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Lou Dobbs Moneyline
Stocks Close Out a Volatile Week
Aired July 20, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, HOST: Tonight, violence on the streets of Genoa as world leaders meet. One person is killed, dozens of protesters and police are injured.
A volatile week on Wall Street. Elizabeth Mackay of Bear Stearns is our guest.
A lot of people complain about analysts. Tonight the story of one investor who did something about it, much to the embarrassment of Merrill Lynch.
I'll be talking with the world's foremost expert on oil, Daniel Yergin, and with an economist who has a plan to fight world poverty, Hernando de Soto.
And one industry in the grips of an economic roller coaster.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening. Our top stories tonight: Stocks close out a volatile week, lower on Wall Street. Hurting the markets today: Microsoft. Microsoft shares plunging, the worst session for Microsoft in four months. That, after the company issued a profit warning last night.
And Merrill Lynch, settling a dispute with a client who said that analyst Henry Blodget misled him by maintaining a buy rating on the shares of InfoSpace. That stock has plunged more than 90 percent from its 52-week high.
We begin tonight with the bloody scene outside the G8 summit in Genoa, Italy. The confrontation between protesters and police have become a common thread to global economic conferences. But today for the first time, a protester was killed in those clashes.
For the very latest, we're going to CNN's Alessio Vinci, who is spending the day on the scene in Genoa.
ALESSIO VINCI, CNN CORRESPONDENT: Good evening, Lou. The outcome of this first day of clashes between protesters and security forces here in Genoa: one demonstrator dead, more than 100 wounded -- including police and security forces here -- and more than 50 people detained. We have received some information from the interior ministry about this young men who was killed. He's a 23-year-old Italian who lives here in Genoa, although he comes from Rome. He was killed, according to the interior ministry, by a gunshot, presumably, the interior ministry says, fired by one of the military policemen on duty to try to contain those protesters. And that gunshot, apparently fired in self-defense, which will confirm earlier reports that a group of anarchists, demonstrators tried to surround a car of a policeman and tried to smash the windows, and therefore one of those policemen inside, trying to protect himself.
It was a long day of clashes here. Started earlier this morning with the police using first tear gas and water cannons and trying to contain the crowd. But it back and forth throughout the day. At some point later in the evening, the police and the demonstrators came in direct contact, in extremely violent clashes. A lot of damage throughout the city here. Cars were overturned, windows were smashed. There was really, really violent demonstrating.
In the meantime, other demonstrators peacefully were demonstrating away from those clashes, in sharp contrast with those small group of anarchists here who have sought direct confrontation with the police. They came here specially prepared to go ahead and go head-to-head against those policemen who were trying to prevent the demonstrators from reaching the summit venue where the G8 leaders were meeting. It really appeared that those clashes were really organizing, concentrated among a small group of anarchists who came here well prepared and especially prepared to clash with the police -- Lou?
DOBBS: As you say "prepared" and obviously committed, and who is precisely organizing and supporting these protesters?
VINCI: Well, it's difficult to know who is supporting them. Certainly, they are organizing themselves. They are a small group of anarchists. They have nothing to do with a larger group of demonstrators who are here in Genoa, some 80,000 of them who came here to protest the G8 summit. And we have seen them all around Europe, in Gothenberg, in Prague, recently.
So these are -- the large group of demonstrators are not connected to those who are -- those who clashed with the police today. These are anarchists, small group of anarchists who came here seeking confrontation with the police, not trying to protest against the G8 summit itself -- Lou.
DOBBS: And the scene there, does it appear now that the police, the authorities, the security force has that situation under control, and is there a great concern about tomorrow?
VINCI: Well, there is concern about tomorrow, certainly, after a day like this one. The situation now here in Genoa appears to be calm. There is no longer helicopters hovering over us. We have seen reduced presence of the police, at least here in the area where we are standing. So it really looks like right now the situation is really pretty much under control -- Lou? DOBBS: Alessio Vinci from Genoa, thank you very much
Well, those protesters were kept far away from President Bush and the other leaders involved in the G8 summit meeting. The G8 today announced the creation of a $1 billion fund to fight AIDS in developing countries, and the G8 leaders issued a statement. They said the right policies are in place to avoid a global recession, although the world economy, they admitted, had slowed more than they had expected.
It was considerably more subdued on Wall Street today. Stock prices fell across the board. The losses were modest, even as Microsoft shares plunged. Microsoft shares tumbling nearly 5 percent, wiping out $18 billion in market value. That, after the company issued a profit and sales warning last night.
Jennifer Westhoven has the report from the New York Exchange.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Microsoft's warning of disappointing results and slow PC sales set the stage for selling.
MIKE MURPHY, FIRST UNION SECURITIES: We saw a lot of the tech stocks down, and then saw some bottom fishers coming in around midday. This market's, you know, trying to do better.
WESTHOVEN: The Nasdaq turned lower right at the opening bell, falling 17 to 2,029.
For the week, it lost more than 2 1/2 percent.
Microsoft's warning hurt rival software stocks, with the exception of Network Associates. It rose after losing less money than expected, but not all the tech news was grim. EBay's strong earnings gave the Internet sector a boost. The Dow closed down 33 at 10,576, ending a volatile week with a gain of just 1/3 of a percent. One Wall Street veteran said the choppiness could last.
MARSHALL ACUFF, SALOMON SMITH BARNEY: Through the rest of the summer, we're going to continue to have a mix of good news and bad news. The only thing one can say optimistically is some of the bad news is no longer getting worse. But it's still in the negative side. We've got to see a turn toward the positive side, and that's probably not going to be seen until we get into fall, or certainly the fourth quarter, at the earliest.
WESTHOVEN: Among the latest earnings movers, DaimlerChrysler rallied after, beating Wall Street's estimates, and drug giant Merck met lowered expectations. Gillette's earnings fell 22 percent, but still met estimates, and Sun Microsystems lost money for first quarter in 12 years but still came in on the high side of forecasts. Some analysts turned positive on the stock.
(END VIDEOTAPE) WESTHOVEN: Overall, traders didn't have too many nice things to say about the market. It's been making sharp turns every day this week, but closing the week with a little to show for it. They're saying that until the economy or profits make a definite move one way or the other, there is worries about the market staying right here, or drifting lower -- Lou.
DOBBS: Jennifer, they don't sound too appreciative to the fact that the Dow moved up 1 percent this week.
WESTHOVEN: I thought it might have been a little bit less. The S&P 500 also down, but only a fraction of a percent. I think it's the Nasdaq that only actually made a good move, sort of, to the downside. And even one percent, that's not so much. We've had -- what do we have, seven weeks on the downside -- then we had one week where the Dow moved up. And after that it's really been kind of a standstill, as we get all these earnings reports and mixed reaction to Greenspan.
DOBBS: And with all the negative news this week, probably not all in all a bad performance. Jennifer Westhoven, speaking of not a bad performance, a terrific performance. Thanks very much.
Topping tonight's MONEYLINE movers: Hershey Foods down almost $2 a share. Profits at the country's biggest chocolate maker falling short of estimates. International sales were higher, but candy sales in this country fell.
Scientific-Atlanta, the biggest decliner on the big board today, losing more than 1/3 of its price. One of the biggest makers of cable television boxes, booking fewer orders, because they digital cable hookups have slowed. That makes perfect sense.
And Gateway sinking to a three-year low. That, after losing a quarter of its price today. Last night the PC maker posted a wider than expected quarterly loss. Over the past year, Gateway stock has simply collapsed. $17 billion of market cap erased in the process.
Gateway, along with the entire PC industry, has been gripped in a brutal slowdown in sales. A report out today showing PC sales worldwide actually fell in the second quarter. That's the first time that's happened in 15 years. Gartner Dataquest reporting PC makers shipped about 30 million units last quarter. That would be a decline of nearly 2 percent. Dell, the only major computer maker to post a sales increase worldwide and domestically.
During that period, PC stocks actually advanced, with the notable exception of Compaq, which fell 16 percent in price. Microsoft, the best Dow performer this year, soared more than 30 percent in the second quarter. Intel shares up 11 percent.
All week top tech companies have been reporting dismal second quarter results. Now investors are struggling to assess the state of that industry. There was some hope in recent weeks that technology companies would offer hints of a rebound during the second half of this year, but that hasn't occurred.
Bruce Francis has the outlook.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It seems investors still want to believe in tech stocks. Like last week's Microsoft, the one that promised better-than-expected revenues but what they get is the real Microsoft, the one that's cutting its guidance for the current quarter. With now more than half of the tech components of the S&P 500 reporting results, the numbers are looking grim. And like Microsoft, tech companies continue to reduce their outlooks.
CHUCK HILL, THOMPSON FINANCIAL/FIRST CALL: We're really still in free fall in terms of analysts bringing down technology estimates, and these numbers do not even include the reaction to Microsoft, Sun, Gateway, et cetera, that came out with warnings last night.
A new report from Merrill Lynch finds that more than half of this year's stingy tech budgets have already been spent. Inventory to sales ratios have been climbing after a decade of declining. That makes companies less profitable and more prone to profit-pounding write-offs, and expensive tech factories increasingly idle. Usage now stands at 74 percent, the lowest levels since the mid-'70s. That often means that the sales companies do have are less profitable.
STEVE MILUNOVICH, MERRILL LYNCH: A significant tech recovery is unlikely to occur in the second half. The third quarter is when Europe goes on vacation. It's always seasonally weak. The fourth quarter, we'll probably see a little bit of seasonal strength, but our survey suggests we're not going to have a tremendous bounce back.
FRANCIS: Coming up next on the tech calendar: Monday, Amazon; Tuesday, Lucent; Wednesday, Compaq; and Qualcomm on Thursday.
(END VIDEOTAPE)
FRANCIS: Of that bunch, Milunovich is most focused on Amazon.com and if the Internet retailer can show further progress toward profitability -- if a very narrowly defined variety, Lou -- of profitability.
DOBBS: You were supposed to have some good news for us. I didn't hear it.
FRANCIS: I haven't heard it either from the tech companies that have been reporting this week, Lou. I'll bring it to you as soon as I do.
DOBBS: Thank goodness for Meg Whitman and eBay, right?
FRANCIS: That's right.
DOBBS: Thanks. Bruce Francis.
Well, technology analyst Henry Blodget rose to prominence back in 1998 when Blodget predicted Amazon would top $400 a share. Few had a problem with bullish estimates and rampant buy recommendations back in that either when stock prices were soaring. That all changed when stocks began to fall dramatically. And today, Blodget's firm, Merrill Lynch settled with a client who said that Blodget misled him with positive recommendations on a falling stock.
The $400,000 settlement may set the stage for copycat legal complaints.
Peter Viles has the report.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): A glimmer of hope for investors who bet big and bet wrong in the market and want someone else to take the blame. Merrill Lynch agreed to pay $400,000 to settle an arbitration complaint brought by a pediatrician who lost $800,000 on stocks recommended by Merrill's star analyst Henry Blodget.
JACOB ZAMANSKY, ZAMANSKY & ASSOCIATES: This is a ground breaking case, and it establishes the principle that where an investor relies on the integrity of the research and they don't disclose a conflict of interest, the firm can be held responsible.
VILES: By investing in AOL and Microsoft, the investor, Debasis Kanjilal, first built his Merrill Lynch account from $250,000 into a million, but then he shifted that money into JDS Uniphase, on which he lost $311,000, and InfoSpace, on which he lost 518,000.
In his original complaint seeking $10.8 million, he claimed those losses -- quote -- "were suffered as a result of the systematic fraud by stock analysts which occurs on an industry-wide basis at major brokerage houses," end quote. Specifically, he claims Blodget failed to promptly disclose Merrill's work on behalf of Go2Net, which was InfoSpace's future merger partner.
Merrill insists Blodget disclosed that relationship within days of learning of it.
In a statement, the brokerage noted: "All claims with respect to Henry Blodget were dismissed from this case. We settle to avoid further distraction and expense of protracted litigation."
The settlement sets no legal precedent, but may encourage similar complaints against analysts.
JOHN COFFEE, COLUMBIA UNIVERSITY: It has been pretty uncommon up to now, but the analyst community is coming under intense attack. And I think that will change the playing field and create more litigation against analysts.
(END VIDEOTAPE)
VILES: In fact, the lawyer in this case is now studying the reports of other prominent analysts, notably Mary Meeker at Morgan Stanley and Jack Grubman at Salomon Brothers, with an eye toward filing similar complaints rather against their firms -- Lou.
DOBBS: That's a remarkable story.
VILES: And a cautionary tale about diversification. That's a lot of eggs in one basket.
DOBBS: Two stocks.
VILES: Two stocks.
DOBBS: It was an education fund?
(LAUGHTER)
DOBBS: All right, some other issues here as well.
VILES: Yes, there are.
DOBBS: Pete, thanks very much. Peter Viles.
Well, my guest tonight says there are three factors that could boost the sagging markets: a three-month low in the 10-year treasury, oil prices dipping below $25 a barrel and a euro hitting a two-month high. Joining me now, Elizabeth Mackay, who's Bear Stearns' chief investment strategist.
It's good to have you with us.
ELIZABETH MACKAY, BEAR STEARNS: Glad to be here.
DOBBS: Let's start with this market: a mixed performance this week. The Dow up 1 percent, the Nasdaq off 3 percent.
Are we going to have more of this sort of treading along?
MACKAY: It's interesting. I think, as you pointed out, given the news backdrop, the market performance wasn't that poor.
DOBBS: These earnings are horrible.
MACKAY: Are awful, are awful. And I think what the market clearly is looking for is good news. Now, technology companies, I think, do have specific issues, as Greenspan pointed out -- Alan Greenspan the other day -- though, the general economic data is getting a little more mixed. So maybe we're starting to see the old economy, which basically led us into this downturn, starting in fact to find its legs a bit.
DOBBS: The old economy led us into this downturn, not technology and the runoff in the Nasdaq and the implosion of the Internet bubble?
MACKAY: No, I think -- at this time a year ago, the macro data again was starting to show some signs of weakness, and in fact, at that time we had a lot of CEOs -- from tech companies, most notably -- saying everything was great.
DOBBS: Right.
MACKAY: It was really at that time that they had no visibility.
DOBBS: People forget. Technology hit the wall in the fourth quarter of last year.
MACKAY: That's right.
DOBBS: And it was a sudden, sharp turn into a very substantial wall.
MACKAY: And the thought was, you know, technology is secular growth. It's immune to a slowdown in the rest of the economy. Well, it isn't.
So, that is why I think one of the most encouraging things for technology would be signs that yes, industrial production is bottoming out, that the inventory has been worked down in the old economy, and gee, if auto production begins to pick up, well, they use semiconductors.
DOBBS: Right.
MACKAY: And that gets things in the whole economy moving.
DOBBS: And people forget that the old economy, as you put it, are the folks who are buying all of that information technology and technology in general.
MACKAY: That's right, and if the old economy picks up, someone will buy a PC.
DOBBS: What do you want investors to do here? What would be your advice to investors? What stocks or stock should they invest in?
MACKAY: I think, you know, this kind of volatility, for lack of a better word, that we're seeing probably does continue as the market waits for (UNINTELLIGIBLE) started to move on discounting this economic recovery until it waits for news that in fact that economic recovery is gaining some kind of traction. So I think investors can be patient. I think you take advantage of pulls backs -- pullbacks in stocks, in high quality-type stocks, to position those.
DOBBS: Give us three that you think will make a 100 percent on over the next -- oh, I'm sorry, it's a different era.
(LAUGHTER)
Give us whatever recommendations you have, an interesting return over a period.
MACKAY: I would say something like an American Express...
DOBBS: OK.
MACKAY: ... is selling in the teens right now in terms of its price-earnings ratio. You have a chance to buy a blue chip stock. You don't get that opportunity unless there's some kind of news. Yes, they took a big write-down. We think they're accelerating their write-downs and restructuring.
DOBBS: Well, we're going to have you back to join our roundtable at the latter part of the broadcast. Thanks for being here.
MACKAY: Terrific..
DOBBS: Elizabeth Mackay.
Well, slow connection speeds just one of the more annoying aspects of the Internet these days. This week, two unlikely factors contributing: A White House worm and a Baltimore train making the problem a bit worse.
Steve Young has the story.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): Internet traffic across the country has been derailed by a double whammy: a train tunnel fire in Baltimore and a computer virus-like assault called Code Red on the White House official Web site.
The fire has been raging since Wednesday night, and it's burned fiber optic cable. The computer worm has caused a mushrooming of malicious traffic in what's called a "denial of services" attack.
The red blocks pinpoint Internet traffic jams at 2:00 a.m. The situation began to improve this afternoon, but still slowed Web sites, phone calling centers and other businesses, principally on the East Coast, but also in San Diego, Houston and St. Louis.
BILL JONES, KEYNOTE SYSTEMS: We find the problem had spread through anyone in the Washington-Baltimore-New York area. Going west was now from what you would normally expect, three or four seconds, and now it's taking me two or three minutes in some cases to access the same sites that I had been able to access almost instantly before.
YOUNG: PSINet was worst-hit, but other carriers with fiber in the tunnel included Worldcom's UUNet and Sprint, which said its network architecture was able to steer around the traffic snarl.
Hearst Corporation in New York told MONEYLINE that for several hours Wednesday and Thursday its e-mail system was knocked out completely.
(END VIDEOTAPE)
YOUNG: With the roadblock now two days and counting, this isn't the most severe Internet jam on record but it is the longest. Experts say the lesson for major businesses is it pays to have a second backup carrier -- Lou.
DOBBS: Redundancy works? YOUNG: Redundancy pays.
DOBBS: It is sort of amusing when you think about it. This is a big crisis because we're having two to three minute delays.
(LAUGHTER)
Steve Young, thank you,
Well, coming up next on MONEYLINE, the government budget surplus is shrinking somewhat, but don't blame it on those tax cuts. We'll tell you about the story behind the numbers. And speaking of those tax cuts, the check really is in the mail. Really. But how much will they amount to?
Also, a vacation plan closer to home. Why a sluggish economy perking up business for some amusement parks.
(COMMERCIAL BREAK)
DOBBS: Breaking news tonight from the Pentagon. Officials there say Iraq has apparently fired a surface-to-air missile into Kuwaiti airspace, the first time this has happened since the Gulf War. They report that a U.S. Navy Hawkeye surveillance aircraft on routine patrol several miles inside Kuwait near the border with Iraq yesterday observed a plume and then an explosion in the air about a mile away.
Based on the pilot's report, the Pentagon believes that Iraq fired a surface-to-air missile at the unarmed aircraft. Pentagon officials now say the incident happened yesterday morning, local time, in Kuwait.
Today, we learned that the federal budget surplus shrank last month, weighed down by a slowdown in corporate tax receipts. The Treasury Department is saying the surplus came to less than $32 billion in June. Now, that's down from nearly $56 billion in June one year ago. This news coming as analysts continue to scale back their surplus projections because of the slowing economy.
Another financial item from Washington tonight: Those long- awaited tax rebate checks, $300 for individuals, $600 for couples, are finally in the mail, the first going out this afternoon. Now economists will be watching, of course, carefully to figure out the American taxpayers' intent with that money.
Tim O'Brien has the story from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Today's extra payday for taxpayers will be repeated on Friday's through the rest of the year.
DELOS SMITH, THE CONFERENCE BOARD: I think they are going to enjoy it. Again, I think for most people it's kind of a gift from heaven. O'BRIEN: No, only from Washington and President George Bush, who, speaking live from Italy, told IRS employees at a printing facility in Kansas City, the rebate is right for the taxpayers and right for the economy.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Getting late last summer and early fall, our economy, especially the manufacturing sector, began slowing. The combination of this tax relief and lower interest rates should help to get it moving again.
O'BRIEN: Many analysts agree if consumers immediately spend the money, as retailers hope, the billions of dollars that change hands could stimulate production and employment.
GERALD COHEN, MERRILL LYNCH: This is not a one-shot deal. That it is a down payment on future tax cuts, and so people will be more apt to spend more of it than they would if they were just handed a one-shot rebate check.
O'BRIEN: A CNN-"USA Today"-Gallup Poll shows that nearly half of those receiving rebate checks will use the money to pay bills. A third will save it, and less than a fifth will actually go out and spend it.
ANIRVAN BANERJI, ECONOMIC CYCLE RESEARCH INSTITUTE: The problem right now is that we are likely to see mounting job losses, and that is likely to erode confidence and induce consumers to save, not spend.
O'BRIEN: The checks will be mailed out according to the last two digits of the recipients' Social Security number, 00 to 09 now in the mail, but 90 to 99 won't be out until the week of September 24. Checks to those who filed for an extension will be sent after that.
(END VIDEOTAPE)
O'BRIEN: All in all, almost 100 million checks are going out, which, if stretched end-to-end, would literally reach across the Atlantic to Africa, across Saudi Arabia to Sri Lanka on for another 2,000 miles! But how far will it go to stimulate the economy? On that, opinion remains divided -- Lou.
DOBBS: Just out of curiosity, Tim, did you add up the miles involved there?
O'BRIEN: Eleven thousand miles in government checks. I hope they don't bounce.
DOBBS: We have another way to quantify this tax rebate. Thanks a lot, Tim. Tim O'Brien.
Well, those rebate checks, as Tim reported, the subject of President Bush's comments from Italy today, but one of the president's most important meetings this weekend will be far less public. He sits down tomorrow with Russian President Vladimir Putin. The agenda undoubtedly will focus on strategic matters, but another subject, certainly, business, very much on the minds of both leaders. Kitty Pilgrim has the report.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): When Russian President Putin and President Bush sit down in Genoa to talk, they may not see eye to eye on strategic issues, but they will be on the same page on trade.
PAUL SONDERS, THE NIXON CENTER: From the Russian side, there is a real sense that the Bush administration is more willing to engage in dialogue than the Clinton administration was.
PILGRIM: It's a real turning point. Russia used to be a black hole for investors and for money from the IMF, but President Putin has demonstrated real practicality in the last year and a half, working with the Russian legislature to set up commercial and tax laws to lure back Western money.
ASTRID TUMINEZ, COUNCIL ON FOREIGN RELATIONS: The Russian legislature has lowered the corporate profit tax rate from 35 percent to 24 percent.
PILGRIM: If talks in Genoa go well, Bush and Putin are expected to announce on Sunday a new forum for American and Russian executives to put together business ventures.
EUGENE LAWSON, U.S.-RUSSIAN BUSINESS COUNCIL: What they do need are deals, projects, business. And that involves the private sectors of both countries.
PILGRIM: There is still enormous interest from U.S. companies. The U.S.-Russia Business Council, an organization of some 250 companies that do business with Russia, including ExxonMobil, General Electric, General Motors, Philip Morris, Procter & Gamble and Xerox, are all hoping to tap into Russia's vast market.
(END VIDEOTAPE)
PILGRIM: Now, oddly, the disappointing deals of the '90s were in oil. The new business initiatives may involve the consumer sector, as well as high-tech -- Lou.
DOBBS: Major change for the Bush administration.
PILGRIM: That's exactly right, Lou. They are pushing the business interests first, as opposed to funding from the IMF.
DOBBS: Kitty, thanks. Kitty Pilgrim.
Coming up in the next half hour of MONEYLINE: stocks close out a volatile week on the downside, all of the details from Wall Street.
And summer fun closer to home: what a slowing economy has meant to the local theme parks. Also, OPEC is considering cutting oil production. We will be talking with one of the world's leading authorities about where prices are headed.
(COMMERCIAL BREAK)
DOBBS: In tonight's "MONEYLINE Headlines": the Dow and Nasdaq end lower on the session, capping a mixed week. Personal computer shipments falling nearly 2 percent in the second quarter, reports out today indicating this is the first declining in 15 years.
Violent riots break out in Genoa, Italy, protesting the G-8 summit. A protester is killed in the confrontation with police, and dozens of police and protesters injured.
Also tonight, we will be talking with world authority on the oil business, Pulitzer prize-winning author Daniel Yergin, economist Hernando De Soto. We will be talking about how the world's poor can take advantage of dollars in real assets. And, no thrill ride for big amusement parks as the economy continues to slow.
More now on today's session on a Wall Street. A disappointing forecast from Microsoft weighed on the markets today. Stock prices finished weaker, capping off a week filled with quarterly reports and dramatic swings in the market. The Dow finishing the day 33 points lower. Dow components Microsoft, 3M, AT&T leading the Dow lower. The Nasdaq down just under 1 percent on the day, chips and software issues were hardest hit.
On the Big Board, advancing issue did beat out decliners, but by only a small margin. On the week, the Dow virtually flat, the Nasdaq off almost 3 percent.
For the first time in 10 days, crude oil prices closed hider, traders speculating that OPEC may soon decide to cut production to fight a recent slide in oil prices. My guest says the global economic slowdown is hanging heavily over energy markets. Joining me now, Daniel Yergin, chairman of Cambridge Energy Research Associates. Dan, good to see you.
DANIEL YERGIN, CHAIRMAN, CAMBRIDGE ENERGY RESEARCH ASSOCIATES: Good evening.
DOBBS: This move in prices today, an anomaly over the most recent trend. What is happening, what is driving oil prices right now worldwide?
YERGIN: Overall, the OPEC ministers were really responding to the further reports that demand is weak, economies are weak, global economic slump is affecting prices, but today what we had was talk that they would cut production, and that is what gave that boost in prices.
DOBBS: And there are reports -- OPEC not scheduled to meet again until September -- that they would call a meeting next week. What do you think? YERGIN: Well, it could be a meeting, it could be a telephone call, but with the kind of news that you see -- Singapore economy down 10 percent, Germany -- all these weak economies, the likelihood of a cut in the next few weeks by OPEC is pretty high.
DOBBS: And the impact on prices?
YERGIN: That -- their goal is to get prices back into this middle 20s, high 20s range. That may be a battle, but what they really don't want to see is they don't want to see those prices fall into low 20s and out of the 20s altogether, and that is what will galvanize them into action.
DOBBS: Now, in fact, oil prices have been fairly stable since just about last November. And the cartel, which has been criticized by some, and of course the Bush administration pushing forward an energy crisis response policy, the fact is, we are in pretty good shape are we not, in terms of price -- price stability?
YERGIN: Exactly. If you look at gasoline prices, they have come way down from where we were when we talked a few weeks ago, Lou. Natural gas prices are down, again reflecting a weak economy and a very mild weather. So, that sense of crisis, which comes when prices shoot up has certainly eased, but producers now are looking at the downside and wondering what type of floor there is.
DOBBS: Moving this week, Dan, as you know, to the fact that California suddenly has to deal with a power surplus, rather than shortage or crisis. Do you think this is simply the markets working?
YERGIN: Well, it's certainly markets working, it's mild weather, but also we did a study recently, just a couple weeks ago, with UCLA, and basically California looks like it's already in a recession, and that too is taking a big chunk out of electricity demand. So, as long as you don't get a big burst of hot weather in California, it's going to be a much more stable picture.
DOBBS: Dan Yergin, as always, it's good to talk with you. Thank you.
Well, still ahead, a sluggish economy gives a new boost to some down- home summer fun. We'll be telling you all about that. Also, an economist with a radical reinterpretation of what makes poor nations poor.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Sectors Report": emerging markets. Argentina today calming fears over its financial standing and growing signs of support for the government's austerity plan. This comes as relief for Latin American markets as well as for U.S. banks. Those banks, of course, have billions of dollars in exposure in the region.
Checking the Latin markets: Argentina's stocks, which have tumbled over recent months, today up nearly 5 percent. Brazilian shares, as you might expect, moving higher as well, but Mexican stocks, however, trailing Wall Street lower.
Well, my guest is one of the most influential and compelling voices on the economics of developing countries. Peruvian economist Hernando de Soto is author of the recent book "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else." His answer challenge traditional economic thinking. He writes that poor people in poor countries have resources, but legal and bureaucratic constraints prevent the poor from translating private property into productive capital.
To talk about his ideas, we are joined from Washington by Hernando de Soto. Good to have you with us.
HERNANDO DE SOTO, AUTHOR, "THE MYSTERY OF CAPITAL": Hello, Lou, how are you?
DOBBS: I'm great. And I'm also fascinated by your ideas that private property is really the basis for propelling emerging countries, developing countries if you will, into prosperity. Where are you most actively engaged with the implementation of the idea?
DE SOTO: Well, we originally worked in Peru, but now we have been working for some time with President Fox in Mexico, with President Aristide in Haiti, in Egypt, in the Philippines, and we have now begun discussions both in South Africa and in Russia.
DOBBS: And you're finding, as you consult and advise leaders around the world, a great sympathy with this idea, are you not?
DE SOTO: Well, yes. What happens is that the first stage of our work in every country we go to is to actually measure the size of what we call the extralegal economy, what the Russians call the shadow economy, what international organizations call the informal economy, what some call the black economy -- and it turns out that it is a huge economy. It is much bigger than we had expected.
To give you an idea, for example, what the poor own only in real estate in Egypt, there is over $241 billion, which is something like 55 times more than all foreign investment in last 200 years, where it's 30 times size of the Cairo Stock Exchange. So, what we are finding out is that the black side of the economy, that which is untitled, unpapered, that is uninformed because it's not in the property system, is the largest part of the system in most developing and former communist nations.
DOBBS: Let's talk about Aristide and Haiti for a moment, because you get very focused on that in the book. The fact is, there are huge cultural issues there. There are bureaucratic issues, there is a central -- a central government, if you will, that is suborn in terms of change. How likely is it that you would be able to create both the opportunity for this idea to be put into effect -- that is, private ownership of private property, and also move to a banking system that will then give credit for the asset and a government all coming together, working together?
DE SOTO: Well, I think it is very likely, because one of the reasons reforms have not taken place is because we always thought that the poor in macroterms were poor. So, one of the first stages we do in each of the countries we are working in is to size up what they actually have. And we start finding out they in fact have more resources put together than all foreign investment and local stock markets.
Once presidents, heads of state, politicians become aware of the size -- and especially become aware of the amount of the population that is in this extralegal market -- for example, in the case of Haiti, over 90 percent -- they want to satisfy their voters, they want to gain legitimacy. So I think it's very likely that we will be able to do something about it.
DOBBS: And I know just other day, you've spent about three and a half hours talking with Vladimir Putin. Is there sympathy, interest, enthusiasm about your ideas for Russia?
DE SOTO: Oh, yes, absolutely. One of the things we talked about is that my book is coming out in Russian, and already his cabinet of advisers have looked at it. And he was very interested to see how this could relate to Russia, because the Russians have no problem in recognizing that they have a very large extralegal economy. The question is how large. The question is what are the laws that hurt, which are the ones that should be put in.
And as you know from United States and your experience, is you don't import laws, you actually tailor and custom laws to what the constituency needs. And what we need to find out in Russia, what President Putin has to do is find out, of course, what and how large that black economy is and where are the laws hurting. And there is no other way than addressing that black economy itself.
DOBBS: Hernando de Soto, "The Mystery of Capital." Thanks for being with us.
DE SOTO: Thank you, Lou. Good to be here.
DOBBS: Still ahead here on MONEYLINE: After a wild week in the markets, we'll have a roundtable discussion of leading authorities on what to expect in the days and weeks ahead.
Also, a place Americans are less worried about the economy -- local attractions drawing big audiences.
(COMMERCIAL BREAK)
DOBBS: To quickly take a look at what we can expect in the days and weeks ahead in the market, Jan Hopkins, Bruce Francis, Liz Mackay and, back at the New York Stock exchange, Jennifer Westhoven.
Jennifer, the mood there -- what does it tell us going forward into next week?
WESTHOVEN: There is a lot of worry about, especially low volume today, even though there was some expiration going on. The other thing that is being talked about is Alan Greenspan, of course, second leg of his testimony before Congress next week. There were some mixed readings on how it went this week, and they are looking for some hope from him.
DOBBS: Well, I'm going to turn to Bruce Francis, who I'm sure will have a lot of good news for us, in terms of particularly technology.
FRANCIS: Maybe out of Amazon on Monday, Lou. Maybe they will say, OK, we are going to stick on plan by getting to profitability by the end of the year, but JDS Uniphase, Corning, Compaq, not too optimistic about what they are going to say.
DOBBS: You've got Texas Instruments reporting next week as well.
FRANCIS: Right on Tuesday.
DOBBS: How -- do you think we are going to have a solid week?
FRANCIS: Semiconductor companies are not doing well. Capacity utilization is down to 64 percent in that industry. It's hard to make money at that level.
DOBBS: Jan?
HOPKINS: You know what's interesting, people are so negative at this point, that maybe it is about time that we see the contrarian move in the opposite direction. That may be the positive sign for next week or the week after.
DOBBS: Climb a wall of worry.
HOPKINS: Right, exactly.
DOBBS: Dig out from a pit of fear, or whatever you wanted to say.
Liz, what do you think we have in store?
MACKAY: See, I think if we can continue to see this downward move in oil prices, upward move in the euro, downward move in interest rates, I think -- in the case of oil prices, that's enough of a tax cut. We don't need the checks in the mail, if we can have lower energy costs coming into the fourth quarter than we did last year.
DOBBS: But as we've just reported and discussed with Dan Yergin, the possibility of OPEC meeting and cutting production next week.
MACKAY: Certainly the markets, I think, have started to discount that outcome.
DOBBS: Terrific! If we can get enough bad news discounted, we'll have something -- and Jan will have her contrarian result.
MACKAY: Yeah, that is -- I think that is the position of the market now. With this kind of an awful lot of negatives, we've got to get the good news out there. DOBBS: Can we discount any more in technology?
FRANCIS: I don't have a sense that we are absolutely at the bottom there. Some sectors that are still pretty troubled -- we thought that the PC business would be the first one out, since they were the first one to go down. Haven't seen that yet, still holding on though.
DOBBS: But it's interesting that those PC makers' stock, those stocks have done pretty well, with the exception Compaq.
FRANCIS: I think they got a little ahead of itself in that quarter, Lou.
DOBBS: Well, I just want to thank you all, I appreciate it. Terrific week, and great to spend some time with you this Friday evening.
HOPKINS: Thank you.
FRANCIS: My pleasure.
DOBBS: And we will be turning now to rising unemployment and overall economic uncertainty. That's what forcing many families to put big vacation plans on hold. Major amusement parks around the country are suffering -- and suffering deeply -- as a result. But that doesn't mean families aren't taking a well-deserved break. They're just looking for a more efficient way to do so, a little closer to home. Lisa Leiter with the story from Santa Claus, Indiana.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Mickey Mouse is feeling the pain of the slowing economy. Admissions at Disney World are down 5 percent from a year ago, but at regional parks like Holiday World, business is much better.
WILL KOCH, PRESIDENT, HOLIDAY WORLD: The fact that in a down economy we are able to grow is attributable to the fact that we are getting more of this local crowd because of the down economy.
LEITER: A local crowd enticed by free drinks and free parking.
UNIDENTIFIED FEMALE: I just got laid off from work, and we brought all of our great nieces and
1920 more of this local crowd because of the down economy.
LEITER: A local crowd enticed by free drinks and free parking.
UNIDENTIFIED FEMALE: I just got laid off from work and we brought all of our great nieces and granddaughter down here because it's so much cheaper. It's close to home.
LEITER (voice-over): Admissions at Holiday World here in southern Indiana are up 15 percent from a year ago, and while that growth is not unusual for this park, it comes at a time when other bigger parks are suffering.
Six Flags, the largest regional theme park chain, says attendance rose more than 3 percent year to date. Knott's Berry Farm in Anaheim, California is trying to lure more visitors with discount tickets sold at grocery stores.
SUSAN TIERNEY, KNOTT'S BERRY FARM: So far this season we've done well, and we are going into peak season. July and August is always peak theme park attendance months. So we are looking forward to a good July and August.
LEITER: The O'Neils (ph) drove 800 miles from Oregon and are staying with family.
UNIDENTIFIED FEMALE: By driving and staying with family, as opposed to flying and staying in hotels and resorts, we thought we'd plan that way so we knew we were saving money.
LEITER: Others are bypassing hotels for the great outdoors. In Ohio, Cedar Point's cabins are booked solid. And Holiday World's campground business jumped 60 percent this year.
When people spend less on travel and lodging, they tend to spend more once they're inside the park, where their only fears...
(SCREAMING)
LEITER: ... are of the roller coasters.
UNIDENTIFIED MALE: When people come to the park, they're not worried about the economy.
(LAUGHTER)
LEITER: Lisa Leiter, CNN Financial News, Santa Claus, Indiana.
(END VIDEOTAPE)
DOBBS: Up next, your thoughts and "Ahead of the Curve" -- what to watch out for on Wall Street next week -- or just simply to look for.
(COMMERCIAL BREAK)
DOBBS: More than 60 percent of the companies that reported earnings results so far have beaten Wall Street expectations. We'll see if that streak continues next week when we get reports from Dow components AT&T, American Express, 3M, ExxonMobil, Honeywell, McDonald's. And we'll also hear from Dupont, JDS Uniphase, Amazon.com, Texas Instruments, Bristol-Myers Squibb and Texaco, among others.
And in economic news we'll be watching for reports on second quarter gross domestic product. We'll also have the employment cost index -- an Alan Greenspan favorite, as well as durable goods, existing and new home sales and the University of Michigan Consumer Confidence Survey. Please tune in to MONEYLINE next Monday when Jessica Bibliowicz, the chief executive of National Financial Partners is our guest,
Now for your thoughts. Todd Rossbach writes: "I don't think some people realize that the decline in the Nasdaq over the past year has been more brutal than the '29 crash."
Well, Todd, that's not exactly so. The Dow peaked at 381 in September of 1929. The crash in October left the index at 198, a 38 percent decline. But the Dow then continued to drop, finally bottoming out at 41 in July of 1932, a decline of 89 percent. As for the Nasdaq, it peaked at 5,048 in March of 2000. Our low for this year occurred in April, when the Nasdaq hit 1,638. That's a 67 percent decline, and while that's a painful, sharp decline, the Dow crash of '29 and its aftermath was far worse.
And in the wake of Merrill Lynch's settlement with a client claiming Henry Blodget misled investors, Joe S. has a timely thought from Chicago. He writes: "I think analysts like Blodget should have to buy their recommended list two days after they recommend them and then have to hold those stocks until two days after they recommend selling them."
In June, several Wall Street firms set out to draft a code of best practices, pledging to require analysts to report if they owned shares in the companies they cover. Merrill Lynch took that one step further, deciding its analysts may no longer buy the stocks they cover at all, enforcing them to sell stakes owned by this September.
But, you know, I have to admit, I kind of like your approach. Please send us your thoughts, your comments. E-mail us at moneyline@cnn.com. And that is MONEYLINE for this Friday evening. We thank you for joining us. I'm Lou Dobbs. Have a very pleasant weekend. Good night from New York.
"CROSSFIRE" is next. Here is Tucker Carlson -- Tucker?
TUCKER CARLSON, HOST, "CROSSFIRE": Thanks, Lou. August is almost here and there are a number of people in Washington who look like they could use a summer vacation. Tom Daschle, President Bush, Hillary Clinton and, needless to say, Gary Condit. It's been a big week for all of them, a big week in politics. Happily, we're still on the job to sort it all out, and we shall, next on "CROSSFIRE."
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