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Lou Dobbs Moneyline
Dow Declines 0.34 to 10,415.91; Nasdaq Sinks 25.78 to 1,982.25
Aired August 13, 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.
(AUDIO GAP)
LOU DOBBS, CNN ANCHOR: Their going negative followed -- I think they were falling by two or three days. Greg Barrett, the head of Intel, saying he saw bottom in a turn for the computer industry itself. What's going on here. How can all of you very smart, well paid, knowledgeable people have such a difference of view?
NATHANIEL COHN, GOLDMAN SACHS: I think, you know, you've got mixed data points. I think you can take both the positive and negative side of that. Our view is that we saw a lot of negatives, a lot of reasons to be negative and now we're starting to see the first signs of encouragement. Others would point to valuations being quite high, so you're discounting lot of the recovery. We wouldn't argue with that. That may cap some of the upside. But we don't think investors will resist once momentum improves and thus think the stocks are going to start to trend higher from here.
DOBBS: Amongst the stocks, obviously. Intel amongst those you that have turned positive on. How positive are you?
COHN: Well, Terry Ragsdale actually covers Intel. You know, he's positive on a number of reasons, (AUDIO GAP) the October timeframe, the roll-out of Windows XP. Where I focus is on communication chip makers and some of those names, Qualcomm, Conexant, Microtune, Marvell, others where we're seeing signs of stability and growth actually occurring. That's kind of what we've turned positive on.
DOBBS: OK. It's good to see that there are some positives for people to fix on.
COHN: Yeah. We think so.
DOBBS: Nathaniel, thanks for being with us.
COHN: Thank you very much.
DOBBS: More of us are investing in 401(k) plans than ever before, an estimated $1.7 trillion invested, in point of fact. But many employees now feel they're making important decisions about their money without the proper knowledge or advice or guidance. With that in mind, Congress is sure to step in, considering a measure that would allow brokerages to recommend specific funds. That's an idea supported by Wall Street, but consumer groups question it.
Tim O'Brien reports.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): The 401(k) phenomenon has revolutionized investing. Never in history have so many investors invested so much money, yet many are not thoroughly familiar with what they are investing in. If the risks weren't obvious before, they certainly are now. Last year, total 401(k) assets declined for the first time since their introduction twenty years ago. Employers are reluctant to advise their employees on how to invest, fearing lawsuits, so Congress is now considering legislation to protect employers and to allow 401(k) plan administrators more freedom to give advice.
ANN COMBS, ASSISTANT SECRETARY, U.S. LABOR DEPARTMENT: Many employees are given up to 10 options to choose from in their 401(k) plan, and frankly, they just want to ask someone, "what should I do?"
O'BRIEN: Although the idea has bipartisan support and the backing of the Bush administration, some consumer groups warn that employers and plan administrators may face the same conflict-of- interest charges that have recently embroiled Wall Street.
FRANK TORRES, CONSUMERS UNION: We have the potential to have those same type of conflicts of interest arise when we've got the financial firms who are governing the plans are in charge of oversight of the plans also getting some benefit from the advice that is given.
O'BRIEN: The proposal does have stiff disclosure requirements and is governed by federal pension laws, as well as SEC regulations.
LIZ LIESS, SECURITIES INDUSTRY ASSOCIATION: There is a strong deterrent effect under ERISA, the employee retirement income security act, which results in personal liability as well as corporate liability if conflicted advice is given.
(END VIDEOTAPE)
O'BRIEN: The challenge for Congress will be to balance two competing risks: the risk that investors may invest unwisely because they got flawed, biased advice, against the risk they may invest unwisely because they didn't get any advice at all -- Lou.
DOBBS: Tim, it sounds like the perfect conundrum for Congress to decide to mediate.
O'BRIEN: It is. And as you know, 401(k)s have been exploding in popularity. What happens now if they start imploding in value? Perish the thought, but were it to happen, consumers, investors, employees, would want somebody they know and trust to talk to, and Congress will be sensitive to that.
DOBBS: OK. Thank you very much. Tim O'Brien from Washington. For many executives, August is a month of leisure and vacation, but not for Michael Armstrong of AT&T. Reports suggesting that the AT&T CEO is now on a mission, out to spark an all-out bidding war for his company's cable assets, AT&T Broadband.
Bruce Francis has the update.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Nothing sparks corporate interest like reports that your biggest enemy might walk away with a prized asset. In this case, that asset is AT&T Broadband. The enemy: CNN parent AOL-Time Warner, which has reportedly been discussing merging its cable assets with AT&T's. Disney, which lobbied against the merger of AOL and Time Warner, is reported to have met with AT&T last week. The entertainment giant could use the access to AT&T's 13.5 million cable homes for cable properties like ESPN, Lifetime and the Disney Channel.
TIM HORAN, CIBC WORLD MARKETS: They have to be concerned, I think, that an AOL-Time Warner -- if they end up kind of combining with Comcast, that they're going to exclude Disney or give them their own content-capable access to these networks. So it's definitely got to be a concern of theirs.
FRANCIS: But regulators would be concerned about Disney's ownership of both broadcast and cable assets in certain markets. Microsoft also considers AOL-Time Warner its corporate archenemy, and the software giant reportedly met with AT&T executives last week. Microsoft has already invested $5 billion in AT&T in a convertible debt deal.
Microsoft wants to see consumer broadband services thrive. Its .Net initiative depends on it. But a highly regulated, capital- intensive business like cable TV isn't a good match with the rest of Microsoft's businesses, so analysts are calling any outright purchase of AT&T Broadband a long shot. Some observers believe that AT&T is just trying to get Comcast to increase its bid.
SCOTT CLELAND, PRECURSOR GROUP: AT&T wants Comcast raise its bid, and Comcast is looking at them and saying, "Are we stupid? Why should we bid against ourselves?
(END VIDEOTAPE)
FRANCIS: In the meantime, Comcast and AT&T are not talking. cnnfn.com reports that AT&T won't hold discussions with Comcast until that company signs a confidentiality agreement. And you'll remember that Comcast also -- Microsoft also has stake in Comcast. So a dog on both sides of that fight -- Lou.
DOBBS: We'll see if it turns out to be a fight. Thanks, Bruce. Bruce Francis.
Microsoft today, in addition, announced an agreement with Eastman Kodak to modify some digital photo features of its soon-to-be-released Windows XP operating system. Kodak has been complaining for months that Windows XP steers users away from third-party software providers, giving Microsoft an unfair advantage.
Steve Young has the story.
(BEGIN VIDEOTAPE)
STEVE YOUNG, CNN CORRESPONDENT (voice-over): Microsoft and Kodak today announced that, following talks, the software giant agreed to tweak the monopoly product Windows XP to make it fairer to Kodak and, incidentally, other Microsoft competitors. The digital scanning part of the software used to point straight to Microsoft. Now consumers get a choice, though for some reason, Kodak isn't one of the choices shown in the picture Microsoft sent to MONEYLINE.
ED BLACK, CCIA: It shows that if you're a powerful company, you make a lot of noise, and Microsoft happens to be getting ready to go to trial on a remedy for its antitrust violations, you have a chance to get some modest modifications of their practices which were hurting you.
YOUNG: A Kodak spokesman called the change "positive," but someone familiar with Kodak's Microsoft negotiations said, in many other respects, Windows XP is still designed to smother digital imaging competitors. According to this source, if you try buying digital prints online with Windows XP in its current configuration, you automatically wind up at Microsoft, or other companies that have paid Microsoft to be partners. And, according to the source, Microsoft gets a percentage of the profit on every picture printed.
Microsoft declined repeated requests to discuss the controversy on camera.
Computer manufacturers are also upset because they believed they could sell icon space on the Windows XP desktop, only to have Microsoft say if they did, they would be forced to carry three Microsoft icons without payment. All this has sparked Senator Charles Schumer to call for a judiciary committee investigation of Windows XP before its October launch.
RICHARD DOHERTY, ENVISIONEERING GROUP: We haven't seen any sort of coordinated effort for this. It just seems to be a number of organizations at the same time have similar trepidation about it.
(END VIDEOTAPE)
YOUNG: Again, with the reminder that Microsoft declined our interview requests, the Computer and Communications Association says it's "apparently Microsoft's plan, in every line of Windows XP business, every piece of retail activity, to get a little piece of everything going on over the Internet." Lou?
DOBBS: That's not a bad business if you can do it.
YOUNG: And if you're Microsoft, maybe you can.
DOBBS: OK, Steve. Thanks. Steve Young.
Ahead here on MONEYLINE, you might think Fidel Castro has hit mandatory retirement age. But he is the one that sets the mandates in Cuba.
The faulty ignition system at the center of the latest Ford controversy. We'll be taking a look at that and the high price of settling a massive class action lawsuit. The new bad guys in Hollywood. Pirates stealing movies before they even hit the big screen. And playing the stock market -- literally. We'll show you the latest edition of a board game icon.
(COMMERCIAL BREAK)
DOBBS: A big day for Fidel Castro. Fidel Castro turned 75 years of age. Instead of celebrating his birthday at home, he partied until dawn in Venezuela, with his friend President Hugo Chavez. Castro supporters back home in Cuba carried on without their Maximum Leader. They sang songs and they marched in the streets.
No party for Defense Secretary Donald Rumsfeld, who was back at the table with his Russian counterpart. They're trying to work out a deal on missile defense, but getting a firm nyet on those shields from President Putin. The Russian leader saying, however, the two sides might be able to reach some agreement on cutting nuclear arms stocks. Secretary Rumsfeld faring no better here at home. Military leaders and civilian secretaries marching in lock-step against his calls for a leaner, if not meaner, fighting machine, military leaders saying they've already lost enough manpower. More than one-and-a-third million troops have been cut since the end of the Cold War.
President Bush giving a $5.5 billion boost to embattled farmers. The president today signed a farm bailout bill, that bill designed to bring relief to farmers who have been hammered by low prices and high temperatures. The first checks are expected to begin arriving by the end of next month.
Relief for a sweltering nation over the weekend. Thunderstorms and cooler temperatures replaced last week's sizzling triple-digit readings. The heat taking a human toll, claiming four lives in New York, another four in Philadelphia. Two more died in St. Louis. So far this year, dozens of heat-related deaths have been reported all around the country. Chicago has recorded 36 deaths due to heat just since the beginning of June.
The first Firestone tire trial began today. A Texas jury hearing the case brought by a man whose family was injured when his Ford Explorer flipped when a tire blew out. More than 200 deaths have been linked to the faulty Firestones. Bridgestone-Firestone insists its tires are safe, but that the Ford Explorers that they're mounted on are not.
Meanwhile, Ford is fighting fires on another front. The carmaker offering to settle a huge class-action lawsuit involving faulty ignitions. More than 20 million vehicles are involved. Ford not saying how much it has offered. Hillary Lane has the report. (BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: We're all done for today.
HILLARY LANE, CNN CORRESPONDENT (voice-over): Heading off what could be a huge damage award, lawyers from Ford Motor Company today left a proposal on the desk of a California judge, a settlement offer to a class-action lawsuit which could involve as many as 22 million Ford vehicles built between 1983 and 1995, many of which are still on the nation's highways with faulty ignition systems that could cause the cars to stall when the engine gets hot. It costs about $175 to fix each car.
CLARENCE DITLOW, EXECUTIVE DIRECTOR, CENTER FOR AUTO SAFETY: Whether this is a $500 million settlement, or $1 billion, you don't pay out that kind of money unless you made a mistake. In a written statement. Ford did not admit wrongdoing, and says it believes the cost of $750 million to $1 billion currently being speculated about in the media are substantially overstated.
LANE: But Ford knows the judge presiding over the case, Alameda County Superior Court Judge Michael Ballachey, believes the company is at fault. Back in October 2000, Ballachey ordered a recall of 1.8 million Ford vehicles which could have the faulty ignition system, and he charged Ford with an extensive cover-up.
MICHAEL BALLACHEY, ALAMEDA COUNTY SUPERIOR COURT JUDGE: Don't tell me that that's safe.
LANE: The last thing Ford needs right now is more doubt about its commitment to safety.
NICHOLAS LOBACARRO, LEHMAN BROTHERS AUTO ANALYST: It's consistent with a lot of other bad news that they've had, and I think consumers are, you know, associating some of this bad news with the company and that's hurting their brand image.
(END VIDEOTAPE)
LANE: Ford already has settled numerous personal injury lawsuits, but any settlement that is reached in this class-action suit would not prohibit plaintiffs from bringing personal injury cases to court -- Lou.
DOBBS: Why the wide range of potential damages at risk here?
LANE: Well, what analysts are telling me is that Ford does not know exactly how many people would have receipts to prove that they already had their cars fixed. I mean, do you have a receipt for having your cars fixed eight years ago?
DOBBS: There is a requirement that you have to have a receipt?
LANE: You would have to show proof that you had made that repair, and they believe 13 million people already made the repairs. The question: How many of them can prove it. DOBBS: Hillary, thanks. Hillary Lane.
In another blow to Ford, UBS Warburg today downgrading the stock and cutting its share price target from $22 to $20 a share. Ford stock nearing that lowered estimate, dropping more than four percent today.
Monopoly goes Wall Street. A new version of the popular board game has been introduced in London. But instead of buying or selling property, you buy and sell stocks. And instead of passing go and collecting $200, now you collect $200 million, plus dividends.
Richard Quest has the story from London.
(BEGIN VIDEOTAPE)
RICHARD QUEST, CNN CORRESPONDENT (voice-over): It's the ultimate capitalist game now played in the ultimate capitalist venue. Monopoly meets the stock exchange. Forget trading properties. Shares of companies worth hundreds of millions are bought and sold instead. All the big names are here. Airlines, telecoms and technology companies surround the board -- autos, too. And the game has a new twist: A computer that tracks the shares and moves the prices as you move around the board.
IAN GIBBS, GAMES' BUYER: In the past there hasn't been a particularly strong financially-based board game. And I think on this occasion they've got it right.
QUEST: Putting it to the test, where else, outside the Bank of England and the London Stock Exchange. Monopoly is the biggest selling board game in the world. This is a new way to update a pastime more than 50 years old.
NICOLA GREGSON, MONOPOLY: We have changed the rules slightly. Monopoly always stays true to its form, and there are certain squares that will never change on the Monopoly board. But it tries to stay contemporary, so that it will always reflect the feeling of the game. The essence of this game is exactly the same, so you're trying to make as much money as possible and beat your opponents.
UNIDENTIFIED MALE: I now own British Gas and KLM.
QUEST: Stock Exchange Monopoly still brings out the very worst in its player.
UNIDENTIFIED MALE: I'm winning.
QUEST: So even if your real portfolio is still in a mess, at least here you can say, "Pay up, or "You're bankrupt, and I've won."
Richard Quest, CNN Financial News, London.
(END VIDEOTAPE)
DOBBS: Coming up in the next half hour of MONEYLINE, the boom in on-line film piracy, and why Hollywood has been powerless to stop it. And "American Pie 2," well, it serves up a box-office record. We'll round up the weekend's top ten money makers for you. Also, a positive call on chips helping the Nasdaq break a six-session losing streak. We'll talk with one Wall Street veteran who says stocks could end the year, well, somewhat flat.
(COMMERCIAL BREAK)
DOBBS: You wonder what would have happened if Fidel Castro had made the team.
Well, tech stocks today getting a lift, after a positive report from Goldman Sachs on the chip industry. That helped the Nasdaq break a six-session losing streak.
The Dow, however, ending off fractionally on the day. Light trading. Very light trading, in fact. Some modest gains in Intel and IBM not enough to offset losses in financial services.
The Dow closing down just a fraction of a point at 10,415.91.
Among the most active issues on the big board, Dow component Wal- Mart. It dropped $1.40 share. It will post second-quarter results tomorrow.
Johnson & Johnson, another Dow component, gaining 68 cents, closing at $55.70.
The Nasdaq higher for the first time in seven days, following that upgrade on the chip sector. It closed up almost 26 points, and the index is now down about 20 percent so far this year.
Taking a look at the most active issue on the Nasdaq. Intel, as you might suspect, up 61 cents today. And BEA Systems losing 44 cents. That after ABN AMRO slashed its rating on the software maker, partly because of weakness and overseas markets.
Market breadth on the big board today was positive. Advancing issues beating out decliners by an 8-to-7 margin. But, again, this was the fourth lightest trading day on the big board.
And on the Nasdaq, advancers also beat out decliners by 5-to-4 margin. And today was the second lightest trading day on the Nasdaq.
It was busy day that's been expected at least on Wall Street for tomorrow. I don't know why it's expected tomorrow, but Christine Romans will definitely tell us why.
Christine, why is it going to be busy tomorrow?
CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, because we get raft of economic data later this week, and it starts tomorrow with the July retail resales number. That will come out an hour before the opening bell.
We'll get a pretty good chance to look at it and see what it says about the consumer. Is he or she faltering? If it looks like it's a weak, some folks today telling me they think it could start stirring up talk that maybe the Fed might have to do 50 basis points at its August 21st meeting.
We're also going to get a couple of Dow components reporting their earnings reports. Wal-Mart and Home Depot are on deck. Both of those reports expected also before the bell. Maybe around 8:00 or so. Wal-Mart and Home Depot each expected to report 37 cents a share for their second quarter.
Other earnings reports out tomorrow include -- we get Deering Company, J.C. Penney, Office Max, TJX Companies, and Abercrombie & Fitch. You can see it's really heavy with the retailers here.
So a lot of folks who are asking questions about what's going on with the -- with the consumer, and is it going to hold up the economy if we are bumbling along here near recession. A lot of folks are going to be looking to see what that has to say.
Later this week, there's more economic news as well. So folks are saying if there is a need to pull the money off the sidelines and place their bets, they're going to start seeing it starting tomorrow -- Lou.
DOBBS: I'll make you a buck it isn't that busy tomorrow.
ROMANS: I bet you two it's busier than it was today.
DOBBS: You've got a bet.
ROMANS: OK.
DOBBS: Christine Romans.
Now for a look at what's facing technology investors. Greg Clarkin at the Nasdaq marketsite -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: Yeah, Lou. There's a batch of technology earnings due out tomorrow after the close of be -- close of trade as well as throughout the week.
I want to give you a little bit of a preview of some of those. Let's go back here to the wall.
Applied Materials, a big semiconductor-equipment company. It is due out with earnings after the close of trade tomorrow. Now to give you an idea of how far business has fallen, for the year-ago period, they earned 70 cents. Now they're expected to earn 3 cents. So Applied Materials ahead of that earnings report tomorrow. It was up .7 percent. It gave it 33 cents.
BEA, as we mentioned a little bit earlier show, ABN AMRO downgrading this morning. They're out with earnings as well tomorrow. A lot of folks want to hear what those executives have to say on that conference call, especially about international business. That stock down almost 2 1/2 percent. Network Appliance. They'll report after the close of trade tomorrow. Brocade a little bit later this week.
Here's biggie for you. Dell Computer on Thursday. It was up .4 percent today.
And then we'll get a glimpse of the networking sector through the eyes of Ciena later in the week. It rose 3.2 percent.
But, Lou, I have to tell you traders say at this point they feel a little nervous. They say everybody expects nothing to happen, it's the end of summer, and one gentlemen said, you know, that's when something always drops and you've got to react to it.
So these guys are kind of on edge ahead of these earnings report -- Lou.
DOBBS: I'll make you another dollar bet, Greg, since we're betting tonight, that they have -- don't have much to worry about.
CLARKIN: I'm going to up the ante. We'll go three.
DOBBS: OK. You got it.
CLARKIN: All right.
DOBBS: Greg Clarkin.
Topping tonight's MONEYLINE Movers, Cheap Tickets surging nearly $4.50 a share. Hotel franchiser, Cendant, buying the discounted airfare company, paying $425 million in cash. That deal adds to Cendant's travel-services portfolio.
Peabody today up more than $3. The coal company raising its earnings guidance for this year and next, attributing higher price and increased sales volume.
Wal-Mart dropping $1.40 ahead of its earnings report out tomorrow. As we said, a J.P. Morgan analyst recommending selling shares of the discount retailer, expecting a disappointing second quarter despite the recent surge in sales. Shares of the Dow component virtually flat so far this year, down 1.7 percent.
Year to date, the Nasdaq is off nearly 20 percent, as I said. The Dow down almost 3 1/2 percent.
But the market slowdown no surprise to Byron Wien. He was predicting a rough year from the very beginning, and considering how badly some stocks have performed so far this year, Byron says he's surprised there isn't more pessimism.
And he is here with us now.
Byron, good to have you with us.
BYRON WIEN, MORGAN STANLEY DEAN WITTER: Good to be here. DOBBS: Now you're not surprised, obviously, because you forecast precisely what's going on, but you're surprised there isn't more pessimism. How could there be much more pessimism than what we're seeing now?
WIEN: You know see it in the measures of it. You don't see it in investor sentiment. You know, the investment -- investor sentiment polls are still reasonably optimism.
DOBBS: And do you think that that optimism is misplaced?
WIEN: I do. And, more importantly, I don't think that the market's really going to have a definitive move up until that optimism is broken.
DOBBS: Well, if you break that optimism and we see a retreat in valuations levels, how low would you expect the market to go...
WIEN: I think we've seen...
DOBBS: ... go through the old lows?
WIEN: No. I think we've seen the lows for the year. I think this might be the worst quarter of the year. I think we may be headed up as we go into the end of year, but I don't think the market will do much better than come out flat for the year.
DOBBS: And what would you counsel investors to do with their money?
WIEN: Well, actually, Lou, it hasn't been as bad a year as you make it out to be. The indexes, which are weighted, are -- you know, are down 20 percent in the case of the Nasdaq and 10 percent or so in the case of S&P 500. But the unweighted index is actually about flat to slightly up for the year.
DOBBS: So why do you supposed there's all that misplaced optimism here?
WIEN: Because people -- you know, people made a lot of money in the 1998-to-2000 period. They've lost the money they've made, but they haven't lost their initial stake. So they're still hoping that the good old days of technology moving higher are coming back again.
DOBBS: And the -- and when does it arrive?
WIEN: I think there's a capital spending-led slowdown. I don't think you're going to see technology stocks do a whole lot better until sometime next year.
DOBBS: Are we going to see these -- these P/E ratios drop down to historic averages -- historical averages?
WIEN: The price ratio of the market now is about 23, and the long-term average is around 17. I think the market will grow into its price earnings ratio. I don't -- I don't expect the market to collapse down to 17 times, but I don't think it's going to make much progress as it works its way through the end of the year.
DOBBS: Now are there any stocks that you think would fit into this environment and as -- in your judgment at least...
WIEN: Yeah. Yeah, I've had three themes that I've pursued since the beginning of the year, and I think they've paid off. I've pursued value over growth. I've avoided technology. I've pursued old economy over new and small to mid cap over large.
DOBBS: And a couple of stocks here that would fit into those themes?
WIEN: Restructuring stocks. American Standard, Mattel, Gillette, Hilton Hotels, and W.R. Berkeley.
DOBBS: Terrific. And we'll check in with you to see how they're doing over the course of the next three to four weeks?
WIEN: If they do well enough, maybe you'll invite me back.
DOBBS: Exactly. Well, actually, it might be fun, too, if they don't.
Byron, it's always fun to have you with us.
WIEN: Good to be here.
DOBBS: Byron Wien.
Well, in tonight's MONEYLINE Focus, a look at some corporate headlines.
Bayer considering selling its pharmaceuticals unit. The German drug and chemicals company says it's already been approached by two well-known drug makers. Last week, Bayer pulled its leading cholesterol drug from the market, announced 4,000 job cuts as a result, and lowered its third-quarter profit targets.
Emery Worldwide is grounding its air-carrier operations, heeding warnings from the Federal Aviation Administration. Emery, a unit of CNF, under scrutiny after two recent crashes, that may have been maintenance related. Emery will, however, continue its services using other aircraft and couriers but is laying off 800 workers, and this does not effect Emery Air Freight. Shares of CNF falling more than a dollar on the session.
Coming up next here on MONEYLINE, a real-life Hollywood nightmare at the hands of computer pirates, and we'll take a look at which industries are experiencing consolidation fervor.
ANNOUNCER: Next, Lou is joined by Richard Peterson, chief market strategist at Thomson Financial Securities.
(COMMERCIAL BREAK)
DOBBS: In tonight's Sector report, the recent spike in mergers and acquisition activity. The number of unsolicited bids, for example, climbing to the highest level in more than a decade.
Richard Peterson joins me and has look for us at what's driving M&A growth.
RICHARD PETERSON, THOMSON FINANCIAL SECURITIES: Good evening.
DOBBS: Good to have you with us, Richard.
This is -- it's really a remarkable period. These unsolicited bids. Bear hugs, if you will. Some would even say forget the nomenclature, call them a hostile -- a hostile bid. What's going on?
PETERSON: Well, right now, you know, companies -- we've gone from an acquisition binge to an acquisition atrophy, that there are fewer deals in total.
But the deals that are coming about -- we've seen an increase in unsolicited, hostile deals, most notably Comcast bid for AT&T Broadband, Danaher's bid for Cooper Industries, and even the Echostar bid for Hughes Electronics.
So companies are just trying to, you know, grab some sort of probably distressed -- I wouldn't say distressed but just grab a...
DOBBS: Michael Armstrong is just having a fit right now. My cable assets are not distressed, he would say. Compared to some of his other assets, he would be correct.
The fact of the matter is that there's a lot driving corporate interest in these deals. What do you think is the primary reason?
PETERSON: Well, the hope -- the hope that earnings turn around, that, right now, with prices where they are, with earnings where they are, the expectations that perhaps in the second half 2002, there's a recovery in corporate earnings and capital spending. These targets that are being pursued now will accelerate their acquirer's bottom line.
DOBBS: And truly drive -- but that all is dependent, of course, as it is for the -- the enterprises, whether they combine or not, but dependent upon the strength of the economic recovery?
PETERSON: That's correct. Also a factor, too, is the strength of the dollar. Right now, you know, we're -- in the late '90s, there was a big binge in crossborder deals. That has dropped off significantly.
And the strong dollar may have a part of that because U.S. companies -- European operations -- and they translate those earnings into dollars. It doesn't -- it doesn't help.
DOBBS: With the level of unsolicited bids rising like this and the -- the economic environment has not changed appreciably over the past six months, Richard, do you expect that trend to continue through the remainder of the year into next? PETERSON: Well, I think, you know, unlike two years ago where we had over a trillion dollars in announced deals, we could very well see the first subtrillion-dollar volume for M&A in the U.S. this year.
That's not bad, the fact that there are more select deals, that they're more concentrated deals, more deals to maybe make sense like a Sara Lee buying Earthgrains or we've seen today with Cendant buying cheaptickets.com or -- or USA Network buying Expedia, making sound strategic decisions.
DOBBS: And maybe Danaher and Cooper could work it out finally at long last.
All right. Richard, thanks for being with us.
PETERSON: You're welcome.
DOBBS: Appreciate it.
PETERSON: Thank you.
DOBBS: Well, coming up next, stealing Hollywood movies with a stroke of a key. What's holding the film industry back from tackling that problem?
Also, we'll take a look at Universal Pictures' golden slice of pie.
Stay with us.
(COMMERCIAL BREAK)
DOBBS: Still ahead, stealing movies on line. It's becoming easier than ever.
Also, we'll be telling you about a roundup of the top 10 movies at the box office where "American Pie 2" proved the original was no one-hit wonder.
(COMMERCIAL BREAK)
DOBBS: Stealing films on line has become easier than ever, and Hollywood is very worried. With a little computer know-how, many people can access the latest box-office hits. There's also little Hollywood can do about it.
Casey Wian reports from Los Angeles.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): Chris likes to watch movies, but the college student doesn't like to pay for them. Thanks to the Internet, he doesn't have to.
CHRIS, COLLEGE STUDENT: One guy has it, then someone else gets it from him, and then it goes on and on, and so everyone has it. It's really easy.
WIAN: From copied DVDs to digital cameras snuck into theaters, stealing Hollywood movies is easier than ever. With minimal computer expertise, a download of free Napster-like file-sharing software, we accessed several movies now in theaters.
"Shrek" took a couple of hours to download, and the quality was marginal, but it didn't cost a dime. Even more embarrassing to studios, recent instances of daily footage and rough cuts of movies not even in theaters yet appearing on the Internet.
Point 360 provides digital distribution and storage services to studios.
MATT GRACZYK, POINT 360: Digital dailies is particularly vulnerable because everything happens so quickly. You film something in the morning, and you want to make it available to whomever you want to authorize to have access to it two hours later. So how can -- how can you really do that in a secure environment?
WIAN: Graczyk says security is possible with the right procedures. Still, some studios are not adopting new technology because they're afraid of security breaches. Vigilinx provides digital-security services to studios and says the biggest threat is from within.
DAVID REMNITZ, VIGILINX: They are more vulnerable in most cases to internal hacks, that is disgruntled employees, industrial espionage activities, folks who have access to internal systems that may be holding digital films, may be holding copies of digital audio, may be holding copies of scripts and contract deals. These are all areas that need to be better secured in most Hollywood studios.
WIAN: But, with escalating production budgets and pressure to cut costs elsewhere, Vigilinx says studios often view information security as a discretionary expense.
(on camera): While hackers may be a thorn in the side of studios, it's pirates who steal finished movies who remain the industry's biggest problem. Hollywood studios lose an estimated $2 1/2 billion a year to film piracy.
JEFFREY LOGSDON, GERARD KLAUER MATTISON: They need to be assured that there's a security system that at least minimizes the ability of someone to break in and take it without paying for it, but that's been somewhat elusive because whatever you can create you can uncreate.
WIAN: As technical and economic barriers to digital film distribution gradually disappear, behind the scenes, the industry's trade group is trying to find a way to protect those future profit opportunities, but studios won't discuss the efforts for fear of tipping off or challenging hackers and pirates.
As for Chris, he says he'll be watching.
CHRIS: Yeah, unless someone stops it. WIAN: Casey Wian, CNN Financial News, Los Angeles.
(END VIDEOTAPE)
DOBBS: And turning now to the weekend's box-office numbers -- that is people paying for movies -- "American Pie 2" debuted as the nation's top film, taking in more than $45 million. That is the best opening ever for an R-rated comedy.
It also pushed another sequel out of the top spot. "Rush Hour 2" slipping to second place, $31 1/2 million. Its total is almost $132 million since opening on the third of August.
Rounding out the top five: Disney's "The Princess Diaries" pulling in more than $14 million; "The Others," $13.6 million; "Planet of the Apes" still hanging in there earning more than $13 million.
As for the other top earners this weekend: "Jurassic Park III," almost $7 1/2 million, followed by "Osmosis Jones, " "America's Sweethearts," "Legally Blonde," and "Original Sin."
Coming up next, your e-mail and Ahead of the Curve. We'll be right back.
(COMMERCIAL BREAK)
DOBBS: Tomorrow, we'll have earnings from Dow components Wal- Mart and Home Depot. J.C. Penney, Abercrombie & Fitch, and Office Max also will report. Technology companies, including Applied Materials, BEA, and Network Appliance.
A broader view of how leading stores are faring. July retail sales will be reported.
And also tomorrow night here on MONEYLINE, please join us for Robert Nardelli, the president and CEO of Home Depot, to talk about what is really going on with retail and consumers.
And now turning to your thoughts.
This one from a very annoyed American aerospace engineer.
He writes, "The Bush administration brings in thousands of alien aircraft and aerospace engineering professionals under the H-1-B immigration program to replace U.S. citizens. Other countries protect their workers. We should adopt the same policy as the EU: no imported aerospace workers allowed."
Well, it is, indeed, a more difficult process for American workers to win work visas for the U.K. But the British embassy says there is no blanket statement that denies access to American aerospace workers. To obtain a work visa, a company must simply prove it's unable to find a skilled employee.
The criteria for an H-1-B visa in this country is far less strenuous. The INS says a company must prove the hiring will not affect American workers before that approval is granted.
Eddie Lin from Fairfax, Virginia, writes, "Just one week ago, we heard bearish comments regarding Intel and the chip sector from Lehman Brothers analyst Dan Niles. Today, we have bullish outlooks from Goldman Sachs about the same sector. Who should we believe?"
Well Eddie, that is a very good question. In addition to Lehman's bearish comments, Credit Suisse First Boston downgraded chip stocks last week as well. But the week before, you may remember Intel CEO Craig Barrett said he believed the computer industry had bottomed out. The best advice I can give you -- there will always be differences of opinion, and that, of course, is what makes a market.
We enjoy hearing from you. E-mail us at moneyline@cnn.com.
And that is MONEYLINE for this Monday evening. Thanks for being with us. I'm Lou Dobbs. Good night from New York.
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