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Lou Dobbs Moneyline
Dow Falls 38.96 to 10,416.67; Nasdaq Advances 6.11 to 2,029.07; GDP Grows 0.7 Percent in Second Quarter; JDS Uniphase Announces Record Losses
Aired July 27, 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.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening. Our top stories tonight: the government reports that gross domestic product gained 7/10 of a percent in the second quarter. That's the worst performance for the economy in eight years. Layoffs announced, jumping 60 percent in June, that, according to Challenger Gray & Christmas. And the worst earnings season in a decade is now coming to an end. Tonight we'll take a look at the status of business right now.
Well, it was a volatile week on Wall Street, as investors faced countless earnings reports and layoff announcements from top companies. Let's check in now with our reporters for a look at what they're working on this evening -- Jennifer?
JENNIFER WESTHOVEN, CNN CORRESPONDENT: It was a quiet end to a rocky week. The Nasdaq closed out the day -- barely budged, but it did close above 2,000 after dipping below that level earlier in the week.
CHRISTINE ROMANS, CNN CORRESPONDENT: More damage today on the Dow, losing ground after two solid advances. But considering a dismal report on economic growth, that selling was restrained.
SUSAN LISOVICZ, CNN CORRESPONDENT: A huge week for earnings reports. We'll look at just how bad the quarter was, and fears that the next earnings season will be even worse.
STEVE YOUNG, CNN CORRESPONDENT: The biggest corporate losers this week: without a doubt, telecom and fiber optic giants. We'll look at the colossal misjudgments that's cost these companies tens of billions.
DOBBS: And we also have even some good news tonight. All of that and more coming up on MONEYLINE. On Wall Street today, the markets had a lot going against them. The government this morning reporting that the economy last quarter grew at its slowest pace in eight years. And last night, JDS Uniphase reported a jaw-dropping loss for the past 12 months, $50 billion, the largest ever for corporate America. That, the value of its of numerous acquisitions collapsing. Jennifer Westhoven has the report from the Nasdaq.
(BEGIN VIDEOTAPE)
WESTHOVEN: More dismal earnings reports and signs of economic weakness knocked the wind out of the recent rally: deflating confidence, weaker-than-expected GDP and consumer sentiment.
MIKE MURPHY, FIRST UNION SECURITIES: We're in a market of renting stocks, not owning them. And until people seek conviction out there, until the uncertainties moves away from the marketplace, it's going to be hard to find people who really want to come out and own stocks in the long term basis. You have a lot of people out there who will buy them one week; it seems like the same people come back and sell them the next week.
WESTHOVEN: The Dow industrials slipped 38 to 10,416. The average had sold off heavily early in week, but managed two days of gains before the buying ran out of steam, leaving the average down 159 for the week. Dow stocks that fell: a mixed of traditional firms like Dupont and Philip Morris, and high-tech heavyweights Microsoft and IBM. But other tech stocks held their own, even after a bombshell loss from JDS Uniphase.
The Nasdaq edged up 6 to 2,029, leaving it nearly unchanged for the week. Biotechs rose. Amgen posted a positive earnings report after the bell on Thursday, and chips rallied for the third straight day. But hopes for a turnaround have evaporated, so investors would like a little more insurance that the economy is getting better.
FRANK (LAUGHTER) SALLA, PRESIDENT, BNY CLEARING INTERNATIONAL: If you look at the price action in the market, in the bond market, the dollar, the price of gold, it really suggests that the Fed is going to need to pump more liquidity into this system. Once we get more Fed easings, maybe an intermeeting cut, I think you'll start to see the equity market rally again.
(END VIDEOTAPE)
WESTHOVEN: Traders have been very wary about trying to call the near-term direction of the market because there's just been no conviction out there. Every rally has been met with skepticism. Still, though, they are noting that the market emerged relatively unscathed after back-to-back bad news from both Hewlett-Packard and JDS Uniphase -- Lou?
DOBBS: Jennifer, thank you. Jennifer Westhoven from the Nasdaq marketsite. Today's losses, pushing the Dow Jones Industrials further lower, this week sinking 1.5 percent. The Nasdaq down only slightly, just about flat for the week. But as Christine Romans reports from the New York Exchange now, many traders are saying the damage could have been much worse -- Christine.
ROMANS: Lou, that's exactly what they're saying tonight, lots of them pointing to the S&P 500 index for the week. When you look at a chart of the S&P 500, the broader indication of market sentiment, you can see that it ended the week with much better psychology than we have been seeing in the early part of the week. Why is this important? Traders say this week we saw corporate earnings that were the worst we've seen in 10 years, and still that broad S&P indicator was able to close the week pretty much unchanged.
Lots of technicians telling me that they'd like to see the S&P close above solidly, 1,216 on some good volume. They're concerned about the volume, but they say overall they like the looks of this market right here. They said it could have done a lot worse, given some of the news that we got out this week. Also, they say we had nice buying coming in in the afternoons on Wednesday, Thursday and Friday, and that advance/decline line, Lou, the breadth of this market, it looked pretty good.
DOBBS: At this point, Christine, that breadth has been somewhat -- well, perhaps a false image, because we've seen such light volume. What do you make of that?
ROMANS: That's absolutely right, but remember, we're heading into August, so it's supposed to be light right now.
(LAUGHTER)
ROMANS: Folks are leaving for three-day weekends, right? In fact, yesterday when I talked to you, Lou, I left the New York Stock Exchange and I heard a lot of people saying, "see you on Monday." So that might be an indication what kind of participation we have in this market right now.
DOBBS: So we need to accept the August season in terms of volume, but not necessarily in terms of direction. Is that right?
ROMANS: Absolutely. We'll watch to see what kind of stocks take leadership, and we'll wait to see the volume resume. But what I'm hearing here, Lou, traders say there are people buying stocks. Guys down here saying they do have buy orders in their hands.
DOBBS: Terrific. We'll end with the good news. Christine Romans from the New York Exchange, thank you.
The second-quarter turning out to be an earnings season that investors and of course corporate America would like to forget. With 3/4 of the S&P 500 having now reported their earnings results, first call is calculated a median profit decline of 17 percent. That is the worst that Wall Street has seen in a decade, and as Susan Lisovicz reports, the worst may be yet to come.
(BEGIN VIDEOTAPE)
LISOVICZ (voice-over): A loss of more than $1 billion for Bethlehem Steel, pink slips for more than 1/3 of the work force at JDS Uniphase, a warning from Hewlett-Packard that sales could plummet as much as 16 percent. Wall Street has been bombarded by bad news about the second quarter and its consequences for the future. An average 17 percent decline so far, with more than 3/4 of the companies in the S&P 500 reporting. A 63 percent nosedive for technology companies, alone.
ED KEON, PRUDENTIAL SECURITIES: The last time we had a shortfall in earnings in general, back in the early 1990s, it lasted for two years. We had two negative years, and it took, actually, tech three years to recover their margins and their profitability, where the rest of the market started pulling out a little earlier. And I suspect we'll see something like that this time around, too.
LISOVICZ: First Call's projections show technology will continue to get hammered in the third and fourth quarters, and that overall earnings will remain weak.
CHUCK HILL, THOMPSON FINANCIAL/FIRST CALL: What may be a bigger factor in the second half will be the slowing economies overseas. And that hurts a lot of sectors, I mean, not just the consumer multinationals that have been probably the sector hit most by the strong dollar, but some of these other areas where they do at least some of the business in dollars. LISOVICZ: But some analysts say the worst is over.
JOHN EADE, ARGUS RESEARCH: One of the engines -- we're not seeing it yet, but it's there -- is the Federal Reserve's interest rate cuts. We do expect those to start to stimulate not just consumer spending, but corporate capital spending as well. And now that -- as spending picks up, revenues are going to come across trimmer operating expenses, operating budgets, because companies have let workers go and cut back on marketing expenditures.
(END VIDEOTAPE)
LISOVICZ: But we're certainly not seeing improvement yet. First Call says that we're on a record-setting pace right now in terms of warnings for the third quarter. What's worse, there are bigger shortfalls on the warnings than in the previous quarters. And some companies are saying that they don't see any signs of an upturn for several quarters out, instead of just one or two -- Lou.
DOBBS: Susan, it's important again to look at those warnings and those declines, specifically from the technology companies, with a 63 percent decline. That influences, obviously, the average of that 3/4 of the S&P 500.
LISOVICZ: No question about it. Technology is the worst, telecoms, and then any company that uses a lot of energy.
DOBBS: We're going to find hope for optimism here, I don't care what it takes. Thanks a lot, Susan. Susan Lisovicz,
Well, the GDP report today showed business investment plunge 14 percent. That is the biggest decline since the recession of the early '80s. Without that decline, the gross domestic product would have grown more than 2 percent for the quarter.
Lisa Leiter has the report.
(BEGIN VIDEOTAPE) LISA LEITER, CNN CORRESPONDENT (voice-over): The economy grew at its slowest pace in eight years between March and June. Gross domestic product edged up 7/10 of a percent. It was the fourth quarter in a row of growth less than two percent. That hasn't happened since the last recession a decade ago.
But for economists fearing recession, any growth at all will do.
HILL CHENEY, JOHN HANCOCK FINANCIAL SERVICES: We've had three very weak quarters in a row, but they're still saying positive. And that, fundamentally, is what Alan Greenspan was targeting all along. He wanted to slow us down to a positive growth, but below potential for a while.
LEITER: To blame, capital spending, it plunged 13.6 percent, the biggest drop in 19 years -- no surprise, with all of those dismal corporate financial outlooks. But consumer spending, which accounts for 2/3 of the economy, rose 2 percent. Without that spending, on everything from cars to appliances, GDP would have been down.
Businesses are still scrambling to get rid of unwanted stockpiles. They reduced $27 billion of inventories in the second quarter. The question is whether they're done, and ready to ramp up production when demand picks up.
CARY LEAHY, DEUTSCHE BANK ALEX BROWN: You don't get a sense, outside of the automotive industry, that the inventory correction is complete. You could certainly argue when technology could take quite a while to work it off. But the potential is there for a production snapback.
LEITER: Weak demand helps keep inflation under control, making it easier for the Federal Reserve to continue to cut interest rates if necessary.
(on camera): As this year's six rate cuts start to take effect, along with the tax rebates and the decline in energy prices, most economists expect consumers to keep on spending and keep the economy out of recession.
Lisa Leiter, CNN Financial News, Chicago.
(END VIDEOTAPE)
DOBBS: The president's top economics adviser today addressed that GDP report. He said the economy is showing, nonetheless considerable resilience.
(BEGIN VIDEO CLIP)
LAWRENCE LINDSEY, WHITE HOUSE ECONOMIC ADVISER: I think the second quarter is going to be the worse quarter we'll have experienced and we will have dodged a major bullet. This was a very sharp decline. Today's numbers getting revising back through 2000, showed we have had a very serious problem now, for a year and a half. And the fact that we have been able to avoid a real recession, I think, is positive news.
(END VIDEO CLIP)
DOBBS: Not all positive news, however, in the labor market. Layoffs are mounting up, as I said, almost 60 percent during June from the previous month. That according to Challenger Gray.
Consumer sentiment falling so far this month as measured by the University of Michigan. But there was good news as well today. Challenger Gray, for example reporting that dot-com layoffs totaled fewer than 9,000 so far this month. That's the lowest since October of last year.
And new home sales jumped nearly 2 percent, just further evidence of remarkable strength in that sector. And conviction in the bond market today that the strength in housing would continue: yields falling as prices rose.
My guest now sees reason for optimism, despite some of the less than positive news. Hidden within the report on GDP, some good news, continued consumer spending. And a ramping down of business inventories, pointing perhaps to a bottom.
We're now joined by Diane Swonk, who is chief economist at Bank One. Diane, good to have you with us.
DIANE SWONK, CHIEF ECONOMIST, BANK ONE: Thanks. Good be here.
DOBBS: This GDP report, something that a lot of people are forgetting is, many economists, not more than a couple months ago, were saying this report on the second quarter, perhaps would be negative, not positive at all.
SWONK: I'm glad I wasn't one of those economists -- I have been consistently bullish.
DOBBS: That is why you are here, Diane, you are not one of those economists.
(LAUGHTER)
SWONK: No, I am Mainstreet, but I think there is a radius, the further you are from Wall Street, you actually are more positive on the U.S. economy because we have seen Mainstreet keep on chugging. And sure enough that dichotomy, that draw down in inventories, here I am in the middle of what should be a lot of economic malaise here in the Midwest, the industrial Midwest, and main street is still chugging along just fine.
Home sales are booming in the Chicago metropolitan area, and in most of the Midwest, along with nation. And that is very important, to look at the resilience of the U.S. consumer. I think you made some very good points about the drawdown in inventories. We have had two quarters with remarkable losses in both business investment and a drawdown in inventories. And that sets the stage for some comeback going forward. The cupboard is bare particularly in the auto sector. We are now going to have two quarters in a row after a year of declines. And this has been the major industry, believe it or not, not the new economy, the old line, auto industry that has been driving the U.S. economy down over the last year, we now are going to have two quarters in a row with scheduled production increases for the third quarter of increases.
DOBBS: Let's focus for a moment, Diane, on that almost two decade low in the reduction in business investment. That is not by any measure, no matter how optimistic one is, good news at all. When you do see business investment itself picking up?
SWONK: That is he going a laggard. I think we have to put in the context of the last year and a half. Remember business investment was buoyed to artificial highs from everything from cheap capitol to the Y2K and the Nasdaq inflated highs of a year ago.
With that, it's not surprising we have some giveback today. I think higher energy prices and the pressure that put on profit margins exacerbated the equation. But I don't expect business investment to come back until next year. With that said, you do not need a rebound in business investment to have a reacceleration in growth in second half of the year.
DOBBS: What's it going to take to get that reacceleration? The consumer is still in this economy. We've got six interest rate cuts, all good news. We've got $40 billion of tax rebates moving back to consumers. What's it going to take?
SWONK: Well, it doesn't take much. And since the consumers are already pretty strong they are going to get a little extra money in their pocket with the lower energy prices we have out there. That is something that affects them week-in/week-out. That's even bigger than the tax cuts which I do think they will spend. Wal-Mart is going to make sure of it. And if they don't spend it Wal-Mart, Loews and Home Depot will pick up their extra business there.
In addition, remember, this slowdown occurred against the backdrop of the best labor market we have had in over 30 years, which has acted as an enormous shock absorber to all of the layoffs that we have seen announced. Wages are still rising and I just never bet against consumers and their money, with money in their pocket to burn. They will spend it.
DOBBS: Diane Swonk, good to have you with us.
SWONK: Thank you.
DOBBS: JDS Uniphase's profit collapse piled on top of earnings disasters from Corning, Nortel, Cisco may have you wondering: Why didn't these high-tech visionaries see bad times coming?
To a large extent the answer is these fiber optic companies have been running their businesses in the dark.
Steve Young has the story.
(BEGIN VIDEOTAPE)
YOUNG (voice-over): Who you going to turn to in the PC business if you are spooked about market demand or part supply? The available Ghost Busters include IDC, Dataquest, and Gartner. But there are no equivalent Ghost Buster research firms in telecom, because JDSU and its fiber optic competitors have been too paranoid about sharing their own data, which could lead to better demand forecasts for all manufacturers.
GREGORY DUNCAN, NATIONAL ECONOMICS RESEARCH ASSOCIATION: Firms have tried to do it on the cheap, have counted on an expanding market to cover any mistakes. So if the market is growing, growing, growing, and you are sure it's going to be growing, growing, growing, you don't have to be as precise, as if the market is stabilizing, or heading into a downturn.
YOUNG: Making matters worse, in flush times telecoms fatten the bottom line by firing as much as 50 percent of their qualified forecasters. DAVID LOOMIS, INTL. COMMUNICATIONS FORECASTING CONFERENCE: Well it really started by the service providers. The telecommunications service providers had started to downsize their forecasters. And then the equipment manufacturers followed suit in downsizing. I would say the equipment manufacturers have been downsizing the last five years.
YOUNG: There were a few demand warnings, but they largely were unheeded.
SCOTT CLELAND, PRECURSOR GROUP: We told people that data growth wasn't growing as fast. People thought that it was growing 800 to 1600 percent a year, and we raised our hand said it is closer to 100 percent and essentially, you know, that was a bubble that burst. People realized that this was a data-topia environment.
YOUNG: Blame the government a little, too. It published fuel consumption, tire data, but nothing on the ebb and flow of data traffic.
(END VIDEOTAPE)
Hard lessons have been learned and now Corning for example, is sharing some data with its suppliers -- Lou.
DOBBS: This is just -- is it not also just plain old fashioned business? Things were good, capital flowed, prospects looked unending. It sounds like a classic case of just excess.
YOUNG: Well, and take the people off the bridge, never mind what's on the horizon.
DOBBS: Right, OK, Steve, thanks a lot. Steve Young.
Coming up next here, the secretary of state heads to the Korean Peninsula looking to improve relationships with an old adversary.
Also tonight, they helped the high-tech industry boom during the '90s, now many immigrants stand to lose more than their livelihoods.
FRED KATAYAMA, CNN CORRESPONDENT: Thousands of high-tech workers on temporary visas are anxious. Many of the companies that lured them here are laying them off, and that may mean they have to go back home.
(COMMERCIAL BREAK)
DOBBS: Secretary of State Colin Powell today said the United States is ready to renew its stalled dialogue with North Korea. His comments come on a trip to South Korea, the third stop of a five- nation Asian tour. The secretary of state met with South Korean President Kim Dae-Jung and said he hopes for a reconciliation on the Korean Peninsula. He also called for a resumption of security talks between the United States and North Korea. Powell travels to China Saturday.
While Powell was in Asia, another Cabinet-level team in Moscow, meeting with Russian officials about business, this part of a Bush administration effort to accentuate the powers of private enterprise in what has been a rough-and-tumble business climate in Russia.
Jill Dougherty reports from Moscow.
(BEGIN VIDEOTAPE)
JILL DOUGHERTY, CNN CORRESPONDENT (voice-over): Forget foreign IMF loans into Russia: Moscow has begun to pay them back with interest. This is what Russia says it wants now. A chance to pour more steel and sell it and other products around the world on an equal basis.
Just listen to Russian President Vladimir Putin as he welcomed the United States Treasury and Commerce secretaries to the Kremlin.
VLADIMIR PUTIN, PRESIDENT OF RUSSIA (through translator): With the colossal changes in the Russian economy, I think there are still some unpleasant vestiges of the past: for instance, not recognizing Russia as a market economy.
DOUGHERTY: The Russian government promptly handed over a thousand-page document to the U.S. officials detailing why Washington should consider Russia a market economy and those officials promised a speedy reply.
It's part of a new approach by the Bush administration to accentuate the positive in Russia's economy, like this Boeing design center, where 300 Russian engineers design parts for Boeing planes, and downplay the negative, like corruption, encourage Moscow to move fast on reform.
DONALD EVANS, U.S. COMMERCE SECRETARY: There's certainly no question about the fact that Russia has been taking some very important steps, reforms, economic reforms and legislation, tax reform, legal reforms, that are moving them toward -- rapidly toward a market economy.
DOUGHERTY: The U.S. commerce secretary will be back in Moscow in October, this time with a group of business leaders interested in investing in Russia, the Bush administration's first official trade missing.
Jill Dougherty, CNN, Moscow.
(END VIDEOTAPE)
DOBBS: The slowing economy in this country has led, of course, to thousands of layoffs, an impact on many workers, but an added burden to those immigrants living in this country on temporary work visas. More than 400,000 immigrants have so-called "H1-B" visas. That's a labor status that helped the high-tech industry fill a desperate shortage of workers in the late '90s. But now, the string of layoffs is hitting H1-B holders, putting their visa status in jeopardy.
Fred Katayama has the story.
(BEGIN VIDEOTAPE)
KATAYAMA (voice-over): Computer programmers and Web developers, like Mustafa Aziz and Aktar (ph) Hussein, both Pakistanis, helped stoke the U.S. economy when companies faced a labor shortage.
The workers, the majority of them Asian men, came on temporary visas called H1-B, good for as long as six years.
MUSTAFA AZIZ, SYSTEC INTERNATIONAL: What really excited me about the United States was the American lifestyle and the spending power, the dollar value.
KATAYAMA: But the economy has slowed, and now companies are cutting back thousands of workers, including visa holders.
(on camera): Guest workers who've been laid off are confused. Many want to stay in the United States, but they risk being deported if they can't quickly find another full-time job. And Immigration and Naturalization Service has no policy on just how long they can stay once they've become jobless.
(voice-over): Ammar goes to his office to check job leads. His employer asked that we not use his full name. The software consultancy he works for has given him no new project assignments for the past two months, and he knows that if this continues, he'll be laid off. So he carries his cell phone everywhere, even the bathroom, praying that the next call could lead to a new job.
AMMAR, H1-B VISA HOLDER: Things are pretty getting depressed and all. I have to like -- all my savings are gone. They were not much, but I have moments of depression. KATAYAMA: Work ran out just three months after his son and wife joined him in New Jersey. They want to remain in the United States, where he earns $47,000 a year, eight times greater than his salary in Pakistan.
Ammar is thankful his employer extends health insurance and keeps him on the roster, and thereby, in the country, even though Stellar Technology no longer pays him.
BOB KOHLI, STELLAR TECHNOLOGY GROUP: When these workers come back to us, we can't find any new projects for them and we have let them go also. Either we have to find new employers or we have to give them a ticket back to India. And a lot of them are declining this.
KATAYAMA: The INS is leaning toward granting a 60-day grace period to give laid-off H1-B holders time to find another job or wrap things up and go home. But one immigration advocate says that will not due.
SHAILESH GALA, PRESIDENT, IMMIGRANT SUPPORT NETWORK: 60 days will not be a good enough number. In our opinion, H1-B visa holders should be allowed to stay for the duration the H1-B visa was approved for.
KATAYAMA: Ammar's house is barren. He's packed up and ready to move in the event he finds a job, hoping that he and his wife won't have to do a B2-P, "back to Pakistan."
Fred Katayama, CNN Financial News, Iselin, New Jersey.
(END VIDEOTAPE)
DOBBS: Still ahead here on MONEYLINE, the blue chips lose ground after a turbulent week of earnings reports. We'll ask a longtime bear, Bill Fleckenstein, why he sees more trouble ahead. Federal regulators issue a long-awaited merger ruling. It's not good news for United and US Air. Also, a fast food joint struggling through the quarter hit by rising costs.
(COMMERCIAL BREAK)
DOBBS: In tonight's "MONEYLINE Headlines," the economy growing at its slowest pace in eight years. GDP for the second quarter climbing 0.7 percent. An unimpressive week on Wall Street, the Dow finished 1.5 percent lower. Both the Nasdaq and S&P 500 both ended flat. And corporate America is on its way to posting the worst earnings season in a decade. More than three-quarters of the companies in the S&P 500 have already reported with an average decline in earnings of 17 percent.
A disappointing session today on Wall Street, investors dealing with weak GDP report and fallout from JDS Uniphase's disastrous quarterly report. But the Dow managed to close off its lows for the session, the Dow gaining -- or rather losing 39 points, and the Dow components IBM and Microsoft particularly hard-hit. A better than expected earnings report from Qualcomm helped boost the Nasdaq, that index climbing for a third day in a row, finishing up -- only 6 points, but finishing up.
Taking a look now at some widely-helds: EMC finishing almost 4 percent higher, GE climbing 2 percent, Sun Microsystems adding on another 1 percent. Both Intel and Microsoft down nearly 2 percent today. And on the Big Board, advancers did beat decliners by a four to three margin.
For a look now at what investors can expect next week on Wall Street, Christine Romans joins us again from the New York Exchange -- Christine.
ROMANS: Hi there, Lou. Well, no rest for the weary next week. It is a jam-packed week with economic news and still more corporate earnings. Now, that corporate earnings calendar is a lot slimmer next week than we have been seeing, and so some folks are saying that might -- it allow corporate America to have a little more anonymity than they have had in days past, but we will look for Humanics, Expedia, Tommy Hilfiger, Tyson Foods and Parker-Hannifin on Monday.
As you know, those names don't really hold much -- much in store for any kind of big market moves overall in the market, so the earnings season is winding down here. Lots of data on deck, though. Nothing really on Monday, but later in the week we are going to get more economic clues, personal income and spending, we are going to get that National Association of Purchasing Management report, this is for July, as is the jobs report.
This is the first big look we are going to get at July, so folks are going to be very interested to see what this has to say -- as one of my sources calls it, the dreaded jobs report, and he thinks that people who may be day trading in this market might slow down near midweek as they try to step back away from that report.
A lot of folks are looking at the charts, trying to figure out what next week might hold. They say the fact that it has been a real see-saw pattern on the charts and not really drifting shows, that there might be some participation in this market, but they say it is a struggle going on here.
And the bears scoffed. They say that every time new money comes in, it's met by selling, so they will be very interested to see if this market can get a little more momentum and stability next week with fewer -- fewer earnings reports, but you replace those earnings reports, Lou, with some pretty key economic data.
DOBBS: Particularly that employment report Friday. You mentioned, Christine, day traders. Are there any left?
ROMANS: There are a few left, as a matter of fact. Some folks are saying that there is a lot of technical type trading in this markets, it feels like a traders' market, not an investors; market. In fact, one long-term trader was telling me just the other day that it feels as though it is too late to sell this market, it is still too early to buy this market. That means that people who are trading real short-term, they are having a field day.
DOBBS: All right, Christine, thank you very much. Christine Romans from the New York Exchange.
Topping tonight's "MONEYLINE Movers," Columbia Sportswear plunging more than $9 a share, the outdoor apparel maker beating Wall Street estimates, but warning spring orders are expected to decline. Verisign surging almost $7 a share, the Internet security provider beating the street by a penny with its earnings, posting a stunning 230 percent jump in revenue and upping its guidance for the third quarter and full year.
Also higher on an upbeat outlook, it is Qualcomm. The wireless technology company reported a 20 percent drop in its earnings, citing soft demand for its chips, but the company expects revenue and sales to rise next year. And once the Nasdaq high-flier, the stock is off only about 40 percent from its 52-week high.
The wave of poor quarterly results and weak economic reports are no surprise for William Fleckenstein, who predicts we're on the verge of the worst economic environment in 20 years. Despite that, we asked him to join us. Bill, good to have you with us.
WILLIAM FLECKENSTEIN, FLECKENSTEIN CAPITAL: Very nice to be here, Lou.
DOBBS: What in the world do you mean, the worst economic environment in 20 years?
FLECKENSTEIN: What I mean by that is we just experienced the biggest bubble in the history of the world that ended last March when the Nasdaq peaked.
DOBBS: Right.
FLECKENSTEIN: The fallout from that, I believe, will have some reciprocity to the size of the boom. The missed allocation of capital was unprecedented, and as you saw in your earlier story, we sucked in workers, we put up too much capacity, we brought too much computer hardware, et cetera, et cetera, and those changes will take time to work their way through.
And lowering interest rates won't solve the issue, which is why our six rate cuts so far have not really changed things much, and it is also why things have come apart so fast.
DOBBS: Well, you are talking about things coming apart so fast, and indeed they did in terms of the retreat in particularly the Nasdaq index and technology, but we are only beginning to see the penumbra, if you will, a point at which those rate cuts should take effect. If we were most optimistically look at six months as an impact point of interest rate cuts, we would only begin to be seeing that first cut back on January 3 enter the market, right?
FLECKENSTEIN: That's a fair point, Lou. Monetary policy does work with a lag, and I think that is a very fair point. And the other -- other -- point to make is, you know, we are going to get the tax rebates and people are going to spend them.
DOBBS: Sure.
FLECKENSTEIN: I don't think they are going to make much difference, because I think we've only seen the first wave of layoffs. I think everybody is so attuned to economic problems being sock short- lived, because their experience is just the '90s, that they don't -- no one seems to think that anything other than 90 days worth of trouble is what we can experience. But...
DOBBS: Well, let's take, Bill, if I may, let's accept the fact we have had a very bad month or two, can we agree on that?
FLECKENSTEIN: I would agree with that.
DOBBS: What would you advise investors to do now, given your outlook?
FLECKENSTEIN: I think the -- the problem with the economy is the bubble we had. The problem with the stock market is the price. If you think we are going to have tough times as I do, then any stock you buy you want to insist that the price of the business is cheap enough such that if we have trouble, you are not taking a lot of risk.
The problem with the stock market in general is it's priced as though we are about to start a boom again. And if we don't -- if I'm partially correct -- there is a great deal of risk. So I think people need to examine their stocks not from standpoint of, gee, it was 100 and now it is 10, so it's cheap. It is, what is the market cap of this business, what can they earn? Examine the fundamentals, which gets very little play on Wall Street these days.
DOBBS: Well, you have been a bear for a number of years, and your scenario, as they say, is reality now. Give us specifically your best counsel to an investor now, and in terms of his or her money.
FLECKENSTEIN: OK. What I would say is, along the lines of what I just said, make sure you know really what you own and why you own it, and lower your exposure. Everyone is saying, you know, now is not the time to sell -- if I'm correct, that is not true. You need to lower your risk profile, because stocks are expensive, and they -- there is a great deal of risk.
So I would say, cut back. Maybe we are going to have a rally in the next couple weeks because there is no news, and people that believe things will get better will cause a rally, but I could probably give you one example that would illuminate my point, if I may.
DOBBS: Quickly, quickly, if you would, Bill.
FLECKENSTEIN: OK. Take a look at Intel. Stocks down from, you know, $70 or $80 to $30. It's 50 times earnings, it's eight times revenues. Their customers -- Hewlett-Packard, Gateway, Compaq -- all have announced terrible results this week, and people say, "but I can't sell it, it's Intel, it's down from 70 to 30, but as a business, it's priced wrong." And that's the examination people need to make in their own portfolio. DOBBS: Now, you are not short Intel, are you?
FLECKENSTEIN: Yes, I am.
DOBBS: Well, I'm glad we got that out there in that case, Bill.
FLECKENSTEIN: Yes. Sorry, I should have told you first off.
DOBBS: No, that's all right, just so we get it out there.
Bill, good to talk with you, thank you. Bill Fleckenstein.
FLECKENSTEIN: My pleasure.
DOBBS: In other corporate news, massive job cuts on the way at Amtrak, the railway company cutting 2,900 management jobs through early retirement and incentives, that following orders from Congress to wean itself of federal support. Yesterday, Amtrak reported a deeper-than-expected $400 million loss for the first eight months of the year.
United Airlines and U.S. Airways today calling off their $4 billion merger. The reason: the Justice Department saying it would block the deal if they were to try to go ahead. Antitrust officials fear that merger, which would have created world's largest airline, would stifle competition and hurt consumers.
Campbell Soup warning earnings for next year will miss estimates by 20 percent, Campbell dishing out more than $300 million on advertising and innovation to boost sagging soup sales -- sagging soup sales, I guess that works -- forcing the company to slash the dividend for the first time in its 132-year history.
Checking Wall Street reaction to all of that: United Airlines, U.S. Airways and Campbell Soup, as you might guess, moving lower on the day.
And late-breaking news tonight about a Chicago area bank failure. Federal regulators with the Office of Thrift Supervision today closed Superior, a Chicago area thrift, half-owned by the multibillionaire Pritzker family. The institution has been battered by huge losses on loans to high-risk borrowers. The thrift's failure is expected to cost the Federal Insurance Fund an estimated $500 million, making it one of the costliest failures of a U.S. financial institution. Regulators found that Superior had lost nearly all its assets and had engaged in poor lending practices, inadequate supervision of employees and poor record-keeping.
Still ahead here: investors today losing their appetite for fast food stocks, we'll tell you why. And our market roundtable is assembling. What it's going to take, they'll tell us, to jump-start this economy and get these markets moving.
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DOBBS: Restaurant stocks today ending the session weaker after the world's second largest restaurant company, Tricon Global, posted a decline in quarterly profits. Tricon, which operates Taco Bell and Pizza Hut, saying earnings fell to $111 million; but that still beat Wall Street estimates. Global sales were up just about 2 percent.
Merrill Lynch today cutting the stock, however, to a neutral, saying the company will be struggling to grow its sales. Like many other fast food companies, profits being squeezed by higher beef and dairy costs. Tricon Global shares today falling more than $1 a share.
McDonald's, as you see there, also moving lower. Earlier this week it posted its third consecutive decline in quarterly profits. The rest of the sector, obviously, also weaker, but over the past year it has outperformed the broader market by about 20 percent.
Coming up next here on MONEYLINE: perspective on the week, a look ahead. That, coming up.
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DOBBS: Joining me now with their perspective on the week and the week ahead: Jennifer Westhoven, Christine Romans, Kitty Pilgrim, and Steve Young and, back with us, Bill Fleckenstein, a fund manager.
Let me start, if I may, with you Jennifer. The big news this week in terms of corporate earnings, the disaster from JDS Uniphase. What are you expecting, going forward?
WESTHOVEN: Well, in terms of JDS Uniphase, it sounds like what the analysts all want is to hear any kind of visibility coming out of that company at all. I mean, this is a company that came out and said hey, your revenue forecasts are all too high. So the Wall Street analysts said, track it; but, they said, we're not giving you anything else to go on.
So it's really concerning. The thing is, though, that analysts, when they look at that company and say there's no visibility, they're getting it from some other companies. One of the companies that's expected to report next week, too, is KLA-Tencor; they're in chip equipment. This is an area that has been taking off this week, as there does seem to be coming, some visibility, in from those kinds of companies. And it's good visibility. So you're really seeing traders jump on to those companies that are giving anything.
DOBBS: Let's turn to Steve Young, who has always 20/20 vision when it comes to the technology sector. We talk about a lack of visibility; one thing that's pretty clear is technology has, still, a lot of adjustment to undergo in this market, don't you think?
YOUNG: Yes, it's almost as if these CEOs are wearing the cloak of invisibility, too. I mean, just the other day Henry Schacht was sitting just over there...
DOBBS: I remember.
YOUNG: Yes -- saying that nobody has visibility... DOBBS: But you know, in fairness to Henry, I think we've got to say it: He's done something that not a single other CEO who has had to report awful news -- and no one had worse news, really, than what Henry has had to report. He had the guts to show up here on MONEYLINE and present his views to investors and to our viewers, and I give the man immense credit for that.
YOUNG: That's true. But instead of this vogue word "visibility," I wish a CEO would say, I'm clueless.
(LAUGHTER)
DOBBS: Well there's perhaps a little emotional value in there that we shouldn't probably fairly expect to see any time soon.
Christine at the New York Exchange, you were talk earlier about the mood. Give us a sense of what you're expecting from the folks you're talking with there.
ROMANS: I'd personally like to see a ban on the word "visibility" from the folks down here. The word they're using now, Lou, is "catalyst." They don't know what that catalyst is going to be, so that is starting to replace "visibility." Since they can't see what's going to happen, they're wondering what the big thing is going to be.
A couple of things I've been hearing the past few days: Some of the bears are talking about tax loss selling -- will it have to come up in September, will the mutual funds have to get rid of some of their losers, and will that hurt the market further? Other people are talking about, believe it or not, the holiday shopping season. If we're going to be, I guess, unconvinced about what's going on with the consumer, some folks are saying either a better or worse holiday shopping season might be the next big catalyst.
DOBBS: Yeah, Christine, that's an interesting point in terms of mutual funds, because a lot of these institutions are doing resets, and they're moving into some of these -- back into some of these stocks that have just been battered, so that we might see, if you will, a technical advance in some of these prices, mightn't we?
ROMANS: We might, but the big question is are people going to take a look at their portfolios coming into the end of the year and say, listen, I don't have any big winners, I'm going start to get out. And could that be a pressure on the market? That's what people are worried about at this point.
DOBBS: Kitty, in 30 seconds, give us your sense, if you will, of what to expect next week.
PILGRIM: Well, next week we have a lot of economic news out. I spent today talking to John Lonski, who's an economist with Moody's, and he said it's going to be a nervous week. There's a lot of information that's going to be factored into this market, and the underpinnings of this market are economic. DOBBS: Absolutely. Bill Fleckenstein, let me close with you. Let me -- I know your short Intel. Anything else you would advise us to short?
FLECKENSTEIN: Well, I think.
DOBBS: In this environment?
FLECKENSTEIN: I think people at home shouldn't short. It's rather quite difficult. But I think people should be very careful of technology, because there's a lot more problems than what companies have fessed up to so far.
DOBBS: Now, people at home are far, far more sophisticated than you're giving them credit for. Come on.
FLECKENSTEIN: Well, it's far, far harder to be short than most people would care to admit, believe me.
DOBBS: Well, it's very risky, and frankly, almost un-American, Bill, if you'll forgive me.
(LAUGHTER)
Let's look to the long side of this market and everybody have...
FLECKENSTEIN: Well, I can't wait to go back to the long side, Lou, when prices get more sane.
DOBBS: And everybody who is long will welcome you back with open arms, Bill. Thanks very much. Thank you all...
FLECKENSTEIN: My pleasure.
DOBBS: ... for joining us on the -- on the wrap-up of the week, roundtable. And coming up next, your e-mails and "Ahead of the Curve." Stay with us.
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DOBBS: Next week, reports on the economy. The employment report for the month of July will be released Friday. Leading up to that, we'll have the National Association of Purchasing Managers Index. Consumer confidence will also be reported as well as personal income, spending, factory orders, and automobile sales.
And companies reporting their quarterly results next week include Walt Disney, Priceline.com, Verizon and Comcast. Also, Cigna, Humana, Loews, Tommy Hilfiger. We're just about to wrap up this earnings season.
And join us Monday night, when we'll be joined by the state comptroller, the New York state comptroller, Carl McCall, who is manager of state employee pensions, is, I think it can be fairly argued, the largest single investor in the world. And time now for a look at some of your comments. Greg writes in asking us about the tax implications when companies like JDS Uniphase and Nortel lose tens of billions of dollars. "Do they get to offset these losses against future quarterly earnings or do they get the money back from the IRS in the current quarter?"
Well, the answer is neither. Most of those losses are in what are called "intangible assets," or goodwill. They are basically admitting they paid too much for the companies they bought and they're now writing it off their books. In the case of JDS Uniphase, they're writing down a record $39 billion in goodwill. That's not tax- deductible, taxpayers will be glad to know. Charges for factory closures, obsolete inventory, severance packages for the unfortunate employees whom they're laying off can be taken, but the timing depends, of course, on individual companies.
And our story tonight on temporary high-tech workers from overseas drew this comment from Ardas in Coppell, Texas. "We have lived in the USA for several years. We have American kids. We feel totally American. Please help reform employment-based immigration to the USA."
Well, as we reported to you, the first steps are already being taken. By the end of this summer, the INS should have clear guidelines in place.
And an upbeat assessment on the economy this Friday from Vadim, who says: "As a person who found my second home here and saw other economies, I have to admit there is no more efficient economic machine in the world than the United States. Sooner or later, we will recover from this. It's just another cycle in a healthy mechanism."
Vadim, we certainly agree. Let's hope that recovery isn't a long time in coming.
And finally, in response to our story last night about golf balls designed for women, those lady Precepts becoming more popular with men golfers, Morgan in Sunnyvale, California wrote to point out: "Lady Precept is pronounced Laddie Precept when used by men."
Good point, and of course, we love to hear from you. E-mail us at moneyline@cnn.com.
That is MONEYLINE for this Friday evening. We thank you for being with us. Have a very pleasant weekend. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" coming up next.
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