LOU DOBBS MONEYLINE
Dow Declines 36.56 to 10,569.83; Nasdaq Tumbles 51.15 to 2,016.71; Alan Greenspan Warns U.S. Economy May Need More Stimulation From Fed
Aired July 18, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, CNN ANCHOR: Tonight, word from the top of the Fed, interest rates could be coming down even further. The stock market down on the day.
Investors still concerned about technology. After the bell, IBM met profit expectations, but there still could be trouble ahead. We'll tell you why. A brutal day for EMC. EMC stock plummets to a new 52-week low. We'll be talking with the company's chief executive officer.
And one-on-one with the Condit that the business world cares about: Boeing CEO Phil Condit.
Good evening. Our top stories tonight: Federal Reserve Chairman Alan Greenspan warns the economy remains weak despite one of the most aggressive easing campaigns ever. The latest report on consumer prices shows that inflation remains tame, giving the Fed leeway to slash interest rates again next month. And stock prices today retreat after another round of disappointing profit news from top companies, including J.P. Morgan Chase and American Express.
We begin tonight with a much anticipated profit report from IBM. IBM after the close reported profits that met expectations. But sales were disappointing. And IBM's legendary CEO, Lou Gerstner, said: "We are not immune from some of the problems that affected our competitors." That is a troubling admission from IBM since the company has proven resilient during this high-tech meltdown.
Steve Young has been looking at and analyzing the report -- Steve.
STEVE YOUNG, CNN CORRESPONDENT: Lou, IBM is in rare, rare company. A technology giant that's met earnings expectations in tortured times three quarters in a row. But now comes a revenue miss and it's major -- at least $800 million. The Street expected $1.15 a share. IBM hit that on the nose, but there was a top line, or sales expectation of just under $22.5 billion. Some analysts were looking for as much as $400 million more, but Big Blue delivered only about $21.5 billion, flat with the year-ago quarter.
IBM's PC and hard drive business continue to be weak in part because of currency translation issues. IBM's chip business also slowed as its customers slowed down their orders. Sales were down in the Americas, in Europe, the Middle East and Africa. And the slowdown was twice as bad in the Asia Pacific region.
(BEGIN VIDEO CLIP)
SHELBY SEYRAFI, A.G. EDWARDS: IBM which derives 28 or 29 percent of revenues from EMEA -- Europe, Middle East and Africa -- is exposed to a slowdown in Europe. And Asia-Pacific has been growing even faster than Europe. It looks like the slowdown is spreading East and that has negative implications for growth in the second half of the year.
(END VIDEO CLIP)
YOUNG: But on the much brighter side, IBM's powerful services business grew a very brisk 7 percent. CEO Gerstner said, while others stumbled, we increased our market share in almost every one of our strategic business categories.
That service business, Lou, gives IBM a much better cushion than many of its technology brethren.
DOBBS: In point of fact, Steve, a much better cushion than nearly every one of them, right?
YOUNG: That's right, although of course Compaq is now trying to take a page from IBM's play book but it's behind the curve there in services.
DOBBS: And scale as well. All right Steve, thanks. Steve Young. IBM, the biggest point decliner nonetheless on the Dow, accounting for 80 percent of its decline, an even sharper drop for the Nasdaq where investors rattled by profit concerns and cautious words from Alan Greenspan sent that index down nearly 2 percent.
Jennifer Westhoven has the report from Wall Street.
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Stocks hit on the profit front and by a troubling tone from Fed Chairman Alan Greenspan. The Nasdaq saw the largest losses, closing down 51 to 2,016, a loss of nearly 2.5 percent. During the session it came within three points of breaking below 2,000.
Bad news came from players up and down the computer food chain. Veritas and Apple said future sales would be disappointing while chip maker Intel and storage company EMC gave only foggy future guidance. That heightened fears the economy's rebound could be further away.
BARRY HYMAN, EHRENKRANTZ KING NUSSBAUM: We always thought maybe the first six months of the year, now it is sometime in 2002. It is a concern especially in the technology sector.
WESTHOVEN: And unusually blunt comments from the head of the Federal Reserve kept investors nervous about the economy. ART HOGAN, JEFFRIES & CO.: Unfortunately he didn't scare the markets, he told us the same thing he has been telling us for the last six months, but he didn't make us feel better about the economy. He didn't say things are looking OK.
WESTHOVEN: The Dow Jones industrial average fell 36 to 10,569. It had been down by as many as 126 during the session but cut much of the losses just ahead of the closing bell. Traders say this has been happening all week as investors cover their bets before big late breaking news.
The Dow's biggest loser was IBM, down more than $4 a share ahead of its after-the-bell earnings report. Oil stocks fell again as the price of oil dropped to a 14-month low. Crude prices have dropped for eight consecutive sessions.
Lower oil prices may good for the market long-term, but traders say they're desperate for some good news now. Every day feels like a battle to the finish they say, even on rally days. They won't get any hope either from IBM or from Philip Morris. Philip Morris's earnings came in line after the closing bell but it said profit growth for the rest of the year could be on the slow side.
Applied Micro shares are up a bit after its first quarter results -- Lou.
DOBBS: There's your good news, Jennifer. Jennifer Westhoven from the New York Stock Exchange.
Deal developments tonight in Comcast's bid to buy AT&T Broadband, its cable assets. AT&T has announced its board has rejected Comcast's unsolicited, or hostile $40 billion bid for AT&T cable TV business. But AT&T decided to delay finalizing a proposal to move forward with the company's breakup plan. That of course leaves the door open to a higher bid from Comcast or perhaps another bidder. AT&T'S stock on the day ending higher fractionally.
J.P. Morgan Chase today joined the list to post a mammoth profit decline in the second quarter. The company hit by losses in its venture capital business struggling with telecom and dot-com bankruptcies. J.P. Morgan earning 33 cents a share, well short of even the lowest Wall Street analyst estimate. Operating profit plunged 61 percent. Net income overall down 77 percent. But the company did announce a $6 billion stock buyback program. And the stock today rose $1.28.
American Express, another Dow financial today warning quarterly profits will disappoint. One reason: Bad junk bond investments which have battered the company all year. American Express also says it sees economic weakness persisting into 2002 and will cut as many as 5,000 more jobs to cope with the slowdown. Kitty Pilgrim reports.
(BEGIN VIDEOTAPE) KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Lean and mean. That's what American Express talked about today. The company CEO Kenneth Chenault saying actions had to be taken to, quote, "Insure we are in a strong position to navigate through what we expect to be a longer period of economic weakness."
ROBERY NAPOLI, ABN AMRO: American Express wants to show investors that they are not relying on the economy to improve in order for their performance to improve. They want to show that they can grow their earnings even if something out of their control such as the economy doesn't cooperate.
PILGRIM: The company has also been hurt by cutbacks in spending at other companies, particularly in corporate travel.
CAREN MAYER, BANC OF AMERICA SECURITIES: American Express is a classic case of victim of corporate downsizing. American Express' problem is that they have very high exposure to corporate spending.
PILGRIM: American Express said it expects second quarter earnings to be 76 percent lower from a year ago, is taking an $826 million charge to write down losses on its high yield investment portfolio, and switching to lower risk securities, and cutting 4 to 5,000 more jobs on top of the 1,600 announced earlier this year.
American Express stocks sold off Wednesday, down $1.28 to $37.50, but it has lost some 30 percent in value since the beginning of the year.
Fitch lowered the rating on American Express debt today, but thinks the company is well positioned. There is also persistent speculation the company would make a good takeover target.
THOMAS ABRUZZO, FITCH: If they choose, we feel that American Express would strategically be an excellent fit for various other large diversified financial services firms.
PILGRIM: Two thirds of American Express core business is in the charge card business, and corporate spending is the single most important area for the company. In that sense the company is a good litmus test for the rest of the economy -- Lou.
DOBBS: Kitty, thank you very much. Kitty Pilgrim.
Investors today buffeted by gloomy profit news and an admission today from Alan Greenspan that the economy remains weak. The fed chairman in his semiannual report on monetary policy to Congress made clear that policy makers are ready to slash interest rates once again next month.
Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE) TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Those counting on Alan Greenspan for a sunny forecast got partly cloudy with a chance of rain instead as the fed chairman acknowledged, in unusually candid terms, that another interest rate cut may be necessary.
ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: We are not free of the risk that economic weakness will be greater than currently anticipated, and require further policy response.
O'BRIEN: When some lawmakers observed that seemed unusually dark, the chairman offered that the economy may, at last, be starting to bottom out. GREENSPAN: I do think that we are seeing signs that the bottom is beginning to structure itself.
O'BRIEN: And, assured Greenspan, inflation remains under control.
GREENSPAN: If you extract out the very substantial, direct and secondary effects of energy price increases which have now crested and are turning down, it's very difficult to find inflationary pressures there.
O'BRIEN: Just as the surge in energy costs cut into profit margins earlier this year, Greenspan predicted that decline in energy prices since the spring should be contributing positively to profit margins in the third quarter.
And as for the collapsing technology sector, Greenspan predicted the high tech correction will abate and these industries will reestablish themselves as a solidly expanding though less frenetic part of our economy.
GREENSPAN: What is really quite remarkable is that with this extraordinary litany of negative elements that have been going on day by day, month by month, the economy is still standing.
O'BRIEN: Housing sales are up, corporate spending is down. Consumer confidence is up, and capital expenditures down. The market has been riddled with mixed signals and now Alan Greenspan has added some of his own, but leaving no doubt, Lou, the door is wide open for yet another rate cut should the economy continue its decline.
DOBBS: Tim, all we have to figure out now is whether indeed it will continue to decline, is that right?
O'BRIEN: Everybody was guessing before, they're still guessing now. DOBBS: OK, Tim. Tim O'Brien from Washington.
Chairman Greenspan today noted what he termed the "quiescence of inflationary pressures." His statement borne out in one economic report released before his testimony this morning. The Consumer Price Index up .2 percent in June. When you take out food and fuel it gained .3 percent. Both were slightly higher than expected, but as one economist put it today there's no major worry here.
And housing starts jumped 3 percent last month. That was stronger than most economists had expected and it is further evidence of some strength in the industry. The gain in June follows a modest decline in May. The bond market today seemed to focus more on the tame inflation than the cautious talk from Greenspan.
The 10-year gained 28 ticks, the yield 5.08 percent. The 30-year bond soared more than a point in price and the yield, 5.5 percent. Amongst the questions now: What will the Fed do next? The latest survey by Reuters found that all 25 bond dealers polled believe the Fed will cut rates next month by a quarter point, up from 23 before Mr. Greenspan delivered his testimony.
Joining us now with his view on the Fed chairman's comments, the outlook for the economy and his own view of where we should be going, Paul Krugman, columnist for "The New York Times."
Paul, good to have you with us.
PAUL KRUGMAN, ECONOMIST, PRINCETON UNIVERSITY: Good to be on.
DOBBS: The Fed chairman seemed uncharacteristically direct talking about this economy?
KRUGMAN: I do wonder what got into him. I think the quick summary today is Greenspan says, I'm not God, and the Nasdaq falls 50 points on the news. It was kind of an amazing day.
DOBBS: And the fact that the door is now open to another interest rate decline, that obviously is a hopeful sign to most investors. But the fact is we haven't seen much impact from 6 interest rate cuts in six months.
KRUGMAN: Right, the impact is in what hasn't happened, instead of what has, which is that this has not turned into a freefall in the economy unless you happen to be a tech firm. But the Fed is certainly having harder time turning this around than we have become accustomed to have happen.
DOBBS: Greenspan pointed out that he is very hopeful because of three major factors. One, lower energy prices, second, lower interest rates, and thirdly the tax rebates coming from the Bush tax cut that will start hitting mailboxes next week. Does that also salve your concerns?
KRUGMAN: I'm nervous as I think he is. You know, all of the major recessions we've had for the last 40 years have been basically caused by the Fed. It was the Fed raising interest rates to bring inflation down. And this one, although the Fed did a little of that, is basically the first one we've seen in generations that was caused by a bubble in the private sector. It was caused by overinvestment.
And it's somewhat an uncharted territory here. We don't know how much Fed cutting it takes.
DOBBS: To restimulate business investment, capital investment and corporate buying?
KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE) .
DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy?
KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know.
DOBBS: Your column today, you talked about Keynesian economics and how we've become adopters, if in denial, of it, adopters of Keynesian thinking, and our economic policy. How could you be so cynical?
KRUGMAN: No, I mean, look, it -- is anybody saying for the U.S. economy, Greenspan is wrong to try prevent the recession? We should have the recession, we should purge. The budget isn't as good as we thought. We should raise taxes, which are all of the things of course that we tell countries like Argentina. But for ourselves, no, we believe in cushioning ourselves from these things.
DOBBS: We do have a surplus, at least to work with. I know you don't think it's...
DOBBS: That's a whole other program.
KRUGMAN: Yes, that's another bit of a (UNINTELLIGIBLE).
DOBBS: Paul Krugman, good to have you with us.
KRUGMAN: Good to be on.
DOBBS: CNN's parent, AOL Time Warner, today reported quarterly results. While earnings did beat estimates, revenues fell short of expectations. But a bigger concern on Wall Street, the company's cash flow. Fred Katayama has the story.
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): A hit of a different kind for the high-flying stock of the company that produces "The Sopranos" after AOL Time Warner widely missed analysts revenues targets. Publishing and music sales shrank, resulting in revenues rising just 3 percent to $9.2 billion, falling 500 million short of estimates. Investors punished the stock, fearing the company will miss its full year revenue target of $40 billion. But analysts say they're missing the point. PAUL NOGLOWS, J.P. MORGAN CHASE: I don't think it's that big a factor because we have a very high level of confidence in the $11 billion of (UNINTELLIGIBLE) cash flow.
KATAYAMA: The company is sticking to its full year estimates, expecting cash flow to grow to 11 billion. For the quarter, that rose 20 Percent to a $2.5 billion, handily beating consensus estimates. Strong growth in subscription revenues helped boost cash earnings. Total subscriptions rose 15 percent with AOL adding 1.3 million new members to its online service.
But advertising and commerce were weak, with revenues inching up just 1 percent. The company expects only a slight upturn in advertising from publishing and TV networks in the next six months.
CHRISTOPHER DIXON, UBS WARBURG: The reality is that rather than selling to other advertisers they're able to help promote and sell their own internal brands. AOL did pretty well with its revenues. If you backed out or added back the inner-company revenues you would have seen close to 9.7 billion, or almost the same number that was looked at by the Street.
KATAYAMA (on camera): Company executives were upbeat on the conference call. Chief financial officer Michael Kelly raised the company's cash earnings estimate for the full year. Analysts say a new Harry Potter movie, Madonna's national tour, and the rollout of AOL 7.0 should help provide momentum in the second half.
Fred Katayama, CNN Financial News, New York.
DOBBS: Is it already time for 7.0?
Shares of AOL Time Warner today dropped down nearly $5 a share closing at 44.65.
Microsoft tonight is asking an appellate court for a new hearing on a key part of its antitrust ruling last month. But Microsoft may face some long odds in winning a court proceeding. Several antitrust attorneys tell us that the move seems hopeless given that the same appellate court voted 7-0 on the issue.
Microsoft telling MONEYLINE that it has not made a final decision whether to appeal the case to the U.S. Supreme Court. A Justice Department spokeswoman responded to Microsoft's request late today saying the case should move to a remedy phase in the district court as quickly as possible. Microsoft shares today down $1.25 a share.
Still ahead here on MONEYLINE, the president embarks on a second European trip, leading up to a major summit in Italy. The case for stem cell research winning a powerful ally today. We will have the latest on the debate in Washington.
And a powerful quarter for an aircraft superpower. We'll hear from the boss of Boeing, Phil Condit. Also, a high-tech storehouse in hot water with investors. We'll hear how the head of EMC plans to turn things around.
DOBBS: In Washington senators took aim at a series of security problems in the FBI. The Senate Judiciary Committee held hearings, dominated by the most recent revelations: That hundreds of lap-top computers and weapons are missing. And Attorney General John Ashcroft told reporters that he ordered a review to figure out what happened.
(BEGIN VIDEO CLIP)
JOHN ASHCROFT, ATTORNEY GENERAL: Anytime firearms are missing it's a serious circumstance. And I don't want to overstate it, but I take it very seriously. And the laptops are to be taken seriously as well.
(END VIDEO CLIP)
DOBBS: This of course only the latest embarrassment for FBI in the wake of the Robert Hanssen spy scandal, and the mishandling of documents in the Oklahoma City bombing case.
Also on Capitol Hill today, the political and ethical debate over stem cell research heated up today. A key senator, Bill Frist, from Tennessee declaring his support for funding such research. It was a major statement, given that Frist, himself is a doctor and is thought to have the president's ear on many health policy issues. Major Garrett has the story from the White House.
MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT: Lou, the White House describes Senator Frist as good friend and trusted adviser. And he does have the president's ear on a range of medical issues, be it Medicare, prescription drugs, and Medicare research. And Senator Frist tipped off the White House ahead of time about his announcement. Senator Frist said he weighed all the issues very carefully but ultimately came down in favor of federal funding of embryonic stem cell research.
(BEGIN VIDEO CLIP)
SEN. BILL FRIST (R), TENNESSEE: I am absolutely convinced based on the knowledge and the experience, but also what we as policy-makers can do, that we can address the use of living tissue, of living cells that otherwise would not be used, that otherwise would not be used. The words are tough, but discarded, disposed of, of that particular subset of tissues I believe within an appropriate ethical construct we can use that tissue to the benefit of hundreds of others, thousands of others, maybe millions of others.
(END VIDEO CLIP)
GARRETT: Senator Frist is not only a key voice within the White House, but he is a key vote in the Senate. And he could bring many other Republicans with him and opponents of federal funding of embryonic stem research now believe that if even if President Bush were to support a ban on that federal funding, there would be enough votes in the Senate with Senator Frist's help to override that decision making it all the more difficult political decision for President Bush -- Lou.
DOBBS: At this point, Major, is there any indication which way the president is likely to go on this issue?
GARRETT: No there isn't. White House advisers say he is consulting with many, many different voices, theologians, bioethicists, those in the medical community. Also, heavy players on Capitol Hill such as Senator Frist. I just got off the phone with a very senior White House adviser who is very close on this and he says it's still a jump ball -- Lou.
DOBBS: Major Garrett from the White House. Thank you.
Still ahead here on MONEYLINE, stocks slump on profit concerns. We'll have the market reaction from Wall Street. We will be talking to Brian Kennedy. And the Fed chairman testifies on Capitol Hill. We'll be going over his comments with Bear Stearns economist John Ryding.
And, an aerospace pioneer surges past Wall Street forecasts. Boeing's boss Phil Condit coming up.
DOBBS: Shares of IBM trading off $2.39 in after hours trading. The company reporting earnings in line with Wall Street estimates but sales falling short of expectations.
The anticipation of those IBM earnings mixed with disappointing results from Intel and Veritas Software spurring a selloff on Wall Street today. Also pressuring the markets, negative comments on the economy from the Federal Reserve chairman.
For more now on today's rough session on Wall Street. Both the Dow and the Nasdaq spent the entire day lower, along with Intel and Veritas Software, EMC, American Express and Apple all issuing downbeat forecasts and adding to the negative sentiment, as if was necessary.
Comments from the Fed chairman saying the economy faces many hurdles that could force the Fed to cut interest rates again. The Dow slipped 36 points on the session. Some of the major losers on the index: IBM, United Technologies, and Exxonmobil.
The Nasdaq dropping nearly 2.5 percent, to finish just above the 2,000 mark. Chip stocks and software issues leading the index lower. On the Big Board, decliners beat out advancers four to three.
Tonight's MONEYLINE movers: EMC falling to a new 52-week low. The data storage maker posting earnings that fell 75 percent compared to a year ago. Later here, I'll be joined by EMC's CEO Joe Tucci.
Exeleksis leading a rally in biotech stocks today. Announcing a $200 million licensing deal with Bristol-Myers Squibb. Both companies collaborating on a new cancer drug. And software maker Veritas, the most actively traded issue on the Nasdaq today, losing a quarter of its value.
Veritas lowering earnings guidance for the rest of this year. But two weeks ago it said it was standing by its earnings targets. That warning today taking even the most conservative analysts by surprise. And the Veritas warning sending other software stocks lower. Siebel, Peoplesoft, BEA and Manugistics, all sharply lower.
In other corporate news, the nation's second largest supermarket chain will undergo a major restructuring. Albertson's will close more than 160 stores, and cut up to 20 percent of its managerial and administrative staff. The company says the store closings will trim its annual revenue by about $1.4 billion.
Another restructuring, insurance firm Safeco says it will cut 1200 jobs, or 10 percent of its work force, by the end of 2003. Safeco estimates the cuts will reduce annual operating expenses by $100 million.
Microsoft's new Window's XP Operating System will not include Java programming. Java is a computer language designed by Sun to run on different operating systems. While the move was expected, some analysts say it could hurt Sun Microsystems, which would enable Microsoft to push its own Java alternative, as well as its XML.
As we've said, several issues affecting today's trading, weak earnings results, warnings, and comments from the Fed.
Joining me now with their perspective on the economy and the market, Brian Finnerty and John Ryding. Gentlemen, good to have you with us.
Let me start with you, John, as the economist, any surprises in what the Fed chairman said?
JOHN RYDING, BEAR STEARNS: Oh, I think it was absolutely no surprises. It could have been pretty much scripted in advance, apart from the unusual degree of clarity on the actual mention of interest rate cuts. I'm fairly assured we'll get an interest rate cut on August 21st and probably another one on October 2.
DOBBS: On the 21st, should we expect 25 or 50 basis points?
RYDING: Well, I think Greenspan should deliver 50, but it is clear there are a number of presidents at the Fed who are optimistic on the economy, sensing inflation as high as 3 percent. That's not Greenspan's position. So he will continue to push through lower interest rates, but a quarter point at a time.
DOBBS: And the markets, an initial negative reaction, Brian, but at the end of the day, it seems like investors sort of evened things out a bit?
BRIAN FINNERTY, C.E. UNTENBERG, TOWBIN: A little snap in the end, but you know Greenspan threw cold water on the markets. You know, one thing John said I might disagree with a little bit: I think he's making this thing look a little bit deeper and wider, this valley of economic malaise, a little wider than we had thought.
Originally back in February, he said third and fourth quarter, maybe a turnaround. Now it is looking like maybe not until first quarter or second quarter of next year. And the markets believe that and that is why the markets are going through fits and starts and we can't gain any traction.
DOBBS: He stayed with the fourth quarter. He just put a little more emphasis on next year. That's the way I took it.
RYDING: I think that's right, but with no certainty, when asked, does that mean fourth quarter or --
FINNERTY: He doesn't know.
RYDING: Remember Brian, back in February, he was in appropriately optimistic in the outlook for growth. That actually didn't help, because the markets saw the warnings coming. The markets wanted more rate cuts and they thought the Fed was coming to an...
FINNERTY: That's why he doused us with cold water today.
RYDING: I think he was realistic.
DOBBS: Realistic, and at this juncture, he's not certain. You tell us, when does the economy start to pick up and how profoundly?
RYDING: I think he's identified the right forces, lower interest rates, the tax cuts, lower energy prices and lower long-term interest rates, too because the treasury market rally -- if the treasury market was a stock market, we'd be seeing big numbers.
FINNERTY: Actually, John and I noticed today, we talked about it before, the long bond broke through the 200-day moving average in decisive fashion, that means the bond traders are telling us, we're going to get a cut, and maybe not a quarter cut, maybe even a half as John alluded to earlier.
DOBBS: Have they been right?
FINNERTY: The bond market has been right, much more so than the actual rate cuts. The stocks will definitely rally.
RYDING: One thing on that: the one thing we haven't had is lower mortgage rates this year. Long-term rates come down another 10 or 15 basis points, which will bring mortgage rates, and that (UNINTELLIGIBLE) down which will be stimulus. My guess...
DOBBS: What you're suggesting is, that the easing is beginning to work, and even against a resistant bond market?
RYDING: I think it's beginning to work. but he's right. Greenspan described the economy is getting worst at a slower rate and that's the best spin you could put on things. FINNERTY: But John, Lou just read that news and I sat here for two minutes while you read bad news -- news couldn't have been worse.
DOBBS: We're sitting here talking...
FINNERTY: Terrible, that's a sign of a bottom.
DOBBS: Well, we're sitting here looking at all of these earnings reports. Where is the good news there? When do we start to see positive earnings results?
RYDING: My guess is the fourth quarter, my guess -- third quarter will still be below people's expectations, but the market will look ahead and with the help of lower interest rates, will begin to anticipate the good news.
FINNERTY: We see the same, Lou. However, I think what we didn't anticipate back in the spring and February, as John said, was the third quarter (UNINTELLIGIBLE) the June would be the trough, every company that we just talked about now saying, hey, guys, no change in sight and better economic activity.
DOBBS: Your advice to investors here?
FINNERTY: Time to be a buyer. Right now, we're oversold and there's a lot of cash on the sidelines. I believe if we get a short term relief rally, will it be the real rally? I don't know. Could you afford to be on the sidelines? I don't think so. I think...
DOBBS: Give us...
DOBBS: ...in this wonderful valley.
FINNERTY: I'm going to pick a cheap stock and it may be very early, Lou. And it's in the fiber optic sector that everybody hates. But I think the cheapest stock out there is Corning, and actually at my firm, we have a neutral on it, but I do think that's the cheapest stock, and I really believe they'll be a big part of this recovery.
DOBBS: OK. Brian, thank you very much. We thank you, John.
Coming up next here, a disappointing quarter -- the good news just continues. More disappointment from the No. 1 data storage firm EMC. I'll be talking with the CEO.
And we have a better picture for the nation's major largest exporter, good news.
ANNOUNCER: Next, Lou is joined by Boeing CEO Phil Condit.
DOBBS: In our sectors report: airlines. Four of the nation's biggest carriers today hosting huge losses. The culprit, something we've talked a lot about here on MONEYLINE: higher fuel and labor costs and reduced spending of course by business travelers.
The widest loss coming from United Airlines. AMR also falling short. US Airways and America West posting smaller-than-expected losses.
United is currently involved in stalled talks to buy U.S. Airways. The stocks mostly weaker today. The outlook for the sector obviously not looking too bright. Analysts say the industry-wide slump is likely to continue into the next quarter.
A strong showing from the world's biggest airplane maker, however, Boeing, raising sales projections for the year. Its latest earnings report beating estimates. Profits jumped 23 percent. Earlier today I asked Boeing's CEO Phil Condit if problems in the air business is a problem for Boeing.
PHIL CONDIT, CHAIRMAN & CEO, BOEING: It can be. But I think the real great story in Boeing right now is, it is way more than just a commercial airplane company. We had great performance out of militant aircraft. We had great performance in Space & COMM.
DOBBS: Yes, 40 percent gain for Space & COMM. Do you expect to see that kind of growth continue in that business unit?
CONDIT: We look for really good growth. It won't be that big, but it will be good solid year over year growth in Space and COMM.
DOBBS: In terms of military, we hear a lot of talk obviously about the joint strike fighter. Do you expect to see the program accelerated?
CONDIT: I don't know if it will be accelerated. I think there are going to be the budget struggles and they will be there. But we do think it will be a good solid program. We think we have a great airplane in that competition, and overall, we have a tremendous portfolio of airplanes in the military side.
DOBBS: In terms of competition on the commercial side, obviously Airbus, aircraft of 550 passengers, you said, no thanks, they have 62 orders on the books. How concerned are you of that threat in the years ahead?
CONDIT: I'm not. I think, given a choice, passengers would much rather go nonstop from where they are to where they want to go, that point to point is the answer for the future. And we think we're going to have the product line-up to do that, so that's where our bet is.
DOBBS: And amongst all your bets, what's going to drive Phil, your company in the year or two ahead of us?
CONDIT: It will be the breadth of the company. That whole portfolio and then growing new businesses. Boeing Capital Corp is growing very strongly. It will be a positive contributor. We think connection by Boeing is going to come on really strongly. So we just got a great portfolio of companies that, together, produce great results.
DOBBS: And in this atmosphere of economic slowdown, both in the United States and overseas and the strength of the dollar. Its effect on your business?
CONDIT: It's clearly there. We do see it in terms of aircraft orders. But at the same time that industry has done a better job than it's ever done before in terms of not over-ordering. In the past they always bought way too many airplanes. Then we had to work through that over capacity. They didn't do that this time. So that's on the plus side.
DOBBS: And you're about to go to Chicago, moving headquarters from Seattle, Washington to Chicago, Illinois. Are you excited? And how much trouble are you still in, in Seattle, for this move?
CONDIT: Yes, I am excited. If, for nothing else, it just makes my whole travel patterns a lot better. When you go to the east coast, something like 20 times a year, time saving is pretty dramatic.
What we're really trying to do is make sure that headquarters has its role and function, the operating groups have their role and function, and we don't get them mixed up. And I think people are beginning to understand that's what we're doing.
DOBBS: Do you have any friends left in Seattle, Phil?
CONDIT: Oh, yeah. I have lot of friends left in Seattle and a lot of them do understand exactly what we're doing.
DOBBS: Phil, thanks for being with us on MONEYLINE. Phil Condit.
CONDIT: You bet. Bye-bye.
DOBBS: Coming up on MONEYLINE, a tech bellwether has a disappointing quarter.
ANNOUNCER: After the break, Lou speaks with EMC CEO, Joe Tucci.
DOBBS: One stock hit hard today: EMC. The data storage maker saying profits were plunging 75 percent. Joining me from Boston, the CEO of EMC, Joe Tucci.
Joe, good to have you with us.
JOE TUCCI, CEO, EMC: Thanks, Lou, good to be here.
DOBBS: A tough environment to say the least. Your company was supposed to be among the few that would be all but immune from this turn down in technology. What's happening?
TUCCI: Well, I guess the economy got the best of us, along with a lot of other companies out there, Lou.
DOBBS: This 75 percent decline, is this a result of slowdown? Is it the result of inroads made by your competitors, principally IBM?
TUCCI: No, not at all. We think it's a vast main due to the slowdown in the economy. As you know there's been over 800 companies that have either warned or have actually already missed earnings for Q2. These companies are -- these customers are our customers. And their cut -- (UNINTELLIGIBLE) their capital budgets and that has hurt their IT spending rate.
DOBBS: It appears that this year we will see for the first time, an actual decline in IT budgets for the rest of the year. When do you expect to pick up for your business?
TUCCI: Actually, we don't know right now. What we do is, we know we're in a great sector in the IT business. Information storage is something that over the long hall will grow in excess of 20 percent. We're convinced that as we have in the past, when the economy does normalize we'll grow an excess in industry rates, and we are leading in segments.
And even in this quarter, we are leading in segments and growing in strong double-digit rates in the areas of information storage that count. Like the networking of storage, the services relating to storage, and the software that controls all that vast information that's now networked. Those rates grew from 42 to 72 percent for us this past quarter.
So we think we're solidly placed, well-capitalized. This is one of those economies, only the strong will survive and we think we're very strong.
DOBBS: Those businesses that you talked about comprise 5 percent of your total revenue.
TUCCI: Which businesses, Lou?
DOBBS: The ones you just enumerated.
TUCCI: Well, it's a big percentage. And customer after customer delayed projects and after a while it hurts. We still managed a solid profitability. We did $109 million in profit. Our revenues were down only 2 percent. So when you talk about immunity, that's probably about as recession-proof as you can.
If you look at the first half of this year, almost every tech company is down substantial double-digits, we're still up 15 percent in information storage in the first months of this year. So we think we're solidly placed. We have $5 billion in cash on the balance sheet. We have no debt. And even as beaten as we are, we have a market cap approaching $40 billion
So we think we'll weather the storm, take share, be aggressive, and we're just well positioned.
DOBBS: And at this juncture you're not thinking about layoffs, you're not thinking about a significant restructure?
TUCCI: Well, we took a reduction in force in Q2, we're doing everything to cut cost that we can, but we're still going to invest in technology heavily to make sure we have the next thing that is important to customers and the information storage.
We're going to invest in sales, and we for years ranked No. 1 in customer satisfaction and we will make sure the customers continue to get the best experience with us, they have with any vendor they deal with.
DOBBS: Joe, we appreciate you being with us. Joe Tucci.
TUCCI: Thanks, Lou. Good to be here.
DOBBS: You wouldn't think a dinosaur movie could manage much subtlety, but the latest in the Jurassic Park series is placing some ads in unusual places. "Jurassic Park III" debuts in theaters around the country Wednesday, trying to follow up on Steven Spielberg's earlier blockbusters.
The studio, Universal Pictures, will resort to traditional advertising, but it will also place some unusual ads in selected newspapers showing only the silhouette of a raptor on pages that actually have news on them.
Up next, your e-mails and "Ahead of the Curve."
DOBBS: More quarterly results due out tomorrow, from Dow component Microsoft, and fellow technology firms, Sun Microsystems, eBay, Nokia and Nortel. Also watch for Eli Lilly, RJ Reynolds and Pepsico, and on the economic front, the trade deficit for May is expected to widen slightly. Weekly jobless claims are expected to recover from the prior week.
Please join us tomorrow night when eBay CEO, Meg Whitman and Avon CEO, Andrea Jung will be our guests. Both companies reporting their earnings tomorrow as well.
Let's take a look at some of your comments now. On the subject of Fed Chairman Alan Greenspan's testimony, Betty writes: "The interest rate Alan Greenspan controls isn't affecting the mortgage rate. Why?"
Betty, the Fed controls short-term interest rates. Those are the rates banks charge each other for loans. That can bring down adjustable rate mortgages, interest rates on business and personal loans and credit cards. But long-term lending rates, like 15 and 30- year mortgages, are not controlled by the Fed but by the market. So, if you want to know where interest rates are headed, watch the yield on that 10-year bond. Staying with the Fed, Len asks: "The most important person I would like to hear from is Alan Greenspan. Why do we never hear from him? Is he not allowed to give interviews to MONEYLINE?"
DOBBS: Chairman Greenspan's office tells us he would enjoy speaking with me, but he has a long-standing practice of declining all interview requests. His office adds: the chairman understands the impact his comments can have and he believes the fairest and best policy for publicly conveying his views is through official appearances, such as today's congressional testimony.
That policy has been in effect by the way since his early days as chairman.
Finally, Elizabeth responds to one reason CEO pay is so high, a shortage of executive talent. She says: "Bring in the monkeys! It's hard to believe we have to pay so much for so little."
Let us hear from you, please e-mail: firstname.lastname@example.org, and don't forget to include your name and state.
And that is MONEYLINE. We thank you for being with us.
I'm Lou Dobbs. Good night from New York. "CROSSFIRE" is next.
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