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Lou Dobbs Moneyline
Dow Declines 12.80 to 10,510.01; Nasdaq Advances 41.25 to 2,068.38; EPA to Order GE to Dredge the Hudson River
Aired August 01, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, CNN ANCHOR: Good evening. In tonight's headlines the Nasdaq on the day. The biggest rally in three weeks, in fact. The Dow ends modestly lower, investors appear undeterred by the latest report on factories. Manufacturing contracted in July for the 12th straight month. That's the longest slump in manufacturing since the last recession.
And General Electric today said it was disappointed that EPA is planning to mandate the biggest environmental dredging in history: 40 miles of the Hudson River. Let's go now to our reporters for a quick look at what they are working on -- Christine,
CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, the Dow today was solidly in the black -- that is until the last two hours of trading. I will look at why the Blue Chips lost their footing.
GREG CLARKIN, CNN CORRESPONDENT: And that rally fizzled on the Big Board but not on the Nasdaq. One of the reasons: Merrill Lynch. They say the semiconductor train is set to roll again.
JEN ROGERS, CNN CORRESPONDENT: Lou, I will have all the after- hours action including investor response to Comcast quarterly results and some late news on PMC-Sierra.
STEVE YOUNG, CNN CORRESPONDENT: Code Red is again worming its way through thousands of computer servers. I will assess the damage done and the outlook -- Lou.
DOBBS: We will have all of those stories and a lot more coming up on MONEYLINE.
We begin tonight on Wall Street, where the Nasdaq scored its biggest rally in three weeks today. The index ended higher for the fifth time in the past six sessions. In one week the Nasdaq has jumped nearly 6 percent. Greg Clarkin joins us now from the Nasdaq marketsite -- Greg.
CLARKIN: Lou it really was all about the chips today. A pair of research notes out of Merrill Lynch this morning, one on the chip companies themselves, one on the chip equipment companies really served to light a fire on their technology shares.
Take a look at what the Nasdaq did on the day. An even 2 percent gain by the close of trading. Now it closed at 2,068. That is the best closing level since July 13. And I mentioned those Merrill Lynch notes. They really were the trigger today. Now they were titled "The train is back in the station so climb aboard." And in it the analyst Joe Osha, the semiconductor analyst, he said. "While the industry continues to struggle with over capacity and weak demand, we believe the worst of the downturn is behind us."
Now, between the two notes, 19 stocks were upgraded. Here are some of them and how they performed: RF Micro Devices up better than $3. We have Linear Technology up better than $3. Novellus up better than $2. An almost $2 gain for Lam Research and Applied Materials with about a $2.44 share gain.
So those stocks really held onto their gains and not only did we see chip stocks rally today, we saw a broad-based technology rally: Hardware, software, networking issues, Internet stocks were all higher. The volume was higher than it has been if recent sessions, 1.7 billion shares traded and at this point traders say they feel fairly good about how the Nasdaq held up today. It didn't give back too much of its gains. At its best it was up 51. It ends with a 41 point gain -- Lou, back to you.
DOBBS: Greg, thank you. The Dow today up as much as 77 points. In early going solidly higher for most of the session. But the Blue Chips lost momentum late in the session ending lower after yesterday's triple digit gain. Christine Romans now from the New York Exchange -- Christine. ROMANS: Lou, they just couldn't hold on -- at least the big Blue Chips in the Dow Jones Industrial Average. The Dow faltering a bit near midday. Some folks eying the auto sales numbers and saying, well, the buying just dried up. The Dow falling 12 points, 10,510.
The top corporate story here today was news that the Federal Trade Commission had decided to allow Pepsi to purchase Quaker Oats. Quaker Oats shares making a new 52-week high here today. There had been some whispers and concerns over the past few weeks that that deal wouldn't go through because of Quaker Oats' Gatorade position in the sports drink market but at last it looks like the deal is going to happen and this company saying they hope to seal the deal as soon as possible.
The biggest trading story of the day, Lou, Lucent Technologies, the volume in that stock alone: 106 million shares. That is the No. 4 most active day for any stock ever in the history of this exchange. You can see that the stock is off about 85 percent over the past year. It lost another 8.5 percent here today.
The news there, that the company had offered a convertible preferred stock offering that they bumped to $1.75 billion from one billion. Some folks are saying that this is the last gasp of a company that is in trouble. Others are saying it gives the company more breathing room. Whatever the reason, there was an awful lot of volume in Lucent shares to day, Lou.
DOBBS: And either way, that's $750 million more than senior management had said they really needed, Christine. ROMANS: Absolutely. Some folks are saying that the Street was not accurately briefed on it in the days heading into it as well. So they were concerned by the timing and size.
DOBBS: Concern nothing new when it comes to Lucent these days. Christine, thank you very much. Christine Romans.
One big winner on the Big Board today: Cooper Industries. Cooper soared after the industrial conglomerate Danaher made an unsolicited bid worth as much as $7 billion. That deal would value Cooper at $54 to $58 a share. Cooper makes electrical products and tools. Cooper rejected a buyout offer from Danaher just two years ago. Cooper shares soaring more than $11 today. Danaher shares down fractionally on the day.
Several stock moving in late trading tonight. Jen Rogers joins us now from the Instinet trading floor for an update on what is going on after hours -- Jen.
ROGERS: Hello, Lou. A very busy after-hours session. You heard Christine talking about that incredible record-breaking volume over on the NYSE with the Lucent shares and that volume continued to surge here at Instinent after hours.
We had 1.3 million shares pumped through here. It was down on the regular session, down about 8.5 percent. Here we saw it bounce just off those lows a little bit, off the 4:00 close, 5 cents here again, very strong volume.
PMC-Sierra, the No. 3 most active issue, at 5:15 the Standard & Poors came out saying that PMCS will replace Quaker Oats in the S&P 500 after the close tomorrow. That comes on the heels of the approval for the Pepsico deal. Pepsico another S&P component that will be staying in, Quaker Oats moving out.
And just to tell you about Comcast real quick, moving up 65 cents here. The company coming out with -- opening up the books on its second quarter. Revenues were up 20 percent from year ago levels. Also reiterating their 2001 revenue targets on a number of their units -- Lou.
DOBBS: Jen, we should point out to our viewers that the analysts had a little bit on the call trying to figure out exactly how the Comcast earnings were moving over the course of the past quarter and against the year ago, right?
ROGERS: That's right. There was a little bit of confusion trying to figure out exactly an earnings per share number. (UNINTELLIGIBLE) says that we should be getting that tomorrow morning sometime. So we don't have that but it looks at least on the top line they beat the estimates.
DOBBS: Maybe we'll get a little help from a man that certainly knows, tonight. Jen Rogers at Instinet. Thanks.
In tonight's MONEYLINE focus, we're returning to Comcast's after- the-bell results. The cable company posting a 16 percent jump in its second-quarter operating cash flow. Revenue up 20 percent. We are still unclear, as I said, about the company's exact EPS results, and so are some of the analysts. Joining us now to shed some light on those numbers and the future of Comcast: The man who runs the company, Brian Roberts.
Brian, good to see you.
BRIAN ROBERTS, CEO, COMCAST: Hi, Lou.
DOBBS: These are obviously very good numbers: 20 percent increase in the revenue, 16 percent increase in cash flow. It looks as though it's a 4 cent a share gain in earnings. Is that correct?
ROBERTS: Yes it is correct. On an apples to apples basis the cash flow of the cables systems was up 15 percent. QVC soared at 24 percent and I don't think there was any confusion, but I will take your word for it.
DOBBS: And on this one, Brian, -- take my word for this one -- and on a net income basis it was 20 cents against a year ago?
ROBERTS: Yes, I think that, as you know, all of the cable companies are tracked by EBITDA and so the earnings because of stock sales tend to move more dramatically. The really benchmark I think is EBITDA in revenue as you pointed out.
DOBBS: Right, and in terms of where you are with that strong quarterly performance, you are obvious and well hefty interest in AT&T'S cable assets, do you think that you are coming closer together with AT&T, or is this past three, three and a half weeks or so an indication that they are just not interested?
ROBERTS: No, I think that they have said that they're indefinitely suspending their existing tracking stock proposal, and they are going to consider alternatives and hopefully one of those alternatives will be Comcast's proposal.
That said, these earnings, I think, demonstrate how well we can integrate other cable systems. We took in nearly 2 million customers in the last six months and yet we upped our margins to 43 1/2 percent from 42. We were able to up the guidance on how many cable modems we are going to sell in the next six months from 750.000 for the full year, to 950,000.
The same for cable digital boxes, from 2 million to 2.2 million.
DOBBS: Broadband is really finally here. Cable companies have been promising and Comcast is now delivering?
ROBERTS: I think that that's the message in a nut shell and to put the two companies together, give the AT&T shareholders a huge premium and have one company that can have a management that's focused and give you these results.
We are obviously hopeful that we can make this acquisition happen. It's been three 1/2 weeks. We are hopeful that we can get somewhere.
DOBBS: When you put $58 billion on the table, I get the feeling that you are kind of hopeful, Brian. In point of fact, have you had an indication that those hopes are going to be realized, any kind of breakthrough whatsoever, any indication, any signal from AT&T -- or Armstrong?
ROBERTS: I think we have sort said we are in a no-comment policy, but they did say that they are going to explore their alternatives and I do think that the shareholders of 80 percent of the top 600 institutions that own AT&T stock own Comcast stock. So there's a real synergy between the two. Their shareholders would get half the company. It's very compelling, we are hopeful.
DOBBS: And also, Microsoft reacting rather strongly and publicly to suggestion, speculation in point of fact that AOL-"TIME"- WARNER might be interested in these assets. Microsoft, obviously, a strong partner of yours, one would assume supporting you in this bid. What's your take?
ROBERTS: Well at the moment Microsoft is a stockholder. I don't know how many shares they still own so they are not involved in our proposal at this point, but there's a lot of speculation, Lou, as you know about somebody might bid, AOL, Disney, whomever, at some point.
It's been 3 1/2 weeks and really since last October that these assets are very well known in the media industry. Is there somebody else, if you look at what AT&T paid to buy Media One and to buy TCI, by their own analysis, it's around $3,400 to $3,500 a customer.
DOBBS: Right.
ROBERTS: This is a better bid and gives them credit as if their customers are performing as well as our customers. That is not the case.
DOBBS: Brian, you have me absolutely convinced.
ROBERTS: Well, we need everyone to be convinced.
DOBBS: Brian, thanks.
ROBERTS: Thank you.
DOBBS: Brian Roberts, again, congratulations on your results. Thanks you for being here.
ROBERTS: Thank you.
DOBBS: In economic news today, further evidence of profound weakness in manufacturing. The NAPM Index of factory activity coming in below 50 in July for the 12th month in a row: of course, that means the sector is contracting -- whenever that number is below 50 -- and it's been there for a year.
Also out today: construction spending for June fell 0.7 percent. That the biggest decline in more than a year. For sometime we've been reporting to you the continuing contraction of course in manufacturing. Usually, we tell that story with numbers, the statistics.
Tonight, we'd like you to meet some of the people who are behind those numbers. Lisa Leiter from Itasca, Illinois.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT: You're looking at the backbone of U.S. Industry. Before there's a cell phone or a coffeemaker, or even a washing machine there's a steel mold. And when demand slows and companies stop creating new products, the moldmaking business grinds to a halt.
Rich Burman has been in the business since 1963. His sales were cut in half this year, so he's cut overtime and 15 percent of his work force.
RICH BURMAN, PRESIDENT, GRAPHIC TOOL: I've never seen anything like this. I mean, where there is such a massive effect on all the companies.
LEITER: The strong dollar is another challenge -- making products more expensive overseas, but most of all, high labor costs hurt. Low-wage rivals in China can make molds at less than half the price of U.S. companies like Graphic Tool.
(on camera): But Graphic Tool could be considered one of the lucky ones. Many of its competitors are laying off even more workers and some are even shutting down.
(voice-over): In a recent industry survey found business conditions have deteriorated to a level seen just once before during the recession of 1982. P.M. Mold's chief executive says, this time it's much worse.
OLAV BRADLEY, AMERICAN MOLD BUILDERS ASSOC.: We have had shops in the area that have been in business 60, 70 years, and they've been closing. They've let 100, 150 go. It's terrible.
LEITER: One hopeful sign, in the past three or four weeks more requests for quotes on new jobs are trickling in. But for companies like Graphic Tool to stay in business, those requests need to turn into orders.
Lisa Leiter, CNN financial news, Itasca, Illinois.
(END VIDEOTAPE)
DOBBS: Automakers today out with their sales results for July. All three automakers reported a decline in their domestic sales. Sales for both GM and Ford down 9 percent or more in July, a bit worse than had been expected. GM's decline because of a plunge in car sales. Chrysler sales overall fell 3 percent. That was better than expected. GM's stock down nearly $1 today. Ford and DaimlerChrysler, little changed.
While the Code Red worm has disrupted the Pentagon's computer networks, there are also some encouraging signs tonight the infection rate of that worm is slowing. Some officials say that could mean the final problems won't be as severe.
Steve Young has the story for us -- Steve?
YOUNG: Lou, it wasn't that the worm ate the Pentagon's computers, just that some Web sites were temporarily closed to avoid possible trouble. Code Red Round Two started out looking like a non- event, with fewer than 100 servers infected in the wee hours this morning. But the number jumped (UNINTELLIGIBLE) nearly 5,000 at 8:00 a.m., and now something north of 127,000 infected systems. That compares with 300,000 the first time the worm reared its head.
This appears to be milder than the June 19th Code Red worm attack. It's hard to tell because businesses don't exactly phone the media when their Web sites come under attack. As for Internet traffic jams, they'd show up here in red squares and you're looking at a sea mostly of blue and green. The good news seems, a lot of people installed Microsoft's software patch, and the worm didn't turn. It made a b-line June 19th for the White House's official Web site, later protected by a technical trick, and so far there doesn't seem to be a new target.
The Computer Emergency Response Team at Carnegie Mellon said a short while ago, while the infection is still spreading the intensity is subsiding. Lou, who says we don't report good news?
DOBBS: Absolutely. And does it appear then that the threat has ended? This is a mysterious, to all of us who are not technologists, if you will, this attack, everyone knew that it was at 8:00 and thinking that it was severe, and now we have 60,000 against the previous attack that was 300,000, is that correct?
YOUNG: Yes, it is.
DOBBS: What's going on?
YOUNG: Well, now they think in the next phase, whoever -- the group of people who created this thing could target it some place else. So, now we wait!
DOBBS: And the mystery continues. All right. And we will accept that good news, Steve. Steve Young, thank you.
Still to come on MONEYLINE, we'll be telling you about a major decision to clean up the Hudson River and what it means to GE, which has fought that decision for decades.
The company at the heart of the California energy crisis sees its profits triple. Even as one of its subsidiaries remains in bankruptcy. We will talk to the company's chief executive officer.
And the House takes up a heated debate: on drilling for oil in an Alaskan wilderness.
Also, we'll hear from a man who helped save the U.S. banking system billions of dollars in defaulted loans in Latin America.
Please stay with us.
(COMMERCIAL BREAK)
DOBBS: The Environmental Protection Agency is ready to recommend a dredging to clean up the Hudson River of dangerous PCBs. This is a major financial blow to General Electric, which was responsible for the pollution and which has waged an intense public relations battle against the dredging for years.
Allan Dodds Frank has the story.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): The Environmental Protection Agency says the upper Hudson River, polluted by decades of manufacturing, must be dredged to clean up toxic chemicals. EPA administrator Christie Todd Whitman today recommending a half billion dollar plan to remove toxic chemicals General Electric company plants poured into the river for three decades.
Whitman's decision leaves largely intact a Clinton administration plan for removing more than 100,000 pounds of PCBs, polychlorinated biphenyls. Environmentalists praised the decision and the role of New York Republican Governor George Pataki in getting Bush administration support.
ALEX MATTHIESSEN, RIVERKEEPERS: He was quite quiet in his diplomatic strategy, but I have to believe that he made the necessary calls at the right time to let Christine Todd Whitman know that he supported the full clean up plan and he would find anything less unacceptable.
FRANK: The plan calls for dredging more than 2 million cubic yards of river mud from a 40-mile stretch of the Upper Hudson. The White House supported Whitman's decision.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The EPA decided to move forward in cleaning up the river in a way that is environmentally sound, and also responsive to the concerns to the people who live in the affected communities. The president of course supports EPA's decision.
FRANK: The company, which could be forced to pay the EPA superfund cost for cleanup, denounced the decision. The company said: "G.E. is disappointed in the EPA's decision to undertake a massive dredging of the Hudson River, which will cause more harm than good."
Whitman's recommendation could become final next month, but designing the massive cleanup project is expected to take at least three years, before five years of dredging up river could begin.
Allan Dodds Frank, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Late-breaking news on another contentious issue in Washington: the White House has reached a compromise with a key congressman over the Patients' Bill of Rights. The president, appearing this afternoon with Georgia Representative Charlie Norwood, the principle author of the House bill.
Kelly Wallace is standing by at the White House. She has the latest for us -- kelly?
KELLY WALLACE, CNN CORRESPONDENT: Well, Lou, as you know, the White House had been negotiating with Republican Congressman Charles Norwood of Georgia, hoping to strike a deal. Believing that if Mr. Bush could reach a compromise with Congressman Norwood, that would get the support of enough Republicans and Democrats to pass a bill in the House of Representatives that the president says he could sign.
As you know also, Mr. Bush has been saying, he would veto the bill which was passed in the Senate in June. And so just about an hour ago, the president and Congressman Norwood came into the briefing room to announce they had reached a deal.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: After a lot of labor and a lot of hard work and a lot of discussion, we shook hands in the Oval Office about 10 minutes ago. And Charlie's going to head up to the Hill. I've spoken to the speaker and he's going to take -- we're going to work on the language of the agreed-upon amendment. And it will give the members something positive to vote for.
(END VIDEO CLIP)
WALLACE: Now, the big sticking point all along had been over liability. Where could a patient sue his or her HMO? And how much could a patient recover in damages? According to senior administration officials, the compromise would allow patients to sue their insurance companies in state courts, but federal rules would govern those lawsuits. If the suit happened to be against the employer, those suits would be in federal courts. And it appears the White House has moved significantly when it comes to damages -- Mr. Bush now supporting $1.5 million of a cap in pain and suffering damages.
Lou, that's the latest. Back to you.
DOBBS: A significant compromise on both parts, and of course, Charlie Norwood is a Republican, so there's still considerable negotiation to conduct with the Democrats. Kelly Wallace from the White House, thanks very much.
We're now joined by an expert in all sorts of negotiations, principally financial. Former Treasury Secretary Nicholas Brady, best known as the author of the economic plan that resolved Latin America's debt crisis of the '80s. Back then, Latin American nations defaulting on billions of dollars in loans issued from U.S. commercial banks. The so-called Brady Bonds converted those loans to be bought and sold by private investors.
Joining us now for a discussion about this economy, a man who knows a lot about it, Former Treasury Secretary Nicholas Brady. Nick, good to have you with us.
NICHOLAS BRADY, FORMER TREASURY SECRETARY: Good evening, Lou.
DOBBS: Let's start with, first of all, the state of the economy as you perceive it right now, because there's a great deal of debate about the strength or the weakness of this economy. How do you see it?
BRADY: Well, I think it's weak, Lou. It's pretty nearly shown in the figures now. People have talked about a V and a U. I think L is the right way to look at it.
(LAUGHTER)
BRADY: And I think we're in for a -- you know, for a year, maybe year and a half of slower growth, and maybe even recession. I don't think it's disastrous, but I don't think there's any question about it that business has slowed down worldwide.
DOBBS: And do you think that this weakness, as it often does when the U.S. economy slows, will extend to possibly recession and then recession abroad?
BRADY: Well, you know, the word recession is sort of a scare word. When you drop at...
DOBBS: It starts with a capital R when we use it...
(LAUGHTER)
BRADY: That's right. When it drops -- when growth drops from 5 percent to 1 percent, as it has now, that's a 4 percent drop. If it goes from one plus to one minus, that's only two more, but they call it a recession. But I think it's possible we will get into a recession.
And when we've had a tulip craze like we've had in the market for the last six years, it's bound to have an effect.
DOBBS: And an economy that is in recession, that has been in sustained recession now for some time -- Argentina, you know the region well. What is your judgment about the possibility that they will be able to emerge from this in reasonable health?
BRADY: Well, Lou, I think they're doing all the right things now. I say now, because it's taken a long time for them to get there. Sort of the dancing on the grave that's going on on Wall Street now, about whether Argentina will or won't make it, I don't think is the right point. The right point is that they're doing the hard things and it's really up to the Argentine people. If they stick with the program that's place now, I think there's a good chance that they may get by.
DOBBS: That austerity program has been criticized by many. You've had to administer U.S. government policy in these areas with the IMF and the World Bank as treasury secretary. Is austerity the right answer, or is stimulation the right answer in these times?
BRADY: I think both. I think you have to make the cuts to provide for the growth. And austerity comes first, and it's a bottom -- look like you're going down to the bottom, but then if you get lucky, things turn around. And I think there's a good chance -- I don't think we should underestimate Domingo Cavallo. He's a very, very resourceful guy, and he has to be backed by the Argentine people. They've made cuts in pensions and other expenses, hard stuff to do. But I think, let's wait and see. Let's not call it dead, yet.
DOBBS: Nick, good to have you with us. Nicholas Brady.
BRADY: Thanks, Lou. Great to see you.
DOBBS: Still ahead here in the next half-hour of MONEYLINE, we'll be telling you about a cryptic signal from the top person at the SEC. What SEC boss Laura Unger was trying to tell some members of last night's MONEYLINE audience in her appearance here.
And professional basketball signs a big deal to move to Planet Reebok.
Also tonight, a California utility making money, even as its principle subsidiary is in bankruptcy. We'll have a status check on PG&E as the CEO of the company joins us.
Also, technology stocks surging on Wall Street. We'll be talking with a leading market watcher about what happens from here.
(COMMERCIAL BREAK)
DOBBS: In tonight's headlines, a big pop in tech stocks after a bullish call from Merrill Lynch on the chip industry. The Nasdaq advancing on the day, the Dow veering off and closing slightly lower. More signs of a slowing economy: Construction spending down in June for the fourth straight month, while manufacturing in the month of July slipped for the 12th month in a row.
And PG&E, parent of bankrupt California Utility Pacific Gas and Electric, reporting a second quarter net profit after posting more than $5 billion in losses in the previous six months.
Now a quick check in with our reporters and what they're working on tonight -- Christine?
ROMANS: Lou, a nice bounce for tech stocks after those encouraging words from Merrill Lynch. I'll have the details and a look at what's ahead for tomorrow. DOBBS: I'll be talking with Thomas Galvin, chief investment officer of Credit Suisse First Boston. I'll ask him, among other things, why he lowered his outlook on the S&P 500 earnings, but raised his equity holdings.
And Reebok, scoring a deal with the National Basketball Association. We'll have the details coming right up.
First, a look at the markets. Stocks today ended mixed, the Nasdaq gaining more than 2 percent. The Dow pulling back from the day's highs. The Dow, higher for most of the session, but ended down 12 points.
The Nasdaq held onto its gains, and chip stocks led the way. That sector getting a big boost from Merrill Lynch, which came out with bullish comments on the group, also helping the Nasdaq gain 41 points on the day.
Taking a look at some widely held issues tonight: IBM, American Express, both up more than $1. Caterpillar, United Technologies, General Motors each down on the day.
Market breadth still positive, advancers beating decliners by a 3/2 margin on the big board.
Now for a look at what traders and investors can expect tomorrow. Christine Romans from the New York Exchange -- Christine.
ROMANS: Lou, the bulls are not too concerned by the fact the Dow closed all of 12 points here today. They were saying a little bit of give-back was probably likely, and they point to the fact that the Russell 2000, the Dow Jones Industrials -- or the Dow Jones Utilities, rather -- that Dow Jones Transports and the S&P 500, the broader market indication was still higher on the day. They're looking ahead to tomorrow.
We've got some data on tap that could be sort of interesting. New jobless claims -- that's important. Folks are wondering what's happening to the jobless rates, and they've been looking much more closely at the weekly data that's been coming in. June factory orders, we know that that sector of the economy has been in trouble. We'll be looking to see what happened there in June.
And there should be plenty of anticipation for that job's report. It's a July job's report, a lot of folks talking about whether the unemployment rate might creep up to 4.7 or 4.8 percent. A lot of fear built in the markets about what that number might mean. It could be choppy trading late tomorrow as we head into that report on Friday.
Also some earnings trickling in -- not as many as we have been seeing. For the Dow component, Disney is due about 4:00 Eastern time tomorrow. We'll watch for that. We've got Royal Dutch, we've also got Sara Lee, which is the conglomerate best known for its food company, and John Hancock. Those are just a handful that are on the docket for tomorrow. But, Lou, folks are not talking about earnings as much as they were. In fact, some of the traders here are telling me they are hoping we are heading into a period of corporate anonymity, where we'll not be talking about guidance for a while. We'll be talking about the economy -- Lou.
DOBBS: You mean they want anonymity and a lack of visibility simultaneously?
ROMANS: They just don't want to hear about it anymore. They want to get it behind them. They know there's no visibility. They know they're not going to like what they're going to see. Think if there's going to be a summer rally they want to stop hearing these corporate reports from these companies.
DOBBS: Well, we're not going to cooperate. We're going to tell people what's going on. We're going to recount those reports and we're going to try to achieve some visibility.
(LAUGHTER)
ROMANS: All right.
DOBBS: Christine, thanks. Christine Romans.
Topping tonight's "MONEYLINE Movers": Cigna, which plunged more than $13.50 a share. That, after reporting a 6 percent decline in second-quarter earnings. The health insurer lowering third-quarter and full year estimates because of rising medical costs.
Veritas DGC, tumbling more than $7 a share on volume, 20 times its average daily volume. The oil firm services company slashing fourth- quarter earnings estimates by more than 80 percent. Veritas also warning next year's profits will be lower than expected because of slumping sales.
Jones Apparel dropping more than $6.50 a share today. Jones, which designs and markets brands that include Nine West and Polo Jeans, reported higher second-quarter earnings, but still fell short of expectations. Jones says its footwear and accessories businesses hurt by a difficult retail environment. Despite today's fall, shares of Jones are up 40 percent so far this year.
One of Wall Street's most prominent bulls is Thomas Galvin. This week he cut his earnings outlook for the S&P 500 for the year, lowering his forecast by 9 percent in fact. Tom Galvin, chief investment officer of Credit Suisse First Boston joins us now.
Tom, good to have you with us.
THOMAS GALVIN, CREDIT SUISSE FIRST BOSTON: Thanks, Lou.
DOBBS: A lot made of your revision in that earnings outlook for the S&P 500. Why did you decide to do it now?
GALVIN: Well, I really only changed my earnings probably once or twice a year, and the extent to which the second quarter was materially worse than expected, I think the third quarter will be about half as bad but fairly negative nonetheless. Obviously, it's pulled the aggregate numbers down. You have to make that adjustment, if in fact, the facts change. It doesn't change my optimism because I still think stocks will move early in the fundamental improvement. I think stocks have already bottomed in the face of the bad news, and I think they'll begin their recovery as we shift into the end of this year is.
DOBBS: And recovery in the late fourth quarter, is that what you're saying?
GALVIN: Well, I think, relative to expectations, which today, are about curb level, I think we'll probably finally see earnings rise 5-7 percent in the fourth quarter. Most people now expect the fourth quarter profits to be flat to down, so I think that's the first step in the right direction. Market's got to learn how to walk before it can run. I think that's where we'll get the breakthrough.
DOBBS: And a welcome breakthrough it would be, so long as those earnings are there. A number of CEOs that we're talking with on this broadcast and elsewhere in the city, suggest that this is a little tougher than they really anticipated. I know it's come as a surprise to business leaders. It's also coming as a surprise to Wall Street and investors.
GALVIN: Well, certainly, I think people looked at what some characterized appropriately as the perfect storm -- higher interest rates, higher energy prices, overspending in tech -- all of which came together in a very vicious profit reversal.
That said, today, for example in the NAPM data, the inventory picture on that index was at an 18-year low, to where it was in 1983. And that helps explain, quite honestly, the damage that we've seen in profits as companies have tried to draw down inventory off the shelves. But nonetheless, it probably tells us the majority of the profit pain is behind us. NAPM new orders is generally, over the last four to five months, shown us a nice up curve, and I think that's a good leading indicator for us.
DOBBS: With that leading indicator that you mentioned, do you think the -- we've seen the bottom in the equities market. Let's take a look at your last forecast. You were last here, Tom, on June 11th. This is the fun part. Let's take a look at your stock picks back on June 11th. Alcoa, down 10.7 percent during that period. Home Depot, off 2 percent. IDEC Pharmaceuticals, Amgen, and I2 Technologies -- I think we can say, Tom, that one got killed. What happened with I2, in particular?
GALVIN: Well, you know, the software sector has clearly been the last of all the different technology sectors to get obliterated in the market. Semiconductors and semi equipment, which were up today, were the fist to go down about this time last year. Software seemed to be holing in. I still believe I2 would be a tremendous buying opportunity here. I think the old economy is going to recover sooner than the new economy, in a sense, and I think that's going to still lead to better spending, as companies still need to become more productive, still need to work on that supply chain, still need to get closer to their customer. And I2, I think, will provide that.
DOBBS: Are you staying with those picks, going forward?
GALVIN: They're certainly valid, they're certainly strong buy- rated stocks at SCFB. I think, in addition, if I looked at other names, I look at Amdocs, which is a communications software company. Today they signed a good the contract with Verizon, a few other names.
DOBBS: Tom, I think we have -- this is always a moment of suspense for me. There they are! We win tonight. Amdocs, you were saying, Lab Corp of America, Capital One Financial and CSX. Couple little old economy in there.
We should point out -- I want to point out that also, against your stocks of June 11th, the S&P 500 declined 3 percent during that period, so we're going to give you a little offset there, a little latitude.
Now, those stocks, through the rest of the year, are you raising your asset allocation?
GALVIN: We did. We actually took for an all-equity portfolio. We went from 90 percent cash to 95 percent cash. For a balanced fund for most individuals, we're recommending 70 percent stocks, 20 percent bonds -- primarily corporate bonds, because I think high-yield, in particular, will act very close to equities. And about 10 percent into cash. So I still think you want to get more aggressive towards equities at this point. I think the economy has troughed. It's still very foggy out there, as many people have talked about. But I think our leading indicators tell us we'll have a breakthrough as we move into the fourth quarter.
DOBBS: Terrific. Tom, thank you.
GALVIN: Thanks, Lou.
DOBBS: Thank you. Tom Galvin.
In tonight's MONEYLINE focus, a look at corporate news, more job cuts and the telecom industry. ADC Telecommunications slashing another 2,500 jobs, that on top of the 7,000 layoffs announced since November. ADC also closing some of its facilities, lowering third- quarter sales targets because of slowing demand for telecom equipment.
As expected, Donald Marron is stepping down as chairman of UBS Paine-Webber, to be replaced by president and chief executive officer, Joe Grano. Marron served as Paine-Webber's CEO for 20 years before selling the brokerage to Swiss Bank UBS last year,
The Federal Trade Commission approving Pepsico's almost $14 billion purchase of Quaker Oats. Pepsi gains control of Quaker's dominant Gatorade business, which controls 80 percent of the sports drink market. That concentration caused the FTC, which approved the deal, to do so along split lines amongst the commissioners. Shares of Quaker Oats, soaring more than $12 today. Pepsico shares off nearly $3.
Still to come on MONEYLINE, one company trying to boost profits in a soft retail environment by signing up with the NBA.
And profits triple at a hard-hit California utility holding company. We'll hear from PG&E CEO, Robert Glenn next. Stay with us.
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DOBBS: In tonight's headlines, footwear: It's a $40 billion market, but footwear makers are facing tough times as consumers are looking for discounts and thinking twice before they buy. One of the ways companies generate sales growth is through sports marketing deals.
Today, Reebok entered into a 10-year deal with the National Basketball Association. Under that deal, Reebok designs, makes and markets merchandise for the NBA.
Analysts are excited by the deal, because Reebok will now have exclusive rights to supply and market all on-court apparel.
Last week, Reebok reported quarterly results that beat expectations. Profits driven by an existing exclusive agreement with the National Football League. Reebok's stock has outperformed other stocks in the footwear sector, nearly doubling over the past year.
Nike and Reebok, both stocks closing higher today. Sketchers and Timberland slipped. All four stocks beating the broader market over the past 12 months.
Up next here on MONEYLINE, a big jump in profits for PG&E, despite the financial woes of one of its subsidiaries.
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DOBBS: Just ahead on MONEYLINE, the chief executive officer of PG&E: Robert Glynn. We'll take a look at how the company is making money despite the California power crisis. That and more still ahead. We'll be right back.
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DOBBS: In tonight's powering America, one of the principal companies in California's power crisis: PG&E issuing second-quarter results. The company reporting net income of $750 million, three times what it was a year ago. But excluding a one-time gain, the company failed to match analyst forecasts for the quarter, the same period that saw its main subsidiary, Pacific Gas & Electric, declare bankruptcy.
Joining me now, the chief executive officer and president of PG&E, Robert Glynn, who is also the company's chairman, I might point out.
Bob, good to have you with us. ROBERT GLYNN, PRESIDENT, CHAIRMAN & CEO, PG&E: Hi, Lou. Glad to be here.
DOBBS: Congratulations on these results. What drove them?
GLYNN: Solid operating performance in both of our major units, both our Pacific Gas & Electric Company utility unit and our national energy group. Each had very solid operations and very solid financial performance results from operations, and we're really pleased with that.
DOBBS: Yeah, a lot of people listening to you right now have got to be saying: My god, PG&E is in bankruptcy. How could the company make this kind of money? How could the company make this kind of money with a subsidiary in bankruptcy?
GLYNN: Well, of course, the one-timers represent either (UNINTELLIGIBLE) from estimates from prior quarters, in one case, or in the other case, simply the results of another party terminating a long-term contract and providing us compensation for having elected to do that.
The fundamental operations are performing very well, because the bankruptcy situation for our Pacific Gas & Electric Company unit has to do with the excessive cost of procurement of electricity from the open market. And the state's Department of Water Resources has elected to step into that role and fulfill that role. And so the fundamental operations of the business, including delivering high- quality gas and electric, distribution, customer service, and construction of new infrastructure, is just going on fine.
DOBBS: And Bob, you're talking about some of the technical parts of the distribution. The bottom line is on a one-time basis you got some rebates where you thought you were going to spend some money. And going forward, your visibility is such that lower prices and some significant changes in California's administrative environment, if you will, does it look good for you? For the next six months?
GLYNN: Well, I think that financial performance from operations for the next six months looks good, and we've reconfirmed our earnings guidance for both the utility as well as the national energy group, which is growing very, very strongly this year.
DOBBS: And in terms of the PG&E, Pacific Gas and Electric bankruptcy...
GLYNN: Right.
DOBBS: ... given this environment, will it accelerate your plans to move out of bankruptcy?
GLYNN: Well, it's hard to imagine them being more accelerated than the course that I've been keeping the company on. We do plan to file our formal plan of reorganization document with the bankruptcy court in the next, I would say, few months. We have from now until early December to do that on an exclusive basis and I want to beat December by a fair margin.
And that will represent positively moving forward, the process of getting Pacific Gas and Electric out of bankruptcy, and back into strong, financial health in terms of the equity markets.
DOBBS: With that done, with now what appears to be at least, no need for candles in the state of California, is the energy behind us in California in particular?
GLYNN: I don't think that it's behind us yet. Being out of the energy crisis will require the continued construction of new power plants, as well as the natural gas infrastructure to serve them and that's going to take a few more years. And we've been blessed with pretty cool weather so far this summer.
DOBBS: Right.
GLYNN: We have some risks that if it heats up, there will be a challenge.
DOBBS: Well, we will hope for your weather to stay cool and comfortable then. Bob Glynn.
GLYNN: We are hoping for that, too.
DOBBS: Thank you for being with us.
GLYNN: Thank you, Lou.
DOBBS: Coming up next, the chairman of the SEC last night here was sending a signal but not to Wall Street. We'll tell you all about that. And also, we'll take a look at your e-mails and Ahead of the Curve."
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DOBBS: Quarterly results are expected tomorrow from Dow component Disney, as well as tobacco maker Loews, Royal Dutch Shell, Sara Lee, Revlon and Emulex.
Now for some of your thoughts. Most of your e-mail dealt with SEC scrutiny of brokerage firms and analyst conflict of interests. In the case of JDS Uniphase, Errol wrote: "How many analysts suggested sell in the months or days before a $50 billion loss?"
Errol, we could not find a single cell rating. Tonight, ten firms in fact have a buy or a strong buy on that stock and 20 ahold, but that's below the average rating you might be pleased to know for most stocks.
Kai In Germany writes: "We made people like Blodget popstars and followed their recommendations largely without ever asking questions. Reasonable investors should have known about this conflict of interest and they probably did."
Anthony criticizes me for calling the head of the SEC Laura Unger as chairman in my interview last night. He writes: "In these politically correct times, I am appalled to see CNN use the title "chairman" for the head of the SEC when that person is a woman."
Anthony, please lighten up and avoid conformity in a world that is altogether too PC. Like many female executives who appear on MONEYLINE, Laura Unger actually prefers the title "chairman", and of course we respect her wishes.
And Roy in San Francisco made a very interesting observation about the head of the SEC in my interview: "Laura Unger touching her nose at the end of your interview with her yesterday reminds me of Carol Burnett's ear lobe tugging ritual at the end of her shows."
Roy is wondering if she is sending someone a message. As you can see last night, Laura Unger was touching her nose during the interview and she was sending a message, is the same message that Carol Burnett expresses by pulling her earlobe. Yes it is. Both are sending signals to loved ones. We can tell you that the nation's top SEC regulator saying, "I love you" to her children, Natalie and Simone, ages 3 and 4 and a half. Laura Unger, we are so impressed by those signals, you're welcome back anytime.
Onto the markets.
Herbert in Monterey, California says: "I am so tired of the word bottom. How many times have I heard it in the past two months? Are you tired of it?"
Herbert, no, I am not. Particularly if we have indeed seen these markets bottom out.
Please send your comments and your great observations and e-mail us: moneyline@cnn.com.
And that is MONEYLINE for this Wednesday evening. Thanks for joining us. I'm Lou Dobbs. Good night from New York.
"CROSSFIRE" is next.
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