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Lou Dobbs Moneyline
Dow Declines 66.94 to 10,472.12; Nasdaq Tumbles 55.67 to 2,029.12; Fuel Prices Continue Their Unexpected Fall
Aired July 16, 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, stocks tumble for the first time in nearly a week, even as two top banks beat the Street on profits.
Fuel prices continue to slide, defying predictions of an all-out disaster. We'll look at the energy crisis -- that wasn't.
(BEGIN VIDEO CLIP)
PROTESTERS: Stop the pain! Start the healing! Bush and Cheney got no feeling!
(END VIDEO CLIP)
HOPKINS: The explosive debate over workplace injuries: Labor attacks the White House in the battle over ergonomics.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Sitting in tonight, Jan Hopkins.
HOPKINS: Our top story tonight: A sell-off on Wall Street, hitting tech stocks particularly hard. Stocks tumbled for the first time in nearly a week, with the Nasdaq bearing the brunt of the damage, down more than 2.5 percent. Investors were struck by renewed fears that any recovery in the chip business is a long way off.
Greg Clarkin joins us now from the Nasdaq marketsite with more on what drove today's market action -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: And Jan, this was no way to kick off an earnings season. What we had today was the Nasdaq giving back a big chunk of last week's gains as investors really just kind of moved out of the way, ahead of this flood of corporate earnings reports due out later. And what we had today in the market was really no good news for technology stocks. We had the CFO of Applied Materials, the chip equipment company, saying that business right now, just meandering around the bottom, and there's no near term change in the company's outlook.
On top of that we had negative comments on Cisco from Morgan Stanley analysts. All that ended up to just a real negative session. Let's go back here to the wall, I'll show you how the day shaped up, and believe it or not, the Nasdaq was positive at one point today. It was very early, early going. It was up for maybe 15 minutes or so, up five or six points, and then the selling took hold. And you can see it accelerated right around midday, driving it down to session lows at about 3:40, when it hit about 2,025 or so. All the sectors are weak. We had the Philadelphia Semiconductor index down 6 percent. We had Amex Biotech index down 6.7 percent.
Let's take a look at some individual issues right now and give you an idea of the damage report. Let's start with Applied Materials, its stock losing better than $4 on the day. We had Intel down a dollar, the company wire reports saying that Intel is slashing prices on some microprocessors by as much as 37 percent. And there's Cisco Systems, the analyst at Morgan Stanley was Chris Dixon and he said at this point it looks like Cisco's business is tracking to the low end of the company's guidance. That stock off better than a buck.
And then finally, Chiron in the biotech arena, losing $3. It was dealt a setback by the FDA, that wants to see some more information on a blood testing system that the company is developing.
So at this point, Jan, really the next event will be Intel's earnings report. It's due out after the close of trading tomorrow. Tomorrow there's dozens of companies reporting earnings, and Intel will be among them. There will be people focusing on that throughout the entire day.
Jan, back to you.
HOPKINS: And investors want to hear news that things are improving, right?
CLARKIN: Without a doubt, Jan. What's really key here are these conference calls after the earnings reports. They want to hear executives talk about the third quarter stabilizing, if not, the fourth quarter stabilizing. Right now there's a lot of uncertainty over whether or not those executives will be able to provide that kind of guidance.
HOPKINS: Thanks very much. Greg Clarkin at the Nasdaq marketsite.
The tech trouble hurt the Dow today as well. All four blue chip tech stocks ended lower, accounting for more than a third of the Dow's loss. But technology wasn't the only sector under pressure.
Jennifer Westhoven reports from Wall Street.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Profit worries knocked the market lower on the first day of the busiest week of the earnings season. Nearly 2,000 companies report quarterly results this week. The Dow Jones industrial average traded sideways early on, but took a turn for the worse in late morning trading, closing down 66 at 10,472.
Volume was light, just more than a billion shares traded, as investors look to some key events later this week.
NICK ANGILLETA, SALOMON SMITH BARNEY: This is a big earnings week, as everyone knows. Tomorrow you have Intel out, Wednesday we have IBM. Wednesday you have Greenspan speaking, so I think there's a lot of people on the sidelines not sure what to do today.
WESTHOVEN: The selling in techs picked up after semiconductor equipment company Applied Materials said it doesn't see signs of a near-term bottom. That chipped away at the same enthusiasm that pushed stocks higher last week. The Nasdaq fell 55 to 2,029, down more than 2.5 percent.
MARC KLEE, AMERICAN FUND ADVISORS: It is fragile. Last Thursday we had a huge run in technology stocks. We gave back now about half of that run that we had last Thursday. Not a good sign.
WESTHOVEN: Biotech and medical companies were hit again. Pharmacia's new drug was tabled until the company gives the FDA more details, the latest in a series of drug delays by the government. In a research note on the Pharmacia rejection, Merrill Lynch said the agency "has entered an extreme zone of conservatism."
Oil services and brokerages also fell, as Standard & Poor's said traditional Wall Street firms are facing competition from banks from both the United States and around the world.
(END VIDEOTAPE)
WESTHOVEN: One interesting twist: Many traders are saying IBM's future outlook is going to be even more important than Alan Greenspan's speech. IBM is due to report on Wednesday and investors are desperate for clues about what's really going on in the technology business. So far, though, IBM has pretty much stood alone. It has not disappointed investors, but there's been growing concern among analysts and investors that it just can't be immune to the global slowdown -- Jan?
HOPKINS: We'll see Wednesday. Thanks.
As we said, investors are bracing for a flood of profit reports out this week. Among those companies reporting today: Citigroup and Bank of America. They both beat expectations. But that encouraging news wasn't enough to prop up the entire financial sector in trading today.
Fred Katayama has that story.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Consumers were the saving grace for the nation's big banks. Banks fought off the weak economy, beefing up their bottom lines with consumer businesses and cost cutting drives.
CHRIS BLUM, EDWARD JONES: We did see some weakness in the investment banking part of the business, but the consumer side was particularly strong. For Citigroup, their consumer businesses, domestically as well as internationally, were strong.
KATAYAMA: Citigroup beat past analysts' estimates. Bank of America beat them handily. Citigroup's second-quarter profits rose 13 percent to $3.8 billion. Bank of America's per-share earnings grew 8 percent, but operating profits fell 2 percent to $2 billion. Bank of New York's earnings rose 13 percent to 385 million. And loan growth boosted 5/3's earnings 14 percent to 338 million. The banks can thank Alan Greenspan. Falling interest rates lowered their cost of funds, pumping up profits for consumer businesses. Citigroup's North American credit card business grew 17 percent, and its consumer finance business rose 40 percent.
TOM THEURKAUF, KEEFE, BRUYETTE & WOODS: Consumer losses are up, but what's happened is margins have exceeded that increase in loan losses. So what's happening is that consumer related revenues are quite strong.
KATAYAMA: Investment banking results were weak because of the downturn in equity trading and underwriting. The bond rating firm S&P lowered its outlook for Merrill Lynch, Goldman Sachs and Morgan Stanley, revising it from stable to negative. It said their "underwriting prowess and advisory expertise are no longer sufficient to win attractive fees." Analysts say much of the near-term fate of the banks rests on the health of the economy.
One area of concern: credit quality. Citigroup's CEO Sandy Weill predicts credit will continue to deteriorate somewhat, but added that the bank has $9 billion in reserves. Bank of America's CFO told analysts he was cautiously optimistic about its credit situation. It boosted its provisions 70 percent in the second quarter -- Jan?
HOPKINS: Because a big part of the profits are credit cards, right?
KATAYAMA: Right, and a lot of other credit companies are doing well, not just Citigroup.
HOPKINS: Dividend hike also?
KATAYAMA: Which is good news. Citigroup shareholders will get two cents more in dividends to 16 cents, payable August 24.
HOPKINS: Thanks, Fred Katayama.
Checking out how financial stocks fared today, Citigroup was up a fraction, Bank of America gained more than $1. But Goldman Sachs, Morgan Stanley and Merrill Lynch all ended sharply lower following that report from S&P.
Another sector slammed today: oil services. As energy prices continue to decline, that means that the recent binge in oil exploration projects will likely slow. Schlumberger, Halliburton, Transocean Sedco, Global Marine and Diamond Offshore, all lower. Each of these stocks hovering at a 52-week low. Checking oil prices, light sweet crude in New York, falling 53 cents to $26.06 a barrel. Gas prices are falling along with oil prices, just as White House officials fan out across the country, drumming up support for the president's energy policy. When that policy was unveiled in May, prices were surging and Mr. Bush declared that we were facing the worst energy crisis since the 1970s.
Kitty Pilgrim looks at the crisis -- that wasn't.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Remember when filling up your car cost more than paying the mortgage? The gas pump blues were playing loud and long in May, when gasoline peaked in price. Three dollars a gallon was predicted, and the panic button was pushed in both Washington and at the gas pump.
Not anymore.
UNIDENTIFIED MALE: Right now gasoline is going down and down. And let's cross our fingers and hope it won't go up.
UNIDENTIFIED MALE: We're from the East Coast and it's gone down considerably.
UNIDENTIFIED FEMALE: It has gone considerably. Surprising a little bit, I guess.
UNIDENTIFIED MALE: I'm happy to be able to find it for two bucks.
PILGRIM: The average price per gallon has dropped by 25 cents to an average $1.51 a gallon. And if you drive off the beaten track, say Tulsa, Oklahoma, you could even pay as little as $1.16 a gallon, a far cry from the hysterical predictions of $3-a-gallon gas this summer.
How come the pundits got it wrong? We asked people at the pump.
UNIDENTIFIED MALE: The rest of it is just supply and demand.
UNIDENTIFIED MALE: It's a market thing.
PILGRIM: Then we asked the experts, who told us production has been pushed up since earlier this spring. And with the slowing economy, demand has dropped off, so prices are coming down.
RAYOLA DOUGHER, AMERICAN PETROLEUM INSTITUTE: We've had record production, huge production increases in the past 10 or 13 weeks now. And we're maxing up in our refinery capacity, utilization is about 97 percent.
(END VIDEOTAPE)
PILGRIM: So don't worry, be happy. Gas is cheap again, traffic will be awful, Americans will be taking more road trips. And it will take longer to answer the question "are we there yet?" -- Jan?
HOPKINS: Thanks, Kitty, there's always a plus and a minus; right?
The decline in gas prices is a welcome development to consumers; it reduces one threat to consumer confidence. Consumers have proven to be resilient in the face of a sudden economic slowdown. But my first guest tonight says it would take just a small hit in confidence to threaten the entire economy.
Alan Blinder, former Fed vice chair, joins me now from Princeton.
Now is the consumer really that important to the economy at this point? And is the economy really that vulnerable that the consumer could really push things over the edge?
ALAN BLINDER, ECONOMIST, PRINCETON UNIVERSITY: I think both. Right now the economy is growing maybe between zero and 2 percent. Some people think we might have a negligible growth in this quarter.
Secondly, the consumer you know is two-thirds of the economy. If consumer spending should fall a couple of percentage points that's all it would take to put us down into negative numbers, hopefully that's not going to happen and there is no indication by the way that it's happening right now.
HOPKINS: But the consumer is really borrowing in order to keep spending, because assets are down, wealth is down. Can the consumer keep borrowing, given this situation?
BLINDER: Well, that's about the $10 trillion question, no one knows the answer. If, in fact, the consumer keeps his and her profitable ways up, and that's been the American way for a long time, we'll get through this OK.
If, on the other hand, he and she turns around, looks at his and her assets statements and says, I've lost some money in the stock market, maybe my job is it threatened, that could be very bad news for consumer spending.
HOPKINS: But one of the things that's really held up is real estate; so consumers are feeling wealthy if they own a home and have equity in that home. Is real estate likely to be hit at some point?
BLINDER: Well, so far, so good with real estate. The real estate has really benefited from the lower mortgage interest rates, that and autos are the two sectors that seems to be getting some benefit from lower rates. And again, so far, so good with real estate.
But it's the same sort of fear. If the economy heads south, the real estate will take a hit.
HOPKINS: But usually when we have a recession it's -- the consumer that cuts back first and then businesses respond. This time, it's the businesses that are cutting back and the consumer has kept going.
BLINDER: It's definitely the businesses. I'm not so sure about the generalization. If you look at past recessions, in many of them, consumers didn't cut back much at all. And that's one of the reasons the recessions weren't worst.
But this is a case where the business sector is clearly in the tank, manufacturing has undoubtedly been in a recession for sometime now. But the consumer is spending away, and that's what is keeping the economy afloat; and the key question is, will it continue?
HOPKINS: Well, people point to things like lower gas prices, so it takes away tax from the consumer when they were taxed more and paying more for gas prices. And also, we're getting these tax refund checks pretty soon. Won't that help out?
BLINDER: Exactly; I think both of them will help. The lower energy prices and the rebate checks. And the coming on-line, so to speak, of the Fed's rate cuts, we haven't really felt the effects of those, and that's the key question. All of this should be making for a much better economy around this winter, around the closing months of this year, and the opening months of next year.
The question really is, can the consumer keep the boat afloat as I said until we get to that safe harbor, if you call it that?
HOPKINS: Your former colleague Alan Greenspan is testifying before Congress this week; what's he likely to say? Is he likely to promise more rate cuts?
BLINDER: I don't think he'll promise anything. But -- he'll certainly not close the door on more rate cuts. And i think (UNINTELLIGIBLE), you'll probably hear a message that some more rate cuts, maybe not vastly more, but some more are likely, and that they are alert for the possibility that the economy would weaken. In which case, there might be considerably more rate cuts. But he won't promise anything.
HOPKINS: So, your bottom line is, you think things will look better this winter, but we have to kind of wait until then until we see good signs?
BLINDER: I think so. But the key question is make it through winter. You remember that old cartoon, Wily Coyote, he used to get out on the cliff, go over the cliff, and somehow he stayed up there. That's kind of where the consumer is: the wealth has evaporated, the jobs are sagging badly, and yet the consumer keeps spending. And the question is, how long will they stay there? I hope they will.
HOPKINS: Thank you very much, Alan Blinder, professor at Princeton, thank you for joining us.
BLINDER: Good being here.
HOPKINS: Tonight's tech watch: workplace injuries. From minor sprains to serious injuries, more than 5 million Americans are hurt on the job every year. It costs the U.S. economy about $50 billion each year in lost productivity. Corporate America celebrated this year when President Bush overturned workplace safety regulations put in place by the Clinton administration.
But labor unions cried foul, saying that the administration caved into business interests. And the Labor Department today kicked off hearings on the subject of workplace safety. Louise Schiavone reports from Washington.
(BEGIN VIDEOTAPE)
UNIDENTIFIED CROWD: Stop the pain! Start the healing! Bush and Cheney got no feeling!
LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): The Bush administration billed it as the first of three public forums on workplace safety rules. Secretary of Labor Elaine Chao seemed disappointed with the reception.
ELAINE CHAO, LABOR SECRETARY: It's one thing to disagree on policy, but to make political attacks on the process and the individuals who are involved, before we even start, is both unreasonable, irresponsible and insincere.
SCHIAVONE: The Bush administration insists it is not taking sides with business or labor. But business heaved a sigh of relief when the Clinton administration's expanded rules were jettisoned.
BILL ZOLLARS, PRESIDENT & CEO, YELLOW CORP.: It would have had a big impact on us financially. We were looking at spending probably $30 million a year to set up the infrastructure necessary to support the process to be in compliance with the rule.
SCHIAVONE: Labor, though, says it's not going away.
RICHARD TRUMKA, SECRETARY TREASURER, AFL-CIO: We're going to come back again and again and again, until workers are protected.
SCHIAVONE: It's hard to say how long the Bush administration will take to formulate a new set of worker safety regulations. For Labor, the fact that the recently vetoed rules took ten years to craft is not encouraging.
JEFFREY GARIN, DEMOCRATIC POLLSTER: There's more of a backlash to eliminating this basic safety standard that the Bush administration expected. And now they have to do something to save face.
SCHIAVONE: Businesses say they are voluntarily investing millions of dollars in worker safety every year. Secretary Chao will decide by the fall if that's enough, or if more government intervention is necessary.
Louise Schiavone, for CNN Financial News, Washington.
(END VIDEOTAPE)
HOPKINS: Still to come on MONEYLINE, the president considers giving millions of illegal immigrants the chance to stay legally in the United States. We'll get the latest from the White House. The business impact of Beijing's Olympic victory, corporate America looking to build deeper inroads in China.
Also, a new study showing the Golden Road starting very close to home. The economic benefits of home ownership.
(COMMERCIAL BREAK)
HOPKINS: Disastrous flooding hit South Korea over the weekend. At least 45 people were killed, nine others are missing in flooding and landslides that followed 12 inches of rain in the area around the capital, Seoul. It's the heaviest rainfall since 1964. Some 34,000 homes were inundated, nearly 500 cars were reported destroyed or swept away.
A throwback to an earlier era today: China and Russia signing a so-called "friendship treaty," the first such accord in a half century. Chinese President Jiang Zemin and Russian President Vladimir Putin `inked the deal, meant to defend each other's mutual interests and boost economic and cultural ties. Both Moscow and Beijing said the treaty was not a military alliance and posed no threat to the United States or any other country.
In other news, President Bush today suspending a controversial law meant to block international companies from doing business in Cuba: the president saying he will put a six-month hold on the effect of the so-called "Helms-Burton law." This allows U.S. citizens and companies to sue international firms that use property in Cuba confiscated after the 1959 communist revolution. The Clinton administration had repeatedly suspended the impact of Helms-Burton, which was vehemently opposed by the European Union.
President Bush was also considering changes affecting citizens of another Latin American nation, the president weighing whether to give more than 3 million Mexicans living illegally in the United States the legal right to remain here.
Major Garrett has the latest from the White House.
MAJOR GARRETT, CNN CORRESPONDENT: Jan, during the campaign, candidate George W. Bush said he was opposed to a blanket amnesty for any illegal immigrant working and paying taxes in the United States. Nevertheless, the Bush White House is considering a report that is due to arrive here later on this week from the Justice Department and the State Department recommending something very close to that: perhaps a new type of guest worker status for these Mexican illegal immigrants working, living and paying taxes in the United States.
The White House has tried to come up with a different term than amnesty, and Ari Fleischer, the White House press secretary, brought it out today.
(BEGIN VIDEO CLIP)
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: They are looking at the creation of a new temporary guest worker program, and as part of the guest work program, as you indicated, there are some 3 million Mexicans who are in the United States illegally, and this would focus on whether or not there is anything that can be done to regularize their immigration status and to provide them either with some type of temporary or some other type of status that would welcome them into the United States.
(END VIDEO CLIP)
GARRETT: Regularize: That's the new word the Bush administration is coming with. Why is this topical now: Well, because Mexican President Vicente Fox urged President Bush to look into this matter when they first in February in Mexico, and the Mexican government and the United States government would like to come up with new immigration proposals affecting both countries by December. Why? Well, that's when Vicente Fox arrives here in Washington. He'll be the guest of honor at the very first state visit of this Bush presidency -- Jan.
HOPKINS: But actually, he is in the United States, isn't he? In Detroit at this point?
GARRETT: He's in Detroit. He's on up to Chicago also. And asked about this today, he said, we want the maximum number of rights for Mexican-Americans living in America, that's what's best for our country, that's what's best for the United States. That's what Vicente Fox had to say about this particular issue -- Jan.
HOPKINS: Thanks, Major Garrett at the White House.
A major change at the top of the Olympics. Jacques Rogge, a surgeon from Belgium, won a landslide vote to become the new president of the international Olympic committee. He will replace the longtime leader, Juan Antonio Samaranch, whose 21 years as president came under fire for the lavish treatment granted to IOC officials. Rogge is seen as somewhat of a reformer, saying today he hopes to stay at the athlete's village at next year's winter games in Salt Lake City.
Today's announcement of an IOC president follows last week's monumental news granting the 2008 Olympics to Beijing. As Susan Lisovicz reports, corporate America is hoping that China's victory will translate into an Olympic-sized business opportunity.
(BEGIN VIDEOTAPE)
(BEGIN VIDEO CLIP)
JUAN ANTONIO SAMARANCH, PRESIDENT, IOC: The games of the 29th Olympiad in 2008 are awarded to the city of Beijing.
(APPLAUSE)
(END VIDEO CLIP)
SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Chinese citizens celebrated in the streets upon word that Beijing would serve as an Olympics host city for the first time, far less conspicuous, but just as enthusiastic, the reaction from big American business eager to expand its presence in the world's biggest emerging market.
Coca-Cola is already there and signed up as an Olympic sponsor for the summer games in Beijing.
STEPHEN JONES, CHIEF MARKETING OFFICER, COCA-COLA: We're double- digit growth for several years now, and I expect that that will continue on through the 2008 Olympics, and we will continue to -- we will use this thematically to help us grow the relationship with people and the value of the brand and our business.
LISOVICZ: General Motors is another U.S. company pledging financial support to the 2008 games. The eagerness is not only fueled by the opportunity to sell more goods, but also the prospect of changes that will be beneficial to business.
MYRON BRILLIANT, VICE PRESIDENT, ASIA U.S. CHAMBER OF COMMERCE: I think we now see a path by which China is recognizing a rule of law and commitment to create opportunities for foreign investment that haven't been there in the years past.
LISOVICZ: China had campaigned intensely for the bid to host the 2008 summer games. But China is also awaiting another decision on whether it will be accepted into the WTO.
ROBERT KAPP, U.S./CHINA BUSINESS COUNCIL: The WTO represents the opening up of whole sectors to foreign participation in ways that they couldn't do before. Tariffs are going to go down on a lot of great many objects, including many that the United States wishes to import to China. Agricultural products will move into China, it is expected, in significantly larger numbers than before.
(END VIDEOTAPE)
LISOVICZ: Given the massive infrastructure that needs to be built, Beijing is not expected to make much of a profit from hosting the Olympics. That is all about pride and worldwide acceptance. The WTO decision, expected this September, is far more important economically to China, and because it would force China to play by the rules, far more important to the companies that do business there -- Jan.
HOPKINS: Thanks, Susan.
And coming up, in the next half hour of MONEYLINE, a down day on Wall Street despite some strong bank earnings. And Continental Airlines, flying high in the black while its competitors bleed red ink. We'll hear from Continental boss Gordon Bethune. And the traditional path to the middle class may still be the best: the power of home ownership.
(COMMERCIAL BREAK)
ANNOUNCER: LOU DOBBS MONEYLINE continues. Here again, Jan Hopkins.
HOPKINS: In tonight's "MONEYLINE Headlines," stocks drop on Wall Street on a negative outlook for the chip industry. A big day for financials: Several banks reporting quarterly results. Citigroup and Bank of America beat estimates. Bank of New York fell short.
And semiconductor equipment maker Novellus Systems reporting after the bell the company beat by a penny, but reported second- quarter net income fell 24 percent.
More on today's sell-off on Wall Street. Techs took a major hit on the session with chip stocks leading the way. Helping launch the selling, a negative outlook on the industry from Applied Materials. Intel also encouraged the sell-off. The chipmaker slashed the price of some of its chips to maintain market share against rival Advanced Micro Devices.
The Nasdaq took the biggest hit, dropping nearly 2.7 percent on the session. The index closing at 2,029. The selling spilled over into the blue chips. Some of the biggest losers on the Dow, 3M, Caterpillar and Alcoa. That index finished down nearly 67 points at 10,472.
On the Big Board, declining issues led advancing issues by a margin of 3 to 2.
Tonight's "MONEYLINE Movers": Alcan falling more than $4. Profits at the aluminum maker fell short of estimates. Alcan blaming lower aluminum prices. It also cut aluminum demand estimates for next year.
Hughes Electronics losing more than 7 percent. The satellite service, which runs DirecTV, again cutting full-year sales estimates. The stock also falling on reports that rival Echo-Star has dropped its bid to buy the company.
And EarthLink rising more than 5 percent. The Internet provider saying it will begin service over Time Warner cable's high-speed lines in New York and Ohio in September. EarthLink stock is trading at a new high for the year, more than tripling since January.
In other corporate news, Sanmina says it will buy SCI Systems for nearly $6 billion in stock and debt. The deal values SCI stock at a 20-year -- or 20 percent premium to Friday's closing price. The merger would create a large electronics manufacturing firm able to compete for bigger contracts, with 100 plants in 20 countries.
USA Networks will buy up to a 75 percent stake in online travel site Expedia for about $1.5 billion. USA is currently trying to expand its presence in the online travel business. The company says it also plans to acquire online cruise and vacation package agency National Leisure Group, plus start a new cable channel to offer travel services.
On the day, shares of Sanmina dropped $2.38, SCI Systems gained $1.28, USA Networks finished higher by $1.26, and Expedia fell $3.81.
Despite today's rough session, my next guest says there is no reason not to be bullish and that we're in the midst of a recovery. Joining me now is Joe Battipaglia. He is stock strategist with Gruntal & Company.
So, Joe, you know, one day we hear good news and then the next day we don't hear good news, is this the normal kind of thing that we have to get through as we go into a full-fledged recovery or are we back pedaling?
JOE BATTIPAGLIA, GRUNTAL: No, welcome to earnings season, the season of discontent. And the sorting-out process I think is coming to an end, not this quarter, but actually next quarter. And it looks to me what we're having develop here is two months away from the quarter, where we look at the economy, we look at falling energy prices, we look at stock prices, where they are, and say, hey, this market's attractive, what the Fed has done will kick in.
But then as we get to the quarter close, this month of June and July, we get into the earnings season and that's the sorting-out process. So the market is expected to move sideways, but it will not test the lows that we saw in March and April, and I think we'll stair- step higher through the rest of the year and actually see new highs by the end of the year, because the surprise will be the economy's resilience and then ultimately the overall rebound in earnings for American corporations.
HOPKINS: So you agree with Alan Blinder that we're going to see an economy do better at the end of the year probably, but you buy stocks ahead of that? Is that the way it works?
BATTIPAGLIA: That has always been the way it works. The market would advance well ahead of the recovery from recession. The market will advance well ahead of the recovery and the analysts expectations, because it's anticipating the next 12 months, which has some very bright things in it: not the least of which is the fact that we've had 12 months of inventory correction already, stock prices have taken a significant step downward, and expectations have been greatly reduced.
HOPKINS: So will it be the same leadership -- the financials, the technology stocks -- as we saw last time around?
BATTIPAGLIA: Well, an incredible 10-year run for financials, pharmaceuticals and technology. They provided leadership of all the sectors each year, year in and year out. This time may not be any different in that pharmaceuticals and financial services companies have some consistency here. They're certainly going to benefit from lower interest rates, and technology companies are new the capital stock companies of the past. And when we come out of recessionary tendencies, they will have the big earnings leap, and that makes them leadership companies.
HOPKINS: But isn't it possible that technology is going to lag because we spent so much on technology we may not have to spend so much now?
BATTIPAGLIA: Well, here's where the analysts disagree. I think there are really 12 subsectors in technology. Some will come back sooner. I think the PC-centric companies, for example, will come out faster than the telecom, long-distance service provider, equipment companies.
HOPKINS: Because we spent so much on fiberoptics, et cetera?
BATTIPAGLIA: Because we did spend so much. On the other hand, on the front end, we've worked off a lot of inventory. We have a new platform for Microsoft and an operating system. We have new chip technology from Intel. And their cutting prices will actually accelerate the adoption of the higher, faster technologies.
HOPKINS: Let's take a look at what you were recommending when you were here last.
BATTIPAGLIA: Do we have to?
HOPKINS: Yes, we have to, and see how well you've done. It's kind of a mixed picture. Microsoft, you're talking about it now...
BATTIPAGLIA: Sure.
HOPKINS: ... it was a pick when you were here in March and it's up 29 1/2 percent.
AT&T, gone the other way. Merrill Lynch is higher. Pfizer is lower. Home Depot is higher. Which ones of these would you still recommend?
BATTIPAGLIA: I would (UNINTELLIGIBLE) all of these, because they have all the characteristics of leadership companies coming out of a tough economic time. The analysts expectations have been reduced. Their managements can make things happen on an interim basis to accelerate that process. And I would add names in the same categories.
So my new picks, if we could go into that, would include Citigroup amongst the financials, Johnson & Johnson amongst the health care companies, and AOL Time Warner as a stock to add to in technology and media presence now that the economy, I believe, will show signs of strength.
HOPKINS: So we are going to get some fits and starts, but by the end of the year significantly higher, somewhat higher or what?
BATTIPAGLIA: I'll put a number out there: 5 percent on the economy, nominal terms; 2 percent from an underlying inflation rate; 1 percent from ongoing growth, 1 percent from the tax rebate and withholding cuts, and the other 1 percent is going to be inventory restocking for the '02 business, which is something we haven't seen in a while. This will surprise the market and get us to new highs on the S&P and the Dow before the year's out and perhaps as much 3,000 on the Nasdaq.
HOPKINS: Very interesting. Joe Battipaglia...
BATTIPAGLIA: Let's hope we get there.
HOPKINS: ... always bullish. BATTIPAGLIA: When it's necessary.
HOPKINS: Gruntal & Company.
Next on MONEYLINE, bucking an industry trend. Continental, one of the few airlines turning a profit. I'll ask Continental's CEO what's keeping his airline aloft. And a new study that says the way to wealth is closer than you think.
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HOPKINS: Tonight's "Sectors Report": airlines.
U.S. carriers caught in the worst downturn in more than two decades. But one of the few airlines making money is Continental. Today it reported second quarter profits that plunged 72 percent but to $42 million. But, at 74 cents a share, earnings beat lowered estimates. Revenues essentially flat compared to a year ago. Continental stock up more than $1 today.
Other airline stocks mostly flat, Northwest gaining more than 3 percent.
Like the rest of the sector Continental hit hard by a drop in business travel. To find out how this airline is managing to turn a profit, when many others are not: from Houston, Texas, I'm joined by the chairman and CEO of Continental Airlines, Gordon Bethune.
Welcome, Mr. Bethune.
GORDON BETHUNE, CEO, CONTINENTAL AIRLINES: Nice to be here, Jan, thanks.
HOPKINS: So what's your ticket? Why are you able to turn a profit when so many airlines are not?
BETHUNE: Well, we're focusing on the fundamentals of our business. It's reliable, safe transportation, and on time. Plus, we've got employees that kind of like their job, so we complete more of our flights. It's a lots of little things, Jan, it is not one big home run.
HOPKINS: Also, you have a younger fleet, that helps; doesn't it?
BETHUNE: Absolutely, it's more fuel efficient, so we get that, it's a natural hedge, and it's also more customer attractive, so we have a little edge in the marketplace with a better product and we keep the edge with employees who like coming to work.
HOPKINS: We have energy prices coming down so that means going forward, you have one thing going for you, right?
BETHUNE: It's our turn, Jan. We see a softening and we hope that predicts the future. I welcome it.
HOPKINS: But business travel is down, do you see any signs that it's starting to come back?
BETHUNE: Not really. We're looking for it -- obviously the economy has got to show some ship before businessmen and women start flying more -- with higher fares and lower advance times than we've used to. Until that happens, we don't see an increase in revenue. And we need to see one.
HOPKINS: but the leisure traveler is getting a great deal these days, right?
BETHUNE: And what's amazing, Jan, is we don't see a real softening in load factors, our airplanes are full, but they predominantly leisure fares, businessmen and women who are taking lower fares in order to meet travel guidelines by their companies.
HOPKINS: Internet is cutting into your margins as well, because people are going on line to get the best fares at the last minute, right?
BETHUNE: Well, I think it's more of a help, because the electronic distribution system is really saving us a lot money from the distribution cost, and that's only the real advantage we've had over the last few years and that's an opportunity. Yes, we have merchandise that's for sale at the last minute, but really that electronic distribution is lowering in our total cost.
HOPKINS: What about mergers? UAL and U.S. Air is asking for the government to say whether the merger should go through, you tried to merge with Northwest. Are you going to look for other partners out there?
BETHUNE: Well, we didn't really try to merge with Northwest. We're business partners, and didn't want to merge. Our general counsel says he wants his refund of his tuition of law school if the government approves this deal. I can't help but believe that the U.S. Air/United deal is history, and we'll all compete like we have in the past.
HOPKINS: But if in fact these mergers do go through, then do you go back to Northwest and talk about a merger?
BETHUNE: I think, Jan, we talk about a whole lot of things; I'm not going to say what specifically. Obviously, we would have to reassess our position in the marketplace, that's would not be good for anybody, certainly not our employees or our investors or the communities that we serve. So I can't help but believe, Jan, that our government is not going to let these two guys get together and control the travel industry.
HOPKINS: You -- we have a soft economy, you have a lot of airplane orders, are you likely to cancel any of them?
BETHUNE: No. We've got a fleet plan that allows us to decrease our fleet by letting leases go when they're due to be let go. Or we can actually let them go early. So we have a pretty good flexible fleet plan that lets us level out our growth, we have a little leveling out, I think three to four percent of growth next year. But we're OK with the airplanes.
HOPKINS: And what about these delays that we're all experiencing lately? Is it getting better that there are fewer people flying?
BETHUNE: Well, I think it's getting better. There's not fewer people flying, but the FAA is doing a better job; we enjoyed I think really good relations. We've seen in June a 40 percent decrease in the New York area of delays, just through cooperation with the ATC, people in the en route centers and the tower. So I think the FAA is doing a better job, and we're working more closely with them.
HOPKINS: That's definitely good news for all of us in New York. Thanks, Gordon Bethune, the CEO and chairman of Continental Airlines.
BETHUNE: Thanks, Jan.
HOPKINS: And just ahead, the Golden Brick Road to wealth in America. Why one study says that home ownership is still the way to go, if you're one of those that wants to be a millionaire.
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HOPKINS: Millions of Americans have felt the pain of the downturn in stock prices, and now a study says that the best way to get ahead won't be in Wall Street but right on Main Street. The road to riches is home ownership.
Brooks Jackson takes a look.
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BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Bobby Holton is a landscaper; wife Lindy is a corporate recruiter. Married less than a year, they've just made what a new study says is the best financial move possible: They've bought a house.
LINDY HOLTON, FIRST-TIME HOME BUYER: It's an investment. It's something that we own. It's not giving the money away and we never see it again.
JACKSON: The study, released by the Consumer Federation of America, maps out the road to affluence and eventual wealth in America, and that road still starts not with the stock market, but with buying a home.
STEVE BROBECK, CONSUMER FEDERATION OF AMERICA: For the broad middle class in America, the first thing that people should do to build wealth is buy a home, faithfully make the mortgage payments, don't borrow that accumulated home equity.
JACKSON: According to the study, about 4 percent of American households are millionaires, with net assets of $1 million or more, one household in every 25.
And close to half of American households are affluent, having net assets of $100,000 or more, 42 percent, and affluent Americans get that way mainly through owning a home and saving for retirement.
For those with between $100,000 and $250,000, 43 percent of their wealth is in the value of their primary residence, and another 17 percent in retirement accounts. Only 6 percent is in other stocks, bonds and mutual funds.
For those making the first step, like the Holtons, right now is a particularly good time. They got a no money down deal on this $150,000 home, close to national median price. The cost of borrowing has seldom been lower.
BOBBY HOLTON, FIRST-TIME HOME BUYER: We got lucky enough that the interest rates were dropping and dropping pretty rapidly.
JACKSON: So if Regis Philbin is not available, the best way to start on the road to riches is still to save up a down payment.
Brooks Jackson, CNN, Washington.
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HOPKINS: The road to riches for the PGA has been paved by one twenty-something wonder: Tiger Woods, of course. And today the tour agreed to new TV packages that run from 2003 to 2006. It's speculated that the deal totals $850 million, a 45 percent increase over the last deal. Credit goes to Tiger: ratings jump an estimated 50 percent when he plays a tournament.
The coming attraction at movie theaters this summer: online ticketing. Starting today, movie-goers at 13 Loews Theaters in New York will be able to buy tickets on-line, print them, and bypass the box office. According to Loews, it's the first time this type of ticketing has been tried in a major market. But New Yorkers, who already pay the highest ticket prices in the country, $10, still have to fork out another $1.50 for the new service.
High ticket prices just one reason it's turning out to be a slow summer season at the box office. The top 12 movies this past weekend grossed $108 million, down 25 percent from the same weekend last year. "Legally Blonde" took in more than $20 million earning it the top spot. The law school comedy is the biggest nonsequel opening for MGM.
"The Score" with Robert De Niro Premiered in second place, taking in $19 million for Viacom's Paramount. Last week's top movie "Cats And Dogs" fell to third place.
Up next, your e-mails. Plus, "Ahead of the Curve."
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HOPKINS: With earnings season in full swing, watch for a handful of Dow components to report tomorrow, Caterpillar, Eastman Kodak, General Motors, Intel, and Johnson & Johnson.
Also expect second quarter results from: Apple Computer, Veritas Software, Biogen and Pfizer. On the economic front, Industrial Production and Capacity Utilization for June due out tomorrow morning.
Now for your comments.
Dimitris asks: "What would be the impact of a potential Japanese banking collapse on the U.S. economy? I hear their banks have nearly $1 trillion in bad debts."
David Horner, senior financial strategist with Merrill Lynch, says that while Japan definitely has chronic economic problems, the chances of a banking collapse are almost zero. Horner says that while several individual banks may be insolvent, the central banks of the world would not let the Japanese banking system collapse.
Another viewer had a question about after-hours trading: Is it odd that just a few hundred trades of a stock can push up the price by about 5 percent when daily volume of trades is regularly over 11 million shares.
In after-hours trading there simply aren't as many buyers and sellers around. Therefore, an investor may have to pay a higher price in order to make a deal. Let's hear from you, e-mail us at moneyline@cnn.com.
And that is MONEYLINE for this Monday evening. Thanks for joining us. I'm Jan Hopkins in for Lou Dobbs.
Good night from New York. "CROSSFIRE" is next.
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