Just the fact that the market managed to move higher by even a small amount brought a lot of comfort to the trading floor. The bulls hope that the small rally signals stocks will be able to move back near higher levels. Jan, it seems like an awful lot to pin on just one session.
HOPKINS: But we have next week! Thanks, Jennifer Westhoven.
Nasdaq also finishing out a bumpy session in the black, up 9 points to 2,084, gaining 80 points for the week and recapturing that 2,000 level. For the details of what went on at the Nasdaq let's go to Greg Clarkin at the Nasdaq marketsite -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: Jan, a lot of folks would not have been surprised to see the Nasdaq give back a little bit today. After all we did have that that big triple-digit gain yesterday. But today what we got was really an encouraging session in the words of many traders.
If you look at the Nasdaq it posted 3 wins in a row to finish out week, gaining on Wednesday, the big gain yesterday, then tacking on 9 points today. As Jennifer mentioned the biotechs stocks were nicely higher up 3.4 percent by the Amex Biotech Index.
On the upside also networking issues up 3.6 percent. On the downside you heard about Advanced Micro Devices. The Semiconductor Index was off 2 percent. Now let's take a look at some individual issues, give you an idea of how they fared on today, and let's start with Juniper Networks. This company out with their profit report yesterday. The fact that they didn't guide down their earnings guidance for the rest of the year and the upcoming quarter was seen as real positive to many of the networkers.
Still, Juniper, which was nicely higher in the first part of the session, gave that back to finish down better than a dollar. Cisco systems though gained some strength from that networking move up 88 cents on the day. Dell Computer was higher, and you know after a two- week hiatus, we saw a new issue today, the IPO Wright Medical Group, it was up better than 3 bucks. That's about a 25 percent gain for it's first day of trading. This company is in the orthopedics business. They make replacement joints for hips and knees and the like, and that stock really well-received by investors.
So at this point the Nasdaq finishes out week on strong note, up 4 percent, and Jan, we are going into the height of earnings season over the next couple of weeks. Trader tell me that the market is kind of in a hypersensitive mode where one piece of bad news could derail it. So they'll be watching those earnings announcements and those conference calls that accompany earnings announcements very carefully next week -- Jan.
HOPKINS: So the test is really coming up.
CLARKIN: Exactly. Jan, at this point, to see if this market has any legs they are really going to want to hear what these executives have to say on these conference calls about the third quarter.
HOPKINS: Thanks very much, Greg Clarkin at the Nasdaq marketsite.
Another factor boosting stocks today, the latest economic news, wholesale prices actually declining while retail sales edged up last month. Lisa Leiter has that story from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT (voice-over): Consumers are cutting back spending on just about everything except cars. Retail sales in June rose just 2/10 of a percent, half of May's gain and less than economists expected.
Excluding autos, sales actually fell. But economists blame that almost entirely on lower prices at the pump, dragging down gas station sales.
ANTHONY CHAN, BANC ONE INVESTMENT ADVISORS: It's impressive that consumers have held up in the wake of job layoffs, in the wake of losses in financial wealth and finally, in the wake of signs of business retrenchment. These numbers suggest that once again in the second quarter the consumer will be a positive force.
LEITER: The latest Consumer Sentiment Survey also points to stronger spending. In early July, sentiment jumped for the third straight month, despite choppy stock prices and ongoing layoffs.
Still not all economists are convinced consumers will keep it up.
BRIAN WESBURY, GRIFFIN, KUBIC, STEPHENS & THOMPSON: The consumer is the lagging indicator of the economy. There is nothing that rebates or that Fed rate cuts can really do at this point. We have go through the pain in order to come out the other side. And so I do expect consumer spending to decline in the third quarter.
LEITER: But discounts could boost spending, wholesale prices fell 4/10 of a percent last month, the biggest drop in 2 1/2 years. Behind it, record drops in home electricity and natural gas prices. Without energy and food costs, prices actually edged up slightly.
(on camera): With inflation under control and retail sales still sluggish, economists say the Federal Reserve has enough reason to cut interest rates again at next month's policy meeting. Lisa Leiter, CNN Financial News, Chicago. (END VIDEOTAPE)
HOPKINS: Topping nights's money live movers, china.com, one of the biggest winners on the Nasdaq today, it was up 34 percent. The Internet company one of many China based stocks, getting a boost on news that Beijing will host the 2008 Summer Olympics. We'll have more on Beijing's winning bid from CNN's Mike Chinoy shortly.
Shares of "The New York Times" up more than $2. The stock upgraded by Bear Stearns to a Buy. Brokerage saying that cost control measures give the paper more upside potential than competitors "The New York Times" reports earnings next Wednesday.
RCA Security down more than $4. The software maker warning profits for the second half of the year will fall short of estimates. Checkpoint software also falling on RSA's outlook. Over the past year RSA security stock is down 47 percent.
The Justice Department today looking to bring the Microsoft antitrust case to a more rapid conclusion. The government asking for a new district court judge to take up the case immediately, rather than having the case heard again by the appeals court. This so, a new district judge can decide whether the software company should be broken up. The 18 states that are plaintiffs in the case do not plan to appeal.
In tonight's "Tech Watch,": Napster. The Online music service settling piracy claims with two high profile artists, Dr. Dre and Metallica. Despite the settlement Napster's legal troubles are far from over. Bruce Francis has that story.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): This is Dave Matthews, this is -- song I probably would have bought in the stores, but I didn't because it is for free. Napster has been very good to 17-year-old Josh Asher, but the good times for Josh and other Napster users are over for now.
JOSH ASHER, NAPSTER USER: I bought a CD the other week, my first one in almost over a year. And I also burn CDs off friends. That's what we do a lot, so we all still try to avoid buying as much as possible.
FRANCIS: Legal and technical hassles for Napster have sent Josh and his pals back to the stores. Federal Judge Marilyn Patel ruled earlier this week that new software from Napster isn't good enough. Even though it blocks more than 99 percent of copyrighted material, Judge Patel ordered the service shut down until Napster gets to 100 percent. Even if Napster wins a stay of Judge Patel's order, Napster audience has been logging off increasingly frustrated by the lack of well-known titles.
ARAM SINNREICH, JUPITER MEDIA METRIX: Since January actually, or February, we have seen over a 50 percent drop-off in the number of users on the service, and I think that drop-off is going to continue until almost, nearly zero, until the service relaunches later this summer.
FRANCIS: Napster is being sued by the major record labels including Warner Music, which, like CNN is owned by AOL/TIME WARNER. Those major labels say that just one copyrighted song trading on Napster is an infraction that can be repeated millions of times racking up big losses to rights holders. But right now, users like Josh are losing out on a service they loved.
(END VIDEOTAPE)
Napster says that it is complying with the court order while it appeals and is moving full steam ahead on the pay services it's developing with a planned launch later this summer. The question now is, will its once devoted fans be around to notice when that happens -- Jan.
HOPKINS: Because people like Josh can go to other places, can't they? Napster is not the only place.
FRANCIS: They are not the only place, but some of the biggest ones, like Aimster, that has also found itself a target of lawsuits by the recording industry. So, these suits will continue, and the record industry is very dedicated to that.
HOPKINS: But as he was pointing out, they also were burning CDs of friends and swapping them that way.
FRANCIS: That's right. And at the same time that's going on, the recording industry is trying to face up to the fact that it has to have a convincing online strategy. We are seeing some experimentation now.
HOPKINS: The Microsoft case, the Justice Department wanting to speed this up, is this significant?
FRANCIS: The -- no one expected really the Department of Justice to appeal this ruling, since it was so favorable to the Department of Justice's view on Microsoft's antitrust violations, so it is going to go back to a lower court who will decide the remedies. And earlier, the attorney general of New Mexico told me that she would even consider financial remedies to be appropriate in this case, so that is something to watch out for.
HOPKINS: Thanks very much, Bruce Francis.
And coming up on MONEYLINE: Beijing goes for the gold as the city celebrates its Olympic win. We will check the political and economic impact.
Plus, the money crisis rocking Argentina. Find out why the tremors could shake up North America.
And how to make money by looking for trouble: we'll speak with short-selling guru Manuel Asensio.
(COMMERCIAL BREAK) HOPKINS: A street party in Beijing today on word that city will host the 2008 Olympics, the International Olympic Committee announcing its choice in Moscow. Toronto came in second out of five cities battling for the games. Mike Chinoy is in Beijing now with more -- Mike.
MIKE CHINOY, CNN CORRESPONDENT: Hello there. Well, there were wild street celebrations that went on well into the evening. It is now early Saturday morning in Beijing. Hundreds of thousands of people poured down into the streets, particularly Chang'an Street, which is the main thoroughfare in Beijing, huge crowds in Tiananmen Square as well, people driving cars, honking their horns, waving Chinese flags, just an ecstatic reaction here to the news that Beijing would be able to host the 2008 Olympics.
For most people, the central issue here, more than human rights or any of those other questions, was national pride. Many Chinese feel that what this decision symbolizes is that the international community has finally recognized that in emerging China, a China that is a rising power, is now going to be able to take its rightful place on the international stage, and they were celebrating all night long as that news spread throughout the city.
HOPKINS: So, Mike, what is Beijing hoping will come out of the Olympics? We can understand why the city wanted it, but what do they really expect to come from them?
CHINOY: Well, "The People's Daily," the official newspaper of the Communist Party, had an editorial today, which said that the Olympics would help spur reform and openness and socialist modernization. The Chinese not only see this as a kind of vindication of their place in the world, but many Chinese, particularly those of a reformist bent, see the Olympics as spur to opening China further to the outside world, and one of the big and very interesting questions is, in fact, going to be: what the impact will be.
There are many who feel that because China now is going to host the Olympics, that this will constrain the regime from going too far in its anti-Western rhetoric, that it will constrain its behavior toward Taiwan, to reduce the possibility of a military confrontation, that with so much international scrutiny that the government would be forced to moderate its behavior.
At the same time, of course, Beijing itself will see a huge building boom. The government is talking about spending $15 billion to $20 billion to build all the facilities, the infrastructure and so on, and so there are tremendous economic possibilities as well, and many international companies see real opportunities here as this process moves ahead.
HOPKINS: Seven years to do it. Enough time?
CHINOY: Well, that is another big question. Unlike the other cities, the Chinese are not anywhere close to having all the facilities that they need. The government obviously was able to impress the International Olympic Committee that it had the wherewithal to do it, but it is going to be a very, very big change physically, and perhaps even more important is going to have to be the mental change in the attitude of people, as they cope with this huge influx of foreign visitors, of thousands of reporters, of the greater international scrutiny.
They are going to have to learn how to deal with that, and one of the interesting questions is, like the old saying, don't wish for something too much because you might get it, it's an open question whether the government and the authorities here really realize what now is going to hit them in next seven years and when the games themselves take place.
HOPKINS: Well, and this is actually the morning after, so is that what's happening?
CHINOY: Well, it's too early to say, obviously, but there are forces at work here, and it is important to note that this is going to happen as China enters the World Trade Organization, which is another hugely important development, part of this process of China joining the world after so many years of international isolation.
And so, you will have simultaneously all of the economic changes that the WTO entry will generate, which will move toward a market economy even faster, but will also produce more unemployment, serious challenges to the ailing but very substantial state sector of the Chinese economy -- we'll have that on the one hand, and you will also have the momentum for the Olympics.
And in some way, that may be a big boost to the reformists here in China, because the Olympics are seen obviously as a very positive thing that will give them some ammunition at a time when there is still a lot of criticism and concern inside China, particularly by those on the left of the political spectrum, that China should slow down its race to integrate with the world because of the threats that it might pose both to the socialist political system and to the internal stability of the country.
HOPKINS: Thanks very much, Mike Chinoy in Beijing.
And for more on the political and the financial side of Beijing's win, we are joined by two guests. In Washington, Robert Kapp, he is with U.S.-China Business Council. In New York, Jaime Florcruz, he is CNN's new Beijing bureau chief.
Let me go first to Robert: what does it mean for business? A lot of money is going to be spent by China, is it likely that international companies will get some of these contracts to build roads and telecommunications systems and stadiums?
ROBERT KAPP, U.S./CHINA BUSINESS COUNCIL: Jan, the Chinese have put about a $20 billion price tag on makeover of Beijing, and at especially the advanced technology end of that makeover, I'm sure American companies and foreign companies are going to hope for contracts.
But at the end of the day, in a big country like China in midst of a transition like the one it is going through, a $20 billion is not just the be all and end all.
I think more importantly what the decision on the Olympics suggests to the American business is that Beijing is likely to remain on a fairly stable and predictable course over the next eight years, and less likely to veer in you might say disruptive or extreme directions, because on the one hand, they've got the international community looking at them with a magnifying glass every day, and on the other hand, the more money they spend on the Beijing makeover, the less likely it is that they're going to do anything that makes that whole process into one gigantic mother of all millennium domes, to use the example of a failed British experiment.
HOPKINS: Let's bring in Jaime Florcruz.
Do you agree with that? I mean, Mike Chinoy was also saying the same thing -- that this actually brings China into the world community.
JAIME FLORCRUZ, CNN BEIJING BUREAU CHIEF: It does. We cannot overestimate the power and ability of a single institution like the Olympics to change such a huge and old society like China. But it will help, I think, hasten the process of evolution of China from the drab and moribund society that I saw 29 years ago into a vibrant and changing society that it is now.
HOPKINS: So Robert, we have, perhaps, though, the interpretation that China is being rewarded for some of the things that it's done that the rest of the world doesn't like: human rights abuses, and a whole list of other things -- and now the Olympics. Is this an award for bad behavior?
KAPP: You know, Jan, this is a little like snapping your fingers to keep the elephants away, and when somebody says there are no elephants you say, you see, it works.
We will never know whether the granting of the Olympics is pocketed by certain figures in Beijing and used as a sort of buttress to their own desire to act in repressive manners. I think, in general, though, if you look at the whole influence of this process over the next 10 years, the influence is clearly going to be positive.
But we're going to have to watch and see. And this is not going to get people out of jail or into jail on the first day. It's not going to guarantee that when tough national political decisions come along for China, they are going to say, the Olympics is only thing that matters. There are situations in which this country could -- that is, China -- could probably say, tough as it is, we've got to act to preserve the nation, even at the expense of the Olympics. But I don't think we're going to see that, except in most extreme of cases.
HOPKINS: Do you agree with that, Jaime?
FLORCRUZ: Yes, the political windfall for the Beijing government will be short-term, but the challenges that they will face will be long-term -- the challenge of locking in China into this international regime into -- as a member of the international community and living up to its norms will be a huge challenge for Beijing. And that is a positive thing, that Beijing gets the Olympics.
HOPKINS: Now, finally Robert, with all of this money that's being spent on infrastructure, is it going to be good for business in future? Will it make doing business in China easier?
KAPP: Well, I think yes. I mean, the overwhelming bulk of this effort is going to be in the city of Beijing itself. And the city of Beijing is going to be a greater place to do business when it's all over and done.
But more importantly, I think Mike Chinoy really hit on it. This Olympic decision is the second half of the combined effort to bring China so decisively into the world community now. The other one is the WTO. The WTO is what really matters to American business and to foreign business generally. That's the one where the barriers are coming down, where the obstructions are due to be moved out of the way China, and where China is subscribing to the laws and the regulations that the world requires of everybody who's doing international trade.
So that's where the biggest influence from American business lies, and it's why American business has been so strongly supportive of a tough, legitimate WTO deal with China, which is now just about to be finalized.
HOPKINS: Thanks very much, Robert Kapp, the U.S.-China Business Counsel and Jaime Florcruz, the new bureau chief for CNN in Beijing.
FLORCRUZ: Thank you.
HOPKINS: Another international story that we're watching: Argentina scrambling to get out from under a financial crisis that has sent shock waves across Latin America and onto U.S. shores.
Kitty Pilgrim has a look at the uncertainty rattling Buenos Aires.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The crisis here in Argentina is generating a lot of rhetoric here in Washington. Friday, National Security Adviser Condoleezza Rice saying they are monitoring the situation, but there are no plans to offer Argentina a special package to help with the debt situation.
CONDOLEEZZA RICE, NATIONAL SECURITY ADVISER: Argentina has a program with the IMF, and we're encouraging Argentina to continue working with the IMF on that program. But the best course right now is for Argentina to be able to take the steps it needs to be able to take at home to stabilize the financial situation.
PILGRIM: Credit rating agency Moody's Investor Service downgraded its rating on Argentina Friday. Argentina's in danger of defaulting on its mountain of debt -- $128 billion worth, which is causing jitters in most Latin American markets.
The sell-off in Argentina's Merval has been brutal, losing 28 percent in value in the last week, although it recovered slightly Friday, with scattered signs of political support coming for Argentina's President de la Rua.
Analysts say that political support is key.
ALBERTO BERNAL, IDEAGLOBAL: If Argentina fails to comply or to go with the current adjustment process that de la Rua wants to do, the only option would be default.
PILGRIM: Latin American markets have been under siege for the last month, even markets in Mexico, where banks may be affected by bad loans to Argentina.
The worry: a classic contagion situation, like the Asian crisis back in late '90s.
JIM BARRINEAU, ALLIANCE CAPITAL: You're also seeing merging market countries in Eastern Europe and in Asia selling off. This is really the most full-blown emerging market crisis we've seen since Russia in '98.
(END VIDEOTAPE)
PILGRIM: The IMF has said it's not considering new funds for Argentina, dashing market rumors of a new $15 billion loan. The message: The current program is enough, keep pushing forward with reforms -- Jan.
HOPKINS: Thanks, we'll keep watching. Thanks, Kitty Pilgrim.
Coming up: Washington plays the blame game. Find out whether it's casting Wall Street as a scapegoat for the economic downturn. Also ahead: the security that touched off a street-fight between the Big Board and the AMEX. And riding high on a tide of corporate crisis: We'll hear from a short-seller, Manuel Asensio.
(COMMERCIAL BREAK)
HOPKINS: In tonight's "MONEYLINE Headlines," Wall Street finishes on the plus side for the week: a first for the Dow in seven weeks.
More signs of a slowing economy. Retail sales edged slightly higher in June, but failed to meet expectations. And a separate report shows that inflation remains contained: Prices at the wholesale level fell 4/10 of a percent.
And it's official, China will hold the 2008 Summer Olympics in Beijing amid much controversy. Beijing beating out Paris, Toronto and Istanbul.
More now on the markets: Stocks gained for the second day in a row, building on yesterday's powerful rally. The Dow started the session on a negative note, but managed to change course midday. Helping fuel the 60-point gain, strength from ALCOA, American Express and Disney. A mixed day for techs: strength in networking issues offset by chips and software. The Nasdaq ended up the day just 9 points.
On the Big Board, advancing issues led declining issues.
For the week, the Dow gained 2.8 percent, the Nasdaq was up 4 percent, the S&P 500 up a little over 2 percent. Treasuries also ending higher: The 10-year note rising 4 ticks, the yield at 5.21 percent. The long bond, up 12/32, the yield 5.56 percent.
My next guest sees positive signs in this morning's tame inflation numbers, but wonders whether layoff fears are acting as a concern for consumers. Joining us now is William Dudley. He's chief U.S. economist at Goldman Sachs.
Welcome, Bill.
Now, in all of this, what are we seeing? An economy that's not doing so well, right?
WILLIAM DUDLEY, GOLDMAN SACHS: Right. And the good news is that inflation is moderate, and so the Fed has a full rein to ease policy further if need be. The problem is that we've had a lot of job layoffs, and that could affect consumer spending. The June retail sales report was definitely on the weak side.
HOPKINS: In fact, the only thing consumers seem to be buying are cars, and that's because they're basically giving them away with discounts, right?
DUDLEY: Well, the car sales have held up extraordinarily well, and consumer spending, while it's moderating, has not collapsed. So we're still looking like we're going to avoid recession at this point.
HOPKINS: The stock market this week, it's really betting that we've seen the worst. From what you see in looking at the numbers on the economy, do you think that that's true?
DUDLEY: I think things are looking a little bit better, because relief is on the way: The tax rebate checks are going out, energy prices are falling.
HOPKINS: But right now, right?
DUDLEY: Yeah, right now. Energy prices are falling. That helps support real income. But we're not out of the woods yet, because companies are still laying off workers. I think the next three or four months are critical.
HOPKINS: And so what would you say to investors? Bonds look better than stocks, or where do you put your money in the three months where we're testing all of this?
DUDLEY: Well, it really depends on whether confidence breaks or not. If consumers hang in there, we're going to make it, and I think the stock market will do better. Bonds will probably sort of tread water as people worry about the possibility that the Fed might even tighten monetary policy next year.
My own view is that Fed's going to be very, very slow to raise interest rates, because this economy is not going to be that strong next year.
HOPKINS: And how much is consumer confidence tied with what goes on in the stock market? So that if the stock market does better, then people feel better, and then the economy does better...
DUDLEY: There's a little bit -- there's a little bit of circularity to it. The stock market is definitely something that the bond traders look at every day.
HOPKINS: And certainly something that people look at every day as well...
DUDLEY: Yes, absolutely.
HOPKINS: ... to see how their portfolio are doing.
DUDLEY: Absolutely. Absolutely.
HOPKINS: It's the first time that people have really learned about risk in the stock market, really learned that stock prices can go down as well as up.
DUDLEY: Yeah, I think that's really the thing that people are going to have to grasp going forward, is that the returns that we got from 1982 to 2000 were extraordinary. That was a tremendous improvement in the economy's performance. Now it's going to be a little bit more tough to have those kinds of gains going forward.
HOPKINS: But good news ahead as far as you can see?
DUDLEY: Well, we're not quite out of the woods yet, but things look a little better.
HOPKINS: Thanks very much, Bill Dudley.
DUDLEY: Thank you.
HOPKINS: And in corporate news, Charles Schwab's U.S. Trust unit agreed to pay a $10 million fine to settle a suit brought by the Federal Reserve and the state of New York. U.S. Trust allegedly failed to keep accurate records to fully comply with banking laws. U.S. Trust must now supply monthly compliance records until further notice.
A solid first run for Nasdaq newcomer Wright Medical. The orthopedic device company today going public at $12.50 a share. It managed to gain more than $3. Wright says it will use the nearly $94 million it raised for product development and debt repayment.
More bad news from Toys'R'Us. The biggest toy chain in the country warning full-year profits will fall short of expectations. The reason, a weak retail environment and store remodeling costs. The markets may have ended this week in the black, but it has been a terrible year and a half for stock prices. With more Americans involved in the stock market than ever before, the pain of that downturn has been widespread, and many investors are wondering why they ever believed the hype.
As Peter Viles reports, Wall Street is a favorite target in the blame game.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): On talk radio, the anger is building and Wall Street is the target.
VICTORIA JONES, WMAL RADIO: I think people are privately angry at this point. I think a lot of people are reluctant to come out and even admit that they've lost money, because they feel stupid. It's kind of like they responded to one of those phone solicitations and had all their money taken by a scam artist. They feel like that, and they don't want to own up to it.
They will in time, once they realize how many other people lost money, too.
VILES: Congress reacting to those huge losses is questioning the integrity of Wall Street research.
SEN. RICHARD BAKER (R), LOUISIANA: I am deeply troubled by the evidence of the apparent erosion by Wall Street of the bedrock of ethical conduct.
VILES: And feeling the heat, Merrill Lynch this week banned its analysts from buying stock in the companies they cover. Credit Suisse First Boston fired its chief executive amid a separate federal investigation of possible kickbacks in the IPO game.
The backlash due in part to the disappointment felt by millions of first-time stock investors.
NED RILEY, STATE STREET GLOBAL ADVISORS: Because we had almost 10 years of uninterrupted growth in the stock market itself, people felt that this was an easy place to make money.
VILES: Historian Charles Geisst says Wall Street makes an easy target.
CHARLES GEISST, AUTHOR/HISTORIAN: You can't blame the public, so you have to blame somebody, and organized folks are on Wall Street. That's who's going to get blamed for this, I think.
It would be hard to say whether it's justifiable or not, but it's coming.
VILES: Stockbrokers have never enjoyed high marks for honesty: Even in 1999, before the bubble burst, only 16 percent of those polled by Gallup gave stockbrokers very high or high marks for honesty and ethics. That put the profession well behind nurses, teachers, funeral directors, and even television reporters. Stockbrokers were not dead last: They did rate higher than real estate agents, lawyers and car salesmen.
(on camera): And there is no groundswell for new regulations to punish Wall Street. In fact, the stated goal of those hearings on analysts is not new regulations, but a voluntary, industry-backed solution.
Peter Viles, CNN Financial News, New York.
(END VIDEOTAPE)
HOPKINS: There is already one sector of the investing public more than willing to punish Wall Street and corporate America for overblown stock prices: They're the short-sellers. Our next guest has become legendary for his strategy. It's the title of his new book and the basis of his controversial reputation. We're now joined by Manuel Asensio. He runs his own investment company.
Do you think that investors were sold short by Wall Street?
MANUEL ASENSIO, CHAIRMAN, ASENSIO & CO.: Well, I do believe that the recession may have been the result of a misallocation of capital, which would have been greatly helped if short-sellers were free to ply their...
HOPKINS: So short-sellers were pushed out of the market because they were betting stock prices would go down, but in fact they went up. And if they hadn't been up so far, we wouldn't be in the situation we're in?
ASENSIO: Absolutely. Short-sellers really were never in the game. The amount of capital available to short-sellers and the restraint that we have on the regulation of our trading make it hard for us to commit the capital that would benefit society, would benefit our economy if we were able to do so.
HOPKINS: I think companies wouldn't agree with you, because you really attack them, go after them, and push the stock price down. So they wouldn't say that's good for America.
ASENSIO: Well, it's a healthy adversarial exchange that should not be inhibited, and right now it's dominated by the promoters. And you know, the regulators and the companies are all involved in promoting stocks to the U.S. public. I think that short-sellers would be very beneficial to society.
HOPKINS: So what should the average investor that's not selling a stock short, but actually looking to buy companies, what things can those investors learn from what you look at? What questions should they ask about a company?
ASENSIO: Well, certainly from reading the book and looking at the experience we've had, I think it's important to perhaps have some legislation so that public companies won't have the private litigation right to sue people that are criticizing them. Why would the public ever oppose more information, regardless of how offensive they might find it? You know, free information is what is essential to price stocks directly and avoid these types of problems.
HOPKINS: But what things do you look at in a company that you can give advice to investors? You know, what are big signals to you that the stock could go down?
ASENSIO: Certainly the value: The multiple of trailing earnings and the multiple of future earnings are what drive us into a market. After that, the quality of the management and the quality of the people and the openness that management has and the facts involved in each case.
HOPKINS: Thanks very much, Manuel Asensio. And next on MONEYLINE, a popular fund created by one stock exchange attracts the attention of its main competitor. It now wants a piece of the action.
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HOPKINS: Tonight's "Sectors Report" is tracking stocks, specifically the Nasdaq index fund, or QQQs. Buying a QQQ allows you to own 100 of the Nasdaq's biggest companies, and trade them like a single stock. In two weeks, they'll start trading on the New York Stock Exchange. That poses a big threat to the American Stock Exchange, which invented the fund.
Fred Katayama reports on the battle over the increasingly popular QQQ.
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FRED KATAYAMA, CNN CORRESPONDENT (voice-over): For years, the major stock exchanges have fought to nab corporate listings, but they have never competed over trading the same security. That will change July 31, when the venerable New York Stock Exchange starts trading a security that is the crown jewel of its rival, the American Stock Exchange, the QQQ, an index-based basket of 100 largest Nasdaq stocks like Microsoft and Cisco. It will also trade two other exchange- traded funds that track stock indexes.
PROF. JOHN COFFEE, COLUMBIA LAW SCHOOL: This is really classic, all-American price competition. It's the same as General Motors versus Ford, or Coke versus Pepsi. For the American Stock Exchange, this is a life and death battle.
KATAYAMA: That's because the Qs accounts for nearly half of its daily trading volume. As the first mover, AMEX owns 53 percent of the Q market.
SAL SODANO, CEO, AMERICAN STOCK EXCHANGE: The American Stock Exchange invented the exchange-traded fund back in 1993. We have developed them over time, and throughout along with that, a very deep and talented team.
KATAYAMA: But the Big Board has a big advantage, experts say, liquidity.
RICHARD GRASSO, CEO, NEW YORK STOCK EXCHANGE: There are many investors among the 85 million strong in this country that confine their activities solely to Big Board-traded securities. So, to the extent that we enter the product, I am going to believe that we are going to broaden the audience to deeper and more liquid markets with greater and tighter spreads.
KATAYAMA (on camera): To lure trades, the NYSE will waive all fees related to exchange traded funds for the first three months. An AMEX spokeswoman would only say it is evaluating its fee structure. The talk among traders: whether to stay with the AMEX, or switch to the Big Board?
(voice-over): In the end, traders say, they'll pick the exchange that offers the most liquidity.
Fred Katayama, CNN Financial News, New York.
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HOPKINS: Coming up: a wrap-up of this week's market action and a look ahead, as earnings season picks up speed. We'll have a roundtable discussion.
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HOPKINS: Wall Street finishes the week on the place side, but braces for a major week of quarterly results ahead. Also on the table: several economic reports and continued worries over Argentina's economic health.
A lot to sort through, and here to help are our own Bruce Francis, Jennifer Westhoven, Kitty Pilgrim and Goldman Sachs' William Dudley.
Let's start with Bruce Francis, because techs were the story of the week, and investors are probably saying, it's about time.
FRANCIS: Microsoft, Microsoft, Microsoft. They've really poured some oil on the tech waters here, that $100 million upside surprise is going to be the best money ever spent for investors, because I think it calmed a lot of investors down, and gave us some signs that things might be stabilizing, especially in the PC space, which led us down in the last leg of the correction.
HOPKINS: So, Jennifer, will the good news on tech continue to help things there at the New York Stock Exchange?
WESTHOVEN: Well, there are a lot of technology earnings coming next week, so that is definitely what the hope is here too, and we saw a lot of pressure on IBM, there had been a lot of concern that maybe as all these other technology companies warn, IBM was going to have problems, but by the end of the week it was doing pretty well, if it's any barometer of what's going on there. But I think it's 16 of the 30 Dow components will be reporting earnings next week, so it's a lot more than just tech, too.
HOPKINS: Bill Dudley, what did we learn about the economy this week that really helped the market?
DUDLEY: Not too much, actually. Conferences are holding up, we sort of knew that. The labor market is still deteriorating, claims are still going up, we sort of knew that. Maybe consumer spending is softening, so we are really pretty much in the same place as we were a week ago.
HOPKINS: So, we are not getting support from the economy, we are just getting it from the companies at this point?
DUDLEY: Right, I think that's right. I think the earnings disappointments were obviously the story early in the week and late in the week, the idea that maybe that we are getting to the end of that.
HOPKINS: Kitty, we had international developments, good news China Olympics, and really something to watch in Argentina.
PILGRIM: Two big events, one happened, one didn't. Both probably good, China getting the 2008 Olympics, and the repercussions of that being integrated in the global economic community. The economic repercussions are huge. The fact that Argentina did not default on $128 billion of debt, and major relief for this week, however the timetable for that is a sliding scale. So that is still hangs over the market.
HOPKINS: So what hangs over the markets next week, Bruce, in terms of technology? Lots of earnings reports, right?
FRANCIS: Lot's of earnings, but we are not so worried about the bottom line, what we get in that initial print. We really want to know what the outlooks are. What is Intel going say, for example, on Tuesday? Does it still see the stronger second half? That would be good news. Are things really stabilizing, maybe even getting better? Do we have more visibility? It those outlooks that we are going to get from some of the biggest names in technology, that is going to be the key. Beyond the PC space there is not a lot of optimism though.
HOPKINS: So, Jennifer, some of those big technology companies trade at the New York Stock Exchange.
WESTHOVEN: Some of them trade here and also Alan Greenspan is speaking on Wednesday, I believe, in front of Congress so that is definitely going to be a big focus here at the big board.
There is another trend out there that might sound pretty good: Oil fell a little bit more than 5 percent this week, but there is a lot of concern that the reason it is falling is because there is just going to be less global demand for it. So you are also going to have traders really keeping their ears open for what's going on around the world, not just what's going on here.
And it's not that often that they are listening to what's happening outside the U.S.
HOPKINS: And Bill Dudley, I guess this Greenspan testimony is critical, right?
DUDLEY: Absolutely.
HOPKINS: Will he say we are going to lower our rates?
DUDLEY: I think he's going to say that the economy looks like it is going to do better going forward. He has every incentive to do that. He has every incentive to talk nice, to encourage the stock market to rally and the bond market to do better. He will also very much emphasize that the inflation news looks better, and so that will hold out the hope that if the economy needs more support from Fed,that the Fed will come through for them.
HOPKINS: Thanks very much, Bill Dudley, Kitty Pilgrim, Bruce Francis, and Jennifer Westhoven.
Coming up next, your e-mails and "Ahead Of The Curve."
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HOPKINS: As we heard more than half of the Dow 30 companies are reporting quarterly earnings next week. On the list, Microsoft, Intel, IBM, Citigroup, Coca-Cola, and Merck. Also up: Philip Morris, General Motors, as well as Ford, Daimler-Chrysler, Nokia, and Sun Microsystems.
A busy week of economic reports, with the CPI report, housing starts, trade numbers, as well as industrial production. Also President Bush kicks off his second European tour on Wednesday. He will be attending the G-8 summit in Italy.
And now time for a look at some of your comments on the subject of Beijing's winning bid to the host the 2080 Summer Olympics, Paul writes, "I am very disappointed with the games going to China. It's obvious that money buys morals in most cases so the Olympic Games are dead."
On to President Bush's suggestion for a discount card designed to make prescription drugs cheaper for senior citizens, Bill in Mountain View, Missouri, thinks it is a bad idea: "Drugstore profits are not the cause of expensive medicines," he says, "Why try to lower medicine costs on the back of the pharmacists? The discount may be absorbed only by the pharmacy not the government or the drug companies."
Bill, your view is shared by the American Pharmaceutical Association. It tells us that true Medicare benefits must provide coverage, not just discounts.
Microsoft's upside revenue guidance prompted a viewer to write, "The whole PC sector is a wreck, yet Microsoft's business is in fine shape. What's wrong with this picture?"
Microsoft is feeling the effects of a slowdown in PC sales, but software on new PCs only account for about a third of the total sales. A large portion of Microsoft revenue comes from software upgrades to existing PCs. Companies also buy software for servers and other back office computers.
We like hearing from you so send us your comments: moneyline@cnn.com. Don't forget to include you name and your state.
That is MONEYLINE for this Friday evening. Thanks for joining us. I'm Jan Hopkins sitting in for Lou Dobbs. Good night from New York. "CROSSFIRE" is next.
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