Return to Transcripts main page
Lou Dobbs Moneyline
Retail Sales Stay Steady in July, Defying Economy and Economists' Predictions
Aired August 14, 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. A surprise resignation at Enron. CEO Jeff Skilling out after six months. And late-breaking deal: AllTel making an unsolicited $9 billion offer to buy CenturyTel. Let's check in now with our reporters for a look at what they are working on -- Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, it was a quiet day on Wall Street, but it got a lot more interesting after the bell. News of the Enron shake-up sending those shares sharply lower.
GREG CLARKIN, CNN CORRESPONDENT: And slightly more movement which lost for the seventh time in the last eight trading sessions.
SUSAN LISOVICZ, CNN CORRESPONDENT: Retailers are scrambling to win every tax rebate dollar they can. We'll look at which companies are winning.
UNIDENTIFIED MALE: Midway Airlines files for Chapter 11 protection, calling the downturn in business travel calamitous.
STEVE YOUNG, CNN CORRESPONDENT: Michael Armstrong is trying to spark a bidding war for AT&T broadband. But one insider tells MONEYLINE, while John Malone was interested in that asset, he has now decided to become a dropout.
DOBBS: Steve, thank you. All of that and more, coming right up on MONEYLINE.
Our top story tonight: Surprising resilience in retail sales. Economists proved wrong again. Retail sales were unchanged during July. Most economists had expected retail sales to decline. The areas of strength including general merchandise stores, bars and restaurants. Not exactly what you'd expect in a slowing economy.
Retail sales picked up in the second half of the month, just as those tax rebate checks started arriving. Those checks will continue to arrive in mailboxes all over country for the next five weeks. And retailers of course are hoping we will spend rather than save.
Wal-Mart today reported its weakest quarterly profit growth in more than five years despite the early appearance of the checks. And the world's biggest retailer warned that third quarter profits may come in at the low end of expectations. Susan Lisovicz looks at the outlook for retailers heading into the back-to-school shopping season.
(BEGIN VIDEOTAPE)
LISOVICZ (voice-over): The cash registers are ricking at this Wal-Mart in Los Angeles. And to encourage the spending: a new service, free tax rebate check cashing. But they are buying low profit margin items, such as food and consumer products.
That is one reason why the nation number one retailer, while posting double digits stales increases, posted nearly flat second quarter earnings, and trimmed its estimate for the next quarter.
Wal-Mart wrote the book on marketing value, but even Wal-Mart is having trouble changing the consumer psyche -- with or without tax refunds. RICHARD CHURCH, SALOMON SMITH BARNEY: I think it tells you a lot about the environment. I think consumers have certainly been a bit more conscious of value. They aren't spending indiscriminately. They've been more careful to just buy what they need.
LISOVICZ: So retailers are milking the possibilities with rebates. They're hoping the $38 billion in refunds will save the important back-to-school shopping season.
CHUCK CONWAY, CEO, KMART: A key program that we've had with the tax refund is that if they cash and put it into a cash card, the full check, $300, $500 we will give them an additional 5 percent. So we have seen some movement on that. And we think it's really hit well with our customers,
LISOVICZ: The government is now near the halfway point in its 10-week rebate program. A Gallup Poll expects consumers will spend only 17 percent of the rebates. But others predict the rebate will be used as a down payment on big ticket items such as household appliances or electronics.
JIM O'SULLIVAN, UBS WARBURG: It does sound like from retailers that spending picked up in the second half of the month, which seems to coincide with when the rebates started to go out. So I think it was a bit of a plus.
(END VIDEOTAPE)
LISOVICZ: If consumers are spending closer to need, than back- to-school spending should begin in earnest later this month. One study expects sales will be up no more than 2 percent and will likely be flat compared to last year. That same study says without the tax rebate back-to-school sales would be down by as much as 10 percent -- Lou.
DOBBS: Good for the tax cut. A very good idea in time.
LISOVICZ: Retailers love it.
DOBBS: Susan, thanks.
The biggest winner today on the Dow: retailer Home Depot. The world's largest home improvement retailer was a standout among all the retailers reporting profits today. Home Depot reported both double digit sales and profit growth. Joining me now from Atlanta, the CEO of Home Depot, Robert Nardelli.
Bob, good to have you with us.
ROBERT NARDELLI, CEO, HOME DEPOT: Thank you, it's great to be with you, Lou.
DOBBS: Those are impressive results by any standard. What is your secret?
NARDELLI: Well my secret is 250,000 orange blooded associates that take a great deal of pride every morning when they down their orange apron. DOBBS: You know there are a lot of fellas who would like to have those orange clad folks working for them, but even with everything you've got going for you, it is a top retail environment, is it not?
NARDELLI: Lou, it's very stubborn. In our call this morning, we reinforced that obviously. And I was listening to the program. I think some of the things that you have been talking about have really been successful for us.
One of the biggest comp areas we had was -- with conservation. We had a very, very extensive program where we reached out to our consumers and talked about while we can't change the sense per KW, we certainly could influence the consumption.
Like many of the other retailers we are offering the ability to cash your tax rebate checks and where we see most of the money going is energy conservation right now.
DOBBS: We've been following you, Wal-Mart and a number of others in the campaign for those tax rebate checks, if you will. But I have not heard how much those checks are being spent in Home Depot. Have you got a number on that?
NARDELLI: Right now, Lou, it's pretty modest. I think we're competing as you said earlier, with back to school purchases. Our goal and certainly what we're working towards is, once the children are back in school, we still have about 5 weeks left or some $30 billion that will be refunded.
We're working very hard, our associates are working very hard. We're continuing to put a lot of emphasis on energy conservation. We're really putting a lot of emphasis -- I think the consumer is becoming much more savvy and looking for those bargains. So we are trying to put products out there and merchandise that creates value for our consumers.
DOBBS: So, you have no trouble sharing those tax rebate checks with some other retailers at this point?
NARDELLI: Well, no. I think we're all in this together, aren't we?
(LAUGHTER)
DOBBS: Absolutely. In terms of what you're trying to do at Home Depot. You have talked about changing distribution, merchandising. Specifically in merchandising, Bob, what are your plans there?
NARDELLI: We just recently announced a major realignment in our merchandising organization and I had an opportunity to meet with many of our key vendors and suppliers yesterday in Chicago at the International Hardware Show.
We're putting a lot of emphasis this year and the balance of the second half on those products that will bring value to our consumers. We have many new programs that we'll be launching certainly for the labor day holiday. We are focused on conservation, focused on a portion of back-to-school. But we think we are really trying to bring value to our customers.
DOBBS: And Bob, for the rest of this quarter, the remainder of the year, give us your outlook, your best judgment?
NARDELLI: Here's what we're looking at, Lou. Obviously I think consumer confidence is on knife's edge. Unemployment is having a downward pressure on that. The flip side of course, housing starts, seasonally adjusting housing starts are still strong. We're encouraged with that. We are encouraged with the Fed rate reduction. We hope that there will be a 7th.
We hope that some of that will trickle down. Those are the metrics, that we are looking at. We basically reconfirmed consensus for the third quarter in our analyst call this morning.
DOBBS: Bob, thanks a lot. Bob Nardelli. And again, congratulation in those results.
NARDELLI: Thank you. Lou.
DOBBS: The magic number this earnings season seems to be one penny. Nearly a fifth of all the S&P 500 companies reporting their quarterly results topped Wall Street estimates -- you guessed it -- by one cent.
As Allan Chernoff reports, Wall Street's response can hinge on that penny.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A riddle: Where is a penny most valuable? Answer: Wall Street, where a penny could be worth millions. That is, a penny a share in earnings. Companies are struggling to top Wall Street's profit expectations, even by a mere one cent per share. If they deliver that extra penny it can mean millions, Tens of millions for the value of the company's stock.
LARRY LAWLER, DREYFUS: A penny better doesn't sound like a lot, but it does have an effect on a company. It is a quarter by quarter thing, so a penny there, maybe two pennies in the next quarter, whatever, can add up. CHERNOFF: Earning that extra penny isn't as easy as it used to be. Due to the sluggish economy which is clouding what companies call their visibility, the ability to see profits in the distance.
GREG GEILING, J.P. MORGANCHASE: When visibility was great, the ability to predict earnings was very easy. Visibility fell off a cliff toward the end of 2000.
CHERNOFF: The latest count shows 87 of the Fortune 500 companies earning their extra penny during the last quarter. Ninety-seven did it in the year-ago period. Fourteen companies have achieved the feat two quarters in a row, a mere three in each of the past three quarters, and only Sabre Holdings, the airline reservation company, has topped earnings by a penny a share in each of the last four quarters.
Its stock price is showing the value of beating the Street -- up 70 percent in the last year. Cisco Systems used to be the estimate- topping king of corporate profits, earning a penny more than Wall Street forecasts in 12 of 13 quarters between October 1997 and October 2000. Since then its forecast-topping profits have collapsed along with its stock price.
(END VIDEOTAPE)
CHERNOFF: Wall Street counts pennies per share in earnings the way children count pennies in a piggy bank. Every single one is important, and even a little slip-up can break the bank.
DOBBS: Companies are not only managing those earnings to the point of that penny but they're also having to manage those expectations so they can keep the margin just right.
CHERNOFF: Absolutely. They certainly don't want their investors to feel as if their piggy banks are broken.
DOBBS: OK, and a wonderful metaphor, Allan. Allan Chernoff in New York on a hazy evening.
A late day takeover bid in the telecommunications industry to tell you about. AllTel offering to buy rival CenturyTel, paying $9 billion. That's about 40 percent above CenturyTel's closing price today. Both companies provide communication services, primarily in rural areas. The combination would create a company with more than 11 million customers and revenues that would top $10 billion. AllTel said that CenturyTel rejected the same offer last week, but that it is resubmitting the proposal anyway. And what that amount to is an unsolicited bid, a bear hug, if you will, a hostile bid, if you want to talk really straight about it. AllTel going after CenturyTel.
On Wall Street today, stock prices struggled. Investors seemed to shrug off the encouraging report on retail sales. Instead, they continued to show some skepticism that corporate profits will recover any time soon. Christine Romans at the New York Exchange. Christine?
ROMANS: Lou, no surprises on Wall Street today, but a surprise after the bell. Energy giant Enron announcing that, surprisingly, its CEO Jeff Skilling is stepping down. He's only been at the helm here for about six months. He is citing personal reasons he will be leaving the company. Kenneth Lay, the chairman, will be taking over those positions. And he issued a statement tonight saying that he regrets Skilling's decision to step down from the company, but he pointed out that he's very confident about the breadth and depth of their talent pool as it stands right now.
Investors also seem to be regretting the decision by Skilling to step down. The stock is down about two points in after hours trading. We'll watch to see if that continues tomorrow. It is interesting, because during the tenure of Jeff Skilling the stock has suffered quite a bit since February. Some analysts on the Street are saying maybe because the stock has already been down so much that could cushion the blow. Others are saying perhaps because Ken Lay is seen as the senior statesman of the industry is taking over -- that could cushion the blow as well.
But at least in after-hours trading, the stock is moving lower. Also want to talk about AOL shares here today, the most actively traded issue on the big board today, and on the down side, down more than three dollars on a pretty active volume. The company not commenting on market fears and rumors it will have to take down its numbers. Morgan Stanley Dean Witter did cut some of its numbers on the company today. Lou?
DOBBS: Talking about Jeff Skilling, Christine, briefly we had up a chart there, and I'd like if we may to put that back up. The chart since it began in February, when Jeff Skilling took over from Ken Lay. As you see, the stock price off just about 50 percent. And Christine, it's very likely that that deterioration in the company that has otherwise been just miraculous in its performance over the last several years may have played a part in the decision?
ROMANS: It's interesting. On the conference call tonight, Lou, nothing but praise for Jeff Skilling from the other executives on the call. But indeed, you can see that chart does tell an interesting story.
DOBBS: Absolutely. Christine, thanks. Christine Romans, from the New York Exchange. Again, CEO Jeff Skilling unexpectedly resigning from Enron this evening.
In other deal news today, Devon Energy is buying Mitchell Energy, paying $3.5 billion. That is a premium of just about a third over yesterday's closing price for Mitchell. The deal will make Devon the number two independent U.S. gas producer behind Anadarko. Devon's CEO told MONEYLINE today that the company will continue to look for more acquisitions.
(BEGIN VIDEOTAPE) LARRY NICHOLS, CHAIRMAN & CEO, DEVON ENERGY: Going forward, we of course will continue looking at acquisitions. It's always been one of our two choices of growth. Both the drill bit and acquisitions. We've done five major acquisitions in the last five years, we certainly think that will continue next year.
(END VIDEOTAPE)
DOBBS: Shares of Devon up half a dollar today. Mitchell soared more than $14 a share. The Nasdaq today resumed its recent slide. The index now down six percent in less than two weeks, down seven of the past eight sessions. Greg Clarkin at the Nasdaq market site -- Greg.
CLARKIN: Well, I tell you, Lou, today there was really no catalyst. You may recall yesterday we also faced very quiet trading conditions and light volume. But still, Goldman Sachs was out with a real positive note on the chip stocks. That was enough of a catalyst to lift the market yesterday. Today no follow through, though. Very, very quiet trading, the Nasdaq composite down 17 points on the day. 1964 is the level. And we checked in to see how those chip stocks were selling, saw a nice pop yesterday, fair today.
Seven of the eight stocks that Goldman upgraded yesterday fell today, and you can see some of the damage there. Intel, Conexant, Broadcom and Maxim all down on the day. Now also, the Internet stocks had a rocky day today. The Goldman Sachs Internet Index was down better than two percent. Yahoo!, Inktomi, Earthlink and CMGI among the losers there. And take a look at the GIIN, the Goldman Sachs Internet Index. Over the last six weeks or so, it is down about 25 percent. So the Philadelphia Semiconductor Index getting all the attention, but very quietly we're seeing those Internet stocks really, really take a slide recently, Lou, and today they kept up that trend.
DOBBS: Greg, thanks. Greg Clarkin.
Shares of Liberty Media gaining slightly in after-hours trading, after the former AT&T unit posted its first quarterly report as an independent company. The firm, which has stakes in more than 100 cable channels, is led by former TCI Chairman John Malone, who now owns a majority of its stock. Steve Young has the report on the man behind the company.
(BEGIN VIDEOTAPE)
YOUNG (voice-over): Now that he's made his final break with AT&T, what's John Malone, the man who controls Liberty Media, up to next?
Leo Hindery, the man who served as TCI's CEO for about three years before Malone sold the cable company to AT&T, says it's not easy figuring out the next move of a man with a multi-dimensional intellect.
LEO HINDERY, FORMER TCI CEO: I think he's one of the few individuals whose IQ starts with 3. YOUNG: There's been a lot of speculation that Malone, alone, or in league with others, might try to regain the broadband assets he sold to AT&T CEO Mike Armstrong. The man who knows Malone as well as any says that's dead wrong.
HINDERY: John will not be involved in that. On the record, John has no interest in such a pursuit. I'm not going to suggest that perhaps he didn't think about it.
YOUNG: Malone prides himself on being a champion creator of shareholder wealth, though he has made a few embarrassing investments, like priceline.com.
WILLIAM SHATNER, ACTOR: Then I went to priceline.com.
YOUNG: Analysts say Malone wants to enhance the value of Liberty Media's rich programming portfolio. He holds about a 14 percent chunk of the equity and controls the voting shares. He's been buying up European cable systems, and could become the biggest cable operator not just in Germany, but throughout Europe.
EDWARD HATCH, SG COWEN: We believe the focus on cable in Europe is the fact that it's still relatively undeveloped compared to the United States. In fact, most companies you talk to here, whether it's Viacom or AOL- Time Warner, are really looking to Europe as the next area of future growth.
YOUNG: Whatever he does, Malone has amazing leverage. Liberty has just 40 employees and assets valued at about $50 billion.
(END VIDEOTAPE)
DOBBS: How many employees?
YOUNG: 40.
DOBBS: And 50 billion. That makes Teddy Forstmann look like a spendthrift, by comparison.
YOUNG: I think so.
DOBBS: I don't know anyone who manages more assets with fewer people. All right, Steve, thanks. Steve Young.
Coming up on next here, fires continue to spread out of control throughout the western states. We'll have the latest for you. And major trouble for Midway Airlines, courtesy of corporate America. We'll be telling you about that as they move into bankruptcy. Also, a massive severance package for Lucent's former CEO Richard McGinn, despite the company's horrendous performance. We'll take closer look tonight at executive pay and performance. And Coca-Cola taking on PepsiCo's Gatorade. Coke has a revamped Powerade. All that and more, next on MONEYLINE.
(COMMERCIAL BREAK) DOBBS: Dozens of wildfires continue raging in the Western states. More than 17,000 firefighters are battling blazes tonight in eight states. Those fires have consumed more than 300,000 acres of parched land. The biggest concern now is a blaze raging in Oregon. It has been dubbed the "quartz fire." It has already destroyed two homes and threatens to burn 20,000 more acres if not contained. That fire alone has already cost as much as $4 million.
A little farther west, a new record in the skies over Hawaii, the solar-powered flying wing Helios soaring more than 96,000 feet. That's just shy of the 100,000 feet NASA has been shooting for. In fact, it's 4,000 feet short of the 100,000 that they had been shooting for. The Helios, built by AeroVironment, weighs less than a car, but it boasts a wingspan bigger than 747. NASA is hoping that the wing will one day fly the skies above the planet Mars.
High above the planet Earth, Steve Fossett's moving in on a record of his own. The Chicago millionaire is nearly halfway to his goal of circling the world in a balloon, solo. He'd be the first man to do it. But the trip has not been an easy one, and Fossett today had to climb out of his balloon to fix a leaky gas line, a leaky gas line that threatened to leave him without heat or power 25,000 feet above the earth.
Well, the skies in this country are more and more looking like a no-fly zone for business travelers, corporate America cutting back because of the slowing economy. Bad news for the likes of Midway Airlines, today filing for bankruptcy, slashing jobs and reducing its flights.
Tim O'Brien has the report.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): U.S. Airways says it will fly you all the way from Washington, D.C. to Munich, Germany this fall for only $179 each way, or to Paris, also $179. But on the airline's Web site, an unadvertised special: A one-way ticket from Washington to Atlanta, Georgia, $636.25. For the price of a one-way ticket to Atlanta tonight, you could fly round-trip to Paris later with a couple of hundred dollars left over.
High prices are routine for business travelers who often must travel at the last minute and who seemed much less concerned about price than leisure travelers, until now.
MARIANNE MCINERNEY, NATIONAL BUSINESS TRAVEL ASSOCIATION: Business travel has declined at a rapid rate, and this has been a cry that the corporations have been screaming for a long time, that rates were too high.
O'BRIEN: But today, they're doing much more than just scream. In a recent survey, more than three-fourths of U.S. companies responding said they were eliminating all but essential travel. More than three-fourths are also booking the lower-price advance fair tickets, many on discount airlines, all contributing to make this what is likely to be the worst year ever for the big domestic airlines, which by some estimates will lose as much as $2.5 billion by year's end.
RAYMOND NEIDL, ABN-AMRO: The airlines are dependent on the business traveler, they are dependent upon the full-fare traveler. Without them, the system doesn't work.
O'BRIEN: To win back those precious full-fare passengers, United and American Airlines earlier this month cut fares to many of its larger markets and dropped the Saturday night stay requirement for the cheaper fares. Other airlines may follow suit.
(END VIDEOTAPE)
O'BRIEN: But some airlines are also cutting flights to some markets and discontinuing other routes altogether. (UNINTELLIGIBLE) measures, Lou, until the economy recovers.
DOBBS: Tim, thank you very much. Tim O'Brien, reporting from Washington.
Lucent among the growing list of companies sending off their top executives with outrageous severance packages, while their firms are barely making ends meet. Kitty Pilgrim has the report.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Ever wonder if the guy in the corner office is getting away with murder when it comes to pay? The answer is yes. Sure, on average, the numbers look reasonable. The average CEO got a 10 percent raise last year, 13 percent including stock options and bonuses, while corporate profits rose 9 percent and the average Joe employee got a 4.2 percent raise.
But it's the exceptions that are the stunners, especially exit packages for CEOs.
JOSEPH BACHELDER, EXECUTIVE COMPENSATION ATTORNEY: I think in some instances, there have been some large severance packages that have raised eyebrows, and there are cases where shareholders are quite upset with those payouts.
PILGRIM: Take, for example, Richard McGinn's $12.5 billion (sic) severance package from Lucent, or Lucent CFO Deborah Hopkins' $4.7 million buyout after a year on the job. Lucent's stock dropped 84 percent last year.
Honeywell's Michael Bonsignore's exit severance -- $9 million. And former Mattel head Jill Barad with nearly 40 million in compensation.
KENNETH BERTSCH, TIAA-CREF: What they're saying is that there is a substantial reward for failure, so it undermines paper performance.
PILGRIM: Steve Jobs became the poster child for sky-high compensation packages. Apple's stock is down some 60 percent in the last year, yet by one calculation he earned $381 million, with a $90 million Gulfstream jet thrown in.
Some say boards are getting smarter.
PETER OPPERMANN, WILLIAM M. MERCER: The shift we're seeing -- we've seen January, February, March -- is instead of granting only options, granting options with some sort of a retention, that is restricted stock, and some sort of a focus on long-term company performance outside of stock price.
(END VIDEOTAPE)
PILGRIM: Now, the good news is that stock options and other restricted stock incentives are increasingly gaining ground over straight salary, so that a CEO gets some 65 percent of his compensation in some kind of stock, compared with 55 percent five years ago, so performance will eventually count, even in the corner office -- Lou.
DOBBS: Except for those exception, where -- I mean, as you just outlined, I mean, that's -- in the case of at least three of those CEOs -- I mean they led disaster.
PILGRIM: That's exactly right. But you know, when you look at the averages, it's pretty astonishing. Telecom CEO pay up 105 percent this year, fairly...
DOBBS: Well, they've had a great year.
(CROSSTALK)
DOBBS: Kitty, thanks a lot.
And we're going to stay on this topic until just everybody gets annoyed with us I suspect on Wall Street and around corporate America, but here we go.
Coming up in the next half-hour of MONEYLINE: Coca-Cola and the billion-dollar sports drink. We'll have a report for you on how Coke is trying to grab a bigger share of the sports drink market, which Pepsico basically owns outright. And the markets, brushing off the better-than-expected report on consumer spending -- we'll talk with one economist who says the Fed probably doesn't care either.
(COMMERCIAL BREAK)
DOBBS: On Wall Street today, stocks barely moved, though retail stocks did remain strong on the back of earnings news. Most of the buying in technology shares, however, evaporating by the end of the session, the Nasdaq and Dow almost unchanged -- the Dow finishing down 4 points in a day of light trading. Market breadth positive, advancers beating decliners by a five-to-three margin.
Among the most active on the Big Board today: Wal-Mart, which closed up 16 cents, finishing at $52.36, the Dow component posting in line with second quarter earnings estimates, warning, however, that third quarter results could come in at the low end of forecasts. Home Depot, as we said, another Dow component, up $1.20, the company reporting second quarter earnings that just beat the dickens out of Wall Street. Merrill lynch also raising its earnings estimates for Home Depot by five cents a share for the remainder of this year and 2002.
Mitchell Energy and Development up $14.18, Devon Energy buying the natural gas developer, paying $3.5 billion, including debt. Devon Energy gaining 50 cents today.
On the Nasdaq, stocks giving up earlier gains, a day of thin trading, one of the lightest trading days, in fact, of the year. The Nasdaq down almost 18 points, market breadth, as you might guess, was negative, decliners beating advancers but by only a narrow margin.
Nearly all of the margins on Wall Street these days are narrow, and taking a look at some of the most active today on the Nasdaq: Dell Computer down 45 cents, shares hit by several downgrades because of the softening PC market. Ericsson gained 20 cents. ABN-AMRO upgraded the stock, and that sent their stock skyrocketing 20 cents. Also expecting a pick-up in demand for wireless communications equipment by late next year.
Network Associates up $1.12, the company late yesterday pricing $300 million of convertible bonds, those are now convertible into shares at $18.07 a piece.
Taking a look now at what investors and traders might expect tomorrow on Wall Street, Christine Romans at the New York Exchange -- Christine.
ROMANS: Lou, first the good news. Volume today was better than it was yesterday, better than it was the same day a year ago. The bad news, though, well, seasonally, times are tough on Fridays and Mondays for volume -- you get all your trade really Tuesday, Wednesday and Thursday. And this could continue, if you look at history as a guide, until maybe after September.
So, let's take a look at what we're expecting tomorrow at any rate. June business inventories, July investor output, also July capacity utilization. Folks will be keying in on this to see if it has any kind of implications for the Fed, when the Fed meets August 21. Also, if it has any implications for any revisions to gross domestic product.
Also, Wednesday on Wall Street we'll see quite a few earnings again, most of them retailers: Ann Taylor, Federated, Payless Shoes stores, but also the big truck maker, Navistar International. We'll watch for all of those, see if they can give any kind of -- oh, any kind of guidance for those groups in particular. But overall, Lou, it is expected to still remain quiet tomorrow.
DOBBS: So, just as you forecast last night, Wall Street picked up, the New York Exchange just bustling with activity today, Christine, is that right?
ROMANS: Well, I wouldn't say bustling, but definitely better than yesterday. I think you owe me $2.
DOBBS: I think that is absolutely correct. Christine, thanks.
For a look at what's facing technology investors tomorrow, Greg Clarkin at the Nasdaq marketsite -- Greg.
CLARKIN: Hi there, Lou. I'll tell you, there is a couple of earning reports on tap for later this week: Dell Computer, Sienna will be out with numbers. But in speaking to traders, here's really what they are saying about characterizing the summer. They said at this point, you know, they have written the summer off. There are only two weeks left in the unofficial end of summer, Labor Day, but still at this point they're saying they don't expect to see any kind of business done before then.
Some folks are expressing some third quarter jitters as well. They are all hoping all this trend is doing is maybe building a bottom for the Nasdaq. It's trading now in the 1,960s or so, so they hate to see it stay there, but still if it just hangs there, they say that's a plus rather than giving back anymore.
Now, volume, as Christine said, has just evaporated. Take a look at these volume figure for the Nasdaq. As you go back to January, it was averaging 2.3 billion shares a day. In May, following the April bottoming, we say it down to 1.8. Fast forward to July: 1.5. August, 1.4 billion, so just a general really kind of indifference to technology shares. That's a trend you always see in the summer, but really it has accelerated greatly this summer, as folks have just turned their backs on technology stocks, Lou.
DOBBS: And that takes some courage, the way those technology stocks are behaving, doesn't it, Greg?
CLARKIN: Lou, it's -- you know, as one trader said, I'm not too worried about coming back after Labor Day, we're going to find these things probably somewhere hanging around where I left them.
DOBBS: OK, Greg Clarkin, thanks.
Words of caution from the International Monetary Fund pushed the dollar lower for the fifth straight day against both the euro and the yen, the IMF warning the currency may be at risk for a sharp depreciation. As the dollar slides, there are signs that consumer spending is holding up, with today's better-than-expected July retail sales. Diane Swonk joins us now from Chicago.
Diane, good to have you with us.
DIANE SWONK, CHIEF ECONOMIST, BANK ONE: Good to be here.
DOBBS: The IMF, they're a happy bunch of creatures, talking about the idea that the dollar could move into a sharp, swift depreciation. What do you think?
Well, it certainly could. Timing it is a sucker's game. This is a market that's 80 percent speculative. We all know the dollar has been overvalued for a long time -- five days, however, does not a trend make, and the U.S. is still the best game in town if you look around the world these days. We're still looking a little better as an investment place to park your dollars than other countries, especially with scares in Argentina and Turkey.
So, I don't think it's going to happen overnight, but over the next several years. Will it happen? Sure.
DOBBS: Are you familiar with the Dresdner report that came out about a week ago, just before the productivity revision, when Dresdner, in my personal opinion, took an irresponsible position suggesting that we could see markets plummet, forecasting that we'll see productivity revisions much, much smaller. Are you familiar with that report from Dresdner?
SWONK: I didn't see the report, no, Lou.
DOBBS: And in fact, of course, productivity held up, and Dresdner hasn't -- wanted to comment on this since then. But productivity holding up and driving the dollar here -- as long as that occurs, Diane, won't the dollar do pretty well?
SWONK: Like I said, we are exactly right, Lou. We're the best game in town for the moment. And I think, you know, this concept -- the real fear is that, you know, we will get to a point where the dollar has held up for so long, everyone thinks it won't fall. And yes, it will eventually fall, and history tell us that it will fall probably pretty sharply when it does.
Do I think it is going to happen tomorrow or even in the next six months in a very sharp way? No, I don't. I don't think the world's economic conditions are poised for it. But I do think over the next couple of years, in a couple of years, maybe we could see a very sharp depreciation, and that certainly is a clear risk.
DOBBS: So, we should all hold our breath then, until that occurs?
SWONK: No, don't hold your breath.
DOBBS: Should we be holding our breath, Diane, in terms of the Fed and what they're going to do on the 21?
SWONK: No, I think it's pretty much a done deal. The Fed is going to eke out -- I use my words very carefully there -- eke out another quarter point in August.
I think this will be their last move. We have already seen dissenters grow among the ranks of the OMC, and those dissenters I believe will still be there, dissenting, or at least arguing their way through that meeting on August 21, but the bottom line is, Greenspan will prevail, and we'll see another quarter-point drop.
But I think we're getting close to the end of easing. There are many in OMC -- it's come out in the OMC notes -- that would like to say it's given to a wait-and-see stance. Watch what they've done. They really have not had time to see what they've done yet, and it's about time to do that at this stage of the game.
DOBBS: Diane, I just want to share with our viewers your comments on a report that we did on the Kellogg Business School and the problems they were having in this economic slowdown placing their students. If we could see that videotape, please.
(BEGIN VIDEO CLIP)
SWONK: Certainly, when I graduated from my masters -- not my MBA but when I got my masters -- I was willing to wait tables and do all kinds of things.
(END VIDEO CLIP)
DOBBS: The reaction to that comment by Diane from a number of viewers at the Kellogg Business School was, how dare you suggest that we would wait tables with our -- there's one of the young people who wrote in, saying he was "quite disappointed to suggest that students in one of the top MBA programs in the world should wait tables if recruiting is tough," that kind of outrage.
But what happened to that, as a result of that, Diane, you should know, is we just received tremendous support for you and your views on that, and in fact, from a number of MBA students who said you're absolutely right, and that's precisely what they are planning do.
So, Diane, thanks for sharing the wisdom with both us and those MBA students and thanks for being with us tonight.
SWONK: Well, you know, I went through that experience myself in a much worse economy than we see today, and I guess -- I didn't mean to be insensitive, but gosh, I've seen much worse times than this.
DOBBS: Straight talk is seldom insensitive. Diane, thanks a lot. Diane Swonk.
Well, topping -- if we could turn to back to the market, topping tonight's "MONEYLINE Movers": Deere falling more than $1 a share, that after reporting a 58 percent decline in its third quarter earnings. Deere cited the economic slowdown and low farm commodity prices. Deere is also warning of a fourth quarter loss now.
Best Buy, up nearly $3 a share, the consumer electronics retailer buying Canada's Future Shop, paying almost $400 million in cash. best is buy also saying it will meet or beat its second quarter and full- year targets.
Barnes & Noble's surging more than $4 a share, the largest bookseller in the nation reporting a rise in sales at its super stores, boosted in part by those strong video sales. Analysts were expecting a disappointing follow-up to last year's huge success with "Harry Potter." Shares of Barnes & Noble enjoying quite a run this year. In fact, Barnes & Noble has gained 116 percent, just off their 52-week high today.
In other corporate news, Citigroup slashing another 3,500 jobs, that on top of 1,200 layoffs announced earlier this year, totaling just one percent of its work force. The world's largest financial company citing bleak market conditions. U.S. Steel Group closing the majority of its operations at a plant outside Philadelphia, blaming rising steel imports.
As a result, the number one steelmaker cutting up to 700 jobs, taking a second-half charge that could reach $45 million. More troubles for Bayer. Just one week after Bayer pulled its cholesterol drug from the market, lawyers are slapping Bayer with a class-action lawsuit. Attorneys filing the lawsuit on behalf of the 6 million patients prescribed Baycol, which has been linked to 52 deaths.
Coming up on MONEYLINE, the battle of the bottle. Sports drinks go mano a mano. And the man staging the turnaround at UBS, despite a difficult world economy.
(COMMERCIAL BREAK)
DOBBS: In tonight's "Sectors," financial Swiss Bank UBS beating Wall Street's second quarter forecast despite a 33 percent decline in profits.
Last Year UBS buying brokerage PaineWebber, paying $12 billion, sizable increasing its U.S. presence, buying Warburg as well. And here to discuss his company's latest results and the outlook for the economy, Luqman Arnold, who is president of the executive board, the head man of UBS. Good to have you with us.
LUQMAN ARNOLD, UBS: Great to be here.
DOBBS: Some people might scratch their head as I say you have that kind of decline in profits, and I would say congratulations on the results. But congratulations on those results. You beat Wall Street expectations in a very difficult market environment. How did you do it?
ARNOLD: The most important thing was the very stable top-line revenue performance which came from high levels of asset-based fees, good commission income. And I think the other thing we really liked about the results this quarter, all the businesses managed to win market share.
We saw investment banking gains, we increased our market share in the states 50 percent and net new money, $14 billions bringing the year to date total to $27 billion. That was very positive.
DOBBS: I won't mention any other institutions who are struggling with their acquisitions, but absorbing Warburg, absorbing PaineWebber and to still bring these results forward, what was the secret to your success in managing those acquisitions?
ARNOLD: We have a very open culture. We like to learn from our new parts in. PaineWebber has been just terrific. They delivered everything they've promised on the wealth management. They are going to help with our private bank, hopefully not just be the biggest but be the best. And they've really helped us on the investment banking side. I think we work well with our new partners.
DOBBS: And now that you have surprised Wall Street and delighted Wall Street, if you will, with these results, can you reassure Wall Street going forward through the next quarter and the end of the year?
ARNOLD: That is a bit tough. We about as much fog on the other side of the Atlantic as you have here and we are all relying on the American consumer to get us through this. I think what we are doing is, we are going to be disciplined but there's also opportunities. And we're going to keep investing strategically where we see opportunities: investment banking, wealth management, great opportunities for us.
DOBBS: Final question: With your perspective running Switzerland's largest bank, one of the world's largest institutions, give us your judgment about where the world economy goes from here.
ARNOLD: That's a tough one. I think, as I said, the American consumer really is the lynch pin to the whole situation, and the strategists are perhaps more optimistic than the consumers and I just hope the consumers can keep their confidence up here.
DOBBS: Luqman Arnold, again, congratulations. Thanks for being with us.
ARNOLD: Thank you very much.
Coming up next on MONEYLINE, we will tell you about the underdog in the sports drink arena -- the underdog is none other than Coca- Cola. Powerade taking on market leader, the dominator, Gatorade. That story when MONEYLINE continues.
(COMMERCIAL BREAK)
DOBBS: Still ahead here on MONEYLINE, Coca-Cola's latest push for Power Aid, and we will be looking at your comments. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Welcome back. Coca-Cola hopes a revamped Powerade will prove a more challenging competitor for Pepsico's Gatorade which dominates the market. Sport drink sales are currently dominated by Gatorade, commanding almost 82 percent of the $2 billion market. But Coke hopes the new Powerade formula, packed with vitamins, will differentiate it from Gatorade as well as attract a wider market.
Peter Viles with the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): You have to give the folks at Coca-Cola points for at least trying -- full frontal body painting, basketball on unicycles, guys who pull tractor-trailer trucks. They even borrowed two of the guys from ESPN "Sports Center."
"SPORTS CENTER" HOST: Yeah, yeah! VILES: So as New York publicity stunts go, this one had something for everyone. It had a lot of things that probably aren't for anyone, but one thing it did not have was a scoreboard, and you can probably guess why not. Because the big board would show that after eight years of play, Gatorade has 78 percent of the sports drink market, Powerade just 15 percent.
The Powerade comeback is in the hands of 29-year-old Rohan Oza, a rising star at Coke, who studied MTV for hints on giving Powerade a hipper and edgier image. New ads portray it as the drink of choice for people who like to stand in front of cannons and break things, outfield fences, backboards, bottles, whatever.
ROHAN OZA, SENIOR BRAND MANAGER, POWERADE: The new advertising that you'll see later on is very creative, it's very exciting, it's very engaging. So when you start doing things differently, and you act like a challenger, it gives you a chance to start taking on your competition.
VILES: The competition is now safely in the corporate clutches of Pepsico, and is showing no signs of weakness.
JOHN SICHER, EDITOR & PUBLISHER, "BEVERAGE DIGEST": Gatorade is a very, very tough competitor. Powerade, if it has a chance to grow strongly, it needed to sort of step a little bit aside and change its strategic positioning. Coke is doing that. It's a smart move.
VILES: Smart but risky, just like this publicity stunt. This was supposed to be a Powerade-fueled race. The guy on your right gets off to a decent start, but watch the guy on the left, his Powerade is just not kicking in. He never did get that truck to move.
Peter Viles, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Up next, we'll take a look at your e-mails and "Ahead of Curve."
(COMMERCIAL BREAK)
DOBBS: Tomorrow, Federated Department Stores and Ann Taylor will report their earnings, as well as Brocade Communications. We'll also have a report on the manufacturing sector, industrial production and capacity utilization for the month of July. And Barton Biggs, the chairman of Morgan Stanley Investment Management, will join us here on MONEYLINE tomorrow night. And we hope you will as well. And now your comments.
Steve Webb writes in, "I have watched one third of my portfolio wither away during the last eighteen months. How much more has to go down the tubes before we can call what's happening in the market a recession?"
Steve, you certainly, as you know, are not alone. If you look at the Wilshire 5000 Index, investors have lost more than $4 trillion since the index hit its all-time high about a year and a half ago. However, the term recession is for economies, not markets, and it's defined as two consecutive quarters of decline in Gross Domestic Product. So far, the economy is continuing to grow. Barely, but continuing to grow. But when you lose a third of your portfolio, I believe you have the right to call it whatever you want to.
And Robert Moore from Jamestown, New York, has an interesting theory. He writes, "If everyone thinks the projected third quarter losses are already reflected in stock prices, doesn't that mean they aren't?" Well, you're exactly right, Bob. If everyone is a contrarian, then certainly no one is. Please send us your comments at moneyline@cnn.com.
And for tonight, that is MONEYLINE. We thank you for being with us. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" coming up next.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
