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Lou Dobbs Moneyline
More Big Losses, More Big Layoffs
Aired July 26, 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: Stock prices higher across the board. The Nasdaq back up above 2000. The telecom disaster claims another victim: JDS Uniphase losing $8 billion in one quarter. Hewlett Packard stuns Wall Street with another warning and thousands of layoffs.
And on the links, a battle of the sexes. This little ball may be a better bounce for Bridgestone.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening.
Topping tonight's headlines, JDS Uniphase after the bell says it lost a staggering $8 billion last quarter and the company announces 16,000 layoffs.
Hewlett-Packard early in the day issued yet another warning and it says it will cut 6,000 jobs.
And a continuing contest between good news and bad on the economy. Orders for big ticket goods tumbled last month. But jobless claims plunged last week.
Let's check in with our reporters for a look at what they are working on tonight -- Steve?
STEVE YOUNG, CNN CORRESPONDENT (voice-over): After the bell, word of a staggering loss for JDS Uniphase, whose stock has plunged more than 90 percent in one year.
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): The Nasdaq surged nearly 2 percent, and the Dow rallied as well, an impressive feat considering the warning from H-P.
KATHARINE BARRETT, CNN CORRESPONDENT: Top analysts gathered here in Redmond, Washington for Microsoft's analyst meeting. I'll tell you what the company leadership is saying about the high-tech slump.
KITTY PILGRIM, CNN CORRESPONDENT: Beginning today, American companies are able to ship food to Cuba. We'll look at efforts by the broader business community to expand trade with the Communist nation.
DOBBS: We'll bring you all those stories, ahead on MONEYLINE.
Our top story tonight: a disastrous quarter for JDS Uniphase. The fiber optic equipment maker said after the bell that it lost $8 billion last quarter. The company is currently worth just over $11 million. Over the past year, JDS has lost a staggering $50 billion. That's more than the entire economies of Zimbabwe, Paraguay, and Lebanon, combined.
Even more troubling: JDS offering no signs of a recovery and said it would lay off 16,000 workers. It's a humbling moment for a company that just one year ago was a market star, even as the rest of the high-tech sector was crumbling.
Steve Young joins us now with a look at the damage -- Steve?
YOUNG: Lou, JDS-U, the optical equipment networking company, had a triple whammy, a screeching earnings slow down, a forced global layoff of 16,000 workers. Then, on a bleak earnings day, it was the victim of a computer hacker. As a result JDS-U trading was halted for about more than an half hour in the afternoon at the Nasdaq and in Toronto because the company says the hacker obtained financial performance information before it was broadly released.
The meltdown of the market for optical gear meant by the company's preferred metrics instead of earning three cents in the quarter, JDS-U lost $477 million or 36 cents a share. But if you add in a litany of items the company would like to down play down, reduction of goodwill, merger-related charges, payroll taxes on stock option exercises, and so forth, the picture is startlingly different.
JDS Uniphase reported an eye-popping $8 billion loss for the quarter. There's $5.99 a share on that that basis. The company lost nearly $51 billion, or $46.30 a share for the year. There will be no relief in the near term. JDS-U said it does not see a sign of improvement and has no guidance at all for the first quarter or any to follow -- Lou?
DOBBS: No guidance, no clue as to what the future holds. This doesn't strike me as being a particularly profound outlook from the company?
YOUNG: No. And it seems to lend credence to the idea that maybe the reason for JDS-Us and Ciscos have been blindsighted, there are no shared data, no gardeners and IDCs that get data from these companies, and compile demand information which is keeping everybody in the dark.
DOBBS: I think they might trade all of that for a little revenue boost as well. Steve, thank you.
The warning from JDS Uniphase followed another grim announcement earlier in the day from Hewlett Packard. Shares of H-P tumbled today, after the computer company warned sales this quarter would disappoint. H-P also said it would cut about 6,000 jobs as it struggles with the PC industry slump. It's just the latest in a drumbeat of dismal news from H-P, which has floundered during the tenure of CEO Carly Fiorina.
Bruce Francis has the report.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Cautious consumers are spending 24 percent less on H-P PCs and printers than this point last year, and not just in the United States. CEO Carly Fiorina delivered the conference news this morning.
CARLY FIORINA, CEO, HEWLETT-PACKARD: The greatest source of weakness is consumer spending, which has taken another ratchet down, and that is true throughout the world.
FRANCIS: Confessions like that have been increasingly familiar to Hewlett-Packard investors. Fiorina has told investors to expect less from the company six times in the past seven months alone. The details this time: revenues are expected to decrease by 14 to 16 percent. More than three times the drop that analysts had predicted. With margins declining, earnings per share could come in at four cents, according to some analysts, drastically below the previous average estimate of 19 cents.
H-P employees will pay the price: 6,000 will lose their jobs, bringing the total reduction this year to 7,000. H-P won't benefit from the cuts until the fourth quarter, so the company is clearly bracing for a rough second half and early 2002.
SHELBY SEYRAFI, A.G. EDWARDS: Companies don't cut jobs until more or less they believe the slowdown will linger and it wouldn't be surprising to me to see additional job cuts being announced in the future.
FRANCIS: With printer sales suffering, analysts like Tom Kraemer predict even weaker earnings to come.
TOM KRAEMER, MERRILL LYNCH: When printer unit growth disappoints over a series of quarters, all of a sudden, the ink revenue or the consumer revenue, which is over 100 percent of the operating income will start to fall, too.
(END VIDEOTAPE)
FRANCIS: Fiorina says that she still doesn't know when a recovery will get underway but she doesn't think it will be a sudden snap back to previous levels of demand.
DOBBS: That was the headline, "A Sudden Snap Back to Previous Levels of Demand."
FRANCIS: We're not going to see that anytime soon.
DOBBS: It's sort of peculiar: we hadn't heard from Fiorina throughout this disastrous period. Is there some strategy here that H-P is simply not speaking to these issues publicly?
FRANCIS: I'm not sure why they're not speaking. You do see a lot of executives kind of cowarding right now, not wanting to talk about the bad times in their industry. There is buzz though; it's a guessing game that the "San Jose Mercury News" just reported this week about when Fiorina -- not if, but when -- she will lose her job, but she seems to have the support of the board right now.
DOBBS: All right, well, it's a difficult time no matter how one assesses her leadership. It's not a great time to try to figure this one out. Bruce, thanks, Bruce Francis.
H-P was the biggest decliner on the Dow and it kept most of the index in the red for most of the day. But stocks moved higher across the board in the final hour of trading. Still, the gains on the day were modest, as investors awaiting economic news tomorrow on growth during the second quarter.
Jennifer Westhoven reports from Wall Street.
(BEGIN VIDEOTAPE)
WESTHOVEN (voice-over): Technology stocks drove the stock market higher, with stocks shrugging off a disturbing warning from Hewlett- Packard by the end of the day, even after the computer giant said weaker sales would mean heavy job cuts.
The Dow Jones Industrial Average staged a late-day comeback, pulling out of a triple digit loss early in the day to close up 49 points at 10,455.
Defense stocks bounced after a positive earnings report from Lockheed Martin. And brokerage stocks rose as well. But the biggest push higher came from technology. Semiconductors roared on hopes an end to the disappointments and falling sales is nearing.
THEODORE O'NEIL, C.E. UNTERBERG, TOWBIN: This is a widget industry and when the industry needs to make more widgets, six months from now, these widgets which happen to be chips or ICs, when they're going up in the six-month period, that's always good for both the semiconductor stocks and the equipment stocks and that will be good for the rest of the technology sector.
WESTHOVEN: The Nasdaq jumped back over the 2000 mark for the first time in four days to 2022, up 38 points. The index rose more than 3 percent combined with Wednesday's rally. But analysts say the gains could be in jeopardy.
MICHAEL BALOG, BANC OF AMERICA SECURITIES: There are not a lot of market participants around. A lot of people have just thrown up their hands and said, let's just wait to see how things get better, nothing material is going to happen during the summer, so the beach chairs look better than the trading floor.
(END VIDEOTAPE)
WESTHOVEN: Well, the traders on the trading floor felt a little bit smug over the past few days as they caught the bottom compared to people out in the beaches, but that only lasted until the results came from JDS Uniphase, seen as disappointing. Still though, Lou, one index of the Nasdaq top 100 stocks minus financials is down only about a half percent, so we'll see if perhaps it will be shrugged off as easily as Hewlett-Packard.
DOBBS: OK, thank you very much. Jennifer Westhoven.
Topping tonight's MONEYLINE movers, Energizer falling more than $3 a share, after the company missed estimates by a wide margin. Revenue at the No. 2 battery maker falling 14 percent, due to increased competition and a strong dollar.
Viacom shares today up more than $3. The media powerhouse edging out expectations by a penny, but revenue was flat. Viacom says the weak advertising market cut into its CBS network and radio units.
Sony, down nearly $6 a share, that after reporting a 90 percent decline in earnings. The electronics and entertainment company slashed forecasts for the year ahead as a result, citing slowing global demand. Shares of Sony have been cut in half from its 52-week high, $116, that high.
Today's market rebound comes against the backdrop of six interest rate cuts by the Fed, of course, and it's the first week that those tax rebates have hit U.S. mailboxes. Christine Romans joins us now from the New York Stock Exchange. She has a look at where Wall Street expects all of that money to go -- Christine?
CHRISTINE ROMANS, CNN CORRESPONDENT: Hi, Lou. On a day like today, Wall Street's glass was half full, and that means they were talking about that tax rebate that is hitting American mailboxes. What are the tax rebate plays? Well, I talked to Jim Sullivan over at UBS Warberg, and he was talking about 1975, the last time we saw a rebate like this, he said retail sales the month after those hit the mailboxes, was up 4.6 percent, and a lot of that money went to durable goods.
Some of the much-touted plays on the Street include home improvement names like Lowe's and Home Depot. Also, those durable good names, in particular, household appliances. Back-to-school names, listen, it's the perfect time of the year for that money to be coming into American households, at least if you talk with some of the retail analysts.
And restaurants -- don't forget restaurants, Lou. Today, Peter Oaks over at Merrill Lynch issued a note in which he reiterated his buy on a company called Outback Steakhouse, OSI. He seems to think that eventually people are going to take that money and go buy a big fat state -- Lou.
DOBBS: This may be amongst the most intriguing strategies I've heard in a long time. How big a bet should everybody be making on this?
ROMANS: That's a very good point. Some folks are saying because these tax rebates are coming in 10 phases instead of one big chunk, like in '75, you could see the impact scattered over weeks or even the full quarter. They say you might not see a big boost to the stock prices in the near term, but that money is going to be trickling into the top line, and if the economy needs help turning a corner, this might be the thing that does it.
DOBBS: Rather than just (UNINTELLIGIBLE) flash in the pan, then we can look for a sustained, complete, ongoing recovery in those stocks. Is that it?
ROMANS: Absolutely. One of the things that the bull hopes will help things -- turn it around.
DOBBS: You got it. Christine, thank you very much. Christine Romans from the New York Exchange.
Today's late rebound in the market, welcome news for investors. The first time in two weeks stocks have rallied in back-to-back sessions. Investors appear to be looking past a mountain of bad news from corporate America. But Hewlett Packard's CEO today said she doesn't expect a recovery in the second half of this year. And JDS offered no hope of a rebound either.
My guest tonight is also skeptical about the prospects for a quick recovery. And Chris Wolfe, a strategist at J.P. Morgan private bank.
Chris, despite your skepticism, it's good to have you with us.
CHRIS WOLFE, J.P. MORGAN PRIVATE BANK: Thank you.
DOBBS: You don't believe we're going to see much of a recovery in the second half.
WOLFE: I think what you really need to be thinking, at least in this time period with respect to profits in this environment, is that you have a very short window with which to see accelerating orders, particularly in the manufacturing sector of the economy.
Really, a lot of people know that, but with sales cycles six, seven months long, no orders in the next six to eight weeks means no growth for the rest of the year, write it off. Doesn't mean you shouldn't buy stocks, thought. I think at the back half of the year, you're going to start to anticipate what '02 looks like.
DOBBS: Well, in terms of the bottom of this market, do you believe that we saw the bottom in March and April for year 2001?
WOLFE: I do believe that, for a reason that it looked like a big overreaction. I do believe that what we're looking at this point in time, to check the fundamentals, is a lot of companies doing great big wipe outs, clearing the decks. You've seen JDS, EMC, so I can run off a list of 10, 15 companies that just clammed up.
DOBBS: JDS looked like they were trying to write other companies?
(LAUGHTER) WOLFE: It's a substantial number. But I think what you're seeing is corporate America adjust their cost structure, also. Unfortunately, the layoffs are a bad thing for the employees, but they're a good thing for corporate cash flow. You're likely to see, I think on the back end of this next year, some amount of corporate investment in technology goods going forward.
DOBBS: Economic recovery, not this year. The market, how will it perform this year, through the remainder of the year?
WOLFE: We're looking for a trade-arrange market capped by valuations on the low side, with respect to liking the S&P at 11, 1,150. Think that profit margins come down a bit here, but thinking 13 to 1350 is actually a bit extensive in this environment of low economic growth.
DOBBS: OK, we've got the bottom behind us, we have slow growth in front of us for the remainder of this year, a recovery in 2002. What stocks would you advise investors to buy?
WOLFE: I think we're playing a couple key themes, here. Pay up for quality earnings growth with names like Cardinal Health Care, it's about 28 times next year's earnings. We think it's a dominant player in its niche, grows about 20-22 percent earnings growth for next year, and we think it has very good merger synergies.
We like some of the small cap plays, also. We're seeing liquidity benefits of these names, particularly in the energy sector. So St. Mary Land & Exploration -- it's a small company, exploration/production company in Colorado. Good profile, pretty cheap at about four times cash flow for next year.
I don't hate technology, but looking at some of the names, here. SonicWall, a small cap, about a billion or so, Web security company. Their quarterly report showed improving margins, increasing share and basically, like the company's profile going forward.
DOBBS: And they performed, it's a lot -- how, this year so far?
WOLFE: Year to date performance has been difficult, because it's actually had a steep fall from the beginning of the year. But it's actually come back to about $20 or so.
DOBBS: An obvious buying opportunity.
WOLFE: Our view is that with improving margins, you want to focus on companies like that.
DOBBS: Terrific. Good to have you with us.
WOLFE: Thank you.
DOBBS: In Redmond, Washington today, Bill Gates touted the digital decade ahead, as Microsoft held its annual analyst meeting. That meeting comes at a challenging moment, of course, for the No. 1 software company in the world. Microsoft engaging in settlement talks with the federal government, preparing for its most important product rollout since Windows 95, Windows XP.
Katharine Barrett joins us now from Redmond, Washington, with a look at the day's developments -- Katharine?
BARRETT: Well, Lou, that Windows XP launch isn't coming for another three months, but it was very much the centerpiece of presentations here today. Microsoft's developers showed off Windows XP's "Gee Whiz" features of portability, connectivity and, they say, its ease of use.
In what Microsoft described as the upcoming year of big bets, Windows XP is certainly one of the biggest. The company says it will spend $200 million to promote the product in its first four months. It indeed hopes that that product is going to spark demand in the entire PC industry.
(BEGIN VIDEO CLIP)
RICHARD BELLUZZO, PRES. & COO, MICROSOFT: As we look to the future of the PC, it's really that rich, interactive device is really still at the center of the Internet and of so many things that are happening with devices and with services. And so with this release of XP, it's very important that we extend those experiences and that we really deliver that innovation and enthusiasm, and I think will spark the industry. It will give more reasons for people to buy PC's. It's something not only good for Microsoft, but the thousand or so partners that are involved with the XP launch.
(END VIDEO CLIP)
BARRETT: But that launch date could come under some pressure. Leading electronic privacy groups today filed a complaint against part of Windows XP with the Federal Trade Commission, and Congress is planning hearings on the subject in September, even as the Department of Justice case against Microsoft in general is dragging on.
Microsoft though was predictably upbeat about the future of its industry and of course, its own future. It's giving the nitty-gritty financial outlook to analysts inside here right now. But Microsoft says Bill Gates, the chief software architect said while the rest of the tech industry seems to see this period as simply the end, battle hardened Microsoft sees its new fiscal year, which is starting right now, as simply another beginning -- Lou.
DOBBS: All right. With a little over 30 billion in the bank, you can be a little more optimistic, perhaps, than some of those other technology companies, right, Katharine?
BARRETT: That's right. It's always nice to have a cash cushion in hard times.
DOBBS: Now, the focus, I realize, and this is the nature of Microsoft, and understandably so, to be forward spending into Windows XP and its introductions, coming this fall. How is Office XP going? Any discussion of that? BARRETT: Well, there was, Lou. And of course, there was a lot of discussion about how the business services area is one of the most promising and fastest growing for Microsoft. They talked about how well they think it's being adopted. So yes, they're predictably upbeat about that as well.
DOBBS: All right. Katharine Barrett from Redmond. Thanks very much.
Still ahead here on MONEYLINE, more signs of consumer uneasiness. Why some retailers may not be looking forward to those back-to-school sales. And another sector going through boom times, the energy crunch leading to a flood of pipeline construction.
Also, a million Cubans hit the streets for a rally against Washington. We'll take a look at how the real movement may be moving toward better U.S.-Cuban relations and more trade.
(COMMERCIAL BREAK)
DOBBS: We've been reporting this week on how the oil industry has recorded strong profits during the recent surge in oil prices. In tonight's "Powering America," we look at another big winner in the recent energy crunch: the builders of natural gas pipelines.
Casey Wian has the report from Daggett, California.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): It's the biggest natural gas pipeline construction boom in a decade -- 25,000 miles of new pipeline projects are planned by 2010, designed to satisfy a nation hungry for energy.
STEPHEN BEASLEY, PRESIDENT, TENNESSEE GAS PIPELINE: We as an industry -- the pipeline industry I'm talking about -- over the next decade, we're going to spend around $30 billion, or $3 billion a year, for pipeline infrastructure.
WIAN: It's the result of an industry with an aging infrastructure, new demand from natural gas fueled electric power plants, and a sense of urgency by the Bush administration's energy regulators.
ED LEWIS, INDUSTRIAL INFO. RESOURCES: Everybody's concerned about energy getting out of hand to a point where it's impacting growth, so there's a lot of acceptance for at least the government supporting the policies necessary in order to move forward.
WIAN: Already this year, federal energy regulators have approved more pipeline projects than during the last two full years of the Clinton administration. Energy giant Williams is investing $5 billion in 50 new gas pipeline projects, including doubling the capacity of its Kern River pipeline, stretching from Wyoming to Southern California. CUBA WADLINGTON, JR., CEO, WILLIAMS GAS PIPELINE: All this flurry of activity is designed to get enough infrastructure built so that during this decade we will have a situation where we will not have natural gas shortages or power shortages because we did not have enough capacity.
WIAN: The latest addition is this compressor station near Barstow, which went into service this month.
(on camera): When the Kern River pipeline expansion project is complete, it will be able to carry an additional 900 million cubic feet of natural gas per day. That's enough to fuel power plants producing enough electricity for 10 million homes.
(voice-over): Besides California, demand for natural gas is soaring in the Northeast, the Great Lakes states and the Southeast. Pipeline executives say recent peaks and valleys in natural gas prices have little impact on their business, which is strictly transmission. And they say they're not worried about overbuilding, because customers are committing to longer contracts in advance.
Casey Wian, CNN Financial News, Daggett, California.
(END VIDEOTAPE)
DOBBS: And those pipelines stocks today, as you might guess, Williams, Enron, Duke Energy, Western Gas Resources, all moving higher on the day.
The long winter of U.S.-Cuban relations may be emerging from a deep freeze. Starting today, U.S. exporters can now sell food and grain to Cuba. These new rules going into effect one day after the House of Representative relaxed restrictions on U.S. travel to the island, but signs of tension of course remain, as a record number of Cubans joined in an anti-America rally in Havana.
Kitty Pilgrim reports now on the state of U.S.-Cuban trade.
(BEGIN VIDEOTAPE)
PILGRIM (voice-over): More than a million Cubans marched in Havana on Thursday, joined by Cuban President Fidel Castro, for the annual celebration of the revolution. The marchers waved flags and shouted against the U.S. trade embargo, which has been in effect for four decades.
The White House is still taking a hard line against Cuba.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The president thinks it's very important to stand strong against oppression in Cuba and to keep a strict economic embargo in place against Cuba.
PILGRIM: But this week, some major legislative changes may open up trade. Wednesday, the U.S. House of Representatives voted to end the travel restrictions to the island. U.S. citizens are only allowed to visit by special license, issued by the U.S. Treasury Department. The legislation, however, is unlikely to get through the Senate.
Other legislation came into effect Thursday, allowing U.S. food companies and grain exporters to start selling products to Cuba. Last year, Cuba bought $750 million of food from overseas. American companies are hoping to get a part of that business.
PAMELA FALK, CITY UNIVERSITY SCHOOL OF LAW: We'll see how that goes. Castro and the Cuban government has said that they won't buy a grain of wheat from American farmers, but now the regulation are in effect, and American farmers would like to sell.
PILGRIM: And some think American food companies may also eventually find a market in Cuba.
JOHN KAVULICH, U.S.-CUBA TRADE AND ECONOMIC COUNCIL: Everything is included, even live horses. So yes, Snickers bars, and Pepsi, and Cheetos, and -- you name it, it's there. The list from the United States Department of Agriculture is over 36 pages long.
(END VIDEOTAPE)
PILGRIM: Now, that won't happen overnight, there are still big obstacles for American companies to do business with Cuba. Payments still have to be made in cash. That is a problem for the Cuban government, which is long on rhetoric, but a bit short on cash -- Lou.
DOBBS: That's still the stuff of trade. All right. Kitty, thank you. Kitty Pilgrim.
Coming up in the next half hour of MONEYLINE: the hottest item on the golf course, an equal opportunity lady that can put power into a man's game.
Also, fears that a critical consumer season may not live up to expectations. We'll be checking out the impact of a cautious spending public.
(COMMERCIAL BREAK)
DOBBS: A disastrous quarter for JDS Uniphase. After the bell, the optical equipment maker posting a massive $50 billion loss for the year. Grim news as well from Hewlett-Packard, and that triggered selling at the open of trading today. The computer maker was out with a quarterly warning and more job cuts. But the stock market staged a turnaround today, managing to pull out a positive close despite an earlier sell-off.
We have a lot coming up for you on MONEYLINE, so let's go to some of our reporters with a look at what they are working on -- Christine.
ROMANS: I'll look at two factors that may drive the action on Wall Street tomorrow: the latest report on GDP and the bombshell news from JDS Uniphase.
UNIDENTIFIED FEMALE: Children aren't the only ones looking ahead anxiously to the back to school season -- so are retailers. DOBBS: And we'll be talking with economist Allen Sinai ahead of tomorrow's report on second quarter GDP growth.
And the women's revolution has hit the golf course, one little ball creating a lot of buzz.
More now on today's session on Wall Street. A sharper than expected drop in durable goods, along with the warning from Dow component Hewlett-Packard, that contributing to the early session sell-off, but the market rallied in the final two hours of trading, the Dow managing to climb nearly 50 points on the session, despite H- P's more than 6 percent decline.
Helping lift the Dow, shares of Boeing and IBM. A solid performance on the Nasdaq as well, up nearly 2 percent on the day. The Nasdaq is back above 2,000, in part because of strength in chip stocks and software issues.
Taking a look at the biggest gainers among the widely helds tonight: EMC up nearly 6 percent, Lucent moving up well over 4 percent, both Cisco Systems and Sun Microsystems gaining more than 3 percent on the day. And on the Big Board, advancers beat out decliners by a five to three margin.
Well, the market's pushing higher for the second straight session today. To see what the indications are for tomorrow, we turn to Christine Romans, who joins us again from the New York Stock Exchange -- Christine.
ROMANS: Oh, Lou, the bulls desperately want to see three in a row, and the bears are pointing to JDS Uniphase for more evidence that times are tough in tech land, and they say that could be a problem for the overall market tomorrow. That's the bears.
The bulls say, look at futures so far. Not a big reaction on the downside for Nasdaq 100 and S&P 500 futures. So, they will be watching to see if JDS Uniphase is going to have its own problems in tomorrow's trading day and it won't spill over elsewhere. If that's the case, traders now say that's good news for the overall fiber of this market.
Also, watch AMGEN -- A-M-G-N -- it is the big biotech firm, it came out after the bell, beating estimates for the second quarter and reaffirming its guidance, sent stock up $3.98 in after hours trade to $61.70. So, we will watch both of those.
Don't forget as well, there is that GDP report for the second quarter. This one comes out a full hour before the opening bell, so folks will have a really good chance to look at it, dig into it, see what the analysts have to say and see what it means. Most folks on the street are telling they expect about 1 percent growth, although a few voices today were saying after a weaker-than-expected durable goods report, Lou, it might come in slightly weak. Maybe that could be that the risk for this report.
There is also a housing number at 10:00 and University of Michigan consumer sentiments. A lot of folks this week, Lou, telling me that could be important. The consumer drives this economy, at least two-thirds of it. They want to know what the July reading says from the University of Michigan -- Lou.
DOBBS: Markets in total always, as we know, Christine, driven by sentiment. The GDP report tomorrow, while it's an important report, it's so retrospective that it will be once again overwhelmed by the corporate earnings news, don't you think?
ROMANS: Absolutely. You know, folks want to see what that print is for GDP, but they are already looking ahead to third quarter and fourth quarter and into 2002. They are trying to figure out when this economy is going to rebound and start charging higher again. That's what want they want to see, of course. And as people keep pushing that recovery out, it makes the second quarter GDP number that much less important.
DOBBS: OK. Christine, thank you very much. Christine Romans from the New York Exchange.
In other corporate news tonight, Philip Morris now saying it's sorry for issuing a report that calls the early death of smokers a positive effect of smoking. In a written apology, Philip Morris says the study commissioned by its Czech affiliate was, quote, "not just a terrible mistake, it was wrong," end quote.
The golden arches making its first initial public offering outside the United States today. Shares of McDonald's climbing 9 percent on their first day of trading on Japan's market, to $38 a share. McDonald's controls about 65 percent of the fast-food burger market in Japan, drawing $3.5 billion in sales a year.
Reports out today sent conflicting messages on the state of the economy. Orders for big ticket goods down 2 percent last month, a far bigger decline than economists had expected. But claims for unemployment benefits plunging last week in the biggest decline, in fact, since 1992.
The government also reported that employment costs rose less than 1 percent last quarter, offering further evidence that inflation is well under control.
Another sign of a somewhat slowing economy: recent warnings from retailers that sales may fall short of projections for the second half of this year. To help encourage consumer spending, several states will hold sales-tax holidays that coincide with the critical back-to- school season, but some analysts question whether that will be enough. Susan Lisovicz with the story.
(BEGIN VIDEOTAPE)
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT (voice-over): There is bed, bath and lots of beyond at this back-to-school display. The big housewares chain has organized its merchandise into four categories: eat, sleep, wash and study, in a bid to be one-stop shopping for students and their parents. ANY SUSSKIND, BED, BATH & BEYOND: In our categories, we have tried to include something for everyone, and that includes everybody's style, as well as budget. We have, you know, from a lower opening price point all the way up to, you know, higher price points.
LISOVICZ: And early trends suggest retailers need to be sensitive about price. American Express projects parents and teenagers will spend an average of $527 on clothing and other back-to- school needs, down 4 percent from a year ago.
Veteran retail consultant Howard Davidowitz says his 82 clients are showing a decline of 8 percent.
HOWARD DAVIDOWITZ, CHAIRMAN, HOWARD & ASSOCIATES: Now the curtain comes up on a new season. How quickly do those new colors, the darker color palette, the denim, all the stuff for fall, for back- to-school, how well is that selling? It's generally soft. Now, it's better in the discounters than the department stores or the specialty stores, but it's not great there either.
LISOVICZ: Many retailers had issued projections that they expected business to improve by the second half of the year. Instead, some of the nation's biggest companies are now warning that their numbers will be off. And back-to-school is a critical barometer, because it establishes what new fashions work for the fall and the holiday season beyond.
TRACY MULLIN, PRESIDENT, NATIONAL RETAIL FOUNDATION: One thing about retailers is that they are all optimists, which is a good thing. They are like farmers. We are all hopeful, though, that the tax rebate will have some impact, that the Fed's cutting interest rates will have some impact, and that consumer confidence will improve and spending will improve.
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LISOVICZ: But in some ways, retailers are their own worst enemy. During the big boom economy, retailers were happy to build many more stores. There is now an estimated 19 square feet of retail space for every American. But with higher energy prices and a seemingly daily barrage of bad news on the economic front, consumers seem content to stay home -- Lou.
DOBBS: Any factors in this American Express report in terms of the tax rebate and its potential impact, because as Christine Romans pointed out earlier in the broadcast, those checks will be arriving just at about the right time?
LISOVICZ: Well, certainly retailers are doing their best to try to encourage spending. You've already seen promotions and a lot of marketing to do just that. But another thing we've seen is that when consumers go to the stores, they are buying on sales, and that really hurt spring and summer sales. That really hurt their bottom line, and some analysts are already going out on the record and saying, you're going to see heavy discounting for back-to-school, and that's also bad. DOBBS: But good for consumers.
LISOVICZ: Absolutely.
DOBBS: All right. Thank you very much.
The retail slowdown comes, of course, as no surprise to Allen Sinai of Decision Economics, the economist who says the economy certainly is in rough shape and won't show much improvement any time soon. Welcome. Good to see you, Allen.
ALLEN SINAI, DECISION ECONOMICS: How are you, Lou?
DOBBS: I'm great. How is this economy?
SINAI: Economy is struggling. It's a different business cycle this time. The business sector has brought us down. Usually, housing and consumption goes down first and can respond and lift the economy after interest rates are cut. But we're not through with the business sector downturn, manufacturers are still in recession, and we are getting and losing a lot of jobs, not getting rehired.
So I'm concerned about the consumer and the risk to the economy in the next six months, as consumers inevitably cut back.
DOBBS: Inevitably, and as Susan Lisovicz just reported, the effect on the back-to-school selling season -- but this consumer has stayed in this economy rather engaged so far, despite a great deal of negativity in the environment, haven't they?
SINAI: They have. It takes a while -- and you have to remember that the trend rate of growth of consumer spending on average is well over 3 percent a year, so that's a hefty support for the U.S. economy.
But looking ahead, as the unemployment rate rises and it stays difficult to get jobs, I think consumer psychology and consumer purse strings will tighten. Price cuts will be the only way to get them into the stores, and that shoe hasn't fallen yet in this particular business cycle, that's what's so unusual about it.
DOBBS: Allen, you and I have been through one or two cycles in this economy over the course of our careers. The fact is, this one feels a little different than anything that we saw, I think at least, in 1990 and '91, certainly 1982. Do you think that there's any at this point significant risk of recession?
SINAI: Well, I do. You know, it's hard to get negative for GDP these days the way it's calculated, but probably one way or another, when it's all said and done -- and monthly indicators will probably say we had some sort of a recession here statistically.
Worldwide though, that's even more troublesome. There is 40 percent chance of a world recession. Japan is declining, its decline is accelerating. The euro zone is growing very slowly. The U.S. isn't really going anywhere. I can't see any signs right now of any turnaround. I can't even say objectively we've reached bottom in growth nor in the levels of activity. It's a very unusual and difficult cycle.
DOBBS: What if I said -- I'm sorry...
SINAI: ...despite the lower interest rates and the tax cuts.
DOBBS: What if I said, Allen, we had the Nasdaq at an all-time high two years ago, we had an economy just moving along -- and by the way -- we also had a 4.5 percent unemployment rate. That's what we have now. Why is this 4.5 percent so bad?
SINAI: You know, life is all about change. So we've been at 3.9, and going from 3.9 to 4.5 -- jobs have been going down 90,000 a month in the past three months and up only 30,000 a month for the last year. Two years ago, the time you refer to, we were growing jobs at 250,000 a month. That's a huge change, and eventually, it gets to people.
For the business sector -- the economy, we were growing at 5 percent, now we are growing at a half or 1 percent. That sends all kinds of ripples and cutbacks through our economy and other economies that that's what the business cycle is about. It takes a while, depending on the source of it to reverse it. Most of the time, lower interest rates do the job. Kind of like, happy dust sprinkled on a situation and the economy can grow and flourish.
This time, though, the business sector probably isn't going to respond to the lower interest rates.
DOBBS: Well, Allen, even with that somewhat dour outlook, it's always good to talk to you. Thanks.
SINAI: Same here. Thank you, Lou.
DOBBS: Allen Sinai, Decision Economics.
Next on MONEYLINE, why railroad stocks are outperforming the market, even though manufacturing shipments continue to slide.
And later, a hot new golf ball that can improve your game. No kidding. And why some guys are just a little bit embarrassed to tee it up.
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DOBBS: Tonight's sectors report: railroads. CSX today beating earnings upwardly revised estimates there, as well. Profits more than doubled in fact from a year ago, even though sales for the railroad, were flat. That news giving the entire sector a lift. CSX, which runs one of the largest rail networks in the country, credits strong shipments of coal and farming products. But like other railroads, CSX is experiencing slow traffic volume in automotive and chemical freight. Higher fuel prices are also cutting in to CSX profits, and that of other railroads.
But analysts are encouraged by today's news, saying the industry is back on track to regain some earnings momentum. And one reason for that: utility companies turning to coal as a source of fuel. And they're shipping a lot more of that coal.
CSX shares jumping nearly $3 today, trading close to a 52-week high. Other stocks in the group also moving higher today. Over the past year the sector has risen nearly 30 percent.
Coming up next on MONEYLINE, the battle of the sexes on the golf course, and why this lady is a champ.
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UNIDENTIFIED MALE: This golf ball is designed for a lady. Later on MONEYLINE, we'll tell you why so many men are chasing it.
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DOBBS: In the business of making golf balls, there's a battle of the sexes. Titleist, the top brand among pro golfers, leads the industry. But new a challenger is a hot property, and it's a ladies' golf ball. For it's maker, Bridgestone, that ball is a rare bit of good news.
Allan Dodds Frank has the story.
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ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Amateur golfer Phil Simon is long off the tee...
UNIDENTIFIED MALE: There you go.
FRANK: ... on the first hole of Bethpage Black, the site of next year's U.S. Open. Simon is using a ball few pros would even consider, the MC Lady Precept from Bridgestone.
(on camera): Now, did you mark black out the lady on there?
PHIL SIMON, GOLFER: Of course. You see, because as you can see, I have my three dots, but I also put a line right through there.
FRANK: Why is that?
SIMON: Because I am a man.
FRANK (voice-over): Two foursomes behind, it's practically the same story. But Ed Oakley is not hiding his $2 Lady. He enjoys hitting the low compression ball, designed for women with slow swing speeds and little power. His partner, Bill McCarthy, is using a $5 Titleist Pro V1, the top-selling ball.
BILL MCCARTHY, GOLFER: Well, it's a little embarrassing when it went further than mine did, but we have fun with him because he plays the lady precepts.
FRANK (on camera): Expert golfers do not have much respect for the Lady Precept, but then there are nearly 27 million golfers in the United States, and most of them are not very good.
(voice-over): Word of mouth about the Lady started last year among senior golfers in Florida. And the ball took off, even though fewer than one golfer in five is a woman.
JOE REHOR, HEAD GOLF PRO, BETHPAGE STATE PARK: It was the talk of Florida. To be quite honest with you, no good player is going to use that golf ball. It's a golf ball that is quite inexpensive when you compare it to the Pro V, and therefore it has some salability.
FRANK: In May, the Lady captured 6.1 percent of the market, trailing only the Titleist Pro V1, which has 10.1 percent. Women complain they cannot find the Lady in shops.
KAREN DONNELLY, GOLFER: Maybe Precept ought to make a men's ball of the same kind and just name it a men's ball. Then won't -- then they'll leave the lady's ball alone. It's like, "Are those guys playing off the red tees?" because I don't think so.
FRANK: Allen Dodds Frank, CNN Financial News, Bethpage, New York.
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DOBBS: Callaway Golf today reported its profits. Those profits down 39 percent compared to a year ago. Callaway blames a strong dollar, which cut into its international earnings, particularly in the Asian region. Japan accounts for about 15 percent of the company's sales. Production costs also higher than expected because of higher energy prices. Sales of golf balls, by the way, doubled. Earnings per share for the second quarter for Callaway, in line with estimates. Callaway expecting full-year earnings to be in line with previous guidance. Callaway stock down a fraction today.
Coming up next, your e-mails and "Ahead of the Curve."
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DOBBS: Keep an eye on JDS Uniphase shares when the markets open tomorrow. As we've been reporting to you, JDS reporting massive quarterly loss and massive job cuts.
Some major economic news, with the first report on second-quarter GDP out tomorrow. Also due out, June new home sales and the University of Michigan Consumer Sentiment Report.
And be here tomorrow night, when we'll be talking with Bank One's chief economist, Diane Swonk, about those economic reports and what she thinks lies ahead for this economy.
Now for your comments. D'Arcy Walden writes: "What happens to a stock price when a company has huge layoffs?" Well, D'Arcy, as you know, it depends. If a company announces cost-cutting layoffs while projecting solid revenue for the future, the stock price usually climbs. But when a company announces layoffs along with bad news, say, an earnings warning or a bad quarter, the job cuts are viewed as a further sign of trouble at the company and, as they sat these days, a lack of visibility. Stock prices usually drop in those cases. We had some examples today, JDS Uniphase and Hewlett Packard.
Rixen writes: "I would really appreciate it if you people at MONEYLINE would reveal personal interests when talking about certain stocks."
Well, Rixen, here is CNN's policy: Employees must disclose their financial interest to the company twice a year and may not engage in short selling or trading in futures. Also, employees may not own an investment that represents two percent or more of his or her holdings. And finally, a reporter should not invest in any company he or she reports on regularly.
And in addition to all of that, we report to our superiors exactly what we're doing. So please send us your comments. E-mail us at moneyline@cnn.com. Thanks.
And for tonight, that is MONEYLINE. Thanks for being with us. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" is next, and that means it's time for Bill Press -- Bill.
BILL PRESS, HOST, "CROSSFIRE": And here I am, Lou, thank you.
President Bush has a problem. He can't get enough Republican votes out of a Republican-controlled Congress to pass his version of a patients' bill of rights. Why are members of his party abandoning him on a key issue? Can he twist enough arms to get it passed? Two Republican Congressmen square off, next on "CROSSFIRE."
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